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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
__________
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended AugustMay 31, 20192020
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
JEFFERIES FINANCIAL GROUP INC.
(Exact name of registrant as specified in its Charter)
New York13-2615557
(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer

Identification Number)
520 Madison AvenueNew York,New York10022
(Address of principal executive offices)(Zip Code)
(212) 460-1900
(Registrant’sRegistrant's telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)
______________________
Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class
TradingSymbol(s)

Name of each exchange on which registered
 Common Shares, par value $1 per shareJEFNew York Stock Exchange
Indicate by check mark whether the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

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

The number of shares outstanding of each of the issuer’sissuer's classes of common stock at September 26, 2019July 1, 2020 was 299,871,432.266,621,060.




PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.
JEFFERIES FINANCIAL GROUP INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
AugustMay 31, 20192020 and November 30, 20182019
(Dollars in thousands, except par value)
(Unaudited)
 May 31,
2020		November 30, 2019
ASSETS
Cash and cash equivalents$6,883,881  $7,678,821  
Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations668,925  796,797  
Financial instruments owned, at fair value (including securities pledged of $12,843,162 and $12,058,522):18,542,477  16,895,741  
Loans to and investments in associated companies1,559,793  1,652,957  
Securities borrowed6,457,035  7,624,642  
Securities purchased under agreements to resell4,284,062  4,299,598  
Securities received as collateral, at fair value9,909  9,500  
Receivables6,539,495  5,744,106  
Property, equipment and leasehold improvements, net917,686  385,029  
Intangible assets, net and goodwill1,910,204  1,922,934  
Other assets2,509,748  2,450,109  
Total assets (1)$50,283,215  $49,460,234  
LIABILITIES  
Short-term borrowings$656,855  $548,490  
Financial instruments sold, not yet purchased, at fair value9,646,023  10,532,460  
Securities loaned1,941,468  1,525,140  
Securities sold under agreements to repurchase8,631,143  7,504,670  
Other secured financings2,746,593  3,070,611  
Obligation to return securities received as collateral, at fair value9,909  9,500  
Lease liabilities597,557  —  
Payables, expense accruals and other liabilities8,524,856  8,179,013  
Long-term debt8,020,436  8,337,061  
Total liabilities (1)40,774,840  39,706,945  
Commitments and contingencies
MEZZANINE EQUITY  
Redeemable noncontrolling interests22,262  26,605  
Mandatorily redeemable convertible preferred shares125,000  125,000  
EQUITY  
Common shares, par value $1 per share, authorized 600,000,000 shares; 267,111,111 and 291,644,153 shares issued and outstanding, after deducting 49,351,501 and 24,818,459 shares held in treasury267,111  291,644  
Additional paid-in capital3,191,893  3,627,711  
Accumulated other comprehensive income (loss)(134,528) (273,039) 
Retained earnings6,002,078  5,933,389  
Total Jefferies Financial Group Inc. shareholders' equity9,326,554  9,579,705  
Noncontrolling interests34,559  21,979  
Total equity9,361,113  9,601,684  
Total$50,283,215  $49,460,234  
 August 31,
2019		 November 30, 2018
ASSETS   
Cash and cash equivalents$6,011,350
 $5,258,809
Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations658,335
 707,960
Financial instruments owned, at fair value (including securities pledged of $12,087,982 and $13,059,802): 
  
Trading assets, at fair value17,195,916
 17,463,256
Available for sale securities—
 1,409,886
Total financial instruments owned17,195,916

18,873,142
Loans to and investments in associated companies2,346,297
 2,417,332
Securities borrowed7,895,149
 6,538,212
Securities purchased under agreements to resell4,499,995
 2,785,758
Receivables5,826,350
 6,287,401
Intangible assets, net and goodwill1,921,793
 1,890,131
Deferred tax asset, net509,772
 512,789
Other assets2,398,251
 1,859,561
Total assets (1)$49,263,208

$47,131,095
    
LIABILITIES 
  
Short-term borrowings$518,914
 $387,492
Trading liabilities, at fair value10,296,315
 9,478,946
Securities loaned2,182,865
 1,838,688
Securities sold under agreements to repurchase8,236,981
 8,643,069
Other secured financings2,508,589
 1,534,271
Payables, expense accruals and other liabilities7,350,914
 7,407,030
Long-term debt7,968,785
 7,617,563
Total liabilities (1)39,063,363

36,907,059
    
Commitments and contingencies


 


    
MEZZANINE EQUITY 
  
Redeemable noncontrolling interests27,064
 19,779
Mandatorily redeemable convertible preferred shares125,000
 125,000
    
EQUITY 
  
Common shares, par value $1 per share, authorized 600,000,000 shares; 299,867,942 and 307,515,472 shares issued and outstanding, after deducting 17,178,934 and 109,460,774 shares held in treasury299,868
 307,515
Additional paid-in capital3,731,712
 3,854,847
Accumulated other comprehensive income (loss)(266,452) 288,286
Retained earnings6,255,314
 5,610,218
Total Jefferies Financial Group Inc. shareholders’ equity10,020,442

10,060,866
Noncontrolling interests27,339
 18,391
Total equity10,047,781

10,079,257
    
Total$49,263,208
 $47,131,095
(1) Total assets include assets related to variable interest entities of $709.2 million and $645.8 million at May 31, 2020 and November 30, 2019, respectively, and Total liabilities include liabilities related to variable interest entities of $2,752.3 million and $3,071.1 million at May 31, 2020 and November 30, 2019, respectively. See Note 7 for additional information related to variable interest entities.
(1)
Total assets include assets related to variable interest entities of $726.8 million and $704.4 million at

August 31, 2019 and November 30, 2018, respectively, and Total liabilities include liabilities related to variable interest entities of $2,510.3 million and $1,535.8 million at August 31, 2019 and November 30, 2018, respectively. See Note 8 for additional information related to variable interest entities.

See notes to interim consolidated financial statements.

2



JEFFERIES FINANCIAL GROUP INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the periods ended AugustMay 31, 20192020 and September 30, 20182019
(In thousands, except per share amounts)
(Unaudited)
For the Three Months EndedFor the Six Months Ended
 May 31, 2020May 31, 2019May 31, 2020May 31, 2019
Revenues:
Commissions and other fees$242,972  $167,610  $422,402  $322,560  
Principal transactions393,338  240,189  798,202  486,371  
Investment banking387,491  430,087  979,493  715,683  
Interest income236,732  445,967  563,098  832,811  
Manufacturing revenues85,379  90,237  162,986  165,662  
Other31,619  136,281  143,614  182,296  
Total revenues1,377,531  1,510,371  3,069,795  2,705,383  
Interest expense of Jefferies Group229,942  408,714  535,878  775,283  
Net revenues1,147,589  1,101,657  2,533,917  1,930,100  
Expenses:    
Compensation and benefits598,467  510,560  1,268,660  920,152  
Cost of sales80,771  80,415  153,214  147,336  
Floor brokerage and clearing fees75,479  60,387  134,660  112,255  
Interest expense21,160  23,138  42,714  46,156  
Depreciation and amortization40,366  36,786  79,836  70,720  
Selling, general and other expenses249,118  229,062  546,956  450,168  
Total expenses1,065,361  940,348  2,226,040  1,746,787  
Income before income taxes and income (loss) related to associated companies82,228  161,309  307,877  183,313  
Income (loss) related to associated companies(6,721) 22,170  (74,576) 49,483  
Income before income taxes75,507  183,479  233,301  232,796  
Income tax provision (benefit)31,962  (488,797) 77,735  (486,495) 
Net income43,545  672,276  155,566  719,291  
Net (income) loss attributable to the noncontrolling interests2,580  191  4,709  (875) 
Net (income) loss attributable to the redeemable noncontrolling interests198  (427) 480  (289) 
Preferred stock dividends(1,404) (1,276) (2,826) (2,552) 
Net income attributable to Jefferies Financial Group Inc. common shareholders$44,919  $670,764  $157,929  $715,575  
Basic earnings per common share attributable to Jefferies Financial Group Inc. common shareholders:
Net income$0.16  $2.17  $0.53  $2.29  
Diluted earnings per common share attributable to Jefferies Financial Group Inc. common shareholders:
Net income$0.16  $2.14  $0.53  $2.25  
 For the Three Months Ended For the Nine Months Ended
 August 31, 2019 September 30, 2018 August 31, 2019 September 30, 2018
Revenues:       
Commissions and other fees$171,000
 $162,578
 $493,560
 $481,672
Principal transactions(20,920) 116,204
 465,451
 315,622
Investment banking410,796
 460,043
 1,126,479
 1,400,331
Interest income410,467
 336,736
 1,243,278
 939,272
Manufacturing revenues82,565
 94,029
 248,227
 307,129
Other169,248
 289,387
 351,544
 419,888
Total revenues1,223,156

1,458,977
 3,928,539
 3,863,914
Interest expense of Jefferies Group366,378
 308,131
 1,141,661
 906,474
Net revenues856,778

1,150,846
 2,786,878
 2,957,440
        
Expenses: 
  
  
  
Compensation and benefits446,882
 461,265
 1,367,034
 1,429,439
Cost of sales85,773
 84,876
 233,109
 257,501
Floor brokerage and clearing fees50,858
 44,570
 163,113
 131,792
Interest expense23,663
 28,837
 69,819
 74,614
Depreciation and amortization39,880
 32,295
 110,600
 92,360
Selling, general and other expenses268,742
 245,178
 718,910
 708,084
Total expenses915,798

897,021
 2,662,585
 2,693,790
        
Income (loss) from continuing operations before income taxes and income related to associated companies(59,020) 253,825
 124,293
 263,650
Income related to associated companies72,283
 18,867
 121,766
 84,320
Income from continuing operations before income taxes13,263

272,692
 246,059
 347,970
Income tax provision (benefit)(36,131) 90,391
 (522,626) 51,560
Income from continuing operations49,394

182,301
 768,685
 296,410
Income from discontinued operations, net of income tax provision of $0, $0, $0 and $47,045—
 —
 —
 130,063
Gain on disposal of discontinued operations, net of income tax provision of $0, $0, $0 and $229,553—
 —
 —
 643,921
Net income49,394

182,301
 768,685
 1,070,394
Net (income) loss attributable to the noncontrolling interests116
 12,000
 (759) 13,208
Net (income) loss attributable to the redeemable noncontrolling interests242
 (390) (47) (37,294)
Preferred stock dividends(1,275) (1,276) (3,827) (3,619)
  
  
  
  
Net income attributable to Jefferies Financial Group Inc. common shareholders$48,477

$192,635
 $764,052
 $1,042,689
        


(continued)






See notes to interim consolidated financial statements.


JEFFERIES FINANCIAL GROUP INC. AND SUBSIDIARIES
Consolidated Statements of Operations, continued
For the periods ended August 31, 2019 and September 30, 2018
(In thousands, except per share amounts)
(Unaudited)
3
 For the Three Months Ended For the Nine Months Ended
 August 31, 2019 September 30, 2018 August 31, 2019 September 30, 2018
        
Basic earnings per common share attributable to Jefferies Financial Group Inc. common shareholders:       
Income from continuing operations$0.16
 $0.56
 $2.44
 $0.86
Income from discontinued operations—
 —
 —
 0.26
Gain on disposal of discontinued operations—
 —
 —
 1.82
Net income$0.16
 $0.56
 $2.44
 $2.94
        
Diluted earnings per common share attributable to Jefferies Financial Group Inc. common shareholders:       
Income from continuing operations$0.15
 $0.55
 $2.41
 $0.85
Income from discontinued operations—
 —
 —
 0.26
Gain on disposal of discontinued operations—
 —
 —
 1.80
Net income$0.15
 $0.55
 $2.41
 $2.91
        
Amounts attributable to Jefferies Financial Group Inc. common shareholders:       
Income from continuing operations, net of taxes$48,477
 $192,635
 $764,052
 $305,846
Income from discontinued operations, net of taxes—
 —
 —
 92,922
Gain on disposal of discontinued operations, net of taxes—
 —
 —
 643,921
Net income$48,477
 $192,635
 $764,052
 $1,042,689




























See notes to interim consolidated financial statements.

4



JEFFERIES FINANCIAL GROUP INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
For the periods ended AugustMay 31, 20192020 and September 30, 20182019
(In thousands)
(Unaudited)
 For the Three Months Ended For the Nine Months Ended
 August 31, 2019 September 30, 2018 August 31, 2019 September 30, 2018
        
Net income$49,394
 $182,301
 $768,685
 $1,070,394
Other comprehensive income (loss): 
  
  
  
Net unrealized holding gains (losses) on investments arising during the period, net of income tax provision (benefit) of $58, $(424), $196 and $(567)198
 (1,198) 577
 (1,606)
Less: reclassification adjustment for net (gains) losses included in net income, net of income tax provision (benefit) of $0, $0, $(545,054) and $37—
 (2) (543,178) (105)
Net change in unrealized holding gains (losses) on investments, net of income tax provision (benefit) of $58, $(424), $545,250 and $(604)198

(1,200) (542,601) (1,711)
        
Net unrealized foreign exchange gains (losses) arising during the period, net of income tax provision (benefit) of $(9,597), $(3,367), $(12,314) and $(4,160)(30,070) (27,660) (39,263) (59,067)
Less: reclassification adjustment for foreign exchange (gains) losses included in net income, net of income tax provision (benefit) of $0, $0, $0 and $(16)—
 —
 —
 (20,459)
Net change in unrealized foreign exchange gains (losses), net of income tax provision (benefit) of $(9,597), $(3,367), $(12,314) and $(4,144)(30,070)
(27,660) (39,263) (79,526)
        
Net unrealized gains (losses) on instrument specific credit risk arising during the period, net of income tax provision (benefit) of $1,984, $355, $8,791 and $4,5965,889
 1,169
 26,040
 15,887
Less: reclassification adjustment for instrument specific credit risk (gains) losses included in net income, net of income tax provision (benefit) of $0, $48, $(166) and $126—
 (101) 493
 (371)
Net change in unrealized instrument specific credit risk gains (losses), net of income tax provision (benefit) of $1,984, $307, $8,957 and $4,4705,889

1,068
 26,533
 15,516
        
Net unrealized gains (losses) on cash flow hedges arising during the period, net of income tax provision (benefit) of $0, $0, $0 and $513—
 85
 —
 1,584
Less: reclassification adjustment for cash flow hedges (gains) losses included in net income (loss), net of income tax provision (benefit) of $0, $0, $161 and $0—
 —
 (470) —
Net change in unrealized cash flow hedges gains (losses), net of income tax provision (benefit) of $0, $0, $(161) and $513—
 85
 (470) 1,584
        
Net pension gains (losses) arising during the period, net of income tax provision (benefit) of $0, $0, $0 and $0—
 —
 —
 —
Reclassification adjustment for pension (gains) losses included in net income, net of income tax provision (benefit) of $(120), $(169), $(361) and $(508)355
 479
 1,063
 6,742
Net change in pension liability, net of income tax provision (benefit) of $120, $169, $361 and $508355

479
 1,063
 6,742
        
Other comprehensive loss, net of income taxes(23,628)
(27,228) (554,738) (57,395)
        
Comprehensive income25,766

155,073
 213,947
 1,012,999
Comprehensive (income) loss attributable to the noncontrolling interests116
 12,000
 (759) 13,208
Comprehensive (income) loss attributable to the redeemable noncontrolling interests242
 (390) (47) (37,294)
Preferred stock dividends(1,275) (1,276) (3,827) (3,619)
Comprehensive income attributable to Jefferies Financial Group Inc. common shareholders$24,849

$165,407
 $209,314
 $985,294
For the Three Months EndedFor the Six Months Ended
May 31, 2020May 31, 2019May 31, 2020May 31, 2019
Net income$43,545  $672,276  $155,566  $719,291  
Other comprehensive income (loss):    
Net unrealized holding gains (losses) on investments arising during the period, net of income tax provision (benefit) of $67, $31, $148 and $138196  62  433  379  
Less: reclassification adjustment for net (gains) losses included in net income, net of income tax provision (benefit) of $0, $(544,677), $0 and $(545,054)—  (544,307) —  (543,178) 
Net change in unrealized holding gains (losses) on investments, net of income tax provision (benefit) of $67, $544,708, $148 and $545,192196  (544,245) 433  (542,799) 
Net unrealized foreign exchange gains (losses) arising during the period, net of income tax provision (benefit) of $(7,838), $(10,439), $(10,985) and $(2,717)(25,710) (40,147) (34,943) (9,193) 
Less: reclassification adjustment for foreign exchange (gains) losses included in net income, net of income tax provision (benefit) of $0,$0, $0 and $0—  —  —  —  
Net change in unrealized foreign exchange gains (losses), net of income tax provision (benefit) of $(7,838), $(10,439), $(10,985) and $(2,717)(25,710) (40,147) (34,943) (9,193) 
Net unrealized gains (losses) on instrument specific credit risk arising during the period, net of income tax provision (benefit) of $51,167, $858, $59,106 and $6,807150,040  2,616  173,288  20,151  
Less: reclassification adjustment for instrument specific credit risk (gains) losses included in net income, net of income tax provision (benefit) of $444, $(67), $530 and $(166)(1,302) 199  (1,554) 493  
Net change in unrealized instrument specific credit risk gains (losses), net of income tax provision (benefit) of $50,723, $925, $58,576 and $6,973148,738  2,815  171,734  20,644  
Net unrealized gains (losses) on cash flow hedges arising during the period, net of income tax provision (benefit) of $0, $86, $0 and $0—  251  —  —  
Less: reclassification adjustment for cash flow hedges (gains) losses included in net income (loss), net of income tax provision (benefit) of $0, $161, $0 and $161—  (470) —  (470) 
Net change in unrealized cash flow hedges gains (losses), net of income tax provision (benefit) of $0, $(75), $0 and $(161)—  (219) —  (470) 
Net pension gains (losses) arising during the period, net of income tax provision (benefit) of $0, $0, $0 and $0—  —  —  —  
Reclassification adjustment for pension (gains) losses included in net income, net of income tax provision (benefit) of $(214), $(122), $(438) and $(241)648  353  1,287  708  
Net change in pension liability, net of income tax provision (benefit) of $214, $122, $438 and $241648  353  1,287  708  
Other comprehensive income (loss), net of income taxes123,872  (581,443) 138,511  (531,110) 
Comprehensive income167,417  90,833  294,077  188,181  
Comprehensive (income) loss attributable to the noncontrolling interests2,580  191  4,709  (875) 
Comprehensive (income) loss attributable to the redeemable noncontrolling interests198  (427) 480  (289) 
Preferred stock dividends(1,404) (1,276) (2,826) (2,552) 
Comprehensive income attributable to Jefferies Financial Group Inc. common shareholders$168,791  $89,321  $296,440  $184,465  
See notes to interim consolidated financial statements.

4
5



JEFFERIES FINANCIAL GROUP INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the ninesix months ended AugustMay 31, 20192020 and September 30, 20182019
(In thousands)
(Unaudited)
For the Six Months Ended
For the Nine Months Ended May 31, 2020May 31, 2019
August 31,
2019		 September 30, 2018
Net cash flows from operating activities:   Net cash flows from operating activities:
Net income$768,685
 $1,070,394
Net income$155,566  $719,291  
Adjustments to reconcile net income to net cash provided by (used for) operations: 
  
Adjustments to reconcile net income to net cash provided by (used for) operations:  
Pre-tax income from discontinued operations, including gain on disposal—
 (1,050,582)
Deferred income tax provision8,148
 275,307
Deferred income tax provision25,176  40,388  
Recognition of accumulated other comprehensive income lodged taxes(544,583) —
Recognition of accumulated other comprehensive income lodged taxes—  (544,583) 
Depreciation and amortization of real estate, property, equipment and leasehold improvements100,679
 80,647
Depreciation and amortization of real estate, property, equipment and leasehold improvements73,450  64,428  
Other amortization(13,252) (26,796)Other amortization5,719  (13,669) 
Share-based compensation37,036
 37,975
Share-based compensation20,684  24,886  
Provision for doubtful accounts21,375
 26,529
Provision for doubtful accounts22,979  13,098  
Income related to associated companies(193,380) (115,007)
(Income) loss related to associated companies(Income) loss related to associated companies100,712  (103,804) 
Distributions from associated companies249,895
 98,426
Distributions from associated companies51,860  150,273  
Net (gains) losses related to property and equipment, and other assets(56,706) 10,833
Gain on sale of subsidiaries and associated companies—
 (221,712)
Net losses related to property and equipment, and other assetsNet losses related to property and equipment, and other assets55,867  2,761  
Lease expenseLease expense44,645  —  
Lease paymentsLease payments(40,949) —  
Net change in:   Net change in:
Securities deposited with clearing and depository organizations(153) 64,890
Securities deposited with clearing and depository organizations(61,212) (3) 
Trading assets123,734
 (1,670,376)
Financial instruments owned, at fair valueFinancial instruments owned, at fair value(1,763,950) 251,972  
Securities borrowed(1,410,295) 309,722
Securities borrowed1,142,449  (1,192,513) 
Securities purchased under agreements to resell(1,772,192) (53,020)Securities purchased under agreements to resell(14,988) (1,253,866) 
Receivables from brokers, dealers and clearing organizations268,321
 (261,534)Receivables from brokers, dealers and clearing organizations(1,224,653) (680,802) 
Receivables from customers of securities operations329,504
 (398,154)Receivables from customers of securities operations409,989  228,412  
Other receivables(47,657) (70,514)Other receivables(8,007) (125,315) 
Other assets(100,165) (23,910)Other assets(210,659) (137,438) 
Trading liabilities921,280
 1,122,273
Financial instruments sold, not yet purchased, at fair valueFinancial instruments sold, not yet purchased, at fair value(809,728) 654,849  
Securities loaned387,016
 (275,629)Securities loaned438,246  500,307  
Securities sold under agreements to repurchase(346,031) 1,250,575
Securities sold under agreements to repurchase1,159,948  233,115  
Payables to brokers, dealers and clearing organizations(169,021) (287,288)Payables to brokers, dealers and clearing organizations405,873  26,872  
Payables to customers of securities operations422,840
 523,611
Payables to customers of securities operations(153,116) (38,618) 
Trade payables, expense accruals and other liabilities(328,902) (291,973)Trade payables, expense accruals and other liabilities199,297  (347,271) 
Other92,502
 (89,429)Other135,762  86,869  
Net cash provided by (used for) operating activities - continuing operations(1,251,322)
35,258
Net cash provided by operating activities - discontinued operations—
 164,650
Net cash provided by (used for) operating activities(1,251,322) 199,908
Net cash provided by (used for) operating activities160,960  (1,440,361) 
   
Net cash flows from investing activities: 
  
Net cash flows from investing activities:  
Acquisitions of property, equipment and leasehold improvements, and other assets(164,165) (282,397)Acquisitions of property, equipment and leasehold improvements, and other assets(120,708) (102,515) 
Proceeds from disposals of property and equipment, and other assets20,134
 11,994
Proceeds from disposals of property and equipment, and other assets3,351  5,860  
Proceeds from sale of subsidiaries, net of expenses and cash of operations sold—
 100,000
Proceeds from sale of associated companies—
 379,130
Acquisitions, net of cash acquired100,743
 —
Advances on notes, loans and other receivables(333,198) (10,000)Advances on notes, loans and other receivables(414,031) (199,276) 
Collections on notes, loans and other receivables202,516
 17,404
Collections on notes, loans and other receivables384,528  131,249  
Loans to and investments in associated companies(172,493) (1,936,496)Loans to and investments in associated companies(1,382,827) (74,105) 
Capital distributions and loan repayments from associated companies31,269
 1,970,648
Capital distributions and loan repayments from associated companies1,344,570  25,612  
Purchases of investments (other than short-term)(2,995) (3,242,732)Purchases of investments (other than short-term)(265) (1,986) 
Proceeds from maturities of investments531,104
 1,000,146
Proceeds from maturities of investments2,025  531,067  
Proceeds from sales of investments890,259
 1,012,423
Proceeds from sales of investments19,939  886,876  
Other—
 130
Net cash provided by (used for) investing activities - continuing operations1,103,174

(979,750)
Net cash provided by investing activities - discontinued operations—
 861,209
Net cash provided by (used for) investing activities1,103,174
 (118,541)Net cash provided by (used for) investing activities(163,418) 1,202,782  
(continued)


See notes to interim consolidated financial statements.

5


JEFFERIES FINANCIAL GROUP INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, continued
For the ninesix months ended AugustMay 31, 20192020 and September 30, 20182019
(In thousands)
(Unaudited)
For the Six Months Ended
May 31, 2020May 31, 2019
Net cash flows from financing activities:
Issuance of debt, net of issuance costs$1,850,147  $1,230,064  
Repayment of debt(1,930,381) (877,593) 
Net change in other secured financings(325,234) 264,168  
Net change in bank overdrafts(3,126) (14,352) 
Distributions to noncontrolling interests(216) (2,481) 
Contributions from noncontrolling interests17,504  6,705  
Purchase of common shares for treasury(495,253) (364,708) 
Dividends paid(83,436) (74,563) 
Other575  581  
Net cash provided by (used for) financing activities(969,420) 167,821  
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash(13,547) (3,892) 
Net decrease in cash, cash equivalents and restricted cash(985,425) (73,650) 
  
Cash, cash equivalents and restricted cash at beginning of period8,480,435  6,012,662  
  
Cash, cash equivalents and restricted cash at end of period$7,495,010  $5,939,012  
 For the Nine Months Ended
 August 31,
2019		 September 30, 2018
Net cash flows from financing activities:   
Issuance of debt, net of issuance costs$2,493,735
 $2,198,326
Repayment of debt(2,141,271) (2,024,680)
Net change in other secured financings972,296
 409,780
Net change in bank overdrafts(9,028) 2,369
Distributions to noncontrolling interests(2,481) —
Contributions from noncontrolling interests6,771
 113
Purchase of common shares for treasury(372,849) (635,835)
Dividends paid(112,455) (111,776)
Other792
 3,942
Net cash provided by (used for) financing activities - continuing operations835,510
 (157,761)
Net cash provided by financing activities - discontinued operations—
 120,322
Net cash provided by (used for) financing activities835,510
 (37,439)
    
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash(18,243) (16,469)
    
Net increase in cash, cash equivalents and restricted cash669,119
 27,459
  
  
Cash, cash equivalents and restricted cash at beginning of period6,012,662
 5,774,505
  
  
Cash, cash equivalents and restricted cash at end of period$6,681,781
 $5,801,964

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):

May 31, 2020May 31, 2019
August 31,
2019		 September 30, 2018
Cash and cash equivalents$6,011,350
 $4,895,788
Cash and cash equivalents$6,883,881  $5,393,737  
Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations623,363
 878,616
Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations572,725  508,607  
Other assets47,068
 27,560
Other assets38,404  36,668  
Total cash, cash equivalents and restricted cash$6,681,781
 $5,801,964
Total cash, cash equivalents and restricted cash$7,495,010  $5,939,012  



















See notes to interim consolidated financial statements.

6
7



JEFFERIES FINANCIAL GROUP INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Equity
For the three months ended AugustMay 31, 20192020 and September 30, 20182019
(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		SubtotalNoncontrolling
Interests		Total
Balance, March 1, 2020$277,109  $3,329,633  $(258,400) $6,000,613  $9,348,955  $36,950  $9,385,905  
Net income44,91944,919(2,580)42,339
Other comprehensive income, net of taxes123,872123,872123,872
Contributions from noncontrolling interests—404404
Distributions to noncontrolling interests—(216)(216)
Share-based compensation expense10,73710,73710,737
Change in fair value of redeemable noncontrolling interests2,3112,3112,311
Purchase of common shares for treasury(10,130)(156,407)(166,537)(166,537)
Dividends ($0.15 per common share)(43,454)(43,454)(43,454)
Other1325,6195,75115,752
Balance, May 31, 2020$267,111  $3,191,893  $(134,528) $6,002,078  $9,326,554  $34,559  $9,361,113  
 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, June 1, 2019$290,687
 $3,559,156
 $(242,824) $6,246,852
 $9,853,871
 $23,490
 $9,877,361
Net income      48,477
 48,477
 (116) 48,361
Other comprehensive loss, net of taxes    (23,628)   (23,628)   (23,628)
Contributions from noncontrolling interests        —
 66
 66
Issuance of shares for HomeFed acquisition9,295
 168,585
     177,880
 3,900
 181,780
Share-based compensation expense  12,150
     12,150
   12,150
Change in fair value of redeemable noncontrolling interests  (2,558)     (2,558)   (2,558)
Purchase of common shares for treasury(401) (7,740)     (8,141)   (8,141)
Dividends ($0.125 per common share)      (40,015) (40,015)   (40,015)
Other287
 2,119
     2,406
 (1) 2,405
Balance, August 31, 2019$299,868
 $3,731,712
 $(266,452) $6,255,314
 $10,020,442
 $27,339
 $10,047,781


 Jefferies Financial Group Inc. Common Shareholders
Common
Shares
$1 Par
Value		Additional
Paid-In
Capital		Accumulated
Other
Comprehensive
Income (Loss)		Retained
Earnings		SubtotalNoncontrolling
Interests		Total
Balance, March 1, 2019$298,313  $3,681,085  $338,619  $5,614,935  $9,932,952  $23,181  $9,956,133  
Net income670,764  670,764  (191) 670,573  
Other comprehensive loss, net of taxes(581,443) (581,443) (581,443) 
Contributions from noncontrolling interests—  2,000  2,000  
Distributions to noncontrolling interests—  (1,500) (1,500) 
Share-based compensation expense13,073  13,073  13,073  
Change in fair value of redeemable noncontrolling interests1,657  1,657  1,657  
Purchase of common shares for treasury(7,762) (142,284) (150,046) (150,046) 
Dividends ($0.125 per common share)(38,847) (38,847) (38,847) 
Other136  5,625  5,761  —  5,761  
Balance, May 31, 2019$290,687  $3,559,156  $(242,824) $6,246,852  $9,853,871  $23,490  $9,877,361  

 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, July 1, 2018$333,311
 $4,366,631
 $314,973
 $5,523,277
 $10,538,192
 $29,249
 $10,567,441
Net income      192,635
 192,635
 (12,000) 180,635
Other comprehensive loss, net of taxes    (27,228)   (27,228)   (27,228)
Share-based compensation expense  12,777
     12,777
   12,777
Change in fair value of redeemable noncontrolling interests  (6,732)     (6,732)   (6,732)
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(2,067) (47,417)     (49,484)   (49,484)
Dividends ($0.125 per common share)      (43,549) (43,549)   (43,549)
Other63
 2,026
     2,089
 1
 2,090
Balance, September 30, 2018$331,416
 $4,329,661
 $287,745
 $5,672,363
 $10,621,185
 $25,566
 $10,646,751


(continued)












See notes to interim consolidated financial statements.

7


JEFFERIES FINANCIAL GROUP INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Equitycontinued
For the ninesix months ended AugustMay 31, 20192020 and September 30, 20182019
(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		SubtotalNoncontrolling
Interests		Total
Balance, December 1, 2019$291,644  $3,627,711  $(273,039) $5,933,389  $9,579,705  $21,979  $9,601,684  
Net income   157,929  157,929  (4,709) 153,220  
Other comprehensive income, net of taxes  138,511   138,511   138,511  
Contributions from noncontrolling interests    —  17,504  17,504  
Distributions to noncontrolling interests    —  (216) (216) 
Share-based compensation expense 20,684    20,684   20,684  
Change in fair value of redeemable noncontrolling interests 3,875    3,875   3,875  
Purchase of common shares for treasury(24,868) (469,170)   (494,038)  (494,038) 
Dividends ($0.30 per common share)   (89,240) (89,240)  (89,240) 
Other335  8,793    9,128  1  9,129  
Balance, May 31, 2020$267,111  $3,191,893  $(134,528) $6,002,078  $9,326,554  $34,559  $9,361,113  
 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, December 1, 2018$307,515
 $3,854,847
 $288,286
 $5,610,218
 $10,060,866
 $18,391
 $10,079,257
Net income 
  
  
 764,052
 764,052
 759
 764,811
Other comprehensive loss, net of taxes 
  
 (554,738)  
 (554,738)  
 (554,738)
Contributions from noncontrolling interests 
  
  
  
 —
 6,771
 6,771
Distributions to noncontrolling interests 
  
  
  
 —
 (2,481) (2,481)
Issuance of shares for HomeFed acquisition9,295
 168,585
  
  
 177,880
 3,900
 181,780
Share-based compensation expense 
 37,036
  
  
 37,036
  
 37,036
Change in fair value of redeemable noncontrolling interests 
 (1,437)  
  
 (1,437)  
 (1,437)
Purchase of common shares for treasury(17,891) (337,389)  
  
 (355,280)  
 (355,280)
Dividends ($0.375 per common share) 
  
  
 (118,956) (118,956)  
 (118,956)
Other949
 10,070
  
  
 11,019
 (1) 11,018
Balance, August 31, 2019$299,868
 $3,731,712
 $(266,452) $6,255,314
 $10,020,442
 $27,339
 $10,047,781


 Jefferies Financial Group Inc. Common Shareholders
Common
Shares
$1 Par
Value		Additional
Paid-In
Capital		Accumulated
Other
Comprehensive
Income (Loss)		Retained
Earnings		SubtotalNoncontrolling
Interests		Total
Balance, December 1, 2018$307,515  $3,854,847  $288,286  $5,610,218  $10,060,866  $18,391  $10,079,257  
Net income   715,575  715,575  875  716,450  
Other comprehensive loss, net of taxes  (531,110)  (531,110)  (531,110) 
Contributions from noncontrolling interests    —  6,705  6,705  
Distributions to noncontrolling interests—  (2,481) (2,481) 
Share-based compensation expense 24,886    24,886   24,886  
Change in fair value of redeemable noncontrolling interests 1,121    1,121   1,121  
Purchase of common shares for treasury(17,490) (329,649)   (347,139)  (347,139) 
Dividends ($0.25 per common share) (78,941) (78,941)  (78,941) 
Other662  7,951    8,613  —  8,613  
Balance, May 31, 2019$290,687  $3,559,156  $(242,824) $6,246,852  $9,853,871  $23,490  $9,877,361  

 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, 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 ($0.325 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.

8
9



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


Note 1.  Nature of Operations

Jefferies Financial Group Inc. ("Jefferies"Jefferies," "we," "our" or the "Company") is a diversified financial services company engaged in investment banking and capital markets, asset management and direct investing. Jefferies Group LLC ("Jefferies Group"), our largest subsidiary, is the largest independent full-service global investment banking firm headquartered in the U.S.
Jefferies Group operates in 2 business segments: Investment Banking and Capital Markets, and Asset Management. Investment Banking and Capital Markets includes investment banking, sales and tradingcapital markets and other related services. Investment banking provides capital marketsunderwriting and financial advisory services to clients across most industry sectors in the Americas, Europe and Asia. Sales and tradingCapital markets businesses operate across the spectrum of equities, fixed income and foreign exchange products. Related services include, among other things, prime brokerage and equity finance, research and strategy, corporate lending and real estate finance,finance.
Our Asset Management segment includes both the operations of Leucadia Asset Management ("LAM") as well as other principal and corporate investing activities.the asset management operations within Jefferies Group. Within Asset Management, provides investment managementwe manage, invest in and provide services to investors in the U.S.a diverse group of alternative asset management platforms across a spectrum of investment strategies and overseas and makes capital investments in managed funds and accounts. In March 2013, Jefferies Group becameasset classes. Asset Management offers institutional clients an indirect wholly-owned subsidiaryinnovative range of Jefferies, yet retains a separate credit rating and continues to be a separate U.S. Securities and Exchange Commission ("SEC") reporting company. investment strategies through its affiliated managers.
Merchant Banking is where we invest in unique long-term opportunities. Our current Merchant Bankingown a portfolio of businesses and investments, include National Beef Packing Company, LLC ("National Beef") (beef processing), Spectrum Brands Holdings, Inc. ("Spectrum Brands") (consumer products),including Linkem (fixed wireless broadband services in Italy),; Vitesse Energy, LLC ("Vitesse Energy Finance") and JETX Energy, LLC ("JETX Energy") (oil and gas production and development), The We Company, formerly known as WeWork, (global network of workspaces),; real estate, primarily HomeFed LLC ("HomeFed") (real estate),; Idaho Timber (manufacturing); and FXCM Group, LLC ("FXCM") (provider of online foreign exchange trading services). Our Merchant Banking businesses and investments also included Leucadia Asset Management ("LAM") (asset management) and Berkadia Commercial Mortgage HoldingNational Beef Packing Company, LLC ("Berkadia"National Beef") (commercial mortgage banking, investment sales and servicing), prior to their transfer to Jefferies Group in the fourth quarter of 2018 and Garcadia (automobile dealerships)(beef processing), prior to its sale in August 2018.November 2019 and Spectrum Brands Holdings, Inc. ("Spectrum Brands") (consumer products), prior to its distribution to our shareholders in October 2019. The structure of each of our investments was tailored to the unique opportunity each transaction presented. Our investments may be reflected in our consolidated results as consolidated subsidiaries, equity investments, securities or in other ways, depending on the structure of our specific holdings.

We own 31% of National Beef, one of the largest beef processing companies in the U.S. On June 5, 2018, we completed the sale of 48% of National Beef to Marfrig Global Foods S.A. ("Marfrig") reducing our ownership in National Beef from 79% to 31%. As of the closing of the sale on June 5, 2018, we deconsolidated our investment in National Beef and account for our remaining 31% interest in National Beef under the equity method of accounting. We classified the results of National Beef prior to June 5, 2018 as discontinued operations in the Consolidated Statements of Operations. See Note 23 for more information.

At August 31, 2019, we owned approximately 15% of Spectrum Brands, a publicly traded global consumer products company on the NYSE (NYSE: SPB), and we reflect this investment at fair value based on quoted market prices. In September 2019, the Jefferies Board of Directors approved a distribution to stockholders of Jefferies of these Spectrum Brands shares. Jefferies will distribute the 7,514,477 Spectrum Brands shares through a special pro rata dividend effective on October 11, 2019 to Jefferies stockholders of record as of the close of business on September 30, 2019.

We own approximately 42% of the common shares of Linkem, as well as convertible preferred shares which, ifand warrants. If all of our convertible preferred stock was converted and warrants were exercised, it would increase our ownership to approximately 54%56% of Linkem's common equity at AugustMay 31, 2019.2020. Linkem provides residential broadband services in Italy using LTE technologies deployed over the 3.5 GHz spectrum band. Linkem is accounted for under the equity method.

Vitesse Energy Finance is our 97% owned consolidated subsidiary that acquires and invests in non-operated working interests and royalties predominantly in the Bakken Shale oil field in North Dakota. JETX Energy is our 98% owned consolidated subsidiary that currently has non-operated working interests and acreage in east Texas.
We invested $9.0 million in 2013 in The We Company, which creates collaborative office communities, and have received $31.0 million in cash to date. We continue to own approximately 0.8% of the company. Our interest in The We CompanyHomeFed is reflected in Trading assets in our financial statements at fair value.
Through June 30, 2019, we100% owned an approximate 70% equity interest of HomeFed, whichconsolidated subsidiary that owns and develops residential and mixed-usemixed use real estate propertiesproperties. Prior to July 1, 2019, we owned approximately 70% of HomeFed and accounted for our interestit under the equity method. On July 1, 2019, we completed a merger with HomeFed by which we acquired the remaining common stock of HomeFed. From July 1, 2019, the results of HomeFed are reflected on a consolidated basis. In connection with the merger, HomeFed stockholders received 2 shares of
Idaho Timber is our common


stock for each share of HomeFed common stock. A total of 9.3 million shares were issued, which were valued at $178.8 million at closing based on the market price of our common shares. As an offset to these issued shares, our Board of Directors authorized the repurchase of 9.25 million shares100% owned consolidated subsidiary engaged in the open market.manufacture and distribution of various wood products.
The HomeFed acquisition was accounted for as
Our investment in FXCM and associated companies consist of a business combination. The fair valuesenior secured term loan due February 15, 2021, ($71.6 million principal outstanding at May 31, 2020); a 50% voting interest in FXCM and rights to a majority of all distributions in respect of the shares issued to acquire the remaining common sharesequity of HomeFed implied an aggregate fair value of $596.4 million for 100% of HomeFed's equity balance. In accordance with purchase accounting, we preliminarily allocated the $596.4 million fair value for 100% of HomeFed to its assets, liabilities and noncontrolling interests. We recorded $101.7 million of cash, $413.2 million of real estate, $198.3 million of investments in associated companies, $37.4 million of deferred tax assets, $15.3 million of goodwill and intangibles, $6.6 million of other assets, $125.5 million of long-term debt, $46.7 million of payables, expense accruals and other liabilities and $3.9 million of noncontrolling interests. In addition, associated with the acquisition, we also recorded $32.4 million of goodwill generated by the establishment of $32.4 million of deferred tax liabilities related to allocated value exceeding the tax basis of some of the HomeFed net assets. The estimated weighted average useful lives for the amortizable intangibles were 4 years at time of acquisition. Our preliminary allocation of the acquisition price is based on our preliminary estimate of fair value for each of the acquired assets and liabilities, which were developed primarily utilizing discounted cash flow models. Such amounts are subject to revision as additional information about fair values of assets and liabilities becomes available. In connection with the acquisition of the remaining interest of HomeFed, we recognized a preliminary $72.1 million non-cash pre-tax gain in Other revenues on the remeasurement of our 70% interest in HomeFed to fair value. The fair value of our 70% interest in HomeFed was based on the implied $596.4 million equity value for 100% of HomeFed.FXCM.
9

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 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’sCompany's significant accounting policies, see Note 2, Significant Accounting Policies, included in our TransitionAnnual Report on Form 10-K for the year ended November 30, 20182019 ("20182019 10-K").

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

InDuring the fourth quarter of 2018, we changed our fiscal year end from a calendar year basis to a fiscal year ending on November 30, consistent withsix months ended May 31, 2020, other than the fiscal year of Jefferies Group. Jefferies Group has a November 30 year-end, which it retains for standalone reporting purposes. Priorfollowing, there were no significant changes made to the fourth quarterCompany's significant accounting policies. The accounting policy changes are attributable to the adoption of 2018, becausethe Financial Accounting Standards Board ("FASB") guidance on leases (the "new lease standard") on December 1, 2019. These lease policy updates are applied using a modified retrospective approach. Reported financial information for the historical comparable period was not revised and continues to be reported under the accounting standards in effect during the historical periods.

Lease Accounting

For leases with an original term longer than one year, lease liabilities are initially recognized on the lease commencement date based on the present value of the future minimum lease payments over the lease term, including non-lease components such as fixed common area maintenance costs and other fixed costs for generally all leases. A corresponding right of use ("ROU") asset is initially recognized equal to the lease liability adjusted for any lease prepayments, initial direct costs and lease incentives. The ROU assets are included in Property, equipment and leasehold improvements, net and the lease liabilities are included in Lease liabilities in the Consolidated Statement of Financial Condition.

The discount rates used in determining the present value of leases represent our fiscal year end was December 31,collateralized borrowing rate considering each lease's term and currency of payment. The lease term includes options to extend or terminate the lease when it is reasonably certain that we reflected Jefferies Groupwill exercise that option. Certain leases have renewal options that can be exercised at the discretion of the Company. Lease expense is generally recognized on a straight-line basis over the lease term and included in our consolidated financial statements utilizing a one month lag. In connection with our changeSelling, general and other expenses in fiscal year endthe Consolidated Statement of Operations. See Note 12 for further information.

Reclassification to November 30, we eliminated the one month lag utilized to reflect Jefferies Group results beginning with the fourth quarterConsolidated Statements of 2018.Operations

During the third quarter of 2019, Jefferies Group haswe reclassified the presentation of certain other fees, primarily related to prime brokerage services offered to clients. These fees were previously presented as Other revenues in ourthe Consolidated Statements of Operations and are now presented within Commissions and other fees. Previously reported results are presented on a comparable basis. This change had the impact of increasing Commissions and other fees and reducing Other revenues by $7.2$7.9 million and $20.6$15.7 million for the three and ninesix months ended September 30, 2018,May 31, 2019, respectively. There is no impact on Total revenues as a result of this change in presentation.

10

Receivables

At AugustMay 31, 20192020 and November 30, 2018,2019, Receivables include receivables from brokers, dealers and clearing organizations of $2,931.0$4,211.7 million and $3,223.7$3,011.0 million, respectively, and receivables from customers of securities operations of $1,686.2$1,077.4 million and $2,017.1$1,490.9 million, respectively.

Our subsidiary, Foursight Capital, had auto loan receivables of $720.8$753.0 million and $648.7$741.2 million at AugustMay 31, 20192020 and November 30, 2018,2019, respectively. Of these amounts, $670.3 million and $621.2 million at May 31, 2020 and November 30, 2019, respectively, were in securitized vehicles. See Notes 6 and 7 for additional information on Foursight Capital's securitization activities. Based primarily on Beacon credit scores, Foursight Capital classifies its auto loan receivables


as prime, near-prime and sub-prime based on the perceived credit risk at origination and generally considers prime receivables as those with a Beacon score of 680 and above, near-prime with scores between 620 and 679 and sub-prime with scores below 620. The credit quality classification at AugustMay 31, 20192020 and November 30, 20182019 was approximately 14% and 15% prime, 53% and 13% prime, 54% and 57%53% near-prime and 31%33% and 30%32% sub-prime, respectively.
Other Investments

At May 31, 2020 and November 30, 2019, the Company had other investments (classified as Other assets and Loans to and investments in associated companies) in which fair values are not readily determinable, aggregating $123.1 million and $172.8 million, respectively. Impairments recognized on these investments were $0.6 million and $0.0 million during the three months ended May 31, 2020 and 2019, respectively, and $20.6 million and $0.0 million during the six months ended May 31, 2020 and 2019, respectively .

Capitalization of Interest

In connection with the acquisition of HomeFed in 2019, we began capitalizing interest on qualifying real estate assets. During the three and six months ended May 31, 2020, capitalized interest of $1.9 million and $3.9 million, respectively, was allocated among all of HomeFed's projects that are currently under development.

Payables, expense accruals and other liabilities

At AugustMay 31, 20192020 and November 30, 2018,2019, Payables, expense accruals and other liabilities include payables to brokers, dealers and clearing organizations of $2,253.0$3,006.5 million and $2,465.6$2,621.7 million, respectively, and payables to customers of securities operations of $3,599.6$3,655.5 million and $3,176.7$3,808.6 million, respectively.

Supplemental Cash Flow Information
For the Six Months Ended
May 31, 2020May 31, 2019
(In thousands)
Cash paid during the year for:
Interest$584,009  $808,740  
Income tax payments (refunds), net$(5,330) $21,410  
 For the Nine Months Ended
 August 31,
2019		 September 30, 2018
 (In thousands)
Cash paid during the year for: 
Interest$1,257,311
 $1,059,139
Income tax payments (refunds), net$25,825
 $28,204

DuringAccounting Developments - Accounting Standards Adopted in Current Annual Reporting Period

Leases. In February 2016, the nine months ended August 31,FASB issued new guidance that affects the accounting and disclosure requirements for leases. We adopted the new lease standard on December 1, 2019 we had $178.8 millionusing a modified retrospective transition approach. Accordingly, reported financial information for historical comparable periods is not revised and continues to be reported under the accounting standards in non-cash investing activities relatedeffect during those historical periods. We elected not to reassess whether existing contracts are or contain leases, or the issuancelease classification and initial direct costs of common stock forexisting leases upon transition. At transition on December 1, 2019, the acquisitionadoption of the remaining common stock of HomeFed.
In June 2019, we entered into a Membership Interest Purchase Agreement ("MIPA") which provided for each of the owners of National Beef to purchase,this standard resulted in the aggregate, 100%recognition of the ownership interestsoperating ROU assets of $545.8 million and operating lease liabilities of $614.9 million reflected in Iowa Premium, LLC ("Iowa Premium"). The funds used to acquire Iowa Premium were provided by way of a permitted distribution from National Beef to its owners, of which our proportionate share was approximately $49.0 million.The distribution from National BeefProperty, equipment and the acquisition of Iowa Premium are includedleasehold improvements, net and Lease liabilities in ourthe Consolidated Statement of Cash Flows forFinancial Condition, respectively. Finance lease ROU assets and finance lease liabilities were not material and are reflected in Property, equipment and leasehold improvements, net and Lease liabilities in the nine months endedConsolidated Statement of Financial Condition, respectively.

11

Derivatives and Hedging. In August 31, 2019. Immediately following2017, the acquisition, we contributedFASB issued new guidance to improve the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements. We adopted the guidance in the first quarter of fiscal 2020 and the adoption did not have a material impact on our ownership interest in Iowa Premium to National Beef, which was a non-cash investing activity.consolidated financial statements.

Accounting Developments - Accounting Standards to be Adopted in Future Periods

Leases. In February 2016, the Financial Accounting Standards Board ("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. The population of contracts that will be subject to recognition on our Consolidated Statements of Financial Condition has been identified; however, the initial measurement of the contracts still remains under evaluation. We are currently modifying certain of 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, 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 of the new guidance 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 of the new guidance on our consolidated financial statements.

Goodwill. In January 2017, the FASB issued new guidance for simplifyingwhich simplifies 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 in the first quarter of fiscal 2020. We do not believe the new guidance will have a material impact on our consolidated financial statements.



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

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

Consolidation. In October 2018, the FASB issued new guidance which requires indirect interests held through related parties under common control arrangements be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. The guidance is effective in the first quarter of fiscal 2021. We are currently evaluating the impact of the new guidance on our consolidated financial statements.

Income Taxes. In December 2019, the FASB issued new guidance to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and to provide more consistent application to improve the comparability of financial statements. The guidance is effective in the first quarter of fiscal 2022. We are currently evaluating the impact of the new guidance on our consolidated financial statements.

Reference Rate Reform. In March 2020, the FASB issued new guidance which provides optional exceptions for applying GAAP to contracts, hedge accounting relationships or other transactions affected by reference rate reform. The optional exceptions can be elected through December 31, 2022. We are currently evaluating the impact of applying the optional exceptions on our consolidated financial statements.
12

Note 3.  Fair Value Disclosures

The following is a summary of our financial instruments, securities purchased under agreements to resell, tradingassets and liabilities and long-term debt 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 $573.5$912.9 million and $394.4$586.9 million at AugustMay 31, 20192020 and November 30, 2018,2019, respectively, by level within the fair value hierarchy (in thousands):
 May 31, 2020
 Level 1Level 2Level 3Counterparty
and
Cash
Collateral
Netting (1)		Total
Assets:
Financial instruments owned, at fair value:
Corporate equity securities$2,586,764  $61,387  $76,140  $—  $2,724,291  
Corporate debt securities—  2,979,801  25,178  —  3,004,979  
Collateralized debt obligations and
collateralized loan obligations
—  68,748  31,551  —  100,299  
U.S. government and federal agency securities1,808,192  72,411  —  —  1,880,603  
Municipal securities—  462,420  —  —  462,420  
Sovereign obligations2,088,074  1,307,336  —  —  3,395,410  
Residential mortgage-backed securities—  1,688,379  22,339  —  1,710,718  
Commercial mortgage-backed securities—  355,161  4,461  —  359,622  
Other asset-backed securities—  292,158  86,062  —  378,220  
Loans and other receivables—  2,571,394  121,129  —  2,692,523  
Derivatives515  2,125,294  43,124  (1,528,340) 640,593  
Investments at fair value—  71,860  154,238  —  226,098  
FXCM term loan—  —  53,765  —  53,765  
Total financial instruments owned, at fair value, excluding investments at fair value based on NAV$6,483,545  $12,056,349  $617,987  $(1,528,340) $17,629,541  
Securities received as collateral, at fair value$9,909  $—  $—  $—  $9,909  
Liabilities:     
Financial instruments sold, not yet purchased, at fair value:     
Corporate equity securities$1,772,771  $1,283  $4,190  $—  $1,778,244  
Corporate debt securities—  1,491,089  163  —  1,491,252  
U.S. government and federal agency securities2,140,501  —  —  —  2,140,501  
Sovereign obligations1,132,662  878,059  —  —  2,010,721  
Commercial mortgage-backed securities—  —  140  —  140  
Loans—  1,796,591  10,674  —  1,807,265  
Derivatives277  2,012,251  88,255  (1,682,883) 417,900  
Total financial instruments sold, not yet purchased, at fair value$5,046,211  $6,179,273  $103,422  $(1,682,883) $9,646,023  
Short-term borrowings$—  $15,671  $—  $—  $15,671  
Long-term debt$—  $748,446  $497,040  $—  $1,245,486  
Obligation to return securities received as collateral, at fair value$9,909  $—  $—  $—  $9,909  

13

August 31, 2019 November 30, 2019
Level 1 Level 2 Level 3 
Counterparty
and
Cash
Collateral
Netting (1)
 Total Level 1Level 2Level 3Counterparty
and
Cash
Collateral
Netting (1)		Total
Assets:         Assets:
Trading assets, at fair value:         
Financial instruments owned, at fair value:Financial instruments owned, at fair value:
Corporate equity securities$2,938,829
 $162,382
 $50,870
 $—
 $3,152,081
Corporate equity securities$2,507,164  $218,403  $58,426  $—  $2,783,993  
Corporate debt securities—
 2,892,733
 9,288
 —
 2,902,021
Corporate debt securities—  2,472,245  7,490  —  2,479,735  
Collateralized debt obligations and
collateralized loan obligations
—
 114,045
 30,258
 —
 144,303
Collateralized debt obligations and
collateralized loan obligations
—  124,225  28,788  —  153,013  
U.S. government and federal agency securities2,115,452
 204,076
 —
 —
 2,319,528
U.S. government and federal agency securities2,101,624  158,618  —  —  2,260,242  
Municipal securities—
 723,542
 —
 —
 723,542
Municipal securities—  742,326  —  —  742,326  
Sovereign obligations1,521,540
 1,088,927
 —
 —
 2,610,467
Sovereign obligations1,330,026  1,405,827  —  —  2,735,853  
Residential mortgage-backed securities—
 1,405,246
 17,929
 —
 1,423,175
Residential mortgage-backed securities—  1,069,066  17,740  —  1,086,806  
Commercial mortgage-backed securities—
 373,319
 5,462
 —
 378,781
Commercial mortgage-backed securities—  424,060  6,110  —  430,170  
Other asset-backed securities—
 490,055
 34,598
 —
 524,653
Other asset-backed securities—  303,847  42,563  —  346,410  
Loans and other receivables—
 1,460,982
 75,563
 —
 1,536,545
Loans and other receivables—  2,460,551  114,080  —  2,574,631  
Derivatives10,587
 2,982,776
 16,024
 (2,494,645) 514,742
Derivatives2,809  1,833,907  14,889  (1,433,197) 418,408  
Investments at fair value—
 41,548
 292,483
 —
 334,031
Investments at fair value—  32,688  205,412  —  238,100  
FXCM term loan—
 —
 58,590
 —
 58,590
FXCM term loan—  —  59,120  —  59,120  
Total trading assets, excluding investments at fair value based on NAV$6,586,408

$11,939,631

$591,065

$(2,494,645)
$16,622,459
Total financial instruments owned, at fair value, excluding investments at fair value based on NAVTotal financial instruments owned, at fair value, excluding investments at fair value based on NAV$5,941,623  $11,245,763  $554,618  $(1,433,197) $16,308,807  
Securities purchased under agreements to resell$—
 $—
 $25,000
 $—
 $25,000
Securities purchased under agreements to resell$—  $—  $25,000  $—  $25,000  
Securities received as collateral, at fair valueSecurities received as collateral, at fair value$9,500  $—  $—  $—  $9,500  
         
Liabilities: 
  
  
  
  
Liabilities:     
Trading liabilities: 
  
  
  
  
Financial instruments sold, not yet purchased, at fair value:Financial instruments sold, not yet purchased, at fair value:     
Corporate equity securities$2,750,131
 $7,097
 $211
 $—
 $2,757,439
Corporate equity securities$2,755,601  $7,438  $4,487  $—  $2,767,526  
Corporate debt securities—
 1,803,666
 1,202
 —
 1,804,868
Corporate debt securities—  1,471,142  340  —  1,471,482  
U.S. government and federal agency securities1,922,145
 —
 —
 —
 1,922,145
U.S. government and federal agency securities1,851,981  —  —  —  1,851,981  
Sovereign obligations1,281,332
 853,882
 —
 —
 2,135,214
Sovereign obligations1,363,475  941,065  —  —  2,304,540  
Commercial mortgage-backed securities—
 —
 35
 —
 35
Commercial mortgage-backed securities—  —  35  —  35  
Loans—
 1,097,178
 16,630
 —
 1,113,808
Loans—  1,600,228  9,463  —  1,609,691  
Derivatives7,327
 3,088,068
 66,787
 (2,599,376) 562,806
Derivatives871  2,066,455  92,057  (1,632,178) 527,205  
Total trading liabilities$5,960,935

$6,849,891

$84,865

$(2,599,376)
$10,296,315
Total financial instruments sold, not yet purchased, at fair valueTotal financial instruments sold, not yet purchased, at fair value$5,971,928  $6,086,328  $106,382  $(1,632,178) $10,532,460  
Short-term borrowingsShort-term borrowings$—  $20,981  $—  $—  $20,981  
Long-term debt$—
 $666,446
 $348,063
 $—
 $1,014,509
Long-term debt$—  $735,216  $480,069  $—  $1,215,285  
Obligation to return securities received as collateral, at fair valueObligation to return securities received as collateral, at fair value$9,500  $—  $—  $—  $9,500  



(1)Represents counterparty and cash collateral netting across the levels of the fair value hierarchy for positions with the same counterparty.
 November 30, 2018
 Level 1 Level 2 Level 3 
Counterparty
and
Cash
Collateral
Netting (1)
 Total
Assets:         
Trading assets, at fair value:         
Corporate equity securities$2,497,045
 $118,681
 $52,192
 $—
 $2,667,918
Corporate debt securities—
 2,683,180
 9,484
 —
 2,692,664
Collateralized debt obligations and
collateralized loan obligations
—
 72,949
 36,105
 —
 109,054
U.S. government and federal agency securities1,789,614
 56,592
 —
 —
 1,846,206
Municipal securities—
 894,253
 —
 —
 894,253
Sovereign obligations1,769,556
 1,043,409
 —
 —
 2,812,965
Residential mortgage-backed securities—
 2,163,629
 19,603
 —
 2,183,232
Commercial mortgage-backed securities—
 819,406
 10,886
 —
 830,292
Other asset-backed securities—
 239,381
 53,175
 —
 292,556
Loans and other receivables—
 2,056,593
 46,985
 —
 2,103,578
Derivatives34,841
 2,539,943
 5,922
 (2,413,931) 166,775
Investments at fair value—
 —
 396,254
 —
 396,254
FXCM term loan—
 —
 73,150
 —
 73,150
Total trading assets, excluding investments at fair value based on NAV$6,091,056

$12,688,016

$703,756

$(2,413,931)
$17,068,897
          
Available for sale securities: 
  
  
  
  
U.S. government securities$1,072,856
 $—
 $—
 $—
 $1,072,856
Residential mortgage-backed securities—
 210,518
 —
 —
 210,518
Commercial mortgage-backed securities—
 15,642
 —
 —
 15,642
Other asset-backed securities—
 110,870
 —
 —
 110,870
Total available for sale securities$1,072,856

$337,030

$—

$—

$1,409,886
          
Liabilities: 
  
  
  
  
Trading liabilities: 
  
  
  
  
Corporate equity securities$1,685,071
 $1,444
 $—
 $—
 $1,686,515
Corporate debt securities—
 1,505,618
 522
 —
 1,506,140
U.S. government and federal agency securities1,384,295
 —
 —
 —
 1,384,295
Sovereign obligations1,735,242
 661,095
 —
 —
 2,396,337
Loans—
 1,371,630
 6,376
 —
 1,378,006
Derivatives26,473
 3,586,694
 27,536
 (2,513,050) 1,127,653
Total trading liabilities$4,831,081

$7,126,481

$34,434

$(2,513,050)
$9,478,946
Long-term debt$—
 $485,425
 $200,745
 $—
 $686,170

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

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-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


•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.
14

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


Corporate Debt Securities

•
•Investment Grade Corporate Bonds:  Investment grade corporate bonds are measured primarily using pricing data from external pricing services and broker quotations, where available, prices observed from recently executed market transactions and bond spreads or credit default swap spreads of the issuer adjusted for basis differences between the swap curve and the bond curve. Investment grade corporate bonds measured using these valuation methods are categorized within Level 2 of the fair value hierarchy. If broker quotes, pricing data or spread data is not available, alternative valuation techniques are used including cash flow models incorporating interest rate curves, single name or index credit default swap curves for comparable issuers and recovery rate assumptions. Investment grade corporate bonds measured using alternative valuation techniques are categorized within Level 2 or Level 3 of the fair value hierarchy and are a limited portion of our investment grade corporate bonds.
•High Yield Corporate and Convertible Bonds:  A significant portion of our high yield corporate and convertible bonds are categorized within Level 2 of the fair value hierarchy and are measured primarily using broker quotations and pricing data from external pricing services, where available, and prices observed from recently executed market transactions of institutional size. Where pricing data is less observable, valuations are categorized within Level 3 of the fair value hierarchy and are based on pending transactions involving the issuer or comparable issuers, prices implied from an issuer's subsequent financing or recapitalization, models incorporating financial ratios and projected cash flows of the issuer and market prices for comparable issuers.

