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JEF 2015 10-K

Jefferies Group LLC (JEF) SEC Annual Report (10-K) for 2015

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Table of Contents


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-K

ý

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

For the fiscal year ended November 30, 2015

OR

¨

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 1-14947

JEFFERIES GROUP LLC

(Exact name of registrant as specified in its charter)

Delaware

95-4719745

(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) 284-2550

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

Name of each exchange on which registered:

5.125% Senior Notes Due 2023

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: Limited Liability Company Interests

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   ý     No   ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes   ¨     No   ý

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   ý     No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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   ý     No   ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 232.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

o

Accelerated filer

o

Non-accelerated filer

ý

Smaller Reporting company

o

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

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter. $0 as of May 31, 2015.

The Registrant is a wholly-owned subsidiary of Leucadia National Corporation and meets the conditions set forth in General Instructions I(1)(a) and (b) of Form 10-K and is therefore filing this Form 10-K with a reduced disclosure format as permitted by Instruction I(2).


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JEFFERIES GROUP LLC

INDEX TO QUARTERLY REPORT ON FORM 10-K

November 30, 2015

PART I.

Item 1. Business

3

Item 1A. Risk Factors

7

Item 1B. Unresolved Staff Comments

11

Item 2. Properties

11

Item 3. Legal Proceedings

12

Item 4. Mine Safety Disclosures

12

PART II. FINANCIAL INFORMATION

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases Equity Securities

13

Item 6. Selected Financial Data

13

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

13

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

49

Item 8. Financial Statements and Supplementary Data

Index to Consolidated Financial Statements

50

Management's Report on Internal Control Over Financial Reporting

51

Report of Independent Registered Public Accounting Firm

52

Consolidated Statements of Financial Condition

54

Consolidated Statements of Earnings

55

Consolidated Statements of Comprehensive Income

56

Consolidated Statements of Changes in Equity

57

Consolidated Statements of Cash Flows

58

Notes to Consolidated Financial Statements

60

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

134

Item 9A. Controls and Procedures

134

Item 9B. Other Information

134

PART III. OTHER INFORMATION

Item 10. Directors, Executive Officers and Corporate Governance

135

Item 11. Executive Compensation

135

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

135

Item 13. Certain Relationships and Related Transactions, and Director Independence

135

Item 14. Principal Accountant Fees and Services

135


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PART IV. EXHIBTS AND SIGNATURES

Item 15. Exhibits and Financial Statement Schedules

136

Signatures

138


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PART I

Item 1.

Business.

Introduction

Jefferies Group LLC and its subsidiaries operate as a global full service, integrated securities and investment banking firm. Our largest operating subsidiary, Jefferies LLC ("Jefferies"), was founded in the U.S. in 1962 and our first international operating subsidiary, Jefferies International Limited ("Jefferies Europe"), was established in the U.K. in 1986. On March 1, 2013, we converted into a limited liability company (renamed Jefferies Group LLC) and became an indirect wholly owned subsidiary of Leucadia National Corporation ("Leucadia") (referred to herein as the "Leucadia Transaction"). Richard Handler, our Chief Executive Officer and Chairman, is Leucadia's Chief Executive Officer and Brian P. Friedman, our Chairman of the Executive Committee, is Leucadia's President. Messrs. Handler and Friedman are also Leucadia Directors. We are an SEC reporting company and retain a credit rating separate from Leucadia.

At November 30, 2015 , we had approximately 3,550 employees in the Americas, Europe, Asia and the Middle East. Our global headquarters and executive offices are located at 520 Madison Avenue, New York, New York 10022. We also have regional headquarters in London and Hong Kong. Our primary telephone number is (212) 284-2550 and our Internet address is jefferies.com.

The following documents and reports are available on our public website:

Earnings Releases and Other Public Announcements

Annual and interim reports on Form 10-K;

Quarterly reports on Form 10-Q;

Current reports on Form 8-K;

Code of Ethics;

Reportable waivers, if any, from our Code of Ethics by our executive officers;

Board of Directors Corporate Governance Guidelines;

Charter of the Corporate Governance and Nominating Committee of the Board of Directors;

Charter of the Compensation Committee of the Board of Directors;

Charter of the Audit Committee of the Board of Directors; and

Any amendments to the above-mentioned documents and reports.

We expect to use our website as our main form of communication of significant news. We encourage you to visit our website for additional information. In addition, you may also obtain a printed copy of any of the above documents or reports by sending a request to Investor Relations, Jefferies Group LLC, 520 Madison Avenue, New York, NY 10022, by calling 203-708-5975 or by sending an email to [email protected]

Business Segments

We currently operate in two business segments, Capital Markets and Asset Management. Our Capital Markets reportable segment, which principally represents our entire business, consists of our securities trading and investment banking activities. The Capital Markets reportable segment provides the sales, trading and/or origination and execution effort for various equity, fixed income, futures, foreign exchange and advisory products and services. The Asset Management segment includes asset management activities and related services.


Financial information regarding our reportable business segments at November 30, 2015 ,  November 30, 2014 and November 30, 2013 is set forth in Note 22, Segment Reporting , in this Annual Report on Form 10-K.

Our Businesses

Capital Markets


Our Capital Markets segment focuses on Equities, Fixed Income and Investment Banking. We primarily serve institutional investors, corporations and government entities.



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Equities

Equities Research, Sales and Trading


We provide our clients full-service equities research, sales and trading capabilities across global securities markets. We earn commissions or spread revenue by executing, settling and clearing transactions for clients across these markets in equity and equity-related products, including common stock, American depository receipts, global depository receipts, exchange traded funds, exchange-traded and over-the-counter ("OTC") equity derivatives, convertible and other equity-linked products and closed-end funds. Our equity research, sales and trading efforts are organized across three geographical regions: the Americas; Europe, the Middle East and Africa ("EMEA"); and Asia Pacific. Our main product lines within the regions are cash equities, electronic trading, derivatives and convertibles. 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 2,000 companies around the world and a further nearly 700 companies are covered by eight leading local firms in Asia Pacific with whom 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, 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 with 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 provide our clients directly 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 Sales and Trading


We provide our clients with sales and trading of investment grade corporate bonds, U.S. and European government and agency securities, municipal bonds, mortgage- and asset-backed securities, leveraged loans, high yield and distressed securities, emerging markets debt and derivative products. Jefferies 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 and trades a broad spectrum of other European government bonds. Additionally, through the use of repurchase agreements, we act as an intermediary between borrowers and lenders of short-term funds and obtain funding for various of our inventory positions. We trade and make markets globally in cleared and uncleared swaps and forwards referencing, among other things, interest rates, investment grade and non-investment grade corporate credits, credit indexes and asset-backed security indexes.


Our strategists and economists provide ongoing commentary and analysis of the global fixed income markets. In addition, our fixed income desk analysts provide ideas and analysis across a variety of fixed income products.


Futures and Foreign Exchange


In April 2015 we entered into a definitive agreement to transfer most of our futures activities to Société Générale S.A. That transaction closed in the second quarter of 2015. As of the end of 2015, our futures business consists solely of executing certain customer and proprietary futures orders.


We also offer trade execution in foreign exchange spot, forward, swap and option contracts across major currencies.



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Investment Banking


We provide our clients around the world with a full range of equity capital markets, debt capital markets and financial advisory services. Our services are enhanced by our industry sector expertise, our global distribution capabilities and our senior level commitment to our clients.


Approximately 750 investment banking professionals operate in the Americas, Europe and Asia, and are organized into industry, product and geographic coverage groups. Our sector coverage groups include Consumer & Retailing; Financial Institutions; Industrials; Healthcare; Energy; Real Estate, Gaming & Lodging; Media & Telecommunications; Technology; Financial Sponsors and State & Local Governments. Our product coverage groups include equity capital markets; debt capital markets; financial advisory, which includes both mergers and acquisitions and restructuring and recapitalization and U.K. corporate broking. Our geographic coverage groups include coverage teams based in major cities in the United States, Canada, Brazil, United Kingdom, France, Germany, Sweden, India, United Arab Emirates, China and Singapore.


Equity Capital Markets


We provide a broad range of equity financing capabilities to companies and financial sponsors. These capabilities include private equity placements, initial public offerings, follow-on offerings, block trades and equity-linked convertible securities transactions.


Debt Capital Markets


We provide a wide range of debt financing capabilities for companies, financial sponsors and government entities. We focus on structuring, underwriting and distributing public and private debt, including investment grade and non-investment grade corporate debt, leveraged loans, mortgage and other asset-backed securities, and liability management solutions.


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 sellers and buyers on corporate sales and divestitures, acquisitions, mergers, tender offers, spinoffs, joint ventures, strategic alliances and takeover and proxy fight defense. We also provide a broad range of acquisition financing capabilities to assist our clients. In the restructuring and recapitalization area, we provide to 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.

Asset Management


We provide investment management services to pension funds, insurance companies and other institutional investors. Our primary asset management programs are strategic investment, special situation and global macro strategies. We partner with Leucadia's asset management business in providing asset management services.


Our strategic investment programs are systematic, multi-strategy, multi-asset class programs with the objective of generating a steady stream of absolute returns irrespective of the direction of major market indices or phase of the economic cycle. These strategies are provided through both long-short equity private funds and separately managed accounts. Our special situation programs consist of managed account and hedge fund offerings that employ event driven strategies evaluating corporate events, including mergers and restructuring for investment opportunities.


Our global macro programs consist of managed account and hedge fund offerings and are designed to profit from deep-rooted global macroeconomic trends.


Leucadia has made investments in certain managed accounts and funds managed by these programs and, accordingly, a portion of the net results are allocated to Leucadia.


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 firms listed in the AMEX Securities Broker/Dealer Index, other brokers and dealers, 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


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our professionals, the depth of our relationships, the breadth of our service offerings, our ability to deliver consistently our integrated capabilities, and our tenacity and commitment to serve our clients.

Regulation

Regulation in the United States. The financial services industry in which we operate is subject to extensive regulation. In the U.S., the Securities and Exchange Commission ("SEC") is the federal agency responsible for the administration of federal securities laws, and the Commodity Futures Trading Commission ("CFTC") is the federal agency responsible for the administration of laws relating to commodity interests (including futures and swaps). In addition, self-regulatory organizations, principally Financial Industry Regulatory Authority ("FINRA") and the National Futures Association ("NFA"), are actively involved in the regulation of financial services businesses. The SEC, CFTC and self-regulatory organizations conduct periodic examinations of broker-dealers, investment advisers, futures commission merchants ("FCMs") and swap dealers. The applicable self-regulatory authority for Jefferies' activities as a broker-dealer is FINRA, and the applicable self-regulatory authority for Jefferies' FCM activities is the National Futures Association ("NFA"). Financial services businesses are also subject to regulation by state securities commissions and attorneys general in those states in which they do business.


Broker-dealers are subject to SEC and FINRA regulations that cover all aspects of the securities business, including sales and trading methods, trade practices among broker-dealers, use and safekeeping of customers' funds and securities, capital structure of securities firms, anti-money laundering efforts, recordkeeping and the conduct of directors, officers and employees. Registered advisors are subject to, among other requirements, SEC regulations concerning marketing, transactions with affiliates, disclosure to clients, and recordkeeping; and 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 commodities, futures or swap transactions are subject to regulation by the CFTC and the NFA. Additional legislation, changes in rules promulgated by the SEC, CFTC and self-regulatory organizations, or changes in the interpretation or enforcement of existing laws and rules may directly affect the operations and profitability of broker-dealers, investment advisers, FCMs and swap dealers. The SEC, the CFTC and self-regulatory organizations, state securities commissions and state attorneys general may conduct administrative proceedings or initiate civil litigation that can result in censure, fine, suspension, expulsion of a firm, its officers or employees, or revocation of a firm's licenses.


Net Capital Requirements. U.S. registered broker-dealers are subject to the SEC's Uniform Net Capital Rule (the "Net Capital Rule"), which specifies minimum net capital requirements. Jefferies Group LLC is not a registered broker-dealer and is therefore not subject to the Net Capital Rule; however, its U.S. broker-dealer subsidiaries, Jefferies and Jefferies Execution Services, Inc. ("Jefferies Execution"), are registered broker-dealers and are subject to the Net Capital Rule. Jefferies and Jefferies Execution have elected to compute their 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 operations of our broker-dealers, such as underwriting and trading activities, that require the use of significant amounts of capital, and may also restrict their ability to make loans, advances, dividends and other payments.

U.S. registered FCMs are subject to the CFTC's minimum financial requirements for futures commission merchants and introducing brokers. Jefferies Group LLC is not a registered FCM or a registered Introducing Broker, and is therefore not subject to the CFTC's minimum financial requirements; however, Jefferies is registered as an FCM and is therefore subject to the minimum financial requirements. Under the minimum financial requirements, an FCM must maintain adjusted net capital equal to or in excess of the greater of (A) $1,000,000 or (B) the FCM's risk-based capital requirements totaling (1) eight percent of the total risk margin requirement for positions carried by the FCM in customer accounts, plus (2) eight percent of the total risk margin requirement for positions carried by the FCM in noncustomer accounts. An FCM's ability to make capital and certain other distributions is subject to the rules and regulations of various exchanges, clearing organizations and other regulatory agencies which may have capital requirements that are greater than the CFTC's. Jefferies, as a dually registered broker-dealer and FCM, is required to maintain net capital in excess of the greater of the SEC or CFTC minimum financial requirements.

During October 2015, Jefferies ceased being a full-service FCM. As a result, Jefferies no longer carries customer or proprietary accounts or holds any customer monies or funds. While Jefferies may execute certain customer orders, it no longer clears such transactions.


Our subsidiaries that are registered swap dealers will become subject to capital requirements under the Dodd-Frank Act once they become final. For additional information see Item 1A. Risk Factors - "Recent legislation and new and pending regulation may significantly affect our business."


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See Net Capital within Item 7. Management's Discussion and Analysis and Note 21, Net Capital Requirements in this Annual Report on Form 10-K 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. As is true in the U.S., our subsidiaries are subject to extensive regulations promulgated and enforced by, among other regulatory bodies, the U.K. Financial Conduct Authority, the Hong Kong Securities and Futures Commission, the Japan Financial Services Agency and the Monetary Authority of Singapore. 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, anti-money laundering and anti-bribery rules, compliance with other applicable trading and investment banking regulations and similar regulatory reform. For additional information see Item 1A. Risk Factors - "Extensive international regulation of our business limits our activities, and, if we violate these regulations, we may be subject to significant penalties."


Item 1A. Risk Factors.

Factors Affecting Our Business

The following factors describe some of the assumptions, risks, uncertainties and other factors that could adversely affect our business or that could otherwise result in changes that differ materially from our expectations. In addition to the specific factors mentioned in this report, we may also be affected by other factors that affect businesses generally such as global or regional changes in economic or business conditions, acts of war, terrorism and natural disasters.

Recent legislation and new and pending regulation may significantly affect our business.

In recent years, there has been significant legislation and increased regulation affecting the financial services industry. These legislative and regulatory initiatives affect not only us, but also our competitors and certain of our clients. 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.

Title VII of the Dodd-Frank Act and the rules and regulations adopted and to be adopted by the SEC and CFTC introduce a comprehensive regulatory regime for swaps and security-based swaps and parties that deal in such swaps and security-based swaps. Three of our subsidiaries as registered as swap dealers with the CFTC and are members of the NFA. We may also register one or more subsidiaries as security-based swap dealers with the SEC. The new laws and regulations subject certain swaps and security-based swaps to clearing and exchange trading requirements and subject swap dealers and security-based swap dealers to significant new burdens, including (i) capital and margin requirements, (ii) reporting, recordkeeping and internal business conduct requirements, (iii) external business conduct requirements in dealings with swap counterparties (which are particularly onerous when the counterparty is a special entity such as a federal, state, or municipal entity, an ERISA plan, a government employee benefit plan or an endowment), and (iv) large trader position reporting and certain position limit requirements. The final rules under Title VII, including those rules that have already been adopted, for both cleared and uncleared swap transactions will impose increased capital and margin requirements on our registered entities and require additional operational and compliance costs and resources that will likely affect our business.

Section 619 of the Dodd-Frank Act (Volcker Rule) limits certain proprietary trading by banking entities such as banks, bank holding companies and similar institutions. Although we are not a banking entity and are not otherwise subject to these rules, some of our clients and many of our counterparties are banks or entities affiliated with banks and are subject to these restrictions. These sections of the Dodd-Frank Act and the regulations that are adopted to implement them could negatively affect the swaps and securities markets by reducing their depth and liquidity and thereby affect pricing in these markets. Other negative effects could result from an expansive extraterritorial application of the Dodd-Frank Act in general or the Volcker Rule in particular and/or insufficient international coordination with respect to adoption of rules for derivatives and other financial reforms in other jurisdictions.

Extensive international regulation of our business limits our activities, and, if we violate these regulations, we may be subject to significant penalties.

The financial services industry is subject to extensive laws, rules and regulations in every country in which we operate. Firms that engage in securities and derivatives trading, wealth and asset management and investment banking 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 all aspects of the financial services business, including, but not limited to,


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sales and trading methods, trade practices, use and safekeeping of customers' funds and securities, capital structure, anti-money laundering and anti-bribery and corruption efforts, recordkeeping and the conduct of directors, officers and employees.


Each of our regulators supervises our business activities to monitor compliance with such laws, rules and regulations in the relevant jurisdiction. In addition, if there are instances in which our regulators question our compliance with laws, rules, and regulations, they may investigate the facts and circumstances to determine whether we have complied. At any moment in time, we may be subject to one or more such investigation or similar 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 and such investigations and similar reviews will not result in adverse regulatory requirements, regulatory enforcement actions and/or fines.


The European Market Infrastructure Regulation ("EMIR") was enacted in August 2012 and, in common with the Dodd-Frank Act in the U.S., is intended, among other things, to reduce counterparty risk by requiring standardized over-the-counter derivatives be cleared through a central counterparty and reported to registered trade repositories. EMIR is being introduced in phases in the U.K., with implementation of additional requirements expected through 2019. The EU finalized the Markets in Financial Instruments Regulation and a revision of the Market in Financial Instruments Directive, both of which are expected to become effective in January 2018. These give effect to the G-20 commitments, including new market structure-related, reporting, investor protection-related and organizational requirements, requirements on pre- and post-trade transparency, requirements to use certain venues when trading financial instruments (which includes 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's changes to the Capital Requirements Directive ("CRD") comprising CRD IV and the Capital Requirements Regulation ("CRR") became effective January 1, 2014 implementing Basel III in the UK and imposing higher requirements around capital quality and liquidity monitoring. The EU is also currently considering or executing upon significant revisions to law covering: resolution of banks, investment firms and market infrastructure; administration of financial benchmarks; credit rating activities; anti-money-laundering controls; data security and privacy; remuneration principles and proportionality; disclosures under the Basel regime aiming to increase market transparency and consistency; and corporate governance in financial firms.


Additional legislation, changes in rules, changes in the interpretation or enforcement of existing laws and rules, 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 European regulation on our businesses.

Changing conditions in financial markets and the economy could result in decreased revenues, losses or other adverse consequences.

As a global securities and investment banking firm, global or regional changes in the financial markets or economic conditions could adversely affect our business in many ways, including the following:

A market downturn could lead to a decline in the volume of transactions executed for customers and, therefore, to a decline in the revenues we receive from commissions and spreads.

Unfavorable financial or economic 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 or economic conditions.

Adverse changes in the market could lead to losses from principal transactions on our inventory positions.

Adverse changes in the market could also lead to a reduction in revenues from asset management fees and investment income from managed funds and losses on our own capital invested in managed funds. Even in the absence of a market downturn, below-market investment performance by our funds and portfolio managers could reduce asset management revenues and assets under management and result in reputational damage that might make it more difficult to attract new investors.

Limitations on the availability of credit, such as occurred during 2008, can affect our ability to borrow on a secured or unsecured basis, which may adversely affect our 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.

New or increased taxes on compensation payments such as bonuses or on balance sheet items may adversely affect our profits.

Should one of our customers or competitors fail, our 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 business, funding and liquidity.


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Unfounded allegations about us could result in extreme price volatility and price declines in our securities and loss of revenue, clients, and employees.

Our reputation and business activity can be affected by statements and actions of third parties, even false or misleading statements by them. While we have been able to dispel such rumors in the past, our debt-securities prices suffered not only extreme volatility but also record high yields. In addition, 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 stream. Although we were able to reverse the negative impact of such unfounded allegations and false rumors, there is no assurance that we will be able to do so successfully in the future and our potential failure to do so could have a material adverse effect on our business, financial condition and liquidity.


A credit-rating agency downgrade could significantly impact our business.

Maintaining an investment grade credit rating is important to our business and financial condition. We intend to access the capital markets and issue debt securities from time to time; and a decrease in our credit rating would not only increase our borrowing costs, but could also decrease demand for our debt securities and make a successful financing more difficult. In addition, 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. Such a downgrade could also negatively impact our debt-securities prices. There can be no assurance that our 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 and futures 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 engaged in a specific industry, or securities from issuers located in a particular country or region. In general, because our inventory is marked to market on a daily basis, any adverse price movement in these securities 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 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 exposure to acceptable levels as we conduct our business. 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 limit reflects our risk tolerance for a certain activity. Our framework includes 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 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.


As a holding company, we are dependent for liquidity from payments from our subsidiaries, many of which are subject to restrictions.

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.

Increased competition may adversely affect our revenues, profitability and staffing.

All aspects of our business are intensely competitive. We compete directly with a number of bank holding companies and commercial banks, other brokers and dealers, investment banking firms and other financial institutions. In addition to competition from firms currently in the securities business, there has been increasing competition from others offering financial services, including automated trading and other services based on technological innovations. We believe that the principal factors affecting competition


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JEFFERIES GROUP LLC AND SUBSIDIARIES


involve market focus, reputation, the abilities of professional personnel, the ability to execute the transaction, relative price of the service and products being offered, bundling of products and services and the quality of service. Increased competition or an adverse change in our competitive position could lead to a reduction of business and therefore a reduction of revenues and profits.

Competition also extends to the hiring and retention of highly skilled employees. A competitor may be successful in hiring away employees, which may result in our losing business formerly serviced by such employees. Competition can also raise our costs of hiring and retaining the employees we need to effectively operate our business.

Operational risks may disrupt our business, result in regulatory action against us or limit our growth.

Our businesses are highly dependent on our ability to process, on a daily basis, a large number of transactions across numerous and diverse markets in many currencies, and the transactions we process have become increasingly complex. If any of our financial, accounting or other data processing systems do not operate properly or are disabled or if there are other shortcomings or failures in our internal processes, people or systems, we could suffer an impairment to our liquidity, financial loss, a disruption of our businesses, liability to clients, regulatory intervention or reputational damage. These systems may fail to operate properly or become disabled as a result of events that are wholly or partially beyond our control, including a disruption of electrical or communications services or our inability to occupy one or more of our buildings. The inability of our systems to accommodate an increasing volume of transactions could also constrain our ability to expand our businesses.


Certain of our financial and other data processing systems rely on access to and the functionality of operating systems maintained by third parties. If the accounting, trading or other data processing systems on which we are dependent are unable to meet increasingly demanding standards for processing and security or, if they fail or have other significant shortcomings, we could be adversely affected. Such consequences may include our inability to effect transactions and manage our exposure to risk.

In addition, despite the contingency plans we 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 devote significant resources to maintaining and upgrading our systems and networks with measures such as intrusion and detection prevention systems, monitoring firewall to safeguard critical business applications and supervising third party providers that have access to our systems, our computer systems, software and networks may be vulnerable to unauthorized access, computer viruses or other malicious code, and other events that could have a security impact. Additionally, if a client's computer system, network or other technology is compromised by unauthorized access, we may face losses or other adverse consequences by unknowingly entering into unauthorized transactions. If 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. Furthermore, such events may cause interruptions or malfunctions in our, our clients', our counterparties' or third parties' operations, including the transmission and execution of unauthorized transactions. We may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are either not insured against or not fully covered through any insurance maintained by us. The increased use of smartphones, tablets and other mobile devices as well as cloud computing may also heighten these and other operational risks. Similar to other firms, we and our third party providers continue to be the subject of attempted unauthorized access, computer viruses and malware, and cyber attacks designed to disrupt of degrade service or cause other damage and denial of service. Additional challenges are posed by external parties, including foreign state actors. There can be no assurance that such unauthorized access or cyber incidents will not occur in the future, and they could occur more frequently and on a larger scale.

We face numerous risks and uncertainties as we expand our business.

We expect the growth of our business to come primarily from internal expansion and through acquisitions and strategic partnering. As we expand our business, there can be no assurance that our financial controls, the level and knowledge of our personnel, our operational abilities, our legal and compliance controls and our other corporate support systems will be adequate to manage our business and our growth. The ineffectiveness of any of these controls or systems could adversely affect our business and prospects. In addition, as we acquire new businesses and introduce new products, we face numerous risks and uncertainties integrating their controls and systems into ours, including financial controls, accounting and data processing systems, management controls and other operations. A failure to integrate these systems and controls, and even an inefficient integration of these systems and controls, could adversely affect our business and prospects.


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JEFFERIES GROUP LLC AND SUBSIDIARIES


Certain business initiatives, including expansions of existing businesses, may bring us into contact directly or indirectly, with individuals and entities that are not within our traditional client and counterparty base and may expose us to new asset classes and new markets. These business activities expose us to new and enhanced risks, greater regulatory scrutiny of these activities, increased credit-related, sovereign and operational risks, and reputational concerns regarding the manner in which these assets are being operated or held.

Our international operations subject us to numerous risks which could adversely impact our business in many ways.

Our business and operations are expanding internationally. Wherever we operate, we are subject to legal, regulatory, political, economic and other inherent risks. The laws and regulations applicable to the securities and investment banking industries differ in each country. Our inability to remain in compliance with applicable laws and regulations in a particular country could have a significant and negative effect on our business and prospects in that country as well as in other countries. A political, economic or financial disruption in a country or region could adversely impact our business and increase volatility in financial markets generally.

Legal liability may harm our business.

Many aspects of our business 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 business, including increases in the number and size of investment banking transactions and our expansion into new areas impose greater risks of liability. In addition, unauthorized or illegal acts of our employees could result in substantial liability to us. 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.


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. Although transactions are generally 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 the risk of counterparty nonperformance to the extent 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 the case of aged securities failed to receive, 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.

Derivative transactions may expose us to unexpected risk and potential losses.

We are party to a number of derivative transactions that require us to deliver to the counterparty the underlying security, loan or other obligation in order to receive payment. In a number of cases, we do not hold the underlying security, loan or other obligation and may have difficulty obtaining, or be unable to obtain, the underlying security, loan or other obligation through the physical settlement of other transactions. As a result, we are subject to the risk that we may not be able to obtain the security, loan or other obligation within the required contractual time frame for delivery. This could cause us to forfeit the payments due to us under these contracts or result in settlement delays with the attendant credit and operational risk as well as increased costs to the firm.


Item 1B.

Unresolved Staff Comments.

None.


Item 2.

Properties.

We maintain offices in over 30 cities throughout the world including, in the United States, New York, Charlotte, Chicago, Boston, Houston, Los Angeles, San Francisco, Stamford, and Jersey City, and internationally, London, Frankfurt, Milan, Paris, Zurich,


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Dubai, Hong Kong, Singapore, Tokyo and Mumbai. In addition, we maintain backup data center facilities with redundant technologies for each of our three main data center hubs in Jersey City, London and Hong Kong. We lease all of our office space, or contract via service arrangement, which management believes is adequate for our business.


Item 3.

Legal Proceedings.

Many aspects of our business involve substantial risks of legal and regulatory liability. In the normal course of business, we have been named as defendants or co-defendants in lawsuits involving primarily claims for damages. We are also involved in a number of regulatory matters, including exams, investigations and similar reviews, arising out of the conduct of our business. Based on currently available information, we do not believe that any pending matter will have a material adverse effect on our financial condition.



Item 4.

Mine Safety Disclosures.

Not applicable.




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PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Prior to the Leucadia Transaction, our common stock was traded on the NYSE under the symbol JEF. On March 1, 2013, all of our outstanding common shares were exchanged for shares of Leucadia, our common stock was delisted and there is no longer a public trading market for our common stock. Our ability to pay distributions to Leucadia is subject to the restrictions set forth in the governing provisions of the Delaware Limited Liability Company Act. We do not currently anticipate making distributions.

Dividends per Common Share (declared) were as follows:

1 st  Quarter

2 nd  Quarter

3 rd  Quarter

4 th  Quarter

2015

N/A


N/A

N/A

N/A

2014

N/A


N/A

N/A

N/A

2013

$

0.075


N/A

N/A

N/A


Item 6 .

Selected Financial Data.

Omitted pursuant to general instruction I(2)(a) to Form 10-K.



Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.


This report contains or incorporates by reference "forward looking statements" within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward looking statements include statements about our future and statements that are not historical facts. These forward looking statements are usually preceded by the words "believe," "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 business 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 that could cause actual results to differ, perhaps materially, from those in our forward looking statements is contained in this report and other documents we file. You should read and interpret any forward looking statement together with these documents, including the following:

the description of our business contained in this report under the caption "Business";

the risk factors contained in this report under the caption "Risk Factors";

the discussion of our analysis of financial condition and results of operations contained in this report under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" herein;

the discussion of our risk management policies, procedures and methodologies contained in this report under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations-Risk Management" herein;

the notes to the consolidated financial statements contained in this report; and

cautionary statements we make in our public documents, reports and announcements.

Any forward looking statement speaks only as of the date on which that statement is made. We will not update any forward looking statement to reflect events or circumstances that occur after the date on which the statement is made, except as required by applicable law.

Consolidated Results of Operations

On March 1, 2013, Jefferies Group, Inc. converted into a limited liability company (renamed Jefferies Group LLC) and became an indirect wholly owned subsidiary of Leucadia National Corporation ("Leucadia") pursuant to an agreement with Leucadia (the "Leucadia Transaction"). Each outstanding share of Jefferies Group LLC was converted into 0.81 of a common share of Leucadia


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(the "Exchange Ratio"). Jefferies Group LLC operates as a full-service investment banking firm and as the holding company to its various regulated and unregulated operating subsidiaries, retains a credit rating separate from Leucadia and is an SEC reporting company, filing annual, quarterly and periodic financial reports. Richard Handler, our Chief Executive Officer and Chairman, is the Chief Executive Officer of Leucadia, as well as a Director of Leucadia. Brian P. Friedman, our Chairman of the Executive Committee, is Leucadia's President and a Director of Leucadia. (See Note 1, Organization and Basis of Presentation in our consolidated financial statements for further information.)


In Management's Discussion and Analysis of Financial Condition and Results of Operations, we have presented the historical financial results in the tables that follow for the periods before and after the Leucadia Transaction. The period prior to March 1, 2013 is referred to as the Predecessor period, while periods after March 1, 2013 are referred to as Successor periods to reflect the fact that under U.S. generally accepted accounting principles ("U.S. GAAP") Leucadia's cost of acquiring Jefferies Group LLC has been pushed down to create a new accounting basis for Jefferies Group LLC. The Predecessor and Successor periods have been separated by a vertical line to highlight the fact that the financial information for such periods has been prepared under two different cost bases of accounting. Our financial results of operations are discussed separately for the following periods (i) the year ended November 30, 2015 and the year ended November 30, 2014 and the nine months ended November 30, 2013 (the "Successor periods") and (ii) the three months ended February 28, 2013 (the "Predecessor period") The following table provides an overview of our consolidated results of operations (in thousands):

Successor

Predecessor

Year 
 Ended 
 November 30, 
 2015 (1)

Year 
 Ended 
 November 30, 
 2014

Nine Months 
 Ended 
 November 30, 
 2013

Three Months 
 Ended 
 February 28, 
 2013

Net revenues, less interest on mandatorily

     redeemable preferred interests

$

2,475,241


$

2,990,138


$

2,137,313


$

807,583


Non-interest expenses

2,361,014


2,687,117


1,873,018


668,096


Earnings before income taxes

114,227


303,021


264,295


139,487


Income tax expense

18,898


142,061


94,686


48,645


Net earnings

95,329


160,960


169,609


90,842


Net earnings to noncontrolling interests

1,795


3,400


8,418


10,704


Net earnings attributable to Jefferies Group LLC /    common stockholders

93,534


157,560


161,191


80,138


Effective tax rate

16.5

%

46.9

%

35.8

%

34.9

%


(1) Our results of operations for the year ended November 30, 2015 as reported in this Annual Report on Form 10-K differ from the results of operations as presented in our Current Report on Form 8-K, dated December 15, 2015 to reflect post-closing adjustments for inventory valuations, increases in legal reserves and accruals of certain expenses. The net impact of these adjustments was to decrease Net earnings attributable to Jefferies Group LLC for the reported period from that previously disclosed by $4.5 million. As a result of these adjustments, Total net revenues decreased by $9,000 from $2,475.250 million to $2,475.241 million and Total Non-interest expenses increased by $7.6 million from $2,353.5 million to $2,361.0 million . The tax effect of these adjustments was to decrease income tax expense by $3.0 million from $21.9 million to $18.9 million .

Executive Summary


Year Ended November 30, 2015


Net revenues, less interest on mandatorily redeemable preferred interests for the year ended November 30, 2015 were $2,475.2 million , primarily reflecting challenging market conditions in fixed income throughout the year, partially offset by increased revenues in equities. Almost all our fixed income credit businesses were impacted by lower levels of liquidity due to the expectations of interest rate increases by the Federal Reserve and deterioration in the global energy and distressed markets. There were a number of periods of extreme volatility, which were followed by periods of low trading volume. The results for the year ended November 30, 2015 reflect within Net revenues positive income of $100.2 million from the amortization of premiums arising from recognizing our long-term debt at fair value as part of the pushdown accounting for the Leucadia Transaction. Results in the year ended November 30, 2015 also include a net gain of $49.1 million from our investment in KCG Holdings, Inc. ("KCG").


