UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
__________
FORM 10-Q
 [X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20172018
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 1-5721
LEUCADIA NATIONAL CORPORATIONJEFFERIES FINANCIAL GROUP INC.
(Exact name of registrant as specified in its Charter)
New York
(State or other jurisdiction of
13-2615557
(I.R.S. Employer
incorporation or organization)Identification Number)
  
520 Madison Avenue, New York, New York
(Address of principal executive offices)
10022
(Zip Code)
(212) 460-1900
(Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)
______________________

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 x No o

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 x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large"large accelerated filer,” “accelerated" "accelerated filer,” “smaller" "smaller reporting company,”" and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  x
Accelerated filer o
Non-accelerated filer    o
  (Do not check if a smaller reporting company)
Smaller reporting company  o
Emerging growth company  o
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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

The number of shares outstanding of each of the issuer’s classes of common stock at October 25, 201724, 2018 was 356,273,068.323,072,855.


PART I. FINANCIAL INFORMATION

Item I. Financial Statements.
 
LEUCADIA NATIONAL CORPORATIONJEFFERIES FINANCIAL GROUP INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
September 30, 20172018 and December 31, 20162017
(Dollars in thousands, except par value)
(Unaudited)
September 30, December 31,September 30, December 31,
2017 20162018 2017
ASSETS      
Cash and cash equivalents$5,016,932
 $3,807,558
$4,895,788
 $5,275,480
Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations903,744
 857,337
913,456
 578,014
Financial instruments owned, including securities pledged of $10,257,188 and $9,706,881: 
  
Financial instruments owned, including securities pledged of $12,868,364 and $10,842,051: 
  
Trading assets, at fair value15,505,065
 14,985,237
17,709,245
 16,082,676
Available for sale securities520,497
 301,049
1,868,420
 716,561
Total financial instruments owned16,025,562

15,286,286
19,577,665

16,799,237
Investments in managed funds541,275
 515,318
Loans to and investments in associated companies2,350,980
 2,125,098
2,450,901
 2,066,829
Securities borrowed7,758,532
 7,743,562
7,369,908
 7,721,803
Securities purchased under agreements to resell3,371,435
 3,862,488
3,659,059
 3,689,559
Receivables5,507,847
 4,425,178
5,864,815
 5,419,015
Property, equipment and leasehold improvements, net727,685
 709,242
346,896
 750,403
Intangible assets, net and goodwill2,473,292
 2,513,678
1,894,898
 2,463,180
Deferred tax asset, net1,262,648
 1,461,815
468,297
 743,811
Assets held for sale—
 128,083
Other assets1,727,012
 1,635,664
1,506,986
 1,661,777
Total assets (1)$47,666,944

$45,071,307
$48,948,669

$47,169,108
      
LIABILITIES 
  
 
  
Short-term borrowings$417,122
 $525,842
$382,006
 $436,215
Trading liabilities, at fair value8,767,710
 8,388,619
9,479,213
 8,454,965
Securities loaned2,763,253
 2,819,132
2,531,504
 2,843,911
Securities sold under agreements to repurchase8,473,419
 6,791,676
9,864,483
 8,660,511
Other secured financings892,692
 1,026,429
1,440,678
 1,029,485
Payables, expense accruals and other liabilities7,104,957
 7,373,708
6,680,224
 7,167,666
Long-term debt8,092,642
 7,380,443
7,777,425
 7,885,783
Total liabilities (1)36,511,795

34,305,849
38,155,533

36,478,536
      
Commitments and contingencies

 



 

      
MEZZANINE EQUITY 
  
 
  
Redeemable noncontrolling interests388,572
 336,809
21,385
 426,593
Mandatorily redeemable convertible preferred shares125,000
 125,000
125,000
 125,000
      
EQUITY 
  
 
  
Common shares, par value $1 per share, authorized 600,000,000 shares; 356,189,758 and 359,425,061 shares issued and outstanding, after deducting 60,203,260 and 56,947,654 shares held in treasury356,190
 359,425
Common shares, par value $1 per share, authorized 600,000,000 shares; 331,415,732 and 356,227,038 shares issued and outstanding, after deducting 85,560,514 and 60,165,980 shares held in treasury331,416
 356,227
Additional paid-in capital4,731,811
 4,812,587
4,329,661
 4,676,038
Accumulated other comprehensive income363,486
 310,697
287,745
 372,724
Retained earnings5,000,423
 4,645,391
5,672,363
 4,700,968
Total Leucadia National Corporation shareholders’ equity10,451,910

10,128,100
Total Jefferies Financial Group Inc. shareholders’ equity10,621,185

10,105,957
Noncontrolling interests189,667
 175,549
25,566
 33,022
Total equity10,641,577

10,303,649
10,646,751

10,138,979
      
Total$47,666,944
 $45,071,307
$48,948,669
 $47,169,108

(1) Total assets include assets related to variable interest entities of $826.0 million and $815.8 million at September 30, 2017 and December 31, 2016, respectively, and Total liabilities include liabilities related to variable interest entities of $1,111.0 million and $1,284.7 million at September 30, 2017 and December 31, 2016, respectively. See Note 8 for additional information related to variable interest entities.
(1)Total assets include assets related to variable interest entities of $479.0 million and $382.9 million at September 30, 2018 and December 31, 2017, respectively, and Total liabilities include liabilities related to variable interest entities of $1,441.9 million and $1,031.0 million at September 30, 2018 and December 31, 2017, respectively. See Note 8 for additional information related to variable interest entities.
See notes to interim consolidated financial statements.


LEUCADIA NATIONAL CORPORATIONJEFFERIES FINANCIAL GROUP INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the periods ended September 30, 20172018 and 20162017
(In thousands, except per share amounts)
(Unaudited)
For the Three Months Ended September 30, For the Nine Months Ended September 30,For the Three Months Ended September 30, For the Nine Months Ended September 30,
  
2017 2016 2017 20162018 2017 2018 2017
Revenues:              
Beef processing services$2,038,821
 $1,746,841
 $5,472,339
 $5,175,592
Commissions139,082
 152,044
 437,547
 454,025
Commissions and other fees$155,417
 $139,082
 $461,023
 $437,547
Principal transactions95,419
 299,066
 737,955
 458,930
116,204
 84,143
 315,622
 725,780
Investment banking475,702
 294,930
 1,235,586
 778,906
460,043
 475,702
 1,400,331
 1,235,586
Interest income253,974
 226,648
 727,202
 690,257
336,736
 253,916
 939,272
 726,972
Net realized securities gains19,707
 60
 21,278
 8,202
Manufacturing revenues94,029
 81,939
 307,129
 243,482
Other119,187
 164,121
 580,069
 366,423
296,548
 67,811
 440,537
 366,335
Total revenues3,141,892

2,883,710
 9,211,976
 7,932,335
1,458,977

1,102,593
 3,863,914
 3,735,702
Interest expense of Jefferies245,370
 207,335
 715,092
 615,496
Interest expense of Jefferies Group308,131
 245,370
 906,474
 715,092
Net revenues2,896,522

2,676,375
 8,496,884
 7,316,839
1,150,846

857,223
 2,957,440
 3,020,610
              
Expenses: 
  
  
  
 
  
  
  
Compensation and benefits461,265
 493,471
 1,429,439
 1,468,373
Cost of sales1,888,076
 1,689,093
 5,241,721
 5,113,515
84,876
 71,596
 257,501
 210,834
Compensation and benefits504,831
 418,715
 1,500,587
 1,266,213
Floor brokerage and clearing fees42,852
 40,189
 133,145
 124,259
44,570
 42,852
 131,792
 133,145
Interest27,325
 23,121
 82,543
 68,145
Interest expense28,837
 25,612
 74,614
 76,762
Depreciation and amortization55,424
 52,691
 155,651
 153,070
32,295
 28,760
 92,360
 82,129
Selling, general and other expenses208,044
 239,160
 576,018
 612,674
245,178
 199,441
 708,084
 552,155
Total expenses897,021

861,732
 2,693,790
 2,523,398
2,726,552

2,462,969
 7,689,665
 7,337,876
       
       
Income (loss) before income taxes and income (loss) related to associated companies169,970
 213,406
 807,219
 (21,037)
Income (loss) from continuing operations before income taxes and income (loss) related to associated companies253,825
 (4,509) 263,650
 497,212
Income (loss) related to associated companies30,057
 36,503
 (84,413) 108,445
18,867
 30,057
 84,320
 (84,413)
Income before income taxes200,027

249,909
 722,806
 87,408
Income from continuing operations before income taxes272,692

25,548
 347,970
 412,799
Income tax provision63,260
 73,703
 218,054
 59,192
90,391
 9,770
 51,560
 127,198
Income from continuing operations182,301

15,778
 296,410
 285,601
Income from discontinued operations, net of income tax provision of $0, $53,490, $47,045 and $90,856—
 120,989
 130,063
 219,151
Gain on disposal of discontinued operations, net of income tax provision of $0, $0, $229,553 and $0—
 —
 643,921
 —
Net income136,767

176,206
 504,752
 28,216
182,301

136,767
 1,070,394
 504,752
Net (income) loss attributable to the noncontrolling interests(28) 1,870
 1,941
 3,682
12,000
 (28) 13,208
 1,941
Net income attributable to the redeemable noncontrolling interests(36,216) (22,702) (64,538) (40,084)(390) (36,216) (37,294) (64,538)
Preferred stock dividends(1,172) (1,016) (3,203) (3,047)(1,276) (1,172) (3,619) (3,203)
 
  
  
  
 
  
  
  
Net income (loss) attributable to Leucadia National Corporation common shareholders$99,351

$154,358
 $438,952
 $(11,233)
Net income attributable to Jefferies Financial Group Inc. common shareholders$192,635

$99,351
 $1,042,689
 $438,952
              
Basic earnings (loss) per common share attributable to Leucadia National Corporation common shareholders:       
Net income (loss)$0.27
 $0.41
 $1.19
 $(0.03)
       
Diluted earnings (loss) per common share attributable to Leucadia National Corporation common shareholders:       
Net income (loss)$0.27
 $0.41
 $1.17
 $(0.03)
       
Dividends per common share$0.1000
 $0.0625
 $0.2250
 $0.1875

(continued)


See notes to interim consolidated financial statements.


LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
For the periods ended September 30, 2017 and 2016
(In thousands)
(Unaudited)
 For the Three Months Ended September 30, For the Nine Months Ended September 30,
  
 2017 2016 2017 2016
        
Net income$136,767
 $176,206
 $504,752
 $28,216
Other comprehensive income (loss): 
  
  
  
Net unrealized holding gains (losses) on investments arising during the period, net of income tax provision (benefit) of $(598), $2,937, $5,106 and $1,639(1,030) 5,064
 8,767
 2,826
Less: reclassification adjustment for net (gains) losses included in net income (loss), net of income tax provision (benefit) of $(257), $(1), $14 and $5443
 1
 (24) (8)
Net change in unrealized holding gains (losses) on investments, net of income tax provision (benefit) of $(341), $2,938, $5,092 and $1,634(587)
5,065
 8,743
 2,818
        
Net unrealized foreign exchange gains (losses) arising during the period, net of income tax provision (benefit) of $4,374, $262, $12,929 and $1,58811,250
 (55,573) 49,125
 (77,309)
Less: reclassification adjustment for foreign exchange (gains) losses included in net income (loss), net of income tax provision (benefit) of $(11), $0, $1,086 and $020
 —
 5,310
 —
Net change in unrealized foreign exchange gains (losses), net of income tax provision (benefit) of $4,385, $262, $11,843 and $1,58811,270

(55,573) 54,435
 (77,309)
        
Net unrealized gains (losses) on instrument specific credit risk arising during the period, net of income tax provision (benefit) of $2,149, $(1,627), $(5,270) and $(3,077)3,508
 (2,466) (8,870) (4,771)
Less: reclassification adjustment for instrument specific credit risk (gains) losses included in net income (loss), net of income tax provision (benefit) of $0, $0, $0 and $0—
 —
 —
 —
Net change in unrealized instrument specific credit risk gains (losses), net of income tax provision (benefit) of $2,149, $(1,627), $(5,270) and $(3,077)3,508

(2,466) (8,870) (4,771)
        
Net unrealized gains (losses) on cash flow hedges arising during the period, net of income tax provision (benefit) of $0, $0, $0 and $0(1,585) —
 (1,585) —
Less: reclassification adjustment for cash flow hedges (gains) losses included in net income (loss), net of income tax provision (benefit) of $0, $0, $0 and $0—
 —
 —
 —
Net change in unrealized cash flow hedges gains (losses), net of income tax provision (benefit) of $0, $0, $0 and $0(1,585) —
 (1,585) —
        
Net pension gains (losses) arising during the period, net of income tax provision (benefit) of $0, $0, $0 and $0—
 —
 —
 —
Less: reclassification adjustment for pension (gains) losses included in net income (loss), net of income tax provision (benefit) of $(201), $(175), $(1,835) and $(526)438
 383
 66
 1,150
Net change in pension liability, net of income tax provision (benefit) of $201, $175, $1,835 and $526438

383
 66
 1,150
        
Other comprehensive income (loss), net of income taxes13,044

(52,591) 52,789
 (78,112)
        
Comprehensive income (loss)149,811

123,615
 557,541
 (49,896)
Comprehensive (income) loss attributable to the noncontrolling interests(28) 1,870
 1,941
 3,682
Comprehensive income attributable to the redeemable noncontrolling interests(36,216) (22,702) (64,538) (40,084)
Preferred stock dividends(1,172) (1,016) (3,203) (3,047)
        
Comprehensive income (loss) attributable to Leucadia National Corporation common shareholders$112,395

$101,767
 $491,741
 $(89,345)

See notes to interim consolidated financial statements.


LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the nine months ended September 30, 2017 and 2016
(In thousands)
(Unaudited)
 2017 2016
Net cash flows from operating activities:   
Net income$504,752
 $28,216
Adjustments to reconcile net income to net cash provided by operations: 
  
Deferred income tax provision185,994
 52,241
Depreciation and amortization of property, equipment and leasehold improvements109,061
 106,948
Other amortization13,418
 13,510
Share-based compensation31,494
 24,936
Provision for doubtful accounts33,163
 26,372
Net securities gains(21,278) (8,202)
(Income) loss related to associated companies19,090
 (92,583)
Distributions from associated companies100,033
 118,855
Net losses related to property and equipment, and other assets10,290
 73,384
Gain on sale of subsidiary(178,236) —
Net change in:   
Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations(45,746) (277,019)
Trading assets(613,332) 2,190,420
Investments in managed funds(24,226) 44,306
Securities borrowed—
 (1,510,588)
Securities purchased under agreements to resell524,937
 (248,931)
Receivables from brokers, dealers and clearing organizations(602,761) (364,929)
Receivables from customers of securities operations(458,066) 331,266
Other receivables(157,062) (124,191)
Other assets(55,027) (310,542)
Trading liabilities328,060
 1,268,979
Securities loaned(68,310) (22,326)
Securities sold under agreements to repurchase1,668,725
 (1,824,027)
Payables to brokers, dealers and clearing organizations(652,668) 777,228
Payables to customers of securities operations162,387
 (31,159)
Trade payables, expense accruals and other liabilities123,448
 79,650
Other73,525
 9,117
Net cash provided by operating activities1,011,665

330,931
    
Net cash flows from investing activities: 
  
Acquisitions of property, equipment and leasehold improvements, and other assets(129,358) (255,367)
Proceeds from disposals of property and equipment, and other assets27,688
 58,650
Proceeds from sale of subsidiary, net of expenses and cash of operations sold289,767
 —
Acquisitions, net of cash acquired—
 (9,673)
Advances on notes, loans and other receivables(37,805) (234,091)
Collections on notes, loans and other receivables267,170
 52,507
Loans to and investments in associated companies(3,043,800) (530,883)
Capital distributions and loan repayments from associated companies2,765,006
 495,246
Purchases of investments (other than short-term)(770,687) (507,048)
Proceeds from maturities of investments196,493
 122,041
Proceeds from sales of investments412,158
 251,918
Other1,341
 (1,846)
Net cash (used for) investing activities(22,027)
(558,546)
(continued)



See notes to interim consolidated financial statements.


LEUCADIA NATIONAL CORPORATIONJEFFERIES FINANCIAL GROUP INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows,Operations, continued
For the nine monthsperiods ended September 30, 20172018 and 20162017
(In thousands)thousands, except per share amounts)
(Unaudited)

 2017 2016
Net cash flows from financing activities:   
Issuance of debt, net of issuance costs$1,594,460
 $614,062
Other change in short-term borrowings, net4,282
 120,865
Repayment of debt(1,063,058) (760,274)
Net change in other secured financings(134,743) (2,194)
Net change in bank overdrafts(5,764) (56,126)
Issuance of common shares1,288
 894
Net distributions to redeemable noncontrolling interests(37,214) (18,469)
Distributions to noncontrolling interests(9,617) (2,044)
Contributions from noncontrolling interests25,724
 116,847
Purchase of common shares for treasury(75,930) (59,784)
Dividends paid(81,445) (68,633)
Other—
 388
Net cash provided by (used for) financing activities217,983
 (114,468)
    
Effect of foreign exchange rate changes on cash4,889
 (17,590)
    
Change in cash classified as assets held for sale(3,136) —
    
Net increase (decrease) in cash and cash equivalents1,209,374
 (359,673)
  
  
Cash and cash equivalents at January 1,3,807,558
 3,638,648
  
  
Cash and cash equivalents at September 30,$5,016,932
 $3,278,975
    
 For the Three Months Ended September 30, For the Nine Months Ended September 30,
  
 2018 2017 2018 2017
        
Basic earnings per common share attributable to Jefferies Financial Group Inc. common shareholders:       
Income from continuing operations$0.56
 $0.04
 $0.86
 $0.77
Income from discontinued operations—
 0.23
 0.26
 0.42
Gain on disposal of discontinued operations—
 —
 1.82
 —
Net income$0.56
 $0.27
 $2.94
 $1.19
        
Diluted earnings per common share attributable to Jefferies Financial Group Inc. common shareholders:       
Income from continuing operations$0.55
 $0.04
 $0.85
 $0.76
Income from discontinued operations—
 0.23
 0.26
 0.41
Gain on disposal of discontinued operations—
 —
 1.80
 —
Net income$0.55
 $0.27
 $2.91
 $1.17
        
Dividends per common share$0.1250
 $0.1000
 $0.3250
 $0.2250
        
Amounts attributable to Jefferies Financial Group Inc. common shareholders:       
Income from continuing operations, net of taxes$192,635
 $14,992
 $305,846
 $284,889
Income from discontinued operations, net of taxes—
 84,359
 92,922
 154,063
Gain on disposal of discontinued operations, net of taxes—
 —
 643,921
 —
Net income$192,635
 $99,351
 $1,042,689
 $438,952



























See notes to interim consolidated financial statements.


LEUCADIA NATIONAL CORPORATIONJEFFERIES FINANCIAL GROUP INC. AND SUBSIDIARIES
Consolidated Statements of Changes in EquityComprehensive Income (Loss)
For the nine monthsperiods ended September 30, 20172018 and 20162017
(In thousands, except par value and per share amounts)thousands)
(Unaudited)

 Leucadia National Corporation Common Shareholders    
 Common
Shares
$1 Par
Value		 Additional
Paid-In
Capital		 Accumulated
Other
Comprehensive
Income (Loss)		 Retained
Earnings		 Subtotal Noncontrolling
Interests		 Total
              
Balance, January 1, 2016$362,617
 $4,986,819
 $438,793
 $4,612,982
 $10,401,211
 $64,679
 $10,465,890
Net loss 
  
  
 (11,233) (11,233) (3,682) (14,915)
Other comprehensive loss, net of taxes 
  
 (78,112)  
 (78,112)  
 (78,112)
Contributions from noncontrolling interests 
  
  
  
 —
 118,940
 118,940
Distributions to noncontrolling interests 
  
  
  
 —
 (2,044) (2,044)
Deconsolidation of asset management entities 
  
  
  
 —
 (385) (385)
Change in interest in consolidated subsidiary 
 (282)  
  
 (282) 282
 —
Share-based compensation expense 
 24,936
  
  
 24,936
  
 24,936
Change in fair value of redeemable noncontrolling interests 
 (132,831)  
  
 (132,831)  
 (132,831)
Purchase of common shares for treasury(4,300) (68,824)  
  
 (73,124)  
 (73,124)
Dividends ($.1875 per common share) 
  
  
 (70,420) (70,420)  
 (70,420)
Other1,354
 (1,829)  
  
 (475) 17
 (458)
              
Balance, September 30, 2016$359,671

$4,807,989

$360,681

$4,531,329

$10,059,670

$177,807

$10,237,477
              
              
              
Balance, January 1, 2017$359,425
 $4,812,587
 $310,697
 $4,645,391
 $10,128,100
 $175,549
 $10,303,649
Net income 
  
  
 438,952
 438,952
 (1,941) 437,011
Other comprehensive income, net of taxes 
  
 52,789
  
 52,789
  
 52,789
Contributions from noncontrolling interests 
  
  
  
 —
 25,724
 25,724
Distributions to noncontrolling interests 
  
  
  
 —
 (9,617) (9,617)
Change in interest in consolidated subsidiary 
 48
  
  
 48
 (48) —
Share-based compensation expense 
 31,494
  
  
 31,494
  
 31,494
Change in fair value of redeemable noncontrolling interests 
 (24,404)  
  
 (24,404)  
 (24,404)
Exercise of options to purchase common shares20
 442
     462
   462
Purchase of common shares for treasury(3,883) (92,999)  
  
 (96,882)  
 (96,882)
Dividends ($.225 per common share) 
  
  
 (83,920) (83,920)  
 (83,920)
Other628
 4,643
  
  
 5,271
 

 5,271
              
Balance, September 30, 2017$356,190

$4,731,811

$363,486

$5,000,423

$10,451,910

$189,667

$10,641,577
 For the Three Months Ended September 30, For the Nine Months Ended September 30,
  
 2018 2017 2018 2017
        
Net income$182,301
 $136,767
 $1,070,394
 $504,752
Other comprehensive income (loss): 
  
  
  
Net unrealized holding gains (losses) on investments arising during the period, net of income tax provision (benefit) of $(424), $(598), $(567) and $5,106(1,198) (1,030) (1,606) 8,767
Less: reclassification adjustment for net (gains) losses included in net income, net of income tax provision (benefit) of $0, $(257), $37 and $14(2) 443
 (105) (24)
Net change in unrealized holding gains (losses) on investments, net of income tax provision (benefit) of $(424), $(341), $(604) and $5,092(1,200)
(587) (1,711) 8,743
        
Net unrealized foreign exchange gains (losses) arising during the period, net of income tax provision (benefit) of $(3,367), $4,374, $(4,160) and $12,929(27,660) 11,250
 (59,067) 49,125
Less: reclassification adjustment for foreign exchange (gains) losses included in net income, net of income tax provision (benefit) of $0, $(11), $(16) and $1,086—
 20
 (20,459) 5,310
Net change in unrealized foreign exchange gains (losses), net of income tax provision (benefit) of $(3,367), $4,385, $(4,144) and $11,843(27,660)
11,270
 (79,526) 54,435
        
Net unrealized gains (losses) on instrument specific credit risk arising during the period, net of income tax provision (benefit) of $355, $2,149, $4,596 and $(5,270)1,169
 3,508
 15,887
 (8,870)
Less: reclassification adjustment for instrument specific credit risk (gains) losses included in net income, net of income tax provision (benefit) of $48, $0, $126 and $0(101) —
 (371) —
Net change in unrealized instrument specific credit risk gains (losses), net of income tax provision (benefit) of $307, $2,149, $4,470 and $(5,270)1,068

3,508
 15,516
 (8,870)
        
Net change in unrealized cash flow hedges gains (losses), net of income tax provision (benefit) of $0, $0, $513 and $085
 (1,585) 1,584
 (1,585)
        
Reclassification adjustment for pension (gains) losses included in net income, net of income tax provision (benefit) of $(169), $(201), $(508) and $(1,835)479
 438
 6,742
 66
        
Other comprehensive income (loss), net of income taxes(27,228)
13,044
 (57,395) 52,789
        
Comprehensive income155,073

149,811
 1,012,999
 557,541
Comprehensive (income) loss attributable to the noncontrolling interests12,000
 (28) 13,208
 1,941
Comprehensive income attributable to the redeemable noncontrolling interests(390) (36,216) (37,294) (64,538)
Preferred stock dividends(1,276) (1,172) (3,619) (3,203)
        
Comprehensive income attributable to Jefferies Financial Group Inc. common shareholders$165,407

$112,395
 $985,294
 $491,741












See notes to interim consolidated financial statements.


LEUCADIA NATIONAL CORPORATIONJEFFERIES FINANCIAL GROUP INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the nine months ended September 30, 2018 and 2017
(In thousands)
(Unaudited)
 2018 2017
Net cash flows from operating activities:   
Net income$1,070,394
 $504,752
Adjustments to reconcile net income to net cash provided by operations: 
  
Pre-tax income from discontinued operations, including gain on disposal(1,050,582) (310,007)
Deferred income tax provision275,307
 185,994
Depreciation and amortization of property, equipment and leasehold improvements80,647
 69,480
Other amortization(26,796) (21,107)
Share-based compensation37,975
 31,494
Provision for doubtful accounts26,529
 26,764
Net securities (gains) losses1,019
 (21,278)
(Income) loss related to associated companies(115,007) 19,090
Distributions from associated companies98,426
 100,033
Net losses related to property and equipment, and other assets10,833
 11,414
Gain on sale of subsidiaries and associated companies(221,712) (178,236)
Net change in:   
Securities deposited with clearing and depository organizations64,890
 119
Trading assets(1,670,376) (639,464)
Securities borrowed309,722
 —
Securities purchased under agreements to resell(53,020) 524,937
Receivables from brokers, dealers and clearing organizations(261,534) (602,761)
Receivables from customers of securities operations(398,154) (458,066)
Other receivables(70,514) (137,408)
Other assets(23,910) (44,494)
Trading liabilities1,122,273
 327,587
Securities loaned(275,629) (68,310)
Securities sold under agreements to repurchase1,250,575
 1,668,725
Payables to brokers, dealers and clearing organizations(287,288) (652,668)
Payables to customers of securities operations523,611
 162,387
Trade payables, expense accruals and other liabilities(291,973) 134,125
Other(90,448) 73,525
Net cash provided by operating activities - continuing operations35,258

706,627
Net cash provided by operating activities - discontinued operations164,650
 354,289
Net cash provided by operating activities199,908
 1,060,916
    
Net cash flows from investing activities: 
  
Acquisitions of property, equipment and leasehold improvements, and other assets(282,397) (90,168)
Proceeds from disposals of property and equipment, and other assets11,994
 25,213
Proceeds from sale of subsidiaries, net of expenses and cash of operations sold100,000
 289,767
Proceeds from sale of associated companies379,130
 —
Advances on notes, loans and other receivables(10,000) (46,532)
Collections on notes, loans and other receivables17,404
 268,920
Loans to and investments in associated companies(1,936,496) (3,043,800)
Capital distributions and loan repayments from associated companies1,970,648
 2,765,006
Purchases of investments (other than short-term)(3,242,732) (770,687)
Proceeds from maturities of investments1,000,146
 196,493
Proceeds from sales of investments1,012,423
 412,158
Other130
 1,341
Net cash provided by (used for) investing activities - continuing operations(979,750)
7,711
Net cash provided by (used for) investing activities - discontinued operations861,209
 (36,465)
Net cash used for investing activities(118,541) (28,754)
(continued)

See notes to interim consolidated financial statements.


JEFFERIES FINANCIAL GROUP INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, continued
For the nine months ended September 30, 2018 and 2017
(In thousands)
(Unaudited)
 2018 2017
Net cash flows from financing activities:   
Issuance of debt, net of issuance costs$2,198,326
 $1,349,399
Other changes in short-term borrowings, net—
 4,282
Repayment of debt(2,024,680) (652,889)
Net change in other secured financings409,780
 (134,743)
Net change in bank overdrafts2,369
 (5,764)
Issuance of common shares3,486
 1,288
Distributions to noncontrolling interests—
 (9,617)
Contributions from noncontrolling interests113
 25,724
Purchase of common shares for treasury(635,835) (75,930)
Dividends paid(111,776) (81,445)
Other456
 (185)
Net cash provided by (used for) financing activities - continuing operations(157,761) 420,120
Net cash provided by (used for) financing activities - discontinued operations120,322
 (202,137)
Net cash provided by (used for) financing activities(37,439) 217,983
    
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash(16,469) 5,550
    
Change in cash classified as assets held for sale—
 (3,136)
    
Net increase in cash, cash equivalents and restricted cash27,459
 1,252,559
  
  
Cash, cash equivalents and restricted cash at January 1,5,774,505
 4,597,113
  
  
Cash, cash equivalents and restricted cash at September 30,$5,801,964
 $5,849,672

The following presents our cash, cash equivalents and restricted cash by category within the Consolidated Statements of Financial Condition to the total of the same amounts in the Consolidated Statements of Cash Flows above (in thousands):
 September 30, 2018 September 30, 2017
Cash and cash equivalents$4,895,788
 $5,016,932
Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations878,616
 803,970
Other assets27,560
 28,770
Total cash, cash equivalents and restricted cash$5,801,964
 $5,849,672











See notes to interim consolidated financial statements.


JEFFERIES FINANCIAL GROUP INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Equity
For the nine months ended September 30, 2018 and 2017
(In thousands, except par value and per share amounts)
(Unaudited)

 Jefferies Financial Group Inc. Common Shareholders    
 Common
Shares
$1 Par
Value		 Additional
Paid-In
Capital		 Accumulated
Other
Comprehensive
Income (Loss)		 Retained
Earnings		 Subtotal Noncontrolling
Interests		 Total
              
Balance, January 1, 2017$359,425
 $4,812,587
 $310,697
 $4,645,391
 $10,128,100
 $175,549
 $10,303,649
Net income 
  
  
 438,952
 438,952
 (1,941) 437,011
Other comprehensive income, net of taxes 
  
 52,789
  
 52,789
  
 52,789
Contributions from noncontrolling interests 
  
  
  
 —
 25,724
 25,724
Distributions to noncontrolling interests 
  
  
  
 —
 (9,617) (9,617)
Change in interest in consolidated subsidiary 
 48
  
  
 48
 (48) —
Share-based compensation expense 
 31,494
  
  
 31,494
  
 31,494
Change in fair value of redeemable noncontrolling interests 
 (24,404)  
  
 (24,404)  
 (24,404)
Purchase of common shares for treasury(3,883) (92,999)  
  
 (96,882)  
 (96,882)
Dividends ($.225 per common share) 
  
  
 (83,920) (83,920)  
 (83,920)
Other648
 5,085
  
  
 5,733
 

 5,733
Balance, September 30, 2017$356,190

$4,731,811

$363,486

$5,000,423

$10,451,910

$189,667

$10,641,577
              
              
Balance, January 1, 2018$356,227
 $4,676,038
 $372,724
 $4,700,968
 $10,105,957
 $33,022
 $10,138,979
Cumulative effect of the adoption of accounting standards    (27,584) 45,396
 17,812
  
 17,812
Balance, January 1, 2018, as adjusted356,227
 4,676,038
 345,140
 4,746,364
 10,123,769
 33,022
 10,156,791
Net income 
  
  
 1,042,689
 1,042,689
 (13,208) 1,029,481
Other comprehensive loss, net of taxes 
  
 (57,395)  
 (57,395)  
 (57,395)
Contributions from noncontrolling interests 
  
  
  
 —
 113
 113
Reversal of cumulative National Beef redeemable noncontrolling interests fair value adjustments prior to deconsolidation 
 237,669
  
  
 237,669
   237,669
Change in interest in consolidated subsidiary 
 2,677
  
  
 2,677
 (2,677) —
Share-based compensation expense 
 37,975
  
  
 37,975
  
 37,975
Change in fair value of redeemable noncontrolling interests 
 (28,136)  
  
 (28,136)  
 (28,136)
Consolidation of asset management entity        —
 8,316
 8,316
Exercise of options to purchase common shares109
 2,376
     2,485
   2,485
Purchase of common shares for treasury(26,316) (609,519)  
  
 (635,835)  
 (635,835)
Dividends ($.325 per common share) 
  
  
 (116,690) (116,690)  
 (116,690)
Other1,396
 10,581
  
  
 11,977
 

 11,977
Balance, September 30, 2018$331,416

$4,329,661

$287,745

$5,672,363

$10,621,185

$25,566

$10,646,751






See notes to interim consolidated financial statements.


JEFFERIES FINANCIAL GROUP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements


Note 1.  Nature of Operations

Jefferies Financial Group Inc. ("Jefferies" or the "Company"), formerly known as Leucadia National Corporation, (“Leucadia” oroperates the “Company”largest independent full-service global investment banking firm headquartered in the U.S., together with an established merchant banking business. We engage in investment banking, sales and trading and asset management through Jefferies Group LLC ("Jefferies Group") is a diversified holding company focused on long-term value creation. From time to maximize shareholder value.  We continuously review acquisitions of businesses, securities and assets that have the potential for significant long-term value creation, invest in a broad array of businesses, andtime, we evaluate the retention and disposition of our existing operationsbusinesses and holdings.  Changesinvestments, and changes in the mix of our businesses and investmentsthese holdings should be expected.

Our financial services businesses and investments include Jefferies (investment banking and capital markets), Leucadia Asset Management (asset management), Berkadia (commercial mortgage banking, investment sales and servicing), FXCM (provider of online foreign exchange trading services), HomeFed (publicly traded real estate company) and Foursight Capital (vehicle finance).  We also own and have investments in a diverse array of other businesses, including National Beef (beef processing), HRG Group (insurance and consumer products), Vitesse Energy and JETX Energy (oil and gas exploration and development), Garcadia (automobile dealerships), Linkem (fixed wireless broadband services in Italy), Idaho Timber (manufacturing company) and Golden Queen (gold and silver mining). The structure of each of our investments was tailored to the unique opportunity each transaction presented. Our investments may be reflected in our consolidated results as consolidated subsidiaries, equity investments, securities, or in other ways, depending on the structure of our specific holdings.

Jefferies is a global full-service, integrated securities and investment banking firm.  In March 2013, Jefferies became an indirect wholly-owned subsidiary of Leucadia, yet retains a separate credit rating and continues to be a separate SEC reporting company.  Through Jefferies, we own 50% of Jefferies Finance LLC ("Jefferies Finance"), our joint venture with Massachusetts Mutual Life Insurance Company.  Jefferies Finance is a commercial finance company whose primary focus is the origination and syndication of senior secured debt of middle market and growth companies in the form of term and revolving loans.  Through Jefferies, we also own a 48.5% voting interest in Jefferies LoanCore, LLC ("Jefferies LoanCore"), a joint venture with the Government of Singapore Investment Corporation, the Canadian Pension Plan Investment Board and LoanCore, LLC.  Jefferies LoanCore originates, purchases and securitizes commercial real estate loans throughout the U.S. On October 31, 2017, Jefferies sold all of its membership interests in Jefferies LoanCore for approximately $170 million, the estimated book value as of October 31, 2017. In addition, Jefferies may be entitled to additional cash consideration over the next five years in the event Jefferies LoanCore's yearly return on equity exceeds certain thresholds.

Jefferies has a November 30 year-end, which it retains for standalone reporting purposes.  We reflect Jefferies in our consolidated financial statements utilizing a one month lag.  We have reviewed Jefferies business and internal operating results for the month of September 2017 for the purpose of evaluating whether financial statement disclosure or adjustments are required in this Quarterly Report on Form 10-Q, and we have concluded that no additional disclosures or adjustments are warranted.

Berkadia Commercial Mortgage LLC ("Berkadia"), our 50-50 equity method joint venture with Berkshire Hathaway Inc., is a U.S. commercial real estate finance company providing capital solutions, investment sales advisory and mortgage servicing for multifamily and commercial properties.

Leucadia Asset Management ("LAM") supports and develops focused alternative asset management businesses led by distinct management teams. These primarily include Folger Hill Asset Management LLC ("Folger Hill"), a multi-manager discretionary long/short equity hedge fund platform; Topwater Capital, a first-loss product; 54 Madison Capital, LLC ("54 Madison"), which invests in real estate projects; CoreCommodity Management LLC, an asset manager that focuses on commodities strategies; Tenacis Capital, a systematic macro investment platform; Lake Hill, an electronic trader in listed options and futures across asset classes; as well as several other smaller businesses. In addition, several investment management businesses, including Jefferies Strategic Investments Division, operate under Jefferies and are included under our marketing of the LAM platform.

Our investment in FXCM Group, LLC ("FXCM") and associated companies consists of a senior secured term loan due January 2018 ($67.6 million outstanding at September 30, 2017), a 49.9% common membership interest in FXCM and up to 65% of all distributions. FXCM's six-member board is comprised of three directors appointed by Leucadia and three directors appointed by Global Brokerage Holdings, LLC ("Global Brokerage Holdings" and formerly FXCM Holdings, LLC). See Notes 3 and 9 to our consolidated financial statements for additional information.

We own an approximate 70% equity method interest in HomeFed, which owns and develops residential and mixed use real estate properties.  HomeFed is a public company traded on the NASD OTC Bulletin Board.



We own 100% of Foursight Capital, an auto loan originator and servicer, and 85% of Chrome Capital, which owns and manages a portfolio of leases on used Harley-Davidson motorcycles and is in the process of winding down.

We own approximately 23% of HRG Group, Inc. ("HRG"), a publicly traded company (NYSE: HRG), and we reflect this investment at fair value based on quoted market prices. HRG primarily owns approximately 59% of Spectrum Brands, a publicly traded (NYSE: SPB) global consumer products company; an approximately 80% ownership stake in Fidelity & Guaranty Life ("FGL"), a publicly traded (NYSE: FGL) life insurance and annuity products company; and Front Street, a long-term reinsurance company. On May 24, 2017, FGL and CF Corporation entered into a definitive agreement and plan of merger pursuant to which CF Corporation will acquire FGL for $31.10 per share in cash. The transaction is expected to close in the fourth quarter of 2017.

We own 78.9%31% of National Beef Packing Company. National Beef processes and markets fresh and chilled boxed beef, ground beef, beef by-products, consumer-ready beef and pork, and wet blue leather for domestic and international markets. On June 5, 2018, we completed the sale of 48% of National Beef operates two beef processing facilities, three further processing facilities andto Marfrig Global Foods S.A. ("Marfrig") for $907.7 million in cash, reducing our ownership in National Beef from 79% to 31%. The pre-tax gain recognized as a wet blue tanning facility, all locatedresult of this transaction was $873.5 million for the nine months ended September 30, 2018. During 2018, prior to the closing, we received an additional $229.4 million in distributions of recent profits plus a true-up to the debt amount set in the U.S.enterprise valuation associated with the sale. Marfrig has also acquired a further 3% of National Beef operates onefrom other equity owners and owns 51% of National Beef. We will continue to designate two board members and have a series of other rights in respect of our continuing equity interest, with a lockup period of five years and thereafter fair market value liquidity protections. As of the largest wet blue tanning facilitiesclosing of the sale on June 5, 2018, we deconsolidated our investment in the world that sells processed hides to tanners that produce finished leather for the automotive, luxury goods, apparel and furniture industries.  National Beef owns Kansas City Steak Company, LLC, which sells portioned beef and other products directly to customers through the internet, direct mail and direct response television.  National Beef also owns a refrigerated and livestock transportation and logistics company that provides transportation services for National Beef and third parties.

Garcadia is an equity method joint venture that owns and operates 28 automobile dealershipsaccount for our remaining 31% interest in California, Texas, Iowa and Michigan. We own approximately 75% of Garcadia.

We own approximately 42% of the common shares of Linkem, as well as convertible preferred shares which, if converted, would increase our ownership to approximately 53% of Linkem's common equity at September 30, 2017.  Linkem provides residential broadband services using LTE technologies deployed over the 3.5 GHz spectrum band.  Linkem operates in Italy, which has few cable television systems and poor broadband alternatives. Linkem is accounted forNational Beef under the equity method.method of accounting. We have classified the results of National Beef prior to June 5, 2018 as discontinued operations in the Consolidated Statements of Operations. See Note 24 for more information.

During the third quarter of 2018, we sold 100% of our equity interests in Garcadia, our auto dealer group, and our associated real estate to our former partners, the Garff family, for $417.2 million in cash. The pre-tax gain recognized as a result of this transaction, $221.7 million for the three and nine months ended September 30, 2018, is classified as Other revenue.

Vitesse Energy, LLC ("Vitesse"Vitesse Energy Finance") is our 96% owned consolidated subsidiary that acquires and developsinvests in non-operated working and royalty oil and gas interests in the Bakken Shale oil field in North Dakota and Montana, as well as the Denver-Julesburg Basin in Wyoming. JETXThese non-operated interests represent Vitesse Energy LLC ("JETX"), formerly Juneau Energy, LLC, isFinance’s share of mineral rights associated with specified acreage. As operators convert undeveloped portions of this acreage into flowing horizontal wells, our 98% owned consolidated subsidiary that engagesinterests in the exploration, developmentmineral rights are essentially converted into interests in the cash flows associated with the wells. In April 2018, Vitesse Energy Finance acquired a package of non-operated Bakken assets from a private equity fund for $190 million in cash, of which approximately $144 million was funded as equity by Jefferies and production ofthe balance was drawn under Vitesse Energy Finance’s credit line. The assets purchased include interests in mineral rights associated with future oil and gas development, as well as interests in existing cash flows from onshore, unconventional resource areas.  JETX currently has non-operated working interestsproducing wells through revenue sharing arrangements.
Leucadia Asset Management ("LAM") supports and acreagedevelops focused alternative asset management businesses led by distinct management teams. We are patiently developing this business over time, and changes in the Texas Gulf Coast region.platforms and structure should be expected. During the second quarter of 2018, we took steps to expand our asset management efforts including the formation of a strategic relationship with Weiss Multi-Strategy Advisers LLC and we invested $250.0 million in Weiss' strategy. We will receive a profit share in the first year, and a revenue share thereafter. In addition, we entered into an agreement with Schonfeld Strategic Advisors LLC to merge the business of Folger Hill Asset Management with Schonfeld's fundamental equities business, under the Schonfeld brand. In connection with the pending transaction, we have agreed to make a $250.0 million investment in the combined strategy and we will own a revenue share in the management company. On October 1, 2018, Jefferies transferred its membership interests in certain funds and separately managed accounts which are managed by Leucadia Asset Management, as well as its interest in Berkadia Commercial Mortgage LLC ("Berkadia"), to Jefferies Group (collectively, "the Transfer"). The Transfer was accomplished as a capital contribution to Jefferies Group of approximately $596 million and an internal transfer of cash from Jefferies Group of $78.3 million to the Jefferies parent company.

Idaho Timber is our consolidatedOn July 13, 2018, HRG Group, Inc. ("HRG") merged into its 62% owned subsidiary, engagedSpectrum Brands Holdings, Inc. ("Spectrum Brands"). Our approximately 23% interest in HRG thereby converted into approximately 14% of the manufacture and distributionoutstanding shares of various wood products, including the following principal activities: remanufacturing dimension lumber; remanufacturing, bundling and bar coding of home center boards for large retailers; and production of pine dimension lumber and 5/4” radius-edge pine decking. Spectrum Brands, a NYSE company.

Golden Queen Mining Company, LLC ("Golden Queen") owns the Soledad Mountain project, an open pit, heap leach goldOn October 2, 2018, our Board of Directors and silver mining project in Kern County, California, which commenced gold and silver production in March 2016.  We and the Clay family have formed and made contributionssenior management approved a change of our fiscal year end from a calendar year basis to a limited liability company, controlled by us, through which we invested in Golden Queenfiscal year ending on November 30, consistent with the fiscal year of Jefferies Group. We will file a transition report on Form 10-K for the development and operation of the project. Our effective ownership of Golden Queen is approximately 35% which is accounted for under the equity method.

Conwed Plastics ("Conwed") was our consolidated subsidiary that manufactured and marketed lightweight plastic netting used for building and construction, erosion and sediment control, packaging, agricultural purposes, carpet padding, filtration, consumer products and other purposes. Intransition period from January 2017, we sold 100% of Conwed1, 2018 to Schweitzer-Mauduit International, Inc., (NYSE: SWM) for $295 million in cash plus potential earn-out payments over five years of up to $40 million in cash to the extent the results of Conwed’s subsidiary, Filtrexx International, exceed certain performance thresholds. We recognized a $178.2 million pre-tax gain (net of working capital adjustments) on the sale of Conwed in Other revenues during the nine months ended SeptemberNovember 30, 2017.2018.




Note 2.  Basis of Presentation and Significant Accounting Policies

Our unaudited interim consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all information and footnotes which are normally included in our Annual Report on Form 10-K.  These financial statements reflect all adjustments (consisting of normal recurring items or items discussed herein) that management believes are necessary to fairly state results for the interim periods presented. Results of operations for interim periods are not necessarily indicative of annual results of operations. For a detailed discussion about the Company’s significant accounting policies, see Note 2, Significant Accounting Policies, included in our Annual Report on Form 10-K for the year ended December 31, 2016. Other than the following, there were no significant updates made to the Company’s significant accounting policies. The accounting policy updates are attributable to the implementation of hedge accounting in connection with an interest rate swap entered into during the nine months ended September 30, 2017 and the adoption of the Financial Accounting Standards Board (“FASB”("2017 10-K") guidance on improvements to employee share-based payment accounting..

The preparation of these financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”("GAAP") requires us to make estimates and assumptions that affect the reported amounts in the financial statements and disclosures of contingent assets and liabilities. On an on-going basis, we evaluate all of these estimates and assumptions. The most important of these estimates and assumptions relate to fair value measurements, compensation and benefits, asset impairment, the ability to realize deferred tax assets, the recognition and measurement of uncertain tax positions and contingencies. Although these and other estimates and assumptions are based on the best available information, actual results could be different from these estimates.

Principal Transactions RevenuesJefferies Group has a November 30 year-end, which it retains for standalone reporting purposes. We reflect Jefferies Group in our consolidated financial statements utilizing a one month lag. We have reviewed Jefferies Group's business and internal operating results for the month of September 2018 for the purpose of evaluating whether financial statement disclosure or adjustments are required in this Quarterly Report on Form 10-Q, and we have concluded that no additional disclosures or adjustments are warranted. In connection with the planned change of our fiscal year-end to November 30, we also plan to eliminate the one month lag utilized to reflect Jefferies Group results in our consolidated financial statements, starting with a transition report on Form 10-K for the transition period from January 1, 2018 to November 30, 2018.

Trading assets and trading liabilities (allDuring the nine months ended September 30, 2018, other than the following, there were no significant updates made to the Company’s significant accounting policies. The accounting policy changes are attributable to the adoption of whichthe Financial Accounting Standards Board ("FASB") guidance on Revenue from Contracts with Customers (the "new revenue standard"). These revenue recognition policy updates are recorded on a trade-date basis) are carried at fair value with gains and losses reflected in Principal transaction revenuesapplied prospectively in our Consolidated Statements of Operations, exceptfinancial statements from January 1, 2018 forward using the modified retrospective approach. Reported financial information for derivatives accounted for as hedges (see “Hedge Accounting” section hereinthe historical comparable periods were not revised and Note 4). Fees received on loans carried at fair value are also recorded within Principal transaction revenues.continue to be reported under the accounting standards in effect during the historical periods.

Hedge AccountingRevenue Recognition Policies

Investment Banking Revenues:
Jefferies applies hedge accounting using interest rate swaps designatedAdvisory fees from mergers and acquisitions engagements are recognized at a point in time when the related transaction is completed.
Expenses associated with investment banking advisory engagements are deferred only to the extent they are explicitly reimbursable by the client and the related revenue is recognized at a point in time. All other investment banking advisory related expenses, including expenses incurred related to restructuring advisory engagements, are expensed as fair value hedges of changes in the benchmark interest rate of fixed rate senior long-term debt. Jefferies interest rate swapsincurred.
All investment banking expenses are included as derivative contracts in Trading assets and Trading liabilitiesrecognized within their respective expense category in the Consolidated Statements of Financial Condition. Jefferies uses regression analysis to perform ongoing prospectiveOperations and retrospective assessmentsany expenses reimbursed by clients are recognized as Investment banking revenues.
Asset Management Fees:
Performance fee revenue is generally recognized only at the end of the effectivenessperformance period to the extent that the benchmark return has been met.
See Accounting Developments - Adopted Accounting Standards below and Note 17 for further information.

Changes to the Consolidated Statements of these hedging relationships. A hedging relationship is deemed effective ifOperations

Manufacturing revenues, which were previously reported within Other revenues, are now reported separately in the change in fair valueConsolidated Statements of Operations. Manufacturing revenues are primarily from Idaho Timber, which manufactures and distributes an extensive range of quality wood products to markets across North America. Idaho Timber's primary business consists of the interest rate swapsale of lumber that is manufactured or remanufactured at one of its locations. Agreements with customers for these sales specify the


type, quantity and price of products to be delivered as well as the change indelivery date and payment terms. The transaction price is fixed at the fair valuetime of sale and revenue is generally recognized when the customer takes control of the long-term debt due to changes in the benchmark interest rate offset within a range of 80% to 125%. The impact of valuation adjustments related to Jefferies own credit spreads and counterparty credit spreads are included in the assessment of effectiveness.product.

We have reorganized the presentation of our gains and losses generated from our capital invested in asset management funds. This was previously presented as Other revenues and is now presented within Principal transactions revenues. For qualifying fair value hedgesthe three months ended September 30, 2017, this resulted in a decrease to Principal transactions revenues of benchmark interest rates,$11.3 million and an increase to Other revenues of $11.3 million. For the changenine months ended September 30, 2017, this resulted in the fair valuea decrease to Principal transactions revenues of the derivative$12.2 million and the change in fair valuean increase to Other revenues of the long-term debt provide offset of one another, and together with any resulting ineffectiveness, are recorded in Interest expense. See Note 4 for further information.$12.2 million.

Receivables

At September 30, 20172018 and December 31, 2016,2017, Receivables include receivables from brokers, dealers and clearing organizations of $2,674.7$2,878.5 million and $2,062.9$2,635.2 million, respectively, and receivables from customers of securities operations of $1,291.5$1,951.8 million and $843.1$1,563.8 million, respectively.

Payables, expense accruals and other liabilities

At September 30, 20172018 and December 31, 2016,2017, Payables, expense accruals and other liabilities include payables to brokers, dealers and clearing organizations of $2,668.9$1,913.3 million and $3,290.4$2,228.9 million, respectively, and payables to customers of securities operations of $2,459.7$3,187.6 million and $2,297.3$2,664.0 million, respectively.



Impairment of Long-Lived Assets

We evaluate our long-lived assets for impairment whenever events or changes in circumstances indicate, in management's judgment that the carrying value of such assets may not be recoverable. In the third quarter of 2016, JETX recorded impairment charges in Selling, general and other expenses of $55.0 million related to write-downs of unproved oil and gas properties. JETX assesses its unproved oil and gas properties for impairment based on remaining lease terms, drilling results or future plans to develop acreage and they record impairment expense for any decline in value. In the third quarter of 2016, JETX curtailed development of its southern acreage in the East Eagle Ford and its Houston County acreage. As a result, an impairment was recorded for the difference between the carrying value and the estimated net realizable value of the acreage.

In the third quarter of 2017, JETX decided to focus on its other higher returning acreage and as a result wrote off the remaining carrying value for its Houston County acreage. JETX recorded an impairment charge of $10.1 million in Selling, general and other expenses in the third quarter of 2017 related to the write-down of unproved oil and gas properties.

Supplemental Cash Flow Information
 For the Nine Months Ended September 30,
 
 2017 2016
Cash paid during the year for:(In thousands)
Interest$837,020
 $727,115
Income tax payments (refunds), net$9,183
 $(13,933)
During the nine months ended September 30, 2016, we had $334.5 million in non-cash investing activities related to the transfer of the investment in FXCM from Trading assets to Loans to and investments in associated companies.
 For the Nine Months Ended September 30,
 
 2018 2017
Cash paid during the year for:(In thousands)
Interest$1,059,139
 $837,020
Income tax payments (refunds), net$28,204
 $9,183
During the nine months ended September 30, 2017, and 2016, we had $21.0 million and $13.3 million, respectively, in non-cash financing activities related to purchases of common shares for treasury which settled subsequent to quarter end.

Accounting Developments - Adopted Accounting Standards to be Adopted in Future Periods

Revenue Recognition.  In May 2014, the FASB issued new guidance that defines how companies report revenues from contracts with customers, and also requires enhanced disclosures. The core principle of this new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We adopted the guidance as of January 1, 2018 and services.  Thisrecognized an increase of $17.8 million after-tax to beginning retained earnings as the cumulative effect of adoption of accounting standards. The increase primarily relates to the recognition of $24.3 million of revenue previously deferred from the sale of real estate to HomeFed in 2014, offset by a decrease of $6.1 million related to Jefferies Group. For Jefferies Group, the impact of adoption primarily related to investment banking expenses that were deferred as of December 31, 2017 under the previously existing accounting guidance, is effective for interimwhich would have been expensed in prior periods under the new revenue standard and annualinvestment banking revenues that were previously recognized in prior periods, beginning afterwhich would have been deferred as of December 15, 2017.31, 2017 under the new revenue standard. We intendelected to adopt the new guidance using thea modified retrospective approach with a cumulative-effect adjustmentapplied to opening retained earnings. The evaluationcontracts that were not completed as of January 1, 2018. Accordingly, the impact this new guidance will have onrevenue standard is applied prospectively in our consolidated financial statements from January 1, 2018 forward and reported financial information for historical comparable periods is ongoing. Our implementation efforts includenot revised and continues to be reported under the identification of revenue streams within the scope of the guidance, the evaluation of certain revenue contracts and education and discussion with our consolidated subsidiaries. The below focuses on our two largest consolidated subsidiaries, whose combined revenues make up more than 92% of our Net revenuesaccounting standards in the Consolidated Statements of Operations for the nine months ended September 30, 2017. We continue to evaluate revenues for our consolidated subsidiaries not disclosed below, however, we do not expect the adoption of the new guidance for these subsidiaries to have a material impact on our consolidated financial statements.effect during those historical periods.

For Jefferies, as the


The new revenue recognition guidancestandard does not apply to revenue associated with financial instruments, including loans and securities that are accounted for under other GAAP, Jefferies doesand as a result, did not expect the guidance to have a materialan impact on the elements of its revenuesour Consolidated Statements of Operations most closely associated with financial instruments, including Principal transactiontransactions revenues, Interest income and Interest expense. The new revenue standard primarily impacts Jefferies evaluationGroup's revenue recognition and presentation accounting policies as follows:

• Investment Banking Revenues. Advisory fees from mergers and acquisitions engagements are recognized at a point in time when the related transaction is completed, as the performance obligation is to successfully broker a specific transaction.

• Certain Capital Markets Revenues. Revenues associated with price stabilization activities as part of a securities underwriting were historically recognized as part of Investment banking revenues. Under the impactnew revenue standard, revenues from these activities are recognized within Principal transactions revenues, as these revenues are not considered to be within the scope of the new guidance on its consolidated financial statements is ongoing. Jefferies continues to evaluate the timing of recognition for each revenue stream within scope, which includesstandard.

• Investment Banking Advisory Expenses. Historically, expenses associated with investment banking and asset management fees which may be accelerated oradvisory assignments were deferred depending on the features ofuntil reimbursed by the client, arrangements,the related fee revenue is recognized or the engagement is otherwise concluded. Under the new revenue standard, expenses are deferred only to the extent they are explicitly reimbursable by the client and the timingrelated revenue is recognized at a point in time. All other investment banking advisory related expenses, including expenses incurred related to restructuring assignments, are expensed as incurred.

• Investment Banking Underwriting and presentationAdvisory Expenses. Expenses have historically been recorded net of certain relatedclient reimbursements and/or netted against revenues. Under the new revenue standard, all investment banking expenses (whether presented gross or offsetwill be recognized within their respective expense category in the Consolidated Statements of Operations and any expense reimbursements will be recognized as Investment banking revenues (i.e., expenses are no longer recorded net of client reimbursements and are not netted against revenues).

National Beef's evaluation• Asset Management Fees. In certain asset management fee arrangements, Jefferies Group and LAM receive performance-based fees, which vary with performance or, in certain cases, are earned when the return on assets under management exceed certain benchmark returns or other performance targets. Historically, performance fees have been accrued (or reversed) quarterly based on measuring performance to date versus any relevant benchmark return hurdles stated in the investment management agreement. Under the new revenue standard, performance fees are considered variable as they are subject to fluctuation (e.g., based on market performance) and/or are contingent on a future event during the measurement period (e.g., exceeding a specified benchmark index) and are recognized only to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty is resolved. Accordingly, performance fee revenue will generally be recognized only at the end of the performance period to the extent that the benchmark return has been met.



There was no significant impact as a result of the new guidance on its consolidated financial statements is ongoing. National Beef continues to evaluate its revenue streams and its contracts with customers within each revenue stream, however, National Beef does not expect the adoption ofapplying the new revenue standard to materially impact itsour consolidated financial statements.statements for the three and nine months ended September 30, 2018, except as it relates to the presentation of Jefferies Group's investment banking expenses. The table below presents the impact of applying the new revenue recognition standard to the Consolidated Statements of Operations for the three and nine months ended September 30, 2018 as a result of the change in presentation of investment banking expenses (in thousands):
 
For the Three Months Ended
September 30, 2018
 
For the Nine Months Ended
September 30, 2018
 As Reported Impact of Adoption of Revenue Recognition Standard Financial Results Prior to Adoption of Revenue Recognition Standard As Reported Impact of Adoption of Revenue Recognition Standard Financial Results Prior to Adoption of Revenue Recognition Standard
Revenues:           
Commissions and other fees$155,417
 $—
 $155,417
 $461,023
 $—
 $461,023
Principal transactions116,204
 —
 116,204
 315,622
 —
 315,622
Investment banking460,043
 36,319
 423,724
 1,400,331
 101,146
 1,299,185
Interest income336,736
 —
 336,736
 939,272
 —
 939,272
Manufacturing revenues94,029
 —
 94,029
 307,129
 —
 307,129
Other296,548
 —
 296,548
 440,537
 —
 440,537
Total revenues1,458,977
 36,319
 1,422,658
 3,863,914
 101,146
 3,762,768
Interest expense of Jefferies Group308,131
 —
 308,131
 906,474
 —
 906,474
Net revenues1,150,846
 36,319
 1,114,527
 2,957,440
 101,146
 2,856,294
            
Expenses:       
  
  
Compensation and benefits461,265
 —
 461,265
 1,429,439
 —
 1,429,439
Cost of sales84,876
 —
 84,876
 257,501
 —
 257,501
Floor brokerage and clearing fees44,570
 —
 44,570
 131,792
 —
 131,792
Interest expense28,837
 —
 28,837
 74,614
 —
 74,614
Depreciation and amortization32,295
 —
 32,295
 92,360
 —
 92,360
Selling, general and other expenses245,178
 36,319
 208,859
 708,084
 101,146
 606,938
Total expenses897,021
 36,319
 860,702
 2,693,790
 101,146
 2,592,644
            
Income from continuing operations before income taxes and income (loss) related to associated companies$253,825
 $—
 $253,825
 $263,650
 $—
 $263,650



Financial Instruments. In January 2016, the FASB issued new guidance that affects the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. The guidance is effective for annual and interim periods beginning after December 15, 2017. We are currently evaluating the impact ofhave adopted the new guidance relatedas of January 1, 2018 with a cumulative effect increase to opening retained earnings of $27.6 million and a corresponding decrease to Accumulated other comprehensive income. The opening retained earnings adjustment is to recognize the unrealized gains we had for available for sale equity investments andsecurities. Beginning in 2018, these available for sale equity securities are now reported as part of Trading assets, at fair value within the presentation and disclosure requirementsConsolidated Statements of financial instruments on our consolidated


financial statements.Financial Condition. Early adoption was permitted for the accounting guidance on financial liabilities under the fair value option and we adopted this guidance in the first quarter of 2016. The adoption of the guidance on financial liabilities under the fair value option did not have a significantmaterial impact on our consolidated financial statements.