  Investment grade corporate bonds are measured primarily using pricing data from external pricing services and broker quotations, where available, prices observed from recently executed market transactions and bond spreads or credit default swap spreads of the issuer adjusted for basis differences between the swap curve and the bond curve. Investment grade corporate bonds measured using these valuation methods are categorized within Level 2 of the fair value hierarchy. If broker quotes, pricing data or spread data is not available, alternative valuation techniques are used including cash flow models incorporating interest rate curves, single name or index credit default swap curves for comparable issuers and recovery rate assumptions. Investment grade corporate bonds measured using alternative valuation techniques are categorized within Level 2 or Level 3 of the fair value hierarchy and are a limited portion of our investment grade corporate bonds.
•
High Yield Corporate and Convertible Bonds:  A significant portion of our high yield corporate and convertible bonds are categorized within Level 2 of the fair value hierarchy and are measured primarily using broker quotations and pricing data from external pricing services, where available, and prices observed from recently executed market transactions of institutional size. Where pricing data is less observable, valuations are categorized within Level 3 of the fair value hierarchy and are based on pending transactions involving the issuer or comparable issuers, prices implied from an issuer's subsequent financing or recapitalization, models incorporating financial ratios and projected cash flows of the issuer and market prices for comparable issuers.

Collateralized Debt Obligations and Collateralized Loan Obligations

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

U.S. Government and Federal Agency Securities

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

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

Municipal Securities

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

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Sovereign Obligations

Sovereign government obligations are measured based on quoted market prices obtained from external pricing services, where available, or recently executed independent transactions of comparable size. Sovereign government obligations, with consideration given to the country of issuance, are generally categorized within Level 1 or Level 2 of the fair value hierarchy.




Residential Mortgage-Backed Securities

•
•Agency Residential Mortgage-Backed Securities:  Agency residential mortgage-backed securities include mortgage pass-through securities (fixed and adjustable rate), collateralized mortgage obligations and principal-only and interest-only (including inverse interest-only) securities. Agency residential mortgage-backed securities are generally measured using recent transactions, pricing data from external pricing services or expected future cash flow techniques that incorporate prepayment models and other prepayment assumptions to amortize the underlying mortgage loan collateral and are categorized within Level 2 or Level 3 of the fair value hierarchy. We use prices observed from recently executed transactions to develop market-clearing spread and yield curve assumptions. Valuation inputs with regard to the underlying collateral incorporate factors such as weighted average coupon, loan-to-value, credit scores, geographic location, maximum and average loan size, originator, servicer and weighted average loan age.
•Non-Agency Residential Mortgage-Backed Securities:  The fair value of non-agency residential mortgage-backed securities is determined primarily using discounted cash flow methodologies and securities are categorized within Level 2 or Level 3 of the fair value hierarchy based on the observability and significance of the pricing inputs used. Performance attributes of the underlying mortgage loans are evaluated to estimate pricing inputs, such as prepayment rates, default rates and the severity of credit 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.

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

Commercial Mortgage-Backed Securities

•
•Agency Commercial Mortgage-Backed Securities:  Government National Mortgage Association ("GNMA") project loan bonds are measured based on inputs corroborated from and benchmarked to observed prices of recent securitization transactions of similar securities with adjustments incorporating an evaluation of various factors, including prepayment speeds, default rates and cash flow structures, as well as the likelihood of pricing levels in the current market environment. Federal National Mortgage Association ("FNMA") Delegated Underwriting and Servicing ("DUS") mortgage-backed securities are generally measured by using prices observed from recently executed market transactions to estimate market-clearing spread levels for purposes of estimating fair value. GNMA project loan bonds and FNMA DUS mortgage-backed securities are categorized within Level 2 of the fair value hierarchy.
•Non-Agency Commercial Mortgage-Backed Securities:  Non-agency commercial mortgage-backed securities are measured using pricing data obtained from external pricing services, prices observed from recently executed market transactions or based on expected cash flow models that incorporate underlying loan collateral characteristics and performance. Non-agency commercial mortgage-backed securities are categorized within Level 2 or Level 3 of the fair value hierarchy depending on the observability of the underlying inputs.

  Government National Mortgage Association ("GNMA") project loan bonds are measured based on inputs corroborated from and benchmarked to observed prices of recent securitization transactions of similar securities with adjustments incorporating an evaluation of various factors, including prepayment speeds, default rates and cash flow structures, as well as the likelihood of pricing levels in the current market environment. Federal National Mortgage Association ("FNMA") Delegated Underwriting and Servicing ("DUS") mortgage-backed securities are generally measured by using prices observed from recently executed market transactions to estimate market-clearing spread levels for purposes of estimating fair value. GNMA project loan bonds and FNMA DUS mortgage-backed securities are categorized within Level 2 of the fair value hierarchy.
•
Non-Agency Commercial Mortgage-Backed Securities:  Non-agency commercial mortgage-backed securities are measured using pricing data obtained from external pricing services, prices observed from recently executed market transactions or based on expected cash flow models that incorporate underlying loan collateral characteristics and performance. Non-agency commercial mortgage-backed securities are categorized within Level 2 or Level 3 of the fair value hierarchy depending on the observability of the underlying inputs.

Other Asset-Backed Securities

Other asset-backed securities include, but are not limited to, securities backed by auto loans, credit card receivables, student loans and other consumer loans and are categorized within Level 2 or Level 3 of the fair value hierarchy. Valuations are primarily determined using pricing data obtained from external pricing services, broker quotes and prices observed from recently executed market transactions. In addition, recent transaction data from comparable deals is deployed to develop market clearing yields and cumulative loss assumptions. The cumulative loss assumptions are based on the analysis of the underlying collateral and comparisons to earlier deals from the same issuer to gauge the relative performance of the deal.

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Loans and Other Receivables

•
Corporate Loans:  Corporate loans categorized within Level 2 of the fair value hierarchy are measured based on market consensus pricing service quotations. Where available, market price quotations from external pricing services are reviewed to ensure they are supported by transaction data. Corporate loans categorized within Level 3 of the fair value hierarchy are measured based on price quotations that are considered to be less transparent, market prices for debt securities of the same creditor and estimates of future cash flows incorporating assumptions regarding creditor default and recovery rates and consideration of the issuer's capital structure.
•
Participation Certificates in Agency Residential Loans: Valuations of participation certificates in agency residential loans are based on observed market prices of recently executed purchases and sales of similar loans and data provider pricing. The loan


•Corporate Loans:  Corporate loans categorized within Level 2 of the fair value hierarchy are measured based on market consensus pricing service quotations. Where available, market price quotations from external pricing services are reviewed to ensure they are supported by transaction data. Corporate loans categorized within Level 3 of the fair value hierarchy are measured based on price quotations that are considered to be less transparent, market prices for debt securities of the same creditor and estimates of future cash flows incorporating assumptions regarding creditor default and recovery rates and consideration of the issuer's capital structure.
•Participation Certificates in Agency Residential Loans: Valuations of participation certificates in agency residential loans are based on observed market prices of recently executed purchases and sales of similar loans and data provider pricing. The loan participation certificates are categorized within Level 2 of the fair value hierarchy given the observability and volume of recently executed transactions and availability of data provider pricing.
•
•Project Loans and Participation Certificates in GNMA Project and Construction Loans:  Valuations of participation certificates in GNMA project and construction loans are based on inputs corroborated from and benchmarked to observed prices of recent securitizations with similar underlying loan collateral to derive an implied spread. Securitization prices are adjusted to estimate the fair value of the loans to account for the arbitrage that is realized at the time of securitization. The measurements are categorized within Level 2 of the fair value hierarchy given the observability and volume of recently executed transactions.
•Consumer Loans and Funding Facilities:  Consumer and small business whole loans and related funding facilities are valued based on observed market transactions and incorporating valuation inputs including, but not limited to, delinquency and default rates, prepayment rates, borrower characteristics, loan risk grades and loan age. These assets are categorized within Level 2 or Level 3 of the fair value hierarchy.
•Escrow and Claim Receivables:  Escrow and claim receivables are categorized within Level 3 of the fair value hierarchy where fair value is estimated based on reference to market prices and implied yields of debt securities of the same or similar issuers. Escrow and claim receivables are categorized within Level 2 of the fair value hierarchy where fair value is based on recent observations in the same receivable.

  Valuations of participation certificates in GNMA project and construction loans are based on inputs corroborated from and benchmarked to observed prices of recent securitizations with similar underlying loan collateral to derive an implied spread. Securitization prices are adjusted to estimate the fair value of the loans to account for the arbitrage that is realized at the time of securitization. The measurements are categorized within Level 2 of the fair value hierarchy given the observability and volume of recently executed transactions.
•
Consumer Loans and Funding Facilities:  Consumer and small business whole loans and related funding facilities are valued based on observed market transactions and incorporating valuation inputs including, but not limited to, delinquency and default rates, prepayment rates, borrower characteristics, loan risk grades and loan age. These assets are categorized within Level 2 or Level 3 of the fair value hierarchy.
•
Escrow and Claim Receivables:  Escrow and claim receivables are categorized within Level 3 of the fair value hierarchy where fair value is estimated based on reference to market prices and implied yields of debt securities of the same or similar issuers. Escrow and claim receivables are categorized within Level 2 of the fair value hierarchy where fair value is based on recent observations in the same receivable.

Derivatives

•
•Listed Derivative Contracts:  Listed derivative contracts that are actively traded are measured based on quoted exchange prices, broker quotes or vanilla option valuation models, such as Black-Scholes, using observable valuation inputs from the principal market or consensus pricing services. Exchange quotes and/or valuation inputs are generally obtained from external vendors and pricing services. Broker quotes are validated directly through observable and tradeable quotes. Listed derivative contracts that use unadjusted exchange close prices are generally categorized within Level 1 of the fair value hierarchy. All other listed derivative contracts are generally categorized within Level 2 of the fair value hierarchy.
•Over-the-Counter ("OTC") Derivative Contracts:  OTC derivative contracts are generally valued using models, whose inputs reflect assumptions that we believe market participants would use in valuing the derivative in a current transaction. Where available, valuation inputs are calibrated from observable market data. For many OTC derivative contracts, 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.

  Listed derivative contracts that are actively traded are measured based on quoted exchange prices, broker quotes or vanilla option valuation models, such as Black-Scholes, using observable valuation inputs from the principal market or consensus pricing services. Exchange quotes and/or valuation inputs are generally obtained from external vendors and pricing services. Broker quotes are validated directly through observable and tradeable quotes. Listed derivative contracts that use unadjusted exchange close prices are generally categorized within Level 1 of the fair value hierarchy. All other listed derivative contracts are generally categorized within Level 2 of the fair value hierarchy.
•
Over-the-Counter ("OTC") Derivative Contracts:  OTC derivative contracts are generally valued using models, whose inputs reflect assumptions that we believe market participants would use in valuing the derivative in a current transaction. Where available, valuation inputs are calibrated from observable market data. For many OTC derivative contracts, 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 Black-Scholes, with key inputs including the underlying security price, foreign exchange spot rate, commodity price, implied volatility, dividend yield, interest rate curve, strike price and maturity date. Discounted cash flow models are utilized to measure certain OTC derivative contracts including the valuations of our interest rate swaps, which incorporate observable inputs related to interest rate curves, valuations of our foreign exchange forwards and swaps, which incorporate observable inputs related to foreign currency spot rates and forward curves and valuations of our commodity swaps and forwards, which incorporate observable inputs related to commodity spot prices and forward curves. Discounted cash flow models are also utilized to measure certain variable funding note swaps, which are backed by CLOs and incorporate constant prepayment rate, constant default rate and loss severity assumptions. Credit default swaps include both index and single-name credit default swaps. Where available, external data is used in measuring index credit default swaps and single-name credit default swaps. For commodity and equity total return swaps, market prices are generally observable for the underlying asset and used as the basis for measuring the fair value of the derivative contracts. Total return swaps executed on other underlyings are measured based on valuations received from external pricing services.

•
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•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.

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

Investments at Fair Value

Investments at fair value include investments in hedge funds, fund of funds and private equity funds, which are measured at the NAV of the funds, provided by the fund managers and are excluded from the fair value hierarchy. Investments at fair value also include direct equity investments in private companies, which are measured at fair value using valuation techniques involving quoted prices of or market data for comparable companies, similar company ratios and multiples (e.g., price/EBITDA, price/book


value), discounted cash flow analyses, contingent claims analysis and transaction prices observed for subsequent financing or capital issuance by the company. Direct equity investments in private companies are categorized within Level 2 or Level 3 of the fair value hierarchy.

The following tables present information about our investments in entities that have the characteristics of an investment company (in thousands):
Fair Value (1)Unfunded
Commitments
Fair Value (1) 
Unfunded
Commitments
August 31, 2019   
May 31, 2020May 31, 2020
Equity Long/Short Hedge Funds (2)$292,205
 $—
Equity Long/Short Hedge Funds (2)$302,790  $—  
Equity Funds (3)33,891
 19,154
Equity Funds (3)28,634  13,957  
Commodity Funds (4)15,212
 —
Commodity Fund (4)Commodity Fund (4)13,593  —  
Multi-asset Funds (5)231,991
 —
Multi-asset Funds (5)543,191  —  
Other Funds (6)158
 —
Other Funds (6)24,728  —  
Total$573,457
 $19,154
Total$912,936  $13,957  
   
November 30, 2018 
  
November 30, 2019November 30, 2019  
Equity Long/Short Hedge Funds (2)$86,788
 $—
Equity Long/Short Hedge Funds (2)$291,593  $—  
Equity Funds (3)40,070
 20,996
Equity Funds (3)44,576  14,621  
Commodity Funds (4)10,129
 —
Commodity Fund (4)Commodity Fund (4)16,025  —  
Multi-asset Funds (5)256,972
 —
Multi-asset Funds (5)234,583  —  
Other Funds (6)400
 —
Other Funds (6)157  —  
Total$394,359
 $20,996
Total$586,934  $14,621  
 
(1)Where fair value is calculated based on NAV, fair value has been derived from each of the funds' capital statements.
(2)This category includes investments in hedge funds that invest, long and short, primarily in equity securities in domestic and international markets in both the public and private sectors. At August 31, 2019 and November 30, 2018, approximately 94% and 0%, respectively, of the fair value of investments in this category cannot be redeemed because these investments include restrictions that do not allow for redemption in the first 36 months after acquisition. At August 31, 2019 and November 30, 2018, 6% and 17%, respectively, of these investments are redeemable quarterly with 60 days prior written notice. Approximately 82% of the November 30, 2018 balance was redeemed during the nine months ended August 31, 2019.
(3)The investments in this category include investments in equity funds that invest in the equity of various U.S. and foreign private companies 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 be liquidated in approximately one to nine years. 
(4)This category includes investments in a hedge fund that invests, long and short, primarily in commodities. Investments in this category are redeemable quarterly with 60 days prior written notice.
(5)This category includes investments in hedge funds that invest, long and short, primarily in multi-asset securities in domestic and international markets in both the public and private sectors. At August 31, 2019 and November 30, 2018, investments representing approximately 4% and 15%, respectively, of the fair value of investments in this category are redeemable monthly with 30 days prior written notice.
(6)This category includes investments in a fund that invests in loans secured by a first trust deed on property, domestic and international public high yield debt, private high yield investments, senior bank loans, public leveraged equities, distressed debt and private equity investments and there are no redemption provisions. This category also includes investments in a fund of funds that invests in various private equity funds that are managed by Jefferies Group and have no redemption provisions. Investments in the fund of funds are gradually being liquidated, however, the timing of when the proceeds will be received is uncertain.
(1)Where fair value is calculated based on NAV, fair value has been derived from each of the funds' capital statements.
(2)This category includes investments in hedge funds that invest, long and short, primarily in both public and private equity securities in domestic and international markets. At May 31, 2020 and November 30, 2019, 6% and 6%, respectively, of these investments are redeemable quarterly with 60 days prior written notice.
(3)The investments in this category include investments in equity funds that invest in the equity of various U.S. and foreign private companies. These investments cannot be redeemed; instead distributions are received through the liquidation of the underlying assets of the funds, which are expected to be liquidated in approximately one to nine years. 
(4)This category includes investments in a hedge fund that invests, long and short, primarily in commodities. Investments in this category are redeemable quarterly with 60 days prior written notice.
(5)This category includes investments in hedge funds that invest, long and short, primarily in multi-asset securities in domestic and international markets in both the public and private sectors. At May 31, 2020 and November 30, 2019, investments representing approximately 58% and 5%, respectively, of the fair value of investments in this category are redeemable monthly with 30 or 60 days prior written notice.
(6)This category includes investments in a fund that trades and invests in structured finance securities. At May 31, 2020 and November 30, 2019, investments in this category representing approximately 99% and 0%, respectively, are redeemable quarterly with 12 months prior written notice.
Investments at fair value also include our investment in The We Company. We invested $9.0 million in The We Company in 2013 and currently own approximately 0.8%less than 1% of the company.The We Company. Our interest in The We Company is reflected in Trading assets,Financial instruments owned, at fair value of $123.2$9.6 million and $254.4$53.8 million at AugustMay 31, 20192020 and November 30, 2018,2019, respectively.
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Investment in FXCM

Our investment in FXCM and associated companies consists of a senior secured term loan due February 15, 2021 ($71.6 million principal outstanding at AugustMay 31, 2019)2020), a 50% voting interest in FXCM and rights to a majority of all distributions in respect of the


equity of FXCM. Our investment in the FXCM term loan is reported within Trading assets,Financial instruments owned, at fair value in ourthe Consolidated Statements of Financial Condition. We classify our equity investment in FXCM in our August 31, 2019 and November 30, 2018the Consolidated Statements of Financial Condition as Loans to and investments in associated companies, as we have the ability to significantly influence FXCM through our seats on the board of directors.

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

Securities Purchased Under Agreements to Resell

Securities purchased under agreements to resell may include embedded call features. The valuation of these instruments is based
on review of expected future cash flows, interest rates, funding spreads and the fair value of the underlying collateral. Securities
purchased under agreements to resell are categorized within Level 3 of the fair value hierarchy due to limited observability of the
embedded derivative and unobservable credit spreads.

Securities Received as Collateral/Obligations to Return Securities Received as Collateral

In connection with securities-for-securities transactions in which we are the lender of securities and are permitted to sell or repledge the securities received as collateral, we report the fair value of the collateral received and the related obligation to return the collateral. Valuation is based on the price of the underlying security and is categorized within Level 1 of the fair value hierarchy.

Short-term Borrowings and Long-term Debt

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

Nonrecurring Fair Value Measurements
HomeFed has a 49% membership interest in the RedSky JZ Fulton Investors ("RedSky JZ Fulton Mall") joint venture, which owns a property in Brooklyn, New York. The property consists of 14 separate tax lots, divided into 2 development sites which may be redeveloped with buildings consisting of up to 540,000 square feet of floor area development rights. During the three months ended February 29, 2020, difficulties were encountered with attempts to refinance debt within the investment. We viewed this, combined with a softening of the Brooklyn, New York real estate market during the quarter, as a triggering event and evaluated HomeFed's equity method investment in RedSky JZ Fulton Mall to determine if there was an impairment. In connection with this evaluation, we obtained an appraisal which reflected a reduction in the value of the investment in comparison to an earlier appraisal obtained shortly before the beginning of the quarter. The appraisal was based off of Level 3 inputs consisting of prices of comparable properties and the appraisal indicated that the value of the property was worth less than the debt outstanding. HomeFed recorded an impairment charge of $55.6 million within Income (loss) related to associated companies during the six months ended May 31, 2020, which represented all of its carrying value in the joint venture.

Due to a decline in oil and gas prices during the second quarter of 2020, Vitesse Energy Finance performed impairment analyses on its proven oil and gas properties in the Denver-Julesburg Basin ("DJ Basin") of Wyoming and Colorado and the Bakken Shale oil field in North Dakota. Vitesse Energy Finance first determined the estimated undiscounted cash flows based on the reserves and costs utilized in its reserve report and then updated those cash flows based on strip pricing as of May 31, 2020. The expected undiscounted future net cash flows were then compared to the end of quarter net carrying value of the oil and gas properties. No impairment of the Bakken Shale oil field assets was necessary as the undiscounted future net cash flows significantly exceeded the carrying value of these assets. As undiscounted future net cash flows were lower than the carrying value of the DJ Basin properties, Vitesse Energy Finance then determined the estimated fair value of the proven properties. To
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measure the estimated fair value of its proven properties, Vitesse Energy Finance used unobservable Level 3 inputs, including a 10.0% discount rate and estimated future cash flows from its reserve report. The estimated fair value of Vitesse Energy Finance's proven oil and gas properties in the DJ Basin totaled $26.8 million, which was $13.2 million lower than the carrying value as of the end of the second quarter of 2020. As a result, an impairment charge of $13.2 million was recorded in Selling, general and other expenses during the three and six months ended May 31, 2020.

Due to a decline in oil and gas prices during the first quarter of 2020, JETX Energy performed an impairment analysis for its oil and gas properties in the East Eagle Ford. JETX Energy first determined the estimated undiscounted cash flows based on the reserves and costs utilized in its reserve report and then updated those cash flows based on strip pricing as of February 29, 2020. The expected undiscounted future net cash flows were then compared to the end of quarter net carrying value of the proven properties. As the undiscounted future net cash flows were lower than the carrying value, JETX Energy then determined the estimated fair value of the proven properties. To measure the estimated fair value of its proven properties, JETX Energy used unobservable Level 3 inputs, including a 10.0% discount rate and estimated future cash flows from its reserve report. The estimated fair value of JETX Energy's proven oil and gas properties in the East Eagle Ford totaled $9.6 million, which was $33.0 million lower than the carrying value as of the end of first quarter of 2020. As a result, an impairment charge of $33.0 million was recorded in Selling, general and other expenses during the six months ended May 31, 2020.


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 AugustMay 31, 20192020 (in thousands):
Three Months Ended May 31, 2020
 Balance, February 29, 2020Total gains/ losses
(realized and unrealized) (1)		PurchasesSalesSettlementsIssuancesNet transfers
into (out of)
Level 3		Balance, May 31, 2020Changes in
unrealized gains/losses included in earnings relating to instruments still held at
May 31, 2020 (1)
Assets:
Financial instruments owned, at fair value:
Corporate equity securities$103,683  $(5,346) $63  $(68) $—  $—  $(22,192) $76,140  $(5,247) 
Corporate debt securities25,090  (1,480) 328  (365) (1) —  1,606  25,178  (1,464) 
CDOs and CLOs29,784  (12,374) —  (8,471) (2,598) —  25,210  31,551  (16,451) 
Residential mortgage-backed securities16,970  (1,773) 1,380  —  (7) —  5,769  22,339  (1,733) 
Commercial mortgage-backed securities4,264  53  —  —  —  —  144  4,461  53  
Other asset-backed securities41,903  (2,380) 11,038  —  (8,490) —  43,991  86,062  (5,087) 
Loans and other receivables103,243  (1,113) 45,984  (46,939) (128) —  20,082  121,129  (1,069) 
Investments at fair value184,507  (59,962) 10,599  (91) —  —  19,185  154,238  (59,962) 
FXCM term loan61,628  (7,863) —  —  —  —  —  53,765  (7,863) 
Liabilities: 
Financial instruments sold, not yet purchased, at fair value: 
Corporate equity securities$4,275  $(60) $—  $—  $—  $—  $(25) $4,190  $60  
Corporate debt securities767  (23) (20) —  —  —  (561) 163  —  
Commercial mortgage-backed securities35  —  —  105  —  —  —  140  —  
Loans7,859  1,015  (2,785) 3,290  —  —  1,295  10,674  (1,015) 
Net derivatives (2)110,843  (32,744) (10,810) 33,196  (603) —  (54,751) 45,131  34,259  
Long-term debt (1)543,463  (92,480) —  —  —  66,916  (20,859) 497,040  664  

(1)Realized and unrealized gains/losses are primarily reported in Principal transactions revenues in the Consolidated Statements of Operations. Changes in instrument specific credit risk related to structured notes are included in the Consolidated Statements of Comprehensive Income (Loss), net of tax. Changes in unrealized gains/losses included in other comprehensive income (loss) for instruments still held at May 31, 2020 were gains of $91.8 million during the three months ended May 31, 2020.
20

Three Months Ended August 31, 2019
 Balance, May 31, 2019 
Total gains/ losses
(realized and unrealized) (1)
 Purchases Sales Settlements Issuances 
Net transfers
into (out of)
Level 3
 Balance, August 31, 2019 
Changes in
unrealized gains/losses included in earnings relating to instruments still held at
August 31, 2019 (1)
Assets:                 
Trading assets:                 
Corporate equity securities$59,572
 $12,547
 $16,508
 $(17,502) $—
 $—
 $(20,255) $50,870
 $12,067
Corporate debt securities8,346
 (3,072) 1,175
 (1,942) (85) —
 4,866
 9,288
 (3,047)
CDOs and CLOs25,912
 (1,499) —
 —
 (609) —
 6,454
 30,258
 (2,097)
Residential mortgage-backed securities17,266
 (1,917) —
 (65) (22) —
 2,667
 17,929
 (1,435)
Commercial mortgage-backed securities12,530
 (2,003) —
 (1,703) (3,362) —
 —
 5,462
 (3,143)
Other asset-backed securities43,185
 (1,689) 13,497
 (6,975) (5,500) —
 (7,920) 34,598
 (1,068)
Loans and other receivables98,484
 (2,847) 26,921
 (33,409) (1,287) —
 (12,299) 75,563
 (2,392)
Investments at fair value408,739
 (152,162) 1,067
 (296) —
 —
 35,135
 292,483
 (152,162)
FXCM term loan56,600
 2,293
 —
 —
 (303) —
 —
 58,590
 2,293
Securities purchased under
  agreements to resell
25,000
 —
 —
 —
 —
 —
 —
 25,000
 —
                  
Liabilities: 
    
  
  
  
  
  
  
Trading liabilities: 
    
  
  
  
  
  
  
Corporate equity securities$221
 $401
 $(221) $—
 $(190) $—
 $—
 $211
 $(35)
Corporate debt securities669
 (650) (34) —
 (369) —
 1,586
 1,202
 649
Commercial mortgage-backed securities—
 —
 —
 35
 —
 —
 —
 35
 —
Loans9,428
 (520) (10,281) 5,384
 —
 —
 12,619
 16,630
 531
Net derivatives (2)47,449
 (19,519) —
 6,766
 (14) —
 16,081
 50,763
 18,507
Long-term debt (1)236,562
 7,455
 —
 —
 —
 114,641
 (10,595) 348,063
 (8,162)



(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 August 31, 2019 were gains of $0.7 million.
(2)Net derivatives represent Trading assets - Derivatives and Trading liabilities - Derivatives.

(2)Net derivatives represent Financial instruments owned, at fair value - Derivatives and Financial instruments sold, not yet purchased, at fair value - Derivatives.

Analysis of Level 3 Assets and Liabilities for the three months ended AugustMay 31, 20192020

During the three months ended AugustMay 31, 2019,2020, transfers of assets of $79.0$127.5 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:
Investments at fair value•Other asset-backed securities of $35.1$44.5 million, CDOs and CLOs of $29.6 million, loans and other receivables of $23.7$20.7 million and investments at fair value of $19.2 million due to reduced pricing transparency.

During the three months ended AugustMay 31, 2019,2020, transfers of assets of $70.3$33.7 million from Level 3 to Level 2 are primarily attributed to:
Loans and other receivables of $36.0 million and corporate•Corporate equity securities of $22.1$26.2 million and CDOs and CLOs of $4.4 million due to greater pricing transparency supporting classification into Level 2.

During the three months ended AugustMay 31, 2019,2020, transfers of liabilities of $43.5$23.7 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:
•Net derivatives of $17.6 million, loans of $13.3$11.4 million and structured notes of $11.0$11.1 million due to reduced pricing and market and pricing transparency.
During the three months ended AugustMay 31, 2019,2020, transfers of liabilities of $23.8$98.6 million from Level 3 to Level 2 of the fair value hierarchy are primarily attributed to:
•Structured notes of $21.6$31.9 million and net derivatives of $66.1 million due to greater pricing and market pricing transparency.

Net losses on Level 3 assets were $150.3$92.2 million and net gains on Level 3 liabilities were $12.8$124.3 million for the three months ended AugustMay 31, 2019.2020. Net losses on Level 3 assets were primarily due to decreased market values across CDOs and CLOs, investments at fair value, corporate debtequity securities loans and other receivables and commercial mortgage-backed securities, partially offset by increased market values in the FXCM term loan and across corporate equity securities.loan. Net gains on Level 3 liabilities were primarily due to decreased valuations of certain structured notes and market values across certain derivatives.


21

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 ninesix months ended AugustMay 31, 20192020 (in thousands):
Nine Months Ended August 31, 2019
 Balance, November 30, 2018 
Total gains/ losses
(realized and unrealized) (1)
 Purchases Sales Settlements Issuances 
Net transfers
into (out of)
Level 3
 Balance, August 31, 2019 
Changes in
unrealized gains/losses included in earnings relating to instruments still held at
August 31, 2019 (1)
Assets:                 
Trading assets:                 
Corporate equity securities$52,192
 $15,499
 $23,172
 $(25,431) $(669) $—
 $(13,893) $50,870
 $14,071
Corporate debt securities9,484
 (4,904) 6,080
 (10,544) (553) —
 9,725
 9,288
 (5,325)
CDOs and CLOs36,105
 (4,320) 48,112
 (43,230) (3,014) —
 (3,395) 30,258
 (6,781)
Residential mortgage-backed securities19,603
 (2,573) 2,166
 (2,022) (171) —
 926
 17,929
 (2,166)
Commercial mortgage-backed securities10,886
 (2,196) 11
 (2,023) (6,638) —
 5,422
 5,462
 (4,326)
Other asset-backed securities53,175
 (929) 14,698
 (2,494) (30,623) —
 771
 34,598
 (961)
Loans and other receivables46,985
 3,933
 178,069
 (166,496) (8,379) —
 21,451
 75,563
 682
Investments at fair value396,254
 (119,110) 42,579
 (18,598) —
 —
 (8,642) 292,483
 (119,110)
FXCM term loan73,150
 (8,669) 1,500
 —
 (7,391) —
 —
 58,590
 (8,669)
Securities purchased under
  agreements to resell
—
 —
 —
 —
 —
 25,000
 —
 25,000
 —
                  
Liabilities: 
  
  
  
  
  
  
  
  
Trading liabilities: 
  
  
  
  
  
  
  
  
Corporate equity securities$—
 $401
 $—
 $—
 $(190) $—
 $—
 $211
 $(35)
Corporate debt securities522
 (867) —
 —
 (524) —
 2,071
 1,202
 867
Commercial mortgage-backed securities—
 —
 —
 35
 —
 —
 —
 35
 —
Loans6,376
 (1,342) (8,553) 9,929
 —
 —
 10,220
 16,630
 1,583
Net derivatives (2)21,614
 (48,746) (2,829) 16,313
 1,609
 —
 62,802
 50,763
 40,052
Long-term debt (1)200,745
 (5,286) —
 —
 (11,250) 204,710
 (40,856) 348,063
 (4,517)

(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 August 31, 2019 were gains of $9.8 million.
(2)Net derivatives represent Trading assets - Derivatives and Trading liabilities - Derivatives.

Six Months Ended May 31, 2020
 Balance, November 30, 2019Total gains/ losses
(realized and unrealized) (1)		PurchasesSalesSettlementsIssuancesNet transfers
into (out of)
Level 3		Balance, May 31, 2020Changes in
unrealized gains/losses included in earnings relating to instruments still held at
May 31, 2020 (1)
Assets:
Financial instruments owned, at fair value:
Corporate equity securities$58,426  $(12,972) $3,016  $(2,017) $—  $—  $29,687  $76,140  $(12,899) 
Corporate debt securities7,490  1,560  766  (479) (602) —  16,443  25,178  1,190  
CDOs and CLOs28,788  (13,589) 9,426  (11,849) (4,122) —  22,897  31,551  (17,410) 
Residential mortgage-backed securities17,740  (2,248) 2,062  —  (10) —  4,795  22,339  (2,195) 
Commercial mortgage-backed securities6,110  (95) —  —  (1,660) —  106  4,461  (680) 
Other asset-backed securities42,563  (2,848) 33,917  (664) (17,361) —  30,455  86,062  (7,226) 
Loans and other receivables114,080  (5,348) 116,047  (76,227) (56,998) —  29,575  121,129  (8,989) 
Investments at fair value205,412  (86,594) 35,588  (168) —  —  —  154,238  (86,594) 
FXCM term loan59,120  (5,355) —  —  —  —  —  53,765  (5,355) 
Securities purchased under
agreements to resell		25,000  —  —  —  (25,000) —  —  —  —  
Liabilities:         
Financial instruments sold, not yet purchased, at fair value:         
Corporate equity securities$4,487  $216  $(513) $—  $—  $—  $—  $4,190  $140  
Corporate debt securities340  (27) (150) —  —  —  —  163  5  
Commercial mortgage-backed securities35  —  (35) 140  —  —  —  140  —  
Loans9,463  1,072  (12,958) 3,290  —  —  9,807  10,674  (1,075) 
Net derivatives (2)77,168  (44,729) (11,088) 38,823  (1,010) —  (14,033) 45,131  32,211  
Long-term debt (1)480,069  (101,267) —  —  —  175,498  (57,260) 497,040  (4,802) 

(1)Realized and unrealized gains/losses are primarily reported in Principal transactions revenues in the Consolidated Statements of Operations. Changes in instrument specific credit risk related to structured notes are included in the Consolidated Statements of Comprehensive Income (Loss), net of tax. Changes in unrealized gains/losses included in other comprehensive income (loss) for instruments still held at May 31, 2020 were gains of $106.1 million during the six months ended May 31, 2020.
(2)Net derivatives represent Financial instruments owned, at fair value - Derivatives and Financial instruments sold, not yet purchased, at fair value - Derivatives.

Analysis of Level 3 Assets and Liabilities for the ninesix months ended AugustMay 31, 20192020

During the ninesix months ended AugustMay 31, 2019,2020, transfers of assets of $60.2$148.5 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:
Loans•Corporate equity securities of $37.0 million, loans and other receivables of $30.6$33.5 million, other asset-backed securities of $10.8$31.1 million, CDOs and CLOs of $22.9 million and corporate debt securities of $10.5$18.3 million due to reduced pricing transparency.

During the ninesix months ended AugustMay 31, 2019,2020, transfers of assets of $47.8$14.6 million from Level 3 to Level 2 are primarily attributed to:
•Corporate equity securities of $14.8$7.3 million other asset-backed securities of $10.0 million,and loans and other receivables of $9.2 million and investments at fair value of $8.6$4.0 million due to greater pricing transparency supporting classification into Level 2.

During the ninesix months ended AugustMay 31, 2019,2020, transfers of liabilities of $98.3$37.0 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:
•Net derivatives of $64.5$26.2 million and structured notesloans of $20.8$10.8 million due to reduced market and pricing transparency.
22

During the ninesix months ended AugustMay 31, 2019,2020, transfers of liabilities of $64.1$98.5 million from Level 3 to Level 2 of the fair value hierarchy are primarily attributed to:
•Structured notes of $61.7$57.3 million and net derivatives of $40.2 million due to greater market and pricing transparency.



Net losses on Level 3 assets were $123.3$127.5 million and net gains on Level 3 liabilities were $55.8$144.7 million for the ninesix months ended AugustMay 31, 2019.2020. Net losses on Level 3 assets were primarily due to decreased market values across investments at fair value, CDOs and CLOs, corporate equity securities, the FXCM term loan corporate debt securities and CDOsloans and CLOs, partially offset by increased market values across corporate equity securities.other receivables. Net gains on Level 3 liabilities were primarily due to decreased market values across derivatives and valuations of certain structured notes.notes and market values across derivatives.

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, 2018May 31, 2019 (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, September 30, 2018 
Changes in
unrealized gains/ losses 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.

Three Months Ended May 31, 2019
Balance, February 28, 2019Total gains/ losses (realized and unrealized) (1)PurchasesSalesSettlementsIssuancesNet transfers into (out of) Level 3Balance, May 31, 2019Changes in
unrealized gains/ losses included in earnings relating to instruments still held at
May 31, 2019 (1)
Assets:
Financial instruments owned, at fair value:
Corporate equity securities$55,576  $1,808  $221  $(179) $(551) $—  $2,697  $59,572  $1,909  
Corporate debt securities10,930  (306) 816  —  (325) —  (2,769) 8,346  (307) 
CDOs and CLOs43,144  (1,663) —  —  (991) —  (14,578) 25,912  (2,656) 
Residential mortgage-backed securities20,963  (802) —  —  (18) —  (2,877) 17,266  (759) 
Commercial mortgage-backed securities12,820  (357) —  (331) (3,238) —  3,636  12,530  (1,292) 
Other asset-backed securities35,886  3,070  16,531  (8,868) (8,549) —  5,115  43,185  3,563  
Loans and other receivables78,051  (2,753) 38,780  (13,898) (2,438) —  742  98,484  (1,277) 
Investments at fair value421,098  35,594  10,169  (18,302) —  —  (39,820) 408,739  35,594  
FXCM term loan73,600  (11,412) 1,500  —  (7,088) —  —  56,600  (11,412) 
Securities purchased under
agreements to resell		—  —  —  —  —  25,000  —  25,000  —  
Liabilities:
Financial instruments sold, not yet purchased, at fair value:
Corporate equity securities$78  $(74) $(1,520) $1,737  $—  $—  $—  $221  $—  
Corporate debt securities730  (148) (7) 1  22  —  71  669  90  
Commercial mortgage-backed securities70  (70) —  —  —  —  —  —  —  
Loans3,420  (191) (1,678) 1,537  —  —  6,340  9,428  364  
Net derivatives (2)28,975  (14,760) (25) 4,175  1,974  —  27,110  47,449  7,565  
Long-term debt (1)283,139  1,163  —  —  (5,585) 39,385  (81,540) 236,562  (813) 

(1)Realized and unrealized gains/losses are primarily reported in Principal transactions revenues in the Consolidated Statements of Operations. Changes in instrument specific credit risk related to structured notes are included in the Consolidated Statements of Comprehensive Income (Loss), net of tax. Changes in unrealized gains/losses included in other comprehensive income (loss) for instruments still held at May 31, 2019 were losses of $0.4 million during the three months ended May 31, 2019.
(2)Net derivatives represent Financial instruments owned, at fair value - Derivatives and Financial instruments sold, not yet purchased, at fair value - Derivatives.

Analysis of Level 3 Assets and Liabilities for the three months ended September 30, 2018May 31, 2019

During the three months ended September 30, 2018,May 31, 2019, transfers of assets of $13.6$31.7 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:
Other•Loans and other receivables of $11.3 million and other asset-backed securities of $3.9 million, residential mortgage-backed securities of $2.9 million and commercial mortgage-backed securities of $2.6$7.6 million due to reduced pricing transparency.

23

During the three months ended September 30, 2018,May 31, 2019, transfers of assets of $13.8$79.5 million from Level 3 to Level 2 are primarily attributed to:
Commercial mortgage-backed securities•Investments at fair value of $4.6$39.8 million, CDOs and CLOs of $3.7$17.6 million and corporate equity securitiesloans and other receivables of $2.6$10.5 million due to greater pricing transparency supporting classification into Level 2.

During the three months ended May 31, 2019, transfers of liabilities of $57.4 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:
•Structured notes of $9.5 million and net derivatives of $41.5 million due to reduced market and pricing transparency.

During the three months ended May 31, 2019, transfers of liabilities of $105.4 million from Level 3 to Level 2 of the fair value hierarchy are primarily attributed to:
•Structured notes of $91.0 million and net derivatives of $14.4 million due to greater market transparency.

Net gains on Level 3 assets were $11.7$23.2 million and net lossesgains on Level 3 liabilities were $4.4$14.1 million for the three months ended September 30, 2018.May 31, 2019. Net gains on Level 3 assets were primarily due to an increased valuation of our FXCM term loan, certain


market values across investments at fair value and increasedother asset-backed securities, partially offset by decreased market values in corporate equity securities.the FXCM term loan and across loans and other receivables. Net lossesgains on Level 3 liabilities were primarily due to increased valuations ofdecreased market values across certain structured notes.derivatives.

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 ninesix months ended September 30, 2018May 31, 2019 (in thousands):

Six Months Ended May 31, 2019
 Balance, November 30, 2018Total gains/ losses
(realized and unrealized) (1)		PurchasesSalesSettlementsIssuancesNet transfers
into (out of)
Level 3		Balance, May 31, 2019Changes in
unrealized gains/ losses included in earnings relating to instruments still held at
May 31, 2019 (1)
Assets:
Financial instruments owned, at fair value:
Corporate equity securities$52,192  $5,239  $785  $(2,031) $(720) $—  $4,107  $59,572  $7,085  
Corporate debt securities9,484  (108) 2,181  (2,130) (1,177) —  96  8,346  (53) 
CDOs and CLOs36,105  (1,233) 4,782  —  (2,130) —  (11,612) 25,912  (3,127) 
Residential mortgage-backed securities19,603  (316) 39  —  (45) —  (2,015) 17,266  (271) 
Commercial mortgage-backed securities10,886  (180) 11  (331) (3,278) —  5,422  12,530  (1,183) 
Other asset-backed securities53,175  (1,014) 25,316  (13,247) (9,529) —  (11,516) 43,185  (522) 
Loans and other receivables46,985  2,434  77,004  (33,549) (3,378) —  8,988  98,484  844  
Investments at fair value396,254  29,454  41,512  (18,302) —  —  (40,179) 408,739  29,454  
FXCM term loan73,150  (10,962) 1,500  —  (7,088) —  —  56,600  (10,962) 
Securities purchased under
agreements to resell		—  —  —  —  —  25,000  —  25,000  —  
Liabilities:         
Financial instruments sold, not yet purchased, at fair value:         
Corporate equity securities$—  $(76) $(1,546) $1,843  $—  $—  $—  $221  $—  
Corporate debt securities522  (382) (73) 93  22  —  487  669  305  
Loans6,376  (401) (3,946) 7,963  —  —  (564) 9,428  579  
Net derivatives (2)21,614  (29,079) (2,829) 7,259  2,031  —  48,453  47,449  19,607  
Long-term debt (1)200,745  (12,854) —  —  (11,250) 101,872  (41,951) 236,562  3,827  

(1)Realized and unrealized gains/losses are primarily reported in Principal transactions revenues in the Consolidated Statements of Operations. Changes in instrument specific credit risk related to structured notes are included in the Consolidated Statements of Comprehensive Income (Loss), net of tax. Changes in unrealized gains (losses) included in other comprehensive income (loss) for instruments still held at May 31, 2019 were gains of $9.0 million during the six months ended May 31, 2019.
(2)Net derivatives represent Financial instruments owned, at fair value - Derivatives and Financial instruments sold, not yet purchased, at fair value - Derivatives.

24

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, September 30, 2018 
Changes in
unrealized gains/ losses 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 Liabilities for the ninesix months ended September 30, 2018May 31, 2019

During the ninesix months ended September 30, 2018,May 31, 2019, transfers of assets of $49.1$42.3 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:
Commercial mortgage-backed securities of $17.0 million, loans•Loans and other receivables of $15.3$15.7 million and CDOs and CLOsother asset-backed securities of $8.7$10.8 million due to reduced pricing transparency.

During the ninesix months ended September 30, 2018,May 31, 2019, transfers of assets of $10.0$89.0 million from Level 3 to Level 2 are primarily attributed to:
Residential mortgage-backed•CDOs and CLOs of $12.5 million, other asset-backed securities of $4.6$22.3 million and corporate equity securitiesinvestments at fair value of $2.5$40.2 million due to greater pricing transparency supporting classification into Level 2.

During the ninesix months ended September 30, 2018, there wereMay 31, 2019, transfers of structured notesliabilities of $107.4$69.6 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:
•Structured notes of $10.3 million and net derivatives of $58.7 million due to a decrease inreduced market observability.and pricing transparency.

During the six months ended May 31, 2019, transfers of liabilities of $63.2 million from Level 3 to Level 2 of the fair value hierarchy are primarily attributed to:
•Structured notes of $52.3 million due to greater market transparency.

Net gains on Level 3 assets were $29.8$23.3 million and net gains on Level 3 liabilities were $26.8$42.8 million for the ninesix months ended September 30, 2018.May 31, 2019. Net gains on Level 3 assets were primarily due to an increased valuation of our FXCM term loan and increased market values inacross investments at fair value and corporate equity securities, partially offset by decreased market values in the FXCM term loan and across other asset-backed securities,


residential mortgage-backed securities, CDOs and CLOs and certain loans and other receivables.CLOs. Net gains on Level 3 liabilities were primarily due to decreased market values across derivatives and valuations of certain structured notes.

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.


August 31, 2019
Financial Instruments Owned 
Fair Value
(in thousands)
 
Valuation
 Technique
 
Significant
Unobservable Input(s)
 Input/Range 
Weighted
Average
Corporate equity securities $45,344
        
Non-exchange-traded securities  
 Market approach Price $3 to $177 $143
    
 Underlying stock price $3 to $5 $4
           
Corporate debt securities $9,288
 Scenario analysis Estimated recovery percentage 38% to 49% 42%
    
 Volatility 44% —
      Credit spread 750 —
      Underlying stock price £0.4 —
           
CDOs and CLOs $30,258
 Discounted cash flows Constant prepayment rate 15% to 20% 19%
   
     Constant default rate 1% to 2% 2%
   
     Loss severity 25% to 30% 27%
   
     Discount rate/yield 13% to 16% 14%
    Scenario analysis Estimated recovery percentage 4% to 37% 26%
           
Residential mortgage-backed securities $17,929
 Discounted cash flows Cumulative loss rate 2% —
   
     Duration (years) 7 years —
   
     Discount rate/yield 3% —
           
Commercial mortgage-backed securities $5,462
 Discounted cash flows Cumulative loss rate 80% —
   
     Duration (years) 1 year —
      Discount rate/yield 5% —
    Scenario analysis Estimated recovery percentage 44% —
           
Other asset-backed securities $34,598
 Discounted cash flows Cumulative loss rate 7% to 31% 18%
   
     Duration (years) 1 year to 3 years 2 years
   
     Discount rate/yield 7% to 12% 11%
           
Loans and other receivables $74,057
 Market approach Price $41 to $100 $81
   
 Scenario analysis Estimated recovery percentage 1% to 117% 68%
           
Derivatives $13,538
        
Interest rate swaps       Market approach Basis points upfront 0 to 7 3
           
Investments at fair value $229,586
        
Private equity securities   Market approach Price $8 to $250 $125
    Scenario analysis Discount rate/yield 20% —
      Revenue growth 0% —
    Market approach Price $38 —
           
           
Investment in FXCM $58,590
        
Term loan   Discounted cash flows Term based on the pay off (years) 0 months to 1.5 years 1.5 years
           
Securities purchased under agreements to resell $25,000
 Market approach Spread to 6 month LIBOR 500 —
      Duration (years) 2 years —
  
        
Trading Liabilities          
Loans $16,630
 Market approach Price $50 to $98 $78
    Scenario analysis Estimated recovery percentage 1% to 75% 27%
           
Derivatives $65,927
        
Equity options    Volatility benchmarking Volatility 29% to 59% 42%
Interest rate swaps       Market approach Basis points upfront 0 to 10 4
Cross currency swaps     Basis points upfront 2 —
Unfunded commitments     Price $90 —
           
Long-term debt $348,063
        
Structured notes       Market approach Price $89 to $102 $97
      Price €70 to €103 €89


November 30, 2018
Financial Instruments Owned 
Fair Value
(in thousands)
 
Valuation
 Technique
 
Significant
Unobservable Input(s)
 Input/Range 
Weighted
Average
Corporate equity securities $43,644
        
Non-exchange-traded securities   Market approach Price $1 to $75 $12
      Transaction level $47 —
           
Corporate debt securities $9,484
 Market approach Estimated recovery percentage 46% —
      Transaction level $80 —
           
CDOs and CLOs $36,105
 Discounted cash flows Constant prepayment rate 10% to 20% 18%
   
     Constant default rate 1% to 2% 2%
   
     Loss severity 25% to 30% 26%
   
     Discount rate/yield 11% to 16% 14%
    Scenario analysis Estimated recovery percentage 2% to 41% 23%
           
Residential mortgage-backed securities $19,603
 Discounted cash flows Cumulative loss rate 4% —
   
     Duration (years) 13 years —
   
     Discount rate/yield 3% —
      Loss severity 0% —
    Market approach Price $100 —
           
Commercial mortgage-backed securities $9,444
 Discounted cash flows Cumulative loss rate 8% to 85% 45%
   
     Duration (years) 1 year to 3 years 1 year
      Discount rate/yield 2% to 15% 6%
      Loss severity 64% —
    Scenario analysis Estimated recovery percentage 26% —
      Price $49 —
           
Other asset-backed securities $53,175
 Discounted cash flows Cumulative loss rate 12% to 30% 22%
   
     Duration (years) 1 year to 2 years 1 year
   
     Discount rate/yield 6% to 12% 8%
    Market approach Price $100 —
           
Loans and other receivables $46,078
 Market approach Price $50 to $100 $96
   
 Scenario analysis Estimated recovery percentage 13% to 117% 105%
           
Derivatives $4,602
        
Total return swaps  
     Market approach Price $97 —
           
Investments at fair value $368,231
        
Private equity securities 

 Market approach Price $3 to $250 $108
      Transaction level $169 —
    Scenario analysis Discount rate/yield 20% —
      Revenue growth 0% —
    Contingent claims analysis Volatility 25% to 35% 30%
      Duration (years) 4 years —
           
Investment in FXCM $73,150
        
Term loan 

 Discounted cash flows Term based on the pay off (years) 0 months to 0.3 years 0.3 years
   
        
Trading Liabilities          
Loans $6,376
 Market approach Price $50 to $101 $74
           
Derivatives $27,536
        
Equity options  
 Option model/default rate     Default probability 0% —
    Volatility benchmarking Volatility 39% to 62% 50%
Interest rate swaps       Market approach Price $20 —
Total return swaps       Market approach Price $97 —
           
Long-term Debt $200,745
        
Structured notes   Market approach Price $78 to $94 $86
      Price €68 to €110 €96

25



May 31, 2020
Fair Value
(in thousands)
Valuation
 Technique
Significant
Unobservable Input(s)
Input/Range
Weighted
Average
Financial instruments owned, at fair value
Corporate equity securities$75,712    
Non-exchange-traded
securities		Market approachPrice$1to$213$94
Underlying stock price$3—  
EBITDA multiple$3to$8$4
Corporate debt securities$25,178  Market approachPrice$69—  
Scenario analysisEstimated��recovery percentage22%—  
CDOs and CLOs$31,551  Discounted cash flowsConstant prepayment rate10 %to20%  16 %
     Constant default rate2%—  
     Loss severity25 %to30%  28 %
     Discount rate/yield14 %to32%  22 %
Scenario analysisEstimated recovery percentage3 %to35%  24 %
Residential mortgage-
backed securities		$22,339  Discounted cash flowsCumulative loss rate3 %to33%  11 %
     Duration (years)2.0 yearsto6.1 years5.6 years
     Discount rate/yield4 %to15%  5 %
Commercial mortgage-
backed securities		$4,461  Scenario analysisEstimated recovery percentage44%—  
Other asset-backed securities$86,062  Discounted cash flowsCumulative loss rate7 %to31%  14 %
     Duration (years)0.4 yearsto2.8 years1.4 years
     Discount rate/yield5 %to15%  9 %
Market approachPrice$100—  
Loans and other receivables$67,207  Market approachPrice$1to$100$81
  Scenario analysisEstimated recovery percentage1 %to100%  61 %
Derivatives$41,769      
Equity optionsVolatility benchmarkingVolatility49%—  
Interest rate swaps    Market approachBasis points upfront1to168
Investments at fair value$92,194      
Private equity securitiesMarket approachPrice$2to$169$40
Scenario analysisEstimated recovery percentage86%—  
Discount rate/yield19 %to21%  20 %
Revenue growth0%—  
Investment in FXCM$53,765      
Term loanDiscounted cash flowsTerm based on the pay off (years)0 monthsto1.7 years1.7 years
  
Financial instruments sold, not yet purchased, at fair value
Corporate equity securities$4,190  Market approachTransaction level$1—  
Corporate debt securities$163  Scenario analysisEstimated recovery percentage22%—  
Loans$10,674  Market approachPrice$1to$50$33
Scenario analysisEstimated recovery percentage1%—  
Derivatives$83,576      
Equity optionsVolatility benchmarkingVolatility33 %to62%  47 %
Interest rate swaps    Market approachBasis points upfront0to167
Unfunded commitmentsPrice$90—  
Long-term debt
Structured notes$497,040  Market approachPrice$78to$94$84
Price€63to€109€85


26

November 30, 2019
Fair Value
(in thousands)		Valuation
 Technique		Significant
Unobservable Input(s)		Input/RangeWeighted
Average
Financial instruments owned, at fair value
Corporate equity securities$29,017    
Non-exchange-traded
securities		Market approachPrice$1to$140$55
Underlying stock price$3to$5$4
Corporate debt securities$7,490  Scenario analysisEstimated recovery percentage23 %to85%  46 %
Volatility44%—  
Credit spread750—  
Underlying stock price£0.4—  
CDOs and CLOs$28,788  Discounted cash flowsConstant prepayment rate20%—  
     Constant default rate1 %to2%  2 %
     Loss severity25 %to37%  29 %
     Discount rate/yield12 %to21%  15 %
Scenario analysisEstimated recovery percentage3.25 %to36.5%  25 %
Residential mortgage-
backed securities		$17,740  Discounted cash flowsCumulative loss rate2%—  
     Duration (years)6.3 years—  
     Discount rate/yield3%—  
Commercial mortgage-
backed securities		$6,110  Discounted cash flowsCumulative loss rate7.3%—  
     Duration (years)0.2 years—  
Discount rate/yield85%—  
Scenario analysisEstimated recovery percentage44%—  
Other asset-backed securities$42,563  Discounted cash flowsCumulative loss rate7 %to31%  16 %
     Duration (years)0.5 yearsto3 years1.5 years
     Discount rate/yield7 %to15%  11 %
Loans and other receivables$112,574  Market approachPrice$36to$100$90
  Scenario analysisEstimated recovery percentage87 %to104%  99 %
Discounted cash flowsTerm based on the pay off (years)0 monthsto0.1 years0.1 years
Derivatives$13,826      
Interest rate swaps    Market approachBasis points upfront0to166
Unfunded commitmentsPrice$88—  
Equity optionsVolatility benchmarkingVolatility45%—  
Investments at fair value$157,504      
Private equity securitiesMarket approachPrice$8to$250$80
Scenario analysisDiscount rate/yield19 %to21%  20 %
Revenue growth0%—  
Investment in FXCM$59,120      
Term loanDiscounted cash flowsTerm based on the pay off (years)0 monthsto1.2 years1.2 years
Securities purchased under agreements to resell$25,000  Market approachSpread to 6 month LIBOR500—  
Duration (years)1.5 years—  
Financial instruments sold, not yet purchased, at fair value
Corporate equity securities$4,487  Market approachTransaction level$1—  
Loans$9,463  Market approachPrice$50to$100$88
Scenario analysisEstimated recovery percentage1%—  
Derivatives$92,057      
Equity optionsVolatility benchmarkingVolatility21 %to61%  43 %
Interest rate swaps    Market approachBasis points upfront0to2213
Cross currency swapsBasis points upfront2—  
Unfunded commitmentsPrice$88—  
Long-term debt
Structured notes$480,069  Market approachPrice$84to$108$96
Price€74to€103€91
27

The fair values of certain Level 3 assets and liabilities that were determined based on third-party pricing information, unadjusted past transaction prices reported NAV or a percentage of the reported enterprise fair value are excluded from the above tables. At AugustMay 31, 20192020 and November 30, 2018,2019, asset exclusions consisted of $72.4$117.8 million and $40.3$79.9 million, respectively, primarily comprised of investments at fair value, private equity securities, corporate equity securities, certain derivatives and loans and other receivables and certain derivatives.receivables. At AugustMay 31, 20192020 and November 30, 2018,2019, liability exclusions consisted of $2.3$4.8 million and $0.5$0.4 million, respectively, primarily comprised of certain derivatives, corporate debt and certain derivatives.
Uncertainty of Fair Value Measurement from Use of Significant Unobservable Inputscommercial mortgage-backed securities.
For recurring fair value measurements categorized within Level 3 of the fair value hierarchy, the uncertainty of the fair value measurement due to the use of significant unobservable inputs and interrelationships between those unobservable inputs (if any) are described below:
Non-exchange-traded•Corporate equity securities, corporate debt securities, loans and other receivables, certain derivatives, residential mortgage-backed securities, other asset-backed securities, private equity securities, securities purchased under agreements to resell and structured notes using a market approach valuation technique. A significant increase (decrease) in the transaction level of a non-exchange-traded security, corporate debt security and private equity security 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 price of the private equity securities, non-exchange-traded securities, total return swaps, interest rate swaps, unfunded commitments, residential mortgage-backedcorporate debt securities, other asset-backed securities, loans and other receivables or structured notes would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the estimated recovery ratesEBITDA multiple related to corporate equity securities would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the underlying stock price of the cash flow outcomes underlying the corporate debtequity securities or loans and other receivables would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the yield or duration, in isolation, of securities purchased under agreements to resell would result in a significantly lower (higher) fair value measurement. Depending on whether Jefferies Group iswe are a receiver or (payer) of basis points upfront, a significant increase in basis points would result in a significant increase (decrease) in the fair value measurement of cross currency and interest rate swaps.
•Loans and other receivables, CDOs and CLOs, commercial mortgage-backed securities, corporate debt securities and private equity securities using scenario analysis. A significant increase (decrease) in the possible recovery rates of the cash flow outcomes underlying the financial instrument would result in a significantly higher (lower) fair value measurement for the financial instrument. A significant increase (decrease) in the price of the underlying stock price or underlying assets of the financial instruments would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the volatility of the underlying stock price would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the credit spread of the financial instrument would result in a significantly lower (higher) fair value measurement. A significant increase (decrease) in the discount rate/yield underlying the investment would result in a significantly lower (higher) fair value measurement. A significant increase (decrease) in the revenue growth underlying the investment would result in a significantly higher (lower) fair value measurement.
•CDOs and CLOs, residential mortgage-backed securities, commercial mortgage-backed securities, and other asset-backed securities, loans and other receivables and the FXCM term loan using a discounted cash flow valuation technique. A significant increase (decrease) in isolation in the constant default rate, loss severity or cumulative loss rate would result in a significantly lower (higher) fair value measurement. 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/default rate model. A significant increase (decrease) in default probability would result in a significantly lower (higher) fair value measurement.
Derivative equity options using volatility benchmarking. A significant increase (decrease) in volatility would result in a significantly higher (lower) fair value measurement.
Investments at fair value using contingent claims analysis. A significant increase (decrease) in volatility would result in a significantly lower (higher) fair value measurement. A significant increase (decrease) in duration would result in a significantly lower (higher) fair value measurement.
FXCM term loan using a discounted cash flow valuation technique. A significant increase (decrease) in term based on the time to pay off the loan would result in a lower (higher) fair value measurement.
•Derivative equity options using volatility benchmarking. A significant increase (decrease) in volatility would result in a significantly higher (lower) fair value measurement.


