Note 3. Accounting Developments
\n\nIncome Taxes. In January 2014, we adopted new Financial Accounting Standards Board (\"FASB\") guidance that requires an entity to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss or tax credit carryforward, unless such net operating loss carryforward, similar tax loss or tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes resulting from the disallowance of a tax position. In the event that the tax position is disallowed or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit shall be presented in the financial statements as a liability and shall not be combined with deferred tax assets. The adoption of this guidance did not have an impact on our consolidated financial statements.
\n\nDiscontinued Operations. In April 2014, the FASB issued new guidance on the reporting of discontinued operations. The new guidance requires that disposal of a component of an entity or a group of components of an entity be reported as discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity's operations and financial results, and would require expanded disclosures. This guidance will be effective prospectively within annual periods beginning on or after December 15, 2014.
\n\nRevenue Recognition. In May 2014, the FASB issued new guidance that defines how companies report revenues from contracts with customers, and also requires enhanced disclosures. The core principle of this new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. This guidance will be effective for interim and annual periods beginning after December 15, 2016. We are currently evaluating the impact this new guidance will have on our consolidated financial statements to the extent applicable.
\n\nRepurchase Agreements. In June 2014, the FASB issued new guidance that changes the accounting for repurchase-to-maturity transactions and linked repurchase financings to secured borrowing accounting, which is consistent with the accounting for other repurchase agreements. The guidance also requires new disclosures about transfers that are accounted for as sales in transactions that are economically similar to repurchase agreements and increased transparency about the types of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings. This guidance will be effective prospectively for interim and annual periods beginning after December 15, 2014. We do not expect this guidance to significantly affect our consolidated results of operations, financial condition or cash flows and will provide the additional disclosures in our consolidated financial statements.
\n\nConsolidation. In February 2015, the FASB issued new guidance that amends current consolidation guidance including changes to both the variable and voting interest models used to evaluate whether an entity should be consolidated. This guidance will be effective for annual and interim periods beginning after December 15, 2015, and early adoption is permitted. We are evaluating the impact this new guidance will have on our consolidated financial statements.
Note 20. Accumulated Other Comprehensive Income
\n\nActivity in accumulated other comprehensive income is reflected in the Consolidated Statements of Comprehensive Income (Loss) and Consolidated Statements of Changes in Equity but not in the Consolidated Statements of Operations. A summary of accumulated other comprehensive income, net of taxes at December 31, 2014, 2013 and 2012 is as follows (in thousands):
\n\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | 2014 | \n\n | \n | 2013 | \n\n | \n | 2012 | \n|
| Net unrealized gains on available for sale securities | \n$ | \n577,588 | \n\n | $ | \n589,393 | \n\n | $ | \n803,430 | \n|
| Net unrealized foreign exchange gains (losses) | \n\n | (26,771 | \n) | \n\n | 16,803 | \n\n | \n | (6,097 | \n) |
| Net unrealized losses on derivative instruments | \n\n | – | \n\n | \n | (169 | \n) | \n\n | (154 | \n) |
| Net minimum pension liability | \n\n | (103,735 | \n) | \n\n | (67,977 | \n) | \n\n | (92,050 | \n) |
| \n | $ | \n447,082 | \n\n | $ | \n538,050 | \n\n | $ | \n705,129 | \n
\n\n
For the years ended December 31, 2014 and 2013, significant amounts reclassified out of accumulated other comprehensive income to net income (loss) are as follows (in thousands):
\n\n| \n | \n | \n | \n | \n | \n | \n | |
| Details about Accumulated Other | \n\n | Amount Reclassified from | \n\n | Affected Line Item in the | |||
| Comprehensive Income | \n\n | Accumulated Other | \n\n | Consolidated Statement | |||
| Components | \n\n | Comprehensive Income | \n\n | of Operations | |||
| \n | \n | 2014 | \n\n | \n | 2013 | \n\n | |
| Net unrealized gains (losses) on available for | \n\n | \n | \n | \n | \n | \n | Net realized securities gains |
| sale securities, net of income tax provision | \n\n | \n | \n | \n | \n | \n | |
| of $1,631 and $118,292 | \n$ | \n2,939 | \n\n | $ | \n213,058 | \n\n | |
| Net unrealized foreign exchange gains, net of | \n\n | \n | \n | \n | \n | \n | Loss from discontinued operations, |
| income tax provision of $149 and $0 | \n\n | 267 | \n\n | \n | – | \n\n | net of income tax (benefit) |
| Net unrealized losses on derivatives, net | \n\n | \n | \n | \n | \n | \n | Income related to associated |
| of income tax benefit of $(95) and $0 | \n\n | (169 | \n) | \n\n | – | \n\n | companies |
| Amortization of defined benefit pension | \n\n | \n | \n | \n | \n | \n | Compensation and benefits, which |
| plan actuarial gains (losses), net of | \n\n | \n | \n | \n | \n | \n | includes pension expense. See the |
| income tax benefit of $(1,676) | \n\n | \n | \n | \n | \n | \n | pension footnote for information |
| and $(2,665) | \n\n | (3,201 | \n) | \n\n | (4,799 | \n) | \non this component. |
| Total reclassifications for the period, | \n\n | \n | \n | \n | \n | \n | |
| net of tax | \n$ | \n(164 | \n) | \n$ | \n208,259 | \n\n |
\n\n
| \n | \n | \n | \n | |
| \n | \n | Amortized | \n\n | Estimated |
| \n | \n | Cost | \n\n | Fair Value |
| \n | \n | (In thousands) | ||
| Due within one year | \n$ | \n607,208 | \n$ | \n607,070 |
| Due after one year through five years | \n\n | 17,114 | \n\n | 17,106 |
| Due after five years through ten years | \n\n | – | \n\n | – |
| Due after ten years | \n\n | – | \n\n | – |
| \n | \n | 624,322 | \n\n | 624,176 |
| Mortgage-backed and asset-backed securities | \n\n | 885,926 | \n\n | 895,240 |
| \n | $ | \n1,510,248 | \n$ | \n1,519,416 |
| \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | \n | \n | Gross | \n\n | Gross | \n\n | Estimated |
| \n | \n | Amortized | \n\n | Unrealized | \n\n | Unrealized | \n\n | Fair |
| \n | \n | Cost | \n\n | Gains | \n\n | Losses | \n\n | Value |
| 2014 | \n\n | \n | \n | \n | \n | \n | \n | |
| Bonds and notes: | \n\n | \n | \n | \n | \n | \n | \n | |
| U.S. government securities | \n$ | \n593,803 | \n$ | \n33 | \n$ | \n63 | \n$ | \n593,773 |
| Residential mortgage-backed securities | \n\n | 597,402 | \n\n | 10,959 | \n\n | 1,678 | \n\n | 606,683 |
| Commercial mortgage-backed securities | \n\n | 42,991 | \n\n | 484 | \n\n | 74 | \n\n | 43,401 |
| Other asset-backed securities | \n\n | 245,533 | \n\n | 619 | \n\n | 996 | \n\n | 245,156 |
| All other corporates | \n\n | 30,519 | \n\n | 60 | \n\n | 176 | \n\n | 30,403 |
| Total fixed maturities | \n\n | 1,510,248 | \n\n | 12,155 | \n\n | 2,987 | \n\n | 1,519,416 |
| Equity securities: | \n\n | \n | \n | \n | \n | \n | \n | |
| Common stocks: | \n\n | \n | \n | \n | \n | \n | \n | |
| Banks, trusts and insurance companies | \n\n | 31,853 | \n\n | 18,740 | \n\n | – | \n\n | 50,593 |
| Industrial, miscellaneous and all other | \n\n | 20,355 | \n\n | 18,405 | \n\n | – | \n\n | 38,760 |
| Total equity securities | \n\n | 52,208 | \n\n | 37,145 | \n\n | – | \n\n | 89,353 |
| \n | $ | \n1,562,456 | \n$ | \n49,300 | \n$ | \n2,987 | \n$ | \n1,608,769 |
| 2013 | \n\n | \n | \n | \n | \n | \n | \n | |
| Bonds and notes: | \n\n | \n | \n | \n | \n | \n | \n | |
| U.S. government securities | \n$ | \n1,781,052 | \n$ | \n226 | \n$ | \n12 | \n$ | \n1,781,266 |
| Residential mortgage-backed securities | \n\n | 570,642 | \n\n | 9,946 | \n\n | 1,426 | \n\n | 579,162 |
| Commercial mortgage-backed securities | \n\n | 18,271 | \n\n | 13 | \n\n | 299 | \n\n | 17,985 |
| Other asset-backed securities | \n\n | 183,593 | \n\n | 627 | \n\n | 184 | \n\n | 184,036 |
| All other corporates | \n\n | 50,933 | \n\n | 267 | \n\n | 37 | \n\n | 51,163 |
| Total fixed maturities | \n\n | 2,604,491 | \n\n | 11,079 | \n\n | 1,958 | \n\n | 2,613,612 |
| Equity securities: | \n\n | \n | \n | \n | \n | \n | \n | |
| Common stocks: | \n\n | \n | \n | \n | \n | \n | \n | |
| First Quantum Minerals Ltd. | \n\n | 154,281 | \n\n | – | \n\n | 5,616 | \n\n | 148,665 |
| Banks, trusts and insurance companies | \n\n | 22,980 | \n\n | 27,562 | \n\n | – | \n\n | 50,542 |
| Industrial, miscellaneous and all other | \n\n | 21,012 | \n\n | 32,312 | \n\n | – | \n\n | 53,324 |
| Total equity securities | \n\n | 198,273 | \n\n | 59,874 | \n\n | 5,616 | \n\n | 252,531 |
| \n | $ | \n2,802,764 | \n$ | \n70,953 | \n$ | \n7,574 | \n$ | \n2,866,143 |
| \n | \n | \n | |
| \n | \n | \n | Amortization |
| \n | \n | Amount | \nYears |
| Customer relationships | \n$ | \n136,002 | \n9 to 18 years |
| Tradenames and related trademarks | \n\n | 131,299 | \n35 years |
| Exchange and clearing organization | \n\n | \n | |
| membership interests and registrations | \n\n | 15,551 | \nIndefinite |
| Subtotal, intangible assets | \n\n | 282,852 | \n|
| Goodwill | \n\n | 1,722,591 | \n|
| Total | \n$ | \n2,005,443 | \n
Note 12. Financial Statement Offsetting
\n\nIn connection with Jefferies derivative activities and securities financing activities, Jefferies may enter into master netting agreements and collateral arrangements with counterparties. Generally, transactions are executed under standard industry agreements, including, but not limited to: derivative transactions –ISDA master netting agreements; securities lending transactions – master securities lending agreements; and repurchase transactions – master repurchase agreements. A master agreement creates a single contract under which all transactions between two counterparties are executed allowing for trade aggregation and a single net payment obligation. Master agreements provide protection in bankruptcy in certain circumstances and, where legally enforceable, enable receivables and payables with the same counterparty to be settled or otherwise eliminated by applying amounts due to a counterparty against all or a portion of an amount due from the counterparty or a third party. In addition, Jefferies may enter into customized bilateral trading agreements and other customer agreements that provide for the netting of receivables and payables with a given counterparty as a single net obligation.
\n\nUnder Jefferies derivative ISDA master netting agreements, Jefferies typically will also execute credit support annexes, which provide for collateral, either in the form of cash or securities, to be posted by or paid to a counterparty based on the fair value of the derivative receivable or payable based on the rates and parameters established in the credit support annex. In the event of the counterparty's default, provisions of the master agreement permit acceleration and termination of all outstanding transactions covered by the agreement such that a single amount is owed by, or to, the non-defaulting party. In addition, any collateral posted can be applied to the net obligations, with any excess returned; and the collateralized party has a right to liquidate the collateral. Any residual claim after netting is treated along with other unsecured claims in bankruptcy court.
\n\nThe conditions supporting the legal right of offset may vary from one legal jurisdiction to another and the enforceability of master netting agreements and bankruptcy laws in certain countries or in certain industries is not free from doubt. The right of offset is dependent both on contract law under the governing arrangement and consistency with the bankruptcy laws of the jurisdiction where the counterparty is located. Industry legal opinions with respect to the enforceability of certain standard provisions in respective jurisdictions are relied upon as a part of managing credit risk. Master netting agreements are a critical component of Jefferies risk management processes as part of reducing counterparty credit risk and managing liquidity risk.
\n\nJefferies is also a party to clearing agreements with various central clearing parties. Under these arrangements, the central clearing counterparty facilitates settlement between counterparties based on the net payable owed or receivable due and, with respect to daily settlement, cash is generally only required to be deposited to the extent of the net amount. In the event of default, a net termination amount is determined based on the market values of all outstanding positions and the clearing organization or clearing member provides for the liquidation and settlement of the net termination amount among all counterparties to the open repurchase and/or securities lending transactions.
\n\nThe following table provides information regarding derivative contracts, repurchase agreements and securities borrowing and lending arrangements that are recognized in the Consolidated Statements of Financial Condition and 1) 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.
\n\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | \n | \n | Netting in | \n\n | \n | Net Amounts in | \n\n | \n | \n | \n | \n | \n | \n | |
| \n | \n | \n | \n | Consolidated | \n\n | \n | Consolidated | \n\n | Additional | \n\n | \n | \n | \n | \n | |
| \n | \n | \n | \n | Statement of | \n\n | \n | Statement of | \n\n | Amounts | \n\n | \n | \n | \n | \n | |
| \n | \n | Gross | \n\n | Financial | \n\n | \n | Financial | \n\n | Available for | \n\n | \n | Available | \n\n | \n | |
| (In thousands) | \n\n | Amounts | \n\n | Condition | \n\n | \n | Condition | \n\n | Setoff (1) | \n\n | \n | Collateral (2) | \n\n | \n | Net Amount (3) |
| Assets at December 31, 2014 | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Derivative contracts | \n$ | \n5,165,613 | \n$ | \n(4,759,345 | \n) | \n$ | \n406,268 | \n$ | \n– | \n\n | $ | \n– | \n\n | $ | \n406,268 |
| Securities borrowing arrangements | \n$ | \n6,853,103 | \n$ | \n– | \n\n | $ | \n6,853,103 | \n$ | \n(680,222 | \n) | \n$ | \n(1,274,196 | \n) | \n$ | \n4,898,685 |
| Reverse repurchase agreements | \n$ | \n14,059,133 | \n$ | \n(10,132,275 | \n) | \n$ | \n3,926,858 | \n$ | \n(634,568 | \n) | \n$ | \n(3,248,817 | \n) | \n$ | \n43,473 |
| Liabilities at December 31, 2014 | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Derivative contracts | \n$ | \n5,220,133 | \n$ | \n(4,856,618 | \n) | \n$ | \n363,515 | \n$ | \n– | \n\n | $ | \n– | \n\n | $ | \n363,515 |
| Securities lending arrangements | \n$ | \n2,598,487 | \n$ | \n– | \n\n | $ | \n2,598,487 | \n$ | \n(680,222 | \n) | \n$ | \n(1,883,140 | \n) | \n$ | \n35,125 |
| Repurchase agreements | \n$ | \n20,804,432 | \n$ | \n(10,132,275 | \n) | \n$ | \n10,672,157 | \n$ | \n(634,568 | \n) | \n$ | \n(8,810,770 | \n) | \n$ | \n1,226,819 |
| Assets at December 31, 2013 | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Derivative contracts | \n$ | \n2,514,683 | \n$ | \n(2,253,589 | \n) | \n$ | \n261,094 | \n$ | \n– | \n\n | $ | \n– | \n\n | $ | \n261,094 |
| Securities borrowing arrangements | \n$ | \n5,359,846 | \n$ | \n– | \n\n | $ | \n5,359,846 | \n$ | \n(530,293 | \n) | \n$ | \n(957,140 | \n) | \n$ | \n3,872,413 |
| Reverse repurchase agreements | \n$ | \n12,715,449 | \n$ | \n(8,968,529 | \n) | \n$ | \n3,746,920 | \n$ | \n(590,754 | \n) | \n$ | \n(3,074,540 | \n) | \n$ | \n81,626 |
| Liabilities at December 31, 2013 | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Derivative contracts | \n$ | \n2,532,690 | \n$ | \n(2,352,611 | \n) | \n$ | \n180,079 | \n$ | \n– | \n\n | $ | \n– | \n\n | $ | \n180,079 |
| Securities lending arrangements | \n$ | \n2,506,122 | \n$ | \n– | \n\n | $ | \n2,506,122 | \n$ | \n(530,293 | \n) | \n$ | \n(1,942,271 | \n) | \n$ | \n33,558 |
| Repurchase agreements | \n$ | \n19,748,374 | \n$ | \n(8,968,529 | \n) | \n$ | \n10,779,845 | \n$ | \n(590,754 | \n) | \n$ | \n(8,748,641 | \n) | \n$ | \n1,440,450 |
\n\n
(1) Under master netting agreements with our counterparties, we have the legal right of offset with a counterparty, which incorporates all of the counterparty's outstanding rights and obligations under the arrangement. These balances reflect additional credit risk mitigation that is available by counterparty in the event of a counterparty's default, but which are not netted in the balance sheet because other provisions of U.S. GAAP are not met. Further, for derivative assets and liabilities, amounts netted include cash collateral paid or received.
\n\n(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.
\n\n(3) At December 31, 2014, amounts include $4,847.4 million of securities borrowing arrangements, for which we have received securities collateral of $4,694.0 million, and $1,201.9 million of repurchase agreements, for which we have pledged securities collateral of $1,238.4 million, which are subject to master netting agreements but we have not yet determined the agreements to be legally enforceable. At December 31, 2013, amounts include $3,818.4 million of securities borrowing arrangements, for which we have received securities collateral of $3,721.8 million, and $1,410.0 million of repurchase agreements, for which we have pledged securities collateral of $1,438.9 million, which are subject to master netting agreements but we have not yet determined the agreements to be legally enforceable.
Cash and Securities Segregated and on Deposit for Regulatory Purposes or Deposited With Clearing and Depository Organizations
\n\nIn accordance with Rule 15c3-3 of the Securities Exchange Act of 1934, Jefferies LLC, as a broker-dealer carrying client accounts, is subject to requirements related to maintaining cash or qualified securities in a segregated reserve account for the exclusive benefit of its clients. In addition, certain financial instruments used for initial and variation margin purposes with clearing and depository organizations are recorded in this caption. Jefferies LLC, as a futures commission merchant, is obligated by rules mandated by the Commodities Futures Trading Commission under the Commodities Exchange Act, to segregate or set aside cash or qualified securities to satisfy such regulations, which regulations have been promulgated to protect customer assets. Certain other entities are also obligated by rules mandated by their primary regulators to segregate or set aside cash or equivalent securities to satisfy regulations, promulgated to protect customer assets.
Note 7. Collateralized Transactions
\n\nJefferies enters into secured borrowing and lending arrangements to obtain collateral necessary to effect settlement, finance trading asset inventory positions, meet customer needs or re-lend as part of dealer operations. Jefferies monitors the fair value of the securities loaned and borrowed on a daily basis as compared with the related payable or receivable, and requests additional collateral or returns excess collateral, as appropriate. Jefferies pledges financial instruments as collateral under repurchase agreements, securities lending agreements and other secured arrangements, including clearing arrangements. Jefferies agreements with counterparties generally contain contractual provisions allowing the counterparty the right to sell or repledge the collateral. Pledged securities owned that can be sold or repledged by the counterparty are included within Financial instruments owned and noted parenthetically as Securities pledged on our Consolidated Statements of Financial Condition.
\n\nJefferies receives securities as collateral under resale agreements, securities borrowing transactions and customer margin loans. Jefferies also receives securities as collateral in connection with securities-for-securities transactions in which it is the lender of securities. In many instances, Jefferies is permitted by contract or custom to rehypothecate the securities received as collateral. These securities may be used to secure repurchase agreements, enter into securities lending transactions, satisfy margin requirements on derivative transactions or cover short positions. At December 31, 2014 and 2013, the approximate fair value of securities received as collateral by Jefferies that may be sold or repledged was $25.8 billion and $21.9 billion, respectively. A substantial portion of these securities have been sold or repledged.
\n\nIn instances where Jefferies receives securities as collateral in connection with securities-for-securities transactions in which Jefferies is the lender of securities and is permitted to sell or repledge the securities received as collateral, it reports the fair value of the collateral received and the related obligation to return the collateral in the Consolidated Statements of Financial Condition. At December 31, 2014 and 2013, $5.4 million and $11.1 million, respectively, were reported as Securities received as collateral and as Obligation to return securities received as collateral.
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | External Credit Rating | \n\n | ||||||||||||
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | Below | \n\n | \n | \n | Notional/ |
| \n | \n | AAA/ | \n\n | AA/ | \n\n | \n | \n | \n | \n | Investment | \n\n | \n | \n | Maximum |
| \n | \n | Aaa | \n\n | Aa | \n\n | A | \n\n | BBB/Baa | \n\n | Grade | \n\n | Unrated | \n\n | Payout |
| Credit related derivative contracts: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Index credit default swaps | \n$ | \n480.0 | \n$ | \n– | \n$ | \n– | \n$ | \n– | \n$ | \n– | \n$ | \n– | \n$ | \n480.0 |
| Single name credit default swaps | \n\n | – | \n\n | – | \n\n | – | \n\n | 5.0 | \n\n | – | \n\n | – | \n\n | 5.0 |
| \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | 2014 | \n\n | \n | 2013 | \n\n | \n | 2012 | \n|
| Components of net periodic pension cost: | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| Interest cost | \n$ | \n14,239 | \n\n | $ | \n12,286 | \n\n | $ | \n10,886 | \n|
| Expected return on plan assets | \n\n | (10,115 | \n) | \n\n | (9,746 | \n) | \n\n | (8,292 | \n) |
| Actuarial losses | \n\n | 4,634 | \n\n | \n | 7,464 | \n\n | \n | 5,852 | \n|
| Net periodic pension cost | \n$ | \n8,758 | \n\n | $ | \n10,004 | \n\n | $ | \n8,446 | \n|
| Amounts recognized in other comprehensive income (loss): | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| Net (gain) loss arising during the period | \n$ | \n52,027 | \n\n | $ | \n(31,952 | \n) | \n$ | \n19,604 | \n|
| Amortization of net loss | \n\n | (4,634 | \n) | \n\n | (7,464 | \n) | \n\n | (5,852 | \n) |
| Total recognized in other comprehensive income (loss) | \n$ | \n47,393 | \n\n | $ | \n(39,416 | \n) | \n$ | \n13,752 | \n|
| Net amount recognized in net periodic benefit cost and other | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| comprehensive income (loss) | \n$ | \n56,151 | \n\n | $ | \n(29,412 | \n) | \n$ | \n22,198 | \n
| \n | \n | \n | \n | |
| \n | \n | Securitization Vehicles | ||
| \n | \n | 2014 | \n\n | 2013 |
| \n | \n | (In millions) | ||
| Cash | \n$ | \n.5 | \n$ | \n– |
| Financial instruments owned | \n\n | 62.7 | \n\n | 97.5 |
| Securities purchased under agreement to resell (1) | \n\n | 575.2 | \n\n | 195.1 |
| Other | \n\n | 107.1 | \n\n | 2.3 |
| Total assets | \n$ | \n745.5 | \n$ | \n294.9 |
| Other secured financings (2) | \n$ | \n737.0 | \n$ | \n292.5 |
| Other | \n\n | 8.5 | \n\n | 2.1 |
| Total liabilities | \n$ | \n745.5 | \n$ | \n294.6 |
\n\n
(1) Securities purchased under agreement to resell represent an amount due under a collateralized transaction on a related consolidated entity, which is eliminated in consolidation.
\n\n(2) Approximately $39.7 million and $66.5 million of the secured financing represents an amount held by Jefferies in inventory and eliminated in consolidation at December 31, 2014 and 2013, respectively.
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | \n | \n | \n | \n | \n | \n | Total | \n\n | Corporate | \n\n | Corporate |
| \n | \n | \n | \n | \n | \n | Greater | \n\n | Corporate | \n\n | Lending | \n\n | Lending |
| \n | \n | 0 - 12 | \n\n | 1 - 5 | \n\n | Than | \n\n | Lending | \n\n | Exposure at | \n\n | Commitments |
| Credit Ratings | \n\n | Months | \n\n | Years | \n\n | 5 Years | \n\n | Exposure (1) | \n\n | Fair Value (2) | \n\n | (3) |
| Investment grade | \n$ | \n– | \n$ | \n55.1 | \n$ | \n– | \n$ | \n55.1 | \n$ | \n– | \n$ | \n55.1 |
| Non-investment grade | \n\n | – | \n\n | 191.3 | \n\n | – | \n\n | 191.3 | \n\n | 18.9 | \n\n | 172.4 |
| Unrated | \n\n | 129.3 | \n\n | 620.9 | \n\n | 2.2 | \n\n | 752.4 | \n\n | 185.0 | \n\n | 567.4 |
| Total | \n$ | \n129.3 | \n$ | \n867.3 | \n$ | \n2.2 | \n$ | \n998.8 | \n$ | \n203.9 | \n$ | \n794.9 |
\n\n
(1) Total corporate lending exposure represents the potential loss assuming the fair value of funded loans and lending commitments were zero.
\n\n(2) The corporate lending exposure at fair value includes $22.6 million of funded loans included in Trading assets and a $18.7 million net liability related to lending commitments recorded in Trading liabilities in the Consolidated Statement of Financial Condition as of December 31, 2014.