Leases. In February 2016, the FASB issued new guidance that affects the accounting and disclosure requirements for leases. The FASB requires the recognition of lease assets and lease liabilities on the statement of financial condition. The guidance is effective for annual and interim periods beginning after December 15, 2018. We are currently evaluating the impact this new guidance will have on our consolidated financial statements.

Financial Instruments - Credit Losses.Retirement Benefits. In June 2016,March 2017, the FASB issued new guidance for estimating credit losses on certain typesimproving the presentation of financial instruments by introducing an approach based on expected losses.net periodic pension costs in the statement of operations. The update also allows the service cost to be eligible for capitalization, when applicable. We adopted this guidance is effective for annualin the first quarter of 2018 and interim periods beginning after December 15, 2019. We are currently evaluating the adoption did not have a material impact this new guidance will have on our consolidated financial statements. The adoption of this guidance resulted in the following adjustments to the Consolidated Statements of Operations for the three and nine months ended September 30, 2017: a decrease of $0.9 million and $2.6 million, respectively, to Compensation and benefits expenses and an increase to Selling, general and other expenses of $0.9 million and $2.6 million, respectively.

Cash Flow Classifications. In August 2016, the FASB issued new guidance to reduce the diversity in practice in how certain transactions are classified in the statement of cash flows. The guidance adds or clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows. The guidance is effective for annual and interim periods beginning after December 15, 2017. In November 2016, the FASB issued new guidance on restricted cash. The guidance requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. We adopted this guidance in the first quarter of 2018. Prior periods were retrospectively adjusted to conform to the current period presentation. The adoption of the guidance is effective for annual and interim periods beginning after December 15, 2017. We are currently evaluating thedid not have a material impact this new guidance will have on our consolidated financial statements.

Goodwill. In JanuaryConsolidated Statements of Cash Flows. Upon adoption, we recorded an increase of $49.3 million in Net cash provided by operating activities and a decrease of $6.7 million in Net cash provided by investing activities for the nine months ended September 30, 2017 related to reclassifying the FASB issued new guidance for simplifying goodwill impairment testing. The guidance is effective for annualchanges in our restricted cash balance from operating and interim periods beginning after December 15, 2019investing activities to the cash and early adoption is permitted. We are currently evaluatingcash equivalent balances within the impact this new guidance will have on our consolidated financial statements.

Retirement Benefits. In March 2017, the FASB issued new guidance for improving the presentationConsolidated Statements of net periodic pension costs in the statement of operations. The update also allows the service cost to be eligible for capitalization, when applicable. The guidance is effective for annual and interim periods beginning after December 15, 2017 and early adoption is permitted. We are currently evaluating the impact of the new guidance on our consolidated financial statements.Cash Flows.

Compensation. In May 2017, the FASB issued new guidance providing clarity and reducing diversity in practice and cost and complexity when accounting for a change to the terms or conditions of a share-based payment award. We adopted this guidance in the first quarter of 2018 and the adoption did not have a material impact on our consolidated financial statements.

Fair Value Measurement. In August 2018, the FASB issued new guidance to improve the effectiveness of disclosure requirements on fair value measurement by eliminating certain disclosure requirements for fair value measurements for all entities, requiring public entities to disclose certain new information and modifying some disclosure requirements. We early adopted this guidance in the third quarter of 2018 and the adoption did not have a material impact on our consolidated financial statements.



Accounting Developments - Accounting Standards to be Adopted in Future Periods

Leases. In February 2016, the FASB issued new guidance that affects the accounting and disclosure requirements for leases. The FASB requires the recognition of all leases that are longer than one year onto the balance sheet, which will result in the recognition of a right of use asset and a corresponding lease liability. The right of use asset and lease liability will be measured initially using the present value of the remaining rental payments. A significant portion of the population of contracts that will be subject to recognition on our Consolidated Statements of Financial Condition have been identified; however, their initial measurement still remains under evaluation. We are currently modifying our lease accounting systems to enable us to comply with the accounting requirements of this guidance. In July 2018, the FASB issued additional guidance on leases which allows an entity to recognize a cumulative-effect adjustment to the opening balance of retained earnings upon adoption. The guidance is effective for annual and interim periods beginning after December 15, 2017 and early adoption is permitted.2018. We plan on adopting the lease standard in the first quarter of fiscal 2020 with a cumulative-effect adjustment to opening retained earnings in the period of adoption. We are currently evaluating the impact this new guidance will have on our consolidated financial statements.

Financial Instruments - Credit Losses. In June 2016, the FASB issued new guidance for estimating credit losses on certain types of financial instruments by introducing an approach based on expected losses. The guidance is effective in the first quarter of fiscal 2021. We are currently evaluating the impact this new guidance will have on our consolidated financial statements.

Goodwill. In January 2017, the FASB issued new guidance for simplifying goodwill impairment testing. The guidance is effective in the first quarter of fiscal 2021. We do not believe the new guidance will have a material impact on our consolidated financial statements.

Derivatives and hedging. In August 2017, the FASB issued new guidance to improve the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements. The guidance is effective for annual and interim periods beginning after December 15, 2018in the first quarter of fiscal 2020 and early adoption is permitted. We do not believe the new guidance will have a material impact on our consolidated financial statements.

Defined Benefit Plans. In August 2018, the FASB issued new guidance to improve the effectiveness of disclosure requirements on defined benefit pension plans and other post-retirement plans. The guidance is effective in the first quarter of fiscal 2021. We do not believe the new guidance will have a material impact on our consolidated financial statements.

Internal-Use Software. In August 2018, the FASB issued new guidance which amends the definition of a hosting arrangement and requires that the customer in a hosting arrangement that is a service contract capitalize certain implementation costs as if the arrangement was an internal-use software project. The guidance is effective in the first quarter of fiscal 2021. We are currently evaluating the impact of the new guidance on our consolidated financial statements.

Accounting Developments - Adopted Accounting Standards

Share-Based Payments to Employees. In January 2017, we adopted the FASB's new guidance that simplifies and improves accounting for share-based payments. The amendments include the recognition of all excess tax benefits and tax deficiencies as income tax expense or benefit in the statement of operations and changes to the timing of recognition of excess tax benefits, the accounting for forfeitures, classification of awards as either equity or liabilities and classification on the statement of cash flows. The adoption of this guidance did not have a significant impact on our consolidated financial statements. We elected to account for forfeitures as they occur, which results in dividends and dividend equivalents originally charged against retained earnings for forfeited shares to be reclassified to compensation expense in the period in which the forfeiture occurs.


Note 3.  Fair Value Disclosures

The following is a summary of our financial instruments, trading liabilities, short-term borrowings and long-term debt and other secured financings that are accounted for at fair value on a recurring basis, excluding Investments at fair value based on net asset value ("NAV") (within trading assets) of $24.2$399.0 million and $24.3$590.1 million at September 30, 2018 and December 31, 2017, respectively, by level within the fair value hierarchy at September 30, 2017 and December 31, 2016 (in thousands):
September 30, 2017September 30, 2018
Level 1 Level 2 Level 3 
Counterparty
and
Cash
Collateral
Netting (1)
 TotalLevel 1 Level 2 Level 3 
Counterparty
and
Cash
Collateral
Netting (1)
 Total
Assets:                  
Trading assets, at fair value:                  
Corporate equity securities$2,740,135
 $83,565
 $22,174
 $—
 $2,845,874
$3,635,288
 $72,569
 $49,683
 $—
 $3,757,540
Corporate debt securities—
 2,732,943
 25,015
 —
 2,757,958
—
 2,498,031
 9,651
 —
 2,507,682
Collateralized debt obligations and
collateralized loan obligations
—
 54,433
 50,070
 —
 104,503
—
 82,339
 33,981
 —
 116,320
U.S. government and federal agency securities1,834,270
 95,175
 —
 —
 1,929,445
3,000,805
 45,889
 —
 —
 3,046,694
Municipal securities—
 680,634
 —
 —
 680,634
—
 749,616
 —
 —
 749,616
Sovereign obligations1,384,264
 668,053
 —
 —
 2,052,317
1,319,415
 669,919
 —
 —
 1,989,334
Residential mortgage-backed securities—
 1,671,170
 20,649
 —
 1,691,819
—
 1,894,533
 4,954
 —
 1,899,487
Commercial mortgage-backed securities—
 508,665
 17,636
 —
 526,301
—
 791,449
 23,916
 —
 815,365
Other asset-backed securities—
 157,354
 68,946
 —
 226,300
—
 263,967
 69,305
 —
 333,272
Loans and other receivables—
 2,014,650
 62,656
 —
 2,077,306
—
 1,455,496
 48,985
 —
 1,504,481
Derivatives67,929
 2,713,413
 2,671
 (2,595,355) 188,658
13,117
 3,507,491
 3,137
 (3,334,100) 189,645
Investments at fair value—
 —
 328,969
 —
 328,969
—
 —
 326,977
 —
 326,977
FXCM term loan—
 —
 70,800
 —
 70,800
—
 —
 73,800
 —
 73,800
Total trading assets, excluding investments at fair value based on NAV$6,026,598

$11,380,055

$669,586

$(2,595,355)
$15,480,884
$7,968,625

$12,031,299

$644,389

$(3,334,100)
$17,310,213
                  
Available for sale securities: 
  
  
  
  
 
  
  
  
  
Corporate equity securities$93,355
 $—
 $—
 $—
 $93,355
Corporate debt securities—
 179
 —
 —
 179
U.S. government securities345,740
 —
 —
 —
 345,740
$1,607,725
 $—
 $—
 $—
 $1,607,725
Residential mortgage-backed securities—
 37,090
 —
 —
 37,090
—
 146,678
 —
 —
 146,678
Commercial mortgage-backed securities—
 10,908
 —
 —
 10,908
—
 15,719
 —
 —
 15,719
Other asset-backed securities—
 33,225
 —
 —
 33,225
—
 98,298
 —
 —
 98,298
Total available for sale securities$439,095

$81,402

$—

$—

$520,497
$1,607,725

$260,695

$—

$—

$1,868,420
                  
Liabilities: 
  
  
  
  
 
  
  
  
  
Trading liabilities: 
  
  
  
  
 
  
  
  
  
Corporate equity securities$1,585,186
 $23,821
 $119
 $—
 $1,609,126
$2,221,325
 $1,507
 $413
 $—
 $2,223,245
Corporate debt securities—
 1,574,931
 522
 —
 1,575,453
—
 1,511,979
 1,557
 —
 1,513,536
U.S. government and federal agency securities1,314,800
 —
 —
 —
 1,314,800
1,398,222
 —
 —
 —
 1,398,222
Municipal securities—
 44
 —
 —
 44
Sovereign obligations1,600,423
 653,106
 —
 —
 2,253,529
1,513,237
 969,845
 55
 —
 2,483,137
Commercial mortgage-backed securities—
 979
 35
 —
 1,014
—
 —
 70
 —
 70
Loans—
 1,434,380
 3,285
 —
 1,437,665
—
 1,136,579
 8,661
 —
 1,145,240
Derivatives148,296
 3,134,145
 7,753
 (2,714,115) 576,079
8,487
 4,149,630
 12,134
 (3,454,488) 715,763
Total trading liabilities$4,648,705

$6,821,406

$11,714

$(2,714,115)
$8,767,710
$5,141,271

$7,769,540

$22,890

$(3,454,488)
$9,479,213
Short-term borrowings$—
 $4,281
 $—
 $—
 $4,281
Long-term debt - structured notes$—
 $553,870
 $—
 $—
 $553,870
$—
 $545,927
 $163,630
 $—
 $709,557


December 31, 2016December 31, 2017
Level 1 Level 2 Level 3 
Counterparty
and
Cash
Collateral
Netting (1)
 TotalLevel 1 Level 2 Level 3 
Counterparty
and
Cash
Collateral
Netting (1)
 Total
Assets:                  
Trading assets, at fair value:                  
Corporate equity securities$2,522,977
 $92,839
 $21,739
 $—
 $2,637,555
$2,975,463
 $60,300
 $22,270
 $—
 $3,058,033
Corporate debt securities—
 2,675,020
 25,005
 —
 2,700,025
—
 3,261,300
 26,036
 —
 3,287,336
Collateralized debt obligations and
collateralized loan obligations
—
 54,306
 54,354
 —
 108,660
—
 139,166
 42,184
 —
 181,350
U.S. government and federal agency securities2,389,397
 56,726
 —
 —
 2,446,123
1,269,230
 39,443
 —
 —
 1,308,673
Municipal securities—
 708,469
 27,257
 —
 735,726
—
 710,513
 —
 —
 710,513
Sovereign obligations1,432,556
 990,492
 —
 —
 2,423,048
1,381,552
 1,035,907
 —
 —
 2,417,459
Residential mortgage-backed securities—
 960,494
 38,772
 —
 999,266
—
 1,453,294
 26,077
 —
 1,479,371
Commercial mortgage-backed securities—
 296,405
 20,580
 —
 316,985
—
 508,115
 12,419
 —
 520,534
Other asset-backed securities—
 63,587
 40,911
 —
 104,498
—
 217,111
 61,129
 —
 278,240
Loans and other receivables—
 1,557,233
 81,872
 —
 1,639,105
—
 1,620,581
 47,304
 —
 1,667,885
Derivatives3,825
 4,616,822
 6,429
 (4,255,998) 371,078
165,396
 3,323,278
 9,295
 (3,318,481) 179,488
Investments at fair value—
 —
 314,359
 —
 314,359
—
 946
 329,944
 —
 330,890
FXCM term loan—
 —
 164,500
 —
 164,500
—
 —
 72,800
 —
 72,800
Total trading assets, excluding investments at fair value based on NAV$6,348,755

$12,072,393

$795,778

$(4,255,998)
$14,960,928
$5,791,641

$12,369,954

$649,458

$(3,318,481)
$15,492,572
                  
Available for sale securities: 
  
  
  
  
 
  
  
  
  
Corporate equity securities$79,425
 $—
 $—
 $—
 $79,425
Corporate debt securities—
 179
 —
 —
 179
Corporate equity securities (2)$88,486
 $—
 $—
 $—
 $88,486
U.S. government securities174,933
 —
 —
 —
 174,933
552,805
 —
 —
 —
 552,805
Residential mortgage-backed securities—
 19,133
 —
 —
 19,133
—
 34,561
 —
 —
 34,561
Commercial mortgage-backed securities—
 8,337
 —
 —
 8,337
—
 5,870
 —
 —
 5,870
Other asset-backed securities—
 19,042
 —
 —
 19,042
—
 34,839
 —
 —
 34,839
Total available for sale securities$254,358

$46,691

$—

$—

$301,049
$641,291

$75,270

$—

$—

$716,561
                  
Liabilities: 
  
  
  
  
 
  
  
  
  
Trading liabilities: 
  
  
  
  
 
  
  
  
  
Corporate equity securities$1,593,548
 $16,806
 $313
 $—
 $1,610,667
$1,721,267
 $32,122
 $48
 $—
 $1,753,437
Corporate debt securities—
 1,718,424
 523
 —
 1,718,947
—
 1,688,825
 522
 —
 1,689,347
U.S. government and federal agency securities976,497
 —
 —
 —
 976,497
1,430,737
 —
 —
 —
 1,430,737
Sovereign obligations1,375,590
 1,253,754
 —
 —
 2,629,344
1,216,643
 956,992
 —
 —
 2,173,635
Commercial mortgage-backed securities—
 —
 105
 —
 105
Loans—
 801,977
 378
 —
 802,355
—
 1,148,824
 3,486
 —
 1,152,310
Derivatives2,566
 4,867,586
 9,870
 (4,229,213) 650,809
249,361
 3,480,506
 16,041
 (3,490,514) 255,394
Total trading liabilities$3,948,201

$8,658,547

$11,084

$(4,229,213)
$8,388,619
$4,618,008

$7,307,269

$20,202

$(3,490,514)
$8,454,965
Other secured financings$—
 $41,350
 $418
 $—
 $41,768
Short-term borrowings$—
 $23,324
 $—
 $—
 $23,324
Long-term debt - structured notes$—
 $248,856
 $—
 $—
 $248,856
$—
 $606,956
 $—
 $—
 $606,956

(1)Represents counterparty and cash collateral netting across the levels of the fair value hierarchy for positions with the same counterparty.
(2)As of January 1, 2018, the Company adopted the FASB's new guidance that affects the accounting for equity investments and the presentation and disclosure requirements for financial instruments. At September 30, 2018, equity investments are primarily classified as Trading assets, at fair value and the change in fair value of equity securities is now recognized through the Consolidated Statements of Operations. See Note 2 for additional information.



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 of the fair value hierarchy. To the extent these securities are actively traded, valuation adjustments are not applied.


Non-exchangeNon-Exchange Traded Equity Securities:  Non-exchange traded equity securities are measured primarily using broker quotations, pricing data from external pricing services and prices observed from recently executed market transactions and are categorized within Level 2 of the fair value hierarchy. Where such information is not available, non-exchange traded equity securities are categorized within Level 3 of the fair value hierarchy and measured using valuation techniques involving quoted prices of or market data for comparable companies, similar company ratios and multiples (e.g., price/Earnings before interest, taxes, depreciation and amortization ("EBITDA"), price/book value), discounted cash flow analyses and transaction prices observed from subsequent financing or capital issuance by Jefferies.Jefferies Group. When using pricing data of comparable companies, judgment must be applied to adjust the pricing data to account for differences between the measured security and the comparable security (e.g., issuer market capitalization, yield, dividend rate, geographical concentration).
Equity Warrants:  Non-exchange traded equity warrants are measured primarily using pricing data from external pricing services, prices observed from recently executed market transactions and broker quotations and are categorized within Level 2 of the fair value hierarchy. Where such information is not available, non-exchange traded equity warrants are generally categorized within Level 3 of the fair value hierarchy and are measured using the Black-Scholes model with key inputs impacting the valuation including the underlying security price, implied volatility, dividend yield, interest rate curve, strike price and maturity date.

Corporate Debt Securities

Corporate Bonds:  Corporate bonds are measured primarily using pricing data from external pricing services and broker quotations, where available, prices observed from recently executed market transactions and bond spreads or credit default swap spreads of the issuer adjusted for basis differences between the swap curve and the bond curve. 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 are 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 from recently executed market transactions of comparableinstitutional size. Where pricing data is less observable, valuations are categorized within Level 3 of the fair value hierarchy and are based on pending transactions involving the issuer or comparable issuers, prices implied from an issuer’s subsequent financingsfinancing or recapitalizations,recapitalization, models incorporating financial ratios and projected cash flows of the issuer and market prices for comparable issuers.

Collateralized Debt Obligations and Collateralized Loan Obligations

Collateralized debt obligations (“CDOs”Debt Obligations ("CDOs") and collateralized loan obligations (“CLOs”Collateralized Loan Obligations ("CLOs") are measured based on prices observed from recently executed market transactions of the same or similar security or based on valuations received from third party brokers or data providers and are categorized within Level 2 or Level 3 of the fair value hierarchy depending on the observability and significance of the pricing inputs. Valuation that is based on recently executed market transactions of similar securities incorporates additional review and analysis of pricing inputs and comparability criteria, including, but not limited to, collateral type, tranche type, rating, origination year, prepayment rates, default rates and loss severity.

U.S. Government and Federal Agency Securities

U.S. Treasury Securities:  U.S. Treasury securities are measured based on quoted market prices 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.



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 sovereignSovereign 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 sovereignSovereign government obligations are classified incategorized within Level 1 Level 2 or Level 32 of the fair value hierarchy, primarily based on the country of issuance. Sovereign government obligations
are categorized within Level 2 or Level 3 of the fair value hierarchy depending on the observability of these input parameters.

Residential Mortgage-Backed Securities

Agency Residential Mortgage-Backed Securities:  Agency residential mortgage-backed securities include mortgage pass-through securities (fixed and adjustable rate), collateralized mortgage obligations and principal-only and interest-only and principal-only(including inverse interest-only) securities. Agency residential mortgage-backed securities and are generally measured using market price quotationsrecent transactions, pricing data 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 usingor expected future cash flow techniques that incorporate prepayment models and other prepayment assumptions to amortize the underlying mortgage loan collateral.collateral and are categorized within Level 2 of the fair value hierarchy. We use prices observed from recently executed transactions to develop market-clearing spread and yield curve assumptions. Valuation inputs with regard to the underlying collateral incorporate factors such as weighted average coupon, loan-to-value, credit scores, geographic location, maximum and average loan size, originator, servicer and weighted average loan age.  Agency Inverse IOs are categorized within Level 2 of the fair value hierarchy. We also use vendor data in developing our assumptions, as appropriate.
Non-Agency Residential Mortgage-Backed Securities:  Fair values areThe fair value of non-agency residential mortgage-backed securities is determined primarily using discounted cash flow methodologies and securities are categorized within Level 2 or Level 3 of the fair value hierarchy based on the observability and significance of the pricing inputs used. Performance attributes of the underlying mortgage loans are evaluated to estimate pricing inputs, such as prepayment rates, default rates and the severity of credit losses. Attributes of the underlying mortgage loans that affect the pricing inputs include, but are not limited to, weighted average coupon; average and maximum loan size; loan-to-value; credit scores; documentation type; geographic location; weighted average loan age; originator; servicer; historical prepayment, default and loss severity experience of the mortgage loan pool; and delinquency rate. Yield curves used in the discounted cash flow models are based on observed market prices for comparable securities and published interest rate data to estimate market yields. In addition, broker quotes, where available, are also referenced to compare prices primarily on interest-only securities.

Commercial Mortgage-Backed Securities

Agency Commercial Mortgage-Backed Securities:  Government National Mortgage Association (“GNMA”("GNMA") project loansloan bonds are measured based on inputs corroborated from and benchmarked to observed prices of recent securitization transactions of similar securities with adjustments incorporating an evaluation forof 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”("FNMA") Delegated Underwriting and Servicing (“DUS”("DUS") mortgage-backed securities are generally measured by using prices observed forfrom 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 from recently executed market transactions or based on expected cash flow models that incorporate underlying loan collateral characteristics and performance. Non-agency commercial mortgage-backed securities are categorized within Level 2 and Level 3 of the fair value hierarchy.hierarchy depending on the observability of the underlying inputs.

Other Asset-Backed Securities

Other asset-backed securities include, but are not limited to, securities backed by auto loans, credit card receivables, student loans and other consumer loans and are categorized within Level 2 andor 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 from recently executed market transactions. In addition, recent transaction data from comparable deals is deployed to develop market clearing yields and cumulative loss assumptions. The cumulative loss assumptions are based on the analysis of the underlying collateral and comparisons to earlier deals from the same issuer to gauge the relative performance of the deal.



Loans and Other Receivables

Corporate Loans:  Corporate loans categorized within Level 2 of the fair value hierarchy are measured based on market price quotations whereconsensus pricing service quotations. Where available, market price quotations from external pricing services are reviewed to ensure they are supported by transaction data. Corporate loans categorized within Level 3 of the fair value hierarchy are measured based on price quotations that are considered to be less transparent, market prices for debt securities of the same creditor and estimates of future cash flowflows 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.loans and data provider pricing. The loan participation certificates are categorized within Level 2 of the fair value hierarchy given the observability and volume of recently executed transactions and availability of data provider pricing.
Project Loans and Participation Certificates in GNMA Project and Construction Loans:  Valuations of participation certificates in GNMA project and construction loans are based on inputs corroborated from and benchmarked to observed prices of recent securitizations 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 evaluationto account for various factors, including prepayment speeds, default rates, and cash flow structures as well as the likelihoodarbitrage that is realized at the time of pricing levels in the current market environment.securitization. The measurements are categorized within Level 2 of the fair value hierarchy given the observability and volume of recently executed transactions.
Consumer Loans and Funding Facilities:  Consumer and small business whole loans and related funding facilities are valued based on observed market transactions and incorporating 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 activityobservations in the same security.receivable.

Derivatives

Listed Derivative Contracts:  Listed derivative contracts that are actively traded are measured based on quoted exchange prices, whichbroker quotes or vanilla option valuation models, such as Black-Scholes, using observable valuation inputs from the principal market or consensus pricing services. Exchange quotes and/or valuation inputs are generally obtained from external vendors and pricing services,services. Broker quotes are validated directly through observable and tradeable quotes. Listed derivative contracts that use unadjusted exchange close prices are generally categorized within Level 1 of the fair value hierarchy. 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-counterAll other listed derivative contracts and are generally categorized within Level 2 of the fair value hierarchy.
OTCOver-the-Counter ("OTC") Derivative Contracts:  Over-the-counter ("OTC")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 price, foreign 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. Discounted cash flow models are also utilized to measure certain variable funding note swaps, which are backed by CLOs and incorporate constant prepayment rate, constant default rate and loss severity assumptions. Credit default swaps include both index and single-name credit default swaps. 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 generally observable for the underlying asset and used as the basis for measuring the fair value of the derivative contracts. Total return swaps executed on other underlyings are measured based on valuations received from external pricing services.

National Beef Derivatives: National Beef uses futures contracts in order to reduce its exposure associated with entering into firm commitments to purchase live cattle at prices determined prior to the delivery of the cattle as well as firm commitments to sell certain beef products at sales prices determined prior to shipment. The futures contracts and their related firm purchase commitments are accounted for at fair value, which are classified as Level 1 or Level 2 within the fair value hierarchy. Certain firm commitments for live cattle purchases and all firm commitments for sales are treated as normal purchases and sales and



therefore not marked to market. Fair values classified as Level 1 are calculated based on the quoted market prices of identical assets or liabilities compared to National Beef's cost of those same assets or liabilities. Fair values classified as Level 2 are calculated based on the difference between the contracted price for live cattle and the relevant quoted market price for live cattle futures.

Oil Futures Derivatives: Vitesse Energy Finance uses swaps and call and put options in order to reduce exposure to future oil price fluctuations. Vitesse Energy Finance accounts for the derivative instruments at fair value, which are classified as either Level 1 or Level 2 within the fair value hierarchy. Fair values classified as Level 1 are measured based on quoted closing exchange prices obtained from external pricing services and Level 2 are determined under the income valuation technique using an option-pricing model that is based on directly or indirectly observable inputs.

Investments at Fair Value

Investments at fair value includedbased on NAV include investments in Trading assets onhedge funds, fund of funds and private equity funds, which are measured at the Consolidated StatementsNAV of Financial Conditionthe 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 analysisanalyses 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 Jefferies Group's defined benefit plan in Germany. Fair value for the insurance contracts areis determined using a third party and is categorized within Level 3 of the fair value hierarchy. 

Investment in FXCM

FXCM is an online provider of foreign exchange trading services.  In January 2015, we entered into a credit agreement with FXCM, and provided FXCM a $300 million senior secured term loan due January 2017 (the term of which was subsequently extended by one year to January 2018), with rights to a variable proportion of certain future distributions in connection with an FXCM sale of assets or certain other events, and to require a sale of FXCM beginning in January 2018.  The loan had an initial interest rate of 10% per annum, increasing by 1.5% per annum each quarter, not to exceed 20.5% per annum.  During the nine months ended September 30, 2017, interest accrued at 20.5% per annum. During the nine months ended September 30, 2017, we received $111.3 million of principal and interest from FXCM and $67.6 million of principal remained outstanding under the term loan as of September 30, 2017.  Through September 30, 2017, we have received cumulatively $328.0 million of principal, interest and fees from our initial $279.0 million investment in FXCM.

Through September 1, 2016, the total amount of our investment in FXCM was reported within Trading assets, at fair value in our Consolidated Statements of Financial Condition, and unrealized and realized changes in value, including the component related to interest income on the loan, were included within Principal transactions in the Consolidated Statements of Operations.  We recorded gains (losses) in Principal transactions of $2.3 million and $17.6 million during the three and nine months ended September 30, 2017, respectively, from our term loan and $42.7 million and $(58.3) million during the three and nine months ended September 30, 2016, respectively, from our term loan and related rights.

On September 1, 2016, we, Global Brokerage Inc. ("Global Brokerage" and formerly FXCM Inc.) and Global Brokerage Holdings entered into an agreement that amended the terms of our loan and associated rights. Among other changes, the amendments extended the maturity of the term loan by one year to January 2018 to allow FXCM more time to optimize remaining asset sales; gave Leucadia a 49.9% common membership interest in FXCM, and up to 65% of all distributions; created a six-member board for FXCM, comprised of three directors appointed by Leucadia and three directors appointed by Global Brokerage Holdings; put in place a long-term incentive program for FXCM's senior management; and gave Global Brokerage Holdings the same right Leucadia has to require a sale of FXCM beginning in January 2018. Distributions to Leucadia under the amended agreements are now: 100% until amounts due under the loan are repaid; 45% of the next $350 million; then 79.2% of the next $500 million; and 51.6% of all amounts thereafter.

During February 2017, Global Brokerage Holdings and FXCM's U.S. subsidiary, Forex Capital Markets LLC ("FXCM U.S.") settled complaints filed by the National Futures Association ("NFA") and the Commodity Futures Trading Commission ("CFTC") against FXCM U.S. and certain of its principals relating to matters that occurred between 2010 and 2014. The NFA settlement has no monetary fine and the CFTC settlement has a $7 million fine. As part of the settlements, FXCM U.S. withdrew from business and agreed to sell FXCM U.S.'s customer accounts to Gain Capital Holdings, Inc. FXCM U.S. generated approximately 20% of FXCM's revenue, but was not profitable. FXCM also announced the implementation of a restructuring plan that included the termination of approximately 170 employees, which represented approximately 22% of its global workforce. The proceeds from the sale of the U.S. accounts, net of closure and severance costs, as well as regulatory capital released after a sale, has been used to pay down the Leucadia term loan. As part of the settlement, Leucadia, Global Brokerage Holdings and FXCM have amended the management and incentive compensation agreements, giving any three directors of the FXCM board the right to


terminate management and any unvested incentive compensation at any time. On October 1, 2017, the management agreement between FXCM and Global Brokerage Holdings was terminated.

We do not hold any equity interest in Global Brokerage, a publicly traded company and an issuer of senior convertible notes. Global Brokerage holds an economic interest of 74.5% in Global Brokerage Holdings, which in turn holds 50.1% of FXCM. As more fully described above, we own the remaining 49.9% of FXCM, and our senior secured term loan is also with FXCM, which is a holding company for all of FXCM's affiliated operating subsidiaries. Net profits and proceeds generated by these subsidiaries, and from the sales of these subsidiaries, flow first to FXCM, where they are applied to the outstanding balance of our term loan and then, in accordance with the agreement described above, to us and Global Brokerage Holdings. A portion of the profits and proceeds that flow to Global Brokerage Holdings then flow to Global Brokerage, in accordance with its economic interest.

Through the amendments on September 1, 2016, our derivative rights were exchanged for a 49.9% common membership interest in FXCM and up to 65% of all distributions. We gained the ability to significantly influence FXCM through our common membership interest and our seats on the board of directors. As a result, we classify our equity investment in FXCM in our September 30, 2017 Consolidated Statement of Financial Condition as Loans to and investments in associated companies. We account for our equity interest on a one month lag. As the amendments only extended the maturity of the term loan, we continue to use the fair value option and classify our term loan within Trading assets, at fair value.

FXCM is considered a variable interest entity ("VIE") and our term loan and equity ownership are variable interests.  We have determined that we are not the primary beneficiary of FXCM because we do not have the power to direct the activities that most significantly impact FXCM's performance.  Therefore, we do not consolidate FXCM and we account for our equity interest as an investment in an associated company.

Our maximum exposure to loss as a result of our involvement with FXCM is limited to the carrying value of the term loan ($70.8 million) and the investment in associated company ($170.6 million), which totaled $241.4 million at September 30, 2017.

We estimate the fair value of our term loan by using a valuation model with inputs including management’s assumptions concerning the amount and timing of expected cash flows, the loan’s implied credit rating and effective yield.  Because of these inputs and the degree of judgment involved, we have categorized our term loan within Level 3 of the fair value hierarchy.

Nonrecurring Fair Value Measurements
As described further in Note 9, in the first quarter of 2017 we engaged an independent valuation firm to assist management in estimating the fair value of our equity investment in FXCM. Our first quarter estimate of fair value was based on a discounted cash flow and comparable public company analysis and is categorized within Level 3 of the fair value hierarchy. The discounted cash flow valuation model used inputs including management's projections of future FXCM cash flows and a discount rate of approximately 15%. The comparable public company model used market data for comparable companies including a price to EBITDA multiple of 5.4 and a price to revenue multiple of 1.5. The estimated fair value of our equity investment in FXCM was $186.7 million, which was $130.2 million lower than the carrying value at the end of the first quarter 2017. As a result, an impairment charge of $130.2 million was recorded in the first quarter of 2017.

JETX owns unproved oil and gas properties that are included in Other assets in our Consolidated Statements of Financial Condition. As described further in Note 2, in the third quarter of 2016, JETX curtailed development of its southern acreage in the East Eagle Ford and its Houston County acreage and performed an impairment analysis of these unproved oil and gas properties. To measure the estimated fair value of the unproved properties, we used unobservable Level 3 inputs, which took into account the following factors: remaining lease terms, drilling results and/or future plans to develop the acreage. The estimated fair value of JETX's southern acreage in the East Eagle Ford and its Houston County acreage totaled $51.6 million, which was $55.0 million lower than the carrying value as of the end of third quarter of 2016. As a result, an impairment charge of $55.0 million was recorded in the third quarter of 2016.

In the third quarter of 2017, JETX decided to focus on its other higher returning acreage and as a result JETX wrote off the remaining carrying value for its Houston County acreage. JETX recorded an impairment charge of $10.1 million in Selling, general and other expenses in the third quarter of 2017 related to the write-down of unproved oil and gas properties.

Investments at Fair Value Based on NAV 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 and other funds, which are measured at the NAV of the funds, provided by the fund managers and are excluded from the fair value hierarchy.



The following tables present information about our investments in entities that have the characteristics of an investment company (in thousands).
Fair Value (1) 
Unfunded
Commitments
 
Redemption
Frequency
(if currently eligible)
Fair Value (1) 
Unfunded
Commitments
 
Redemption
Frequency
(if currently eligible)
September 30, 2017    
September 30, 2018    
Equity Long/Short Hedge Funds (2)$406,280
 $—
 (2)$90,347
 $—
 (2)
Fixed Income and High Yield Hedge Funds (3)421
 —
 —219
 —
 —
Fund of Funds (4)183
 —
 —175
 —
 —
Equity Funds (5)33,568
 19,084
 —36,702
 20,209
 —
Multi-asset Funds (6)125,004
 —
 —
Commodity Funds (6)10,228
 —
 —
Multi-asset Funds (7)261,361
 —
 —
Total$565,456

$19,084
  $399,032
 $20,209
  
        
December 31, 2016 
  
  
December 31, 2017 
  
  
Equity Long/Short Hedge Funds (2)$363,256
 $—
 (2)$407,895
 $—
 (2)
Fixed Income and High Yield Hedge Funds (3)772
 —
 —417
 —
 —
Fund of Funds (4)230
 —
 —189
 —
 —
Equity Funds (5)42,179
 20,295
 —26,798
 19,084
 —
Multi-asset Funds (6)133,190
 —
 —
Multi-asset Funds (7)154,805
 —
 —
Total$539,627

$20,295
  $590,104
 $19,084
  
 
(1)Where fair value is calculated based on NAV, fair value has been derived from each of the funds' capital statements.
(2)This category includes investments in hedge funds that invest, long and short, primarily in primarily equity securities in domestic and international markets in both the public and private sectors. At September 30, 2017 and December 31, 2016, 74% and 83%, respectively,2017, 73% of these investments arewere redeemable with 10 business days or less prior written notice,notice; these investments were primarily liquidated during 2018. At September 30, 2018 and 15%December 31, 2017, 18% and 17%15%, respectively, of these investments are redeemable with 30 to 60 days prior written notice.
(3)This category 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. 
(4)This category includes investments in fund of funds that invest in various private equity funds. The investments in this category are managed by us and have no redemption provisions. These investments are gradually being liquidated or we have requested redemption, however, we are unable to estimate when these funds will be received.
(5)The 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 six years. 


investments cannot be redeemed; instead distributions are received through the liquidation of the underlying assets of the funds, which are expected to be liquidated in one to ten years. 
(6)This category includes investments in hedge funds that invest, long and short, primarily in multiple classes ofcommodities. Investments in this category are redeemable with 60 days prior written notice.
(7)This category includes investments in hedge funds that invest, long and short, primarily in multi-asset securities in domestic and international markets in both the public and private sectors. At September 30, 20172018 and December 31, 2016,2017, investments representing approximately 15%17% and 12%, respectively, of the fair value of investments in this category are redeemable with 30 to 90 days prior written notice.

Investment in FXCM

FXCM Group, LLC ("FXCM") is a provider of online foreign exchange trading services. In January 2015, we entered into a credit agreement with FXCM, and provided FXCM a $300 million senior secured term loan due January 2017 (the term of which was subsequently extended to January 2019), with rights to a variable proportion of certain future distributions in connection with an FXCM sale of assets or certain other events, and to require a sale of FXCM beginning in January 2018. The loan had an initial interest rate of 10% per annum, increasing by 1.5% per annum each quarter, not to exceed 20.5% per annum. During the nine months ended September 30, 2018, interest accrued at 20.5% per annum. During the nine months ended September 30, 2018, we received $15.4 million of principal and interest from FXCM and $70.6 million of principal remained outstanding under the term loan as of September 30, 2018. Through September 30, 2018, we have received cumulatively $347.0 million of principal, interest and fees from our initial $279.0 million investment in FXCM.

Our investment in the FXCM term loan is reported within Trading assets, at fair value in our Consolidated Statements of Financial Condition, and unrealized and realized changes in value, including the component related to interest income on the loan, is included within Principal transactions revenues in the Consolidated Statements of Operations. We recorded gains related to the term loan in Principal transactions revenues of $1.3 million and $16.4 million during the three and nine months ended September 30, 2018, respectively, and $2.3 million and $17.6 million during the three and nine months ended September 30, 2017, respectively.

On September 1, 2016, we, Global Brokerage Inc. ("Global Brokerage") and Global Brokerage Holdings, LLC ("Global Brokerage Holdings") entered into an agreement that amended the terms of our loan and associated rights. On November 10, 2017, the terms of our loan and associated rights were amended further. Among other changes, the amendments extended the maturity of the term loan to January 2019; and exchanged our rights for a 50% voting interest in FXCM, and up to 75% of all distributions. Through these amendments, we also gained the right to appoint three of six board members for FXCM. We have the right, as does Global Brokerage Holdings, the owner of the remaining 50% of FXCM voting interest that is not held by Jefferies, to require a sale of FXCM beginning in January 2018. Distributions to Jefferies under the amended agreements are now: 100% until amounts due under the loan are repaid; 50% of the next $350 million; then 90% of the next $600 million; and 60% of all amounts thereafter.

Through the amendments, we gained the ability to significantly influence FXCM through our seats on the board of directors. As a result, we classify our equity investment in FXCM in our September 30, 2018 and December 31, 2017 Consolidated Statements of Financial Condition as Loans to and investments in associated companies. We account for our equity interest on a one month lag. As the amendments only extended the maturity of the term loan, we continue to use the fair value option and classify our term loan within Trading assets, at fair value.

FXCM is considered a variable interest entity ("VIE") and our term loan and equity ownership are variable interests. We have determined that we are not the primary beneficiary of FXCM because we do not have the power to direct the activities that most significantly impact FXCM's performance. Therefore, we do not consolidate FXCM and we account for our equity interest as an investment in an associated company.

Our maximum exposure to loss as a result of our involvement with FXCM is limited to the carrying value of the term loan ($73.8 million) and the investment in associated company ($139.0 million), which totaled $212.8 million at September 30, 2018.

We estimate the fair value of our term loan by using a valuation model with inputs including management’s assumptions concerning the amount and timing of expected cash flows, the loan’s implied credit rating and effective yield. Because of these inputs and the degree of judgment involved, we have categorized our term loan within Level 3 of the fair value hierarchy.

Nonrecurring Fair Value Measurements
As described further in Note 9, in the third quarter of 2018 we engaged an independent valuation firm to assist management in estimating the fair value of our equity investment in Golden Queen. Our estimate of fair value was based on a discounted cash flow analysis and is categorized within Level 3 of the fair value hierarchy. The discounted cash flow valuation model used inputs


including management's projections of future Golden Queen cash flows and a discount rate of 12%. The estimated fair value of our equity investment in Golden Queen was $62.3 million, which was $47.9 million lower than our prior carrying value at the end of the second quarter 2018. As a result, an impairment charge of $47.9 million was recorded in Income (loss) related to associated companies in the three and nine months ended September 30, 2018.

Additionally, in the first quarter of 2017 we engaged an independent valuation firm to assist management in estimating the fair value of our equity investment in FXCM. Our first quarter estimate of fair value was based on a discounted cash flow and comparable public company analysis and is categorized within Level 3 of the fair value hierarchy. The discounted cash flow valuation model used inputs including management's projections of future FXCM cash flows and a discount rate of approximately 15%. The comparable public company model used market data for comparable companies including a price to EBITDA multiple of 5.4 and a price to revenue multiple of 1.5. The estimated fair value of our equity investment in FXCM was $186.7 million, which was $130.2 million lower than the carrying value at the end of the first quarter 2017. As a result, an impairment charge of $130.2 million was recorded in Income (loss) related to associated companies in the first quarter of 2017.

Other Secured Financings

Other secured financings that are accounted for at fair value include notes issued by consolidated VIEs, which are classified ascategorized within Level 2 or Level 3 withinof the fair value hierarchy. Fair value is based on recent transaction prices for similar assets. 

Short-term Borrowings/Long-term Debt - Structured Notes

Short-term borrowings that are accounted for at fair value include equity-linked notes, which are generally categorized aswithin Level 2 withinof the fair value hierarchy, as the fair value is based on the price of the underlying equity security. Long-term debt includes variable rate, fixed-to-floating rate, CMS (constant maturity swap), digital and BermudaBermudan structured notes. These are valued using various valuation models that includeincorporate Jefferies Group's own credit spreads. These models incorporatespread, market price quotations from external pricing sources referencing the appropriate interest rate curves, volatilities and other inputs andas well as prices for transactions in a given note during the period. Long-term debt notes are generally categorized within Level 2 of the fair value hierarchy. In addition,hierarchy where market trades have been observed during the quarter, otherwise they are categorized within Level 3.



Level 3 Rollforwards
The following is a summary of changes in fair value of our financial assets and liabilities that have been categorized within Level 3 of the fair value hierarchy for the three months ended September 30, 2018 (in thousands):
Three months ended September 30, 2018
 Balance, June 30, 2018 
Total gains/ losses
(realized and unrealized) (1)
 Purchases Sales Settlements Issuances 
Net transfers
into (out of)
Level 3
 Balance at September 30, 2018 
Changes in
unrealized gains/losses included in earnings relating to instruments still held at
September 30, 2018 (1)
Assets:                 
Trading assets:                 
Corporate equity securities$44,871
 $11,796
 $17,652
 $(23,010) $(302) $—
 $(1,324) $49,683
 $9,136
Corporate debt securities28,066
 1,057
 507
 (21,403) (59) —
 1,483
 9,651
 (165)
CDOs and CLOs42,517
 (967) 238,281
 (240,002) (2,127) —
 (3,721) 33,981
 (3,872)
Residential mortgage-backed securities3,655
 (66) 72
 (1,597) (1) —
 2,891
 4,954
 90
Commercial mortgage-backed securities27,239
 (222) 8
 —
 (1,156) —
 (1,953) 23,916
 (288)
Other asset-backed securities55,535
 (2,269) 307,358
 (290,838) (4,356) —
 3,875
 69,305
 (1,124)
Loans and other receivables64,036
 (1,353) 14,932
 (23,700) (3,453) —
 (1,477) 48,985
 1,007
Investments at fair value318,543
 2,383
 6,051
 —
 —
 —
 —
 326,977
 2,383
FXCM term loan76,100
 1,347
 —
 —
 (3,647) —
 —
 73,800
 (2,300)
                  
Liabilities: 
    
  
  
  
  
  
  
Trading liabilities: 
    
  
  
  
  
  
  
Corporate equity securities$87
 $326
 $—
 $—
 $—
 $—
 $—
 $413
 $(326)
Corporate debt securities522
 39
 —
 —
 996
 —
 —
 1,557
 (39)
Sovereign obligations—
 3
 (598) 629
 —
 —
 21
 55
 (124)
Commercial mortgage-backed securities—
 70
 —
 —
 —
 —
 —
 70
 (70)
Loans12,881
 (148) (4,871) 1,787
 —
 —
 (988) 8,661
 149
Net derivatives (2)5,874
 1,107
 —
 —
 1,990
 —
 26
 8,997
 (2,090)
Long-term debt (1)160,626
 3,004
 —
 —
 —
 —
 —
 163,630
 (2,953)

(1)
Realized and unrealized gains (losses) are primarily reported in Principal transactions revenues in the Consolidated Statements of Operations. Changes in instrument-specific credit risk related to structured notes are included in our Consolidated Statements of Comprehensive Income (Loss), net of tax. Changes in unrealized gains (losses) included in other comprehensive income (loss) for instruments still held at September 30, 2018 were losses of $0.1 million.
(2)Net derivatives represent Trading assets - Derivatives and Trading liabilities - Derivatives.

Analysis of Level 3 Assets and Liabilities for the three months ended September 30, 2018

During the three months ended September 30, 2018, transfers of assets of $13.6 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:
Other asset-backed securities of $3.9 million, residential mortgage-backed securities of $2.9 million and commercial mortgage-backed securities of $2.6 million due to reduced pricing transparency.

During the three months ended September 30, 2018, transfers of assets of $13.8 million from Level 3 to Level 2 are primarily attributed to:
Commercial mortgage-backed securities of $4.6 million, CDOs and CLOs of $3.7 million and corporate equity securities of $2.6 million due to greater pricing transparency has been evidenced basedsupporting classification into Level 2.

Net gains on Level 3 assets were $11.7 million and net losses on Level 3 liabilities were $4.4 million for the transaction datathree months ended September 30, 2018. Net gains on recently issuedLevel 3 assets were primarily due to an increased valuation of our FXCM term loan, certain investments at fair value and increased market values in corporate equity securities. Net losses on Level 3 liabilities were primarily due to increased valuations of certain structured notes.


Transfers Between Levels 1The following is a summary of changes in fair value of our financial assets and 2liabilities that have been categorized within Level 3 of the fair value hierarchy for Instruments Carried at Fair Value

There were no material transfers between Level 1 and Level 2 for the three and nine months ended September 30, 20172018 (in thousands):
Nine Months Ended September 30, 2018
 Balance, December 31, 2017 
Total gains/ losses
(realized and unrealized) (1)
 Purchases Sales Settlements Issuances 
Net transfers
into (out of)
Level 3
 Balance at September 30, 2018 
Changes in
unrealized gains/losses included in earnings relating to instruments still held at
September 30, 2018 (1)
Assets:                 
Trading assets:                 
Corporate equity securities$22,270
 $31,475
 $35,993
 $(39,008) $(2,082) $—
 $1,035
 $49,683
 $26,852
Corporate debt securities26,036
 1,090
 22,204
 (38,553) (2,066) —
 940
 9,651
 (1,738)
CDOs and CLOs42,184
 (4,123) 242,864
 (249,691) (5,859) —
 8,606
 33,981
 (7,333)
Residential mortgage-backed securities26,077
 (7,334) 2,018
 (12,621) (6) —
 (3,180) 4,954
 316
Commercial mortgage-backed securities12,419
 (1,236) 1,720
 (548) (5,415) —
 16,976
 23,916
 (2,272)
Other asset-backed securities61,129
 (7,528) 523,045
 (495,055) (12,281) —
 (5) 69,305
 (3,307)
Loans and other receivables47,304
 (2,812) 104,009
 (98,733) (14,610) —
 13,827
 48,985
 (3,769)
Investments at fair value329,944
 3,865
 9,791
 (17,569) —
 —
 946
 326,977
 3,271
FXCM term loan72,800
 16,432
 —
 —
 (15,432) —
 —
 73,800
 5,539
                  
Liabilities: 
  
  
  
  
  
  
  
  
Trading liabilities: 
  
  
  
  
  
  
  
  
Corporate equity securities$48
 $365
 $—
 $—
 $—
 $—
 $—
 $413
 $(365)
Corporate debt securities522
 39
 —
 —
 996
 —
 —
 1,557
 (39)
Sovereign obligations—
 3
 (598) 629
 —
 —
 21
 55
 (124)
Commercial mortgage-backed securities105
 (35) —
 —
 —
 —
 —
 70
 (70)
Loans3,486
 (1,059) (15,702) 19,409
 —
 —
 2,527
 8,661
 1,059
Net derivatives (2)6,746
 (1,034) (6) —
 2,984
 296
 11
 8,997
 (2,660)
Long-term debt (1)—
 (25,078) —
 —
 —
 81,284
 107,424
 163,630
 13,235

(1)Realized and unrealized gains (losses) are primarily reported in Principal transactions revenues in the Consolidated Statements of Operations. Changes in instrument-specific credit risk related to structured notes are included in our Consolidated Statements of Comprehensive Income (Loss), net of tax. Changes in unrealized gains (losses) included in other comprehensive income (loss) for instruments still held at September 30, 2018 were gains of $11.8 million.
(2)Net derivatives represent Trading assets - Derivatives and Trading liabilities - Derivatives.

Analysis of Level 3 Assets and 2016.Liabilities for the nine months ended September 30, 2018

During the nine months ended September 30, 2018, transfers of assets of $49.1 million from Level 2 to Level 3 Rollforwardsof the fair value hierarchy are primarily attributed to:
Commercial mortgage-backed securities of $17.0 million, loans and other receivables of $15.3 million and CDOs and CLOs of $8.7 million due to reduced pricing transparency.

During the nine months ended September 30, 2018, transfers of assets of $10.0 million from Level 3 to Level 2 are primarily attributed to:
Residential mortgage-backed securities of $4.6 million and corporate equity securities of $2.5 million due to greater pricing transparency supporting classification into Level 2.

During the nine months ended September 30, 2018, there were transfers of structured notes of $107.4 million from Level 2 to Level 3 due to a decrease in market observability.

Net gains on Level 3 assets were $29.8 million and net gains on Level 3 liabilities were $26.8 million for the nine months ended September 30, 2018. Net gains on Level 3 assets were primarily due to an increased valuation of our FXCM term loan and increased market values in corporate equity securities, partially offset by decreased market values across other asset-backed securities, residential mortgage-backed securities, CDOs and CLOs and certain loans and other receivables. Net gains on Level 3 liabilities were primarily due to decreased valuations of certain structured notes.


The following is a summary of changes in fair value of our financial assets and liabilities that have been categorized within Level 3 of the fair value hierarchy for the three months ended September 30, 2017 (in thousands):
Three months ended September 30, 2017
Three Months Ended September 30, 2017Three Months Ended September 30, 2017
Balance, June 30, 2017 
Total gains/ losses
(realized and unrealized) (1)
 Purchases Sales Settlements Issuances 
Net transfers
into (out of)
Level 3
 Balance at September 30, 2017 
Changes in
unrealized gains/ losses relating to instruments still held at
September 30, 2017 (1)
Balance, June 30, 2017 
Total gains/ losses
(realized and unrealized) (1)
 Purchases Sales Settlements Issuances 
Net transfers
into (out of)
Level 3
 Balance, September 30, 2017 
Changes in
unrealized gains/ losses relating to instruments still held at
September 30, 2017 (1)
Assets:                                  
Trading assets:                                  
Corporate equity securities$20,548
 $4,344
 $4
 $(645) $(55) $—
 $(2,022) $22,174
 $4,319
$20,548
 $4,344
 $4
 $(645) $(55) $—
 $(2,022) $22,174
 $4,319
Corporate debt securities24,727
 (2,350) 5,901
 (5,551) (31) —
 2,319
 25,015
 (2,224)24,727
 (2,350) 5,901
 (5,551) (31) —
 2,319
 25,015
 (2,224)
CDOs and CLOs48,208
 (15,205) 52,918
 (36,564) 245
 —
 468
 50,070
 (12,638)48,208
 (15,205) 52,918
 (36,564) 245
 —
 468
 50,070
 (12,638)
Residential mortgage-backed securities33,032
 (263) 494
 (732) (291) —
 (11,591) 20,649
 188
33,032
 (263) 494
 (732) (291) —
 (11,591) 20,649
 188
Commercial mortgage-backed securities16,263
 (125) —
 (676) (637) —
 2,811
 17,636
 (161)16,263
 (125) —
 (676) (637) —
 2,811
 17,636
 (161)
Other asset-backed securities43,349
 (6,454) 5,798
 (3,789) (2,924) —
 32,966
 68,946
 (3,570)43,349
 (6,454) 5,798
 (3,789) (2,924) —
 32,966
 68,946
 (3,570)
Loans and other receivables49,365
 15,261
 9,265
 (5,854) (8,249) —
 2,868
 62,656
 14,005
49,365
 15,261
 9,265
 (5,854) (8,249) —
 2,868
 62,656
 14,005
Investments at fair value315,297
 3,964
 10,000
 —
 (292) —
 —
 328,969
 3,964
315,297
 3,964
 10,000
 —
 (292) —
 —
 328,969
 3,964
FXCM term loan129,050
 2,330
 —
 —
 (60,580) —
 —
 70,800
 (2,401)129,050
 2,330
 —
 —
 (60,580) —
 —
 70,800
 (2,401)
              

                   
Liabilities: 
  
  
  
  
  
  
  
  
 
  
  
  
  
  
  
  
  
Trading liabilities: 
  
  
  
  
  
  
  
  
 
  
  
  
  
  
  
  
  
Corporate equity securities$354
 $107
 $(369) $27
 $—
 $—
 $—
 $119
 $(92)$354
 $107
 $(369) $27
 $—
 $—
 $—
 $119
 $(92)
Corporate debt securities522
 —
 —
 —
 —
 —
 —
 522
 —
522
 —
 —
 —
 —
 —
 —
 522
 —
Commercial mortgage-backed securities70
 (35) —
 —
 —
 —
 —
 35
 (35)70
 (35) —
 —
 —
 —
 —
 35
 (35)
Loans4,967
 (3,071) —
 333
 —
 —
 1,056
 3,285
 3,018
Net derivatives (2)3,022
 (2,980) —
 —
 5,040
 —
 —
 5,082
 (2,474)3,022
 (2,980) —
 —
 5,040
 —
 —
 5,082
 (2,474)
Loans4,967
 (3,071) —
 333
 —
 —
 1,056
 3,285
 3,018

(1)Realized and unrealized gains (losses) are reported in Principal transactions revenues in the Consolidated Statements of Operations.
(2)Net derivatives represent Trading assets - Derivatives and Trading liabilities - Derivatives.

Analysis of Level 3 Assets and Liabilities for the three months ended September 30, 2017

During the three months ended September 30, 2017, transfers of assets of $63.5 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:
Other asset-backed securities of $46.4 million due to a lack of observable market transactions.

During the three months ended September 30, 2017, transfers of assets of $35.7 million from Level 3 to Level 2 are primarily attributed to:
Residential mortgage-backed securities of $14.6 million and other asset-backed securities of $13.5 million due to greater pricing transparency supporting classification into Level 2.

Net gains on Level 3 assets were $1.5 million and net gains on Level 3 liabilities were $6.0 million for the three months ended September 30, 2017. Net gains on Level 3 assets were primarily due to increased valuations of our FXCM term loan, loans and other receivables, corporate equity securities and certain investments at fair value, partially offset by decreased valuations of other asset-backed securities, CDOs and CLOs and corporate debt securities. Net gains on Level 3 liabilities were primarily due to increased valuations of certain net derivatives and decreased valuations of certain loans.


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 September 30, 2017 (in thousands):
Nine Months Ended September 30, 2017
Balance, December 31, 2016 
Total gains/ losses
(realized and unrealized) (1)
 Purchases Sales Settlements Issuances 
Net transfers
into (out of)
Level 3
 Balance at September 30, 2017 
Changes in
unrealized gains/losses relating to instruments still held at
September 30, 2017 (1)
Balance, December 31, 2016 
Total gains/ losses
(realized and unrealized) (1)
 Purchases Sales Settlements Issuances 
Net transfers
into (out of)
Level 3
 Balance, September 30, 2017 
Changes in
unrealized gains/ losses relating to instruments still held at
September 30, 2017 (1)
Assets:                                  
Trading assets:                                  
Corporate equity securities$21,739
 $3,416
 $945
 $(1,502) $(356) $—
 $(2,068) $22,174
 $2,689
$21,739
 $3,416
 $945
 $(1,502) $(356) $—
 $(2,068) $22,174
 $2,689
Corporate debt securities25,005
 (3,280) 19,610
 (18,364) (1,724) —
 3,768
 25,015
 (3,424)25,005
 (3,280) 19,610
 (18,364) (1,724) —
 3,768
 25,015
 (3,424)
CDOs and CLOs54,354
 (21,595) 65,523
 (62,441) 239
 —
 13,990
 50,070
 (21,998)54,354
 (21,595) 65,523
 (62,441) 239
 —
 13,990
 50,070
 (21,998)
Municipal securities27,257
 (1,547) —
 (25,710) —
 —
 —
 —
 —
27,257
 (1,547) —
 (25,710) —
 —
 —
 —
 —
Residential mortgage-backed securities38,772
 (1,446) 113,391
 (125,731) (572) —
 (3,765) 20,649
 (2,005)38,772
 (1,446) 113,391
 (125,731) (572) —
 (3,765) 20,649
 (2,005)
Commercial mortgage-backed securities20,580
 (1,180) 2,033
 (5,199) (985) —
 2,387
 17,636
 (952)20,580
 (1,180) 2,033
 (5,199) (985) —
 2,387
 17,636
 (952)
Other asset-backed securities40,911
 (15,338) 67,611
 (4,121) (16,891) —
 (3,226) 68,946
 (8,872)40,911
 (15,338) 67,611
 (4,121) (16,891) —
 (3,226) 68,946
 (8,872)
Loans and other receivables81,872
 27,709
 84,342
 (83,791) (23,241) —
 (24,235) 62,656
 16,294
81,872
 27,709
 84,342
 (83,791) (23,241) —
 (24,235) 62,656
 16,294
Investments at fair value314,359
 12,760
 12,800
 (10,119) (831) —
 —
 328,969
 14,783
314,359
 12,760
 12,800
 (10,119) (831) —
 —
 328,969
 14,783
FXCM term loan164,500
 17,638
 —
 —
 (111,338) —
 —
 70,800
 (930)164,500
 17,638
 —
 —
 (111,338) —
 —
 70,800
 (930)
                 
Liabilities: 
  
  
  
  
  
  
  
  
 
  
  
  
  
  
  
  
  
Trading liabilities: 
  
  
  
  
  
  
  
  
 
  
  
  
  
  
  
  
  
Corporate equity securities$313
 $134
 $(355) $27
 $—
 $—
 $—
 $119
 $(92)$313
 $134
 $(355) $27
 $—
 $—
 $—
 $119
 $(92)
Corporate debt securities523
 (1) —
 —
 —
 —
 —
 522
 1
523
 (1) —
 —
 —
 —
 —
 522
 1
Commercial mortgage-backed securities—
 35
 —
 —
 —
 —
 —
 35
 (35)—
 35
 —
 —
 —
 —
 —
 35
 (35)
Loans378
 1,604
 (364) 333
 —
 —
 1,334
 3,285
 (1,583)
Net derivatives (2)3,441
 (2,854) —
 —
 5,162
 404
 (1,071) 5,082
 (2,333)3,441
 (2,854) —
 —
 5,162
 404
 (1,071) 5,082
 (2,333)
Loans378
 1,604
 (364) 333
 —
 —
 1,334
 3,285
 (1,583)
Other secured financings418
 (418) —
 —
 —
 —
 —
 —
 —
418
 (418) —
 —
 —
 —
 —
 —
 —

(1)Realized and unrealized gains (losses) are reported in Principal transactions revenues in the Consolidated Statements of Operations.
(2)Net derivatives represent Trading assets - Derivatives and Trading liabilities - Derivatives.