Non-interest expenses were $2,361.0 million for the year ended November 30, 2015 and include Compensation and benefits expense of $1,467.1 million recognized commensurate with the level of net revenues for the year. Compensation and benefits expenses as a percentage of Net revenues was 59.3% for the year ended November 30, 2015 . Non-interest expenses include $4.1


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million in additional lease expense related to recognizing existing leases at their current market value, incremental amortization expense of $14.8 million associated with intangible assets and internally developed software recognized at the Leucadia Transaction date, and $13.3 million of additional amortization expense related to the write-up of the cost of outstanding share-based awards which had future service requirements and was recognized in connection with the Leucadia Transaction.


On April 9, 2015, we entered into an agreement to transfer certain of the client activities of our Jefferies Bache (also referred to as Futures) business to Société Générale S.A. At November 30, 2015 , we have transferred all of our client accounts to Société Générale S.A. and other brokers. We substantially completed the exit of the Bache business during the third quarter of fiscal 2015. We expect to incur additional restructuring and exit costs in fiscal 2016 in connection with our exit activities.


Total non-interest expenses, since the agreement on April 9, 2015, include costs of $73.1 million , on a pre-tax basis, related to our exit of the Bache business. The after-tax impact of these costs is $52.6 million. These costs consist primarily of severance, retention and benefit payments for employees, incremental amortization of outstanding restricted stock and cash awards, contract termination costs and incremental amortization expense of capitalized software expected to no longer be used subsequent to the wind-down of the business. Net revenues from this business activity for the year ended November 30, 2015 , which are included within our fixed income results, were $80.2 million. This is comprised of commissions, principal transaction revenues and net interest revenues. Expenses directly related to the Bache business, which are included within non-interest expenses, for the year ended November 30, 2015 were $214.8 million. For further information, refer to Note 24, Exit Costs in our consolidated financial statements.


At November 30, 2015 , we had 3,557 employees globally, a decrease of 358 employees from our headcount at November 30, 2014 of 3,915 . Since November 30, 2014 , our headcount has decreased due to headcount reductions related to the exiting of the Bache business and corporate services outsourcing, partially offset by increases across our investment banking, equities and asset management businesses.


Year Ended November 30, 2014

Net revenues for the year ended November 30, 2014 were $2,990.1 million, reflecting record revenues in investment banking, partially offset by lower revenues in fixed income due to challenging market conditions during portions of the year. The results reflected the continued tapering of the U.S. Federal reserve monetary stimulus and global economic pressures, as well as the challenging credit markets, specifically the high yield bond and distressed markets in the fourth quarter of 2014. In addition, our Jefferies Bache business experienced various challenges with respect to its profitability. The results for the year ended November 30, 2014 reflect within Net revenues positive income of $100.6 million from the amortization of premiums arising from recognizing our long-term debt at fair value as part of the pushdown accounting for the Leucadia Transaction and a loss of $14.7 million from our investment in KCG and a gain of $19.9 from our investment in Harbinger Group Inc. ("HRG"), the latter of which we sold to Leucadia in March 2014.

Non-interest expenses were $2,687.1 million for the year ended November 30, 2014 and include Compensation and benefits expense of $1,698.5 million recognized commensurate with the level of net revenues for the year. Compensation and benefits expenses as a percentage of Net revenues was 56.8% for the year ended November 30, 2014. Non-interest expenses include goodwill impairment losses of $54.0 million and impairment losses of $7.8 million on certain intangible assets related to our Jefferies Bache and International Asset Management businesses. In addition, Non-interest expenses include $7.7 million in additional lease expense related to recognizing existing leases at their current market value, incremental amortization expense of $14.2 million associated with intangible assets and internally developed software recognized at the Leucadia Transaction date, and $14.4 million of additional amortization expense related to the write-up of the cost of outstanding share-based awards which had future service requirements and was recognized in connection with the Leucadia Transaction.


Net revenues from the Bache business activity for the year ended November 30, 2014, which are included within our fixed income results, were $202.8 million. This is comprised of commissions, principal transaction revenues and net interest revenues. Expenses directly related to the Bache business, which are included within non-interest expenses, for the year ended November 30, 2014 were $348.2 million. For further information, refer to Note 24, Exit Costs in our consolidated financial statements.

At November 30, 2014, we had 3,915 employees globally, an increase of 118 employees from our headcount of 3,797 at November 30, 2013.

Nine Months Ended November 30, 2013

Net revenues, less mandatorily redeemable preferred interests, for the nine months ended November 30, 2013 were $2,137.3 million reflecting a challenging environment for our fixed income businesses during portions of the period, partially offset by strong results in equities and investment banking. The results for the nine month period reflect within Net revenues positive income


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of $73.8 million, representing the amortization of premiums arising from recognizing our long-term debt at fair value as part of the pushdown accounting for the Leucadia Transaction and gains of $89.3 million in aggregate from our investments in KCG and HRG.


Non-interest expenses were $1,873.0 million for the nine months ended November 30, 2013 and include Compensation and benefits expense of $1,213.9 million recognized commensurate with the level of Net revenues for the nine month period. Compensation and benefits expenses as a percentage of Net revenues was 56.7% for the nine months ended November 30, 2013. Non-interest expense also includes approximately $50.0 million in merger related costs associated with the closing of the Leucadia Transaction. These costs are comprised of $11.6 million in transaction-related investment banking, legal and filing fees, $6.3 million in additional lease expense related to recognizing existing leases at their current market value, incremental amortization expense of $21.1 million associated with intangible assets and internally developed software recognized at the Leucadia Transaction date, and $11.0 million of additional amortization expense related to the write-up of the cost of outstanding share-based awards, which had future service requirements at the transaction date. In addition, occupancy and equipment includes an $8.7 million charge associated with our relocating certain staff and abandoning certain London office space recognized during the nine month period.


Net revenues from the Bache business activity for the nine months ended November 30, 2013, which are included within our fixed income results, were $158.4 million. This is comprised of commissions, principal transaction revenues and net interest revenues. Expenses directly related to the Bache business, which are included within non-interest expenses, for the year ended November 30, 2014 were $193.4 million. For further information, refer to Note 24, Exit Costs in our consolidated financial statements.

At November 30, 2013, we had 3,797 employees globally, slightly below our headcount at November 30, 2012.


Three Months Ended February 28, 2013

Net revenues, less mandatorily redeemable preferred interests, for the three months ended February 28, 2013 were $807.6 million, which include strong investment banking revenues, particularly in debt and equity capital markets, and a gain of $26.5 million on our then share ownership in KCG. Non-interest expenses of $668.1 million for the three months ended February 28, 2013 reflect compensation expense consistent with the level of net revenues and professional service costs associated with the Leucadia Transaction. Compensation costs as a percentage of Net revenues for the three months ended February 28, 2013 were 57.9%.


Net revenues from the Bache business activity for the three months ended February 28, 2013, which are included within our fixed income results, were $56.1 million. This is comprised of commissions, principal transaction revenues and net interest revenues. Expenses directly related to the Bache business, which are included within non-interest expenses, for the year ended November 30, 2014 were $65.8 million. For further information, refer to Note 24, Exit Costs in our consolidated financial statements.


Revenues by Source

The Capital Markets reportable segment includes our securities and commodities trading activities, and our investment banking activities. The Capital Markets reportable segment provides the sales, trading and origination and advisory effort for various equity, fixed income, commodities, futures, foreign exchange and advisory products and services. The Capital Markets segment comprises many business units, with many interactions and much integration among them. In addition, we separately discuss our Asset Management business.

For presentation purposes, the remainder of "Results of Operations" is presented on a detailed product and expense basis, rather than on a business segment basis. Net revenues presented for our equity and fixed income businesses 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, which is a function of the mix of each business's associated assets and liabilities and the related funding costs.

The composition of our net revenues has varied over time as financial markets and the scope of our operations have changed. The composition of net revenues can also vary from period to period due to fluctuations in economic and market conditions, and our own performance. The following provides a summary of "Revenues by Source" (amounts in thousands):



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JEFFERIES GROUP LLC AND SUBSIDIARIES


Successor

Predecessor

Year 
 Ended 
 November 30, 
 2015 (1)

Year 
 Ended 
 November 30, 
 2014

Nine Months 
 Ended 
 November 30, 
 2013

Three Months 
 Ended 
 February 28, 
 2013

Amount

% of Net Revenues

Amount

% of Net Revenues

Amount

% of Net Revenues

Amount

% of Net Revenues

Equities

$

757,447


30.7

 %

$

696,221


23.3

 %

$

582,355


27.4

%

$

167,354


20.4

 %

Fixed income

270,772


10.9


747,596


25.0


504,092


23.5


352,029


43.0


Total sales and trading

1,028,219


41.6


1,443,817


48.3


1,086,447


50.9


519,383


63.4


Other

-


-


-


-


4,624


0.2


-


-


Equity

408,474


16.5


339,683


11.4


228,394


10.7


61,380


7.5


Debt

398,179


16.1


627,536


21.0


415,932


19.4


140,672


17.2


Capital markets

806,653


32.6


967,219


32.4


644,326


30.1


202,052


24.7


Advisory

632,354


25.5


562,055


18.8


369,191


17.2


86,226


10.5


Total investment banking

1,439,007


58.1


1,529,274


51.2


1,013,517


47.3


288,278


35.2


Asset management fees and investment

  income (loss) from managed funds:

Asset management fees

31,819


1.3


26,682


0.9


26,473


1.2


11,083


1.4


Investment income (loss) from

   managed funds

(23,804

)

(1.0

)

(9,635

)

(0.4

)

9,620


0.4


(200

)

-


Total

8,015


0.3


17,047


0.5


36,093


1.6


10,883


1.4


Net revenues

2,475,241


100.0

 %

2,990,138


100.0

 %

2,140,681


100.0

%

818,544


100.0

 %

Interest on mandatorily redeemable

   preferred interests of consolidated

   subsidiaries

-


-


3,368


10,961


Net revenues, less interest on

   mandatorily redeemable preferred

   interests

$

2,475,241


$

2,990,138


$

2,137,313


$

807,583



(1) Equities revenues and Fixed income revenues for the year ended November 30, 2015 as reported in this Annual Report on Form 10-K differ from the results of operations as presented in our Current Report on Form 10-K, dated December 15, 2015 to reflect post-closing adjustments for inventory valuations. The net impact of the adjustments was to reduce Equities revenues by $1.0 million and increase Fixed income revenues by $1.0 million .

Net Revenues


Year Ended November 30, 2015


Net revenues for the year ended November 30, 2015 were $2,475.2 million , primarily reflecting lower fixed income revenues due to challenging market conditions and global economic pressures, partially offset by higher revenues in equities. Investment banking revenues for the year ended November 30, 2015 were $1,439.0 million , reflecting record equity capital markets and advisory revenues, partially offset by lower debt capital markets revenue. Overall, capital markets revenues were $806.7 million , primarily due to lower transaction volume in the leveraged finance and energy debt capital markets. Fixed income revenues for the year ended November 30, 2015 were $270.8 million primarily driven by lower trading volumes and mark to market losses in distressed trading, as a result of lower levels of liquidity due to the future expectations of Federal Reserve rate increases and the deterioration of the global energy markets. The wind-down of our Bache business also contributed to the lower fixed income revenues. Results in the year ended November 30, 2015 reflect revenues in our equities business of $757.4 million . Results in the year ended November 30, 2015 also include a net gain of $49.1 million from our investment in KCG. Net revenues from our asset management business were $8.0 million for the year ended November 30, 2015 , as a result of asset management fees of $31.8 million , partially offset by investment losses from managed funds of $23.8 million .

Year Ended November 30, 2014


Net revenues for the year ended November 30, 2014 were $2,990.1 million, reflecting record investment banking revenues, partially offset by lower revenues due to challenging trading environments in our fixed income business, particularly in the fourth quarter of 2014. Our core equities business performed relatively well during the year ended November 30, 2014. The 2014 results include a loss of $14.7 million from our investment in KCG and a gain of $19.9 from our investment in HRG, the latter of which we sold


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to Leucadia in March 2014. Asset management fee results were offset by write-downs on certain of our investments in unconsolidated funds and the exclusion of fees from our ownership interest in CoreCommodity Management, LLC ("CoreCommodity"), which we restructured on September 11, 2013.

Nine Months Ended November 30, 2013

Net revenues for the nine months ended November 30, 2013 of $2,140.7 million reflect a solid performance in our equity sales and trading business and continued strength in our investment banking platform. Our fixed income businesses experienced difficult trading conditions for a portion of the period as a result of a change in expectations for interest rates surrounding the Federal Reserve's plans for tapering its asset purchase program. The nine months results include gains of $89.3 million in aggregate within Equities Principal transaction revenues from our investments in KCG and HRG.

Three Months Ended February 28, 2013


Net revenues for the three months ended February 28, 2013 were $818.5 million as a result of improved overall market activity, with all of our business lines demonstrating strong results. Within Equities revenues, Net revenues include Principal transaction revenues of $26.5 million from unrealized gains related to our investment in KCG during the quarter.

Interest on mandatorily redeemable preferred interests of consolidated subsidiaries represents primarily the allocation of earnings and losses from our high yield business to third party noncontrolling interest holders that were invested in that business through mandatorily redeemable preferred securities. These interests were redeemed in April 2013 and all of the results in our high yield business are now wholly allocated to us.


Equities Revenue


Equities revenue is comprised of equity commissions, principal transactions and net interest revenue relating to cash equities, electronic trading, equity derivatives, convertible securities, prime brokerage, securities finance and alternative investment strategies. Equities revenue is heavily dependent on the overall level of trading activity of our clients. Equities revenue also includes our share of the net earnings from our joint venture investments in Jefferies Finance, LLC ("Jefferies Finance") and Jefferies LoanCore, LLC ("Jefferies LoanCore"), which are accounted for under the equity method, as well as changes in the value of our investments in KCG and HRG. In March 2014, we sold our investment in HRG to Leucadia at fair market value.


Year Ended November 30, 2015


Total equities revenue was $757.4 million for the year ended November 30, 2015 . Results in the year ended November 30, 2015 include a net gain of $49.1 million from our investment in KCG. Also included within interest expense allocated to our equities business is positive income of $48.9 million related to the amortization of premiums arising from the adjustment of our long-term debt to fair value as part of accounting for the Leucadia Transaction


U.S. equity market conditions were characterized by instability in stock prices and moderate economic growth. In the equity markets, the NASDAQ Composite Index increased 6.6% and the S&P 500 Index increased 0.6%, while the Dow Jones Industrial Average decreased by 0.6% during the fiscal year. In Europe and Asia, the recovery remains gradual and economic developments vary across regions. Strong revenues, as a result of increased trading volumes, from our electronic trading platform contributed to higher commissions revenues. Total equities revenue also includes higher revenues from the Asia equity cash desk and net mark-to-market gains from equity investments, as well as growth from our wealth management platform. This was partially offset by lower revenues from equity block trading results from our U.S. equity cash desk and lower commissions in our Europe equity cash desk.


Equities revenue from our Jefferies LoanCore joint venture during the year ended November 30, 2015 includes higher revenues from an increase in loan closings and securitizations by the venture over the comparable prior year period. Equities revenue from our Jefferies Finance joint venture during the year ended November 30, 2015 includes lower revenues as a result of syndicate costs associated with the sell down of commitments, as well as reserves taken on certain loans held for investment as compared with the prior year period.

Year Ended November 30, 2014

Total equities revenue was $696.2 million for the year ended November 30, 2014. Equities revenue includes losses of $14.7 million from our investment in KCG and a gain of $19.9 from our investment in HRG, as compared to gains of $116.8 million recognized


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primarily in the fourth quarter of fiscal 2013. Revenues also include an unrealized gain of $8.9 million from marking to market the option on Leucadia shares embedded in our 3.875% Senior Convertible Debentures. Additionally, during the first quarter of 2014, we recognized a gain of $12.2 million in connection with our investment in CoreCommodity, which was transferred to Leucadia on February 28, 2014. Also included within interest expense allocated to our equities business is positive income of $45.1 million related to the amortization of premiums arising from the adjustment of our long-term debt to fair value as part of accounting for the Leucadia Transaction.

For the year ended November 30, 2014, U.S. stock prices continued an overall upward trend with company earnings and economic data largely meeting expectations and the outlook for monetary policy remaining favorable. While the markets in the fourth quarter were relatively unsettled, the S&P 500 Index was up 14.5% for the fiscal year and exchange trading volumes increased generally, which contributed to increased commission revenue. Similarly, European exchange volumes grew significantly throughout the 2014 year. Additionally, the performance from our electronic trading platform and our prime brokerage business continued to increase.

Equities revenue from our Jefferies Finance joint venture decreased during the year ended November 30, 2014 as compared to the nine months ended November 30, 2013 and the three months ended February 28, 2013, due to a reduction in loan closings and syndications by the venture, particularly in the fourth quarter of 2014. Equities revenue from our LoanCore joint venture decreased during the year ended November 30, 2014 as compared to the nine months ended November 30, 2013 and the three months ended February 28, 2013, due to fewer securitizations by the venture over the period. These declines were offset by results from certain block trading opportunities and the benefits of the general stock market rise and other positioning on certain security positions. In addition, during the first quarter of 2014, we deconsolidated certain of our strategic investment entities as additional third party investments were received during the period. Accordingly, the results from this business reflected in equities revenues for the year ended November 30, 2014 represent trading revenues solely from managed accounts that are solely owned by us. Results from our strategic investments business in prior periods represented 100% of strategic investment trading revenues, a portion of which was attributed to noncontrolling interests.

Nine Months Ended November 30, 2013

Total equities revenue was $582.4 million for the nine months ended November 30, 2013. Equities revenue includes within Principal transaction revenues a gain of $19.5 million on our investment in KCG, a gain of $69.8 million from our investment in HRG and an unrealized gain of $6.9 million from marking to market the option on Leucadia shares embedded in our 3.875% Senior Convertible Debentures. In addition, included within Interest expense is positive income of $33.7 million from the allocation to our equities business of a portion of the amortization of premiums arising from the adjustment of our long-term debt to fair value as part of accounting for the Leucadia Transaction.

U.S. equity market conditions during the period were characterized by continually increasing stock prices as the U.S. government maintained its monetary stimulus program. In the equity markets, the NASDAQ Composite Index, the S&P 500 Index and the Dow Jones Industrial Average increased by 28%, 19% and 14%, respectively, over the nine month period ended November 30, 2013, with the S&P Index registering a series of record closing highs. However, during the nine months ended November 30, 2013, economic data in the U.S. continued to indicate a slow recovery and geopolitical concerns regarding the Middle East and a U.S. federal government shutdown added volatility in the U.S. and international markets. Despite the rally in the equity markets in 2013, overall market volumes were subdued moderating customer flow in our U.S. cash equity business, although we benefited from certain block trading opportunities during the period.

In Europe, liquidity returned to the market as the European Central Bank convinced investors that it would not allow the Eurozone to break up aiding results to both our cash and option desks, although the results are still impacted by relatively low trading volumes given the region's fragile economy. Additionally, Asian equity commissions are stronger, particularly in Japan with new monetary policies increasing trading volumes on the Nikkei Exchange.

Our Securities Finance desk also contributed solidly to Equities revenue for the period and the performance of certain strategic investment strategies were strong. Revenue from our sales and trading of convertible securities for the nine months are reflective of increased market share as we have expanded our team in this business. Net earnings from our Jefferies Finance and Jefferies LoanCore joint ventures reflect a solid level of securitization deals and loan closings during the 2013 nine month period.

Three Months Ended February 28, 2013

Total equities revenue was $167.4 million for the three months ended February 28, 2013 and includes within Principal transaction revenues an unrealized gain of $26.5 million recognized on our investment in KCG. While U.S. equity markets posted gains during our first quarter, with the S&P index up 7%, investors remained cautious as evidenced by declining volumes. Although market


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volumes declined, our equity trading desks experienced ample client trading volumes. For the three months ended February 28, 2013, performance from certain strategic investments benefited from the increase in the overall stock markets and other positioning.


Fixed Income Revenue


Fixed income revenue includes commissions, principal transactions and net interest revenue from investment grade corporate bonds, mortgage- and asset-backed securities, government and agency securities, municipal bonds, emerging markets debt, high yield and distressed securities, bank loans, foreign exchange and commodities trading activities.


Year Ended November 30, 2015


Total fixed income revenue was $270.8 million for the year ended November 30, 2015 . The lower revenues were primarily due to tighter trading conditions across most core businesses and losses in our high yield distressed sales and trading business and international mortgages business, partially offset by higher revenues in our U.S. and International rates businesses, as well as our U.S. investment grade corporate credit business. Included within Interest expense for the year is positive income of $51.3 million from the allocation to our fixed income business of a portion of the amortization of premiums arising from adjusting our long-term debt to fair value as part of accounting for the Leucadia Transaction.


During the year ended November 30, 2015 , the fixed income markets were impacted at various points by the expectations of and uncertainty related to interest rate increases by the Federal Reserve, deterioration in the global energy markets, the slowdown of China's economic growth, geopolitical concerns in the Middle East, the potential of a Greece default, and economic uncertainty, which led to volatility in currency markets. The uncertainty as to the timing of the interest rate increases by the Federal Reserve and extremely low rates globally drove investors to seek spread and yield primarily in more liquid investments. The higher revenues in our U.S. and International rates businesses, as well as our U.S. investment grade corporate credit business, resulted from higher transaction volumes as volatility caused attractive yields and interest in new issuances. However, that same volatility negatively impacted the municipal securities business as prices declined and the sector experienced overall net cash outflows. Most of our credit fixed income businesses were negatively impacted during the year ended November 30, 2015 by periods of extreme volatility and market conditions, as investors focused on liquidity, resulting in periods of low trading volume during the year. In addition, results in our distressed trading businesses were negatively impacted by our position in the energy sector and led to mark-to-market write-downs in our inventory and results in our emerging markets business were lower due to slower growth in the emerging markets during the year. Revenues from futures sales and trading were also lower for the year ended November 30, 2015 as we exited this business activity. Our mortgages business was also negatively impacted by market volatility as credit spreads tightened for these asset classes and expectations of future rate increases resulted in lower trading volumes and revenues.

Year Ended November 30, 2014

Fixed income revenue was $747.6 million for the year ended November 30, 2014. Included within Interest expense for the period is positive income of $55.5 million from the allocation to our fixed income business of a portion of the amortization of premiums arising from adjusting our long-term debt to fair value as part of accounting for the Leucadia Transaction.

The fixed income markets during the year ended November 30, 2014 were impacted at various points by uncertainty with respect to U.S. economic data and concerns about the global economy, as well as reactions to legal matters regarding Freddie Mac and Fannie Mae and anticipated monetary policy, which created market uncertainty. Client trading demand was lower across most of the fixed income platform with the exception of increased customer flow in our international rates business, which benefited from tightening yields in Europe. Credit spreads continued to tighten as the U.S. Federal Reserve continued to taper its bond buyback program at a measured pace. In the fourth quarter of 2014, the volatility in the equity markets and the lowering of oil prices, put downward pressure on high yield bonds, especially those in the energy and transport sectors, as well as on the distressed trading markets. We experienced a decline in the results of our efforts in distressed trading for the year, which was primarily due to mark to market inventory losses as a result of the broad sell-off in distressed and post-reorganization securities, although investor interest in high yield asset classes was strong during the year as investors continued to migrate to certain asset classes in search of higher yields. Futures sales and trading revenues for the year ended November 30, 2014 were negatively impacted by challenging market conditions for foreign currency trading and U.S. futures trading given political and economic instability in various global environments.

Nine Months Ended November 30, 2013

Fixed income revenue was $504.1 million for the nine months ended November 30, 2013. Included within Interest expense for the period is positive income of $40.1 million from the allocation to our fixed income business of a portion of the amortization of premiums arising from adjusting our long-term debt to fair value as part of acquisition accounting.


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The second quarter of fiscal 2013 was characterized by improving U.S. macroeconomic conditions, and, through the first half of May 2013, the U.S. Federal Reserve's policies resulted in historically low yields for fixed income securities motivating investors to take on more risk in search for yield. In May 2013, however, the Treasury market experienced a steep sell-off and credit spreads widened across the U.S. fixed income markets in reaction to an anticipated decrease in Federal Reserve treasury issuances and mortgage debt security purchases in future periods. These market conditions negatively impacted our U.S. rates, corporates and U.S. mortgages revenues through August as the volatility made it difficult to realize net revenue from our customer flow. In the latter part of the 2013 year, the fixed income markets stabilized with lower volatility and tightening spreads increasing overall customer flows across the various fixed income product classes.

While revenues rebounded towards the end of the fiscal year for our mortgage-backed securities business, the mid-year sell-off in U.S. Treasuries and the widening of credit spreads for mortgage products negatively impacted the overall results for the nine months ended November 30, 2013 by reducing trading volumes and increasing market volatility. Corporate bond revenues were also negatively impacted by the widening of credit spreads in the third quarter though there was significant improvement during the fourth quarter of 2013 with more robust trading volumes and narrowing credit spreads. Municipal securities underperformed as an asset class for a large part of the period as investors discounted greater risk than they had previously although investors began to return to the municipal market at the end of the period increasing our trading volumes. Components of our futures business experienced varying degrees of fluctuations in customer trading volume, but trading volume was relatively constant when considered overall and across the full nine month period ended November 30, 2013.

While our U.S. rates, corporates and U.S. mortgages desks underpeformed, our leveraged credit business produced solid results as investors sought investment yields in this fixed income class and issuers of bank debt were active with the supply level creating a positive effect on liquidity in the secondary market. Further, the low interest rate environment in the U.S. caused investors to seek higher yields in emerging market debt. In addition, suppressed long-term interest rates in the U.S. encouraged investment in international mortgage-backed securities resulting in increased trading volumes, improved market liquidity and ultimately increased revenues on our international mortgage desk, despite experiencing reduced market liquidity and consequently lower levels of secondary market activity during the summer months of 2013.

During the second quarter of 2013, we redeemed the third party interests in our high yield joint venture, Jefferies High Yield Holdings, LLC. As a result of this redemption, effective April 1, 2013, results of this business are allocated to us in full.

Three Months Ended February 28, 2013

For the three months ended February 28, 2013, fixed income revenue was $352.0 million. Credit spreads narrowed through the first quarter of 2013. In January 2013, global macroeconomic conditions appeared to be improving, with the U.S. economy expanding and the U.S. Federal reserve continuing quantitative easing. U.S. rates revenues were robust, with strong treasury issuance and strong demand and yields at historic lows. Revenues from our leveraged finance and emerging markets sales and trading businesses were sound as investor confidence returned in 2013 and investors were attracted to the relatively higher yield on these products. Revenue in our emerging markets business is reflective of our efforts to strengthen our position in this business and revenues for the period include significant gains generated by certain high yield positions. Revenues from our international mortgage desk were positively impacted by the demand for European mortgage bonds and foreign exchange revenues demonstrated a successful navigation of volatile currency markets. Revenues also benefited from new client activity associated with our expansion of our global metals desk in the latter part of 2012. However, international rates sales and trading revenues were negatively impacted by investor concerns over the European markets resulting in restrained trading volumes and a high level of market volatility.

Of the net earnings recognized in Jefferies High Yield Holdings, LLC (our high yield and distressed securities and bank loan trading and investment business) for the three months ended February 28, 2013, approximately 65% is allocated to minority investors and are presented within interest on mandatorily redeemable preferred interests and net earnings to noncontrolling interests in our Consolidated Statements of Earnings.

Other Revenue

Other revenue for the nine months ended November 30, 2013 includes a gain of $4.6 million related to the restructuring of our ownership interest in our commodity asset management business.

Investment Banking Revenue


We provide capital markets and financial advisory services to our clients across most industry sectors in the Americas, Europe and Asia. Capital markets revenue includes underwriting and placement revenue related to corporate debt, municipal bonds, mortgage- and asset-backed securities and equity and equity-linked securities. Advisory revenue consists primarily of advisory


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and transaction fees generated in connection with merger, acquisition and restructuring transactions. The following table sets forth our investment banking revenue (in thousands):


Successor

Predecessor

Year 
 Ended 
 November 30, 
 2015

Year 
 Ended 
 November 30, 
 2014

Nine Months 
 Ended 
 November 30, 
 2013

Three Months 
 Ended 
 February 28, 
 2013

Equity

$

408,474


$

339,683


$

228,394


$

61,380


Debt

398,179


627,536


415,932


140,672


Capital markets

806,653


967,219


644,326


202,052


Advisory

632,354


562,055


369,191


86,226


Total

$

1,439,007


$

1,529,274


$

1,013,517


$

288,278



Year Ended November 30, 2015


Total investment banking revenue was $1,439.0 million for the year ended November 30, 2015 , reflecting lower debt capital market revenues, partially offset by record equity capital markets and advisory revenues. Overall, capital markets revenues of $ 806.7 million in the year ended November 30, 2015 were lower primarily due to significantly lower transaction volume in the leveraged finance market. Record advisory revenues of $632.4 million for the year ended November 30, 2015 were primarily due to higher transaction volume.


From equity and debt capital raising activities, we generated $408.5 million and $398.2 million in revenues, respectively. During the year ended November 30, 2015 , we completed 1,003 public and private debt financings that raised $199.8 billion in aggregate and we completed 191 public equity and convertible offerings that raised $53.9 billion (176 of which we acted as sole or joint bookrunner). Financial advisory revenues totaled $632.4 million , including revenues from 158 merger and acquisition transactions and 13 restructuring and recapitalization transactions with an aggregate transaction value of $141.0 billion.

Year Ended November 30, 2014

Low borrowing costs and generally strong capital market conditions throughout most of our fiscal year were important factors in driving the growth in our debt and equity capital markets businesses. These factors, together with generally strong corporate balance sheets and record equity valuations, were important in driving the growth in our merger and acquisition advisory business.

Investment banking revenues were a record $1,529.3 million for the year ended November 30, 2014. From equity and debt capital raising activities, we generated $339.7 million and $627.5 million in revenues, respectively. During the year ended November 30, 2014, we completed 1,109 public and private debt financings that raised $250.0 billion and we completed 193 public equity and convertible offerings that raised $66.0 billion (159 of which we acted as sole or joint bookrunner). Financial advisory revenues totaled $562.1 million, including revenues from 132 merger and acquisition transactions and 12 restructuring and recapitalization transactions with an aggregate transaction value of $176.0 billion.

Nine Months Ended November 30, 2013

During the nine month period, despite uneven U.S. economic growth and uncertainty surrounding the U.S. Federal Reserve's decision on quantitative easing, capital market conditions continued to improve due to the availability of low-priced credit and a general rise in the stock market. Mergers and acquisition activity gained momentum through the later part of the 2013 nine month period.

Investment banking revenue was $1,013.5 million for the nine months ended November 30, 2013. From equity and debt capital raising activities, we generated $228.4 million and $415.9 million in revenues, respectively. During the nine months ended November 30, 2013, we completed 412 public and private debt financings that raised $162.3 billion in aggregate, as companies took advantage of low borrowing costs and we completed 130 public equity financings that raised $32.9 billion (111 of which we acted as sole or joint bookrunner). During the nine month period, our financial advisory revenues totaled $369.2 million, including revenues from 108 merger and acquisition transactions where we served as financial advisor.



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Three Months Ended February 28, 2013

For the three months ended February 28, 2013, investment banking revenue was $288.3 million, including advisory revenues of $86.2 million and $202.1 million in revenues from capital market activities. Debt capital markets revenue were $140.7 million, driven by a high number of debt capital market transactions as companies took advantage of lower borrowing costs and more favorable economic and market conditions. During the three months ended February 28, 2013, we completed 121 public and private debt financings that raised a total of $42.0 billion. Equity capital markets revenue totaled $61.4 million, completing 30 public equity financings that raised $10.0 billion (25 of which we acted as sole or joint bookrunner). Reflective of a subdued mergers and acquisition deal environment, despite improving fundamentals, for the three months ended February 28, 2013, advisory revenue totaled $86.2 million. During the three months ended February 28, 2013, we served as financial advisor on 31 merger and acquisition transactions and two restructuring transactions with an aggregate transaction value of approximately $21.0 billion.



Asset Management Fees and Investment Income (Loss) from Managed Funds


Asset management revenue includes management and performance fees from funds and accounts managed by us, management and performance fees from related party managed funds and accounts and investment income (loss) from our investments in these funds, accounts and related party managed funds. The key components of asset management revenue are the level of assets under management and the performance return, whether on an absolute basis or relative to a benchmark or hurdle. These components can be affected by financial markets, profits and losses in the applicable investment portfolios and client capital activity. Further, asset management fees vary with the nature of investment management services. The terms under which clients may terminate our investment management authority, and the requisite notice period for such termination, varies depending on the nature of the investment vehicle and the liquidity of the portfolio assets.


On September 11, 2013, we restructured our ownership interest in CoreCommodity, our commodity asset management business. Pursuant to the terms of that restructuring, we acquired Class B Units in what is now called CoreCommodity Capital, LLC. As a consequence, subsequent to September 11, 2013, we no longer report asset management revenues, assets under management and managed accounts attributed to the commodities asset class. On February 28, 2014, we sold our Class B Units to Leucadia at fair market value.

During the fourth quarter of 2014, as part of a strategic review of our business, we decided to liquidate our International Asset Management business, which provides long only investment solutions in global convertible bonds to institutional investors. Asset management fees and assets under management from this business comprise our convertibles asset strategy in the tables below.