\n\n(3) Amounts represent the notional amount of unfunded lending commitments.
| \n | \n | |
| Counterparty credit quality (1): | \n\n | |
| A- or higher | \n$ | \n397,655 |
| BBB- to BBB+ | \n\n | 59,010 |
| BB+ or lower | \n\n | 127,332 |
| Unrated | \n\n | 87,507 |
| Total | \n$ | \n671,504 |
\n\n
(1) We utilize internal credit ratings determined by Jefferies Risk Management. Credit ratings determined by Risk Management use methodologies that produce ratings generally consistent with those produced by external rating agencies.
| Year Ended December 31, 2014 | |||||||||||||||||||||||||
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | Changes in | \n|
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | unrealized | \n|
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | gains (losses) | \n|
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | relating to | \n|
| \n | \n | \n | \n | Total gains | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | instruments | \n|
| \n | \n | Balance, | \n\n | (losses) | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | Net transfers | \n\n | \n | Balance, | \n\n | \n | still held at | \n|
| \n | \n | December 31, | \n\n | (realized and | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | into (out of) | \n\n | \n | December 31, | \n\n | \n | December 31, | \n|
| \n | \n | 2013 | \n\n | unrealized) (1) | \n\n | Purchases | \n\n | \n | Sales | \n\n | Settlements | \n\n | \n | Issuances | \n\n | Level 3 | \n\n | \n | 2014 | \n\n | \n | 2014 (1) | \n|||
| Assets: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Trading assets: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Corporate equity securities | \n$ | \n9,884 | \n$ | \n957 | \n\n | $ | \n18,138 | \n\n | $ | \n(12,826 | \n) | \n$ | \n– | \n\n | $ | \n– | \n$ | \n4,811 | \n\n | $ | \n20,964 | \n\n | $ | \n2,324 | \n|
| Corporate debt securities | \n\n | 25,666 | \n\n | 2,546 | \n\n | \n | 62,933 | \n\n | \n | (51,094 | \n) | \n\n | – | \n\n | \n | – | \n\n | 15,867 | \n\n | \n | 55,918 | \n\n | \n | 16,000 | \n|
| Collateralized debt obligations | \n\n | 37,216 | \n\n | (2,303 | \n) | \n\n | 179,720 | \n\n | \n | (170,991 | \n) | \n\n | (1,297 | \n) | \n\n | – | \n\n | 49,153 | \n\n | \n | 91,498 | \n\n | \n | 8,159 | \n|
| U.S. government and federal | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| agency securities | \n\n | – | \n\n | 13 | \n\n | \n | 2,505 | \n\n | \n | (2,518 | \n) | \n\n | – | \n\n | \n | – | \n\n | – | \n\n | \n | – | \n\n | \n | – | \n|
| Residential mortgage-backed | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| securities | \n\n | 105,492 | \n\n | (9,870 | \n) | \n\n | 42,632 | \n\n | \n | (61,689 | \n) | \n\n | (1,847 | \n) | \n\n | – | \n\n | 7,839 | \n\n | \n | 82,557 | \n\n | \n | (4,679 | \n) |
| Commercial mortgage-backed | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| securities | \n\n | 17,568 | \n\n | (4,237 | \n) | \n\n | 49,159 | \n\n | \n | (51,360 | \n) | \n\n | (782 | \n) | \n\n | – | \n\n | 16,307 | \n\n | \n | 26,655 | \n\n | \n | (2,384 | \n) |
| Other asset-backed securities | \n\n | 12,611 | \n\n | 1,784 | \n\n | \n | 4,987 | \n\n | \n | (18,002 | \n) | \n\n | – | \n\n | \n | – | \n\n | 914 | \n\n | \n | 2,294 | \n\n | \n | 1,484 | \n|
| Loans and other receivables | \n\n | 145,890 | \n\n | (31,311 | \n) | \n\n | 130,169 | \n\n | \n | (92,140 | \n) | \n\n | (60,390 | \n) | \n\n | – | \n\n | 5,040 | \n\n | \n | 97,258 | \n\n | \n | (26,864 | \n) |
| Investments at fair value | \n\n | 101,242 | \n\n | 20,383 | \n\n | \n | 34,993 | \n\n | \n | (26,353 | \n) | \n\n | (1,243 | \n) | \n\n | – | \n\n | (9,810 | \n) | \n\n | 119,212 | \n\n | \n | 4,726 | \n|
| Investments in managed funds | \n\n | 57,285 | \n\n | (13,541 | \n) | \n\n | 14,876 | \n\n | \n | (315 | \n) | \n\n | – | \n\n | \n | – | \n\n | (3,323 | \n) | \n\n | 54,982 | \n\n | \n | (13,541 | \n) |
| Liabilities: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Trading liabilities: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Corporate equity securities | \n$ | \n38 | \n$ | \n– | \n\n | $ | \n– | \n\n | \n | $ – | \n\n | $ | \n– | \n\n | $ | \n– | \n$ | \n– | \n\n | $ | \n38 | \n\n | \n | $ – | \n|
| Corporate debt securities | \n\n | – | \n\n | (149 | \n) | \n\n | (565 | \n) | \n\n | 960 | \n\n | \n | – | \n\n | \n | – | \n\n | (23 | \n) | \n\n | 223 | \n\n | \n | (8 | \n) |
| Net derivatives (2) | \n\n | 6,905 | \n\n | 15,055 | \n\n | \n | (24,682 | \n) | \n\n | 1,094 | \n\n | \n | 322 | \n\n | \n | – | \n\n | (3,332 | \n) | \n\n | (4,638 | \n) | \n\n | (15,615 | \n) |
| Loans | \n\n | 22,462 | \n\n | – | \n\n | \n | (18,332 | \n) | \n\n | 11,338 | \n\n | \n | – | \n\n | \n | – | \n\n | (1,018 | \n) | \n\n | 14,450 | \n\n | \n | – | \n|
| Other secured financings | \n\n | 8,711 | \n\n | – | \n\n | – | \n\n | \n | \n | – | \n\n | \n | (17,525 | \n) | \n\n | 39,639 | \n\n | – | \n\n | \n | 30,825 | \n\n | \n | – | \n
\n\n
| (1) | \nRealized and unrealized gains (losses) are reported in Principal transactions in the Consolidated Statements of Operations. |
| (2) | \nNet derivatives represent Trading assets - Derivatives and Trading liabilities - Derivatives. |
\n\n
\n\n
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | \n | \n | Period from the Jefferies Acquisition through December 31, 2013 (3) | \n\n | \n | \n | \n | \n | \n | \n | \n | ||||||||
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | Changes in | \n|
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | unrealized gains | \n|
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | (losses) relating | \n|
| \n | \n | \n | \n | Total gains | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | to instruments | \n|
| \n | \n | \n | \n | (losses) | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | Net transfers | \n\n | \n | \n | \n | still held at | \n|
| \n | \n | Beginning | \n\n | (realized and | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | into (out of) | \n\n | \n | Ending | \n\n | December 31, | \n|
| \n | \n | Balance | \n\n | unrealized) (1) | \n\n | Purchases | \n\n | Sales | \n\n | Settlements | \n\n | \n | Level 3 | \n\n | \n | Balance | \n\n | 2013 (1) | \n||
| Assets: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Trading assets: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Corporate equity securities | \n$ | \n13,234 | \n$ | \n1,551 | \n\n | $ | \n3,583 | \n$ | \n(7,141 | \n) | \n$ – | \n\n | $ | \n(1,343 | \n) | \n$ | \n9,884 | \n$ | \n(419 | \n) |
| Corporate debt securities | \n\n | 31,820 | \n\n | (2,454 | \n) | \n\n | 31,014 | \n\n | (34,125 | \n) | \n– | \n\n | \n | (589 | \n) | \n\n | 25,666 | \n\n | (2,749 | \n) |
| Collateralized debt obligations | \n\n | 24,736 | \n\n | (2,309 | \n) | \n\n | 45,437 | \n\n | (32,874 | \n) | \n– | \n\n | \n | 2,226 | \n\n | \n | 37,216 | \n\n | (8,384 | \n) |
| Residential mortgage-backed | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| securities | \n\n | 169,426 | \n\n | (4,897 | \n) | \n\n | 89,792 | \n\n | (150,807 | \n) | \n(11,007 | \n) | \n\n | 12,985 | \n\n | \n | 105,492 | \n\n | (6,932 | \n) |
| Commercial mortgage-backed | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| securities | \n\n | 17,794 | \n\n | (4,469 | \n) | \n\n | 20,130 | \n\n | (13,538 | \n) | \n(100 | \n) | \n\n | (2,249 | \n) | \n\n | 17,568 | \n\n | (3,794 | \n) |
| Other asset-backed securities | \n\n | 1,292 | \n\n | (4,535 | \n) | \n\n | 105,291 | \n\n | (104,711 | \n) | \n– | \n\n | \n | 15,274 | \n\n | \n | 12,611 | \n\n | (3,497 | \n) |
| Loans and other receivables | \n\n | 170,986 | \n\n | 15,008 | \n\n | \n | 287,757 | \n\n | (115,231 | \n) | \n(211,805 | \n) | \n\n | (825 | \n) | \n\n | 145,890 | \n\n | 13,402 | \n|
| Investments, at fair value | \n\n | 75,067 | \n\n | 1,678 | \n\n | \n | 28,594 | \n\n | (102 | \n) | \n(5,012 | \n) | \n\n | 1,017 | \n\n | \n | 101,242 | \n\n | 1,705 | \n|
| Investments in managed funds | \n\n | 59,976 | \n\n | 9,863 | \n\n | \n | 15,651 | \n\n | (17 | \n) | \n(28,188 | \n) | \n\n | – | \n\n | \n | 57,285 | \n\n | 9,863 | \n|
| Liabilities: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Trading liabilities: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Corporate equity securities | \n$ | \n38 | \n$ | \n– | \n\n | $ | \n– | \n\n | $ – | \n\n | $ – | \n\n | $ | \n– | \n\n | $ | \n38 | \n$ | \n– | \n|
| Residential mortgage-backed | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| securities | \n\n | 1,542 | \n\n | (1,542 | \n) | \n\n | – | \n\n | – | \n\n | – | \n\n | \n | – | \n\n | \n | – | \n\n | – | \n|
| Net derivatives (2) | \n\n | 11,185 | \n\n | 4,408 | \n\n | \n | – | \n\n | (300 | \n) | \n(8,515 | \n) | \n\n | 127 | \n\n | \n | 6,905 | \n\n | 1,609 | \n|
| Loans | \n\n | 7,398 | \n\n | 2,959 | \n\n | \n | (16,027 | \n) | \n28,065 | \n\n | 67 | \n\n | \n | – | \n\n | \n | 22,462 | \n\n | (2,970 | \n) |
\n\n
| (1) | \nRealized and unrealized gains (losses) are reported in Principal transactions in the Consolidated Statements of Operations. |
| (2) | \nNet derivatives represent Trading assets - Derivatives and Trading liabilities - Derivatives. |
| (3) | \nIn addition to the above changes in the fair value of our financial assets and liabilities that have been categorized within Level 3 of the fair value hierarchy, during the period from the Jefferies acquisition through December 31, 2013, secured financings of $8.7 million were issued. |
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | \n | December 31, 2014 | \n\n | \n | \n | \n | \n | \n | |
| \n | \n | Fair Value | \nValuation | \nSignificant | \n\n | \n | \n | \n | Weighted | \n|
| Financial Instruments Owned | \n\n | (in thousands) | \nTechnique | \nUnobservable Input(s) | \n\n | Input/Range | \n\n | \n | Average | \n|
| Corporate equity securities | \n$ | \n19,814 | \n\n | \n | \n | \n | \n | \n | \n | |
| Non-exchange traded securities | \n\n | \n | Market approach | \nEBITDA (a) multiple | \n\n | 3.4to 4.7 | \n\n | \n | 3.6 | \n|
| \n | \n | \n | Scenario analysis | \nEstimated recovery percentage | \n\n | 24 | \n% | \n\n | – | \n|
| Corporate debt securities | \n$ | \n22,766 | \nConvertible bond model | \nDiscount rate/yield | \n\n | 32 | \n% | \n\n | – | \n|
| Collateralized debt obligations | \n$ | \n41,784 | \nDiscounted cash flows | \nConstant prepayment rate | \n\n | 0% to 20% | \n\n | \n | 13 | \n% |
| \n | \n | \n | \n | Constant default rate | \n\n | 0% to 2% | \n\n | \n | 2 | \n% |
| \n | \n | \n | \n | Loss severity | \n\n | 0% to 70% | \n\n | \n | 39 | \n% |
| \n | \n | \n | \n | Yield | \n\n | 2% to 51% | \n\n | \n | 16 | \n% |
| Residential mortgage-backed securities | \n$ | \n82,557 | \nDiscounted cash flows | \nConstant prepayment rate | \n\n | 1% to 50% | \n\n | \n | 13 | \n% |
| \n | \n | \n | \n | Constant default rate | \n\n | 1% to 100% | \n\n | \n | 14 | \n% |
| \n | \n | \n | \n | Loss severity | \n\n | 20% to 80% | \n\n | \n | 50 | \n% |
| \n | \n | \n | \n | Yield | \n\n | 3% to 13% | \n\n | \n | 7 | \n% |
| Commercial mortgage-backed securities | \n$ | \n26,655 | \nDiscounted cash flows | \nYield | \n\n | 8% to 12% | \n\n | \n | 11 | \n% |
| \n | \n | \n | \n | Cumulative loss rate | \n\n | 4% to 72% | \n\n | \n | 15 | \n% |
| \n | \n | \n | Scenario analysis | \nEstimated recovery percentage | \n\n | 90 | \n% | \n\n | – | \n|
| Other asset-backed securities | \n$ | \n2,294 | \nDiscounted cash flows | \nConstant prepayment rate | \n\n | 8 | \n% | \n\n | – | \n|
| \n | \n | \n | \n | Constant default rate | \n\n | 3 | \n% | \n\n | – | \n|
| \n | \n | \n | \n | Loss severity | \n\n | 70 | \n% | \n\n | – | \n|
| \n | \n | \n | \n | Yield | \n\n | 7 | \n% | \n\n | – | \n|
| Loans and other receivables | \n$ | \n88,154 | \nComparable pricing | \nComparable loan price | \n$ | \n100to $101 | \n\n | $ | \n100.3 | \n|
| \n | \n | \n | Market approach | \nYield | \n\n | 3% to 5% | \n\n | \n | 4 | \n% |
| \n | \n | \n | \n | EBITDA (a) multiple | \n\n | 3.4to 8.2 | \n\n | \n | 7.6 | \n|
| \n | \n | \n | Scenario analysis | \nEstimated recovery percentage | \n\n | 10% to 41% | \n\n | \n | 36 | \n% |
| Derivatives | \n$ | \n54,190 | \n\n | \n | \n | \n | \n | \n | \n | |
| Foreign exchange options | \n\n | \n | Option model | \nVolatility | \n\n | 13% to 23% | \n\n | \n | 17 | \n% |
| Commodity forwards | \n\n | \n | Discounted cash flows | \nDiscount rate | \n\n | 17 | \n% | \n\n | – | \n|
| Loan commitments | \n\n | \n | Comparable pricing | \nComparable loan price | \n$ | \n100 | \n\n | \n | – | \n|
| Investments at fair value | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Private equity securities | \n$ | \n32,323 | \nMarket approach | \nTransaction Level | \n$ | \n50 | \n\n | \n | – | \n|
| \n | \n | \n | Market approach | \nDiscount rate | \n\n | 15% to 30% | \n\n | \n | 23 | \n% |
| \n | \n | Fair Value | \nValuation | \nSignificant | \n\n | \n | \n | \n | Weighted | \n|
| Trading Liabilities | \n\n | (in thousands) | \nTechnique | \nUnobservable Input(s) | \n\n | Input/Range | \n\n | \n | Average | \n|
| Derivatives | \n$ | \n49,552 | \n\n | \n | \n | \n | \n | \n | \n | |
| FX options | \n\n | \n | Option model | \nVolatility | \n\n | 13% to 23% | \n\n | \n | 17 | \n% |
| Unfunded commitments | \n\n | \n | Comparable pricing | \nComparable loan price | \n$ | \n89to $100 | \n\n | $ | \n92.0 | \n|
| \n | \n | \n | \n | Credit spread | \n\n | 45 | \nbps | \n\n | – | \n|
| \n | \n | \n | Market approach | \nYield | \n\n | 5 | \n% | \n\n | – | \n|
| Loans | \n$ | \n14,450 | \nComparable pricing | \nComparable loan price | \n$ | \n100 | \n\n | \n | – | \n|
| Other secured financings | \n$ | \n30,825 | \nComparable pricing | \nComparable loan price | \n$ | \n81to $100 | \n\n | $ | \n98.7 | \n
\n\n
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | \n | December 31, 2013 | \n\n | \n | \n | \n | \n | \n | |
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | Fair Value | \nValuation | \nSignificant | \n\n | \n | \n | \n | Weighted | \n|
| Financial Instruments Owned | \n\n | (in thousands) | \nTechnique | \nUnobservable Input(s) | \n\n | Input/Range | \n\n | \n | Average | \n|
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Corporate equity securities | \n$ | \n8,034 | \n\n | \n | \n | \n | \n | \n | \n | |
| Non-exchange traded securities | \n\n | \n | Market approach | \nEBITDA (a) multiple | \n\n | 4.0to 5.5 | \n\n | \n | 4.53 | \n|
| Warrants | \n\n | \n | Option model | \nVolatility | \n\n | 36 | \n% | \n\n | – | \n|
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Corporate debt securities | \n$ | \n17,699 | \nScenario analysis | \nEstimated recovery percentage | \n\n | 24 | \n% | \n\n | – | \n|
| \n | \n | \n | Comparable pricing | \nComparable bond or loan price | \n$ | \n69.10to $70.50 | \n\n | $ | \n69.91 | \n|
| \n | \n | \n | Market approach | \nYield | \n\n | 13 | \n% | \n\n | – | \n|
| Collateralized debt obligations | \n$ | \n34,316 | \nDiscounted cash flows | \nConstant prepayment rate | \n\n | 0% to 20% | \n\n | \n | 13 | \n% |
| \n | \n | \n | \n | Constant default rate | \n\n | 2% to 3% | \n\n | \n | 2 | \n% |
| \n | \n | \n | \n | Loss severity | \n\n | 30% to 85% | \n\n | \n | 38 | \n% |
| \n | \n | \n | \n | Yield | \n\n | 3% to 91% | \n\n | \n | 28 | \n% |
| Residential mortgage-backed securities | \n$ | \n105,492 | \nDiscounted cash flows | \nConstant prepayment rate | \n\n | 2% to 50% | \n\n | \n | 11 | \n% |
| \n | \n | \n | \n | Constant default rate | \n\n | 1% to 100% | \n\n | \n | 17 | \n% |
| \n | \n | \n | \n | Loss severity | \n\n | 30% to 90% | \n\n | \n | 48 | \n% |
| \n | \n | \n | \n | Yield | \n\n | 0% to 20% | \n\n | \n | 7 | \n% |
| Commercial mortgage-backed securities | \n$ | \n17,568 | \nDiscounted cash flows | \nYield | \n\n | 12% to 20% | \n\n | \n | 14 | \n% |
| \n | \n | \n | \n | Cumulative loss rate | \n\n | 5% to 28.2% | \n\n | \n | 11 | \n% |
| Other asset-backed securities | \n$ | \n12,611 | \nDiscounted cash flows | \nConstant prepayment rate | \n\n | 4% to 30% | \n\n | \n | 17 | \n% |
| \n | \n | \n | \n | Constant default rate | \n\n | 2% to 11% | \n\n | \n | 7 | \n% |
| \n | \n | \n | \n | Loss severity | \n\n | 40% to 92% | \n\n | \n | 64 | \n% |
| \n | \n | \n | \n | Yield | \n\n | 3% to 29% | \n\n | \n | 18 | \n% |
| Loans and other receivables | \n$ | \n101,931 | \nComparable pricing | \nComparable bond or loan price | \n$ | \n91to $101 | \n\n | $ | \n98.90 | \n|
| \n | \n | \n | Market approach | \nYield | \n\n | 8.75% to 13.5% | \n\n | \n | 10 | \n% |
| \n | \n | \n | \n | EBITDA (a) multiple | \n\n | 6.9 | \n\n | \n | – | \n|
| \n | \n | \n | Scenario analysis | \nEstimated recovery percentage | \n\n | 16.9% to 92% | \n\n | \n | 74 | \n% |
| Derivatives | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Loan commitments | \n$ | \n1,493 | \nComparable pricing | \nComparable bond or loan price | \n$ | \n100.875 | \n\n | \n | – | \n|
| Investments at fair value | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Private equity securities | \n$ | \n30,203 | \nComparable pricing | \nComparable share price | \n$ | \n414 | \n\n | \n | – | \n|
| \n | \n | \n | Market approach | \nDiscount rate | \n\n | 15% to 30% | \n\n | \n | 23 | \n% |
| \n | \n | Fair Value | \nValuation | \nSignificant | \n\n | \n | \n | \n | Weighted | \n|
| Trading Liabilities | \n\n | (in thousands) | \nTechnique | \nUnobservable Input(s) | \n\n | Input/Range | \n\n | \n | Average | \n|
| Derivatives | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Equity options | \n$ | \n8,398 | \nOption model | \nVolatility | \n\n | 36.25% to 41% | \n\n | \n | 39 | \n% |
| Loans | \n$ | \n8,106 | \nComparable pricing | \nComparable bond or loan price | \n$ | \n101.88 | \n\n | \n | – | \n
\n\n
(a) Earnings before interest, taxes, depreciation and amortization (\"EBITDA\").
| \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | December 31, 2014 | \n\n | December 31, 2013 | \n|||||
| \n | Trading Assets | \n\n | Trading Liabilities | \n\n | Trading Assets | \n\n | Trading Liabilities | \n|
| Exchange closing prices | \n16 | \n% | \n20 | \n% | \n12 | \n% | \n25 | \n% |
| Recently observed transaction prices | \n4 | \n% | \n2 | \n% | \n5 | \n% | \n4 | \n% |
| External pricing services | \n67 | \n% | \n69 | \n% | \n68 | \n% | \n66 | \n% |
| Broker quotes | \n4 | \n% | \n3 | \n% | \n3 | \n% | \n3 | \n% |
| Valuation techniques | \n9 | \n% | \n6 | \n% | \n12 | \n% | \n2 | \n% |
| \n | 100 | \n% | \n100 | \n% | \n100 | \n% | \n100 | \n% |
Investments in Managed Funds
\n\nInvestments in managed funds include our investments in funds managed by us and our investments in related party managed funds in which we are entitled to a portion of the management and/or performance fees. Investments in nonconsolidated managed funds are accounted for at fair value with gains or losses included in the Consolidated Statements of Operations.
\n\nAsset management fees and investment income from managed funds include revenues we earn from management, administrative and performance fees from funds and accounts managed by us, revenues from management and performance fees we earn from related-party managed funds and investment income from our investments in these funds. We earn fees in connection with management and investment advisory services performed for various funds and managed accounts. These fees are based on assets under management or an agreed upon notional amount and may include performance fees based upon the performance of the funds. Management and administrative fees are generally recognized over the period that the related service is provided. Generally, performance fees are earned when the return on assets under management exceeds certain benchmark returns, \"high-water marks\" or other performance targets. Performance fees are accrued (or reversed) on a monthly basis based on measuring performance to date versus any relevant benchmark return hurdles stated in the investment management agreement. Performance fees are not subject to adjustment once the measurement period ends (generally annual periods) and the performance fees have been realized.
| \n | \n | \n | \n | \n | |
| \n | December 31, 2014 | ||||
| \n | \n | \n | \n | \n | Redemption |
| \n | \n | \n | \n | Unfunded | \nFrequency |
| \n | \n | Fair Value (1) | \n\n | Commitments | \n(if currently eligible) |
| Equity Long/Short Hedge Funds (2) | \n$ | \n146,134 | \n$ | \n– | \nMonthly/Quarterly |
| High Yield Hedge Funds (3) | \n\n | 204 | \n\n | – | \n– |
| Fund of Funds (4) | \n\n | 323 | \n\n | 94 | \n– |
| Equity Funds (5) | \n\n | 65,216 | \n\n | 26,023 | \n– |
| Convertible Bond Funds (6) | \n\n | 3,355 | \n\n | – | \nAt Will |
| Multi-strategy Fund (7) | \n\n | 105,954 | \n\n | – | \n– |
| Total (8) | \n$ | \n321,186 | \n$ | \n26,117 | \n
\n\n
| \n | \n | \n | \n | \n | |
| \n | December 31, 2013 | ||||
| \n | \n | \n | \n | \n | Redemption |
| \n | \n | \n | \n | Unfunded | \nFrequency |
| \n | \n | Fair Value (1) | \n\n | Commitments | \n(if currently eligible) |
| Equity Long/Short Hedge Funds (2) | \n$ | \n20,927 | \n$ | \n– | \nMonthly/Quarterly |
| High Yield Hedge Funds (3) | \n\n | 244 | \n\n | – | \n– |
| Fund of Funds (4) | \n\n | 494 | \n\n | 94 | \n– |
| Equity Funds (5) | \n\n | 66,495 | \n\n | 40,816 | \n– |
| Convertible Bond Funds (6) | \n\n | 3,473 | \n\n | – | \nAt Will |
| Total (8) | \n$ | \n91,633 | \n$ | \n40,910 | \n
\n\n
| (1) | \nWhere fair value is calculated based on net asset value, fair value has been derived from each of the funds' capital statements. |
| (2) | \nThis category includes investments in hedge funds that invest, long and short, in equity securities in domestic and international markets in both the public and private sectors. At December 31, 2014 and 2013, investments representing approximately 99% and 98%, respectively, of the fair value of investments in this category are redeemable with 30 to 90 days prior written notice, and includes an investment in a private asset management fund managed by us with a fair value of $117.2 million at December 31, 2014. |
| (3) | \nIncludes investments in funds that invest in domestic and international public high yield debt, private high yield investments, senior bank loans, public leveraged equities, distressed debt, and private equity investments. There are no redemption provisions. The underlying assets of the funds are being liquidated and we are unable to estimate when the underlying assets will be fully liquidated. |
| (4) | \nIncludes investments in fund of funds that invest in various private equity funds. At December 31. 2014 and 2013, approximately 95% and 98%, respectively, of the fair value of investments in this category is managed by us and has no redemption provisions, instead distributions are received through the liquidation of the underlying assets of the fund of funds, which are estimated to be liquidated in approximately two years. For the remaining investments, we have requested redemption; however, we are unable to estimate when these funds will be received. |
| (5) | \nAt December 31, 2014 and 2013, investments representing approximately 99% and 99%, respectively, of the fair value of investments in this category include investments in equity funds that invest in the equity of various U.S. and foreign private companies in the energy, technology, internet service and telecommunication service industries. These investments cannot be redeemed, instead distributions are received through the liquidation of the underlying assets of the funds which are expected to liquidate in one to eight years. The remaining investments are in liquidation and we are unable to estimate when the underlying assets will be fully liquidated. |
| (6) | \nInvestment in the Jefferies Umbrella Fund, an open-ended investment company managed by us that invests primarily in convertible bonds. The investment is redeemable with five days prior written notice. |
| (7) | \nInvestment in private asset management fund managed by us that employs a variety of investment strategies and can invest in U.S. and non-U.S. equity and equity related securities, futures, exchange traded funds, fixed income securities, preferred securities, options, forward contracts and swaps. Withdrawals from the fund prior to the first year anniversary of the investment are subject to a 5% withdrawal fee and withdrawals during any calendar quarter are limited to 25% of the fund's net asset value. Both of these restrictions can be waived by us, in our sole discretion. |
| (8) | \nInvestments at fair value in the Consolidated Statements of Financial Condition at December 31, 2014 and 2013, include $152.6 million and $66.9 million, respectively, of direct investments which do not have the characteristics of investment companies and therefore not included within this table |
Loans to and Investments in Associated Companies
\n\nLoans to and investments in associated companies include investments in private equity and other operating entities in which we exercise significant influence over operating and capital decisions and loans issued in connection with such investments. Loans to and investments in associated companies are accounted for using the equity method. See Notes 11 and 29 for additional information regarding certain of these investments.
\n\nUnder the equity method of accounting, our share of the investee's underlying net income or loss is recorded as Income (loss) related to associated companies, or as part of Other revenues if such investees are considered to be an extension of our business. Income (loss) for investees for which the fair value option was elected is reported as Principal transactions revenues.
Note 18. Mezzanine Equity
\n\nRedeemable Noncontrolling Interests
\n\nRedeemable noncontrolling interests primarily relate to National Beef and are held by its minority owners, principally USPB, NBPCo Holdings and the chief executive officer of National Beef. The holders of these interests share in the profits and losses of National Beef on a pro rata basis with us. However, the minority owners have the right to require us to purchase their interests under certain specified circumstances at fair value (put rights), and we also have the right to purchase their interests under certain specified circumstances at fair value (call rights). Each of the holders of the put rights has the right to make an election that requires us to purchase up to one-third of their interests on December 30, 2016, one-third on December 30, 2018, and the remainder on December 30, 2021. In addition, USPB may elect to exercise their put rights following the termination of the cattle supply agreement, and the chief executive officer following the termination of his employment.
\n\nOur call rights with respect to USPB may be exercised following the termination of the cattle supply agreement or after USPB's ownership interest is less than 20% of their interest held at the time we acquired National Beef. Our call rights with respect to other members may be exercised after the ten year anniversary of our acquisition of National Beef if such member's ownership interest is less than 50% of the interest held at the time we acquired National Beef. Additionally, we may acquire the chief executive officer's interest following the termination of his employment.
\n\nRedeemable noncontrolling interests in National Beef are reflected in the Consolidated Statements of Financial Condition at fair value. The following table reconciles National Beef's redeemable noncontrolling interests activity during the years ended December 31, 2014 and 2013 (in thousands):
\n\n| \n | \n | \n | \n | \n | \n | |
| \n | \n | 2014 | \n\n | \n | 2013 | \n|
| As of January 1, | \n$ | \n241,075 | \n\n | $ | \n241,649 | \n|
| Loss allocated to redeemable noncontrolling | \n\n | \n | \n | \n | \n | |
| interests | \n\n | (8,576 | \n) | \n\n | (9,282 | \n) |
| Net distributions to redeemable noncontrolling interests | \n\n | (2,765 | \n) | \n\n | (8,073 | \n) |
| Increase (decrease) in fair value of redeemable noncontrolling | \n\n | \n | \n | \n | \n | |
| interests charged to additional paid-in capital | \n\n | (45,401 | \n) | \n\n | 16,781 | \n|
| Balance, December 31, | \n$ | \n184,333 | \n\n | $ | \n241,075 | \n
\n\n
At acquisition, we prepared a projection of future cash flows of National Beef, which was used along with other information to allocate the purchase price to National Beef's individual assets and liabilities. At December 31, 2014, we calculated the fair value of the redeemable noncontrolling interests by updating our estimate of future cash flows, as well as considering other market comparable information deemed appropriate. The projected future cash flows consider estimated revenue growth, cost of sales changes, capital expenditures and other unobservable inputs. However, the most significant unobservable inputs affecting the estimate of fair value are the discount rate (12.5%) and the terminal growth rate (2.0%) used to calculate the capitalization rate of the terminal value.