Analysis of Level 3 Assets and Liabilities for the nine months ended September 30, 2017

During the nine months ended September 30, 2017, transfers of assets of $30.9 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:
CDOs and CLOs of $14.0 million and corporate debt securities of $8.1 million due to a lack of observable market transactions.

During the nine months ended September 30, 2017, transfers of assets of $44.0 million from Level 3 to Level 2 are primarily attributed to:
Loans and other receivables of $28.3 million due to a greater pricing transparency supporting classification into Level 2.

Net gains on Level 3 assets were $17.1 million and net gains on Level 3 liabilities were $1.5 million for the nine months ended September 30, 2017. Net gains on Level 3 assets were primarily due to increased valuations of our FXCM term loan, certain loans and other receivables and certain investments at fair value, partially offset by decreased valuations of other asset-backed securities and CDOs and CLOs. Net gains on Level 3 liabilities were primarily due to increased valuations of certain net derivatives partially offset by increased valuations of certain loans.


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 September 30, 2016 (in thousands):
Three Months Ended September 30, 2016
 Balance, June 30, 2016 
Total gains/ losses
(realized and unrealized) (1)
 Purchases Sales Settlements Issuances 
Net transfers
into (out of)
Level 3
 Balance, September 30, 2016 
Changes in
unrealized gains/ losses relating to instruments still held at
September 30, 2016 (1)
Assets:                 
Trading assets:                 
Corporate equity securities$48,816
 $(6,492) $291
 $(49) $—
 $—
 $(20,371) $22,195
 $(892)
Corporate debt securities24,113
 (145) 10,696
 (5,046) —
 —
 5,389
 35,007
 405
CDOs and CLOs52,710
 (4,067) 4,205
 (5,203) —
 —
 (3,575) 44,070
 (4,606)
Municipal securities—
 (7,074) —
 —
 —
 —
 34,331
 27,257
 (7,074)
Sovereign obligations120
 5
 —
 (125) —
 —
 —
 —
 —
Residential mortgage-backed securities63,308
 (2,343) 1,884
 (10,874) (463) —
 (4,631) 46,881
 (183)
Commercial mortgage-backed securities24,983
 (1,531) —
 —
 —
 —
 1,141
 24,593
 (236)
Other asset-backed securities43,033
 (2,247) 3,416
 (2,727) (1,429) —
 21,066
 61,112
 (2,202)
Loans and other receivables104,399
 (23,445) 31,512
 (10,140) (16,804) —
 (7,065) 78,457
 (16,044)
Investments at fair value273,271
 (599) —
 (485) (278) —
 29,000
 300,909
 (746)
Investment in FXCM (2)508,400
 42,721
 —
 —
 (343,721) —
 —
 207,400
 (2,000)
Liabilities: 
  
  
  
  
  
  
  
  
Trading liabilities: 
  
  
  
  
  
  
  
  
Corporate equity securities$—
 $—
 $—
 $—
 $—
 $—
 $38
 $38
 $—
Corporate debt securities—
 (27) —
 550
 —
 —
 —
 523
 —
Net derivatives (3)4,424
 (4,736) —
 11,101
 32
 601
 (375) 11,047
 (1,589)
Loans1,896
 (402) —
 170
 —
 —
 (816) 848
 (400)
Other secured financings468
 (200) —
 —
 —
 —
 —
 268
 200

(1)Realized and unrealized gains (losses) are reported in Principal transactions in the Consolidated Statements of Operations.
(2)Includes $334.5 million related to the settlement of our participation rights for equity ownership in FXCM on September 1, 2016. We classify the equity ownership as a Loan to and investment in associated company at September 30, 2016.
(3)Net derivatives represent Trading assets - Derivatives and Trading liabilities - Derivatives.

Analysis of Level 3 Assets and Liabilities for the three months ended September 30, 2016

During the three months ended September 30, 2016, transfers of assets of $147.0 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:
Other asset-backed securities of $27.3 million, CDOs and CLOs of $23.7 million and residential mortgage-backed securities of $13.7 million, for which no recent trade activity was observed for purposes of determining observable inputs; and
Municipal securities of $34.3 million and investments at fair value of $29.0 million due to a lack of observable market transactions.

During the three months ended September 30, 2016, transfers of assets of $91.8 million from Level 3 to Level 2 are primarily attributed to:
CDOs and CLOs of $27.3 million and residential mortgage-backed securities of $18.3 million for which market trades were observed in the period for either identical or similar securities;
Corporate equity securities of $20.5 million due to an increase in observable market transactions; and
Loans and other receivables of $15.8 million due to a greater number of contributors for certain vendor quotes to support classification within Level 2.

Net losses on Level 3 assets were $5.2 million and net gains on Level 3 liabilities were $5.4 million for the three months ended September 30, 2016. Net losses on Level 3 assets were primarily due to decreased valuations of loans and other receivables, municipal securities, corporate equity securities, CDOs and CLOs, residential mortgage-backed securities, other asset-backed securities and commercial mortgage-backed securities partially offset by increased valuations of our investment in FXCM. Net gains on Level 3 liabilities were primarily due to increased valuations of certain net derivative. 


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 September 30, 2016 (in thousands):
Nine Months Ended September 30, 2016
 Balance, December 31, 2015 
Total gains/ losses
(realized and unrealized) (1)
 Purchases Sales Settlements Issuances 
Net transfers
into (out of)
Level 3
 Balance, September 30, 2016 
Changes in
unrealized gains/ losses relating to instruments still held at
September 30, 2016 (1)
Assets:                 
Trading assets:                 
Corporate equity securities$40,906
 $(8,388) $5,225
 $(49) $—
 $—
 $(15,499) $22,195
 $(727)
Corporate debt securities25,876
 5,239
 29,629
 (20,331) —
 —
 (5,406) 35,007
 1,456
CDOs and CLOs85,092
 (24,356) 61,707
 (69,397) (605) —
 (8,371) 44,070
 (13,196)
Municipal securities—
 (1,462) —
 —
 —
 —
 28,719
 27,257
 (1,462)
Sovereign obligations120
 5
 —
 (125) —
 —
 —
 —
 —
Residential mortgage-backed securities70,263
 (7,243) 1,948
 (13,203) (1,078) —
 (3,806) 46,881
 228
Commercial mortgage-backed securities14,326
 (4,606) 1,256
 (2,023) —
 —
 15,640
 24,593
 (3,337)
Other asset-backed securities42,925
 (2,420) 66,503
 (60,525) (6,678) —
 21,307
 61,112
 (9,993)
Loans and other receivables189,289
 (30,843) 305,920
 (206,587) (163,913) —
 (15,409) 78,457
 (27,714)
Investments at fair value199,794
 46,644
 29,727
 (485) (834) —
 26,063
 300,909
 53,711
Investment in FXCM (2)625,689
 (58,335) —
 —
 (359,954) —
 —
 207,400
 3,852
Liabilities: 
  
  
  
  
  
  
  
  
Trading liabilities: 
  
  
  
  
  
  
  
  
Corporate equity securities$38
 $—
 $—
 $—
 $—
 $—
 $—
 $38
 $—
Corporate debt securities—
 (27) —
 550
 —
 —
 —
 523
 —
Net derivatives (3)(242) 3,104
 —
 11,101
 (14) 1,606
 (4,508) 11,047
 (5,745)
Loans10,469
 7
 —
 681
 (213) —
 (10,096) 848
 45
Other secured financings544
 (276) —
 —
 —
 —
 —
 268
 276

(1)Realized and unrealized gains (losses) are reported in Principal transactions in the Consolidated Statements of Operations.
(2)Includes $334.5 million related to the settlement of our participation rights for equity ownership in FXCM on September 1, 2016. We classify the equity ownership as a Loan to and investment in associated company at September 30, 2016.
(3)Net derivatives represent Trading assets - Derivatives and Trading liabilities - Derivatives.

Analysis of Level 3 Assets and Liabilities for the nine months ended September 30, 2016

During the nine months ended September 30, 2016, transfers of assets of $157.8 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:
CDOs and CLOs of $16.9 million, other asset-backed securities of $38.5 million, residential mortgage-backed securities of $21.7 million and commercial mortgage-backed securities of $17.2 million, for which no recent trade activity was observed for purposes of determining observable inputs; and
Municipal securities of $28.7 million and investments at fair value of $26.1 million due to lack of observable market transactions.

During the nine months ended September 30, 2016, transfers of assets of $114.5 million from Level 3 to Level 2 are primarily attributed to:
CDOs and CLOs of $25.3 million, residential mortgage-backed securities of $25.5 million and other asset-backed securities of $17.0 million, for which market trades were observed in the period for either identical or similar securities;
Loans and other receivables of $19.8 million due to a greater number of contributors for certain vendor quotes supporting classification into Level 2; and
Corporate equity securities of $19.2 million due to an increase in observable market transactions.

During the nine months ended September 30, 2016, there were $10.2 million transfers of loan liabilities from Level 3 to Level 2 due to an increase in observable inputs in the valuation.

Net losses on Level 3 assets were $85.8 million and net losses on Level 3 liabilities were $2.8 million for the nine months ended September 30, 2016. Net losses on Level 3 assets were primarily due to decreased valuations of our investment in FXCM, loans


and other receivables, CDOs and CLOs, corporate equity securities, residential mortgage-backed securities and municipal securities partially offset by increased valuations of investments at fair value. Net losses on Level 3 liabilities were primarily due to increased valuations of certain net derivatives.

Quantitative Information about Significant Unobservable Inputs used in Level 3 Fair Value Measurements

The tables below present information on the valuation techniques, significant unobservable inputs and their ranges for our financial assets and liabilities, subject to threshold levels related to the market value of the positions held, measured at fair value on a recurring basis with a significant Level 3 balance. The range of unobservable inputs could differ significantly across different firms given the range of products across different firms in the financial services sector. The inputs are not representative of the inputs that could have been used in the valuation of any one financial instrument (i.e., the input used for valuing one financial instrument within a particular class of financial instruments may not be appropriate for valuing other financial instruments within that given class). Additionally, the ranges of inputs presented below should not be construed to represent uncertainty regarding the fair values of our financial instruments; rather the range of inputs is reflective of the differences in the underlying characteristics of the financial instruments in each category.

For certain categories, we have provided a weighted average of the inputs allocated based on the fair values of the financial instruments comprising the category. We do not believe that the range or weighted average of the inputs is indicative of the reasonableness of uncertainty of our Level 3 fair values. The range and weighted average are driven by the individual financial instruments within each category and their relative distribution in the population. The disclosed inputs when compared with the inputs as disclosed in other periods should not be expected to necessarily be indicative of changes in our estimates of unobservable inputs for a particular financial instrument as the population of financial instruments comprising the category will vary from period to period based on purchases and sales of financial instruments during the period as well as transfers into and out of Level 3 each period.



September 30, 2017
September 30, 2018September 30, 2018
Financial Instruments Owned 
Fair Value
(in thousands)
 
Valuation
 Technique
 
Significant
Unobservable Input(s)
 Input/Range 
Weighted
Average
 
Fair Value
(in thousands)
 
Valuation
 Technique
 
Significant
Unobservable Input(s)
 Input/Range 
Weighted
Average
Corporate equity securities $17,964
       $41,038
      
Non-exchange traded securities  
 Market approach Price $3 to $75 $59.0  
 Market approach Price $3 to $75 $25.0
   
 Underlying stock price $6 —
   Comparable pricing Comparable asset price $9 —
   
 Underlying stock price $1 to $11 $9.0
        
Corporate debt securities $25,015
 Convertible bond model Discount rate/yield 8% —
 $9,651
 Market approach Discount rate/yield 19% —
   Volatility 40% —
   
 Estimated recovery percentage 46% —
   Market approach Estimated recovery percentage 17% —
   Price $10 —
   Price $15 —
   Comparable asset price $101 —
        
CDOs and CLOs $43,153
 Discounted cash flows Constant prepayment rate 20% —
 $33,981
 Discounted cash flows Constant prepayment rate 20% —
  
     Constant default rate 2% —
  
     Constant default rate 1% to 2% 2%
  
     Loss severity 25% to 30% 27%  
     Loss severity 30% —
  
     Discount rate/yield 9% to 23% 12%  
     Discount rate/yield 5% to 41% 16%
   Scenario analysis Estimated recovery percentage 6% to 45% 29%   Scenario analysis Estimated recovery percentage 2% to 41% 23%
        
Residential mortgage-backed securities $20,649
 Discounted cash flows Cumulative loss rate 5% to 30% 13% $4,954
 Discounted cash flows Cumulative loss rate 23% —
  
     Duration (years) 3 to 10 5
  
     Duration (years) 15 years —
  
     Discount rate/yield 8% to 10% 9%  
     Discount rate/yield 9% —
           Market approach Price $100 —
    
Commercial mortgage-backed securities $17,636
 Discounted cash flows Cumulative loss rate 0% to 58% 29% $23,916
 Discounted cash flows Cumulative loss rate 8% to 84% 33%
  
     Duration (years) 1 to 3 2
  
     Duration (years) 0 year to 3 years 1 year
   Discount rate/yield 2% to 21% 11%   Discount rate/yield 3% to 38% 12%
       Scenario analysis Estimated recovery percentage 26% —
   Price $49 —
    
Other asset-backed securities $68,946
 Discounted cash flows Cumulative loss rate 0% to 25% 20% $69,305
 Discounted cash flows Cumulative loss rate 0% to 29% 18%
  
     Duration (years) 1 to 10 2
  
     Discount rate/yield 4% to 12% 8%  
     Duration (years) 1 year to 5 years 2 years
   Market approach Price $100 —
  
     Discount rate/yield 5% to 12% 7%
   Scenario analysis Estimated recovery percentage 23% —
       Market approach Price $100 —
        
Loans and other receivables $59,398
 Market approach EBITDA (a) multiple 1.6 —
 $48,985
 Market approach Estimated recovery percentage 0% —
   Price $60 to $100 $95.0   Price $50 to $100 $95.0
  
 Scenario analysis Estimated recovery percentage 10% to 107% 67%  
 Scenario analysis Estimated recovery percentage 57% to 107% 88%
        
Derivatives $2,671
        
 $3,137
        
Interest rate swaps       Market approach Credit spread 800 bps —
Total return swaps       Market approach Price $100 —
        
Investments at fair value $100,446
        
 $111,899
        
Private equity securities   Market approach Price $7 to $250 $123.0   Market approach Price $3 to $250 $105.0
   Transaction level $3 —
   Discount rate 20% —
   Discount rate 20% —
        
Investment in FXCM  
        
 $73,800
        
Term loan $70,800
 Discounted cash flows Term based on the pay off 0 months to .3 years 0.3 years   Discounted cash flows Term based on the pay off (years) 0 months to 0.3 years 0.3 years
     
  
Trading Liabilities 
Fair Value
(in thousands)
 
Valuation
 Technique
 
Significant
Unobservable Input(s)
 Input/Range 
Weighted
Average
 
Fair Value
(in thousands)
 
Valuation
 Technique
 
Significant
Unobservable Input(s)
 Input/Range 
Weighted
Average
Corporate debt securities $1,557
 Market approach Estimated recovery percentage 53% —
    
Loans $8,661
 Market approach Estimated recovery percentage 0% —
   Price $50 —
    
Derivatives $7,753
        
 $12,134
        
Equity options   Option model/default rate     Default probability 0% —
   Option model/default rate     Default probability 0% —
Unfunded commitments       Market approach Price $99 —
Total return swaps       Market approach Price $95 to $100 $97.0
Variable funding note swaps  
 Discounted cash flows Constant prepayment rate 20% —
  
 Discounted cash flows Constant prepayment rate 20% —
  
     Constant default rate 2% —
  
     Constant default rate 2% —
  
     Loss severity 25% —
  
     Loss severity 30% —
  
     Discount rate/yield 23% —
  
     Discount rate/yield 41% —
    
Long-term debt $163,630
        
Structured notes       Market approach Price $70 to $100 $80.0
   Price €80 to €112 €96.0


December 31, 2016
December 31, 2017December 31, 2017
Financial Instruments Owned 
Fair Value
(in thousands)
 
Valuation
 Technique
 
Significant
Unobservable Input(s)
 Input/Range 
Weighted
Average
 
Fair Value
(in thousands)
 
Valuation
 Technique
 
Significant
Unobservable Input(s)
 Input/Range 
Weighted
Average
Corporate equity securities $19,799
       $18,109
      
Non-exchange traded securities   Market approach Underlying stock price $3 to $75 $15.0   Market approach Price $3 to $75 $33.0
   Comparable pricing Underlying stock price $218 —
   Underlying stock price $6 —
   Comparable asset price $11 —
   Comparable pricing Comparable asset price $7 —
   Present value Average silver production (tons per day) 666 —
    
Corporate debt securities $26,036
 Convertible bond model Discount rate/yield 8% —
       Volatility 40% —
Corporate debt securities $25,005
 Convertible bond model Discount rate/yield 9% —
   Volatility 40% —
   Market approach Estimated recovery percentage 17% —
   Market approach Transaction level $30 —
   Price $10 —
        
CDOs and CLOs $33,016
 Discounted cash flows Constant prepayment rate 10% to 20% 19% $38,845
 Discounted cash flows Constant prepayment rate 20% —
  
     Constant default rate 2% to 4% 2%  
     Constant default rate 2% —
  
     Loss severity 25% to 70% 40%  
     Loss severity 25% to 30% 26%
  
     Yield 7% to 17% 12%  
     Discount rate/yield 3% to 26% 12%
   Scenario analysis Estimated recovery percentage 28% to 38% 31%   Scenario analysis Estimated recovery percentage 8% to 45% 26%
        
Residential mortgage-backed securities $38,772
 Discounted cash flows Constant prepayment rate 0% to 11% 5% $26,077
 Discounted cash flows Cumulative loss rate 3% to 19% 10%
  
     Constant default rate 1% to 7% 3%  
     Duration (years) 2 years to 4 years 3 years
  
     Loss severity 35% to 100% 62%  
     Discount rate/yield 6% to 10% 8%
  
     Yield 2% to 10% 6%    
Commercial mortgage-backed securities $12,419
 Discounted cash flows Discount rate/yield 2% to 26% 12%
      
     Cumulative loss rate 8% to 65% 44%
Commercial mortgage-backed securities $20,580
 Discounted cash flows Yield 6% to 11% 8%
   Duration (years) 1 year to 3 years 2 years
   Scenario analysis Estimated recovery percentage 26% to 32% 28%
  
     Cumulative loss rate 5% to 95% 39%   Price $52 to $56 $54.0
        
Other asset-backed securities $40,911
 Discounted cash flows Constant prepayment rate 4% to 20% 14% $61,129
 Discounted cash flows Cumulative loss rate 0% to 33% 23%
  
     Constant default rate 0% to 31% 13%  
     Duration (years) 1 year to 6 years 2 years
  
     Loss severity 0% to 100% 90%  
     Discount rate/yield 5% to 39% 9%
  
     Yield 4% to 17% 15%   Market approach Price $100 —
   Market approach Price $72 —
   Scenario analysis Estimated recovery percentage 14% —
        
Loans and other receivables $54,347
 Market approach Discount rate/yield 2% to 4% 3% $46,121
 Market approach Estimated recovery percentage 76% —
  
     EBITDA (a) multiple 3.3 —
  
     Price $54 to $100 $95.0
   Transaction level $0.42 —
  
 Scenario analysis Estimated recovery percentage 13% to 107% 78%
   Present value Average silver production (tons per day) 666 —
    
  
 Scenario analysis Estimated recovery percentage 6% to 50% 37%
    
Derivatives $6,429
        
 $9,295
        
Equity swaps  
 Comparable pricing Comparable asset price $102 —
Credit default swaps       Market approach Credit spread 265 bps —
Total return swaps  
     Market approach Price $101 to $106 $103.0
Interest rate swaps       Market approach Credit spread 800 bps —
        
Investments at fair value $67,383
        
 $110,010
        
Private equity securities 

 Market approach Transaction level $250 —
 

 Market approach Transaction level $3 to $250 $172.0
   Price $25,815,720 —
   Price $7 —
   Discount rate 15% to 30% 23%   Discount rate 20% —
        
Investment in FXCM  
        
 $72,800
        
Term loan $164,500
 Discounted cash flows Term based on the pay off 0 months to .5 years 0.4 years 

 Discounted cash flows Term based on the pay off (years) 0 months to 1 year 0.2 years
  
    
  
Trading Liabilities 
Fair Value
(in thousands)
 
Valuation
 Technique
 
Significant
Unobservable Input(s)
 Input/Range 
Weighted
Average
 
Fair Value
(in thousands)
 
Valuation
 Technique
 
Significant
Unobservable Input(s)
 Input/Range 
Weighted
Average
Derivatives $9,870
        
 $16,041
        
Equity options  
 Option model Volatility 45% —
  
 Option model/default rate     Default probability 0% —
   Default rate     Default probability 0% —
Equity swaps   Comparable pricing Comparable asset price $102 —
Unfunded commitments   Market approach Discount rate/yield 4% —
   Market approach Price $99 —
Total return swaps   Market approach Price $101 to $106 $103.0
Variable funding note swaps   Discounted cash flows Constant prepayment rate 20% —
   Discounted cash flows Constant prepayment rate 20% —
 

     Constant default rate 2% —
 

     Constant default rate 2% —
       Loss severity 25% —
       Loss severity 25% —
       Yield 16% —
       Discount rate/yield 26% —
(a)Earnings before interest, taxes, depreciation and amortization (“EBITDA”).




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 valueNAV or a percentage of the reported enterprise fair value are excluded from the above table.tables. At September 30, 20172018 and December 31, 2016,2017, asset exclusions consisted of $242.9$223.7 million and $325.0$228.6 million, respectively, primarily comprised of investments at fair value, private equity securities, municipal securities,CDOs and CLOs, non-exchange traded securities CDOs and CLOs and loans and other receivables. At September 30, 20172018 and December 31, 2016,2017, liability exclusions consisted of $4.0$0.5 million and $1.6$4.2 million, respectively, of other secured financings,loans, commercial mortgage-backed securities, loanssovereign obligations and corporate debt and equity securities.
SensitivityUncertainty of Fair Values to Changes inValue Measurement From Use of Significant Unobservable Inputs
For recurring fair value measurements categorized within Level 3 of the fair value hierarchy, the sensitivityuncertainty of the fair value measurement due to changes inthe use of significant unobservable inputs and interrelationships between those unobservable inputs (if any) are described below:
Non-exchange traded securities and equity swaps using comparable pricing valuation techniques. A significant increase (decrease) in the comparable asset and underlying stock 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. A significant increase (decrease) in volatility would result in a significantly higher (lower) fair value measurement.
Non-exchange traded securities, corporate debt securities, loans and other receivables, unfunded commitments, credit default swaps, interest rate swaps, total return swaps, residential mortgage-backed securities, other asset-backed securities, private equity securities and loansstructured notes 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 discount rate/yield of a loan and other receivable or certain derivatives would result in a significantly lower (higher) fair value measurement. A significant increase (decrease) in the transaction level of a private equity security corporate debt security or loan and other receivable would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the underlying stock price of the non-exchange traded securities would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the credit spread of certain derivatives would result in a significantly lower (higher) fair value measurement. A significant increase (decrease) in the price of the private equity securities, non-exchange traded securities, corporate debt securities, unfunded commitments, total return swaps, residential mortgage-backed securities, other asset-backed securities, or loans and other receivables or structured notes would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the estimated recovery rates of the cash flow outcomes underlying the corporate debt securities or loans and other receivables would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the bond discount rate/yield would result in a significantly lower (higher) fair value measurement. A significant increase (decrease) in the comparable asset price of the corporate debt securities in isolation would result in a significantly higher (lower) fair value measurement.
Loans and other receivables, CDOs and CLOs, commercial mortgage-backed securities and other asset-backed securities 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. A significant increase (decrease) in the price of the commercial mortgage-backed securities would result in a significantly higher (lower) fair value measurement.
CDOs and CLOs, residential and commercial mortgage-backed securities, other asset-backed securities and variable funding notesnote swaps using a discounted cash flow valuation technique. A significant increase (decrease) in isolation in the constant default rate, loss severity or cumulative loss rate would result in a significantly lower (higher) fair value measurement. The impact of changes in the constant prepayment rate and duration would have differing impacts depending on the capital structure and type of security. A significant increase (decrease) in the discount rate/security yield would result in a significantly lower (higher) fair value measurement.
Derivative equity options using an option model.  A significant increase (decrease) in volatility would result in a significantly higher (lower) fair value measurement.
Derivative equity options using a option/default rate model. A significant increase (decrease) in default probability would result in a significantly lower (higher) fair value measurement.
Non-exchange traded securities and loans and other receivables using a present value model. A significant increase (decrease) in average silver production would result in a significantly higher (lower) fair value measurement.
FXCM term loan using a discounted cash flow valuation technique. A significant increase (decrease) in term based on the time to pay off the loan would result in a higher (lower) fair value measurement. 


Fair Value Option Election
We have elected the fair value option for all loans and loan commitments made by Jefferies Group's capital markets businesses. These loans and loan commitments include loans entered into by Jefferies Investment BankingGroup's investment banking division in connection with client bridge financing and loan syndications, loans purchased by Jefferies Group's leveraged credit trading desk as part of its bank loan trading activities and mortgage and consumer loan commitments, purchases and fundings in connection with mortgage- and other asset-backed securitization activities. Loans and loan commitments originated or purchased by Jefferies Group's leveraged credit and mortgage-backed businesses are managed on a fair value basis. Loans are included in Trading assets and loan commitments are included in Trading liabilities. The fair value option election is not applied to loans made to affiliate entities as such loans are entered into as part of


ongoing, strategic business ventures. Loans to affiliate entities are included in Loans to and investments in


associated companies onin the Consolidated Statements of Financial Condition and are accounted for on an amortized cost basis. Jefferies Group has also elected the fair value option for certain of its structured notes which are managed by Jefferies Group's capital markets business and are included in Long-term debt and Short-term borrowings in the Consolidated Statements of Financial Condition. Jefferies Group has elected the fair value option for certain financial instruments held by its subsidiaries as the investments are risk managed by Jefferies Group on a fair value basis. The fair value option has also been elected for certain secured financings that arise in connection with Jefferies Group's securitization activities and other structured financings. Other secured financings, receivables from brokers, dealers and clearing organizations, receivables from customers of securities operations, payables to brokers, dealers and clearing organizations and payables to customers of securities operations, are accounted for at cost plus accrued interest rather than at fair value; however, the recorded amounts approximate fair value due to their liquid or short-term nature.
The following is a summary of Jefferies Group's gains (losses) due to changes in instrument specific credit risk on loans, other receivables and debt instruments and gains (losses) due to other changes in fair value on long-term debt and short-term borrowingborrowings measured at fair value under the fair value option (in thousands):
For the Three Months Ended September 30,
For the Nine Months Ended September 30,For the Three Months Ended September 30,
For the Nine Months Ended September 30,
  
2017 2016 2017 20162018 2017 2018 2017
Financial Instruments Owned:              
Loans and other receivables$24,846
 $(24,874) $27,715
 $(48,658)$14,002
 $24,846
 $7,495
 $27,715
              
Financial Instruments Sold: 
  
  
  
 
  
  
  
Loans$3,436
 $212
 $(7,286) $229
$(2,708) $3,436
 $(2,467) $(7,286)
Loan commitments$82
 $4,769
 $229
 $2,196
$(1,695) $82
 $(1,964) $229
              
Long-term Debt: 
  
  
  
 
  
  
  
Changes in instrument specific credit risk (1)$5,638
 $(4,093) $(14,141) $(7,848)$1,401
 $5,638
 $19,986
 $(14,141)
Other changes in fair value (2)$(1,854) $4,474
 $2,786
 $15,225
$(6,842) $(1,854) $33,626
 $2,786
              
Short-term Borrowings:              
Changes in instrument specific credit risk (1)$19
 $—
 $1
 $—
$—
 $19
 $—
 $1
Other changes in fair value (2)$(2,570) $—
 $(37) $—
$—
 $(2,570) $—
 $(37)

(1) Changes in instrument specific credit risk related to structured notes are included in the Consolidated Statements of Comprehensive Income (Loss), net of tax.
(2) Other changes in fair value are principally included within Principal transactions revenues in the Consolidated Statements of Operations.
(1)Changes in instrument specific credit risk related to structured notes are included in the Consolidated Statements of Comprehensive Income (Loss), net of tax.
(2)Other changes in fair value are included in Principal transactions revenues in the Consolidated Statements of Operations.

The following is a summary of the amount by which contractual principal exceeds fair value for loans and other receivables, and long-term debt and short-term borrowings measured at fair value under the fair value option (in thousands):
September 30, 2017 December 31, 2016September 30, 2018 December 31, 2017
Financial Instruments Owned:      
Loans and other receivables (1)$663,618
 $1,325,938
$896,470
 $752,076
Loans and other receivables on nonaccrual status and/or greater than 90 days past due (1) (2)$159,000
 $205,746
Long-term Debt$9,725
 $20,202
Loans and other receivables on nonaccrual status and/or 90 days or greater past due (1) (2)$167,355
 $159,462
Long-term debt and short-term borrowings$89,345
 $32,839

(1)Interest income is recognized separately from other changes in fair value and is included withinin Interest income in the Consolidated Statements of Operations.
(2)Amounts include all loans and other receivables greater than 90 days or greater past due by which contractual principal exceeds fair value of $48.3$33.7 million and $64.6$38.7 million at September 30, 20172018 and December 31, 2016,2017, respectively.

The aggregate fair value of Jefferies Group's loans and other receivables on nonaccrual status and/or greater than 90 days or moregreater past due was $62.6$77.0 million and $29.8$55.1 million at September 30, 20172018 and December 31, 2016,2017, respectively, which includes loans and other receivables greater than 90 days or greater past due of $41.9$25.6 million and $18.9$37.4 million at September 30, 20172018 and December 31, 2016,2017, respectively.



Jefferies hasGroup had elected the fair value option for its investment in KCG Holdings, Inc. ("KCG"). The change in the fair value of this investment were gains ofaggregated $2.2 million and $6.1$93.4 million for the three months ended September 30, 2017 and 2016, respectively, and $93.4 million and $24.6 million for the nine months ended September 30, 2017, and 2016, respectively. Jefferies has also separately entered into securities lending transactions withGroup's investment in KCG was sold in the normal course of its capital markets activities. The balances of Securities borrowed and Securities loaned were $9.2 million and $9.2 million, respectively, at December 31, 2016. In April 2017, Virtu Financial agreed to acquire KCG at a price of $20.00 per share in cash and the transaction closed July 20, 2017.

As of September 30, 2017 and December 31, 2016,2017, we owned approximately 46.6 million common shares of HRG, representing approximately 23% of HRG’s outstanding common shares, which arewere accounted for under the fair value option. On July 13, 2018, HRG merged into its 62% owned subsidiary, Spectrum Brands. Our approximately 23% owned interest in HRG thereby converted into approximately 14% of the outstanding shares of the re-named company, Spectrum Brands, which we account for under the fair value option. As of September 30, 2018, we owned approximately 7.5 million common shares of Spectrum Brands, representing approximately 14% of Spectrum Brands outstanding common shares. The shares are included in our Consolidated Statements of Financial Condition at fair value of $727.4$561.5 million and $725.1$789.9 million at September 30, 20172018 and December 31, 2016,2017, respectively. The shares were acquired at an aggregate cost of $475.6 million. The change in the fair value of our investment in Spectrum Brands/HRG aggregated $(97.9)$(48.5) million and $91.8$(97.9) million for the three months ended September 30, 20172018 and 2016,2017, respectively, and $2.3$(228.4) million and $99.7$2.3 million for the nine months ended September 30, 20172018 and 2016,2017, respectively. As reported in its Form 10-Q, for the nine months ended June 30, 2018 and 2017, and 2016, HRG'sSpectrum Brands' revenues were $3,686.7$2,358.1 million and $3,798.8 million, respectively; net income from continuing operations was $53.8 million and $152.5$2,222.7 million, respectively; net income (loss) from continuing operations was $249.2$443.7 million and $(70.1)$(46.0) million, respectively; net income was $941.6 million and $249.2 million, respectively; and net income (loss) attributable to HRGSpectrum Brands controlling interest was $847.7 million and $132.2 million, and $(191.5) million, respectively. WeOne of our officers currently have two directors on HRG’s board, including our Chairman who serves as HRG's Chairman and CEO. a director on Spectrum Brands board.
We believe accounting for these investments at fair value better reflects the economics of these investments, and quoted market prices for these investments provides an objectively determined fair value at each balance sheet date. Our investment in HomeFed, which is a publicly traded company, is accounted for under the equity method of accounting rather than the fair value option.option method. HomeFed’s common stock is not listed on any stock exchange, and price information for the common stock is not regularly quoted on any automated quotation system. It is traded in the over-the-counter market with high and low bid prices published by the NASD OTC Bulletin Board Service; however, trading volume is minimal. For these reasons, we did not elect the fair value option for HomeFed.
Financial Instruments Not Measured at Fair Value

Certain of our financial instruments are not carried at fair value but are recorded at amounts that approximate fair value due to their liquid or short-term nature and generally negligible credit risk. These financial assets include Cash and cash equivalents and Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations and would generally be presented in Level 1 of the fair value hierarchy. Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations includes U.S. treasuryTreasury securities with a fair value of $99.8$34.8 million and $99.9$99.7 million at September 30, 20172018 and December 31, 2016,2017, respectively. See Note 22 for additional information related to financial instruments not measured at fair value.
Note 4.  Derivative Financial Instruments

Off-Balance Sheet Risk
Jefferies has 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 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
Derivative activities are recorded at fair value in the Consolidated Statements of Financial Condition in Trading assets and Trading liabilities, net of cash paid or received under credit support agreements and on a net counterparty basis when a legally enforceable right to offset exists under a master netting agreement. Predominantly, Jefferies Group and our Leucadia Asset Management businesses may enter into derivative transactions to satisfy the needs of its clients and to manage its own exposure to market and credit risks resulting from its trading activities. In addition, Jefferies Group applies hedge accounting to an interest rate swap that has been designated as a fair value hedge of the changes in fair value due to the benchmark interest rate for certain fixed rate senior long-term debt. See Notes 3 and 20 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. Jefferies Group manages the risks associated with derivatives on an aggregate basis along with the risks associated with proprietary trading as part of its firm wide risk management policies.
In connection with Jefferies Group's derivative activities, Jefferies Group may enter into International Swaps and DerivativeDerivatives Association, Inc. (“ISDA”("ISDA") master netting agreements or similar agreements with counterparties. See Note 10 for additional information with respect to financial statement offsetting.regarding the offsetting of derivative contracts.


The following tables presenttable presents the fair value and related number of derivative contracts categorized by type of derivative contract as reflected in the Consolidated Statements of Financial Condition at September 30, 20172018 and December 31, 2016.2017. 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)regarding (1) the extent to which, under enforceable master netting arrangements, such balances are presented net in our Consolidated Statements of Financial Condition as appropriate under GAAP and 2)(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):
Assets LiabilitiesAssets Liabilities
Fair Value 
Number of
Contracts
 Fair Value 
Number of
Contracts
Fair Value 
Number of
Contracts
 Fair Value 
Number of
Contracts
September 30, 2017       
September 30, 2018       
Derivatives designated as accounting hedges - interest rate contracts$11,654
 1
 $—
 —
$—
 —
 $30,018
 1
              
Derivatives not designated as accounting hedges:              
Interest rate contracts$1,777,254
 17,997
 $1,698,297
 42,934
$766,233
 20,867
 $892,562
 38,331
Foreign exchange contracts370,203
 5,690
 369,971
 6,733
234,641
 8,569
 223,565
 7,486
Equity contracts549,030
 2,199,786
 1,127,705
 1,849,003
2,491,005
 1,892,926
 2,987,654
 1,836,128
Commodity contracts5
 3,673
 3,543
 8,727
4,599
 6,331
 16,312
 3,585
Credit contracts75,867
 303
 90,678
 389
27,267
 172
 20,140
 76
Total2,772,359
  
 3,290,194
  
3,523,745
  
 4,140,233
  
Counterparty/cash-collateral netting (1)(2,595,355)  
 (2,714,115)  
(3,334,100)  
 (3,454,488)  
Total derivatives not designated as accounting hedges$177,004
  
 $576,079
  
$189,645
  
 $685,745
  
              
Total per Consolidated Statement of Financial Condition (2)$188,658
   $576,079
  $189,645
   $715,763
  
              
December 31, 2016       
December 31, 2017       
Derivatives designated as accounting hedges - interest rate contracts$—
 —
 $2,420
 1
       
Derivatives not designated as accounting hedges:              
Interest rate contracts$3,282,245
 29,032
 $3,159,457
 34,845
$1,717,058
 38,941
 $1,708,776
 12,828
Foreign exchange contracts529,669
 7,826
 516,869
 8,319
366,541
 6,463
 349,512
 4,612
Equity contracts786,987
 2,843,329
 1,169,201
 2,414,715
1,373,016
 2,728,750
 1,638,258
 2,118,526
Commodity contracts1,906
 2,766
 6,430
 7,289
3,093
 7,249
 5,141
 6,047
Credit contracts26,269
 311
 28,065
 20,084
38,261
 130
 41,801
 191
Total4,627,076
  
 4,880,022
  
3,497,969
  
 3,743,488
  
Counterparty/cash-collateral netting (1)(4,255,998)  
 (4,229,213)  
Total per Consolidated Statement of Financial Condition (2)$371,078
  
 $650,809
  
Counterparty/cash-collateral netting (1)(3)(3,318,481)  
 (3,490,514)  
Total derivatives not designated as accounting hedges$179,488
  
 $252,974
  
       
Total per Consolidated Statement of Financial Condition (2)(3)$179,488
   $255,394
  

(1) Amounts netted include both netting by counterparty and for cash collateral paid or received.
(2) 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.


(1)Amounts netted include both netting by counterparty and for cash collateral paid or received.
(2)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.
(3)
Pursuant to a rule change by the London Clearing House in the first fiscal quarter of 2018, variation margin exchanged each day with this clearing organization on certain interest rate derivatives is characterized as settlement payments as opposed to cash posted as collateral. The impact of this rule change would have been a reduction in gross interest rate derivative assets and liabilities as of December 31, 2017 of approximately $800 million, and a corresponding decrease in counterparty and cash collateral netting, with no impact to our Consolidated Statement of Financial Condition.

The following table provides information related to gains (losses) recognized in Interest expense of Jefferies Group in the Consolidated Statements of Operations on a fair value hedge (in thousands):
For the Three Months Ended September 30, For the Nine Months Ended September 30,For the Three Months Ended September 30, For the Nine Months Ended September 30,
  
2017 2016 2017 20162018 2017 2018 2017
Interest rate swaps$6,217
 $—
 $13,960
 $—
$(1,161) $6,217
 $(22,363) $13,960
Long-term debt(4,680) —
 (9,570) —
1,221
 (4,680) 24,055
 (9,570)
Total$1,537
 $—
 $4,390
 $—
$60
 $1,537
 $1,692
 $4,390



The following table presents unrealized and realized gains (losses) on derivative contracts which are primarily recognized in Principal transactions revenues in Income (loss) from continuing operations in the Consolidated Statements of Operations, which are utilized in connection with our client activities and our economic risk management activities (in thousands):
For the Three Months Ended September 30, For the Nine Months Ended September 30,For the Three Months Ended September 30, For the Nine Months Ended September 30,
  
2017
2016 2017 20162018
2017 2018 2017
Interest rate contracts$(7,485) $(27,354) $2,555
 $(101,744)$13,951
 $(7,485) $36,053
 $2,555
Foreign exchange contracts481
 11,089
 3,341
 15,992
(4,781) 481
 6,737
 3,341
Equity contracts(142,931) (184,020) (294,635) (505,872)1,019
 (142,931) (249,546) (294,635)
Commodity contracts(3,626) 2,777
 (5,169) 351
(6,845) (1,422) (23,150) (3,260)
Credit contracts(7,947) (3,616) 6,133
 (3,812)20
 (7,947) 760
 6,133
Total$(161,508) $(201,124) $(287,775) $(595,085)$3,364
 $(159,304) $(229,146) $(285,866)

The net gains (losses) on derivative contracts in the table above are one of a number of activities comprising Jefferies Group's business activities and are before consideration of economic hedging transactions, which generally offset the net gains (losses) included above. Jefferies Group substantially mitigates its exposure to market risk on its cash instruments through derivative contracts, which generally provide offsetting revenues, and Jefferies Group manages the risk associated with these contracts in the context of its overall risk management framework.

OTC Derivatives.  The following tables set forth by remaining contract maturity the fair value of OTC derivative assets and liabilities as reflected in the Consolidated Statement of Financial Condition at September 30, 20172018 (in thousands):
OTC Derivative Assets (1) (2) (3)OTC Derivative Assets (1) (2) (3)
0-12 Months 1-5 Years 
Greater Than
5 Years
 
Cross-
Maturity
Netting (4)
 Total0-12 Months 1-5 Years 
Greater Than
5 Years
 
Cross-
Maturity
Netting (4)
 Total
Commodity swaps, options and forwards$—
 $5
 $—
 $—
 $5
$738
 $512
 $—
 $—
 $1,250
Equity swaps and options5,117
 3,204
 —
 —
 8,321
10,226
 8,071
 2,195
 —
 20,492
Credit default swaps289
 3,399
 7,421
 (26) 11,083
82
 21,802
 —
 (11) 21,873
Total return swaps11,411
 5,823
 —
 (2,458) 14,776
46,036
 29,910
 —
 (4,334) 71,612
Foreign currency forwards, swaps and options95,638
 29,277
 —
 (14) 124,901
42,326
 22,130
 —
 (9,550) 54,906
Fixed income forwards134
 —
 —
 —
 134
2,113
 —
 —
 —
 2,113
Interest rate swaps, options and forwards49,714
 171,691
 98,719
 (83,961) 236,163
13,104
 96,631
 95,973
 (91,673) 114,035
Total$162,303
 $213,399
 $106,140
 $(86,459) 395,383
$114,625
 $179,056
 $98,168
 $(105,568) 286,281
Cross product counterparty netting 
  
  
  
 (70,712) 
  
  
  
 (34,971)
Total OTC derivative assets included in Trading assets 
  
  
  
 $324,671
 
  
  
  
 $251,310

(1)At September 30, 2017,2018, we held exchange traded derivative assets, other derivative assets and other credit agreements with a fair value of $21.3$96.6 million, which are not included in this table.
(2)OTC derivative assets in the table above are gross of collateral received. OTC derivative assets are recorded net of collateral received in the Consolidated Statements of Financial Condition. At September 30, 2017,2018, cash collateral received was $157.3$158.2 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.


OTC Derivative Liabilities (1) (2) (3)OTC Derivative Liabilities (1) (2) (3)
0-12 Months 1-5 Years 
Greater Than
5 Years
 
Cross-Maturity
Netting (4)
 Total0-12 Months 1-5 Years 
Greater Than
5 Years
 
Cross-Maturity
Netting (4)
 Total
Commodity swaps, options and forwards$1,072
 $—
 $—
 $—
 $1,072
$12,234
 $2,388
 $—
 $—
 $14,622
Equity swaps and options2,980
 146,505
 2,631
 —
 152,116
15,125
 92,491
 13,048
 —
 120,664
Credit default swaps1,077
 23,931
 —
 (26) 24,982
17
 11,480
 —
 (11) 11,486
Total return swaps11,666
 1,802
 —
 (2,458) 11,010
67,526
 19,806
 —
 (4,334) 82,998
Foreign currency forwards, swaps and options94,182
 30,561
 —
 (14) 124,729
36,183
 17,496
 —
 (9,550) 44,129
Fixed income forwards1,145
 —
 —
 —
 1,145
685
 —
 —
 —
 685
Interest rate swaps, options and forwards30,735
 97,284
 102,566
 (83,961) 146,624
16,388
 148,685
 198,569
 (91,673) 271,969
Total$142,857
 $300,083
 $105,197
 $(86,459) 461,678
$148,158
 $292,346
 $211,617
 $(105,568) 546,553
Cross product counterparty netting 
  
  
  
 (70,712) 
  
  
  
 (34,971)
Total OTC derivative liabilities included in Trading liabilities 
  
  
  
 $390,966
 
  
  
  
 $511,582
 
(1)At September 30, 2017,2018, we held exchange traded derivative liabilities, other derivative liabilities and other credit agreements with a fair value of $461.2$482.8 million, which are not included in this table.
(2)OTC derivative liabilities in the table above are gross of collateral pledged. OTC derivative liabilities are recorded net of collateral pledged in the Consolidated Statements of Financial Condition. At September 30, 2017,2018, cash collateral pledged was $276.0$278.6 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 September 30, 2017,2018, the counterparty credit quality with respect to the fair value of our OTC derivative assets was as follows (in thousands):
Counterparty credit quality (1):  
A- or higher$143,935
$137,910
BBB- to BBB+50,742
20,490
BB+ or lower72,249
74,097
Unrated57,745
18,813
Total$324,671
$251,310
 
(1)Jefferies Group utilizes internal credit ratings determined by the Jefferies Group's Risk Management department. Credit ratings determined by Risk Management use methodologies that produce ratings generally consistent with those produced by external rating agencies.
Credit Related Derivative Contracts
The external credit ratings of the underlyings or referenced assets for our written credit related derivative contracts (in millions):
 External Credit Rating   External Credit Rating    
 Investment Grade Non-investment grade Total Notional Investment Grade Non-investment grade Unrated Total Notional
September 30, 2017      
September 30, 2018        
Credit protection sold:              
Index credit default swaps $1,103
 $338
 $1,441
 $3.0
 $15.0
 $—
 $18.0
Single name credit default swaps $139
 $192
 $331
 $32.5
 $39.9
 $2.9
 $75.3
              
December 31, 2016      
December 31, 2017        
Credit protection sold:              
Index credit default swaps $54
 $92
 $146
 $3.0
 $126.0
 $—
 $129.0
Single name credit default swaps $122
 $261
 $383
 $129.1
 $89.1
 $—
 $218.2



Contingent Features

Certain of Jefferies Group's derivative instruments contain provisions that require their debt to maintain an investment grade credit rating from each of the major credit rating agencies. If Jefferies Group's debt were to fall below investment grade, it would be in violation of these provisions and the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing full overnight collateralization on Jefferies Group's derivative instruments in liability positions. The following table presents the aggregate fair value of all derivative instruments with such credit-risk-related contingent features that are in a liability position, at September 30, 2017 and December 31, 2016 is $65.2 million and $70.6 million, respectively, for which Jefferies hasthe collateral amounts posted collateral of $51.4 million and $44.4 million, respectively,or received in the normal course of business.  Ifbusiness and the potential collateral Jefferies Group would have been required to return and/or post additionally to its counterparties if the credit-risk-related contingent features underlying these agreements were triggered on September 30, 2017 and December 31, 2016, Jefferies would have been required(in millions):
 September 30, 2018 December 31, 2017
    
Derivative instrument liabilities with credit-risk-related contingent features$106.3
 $95.1
Collateral posted$(59.3) $(86.4)
Collateral received$129.7
 $5.6
Return of and additional collateral required in the event of a credit rating downgrade below investment grade (1)$176.6
 $14.3

(1) These outflows include initial margin received from counterparties at the execution of the derivative contract. The initial margin will be returned if counterparties elect to post an additional $12.6 million and $26.1 million, respectively, of collateral to its counterparties.terminate the contract after a downgrade.

Other Derivatives

National Beef uses futures contracts in order to reduce its exposure associated with entering into firm commitments to purchase live cattle at prices determined prior to the delivery of the cattle as well as firm commitments to sell certain beef products at sales prices determined prior to shipment. National Beef accounts for the futures contracts at fair value. Firm commitments for sales are treated as normal sales and therefore not marked to market. Certain firm commitments to purchase cattle, are marked to market when a price has been agreed upon, otherwise they are treated as normal purchases and, therefore, not marked to market. The gains and losses associated with the change in fair value of the futures contracts and offsetting gains and losses associated with changes in the market value of certain of the firm purchase commitments are recorded to income and expense in the period of change.

Vitesse Energy Finance uses swaps and call and put options in order to reduce exposure to future oil price fluctuations. Vitesse Energy Finance accounts for the derivative instruments at fair value. The gains and losses associated with the change in fair value of the derivatives are recorded in income.Other revenues.

Note 5.  Collateralized Transactions
Jefferies Group enters into secured borrowing and lending arrangements to obtain collateral necessary to effect settlement, finance inventory positions, meet customer needs or re-lend as part of dealer operations. Jefferies Group monitors the fair value of the securities loaned and borrowed on a daily basis as compared with the related payable or receivable, and requests additional collateral or returnsreturn of excess collateral, as appropriate. Jefferies Group pledges financial instruments as collateral under repurchase agreements, securities lending agreements and other secured arrangements, including clearing arrangements. Jefferies Group's agreements with counterparties generally contain contractual provisions allowing the counterparty the right to sell or repledge the collateral. Pledged securities owned that can be sold or repledged by the counterparty are included in Financial instruments owned and noted parenthetically as Securities pledged onin 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 (in thousands):
Collateral Pledged Securities Lending Arrangements Repurchase Agreements Total Securities Lending Arrangements Repurchase Agreements Total
September 30, 2017      
September 30, 2018      
Cash $—
 $4,361
 $4,361
Corporate equity securities $2,183,030
 $100,178
 $2,283,208
 2,214,433
 490,609
 2,705,042
Corporate debt securities 579,925
 2,154,639
 2,734,564
 315,718
 1,496,127
 1,811,845
Mortgage- and asset-backed securities —
 3,046,491
 3,046,491
 —
 2,667,439
 2,667,439
U.S. government and federal agency securities 298
 12,046,271
 12,046,569
 1,353
 10,124,642
 10,125,995
Municipal securities —
 389,752
 389,752
 —
 582,699
 582,699
Sovereign obligations —
 1,577,231
 1,577,231
 —
 1,955,879
 1,955,879
Loans and other receivables —
 524,645
 524,645
 —
 517,703
 517,703
Total $2,763,253
 $19,839,207
 $22,602,460
 $2,531,504
 $17,839,459
 $20,370,963
            
December 31, 2016      
December 31, 2017      
Corporate equity securities $2,046,243
 $66,291
 $2,112,534
 $2,353,798
 $214,413
 $2,568,211
Corporate debt securities 731,276
 1,907,888
 2,639,164
 470,908
 2,336,702
 2,807,610
Mortgage- and asset-backed securities —
 2,171,480
 2,171,480
 —
 2,562,268
 2,562,268
U.S. government and federal agency securities 41,613
 9,232,624
 9,274,237
 19,205
 11,792,534
 11,811,739
Municipal securities —
 553,010
 553,010
 —
 444,861
 444,861
Sovereign obligations —
 2,625,079
 2,625,079
 —
 2,023,530
 2,023,530
Loans and other receivables —
 455,960
 455,960
 —
 454,941
 454,941
Total $2,819,132
 $17,012,332
 $19,831,464
 $2,843,911
 $19,829,249
 $22,673,160
 Contractual Maturity Contractual Maturity
 Overnight and Continuous Up to 30 Days 30 to 90 Days Greater than 90 Days Total Overnight and Continuous Up to 30 Days 30 to 90 Days Greater than 90 Days Total
September 30, 2017          
September 30, 2018          
Securities lending arrangements $1,490,137
 $—
 $783,633
 $489,483
 $2,763,253
 $1,354,136
 $—
 $847,577
 $329,791
 $2,531,504
Repurchase agreements 12,556,923
 3,187,276
 3,051,449
 1,043,559
 19,839,207
 8,122,962
 2,733,400
 4,342,923
 2,640,174
 17,839,459
Total $14,047,060
 $3,187,276
 $3,835,082
 $1,533,042
 $22,602,460
 $9,477,098
 $2,733,400
 $5,190,500
 $2,969,965
 $20,370,963
                    
December 31, 2016          
December 31, 2017          
Securities lending arrangements $2,131,891
 $39,673
 $104,516
 $543,052
 $2,819,132
 $1,676,940
 $—
 $741,971
 $425,000
 $2,843,911
Repurchase agreements 9,147,176
 2,008,119
 3,809,533
 2,047,504
 17,012,332
 10,780,474
 4,058,228
 3,211,464
 1,779,083
 19,829,249
Total $11,279,067
 $2,047,792
 $3,914,049
 $2,590,556
 $19,831,464
 $12,457,414
 $4,058,228
 $3,953,435
 $2,204,083
 $22,673,160

Jefferies Group receives securities as collateral under resale agreements, securities borrowing transactions and customer margin loans. Jefferies Group also receives securities as collateral in connection with securities-for-securities transactions in which it is the lender of securities. In many instances, Jefferies Group is permitted by contract to rehypothecate the securities received as collateral. These securities may be used to secure repurchase agreements, enter into securities lending transactions, satisfy margin requirements on derivative transactions or cover short positions. At September 30, 20172018 and December 31, 2016,2017, the approximate fair value of securities received as collateral by Jefferies Group that may be sold or repledged was $27.2$25.2 billion and $25.5$27.1 billion, respectively. A substantial portion of these securities have been sold or repledged.

Note 6.  Securitization Activities
Jefferies Group engages in securitization activities related to corporate loans, commercial mortgage loans, consumer loans and mortgage-backed and other asset-backed securities. In securitization transactions, Jefferies Group transfers assets to special purpose entities ("SPEs") and acts as the placement or structuring agent for the beneficial interests sold to investors by the SPE. A significant portion of the securitization transactions are the securitization of assets issued or guaranteed by U.S. government agencies. These SPEs generally meet the criteria of VIEs; however, the SPEs are generally not consolidated as Jefferies Group is not considered the primary beneficiary for these SPEs. 


Jefferies Group accounts for securitization transactions as sales, provided it has relinquished control over the transferred assets. Transferred assets are carried at fair value with unrealized gains and losses reflected in Principal transactions revenues in the Consolidated


Statements of Operations prior to the identification and isolation for securitization. Subsequently, revenues recognized upon securitization are reflected as net underwriting revenues. Jefferies Group generally receives cash proceeds in connection with the transfer of assets to an SPE. Jefferies Group 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 CLOs), which are included in Trading assets and are generally initially categorized as Level 2 within the fair value hierarchy. Jefferies Group applies fair value accounting to the securities. 
The following table presents activity related to Jefferies Group's securitizations that were accounted for as sales in which it had continuing involvement (in millions):
For the Three Months Ended September 30, For the Nine Months Ended September 30,For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017
2016 2017 20162018
2017 2018 2017
Transferred assets$1,009.1
 $1,390.7
 $2,677.7
 $4,523.5
$1,865.5
 $1,009.1
 $5,665.9
 $2,677.7
Proceeds on new securitizations$1,017.2
 $1,394.0
 $2,703.3
 $4,541.3
$1,866.2
 $1,017.2
 $5,668.6
 $2,703.3
Cash flows received on retained interests$8.7
 $6.3
 $22.7
 $24.9
$17.2
 $8.7
 $35.7
 $22.7

Jefferies Group has no explicit or implicit arrangements to provide additional financial support to these SPEs, has no liabilities related to these SPEs and has no outstanding derivative contracts executed in connection with these securitization activities at September 30, 20172018 and December 31, 2016.2017.

The following table summarizes Jefferies Group's retained interests in SPEs where it transferred assets and has continuing involvement and received sale accounting treatment (in millions):
September 30, 2017 December 31, 2016September 30, 2018 December 31, 2017
Securitization Type
Total
Assets
 
Retained
Interests
 
Total
Assets
 
Retained
Interests
Total
Assets
 
Retained
Interests
 
Total
Assets
 
Retained
Interests
U.S. government agency residential mortgage-backed securities$5,584.5
 $13.9
 $7,584.9
 $31.0
$13,306.0
 $192.7
 $6,383.5
 $28.2
U.S. government agency commercial mortgage-backed securities$2,103.7
 $46.9
 $1,806.3
 $29.6
$2,101.5
 $276.1
 $2,075.7
 $81.4
CLOs$2,936.1
 $19.6
 $4,102.2
 $37.0
$3,442.3
 $26.4
 $3,957.8
 $20.3
Consumer and other loans$301.4
 $57.0
 $395.7
 $25.3
$648.9
 $53.0
 $247.6
 $47.8
Total assets represent the unpaid principal amount of assets in the SPEs in which Jefferies Group has continuing involvement and are presented solely to provide information regarding the size of the transactions and the size of the underlying assets supporting its 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. Jefferies Group's risk of loss is limited to this fair value amount which is included in total Trading assets in our Consolidated Statements of Financial Condition.
Although not obligated, in connection with secondary market-making activities Jefferies Group may make a market in the securities issued by these SPEs. In these market-making transactions, Jefferies Group buys these securities from and sells these securities to investors. Securities purchased through these market-making activities are not considered to be continuing involvement in these SPEs. To the extent Jefferies Group purchased securities through these market-making activities and Jefferies Group is not deemed to be the primary beneficiary of the VIE, these securities are included in agency and non-agency mortgage- and asset-backed securitizations in the nonconsolidated VIEs section presented in Note 8.

If Jefferies has not relinquished control over the transferred assets, the assets continue to be recognized in Trading assets and a corresponding liability is recognized in Other secured financings. The carrying values of both the assets and the liabilities resulting from transfers of financial assets treated as secured financings were $11.0 million at September 30, 2017. Jefferies did not have any such assets and liabilities at December 31, 2016. The related liabilities do not have recourse to our general credit.
Foursight Capital also utilizedutilizes SPEs to securitize automobile loans receivable. These SPEs are VIEs and our subsidiary is the primary beneficiary; the related assets and the secured borrowings are recognized in the Consolidated Statements of Financial Condition. These secured borrowings do not have recourse to our subsidiary’s general credit. See Note 8 for further information on securitization activities and VIEs.