The following summarizes the results of our Asset Management businesses by asset class (in thousands):

Successor

Predecessor

Year 
 Ended 
 November 30, 
 2015

Year 
 Ended 
 November 30, 
 2014 (1)

Nine Months 
 Ended 
 November 30, 
 2013 (1)

Three Months

Ended

February 28,

2013 (1)

Asset management fees:

Fixed income

$

4,090


$

6,087


$

3,932


$

1,154


Equities

4,875


9,212


4,262


1,510


Multi-asset

20,173


8,863


2,652


1,496


Convertibles

2,681


2,520


3,602


665


Commodities

-


-


12,025


6,258


Total asset management fees

31,819


26,682


26,473


11,083


Investment income (loss) from

    managed funds

(23,804

)

(9,635

)

9,620


(200

)

Total

$

8,015


$

17,047


$

36,093


$

10,883


(1)

Prior period amounts have been recast to conform to the current year's presentation due to the presentation of the multi-asset asset class. Previously, these fees have been classified within the equities asset class. We have also concluded that certain fees previously reported within the convertibles asset class are better aligned within the equities asset class. The total amount of asset management fees remains unchanged in the prior periods.

As a result of deconsolidation of certain strategic investment entities during the first quarter of 2014, results above attributed to Multi-asset include asset management fees from these entities. Fixed income asset management fees represent ongoing


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consideration we receive from the sale of contracts to manage certain collateralized loan obligations ("CLOs") to Babson Capital Management, LLC in January 2010. As sale consideration, we are entitled to a portion of the asset management fees earned under the contracts for their remaining lives. Investment income (loss) from managed funds primarily comprise net unrealized markups (markdowns) in private equity funds managed by related parties.

Assets under Management

Period end assets under management by predominant asset class were as follows (in millions):

November 30, 2015

November 30, 2014 (1)

Assets under management (2):

Equities

$

18


$

-


Multi-asset

688


483


Convertibles (3)

-


225


Total

$

706


$

708



(1)

Prior period amounts have been recast to conform to the current year's presentation due to the inclusion of the multi-asset asset class. Previously, these assets under management have been classified within the equities asset class. The total amount of assets under management remains unchanged in the prior periods.

(2)

Assets under management include assets actively managed by us, including hedge funds and certain managed accounts. Assets under management do not include the assets of funds that are consolidated due to the level or nature of our investment in such funds.

(3)

Our investment in the Jefferies Umbrella Fund, an open-ended investment company managed by us that invests primarily in convertible bonds, is in liquidation at November 30, 2015.



Non-interest Expenses

Non-interest expenses were as follows (in thousands):

Successor

Predecessor

Year 
 Ended 
 November 30, 
 2015

Year 
 Ended 
 November 30, 
 2014

Nine Months 
 Ended 
 November 30, 
 2013

Three Months 
 Ended 
 February 28, 
 2013

Compensation and benefits

$

1,467,131


$

1,698,530


$

1,213,908


$

474,217


Non-compensation expenses:

Floor brokerage and clearing fees

199,780


215,329


150,774


46,155


Technology and communications

313,044


268,212


193,683


59,878


Occupancy and equipment rental

101,138


107,767


86,701


24,309


Business development

105,963


106,984


63,115


24,927


Professional services

103,972


109,601


72,802


24,135


Bad debt provision

(396

)

55,355


179


1,945


Goodwill impairment

-


54,000


-


-


Other

70,382


71,339


91,856


12,530


Total non-compensation expenses

893,883


988,587


659,110


193,879


Total non-interest expenses

$

2,361,014


$

2,687,117


$

1,873,018


$

668,096


Compensation and Benefits

Compensation and benefits expense consists of salaries, benefits, cash bonuses, commissions, annual cash compensation awards, historical annual share-based compensation awards and the amortization of certain annual and non-annual share-based and cash compensation awards to employees. Historical share-based awards and a portion of cash awards granted to employees as part of year end compensation contain provisions such that employees who terminate their employment or are terminated without cause may continue to vest in their awards, so long as those awards are not forfeited as a result of other forfeiture provisions (primarily non-compete clauses) of those awards. Accordingly, the compensation expense for such awards granted at year end as part of annual compensation is fully recorded in the year of the award. Separately, a portion of cash awards granted to employees as part


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of year end compensation which are subject to ratable vesting terms with service requirements. Accordingly, the compensation expense for this portion of awards granted at year end as part of annual compensation is recognized in each period over the relevant service period, which is generally considered to start at the beginning of the annual compensation year.

Included within Compensation and benefits expense are share-based amortization expense for senior executive awards granted in September 2012, non-annual share-based and cash-based awards to other employees and certain year end awards that contain future service requirements for vesting. Such awards are being amortized over their respective future service periods.

Refer to Note 16, Compensation Plans, for further details on compensation and benefits.

Year Ended November 30, 2015

Compensation and benefits expense for the year ended November 30, 2015 was $1,467.1 million , which is 59.3% as a percentage of Net revenues. Amortization expense of $307.1 million related to share- and cash-based awards is included within 2015 compensation cost, as well as additional amortization expense of $13.3 million related to the write-up of the cost of outstanding share-based awards, which had remaining future service requirements at the date of the Leucadia Transaction. Employee headcount was 3,557 at November 30, 2015 . Since November 30, 2014 , our headcount has decreased due to headcount reductions related to the exiting of the Bache business and corporate services outsourcing, partially offset by increases across our investment banking, equities and asset management businesses.

Compensation and benefits expense directly related to our Bache business was $87.7 million for the year ended November 30, 2015. Included within compensation and benefits expense for the Bache business for the year ended November 30, 2015 are severance, retention and related benefits costs of $38.2 million incurred as part of decisions surrounding the exit of this business.

Year Ended November 30, 2014

Compensation and benefits expense for the year ended November 30, 2014 was $1,698.5 million, which is 56.8% as a percentage of Net revenues. Amortization expense of $284.3 million related to share- and cash-based awards is included within 2014 compensation cost, as well as additional amortization expense of $14.4 million related to the write-up of the cost of outstanding share-based awards, which had remaining future service requirements at the date of the Leucadia Transaction. Employee headcount was 3,915 at November 30, 2014. We expanded our headcount modestly during 2014, primarily in our investment banking and equities businesses. These increases were partially offset by headcount reductions due to corporate services outsourcing.

Compensation and benefits expense directly related to our Bache business was $98.6 million for the year ended November 30, 2014.

Nine Months Ended November 30, 2013 and Three Months Ended February 28, 2013

Compensation and benefits expense was $1,213.9 million for the nine months ended November 30, 2013 and was $474.2 million for the three months ended February 28, 2013, which is 56.7% and 57.9% as a percentage of Net revenues for the nine months ended November 30, 2013 and the three months ended February 28, 2013, respectively. Amortization expense of $232.0 million and $73.1 million related to share- and cash-based awards is included within compensation cost for the nine months ended November 30, 2013 and the three months ended February 28, 2013, respectively. Compensation cost in the nine months ended November 30, 2013 also included additional amortization expense of $11.0 million related to the write-up of the cost of outstanding share-based awards, which had remaining future service requirements at the date of the Leucadia Transaction. Employee headcount was 3,797 at November 30, 2013.

Compensation and benefits expense directly related to our Bache business was $87.1 million and $30.3 million for the nine months ended November 30, 2013 and the three months ended February 28, 2013, respectively.


Non-Compensation Expenses


Year Ended November 30, 2015

Non-compensation expenses were $893.9 million for the year ended November 30, 2015 , equating to 36.1% of Net revenues. Technology and communications expenses includes costs associated with the development of the various trading systems and projects associated with corporate support infrastructure, as well as accelerated amortization expense of $19.7 million related to capitalized software and $11.2 million in contract termination costs related to our Jefferies Bache business. Floor brokerage and clearing expenses for the year are reflective of the exit of the Bache business, partially offset by higher trading volumes in our equities trading businesses. Business development costs reflect our continued efforts to continue to build market share. We continue


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to incur legal and consulting fees as part of implementing various regulatory requirements, which is recognized in Professional services expense. Non-compensation expenses associated directly with the activities of the Bache business were $127.2 million for the year ended November 30, 2015 . During the year ended November 30, 2015 , we incurred professional services costs of approximately $2.5 million in connection with our actions related to exiting the Bache business. During the year ended November 30, 2015 , we also released $4.4 million in reserves related to the resolution of bankruptcy claims against Lehman Brothers Holdings, Inc., which is presented within Bad debt expenses.


Year Ended November 30, 2014

Non-compensation expenses were $988.6 million for the year ended November 30, 2014, equating to 33.1% of Net revenues. Non-compensation expenses include a goodwill impairment loss of $51.9 million related to our Jefferies Bache business, which constitutes our global futures sales and trading operations. In addition, a goodwill impairment loss of $2.1 million was recognized for the period related to our International Asset Management business. Additionally, approximately $7.6 million in impairment losses were recognized related to customer relationship intangible assets within our Jefferies Bache and International Asset Management businesses, which is presented within Other expenses. Non-compensation expenses associated directly with the activities of the Bache business were $249.6 million for the year ended November 30, 2014.

Floor brokerage and clearing expenses for the period are reflective of the trading volumes in our equities trading businesses. Technology and communications expense includes costs associated with development of the various trading systems and projects associated with corporate support infrastructure, including communication enhancements to our global headquarters at 520 Madison Avenue and incremental amortization expense associated with fair value adjustments to capitalized software recognized as part of accounting for the Leucadia Transaction. Occupancy and equipment rental expense reflects incremental office re-configuration expenditures at 520 Madison Avenue. Business development costs reflect our continued efforts to continue to build market share, including our loan origination business conducted through our Jefferies Finance joint venture. We continued to incur legal and consulting fees as part of implementing various regulatory requirements, which is recognized in Professional services expense. During the fourth quarter of 2014, we recognized a bad debt provision, which primarily relates to a receivable of $52.3 million from a client to which we provided futures clearing and execution services, which declared bankruptcy.

Nine Months Ended November 30, 2013

Non-compensation expenses were $659.1 million for the nine months ended November 30, 2013, equating to 30.8% of Net revenues. Non-compensation expenses include approximately $21.1 million in incremental amortization expense associated with fair value adjustments to identifiable tangible and intangible assets recognized as part of acquisition accounting reported within Technology and communications expense and Other expense, $6.3 million in additional lease expense related to recognizing existing leases at their current market value in Occupancy and equipment rental expense and $11.6 million in Leucadia Transaction-related investment banking filing fees recognized in Professional services expense. Additionally, during the nine month period an $8.7 million charge was recognized in Occupancy and equipment rental expense due to vacating certain office space in London. Other expenses for the nine months ended November 30, 2013 include $38.4 million in litigation expenses, which includes litigation costs related to the final judgment on our last outstanding auction rate securities legal matter and to agreements reached in principle with the relevant authorities pertaining to an investigation of purchases and sales of mortgage-backed securities. Non-compensation expenses associated directly with the activities of the Bache business were $106.3 million for the nine months ended November 30, 2013.


Floor brokerage and clearing expenses for the period are reflective of the trading volumes in our fixed income and equities trading businesses, including a meaningful volume of trading by our foreign exchange business. Technology and communications expense includes costs associated with development of the various trading systems and various projects associated with corporate support infrastructure, including technology initiatives to support Dodd-Frank reporting requirements. We continued to incur legal and consulting fees as part of implementing various regulatory requirements, which is recognized in Professional services expense.

Three Months Ended February 28, 2013

Non-compensation expenses were $193.9 million for the three months ended February 28, 2013, or 23.7% of Net revenues. Floor brokerage and clearing expense for the 2013 first quarter is commensurate with equity, fixed income and futures trading volumes for the quarter. Occupancy and equipment expense for the period includes costs associated with taking on additional space at our global head office in New York offset by a reduction in integration costs for technology and communications as significant system migrations for Jefferies Bache have been completed. Professional services expense includes legal and consulting fees of $2.1 million related to the Leucadia Transaction and business and development expense contains costs incurred in connection with our efforts to build out our market share. Non-compensation expenses associated directly with the activities of the Bache business were $35.4 million for the three months ended February 28, 2013.


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Income Taxes

For the year ended November 30, 2015 , the provision for income taxes was $18.9 million equating to an effective tax rate of 16.5%. For the year ended November 30, 2014 , the provision for income taxes was $142.1 million equating to an effective tax rate of 46.9%. For the nine months ended November 30, 2013 and the three months ended February 28, 2013 the provision for income taxes was $94.7 million and $48.6 million, respectively, equating to an effective tax rate of 35.8% and 34.9%, respectively. The change in the effective tax rate during the year ended November 30, 2015 as compared with the prior year is primarily due to net tax benefits related to the resolution of state income tax examinations and statute expirations during the current year, a change in the geographical mix of earnings and the impact of the goodwill impairment charge that was non-deductible in the prior year period.

Earnings per Common Share

Diluted net earnings per common share was $0.35 for the three months ended February 28, 2013 on 217,844,000 shares. Earnings per share data is not provided for periods subsequent to February 28, 2013, coinciding with the date we became a limited liability company and wholly-owned subsidiary of Leucadia. (See Note 18, Earnings per Share , in our consolidated financial statements for further information regarding the calculation of earnings per common share.)


Accounting Developments

For a discussion of recently issued accounting developments and their impact on our consolidated financial statements, see Note 3, Accounting Developments , in our consolidated financial statements.


Critical Accounting Policies

The consolidated financial statements are prepared in conformity with U.S. GAAP, which require management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and related notes. Actual results can and may differ from estimates. These differences could be material to the financial statements.

We believe our application of U.S. GAAP and the associated estimates are reasonable. Our accounting estimates are constantly reevaluated, and adjustments are made when facts and circumstances dictate a change. Historically, we have found our application of accounting policies to be appropriate, and actual results have not differed materially from those determined using necessary estimates.

We believe our critical accounting policies (policies that are both material to the financial condition and results of operations and require our most subjective or complex judgments) are our valuation of financial instruments, assessment of goodwill and our use of estimates related to compensation and benefits during the year.

Valuation of Financial Instruments

Financial instruments owned and Financial instruments sold, not yet purchased are recorded at fair value. 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). Unrealized gains or losses are generally recognized in Principal transaction revenues in our Consolidated Statements of Earnings.









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The following is a summary of the fair value of major categories of financial instruments owned and financial instruments sold, not yet purchased (in thousands):

November 30, 2015

November 30, 2014

Financial

Instruments

Owned

Financial

Instruments

Sold,

Not Yet

Purchased

Financial

Instruments

Owned

Financial

Instruments

Sold,

Not Yet

Purchased

Corporate equity securities

$

2,027,989


$

1,418,933


$

2,426,242


$

1,985,864


Corporate debt securities

2,893,041


1,556,941


3,365,042


1,612,217


Government, federal agency and other sovereign

   obligations

5,792,233


2,831,117


6,125,901


4,044,140


Mortgage- and asset-backed securities

4,166,362


117


4,526,366


4,557


Loans and other receivables

1,312,333


769,408


1,556,018


870,975


Derivatives

251,080


208,548


406,268


363,515


Investments at fair value

116,078


-


168,541


-


Physical commodities

-


-


62,234


-


$

16,559,116


$

6,785,064


$

18,636,612


$

8,881,268


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, where Level 1 uses observable prices in active markets and Level 3 uses valuation techniques that incorporate significant unobservable inputs and broker quotes that are considered less observable. Greater use of management judgment is required in determining fair value when inputs are less observable or unobservable in the marketplace, such as when the volume or level of trading activity for a financial instrument has decreased and when certain factors suggest that observed transactions may not be reflective of orderly market transactions. Judgment must be applied in determining the appropriateness of available prices, particularly in assessing whether available data reflects current prices and/or reflects the results of recent market transactions. Prices or quotes are weighed when estimating fair value with greater reliability placed on information from transactions that are considered to be representative of orderly market transactions.

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. (See Note 2, Summary of Significant Accounting Policies , and Note 5, Fair Value Disclosures , in our consolidated financial statements for further information on the definitions of fair value, Level 1, Level 2 and Level 3 and related valuation techniques.)










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Level 3 Assets and Liabilities – The following table reflects the composition of our Level 3 assets and Level 3 liabilities by asset class (in thousands):

Financial Instruments Owned

Financial Instruments Sold,

Not Yet Purchased

November 30, 2015

November 30, 2014

November 30, 2015

November 30, 2014

Loans and other receivables

$

189,289


$

97,258


$

10,469


$

14,450


Residential mortgage-backed securities

70,263


82,557


-


-


Collateralized debt obligations (1)

85,092


124,650


-


-


Investments at fair value (2)

53,120


53,224


-


-


Corporate equity securities

40,906


20,964


38


38


Corporate debt securities (1)

25,876


22,766


-


223


Other asset-backed securities

42,925


2,294


-


-


Derivatives

19,785


54,190


19,543


49,552


Commercial mortgage-backed securities

14,326


26,655


-


-


Sovereign obligations

120


-


-


-


Total Level 3 financial instruments (2)

$

541,702


$

484,558


$

30,050


$

64,263


Total Level 3 financial instruments as a percentage of total

   financial instruments (2)

3.3

%

2.6

%

0.4

%

0.7

%

(1)

Level 3 Collateralized debt obligations at November 30, 2014 increased by $33.2 million with a corresponding decrease in Level 3 Corporate debt securities from those previously reported to correct for the classification of certain positions. The total amount of Level 3 assets remained unchanged.

(2)

In May 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-07, "Fair Value Measurement (Topic 820) - Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)" ("ASU No. 2015-07"). In the second quarter of fiscal 2015, we early adopted ASU No. 2015-07 retrospectively. (See Note 3, Accounting Developments , and Note 5, Fair Value Disclosures , in our consolidated financial statements for further information on the adoption of this guidance.)

While our Financial instruments sold, not yet purchased, which are included within liabilities in our Consolidated Statements of Financial Condition, are accounted for at fair value, we do not account for any of our other liabilities at fair value, except for certain secured financings that arise in connection with our securitization activities included with Other secured financings of approximately $0.5 million and $30.8 million at November 30, 2015 and November 30, 2014 , respectively, and the conversion option to Leucadia shares embedded in our 3.875% Convertible Senior debenture of approximately $0.0 and $0.7 million reported within Long-term debt at November 30, 2015 and November 30, 2014 , respectively.

The following table reflects activity with respect to our Level 3 assets and net liabilities (in millions):

Successor

Predecessor

Year 
 Ended 
 November 30, 
 2015

Year 
 Ended 
 November 30, 
 2014

Nine Months 
 Ended 
 November 30, 
 2013

Three Months 
 Ended 
 February 28, 
 2013

Assets:

Transfers from Level 3 to Level 2 (1)

$

85.8


$

54.6


$

55.9


$

112.7


Transfers from Level 2 to Level 3 (1)

236.7


139.0


82.4


100.5


Net gains (losses) (1)

(34.3

)

(28.6

)

(3.4

)

13.2


Net Liabilities:

Transfers from Level 3 to Level 2

$

52.3


$

4.4


$

0.1


$

0.7


Transfers from Level 2 to Level 3

1.1


-


-


-


Net gains (losses)

8.3


(6.0

)

1.1


(2.7

)

(1)

In the second quarter of fiscal 2015, we early adopted ASU No. 2015-07 retrospectively. (See Note 3, Accounting Developments , and Note 5, Fair Value Disclosures , in our consolidated financial statements for further information on the adoption of this guidance.)


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For additional discussion on transfers of assets and liabilities among the fair value hierarchy levels, see Note 5, Fair Value Disclosures , in our consolidated financial statements.

Controls Over the Valuation Process for Financial Instruments – Our Independent Price Verification Group, independent of the trading function, plays an important role in determining that our 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.

Goodwill

At November 30, 2015 , goodwill recorded on our Consolidated Statement of Financial Condition is $1,656.6 million ( 4.3% of total assets). The nature and accounting for goodwill is discussed in Note 2, Summary of Significant Accounting Policies and Note 11, Goodwill and Other Intangible Assets , in our consolidated financial statements. Goodwill must be allocated to reporting units and tested for impairment at least annually, or when circumstances or events make it more likely than not that an impairment occurred. Goodwill is tested by comparing the estimated fair value of each reporting unit with its carrying value.

We use allocated tangible equity plus allocated goodwill and intangible assets as a proxy for the carrying amount of each reporting unit. The amount of equity allocated to a reporting unit is based on our cash capital model deployed in managing our businesses, which seeks to approximate the capital a business would require if it were operating independently. For further information on our Cash Capital Policy, refer to the Liquidity, Financial Condition and Capital Resources section herein. Intangible assets are allocated to a reporting unit based on either specifically identifying a particular intangible asset as pertaining to a reporting unit or, if shared among reporting units, based on an assessment of the reporting unit's benefit from the intangible asset in order to generate results.

Estimating the fair value of a reporting unit requires management judgment and often involves the use of estimates and assumptions that could have a significant effect on whether or not an impairment charge is recorded and the magnitude of such a charge. Estimated fair values for our reporting units utilize market valuation methods that incorporate price-to-earnings and price-to-book multiples of comparable public companies. Under the market approach, the key assumptions are the selected multiples and our internally developed forecasts of future profitability, growth and return on equity for each reporting unit. The weight assigned to the multiples requires judgment in qualitatively and quantitatively evaluating the size, profitability and the nature of the business activities of the reporting units as compared to the comparable publicly-traded companies. In addition, as the fair values determined under the market approach represent a noncontrolling interest, we apply a control premium to arrive at the estimate fair value of each reporting unit on a controlling basis. We engaged an independent valuation specialist to assist us in our valuation process at August 1, 2015.


Our annual goodwill impairment testing at August 1, 2015 did not indicate any goodwill impairment in any of our reporting units. The carrying values of goodwill by reporting unit at November 30, 2015 are as follows: $568.7 million in Investment Banking, $161.5 million in Equities and Wealth Management, $923.4 million in Fixed Income and $3.0 million in Strategic Investments.


The results of our assessment indicated that our reporting units had a fair value in excess of their carrying amounts based on current projections. While no goodwill impairment was identified, the valuation methodology for our Fixed Income reporting unit is sensitive to management's forecasts of future profitability, which comes with a level of uncertainty given current economic conditions and results. Changes in global economic growth, fixed income market liquidity and destabilization in the commodity markets, among other factors, may adversely impact our fixed income business relative to our forecast which could cause a decline in the estimated fair value of the Fixed Income reporting unit and a resulting impairment of a portion of our goodwill.

Refer to Note 11, Goodwill and Other Intangible Assets , for further details on goodwill.

Compensation and Benefits

A portion of our compensation and benefits represents discretionary bonuses, which are finalized at year end. In addition to the level of net revenues, our overall compensation expense in any given year is influenced by prevailing labor markets, revenue mix, profitability, individual and business performance metrics, and our use of share-based compensation programs. We believe the most appropriate way to allocate estimated annual total compensation among interim periods is in proportion to net revenues


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earned. Consequently, during the year we accrue compensation and benefits based on annual targeted compensation ratios, taking into account the mix of our revenues and the timing of expense recognition.

For further discussion of these and other significant accounting policies, see Note 2, Summary of Significant Accounting Policies , in our consolidated financial statements.


Liquidity, Financial Condition and Capital Resources

Our Chief Financial Officer and Global Treasurer are responsible for developing and implementing our liquidity, funding and capital management strategies. These policies are determined by the nature and needs of our day to day business operations, business opportunities, regulatory obligations, and liquidity requirements.

Our actual levels of capital, total assets and financial leverage are a function of a number of factors, including asset composition, business initiatives and opportunities, regulatory requirements and cost and availability of both long term and short term funding. We have historically maintained a balance sheet consisting of a large portion of our total assets in cash and liquid marketable securities, arising principally from traditional securities brokerage and trading activity. The liquid nature of these assets provides us with flexibility in financing and managing our business.

Analysis of Financial Condition

A business unit level balance sheet and cash capital analysis is prepared and reviewed with senior management on a weekly basis. As a part of this balance sheet review process, capital is allocated to all assets and gross and adjusted balance sheet limits are established. 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 our 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 our assets and liabilities. Substantially all of our Financial instruments owned and Financial instruments sold, not yet purchased are valued on a daily basis and we monitor and employ balance sheet limits for our various businesses. In connection with our government and agency fixed income business and our role as a primary dealer in these markets, a sizable portion of our securities inventory is comprised of U.S. government and agency securities and other G-7 government securities.

The following table provides detail on key balance sheet asset and liability line items (in millions):

November 30, 
 2015

November 30, 2014

% Change

Total assets

$

38,565.1


$

44,517.6


(13.4

)%

Cash and cash equivalents

3,510.2


4,080.0


(14.0

)%

Cash and securities segregated and on deposit for regulatory purposes or deposited

     with clearing and depository organizations

751.1


3,444.7


(78.2

)%

Financial instruments owned

16,559.1


18,636.6


(11.1

)%

Financial instruments sold, not yet purchased

6,785.1


8,881.3


(23.6

)%

Total Level 3 assets (1)

541.7


484.6


11.8

 %

Securities borrowed

$

6,975.1


$

6,853.1


1.8

 %

Securities purchased under agreements to resell

3,857.3


3,926.9


(1.8

)%

Total securities borrowed and securities purchased under agreements to resell

$

10,832.4


$

10,780.0


0.5

 %

Securities loaned

$

2,979.3


$

2,598.5


14.7

 %

Securities sold under agreements to repurchase

10,004.4


10,672.2


(6.3

)%

Total securities loaned and securities sold under agreements to repurchase

$

12,983.7


$

13,270.7


(2.2

)%

(1)

In the second quarter of fiscal 2015, we early adopted ASU No. 2015-07 retrospectively. (See Note 3, Accounting Developments , and Note 5, Fair Value Disclosures , in our consolidated financial statements for further information on the adoption of this guidance.)

Total assets at November 30, 2015 and November 30, 2014 were $38.6 billion and $44.5 billion , respectively, a decline of 13.4%. This decline reflects reductions that we implemented in connection with our view of the current market environment, which are


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also reflected in a reduction in risk at the comparable period ends. During the year ended November 30, 2015 , average total assets were approximately 28.4% higher than total assets at November 30, 2015 .

Cash and cash equivalents decreased by $569.8 million from $4,080.0 million at November 30, 2014 to $3,510.2 million , primarily due to the repayment of $500.0 million in unsecured senior notes, which matured during the fourth quarter of fiscal 2015. Cash and securities segregated decreased by $2,693.6 million from $ 3,444.7 million at November 30, 2014 to $ 751.1 million at November 30, 2015, primarily as a result of the exit of the Bache business during the year ended November 30, 2015 . At November 30, 2015 , we have transfered all of our customer accounts to Société Générale S.A. and other brokers. With the changes in our balance sheet from November 30, 2014 to November 30, 2015, our liquidity pool as a percentage of total assets increased from 12.4% at November 30, 2014 to 13.2% at November 30, 2015. (See "Sources of Liquidity" herein.)

Our total Financial instruments owned inventory at November 30, 2015 was $16.6 billion , a decrease of 11.1% from inventory of $18.6 billion at November 30, 2014 , driven by a reduction in all inventory positions in response to market conditions. Financial instruments sold, not yet purchased inventory was $6.8 billion and $8.9 billion at November 30, 2015 and November 30, 2014 , respectively, with the decrease in all inventory products primarily consisting of a decline in government obligations, federal agency and other sovereign inventory due to U.S. treasury hedges and global market concerns. Our overall net inventory position was $9.8 billion both at November 30, 2015 and November 30, 2014 , due to an increase in our net inventory of government, federal agency and other sovereign obligations, offset by a reduction in our net inventory of corporate debt securities and mortgage- and asset-backed securities. The reductions in our balance sheet and mix of inventory was substantially effected during our fourth quarter. While our total financial instruments owned declined from November 30, 2014 to November 30, 2015 , our Level 3 financial instruments owned as a percentage of total financial instruments owned remained relatively consistent at 3.3% at November 30, 2015 and 2.6% at November 30, 2014 .

We continually monitor our overall securities inventory, including the inventory turnover rate, which confirms the liquidity of our overall assets. As a Primary Dealer in the U.S. and with our similar role in several European jurisdictions, we carry inventory and make an active market for our clients in securities issued by the various governments. These inventory positions are substantially comprised of the most liquid securities in the asset class, with a significant portion in holdings of securities of G-7 countries.

Of our total Financial instruments owned, approximately 76.7% are readily and consistently financeable at haircuts of 10% or less. In addition, as a matter of our policy, a portion of these assets has internal capital assessed, which is in addition to the funding haircuts provided in the securities finance markets. Additionally, our Financial instruments owned primarily consisting of bank loans, consumer loans, investments and non-agency mortgage-backed securities are predominantly funded by long term capital. Under our cash capital policy, we model capital allocation levels that are more stringent than the haircuts used in the market for secured funding; and we maintain surplus capital at these maximum levels.

Securities financing assets and liabilities include both financing for our financial instruments trading activity and matched book transactions. Matched book transactions accommodate customers, as well as obtain securities for the settlement and financing of inventory positions. The aggregate outstanding balance of our securities borrowed and securities purchased under agreements to resell increased by 0.5% from November 30, 2014 to November 30, 2015 , primarily due to an increase in our matched book activity, partially offset by a decrease in firm financing of our short inventory. The outstanding balance of our securities loaned and securities sold under agreement to repurchase decreased by 2.2% from November 30, 2014 to November 30, 2015 primarily due to a decrease in firm financing of our inventory, partially offset by an increase in our matched book activity. By executing repurchase agreements with central clearing corporations to finance liquid inventory, rather than bi-lateral arrangements, we reduce the credit risk associated with these arrangements and decrease net outstanding balances. Our average month end balances of total reverse repos and stock borrows and total repos and stock loans during the year ended November 30, 2015 were 31.3% and 34.4% higher, respectively, than the November 30, 2015 balances.








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The following table presents our 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):

Year 
 Ended 
 November 30, 
 2015

Year 
 Ended 
 November 30, 
 2014

Securities Purchased Under Agreements to Resell:

Period end

$

3,857


$

3,927


Month end average

5,719


5,788


Maximum month end

7,577


8,081


Securities Sold Under Agreements to Repurchase:

Period end

$

10,004


$

10,672


Month end average

14,026


13,291


Maximum month end

18,629


16,586


Fluctuations in the balance of our repurchase agreements from period to period and intraperiod are dependent on business activity in those periods. Additionally, the fluctuations in the balances of our securities purchased under agreements to resell over the periods presented 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.

Leverage Ratios

The following table presents total assets, adjusted assets, total equity, total member's equity, tangible equity and tangible member's equity with the resulting leverage ratios (in thousands):

November 30, 
 2015

November 30, 2014

Total assets

$

38,565,142


$

44,517,648


Deduct:

Securities borrowed

(6,975,136

)

(6,853,103

)

Securities purchased under agreements to resell

(3,857,306

)

(3,926,858

)

Add:

Financial instruments sold, not yet purchased

6,785,064


8,881,268


Less derivative liabilities

(208,548

)

(363,515

)

Subtotal

6,576,516


8,517,753


Deduct:

Cash and securities segregated and on deposit for regulatory purposes or deposited with

   clearing and depository organizations

(751,084

)

(3,444,674

)

Goodwill and intangible assets

(1,882,371

)

(1,904,417

)

Adjusted assets

$

31,675,761


$

36,906,349


Total equity

$

5,509,377


$

5,463,431


Deduct:

Goodwill and intangible assets

(1,882,371

)

(1,904,417

)

Tangible equity

$

3,627,006


$

3,559,014


Total member's equity

$

5,481,909


$

5,424,583


Deduct:

Goodwill and intangible assets

(1,882,371

)

(1,904,417

)

Tangible member's equity

$

3,599,538


$

3,520,166


Leverage ratio (1)

7.0


8.1


Tangible gross leverage ratio (2)

10.2


12.1


Leverage ratio – excluding impacts of the Leucadia Transaction (3)

8.8


10.3


Adjusted leverage ratio (4)

8.7


10.4



(1)

Leverage ratio equals total assets divided by total equity.

(2)

Tangible gross leverage ratio (a non-GAAP financial measure) equals total assets less goodwill and identifiable intangible assets divided by tangible member's equity. The tangible gross leverage ratio is used by Rating Agencies in assessing our leverage ratio.

(3)

On March 1, 2013, we converted into a limited liability company and became an indirect wholly owned subsidiary of Leucadia, pursuant to an agreement with Leucadia, which is accounted for using the acquisition method of accounting


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(the "Leucadia Transaction"). Leverage ratio – excluding impacts of the Leucadia Transaction (a non-GAAP financial measure) equals total assets less the increase in goodwill and asset fair values in accounting for the Leucadia Transaction of $1,957 million less amortization of $124 million and $108 million during the period since the Leucadia Transaction to November 30, 2015 and November 30, 2014 , respectively, on assets recognized at fair value in accounting for the Leucadia Transaction divided by the sum of total equity less $1,353 million and $1,310 million at November 30, 2015 and November 30, 2014 , respectively, being the increase in equity arising from consideration of $1,426 million excluding the $125 million attributable to the assumption of our preferred stock by Leucadia, and less the impact on equity due to amortization of $52 million and $9 million at November 30, 2015 and November 30, 2014 , respectively, on assets and liabilities recognized at fair value in accounting for the Leucadia Transaction.

(4)

Adjusted leverage ratio (a non-GAAP financial measure) equals adjusted assets divided by tangible total equity.

Adjusted assets is a non-GAAP financial measure and excludes certain assets that are considered of lower risk as they are generally self-financed by customer liabilities through our securities lending activities. We view the resulting measure of adjusted leverage, also a non-GAAP financial measure, as a more relevant measure of financial risk when comparing financial services companies.

Liquidity Management

The key objectives of the liquidity management framework are to support the successful execution of our business strategies while ensuring sufficient liquidity through the business cycle and during periods of financial distress. Our liquidity management policies are designed to mitigate the potential risk that we may be unable to access adequate financing to service our financial obligations without material franchise or business impact.