\n\nThe table below is a sensitivity analysis which shows the fair value of the redeemable noncontrolling interests using the assumed discount and the terminal growth rates and fair values under different rate assumptions as of December 31, 2014 (dollars in millions):
\n\n| \n | \n | \n | \n | \n | \n | |
| \n | \n | \n | \n | Discount Rates | \n\n | |
| Terminal Growth Rates | \n\n | 12.25% | \n\n | 12.50% | \n\n | 12.75% |
| 1.75% | \n$ | \n186.4 | \n$ | \n183.2 | \n$ | \n180.1 |
| 2.00% | \n$ | \n187.6 | \n$ | \n184.3 | \n$ | \n181.2 |
| 2.25% | \n$ | \n188.9 | \n$ | \n185.6 | \n$ | \n182.3 |
\n\n
The projection of future cash flows is updated with input from National Beef personnel. The estimate is reviewed by personnel at our corporate office as part of the normal process for the preparation of our quarterly and annual financial statements.
\n\nAt December 31, 2014, redeemable noncontrolling interests also include the noncontrolling interest in a business acquired by Conwed during the first quarter of 2014 of $2.4 million.
\n\nMandatorily Redeemable Convertible Preferred Shares
\n\nAs mentioned above, in connection with the Jefferies acquisition 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 outstanding 3.25% Series A-1 Cumulative Convertible Preferred Stock. The Preferred Shares have a 3.25% annual, cumulative cash dividend and are currently convertible into 4,162,200 common shares, an effective conversion price of $30.03 per share. The Preferred Shares are callable beginning in 2023 at a price of $1,000 per share plus accrued interest and are mandatorily redeemable in 2038.
\n\n
| \n | \n | \n | \n | |
| \n | \n | \n | \n | Excess |
| \n | \n | Net Capital | \n\n | Net Capital |
| Jefferies LLC | \n$ | \n1,025,113 | \n$ | \n913,465 |
| Jefferies Execution | \n\n | 6,150 | \n\n | 5,900 |
| \n | \n | \n | \n | \n | \n | |
| \n | December 31, 2014 | |||||
| \n | \n | Variable Interests | \n\n | |||
| \n | \n | Financial Statement | \n\n | Maximum | \n\n | |
| \n | \n | Carrying Amount (3) | \nExposure to Loss | \n\n | VIE Assets | |
| \n | \n | Assets | \n\n | \n | \n | |
| \n | (In millions) | |||||
| Collateralized loan obligations | \n$ | \n134.0 | \n$ | \n926.9 | \n$ | \n7,737.1 |
| Consumer loan financing vehicles | \n\n | 170.6 | \n\n | 797.8 | \n\n | 485.2 |
| Asset management vehicles (1) | \n\n | 11.3 | \n\n | 11.3 | \n\n | 432.3 |
| Private equity vehicles (2) | \n\n | 44.3 | \n\n | 59.2 | \n\n | 92.8 |
| Total | \n$ | \n360.2 | \n$ | \n1,795.2 | \n$ | \n8,747.4 |
\n\n
| \n | \n | \n | \n | \n | \n | |
| \n | December 31, 2013 | |||||
| \n | \n | Variable Interests | \n\n | \n | ||
| \n | \n | Financial Statement | \n\n | Maximum | \n\n | |
| \n | \n | Carrying Amount (3) | \n\n | Exposure to Loss | \n\n | VIE Assets |
| \n | \n | Assets | \n\n | \n | \n | |
| \n | (In millions) | |||||
| Collateralized loan obligations | \n$ | \n11.9 | \n$ | \n88.8 | \n$ | \n1,122.3 |
| Asset management vehicles (1) | \n\n | 5.1 | \n\n | 5.1 | \n\n | 454.2 |
| Private equity vehicles (2) | \n\n | 40.8 | \n\n | 68.8 | \n\n | 89.4 |
| Total | \n$ | \n57.8 | \n$ | \n162.7 | \n$ | \n1,665.9 |
\n\n
(1) Assets consist of equity interests, which are included within Investments in managed funds, and accrued management and performance fees, which are included in Receivables.
\n\n(2) Assets consist of equity interests, which are included in Investment in managed funds.
\n\n(3) There were no significant liabilities at December 31, 2014 or December 31, 2013.
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | \n | \n | Netting in | \n\n | \n | Net Amounts in | \n\n | \n | \n | \n | \n | \n | \n | |
| \n | \n | \n | \n | Consolidated | \n\n | \n | Consolidated | \n\n | Additional | \n\n | \n | \n | \n | \n | |
| \n | \n | \n | \n | Statement of | \n\n | \n | Statement of | \n\n | Amounts | \n\n | \n | \n | \n | \n | |
| \n | \n | Gross | \n\n | Financial | \n\n | \n | Financial | \n\n | Available for | \n\n | \n | Available | \n\n | \n | |
| (In thousands) | \n\n | Amounts | \n\n | Condition | \n\n | \n | Condition | \n\n | Setoff (1) | \n\n | \n | Collateral (2) | \n\n | \n | Net Amount (3) |
| Assets at December 31, 2014 | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Derivative contracts | \n$ | \n5,165,613 | \n$ | \n(4,759,345 | \n) | \n$ | \n406,268 | \n$ | \n– | \n\n | $ | \n– | \n\n | $ | \n406,268 |
| Securities borrowing arrangements | \n$ | \n6,853,103 | \n$ | \n– | \n\n | $ | \n6,853,103 | \n$ | \n(680,222 | \n) | \n$ | \n(1,274,196 | \n) | \n$ | \n4,898,685 |
| Reverse repurchase agreements | \n$ | \n14,059,133 | \n$ | \n(10,132,275 | \n) | \n$ | \n3,926,858 | \n$ | \n(634,568 | \n) | \n$ | \n(3,248,817 | \n) | \n$ | \n43,473 |
| Liabilities at December 31, 2014 | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Derivative contracts | \n$ | \n5,220,133 | \n$ | \n(4,856,618 | \n) | \n$ | \n363,515 | \n$ | \n– | \n\n | $ | \n– | \n\n | $ | \n363,515 |
| Securities lending arrangements | \n$ | \n2,598,487 | \n$ | \n– | \n\n | $ | \n2,598,487 | \n$ | \n(680,222 | \n) | \n$ | \n(1,883,140 | \n) | \n$ | \n35,125 |
| Repurchase agreements | \n$ | \n20,804,432 | \n$ | \n(10,132,275 | \n) | \n$ | \n10,672,157 | \n$ | \n(634,568 | \n) | \n$ | \n(8,810,770 | \n) | \n$ | \n1,226,819 |
| Assets at December 31, 2013 | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Derivative contracts | \n$ | \n2,514,683 | \n$ | \n(2,253,589 | \n) | \n$ | \n261,094 | \n$ | \n– | \n\n | $ | \n– | \n\n | $ | \n261,094 |
| Securities borrowing arrangements | \n$ | \n5,359,846 | \n$ | \n– | \n\n | $ | \n5,359,846 | \n$ | \n(530,293 | \n) | \n$ | \n(957,140 | \n) | \n$ | \n3,872,413 |
| Reverse repurchase agreements | \n$ | \n12,715,449 | \n$ | \n(8,968,529 | \n) | \n$ | \n3,746,920 | \n$ | \n(590,754 | \n) | \n$ | \n(3,074,540 | \n) | \n$ | \n81,626 |
| Liabilities at December 31, 2013 | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Derivative contracts | \n$ | \n2,532,690 | \n$ | \n(2,352,611 | \n) | \n$ | \n180,079 | \n$ | \n– | \n\n | $ | \n– | \n\n | $ | \n180,079 |
| Securities lending arrangements | \n$ | \n2,506,122 | \n$ | \n– | \n\n | $ | \n2,506,122 | \n$ | \n(530,293 | \n) | \n$ | \n(1,942,271 | \n) | \n$ | \n33,558 |
| Repurchase agreements | \n$ | \n19,748,374 | \n$ | \n(8,968,529 | \n) | \n$ | \n10,779,845 | \n$ | \n(590,754 | \n) | \n$ | \n(8,748,641 | \n) | \n$ | \n1,440,450 |
\n\n
(1) Under master netting agreements with our counterparties, we have the legal right of offset with a counterparty, which incorporates all of the counterparty's outstanding rights and obligations under the arrangement. These balances reflect additional credit risk mitigation that is available by counterparty in the event of a counterparty's default, but which are not netted in the balance sheet because other provisions of U.S. GAAP are not met. Further, for derivative assets and liabilities, amounts netted include cash collateral paid or received.
\n\n(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.
\n\n(3) At December 31, 2014, amounts include $4,847.4 million of securities borrowing arrangements, for which we have received securities collateral of $4,694.0 million, and $1,201.9 million of repurchase agreements, for which we have pledged securities collateral of $1,238.4 million, which are subject to master netting agreements but we have not yet determined the agreements to be legally enforceable. At December 31, 2013, amounts include $3,818.4 million of securities borrowing arrangements, for which we have received securities collateral of $3,721.8 million, and $1,410.0 million of repurchase agreements, for which we have pledged securities collateral of $1,438.9 million, which are subject to master netting agreements but we have not yet determined the agreements to be legally enforceable.
Note 28. Other Fair Value Information
\n\nThe carrying amounts and estimated fair values of our principal financial instruments that are not recognized at fair value on a recurring basis are as follows (in thousands):
\n\n| \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | December 31, 2014 | \n\n | December 31, 2013 | ||||
| \n | \n | Carrying | \n\n | Fair | \n\n | Carrying | \n\n | Fair |
| \n | \n | Amount | \n\n | Value | \n\n | Amount | \n\n | Value |
| Other Assets: | \n\n | \n | \n | \n | \n | \n | \n | |
| Notes and loans receivable (a) | \n$ | \n213,174 | \n$ | \n217,171 | \n$ | \n95,042 | \n$ | \n95,606 |
| Financial Liabilities: | \n\n | \n | \n | \n | \n | \n | \n | |
| Short-term borrowings (b) | \n\n | 12,000 | \n\n | 12,000 | \n\n | 12,000 | \n\n | 12,000 |
| Long-term debt (b) | \n\n | 8,527,929 | \n\n | 8,806,700 | \n\n | 8,180,865 | \n\n | 8,230,191 |
\n\n
(a) Notes and loans receivable: The fair values are primarily measured using Level 2 and 3 inputs principally based on discounted future cash flows using market interest rates for similar instruments.
\n\n(b) Short-term borrowings and long-term debt: The fair values of short term borrowings are estimated to be the carrying amount. The fair values of non-variable rate debt are estimated using quoted prices and estimated rates that would be available for debt with similar terms. The fair value of variable rate debt is estimated to be the carrying amount.
| \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | December 31, 2014 | \n\n | December 31, 2013 | ||||
| \n | \n | Carrying | \n\n | Fair | \n\n | Carrying | \n\n | Fair |
| \n | \n | Amount | \n\n | Value | \n\n | Amount | \n\n | Value |
| Other Assets: | \n\n | \n | \n | \n | \n | \n | \n | |
| Notes and loans receivable (a) | \n$ | \n213,174 | \n$ | \n217,171 | \n$ | \n95,042 | \n$ | \n95,606 |
| Financial Liabilities: | \n\n | \n | \n | \n | \n | \n | \n | |
| Short-term borrowings (b) | \n\n | 12,000 | \n\n | 12,000 | \n\n | 12,000 | \n\n | 12,000 |
| Long-term debt (b) | \n\n | 8,527,929 | \n\n | 8,806,700 | \n\n | 8,180,865 | \n\n | 8,230,191 |
\n\n
(a) Notes and loans receivable: The fair values are primarily measured using Level 2 and 3 inputs principally based on discounted future cash flows using market interest rates for similar instruments.
\n\n(b) Short-term borrowings and long-term debt: The fair values of short term borrowings are estimated to be the carrying amount. The fair values of non-variable rate debt are estimated using quoted prices and estimated rates that would be available for debt with similar terms. The fair value of variable rate debt is estimated to be the carrying amount.
Note 24. Other Results of Operations Information
\n\nOther income for each of the three years in the period ended December 31, 2014 consists of the following (in thousands):
\n\n| \n | \n | \n | \n | \n | \n | |
| \n | \n | 2014 | \n\n | 2013 | \n\n | 2012 |
| Manufacturing revenues | \n$ | \n379,274 | \n$ | \n310,624 | \n$ | \n252,752 |
| Dividend income | \n\n | 7,379 | \n\n | 5,553 | \n\n | 5,954 |
| Income from associated companies classified as other revenues | \n\n | 90,242 | \n\n | 92,180 | \n\n | – |
| Revenues of oil and gas exploration and production businesses | \n\n | 19,373 | \n\n | – | \n\n | – |
| Gain on sale of equity interest | \n\n | 22,714 | \n\n | – | \n\n | – |
| Income from FMG Note including gain recognized on redemption | \n\n | – | \n\n | – | \n\n | 642,993 |
| Rental income | \n\n | 5,877 | \n\n | 13,158 | \n\n | 11,725 |
| Winery revenues | \n\n | – | \n\n | 8,301 | \n\n | 47,801 |
| Other | \n\n | 45,606 | \n\n | 55,676 | \n\n | 21,676 |
| \n | $ | \n570,465 | \n$ | \n485,492 | \n$ | \n982,901 |
\n\n
Taxes, other than income or payroll, amounted to $17.0 million, $17.0 million and $10.7 million for the years ended December 31, 2014, 2013 and 2012, respectively.
\n\nAdvertising costs amounted to $14.5 million, $14.6 million and $12.4 million for the years ended December 31, 2014, 2013 and 2012, respectively.
\n\n
Payables, expense accruals and other liabilities
\n\nAt December 31, 2014 and 2013, payables, expense accruals and other liabilities include payables to brokers, dealers and clearing organizations of $2,280.1 million and $1,379.2 million, respectively, and payables to customers of securities operations of $6,242.0 million and $5,208.8 million, respectively.
Receivables and Provision for Doubtful Accounts
\n\nAt December 31, 2014 and 2013, receivables include receivables from brokers, dealers and clearing organizations of $2,187.5 million and $2,181.0 million, respectively, and receivables from customers of securities operations of $1,250.5 million and $1,046.9 million, respectively.
\n\nDuring the fourth quarter of 2014, Jefferies recognized a bad debt provision, which primarily relates to a receivable of $52.3 million from a client to which Jefferies provided futures clearing and execution services, which declared bankruptcy.
Note 27. Net Capital Requirements
\n\nAs broker-dealers registered with the SEC and member firms of the Financial Industry Regulatory Authority (\"FINRA\"), Jefferies LLC and Jefferies Execution Services, Inc. (\"Jefferies Execution\"), are subject to the SEC Net Capital Rule (\"Rule 15c3-1\"), which requires the maintenance of minimum net capital. Jefferies LLC and Jefferies Execution have elected to calculate minimum capital requirements under the alternative method as permitted by Rule 15c3-1.
\n\nOn September 1, 2014, Jefferies Bache, LLC (an FCM) merged with and into Jefferies LLC, with Jefferies LLC as the surviving entity, registered as an FCM and is subject to Rule 1.17 of the CFTC, which sets forth minimum financial requirements. The minimum net capital requirement in determining excess net capital for a dually-registered U.S. broker-dealer and FCM is equal to the greater of the requirement under Rule 15c3-1 or CFTC Rule 1.17.
\n\nJefferies LLC and Jefferies Execution's net capital and excess net capital are as follows (in thousands):
\n\n| \n | \n | \n | \n | |
| \n | \n | \n | \n | Excess |
| \n | \n | Net Capital | \n\n | Net Capital |
| Jefferies LLC | \n$ | \n1,025,113 | \n$ | \n913,465 |
| Jefferies Execution | \n\n | 6,150 | \n\n | 5,900 |
\n\n
FINRA is the designated self-regulatory organization (\"DSRO\") for our U.S. broker-dealers and the Chicago Mercantile Exchange is the DSRO for Jefferies LLC as an FCM.
\n\nCertain other U.S. and non-U.S. subsidiaries of Jefferies are subject to capital adequacy requirements as prescribed by the regulatory authorities in their respective jurisdictions, including Jefferies International Limited and Jefferies Bache Limited which are authorized and regulated by the Financial Conduct Authority in the United Kingdom.
\n\nThe regulatory capital requirements referred to above may restrict our ability to withdraw capital from our regulated subsidiaries.
\n\n
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | OTC Derivative Assets (1) (2) (3) | |||||||||||
| \n | \n | \n | \n | \n | \n | \n | \n | Cross- | \n\n | \n | \n | |
| \n | \n | \n | \n | \n | \n | Greater Than | \n\n | Maturity | \n\n | \n | \n | |
| \n | \n | 0-12 Months | \n\n | 1-5 Years | \n\n | 5 Years | \n\n | Netting (4) | \n\n | \n | Total | \n|
| Commodity swaps, options and forwards | \n$ | \n62,275 | \n$ | \n6,604 | \n$ | \n23,387 | \n$ | \n(6,249 | \n) | \n$ | \n86,017 | \n|
| Credit default swaps | \n\n | – | \n\n | 2,936 | \n\n | – | \n\n | – | \n\n | \n | 2,936 | \n|
| Equity swaps and options | \n\n | 2,291 | \n\n | – | \n\n | 20,128 | \n\n | – | \n\n | \n | 22,419 | \n|
| Total return swaps | \n\n | 12,668 | \n\n | 1 | \n\n | – | \n\n | (44 | \n) | \n\n | 12,625 | \n|
| Foreign currency forwards, swaps and options | \n\n | 277,134 | \n\n | 34,344 | \n\n | 81 | \n\n | (28,294 | \n) | \n\n | 283,265 | \n|
| Interest rate swaps, options and forwards | \n\n | 74,804 | \n\n | 111,810 | \n\n | 158,530 | \n\n | (61,665 | \n) | \n\n | 283,479 | \n|
| Total | \n$ | \n429,172 | \n$ | \n155,695 | \n$ | \n202,126 | \n$ | \n(96,252 | \n) | \n\n | 690,741 | \n|
| Cross product counterparty netting | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | (19,237 | \n) |
| Total OTC derivative assets included in | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Trading assets | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | $ | \n671,504 | \n
\n\n
(1) At December 31, 2014, we held exchange traded derivative assets and other credit agreements with a fair value of $44.5 million, which are not included in this table.
\n\n(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 December 31, 2014 cash collateral received was $309.7 million.
\n\n(3) Derivative fair values include counterparty netting within product category.
\n\n(4) Amounts represent the netting of receivable balances with payable balances for the same counterparty within product category across maturity categories.
\n\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | OTC Derivative Liabilities (1) (2) (3) | |||||||||||
| \n | \n | \n | \n | \n | \n | \n | \n | Cross- | \n\n | \n | \n | |
| \n | \n | \n | \n | \n | \n | Greater Than | \n\n | Maturity | \n\n | \n | \n | |
| \n | \n | 0-12 Months | \n\n | 1-5 Years | \n\n | 5 Years | \n\n | Netting (4) | \n\n | \n | Total | \n|
| Commodity swaps, options and forwards | \n$ | \n120,863 | \n$ | \n3,105 | \n$ | \n5,722 | \n$ | \n(6,249 | \n) | \n$ | \n123,441 | \n|
| Credit default swaps | \n\n | – | \n\n | 1,220 | \n\n | 6,709 | \n\n | – | \n\n | \n | 7,929 | \n|
| Equity swaps and options | \n\n | 5,438 | \n\n | 38,076 | \n\n | 10,414 | \n\n | – | \n\n | \n | 53,928 | \n|
| Total return swaps | \n\n | 10,179 | \n\n | 277 | \n\n | – | \n\n | (44 | \n) | \n\n | 10,412 | \n|
| Foreign currency forwards, swaps and options | \n\n | 275,902 | \n\n | 40,126 | \n\n | – | \n\n | (28,294 | \n) | \n\n | 287,734 | \n|
| Interest rate swaps, options and forwards | \n\n | 58,328 | \n\n | 77,487 | \n\n | 210,161 | \n\n | (61,665 | \n) | \n\n | 284,311 | \n|
| Total | \n$ | \n470,710 | \n$ | \n160,291 | \n$ | \n233,006 | \n$ | \n(96,252 | \n) | \n\n | 767,755 | \n|
| Cross product counterparty netting | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | (19,237 | \n) |
| Total OTC derivative liabilities included in | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Trading liabilities | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | $ | \n748,518 | \n
\n\n
(1) At December 31, 2014, we held exchange traded derivative liabilities and other credit agreements with a fair value of $21.9 million, which are not included in this table.
\n\n(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 December 31, 2014, cash collateral pledged was $406.9 million.
\n\n(3) Derivative fair values include counterparty netting within product category.
\n\n(4) Amounts represent the netting of receivable balances with payable balances for the same counterparty within product category across maturity categories.
| \n | \n | |
| 7% Senior Notes | \n$ | \n4,836 |
| 7.125% Senior Notes | \n\n | 423,140 |
| 8.65% Junior Subordinated Deferrable Interest Debentures | \n\n | 88,204 |
| Total | \n$ | \n516,180 |
| \n | \n | \n | \n | \n | |
| \n | \n | December 31, | \n\n | \n | December 31, |
| \n | \n | 2014 | \n\n | \n | 2013 |
| Loans and other receivables (1) | \n$ | \n403,119 | \n\n | $ | \n264,896 |
| Loans and other receivables greater than 90 days past due (1) | \n$ | \n5,594 | \n\n | $ | \n– |
| Loans and other receivables on nonaccrual status (1) (2) | \n$ | \n(22,360 | \n) | \n$ | \n– |
\n\n
| (1) | \nInterest income is recognized separately from other changes in fair value and is included within Interest income in the Consolidated Statements of Operations. |
| (2) | \nAmount includes all loans and other receivables greater than 90 or more days past due. |
| \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | 2014 | \n\n | \n | 2013 | \n\n | \n | 2012 | \n|
| Berkadia | \n$ | \n101,187 | \n\n | $ | \n84,678 | \n\n | $ | \n38,026 | \n|
| Garcadia companies | \n\n | 49,416 | \n\n | \n | 39,399 | \n\n | \n | 31,738 | \n|
| Linkem | \n\n | (14,633 | \n) | \n\n | (22,719 | \n) | \n\n | (18,890 | \n) |
| HomeFed | \n\n | 3,150 | \n\n | \n | 3,539 | \n\n | \n | 1,891 | \n|
| JHYH | \n\n | – | \n\n | \n | 7,178 | \n\n | \n | 33,938 | \n|
| Other | \n\n | (593 | \n) | \n\n | 6,966 | \n\n | \n | 1,946 | \n|
| Total | \n$ | \n138,527 | \n\n | $ | \n119,041 | \n\n | $ | \n88,649 | \n
| \n | \n | \n | \n | \n | \n | |
| \n | \n | 2014 | \n\n | \n | 2013 | \n|
| Jefferies Finance | \n$ | \n72,701 | \n\n | $ | \n57,795 | \n|
| Jefferies LoanCore | \n\n | 18,793 | \n\n | \n | 35,300 | \n|
| Other | \n\n | (1,252 | \n) | \n\n | (915 | \n) |
| Total | \n$ | \n90,242 | \n\n | $ | \n92,180 | \n
| \n | \n | \n | \n | |
| \n | \n | 2014 | \n\n | 2013 |
| Parent Company Debt: | \n\n | \n | \n | |
| Senior Notes: | \n\n | \n | \n | |
| 8.125% Senior Notes due September 15, 2015, $458,641 principal | \n$ | \n457,723 | \n$ | \n456,515 |
| 5.50% Senior Notes due October 18, 2023, $750,000 principal | \n\n | 740,748 | \n\n | 739,960 |
| 6.625% Senior Notes due October 23, 2043, $250,000 principal | \n\n | 246,991 | \n\n | 246,958 |
| Subordinated Notes: | \n\n | \n | \n | |
| 3.75% Convertible Senior Subordinated Notes due April 15, 2014, | \n\n | \n | \n | |
| $97,581 principal | \n\n | – | \n\n | 97,581 |
| Total long-term debt – Parent Company | \n\n | 1,445,462 | \n\n | 1,541,014 |
| Subsidiary Debt (non-recourse to Parent Company): | \n\n | \n | \n | |
| Jefferies: | \n\n | \n | \n | |
| 5.875% Senior Notes, due June 8, 2014, $250,000 principal | \n\n | – | \n\n | 255,676 |
| 3.875% Senior Notes, due November 9, 2015, $500,000 principal | \n\n | 507,944 | \n\n | 516,204 |
| 5.5% Senior Notes, due March 15, 2016, $350,000 principal | \n\n | 363,229 | \n\n | 373,178 |
| 5.125% Senior Notes, due April 13, 2018, $800,000 principal | \n\n | 842,359 | \n\n | 854,011 |
| 8.5% Senior Notes, due July 15, 2019, $700,000 principal | \n\n | 832,797 | \n\n | 858,425 |
| 2.375% Euro Senior Notes, due May 20, 2020, $622,175 principal | \n\n | 620,725 | \n\n | – |
| 6.875% Senior Notes, due April 15, 2021, $750,000 principal | \n\n | 853,091 | \n\n | 866,801 |
| 2.25% Euro Medium Term Notes, due July 13, 2022, $4,977 principal | \n\n | 4,379 | \n\n | 4,792 |
| 5.125% Senior Notes, due January 20, 2023, $600,000 principal | \n\n | 623,311 | \n\n | 625,626 |
| 6.45% Senior Debentures, due June 8, 2027, $350,000 principal | \n\n | 381,515 | \n\n | 383,224 |
| 3.875% Convertible Senior Debentures, due November 1, 2029, | \n\n | \n | \n | |
| $345,000 principal | \n\n | 348,568 | \n\n | 349,707 |
| 6.25% Senior Debentures, due January 15, 2036, $500,000 principal | \n\n | 513,046 | \n\n | 513,343 |
| 6.50% Senior Notes, due January 20, 2043, $400,000 principal | \n\n | 421,960 | \n\n | 422,245 |
| Secured credit facility, due June 26, 2017 | \n\n | 170,000 | \n\n | 200,000 |
| National Beef Term Loan | \n\n | 345,000 | \n\n | 375,000 |
| National Beef Revolving Credit Facility | \n\n | 135,144 | \n\n | – |
| Other | \n\n | 119,399 | \n\n | 41,619 |
| Total long-term debt – subsidiaries | \n\n | 7,082,467 | \n\n | 6,639,851 |
| Long-term debt | \n$ | \n8,527,929 | \n$ | \n8,180,865 |
| \n | \n | \n | \n | |
| \n | \n | 2014 | \n\n | 2013 |
| Jefferies Finance, LLC | \n$ | \n508,891 | \n$ | \n470,537 |
| Jefferies LoanCore LLC | \n\n | 258,947 | \n\n | 224,037 |
| Berkadia | \n\n | 208,511 | \n\n | 182,573 |
| Garcadia companies | \n\n | 167,939 | \n\n | 120,017 |
| HomeFed | \n\n | 271,782 | \n\n | 52,923 |
| Linkem S.p.A. | \n\n | 159,054 | \n\n | 173,577 |
| Golden Queen Mining Company, LLC (1) | \n\n | 103,598 | \n\n | – |
| Other | \n\n | 33,846 | \n\n | 34,677 |
| Total | \n$ | \n1,712,568 | \n$ | \n1,258,341 |
\n\n
(1) As discussed below, at December 31, 2014, the balance reflects $34.1 million from a noncontrolling interest.
| \n | \n | \n | \n | \n | \n | |
| \n | \n | 2014 | \n\n | 2013 | \n\n | 2012 |
| Manufacturing revenues | \n$ | \n379,274 | \n$ | \n310,624 | \n$ | \n252,752 |
| Dividend income | \n\n | 7,379 | \n\n | 5,553 | \n\n | 5,954 |
| Income from associated companies classified as other revenues | \n\n | 90,242 | \n\n | 92,180 | \n\n | – |
| Revenues of oil and gas exploration and production businesses | \n\n | 19,373 | \n\n | – | \n\n | – |
| Gain on sale of equity interest | \n\n | 22,714 | \n\n | – | \n\n | – |
| Income from FMG Note including gain recognized on redemption | \n\n | – | \n\n | – | \n\n | 642,993 |
| Rental income | \n\n | 5,877 | \n\n | 13,158 | \n\n | 11,725 |
| Winery revenues | \n\n | – | \n\n | 8,301 | \n\n | 47,801 |
| Other | \n\n | 45,606 | \n\n | 55,676 | \n\n | 21,676 |
| \n | $ | \n570,465 | \n$ | \n485,492 | \n$ | \n982,901 |
| \n | \n | \n | \n | \n | \n | |
| \n | \n | 2014 | \n\n | \n | 2013 | \n|
| As of January 1, | \n$ | \n241,075 | \n\n | $ | \n241,649 | \n|
| Loss allocated to redeemable noncontrolling | \n\n | \n | \n | \n | \n | |
| interests | \n\n | (8,576 | \n) | \n\n | (9,282 | \n) |
| Net distributions to redeemable noncontrolling interests | \n\n | (2,765 | \n) | \n\n | (8,073 | \n) |
| Increase (decrease) in fair value of redeemable noncontrolling | \n\n | \n | \n | \n | \n | |
| interests charged to additional paid-in capital | \n\n | (45,401 | \n) | \n\n | 16,781 | \n|
| Balance, December 31, | \n$ | \n184,333 | \n\n | $ | \n241,075 | \n
| \n | \n | \n | \n | \n | \n | |
| \n | \n | 2014 | \n\n | 2013 | \n\n | |
| Assets | \n$ | \n12,683,212 | \n$ | \n8,852,807 | \n\n | |
| Liabilities | \n\n | 9,350,034 | \n\n | 6,292,252 | \n\n | |
| Noncontrolling interest | \n\n | 12,718 | \n\n | 11,491 | \n\n | |
| \n | \n | \n | \n | \n | \n | |
| \n | \n | 2014 | \n\n | 2013 | \n\n | 2012 |
| Revenues | \n$ | \n3,201,823 | \n$ | \n2,710,205 | \n$ | \n1,995,858 |
| Income from continuing operations before | \n\n | \n | \n | \n | \n | |
| extraordinary items | \n$ | \n431,654 | \n$ | \n428,509 | \n$ | \n255,038 |
| Net income | \n$ | \n431,654 | \n$ | \n434,969 | \n$ | \n255,038 |
| The Company's income related to | \n\n | \n | \n | \n | \n | |
| associated companies | \n$ | \n228,769 | \n$ | \n211,221 | \n$ | \n88,649 |
| \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | December 31, 2014 | \n\n | December 31, 2013 | ||||
| \n | \n | Total | \n\n | Retained | \n\n | Total | \n\n | Retained |
| Securitization Type | \n\n | Assets | \n\n | Interests | \n\n | Assets | \n\n | Interests |
| U.S. government agency residential mortgage-backed securities | \n$ | \n19,196.9 | \n$ | \n226.9 | \n$ | \n11,518.4 | \n$ | \n281.3 |
| U.S. government agency commercial mortgage-backed securities | \n\n | 5,848.5 | \n\n | 204.7 | \n\n | 5,385.6 | \n\n | 96.8 |
| Collateralized loan obligations | \n\n | 4,511.8 | \n\n | 108.4 | \n\n | 728.5 | \n\n | 9.0 |
Note 8. Securitization Activities
\n\nJefferies engages in securitization activities related to corporate loans, commercial mortgage loans and mortgage-backed and other asset-backed securities. In securitization transactions, Jefferies transfers assets to special purpose entities (\"SPEs\") and acts as the placement or structuring agent for the beneficial interests sold to investors by the SPE. A significant portion of the securitization transactions are securitization of assets issued or guaranteed by U.S. government agencies. These SPEs generally meet the criteria of variable interest entities; however, the SPEs are generally not consolidated as Jefferies is not considered the primary beneficiary for these SPEs. Beginning in the third quarter of 2014, another of our subsidiaries utilized an SPE to securitize automobile loans receivable. This SPE is a variable interest entity and our subsidiary is the primary beneficiary; the related assets and the secured borrowings are recognized in the Consolidated Statement of Financial Condition. These secured borrowings do not have recourse to our subsidiary's general credit. See Note 10 for further information on variable interest entities.