Note 7.  Available for Sale Securities and Other Investments

The amortized cost, gross unrealized gains and losses and estimated fair value of investments classified as available for sale are as follows (in thousands):
Amortized
Cost		 Gross
Unrealized
Gains		 Gross
Unrealized
Losses		 Estimated
Fair
Value		Amortized
Cost		 Gross
Unrealized
Gains		 Gross
Unrealized
Losses		 Estimated
Fair
Value
September 30, 2017       
September 30, 2018       
Bonds and notes:              
U.S. government securities$345,745
 $15
 $20
 $345,740
$1,608,076
 $2
 $353
 $1,607,725
Residential mortgage-backed securities36,925
 235
 70
 37,090
147,294
 138
 754
 146,678
Commercial mortgage-backed securities10,892
 38
 22
 10,908
16,049
 —
 330
 15,719
Other asset-backed securities33,150
 97
 22
 33,225
98,543
 9
 254
 98,298
All other corporates179
 —
 —
 179
Total fixed maturities1,869,962
 149
 1,691
 1,868,420
       
Total Available for sale securities$1,869,962
 $149
 $1,691
 $1,868,420
 
  
  
  
December 31, 2017 
  
  
  
Bonds and notes: 
  
  
  
U.S. government securities$552,847
 $—
 $42
 $552,805
Residential mortgage-backed securities34,381
 272
 92
 34,561
Commercial mortgage-backed securities5,857
 17
 4
 5,870
Other asset-backed securities34,837
 46
 44
 34,839
Total fixed maturities426,891
 385
 134
 427,142
627,922
 335
 182
 628,075
              
Equity securities: 
  
  
  
 
  
  
  
Common stocks: 
  
  
  
 
  
  
  
Banks, trusts and insurance companies35,071
 18,428
 —
 53,499
35,071
 17,500
 —
 52,571
Industrial, miscellaneous and all other17,836
 22,020
 —
 39,856
17,504
 18,411
 —
 35,915
Total equity securities52,907
 40,448
 —
 93,355
52,575
 35,911
 —
 88,486
              
$479,798
 $40,833
 $134
 $520,497
       
December 31, 2016 
  
  
  
Bonds and notes: 
  
  
  
U.S. government securities$174,938
 $8
 $13
 $174,933
Residential mortgage-backed securities19,129
 108
 104
 19,133
Commercial mortgage-backed securities8,275
 64
 2
 8,337
Other asset-backed securities18,918
 124
 —
 19,042
All other corporates180
 —
 1
 179
Total fixed maturities221,440
 304
 120
 221,624
       
Equity securities: 
  
  
  
Common stocks: 
  
  
  
Banks, trusts and insurance companies35,071
 15,115
 —
 50,186
Industrial, miscellaneous and all other17,946
 11,293
 —
 29,239
Total equity securities53,017
 26,408
 —
 79,425
       
$274,457
 $26,712
 $120
 $301,049
Total Available for sale securities$680,497
 $36,246
 $182
 $716,561

As of January 1, 2018, the Company adopted the FASB's new guidance that affects the accounting for equity investments and the presentation and disclosure requirements for financial instruments. At September 30, 2018, equity investments are primarily classified as Trading assets, at fair value and the change in fair value of equity securities is now recognized through the Consolidated Statements of Operations. See Note 2 for additional information.

At September 30, 2018, the Company had other investments (classified as Other assets and Loans to and investments in associated companies) in which fair values are not readily determinable, aggregating $233.7 million. There were no unrealized gains, losses or impairments recognized on these investments during the three and nine months ended September 30, 2018.



The amortized cost and estimated fair value of investments classified as available for sale at September 30, 2017,2018, by contractual maturity, are shown below. Expected maturities are likely to differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Amortized
Cost
 
Estimated
Fair Value
Amortized
Cost
 
Estimated
Fair Value
(In thousands)(In thousands)
Due within one year$345,745
 $345,740
$1,608,076
 $1,607,725
Due after one year through five years179
 179
345,924
 345,919
1,608,076
 1,607,725
Mortgage-backed and asset-backed securities80,967
 81,223
261,886
 260,695
$426,891
 $427,142
$1,869,962
 $1,868,420

At September 30, 2017,2018, the unrealized losses on investments which have been in a continuous unrealized loss position 12 months or longer were not significant.



Note 8.  Variable Interest Entities
VIEs are entities in which equity investors lack the characteristics of a controlling financial interest. VIEs are consolidated by the primary beneficiary. The primary beneficiary is the party who has both (1) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (2) an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant to the entity.
Our variable interests in VIEs include debt and equity interests, equity interests in associated companies, commitments, guarantees and certain fees. Our involvement with VIEs arises primarily from the following activities, but also includes other activities discussed below:
Purchases of securities in connection with our trading and secondary market-making activities;
Retained interests held as a result of securitization activities, including the resecuritization of mortgage- 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;
Real estate investments;
WarehousingWarehouse funding arrangements for client-sponsored consumer loan vehicles and CLOs through participation certificates, forward sales agreements and revolving loan and note commitments; and
Loans to, investments in and fees from various investment vehicles.
We determine whether we are the primary beneficiary of a VIE upon our initial involvement with the VIE and we reassess whether we are the primary beneficiary of a VIE on an ongoing basis. Our determination of whether we are the primary beneficiary of a VIE is based upon the facts and circumstances for each VIE and requires 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 significant activities is shared, we assess whether we are the party with the power over the most significant activities. If we are the party with the power over the most significant activities, we meet the "power" criteria of the primary beneficiary. If we do not have the power over the most significant activities or we determine that decisions require consent of each sharing party, we do not meet the "power" criteria of the primary beneficiary.
We assess our variable interests in a VIE both individually and in aggregate to determine whether we have an obligation to absorb losses of or a right to receive benefits from the VIE that could potentially be significant to the VIE. The determination of whether our variable interest is significant to the VIE requires 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 the assets and liabilities of our consolidated securitization vehicles VIEs, which are presented in our Consolidated Statements of Financial Condition in the respective asset and liability categories (in millions). The assets and liabilities in the table below are presented prior to consolidation and thus a portion of these assets and liabilities are eliminated in consolidation.
September 30, 2017 December 31, 2016
Securitization Vehicles Real Estate Investment Vehicles Securitization Vehicles Real Estate Investment VehiclesSeptember 30, 2018 December 31, 2017
Cash$8.2
 $1.6
 $18.4
 $2.2
$—
 $11.7
Financial instruments owned44.5
 —
 86.6
 —
—
 37.6
Securities purchased under agreement to resell (1)546.7
 —
 733.5
 —
1,043.4
 729.3
Receivables353.0
 281.0
 277.7
 296.9
453.2
 318.1
Loans to and investments in associated companies—
 113.5
 —
 108.7
Other19.9
 4.4
 14.5
 10.8
25.8
 15.5
Total assets$972.3
 $400.5
 $1,130.7
 $418.6
$1,522.4
 $1,112.2
          
Other secured financings (2)$930.8
 $—
 $1,083.8
 $—
$1,478.3
 $1,073.5
Long-term debt—
 217.2
 24.1
 243.9
Other (3)41.6
 11.3
 22.3
 11.7
44.1
 38.3
Total liabilities$972.4
 $228.5
 $1,130.2
 $255.6
$1,522.4
 $1,111.8
       
Noncontrolling interests$—
 $104.1
 $—
 $98.7

(1)Securities purchased under agreementagreements to resell represent an amount due under a collateralized transaction on a related consolidated entity, which is eliminated in consolidation.
(2)Approximately $49.2$37.7 million and $57.6$44.1 million of the secured financing representsfinancings represent an amount held by Jefferies Group in inventory and eliminated in consolidation at September 30, 20172018 and December 31, 2016,2017, respectively.
(3)
Includes $36.431.1 million and $20.032.0 million at September 30, 20172018 and December 31, 2016,2017, respectively, of intercompany payables that are eliminated in consolidation.

Securitization Vehicles.  Jefferies Group is the primary beneficiary of mortgage-backedasset-backed financing vehicles to which Jefferies Group sells agency and non-agency residential and commercial mortgage loans, and mortgage-backed securities and consumer loans pursuant to the terms of a master repurchase agreement. Jefferies Group manages the assets within these vehicles. Jefferies Group's variable interests in these vehicles consist of its collateral margin maintenance obligations under the master repurchase agreement and retained interests in securities issued. The assets of these VIEs consist of reverse repurchase agreements, which are available for the benefit of the vehicle’s debt holders. The creditors of these VIEs do not have recourse to Jefferies Group's general credit and each such VIE’s assets are not available to satisfy any other debt.

Jefferies is alsoGroup was previously the primary beneficiary of a securitization vehiclesvehicle associated with their financing of consumer and small business loans. In the creation of the securitization vehicles,vehicle, Jefferies Group was involved in the decisions made during the establishment and design of the entitiesentity and holds variable interests consisting of the securities retained that could potentially be significant. The assets of the VIEs consistVIE consisted of the small business loans, and term loans backed by consumer installment receivables, which arewere available for the benefit of the vehicles' beneficial interest holders. The creditors of the VIEs doVIE did not have recourse to Jefferies Group's general credit and the assets of the VIEs areVIE were not available to satisfy any other debt.

At September 30, 20172018 and December 31, 2016,2017, Foursight Capital is the primary beneficiary of SPEs it utilized to securitize automobile loans receivable. Foursight Capital acts as the servicer for which it receives a fee, and owns an equity interest in the SPEs. The notes issued by the SPEs are secured solely by the assets of the SPEs and do not have recourse to Foursight Capital’s general credit and the assets of the VIEs are not available to satisfy any other debt. During the nine months ended September 30, 2017, a pool of2018, automobile loan receivables aggregating $186.5$290.9 million waswere securitized by Foursight Capital in connection with a secured borrowing offering. The majority of the proceeds from issuance of the secured borrowing were used to pay down Foursight Capital’s two credit facilities.



Real Estate Investment Vehicles. 54 Madison, which we consolidate as a result of our control of the 54 Madison investment committee, has real estate investments in which it is the primary beneficiary. 54 Madison was involved in the decisions made during the establishment and design of the investment entities. 54 Madison variable interests consist of its investment in and management of the assets within these entities. The assets of these VIEs consist primarily of financing note receivables and investments in associated companies, which are available for the benefit of the VIEs' debt holders. The debt holders of these VIEs have recourse to 54 Madison's general credit and the assets of the VIEs are not available to satisfy any other debt.

Nonconsolidated VIEs

The following tables present information about our variable interests in nonconsolidated VIEs (in millions):
Financial Statement
Carrying Amount
 
Maximum
Exposure to Loss
 VIE Assets
Financial Statement
Carrying Amount
 
Maximum
Exposure to Loss
 VIE Assets
Assets Liabilities Assets Liabilities 
  
September 30, 2017       
September 30, 2018       
CLOs$62.7
 $1.9
 $800.1
 $3,540.8
$57.0
 $0.7
 $784.0
 $3,348.0
Consumer loan vehicles195.8
 —
 761.9
 2,287.2
323.5
 —
 602.4
 3,441.8
Related party private equity vehicles28.1
 —
 49.8
 106.3
34.1
 —
 52.0
 107.2
Real estate investment vehicles88.3
 —
 99.7
 83.9
Other private investment vehicles132.6
 —
 142.7
 4,840.2
160.4
 —
 170.8
 5,324.2
Total$507.5
 $1.9
 $1,854.2
 $10,858.4
$575.0
 $0.7
 $1,609.2
 $12,221.2
              
December 31, 2016 
  
  
  
December 31, 2017 
  
  
  
CLOs$264.7
 $4.8
 $930.0
 $4,472.9
$168.1
 $8.9
 $1,030.4
 $5,364.3
Consumer loan vehicles90.3
 —
 219.6
 985.5
254.8
 —
 759.8
 2,322.7
Related party private equity vehicles37.6
 —
 63.6
 155.6
23.7
 —
 45.4
 75.0
Real estate investment vehicles90.3
 —
 101.8
 85.6
Other private investment vehicles84.0
 —
 95.8
 4,529.7
133.0
 —
 142.0
 4,624.9
Total$566.9
 $4.8
 $1,410.8
 $10,229.3
$579.6
 $8.9
 $1,977.6
 $12,386.9

Our maximum exposure to loss often differs from the carrying value of the variable interests. The maximum exposure to loss is dependent on the nature of the variable interests in the VIEs and is limited to the notional amounts of certain loan and equity commitments and guarantees. Our maximum exposure to loss does not include the offsetting benefit of any financial instruments that may be utilized to hedge the risks associated with its variable interests and is not reduced by the amount of collateral held as part of a transaction with a VIE.
Collateralized Loan Obligations. Assets collateralizing the CLOs include bank loans, participation interests and sub-investment grade and senior secured U.S. loans. Jefferies Group underwrites securities issued in CLO transactions on behalf of sponsors and provides advisory services to the sponsors. Jefferies Group may also sell corporate loans to the CLOs. Jefferies Group's variable interests in connection with CLOs where it has been involved in providing underwriting and/or advisory services consist of the following:
Forward sale agreements whereby Jefferies Group commits to sell, at a fixed price, corporate loans and ownership interests in an entity holding such corporate loans to CLOs;
Warehouse funding arrangements in the form of participation interests in corporate loans held by CLOs and commitments to fund such participation interests;
Trading positions in securities issued in a CLO transaction; and
Investments in variable funding notes issued by CLOs; and
A guarantee to a CLO managed by Jefferies Finance, whereby Jefferies guarantees certain of the obligations of Jefferies Finance to the CLO.CLOs.

Consumer Loan Vehicles. Jefferies Group provides financing and lending related services to certain client-sponsored VIEs in the form of revolving funding note agreements, revolving credit facilities and forward purchase agreements. The underlying assets, which are collateralizing the vehicles, are primarily composed of unsecured consumer and small business loans. In addition, Jefferies Group may provide structuring and advisory services and act as an underwriter or placement agent for securities issued by the vehicles. Jefferies Group does not control the activities of these entities.



Related Party Private Equity Vehicles. Jefferies Group committed to invest equity in private equity funds (the "JCP Funds") managed by Jefferies Capital Partners, LLC (the "JCP Manager"). Additionally, Jefferies Group committed to invest equity in the general partners of the JCP Funds (the "JCP General Partners") and the JCP Manager. Jefferies Group's variable interests in the JCP Funds, JCP General Partners and JCP Manager (collectively, the "JCP Entities") consist of equity interests that, in total, provide Jefferies Group with limited and general partner investment returns of the JCP Funds, a portion of the carried interest earned by the JCP General Partners and a portion of the management fees earned by the JCP Manager. At September 30, 2018 and December 31, 2017, Jefferies Group's total equity commitment in the JCP Entities was $139.3 million and $148.1 million, respectively, of which $126.3$121.3 million and $125.1$126.3 million had been funded, as of September 30, 2017 and December 31, 2016, respectively. The carrying value of Jefferies Group's equity investments in the JCP Entities was $28.1$34.1 million and $37.6$23.7 million at September 30, 20172018 and December 31, 2016,2017, respectively. Jefferies Group's exposure to loss is limited to the total of its carrying value and unfunded equity commitment. The assets of the JCP Entities primarily consist of private equity and equity related investments.

Jefferies has also provided a guarantee of a portion of Energy Partners I, LP's obligations under a credit agreement (“Energy Partners Credit Agreement”). Energy Partners I, LP, is a private equity fund owned and managed by certain of our employees. The maximum exposure to loss of the guarantee was $3.0 million at December 31, 2016. Energy Partners I, LP has assets consisting primarily of debt and equity investments. The Energy Partners Credit Agreement was terminated in April 2017.

Real Estate Investment Vehicles. 54 Madison has committed to invest $98.0 million in real estate investment vehicles, of which $86.5 million was funded as of September 30, 2017. 54 Madison's maximum exposure to loss is limited to its carrying value and unfunded equity commitment. 54 Madison is not the primary beneficiary of the investment vehicles as it does not have the power to control the most important activities of the VIEs. The assets of the VIEs consist primarily of investments in real estate projects.

Other Private Investment Vehicles.  The carrying amount of our equity investment was $132.6$160.4 million and $84.0$133.0 million at September 30, 20172018 and December 31, 2016,2017, respectively. Our unfunded equity commitment related to these investments totaled $10.1$10.3 million and $11.8$9.1 million at September 30, 20172018 and December 31, 2016,2017, respectively. Our exposure to loss is limited to the total of our carrying value and unfunded equity commitment. These private investment vehicles have assets primarily consisting of private and public equity investments, debt instruments and various oil and gas assets.

Mortgage- and Other Asset-Backed Securitization Vehicles. In connection with Jefferies Group's secondary trading and market-making activities, Jefferies Group buys and sells agency and non-agency mortgage-backed securities and other asset-backed securities, which are issued by third partythird-party securitization SPEs and are generally considered variable interests in VIEs. Securities issued by securitization SPEs are backed by residential mortgage loans, U.S. agency collateralized mortgage obligations, commercial mortgage loans, CDOs and CLOs and other consumer loans, such as installment receivables, auto loans and student loans. These securities are accounted for at fair value and included in Trading assets in our Consolidated Statements of Financial Condition. Jefferies Group has no other involvement with the related SPEs and therefore does not consolidate these entities.

Jefferies Group also engages in underwriting, placement and structuring activities for third-party-sponsored securitization trusts generally through agency (FNMA ("Fannie Mae"), Federal Home Loan Mortgage Corporation ("Freddie Mac") or GNMA ("Ginnie Mae")) or non-agency-sponsored SPEs and may purchase loans or mortgage-backed securities from third parties that are subsequently transferred into the securitization trusts. The securitizations are backed by residential and commercial mortgage, home equity and auto loans. Jefferies Group does not consolidate agency-sponsored securitizations as it does not have the power to direct the activities of the SPEs that most significantly impact their economic performance. Further, Jefferies Group is not the servicer of non-agency-sponsored securitizations and therefore does not have power to direct the most significant activities of the SPEs and accordingly, does not consolidate these entities. Jefferies Group may retain unsold senior and/or subordinated interests at the time of securitization in the form of securities issued by the SPEs.

Jefferies Group transfers existing securities, typically mortgage-backed securities, into resecuritization vehicles. These transactions in which debt securities are transferred to a VIE in exchange for new beneficial interests occur in connection with both agency and non-agency-sponsored VIEs. The consolidation analysis is largely dependent on Jefferies Group's role and interest in the resecuritization trusts. Most resecuritizations in which Jefferies Group is involved are in connection with investors seeking securities with specific risk and return characteristics. As such, Jefferies Group has concluded that the decision-making power is shared between Jefferies Group and the investor(s), considering the joint efforts involved in structuring the trust and selecting the underlying assets as well as the level of security interests the investor(s) hold in the SPE; therefore, Jefferies Group does not consolidate the resecuritization VIEs.

At September 30, 20172018 and December 31, 2016,2017, Jefferies Group held $2,026.7$2,622.2 million and $1,002.2$1,829.6 million of agency mortgage-backed securities, respectively, and $272.4$156.6 million and $439.4$253.2 million of non-agency mortgage- and other asset-backed securities, respectively, as a result of its secondary trading and market-making activities, underwriting, placement and structuring activities and resecuritization activities. Jefferies Group's maximum exposure to loss on these securities is limited to the carrying value of its investments in these securities. Mortgage-These mortgage- and other asset-backed securitization vehicles discussed within this section are not included in the above table containing information about Jefferies Group's variable interests in nonconsolidated VIEs.



We also have a variable interest in a nonconsolidated VIE consisting of our equity interest in an associated company, Golden Queen.Queen Mining Company, LLC ("Golden Queen"). In addition, we have a variable interest in a nonconsolidated VIE consisting of our senior secured term loan receivable and equity interest in FXCM.  See Notes 3 and 9 for further discussion.



Note 9.  Loans to and Investments in Associated Companies

A summary of Loans to and investments in associated companies accounted for under the equity method of accounting during the nine months ended September 30, 20172018 and 20162017 is as follows (in thousands):

Loans to and investments in associated companies as of January 1, Income (losses) related to associated companies Income (losses) related to Jefferies associated companies (1) Contributions to (distributions from) associated companies, net Other, including foreign exchange and unrealized gains (losses) Loans to and investments in associated companies as of September 30,Loans to and investments in associated companies as of January 1, Income (losses) related to associated companies Income (losses) related to Jefferies Group's associated companies (1) Contributions to (distributions from) associated companies, net Other Loans to and investments in associated companies as of September 30,
           
2018           
Jefferies Finance$655,467
 $—
 $36,497
 $43,470
 $—
 $735,434
National Beef (2)—
 83,287
 —
 (48,656) 592,239
 626,870
Berkadia210,594
 80,092
 —
 (42,064) (1,054) 247,568
FXCM (3)158,856
 (19,322) —
 —
 (513) 139,021
Garcadia companies (4)179,143
 21,646
 —
 (26,962) (173,827) —
Linkem192,136
 (20,534) —
 542
 (3,601) 168,543
HomeFed341,874
 (3,338) —
 —
 —
 338,536
Golden Queen (2)(5)105,005
 (52,028) —
 8,441
 —
 61,418
Other223,754
 (5,483) (5,810) (69,071) (9,879) 133,511
Total$2,066,829
 $84,320
 $30,687
 $(134,300) $403,365
 $2,450,901
                      
2017                      
Jefferies Finance$490,464
 $—
 $63,685
 $109,899
 $—
 $664,048
$490,464
 $—
 $63,685
 $109,899
 $—
 $664,048
Jefferies LoanCore154,731
 —
 8,030
 43,714
 1,095
 207,570
154,731
 —
 8,030
 43,714
 1,095
 207,570
Berkadia184,443
 67,979
 —
 (52,300) (174) 199,948
184,443
 67,979
 —
 (52,300) (174) 199,948
FXCM336,258
 (166,360) —
 —
 731
 170,629
Garcadia Companies185,815
 38,536
 —
 (40,955) —
 183,396
Linkem154,000
 (26,557) —
 31,996
 33,979
 193,418
HomeFed302,231
 9,922
 —
 31,918
 —
 344,071
Golden Queen (2)(5)111,302
 (3,684) —
 (59) —
 107,559
54 Madison (3)161,400
 (4,495) —
 21,159
 —
 178,064
Other44,454
 246
 (6,392) 58,477
 5,492
 102,277
Total$2,125,098
 $(84,413) $65,323
 $203,849
 $41,123
 $2,350,980
           
2016           
Jefferies Finance$528,575
 $—
 $(26,000) $(19,300) $—
 $483,275
Jefferies LoanCore288,741
 —
 11,186
 (133,635) —
 166,292
Berkadia190,986
 59,456
 —
 (70,847) 291
 179,886
FXCM—
 —
 —
 —
 334,500
 334,500
Garcadia Companies172,660
 43,501
 —
 (22,562) —
 193,599
FXCM (3)336,258
 (166,360) —
 —
 731
 170,629
Garcadia companies185,815
 38,536
 —
 (40,955) —
 183,396
Linkem150,149
 (20,709) —
 33,297
 4,155
 166,892
154,000
 (26,557) —
 31,996
 33,979
 193,418
HomeFed275,378
 23,146
 —
 —
 —
 298,524
302,231
 9,922
 —
 31,918
 —
 344,071
Golden Queen114,323
 (1,608) —
 —
 —
 112,715
111,302
 (3,684) —
 (59) —
 107,559
54 Madison—
 3,389
 —
 123,731
 3,642
 130,762
Other36,557
 1,270
 (1,048) 5,265
 (3,401) 38,643
205,854
 (4,249) (6,392) 79,636
 5,492
 280,341
Total$1,757,369
 $108,445
 $(15,862) $(84,051) $339,187
 $2,105,088
$2,125,098
 $(84,413) $65,323
 $203,849
 $41,123
 $2,350,980

(1)Primarily classified in Investment banking revenues and Other revenues.
(2)As discussed more fully in Notes 1 and 24, in June 2018, we completed the sale of 48% of National Beef to Marfrig, reducing our ownership in National Beef to 31%. As of the closing of the sale on June 5, 2018, we deconsolidated our investment in National Beef and account for our remaining interest under the equity method of accounting. The carrying value of our retained 31% interest was adjusted to a fair value of $592.3 million on the date of sale.
(3)As further described in Note 3, our investment in FXCM includes both our equity method investment in FXCM and our term loan with FXCM. Our equity method investment is included as Loans to and investments in associated companies and our term loan is included as Trading assets, at fair value in our Consolidated Statements of Financial Condition.
(4)As more fully discussed in Note 1, during the third quarter of 2018, we sold 100% of our equity interests in Garcadia and our associated real estate to our former partners, the Garff family.
(5)At September 30, 20172018 and December 31, 2016,2017, the balance reflects $31.7$15.1 million and $32.8$30.5 million, respectively, related to a noncontrolling interest.
(3)At September 30, 2017 and December 31, 2016, the balance reflects $105.0 million and $95.3 million, respectively, related to noncontrolling interests.



Income (losses) related to associated companies includes the following (in thousands):
For the Three Months Ended September 30, For the Nine Months Ended September 30,For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 2017 20162018 2017 2018 2017
National Beef$58,886
 $—
 $83,287
 $—
Berkadia$34,839
 $26,004
 $67,979
 $59,456
28,350
 34,839
 80,092
 67,979
FXCM(4,345) —
 (166,360) —
(4,282) (4,345) (19,322) (166,360)
Garcadia companies12,565
 14,233
 38,536
 43,501
691
 12,565
 21,646
 38,536
Linkem(9,533) (5,836) (26,557) (20,709)(7,770) (9,533) (20,534) (26,557)
HomeFed238
 800
 9,922
 23,146
(7,783) 238
 (3,338) 9,922
Golden Queen(1,975) 56
 (3,684) (1,608)(48,732) (1,975) (52,028) (3,684)
54 Madison(331) 906
 (4,495) 3,389
Other(1,401) 340
 246
 1,270
(493) (1,732) (5,483) (4,249)
Total$30,057
 $36,503
 $(84,413) $108,445
$18,867
 $30,057
 $84,320
 $(84,413)

Income (losses) related to Jefferies Group's associated companies (primarily classified in Investment banking revenues and Other revenues) includes the following (in thousands):
For the Three Months Ended September 30, For the Nine Months Ended September 30,For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 2017 20162018 2017 2018 2017
Jefferies Finance$13,509
 $12,481
 $63,685
 $(26,000)$5,931
 $13,509
 $36,497
 $63,685
Jefferies LoanCore1,656
 3,172
 8,030
 11,186
—
 1,656
 —
 8,030
Other(4,337) (263) (6,392) (1,048)(78) (4,337) (5,810) (6,392)
Total$10,828
 $15,390
 $65,323
 $(15,862)$5,853
 $10,828
 $30,687
 $65,323

Jefferies Finance

Through Jefferies Group, we own 50% of Jefferies Finance aLLC ("Jefferies Finance"), our joint venture entity pursuant to an agreement with Massachusetts Mutual Life Insurance Company(“MassMutual”Company ("MassMutual"),. Jefferies Finance is a commercial finance company whose primary focus is the origination and syndication of senior secured debt to middle market and growth companies in the form of term and revolving loans. Loans are originated primarily through the investment banking efforts of Jefferies.Jefferies Group. Jefferies Finance may also originate other debt products such as second lien term, bridge and mezzanine loans, as well as related equity co-investments. Jefferies Finance also purchases syndicated loans in the secondary market and acts as an investment advisor for various loan funds.

In July 2017, the Jefferies equity commitment to Jefferies Finance was increased by $150.0 million to $750.0 million, of which Jefferies contributed $74.8 million in July 2017. At September 30, 2017,2018, Jefferies Group and MassMutual each had equity commitments to Jefferies Finance of $750.0 million. At September 30, 2017, $612.12018, $706.5 million of Jefferies Group's commitment was funded. The investment commitment is scheduled to expire on March 1, 20182019 with automatic one year extensions absent a 60-day termination notice by either party.

In addition, Jefferies and MassMutual have entered intoFinance has executed a Secured Revolving Credit Facility with Jefferies Group and MassMutual, to be funded equally, to support loan underwritings by Jefferies Finance.  The Secured Revolving Credit FacilityFinance, which bears interest based on the interest rates of the related Jefferies Finance underwritten loans and is secured by the underlying loans funded by the proceeds of the facility. The total Secured Revolving Credit Facility is for a total committed amount of $500.0 million at September 30, 20172018 and December 31, 2016.2017. Advances are shared equally between Jefferies Group and MassMutual. The facility is scheduled to mature on March 1, 20182019 with automatic one year extensions absent a 60-day termination notice by either party. At September 30, 20172018 and December 31, 2016, $35.1 million and $0.0 million, respectively,2017, none of Jefferies Group's $250.0 million commitment was funded. Jefferies Group recognized interest income and unfunded commitment fees related to the facility of $0.3 million and $0.5 million during the three months ended September 30, 2018 and 2017, respectively, and $2.0 million and $3.3 million during the nine months ended September 30, 2018 and 2017, respectively.

Jefferies Group engages in debt capital markets transactions with Jefferies Finance related to the originations and syndications of loans by Jefferies Finance. In connection with such services, Jefferies Group earned fees of $104.2$71.1 million and $19.0$104.2 million during the three months ended September 30, 20172018 and 2016,2017, respectively, and $243.5$282.1 million and $42.1$243.5 million during the nine months ended September 30, 20172018 and 2016,2017, respectively, which are recognized in Investment banking revenues in the Consolidated Statements of Operations. In addition, Jefferies Group paid fees to Jefferies Finance in respect of certain loans originated by Jefferies Finance of $2.5$12.1 million and $1.6$0.0 million during the three months ended September 30, 2018 and 2017, respectively, and $45.5 million and $2.5 million during the nine months ended September 30, 20172018 and 2016,2017, respectively, which are recognized within Selling, general and other expenses in the Consolidated Statements of Operations.



Jefferies Group acts as a placement agent for CLOs managed by Jefferies Finance, for which Jefferies Group recognized fees of $0.8$0.4 million and $1.3$0.8 million during the three months ended September 30, 20172018 and 2016,2017, respectively, and $4.7$3.1 million and $1.3$4.7 million during the nine months ended September 30, 20172018 and 2016,2017, respectively, which are included in Investment banking revenues in the Consolidated Statements of Operations. At September 30, 20172018 and December 31, 2016,2017, Jefferies Group held securities issued by CLOs managed by Jefferies Finance, which are included in Trading assets, and provided a guarantee, wherebyassets. Additionally, Jefferies is required to make certain payments to a CLO in the event Jefferies Finance is unable to meet its obligations to the CLO.  Additionally, JefferiesGroup has entered into participation agreements and derivative contracts with Jefferies Finance based upon certain securities issued by the CLO. Gains (losses) related to the derivative contracts were not material.

Under a service agreement, Jefferies Group charged Jefferies Finance $7.9$13.3 million and $7.2$7.9 million for services provided during the three months ended September 30, 20172018 and 2016,2017, respectively, and $37.4$48.3 million and $35.8$37.4 million for services provided during the nine months ended September 30, 2018 and 2017, and 2016, respectively.respectively, for services provided. At September 30, 2017,2018, Jefferies Group had a receivable from Jefferies Finance, included in Other assets in the Consolidated Statement of Financial Condition, of $22.5 million. At December 31, 2016, Jefferies had$36.3 million and a payable to Jefferies Finance, included in Payables, expense accruals and other liabilities in the Consolidated Statement of Financial Condition of $5.8$14.1 million. At December 31, 2017, Jefferies Group had a receivable from Jefferies Finance, included in Other assets in the Consolidated Statement of Financial Condition, of $34.6 million and a payable to Jefferies Finance, included in Payables, expense accruals and other liabilities in the Consolidated Statement of Financial Condition, of $14.1 million.

Jefferies Group enters into OTC foreign exchange contracts with Jefferies Finance. In connection with these contracts Jefferies Group had $0.2 million recorded in Payables, expense accruals and other liabilities and $1.5 million included in Trading assets in our Consolidated Statements of Financial Condition at September 30, 2018 and December 31, 2017, respectively.

Jefferies LoanCore

Jefferies LoanCore, a commercial real estate finance company isand a joint venture with the Government of Singapore Investment Corporation, the Canada Pension Plan Investment Board and LoanCore, LLC. Jefferies LoanCoreLLC, originates and purchases commercial real estate loans throughout the U.S. and Europe. Jefferies LoanCore aggregate equity commitment was $400.0 million at September 30, 2017 and December 31, 2016.  At September 30, 2017 and December 31, 2016, Jefferies had funded $130.6 million and $70.1 million, respectively, of its $194.0 million equity commitment, and has a 48.5% voting interest in Jefferies LoanCore.
Jefferies LoanCore has entered into master repurchase agreements with Jefferies. Jefferies recognized interest income and fees related to these agreements of $1.8 million and $6.9 million, during the three and nine months ended September 30, 2016, respectively. Amounts for the 2017 periods were not material. In connection with such master repurchase agreements, at December 31, 2016, Jefferies had securities purchased with agreements to resell from Jefferies LoanCore of $68.1 million. Jefferies also enters into OTC foreign exchange contracts with Jefferies LoanCore. In connection with these contracts, Jefferies had $5.0 million and $8.3 million at September 30, 2017 and December 31, 2016, respectively, recorded in Payables, expense accruals and other liabilities in the Consolidated Statements of Financial Condition.
On October 31, 2017, Jefferies Group sold all of its membership interests (which constituted a 48.5% voting interest) in Jefferies LoanCore for approximately $170$173.1 million, the estimated book value as of October 31, 2017. In addition, Jefferies Group may be entitled to additional cash consideration over the next five years in the event Jefferies LoanCore's yearly return on equity exceeds certain thresholds.

National Beef

National Beef processes and markets fresh and chilled boxed beef, ground beef, beef by-products, consumer-ready beef and pork, and wet blue leather for domestic and international markets. As discussed in Notes 1 and 24, on June 5, 2018, we completed the sale of 48% of National Beef to Marfrig, reducing our ownership in National Beef to 31%. As of the closing of the sale on June 5, 2018, we deconsolidated our investment in National Beef and account for our remaining interest under the equity method of accounting.

As required as a result of the deconsolidation of National Beef, we adjusted the carrying value of our retained 31% interest in National Beef to fair value. The fair value of our retained 31% interest in National Beef of $592.3 million was based on the implied equity value of 100% of National Beef from the transaction with Marfrig. The transaction with Marfrig was based on a $1.9 billion equity valuation and a $2.3 billion enterprise valuation for 100% of National Beef. The fair value was allocated to the tangible and intangible assets of National Beef and a number of assets including customer relationships, tradenames, cattle supply contracts and property, plant and equipment had fair values higher than book values. As we recognize our share of National Beef's income going forward, the difference between the estimated fair value and the underlying book value of National Beef's customer relationships, tradenames, cattle supply contracts and property, plant and equipment will be amortized over their respective useful lives (weighted average life of 15 years).

Berkadia

Berkadia is a commercial mortgage banking and servicing joint venture formed in 2009 with Berkshire Hathaway.Hathaway Inc. We and Berkshire Hathaway each contributed $217.2 million of equity capital to the joint venture and each have a 50% equity interest in Berkadia.  Through September 30, 2017, cumulative cash distributions received by Leucadia from this investment aggregated $546.9 million. Berkadia originates commercial/multifamily real estate loans that are sold to U.S. government agencies, and originates and brokers commercial/multifamily mortgage loans which are not part of government agency programs. Berkadia is an investment sales advisor focused on the multifamily industry. Berkadia is a servicer of commercial real estate loans in the U.S., performing primary, master and special servicing functions for U.S. government agency programs, commercial mortgage-backed securities transactions, banks, insurance companies and other financial institutions.



Berkadia uses all of the proceeds from the commercial paper sales of an affiliate of Berkadia to fund new mortgage loans, servicer advances, investments and other working capital requirements. Repayment of the commercial paper is supported by a $1.5 billion surety policy issued by a Berkshire Hathaway insurance subsidiary and corporate guaranty, and we have agreed to reimburse Berkshire Hathaway for one-half of any losses incurred thereunder. As of September 30, 2017,2018, the aggregate amount of commercial paper outstanding was $1.47 billion.

As discussed further in Note 1, on October 1, 2018, the Company's interest in Berkadia was transferred to Jefferies Group.

FXCM

As discussed more fully in Note 3, at September 30, 2017, Leucadia2018, Jefferies has a 49.9% common membership50% voting interest in FXCM and a senior secured term loan to FXCM due January 2018.2019. On September 1, 2016, we gained the ability to significantly influence


FXCM through our common membership interest and our seats on the board of directors. As a result, we classify our equity investment in FXCM in our Consolidated Statements of Financial Condition as Loans to and investments in associated companies. Our term loan remains classified within Trading assets, at fair value. We account for our equity interest in FXCM on a one month lag. We are amortizing our basis difference between the estimated fair value and the underlying book value of FXCM customer relationships, technology, trade name,tradename, leases and long-term debt over their respective useful lives.

During February 2017, Global Brokerage Holdings and FXCM's U.S. subsidiary, Forex Capital Markets LLC ("FXCM U.S.") settled complaints filed by the National Futures Association and the Commodity Futures Trading Commission ("CFTC") against FXCM U.S. and certain of its principals relating to matters that occurred between 2010 and 2014. As part of the settlements, FXCM U.S. withdrew from business and sold FXCM U.S.'s customer accounts. Based on the February 2017above actions, described further in Note 3, we evaluated in the first quarter of 2017 whether our equity method investment was fully recoverable. We engaged an independent valuation firm to assist management in estimating the fair value of FXCM. Our estimate of fair value was based on a discounted cash flow and comparable public company analysis. The result of our analysis indicated that the estimated fair value of our equity interest in FXCM was lower than our carrying value by $130.2 million. We concluded based on the regulatory actions, FXCM's restructuring plan, described further in Note 3, investor perception and declines in the trading price of Global Brokerage's common shares and convertible debt, that the decline in fair value of our equity interest was other than temporary. As such, we impaired our equity investment in FXCM in the first quarter of 2017 by $130.2 million.

FXCM is considered a VIE and our term loan and equity interest are variable interests. We have determined that we are not the primary beneficiary of FXCM because we do not have the power to direct the activities that most significantly impact FXCM's performance. Therefore, we do not consolidate FXCM.
Garcadia
Garcadia iswas a joint venture between us and Garff Enterprises, Inc. ("Garff") that ownsowned and operatesoperated 28 automobile dealerships comprised of domestic and foreign automobile makers. The Garcadia joint venture agreement specifiesspecified that we and Garff shall havehad equal board representation and equal votes on all matters affecting Garcadia, and that all operating cash flows from Garcadia willwould be allocated 65% to us and 35% to Garff, with the exception of one dealership from which we receivereceived 83% of all operating cash flows and four other dealerships from which we receivereceived 71% of all operating cash flows. Garcadia’s strategy iswas to acquire automobile dealerships in primary or secondary market locations meeting its specified return criteria. 
In the third quarter of 2018, we sold 100% of our equity interests in Garcadia and our associated real estate to our former partners, the Garff family, for $417.2 million in cash. The pre-tax gain recognized as a result of this transaction, $221.7 million for the three and nine months ended September 30, 2018, is classified as Other revenue.

Linkem

We own approximately 42% of the common shares of Linkem, a fixed wireless broadband services provider in Italy. In addition, we own approximately 63% of the 5% convertible preferred stock, which is automatically convertible to common shares in 2020.2022. If all of our convertible preferred stock was converted, it would increase our ownership to approximately 53%54% of Linkem’s common equity at September 30, 2017.  The excess2018. We have approximately 48% of our investment in Linkem’s common shares over our sharethe total voting securities of underlying book value is being amortized to expense over 12 years.Linkem.



HomeFed

At September 30, 2017,2018, we own 10,852,123 shares of HomeFed’s common stock, representing approximately 70% of HomeFed’s outstanding common shares; however, we have contractually agreed to limit our voting rights such that we will not be able to vote more than 45% of HomeFed’s total voting securities voting on any matter, assuming all HomeFed shares not owned by us are voted. HomeFed develops and owns residential and mixed-use real estate properties. HomeFed is a public company traded on the NASD OTC Bulletin Board (Symbol: HOFD). As a result of a 1998 distribution to all of our shareholders, approximately 4.8%5% of HomeFed is beneficially owned by our Chairman at September 30, 2017.2018. Three of our executives serve on the board of directors of HomeFed, including our Chairman who serves as HomeFed’s Chairman, and our President. Since we do not control HomeFed, our investment in HomeFed is accounted for under the equity method as an investment in an associated company. 

Golden Queen Mining Company

DuringSince 2014, and 2015, we invested $83.0$93.0 million,, net in cash in a limited liability company (Gauss LLC) to partner with the Clay family and Golden Queen Mining Co. Ltd., to jointly fund, develop and operate the Soledad Mountain gold and silver mine project.  Previously 100% owned by Golden Queen Mining Co. Ltd., the project is a fully-permitted, open pit, heap leach gold and silver project located in Kern County, California, which commenced gold and silver production in March 2016. In exchange for a noncontrolling ownership interest in Gauss LLC, the Clay family contributed $34.5 million, net in cash. Gauss LLC invested both our and the Clay family’s net contributions totaling $117.5$127.5 million to the joint venture, Golden Queen, in exchange for a 50% ownership interest. Golden Queen Mining Co. Ltd. contributed the Soledad Mountain project to the joint venture in exchange for the other 50% interest.



As a result of our consolidating Gauss LLC, our Loans to and investments in associated companies reflects Gauss LLC’s net investment of $117.5$127.5 million in the joint venture, which includes both the amount we contributed and the amount contributed by the Clay family. The joint venture, Golden Queen, is considered a VIE as the voting rights of the investors are not proportional to their obligations to absorb the expected losses and their rights to receive the expected residual returns, given the provision of services to the joint venture by Golden Queen Mining Co. Ltd.  Golden Queen Mining Co. Ltd. has entered into an agreement with the joint venture for the provision of executive officers, financial, managerial, administrative and other services, and office space and equipment.  Wewe have determined that we are not the primary beneficiary of the joint venture and are therefore not consolidating its results.

Our maximum exposure to loss as a result of our involvement with the joint venture is limited to our investment. The excess

In the third quarter of Gauss LLC's2018, Golden Queen completed an updated mine plan and financial projections reflecting lower grades of gold as well as a decrease in the market price of gold. As a result of lower projected cash flows, we engaged an independent valuation firm to assist management in estimating the fair value of our equity investment in Golden Queen's underlying bookQueen. Our estimate of fair value is being amortized to expense over the estimated life of mine gold and silver sales.

54 Madison

We own approximately 48.1% of 54 Madison, which we consolidate aswas based on a discounted cash flow analysis. The result of our controlanalysis indicated that the estimated fair value of our equity interest in Golden Queen was lower than our prior carrying value by $47.9 million. We concluded based on lower projected cash flows and a decline in the 54 Madison investment committee. 54 Madison seeks long-term capital appreciation through investmentmarket price of gold that the decline in real estate developmentfair value of our equity interest was other than temporary. As such, an impairment charge of $47.9 million was recorded in Income (loss) related to associated companies in the three and similar projects. 54 Madison invests both in projects which they consolidate and projects where they have significant influence and utilize the equity method of accounting. Throughnine months ended September 30, 2017, 54 Madison invested an aggregate net amount of $178.3 million in projects accounted for under the equity method and $105.2 million of that was contributed from noncontrolling interests.2018.
Other
The following table provides summarized data for certain associated companies (Jefferies Finance, Jefferies LoanCore, Berkadia, Garcadia, LinkemNational Beef for the period subsequent to the closing of the transaction with Marfrig on June 5, 2018 and HomeFed)Berkadia) (in thousands):
For the Nine Months Ended September 30,For the Nine Months Ended September 30,
2017 20162018 2017
Revenues$3,101,152
 $2,839,721
$3,341,369
 $763,727
Income from continuing operations before extraordinary items$291,261
 $161,514
$591,191
 $267,796
Net income$291,261
 $165,184
$591,191
 $267,796



Note 10.  Financial Statement Offsetting
In connection with Jefferies Group's derivative activities and securities financing activities, Jefferies Group may enter into master netting agreements and collateral arrangements with counterparties. Generally, transactions are executed under standard industry agreements, including, but not limited to: derivative transactions – ISDA master netting agreements; securities lending transactions – master securities lending agreements;agreements (securities lending transactions); and repurchase transactions – master repurchase agreements.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 to a counterparty against all or a portion of an amount due from the counterparty or a third party. 
Under Jefferies Group's derivative ISDA master netting agreements, Jefferies Group typically will 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 Jefferies Group has not determined an agreement to be


enforceable, the related amounts are not offset. Master netting agreements are a critical component of Jefferies Group's risk management processes as part of reducing counterparty credit risk and managing liquidity risk.
Jefferies Group is also a party to clearing agreements with various central clearing parties. Under these arrangements, the central clearing counterparty facilitates settlement between counterparties based on the net payable owed or receivable due and, with respect to daily settlement, cash is generally only required to be deposited to the extent of the net amount. In the event of default, a net termination amount is determined based on the market values of all outstanding positions and the clearing organization or clearing member provides for the liquidation and settlement of the net termination amount among all counterparties to the open contracts or transactions.


The following table provides information regarding derivative contracts, repurchase agreements and securities borrowing and lending arrangements that are recognized in the Consolidated Statements of Financial Condition and 1)(1) the extent to which, under enforceable master netting arrangements, such balances are presented net in the Consolidated Statements of Financial Condition as appropriate under GAAP and 2)(2) the extent to which other rights of setoff associated with these arrangements exist and could have an effect on our consolidated financial position.
(In thousands)
Gross
Amounts
 Netting in Consolidated Statements of Financial Condition Net Amounts in Consolidated Statements of Financial Condition Additional Amounts Available for Setoff (1) Available Collateral (2) Net Amount (3)
Gross
Amounts
 Netting in Consolidated Statements of Financial Condition Net Amounts in Consolidated Statements of Financial Condition Additional Amounts Available for Setoff (1) Available Collateral (2) Net Amount (3)
Assets at September 30, 2017           
Assets at September 30, 2018           
Derivative contracts$2,784,013
 $(2,595,355) $188,658
 $—
 $—
 $188,658
$3,523,745
 $(3,334,100) $189,645
 $—
 $—
 $189,645
Securities borrowing arrangements$7,758,532
 $—
 $7,758,532
 $(662,882) $(952,004) $6,143,646
$7,369,908
 $—
 $7,369,908
 $(529,662) $(1,088,612) $5,751,634
Reverse repurchase agreements$14,737,223
 $(11,365,788) $3,371,435
 $(307,453) $(3,037,903) $26,079
$11,634,035
 $(7,974,976) $3,659,059
 $(187,426) $(3,441,009) $30,624
                      
Liabilities at September 30, 2017 
  
  
  
  
  
Liabilities at September 30, 2018 
  
  
  
  
  
Derivative contracts$3,290,194
 $(2,714,115) $576,079
 $—
 $—
 $576,079
$4,170,251
 $(3,454,488) $715,763
 $—
 $—
 $715,763
Securities lending arrangements$2,763,253
 $—
 $2,763,253
 $(662,882) $(2,058,137) $42,234
$2,531,504
 $—
 $2,531,504
 $(529,662) $(1,977,558) $24,284
Repurchase agreements$19,839,207
 $(11,365,788) $8,473,419
 $(307,453) $(7,216,449) $949,517
$17,839,459
 $(7,974,976) $9,864,483
 $(187,426) $(8,632,482) $1,044,575
                      
Assets at December 31, 2016 
  
  
  
  
  
Assets at December 31, 2017 
  
  
  
  
  
Derivative contracts$4,627,076
 $(4,255,998) $371,078
 $—
 $—
 $371,078
$3,497,969
 $(3,318,481) $179,488
 $—
 $—
 $179,488
Securities borrowing arrangements$7,743,562
 $—
 $7,743,562
 $(710,611) $(647,290) $6,385,661
$7,721,803
 $—
 $7,721,803
 $(966,712) $(1,032,629) $5,722,462
Reverse repurchase agreements$14,083,144
 $(10,220,656) $3,862,488
 $(176,275) $(3,591,654) $94,559
$14,858,297
 $(11,168,738) $3,689,559
 $(463,973) $(3,207,147) $18,439
                      
Liabilities at December 31, 2016 
  
  
  
  
  
Liabilities at December 31, 2017 
  
  
  
  
  
Derivative contracts$4,880,022
 $(4,229,213) $650,809
 $—
 $—
 $650,809
$3,745,908
 $(3,490,514) $255,394
 $—
 $—
 $255,394
Securities lending arrangements$2,819,132
 $—
 $2,819,132
 $(710,611) $(2,064,299) $44,222
$2,843,911
 $—
 $2,843,911
 $(966,712) $(1,795,408) $81,791
Repurchase agreements$17,012,332
 $(10,220,656) $6,791,676
 $(176,275) $(5,780,909) $834,492
$19,829,249
 $(11,168,738) $8,660,511
 $(463,973) $(7,067,512) $1,129,026

(1)Under master netting agreements with our counterparties, we have the legal right of offset with a counterparty, which incorporates all of the counterparty’s outstanding rights and obligations under the arrangement. These balances reflect additional credit risk mitigation that is available by a counterparty in the event of a counterparty’s default, but which are not netted in the balance sheet because other netting provisions of GAAP are not met. Further, for derivative assets and liabilities, amounts netted include cash collateral paid or received.
(2)Includes securities received or paid under collateral arrangements with counterparties that could be liquidated in the event of a counterparty default and thus offset against a counterparty’s rights and obligations under the respective repurchase agreements or securities borrowing or lending arrangements.
(3)At September 30, 2017,2018, amounts include $6,088.9$5,717.1 million of securities borrowing arrangements, for which we have received securities collateral of $5,942.3$5,544.1 million, and $887.2$1,019.6 million of repurchase agreements, for which we have pledged securities collateral of $908.8$1,054.1 million, which are subject to master netting agreements but we have not determined the agreements to be legally enforceable. At December 31, 2016,2017, amounts include $6,337.5$5,678.6 million of securities borrowing arrangements, for which we have received securities collateral of $6,146.0$5,516.7 million, and $810.4$1,084.4 million of repurchase agreements, for which we have pledged securities collateral of $834.2$1,115.9 million, which are subject to master netting agreements but we have not determined the agreements to be legally enforceable.



Note 11.  Intangible Assets, Net and Goodwill

A summary of Intangible assets, net and goodwill is as follows (in thousands):
September 30, 2017 December 31, 2016September 30, 2018 December 31, 2017
Indefinite-lived intangibles:      
Exchange and clearing organization membership interests and registrations$8,734
 $9,041
$8,475
 $8,551
      
Amortizable intangibles: 
  
 
  
Customer and other relationships, net of accumulated amortization of $222,095 and $198,674355,253
 378,136
Trademarks and tradename, net of accumulated amortization of $91,350 and $78,778297,349
 309,382
Supply contracts, net of accumulated amortization of $55,047 and $47,86788,553
 95,733
Other, net of accumulated amortization of $3,642 and $2,9144,944
 5,672
Customer and other relationships, net of accumulated amortization of $100,591 and $230,07470,071
 347,767
Trademarks and tradenames, net of accumulated amortization of $20,211 and $95,627108,406
 293,851
Supply contracts, net of accumulated amortization of $0 and $57,440—
 86,160
Other, net of accumulated amortization of $4,132 and $3,8854,818
 4,701
Total intangible assets, net754,833
 797,964
191,770
 741,030
      
Goodwill: 
  
 
  
National Beef14,991
 14,991
—
 14,991
Jefferies1,699,609
 1,696,864
Jefferies Group1,699,269
 1,703,300
Other operations3,859
 3,859
3,859
 3,859
Total goodwill1,718,459
 1,715,714
1,703,128
 1,722,150
      
Total Intangible assets, net and goodwill$2,473,292
 $2,513,678
Total intangible assets, net and goodwill$1,894,898
 $2,463,180

Amortization expense on intangible assets included in Income (loss) from continuing operations was $15.4$3.3 million and $15.8$3.2 million for the three months ended September 30, 20172018 and 2016,2017, respectively, and $43.6$9.9 million and $47.1$9.7 million for the nine months ended September 30, 20172018 and 2016,2017, respectively. 

The estimated aggregate future amortization expense for the intangible assets for each of the next five years is as follows (in thousands): 
Remainder of current year$14,612
$3,359
2018$58,454
2019$58,454
$13,439
2020$58,455
$13,439
2021$58,067
$13,052
2022$13,052

As further discussed in Note 1, on June 5, 2018, we sold 48% of National Beef to Marfrig. Upon closing of the transaction with Marfrig, we deconsolidated our investment in National Beef, including its Intangible assets, net and goodwill. Intangible assets, net and goodwill at December 31, 2017 included $539.6 million of intangibles and $15.0 million of goodwill related to National Beef.

Goodwill and Intangible Impairment Testing

We performed our annual impairment testing of Jefferies Group goodwill as of August 1, 2017.2018. The quantitative goodwill impairment test is performed at our reporting unit level and consists of two steps. In the first step, the fair value of the reporting unit is compared with its carrying value, including goodwill and allocated intangible assets. If the fair value is in excess of the carrying value, the goodwill for the reporting unit is considered not to be impaired. If the fair value is less than the carrying value, then a second step is performed in order to measure the amount of the impairment loss, if any, which is based on comparing the implied fair value of the reporting unit’s goodwill to the carrying value of the reporting unit’s goodwill.

The estimated fair value of Jefferies Group is based on valuation techniques that we believe market participants would use, although the valuation process requires significant judgment and often involves the use of significant estimates and assumptions. The methodologies we utilize in estimating fair value include price-to-earnings and price-to-book multiples of comparable public companies and/or projected cash flows. In addition, as the fair values determined under the market approach represent a noncontrolling interest, we applied a control premium to arrive at the estimated fair value of our reporting units on a controlling


basis. An independent valuation specialist was engaged to assist with the valuation process for Jefferies Group at August 1, 2017.2018. The results of our annual goodwill impairment test for Jefferies Group did not indicate any goodwill impairment.

Jefferies Group performed its annual impairment testing of intangible assets with an indefinite useful life, which consists of exchange and clearing organization membership interests and registrations, at August 1, 2017.2018. Jefferies Group elected to perform a quantitative assessment of membership interests and registrations that have available quoted sales prices as well as certain other membership


interests and registrations that have declined in utilization. A qualitative assessment was performed on the remainder of its indefinite-life intangible assets. With regard to its qualitative assessment of the remaining indefinite-life intangible assets, based on its assessment of market conditions, the utilization of the assets and the replacement costs associated with the assets, Jefferies Group has concluded that it is not more likely than not that the intangible assets are impaired. Jefferies Group recognized an immaterial impairment loss on certain exchange membership interests and registrations during the nine months ended September 30, 2017.2018.

Note 12.  Inventory

A summary of inventory, which is classified as Other assets, is as follows (in thousands):
 September 30, 2017 December 31, 2016
Finished goods$238,752
 $243,488
Work in process35,234
 35,714
Raw materials, supplies and other32,333
 30,733
 Total inventory$306,319
 $309,935

Note 13.12.  Short-Term Borrowings

Jefferies Group's short-term borrowings, which mature in one year or less, are as follows (in thousands):
September 30, 2017 December 31, 2016September 30, 2018 December 31, 2017
Bank loans(1)$304,537
 $372,301
$324,021
 $304,651
Secured revolving loan facilities—
 57,086
Floating rate puttable notes108,304
 96,455
57,985
 108,240
Equity-linked notes4,281
 —
—
 23,324
Total short-term borrowings$417,122
 $525,842
$382,006
 $436,215

(1) Bank loans include loans entered into, pursuant to a Master Loan Agreement, between the Bank of New York and Jefferies Group.

At September 30, 20172018 and December 31, 2016,2017, the weighted average interest rate on short-term borrowings outstanding is 2.00%was 3.39% and 1.77%2.51% per annum, respectively.

During the nine months ended September 30, 2017,2018, Jefferies Group issued equity-linked notes with a principal amount of $30.6$70.5 million, which matured on July 18, 2017. The remaining12, 2018. These notes were repaid with cash on hand on the maturity date. In addition, during the nine months ended September 30, 2018, Jefferies Group's floating rate puttable notes with principal amounts of €41.0 million and Jefferies Group's equity-linked notes will mature in the fourth quarterwith a principal amount of 2017.$23.3 million matured. See Note 3 for further information.

The Bank of New York Mellon agreeshas agreed to make revolving intraday credit advances (“("Intraday Credit Facility”Facility") for an aggregate committed amount of $250.0$150.0 million. The Intraday Credit Facility contains a financial covenant,covenants, which includes a minimum regulatory net capital requirement for Jefferies.Jefferies Group. Interest is based on the higher of the Federal funds effective rate plus 0.5% or the prime rate. AtDuring the nine months ended September 30, 2017,2018, Jefferies Group was in compliance with debt covenants under the Intraday Credit Facility.

In October 2015, Jefferies entered into a secured revolving loan facility (“First Secured Revolving Loan Facility”) whereby the lender agreed to make available a revolving loan facility in a maximum principal amount of $50.0 million to purchase eligible receivables that met certain requirements as defined in the First Secured Revolving Loan Facility agreement. Interest was based on an annual rate equal to the lesser of the LIBOR rate plus 3.75% or the maximum rate as defined in the First Secured Revolving Loan Facility agreement. In December 2015, Jefferies entered into a second secured revolving loan facility (“Second Secured Revolving Loan Facility”) whereby the lender agreed to make available a revolving loan facility in a maximum principal amount of $50.0 million to purchase eligible receivables that met certain requirements as defined in the Second Secured Revolving Loan Facility agreement. Interest was based on an annual rate equal to the lesser of the LIBOR rate plus 4.25% or the maximum rate as defined in the Second Secured Revolving Loan Facility agreement. The First Secured Revolving Loan Facility was terminated effective December 6, 2016. The Second Secured Revolving Loan Facility was terminated effective January 24, 2017.



Note 14.13.  Long-Term Debt

The principal amount (net of unamortized discounts, premiums and premiums)debt issuance costs), stated interest rate and maturity date of outstanding debt are as follows (dollars in thousands):
September 30, 2017 December 31, 2016September 30, 2018 December 31, 2017
Parent Company Debt:      
Senior Notes:      
5.50% Senior Notes due October 18, 2023, $750,000 principal$742,072
 $741,264
$743,203
 $742,348
6.625% Senior Notes due October 23, 2043, $250,000 principal246,661
 246,627
246,710
 246,673
Total long-term debt – Parent Company988,733
 987,891
989,913
 989,021
      
Subsidiary Debt (non-recourse to Parent Company): 
  
 
  
Jefferies: 
  
5.125% Senior Notes, due April 13, 2018, $707,000 and $800,000 principal714,115
 817,813
8.50% Senior Notes, due July 15, 2019, $684,000 and $700,000 principal739,465
 778,367
2.375% Euro Medium Term Notes, due May 20, 2020, $595,075 and $529,975 principal593,547
 528,250
Jefferies Group: 
  
5.125% Senior Notes, due April 13, 2018, $0 and $678,300 principal (1)—
 682,338
8.50% Senior Notes, due July 15, 2019, $680,800 principal707,072
 728,872
2.375% Euro Medium Term Notes, due May 20, 2020, $579,850 and $594,725 principal578,896
 593,334
6.875% Senior Notes, due April 15, 2021, $750,000 principal812,131
 823,797
795,967
 808,157
2.25% Euro Medium Term Notes, due July 13, 2022, $4,761 and $4,240 principal4,374
 3,848
2.25% Euro Medium Term Notes, due July 13, 2022, $4,639 and $4,758 principal4,332
 4,389
5.125% Senior Notes, due January 20, 2023, $600,000 principal616,378
 618,355
613,634
 615,703
4.85% Senior Notes, due January 15, 2027, $750,000 principal (1)(2)753,932
 —
712,667
 736,357
6.45% Senior Debentures, due June 8, 2027, $350,000 principal376,307
 377,806
374,211
 375,794
3.875% Convertible Senior Debentures, due November 1, 2029, $345,000 principal345,217
 346,163
3.875% Convertible Senior Debentures, due November 1, 2029, $0 and $324,779 principal—
 324,779
4.15% Senior Notes, due January 23, 2030, $1,000,000 and $0 principal987,576
 —
6.25% Senior Debentures, due January 15, 2036, $500,000 principal512,131
 512,396
511,758
 512,040
6.50% Senior Notes, due January 20, 2043, $400,000 principal421,078
 421,333
420,718
 420,990
Structured Notes (2)561,010
 255,203
Structured Notes (3)709,557
 614,091
Jefferies Group Revolving Credit Facility158,478
 —
National Beef Reducing Revolver Loan87,500
 —
—
 120,000
National Beef Revolving Credit Facility21,821
 —
—
 76,809
National Beef Term Loan—
 273,811
54 Madison Term Loans313,727
 406,028
Foursight Capital Credit Facilities114,329
 97,138
138,033
 170,455
Other116,847
 132,244
74,613
 112,654
Total long-term debt – subsidiaries7,103,909
 6,392,552
6,787,512
 6,896,762
      
Long-term debt$8,092,642
 $7,380,443
$7,777,425
 $7,885,783

(1) Amount includes $9.6
(1)On April 13, 2018, these 5.125% Senior Notes were redeemed by Jefferies Group with cash on hand.
(2)Amount includes a gain of $24.1 million associated with an interest rate swap based on its designation as a fair value hedge. See Notes 2 and a loss of $9.6 million during the nine months ended September 30, 2018 and 2017, respectively, associated with an interest rate swap based on its designation as a fair value hedge. See Note 4 for further information.
(3)Includes $709.6 million and $607.0 million at fair value at September 30, 2018 and December 31, 2017, respectively. These structured notes contain various interest rate payment terms and are accounted for at fair value, with changes in fair value resulting from a change in the instrument specific credit risk presented in Accumulated other comprehensive income and changes in fair value resulting from non-credit components recognized in Principal transactions revenues.