Fair Value Option Election
We have elected the fair value option for all loans and loan commitments made by Jefferies Group'sour investment banking and capital markets businesses. These loans and loan commitments include loans entered into by Jefferies Group'sour investment banking division in connection with client bridge financing and loan syndications, loans purchased by Jefferies Group'sour leveraged credit trading desk as part of itsour bank loan trading activities and mortgage and consumer loan commitments, purchases and fundings in connection with mortgage-mortgage-backed and other


asset-backed securitization activities. Loans and loan commitments originated or purchased by Jefferies Group'sour leveraged credit and mortgage-backed businesses are managed on a fair value basis. Loans are included in Trading assetsFinancial instruments owned, at fair value and loan commitments are included in Trading liabilities.Financial instruments owned, at fair value and Financial instruments sold, not yet purchased, at fair value in the Consolidated Statements of Financial Condition. The fair value option election is not applied to loans made to affiliate entities as such loans are entered into as part of ongoing, strategic business ventures. Loans to affiliate entities are included in Loans to and investments in associated companies in the Consolidated Statements of Financial Condition and are accounted for on an amortized cost basis. Jefferies Group hasWe have also elected the fair value option for certain of its our
28

structured notes, and securities purchased under agreements to resell, which are managed by Jefferies Group'sour investment banking and capital markets businesses and are included in Long-term debt and Securities purchased under agreements to resellShort-term borrowings in the Consolidated Statements of Financial Condition, respectively. Jefferies Group hasCondition. We have 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 may be elected for certain secured financings that arise in connection with Jefferies Group'sour securitization activities and other structured financings. Other secured financings, receivables from brokers, dealers and clearing organizations, receivables from customers of securities operations, other receivables, payables to brokers, dealers and clearing organizations and payables to customers of securities operations, are accounted for at cost plus accrued interest rather than at fair value; however, the recorded amounts approximate fair value due to their liquid or short-term nature.
The following is a summary of 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 borrowings measured at fair value under the fair value option (in thousands):
For the Three Months EndedFor the Six Months Ended
May 31, 2020May 31, 2019May 31, 2020May 31, 2019
Financial Instruments Owned, at fair value:
Loans and other receivables$(13,926) $(2,352) $(10,830) $(3,072) 
Financial Instruments Sold, Not Yet Purchased, at
fair value:		    
Loans$127  $—  $127  $—  
Loan commitments1,750  (757) 1,089  (678) 
Long-term Debt:    
Changes in instrument specific credit risk (1)$197,737  $4,009  $227,169  $27,492  
Other changes in fair value (2)(30,982) (36,665) (68,624) (47,308) 
Short-term borrowings:
Changes in instrument specific credit risk (1)$35  $—  $91  $—  
Other changes in fair value (2)(644) —  (881) —  
 For the Three Months Ended For the Nine Months Ended
 August 31, 2019 September 30, 2018 August 31, 2019 September 30, 2018
Trading Assets:       
Loans and other receivables$2,040
 $14,002
 $(5,458) $7,495
        
Trading Liabilities: 
  
  
  
Loans$—
 $(2,708) $—
 $(2,467)
Loan commitments$(443) $(1,695) $(1,200) $(1,964)
        
Long-term Debt: 
  
  
  
Changes in instrument specific credit risk (1)$6,922
 $1,401
 $34,414
 $19,986
Other changes in fair value (2)$(46,003) $(6,842) $(93,311) $33,626

(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.

(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):
 May 31,
2020		November 30, 2019
Financial Instruments Owned, at fair value:
Loans and other receivables (1)$1,881,470  $1,546,516  
Loans and other receivables on nonaccrual status and/or 90 days or greater past due (1) (2)331,340  197,215  
Long-term debt and short-term borrowings241,295  74,408  
 August 31,
2019		 November 30, 2018
Trading Assets:   
Loans and other receivables (1)$1,356,508
 $961,554
Loans and other receivables on nonaccrual status and/or 90 days or greater past due (1) (2)$139,795
 $158,392
Long-term Debt$59,370
 $114,669

(1) Interest income is recognized separately from other changes in fair value and is included in Interest income in the Consolidated Statements of Operations.
(2) Amounts include all loans and other receivables 90 days or greater past due by which contractual principal exceeds fair value of $27.2 million and $22.2 million at May 31, 2020 and November 30, 2019, respectively.

(1)Interest income is recognized separately from other changes in fair value and is included in Interest income in the Consolidated Statements of Operations.
(2)Amounts include all loans and other receivables 90 days or greater past due by which contractual principal exceeds fair value of $20.9 million and $20.5 million at August 31, 2019 and November 30, 2018, respectively.

The aggregate fair value of Jefferies Group'sour loans and other receivables on nonaccrual status and/or 90 days or greater past due was $113.4$175.8 million and $105.3$127.0 million at AugustMay 31, 20192020 and November 30, 2018,2019, respectively, which includes loans and other receivables 90 days or greater past due of $31.9$16.6 million and $19.4$24.8 million at AugustMay 31, 20192020 and November 30, 2018,2019, respectively.



As of December 31, 2017, we owned approximately 46.6 million common shares of HRG Group, Inc. ("HRG"), representing approximately 23% of HRG’s outstanding common shares, which were accounted for under the fair value option. On July 13,November 30, 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 August 31, 2019, we owned 7,514,477 common shares of Spectrum Brands, representing approximately 15% of Spectrum Brands outstanding common shares. The shares are included in our Consolidated Statements of Financial Condition at fair value of $419.8 million and $371.1 million at August 31, 2019 and November 30, 2018, 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/HRGBrands aggregated $24.0$(11.3) million and $(48.5)$24.7 million for the three and six months ended AugustMay 31, 2019 and September 30, 2018, respectively, and $48.8 million and $(228.4) million for2019. We distributed the nine months ended August 31, 2019 and September 30, 2018, respectively. NaN of our officers currently serves as a director on Spectrum Brands board. In September 2019, the Jefferies Board of Directors approved a distribution to stockholders of Jefferies of these Spectrum Brands shares. Jefferies will distribute the 7,514,477 Spectrum Brands shares
29

through a special pro rata dividend effective on October 11, 2019 to Jefferies stockholders of record as of the close of business on September 30, 2019. We recorded a $451.1 million dividend payable as of the September 16, 2019 declaration date, which was equal to the fair value of Spectrum Brands shares at that time.
We believe accounting for these investments at fair value better reflects the economics of these investments, and quoted market prices for these investments provide an objectively determined fair value at each balance sheet date. Our investment in HomeFed, which was a publicly traded company, was accounted for under the equity method of accounting rather than the fair value option method. HomeFed’s common stock was not listed on any stock exchange, and price information for the common stock was not regularly quoted on any automated quotation system. It was traded in the over-the-counter market with high and low bid prices published by the Over-the-Counter Bulletin Board Service; however, trading volume was minimal. For these reasons, we did not elect the fair value option for HomeFed.
Financial Instruments Not Measured at Fair Value

Certain of our financial instruments are not carried at fair value but are recorded at amounts that approximate fair value due to their liquid or short-term nature and generally negligible credit risk. These financial assets include Cash and cash equivalents and Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations and would generally be presented in Level 1 of the fair value hierarchy. Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations includes U.S. Treasury securities with a fair value of $96.2 million and $35.0 million and $34.8 million at AugustMay 31, 20192020 and November 30, 2018,2019, respectively.

Note 4.  Derivative Financial Instruments

Derivative Financial Instruments
Derivative activities are recorded at fair value in the Consolidated Statements of Financial Condition in Trading assetsFinancial instruments owned, at fair value and Trading liabilities,Financial instruments sold, not yet purchased, at fair value, net of cash paid or received under credit support agreements and on a net counterparty basis when a legally enforceable right to offset exists under a master netting agreement. Predominantly, Jefferies Group enterswe enter into derivative transactions to satisfy the needs of itsour clients and to manage itsour own exposure to market and credit risks resulting from itsour trading activities. In addition, Jefferies Group applieswe apply hedge accounting to an interest rate swap that has been designated as a fair value hedge of the changes in fair value due to the benchmark interest rate for certain fixed rate senior long-term debt. See Notes 3 and 19 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 managesWe manage the risks associated with derivatives on an aggregate basis along with the risks associated with proprietary trading as part of itsour firm wide risk management policies.
In connection with Jefferies Group'sour derivative activities, Jefferies Groupwe may enter into International Swaps and Derivatives Association, Inc. ("ISDA") master netting agreements or similar agreements with counterparties.


The following tables present the fair value and related number of derivative contracts at AugustMay 31, 20192020 and November 30, 20182019 categorized by type of derivative contract and the platform on which these derivatives are transacted. The fair value of assets/liabilities represents our receivable/payable for derivative financial instruments, gross of counterparty netting and cash collateral received and pledged. The following tables also provide information regarding (1) the extent to which, under enforceable master netting arrangements, such balances are presented net in ourthe Consolidated Statements of Financial Condition as appropriate under GAAP and (2) the extent to which other rights of setoff associated with these arrangements exist and could have an effect on our financial position (in thousands, except contract amounts):

30

AssetsLiabilities
Assets Liabilities Fair ValueNumber of
Contracts (2)		Fair ValueNumber of
Contracts (2)
Fair Value 
Number of
Contracts (2)
 Fair Value 
Number of
Contracts (2)
August 31, 2019 (1)       
May 31, 2020 (1)May 31, 2020 (1)
Derivatives designated as accounting hedges:       Derivatives designated as accounting hedges:
Interest rate contracts:       Interest rate contracts:
Cleared OTC$38,588
 1
 $—
 —
Cleared OTC$74,227  1  $—  —  
Total derivatives designated as accounting hedges38,588
   —
  Total derivatives designated as accounting hedges74,227  —  
       
Derivatives not designated as accounting hedges:       Derivatives not designated as accounting hedges:
Interest rate contracts:       Interest rate contracts:
Exchange-traded1,766
 39,912
 873
 45,448
Exchange-traded515  43,775  277  56,844  
Cleared OTC863,437
 3,335
 903,989
 3,947
Cleared OTC226,248  4,332  326,475  4,585  
Bilateral OTC539,158
 1,865
 241,817
 474
Bilateral OTC732,046  1,244  315,023  601  
Foreign exchange contracts:       Foreign exchange contracts:
Exchange-traded—
 191
 —
 87
Exchange-traded—  —  —  139  
Bilateral OTC552,066
 8,566
 548,854
 8,319
Bilateral OTC324,486  12,874  342,011  12,671  
Equity contracts:       Equity contracts:
Exchange-traded741,307
 1,998,268
 1,091,142
 1,611,110
Exchange-traded422,377  986,001  501,975  872,216  
Bilateral OTC228,415
 4,073
 357,356
 4,428
Bilateral OTC330,034  1,398  610,146  1,574  
Commodity contracts:       Commodity contracts:
Exchange-traded1,418
 9,523
 —
 6,239
Exchange-traded—  3,251  —  4,572  
Bilateral OTC27,839
 2,794
 170
 1,779
Bilateral OTC55,113  2,968  —  —  
Credit contracts:       Credit contracts:
Cleared OTC5,210
 12
 7,988
 16
Cleared OTC190  14  915  6  
Bilateral OTC10,183
 34
 9,993
 21
Bilateral OTC3,697  11  3,961  7  
Total derivatives not designated as accounting hedges2,970,799
  
 3,162,182
  
Total derivatives not designated as accounting hedges2,094,706   2,100,783   
       
Total gross derivative assets/ liabilities:       
Total gross derivative assets/liabilities:Total gross derivative assets/liabilities:
Exchange-traded744,491
   1,092,015
  Exchange-traded422,892  502,252  
Cleared OTC907,235
   911,977
  Cleared OTC300,665  327,390  
Bilateral OTC1,357,661
   1,158,190
  Bilateral OTC1,445,376  1,271,141  
Amounts offset in Consolidated Statement of Financial Condition (3):       
Amounts offset in Consolidated Statement of Financial Condition (3): 
Exchange-traded(723,158)   (723,158)  Exchange-traded(409,622) (409,622) 
Cleared OTC(871,162)   (881,963)  Cleared OTC(286,069) (287,244) 
Bilateral OTC(900,325)   (994,255)  Bilateral OTC(832,649) (986,017) 
Net amounts per Consolidated Statement of Financial Condition (4)$514,742
   $562,806
  
Net amounts in the Consolidated Statement of Financial Condition (4)Net amounts in the Consolidated Statement of Financial Condition (4)$640,593  $417,900  
(continued)


31

AssetsLiabilities
Assets Liabilities Fair ValueNumber of
Contracts (2)		Fair ValueNumber of
Contracts (2)
Fair Value 
Number of
Contracts (2)
 Fair Value 
Number of
Contracts (2)
November 30, 2018 (1)       
November 30, 2019 (1)November 30, 2019 (1)
Derivatives designated as accounting hedges:       Derivatives designated as accounting hedges:
Interest rate contracts:       Interest rate contracts:
Cleared OTC$—
 —
 $29,647
 1
Cleared OTC$28,663  1  $—  —  
Total derivatives designated as accounting hedges—
   29,647
  Total derivatives designated as accounting hedges28,663  —  
       
Derivatives not designated as accounting hedges:       Derivatives not designated as accounting hedges:
Interest rate contracts:       Interest rate contracts:
Exchange-traded924
 32,159
 513
 66,095
Exchange-traded1,191  65,226  103  38,464  
Cleared OTC422,670
 2,095
 411,833
 2,394
Cleared OTC213,224  3,329  284,433  3,443  
Bilateral OTC372,899
 1,398
 491,697
 816
Bilateral OTC421,700  1,325  258,857  738  
Foreign exchange contracts:       Foreign exchange contracts:
Exchange-traded42
 538
 2
 690
Exchange-traded—  256  —  199  
Cleared OTC—
 —
 36
 3
Bilateral OTC311,228
 9,548
 314,951
 9,909
Bilateral OTC191,218  9,257  187,836  9,187  
Equity contracts:       Equity contracts:
Exchange-traded1,202,927
 2,104,684
 2,061,137
 1,779,836
Exchange-traded717,494  1,714,538  962,535  1,481,388  
Bilateral OTC207,221
 5,126
 315,996
 2,764
Bilateral OTC248,720  4,731  445,241  4,271  
Commodity contracts:       Commodity contracts:
Exchange-traded27,632
 7,272
 272
 4,185
Exchange-traded—  5,524  —  4,646  
Bilateral OTC10,191
 1,274
 1,445
 1,498
Bilateral OTC20,600  4,084  391  359  
Credit contracts:       Credit contracts:
Cleared OTC11,204
 7
 1,556
 14
Cleared OTC2,514  13  5,768  12  
Bilateral OTC13,768
 123
 11,618
 79
Bilateral OTC6,281  25  14,219  28  
Total derivatives not designated as accounting hedges2,580,706
  
 3,611,056
  
Total derivatives not designated as accounting hedges1,822,942   2,159,383   
       
Total gross derivative assets/ liabilities:       
Total gross derivative assets/liabilities:Total gross derivative assets/liabilities:
Exchange-traded1,231,525
   2,061,924
  Exchange-traded718,685  962,638  
Cleared OTC433,874
   443,072
  Cleared OTC244,401  290,201  
Bilateral OTC915,307
   1,135,707
  Bilateral OTC888,519  906,544  
Amounts offset in Consolidated Statement of Financial Condition (3):       Amounts offset in Consolidated Statement of Financial Condition (3):
Exchange-traded(1,190,951)   (1,190,951)  Exchange-traded(688,871) (688,871) 
Cleared OTC(407,351)   (418,779)  Cleared OTC(222,869) (266,900) 
Bilateral OTC(815,629)   (903,320)  Bilateral OTC(521,457) (676,407) 
Net amounts per Consolidated Statement of Financial Condition (4)$166,775
   $1,127,653
  
Net amounts in the Consolidated Statement of Financial Condition (4)Net amounts in the Consolidated Statement of Financial Condition (4)$418,408  $527,205  

(1)Exchange-traded derivatives include derivatives executed on an organized exchange. Cleared OTC derivatives include derivatives executed bilaterally and subsequently novated to and cleared through central clearing counterparties. Bilateral OTC derivatives include derivatives executed and settled bilaterally without the use of an organized exchange or central clearing counterparty.
(1) Exchange-traded derivatives include derivatives executed on an organized exchange. Cleared OTC derivatives include derivatives executed bilaterally and subsequently novated to and cleared through central clearing counterparties. Bilateral OTC derivatives include derivatives executed and settled bilaterally without the use of an organized exchange or central clearing counterparty.
(2) Number of exchange-traded contracts may include open futures contracts. The unsettled fair value of these futures contracts is included in Receivables and Payables, expense accruals and other liabilities in ourthe Consolidated Statements of Financial Condition.
(3)
(3) Amounts netted include both netting by counterparty and for cash collateral paid or received.
(4)We have not received or pledged additional collateral under master netting agreements and/or other credit support agreements that is eligible to be offset beyond what has been offset in the Consolidated Statements of Financial Condition.


(4) We have not received or pledged additional collateral under master netting agreements and/or other credit support agreements that is eligible to be offset beyond what has been offset in the Consolidated Statements of Financial Condition.

32

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 EndedFor the Six Months Ended
May 31, 2020May 31, 2019May 31, 2020May 31, 2019
Interest rate swaps$22,004  $27,204  $46,469  $41,791  
Long-term debt(22,306) (28,213) (47,173) (43,769) 
Total$(302) $(1,009) $(704) $(1,978) 
 For the Three Months Ended For the Nine Months Ended
 August 31, 2019 September 30, 2018 August 31, 2019 September 30, 2018
Interest rate swaps$28,052
 $(1,161) $69,843
 $(22,363)
Long-term debt(28,519) 1,221
 (72,288) 24,055
Total$(467) $60
 $(2,445) $1,692

The following table presents unrealized and realized gains (losses) on derivative contracts which are primarily recognized in Principal transactions revenues in the Consolidated Statements of Operations, which are utilized in connection with our client activities and our economic risk management activities (in thousands):
For the Three Months EndedFor the Six Months Ended
May 31, 2020May 31, 2019May 31, 2020May 31, 2019
Interest rate contracts$(4,079) $(34,020) $(5,168) $(103,851) 
Foreign exchange contracts437  2,284  (1,884) 2,108  
Equity contracts9,147  (92,109) 146,035  (120,590) 
Commodity contracts44,172  21,045  60,765  1,772  
Credit contracts12,554  4,818  14,384  8,913  
Total$62,231  $(97,982) $214,132  $(211,648) 
 For the Three Months Ended For the Nine Months Ended
 August 31, 2019 September 30, 2018 August 31, 2019 September 30, 2018
Interest rate contracts$(89,864) $13,951
 $(193,715) $36,053
Foreign exchange contracts(1,839) (4,781) 269
 6,737
Equity contracts2,236
 1,019
 (118,354) (249,546)
Commodity contracts2,285
 (6,845) 4,057
 (23,150)
Credit contracts2,687
 20
 11,600
 760
Total$(84,495) $3,364
 $(296,143) $(229,146)


The net gains (losses) on derivative contracts in the table above are one of a number of activities comprising Jefferies Group'sour business activities and are before consideration of economic hedging transactions, which generally offset the net gains (losses) included above. Jefferies GroupWe substantially mitigates itsmitigate our exposure to market risk on itsour cash instruments through derivative contracts, which generally provide offsetting revenues, and Jefferies Group manageswe manage the risk associated with these contracts in the context of itsour 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 AugustMay 31, 20192020 (in thousands):
 OTC Derivative Assets (1) (2) (3)
 0-12 Months1-5 YearsGreater Than
5 Years		Cross-
Maturity
Netting (4)		Total
Commodity swaps, options and forwards$44,360  $10,753  $—  $—  $55,113  
Equity forwards, swaps and options46,129  200  18,280  (13,218) 51,391  
Credit default swaps11  900  133  (11) 1,033  
Total return swaps83,333  63,660  —  (8,838) 138,155  
Foreign currency forwards, swaps and options55,197  11,655  113  (6,611) 60,354  
Interest rate swaps, options and forwards70,849  242,525  253,402  (36,319) 530,457  
Total$299,879  $329,693  $271,928  $(64,997) 836,503  
Cross product counterparty netting    (37,469) 
Total OTC derivative assets included in Financial instruments owned, at fair value    $799,034  

(1)At May 31, 2020, we held net exchange-traded derivative assets, other derivative assets and other credit agreements with a fair value of $34.1 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 May 31, 2020, cash collateral received was $192.6 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.
33

 OTC Derivative Assets (1) (2) (3)
 0-12 Months 1-5 Years 
Greater Than
5 Years
 
Cross-
Maturity
Netting (4)
 Total
Commodity swaps, options and forwards$18,781
 $9,058
 $—
 $(170) $27,669
Equity swaps and options57,345
 1
 3,579
 (3,572) 57,353
Credit default swaps887
 826
 —
 (81) 1,632
Total return swaps25,166
 70,022
 —
 (334) 94,854
Foreign currency forwards, swaps and options112,654
 4,740
 7
 (3,538) 113,863
Fixed income forwards556
 —
 —
 —
 556
Interest rate swaps, options and forwards76,320
 225,447
 183,737
 (56,767) 428,737
Total$291,709
 $310,094
 $187,323
 $(64,462) 724,664
Cross product counterparty netting 
  
  
  
 (26,934)
Total OTC derivative assets included in Trading assets 
  
  
  
 $697,730

(1)At August 31, 2019, we held net exchange-traded derivative assets, other derivative assets and other credit agreements with a fair value of $30.3 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 August 31, 2019, cash collateral received was $213.2 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 Months1-5 YearsGreater Than
5 Years		Cross-Maturity
Netting (4)		Total
0-12 Months 1-5 Years 
Greater Than
5 Years
 
Cross-Maturity
Netting (4)
 Total
Commodity swaps, options and forwards$170
 $—
 $—
 $(170) $—
Equity swaps and options8,679
 123,854
 49,873
 (3,572) 178,834
Equity forwards, swaps and optionsEquity forwards, swaps and options$14,944  $251,025  $101,362  $(13,218) $354,113  
Credit default swaps35
 6,291
 —
 (81) 6,245
Credit default swaps—  1,489  69  (11) 1,547  
Total return swaps77,259
 25,160
 —
 (334) 102,085
Total return swaps61,841  56,238  —  (8,838) 109,241  
Foreign currency forwards, swaps and options108,267
 2,758
 2,984
 (3,538) 110,471
Foreign currency forwards, swaps and options74,469  10,196  92  (6,611) 78,146  
Fixed income forwards868
 —
 —
 —
 868
Interest rate swaps, options and forwards42,416
 43,161
 109,564
 (56,767) 138,374
Interest rate swaps, options and forwards28,449  84,262  80,673  (36,319) 157,065  
Total$237,694
 $201,224
 $162,421
 $(64,462) 536,877
Total$179,703  $403,210  $182,196  $(64,997) 700,112  
Cross product counterparty netting 
  
  
  
 (26,934)Cross product counterparty netting    (37,469) 
Total OTC derivative liabilities included in Trading liabilities 
  
  
  
 $509,943
Total OTC derivative liabilities included in Financial instruments sold, not yet purchased, at fair valueTotal OTC derivative liabilities included in Financial instruments sold, not yet purchased, at fair value    $662,643  
 
(1)At August 31, 2019, we held net exchange-traded derivative liabilities, other derivative liabilities and other credit agreements with a fair value of $370.8 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 August 31, 2019, cash collateral pledged was $318.0 million.
(3)Derivative fair values include counterparty netting within product category.
(4)Amounts represent the netting of receivable balances with payable balances for the same counterparty within product category across maturity categories.
(1)At May 31, 2020, we held net exchange-traded derivative liabilities, other derivative liabilities and other credit agreements with a fair value of $102.4 million, which are not included in this table.
(2)OTC derivative liabilities in the table above are gross of collateral pledged. OTC derivative liabilities are recorded net of collateral pledged in the Consolidated Statements of Financial Condition. At May 31, 2020, cash collateral pledged was $347.1 million.
(3)Derivative fair values include counterparty netting within product category.
(4) Amounts represent the netting of receivable balances with payable balances for the same counterparty within product category across maturity categories.

At AugustMay 31, 2019,2020, the counterparty credit quality with respect to the fair value of our OTC derivative assets was as follows (in thousands):
Counterparty credit quality (1): 
A- or higher$169,620
BBB- to BBB+47,945
BB+ or lower275,252
Unrated204,913
Total$697,730
Counterparty credit quality (1):
A- or higher$188,896 
BBB- to BBB+32,975 
BB+ or lower336,290 
Unrated240,873 
Total$799,034 
 
(1) Jefferies Group utilizesWe utilize internal credit ratings determined by the Jefferies Group's Risk Management department. Credit ratings determined by Jefferies Group Risk Management use methodologies that produce ratings generally consistent with those produced by external rating agencies.

Credit Related Derivative Contracts

The external credit ratings of the underlyings or referenced assets for Jefferies Group'sour written credit related derivative contracts are as follows (in millions):
External Credit Rating
Investment GradeNon-investment gradeUnratedTotal Notional
May 31, 2020
Credit protection sold:
Index credit default swaps$2.0  $12.1  $—  $14.1  
Single name credit default swaps—  7.4  —  7.4  
November 30, 2019
Credit protection sold:
Index credit default swaps$3.0  $32.0  $—  $35.0  
Single name credit default swaps3.4  29.0  1.5  33.9  
  External Credit Rating    
  Investment Grade Non-investment grade Unrated Total Notional
August 31, 2019        
Credit protection sold:        
Index credit default swaps $—
 $96.8
 $—
 $96.8
Single name credit default swaps $7.6
 $31.6
 $32.9
 $72.1
         
November 30, 2018        
Credit protection sold:        
Index credit default swaps $25.7
 $167.4
 $—
 $193.1
Single name credit default swaps $57.7
 $84.5
 $3.0
 $145.2

34




Contingent Features

Certain of Jefferies Group's derivative instruments contain provisions that require theirits 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'sthe derivative instruments in liability positions. The following table presents the aggregate fair value of all derivative instruments with such credit-risk-related contingent features that are in a liability position, the collateral amounts posted or received in the normal course of business and the potential collateral Jefferies Groupwe would have been required to return and/or post additionally to itsour counterparties if the credit-risk-related contingent features underlying these agreements were triggered (in millions):
 May 31,
2020		November 30, 2019
Derivative instrument liabilities with credit-risk-related contingent features$180.9  $42.9  
Collateral posted(139.3) (3.1) 
Collateral received50.9  114.1  
Return of and additional collateral required in the event of a credit rating downgrade below investment grade (1)92.6  154.0  
 August 31,
2019		 November 30, 2018
Derivative instrument liabilities with credit-risk-related contingent features$113.7
 $93.5
Collateral posted$(80.0) $(61.5)
Collateral received$57.0
 $91.5
Return of and additional collateral required in the event of a credit rating downgrade below investment grade (1)$90.6
 $123.3

(1) These potential outflows include initial margin received from counterparties at the execution of the derivative contract. The initial margin will be returned if counterparties elect to terminate the contract after a downgrade.

Other Derivatives

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

Note 5.  Collateralized Transactions
Jefferies Group enters
Our repurchase agreements and securities borrowing and lending arrangements are generally recorded at cost in the Consolidated Statements of Financial Condition, which is a reasonable approximation of their fair values due to their short-term nature. We enter into secured borrowing and lending arrangements to obtain collateral necessary to effect settlement, finance inventory positions, meet customer needs or re-lend as part of dealer operations. Jefferies Group monitorsWe monitor the fair value of the securities loaned and borrowed on a daily basis as compared with the related payable or receivable, and requestsrequest additional collateral or returnsreturn excess collateral, as appropriate. Jefferies Group pledgesWe pledge financial instruments as collateral under repurchase agreements, securities lending agreements and other secured arrangements, including clearing arrangements. Jefferies Group'sOur agreements with counterparties generally contain contractual provisions allowing the counterparty the right to sell or repledge the collateral. Pledged securities owned that can be sold or repledged by the counterparty are included in Financial instruments owned, at fair value, and noted parenthetically as Securities pledged in ourthe Consolidated Statements of Financial Condition.


In instances where we receive securities as collateral in connection with securities-for-securities transactions in which we are the lender of securities and are permitted to sell or repledge the securities received as collateral, the fair value of the collateral received and the related obligation to return the collateral is reported in the Consolidated Statements of Financial Condition.

35

The following tables set forth the carrying value of securities lending arrangements, and repurchase agreements and obligation to return securities received as collateral, at fair value, by class of collateral pledged and remaining contractual maturity (in thousands):
Collateral PledgedSecurities Lending ArrangementsRepurchase AgreementsObligation to Return Securities Received as Collateral, at Fair ValueTotal
May 31, 2020
Corporate equity securities$1,361,027  $19,560  $—  $1,380,587  
Corporate debt securities574,834  1,774,184  —  2,349,018  
Mortgage-backed and asset-backed securities—  1,604,243  —  1,604,243  
U.S. government and federal agency securities5,607  10,924,983  9,909  10,940,499  
Municipal securities—  359,159  —  359,159  
Sovereign obligations—  4,138,647  —  4,138,647  
Loans and other receivables—  1,127,416  —  1,127,416  
Total$1,941,468  $19,948,192  $9,909  $21,899,569  
November 30, 2019
Corporate equity securities$1,314,395  $129,558  $—  $1,443,953  
Corporate debt securities191,311  1,730,526  —  1,921,837  
Mortgage-backed and asset-backed securities—  1,745,145  —  1,745,145  
U.S. government and federal agency securities19,434  10,863,997  9,500  10,892,931  
Municipal securities—  498,202  —  498,202  
Sovereign obligations—  3,016,563  —  3,016,563  
Loans and other receivables—  772,926  —  772,926  
Total$1,525,140  $18,756,917  $9,500  $20,291,557  
Collateral Pledged Securities Lending Arrangements Repurchase Agreements Total
August 31, 2019      
Corporate equity securities $1,952,304
 $147,845
 $2,100,149
Corporate debt securities 174,936
 1,946,659
 2,121,595
Mortgage- and asset-backed securities —
 2,041,563
 2,041,563
U.S. government and federal agency securities 55,625
 13,423,223
 13,478,848
Municipal securities —
 429,925
 429,925
Sovereign obligations —
 2,433,727
 2,433,727
Loans and other receivables —
 900,140
 900,140
Total $2,182,865
 $21,323,082
 $23,505,947
       
November 30, 2018      
Corporate equity securities $1,505,218
 $487,124
 $1,992,342
Corporate debt securities 333,221
 1,853,309
 2,186,530
Mortgage- and asset-backed securities 249
 2,820,543
 2,820,792
U.S. government and federal agency securities —
 8,181,947
 8,181,947
Municipal securities —
 604,274
 604,274
Sovereign obligations —
 2,945,521
 2,945,521
Loans and other receivables —
 300,768
 300,768
Total $1,838,688
 $17,193,486
 $19,032,174
  Contractual Maturity
  Overnight and Continuous Up to 30 Days 30 to 90 Days Greater than 90 Days Total
August 31, 2019          
Securities lending arrangements $1,305,512
 $70,319
 $635,864
 $171,170
 $2,182,865
Repurchase agreements 9,207,762
 2,376,018
 3,897,096
 5,842,206
 21,323,082
Total $10,513,274
 $2,446,337
 $4,532,960
 $6,013,376
 $23,505,947
           
November 30, 2018          
Securities lending arrangements $807,347
 $—
 $560,417
 $470,924
 $1,838,688
Repurchase agreements 7,849,052
 1,915,325
 6,042,951
 1,386,158
 17,193,486
Total $8,656,399
 $1,915,325
 $6,603,368
 $1,857,082
 $19,032,174


Contractual Maturity
Overnight and ContinuousUp to 30 Days31 to 90 DaysGreater than 90 DaysTotal
May 31, 2020
Securities lending arrangements$846,023  $83,582  $492,010  $519,853  $1,941,468  
Repurchase agreements9,380,493  4,037,094  3,663,073  2,867,532  19,948,192  
Obligation to return securities received as collateral, at fair value—  —  —  9,909  9,909  
Total$10,226,516  $4,120,676  $4,155,083  $3,397,294  $21,899,569  
November 30, 2019
Securities lending arrangements$694,821  $—  $672,969  $157,350  $1,525,140  
Repurchase agreements6,614,026  1,556,260  8,988,528  1,598,103  18,756,917  
Obligation to return securities received as collateral, at fair value—  —  9,500  —  9,500  
Total$7,308,847  $1,556,260  $9,670,997  $1,755,453  $20,291,557  
Jefferies Group receives
We receive securities as collateral under resale agreements, securities borrowing transactions and customer margin loans. Jefferies GroupWe also receivesreceive securities as collateral in connection with securities-for-securities transactions in which it iswe are the lender of securities. In many instances, Jefferies Group iswe are permitted by contract to rehypothecate the securities received as collateral. These securities may be used to secure repurchase agreements, enter into securities lending transactions, satisfy margin requirements on derivative transactions or cover short positions. At AugustMay 31, 20192020 and November 30, 2018,2019, the approximate fair value of securities received as collateral by Jefferies Groupus that may be sold or repledged was $31.1$26.8 billion and $23.1$28.7 billion, respectively. At AugustMay 31, 20192020 and November 30, 2018,2019, a substantial portion of the securities received by Jefferies Group have been sold or repledged.
36

Offsetting of Securities Financing Agreements

To manage itsour exposure to credit risk associated with securities financing transactions, Jefferies Groupwe may enter into master netting agreements and collateral arrangements with counterparties. Generally, transactions are executed under standard industry agreements, including, but not limited to, master securities lending agreements (securities lending transactions) and master repurchase agreements (repurchase transactions).

The following table provides information regarding repurchase agreements, and securities borrowing and lending arrangements and
securities received as collateral, at fair value, and obligation to return securities received as collateral, at fair value, that are recognized in the Consolidated Statements of Financial Condition and (1) the extent to which, under enforceable master netting arrangements, such balances are presented net in the Consolidated Statements of Financial Condition as appropriate under


GAAP and (2) the extent to which other rights of setoff associated with these arrangements exist and could have an effect on our consolidated financial position.
(In thousands)Gross
Amounts		Netting in Consolidated Statements of Financial ConditionNet Amounts in Consolidated Statements of Financial ConditionAdditional Amounts Available for Setoff (1)Available Collateral (2)Net Amount (3)
Assets at May 31, 2020
Securities borrowing arrangements$6,457,035  $—  $6,457,035  $(500,270) $(1,464,411) $4,492,354  
Reverse repurchase agreements15,601,111  (11,317,049) 4,284,062  (783,427) (3,474,933) 25,702  
Securities received as collateral, at fair value9,909  —  9,909  —  —  9,909  
Liabilities at May 31, 2020      
Securities lending arrangements$1,941,468  $—  $1,941,468  $(500,270) $(1,414,097) $27,101  
Repurchase agreements19,948,192  (11,317,049) 8,631,143  (783,427) (7,350,643) 497,073  
Obligation to return securities received as collateral, at fair value9,909  —  9,909  —  —  9,909  
Assets at November 30, 2019      
Securities borrowing arrangements$7,624,642  $—  $7,624,642  $(361,394) $(1,479,433) $5,783,815  
Reverse repurchase agreements15,551,845  (11,252,247) 4,299,598  (291,316) (3,929,977) 78,305  
Securities received as collateral, at fair value9,500  —  9,500  —  —  9,500  
Liabilities at November 30, 2019      
Securities lending arrangements$1,525,140  $—  $1,525,140  $(361,394) $(970,799) $192,947  
Repurchase agreements18,756,917  (11,252,247) 7,504,670  (291,316) (6,663,807) 549,547  
Obligation to return securities received as collateral, at fair value9,500  —  9,500  —  —  9,500  

(1)Under master netting agreements with our counterparties, we have the legal right of offset with a counterparty, which incorporates all of the counterparty's outstanding rights and obligations under the arrangement. These balances reflect additional credit risk mitigation that is available by a counterparty in the event of a counterparty's default, but which are not netted in the Consolidated Statements of Financial Condition because other netting provisions of GAAP are not met. 
(2)Includes securities received or paid under collateral arrangements with counterparties that could be liquidated in the event of a counterparty default and thus offset against a counterparty's rights and obligations under the respective repurchase agreements or securities borrowing or lending arrangements.
(3)At May 31, 2020, amounts include $4,444.7 million of securities borrowing arrangements, for which we have received securities collateral of $4,337.7 million, and $470.0 million of repurchase agreements, for which we have pledged securities collateral of $480.3 million, which are subject to master netting agreements, but we have not determined the agreements to be legally enforceable. At November 30, 2019, amounts include $5,683.4 million of securities borrowing arrangements, for which we have received securities collateral of $5,523.6 million, and $439.7 million of repurchase agreements, for which we have pledged securities collateral of $447.5 million, which are subject to master netting agreements, but we have not determined the agreements to be legally enforceable.

37
(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)
Assets at August 31, 2019           
Securities borrowing arrangements$7,895,149
 $—
 $7,895,149
 $(707,436) $(1,653,688) $5,534,025
Reverse repurchase agreements17,586,096
 (13,086,101) 4,499,995
 (454,507) (3,817,544) 227,944
            
Liabilities at August 31, 2019 
  
  
  
  
  
Securities lending arrangements$2,182,865
 $—
 $2,182,865
 $(707,436) $(1,452,911) $22,518
Repurchase agreements21,323,082
 (13,086,101) 8,236,981
 (454,507) (6,269,894) 1,512,580
            
Assets at November 30, 2018 
  
  
  
  
  
Securities borrowing arrangements$6,538,212
 $—
 $6,538,212
 $(468,778) $(1,193,986) $4,875,448
Reverse repurchase agreements11,336,175
 (8,550,417) 2,785,758
 (609,225) (2,126,730) 49,803
            
Liabilities at November 30, 2018 
  
  
  
  
  
Securities lending arrangements$1,838,688
 $—
 $1,838,688
 $(468,778) $(1,343,704) $26,206
Repurchase agreements17,193,486
 (8,550,417) 8,643,069
 (609,225) (7,070,967) 962,877


(1)Under master netting agreements with its counterparties, Jefferies Group has the legal right of offset with a counterparty, which incorporates all of the counterparty’s outstanding rights and obligations under the arrangement. These balances reflect additional credit risk mitigation that is available by a counterparty in the event of a counterparty’s default, but which are not netted in the Consolidated Statements of Financial Condition because other netting provisions of GAAP are not met. 
(2)Includes securities received or paid under collateral arrangements with counterparties that could be liquidated in the event of a counterparty default and thus offset against a counterparty’s rights and obligations under the respective repurchase agreements or securities borrowing or lending arrangements.
(3)At August 31, 2019, amounts include $5,473.0 million of securities borrowing arrangements, for which Jefferies Group has received securities collateral of $5,322.7 million, and $382.9 million of repurchase agreements, for which Jefferies Group has pledged securities collateral of $392.4 million, which are subject to master netting agreements, but Jefferies Group has not determined the agreements to be legally enforceable. At November 30, 2018, amounts include $4,825.7 million of securities borrowing arrangements, for which Jefferies Group has received securities collateral of $4,711.7 million, and $931.7 million of repurchase agreements, for which Jefferies Group has pledged securities collateral of $963.6 million, which are subject to master netting agreements, but Jefferies Group has not determined the agreements to be legally enforceable.

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

Cash and securities deposited with clearing and depository organizations and segregated in accordance with regulatory regulations totaled $658.3$668.9 million and $708.0$796.8 million at AugustMay 31, 20192020 and November 30, 2018,2019, respectively. Segregated cash and securities consist of deposits in accordance with Rule 15c3-3 of the Securities Exchange Act of 1934, which subjects Jefferies LLC as a broker-dealer carrying customer accounts to requirements related to maintaining cash or qualified securities in segregated special reserve bank accounts for the exclusive benefit of its customers.

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


Jefferies Group accountsWe account for itsour securitization transactions as sales, provided it haswe have relinquished control over the transferred assets. Transferred assets are carried at fair value with unrealized gains and losses reflected in Principal transactions revenues in the Consolidated Statements of Operations prior to the identification and isolation for securitization. Subsequently, revenues recognized upon securitization are reflected as net underwriting revenues. Jefferies GroupWe generally receivesreceive cash proceeds in connection with the transfer of assets to an SPE. Jefferies GroupWe 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-mortgage-backed and other asset-backed securities or CLOs). These securities are included in Trading assetsFinancial instruments owned, at fair value in ourthe Consolidated Statements of Financial Condition and are generally initially categorized as Level 2 within the fair value hierarchy.  
The following table presents activity related to Jefferies Group'sour securitizations that were accounted for as sales in which itwe had continuing involvement (in millions):
For the Three Months EndedFor the Six Months Ended
 May 31, 2020May 31, 2019May 31, 2020May 31, 2019
Transferred assets$1,475.8  $844.5  $3,810.4  $2,105.1  
Proceeds on new securitizations1,475.7  845.8  3,810.4  2,177.0  
Cash flows received on retained interests7.2  24.3  11.7  36.6  
 For the Three Months Ended For the Nine Months Ended
 August 31, 2019 September 30, 2018 August 31, 2019 September 30, 2018
Transferred assets$789.3
 $1,865.5
 $2,894.4
 $5,665.9
Proceeds on new securitizations$789.3
 $1,866.2
 $2,966.3
 $5,668.6
Cash flows received on retained interests$16.8
 $17.2
 $47.2
 $35.7


Jefferies Group hasWe have no explicit or implicit arrangements to provide additional financial support to these SPEs, hashave no liabilities related to these SPEs and has nodo not have any outstanding derivative contracts executed in connection with these securitizationssecuritization activities at AugustMay 31, 20192020 and November 30, 2018.2019.

The following table summarizes Jefferies Group'sour retained interests in SPEs where itwe transferred assets and hashave continuing involvement and received sale accounting treatment (in millions):
 August 31, 2019 November 30, 2018
Securitization Type 
Total
Assets
 
Retained
Interests
 
Total
Assets
 
Retained
Interests
U.S. government agency residential mortgage-backed securities$11,351.8
 $123.8
 $13,633.5
 $365.3
U.S. government agency commercial mortgage-backed securities$1,374.9
 $48.4
 $2,027.6
 $185.6
CLOs$3,430.0
 $29.8
 $3,512.0
 $20.9
Consumer and other loans$975.0
 $56.8
 $604.1
 $48.9

 May 31, 2020November 30, 2019
Securitization Type 
Total
Assets		Retained
Interests		Total
Assets		Retained
Interests
U.S. government agency residential mortgage-backed securities$1,028.5  $55.6  $10,671.7  $103.3  
U.S. government agency commercial mortgage-backed securities672.3  55.2  1,374.8  45.8  
CLOs1,468.1  121.6  3,006.7  58.4  
Consumer and other loans707.6  67.5  1,149.3  71.8  
Total assets represent the unpaid principal amount of assets in the SPEs in which Jefferies Group haswe have continuing involvement and are presented solely to provide information regarding the size of the transactions and the size of the underlying assets supporting itsour 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'sOur risk of loss is limited to this fair value amount which is included in total Trading assetsFinancial instruments owned, at fair value in ourthe Consolidated Statements of Financial Condition.
38

Although not obligated, in connection with secondary market-making activities Jefferies Groupwe may make a market in the securities issued by these SPEs. In these market-making transactions, Jefferies Group buyswe buy these securities from and sellssell 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 Groupwe purchased securities through these market-making activities and Jefferies Group iswe are not deemed to be the primary beneficiary of the VIE, these securities are included in agency and non-agency mortgage-mortgage-backed and asset-backed securitizations in the nonconsolidated VIEs section presented in Note 8.7.
Foursight Capital also utilizes SPEs to securitize automobile loans receivable. These SPEs are VIEs and our subsidiary is the primary beneficiary; the related assets and the secured borrowings are recognized in the Consolidated Statements of Financial Condition. These secured borrowings do not have recourse to our subsidiary's general credit. See Note 87 for further information on securitization activities and VIEs.

37


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
November 30, 2018 
  
  
  
Bonds and notes: 
  
  
  
U.S. government securities$1,073,038
 $1
 $183
 $1,072,856
Residential mortgage-backed securities211,209
 376
 1,067
 210,518
Commercial mortgage-backed securities16,068
 —
 426
 15,642
Other asset-backed securities111,447
 1
 578
 110,870
Total Available for sale securities$1,411,762
 $378
 $2,254
 $1,409,886


Proceeds from the maturities and sales of available for sale securities during the nine months ended August 31, 2019, were primarily invested in prime and government money market funds, which are classified as Cash and cash equivalents in the Consolidated Statement of Financial Condition at August 31, 2019.

At August 31, 2019 and November 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 $195.3 million and $230.0 million, respectively. Impairments of $2.3 million and $0.0 million were recognized on these investments during the nine months ended August 31, 2019 and September 30, 2018, respectively. There were no unrealized gains or losses recognized on these investments during the nine months ended August 31, 2019 and September 30, 2018.

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 Jefferies Group'sour trading and secondary market-making activities;
•Retained interests held as a result of securitization activities, including the resecuritization of mortgage-mortgage-backed 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-mortgage-backed and other asset-backed securities;
•Warehouse funding arrangements for client-sponsored consumer and mortgage loan vehicles and CLOs through participation certificates,agreements, forward sale agreements and revolving loan and note commitments; and
•Loans to, investments in and fees from various investment vehicles.
We determine whether we are the primary beneficiary of a VIE upon our initial involvement with the VIE and we reassess whether we are the primary beneficiary of a VIE on an ongoing basis. Our determination of whether we are the primary beneficiary of a VIE is based upon the facts and circumstances for each VIE and requires judgment. Our considerations in determining the VIE's most significant activities and whether we have power to direct those activities include, but are not limited to, the VIE's purpose and design and the risks passed through to investors, the voting interests of the VIE, management, service and/or other agreements of the VIE, involvement in the VIE's initial design and the existence of explicit or implicit financial guarantees. In situations where we have determined that the power over the VIE's significant activities is shared, we assess whether we are the party with the power over the most significant activities. If we are the party with the power over the most significant activities, we meet the "power" criteria of the primary beneficiary. If we do not have the power over the most significant activities or we determine that decisions require consent of each sharing party, we do not meet the "power" criteria of the primary beneficiary.


We assess our variable interests in a VIE both individually and in aggregate to determine whether we have an obligation to absorb losses of or a right to receive benefits from the VIE that could potentially be significant to the VIE. The determination of whether our variable interest is significant to the VIE requires judgment. In determining the significance of our variable interest, we consider the terms, characteristics and size of the variable interests, the design and characteristics of the VIE, our involvement in the VIE and our market-making activities related to the variable interests.
39

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.
May 31, 2020November 30, 2019
Secured Funding VehiclesOtherSecured Funding VehiclesOther
Cash (1)$—  $1.2  $—  $1.2  
Financial instruments owned, at fair value—  3.4  —  0.3  
Securities purchased under agreements to resell (2)2,097.5  —  2,467.3  —  
Receivables650.5  17.8  605.6  —  
Other36.7  0.2  38.7  —  
Total assets$2,784.7  $22.6  $3,111.6  $1.5  
Financial instruments sold, not yet purchased, at fair
value		$—  $5.3  $—  $—  
Other secured financings2,745.2  —  3,068.6  —  
Other liabilities (3)16.7  0.4  20.1  0.2  
Total liabilities$2,761.9  $5.7  $3,088.7  $0.2  
 August 31,
2019		 November 30, 2018
Securities purchased under agreement to resell (1)$1,822.1
 $883.1
Receivables676.4
 626.0
Other49.0
 78.4
Total assets$2,547.5
 $1,587.5
    
Other secured financings (2)$2,508.0
 $1,535.3
Other (3)29.6
 45.9
Total liabilities$2,537.6
 $1,581.2

(1)Approximately $0.6 million of the cash amount at May 31, 2020 represents cash on deposit with a related consolidated entity and is eliminated in consolidation.
(2)Securities purchased under agreements to resell primarily represent amounts due under collateralized transactions on related consolidated entities, which are eliminated in consolidation.
(3)Includes $15.3 million and $17.9 million at May 31, 2020 and November 30, 2019, respectively, of intercompany payables that are eliminated in consolidation.

(1)Securities purchased under agreements to resell represent amounts due under collateralized transactions on related consolidated entities, which are eliminated in consolidation.
(2)Approximately $1.0 million of the secured financings represent amounts held by Jefferies Group in inventory and are eliminated in consolidation at November 30, 2018.
(3)
Includes $27.3 million and $44.1 million at August 31, 2019 and November 30, 2018, respectively, of intercompany payables that are eliminated in consolidation.

Securitization Vehicles.  Jefferies Group isWe are the primary beneficiary of asset-backed financing vehicles to which Jefferies Group sellswe sell agency and non-agency residential and commercial mortgage loans and mortgage-backedasset-backed securities and consumer loans pursuant to the terms of a master repurchase agreement. Jefferies Group'sOur variable interests in these vehicles consist of itsour collateral margin maintenance obligations under the master repurchase agreement, which Jefferies Group manages,we manage, and retained interests in securities issued. The assets of these VIEs consist of reverse repurchase agreements, which are available for the benefit of the vehicle's debt holders. 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.

At AugustMay 31, 20192020 and November 30, 2018,2019, Foursight Capital is the primary beneficiary of SPEs it utilized to securitize automobile loans receivable. Foursight Capital acts as the servicer for which it receives a fee, and owns an equity interest in the SPEs. The notes issued by the SPEs are secured solely by the assets of the SPEs and do not have recourse to Foursight Capital’sCapital's general credit and the assets of the VIEs are not available to satisfy any other debt. During the ninesix months ended AugustMay 31, 2019,2020, automobile loan receivables aggregating $227.4$223.3 million were securitized by Foursight Capital in connection with a secured borrowing offering. The majority of the proceeds from issuance of the secured borrowing were used to pay down Foursight Capital’sCapital's two credit facilities.


Other. We are the primary beneficiary of certain investment vehicles set up for the benefit of our employees. We manage and invest alongside our employees in these vehicles. The assets of these VIEs consist of private equity securities and are available for the benefit of the entities' equity holders. Our variable interests in these vehicles consist of equity securities. The creditors of these VIEs do not have recourse to our general credit and each such VIE's assets are not available to satisfy any other debt.

40

Nonconsolidated VIEs

The following tables presenttable presents information about our variable interests in nonconsolidated VIEs (in millions):
 Financial Statement
Carrying Amount		Maximum
Exposure to Loss		VIE Assets
 AssetsLiabilities
May 31, 2020
CLOs$64.9  $—  $70.9  $5,874.8  
Consumer loan and other asset-backed vehicles336.4  —  472.9  2,499.8  
Related party private equity vehicles16.6  —  27.7  45.6  
Other investment vehicles877.6  —  1,069.1  14,483.6  
Total$1,295.5  $—  $1,640.6  $22,903.8  
November 30, 2019    
CLOs$152.6  $0.6  $505.3  $7,845.0  
Consumer loan and other asset-backed vehicles358.3  —  490.6  2,354.8  
Related party private equity vehicles23.0  —  34.3  71.4  
Other investment vehicles574.0  —  766.1  9,255.0  
Total$1,107.9  $0.6  $1,796.3  $19,526.2  
 
Financial Statement
Carrying Amount
 
Maximum
Exposure to Loss
 VIE Assets
 Assets Liabilities  
August 31, 2019       
CLOs$127.1
 $0.9
 $804.6
 $8,062.8
Consumer loan and other asset-backed vehicles525.1
 —
 668.8
 3,020.6
Related party private equity vehicles28.7
 —
 46.2
 83.7
Other investment vehicles504.9
 —
 522.8
 8,559.9
Total$1,185.8
 $0.9
 $2,042.4
 $19,727.0
        
November 30, 2018 
  
  
  
CLOs$45.2
 $—
 $571.4
 $3,281.9
Consumer loan and other asset-backed vehicles462.1
 —
 807.1
 3,273.1
Related party private equity vehicles35.5
 —
 53.5
 108.3
Other investment vehicles203.6
 —
 214.7
 5,719.1
Total$746.4
 $—
 $1,646.7
 $12,382.4

Our maximum exposure to loss often differs from the carrying value of the variable interests. The maximum exposure to loss is dependent on the nature of the variable interests in the VIEs and is limited to the notional amounts of certain loan and equity commitments and guarantees. Our maximum exposure to loss does not include the offsetting benefit of any financial instruments that may be utilized to hedge the risks associated with itsour 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 underwritesWe underwrite securities issued in CLO transactions on behalf of sponsors and providesprovide advisory services to the sponsors. Jefferies GroupWe may also sell corporate loans to the CLOs. Jefferies Group'sOur variable interests in connection with CLOs where it haswe have been involved in providing underwriting and/or advisory services consist of the following:
•Forward sale agreements whereby Jefferies Group commitswe commit to sell, at a fixed price, corporate loans and ownership interests in an entity holding such corporate loans to CLOs;
•Warehouse funding arrangements in the form of participation interests in corporate loans held by CLOs and commitments to fund such participation interests;
•Trading positions in securities issued in a CLO transaction; and
•Investments in variable funding notes issued by CLOs.

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

Related Party Private Equity Vehicles. Jefferies GroupWe committed to invest in private equity funds (the "JCP Funds", including Jefferies Group's interests in Jefferies Capital Partners V L.P. and the Jefferies SBI USA Fund L.P. (together, "JCP Fund V")) managed by Jefferies Capital Partners, LLC (the "JCP Manager"). Additionally, Jefferies Groupwe committed to invest in the general partners of the JCP Funds (the "JCP General Partners") and the JCP Manager. Jefferies Group'sOur 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 Groupus 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 AugustMay 31, 20192020 and November 30, 2018, Jefferies Group's2019, our total equity commitment in the JCP Entities was $139.3$133.0 million and $139.3$133.0 million, respectively, of which $121.7$121.9 million and $121.3$121.7 million, respectively, had been funded. The carrying value of Jefferies Group'sour equity investments in the JCP Entities was $28.7$16.6 million and $35.5$23.0 million at AugustMay 31, 20192020 and November 30, 2018,2019, respectively. Jefferies Group'sOur exposure


to loss is limited to the total of itsour carrying value and unfunded equity commitment. The assets of the JCP Entities primarily consist of private equity and equity related investments.

41

Other Investment Vehicles.  The carrying amount of our equity investment was $504.9$877.6 million and $203.6$574.0 million at AugustMay 31, 20192020 and November 30, 2018,2019, respectively. Our unfunded equity commitment related to these investments totaled $18.0$191.5 million and $11.1$192.1 million at AugustMay 31, 20192020 and November 30, 2018,2019, respectively. Our exposure to loss is limited to the total of our carrying value and unfunded equity commitment. These investment vehicles have assets primarily consisting of private and public equity investments, debt instruments, trade and insurance claims and various oil and gas assets.

Mortgage-Mortgage-Backed and Other Asset-Backed SecuritizationSecured Funding Vehicles. In connection with Jefferies Group'sour secondary trading and market-making activities, Jefferies Group buyswe buy and sellssell agency and non-agency mortgage-backed securities and other asset-backed securities, which are issued by third-party securitization SPEs and are generally considered variable interests in VIEs. Securities issued by securitization SPEs are backed by residential mortgage loans, U.S. agency collateralized mortgage obligations, commercial mortgage loans, CDOs and CLOs and other consumer loans, such as installment receivables, auto loans and student loans. These securities are accounted for at fair value and included in Trading assetsFinancial instruments owned, at fair value in ourthe Consolidated Statements of Financial Condition. Jefferies Group hasWe have no other involvement with the related SPEs and therefore doesdo not consolidate these entities.