\n\nJefferies accounts for securitization transactions as sales provided it has relinquished control over the transferred assets. Transferred assets are carried at fair value with unrealized gains and losses reflected in 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 generally receives cash proceeds in connection with the transfer of assets to an SPE. Jefferies may, however, have continuing involvement with the transferred assets, which is limited to retaining one or more tranches of the securitization (primarily senior and subordinated debt securities in the form of mortgage- and other asset-backed securities or collateralized loan obligations), which are included within Trading assets and are generally initially categorized as Level 2 within the fair value hierarchy. We apply fair value accounting to the securities. If Jefferies has not relinquished control over the transferred assets, the assets continue to be recognized in Trading assets and a corresponding liability is recognized in Other secured financings. The related liabilities do not have recourse to Jefferies general credit.
\n\nThe following table presents activity related to our securitizations that were accounted for as sales in which we had continuing involvement during the year ended December 31, 2014 and the period from the Jefferies acquisition through December 31, 2013; there was no activity during 2012 (in millions):
\n\n| \n | \n | \n | \n | |
| \n | \n | \n | \n | For the period from the |
| \n | \n | \n | \n | Jefferies acquisition |
| \n | \n | For the year ended | \n\n | through |
| \n | \n | December 31, 2014 | \n\n | December 31, 2013 |
| Transferred assets | \n$ | \n6,112.6 | \n$ | \n4,592.5 |
| Proceeds on new securitizations | \n\n | 6,221.1 | \n\n | 4,609.0 |
| Cash flows received on retained interests | \n\n | 46.3 | \n\n | 35.6 |
\n\n
Jefferies has no explicit or implicit arrangements to provide additional financial support to these SPEs, has no liabilities related to these SPEs and has no outstanding derivative contracts executed in connection with these securitizations at December 31, 2014 and 2013.
\n\nThe following table summarizes our retained interests in SPEs where Jefferies transferred assets and has continuing involvement and received sale accounting treatment (in millions):
\n\n| \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | December 31, 2014 | \n\n | December 31, 2013 | ||||
| \n | \n | Total | \n\n | Retained | \n\n | Total | \n\n | Retained |
| Securitization Type | \n\n | Assets | \n\n | Interests | \n\n | Assets | \n\n | Interests |
| U.S. government agency residential mortgage-backed securities | \n$ | \n19,196.9 | \n$ | \n226.9 | \n$ | \n11,518.4 | \n$ | \n281.3 |
| U.S. government agency commercial mortgage-backed securities | \n\n | 5,848.5 | \n\n | 204.7 | \n\n | 5,385.6 | \n\n | 96.8 |
| Collateralized loan obligations | \n\n | 4,511.8 | \n\n | 108.4 | \n\n | 728.5 | \n\n | 9.0 |
\n\n
Total assets represent the unpaid principal amount of assets in the SPEs in which Jefferies has continuing involvement and are presented solely to provide information regarding the size of the transaction and the size of the underlying assets supporting its retained interests, and are not considered representative of the risk of potential loss. Assets retained in connection with a securitization transaction represent the fair value of the securities of one or more tranches issued by an SPE, including senior and subordinated tranches. Jefferies risk of loss is limited to this fair value amount which is included within total Trading assets in our Consolidated Statements of Financial Condition.
\n\nAlthough not obligated, in connection with secondary market-making activities Jefferies may make a market in the securities issued by these SPEs. In these market-making transactions, Jefferies buys these securities from and sells these securities to investors. Securities purchased through these market-making activities are not considered to be continuing involvement in these SPEs, although the securities are included in Trading assets. To the extent Jefferies purchased securities through these market-making activities and Jefferies is not deemed to be the primary beneficiary of the variable interest entity, these securities are included in agency and non-agency mortgage- and asset-backed securitizations in the nonconsolidated variable interest entities section presented in Note 10.
\n\n
| \n | \n | \n | \n | \n | \n | |
| \n | \n | \n | \n | Discount Rates | \n\n | |
| Terminal Growth Rates | \n\n | 12.25% | \n\n | 12.50% | \n\n | 12.75% |
| 1.75% | \n$ | \n186.4 | \n$ | \n183.2 | \n$ | \n180.1 |
| 2.00% | \n$ | \n187.6 | \n$ | \n184.3 | \n$ | \n181.2 |
| 2.25% | \n$ | \n188.9 | \n$ | \n185.6 | \n$ | \n182.3 |
| \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | 2014 | \n\n | \n | 2013 | \n\n | \n | 2012 | \n|
| Net realized gains on securities | \n$ | \n30,686 | \n\n | $ | \n245,262 | \n\n | $ | \n592,978 | \n|
| Write-down of investments (a) | \n\n | (111 | \n) | \n\n | (1,621 | \n) | \n\n | (2,461 | \n) |
| Other | \n\n | (181 | \n) | \n\n | 316 | \n\n | \n | 64 | \n|
| \n | $ | \n30,394 | \n\n | $ | \n243,957 | \n\n | $ | \n590,581 | \n
\n\n
(a) Consists of provisions to write down investments resulting from declines in fair values believed to be other than temporary.
| \n | \n | \n | \n | |
| \n | \n | \n | \n | For the period from the |
| \n | \n | \n | \n | Jefferies acquisition |
| \n | \n | For the year ended | \n\n | through |
| \n | \n | December 31, 2014 | \n\n | December 31, 2013 |
| Transferred assets | \n$ | \n6,112.6 | \n$ | \n4,592.5 |
| Proceeds on new securitizations | \n\n | 6,221.1 | \n\n | 4,609.0 |
| Cash flows received on retained interests | \n\n | 46.3 | \n\n | 35.6 |
Jefferies Valuation Process for Financial Instruments
\n\nThe Jefferies Independent Price Verification (\"IPV\") Group, which is part of the Jefferies finance department, in partnership with Jefferies Risk Management, is responsible for establishing Jefferies valuation policies and procedures. The IPV Group and Risk Management, which are independent of business functions, play an important role and serve as a control function in determining that Jefferies financial instruments are appropriately valued and that fair value measurements are reliable. This is particularly important where prices or valuations that require inputs are less observable. In the event that observable inputs are not available, the control processes are designed to assure that the valuation approach utilized is appropriate and consistently applied and that the assumptions are reasonable. The IPV Group reports to the Jefferies Global Controller and is subject to the oversight of the IPV Committee, which includes senior members of Jefferies finance department and other personnel. Jefferies independent price verification policies and procedures are reviewed, at a minimum, annually and changes to the policies require the approval of the IPV Committee.
\n\nPrice Testing Process. Jefferies business units are responsible for determining the fair value of Jefferies financial instruments using approved valuation models and methodologies. In order to ensure that the business unit valuations represent a fair value exit price, the IPV Group tests and validates the fair value of the financial instruments inventory. In the testing process, the IPV Group obtains prices and valuation inputs from sources independent of Jefferies, consistently adheres to established procedures set forth in the valuation policies for sourcing prices and valuation inputs and utilizing valuation methodologies. Sources used to validate fair value prices and inputs include, but are not limited to, exchange data, recently executed transactions, pricing data obtained from third party vendors, pricing and valuation services, broker quotes and observed comparable transactions.
\n\nTo the extent discrepancies between the business unit valuations and the pricing or valuations resulting from the price testing process are identified, such discrepancies are investigated by the IPV Group and fair values are adjusted, as appropriate. The IPV Group maintains documentation of its testing, results, rationale and recommendations and prepares a monthly summary of its valuation results. This process also forms the basis for the classification of fair values within the fair value hierarchy (i.e., Level 1, Level 2 or Level 3). The IPV Group utilizes the additional expertise of Risk Management personnel in valuing more complex financial instruments and financial instruments with less or limited pricing observability. The results of the valuation testing are reported to the IPV Committee on a monthly basis, which discusses the results and is charged with the final conclusions as to the financial instrument fair values in the consolidated financial statements. This process specifically assists management in asserting as to the fair presentation of our financial condition and results of operations as included within our Quarterly Reports on Form 10-Q and Annual Report on Form 10-K. At each quarter end, the overall valuation results, as concluded upon by the IPV Committee, are presented to the Jefferies Audit Committee.
\n\nJudgment exercised in determining Level 3 fair value measurements is supplemented by daily analysis of profit and loss performed by the Product Control functions. Gains and losses, which result from changes in fair value, are evaluated and corroborated daily based on an understanding of each of the trading desks' overall risk positions and developments in a particular market on the given day. Valuation techniques generally rely on recent transactions of suitably comparable financial instruments and use the observable inputs from those comparable transactions as a validation basis for Level 3 inputs. Level 3 fair value measurements are further validated through subsequent sales testing and market comparable sales, if such information is available. Level 3 fair value measurements require documentation of the valuation rationale applied, which is reviewed for consistency in application from period to period; and the documentation includes benchmarking the assumptions underlying the valuation rationale against relevant analytic data.
\n\nThird Party Pricing Information. Pricing information obtained from external data providers (including independent pricing services and brokers) may incorporate a range of market quotes from dealers, recent market transactions and benchmarking model derived prices to quoted market prices and trade data for comparable securities. External pricing data is subject to evaluation for reasonableness by the IPV Group using a variety of means including comparisons of prices to those of similar product types, quality and maturities, consideration of the narrowness or wideness of the range of prices obtained, knowledge of recent market transactions and an assessment of the similarity in prices to comparable dealer offerings in a recent time period. Jefferies has a process whereby it challenges the appropriateness of pricing information obtained from external data providers (including independent pricing services and brokers) in order to validate the data for consistency with the definition of a fair value exit price. Jefferies process includes understanding and evaluating the external data providers' valuation methodologies. For corporate, U.S. government and agency, and municipal debt securities, and loans, to the extent independent pricing services or broker quotes are utilized in our valuation process, the vendor service providers are collecting and aggregating observable market information as to recent trade activity and active bid-ask submissions. The composite pricing information received from the independent pricing service is not based on unobservable inputs or proprietary models. For mortgage- and other asset-backed securities and collateralized debt obligations, the independent pricing service uses a matrix evaluation approach incorporating both observable yield curves and market yields on comparable securities as well as implied inputs from observed trades for comparable securities in order to determine prepayment speeds, cumulative default rates and loss severity. Further, Jefferies considers pricing data from multiple service providers as available as well as compares pricing data to prices observed for recent transactions, if any, in order to corroborate valuation inputs.
\n\nModel Review Process. Where a pricing model is to be used to determine fair value, the pricing model is reviewed for theoretical soundness and appropriateness by Risk Management, independent from the trading desks, and then approved by Risk Management to be used in the valuation process. Review and approval of a model for use may include benchmarking the model against relevant third party valuations, testing sample trades in the model, backtesting the results of the model against actual trades and stress-testing the sensitivity of the pricing model using varying inputs and assumptions. In addition, recently executed comparable transactions and other observable market data are considered for purposes of validating assumptions underlying the model. Models are independently reviewed and validated by Risk Management annually or more frequently if market conditions or use of the valuation model changes.
Note 10. Variable Interest Entities
\n\nVariable 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 the power to direct the activities of a variable interest entity that most significantly impact the entity's economic performance and 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.
\n\nOur variable interests in VIEs include debt and equity interests, an equity interest in an associated company, commitments, guarantees and certain fees. Our involvement with VIEs arises primarily from the following activities of Jefferies, but also includes other activities discussed below:
\n\nWe determine whether we are the primary beneficiary of a VIE upon our initial involvement with the VIE and we reassess whether we are the primary beneficiary of a VIE on an ongoing basis. Our determination of whether we are the primary beneficiary of a VIE is based upon the facts and circumstances for each VIE and requires significant judgment. Our considerations in determining the VIE's most significant activities and whether we have power to direct those activities include, but are not limited to, the VIE's purpose and design and the risks passed through to investors, the voting interests of the VIE, management, service and/or other agreements of the VIE, involvement in the VIE's initial design and the existence of explicit or implicit financial guarantees. In situations where we have determined that the power over the VIE's most significant activities is shared, we assess whether we are the party with the power over the majority of the significant activities. If we are the party with the power over the majority of the significant activities, we meet the \"power\" criteria of the primary beneficiary. If we do not have the power over a majority of the significant activities or we determine that decisions require consent of each sharing party, we do not meet the \"power\" criteria of the primary beneficiary.
\n\nWe assess our variable interests in a VIE both individually and in aggregate to determine whether we have an obligation to absorb losses of or a right to receive benefits from the VIE that could potentially be significant to the VIE. The determination of whether our variable interest is significant to the VIE requires significant judgment. In determining the significance of our variable interest, we consider the terms, characteristics and size of the variable interests, the design and characteristics of the VIE, our involvement in the VIE and our market-making activities related to the variable interests.
\n\nConsolidated VIEs
\n\nThe following tables present information about the assets and liabilities of our consolidated VIEs, which are presented within our Consolidated Statements of Financial Condition in the respective asset and liability categories, as of December 31, 2014 and 2013.
\n\n| \n | \n | \n | \n | |
| \n | \n | Securitization Vehicles | ||
| \n | \n | 2014 | \n\n | 2013 |
| \n | \n | (In millions) | ||
| Cash | \n$ | \n.5 | \n$ | \n– |
| Financial instruments owned | \n\n | 62.7 | \n\n | 97.5 |
| Securities purchased under agreement to resell (1) | \n\n | 575.2 | \n\n | 195.1 |
| Other | \n\n | 107.1 | \n\n | 2.3 |
| Total assets | \n$ | \n745.5 | \n$ | \n294.9 |
| Other secured financings (2) | \n$ | \n737.0 | \n$ | \n292.5 |
| Other | \n\n | 8.5 | \n\n | 2.1 |
| Total liabilities | \n$ | \n745.5 | \n$ | \n294.6 |
\n\n
(1) Securities purchased under agreement to resell represent an amount due under a collateralized transaction on a related consolidated entity, which is eliminated in consolidation.
\n\n(2) Approximately $39.7 million and $66.5 million of the secured financing represents an amount held by Jefferies in inventory and eliminated in consolidation at December 31, 2014 and 2013, respectively.
Securitization vehicles. Jefferies is the primary beneficiary of a securitization vehicle to which it transferred term loans backed by consumer installment receivables and retained a portion of the securities issued by the securitization vehicle. In the creation of the securitization vehicle, Jefferies was involved in the decisions made during the establishment and design of the entity and holds variable interests consisting of the securities retained that could potentially be significant. The assets of the VIE consist of the term loans backed by consumer installment receivables, which are available for the benefit of the vehicle's beneficial interest holders. The creditors of the VIE do not have recourse to Jefferies general credit and the assets of the VIE are not available to satisfy any other debt.
\n\nJefferies is the primary beneficiary of mortgage-backed financing vehicles to which Jefferies sells agency and non-agency residential and commercial mortgage-backed securities pursuant to the terms of a master repurchase agreement. Jefferies manages the assets within these vehicles. Jefferies variable interests in these vehicles consist of its collateral margin maintenance obligations under the master repurchase agreement. 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 general credit and each such VIE's assets are not available to satisfy any other debt.
\n\nAt December 31, 2013, Jefferies was the primary beneficiary of a securitization vehicle to which it transferred a corporate loan and retained a portion of the securities issued by the securitization vehicle. During the second quarter of 2014, the loan was repaid, the securities issued by the securitization vehicle were redeemed and the securitization vehicle was terminated. As a result, the securitization vehicle is no longer consolidated by us at December 31, 2014 and no gain or loss was recognized upon deconsolidation.
\n\nAt December 31, 2014, another of our subsidiaries is the primary beneficiary of an SPE it utilized to securitize automobile loans receivable. Our subsidiary acts as the servicer for which it receives a fee, and owns the equity interest in this SPE. The notes issued by the SPE are secured solely by the assets of the SPE and do not have recourse to our subsidiary's general credit and the assets of the VIE are not available to satisfy any other debt.
\n\nNonconsolidated VIEs
\n\nThe following tables present information about Jefferies variable interests in nonconsolidated VIEs.
\n\n| \n | \n | \n | \n | \n | \n | |
| \n | December 31, 2014 | |||||
| \n | \n | Variable Interests | \n\n | |||
| \n | \n | Financial Statement | \n\n | Maximum | \n\n | |
| \n | \n | Carrying Amount (3) | \nExposure to Loss | \n\n | VIE Assets | |
| \n | \n | Assets | \n\n | \n | \n | |
| \n | (In millions) | |||||
| Collateralized loan obligations | \n$ | \n134.0 | \n$ | \n926.9 | \n$ | \n7,737.1 |
| Consumer loan financing vehicles | \n\n | 170.6 | \n\n | 797.8 | \n\n | 485.2 |
| Asset management vehicles (1) | \n\n | 11.3 | \n\n | 11.3 | \n\n | 432.3 |
| Private equity vehicles (2) | \n\n | 44.3 | \n\n | 59.2 | \n\n | 92.8 |
| Total | \n$ | \n360.2 | \n$ | \n1,795.2 | \n$ | \n8,747.4 |
\n\n
| \n | \n | \n | \n | \n | \n | |
| \n | December 31, 2013 | |||||
| \n | \n | Variable Interests | \n\n | \n | ||
| \n | \n | Financial Statement | \n\n | Maximum | \n\n | |
| \n | \n | Carrying Amount (3) | \n\n | Exposure to Loss | \n\n | VIE Assets |
| \n | \n | Assets | \n\n | \n | \n | |
| \n | (In millions) | |||||
| Collateralized loan obligations | \n$ | \n11.9 | \n$ | \n88.8 | \n$ | \n1,122.3 |
| Asset management vehicles (1) | \n\n | 5.1 | \n\n | 5.1 | \n\n | 454.2 |
| Private equity vehicles (2) | \n\n | 40.8 | \n\n | 68.8 | \n\n | 89.4 |
| Total | \n$ | \n57.8 | \n$ | \n162.7 | \n$ | \n1,665.9 |
\n\n
(1) Assets consist of equity interests, which are included within Investments in managed funds, and accrued management and performance fees, which are included in Receivables.
\n\n(2) Assets consist of equity interests, which are included in Investment in managed funds.
\n\n(3) There were no significant liabilities at December 31, 2014 or December 31, 2013.
Jefferies 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 commitments and guarantees. Jefferies maximum exposure to loss does not include the offsetting benefit of any financial instruments that may be utilized to hedge the risks associated with its variable interests and is not reduced by the amount of collateral held as part of a transaction with a VIE.
\n\nCollateralized Loan Obligations. Assets collateralizing the CLOs include bank loans, participation interests and sub-investment grade and senior secured U.S. loans. Jefferies underwrites securities issued in CLO transactions on behalf of unaffiliated sponsors and provides advisory services to the unaffiliated sponsors. Jefferies may also sell corporate loans to the CLOs. Jefferies variable interests in connection with collateralized loan obligations where it has been involved in providing underwriting and/or advisory services consist of the following:
\n\nIn addition, Jefferies owns variable interests in CLOs previously managed by Jefferies. These variable interests consist of debt securities and a right to a portion of the CLOs' management and incentive fees. Jefferies exposure to loss from these CLOs is limited to its investments in the debt securities held. Management and incentives fees are accrued as the amounts become realizable. These CLOs represent interests in assets consisting primarily of senior secured loans, unsecured loans and high yield bonds.
\n\nConsumer Loan Financing Vehicles. The underlying assets, which are collateralizing the vehicles, are primarily comprised of unsecured consumer installment loans. Jefferies provides financing and lending related services to certain client-sponsored VIEs in the form of revolving funding note agreements, revolving credit facilities and forward purchase agreements. In addition, Jefferies may provide structuring and advisory services and act as an underwriter or placement agent for securities issued by the vehicles. Jefferies does not control the activities of these entities.
\n\nAsset Management Vehicles. Jefferies manages asset management vehicles that provide investors with exposure to investment strategies consistent with the investment objectives of each vehicle. The vehicles consist of an \"umbrella structure\" company that invests primarily in convertible bonds and a fund that invests in absolute return strategies. Accounting changes to consolidation standards under GAAP have been deferred for entities that are considered to be investment companies; accordingly, consolidation continues to be determined under a risk and reward model. These asset management vehicles are subject to the deferral guidance and Jefferies is not the primary beneficiary under the risk and reward model. Jefferies variable interests in these asset management vehicles consist of equity interests, management fees and performance fees.
\n\nPrivate Equity Vehicles. On July 26, 2010, Jefferies committed to invest equity of up to $75.0 million in Jefferies SBI USA Fund L.P. (the \"SBI USA Fund\"). As of December 31, 2014 and 2013, Jefferies funded approximately $60.1 million and $47.0 million, respectively, of its commitment. The carrying amount of Jefferies equity investment was $43.1 million and $39.2 million at December 31, 2014 and 2013, respectively. Jefferies exposure to loss is limited to its equity commitment. The SBI USA Fund has assets consisting primarily of private equity and equity related investments.
\n\nJefferies has a variable interest in Jefferies Employees Partners IV, LLC (\"JEP IV\") consisting of an equity investment. The carrying amount of Jefferies equity investment was $1.2 million and $1.6 million at December 31, 2014 and 2013, respectively. Jefferies exposure to loss is limited to its equity investment. JEP IV has assets consisting primarily of private equity and equity related investments.
\n\nMortgage- and Asset-Backed Vehicles. In connection with Jefferies secondary trading and market-making activities, Jefferies buys and sells agency and nonagency mortgage- and 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, collateralized debt obligations and CLOs and other consumer loans, such as installment receivables, auto loans and student loans. These securities are accounted for at fair value and included in Trading assets in our Consolidated Statements of Financial Condition. Jefferies has no other involvement with the related SPEs and therefore does not consolidate these entities.
\n\nJefferies also engages in underwriting, placement and structuring activities for third-party-sponsored securitization trusts generally through agency (Fannie Mae, Freddie Mac and Ginnie Mae) or nonagency 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 does not consolidate agency sponsored securitizations as it does not have the power to direct the activities of the SPEs that most significantly impact their economic performance. Further, Jefferies is not the servicer of nonagency-sponsored securitizations and therefore does not have power to direct the most significant activities of the SPEs and accordingly, does not consolidate these entities. Jefferies may retain unsold senior and/or subordinated interests at the time of securitization in the form of securities issued by the SPEs.
\n\nJefferies transfers existing securities, typically mortgage-backed securities, into resecuritization vehicles. These transactions in which debt securities are transferred to a VIE in exchange for new beneficial interests occur in connection with both agency and nonagency sponsored VIEs. The consolidation analysis is largely dependent on Jefferies role and interest in the resecuritization trusts. Most resecuritizations in which Jefferies is involved are in connection with investors seeking securities with specific risk and return characteristics. As such, we have concluded that the decision-making power is shared between Jefferies and the investor(s), considering the joint efforts involved in structuring the trust and selecting the underlying assets as well as the level of security interests the investor(s) hold in the SPE; therefore, Jefferies does not consolidate the resecuritization VIEs.
\n\nAt December 31, 2014 and 2013, Jefferies held $3,186.9 million and $3,476.2 million of agency mortgage-backed securities, respectively, and $1,120.0 million and $985.0 million of nonagency mortgage- and other asset-backed securities, respectively, as a result of its secondary trading and market-making activities, underwriting, placement and structuring activities and resecuritization activities. Jefferies maximum exposure to loss on these securities is limited to the carrying value of its investments in these securities. Mortgage- and other asset-backed securitization vehicles discussed within this section are not included in the above table containing information about Jefferies variable interests in nonconsolidated VIEs.
\n\nWe also have a variable interest in a nonconsolidated VIE consisting of our equity interest in an associated company, Golden Queen Mining Company, LLC. See Note 11 for further discussion.
\n\n
| \n | \n | \n | \n | |
| \n | \n | 2013 | \n\n | 2012 |
| Net revenues | \n$ | \n11,083,248 | \n$ | \n12,252,511 |
| Net income attributable to Leucadia National Corporation | \n\n | \n | \n | |
| common shareholders | \n$ | \n267,160 | \n$ | \n900,044 |
| Basic income per common share attributable to Leucadia | \n\n | \n | \n | |
| National Corporation common shareholders | \n$ | \n.70 | \n$ | \n2.37 |
| Diluted income per common share attributable to Leucadia | \n\n | \n | \n | |
| National Corporation common shareholders | \n$ | \n.70 | \n$ | \n2.33 |
Cash Equivalents
\n\nCash equivalents include highly liquid investments, including money market funds, not held for resale with original maturities of three months or less.
Contingencies
\n\nIn the normal course of business, we have been named, from time to time, as a defendant in legal and regulatory proceedings. We are also involved, from time to time, in other exams, investigations and similar reviews (both formal and informal) by governmental and self-regulatory agencies regarding our businesses, certain of which may result in judgments, settlements, fines, penalties or other injunctions.