(2) Includes $553.9 million and $248.9 million at fair value at September 30, 2017 and December 31, 2016, respectively.

Subsidiary Debt:

In November 2017, all of Jefferies Group's 3.875% Convertible Senior Debentures due 2029 are convertible into our common shares; each $1,000 are convertible into 22.9719 common shares (equivalent towere called for optional redemption, with a conversionredemption date of January 5, 2018, at a redemption price of approximately $43.53 per share).  The debentures are convertible at the holders’ option any time beginning on August 1, 2029 and convertible at any time if: 1) our common stock price is greater than or equal to 130%100% of the conversion price for at least 20 trading days in a period of 30 consecutive trading days; 2) if the trading price per debenture is less than 95%principal amount of the price of our common stock times the conversion ratio for any 10 consecutive trading days; 3) if theconvertible debentures are called for redemption; or 4) upon the occurrence of specific corporate actions.  The debentures may be redeemed, for par, plus accrued and unpaid interest on or after November 1, 2012 ifto, but excluding, the priceredemption date. All of our common stock is greater than 130%these remaining convertible debentures were redeemed in January 2018. In addition, Jefferies Group's 5.125% senior notes with a principal of the conversion price for at least 20 days$668.3 million were redeemed in a period of 30 consecutive trading days and we may redeem the debentures for par, plus accrued interest, at our election any time on or after November 1, 2017.  Holders may require us to repurchase theApril 2018.


debentures for par, plus accrued interest, on November 1, 2017, 2019 and 2024.  In addition to ordinary interest, commencing November 1, 2017, contingent interest will accrue at 0.375% if the average trading priceJanuary 2018, Jefferies Group issued 4.15% senior notes with a principal amount of a debenture for 5 trading days ending on and including the third trading day immediately preceding a six-month interest period equals or exceeds $1,200 per $1,000 debenture.

During the nine months ended September 30, 2017, Jefferies issued$1.0 billion, due 2030. Additionally, structured notes with a total principal amount of approximately $287.5$162.6 million, net of retirements. Structured notes of $553.9 million and $248.9 million atretirements were issued during the nine months ended September 30, 2017 and December 31, 2016, respectively, contain various interest rate payment terms and are accounted for at fair value, with changes in fair value resulting from a change in the instrument specific credit risk presented in Accumulated other comprehensive income and changes in fair value resulting from non-credit components recognized in Principal transaction revenues.2018.

In January 2017,On May 16, 2018, Jefferies issued 4.85%Group entered into a senior notessecured revolving credit facility ("Jefferies Group Revolving Credit Facility") with a group of commercial banks for an aggregate principal amount of $750.0 million, due 2027.

In June 2017, National Beef entered into a Third Amended and Restated$160.0 million. Jefferies Group Revolving Credit Agreement (the "Debt Agreement"). The Debt Agreement matures in June 2022 and includes a $275.0 million reducing revolver loan and a $275.0 million revolving credit facility. The reducing revolver loan commitment decreases by $13.8 millionFacility contains certain financial covenants, including, but not limited to, restrictions on each annual anniversaryfuture indebtedness of the Debt Agreement. The Debt Agreement is secured by a first priority lien on substantially allcertain of the assets of National Beef and its subsidiaries and includes customary covenants including a single financial covenant that requires National Beef to maintain aits minimum tangible net worth; atworth, liquidity requirements and minimum capital requirements. Interest is based on an annual alternative base rate or an adjusted London Interbank Offered Rate ("LIBOR"), as defined in Jefferies Group Revolving Credit Facility agreement. The obligations of certain of Jefferies Group's subsidiaries under Jefferies Group Revolving Credit Facility are secured by substantially all its assets. At September 30, 2017, National Beef2018, Jefferies Group was in compliance with debt covenants under Jefferies Group Revolving Credit Facility.

As further discussed in Note 1, on June 5, 2018, we sold 48% of National Beef to Marfrig. Upon closing of the covenants.transaction with Marfrig, we deconsolidated our investment in National Beef, including its long-term debt. Long-term debt at December 31, 2017 included $199.2 million related to National Beef.

At September 30, 2017, National Beef’s outstanding debt under the Debt Agreement consisted of a reducing revolver loan with an outstanding balance of $87.5 million and $21.8 million drawn on the revolving credit facility.  The reducing revolving loan and the revolving credit facility bear interest at the Base Rate or the LIBOR Rate (as defined in the Debt Agreement), plus a margin ranging from 0.75% to 2.75% depending upon certain financial ratios and the rate selected.  At September 30, 2017, the interest rate on the outstanding reducing revolving loan was 2.98% and the interest rate on the outstanding revolving credit facility was 5.00%. 

Borrowings under the reducing revolver loan and the revolving credit facility are available for National Beef’s working capital requirements, capital expenditures and other general corporate purposes.  Unused capacity under the revolving credit facility can also be used to issue letters of credit; letters of credit aggregating $13.9 million were outstanding at September 30, 2017.  Amounts available under the revolving credit facility are subject to a borrowing base calculation primarily comprised of receivable and inventory balances; amounts available under the reducing revolver facility are constrained only by the annual reduction in the commitment amount.  At September 30, 2017, after deducting outstanding amounts and issued letters of credit, $198.1 million of the unused revolving credit facility and $187.5 million of the reducing revolver commitment was available to National Beef.
54 Madison seeks long-term capital appreciation through real estate development and similar projects. Many of these development projects are funded through long-term debt at the project level. The debt holders do not have recourse to the Leucadia parent company. At September 30, 2017, 54 Madison had $62.6 million of 6.0% term loan debt maturing in January 2018, $96.5 million of 5.5% term loan debt maturing in February 2019, $0.5 million of 3.5% term loan debt maturing in March 2019, $52.0 million of 4.15% term loan debt maturing in April 2019, $101.6 million of 5.5% term loan debt maturing in January 2020 and $0.5 million of 3.5% term loan debt maturing in January 2020. As discussed further in Note 23, the majority of the debt holders are also investors in 54 Madison.
At September 30, 2017, Foursight Capital's credit facilities consisted of two warehouse credit commitments aggregating $225.0 million, which mature in March 20192020 and July 2020. The 2019March 2020 credit facility bears interest based on the three-month LIBOR plus a credit spread fixed through its maturity and the July 2020 credit facility bears interest based on the one-month LIBOR plus a credit spread fixed through its maturity. As a condition of the 2019March 2020 credit facility, Foursight Capital is obligated to maintain cash reserves in an amount equal to the quoted price of an interest rate cap sufficient to meet the hedging requirements of the credit commitment. The credit facilities are secured by first priority liens on auto loan receivables owed to Foursight Capital of approximately $140.0$167.9 million at September 30, 2017.2018.



Note 15.14.  Mezzanine Equity

Redeemable Noncontrolling Interests

RedeemableAtDecember 31, 2017, the redeemable noncontrolling interests primarily relate to National Beef and arewere held by its minority owners, USPB, NBPCo Holdings and the chief executive officer of National Beef. The holders of these interests shareshared in the profits and losses of National Beef on a pro rata basis with us. However,As discussed in Note 1, we deconsolidated National Beef as a result of the minority owners have48% sale to Marfrig on June 5, 2018. Immediately prior to the right to require us to purchase their interests under certain specified circumstances atdeconsolidation, the cumulative increase in fair value (put rights), and we also haveof $237.7 million recorded to the right to purchase their interests under certain specified circumstances at fair value (call rights).  Each ofredeemable noncontrolling interest since the holders of the put rights has the right to make an election that requires us to purchase up to one-third of their interests on December 30, 2016, one-third on December 30, 2018, and the remainder on December 30, 2021.  In addition, USPB may elect to exercise their put rights following the termination of the cattle supply agreement, and the chief executive officer following the termination of his employment. Holders of the put rights had from December 30, 2016 through January 29, 2017 to make an election that would require us to purchase up to one-third of their interests. The holders of the put rights did not make such election.

Our call rights with respect to USPB may be exercised following the termination of the cattle supply agreement or after USPB’s ownership interest is less than 20% of their interest held at the time we acquired National Beef.  Our call rights with respect to other members may be exercised after the ten year anniversary of ourinitial acquisition of National Beef if such member’s ownership interest is less than 50%was reversed through Additional paid-in capital in the Consolidated Statement of the interest held at the time we acquired National Beef.  Additionally, we may acquire the chief executive officer’s interest following the termination of his employment.Financial Condition.



Redeemable noncontrolling interests in National Beef are reflected in the Consolidated Statements of Financial Condition at fair value. The following table rolls forward National Beef’s redeemable noncontrolling interests activity during the nine months ended September 30, 2017 and 2016 (in thousands):
 For the Nine Months Ended September 30,
 2017 2016
As of January 1,$321,962
 $189,358
Income allocated to redeemable noncontrolling interests65,088
 40,225
Distributions to redeemable noncontrolling interests(37,029) (18,460)
Increase (decrease) in fair value of redeemable noncontrolling interests24,404
 134,503
Balance, September 30,$374,425

$345,626

At acquisition, we prepared a projection of future cash flows of National Beef, which was used along with other information to allocate the purchase price to National Beef’s individual assets and liabilities.  At September 30, 2017, we calculated the fair value of the redeemable noncontrolling interests by updating our estimate of future cash flows.  The projected future cash flows consider estimated revenue growth, cost of sales changes, capital expenditures and other unobservable inputs.  However, the most significant unobservable inputs affecting the estimate of fair value are the discount rate (11.9%) and the terminal growth rate (2.0%) used to calculate the capitalization rate of the terminal value.

The table below is a sensitivity analysis which shows the fair value of the redeemable noncontrolling interests using the assumed discount and the terminal growth rates and fair values under different rate assumptions as of September 30, 2017 (dollars in millions):
  Discount Rates
Terminal Growth Rates 11.65% 11.90% 12.15%
1.75% $379.3
 $370.7
 $362.6
2.00% $383.2
 $374.4
 $366.0
2.25% $387.4
 $378.3
 $369.7

The projection of future cash flows is updated with input from National Beef personnel.  The estimate is reviewed by personnel at our corporate office as part of the normal process for the preparation of our quarterly and annual financial statements.
 For the Nine Months Ended September 30,
 2018 2017
As of January 1,$412,128
 $321,962
Income allocated to redeemable noncontrolling interests37,141
 65,088
Distributions to redeemable noncontrolling interests(70,681) (37,029)
Increase in fair value of redeemable noncontrolling interests21,404
 24,404
Reversal of cumulative National Beef redeemable noncontrolling interests fair value adjustment prior to deconsolidation(237,669) —
Deconsolidation of National Beef(162,323) —
Balance, September 30,$—

$374,425

At September 30, 20172018 and December 31, 2016,2017, redeemable noncontrolling interests also include other redeemable noncontrolling interests of $14.1$21.4 million and $14.8$14.5 million, respectively, primarily related to our oil and gas exploration and development businesses.


The majority of the increase in redeemable noncontrolling interests is due to an increase in fair value associated with Vitesse Energy Finance. We estimated the fair value of Vitesse Energy Finance based on a discounted cash flow analysis, market comparable method and market transaction method.

Mandatorily Redeemable Convertible Preferred Shares

In connection with our acquisition of Jefferies Group in March 2013, we issued a new series of 3.25% Cumulative Convertible Preferred Shares (“("Preferred Shares”Shares") ($125.0 million at mandatory redemption value) in exchange for Jefferies Group's outstanding 3.25% Series A-1 Cumulative Convertible Preferred Stock. The Preferred Shares have a 3.25% annual, cumulative cash dividend and are currently convertible into 4,162,200 common shares, an effective conversion price of $30.03 per share. The holders of the Preferred Shares are also entitled to an additional quarterly payment in the event we declare and pay a dividend on our common stock in an amount greater than $0.0625 per common share per quarter. The additional quarterly payment would be paid to the holders of Preferred Shares on an as converted basis and on a per share basis would equal the quarterly dividend declared and paid to a holder of a share of common stock in excess of $0.0625 per share. In the third quarter of 2017, we increased our quarterly dividend from $0.0625 to $0.10 per common share. ThisIn the third quarter of 2018, we increased our quarterly dividend from $0.10 to $0.125 per common share. These increased the preferred stock dividend from $1.0$3.2 million infor the third quarter of 2016nine months ended September 30, 2017 to $1.2$3.6 million infor the third quarter of 2017.nine months ended September 30, 2018. The Preferred Shares are callable beginning in 2023 at a price of $1,000 per share plus accrued interest and are mandatorily redeemable in 2038.

Note 16.  Stock-Based15.  Compensation Plans

Restricted Stock and Restricted Stock Units. Restricted stock and restricted stock units (“RSUs”("RSUs") may be granted to new employees as “sign-on”"sign-on" awards, to existing employees as “retention”"retention" awards and to certain executive officers as awards for multiple years. Sign-on and retention awards are generally subject to annual ratable vesting over a four-year service period and are amortized as compensation expense on a straight-line basis over the related four years. Restricted stock and RSUs are granted to certain senior executives with market, performance and service conditions. Market conditions are incorporated into the grant-date fair value of senior executives'executive awards using a Monte Carlo valuation model. Compensation expense for awards with market conditions is recognized over the service period and is not reversed if the market condition is not met. Awards with performance conditions are amortized over the service period if it is determined that it is probable that the performance condition will be achieved.

Senior Executive Compensation Plan. In January 2017, theThe Compensation Committee of ourthe Jefferies Board of Directors approved an executive compensation plan effective January 1, 2018 that extends Jefferies prior compensation plans for our CEO and our President (together, our "Senior Executives") for compensation years 2018, 2019 and 2020. For each Senior Executive, the Compensation Committee has targeted long-term compensation of $25.0 million per year under the plan with a target of $16.0 million in respectlong-term equity in the form of 2017 that is based on performance metrics achieved overRSUs and a three-year period from 2017 through 2019. This executive compensation plan is identical to the 2016 executive compensation plan wheretarget of $9.0 million in long-term cash, incentive bonuses were eliminated. 100% of each of our CEO and President's compensation beyond their base salaries is composed entirely of performance based RSUs that will vest at the end of 2019 if certain performance criteria are met. Any vested RSUs will be subject to a post-vesting,performance targets over the three-year holdingmeasurement period such that no vested RSUs can be sold or transferred until the first quarter of 2023.

Performance-vesting of the award is based equallyfor each compensation year. To receive targeted long-term equity, our Senior Executives will have to achieve 8% growth on the compoundan annual growth rates of Leucadia'sand multi-year compounded basis in Jefferies Total Shareholder Return ("TSR"), which and to receive targeted long-term cash, our Senior Executives will be measured from the December 30, 2016 stock price of $23.25,have to achieve 8% growth on an annual and Leucadia'smulti-year compounded basis in Jefferies Return on Tangible Deployable Equity ("ROTDE"). If TSR and ROTDE are less than 5%, the annual, two-our Senior Executives will receive no long-term compensation. If TSR and three-year results of which will be usedROTDE growth rates are greater than 8%, our Senior Executives are eligible to determine vesting.receive up


to 50% additional incentive compensation on a pro rata basis up to 12% growth rates. TSR is based on annualized rate of return reflecting price appreciation plus reinvestment of dividends and distributions to shareholders. ROTDE is net income adjusted for amortization of intangible assets divided by tangible book value at the beginning of year adjusted for intangible assets and deferred tax assets.

If Leucadia's TSR and ROTDE annual compound growth rates are less than 4%, our Senior Executives will not receive any incentive compensation. If Leucadia's TSR and ROTDE grow between 4% and 8% on a compounded basis over the three-year measurement period, each of our Senior Executives will be eligible to receive between 537,634 and 1,075,268 RSUs. If TSR and ROTDE growth rates are greater than 8%, our Senior Executives are eligible to receive up to 50% additional incentive compensation on a pro rata basis up to 12% growth rates. When determining whether RSUs will vest, the calculation will be weighted equally between TSR and ROTDE. If TSR growth was below minimum thresholds, but ROTDE growth was above minimum thresholds, our Senior Executives would still be eligible to receive some number of vested RSUs based on ROTDE growth. The TSR award contains a market condition and compensation expense is recognized over the service period and will not be reversed if the market condition is not met. The ROTDE award contains a performance condition and compensation expense is recognized over the service period if it is determined that it is probable that the performance condition will be achieved.

Former Stock-Based Compensation Plans. Prior to the acquisition of Jefferies, we had a fixed stock option plan, which provided for the issuance of stock options and stock appreciation rights to non-employee directors and certain employees at not less than the fair market value of the underlying stock at the date of grant.  Options granted to employees under this plan were intended to qualify as incentive stock options to the extent permitted under the Internal Revenue Code and became exercisable in five equal annual installments starting one year from date of grant.  Options granted to non-employee directors became exercisable in four equal annual installments starting one year from date of grant.  No stock appreciation rights have been granted.  In March 2014, we ceased issuing options and rights under our option plan. No shares remain available for future issuances under this plan. At September 30, 2017, 331,312 of our common shares were reserved for stock options.



Stock-Based Compensation Expense. Compensation and benefits expense included $11.1$12.8 million and $8.9$11.1 million for the three months ended September 30, 20172018 and 2016,2017, respectively, and $31.5$38.0 million and $24.9$31.5 million for the nine months ended September 30, 20172018 and 2016,2017, respectively, for share-based compensation expense relating to grants made under our share-based compensation plans. Total compensation cost includes the amortization of sign-on, retention and senior executive awards, less forfeitures and clawbacks. The total tax benefit recognized in results of operations related to share-based compensation expenses was $4.0 million and $3.3$4.0 million for the three months ended September 30, 20172018 and 2016,2017, respectively, and $11.2$10.0 million and $9.2$11.2 million for the nine months ended September 30, 20172018 and 2016,2017, respectively. As of September 30, 2017,2018, total unrecognized compensation cost related to nonvested share-based compensation plans was $71.8$131.5 million; this cost is expected to be recognized over a weighted average period of 1.82.4 years.

At September 30, 2017,2018, there were 1,332,0001,862,000 shares of restricted stock outstanding with future service required, 5,679,0009,424,000 RSUs outstanding with future service required (including target RSUs issuable under the senior executive compensation plan), 10,442,00010,262,000 RSUs outstanding with no future service required and 701,000871,000 shares issuable under other plans. Excluding shares issuable pursuant to outstanding stock options, the maximum potential increase to common shares outstanding resulting from these outstanding awards is 16,822,000.20,557,000.

Restricted Cash Awards. Jefferies Group provides compensation to certain new and existing employees in the form of loans and/or other cash awards which are subject to ratable vesting terms with service requirements. The restricted cash awards are amortized to compensation expense over the relevant service period. At September 30, 2018, the remaining unamortized amount of the restricted cash awards was $446.9 million; this cost is expected to be recognized over a weighted average period of two years.

Note 17.16.  Accumulated Other Comprehensive Income

Activity in accumulated other comprehensive income is reflected in the Consolidated Statements of Comprehensive Income (Loss) and Consolidated Statements of Changes in Equity but not in the Consolidated Statements of Operations. A summary of accumulated other comprehensive income, net of taxes is as follows (in thousands):
September 30, 2017 December 31, 2016September 30, 2018 December 31, 2017
Net unrealized gains on available for sale securities$570,240
 $561,497
$542,790
 $572,085
Net unrealized foreign exchange losses(130,394) (184,829)(180,926) (101,400)
Net unrealized losses on instrument specific credit risk(15,364) (6,494)(18,916) (34,432)
Net unrealized losses on cash flow hedges(1,585) —
Net unrealized gains (losses) on cash flow hedges446
 (1,138)
Net minimum pension liability(59,411) (59,477)(55,649) (62,391)
$363,486

$310,697
$287,745

$372,724



For the nine months ended September 30, 20172018 and 2016,2017, significant amounts reclassified out of accumulated other comprehensive income to net income are as follows (in thousands):
Details about Accumulated Other Comprehensive Income Components 
Amount Reclassified from
 Accumulated Other
 Comprehensive Income
 
Affected Line Item in the
Consolidated Statements
of Operations
  2017 2016  
Net unrealized gains on available for sale securities, net of income tax provision of $14 and $5 $24
 $8
 Net realized securities gains
Net unrealized foreign exchange losses, net of income tax provision of $1,086 and $0 (5,310) —
 Other income and other expenses
Amortization of defined benefit pension plan actuarial losses, net of income tax benefit of $(604) and $(526) (1,297) (1,150) Compensation and benefits, which includes pension expense.
Other pension, net of income tax benefit of $(1,231) and $0 1,231
 —
 Income tax provision (benefit)
Total reclassifications for the period, net of tax $(5,352)
$(1,142)  
Details about Accumulated Other Comprehensive Income Components 
Amount Reclassified from
 Accumulated Other
 Comprehensive Income
 
Affected Line Item in the
Consolidated Statements
of Operations
  2018 2017  
Net unrealized gains on available for sale securities, net of income tax provision of $37 and $14 $105
 $24
 Other revenues
Net unrealized foreign exchange gains (losses), net of income tax provision (benefit) of $(16) and $1,086 20,459
 (5,310) Other income and other expenses
Net unrealized gains on instrument specific credit risk, net of income tax provision of $126 and $0 371
 —
 Principal transactions
Amortization of defined benefit pension plan actuarial losses, net of income tax benefit of $(508) and $(604) (1,398) (1,297)  Selling, general and other expenses, which includes pension expense
Other pension, net of income tax benefit of $0 and $(1,231) (5,344) 1,231
 Compensation and benefits expense and Income tax provision (benefit)
Total reclassifications for the period, net of tax $14,193

$(5,352)  

In connection with the acquisition of Jefferies Bache from Prudential on July 1, 2011, Jefferies Group acquired a defined benefit pension plan located in Germany (the "German Pension Plan") for the benefit of eligible employees of Jefferies Bache in that territory. On December 28, 2017, a Liquidation Insurance Contract was entered into between Jefferies Bache Limited and Generali Lebensversicherung AG ("Generali") to transfer the defined benefit pension obligations and insurance contracts to Generali, for approximately €6.5 million, which was paid in January 2018 and released Jefferies Group from any and all obligations under the German Pension Plan. This transaction was completed in the first quarter of 2018. In connection with the transfer of the German Pension Plan, $5.3 million was reclassified to Compensation and benefits expense in the Consolidated Statements of Operations from Accumulated other comprehensive income during the nine months ended September 30, 2018.

Note 17. Revenues from Contracts with Customers
The following table presents our total revenues separated for our revenues from contracts with customers and our other sources of revenues (in thousands):
 For the Three Months Ended September 30, 2018 For the Nine Months Ended September 30, 2018
    
Revenues from contracts with customers:   
Commissions and other fees$155,417
 $461,023
Investment banking460,043
 1,400,331
Manufacturing revenues94,029
 307,129
Other70,590
 174,565
Total revenue from contracts with customers780,079
 2,343,048
    
Other sources of revenue:   
Principal transactions116,204
 315,622
Interest income336,736
 939,272
Other225,958
 265,972
Total revenue from other sources678,898
 1,520,866
    
Total revenues$1,458,977
 $3,863,914
Revenue from contracts with customers is recognized when, or as, we satisfy our performance obligations by transferring the promised goods or services to the customers. A good or service is transferred to a customer when, or as, the customer obtains control of that good or service. A performance obligation may be satisfied over time or at a point in time. Revenue from a performance


obligation satisfied over time is recognized by measuring our progress in satisfying the performance obligation in a manner that depicts the transfer of the goods or services to the customer. Revenue from a performance obligation satisfied at a point in time is recognized at the point in time that we determine the customer obtains control over the promised good or service. The amount of revenue recognized reflects the consideration we expect to be entitled to in exchange for those promised goods or services (the "transaction price"). In determining the transaction price, we consider multiple factors, including the effects of variable consideration. Variable consideration is included in the transaction price only to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainties with respect to the amount are resolved. In determining when to include variable consideration in the transaction price, we consider the range of possible outcomes, the predictive value of our past experiences, the time period of when uncertainties expect to be resolved and the amount of consideration that is susceptible to factors outside of our influence, such as market volatility or the judgment and actions of third parties.
The following provides detailed information on the recognition of our revenues from contracts with customers:
Commissions and Other Fees. Jefferies Group earns commission revenue by executing, settling and clearing transactions for clients primarily in equity, equity-related and futures products. Trade execution and clearing services, when provided together, represent a single performance obligation as the services are not separately identifiable in the context of the contract. Commission revenues associated with combined trade execution and clearing services, as well as trade execution services on a standalone basis, are recognized at a point in time on trade-date. Commissions revenues are generally paid on settlement date and Jefferies Group records a receivable between trade-date and payment on settlement date. Jefferies Group permits 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. Jefferies Group acts as an agent in the soft dollar arrangements as the customer controls the use of the soft dollars and directs Jefferies Group's payments to third-party service providers on its behalf. Accordingly, amounts allocated to soft dollar arrangements are netted against commission revenues in our Consolidated Statements of Operations.
Jefferies Group earns account advisory and distribution fees in connection with wealth management services. Account advisory fees are recognized over time using the time-elapsed method as Jefferies Group determined that the customer simultaneously receives and consumes the benefits of investment advisory services as they are provided. Account advisory fees may be paid in advance of a specified service period or in arrears at the end of the specified service period (e.g., quarterly). Account advisory fees paid in advance are initially deferred within Payables, expense accruals and other liabilities in the Consolidated Statements of Financial Condition. Distribution fees are variable and recognized when uncertainties with respect to the amounts are resolved.
Investment Banking Fees. Jefferies Group provides its clients with a full range of capital markets and financial advisory services. Capital markets services include underwriting and placement agent services in both the equity and debt capital markets, including private equity placements, initial public offerings, follow-on offerings and equity-linked convertible securities transactions and structuring, underwriting and distributing public and private debt, including investment grade debt, high yield bonds, leveraged loans, municipal bonds and mortgage- and asset-backed securities. Underwriting and placement agent revenues are recognized at a point in time on trade-date, as the client obtains the control and benefit of the capital markets offering at that point. Costs associated with capital markets transactions are deferred until the related revenue is recognized or the engagement is otherwise concluded, and are recorded on a gross basis within Selling, general and other expenses in the Consolidated Statements of Operations as Jefferies Group is acting as a principal in the arrangement. Any expenses reimbursed by its clients are recognized as Investment banking revenues.


Revenues from financial advisory services primarily consist of fees generated in connection with merger, acquisition and restructuring transactions. Advisory fees from mergers and acquisitions engagements are recognized at a point in time when the related transaction is completed, as the performance obligation is to successfully broker a specific transaction. Fees received prior to the completion of the transaction are deferred within Payables, expense accruals and other liabilities in the Consolidated Statements of Financial Condition. Advisory fees from restructuring engagements are recognized over time using a time elapsed measure of progress as Jefferies Group's clients simultaneously receive and consume the benefits of those services as they are provided. A significant portion of the fees Jefferies Group receives for its advisory services are considered variable as they are contingent upon a future event (e.g., completion of a transaction or third-party emergence from bankruptcy) and are excluded from the transaction price until the uncertainty associated with the variable consideration is subsequently resolved, which is expected to occur upon achievement of the specified milestone. Payment for advisory services are generally due promptly upon completion of a specified milestone or, for retainer fees, periodically over the course of the engagement. Jefferies Group recognizes a receivable between the date of completion of the milestone and payment by the customer. Expenses associated with investment banking advisory engagements are deferred only to the extent they are explicitly reimbursable by the client and the related revenue is recognized at a point in time. All other investment banking advisory related expenses, including expenses incurred related to restructuring assignments, are expensed as incurred. All investment banking advisory expenses are recognized within their respective expense category in the Consolidated Statements of Operations and any expenses reimbursed by Jefferies Group's clients are recognized as Investment banking revenues.
Asset Management Fees. Jefferies Group and LAM earn management and performance fees, recorded in Other revenues, in connection with investment advisory services provided to various funds and accounts, which are satisfied over time and measured using a time elapsed measure of progress as the customer receives the benefits of the services evenly throughout the term of the contract. Management and performance fees are considered variable as they are subject to fluctuation (e.g., changes in assets under management, market performance) and/ or are contingent on a future event during the measurement period (e.g., meeting a specified benchmark) and are recognized only to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty is resolved. Management fees are generally based on month-end assets under management or an agreed upon notional amount and are included in the transaction price at the end of each month when the assets under management or notional amount is known. Performance fees are received when the return on assets under management for a specified performance period exceed certain benchmark returns, "high-water marks" or other performance targets. The performance period related to performance fees is annual, semi-annual or quarterly. Accordingly, performance fee revenue will generally be recognized only at the end of the performance period to the extent that the benchmark return has been met.
Manufacturing Revenues. Idaho Timber's primary business consists of the sale of lumber that is manufactured or remanufactured at one of its locations. Agreements with customers for these sales specify the type, quantity and price of products to be delivered as well as the delivery date and payment terms. The transaction price is fixed at the time of sale and revenue is generally recognized when the customer takes control of the product.


Disaggregation of Revenue
The following presents our revenues from contracts with customers disaggregated by major business activity and primary geographic regions for the three and nine months ended September 30, 2018 (in thousands):
 Three months ended September 30, 2018
 Reportable Segments    
 Jefferies Group Corporate All Other Total
        
Major Business Activity:       
Jefferies Group:       
Equities (1)$159,571
 $—
 $—
 $159,571
Fixed Income (1)3,007
 —
 —
 3,007
Investment Banking460,043
 —
 —
 460,043
Asset Management5,184
 —
 —
 5,184
Manufacturing revenues—
 —
 94,029
 94,029
Oil and gas revenues—
 —
 46,506
 46,506
Other revenues—
 —
 11,739
 11,739
Total revenues from contracts with customers$627,805
 $—
 $152,274
 $780,079
        
Primary Geographic Region:       
Americas$545,998
 $—
 $151,687
 $697,685
Europe, Middle East and Africa62,914
 —
 514
 63,428
Asia18,893
 —
 73
 18,966
Total revenues from contracts with customers$627,805
 $—
 $152,274
 $780,079
 Nine months ended September 30, 2018
 Reportable Segments    
 Jefferies Group Corporate All Other Total
        
Major Business Activity:       
Jefferies Group:       
Equities (1)$471,161
 $—
 $—
 $471,161
Fixed Income (1)10,511
 —
 —
 10,511
Investment Banking1,400,331
 —
 —
 1,400,331
Asset Management16,130
 —
 —
 16,130
Manufacturing revenues—
 —
 307,129
 307,129
Oil and gas revenues—
 —
 106,741
 106,741
Other revenues—
 —
 31,045
 31,045
Total revenues from contracts with customers$1,898,133
 $—
 $444,915
 $2,343,048
        
Primary Geographic Region:       
Americas$1,638,828
 $—
 $443,718
 $2,082,546
Europe, Middle East and Africa203,103
 —
 976
 204,079
Asia56,202
 —
 221
 56,423
Total revenues from contracts with customers$1,898,133
 $—
 $444,915
 $2,343,048

(1)Revenues from contracts with customers associated with the equities and fixed income businesses primarily represent commissions and other fee revenue.


Information on Remaining Performance Obligations and Revenue Recognized from Past Performance
We do not disclose information about remaining performance obligations pertaining to contracts that have an original expected duration of one year or less. The transaction price allocated to remaining unsatisfied or partially unsatisfied performance obligations with an original expected duration exceeding one year was not material at September 30, 2018. Investment banking advisory fees that are contingent upon completion of a specific milestone and fees associated with certain distribution services are also excluded as the fees are considered variable and not included in the transaction price at September 30, 2018.
During the three and nine months ended September 30, 2018, Jefferies Group recognized $4.4 million and $18.3 million, respectively, of revenue related to performance obligations satisfied (or partially satisfied) in previous periods, mainly due to resolving uncertainties in consideration that was constrained in prior periods. In addition, Jefferies Group recognized $4.6 million and $13.5 million, respectively, of revenues primarily associated with distribution services during the three and nine months ended September 30, 2018, a portion of which relates to prior periods.
Contract Balances
The timing of revenue recognition may differ from the timing of payment by customers. We record a receivable when revenue is recognized prior to payment and it has an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, we record deferred revenue until the performance obligations are satisfied. Jefferies Group deferred revenue primarily relates to retainer and milestone fees received in investment banking advisory engagements where the performance obligation has not yet been satisfied.
We had receivables related to revenues from contracts with customers of $259.1 million and $469.3 million at September 30, 2018 and December 31, 2017, respectively. As further discussed in Note 1, on June 5, 2018, we sold 48% of National Beef to Marfrig. Upon closing of the transaction with Marfrig, we deconsolidated our investment in National Beef, including its receivables related to revenues from contracts with customers. Receivables related to revenues from contracts with customers at December 31, 2017 included $183.4 million related to National Beef.
We had no significant impairments related to these receivables during the three and nine months ended September 30, 2018.
Our deferred revenue, which primarily relates to Jefferies Group, was $16.3 million and $15.5 million at September 30, 2018 and December 31, 2017, respectively, which are recorded as Payables, expense accruals and other liabilities in the Consolidated Statements of Financial Condition. During the three months ended September 30, 2018, we recognized $6.3 million of deferred revenue from the balance at June 30, 2018. During the nine months ended September 30, 2018, we recognized $20.8 million of deferred revenue from the balance at December 31, 2017.
Contract Costs
Jefferies Group capitalizes costs to fulfill contracts associated with investment banking advisory engagements where the revenue is recognized at a point in time and the costs are determined to be recoverable. Capitalized costs to fulfill a contract are recognized at the point in time that the related revenue is recognized.
At September 30, 2018, Jefferies Group's capitalized costs to fulfill a contract were $4.8 million, which are recorded in Receivables in the Consolidated Statement of Financial Condition. For the three and nine months ended September 30, 2018, Jefferies Group recognized $1.5 million and $1.5 million, respectively, of expenses related to costs to fulfill a contract that were capitalized as of the beginning of the period. There were no significant impairment charges recognized in relation to these capitalized costs during the three and nine months ended September 30, 2018. At September 30, 2018, capitalized costs related to our other subsidiaries were not material.

Note 18.  Income Taxes

The aggregate amount of gross unrecognized tax benefits related to uncertain tax positions at September 30, 20172018 was $215.8$237.8 million (including $54.8$63.0 million for interest), of which $164.2$184.0 million related to Jefferies.Jefferies Group. The aggregate amount of gross unrecognized tax benefits related to uncertain tax positions at December 31, 20162017 was $196.5$226.4 million (including $47.7$57.4 million for interest), of which $148.8$177.8 million related to Jefferies.Jefferies Group. If recognized, such amounts would lower our effective tax rate. Accrued


interest is included in Payables, expense accruals and other liabilities in the Consolidated Statements of Financial Condition. No material penalties were accrued for the nine months ended September 30, 20172018 and the year ended December 31, 2016.2017.

The statute of limitations with respect to our federal income tax returns has expired for all years through 2012. Our2013. We have settled our 2013 federal tax return is currently under examination by the Internal Revenue Service.Service examination with the settlement having an immaterial impact on our effective tax rate. Our New York State and New York City income tax returns are currently being audited for the 2012 to 2014 period and 2011 to 20122014 period, respectively. Prior to becoming a wholly-owned subsidiary, Jefferies Group filed a consolidated U.S. federal income tax


return with its qualifying subsidiaries and was subject to income tax in various states, municipalities and foreign jurisdictions. Jefferies Group is currently under examination by the Internal Revenue Service and othervarious major tax jurisdictions. The statute of limitations with respect to Jefferies federal income tax returns has expired for all years through 2006.

We do not expect that resolution of these examinations will have a significant effect on our consolidated financial position,Consolidated Statements of Financial Condition, but could have a significant impact on the consolidated resultsConsolidated Statements of operationsOperations for the period in which resolution occurs. 

Our provision for income taxes for continuing operations for the nine months ended September 30, 2018 was reduced by a $43.9 million benefit resulting from a reversal of our valuation allowance with respect to certain federal and state net operating loss carryforwards ("NOLs") which we now believe are more likely than not to be utilized before they expire. Our provision for income taxes from continuing operations for the nine months ended September 30, 2017 was reduced by a $31.9 million benefit resulting from the repatriation of Jefferies Group's earnings from certain of its foreign subsidiaries, along with their associated foreign tax credits.

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118"), which provides guidance on accounting for the tax effects of the Tax Cuts and Jobs Act (the "Tax Act"). SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under Accounting Standards Codification 740, Income Taxes ("ASC 740"). While the initial estimated impact of the Tax Act was calculated using all available information, we anticipate modifications based on the procedures set forth under SAB 118. This process is applied at each reporting period to account for and qualitatively disclose: (1) the effects of the change in tax law for which accounting is complete; (2) provisional amounts (or adjustments to provisional amounts) for the effects of the tax law where accounting is not complete, but that a reasonable estimate has been determined; and (3) where a reasonable estimate cannot yet be made, taxes are reflected in accordance with the law prior to the enactment of the Tax Act.

Due to the complex nature of the Tax Act, we have not completed our accounting for the income tax effects of certain elements of the Tax Act. If we were able to make reasonable estimates of the effects of certain elements for which our analysis is not yet complete, we recorded a provisional estimate in the financial statements. If we were not yet able to make reasonable estimates of the impact of certain elements, we have not recorded any adjustments related to those elements and have continued accounting for them in accordance with ASC 740 on the basis of the tax laws in effect before the Tax Act. The ultimate impact of the Tax Act may differ from this estimate, possibly materially, due to refinement of our calculations based on updated information, changes in interpretations and assumptions, and guidance that may be issued and actions we may take in response to the Tax Act. We note that the Tax Act is complex and we continue to assess the impact that various provisions will have on our business. Since the Tax Act was passed late in the fourth quarter of 2017, and ongoing guidance and accounting interpretation are expected, we consider the accounting for the deferred tax asset remeasurements, the transition tax, and other items to be incomplete due to the forthcoming guidance and our ongoing analysis of final year-end data and tax positions. During the nine months ended September 30, 2018, we revised our prior estimate and recorded a $3.8 million increase in our tax expense related to the Tax Act.



Note 19.  Common Share and Earnings (Loss) Per Common Share

Basic and diluted earnings (loss) per share amounts were calculated by dividing net income (loss) by the weighted average number of common shares outstanding. The numerators and denominators used to calculate basic and diluted earnings (loss) per share are as follows (in thousands):
 For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2017 2016 2017 2016
Numerator for earnings (loss) per share:       
Net income (loss) attributable to Leucadia National Corporation common shareholders$99,351
 $154,358
 $438,952
 $(11,233)
Allocation of earnings to participating securities (1)(368) (2,060) (1,692) —
Net income (loss) attributable to Leucadia National Corporation common shareholders for basic earnings (loss) per share98,983
 152,298
 437,260
 (11,233)
Adjustment to allocation of earnings to participating securities related to diluted shares (1)(2) 6
 3
 —
Mandatorily redeemable convertible preferred share dividends—
 1,016
 3,203
 —
Net income (loss) attributable to Leucadia National Corporation common shareholders for diluted earnings (loss) per share$98,981

$153,320
 $440,466
 $(11,233)
        
Denominator for earnings (loss) per share: 
  
  
  
Denominator for basic earnings (loss) per share – weighted average shares367,828
 370,404
 368,736
 371,814
Stock options23
 1
 22
 —
Warrants—
 —
 —
 —
Senior executive compensation plan awards2,347
 —
 2,313
 —
Mandatorily redeemable convertible preferred shares—
 4,162
 4,162
 —
3.875% Convertible Senior Debentures—
 —
 —
 —
Denominator for diluted earnings (loss) per share370,198

374,567
 375,233
 371,814
 For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2018 2017 2018 2017
Numerator for earnings per share:       
Net income attributable to Jefferies Financial Group Inc. common shareholders$192,635
 $99,351
 $1,042,689
 $438,952
Allocation of earnings to participating securities (1)(1,054) (368) (5,049) (1,692)
Net income attributable to Jefferies Financial Group Inc. common shareholders for basic earnings per share191,581
 98,983
 1,037,640
 437,260
Adjustment to allocation of earnings to participating securities related to diluted shares (1)3
 (2) 34
 3
Mandatorily redeemable convertible preferred share dividends1,276
 —
 —
 3,203
Net income attributable to Jefferies Financial Group Inc. common shareholders for diluted earnings per share$192,860

$98,981
 $1,037,674
 $440,466
        
Denominator for earnings per share: 
  
  
  
Weighted average common shares outstanding332,191
 358,039
 343,829
 359,031
Weighted average shares of restricted stock outstanding with future service required(1,879) (1,320) (1,681) (1,377)
Weighted average RSUs outstanding with no future service required11,122
 11,109
 11,152
 11,082
Denominator for basic earnings per share – weighted average shares341,434
 367,828
 353,300
 368,736
Stock options5
 23
 13
 22
Senior executive compensation plan awards4,706
 2,347
 3,856
 2,313
Mandatorily redeemable convertible preferred shares4,162
 —
 —
 4,162
Denominator for diluted earnings per share350,307

370,198
 357,169
 375,233

(1)Represents dividends declared during the period on participating securities plus an allocation of undistributed earnings to participating securities. Net losses are not allocated to participating securities. Participating securities represent restricted stock and RSUs for which requisite service has not yet been rendered and amounted to weighted average shares of 1,366,7001,888,700 and 5,009,5001,366,700 for the three months ended September 30, 20172018 and 2016,2017, respectively, and 1,433,5001,700,700 and 4,859,9001,433,500 for the nine months ended September 30, 20172018 and 2016,2017, respectively. Dividends declared on participating securities were not material during three and nine months ended September 30, 20172018 and 2016.2017. Undistributed earnings are allocated to participating securities based upon their right to share in earnings if all earnings for the period had been distributed.


Options to purchase 647,300For the nine months ended September 30, 2018 and 660,000 weighted average shares of common stock were outstanding during the three and nine months ended September 30, 2016, respectively, but were not included in the computation of diluted per share amounts as the effect was antidilutive. Amounts for the three and nine months ended September 30, 2017, were not material.

In the table above, the denominator for diluted earnings (loss) per share does not include weighted average common shares of 1,200,000 during the nine months ended September 30, 2016, related to outstanding warrants to purchase common shares at $33.33 per share, as the effect was antidilutive. The warrants expired in the first quarter of 2016.

For the three and nine months ended September 30, 2017 and 2016, shares related to the 3.875% Convertible Senior Debentures were not included in the computation of diluted per share amounts as the conversion price exceeded the average market price. All of these convertible debentures were redeemed in January 2018. For the nine months ended September 30, 2018 and the three months ended September 30, 2017, and the nine months ended September 30, 2016, shares related to the mandatorily redeemable convertible preferred shares were not included in the computation of diluted per share amounts as the effect was antidilutive.

The Board of Directors from time to time has authorized the repurchase of our common shares. In April 2018, the Board of Directors approved an increase to our share repurchase program to 25,000,000 common shares from the 12,500,000 million remaining under its prior authorization. In July 2018, the Board of Directors approved an increase to our share repurchase program by an additional 25,000,000 common shares. During the nine months ended September 30, 2018, we purchased a total of 26,119,483 of our common shares under these authorizations. As of September 30, 2018, 23,880,517 common shares remained authorized for repurchase.


Note 20.  Commitments, Contingencies and Guarantees

Commitments

The following table summarizes commitments associated with certain business activities (in millions):
Expected Maturity Date  Expected Maturity Date  
2017 2018 
2019
and
2020
 
2021
and
2022
 
2023
and
Later
 
Maximum
Payout 
2018 2019 
2020
and
2021
 
2022
and
2023
 
2024
and
Later
 
Maximum
Payout 
Equity commitments (1)$9.3
 $40.2
 $11.4
 $—
 $214.2
 $275.1
$280.0
 $56.9
 $31.7
 $—
 $9.8
 $378.4
Loan commitments (1)—
 244.1
 —
 53.0
 —
 297.1
—
 250.0
 54.4
 32.5
 —
 336.9
Mortgage-related and other purchase commitments—
 —
 177.7
 —
 —
 177.7
Underwriting commitments70.0
 —
 —
 —
 —
 70.0
411.0
 —
 —
 —
 —
 411.0
Forward starting reverse repos (2)3,943.7
 —
 —
 —
 —
 3,943.7
3,159.4
 —
 —
 —
 —
 3,159.4
Forward starting repos (2)2,018.0
 —
 —
 —
 —
 2,018.0
2,057.8
 —
 —
 —
 —
 2,057.8
Other unfunded commitments (1)45.0
 154.5
 130.6
 226.2
 12.1
 568.4
60.0
 148.7
 42.3
 —
 4.9
 255.9
$6,086.0

$438.8

$319.7

$279.2

$226.3

$7,350.0
$5,968.2

$455.6

$128.4

$32.5

$14.7

$6,599.4

(1)Equity commitments, loan commitments and other unfunded commitments are presented by contractual maturity date. The amounts are however mostly available on demand.
(2)At September 30, 2017, all2018, $3,141.9 million of the forward starting securities purchased under agreements to resell and all of the securities sold under agreements to repurchase (collectively “repos”) settled within three business days.

Equity Commitments.  Equity commitments include commitments to invest in Jefferies Group's joint ventures,venture, Jefferies Finance, and Jefferies LoanCore, and commitments to invest in private equity funds and in Jefferies Capital Partners, LLC, the manager of the private equity funds, which consistsconsist of a team led by Brian P. Friedman, our President and a Director. As ofAt September 30, 2017,2018, Jefferies Group's outstanding commitments relating to Jefferies Capital Partners, LLC and its private equity funds were $22.0$18.1 million.

See Note 9 for additional information regarding Jefferies investmentsGroup's investment in Jefferies Finance and Jefferies LoanCore.

Our equity commitments also include our commitment to invest in 54 Madison, a fund which targets real estate projects. We plan to invest a cumulative total of $202.5 million to this fund, of which we have already contributed $134.4 million. Capital commitments are contingent upon approval of the related investment by the investment committee, which we control. Through September 30, 2017, approved unfunded commitments totaled $36.3 million.Finance.

Additionally, as of September 30, 2017,2018, we havehad other outstanding equity commitments to invest up to $15.4$316.7 million in various other investments.investments, which include $280.0 million as part of the further development of our alternative asset management platforms.

Loan Commitments. From time to time Jefferies Group makes commitments to extend credit to investment banking and other clients in loan syndication, acquisition finance and securities transactions and to SPE sponsors in connection with the funding of CLO and other asset-backed transactions. These commitments and any related drawdowns of these facilities typically have fixed maturity


dates and are contingent on certain representations, warranties and contractual conditions applicable to the borrower. As ofAt September 30, 2017,2018, Jefferies has $64.9Group had $86.3 million of outstanding loan commitments to clients.

Loan commitments outstanding as ofat September 30, 2017,2018, also include Jefferies Group's portion of the outstanding secured revolving credit facility provided to Jefferies Finance to support loan underwritings by Jefferies Finance. At September 30, 2017, $35.1 million2018, none of Jefferies Group's $250.0 million commitment was funded.

Underwriting Commitments. In August 2014, we and Solomon Kumin established Folger Hill; we committedconnection with investment banking activities, Jefferies Group may from time to time provide Folger Hillunderwriting commitments to its clients in connection with a three-year, $20.0 million revolving credit facility to fund its start-up and initial operating expenses.  During the third quarter of 2017, the facility was amended to extend the maturity date until December 31, 2018 and to provide for an optional termination right for the Company with ten days prior written notice. As of September 30, 2017, $10.2 million has been provided to Folger Hill under the revolving credit facility.

Mortgage-Related and Other Purchase Commitments.capital raising transactions.  Jefferies enters into forward contracts to purchase mortgage participation certificates, mortgage-backed securities and consumer loans.  The mortgage participation certificates evidence interests in mortgage loans insured by the Federal Housing Administration and the mortgage-backed securities are insured or guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae.  Jefferies frequently securitizes the mortgage participation certificates and mortgage-backed securities.  The fair value of mortgage-related and other purchase commitments recorded in the Consolidated Statement of Financial Condition at September 30, 2017 was $44.5 million.

Forward Starting Reverse Repos and Repos.  Jefferies Group enters into commitments to take possession of securities with agreements to resell on a forward starting basis and to sell securities with agreements to repurchase on a forward starting basis that are primarily secured by U.S. government and agency securities.
Other Unfunded Commitments. Other unfunded commitments include obligations in the form of revolving notes to provide financing to asset-backed and CLO vehicles. Upon advancing funds, drawn amounts are collateralized by the assets of an entity.

In October 2017, Jefferies entered into a contract for technology operations services under which they have contractual obligations of approximately $2.5 million for the remainder of fiscal 2017, approximately $11.9 million for fiscal 2018 and annual obligations for each year thereafter of approximately $15.7 million through 2028.

Contingencies

We and our subsidiaries are parties to legal and regulatory proceedings that are considered to be either ordinary, routine litigation incidental to their business or not significant to our consolidated financial position. We and our subsidiaries are also involved, from time to time, in other exams, investigations and similar reviews (both formal and informal) by governmental and self-regulatoryself-


regulatory agencies regarding our businesses, certain of which may result in judgments, settlements, fines, penalties or other injunctions. We do not believe that any of these actions will have a significant adverse effect on our consolidated financial position or liquidity, but any amounts paid could be significant to results of operations for the period.

Guarantees
Derivative Contracts.  Jefferies Group dealer activities cause it to make markets and trade in a variety of derivative instruments. Certain derivative contracts that Jefferies Group has entered into meet the accounting definition of a guarantee under GAAP, including credit default swaps, written foreign currency options and written equity put options. On certain of these contracts, such as written interest rate caps and foreign currency options, the maximum payout cannot be quantified since the increase in interest or foreign exchange rates are not contractually limited by the terms of the contract. As such, we have disclosed notional values as a measure of Jefferies Group's maximum potential payout under these contracts.


The following table summarizes the notional amounts associated with ourJefferies Group derivative contracts meeting the definition of a guarantee under GAAP as of September 30, 20172018 (in millions):
Expected Maturity Date  Expected Maturity Date  
Guarantee Type2017 2018 
2019
and
2020
 
2021
and
2022
 
2023
and
Later
 
Notional/
Maximum
Payout
2018 2019 
2020
and
2021
 
2022
and
2023
 
2024
and
Later
 
Notional/
Maximum
Payout
Derivative contracts – non-credit related$8,530.1
 $5,114.5
 $2,183.1
 $215.0
 $595.7
 $16,638.4
$10,898.5
 $5,978.6
 $2,948.5
 $1,015.0
 $454.6
 $21,295.2
Written derivative contracts – credit related—
 41.4
 10.0
 279.8
 —
 331.2
—
 —
 36.4
 33.8
 —
 70.2
Total derivative contracts$8,530.1

$5,155.9

$2,193.1

$494.8

$595.7

$16,969.6
$10,898.5

$5,978.6

$2,984.9

$1,048.8

$454.6

$21,365.4

The derivative contracts deemed to meet the definition of a guarantee under GAAP are before consideration of hedging transactions and only reflect a partial or "one-sided" component of any risk exposure. Written equity options and written credit default swaps are often executed in a strategy that is in tandem with long cash instruments (e.g., equity and debt securities). Jefferies Group substantially mitigates its exposure to market risk on these contracts through hedges, such as other derivative contracts and/or cash instruments and Jefferies Group manages the risk associated with these contracts in the context of its overall risk management framework. Jefferies Group believes notional amounts overstate its expected payout and that fair value of these contracts is a more relevant measure of its obligations. The fair value of derivative contracts meeting the definition of a guarantee is approximately $245.5$216.9 million as ofat September 30, 2017.2018.

Berkadia.  We have agreed to reimburse Berkshire Hathaway for up to one-half of any losses incurred under a $1.5 billion surety policy securing outstanding commercial paper issued by an affiliate of Berkadia. As ofAt September 30, 2017,2018, the aggregate amount of commercial paper outstanding was $1.47 billion.
Loan Guarantee. Jefferies has provided a guarantee to Jefferies Finance that matures in January 2021, whereby Jefferies is required to make certain payments to a SPE sponsored by Jefferies Finance in the event that Jefferies Finance is unable to meet its obligations to the SPE. The maximum amount payable under the guarantee is $0.2 million at September 30, 2017.
Other Guarantees.  Jefferies Group is a member of various exchanges and clearing houses. In the normal course of business, Jefferies Group provides guarantees to securities clearinghousesclearing houses and exchanges. These guarantees generally are required under the standard membership agreements, such that members are required to guarantee the performance of other members. Additionally, if a member becomes unable to satisfy its obligations to the clearinghouse,clearing house, other members would be required to meet these shortfalls. To mitigate these performance risks, the exchanges and clearinghousesclearing houses often require members to post collateral. Jefferies Group's obligations under such guarantees could exceed the collateral amounts posted. Jefferies Group's maximum potential liability under these arrangements cannot be quantified; however, the potential for Jefferies Group to be required to make payments under such guarantees is deemed remote.  Accordingly, no liability has been recognized for these arrangements.
Indemnification.  In connection with the 2013 sale of Empire Insurance Company, we agreed to indemnify the buyer for certain of Empire’s lease obligations that were assumed by another subsidiary of ours as part of the sale of Empire.  Our subsidiary was subsequently sold in 2014 to HomeFed as part of the real estate transaction with HomeFed.  Although HomeFed has agreed to indemnify us for these lease obligations, our indemnification obligation under the Empire transaction remains.  The primary lease expires in 2018 and the aggregate amount of lease obligation as of September 30, 2017 was approximately $12.7 million. Substantially all of the space under the primary lease has been sublet to various third-party tenants for the full length of the lease term in amounts in excess of the obligations under the primary lease.

Standby Letters of Credit.  At September 30, 2017,2018, Jefferies Group provided guarantees to certain counterparties in the form of standby letters of credit in the amount of $54.0$51.8 million. Standby letters of credit commit Jefferies Group to make payment to the beneficiary if the guaranteed party fails to fulfill its obligation under a contractual arrangement with that beneficiary. Since commitments associated with these collateral instruments may expire unused, the amount shown does not necessarily reflect the actual future cash funding requirement. Other subsidiaries of ours have outstanding letters of credit aggregating $15.0$1.1 million at September 30, 2017.2018. Primarily all letters of credit expire within one year.



Note 21.  Net Capital Requirements

Jefferies Group operates broker-dealersas a broker-dealer registered with the SEC and member firms of the Financial Industry Regulatory Authority ("FINRA"). Jefferies LLC and Jefferies Execution areis subject to the Securities and Exchange Commission Uniform Net Capital Rule ("Rule 15c3-1"), which requires the maintenance of minimum net capital and havehas elected to calculate minimum capital


requirements underusing the alternative method as permitted by Rule 15c3-1 in calculating net capital. Jefferies LLC, is also registered as a dually-registered U.S. broker-dealer and futures commission merchant ("FCM") and, is also subject to Rule 1.17 of the CFTC, which sets forth minimum financial requirements. The minimum net capital requirement in determining excess net capital for a dually-registered U.S. broker-dealer and FCM is equal to the greater of the requirement under Rule 15c3-1 or CFTC Rule 1.17.

Jefferies LLC and Jefferies Execution’sLLC’s net capital and excess net capital as ofat September 30, 20172018 were as follows (in thousands):$1,917.6 million and $1,806.2 million, respectively.
 Net Capital 
Excess
Net Capital
Jefferies LLC$1,491,122
 $1,411,625
Jefferies Execution$7,961
 $7,711

FINRA is the designated examining authority for Jefferies Group's U.S. broker-dealersbroker-dealer and the National Futures Association is the designated self-regulatory organization for Jefferies LLC as an FCM.

Certain other U.S. and non-U.S. subsidiaries of Jefferies Group are subject to capital adequacy requirements as prescribed by the regulatory authorities in their respective jurisdictions, including Jefferies International Limited which is authorized and regulated by the Financial Conduct Authority in the United Kingdom.

The regulatory capital requirements referred to above may restrict our ability to withdraw capital from Jefferies Group's regulated subsidiaries. Some of our other consolidated subsidiaries also have credit agreements which may restrict the payment of cash dividends, or the ability to make loans or advances to the parent company.

Note 22.  Other Fair Value Information

The carrying amounts and estimated fair values of our principal financial instruments that are not recognized at fair value on a recurring basis are as follows (in thousands):
September 30, 2017 December 31, 2016September 30, 2018 December 31, 2017
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Receivables:              
Notes and loans receivable (1)$961,641
 $950,780
 $962,938
 $958,377
$663,508
 $644,184
 $579,071
 $565,285
              
Financial Liabilities: 
  
  
  
 
  
  
  
Short-term borrowings (2)$412,841
 $412,841
 $525,842
 $525,842
$382,006
 $382,006
 $412,891
 $412,891
Long-term debt (3)$7,538,772
 $7,930,261
 $7,131,587
 $7,221,459
$7,067,868
 $7,113,515
 $7,278,827
 $7,678,210

(1)Notes and loans receivable:  The fair values are estimated principally based on a discounted future cash flows model using market interest rates for similar instruments. If measured at fair value in the financial statements, these financial instruments would be classified as Level 3 in the fair value hierarchy.
(2)Short-term borrowings:  The fair values of short-term borrowings are estimated to be the carrying amount due to their short maturities. If measured at fair value in the financial statements, these financial instruments would be classified as Level 3 in the fair value hierarchy.
(3)Long-term debt: The fair values are estimated using quoted prices, pricing information obtained from external data providers and, for certain variable rate debt, is estimated to be the carrying amount. If measured at fair value in the financial statements, these financial instruments would be classified as Level 2 and Level 3 in the fair value hierarchy.



Note 23.  Related Party Transactions

Jefferies Capital Partners Related Funds. Jefferies Group has equity investments in the JCP Manager and in private equity funds, which are managed by a team led by Brian P. Friedman, our President and a Director ("Private Equity Related Funds"). Reflected in our Consolidated Statements of Financial Condition at September 30, 20172018 and December 31, 20162017 are Jefferies Group's equity investments in Private Equity Related Funds of $28.1$34.1 million and $37.7$23.7 million, respectively. Net gains (losses) aggregating $(0.4)$0.2 million and $6.0$(0.4) million for the three months ended September 30, 20172018 and 2016,2017, respectively, and $(9.8)$10.2 million and $(1.7)$(9.8) million for the nine months ended September 30, 20172018 and 2016,2017, respectively, were recorded in Other revenues related to the Private Equity Related Funds. For further information regarding our commitments and funded amounts to the Private Equity Related Funds, see Notes 8 and 20.