Jefferies GroupWe also engagesengage 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 doesWe do not consolidate agency-sponsored securitizations as it doeswe do not have the power to direct the activities of the SPEs that most significantly impact their economic performance. Further, Jefferies Group iswe are not the servicer of non-agency-sponsored securitizations and therefore doesdo not have power to direct the most significant activities of the SPEs and accordingly, doesdo not consolidate these entities. Jefferies GroupWe may retain unsold senior and/or subordinated interests at the time of securitization in the form of securities issued by the SPEs.

At AugustMay 31, 20192020 and November 30, 2018, Jefferies Group2019, we held $1,712.9$2,004.2 million and $2,913.0$1,453.5 million of agency mortgage-backed securities, respectively, and $191.2$140.4 million and $170.5$134.8 million of non-agency mortgage-mortgage-backed and other asset-backed securities, respectively, as a result of itsour secondary trading and market-making activities, and underwriting, placement and structuring activities. Jefferies Group'sOur maximum exposure to loss on these securities is limited to the carrying value of itsour investments in these securities. These mortgage-mortgage-backed and other asset-backed securitizationsecured funding vehicles discussed are not included in the above table containing information about Jefferies Group'sour variable interests in nonconsolidated VIEs.

FXCM is considered a VIE and our term loan and equity ownership are variable interests. We have determined that we are not the primary beneficiary of FXCM because we do not have the power to direct the activities that most significantly impact FXCM's performance. Therefore, we do not consolidate FXCM and we account for our equity interest under the equity method as an investment in an associated company. Our maximum exposure to loss as a result of our involvement with FXCM is limited to the carrying value of the term loan ($58.653.8 million) and the investment in associated company ($72.876.2 million), which totaled $131.4$130.0 million at AugustMay 31, 2019.2020.



41
42



Note 9.8.  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 ninesix months ended AugustMay 31, 20192020 and September 30, 20182019 is as follows (in thousands):
Loans to and investments in associated companies as of beginning of periodIncome (losses) related to associated companiesIncome (losses) primarily related to Jefferies Group's associated companies (1)Contributions to (distributions from) associated companies, netOtherLoans to and investments in associated companies as of end of period
2020
Jefferies Finance$673,867  $—  $(47,950) $27,547  $—  $653,464  
Berkadia268,949  —  21,925  (36,562) 472  254,784  
FXCM (2)70,223  6,252  —  —  (243) 76,232  
Linkem (3)194,847  (19,809) —  35,242  3,825  214,105  
Real estate associated companies (4) (5)255,309  (53,442) —  (31,784) —  170,083  
Other (3)189,762  (7,577) (111) (186) 9,237  191,125  
Total$1,652,957  $(74,576) $(26,136) $(5,743) $13,291  $1,559,793  
2019
Jefferies Finance$728,560  $—  $7,936  $(63,070) $—  $673,426  
Berkadia245,228  —  47,945  (18,124) 515  275,564  
National Beef (6)653,630  62,051  —  (54,940) (9) 660,732  
FXCM (2)75,031  (5,016) —  —  10  70,025  
Linkem165,157  (8,581) —  49,590  (3,973) 202,193  
HomeFed (4)337,542  (517) —  —  —  337,025  
Real estate associated companies87,074  1,072  —  —  —  88,146  
Other125,110  474  (1,560) (16,122) 881  108,783  
Total$2,417,332  $49,483  $54,321  $(102,666) $(2,576) $2,415,894  
 Loans to and investments in associated companies as of beginning of period 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 end of period
            
2019           
Jefferies Finance$728,560
 $—
 $1,035
 $(58,682) $—
 $670,913
Berkadia (2)245,228
 —
 72,231
 (47,682) 722
 270,499
National Beef653,630
 137,918
 —
 (72,767) (10) 718,771
FXCM (3)75,031
 (5,589) —
 3,500
 (134) 72,808
Linkem (4)165,157
 (20,696) —
 82,178
 (8,226) 218,413
HomeFed (5)337,542
 7,902
 —
 —
 (345,444) —
HomeFed's associated companies—
 —
 —
 (3,054) 198,273
 195,219
Other (4)212,184
 2,231
 (1,652) (13,958) 869
 199,674
Total$2,417,332
 $121,766
 $71,614
 $(110,465) $(153,950) $2,346,297
            
2018           
Jefferies Finance$655,467
 $—
 $36,497
 $43,470
 $—
 $735,434
Berkadia (2)210,594
 80,092
 —
 (42,064) (1,054) 247,568
National Beef—
 83,287
 —
 (48,656) 592,239
 626,870
FXCM (3)158,856
 (19,322) —
 —
 (513) 139,021
Garcadia companies (6)179,143
 21,646
 —
 (26,962) (173,827) —
Linkem192,136
 (20,534) —
 542
 (3,601) 168,543
HomeFed341,874
 (3,338) —
 —
 —
 338,536
Other328,759
 (57,511) (5,810) (60,630) (9,879) 194,929
Total$2,066,829
 $84,320
 $30,687
 $(134,300) $403,365
 $2,450,901


(1)Primarily classified in Other revenues.
(2)In the fourth quarter of 2018, we transferred our interest in Berkadia to Jefferies Group.
(3)As further described in Note 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 in Loans to and investments in associated companies and our term loan is included in Trading assets, at fair value in our Consolidated Statements of Financial Condition.
(4)Loans to and investments in associated companies at August 31, 2019 include loans and debt securities aggregating $83.7 million related to Linkem and Other.
(5)As further described in Note 1, during the third quarter of 2019, we completed a merger with HomeFed by which we acquired the remaining common stock of HomeFed. From July 1, 2019, the results of HomeFed are reflected on a consolidated basis.
(6)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.

(1)Primarily classified in Other revenues.

(2)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 in Loans to and investments in associated companies and our term loan is included in Financial instruments owned, at fair value in the Consolidated Statements of Financial Condition.
(3)Loans to and investments in associated companies at May 31, 2020 and November 30, 2019 include loans and debt securities aggregating $92.3 million and $70.2 million, respectively, related to Linkem and Other.
(4)During the third quarter of 2019, we completed a merger with HomeFed by which we acquired the remaining common stock of HomeFed. From July 1, 2019, the results of HomeFed are reflected on a consolidated basis. From July 1, 2019, HomeFed's equity method investments are included in Real estate associated companies.
(5)Income (loss) related to Real estate associated companies for the three and six months ended May 31, 2020 includes a non-cash charge of $6.9 million to fully write-off the value of HomeFed's interest in the Brooklyn Renaissance Plaza hotel due to the significant impact of the global novel coronavirus ("COVID-19") during the second quarter of 2020 and for the six months ended May 31, 2020, includes a non-cash charge of $55.6 million to fully write-off the value of HomeFed's RedSky JZ Fulton Mall joint venture investment related to a softening of the Brooklyn real estate market.
(6)On November 29, 2019, we sold our remaining equity interest in National Beef.
43


Income (losses) related to associated companies includes the following (in thousands):
For the Three Months EndedFor the Six Months Ended
 May 31, 2020May 31, 2019May 31, 2020May 31, 2019
National Beef$—  $34,946  $—  $62,051  
FXCM7,890  (2,300) 6,252  (5,016) 
Linkem(6,624) (6,960) (19,809) (8,581) 
HomeFed—  (2,500) —  (517) 
Real estate associated companies(428) (1,524) (53,442) 1,072  
Other(7,559) 508  (7,577) 474  
Total$(6,721) $22,170  $(74,576) $49,483  
 For the Three Months Ended For the Nine Months Ended
 August 31, 2019 September 30, 2018 August 31, 2019 September 30, 2018
National Beef$75,867
 $58,886
 $137,918
 $83,287
Berkadia—
 28,350
 —
 80,092
FXCM(573) (4,282) (5,589) (19,322)
Garcadia companies—
 691
 —
 21,646
Linkem(12,115) (7,770) (20,696) (20,534)
HomeFed8,419
 (7,783) 7,902
 (3,338)
Other (1)685
 (49,225) 2,231
 (57,511)
Total$72,283
 $18,867
 $121,766
 $84,320

(1) Includes an impairment charge of $47.9 million related to Golden Queen Mining Company, LLC ("Golden Queen") during the three and nine months ended September 30, 2018. In the third quarter of 2018, Golden Queen completed an updated mine plan and financial projections reflecting lower grades of gold as well as a decrease in the market price of gold. As a result of lower projected cash flows, we engaged an independent valuation firm to assist management in estimating the fair value of our equity investment in Golden Queen. Our estimate of fair value was based on a discounted cash flow analysis and was 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 result of our analysis indicated that the estimated fair value of our equity interest 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. We concluded based on lower projected cash flows and a decline in the market price of gold that the decline in fair value of our equity interest was other than temporary. As such, an impairment charge of $47.9 million was recorded in Income (loss) related to associated companies in the three and nine months ended September 30, 2018.

Income (losses) primarily related to Jefferies Group's associated companies (primarily classified in Other revenues) includes the following (in thousands):
For the Three Months EndedFor the Six Months Ended
 May 31, 2020May 31, 2019May 31, 2020May 31, 2019
Jefferies Finance$(53,069) $14,935  $(47,950) $7,936  
Berkadia31  25,296  21,925  47,945  
Other(1,857) 2,753  (111) (1,560) 
Total$(54,895) $42,984  $(26,136) $54,321  
 For the Three Months Ended For the Nine Months Ended
 August 31, 2019 September 30, 2018 August 31, 2019 September 30, 2018
Jefferies Finance$(6,901) $5,931
 $1,035
 $36,497
Berkadia24,286
 —
 72,231
 —
Other(92) (78) (1,652) (5,810)
Total$17,293
 $5,853
 $71,614
 $30,687


Jefferies Finance

Through Jefferies Group, we own 50% of Jefferies Finance LLC ("Jefferies Finance"), a joint venture entity pursuant to an agreement with Massachusetts Mutual Life Insurance Company ("MassMutual"). Jefferies Finance is a commercial finance company whose primary focus is the originationthat structures, underwrites and syndication ofarranges primarily senior secured debtloans to middle market and growth companies in the form of term and revolving loans.corporate borrowers. Loans are originated primarily through the investment banking efforts of Jefferies Group.LLC. Jefferies Finance may also originateunderwrite and arrange other debt products such as second lien term, bridge and mezzanine loans, as well as related equity co-investments. In addition, Jefferies Finance also purchases syndicated loans inis a registered investment advisor under the secondary marketInvestment Advisers Act of 1940 and, through two of its wholly-owned subsidiaries, Apex Credit Partners LLC and JFIN Asset Management LLC, acts as an investment advisor for various loan funds.funds and CLOs managing direct lending and broadly syndicated loan products.

At AugustMay 31, 2019,2020, Jefferies Group and MassMutual each had equity commitments to Jefferies Finance of $750.0 million. At AugustMay 31, 2019, $643.72020, $652.4 million of Jefferies Group's commitment was funded. The investment commitment is scheduled to expire on March 1, 20202021 with automatic one year extensions absent a 60-day termination notice by either party.

Jefferies Finance has executed a Secured Revolving Credit Facility with Jefferies Group and MassMutual, to be funded equally, to support loan underwritings by Jefferies Finance, which bears interest based on the interest rates of the related Jefferies Finance underwritten loans and is secured by the underlying loans funded by the proceeds of the facility. The total Secured Revolving Credit Facility is a committed amount of $500.0 million at AugustMay 31, 2019 and November 30, 2018.2020. Advances are shared equally between Jefferies Group and MassMutual. The facility is scheduled to mature on March 1, 20202021 with automatic one year extensions absent a 60-day termination notice by either party. At AugustMay 31, 2019 and November 30, 2018, NaN2020, $20.0 million 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$1.5 million and $0.3 million during the three months ended AugustMay 31, 20192020 and September 30, 2018,2019, respectively, and $0.9$2.6 million and $2.0$0.6 million during the ninesix months ended AugustMay 31, 20192020 and September 30, 2018,2019, respectively.

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The following summarizes activity related to our other transactions with Jefferies Finance (in millions):
For the Three Months EndedFor the Six Months Ended
May 31, 2020May 31, 2019May 31, 2020May 31, 2019
Origination and syndication fee revenues (1)$43.8  $69.3  $81.5  $91.2  
Origination fee expenses (1)3.0  8.2  8.6  13.6  
CLO placement fee revenues (2)—  —  0.4  1.3  
Underwriting fees (3)—  1.0  0.3  1.0  
Service fees (4)10.7  11.2  35.9  38.3  

(1) Jefferies Group engages in debt capital marketsunderwriting 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 $44.6 million and $71.1 million during the three months ended August 31, 2019 and September 30, 2018, respectively, and $135.8 million and $282.1 million during the nine months ended August 31, 2019 and September 30, 2018, 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 $8.2 million and $12.1 million during the three months ended August 31, 2019 and September 30, 2018, respectively, and $21.8 million and $45.5 million during the nine months ended August 31, 2019 and September 30, 2018, respectively, which are recognized withinin Selling, general and other expenses in the Consolidated Statements of Operations.

(2) Jefferies Group acts as a placement agent for CLOs managed by Jefferies Finance, for which Jefferies Group recognized fees, of $1.0 million and $0.4 million during the three months ended August 31, 2019 and September 30, 2018, respectively, and $2.3 million and $3.1 million during the nine months ended August 31, 2019 and September 30, 2018, respectively, which are included in Investment banking revenues in the Consolidated Statements of Operations. At AugustMay 31, 20192020 and November 30, 2018,2019, Jefferies Group held securities issued by CLOs managed by Jefferies Finance, which are included in Trading assets. Additionally, Jefferies Group has entered into participation agreements and derivative contracts with Jefferies Finance based upon certain securities issued by CLOs. Gains (losses) related to the derivative contracts were not material.Financial instruments owned, at fair value.

(3) Jefferies Group acted as underwriter in connection with terms loans issued by Jefferies Finance. Underwriting fees charged to Jefferies Finance were $2.9 million and $0.0 million during the three months ended August 31, 2019 and September 30, 2018, respectively, and $3.9 million and $0.3 million during the nine months ended August 31, 2019 and September 30, 2018, respectively.
(4) Under a service agreement, Jefferies Group charged Jefferies Finance $12.3 million and $13.3 million during the three months ended August 31, 2019 and September 30, 2018, respectively, and $50.6 million and $48.3 million during the nine months ended August 31, 2019 and September 30, 2018, respectively, for services provided. At August 31, 2019,
In connection with non-U.S. dollar loans originated by Jefferies Finance to borrowers who are investment banking clients of Jefferies Group, Jefferies Group has entered into an agreement to indemnify Jefferies Finance with respect to any foreign currency exposure.
At May 31, 2020 and November 30, 2019, we had a receivablereceivables from Jefferies Finance, included inwithin Other assets in the Consolidated Statement of Financial Condition of $12.9$27.0 million and a payable$17.2 million, respectively. At May 31, 2020 and November 30, 2019, we had payables to Jefferies Finance, related to cash deposited with Jefferies Group, included in Payables, expense accruals and other liabilities in the Consolidated Statement of Financial Condition of $13.7 million.million and $13.7 million, respectively. At November 30, 2018, Jefferies Group2019, we had a receivable from Jefferies Finance, included in Other assets in the Consolidated Statement of Financial Condition, of $35.2 million and a payable to Jefferies Finance, related to cash deposited with Jefferies Group,its lending transactions, included in Payables, expense accruals and other liabilities in the Consolidated Statement of Financial Condition of $14.1$17.6 million.

Jefferies Group enters into OTC foreign exchange contracts with Jefferies Finance. In connection with these contracts Jefferies Group had $2.1 million recorded in Trading liabilities in our Consolidated Statement of Financial Condition at August 31, 2019 and $0.2 million recorded in Payables, expense accruals and other liabilities and $0.4 million included in Trading liabilities in our Consolidated Statement of Financial Condition at November 30, 2018.

On March 28, 2019, Jefferies Group entered into a promissory note with Jefferies Finance with a principal amount of $1.0 billion, the proceeds of which were used in connection with Jefferies Group's investment banking loan syndication activities. Jefferies Group repaid Jefferies Finance the entire outstanding principal amount of this note on May 15, 2019. Interest paid on the note of $3.8 million is included in Interest expense of Jefferies Group within the Consolidated Statements of Operations.Operations for the three and six months ended May 31, 2019.

Berkadia

Berkadia is a commercial mortgage banking and servicing joint venture formed in 2009 with Berkshire Hathaway Inc. We and Berkshire Hathaway each contributed $217.2 million of equity capital to the joint venture and each have a 50% membership interest in Berkadia. We are entitled to receive 45% of the profits. Berkadia originates commercial/multifamily real estate loans that are sold to U.S. government agencies, and 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. At AugustMay 31, 2019,2020, the aggregate amount of commercial paper outstanding was $1.47 billion.


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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 Note 23, on June 5, 2018,On November 29, 2019, we completed the sale of 48% of National Beef to Marfrig, reducingsold our ownershipremaining equity interest 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. We are amortizing our basis 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 over their respective useful lives (weighted average life of 15 years).Beef.

FXCM

We have a 50% voting interest in FXCM, a provider of online foreign exchange trading services. We account for our equity interest in FXCM on a one month lag. We are amortizing our basis difference between the estimated fair value and the underlying book value of FXCM customer relationships, technology and tradename over their respective useful lives (weighted average life of 11 years).
Garcadia
Garcadia was a joint venture between us and Garff Enterprises, Inc. ("Garff") that owned and operated automobile dealerships comprised of domestic and foreign automobile makers. In the third quarter of 2018, we sold 100% of our equity interests in Garcadia and our associated real estate to our former partners, the Garff family.
Linkem

We own approximately 42% of the common shares of Linkem, a fast-growingthe largest fixed wireless broadband services provider in Italy. In addition, we own convertible preferred stock, which is automatically convertible to common shares in 2022.2022, and warrants. If all of our convertible preferred stock was converted and warrants were exercised, it would increase our ownership to approximately 54%56% of Linkem’sLinkem's common equity at AugustMay 31, 2019.2020. We have approximately 48% of the total voting securities of Linkem. Additionally, we have made shareholder loans to Linkem with principal outstanding of $58.4$95.2 million at AugustMay 31, 2019.2020. These shareholder loans bear interest at 5% per annum and are due June 30, 2024. We account for our equity interest in Linkem on a two month lag.

HomeFed

HomeFed develops and owns residential and mixed-use real estate properties. Through June 30, 2019, we owned an approximate 70% equity interest of HomeFed’sHomeFed's outstanding common shares; however, we had contractually agreed to limit our voting rights such that we would not be able to vote more than 45% of HomeFed’sHomeFed's total voting securities voting on any matter, assuming all HomeFed shares not owned by us were voted. HomeFed develops and owns residential and mixed-use real estate properties. HomeFed was a public company traded on the Over-the-Counter Bulletin Board (Symbol: HOFD). As a result of a 1998 distribution to all of our shareholders, approximately 5% of HomeFed was beneficially owned by our Chairman at June 30, 2019. NaN of our executives served on the board of directors of HomeFed, including our Chairman who served as HomeFed’s Chairman, and our President. Since we did not control HomeFed, our investment in HomeFed was accounted for under the equity method as an investment in an associated company. We accounted for our equity interest in HomeFed on a two month lag.
On July 1, 2019, we completed a merger with HomeFed by which we acquired the remaining common stock of HomeFed. From July 1, 2019, the results of HomeFed are reflected on a consolidated basis. In connection with the merger, HomeFed stockholders received 2 shares of our common stock for each share of HomeFed common stock. A total of 9.3 million shares were issued.
HomeFed'sReal Estate Associated Companies

HomeFed'sReal estate equity method investments primarily consist of itsHomeFed's interests in Brooklyn Renaissance Plaza and Hotel and RedSky JZ Fulton Investors. HomeFed accounts for its54 Madison. These equity interests are accounted for on a two month lag.

Brooklyn Renaissance Plaza is comprised of a hotel operated by Marriott, an office building complex and a parking garage located in Brooklyn, New York. HomeFed owns a 25.8% equity interest in the hotel and a 61.25% equity interest in the office building and garage. Although HomeFed has a majority interest in the office building and garage, it does not have control, but only has the ability to exercise significant influence on this investment. As such, HomeFed accounts for the office building and garage under the equity method of accounting. We are amortizing our basis difference between the estimated fair value and the underlying book value of Brooklyn Renaissance office building and garage over the respective useful lives (weighted average life of 39 years). Due to the significant impact of COVID-19 during the second quarter of 2020, HomeFed recorded an impairment charge of $6.9 million within Income (loss) related to associated companies during the three and six months ended May 31, 2020, which represented all of its carrying value in the Brooklyn Renaissance Plaza hotel.




HomeFed formedWe own approximately 48.1% of 54 Madison, a joint venture partnership with RedSky JZ Fulton Holdings, LLC, forfund that seeks long-term capital appreciation through investment in real estate development and similar projects. 54 Madison invests both in projects which they consolidate and projects where they have significant influence and utilize the acquisitionequity method of accounting. Based on total committed capital of the 54 Madison fund, all projects of this fund have already been identified and possible redevelopmentlaunched. We have 2 of a development site locatedthe 4 seats on the Fulton Mall corridor in Downtown Brooklyn, New York. The property consists54 Madison investment committee and have significant influence over the fund, including a number of 15 separate tax lots, divided into 2 premier development sites which may be redeveloped with buildings consistingprotective rights such as the right to block material investments, divestitures and changes outside of up to 540,000 square feet of floor area development rights. HomeFed has a 49% membership in the joint venture.agreed upon parameters.
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Other

The following table provides required summarized data for certain equity method investments.investments, including those accounted for under the fair value option. The table includes Jefferies Finance and Berkadia for the ninesix months ended AugustMay 31, 20192020 and September 30, 2018,2019, and National Beef for the ninesix months ended AugustMay 31, 2019 and for the period subsequent to the closing of the transaction with Marfrig on June 5, 2018 through September 30, 2018 (in thousands):
 For the Nine Months Ended
 August 31,
2019		 September 30,
2018
Revenues$7,067,180
 $3,341,369
Income from continuing operations before extraordinary items$654,014
 $591,191
Net income$654,014
 $591,191


For the Six Months Ended
May 31, 2020May 31, 2019
Revenues$472,988  $4,315,679  
Income from continuing operations before extraordinary items$48,721  $318,837  
Net income$48,721  $318,837  

Note 10.9.  Intangible Assets, Net and Goodwill

A summary of Intangible assets, net and goodwill is as follows (in thousands):
May 31,
2020		November 30, 2019
Indefinite-lived intangibles:
Exchange and clearing organization membership interests and registrations$8,069  $8,273  
Amortizable intangibles:  
Customer and other relationships, net of accumulated amortization of $114,909 and $111,06055,115  59,575  
  Trademarks and tradenames, net of accumulated amortization of $26,751 and $24,800101,071  103,790  
   Other, net of accumulated amortization of $7,225 and $5,3669,457  11,316  
Total intangible assets, net173,712  182,954  
Goodwill:  
  Investment Banking and Capital Markets (1) (2)1,553,322  1,556,810  
  Asset Management (1)143,000  143,000  
  Real estate36,711  36,711  
  Other operations3,459  3,459  
    Total goodwill1,736,492  1,739,980  
 Total intangible assets, net and goodwill$1,910,204  $1,922,934  
 August 31,
2019		 November 30, 2018
Indefinite-lived intangibles:   
Exchange and clearing organization membership interests and registrations$8,225
 $8,524
    
Amortizable intangibles: 
  
Customer and other relationships, net of accumulated amortization of $108,565 and $102,57961,400
 67,894
Trademarks and tradenames, net of accumulated amortization of $23,697 and $21,086103,903
 107,262
Other, net of accumulated amortization of $4,566 and $4,339 (1)13,310
 4,611
Total intangible assets, net186,838
 188,291
    
Goodwill: 
  
Jefferies Group1,694,785
 1,698,381
HomeFed (1)36,711
 —
Other operations3,459
 3,459
Total goodwill1,734,955
 1,701,840
    
Total intangible assets, net and goodwill$1,921,793
 $1,890,131


(1) In connectionAs discussed further in Note 23, during the first quarter of 2020, we changed our internal structure with the acquisitionregard to our operating segments. As a result, we created a separate operating segment that consists of the remaining interestasset management activity previously included within our Investment Banking, Capital Markets and Asset Management segment. In order to reallocate goodwill that was previously contained in HomeFed, $11.0our Investment Banking, Capital Markets and Asset Management segment to the newly created Investment Banking and Capital Markets segment and the Asset Management segment, we performed a fair value analysis of the components.

Estimated fair values were determined based on valuation techniques that we believe market participants would use and included price-to-earnings, price-to-book multiples and discounted cash flow techniques. Based on the relative fair values of each of the components, $143.0 million of the total $1,699.8 million goodwill within the historical Investment Banking, Capital Markets and Asset Management segment was preliminarily allocated to intangible assets, primarily relatingthe new Asset Management segment. In order to lease contracts,compare results with prior periods, we have recast November 30, 2019 goodwill in the same manner. We performed an impairment test immediately before and $4.3 million was preliminarily allocated to goodwill. In addition, associated withafter the acquisition, we also preliminarily recorded $32.4 millionreallocation of goodwill generated bybetween the establishment of $32.4 million of deferred tax liabilities related to allocated value exceedingnew segments and the tax basis of someresults of the HomeFed net assets.impairment test did not indicate any goodwill impairment.

(2) The decrease in Investment Banking and Capital Markets goodwill during the six months ended May 31, 2020, primarily relates to translation adjustments.

47

Amortization expense on intangible assets included in Income from continuing operations was $4.0$3.9 million and $3.3 million for the three months ended AugustMay 31, 20192020 and September 30, 2018,2019, respectively, and $10.6$7.7 million and $9.9$6.6 million for the ninesix months ended AugustMay 31, 20192020 and September 30, 2018,2019, 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$4,038
2020$15,221
2021$14,748
2022$11,460
2023$10,077


Remainder of current year$7,411  
202114,522  
202211,180  
20239,945  
20249,189  
Goodwill and Intangible Impairment Testing

We performed our annual impairment testing of Jefferies Group goodwill as of August 1, 2019. 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, 2019. 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, 2019. 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.

Note 11.10.  Short-Term Borrowings

Jefferies Group'sOur short-term borrowings, which mature in one year or less, are as follows (in thousands):
May 31,
2020		November 30, 2019
Bank loans (1)$634,384  $527,509  
Floating rate puttable notes (1)6,800  —  
Equity-linked notes15,671  20,981  
Total short-term borrowings$656,855  $548,490  
 August 31,
2019		 November 30, 2018
Bank loans$518,914
 $330,942
Floating rate puttable notes—
 56,550
Total short-term borrowings$518,914
 $387,492
(1) These short-term borrowings are recorded at cost in the Consolidated Statements of Financial Condition, which is a reasonable approximation of their fair values due to their liquid and short-term nature.


At AugustMay 31, 20192020 and November 30, 2018,2019, the weighted average interest rate on short-term borrowings outstanding was 3.42%2.38% and 3.08%3.24% per annum, respectively.

Jefferies Group'sDuring the six months ended May 31, 2020, we issued floating rate puttable notes with a principal amount of €50.0$6.8 million and our equity-linked notes with a principal amount of $5.2 million matured on July 29, 2019.

March 13, 2020.
On March 28, 2019, Jefferies Group entered into a promissory note with Jefferies Finance, which was repaid on May 15, 2019.See Note 9 for further information.

On December 27, 2018, oneOne of Jefferies Group's subsidiaries entered intohas a credit facility agreement ("Jefferies Group Credit Facility") with JPMorgan Chase Bank, N.A. for a committed amount of $135.0$296.0 million, which is included in bank loans. Interest is based on an annual alternative base rate or an adjusted London Interbank Offered Rate ("LIBOR"), as defined in the Jefferies Group Credit Facility. The Jefferies Group Credit Facility contains certain covenants that, among other things, require Jefferies Group LLC to maintain a specified level of tangible net worth. The covenants also require the borrower to maintain specified


leverage amounts and impose certain restrictions on the borrower’sborrower's future indebtedness. During the ninesix months ended AugustMay 31, 2019,2020, Jefferies Group was in compliance with all debt covenants under the Jefferies Group Credit Facility.

The Bank of New York Mellon has agreed to make revolving intraday credit advances ("Intraday Credit Facility") to Jefferies Group for an aggregate committed amount of $150.0 million. The Intraday Credit Facility is structured so that advances are generally repaid before the end of each business day. However, if an advance is not repaid by the end of any business day, the advance is converted to an overnight loan. Intraday loans accrue interest at a rate of 0.12%. Interest is charged based on the number of minutes in a day the advance is outstanding. Overnight loans are charged interest at the base rate plus 3% on a daily basis. The base rate is the higher of the federal funds rate plus 0.50% or the prime rate in effect at that time. The Intraday Credit Facility contains financial covenants, which include a minimum regulatory net capital requirement for Jefferies Group. Interest is based on the higher of the Federal funds effective rate plus 0.5% or the prime rate. At AugustMay 31, 2019,2020, Jefferies Group was in compliance with debt covenants under the Intraday Credit Facility.

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Note 12.11.  Long-Term Debt

The principal amount (net of unamortized discounts, premiums and debt issuance costs), stated interest rate and maturity date of outstanding debt are as follows (dollars in thousands):
May 31,
2020		November 30, 2019
Parent Company Debt:
Senior Notes:
5.50% Senior Notes due October 18, 2023, $750,000 principal$745,235  $744,606  
6.625% Senior Notes due October 23, 2043, $250,000 principal246,800  246,772  
Total long-term debt – Parent Company992,035  991,378  
Subsidiary Debt (non-recourse to Parent Company):  
Jefferies Group:  
2.375% Euro Medium Term Notes, due May 20, 2020, $0 and $550,875 principal—  550,622  
6.875% Senior Notes, due April 15, 2021, $750,000 principal765,915  774,738  
2.25% Euro Medium Term Notes, due July 13, 2022, $4,440 and $4,407 principal4,272  4,204  
5.125% Senior Notes, due January 20, 2023, $750,000 and $600,000 principal762,084  610,023  
1.00% Euro Medium Term Notes, due July 19, 2024, $555,050 and $550,875 principal553,257  548,880  
4.85% Senior Notes, due January 15, 2027, $750,000 principal (1)816,371  768,931  
6.45% Senior Debentures, due June 8, 2027, $350,000 principal370,258  371,426  
4.15% Senior Notes, due January 23, 2030, $1,000,000 principal989,113  988,662  
6.25% Senior Debentures, due January 15, 2036, $500,000 principal511,051  511,260  
6.50% Senior Notes, due January 20, 2043, $400,000 principal420,035  420,239  
Structured Notes (2)1,245,486  1,215,285  
Jefferies Group Revolving Credit Facility189,410  189,088  
Jefferies Group Secured Bank Loan50,000  50,000  
HomeFed EB-5 Program debt189,211  140,739  
Foursight Capital Credit Facilities56,746  98,260  
Vitesse Energy Finance Revolving Credit Facility105,192  103,050  
Other—  276  
Total long-term debt – subsidiaries7,028,401  7,345,683  
Long-term debt$8,020,436  $8,337,061  
 August 31,
2019		 November 30, 2018
Parent Company Debt:   
Senior Notes:   
5.50% Senior Notes due October 18, 2023, $750,000 principal$744,297
 $743,397
6.625% Senior Notes due October 23, 2043, $250,000 principal246,758
 246,719
Total long-term debt – Parent Company991,055
 990,116
    
Subsidiary Debt (non-recourse to Parent Company): 
  
Jefferies Group: 
  
8.50% Senior Notes, due July 15, 2019, $0 and $680,800 principal—
 699,659
2.375% Euro Medium Term Notes, due May 20, 2020, $548,950 and $565,500 principal548,566
 564,702
6.875% Senior Notes, due April 15, 2021, $750,000 principal779,078
 791,814
2.25% Euro Medium Term Notes, due July 13, 2022, $4,392 and $4,524 principal4,171
 4,243
5.125% Senior Notes, due January 20, 2023, $600,000 principal610,762
 612,928
1.00% Euro Medium Term Notes, due July 19, 2024, $548,950 and $0 principal546,855
 —
4.85% Senior Notes, due January 15, 2027, $750,000 principal (1)782,156
 709,484
6.45% Senior Debentures, due June 8, 2027, $350,000 principal371,998
 373,669
4.15% Senior Notes, due January 23, 2030, $1,000,000 principal988,440
 987,788
6.25% Senior Debentures, due January 15, 2036, $500,000 principal511,363
 511,662
6.50% Senior Notes, due January 20, 2043, $400,000 principal420,338
 420,625
Structured Notes (2)1,014,509
 686,170
Jefferies Group Revolving Credit Facility188,927
 183,539
HomeFed EB-5 Program debt131,395
 —
Other79,172
 81,164
Total long-term debt – subsidiaries6,977,730
 6,627,447
    
Long-term debt$7,968,785
 $7,617,563


(1)Amount includes a loss of $72.3(1) Amount includes losses of $47.2 million and $43.8 million during the six months ended May 31, 2020 and a gain of $24.1 million during the nine months ended August 31, 2019, and September 30, 2018, respectively, associated with an interest rate swap based on its designation as a fair value hedge. See Note 4 for further information.
(2)These structured notes contain various interest rate payment terms and are accounted for at fair value, with changes in fair value resulting from a change in the instrument specific credit risk presented in Accumulated other comprehensive income (loss) and changes in fair value resulting from non-credit components recognized in Principal transactions revenues.


(2) These structured notes contain various interest rate payment terms and are accounted for at fair value, with changes in fair value resulting from a change in the instrument specific credit risk presented in Accumulated other comprehensive income (loss) and changes in fair value resulting from non-credit components recognized in Principal transactions revenues.

Subsidiary Debt:

StructuredDuring the six months ended May 31, 2020, Jefferies Group's 2.375% Euro Medium Term Notes matured and were repaid. Additionally, during the six months ended May 31, 2020, structured notes with a total principal amount of approximately $283.2$191.3 million, net of retirements, and an additional $150.0 million principal amount of 5.125% Senior Notes due 2023 were issued by Jefferies Group during the nine months ended August 31, 2019. In addition, on July 19, 2019, under its $2.5 billion Euro Medium Term Note Program, Jefferies Group issued 1.000% senior unsecured notes with a principal amount of $553.6 million, due 2024. Proceeds amounted to $551.4 million. Additionally, during the nine months ended August 31, 2019, Jefferies Group repaid $680.8 million of its 8.50% Senior Notes.Group.

Jefferies Group has a senior secured revolving credit facility ("Jefferies Group Revolving Credit Facility") with a group of commercial banks for an aggregate principal amount of $190.0 million. The Jefferies Group Revolving Credit Facility contains certain covenants that, among other things, requires Jefferies Group LLC to maintain specified level of tangible net worth and liquidity amounts, and imposes certain restrictions on future indebtedness of and requires specified levels of regulated capital for certain of Jefferies GroupsGroup's subsidiaries. Interest is based on an annual alternative base rate or an adjusted LIBOR, as
49

defined in the Jefferies Group Revolving Credit Facility agreement. The obligations of certain of Jefferies Group's subsidiaries under the Jefferies Group Revolving Credit Facility are secured by substantially all its assets. At AugustMay 31, 2019,2020, Jefferies Group was in compliance with the debt covenants under the Jefferies Group Revolving Credit Facility.

One of Jefferies Group's subsidiaries has a Loan and Security Agreement with a bank for a term loan with a principal amount of $50.0 million ("Jefferies Group Secured Bank Loan"). This Jefferies Group Secured Bank Loan matures on September 27, 2021 and is collateralized by certain trading securities. Interest on the Jefferies Group Secured Bank Loan is 1.25% plus LIBOR. The agreement contains certain covenants that, among other things, restrict lien or encumbrance upon any of the pledged collateral. At May 31, 2020, Jefferies Group was in compliance with all covenants under the Loan and Security Agreement.

HomeFed funds certain of its real estate projects in part by raising funds under the Immigrant Investor Program administered by the U.S. Citizenship and Immigration Services pursuant to the Immigration and Nationality Act ("EB-5 Program"). This program was created to stimulate the U.S. economy through the creation of jobs and capital investments in U.S. companies by foreign investors. This debt is secured by certain real estate of HomeFed. At May 31, 2020, HomeFed was in compliance with all debt covenants which include, among other requirements, limitations on incurrence of debt, collateral requirements and restricted use of proceeds. Primarily all of HomeFed's debt matures in 2024 and 2025.

At AugustMay 31, 2019,2020, Foursight Capital's credit facilities consisted of 2 warehouse credit commitments aggregating $175.0$150.0 million, which mature in May 2021. One of the credit facilities bears interest based on the three month LIBOR plus a credit spread fixed through its maturity and the other credit facility bears interest based on the one month LIBOR plus a credit spread fixed through its maturity. As a condition of the credit facilities, Foursight Capital is obligated to maintain cash reserves to comply with the hedging requirements of the credit commitment. The credit facilities are secured by first priority liens on auto loan receivables owed to Foursight Capital of approximately $67.9 million at May 31, 2020. At AugustMay 31, 20192020 and November 30, 2018, 0 amounts were2019, $57.0 million and $98.7 million, respectively, was outstanding under Foursight Capital's credit facilities.

HomeFed funds certainVitesse Energy Finance has a revolving credit facility with a syndicate of banks that matures in April 2023 and has a maximum borrowing base of $170.0 million at May 31, 2020. Amounts outstanding under the facility at May 31, 2020 and November 30, 2019 were $106.0 million and $104.0 million, respectively. Borrowings under the facility have been made as Eurodollar loans that bear interest at adjusted LIBOR plus a spread based on the borrowing base utilization percentage. The credit facility is guaranteed by Vitesse Energy Finance's subsidiaries and is collateralized with a minimum of 85% of Vitesse Energy Finance's proved reserve value of its real estate projectsoil and gas properties. Vitesse Energy Finance's borrowing base is subject to regular re-determination on or about April 1 and October 1 of each year based on proved oil and natural gas reserves, hedge positions and estimated future cash flows from these reserves calculated using future commodity pricing provided by Vitesse Energy Finance's lenders. As a result of the decline in part by raising funds underoil prices, Vitesse Energy Finance's borrowing base was decreased from $170.0 million to $120.0 million on June 9, 2020.

Note 12. Leases

We enter into lease and sublease agreements primarily for office space across our geographic locations. Finance lease ROU assets and finance lease liabilities are not material. Information related to operating leases in the Immigrant Investor Program administeredConsolidated Statement of Financial Condition at May 31, 2020 is as follows (in thousands, except lease term and discount rate):
Premises and equipment - ROU assets$523,616 
Weighted average:
  Remaining lease term (in years)10.8 years
  Discount rate2.9 %

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The following table presents the maturities of our operating lease liabilities and a reconciliation to the Lease liabilities included in the Consolidated Statement of Financial Condition at May 31, 2020 (in thousands):
Lease Liabilities
Remainder of 2020$31,760  
202177,283  
202274,684  
202365,174  
202461,965  
2025 and thereafter393,447  
  Total undiscounted cash flows704,313  
Less: Difference between undiscounted and discounted cash flows(107,046) 
Operating leases amount in the Consolidated Statement of Financial Condition597,267  
Finance leases amount in the Consolidated Statement of Financial Condition290  
  Total amount in the Consolidated Statement of Financial Condition$597,557  

In addition to the table above, at May 31, 2020, we have a lease agreement that we entered into that was signed but has not yet commenced. We expect this operating lease to commence by the U.S. Citizenship and Immigration Services pursuantend of 2020 with a lease term of seven years. Lease payments for this agreement will be $0.8 million for the period from lease commencement to the Immigration and Nationality Act ("EB-5 Program"). This program was created to stimulate the U.S. economy through the creation of jobs and capital investments in U.S. companies by foreign investors. This debt is secured by certain real estate of HomeFed. At August 31, 2019, HomeFed was in compliance with all debt covenants which include, among other requirements, limitations on incurrence of debt, collateral requirements and restricted use of proceeds. $124.5 millionend of the debt matures in 2024 (including extension options)lease term.

The following table presents our lease costs (in thousands):
Three Months Ended May 31, 2020Six Months Ended May 31, 2020
Operating lease costs (1)$19,320  $38,569  
Variable lease costs (2)2,561  6,076  
Less: Sublease income(1,848) (3,696) 
Total lease cost, net$20,033  $40,949  

(1) Includes short-term leases, which are not material.
(2) Includes property taxes, insurance costs, common area maintenance, utilities, and other costs that are not fixed. The amount also includes rent increases resulting from inflation indices and periodic market rent reviews.

Consolidated Statement of Cash Flows supplemental information is as follows (in thousands):
Six Months Ended May 31, 2020
Cash outflows - lease liabilities$40,949 
Non-cash - ROU assets recorded for new and modified leases$20,145 

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Minimum Future Lease Commitments (under Previous GAAP). As lessee, we lease certain premises and equipment under non-cancelable agreements expiring at various dates through 2039 which are operating leases. At November 30, 2019, future minimum annual lease payments under such leases (net of sublease income) were as follows (in thousands):
2020$70,886  
202173,374  
202271,464  
202362,552  
202459,714  
Thereafter393,995  
731,985  
Less: sublease income(21,883) 
$710,102  

Rental expense, net of sublease rental income, was $65.6 million, $55.7 million, and $60.2 million for the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the remainder matures in 2026 (including extension options).twelve months ended December 31, 2017, respectively.

Note 13.  Mezzanine Equity

Redeemable Noncontrolling Interests

The following table shows the activity of National Beef’s redeemable noncontrolling interests (prior to its deconsolidation in June 2018) during the nine months ended September 30, 2018 (in thousands):
Balance, January 1, 2018 $412,128
Income allocated to redeemable noncontrolling interests 37,141
Distributions to redeemable noncontrolling interests (70,681)
Increase in fair value of redeemable noncontrolling interests 21,404
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, 2018
$—


At AugustMay 31, 20192020 and November 30, 2018,2019, redeemable noncontrolling interests include other redeemable noncontrolling interests of $27.1$22.3 million and $19.8$26.6 million, respectively, primarily related to our oil and gas exploration and development businesses.



Mandatorily Redeemable Convertible Preferred Shares

In connection with our acquisition of Jefferies Group in March 2013, we issued a new series of 3.25% Cumulative Convertible Preferred Shares ("Preferred Shares") ($125.0 million at mandatory redemption value) in exchange for Jefferies Group's outstanding 3.25% Series A-1 Cumulative Convertible Preferred Stock. The Preferred Shares have a 3.25% annual, cumulative cash dividend and are currently convertible into 4,162,2004,440,863 common shares, an effective conversion price of $30.03$28.15 per share. The holders of the Preferred Shares are also entitled to an additional quarterly payment in the event we declare and pay a dividend on our common stock in an amount greater than $0.0625 per common share per quarter. The additional quarterly payment would be paid to the holders of Preferred Shares on an as converted basis and on a per share basis would equal the quarterly dividend declared and paid to a holder of a share of common stock in excess of $0.0625 per share.

In the thirdfirst quarter of 2018,2020, we increased our quarterly dividend from $0.10$0.125 to $0.125$0.15 per common share. TheseThis increased the preferred stock dividend from $3.6$2.6 million for the ninesix months ended September 30, 2018May 31, 2019 to $3.8$2.8 million for the ninesix months ended AugustMay 31, 2019.2020. Based on our current quarterly dividend of $0.125$0.15 per common share, the effective rate on these Preferred Shares is approximately 4.1%4.5%. The Preferred Shares are callable beginning in 2023 at a price of $1,000 per share plus accrued interest and are mandatorily redeemable in 2038.

Note 14.  Compensation Plans

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

Stock-Based Compensation Expense. SCompensation and benefits expense included $12.2 million and $12.8 million for the three months ended August 31, 2019 and September 30, 2018, respectively, and $37.0 million and $38.0 million for the nine months ended August 31, 2019 and September 30, 2018, respectively, for share-basedhare-based compensation expense relating to grants made under our share-based compensation plans.plans was $10.7 million and $13.1 million for the three months ended May 31, 2020 and 2019, respectively, and
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$20.7 million and $24.9 million for the six months ended May 31, 2020 and 2019, respectively. Total compensation cost includes the amortization of sign-on, retention and senior executive awards, less forfeitures and clawbacks. The total tax benefit recognized in results of operations related to share-based compensation expenses was $3.0$2.7 million and $4.0$3.4 million for the three months ended AugustMay 31, 20192020 and September 30, 2018,2019, respectively, and $9.3$5.3 million and $10.0$6.3 million for the ninesix months ended AugustMay 31, 20192020 and September 30, 2018,2019, respectively. At AugustMay 31, 2019,2020, total unrecognized compensation cost related to nonvested share-based compensation plans was $92.5$61.9 million; this cost is expected to be recognized over a weighted average period of three2.1 years.

At AugustMay 31, 2019,2020, there were 2,074,0001,838,000 shares of restricted stock outstanding with future service required, 6,049,0004,149,000 RSUs outstanding with future service required (including target RSUs issuable under the senior executive compensation plan), 14,592,00018,322,000 RSUs outstanding with no future service required and 919,0001,092,000 shares issuable under other plans. The maximum potential increase to common shares outstanding resulting from these outstanding awards is 21,560,000.23,563,000.

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. These awards are amortized to compensation expense over the relevant service period, which is generally considered to start at the beginning of the annual compensation year. At AugustMay 31, 2019,2020, the remaining unamortized amount of the restricted cash awards was $498.1$627.4 million and is included within Other assets in the Consolidated Statement of Financial Condition; this cost is expected to be recognized over a weighted average period of three years.


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Note 15.  Accumulated Other Comprehensive Income (Loss)

Activity in accumulated other comprehensive income (loss) is reflected in the Consolidated Statements of Comprehensive Income (Loss) and Consolidated Statements of Changes in Equity but not in the Consolidated Statements of Operations. A summary of accumulated other comprehensive income (loss), net of taxes is as follows (in thousands):
May 31,
2020		November 30, 2019
Net unrealized gains on available for sale securities$574  $141  
Net unrealized foreign exchange losses(227,652) (192,709) 
Net unrealized gains (losses) on instrument specific credit risk152,845  (18,889) 
Net minimum pension liability(60,295) (61,582) 
 $(134,528) $(273,039) 
 August 31,
2019		 November 30, 2018
Net unrealized gains on available for sale securities$231
 $542,832
Net unrealized foreign exchange losses(232,665) (193,402)
Net unrealized gains (losses) on instrument specific credit risk20,805
 (5,728)
Net unrealized gains on cash flow hedges—
 470
Net minimum pension liability(54,823) (55,886)
 $(266,452)
$288,286

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Amounts reclassified out of accumulated other comprehensive income (loss) to net income are as follows (in thousands):
Details about Accumulated Other Comprehensive Income (Loss) ComponentsAmount Reclassified from
 Accumulated Other
 Comprehensive Income (Loss)		Affected Line Item in the
Consolidated Statements
of Operations
 For the Six Months Ended 
May 31,
2020		May 31,
2019
Net unrealized gains on available for sale securities, net of income tax provision (benefit) of $0 and $(545,054)$—  $543,178  Other revenues and Income tax provision
(benefit)
Net unrealized gains (losses) on instrument specific credit risk, net of income tax provision (benefit) of $530 and $(166)1,554  (493) Principal transactions revenues
Net unrealized gains on cash flow hedges, net of income tax provision of $0 and $161—  470  Other revenues
Amortization of defined benefit pension plan actuarial losses, net of income tax benefit of $(438) and $(241)(1,287) (708) Selling, general and other expenses, which includes pension expense
Total reclassifications for the period, net of tax$267  $542,447   
Details about Accumulated Other Comprehensive Income (Loss) Components 
Amount Reclassified from
 Accumulated Other
 Comprehensive Income (Loss)
 
Affected Line Item in the
Consolidated Statements
of Operations
  For the Nine Months Ended  
  August 31,
2019		 September 30,
2018		  
Net unrealized gains (losses) on available for sale securities, net of income tax provision (benefit) of $(545,054) and $37 $543,178
 $105
 Other revenues and Income tax provision (benefit)
Net unrealized foreign exchange gains (losses), net of income tax provision (benefit) of $0 and $(16) —
 20,459
 Other revenues and Selling, general and other expenses
Net unrealized (gains) losses on instrument specific credit risk, net of income tax provision (benefit) of $(166) and $126 (493) 371
 Principal transactions revenues
Net unrealized gains on cash flow hedges, net of income tax provision (benefit) of $161 and $0 470
 —
 Other revenues
Amortization of defined benefit pension plan actuarial losses, net of income tax benefit of $(361) and $(508) (1,063) (1,398) Selling, general and other expenses, which includes pension expense
Other pension, net of income tax benefit of $0 and $0 —
 (5,344) Compensation and benefits expense
Total reclassifications for the period, net of tax $542,092

$14,193
  


During the second quarter of 2019, we completed the sale of our available for sale portfolio. In connection therewith, we recognized a tax benefit of $544.6 million during the ninethree and six months ended AugustMay 31, 2019. Unrealized gains and losses on available for sale securities, and their associated tax impacts, are recorded directly to equity as part of the Accumulated other comprehensive income (loss) balance. Following the portfolio approach, when unrealized gains and losses and their associated tax impacts are recorded at a then current tax rate, and then realized later at a different tax rate, the difference between the tax impact initially recorded in Accumulated other comprehensive income (loss) and the tax impact removed from Accumulated other comprehensive income (loss) upon realization remains in Accumulated other comprehensive income (loss) until the disposal of the portfolio and is referred to as a "lodged tax effect." Large changes in the fair value of our available for sale securities, primarily during 2008 through 2010, combined with fluctuations in our tax rate during those periods, generated a lodged tax benefit of $544.6 million. As a result of recent steps to improve our Corporate investment management efforts, we sold the remaining portion of our available for sale portfolio in the second quarter of 2019, which resulted in the realization of the $544.6 million tax benefit. While this realization did not impact total equity, it resulted in a tax benefit reflected in the Consolidated Statement of Operations of $544.6 million and, as a result, Retained earnings increased and Accumulated other comprehensive income (loss) decreased by corresponding amounts.


The remaining net unrealized gains (losses) on available for sale securities at AugustMay 31, 2020 and November 30, 2019 represents Jefferies Group's share of Berkadia's net unrealized gains on available for sale securities recorded under the equity method of accounting.
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 Statement of Operations from Accumulated other comprehensive income (loss) during the nine months ended September 30, 2018.
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Note 16. 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 EndedFor the Six Months Ended
May 31, 2020May 31, 2019May 31, 2020May 31, 2019
Revenues from contracts with customers:
Commissions and other fees (1)$242,972  $167,610  $422,402  $322,560  
Investment banking387,491  430,087  979,493  715,683  
Manufacturing revenues85,379  90,237  162,986  165,662  
Other34,077  62,080  97,854  116,109  
Total revenues from contracts with customers749,919  750,014  1,662,735  1,320,014  
Other sources of revenue:
Principal transactions393,338  240,189  798,202  486,371  
Interest income236,732  445,967  563,098  832,811  
Other(2,458) 74,201  45,760  66,187  
Total revenues from other sources627,612  760,357  1,407,060  1,385,369  
Total revenues$1,377,531  $1,510,371  $3,069,795  $2,705,383  
 For the Three Months Ended For the Nine Months Ended
 August 31, 2019 September 30, 2018 August 31, 2019 September 30, 2018
Revenues from contracts with customers:       
Commissions and other fees (1)$171,000
 $162,578
 $493,560
 $481,672
Investment banking410,796
 460,043
 1,126,479
 1,400,331
Manufacturing revenues82,565
 94,029
 248,227
 307,129
Other70,066
 63,429
 186,175
 153,916
Total revenues from contracts with customers734,427
 780,079
 2,054,441
 2,343,048
        
Other sources of revenue:       
Principal transactions(20,920) 116,204
 465,451
 315,622
Interest income410,467
 336,736
 1,243,278
 939,272
Other99,182
 225,958
 165,369
 265,972
Total revenues from other sources488,729
 678,898
 1,874,098
 1,520,866
        
Total revenues$1,223,156
 $1,458,977
 $3,928,539
 $3,863,914


(1) During the third quarter of 2019, Jefferies Group haswe have reclassified the presentation of certain other fees, primarily related to prime brokerage services offered to its clients. These fees were previously presented as Other revenues in ourthe Consolidated Statements of Operations and are now presented within Commissions and other fees. There is no impact on Total revenues as a result of this change in presentation. Previously reported results are presented on a comparable basis.

Revenues from contracts with customers are recognized when, or as, we satisfy our performance obligations by transferring the promised goods or services to the customers. A good or service is transferred to a customer when, or as, the customer obtains control of that good or service. A performance obligation may be satisfied over time or at a point in time. Revenue from a performance obligation satisfied over time is recognized by measuring our progress in satisfying the performance obligation in a manner that depicts the transfer of the goods or services to the customer. Revenue from a performance obligation satisfied at a point in time is recognized at the point in time that we determine the customer obtains control over the promised good or service. The amount of revenue recognized reflects the consideration we expect to be entitled to in exchange for those promised goods or services (the "transaction price"). In determining the transaction price, we consider multiple factors, including the effects of variable consideration. Variable consideration is included in the transaction price only to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainties with respect to the amount are resolved. In determining when to include variable consideration in the transaction price, we consider the range of possible outcomes, the predictive value of our past experiences, the time period of when uncertainties expect to be resolved and the amount of consideration that is susceptible to factors outside of our influence, such as market volatility or the judgment and actions of third parties.

The following provides detailed information on the recognition of our revenues from contracts with customers:
Commissions and Other Fees. Jefferies Group earnsWe earn commission and other fee revenues by executing, settling and clearing transactions for clients primarily in equity, equity-related and futures products. Trade execution and clearing services, when provided together,


represent a single performance obligation as the services are not separately identifiable in the context of the contract. Commission revenues associated with combined trade execution and clearing services, as well as trade execution services on a standalone basis, are recognized at a point in time on trade-date. Commission revenues are generally paid on settlement date and Jefferies Group recordswe record a receivable between trade-date and payment on settlement date. Jefferies Group permitsWe permit institutional customers to allocate a portion of their gross commissions to pay for research products and other services provided by third parties. The amounts allocated for those purposes are commonly referred to as soft dollar arrangements. Jefferies Group actsWe act as an agent in the soft dollar arrangements as the customer controls the use of the soft dollars and directs Jefferies Group'sour payments to third-party service providers on itsour behalf. Accordingly, amounts allocated to soft dollar arrangements are netted against commission revenues in ourthe Consolidated Statements of Operations.
Jefferies Group earnsWe earn account advisory and distribution fees in connection with wealth management services. Account advisory fees are recognized over time using the time-elapsed method as Jefferies Groupwe 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
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service period or in arrears at the end of the specified service period (e.g., quarterly). Account advisory fees paid in advance are initially deferred within Payables, expense accruals and other liabilities in the Consolidated Statements of Financial Condition. Distribution fees are variable and recognized when the uncertainties with respect to the amounts are resolved.
Investment Banking. Jefferies Group provides itsWe provide our clients with a full range of capital markets and financial advisory and underwriting 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'sour clients simultaneously receive and consume the benefits of those services as they are provided. A significant portion of the fees Jefferies Group receiveswe receive for itsour 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 recognizesWe recognize a receivable between the date of completion of the milestone and payment by the customer. Expenses associated with investment banking advisory engagements are deferred only to the extent they are explicitly reimbursable by the client and the related revenue is recognized at a point in time. All other investment banking advisory related expenses, including expenses incurred related to restructuring assignments, are expensed as incurred. All investment banking advisory expenses are recognized within their respective expense category in the Consolidated Statements of Operations and any expenses reimbursed by Jefferies Group'sour clients are recognized as Investment banking revenues.
Underwriting services include underwriting and placement agent services in both the equity and debt capital markets, including private equity placements, initial public offerings, follow-on offerings and equity-linked convertible securities transactions and structuring, underwriting and distributing public and private debt, including investment grade debt, high yield bonds, leveraged loans, municipal bonds and mortgage-backed and asset-backed securities. Underwriting and placement agent revenues are recognized at a point in time on trade-date, as the client obtains the control and benefit of the underwriting offering at that point. Costs associated with underwriting transactions are deferred until the related revenue is recognized or the engagement is otherwise concluded, and are recorded on a gross basis within underwriting costs in the Consolidated Statements of Operations as we are acting as a principal in the arrangement. Any expenses reimbursed by our clients are recognized as Investment banking revenues.