\n\nWe recognize a liability for a contingency when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. If the reasonable estimate of a probable loss is a range, we accrue the most likely amount of such loss, and if such amount is not determinable, then we accrue the minimum in the range as the loss accrual. The determination of the outcome and loss estimates requires significant judgment on the part of management, can be highly subjective and is subject to significant change with the passage of time as more information becomes available. Estimating the ultimate impact of litigation matters is inherently uncertain, in particular because the ultimate outcome will rest on events and decisions of others that may not be within our power to control. We do not believe that any of our current litigation will have a significant adverse effect on our consolidated financial position, results of operations or liquidity; however, if amounts paid at the resolution of litigation are in excess of recorded reserve amounts, the excess could be significant in relation to results of operations for that period. For further information, see Note 26.
Note 26. Commitments, Contingencies and Guarantees
\n\nCommitments
\n\nWe and our subsidiaries rent office space and office equipment under noncancellable operating leases with terms varying principally from one to thirty years. Rental expense (net of sublease rental income) was $79.6 million, $63.9 million and $18.9 million for the years ended December 31, 2014, 2013 and 2012, respectively. Future minimum annual rentals (exclusive of month-to-month leases, real estate taxes, maintenance and certain other charges) under these leases at December 31, 2014 are as follows (in thousands):
\n\n| \n | \n | \n | |
| 2015 | \n$ | \n67,549 | \n|
| 2016 | \n\n | 70,453 | \n|
| 2017 | \n\n | 67,300 | \n|
| 2018 | \n\n | 62,641 | \n|
| 2019 | \n\n | 59,434 | \n|
| Thereafter | \n\n | 453,842 | \n|
| \n | \n | 781,219 | \n|
| Less: sublease income | \n\n | (8,308 | \n) |
| \n | $ | \n772,911 | \n
\n\n
Effective December 30, 2004, National Beef finalized an agreement with the City of Dodge City, Kansas, whereby in consideration of certain improvements made to the city water and wastewater systems, National Beef committed to make a series of service charge payments totaling $19.3 million over a 20 year period, of which $7.4 million remains as of December 31, 2014. Payments under the commitment will be approximately $0.8 million in each of the years 2015 through 2017, with the remaining balance of $5.0 million to be paid in subsequent years.
\n\nNational Beef makes verbal commitments to cattle producers to purchase cattle approximately one week in advance of delivery of those cattle to its plants. The actual value paid for these cattle is determined after the cattle are delivered, weighed and inspected at National Beef's facilities. The total value of verbal commitments to purchase cattle as of December 31, 2014 was $121.6 million.
\n\nThe following table summarizes Jefferies commitments associated with certain business activities (in millions):
\n\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | Expected Maturity Date | \n\n | ||||||||||
| \n | \n | \n | \n | \n | \n | 2017 | \n\n | 2019 | \n\n | 2021 | \n\n | |
| \n | \n | \n | \n | \n | \n | and | \n\n | and | \n\n | and | \n\n | Maximum |
| \n | \n | 2015 | \n\n | 2016 | \n\n | 2018 | \n\n | 2020 | \n\n | Later | \n\n | Payout |
| Equity commitments (1) | \n$ | \n– | \n$ | \n9.3 | \n$ | \n.8 | \n$ | \n– | \n$ | \n216.3 | \n$ | \n226.4 |
| Loan commitments (1) | \n\n | 50.7 | \n\n | 440.2 | \n\n | 283.1 | \n\n | 20.7 | \n\n | .2 | \n\n | 794.9 |
| Mortgage-related and other purchase | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| commitments | \n\n | 1,058.5 | \n\n | 1,165.8 | \n\n | 117.6 | \n\n | – | \n\n | – | \n\n | 2,341.9 |
| Forward starting reverse repos and repos | \n\n | 5,127.2 | \n\n | – | \n\n | – | \n\n | – | \n\n | – | \n\n | 5,127.2 |
| Other unfunded commitments (1) | \n\n | 6.3 | \n\n | – | \n\n | – | \n\n | – | \n\n | 23.0 | \n\n | 29.3 |
| \n | $ | \n6,242.7 | \n$ | \n1,615.3 | \n$ | \n401.5 | \n$ | \n20.7 | \n$ | \n239.5 | \n$ | \n8,519.7 |
\n\n
(1) Equity, loan commitments and other unfunded commitments are presented by contractual maturity date. The amounts are however available on demand.
The table below presents Jefferies credit exposure from loan commitments, including funded amounts, summarized by period of expiration as of December 31, 2014. Credit exposure is based on the external credit ratings of the underlying or referenced assets of the loan commitments. Since commitments associated with these business activities may expire unused, they do not necessarily reflect the actual future cash funding requirements (in millions):
\n\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | \n | \n | \n | \n | \n | \n | Total | \n\n | Corporate | \n\n | Corporate |
| \n | \n | \n | \n | \n | \n | Greater | \n\n | Corporate | \n\n | Lending | \n\n | Lending |
| \n | \n | 0 - 12 | \n\n | 1 - 5 | \n\n | Than | \n\n | Lending | \n\n | Exposure at | \n\n | Commitments |
| Credit Ratings | \n\n | Months | \n\n | Years | \n\n | 5 Years | \n\n | Exposure (1) | \n\n | Fair Value (2) | \n\n | (3) |
| Investment grade | \n$ | \n– | \n$ | \n55.1 | \n$ | \n– | \n$ | \n55.1 | \n$ | \n– | \n$ | \n55.1 |
| Non-investment grade | \n\n | – | \n\n | 191.3 | \n\n | – | \n\n | 191.3 | \n\n | 18.9 | \n\n | 172.4 |
| Unrated | \n\n | 129.3 | \n\n | 620.9 | \n\n | 2.2 | \n\n | 752.4 | \n\n | 185.0 | \n\n | 567.4 |
| Total | \n$ | \n129.3 | \n$ | \n867.3 | \n$ | \n2.2 | \n$ | \n998.8 | \n$ | \n203.9 | \n$ | \n794.9 |
\n\n
(1) Total corporate lending exposure represents the potential loss assuming the fair value of funded loans and lending commitments were zero.
\n\n(2) The corporate lending exposure at fair value includes $22.6 million of funded loans included in Trading assets and a $18.7 million net liability related to lending commitments recorded in Trading liabilities in the Consolidated Statement of Financial Condition as of December 31, 2014.
\n\n(3) Amounts represent the notional amount of unfunded lending commitments.
Equity Commitments. Equity commitments include commitments to invest in Jefferies joint ventures, Jefferies Finance and Jefferies LoanCore, and commitments to invest in private equity funds and in Jefferies Capital Partners, LLC, the manager of the private equity funds, which are managed by a team led by Brian P. Friedman, our President and a Director. As of December 31, 2014, Jefferies outstanding commitments relating to Jefferies Capital Partners, LLC and its private equity funds was $30.5 million.
\n\nSee Note 11 for additional information regarding Jefferies investments in Jefferies Finance and Jefferies LoanCore.
\n\nIn August 2014, we and Solomon Kumin established Folger Hill Asset Management LLC (\"Folger Hill\"), which has registered as an investment adviser with the SEC, and expects to launch a multi-manager investment partnership. We have committed to invest $400 million in Folger Hill's investment partnership, which we expect to fund in the first quarter of 2015. We also committed to provide Folger Hill with a 3-year, $20 million revolving credit facility to fund its start-up and initial operating expenses. As of December 31, 2014, $3.2 million has been provided to Folger Hill under the revolving credit facility.
Additionally, as of December 31, 2014, Jefferies had other equity commitments to invest up to $1.8 million in various other investments.
\n\nLoan Commitments. From time to time Jefferies makes commitments to extend credit to investment banking and other clients in loan syndication, acquisition finance and securities transactions and to SPE sponsors in connection with the funding of CLO and other asset-backed transactions. These commitments and any related drawdowns of these facilities typically have fixed maturity dates and are contingent on certain representations, warranties and contractual conditions applicable to the borrower. As of December 31, 2014, Jefferies has $444.9 million of outstanding loan commitments to clients.
\n\nLoan commitments outstanding as of December 31, 2014, also include Jefferies portion of the outstanding secured revolving credit facility provided to Jefferies Finance, to support loan underwritings by Jefferies Finance. The unfunded loan commitments to Jefferies Finance of $104.0 million is unrated and included in the total unrated lending commitments of $567.4 million presented in the table above.
\n\nMortgage-Related and Other Purchase Commitments. Jefferies enters into forward contracts to purchase mortgage participation certificates, mortgage-backed securities and consumer loans. The mortgage participation certificates evidence interests in mortgage loans insured by the Federal Housing Administration and the mortgage-backed securities are insured or guaranteed by the FNMA (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) or the GNMA (Ginnie Mae). Jefferies frequently securitizes the mortgage participation certificates and mortgage-backed securities. The fair value of mortgage-related and other purchase commitments recorded in the Consolidated Statement of Financial Condition at December 31, 2014 was $99.6 million.
\n\nForward Starting Reverse Repos and Repos. Jefferies enters into commitments to take possession of securities with agreements to resell on a forward starting basis and to sell securities with agreements to repurchase on a forward starting basis that are primarily secured by U.S. government and agency securities.
\n\nOther Unfunded Commitments. Other unfunded commitments include obligations in the form of revolving notes to provide financing to asset-backed and CLO vehicles. Upon advancing funds, drawn amounts are collateralized by the assets of an entity.
\n\nContingencies
\n\nSeven class-action lawsuits had been filed in New York and Delaware on behalf of a class consisting of Jefferies Group's stockholders concerning the transaction through which Jefferies Group LLC became our wholly-owned subsidiary. The class actions named as defendants the Company, Jefferies Group, certain members of our board of directors, certain members of Jefferies board of directors and, in certain of the actions, certain transaction-related subsidiaries. On October 31, 2014, the remaining defendants in the Delaware litigation entered into a settlement agreement with the plaintiffs in the Delaware litigation. The terms of that agreement, which are subject to court approval, provide for an aggregate payment of $70.0 million to certain former equity holders of Jefferies Group, other than the defendants and certain of their affiliates, along with attorneys' fees to be determined and approved by the court; we have accrued for this aggregate payment and attorneys' fees. The agreement further provides that the settlement will be paid, at the Company's option, in either cash or the Company's common shares. If approved by the court, the settlement will resolve all of the class-action claims in Delaware, and release the claims brought in New York. While the defendants continue to deny each of the plaintiffs' claims and deny any liability, the defendants have entered into the agreement solely to settle and resolve their disputes, to avoid the costs and risks of further litigation and to avoid further distractions to our management. A hearing has been scheduled for March 25, 2015 to consider final approval of the settlement as well as an award of legal fees and reimbursement to plaintiffs' counsel in an aggregate amount not to exceed $27.5 million in fees and $1.1 million in expenses.
\n\nWe and certain of our subsidiaries and officers are named as defendants in a consumer class action captioned Sykes v. Mel Harris & Associates, LLC, et al., 09 Civ. 8486 (DC), in the United States District Court for the Southern District of New York. The named defendants also include the Mel Harris law firm, certain individuals and members associated with the law firm, and a process server, Samserv, Inc. and certain of its employees. The complaint alleges that default judgments obtained by the law firm against approximately 124,000 individuals in New York City Civil Court with respect to consumer debt purchased by our subsidiaries violated the Fair Debt Collection Practices Act, the Racketeer Influenced and Corrupt Organizations Act, the New York General Business Law and the New York Judiciary Law (alleged only as to the law firm). The complaint seeks injunctive relief, declaratory relief and damages on behalf of the named plaintiffs and others similarly situated. We asserted that we were an investor with respect to the subject purchased consumer debt and were regularly informed of the amounts received from debt collections, but otherwise had no involvement in any alleged illegal debt collection activities.
\n\nOn December 29, 2010, the District Court denied defendants' motions to dismiss in part (including as to the claims made against us and our subsidiaries) and granted them in part (including as to certain of the claims made against our officers). On March 28, 2013, the Court certified a Rule 23(b)(2) class and a Rule 23(b)(3) class. Neither of the decisions issued by the Court addresses the ultimate merits of the case.
\n\nThe United States Court of Appeals for the Second Circuit permitted us to appeal the District Court's March 28, 2013 class certification and the District Court granted a stay of the proceedings pending the Court of Appeals' decision. On February 10, 2015, the Second Circuit affirmed the certification of the class.
\n\nOn December 14, 2014, we and plaintiffs executed a binding term sheet to settle the matter pursuant to which we expensed $3.2 million in the fourth quarter, which is in addition to the $20.0 million previously accrued for this matter and the $22.8 million in deferred revenue. The parties are in the process of drafting a formal settlement agreement consistent with the term sheet. The settlement is subject to the District Court's approval.
\n\nOn May 2, 2014, plaintiff Haverhill Retirement System (\"Haverhill\") filed an amended putative class action and derivative lawsuit (the \"Complaint\") entitled Haverhill Retirement System v. Asali, et al. in the Court of Chancery of the State of Delaware (the \"Court of Chancery\") against Harbinger Capital Partners LLC, Harbinger Capital Partners Master Fund I, Ltd., Global Opportunities Breakaway Ltd., Harbinger Capital Partners Special Situations Fund, L.P. (collectively, the \"Harbinger Funds\"), the members of the board of directors of Harbinger Group, Inc. (\"Harbinger\"), nominal defendant Harbinger, as well as Leucadia. The Complaint alleges, among other things, that the directors of Harbinger breached their fiduciary duties in connection with Leucadia's March 2014 purchase of preferred securities of subsidiaries of the Harbinger Funds that were exchangeable into Harbinger common stock owned by the Harbinger Funds, certain flaws in the process employed by the special committee of directors appointed by the Harbinger board in connection therewith, and that Leucadia aided and abetted the Harbinger board's breaches of fiduciary, as well as a claim of unjust enrichment against Leucadia. On April 1, 2014, the Chancery Court denied Haverhill's motion for expedited proceedings associated with the complaint originally filed by Haverhill on March 26, 2014. Haverhill filed an amended complaint on May 2, 2014. On July 2, 2014, the defendants moved to dismiss the amended complaint. On August 12, 2014, Plaintiffs filed another amended complaint. The amended complaint dropped Plaintiff's unjust enrichment claim against Leucadia. With respect to remedies sought, the amended complaint no longer sought an injunction against installing Leucadia designees as Board members and no longer sought rescission of Leucadia's right to select the director class to which one of its designees would be appointed. A settlement has been agreed by the parties that does not provide for any payment by the Company and includes, among other things, additional disclosures by Harbinger. A term sheet reflecting the settlement was signed on October 15, 2014. On December 19, 2014, final settlement papers were submitted to the Court. A settlement hearing is scheduled for April 6, 2015.
\n\nDuring the first quarter of 2014, Jefferies reached a non-prosecution agreement (\"NPA\") with the United States Attorney for the District of Connecticut and a settlement agreement with the SEC relating to an investigation of purchases and sales of mortgage-backed securities. That NPA expired on January 29, 2015. That investigation arose from a matter that came to light in late 2011, at which time Jefferies terminated a mortgage-backed-securities trader who was then indicted by the United States Attorney for the District of Connecticut in January 2013 and separately charged in a civil complaint by the SEC. Those settlement agreements included an aggregate $25.0 million in payments, of which approximately $11.0 million were payments to trading counterparties impacted by those activities, approximately $10.0 million of which is a fine payable to the U.S. Attorney's Office, and approximately $4.0 million of which is a fine payable to the SEC. All such amounts were recognized in our consolidated financial statements for the year ended December 31, 2013. At December 31, 2014, Jefferies outstanding reserve with respect to remaining payments to be made under the agreements was approximately $1.9 million. Additionally, pursuant to an undertaking required by the SEC settlement, Jefferies has retained an Independent Compliance Consultant, whose work was completed in January 2015.
\n\nWe and our subsidiaries are parties to other legal and regulatory proceedings that are considered to be either ordinary, routine litigation incidental to their business or not significant to our consolidated financial position. We and our subsidiaries are also involved, from time to time, in other exams, investigations and similar reviews (both formal and informal) by governmental and self-regulatory agencies regarding our businesses, certain of which may result in judgments, settlements, fines, penalties or other injunctions. We do not believe that any of these actions will have a significant adverse effect on our consolidated financial position or liquidity, but any amounts paid could be significant to results of operations for the period.
\n\nGuarantees
\n\nDerivative Contracts. Jefferies dealer activities cause it to make markets and trade in a variety of derivative instruments. Certain derivative contracts that Jefferies has entered into meet the accounting definition of a guarantee under GAAP, including credit default swaps, written foreign currency options and written equity put options. On certain of these contracts, such as written interest rate caps and foreign currency options, the maximum payout cannot be quantified since the increase in interest or foreign exchange rates are not contractually limited by the terms of the contract. As such, we have disclosed notional values as a measure of Jefferies maximum potential payout under these contracts.
\n\nThe following table summarizes the notional amounts associated with our derivative contracts meeting the definition of a guarantee under GAAP (in millions):
\n\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | Expected Maturity Date | \n\n | ||||||||||
| \n | \n | \n | \n | \n | \n | 2017 | \n\n | 2019 | \n\n | 2021 | \n\n | Notional/ |
| \n | \n | \n | \n | \n | \n | and | \n\n | and | \n\n | and | \n\n | Maximum |
| Guarantee Type | \n\n | 2015 | \n\n | 2016 | \n\n | 2018 | \n\n | 2020 | \n\n | Later | \n\n | Payout |
| Derivative contracts – non-credit related | \n$ | \n59,875.6 | \n$ | \n229.6 | \n$ | \n252.1 | \n$ | \n721.8 | \n$ | \n487.7 | \n$ | \n61,566.8 |
| Written derivative contracts – credit | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| related | \n\n | – | \n\n | – | \n\n | – | \n\n | 485.0 | \n\n | – | \n\n | 485.0 |
| Total derivative contracts | \n$ | \n59,875.6 | \n$ | \n229.6 | \n$ | \n252.1 | \n$ | \n1,206.8 | \n$ | \n487.7 | \n$ | \n62,051.8 |
\n\n
The external credit ratings of the underlying or referenced assets for our credit related derivatives contracts (in millions):
\n\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | External Credit Rating | \n\n | ||||||||||||
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | Below | \n\n | \n | \n | Notional/ |
| \n | \n | AAA/ | \n\n | AA/ | \n\n | \n | \n | \n | \n | Investment | \n\n | \n | \n | Maximum |
| \n | \n | Aaa | \n\n | Aa | \n\n | A | \n\n | BBB/Baa | \n\n | Grade | \n\n | Unrated | \n\n | Payout |
| Credit related derivative contracts: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Index credit default swaps | \n$ | \n480.0 | \n$ | \n– | \n$ | \n– | \n$ | \n– | \n$ | \n– | \n$ | \n– | \n$ | \n480.0 |
| Single name credit default swaps | \n\n | – | \n\n | – | \n\n | – | \n\n | 5.0 | \n\n | – | \n\n | – | \n\n | 5.0 |
\n\n
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 substantially mitigates its exposure to market risk on these contracts through hedges, such as other derivative contracts and/or cash instruments and Jefferies manages the risk associated with these contracts in the context of its overall risk management framework. Jefferies believes notional amounts overstate its expected payout and that fair value of these contracts is a more relevant measure of its obligations. The fair value of derivative contracts meeting the definition of a guarantee is approximately $851.7 million.
\n\nBerkadia. We have agreed to reimburse Berkshire Hathaway for up to one-half of any losses incurred under a $2.5 billion surety policy securing outstanding commercial paper issued by an affiliate of Berkadia. As of December 31, 2014, the aggregate amount of commercial paper outstanding was $2.47 billion.
\n\nOther Guarantees. Jefferies is a member of various exchanges and clearing houses. In the normal course of business Jefferies provides guarantees to securities clearinghouses and exchanges. These guarantees generally are required under the standard membership agreements, such that members are required to guarantee the performance of other members. Additionally, if a member becomes unable to satisfy its obligations to the clearinghouse, other members would be required to meet these shortfalls. To mitigate these performance risks, the exchanges and clearinghouses often require members to post collateral. Jefferies obligations under such guarantees could exceed the collateral amounts posted. Jefferies maximum potential liability under these arrangements cannot be quantified; however, the potential for Jefferies to be required to make payments under such guarantees is deemed remote. Accordingly, no liability has been recognized for these arrangements.
\n\nIndemnification. In connection with the 2013 sale of Empire Insurance Company, we agreed to indemnify the buyer for certain of Empire's lease obligations that were assumed by another subsidiary of ours as part of the sale of Empire. Our subsidiary was subsequently sold in 2014 to HomeFed as part of the real estate transaction with HomeFed. Although HomeFed has agreed to indemnify us for these lease obligations, our indemnification obligation under the Empire transaction remains. The primary lease expires in 2018 and the aggregate amount of lease obligation as of December 31, 2014 was approximately $41.2 million. Substantially all of the space under the primary lease has been sublet to various third-party tenants for the full length of the lease term in amounts in excess of the obligations under the primary lease.
\n\nStandby Letters of Credit. At December 31, 2014, Jefferies provided guarantees to certain counterparties in the form of standby letters of credit in the amount of $47.8 million, which expire within one year. Standby letters of credit commit Jefferies to make payment to the beneficiary if the guaranteed party fails to fulfill its obligation under a contractual arrangement with that beneficiary. Since commitments associated with these collateral instruments may expire unused, the amount shown does not necessarily reflect the actual future cash funding requirement.
\n\nOther subsidiaries of ours have outstanding letters of credit aggregating $26.2 million at December 31, 2014.
\n\n
Consolidation
\n\nOur policy is to consolidate all entities in which we can vote a majority of the outstanding voting stock. In addition, we consolidate entities which meet the definition of a variable interest entity for which we are the primary beneficiary. The primary beneficiary is the party who has the power to direct the activities of a variable interest entity that most significantly impact the entity's economic performance and who has an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant to the entity. We consider special allocations of cash flows and preferences, if any, to determine amounts allocable to noncontrolling interests. All intercompany transactions and balances are eliminated in consolidation.
\n\nIn situations where we have significant influence, but not control, of an entity that does not qualify as a variable interest entity, we apply either the equity method of accounting or fair value accounting pursuant to the fair value option election under GAAP. We have also formed nonconsolidated investment vehicles with third-party investors that are typically organized as partnerships or limited liability companies and are carried at fair value. Our subsidiaries may act as general partner or managing member for these investment vehicles and have generally provided the third-party investors with termination or \"kick-out\" rights.
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | Expected Maturity Date | \n\n | ||||||||||
| \n | \n | \n | \n | \n | \n | 2017 | \n\n | 2019 | \n\n | 2021 | \n\n | |
| \n | \n | \n | \n | \n | \n | and | \n\n | and | \n\n | and | \n\n | Maximum |
| \n | \n | 2015 | \n\n | 2016 | \n\n | 2018 | \n\n | 2020 | \n\n | Later | \n\n | Payout |
| Equity commitments (1) | \n$ | \n– | \n$ | \n9.3 | \n$ | \n.8 | \n$ | \n– | \n$ | \n216.3 | \n$ | \n226.4 |
| Loan commitments (1) | \n\n | 50.7 | \n\n | 440.2 | \n\n | 283.1 | \n\n | 20.7 | \n\n | .2 | \n\n | 794.9 |
| Mortgage-related and other purchase | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| commitments | \n\n | 1,058.5 | \n\n | 1,165.8 | \n\n | 117.6 | \n\n | – | \n\n | – | \n\n | 2,341.9 |
| Forward starting reverse repos and repos | \n\n | 5,127.2 | \n\n | – | \n\n | – | \n\n | – | \n\n | – | \n\n | 5,127.2 |
| Other unfunded commitments (1) | \n\n | 6.3 | \n\n | – | \n\n | – | \n\n | – | \n\n | 23.0 | \n\n | 29.3 |
| \n | $ | \n6,242.7 | \n$ | \n1,615.3 | \n$ | \n401.5 | \n$ | \n20.7 | \n$ | \n239.5 | \n$ | \n8,519.7 |
\n\n
(1) Equity, loan commitments and other unfunded commitments are presented by contractual maturity date. The amounts are however available on demand.
Note 17. Long-Term Debt
\n\nThe principal amount (net of unamortized discounts and premiums), stated interest rate and maturity date of outstanding debt at December 31, 2014 and 2013 are as follows (dollars in thousands):
\n\n| \n | \n | \n | \n | |
| \n | \n | 2014 | \n\n | 2013 |
| Parent Company Debt: | \n\n | \n | \n | |
| Senior Notes: | \n\n | \n | \n | |
| 8.125% Senior Notes due September 15, 2015, $458,641 principal | \n$ | \n457,723 | \n$ | \n456,515 |
| 5.50% Senior Notes due October 18, 2023, $750,000 principal | \n\n | 740,748 | \n\n | 739,960 |
| 6.625% Senior Notes due October 23, 2043, $250,000 principal | \n\n | 246,991 | \n\n | 246,958 |
| Subordinated Notes: | \n\n | \n | \n | |
| 3.75% Convertible Senior Subordinated Notes due April 15, 2014, | \n\n | \n | \n | |
| $97,581 principal | \n\n | – | \n\n | 97,581 |
| Total long-term debt – Parent Company | \n\n | 1,445,462 | \n\n | 1,541,014 |
| Subsidiary Debt (non-recourse to Parent Company): | \n\n | \n | \n | |
| Jefferies: | \n\n | \n | \n | |
| 5.875% Senior Notes, due June 8, 2014, $250,000 principal | \n\n | – | \n\n | 255,676 |
| 3.875% Senior Notes, due November 9, 2015, $500,000 principal | \n\n | 507,944 | \n\n | 516,204 |
| 5.5% Senior Notes, due March 15, 2016, $350,000 principal | \n\n | 363,229 | \n\n | 373,178 |
| 5.125% Senior Notes, due April 13, 2018, $800,000 principal | \n\n | 842,359 | \n\n | 854,011 |
| 8.5% Senior Notes, due July 15, 2019, $700,000 principal | \n\n | 832,797 | \n\n | 858,425 |
| 2.375% Euro Senior Notes, due May 20, 2020, $622,175 principal | \n\n | 620,725 | \n\n | – |
| 6.875% Senior Notes, due April 15, 2021, $750,000 principal | \n\n | 853,091 | \n\n | 866,801 |
| 2.25% Euro Medium Term Notes, due July 13, 2022, $4,977 principal | \n\n | 4,379 | \n\n | 4,792 |
| 5.125% Senior Notes, due January 20, 2023, $600,000 principal | \n\n | 623,311 | \n\n | 625,626 |
| 6.45% Senior Debentures, due June 8, 2027, $350,000 principal | \n\n | 381,515 | \n\n | 383,224 |
| 3.875% Convertible Senior Debentures, due November 1, 2029, | \n\n | \n | \n | |
| $345,000 principal | \n\n | 348,568 | \n\n | 349,707 |
| 6.25% Senior Debentures, due January 15, 2036, $500,000 principal | \n\n | 513,046 | \n\n | 513,343 |
| 6.50% Senior Notes, due January 20, 2043, $400,000 principal | \n\n | 421,960 | \n\n | 422,245 |
| Secured credit facility, due June 26, 2017 | \n\n | 170,000 | \n\n | 200,000 |
| National Beef Term Loan | \n\n | 345,000 | \n\n | 375,000 |
| National Beef Revolving Credit Facility | \n\n | 135,144 | \n\n | – |
| Other | \n\n | 119,399 | \n\n | 41,619 |
| Total long-term debt – subsidiaries | \n\n | 7,082,467 | \n\n | 6,639,851 |
| Long-term debt | \n$ | \n8,527,929 | \n$ | \n8,180,865 |
\n\n
At December 31, 2014, $1.7 billion of consolidated assets (primarily inventory, receivables and property and equipment) are pledged for indebtedness aggregating $769.5 million, principally for amounts due under National Beef's term loan and credit facility and Jefferies secured credit facility.
\n\nThe aggregate annual mandatory redemptions of all long-term debt during the five year period ending December 31, 2019 are as follows: 2015 - $1,032.2 million; 2016 - $408.0 million; 2017 - $202.3 million; 2018 - $1,182.5 million; and 2019 - $702.4 million.
\n\nParent Company Debt:
\n\nFrom time to time we have purchased our outstanding debt securities depending upon prevailing market conditions, our liquidity requirements and other factors; such purchases may be commenced or suspended at any time without notice. No such purchases were made during 2014 and 2013; principal amounts of parent company debt purchased during 2012 are as follows (dollars in thousands):
\n\n| \n | \n | |
| 7% Senior Notes | \n$ | \n4,836 |
| 7.125% Senior Notes | \n\n | 423,140 |
| 8.65% Junior Subordinated Deferrable Interest Debentures | \n\n | 88,204 |
| Total | \n$ | \n516,180 |
\n\n
As a result of the purchases, we recognized pre-tax losses of $24.2 million for the year ended December 31, 2012, which are reflected in Selling, general and other expenses.