Berkadia Commercial Mortgage, LLC. At September 30, 20172018 and December 31, 2016,2017, Jefferies Group has commitments to purchase $722.9$748.8 million and $817.0$864.1 million, respectively, in agency commercial mortgage-backed securities from Berkadia.

HRG. Jefferies Group recognized investment banking revenues of $3.0 million for the three and nine months ended September 30, 2018 in connection with the merger of HRG into Spectrum Brands, which is partially owned by Jefferies.

FXCM. Jefferies Group entered into OTC foreign exchange contracts with FXCM. In connection with these contracts, Jefferies Group had $12.3 million and $17.0 million at September 30, 2018 and December 31, 2017, respectively, included in Payables, expense accruals and other liabilities in our Consolidated Statements of Financial Condition.

Officers, Directors and Employees.  We have $52.1$51.2 million and $41.2$45.6 million of loans outstanding to certain officers and employees (none of whom are an executive officer or director of the Company) at September 30, 20172018 and December 31, 2016,2017, respectively. 

Receivables from and payables to customers include balances arising from officers, directors and employees' individual security transactions. These transactions are subject to the same regulations as all customer transactions and are provided on substantially the same terms.  At December 31, 2016, Jefferies provided a guarantee of a credit agreement for a private equity fund owned by Jefferies employees and in April 2017 this guarantee was terminated.

National Beef. National Beef participates in a cattle supply agreement with a minority owner and holder of a redeemable noncontrolling interest in National Beef.  Under this agreement National Beef has agreed to purchase 735,385 head of cattle each year (subject to adjustment), from the members of the minority owner, with prices based on those published by the U.S. Department of Agriculture, subject to adjustments for cattle performance.  National Beef obtained approximately 24% and 26% of its cattle requirements under this agreement during the nine months ended September 30, 2017 and 2016, respectively.

National Beef also enters into transactions with an affiliate of another minority owner and holder of a redeemable noncontrolling interest in National Beef to buy and sell a limited number of beef products.  During the nine months ended September 30, 2017, sales to this affiliate were $24.6 million and purchases were $9.7 million.  During the nine months ended September 30, 2016, sales to this affiliate were $22.7 million and purchases were $10.6 million.  At September 30, 2017 and December 31, 2016, amounts due from and payable to these related parties were not significant. 

HomeFed.  During 2014, we sold to HomeFed substantially all of our then-owned real estate properties and operations as well as cash of approximately $14.0 million, in exchange for 7,500,000 newly issued unregistered HomeFed common shares.  As discussed in Note 9, as a result of a 1998 distribution to all of our shareholders, approximately 4.8% of HomeFed is beneficially owned by our Chairman at September 30, 2017.  Three of our executives serve on the board of directors of HomeFed, including our Chairman who serves as HomeFed’s Chairman, and our President.
54 Madison. At September 30, 2017 and December 31, 2016, approximately $188.2 million and $230.2 million, respectively, of long-term debt held by 54 Madison is owed to minority owners of 54 Madison. The interest rate on these long-term notes range between 4.2% and 6.0%.
The employees of the asset manager of 54 Madison and employees of certain asset managers of 54 Madison's investments are also employees of Leucadia. These employees are also minority owners of 54 Madison.
See Note 9 for information on transactions with Jefferies Finance and Jefferies LoanCore.HomeFed.

Note 24.  Discontinued Operations

On June 5, 2018, we sold 48% of National Beef to Marfrig for $907.7 million in cash, reducing our ownership in National Beef to 31%. Marfrig has also acquired an additional 3% of National Beef from other equity owners and now owns 51% of National Beef. Jefferies will continue to designate two board members and have a series of other rights in respect of our continuing equity interest, with a lockup period of five years and thereafter fair market value liquidity protections. As of the closing of the sale on June 5, 2018, we deconsolidated our investment in National Beef and account for our remaining interest under the equity method of accounting.

The sale of National Beef meets the GAAP criteria to be classified as a discontinued operation as the sale represents a strategic shift that has a major effect in our operations and financial results. As such, we have classified the results of National Beef prior to June 5, 2018 as a discontinued operation and reported those results in Income from discontinued operations, net of income tax provision in the Consolidated Statements of Operations.


A summary of the results of discontinued operations for National Beef is as follows (in thousands):

   For the Three Months Ended September 30, For the Nine Months Ended September 30,
 
   2017 2018 (1) 2017
 Revenues:      
 Beef processing services $2,038,821
 $3,137,611
 $5,472,339
 Interest income 58
 131
 230
 Other 420
 4,329
 3,705
 Total revenues 2,039,299
 3,142,071
 5,476,274
        
 Expenses:  
  
  
 Compensation and benefits 10,505
 17,414
 29,649
 Cost of sales 1,816,480
 2,884,983
 5,030,887
 Interest expense 1,713
 4,316
 5,781
 Depreciation and amortization 26,664
 43,959
 73,522
 Selling, general and other expenses 9,458
 14,291
 26,428
 Total expenses 1,864,820
 2,964,963
 5,166,267
        
 Income from discontinued operations before income taxes 174,479
 177,108
 310,007
 Income tax provision 53,490
 47,045
 90,856
 Income from discontinued operations, net of income tax provision $120,989
 $130,063
 $219,151

(1) Discontinued operations for the nine months ended September 30, 2018 include National Beef results through the June 5, 2018 transaction with Marfrig.

Net income attributable to the redeemable noncontrolling interests in the Consolidated Statements of Operations includes $36.6 million for the three months ended September 30, 2017 and $37.1 million and $65.1 million for the nine months ended September 30, 2018 and 2017, respectively, related to National Beef's noncontrolling interests. Pre-tax income from discontinued operations attributable to Jefferies Financial Group Inc. common shareholders was $137.8 million for the three months ended September 30, 2017 and $140.0 million and $244.9 million for the nine months ended September 30, 2018 and 2017, respectively.

As discussed above, we account for our retained 31% ownership of National Beef subsequent to the sale to Marfrig under the equity method. From June 5, 2018 through September 30, 2018, we recorded $83.3 million in Income (loss) related to associated companies from our 31% ownership in National Beef and we received distributions from National Beef of $48.7 million. The pre-tax income of 100% National Beef from June 5, 2018 through September 30, 2018 was $276.5 million.

During the nine months ended September 30, 2018, we also recorded a pre-tax gain on the National Beef transaction of $873.5 million ($643.9 million after-tax) which is reported in Gain on disposal of discontinued operations, net of income tax provision in the Consolidated Statements of Operations. Included in the $873.5 million pre-tax gain on the sale of National Beef was approximately $352.4 million related to the remeasurement of our retained 31% interest in National Beef to fair value. The $592.3 million fair value of our retained 31% interest in National Beef was based on the implied equity value of 100% of National Beef from the transaction with Marfrig and is considered a Level 3 input. The transaction with Marfrig was based on a $1.9 billion equity valuation and a $2.3 billion enterprise valuation.
Note 24.25.  Segment Information
Our operating segments consist of our consolidated businesses, which offer different products and services and are managed separately. Our reportable segments, based on qualitative and quantitative requirements, are Jefferies National Beef,Group and Corporate and other.Corporate. Jefferies Group is a global full-service, integrated securities and investment banking firm. National Beef processes and markets fresh boxed beef, consumer-ready beef, beef by-products and wet blue leather for domestic and international markets. 
Corporate and other assets primarily consist of financial instruments owned, the deferred tax asset (exclusive of Jefferies Group's deferred tax asset), cash and cash equivalents andequivalents. Corporate and other revenues primarily consist ofinclude interest other income and net realized securities gains and losses.income. We do not allocate Corporate and other revenues or overhead expenses to the operating units.
All other consists of our other financial services businesses and investments and our other merchant banking businesses and investments. Our other financial services businesses and investments include the Leucadia Asset Management platform, Foursight


Capital, and our investments in Berkadia, HomeFed and FXCM. Our other merchant banking businesses and investments primarily include Vitesse Energy Finance, JETX Energy, Idaho Timber Conwed, Vitesse, JETX, real estate, and our investments in HRG,Spectrum Brands, National Beef, Garcadia, Linkem Garcadia and Golden Queen. As a result of the announced transactions and our current operating strategy, we have made changes to the corporate segment to reflect the way we currently manage our business, and have reclassified the prior periods to conform to current presentation.


As discussed further in Notes 1 and 24, on June 5, 2018, we sold 48% of National Beef to Marfrig and deconsolidated our investment in National Beef. Results prior to June 5, 2018 are classified in discontinued operations and are not included in the table below. Our retained 31% interest in National Beef is accounted for under the equity method and results subsequent to the June 5, 2018 closing are included in All other in the table below.
Certain information concerning our segments is presented in the following table. Consolidated subsidiaries are reflected as of the date a majority controlling interest was acquired. As discussed above, Jefferies Group is reflected in our consolidated financial statements utilizing a one month lag.
 For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2017 2016 2017 2016
 (In thousands)
Net Revenues:       
Reportable Segments:       
Jefferies$802,909
 $656,496
 $2,381,967
 $1,678,212
National Beef2,039,299
 1,747,042
 5,476,274
 5,180,127
Corporate and other21,722
 1,006
 31,748
 78,354
Total net revenues related to reportable segments2,863,930

2,404,544
 7,889,989
 6,936,693
All other32,592
 271,831
 606,895
 380,146
Total consolidated net revenues$2,896,522

$2,676,375
 $8,496,884
 $7,316,839
        
Income (loss) before income taxes: 
  
  
  
Reportable Segments: 
  
  
  
Jefferies$128,112
 $83,190
 $383,094
 $(55,127)
National Beef174,479
 108,269
 310,007
 192,533
Corporate and other1,595
 (16,619) (30,167) 23,926
Income before income taxes related to reportable segments304,186

174,840
 662,934
 161,332
All other(89,422) 89,791
 104,073
 (29,769)
Parent Company interest(14,737) (14,722) (44,201) (44,155)
Total consolidated income before income taxes$200,027

$249,909
 $722,806
 $87,408
        
Depreciation and amortization expenses: 
  
  
  
Reportable Segments: 
  
  
  
Jefferies$15,928
 $16,108
 $46,877
 $45,331
National Beef26,664
 23,100
 73,522
 68,511
Corporate and other865
 867
 2,599
 2,754
Total depreciation and amortization expenses related to reportable segments43,457

40,075
 122,998
 116,596
All other11,967
 12,616
 32,653
 36,474
Total consolidated depreciation and amortization expenses$55,424

$52,691
 $155,651
 $153,070
 For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2018 2017 2018 2017
 (In thousands)
Net revenues:       
Reportable Segments:       
Jefferies Group$774,749
 $802,909
 $2,419,410
 $2,381,967
Corporate8,692
 1,915
 14,753
 4,257
Total net revenues related to reportable segments783,441

804,824
 2,434,163
 2,386,224
All other (1)367,405
 52,399
 523,277
 634,386
Total consolidated net revenues$1,150,846

$857,223
 $2,957,440
 $3,020,610
        
Income (loss) from continuing operations before income taxes: 
  
  
  
Reportable Segments: 
  
  
  
Jefferies Group$86,154
 $128,112
 $336,922
 $383,094
Corporate(14,563) (16,311) (55,708) (56,816)
Income from continuing operations before income taxes related to reportable segments71,591

111,801
 281,214
 326,278
All other (1)215,856
 (71,516) 111,007
 130,722
Parent Company interest(14,755) (14,737) (44,251) (44,201)
Total consolidated income from continuing operations before income taxes$272,692

$25,548
 $347,970
 $412,799
        
Depreciation and amortization expenses: 
  
  
  
Reportable Segments: 
  
  
  
Jefferies Group$17,175
 $15,928
 $50,829
 $46,877
Corporate852
 865
 2,599
 2,599
Total depreciation and amortization expenses related to reportable segments18,027

16,793
 53,428
 49,476
All other14,268
 11,967
 38,932
 32,653
Total consolidated depreciation and amortization expenses$32,295

$28,760
 $92,360
 $82,129
 
(1)All other Net revenues and Income from continuing operations before income taxes include realized and unrealized gains (losses) relating to our investment in FXCM of $1.3 million and $(2.9) million, respectively, for the three months ended September 30, 2018; $16.4 million and $(2.9) million, respectively, for the nine months ended September 30, 2018; $2.3 million and $(2.0) million, respectively, for the three months ended September 30, 2017; and $17.6 million and $(148.7) million, respectively, for the nine months ended September 30, 2017.

Interest expense classified as a component of Net revenues relates to Jefferies.Jefferies Group. For the three months ended September 30, 20172018 and 2016,2017, interest expense classified as a component of Expenses was primarily comprised of National Beef ($1.7 million and $3.0 million, respectively), parent company interest ($14.714.8 million and $14.7 million, respectively) and all other ($10.914.0 million and $5.4$10.9 million, respectively). For the nine months ended September 30, 20172018 and 2016,2017, interest expense classified as a component of Expenses was primarily comprised of National Beef ($5.8 million and $10.7 million, respectively), parent company interest ($44.244.3 million and $44.2 million, respectively) and all other ($32.630.3 million and $13.3$32.6 million, respectively). 



As discussed above, during the third quarter of 2018, we sold 100% of our equity interests in Garcadia and our associated real estate to our former partners, the Garff family and recognized a pre-tax gain of $221.7 million for the three and nine months ended September 30, 2018 in Other revenues. The gain on the sale is included within All other above.

Conwed Plastics ("Conwed") was our consolidated subsidiary that manufactured and marketed lightweight plastic netting. In January 2017, we sold 100% of Conwed to Schweitzer-Mauduit International, Inc., (NYSE: SWM) for $295 million in cash plus potential earn-out payments in 2019, 2020 and 2021 totaling up to $40 million in cash to the extent the results of Conwed’s subsidiary, Filtrexx International, exceed certain performance thresholds. We recognized a $178.2 million pre-tax gain on the sale of Conwed in Other revenues primarily during the nine months ended September 30, 2017. The gain on the sale of Conwed is included within All other above.


Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Statements included in this report may contain forward-looking statements. See “Cautionary"Cautionary Statement for Forward-Looking Information”Information" below. The following should be read in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations, Risk Factors and the description of our businesses included in our Annual Report on Form 10-K for the year ended December 31, 20162017 (the “2016 10-K”"2017 10-K").

On October 2, 2018, our Board of Directors and senior management approved a change of our fiscal year end from a calendar year basis to a fiscal year ending on November 30, consistent with the fiscal year of Jefferies Group. We will file a transition report on Form 10-K for the transition period from January 1, 2018 to November 30, 2018.

Results of Operations
We focus on long-term value creationoperate the largest independent full-service global investment banking firm headquartered in the U.S., together with an established merchant banking business. We engage in investment banking, sales and investtrading and asset management through Jefferies Group. During the second and third quarters of 2018, we closed three previously announced transactions that impacted our results for the three and nine months ended September 30, 2018. These include the sale of 48% of National Beef in a broad variety of businesses.  The mixJune 2018, reducing our ownership to 31%. We deconsolidated National Beef and are accounting for our remaining investment as an equity method investment within our merchant banking business. In August 2018, we sold 100% of our businessesequity interest in Garcadia and investments changeour associated real estate. Vitesse Energy Finance also acquired a package of non-operated Bakken assets for $190 million in April 2018, of which approximately $144 million was funded as equity.

Income from timecontinuing operations before income taxes was $272.7 million for the three months ended September 30, 2018, in comparison to time. Our investments may be$25.5 million for the same period in 2017. The increase in income from continuing operations compared to last year is primarily from a $221.7 million pre-tax gain on the sale of our Garcadia interests and $58.9 million of income related to our remaining interest in National Beef. These increases were partially offset by a $47.9 million impairment loss related to Golden Queen in the third quarter of 2018. We recorded a $48.5 million mark-to-market decrease in the value of our investment in Spectrum Brands Holdings, Inc. ("Spectrum Brands") in the third quarter of 2018 as compared to a $97.9 million mark-to-market decrease in the third quarter of 2017.

Results for the nine months ended September 30, 2018 include a pre-tax gain of $873.5 million, or $643.9 million net of tax expense, from the National Beef transaction. This gain is reflected in our consolidated results as consolidated subsidiaries, equity investments, securities ora gain on disposal of discontinued operations. Our share of the results of National Beef prior to the transaction have also been reflected as discontinued operations, including prior year amounts. Our pre-tax income from continuing and discontinued operations was $1.4 billion for the nine months ended September 30, 2018, significantly higher than $722.8 million in other ways, dependingthe same period last year. Income from continuing operations before income taxes was $348.0 million for the nine months ended September 30, 2018 as compared to $412.8 million for the same period last year. Results for the nine months ended September 30, 2018 include the pre-tax gain of $221.7 million from the Garcadia transaction. The nine months ended September 30, 2017 include a pre-tax gain on the structuresale of Conwed of $178.2 million. A number of other items also impacted comparability with last year. The nine months ended September 30, 2018 includes a mark-to-market decrease in the value of our specific holdings.  Further,investment in Spectrum Brands of $228.4 million, a $47.9 million impairment loss related to Golden Queen, a net loss at Leucadia Asset Management and continued strong performance by Berkadia. The nine months ended September 30, 2017 includes a $130.2 million impairment loss related to FXCM.



A summary of results for the three months ended September 30, 2018 is as our investments span a numberfollows (in thousands):
 Financial Services        
 Jefferies Group Other Financial Services Merchant Banking Corporate Parent Company Interest Total
Net revenues$774,749
 $45,457
 $321,948
 $8,692
 $—
 $1,150,846
            
Expenses:           
Compensation and benefits428,033
 9,973
 9,493
 13,766
 —
 461,265
Cost of sales—
 —
 84,876
 —
 —
 84,876
Floor brokerage and clearing fees44,570
 —
 —
 —
 —
 44,570
Interest expense—
 12,723
 1,359
 —
 14,755
 28,837
Depreciation and amortization17,175
 1,379
 12,889
 852
 —
 32,295
Selling, general and other expenses198,817
 16,008
 21,716
 8,637
 —
 245,178
Total expenses688,595
 40,083
 130,333
 23,255
 14,755
 897,021
Income (loss) from continuing operations before income taxes and income related to associated companies86,154
 5,374
 191,615
 (14,563) (14,755) 253,825
Income related to associated companies—
 16,502
 2,365
 —
 —
 18,867
Income (loss) from continuing operations before income taxes$86,154
 $21,876
 $193,980
 $(14,563) $(14,755) 272,692
Income tax provision from continuing operations          90,391
Net income          $182,301


A summary of industries, each may be impacted by different factors.  For these reasons, our pre-tax income (loss)results for the nine months ended September 30, 2018 is not predictable or necessarily comparable from period to period.as follows (in thousands):
 Financial Services        
 Jefferies Group Other Financial Services Merchant Banking Corporate Parent Company Interest Total
Net revenues$2,419,410
 $53,297
 $469,980
 $14,753
 $—
 $2,957,440
            
Expenses:     
      
Compensation and benefits1,326,887
 29,935
 29,577
 43,040
 —
 1,429,439
Cost of sales—
 —
 257,501
 —
 —
 257,501
Floor brokerage and clearing fees131,792
 —
 —
 —
 —
 131,792
Interest expense—
 26,367
 3,996
 —
 44,251
 74,614
Depreciation and amortization50,829
 4,837
 34,095
 2,599
 —
 92,360
Selling, general and other expenses572,980
 54,081
 56,201
 24,822
 —
 708,084
Total expenses2,082,488
 115,220
 381,370
 70,461
 44,251
 2,693,790
Income (loss) from continuing operations before income taxes and income related to associated companies336,922
 (61,923) 88,610
 (55,708) (44,251) 263,650
Income related to associated companies—
 58,204
 26,116
 —
 —
 84,320
Income (loss) from continuing operations before income taxes$336,922
 $(3,719) $114,726
 $(55,708) $(44,251) 347,970
Income tax provision from continuing operations          51,560
Income from discontinued operations, net of income tax provision          130,063
Gain on disposal of discontinued operations, net of income tax provision          643,921
Net income          $1,070,394



A summary of results for the three months ended September 30, 2017 is as follows (in thousands):
Financial Services        
Jefferies National Beef Other Financial Services Businesses and Investments Other Merchant Banking Businesses and Investments Corporate and Other Parent Company Interest TotalJefferies Group Other Financial Services Merchant Banking Corporate Parent Company Interest Total
Net revenues$802,909
 $2,039,299
 $37,707
 $(5,115) $21,722
 $—
 $2,896,522
$802,909
 $22,742
 $29,657
 $1,915
 $—
 $857,223
                        
Expenses:                        
Compensation and benefits462,933
 9,072
 10,656
 10,810
 —
 493,471
Cost of sales—
 1,816,480
 —
 71,596
 —
 —
 1,888,076
—
 —
 71,596
 —
 —
 71,596
Compensation and benefits462,933
 10,505
 15,217
 4,511
 11,665
 —
 504,831
Floor brokerage and clearing fees42,852
 —
 —
 —
 —
 —
 42,852
42,852
 —
 —
 —
 —
 42,852
Interest—
 1,713
 9,936
 939
 —
 14,737
 27,325
Interest expense—
 4,966
 5,909
 —
 14,737
 25,612
Depreciation and amortization15,928
 26,664
 2,439
 9,528
 865
 —
 55,424
15,928
 2,244
 9,723
 865
 —
 28,760
Selling, general and other expenses153,084
 9,458
 20,362
 19,445
 5,695
 —
 208,044
153,084
 15,941
 23,865
 6,551
 —
 199,441
Total expenses674,797
 1,864,820
 47,954
 106,019
 18,225
 14,737
 2,726,552
674,797
 32,223
 121,749
 18,226
 14,737
 861,732
Income (loss) before income taxes and income (loss) related to associated companies128,112
 174,479
 (10,247) (111,134) 3,497
 (14,737) 169,970
Income (loss) from continuing operations before income taxes and income (loss) related to associated companies128,112
 (9,481) (92,092) (16,311) (14,737) (4,509)
Income (loss) related to associated companies—
 —
 30,902
 1,057
 (1,902) —
 30,057
—
 31,119
 (1,062) —
 —
 30,057
Income (loss) before income taxes$128,112
 $174,479
 $20,655
 $(110,077) $1,595
 $(14,737) $200,027
Income (loss) from continuing operations before income taxes$128,112
 $21,638
 $(93,154) $(16,311) $(14,737) 25,548
Income tax provision from continuing operations          9,770
Income from discontinued operations, net of income tax provision          120,989
Net income          $136,767


A summary of results for the nine months ended September 30, 2017 is as follows (in thousands):
 Jefferies National Beef Other Financial Services Businesses and Investments Other Merchant Banking Businesses and Investments Corporate and Other Parent Company Interest Total
Net revenues$2,381,967
 $5,476,274
 $153,270
 $453,625
 $31,748
 $—
 $8,496,884
              
Expenses:   
    
      
Cost of sales—
 5,030,887
 —
 210,834
 —
 —
 5,241,721
Compensation and benefits1,374,127
 29,649
 45,349
 13,880
 37,582
 —
 1,500,587
Floor brokerage and clearing fees133,145
 —
 —
 —
 —
 —
 133,145
Interest—
 5,781
 29,797
 2,764
 —
 44,201
 82,543
Depreciation and amortization46,877
 73,522
 8,003
 24,650
 2,599
 —
 155,651
Selling, general and other expenses444,724
 26,428
 47,463
 36,511
 20,892
 —
 576,018
Total expenses1,998,873
 5,166,267
 130,612
 288,639
 61,073
 44,201
 7,689,665
Income (loss) before income taxes and income (loss) related to associated companies383,094
 310,007
 22,658
 164,986
 (29,325) (44,201) 807,219
Income (loss) related to associated companies—
 —
 (91,866) 8,295
 (842) —
 (84,413)
Income (loss) before income taxes$383,094
 $310,007
 $(69,208) $173,281
 $(30,167) $(44,201) $722,806

A summary of results for the three months ended September 30, 2016 is as follows (in thousands):
 Jefferies National Beef Other Financial Services Businesses and Investments Other Merchant Banking Businesses and Investments Corporate and Other Parent Company Interest Total
Net revenues$656,496
 $1,747,042
 $54,742
 $217,089
 $1,006
 $—
 $2,676,375
              
Expenses:             
Cost of sales—
 1,595,671
 —
 93,422
 —
 —
 1,689,093
Compensation and benefits376,438
 9,660
 15,100
 7,334
 10,183
 —
 418,715
Floor brokerage and clearing fees40,189
 —
 —
 —
 —
 —
 40,189
Interest—
 2,967
 4,596
 836
 —
 14,722
 23,121
Depreciation and amortization16,108
 23,100
 3,882
 8,734
 867
 —
 52,691
Selling, general and other expenses140,571
 7,375
 13,826
 70,569
 6,819
 —
 239,160
Total expenses573,306
 1,638,773
 37,404
 180,895
 17,869
 14,722
 2,462,969
Income (loss) before income taxes and income related to associated companies83,190
 108,269
 17,338
 36,194
 (16,863) (14,722) 213,406
Income related to associated companies—
 —
 27,806
 8,453
 244
 —
 36,503
Income (loss) before income taxes$83,190
 $108,269
 $45,144
 $44,647
 $(16,619) $(14,722) $249,909




A summary of results for the nine months ended September 30, 2016 is as follows (in thousands):
 Jefferies National Beef Other Financial Services Businesses and Investments Other Merchant Banking Businesses and Investments Corporate and Other Parent Company Interest Total
Net revenues$1,678,212
 $5,180,127
 $(71,338) $451,484
 $78,354
 $—
 $7,316,839
              
Expenses:             
Cost of sales—
 4,856,045
 —
 257,470
 —
 —
 5,113,515
Compensation and benefits1,141,873
 28,628
 44,292
 22,083
 29,337
 —
 1,266,213
Floor brokerage and clearing fees124,259
 —
 —
 —
 —
 —
 124,259
Interest—
 10,730
 10,988
 2,272
 —
 44,155
 68,145
Depreciation and amortization45,331
 68,511
 9,973
 26,501
 2,754
 —
 153,070
Selling, general and other expenses421,876
 23,680
 31,806
 111,898
 23,414
 —
 612,674
Total expenses1,733,339
 4,987,594
 97,059
 420,224
 55,505
 44,155
 7,337,876
Income (loss) before income taxes and income related to associated companies(55,127) 192,533
 (168,397) 31,260
 22,849
 (44,155) (21,037)
Income related to associated companies—
 —
 86,121
 21,247
 1,077
 —
 108,445
Income (loss) before income taxes$(55,127) $192,533
 $(82,276) $52,507
 $23,926
 $(44,155) $87,408
Jefferies
 Financial Services        
 Jefferies Group Other Financial Services Merchant Banking Corporate Parent Company Interest Total
Net revenues$2,381,967
 $109,284
 $525,102
 $4,257
 $—
 $3,020,610
            
Expenses:     
      
Compensation and benefits1,374,127
 26,248
 32,981
 35,017
 —
 1,468,373
Cost of sales—
 —
 210,834
 —
 —
 210,834
Floor brokerage and clearing fees133,145
 —
 —
 —
 —
 133,145
Interest expense—
 13,830
 18,731
 —
 44,201
 76,762
Depreciation and amortization46,877
 7,435
 25,218
 2,599
 —
 82,129
Selling, general and other expenses444,724
 36,641
 47,333
 23,457
 —
 552,155
Total expenses1,998,873
 84,154
 335,097
 61,073
 44,201
 2,523,398
Income (loss) from continuing operations before income taxes and income (loss) related to associated companies383,094
 25,130
 190,005
 (56,816) (44,201) 497,212
Income (loss) related to associated companies—
 (87,838) 3,425
 —
 —
 (84,413)
Income (loss) from continuing operations before income taxes$383,094
 $(62,708) $193,430
 $(56,816) $(44,201) 412,799
Income tax provision from continuing operations          127,198
Income from discontinued operations, net of income tax provision          219,151
Net income          $504,752

Jefferies Group

Jefferies Group is reflected in our consolidated financial statements and disclosures utilizing a one month lag; Jefferies Group's fiscal year ends on November 30 and its fiscal quarters end one month prior to our reporting periods. A summary of results of operations for Jefferies Group is as follows (in thousands):
For the Three Months Ended September 30, For the Nine Months Ended September 30,For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 2017 20162018 2017 2018 2017
Net revenues$802,909
 $656,496
 $2,381,967
 $1,678,212
$774,749
 $802,909
 $2,419,410
 $2,381,967
              
Expenses: 
  
  
  
 
  
  
  
Compensation and benefits462,933
 376,438
 1,374,127
 1,141,873
428,033
 462,933
 1,326,887
 1,374,127
Floor brokerage and clearing fees42,852
 40,189
 133,145
 124,259
44,570
 42,852
 131,792
 133,145
Depreciation and amortization15,928
 16,108
 46,877
 45,331
17,175
 15,928
 50,829
 46,877
Selling, general and other expenses153,084
 140,571
 444,724
 421,876
198,817
 153,084
 572,980
 444,724
Total expenses
674,797

573,306
 1,998,873
 1,733,339
688,595

674,797
 2,082,488
 1,998,873
              
Income (loss) before income taxes$128,112

$83,190
 $383,094
 $(55,127)
Income from continuing operations before income taxes$86,154

$128,112
 $336,922
 $383,094



Jefferies Group comprises many business units, with many interactions and much integration among them. Business activities include the sales, trading, origination and advisory effort for various equity, fixed income, commodities, foreign exchange and advisory services. Jefferies Group's business, by its nature, does not produce predictable or necessarily recurring revenues or earnings. Jefferies Group's results in any given period can be materially affected by conditions in global financial markets, economic conditions generally, and its own activities and positions.
The discussion below is presented on a detailed product and expense basis. 
Revenues by Source

Net revenues presented for equityJefferies Group's equities and fixed income businesses include allocations of interest income and interest expense as Jefferiesit assesses the profitability of these businesses inclusive of the net interest revenue or expense associated with the respective sales and trading activities, which is a function of the mix of each business’s associated assets and liabilities and the related funding costs.

In connection with the adoption of the new revenue standard in the first quarter of 2018, Jefferies Group has made changes to the presentation of its "Revenues by Source" to better align the manner in which we describe and present the results of Jefferies Group's performance with the manner in which it manages its business activities and serves its clients. We believe that the reorganization of Jefferies Group's revenue reporting will enable us to describe the business mix more clearly and provide greater transparency in the communication of Jefferies Group's results. Additionally, the results of the investment banking business now include a new subcategory "Other investment banking", which contains Jefferies Group's share of net earnings from its corporate lending joint venture, Jefferies Finance LLC ("Jefferies Finance"), as well as any gains and losses from any securities or loans received or acquired in connection with its investment banking efforts. Previously reported results are presented on a comparable basis in the tables below.

The following is a description of the changes that have been made:
Equities revenues now represent the activities of Jefferies Group's core equities sales and trading, securities finance, prime brokerage and wealth management businesses. Revenues from other activities previously presented within the Equities business have been disaggregated as follows:
◦Jefferies Group's share of net earnings from its Jefferies Finance joint venture, as well as any revenues from securities and loans received or acquired in connection with its investment banking efforts, are now presented as part of Jefferies Group's investment banking business.
◦Jefferies Group's share of net earnings from its historic Jefferies LoanCore LLC ("Jefferies LoanCore") joint venture is presented as part of its fixed income business through its sale in October 2017.
◦Revenues related to Jefferies Group's principal investments in certain private equity funds and hedge funds managed by third parties or related parties, investments in strategic ventures (including KCG Holdings, Inc. ("KCG") through its sale in July 2017), certain other securities owned, and investments held as part of obligations under employee benefit plans, including deferred compensation arrangements, are now presented as part of its other business.
◦Revenue related to Jefferies Group's capital invested in asset management funds that are managed by Jefferies Group is now presented within Jefferies Group's asset management business.
Revenues from Jefferies Group's legacy Futures business and revenues associated with structured notes issued by Jefferies Group are now presented as part of its other business. Additionally, revenues derived from securities or loans received or acquired in connection with Jefferies Group's investment banking efforts are now presented as part of investment banking revenues.
Revenues from principal investments in certain private equity and asset management funds managed by related parties, are now presented as part of its other business.

The changes to the manner in which we describe and disclose the performance of Jefferies Group's business activities has no effect on its historical consolidated results of operation. The composition of Jefferies Group's 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 its own performance.



The following provides a summary of net revenues by source (in thousands):
 For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2017 2016 2017 2016
Equities$178,106
 $149,458
 $608,770
 $376,632
Fixed income143,688
 196,241
 525,941
 493,086
Total sales and trading321,794

345,699
 1,134,711
 869,718
Investment banking: 
  
  
  
Capital markets: 
  
  
  
Equities86,081
 68,218
 222,549
 173,122
Debt186,261
 72,473
 474,736
 175,870
Advisory203,360
 154,239
 538,301
 429,914
Total investment banking475,702

294,930
 1,235,586
 778,906
Other5,413
 15,867
 11,670
 29,588
        
Total net revenues$802,909

$656,496
 $2,381,967
 $1,678,212

Net Revenues

The increase in net revenues for Jefferies for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016, primarily reflects record quarterly investment banking results and higher equities net revenues, partially offset by lower fixed income net revenues. Higher investment banking results during the three months ended September 30, 2017 reflect increased capital markets activity, including record debt capital markets revenues, solid results in Jefferies equity capital markets business and a strong performance in its mergers, acquisitions and advisory activities compared with the prior year quarter. The increase in equities revenues was primarily attributable to growth in market share in Jefferies core equities businesses.

Equity revenues include a net gain of $2.2 million recognized during the three months ended September 30, 2017 from Jefferies investment in KCG Holdings, Inc. (“KCG”), compared with $6.1 million in the comparable prior year quarter, as well as net revenues of $20.4 million from Jefferies share of its Jefferies Finance LLC (“Jefferies Finance”) joint venture, compared with $11.4 million in the prior year quarter. The decrease in fixed income net revenues is primarily due to lower levels of volatility and volumes across most core businesses compared with the prior year quarter. Net revenues in the three months ended September 30, 2017 included investment income from managed funds of $1.2 million, compared with investment income of $8.3 million in the prior year quarter.

The increase in net revenues for Jefferies for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, primarily reflects higher net revenues in investment banking, equities and fixed income. Higher investment banking results during the nine months ended September 30, 2017 reflect increased debt and equity capital markets revenues and advisory revenues, as a result of higher transaction volumes. In the prior year period, new issue equity and leveraged finance capital markets were extremely constrained in the early part of 2016 and remained slow throughout the nine months ended September 30, 2016. The increase in fixed income net revenues is primarily due to higher levels of trading activity in the first quarter of 2017 due to improved market conditions compared with the prior year period.

The increase in equities revenues was primarily attributable to a net gain of $109.0 million recognized during the nine months ended September 30, 2017 from Jefferies investment in two equity securities, including KCG, compared with a net loss of $20.0 million during the nine months ended September 30, 2016 from these two equity securities. KCG was sold for $20.00 per share in cash on July 20, 2017. The increase in equities net revenues was also due to net revenues of $66.8 million from Jefferies share of its Jefferies Finance joint venture during the nine months ended September 30, 2017, compared with a net loss of $27.5 million during the nine months ended September 30, 2016. Net revenues in the nine months ended September 30, 2017 included investment losses from managed funds of $4.7 million, compared with investment income from managed funds of $4.0 million during the nine months ended September 30, 2016.


 For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2018 2017 2018 2017
Equities$171,091
 $163,609
 $501,849
 $495,011
Fixed income140,862
 141,243
 474,405
 520,365
Total sales and trading311,953

304,852
 976,254
 1,015,376
  
  
  
  
Equity139,220
 86,081
 326,613
 222,549
Debt138,515
 186,261
 483,271
 474,736
Capital markets277,735
 272,342
 809,884
 697,285
Advisory187,591
 203,360
 595,730
 538,301
Other investment banking(18,494) 300
 (18,389) 8,322
Total investment banking446,832

476,002
 1,387,225
 1,243,908
Other9,339
 9,578
 23,093
 96,451
Total capital markets768,124
 790,432
 2,386,572
 2,355,735
        
Asset Management6,625
 12,477
 32,838
 26,232
        
Total net revenues$774,749

$802,909
 $2,419,410
 $2,381,967

Equities Net Revenues

Equities are comprised of net revenues include equityfrom:
services provided to Jefferies Group's clients from which it earns commissions equity security principal tradingor spread revenue by executing, settling and investments (including Jefferies investment in KCGclearing transactions for clients;
financing, securities lending and other equity securities)prime brokerage services offered to clients; and net interest revenue generated by its equities sales and trading, prime services and
wealth management business relatingservices, which includes providing clients access to cash equities, electronic trading, equity derivatives, convertible securities, prime brokerage, securities finance and alternative investment strategies.  Equities net revenues include Jefferies share of the net earningsall of its joint venture investments in Jefferies Finance and Jefferies LoanCore, LLC (“Jefferies LoanCore”), which are accounted for under the equity method.institutional execution capabilities.

Equities net revenues during the three months ended September 30, 2017 increased $28.6 million2018 as compared to the three months ended September 30, 2016. Equities revenue for the three months ended September 30, 2017, include a final net gain of $2.2 million from Jefferies investment in KCG, compared with $6.1 million in the 2016 period.

Equities revenues were solid during the three months ended September 30, 2017increased across mostcertain of Jefferies Group's core global equities sales and trading businesses due to growthbusiness, offset by losses in market share. Equities commissioncertain block positions. The increase in its core global equities sales and trading business was primarily driven by higher revenues declined slightly in Jefferiesits electronic trading, prime brokerage, U.S. and Europe cash equities and equity derivatives trading businesses, primarily due to lower institutional investoroverall improved market trading volumes, and reducedhigher equity volatility partially offset byand an increase in its electronic trading volumes during the three months ended September 30, 2017our commissions. The securities finance business saw an increase as compared to the prior year quarter.

Equities revenues duringquarter, driven by increased trading revenues. This increase was partially offset by a decrease in the three months ended September 30, 2017 include net revenues of $20.4 million from Jefferies share of Jefferies Finance,convertibles and European cash equities businesses, primarily due to an increase in activity, compared with $11.4 million inlower trading revenues and customer activity. Equities posted record quarterly revenues across the prior year quarter. Net revenues from Jefferies share of Jefferies LoanCore during the three months ended September 30, 2017 decreasedoverall sales and trading business, as compared to the 2016 period due to a decline in loan securitizations.well as across several core businesses, including its global electronic trading, prime brokerage and Asia Pacific securities finance businesses.

Equities net revenues during the nine months ended September 30, 2017 increased $232.1 million2018 as compared to the nine months ended September 30, 2016. Equities revenue for the nine months ended September 30, 2017, include a net gain of $109.0 million fromimproved across Jefferies investment in two equity securities, including KCG, compared with a net loss of $20.0 million in the 2016 period from these two equity securities.

Equities revenues related to theGroup's various core global equities businesses during the nine months ended September 30, 2017 decreased with lower revenues in Jefferies equity derivatives businessessales and its Europe cash equitiestrading business, due to reduced market making activities and lower equity volatility. The decrease was partially offset by higher electroniclosses in certain block positions. The increase in its core global equities sales and trading revenues.

Equities commission revenues declined in Jefferies equity derivatives and U.S. cash equities businesses during the nine months ended September 30, 2017 as compared to the prior year period, due to reduced trading volumes and lower levels of volatility, partially offsetbusiness was primarily driven by higher revenues in its equity derivatives, electronic trading, and Asia Pacificprime brokerage businesses, primarily due to higher equity volatility, overall improved market trading volumes and an increase in commissions. This was partially offset by a decrease in the U.S. and European cash equities businesses, due to increased trading volumes.

Equities revenues during the nine months ended September 30, 2017 include net revenues of $66.8 million from Jefferies share of Jefferies Finance, primarily due to an increaselower customer activity. European revenues were also lower as a result of the delay in activity,advisory payments and the impact of unbundling due to the Market in Financial Instruments Directive ("MiFID II") regulation. The securities finance business saw a decline as compared with a net loss of $27.5 million in the prior year period, primarily due todriven by decreased trading revenues. Equities posted record nine month results in the mark down of certain loans held for sale. Net revenues from Jefferies share of Jefferies LoanCore declined duringcurrent year period across the nine months ended September 30, 2017overall sales and trading business, as compared to the 2016 period due to a decrease in loan closingswell as across several core businesses, including global trading, European and syndications.Asia Pacific securities finance, and prime brokerage businesses.

Fixed Income Net Revenues

Fixed income is comprised of net revenues include commissions, principalfrom:
executing transactions for clients and net interest revenue generated by Jefferies fixed income sales and trading businesses frommaking markets in securitized products, investment grade, corporate bonds, mortgage- and asset-backed securities, government and agency securities, high yield and distressed securities, bank loans, municipal bonds,high-yield, emerging markets, debt, municipal and sovereign securities and bank loans;
foreign exchange execution on behalf of clients; and
interest rate derivatives.derivatives and credit derivatives (used primarily for hedging activities).



Fixed income net revenues during the three months ended September 30, 2017 decreased $52.6 million2018 were relatively unchanged as compared to the three months ended September 30, 2016.2017, as improved performance in Jefferies recorded lower secondary salesGroup's leveraged credit, U.S. and international rates and U.S. securitized markets businesses were offset by reduced market activity and trading volumes in its global investment grade credit businesses and municipal securities businesses.

The performance of Jefferies Group's leveraged credit business continued to strengthen, primarily in its distressed trading business. Revenues in its U.S. and international rates businesses were higher due to increased interest rate volatility in certain markets. Results in its U.S. securitized markets group were higher due to increased trading activity and continued strong performance in its origination businesses. Revenues in Jefferies Group's global investment grade credit businesses declined on lower trading activity and reduced trading volatility, while revenues in mostits European credit business were lower due to reduced demand for higher yielding products. Revenues in Jefferies Group's municipals businesses were down as client activity was muted by concerns of its businesses compared withhigher interest rates. This compares to a favorable market environment in the prior year quarter duedriven by activity leading up to reduced trading volumes and lower levels of volatility, partially offset by higher revenueschanges in Jefferies European credit, international rates and municipal securities businesses.federal tax law. The trading environment during the prior year quarter was characterized by improved financial market and secondary market trading conditions,also included revenues from Jefferies Group's share of Jefferies LoanCore, which was also positively impacted by increased demand for higher yielding asset classes.

Revenues from Jefferies corporates businesses decreased as compared to the prior year quarter due to decreased trading activity, as a result of lower new issuance activity. Lower revenuessold in Jefferies U.S. securitized markets group during the three months


ended September 30, 2017 resulted from reduced trading volumes, while the prior year quarter was positively impacted by increased demand for spread products, particularly, demand for higher yielding asset classes after the Brexit vote.

Revenues from Jefferies emerging markets business were lower during the three months ended September 30, 2017 due to decreased trading volumes and lower levels of volatility in the emerging markets as compared with the prior year quarter. Revenues in its leveraged credit business declined due to reduced volatility and decreased trading volumes within high yield and distressed products. Lower revenues in Jefferies U.S. rates business resulted from lower transaction volumes given decreased interest rate volatility, while the prior year quarter was characterized by a low interest rate environment and moderate economic growth in the U.S., which led to increased trading opportunities in its U.S. rates business.

Revenue declines in the three months ended September 30, 2017 were offset by higher revenues in Jefferies European credit business due to improved credit market conditions as demand increased for higher yielding products, as well as higher revenues in its international rates businesses due to a more favorable trading environment. Additionally, its municipal securities business generated higher revenues as Jefferies added new team members and expanded market share.October 2017.

Fixed income net revenues during the nine months ended September 30, 2017 increased $32.92018 decreased $46.0 million as compared to the nine months ended September 30, 2016. Jefferies recorded higher revenues compared with the prior year period2017, primarily due to improvedsoft market conditions in the beginning of the second quarter. This is compared to performance in the first quarter of 2017, which was bolstered by robust trading conditions and an increase in transaction volumes. The trading environment duringactivity following the prior year period was characterized by significant market dislocation and lower trading volumes.2016 U.S. presidential election.

Revenues in Jefferies leveraged credit businessGroup's U.S. securitized markets group were significantly improved during the nine months ended September 30, 2018, primarily as more favorable trading conditions prevailed for its agency products. Additionally, increased securitization activity contributed to the period’s results. Revenues in its leveraged credit business were strong, as it increased its market share in high yield, leveraged loan and distressed products. Revenues declined in the global investment grade credit business due to a decline in new issuance trading activity and increased competition, as reduced volatility produced fewer trading opportunities. Revenues in the municipal trading business were lower on reduced market activity driven by changes in federal tax legislation, which shifted activity into the prior year and the backdrop of increased interest rates dampened investor interest. The business outperformed in the prior year period, as macro events drove a more favorable trading environment.

Global rates revenues in the nine months ended September 30, 2018 declined as the opportunities from volatility from the U.S. Presidential Election and European election cycles, primarily in the first quarter of 2017, were strong on increased trading volumes within high yield and distressed products,not replicated in the current year period. This was partially offset by improved performance in the current year period, as a result of an improved credit environment,increased volatility in global interest rates.

The nine months ended September 30, 2017 also included revenues from Jefferies Group's share of Jefferies LoanCore, which was sold in October 2017, as well as strategic growth in the business, compared with mark-to-market losses in the prior year period. Additionally, higher revenues in Jefferies European credit business were due to improved trading conditions and increased demand for higher yieldingfrom non-core fixed income products while volatile oil prices and uncertainty as to bank liquidity negatively impacted revenues in this business in the prior year period. Jefferies municipal securities business performed well during the 2017 period, driven by increased client activity. Revenues in Jefferies international securitized markets group increased due to improved trading volumes, compared with a market slowdown in the prior year period. Higher revenues in Jefferies international rates business were due to a more favorable trading environment compared with the prior year period.

These increases were partially offset by lower revenues in Jefferies corporates business due to decreased trading activity, as a result of lower new issuance activity and demand, as well as lower revenues in its U.S. rates, emerging markets and U.S. securitized markets businesses due to decreased trading volumes and lower levels of volatility compared with the prior year period.that have now been deemphasized.

Investment Banking Revenues
Jefferies provides a full range
Investment banking is comprised of revenues from:
capital markets and financial advisory services, to its clients across most industry sectors in the Americas, Europe and Asia.  Capital markets revenueswhich include underwriting and placement revenuesservices related to corporate debt, municipal bonds, mortgage- and asset-backed securities and equity and equity-linked securities.  Advisory revenues consist primarilysecurities and loan syndication;
advisory services with respect to mergers and acquisitions and restructurings and recapitalizations;
Jefferies Group's share of advisorynet earnings from its corporate lending joint venture Jefferies Finance; and transaction fees generated
securities and loans received or acquired in connection with merger, acquisition and restructuring transactions.Jefferies Group's investment banking activities.

Total investment banking revenues were $475.7$446.8 million for the three months ended September 30, 2017, a record quarter, 61% higher2018, 6.1% lower than the three months ended September 30, 2016. This increase2017, primarily reflects recorddue to a decrease in debt capital markets and advisory revenues solid resultsdue to lower transaction levels in Jefferiesthe leverage finance and mergers and acquisitions businesses, partially offset by record equity capital markets business andrevenues led by continued strong issuances in the life sciences sector. The results in the quarter also include an increase of $36.3 million in investment banking net revenues as a strong performance by its mergers, acquisitions and advisory activities.result of the new revenue standard.
Capital markets revenues for the three months ended September 30, 20172018 increased 94%2.0% from the prior year quarter. Advisory revenues for the three months ended September 30, 2017 increased 32%2018 decreased 7.8% compared to the prior year quarter. Other investment banking revenues were a loss of $18.5 million during the three months ended September 30, 2018 compared with revenues of $0.3 million in the prior year quarter. The results reflect net revenues of $19.0 million in the current year quarter, compared with net revenues of $20.4 million in the prior year quarter, primarily due to Jefferies Group's share of revenues from the Jefferies Finance joint venture, which were more than partially offset by the amortization of costs and allocated interest expense incurred associated with the Jefferies Finance business.



From equity and debt capital raising activities, Jefferies Group generated $86.1$139.2 million and $186.3$138.5 million in revenues, respectively, for the three months ended September 30, 2018. During the three months ended September 30, 2018, Jefferies Group completed 286 public and private debt financings that raised $61.1 billion in aggregate and Jefferies Group completed 57 public and private equity and convertible offerings that raised $11.5 billion (56 of which Jefferies Group acted as sole or joint bookrunner). Financial advisory revenues totaled $187.6 million, including revenues from 47 merger and acquisition transactions and two restructuring and recapitalization transactions with an aggregate transaction value of $63.0 billion.

Investment banking revenues were $476.0 million for the three months ended September 30, 2017. From equity and debt capital raising activities during the three months ended September 30, 2017, Jefferies Group generated $86.1 million and $186.3 million in revenues, respectively. During the three months ended September 30, 2017, Jefferies Group completed 381 public and private debt financings that raised $91.0$73.0 billion in aggregate and Jefferies Group completed 34 public equity and private equity and convertible offerings that raised $15.7 billion (33 of which Jefferies Group acted as sole or joint bookrunner). Financial advisory revenues totaled $203.4 million, including revenues from 48 merger and acquisition transactions and two restructuring and recapitalization transactions with an aggregate transaction value of $29.0 billion.

Investment banking revenues were $294.9 million for the three months ended September 30, 2016. From equity and debt capital raising activities, Jefferies generated $68.2 million and $72.5 million in revenues, respectively. During the three months ended September 30, 2016, Jefferies completed 316 public and private debt financings that raised $47.1 billion in aggregate and Jefferies completed 37 public equity and private equity and convertible offerings that raised $6.5 billion (34 of which Jefferies acted as sole


or joint bookrunner). Financial advisory revenues totaled $154.2 million, including revenues from 40 merger and acquisition transactions and five restructuring and recapitalization transactions with an aggregate transaction value of $31.9 billion.

Total investment banking revenues were $1,235.6$1,387.2 million for the nine months ended September 30, 2017, 59%2018, 11.5% higher than the nine months ended September 30, 2016. This increase was2017, due to significantly increased debt andrecord equity capital markets and advisory revenues, resulting from continued strength in the mergers and acquisitions businesses and strong equity issuance in the life science business. Results also include an increase of $101.1 million in investment banking net revenues as a result of higher transaction volumes. In the prior year period, new issue equity and leveraged finance capital markets were virtually closed throughout January and February and remained slow throughout the nine months ended September 30, 2016.revenue standard.

Capital markets revenues for the nine months ended September 30, 20172018 increased 100%16.1% from the prior year period. Advisory revenues for the nine months ended September 30, 20172018 increased 25%10.7% compared to the prior year period. Other investment banking revenues were a loss of $18.4 million during the nine months ended September 30, 2018 compared with revenues of $8.3 million in the prior year period. The results reflect net revenues of $70.3 million in the current year quarter, compared with net revenues of $66.8 million in the prior year quarter, primarily due to Jefferies Group's share of revenues from the Jefferies Finance joint venture, which were more than partially offset by the amortization of costs and allocated interest expense were incurred associated with the Jefferies Finance business.

From equity and debt capital raising activities, Jefferies Group generated $222.5$326.6 million and $474.7$483.3 million in revenues, respectively, for the nine months ended September 30, 2018. During the nine months ended September 30, 2018, Jefferies Group completed 749 public and private debt financings that raised $197.7 billion in aggregate and Jefferies Group completed 142 public and private equity and convertible offerings that raised $31.8 billion (138 of which Jefferies Group acted as sole or joint bookrunner). Financial advisory revenues totaled $595.7 million, including revenues from 128 merger and acquisition transactions and eleven restructuring and recapitalization transactions with an aggregate transaction value of $156.8 billion.

Investment banking revenues were $1,243.9 million for the nine months ended September 30, 2017. From equity and debt capital raising activities during the nine months ended September 30, 2017, Jefferies Group generated $222.5 million and $474.7 million in revenues, respectively. During the nine months ended September 30, 2017, Jefferies Group completed 817 public and private debt financings that raised $209.9$191.9 billion in aggregate and Jefferies Group completed 125 public equity and private equity and convertible offerings that raised $50.1 billion (118 of which Jefferies Group acted as sole or joint bookrunner). Financial advisory revenues totaled $538.3 million, including revenues from 119 merger and acquisition transactions and eight restructuring and recapitalization transactions with an aggregate transaction value of $106.1 billion.

Investment bankingOther Net Revenues

Other net revenues were $778.9are comprised of revenues from:
• principal investments in private equity and hedge funds managed by third parties or related parties;
• strategic investments other than Jefferies Finance (such as KCG through its sale in July 2017);
• investments held as part of employee benefit plans, including deferred compensation plans;
• structured note activities on behalf of the firm; and
• Jefferies Group's legacy Futures business.

Other net revenues totaled $9.3 million for the three months ended September 30, 2018, as compared with $9.6 million for the three months ended September 30, 2017, as results in the prior year quarter included a net gain of $2.2 million from Jefferies Group's investment in KCG, which was sold in July 2017.



Other net revenues totaled $23.1 million for the nine months ended September 30, 2016. From equity and debt capital raising activities, Jefferies generated $173.12018, as compared with $96.5 million and $175.9 million in revenues, respectively. Duringfor the nine months ended September 30, 2016,2017, as results in the prior year period included a net gain of $93.4 million from Jefferies completed 674 publicGroup's investment in KCG, which was sold in July 2017, partially offset by foreign currency gains.

Asset Management Net Revenues

Asset management revenues include the following:
• management and private debt financings that raised $126.3 billionperformance fees from funds and accounts managed by Jefferies Group; and
• investment income from capital invested in aggregate and managed by Jefferies completed 88 publicGroup's asset management business.

Asset management revenues were $6.6 million for the three months ended September 30, 2018, as compared with $12.5 million for the three months ended September 30, 2017. Asset management revenues were $32.8 million for the nine months ended September 30, 2018, as compared with $26.2 million for the nine months ended September 30, 2017. The key components of asset management revenues are the level of assets under management and private equitythe performance return, whether on an absolute basis or relative to a benchmark or hurdle. These components can be affected by financial markets, profits and convertible offerings that raised $17.6 billion (83losses 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 Jefferies acted as sole or joint bookrunner). Financial advisory revenues totaled $429.9 million, including revenues from 106 mergerGroup's investment management authority, and acquisition transactionsthe requisite notice period for such termination, varies depending on the nature of the investment vehicle and nine restructuring and recapitalization transactions with an aggregate transaction valuethe liquidity of $90.3 billion.the portfolio assets.

As discussed further in Note 1, on October 1, 2018, substantially all of Jefferies interest in Leucadia Asset Management was transferred to Jefferies Group.

Compensation and Benefits
Compensation and benefits expense consists of salaries, benefits, cash bonuses, commissions, annual cash compensation awards, and the amortization of certain non-annual share-based and cash compensation awards to employees. Cash and historical share-based awards and a portion of cash awards granted to employees as part of year end compensation generally contain provisions such that employees who terminate their employment or are terminated without cause may continue to vest in their awards, so long as those awards are not forfeited as a result of other forfeiture provisions (primarily non-compete clauses) of those awards. Accordingly, the compensation expense for a portion of awards granted at year end as part of annual compensation is recorded in the year of the award.
Included in Compensation and benefits expense isare share-based amortization expense for senior executive awards granted in February 2016, January 2017 and January 2017,2018, cash-based amortization expense for senior executive awards granted in January 2018, non-annual share-based and cash-based awards to other employees and certain year end awards that contain future service requirements for vesting.  Such senior executive awards contain market and performance conditions andvesting, all of which are being amortized over their respective future service periods. In addition, the senior executive awards contain market and performance conditions. Compensation expense related to the amortization of share-based and cash-based awards amounted to $71.7$67.1 million and $62.4$71.7 million for the three months ended September 30, 20172018 and 2016,2017, respectively, and $206.5$204.7 million and $207.9$206.5 million for the nine months ended September 30, 20172018 and 2016,2017, respectively. Compensation and benefits as a percentage of Net revenues was 58%55.2% and 57%57.7% for the three months ended September 30, 20172018 and 2016,2017, respectively, and 58%54.8% and 68%57.7% for the nine months ended September 30, 20172018 and 2016,2017, respectively.

Non-Compensation Expenses
Non-compensation expenses include floor brokerage and clearing fees, underwriting costs, technology and communications expense, occupancy and equipment rental expense, business development, professional services, bad debt provision, impairment charges, depreciation and amortization expense and other costs. All of these expenses, other than floor brokerage and clearing fees and depreciation and amortization expense, are included withinin Selling, general and other expenses in the Consolidated Statements of Operations.
Non-compensationThe increase in non-compensation expenses increased during the three and nine months ended September 30, 20172018 as compared to the prior year periods.three and nine months ended September 30, 2017 was essentially due to an increase in business development expenses and underwriting costs, as a result of applying the new revenue standard to results of operations for the three and nine months ended September 30, 2018. The increase in non-compensation expenses during the three months ended September 30, 20172018 was primarilyalso due to an increase in professional service expenses due to an increase in legal and consulting fees. The increase during the nine months ended September 30, 2018 was also due to an increase in technology and communicationscommunication expenses due to costs associated with the development of the various trading systems and projects associated with corporate support infrastructure, higher floor brokerage and clearing expenses due to the mix of costs across certain equities and fixed income businesses and an increase in other expenses, partially offset by a decline in professional services expense.


The increase in non-compensation expenses during the nine months ended September 30, 2017 was primarily due to an increase in floor brokerage and clearing expenses due to improved market and trading conditions across most core businesses, primarily in the first quarter of 2017, technology and communications expenses due to costs associated with the development of the various trading systems and projects associated with corporate support infrastructure and higher professional service expenses due to an increase in other expenses.legal and consulting fees.



Other Financial Services

A summary of results for other financial services is as follows (in thousands):
 For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2018 2017 2018 2017
Net revenues$45,457
 $22,742
 $53,297
 $109,284
        
Expenses: 
  
  
  
Compensation and benefits9,973
 9,072
 29,935
 26,248
Interest expense12,723
 4,966
 26,367
 13,830
Depreciation and amortization1,379
 2,244
 4,837
 7,435
Selling, general and other expenses16,008
 15,941
 54,081
 36,641
Total expenses40,083
 32,223
 115,220
 84,154
        
Income (loss) from continuing operations before income taxes and income (loss) related to associated companies5,374
 (9,481) (61,923) 25,130
Income (loss) related to associated companies16,502
 31,119
 58,204
 (87,838)
Income (loss) from continuing operations before income taxes$21,876
 $21,638
 $(3,719) $(62,708)

Our other financial services include our share of the income of Berkadia, the consolidated results of certain Leucadia Asset Management fund managers, the returns on our investments in these funds, the consolidated results of Foursight Capital and Chrome Capital (vehicle finance), our share of the income of HomeFed and the results of our investment in FXCM. Interest and gains related to the note receivable component of our FXCM investment are included in Net revenues, while income (loss) related to our equity method investment in FXCM is included in Income (loss) related to associated companies.

Three Months Ended September 30, 2018

Net revenues for the three months ended September 30, 2018, increased $22.7 million from the three months ended September 30, 2017. The year-over-year increase in revenues primarily reflects increased principal transactions revenues related to Leucadia Asset Management investments and increased investment income.

Income (loss) related to associated companies during the three months ended September 30, 2018 decreased by $14.6 million, reflecting decreased income related to Berkadia and increased losses at HomeFed. Income (loss) related to associated companies includes $28.4 million and $34.8 million attributable to Berkadia, $(7.8) million and $0.2 million attributable to HomeFed, and $(4.3) million and $(4.3) million attributable to our equity method investment in FXCM, for the three months ended September 30, 2018 and 2017, respectively.