Asset Management Fees. Jefferies Group earnsWe earn management and performance fees recorded in Other revenues, in connection with investment advisory services provided to various funds and accounts, which are satisfied over time and measured using a time elapsed measure of progress as the customer receives the benefits of the services evenly throughout the term of the contract. Management and performance fees are considered variable as they are subject to fluctuation (e.g., changes in assets under management, market performance) and/or are contingent on a future event during the measurement period (e.g., meeting a specified benchmark) and are recognized only to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty is resolved. Management fees are generally based on month-end assets under management or an agreed upon notional amount and are included in the transaction price at the end of each month when the assets under management or notional amount is known. Performance fees are received when the return on assets under management for a specified performance period exceed certain benchmark returns, "high-water marks" or other performance targets. The performance period related to our performance fees is annual or semi-annual. Accordingly, performance fee revenue will generally be recognized only at the end of the performance period to the extent that the benchmark return has been met.
Manufacturing Revenues. Idaho Timber's primary business consists of the sale of lumber that is manufactured or remanufactured at one of its locations. Agreements with customers for these sales specify the type, quantity and price of products to be delivered


as well as the delivery date and payment terms. The transaction price is fixed at the time of sale and revenue is generally recognized when the customer takes control of the product.
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Disaggregation of Revenue
The following presents our revenues from contracts with customers disaggregated by major business activity and primary geographic regions (in thousands):
Reportable Segments
Investment Banking and Capital Markets (1)Asset Management (1)Merchant Banking (1)CorporateConsolidation AdjustmentsTotal
Three Months Ended May 31, 2020
Major Business Activity:
Equities (2)$236,683  $—  $—  $—  $(295) $236,388  
Fixed Income (2)6,584  —  —  —  —  6,584  
Investment Banking - Underwriting205,410  —  —  —  —  205,410  
Investment Banking - Advisory182,081  —  —  —  —  182,081  
Asset Management—  3,496  —  —  —  3,496  
Manufacturing revenues—  —  85,379  —  —  85,379  
Oil and gas revenues—  —  15,544  —  —  15,544  
Other revenues—  —  15,037  —  —  15,037  
Total revenues from contracts with customers$630,758  $3,496  $115,960  $—  $(295) $749,919  
Primary Geographic Region:
Americas$524,627  $1,825  $115,620  $—  $(295) $641,777  
Europe, Middle East and Africa68,082  1,671  299  —  —  70,052  
Asia38,049  —  41  —  —  38,090  
Total revenues from contracts with customers$630,758  $3,496  $115,960  $—  $(295) $749,919  
Three Months Ended May 31, 2019
Major Business Activity:
Equities (2)$164,169  $—  $—  $—  $(88) $164,081  
Fixed Income (2)3,529  —  —  —  —  3,529  
Investment Banking - Underwriting251,533  —  —  —  —  251,533  
Investment Banking - Advisory178,554  —  —  —  —  178,554  
Asset Management—  6,175  —  —  —  6,175  
Manufacturing revenues—  —  90,237  —  —  90,237  
Oil and gas revenues—  —  47,652  —  —  47,652  
Other revenues—  —  8,253  —  —  8,253  
Total revenues from contracts with customers$597,785  $6,175  $146,142  $—  $(88) $750,014  
Primary Geographic Region:
Americas$487,674  $5,125  $145,880  $—  $(88) $638,591  
Europe, Middle East and Africa91,510  1,050  223  —  —  92,783  
Asia18,601  —  39  —  —  18,640  
Total revenues from contracts with customers$597,785  $6,175  $146,142  $—  $(88) $750,014  
57

  Reportable Segments    
Major Business Activity: Jefferies Group Merchant Banking Corporate Consolidation Adjustments Total
           
Three months ended August 31, 2019          
Jefferies Group:          
Equities (1) $167,528
 $—
 $—
 $(3) $167,525
Fixed Income (1) 3,475
 —
 —
 —
 3,475
Investment Banking - Capital markets 199,183
 —
 —
 (1,737) 197,446
Investment Banking - Advisory 213,350
 —
 —
 —
 213,350
Asset Management 3,340
 —
 —
 —
 3,340
Manufacturing revenues —
 82,565
 —
 —
 82,565
Oil and gas revenues —
 45,012
 —
 —
 45,012
Other revenues —
 21,714
 —
 —
 21,714
Total revenues from contracts with customers $586,876
 $149,291
 $—
 $(1,740) $734,427
           
Primary Geographic Region:          
Americas $478,920
 $148,808
 $—
 $(47) $627,681
Europe, Middle East and Africa 90,293
 226
 —
 (1,693) 88,826
Asia 17,663
 257
 —
 —
 17,920
Total revenues from contracts with customers $586,876
 $149,291
 $—
 $(1,740) $734,427
           
Three months ended September 30, 2018          
Jefferies Group:          
Equities (1) $159,693
 $—
 $—
 $(122) $159,571
Fixed Income (1) 3,007
 —
 —
 —
 3,007
Investment Banking - Capital markets 277,735
 —
 —
 —
 277,735
Investment Banking - Advisory 187,591
 —
 —
 (5,283) 182,308
Asset Management 5,184
 —
 —
 —
 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 $633,210
 $152,274
 $—
 $(5,405) $780,079
           
Primary Geographic Region:          
Americas $551,403
 $151,687
 $—
 $(5,405) $697,685
Europe, Middle East and Africa 62,914
 514
 —
 —
 63,428
Asia 18,893
 73
 —
 —
 18,966
Total revenues from contracts with customers $633,210
 $152,274
 $—
 $(5,405) $780,079

Reportable Segments
Investment Banking and Capital Markets (1)Asset Management (1)Merchant Banking (1)CorporateConsolidation AdjustmentsTotal
Six months ended May 31, 2020
Major Business Activity:
Equities (2)$412,932  $—  $—  $—  $(400) $412,532  
Fixed Income (2)9,870  —  —  —  —  9,870  
Investment Banking - Underwriting454,254  —  —  —  —  454,254  
Investment Banking - Advisory525,239  —  —  —  —  525,239  
Asset Management—  9,587  —  —  —  9,587  
Manufacturing revenues—  —  162,986  —  —  162,986  
Oil and gas revenues—  —  57,758  —  —  57,758  
Other revenues—  —  30,509  —  —  30,509  
Total revenues from contracts with customers$1,402,295  $9,587  $251,253  $—  $(400) $1,662,735  
Primary Geographic Region:
Americas$1,173,696  $4,492  $250,399  $—  $(400) $1,428,187  
Europe, Middle East and Africa147,520  5,095  659  —  —  153,274  
Asia81,079  —  195  —  —  81,274  
Total revenues from contracts with customers$1,402,295  $9,587  $251,253  $—  $(400) $1,662,735  
Six months ended May 31, 2019
Major Business Activity:
Equities (2)$316,243  $—  $—  $—  $(280) $315,963  
Fixed Income (2)6,597  —  —  —  —  6,597  
Investment Banking - Underwriting356,647  —  —  —  —  356,647  
Investment Banking - Advisory359,036  —  —  —  —  359,036  
Asset Management—  14,493  —  —  —  14,493  
Manufacturing revenues—  —  165,662  —  —  165,662  
Oil and gas revenues—  —  84,017  —  —  84,017  
Other revenues—  —  17,599  —  —  17,599  
Total revenues from contracts with customers$1,038,523  $14,493  $267,278  $—  $(280) $1,320,014  
Primary Geographic Region:
Americas$811,063  $10,155  $266,758  $—  $(280) $1,087,696  
Europe, Middle East and Africa191,715  4,338  457  —  —  196,510  
Asia35,745  —  63  —  —  35,808  
Total revenues from contracts with customers$1,038,523  $14,493  $267,278  $—  $(280) $1,320,014  

(1)
(1) We now present Asset Management as a separate reporting segment. Prior year amounts have been reclassified to conform to current segment disclosure. See Note 23 for further information.
(2) Revenues from contracts with customers associated with the equities and fixed income businesses primarily represent commissions and other fee revenue.



58
  Reportable Segments    
Major Business Activity: Jefferies Group Merchant Banking Corporate Consolidation Adjustments Total
           
Nine months ended August 31, 2019          
Jefferies Group:          
Equities (1) $483,771
 $—
 $—
 $(283) $483,488
Fixed Income (1) 10,072
 —
 —
 —
 10,072
Investment Banking - Capital markets 555,830
 —
 —
 (1,737) 554,093
Investment Banking - Advisory 572,386
 —
 —
 —
 572,386
Asset Management 14,559
 —
 —
 —
 14,559
Manufacturing revenues —
 248,227
 —
 —
 248,227
Oil and gas revenues —
 129,029
 —
 —
 129,029
Other revenues —
 42,587
 —
 —
 42,587
Total revenues from contracts with customers $1,636,618
 $419,843
 $—
 $(2,020) $2,054,441
           
Primary Geographic Region:          
Americas $1,296,864
 $418,840
 $—
 $(327) $1,715,377
Europe, Middle East and Africa 286,346
 683
 —
 (1,693) 285,336
Asia 53,408
 320
 —
 —
 53,728
Total revenues from contracts with customers $1,636,618
 $419,843
 $—
 $(2,020) $2,054,441
           
Nine months ended September 30, 2018          
Jefferies Group:          
Equities (1) $471,683
 $—
 $—
 $(522) $471,161
Fixed Income (1) 10,511
 —
 —
 —
 10,511
Investment Banking - Capital markets 809,884
 —
 —
 —
 809,884
Investment Banking - Advisory 595,730
 —
 —
 (5,283) 590,447
Asset Management 16,130
 —
 —
 —
 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 $1,903,938
 $444,915
 $—
 $(5,805) $2,343,048
           
Primary Geographic Region:          
Americas $1,644,633
 $443,718
 $—
 $(5,805) $2,082,546
Europe, Middle East and Africa 203,103
 976
 —
 —
 204,079
Asia 56,202
 221
 —
 —
 56,423
Total revenues from contracts with customers $1,903,938
 $444,915
 $—
 $(5,805) $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 AugustMay 31, 2019.2020. Investment banking advisory fees that are contingent upon completion of a specific milestone and fees associated with certain distribution services are also excluded as the fees are considered variable and not included in the transaction price at AugustMay 31, 2019.2020.

Jefferies GroupWe recognized $9.6$7.4 million and $4.4$15.3 million during the three months ended AugustMay 31, 20192020 and September 30, 2018,2019, respectively, and $27.2$10.5 million and $18.3$23.0 million during the ninesix months ended AugustMay 31, 20192020 and September 30, 2018,2019, respectively, of revenues related to performance obligations satisfied (or partially satisfied) in previous periods, mainly due to resolving uncertainties in variable consideration that was constrained in prior periods. In addition, Jefferies Groupwe recognized $6.0$4.5 million and $4.6$4.8 million during the three months ended AugustMay 31, 20192020 and September 30, 2018,2019, respectively, and $15.8$10.1 million and $13.5$9.8 million during the ninesix months ended AugustMay 31, 20192020 and September 30, 2018,2019, respectively, of revenues primarily associated with distribution services, 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 haswe have an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, we record deferred revenue until the performance obligations are satisfied.

We had receivables related to revenues from contracts with customers of $276.7$228.9 million and $250.6$263.7 million at AugustMay 31, 20192020 and November 30, 2018,2019, respectively. We had no significant impairments related to these receivables during the three and ninesix months ended AugustMay 31, 20192020 and September 30, 2018.2019.

Jefferies Group'sOur deferred revenue primarily relates to retainer and milestone fees received in investment banking advisory engagements where the performance obligation has not yet been satisfied. Our deferred revenue, which primarily relates to Jefferies Group, was $12.9Deferred revenues were $28.0 million and $14.2$12.8 million at AugustMay 31, 20192020 and November 30, 2018,2019, respectively, which are recorded as Payables, expense accruals and other liabilities in the Consolidated Statements of Financial Condition. During the three months ended AugustMay 31, 2019,2020, we recognized $9.6$7.2 million of deferred revenue from the balance at May 31, 2019.February 29, 2020. During the three months ended September 30, 2018,May 31, 2019, we recognized $6.3$1.8 million of deferred revenue from the balance at June 30, 2018.February 28, 2019. During the ninesix months ended AugustMay 31, 2019,2020, we recognized $9.8$7.9 million of deferred revenue from the balance at November 30, 2018.2019. During the ninesix months ended September 30, 2018,May 31, 2019, we recognized $12.9$9.4 million of deferred revenue from the balance at December 31, 2017.November 30, 2018.
Contract Costs
Jefferies Group capitalizesWe capitalize costs to fulfill contracts associated with investment banking advisory engagements where the revenue is recognized at a point in time and the costs are determined to be recoverable. Capitalized costs to fulfill a contract are recognized at the point in time that the related revenue is recognized.
At AugustMay 31, 20192020 and November 30, 2018, Jefferies Group's2019, capitalized costs to fulfill a contract were $4.4$3.2 million and $4.7$4.8 million, respectively, which are recorded in Receivables in the Consolidated Statements of Financial Condition. Jefferies GroupWe recognized expenses of $1.6$1.8 million and $1.5$1.8 million, during the three months ended AugustMay 31, 20192020 and September 30, 2018,2019, respectively, and $3.8$3.7 million and $1.5$3.4 million, during the ninesix months ended AugustMay 31, 20192020 and September 30, 2018,2019, respectively, 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 ninesix months ended AugustMay 31, 20192020 and September 30, 2018. At August 31, 2019 and November 30, 2018, capitalized costs related to our other subsidiaries were not material.2019.

59

Note 17.  Income Taxes

The aggregate amount of gross unrecognized tax benefits related to uncertain tax positions was $253.3$364.3 million (including $60.5$78.4 million for interest) at AugustMay 31, 2019,2020, of which $180.1$217.8 million related to Jefferies Group, and was $251.4$327.3 million (including $54.1$67.2 million for interest) at November 30, 2018,2019, of which $174.9$181.2 million related to Jefferies Group. If recognized, such amounts would lower our effective tax rate. We recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense. No material penalties were accrued for the ninesix months ended AugustMay 31, 2020 and 2019.

The net deferred tax asset was $392.6 million and $462.5 million at May 31, 2020 and November 30, 2019, respectively. The deferred tax asset is predominately attributable to differences between the financial statement carrying amounts of existing assets and September 30, 2018.liabilities and their respective tax bases, the largest component of which relates to compensation and benefits.

The statute of limitations with respect to our federal income tax returns has expired for all years through 2015. We are currently under examination in a number ofby various major tax jurisdictions. Prior to becoming a wholly-owned subsidiary, Jefferies Group filed a consolidated U.S. federal income tax return with its qualifying subsidiaries and was subject to income tax in various states,


municipalities and foreign jurisdictions and Jefferies Group is also currently under examination in a number ofby various major tax jurisdictions. We do not expect that resolution of these examinations will have a significant effect on ourthe Consolidated Statements of Financial Condition, but could have a significant impact on the Consolidated Statements of Operations for the period in which resolution occurs.

The newOur provision for income taxes for the six months ended May 31, 2020 was $77.7 million, representing an effective tax on global intangible low-taxed income ("GILTI") became applicable in fiscal 2019. As a result, we made an accounting policy election in the first quarterrate of 2019 to treat GILTI as a period cost if and when incurred.33.3%.

Our benefit for income taxes for continuing operations for the ninesix months ended AugustMay 31, 2019 was $522.6$486.5 million. Our provisions for income taxes three and nine months ended August 31, 2019 were reduced by $36.0 million resulting from the reversal of deferred tax liabilities that existed at the HomeFed acquisition. Prior to its consolidation on July 1, 2019, HomeFed was accounted for under the equity method as an investment in an associated company. Since we have the intent and ability under the tax law to recover the investment tax-free, the deferred tax liability associated with the equity method investment was derecognized.

As discussed above, duringDuring the second quarter of 2019, we completed the sale of our available for sale portfolio. In connection therewith, we recognized a tax benefit of $544.6 million during the ninethree and six months ended AugustMay 31, 2019. Unrealized gains and losses on available for sale securities, and their associated tax impacts, are recorded directly to equity as part of the Accumulated other comprehensive income (loss) balance. Following the portfolio approach, when unrealized gains and losses and their associated tax impacts are recorded at a then current tax rate, and then realized later at a different tax rate, the difference between the tax impact initially recorded in Accumulated other comprehensive income (loss) and the tax impact removed from Accumulated other comprehensive income (loss) upon realization remains in Accumulated other comprehensive income (loss) until the disposal of the portfolio and is referred to as a "lodged tax effect." Large changes in the fair value of our available for sale securities, primarily during 2008 through 2010, combined with fluctuations in our tax rate during those periods, generated a lodged tax benefit of $544.6 million. As a result of recent steps to improve our Corporate investment management efforts, we sold the remaining portion of our available for sale portfolio in the second quarter of 2019, which resulted in the realization of the $544.6 million tax benefit. While this realization did not impact total equity, it resulted in a tax benefit reflected in the Consolidated Statement of Operations of $544.6 million and, as a result, Retained earnings increased and Accumulated other comprehensive income (loss) decreased by corresponding amounts.

60
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.


57



Note 18.  Common Share and Earnings Per Common Share

Basic and diluted earnings per share amounts were calculated by dividing net income by the weighted average number of common shares outstanding. The numerators and denominators used to calculate basic and diluted earnings per share are as follows (in thousands):
For the Three Months EndedFor the Six Months Ended
 May 31, 2020May 31, 2019May 31, 2020May 31, 2019
Numerator for earnings per share:
Net income attributable to Jefferies Financial Group Inc. common shareholders$44,919  $670,764  $157,929  $715,575  
Allocation of earnings to participating securities (1)(288) (4,086) (988) (4,241) 
Net income attributable to Jefferies Financial Group Inc. common shareholders for basic earnings per share44,631  666,678  156,941  711,334  
Adjustment to allocation of earnings to participating securities related to diluted shares (1)(9) 43  (11) 34  
Mandatorily redeemable convertible preferred share dividends—  1,276  —  2,552  
Net income attributable to Jefferies Financial Group Inc. common shareholders for diluted earnings per share$44,622  $667,997  $156,930  $713,920  
Denominator for earnings per share:    
Weighted average common shares outstanding269,362  293,600  278,022  299,067  
Weighted average shares of restricted stock outstanding with future service required(1,832) (1,873) (1,862) (1,851) 
Weighted average RSUs outstanding with no future service required19,234  15,283  18,429  13,892  
Denominator for basic earnings per share – weighted average shares286,764  307,010  294,589  311,108  
Stock options—  —  —  —  
Senior executive compensation plan awards—  1,355  712  2,466  
Mandatorily redeemable convertible preferred
shares		—  4,162  —  4,162  
Denominator for diluted earnings per share286,764  312,527  295,301  317,736  
 For the Three Months Ended For the Nine Months Ended
 August 31, 2019 September 30, 2018 August 31, 2019 September 30, 2018
Numerator for earnings per share:       
Net income attributable to Jefferies Financial Group Inc. common shareholders$48,477
 $192,635
 $764,052
 $1,042,689
Allocation of earnings to participating securities (1)(316) (1,054) (4,667) (5,049)
Net income attributable to Jefferies Financial Group Inc. common shareholders for basic earnings per share48,161
 191,581
 759,385
 1,037,640
Adjustment to allocation of earnings to participating securities related to diluted shares (1)(7) 3
 29
 34
Mandatorily redeemable convertible preferred share dividends—
 1,276
 3,827
 —
Net income attributable to Jefferies Financial Group Inc. common shareholders for diluted earnings per share$48,154

$192,860
 $763,241
 $1,037,674
        
Denominator for earnings per share: 
  
  
  
Weighted average common shares outstanding296,834
 332,191
 298,322
 343,829
Weighted average shares of restricted stock outstanding with future service required(2,008) (1,879) (1,903) (1,681)
Weighted average RSUs outstanding with no future service required15,462
 11,122
 14,419
 11,152
Denominator for basic earnings per share – weighted average shares310,288
 341,434
 310,838
 353,300
Stock options—
 5
 —
 13
Senior executive compensation plan awards1,609
 4,706
 2,181
 3,856
Mandatorily redeemable convertible preferred shares—
 4,162
 4,162
 —
Denominator for diluted earnings per share311,897

350,307
 317,181
 357,169

(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 1,846,400 and 1,881,600 for the three months ended May 31, 2020 and 2019, respectively, and 1,874,100 and 1,856,400 for the six months ended May 31, 2020 and 2019, respectively. Dividends declared on participating securities were not material during the three and six months ended May 31, 2020 and 2019. Undistributed earnings are allocated to participating securities based upon their right to share in earnings if all earnings for the period had been distributed.

(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 2,018,000 and 1,888,700 for the three months ended August 31, 2019 and September 30, 2018, respectively, and 1,910,700 and 1,700,700 for the nine months ended August 31, 2019 and September 30, 2018, respectively. Dividends declared on participating securities were not material during the three and nine months ended August 31, 2019 and September 30, 2018. Undistributed earnings are allocated to participating securities based upon their right to share in earnings if all earnings for the period had been distributed.

For the three and six months ended AugustMay 31, 2019 and the nine months ended September 30, 2018,2020, 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.

TheOur Board of Directors from time to time has authorized the repurchase of our common shares. In January 2019, the Board of Directors approved an additionala $500.0 million share repurchase authorization. Duringauthorization and in January 2020, the nine months ended August 31, 2019, we purchased a totalBoard of 17,725,361Directors approved an increase of our common shares for an aggregate purchase price of $352.1$250.0 million under these authorizations. At August 31, 2019, $147.9 million remained available for repurchase.to the share repurchase authorization. Additionally, in connection with the HomeFed merger on July 1, 2019, our Board of Directors authorized the repurchase of an additional 9.25 million shares in the open market.


 In March 2020, the Board of Directors approved an additional share repurchase authorization of $100 million. During the six months ended May 31, 2020, we purchased a total of 24,784,910 of our common shares for an aggregate purchase price of $491.9 million, or an average price of $19.85 per share. At May 31, 2020, we had approximately $73.3 million available for future purchases. In June 2020, the Board of Directors increased the share repurchase authorization to $250.0 million, including the $73.3 million
58
61



Note 19.  Commitments, Contingencies and Guarantees

Commitments

The following table summarizes commitments associated with certain business activities at AugustMay 31, 20192020 (in millions):
Expected Maturity Date
 202020212022
and
2023		2024
and
2025		2026
and
Later
Maximum
Payout
Equity commitments (1)$89.5  $156.0  $76.4  $—  $12.7  $334.6  
Loan commitments (1)—  276.0  35.0  —  —  311.0  
Underwriting commitments58.0  —  —  —  —  58.0  
Forward starting reverse repos (2)3,300.0  —  —  —  —  3,300.0  
Forward starting repos (2)4,048.1  —  —  —  —  4,048.1  
Other unfunded commitments (1)—  136.4  —  4.9  —  141.3  
 $7,495.6  $568.4  $111.4  $4.9  $12.7  $8,193.0  
 Expected Maturity Date  
 2019 2020 2021
and
2022		 2023
and
2024		 2025
and
Later		 
Maximum
Payout 
Equity commitments (1)$15.5
 $146.3
 $9.8
 $—
 $17.6
 $189.2
Loan commitments (1)—
 250.0
 54.1
 12.0
 —
 316.1
Underwriting commitments31.5
 —
 —
 —
 —
 31.5
Forward starting reverse repos (2)2,994.6
 —
 —
 —
 —
 2,994.6
Forward starting repos (2)4,082.9
 —
 —
 —
 —
 4,082.9
Other unfunded commitments (1)80.0
 —
 143.7
 —
 4.9
 228.6
 $7,204.5

$396.3

$207.6

$12.0

$22.5

$7,842.9

(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 May 31, 2020, all of the forward starting securities purchased under agreements to resell and forward starting securities sold under agreements to repurchase settled within three business days.

(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 August 31, 2019, $2,991.6 million within forward starting securities purchased under agreements to resell and all of the forward starting securities sold under agreements to repurchase settled within three business days.

Equity Commitments.  Equity commitments include a commitment to invest in Jefferies Group's joint venture, Jefferies Finance, and commitments to invest in private equity funds and in Jefferies Capital Partners, LLC, the manager of the private equity funds,
which consists of a team led by our President and a Director. At AugustMay 31, 2019,2020, Jefferies Group's outstanding commitments relating to Jefferies Capital Partners, LLC and its private equity funds were $17.7$11.3 million.

See Note 98 for additional information regarding Jefferies Group's investment in Jefferies Finance.

Additionally, as of AugustMay 31, 2019,2020, we have other outstanding equity commitments to invest up to $65.2$225.7 million in various other investments.

Loan Commitments. From time to time Jefferies Group makeswe make commitments to extend credit to investment banking and other clients in loan syndication, acquisition finance and securities transactions and to SPE sponsors in connection with the funding of CLO and other asset-backed transactions. These commitments and any related drawdowns of these facilities typically have fixed maturity dates and are contingent on certain representations, warranties and contractual conditions applicable to the borrower. At AugustMay 31, 2019, Jefferies Group2020, we had $66.1$80.0 million of outstanding loan commitments to clients.

Loan commitments outstanding at AugustMay 31, 20192020 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 AugustMay 31, 2019, NaN2020, $20.0 million of Jefferies Group's $250.0 million commitment was funded.

Underwriting Commitments. In connection with investment banking activities, Jefferies Groupwe may from time to time provide underwriting commitments to itsour clients in connection with capital raising transactions.
Forward Starting Reverse Repos and Repos.  Jefferies Group entersWe enter into commitments to take possession of securities with agreements to resell on a forward starting basis and to sell securities with agreements to repurchase on a forward starting basis that are primarily secured by U.S. government and agency securities.
Other Unfunded Commitments. Other unfunded commitments include obligations in the form of revolving notes, warehouse financings and debt securities to provide financing to asset-backed and CLO vehicles. Upon advancing funds, drawn amounts are collateralized by the assets of an entity.

Spectrum Brands Dividend. In September 2019, the Jefferies Board of Directors approved a distribution to stockholders of Jefferies of its Spectrum Brands shares. Jefferies will distribute the 7,514,477 Spectrum Brands shares through a special pro rata dividend effective on October 11, 2019 to Jefferies stockholders of record as of the close of business on September 30, 2019.


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
62

involved, from time to time, in other exams, investigations and similar reviews (both formal and informal) by governmental and self-regulatory agencies regarding our businesses, certain of which may result in judgments, settlements, fines, penalties or other injunctions. We do not believe that any of these actions will have a significant adverse effect on our consolidated financial position or liquidity, but any amounts paid could be significant to results of operations for the period.

Guarantees
Derivative Contracts.  Jefferies GroupOur dealer activities cause itus to make markets and trade in a variety of derivative instruments. Certain derivative contracts that Jefferies Group haswe have entered into meet the accounting definition of a guarantee under GAAP, including credit default swaps, written foreign currency options and written equity put options. On certain of these contracts, such as written interest rate caps and foreign currency options, the maximum payout cannot be quantified since the increase in interest or foreign exchange rates are not contractually limited by the terms of the contract. As such, we have disclosed notional values as a measure of Jefferies Group'sour maximum potential payout under these contracts.
The following table summarizes the notional amounts associated with Jefferies Group'sour derivative contracts meeting the definition of a guarantee under GAAP at AugustMay 31, 20192020 (in millions):
 Expected Maturity Date
Guarantee Type202020212022
and
2023		2024
and
2025		2026
and
Later		Notional/
Maximum
Payout
Derivative contracts – non-credit related$7,632.6  $3,542.2  $5,003.2  $1,266.4  $48.5  $17,492.9  
Written derivative contracts – credit related1.0  —  1.0  5.4  —  7.4  
Total derivative contracts$7,633.6  $3,542.2  $5,004.2  $1,271.8  $48.5  $17,500.3  
 Expected Maturity Date  
Guarantee Type2019 2020 2021
and
2022		 2023
and
2024		 2025
and
Later		 
Notional/
Maximum
Payout
Derivative contracts – non-credit related$7,075.0
 $4,115.5
 $4,627.6
 $3,612.0
 $320.6
 $19,750.7
Written derivative contracts – credit related—
 32.9
 —
 39.2
 —
 72.1
Total derivative contracts$7,075.0

$4,148.4

$4,627.6

$3,651.2

$320.6

$19,822.8


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 GroupWe substantially mitigates itsmitigate our exposure to market risk on these contracts through hedges, such as other derivative contracts and/or cash instruments, and Jefferies Group manageswe manage the risk associated with these contracts in the context of itsour overall risk management framework. Jefferies Group believesWe believe notional amounts overstate itsour expected payout and that fair value of these contracts is a more relevant measure of itsour obligations. The fair value of derivative contracts meeting the definition of a guarantee is approximately $239.0$192.7 million at AugustMay 31, 2019.2020.

Berkadia.  We have agreed to reimburse Berkshire Hathaway for up to one-half of any losses incurred under a $1.5 billion surety policy securing outstanding commercial paper issued by an affiliate of Berkadia. At AugustMay 31, 2019,2020, the aggregate amount of commercial paper outstanding was $1.47 billion.

HomeFed. For real estate development projects, HomeFed is generally required to obtain infrastructure improvement bonds at the beginning of construction work and warranty bonds upon completion of such improvements. These bonds are issued by surety companies to guarantee satisfactory completion of a project and provide funds primarily to a municipality in the event HomeFed is unable or unwilling to complete certain infrastructure improvements. As HomeFed develops the planned area and the municipality accepts the improvements, the bonds are released. Should the respective municipality or others draw on the bonds for any reason, certain of HomeFed's subsidiaries would be obligated to pay. At AugustMay 31, 2019,2020, the aggregate amount of infrastructure improvement bonds outstanding was $70.4$66.6 million.
Other Guarantees.  Jefferies Group is a memberWe are members of various exchanges and clearing houses. In the normal course of business, Jefferies Group provideswe provide guarantees to securities clearing houses and exchanges. These guarantees generally are required under the standard membership agreements, such that members are required to guarantee the performance of other members. Additionally, if a member becomes unable to satisfy its obligations to the clearing house, other members would be required to meet these shortfalls. To mitigate these performance risks, the exchanges and clearing houses often require members to post collateral. Jefferies Group'sOur obligations under such guarantees could exceed the collateral amounts posted. Jefferies Group'sOur maximum potential


liability under these arrangements cannot be quantified; however, the potential for Jefferies Groupus to be required to make payments under such guarantees is deemed remote. Accordingly, no liability has been recognized for these arrangements.
Standby Letters of Credit.  At AugustMay 31, 2019, Jefferies Group2020, we provided guarantees to certain counterparties in the form of standby letters of credit totaling $36.9$38.5 million. Standby letters of credit commit Jefferies Groupus to make payment to the beneficiary if the guaranteed party
63

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 $1.6 million at August 31, 2019. Primarily all letters of credit expire within one year.


Note 20.  Net Capital Requirements

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

Jefferies LLC’sLLC's net capital and excess net capital at AugustMay 31, 20192020 were $1,474.2$1,507.7 million and $1,356.5$1,430.7 million, respectively.

FINRA is the designated examining authority for Jefferies Group's U.S. broker-dealerLLC 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 21.  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):
 May 31, 2020November 30, 2019
Carrying
Amount		Fair
Value		Carrying
Amount		Fair
Value
Receivables:
Notes and loans receivable (1)$787,583  $810,333  $775,501  $784,053  
Financial Liabilities:    
Short-term borrowings (2)$656,855  $656,855  $548,490  $548,490  
Long-term debt (3)$6,774,950  $6,948,857  $7,121,776  $7,569,837  

(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 carried at cost are estimated to be the carrying amount due to their short maturities. If measured at fair value in the financial statements, these financial instruments would be classified as Level 3 in the fair value hierarchy. Short-term borrowings that are accounted for at fair value include equity-linked notes, which are generally categorized within Level 2 of the fair value hierarchy, as the fair value is based on the price of the underlying equity security.
(3)Long-term debt: The fair values are estimated using quoted prices, pricing information obtained from external data providers and, for certain variable rate debt, is estimated to be the carrying amount. If measured at fair value in the financial statements, these financial instruments would be classified as Level 2 and Level 3 in the fair value hierarchy.

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 August 31, 2019 November 30, 2018
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Receivables:       
Notes and loans receivable (1)$754,844
 $763,270
 $680,015
 $676,152
        
Financial Liabilities: 
  
  
  
Short-term borrowings (2)$518,914
 $518,914
 $387,492
 $387,492
Long-term debt (3)$6,954,276
 $7,351,550
 $6,931,393
 $6,826,503

(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 22.  Related Party Transactions

Jefferies Capital Partners Related Funds. Jefferies Group has equity investments in the JCP Manager and in private equity funds (including JCP Fund V), which are managed by a team led by our President and a Director ("Private Equity Related Funds"). Reflected in ourthe Consolidated Statements of Financial Condition at AugustMay 31, 20192020 and November 30, 20182019 are Jefferies Group's equity investments in Private Equity Related Funds of $28.7$16.6 million and $35.5$23.0 million, respectively. Net gains (losses) from Jefferies Group's investment in JCP Fund V aggregating $(2.5)$(7.0) million and $0.3$3.8 million for the three months ended AugustMay 31, 2020 and 2019, and September 30, 2018, respectively, and $(1.9)$(5.5) million and $10.1$0.6 million for the ninesix months ended AugustMay 31, 20192020 and September 30, 2018,2019, respectively, were recorded in OtherPrincipal transactions revenues. Gains (losses) for other funds were not material. For further information regarding our commitments and funded amounts to the Private Equity Related Funds, see Notes 87 and 19.

Berkadia Commercial Mortgage, LLC. At AugustMay 31, 20192020 and November 30, 2018,2019, Jefferies Group has commitments to purchase $464.4$209.7 million and $723.8$360.4 million, respectively, in agency commercial mortgage-backed securities from Berkadia.

FXCM. Jefferies Group entered into a foreign exchange prime brokerage agreement with FXCM in 2017. In connection with the foreign exchange contracts entered into under this agreement, Jefferies Group had $22.7$2.1 million and $9.9 million at AugustMay 31, 20192020 and November 30, 2018,2019, respectively, included in Payables, expense accruals and other liabilities and $0.2 million at August 31, 2019 in Trading liabilities, at fair value, in ourthe Consolidated Statements of Financial Condition.

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.

Officers, Directors and Employees.  We have $44.9$42.3 million and $49.3$44.8 million of loans outstanding to certain officers and employees (none of whom are an executive officer or director of the Company) at AugustMay 31, 20192020 and November 30, 2018,2019, respectively. Receivables from and payables to customers include balances arising from officers', directors' and employees' individual security transactions. These transactions are subject to the same regulations as all customer transactions and are provided on substantially the same terms.

Jefferies Finance. During November 2019, we purchased $65.3 million of loan receivables from Jefferies Finance which settled during the six months ended May 31, 2020. See Note 98 for additional information on transactions with Jefferies Finance.


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Note 23.  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 also acquired an additional 3% of National Beef from other equity owners and owns 51% of National Beef. Jefferies will continue to designate 2 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 classified the results of National Beef prior to June 5, 2018 as a discontinued operation and reported those results in Income from discontinued operations, net of income tax provision in the Consolidated Statements of Operations.
A summary of the results of discontinued operations for National Beef for the nine months ended September 30, 2018 through the June 5, 2018 transaction with Marfrig is as follows (in thousands):
Revenues:  
Beef processing services $3,137,611
Interest income 131
Other 4,329
Total revenues 3,142,071
   
Expenses:  
Compensation and benefits 17,414
Cost of sales 2,884,983
Interest expense 4,316
Depreciation and amortization 43,959
Selling, general and other expenses 14,291
Total expenses 2,964,963
   
Income from discontinued operations before income taxes 177,108
Income tax provision 47,045
Income from discontinued operations, net of income tax provision $130,063


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

As discussed above, we account for our retained 31% ownership of National Beef subsequent to the sale to Marfrig under the equity method. During the three and nine months ended August 31, 2019, we recorded $75.9 million and $137.9 million, respectively, in Income related to associated companies from our 31% ownership in National Beef and we received distributions from National Beef of $121.8 million during the nine months ended August 31, 2019. The pre-tax income of 100% of National Beef during the three and nine months ended August 31, 2019 was $250.6 million and $464.3 million, respectively. During the three months ended September 30, 2018 and the period from June 5, 2018 through September 30, 2018, we recorded $58.9 million and $83.3 million, respectively, in Income related to associated companies from our 31% ownership in National Beef and we received distributions from National Beef of $48.7 million during the period from June 5, 2018 through September 30, 2018. The pre-tax income of 100% National Beef during the three months ended September 30, 2018 and the period from June 5, 2018 through September 30, 2018 was $196.1 million and $276.5 million, respectively.

During the nine months ended September 30, 2018, we have 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 is approximately $352.4 million related to the remeasurement of our retained 31% interest in National Beef to fair value.



Note 24.  Segment Information

We are a diversified financial services company engaged in investment banking and capital markets, asset management and direct investing. In 2018, we made a number of strategic changes including the sale of 48% of National Beef and 100% of our interest in Garcadia. During the fourthfirst quarter of 2018,2020, we transferredchanged our internal structure with regard to Jefferies Group our 50% interest in Berkadiaoperating segments. Previously, our segments consisted of: 1) Investment Banking, Capital Markets and our LAM seed investments. Culminating withAsset Management, which included all of the fourth quarter reorganization, we began managing our business across 3 reportable operating segments consistingfinancial results of Jefferies Group,Group; 2) Merchant Banking; and 3) Corporate. In the first quarter of 2020, we appointed co-Presidents of Asset Management and created a separate operating segment that consists of the asset management activity previously included in our Investment Banking, Capital Markets and Asset Management segment, together with asset management activity previously included in our Merchant Banking and Corporate.segment. In connectionorder to compare results with this change,prior periods, we have reclassifiedrecast our segment results for the prior periods to conform to our current presentation.three and six months ended May 31, 2019.

Jefferies Group is the largest independent U.S. headquartered global full-service integratedThe Investment Banking and Capital Markets segment includes investment banking, capital markets and securities firm.other related services. Investment banking provides underwriting and financial advisory services to clients across most industry sectors in the Americas, Europe and Asia. Capital markets businesses operate across the spectrum of equities, fixed income and foreign exchange products. Related services include, among other things, prime brokerage and equity finance, research and strategy, corporate lending and real estate finance.

Our Asset Management segment includes both the operations of LAM as well as the asset management operations within Jefferies Group. Within Asset Management, we manage, invest in and provide services to a diverse group of alternative asset management platforms across a spectrum of investment strategies and asset classes. Asset Management offers institutional clients an innovative range of investment strategies through its affiliated managers.
Merchant Banking consists of our various merchant banking businesses and investments, primarily including National Beef, Spectrum Brands, Linkem, Vitesse Energy Finance and JETX Energy, real estate, Idaho Timber, FXCM and The We Company, HomeFed, Idaho Timber and FXCM.Company. Our Merchant Banking businesses and investments also include Berkadia and our LAM seed investments, prior to their transfer to Jefferies Group in the fourth quarter of 2018, and Garcadia,included National Beef, prior to its sale in August 2018.November 2019 and Spectrum Brands, prior to its distribution to shareholders in October 2019.

Corporate assets primarily consist of cash and cash equivalents, financial instruments owned and the deferred tax asset (exclusive of Jefferies Group's deferred tax asset). Corporate revenues primarily include interest income. We do not allocate Corporate revenues or overhead expenses to the operating units.
As discussed further in Note 23 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 Merchant Banking in the table below.

65

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 and nine months ended September 30, 2018.
For the Three Months EndedFor the Six Months Ended
 May 31, 2020May 31, 2019May 31, 2020May 31, 2019
(In thousands)
Net revenues:
Reportable Segments:
Investment Banking and Capital Markets$1,028,832  $859,275  $2,177,661  $1,517,522  
Asset Management7,391  44,362  27,720  75,107  
Merchant Banking107,162  185,379  311,721  318,071  
Corporate1,525  8,974  11,317  13,167  
Total net revenues related to reportable
segments		1,144,910  1,097,990  2,528,419  1,923,867  
Consolidation adjustments2,679  3,667  5,498  6,233  
Total consolidated net revenues$1,147,589  $1,101,657  $2,533,917  $1,930,100  
Income (loss) before income taxes:    
Reportable Segments:    
Investment Banking and Capital Markets$214,534  $142,581  $464,491  $197,698  
Asset Management(41,553) 8,230  (62,482) 9,414  
Merchant Banking(74,716) 57,529  (128,339) 83,918  
Corporate(12,854) (13,885) (20,608) (35,228) 
Income before income taxes related to reportable segments85,411  194,455  253,062  255,802  
Parent Company interest(12,878) (14,766) (25,659) (29,528) 
Consolidation adjustments2,974  3,790  5,898  6,522  
Total consolidated income before income taxes$75,507  $183,479  $233,301  $232,796  
Depreciation and amortization expenses:    
Reportable Segments:    
Investment Banking and Capital Markets$19,981  $18,588  $39,097  $35,918  
Asset Management2,133  505  2,758  960  
Merchant Banking17,378  16,826  36,219  32,120  
Corporate874  867  1,762  1,722  
Total consolidated depreciation and amortization expenses$40,366  $36,786  $79,836  $70,720  
May 31,
2020		November 30, 2019
Identifiable Assets Employed:
Reportable Segments:
Investment Banking and Capital Markets$42,118,661  $40,523,223  
Asset Management3,322,559  3,313,716  
Merchant Banking3,146,713  3,285,671  
Corporate1,972,155  2,432,119  
Identifiable assets employed related to
reportable segments		50,560,088  49,554,729  
Consolidation adjustments(276,873) (94,495) 
Total consolidated assets$50,283,215  $49,460,234  
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 For the Three Months Ended For the Nine Months Ended
 August 31, 2019 September 30, 2018 August 31, 2019 September 30, 2018
 (In thousands)
Net revenues:       
Reportable Segments:       
Jefferies Group (1)$777,159
 $777,615
 $2,364,728
 $2,421,418
Merchant Banking (1)75,497
 369,309
 399,159
 529,627
Corporate8,967
 8,714
 22,134
 14,775
Total net revenues related to reportable segments861,623

1,155,638
 2,786,021
 2,965,820
Consolidation adjustments(4,845) (4,792) 857
 (8,380)
Total consolidated net revenues$856,778

$1,150,846
 $2,786,878
 $2,957,440
        
Income (loss) from continuing operations before income taxes: 
  
  
  
Reportable Segments: 
  
  
  
Jefferies Group (1)$83,075
 $87,101
 $300,798
 $331,704
Merchant Banking (1)(42,945) 218,532
 28,384
 119,217
Corporate(11,779) (15,367) (47,007) (58,107)
Income from continuing operations before income taxes related to reportable segments28,351

290,266
 282,175
 392,814
Parent Company interest(14,770) (14,755) (44,298) (44,251)
Consolidation adjustments(318) (2,819) 8,182
 (593)
Total consolidated income from continuing operations before income taxes$13,263

$272,692
 $246,059
 $347,970
        
Depreciation and amortization expenses: 
  
  
  
Reportable Segments: 
  
  
  
Jefferies Group (1)$21,170
 $17,175
 $57,800
 $50,829
Merchant Banking (1)17,880
 14,268
 50,248
 38,932
Corporate830
 852
 2,552
 2,599
Total consolidated depreciation and amortization expenses$39,880

$32,295
 $110,600
 $92,360

(1)Amounts related to LAM and Berkadia are included in Merchant Banking prior to their transfer to Jefferies Group in the fourth quarter of 2018. For the three and nine months ended September 30, 2018, net revenues related to the net assets transferred were $25.4 million and $4.6 million, respectively, and income from continuing operations before income taxes related to the net assets transferred was $39.7 million and $48.8 million, respectively.

Interest expense classified as a component of Net revenues relates to Jefferies Group. For the three months ended AugustMay 31, 20192020 and September 30, 2018,2019, interest expense classified as a component of Expenses was primarily comprised of parent company interest ($14.812.9 million and $14.8 million, respectively) and Merchant Banking ($8.98.3 million and $14.1$8.4 million, respectively). For the ninesix months ended AugustMay 31, 20192020 and September 30, 2018,2019, interest expense classified as a component of Expenses was primarily comprised of parent company interest ($44.325.7 million and $44.3$29.5 million, respectively) and Merchant Banking ($25.517.1 million and $30.4$16.6 million, respectively). 



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67


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

Statements included in this report may contain forward-looking statements. See "Cautionary Statement for Forward-Looking Information" below. The following should be read in conjunction with the Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations, Risk Factors and the description of our businesses included in our TransitionAnnual Report on Form 10-K for the year ended November 30, 20182019 (the "2018"2019 10-K").

Results of Operations
We are a diversified financial services company engaged in investment banking and capital markets, asset management and direct investing. During the first quarter of 2020, we changed our internal structure with regard to our operating segments. Previously, our segments consisted of: 1) Investment Banking, Capital Markets and Asset Management, which included all of the financial results of Jefferies Group LLC ("Jefferies Group"), our largest subsidiary, is; 2) Merchant Banking; and 3) Corporate. In the largest independent full-service global investment banking firm headquartered infirst quarter, we appointed co-Presidents of Asset Management and created a separate fourth operating segment that consists of the U.S.

Prior to the fourth quarter of 2018, we followed a calendar year basis for reporting. Because Jefferies Group followed a fiscal year ended November 30, weasset management activity previously included Jefferies Group in our consolidatedInvestment Banking, Capital Markets and Asset Management segment, together with asset management activity previously included in our Merchant Banking segment. In order to compare results utilizing a one month lag. Accordingly,with prior periods, we have recast our segment results for the three and ninesix months ended September 30, 2018 includeMay 31, 2019. The discussion that follows is presented on the basis of our recast segments.

A summary of results for Jefferies Groupof operations for the months of June 2018 through August 2018 and December 2017 through August 2018, respectively. In the fourthsecond quarter of 2018, we changed our fiscal year end to November 302020 is as follows (in thousands):
Investment Banking and Capital MarketsAsset ManagementMerchant BankingCorporateParent Company InterestConsolidation AdjustmentsTotal
Net revenues$1,028,832  $7,391  $107,162  $1,525  $—  $2,679  $1,147,589  
Expenses:
Compensation and benefits551,821  26,502  13,973  6,171  —  —  598,467  
Cost of sales (1)67,601  7,878  80,771  —  —  —  156,250  
Interest expense (2)—  —  8,282  —  12,878  —  21,160  
Depreciation and amortization19,981  2,133  17,378  874  —  —  40,366  
Selling, general and other expenses174,895  12,431  54,753  7,334  —  (295) 249,118  
Total expenses814,298  48,944  175,157  14,379  12,878  (295) 1,065,361  
Income (loss) before income taxes and loss related to associated companies214,534  (41,553) (67,995) (12,854) (12,878) 2,974  82,228  
Loss related to associated companies—  —  (6,721) —  —  —  (6,721) 
Income (loss) before income taxes$214,534  $(41,553) $(74,716) $(12,854) $(12,878) $2,974  $75,507  
Income tax provision31,962  
Net income$43,545  

(1) Includes Floor brokerage and eliminatedclearing fees.
(2) Interest expense within Merchant Banking of $8.3 million for the one month lag previously utilizedsecond quarter of 2020, primarily includes $7.0 million for inclusionFoursight Capital and $1.2 million for Vitesse Energy, LLC ("Vitesse Energy Finance").

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A summary of Jefferies Group's results. Accordingly, ourresults of operations for the first half of 2020 is as follows (in thousands):
Investment Banking and Capital MarketsAsset ManagementMerchant BankingCorporateParent Company InterestConsolidation AdjustmentsTotal
Net revenues$2,177,661  $27,720  $311,721  $11,317  $—  $5,498  $2,533,917  
Expenses: 
Compensation and benefits1,172,745  48,723  31,163  16,029  —  —  1,268,660  
Cost of sales (1)120,475  14,185  153,214  —  —  —  287,874  
Interest expense (2)—  —  17,055  —  25,659  —  42,714  
Depreciation and amortization39,097  2,758  36,219  1,762  —  —  79,836  
Selling, general and other expenses380,853  24,536  127,833  14,134  —  (400) 546,956  
Total expenses1,713,170  90,202  365,484  31,925  25,659  (400) 2,226,040  
Income (loss) before income taxes and loss related to associated companies464,491  (62,482) (53,763) (20,608) (25,659) 5,898  307,877  
Loss related to associated companies—  —  (74,576) —  —  —  (74,576) 
Income (loss) before income taxes$464,491  $(62,482) $(128,339) $(20,608) $(25,659) $5,898  233,301  
Income tax provision77,735  
Net income$155,566  
(1) Includes Floor brokerage and clearing fees.
(2) Interest expense within Merchant Banking of $17.1 million for the first half of 2020, primarily includes $14.4 million for Foursight Capital and $2.6 million for Vitesse Energy Finance.

A summary of results for the threesecond quarter of 2019 is as follows (in thousands):
Investment Banking and Capital MarketsAsset ManagementMerchant BankingCorporateParent Company InterestConsolidation AdjustmentsTotal
Net revenues$859,275  $44,362  $185,379  $8,974  $—  $3,667  $1,101,657  
Expenses:
Compensation and benefits470,530  13,338  13,931  12,761  —  —  510,560  
Cost of sales (1)50,218  10,169  80,415  —  —  —  140,802  
Interest expense (2)—  —  8,372  —  14,766  —  23,138  
Depreciation and amortization18,588  505  16,826  867  —  —  36,786  
Selling, general and other expenses177,358  12,240  30,356  9,231  —  (123) 229,062  
Total expenses716,694  36,252  149,900  22,859  14,766  (123) 940,348  
Income (loss) before income taxes and income related to associated companies142,581  8,110  35,479  (13,885) (14,766) 3,790  161,309  
Income related to associated companies—  120  22,050  —  —  —  22,170  
Income (loss) before income taxes$142,581  $8,230  $57,529  $(13,885) $(14,766) $3,790  183,479  
Income tax benefit(488,797) 
Net income$672,276  

(1) Includes Floor brokerage and nine months ended August 31, 2019 include comparable results for Jefferies Group for the monthsclearing fees.
(2) Interest expense within Merchant Banking of June 2019 through August 2019 and December 2018 through August 2019, respectively.

Income from continuing operations net of income taxes was $49.4$8.4 million for the thirdsecond quarter of 2019, in comparison to $182.3primarily includes $7.1 million for Foursight Capital and $1.2 million for Vitesse Energy Finance.
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A summary of results for the first half of 2019 is as follows (in thousands):
Investment Banking and Capital MarketsAsset ManagementMerchant BankingCorporateParent Company InterestConsolidation AdjustmentsTotal
Net revenues$1,517,522  $75,107  $318,071  $13,167  $—  $6,233  $1,930,100  
Expenses: 
Compensation and benefits831,844  30,192  27,834  30,282  —  —  920,152  
Cost of sales (1)97,354  14,901  147,336  —  —  —  259,591  
Interest expense (2)—  —  16,628  —  29,528  —  46,156  
Depreciation and amortization35,918  960  32,120  1,722  —  —  70,720  
Selling, general and other expenses354,708  19,980  59,378  16,391  —  (289) 450,168  
Total expenses1,319,824  66,033  283,296  48,395  29,528  (289) 1,746,787  
Income (loss) before income taxes and income related to associated companies197,698  9,074  34,775  (35,228) (29,528) 6,522  183,313  
Income related to associated companies—  340  49,143  —  —  —  49,483  
Income (loss) before income taxes$197,698  $9,414  $83,918  $(35,228) $(29,528) $6,522  232,796  
Income tax benefit(486,495) 
Net income$719,291  
(1) Includes Floor brokerage and clearing fees.
(2) Interest expense within Merchant Banking of $16.6 million for the thirdfirst half of 2019, primarily includes $14.1 million for Foursight Capital and $2.3 million for Vitesse Energy Finance.

The composition of our financial results has varied over time and we expect will continue to evolve over time. Our strategy is designed to transform Jefferies into a pure financial services firm and, as such, we are focused on the development of our Investment Banking and Capital Markets, and Asset Management segments, while we continue to realize the value of or otherwise transform our investments in Merchant Banking. The following factors and events should be considered in evaluating our financial results as they impact comparisons:

Our financial results for the second quarter of 2018. Income2020 were impacted by:

•Pre-tax income of $172.9 million from continuing operations before income taxes was $13.3 million for the third quarter of 2019, in comparison to $272.7 million for the third quarter of 2018. During the current quarter, Jefferies Group generated pre-tax incomereflecting total net revenues of $83.1$1,034.4 million, reflecting solid performance inincluding:
◦Record quarterly combined Capital Markets net revenues of $730.3 million, including equities net revenues of $237.1 million and record fixed income investment bankingnet revenues of $493.2 million; and asset management.
◦Investment Banking net revenues of $316.3 million, including advisory net revenues of $182.1 million.
•Pre-tax loss of $74.7 million related to our Merchant Banking pre-tax loss totaled $42.9 million, including income from associated companiesbusinesses reflecting:
◦Positive impact of $75.9 million for the third quarter of 2019 in respect of our 31% investment in National Beef Packing Company, LLC ("National Beef")hedging gains at Vitesse Energy Finance, solid results at Idaho Timber and a $72.1record quarter for FXCM; offset by
◦A $44.2 million pre-tax gain relatednon-cash charge to write-down the purchase of the remaining interest in HomeFed more than offset by a $146.0 million decrease in the estimated fair value of our investment in The We Company. InCompany in light of SoftBank Group's withdrawal of its $3 billion tender offer and The We Company's current performance outlook;
◦Non-cash charge of $13.2 million to write-down Vitesse Energy Finance's oil and gas assets in the third quarterDenver-Julesburg Basin ("DJ Basin"), reflecting a significant decrease in oil and gas prices;
◦A total of 2018, Jefferies Group generated$12.2 million in non-cash write-downs of HomeFed LLC's ("HomeFed") interests in a hotel and a retail center significantly impacted by the external events of the second quarter;
◦ $19.3 million in mark-to-market unrealized decreases in the values of some of our investments in public companies; and
◦ A continued operating loss at Linkem, which experienced increased subscriber growth and network usage.




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Our financial results for the first half of 2020 were impacted by:

•Record pre-tax income of $87.1$408.2 million from the Jefferies Group reflecting total record net revenues of $2,205.1 million, including:
◦Record combined six months Capital Markets net revenues of $1,224.1 million, including record equities net revenues of $482.8 million and record fixed income net revenues of $741.3 million; and
◦Investment Banking net revenues of $893.7 million, including record six months advisory net revenues of $525.2 million.
•Pre-tax loss of $128.3 million related to our Merchant Banking's results for the third quarterBanking businesses reflecting:
◦Positive contributions from Vitesse Energy Finance, Idaho Timber and FXCM;
◦A gain of 2018 include a $221.7$61.5 million pre-tax gain on the salefrom effective short-term hedges against mark-to-market and fair value decreases in some of our Garcadia interests, income from associated companies of $58.9other investments within Merchant Banking;
◦A $44.2 million in respect of our 31% investment in National Beef, a $48.5 million mark-to-market decrease innon-cash charge to write-down the value of our investment in Spectrum Brands ("Spectrum Brands")/HRG Group, Inc. ("HRG")The We Company in light of SoftBank Group's withdrawal of its $3 billion tender offer and a $47.9The We Company's current performance outlook;
◦$45.4 million impairment lossin mark-to-market unrealized decreases in the values of some of our investments in public companies;
◦Non-cash charges of $67.8 million related to Golden Queen Mining Company,write-downs of real estate investments at HomeFed; and
◦Non-cash charge of $13.2 million to write-down Vitesse Energy Finance's oil and gas assets in the DJ Basin and $33.0 million to write-down the value of our investment in JETX Energy, LLC ("Golden Queen"JETX Energy"). to reflect the decline in oil prices.

Income from continuing operations net of income taxes was $768.7 millionOur financial results for the first nine monthssecond quarter of 2019 in comparison to $296.4 million for the first nine months of 2018. The first nine months of 2019 includes awere impacted by:

•A nonrecurring tax benefit of $544.6 million related to the closing of our available for sale portfolio, which triggered the realization of lodged tax benefits from earlier years. Incomeyears;
•Pre-tax income of $155.1 million from continuing operations beforethe Jefferies Group, reflecting total net revenues of $901.9 million;
•Pre-tax income taxes was $246.1of $57.5 million related to our Merchant Banking businesses reflecting:
◦A $11.3 million mark-to-market decrease in the value of our investment in Spectrum Brands Holdings, Inc. ("Spectrum Brands"); and
◦$34.9 million of income from associated companies in respect of our 31% investment in National Beef Packing Company, LLC ("National Beef").

Our financial results for the first nine monthshalf of 2019 in comparisonwere impacted by:

•A nonrecurring tax benefit of $544.6 million related to $348.0the closing of our available for sale portfolio, which triggered the realization of lodged tax benefits from earlier years;
•Pre-tax income of $217.7 million for the first nine months of 2018. During the first nine months of 2019,from Jefferies Group generated pre-tax income of $300.8 million, reflecting strong performance in equities, fixed income and asset management, but below-normal results in investment banking due to the severe market downturn in December 2018, which heavily muted issuance activity. This was exacerbated byactivity, the five-week shutdown of the U.S. Governmentgovernment in late December 2018 and January 2019, which further dampened new issue transactions in the capital markets and, had a lag effect on Jefferies Group's advisory revenues.revenues in the second quarter of 2018, which were held back by the lag effect resulting from capital markets conditions in December 2018 and the U.S. government shutdown in December 2018 and January 2019;
•Pre-tax income of $83.9 million related to our Merchant Banking pre-tax income totaled $28.4businesses reflecting:
◦A $24.7 million includingmark-to-market increase in the value of our investment in Spectrum Brands; and
◦$62.1 million of income from associated companies of $137.9 million for the first nine months of 2019 in respect of our 31% investment in National Beef, strong performance from Vitesse EnergyBeef.

During March 2020, the global novel coronavirus ("COVID-19") pandemic and a $72.1 million pre-tax gain related toinitial actions taken in response wreaked havoc on the purchaseglobal economy and all financial markets, and adversely affected our businesses. In April and May 2020, the unprecedented interventions of the remaining interestU.S. Federal Reserve Bank, other central banks and various governments drove a sharp rebound in HomeFed offsetthe financial markets and spurred renewed activity in the equity and debt new issue capital markets. As a result, Jefferies Group's performance improved considerably in April and May. Jefferies Group experienced strong market volumes and volatility was significantly higher during the quarter ended May 31, 2020 than in the prior year quarter, resulting in increased client activity across our capital markets businesses. Our investment banking net revenues were below normal for the quarter, but our backlog remains solid and our current level of incoming new business is strong. We continue to monitor the impact of the pandemic on the operations and value of our investments.

Our leadership is continuously monitoring circumstances around COVID-19, as well as economic and capital market conditions, and providing frequent communications to both our clients and our employees. Peg Broadbent, Jefferies Group's longstanding, esteemed Chief Financial Officer, tragically died from complications of COVID-19 in March. We lost an incredible individual whom we all cherished and miss dearly. In Peg's memory, our clients, employees and firm came together
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to contribute $9.25 million to over 85 front line charities aiding those most affected by $169.1COVID-19 and in the greatest need. Throughout the quarter ended May 31, 2020, we have announced a number of important initiatives to support our employees, our clients and the broader public during this crisis:
• We have worked proactively providing our clients with advice, execution and liquidity during the market disruption. In May 2020, Greenwich Associates named Jefferies Group as the top firm in helping clients navigate the markets as COVID-19 significantly impacted equity markets in mid-March, causing volatility and increased trading volumes. These results were based on a survey they had recently conducted of more than 75 buy-side institutions evaluating brokers' performances in providing clients with liquidity, hedging solutions, market color and insights.
• We have monitored the health and welfare of our employees and worked actively with many individuals diagnosed with COVID-19.
• We are working with a newly established public-private consortium combining the U.S. Department of Health and Human Services (through its Office of the Assistant Secretary for Preparedness and Response) and ApiJect Systems America, a public-benefit corporation, to raise up to $1 billion to build sterile manufacturing facilities worldwide.
• We have adopted enhanced cleaning practices across our offices and have restricted business travel.
• We implemented our Business Continuity Planning plan and have largely moved to a remote working environment across all functions without any significant disruptions to our business or control processes.
• We are working continuously with all of our critical vendors regarding their own pandemic responses to ensure there is minimal impact on our business operations.
• We have honored the full financial commitment to our Jefferies Group summer intern class who will have a truncated program.