\n\nThe 3.75% Convertible Senior Subordinated Notes due 2014 were converted primarily in April 2014 into 4,606,109 common shares prior to maturity and are no longer outstanding.
\n\nOur senior note indentures contain covenants that restrict our ability to incur more Indebtedness or issue Preferred Stock of Subsidiaries unless, at the time of such incurrence or issuance, the Company meets a specified ratio of Consolidated Debt to Consolidated Tangible Net Worth, limit the ability of the Company and Material Subsidiaries to incur, in certain circumstances, Liens, limit the ability of Material Subsidiaries to incur Funded Debt in certain circumstances, and contain other terms and restrictions all as defined in the senior note indentures. We have the ability to incur substantial additional indebtedness or make distributions to our shareholders and still remain in compliance with these restrictions. If we are unable to meet the specified ratio, we would not be able to issue additional Indebtedness or Preferred Stock, but our inability to meet the applicable ratio would not result in a default under our senior note indentures. The senior note indentures do not restrict the payment of dividends.
\n\nSubsidiary Debt:
\n\nJefferies 3.875% Convertible Senior Debentures due 2029 are convertible into our common shares; each $1,000 are convertible into 22.1925 common shares (equivalent to a conversion price of approximately $45.06). The debentures are convertible at the holders' option any time beginning on August 1, 2029 and convertible at any time if: 1) our common stock price is greater than or equal to 130% of the conversion price for at least 20 trading days in a period of 30 consecutive trading days; 2) if the trading price per debenture is less than 95% of the price of our common stock times the conversion ratio for any 10 consecutive trading days; 3) if the debentures are called for redemption; or 4) upon the occurrence of specific corporate actions. The debentures may be redeemed for par, plus accrued interest, on or after November 1, 2012 if the price of our common stock is greater than 130% of the conversion price for at least 20 days in a period of 30 consecutive trading days and we may redeem the debentures for par, plus accrued interest, at our election any time on or after November 1, 2017. Holders may require us to repurchase the debentures for par, plus accrued interest, on November 1, 2017, 2019 and 2024. In addition to ordinary interest, commencing November 1, 2017, contingent interest will accrue at 0.375% if the average trading price of a debenture for 5 trading days ending on and including the third trading day immediately preceding a six-month interest period equals or exceeds $1,200 per $1,000 debenture.
\n\nOn August 26, 2011, Jefferies entered into a committed senior secured revolving credit facility (\"Jefferies Credit Facility\") with a group of commercial banks in U.S. dollars, Euros and Sterling, in an aggregate committed amount of $950.0 million with availability subject to one or more borrowing bases and of which $250.0 million can be borrowed by Jefferies Bache Limited without a borrowing base requirement. On June 26, 2014, Jefferies amended and restated the Credit Facility for three years and reduced the committed amount to $750.0 million. The borrowers under the Jefferies Credit Facility are Jefferies Bache Financial Services, Inc., Jefferies Bache, LLC and Jefferies Bache Limited, with a guarantee from Jefferies Group LLC. On September 1, 2014, Jefferies Bache, LLC merged with and into Jefferies LLC, (a U.S. broker-dealer). Jefferies LLC is the surviving entity, and therefore, a borrower under the Credit Facility. The Jefferies Credit Facility contains certain financial covenants, including, but not limited to, restrictions on future indebtedness of Jefferies subsidiaries, minimum tangible net worth and liquidity requirements amounts and minimum capital requirements. Interest is based on, in the case of U.S. dollar borrowings, the Federal funds rate or the London Interbank Offered Rate or, in the case of non-U.S. dollar borrowings, is based on the London Interbank Offered Rate. The obligations of each borrower under the Credit Facility are secured by substantially all the assets of such borrower, but none of the borrowers is responsible for any obligations of any other borrower. At December 31, 2014, borrowings under the Jefferies Credit Facility were denominated in U.S. dollars and Jefferies is in compliance with debt covenants under the Jefferies Credit Facility.
\n\nAt December 31, 2014, National Beef's credit facility consisted of a $375.0 million term loan and a revolving credit facility of $300.0 million, which matures in October 2018. The term loan and the revolving credit facility bear interest at the Base Rate or the LIBOR Rate (as defined in the credit facility), plus a margin ranging from .75% to 2.75% depending upon certain financial ratios and the rate selected. At December 31, 2014, the interest rate on the outstanding term loan was 2.9% and the interest rate on the outstanding revolving credit facility was 3.4%. The credit facility contains a minimum tangible net worth covenant; at December 31, 2014, National Beef met this covenant. The credit facility is secured by a first priority lien on substantially all of the assets of National Beef and its subsidiaries.
\n\nBorrowings under the revolving credit facility are available for National Beef's working capital requirements, capital expenditures and other general corporate purposes. Unused capacity under the facility can also be used to issue letters of credit; letters of credit aggregating $23.6 million were outstanding at December 31, 2014. Amounts available under the revolver are subject to a borrowing base calculation primarily comprised of receivable and inventory balances. At December 31, 2014, after deducting outstanding amounts and issued letters of credit, $141.2 million of the unused revolver was available to National Beef.
\n\n
Note 6. Derivative Financial Instruments
\n\nOff-Balance Sheet Risk
\n\nJefferies 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 significant effect upon our consolidated financial statements.
\n\nDerivative Financial Instruments
\n\nDerivative activities are recorded at fair value in the Consolidated Statements of Financial Condition in Trading assets –Derivatives and Trading liabilities – Derivatives, net of cash paid or received under credit support agreements and on a net counterparty basis when a legal right to offset exists under a master netting agreement. Net realized and unrealized gains and losses are recognized in Principal transactions in the Consolidated Statements of Operations on a trade date basis and as a component of cash flows from operating activities in the Consolidated Statements of Cash Flows. Acting in a trading capacity, Jefferies may enter into derivative transactions to satisfy the needs of its clients and to manage its own exposure to market and credit risks resulting from trading activities. (See Notes 5 and 26 for additional disclosures about derivative financial instruments.)
\n\nDerivatives 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 manages the risks associated with derivatives on an aggregate basis along with the risks associated with proprietary trading as part of its firm wide risk management policies. In connection with Jefferies derivative activities, Jefferies may enter into International Swaps and Derivative Association, Inc. (\"ISDA\") master netting agreements and similar agreements with counterparties. These agreements provide Jefferies with the ability to offset a counterparty's rights and obligations, request additional collateral when necessary or liquidate the collateral in the event of counterparty default. See Note 12 for additional information with respect to financial statement offsetting.
\n\nThe following tables present the fair value and related number of derivative contracts categorized by type of derivative contract as reflected in the Consolidated Statements of Financial Condition at December 31, 2014 and 2013. The fair value of assets/liabilities related to derivative contracts represents our receivable/payable for derivative financial instruments, gross of counterparty netting and cash collateral received and pledged (in thousands, except contract amounts):
\n\n| \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | December 31, 2014 | |||||||
| \n | \n | Assets | \n\n | \n | \n | Liabilities | ||
| \n | \n | \n | \n | Number of | \n\n | \n | \n | Number of |
| \n | \n | Fair Value | \n\n | Contracts | \n\n | Fair Value | \n\n | Contracts |
| Interest rate contracts | \n$ | \n2,299,807 | \n\n | 71,505 | \n$ | \n2,292,691 | \n\n | 89,861 |
| Foreign exchange contracts | \n\n | 1,514,881 | \n\n | 12,861 | \n\n | 1,519,349 | \n\n | 12,752 |
| Equity contracts | \n\n | 1,050,990 | \n\n | 2,271,507 | \n\n | 1,058,015 | \n\n | 2,051,469 |
| Commodity contracts | \n\n | 276,726 | \n\n | 1,031,568 | \n\n | 303,206 | \n\n | 1,020,418 |
| Credit contracts: centrally cleared swaps | \n\n | 17,831 | \n\n | 27 | \n\n | 23,264 | \n\n | 22 |
| Credit contracts: other credit derivatives | \n\n | 5,378 | \n\n | 18 | \n\n | 23,608 | \n\n | 27 |
| Total | \n\n | 5,165,613 | \n\n | \n | \n | 5,220,133 | \n\n | |
| Counterparty/cash-collateral netting | \n\n | (4,759,345 | \n) | \n\n | \n | (4,856,618 | \n) | \n|
| Total per Consolidated Statement of Financial Condition | \n$ | \n406,268 | \n\n | \n | $ | \n363,515 | \n\n |
\n\n
| \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | December 31, 2013 | |||||||
| \n | \n | Assets | \n\n | \n | \n | Liabilities | ||
| \n | \n | \n | \n | Number of | \n\n | \n | \n | Number of |
| \n | \n | Fair Value | \n\n | Contracts | \n\n | Fair Value | \n\n | Contracts |
| Interest rate contracts | \n$ | \n1,165,977 | \n\n | 63,967 | \n$ | \n1,131,166 | \n\n | 77,338 |
| Foreign exchange contracts | \n\n | 653,772 | \n\n | 118,707 | \n\n | 693,658 | \n\n | 112,417 |
| Equity contracts | \n\n | 501,784 | \n\n | 1,742,343 | \n\n | 474,985 | \n\n | 1,800,603 |
| Commodity contracts | \n\n | 141,280 | \n\n | 797,529 | \n\n | 173,119 | \n\n | 788,717 |
| Credit contracts: centrally cleared swaps | \n\n | 49,531 | \n\n | 49 | \n\n | 51,632 | \n\n | 46 |
| Credit contracts: other credit derivatives | \n\n | 2,339 | \n\n | 16 | \n\n | 8,130 | \n\n | 19 |
| Total | \n\n | 2,514,683 | \n\n | \n | \n | 2,532,690 | \n\n | |
| Counterparty/cash-collateral netting | \n\n | (2,253,589 | \n) | \n\n | \n | (2,352,611 | \n) | \n|
| Total per Consolidated Statement of Financial Condition | \n$ | \n261,094 | \n\n | \n | $ | \n180,079 | \n\n |
\n\n
The following table presents unrealized and realized gains (losses) on derivative contracts for the year ended December 31, 2014 and the period from the Jefferies acquisition through December 31, 2013; amounts for the 2012 period were not significant (in thousands):
\n\n| \n | \n | \n | \n | \n | \n | |
| \n | \n | \n | \n | \n | For the period from the | \n|
| \n | \n | \n | \n | \n | Jefferies acquisition | \n|
| \n | \n | For the year ended | \n\n | \n | through | \n|
| \n | \n | December 31, 2014 | \n\n | \n | December 31, 2013 | \n|
| Interest rate contracts | \n$ | \n(149,587 | \n) | \n$ | \n132,397 | \n|
| Foreign exchange contracts | \n\n | 39,872 | \n\n | \n | 5,514 | \n|
| Equity contracts | \n\n | (327,978 | \n) | \n\n | (21,216 | \n) |
| Commodity contracts | \n\n | 58,746 | \n\n | \n | 45,546 | \n|
| Credit contracts | \n\n | (23,934 | \n) | \n\n | (18,098 | \n) |
| Total | \n$ | \n(402,881 | \n) | \n$ | \n144,143 | \n
\n\n
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 December 31, 2014 (in thousands):
\n\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | OTC Derivative Assets (1) (2) (3) | |||||||||||
| \n | \n | \n | \n | \n | \n | \n | \n | Cross- | \n\n | \n | \n | |
| \n | \n | \n | \n | \n | \n | Greater Than | \n\n | Maturity | \n\n | \n | \n | |
| \n | \n | 0-12 Months | \n\n | 1-5 Years | \n\n | 5 Years | \n\n | Netting (4) | \n\n | \n | Total | \n|
| Commodity swaps, options and forwards | \n$ | \n62,275 | \n$ | \n6,604 | \n$ | \n23,387 | \n$ | \n(6,249 | \n) | \n$ | \n86,017 | \n|
| Credit default swaps | \n\n | – | \n\n | 2,936 | \n\n | – | \n\n | – | \n\n | \n | 2,936 | \n|
| Equity swaps and options | \n\n | 2,291 | \n\n | – | \n\n | 20,128 | \n\n | – | \n\n | \n | 22,419 | \n|
| Total return swaps | \n\n | 12,668 | \n\n | 1 | \n\n | – | \n\n | (44 | \n) | \n\n | 12,625 | \n|
| Foreign currency forwards, swaps and options | \n\n | 277,134 | \n\n | 34,344 | \n\n | 81 | \n\n | (28,294 | \n) | \n\n | 283,265 | \n|
| Interest rate swaps, options and forwards | \n\n | 74,804 | \n\n | 111,810 | \n\n | 158,530 | \n\n | (61,665 | \n) | \n\n | 283,479 | \n|
| Total | \n$ | \n429,172 | \n$ | \n155,695 | \n$ | \n202,126 | \n$ | \n(96,252 | \n) | \n\n | 690,741 | \n|
| Cross product counterparty netting | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | (19,237 | \n) |
| Total OTC derivative assets included in | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Trading assets | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | $ | \n671,504 | \n
\n\n
(1) At December 31, 2014, we held exchange traded derivative assets and other credit agreements with a fair value of $44.5 million, which are not included in this table.
\n\n(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 December 31, 2014 cash collateral received was $309.7 million.
\n\n(3) Derivative fair values include counterparty netting within product category.
\n\n(4) Amounts represent the netting of receivable balances with payable balances for the same counterparty within product category across maturity categories.
\n\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | OTC Derivative Liabilities (1) (2) (3) | |||||||||||
| \n | \n | \n | \n | \n | \n | \n | \n | Cross- | \n\n | \n | \n | |
| \n | \n | \n | \n | \n | \n | Greater Than | \n\n | Maturity | \n\n | \n | \n | |
| \n | \n | 0-12 Months | \n\n | 1-5 Years | \n\n | 5 Years | \n\n | Netting (4) | \n\n | \n | Total | \n|
| Commodity swaps, options and forwards | \n$ | \n120,863 | \n$ | \n3,105 | \n$ | \n5,722 | \n$ | \n(6,249 | \n) | \n$ | \n123,441 | \n|
| Credit default swaps | \n\n | – | \n\n | 1,220 | \n\n | 6,709 | \n\n | – | \n\n | \n | 7,929 | \n|
| Equity swaps and options | \n\n | 5,438 | \n\n | 38,076 | \n\n | 10,414 | \n\n | – | \n\n | \n | 53,928 | \n|
| Total return swaps | \n\n | 10,179 | \n\n | 277 | \n\n | – | \n\n | (44 | \n) | \n\n | 10,412 | \n|
| Foreign currency forwards, swaps and options | \n\n | 275,902 | \n\n | 40,126 | \n\n | – | \n\n | (28,294 | \n) | \n\n | 287,734 | \n|
| Interest rate swaps, options and forwards | \n\n | 58,328 | \n\n | 77,487 | \n\n | 210,161 | \n\n | (61,665 | \n) | \n\n | 284,311 | \n|
| Total | \n$ | \n470,710 | \n$ | \n160,291 | \n$ | \n233,006 | \n$ | \n(96,252 | \n) | \n\n | 767,755 | \n|
| Cross product counterparty netting | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | (19,237 | \n) |
| Total OTC derivative liabilities included in | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Trading liabilities | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | $ | \n748,518 | \n
\n\n
(1) At December 31, 2014, we held exchange traded derivative liabilities and other credit agreements with a fair value of $21.9 million, which are not included in this table.
\n\n(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 December 31, 2014, cash collateral pledged was $406.9 million.
\n\n(3) Derivative fair values include counterparty netting within product category.
\n\n(4) Amounts represent the netting of receivable balances with payable balances for the same counterparty within product category across maturity categories.
At December 31, 2014, the counterparty credit quality with respect to the fair value of our OTC derivative assets was as follows (in thousands):
\n\n| \n | \n | |
| Counterparty credit quality (1): | \n\n | |
| A- or higher | \n$ | \n397,655 |
| BBB- to BBB+ | \n\n | 59,010 |
| BB+ or lower | \n\n | 127,332 |
| Unrated | \n\n | 87,507 |
| Total | \n$ | \n671,504 |
\n\n
(1) We utilize internal credit ratings determined by Jefferies Risk Management. Credit ratings determined by Risk Management use methodologies that produce ratings generally consistent with those produced by external rating agencies.
Contingent Features
\n\nCertain of Jefferies derivative instruments contain provisions that require their debt to maintain an investment grade credit rating from each of the major credit rating agencies. If Jefferies 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 derivative instruments in liability positions. The aggregate fair value of all derivative instruments with such credit-risk-related contingent features that are in a liability position at December 31, 2014 and 2013 is $269.0 million and $170.2 million, respectively, for which Jefferies has posted collateral of $234.6 million and $127.7 million, respectively, in the normal course of business. If the credit-risk-related contingent features underlying these agreements were triggered on December 31, 2014 and 2013, Jefferies would have been required to post an additional $55.1 million and $49.4 million, respectively, of collateral to its counterparties.
\n\n
Note 19. Common Shares and Compensation Plans
\n\nThe Board of Directors from time to time has authorized the repurchase of our common shares. At December 31, 2014, we are authorized to repurchase 24,295,194 common shares.
\n\nPrior to the acquisition of Jefferies, we had two share-based compensation plans: a fixed stock option plan and a senior executive warrant plan. The fixed stock option plan provides for the issuance of stock options and stock appreciation rights to non-employee directors and certain employees at not less than the fair market value of the underlying stock at the date of grant. Options granted to employees under this plan are intended to qualify as incentive stock options to the extent permitted under the Internal Revenue Code and become exercisable in five equal annual instalments starting one year from date of grant. Options granted to non-employee directors become exercisable in four equal annual instalments starting one year from date of grant. No stock appreciation rights have been granted. At December 31, 2014 and 2013, 7,088,893 and 7,124,429, respectively, of our common shares were reserved for stock options and warrants.
\n\nCompensation and benefits expense included $109.8 million, $87.2 million and $14.3 million for the years ended December 31, 2014, 2013 and 2012, respectively, for share-based compensation expense relating to grants made under our share-based compensation plans. Total compensation cost includes the amortization of sign-on, retention and senior executive awards, less forfeitures and clawbacks. The total tax benefit recognized in results of operations related to share-based compensation expenses was $39.9 million, $33.2 million and $4.9 million for the years ended December 31, 2014, 2013 and 2012, respectively. As of December 31, 2014, total unrecognized compensation cost related to nonvested share-based compensation plans was $117.4 million; this cost is expected to be recognized over a weighted-average period of 1.8 years.
\n\nThe net tax benefit related to share-based compensation plans recognized in additional paid-in capital was $1.3 million and $2.9 million during the years ended December 31, 2014 and 2013, respectively, and was not significant during 2012. Cash flows resulting from tax deductions in excess of the grant date fair value of share-based awards are included in cash flows from financing activities; accordingly, we reflected the excess tax benefit related to share-based compensation in cash flows from financing activities. Such amounts for the years ended December 31, 2014, 2013 and 2012 were not significant.
\n\nAt December 31, 2014, there were 3,383,000 shares of restricted stock outstanding with future service required, 4,238,000 RSUs outstanding with future service required, 8,467,000 RSUs outstanding with no future service required and 952,000 shares issuable under other plans. Excluding shares issuable pursuant to outstanding stock options and warrants, the maximum potential increase to common shares outstanding resulting from these outstanding awards is 13,657,000.
\n\nSenior Executive Warrant Plan. On March 7, 2011, the Compensation Committee of our Board of Directors granted warrants to purchase 2,000,000 common shares to each of our then Chairman and President at an exercise price of $33.33 per share (105% of the closing price per share of a common share on the grant date), subject to shareholder approval. In May 2011, the required shareholder approval was received and the warrants were issued. The warrants expire in 2016 and vest in five equal tranches with 20% vesting on the date shareholder approval was received and an additional 20% vesting in each subsequent year. Compensation cost was determined as of the approval date and will be recognized in the financial statements over the vesting period of the warrants. We have recorded share-based compensation expense related to this grant of warrants of $5.3 million, $4.9 million and $11.2 million for the years ended December 31, 2014, 2013 and 2012, respectively.
\n\nFixed Stock Option Plan. A summary of activity with respect to our stock options for the three years ended December 31, 2014 is as follows:
\n\n| \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | \n | \n | \n | Weighted- | \n\n | |
| \n | Common | \n\n | \n | Weighted- | \nAverage | \n\n | |
| \n | Shares | \n\n | \n | Average | \nRemaining | \n\n | Aggregate |
| \n | Subject | \n\n | \n | Exercise | \nContractual | \n\n | Intrinsic |
| \n | to Option | \n\n | \n | Prices | \nTerm | \n\n | Value |
| Balance at December 31, 2011 | \n2,251,455 | \n\n | $ | \n27.62 | \n\n | \n | |
| Granted | \n919,500 | \n\n | $ | \n23.20 | \n\n | \n | |
| Exercised | \n– | \n\n | $ | \n– | \n\n | $ | \n– |
| Cancelled | \n(593,455 | \n) | \n$ | \n27.42 | \n\n | \n | |
| Balance at December 31, 2012 | \n2,577,500 | \n\n | $ | \n26.10 | \n\n | \n | |
| Granted | \n51,432 | \n\n | $ | \n26.06 | \n\n | \n | |
| Exercised | \n(184,276 | \n) | \n$ | \n24.65 | \n\n | $ | \n603,000 |
| Cancelled | \n(27,408 | \n) | \n$ | \n38.68 | \n\n | \n | |
| Balance at December 31, 2013 | \n2,417,248 | \n\n | $ | \n25.64 | \n\n | \n | |
| Granted | \n– | \n\n | $ | \n– | \n\n | \n | |
| Exercised | \n(35,536 | \n) | \n$ | \n22.87 | \n\n | $ | \n58,000 |
| Cancelled | \n(741,678 | \n) | \n$ | \n27.39 | \n\n | \n | |
| Balance at December 31, 2014 | \n1,640,034 | \n\n | $ | \n24.91 | \n2.9 years | \n$ | \n9,000 |
| Exercisable at December 31, 2014 | \n946,193 | \n\n | $ | \n25.42 | \n2.6 years | \n$ | \n8,000 |
\n\n
The following summary presents the weighted-average assumptions used for grants made during 2013 and 2012. There were no grants during 2014.
\n\n| \n | \n | \n | \n | \n | \n | |
| \n | \n | 2013 | \n\n | \n | 2012 | \n|
| \n | \n | Options | \n\n | \n | Options | \n|
| Risk free interest rate | \n\n | 1.26 | \n% | \n\n | .53 | \n% |
| Expected volatility | \n\n | 39.17 | \n% | \n\n | 37.66 | \n% |
| Expected dividend yield | \n\n | .85 | \n% | \n\n | 1.08 | \n% |
| Expected life | \n\n | 4.0 years | \n\n | \n | 4.0 years | \n|
| Weighted-average fair value per grant | \n$ | \n7.67 | \n\n | $ | \n5.97 | \n
\n\n
The expected life assumptions were based on historical behavior and incorporated post-vesting forfeitures for each type of award and population identified. The expected volatility was based on the historical behavior of our stock price.
\n\nIncentive Plan. The Incentive Plan allows awards in the form of incentive stock options (within the meaning of Section 422 of the Internal Revenue Code), nonqualified stock options, stock appreciation rights, restricted stock, unrestricted stock, performance awards, RSUs, dividend equivalents or other share-based awards.
\n\nRSUs give a participant the right to receive fully vested shares at the end of a specified deferral period allowing a participant to hold an interest tied to common stock on a tax deferred basis. Prior to settlement, RSUs carry no voting or dividend rights associated with the stock ownership, but dividend equivalents are accrued to the extent there are dividends declared on the underlying common shares as cash amounts or as deemed reinvestments in additional RSUs.
\n\nRestricted stock and RSUs may be granted to new employees as \"sign-on\" awards, to existing employees as \"retention\" awards and to certain executive officers as awards for multiple years. Sign-on and retention awards are generally subject to annual ratable vesting over a four year service period and are amortized as compensation expense on a straight line basis over the related four years. Jefferies has granted restricted stock and RSUs to certain senior executives with both performance and service conditions. The awards granted to senior executives are amortized over the service period if we have determined it is probable that the performance condition will be achieved.
\n\nThe Deferred Compensation Plan (the \"DCP\") has been implemented under the Incentive Plan. The DCP permits eligible executive officers and other employees to defer cash compensation, some or all of which may be deemed invested in stock units. A portion of the deferrals may also be directed to notional investments in a money market fund or certain of the employee investment opportunities. Stock units generally have been acquired at a discounted price, which encourages employee participation in the DCP and enhances long-term retention of equity interests by participants and aligns executive interests with those of shareholders. Amounts recognized as compensation cost have not been significant. The shares to be delivered in connection with DCP stock units and options are drawn from the Incentive Plan.
\n\nThe Incentive Plan's \"evergreen\" share reservation was terminated on March 21, 2014; the number of equity awards available under the Incentive Plan was set at 20,000,000. At December 31, 2014, 19,679,686 common shares remained available for new grants under the Incentive Plan. The Incentive Plan no longer contains a separate reservation of common shares for awards issued upon the elective deferral of cash compensation by employees under the DCP. Shares issued pursuant to the DCP reduce the shares available under the Incentive Plan.
\n\nThe following table details the activity in restricted stock during the years ended December 31, 2014 and 2013 (in thousands, except per share amounts):
\n\n| \n | \n | \n | \n | |
| \n | \n | \n | \n | Weighted Average |
| \n | \n | \n | \n | Grant Date |
| \n | \n | \n | \n | Fair Value |
| Balance at January 1, 2013 | \n– | \n\n | $ | \n– |
| Converted in connection with the Jefferies acquisition | \n6,895 | \n\n | $ | \n26.90 |
| Grants | \n462 | \n\n | $ | \n27.38 |
| Forfeited | \n(144 | \n) | \n$ | \n26.90 |
| Fulfillment of service requirement | \n(1,971 | \n) | \n$ | \n26.90 |
| Balance at December 31, 2013 | \n5,242 | \n\n | $ | \n26.94 |
| Grants | \n864 | \n\n | $ | \n27.03 |
| Forfeited | \n(202 | \n) | \n$ | \n26.90 |
| Fulfillment of service requirement | \n(2,521 | \n) | \n$ | \n26.89 |
| Balance at December 31, 2014 | \n3,383 | \n\n | $ | \n27.00 |
\n\n
The following table details the activity in restricted stock units during the years ended December 31, 2014 and 2013 (in thousands, except per share amounts):
\n\n| \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | Future | \n\n | No Future | \n\n | \n | Future | \n\n | No Future |
| \n | Service | \n\n | Service | \n\n | \n | Service | \n\n | Service |
| \n | Required | \n\n | Required | \n\n | \n | Required | \n\n | Required |
| Balance at January 1, 2013 | \n– | \n\n | – | \n\n | $ | \n– | \n$ | \n– |
| Converted in connection with the Jefferies acquisition | \n5,167 | \n\n | 9,527 | \n\n | $ | \n26.90 | \n$ | \n26.90 |
| Grants | \n– | \n\n | 145 | \n\n | $ | \n– | \n$ | \n24.32 |
| Distributions of underlying shares | \n– | \n\n | (1,603 | \n) | \n$ | \n– | \n$ | \n26.90 |
| Forfeited | \n(106 | \n) | \n(21 | \n) | \n$ | \n26.90 | \n$ | \n26.83 |
| Fulfillment of service requirement | \n(268 | \n) | \n268 | \n\n | $ | \n26.90 | \n$ | \n26.90 |
| Balance at December 31, 2013 | \n4,793 | \n\n | 8,316 | \n\n | $ | \n26.90 | \n$ | \n26.86 |
| Grants | \n– | \n\n | 97 | \n\n | $ | \n– | \n$ | \n20.89 |
| Distributions of underlying shares | \n– | \n\n | (366 | \n) | \n$ | \n– | \n$ | \n26.85 |
| Forfeited | \n(135 | \n) | \n– | \n\n | $ | \n26.90 | \n$ | \n– |
| Fulfillment of service requirement | \n(420 | \n) | \n420 | \n\n | $ | \n26.90 | \n$ | \n26.90 |
| Balance at December 31, 2014 | \n4,238 | \n\n | 8,467 | \n\n | $ | \n26.90 | \n$ | \n26.79 |
\n\n
At December 31, 2014 and 2013, respectively, grants include approximately 88,000 and 82,000 dividend equivalents declared on RSUs with no future service requirement; the weighted average grant date fair values of the dividend equivalents were approximately $20.41 and $22.34, respectively.