Our income (loss) from continuing operations before income taxes for the three months ended September 30, 2018 was relatively unchanged in comparison to the same period last year, primarily related to increased income from Leucadia Asset Management offset by the decreased income related to associated companies. Pre-tax income (losses) related to our Leucadia Asset Management investments totaled $3.7 million and $(9.1) million for the three months ended September 30, 2018 and 2017, respectively. The increase in Leucadia Asset Management is primarily due to increased returns on our investments within Leucadia Asset Management. The third quarter of 2018 loss for HomeFed is primarily related to HomeFed's impairment of its Pacho leasehold.

Nine Months Ended September 30, 2018

Net revenues for the nine months ended September 30, 2018, declined $56.0 million from the nine months ended September 30, 2017. The year-over-year decrease in revenues primarily reflects lower principal transactions revenues related to Leucadia Asset Management investments.

Income (loss) related to associated companies during the nine months ended September 30, 2018, excluding the $130.2 million impairment loss related to our equity investment in FXCM in the first quarter of 2017, increased by $15.8 million, reflecting strong results at Berkadia. Income (loss) related to associated companies includes $80.1 million and $68.0 million attributable to Berkadia, $(3.3) million and $9.9 million attributable to HomeFed, and $(19.3) million and $(166.4) million attributable to our equity method investment in FXCM, for the nine months ended September 30, 2018 and 2017, respectively.



Our income (loss) from continuing operations before income taxes for the nine months ended September 30, 2018 increased by $59.0 million in comparison to the same period last year, primarily related to a $130.2 million impairment loss related to our equity investment in FXCM in the first quarter of 2017, which did not recur in 2018. In addition, 2018 was impacted by a net loss at Leucadia Asset Management and continued strong performance by Berkadia. Pre-tax income (losses) related to our Leucadia Asset Management investments totaled $(78.7) million and $13.2 million for the nine months ended September 30, 2018 and 2017, respectively. The loss in 2018 is primarily due to two strategies impacted by exceptional volatility during the first quarter.

Merchant Banking

A summary of results for our merchant banking business is as follows (in thousands):
 For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2018 2017 2018 2017
Net revenues$321,948
 $29,657
 $469,980
 $525,102
        
Expenses: 
  
  
  
Compensation and benefits9,493
 10,656
 29,577
 32,981
Cost of sales84,876
 71,596
 257,501
 210,834
Interest expense1,359
 5,909
 3,996
 18,731
Depreciation and amortization12,889
 9,723
 34,095
 25,218
Selling, general and other expenses21,716
 23,865
 56,201
 47,333
Total expenses130,333

121,749
 381,370
 335,097
        
Income (loss) from continuing operations before income taxes and income (loss) related to associated companies191,615
 (92,092) 88,610
 190,005
Income (loss) related to associated companies2,365
 (1,062) 26,116
 3,425
Income (loss) from continuing operations before income taxes$193,980

$(93,154) $114,726
 $193,430

Merchant banking includes our ownership of Spectrum Brands shares, which is accounted for at fair value and impacts our results through mark-to-market adjustments reflected in net revenues, and the consolidated results of Vitesse Energy Finance and JETX Energy (oil and gas) and Idaho Timber (manufacturing). It also includes our equity investments in National Beef (beef processing), Garcadia (automobile dealerships) through the date of sale, Linkem (fixed wireless broadband services in Italy) and Golden Queen (a gold and silver mining project). 

Three Months Ended September 30, 2018

Net revenues for the three months ended September 30, 2018 increased $292.3 million in comparison to the same period during 2017. The increase reflects the gain on sale of our equity interests in Garcadia and our associated real estate of $221.7 million, increased manufacturing revenues, increased revenues related to our oil and gas businesses, lower mark-to-market decreases of $49.3 million in the value of our Spectrum Brands position and increased income of $16.3 million from an investment in a fund. We classify Spectrum Brands as a trading asset for which the fair value option was elected and we reflect mark-to-market adjustments through Principal transactions revenues.

For the three months ended September 30, 2018 and 2017, net revenues for manufacturing were $94.1 million and $82.0 million, respectively. Net revenues for manufacturing increased $12.1 million due to an increase in sales at Idaho Timber.

Net revenues for the three months ended September 30, 2018 and 2017 for our oil and gas businesses were $35.9 million and $12.0
million, respectively. As discussed further in Note 3 to our consolidated financial statements, Vitesse Energy Finance uses swaps and call and put options in order to reduce exposure to future oil price fluctuations. Net unrealized losses of $4.6 million and $1.6 million were recorded related to these derivatives during the three months ended September 30, 2018 and 2017, respectively. JETX revenues during the three months ended September 30, 2018 and 2017 were impacted by $2.9 million and $3.3 million, respectively, of unrealized losses on a trading asset which is held at fair value.

For the three months ended September 30, 2018 and 2017, total expenses for manufacturing were $88.5 million and $75.0 million, respectively. The increase in total expense for manufacturing primarily relates to an increase of $13.3 million in cost of sales as a


result of the increase in sales. Total expenses for our oil and gas businesses were $28.7 million and $26.4 million during the three months ended September 30, 2018 and 2017, respectively.

Income (loss) related to associated companies primarily relates to our investments in National Beef (subsequent to June 5, 2018), Garcadia and Linkem. Income related to National Beef was $58.9 million for the three months ended September 30, 2018. Income related to Garcadia was $0.7 million and $12.6 million for the three months ended September 30, 2018 and 2017, respectively. Losses related to Linkem were $7.8 million and $9.5 million for the three months ended September 30, 2018 and 2017, respectively. Income (loss) related to associated companies during the three months ended September 30, 2018, also includes a $47.9 million impairment loss related to our equity investment in Golden Queen in the third quarter of 2018.

Income (loss) from continuing operations before income taxes for three months ended September 30, 2018 includes the gain on sale of our equity interests in Garcadia and our associated real estate of $221.7 million, $5.6 million of pre-tax income from manufacturing, $7.1 million of pre-tax income from the oil and gas businesses, $11.3 million of income from an investment in a managed fund and $2.4 million of income from associated companies offset partially by a $48.5 million mark-to-market decrease in the value of our investment in Spectrum Brands and a $6.4 million unrealized loss related to a trading asset which is held at fair value. Income (loss) from continuing operations before income taxes for the three months ended September 30, 2017 includes a $97.9 million mark-to-market decrease in the value of our investment in Spectrum Brands, pre-tax losses from the oil and gas businesses of $14.3 million and $1.1 million of losses related to associated companies, offset partially by $6.9 million of income from manufacturing.

Nine Months Ended September 30, 2018

Net revenues for the nine months ended September 30, 2018, decreased $55.1 million in comparison to the same period during 2017. The decrease is due to a $228.4 million mark-to-market decrease in the value of our investment in Spectrum Brands during the nine months ended September 30, 2018, in comparison to a mark-to-market increase of $2.3 million during the same period last year and the gain on the sale of Conwed of $178.2 million during 2017. This decrease was partially offset by the gain on sale of our equity interests in Garcadia and our associated real estate of $221.7 million, increased manufacturing revenues, increased revenues related to our oil and gas businesses, increased income of $27.4 million related to a trading asset which is held at fair value and increased income of $28.5 million from an investment in a fund. We classify Spectrum Brands as a trading asset for which the fair value option was elected and we reflect mark-to-market adjustments through Principal transactions revenues.

For the nine months ended September 30, 2018 and 2017, net revenues for manufacturing were $307.2 million and $421.8 million (including the gain on the sale of Conwed of $178.2 million), respectively. In January 2017, we sold 100% of Conwed to Schweitzer-Mauduit International, Inc., (NYSE: SWM) for $295 million in cash plus potential earn-out payments in 2019, 2020 and 2021 totaling up to $40 million in cash to the extent the results of Conwed’s subsidiary, Filtrexx International, exceed certain performance thresholds. Excluding the gain on the sale of Conwed, net revenues for manufacturing increased $63.7 million due primarily to an increase in sales at Idaho Timber.

Net revenues for the nine months ended September 30, 2018 and 2017 for our oil and gas businesses were $97.6 million and $26.8 million, respectively. As discussed further in Note 3 to our consolidated financial statements, Vitesse Energy Finance uses swaps and call and put options in order to reduce exposure to future oil price fluctuations. Net unrealized gains (losses) of $(18.7) million and $3.4 million were recorded related to these derivatives during the nine months ended September 30, 2018 and 2017, respectively. JETX revenues during the nine months ended September 30, 2018 and 2017 were impacted by $16.6 million and $(22.0) million, respectively, of unrealized gains (losses) on a trading asset which is held at fair value.

For the nine months ended September 30, 2018 and 2017, total expenses for manufacturing were $270.3 million and $222.3 million, respectively. The increase in total expense for manufacturing primarily relates to an increase of $46.7 million in cost of sales as a result of the increase in sales. Total expenses for our oil and gas businesses were $74.2 million and $53.7 million during the nine months ended September 30, 2018 and 2017, respectively.

Income (loss) related to associated companies primarily relates to our investments in National Beef (subsequent to June 5, 2018), Garcadia and Linkem. Income related to National Beef was $83.3 million for the period from June 5, 2018 through September 30, 2018. Income related to Garcadia was $21.6 million and $38.5 million for the nine months ended September 30, 2018 and 2017, respectively. Losses related to Linkem were $20.5 million and $26.6 million for the nine months ended September 30, 2018 and 2017, respectively. Income (loss) related to associated companies during the nine months ended September 30, 2018, also includes a $47.9 million impairment loss related to our equity investment in Golden Queen in the third quarter of 2018.
Income (loss) from continuing operations before income taxes for nine months ended September 30, 2018 includes the gain on sale of our equity interests in Garcadia and our associated real estate of $221.7 million, $36.9 million of pre-tax income from


manufacturing, $23.5 million from the oil and gas businesses, $26.8 million of income related to a trading asset which is held at fair value, $23.5 million of income from an investment in a managed fund and $26.1 million of income related to associated companies, partially offset by a $228.4 million mark-to-market decrease in the value of our investment in Spectrum Brands. Income (loss) from continuing operations before income taxes for nine months ended September 30, 2017 includes $199.5 million from manufacturing, including the gain on the sale of Conwed of $178.2 million, $3.4 million of income related to associated companies and a $2.3 million mark-to-market increase in the value of our investment in Spectrum Brands, partially offset by pre-tax losses from the oil and gas production and development businesses of $26.9 million.

During the third quarter, we sold 100% of our equity interests in Garcadia and our associated real estate to our former partners, the Garff family for $417.2 million in cash. The pre-tax gain recognized as a result of this transaction, $221.7 million for the three and nine months ended September 30, 2018, is classified as Other revenue.

Corporate

A summary of results of operations for corporate is as follows (in thousands):
 For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2018 2017 2018 2017
Net revenues$8,692
 $1,915
 $14,753
 $4,257
        
Expenses: 
  
  
  
Compensation and benefits13,766
 10,810
 43,040
 35,017
Depreciation and amortization852
 865
 2,599
 2,599
Selling, general and other expenses8,637
 6,551
 24,822
 23,457
 Total expenses23,255
 18,226
 70,461
 61,073
        
Loss from continuing operations before income taxes$(14,563) $(16,311) $(55,708) $(56,816)

For the three months ended September 30, 2018 and 2017, corporate compensation and benefits includes incentive bonus expense of $4.3 million and $2.1 million, respectively, and share-based compensation expense of $5.6 million and $4.6 million, respectively.
For the nine months ended September 30, 2018 and 2017, corporate compensation and benefits includes incentive bonus expense of $12.9 million and $8.4 million, respectively, and share-based compensation expense of $17.7 million and $13.5 million, respectively.

Parent Company Interest

Parent company interest expense totaled $14.8 million and $14.7 million for the three months ended September 30, 2018 and 2017, respectively, and $44.3 million and $44.2 million for the nine months ended September 30, 2018 and 2017, respectively.

Income Taxes

For the three and nine months ended September 30, 2018, our provision (benefit) for income taxes from continuing operations were $90.4 million and $51.6 million, respectively, representing an effective tax rate of 33.1% and 14.8%, respectively. Our provision for income taxes for the nine months ended September 30, 2018 was reduced by a $43.9 million benefit resulting from a reversal of our valuation allowance with respect to certain federal and state net operating loss carryforwards ("NOLs") which we now believe are more likely than not to be utilized before they expire. This benefit reduced our effective tax rate for the nine months ended September 30, 2018 by approximately 12.6%.

For the three and nine months ended September 30, 2017, our provisions for income taxes from continuing operations were $9.8 million and $127.2 million, respectively, representing an effective tax rate of 38.2% and 30.8%, respectively. Our provision for income taxes for the nine months ended September 30, 2017 was reduced by a $31.9 million benefit resulting from the repatriation of Jefferies Group's earnings from certain of its foreign subsidiaries, along with their associated foreign tax credits. This benefit reduced our effective tax rate for the nine months ended September 30, 2017 by approximately 7.7%.

Discontinued Operations

On June 5, 2018, we sold 48% of National Beef to Marfrig for $907.7 million in cash, reducing our ownership in National Beef to 31%. The sale of National Beef meets the GAAP criteria to be classified as a discontinued operation as the sale represents a strategic shift in our operations and financial results. As such, we classified the results of National Beef prior to June 5, 2018 as


a discontinued operation and it is reported in Income from discontinued operations, net of income tax provision in the Consolidated Statements of Operations. In addition, we recognized a pre-tax gain as a result of the transaction of $873.5 million ($643.9 million after-tax) for the nine months ended September 30, 2018, which has been recognized as Gain on disposal of discontinued operations, net of income tax provision in our Consolidated Statements of Operations.

A summary of results of discontinued operations for National Beef is as follows (in thousands):
For the Three Months Ended September 30, For the Nine Months Ended September 30,For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 2017 20162017 2018 (1) 2017
Net revenues$2,039,299
 $1,747,042
 $5,476,274
 $5,180,127
$2,039,299
 $3,142,071
 $5,476,274
            
Expenses: 
  
  
  
 
  
  
Compensation and benefits10,505
 17,414
 29,649
Cost of sales1,816,480
 1,595,671
 5,030,887
 4,856,045
1,816,480
 2,884,983
 5,030,887
Compensation and benefits10,505
 9,660
 29,649
 28,628
Interest1,713
 2,967
 5,781
 10,730
Interest expense1,713
 4,316
 5,781
Depreciation and amortization26,664
 23,100
 73,522
 68,511
26,664
 43,959
 73,522
Selling, general and other expenses9,458
 7,375
 26,428
 23,680
9,458
 14,291
 26,428
Total expenses1,864,820

1,638,773
 5,166,267
 4,987,594
1,864,820
 2,964,963
 5,166,267
            
Income before income taxes$174,479

$108,269
 $310,007
 $192,533
Income from discontinued operations before income taxes174,479
 177,108
 310,007
Income tax provision53,490
 47,045
 90,856
Income from discontinued operations, net of income tax provision$120,989
 $130,063
 $219,151

(1) Discontinued operations for the nine months ended September 30, 2018 include National Beef results through the June 5, 2018 transaction with Marfrig.

National Beef’s profitability is dependent, in large part, on the spread between its cost for live cattle, the primary raw material for its business, and the value received from selling boxed beef and other products, coupled with its overall volume. National Beef operates in a large and liquid commodity market and it does not have much influence over the price it pays for cattle or the selling price it receives for the products it produces. National Beef’s profitability typically fluctuates seasonally, with relatively higher margins in the spring and summer months and during times of ample cattle availability. National Beef's fiscal year consists of 52 or 53 weeks, ending on the last Saturday in DecemberThroughout 2018, demand for beef and its quarters range from twelve to fourteen weeks ending on the last Saturday of March, June, September or December.
Revenues in the three months ended September 30, 2017 increased 17% in comparison to the same period in 2016, due to an increase in the number of cattle processed and higher selling prices. Cost of sales increased 14% for the three months ended September 30, 2017 as compared to the same period in 2016. The increase is primarily due to an increase in volume, partially offset by a small decrease in the price of fed cattle. Revenue and expense comparisons were also impacted by the third quarter of 2017 being a fourteen-week period for National Beef as compared to a thirteen-week period in the third quarter of 2016. The combined effects of increasedsupply remained strong, supporting favorable margin per head, an increase in volume and the extra week led to higher profitability in the 2017 period as compared to the 2016 period.
Revenues in the nine months ended September 30, 2017 increased 6% in comparison to the same period in 2016, primarily due to an increase in the number of cattle processed. Cost of sales increased by 4% for the nine months ended September 30, 2017 as compared to the same period in 2016. The increase is also due to an increase in the number of cattle processed, partially offset by a decrease in the price of fed cattle. The combined effects of increased margin per head and an increase in volume led to higher profitability in the 2017 period as compared to the 2016 period.conditions.









Corporate and Other Results
A summary of results of operations for corporate and other is as follows (in thousands):
 For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2017 2016 2017 2016
Net revenues$21,722
 $1,006
 $31,748
 $78,354
        
Expenses: 
  
  
  
Compensation and benefits11,665
 10,183
 37,582
 29,337
Depreciation and amortization865
 867
 2,599
 2,754
Selling, general and other expenses5,695
 6,819
 20,892
 23,414
 Total expenses18,225

17,869
 61,073
 55,505
        
Income (loss) before income taxes and income (loss) related to associated companies3,497
 (16,863) (29,325) 22,849
Income (loss) related to associated companies(1,902) 244
 (842) 1,077
Income (loss) before income taxes$1,595

$(16,619) $(30,167) $23,926

Net revenues of corporate and other primarily include realized and unrealized securities gains and interest income for investments held at the holding company. Net revenues for the three and nine months ended September 30, 2017 include a $19.7 million realized security gain from an investment in a non-public security. Net revenues for the nine months ended September 30, 2017 and 2016, respectively, include a $6.1 million and $65.6 million increase in a trading asset which is held at fair value.

The increase in corporate compensation and benefits for the nine months ended September 30, 2017 is primarily due to additional share-based compensation expense recorded in the 2017 period. Share-based compensation expense totaled $13.5 million and $6.8 million for the nine months ended September 30, 2017 and 2016, respectively.

Other Financial Services Businesses and Investments

A summary of results for other financial services businesses and investments is as follows (in thousands):
 For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2017 2016 2017 2016
Net revenues$37,707
 $54,742
 $153,270
 $(71,338)
        
Expenses: 
  
  
  
Compensation and benefits15,217
 15,100
 45,349
 44,292
Interest9,936
 4,596
 29,797
 10,988
Depreciation and amortization2,439
 3,882
 8,003
 9,973
Selling, general and other expenses20,362
 13,826
 47,463
 31,806
Total expenses47,954

37,404
 130,612
 97,059
        
Income (loss) before income taxes and income (loss) related to associated companies(10,247) 17,338
 22,658
 (168,397)
Income (loss) related to associated companies30,902
 27,806
 (91,866) 86,121
Income (loss) before income taxes$20,655

$45,144
 $(69,208) $(82,276)

Our other financial services businesses and investments include the consolidated results of Leucadia Asset Management fund managers, the returns on our investments in these funds, the consolidated results of Foursight Capital and Chrome Capital (vehicle finance), our share of the income of Berkadia, the results of our investment in FXCM Group, LLC ("FXCM") and our share of the income of HomeFed.

Excluding the FXCM revenues discussed below, the net revenues in other financial services businesses and investments reflect revenue (losses) of $35.4 million and $12.0 million for the three months ended September 30, 2017 and 2016, respectively, and $135.6 million and $(13.0) million for the nine months ended September 30, 2017 and 2016, respectively. The year-over-year increases in revenues primarily reflect greater returns on investments related to the Leucadia Asset Management businesses and


at our 54 Madison real estate fund. All expense categories were impacted by the growth of our Leucadia Asset Management businesses for the three and nine months ended September 30, 2017, as compared to the same periods of 2016. Pre-tax income (losses) related to our Leucadia Asset Management businesses totaled $(7.7) million and $(16.3) million for the three months ended September 30, 2017 and 2016, respectively, and $13.0 million and $(90.4) million for the nine months ended September 30, 2017 and 2016, respectively. Pre-tax income at our Leucadia Asset Management businesses primarily reflect the continued build out of the businesses, as well as returns on investments recorded at market value.

Income related to Berkadia was $34.8 million and $26.0 million for the three months ended September 30, 2017 and 2016, respectively, and $68.0 million and $59.5 million for the nine months ended September 30, 2017 and 2016, respectively. Our share of income related to HomeFed was $0.2 million and $0.8 million for the three months ended September 30, 2017 and 2016, respectively, and $9.9 million and $23.1 million during the nine months ended September 30, 2017 and 2016, respectively. The nine months ended September 30, 2016 primarily reflects a reversal of HomeFed's deferred tax valuation allowance in the second quarter of 2016 as HomeFed concluded that it was more likely than not that they would have future taxable income sufficient to realize their net deferred tax asset.

As more fully discussed in Note 3 to our consolidated financial statements, on September 1, 2016, we, Global Brokerage Inc. ("Global Brokerage" and formerly FXCM Inc.) and Global Brokerage Holdings, LLC ("Global Brokerage Holdings" and formerly FXCM Holdings, LLC) entered into an agreement that amended the terms of our loan and associated rights. Among other changes, the amendments gave Leucadia a 49.9% common membership interest in FXCM and we gained the ability to significantly influence FXCM through the amendments and as a result, we account for our equity interest in FXCM under the equity method of accounting. Net revenues include gains (losses) of $2.3 million and $17.6 million, respectively, during the three and nine months ended September 30, 2017 from our FXCM term loan and $42.7 million and $(58.3) million, respectively, during the three and nine months ended September 30, 2016 from our FXCM term loan and related rights. This includes the component related to interest income, which is recorded within Principal transactions revenues. We also recorded losses, before impairment charges, related to our equity method investment in FXCM of $4.3 million and $36.2 million during the three and nine months ended September 30, 2017, respectively.

During February 2017, Global Brokerage Holdings and FXCM's U.S. subsidiary, Forex Capital Markets LLC ("FXCM U.S.") settled complaints filed by the National Futures Association ("NFA") and the Commodity Futures Trading Commission ("CFTC") against FXCM U.S. and certain of its principals relating to matters that occurred between 2010 and 2014. The NFA settlement has no monetary fine and the CFTC settlement has a $7 million fine. As part of the settlements, FXCM U.S. withdrew from business and agreed to sell FXCM U.S.'s customer accounts to Gain Capital Holdings, Inc. FXCM U.S. generated approximately 20% of FXCM's revenue, but was not profitable. FXCM also announced the implementation of a restructuring plan that included the termination of approximately 170 employees, which represented approximately 22% of its global workforce.

Based on the above February 2017 actions, we evaluated in the first quarter of 2017 whether our equity method investment was fully recoverable. We engaged an independent valuation firm to assist management in estimating the fair value of FXCM. Our estimate of fair value was based on a discounted cash flow and comparable public company analysis. The result of our analysis indicated that the estimated fair value of our equity interest in FXCM was lower than our carrying value by $130.2 million. We concluded based on the above regulatory actions, FXCM's restructuring plan, investor perception and declines in the trading price of Global Brokerage's common shares and convertible debt, that the decline in fair value of our equity interest was other than temporary. As such, we impaired our equity investment in FXCM in the first quarter of 2017 by $130.2 million.



Other Merchant Banking Businesses and Investments

A summary of results for other merchant banking businesses and investments is as follows (in thousands):
 For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2017 2016 2017 2016
Net revenues$(5,115) $217,089
 $453,625
 $451,484
        
Expenses: 
  
  
  
Cost of sales71,596
 93,422
 210,834
 257,470
Compensation and benefits4,511
 7,334
 13,880
 22,083
Interest939
 836
 2,764
 2,272
Depreciation and amortization9,528
 8,734
 24,650
 26,501
Selling, general and other expenses19,445
 70,569
 36,511
 111,898
Total expenses106,019

180,895
 288,639
 420,224
        
Income (loss) before income taxes and income related to associated companies(111,134) 36,194
 164,986
 31,260
Income related to associated companies1,057
 8,453
 8,295
 21,247
Income (loss) before income taxes$(110,077)
$44,647
 $173,281
 $52,507

Our other merchant banking operations include our ownership of HRG Group, Inc. ("HRG") shares, which is accounted for at fair value and impacts our results through its mark-to-market adjustments reflected within net revenues, and the consolidated results of Vitesse and JETX, formerly Juneau, (oil and gas exploration and development) and Conwed and Idaho Timber (manufacturing companies).  It also includes our equity investments in Garcadia (automobile dealerships), Linkem (fixed wireless broadband services in Italy) and Golden Queen (a gold and silver mining project).

Net revenues for the three months ended September 30, 2017 include unrealized losses of $97.9 million from the change in value of our investment in HRG, partially offset by revenues of $82.0 million from our manufacturing companies and $12.0 million from our oil and gas exploration and development businesses. Net revenues for the three months ended September 30, 2016 include $91.8 million of unrealized gains from the change in value of our investment in HRG, $111.8 million from our manufacturing companies and $11.6 million from our oil and gas exploration and development businesses. The decline in revenues from our manufacturing companies for the three months ended September 30, 2017 compared to the three months ended September 30, 2016 is due to the sale of Conwed in the first quarter of 2017.

Net revenues for the nine months ended September 30, 2017 include $2.3 million of unrealized gains from the change in value of our investment in HRG, $421.8 million from our manufacturing companies, including the gain on the sale of Conwed of $178.2 million (net of working capital adjustments) and $26.8 million from our oil and gas exploration and development businesses. Net revenues for the nine months ended September 30, 2016 include $99.7 million of unrealized gains from the change in value of our investment in HRG, $313.6 million from our manufacturing companies and $30.1 million from our oil and gas exploration and development businesses.
As discussed further in Note 3 to our consolidated financial statements, Vitesse uses swaps and call and put options in order to reduce exposure to future oil price fluctuations. Net unrealized gains (losses) recorded related to these options were $(1.6) million and $(3.3) million during the three months ended September 30, 2017 and 2016, respectively, and $3.4 million and $(8.2) million during the nine months ended September 30, 2017 and 2016, respectively. JETX revenues during the three and nine months ended September 30, 2017 were impacted by $3.3 million and $22.0 million, respectively, of unrealized losses on a trading asset which is held at fair value.
Total expenses decreased $74.9 million and $131.6 million, respectively, in the three and nine months ended September 30, 2017 as compared to the same periods in 2016, primarily reflecting lower costs for our oil and gas exploration and development businesses and the sale of Conwed in early 2017. Selling, general and other expenses for our oil and gas exploration and development businesses declined $50.2 million and $67.6 million, respectively, during the three and nine months ended September 30, 2017 as compared to the same periods in 2016. The declines are primarily due to a $55.0 million impairment recorded by JETX in the third quarter of 2016, partially offset by a $10.1 million impairment of JETX's Houston County acreage in the third quarter of 2017. The third quarter 2017 write-off of the remaining Houston County acreage was due to the decision made in the third quarter of 2017 to focus on JETX's other higher returning acreage. The 2016 impairment charge related to decisions made by JETX in the third quarter of


2016 to curtail development of its southern acreage in the East Eagle Ford and its Houston County acreage. Impairment charges were recorded for the differences between the carrying values and the estimated net realizable values.
Income related to Garcadia was $12.6 million and $14.2 million for the three months ended September 30, 2017 and 2016, respectively, and $38.5 million and $43.5 million for the nine months ended September 30, 2017 and 2016, respectively. Losses related to Linkem were $9.5 million and $5.8 million for the three months ended September 30, 2017 and 2016, respectively, and $26.6 million and $20.7 million during the nine months ended September 30, 2017 and 2016, respectively.
Pre-tax loss for the three months ended September 30, 2017 includes losses of $97.9 million related to our investment in HRG and pre-tax losses from the oil and gas exploration and development businesses of $14.3 million, partially offset by $6.9 million of income from manufacturing and $1.1 million of income related to associated companies. The pre-tax income for the three months ended September 30, 2016 includes $91.8 million related to our investment in HRG, $9.8 million from manufacturing and $8.5 million of income related to associated companies, offset partially by pre-tax losses from the oil and gas exploration and development businesses of $63.9 million.
Pre-tax income for the nine months ended September 30, 2017 includes $199.5 million from manufacturing, including the gain on the sale of Conwed of $178.2 million (including working capital adjustments), $8.3 million of income related to associated companies and $2.3 million related to our investment in HRG, offset partially by pre-tax losses from the oil and gas exploration and development businesses of $26.9 million. Pre-tax income for the nine months ended September 30, 2016 includes $99.7 million related to our investment in HRG, $30.3 million from manufacturing and $21.2 million of income related to associated companies, offset by pre-tax losses for the oil and gas exploration and development businesses of $92.1 million.
Parent Company Interest
Parent company interest totaled $14.7 million for both the three months ended September 30, 2017 and 2016 and $44.2 million for both the nine months ended September 30, 2017 and 2016.
Income Taxes
For the three and nine months ended September 30, 2017, our provisions for income taxes were $63.3 million and $218.1 million, respectively, representing an effective tax rate of 32% and 30%, respectively. Our provision for income taxes for the nine months ended September 30, 2017 was reduced by a $31.9 million benefit resulting from the repatriation of Jefferies earnings from certain of its foreign subsidiaries, along with their associated foreign tax credits. This benefit reduced our effective tax rate for the nine months ended September 30, 2017 by approximately 4%.
For the three and nine months ended September 30, 2016, our provisions for income taxes were $73.7 million and $59.2 million, respectively, representing an effective tax rate of 29% and 68%, respectively. The projected 2016 full year effective rate was impacted by changes in the geographical mix of earnings among jurisdictions with differing tax rates. Additionally, our provision for income taxes for the nine months ended September 30, 2016 was increased by a $23.0 million charge related to previously issued stock awards. The majority of the awards expired during the first quarter of 2016. The tax deductions associated with the remainder of the awards was less than the compensation cost recognized for financial reporting purposes. This charge impacted our effective tax rate for the nine months ended September 30, 2016 by approximately 26%.
Selected Balance Sheet Data

In addition to preparing our Consolidated Statements of Financial Condition in accordance with GAAP,accounting principles generally accepted in the United States of America ("GAAP"), we also review the tangible capital associated with each of our businesses and investments, which is a non-GAAP presentation and may not be comparable to similar non-GAAP presentations used by other companies. We believe that this information is useful to investors as it allows them to view our businesses and investments through the eyes of management while facilitating a comparison across historical periods. We define tangible capital as Total Leucadia National CorporationJefferies Financial Group Inc. shareholders' equity less Intangible assets, net and goodwill. As a result of the announced transactions and our current operating strategy, we have made changes to the corporate segment to reflect the way we currently manage our business, and have reclassified the December 31, 2017 balances to conform to current year presentation.



The tables below reconcile tangible capital to our GAAP balance sheet (in thousands):
September 30, 2018
September 30, 2017Financial Services        
Jefferies National Beef Other Financial Services Businesses and Investments Other Merchant Banking Businesses and Investments Corporate and other Inter-company Eliminations TotalJefferies Group Other Financial Services Merchant Banking Corporate Inter-company Eliminations Total
Assets                        
Cash and cash equivalents$4,806,724
 $14,013
 $33,732
 $30,058
 $132,405
 $—
 $5,016,932
$4,770,564
 $16,698
 $33,900
 $74,626
 $—
 $4,895,788
Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations903,744
 —
 —
 —
 —
 —
 903,744
913,456
 —
 —
 —
 —
 913,456
Financial instruments owned14,036,679
 —
 467,479
 788,611
 732,793
 —
 16,025,562
15,195,619
 1,464,655
 1,048,971
 1,868,420
 —
 19,577,665
Investments in managed funds169,926
 —
 326,365
 44,984
 —
 —
 541,275
Loans to and investments in associated companies897,604
 —
 922,650
 484,373
 46,353
 —
 2,350,980
758,807
 728,256
 963,838
 —
 —
 2,450,901
Securities borrowed7,758,532
 —
 —
 —
 —
 —
 7,758,532
7,369,908
 —
 —
 —
 —
 7,369,908
Securities purchased under agreements to resell3,371,435
 —
 —
 —
 —
 —
 3,371,435
3,659,059
 —
 —
 —
 —
 3,659,059
Receivables4,201,308
 192,318
 1,023,039
 50,438
 40,744
 —
 5,507,847
4,759,784
 1,009,516
 94,314
 1,201
 —
 5,864,815
Property, equipment and leasehold improvements, net290,871
 383,867
 3,406
 29,780
 19,761
 —
 727,685
298,982
 930
 30,420
 16,564
 —
 346,896
Intangible assets, net and goodwill1,897,641
 565,854
 9,797
 —
 —
 —
 2,473,292
1,884,990
 1,271
 8,637
 —
 —
 1,894,898
Deferred tax asset, net356,833
 —
 —
 —
 905,815
 —
 1,262,648
280,357
 —
 —
 187,940
 —
 468,297
Other assets714,865
 300,124
 94,955
 559,069
 82,069
 (24,070) 1,727,012
670,158
 73,127
 754,601
 45,765
 (36,665) 1,506,986
Total Assets39,406,162
 1,456,176
 2,881,423
 1,987,313
 1,959,940
 (24,070) 47,666,944
40,561,684
 3,294,453
 2,934,681
 2,194,516
 (36,665) 48,948,669
                        
Liabilities                        
Long-term debt (1)6,449,685
 111,818
 450,642
 91,764
 988,733
 —
 8,092,642
6,574,866
 141,701
 70,945
 989,913
 —
 7,777,425
Other liabilities27,251,912
 259,243
 727,492
 43,889
 160,687
 (24,070) 28,419,153
28,373,471
 1,797,278
 85,992
 158,032
 (36,665) 30,378,108
Total liabilities33,701,597
 371,061
 1,178,134
 135,653
 1,149,420
 (24,070) 36,511,795
34,948,337
 1,938,979
 156,937
 1,147,945
 (36,665) 38,155,533
                        
Redeemable noncontrolling interests—
 374,425
 473
 13,674
 —
 —
 388,572
—
 —
 21,385
 —
 —
 21,385
Mandatorily redeemable convertible preferred shares—
 —
 —
 —
 125,000
 —
 125,000
—
 —
 —
 125,000
 —
 125,000
Noncontrolling interests701
 —
 156,920
 32,046
 —
 —
 189,667
9,062
 1,038
 15,466
 —
 —
 25,566
Total Leucadia National Corporation Shareholders' Equity$5,703,864
 $710,690
 $1,545,896
 $1,805,940
 $685,520
 $—
 $10,451,910
Total Jefferies Financial Group Inc. Shareholders' Equity$5,604,285
 $1,354,436
 $2,740,893
 $921,571
 $—
 $10,621,185
                        
Reconciliation to Tangible Capital                        
Total Leucadia National Corporation shareholders' equity$5,703,864
 $710,690
 $1,545,896
 $1,805,940
 $685,520
 $—
 $10,451,910
Total Jefferies Financial Group Inc. shareholders' equity$5,604,285
 $1,354,436
 $2,740,893
 $921,571
 $—
 10,621,185
Less: Intangible assets, net and goodwill(1,897,641) (565,854) (9,797) —
 —
 —
 (2,473,292)(1,884,990) (1,271) (8,637) —
 —
 (1,894,898)
Tangible Capital$3,806,223
 $144,836
 $1,536,099
 $1,805,940
 $685,520
 $—
 $7,978,618
Tangible Capital, a non-GAAP measure$3,719,295
 $1,353,165
 $2,732,256
 $921,571
 $—
 $8,726,287

(1)Long-term debt within Other financial services businesses and investments of $141.7 million at September 30, 2018 includes $138.0 million for Foursight Capital and $3.7 million for Chrome Capital. Long-term debt within Merchant banking of $70.9 million at September 30, 2018 relates to Vitesse Energy Finance.


 December 31, 2017
 Financial Services Merchant Banking      
 Jefferies Group Other Financial Services National Beef Other Merchant Banking Corporate Inter-company Eliminations Total
Assets             
Cash and cash equivalents$5,164,492
 $13,681
 $18,516
 $42,240
 $36,551
 $—
 $5,275,480
Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations578,014
 —
 —
 —
 —
 —
 578,014
Financial instruments owned14,193,352
 779,306
 2,880
 1,195,624
 628,075
 —
 16,799,237
Loans to and investments in associated companies682,790
 715,892
 —
 668,147
 —
 —
 2,066,829
Securities borrowed7,721,803
 —
 —
 —
 —
 —
 7,721,803
Securities purchased under agreements to resell3,689,559
 —
 —
 —
 —
 —
 3,689,559
Receivables4,459,827
 677,211
 201,675
 77,355
 2,947
 —
 5,419,015
Property, equipment and leasehold improvements, net297,750
 2,681
 401,148
 29,927
 18,897
 —
 750,403
Intangible assets, net and goodwill1,899,093
 1,561
 554,541
 7,985
 —
 —
 2,463,180
Deferred tax asset, net212,954
 —
 —
 —
 530,857
 —
 743,811
Other assets676,098
 79,993
 281,779
 612,713
 81,515
 (70,321) 1,661,777
    Total Assets39,575,732
 2,270,325
 1,460,539
 2,633,991
 1,298,842
 (70,321) 47,169,108
              
Liabilities             
Long-term debt (1)6,416,844
 187,478
 199,221
 93,219
 989,021
 —
 7,885,783
Other liabilities27,514,235
 656,996
 332,111
 56,333
 103,399
 (70,321) 28,592,753
  Total liabilities33,931,079
 844,474
 531,332
 149,552
 1,092,420
 (70,321) 36,478,536
              
Redeemable noncontrolling interests—
 —
 412,128
 14,465
 —
 —
 426,593
Mandatorily redeemable convertible preferred shares—
 —
 —
 —
 125,000
 —
 125,000
Noncontrolling interests737
 1,382
 —
 30,903
 —
 —
 33,022
Total Jefferies Financial Group Inc. Shareholders' Equity$5,643,916
 $1,424,469
 $517,079
 $2,439,071
 $81,422
 $—
 $10,105,957
              
Reconciliation to Tangible Capital             
Total Jefferies Financial Group Inc. shareholders' equity$5,643,916
 $1,424,469
 $517,079
 $2,439,071
 $81,422
 $—
 10,105,957
Less: Intangible assets, net and goodwill(1,899,093) (1,561) (554,541) (7,985) —
 —
 (2,463,180)
Tangible Capital, a non-GAAP measure$3,744,823
 $1,422,908
 $(37,462) $2,431,086
 $81,422
 $—
 $7,642,777

(1) Long-term debt within Other financial services businesses and investments of $450.6$187.5 million at September 30,December 31, 2017 includes $313.7 million for 54 Madison Capital, LLC ("54 Madison"), $114.3$170.5 million for Foursight Capital and $22.6$17.0 million for Chrome Capital. Long-term debt within Other merchant banking businesses and investments of $91.8$93.2 million at September 30,December 31, 2017 includes $54.0$53.4 million for real estate associated with the Garcadia investment and $37.8$39.8 million for Vitesse.Vitesse Energy Finance.


 December 31, 2016
 Jefferies National Beef Other Financial Services Businesses and Investments (1) Other Merchant Banking Businesses and Investments Corporate and other Inter-company Eliminations Total
Assets             
Cash and cash equivalents$3,529,457
 $37,702
 $41,165
 $45,151
 $154,083
 $—
 $3,807,558
Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations857,337
 —
 —
 —
 —
 —
 857,337
Financial instruments owned13,809,512
 1,906
 188,976
 761,249
 524,643
 —
 15,286,286
Investments in managed funds186,508
 —
 301,171
 —
 27,639
 —
 515,318
Loans to and investments in associated companies653,872
 —
 985,780
 451,117
 34,329
 —
 2,125,098
Securities borrowed7,743,562
 —
 —
 —
 —
 —
 7,743,562
Securities purchased under agreements to resell3,862,488
 —
 —
 —
 —
 —
 3,862,488
Receivables3,163,171
 179,313
 938,254
 47,761
 96,679
 —
 4,425,178
Property, equipment and leasehold improvements, net265,553
 385,599
 4,551
 31,351
 22,188
 —
 709,242
Intangible assets, net and goodwill1,903,335
 599,794
 10,549
 —
 —
 —
 2,513,678
Deferred tax asset, net337,580
 —
 —
 —
 1,124,235
 —
 1,461,815
Assets held for sale—
 —
 —
 128,083
 —
 —
 128,083
Other assets679,721
 294,003
 117,274
 563,905
 63,442
 (82,681) 1,635,664
    Total Assets36,992,096
 1,498,317
 2,587,720
 2,028,617
 2,047,238
 (82,681) 45,071,307
              
Liabilities             
Long-term debt (2)5,483,331
 276,341
 545,528
 87,352
 987,891
 —
 7,380,443
Other liabilities26,090,308
 270,184
 351,505
 64,315
 231,775
 (82,681) 26,925,406
  Total liabilities31,573,639
 546,525
 897,033
 151,667
 1,219,666
 (82,681) 34,305,849
              
Redeemable noncontrolling interests—
 321,962
 551
 14,296
 —
 —
 336,809
Mandatorily redeemable convertible preferred shares—
 —
 —
 —
 125,000
 —
 125,000
Noncontrolling interests651
 —
 141,847
 33,051
 —
 —
 175,549
Total Leucadia National Corporation Shareholders' Equity$5,417,806
 $629,830
 $1,548,289
 $1,829,603
 $702,572
 $—
 $10,128,100
              
Reconciliation to Tangible Capital             
Total Leucadia National Corporation shareholders' equity$5,417,806
 $629,830
 $1,548,289
 $1,829,603
 $702,572
 $—
 $10,128,100
Less: Intangible assets, net and goodwill(1,903,335) (599,794) (10,549) —
 —
 —
 (2,513,678)
Tangible Capital$3,514,471
 $30,036
 $1,537,740
 $1,829,603
 $702,572
 $—
 $7,614,422

(1) Other financial services businesses and investments excludes $89.1 million at December 31, 2016 of liquid marketable securities that are available for sale immediately. These liquid marketable securities are included in Corporate and other.


(2) Long-term debt within Other financial services businesses and investments of $545.5 million at December 31, 2016 includes $406.0 million for 54 Madison, $97.1 million for Foursight Capital and $42.4 million for Chrome Capital. Long-term debt within Other merchant banking businesses and investments of $87.4 million at December 31, 2016 includes $55.7 million for real estate associated with the Garcadia investment and $31.7 million for Vitesse.

The table below presents our tangible capital by significant business and investment (in thousands):
 Tangible Capital as of
 September 30, 2017 December 31, 2016
Jefferies$3,806,223
 $3,514,471
    
National Beef144,836
 30,036
    
Other Financial Services Businesses and Investments:   
  Leucadia Asset Management (1)662,444
 483,687
  HomeFed312,161
 269,421
  FXCM241,429
 500,758
  Berkadia199,948
 184,443
  Foursight Capital and Chrome Capital97,082
 100,516
  Other23,035
 (1,085)
    Total Other Financial Services Businesses and Investments1,536,099
 1,537,740
    
Other Merchant Banking Businesses and Investments:   
  HRG727,426
 725,096
  Vitesse315,578
 309,837
  JETX100,183
 159,182
  Garcadia203,899
 206,760
  Linkem193,418
 154,000
  Idaho Timber76,525
 76,551
  Golden Queen75,835
 78,474
  Conwed—
 100,649
  Other113,076
 19,054
    Total Other Merchant Banking Businesses and Investments
1,805,940
 1,829,603
    
Corporate and other assets, net of all Corporate liabilities including long-term debt685,520
 702,572
    
Total Tangible Capital (2)$7,978,618
 $7,614,422
    
(1) Leucadia Asset Management does not include $89.1 million at December 31, 2016 of liquid marketable securities that are available for sale immediately. These liquid marketable securities are included in Corporate and other assets, net of all Corporate liabilities including long-term debt.
(2) Tangible Capital, a non-GAAP measure, is defined as Leucadia National Corporation shareholders' equity less Intangible assets, net and goodwill. See reconciliation of Tangible Capital to Leucadia National Corporation shareholders' equity in the tables above.
 Tangible Capital as of
 September 30, 2018 December 31, 2017
Financial Services:   
    Jefferies Group$3,719,295
 $3,744,823
    
    Other Financial Services:   
      Leucadia Asset Management452,987
 571,264
      Berkadia247,568
 210,594
      HomeFed338,536
 310,264
      Other financial services314,074
 330,786
    Total Other Financial Services1,353,165
 1,422,908
    
Merchant Banking:   
      National Beef626,870
 (37,462)
      Oil and Gas606,156
 416,621
      Spectrum Brands561,482
 789,870
      Linkem168,543
 192,136
      Idaho Timber81,523
 81,542
      Garcadia—
 199,541
      Other merchant banking687,682
 751,376
    Total Merchant Banking
2,732,256
 2,393,624
    
Corporate liquidity and other assets, net of all Corporate liabilities including long-term debt921,571
 81,422
    
Total Tangible Capital (1)$8,726,287
 $7,642,777
    
(1) Tangible Capital, a non-GAAP measure, is defined as Jefferies Financial Group Inc. shareholders' equity less Intangible assets, net and goodwill. See reconciliation of Tangible Capital to Jefferies Financial Group Inc. shareholders' equity in the tables above.

Below is a brief description of the captions in the table above:
•
Our Financial Services include:
Jefferies Group is our consolidated wholly-owned global full-service, integrated securities and investment banking firm.

National Beef is our approximately 79% owned consolidated subsidiary that processes and markets fresh boxed beef, consumer-ready beef, beef by-products and wet blue leather for domestic and international markets.

Other Financial Services Businesses and Investments include:
◦Leucadia Asset Management supports and develops focused alternative asset management businesses led by distinct management teams.
◦Our investment in FXCM currently consists of a senior secured term loan due January 2018 ($67.6 million outstanding at September 30, 2017) and a 49.9%Berkadia, our 50-50 equity method interest in FXCM and up to 65% of all distributions. FXCMjoint venture with Berkshire Hathaway Inc., is a leading online provider of foreign exchange trading services.U.S. commercial real estate finance company providing capital solutions, investment sales advisory and mortgage servicing for multifamily and commercial properties.
◦We own an approximate 70% equity method interest in HomeFed, which owns and develops residential and mixed-use real estate properties. HomeFed is a public company traded on the NASD OTC Bulletin Board.


◦Berkadia, our 50-50 equity method joint venture with Berkshire Hathaway Inc., is a U.S. commercial real estate finance company providing capital solutions, investment sales advisory, research and mortgage servicing for multifamily and commercial properties.
◦Foursight Capital purchases automobile installment contracts originated by franchised and independent dealerships in conjunction with the sale of new and used automobiles and services these loans throughout their life cycle. Chrome Capital owns and manages a portfolio of leases on used Harley-Davidson motorcycles and is in the process of winding down. We consolidate both of these subsidiaries.

OtherOur Merchant Banking Businesses and Investments include:business includes:
◦We own approximately 23% of HRG, a public company traded on the NYSE, and we reflect this investment at fair value. Its consumer products segment contains an approximate 59% ownership stake31% interest in Spectrum Brands, a global consumer products company.National Beef, which processes and markets fresh and chilled boxed beef, ground beef and beef by-products, consumer-ready beef and pork, and wet blue leather for domestic and international markets. On June 5, 2018, we sold 48% of our interest in National Beef to Marfrig and deconsolidated our investment in National Beef. Our retained 31% interest is accounted for under the equity method.
◦Our oil and gas business consists of Vitesse Energy Finance and JETX. Vitesse Energy Finance is our 96%97% owned consolidated subsidiary that acquires and developsinvests in non-operated working and royalty oil and gas interests in the Bakken Shale oil field in North Dakota and Montana, as well as the Denver-Julesburg Basin in Wyoming.
◦JETX is our 98% owned consolidated subsidiary that engages in the exploration, development and production of oil and gas from onshore, unconventional resource areas. JETX currently has non-operated working interests and acreage in the Texas Gulf Coast region.east Texas.


◦Garcadia is an equity method joint venture that owns and operates 28 automobile dealerships in California, Texas, Iowa and Michigan. We own approximately 75%14% of Garcadia.Spectrum Brands, a publicly traded global consumer products company on the NYSE, and we reflect this investment at fair value based on quoted market prices. On July 13, 2018, HRG Group, Inc. ("HRG") merged into its 62% owned subsidiary, Spectrum Brands. Our approximately 23% interest in HRG thereby converted into approximately 14% of Spectrum Brands outstanding shares.
◦We own approximately 42% of the common shares of Linkem, as well as convertible preferred shares which, if converted, would increase our ownership to approximately 53%54% of Linkem’s common equity at September 30, 2017.2018. Linkem provides residential broadband services in Italy using LTE technologies deployed over the 3.5 GHz spectrum band. Linkem operates in Italy, which has few cable television systems and poor broadband alternatives. Linkem is accounted for under the equity method.
◦Golden Queen Mining Company, LLC ("Golden Queen") owns the Soledad Mountain project, an open pit, heap leach gold and silver mining project in Kern County, California, which commenced gold and silver production in March 2016. We and the Clay family have formed and made contributions to a limited liability company, controlled by us, through which we invested in Golden Queen for the development and operation of the project. Our effective ownership of Golden Queen is approximately 35% and is accounted for under the equity method.
◦Idaho Timber is our consolidated subsidiary engaged in the manufacture and distribution of various wood products, including the following principal activities: remanufacturing dimension lumber; remanufacturing, bundling and bar coding of home center boards for large retailers; and production of pine dimension lumber and 5/4”4" radius-edge pine decking.
◦In JanuaryGarcadia was an equity method joint venture that owned and operated 28 automobile dealerships in California, Texas, Iowa and Michigan. At December 31, 2017, we owned approximately 75% of Garcadia. During the third quarter of 2018, we sold 100% of Conwed Plastics ("Conwed")our equity interests in Garcadia and our associated real estate to Schweitzer-Mauduit International, Inc., (NYSE: SWM) for $295 million in cash plus potential earn-out payments over five years of up to $40 million in cash toour former partners, the extent the results of Conwed’s subsidiary, Filtrexx International, exceed certain performance thresholds.Garff family.

Corporate liquidity and other assets, net of Corporate liabilities, primarily consist of financial instruments owned, the deferred tax asset (exclusive of Jefferies Group's deferred tax asset) and, cash and cash equivalents, net of long-term debt, trade payables and accruals, as well as our outstanding mandatorily redeemable convertible preferred shares.






Liquidity and Capital Resources

Parent Company Liquidity

We are a holdingParent company whose assets principally consist of the stock or membership interests of direct subsidiaries,our subsidiary businesses, cash and cash equivalents and other noncontrolling investments in debt and equity securities. We continuously evaluate the retention and disposition of our existing operations and investments, and investigate possible acquisitions of new businesses and investments in order to maximize shareholder value. Accordingly, further acquisitions, divestitures, investments and changes in capital structure are possible. Our principal sources of funds are distributions from subsidiaries, proceeds from divestitures of existing businesses and investments, repayment of subsidiary advances, available cash resources, liquid investments, public and private capital market transactions, repayment of subsidiary advances, funds distributed from subsidiaries as tax sharing payments, public and private capital market transactions, and management and other fees, and dividends from subsidiaries, as well as dispositions of existing businesses and investments.fees.

In addition toDuring the nine months ended September 30, 2018, we received $680.2 million of distributions from our existing subsidiary businesses, including $411.6 million from Jefferies Group. We also received $1,575.3 million from divestitures and repayments of advances, primarily from the sales of 48% of National Beef and 100% of our equity interests in Garcadia and our associated real estate. Proceeds from the sale of 48% of National Beef and total distributions received from National Beef for the nine months ended September 30, 2018 were $1,207.7 million.
Our cash resources and cash equivalents, we have certain other investments that are easily convertible into cash within a relatively short period of time and are classified as trading assets, available for sale securities, receivables and investments in managed funds.  Together, these total $1,192.6$2,312.9 million at September 30, 2017,2018, and are primarily comprised of cash, and short-term bonds and notes of the U.S. Government and its agencies, and other publicly traded debt and equity securities. Our available liquidity,These are classified in our balance sheet as cash and the investment income realized from cash, cash equivalents, trading assets, available for sale securities and marketable securities is used to meet ourreceivables.

Our short-term recurring cash requirements, which are principally the payment of interest on our debt, dividends and corporate cash overhead expenses.

expenses, approximate $297 million on an annual basis. Dividends paid during the nine months ended September 30, 2018 of $111.8 million include quarterly dividends of $0.10 per share for each of the first two quarters and $0.125 for the third quarter. The payment of dividends is subject to the discretion of the Board of Directors and depends upon general business conditions, legal and contractual restrictions on the payment of dividends and other factors that the Board of Directors may deem to be relevant. Our recurring cash requirements typically do not include significant amounts for tax payments, as we have NOLs and other tax attributes which offset federal tax liabilities.
The parent company’s primary long-term cash requirement is to make principal payments on its long-term debt ($1.0 billion principal outstanding as of September 30, 2017)2018), of which $750.0 million is due in 2023 and $250.0 million in 2043. Historically, we have usedWe continue to use our available liquidity to make acquisitions of new businesses and other investments, but, except as disclosed in this report, theadditional contributions to existing businesses, and from time to time, repurchases of our outstanding common shares. The timing of any future investmentsthese events is influenced by many factors and the costs thereoftherefore cannot be predicted.

In January 2017,April 2018, Vitesse Energy Finance acquired a package of non-operated Bakken assets from a private equity fund for $190 million in cash, of which approximately $144 million was funded as equity by Jefferies and the balance was drawn under Vitesse Energy Finance’s credit line. The assets purchased include interests in mineral rights associated with future oil and gas development, as well as interests in existing cash flows from producing wells through revenue sharing arrangements.

In May 2018, we expanded our asset management efforts by forming a strategic relationship with Weiss Multi-Strategy Advisers LLC and invested $250.0 million in Weiss' strategy. We will receive a profit share in the first year, and a revenue share thereafter.

In June 2018, we completed the sale of 48% of National Beef to Marfrig for approximately $907.7 million in cash, reducing our ownership in National Beef to 31%.

In August 2018, we sold 100% of Conwedour equity interests in Garcadia and our associated real estate to Schweitzer-Mauduit International, Inc., (NYSE:SWM)our former partners, the Garff family for $295$417.2 million in cash plus potential earn-out payments over five years of up to $40 million in cash to the extent the results of Conwed’s subsidiary, Filtrexx International, exceed certain performance thresholds.
We received $111.3 million of principal and interest from FXCM during the nine months ended September 30, 2017. During the nine months ended September 30, 2017, we received $138.9 million in distributions from National Beef.cash.

During the nine months ended September 30, 2017, we invested $124.6 million in a separate account managed by Folger Hill Asia.
During the first quarter of 2017, we participated in a preferred equity financing for Linkem. Existing shareholders, along with funds managed by BlackRock, invested €100 million in cash in exchange for shares of Linkem to fund future expansion plans, of which Leucadia's share was €30 million ($32 million). The financing was based on a pre-money valuation of €700 million (post-money valuation of €800 million) and our fully-diluted ownership post-transaction is 53%.Shares Outstanding

During the nine months ended September 30, 2017, we bought 797,897 common shares of HomeFed for $31.9 million in privately-negotiated transactions.

During the nine months ended September 30, 2017, we purchased a total of 3,882,738 ofIn November 2012, our common shares for $96.9 million (including $21.0 million which settled in October 2017), at an average price per share of $24.95. The Board of Directors hashad authorized the purchase of up to 25,000,000 common shares, which may be made from time to time in the open market, through block trades or otherwise. As of September 30,shares. Between 2012 and 2017 we bought 12,500,000 common shares remain authorized for repurchase.

under this authorization. In April 2018, the Board of Directors approved an increase to our share repurchase program to 25,000,000 common shares from the 12,500,000 million remaining under its prior authorization. In July 2018, the Board of Directors approved an increase to our share repurchase program of 25,000,000 common shares. During the nine months ended September 30, 2017,2018, we paid two quarterly dividendspurchased a total of $0.062526,119,483 of our common shares for $630.9 million at an


average price of $24.16 per share under these authorizations. As of September 30, 2018, 23,880,517 common shares remained authorized for each of the first two quarters and $0.10 per share for the third quarter which aggregated $81.4 million.  The payment of dividends in the future is subject to the discretion of the Board of Directors and will depend upon general business conditions, legal and contractual restrictions on the payment of dividends and other factors that the Board of Directors may deem to be relevant.repurchase.

In February 2009, the Board of Directors authorized, from time to time, the purchase of our outstanding debt securities through cash purchases in open market transactions, privately negotiated transactions or otherwise. Such repurchases, if any, depend upon prevailing market conditions, our liquidity requirements and other factors; such purchases may be commenced or suspended at any time without notice.

At September 30, 2017,2018, we had outstanding 356,189,758331,415,732 common shares and 16,822,00020,557,000 share-based awards that do not require the holder to pay any exercise price (potentially an aggregate of 373,011,758351,972,732 outstanding common shares if all awards become


outstanding common shares). The 16,822,00020,557,000 share-based awards include the target number of shares under the senior executive award plan, which is more fully discussed in Note 16.15.

Credit Ratings

From time to time in the past, we have accessed public and private credit markets and raised capital in underwritten bond financings. In addition, the ratings of LeucadiaJefferies are a factor considered by rating agencies that rate the debt of our subsidiary companies, including Jefferies Group, whose access to external financing is important to its day to day operations.

Our long-term debt ratings Ratings issued by bond rating agencies, subject to change at any time, are as follows:
 
    Rating
Outlook
Moody’s Investors ServiceBa1StablePositive
Standard and Poor’sBBB-Stable
Fitch RatingsBBB-BBBStable

In connection with presentations made to credit rating agencies with respect to the Jefferies acquisition, we advised the agencies that we wouldWe target specific concentration, leverage and liquidity principles, expressed in the form of certain ratios and percentages, although there is no legal requirement to do so. 

Concentration Target: As a diversification measure, we limit cash investments such that our single largest investment does not exceed 20% of equity excluding Jefferies Group, and that our next largest investment does not exceed 10% of equity excluding Jefferies Group, in each case measured at the time the investment was made. National BeefOn this basis, Spectrum Brands is our largest investment excluding Jefferies Group and HRGVitesse Energy Finance is our next largest investment.investment excluding Jefferies Group. National Beef is no longer considered our largest investment because we have received back cash in excess of our cumulative investments. There were no investments made during the quarteryear that approached 10% of equity excluding Jefferies.Jefferies Group.