The principal elements of our liquidity management framework are our Contingency Funding Plan, our Cash Capital Policy and our assessment of Maximum Liquidity Outflow.

Contingency Funding Plan . Our 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: (a) repayment of all unsecured debt maturing within one year and no incremental unsecured debt issuance; (b) maturity rolloff of outstanding letters of credit with no further issuance and replacement with cash collateral; (c) higher margin requirements than currently exist on assets on securities financing activity, including repurchase agreements; (d) liquidity outflows related to possible credit downgrade; (e) lower availability of secured funding; (f) client cash withdrawals; (g) the anticipated funding of outstanding investment and loan commitments; and (h) certain accrued expenses and other liabilities and fixed costs.

Cash Capital Policy . We maintain a cash capital model that measures long-term funding sources against requirements. Sources of cash capital include our equity and the noncurrent portion of long-term borrowings. Uses of cash capital include the following: (a) illiquid assets such as equipment, goodwill, net intangible assets, exchange memberships, deferred tax assets and certain investments; (b) a portion of securities inventory that is not expected to be financed on a secured basis in a credit stressed environment ( i.e. , margin requirements) and (c) drawdowns of unfunded commitments. To ensure that we do not need to liquidate inventory in the event of a funding crisis, we seek to maintain surplus cash capital, which is reflected in the leverage ratios we maintain. Our total long-term capital of $10.8 billion at November 30, 2015 exceeded our cash capital requirements.

Maximum Liquidity Outflow . Our businesses are diverse, and our 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 our policy to ensure we have sufficient funds to cover what we estimate may be needed in a liquidity crisis, we hold more cash and unencumbered securities and have greater long-term debt balances than our businesses would otherwise require. As part of this estimation process, we calculate a Maximum Liquidity Outflow that could be experienced in a liquidity crisis. Maximum Liquidity Outflow is based on a scenario that includes both a market-wide stress and firm-specific stress, characterized by some or all of the following elements:

Global recession, default by a medium-sized sovereign, low consumer and corporate confidence, and general financial instability.

Severely challenged market environment with material declines in equity markets and widening of credit spreads.

Damaging follow-on impacts to financial institutions leading to the failure of a large bank.

A firm-specific crisis potentially triggered by material losses, reputational damage, litigation, executive departure, and/or a ratings downgrade.


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The following are the critical modeling parameters of the Maximum Liquidity Outflow:

Liquidity needs over a 30-day scenario.

A two-notch downgrade of our long-term senior unsecured credit ratings.

No support from government funding facilities.

A combination of contractual outflows, such as upcoming maturities of unsecured debt, and contingent outflows ( e.g ., actions though not contractually required, we may deem necessary in a crisis). We assume that most contingent outflows will occur within the initial days and weeks of a crisis.

No diversification benefit across liquidity risks. We assume that liquidity risks are additive.

The calculation of our Maximum Liquidity Outflow under the above stresses and modeling parameters considers the following potential contractual and contingent cash and collateral outflows:

All upcoming maturities of unsecured long-term debt, commercial paper, promissory notes and other unsecured funding products assuming we will be unable to issue new unsecured debt or rollover any maturing debt.

Repurchases of our outstanding long-term debt in the ordinary course of business as a market maker.

A portion of upcoming contractual maturities of secured funding trades due to either the inability to refinance or the ability to refinance only at wider haircuts ( i.e. , on terms which require us to post additional collateral). Our assumptions reflect, among other factors, the quality of the underlying collateral and counterparty concentration.

Collateral postings to counterparties due to adverse changes in the value of our over-the-counter ("OTC") derivatives and other outflows due to trade terminations, collateral substitutions, collateral disputes, collateral calls or termination payments required by a two-notch downgrade in our credit ratings.

Variation margin postings required due to adverse changes in the value of our outstanding exchange-traded derivatives and any increase in initial margin and guarantee fund requirements by derivative clearing houses.

Liquidity outflows associated with our prime brokerage business, including withdrawals of customer credit balances, and a reduction in customer short positions.

Liquidity outflows to clearing banks to ensure timely settlements of cash and securities transactions.

Draws on our unfunded commitments considering, among other things, the type of commitment and counterparty.

Other upcoming large cash outflows, such as tax payments.

Based on the sources and uses of liquidity calculated under the Maximum 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 our inventory balances and cash holdings. At November 30, 2015 , we have sufficient excess liquidity to meet all contingent cash outflows detailed in the Maximum Liquidity Outflow. We regularly refine our model to reflect changes in market or economic conditions and the firm's business mix.










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Sources of Liquidity

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 (in thousands):

November 30, 2015

Average balance

Quarter ended

November 30, 2015 (1)

November 30, 2014

Cash and cash equivalents:

Cash in banks

$

973,796


$

811,034


$

1,083,605


Certificate of deposit

75,000


75,000


75,000


Money market investments

2,461,367


2,001,419


2,921,363


Total cash and cash equivalents

3,510,163


2,887,453


4,079,968


Other sources of liquidity:

Debt securities owned and securities purchased under

   agreements to resell (2)

1,265,840


1,138,614


1,056,766


Other (3)

305,123


522,514


363,713


Total other sources

1,570,963


1,661,128


1,420,479


Total cash and cash equivalents and other liquidity sources

$

5,081,126


$

4,548,581


$

5,500,447


Total cash and cash equivalents and other liquidity sources as % of

  total assets

13.2

%

12.4

%

Total cash and cash equivalents and other liquidity sources as % of

  total assets less goodwill and intangible assets

13.9

%

12.9

%


(1)

Average balances are calculated based on weekly balances.

(2)

Consists of high quality sovereign government securities and reverse repurchase agreements collateralized by U.S. government securities and other high quality sovereign government securities; deposits with a central bank within the European Economic Area, Canada, Australia, Japan, Switzerland or the USA; and securities issued by a designated multilateral development bank and reverse repurchase agreements with underlying collateral comprised of these securities.

(3)

Other includes unencumbered inventory representing an estimate of the amount of additional secured financing that could be reasonably expected to be obtained from our financial instruments owned that are currently not pledged after considering reasonable financing haircuts and additional funds available under the committed senior secured revolving credit facility available for working capital needs of Jefferies.

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, 2015 , we had the ability to readily obtain repurchase financing for 76.7% of our inventory at haircuts of 10% or less, which reflects the liquidity of our inventory. We continually assess the liquidity of our inventory based on the level at which we could obtain financing in the market place for a given asset. Assets are considered to be liquid if financing can be obtained in the repurchase market or the securities lending market at collateral haircut levels of 10% or less. The following summarizes our financial instruments by asset class that we consider to be of a liquid nature and the amount of such assets that have not been pledged as collateral (in thousands):

November 30, 2015

November 30, 2014

Liquid Financial

Instruments

Unencumbered

Liquid Financial

Instruments (2)

Liquid Financial

Instruments

Unencumbered

Liquid Financial

Instruments (2)

Corporate equity securities

$

1,881,419


$

268,664


$

2,191,288


$

297,628


Corporate debt securities

1,999,162


89,230


2,583,779


11,389


U.S. government, agency and municipal securities

2,987,784


317,518


3,124,780


250,278


Other sovereign obligations

2,444,339


1,026,842


2,671,807


877,366


Agency mortgage-backed securities (1)

3,371,680


-


3,395,771


-


Physical commodities

-


-


62,234


-


$

12,684,384


$

1,702,254


$

14,029,659


$

1,436,661




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(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 ("ARMs"), 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.

Average liquid financial instruments were $15.3 billion and $15.2 billion for the three and twelve months ended November 30, 2015, respectively, and $17.2 billion for both the three and twelve months ended November 30, 2014 . Average unencumbered liquid financial instruments were $1.9 billion for both the three and twelve months ended November 30, 2015 , and $1.8 billion and $2.1 billion for the three and twelve months ended November 30, 2014 , respectively.

In addition to being able to be readily financed at modest haircut levels, we estimate 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 a significant portion of the portfolio of a given asset class was not simultaneously liquidated. There are no restrictions on the unencumbered liquid securities, nor have they been pledged as collateral.

Sources of Funding and Capital Resources

Our assets are funded by equity capital, senior debt, convertible debt, securities loaned, securities sold under agreements to repurchase, customer free credit balances, bank loans and other payables.

Secured Financing

We rely principally on readily available secured funding to finance our inventory of financial instruments. Our ability to support increases in total assets is largely a function of our ability to obtain short and intermediate-term secured funding, primarily through securities financing transactions. We finance a portion of our long inventory and cover some of our short inventory by pledging and borrowing securities in the form of repurchase or reverse repurchase agreements (collectively "repos"), respectively. Approximately 81.2% of our repurchase financing activities use collateral that is considered eligible collateral by central clearing corporations. Central clearing corporations are situated between participating members who borrow cash and lend securities (or vice versa); accordingly repo participants contract with the central clearing corporation and not one another individually. Therefore, counterparty credit risk is borne by the central clearing corporation which mitigates the risk through initial margin demands and variation margin calls from repo participants. The comparatively large proportion of our total repo activity that is eligible for central clearing reflects the high quality and liquid composition of the inventory we carry in our trading books. The tenor of our repurchase and reverse repurchase agreements generally exceeds the expected holding period of the assets we are financing.

A significant portion of our financing of European sovereign inventory is executed using central clearinghouse financing arrangements rather than via bi-lateral repo agreements. For those asset classes not eligible for central clearinghouse financing, we seek to execute our bi-lateral financings on an extended term basis.

Weighted average maturity of repurchase agreements for non-clearing corporation eligible funded inventory is approximately four months at November 30, 2015 . Our ability to finance our inventory via central clearinghouses and bi-lateral arrangements is augmented by our ability to draw bank loans on an uncommitted basis under our various banking arrangements. At November 30, 2015 , short-term borrowings, which include bank loans, which must be repaid within one year or less, as well as borrowings under revolving credit and loan facilities, totaled $310.7 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 were $65.3 million for the year ended November 30, 2015 and $81.7 million for the year ended November 30, 2014 .


On October 29, 2015, we entered into a secured revolving loan facility ("Loan Facility") with Pacific Western Bank. Pacific Western Bank agrees to make available a revolving loan facility in a maximum principal amount of $50.0 million in U.S. dollars to purchase eligible receivables that meet certain requirements as defined in the Loan Facility agreement. Interest is based on an annual rate equal to the lesser of the LIBOR rate plus three and three-quarters percent or the maximum rate as defined in the Loan Facility agreement. At November 30, 2015, borrowings under the Loan Facility amounted to $48.7 million and are included within the Short-term borrowings balance above and in the Consolidated Statements of Financial Condition.

In addition to the above financing arrangements, in November 2012, we initiated a program whereby we issue notes backed by eligible collateral under a master repurchase agreement, which provides an additional financing source for our inventory (our "repurchase agreement financing program"). At November 30, 2015 , the outstanding amount of the notes issued under the program was $716.7 million in aggregate, which is presented within Other secured financings in the Consolidated Statement of Financial Condition. Of the $716.7 million aggregate notes, $40.0 million mature in March 2016, $50.0 million in June 2016, $195.1 million


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in July 2016, $76.5 million in August 2016, $60.0 million in December 2016, $60.0 million in May 2017, and $60.0 million in October 2017, all bearing interest at a spread over one month LIBOR. The remaining $175.1 million matured in January 2016, and bore interest at a spread over three month LIBOR. At November 30, 2015 , $431.6 million of the $716.7 million aggregate notes are redeemable within approximately 90 days at the option of the noteholders. For additional discussion on the program, refer to Note 9, Variable Interest Entities , in our consolidated financial statements.


On April 23, 2015, we entered into a committed revolving credit facility ("Intraday Credit Facility") with the Bank of New York Mellon. The Bank of New York Mellon agrees to make revolving intraday credit advances for an aggregate committed amount of $500.0 million in U.S. dollars. The term of the Intraday Credit Facility was six months after the closing date, but could be extended for an additional six months upon our request and at the lender's discretion. On October 22, 2015, we amended and restated the Intraday Credit Facility and reduced the aggregate committed amount to $300.0 million in U.S. dollars and extended the termination date to October 21, 2016, which can be extended for 364 days upon our request and at the lender's discretion. The Intraday Credit Facility contains a financial covenant, which includes a minimum regulatory net capital requirement. Interest is based on the higher of the Federal funds effective rate plus 0.5% or the prime rate. At November 30, 2015 , we were in compliance with debt covenants under the Intraday Credit Facility.

Total Long-Term Capital

At November 30, 2015 and November 30, 2014 , we have total long-term capital of $10.8 billion and $11.3 billion resulting in a long-term debt to equity capital ratio of 0.96:1 and 1.06:1, respectively. Our total long-term capital base at November 30, 2015 and November 30, 2014 was as follows (in thousands):

November 30, 
 2015

November 30, 2014

Long-Term Debt (1)

$

5,288,867


$

5,805,673


Total Equity

5,509,377


5,463,431


Total Long-Term Capital

$

10,798,244


$

11,269,104



(1)

Long-term debt for purposes of evaluating long-term capital at November 30, 2014 excludes $170.0 million of our outstanding borrowings under our long-term revolving Credit Facility. In addition, long-term capital excludes $353.0 million of our 5.5% Senior Notes at November 30, 2015 and $507.9 million of our 3.875% Senior Notes at November 30, 2014 , as these notes mature in less than one year from the period end.

Long-Term Debt

On August 26, 2011, we entered into a committed senior secured revolving credit facility ("Credit Facility") with a group of commercial banks in Dollars, Euros and Sterling, for an aggregate committed amount of $950.0 million with availability subject to one or more borrowing bases and of which $250.0 million can be borrowed by Jefferies Bache Limited without a borrowing base requirement. On June 26, 2014, we amended and restated the Credit Facility to extend the term of the Credit Facility for three years and reduced the committed amount to $750.0 million. The borrowers under the Credit Facility were Jefferies Bache Financial Services, Inc., Jefferies Bache, LLC and Jefferies Bache Limited, with a guarantee from Jefferies Group LLC. On September 1, 2014, Jefferies Bache, LLC merged with and into Jefferies LLC ("Jefferies"), (a U.S. broker-dealer). Jefferies was the surviving entity, and therefore, was a borrower under the Credit Facility. At November 30, 2014 , borrowings under the Credit Facility amounted to $170.0 million and were denominated in U.S. dollars.

Interest was based on the Federal funds rate or, in the case of Euro and Sterling borrowings, the Euro Interbank Offered Rate and the London Interbank Offered Rate, respectively. The Credit Facility contained financial covenants that, among other things, imposed restrictions on future indebtedness of our subsidiaries, required Jefferies Group LLC to maintain specified level of tangible net worth and liquidity amounts, and required certain of our subsidiaries to maintain specified levels of regulated capital. At November 30, 2014 , the minimum tangible net worth requirement was $2,603.1 million and the minimum liquidity requirement was $541.7 million for which we were in compliance. Throughout the period, no instances of noncompliance with the Credit Facility occurred. We terminated our $750.0 million Credit Facility on July 31, 2015, due to the exiting of the Bache business. For further information with respect to the Credit Facility, refer to Note 24, Exit Costs in our consolidated financial statements.

On May 20, 2014, under our $2.0 billion Euro Medium Term Note Program we issued senior unsecured notes with a principal amount of €500.0 million , due 2020, which bear interest at 2.375%  per annum. Proceeds amounted to €498.7 million .


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At November 30, 2015 , our long-term debt has a weighted average maturity of approximately 8 years. Our 3.875% Senior Notes with a principal amount of $500.0 million matured in November 2015.

Our long-term debt ratings are currently as follows:

Rating

Outlook

Moody's Investors Service (1)

Baa3

Stable

Standard and Poor's (2)

BBB-

Stable

Fitch Ratings (3)

BBB-

Stable

(1)

On January 21, 2016, Moody's affirmed our long-term debt rating of Baa3 and our rating outlook was changed from negative to stable.

(2)

On December 11, 2014, Standard and Poor's ("S&P") announced its review of the ratings on 13 U.S. securities firms by applying its new ratings criteria for the sector. As part of this review, S&P downgraded our long-term debt rating one notch from "BBB" to "BBB-" and left the rating outlook unchanged at "stable".

(3)

On March 5, 2015, Fitch affirmed our long-term debt rating of BBB- and our stable rating outlook.

In addition, on March 24, 2015, S&P assigned our principal operating broker-dealers, Jefferies LLC ("Jefferies") (a U.S. broker-dealer) and Jefferies International Limited (a U.K. broker-dealer), long-term ratings of BBB and assigned a stable outlook to these ratings. On May 6, 2015, Moody's assigned Jefferies and Jefferies International Limited, long-term ratings of Baa2 and assigned a negative outlook to these ratings. On January 21, 2016, Moody's reaffirmed our Jefferies and Jefferies International Limited ratings of Baa2 and our rating outlook was changed to stable from negative.

We rely upon our cash holdings and external sources to finance a significant portion of our day to day operations. Access to these external sources, as well as the cost of that financing, is dependent upon various factors, including our debt ratings. Our current debt ratings are dependent upon many factors, including industry dynamics, operating and economic environment, operating results, operating margins, earnings trend and volatility, balance sheet composition, liquidity and liquidity management, our capital structure, our overall risk management, business diversification and our market share and competitive position in the markets in which we operate. Deteriorations in any of these factors could impact our credit ratings. While certain aspects of a credit rating downgrade are quantifiable pursuant to contractual provisions, the impact on our 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, 2015 , 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 our long-term credit rating below investment grade was $49.5 million. For certain foreign clearing organizations credit rating is only one of several factors employed in determining collateral that could be called. The above represents management's best estimate for additional collateral to be called in the event of credit rating downgrade. The impact of additional collateral requirements are considered in our Contingency Funding Plan and calculation of Maximum Liquidity Outflow, as described above.










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Contractual Obligations and Commitments

The tables below provide information about our commitments related to debt obligations, investments and derivative contracts at November 30, 2015 . The table presents principal cash flows with expected maturity dates (in millions):

Expected Maturity Date

2016

2017

2018 and
2019

2020 and
2021

2022 and
Later

Total

Debt obligations:

Unsecured long-term debt (contractual principal payments net

     of unamortized discounts and premiums)

$

353.0


$

347.3


$

1,636.4


$

1,366.4


$

1,938.8


$

5,641.9


Interest payment obligations on senior notes

294.3


287.6


461.4


297.1


1,150.8


2,491.2


Purchase obligations (1)

66.2


55.5


78.9


52.6


23.4


276.6


$

713.5


$

690.4


$

2,176.7


$

1,716.1


$

3,113.0


$

8,409.7


Commitments and guarantees:

Equity commitments

$

9.5


$

-


$

-


$

15.8


$

189.5


$

214.8


Loan commitments

247.3


170.7


81.4


-


-


499.4


Mortgage-related and other purchase commitments

1,571.4


312.5


1,013.7


-


-


2,897.6


Forward starting reverse repos and repos

1,635.0


-


-


-


-


1,635.0


Other unfunded commitments

87.0


186.9


20.2


5.7


35.6


335.4


Derivative Contracts (2):

Derivative contracts – non credit related

11,840.6


584.6


142.8


-


414.4


12,982.4


Derivative contracts – credit related

-


-


115.4


955.4


10.0


1,080.8


$

15,390.8


$

1,254.7


$

1,373.5


$

976.9


$

649.5


$

19,645.4



(1)

Purchase obligations for goods and services primarily include payments for outsourcing and computer and telecommunications maintenance agreements. Purchase obligations at November 30, 2015 reflect the minimum contractual obligations under legally enforceable contracts.

(2)

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 20, Commitments, Contingencies and Guarantees , in our consolidated financial statements.

As lessee, we lease certain premises and equipment under non-cancelable agreements expiring at various dates through 2029 which are operating leases. At November 30, 2015 , future minimum aggregate annual lease payments under such leases (net of subleases) for fiscal years ended November 30, 2016 through 2020 and the aggregate amount thereafter, are as follows (in thousands):

Fiscal Year

Operating Leases

2016

$

54,532


2017

57,072


2018

57,298


2019

55,755


2020

50,584


Thereafter

396,041


Total

$

671,282


During 2012, we entered into a master sale and leaseback agreement under which we sold and have leased back existing and additional new equipment supplied by the lessor. The transaction resulted in a gain of $2.0 million , which is being amortized into earnings in proportion to and is reflected net against the leased equipment. The lease may be terminated in the third quarter of fiscal 2017 for a termination cost of the present value of the remaining lease payments plus a residual value. If not terminated early, the lease term is approximately five years from the start of the supply of new and additional equipment, which commenced on various dates in 2013 and continued into 2015. At November 30, 2015 , minimum future lease payments are as follows (in thousands):


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Fiscal Year

2016

$

3,798


2017

3,798


2018

1,513


2019

189


Net minimum lease payments

9,298


Less amount representing interest

471


Present value of net minimum lease payments

$

8,827


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 our Consolidated Statements of Financial Condition. Rather, the fair value of derivative contracts are reported in the Consolidated Statements of Financial Condition as Financial instruments owned or Financial instruments sold, not yet purchased 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 Note 2, Summary of Significant Accounting Policies , Note 5, Fair Value Disclosures , and Note 6, Derivative Financial Instruments , in our consolidated financial statements.

We are routinely involved with variable interest entities ("VIEs") in connection with our mortgage- and other asset- backed securities and collateralized loan obligation securitization activities. VIEs are entities in which equity investors lack the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. VIEs are consolidated by the primary beneficiary. The primary beneficiary is the party who has the power to direct the activities of a variable interest entity ("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. Where we are the primary beneficiary of a VIE, we consolidate the VIE. We do not generally consolidate the various VIEs related to our securitization activities because we are not the primary beneficiary.

At November 30, 2015 , we did not have any commitments to purchase assets from our securitization vehicles. For additional information regarding our involvement with VIEs, see Note 8, Securitization Activities , and Note 9, Variable Interest Entities , in our consolidated financial statements.

We expect to make cash payments of $508.5 million on January 31, 2016 related to compensation awards for fiscal 2015.

Due to the uncertainty regarding the timing and amounts that will ultimately be paid, our liability for unrecognized tax benefits has been excluded from the above contractual obligations table. See Note 19, Income Taxes , in our consolidated financial statements for further information.

Equity Capital

As compared to November 30, 2014 , the increase to total member's equity at November 30, 2015 is primarily attributed to net earnings, partially offset by foreign currency translation adjustments.

Net Capital

As broker-dealers registered with the SEC and member firms of the Financial Industry Regulatory Authority ("FINRA"), Jefferies and Jefferies Execution are subject to the Securities and Exchange Commission Uniform Net Capital Rule ("Rule 15c3-1"), which requires the maintenance of minimum net capital, and have elected to calculate minimum capital requirements using the alternative method permitted by Rule 15c3-1 in calculating net capital. Jefferies, as a dually-registered U.S. broker-dealer and 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.




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At November 30, 2015 , Jefferies and Jefferies Execution's net capital and excess net capital were as follows (in thousands):

Net Capital

Excess Net Capital

Jefferies

$

1,556,602


$

1,471,663


Jefferies Execution

9,647


9,397


FINRA is the designated self-regulatory organization ("DSRO") for our U.S. broker-dealers. Effective September 21, 2015, the National Futures Association is the DSRO for Jefferies as an FCM.

Certain other U.S. and non-U.S. subsidiaries are subject to capital adequacy requirements as prescribed by the regulatory authorities in their respective jurisdictions, including Jefferies International Limited and Jefferies Bache Limited which are subject to the regulatory supervision and requirements of the Financial Conduct Authority in the United Kingdom. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") was signed into law on July 21, 2010. The Dodd-Frank Act contains provisions that require the registration of all swap dealers, major swap participants, security-based swap dealers, and/or major security-based swap participants. While entities that register under these provisions will be subject to regulatory capital requirements, these regulatory capital requirements have not yet been finalized. We expect that these provisions will result in modifications to the regulatory capital requirements of some of our entities, and will result in some of our other entities becoming subject to regulatory capital requirements for the first time, including Jefferies Derivative Products, LLC and Jefferies Financial Services, Inc., which registered as swap dealers with the CFTC during January 2013 and Jefferies Financial Products, LLC, which registered during August 2014.


The regulatory capital requirements referred to above may restrict our ability to withdraw capital from our regulated subsidiaries.


Risk Management

Overview

Risk is an inherent part of our business and activities. The extent to which we properly and effectively identify, assess, monitor and manage each of the various types of 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. Accordingly, 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 the Risk Management, Operations, Compliance, Legal and Finance Departments. Our risk management policies, procedures and methodologies are fluid in nature and are subject to ongoing review and modification.

For discussion of liquidity and capital risk management, refer to the "Liquidity, Financial Condition and Capital Resources" section herein.

Governance and Risk Management Structure

Our Board of Directors. Our Board of Directors and its Audit Committee play an important role in reviewing our risk management process and risk tolerance. Our Board of Directors and Audit Committee are provided with data relating to risk at each of its regularly scheduled meetings. Our Chief Risk Officer and Global Treasurer meet with the Board of Directors on not less than a quarterly basis to present our risk profile and liquidity profile and to respond to questions.

Risk Committees. We make extensive use of internal committees to govern risk taking and ensure that business activities are properly identified, assessed, monitored and managed. Our Risk Management Committee meets weekly to discuss our risk, capital, and liquidity profile in detail. In addition, business or market trends and their potential impact on the risk profile are discussed. Membership is comprised of our Chief Executive Officer and Chairman, Chairman of the Executive Committee, Chief Financial Officer, Chief Risk Officer and Global Treasurer. The Committee approves limits for us as a whole, and across risk categories and business lines. It also reviews all limit breaches. Limits are reviewed on at least an annual basis. Other risk related committees include Market Risk Management, Credit Risk Management, New Business, Underwriting Acceptance, Margin Oversight, Executive Management and Operating Committees. These Committees govern risk taking and ensure that business activities are properly managed for their area of oversight.


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Risk Related Policies. We make use of various policies in the risk management process:

Market Risk Policy- This policy sets out roles, responsibilities, processes and escalation procedures regarding market risk management.

Independent Price Verification Policy - This policy sets out roles, responsibilities, processes and escalation procedures regarding independent price verification for securities and other financial instruments.

Operational Risk Policy - This policy sets out roles, responsibilities, processes and escalation procedures regarding operational risk management.

Credit Risk Policy- This policy provides standards and controls for credit risk-taking throughout our global business activities. This policy also governs credit limit methodology and counterparty review.

Model Validation Policy- This policy sets out roles, processes and escalation procedures regarding model validation and model risk management.

Risk Management Key Metrics

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 limit reflects our risk tolerance for a certain activity under normal business conditions. Key metrics included in our framework include inventory position and exposure limits on a gross and net basis, scenario analysis and stress tests, Value-at-Risk, sensitivities (greeks), exposure concentrations, aged inventory, amount of Level 3 assets, counterparty exposure, leverage, cash capital, and performance analysis metrics.

Market Risk

The potential for changes in the value of financial instruments is referred to as market risk. Our market risk generally represents the risk of loss that may result from a change in the value of a financial instrument as a result of fluctuations in interest rates, credit spreads, equity prices, commodity prices and foreign exchange rates, along with the level of volatility. Interest rate risks result primarily from exposure to changes in the yield curve, the volatility of interest rates, and credit spreads. Equity price risks result from exposure to changes in prices and volatilities of individual equities, equity baskets and equity indices. Commodity price risks result from exposure to the changes in prices and volatilities of individual commodities, commodity baskets and commodity indices. Market risk arises from market making, proprietary trading, underwriting, specialist and investing activities. We seek to manage our exposure to market risk 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 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 results of the trading groups.

Value-at-Risk

We estimate Value-at-Risk ("VaR") using a model that simulates revenue and loss distributions on substantially all financial instruments by applying historical market changes to the current portfolio. Using the results of this simulation, VaR measures the potential loss in value of our financial instruments over a specified time horizon at a given confidence level. 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, our 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 of positions that cannot be liquidated or offset with hedges in a one-day period. Published VaR results reflect past trading positions while future risk depends on future positions.

While we believe the assumptions and inputs in our risk model are reasonable, we could incur losses greater than the reported VaR because the historical market prices and rates changes may not be an accurate measure of future market events and conditions. Consequently, this VaR estimate is only one of a number of tools we use in our daily risk management activities. When comparing our VaR numbers to those of other firms, it is important to remember that different methodologies and assumptions could produce significantly different results.

Our average daily VaR decreased to $12.39 million for the year ended November 30, 2015 from $14.35 million for the year ended November 30, 2014 , a 13.7% decrease. The decrease was primarily driven by a decrease in our investment in KCG and the exit of the Bache business. In addition, our VaR declined from $13.28 million at November 30, 2014 to November 30, 2015 to $7.73


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million. The decrease is reflective of a reduction in risk that we implemented in connection with our view of the current market environment. The reductions in our balance sheet and mix of inventory was substantially effected during our fourth quarter. Excluding our investment in KCG, our average VaR increased to $9.97 million for the year ended November 30, 2015 from $9.54 million in the year ended November 30, 2014 .

The following table illustrates each separate component of VaR for each component of market risk by interest rate, equity, currency and commodity products, as well as for our overall trading positions using the past 365 days of historical data (in millions).

Daily VaR (1)

Value-at-Risk In Trading Portfolios

VaR at

November 30, 2015

VaR at
November 30, 2014

Daily VaR for the Year Ended

November 30, 2015

Daily VaR for theYear Ended

November 30, 2014

Risk Categories:

Average

High

Low

Average

High

Low

Interest Rates

$

5.01


$

5.84


$

8.06


$

4.19


$

5.56


$

5.77


$

8.69


$

3.16


Equity Prices

6.69


9.79


13.61


5.39


10.53


11.08


14.68


7.85


Currency Rates

0.30


0.46


3.32


0.12


0.87


1.33


6.59


0.15


Commodity Prices

0.82


0.57


1.62


0.04


0.19


0.70


2.14


0.07


Diversification Effect (2)

(5.09

)

(4.27

)

N/A


N/A


(3.87

)

(4.53

)

N/A


N/A


Firmwide

$

7.73


$

12.39


$

17.75


$

6.35


$

13.28


$

14.35


$

19.68


$

10.31



(1)

VaR is the potential loss in value of our trading positions due to adverse market movements over a defined time horizon with a specific confidence level. For the VaR numbers reported above, a one-day time horizon, with a one year look-back period, and a 95% confidence level were used.

(2)

The diversification effect is not applicable for the maximum and minimum VaR values as the firmwide VaR and the 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 effect 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.


The chart below reflects our daily VaR over the last four quarters:


The primary method used to test the efficacy of the VaR model is to compare our actual daily net revenue for those positions included in our VaR calculation with the daily VaR estimate. This evaluation is performed at various levels of the trading portfolio, from the holding company level down to specific business lines. For the VaR model, trading related revenue is defined as principal transaction revenue, trading related commissions, revenue from securitization activities and net interest income. For a 95% confidence one day VaR model ( i.e., no intra-day trading), assuming current changes in market value are consistent with the


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historical changes used in the calculation, net trading losses would not be expected to exceed the VaR estimates more than twelve times on an annual basis ( i.e., once in every 20 days). During the year ended November 30, 2015 , results of the evaluation at the aggregate level demonstrated five days when the net trading loss exceeded the 95% one day VaR.

Certain positions within financial instruments are not included in the VaR model because VaR is not the most appropriate measure of risk. Accordingly, Risk Management has additional procedures in place to assure that the 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, 2015 (in thousands):

10% Sensitivity

Private investments

$

24,889


Corporate debt securities in default

7,223


Trade claims

1,435


Daily Net Trading Revenue

Excluding trading losses associated with the daily marking to market of our investment in KCG, there were 55 days with trading losses out of a total of 252 trading days in the year ended November 30, 2015 . Including these losses, there were 64 days with trading losses. The histogram below presents the distribution of our actual daily net trading revenue for substantially all of our trading activities for the year ended November 30, 2015 (in millions).

Scenario Analysis and Stress Tests

While VaR measures potential losses due to adverse changes in historical market prices and rates, we use stress testing to analyze the potential impact of specific events or moderate or extreme market moves on our current portfolio both firm wide and within business segments. Stress scenarios 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, changes in the shape of the yield curve and large moves in European markets. In addition, we also perform ad hoc stress tests and add new scenarios as market conditions dictate. Because our stress scenarios are meant to reflect market moves that occur over a period of time, our estimates of potential loss assume some level of position reduction for liquid positions. Unlike our 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 is performed and reported regularly as part of the risk management process. Stress testing is used to assess our aggregate risk position as well as for limit setting and risk/reward analysis.

Counterparty Credit Risk and Issuer Country Exposure

Counterparty Credit Risk


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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 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.

It is critical to our financial soundness and profitability that we properly and effectively identify, assess, monitor, and manage the various credit and counterparty risks inherent in our businesses. Credit is extended to counterparties in a controlled manner 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 on an enterprise level in order to limit exposure to loss related to credit risk.

Our Credit Risk Framework is responsible for identifying credit risks throughout the operating businesses, establishing counterparty limits and managing and monitoring those credit limits. Our framework includes:

defining credit limit guidelines and credit limit approval processes;

providing a consistent and integrated credit risk framework across the enterprise;

approving counterparties and counterparty limits with parameters set by the Risk Management Committee;

negotiating, approving and monitoring credit terms in legal and master documentation;

delivering credit limits to all relevant sales and trading desks;

maintaining credit reviews for all active and new counterparties;

operating a control function for exposure analytics and exception management and reporting;

determining the analytical standards and risk parameters for on-going management and monitoring of global credit risk books;

actively managing daily exposure, exceptions, and breaches;

monitoring daily margin call activity and counterparty performance (in concert with the Margin Department); and

setting the minimum global requirements for systems, reports, and technology.