\n\nDirectors' Plan. Under our Directors' Plan, we will issue each nonemployee director of Leucadia $120,000 of restricted stock. These grants will be made on the date directors are elected or reelected at our annual shareholders' meeting. These shares vest over three years from the date of grant and are expensed over the requisite service period. At December 31, 2014, 274,929 common shares were issuable upon settlement of deferred shares granted in previous years and 439,988 shares are available for future grants.
\n\nOther Stock-Based Plans. Historically, Jefferies also sponsored an Employee Stock Purchase Plan and an Employee Stock Ownership Plan, both of which were assumed by us in connection with the Jefferies acquisition. Amounts related to these plans have not been significant.
\n\nRestricted Cash Awards. Jefferies provides compensation to 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. At December 31, 2014, the remaining unamortized amount of these awards was $223.7 million and is included within Other assets in the Consolidated Statements of Financial Condition.
| \n | \n | |
| \n | \n | 2013 |
| Real estate | \n$ | \n112,016 |
| Investment in associated company | \n\n | 30,793 |
| Other, net | \n\n | 17,310 |
| \n | $ | \n160,119 |
Note 30. Discontinued Operations and Assets Held for Sale
\n\nIn September 2014, we decided not to proceed with further development of the Lake Charles clean energy project that would have used gasification technology to convert low-grade fuel fossils into clean-energy products. Our decision was based on final estimates of the likely ultimate cost of completion of the project. Project development costs to date have been expensed as incurred. As a result, we have classified the clean energy project as a discontinued operation.
\n\nIn July 2014, we sold Premier, through which we had conducted our gaming operations, for aggregate cash consideration of $250.0 million, subject to working capital adjustment. We recorded a pre-tax gain on sale of discontinued operations of $12.1 million in the third quarter of 2014.
\n\nDuring the third quarter of 2013, we sold a small power production business and recorded a pre-tax gain on sale of discontinued operations of $6.4 million.
\n\nIn October 2013, we concluded that we would no longer continue to fund Sangart's research and development operations, through which we had conducted our medical product development operations. We commenced and completed an orderly shut-down of Sangart's operations during 2013; as a result, our medical product development operations have been classified as a discontinued operation.
\n\nIn October 2012, we sold Keen Energy Services, LLC for cash consideration of $100.0 million and a four-year interest bearing promissory note issued by the purchaser which was valued at $37.5 million. We also retained Keen's net working capital, principally customer receivables and trade payables. We recorded a pre-tax loss on sale of discontinued operations of $18.0 million for the year ended December 31, 2012.
\n\nA summary of the results of discontinued operations for the clean energy project, Premier, Sangart, Keen and the small power production business is as follows for the three years ended December 31, 2014 (in thousands):
\n\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | 2014 | \n\n | \n | 2013 | \n\n | \n | 2012 | \n|
| Revenues and other income: | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| Oil and gas drilling services | \n$ | \n– | \n\n | $ | \n– | \n\n | $ | \n95,674 | \n|
| Gaming entertainment | \n\n | 67,739 | \n\n | \n | 114,844 | \n\n | \n | 119,330 | \n|
| Investment and other income | \n\n | 4,700 | \n\n | \n | 4,691 | \n\n | \n | 5,716 | \n|
| \n | \n | 72,439 | \n\n | \n | 119,535 | \n\n | \n | 220,720 | \n|
| Expenses: | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| Direct operating expenses: | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| Oil and gas drilling services | \n\n | – | \n\n | \n | – | \n\n | \n | 79,143 | \n|
| Gaming entertainment | \n\n | 48,877 | \n\n | \n | 85,233 | \n\n | \n | 88,127 | \n|
| Compensation and benefits | \n\n | 4,503 | \n\n | \n | 19,534 | \n\n | \n | 24,409 | \n|
| Depreciation and amortization | \n\n | 5,208 | \n\n | \n | 8,919 | \n\n | \n | 28,475 | \n|
| Selling, general and other expenses | \n\n | 41,378 | \n\n | \n | 98,178 | \n\n | \n | 60,997 | \n|
| \n | \n | 99,966 | \n\n | \n | 211,864 | \n\n | \n | 281,151 | \n|
| Loss from discontinued | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| operations before income taxes | \n\n | (27,527 | \n) | \n\n | (92,329 | \n) | \n\n | (60,431 | \n) |
| Income tax (benefit) | \n\n | (9,634 | \n) | \n\n | (32,303 | \n) | \n\n | (20,971 | \n) |
| Loss from discontinued | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| operations after income taxes | \n$ | \n(17,893 | \n) | \n$ | \n(60,026 | \n) | \n$ | \n(39,460 | \n) |
\n\n
Income from discontinued operations also reflects distributions of $5.7 million for 2012 from our subsidiary, Empire Insurance Company, which has been undergoing a voluntary liquidation, was classified as a discontinued operation in 2001 and was written-off based on its expected future cash flows at that time. During 2013, we sold Empire for cash consideration of $3.2 million, subject to certain post-closing working capital adjustments, and the sale resulted in the recognition of a tax benefit of $5.4 million. Gain on disposal of discontinued operations for 2013 reflects an after tax gain of $8.6 million for this sale.
\n\nDuring 2012, we sold our small Caribbean-based telecommunications provider for aggregate consideration of $27.5 million, net of working capital adjustments, and recognized a pre-tax gain on sale of discontinued operations of $11.7 million. We have not classified this business' historical results of operations or its assets and liabilities as discontinued operations because such amounts were not significant.
\n\nIn February 2014 we agreed to sell substantially all of our real estate properties and operations and BRP to HomeFed for HomeFed common shares. Results of operations for our real estate properties and operations are reflected in other merchant banking businesses. Assets included in the transaction with HomeFed have been included with Other assets as Assets held for sale in the Consolidated Statement of Financial Condition at December 31, 2013 and include the following components (in thousands):
\n\n| \n | \n | |
| \n | \n | 2013 |
| Real estate | \n$ | \n112,016 |
| Investment in associated company | \n\n | 30,793 |
| Other, net | \n\n | 17,310 |
| \n | $ | \n160,119 |
\n\n
Earnings per Common Share
\n\nBasic earnings per share (\"EPS\") is computed by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding and certain other shares committed to be, but not yet issued. Net earnings available to common shareholders represent net earnings to common shareholders reduced by the allocation of earnings to participating securities. Losses are not allocated to participating securities. Common shares outstanding and certain other shares committed to be, but not yet issued, include restricted stock and restricted stock units (\"RSUs\") for which no future service is required. Diluted EPS is computed by dividing net earnings available to common shareholders plus dividends on dilutive mandatorily redeemable convertible preferred shares and interest on convertible notes by the weighted average number of common shares outstanding and certain other shares committed to be, but not yet issued, plus all dilutive common stock equivalents outstanding during the period.
\n\nUnvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and, therefore, are included in the earnings allocation in computing earnings per share under the two-class method of earnings per share. Restricted stock and RSUs granted as part of share-based compensation contain nonforfeitable rights to dividends and dividend equivalents, respectively, and therefore, prior to the requisite service being rendered for the right to retain the award, restricted stock and RSUs meet the definition of a participating security. As such, we calculate basic and diluted earnings per share under the two-class method.
Note 25. Earnings (Loss) Per Common Share
\n\nBasic and diluted earnings (loss) per share amounts were calculated by dividing net income (loss) by the weighted average number of common shares outstanding. The numerators and denominators used to calculate basic and diluted earnings (loss) per share are as follows for the years ended December 31, 2014, 2013 and 2012 (in thousands):
\n\n| \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | 2014 | \n\n | \n | 2013 | \n\n | \n | 2012 |
| Numerator for earnings (loss) per share: | \n\n | \n | \n | \n | \n | \n | \n | |
| Net income attributable to Leucadia | \n\n | \n | \n | \n | \n | \n | \n | |
| National Corporation common shareholders | \n$ | \n204,306 | \n\n | $ | \n369,240 | \n\n | $ | \n854,466 |
| Less: Allocation of earnings to participating securities (1) | \n\n | (4,761 | \n) | \n\n | (4,919 | \n) | \n\n | – |
| Net income attributable to Leucadia | \n\n | \n | \n | \n | \n | \n | \n | |
| National Corporation common shareholders for | \n\n | \n | \n | \n | \n | \n | \n | |
| basic earnings (loss) per share | \n\n | 199,545 | \n\n | \n | 364,321 | \n\n | \n | 854,466 |
| Less: Adjustment to allocation of earnings to | \n\n | \n | \n | \n | \n | \n | \n | |
| participating securities related to diluted shares (1) | \n\n | (75 | \n) | \n\n | (110 | \n) | \n\n | – |
| Mandatorily redeemable convertible preferred share | \n\n | \n | \n | \n | \n | \n | \n | |
| dividends | \n\n | – | \n\n | \n | 3,397 | \n\n | \n | – |
| Interest on 3.75% Convertible Notes | \n\n | 739 | \n\n | \n | 2,635 | \n\n | \n | 2,626 |
| Net income attributable to Leucadia | \n\n | \n | \n | \n | \n | \n | \n | |
| National Corporation common shareholders for | \n\n | \n | \n | \n | \n | \n | \n | |
| diluted earnings (loss) per share | \n$ | \n200,209 | \n\n | $ | \n370,243 | \n\n | $ | \n857,092 |
| Denominator for earnings (loss) per share: | \n\n | \n | \n | \n | \n | \n | \n | |
| Denominator for basic earnings (loss) per share – | \n\n | \n | \n | \n | \n | \n | \n | |
| weighted average shares | \n\n | 371,889 | \n\n | \n | 339,673 | \n\n | \n | 244,583 |
| Stock options | \n\n | 29 | \n\n | \n | 55 | \n\n | \n | – |
| Warrants | \n\n | – | \n\n | \n | – | \n\n | \n | – |
| Mandatorily redeemable convertible preferred shares | \n\n | – | \n\n | \n | 3,468 | \n\n | \n | – |
| 3.875% Convertible Senior Debentures | \n\n | – | \n\n | \n | – | \n\n | \n | – |
| 3.75% Convertible Notes | \n\n | 1,415 | \n\n | \n | 4,538 | \n\n | \n | 4,331 |
| Denominator for diluted earnings (loss) per share | \n\n | 373,333 | \n\n | \n | 347,734 | \n\n | \n | 248,914 |
\n\n
(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 9,040,900 and 9,353,400 for the years ended December 31, 2014 and 2013, respectively. Dividends declared on participating securities during the years ended December 31, 2014 and 2013 were $2.2 million and $2.8 million, respectively. Undistributed earnings are allocated to participating securities based upon their right to share in earnings if all earnings for the period had been distributed.
Options to purchase 1,572,777, 1,711,096 and 2,280,711 weighted-average shares of common stock were outstanding during the years ended December 31, 2014, 2013 and 2012, respectively, but were not included in the computation of diluted per share amounts as the effect was antidilutive.
\n\nFor each year in the table above, the denominator for diluted earnings (loss) per share does not include weighted-average common shares of 4,000,000 related to outstanding warrants to purchase common shares at $33.33 per share, as the effect was antidilutive.
\n\nFor the years ended December 31, 2014 and 2013, shares related to the 3.875% Convertible Senior Debentures were not included in the computation of diluted per share amounts as the conversion price exceeded the average market price. For the year ended December 31, 2014, 4,162,200 shares related to the mandatorily redeemable convertible preferred shares were not included in the computation of diluted per share amounts as the effect was antidilutive.
\n\n
Note 11. Loans to and Investments in Associated Companies
\n\nA summary of loans to and investments in associated companies at December 31, 2014 and 2013 accounted for under the equity method of accounting is as follows (in thousands):
\n\n| \n | \n | \n | \n | |
| \n | \n | 2014 | \n\n | 2013 |
| Jefferies Finance, LLC | \n$ | \n508,891 | \n$ | \n470,537 |
| Jefferies LoanCore LLC | \n\n | 258,947 | \n\n | 224,037 |
| Berkadia | \n\n | 208,511 | \n\n | 182,573 |
| Garcadia companies | \n\n | 167,939 | \n\n | 120,017 |
| HomeFed | \n\n | 271,782 | \n\n | 52,923 |
| Linkem S.p.A. | \n\n | 159,054 | \n\n | 173,577 |
| Golden Queen Mining Company, LLC (1) | \n\n | 103,598 | \n\n | – |
| Other | \n\n | 33,846 | \n\n | 34,677 |
| Total | \n$ | \n1,712,568 | \n$ | \n1,258,341 |
\n\n
(1) As discussed below, at December 31, 2014, the balance reflects $34.1 million from a noncontrolling interest.
Income (losses) related to associated companies includes the following for the years ended December 31, 2014, 2013 and 2012 (in thousands):
\n\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | 2014 | \n\n | \n | 2013 | \n\n | \n | 2012 | \n|
| Berkadia | \n$ | \n101,187 | \n\n | $ | \n84,678 | \n\n | $ | \n38,026 | \n|
| Garcadia companies | \n\n | 49,416 | \n\n | \n | 39,399 | \n\n | \n | 31,738 | \n|
| Linkem | \n\n | (14,633 | \n) | \n\n | (22,719 | \n) | \n\n | (18,890 | \n) |
| HomeFed | \n\n | 3,150 | \n\n | \n | 3,539 | \n\n | \n | 1,891 | \n|
| JHYH | \n\n | – | \n\n | \n | 7,178 | \n\n | \n | 33,938 | \n|
| Other | \n\n | (593 | \n) | \n\n | 6,966 | \n\n | \n | 1,946 | \n|
| Total | \n$ | \n138,527 | \n\n | $ | \n119,041 | \n\n | $ | \n88,649 | \n
\n\n
For the year ended December 31, 2013, our share of Berkadia's income includes an out of period adjustment of $16.4 million to record income related to prior periods.
\n\nIncome (losses) related to associated companies classified as Other revenues includes the following for the years ended December 31, 2014 and 2013 (in thousands):
\n\n| \n | \n | \n | \n | \n | \n | |
| \n | \n | 2014 | \n\n | \n | 2013 | \n|
| Jefferies Finance | \n$ | \n72,701 | \n\n | $ | \n57,795 | \n|
| Jefferies LoanCore | \n\n | 18,793 | \n\n | \n | 35,300 | \n|
| Other | \n\n | (1,252 | \n) | \n\n | (915 | \n) |
| Total | \n$ | \n90,242 | \n\n | $ | \n92,180 | \n
\n\n
Jefferies Finance
\n\nIn October 2004, Jefferies entered into an agreement with Babson Capital Management LLC (\"Babson Capital\") and Massachusetts Mutual Life Insurance Company (\"MassMutual\") to form Jefferies Finance, a joint venture entity. Jefferies Finance is a commercial finance company whose primary focus is the origination and syndication of senior secured debt to middle market and growth companies in the form of term and revolving loans. Loans are originated primarily through the investment banking efforts of Jefferies, with Babson Capital providing primary credit analytics and portfolio management services. Jefferies Finance also originates other debt products such as second lien term, bridge and mezzanine loans, as well as related equity co-investments. Jefferies Finance also purchases syndicated loans in the secondary market, including loans that are performing, stressed and distressed loan obligations.
\n\nJefferies and MassMutual each have equity commitments to Jefferies Finance of $600.0 million. At December 31, 2014, approximately $496.0 million of Jefferies commitment was funded. The investment commitment is scheduled to mature on March 1, 2016 with automatic one year extensions subject to a 60 day termination notice by either party.
\n\nIn addition, Jefferies and MassMutual have entered into a Secured Revolving Credit Facility, to be funded equally, to support loan underwritings by Jefferies Finance. The Secured Revolving Credit Facility 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 committed Secured Revolving Credit Facility is $1.0 billion, comprised of committed and discretionary advances totaling $700.0 million and $300.0 million, respectively, at December 31, 2014. Committed advances are shared equally between Jefferies and MassMutual but discretionary advances may be funded in unequal amounts if agreed between MassMutual and Jefferies. The facility is scheduled to mature on March 1, 2016 with automatic one year extensions subject to a 60 day termination notice by either party. At December 31, 2014 and 2013, $0 million and $123.8 million, respectively, of Jefferies $350.0 million commitment was funded.
\n\nJefferies engages in debt capital markets transactions with Jefferies Finance related to the originations of loans by Jefferies Finance. In connection with such transactions, Jefferies earned net underwriting fees of $199.5 million and $125.8 million during 2014 and 2013, respectively, which are recognized in Investment banking revenues in the Consolidated Statements of Operations. In addition, Jefferies paid fees to Jefferies Finance regarding certain loans originated by Jefferies Finance of $10.6 million and $12.0 million during 2014 and 2013, respectively, which are recognized within Selling, general and other expenses in the Consolidated Statements of Operations.
\n\nDuring the years ended December 31, 2014 and 2013, Jefferies acted as placement agent in connection with CLOs managed by Jefferies Finance, for which Jefferies recognized fees of $4.6 million and $1.9 million, respectively, which are included in Investment banking revenues in the Consolidated Statements of Operations. As part of the transaction, Jefferies purchased securities issued by the CLOs, which are included within Trading assets, and provided a guarantee, whereby Jefferies is required to make payments to a CLO in the event Jefferies Finance is unable to meet its obligation to the CLO. Additionally, Jefferies has entered into a derivative contract with Jefferies Finance whose underlying is based on certain securities issued by the CLO. There were no significant revenues recognized by Jefferies in connection with its roles related to the execution of the CLO.
\n\nDuring 2014 and the 2013 period, Jefferies acted as underwriter in connection with senior notes issued by Jefferies Finance, for which Jefferies recognized net underwriting fees of $7.7 million and $6.0 million, respectively, which are included in Investment banking revenues in the Consolidated Statements of operations.
\n\nUnder a service agreement, Jefferies charged Jefferies Finance $41.6 million and $14.2 million for services provided during 2014 and 2013, respectively. Receivables from Jefferies Finance, included within Other assets in the Consolidated Statements of Financial Condition, were $41.5 million and $31.1 million at December 31, 2014 and 2013, respectively.
\n\nJefferies LoanCore
\n\nIn February 2011, Jefferies entered into a joint venture agreement with the Government of Singapore Investment Corporation and LoanCore, LLC and formed Jefferies LoanCore, a commercial real estate finance company. Jefferies LoanCore originates and purchases commercial real estate loans throughout the United States with the support of the investment banking and securitization capabilities of Jefferies and the real estate and mortgage investment expertise of the Government of Singapore Investment Corporation and LoanCore, LLC. Jefferies LoanCore has aggregate equity commitments of $600.0 million. At December 31, 2014 and 2013, Jefferies has funded $200.9 million and $175.5 million, respectively, of its $291.0 million equity commitment and has a 48.5% voting interest in Jefferies LoanCore.
\n\nBerkadia
\n\nBerkadia Commercial Mortgage LLC is a commercial mortgage banking and servicing joint venture formed in 2009 with Berkshire Hathaway. We and Berkshire Hathaway each contributed $217.2 million of equity capital to the joint venture and each have a 50% equity interest in Berkadia. Through December 31, 2014, cumulative cash distributions received from this investment aggregated $303.8 million. Berkadia originates commercial/multifamily real estate loans that are sold to U.S. government agencies, and originates and brokers commercial mortgage loans which are not part of government agency programs. 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.
\n\nBerkadia 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 $2.5 billion surety policy issued by a Berkshire Hathaway insurance subsidiary and corporate guaranty, and we have agreed to reimburse Berkshire Hathaway for one-half of any losses incurred thereunder. As of December 31, 2014, the aggregate amount of commercial paper outstanding was $2.47 billion.
\n\nLinkem
\n\nWe have acquired approximately 42% of the common shares of Linkem, a fixed wireless broadband services provider in Italy, for aggregate cash consideration of $142.9 million. In addition, we have purchased 5% convertible notes issued by Linkem for $95.2 million (€72.7 million principal amount, including interest in kind) which if converted, would increase our ownership to approximately 55% of Linkem's common equity. The excess of our investment in Linkem's common shares over our share of underlying book value is being amortized to expense over 12 years.
\n\nHomeFed
\n\nAt December 31, 2014, we own 9,974,226 shares of HomeFed's common stock, representing approximately 65% of HomeFed's outstanding common shares; however, we have agreed to limit our voting rights such that we will not be able to vote more than 45% of HomeFed's total voting securities voting on any matter, assuming all HomeFed shares not owned by us are voted. HomeFed is engaged, directly and through subsidiaries, in the investment in and development of real estate projects. HomeFed is a public company traded on the NASD OTC Bulletin Board (Symbol: HOFD). As a result of a 1998 distribution to all of our shareholders, approximately 4.8% of HomeFed is beneficially owned by our Chairman at December 31, 2014. Our Chairman also serves as HomeFed's Chairman, and our President is a Director of HomeFed.
\n\nDuring 2014, we sold to HomeFed substantially all of our real estate properties and operations, our interest in Brooklyn Renaissance Plaza (\"BRP\") and cash of approximately $14.0 million, in exchange for 7,500,000 newly issued unregistered HomeFed common shares.
\n\nSince we do not control HomeFed, our investment in HomeFed is accounted for as an investment in an associated company. We have also entered into a stockholders agreement that will limit our ability to increase our interest in HomeFed or dispose of our interest in HomeFed. We have a registration rights agreement with HomeFed that covers all of our HomeFed shares. See Note 30 for more information about the assets sold to HomeFed.
\n\nUnder GAAP, we are not permitted to immediately recognize any gain on real estate sale transactions in which the seller does not receive cash; accordingly the gain on sale of approximately $36.1 million was deferred and is being recognized into income over time. The new HomeFed shares received were recorded at fair value, which we estimated to be $28.76 per share, based on projections of future cash flows for HomeFed's underlying projects, discounted at a risk adjusted rate.
\n\nGolden Queen Mining Company
\n\nDuring 2014, we invested $70.9 million, net in cash in a limited liability company (Gauss LLC) to partner with the Clay family and Golden Queen Mining Co. Ltd., to jointly fund, develop and operate the Soledad Mountain gold and silver mine project. Previously 100% owned by Golden Queen Mining Co. Ltd., the project is a fully-permitted, open pit, heap leach gold and silver project located in Kern County, California. Construction has started on site and commissioning is planned for late 2015. In exchange for a noncontrolling ownership interest in Gauss LLC, the Clay family contributed $34.1 million, net in cash. Gauss LLC invested both our and the Clay family's net contributions totaling $105 million to the joint venture, Golden Queen Mining Company, LLC, in exchange for a 50% ownership interest. Golden Queen Mining Co., Ltd. contributed the Soledad Mountain project to the joint venture in exchange for the other 50% interest.
\n\nAs a result of our consolidating Gauss LLC, our Loans to and investments in associated companies reflects Gauss LLC's net investment of $105 million in the joint venture, which includes both the amount we contributed and the amount contributed by the Clay family. The joint venture, Golden Queen Mining Company, LLC, is considered a VIE as the voting rights of the investors are not proportional to their obligations to absorb the expected losses and their rights to receive the expected residual returns, given the provision of services to the joint venture by Golden Queen Mining Co. Ltd. Golden Queen Mining Co. Ltd. has entered into an agreement with the joint venture for the provision of executive officers, financial, managerial, administrative and other services, and office space and equipment. We have determined that we are not the primary beneficiary of the joint venture and are therefore not consolidating its results.
\n\nWe have committed to invest during the nine months after our initial investment up to an additional approximately $27 million to fully develop the project.
\n\nOur maximum exposure to loss as a result of our involvement with the joint venture is limited to our investment and the commitment discussed above.
\n\nJHYH
\n\nUnder GAAP, JHYH was considered a variable interest entity that was consolidated by Jefferies, since Jefferies was the primary beneficiary. In connection with the Jefferies acquisition, we contributed our investment in JHYH to Jefferies, other third-party investors were redeemed and JHYH was effectively dissolved.
\n\nThe following table provides summarized data for associated companies as of December 31, 2014 and 2013 and for the three years ended December 31, 2014 (in thousands):
\n\n| \n | \n | \n | \n | \n | \n | |
| \n | \n | 2014 | \n\n | 2013 | \n\n | |
| Assets | \n$ | \n12,683,212 | \n$ | \n8,852,807 | \n\n | |
| Liabilities | \n\n | 9,350,034 | \n\n | 6,292,252 | \n\n | |
| Noncontrolling interest | \n\n | 12,718 | \n\n | 11,491 | \n\n | |
| \n | \n | \n | \n | \n | \n | |
| \n | \n | 2014 | \n\n | 2013 | \n\n | 2012 |
| Revenues | \n$ | \n3,201,823 | \n$ | \n2,710,205 | \n$ | \n1,995,858 |
| Income from continuing operations before | \n\n | \n | \n | \n | \n | |
| extraordinary items | \n$ | \n431,654 | \n$ | \n428,509 | \n$ | \n255,038 |
| Net income | \n$ | \n431,654 | \n$ | \n434,969 | \n$ | \n255,038 |
| The Company's income related to | \n\n | \n | \n | \n | \n | |
| associated companies | \n$ | \n228,769 | \n$ | \n211,221 | \n$ | \n88,649 |
\n\n
Except for our investment in Berkadia, we have not provided any guarantees, nor are we contingently liable for any of the liabilities reflected in the above table. All such liabilities are non-recourse to us. Our exposure to adverse events at the investee companies is limited to the book value of our investment.
\n\nIncluded in consolidated retained earnings at December 31, 2014 is approximately $123.4 million of undistributed earnings of the associated companies accounted for under the equity method of accounting.
\n\n
.