At May 31, 2020, we had goodwill recorded in our Consolidated Statement of Financial Condition of $1,736.5 million. Goodwill is allocated to reporting units and tested for impairment at least annually, or when circumstances or events make it more likely than not that an impairment occurred. As discussed further in Note 9, goodwill is primarily allocated to Investment Banking and Capital Markets of $1,553.3 million decreasesand Asset Management of $143.0 million. During the second quarter of 2020, COVID-19 broadly impacted the global operating environment, including a contraction in economic activity and significant volatility in the financial markets. Given the significance of this event and its adverse impact on the global economic outlook and market valuations, we performed an interim impairment test of goodwill for impairment as of May 31, 2020. The results of the impairment test did not indicate any impairment. The valuation methodology for our reporting units are sensitive to management's forecasts of future profitability and come with a level of uncertainty regarding trading volumes, capital market transaction levels, client transaction activity and expected growth prospects for certain business lines. The impact of COVID-19 on our forecasts also remains uncertain and increases the subjectivity that will be involved in evaluating our goodwill for potential impairment going forward. If the future were to differ adversely from these assumptions, the estimated fair value of The We Companymay decline and some of our investmentsresult in public companies. In contrast, for the first nine months of 2018, Jefferies Group generated pre-tax income of $331.7 million. Merchant Banking's results for the first nine months of 2018 include a $221.7 million pre-tax gain on the sale of our Garcadia interests, income from associated companies of $83.3 million in respect of our 31% investment in National Beef, a $228.4 million mark-to-market decrease in the value of our investment in Spectrum Brands/HRGan impairment.

Investment Banking and a $47.9 million impairment loss related to Golden Queen.Capital Markets

Income from discontinued operations before income taxes included $177.1 million, or $130.1 million net of tax expense for the first nine months of 2018, related to our then 79% ownership of National Beef. Results for the first nine months of 2018 include the 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 results as a gain on disposal of discontinued operations.



A summary of results for the third quarter of 2019 is as follows (in thousands):
 Jefferies Group Merchant Banking Corporate Parent Company Interest Consolidation Adjustments Total
Net revenues$777,159
 $75,497
 $8,967
 $—
 $(4,845) $856,778
            
Expenses:           
Compensation and benefits411,936
 23,496
 11,450
 —
 —
 446,882
Cost of sales—
 85,773
 —
 —
 —
 85,773
Floor brokerage and clearing fees54,247
 —
 —
 —
 (3,389) 50,858
Interest expense (1)—
 8,893
 —
 14,770
 —
 23,663
Depreciation and amortization21,170
 17,880
 830
 —
 —
 39,880
Selling, general and other expenses206,731
 54,683
 8,466
 —
 (1,138) 268,742
Total expenses694,084
 190,725
 20,746
 14,770
 (4,527) 915,798
Income (loss) from continuing operations before income taxes and income related to associated companies83,075
 (115,228) (11,779) (14,770) (318) (59,020)
Income related to associated companies—
 72,283
 —
 —
 —
 72,283
Income (loss) from continuing operations before income taxes$83,075
 $(42,945) $(11,779) $(14,770) $(318) 13,263
Income tax benefit from continuing operations          (36,131)
Income from continuing operations          $49,394

(1)Interest expense within Merchant Banking of $8.9 million for the third quarter of 2019, primarily includes $7.6 million for Foursight Capital and $1.2 million for Vitesse Energy Finance.



A summary of results for the first nine months of 2019 is as follows (in thousands):
 Jefferies Group Merchant Banking Corporate Parent Company Interest Consolidation Adjustments Total
Net revenues$2,364,728
 $399,159
 $22,134
 $—
 $857
 $2,786,878
            
Expenses:   
        
Compensation and benefits1,261,506
 63,796
 41,732
 —
 —
 1,367,034
Cost of sales—
 233,109
 —
 —
 —
 233,109
Floor brokerage and clearing fees168,698
 —
 —
 —
 (5,585) 163,113
Interest expense (1)—
 25,521
 —
 44,298
 —
 69,819
Depreciation and amortization57,800
 50,248
 2,552
 —
 —
 110,600
Selling, general and other expenses575,926
 119,867
 24,857
 —
 (1,740) 718,910
Total expenses2,063,930
 492,541
 69,141
 44,298
 (7,325) 2,662,585
Income (loss) from continuing operations before income taxes and income related to associated companies300,798
 (93,382) (47,007) (44,298) 8,182
 124,293
Income related to associated companies—
 121,766
 —
 —
 —
 121,766
Income (loss) from continuing operations before income taxes$300,798
 $28,384
 $(47,007) $(44,298) $8,182
 246,059
Income tax benefit from continuing operations          (522,626)
Income from continuing operations          $768,685

(1)Interest expense within Merchant Banking of $25.5 million for the first nine months of 2019, primarily includes $21.7 million for Foursight Capital and $3.5 million for Vitesse Energy Finance.



A summary of results for the third quarter of 2018 is as follows (in thousands):
 Jefferies Group Merchant Banking Corporate Parent Company Interest Consolidation Adjustments Total
Net revenues$777,615
 $369,309
 $8,714
 $—
 $(4,792) $1,150,846
            
Expenses:           
Compensation and benefits428,033
 19,464
 13,768
 —
 —
 461,265
Cost of sales—
 84,876
 —
 —
 —
 84,876
Floor brokerage and clearing fees45,745
 —
 —
 —
 (1,175) 44,570
Interest expense (1)—
 14,082
 —
 14,755
 —
 28,837
Depreciation and amortization17,175
 14,268
 852
 —
 —
 32,295
Selling, general and other expenses199,561
 36,954
 9,461
 —
 (798) 245,178
Total expenses690,514
 169,644
 24,081
 14,755
 (1,973) 897,021
Income (loss) from continuing operations before income taxes and income related to associated companies87,101
 199,665
 (15,367) (14,755) (2,819) 253,825
Income related to associated companies—
 18,867
 —
 —
 —
 18,867
Income (loss) from continuing operations before income taxes$87,101
 $218,532
 $(15,367) $(14,755) $(2,819) 272,692
Income tax provision from continuing operations          90,391
Income from continuing operations          $182,301

(1)Interest expense within Merchant Banking of $14.1 million for the third quarter of 2018, primarily includes $6.8 million for LAM, $5.8 million for Foursight Capital and $1.0 million for Vitesse Energy Finance.



A summary of results for the first nine months of 2018 is as follows (in thousands):
 Jefferies Group Merchant Banking Corporate Parent Company Interest Consolidation Adjustments Total
Net revenues$2,421,418
 $529,627
 $14,775
 $—
 $(8,380) $2,957,440
            
Expenses:           
Compensation and benefits1,327,760
 59,507
 43,045
 —
 (873) 1,429,439
Cost of sales—
 257,501
 —
 —
 —
 257,501
Floor brokerage and clearing fees135,808
 —
 —
 —
 (4,016) 131,792
Interest expense (1)—
 30,363
 —
 44,251
 —
 74,614
Depreciation and amortization50,829
 38,932
 2,599
 —
 —
 92,360
Selling, general and other expenses575,317
 108,427
 27,238
 —
 (2,898) 708,084
Total expenses2,089,714
 494,730
 72,882
 44,251
 (7,787) 2,693,790
Income (loss) from continuing operations before income taxes and income related to associated companies331,704
 34,897
 (58,107) (44,251) (593) 263,650
Income related to associated companies—
 84,320
 —
 —
 —
 84,320
Income (loss) from continuing operations before income taxes$331,704
 $119,217
 $(58,107) $(44,251) $(593) 347,970
Income tax provision from continuing operations          51,560
Income from continuing operations          296,410
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

(1)Interest expense within Merchant Banking of $30.4 million for the first nine months of 2018, primarily includes $16.4 million for Foursight Capital, $9.2 million for LAM and $2.6 million for Vitesse Energy Finance.



Jefferies Group

Jefferies Group is reflected in our consolidated financial statements and disclosures for the third quarter and first nine months of 2018 utilizing a one month lag. A summary of results of operations for Jefferies Groupour Investment Banking and Capital Markets segment is as follows (in thousands):
For the Three Months EndedFor the Six Months Ended
 May 31, 2020May 31, 2019May 31, 2020May 31, 2019
Net revenues$1,028,832  $859,275  $2,177,661  $1,517,522  
Expenses:            
Compensation and benefits551,821  470,530  1,172,745  831,844  
Floor brokerage and clearing fees67,601  50,218  120,475  97,354  
Depreciation and amortization19,981  18,588  39,097  35,918  
Selling, general and other expenses174,895  177,358  380,853  354,708  
    Total expenses
814,298  716,694  1,713,170  1,319,824  
Income before income taxes$214,534  $142,581  $464,491  $197,698  
 For the Three Months Ended For the Nine Months Ended
 August 31, 2019 September 30, 2018 August 31, 2019 September 30, 2018
Net revenues$777,159
 $777,615
 $2,364,728
 $2,421,418
        
Expenses: 
  
  
  
Compensation and benefits411,936
 428,033
 1,261,506
 1,327,760
Floor brokerage and clearing fees54,247
 45,745
 168,698
 135,808
Depreciation and amortization21,170
 17,175
 57,800
 50,829
Selling, general and other expenses206,731
 199,561
 575,926
 575,317
    Total expenses
694,084

690,514
 2,063,930
 2,089,714
        
Income from continuing operations before income taxes$83,075

$87,101
 $300,798
 $331,704


Jefferies GroupOur Investment Banking and Capital Markets segment comprises many business units, with many interactions and much integration among them. Business activities include the sales, trading, origination and advisory effort for various equity, fixed income, commodities, foreign exchange and advisory services. Jefferies Group'sOur Investment Banking and Capital Markets business, by its nature, does not produce predictable or necessarily recurring revenues or earnings. Jefferies Group'sOur results in any given period can be materially affected by conditions in global financial markets, economic conditions generally, and itsour own activities and positions.
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Revenues by Source

Net revenues presented for Jefferies Group's businessesour Investment Banking and Capital Markets segment include allocations of interest income and interest expense as it assesseswe assess the profitability of these businesses inclusive of the net interest revenue or expense associated with the respective activities, including the net interest cost of allocated long-term debt, which is a function of the mix of each business's associated assets and liabilities and the related funding costs.

The following provides a summary of net revenues by source (in thousands):

For the Three Months EndedFor the Six Months Ended
 May 31, 2020May 31, 2019May 31, 2020May 31, 2019
Advisory$182,081  $178,554  $525,239  $359,036  
Equity underwriting124,383  108,022  256,075  159,359  
Debt underwriting81,027  151,511  198,179  205,288  
Total underwriting205,410  259,533  454,254  364,647  
Other investment banking(71,234) 9,634  (85,763) 1,992  
Total investment banking316,257  447,721  893,730  725,675  
Equities237,131  206,083  482,772  380,622  
Fixed income493,144  173,253  741,326  370,012  
Total capital markets730,275  379,336  1,224,098  750,634  
    
Other(17,700) 32,218  59,833  41,213  
Total Investment Banking and Capital Markets (1) (2)$1,028,832  $859,275  $2,177,661  $1,517,522  

(1)Includes net interest revenues of $(0.8) million and $16.4 million for the second quarter of 2020 and 2019, respectively, and $2.1 million and $21.0 million for the first half of 2020 and 2019, respectively.
(2)Allocated net interest is not separately disaggregated in presenting our Investment Banking and Capital Markets reportable segment within our Net Revenues by Source. This presentation is aligned to our Investment Banking and Capital Markets internal performance measurement.

Investment Banking Revenues

Investment banking is comprised of revenues from:
• advisory services with respect to mergers and acquisitions and restructurings and recapitalizations;
•underwriting services, which include underwriting and placement services related to corporate debt, municipal bonds, mortgage-backed and asset-backed securities and equity and equity-linked securities and loan syndication;
• our share of net earnings from Jefferies Group's corporate lending joint venture, Jefferies Finance LLC ("Jefferies Finance"); and
• securities and loans received or acquired in connection with our investment banking activities.

The following table sets forth our investment banking activities (dollars in billions):
Deals CompletedAggregate Value
For the Three Months EndedFor the Six Months EndedFor the Three Months EndedFor the Six Months Ended
 May 31, 2020May 31, 2019May 31, 2020May 31, 2019May 31, 2020May 31, 2019May 31, 2020May 31, 2019
Advisory transactions (1)35  52  101  96  $23.3  $48.9  $81.0  $101.1  
Public and private debt financings84  159  236  273  $43.6  $53.7  $113.2  $81.0  
Public and private equity and convertible offerings (2)50  49  106  70  $25.4  $17.4  $37.2  $20.4  

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 For the Three Months Ended For the Nine Months Ended
 August 31, 2019 September 30, 2018 August 31, 2019 September 30, 2018
Equities$193,229
 $170,611
 $573,851
 $501,471
Fixed income148,334
 139,846
 518,346
 472,886
Total sales and trading341,563

310,457
 1,092,197
 974,357
  
  
  
  
Equity97,494
 139,220
 256,853
 326,613
Debt101,689
 138,515
 306,977
 483,271
Capital markets199,183
 277,735
 563,830
 809,884
Advisory213,350
 187,591
 572,386
 595,730
Other investment banking(9,108) (13,732) (7,116) (13,885)
Total investment banking403,425

451,594
 1,129,100
 1,391,729
Other12,374
 4,910
 53,587
 22,868
Total capital markets (1) (2)757,362
 766,961
 2,274,884
 2,388,954
        
Asset management fees3,340
 5,184
 14,559
 16,130
Investment return (3) (4)25,746
 14,483
 106,233
 40,754
Allocated net interest (3) (5)(9,289) (9,013) (30,948) (24,420)
Total asset management19,797
 10,654
 89,844
 32,464
        
Total net revenues$777,159

$777,615
 $2,364,728
 $2,421,418
(1) The number of advisory deals completed includes seven and five restructuring and recapitalization transactions during the second quarter of 2020 and 2019, respectively, and ten and nine restructuring and recapitalization transactions during the first half of 2020 and 2019, respectively.

(1)Includes net interest revenues (expenses) of $30.4 million(2) We acted as sole or joint bookrunner on 44 and 47 offerings during the second quarter of 2020 and 2019, respectively, and 100 and 68 offerings during the first half of 2020 and $6.9 million for the three months ended August 31, 2019, and September 30, 2018, respectively, and $51.4 million and $(11.2) million for the nine months ended August 31, 2019 and September 30, 2018, respectively.


(2)Allocated net interest is not separately disaggregated in presenting Jefferies Group's Capital Markets reportable segment within its Net Revenues by Source. This presentation is aligned to its Capital Markets internal performance measurement.
(3)Beginning with the first quarter of 2019, Net revenues attributed to the Investment return in Jefferies Group's Asset Management reportable segment have been disaggregated to separately present Investment return and Allocated net interest (see footnote 4 below). This disaggregation is intended to increase transparency and to make clearer actual Investment return. Jefferies Group offers third-party investors the opportunity to co-invest in its asset management funds and separately managed accounts alongside it. Jefferies Group believes that aggregating Investment return and Allocated net interest would obscure the Investment return by including an amount that is unique to its credit spreads, debt maturity profile, capital structure, liquidity risks and allocation methods, none of which are pertinent to the Investment returns generated by the performance of the portfolio.
(4)Includes net interest revenue (expense) of $2.0 million and $3.3 million for the three months ended August 31, 2019 and September 30, 2018, respectively, and $3.7 million and $4.2 million for the nine months ended August 31, 2019 and September 30, 2018 respectively.
(5)Allocated net interest represents the allocation of Jefferies Group's long-term debt interest expense to its Asset Management reportable segment, net of interest income on its Cash and cash equivalents and other sources of liquidity. For discussion of Jefferies Group's sources of liquidity, refer to the "Liquidity and Capital Resources" section herein.
Total investment banking revenues were $316.3 million for the second quarter of 2020, as compared to $447.7 million for the second quarter of 2019, reflecting solid performance in mergers, acquisitions and advisory and equity underwriting, offset by lower revenues in debt underwriting and write-downs and reserves from Jefferies Group's Jefferies Finance joint venture.

Our advisory revenues were $182.1 million, or 2.0% higher than the prior year quarter, and our equity underwriting revenues were 15.1% higher than the prior year quarter. Our results in mergers and acquisitions and equity underwriting were offset by lower revenues in debt underwriting, impacted by less acquisition finance activity and volatile debt markets. From equity and debt underwriting activities, we generated $124.4 million and $81.0 million in revenues, respectively, for the second quarter of 2020, compared with $108.0 million and $151.5 million in revenues, respectively, for the second quarter of 2019.

Other investment banking revenues were a loss of $71.2 million for the second quarter of 2020, compared with revenues of $9.6 million for the second quarter of 2019. Other investment banking revenues during the second quarter of 2020 include a net loss of $49.7 million from our share of the net results of the Jefferies Finance joint venture, reflecting unrealized losses related to the write-down of commitments and loans held-for-sale, as well as reserves recorded on the loan portfolio during the current year quarter, primarily due to the impact of COVID-19 on the markets and economy. This compares with net revenues of $25.1 million in the second quarter of 2019 from our share of the net results of the Jefferies Finance joint venture. Results in the current year quarter also include a $9.5 million write-down of a private equity investment. The results in both quarters also include the amortization of costs and allocated interest expense related to our investment in the Jefferies Finance business.

Investment banking revenues for the first half of 2020 were $893.7 million for the first half of 2020, as compared to $725.7 million for the first half of 2019, reflecting record performance in mergers and acquisitions, record results in equity underwriting and solid performance in debt underwriting. The prior year period results were also impacted by the severe market downturn in the early part of the prior year period, which heavily muted issuance activity, which was exacerbated by the five-week shutdown of the U.S. Government in late December and January, which further dampened new issue underwriting transactions.

Our advisory revenues were a record $525.2 million, up $166.2 million, or 46.3% higher than the prior year, reflecting record performance in our mergers and acquisitions business. Our underwriting revenues for the first half of 2020 were $454.3 million, an increase of $89.6 million, or 24.6%, from the same period last year, due to record results in equity underwriting and solid performance in debt underwriting, with broad contribution from our sector teams and regional presence. From equity and debt underwriting activities, we generated $256.1 million and $198.2 million in revenues, respectively, for the first half of 2020, compared with $159.4 million and $205.3 million in revenues, respectively, for the first half of 2019.

Other investment banking revenues were a loss of $85.8 million for the first half of 2020, compared with revenues of $2.0 million for the first half of 2019. Other investment banking revenues during the first half of 2020 include a net loss of $39.3 million from our share of the net results of the Jefferies Finance joint venture, reflecting unrealized losses related to the write-down of commitments and loans held-for-sale, as well as reserves recorded on the loan portfolio during the current year period, primarily due to the impact of COVID-19 on the markets and the economy. This compares with net revenues of $23.9 million in the first half of 2019 from our share of the net results of the Jefferies Finance joint venture. Other investment banking results during the first half of 2020 also includes a $24.5 million write-down of a private equity investment. The results in the first half of 2020 and 2019 also included an aggregate of $39.3 million and $46.5 million, respectively, representing the amortization of costs and allocated interest expense related to our investment in the Jefferies Finance business.

Equities Net Revenues

Equities are comprised of net revenues from:
•services provided to Jefferies Group'sour clients from which it earnswe earn commissions or spread revenue by executing, settling and clearing transactions for clients;
•advisory services offered to clients;
•financing, securities lending, outsourced trading and other prime brokerage services offered to clients; and
•wealth management services, which include providing clients access to all of itsour institutional execution capabilities.

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In May, Greenwich Associates named Jefferies Group as the top firm in helping clients navigate the markets as COVID-19 significantly impacted equity markets in mid-March, causing volatility and increased trading volumes. These results were based on a survey they had recently conducted of more than 75 buy-side institutions evaluating brokers' performances in providing clients with liquidity, hedging solutions, market color and insights.

Total equities net revenues were $193.2$237.1 million for the thirdsecond quarter of 2020, an increase of 15.1%, compared with $206.1 million for the second quarter of 2019, compared with $170.6 million for the third quarterprimarily due to record results in certain of 2018. Equities net revenues for the third quarter of 2019 increased compared with the prior year quarter across most of Jefferies Group's core equities sales and trading businesses. The increase in its core global equities sales and trading business was primarily driven by higher revenues across all of its global cashour equities businesses, in the Americas, Europe, and Asia, as well as in the global electronic trading, equity derivatives, international convertibles, securities finance and prime brokerage businesses. The continued revenue growth was driven bya result of increased market sharevolumes and client activity, as well as the continued diversification of our business both from a product and geographic perspective. We believe we continued focus on regionalto extend our client franchise as we were in a position to provide consistent and product diversification. Jefferies Group'sstrong service to our clients throughout this unprecedented period.

Our results include record net revenues in our International cash equities businesses across both Europe and Asia-Pacific, as well as across every region in our market-leading global electronic trading franchise. We also had record net revenues in our prime brokerage business.

Results in our European and Americas securities financeAsian cash equities businesses posted record quarterly revenues,were driven by increased client activity and outsourced trading. Severaltrading revenue, which is a result of its international businesses, including Europeanhigher market volumes and the expansion we have made in advisory and execution capabilities across Asia-Pacific. The record results in our global electronic trading Asian electronic trading,business were driven by increased global market volumes, volatility, and Asian securities finance,the continued strength of the global platform. Our prime brokerage business also had record quarters reflecting Jefferies Group'squarterly results as the business benefited from the continued strengthgrowth and expansion of our outsourced trading business. Our equity options business had double-digit growth, acrossdriven by improved trading results and higher volatility.

Our Americas cash equities business posted lower results driven by trading activity and the COVID-19 related market sell-off, partially offset by higher levels of client activity. Our global markets.convertibles business had lower results driven by trading conditions as a result of the COVID-19 market environment. Results in our Securities Finance business were lower due to reduced trading activity and the overall market environment.

The increase in Jefferies Group's coreour global equities net revenues compared with the prior year quarter was partially offset by higher losses inon certain block positions in the third quarter of 2019 as compared with the priorcurrent year quarter, and challenging market conditions in its Americas convertibles businesses.quarter.

Total equities net revenues were $573.9a record $482.8 million for the first nine monthshalf of 2019,2020, an increase of 26.8%, compared with $501.5$380.6 million for the first nine monthshalf of 2018. Equities2019, primarily due to strong results in most of our equities businesses, as a result of increased market volumes and client activity, higher levels of volatility, and the continued diversification of our business both from a product as well as geographic perspective. We believe we increased our market share in the first quarter of this year and additionally as we were in a position to provide consistent and strong service to our clients throughout this unprecedented period, we continued to extend our client franchise.

Our overall results include record net revenues for the first nine months of 2019 increased compared with the prior year period on strong
performance across several of Jefferies Group's sales and trading businesses, which continue to be well-positioned with continued
market share growth and competitive strength across global market rankings. The increase in its core global equities sales and trading business was primarily driven by higher revenues across globalour International cash equities primarilybusinesses across the Americasboth Europe and Europe,Asia- Pacific, as well as across every region in our market-leading global electronic trading international convertibles, securities finance and prime brokerage. franchise.

Results in its Americas and Europeanour global cash equities businesses were driven by increased client activity, market volumes and improved trading results. Jefferies Group'strading. While global market volumes and higher volatility drove an increase in commissions, our results in Asia-Pacific were also driven by our expansion and investment in the region across advisory and execution capabilities. Our global electronic trading business was driven by continued growth in market share and increased trading volumes. Its global convertibles business benefited from significant growth due to the expansion of the business with a market-leading team. Results in the prime services business,achieved record results, which reflects prime brokerage and securities finance, waswere driven by increased customerglobal market volumes, volatility, and the continued strength of the global platform. Our equity options business had double-digit growth, driven by higher volatility and improved trading. Our domestic and international convertibles business also had increased growth, driven by strong secondary trading activity, primarily in the U.S., and outsourced trading.exceptional strength in the first quarter, globally.

The increase and record results in Jefferies Group's coreour global equities sales and trading business was partially offset by a decreaselower revenues in its equity derivatives business,our prime services businesses, driven by a challenging trading environment and a decline in client activity in prime brokerage and lowerreduced trading activity in our securities finance business due to the impact of COVID-19.

The increase and record results in its U.S. convertibles businesses.our global equities net revenues was partially offset by higher losses on certain block positions in the current year period.


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Fixed Income Net Revenues

Fixed income is comprised of net revenues from:
•executing transactions for clients and making markets in securitized products, investment grade, high-yield, emerging markets, municipal and sovereign securities and bank loans;
loans, as well as foreign exchange execution on behalf of clients; and
•interest rate derivatives and credit derivatives (used primarily for hedging activities).derivatives.

Fixed income net revenues totaled $148.3$493.1 million for the thirdsecond quarter of 2019,2020, an increase of $8.5 million184.6% from net revenues of $139.8$173.3 million for the thirdsecond quarter of 2018, primarily2019, due to strong trading volumes during Junefrom the impact of COVID-19 on the markets across many of our fixed income businesses.

Fixed income record net revenues for the second quarter of 2020 were a record in our U.S. and July, which were partially offset by mutedinternational rates, leveraged credit, Europe and Asia credit, investment grade corporates and emerging markets businesses. Our U.S. and international rates businesses delivered record net revenues in the current year quarter, primarily due to increased trading volumes in Augustopportunities as investors were sidelined across most asset classes by increased volatility in risk assets and a further inversionresult of the U.S. Treasury yield curve.

ResultsFederal Reserve Bank and other government interventions to support the markets during the quarter. Our international rates business in Jefferies Group's globalthe prior year quarter underperformed due to a subdued market environment. Similarly, our leveraged credit, European and Asian credit and investment grade corporates businesses significantly improved withperformed well due to increased client activity, higher levels of volatility and trading activity helped by increased supplyopportunities that presented in April and May of the current year quarter as compared with very difficult trading conditions in the prior year quarter. RevenuesOur global emerging markets business similarly benefited in its leveragedthe current year quarter, with government support of the credit were higher due tomarkets driving increased trading activity, in the beginning of the current quarter, partially offset by risk asset and government bond volatilityespecially in the latter part of the quarter.

The current year quarter results were partially offset by trading losses in our municipal securities business, which was impacted by the significant sell-off in this business due to the impact of COVID-19. Revenues in Jefferies Group's emerging markets business were strong as compared with the prior year quarter due to improved market reach globally. The current quarter also included higher revenues resulting from increased issuance and trading revenue volumes in its structured notes business. Global rates revenues in the current quarter underperformed due to perpetuating negative interest rates and continued muted volatility in international rates markets compared to constructive trading conditions in the prior
year quarter. Revenues in itsour U.S. and international securitized markets groups were also lower in the current year quarter due to declining yields and a flattening and inverted U.S. Treasury yield curve compared with stronger performancedecline in our origination businessesdemand in the prior year quarter.securitization markets for those product classes and trading losses in certain asset classes as credit spreads widened for structured products.

Fixed income net revenues totaled $518.3a record $741.3 million for the first nine monthshalf of 2019,2020, an increase of $45.4 million100.4% from net revenues of $472.9$370.0 million for the first nine monthshalf of 2018,2019, primarily due to strong trading volumes, as markets were more active, marketsand the fixed income businesses' results reflect having successfully managed though the markets' high level of volatility during the period.

Our U.S. and international rates businesses had record net revenues in the current year period, as there were more trading opportunities in the U.S. treasuries trading market in the first half of the period and increased trading opportunities as a result of the U.S. Federal Reserve Bank and other government interventions due to the impact of COVID-19 in the second half of the period. Our international rates business in the prior year period underperformed as concerns over Brexit and economic challenges in other countries limited trading opportunities in the prior year period. Similarly, our leveraged credit, European and Asian credit and investment grade corporates businesses performed well due to increased client activity and higher levels of volatility throughout most of the current year period. Our global emerging markets business similarly benefited in the current year period, with more favorable market conditions which drove strong investor demand and an increase in new issuance in certain countries in the first half of the period, while government support of the credit markets drove increased trading activity in the second half of the period.

The increase wascurrent year period results were partially offset by increased volatilitytrading losses in U.S. Rates markets and increased volatilityour municipal securities business, which was impacted by the significant sell-off in risk assets.

Revenues improved in Jefferies Group's global investment grade corporatesthis business due to increased trading activity and increased investor demand and compares to muted client activity and demandthe impact of COVID-19 in the prior year period. Revenues in its leveraged credit business were higher due to improved results from secondary trading of par loans and bonds, as well as benefiting from various trading hires. Similarly, its Asia credit business was also well positioned to benefit from new hires and extended client reach and activity throughout mostsecond half of the current year period. The current year period also included higher revenues from Jefferies Group's structured notes trading and issuance business that benefited from a more established trading desk, as compared with the prior year period.

Global rates revenues in the current year period declined as concerns over Brexit continued and economic challenges in other European countries limited trading opportunities, compared with higher levels of trading around volatility in global interest rates, primarily in Europe, in the prior year period. Revenues in Jefferies Group'sour U.S. and international securitized markets groups were also lower due to lower U.S. Treasury yields coupled with a flat yield curve, partially offset by improved performance in certain securitization businesses as they expanded client reach and market presence. Less constructive market conditions throughout the current year period contributed to declines in revenues for its municipal securities businesses.

Investment Banking Revenues

Investment banking is comprised of revenues from:
capital markets services, which include underwriting and placement services related to corporate debt, municipal bonds, mortgage- and asset-backed securities and equity and equity-linked securities and loan syndication;
advisory services with respect to mergers and acquisitions and restructurings and recapitalizations;
Jefferies Group's share of net earnings from its corporate lending joint venture, Jefferies Finance LLC ("Jefferies Finance"); and
securities and loans received or acquired in connection with Jefferies Group's investment banking activities.

Total investment banking revenues were $403.4 million for the third quarter of 2019, 10.7% lower than the third quarter of 2018, due to lower leverage finance and equity capital markets revenues, partially offset by higher merger and acquisition revenues. Capital markets revenues were impacted by an industry-wide decline in equity and leverage finance fees across the U.S. and Europe of over 20% during the current quarter.



Jefferies Group's capital markets revenues for the third quarter of 2019 were $199.2 million, down $78.5 million, from the same quarter last year. Jefferies Group's advisory revenues were $213.4 million, $25.8 million higher than its results in the prior year quarter.

From equity and debt capital raising activities, Jefferies Group generated $97.5 million and $101.7 million in revenues, respectively, for the third quarter of 2019. During the third quarter of 2019, Jefferies Group completed 292 public and private debt financings that raised $43.7 billion in aggregate and Jefferies Group completed 45 public and private equity and convertible offerings that raised $14.2 billion (44 of which Jefferies Group acted as sole or joint bookrunner). Financial advisory revenues totaled $213.4 million, including revenues from 48 merger and acquisition transactions and three restructuring and recapitalization transactions with an aggregate transaction value of $110.2 billion.

From equity and debt capital raising activities, Jefferies Group generated $139.2 million and $138.5 million in revenues, respectively, for the third quarter of 2018. During the third quarter of 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.

Other investment banking revenues were a loss of $9.1 million for the third quarter of 2019 compared with a loss of $13.7 million for the third quarter of 2018. Other investment banking revenues during the third quarter of 2019 include a net loss of $8.2 million from Jefferies Group's share of the net results of the Jefferies Finance joint venture, reflecting $12.5 million in costs from refinancing its debt and volatility experienced in the leveraged finance markets during the current year quarter resulting in lower transaction volume. This compares with net revenues of $19.0 million in the prior year quarter. The results in both periods also included the amortization of costs and allocated interest expense related to its investment in the Jefferies Finance business.

Total investment banking revenues were $1,129.1 million for the first nine months of 2019, 18.9% lower than the first nine months of 2018, due to a significant industry-wide decline in equitydemand in the securitization markets for those product classes and leverage finance activity across the U.S. and Europe during the current periodtrading losses in certain asset classes as compared to the prior year period. During the period, industry-wide U.S. equity and leverage finance capital market activity declined significantly. Jefferies Group's capital markets revenuescredit spreads widened for the period were $563.8 million, down $246.1 million, or 30.4%, from the same period last year.structured products.

Jefferies Group's advisory revenues were $572.4 million for the first nine months of 2019, down $23.3 million, or 3.9%, from the same period last year.Other

From equity and debt capital raising activities, Jefferies Group generated $256.9 million and $307.0 million in revenues, respectively, for the first nine months of 2019. During the first nine months of 2019, Jefferies Group completed 565 public and private debt financings that raised $124.7 billion in aggregate and Jefferies Group completed 115 public and private equity and convertible offerings that raised $34.6 billion (112 of which Jefferies Group acted as sole or joint bookrunner). Financial advisory revenues totaled $572.4 million, including revenues from 135 merger and acquisition transactions and twelve restructuring and recapitalization transactions with an aggregate transaction value of $211.3 billion.

From equity and debt capital raising activities, Jefferies Group generated $326.6 million and $483.3 million in revenues, respectively, for the first nine months of 2018. During the first nine months of 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.

Other investment banking revenues were a loss of $7.1 million for the first nine months of 2019 compared with a loss of $13.9 million for the first nine months of 2018. Other investment banking revenues during the first nine months of 2019 include revenues of $15.7 million from Jefferies Group's share of the net results of the Jefferies Finance joint venture, reflecting $12.5 million in costs from refinancing its debt and volatility experienced in the leveraged finance markets during the first and third quarters of this year, which resulted in lower transaction volume. This compares with net revenues of $70.3 million in the prior year period. The results in both periods were offset by the amortization of costs and allocated interest expense related to its investment in the Jefferies Finance business.



Other Net Revenues

Other net revenues areis comprised of revenues from:
• Berkadia Commercial Mortgage Holding LLC ("Berkadia") and other strategic investments (other than Jefferies Finance);
• principal investments in private equity and hedge funds managed by third parties or related parties;parties and that are not part of our Leucadia Asset Management ("LAM") platform; and
• investments held as part of employee benefit plans, including deferred compensation plans (for which Jefferies Group incurswe incur equal and offsetting compensation expenses).

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Net revenues from Jefferies Group'sour Investment Banking and Capital Markets segment's other business category were a net loss of $17.7 million for the second quarter of 2020, an decrease of $49.9 million compared with $32.2 million for the second quarter of 2019.

Results in the second quarter of 2020 include negligible net revenues due to our share of the net income of Berkadia compared with net revenues of $25.3 million in the second quarter of 2019, due to the impairment of mortgage servicing rights as a result of lower interest rates, higher loan loss provisions and a decline in loan originations due to the impact of COVID-19 in the current quarter. The results in the second quarter of 2020 also include net mark-to-market losses related to certain investments compared with mark-to-market gains in the second quarter of 2019.

Net revenues from our Investment Banking and Capital Markets segment's other business category totaled $12.4 million for the third quarter of 2019, an increase of $7.5 million compared with $4.9 million for the third quarter of 2018. The results in the third quarter of 2019 include net revenues of $24.3 million due to Jefferies Group's share of income from Berkadia, which was transferred to Jefferies Group on October 1, 2018 from Jefferies, partially offset by costs and mark-to-market decreases in other strategic investments.

Net revenues from Jefferies Group's other business category totaled $53.6$59.8 million for the first nine monthshalf of 2019,2020, an increase of $30.7$18.6 million compared with $22.9$41.2 million for the first nine monthshalf of 2018.2019. The results in the first nine monthshalf of 20192020 include gains of $61.5 million from hedges that were bought and sold in February to offset the anticipated severe drop in equity markets at the end of the first quarter.

Results in the first half of 2020 also include net revenues of $72.2$21.9 million due to Jefferies Group'sour share of the net income fromof Berkadia which was transferred to Jefferies Group on October 1, 2018 from Jefferies, partially offset by costs and mark-to-market decreases in other strategic investments, compared with foreign currency gains in the prior year period.

Asset Management Net Revenues

Asset management revenues include the following:
• management and performance fees from funds and accounts managed by Jefferies Group; and
• investment income from Jefferies Group's investments in and managed by Jefferies Group's asset management business and other asset managers.

In the fourth quarter of 2018, Jefferies transferred to Jefferies Group investments in certain separately managed accounts and funds. Due to this transfer, Jefferies Group has made changes to the presentation of its "Net Revenues by Source" in the fourth quarter of 2018 and are including investment income from its investments in these separately managed accounts and funds within asset management revenues. Previously reported results are presented on a comparable basis.

The key components of asset management revenues are the level of assets under management and the performance return, whether on an absolute basis or relative to a benchmark or hurdle. These components can be affected by financial markets, profits and losses in the applicable investment portfolios and client capital activity. Further, asset management fees vary with the nature of investment management services. The terms under which clients may terminate Jefferies Group's investment management authority, and the requisite notice period for such termination, varies depending on the nature of the investment vehicle and the liquidity of the portfolio assets.

The following summarizes the results of Jefferies Group's Asset Management businesses by asset class (dollars in thousands):
 For the Three Months Ended For the Nine Months Ended
 August 31, 2019 September 30, 2018 August 31, 2019 September 30, 2018
        
Asset management fees:       
Equities$633
 $310
 $3,344
 $1,633
Multi-asset2,707
 4,874
 11,215
 14,497
Total asset management fees3,340
 5,184
 14,559
 16,130
  
  
  
  
Investment return25,746
 14,483
 106,233
 40,754
Allocated net interest(9,289) (9,013) (30,948) (24,420)
Total Asset Management$19,797
 $10,654
 $89,844
 $32,464

Asset management net revenues for the third quarter of 2019 were $19.8 million, compared with $10.7$47.9 million in the third quarterfirst half of 2018. The increase was primarily due to higher investment returns,2019, as the second half of the current year period includes the impairment of mortgage servicing rights as a result of an increaselower interest rates, higher loan loss provisions and a decline in Jefferies Group's investments in certain separately managed accounts and funds and funds and improved performance in certain of these investments, partially offset by lower asset management fees.



Net revenues for the first nine months of 2019 included asset management revenues of $89.8 million, compared with $32.5 million in the first nine months of 2018. The increase was primarilyloan originations due to higher investment returns, as a resultthe impact of an increase in Jefferies Group's investments in certain separately managed accounts and funds and improved performance in certain of these investments, partially offset by an increase in allocated net interest expense.COVID-19.

Compensation and Benefits
Compensation and benefits expense consists of salaries, benefits, commissions, annual cash compensation awards and the amortization of share-based and cash compensation awards to employees. Cash and 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. Compensation and benefits expense includes amortization expense associated with these awards to the extent there are respective future service periods. In addition, the senior executive awards contain market and performance conditions.
Compensation and benefits expense increased in line with the increase in net revenues. A significant portion of our compensation expense remains highly variable. Compensation and benefits as a percentage of Net revenues were 53.6% and 54.8% for the second quarter of 2020 and 2019, respectively, and 53.9% and 54.8% for the first half of 2020 and 2019, respectively, due to the change in the mix of Jefferies Group's net revenues, with higher revenues in our core operating businesses and lower net revenues from our Jefferies Finance joint venture and Other businesses, including our investment in Berkadia. Compensation expense related to the amortization of share-based and cash-based awards amounted to $78.9$79.4 million and $67.1$73.0 million for the thirdsecond quarter of 20192020 and 2018,2019, respectively, and $224.7$162.5 million and $204.7$145.5 million for the first nine monthshalf of 2020 and 2019, and 2018, respectively.respectively, reflecting Jefferies Group's hiring in recent periods. Compensation and benefits as a percentage of Net revenues were 53.0% and 55.0% for the third quarter of 2019 and 2018, respectively, and 53.3% and 54.8% for the first nine months of 2019 and 2018, respectively.

Non-Compensation Expenses

Non-compensation expenses include floor brokerage and clearing fees, underwriting costs, technology and communications expense, occupancy and equipment rental expense, business development, professional services, bad debt provision, impairment charges, depreciation and amortization expense and other costs. All of these expenses, other than floor brokerage and clearing fees and depreciation and amortization expense, are included in Selling, general and other expenses in the Consolidated Statements of Operations.

Non-compensation expenses were $282.1$262.5 million for the thirdsecond quarter of 2019,2020, an increase of $19.6$16.3 million, or 7.5%6.6%, compared with $262.5$246.2 million in the thirdsecond quarter of 2018.2019. The increase in non-compensation expenses during the third quarter of 2019 as compared to the third quarter of 2018 was primarily due to higher Floor brokerage and clearingsclearing fees due to an increase in trading volumes across the equities and fixed income businesses, as well as growth in certain asset management funds and resultant trading activity.businesses. The increase was also includeddue to higher technology and communication expenses primarily related to theincreased market data and connectivity usage and costs associated with the development of various trading systems and costs associated with our move to a largely remote working environment. Non-compensation expense also increased market data usage and andue to higher other expenses, which included our charitable donations of $8.6 million, in memory of Peg Broadbent, Jefferies Group's longstanding, esteemed Chief Financial Officer who tragically died from complications of COVID-19 in March. The increase in professional servicesnon-compensation expenses due to an increase in legal and consulting fees. The increases werewas partially offset by lower business development expenses as business travel and underwriting costshosted events were curtailed due to a decline in investment banking engagements and activity related to Jefferies Group's Jefferies Finance joint venture during the current period.COVID-19.
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Non-compensation expenses were $802.4$540.4 million for the first nine monthshalf of 2019,2020, an increase of $40.4$52.4 million, or 5.3%10.7%, compared with $762.0$488.0 million in the first nine monthshalf of 2018.2019. The increase in non-compensation expenses was primarily due to higher Floor brokerage and clearingsclearing fees due to the growth in certain asset management funds and resultant trading activity, as well as an increase in trading volumes primarily across theour equities andbusinesses, as well as in the fixed income businesses. The higher expensesincrease was also included an increase indue to higher technology and communication expenses primarily related to costs associated with the development of various trading systems, and Jefferies Group's efforts to provide its professionals with leading digital tools to manage workflow and help better serve its clients, as well as increased market data and connectivity usage costs. Professionaland costs associated with our move to a largely remote working environment. The increase also included higher professional services expenses increasedprimarily due to an increase in legalconsulting fees and consulting fees.higher underwriting costs primarily due to an increase in investment banking engagements in the first quarter of the period. Non-compensation expense also increased due to higher other expenses, which included our charitable donations, in memory of Peg Broadbent, Jefferies Group's longstanding, esteemed Chief Financial Officer who tragically died from complications of COVID-19 in March and our donation made to various charities in support of the Australian wildfire relief effort. The increases wereincrease in non-compensation expenses was partially offset by lower business development expenses as business travel and underwriting costshosted events were curtailed due to COVID-19.
Asset Management
In the first quarter of 2020, we reorganized our segments to separately report our Asset Management businesses. In connection with this change, we have reclassified the prior periods to conform to our current presentation. A summary of results of operations for our Asset Management segment is as follows (in thousands):
For the Three Months EndedFor the Six Months Ended
 May 31, 2020May 31, 2019May 31, 2020May 31, 2019
Net revenues$7,391  $44,362  $27,720  $75,107  
Expenses:  
Compensation and benefits26,502  13,338  48,723  30,192  
Floor brokerage and clearing fees7,878  10,169  14,185  14,901  
Depreciation and amortization2,133  505  2,758  960  
Selling, general and other expenses12,431  12,240  24,536  19,980  
    Total expenses
48,944  36,252  90,202  66,033  
Income (loss) before income taxes and income related to associated companies(41,553) 8,110  (62,482) 9,074  
Income related to associated companies—  120  —  340  
Income (loss) before income taxes$(41,553) $8,230  $(62,482) $9,414  

Asset management revenues include the following:
• management and performance fees from funds and accounts managed by us;
•revenue from strategic partners pursuant to agreements which entitle us to portions of our partners' revenues and/or profits; and
• investment income from our investments managed by our asset management business and other strategic partners.

The key components of asset management revenues are the level of assets under management and the performance return, whether on an absolute basis or relative to a declinebenchmark or hurdle. These components can be affected by financial markets, profits and losses in the applicable investment banking engagementsportfolios and activity relatedclient capital activity. Further, asset management fees vary with the nature of investment management services. The terms under which clients may terminate our investment management authority, and the requisite notice period for such termination, varies depending on the nature of the investment vehicle and the liquidity of the portfolio assets. Performance fees are generally recognized once a year, typically in December, at the end of the relevant performance period, to Jefferies Group's Jefferies Finance joint venturethe extent that the benchmark return has been met.

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The following summarizes the results of our Asset Management businesses revenues by asset class (dollars in thousands):
For the Three Months EndedFor the Six Months Ended
 May 31, 2020May 31, 2019May 31, 2020May 31, 2019
Asset management fees:
Equities$1,073  $357  $4,011  $3,097  
Multi-asset2,423  5,818  5,576  11,396  
Total asset management fees3,496  6,175  9,587  14,493  
Revenues from arrangements with strategic
partners (1)		2,339  549  9,655  911  
Total asset management fees and revenues5,835  6,724  19,242  15,404  
Investment return (2) (3)14,541  47,687  32,155  81,362  
Allocated net interest (2) (4)(12,985) (10,049) (23,677) (21,659) 
Total Asset Management$7,391  $44,362  $27,720  $75,107  

(1)These amounts include our share of fees received by third party asset management companies with which we have revenue and profit share arrangements.
(2)Net revenues attributed to the Investment return in our Asset Management segment have been disaggregated to separately present Investment return and Allocated net interest (see footnote 4 below). This disaggregation is intended to increase transparency and to make clearer actual Investment return. We believe that aggregating Investment return and Allocated net interest would obscure the Investment return by including an amount that is unique to our credit spreads, debt maturity profile, capital structure, liquidity risks and allocation methods, none of which are pertinent to the Investment returns generated by the performance of the portfolio.
(3)Includes net interest expense of $7.2 million and $0.6 million for the second quarter of 2020 and 2019, respectively, and $13.6 million and $1.7 million for the first half of 2020 and 2019, respectively.
(4)Allocated net interest represents the allocation of long-term debt interest expense to our Asset Management reportable segment, net of interest income on Cash and cash equivalents and other sources of liquidity. For discussion of sources of liquidity, refer to the "Liquidity and Capital Resources" section herein.

Asset management net revenues for the second quarter of 2020 were $7.4 million, compared with $44.4 million in the second quarter of 2019. The decrease was primarily due to lower investment returns in certain of our investments in separately managed accounts and funds due to the impact of COVID-19 on the markets and economy during the current year quarter. Asset management net revenues for the first half of 2020 were $27.7 million, compared with $75.1 million in the first half of 2019. The decrease was due to lower investment returns in certain of our investments in separately managed accounts and funds due to the impact of COVID-19 on the markets and economy during the second half of the current year period, partially offset by higher revenues from our share of fees received by third party asset management companies with which we have revenue and profit share arrangements.

The increase in expenses in the second quarter and first half of 2020 as compared with the second quarter and first half of 2019, respectively, primarily reflects the expansion of the Asset Management business, additional costs from the wind down of one of our asset management businesses and the dedication of resources previously included in Corporate.

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Assets under Management

Assets under management by predominant asset class were as follows (in millions):
May 31,
2020		November 30, 2019
Assets under management (1):
Equities$483  $228  
Multi-asset (2)556  988  
Total$1,039  $1,216  

(1) Assets under management include third-party net assets actively managed by us, including hedge funds and certain managed accounts. The amounts at May 31, 2020 and November 30, 2019 also include $149 million and $150 million, respectively, of assets under management in a strategy, which represents a net asset value equivalent of an asset management strategy where we earn performance fees. We may consolidate certain funds and for such consolidated funds, assets under management includes the pro-rata portion of third-party net assets in consolidated funds based on the percentage ownership of third-party investors in the consolidated fund. The above amounts do not include assets under management at non-consolidated strategic partners or investments.
(2) Subsequent to May 31, 2020, $396 million of these assets under management are in the process of being liquidated and the funds will be returned to the third-party investors.

Change in assets under management were as follows (in millions):
For the Three Months EndedFor the Six Months Ended
 May 31, 2020May 31, 2019May 31, 2020May 31, 2019
Assets under management:
Balance, beginning of period$1,140  $1,895  $1,216  $2,527  
Net cash flow in (out)(49) (329) (70) (949) 
Net market appreciation (depreciation)(52) (8) (107) (20) 
Balance, end of period$1,039  $1,558  $1,039  $1,558  

The change in assets under management during the second quarter of 2020 is primarily due to redemptions from certain funds and market depreciation due to the impact of COVID-19 on the markets and economy. The change in assets under management during the second quarter of 2019 is primarily due to redemptions from certain funds and separately managed accounts and the dissolution of a fund. The change in assets under management during the first half of 2020 is primarily due to redemptions from certain funds, dissolution of a fund and market depreciation due to the impact of COVID-19 on the markets and economy, partially offset by new subscriptions and investments from third-parties. The change in assets under management during the first half of 2019 is primarily due to redemptions from certain funds and separately managed accounts and the dissolution of a fund partially offset by new subscriptions and investments from third-parties.

Our definition of assets under management is not based on any definition contained in any of our investment management agreements and differs from the manner in which "Regulatory Assets Under Management" is reported to the SEC on Form ADV.

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Asset Management Investments

Our asset management business invests directly in hedge funds and separately managed accounts where we act as the asset manager. Additionally, we make investments in and enter into revenue sharing arrangements with third-party asset managers. Subsequent to May 31, 2020, $78.8 million of the asset management investments included in the table below at May 31, 2020 are in the process of being liquidated due to the wind down of an asset management platform and the liquidation of funds. The following table represents our investments by asset manager (in thousands):
May 31,
2020		November 30, 2019
Jefferies Financial Group Inc., as manager:
Fund investments (1)$241,818  $240,804  
Separately managed accounts (2)435,150  489,617  
Total676,968  730,421  
Third-party, as manager:
Fund investments (3)612,867  306,554  
Separately managed accounts (2)284,769  266,484  
Investments in asset managers108,495  114,161  
Total1,006,131  687,199  
Total asset management investments (4)$1,683,099  $1,417,620  

(1) Due to the level or nature of an investment in a fund, we may consolidate that fund; and accordingly, the assets and liabilities of the fund are included in the representative line items in the consolidated financial statements. At May 31, 2020 and November 30, 2019, $17.5 million and $22.6 million, respectively, represent net investments in funds that have been consolidated in our financial statements.
(2) Where we have investments in a separately managed account, the assets and liabilities of such account are presented on the Consolidated Statement of Financial Condition within each respective line item.
(3) The increase for the first half of 2020 was primarily due to an investment in a new fund in the current year period.

(4) Of the $1,683.1 million total invested in the funds at May 31, 2020, $1,387.1 million was sourced from the proceeds of long-term and permanent capital. At May 31, 2020 and November 30, 2019, Jefferies Group has borrowed $296.0 million and $135.0 million, respectively, under a credit facility agreement ("Jefferies Group Credit Facility") with JPMorgan Chase Bank, N.A., which is secured by our investment in a fund managed by us, with a carrying value of $224.2 million and $218.1 million at May 31, 2020 and November 30, 2019, respectively, and our investment in a fund managed by a third-party with a carrying value of $284.7 million at May 31, 2020.


Our asset management investments generated an investment return of $14.5 million and $47.7 million for the second quarter of 2020 and 2019, respectively, and $32.2 million and $81.4 million for the first half of 2020 and 2019, respectively.

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Merchant Banking

The composition of our Merchant Banking portfolio has been impacted by a number of transactions during recent years. The following chart reflects the significant components of our portfolio each year:
Six Months Ended May 31, 2020Six Months Ended May 31, 2019
Consolidated BusinessesOil and GasOil and Gas
HomeFed-
Idaho TimberIdaho Timber
Associated CompaniesLinkemLinkem
FXCM Equity InvestmentFXCM Equity Investment
-National Beef
-HomeFed
Other InvestmentsThe We CompanyThe We Company
FXCM Term LoanFXCM Term Loan
-Spectrum Brands

A summary of results for our merchant banking businessMerchant Banking is as follows (in thousands):
For the Three Months EndedFor the Six Months Ended
 May 31, 2020May 31, 2019May 31, 2020May 31, 2019
Net revenues$107,162  $185,379  $311,721  $318,071  
Expenses:            
Compensation and benefits13,973  13,931  31,163  27,834  
Cost of sales80,771  80,415  153,214  147,336  
Interest expense8,282  8,372  17,055  16,628  
Depreciation and amortization17,378  16,826  36,219  32,120  
Selling, general and other expenses54,753  30,356  127,833  59,378  
Total expenses175,157  149,900  365,484  283,296  
Income (loss) before income taxes and income (loss) related to associated companies(67,995) 35,479  (53,763) 34,775  
Income (loss) related to associated companies(6,721) 22,050  (74,576) 49,143  
Income (loss) before income taxes$(74,716) $57,529  $(128,339) $83,918  
 For the Three Months Ended For the Nine Months Ended
 August 31, 2019 September 30, 2018 August 31, 2019 September 30, 2018
Net revenues$75,497
 $369,309
 $399,159
 $529,627
        
Expenses: 
  
  
  
Compensation and benefits23,496
 19,464
 63,796
 59,507
Cost of sales85,773
 84,876
 233,109
 257,501
Interest expense8,893
 14,082
 25,521
 30,363
Depreciation and amortization17,880
 14,268
 50,248
 38,932
Selling, general and other expenses54,683
 36,954
 119,867
 108,427
Total expenses190,725

169,644
 492,541
 494,730
        
Income (loss) from continuing operations before income taxes and income related to associated companies(115,228) 199,665
 (93,382) 34,897
Income related to associated companies72,283
 18,867
 121,766
 84,320
Income (loss) from continuing operations before income taxes$(42,945)
$218,532
 $28,384
 $119,217

Merchant Banking includes the consolidated results of Vitesse Energy, LLC ("Vitesse Energy Finance") and JETX Energy, LLC ("JETX Energy") (oil and gas production and development), Idaho Timber (manufacturing) and HomeFed LLC ("HomeFed") (real estate company), subsequent to July 1, 2019. It also includes our ownership of Spectrum Brands/HRG shares, which is accounted for at fair value and impacts our results through its mark-to-market adjustments reflected in Net revenues, our investment in The We Company, formerly known as WeWork, and the results of our investment in FXCM Group, LLC ("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 related to associated companies. Additionally, Merchant Banking includes our equity investments in National Beef (beef processing), Berkadia, prior to its transfer to Jefferies Group on October 1, 2018 (commercial mortgage banking, investment sales and servicing), HomeFed, prior to its consolidation on July 1, 2019, Garcadia, prior to its sale in August 2018 (automobile dealerships) and Linkem (fixed wireless broadband services in Italy).

In the fourth quarter of 2018, we transferred our 50% membership interest in Berkadia and our Leucadia Asset Management ("LAM") seed investments into Jefferies Group. For the third quarter and first nine months of 2018, net revenues related to the net assets transferred were $25.4 million and $4.6 million, respectively, and income from continuing operations before income taxes related to the net assets transferred was $39.7 million and $48.8 million, respectively.

The following provides a summary of net revenues by source (in thousands):
For the Three Months EndedFor the Six Months Ended
 May 31, 2020May 31, 2019May 31, 2020May 31, 2019
Oil and gas$51,694  $62,850  $114,550  $68,321  
Idaho Timber85,383  90,280  163,022  165,726  
Real estate10,965  44  23,195  95  
FXCM(7,863) (11,412) (5,355) (10,962) 
Spectrum Brands—  (8,115) —  31,035  
Other(33,017) 51,732  16,309  63,856  
Total net revenues$107,162  $185,379  $311,721  $318,071  

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 For the Three Months Ended For the Nine Months Ended
 August 31, 2019 September 30, 2018 August 31, 2019 September 30, 2018
        
Oil and gas$43,683
 $35,862
 $112,004
 $97,637
Idaho Timber82,599
 94,054
 248,325
 307,190
LAM—
 27,954
 —
 (9,198)
FXCM2,293
 1,347
 (8,669) 16,432
Spectrum Brands/HRG27,202
 (45,356) 58,237
 (225,232)
Gain on sale of equity interests in Garcadia and associated real estate—
 221,712
 —
 221,712
Other(80,280) 33,736
 (10,738) 121,086
Total net revenues$75,497
 $369,309
 $399,159
 $529,627




Oil and gas net revenues primarily consist of three components: unrealized gains and losses related to oil hedges, mark-to-market increases and decreases related to a trading assetfinancial instrument held at fair value, and production revenues, which also include the impact of realized gains and losses related to oil hedges. Oil and gas net revenues for the third quarter of 2019 increased due toinclude net unrealized gains related to oil hedgeshedge derivatives of $0.3$15.0 million inand $26.0 million for the thirdsecond quarter of 2020 and 2019, as comparedrespectively, and $34.9 million and $0.6 million for the first half of 2020 and 2019, respectively. As discussed further in Note 3 to lossesthe consolidated financial statements, Vitesse Energy Finance uses swaps and call and put options in order to reduce exposure to future oil price fluctuations. For the remainder of $4.6 million in the third quarter2020, over 100% of 2018.expected oil production is hedged at a weighted average price of approximately $60/barrel. Mark-to-market adjustmentslosses related to a trading assetfinancial instrument owned held at fair value include a decrease in valuewere $3.2 million and $7.4 million for the second quarter of $0.62020 and 2019, respectively, and $5.7 million and $17.0 million during the thirdfirst half of 2020 and 2019, respectively. Production revenues were $40.0 million and $44.3 million for the second quarter of 2020 and 2019, in comparison to a decrease in valuerespectively, and $85.3 million and $84.7 million during the first half of $2.9 million in the third quarter of 2018. Production revenues of $44.0 million in the third quarter of2020 and 2019, are slightly higher than $43.4 million in the third quarter of 2018.respectively.

Net revenues for Idaho Timber decreased in the thirdsecond quarter of 20192020 as compared to the thirdsecond quarter of 2018,2019, primarily due primarily to a decrease in average selling price.

LAM's netprice, offset slightly by an increase in average weekly shipments. Net revenues for Idaho Timber decreased in the first half of 2020 as compared to the first half of 2019, primarily due to a decrease in average selling price, offset slightly by an increase in average weekly shipments.

The increase in real estate revenues for the second quarter and first half of 2020 as compared to the prior year periods relates to the acquisition of HomeFed in the third quarter of 2018 primarily reflects principal transactions revenues of $17.9 million. As discussed more fully above, our LAM seed investments were transferred to Jefferies Group in the fourth quarter of 2018.2019.

Net revenues from our FXCM term loan primarily consist of adjustments to its carrying value, which is at fair value and include gainslosses of $2.3$7.9 million and $1.3$11.4 million during the thirdsecond quarter of 2020 and 2019, respectively, and 2018,$5.4 million and $11.0 million during the first half of 2020 and 2019, respectively. This includes the component related to interest income, which is recorded within Principal transactions revenues.

Spectrum Brands/HRGBrands net revenues reflect changes in the value of our investment. We classifyclassified Spectrum Brands/HRGBrands as a trading assetfinancial instrument owned, at fair value for which the fair value option was elected and we reflectreflected mark-to-market adjustments in Principal transactions revenues. In September 2019, the Jefferiesour Board of Directors approved a distribution to stockholders of Jefferies of itsour Spectrum Brands shares. Jefferies will distributeWe distributed the 7,514,477 Spectrum Brands shares through a special pro rata dividend effective on October 11, 2019 to Jefferies stockholders of record as of the close of business on September 30, 2019. We recorded a $451.1 million dividend payable as of the September 16, 2019 declaration date, which was equal to the fair value of Spectrum Brands shares at that time.