Credit Exposures

Credit exposure exists across a wide-range of products including cash and cash equivalents, loans, securities finance transactions and over-the-counter derivative contracts.

Loans and lending arise in connection with our capital markets activities and represents the notional value of loans that have been drawn by the borrower and lending commitments that were outstanding at November 30, 2015 . In addition, credit exposures on forward settling traded loans are included within our loans and lending exposures for consistency with the balance sheet categorization of these items.

Securities and margin finance includes credit exposure arising on securities financing transactions (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.

Derivatives represent OTC derivatives, which are reported net by counterparty when a legal right of setoff exists under an enforceable master netting agreement. Derivatives are accounted for 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 include both interest-bearing and non-interest bearing deposits at banks.

Current counterparty credit exposures at November 30, 2015 and November 30, 2014 are summarized in the tables below and provided by credit quality, region and industry (in millions). 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. Of our counterparty credit exposure at November 30, 2015 , excluding cash and cash equivalents, the percentage of exposure from investment grade counter-parties increased 6% to 76% from 70% at November 30, 2014 , and are mainly concentrated in North America. When comparing our credit


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exposure at November 30, 2015 with credit exposure at November 30, 2014 , excluding cash and cash equivalents, current exposure has decreased 19% to approximately $1.4 billion from $1.7 billion. Counterparty credit exposure from OTC derivatives decreased by 47%, primarily attributable to North American and European banks and broker dealers. Loans and lending decreased over the year by 22% and securities and margin finance decreased by 9% over the year.


Counterparty Credit Exposure by Credit Rating

Loans and Lending

Securities and Margin

Finance

OTC Derivatives

Total

Cash and

Cash Equivalents

Total with Cash and

Cash Equivalents

At

At

At

At

At

At

November 30,
2015

November

 30,

2014

November 30,
2015

November
 30,
2014

November 30,
2015

November
 30,
2014

November 30,
2015

November
 30,
2014

November 30,
2015

November
 30,
2014

November 30,
2015

November
 30,
2014

AAA Range

$

-


$

-


$

11.8


$

1.9


$

-


$

-


$

11.8


$

1.9


$

2,461.4


$

2,921.4


$

2,473.2


$

2,923.3


AA Range

-


2.7


152.3


134.6


4.4


7.1


156.7


144.4


175.0


412.9


331.7


557.3


A Range

1.0


7.6


556.4


586.9


95.9


218.1


653.3


812.6


846.3


731.3


1,499.6


1,543.9


BBB Range

86.6


132.3


107.9


73.6


31.7


34.8


226.2


240.7


25.8


2.8


252.0


243.5


BB or Lower

197.5


189.9


14.8


127.9


30.1


45.2


242.4


363.0


-


-


242.4


363.0


Unrated

85.1


139.6


-


-


0.1


-


85.2


139.6


1.7


11.5


86.9


151.1


Total

$

370.2


$

472.1


$

843.2


$

924.9


$

162.2


$

305.2


$

1,375.6


$

1,702.2


$

3,510.2


$

4,079.9


$

4,885.8


$

5,782.1


Counterparty Credit Exposure by Region

Loans and Lending

Securities and Margin

Finance

OTC Derivatives

Total

Cash and

Cash Equivalents

Total with Cash and

Cash Equivalents

At

At

At

At

At

At

November 30,
2015

November
 30,
2014

November 30,
2015

November
 30,
2014

November 30,
2015

November
 30,
2014

November 30,
2015

November
 30,
2014

November 30,
2015

November
 30,
2014

November 30,
2015

November
 30,
2014

Asia/Latin America/

Other

$

37.4


$

48.8


$

15.3


$

55.7


$

40.6


$

24.6


$

93.3


$

129.1


$

159.6


$

221.0


$

252.9


$

350.1


Europe

0.4


8.5


212.2


218.2


43.4


76.1


256.0


302.8


341.8


617.5


597.8


920.3


North America

332.4


414.8


615.7


651.0


78.2


204.5


1,026.3


1,270.3


3,008.8


3,241.4


4,035.1


4,511.7


Total

$

370.2


$

472.1


$

843.2


$

924.9


$

162.2


$

305.2


$

1,375.6


$

1,702.2


$

3,510.2


$

4,079.9


$

4,885.8


$

5,782.1


Counterparty Credit Exposure by Industry

Loans and Lending

Securities and Margin

Finance

OTC Derivatives

Total

Cash and

Cash Equivalents

Total with Cash and

Cash Equivalents

At

At

At

At

At

At

November 30,
2015

November
 30,
2014

November 30,
2015

November
 30,
2014

November 30,
2015

November
 30,
2014

November 30,
2015

November
 30,
2014

November 30,
2015

November
 30,
2014

November 30,
2015

November
 30,
2014

Asset Managers

$

-


$

-


$

69.8


$

91.8


$

-


$

-


$

69.8


$

91.8


$

2,461.3


$

2,921.4


$

2,531.1


$

3,013.2


Banks, Broker-dealers

0.9


10.7


464.9


482.2


95.1


251.4


560.9


744.3


1,048.9


1,158.5


1,609.8


1,902.8


Commodities

-


-


-


59.9


16.7


24.8


16.7


84.7


-


-


16.7


84.7


Corporates/ Loans

237.4


320.8


-


-


11.3


0.8


248.7


321.6


-


-


248.7


321.6


Other

131.9


140.6


308.5


291.0


39.1


28.2


479.5


459.8


-


-


479.5


459.8


Total

$

370.2


$

472.1


$

843.2


$

924.9


$

162.2


$

305.2


$

1,375.6


$

1,702.2


$

3,510.2


$

4,079.9


$

4,885.8


$

5,782.1



For additional information regarding credit exposure to OTC derivative contracts, refer to Note 6, Derivative Financial Instruments , in our consolidated financial statements included within this Annual Report on Form 10-K.

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 country risk as the country of jurisdiction or domicile of the obligor. The following tables reflect our top exposure at November 30, 2015 and November 30, 2014 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 (in millions):



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November 30, 2015

Issuer Risk

Counterparty Risk

Issuer and 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

Excluding Cash

and Cash

Equivalents

Including Cash

and Cash

Equivalents

Belgium

$

413.8


$

(48.8

)

$

6.2


$

-


$

-


$

-


$

157.8


$

371.2


$

529.0


United Kingdom

711.6


(359.3

)

52.4


0.4


31.6


25.4


26.3


462.1


488.4


Netherlands

543.5


(139.6

)

(23.4

)

-


36.2


2.0


-


418.7


418.7


Italy

1,112.2


(662.4

)

(105.6

)

-


-


0.2


-


344.4


344.4


Ireland

164.3


(27.4

)

3.3


-


3.5


-


-


143.7


143.7


Spain

394.0


(291.9

)

(1.6

)

-


-


0.2


26.6


100.7


127.3


Australia

86.6


(24.9

)

9.6


37.4


-


0.3


0.8


109.0


109.8


Hong Kong

38.1


(22.3

)

(2.9

)

-


0.4


-


74.8


13.3


88.1


Switzerland

79.5


(28.9

)

(6.6

)

-


34.5


5.2


3.7


83.7


87.4


Portugal

111.9


(38.2

)

-


-


-


-


-


73.7


73.7


Total

$

3,655.5


$

(1,643.7

)

$

(68.6

)

$

37.8


$

106.2


$

33.3


$

290.0


$

2,120.5


$

2,410.5


November 30, 2014

Issuer Risk

Counterparty Risk

Issuer and Counterparty Risk

Fair Value of

Fair Value of

Net Derivative

Cash and

Excluding Cash

Including Cash

Long Debt

Short Debt

Notional

Loans and

Securities and

OTC

Cash

and Cash

and Cash

Securities

Securities

Exposure

Lending

Margin Finance

Derivatives

Equivalents

Equivalents

Equivalents

Germany

$

357.6


$

(153.7

)

$

196.1


$

-


$

97.8


$

16.8


$

59.5


$

514.6


$

574.1


Spain

587.2


(171.0

)

-


0.2


1.2


-


-


417.6


417.6


United Kingdom

441.0


(252.5

)

(25.4

)

6.5


29.8


25.2


138.9


224.6


363.5


Belgium

137.6


(65.9

)

(8.4

)

-


2.5


-


278.7


65.8


344.5


Canada

123.1


(28.8

)

(27.3

)

-


120.2


79.6


5.3


266.8


272.1


Netherlands

341.4


(121.0

)

(13.5

)

-


5.4


-


-


212.3


212.3


Italy

1,467.9


(880.1

)

(427.7

)

-


-


0.3


-


160.4


160.4


Hong Kong

18.4


(8.5

)

-


-


0.6


-


145.1


10.5


155.6


Luxembourg

5.6


(6.9

)

2.9


-


0.4


-


127.2


2.0


129.2


Puerto Rico

108.2


-


-


-


-


0.8


-


109.0


109.0


Total

$

3,588.0


$

(1,688.4

)

$

(303.3

)

$

6.7


$

257.9


$

122.7


$

754.7


$

1,983.6


$

2,738.3



In addition, at November 30, 2015 our issuer and counterparty risk exposure to Puerto Rico was $40.1 million , which is in connection with our municipal securities market-making activities. The government of Puerto Rico is seeking to restructure much of its $72 billion in debt on a voluntary basis. At November 30, 2015 , we had no material exposure to countries where either sovereign or non-sovereign sectors potentially pose potential default risk as the result of liquidity concerns, given that individually and collectively all countries of concern are less than 2% of Jefferies' total exposure.


Operational Risk

Operational risk refers to the risk of loss resulting from our 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 our 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 our inability to occupy one or more of our buildings. The inability of our systems to accommodate an increasing volume of transactions could also constrain our ability to expand our businesses. 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 our exposure to risk. In addition, despite the contingency plans we have in place, our ability to


48

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JEFFERIES GROUP LLC AND SUBSIDIARIES


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 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.

Legal and Compliance Risk

Legal and compliance risk includes the risk of noncompliance with applicable legal and regulatory requirements. We are subject to extensive regulation in the different jurisdictions in which we conduct our business. We have various procedures addressing issues such as regulatory capital requirements, sales and trading practices, use of and safekeeping of customer funds, credit granting, collection activities, anti-money laundering and record keeping. These risks also reflect the potential impact that changes in local and international laws and tax statutes have on the economics and viability of current or future transactions. In an effort to mitigate these risks, we continuously review new and pending regulations and legislation and participate in various industry interest groups. We also maintain an anonymous hotline for employees or others to report suspected inappropriate actions by us or by our employees or agents.

New Business Risk

New business risk refers to the risks of entering into a new line of business or offering a new product. By entering a new line of business or offering a new product, we may face risks that we are unaccustomed to dealing with and may increase the magnitude of the risks we currently face. The New Business Committee reviews proposals for new businesses and new products to determine if we are prepared to handle the additional or increased risks associated with entering into such activities.

Reputational Risk

We recognize that maintaining our reputation among clients, investors, regulators and the general public is an important aspect of minimizing legal and operational risks. Maintaining our reputation depends on a large number of factors, including the selection of our clients and the conduct of our business activities. We seek to maintain our reputation by screening potential clients and by conducting our business activities in accordance with high ethical standards. Our reputation and business activity can be affected by statements and actions of third parties, even false or misleading statements by them. We actively monitor public comment concerning us and are vigilant in seeking to assure accurate information and perception prevails.


Item 7A.

Quantitative and Qualitative Disclosures About Market Risk.

Quantitative and qualitative disclosures about market risk are set forth under "Management's Discussion and Analysis of Financial Condition and Results of Operations -Risk Management" in Part II, Item 7 of this Form 10-K.



49

Table of Contents


Item 8.

Financial Statements and Supplementary Data.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Management's Report on Internal Control over Financial Reporting

51

Report of Independent Registered Public Accounting Firm

52

Report of Independent Registered Public Accounting Firm

53

Consolidated Statements of Financial Condition at November 30, 2015 and 2014

54

Consolidated Statements of Earnings for the Year Ended November 30, 2015, Year Ended November 30, 2014, Nine Months Ended November  30, 2013 and for the Three Months Ended February 28, 2013

55

Consolidated Statements of Comprehensive Income for the Year Ended November 30, 2015, Year ended November  30, 2014, Nine Months Ended November 30, 2013 and for the Three Months Ended February 28, 2013

56

Consolidated Statements of Changes in Equity for the Year Ended November 30, 2015, Year Ended November  30, 2014, Nine Months Ended November 30, 2013 and for the Three Months Ended February 28, 2013

57

Consolidated Statements of Cash Flows for the Year ended November 30, 2015, Year Ended November  30, 2014, Nine Months Ended November 30, 2013 and for the Three Months Ended February 28, 2013

58

Notes to Consolidated Financial Statements

60



50

Table of Contents


Management's Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. 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 pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions 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 financial statements.

Because of its inherent limitations, internal control over financial 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.

Management evaluated our internal control over financial reporting as of November 30, 2015 . In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013) . As a result of this assessment and based on the criteria in this framework, management has concluded that, as of November 30, 2015 , our internal control over financial reporting was effective.

PricewaterhouseCoopers LLP, our independent registered public accounting firm, has audited and issued a report on our internal control over financial reporting, which appears on page 52.



51

Table of Contents


Report of Independent Registered Public Accounting Firm



To the Board of Directors and Member of Jefferies Group LLC


In our opinion, the accompanying consolidated statements of financial condition as of November 30, 2015 and 2014 and the related consolidated statements of earnings, of comprehensive income, of changes in equity, and of cash flows for the years ended November 30, 2015 and 2014, and the nine months ended November 30, 2013 present fairly, in all material respects, the financial position of Jefferies Group LLC and its subsidiaries (Successor Company) at November 2015 and 2014, and the results of their operations and their cash flows for the year ended November 2015 and 2014 and the nine months ended November 2013 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of November 30, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.


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 (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) 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 (iii) 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.


Because of its inherent limitations, internal control over financial 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.

/s/ PricewaterhouseCoopers LLP

New York, New York

January 29, 2016



52

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Report of Independent Registered Public Accounting Firm



To Board of Directors and Shareholders of Jefferies Group, Inc.


In our opinion, the consolidated statements of earnings, of comprehensive income, of changes in equity and of cash flows of Jefferies Group, Inc. and its subsidiaries (Predecessor company) for the three months ended February 28, 2013 present fairly, in all material respects, the results of operations and cash flows of Jefferies Group, Inc. and its subsidiaries for the three months ended February 28, 2013, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

New York, New York

January 29, 2016



53

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JEFFERIES GROUP LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(In thousands)

November 30, 2015

November 30, 2014

ASSETS

Cash and cash equivalents ($669 and $178 at November 30, 2015 and November 30, 2014, respectively, related to consolidated VIEs)

$

3,510,163


$

4,079,968


Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository

     organizations

751,084


3,444,674


Financial instruments owned, at fair value, (including securities pledged of $12,207,123 and $14,794,488 at
November 30, 2015 and November 30, 2014, respectively; and $68,679 and $62,990 at November 30, 2015
and November 30, 2014, respectively, related to consolidated VIEs)

16,559,116


18,636,612


Investments in managed funds

85,775


74,365


Loans to and investments in related parties

825,908


773,141


Securities borrowed

6,975,136


6,853,103


Securities purchased under agreements to resell

3,857,306


3,926,858


Securities received as collateral

-


5,418


Receivables:

Brokers, dealers and clearing organizations

1,574,759


2,164,006


Customers

1,191,316


1,250,520


Fees, interest and other ($329 and $363 at November 30, 2015 and November 30, 2014, respectively,
related to consolidated VIEs)

260,924


262,437


Premises and equipment

243,486


251,957


Goodwill

1,656,588


1,662,636


Other assets

1,073,581


1,131,953


Total assets

$

38,565,142


$

44,517,648


LIABILITIES AND EQUITY

Short-term borrowings

$

310,659


$

12,000


Financial instruments sold, not yet purchased, at fair value

6,785,064


8,881,268


Collateralized financings:

Securities loaned

2,979,300


2,598,487


Securities sold under agreements to repurchase

10,004,428


10,672,157


Other secured financings ($762,909 and $597,999 at November 30, 2015 and November 30, 2014,
respectively, related to consolidated VIEs)

762,909


605,824


Obligation to return securities received as collateral

-


5,418


Payables:

Brokers, dealers and clearing organizations

2,742,001


2,280,103


Customers

2,780,493


6,241,965


Accrued expenses and other liabilities ($859 and $589 at November 30, 2015 and November 30, 2014,
respectively, related to consolidated VIEs)

1,049,019


1,273,378


Long-term debt

5,641,892


6,483,617


Total liabilities

33,055,765


39,054,217


EQUITY

Member's paid-in capital

5,526,855


5,439,256


Accumulated other comprehensive loss:

Currency translation adjustments

(36,811

)

(9,654

)

Additional minimum pension liability

(8,135

)

(5,019

)

Total accumulated other comprehensive loss

(44,946

)

(14,673

)

Total member's equity

5,481,909


5,424,583


Noncontrolling interests

27,468


38,848


Total equity

5,509,377


5,463,431


Total liabilities and equity

$

38,565,142


$

44,517,648


See accompanying notes to consolidated financial statements.


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JEFFERIES GROUP LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share amounts)

Successor

Predecessor

Year 
 Ended 
 November 30, 
 2015

Year 
 Ended 
 November 30, 
 2014

Nine Months 
 Ended 
 November 30, 
 2013

Three Months 
 Ended 
 February 28, 
 2013

Revenues:

Commissions and other fees

$

659,002


$

668,801


$

472,596


$

146,240


Principal transactions

172,608


532,292


399,091


300,278


Investment banking

1,439,007


1,529,274


1,003,517


288,278


Asset management fees and investment income from

    managed funds

8,015


17,047


36,093


10,883


Interest

922,189


1,019,970


714,248


249,277


Other

74,074


78,881


94,195


27,004


      Total revenues

3,274,895


3,846,265


2,719,740


1,021,960


Interest expense

799,654


856,127


579,059


203,416


      Net revenues

2,475,241


2,990,138


2,140,681


818,544


      Interest on mandatorily redeemable preferred

          interests of consolidated subsidiaries

-


-


3,368


10,961


     Net revenues, less interest on

         mandatorily redeemable preferred

         interests of consolidated subsidiaries

2,475,241


2,990,138


2,137,313


807,583


Non-interest expenses:

Compensation and benefits

1,467,131


1,698,530


1,213,908


474,217


Non-compensation expenses:

Floor brokerage and clearing fees

199,780


215,329


150,774


46,155


Technology and communications

313,044


268,212


193,683


59,878


Occupancy and equipment rental

101,138


107,767


86,701


24,309


Business development

105,963


106,984


63,115


24,927


Professional services

103,972


109,601


72,802


24,135


Bad debt provision

(396

)

55,355


179


1,945


Goodwill impairment

-


54,000


-


-


Other

70,382


71,339


91,856


12,530


             Total non-compensation expenses

893,883


988,587


659,110


193,879


             Total non-interest expenses

2,361,014


2,687,117


1,873,018


668,096


Earnings before income taxes

114,227


303,021


264,295


139,487


Income tax expense

18,898


142,061


94,686


48,645


      Net earnings

95,329


160,960


169,609


90,842


Net earnings attributable to noncontrolling interests

1,795


3,400


8,418


10,704


 Net earnings attributable to Jefferies Group LLC/

     common stockholders

$

93,534


$

157,560


$

161,191


$

80,138


Earnings per common share:

 Basic

N/A


N/A


N/A


$

0.35


 Diluted

N/A


N/A


N/A


$

0.35


Dividends declared per common share

N/A


N/A


N/A


$

0.075


Weighted average common shares:

 Basic

N/A


N/A


N/A


213,732


 Diluted

N/A


N/A


N/A


217,844


See accompanying notes to consolidated financial statements.


55

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JEFFERIES GROUP LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

Successor

Predecessor

Year 
 Ended 
 November 30, 
 2015

Year 
 Ended 
 November 30, 
 2014

Nine Months 
 Ended 
 November 30, 
 2013

Three Months 
 Ended 
 February 28, 
 2013

Net earnings

$

95,329


$

160,960


$

169,609


$

90,842


Other comprehensive income (loss), net of tax:

Currency translation and other adjustments

(27,157

)

(30,995

)

21,341


(10,018

)

     Minimum pension liability adjustments, net of tax (1)

(3,116

)

(7,778

)

2,759


-


Total other comprehensive income (loss), net of tax (2)

(30,273

)

(38,773

)

24,100


(10,018

)

Comprehensive income

65,056


122,187


193,709


80,824


Net earnings attributable to noncontrolling interests

1,795


3,400


8,418


10,704


Comprehensive income attributable to Jefferies Group LLC/

    common stockholders

$

63,261


$

118,787


$

185,291


$

70,120



(1)

Includes income tax benefit of $4.2 million , $0.5 million , $2.5 million and $0.0 for the years ended November 30, 2015 and 2014, the nine months ended November 30, 2013 and the three months ended February 28, 2013, respectively.

(2)

None of the components of other comprehensive income (loss) are attributable to noncontrolling interests.

See accompanying notes to consolidated financial statements.


56

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JEFFERIES GROUP LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In thousands, except per share amounts)

Successor

Predecessor

Year 
 Ended 
 November 30, 
 2015

Year 
 Ended 
 November 30, 
 2014

Nine Months 
 Ended 
 November 30, 
 2013

Three Months 
 Ended 
 February 28, 
 2013

Common stock, par value $0.0001 per share:

Balance, beginning of period

$

-


$

-


$

-


$

20


Issued

-


-


-


1


Balance, end of period

$

-


$

-


$

-


$

21


Member's paid-in capital:

Balance, beginning of period

$

5,439,256


$

5,280,420


$

4,754,101


$

-


Contributions

-


-


362,255


-


Net earnings attributable to Jefferies Group LLC

93,534


157,560


161,191


-


Tax benefit (detriment) for issuance of share-based awards

(5,935

)

1,276


2,873


-


Balance, end of period

$

5,526,855


$

5,439,256


$

5,280,420


$

-


Additional paid-in capital:

Balance, beginning of period

$

-


$

-


$

-


$

2,219,959


Benefit plan share activity (1)

-


-


-


3,138


Share-based expense, net of forfeitures and clawbacks

-


-


-


22,288


Proceeds from exercise of stock options

-


-


-


57


Acquisitions and contingent consideration

-


-


-


2,535


Tax deficiency for issuance of share-based awards

-


-


-


(17,965

)

Dividend equivalents on share-based plans

-


-


-


1,418


Balance, end of period

$

-


$

-


$

-


$

2,231,430


Retained earnings:

Balance, beginning of period

$

-


$

-


$

-


$

1,281,855


Net earnings to common stockholders

-


-


-


80,138


Dividends

-


-


-


(17,217

)

Balance, end of period

$

-


$

-


$

-


$

1,344,776


Accumulated other comprehensive income (loss) (2) (3):

Balance, beginning of period

$

(14,673

)

$

24,100


$

-


$

(53,137

)

Currency adjustments

(27,157

)

(30,995

)

21,341


(10,018

)

Pension adjustments, net of tax

(3,116

)

(7,778

)

2,759


-


Balance, end of period

$

(44,946

)

$

(14,673

)

$

24,100


$

(63,155

)

Treasury stock, at cost:

Balance, beginning of period

$

-


$

-


$

-


$

(12,682

)

Purchases

-


-


-


(166,541

)

Returns / forfeitures

-


-


-


(1,922

)

Balance, end of period

$

-


$

-


$

-


$

(181,145

)

Total member's / common stockholders' equity

$

5,481,909


$

5,424,583


$

5,304,520


$

3,331,927


Noncontrolling interests:

Balance, beginning of period

$

38,848


$

117,154


$

356,180


$

346,738


Net earnings attributable to noncontrolling interests

1,795


3,400


8,418


10,704


Contributions

-


39,075


100,210


-


Distributions

(4,982

)

-


(25

)

(1,262

)

Redemptions

-


-


(347,629

)

-


Deconsolidation of asset management company

(8,193

)

(120,781

)

-


-


Balance, end of period

$

27,468


$

38,848


$

117,154


$

356,180


Total equity

$

5,509,377


$

5,463,431


$

5,421,674


$

3,688,107


(1)

Includes grants related to the Incentive Plan, Deferred Compensation Plan and Directors' Plan.

(2)

The components of other comprehensive income (loss) are attributable to Jefferies Group LLC (formerly Jefferies Group, Inc.). None of the components of other comprehensive income (loss) are attributable to noncontrolling interests.

(3)

There were no material reclassifications out of Accumulated other comprehensive income during the year ended November 30, 2015 , the year ended November 30, 2014 and the nine months ended November 30, 2013 .

See accompanying notes to consolidated financial statements.


57

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JEFFERIES GROUP LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Successor

Predecessor

Year 
 Ended 
 November 30, 
 2015

Year 
 Ended 
 November 30, 
 2014

Nine Months 
 Ended 
 November 30, 
 2013

Three Months 
 Ended 
 February 28, 
 2013

Cash flows from operating activities:

Net earnings

$

95,329


$

160,960


$

169,609


$

90,842


Adjustments to reconcile net earnings to net cash (used in) provided    by operating activities:

Depreciation and amortization

15,236


691


(2,509

)

17,393


Goodwill impairment

-


54,000


-


-


Interest on mandatorily redeemable preferred interests of   consolidated subsidiaries

-


-


3,368


10,961


Accruals related to various benefit plans and stock issuances,   net of forfeiture

-


-


-


23,505


Deferred income taxes

88,796


122,195


31,284


30,835


Income on loans to and investments in related parties

(75,717

)

(90,243

)

(92,181

)

-


Distributions received on investments in related parties

76,681


53,985


37,742


-


Other adjustments

(97,804

)

(78,064

)

(14,740

)

(1,154

)

Net change in assets and liabilities:

Cash and securities segregated and on deposit for regulatory   purposes or deposited with clearing and depository   organizations

2,691,028


166,108


113,754


352,891


Receivables:

Brokers, dealers and clearing organizations

576,832


11,872


506,774


(1,225,840

)

Customers

57,837


(294,412

)

(170,286

)

67,626


Fees, interest and other

541


(12,062

)

(29,388

)

(29,149

)

Securities borrowed

(127,060

)

(1,497,438

)

(41,678

)

(224,557

)

Financial instruments owned

2,003,978


(2,243,053

)

(200,974

)

229,394


Loans to and investments in related parties

-


-


-


(197,166

)

Investments in managed funds

15,498


13,473


2,674


(2,213

)

Securities purchased under agreements to resell

53,817


(200,568

)

(156,197

)

(224,418

)

Other assets

(63,110

)

(146,114

)

47,296


(5,346

)

Payables:

Brokers, dealers and clearing organizations

471,661


968,615


(532,255

)

(1,018,241

)

Customers

(3,455,080

)

1,089,423


(224,772

)

(124,233

)

Securities loaned

385,929


95,607


600,539


(28,138

)

Financial instruments sold, not yet purchased

(2,043,319

)

1,832,930


(2,511,777

)

2,327,667


Securities sold under agreements to repurchase

(650,795

)

(84,303

)

2,794,412


(197,493

)

Accrued expenses and other liabilities

(230,370

)

69,459


414,515


(267,336

)

Net cash (used in) provided by operating activities

(210,092

)

(6,939

)

745,210


(394,170

)

Cash flows from investing activities:

Contributions to loans to and investments in related parties

(1,438,675

)

(2,786,394

)

(2,241,232

)

-


Distributions from loans to and investments in related parties

1,384,944


2,751,384


2,360,691


-


Net payments on premises and equipment

(68,813

)

(110,536

)

(48,534

)

(10,706

)

Cash disposed in connection with disposal of reporting units,   net of cash received

-


-


(4,939

)

-


Deconsolidation of asset management entity

(16,512

)

(137,856

)

-


-


Cash received from contingent consideration

4,444


6,253


3,796


1,203


Net cash (used in) provided by investing activities

(134,612

)

(277,149

)

69,782


(9,503

)


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JEFFERIES GROUP LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS – CONTINUED

(In thousands)

Successor

Predecessor

Year 
 Ended 
 November 30, 
 2015

Year 
 Ended 
 November 30, 
 2014

Nine Months 
 Ended 
 November 30, 
 2013

Three Months 
 Ended 
 February 28, 
 2013

Cash flows from financing activities:

Excess tax benefits from the issuance of share-based awards

$

749


$

1,921


$

3,054


$

5,682


Proceeds from short-term borrowings

17,263,217


18,965,163


13,623,650


6,744,000


Payments on short-term borrowings

(16,964,558

)

(18,965,163

)

(13,711,650

)

(6,794,000

)

Proceeds from secured credit facility

903,000


2,819,000


920,000


900,000


Payments on secured credit facility

(1,073,000

)

(2,849,000

)

(980,000

)

(990,007

)

Net proceeds from other secured financings

157,085


371,113


114,711


60,000


Net proceeds from issuance of senior notes, net of issuance

  costs

-


681,222


-


991,469


Repayment of long-term debt

(500,000

)

(250,000

)

-


-


Proceeds from contributions of noncontrolling interests

-


39,075


100,210


-


Payments on mandatorily redeemable preferred interest of   consolidated subsidiaries

-


-


(64

)

(61

)

Payments on repurchase of common stock

-


-


-


(166,541

)

Payments on dividends

-


-


-


(15,799

)

Proceeds from exercise of stock options, not including tax   benefits

-


-


-


57


Payments on distributions to noncontrolling interests

(4,982

)

-


(347,654

)

(1,262

)

Net cash (used in) provided by financing   activities

(218,489

)

813,331


(277,743

)

733,538


Effect of changes in exchange rates on cash and cash equivalents

(6,612

)

(10,394

)

5,912


(4,502

)

Net (decrease) increase in cash and cash   equivalents

(569,805

)

518,849


543,161


325,363


Cash and cash equivalents at beginning of period

4,079,968


3,561,119


3,017,958


2,692,595


Cash and cash equivalents at end of period

$

3,510,163


$

4,079,968


$

3,561,119


$

3,017,958


Supplemental disclosures of cash flow information:

Cash paid (received) during the period for:

Interest

$

859,815


$

922,194


$

638,657


$

178,836


Income taxes, net

(683

)

120,703


55,251


(34,054

)


Noncash financing activities:

In connection with the transaction with Leucadia National Corporation, Jefferies Group LLC recorded accounting adjustments for the Leucadia Transaction, which resulted in changes to equity. Refer to Note 4, Leucadia and Related Transactions, for further details.

On March 31, 2013, Leucadia contributed its mandatorily redeemable preferred interests in JHYH to Jefferies Group, LLC. The contribution was recorded as a capital contribution and increased member's equity by $362.3 million . Refer to Note 4, Leucadia and Related Transactions, for further details.

See accompanying notes to consolidated financial statements.



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Index

Note

Page

Note 1. Organization and Basis of Presentation

61

Note 2. Summary of Significant Accounting Policies

62

Note 3. Accounting Developments

69

Note 4. Leucadia and Related Transactions

70

Note 5. Fair Value Disclosures

73

Note 6. Derivative Financial Instruments

92

Note 7. Collateralized Transactions

98

Note 8. Securitization Activities

100

Note 9. Variable Interest Entities

102

Note 10. Investments

105

Note 11. Goodwill and Other Intangible Assets

108

Note 12. Short-Term Borrowings

111

Note 13. Long-Term Debt

111

Note 14. Noncontrolling Interests

113

Note 15. Benefit Plans

113

Note 16. Compensation Plans

118

Note 17. Non-Interest Expenses

121

Note 18.Earnings Per Share

122

Note 19. Income Taxes

123

Note 20. Commitments, Contingencies and Guarantees

126

Note 21. Net Capital Requirements

129

Note 22. Segment Reporting

129

Note 23. Related Party Transactions

130

Note 24. Exit Costs

132

Note 25. Selected Quarterly Financial Data

133



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Note 1. Organization and Basis of Presentation

Organization

Jefferies Group LLC and its subsidiaries operate as a global full service, integrated securities and investment banking firm. The accompanying Consolidated Financial Statements represent the accounts of Jefferies Group LLC and all our subsidiaries (together "we" or "us"). The subsidiaries of Jefferies Group LLC include Jefferies LLC ("Jefferies"), Jefferies Execution Services, Inc. ("Jefferies Execution"), Jefferies International Limited, Jefferies Hong Kong Limited, Jefferies Financial Services, Inc., Jefferies Funding LLC, Jefferies Derivative Products, LLC, Jefferies Financial Products, LLC and Jefferies Leveraged Credit Products, LLC and all other entities in which we have a controlling financial interest or are the primary beneficiary. On September 1, 2014, Jefferies Bache, LLC merged with and into Jefferies (a U.S. broker-dealer), with Jefferies as the surviving entity. On April 9, 2015, we entered into an agreement to transfer certain of the client activities of our Jefferies Bache business to Société Générale S.A. and initiated a plan to substantially exit the remaining aspects of our futures business. At November 30, 2015 , we have transferred all of our client accounts to Société Générale S.A. and other brokers. We substantially completed the exit of the Bache business during fiscal 2015. For further information on the exit of the Bache business, refer to Note 24, Exit Costs .

On March 1, 2013, Jefferies Group LLC, through a series of transactions, became an indirect wholly owned subsidiary of Leucadia National Corporation ("Leucadia") (referred to herein as the "Leucadia Transaction"). Each outstanding share of Jefferies Group LLC was converted into 0.81 of a share of Leucadia common stock (the "Exchange Ratio"). Leucadia did not assume nor guarantee any of our outstanding debt securities. Our 3.875% Convertible Senior Debentures due 2029 are convertible into Leucadia common shares (see Note 13, Long-Term Debt , for further details). Jefferies Group LLC operates as a full-service investment banking firm and as the holding company of its various regulated and unregulated operating subsidiaries, retains a credit rating separate from Leucadia and is a Securities and Exchange Commission ("SEC") reporting company, filing annual, quarterly and periodic financial reports. Richard Handler, our Chief Executive Officer and Chairman, is the Chief Executive Officer of Leucadia, as well as a Director of Leucadia. Brian P. Friedman, our Chairman of the Executive Committee, is Leucadia's President and a Director of Leucadia.