Liquidity Target: We hold a liquidity reserve calculated as a minimum of twenty-four months of holding company expenses (excluding non-cash components), parent company interest, and dividends. Maturities of parent company debt within the upcoming year are also included in the target; however, our next maturity is during 2023 so there is no current inclusion.
Liquidity reserve (in thousands):
September 30, 2017September 30, 2018
Minimum reserve under liquidity target$531,400
$594,559
Actual liquidity$1,192,627
$2,312,932



Leverage Target: We target a maximum parent debt to stressed equity ratio of .50, with stressed equity defined as equity (excluding Jefferies)Jefferies Group) assuming the loss of our two largest investments.
Leverage target (dollars in thousands):
September 30, 2017 September 30, 2018 
Total Leucadia National Corporation shareholders' equity$10,451,910
 
Less, investment in Jefferies(5,703,864) 
Equity excluding Jefferies4,748,046
 
Total Jefferies Financial Group Inc. shareholders' equity$10,621,185
 
Less, investment in Jefferies Group(5,604,285) 
Equity excluding Jefferies Group5,016,900
 
Less, our two largest investments: 
  
 
National Beef(710,690) (626,870) 
HRG, at cost(475,600) 
Vitesse Energy Finance(492,492) 
Equity in a stressed scenario3,561,756
 3,897,538
 
Less, net deferred tax asset excluding Jefferies amount(905,815) 
Less, net deferred tax asset excluding Jefferies Group's amount(187,940) 
Equity in a stressed scenario less net deferred tax asset$2,655,941
 $3,709,598
 
Parent company debt (see Note 14 to our consolidated financial statements)$988,733
 
Parent company debt (see Note 13 to our consolidated financial statements)$989,913
 
Ratio of parent company debt to stressed equity: 
  
 
Maximum0.50
x0.50
x
Actual, equity in a stressed scenario0.28
x0.25
x
Actual, equity in a stressed scenario excluding net deferred tax asset0.37
x0.27
x

Consolidated Statements of Cash Flows

As discussed above, we have historically relied on our available liquidity to meet short-term and long-term needs, and to make acquisitions of new businesses and investments. Except as otherwise disclosed herein, our operating businesses do not generally require significant funds to support their operating activities, and we do not depend on positive cash flow from our operating


segments to meet our liquidity needs. The mix of our operating businesses and investments can change frequently as a result of acquisitions or divestitures, the timing of which is impossible to predict but which often have a significant impact on our Consolidated Statements of Cash Flows in any one period. Further, the timing and amounts of distributions from investments in associated companies may be outside our control. As a result, reported cash flows from operating, investing and financing activities do not generally follow any particular pattern or trend, and reported results in the most recent period should not be expected to recur in any subsequent period.
Net cash of $1,011.7$199.9 million and $330.9$1,060.9 million was provided by operating activities during the nine months ended September 30, 20172018 and 2016,2017, respectively. 
Jefferies Group generated funds of $870.7$30.7 million and $916.6 million during the nine months ended September 30, 2018 and 2017, and used funds of $219.4 million during the nine months ended September 30, 2016.respectively. Included in these amounts are distributions received from associated companies of $2.3 million and $8.0 million during 2018 and 2017, and $11.2 million during 2016.
National Beef generated funds of $354.3 million and $243.5 million during the nine months ended September 30, 2017 and 2016.respectively.
Within our Other Financial Services, Businesses and Investments,net cash of $41.5 million was generated and $124.6 million and $30.0 million, respectively, was used during the nine months ended September 30, 2018 and 2017, and 2016respectively, related to make additional investments in the Leucadia Asset Management platform. During the nine months ended September 30, 2016, cash of $257.0 million was generated from our trading portfolio and $170.0 million from our investments in managed funds related to our Leucadia Asset Management platform. We received distributions from Berkadia, an associated company, of $41.0 million during 2018 and $51.8 million during 2017 and $70.1 million during 2016.2017. Cash used for operating activities also includes net cash used of $108.9 million during 2018 and $99.2 million during 2017 and $100.0 million during 2016 relating to automobile installment contracts, which is reflected in the net change in other receivables.
Within our Other Merchant Banking, Businesses and Investments, manufacturing generated funds of $15.5$31.4 million and $30.1$15.5 million during the nine months ended September 30, 2018 and 2017, respectively. Cash of $13.6 million and 2016, respectively. Additionally, during the nine months ended September 30, 2017 cash of $47.6$97.6 million was used to make additional investments in our trading portfolio during the nine months ended September 30, 2018 and $50.0 million was used to make an additional investment in a managed funds.2017, respectively. We received distributions from National Beef, an associated company, of $24.4 million during 2018 and Garcadia, an associated company, of $27.8 million during 2018 and $33.8 million during 20172017.
Net cash provided by operating activities of discontinued operations reflects funds generated by National Beef of $164.7 million and $37.4$354.3 million during 2016.
The change in operating cash flows also reflects greater interest payments duringthe nine months ended September 30, 2018 and 2017, as compared to 2016.respectively.
Net cash of $22.0$118.5 million and $558.5$28.8 million was used for investing activities during the nine months ended September 30, 2018 and 2017, and 2016, respectively. 


Acquisitions of property, equipment and leasehold improvements, and other assets related to Jefferies Group include $52.7 million during 2018 and $53.6 million during 2017 and $78.5 million during 2016.2017. Jefferies Group made loans to and investments in associated companies of $1,918.5 million during 2018 and $2,916.2 million during 2017 and $343.8 million during 2016.2017. Jefferies Group received capital distributions and loan repayments from its associated companies of $1,873.0 million during 2018 and $2,729.3 million during 2017 and $485.6 million during 2016. 
Acquisitions of property, equipment and leasehold improvements, and other assets within National Beef include $39.2 million during 2017 and $42.3 million during 2016.
2017. 
Within our Other Financial Services, Businesses and Investments, acquisitions of property, equipment and leasehold improvements, and other assets were $1.3$0.5 million during 20172018 and $48.4$1.1 million during 2016. Advances on notes, loans and other receivables during 2017 and 2016 primarily relate to real estate projects in 54 Madison.2017. Collections on notes, loans and other receivables during 2018 and 2017 include $139.1$15.4 million related to real estate projects in 54 Madison and $111.3 million, related to FXCM. Collections on notes, loans and other receivables during 2016 include $23.1 million related to real estate projects in 54 Madison and $25.5 millionrespectively, related to FXCM. Loans to and investments in associated companies during 2017 include $31.9 million in HomeFed during 2017, and $48.7 million and $123.7 million, respectively, in 54 Madison during 2017 and 2016, of which $27.5 million and $73.9 million, respectively, of that was contributed by noncontrolling interests. Capital distributions include $25.6 million during 2017 related to 54 Madison.HomeFed.

Within our Other Merchant Banking, Businesses and Investments, acquisitions of property, equipment and leasehold improvements, and other assets primarily reflect activity in our oil and gas exploration and production businesses. They totaled $35.1$228.9 million during 20172018 and $86.0$35.3 million during 2016.2017. Proceeds from sale of subsidiarysubsidiaries and proceeds from sale of associated companies during 2018 primarily relates to the sale of our equity interests in Garcadia and our associated real estate. Proceeds from sale of subsidiaries during 2017 relates to the sale of Conwed. Advances on notes, loans and other receivables primarily relates to our oil and gas businesses during 2018 and to real estate projects during 2017. Collections on notes, loans and other receivables during 2018 and 2017 include $2.0 million and $139.1 million, respectively, related to real estate projects. Loans to and investments in associated companies include $32.0$11.0 million to Golden Queen during 2018, and $33.3$32.0 million to Linkem during


2017 and 2016, respectively.$48.7 million to real estate projects, of which $27.5 million was contributed by noncontrolling interests, during 2017. We received capital distributions and loan repayments from associated companies of $24.3 million from National Beef, $2.6 million from Golden Queen, $53.3 million from real estate projects and $0.6 million from Garcadia during 2018 and $7.1 million from Garcadia and $25.6 million from real estate projects during 2017.

Net cash provided by (used for) investing activities of $7.1discontinued operations includes acquisitions of property, equipment and leasehold improvements, and other assets related to National Beef of $33.7 million during 2018 and $39.2 million during 2017, and $7.7net proceeds from sale of National Beef of $899.2 million during 2016.2018.
Net cash of $37.4 million was used by financing activities and $218.0 million was provided by financing activities and $114.5 million was used for financing activities during the nine months ended September 30, 20172018 and 2016,2017, respectively. 
Issuance of debt includes $1,938.0 million during 2018 and $1,130.0 million during 2017 and $239.8 million during 2016 related to Jefferies.Jefferies Group. Repayment of debt includes $1,695.0 million during 2018 and $341.0 million during 2017 and $373.2 million during 2016 related to Jefferies.Jefferies Group. Other changes in short-term borrowings, net all related to Jefferies Group. Net change in bank overdrafts of $2.4 million in 2018 and $5.8 million in 2017 and $56.1 million in 2016 related to Jefferies. Net change in other secured financings includes payments of $203.0 million during 2017 and $156.6 million during 2016 related to Jefferies.

Issuance of debt for National Beef includes $245.1 million during 2017 of borrowings under its bank credit facility. National Beef reflects repayment of debt of $410.2 million in 2017 and $130.5 million during 2016.

Within our Other Financial Services Businesses and Investments, borrowings include $213.5 million during 2017 and $365.4 million during 2016. Their repayment of debt includes $310.2 million during 2017 and $254.0 million during 2016.Jefferies Group. Net change in other secured financings includes proceeds of $282.7 million during 2018 and payments of $203.0 million during 2017 related to Jefferies Group.

Within Other Financial Services, issuance of debt includes $211.5 million during 2018 and $189.8 million during 2017. Their repayment of debt includes $258.1 million during 2018 and $192.9 million during 2017. Net change in other secured financings includes proceeds of $127.1 million during 2018 and $68.3 million during 2017 and $154.4 million during 2016 related to Foursight Capital. Contributions

Within Merchant Banking, issuance of debt includes $48.9 million during 2018 and $29.6 million during 2017. Their repayment of debt includes $71.6 million during 2018 and $118.9 million during 2017. During 2017, contributions from noncontrolling interests include $25.2 million during 2017 and $110.8distributions to noncontrolling interests include $9.6 million during 2016 related to 54 Madison. real estate projects.

Purchases of common shares for treasury relate to shares purchased in the open market and shares received from participants in our stock compensation plans in 2018 and 2017.

Net cash provided by (used for) financing activities of discontinued operations includes the issuance of debt by National Beef of $366.1 million during 2018 and $245.1 million during 2017 of borrowings under its bank credit facility and 2016.repayment of debt by National Beef of $175.1 million in 2018 and $410.2 million during 2017.



Jefferies Group Liquidity

General
The Chief Financial Officer and Global Treasurer of Jefferies Group are responsible for developing and implementing liquidity, funding and capital management strategies for the Jefferies Group's businesses. These policies are determined by the nature and needs of day to day business operations, business opportunities, regulatory obligations and liquidity requirements.
The actual levels of capital, total assets, and financial leverage are a function of a number of factors, including asset composition, business initiatives and opportunities, regulatory requirements and cost and availability of both long-term and short-term funding.  Jefferies Group has historically maintained a balance sheet consisting of a large portion of total assets in cash and liquid marketable securities, arising principally from traditional securities brokerage and trading activity. The liquid nature of these assets provides flexibility in financing and managing Jefferies Group's business.
A business unit level balance sheet and cash capital analysis is prepared and reviewed with senior management on a weekly basis.  As a part of this balance sheet review process, capital is allocated to all assets and gross balance sheet limits are adjusted, as necessary. This process ensures that the allocation of capital and costs of capital are incorporated into business decisions. The goals of this process are to protect the Jefferies Group's platform, enable the businesses to remain competitive, maintain the ability to manage capital proactively and hold businesses accountable for both balance sheet and capital usage.
Jefferies Group actively monitors and evaluates its financial condition and the composition of its assets and liabilities. The overall securities inventory is continually monitored by Jefferies Group, including the inventory turnover rate, which confirms the liquidity of overall assets. In connection with the government and agency fixed income businessSubstantially all of Jefferies Group's financial instruments are valued on a daily basis and Jefferies role as a primary dealer in these markets, a sizable portion ofGroup monitors and employs balance sheet limits for its securities inventory is comprised of U.S. government and agency securities and other G-7 government securities. For further detail on Jefferies outstanding sovereign exposure, refer to Quantitative and Qualitative Disclosures about Market Risk below.various businesses. 

At September 30, 2017,2018, our Consolidated Statement of Financial Condition includes Jefferies Group's Level 3 trading assets that are approximately 2% of total trading assets.

Securities financing assets and liabilities include both financing for financial instruments trading activity, matched book transactions and mortgage finance transactions. Matched book transactions accommodate customers, as well as obtain securities for the settlement and financing of inventory positions. 



The following table presents Jefferies Group's 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):
Nine Months Ended 
 September 30, 2017		 
Year Ended
December 31, 2016
Nine Months Ended 
 September 30, 2018		 
Year Ended
December 31, 2017
Securities purchased under agreements to resell:      
Period end$3,371
 $3,862
$3,659
 $3,690
Month end average6,299
 5,265
$5,426
 $6,195
Maximum month end7,814
 7,001
$7,593
 $7,814
      
Securities sold under agreements to repurchase: 
  
 
  
Period end$8,473
 $6,792
$9,864
 $8,661
Month end average11,078
 11,410
$12,866
 $11,273
Maximum month end13,626
 16,620
$15,579
 $13,679

Fluctuations in the balance of Jefferies Group's repurchase agreements from period to period and intraperiod are dependent on business activity in those periods. Additionally, the fluctuations in the balances of Jefferies Group's securities purchased under agreements to resell over the periods presented are influenced in any given period by its clients’ balances and its 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 Jefferies Group considers the fluctuations intraperiod to be typical for the repurchase market.



Liquidity Management

The key objectives of Jefferies Group's liquidity management framework are to support the successful execution of its business strategies while ensuring sufficient liquidity through the business cycle and during periods of financial distress. The liquidity management policies are designed to mitigate the potential risk that adequate financing may not be accessible to service financial obligations without material franchise or business impact.

The principal elements of Jefferies Group's liquidity management framework are the Contingency Funding Plan, the Cash Capital Policy and the assessment of Maximum Liquidity Outflow.
Contingency Funding Plan.  The Jefferies Group's Contingency Funding Plan is based on a model of a potential liquidity contraction over a one year time period. This incorporates potential cash outflows during a liquidity stress event, including, but not limited to, the following:
repaymentRepayment of all unsecured debt maturing within one year and no incremental unsecured debt issuance;
maturityMaturity rolloff of outstanding letters of credit with no further issuance and replacement with cash collateral;
higherHigher margin requirements than currently exist on assets on securities financing activity, including repurchase agreements;
liquidityLiquidity outflows related to possible credit downgrade;
lowerLower availability of secured funding;
clientClient cash withdrawals;
theThe anticipated funding of outstanding investment and loan commitments; and
certainCertain accrued expenses and other liabilities and fixed costs.
Cash Capital Policy. A cash capital model is maintained that measures long-term funding sources against requirements. Sources of cash capital include equity and the noncurrent portion of long-term borrowings. Uses of cash capital include the following:
illiquidIlliquid assets such as equipment, goodwill, net intangible assets, exchange memberships, deferred tax assets and certain investments;
aA 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
drawdownsDrawdowns of unfunded commitments. 


To ensure that Jefferies Group does not need to liquidate inventory in the event of a funding crisis, Jefferies Group seeks to maintain surplus cash capital, which is reflected in the leverage ratios Jefferies Group maintains. Jefferies Group's total long-term capital of $11.3 billion at September 30, 2018 exceeded its cash capital requirements.
Maximum Liquidity Outflow.Jefferies Group's businesses are diverse, and liquidity needs are determined by many factors, including market movements, collateral requirements and client commitments, all of which can change dramatically in a difficult funding environment. During a liquidity crisis, credit-sensitive funding, including unsecured debt and some types of secured financing agreements, may be unavailable, and the terms (e.g., interest rates, collateral provisions and tenor) or availability of other types of secured financing may change. As a result of Jefferies Group's policy to ensure it has sufficient funds to cover estimates of what may be needed in a liquidity crisis, Jefferies Group holds more cash and unencumbered securities and has greater long-term debt balances than the businesses would otherwise require. As part of this estimation process, Jefferies Group calculates a Maximum Liquidity Outflow that could be experienced in a liquidity crisis. Maximum Liquidity Outflow is based on a scenario that includes both a market-wide stress and firm-specific stress.
Based on the sources and uses of liquidity calculated under the Maximum Liquidity Outflow scenarios, Jefferies Group determines, based on its calculated surplus or deficit, additional long-term funding that may be needed versus funding through the repurchase financing market and considers any adjustments that may be necessary to Jefferies Group's inventory balances and cash holdings. At September 30, 2018, Jefferies hasGroup had sufficient excess liquidity to meet all contingent cash outflows detailed in the Maximum Liquidity Outflow. Jefferies Group regularly refines its model to reflect changes in market or economic conditions and the firm’s business mix.


Sources of Liquidity
Within Jefferies Group, the following are financial instruments that are cash and cash equivalents or are deemed by Jefferies Group's management to be generally readily convertible into cash, marginable or accessible for liquidity purposes within a relatively short period of time, as reflected in our Consolidated Statements of Financial Condition (in thousands):
September 30, 2017 
Average Balance
 Third Quarter 2017 (1)
 December 31, 2016September 30, 2018 
Average Balance
 Third Quarter 2018 (1)
 December 31, 2017
Cash and cash equivalents:          
Cash in banks$1,574,051
 $1,263,726
 $905,391
$2,271,560
 $2,241,512
 $2,244,207
Certificates of deposit25,000
 25,000
 25,000
Money market investments3,207,673
 2,442,820
 2,599,066
2,499,004
 1,725,826
 2,920,285
Total cash and cash equivalents4,806,724

3,731,546

3,529,457
4,770,564

3,967,338

5,164,492
          
Other sources of liquidity: 
  
  
 
  
  
Debt securities owned and securities purchased under agreements to resell (2)1,083,265
 1,093,890
 1,455,398
948,364
 905,451
 1,031,252
Other (3)301,260
 450,354
 318,646
337,075
 407,669
 513,293
Total other sources1,384,525

1,544,244

1,774,044
1,285,439

1,313,120

1,544,545
          
Total cash and cash equivalents and other liquidity sources$6,191,249

$5,275,790

$5,303,501
$6,056,003

$5,280,458

$6,709,037

(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 U.S.; 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 financial instruments owned that are currently not pledged after considering reasonable financing haircuts.
In addition to the cash balances and liquidity pool presented above, the majority of trading assets and liabilities are actively traded and readily marketable. Repurchase financing can be readily obtained for approximately 74%79.4% of Jefferies Group's inventory at haircuts of 10% or less, which reflects the liquidity of the inventory. In addition, as a matter of Jefferies Group's policy, all of these assets have internal capital assessed, which is in addition to the funding haircuts provided in the securities finance markets. Additionally,


certain of Jefferies Group's trading assets primarily consisting of bank loans, consumer loans and investments are predominantly funded by Jefferies Group's long-term capital. Under Jefferies Group's cash capital policy, capital allocation levels are modeled that are more stringent than the haircuts used in the market for secured funding; and surplus capital is maintained at these more stringent levels. Jefferies Group continually assesses the liquidity of its inventory based on the level at which Jefferies Group could obtain financing in the marketplacemarket place for a given asset. Assets are considered to be liquid if financing can be obtained in the repurchase market or the securities lending market at collateral haircut levels of 10% or less. 


The following summarizes Jefferies Group's trading assets by asset class that are considered to be of a liquid nature and the amount of such assets that have not been pledged as collateral as reflected in the Consolidated Statements of Financial Condition (in thousands):
September 30, 2017 December 31, 2016September 30, 2018 December 31, 2017
Liquid Financial
 Instruments
 
Unencumbered
Liquid Financial
 Instruments (2)
 
Liquid Financial
 Instruments
 
Unencumbered
Liquid Financial
 Instruments (2)
Liquid Financial
 Instruments
 
Unencumbered
Liquid Financial
 Instruments (2)
 
Liquid Financial
 Instruments
 
Unencumbered
Liquid Financial
 Instruments (2)
Corporate equity securities$2,054,519
 $225,010
 $1,815,819
 $280,733
$1,421,055
 $355,575
 $1,718,617
 $272,380
Corporate debt securities2,052,673
 36,405
 1,818,150
 —
2,249,374
 117,808
 2,475,291
 57,290
U.S. Government, agency and municipal securities2,036,431
 365,560
 3,157,737
 600,456
3,596,343
 150,236
 1,954,697
 185,481
Other sovereign obligations2,134,971
 796,709
 2,258,035
 854,942
1,860,711
 790,011
 2,050,942
 996,421
Agency mortgage-backed securities (1)1,861,844
 —
 1,090,391
 —
2,661,695
 —
 1,742,977
 —
Loans and other receivables264,177
 —
 274,842
 —
271,938
 —
 243,664
 —
$10,404,615

$1,423,684

$10,414,974

$1,736,131
$12,061,116

$1,413,630

$10,186,188

$1,511,572

(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.

In addition to being able to be readily financed at modest haircut levels, it is estimated that each of the individual securities within each asset class above could be sold into the market and converted into cash within three business days under normal market conditions, assuming that the entire portfolio of a given asset class was not simultaneously liquidated. There are no restrictions on the unencumbered liquid securities, nor have they been pledged as collateral.

Sources of Funding

Secured Financing
Readily available secured funding is used to finance Jefferies Group's financial instruments inventory. The ability of Jefferies Group to support increases in total assets is largely a function of the ability to obtain short and intermediate term secured funding, primarily through securities financing transactions. Repurchase or reverse repurchase agreements (collectively "repos"), respectively, are used to finance a portion of long inventory and cover a portion of short inventory through pledging and borrowing securities. Approximately 77.9%71.1% of Jefferies Group's cash and non-cash repurchase financing activities use collateral that is considered eligible collateral by central clearing corporations. Central clearing corporations are situated between participating members who borrow cash and lend securities (or vice versa); accordingly, repo participants contract with the central clearing corporation and not one another individually. Therefore, counterparty credit risk is borne by the central clearing corporation which mitigates the risk through initial margin demands and variation margin calls from repo participants. The comparatively large proportion of Jefferies Group's total repo activity that is eligible for central clearing reflects the high quality and liquid composition of its trading inventory. For those asset classes not eligible for central clearinghouseclearing house financing, bi-lateral financings are sought on an extended term basis and the tenor of Jefferies Group's repurchase and reverse repurchase agreements generally exceeds the expected holding period of the assets Jefferies Group is financing. The weighted average maturity of cash and non-cash repurchase agreements for non-clearing corporation eligible funded inventory is approximately three months.four months at September 30, 2018.
Jefferies Group's ability to finance inventory via central clearinghouses and bi-lateral arrangements is augmented by Jefferies Group's ability to draw bank loans on an uncommitted basis under its various banking arrangements. As of September 30, 2017,2018, short-term borrowings, which must be repaid within one year or less and include bank loans and overdrafts, borrowings under revolving credit facilities and structured notes totaled $417.1$382.0 million. Interest under the bank lines is generally at a spread over the federal funds rate. 


Letters of credit are used in the normal course of business mostly to satisfy various collateral requirements in favor of exchanges in lieu of depositing cash or securities. Average daily short-term borrowings outstanding for Jefferies Group were $436.7$422.9 million and $474.2$498.6 million for the three and nine months ended September 30, 2017,2018, respectively.


Jefferies Group's short-term borrowings include the following facilities:

an Intraday Credit Facility. TheFacility, whereby the Bank of New York Mellon agreeshas agreed to make revolving intraday credit advances (“Intraday Credit Facility”) for an aggregate committed amount of $250.0$150.0 million. The Intraday Credit Facility contains a financial covenant,covenants, which includes a minimum regulatory net capital requirement.requirement for its U.S. broker-dealer. Interest is based on the higher of the Federal funds effective rate plus 0.5% or the prime rate. AtDuring the nine months ended September 30, 2017,2018, Jefferies Group was in compliance with all debt covenants under the Intraday Credit Facility.

Secured Revolving Loan Facilities. In October 2015, Jefferies entered into a secured revolving loan facility (“First Secured Revolving Loan Facility”) whereby the lender agreed to make available a revolving loan facility in a maximum principal amount of $50.0 million. In December 2015, Jefferies entered into a second secured revolving loan facility ("Second Secured Revolving Loan Facility") whereby the lender agreed to make available a revolving loan facility in a maximum principal amount of $50.0 million. The First Secured Revolving Loan Facility was terminated effective December 6, 2016. The Second Secured Revolving Loan Facility was terminated effective January 24, 2017.

In addition to the above financing arrangements, Jefferies Group issues notes backed by eligible collateral under a master repurchase agreement.agreement, which provides an additional financing source for its inventory ("repurchase agreement financing program"). The outstanding amount of the notes issued under the program was $541.6 million$1.0 billion in aggregate, which is presented within Other secured financings in the Consolidated Statement of Financial Condition at September 30, 2017.2018. All of the notes bear interest at a spread over one month LIBOR. Of the $541.6 million$1.0 billion aggregate notes, $267.9$160.0 million matures in MayNovember 2018, but is currently redeemable at Jefferies Group's option; $150.0 million matures in March 2019; $80.0 million matures in April 2019, but is currently redeemable at Jefferies Group's option; $100.0 million matures in June 2019; $138.0 million matures in July 2019; $151.8 million matures in July 2019, but is currently redeemable at the option of the noteholdersnoteholders; and bears interest at a spread over one month LIBOR; $97.4$225.0 million matures in February 2018 and bears interest at a spread over one month LIBOR; $101.3 million matures in July 2018, but is currently redeemable at Jefferies option or the option of the noteholders and bears interest at a spread over one month LIBOR; and $75.0 million matures in July 2018 and bears interest at a spread over one month LIBOR.September 2019. 

Long-Term Debt

Jefferies Group's long-term debt reflected in the Consolidated Statement of Financial Condition at September 30, 20172018 is $6.4$6.6 billion. Jefferies Group's long-term debt has a weighted average maturity of approximately seven8.8 years. Jefferies Group's next scheduled maturity is the $680.8 million principal amount of 8.5% Senior Notes that mature in July 2019.

On May 16, 2018, Jefferies Group entered into a senior secured revolving credit facility ("Jefferies Group Revolving Credit Facility") with a group of commercial banks for an aggregate principal amount of at $160.0 million. At September 30, 2018, borrowings under Jefferies Group Revolving Credit Facility amounted to $158.5 million. Interest is based on an annual alternative base rate or an adjusted LIBOR, as defined in Jefferies Group Revolving Credit Facility agreement. Jefferies Group Revolving Credit Facility contains certain covenants that, among other things, requires Jefferies Group to maintain specified level of tangible net worth and liquidity amounts, and imposes certain restrictions on future indebtedness of and requires specified levels of regulated capital for certain of its subsidiaries. Throughout the period and at September 30, 2018, no instances of noncompliance with Jefferies Group Revolving Credit Facility covenants occurred and Jefferies Group expects to remain in compliance given its current liquidity, and anticipated funding requirements given its business plan and profitability expectations.

Jefferies Group's long-term debt ratings are as follows:
 
    Rating
Outlook
Moody’s Investors ServiceBaa3Stable
Standard and Poor’sBBB-Stable
Fitch RatingsBBB-BBBStable
Jefferies Group's access to external financing to finance its day to day operations, as well as the cost of that financing, is dependent upon various factors, including its debt ratings. Jefferies Group's current debt ratings are dependent upon many factors, including industry dynamics, operating and economic environment, operating results, operating margins, earnings trend and volatility, balance sheet composition, liquidity and liquidity management, capital structure, overall risk management, business diversification and market share and competitive position in the markets in which it operates. Deteriorations in any of these factors could impact Jefferies Group's credit ratings. While certain aspects of a credit rating downgrade are quantifiable pursuant to contractual provisions, the impact on its 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 Jefferies.Jefferies Group.
In connection with certain over-the-counterOTC derivative contract arrangements and certain other trading arrangements, Jefferies Group may be required to provide additional collateral to counterparties, exchanges and clearing organizations in the event of a credit rating downgrade. TheAt September 30, 2018, the amount of additional collateral that could be called by counterparties, exchanges and clearing organizations under the terms of such agreements in the event of a downgrade of Jefferies Group's long-term credit rating below investment grade was $57.5$83.2 million. For certain foreign clearing organizations, credit rating is only one of several factors employed in determining collateral that could be called. The above represents management’s best estimate for additional collateral to be called in the event of credit rating downgrade. The impact of additional collateral requirements is considered in Jefferies Group's Contingency Funding Plan and calculation of Maximum Liquidity Outflow, as described above.
Ratings issued by credit rating agencies are subject to change at any time.


Contractual Obligations

In October 2017, Jefferies entered into a contract for technology operations services under which they have contractual obligations of approximately $2.5 million for the remainder of fiscal 2017, approximately $11.9 million for fiscal 2018 and annual obligations for each year thereafter of approximately $15.7 million through 2028.

Net Capital

Jefferies Group operates broker-dealersa broker-dealer registered with the SEC and member firms of the Financial Industry Regulatory Authority (“FINRA”("FINRA"). Jefferies LLC and Jefferies Execution areis subject to the Securities and Exchange Commission Uniform Net Capital Rule ("Rule 15c3-1"), which requires the maintenance of minimum net capital and havehas elected to calculate minimum capital requirements using the alternative method as permitted by Rule 15c3-1 in calculating net capital. Jefferies LLC, as a dually-registered U.S. broker-dealer and FCM,futures commission merchant ("FCM"), is also subject to Rule 1.17 of the Commodity Futures Trading Commission (“CFTC”("CFTC"), which sets forth minimum financial requirements. The minimum net capital requirement in determining excess net capital for a dually-registered U.S. broker-dealer and FCM is equal to the greater of the requirement under Rule 15c3-1 or CFTC Rule 1.17.

Jefferies LLC and Jefferies Execution’sLLC’s net capital and excess net capital as of September 30, 20172018 were $1,917.6 million and $1,806.2 million, respectively. FINRA is the designated examining authority for Jefferies Group's U.S. broker-dealer and the National Futures Association is the designated self-regulatory organization for Jefferies LLC as follows (in thousands):
 Net Capital Excess Net Capital
Jefferies LLC$1,491,122
 $1,411,625
Jefferies Execution$7,961
 $7,711
an FCM.

Certain other U.S. and non-U.S. subsidiaries of Jefferies Group are subject to capital adequacy requirements as prescribed by the regulatory authorities in their respective jurisdictions, including Jefferies International Limited which is subject to the regulatory supervision and requirements of the Financial Conduct Authority in the U.K.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. Jefferies Group expects that these provisions will result in modifications to the regulatory capital requirements of some of its entities, and will result in some of its other entities becoming subject to regulatory capital requirements for the first time, including Jefferies Financial Services, Inc., which registered as a swap dealer with the CFTC during January 2013 and Jefferies Financial Products LLC, which registered during August 2014.

The regulatory capital requirements referred to above may restrict Jefferies Group's ability to withdraw capital from its regulated subsidiaries. Some of our other consolidated subsidiaries also have credit agreements which may restrict the payment of cash dividends, or the ability to make loans or advances to the parent company.

Off-Balance Sheet Risk
Jefferies Group has 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 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.
Cautionary Statement for Forward-Looking Information

This report contains or incorporates by reference “forward-looking statements”"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,”"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 businesses and products. Forward-looking statements represent only our belief regarding future events, many of which by their nature are inherently uncertain. It is possible that the actual results may differ, possibly materially, from the anticipated results indicated in these forward-looking statements. Information regarding important factors 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:

theThe description of our business and risk factors contained in our Annual Report on Form 10-K for the year ended December 31, 20162017 and filed with the Securities and Exchange Commission on February 27, 2017;26, 2018;
theThe discussion and analysis of financial condition and result of operations contained in this report under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" herein;
theThe notes to the consolidated financial statements in this report; and
cautionaryCautionary 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.



Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

The following includes “forward-looking statements”"forward-looking statements" that involve risk and uncertainties. See "Cautionary Statement for Forward-Looking Information" above. Actual results could differ materially from those projected in the forward-looking statements. The discussion of risk is presented separately for Jefferies Group and the balance of our company. Exclusive of Jefferies Group, our market risk arises principally from interest rate risk related to our financial instruments owned and equity price risk. Information related thereto required under this Item is contained in Item 7A in our 20162017 10-K, and is incorporated by reference herein.

As more fully discussed elsewhere in this Report, at September 30, 2018, we ownowned approximately 46.67.5 million common shares of HRG,Spectrum Brands, representing approximately 23%14% of HRG’sSpectrum Brands outstanding common shares, which are accounted for under the fair value option and included within Trading assets at fair value of $727.4$561.5 million at September 30, 2017.2018. Assuming a decline of 10% in market prices, the value of our investment in HRG wouldSpectrum Brands could decrease by approximately $72.7$56.2 million. Excluding Jefferies Group and HRG, Financial instruments ownedSpectrum Brands, Trading assets at fair value include corporate equity securities with an aggregate fair value of $693.7$1,399.6 million at September 30, 2017.2018. Assuming a decline of 10% in market prices, the value of these investments wouldcould decrease by approximately $69.4$140.0 million.
Jefferies Group
The potential for changes in the value of financial instruments is referred to as market risk. Jefferies Group's 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,market-making, proprietary trading, underwriting, specialist and investing activities. Jefferies Group seeks to manage its 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
Within Jefferies Group, Value-at-Risk ("VaR") is used as a measurement of market risk using a model that simulates revenue and loss distributions on its trading portfolios by applying historical market changes to the current portfolio. Using the results of this simulation, VaR measures the potential loss in value of ourits financial instruments due to adverse market movements over a specified time horizon at a given confidence level. Jefferies Group calculates a one-day VaR using a one year look-back period measured at a 95% confidence level.
As with all measures of VaR, the estimate has inherent limitations due to the assumption that historical changes in market conditions are representative of the future. Furthermore, the VaR model measures the risk of a current static position over a one-day horizon and might not capture the market risk 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 Jefferies Group believes the assumptions and inputs in its risk model are reasonable, Jefferies Group 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 Jefferies Group uses in its daily risk management activities. When comparing the VaR numbers to those of other firms, it is important to remember that different methodologies and assumptions could produce significantly different results.


The following table illustrates each separate component of VaR for each component of market risk by interest rate, equity, currency and commodity products, as well as for Jefferies Group's overall trading positions using the past 365 days of historical data. The aggregated VaR presented here is less than the sum of the individual components (i.e., interest rate risk, foreign exchange rate risk, equity risk and commodity price risk) due to the benefit of diversification among the four risk categories. Diversification benefit equals the difference between aggregated VaR and the sum of VaRs for the four risk categories and arises because the market risk categories are not perfectly correlated. Since we consolidate Jefferies Group on a one month lag, all amounts reported are for Jefferies Group's quarterly and annual fiscal periods.


 
Daily VaR (1)
Value-at-Risk in Trading Portfolios
  
Daily VaR (1)
Value-at-Risk in Trading Portfolios
 
 (In millions)  (In millions) 

Risk Categories
 
VaR at
September 30, 2017
 
Daily VaR for the
Three Months Ended
September 30, 2017
 
VaR at
June 30, 2017
 
Daily VaR for the
Three Months Ended
 June 30, 2017
  
VaR at
September 30, 2018
 
Daily VaR for the
Three Months Ended
September 30, 2018
 
VaR at
June 30, 2018
 
Daily VaR for the
Three Months Ended
June 30, 2018
 
   Average High Low   Average High Low    Average High Low   Average High Low 
Interest Rates $3.84
 $4.10
 $5.41
 $2.76
 $4.61
 $5.39
 $6.65
 $3.89
  $4.27
 $4.75
 $5.71
 $3.83
 $4.24
 $4.64
 $5.76
 $3.56
 
Equity Prices 3.07
 3.73
 5.61
 2.81
 4.69
 6.39
 17.20
 3.23
  12.22
 5.21
 13.56
 3.11
 3.31
 4.82
 8.05
 3.25
 
Currency Rates 0.42
 0.25
 0.41
 0.06
 0.16
 0.24
 0.65
 0.08
  0.11
 0.13
 0.20
 0.10
 0.13
 0.11
 0.17
 0.04
 
Commodity Prices 0.46
 0.59
 1.10
 0.38
 0.65
 1.01
 1.70
 0.56
  0.91
 0.64
 1.12
 0.24
 0.86
 0.50
 0.73
 0.29
 
Diversification Effect (2) (3.06) (2.16) N/A
 N/A
 (2.09) (3.82) N/A
 N/A
  (3.09) (3.20) N/A
 N/A
 (3.33) (3.29) N/A
 N/A
 
Firmwide $4.73
 $6.51
 $8.30
 $4.73
 $8.02
 $9.21
 $17.55
 $5.87
  $14.42
 $7.53
 $14.73
 $5.33
 $5.21
 $6.78
 $10.32
 $5.21
 

(1)For the VaR numbers reported above, a one-day time horizon, with a one year look-back period, and a 95% confidence level were used.
(2)The diversification effect is not applicable for the maximum and minimum VaR values as the Jefferies Group's VaR and VaR values for the four risk categories might have occurred on different days during the period.
Average daily VaR decreasedincreased to $6.51$7.53 million for the three months ended September 30, 20172018 from $9.21$6.78 million for the three months ended June 30, 2017.2018. The decreaseincrease was primarily due to lowerhigher equity price risk driven by equitiesequity block trading and lower interest rate risk,activity during the latter half of which the largest driver was lower interest rate and spread volatility, partially offset by a decrease in the diversification benefit.

quarter.
The primary method used to test the efficacy of the VaR model is to compare actual daily net revenue for those positions included in the VaR calculation with the daily VaR estimate. This evaluation is performed at various levels of the trading portfolio, from the holding company level down to specific business lines. For the VaR model, trading related revenue is defined as principal transactiontransactions 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 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 three months ended September 30, 2017,2018, results of the evaluation at the aggregate level demonstrated no 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, Jefferies Group's Risk Management has additional procedures in place to assure that the level of potential loss that would arise from market movements are within acceptable levels. Such procedures include performing stress tests, monitoring concentration risk and tracking price target/stop loss levels. The table below presents the potential reduction in net income associated with a 10% stress of the fair value of the positions that are not included in the VaR model at September 30, 20172018 (in thousands):
10% Sensitivity10% Sensitivity
Private investments$15,410
$20,567
Corporate debt securities in default$12,517
$8,636
Trade claims$2,114
$5,135

VaR also excludes the impact of changes in Jefferies Group's own credit spreads on financial liabilitiesits structured notes for which the fair value option was elected. The estimated credit spread risk sensitivity for each one basis point widening in Jefferies Group's own credit spreads on financial liabilities for which the fair value option was elected was an increase in value of approximately $0.7$1.0 million at September 30, 2017.2018, which is included in Accumulated other comprehensive income.



There were three11 days with trading losses out of a total of 65 trading days in the three months ended September 30, 2017.2018. Jefferies Group's trading loss days were primarily attributed to block trading activities, for which certain positions have subsequently been liquidated since quarter end.

Scenario Analysis and Stress Tests
While VaR measures potential losses due to adverse changes in historical market prices and rates, Jefferies Group uses stress testing to analyze the potential impact of specific events or moderate or extreme market moves on its 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 Jefferies Group's 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, Jefferies Group also performs ad hoc stress tests and adds new scenarios as market conditions dictate. Because Jefferies Group's stress scenarios are meant to reflect market moves that occur over a period of time, its estimates of potential loss assume some level of position reduction for liquid positions. Unlike Jefferies Group's 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 Jefferies Group's aggregate risk position as well as for limit setting and risk/reward analysis.
Counterparty Credit Risk and Issuer Country Exposure

Counterparty Credit Risk

Credit risk is the risk of loss due to adverse changes in a counterparty’s credit worthiness or its ability or willingness to meet its financial obligations in accordance with the terms and conditions of a financial contract.Jefferies Group is exposed to credit risk as a trading counterparty to other broker-dealers and customers, as a direct lender and through extending loan commitments, as a holder of securities and as a member of exchanges and clearing organizations.

It is critical to Jefferies Group's financial soundness and profitability that Jefferies Group properly and effectively identify, assess, monitor and manage the various credit and counterparty risks inherent in its 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 a Jefferies Group enterprise level in order to limit exposure to loss related to credit risk.

Jefferies Group employs a Credit Risk Framework, which is responsible for identifying credit risks throughout its operating businesses, establishing counterparty limits and managing and monitoring those credit limits. Jefferies Group's framework includes:

definingDefining credit limit guidelines and credit limit approval processes;
providingProviding a consistent and integrated credit risk framework across the enterprise;
approvingApproving counterparties and counterparty limits with parameters set by its Risk Management Committee;
negotiating,Negotiating, approving and monitoring credit terms in legal and master documentation;
deliveringDelivering credit limits to all relevant sales and trading desks;
maintainingMaintaining credit reviews for all active and new counterparties;
operatingOperating a control function for exposure analytics and exception management and reporting;
determiningDetermining the analytical standards and risk parameters for on-going management and monitoring of global credit risk books;
activelyActively managing daily exposure, exceptions, and breaches;
monitoringMonitoring daily margin call activity and counterparty performance (in concert with the Margin Department); and
settingSetting the minimum global requirements for systems, reports, and technology.

Jefferies Group 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.which includes the following:

Loans and lending, arisearising in connection with Jefferies Group's capital markets activities and represents the current exposure, amount at risk on a default event with no recovery of loans. Current exposure represents loans that have been drawn by the borrower and lending commitments that were outstanding.  In addition, credit exposures on forward settling traded loans are included in Jefferies loans and lending exposures for consistency with the Consolidated Statement of Financial Condition categorization of these items.loans;
Securities and margin finance, includes credit exposure arising onwhich represents 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 over-the-counter ("OTC")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 onagreement, and includes forward settling trades are included in Jefferies derivative credit exposures.trades; and
Cash and cash equivalents, which include both interest-bearing and non-interest bearing deposits at banks.



Current counterparty credit exposures are summarized in the tabletables below and provided by credit quality, region and industry. Credit exposures presented take netting and collateral into consideration by counterparty and master agreement. Collateral taken into consideration includes


both collateral received as cash as well as collateral received in the form of securities or other arrangements. Current exposure is the loss that would be incurred on a particular set of positions in the event of default by the counterparty, assuming no recovery. Current exposure equals the fair value of the positions less collateral. Issuer risk is the credit risk arising from inventory positions (for example, corporate debt securities and secondary bank loans). Issuer risk is included in Jefferies Group's country risk exposure tables below. Of Jefferies Group's counterparty credit exposure at September 30, 2017,2018, excluding cash and cash equivalents, 82% arethe percentage of investment grade counterparties remaining relativelyremained flat at 92% when compared towith December 31, 2016,2017, with a majority concentrated in North America.

When comparing Jefferies Group's credit exposure at September 30, 20172018 with credit exposure at December 31, 2016,2017, excluding cash and cash equivalents, current exposure increaseddecreased to approximately $1,251$1,114 million from $1,247$1,353 million. Counterparty credit exposure increased over the period by 17% from securities and margin finance, primarily driven by investment grade European banks and broker-dealers, offset by a 41% decrease in counterparty credit exposure from OTC derivatives attributeddecreased by 35%, primarily todriven by investment grade North American banks and broker-dealers, and a 10% decrease in exposure from Jefferies loanboth loans and lending portfolio.and from securities and margin finance decreased by 13% during the period.

The amounts in the tables below are for amounts included in our Consolidated Statements of Financial Condition at September 30, 20172018 and December 31, 20162017 (in millions).
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
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 AtAt At At At At At
September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017
AAA Range $—
 $—
 $1.8
 $—
 $—
 $—
 $1.8
 $—
 $3,208.7
 $2,601.8
 $3,210.5
 $2,601.8
$—
 $—
 $1.5
 $6.4
 $—
 $—
 $1.5
 $6.4
 $2,464.1
 $2,924.2
 $2,465.6
 $2,930.6
AA Range 47.8
 44.0
 84.3
 87.3
 0.8
 2.1
 132.9
 133.4
 94.5
 37.0
 227.4
 170.4
45.0
 47.7
 47.1
 61.3
 0.4
 3.8
 92.5
 112.8
 123.7
 158.6
 216.2
 271.4
A Range 0.9
 4.2
 585.8
 539.2
 81.4
 214.7
 668.1
 758.1
 1,168.3
 814.1
 1,836.4
 1,572.2
0.3
 1.2
 571.2
 603.0
 175.6
 260.6
 747.1
 864.8
 1,989.5
 1,751.9
 2,736.6
 2,616.7
BBB Range 0.8
 4.9
 206.0
 117.3
 12.9
 9.4
 219.7
 131.6
 151.8
 51.2
 371.5
 182.8
0.3
 0.5
 171.5
 232.5
 10.1
 28.5
 181.9
 261.5
 13.5
 152.3
 195.4
 413.8
BB or Lower 79.1
 100.1
 1.7
 6.2
 53.6
 23.8
 134.4
 130.1
 100.3
 25.1
 234.7
 155.2
9.1
 12.5
 5.6
 8.1
 16.0
 16.7
 30.7
 37.3
 106.9
 100.6
 137.6
 137.9
Unrated 94.2
 93.5
 —
 —
 —
 —
 94.2
 93.5
 83.1
 0.3
 177.3
 93.8
60.7
 70.1
 —
 —
 —
 —
 60.7
 70.1
 72.9
 76.9
 133.6
 147.0
Total $222.8
 $246.7
 $879.6
 $750.0
 $148.7
 $250.0
 $1,251.1
 $1,246.7
 $4,806.7
 $3,529.5
 $6,057.8
 $4,776.2
$115.4
 $132.0
 $796.9
 $911.3
 $202.1
 $309.6
 $1,114.4
 $1,352.9
 $4,770.6
 $5,164.5
 $5,885.0
 $6,517.4
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
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 AtAt At At At At At
September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017
Asia/Latin America/Other $27.0
 $4.9
 $61.1
 $16.3
 $—
 $32.7
 $88.1
 $53.9
 $303.3
 $165.8
 $391.4
 $219.7
$—
 $3.0
 $37.8
 $45.8
 $0.2
 $0.3
 $38.0
 $49.1
 $292.5
 $280.7
 $330.5
 $329.8
Europe 0.5
 —
 338.4
 234.4
 39.5
 20.9
 378.4
 255.3
 583.3
 248.0
 961.7
 503.3
0.1
 1.0
 361.7
 403.5
 20.6
 54.0
 382.4
 458.5
 321.2
 540.0
 703.6
 998.5
North America195.3
 241.8
 480.1
 499.3
 109.2
 196.4
 784.6
 937.5
 3,920.1
 3,115.7
 4,704.7
 4,053.2
115.3
 128.0
 397.4
 462.0
 181.3
 255.3
 694.0
 845.3
 4,156.9
 4,343.8
 4,850.9
 5,189.1
Total $222.8
 $246.7
 $879.6
 $750.0
 $148.7
 $250.0
 $1,251.1
 $1,246.7
 $4,806.7
 $3,529.5
 $6,057.8
 $4,776.2
$115.4
 $132.0
 $796.9
 $911.3
 $202.1
 $309.6
 $1,114.4
 $1,352.9
 $4,770.6
 $5,164.5
 $5,885.0
 $6,517.4
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
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 AtAt At At At At At
September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017
Asset Managers$—
 $—
 $13.6
 $39.7
 $—
 $10.9
 $13.6
 $50.6
 $3,207.6
 $2,599.5
 $3,221.2
 $2,650.1
$—
 $—
 $4.9
 $15.9
 $—
 $7.1
 $4.9
 $23.0
 $2,499.0
 $2,920.3
 $2,503.9
 $2,943.3
Banks, Broker-dealers0.9
 0.2
 600.2
 435.9
 97.8
 170.4
 698.9
 606.5
 1,599.1
 930.0
 2,298.0
 1,536.5
0.4
 1.7
 562.8
 620.8
 187.5
 282.6
 750.7
 905.1
 2,271.6
 2,244.2
 3,022.3
 3,149.3
Commodities —
 —
 —
 —
 —
 3.3
 —
 3.3
 —
 —
 —
 3.3
Corporates174.1
 204.4
 —
 —
 34.5
 18.4
 208.6
 222.8
 —
 —
 208.6
 222.8
96.6
 87.5
 —
 —
 11.1
 14.7
 107.7
 102.2
 —
 —
 107.7
 102.2
Other 47.8
 42.1
 265.8
 274.4
 16.4
 47.0
 330.0
 363.5
 —
 —
 330.0
 363.5
18.4
 42.8
 229.2
 274.6
 3.5
 5.2
 251.1
 322.6
 —
 —
 251.1
 322.6
Total $222.8

$246.7

$879.6

$750.0

$148.7

$250.0

$1,251.1

$1,246.7

$4,806.7

$3,529.5
 $6,057.8
 $4,776.2
$115.4

$132.0

$796.9

$911.3

$202.1

$309.6

$1,114.4

$1,352.9

$4,770.6

$5,164.5
 $5,885.0
 $6,517.4



For additional information regarding credit exposure to OTC derivative contracts, see Note 4 in our consolidated financial statements.


Jefferies Group 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. Jefferies Group defines the country of risk as the country of jurisdiction or domicile of the obligor. 

The following tables reflect Jefferies Group's top exposures to the sovereign governments, corporations and financial institutions in those non-U.S. countries in which there isJefferies Group has a net long issuer and counterparty exposure (in millions):
September 30, 2017September 30, 2018
Issuer Risk Counterparty Risk Issuer and Counterparty RiskIssuer 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
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
United Kingdom$318.5
 $(115.9) $(22.6) $0.3
 $89.0
 $24.2
 $38.7
 $293.5
 $332.2
$372.5
 $(168.3) $(52.4) $0.1
 $36.8
 $13.1
 $92.8
 $201.8
 $294.6
Germany103.2
 (257.1) 177.0
 —
 74.2
 1.5
 82.8
 98.8
 181.6
Japan91.7
 (80.4) (7.9) —
 20.8
 —
 126.3
 24.2
 150.5
Belgium77.4
 (45.4) (1.6) —
 —
 —
 107.0
 30.4
 137.4
Canada117.2
 (119.8) (48.1) —
 0.7
 152.3
 16.2
 102.3
 118.5
Switzerland92.2
 (18.5) 0.8
 —
 30.0
 2.1
 4.3
 106.6
 110.9
89.3
 (31.4) 6.4
 —
 26.5
 2.4
 3.8
 93.2
 97.0
Germany181.6
 (237.2) 67.3
 —
 92.2
 1.2
 280.7
 105.1
 385.8
Netherlands198.2
 (160.1) 0.6
 —
 54.6
 0.9
 —
 94.2
 94.2
Spain186.3
 (103.7) (0.5) —
 0.1
 —
 157.7
 82.2
 239.9
France338.9
 (104.5) (233.4) —
 66.3
 9.6
 —
 76.9
 76.9
Hong Kong15.5
 (14.8) 3.0
 —
 0.5
 —
 79.1
 4.2
 83.3
Brazil114.0
 (49.6) (0.3) —
 —
 —
 0.5
 64.1
 64.6
135.2
 (61.3) (0.1) —
 —
 —
 0.2
 73.8
 74.0
Puerto Rico57.6
 (0.2) —
 —
 —
 —
 —
 57.4
 57.4
Japan62.3
 (46.2) 14.3
 —
 25.2
 —
 143.2
 55.6
 198.8
Finland104.1
 (36.1) —
 —
 —
 —
 5.6
 68.0
 73.6
Singapore44.6
 (7.9) 3.9
 —
 —
 —
 19.4
 40.6
 60.0
19.8
 (4.8) 3.9
 —
 0.1
 —
 24.5
 19.0
 43.5
Total$1,594.2

$(843.8)
$(169.9)
$0.3

$357.4

$38.0

$644.5

$976.2

$1,620.7
$1,125.9

$(819.4)
$80.2

$0.1

$159.6

$169.3

$538.3

$715.7

$1,254.0

December 31, 2016December 31, 2017
Issuer Risk Counterparty Risk Issuer and Counterparty RiskIssuer 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
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
Germany$318.9
 $(166.4) $815.3
 $—
 $86.9
 $0.3
 $111.9
 $1,055.0
 $1,166.9
$493.3
 $(396.2) $98.2
 $—
 $78.9
 $2.1
 $181.9
 $276.3
 $458.2
Italy1,069.8
 (844.2) 69.8
 —
 —
 0.2
 —
 295.6
 295.6
France356.2
 (538.4) 419.5
 —
 24.8
 3.4
 —
 265.5
 265.5
United Kingdom290.1
 (136.4) (12.7) —
 61.0
 13.4
 37.7
 215.4
 253.1
634.6
 (394.4) (72.1) 0.7
 97.8
 26.9
 45.0
 293.5
 338.5
Spain210.4
 (151.7) —
 —
 —
 0.3
 50.2
 59.0
 109.2
217.9
 (181.3) 7.5
 —
 —
 —
 151.6
 44.1
 195.7
Japan100.1
 (81.3) 4.1
 —
 25.8
 —
 136.3
 48.7
 185.0
Canada205.3
 (164.7) (128.5) —
 17.3
 222.8
 7.4
 152.2
 159.6
Netherlands315.9
 (210.9) 0.9
 —
 44.1
 2.2
 —
 152.2
 152.2
Switzerland31.0
 (16.9) (1.1) —
 54.3
 3.3
 4.5
 70.6
 75.1
Hong Kong34.0
 (30.2) 1.3
 —
 0.5
 —
 79.1
 5.6
 84.7
23.0
 (25.1) —
 —
 1.0
 —
 58.7
 (1.1) 57.6
Switzerland80.7
 (33.6) 12.1
 —
 11.4
 2.2
 4.1
 72.8
 76.9
Ireland124.4
 (61.2) 4.4
 —
 0.6
 —
 —
 68.2
 68.2
Australia50.5
 (14.0) 0.3
 —
 15.0
 0.3
 4.7
 52.1
 56.8
Singapore36.2
 (9.6) 3.9
 —
 —
 —
 16.1
 30.5
 46.6
36.0
 (4.2) —
 —
 —
 —
 24.7
 31.8
 56.5
Qatar15.2
 (0.7) —
 —
 —
 27.1
 —
 41.6
 41.6
Total$2,535.9

$(1,972.4)
$1,313.6

$—

$185.2

$46.9

$299.1

$2,109.2

$2,408.3
$2,107.6

$(1,489.0)
$(90.7)
$0.7

$334.2

$257.6

$614.8

$1,120.4

$1,735.2

Jefferies' net issuer and counterparty risk exposure to Puerto Rico was $57.4 million, as reflected in our Consolidated Statement of Financial Condition at September 30, 2017, is in connection with its municipal securities market-making activities. The government of Puerto Rico is seeking to restructure much of its $74.3 billion in debt on a voluntary basis. At September 30, 2017, Jefferies had no other material exposure to countries where either sovereign or non-sovereign sectors potentially pose potential default risk as the result of liquidity concerns.



Item 4.  Controls and Procedures.

Evaluation of disclosure controls and procedures
The Company'sCompany’s management evaluated, with the participation of the Company'sCompany’s principal executive and principal financial officers, the effectiveness of the Company'sCompany’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”"Exchange Act")), as of September 30, 2017.2018. Based on their evaluation, the Company'sCompany’s principal executive and principal financial officers concluded that the Company'sCompany’s disclosure controls and procedures were effective as of September 30, 2017.2018.

Changes in internal control over financial reporting
There has been no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the Company’s fiscal quarter ended September 30, 20172018, that has materially affected, or is reasonably likely to materially affect, the Company'sCompany’s internal control over financial reporting.



PART II – OTHER INFORMATION

Item 1.  Legal Proceedings.

The information set forth in response to this Item 1 is incorporated by reference from the “Contingencies”"Contingencies" section in Note 20, Commitments, Contingencies and Guarantees, in the notesNotes to consolidated financial statements in Item 1 of Part I of this Quarterly Report, which is incorporated herein by reference.

Item 1A. Risk Factors.

Our semi-annual estimates of the fair values of holdings of certain of our merchant banking investments may differ from what can be realized and how these investments are reflected in our financial statements prepared in accordance with GAAP.

During our October 2018 Investor Meeting, we disclosed our intention to provide semi-annual disclosures relating to the estimated fair value of our holdings of certain merchant banking investments, some of which are consolidated. These semi-annual estimates may differ from how these investments are reflected in our financial statements prepared in accordance with GAAP. Factors to consider in connection with reviewing these semi-annual estimates of fair value include, but are not limited to, the following:

These estimates are forward-looking statements and should be read in connection with our Cautionary Statement for Forward-Looking Information.
Although we believe these estimates to be fair and reasonable, these semi-annual estimates may differ materially from realized values or future estimates.
Our semi-annual fair values are, indeed, estimates only and are subject to change.
We may determine to change the timing of providing these semi-annual estimates or stop providing such estimates at any time and for any reason.
Management does not necessarily use these estimates in making business decisions regarding the operation of our business or any decision relating to these investments.
These estimates may constitute non-GAAP financial measures and should be should be read in connection with disclosures relating to our use of non-GAAP financial measures.

Item 2.  Unregistered Sale of Equity Securities and Use of Proceeds.

(c)  Issuer Purchases of Equity Securities

The following table presents information on our purchases of our common shares during the three months ended September 30, 2017:2018:
 
(a) Total
Number of
Shares
Purchased (1)
 
(b) Average
Price Paid
per Share
 
(c) Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs (2)
 
(d) Maximum Number of Shares
that May Yet Be
Purchased Under the
Plans or Programs
July 1, 2017 to July 31, 201712,997
 $27.06
 —
 15,000,000
August 1, 2017 to August 31, 201710,688
 $24.93
 —
 15,000,000
September 1, 2017 to September 30, 2017 (3)2,500,000
 $24.88
 2,500,000
 12,500,000
Total2,523,685
  
 2,500,000
  
 
(a) Total
Number of
Shares
Purchased (1)
 
(b) Average
Price Paid
per Share
 
(c) Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs (2)
 
(d) Maximum Number of Shares
that May Yet Be
Purchased Under the
Plans or Programs (2)
July 1, 2018 to July 31, 2018693,949
 $24.54
 693,949
 25,221,971
August 1, 2018 to August 31, 20181,368,593
 $23.62
 1,341,454
 23,880,517
September 1, 2018 to September 30, 20185,207
 $23.31
 —
 —
Total2,067,749
  
 2,035,403
  

(1)Includes an aggregate 32,346 shares repurchased other than as part of our publicly announced Board authorized repurchase program. We repurchased these securities in connection with our share compensation plans which allow participants to use shares to satisfy certain tax liabilities arising from the vesting of restricted shares and the distribution of restricted share units. The total number of shares purchased does not include unvested shares forfeited back to us pursuant to the terms of our share compensation plans.
(2)In November 2012, our Board of Directors authorized the repurchase of up to 25,000,000 of our common shares. Between 2012 and 2017 we bought 12,500,000 common shares under this authorization. In April 2018, the Board of Directors approved an increase to our share repurchase program of 12,500,000 common shares and in July 2018, the Board of Directors approved an additional increase to our share repurchase program of 25,000,000 common shares.
(1)Includes an aggregate 23,685 shares repurchased other than as part of our publicly announced Board authorized repurchase program. We repurchased these securities in connection with our share compensation plans which allow participants to use shares to satisfy certain tax liabilities arising from the vesting of restricted shares and the distribution of restricted share units. The total number of shares purchased does not include unvested shares forfeited back to us pursuant to the terms of our share compensation plans.
(2)In November 2012, our Board of Directors authorized the repurchase, from time to time, of up to an aggregate of 25,000,000 of our common shares, inclusive of prior authorizations.
(3)Includes 831,444 shares that settled in October 2017.



Item 6.Exhibits.

See Exhibit Index.


Exhibit Index

3.1*
Restated Certificate of Incorporation of Jefferies Financial Group Inc. (filed as Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2018).
3.2*
Amended and Restated By-Laws of Jefferies Financial Group Inc. (effective May 23, 2018) (filed as Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2018).
10.1*
Letter of Intent between Leucadia National Corporation and Garff Ventures, LLC, Garff Ventures II, LLC, Garff Ventures Auto, LLC, Garff Ventures Auto II, LLC and Garff Enterprises, Inc. (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on April 10, 2018).
  
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  
32.1
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  
32.2
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  
101Financial statements from the Quarterly Report on Form 10-Q of Leucadia National CorporationJefferies Financial Group Inc. for the quarter ended September 30, 2017,2018, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income (Loss), (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Changes in Equity and (vi) the Notes to Consolidated Financial Statements.



























* Incorporated by reference.








SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 

 LEUCADIA NATIONAL CORPORATIONJEFFERIES FINANCIAL GROUP INC. 
  (Registrant) 
    
Date: November 1, 20172018By:/s/          John M. Dalton 
  Name:   John M. Dalton 
  Title:     Vice President and Controller 
    (Chief(Duly Authorized Officer and Chief Accounting Officer) 

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