Other revenues for the third quarter of 2019 include a $72.1 million pre-tax gain on the remeasurement of our 70% interest in HomeFed to fair value in connection with the acquisition of the remaining common stock of HomeFed. Other revenues for the third quarter of 2019reflect realized and 2018 reflect unrealized gains (losses) on trading assetsfinancial instruments owned, which are held at fair value, of $(197.3)$(63.4) million and $5.0$20.3 million respectively. The unrealized losses on trading assets for the thirdsecond quarter of 2020 and 2019, primarily reflect a $146.0respectively, and $(25.0) million decrease in the estimated fair value of our investment in The We Company.
Oil and gas net revenues for the first nine months of 2019 increased due to net unrealized gains related to oil hedges of $1.0 million in the first nine months of 2019 as compared to losses of $18.7 million in the first nine months of 2018. Mark-to-market adjustments related to a trading asset held at fair value include a decrease in value of $17.6$3.9 million during the first nine monthshalf of 2020 and 2019, in comparison to an increase in valuerespectively. The gains (losses) on financial instruments owned include unrealized gains (losses) on The We Company of $16.6$(44.2) million in the first nine months of 2018. Production revenues of $128.6and $28.6 million in the first nine months of 2019 are higher than $99.7 million in the first nine months of 2018 related to Vitesse Energy Finance's acquisition of additional non-operated Bakken assets infor the second quarter of 2018.

Net revenues for Idaho Timber decreased in the first nine months of2020 and 2019, as compared to the first nine months of 2018, due primarily to a decrease in average selling price.

LAM's net revenues for the first nine months of 2018 primarily reflects lower principal transactions revenue due to two strategies negatively impacted by exceptional volatility during the first quarter of 2018. As discussed more fully above, our LAM seed investments were transferred to Jefferies Group in the fourth quarter of 2018.

Net revenues from our FXCM term loan include gains (losses) of $(8.7)respectively, and $(44.2) million and $16.4$33.1 million during the first nine monthshalf of 2020 and 2019, and 2018, respectively. This includes the component related to interest income, which is recorded within Principal transactions revenues.

Spectrum Brands/HRG net revenues reflect changes in the value of our investment. We classify Spectrum Brands/HRG as a trading asset for which the fair value option was elected and we reflect mark-to-market adjustments in Principal transactions revenues.

Other revenuesThe gains on financial instruments owned for the first nine monthshalf of 20192020, also include a $72.1gain of $61.5 million pre-tax gain on the remeasurement of our 70% interest in HomeFed tofrom effective short-term hedges against mark-to-market and fair value decreases in connection with the acquisition of the remaining common stock of HomeFed. Other revenues for the first nine months of 2019 and 2018 reflect unrealized gains (losses) on trading assets which are held at fair value of $(191.7) million and $41.6 million, respectively. The unrealized losses on trading assets for the first nine months of 2019, primarily reflect a $112.9 million decrease in the estimated fair value of our investment in The We Company.portfolio investments.


The following provides a summary of total expenses by source (in thousands):
For the Three Months Ended For the Nine Months EndedFor the Three Months EndedFor the Six Months Ended
August 31, 2019 September 30, 2018 August 31, 2019 September 30, 2018 May 31, 2020May 31, 2019May 31, 2020May 31, 2019
       
Oil and gas$51,652
 $28,722
 $119,227
 $74,163
Oil and gas$44,133  $35,784  $115,727  $67,575  
Idaho Timber80,232
 88,451
 235,057
 270,312
Idaho Timber78,128  83,961  151,058  154,825  
LAM—
 22,564
 —
 63,948
Real estateReal estate19,510  167  30,614  612  
Other58,841
 29,907
 138,257
 86,307
Other33,386  29,988  68,085  60,284  
Total expenses$190,725
 $169,644
 $492,541
 $494,730
Total expenses$175,157  $149,900  $365,484  $283,296  
Total expenses for Oil and gas in the third quarter and first nine months of 2019 increased compared to the third quarter and first nine months of 2018, primarily due to Vitesse Energy Finance's acquisition of additional non-operated Bakken assets in the second quarter of 2018.2020 as compared to the second quarter of 2019, primarily due to a non-cash charge of $13.2 million to write-down the value of a subset of Vitesse Energy Finance's oil and gas assets located in the DJ Basin, reflecting the impact of oil price declines during the quarter. Total expenses for Oil and gas increased in the third quarter and first nine monthshalf of 2020 as compared to the first half of 2019, also include lease abandonmentprimarily due to non-cash charges to JETX Energy's oil and gas assets of $15.1$33.0 million at JETX Energy.and to Vitesse Energy Finance's oil and gas assets in the DJ Basin of $13.2 million.
The decrease in total expenses for Idaho Timber in the thirdsecond quarter and first nine months of 20192020 as compared to the thirdsecond quarter of 2019 and the first nine monthshalf of 20182020 as compared to the first half of 2019 primarily relates to a decrease in cost of sales associated with a decrease in average cost of wood due to lower lumber prices in 2019.2020 offset slightly by an increase in cost of sales associated with an increase in average weekly shipments.
As discussed more fully above, our LAM seed investments were transferred
83

The increase in real estate expenses for the second quarter and first half of 2020 as compared to Jefferies Groupthe prior year periods relates to the acquisition of HomeFed in the fourththird quarter of 2018.2019.

The following provides a summary of Income (loss) related to associated companies (in thousands):
For the Three Months EndedFor the Six Months Ended
 May 31, 2020May 31, 2019May 31, 2020May 31, 2019
National Beef$—  $34,946  $—  $62,051  
FXCM7,890  (2,300) 6,252  (5,016) 
Linkem(6,624) (6,960) (19,809) (8,581) 
Real estate associated companies(428) (1,524) (53,442) 1,072  
Other(7,559) (2,112) (7,577) (383) 
Total income (loss) related to associated
  companies
$(6,721) $22,050  $(74,576) $49,143  
 For the Three Months Ended For the Nine Months Ended
 August 31, 2019 September 30, 2018 August 31, 2019 September 30, 2018
        
National Beef$75,867
 $58,886
 $137,918
 $83,287
Berkadia—
 28,350
 —
 80,092
FXCM(573) (4,282) (5,589) (19,322)
Garcadia Companies—
 691
 —
 21,646
Linkem(12,115) (7,770) (20,696) (20,534)
HomeFed8,419
 (7,783) 7,902
 (3,338)
Other685
 (49,225) 2,231
 (57,511)
Total income related to associated companies$72,283
 $18,867
 $121,766
 $84,320

Income (loss) related to associated companies primarily includes our investments in National Beef, subsequent to June 5, 2018, Berkadia, prior to its transfer to Jefferies Group on October 1, 2018, and the Garcadia Companies, prior to their sale in August 2018.November 2019.

Other incomeIncome (loss) related to Real estate associated companies for the thirdsecond quarter and first nine monthshalf of 2018,2020, includes a $47.9non-cash charge of $6.9 million impairment lossto fully write-off HomeFed's interest in the Brooklyn Renaissance Plaza hotel related to our equity investment in Golden Queen in the thirdsignificant impact of COVID-19 during the second quarter of 2018.2020. Income (loss) related to Real estate associated companies for the first half of 2020, also includes a non-cash charge of $55.6 million to fully write-off the value of HomeFed's RedSky JZ Fulton Mall joint venture investment related to a softening of the Brooklyn real estate market.



A summary of results for Merchant Banking by source is as follows (in thousands):
For the Three Months EndedFor the Six Months Ended
 May 31, 2020May 31, 2019May 31, 2020May 31, 2019
Oil and gas$7,561  $27,066  $(1,177) $746  
Idaho Timber7,255  6,319  11,964  10,901  
Real estate(8,545) (123) (7,419) (517) 
FXCM(7,863) (11,412) (5,355) (10,962) 
Spectrum Brands—  (8,115) —  31,035  
Other(66,403) 21,744  (51,776) 3,572  
Income (loss) before income taxes and income (loss) related to associated companies(67,995) 35,479  (53,763) 34,775  
Income (loss) related to associated companies(6,721) 22,050  (74,576) 49,143  
Income (loss) before income taxes$(74,716) $57,529  $(128,339) $83,918  

84
 For the Three Months Ended For the Nine Months Ended
 August 31, 2019 September 30, 2018 August 31, 2019 September 30, 2018
        
Oil and gas$(7,969) $7,140
 $(7,223) $23,474
Idaho Timber2,367
 5,603
 13,268
 36,878
LAM—
 5,390
 —
 (73,146)
FXCM2,293
 1,347
 (8,669) 16,432
Spectrum Brands/HRG27,202
 (45,356) 58,237
 (225,232)
Gain on sale of equity interests in Garcadia and associated real estate—
 221,712
 —
 221,712
Other(139,121) 3,829
 (148,995) 34,779
Income (loss) before income taxes and income related to associated companies(115,228) 199,665
 (93,382) 34,897
Income related to associated companies72,283
 18,867
 121,766
 84,320
Income (loss) from continuing operations before income taxes$(42,945) $218,532
 $28,384
 $119,217


Corporate

A summary of results of operations for Corporate is as follows (in thousands):
For the Three Months EndedFor the Six Months Ended
 May 31, 2020May 31, 2019May 31, 2020May 31, 2019
Net revenues$1,525  $8,974  $11,317  $13,167  
Expenses:    
Compensation and benefits6,171  12,761  16,029  30,282  
Depreciation and amortization874  867  1,762  1,722  
Selling, general and other expenses7,334  9,231  14,134  16,391  
 Total expenses14,379  22,859  31,925  48,395  
Loss before income taxes$(12,854) $(13,885) $(20,608) $(35,228) 
 For the Three Months Ended For the Nine Months Ended
 August 31, 2019 September 30, 2018 August 31, 2019 September 30, 2018
        
Net revenues$8,967
 $8,714
 $22,134
 $14,775
        
Expenses: 
  
  
  
Compensation and benefits11,450
 13,768
 41,732
 43,045
Depreciation and amortization830
 852
 2,552
 2,599
Selling, general and other expenses8,466
 9,461
 24,857
 27,238
 Total expenses20,746
 24,081
 69,141
 72,882
        
Loss from continuing operations before income taxes$(11,779) $(15,367) $(47,007) $(58,107)


CompensationNet revenues primarily include realized and benefits expense includesunrealized securities gains and interest income for investments held at the holding company. Total expenses include share-based compensation expense of $5.3$3.9 million and $5.6$6.5 million for the thirdsecond quarter of 20192020 and 2018,2019, respectively, and $17.1$7.3 million and $17.7$11.8 million for the first nine monthshalf of 20192020 and 2018,2019, respectively.

Parent Company Interest

Parent company interest expense totaled $14.8$12.9 million and $14.8 million for the second quarter of 2020 and 2019, respectively, and $25.7 million and $29.5 million for the first half of 2020 and 2019, respectively. In connection with the acquisition of HomeFed in the third quarter of 2019, we began capitalizing interest. Capitalized interest was allocated among all of HomeFed's projects that are currently under development. Parent company interest capitalized during the second quarter and 2018, respectively, and $44.3first half of 2020 was $1.9 million and $44.3$3.9 million, for the first nine months of 2019 and 2018, respectively.

Income Taxes

Our benefitsprovisions for income taxes were $32.0 million and $77.7 million for the second quarter and first half of 2020, respectively, representing an effective tax rate of 42.3% and 33.3%, respectively. Tax expense for the second quarter includes an additional expense to bring the year-to-date tax expense in line with the projected full year effective rate at May 31, 2020.
Our benefit for income taxes from continuing operations were $36.1was $488.8 million and $522.6$486.5 million for the thirdsecond quarter and first nine monthshalf of 2019, respectively. Our provisions for income taxes for the third quarter and first nine months of 2019 were reduced by $36.0 million resulting from the reversal of deferred tax liabilities that existed at the HomeFed acquisition. Prior to its consolidation on July 1, 2019, HomeFed was accounted for under the equity method as an investment in an associated company. Since we have the intent and ability under the tax law to recover the investment tax-free, the deferred tax liability associated with the equity method investment was derecognized.



As discussed above, duringDuring the second quarter of 2019, we completed the sale of our available for sale portfolio. In connection therewith, we recognized a tax benefit of $544.6 million during the second quarter and first nine monthshalf of 2019. Unrealized gains and losses on available for sale securities, and their associated tax impacts, are recorded directly to equity as part of the Accumulated other comprehensive income (loss) balance. Following the portfolio approach, when unrealized gains and losses and their associated tax impacts are recorded at a then current tax rate, and then realized later at a different tax rate, the difference between the tax impact initially recorded in Accumulated other comprehensive income (loss) and the tax impact removed from Accumulated other comprehensive income (loss) upon realization remains in Accumulated other comprehensive income (loss) until the disposal of the portfolio and is referred to as a "lodged tax effect." Large changes in the fair value of our available for sale securities, primarily during 2008 through 2010, combined with fluctuations in our tax rate during those periods, generated a lodged tax benefit of $544.6 million. As a result of recent steps to improve our Corporate investment management efforts, we sold the remaining portion of our available for sale portfolio in the second quarter of 2019, which resulted in the realization of the $544.6 million tax benefit. While this realization did not impact total equity, it resulted in a tax benefit reflected in the Consolidated Statement of Operations of $544.6 million and, as a result, Retained earnings increased and Accumulated other comprehensive income (loss) decreased by corresponding amounts.

Our provisions for income taxes from continuing operations were $90.4 million and $51.6 million for the third quarter and first nine months of 2018, respectively. Our provision for income taxes for the first nine months of 2018 was reduced by a $43.9 million benefit resulting from a reversal of our valuation allowance with respectRefer to certain federal and state net operating loss carryforwards ("NOLs") which we determined were more likely than not to be utilized before they expire.

Discontinued Operations

On June 5, 2018, we sold 48% of National Beef to Marfrig Global Foods S.A. ("Marfrig") for $907.7 million in cash, reducing our ownership in National Beef to 31%. The sale of National Beef meets the criteria under accounting principles generally acceptedNote 17 in the United States of America ("GAAP") to be classified as a discontinued operation as the sale represents a strategic shiftconsolidated financial statements included 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 ofthis Quarterly Report on Form 10-Q, for further details on income tax provision in the Consolidated Statements of Operations.

A summary of results of discontinued operations for National Beef for the first nine months of 2018 through the June 5, 2018 transaction with Marfrig is as follows (in thousands):taxes.
85
Net revenues $3,142,071
   
Expenses:  
Compensation and benefits 17,414
Cost of sales 2,884,983
Interest expense 4,316
Depreciation and amortization 43,959
Selling, general and other expenses 14,291
Total expenses 2,964,963
   
Income from discontinued operations before income taxes 177,108
Income tax provision 47,045
Income from discontinued operations, net of income tax provision $130,063

National Beef’s profitability is dependent, in large part, on the spread between its cost for live cattle, the primary raw material for its business, and the value received from selling boxed beef and other products, coupled with its overall volume. National Beef operates in a large and liquid commodity market and it does not have much influence over the price it pays for cattle or the selling price it receives for the products it produces. National Beef’s profitability typically fluctuates seasonally, with relatively higher margins in the spring and summer months and during times of ample cattle availability. Throughout 2018, demand for beef and cattle supply remained strong, supporting favorable margin conditions.

During the first nine months of 2018, we have 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 is approximately $352.4 million related to the remeasurement of our retained 31% interest in National Beef to fair value.


81



Selected Statement of Financial Condition Data

In addition to preparing our Consolidated Statements of Financial Condition in accordance with 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 Jefferies Financial Group Inc. shareholders' equity less Intangible assets, net and goodwill.

The tables below reconcile tangible capitalthe balance sheet for each of our segments to our GAAP Consolidated Statements of Financial Conditionconsolidated balance sheet (in thousands):
May 31, 2020
Investment Banking and Capital MarketsAsset ManagementMerchant BankingCorporateConsolidation AdjustmentsTotal
Assets
Cash and cash equivalents$5,240,575  $17,575  $150,416  $1,475,315  $—  $6,883,881  
Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations668,925  —  —  —  —  668,925  
Financial instruments owned, at fair value15,715,717  2,496,357  305,349  25,054  —  18,542,477  
Loans to and investments in associated companies909,781  88,815  561,197  —  —  1,559,793  
Securities borrowed6,457,035  —  —  —  —  6,457,035  
Securities purchased under agreements to resell4,284,062  —  —  —  —  4,284,062  
Securities received as collateral, at fair value9,909  —  —  —  —  9,909  
Receivables5,167,538  553,896  815,942  2,119  —  6,539,495  
Property, equipment and leasehold improvements, net861,869  9,535  32,873  13,409  —  917,686  
Intangible assets, net and goodwill1,716,240  143,298  50,666  —  —  1,910,204  
Other assets1,087,010  13,083  1,230,270  456,258  (276,873) 2,509,748  
    Total Assets42,118,661  3,322,559  3,146,713  1,972,155  (276,873) 50,283,215  
Liabilities
Long-term debt (1) (2)5,964,895  712,357  351,149  992,035  —  8,020,436  
Other liabilities30,308,355  1,706,905  816,941  199,076  (276,873) 32,754,404  
  Total liabilities36,273,250  2,419,262  1,168,090  1,191,111  (276,873) 40,774,840  
Redeemable noncontrolling interests—  —  22,262  —  —  22,262  
Mandatorily redeemable convertible preferred shares—  —  —  125,000  —  125,000  
Noncontrolling interests751  16,847  16,961  —  —  34,559  
Total Jefferies Financial Group Inc. shareholders' equity$5,844,660  $886,450  $1,939,400  $656,044  $—  $9,326,554  
 August 31, 2019
 Jefferies Group Merchant Banking Corporate Consolidation Adjustments Total
Assets         
Cash and cash equivalents$4,665,490
 $80,682
 $1,265,178
 $—
 $6,011,350
Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations658,335
 —
 —
 —
 658,335
Financial instruments owned16,370,912
 806,507
 18,497
 —
 17,195,916
Loans to and investments in associated companies943,174
 1,403,123
 —
 —
 2,346,297
Securities borrowed7,895,149
 —
 —
 —
 7,895,149
Securities purchased under agreements to resell4,499,995
 —
 —
 —
 4,499,995
Receivables4,964,666
 861,389
 295
 —
 5,826,350
Intangible assets, net and goodwill1,867,187
 54,606
 —
 —
 1,921,793
Deferred tax asset, net203,689
 —
 306,083
 —
 509,772
Other assets1,079,104
 1,335,547
 64,026
 (80,426) 2,398,251
    Total Assets43,147,701
 4,541,854
 1,654,079
 (80,426) 49,263,208
          
Liabilities         
Long-term debt (1)6,767,163
 210,567
 991,055
 —
 7,968,785
Other liabilities30,134,797
 852,073
 188,134
 (80,426) 31,094,578
  Total liabilities36,901,960
 1,062,640
 1,179,189
 (80,426) 39,063,363
          
Redeemable noncontrolling interests—
 27,064
 —
 —
 27,064
Mandatorily redeemable convertible preferred shares—
 —
 125,000
 —
 125,000
Noncontrolling interests6,170
 21,169
 —
 —
 27,339
Total Jefferies Financial Group Inc. shareholders' equity$6,239,571
 $3,430,981
 $349,890
 $—
 $10,020,442
          
Reconciliation to Tangible Capital         
Total Jefferies Financial Group Inc. shareholders' equity$6,239,571
 $3,430,981
 $349,890
 $—
 $10,020,442
Less: Intangible assets, net and goodwill(1,867,187) (54,606) —
 —
 (1,921,793)
Tangible Capital, a non-GAAP measure$4,372,384
 $3,376,375
 $349,890
 $—
 $8,098,649

(1)Long-term debt within Merchant Banking of $210.6 million at August 31, 2019, primarily includes $131.4 million for HomeFed and $78.0 million for Vitesse Energy Finance.



 November 30, 2018
 Jefferies Group Merchant Banking Corporate Consolidation Adjustments Total
Assets         
Cash and cash equivalents$5,145,886
 $56,810
 $56,113
 $—
 $5,258,809
Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations707,960
 —
 —
 —
 707,960
Financial instruments owned16,399,526
 1,063,730
 1,409,886
 —
 18,873,142
Loans to and investments in associated companies997,524
 1,419,808
 —
 —
 2,417,332
Securities borrowed6,538,212
 —
 —
 —
 6,538,212
Securities purchased under agreements to resell2,785,758
 —
 —
 —
 2,785,758
Receivables5,563,157
 721,405
 2,839
 —
 6,287,401
Intangible assets, net and goodwill1,880,849
 9,282
 —
 —
 1,890,131
Deferred tax asset, net243,240
 —
 269,549
 —
 512,789
Other assets962,872
 919,449
 99,650
 (122,410) 1,859,561
    Total Assets41,224,984
 4,190,484
 1,838,037
 (122,410) 47,131,095
          
Liabilities         
Long-term debt (1)6,546,283
 81,164
 990,116
 —
 7,617,563
Other liabilities28,440,086
 747,990
 223,830
 (122,410) 29,289,496
  Total liabilities34,986,369
 829,154
 1,213,946
 (122,410) 36,907,059
          
Redeemable noncontrolling interests—
 19,779
 —
 —
 19,779
Mandatorily redeemable convertible preferred shares—
 —
 125,000
 —
 125,000
Noncontrolling interests1,911
 16,480
 —
 —
 18,391
Total Jefferies Financial Group Inc. shareholders' equity$6,236,704
 $3,325,071
 $499,091
 $—
 $10,060,866
          
Reconciliation to Tangible Capital         
Total Jefferies Financial Group Inc. shareholders' equity$6,236,704
 $3,325,071
 $499,091
 $—
 $10,060,866
Less: Intangible assets, net and goodwill(1,880,849) (9,282) —
 —
 (1,890,131)
Tangible Capital, a non-GAAP measure$4,355,855
 $3,315,789
 $499,091
 $—
 $8,170,735

(1) Jefferies Group long-term debt of $6.7 billion at May 31, 2020 is allocated to Investment Banking and Capital Markets, and Asset Management segments based on an internal management view only and may not be reflective of what long-term debt would be on a stand-alone segment basis.

(2) Long-term debt within Merchant Banking of $81.2$351.1 million at May 31, 2020, primarily includes $189.2 million for real estate businesses, $105.2 million for Vitesse Energy Finance and $56.7 million for Foursight Capital. At May 31, 2020, Vitesse Energy Finance had $106.0 million drawn out of the maximum $170.0 million borrowing base on its credit facility and Foursight Capital had $57.0 million drawn out of the maximum $150.0 million credit commitment on its credit facilities. See Note 11 in our consolidated financial statements for additional information.

86

November 30, 2019
Investment Banking and Capital MarketsAsset ManagementMerchant BankingCorporateConsolidation AdjustmentsTotal
Assets
Cash and cash equivalents$5,561,281  $25,255  $111,552  $1,980,733  $—  $7,678,821  
Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations796,797  —  —  —  —  796,797  
Financial instruments owned, at fair value13,735,641  2,681,034  363,237  115,829  —  16,895,741  
Loans to and investments in associated companies944,509  83,258  625,190  —  —  1,652,957  
Securities borrowed7,624,642  —  —  —  —  7,624,642  
Securities purchased under agreements to resell4,299,598  —  —  —  —  4,299,598  
Securities received as collateral, at fair value9,500  —  —  —  —  9,500  
Receivables4,560,760  369,410  813,675  261  —  5,744,106  
Property, equipment and leasehold improvements, net350,071  796  20,632  13,530  —  385,029  
Intangible assets, net and goodwill1,726,736  143,616  52,582  —  —  1,922,934  
Other assets913,688  10,347  1,298,803  321,766  (94,495) 2,450,109  
    Total Assets40,523,223  3,313,716  3,285,671  2,432,119  (94,495) 49,460,234  
Liabilities
Long-term debt (1) (2)6,391,969  611,389  342,325  991,378  —  8,337,061  
Other liabilities28,523,689  1,896,026  754,560  290,104  (94,495) 31,369,884  
  Total liabilities34,915,658  2,507,415  1,096,885  1,281,482  (94,495) 39,706,945  
Redeemable noncontrolling interests—  —  26,605  —  —  26,605  
Mandatorily redeemable convertible preferred shares—  —  —  125,000  —  125,000  
Noncontrolling interests747  3,528  17,704  —  —  21,979  
Total Jefferies Financial Group Inc. shareholders' equity$5,606,818  $802,773  $2,144,477  $1,025,637  $—  $9,579,705  

(1) Jefferies Group long-term debt of $7.0 billion at November 30, 2019 is allocated to Investment Banking and Capital Markets, and Asset Management segments based on an internal management view only and may not be reflective of what long-term debt would be on a stand-alone segment basis.

(2) Long-term debt within Merchant Banking of $342.3 million at November 30, 2018,2019, primarily includes $77.8$140.7 million for real estate businesses, $103.1 million for Vitesse Energy Finance.Finance and $98.3 million for Foursight Capital. At November 30, 2019, Vitesse Energy Finance had $104.0 million drawn out of the maximum $170.0 million borrowing base on its credit facility and Foursight Capital had $98.7 million drawn out of the maximum $175.0 million credit commitment on its credit facilities. See Note 11 in our consolidated financial statements for additional information.


87

The table below presents our tangible capital by significant business and investment (in thousands):
May 31,
2020		November 30, 2019
Jefferies Group$6,471,391  $6,181,683  
Assets held on behalf of Asset Management (excluding Jefferies Group)259,719  227,908  
Merchant Banking:
Oil and gas575,613  585,493  
Real estate540,722  645,328  
  Linkem214,105  194,847  
FXCM129,997  129,343  
  Idaho Timber84,567  77,914  
The We Company9,608  53,798  
Investments in other public companies126,878  178,593  
  Other257,910  279,161  
    Total Merchant Banking
1,939,400  2,144,477  
Corporate liquidity and other assets, net of Corporate liabilities including long-term debt656,044  1,025,637  
Total Capital$9,326,554  $9,579,705  
 Tangible Capital as of
 August 31,
2019		 November 30, 2018
    
Jefferies Group$4,372,384
 $4,355,855
    
Merchant Banking:   
National Beef718,771
 653,630
Oil and gas625,959
 640,773
Spectrum Brands422,990
 374,221
  HomeFed488,408
 337,542
The We Company123,200
 254,400
  Linkem218,413
 165,157
FXCM131,398
 148,181
  Idaho Timber80,692
 78,190
  Other566,544
 663,695
    Total Merchant Banking
3,376,375
 3,315,789
    
Corporate liquidity and other assets, net of Corporate liabilities including long-term debt349,890
 499,091
    
Total Tangible Capital (1)$8,098,649
 $8,170,735

(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:

•Investment Banking and Capital Markets includes our investment banking, capital markets and other related services. Investment banking provides underwriting and financial advisory services to our clients across most industry sectors in the Americas, Europe and Asia. Our capital markets businesses operate across the spectrum of equities and fixed income products. Related services include, among other things, prime brokerage and equity finance, research and strategy, corporate lending and real estate finance. Our Investment Banking and Capital Markets businesses are conducted by Jefferies Group, our wholly-owned subsidiary, which is the largest independent U.S. headquartered global full-service, integrated investment banking and securities firm.

•Asset Management provides investment management services to investors in the U.S. and overseas and invests capital in hedge funds, separately managed accounts and third-party asset managers. Under the LAM umbrella, we manage, invest in and provide services to a diverse group of alternative asset management platforms across a spectrum of investment strategies and asset classes. LAM offers institutional clients an innovative range of investment strategies through its affiliated managers.

•Merchant Banking:
◦We own an approximate 31% interest in 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 Energy. Vitesse Energy Finance is our 97% owned consolidated subsidiary that acquires and invests in non-operated working interests and royalties predominantly in the Bakken Shale oil field in North Dakota. JETX Energy is our 98% owned consolidated subsidiary that currently has non-operated working interests and acreage in east Texas.
◦We own approximately 15% of Spectrum Brands, a publicly traded global consumer products company on the NYSE, and we reflect this investment in Trading assets in our financial statements at fair value based on quoted market prices.
◦Through June 30, 2019, we owned an approximate 70% equity interest of HomeFed, which owns and develops residential and mixed-use real estate properties. HomeFed was a public company traded on the Over-the-Counter Bulletin Board and was accounted for under the equity method. On July 1, 2019, we completed a merger with HomeFed by which we acquired the remaining common stock of HomeFed. From July 1, 2019, the results of HomeFed are reflected on a consolidated basis.
◦We invested $9.0 million in 2013 in The We Company, which creates collaborative office communities. Currently we own approximately 0.8% of the company. Our interest in The We Company is reflected in Trading assets in our financial statements at fair value.
◦We own approximately 42% of the common shares of Linkem, as well as convertible preferred shares which, if converted, would increase our ownership to approximately 54% of Linkem’s common equity at August 31, 2019. Linkem provides residential broadband services in Italy using LTE technologies deployed over the 3.5 GHz spectrum band. Linkem is accounted for under the equity method.
◦Our investment in FXCM and associated companies consist of a senior secured term loan due February 15, 2021, ($71.6 million principal outstanding at August 31, 2019); a 50% voting interest in FXCM and a majority of all distributions.


◦Our oil and gas business consists of Vitesse Energy Finance and JETX Energy. Vitesse Energy Finance is our 97% owned consolidated subsidiary that acquires and invests in non-operated oil and gas working interests and royalties predominantly in the Bakken Shale oil field in North Dakota. JETX Energy is our 98% owned consolidated subsidiary that currently has non-operated working interests and acreage in east Texas.
◦Our real estate assets primarily consist of our 100% ownership of HomeFed, a developer and owner of residential and mixed-use real estate properties in California, New York, Florida, Virginia and South Carolina. HomeFed's key assets include Otay Ranch, a master planned community that is under development in Chula Vista, CA, made up of approximately 4,450 acres of land entitled for 13,050 total units; and Renaissance Plaza, a mixed-use asset in Brooklyn, NY, comprised of an office building, hotel and garage.
◦We own approximately 42% of the common shares of Linkem, as well as convertible preferred shares and warrants. If all of our convertible preferred stock was converted and warrants were exercised, it would increase our ownership to approximately 56% of Linkem's common equity at May 31, 2020. Linkem provides residential broadband services in Italy using LTE technologies deployed over the 3.5 GHz spectrum band. Linkem is accounted for under the equity method.
◦Our investment in FXCM and associated companies consist of a senior secured term loan due February 15, 2021, ($71.6 million principal outstanding at May 31, 2020); a 50% voting interest in FXCM and rights to a majority of all
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distributions in respect of the equity in FXCM. FXCM is a provider of online foreign exchange trading, contract for difference trading, spread betting and related services.
◦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" radius-edge pine decking.

◦Idaho Timber is our consolidated subsidiary engaged in the manufacture and distribution of various wood products.
◦We invested $9.0 million in 2013 in The We Company, which creates collaborative office communities. Currently we own less than 1% of the company. Our interest in The We Company is reflected in Financial instruments owned, at fair value in our financial statements.

•Corporate liquidity and other assets, net of Corporate liabilities, primarily consist of cash and cash equivalents, financial instruments owned and the deferred tax asset (exclusive of Jefferies Group's deferred tax asset), 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

At the corporate levelOur strategy focuses on strengthening and expanding our core business of Investment Banking and Capital Markets and Asset Management, while continuing to simplify our structure and return capital to our shareholders. We are simplifying our structure through a managed transformation of Merchant Banking, which to date has included divestitures, special distributions of assets, principally consistas well as transfers of the stock or membership interestsfinancial assets out of our businessesMerchant Banking portfolio and investments, cash and cash equivalents and other noncontrolling investments in debt and equity securities. Our principal sourcesinto Jefferies Group. We anticipate additional transactions as our transformation progresses. Some of funds arethese transactions generate significant excess liquidity; some of these transactions also reduce the future receipt of periodic distributions from subsidiaries proceeds from divestitures of existing businesses and investments, repayment of subsidiary advances, availableto the parent company.
Parent company liquidity, which includes cash resources, liquid investments, funds distributed from subsidiaries as tax sharing payments, public and private capital market transactions, and management and other fees. Our cash requirements consist primarily of the payment of interest on our debt, dividends and corporate cash overhead expenses, as well as acquisitions of new businesses when determined to be in the best interest of our shareholders.
During the first nine months of 2019, we received $472.2 million of distributions from our existing subsidiary businesses, including $272.0 million from Jefferies Group, $121.8 million from National Beef and $60.0 million from HomeFed.
Our cash resources and investments that are easily convertible into cash within a relatively short period of time, total $1.4 billion$1,636.1 million at AugustMay 31, 2019,2020 and are primarily comprised of cash, prime and government money market funds and other publicly traded equity securities. These are classified in ourthe Consolidated Statement of Financial Condition as cash and cash equivalents and trading assets.financial instruments owned, at fair value. At AugustMay 31, 2019, $976.42020, $1,288.1 million of this amount is invested in U.S. government money funds that invest at least 99.5% of its total assets in cash, securities issued by the U.S. government and U.S. government-sponsored entities and repurchase agreements that are fully collateralized by cash or government securities.
During the first half of 2020, our parent company received cash distributions of $86.6 million from our existing subsidiary businesses, including $44.6 million from Jefferies Group. We also received $111.8 million from divestitures and repayments of advances.
Our short-term recurring cash requirements, including the payment of interest on our parent company debt, dividends and corporate cash overhead expenses, approximate $286aggregate approximately $292.4 million on an annual basis. Dividends paid during the first nine monthshalf of 20192020 of $112.5$83.4 million include quarterly dividends of $0.125$0.15 per share. The payment of dividends is subject to the discretion of theour Board of Directors and depends upon general business conditions, legal and contractual restrictions on the payment of dividends and other factors that theour Board of Directors may deem to be relevant. Our recurring cash requirements typically do not include significant amounts for tax payments, as
For many years, we have benefited from federal net operating loss carryovers ("NOLs") which have substantially offset our federal cash tax requirements. During the twelve months ended November 30, 2019, we used about $1.0 billion of our NOLs and other tax attributes whichto offset federal tax liabilities. In September 2019, the Jefferies Board of Directors approved a distribution to stockholders of Jefferies of the Spectrum Brands shares owned by Jefferies. Jefferies will distribute the 7,514,477 Spectrum Brands shares through a special pro rata dividend effective on October 11, 2019 to Jefferies stockholders of recordtaxable income, with about $111 million remaining NOLs as of the close of business on SeptemberNovember 30, 2019. Based on this, we anticipate incurring federal cash tax liabilities during the upcoming quarters.
Our primary long-term parent company cash requirement is to make principal payments on the parent company's long-term debt ($1.0our $1.0 billion principal outstanding as of AugustMay 31, 2019),2020 under our long-term debt, of which $750.0 million is due in 2023 and $250.0 million in 2043. We continue toAs we generate excess liquidity, we evaluate the best use our available liquidity to make acquisitions of new businesses and other investments, additional contributionsthe proceeds, which may include reductions to existing debt, share repurchases, special dividends, investments in our businesses, and repurchasesor any of our outstanding common shares. The timinga number of these events is influenced by many factors and therefore cannot be predicted.other options available to us.
Shares Outstanding

In January 2019,2020, the Board of Directors approved an additional $500.0$250.0 million share repurchase authorization. In March 2020, having completed the repurchase of shares under the previous authorization, the Board of Directors approved an additional share repurchase authorization of $100 million. During the first nine monthshalf of 2019,2020, we purchased a total of 17,725,36124,784,910 of our common shares for $352.1$491.9 million, ator an average price per share of $19.87 under this authorization. As of August$19.85. At May 31, 2019, $147.9 million remains available for future repurchases under this authorization. Additionally, in connection with the HomeFed merger on July 1, 2019, our Board of Directors has authorized the repurchase of an additional 9.25 million shares in the open market. In total, based on the closing stock price of Jefferies at August 31, 2019,2020, we havehad approximately $320$73.3 million available for future repurchases. In June 2020, the Board of Directors increased the share repurchase authorization to $250.0 million, including the $73.3 million.
At AugustMay 31, 2019,2020, we had outstanding 299,867,942267,111,111 common shares and 21,560,00023,563,000 share-based awards that do not require the holder to pay any exercise price (potentially an aggregate of 321,427,942290,674,111 outstanding common shares if all awards become

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outstanding common shares). The 21,560,00023,563,000 share-based awards include the target number of shares under the senior executive award plan.
Through June 30, 2019, we owned an approximate 70% equity interest of HomeFed, which owns and develops residential and mixed-use real estate properties and accounted for our interest under the equity method. On July 1, 2019, we completed a merger with HomeFed by which we acquired the remaining common stock of HomeFed. From July 1, 2019, the results of HomeFed are reflected on a consolidated basis. In connection with the merger, HomeFed stockholders received two shares of our common stock for each share of HomeFed common stock. A total of 9.3 million shares were issued.
In February 2009, the Board of Directors authorized, 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.

Concentration Liquidity and LeverageLiquidity Targets

From time to time in the past, we have accessed public and private credit markets and raised capital in underwritten bond financings. The funds raised have been used by us for general corporate purposes, including for our existing businesses and new investment opportunities. In addition, the ratings of Jefferies are a factor considered by rating agencies that rate the debt of our subsidiary companies, including Jefferies Group, whose access to external financing is important to its day to day operations. Ratings issued by bond rating agencies, subject to change at any time, are as follows:
    Rating
Outlook
Moody’sMoody's Investors Service (1)Baa3Stable
Standard and Poor’s (1)Poor's (2)BBB-BBBPositiveNegative
Fitch RatingsBBBStable

(1) On July 11, 2019,April 15, 2020, Moody's Investors Service affirmed our rating of Baa3 and rating outlook of stable.
(2) On April 14, 2020, Standard and Poor’s reaffirmedPoor's affirmed our long-term debt rating of BBB-BBB and revised our rating outlook from stable to positive.negative.

We target specific concentration leverage and liquidity principles expressed in the form of certain ratios and percentages, although there is no legal requirement to do so. 

Concentration Target: As a diversification measure, we limit cash investments such that our single largest investment does not exceed 20% of equity excluding Jefferies Group, and that our next largest investment does not exceed 10% of equity excluding Jefferies Group, in each case measured at the time the investment was made. On this basis, Spectrum BrandsLinkem is our largest investment excluding Jefferies Group and Vitesse Energy Finance is our next largest 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 year that approached 10% of equity excluding Jefferies Group.

Liquidity Target: We hold a liquidity reserve calculated as a minimum of twenty-four months of holding company expenses (excluding non-cash components), parent company interest, and dividends. Maturities of parent company debt within the upcoming year are also included in the target; however, our next maturity is during 2023 so there is no current inclusion.
Liquidity reserve (in thousands):
August 31,
2019
Minimum reserve under liquidity target$571,800
Actual liquidity$1,415,933


Liquidity reserve (in thousands):
May 31,
2020
Minimum reserve under liquidity target$584,900 
Actual liquidity$1,636,079 
Leverage Target:
 We target a maximum parent debt to stressed equity ratio of .50, with stressed equity defined as equity (excluding Jefferies Group) assuming the loss of our two largest investments. When our liquidity exceeds the minimum required under our liquidity target, the excess is applied to debt for our leverage target calculation.
Leverage target (dollars in thousands):
August 31,
2019		 
  Total Jefferies Financial Group Inc. shareholders' equity$10,020,442
 
  Less, investment in Jefferies Group(6,239,571) 
  Equity excluding Jefferies Group3,780,871
 
  Less, our two largest investments: 
 
  National Beef(718,771) 
  Vitesse Energy Finance(553,785) 
  Equity in a stressed scenario$2,508,315
 
  Less, net deferred tax asset excluding Jefferies Group's amount(306,083) 
  Equity in a stressed scenario less net deferred tax asset$2,202,232
 
   
  Parent company debt, net of cash in excess of liquidity reserve$146,922
 
  Parent company debt (see Note 12 to our consolidated financial statements)$991,055
 
   
  Ratio of parent company debt to stressed equity: 
 
  Maximum0.50
x
   
  Actual debt, net of excess liquidity0.06
x
  Actual debt, net of excess liquidity and excluding net deferred tax asset0.07
x
   
  Actual debt (gross)0.40
x
  Actual debt, gross and excluding net deferred tax asset0.45
x

Consolidated Statements of Cash Flows

As discussed above, we have historically relied on our available liquidity to meet short-term and long-term needs, and to make acquisitions of new businesses and investments. Except as otherwise disclosed herein, our operating businesses do not generally require significant funds to support their operating activities. The mix of our operating businesses and investments can change frequently as a result of acquisitions or divestitures, the timing of which is impossible to predict but which often have a significant impact on ourthe 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
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The following table provides a summary of our cash of $1,251.3 million was used for operating activities and $199.9 million was provided by operating activities duringflows (in thousands):

Six Months Ended May 31, 2020Six Months Ended May 31, 2019
Cash, cash equivalents and restricted cash at beginning of period$8,480,435  $6,012,662  
Net cash provided by (used for) operating activities160,960  (1,440,361) 
Net cash provided by (used for) investing activities(163,418) 1,202,782  
Net cash provided by (used for) financing activities(969,420) 167,821  
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash(13,547) (3,892) 
Cash, cash equivalents and restricted cash at end of period$7,495,010  $5,939,012  

During the first nine monthshalf of 2019 and 2018, respectively. 
Jefferies Group used funds of $1,452.3 million and generated funds of $30.7 million during the first nine months of 2019 and 2018, respectively. Included in these amounts are distributions received from associated companies of $126.5 million and $2.3 million during the first nine months of 2019 and 2018, respectively.
Within Merchant Banking,2020, net cash of $41.5 million was generated during the first nine months of 2018 related to investments in the LAM platform. Cash of $80.3 million was generated from redemption of a managed fund during the first nine months of 2019. Idaho Timber generated funds of $9.5 million and $31.4 million during the first nine months of 2019 and 2018, respectively. Distributions from associated companies include $121.8 million and $24.4 million from National Beef during the first nine months of 2019 and 2018, respectively, and $41.0 million from Berkadia and $27.8 million from Garcadia during the first nine months of 2018.
Net cash provided by operating activities primarily relates to funds provided by Jefferies Group of discontinued operations reflects funds generated by National Beef$92.0 million. Net losses related to property and equipment, and other assets includes the non-cash charge of $164.7$52.9 million to write-down the value of certain of our investments during the first nine monthshalf of 2018.2020.
During the first half of 2019, net cash used for operating activities primarily relates to funds used by Jefferies Group of $1,464.5 million. Net cash used for operating activities for 2019 also includes $54.9 million of $1,103.2 million was provided by investing activities and $118.5 million wasdistributions from National Beef.
During the first half of 2020, net cash used for investing activities during the first nine monthsprincipally reflects $1,382.8 million of 2019 and 2018, respectively. 


Acquisitions of property, equipment and leasehold improvements, and other assets related to Jefferies Group include $71.4 million and $52.7 million during the first nine months of 2019 and 2018, respectively. Jefferies Group made loans to and investments in associated companies of $26.8and $120.7 million and $1,918.5 million during the first nine months of 2019 and 2018, respectively. Jefferies Group received capital distributions and loan repayments from its associated companies of $24.6 million and $1,873.0 million during the first nine months of 2019 and 2018, respectively. 
Within Merchant Banking,for acquisitions of property, equipment and leasehold improvements, and other assets, primarily reflect activity in our oil and gas businesses. They totaled $91.6partially offset by $1,344.6 million and $229.4 million during the first nine months of 2019 and 2018, respectively. Proceeds from sale of subsidiaries and proceeds from sale of associated companies during 2018 primarily relate to the sale of our equity interests in Garcadia and our associated real estate. Acquisitions, net of cash acquired primarily relates to HomeFed's cash at date of acquisition. Loans to and investments in associated companies include $49.0 million to National Beef, $82.3 million to Linkem and $7.5 million to Golden Queen during the first nine months of 2019 and $11.0 million to Golden Queen during the first nine months of 2018. 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 from real estate projects and $0.6 million from Garcadia duringcompanies.
During the first nine monthshalf of 2018.

Cash2019, net cash provided by investing activities includes proceeds from maturities of investments of $531.1 million and $1,000.1 million during the first nine months of 2019 and 2018, respectively, and proceeds from sales of investments of $890.3$886.9 million. Jefferies Group used funds of $42.7 million for investing activities in 2019.
During the first half of 2020, net cash used for financing activities primarily relates to funds used to repurchase common shares for treasury of $495.3 million, funds used to pay dividends of $83.4 million and $1,012.4funds used by Jefferies Group of $450.2 million. This includes funds used for the repayments of debt of $1,762.4 million duringand payments of other secured financings of $369.7 million, partially offset by funds provided by the issuance of debt of $1,667.8 million. This was partially offset by proceeds from other secured financings of $44.5 million in our Merchant Banking segment.
During the first nine monthshalf of 2019, and 2018, respectively. Cash of $3,242.7 million was used to purchase investments (other than short-term) during the first nine months of 2018.

Netnet cash provided by investing activities of discontinued operations during the first nine months of 2018 includes net proceeds from the sale of National Beef of $899.2 million and acquisitions of property, equipment and leasehold improvements, and other assets related to National Beef of $33.7 million.
Net cash of $835.5 million was provided by financing activities and $37.4 million was used for financing activities duringprimarily reflects funds generated by Jefferies Group of $598.5 million. This includes funds provided by the first nine months of 2019 and 2018, respectively. 
Issuanceissuance of debt includes $2,326.3of $1,094.3 million and $1,938.0 million during the first nine months of 2019 and 2018, respectively, related to Jefferies Group. Repayment of debt includes $1,977.6 million and $1,695.0 million during the first nine months of 2019 and 2018, respectively, related to Jefferies Group. Net change in bank overdrafts of $(9.0) million and $2.4 million during the first nine months of 2019 and 2018, respectively, related to Jefferies Group. Net change inproceeds from other secured financings includes proceeds of $940.0$385.0 million, and $282.7 million during the first nine months of 2019 and 2018, respectively, related to Jefferies Group.

Within Merchant Banking, issuancepartially offset by repayments of debt includes $167.4 million and $260.3 million during the first nine months of 2019 and 2018, respectively. Their repayment of debt includes $163.7 million and $329.7 million during the first nine months of 2019 and 2018, respectively. Net change in other secured financings includes proceeds of $32.3 million and $127.1 million during the first nine months of 2019 and 2018, respectively, related to Foursight Capital.

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

$870.5 million. Net cash provided by financing activities also reflects funds used to repurchase common shares for treasury of discontinued operations includes the issuance$364.7 million, funds used to pay dividends of debt by National Beef$74.6 million and payments on secured financings in our Merchant Banking segment of $366.1 million of borrowings under its bank credit facility and repayment of debt by National Beef of $175.1 million during the first nine months of 2018.$120.8 million.

Jefferies Group Liquidity

General
The Interim Chief Financial Officer and Global Treasurer of Jefferies Group are responsible for developing and implementing liquidity, funding and capital management strategies for Jefferies Group's businesses.Group. These policies are determined by the nature and needs of day to day business operations, business opportunities, regulatory obligations and liquidity requirements.
The actual levels of capital, total assets and financial leverage are a function of a number of factors, including asset composition, business initiatives and opportunities, regulatory requirements and cost and availability of both long-term and short-term funding. Jefferies Group has historically maintained a balance sheet consisting of a large portion of total assets in cash and liquid marketable


securities, arising principally from traditional securities brokerage and trading activity. The liquid nature of these assets provides flexibility in financing and managing Jefferies Group'sour business.
Jefferies Group maintains modest leverage to support its investment grade ratings. The growth of its balance sheet is supported by its equity and Jefferies Group haswe have quantitative metrics in place to monitor leverage and double leverage. Jefferies Group capital plan is
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robust, in order to sustain its operating model through stressed conditions. Jefferies Group maintainsWe maintain adequate financial resources to support business activities in both normal and stressed market conditions, including a buffer in excess of regulatory, or other internal or external, requirements. Jefferies Group's access to funding and liquidity is stable and efficient to ensure that there is sufficient liquidity to meet its financial obligations in normal and stressed market conditions.
During the second quarter of 2020, the global capital markets experienced a higher level of stress due to the COVID-19 pandemic. Higher volumes and price volatility led to increased margin requirements at clearing corporations and exchanges, along with increased levels of fails due to operational friction in the financial system. Margin requirements moderated as the quarter progressed but remain elevated relative to pre-COVID-19 markets. Operational friction has been reduced as the counterparties have adapted to a work from home environment.

During the second quarter, we increased the frequency and timing of our daily reporting for excess liquidity, cash and capital usage and excess secured funding capacity. We worked closely with the business units and management to closely monitor fails, exchange margin requirements and all changes to secured funding arrangements. During the quarter, Jefferies Group's business units generally operated within defined balance sheet and capital limits. These limits and results were reported to senior management on a daily basis during the height of the stress period.

We were in regular dialogue during the quarter with all regulatory bodies and all three rating agencies. On April 14, 2020, Standard and Poor's affirmed our rating of BBB, but revised our rating outlook and the rating outlooks of our principal operating broker-dealers from stable to negative. On April 15, 2020, Moody's Investors Service affirmed our rating of Baa3 and our rating outlook of stable.

In general, the liquidity outflows experienced during the peak of the market stress were well within the assumptions of our liquidity stress model, or Maximum Liquidity Outflow. Due to increased volumes and heightened volatility in March, we experienced outsized margin requirements on some exchanges. Based on that experience, we increased the stress liquidity buffer during the quarter for the affected exchanges on a go forward basis.

Our secured funding model operated efficiently during this stress period. Some counterparties exited secured funding trades and
were replaced with new counterparties or with excess capacity from existing lenders. We have tracked all changes in secured funding haircuts by product and have adjusted capital assumptions as needed. During this time, we extended the term of our secured funding arrangements and created additional funding capacity for various product groups. The weighted average maturity of our secured funding at May 31, 2020 increased by approximately 35 days as compared to the weighted average maturity at February 29, 2020. Our U.S. broker-dealer, Jefferies LLC, as a primary dealer, has access to the Federal Reserve's Primary Dealer Credit Facility ("PDCF"). During the second quarter of 2020, Jefferies LLC accessed the PDCF for up to $50.0 million. The amount drawn under the facility at May 31, 2020 was $8.0 million.
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 Jefferies Group'sthe firm's platform, enable the businesses to remain competitive, maintain the ability to manage capital proactively and hold businesses accountable for both balance sheet and capital usage.
Jefferies GroupWe actively monitorsmonitor and evaluates itsevaluate our 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. Substantially all of Jefferies Group's financial instruments are valued on a daily basis and Jefferies Group monitorswe monitor and employsemploy balance sheet limits for its various businesses.

At AugustMay 31, 2019, our2020, the Consolidated Statement of Financial Condition includes Jefferies Group's Level 3 trading assetsfinancial instruments owned, at fair value that are approximately 2% of total trading assets.financial instruments owned, at fair value.

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

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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):
Six Months Ended May 31, 2020Year Ended
November 30, 2019
Securities purchased under agreements to resell:
Period end$4,284  $4,300  
Month end average8,488  7,762  
Maximum month end12,061  11,589  
Securities sold under agreements to repurchase:      
Period end$8,631  $7,505  
Month end average14,631  14,686  
Maximum month end18,979  19,654  
 Nine Months Ended August 31, 2019 
Year Ended
November 30, 2018
Securities purchased under agreements to resell:   
Period end$4,500
 $2,786
Month end average7,432
 5,232
Maximum month end11,589
 7,593
    
Securities sold under agreements to repurchase: 
  
Period end$8,237
 $8,643
Month end average14,855
 12,704
Maximum month end19,654
 15,579

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 are influenced in any given period by itsour clients' balances and itsour 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 considerswe consider the fluctuations intraperiod to be typical for the repurchase market.
Liquidity Management
The key objectives of Jefferies Group's liquidity management framework are to support the successful execution of its business strategies while ensuring sufficient liquidity through the business cycle and during periods of financial distress. The liquidity


management policies are designed to mitigate the potential risk that adequate financing may not be accessible to service financial obligations without material franchise or business impact.

The principal elements of Jefferies Group's liquidity management framework are the Contingency Funding Plan, the Cash Capital Policy and the assessment of Maximum Liquidity Outflow.
Contingency Funding Plan.  Jefferies Group's Contingency Funding Plan is based on a model of a potential liquidity contraction over a one year time period. This incorporates potential cash outflows during a liquidity stress event, including, but not limited to, the following:
•Repayment of all unsecured debt maturing within one year and no incremental unsecured debt issuance;
•Maturity rolloff of outstanding letters of credit with no further issuance and replacement with cash collateral;
•Higher margin requirements than currently exist on assets on securities financing activity, including repurchase agreements;
•Liquidity outflows related to possible credit downgrade;
•Lower availability of secured funding;
•Client cash withdrawals;
•The anticipated funding of outstanding investment and loan commitments; and
•Certain accrued expenses and other liabilities and fixed costs.
Cash Capital Policy. A cash capital model is maintained that measures long-term funding sources against requirements. Sources of cash capital include equity and the noncurrent portion of long-term borrowings. Uses of cash capital include the following:
•Illiquid assets such as equipment, goodwill, net intangible assets, exchange memberships, deferred tax assets and certain investments;
•A portion of securities inventory that is not expected to be financed on a secured basis in a credit stressed environment (i.e., margin requirements); and
•Drawdowns of unfunded commitments. 
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To ensure that Jefferies Groupinventory does not need to liquidate inventorybe liquidated in the event of a funding crisis, Jefferies Group seekswe seek to maintain surplus cash capital, which is reflected in the leverage ratios Jefferies Group maintains. Jefferies Group's total long-term capital of $12.2$12.1 billion at AugustMay 31, 20192020 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 calculateswe calculate a Maximum Liquidity Outflow that could be experienced in a liquidity crisis. Maximum Liquidity Outflow is based on a scenario that includes both a market-wide stress and firm-specific stress.
Based on the sources and uses of liquidity calculated under the Maximum Liquidity Outflow scenarios, Jefferies Group determines,we determine, based on itsa calculated surplus or deficit, additional long-term funding that may be needed versus funding through the repurchase financing market and considersconsider any adjustments that may be necessary to Jefferies Group's inventory balances and cash holdings. At AugustMay 31, 2019,2020, Jefferies Group had sufficient excess liquidity to meet all contingent cash outflows detailed in the Maximum Liquidity Outflow. Jefferies GroupWe regularly refines itsrefine our model to reflect changes in market or economic conditions and the firm's business mix. As a result of the experience and knowledge gathered during the COVID-19 stress period, beginning in February 2020, Jefferies Group has adjusted certain assumptions in its Maximum Liquidity Outflow scenarios.


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 ourthe Consolidated Statements of Financial Condition (in thousands):
 May 31,
2020		Average Balance
Second Quarter 2020 (1)		November 30, 2019
Cash and cash equivalents:
Cash in banks$1,105,499  $2,236,977  $983,816  
Money market investments (2)4,146,370  2,140,959  4,584,087  
Total cash and cash equivalents5,251,869  4,377,936  5,567,903  
Other sources of liquidity:   
Debt securities owned and securities purchased under agreements to resell (3)998,216  940,165  972,624  
Other (4)292,311  384,885  377,296  
Total other sources1,290,527  1,325,050  1,349,920  
Total cash and cash equivalents and other liquidity sources$6,542,396  $5,702,986  $6,917,823  

(1)Average balances are calculated based on weekly balances.
(2)At May 31, 2020 and November 30, 2019, $4,134.0 million and $4,496.7 million, respectively, was invested in U.S. government money funds that invest at least 99.5% of its total assets in cash, securities issued by the U.S. government and U.S. government-sponsored entities, and repurchase agreements that are fully collateralized by cash or government securities. The remaining $12.4 million and $87.4 million at May 31, 2020 and November 30, 2019, respectively, are invested in AAA rated prime money funds. The average balance of U.S. government money funds for the quarter ended May 31, 2020 was $2,113.3 million.
(3)Consists of high quality sovereign government securities and reverse repurchase agreements collateralized by U.S. government securities and other high quality sovereign government securities; deposits with a central bank within the European Economic Area, Canada, Australia, Japan, Switzerland or the U.S.; and securities issued by a designated multilateral development bank and reverse repurchase agreements with underlying collateral comprised of these securities.
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 August 31,
2019		 
Average Balance
 Third Quarter 2019 (1)
 November 30, 2018
Cash and cash equivalents:     
Cash in banks$1,356,120
 $2,170,372
 $2,333,476
Money market investments (2)3,309,370
 1,401,166
 2,812,410
Total cash and cash equivalents4,665,490

3,571,538

5,145,886
      
Other sources of liquidity: 
  
  
Debt securities owned and securities purchased under agreements to resell (3)1,063,118
 1,018,739
 958,539
Other (4)345,039
 562,316
 499,576
Total other sources1,408,157

1,581,055

1,458,115
      
Total cash and cash equivalents and other liquidity sources$6,073,647

$5,152,593

$6,604,001
(4)Other includes unencumbered inventory representing an estimate of the amount of additional secured financing that could be reasonably expected to be obtained from financial instruments owned that are currently not pledged after considering reasonable financing haircuts.