We operate in two business segments, Capital Markets and Asset Management. Capital Markets, which represents substantially our entire business, includes our securities, commodities, futures and foreign exchange trading and investment banking activities, which provides the research, sales, trading, origination and advisory effort for various equity, fixed income and advisory products and services. Asset Management provides investment management services to various private investment funds and separate accounts.

On April 1, 2013, we merged Jefferies High Yield Trading, LLC (our high yield trading broker-dealer) with Jefferies and our high yield activities are now conducted by Jefferies. In addition, during the three months ended May 31, 2013, we redeemed the third party interests in our high yield joint venture.

Basis of Presentation

The accompanying Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for financial information.

As more fully described in Note 4, Leucadia and Related Transactions , the Leucadia Transaction is accounted for using the acquisition method of accounting, which requires that the assets, including identifiable intangible assets, and liabilities of Jefferies Group LLC be recorded at their fair values. The application of the acquisition method of accounting has been pushed down and reflected in the financial statements of Jefferies Group LLC as a wholly-owned subsidiary of Leucadia. The application of push down accounting represents the termination of the prior reporting entity and the creation of a new reporting entity, which do not have the same bases of accounting. As a result, our consolidated financial statements are presented for periods subsequent to March 1, 2013 for the new reporting entity (the "Successor"), and before March 1, 2013 for the prior reporting entity (the "Predecessor.") The Predecessor and Successor periods are separated by a vertical line to highlight the fact that the financial information for such periods has been prepared under two different cost bases of accounting.

We have 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 U.S. GAAP. The most important of these estimates and assumptions relate to fair value measurements, compensation and benefits, 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.


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Cash Flow Statement Presentation

Amounts relating to loans and investments in related parties are classified as components of investing activities on the Consolidated Statements of Cash Flows to conform to the presentation of our Parent company in connection with the establishment of a new accounting entity through the application of push down accounting. These amounts are classified by the Predecessor entity as operating activities for reporting periods prior to the Leucadia Transaction.

Consolidation

Our policy is to consolidate all entities in which we control by ownership 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. For consolidated entities that are less than wholly owned, the third-party's holding of equity interest is presented as Noncontrolling interests in the Consolidated Statements of Financial Condition and Consolidated Statements of Changes in Equity. The portion of net earnings attributable to the noncontrolling interests are presented as Net earnings to noncontrolling interests in the Consolidated Statements of Earnings.

In situations where we have significant influence, but not control, of an entity that does not qualify as a variable interest entity, we apply either the equity method of accounting or fair value accounting pursuant to the fair value option election under U.S. GAAP, with our portion of net earnings or gains and losses recorded within Other revenues or Principal transaction 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.



Note 2. Summary of Significant Accounting Policies

Revenue Recognition Policies

Commissions and Other Fees. All customer securities transactions are reported on 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 not the primary obligor for these arrangements, netted against commission revenues in the Consolidated Statements of Earnings. The commissions and related expenses on client transactions executed by Jefferies, a futures commission merchant ("FCM"), are recorded on a half-turn basis. In addition, we earn asset-based fees associated with the management and supervision of assets, account services and administration related to customer accounts.

Principal Transactions. Financial instruments owned and Financial instruments sold, but not yet purchased (all of which are recorded on a trade-date basis) are carried at fair value with gains and losses reflected in Principal transaction revenues in the Consolidated Statements of Earnings on a trade date basis. Fees received on loans carried at fair value are also recorded within Principal transaction revenues.

Investment Banking. Underwriting revenues and fees from mergers and acquisitions, restructuring and other investment banking advisory assignments or engagements are recorded when the services related to the underlying transactions are completed under the terms of the assignment or engagement. Expenses associated with such assignments are deferred until reimbursed by the client, the related revenue is recognized or the engagement is otherwise concluded. Expenses are recorded net of client reimbursements and netted against revenues. Unreimbursed expenses with no related revenues are included in Business development and Professional services expenses in the Consolidated Statements of Earnings.

Asset Management Fees and Investment Income From Managed Funds. Asset management fees and investment income from managed funds include revenues we earn from management, administrative and performance fees from funds and accounts managed by us, revenues from management and performance fees we earn from related-party managed funds and investment income from our investments in these funds. We earn fees in connection with management and investment advisory services performed for


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


various funds and managed accounts. These fees are based on assets under management or an agreed upon notional amount and may include performance fees based upon the performance of the funds. Management and administrative fees are generally recognized over the period that the related service is provided. Generally, performance fees are earned when the return on assets under management exceeds certain benchmark returns, "high-water marks" or other performance targets. Performance fees are accrued (or reversed) on a monthly basis based on measuring performance to date versus any relevant benchmark return hurdles stated in the investment management agreement. Performance fees are not subject to adjustment once the measurement period ends (generally annual periods) and the performance fees have been realized.

Interest Revenue and Expense.  We recognize contractual interest on Financial instruments owned and Financial instruments sold, but not yet purchased, on an accrual basis as a component of interest revenue and expense. Interest flows on derivative trading transactions and dividends are included as part of the fair valuation of these contracts and recognized in Principal transaction revenues in the Consolidated Statements of Earnings rather than as a component of interest revenue or expense. We account for our short- and long-term borrowings on an accrual basis with related interest recorded as Interest expense. Discounts/premiums arising on our long-term debt are accreted/amortized to Interest expense using the effective yield method over the remaining lives of the underlying debt obligations. In addition, we recognize interest revenue related to our securities borrowed and securities purchased under agreements to resell activities and interest expense related to our securities loaned and securities sold under agreements to repurchase activities on an accrual basis.

Cash Equivalents

Cash equivalents include highly liquid investments, including certificates of deposit and money market funds, 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 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. In addition, certain financial instruments used for initial and variation margin purposes with clearing and depository organizations are recorded in this caption. Jefferies as an FCM is obligated by rules mandated by the Commodity Futures Trading Commission ("CFTC") under the Commodities Exchange Act, to segregate or set aside cash or qualified securities to satisfy such regulations, which regulations have been promulgated to protect customer assets. During October 2015, Jefferies ceased being a full service FCM. As a result, Jefferies no longer carries customer or proprietary accounts or holds any customer monies or funds. 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.

Financial Instruments and Fair Value

Financial instruments owned and Financial instruments sold, not yet purchased 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 are recognized in Principal transaction revenues in our Consolidated Statements of Earnings. 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:


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Level 1:

Quoted prices are available in active markets for identical assets or liabilities at the reported date.

Level 2:

Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these financial instruments include cash instruments for which quoted prices are available but traded less frequently, derivative instruments whose fair value have been derived using a model where inputs to the model are directly observable in the market, or can be derived principally from or corroborated by observable market data, and instruments that are fair valued using other financial instruments, the parameters of which can be directly observed.

Level 3:

Instruments that have little to no pricing observability 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 upon consideration of available information, including types of financial instruments, current financial information, restrictions on dispositions, fair values of underlying financial instruments and quotations for similar instruments.

The valuation of financial instruments may include the use of valuation models and other techniques. Adjustments to valuations derived from valuation models may be made when, in management's judgment, features of the financial instrument such as its complexity, the market in which the financial instrument is traded and risk uncertainties about market conditions require that an adjustment be made to the value derived from the models. 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. Transfers among the levels are recognized at the beginning of each period. The degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.

Valuation Process for Financial Instruments

Our Independent Price Verification ("IPV") Group, which is part of our Finance department, in partnership with Risk Management, is responsible for establishing our valuation policies and procedures. The IPV Group and Risk Management, which are independent of our business functions, play an important role and serve as a control function in determining that our 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. The IPV Group reports to the Global Controller and is subject to the oversight of the IPV Committee, which is comprised of our Chief Financial Officer, Global Controller, Chief Risk Officer and Principal Accounting Officer, among other personnel. Our independent price verification policies and procedures are reviewed, at a minimum, annually and changes to the policies require the approval of the IPV Committee.

Price Testing Process. The business units are responsible for determining the fair value of our financial instruments using approved valuation models and methodologies. In order to ensure that the business unit valuations represent a fair value exit price, the IPV Group tests and validates the fair value of our financial instruments inventory. In the testing process, the IPV Group obtains prices and valuation inputs from independent sources, consistently adheres to established procedures set forth in our valuation policies for sourcing prices and valuation inputs and utilizing valuation methodologies. Sources used to validate fair value prices and inputs include, but are not limited to, exchange data, recently executed transactions, pricing data obtained from third party vendors, pricing and valuation services, broker quotes and observed comparable transactions.


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To the extent discrepancies between the business unit valuations and the pricing or valuations resulting from the price testing process are identified, such discrepancies are investigated by the IPV Group and fair values are adjusted, as appropriate. The IPV Group maintains documentation of its testing, results, rationale and recommendations and prepares a monthly summary of its valuation results. This process also forms the basis for our classification of fair values within the fair value hierarchy ( i.e., Level 1, Level 2 or Level 3). The IPV Group utilizes the additional expertise of Risk Management personnel in valuing more complex financial instruments and financial instruments with less or limited pricing observability. The results of the valuation testing are reported to the IPV Committee on a monthly basis, which discusses the results and is charged with the final conclusions as to the financial instrument fair values in the consolidated financial statements. This process specifically assists the Chief Financial Officer in asserting as to the fair presentation of our financial condition and results of operations as included within our Quarterly Reports on Form 10-Q and Annual Report on Form 10-K. At each quarter end, the overall valuation results, as concluded upon by the IPV Committee, are presented to the Audit Committee.

Judgment exercised in determining Level 3 fair value measurements is supplemented by daily analysis of profit and loss performed by the Product Control functions. Gains and losses, which result from changes in fair value, are evaluated and corroborated daily based on an understanding of each of the trading desks' overall risk positions and developments in a particular market on the given day. Valuation techniques generally rely on recent transactions of suitably comparable financial instruments and use the observable inputs from those comparable transactions as a validation basis for Level 3 inputs. Level 3 fair value measurements are further validated through subsequent sales testing and market comparable sales, if such information is available. Level 3 fair value measurements require documentation of the valuation rationale applied, which is reviewed for consistency in application from period to period; and the documentation includes benchmarking the assumptions underlying the valuation rationale against relevant analytic data.

Third Party Pricing Information. Pricing information obtained from external data providers (including independent pricing services and brokers) may incorporate a range of market quotes from dealers, recent market transactions and benchmarking model derived prices to quoted market prices and trade data for comparable securities. External pricing data is subject to evaluation for reasonableness by the IPV Group using a variety of means including comparisons of prices to those of similar product types, quality and maturities, consideration of the narrowness or wideness of the range of prices obtained, knowledge of recent market transactions and an assessment of the similarity in prices to comparable dealer offerings in a recent time period. We have a process whereby we challenge the appropriateness of pricing information obtained from external data providers (including independent pricing services and brokers) in order to validate the data for consistency with the definition of a fair value exit price. Our process includes understanding and evaluating the external data providers' valuation methodologies. For corporate, U.S. government and agency and municipal debt securities, and loans, to the extent independent pricing services or broker quotes are utilized in our valuation process, the vendor service providers are collecting and aggregating observable market information as to recent trade activity and active bid-ask submissions. The composite pricing information received from the independent pricing service is thus not based on unobservable inputs or proprietary models. For mortgage- and other asset-backed securities and collateralized debt obligations, our independent pricing services use a matrix evaluation approach incorporating both observable yield curves and market yields on comparable securities as well as implied inputs from observed trades for comparable securities in order to determine prepayment speeds, cumulative default rates and loss severity. Further, we consider pricing data from multiple service providers as available as well as compare pricing data to prices we have observed for recent transactions, if any, in order to corroborate our valuation inputs.

Model Review Process. Where a pricing model is to be used to determine fair value, the pricing model is reviewed for theoretical soundness and appropriateness by Risk Management, independent from the trading desks, and then approved by Risk Management to be used in the valuation process. Review and approval of a model for use may include benchmarking the model against relevant third party valuations, testing sample trades in the model, backtesting the results of the model against actual trades and stress-testing the sensitivity of the pricing model using varying inputs and assumptions. In addition, recently executed comparable transactions and other observable market data are considered for purposes of validating assumptions underlying the model. Models are independently reviewed and validated by Risk Management annually or more frequently if market conditions or use of the valuation model changes.

Investments in Managed Funds

Investments in managed funds include our investments in funds managed by us and our investments in related-party managed funds in which we are entitled to a portion of the management and/or performance fees. Investments in nonconsolidated managed funds are accounted for at fair value based on the net asset value ("NAV") of the funds provided by the fund managers with gains


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or losses included in Asset management fees and investment income (loss) from managed funds in the Consolidated Statements of Earnings.


Loans to and Investments in Related Parties

Loans to and investments in related parties include investments in private equity and other operating entities made in connection with our capital markets activities in which we exercise significant influence over operating and capital decisions and loans issued in connection with such activities. Loans to and investments in related parties are accounted for using the equity method or at cost, as appropriate. Revenues on Loans to and investments in related parties are included in Other revenues in the Consolidated Statements of Earnings. See Note 10, Investments , and Note 23, Related Party Transactions , for additional information regarding certain of these investments.

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. We have an active securities borrowed and lending matched book business in which we borrow securities from one party and lend them to another party. When we borrow securities, we generally provide cash to the lender as collateral, which is reflected in our 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 our 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 income and Interest expense on our Consolidated Statements of Earnings on an accrual basis. Repos are presented in the Consolidated Statements of Financial Condition on a net-basis by counterparty, where permitted by U.S. GAAP. We monitor the fair value of the underlying securities 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.

Premises and Equipment

Premises and equipment are depreciated using the straight-line method over the estimated useful lives of the related assets (generally three to ten years ). Leasehold improvements are amortized using the straight-line method over the term of the related leases or the estimated useful lives of the assets, whichever is shorter. Premises and equipment includes internally developed software, which was increased to its fair market value in the allocation of the purchase price on March 1, 2013. The revised carrying values of internally developed software ready for its intended use are depreciated over the remaining useful life. (See Note 4, Leucadia and Related Transactions for more information regarding the allocation of the purchase price.)

At November 30, 2015 and November 30, 2014 , furniture, fixtures and equipment, including amounts under capital leases, amounted to $365.8 million and $351.1 million , respectively, and leasehold improvements amounted to $190.5 million and $156.9 million , respectively. Accumulated depreciation and amortization was $312.8 million and $256.0 million at November 30, 2015 and November 30, 2014 , respectively.

Depreciation and amortization expense amounted to $78.7 million for the year ended November 30, 2015 , $58.0 million for the year ended November 30, 2014 , $38.8 million for the nine months ended November 30, 2013 and $12.9 million for the three months ended February 28, 2013, respectively.


Goodwill and Intangible Assets


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Goodwill . Goodwill represents the excess acquisition cost over the fair value of net tangible and intangible assets acquired. Goodwill is not amortized and is subject to annual impairment testing on August 1 or between annual tests if an event or change in circumstance occurs that would more likely than not reduce the fair value of a reporting unit below its carrying value. 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 required. If we conclude otherwise, we are required to perform the two-step impairment test. The goodwill impairment test is performed at the reporting unit level by comparing the estimated fair value of a reporting unit with its respective carrying value. 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 the carrying value, further analysis is necessary to determine the amount of impairment, if any, by comparing the implied fair value of the reporting unit's goodwill to the carrying value of the reporting unit's goodwill.

The fair value of reporting units are 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 the fair value of reporting units include market valuation methods that incorporate price-to-earnings and price-to-book multiples of comparable exchange traded companies and multiples of merger and acquisitions of similar businesses. 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.

Intangible Assets . Intangible assets deemed to have finite lives are 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. For amortizable intangible assets, impairment exists when the carrying amount of the intangible asset exceeds its fair value. At least annually, the remaining useful life is evaluated.

An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. 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. Our annual indefinite-lived intangible asset impairment testing date is August 1.

To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset that is amortized over the remaining useful life of that asset, if any. Subsequent reversal of impairment losses is not permitted.

Refer to Note 11, Goodwill and Other Intangible Assets , for further information.

Income Taxes

Prior to the Leucadia Transaction, we filed a consolidated U.S. federal income tax return, which included all of our qualifying subsidiaries. Subsequently, our results of operations are included in the consolidated federal and applicable state income tax returns filed by Leucadia. In states that neither accept nor require combined or unitary tax returns, certain subsidiaries file separate state income tax returns. We also are subject to income tax in various foreign jurisdictions in which we operate. We account for our provision for income taxes using a "separate return" method. Amounts provided for income taxes are based on income reported for financial statement purposes and do not necessarily represent amounts currently payable. Pursuant to a tax sharing agreement entered into between us and Leucadia, payments are made between us and Leucadia to settle current tax assets and liabilities.


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. Under acquisition accounting, the recognition of certain assets and liabilities at fair value created a change in the financial reporting basis for our assets and liabilities, while the tax basis of our assets and liabilities remained the same. As a result, deferred tax assets and liabilities were recognized for the change in the basis differences. We provide deferred taxes on our temporary differences and on any carryforwards that we could claim on our


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hypothetical tax return. 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.


The tax benefit related to Leucadia dividends and dividend equivalents paid on non-vested share-based awards are recognized as an increase to Additional paid-in capital. These amounts, and other windfall tax effects, are included in "Tax benefit (detriment) for issuance of share-based awards" on the Consolidated Statements of Changes in Equity. In the event tax benefits associated with share-based awards are less than the cumulative compensation cost recognized for financial reporting purposes, we look to Leucadia's consolidated pool of windfall tax benefits in the calculation of our income tax provision. Once Leucadia's consolidated pool of windfall tax benefits has been depleted, these tax benefits will be recognized in our Consolidated Statements of Earnings.

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.

Legal Reserves

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 in Accrued expenses and other liabilities 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. At November 30, 2015 , we have reserved approximately $0.5 million for remaining payments under a non-prosecution agreement with the United States Attorney for the District of Connecticut and a settlement agreement with the SEC, both with respect to an investigation of certain purchases and sales of mortgage-backed securities. We believe that any other matters for which we have determined a loss to be probable and reasonably estimable are not material to the consolidated financial statements.

In many instances, it is not possible to determine whether any loss is probable or even possible or to estimate the amount of any loss or the size of any range of loss. We believe that, in the aggregate, the pending legal actions or regulatory proceedings and any other exams, investigations or similar reviews (both formal and informal) should not have a material adverse effect on our consolidated results of operations, cash flows or financial condition. In addition, we believe that any amount that could be reasonably estimated of potential loss or range of potential loss in excess of what has been provided in the consolidated financial statements is not material.

Share-based Compensation

Share-based awards are measured based on the grant-date fair value of the award and recognized over the period from the service inception date through the date the employee is no longer required to provide service to earn the award. Expected forfeitures are included in determining share-based compensation expense.

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 a 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 Other comprehensive income. Gains or losses resulting from foreign currency transactions are included in Principal transaction revenues in the Consolidated Statements of Earnings.

Securitization Activities

We engage in securitization activities related to corporate loans, consumer loans, commercial mortgage loans and mortgage-backed and other asset-backed securities. Such transfers of financial assets 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


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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 within Financial instruments owned in the Consolidated Statements of Financial Condition at fair value. Any changes in the fair value of such retained interests are recognized within Principal transactions revenues in the Consolidated Statements of Earnings.

When a transfer of assets does not meet the criteria of a sale, we account for the transfer as a secured borrowing and continue to recognize the assets of a secured borrowing in Financial instruments owned and recognize the associated financing in Other secured financings in the Consolidated Statements of Financial Condition.


Earnings per Common Share

As a single member limited liability company, earnings per share is not calculated for Jefferies Group LLC (the Successor company).

Prior to the Leucadia Transaction, Jefferies Group, Inc. (the Predecessor company) had common shares and other common share equivalents outstanding. For the Predecessor period, basic earnings per share ("EPS") was 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. For Predecessor periods, diluted EPS was computed by dividing net earnings available to common shareholders plus dividends on dilutive mandatorily redeemable convertible preferred stock 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 earning per share. Restricted stock and Restricted stock units ("RSUs") granted as part of our 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, Basic and Diluted earnings per share were calculated under the two-class method.


Note 3. Accounting Developments

Accounting Standards to be Adopted in Future Periods


Financial Instruments. In January 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-01, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. The guidance affects the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements of financial instruments. The guidance is effective in the first quarter of fiscal 2019. Early adoption is permitted for the accounting guidance on financial liabilities under the fair value option. We are currently evaluating the impact of the new guidance on our consolidated financial statements.

Debt Issuance Costs. In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs. The accounting guidance requires that debt issuance costs related to a recognized debt liability be reported in the Consolidated Statements of Financial Condition as a direct deduction from the carrying amount of that debt liability. The guidance is effective retrospectively beginning in the first quarter of fiscal 2017 and early adoption is permitted. The adoption of this accounting guidance is not expected to have a material impact on our Consolidated Statements of Financial Condition.

Consolidation. In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. The amendment eliminates the deferral of certain consolidation standards for entities considered to be investment companies and modifies the consolidation analysis performed on certain types of legal entities. We adopted this guidance in the first quarter of fiscal 2016. The adoption of this amendment did not have a material impact on our consolidated financial statements.

Revenue Recognition . In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers ("ASU No. 2014-09") and in August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers - Deferral of Effective Date. The accounting guidance defines how companies report revenues from contracts with customers, and also requires enhanced


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disclosures. We intend to adopt the new guidance on December 1, 2017 and are currently evaluating the impact of the new guidance on our consolidated financial statements.


Adopted Accounting Standards

Repurchase Agreements. In June 2014, the FASB issued ASU No. 2014-11, Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. The accounting guidance changed the accounting for repurchase-to-maturity transactions and linked repurchase financings to secured borrowing accounting, which is consistent with the accounting for other repurchase agreements. This accounting change was effective in the second quarter of fiscal 2015. The guidance also required new disclosures about certain transfers of financial assets accounted for as sales as well as increased transparency about the types of collateral pledged and remaining maturity of repurchase and securities lending agreements. The disclosure guidance related to certain transactions accounted for as sales was effective prospectively in the second quarter of fiscal 2015. The disclosure guidance related to the types of collateral pledged and remaining maturity of repurchase and securities lending agreements was effective prospectively in the third quarter of fiscal 2015. This guidance did not have a material effect on our consolidated financial statements and we have provided the additional disclosures in our consolidated financial statements.

Investments in Certain Entities That Calculate Net Asset Value. In May 2015, the FASB issued ASU No. 2015-07, "Fair Value Measurement (Topic 820) - Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)" ("ASU No. 2015-07"). The guidance removed the requirement to include investments in the fair value hierarchy for which the fair value is measured at NAV using the practical expedient under "Fair Value Measurements and Disclosures (Topic 820)." The guidance also removed the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value practical expedient. Rather, those disclosures are limited to investments for which we have elected to measure the fair value using that practical expedient. The guidance is effective retrospectively and we early adopted this guidance during the second quarter of fiscal 2015. Since the guidance only impacts our disclosures, adoption did not affect our consolidated financial statements. The adjustments had the impact of reducing Level 3 assets by $97.1 million at November 30, 2014 and $91.6 million at November 30, 2013. For further information on the adoption of ASU No. 2015-07, refer to Note 5, Fair Value Disclosures .

Discontinued Operations . In April 2014, the FASB issued ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The guidance changes the criteria for disposals to qualify as discontinued operations and requires new disclosures about disposals of both discontinued operations and certain other disposals that do not meet the new definition. The guidance was effective beginning in the first quarter of 2015. The adoption of this guidance did not have a significant impact on our consolidated financial statements.

Income Taxes. In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The guidance requires an entity to net their unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements against a deferred tax asset for a net operating loss carryforward, a similar tax loss or tax credit carryforward, unless such tax loss or credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes resulting from the disallowance of a tax position. In the event that the tax position is disallowed or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit shall be presented in the financial statements as a liability and shall not be combined with deferred tax assets. The guidance was effective for fiscal years and interim periods within those years, beginning after December 15, 2013, and is applied prospectively to all unrecognized tax benefits that exist at the effective date. The adoption of this update, effective December 1, 2014, did not have a material effect on our consolidated financial statements.



Note 4. Leucadia and Related Transactions

Leucadia Transaction

On March 1, 2013, Jefferies Group LLC completed a business combination with Leucadia and became a wholly-owned subsidiary of Leucadia as described in Note 1, Organization and Basis of Presentation. Each share of Jefferies Group Inc.'s common stock outstanding was converted into common shares of Leucadia at an Exchange Ratio of 0.81 of a Leucadia common share for each share of Jefferies Group, Inc. (the "Exchange Ratio"). Leucadia exchanged Jefferies Group, Inc.'s $125.0 million 3.25% Series A-1 Convertible Cumulative Preferred Stock for a new series of Leucadia $125.0 million 3.25% Cumulative Convertible Preferred Shares. In addition, each restricted share and restricted stock unit of Jefferies Group, Inc. common stock was converted at the


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Exchange Ratio, into an equivalent award of shares of Leucadia, with all such awards for Leucadia shares subject to the same terms and conditions, including, without limitation, vesting and, in the case of performance-based restricted stock units, performance being measured at existing targets.

Leucadia did not assume or guarantee any of our outstanding debt securities, but our 3.875% Convertible senior Debentures due 2029 with an aggregate principal amount of $345.0 million became convertible into common shares of Leucadia. Other than the conversion into Leucadia common shares, the terms of the debenture remain the same.

The Leucadia Transaction resulted in a change in our ownership and was recorded under the acquisition method of accounting by Leucadia and pushed-down to us by allocating the total purchase consideration of $4.8 billion to the cost of the assets acquired, including intangible assets, and liabilities assumed based on their estimated fair values. The excess of the total purchase price over the fair value of assets acquired and the liabilities assumed is recorded as goodwill. The goodwill arising from the Leucadia Transaction consists largely of our commercial potential and the value of our assembled workforce.

In connection with the Leucadia Transaction, we recognized $11.5 million and $2.1 million in transaction costs during the nine months ended November 30, 2013 and three months ended February 28, 2013, respectively.

The summary computation of the purchase price and the fair values assigned to the assets and liabilities are presented as follows (in thousands, except share amounts):

Purchase Price:

Jefferies common stock outstanding

205,368,031


Less: Jefferies common stock owned by Leucadia

(58,006,024

)

Jefferies common stock acquired by Leucadia

147,362,007


Exchange ratio

0.81


Leucadia's shares issued (excluding for Jefferies shares held by Leucadia)

119,363,226


Less: restricted shares issued for share-based payment awards (1)

(6,894,856

)

Leucadia's shares issued, excluding share-based payment awards

112,468,370


Closing price of Leucadia's common stock (2)

$

26.90


Fair value of common shares acquired by Leucadia

$

3,025,399


Fair value of 3.25% cumulative convertible preferred shares (3)

125,000


Fair value of shares-based payment awards (4)

343,811


Fair value of Jefferies shares owned by Leucadia (5)

1,259,891


Total purchase price

$

4,754,101


(1)

Represents shares of restricted stock included in Jefferies common stock outstanding that contained a future service requirement at March 1, 2013.

(2)

The value of the shares of common stock exchanged with Jefferies shareholders was based upon the closing price of Leucadia's common stock at February 28, 2013, the last trading day prior to the date of acquisition.

(3)

Represents Leucadia's 3.25% Cumulative Convertible Preferred Shares issued in exchange for Jefferies Group, Inc.'s 3.25% Series A-1 Convertible Cumulative Preferred Stock.

(4)

The fair value of share-based payment awards is calculated in accordance with Accounting Standards Codification 718, Compensation – Stock Compensation. Share-based payment awards attributable to pre-combination service are included as part of the total purchase price. Share-based payment awards attributable to pre-combination service is estimated based on the ratio of the pre-combination service performed to the original service period of the award.

(5)

The fair value of Jefferies shares owned by Leucadia was based upon a price of $21.72 , the closing price of Jefferies common stock at February 28, 2013.



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Assets acquired:

Cash and cash equivalents

$

3,017,958


Cash and securities segregated

3,728,742


Financial instruments owned, at fair value

16,413,535


Investments in managed funds

59,976


Loans to and investments in related parties

766,893


Securities borrowed

5,315,488


Securities purchased under agreements to resell

3,578,366


Securities received as collateral

25,338


Receivables:

Brokers, dealers and clearing organizations

2,444,085


Customers

1,045,251


Fees, interest and other

225,555


Premises and equipment

192,603


Indefinite-lived intangible exchange memberships and licenses (1)

15,551


Finite-lived intangible customer relationships (1)

136,002


Finite-lived trade name (1)

131,299


Other assets

939,600


Total assets

$

38,036,242


Liabilities assumed:

Short-term borrowings

$

100,000


Financial instruments sold, not yet purchased, at fair value

9,766,876


Securities loaned

1,902,687


Securities sold under agreements to repurchase

7,976,492


Other secured financings

122,294


Obligation to return securities received as collateral

25,338


Payables:

Brokers, dealers and clearing organizations

1,787,055


Customers

5,450,781


Accrued expenses and other liabilities

793,843


Long-term debt

6,362,024


Mandatorily redeemable preferred interests

358,951


Total liabilities

$

34,646,341


Noncontrolling interests

$

356,180


Fair value of net assets acquired, excluding goodwill

$

3,033,721


Goodwill

$

1,720,380



(1)

Intangible assets are recorded within Other assets on the Consolidated Statements of Financial Condition.

The goodwill of $1.7 billion is not deductible for tax purposes.


Reorganization of Jefferies High Yield Holdings, LLC

On March 1, 2013, we commenced a reorganization of our high yield joint venture with Leucadia, conducted through Jefferies High Yield Holdings, LLC ("JHYH") (the parent of Jefferies High Yield Trading, LLC (our high yield trading broker-dealer)). On March 1, 2013, we redeemed the outstanding third party noncontrolling interests in JHYH of $347.6 million . On March 31, 2013, Leucadia contributed its mandatorily redeemable preferred interests in JHYH of $362.3 million to Jefferies Group LLC as member's equity. On April 1, 2013, we redeemed the mandatorily redeemable preferred interests in JHYH received from Leucadia. In addition, on April 1, 2013, our high yield trading broker-dealer was merged into Jefferies LLC (our U.S. securities broker-dealer).



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Note 5. 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 NAV of $36.7 million and $42.2 million at November 30, 2015 and November 30, 2014 , respectively, by level within the fair value hierarchy (in thousands):

November 30, 2015

Level 1(1)

Level 2(1)

Level 3

Counterparty and

Cash Collateral

Netting (2)

Total

Assets:

Financial instruments owned:

Corporate equity securities

$

1,853,351


$

133,732


$

40,906


$

-


$

2,027,989


Corporate debt securities

-


2,867,165


25,876


-


2,893,041


Collateralized debt obligations

-


89,144


85,092


-


174,236


U.S. government and federal agency securities

2,555,018


90,633


-


-


2,645,651


Municipal securities

-


487,141


-


-


487,141


Sovereign obligations

1,251,366


1,407,955


120


-


2,659,441


Residential mortgage-backed securities

-


2,731,070


70,263


-


2,801,333


Commercial mortgage-backed securities

-


1,014,913


14,326


-


1,029,239


Other asset-backed securities

-


118,629


42,925


-


161,554


Loans and other receivables

-


1,123,044


189,289


-


1,312,333


Derivatives

1,037


4,395,704


19,785


(4,165,446

)

251,080


Investments at fair value

-


26,224


53,120


-


79,344


Total financial instruments owned, excluding

    Investments at fair value based on NAV

$

5,660,772


$

14,485,354


$

541,702


$

(4,165,446

)

$

16,522,382


Cash and cash equivalents

$

3,510,163


$

-


$

-


$

-


$

3,510,163


Cash and securities segregated and on deposit for

    regulatory purposes

$

751,084


$

-


$

-


$

-


$

751,084


Liabilities:

Financial instruments sold, not yet purchased:

Corporate equity securities

$

1,382,377


$

36,518


$

38


$

-


$

1,418,933


Corporate debt securities

-


1,556,941


-


-


1,556,941


U.S. government and federal agency securities

1,488,121


-


-


-


1,488,121


Sovereign obligations

837,614


505,382


-


-


1,342,996


Residential mortgage-backed securities

-


117


-


-


117


Loans

-


758,939


10,469


-


769,408


Derivatives

364


4,446,639


19,543


(4,257,998

)

208,548


Total financial instruments sold, not yet

     purchased

$

3,708,476


$

7,304,536


$

30,050


$

(4,257,998

)

$

6,785,064


Other secured financings

$

-


$

-


$

544


$

-


$

544



(1)

There were no material transfers between Level 1 and Level 2 for the year ended November 30, 2015 .

(2)

Represents counterparty and cash collateral netting across the levels of the fair value hierarchy for positions with the same counterparty.



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November 30, 2014

Level 1 (1)

Level 2 (1)

Level 3

Counterparty and

Cash Collateral

Netting (2)

Total

Assets:

Financial instruments owned:

Corporate equity securities

$

2,178,837


$

226,441


$

20,964


$

-


$

2,426,242


Corporate debt securities

-


3,342,276


22,766


(4)

-


3,365,042


Collateralized debt obligations

-


306,218


124,650


(4)

-


430,868


U.S. government and federal agency securities

2,694,268


81,273


-


-


2,775,541


Municipal securities

-


590,849


-


-


590,849


Sovereign obligations

1,968,747


790,764


-


-


2,759,511


Residential mortgage-backed securities

-


2,879,954


82,557


-


2,962,511


Commercial mortgage-backed securities

-


966,651


26,655


-


993,306


Other asset-backed securities

-


137,387


2,294


-


139,681


Loans and other receivables

-


1,458,760


97,258


-


1,556,018


Derivatives

65,145


5,046,278


54,190


(4,759,345

)

406,268


Investments at fair value

-


73,148


53,224


-


126,372


Physical commodities

-


62,234


-


-


62,234


Total financial instruments owned, excluding

    Investments at fair value based on NAV

$

6,906,997


$

15,962,233


$

484,558


$

(4,759,345

)

$

18,594,443


Cash and cash equivalents

$

4,079,968


$

-


$

-


$

-


$

4,079,968


Cash and securities segregated and on deposit for

    regulatory purposes (3)

$

3,444,674


$

-


$

-


$

-


$

3,444,674


Securities received as collateral

$

5,418


$

-


$

-


$

-


$

5,418


Liabilities:

Financial instruments sold, not yet purchased:

Corporate equity securities

$

1,911,145


$

74,681


$

38


$

-


$

1,985,864


Corporate debt securities

-


1,611,994


223


-


1,612,217


Collateralized debt obligations

-


4,557


-


-


4,557


U.S. government and federal agency securities

2,253,055


-


-


-


2,253,055


Sovereign obligations

1,217,075


574,010


-


-


1,791,085


Loans

-


856,525


14,450


-


870,975


Derivatives

52,778


5,117,803


49,552


(4,856,618

)

363,515


Total financial instruments sold, not yet

     purchased

$

5,434,053


$

8,239,570


$

64,263


$

(4,856,618

)

$

8,881,268


Obligation to return securities received as collateral

$

5,418


$

-


$

-


$

-


$

5,418


Other secured financings

$

-


$

-


$

30,825


$

-


$

30,825


Embedded conversion option

$

-


$

-


$

693


$

-


$

693


(1)

At December 1, 2013, equity options presented within Financial instruments owned and Financial instruments sold, not yet purchased of $6.1 million and $6.6 million, respectively, were transferred from Level 1 to Level 2 as adjustments were incorporated into the valuation approach for such contracts to estimate the point within the bid-ask range that meets the best estimate of fair value.

(2)

Represents counterparty and cash collateral netting across the levels of the fair value hierarchy for positions with the same counterparty.

(3)

Cash and securities segregated and on deposit for regulatory purposes include U.S. government securities with a fair value of $453.7 million and CFTC approved money market funds with a fair value of $545.0 million .

(4)

Level 3 Collateralized debt obligations increased by $33.2 million with a corresponding decrease in Level 3 Corporate debt securities from those previously reported to correct for the classification of certain positions. The total amount of Level 3 assets remained unchanged.


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The following is a description of the valuation basis, including valuation techniques and inputs, used in measuring our financial assets and liabilities that are accounted for at fair value on a recurring basis:

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 or Level 3 of the fair value hierarchy.

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 for recently executed market transactions and are categorized within Level 2 of the fair value hierarchy. Where such information is not available, non-exchange traded equity securities are categorized 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/EBITDA, price/book value), discounted cash flow analyses and transaction prices observed for subsequent financing or capital issuance by the company. When using pricing data of comparable companies, judgment must be applied to adjust the pricing data to account for differences between the measured security and the comparable security ( e.g. , issuer market capitalization, yield, dividend rate, geographical concentration).

Equity warrants: Non-exchange traded equity warrants are generally categorized within Level 3 of the fair value hierarchy and are measured using the Black-Scholes model with key inputs impacting the valuation including the underlying security price, implied volatility, dividend yield, interest rate curve, strike price and maturity date.

Corporate Debt Securities

Corporate Bonds: Corporate bonds are measured primarily using pricing data from external pricing services and broker quotations, where available, prices observed for 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. Corporate bonds measured using these valuation methods are categorized within Level 2 of the fair value hierarchy. If broker quotes, pricing data or spread data is not available, alternative valuation techniques are used including cash flow models incorporating interest rate curves, single name or index credit default swap curves for comparable issuers and recovery rate assumptions. Corporate bonds measured using alternative valuation techniques are categorized within Level 3 of the fair value hierarchy and comprise a limited portion of our corporate bonds.

High Yield Corporate and Convertible Bonds: A significant portion of our high yield corporate and convertible bonds are 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 for recently executed market transactions of comparable size. Where pricing data is less observable, valuations are categorized within Level 3 and are based on pending transactions involving the issuer or comparable issuers, prices implied from an issuer's subsequent financings or recapitalizations, models incorporating financial ratios and projected cash flows of the issuer and market prices for comparable issuers.


Collateralized Debt Obligations

Collateralized debt obligations are measured based on prices observed for 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 severities.

U.S. Government and Federal Agency Securities

U.S. Treasury Securities: U.S. Treasury securities are measured based on quoted market prices and categorized within Level 1 of the fair value hierarchy.

U.S. Agency Issued Debt Securities: Callable and non-callable U.S. agency issued debt securities are measured primarily based on quoted market prices obtained from external pricing services and are generally categorized within Level 1 or Level 2 of the fair value hierarchy.


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Municipal Securities

Municipal securities are measured based on quoted prices obtained from external pricing services and are generally categorized within Level 2 of the fair value hierarchy.

Sovereign Obligations

Foreign sovereign government obligations are measured based on quoted market prices obtained from external pricing services, where available, or recently executed independent transactions of comparable size. To the extent external price quotations are not available or recent transactions have not been observed, valuation techniques incorporating interest rate yield curves and country spreads for bonds of similar issuers, seniority and maturity are used to determine fair value of sovereign bonds or obligations. Foreign sovereign government obligations are classified in Level 1, Level 2 or Level 3 of the fair value hierarchy, primarily based on the country of issuance.

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 interest-only and principal-only securities and are generally measured using market price quotations from external pricing services and categorized within Level 2 of the fair value hierarchy.

Agency Residential Interest-Only and Inverse Interest-Only Securities ( " Agency Inverse IOs " ): The fair value of agency inverse IOs is estimated using expected future cash flow techniques that incorporate prepayment models and other prepayment assumptions to amortize the underlying mortgage loan collateral. We use prices observed for recently executed transactions to develop market-clearing spread and yield curve assumptions. Valuation inputs with regard to the underlying collateral incorporate weighted average coupon, loan-to-value, credit scores, geographic location, maximum and average loan size, originator, servicer, and weighted average loan age. Agency inverse IOs are categorized within Level 2 or Level 3 of the fair value hierarchy. We also use vendor data in developing our assumptions, as appropriate.

Non-Agency Residential Mortgage-Backed Securities: Fair values are determined primarily using discounted cash flow methodologies and securities are categorized within Level 2 or Level 3 of the fair value hierarchy based on the observability and significance of the pricing inputs used. Performance attributes of the underlying mortgage loans are evaluated to estimate pricing inputs, such as prepayment rates, default rates and the severity of credit 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.


Commercial Mortgage-Backed Securities

Agency Commercial Mortgage-Backed Securities: Government National Mortgage Association ("GNMA") project loans are measured based on inputs corroborated from and benchmarked to observed prices of recent securitization transactions of similar securities with adjustments incorporating an evaluation for various factors, including prepayment speeds, default rates, and cash flow structures as well as the likelihood of pricing levels in the current market environment. Federal National Mortgage Association ("FNMA") Delegated Underwriting and Servicing ("DUS") mortgage-backed securities are generally measured by using prices observed for recently executed market transactions to estimate market-clearing spread levels for purposes of estimating fair value. GNMA project loan bonds and FNMA DUS mortgage-backed securities are categorized within Level 2 of the fair value hierarchy.

Non-Agency Commercial Mortgage-Backed Securities: Non-agency commercial mortgage-backed securities are measured using pricing data obtained from external pricing services and prices observed for recently executed market transactions and are categorized within Level 2 and Level 3 of the fair value hierarchy.


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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 and Level 3 of the fair value hierarchy. Valuations are primarily determined using pricing data obtained from external pricing services and broker quotes and prices observed for recently executed market transactions.

Loans and Other Receivables

Corporate Loans: Corporate loans categorized within Level 2 of the fair value hierarchy are measured based on market price quotations where market price quotations from external pricing services are supported by market transaction data. Corporate loans categorized within Level 3 of the fair value hierarchy are measured based on market price quotations that are considered to be less transparent, market prices for debt securities of the same creditor, and estimates of future cash flow incorporating assumptions regarding creditor default and recovery rates and consideration of the issuer's capital structure.

Participation Certificates in 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. 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 of assets with similar underlying loan collateral to derive an implied spread.  Securitization prices are adjusted to estimate the fair value of the loans incorporating an evaluation for various factors, including prepayment speeds, default rates, and cash flow structures as well as the likelihood of pricing levels in the current market environment.  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 incorporating additional 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 Trade Claim Receivables: Escrow and trade 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 trade claim receivables are categorized within Level 2 of the fair value hierarchy where fair value is based on recent trade activity in the same security.

Derivatives

Listed Derivative Contracts: Listed derivative contracts that are actively traded are measured based on quoted exchange prices, which are generally obtained from external pricing services, and are categorized within Level 1 of the fair value hierarchy. Listed derivatives for which there is limited trading activity are measured based on incorporating the closing auction price of the underlying equity security, use similar valuation approaches as those applied to over-the-counter derivative contracts and are categorized within Level 2 of the fair value hierarchy.

OTC Derivative Contracts: Over-the-counter ("OTC") derivative contracts are generally valued using models, whose inputs reflect assumptions that we believe market participants would use in valuing the derivative in a current period transaction. Inputs to valuation models are appropriately calibrated to market data. For many OTC derivative contracts, the valuation models do not involve material subjectivity as the methodologies do not entail significant judgment and the inputs to valuation models do not involve a high degree of subjectivity as the valuation model 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.

OTC options include OTC equity, foreign exchange, interest rate and commodity options measured using various valuation models, such as the Black-Scholes, with key inputs impacting the valuation including the underlying security, foreign


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exchange spot rate or commodity price, implied volatility, dividend yield, interest rate curve, strike price and maturity date. Discounted cash flow models are utilized to measure certain OTC derivative contracts including the valuations of our interest rate swaps, which incorporate observable inputs related to interest rate curves, valuations of our foreign exchange forwards and swaps, which incorporate observable inputs related to foreign currency spot rates and forward curves and valuations of our commodity swaps and forwards, which incorporate observable inputs related to commodity spot prices and forward curves. Credit default swaps include both index and single-name credit default swaps. External prices are available as inputs in measuring index credit default swaps and single-name credit default swaps. For commodity and equity total return swaps, market prices are observable for the underlying asset and used as the basis for measuring the fair value of the derivative contracts. Total return swaps executed on other underlyings are measured based on valuations received from external pricing services.

Physical Commodities

Physical commodities include base and precious metals and are measured using observable inputs including spot prices and published indices. Physical commodities are categorized within Level 2 of the fair value hierarchy. To facilitate the trading in precious metals we undertake leasing of such precious metals. The fees earned or paid for such leases are recorded as Principal transaction revenues in the Consolidated Statements of Earnings.

Investments at Fair Value and Investments in Managed Funds

Investments at fair value based on NAV and Investments in Managed Funds include investments in hedge funds, fund of funds, private equity funds, convertible bond funds and commodity funds, which are measured at the net asset value 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 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. Additionally, investments at fair value include investments in insurance contracts relating to our defined benefit plan in Germany. Fair value for the insurance contracts is determined using a third party and is categorized within 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):

November 30, 2015

Fair Value (1)

Unfunded

Commitments

Redemption Frequency

(if currently eligible)

Equity Long/Short Hedge Funds (2)

$

78,083


$

-


Monthly, Quarterly

Fixed Income and High Yield Hedge Funds (3)

1,703


-


-

Fund of Funds (4)

287


94


-

Equity Funds (5)

42,111


20,791


-

Convertible Bond Funds (6)

326


-


At Will

Total

$

122,510


$

20,885


November 30, 2014

Fair Value (1)

Unfunded

Commitments

Redemption Frequency

(if currently eligible)

Equity Long/Short Hedge Funds (2)

$

44,983


$

-


Monthly, Quarterly

Fixed Income and High Yield Hedge Funds (3)(7)

2,704


-


-

Fund of Funds (4)

323


94


-

Equity Funds (5)

65,216


26,023


-

Convertible Bond Funds (6)

3,355


-


At Will

Total

$

116,581


$

26,117




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(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, in primarily equity securities in domestic and international markets in both the public and private sectors. At November 30, 2015 and November 30, 2014 , investments representing approximately 100% and 99% , respectively, of the fair value of investments in this category are redeemable with 30 - 90 days prior written notice.

(3)

Includes investments in funds that invest in loans secured by a first trust deed on property, domestic and international public high yield debt, private high yield investments, senior bank loans, public leveraged equities, distressed debt, and private equity investments. There are no redemption provisions. At November 30, 2015 and November 30, 2014 , the underlying assets of 8% and 8% , respectively, of these funds are being liquidated and we are unable to estimate when the underlying assets will be fully liquidated.

(4)

Includes investments in fund of funds that invest in various private equity funds. At November 30, 2015 and November 30, 2014 , approximately 95% and 95% , respectively, of the fair value of investments in this category are managed by us and have no redemption provisions, instead distributions are received through the liquidation of the underlying assets of the fund of funds, which are estimated to be liquidated in the next twelve months. For the remaining investments, we have requested redemption; however, we are unable to estimate when these funds will be received.

(5)

At November 30, 2015 and November 30, 2014 , approximately 100% and 99% , respectively, of the fair value of investments in this category include investments in equity funds that invest in the equity of various U.S. and foreign private companies in the energy, technology, internet service and telecommunication service industries. These investments cannot be redeemed, instead distributions are received through the liquidation of the underlying assets of the funds which are expected to liquidate in one to eight years.

(6)

This category represents an investment in the Jefferies Umbrella Fund, an open-ended investment company managed by us that invests primarily in convertible bonds. The remaining investments are in liquidation and we are unable to estimate when the underlying assets will be fully liquidated.

(7)

Fixed income and high yield hedge funds was revised by $2.5 million from that previously reported due to the inclusion of a fixed income fund, which has the characteristics of an investment company that is included in Investments at fair value within Financial instruments owned in the Consolidated Statement of Financial Condition. The total amount of Investments at fair value remained unchanged.


Other Secured Financings

Other secured financings that are accounted for at fair value include notes issued by consolidated VIEs, which are classified as Level 2 or Level 3 within the fair value hierarchy. Fair value is based on recent transaction prices for similar assets. In addition, at November 30, 2015 and November 30, 2014 , Other secured financings includes $0.0 and $7.8 million , respectively, related to transfers of loans accounted for as secured financings rather than as sales and classified as Level 3 within the fair value hierarchy.

Embedded Conversion Option

The embedded conversion option presented within long-term debt represents the fair value of the conversion option on Leucadia shares within our 3.875% Convertible Senior Debentures, due November 1, 2029 and categorized as Level 3 within the fair value hierarchy. The conversion option was valued using a convertible bond model using as inputs the price of Leucadia's common stock, the conversion strike price, 252 -day historical volatility, a maturity date of November 1, 2017 (the first put date), dividend yield and the risk-free interest rate curve.















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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 year ended November 30, 2015 (in thousands):

Successor

Year Ended November 30, 2015

Balance

 at

November 30,

2014

Total

gains/

losses

(realized

and

unrealized)

(1)

Purchases

Sales

Settlements

Issuances

Net

transfers

into/

(out of)

Level 3

Balance

 at November 30,

2015

Change in

unrealized gains/

(losses) relating

to instruments

still held at

November 30,

2015 (1)

Assets:

Financial instruments

    owned:

Corporate equity

    securities

$

20,964


$

11,154


$

21,385


$

(6,391

)

$

-


$

-


$

(6,206

)

$

40,906


$

11,424


Corporate debt

    securities

22,766


(11,013

)

21,534


(14,636

)

-


-


7,225


25,876


(9,443

)

Collateralized debt

    obligations

124,650


(66,332

)

104,998


(107,381

)

(5,754

)

-


34,911


85,092


(48,514

)

Municipal

    securities

-


10


-


-


(21,551

)

-


21,541


-


-


Sovereign
obligations

-


47


1,032


(1,031

)

-


-


72


120


39


Residential

    mortgage-backed

    securities

82,557


(12,951

)

18,961


(31,762

)

(597

)

-


14,055


70,263


(4,498

)

Commercial

    mortgage-backed

    securities

26,655


(3,813

)

3,480


(10,146

)

(6,861

)

-


5,011


14,326


(3,205

)

Other asset-backed

    securities

2,294


(990

)

42,922


(1,299

)

(2

)

-


-


42,925


(254

)

Loans and other

    receivables

97,258


(14,755

)

792,345


(576,536

)

(124,365

)

-


15,342


189,289


(16,802

)

Investments, at fair

    value

53,224


64,380


5,510


(124,852

)

(4,093

)

-


58,951


53,120


(388

)

Liabilities:

Financial instruments sold,

    not yet purchased:

Corporate equity

    securities

$

38


$

-


$

-


$

-


$

-


$

-


$

-


$

38


$

-


Corporate debt

    securities

223


(110

)

(6,804

)

6,691


-


-


-


-


-


Net derivatives (2)

(4,638

)

(7,310

)

(6,705

)

13,522


37


2,437


2,415


(242

)

4,754


Loans

14,450


(163

)

(2,059

)

229


-


-


(1,988

)

10,469


104


Other secured financings

30,825


-


-


-


(15,704

)

36,995


(51,572

)

544


-


Embedded conversion

    option

693


(693

)

-


-


-


-


-


-


693


(1)

Realized and unrealized gains/losses are reported in Principal transaction revenues in the Consolidated Statements of Earnings.

(2)

Net derivatives represent Financial instruments owned-Derivatives and Financial instruments sold, not yet purchased -Derivatives.

Analysis of Level 3 Assets and Liabilities for the Year Ended November 30, 2015

During the year ended November 30, 2015 , transfers of assets of $236.7 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:


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Collateralized debt obligations of $69.8 million , non-agency residential mortgage-backed securities of $30.4 million , commercial mortgage-backed securities of $11.3 million for which no recent trade activity was observed for purposes of determining observable inputs;

Municipal securities of $21.5 million and loans and other receivables of $20.1 million due to a lower number of contributors comprising vendor quotes to support classification within Level 2;

Investments at fair value of $74.7 million and corporate debt securities of $7.4 million due to a lack of observable market transactions.

During the year ended November 30, 2015 , transfers of assets of $85.8 million from Level 3 to Level 2 are primarily attributed to:

Non-agency residential mortgage-backed securities of $16.3 million and commercial mortgage-backed securities of $6.3 million for which market trades were observed in the period for either identical or similar securities;

Collateralized debt obligations of $34.9 million and loans and other receivables of $4.7 million due to a greater number of contributors for certain vendor quotes supporting classification into Level 2;

Investments at fair value of $15.8 million due to an increase in observable market transactions;

Corporate equity securities of $7.7 million due to an increase in observable market transactions.

During the year ended November 30, 2015 , there were $51.6 million transfers of other secured financings from Level 3 to Level 2 due to an increase in observable inputs in the valuation.

Net losses on Level 3 assets were $34.3 million and net gains on Level 3 net liabilities were $8.3 million for the year ended November 30, 2015 . Net losses on Level 3 assets were primarily due to a decrease in valuation of certain collateralized debt obligations, certain loans and other receivables and residential and commercial mortgage-backed securities, partially offset by increased valuations of certain investments at fair value and corporate equity securities. Net gains on Level 3 net liabilities were primarily due to decreased valuations of certain derivative instruments.


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 year ended November 30, 2014 (in thousands):


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Successor

Year Ended November 30, 2014

Balance at

November 30,

2013

Total gains/

losses (realized

and unrealized)

(1)

Purchases

Sales

Settlements

Issuances

Net

transfers

into/

(out of)

Level 3

Balance at

November 30,

2014

Change in

unrealized gains/

(losses) relating

to instruments

still held at

November 30,

2014 (1)

Assets:

Financial instruments

    owned:

Corporate equity

    securities

$

9,884


$

957


$

18,138


$

(12,826

)

$

-


$

-


$

4,811


$

20,964


$

2,324


Corporate debt

    securities

25,666


6,629


38,316


(40,328

)

-


-


(7,517

)

22,766


8,982


Collateralized debt

    obligations

37,216


(6,386

)

204,337


(181,757

)

(1,297

)

-


72,537


124,650


(1,141

)

U.S. government and federal agency securities

-


13


2,505


(2,518

)

-


-


-


-


-


Residential

    mortgage-backed

    securities

105,492


(9,870

)

42,632


(61,689

)

(1,847

)

-


7,839


82,557


(4,679

)

Commercial

    mortgage-backed

    securities

17,568


(4,237

)

49,159


(51,360

)

(782

)

-


16,307


26,655


(2,384

)

Other asset-backed

    securities

12,611


1,784


4,987


(18,002

)

-


-


914


2,294


1,484


Loans and other

    receivables

145,890


(31,311

)

130,169


(92,140

)

(60,390

)

-


5,040


97,258


(26,864

)

Investments at fair

    value

66,931


13,781


32,493


(43,286

)

(1,243

)

-


(15,452

)

53,224


(1,876

)

Liabilities:

Financial instruments

    sold, not yet

    purchased:

Corporate equity

    securities

$

38


$

-


$

-


$

-


$

-


$

-


$

-


$

38


$

-


Corporate debt
securities

-


(149

)

(565

)

960


-


-


(23

)

223


(8

)

Net derivatives (2)

6,905


15,055


(24,682

)

1,094


322


-


(3,332

)

(4,638

)

(15,615

)

Loans

22,462


-


(18,332

)

11,338


-


-


(1,018

)

14,450


-


Other secured financings

8,711


-


-


-


(17,525

)

39,639


-


30,825


-


Embedded conversion

    option

9,574


(8,881

)

-


-


-


-


-


693


8,881




(1)

Realized and unrealized gains/losses are reported in Principal transaction revenues in the Consolidated Statements of Earnings.

(2)

Net derivatives represent Financial instruments owned-Derivatives and Financial instruments sold, not yet purchased -Derivatives.

Analysis of Level 3 Assets and Liabilities for the Year Ended November 30, 2014

During the year ended November 30, 2014 , transfers of assets of $139.0 million from Level 2 to Level 3 of the fair value hierarchy are attributed to:

Non-agency residential mortgage-backed securities of $30.3 million and commercial mortgage-backed securities of $16.6 million for which no recent trade activity was observed for purposes of determining observable inputs;

Loans and other receivables of $8.5 million due to a lower number of contributors comprising vendor quotes to support classification within Level 2;


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Collateralized debt obligations of $73.0 million which have little to no transparency related to trade activity.

Corporate equity securities of $9.7 million due to a lack of observable market transactions.

During the year ended November 30, 2014 , transfers of assets of $54.6 million from Level 3 to Level 2 are attributed to:

Non-agency residential mortgage-backed securities of $22.4 million for which market trades were observed in the period for either identical or similar securities;

Loans and other receivables of $3.5 million and investments at fair value of $15.5 million due to a greater number of contributors for certain vendor quotes supporting classification into Level 2;

Corporate equity securities of $4.9 million and corporate debt securities of $7.5 million due to an increase in observable market transactions.


During the year ended November 30, 2014 , there were transfers of loan liabilities of $1.0 million from Level 3 to Level 2 and $3.3 million of net derivative liabilities from Level 3 to Level 2 due to an increase in observable inputs in the valuation and an increase in observable inputs used in valuing of derivative contracts, respectively.


Net losses on Level 3 assets were $28.6 million and net losses on Level 3 liabilities were $6.0 million for the year ended November 30, 2014 . Net losses on Level 3 assets were primarily due to a decrease in valuation of certain loans and other receivables and residential and commercial mortgage-backed securities, partially offset by increased valuations of certain investments at fair value, certain corporate debt securities and other asset-backed securities. Net losses on Level 3 liabilities were primarily due to increased valuations of certain derivatives, partially offset by decreased valuations of the embedded conversion option.


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 nine months ended November 30, 2013 (in thousands):


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Successor

Nine Months Ended November 30, 2013

Balance at

February 28,

2013

Total gains/

losses (realized

and 

unrealized)

(1)

Purchases

Sales

Settlements

Issuances

Net

transfers

into/

(out of)

Level 3

Balance at

November 30,

2013

Change in

unrealized

 gains/

(losses) relating

to instruments

still held at

November 30,

2013 (1)

Assets:

Financial instruments

    owned:

Corporate equity

    securities

$

13,234


$

1,551


$

3,583


$

(7,141

)

$

-


$

-


$

(1,343

)

$

9,884


$

(419

)

Corporate debt

    securities

31,820


(2,454

)

31,014


(34,125

)

-


-


(589

)

25,666


(2,749

)

Collateralized debt

    obligations

24,736


(2,309

)

45,437


(32,874

)

-


-


2,226


37,216


(8,384

)

Residential

    mortgage-backed

    securities

169,426


(4,897

)

89,792


(150,807

)

(11,007

)

-


12,985


105,492


(6,932

)

Commercial

    mortgage-backed

    securities

17,794


(4,469

)

20,130


(13,538

)

(100

)

-


(2,249

)

17,568


(3,794

)

Other asset-backed

    securities

1,292


(4,535

)

105,291


(104,711

)

-


-


15,274


12,611


(3,497

)

Loans and other

    receivables

170,986


15,008


287,757


(115,231

)

(211,805

)

-


(825

)

145,890


13,402


Investments, at fair

    value

39,693


(1,317

)

28,515


(102

)

(875

)

-


1,017


66,931


(1,290

)

Liabilities:

Financial instruments

    sold, not yet purchased:

Corporate equity

     securities

$

38


$

-


$

-


$

-


$

-


$

-


$

-


$

38


$

-


Residential
mortgage-backed
securities

1,542


(1,542

)

-


-


-


-


-


-


-


Net derivatives (2)

11,185


4,408


-


(300

)

(8,515

)

-


127


6,905


1,609


Loans

7,398


2,959


(16,027

)

28,065


67


-


-


22,462


(2,970

)

Other secured financings

-


-


-


-


-


8,711


-


8,711


-


Embedded conversion

    option (3)

16,488


(6,914

)

-


-


-


-


-


9,574


6,914



(1)

Realized and unrealized gains/losses are reported in Principal transaction revenues in the Consolidated Statements of Earnings.

(2)

Net derivatives represent Financial instruments owned-Derivatives and Financial instruments sold, not yet purchased -Derivatives.

(3)

The embedded conversion option of $16.5 million is at March 1, 2013, upon completion of the Leucadia Transaction (See Note 13.)


Analysis of Level 3 Assets and Liabilities for the Nine Months Ended November 30, 2013


During the nine months ended November 30, 2013 , transfers of assets of $82.4 million from Level 2 to Level 3 of the fair value hierarchy are attributed to:


Non-agency residential mortgage-backed securities of $58.8 million , and other asset-backed securities of $16.4 million for which no recent trade activity was observed for purposes of determining observable inputs;



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Loans and other receivables of $0.8 million due to a lower number of contributors comprising vendor quotes to support classification within Level 2;

Corporate equity securities of $2.3 million , corporate debt securities of $0.2 million and investments at fair value of $1.0 million due to a lack of observable market transactions.


Collateralized debt obligations of $2.8 million which have little to no transparency in trade activity;


During the nine months ended November 30, 2013 , transfers of assets of $55.9 million from Level 3 to Level 2 are attributed to:


Non-agency residential mortgage-backed securities of $45.9 million , commercial mortgage-backed securities of $2.2 million and other asset-backed securities of $1.1 million for which market trades were observed in the period for either identical or similar securities;


Collateralized debt obligations of $0.6 million , loans and other receivables of $1.7 million due to a greater number of contributors for certain vendor quotes supporting classification into Level 2;


Corporate equity securities of $3.6 million and corporate debt securities of $0.8 million due to an increase in observable market transactions.


During the nine months ended November 30, 2013 , there were no transfers liabilities from Level 2 to Level 3 and $0.1 million transfers of net derivative liabilities from Level 3 to Level 2 due to an increase in observable inputs used in the valuation of certain derivatives contracts.


Net losses on Level 3 assets were $3.4 million and net gains on Level 3 liabilities were $1.1 million for the nine months ended November 30, 2013 , respectively. Net losses on Level 3 assets were primarily due to a decrease in valuation of certain corporate debt securities, collateralized debt obligations, residential and commercial mortgage-backed securities and other asset-backed securities, partially offset by increased valuations of certain corporate equity securities and loans and other receivables. Net gains on Level 3 liabilities were primarily due to decreased valuation of the embedded conversion option, partially offset by increased valuations of certain derivative instruments and loan positions.





























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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 three months ended February 28, 2013 (in thousands):


Predecessor

Three Months Ended February 28, 2013 (1)

Balance at

November 30,

2012

Total gains/

losses (realized

and 

unrealized)

(2)

Purchases

Sales

Settlements

Net

transfers

into/

(out of)

Level 3

Balance at

February 28,

2013

Change in

unrealized

 gains/

(losses) relating

to instruments

still held at

February 28,

2013 (2)

Assets:

Financial instruments

    owned:

Corporate equity

    securities

$

16,815


$

200


$

707


$

109


$

-


$

(4,597

)

$

13,234


$

172


Corporate debt

    securities

3,631


7,836


11,510


(1,918

)

-


10,761


31,820


7,833


Collateralized debt

    obligations

31,255


3,584


4,406


(17,374

)

-


2,865


24,736


(1,165

)

Residential

    mortgage-backed

    securities

156,069


11,906


132,773


(130,143

)

(6,057

)

4,878


169,426


4,511


Commercial

    mortgage-backed

    securities

30,202


(995

)

2,280


(2,866

)

(1,188

)

(9,639

)

17,794


(2,059

)

Other asset-backed

    securities

1,114


90


1,627


(1,342

)

(19

)

(178

)

1,292


39


Loans and other

    receivables

180,393


(8,682

)

105,650


(29,828

)

(61,407

)

(15,140

)

170,986


(12,374

)

Investments, at fair

    value

48,879


(756

)

5,000


(4,656

)

(7,676

)

(1,098

)

39,693


(473

)

Liabilities:

Financial instruments sold,

    not yet purchased:

Corporate equity

     securities

$

38


$

-


$

-


$

-


$

-


$

-


$

38


$

-


Residential
mortgage-backed
securities

-


25


(73,846

)

75,363


-


-


1,542


(19

)

Net derivatives (3)

9,188


2,648


-


-


-


(651

)

11,185


(2,648

)

Loans

1,711


-


(1,711

)

7,398


-


-


7,398


-




(1)

There were no issuances during the three months ended February 28, 2013 .

(2)

Realized and unrealized gains/losses are reported in Principal transaction revenues in the Consolidated Statements of Earnings.

(3)

Net derivatives represent Financial instruments owned-Derivatives and Financial instruments sold, not yet purchased -Derivatives.


Analysis of Level 3 Assets and Liabilities for the Three Months Ended February 28, 2013


During the three months ended February 28, 2013, transfers of assets of $100.5 million from Level 2 to Level 3 of the fair value hierarchy are attributed to:


Non-agency residential mortgage-backed securities of $78.4 million and commercial mortgage-backed securities of $1.3 million for which no recent trade activity was observed for purposes of determining observable inputs;



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Corporate debt securities of $10.8 million and corporate equity securities of $0.1 million due to lack of observable market transactions;


Collateralized debt obligations of $5.3 million which have little to no transparency in trade activity;


Loans and other receivables of $4.8 million due to a lower number of contributors comprising vendor quotes to support classification within Level 2.


During the three months ended February 28, 2013 , transfers of assets of $112.7 million from Level 3 to Level 2 are attributed to:


Non-agency residential mortgage-backed securities of $73.5 million , commercial mortgage-backed securities of $10.9 million and $0.2 million of other asset-backed securities for which market trades were observed in the period for either identical or similar securities;


Loans and other receivables of $19.9 million and collateralized debt obligations of $2.4 million due to a greater number of contributors for certain vendor quotes supporting classification into Level 2;


Corporate equity securities of $4.7 million due to an increase in observable market transactions.


During the three months ended February 28, 2013 , there were no transfers of liabilities from Level 2 to Level 3 and there were $0.7 million transfers of net derivative liabilities from Level 3 to Level 2 due to an increase in observable significant inputs used in valuing the derivative contracts.


Net gains on Level 3 assets were $13.2 million and net losses on Level 3 liabilities were $2.7 million for the three months ended February 28, 2013 . Net gains on Level 3 assets were primarily due to increased valuations of certain residential mortgage-backed securities, corporate debt securities, collateralized debt obligations and investments at fair value, partially offset by a decrease in valuation of certain loans and other receivables, commercial mortgage-backed securities and investments in managed funds. Net losses on Level 3 liabilities were primarily due to increased valuations of certain derivative instruments.



Quantitative Information about Significant Unobservable Inputs used in Level 3 Fair Value Measurements at November 30, 2015 and November 30, 2014

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.