(1)Average balances are calculated based on weekly balances.
(2)At August 31, 2019 and November 30, 2018, $3,247.0 million and $2,250.0 million, respectively, was invested in U.S. government money funds that invest at least 99.5% of its total assets in cash, securities issued by the U.S. government and U.S. government-sponsored entities, and repurchase agreements that are fully collateralized by cash or government securities. The remaining $62.4 million and $562.4 million at August 31, 2019 and November 30, 2018, respectively, are invested in Triple A rated prime money funds. The average balance of U.S. government money funds for the quarter ended August 31, 2019 was $1,023.3 million.
(3)Consists of high quality sovereign government securities and reverse repurchase agreements collateralized by U.S. government securities and other high quality sovereign government securities; deposits with a central bank within the European Economic Area, Canada, Australia, Japan, Switzerland or the U.S.; and securities issued by a designated multilateral development bank and reverse repurchase agreements with underlying collateral comprised of these securities.
(4)Other includes unencumbered inventory representing an estimate of the amount of additional secured financing that could be reasonably expected to be obtained from financial instruments owned that are currently not pledged after considering reasonable financing haircuts.
In addition to the cash balances and liquidity pool presented above, the majority of financial instruments (both long and short) in our trading assets and liabilitiesaccounts are actively traded and readily marketable. At AugustMay 31, 2019,2020, repurchase financing can be readily obtained for approximately 73.7%72.7% 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'sour 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 assetsfinancial instruments owned primarily consisting of bank loans, consumer loans and investments are predominantly funded by Jefferies Group's long-term capital. Under Jefferies Group's cash capital policy, capital allocation levels are modeled that are more stringent than the haircuts used in the market for secured funding; and surplus capital is maintained at these more stringent levels. Jefferies GroupWe continually assessesassess the liquidity of itsJefferies Group's inventory based on the level at which Jefferies Group could obtain financing in the market placemarketplace 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 assetsfinancial instruments 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):
 May 31, 2020November 30, 2019
 Liquid Financial
Instruments		Unencumbered
Liquid Financial
Instruments (2)		Liquid Financial
Instruments		Unencumbered
Liquid Financial
Instruments (2)
Corporate equity securities$2,399,326  $252,313  $2,403,589  $256,624  
Corporate debt securities2,436,108  44,895  1,893,605  29,412  
U.S. government, agency and municipal securities2,305,139  101,566  2,894,264  151,414  
Other sovereign obligations3,363,870  929,339  2,633,636  969,800  
Agency mortgage-backed securities (1)2,169,220  —  1,757,077  —  
Loans and other receivables508,383  —  655,120  —  
Total$13,182,046  $1,328,113  $12,237,291  $1,407,250  
 August 31, 2019 November 30, 2018
 
Liquid Financial
 Instruments
 
Unencumbered
Liquid Financial
 Instruments (2)
 
Liquid Financial
 Instruments
 
Unencumbered
Liquid Financial
 Instruments (2)
Corporate equity securities$2,334,267
 $212,378
 $1,907,064
 $317,189
Corporate debt securities2,299,621
 14,365
 1,775,721
 104,685
U.S. government, agency and municipal securities2,946,757
 150,406
 2,648,843
 294,030
Other sovereign obligations2,550,571
 981,913
 2,626,212
 840,578
Agency mortgage-backed securities (1)1,715,564
 —
 2,972,638
 —
Loans and other receivables215,269
 —
 272,201
 —
 $12,062,049

$1,359,062

$12,202,679

$1,556,482

(1)Consists solely of agency mortgage-backed securities issued by Freddie Mac, Fannie Mae and Ginnie Mae. These securities include pass-through securities, securities backed by adjustable rate mortgages, collateralized mortgage obligations, commercial mortgage-backed securities and interest- and principal-only securities.
(2)Unencumbered liquid balances represent assets that can be sold or used as collateral for a loan, but have not been.

(1)Consists solely of agency mortgage-backed securities issued by Freddie Mac, Fannie Mae and Ginnie Mae. These securities include pass-through securities, securities backed by adjustable rate mortgages, collateralized mortgage obligations, commercial mortgage-backed securities and interest- and principal-only securities.
(2)Unencumbered liquid balances represent assets that can be sold or used as collateral for a loan, but have not been.

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

Sources of Funding and Capital Resources

Secured Financing
Readily available secured funding is used to finance Jefferies Group's inventory of financial instruments. Jefferies Group's ability to support increases in total assets is largely a function of the ability to obtain shortshort- and intermediate-term secured funding, primarily through securities financing transactions. Repurchase or reverse repurchase agreements (collectively "repos"), respectively, are used to finance a portion of long inventory and cover some of short inventory by pledging and borrowing securities. Approximately 71.2%71.4% of Jefferies Group's cash and noncash repurchase financing activities use collateral that is considered eligible collateral by central clearing corporations. Central clearing corporations are situated between participating members who borrow cash and lend securities (or vice versa); accordingly, repo participants contract with the central clearing corporation and not one another individually. Therefore, counterparty credit risk is borne by the central clearing corporation which mitigates the risk through initial margin demands and variation margin calls from repo participants. The comparatively large proportion of Jefferies Group's total repo activity that is eligible for central clearing reflects the high quality
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and liquid composition of the inventory Jefferies Group carries in its trading inventory.books. For those asset classes not eligible for central clearing house financing, Jefferies Group seeks to execute its bi-lateral financings on an extended term basis and the tenor of Jefferies Group's repurchase and reverse repurchase agreements generally exceeds the expected holding period of the assets Jefferies Group is financing. The weighted average maturity of cash and noncash repurchase agreements for non-clearing corporation eligible funded inventory is approximately fivesix months at AugustMay 31, 2019.2020.
Jefferies Group's ability to finance its inventory via central clearinghouses and bi-lateral arrangements is augmented by Jefferies Group's ability to draw bank loans on an uncommitted basis under its various banking arrangements. At AugustMay 31, 2019,2020, short-term borrowings, which must be repaid within one year or less and include bank loans and overdrafts, borrowings under revolving credit facilities, floating rate puttable notes and structuredequity-linked notes, totaled $518.9$656.9 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 $496.5$642.9 million and $580.8$566.6 million for the thirdsecond quarter and first nine monthshalf of 2019,2020, respectively.


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

•
Credit Facility. On December 27, 2018, one of Jefferies Group's subsidiaries entered into a credit facility agreement ("Jefferies Group Credit Facility") with JPMorgan Chase Bank, N.A. for a committed amount of $135.0 million. Interest is based on an annual alternative base rate or an adjusted London Interbank Offered Rate ("LIBOR"), as defined in the Jefferies Group Credit Facility. The Jefferies Group Credit Facility contains certain covenants that, among other things, require Jefferies Group LLC to maintain a specified level of tangible net worth. The covenants also require the borrower to maintain specified leverage amounts and impose certain restrictions on the borrower’s future indebtedness. During the first nine months of 2019, Jefferies Group was in compliance with all debt covenants under the Jefferies Group Credit Facility.
•
Intraday Credit Facility. The Bank of New York Mellon has agreed to make revolving intraday credit advances ("Jefferies Group Intraday Credit Facility") for an aggregate committed amount of $150.0 million. The Jefferies Group Intraday Credit Facility contains financial covenants, which include a minimum regulatory net capital requirement for Jefferies Group's U.S. broker-dealer, Jefferies LLC. Interest is based on the higher of the Federal funds effective rate plus 0.5% or the prime rate. During the first nine months of 2019, Jefferies Group was in compliance with all debt covenants under the Jefferies Group Intraday Credit Facility.

On March 28, 2019,•Credit Facility. One of Jefferies Group's subsidiaries has the Jefferies Group entered intoCredit Facility with JPMorgan Chase Bank, N.A. for a promissory notecommitted amount of $296.0 million. Interest is based on an annual alternative base rate or an adjusted London Interbank Offered Rate ("LIBOR"), as defined in the Jefferies Group Credit Facility. The Jefferies Group Credit Facility contains certain covenants that, among other things, require Jefferies Group LLC to maintain a specified level of tangible net worth. The covenants also require the borrower to maintain specified leverage amounts and impose certain restrictions on the borrower's future indebtedness. At May 31, 2020, we were in compliance with all debt covenants under the Jefferies Finance,Group Credit Facility.
•Intraday Credit Facility. The Bank of New York Mellon has agreed to make revolving intraday credit advances ("Jefferies Group Intraday Credit Facility") for an aggregate committed amount of $150.0 million. The Jefferies Group Intraday Credit Facility is structured so that advances are generally repaid before the end of each business day. However, if an advance is not repaid by the end of any business day, the advance is converted to an overnight loan. Intraday loans accrue interest at a rate of 0.12%. Interest is charged based on the number of minutes in a day the advance is outstanding. Overnight loans are charged interest at the base rate plus 3% on a daily basis. The base rate is the higher of the federal funds rate plus 0.50% or the prime rate in effect at that time. The Jefferies Group Intraday Credit Facility contains financial covenants, which was repaid oninclude a minimum regulatory net capital requirement for Jefferies Group's U.S. broker-dealer, Jefferies LLC. At May 15, 2019.31, 2020, we were in compliance with all debt covenants under the Jefferies Group Intraday Credit Facility.

In addition to the above financing arrangements, Jefferies Group issues notes backed by eligible collateral under a master repurchase agreement, which provides an additional financing source for its inventory ("repurchase agreement financing program"). The notes issued under the program are presented within Other secured financings in the Consolidated StatementsStatement of Financial Condition. At AugustMay 31, 2019,2020, the outstanding notes were $1.8$2.1 billion, bear interest at a spread over LIBOR and mature from September 2019June 2020 to July 2021.May 2022. 
Long-Term Debt
Jefferies Group's long-term debt reflected in the Consolidated Statement of Financial Condition at AugustMay 31, 20192020 is $6.8$6.7 billion. Jefferies Group's long-term debt, excluding its revolving credit facility and the secured bank loan, has a weighted average maturity of approximately 9.09.5 years. 
On July 19, 2019, under its $2.5 billionDuring the six months ended May 31, 2020, Jefferies Group's 2.375% Euro Medium Term Note Program, Jefferies Group issued 1.000% senior unsecuredNotes matured and were repaid. Additionally, during the six months ended May 31, 2020, structured notes with a total principal amount of $553.6approximately $191.3 million, net of retirements, and an additional $150.0 million principal amount of 5.125% Senior Notes due 2024. Proceeds amounted to $551.4 million. Additionally, during2023 were issued by Jefferies Group. At May 31, 2020, all of Jefferies Group's structured notes contain various interest rate payment terms and are accounted for at fair value, with changes in fair value resulting from a change in the first nine monthsinstrument specific credit risk presented in Accumulated other comprehensive income (loss) and changes in fair value resulting from non-credit components recognized in Principal transactions revenue. The fair value of 2019,all of Jefferies Group repaid $680.8Group's structured notes at May 31, 2020 was $1,245.5 million of its 8.50% Senior Notes.

Jefferies Group has a Revolving Credit Facility ("Jefferies Group Revolving Credit Facility") with a group of commercial banks for an aggregate principal amount of $190.0 million. At AugustMay 31, 2019,2020, borrowings under the Jefferies Group Revolving Credit Facility amounted to $188.9$189.4 million. Interest is based on an annual alternative base rate or an adjusted LIBOR, as defined in the
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Jefferies Group Revolving Credit Facility agreement. The Jefferies Group Revolving Credit Facility contains certain covenants that, among other things, requires Jefferies Group LLC to maintain specified level of tangible net worth and liquidity amounts, and imposes certain restrictions on future indebtedness of and requires specified levels of regulated capital for certain of its subsidiaries. Throughout the period and at AugustMay 31, 2019,2020, no instances of noncompliance with the Jefferies Group Revolving Credit Facility covenants occurred and Jefferies Group expectswe expect to remain in compliance given itsour current liquidity, and anticipated funding requirements given itsour business plan and profitability expectations.

During 2019, one of Jefferies Group's subsidiaries entered into a Loan and Security Agreement with a bank for a term loan with a principal amount of $50.0 million ("Jefferies Group Secured Bank Loan"). This Jefferies Group Secured Bank Loan matures on September 27, 2021 and is collateralized by certain trading securities. Interest on the Jefferies Group Secured Bank Loan is 1.25% plus LIBOR. The agreement contains certain covenants that, among other things, restrict lien or encumbrance upon any of the pledged collateral. At May 31, 2020, we were in compliance with all covenants under the Jefferies Group Loan and Security Agreement.

Jefferies Group's long-term debt ratings are as follows:
    Rating
Outlook
Moody’sMoody's Investors Service (1)Baa3Stable
Standard and Poor’s (1)Poor's (2)BBB-BBBPositiveNegative
Fitch RatingsBBBStable

(1) On July 11, 2019,April 15, 2020, Moody's Investors Service affirmed Jefferies Group's rating of Baa3 and rating outlook of stable.
(2) On April 14, 2020, Standard and Poor’s reaffirmedPoor's affirmed Jefferies Group's long-term debt rating of BBB-BBB and revised its rating outlook from stable to positive.negative.

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 Group.us.
In connection with certain over-the-counter derivative contract arrangements and certain other trading arrangements, Jefferies Groupwe may be required to provide additional collateral to counterparties, exchanges and clearing organizations in the event of a credit rating downgrade. At AugustMay 31, 2019,2020, the amount of additional collateral that could be called by counterparties, exchanges and clearing organizations under the terms of such agreements in the event of a downgrade of Jefferies Group's long-term credit rating below investment grade was $96.5$81.0 million. For certain foreign clearing organizations, credit rating is only one of several factors employed in determining collateral that could be called. The above represents management's best estimate for additional collateral to be called in the event of a credit rating downgrade. The impact of additional collateral requirements is considered in Jefferies Group's Contingency Funding Plan and calculation of Maximum Liquidity Outflow, as described above.
Ratings issued by credit rating agencies are subject to change at any time.
Net Capital
Jefferies Group operates a broker-dealer, Jefferies LLC, registered with the SECSecurities and Exchange Commission ("SEC") and member firms of the Financial Industry Regulatory Authority ("FINRA"). Jefferies LLC is subject to the SEC Uniform Net Capital Rule ("Rule 15c3-1"), which requires the maintenance of minimum net capital and has elected to calculate minimum capital requirements using the alternative method permitted by Rule 15c3-1 in calculating net capital. Jefferies LLC, as a dually-registered U.S. broker-dealer and futures commission merchant ("FCM"), is also subject to Rule 1.17 of the Commodity Futures Trading Commission ("CFTC"), which sets forth minimum financial requirements. The minimum net capital requirement in determining excess net capital for a dually-registered U.S. broker-dealer and FCM is equal to the greater of the requirement under Rule 15c3-1 or CFTC Rule 1.17. Jefferies LLC's net capital and excess net capital at AugustMay 31, 20192020 were $1,474.2$1,507.7 million and $1,356.5$1,430.7 million, respectively.
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FINRA is the designated examining authority for Jefferies Group's U.S. broker-dealerLLC 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 subject to the regulatory supervision and requirements of the Financial Conduct Authority in the United Kingdom. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") was signed into law on July 21, 2010. The Dodd-Frank Act contains provisions that require the registration of all swap dealers, major swap participants, security-based swap dealers, and/or major security-based swap participants. While entities that register under these provisions will be subject to regulatory capital requirements, these regulatory capital requirements have not yet been finalized. 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.

On March 29, 2017, theThe United Kingdom notified the European Council and triggered a period to negotiate its withdrawal("U.K.") formally withdrew from the European Union ("Brexit"(“EU”). While, there on January 31, 2020 and entered a transition period that is ongoing uncertainty asscheduled to expire on December 31, 2020. During the termstransition period, existing arrangements between the U.K. and any potential transition periods relatedEU will remain in place while the U.K. and EU seek to Brexit, Jefferies Group hasnegotiate a free trade agreement that will govern their future trading relationship. We have taken steps to ensure itsour ability to provide services to itsour European clients without interruption. As such, Jefferies Group haswe have established a wholly-owned subsidiary of itsour U.K. broker-dealer in Germany, which has been approved as an authorized MiFID investment firm by the German regulator and which will enable Jefferies Groupus to conduct business across all of itsour European investment banking, fixed income and equity platforms. Jefferies Group'sThe new entity started trading in 2019 with EU clients with further clients migrating throughout 2020, and our plans contemplate providing sufficient capital pursuant to the regulatory requirements for the planned operations as well pursuant to requirements of relevant clearing organizations.

Some of our other consolidated subsidiaries also have credit agreements which may restrict the payment of cash dividends, or the ability to make loans or advances to the parent company.

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.
In the normal course of business, we engage in other off-balance sheet arrangements, including derivative contracts. Neither derivatives’derivatives' notional amounts nor underlying instrument values are reflected as assets or liabilities in ourthe Consolidated Statements of Financial Condition. Rather, the fair values of derivative contracts are reported in ourthe Consolidated Statements of Financial Condition as Trading assets,Financial instruments owned, at fair value or Trading liabilities,Financial instruments sold, not yet purchased, at fair value, as applicable. Derivative contracts are reflected net of cash paid or received pursuant to credit support agreements and are reported on a net by counterparty basis when a legal right of offset exists under an enforceable master netting agreement.

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Cautionary Statement for Forward-Looking Information

This report contains or incorporates by reference "forward-looking statements" within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include statements about our future and statements that are not historical facts. These forward-looking statements are usually preceded by the words "believe,"will," "intend,"could," "may,"estimates," "will,"expects," "anticipates," "believes," "plans," "intends" and variations of such words 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 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 theFuture events and actual results maycould differ, possibly materially, from the anticipated results indicated in these forward-looking statements. Information regarding important factors that could cause actual results to differ, perhaps materially, from those in our forward-looking statements is contained in this report and other documents we file. You should read and interpret any forward-looking statement together with these documents, including the following:

•The description of our business and risk factors contained in our TransitionAnnual Report on Form 10-K for the eleven monthsfiscal year ended November 30, 20182019 and filed with the SEC on January 29, 2019;2020 (the "2019 10-K") and in Part II, Item 1A herein;
•The 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;
•The notes to the consolidated financial statements in this report; and
•Cautionary statements we make in our public documents, reports and announcements.

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

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Item 3.  Quantitative and Qualitative Disclosures About Market Risk.
The following includes "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 equity price risk. Information related thereto required under this Item is contained in Item 7A in our 20182019 10-K, and is incorporated by reference herein.
As more fully discussed in Note 3 to our consolidated financial statements, at August 31, 2019, we owned approximately 7.5 million common shares of Spectrum Brands, representing approximately 15% of Spectrum Brands outstanding common shares, which are accounted for under the fair value option and included within Trading assets at fair value of $419.8 million at August 31, 2019. Assuming a decline of 10% in market prices, the value of our investment in Spectrum Brands could decrease by approximately $42.0 million. Excluding Jefferies Group, and Spectrum Brands, Trading assetsFinancial instruments owned, at fair value include corporate equity securities with an aggregate fair value of $291.0$215.1 million at AugustMay 31, 2019.2020. Assuming a decline of 10% in market prices, the value of these investments could decrease by approximately $29.1$21.5 million.
Jefferies Group
Overview

Risk is an inherent part of Jefferies Group'sour business and activities. The extent to which itwe properly and effectively identifies, assesses, monitors
identify, assess, monitor and managesmanage each of the various types of risk involved in itsour activities is critical to Jefferies Group'sour financial soundness, viability and profitability. Accordingly, Jefferies Group haswe have a comprehensive risk management approach, with a formal governance structure and processes to identify, assess, monitor and manage risk. Principal risks involved in itsour business activities include market, credit, liquidity and capital, operational, legal and compliance, new business and reputational risk.

Risk management is a multifaceted process that requires communication, judgment and knowledge of financial products and markets. Jefferies Group'sOur risk management process encompasses the active involvement of executive and senior management, and also many departments independent of the revenue-producing business units, including itsJefferies Group's Risk Management, Operations, Compliance, Legal and Finance Departments. Jefferies Group'sOur risk management policies, procedures and methodologies are flexible in nature and are subject to ongoing review and modification.

In achieving itsour strategic business objectives, Jefferies Group'sour risk appetite incorporates keeping its clients’our clients' interests at the top of itsour priority
list and ensuring it iswe are in compliance with applicable laws, rules and regulations, as well as adhering to the highest ethical standards. Jefferies Group undertakesWe undertake prudent and conservative risk-taking that protects the capital base and franchise, utilizing risk limits and tolerances that avoid outsized risk-taking. Jefferies Group maintainsWe maintain a diversified business mix and avoid significant concentrations to any sector, product, geography, or activity and setsset quantitative concentration limits to manage this risk. Jefferies Group considersWe consider contagion, second order effects and correlation in itsour risk assessment process and actively seeksseek out value opportunities of all sizes. It managesWe manage the risk of opportunities larger than itsour approved risk levels through risk sharing and risk distribution, sell-down and hedging as appropriate. Jefferies Group hasWe have a limited appetite for illiquid assets and complex derivative financial instruments. It maintainsWe maintain the asset quality of itsour balance sheet through conducting trading activity in liquid markets and generally ensuresensure high turnover of itsour inventory. Jefferies Group subjectsWe subject less liquid positions and derivative financial instruments to oversight and usesuse a wide variety of specific metrics, limits, and constraints to manage these risks. It protects itsWe protect our reputation and franchise, as well as itsour standing within the market. Jefferies Group operatesWe operate a federated approach to risk management with risk oversight responsibilities assigned to those areas of the business that have the appropriate knowledge.

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

Risk Considerations

Jefferies Group appliesWe apply a comprehensive framework of limits on a variety of key metrics to constrain the risk profile of itsour business activities. The size of the limits reflects itsour risk tolerance for a certain activity under normal business conditions. Key metrics included in itsour risk management framework include inventory position and exposure limits on a gross and net basis, scenario analysis and stress tests, Value-at-Risk ("VaR"), sensitivities, exposure concentrations, aged inventory, amount of Level 3 assets, counterparty exposure, leverage and cash capital.

Market Risk

Market risk is defined as the risk of loss due to fluctuations in the market value of financial assets and liabilities attributable to changes in market variables.


Jefferies Group'sOur market risk principally arises from interest rate risk, from exposure to changes in the yield curve, the volatility of interest rates, and credit spreads, and from equity price risks from exposure to changes in prices and volatilities of individual equities, equity baskets and
100

equity indices. In addition, commodity price risk results from exposure to the changes in prices and volatilities of individual commodities, commodity baskets and commodity indices, and foreign exchange risk results from changes in foreign currency rates.
Market risk is present in Jefferies Group'sour market-making, proprietary trading, underwriting, specialist and investing activities and is principally managed by diversifying exposures, controlling position sizes, and establishing economic hedges in related securities or derivatives. Due to imperfections in correlations, gains and losses can occur even for positions that are economically hedged. Position limits in trading and inventory accounts are established and monitored on an ongoing basis. Each day, consolidated position and exposure reports are prepared and distributed to various levels of management, which enable management to monitor inventory levels and the results of its trading businesses.

Value-at-Risk
VaR is a statistical estimate of the potential loss from adverse market movements over a specified time horizon within a specified probability (confidence level). It provides a common risk measure across financial instruments, markets and asset classes. Jefferies Group estimatesWe estimate VaR using a model that simulates revenue and loss distributions on itsJefferies Group's trading portfolios by applying historical market changes to the current portfolio. Jefferies Group calculatesWe calculate a one day VaR using a one year look-back period measured at a 95% confidence level.
As with all measures of VaR, the estimate has inherent limitations due to the assumption that historical changes in market conditions are representative of the future. Furthermore, the VaR model measures the risk of a current static position over a one day horizon and might not capture the market risk over a longer time horizon where moves may be more extreme. Previous changes in market risk factors may not generate accurate predictions of future market movements. While Jefferies Group believeswe believe the assumptions and inputs in itsour risk model are reasonable, Jefferies Groupwe could incur losses greater than the reported VaR. Consequently, this VaR estimate is only one of a number of tools Jefferies Group useswe use in itsour daily risk management activities.
Average daily VaR increased to $9.71 million for the third quarter of 2019 from $8.70$9.16 million for the second quarter of 2019.2020 from $7.39 million for the first quarter of 2020. The VaR increase was primarily driven by increased market volatility due to higher interest rate risk volatility and a lower diversification benefit,the rapid spread of the global COVID-19 outbreak, partially offset by loweran increase in the diversification benefit across asset classes and business divisions. Interest rate VaR was higher due to increased market volatility, while equity price risk mainly due toVaR was lower as de-risking and hedging more than offset the liquidationimpact of certain separately managed accounts within Jefferies Group's Asset Management businesses.increased market moves.

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

 
 Risk Categories		VaR at
May 31, 2020		Daily VaR for the
Three Months Ended
May 31, 2020		VaR at
February 29, 2020		Daily VaR for the
Three Months Ended
February 29, 2020
 AverageHighLowAverageHighLow
Interest Rates$10.34  $9.31  $12.50  $5.96  $5.91  $4.81  $7.01  $3.93  
Equity Prices8.69  5.89  9.30  3.68  6.13  6.79  8.54  4.34  
Currency Rates0.21  0.20  0.39  0.10  0.39  0.29  0.69  0.13  
Commodity Prices1.18  0.64  1.18  0.28  0.66  0.84  1.30  0.49  
Diversification Effect (2)(10.25) (6.88) N/A  N/A  (6.44) (5.34) N/A  N/A  
Firmwide$10.17  $9.16  $10.81  $6.81  $6.65  $7.39  $10.51  $5.02  
  
Daily VaR (1)
Value-at-Risk in Trading Portfolios
 
  (In millions) 

 
 Risk Categories
 
VaR at
August 31,
 2019
 
Daily VaR for the
Three Months Ended
August 31, 2019
 
VaR at
May 31,
 2019
 
Daily VaR for the
Three Months Ended
May 31, 2019
 
    Average High Low   Average High Low 
Interest Rates $5.49
 $4.64
 $5.87
 $3.40
 $4.41
 $3.41
 $4.41
 $2.58
 
Equity Prices 5.94
 7.70
 13.17
 4.96
 12.66
 9.99
 12.66
 7.51
 
Currency Rates 0.38
 0.27
 0.52
 0.07
 0.09
 0.25
 1.41
 0.06
 
Commodity Prices 0.87
 0.94
 1.18
 0.75
 1.08
 1.00
 1.26
 0.70
 
Diversification Effect (2) (4.04) (3.84) N/A
 N/A
 (7.41) (5.95) N/A
 N/A
 
Firmwide $8.64
 $9.71
 $14.83
 $6.59
 $10.83
 $8.70
 $10.83
 $6.48
 

(1)For the VaR numbers reported above, a one day time horizon, with a one year look-back period, and a 95% confidence level were used.
(2)The diversification effect is not applicable for the maximum and minimum VaR values as Jefferies Group's firmwide VaR and VaR values for the four risk categories might have occurred on different days during the period.

(1)For the VaR numbers reported above, a one day time horizon, with a one year look-back period, and a 95% confidence level were used.
(2)The diversification effect is not applicable for the maximum and minimum VaR values as Jefferies Group's VaR and VaR values for the four risk categories might have occurred on different days during the period.

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.

The primary method used to test the efficacy of the VaR model is to compare actual daily net revenue for those positions included in the VaR calculation with the daily VaR estimate. This evaluation is performed at various levels of the trading portfolio, from the overall level down

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down to specific business lines. For the VaR model, trading related revenue is defined as principal transactions revenues, trading related commissions, revenue from securitization activities and net interest income.
For a 95% confidence one day VaR model (i.e., no intra-dayintraday 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 thirdsecond quarter of 2019,2020, results of the evaluation at the aggregate level demonstrated one dayeight days when the net trading loss exceeded the 95% one day VaR, due to an equity block position.as the rapid spread of the global COVID-19 outbreak resulted in extreme market volatility across asset classes. There were ten11 days with trading losses out of a total of 6463 trading days in the thirdsecond quarter of 2019.2020.
Other Risk Measures

Certain positions within financial instruments are not included in the VaR model because VaR is not the most appropriate measure of risk. Accordingly, Jefferies Group's Risk Management has additional procedures in place to assure that the level of potential loss that would arise from market movements are within acceptable levels. Such procedures include performing stress tests, monitoring concentration risk and tracking price target/stop loss levels. The table below presents the potential reduction in net income associated with a 10% stress of the fair value of the positions that are not included in the VaR model at AugustMay 31, 20192020 (in thousands):
 10% Sensitivity
Investments in funds (1)$57,346
Private investments27,451
Corporate debt securities in default6,275
Trade claims4,269

10% Sensitivity
Investments in funds (1)$94,507 
Private investments21,680 
Corporate debt securities in default7,201 
Trade claims3,242 
(1) Includes investments in hedge funds, fund of funds and private equity funds. For additional information on these investments, see Note 3 in our consolidated financial statements.

VaR also excludes the impact of changes in Jefferies Group'sour own credit spreads on itsour 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'sour own credit spreads on financial liabilities for which the fair value option was elected was an increase in value of approximately $1.12of $1.7 million at AugustMay 31, 2019,2020, which is included in Accumulated other comprehensive income (loss).
Stress Tests and Scenario Analysis
Stress tests are used to analyze the potential impact of specific events or extreme market moves on the current portfolio both firmwidefirm-wide and within business segments. Stress testing is an important part of Jefferies Group'sour risk management approach because it allows Jefferies Groupus to quantify itsour exposure to tail risks, highlight potential loss concentrations, undertake risk/reward analysis, set risk controls and overall assess and mitigate its risk.
Jefferies Group employsWe employ a range of stress scenarios, which comprise both historical market price and rate changes and hypothetical market environments, and generally involve simultaneous changes of many risk factors. Indicative market changes in Jefferies Group'sour scenarios include, but are not limited to, a large widening of credit spreads, a substantial decline in equities markets, significant moves in selected emerging markets, large moves in interest rates and changes in the shape of the yield curve.
Unlike VaR, which measures potential losses within a given confidence interval, stress scenarios do not have an associated implied probability. Rather, stress testing is used to estimate the potential loss from market moves that tend to be larger than those embedded in the VaR calculation. Stress testing complements VaR to cover for potential limitations of VaR such as the breakdown in correlations, non-linear risks, tail risk and extreme events and capturing market moves beyond the confidence levels assumed in the VaR calculations.
Stress testing is performed and reported at least weekly as part of Jefferies Group'sour risk management process and on an ad hoc basis in response to market events or concerns. Current stress tests provide estimated revenue and loss of the current portfolio through a range of both historical and hypothetical events. The stress scenarios are reviewed and assessed at least annually so that they remain relevant and up to date with market developments. Additional hypothetical scenarios are also conducted on a sub-portfolio basis to assess the impact of any relevant idiosyncratic stress events as needed.

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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 We are exposed to credit risk as a trading counterparty to other broker-dealers and customers, as a direct lender and through extending loan commitments, as a holder of securities and as a member of exchanges and clearing organizations. Credit exposure exists across a wide-range of products, including cash and cash equivalents, loans, securities finance transactions and over-the-counter derivative contracts. The main sources of Jefferies Group'sour credit risk are:
•Loans and lending arising in connection with Jefferies Group'sour investment banking and capital markets activities, which reflects itsour exposure at risk on a default event with no recovery of loans. Current exposure represents loans that have been drawn by the borrower and lending commitments that are outstanding. In addition, credit exposures on forward settling traded loans are included within our loans and lending exposures for consistency with the balance sheet categorization of these items. Loans and lending also arise in connection with Jefferies Group'sour portion of aJefferies Group's Secured Revolving Credit Facility that is with Jefferies Group and Massachusetts Mutual Life Insurance Company, to be funded equally, to support loan underwritings by Jefferies Finance. See Note 98 for additional information on this facility. In addition, Jefferies Group has loans outstanding to certain of its officers and employees (none of whom are executive officers or directors). See Note 22 for additional information on these employee loans.
•Securities and margin financing transactions, which reflect Jefferies Group'sour credit exposure arising from reverse repurchase agreements, repurchase agreements and securities lending agreements to the extent the fair value of the underlying collateral differs from the contractual agreement amount and from margin provided to customers.
•Over-the-counter derivatives, which are reported net by counterparty when a legal right of setoff exists under an enforceable master netting agreement. Over-the-counter derivative exposure is based on a contract at fair value, net of cash collateral received or posted under credit support agreements. In addition, credit exposures on forward settling trades are included within Jefferies Group'sour derivative credit exposures.
•Cash and cash equivalents, which includes both interest-bearing and non-interest-bearing deposits at banks.

Credit is extended to counterparties in a controlled manner and in order to generate acceptable returns, whether such credit is granted directly or is incidental to a transaction. All extensions of credit are monitored and managed as a whole to limit exposure to loss related to credit risk. Credit risk is managed according to the Credit Risk Policy, which sets out the process for identifying counterparty credit risk, establishing counterparty limits, and managing and monitoring credit limits. The policy includes Jefferies Group'sour approach for:

•Client on-boarding and approving counterparty credit limits;
•Negotiating, approving and monitoring credit terms in legal and master documentation;
•Determining the analytical standards and risk parameters for ongoing management and monitoring credit risk books;
•Actively managing daily exposure, exceptions and breaches; and
•Monitoring daily margin call activity and counterparty performance.

Counterparty credit exposure limits are granted within Jefferies Group'sour credit ratings framework, as detailed in the Credit Risk Policy. Jefferies Group's Credit Risk Department assesses counterparty credit risk and sets credit limits at the counterparty master agreement level. Limits must be approved by appropriate credit officers and initiated in Jefferies Group'sour credit and trading systems before trading commences. All credit exposures are reviewed against approved limits on a daily basis.

Jefferies Group's Secured Revolving Credit Facility, which supports loan underwritings by Jefferies Finance, is governed under separate policies other than the Credit Risk Policy and is approved by Jefferies Group's Board of Directors. The loans outstanding to certain of Jefferies Group's officers and employees are extended pursuant to a review by its most senior management.
Current counterparty credit exposures are summarized in the tables below and provided by credit quality, region and industry. Credit exposures presented take netting and collateral into consideration by counterparty and master agreement. Collateral taken into consideration includes both collateral received as cash as well as collateral received in the form of securities or other arrangements. Current exposure is the loss that would be incurred on a particular set of positions in the event of default by the counterparty, assuming no recovery. Current exposure equals the fair value of the positions less collateral. Issuer risk is the credit risk arising from inventory positions (for example, corporate debt securities and secondary bank loans). Issuer risk is included in Jefferies Group'sour country risk exposure tables below.

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The amounts in the tables below are for amounts included in ourthe Consolidated Statements of Financial Condition at AugustMay 31, 20192020 and November 30, 20182019 (in millions).
Counterparty Credit Exposure by Credit Rating
 Loans and LendingSecurities and
Margin Finance		OTC DerivativesTotalCash and Cash
Equivalents		Total with Cash and
Cash Equivalents
 AtAtAtAtAtAt
 May 31, 2020November 30, 2019May 31, 2020November 30, 2019May 31, 2020November 30, 2019May 31, 2020November 30, 2019May 31, 2020November 30, 2019May 31, 2020November 30, 2019
AAA Range  $—  $—  $0.6  $1.5  $—  $—  $0.6  $1.5  $4,146.4  $4,584.1  $4,147.0  $4,585.6  
AA Range  47.5  45.2  81.2  43.0  4.5  3.7  133.2  91.9  4.2  5.3  137.4  97.2  
A Range  0.3  1.1  561.9  531.9  87.3  152.4  649.5  685.4  1,100.4  976.3  1,749.9  1,661.7  
BBB Range  250.1  250.2  118.7  140.9  21.0  48.3  389.8  439.4  0.8  1.6  390.6  441.0  
BB or Lower  46.5  15.0  6.6  6.6  255.9  154.1  309.0  175.7  0.1  —  309.1  175.7  
Unrated  182.8  94.2  —  —  —  6.8  182.8  101.0  —  0.6  182.8  101.6  
Total  $527.2  $405.7  $769.0  $723.9  $368.7  $365.3  $1,664.9  $1,494.9  $5,251.9  $5,567.9  $6,916.8  $7,062.8  
Counterparty Credit Exposure by Credit Rating
 Loans and Lending 
Securities and
Margin Finance
 OTC Derivatives Total 
Cash and Cash
Equivalents
 
Total with Cash and
Cash Equivalents
 At At At At At At
 August 31, 2019 November 30, 2018 August 31, 2019 November 30, 2018 August 31, 2019 November 30, 2018 August 31, 2019 November 30, 2018 August 31, 2019 November 30, 2018 August 31, 2019 November 30, 2018
AAA Range  $—
 $—
 $12.8
 $3.2
 $—
 $—
 $12.8
 $3.2
 $3,309.4
 $2,981.2
 $3,322.2
 $2,984.4
AA Range  45.0
 45.1
 34.6
 45.3
 3.2
 4.2
 82.8
 94.6
 3.9
 111.6
 86.7
 206.2
A Range  0.4
 0.3
 612.0
 573.3
 123.9
 97.9
 736.3
 671.5
 1,348.0
 1,865.9
 2,084.3
 2,537.4
BBB Range  250.1
 250.1
 153.3
 206.6
 31.6
 15.5
 435.0
 472.2
 3.6
 2.3
 438.6
 474.5
BB or Lower  13.5
 —
 22.9
 5.5
 189.6
 15.7
 226.0
 21.2
 —
 107.5
 226.0
 128.7
Unrated  75.5
 119.3
 —
 —
 8.5
 —
 84.0
 119.3
 0.6
 77.4
 84.6
 196.7
Total  $384.5
 $414.8
 $835.6
 $833.9
 $356.8
 $133.3
 $1,576.9
 $1,382.0
 $4,665.5
 $5,145.9
 $6,242.4
 $6,527.9


Counterparty Credit Exposure by Region
 Loans and LendingSecurities and
Margin Finance		OTC DerivativesTotalCash and Cash
Equivalents		Total with Cash and
Cash Equivalents
 AtAtAtAtAtAt
 May 31, 2020November 30, 2019May 31, 2020November 30, 2019May 31, 2020November 30, 2019May 31, 2020November 30, 2019May 31, 2020November 30, 2019May 31, 2020November 30, 2019
Asia/Latin America/Other  $15.0  $15.0  $49.7  $50.5  $0.1  $0.3  $64.8  $65.8  $157.8  $100.4  $222.6  $166.2  
Europe  0.1  —  325.6  324.1  72.5  101.1  398.2  425.2  126.3  74.1  524.5  499.3  
North America512.1  390.7  393.7  349.3  296.1  263.9  1,201.9  1,003.9  4,967.8  5,393.4  6,169.7  6,397.3  
Total  $527.2  $405.7  $769.0  $723.9  $368.7  $365.3  $1,664.9  $1,494.9  $5,251.9  $5,567.9  $6,916.8  $7,062.8  

Counterparty Credit Exposure by Region
 Loans and Lending 
Securities and
Margin Finance
 OTC Derivatives Total 
Cash and Cash
Equivalents
 
Total with Cash and
Cash Equivalents
 At At At At At At
 August 31, 2019 November 30, 2018 August 31, 2019 November 30, 2018 August 31, 2019 November 30, 2018 August 31, 2019 November 30, 2018 August 31, 2019 November 30, 2018 August 31, 2019 November 30, 2018
Asia/Latin America/Other  $13.5
 $—
 $55.3
 $30.2
 $1.7
 $0.1
 $70.5
 $30.3
 $90.8
 $304.0
 $161.3
 $334.3
Europe  0.1
 0.3
 363.8
 427.0
 81.8
 27.3
 445.7
 454.6
 263.5
 170.8
 709.2
 625.4
North America370.9
 414.5
 416.5
 376.7
 273.3
 105.9
 1,060.7
 897.1
 4,311.2
 4,671.1
 5,371.9
 5,568.2
Total  $384.5
 $414.8
 $835.6
 $833.9
 $356.8
 $133.3
 $1,576.9
 $1,382.0
 $4,665.5
 $5,145.9
 $6,242.4
 $6,527.9
Counterparty Credit Exposure by Industry
 Loans and LendingSecurities and
Margin Finance		OTC DerivativesTotalCash and Cash
Equivalents		Total with Cash and
Cash Equivalents
 AtAtAtAtAtAt
 May 31, 2020November 30, 2019May 31, 2020November 30, 2019May 31, 2020November 30, 2019May 31, 2020November 30, 2019May 31, 2020November 30, 2019May 31, 2020November 30, 2019
Asset Managers$2.5  $—  $—  $1.7  $—  $—  $2.5  $1.7  $4,146.4  $4,584.1  $4,148.9  $4,585.8  
Banks, Broker-dealers250.4  250.7  589.9  526.7  115.3  206.8  955.6  984.2  1,105.5  983.8  2,061.1  1,968.0  
Corporates113.1  81.3  —  —  247.6  154.4  360.7  235.7  —  —  360.7  235.7  
Other  161.2  73.7  179.1  195.5  5.8  4.1  346.1  273.3  —  —  346.1  273.3  
Total  $527.2  $405.7  $769.0  $723.9  $368.7  $365.3  $1,664.9  $1,494.9  $5,251.9  $5,567.9  $6,916.8  $7,062.8  

Counterparty Credit Exposure by Industry
 Loans and Lending 
Securities and
Margin Finance
 OTC Derivatives Total 
Cash and Cash
Equivalents
 
Total with Cash and
Cash Equivalents
 At At At At At At
 August 31, 2019 November 30, 2018 August 31, 2019 November 30, 2018 August 31, 2019 November 30, 2018 August 31, 2019 November 30, 2018 August 31, 2019 November 30, 2018 August 31, 2019 November 30, 2018
Asset Managers$—
 $—
 $2.1
 $0.6
 $—
 $—
 $2.1
 $0.6
 $3,309.4
 $2,812.4
 $3,311.5
 $2,813.0
Banks, Broker-dealers250.1
 250.4
 628.2
 619.6
 162.4
 118.9
 1,040.7
 988.9
 1,356.1
 2,333.5
 2,396.8
 3,322.4
Corporates78.7
 92.9
 —
 —
 183.0
 7.2
 261.7
 100.1
 —
 —
 261.7
 100.1
Other  55.7
 71.5
 205.3
 213.7
 11.4
 7.2
 272.4
 292.4
 —
 —
 272.4
 292.4
Total  $384.5

$414.8

$835.6

$833.9

$356.8

$133.3

$1,576.9

$1,382.0

$4,665.5

$5,145.9
 $6,242.4
 $6,527.9

For additional information regarding credit exposure to over-the-counter derivative contracts, see Note 4 in ourthe 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 definesWe define the country of risk as the country of jurisdiction or domicile of the obligor, and monitorsmonitor country risk resulting from both trading positions and counterparty exposure.

104

The following tables reflect Jefferies Group'sour top exposureexposures to the sovereign governments, corporations and financial institutions in those non-U.S. countries in which Jefferies Group haswe have a net long issuer and counterparty exposure, as reflected in ourthe Consolidated Statements of Financial Condition (in millions):
 May 31, 2020
 Issuer RiskCounterparty RiskIssuer 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 DerivativesCash and
Cash Equivalents		Excluding
Cash and Cash Equivalents		Including
Cash and
Cash Equivalents
Italy$1,676.3  $(882.6) $(303.9) $—  $—  $0.4  $—  $490.2  $490.2  
Netherlands576.3  (199.6) 1.0  —  4.2  0.1  —  382.0  382.0  
United Kingdom351.0  (179.2) (36.0) 0.1  76.9  12.0  107.1  224.8  331.9  
Germany352.3  (268.2) 112.0  —  66.8  8.2  13.5  271.1  284.6  
Japan150.6  (127.3) 168.1  —  21.4  —  15.4  212.8  228.2  
Canada155.1  (94.3) 8.6  —  38.6  22.7  1.1  130.7  131.8  
Hong Kong19.3  (15.5) —  —  0.2  0.1  104.0  4.1  108.1  
Switzerland97.9  (57.5) —  —  37.2  2.6  4.5  80.2  84.7  
China354.7  (267.9) (22.3) —  —  —  —  64.5  64.5  
Luxembourg94.4  (49.3) —  —  0.7  —  —  45.8  45.8  
Total$3,827.9  $(2,141.4) $(72.5) $0.1  $246.0  $46.1  $245.6  $1,906.2  $2,151.8  
 August 31, 2019
 Issuer Risk Counterparty Risk Issuer and Counterparty Risk
 
Fair Value of
Long Debt
 Securities
 
Fair Value of
Short Debt
 Securities
 
Net Derivative
Notional
 Exposure
 
Loans
and
 Lending
 
Securities
and Margin
 Finance
 OTC Derivatives 
Cash and
Cash Equivalents
 
Excluding
Cash and Cash Equivalents
 
Including
Cash and
Cash Equivalents
United Kingdom$336.7
 $(192.8) $(9.7) $0.1
 $59.4
 $27.7
 $178.9
 $221.4
 $400.3
Spain398.9
 (267.8) —
 —
 0.1
 —
 —
 131.2
 131.2
France347.4
 (260.0) (124.9) —
 139.4
 26.6
 —
 128.5
 128.5
Finland129.1
 (15.6) —
 —
 —
 —
 —
 113.5
 113.5
Canada192.8
 (166.6) 9.6
 —
 0.7
 74.5
 1.3
 111.0
 112.3
Italy1,293.3
 (972.5) (227.0) —
 —
 0.2
 —
 94.0
 94.0
Hong Kong35.7
 (16.5) 0.1
 —
 0.2
 —
 46.3
 19.5
 65.8
Japan299.1
 (279.0) 10.3
 —
 23.5
 —
 11.3
 53.9
 65.2
Switzerland90.5
 (74.2) 2.1
 —
 30.6
 1.9
 4.9
 50.9
 55.8
Brazil119.6
 (62.8) (2.1) —
 —
 —
 —
 54.7
 54.7
Total$3,243.1

$(2,307.8)
$(341.6)
$0.1

$253.9

$130.9

$242.7

$978.6

$1,221.3

 November 30, 2019
 Issuer RiskCounterparty RiskIssuer 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
Netherlands$946.0  $(329.7) $(100.1) $—  $42.6  $0.5  $—  $559.3  $559.3  
United Kingdom416.1  (199.9) (124.4) —  60.7  37.6  54.1  190.1  244.2  
Italy1,262.3  (1,192.4) 105.4  —  —  0.4  —  175.7  175.7  
France423.4  (296.2) (93.1) —  94.2  40.9  —  169.2  169.2  
Canada380.4  (362.2) 7.4  —  0.3  81.2  1.9  107.1  109.0  
Spain249.2  (137.3) (25.7) —  3.3  —  —  89.5  89.5  
Japan76.0  (171.6) 133.8  —  24.7  —  13.2  62.9  76.1  
China283.3  (236.9) 25.6  —  —  —  —  72.0  72.0  
Mexico112.0  (68.3) 13.0  —  —  —  —  56.7  56.7  
Germany238.2  (321.3) 19.3  —  88.3  14.4  13.6  38.9  52.5  
Total$4,386.9  $(3,315.8) $(38.8) $—  $314.1  $175.0  $82.8  $1,521.4  $1,604.2  
 November 30, 2018
 Issuer Risk Counterparty Risk Issuer and Counterparty Risk
 
Fair Value of
Long Debt
 Securities
 
Fair Value of
Short Debt
 Securities
 
Net Derivative
Notional
 Exposure
 
Loans
and
 Lending
 
Securities
and Margin
 Finance
 
OTC
 Derivatives
 
Cash and
Cash Equivalents
 
Excluding
Cash and Cash Equivalents
 
Including
Cash and
Cash
Equivalents
                  
Finland$279.8
 $(6.7) $—
 $—
 $—
 $—
 $1.0
 $273.1
 $274.1
Japan97.7
 (92.8) 8.0
 —
 11.3
 —
 136.9
 24.2
 161.1
Italy1,778.1
 (1,267.5) (354.5) —
 0.2
 0.1
 —
 156.4
 156.4
United Kingdom311.6
 (168.2) (30.3) 0.3
 63.1
 18.5
 (56.4) 195.0
 138.6
Belgium65.4
 (39.8) 2.8
 —
 —
 —
 107.3
 28.4
 135.7
Netherlands317.4
 (316.1) 70.4
 —
 39.5
 —
 —
 111.2
 111.2
Germany175.4
 (384.8) 129.4
 —
 89.7
 1.3
 93.3
 11.0
 104.3
Switzerland100.5
 (50.1) 5.7
 —
 37.7
 2.7
 3.8
 96.5
 100.3
Hong Kong13.8
 (39.7) 3.5
 —
 0.5
 —
 84.9
 (21.9) 63.0
Singapore21.1
 (1.4) 1.0
 —
 0.1
 —
 31.2
 20.8
 52.0
Total$3,160.8
 $(2,367.1) $(164.0) $0.3
 $242.1
 $22.6
 $402.0
 $894.7
 $1,296.7


Jefferies Group's net issuer and counterparty risk exposure to Puerto Rico of $35.5 million at AugustAt May 31, 2019 is in connection with its municipal securities market-making activities. The government of Puerto Rico, amid a severe political crisis, is continuing its efforts to restructure its $74.0 billion in debt, with these efforts reaching a critical point, as discussions with creditors progress and federal support is expected. At August 31, 2019, Jefferies Group had2020, we have no other material exposure to countries where either sovereign or non-sovereign sectors potentially pose potential default risk as the result of liquidity concerns.

Operational Risk

Operational risk refers to the risk of loss resulting from operations, including, but not limited to, improper or unauthorized execution and processing of transactions, deficiencies in operating systems, business disruptions and inadequacies or breaches in internal control processes. Our businesses are highly dependent on our ability to process, on a daily basis, a large number of transactions across numerous and diverse markets in many currencies. In addition, the transactions we process have become increasingly complex. If our financial, accounting or other data processing systems do not operate properly or are disabled or if there are other shortcomings or failures in our internal processes, people or systems, we could suffer an impairment to our liquidity, financial loss, a disruption of our businesses, liability to clients, regulatory intervention or reputational damage.

These systems may fail to operate properly or become disabled as a result of events that are wholly or partially beyond our control, including a disruption of electrical or communications services or the inability to occupy one or more of our buildings. The inability of our systems to accommodate an increasing volume of transactions could also constrain our ability to expand our businesses.

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105

We also face the risk of operational failure or termination of any of the clearing agents, exchanges, clearing houses or other financial intermediaries we use to facilitate our securities transactions. Any such failure or termination could adversely affect our ability to effect transactions and manage exposure to risk. In addition, despite the contingency plans we have in place, our ability to conduct business may be adversely impacted by a disruption in the infrastructure that supports our businesses and the communities in which they are located. This may include a disruption involving electrical, communications, transportation or other services used by us or third parties with which we conduct business.

Our operations rely on the secure processing, storage and transmission of confidential and other information in our computer systems and networks. Although we take protective measures and endeavor to modify them as circumstances warrant, our computer systems, software and networks may be vulnerable to unauthorized access, computer viruses or other malicious code, and other events that could have a security impact. If one or more of such events occur, this potentially could jeopardize our or our clients' or counterparties' confidential and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our, our clients', our counterparties' or third parties' operations. We may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and may be subject to litigation and financial losses that are either not insured against or not fully covered through any insurance maintained by us.

Our Operational Risk framework includes governance, collection of operational risk incidents, proactive operational risk management, and periodic review and analysis of business metrics to identify and recommend controls and process-related enhancements. Each revenue producing and support department is responsible for the management and reporting of operational risks and the implementation of the Operational Risk policy and processes within the department. Operational Risk policy, framework, infrastructure, methodology, processes, guidance and oversight of the operational risk processes are centralized and consistent firm wide and also subject to regional operational risk governance.

Our leadership is continuously monitoring circumstances around COVID-19, as well as economic and capital market conditions, and providing frequent communications to both our clients and our employees. We have adopted enhanced cleaning practices across our offices, have restricted business travel, and have monitored the health and welfare of our employees and worked actively with many individuals diagnosed with COVID-19. We implemented our Business Continuity Planning plan and have largely moved to a remote working environment across all functions without any significant disruptions to our business or control processes. Additionally, we are working continuously with all of our critical vendors regarding their own pandemic responses to ensure there is minimal impact on our business operations.

Model Risk

Model risk refers to the risk of losses resulting from decisions that are based on the output of models, due to errors or weaknesses in the design and development, implementation, or improper use of models. We use quantitative models primarily to value certain financial assets and liabilities and to monitor and manage our risk. Model risk is a function of the model materiality, frequency of use, complexity and uncertainty around inputs and assumptions used in a given model. Robust model risk management is a core part of our risk management approach and is overseen through our risk governance structure and risk management controls.

Legal and Compliance Risk

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

New Business Risk

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

106

Reputational Risk

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

Item 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")), as of AugustMay 31, 2019.2020. 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 AugustMay 31, 2019.2020.
Changes in internal control over financial reporting
There has been no change in the Company’sCompany'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’sCompany's fiscal quarter ended AugustMay 31, 2019,2020, that has materially affected, or is reasonably likely to materially affect, the Company’sCompany's internal control over financial reporting.

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102



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" section in Note 19, Commitments, Contingencies and Guarantees, in the Notes to consolidated financial statements in Item 1 of Part I of this Quarterly Report, which is incorporated herein by reference.

Item 1A. Risk Factors.

The effects of the outbreak of the novel coronavirus (COVID-19) have negatively affected the global economy, the United States economy and the global financial markets, and may disrupt our operations and our clients' operations, which could have an adverse effect on our business, financial condition and results of operations. The ongoing COVID-19 global and national health emergency has caused significant disruption in the international and United States economies and financial markets. On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The spread of COVID-19 has caused illness, quarantines, cancellation of events and travel, business and school shutdowns, reduction in business activity and financial transactions, labor shortages, supply chain interruptions and overall economic and financial market instability. The United States now has the world's most reported COVID-19 cases, and all 50 states and the District of Columbia have reported cases of infected individuals. Several states, including New York, where we are headquartered, have declared states of emergency. Similar impacts have been experienced in every country in which we do business. Impacts to our business could be widespread and global, and material impacts may be possible, including the following:

•Employees contracting COVID-19
•Reductions in our operating effectiveness as our employees work from home or disaster-recovery locations
•Unavailability of key personnel necessary to conduct our business activities
•Unprecedented volatility in global financial markets
•Reductions in revenue across our operating businesses
•Delay in planned entry into, or expansion of, investments or projects in China and surrounding areas
•Closure of our offices or the offices of our clients
•De-globalization

We are taking precautions to protect the safety and well-being of our employees and customers. However, no assurance can be given that the steps being taken will be deemed to be adequate or appropriate, nor can we predict the level of disruption which will occur to our employee's ability to provide customer support and service.

The ongoing COVID-19 pandemic has resulted in meaningfully lower stock prices for many companies, as well as the trading prices for our own securities. The further spread of the COVID-19 outbreak may materially disrupt banking and other financial activity generally and in the areas in which we operate. This would likely result in a decline in demand for our products and services, which would negatively impact our liquidity position and our growth strategy. Any one or more of these developments could have a material adverse effect on our and our consolidated subsidiaries' business, operations, consolidated financial condition, and consolidated results of operations.
We may incur losses as a result of unforeseen or catastrophic events, including the emergence of a pandemic, terrorist attacks, extreme weather events or other natural disasters. The occurrence of unforeseen or catastrophic events, including the emergence of a pandemic, such as COVID-19, or other widespread health emergency (or concerns over the possibility of such an emergency), terrorist attacks, extreme terrestrial or solar weather events or other natural disasters, could create economic and financial disruptions, and could lead to operational difficulties (including travel limitations) that could impair our ability to manage our businesses.

Abrupt changes in market and general economic conditions have in the past adversely affected, and may in the future adversely affect, our business and profitability and cause volatility in our results of operations. Economic and market conditions have had, and will continue to have, a direct and material impact on our results of operations and financial condition because performance in the financial services industry is heavily influenced by the overall strength of general economic conditions and financial market activity.

Our investment banking revenue, in the form of advisory services and underwriting, is directly related to general economic conditions and corresponding financial market activity. When the outlook for such economic conditions is uncertain or negative, financial market activity generally tends to decrease, which reduces our investment banking revenues. Reduced expectations of United States economic growth or a decline in the global economic outlook could cause financial market activity to decrease and negatively affect our investment banking revenues.
108


A sustained and continuing market downturn could lead to or exacerbate declines in the number of securities transactions executed for customers and, therefore, to a decline in the revenues we receive from commissions and spreads. Correspondingly, a reduction of prices of the securities we hold in inventory or as investments would lead to reduced revenues.

Revenues from our asset management businesses have been and may continue to be negatively impacted by declining securities prices, as well as widely fluctuating securities prices. Because our asset management businesses hold long and short positions in equity and debt securities, changes in the prices of these securities, as well as any decrease in the liquidity of these securities, may materially and adversely affect our revenues from asset management.

Similarly, our merchant banking businesses may suffer from the above-mentioned impacts of COVID-19 including employee and customer illnesses and quarantines, cancellations of events and travel, reductions in business activity and financial transactions, labor shortages, supply chain interruptions and overall economic and financial market instability. As an example, an overall reduction in business activity has led to a decrease in global demand for oil and natural gas thereby causing historically low prices for these commodities. Such dramatic price decreases may have a material adverse effect on our investments in Vitesse Energy Finance and JETX Energy.
In addition, global economic conditions and global financial markets remain vulnerable to the potential risks posed by certain events, which could include, among other things, political and financial uncertainty in the United States and the European Union, renewed concern about China's economy, complications involving terrorism and armed conflicts around the world, or other challenges to global trade or travel, such as might occur in the event of a wider pandemic involving COVID-19. More generally, because our business is closely correlated to the general economic outlook, a significant deterioration in that outlook or realization of certain events would likely have an immediate and significant negative impact on our business and overall results of operations.
109


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 thirdsecond quarter of 20192020 (dollars in thousands, except per share amounts):
 (a) Total
Number of
Shares
Purchased		(b) Average
Price Paid
per Share		(c) Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs (1)		(d) Approximate Dollar Value of Shares
that May Yet Be
Purchased Under the
Plans or Programs (1)
March 1, 2020 to March 31, 20208,158,899  $17.37  8,158,899  $97,962  
April 1, 2020 to April 30, 2020200,000  $12.53  200,000  $95,456  
May 1, 2020 to May 31, 20201,770,794  $12.49  1,770,794  $73,335  
Total10,129,693   10,129,693  

(1)In January 2020, the Board of Directors approved an additional $250 million share repurchase authorization. In March 2020, having completed the repurchase of shares under the previous authorization, the Board of Directors approved an additional share repurchase authorization of $100 million. At May 31, 2020, $73.3 million remains available for future purchases. In June 2020, the Board of Directors increased the share repurchase authorization to $250 million, including the $73.3 million.

110
 
(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) Approximate Dollar Value of Shares
that May Yet Be
Purchased Under the
Plans or Programs (2)
June 1, 2019 to June 30, 20198,570
 $18.24
 —
 $155,514
July 1, 2019 to July 31, 2019375,361
 $20.38
 375,361
 $345,167
August 1, 2019 to August 31, 201917,184
 $19.04
 —
 $320,284
Total401,115
  
 375,361
  


(1)Item 6.Includes an aggregate 25,754 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.Exhibits.

See Exhibit Index.


Exhibit Index
(2)In January 2019, the Board of Directors approved an additional $500.0 million share repurchase authorization. At August 31, 2019, $147.9 million remains available for future purchases. Additionally, in connection with the HomeFed merger on July 1, 2019, our Board of Directors has authorized the repurchase of an additional 9.25 million shares in the open market. The approximate dollar value of shares that may be purchased under the plans or programs in the table above related to these shares is based on the month end closing stock price.


103


Item 6.Exhibits.

See Exhibit Index.


Exhibit Index
31.1 
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 Jefferies Financial Group Inc. for the quarter ended AugustMay 31, 2019,2020, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income (Loss), (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Changes in Equity and (vi) the Notes to Consolidated Financial Statements.
104Cover Page Interactive Data File, formatted in iXBRL (included in Exhibit 101)









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111


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.
 
 
 

JEFFERIES FINANCIAL GROUP INC.
(Registrant)
Date: October 8, 2019July 9, 2020By:/s/          John M. Dalton
Name:   John M. Dalton
Title:     Vice President and Controller
(Duly Authorized Officer and Chief Accounting Officer)

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112