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November 30, 2015

Financial Instruments Owned

Fair Value

(in thousands)

Valuation Technique

Significant Unobservable

 Input(s)

Input / Range

Weighted

Average

Corporate equity securities

$

20,285


Non-exchange traded securities

Market approach

EBITDA (a) multiple

4.4

-



Transaction level

$1

-


Underlying stock price

$5-$102

$

19


Corporate debt securities

$

20,257


Convertible bond model

Discount rate/yield

86%

-


 Market approach

Transaction level

$59

-


Collateralized debt obligations

$

49,923


Discounted cash flows

Constant prepayment rate

5%-20%

13

%

Constant default rate

2%-8%

2

%

Loss severity

25%-90%

52

%

Yield

6%-13%

10

%

Residential mortgage-backed

     securities

$

70,263


Discounted cash flows

Constant prepayment rate

0%-50%

13

%

Constant default rate

1%-9%

3

%

Loss severity

25%-70%

39

%

Yield

1%-9%

6

%

Commercial mortgage-backed

      securities

$

14,326


Discounted cash flows

Yield

7%-30%

16

%

Cumulative loss rate

2%-63%

23

%

Other asset-backed securities

$

21,463


Discounted cash flows

Constant prepayment rate

6%-8%

7

%

Constant default rate

3%-5%

4

%

Loss severity

55%-75%

62

%

Yield

7%-22%

18

%

Over-collateralization

Over-collateralization percentage

117%-125%

118

%

Loans and other receivables

$

161,470


Comparable pricing

Comparable loan price

$99-$100

$

99.7


Market approach

Discount rate/yield

2%-17%

12

%

EBITDA (a) multiple

10

-


Scenario analysis

Estimated recovery percentage

6%-100%

83

%

Derivatives

19,785


Commodity forwards

Market approach

Discount rate/yield

47%

-




Transaction level

$9,500,000

-


Unfunded commitments

Comparable pricing

Comparable loan price

$100

-



Market approach

Credit spread

298 bps

-


Total return swaps

Comparable pricing

Comparable loan price

$91.7-$92.4

$

92.1


Investments at fair value

Private equity securities

$

7,693


Market approach

Transaction level

$64

-


Enterprise value

$5,200,000

-


Liabilities

Financial Instruments Sold, Not Yet Purchased:

Derivatives

$

19,543


Equity options

Option model

Volatility

45%

-


Default rate

Default probability

0%

-


Unfunded commitments

Comparable pricing

Comparable loan price

$79-$100

$

82.6


Market approach

Discount rate/yield

3%-10%

10

%

Discounted cash flows

Constant prepayment rate

20%

-


Constant default rate

2%

-


Loss severity

25%

-


Yield

11%

-


Total return swaps

Comparable pricing

Comparable loan price

$91.7-92.4

$

92.1


Loans and other receivables

$

10,469


Comparable pricing

Comparable loan price

$100

-


(a)

Earnings before interest, taxes, depreciation and amortization ("EBITDA").


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November 30, 2014

Financial Instruments Owned

Fair Value

(in thousands)

Valuation Technique

Significant Unobservable

  Input(s)

Input / Range

Weighted

Average

Corporate equity securities

$

19,814


Non-exchange traded securities

Market approach

EBITDA multiple

3.4 to 4.7

3.6


Scenario analysis

Estimated recovery percentage

24%

-


Corporate debt securities

$

22,766


Convertible bond model

Discount rate/yield

32%

-


Collateralized debt obligations

$

41,784


Discounted cash flows

Constant prepayment rate

0% to 20%

13

%

Constant default rate

0% to 2%

2

%

Loss severity

0% to 70%

39

%

Yield

2% to 51%

16

%

Residential mortgage-backed

     securities

$

82,557


Discounted cash flows

Constant prepayment rate

1% to 50%

13

%

Constant default rate

1% to 100%

14

%

Loss severity

20% to 80%

50

%

Yield

3% to 13%

7

%

Commercial mortgage-backed

     securities

$

26,655


Discounted cash flows

Yield

8% to 12%

11

%

Cumulative loss rate

4% to 72%

15

%

Scenario analysis

Estimated recovery percentage

90%

-


Other asset-backed securities

$

2,294


Discounted cash flows

Constant prepayment rate

8%

-


Constant default rate

3%

-


Loss severity

70%

-


Yield

7%

-


Loans and other receivables

$

88,154


Comparable pricing

Comparable loan price

$100 to $101

$

100.3


Market approach

Yield

3% to 5%

4

%

EBITDA multiple

3.4 to 8.2

7.6


Scenario analysis

Estimated recovery percentage

10% to 41%

36

%

Derivatives

$

54,190


Foreign exchange options

Option Model

Volatility

13% to 23%

17

%

Commodity forwards

Discounted cash flows

Discount rate

17%

-


Loan commitments

Comparable pricing

Comparable loan price

$100

-


Investments at fair value

$

8,500


Private equity securities

Market approach

Transaction level

$50

-


Liabilities

Financial Instruments Sold, Not Yet Purchased:

Derivatives

$

49,552


FX options

Option model

Volatility

13% to 23%

17

%

Unfunded commitments

Comparable pricing

Comparable loan price

$89 to $100

$

92.0


Credit spread

45bps

-


Market approach

Yield

5%

-


Loans and other receivables

$

14,450


Comparable pricing

Comparable loan price

$100

-


Other secured financings

$

30,825


Comparable pricing

Comparable loan price

$81 to $100

$

98.7


Embedded conversion option

$

693


Option valuation model

Historical volatility

19%

-


The fair values of certain Level 3 assets and liabilities that were determined based on third-party pricing information, unadjusted past transaction prices, reported net asset value or a percentage of the reported enterprise fair value are excluded from the above tables. At November 30, 2015 and November 30, 2014 , asset exclusions consisted of $156.2 million and $137.8 million, respectively, primarily comprised of certain corporate debt and equity securities, investments at fair value, private equity securities, derivative contracts, collateralized debt obligations, sovereign obligations and certain loans and other receivables. At November 30, 2015 and November 30, 2014 , liability exclusions consisted of $0.6 million and $0.3 million, respectively of certain corporate debt and equity securities and other secured financings.


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Sensitivity of Fair Values to Changes in Significant Unobservable Inputs

For recurring fair value measurements categorized within Level 3 of the fair value hierarchy, the sensitivity of the fair value measurement to changes in significant unobservable inputs and interrelationships between those unobservable inputs (if any) are described below:

Loans and other receivables, loan and unfunded commitments, total return swaps and other secured financings using comparable pricing valuation techniques. A significant increase (decrease) in the comparable loan price in isolation would result in a significantly higher (lower) fair value measurement.

Corporate debt securities using a convertible bond model. A significant increase (decrease) in the bond discount rate/yield would result in a significantly lower (higher) fair value measurement.

Non-exchange traded securities, corporate debt securities, loans and other receivables, unfunded commitments, commodity forwards and private equity securities using a market approach valuation technique. A significant increase (decrease) in the EBITDA or other multiples in isolation would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the yield of a corporate debt security, loan and other receivable or unfunded commitment would result in a significantly lower (higher) fair value measurement. A significant increase (decrease) in the transaction level of a private equity security would result in a significantly higher (lower) fair value measurement.

Non-exchange traded securities, commercial mortgage-backed securities and loans and other receivables using scenario analysis. A significant increase (decrease) in the possible recovery rates of the cash flow outcomes underlying the investment would result in a significantly higher (lower) fair value measurement for the financial instrument.

Collateralized debt obligations, corporate debt securities, residential and commercial mortgage-backed securities and other asset-backed securities, commodity forwards and unfunded commitments using a discounted cash flow valuation technique. A significant increase (decrease) in isolation in the constant default rate, and loss severities or cumulative loss rate would result in a significantly lower (higher) fair value measurement. The impact of changes in the constant prepayment rate would have differing impacts depending on the capital structure of the security. A significant increase (decrease) in the loan or bond yield would result in a significantly lower (higher) fair value measurement.

Certain other asset-backed securities using an over-collateralization model. A significant increase (decrease) in the over-collateralization percentage would result in a significantly higher (lower) fair value measurement.

Derivative foreign exchange and equity options using an option model. A significant increase (decrease) in volatility would result in a significantly higher (lower) fair value measurement.

Derivative equity options using a default rate model. A significant increase (decrease) in default probability would result in a significantly lower (higher) fair value measurement.

Embedded conversion option using an option valuation model. A significant increase (decrease) in historical 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 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 its bank loan trading activities and mortgage loan commitments and fundings in connection with mortgage- 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 and loan commitments are included in Financial instruments owned and Financial instruments sold, not yet purchased on 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 within Loans to and investments in related parties on the Consolidated Statements of Financial Condition and are accounted for on an amortized cost basis. We have elected the fair value option for certain financial instruments held by subsidiaries as the investments are risk managed by us on a fair value basis. The fair value option has also been elected for certain secured financings that arise in connection with our securitization activities and other structured financings. Other secured financings, Receivables – Brokers, dealers and clearing organizations, Receivables – Customers, Receivables – Fees, interest and other, Payables – Brokers, dealers and clearing organizations and Payables – Customers, 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.


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The following is a summary of gains (losses) due to changes in instrument specific credit risk on loans and other receivables and loan commitments measured at fair value under the fair value option (in thousands):

Successor

Predecessor

Year 
 Ended 
 November 30, 
 2015

Year 
 Ended 
 November 30, 
 2014

Nine Months 
 Ended 
 November 30, 
 2013

Three Months 
 Ended 
 February 28, 
 2013

Financial Instruments Owned:

Loans and other receivables

$

(17,389

)

$

(24,785

)

$

15,327


$

3,924


Financial Instruments Sold:

Loans

$

(162

)

$

(585

)

$

(32

)

$

-


Loan commitments

7,502


(15,459

)

(1,007

)

(2,746

)

The following is a summary of the amount by which contractual principal exceeds fair value for loans and other receivables measured at fair value under the fair value option (in thousands):

November 30, 2015

November 30, 2014

Financial Instruments Owned:

Loans and other receivables (1)

$

408,369


$

403,119


Loans and other receivables greater than 90 days past due (1)

29,720


5,594


Loans and other receivables on nonaccrual status (1) (2)

54,652


(22,360

)


(1)

Interest income is recognized separately from other changes in fair value and is included within Interest revenues on the Consolidated Statements of Earnings.

(2)

Amounts include all loans and other receivables greater than 90 days past due.

The aggregate fair value of loans and other receivables that were greater than 90 days past due was $11.3 million and $0.0 at November 30, 2015 and November 30, 2014 , respectively.


The aggregate fair value of loans and other receivables on nonaccrual status, which includes all loans and other receivables greater than 90 days past due, was $307.5 million and $274.6 million at November 30, 2015 and November 30, 2014 , respectively.

Assets and Liabilities Measured at Fair Value on a Non-recurring Basis

Certain assets were measured at fair value on a non-recurring basis and are not included in the tables above. These assets include goodwill and intangible assets. The following table presents those assets measured at fair value on a non-recurring basis for which the Company recognized a non-recurring fair value adjustment during the years ended November 30, 2015 and November 30, 2014 (in thousands):

Carrying Value at
November 30, 2015

Level 2

Level 3

Impairment Losses  for
the Year Ended
November 30, 2015

Futures Reporting Unit (1):

   Exchange ownership interests (2)

$

4,178


$

4,178


$

-


$

1,289



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Carrying Value at

November 30, 2014

Level 2

Level 3

Impairment Losses for

the Year Ended

November 30, 2014

Futures Reporting Unit (1):

Exchange ownership interests (2)

$

5,608


$

5,608


$

-


$

178


Goodwill (3)

-


-


-


51,900


Intangible assets (4)

-


-


-


7,534


International Asset Management Reporting Unit (5):

Goodwill (6)

$

-


$

-


$

-


$

2,100


Intangible assets (7)

-


-


-


60


(1)

Given management's decision to pursue strategic alternatives for our Futures business, including possible disposal, as a result of recent operating performance and margin challenges experienced by the business, an impairment analysis of the carrying amounts of goodwill, intangible assets and certain other assets employed directly by the business was performed at November 30, 2015 and November 30, 2014 , respectively. (See Note 11, Goodwill and Other Intangible Assets.)

(2)

Exchange memberships, which represent ownership interests in market exchanges on which trading business is conducted, were written down to their fair value during the year ended November 30, 2015 and the year ended November 30, 2014 resulting in impairment losses of $1.3 million and $0.2 million , respectively, recognized in Other expenses. The fair value of these exchange memberships is based on observed quoted sales prices for each individual membership.

(3)

An impairment loss for goodwill allocated to our Futures business with a carrying amount of $51.9 million was recognized for the year ended November 30, 2014 . The fair value of the Futures business was estimated 1) by comparison to similar companies using publicly traded price-to-tangible book multiples as the basis for valuation and 2) by utilizing a discounted cash flow methodology based on internally developed forecasts of profitability and an appropriate risk-adjusted discount rate.

(4)

Intangible assets relate primarily to customer relationship intangibles. An impairment loss for customer relationships within our Futures business with a carrying amount of $7.5 million was recognized in Other expenses for the year ended November 30, 2014 . Fair value was estimated utilizing a discounted cash flow methodology based on projected future cash flows and operating margins and an appropriate risk-adjusted discount rate.

(5)

Given management's decision to liquidate our International Asset Management business, an impairment analysis of the carrying amounts of goodwill, intangible assets and certain other assets employed directly by the business was performed at November 30, 2014 . (See Note 11, Goodwill and Other Intangible Assets.)

(6)

An impairment loss for goodwill allocated to our International Asset Management business with a carrying amount of $2.1 million was recognized for the year ended November 30, 2014 . Fair value was estimated by utilizing a discounted cash flow methodology based on internally developed forecasts of profitability and an appropriate risk-adjusted discount rate.

(7)

Intangible assets relate to customer relationship intangibles. Impairment losses of $0.1 million were recognized in Other expenses for the year ended November 30, 2014 . Fair values were estimated utilizing a discounted cash flow methodology based on projected future cash flows and operating margins and an appropriate risk-adjusted discount rate.

There were no assets measured at fair value on a non-recurring basis, which utilized Level 1 inputs during the year ended November 30, 2015 and the year ended November 30, 2014 . There were no liabilities measured at fair value on a non-recurring basis during the year ended November 30, 2015 and the year ended November 30, 2014 . There were no significant assets or liabilities measured at fair value on a non-recurring basis during the nine months ended November 30, 2013, the three months ended February 28, 2013.

Note 6. Derivative Financial Instruments

Off-Balance Sheet Risk

We have contractual commitments arising in the ordinary course of business for securities loaned or purchased under agreements to resell, repurchase agreements, future purchases and sales of foreign currencies, securities transactions on a when-issued basis and underwriting. Each of these financial instruments and activities contains varying degrees of off-balance sheet risk whereby


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the fair values of the securities underlying the financial instruments may be in excess of, or less than, the contract amount. The settlement of these transactions is not expected to have a material effect upon our consolidated financial statements.

Derivative Financial Instruments

Our derivative activities are recorded at fair value in the Consolidated Statements of Financial Condition in Financial instruments owned and Financial instruments sold, not yet purchased, 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. Net realized and unrealized gains and losses are recognized in Principal transaction revenues in the Consolidated Statements of Earnings on a trade date basis and as a component of cash flows from operating activities in the Consolidated Statements of Cash Flows. Acting in a trading capacity, we may 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. (See Note 5, Fair Value Disclosures , and Note 20, Commitments, Contingencies and Guarantees 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 International Swaps and Derivative Association, Inc. ("ISDA") master netting agreements or similar agreements 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. In addition, we enter into customized bilateral trading agreements and other customer agreements that provide for the netting of receivables and payables with a given counterparty as a single net obligation.

Under our ISDA master netting agreements, we typically also execute credit support annexes, which provide for collateral, either in the form of cash or securities, to be posted by or paid to a counterparty based on the fair value of the derivative receivable or payable based on the rates and parameters established in the credit support annex. In the event of the counterparty's default, provisions of the master agreement permit acceleration and termination of all outstanding transactions covered by the agreement such that a single amount is owed by, or to, the non-defaulting party. In addition, any collateral posted can be applied to the net obligations, with any excess returned; and the collateralized party has a right to liquidate the collateral. Any residual claim after netting is treated along with other unsecured claims in bankruptcy court.

The conditions supporting the legal right of offset may vary from one legal jurisdiction to another and the enforceability of master netting agreements and bankruptcy laws in certain countries or in certain industries is not free from doubt. The right of offset is dependent both on contract law under the governing arrangement and consistency with the bankruptcy laws of the jurisdiction where the counterparty is located. Industry legal opinions with respect to the enforceability of certain standard provisions in respective jurisdictions are relied upon as a part of managing credit risk. In cases where we have not determined an agreement to be enforceable, the related amounts are not offset. Master netting agreements are a critical component of our risk management processes as part of reducing counterparty credit risk and managing liquidity risk.

We are also a party to clearing agreements with various central clearing parties. Under these arrangements, the central clearing counterparty facilitates settlement between counterparties based on the net payable owed or receivable due and, with respect to daily settlement, cash is generally only required to be deposited to the extent of the net amount. In the event of default, a net termination amount is determined based on the market values of all outstanding positions and the clearing organization or clearing member provides for the liquidation and settlement of the net termination amount among all counterparties to the open derivative contracts.

The following tables present the fair value and related number of derivative contracts at November 30, 2015 and November 30, 2014 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 U.S. 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).


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November 30, 2015 (1)

Assets

Liabilities

Fair Value

Number of
Contracts

Fair Value

Number of
Contracts

Interest rate contracts:

Exchange-traded

$

998


52,605


$

364


70,672


Cleared OTC

2,213,730


2,742


2,202,836


2,869


Bilateral OTC

695,365


1,401


646,758


1,363


Foreign exchange contracts:

Exchange-traded

-


441


-


112


Bilateral OTC

472,544


7,675


470,649


7,292


Equity contracts:

Exchange-traded

955,287


3,054,315


1,004,699


2,943,657


Bilateral OTC

61,004


1,039


81,085


1,070


Commodity contracts:

Exchange-traded

-


1,726


-


1,684


Credit contracts:

Cleared OTC

621


39


841


44


Bilateral OTC

16,977


100


59,314


135


Total gross derivative assets/ liabilities:

Exchange-traded

956,285


1,005,063


Cleared OTC

2,214,351


2,203,677


Bilateral OTC

1,245,890


1,257,806


Amounts offset in the Consolidated
Statements of Financial Condition (2):

Exchange-traded

(938,482

)

(938,482

)

Cleared OTC

(2,184,438

)

(2,184,438

)

Bilateral OTC

(1,042,526

)

(1,135,078

)

Net amounts per Consolidated
Statements of Financial Condition (3)

$

251,080


$

208,548


(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)

Amounts netted include both netting by counterparty and for cash collateral paid or received.

(3)

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.


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November 30, 2014 (1)

Assets

Liabilities

Fair Value

Number of

Contracts

Fair Value

Number of

Contracts

Interest rate contracts:

Exchange-traded

$

2,450


67,437


$

1,400


87,008


Cleared OTC

1,425,375


2,160


1,481,329


2,124


Bilateral OTC

871,982


1,908


809,962


729


Foreign exchange contracts:

Exchange-traded

-


1,562


-


1,821


Bilateral OTC

1,514,881


11,299


1,519,349


10,931


Equity contracts:

Exchange-traded

1,011,101


2,269,044


987,531


2,049,513


Bilateral OTC

39,889


2,463


70,484


1,956


Commodity contracts:

Exchange-traded

62,091


1,027,542


51,145


1,015,894


Bilateral OTC

214,635


4,026


252,061


4,524


Credit contracts:

Cleared OTC

17,831


27


23,264


22


Bilateral OTC

5,378


18


23,608


27


Total gross derivative assets/liabilities:

Exchange-traded

1,075,642


1,040,076


Cleared OTC

1,443,206


1,504,593


Bilateral OTC

2,646,765


2,675,464


Amounts offset in the Consolidated

     Statements of Financial Condition (2):

Exchange-traded

(1,038,992

)

(1,038,992

)

Cleared OTC

(1,416,613

)

(1,416,613

)

Bilateral OTC

(2,303,740

)

(2,401,013

)

Net amounts per Consolidated

     Statements of Financial Condition (3)

$

406,268


$

363,515



(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)

Amounts netted include both netting by counterparty and for cash collateral paid or received.

(3)

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.



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The following table presents net unrealized and realized gains (losses) on derivative contracts:

Successor

Predecessor

Gains (Losses)

Year Ended 
 November 30, 2015

Year Ended 
 November 30, 2014

Nine Months 
 Ended 
 November 30, 
 2013

Three Months 
 Ended 
 February 28, 
 2013

Interest rate contracts

$

(37,601

)

$

(149,587

)

$

132,397


$

45,875


Foreign exchange contracts

36,101


39,872


5,514


12,228


Equity contracts

(137,636

)

(327,978

)

(21,216

)

(20,938

)

Commodity contracts

21,409


58,746


45,546


19,585


Credit contracts

(14,397

)

(23,934

)

(18,098

)

(3,886

)

Total

$

(132,124

)

$

(402,881

)

$

144,143


$

52,864


OTC Derivatives. The following tables set forth by remaining contract maturity the fair value of OTC derivative assets and liabilities at November 30, 2015 (in thousands):

OTC Derivative Assets (1) (2) (3)

0 – 12 Months

1 – 5 Years

Greater Than 

5 Years

Cross-Maturity

Netting (4)

Total

Commodity swaps, options and forwards

$

4,628


$

14,713


$

-


$

-


$

19,341


Equity swaps and options

26,278


7,112


-


(3,782

)

29,608


Credit default swaps

-


6,022


-


(2,839

)

3,183


Total return swaps

8,648


252


-


(1

)

8,899


Foreign currency forwards, swaps and options

82,382


15,780


-


(7,462

)

90,700


Interest rate swaps, options and forwards

57,655


158,874


63,816


(43,881

)

236,464


Total

$

179,591


$

202,753


$

63,816


$

(57,965

)

388,195


Cross product counterparty netting

(13,063

)

Total OTC derivative assets included in Financial

     instruments owned

$

375,132



(1)

At November 30, 2015 , we held exchange traded derivative assets and other credit agreements with a fair value of $20.4 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 on the Consolidated Statements of Financial Condition. At November 30, 2015 , cash collateral received was $144.4 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.



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OTC Derivative Liabilities (1) (2) (3)

0 – 12 Months

1 – 5 Years

Greater Than 

5 Years

Cross-Maturity

Netting (4)

Total

Commodity swaps, options and forwards

$

4,628


$

-


$

-


$

-


$

4,628


Equity swaps and options

4,880


28,516


3,046


(3,782

)

32,660


Credit default swaps

-


2,628


31,982


(2,839

)

31,771


Total return swaps

22,644


774


2,540


(1

)

25,957


Foreign currency forwards, swaps and options

98,726


12,255


-


(7,462

)

103,519


Fixed income forwards

2,522


-


-


-


2,522


Interest rate swaps, options and forwards

41,938


91,139


89,934


(43,881

)

179,130


Total

$

175,338


$

135,312


$

127,502


$

(57,965

)

380,187


Cross product counterparty netting

(13,063

)

Total OTC derivative liabilities included in Financial

     instruments sold, not yet purchased

$

367,124



(1)

At November 30, 2015 , we held exchange traded derivative liabilities and other credit agreements with a fair value of $78.4 million , which are not included in this table.

(2)

OTC derivative liabilities in the table above are gross of collateral pledged. OTC derivative liabilities are recorded net of collateral pledged on the Consolidated Statements of Financial Condition. At November 30, 2015 , cash collateral pledged was $237.0 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, 2015 , the counterparty credit quality with respect to the fair value of our OTC derivatives assets was as follows (in thousands):

Counterparty credit quality (1):

A- or higher

$

188,146


BBB- to BBB+

76,471


BB+ or lower

50,581


Unrated

59,934


Total

$

375,132



(1)

We utilize internal credit ratings determined by our Risk Management. Credit ratings determined by Risk Management use methodologies that produce ratings generally consistent with those produced by external rating agencies.

Contingent Features

Certain of our derivative instruments contain provisions that require our debt to maintain an investment grade credit rating from each of the major credit rating agencies. If our debt were to fall below investment grade, it would be in violation of these provisions and the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing full overnight collateralization on our derivative instruments in liability positions. The aggregate fair value of all derivative instruments with such credit-risk-related contingent features that are in a liability position at November 30, 2015 and November 30, 2014 is $114.5 million and $269.0 million , respectively, for which we have posted collateral of $97.2 million and $234.6 million , respectively, in the normal course of business. If the credit-risk-related contingent features underlying these agreements were triggered on November 30, 2015 and November 30, 2014 , we would have been required to post an additional $19.7 million and $55.1 million , respectively, of collateral to our counterparties.




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Note 7. Collateralized Transactions

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 our 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 within Financial instruments owned and noted parenthetically as Securities pledged on our Consolidated Statements of Financial Condition.

The following tables set forth the carrying value of securities lending arrangements and repurchase agreements by class of collateral pledged and remaining contractual maturity at November 30, 2015 (in thousands):

Securities Lending Arrangements

Repurchase Agreements

Total

Collateral Pledged:

    Corporate equity securities

$

2,195,912


$

275,880


$

2,471,792


    Corporate debt securities

748,405


1,752,222


2,500,627


    Mortgage- and asset-backed securities

-


3,537,812


3,537,812


    U.S. government and federal agency securities

34,983


12,006,081


12,041,064


    Municipal securities

-


357,350


357,350


    Sovereign obligations

-


1,804,103


1,804,103


    Loans and other receivables

-


462,534


462,534


           Total

$

2,979,300


$

20,195,982


$

23,175,282


Contractual Maturity

Overnight and Continuous

Up to 30 Days

30-90 Days

Greater than 90 Days

Total

Securities lending arrangements

$

1,522,475


$

-


$

973,201


$

483,624


$

2,979,300


Repurchase agreements

7,850,791


5,218,059


5,291,729


1,835,403


20,195,982


        Total

$

9,373,266


$

5,218,059


$

6,264,930


$

2,319,027


$

23,175,282


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 or custom 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, 2015 and November 30, 2014 , the approximate fair value of securities received as collateral by us that may be sold or repledged was $26.2 billion and $25.8 billion , respectively. At November 30, 2015 and November 30, 2014 , a substantial portion of the securities received by us had 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). 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. In addition, we enter into customized bilateral trading agreements and other customer agreements that provide for the netting of receivables and payables with a given counterparty as a single net obligation.


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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. 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 repurchase and/or securities lending transactions.

The following tables provide information regarding repurchase agreements and securities borrowing and lending arrangements that are recognized in the Consolidated Statements of Financial Condition and 1) the extent to which, under enforceable master netting arrangements, such balances are presented net in the Consolidated Statements of Financial Condition as appropriate under U.S. 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).

November 30, 2015

Gross

Amounts

Netting in

Consolidated

Statement of

Financial

Condition

Net Amounts in

Consolidated

Statement of

Financial

Condition

Additional

Amounts

Available for

Setoff (1)

Available

Collateral (2)

Net Amount (3)

Assets

Securities borrowing arrangements

$

6,975,136


$

-


$

6,975,136


$

(478,991

)

$

(667,099

)

$

5,829,046


Reverse repurchase agreements

14,048,860


(10,191,554

)

3,857,306


(83,452

)

(3,745,215

)

28,639


Liabilities

Securities lending arrangements

$

2,979,300


$

-


$

2,979,300


$

(478,991

)

$

(2,464,395

)

$

35,914


Repurchase agreements

20,195,982


(10,191,554

)

10,004,428


(83,452

)

(8,103,468

)

1,817,508



November 30, 2014

Gross

Amounts

Netting in

Consolidated

Statement of

Financial

Condition

Net Amounts in

Consolidated

Statement of

Financial

Condition

Additional

Amounts

Available for

Setoff (1)

Available

Collateral (2)

Net Amount (4)

Assets

Securities borrowing arrangements

$

6,853,103


$

-


$

6,853,103


$

(680,222

)

$

(1,274,196

)

$

4,898,685


Reverse repurchase agreements

14,059,133


(10,132,275

)

3,926,858


(634,568

)

(3,248,817

)

43,473


Liabilities

Securities lending arrangements

$

2,598,487


$

-


$

2,598,487


$

(680,222

)

$

(1,883,140

)

$

35,125


Repurchase agreements

20,804,432


(10,132,275

)

10,672,157


(634,568

)

(8,810,770

)

1,226,819



(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 counterparty in the event of a counterparty's default, but which are not netted in the balance sheet because other netting provisions of U.S. GAAP are not met.


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(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)

Amounts include $5,796.1 million of securities borrowing arrangements, for which we have received securities collateral of $5,613.3 million , and $1,807.2 million of repurchase agreements, for which we have pledged securities collateral of $1,875.3 million , which are subject to master netting agreements but we have not yet determined the agreements to be legally enforceable.

(4)

Amounts include $4,847.4 million of securities borrowing arrangements, for which we have received securities collateral of $4,694.0 million , and $1,201.9 million of repurchase agreements, for which we have pledged securities collateral of $1,238.4 million , which are subject to master netting agreements but we have not yet determined the agreements to be legally enforceable.

Cash and Securities Segregated and on Deposit for Regulatory Purposes or Deposited with Clearing and Depository Organizations


Cash and securities deposited with clearing and depository organizations and segregated in accordance with regulatory regulations totaled $751.1 million and $3,444.7 million at November 30, 2015 and November 30, 2014 , respectively. Segregated cash and securities consist of deposits in accordance with Rule 15c3-3 of the Securities Exchange Act of 1934, which subjects Jefferies 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, and with the Commodity Exchange Act, which subjected Jefferies as an FCM to segregation requirements. During October 2015, Jefferies ceased being a full service FCM. As a result, Jefferies no longer carries customer or proprietary accounts or holds any customer monies or funds.



Note 8. Securitization Activities

We engage in securitization activities related to corporate loans, commercial 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 securitization of assets issued or guaranteed by U.S. government agencies. These SPEs generally meet the criteria of variable interest entities; however we generally do not consolidate the SPEs as we are not considered the primary beneficiary for these SPEs. See Note 9, Variable Interest Entities , for further discussion on variable interest entities 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 Earnings prior to the identification and isolation for securitization. Subsequently, revenues recognized upon securitization are reflected as net underwriting revenues. We generally receive cash proceeds in connection with the transfer of assets to an SPE. We may, however, have continuing involvement with the transferred assets, which is limited to retaining one or more tranches of the securitization (primarily senior and subordinated debt securities in the form of mortgage- and other-asset backed securities or collateralized loan obligations), which are included within Financial instruments owned and are generally initially categorized as Level 2 within the fair value hierarchy. We apply fair value accounting to the securities.


The following table presents activity related to our securitizations that were accounted for as sales in which we had continuing involvement (in millions):

Successor

Predecessor

Year 
 Ended 
 November 30, 
 2015

Year 
 Ended 
 November 30, 
 2014

Nine Months 
 Ended 
 November 30, 
 2013

Three Months 
 Ended 
 February 28, 
 2013

Transferred assets

$

5,770.5


$

6,112.6


$

4,592.5


$

2,735.2


Proceeds on new securitizations

5,811.3


6,221.1


4,609.0


2,751.3


Cash flows received on retained interests

31.2


46.3


35.6


32.3



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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, 2015 and November 30, 2014 .

The following tables summarize our retained interests in SPEs where we transferred assets and have continuing involvement and received sale accounting treatment (in millions):

November 30, 2015

Securitization Type

Total Assets

Retained Interests

U.S. government agency residential mortgage-backed securities

$

10,901.9


$

203.6


U.S. government agency commercial mortgage-backed securities

2,313.4


87.2


Collateralized loan obligations

4,538.4


51.5


Consumer and other loans

655.0


31.0


November 30, 2014

Securitization Type

Total Assets

Retained Interests

U.S. government agency residential mortgage-backed securities

$

19,196.9


$

226.9


U.S. government agency commercial mortgage-backed securities

5,848.5


204.7


Collateralized loan obligations

4,511.8


108.4


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 transaction 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 within total Financial instruments owned on our 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, although the securities are included in Financial instruments owned. To the extent we purchased securities through these market-marking activities and we are not deemed to be the primary beneficiary of the variable interest entity, these securities are included in agency and non-agency mortgage- and asset-backed securitizations in the nonconsolidated variable interest entities section presented in Note 9, Variable Interest Entities .

If we have not relinquished control over the transferred assets, the assets continue to be recognized in Financial instruments owned and a corresponding liability is recognized in Other secured financings. The carrying value of assets and liabilities resulting from transfers of financial assets treated as secured financings was $0.0 and $0.0 , respectively, at November 30, 2015 and $7.8 million and $7.8 million , respectively, at November 30, 2014 . The related liabilities do not have recourse to our general credit.


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Note 9. Variable Interest Entities

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 variable interest entity that most significantly impact the entity's economic performance and (2) an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant to the entity.

Our variable interests in VIEs include debt and equity interests, commitments, guarantees and certain fees. Our involvement with VIEs arises primarily from:

Purchases of securities in connection with our trading and secondary market making activities,

Retained interests held as a result of securitization activities, including the resecuritization of mortgage- and other asset-backed securities and the securitization of commercial mortgage, corporate and consumer loans,

Acting as placement agent and/or underwriter in connection with client-sponsored securitizations,

Financing of agency and non-agency mortgage- and other asset-backed securities,

Warehousing funding arrangements for client-sponsored consumer loan vehicles and collateralized loan obligations ("CLOs") through participation certificates and revolving loan commitments, and

Loans to, investments in and fees from various investment fund 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 significant 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 most significant activities is shared, we assess whether we are the party with the power over the majority of the significant activities. If we are the party with the power over the majority of the significant activities, we meet the "power" criteria of the primary beneficiary. If we do not have the power over a majority of the 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 significant 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 at November 30, 2015 and November 30, 2014 (in millions). The assets and liabilities in the tables below are presented prior to consolidation and thus a portion of these assets and liabilities are eliminated in consolidation.

November 30, 2015

November 30, 2014

Securitization
Vehicles

Other

Securitization
Vehicles

Other

Cash

$

0.5


$

0.2


$

-


$

0.2


Financial instruments owned

68.3


0.3


62.7


0.3


Securities purchased under agreement to resell (1)

717.3


-


575.2


-


Fees, interest and other receivables

0.3


-


0.4


-


$

786.4


$

0.5


$

638.3


$

0.5


Other secured financings (2)

$

785.0


$

-


$

637.7


$

-


Other liabilities

1.4