\n\n
Note 5. Fair Value Disclosures
\n\nThe following is a summary of our financial instruments, trading liabilities and investments in managed funds that are accounted for at fair value on a recurring basis by level within the fair value hierarchy at December 31, 2014 and 2013 (in thousands):
\n\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | December 31, 2014 | |||||||||
| \n | \n | \n | \n | \n | \n | \n | \n | Counterparty | \n\n | \n | |
| \n | \n | \n | \n | \n | \n | \n | \n | and | \n\n | \n | |
| \n | \n | \n | \n | \n | \n | \n | \n | Cash | \n\n | \n | |
| \n | \n | \n | \n | \n | \n | \n | \n | Collateral | \n\n | \n | |
| \n | \n | Level 1 (1) | \n\n | Level 2 (1) | \n\n | Level 3 | \n\n | Netting (2) | \n\n | \n | Total |
| Assets: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Trading assets, at fair value: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Corporate equity securities | \n$ | \n3,130,892 | \n$ | \n226,441 | \n$ | \n20,964 | \n$ | \n– | \n\n | $ | \n3,378,297 |
| Corporate debt securities | \n\n | – | \n\n | 3,342,276 | \n\n | 55,918 | \n\n | – | \n\n | \n | 3,398,194 |
| Collateralized debt obligations | \n\n | – | \n\n | 306,218 | \n\n | 91,498 | \n\n | – | \n\n | \n | 397,716 |
| U.S. government and federal agency securities | \n\n | 2,694,268 | \n\n | 81,273 | \n\n | – | \n\n | – | \n\n | \n | 2,775,541 |
| Municipal securities | \n\n | – | \n\n | 590,849 | \n\n | – | \n\n | – | \n\n | \n | 590,849 |
| Sovereign obligations | \n\n | 1,968,747 | \n\n | 790,764 | \n\n | – | \n\n | – | \n\n | \n | 2,759,511 |
| Residential mortgage-backed securities | \n\n | – | \n\n | 2,879,954 | \n\n | 82,557 | \n\n | – | \n\n | \n | 2,962,511 |
| Commercial mortgage-backed securities | \n\n | – | \n\n | 966,651 | \n\n | 26,655 | \n\n | – | \n\n | \n | 993,306 |
| Other asset-backed securities | \n\n | – | \n\n | 137,387 | \n\n | 2,294 | \n\n | – | \n\n | \n | 139,681 |
| Loans and other receivables | \n\n | – | \n\n | 1,458,760 | \n\n | 97,258 | \n\n | – | \n\n | \n | 1,556,018 |
| Derivatives | \n\n | 65,145 | \n\n | 5,046,278 | \n\n | 54,190 | \n\n | (4,759,345 | \n) | \n\n | 406,268 |
| Investments at fair value | \n\n | – | \n\n | 73,152 | \n\n | 119,212 | \n\n | – | \n\n | \n | 192,364 |
| Physical commodities | \n\n | – | \n\n | 62,234 | \n\n | – | \n\n | – | \n\n | \n | 62,234 |
| Total trading assets | \n$ | \n7,859,052 | \n$ | \n15,962,237 | \n$ | \n550,546 | \n$ | \n(4,759,345 | \n) | \n$ | \n19,612,490 |
| Available for sale securities: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Corporate equity securities | \n$ | \n89,353 | \n$ | \n– | \n$ | \n– | \n\n | $ – | \n\n | $ | \n89,353 |
| Corporate debt securities | \n\n | – | \n\n | 30,403 | \n\n | – | \n\n | – | \n\n | \n | 30,403 |
| U.S. government securities | \n\n | 593,773 | \n\n | – | \n\n | – | \n\n | – | \n\n | \n | 593,773 |
| Residential mortgage-backed securities | \n\n | – | \n\n | 606,683 | \n\n | – | \n\n | – | \n\n | \n | 606,683 |
| Commercial mortgage-backed securities | \n\n | – | \n\n | 43,401 | \n\n | – | \n\n | – | \n\n | \n | 43,401 |
| Other asset-backed securities | \n\n | – | \n\n | 245,156 | \n\n | – | \n\n | – | \n\n | \n | 245,156 |
| Total available for sale securities | \n$ | \n683,126 | \n$ | \n925,643 | \n$ | \n– | \n\n | $ – | \n\n | $ | \n1,608,769 |
| Cash and cash equivalents | \n$ | \n4,276,775 | \n$ | \n– | \n$ | \n– | \n\n | $ – | \n\n | $ | \n4,276,775 |
| Investments in managed funds | \n\n | $ – | \n$ | \n226,488 | \n$ | \n54,982 | \n\n | $ – | \n\n | $ | \n281,470 |
| Cash and securities segregated and on deposit for regulatory | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| purposes or deposited with clearing and depository | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| organizations (3) | \n$ | \n3,444,674 | \n$ | \n– | \n$ | \n– | \n\n | $ – | \n\n | $ | \n3,444,674 |
| Securities received as collateral | \n$ | \n5,418 | \n$ | \n– | \n$ | \n– | \n\n | $ – | \n\n | $ | \n5,418 |
| Liabilities: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Trading liabilities: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Corporate equity securities | \n$ | \n1,934,469 | \n$ | \n74,681 | \n$ | \n38 | \n\n | $ – | \n\n | $ | \n2,009,188 |
| Corporate debt securities | \n\n | – | \n\n | 1,611,994 | \n\n | 223 | \n\n | – | \n\n | \n | 1,612,217 |
| Collateralized debt obligations | \n\n | – | \n\n | 4,557 | \n\n | – | \n\n | – | \n\n | \n | 4,557 |
| U.S. government and federal agency securities | \n\n | 2,253,055 | \n\n | – | \n\n | – | \n\n | – | \n\n | \n | 2,253,055 |
| Sovereign obligations | \n\n | 1,217,075 | \n\n | 574,010 | \n\n | – | \n\n | – | \n\n | \n | 1,791,085 |
| Loans | \n\n | – | \n\n | 856,525 | \n\n | 14,450 | \n\n | – | \n\n | \n | 870,975 |
| Derivatives | \n\n | 52,778 | \n\n | 5,117,803 | \n\n | 49,552 | \n\n | (4,856,618 | \n) | \n\n | 363,515 |
| Total trading liabilities | \n$ | \n5,457,377 | \n$ | \n8,239,570 | \n$ | \n64,263 | \n$ | \n(4,856,618 | \n) | \n$ | \n8,904,592 |
| Other secured financings | \n\n | $ – | \n$ | \n– | \n$ | \n30,825 | \n\n | $ – | \n\n | $ | \n30,825 |
| Obligation to return securities received as collateral | \n$ | \n5,418 | \n$ | \n– | \n$ | \n– | \n\n | $ – | \n\n | $ | \n5,418 |
\n\n
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | December 31, 2013 | ||||||||||
| \n | \n | \n | \n | \n | \n | \n | \n | Counterparty | \n\n | \n | ||
| \n | \n | \n | \n | \n | \n | \n | \n | and | \n\n | \n | ||
| \n | \n | \n | \n | \n | \n | \n | \n | Cash | \n\n | \n | ||
| \n | \n | \n | \n | \n | \n | \n | \n | Collateral | \n\n | \n | ||
| \n | \n | Level 1 (1) | \n\n | Level 2 (1) | \n\n | Level 3 | \n\n | Netting (2) | \n\n | \n | Total | |
| Assets: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Trading assets, at fair value: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Corporate equity securities | \n$ | \n1,957,963 | \n$ | \n175,493 | \n$ | \n9,884 | \n\n | $ | \n– | \n\n | $ | \n2,143,340 |
| Corporate debt securities | \n\n | – | \n\n | 2,961,857 | \n\n | 25,666 | \n\n | \n | – | \n\n | \n | 2,987,523 |
| Collateralized debt obligations | \n\n | – | \n\n | 182,095 | \n\n | 37,216 | \n\n | \n | – | \n\n | \n | 219,311 |
| U.S. government and federal agency securities | \n\n | 2,293,221 | \n\n | 40,389 | \n\n | – | \n\n | \n | – | \n\n | \n | 2,333,610 |
| Municipal securities | \n\n | – | \n\n | 664,054 | \n\n | – | \n\n | \n | – | \n\n | \n | 664,054 |
| Sovereign obligations | \n\n | 1,458,803 | \n\n | 889,685 | \n\n | – | \n\n | \n | – | \n\n | \n | 2,348,488 |
| Residential mortgage-backed securities | \n\n | – | \n\n | 2,932,268 | \n\n | 105,492 | \n\n | \n | – | \n\n | \n | 3,037,760 |
| Commercial mortgage-backed securities | \n\n | – | \n\n | 1,130,410 | \n\n | 17,568 | \n\n | \n | – | \n\n | \n | 1,147,978 |
| Other asset-backed securities | \n\n | – | \n\n | 55,475 | \n\n | 12,611 | \n\n | \n | – | \n\n | \n | 68,086 |
| Loans and other receivables | \n\n | – | \n\n | 1,203,238 | \n\n | 145,890 | \n\n | \n | – | \n\n | \n | 1,349,128 |
| Derivatives | \n\n | 40,952 | \n\n | 2,472,238 | \n\n | 1,493 | \n\n | \n | (2,253,589 | \n) | \n\n | 261,094 |
| Investments at fair value | \n\n | – | \n\n | 40 | \n\n | 101,242 | \n\n | \n | – | \n\n | \n | 101,282 |
| Physical commodities | \n\n | – | \n\n | 37,888 | \n\n | – | \n\n | \n | – | \n\n | \n | 37,888 |
| Total trading assets | \n$ | \n5,750,939 | \n$ | \n12,745,130 | \n$ | \n457,062 | \n\n | $ | \n(2,253,589 | \n) | \n$ | \n16,699,542 |
| Available for sale securities: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Corporate equity securities | \n$ | \n252,531 | \n$ | \n– | \n$ | \n– | \n\n | $ | \n– | \n\n | $ | \n252,531 |
| Corporate debt securities | \n\n | – | \n\n | 51,163 | \n\n | – | \n\n | \n | – | \n\n | \n | 51,163 |
| U.S. government securities | \n\n | 1,781,266 | \n\n | – | \n\n | – | \n\n | \n | – | \n\n | \n | 1,781,266 |
| Residential mortgage-backed securities | \n\n | – | \n\n | 579,162 | \n\n | – | \n\n | \n | – | \n\n | \n | 579,162 |
| Commercial mortgage-backed securities | \n\n | – | \n\n | 17,985 | \n\n | – | \n\n | \n | – | \n\n | \n | 17,985 |
| Other asset-backed securities | \n\n | – | \n\n | 184,036 | \n\n | – | \n\n | \n | – | \n\n | \n | 184,036 |
| Total available for sale securities | \n$ | \n2,033,797 | \n$ | \n832,346 | \n$ | \n– | \n\n | $ | \n– | \n\n | $ | \n2,866,143 |
| Cash and cash equivalents | \n$ | \n3,907,595 | \n$ | \n– | \n$ | \n– | \n\n | $ | \n– | \n\n | $ | \n3,907,595 |
| Investments in managed funds | \n$ | \n– | \n$ | \n– | \n$ | \n57,285 | \n\n | $ | \n– | \n\n | $ | \n57,285 |
| Cash and securities segregated and on deposit for regulatory | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| purposes or deposited with clearing and depository | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| organizations (3) | \n$ | \n3,616,602 | \n$ | \n– | \n$ | \n– | \n\n | $ | \n– | \n\n | $ | \n3,616,602 |
| Securities received as collateral | \n$ | \n11,063 | \n$ | \n– | \n$ | \n– | \n\n | $ | \n– | \n\n | $ | \n11,063 |
| Liabilities: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Trading liabilities: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Corporate equity securities | \n$ | \n1,804,392 | \n$ | \n40,358 | \n$ | \n38 | \n\n | $ | \n– | \n\n | $ | \n1,844,788 |
| Corporate debt securities | \n\n | – | \n\n | 1,346,078 | \n\n | – | \n\n | \n | – | \n\n | \n | 1,346,078 |
| U.S. government and federal agency securities | \n\n | 1,324,326 | \n\n | – | \n\n | – | \n\n | \n | – | \n\n | \n | 1,324,326 |
| Sovereign obligations | \n\n | 1,360,269 | \n\n | 471,088 | \n\n | – | \n\n | \n | – | \n\n | \n | 1,831,357 |
| Residential mortgage-backed securities | \n\n | – | \n\n | 34,691 | \n\n | – | \n\n | \n | – | \n\n | \n | 34,691 |
| Loans | \n\n | – | \n\n | 672,838 | \n\n | 22,462 | \n\n | \n | – | \n\n | \n | 695,300 |
| Derivatives | \n\n | 43,829 | \n\n | 2,480,463 | \n\n | 8,398 | \n\n | \n | (2,352,611 | \n) | \n\n | 180,079 |
| Physical commodities | \n\n | – | \n\n | 36,483 | \n\n | – | \n\n | \n | – | \n\n | \n | 36,483 |
| Total trading liabilities | \n$ | \n4,532,816 | \n$ | \n5,081,999 | \n$ | \n30,898 | \n\n | $ | \n(2,352,611 | \n) | \n$ | \n7,293,102 |
| Other secured financings | \n$ | \n– | \n$ | \n31,000 | \n$ | \n8,711 | \n\n | $ | \n– | \n\n | $ | \n39,711 |
| Obligation to return securities received as collateral | \n$ | \n11,063 | \n\n | $ – | \n$ | \n– | \n\n | $ | \n– | \n\n | $ | \n11,063 |
\n\n
| (1) | \nDuring 2014, equity options presented within Trading assets and Trading liabilities of $6.1 million and $6.6 million, respectively, were transferred from Level 1 to Level 2 as adjustments were incorporated into the valuation approach for such contracts to estimate the point within the bid-ask range that meets the best estimate of fair value. During 2013, listed equity options with a fair value of $403.0 million within Trading assets and $423.0 million within Trading liabilities were transferred from Level 1 to Level 2 as adjustments to the exchange closing price are necessary to best reflect the fair value of the population at its exit price. |
| (2) | \n\n\n Represents counterparty and cash collateral netting across the levels of the fair value hierarchy for positions with the same counterparty. |
| (3) | \nSecurities comprise U.S. government securities segregated for regulatory purposes with a fair value of $453.7 million and $304.2 million at December 31, 2014 and 2013, respectively, and, at December 31, 2014, Commodities Futures Trading Commission (\"CFTC\") approved money market funds with a fair value of $545.0 million. |
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:
\n\nCorporate Equity Securities
\n\nCorporate Debt Securities
\n\nCollateralized Debt Obligations
\n\nCollateralized debt obligations are measured based on prices observed for recently executed market transactions of the same or similar security or based on valuations received from third party brokers or data providers and are categorized within Level 2 or Level 3 of the fair value hierarchy depending on the observability and significance of the pricing inputs. Valuation that is based on recently executed market transitions of similar securities incorporates additional review and analysis of pricing inputs and comparability criteria including but not limited to collateral type, tranche type, rating, origination year, prepayment rates, default rates, and severities.
\n\nU.S. Government and Federal Agency Securities
\n\nMunicipal Securities
\n\nMunicipal securities are measured based on quoted prices obtained from external pricing services and are generally categorized within Level 2 of the fair value hierarchy.
\n\nSovereign Obligations
\n\nForeign sovereign government obligations are measured based on quoted market prices obtained from external pricing services, where available, or recently executed independent transactions of comparable size. To the extent external price quotations are not available or recent transactions have not been observed, valuation techniques incorporating interest rate yield curves and country spreads for bonds of similar issuers, seniority and maturity are used to determine fair value of sovereign bonds or obligations. Foreign sovereign government obligations are classified in Level 1, Level 2 or Level 3 of the fair value hierarchy, primarily based on the country of issuance.
\n\nResidential Mortgage-Backed Securities
\n\nCommercial Mortgage-Backed Securities
\n\nOther Asset-Backed Securities
\n\nOther asset-backed securities include, but are not limited to, securities backed by auto loans, credit card receivables and student loans and are categorized within Level 2 and Level 3 of the fair value hierarchy. Valuations are determined using pricing data obtained from external pricing services and prices observed for recently executed market transactions.
\n\nLoans and Other Receivables
\n\nDerivatives
\n\nOTC options include OTC equity, foreign exchange and commodity options measured using various valuation models, such as the Black-Scholes, with key inputs impacting the valuation including the underlying security, foreign exchange spot rate or commodity price, implied volatility, dividend yield, interest rate curve, strike price and maturity date. Discounted cash flow models are utilized to measure certain OTC derivative contracts including the valuations of our interest rate swaps, which incorporate observable inputs related to interest rate curves, valuations of our foreign exchange forwards and swaps, which incorporate observable inputs related to foreign currency spot rates and forward curves and valuations of our commodity swaps and forwards, which incorporate observable inputs related to commodity spot prices and forward curves. Credit default swaps include both index and single-name credit default swaps. External prices are available as inputs in measuring index credit default swaps and single-name credit default swaps. For commodity and equity total return swaps, market prices are observable for the underlying asset and used as the basis for measuring the fair value of the derivative contracts. Total return swaps executed on other underlyings are measured based on valuations received from external pricing services.
\n\nPhysical Commodities
\n\nPhysical commodities include base and precious metals and are measured using observable inputs including spot prices and published indices. Physical commodities are categorized within Level 2 of the fair value hierarchy. To facilitate the trading in precious metals we undertake leasing of such precious metals. The fees earned or paid for such leases are recorded as revenues in the Consolidated Statements of Operations.
\n\nInvestments at Fair Value and Investments in Managed Funds
\n\nInvestments at fair value and Investments in managed funds include investments in hedge funds, fund of funds, private equity funds, convertible bond funds and other funds, which are measured at fair value based on the net asset value of the funds provided by the fund managers and are categorized within Level 2 or Level 3 of the fair value hierarchy. Investments at fair value also include direct equity investments in private companies, which are measured at fair value using valuation techniques involving quoted prices of or market data for comparable companies, similar company ratios and multiples (e.g., price/EBITDA, price/book value), discounted cash flow analyses and transaction prices observed for subsequent financing or capital issuance by the company. Direct equity investments in private companies are categorized within Level 2 or Level 3 of the fair value hierarchy. Additionally, investments at fair value include investments in insurance contracts relating to our defined benefit plan in Germany. Fair value for the insurance contracts is determined using a third party and is categorized within Level 3 of the fair value hierarchy. The following tables present information about our investments in entities that have the characteristics of an investment company (in thousands).
\n\n| \n | \n | \n | \n | \n | |
| \n | December 31, 2014 | ||||
| \n | \n | \n | \n | \n | Redemption |
| \n | \n | \n | \n | Unfunded | \nFrequency |
| \n | \n | Fair Value (1) | \n\n | Commitments | \n(if currently eligible) |
| Equity Long/Short Hedge Funds (2) | \n$ | \n146,134 | \n$ | \n– | \nMonthly/Quarterly |
| High Yield Hedge Funds (3) | \n\n | 204 | \n\n | – | \n– |
| Fund of Funds (4) | \n\n | 323 | \n\n | 94 | \n– |
| Equity Funds (5) | \n\n | 65,216 | \n\n | 26,023 | \n– |
| Convertible Bond Funds (6) | \n\n | 3,355 | \n\n | – | \nAt Will |
| Multi-strategy Fund (7) | \n\n | 105,954 | \n\n | – | \n– |
| Total (8) | \n$ | \n321,186 | \n$ | \n26,117 | \n
\n\n
| \n | \n | \n | \n | \n | |
| \n | December 31, 2013 | ||||
| \n | \n | \n | \n | \n | Redemption |
| \n | \n | \n | \n | Unfunded | \nFrequency |
| \n | \n | Fair Value (1) | \n\n | Commitments | \n(if currently eligible) |
| Equity Long/Short Hedge Funds (2) | \n$ | \n20,927 | \n$ | \n– | \nMonthly/Quarterly |
| High Yield Hedge Funds (3) | \n\n | 244 | \n\n | – | \n– |
| Fund of Funds (4) | \n\n | 494 | \n\n | 94 | \n– |
| Equity Funds (5) | \n\n | 66,495 | \n\n | 40,816 | \n– |
| Convertible Bond Funds (6) | \n\n | 3,473 | \n\n | – | \nAt Will |
| Total (8) | \n$ | \n91,633 | \n$ | \n40,910 | \n
\n\n
| (1) | \nWhere fair value is calculated based on net asset value, fair value has been derived from each of the funds' capital statements. |
| (2) | \nThis category includes investments in hedge funds that invest, long and short, in equity securities in domestic and international markets in both the public and private sectors. At December 31, 2014 and 2013, investments representing approximately 99% and 98%, respectively, of the fair value of investments in this category are redeemable with 30 to 90 days prior written notice, and includes an investment in a private asset management fund managed by us with a fair value of $117.2 million at December 31, 2014. |
| (3) | \nIncludes investments in funds that invest in domestic and international public high yield debt, private high yield investments, senior bank loans, public leveraged equities, distressed debt, and private equity investments. There are no redemption provisions. The underlying assets of the funds are being liquidated and we are unable to estimate when the underlying assets will be fully liquidated. |
| (4) | \nIncludes investments in fund of funds that invest in various private equity funds. At December 31. 2014 and 2013, approximately 95% and 98%, respectively, of the fair value of investments in this category is managed by us and has no redemption provisions, instead distributions are received through the liquidation of the underlying assets of the fund of funds, which are estimated to be liquidated in approximately two years. For the remaining investments, we have requested redemption; however, we are unable to estimate when these funds will be received. |
| (5) | \nAt December 31, 2014 and 2013, investments representing approximately 99% and 99%, respectively, of the fair value of investments in this category include investments in equity funds that invest in the equity of various U.S. and foreign private companies in the energy, technology, internet service and telecommunication service industries. These investments cannot be redeemed, instead distributions are received through the liquidation of the underlying assets of the funds which are expected to liquidate in one to eight years. The remaining investments are in liquidation and we are unable to estimate when the underlying assets will be fully liquidated. |
| (6) | \nInvestment in the Jefferies Umbrella Fund, an open-ended investment company managed by us that invests primarily in convertible bonds. The investment is redeemable with five days prior written notice. |
| (7) | \nInvestment in private asset management fund managed by us that employs a variety of investment strategies and can invest in U.S. and non-U.S. equity and equity related securities, futures, exchange traded funds, fixed income securities, preferred securities, options, forward contracts and swaps. Withdrawals from the fund prior to the first year anniversary of the investment are subject to a 5% withdrawal fee and withdrawals during any calendar quarter are limited to 25% of the fund's net asset value. Both of these restrictions can be waived by us, in our sole discretion. |
| (8) | \nInvestments at fair value in the Consolidated Statements of Financial Condition at December 31, 2014 and 2013, include $152.6 million and $66.9 million, respectively, of direct investments which do not have the characteristics of investment companies and therefore not included within this table |
Other Secured Financings
\n\nOther secured financings that are accounted for at fair value include notes issued by consolidated VIEs, which are classified as Level 2 or Level 3 within the fair value hierarchy. Fair value is based on recent transaction prices for similar assets. In addition, at December 31, 2014 and 2013, Other secured financings includes $7.8 million and $8.7 million, respectively, related to transfers of loans accounted for as secured financings rather than as sales and classified as Level 3 within the fair value hierarchy.
\n\nPricing Information
\n\nOur trading assets and trading liabilities are measured using different valuation bases as follows:
\n\n| \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | December 31, 2014 | \n\n | December 31, 2013 | \n|||||
| \n | Trading Assets | \n\n | Trading Liabilities | \n\n | Trading Assets | \n\n | Trading Liabilities | \n|
| Exchange closing prices | \n16 | \n% | \n20 | \n% | \n12 | \n% | \n25 | \n% |
| Recently observed transaction prices | \n4 | \n% | \n2 | \n% | \n5 | \n% | \n4 | \n% |
| External pricing services | \n67 | \n% | \n69 | \n% | \n68 | \n% | \n66 | \n% |
| Broker quotes | \n4 | \n% | \n3 | \n% | \n3 | \n% | \n3 | \n% |
| Valuation techniques | \n9 | \n% | \n6 | \n% | \n12 | \n% | \n2 | \n% |
| \n | 100 | \n% | \n100 | \n% | \n100 | \n% | \n100 | \n% |
\n\n
The following is a summary of changes in fair value of our financial assets and liabilities that have been categorized within Level 3 of the fair value hierarchy for the year ended December 31, 2014 (in thousands):
\n\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Year Ended December 31, 2014 | |||||||||||||||||||||||||
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | Changes in | \n|
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | unrealized | \n|
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | gains (losses) | \n|
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | relating to | \n|
| \n | \n | \n | \n | Total gains | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | instruments | \n|
| \n | \n | Balance, | \n\n | (losses) | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | Net transfers | \n\n | \n | Balance, | \n\n | \n | still held at | \n|
| \n | \n | December 31, | \n\n | (realized and | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | into (out of) | \n\n | \n | December 31, | \n\n | \n | December 31, | \n|
| \n | \n | 2013 | \n\n | unrealized) (1) | \n\n | Purchases | \n\n | \n | Sales | \n\n | Settlements | \n\n | \n | Issuances | \n\n | Level 3 | \n\n | \n | 2014 | \n\n | \n | 2014 (1) | \n|||
| Assets: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Trading assets: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Corporate equity securities | \n$ | \n9,884 | \n$ | \n957 | \n\n | $ | \n18,138 | \n\n | $ | \n(12,826 | \n) | \n$ | \n– | \n\n | $ | \n– | \n$ | \n4,811 | \n\n | $ | \n20,964 | \n\n | $ | \n2,324 | \n|
| Corporate debt securities | \n\n | 25,666 | \n\n | 2,546 | \n\n | \n | 62,933 | \n\n | \n | (51,094 | \n) | \n\n | – | \n\n | \n | – | \n\n | 15,867 | \n\n | \n | 55,918 | \n\n | \n | 16,000 | \n|
| Collateralized debt obligations | \n\n | 37,216 | \n\n | (2,303 | \n) | \n\n | 179,720 | \n\n | \n | (170,991 | \n) | \n\n | (1,297 | \n) | \n\n | – | \n\n | 49,153 | \n\n | \n | 91,498 | \n\n | \n | 8,159 | \n|
| U.S. government and federal | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| agency securities | \n\n | – | \n\n | 13 | \n\n | \n | 2,505 | \n\n | \n | (2,518 | \n) | \n\n | – | \n\n | \n | – | \n\n | – | \n\n | \n | – | \n\n | \n | – | \n|
| Residential mortgage-backed | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| securities | \n\n | 105,492 | \n\n | (9,870 | \n) | \n\n | 42,632 | \n\n | \n | (61,689 | \n) | \n\n | (1,847 | \n) | \n\n | – | \n\n | 7,839 | \n\n | \n | 82,557 | \n\n | \n | (4,679 | \n) |
| Commercial mortgage-backed | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| securities | \n\n | 17,568 | \n\n | (4,237 | \n) | \n\n | 49,159 | \n\n | \n | (51,360 | \n) | \n\n | (782 | \n) | \n\n | – | \n\n | 16,307 | \n\n | \n | 26,655 | \n\n | \n | (2,384 | \n) |
| Other asset-backed securities | \n\n | 12,611 | \n\n | 1,784 | \n\n | \n | 4,987 | \n\n | \n | (18,002 | \n) | \n\n | – | \n\n | \n | – | \n\n | 914 | \n\n | \n | 2,294 | \n\n | \n | 1,484 | \n|
| Loans and other receivables | \n\n | 145,890 | \n\n | (31,311 | \n) | \n\n | 130,169 | \n\n | \n | (92,140 | \n) | \n\n | (60,390 | \n) | \n\n | – | \n\n | 5,040 | \n\n | \n | 97,258 | \n\n | \n | (26,864 | \n) |
| Investments at fair value | \n\n | 101,242 | \n\n | 20,383 | \n\n | \n | 34,993 | \n\n | \n | (26,353 | \n) | \n\n | (1,243 | \n) | \n\n | – | \n\n | (9,810 | \n) | \n\n | 119,212 | \n\n | \n | 4,726 | \n|
| Investments in managed funds | \n\n | 57,285 | \n\n | (13,541 | \n) | \n\n | 14,876 | \n\n | \n | (315 | \n) | \n\n | – | \n\n | \n | – | \n\n | (3,323 | \n) | \n\n | 54,982 | \n\n | \n | (13,541 | \n) |
| Liabilities: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Trading liabilities: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Corporate equity securities | \n$ | \n38 | \n$ | \n– | \n\n | $ | \n– | \n\n | \n | $ – | \n\n | $ | \n– | \n\n | $ | \n– | \n$ | \n– | \n\n | $ | \n38 | \n\n | \n | $ – | \n|
| Corporate debt securities | \n\n | – | \n\n | (149 | \n) | \n\n | (565 | \n) | \n\n | 960 | \n\n | \n | – | \n\n | \n | – | \n\n | (23 | \n) | \n\n | 223 | \n\n | \n | (8 | \n) |
| Net derivatives (2) | \n\n | 6,905 | \n\n | 15,055 | \n\n | \n | (24,682 | \n) | \n\n | 1,094 | \n\n | \n | 322 | \n\n | \n | – | \n\n | (3,332 | \n) | \n\n | (4,638 | \n) | \n\n | (15,615 | \n) |
| Loans | \n\n | 22,462 | \n\n | – | \n\n | \n | (18,332 | \n) | \n\n | 11,338 | \n\n | \n | – | \n\n | \n | – | \n\n | (1,018 | \n) | \n\n | 14,450 | \n\n | \n | – | \n|
| Other secured financings | \n\n | 8,711 | \n\n | – | \n\n | – | \n\n | \n | \n | – | \n\n | \n | (17,525 | \n) | \n\n | 39,639 | \n\n | – | \n\n | \n | 30,825 | \n\n | \n | – | \n
\n\n
| (1) | \nRealized and unrealized gains (losses) are reported in Principal transactions in the Consolidated Statements of Operations. |
| (2) | \nNet derivatives represent Trading assets - Derivatives and Trading liabilities - Derivatives. |
During the year ended December 31, 2014, transfers of assets of $145.0 million from Level 2 to Level 3 of the fair value hierarchy are attributed to:
\n\nDuring the year ended December 31, 2014, transfers of assets of $58.2 million from Level 3 to Level 2 are attributed to:
\n\nDuring the year ended December 31, 2014, there were transfers of loan liabilities of $1.0 million from Level 3 to Level 2 and transfers of net derivative liabilities of $3.3 million from Level 3 to Level 2 due to an increase in observable inputs in the valuation and an increase in observable inputs used in the valuing of derivative contracts, respectively.
\n\nNet losses on Level 3 assets were $35.5 million and net losses on Level 3 liabilities were $6.0 million for the year ended December 31, 2014. Net losses on Level 3 assets were primarily due to a decrease in valuation of certain loans and other receivables, residential and commercial mortgage-backed securities and investments in managed funds, partially offset by increased valuations of certain investments at fair value and corporate debt securities. Net losses on Level 3 liabilities were primarily due to increased valuations of certain derivatives.
\n\nThe 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 period from the Jefferies acquisition through December 31, 2013 (in thousands):
\n\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | \n | \n | Period from the Jefferies Acquisition through December 31, 2013 (3) | \n\n | \n | \n | \n | \n | \n | \n | \n | ||||||||
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | Changes in | \n|
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | unrealized gains | \n|
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | (losses) relating | \n|
| \n | \n | \n | \n | Total gains | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | to instruments | \n|
| \n | \n | \n | \n | (losses) | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | Net transfers | \n\n | \n | \n | \n | still held at | \n|
| \n | \n | Beginning | \n\n | (realized and | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | into (out of) | \n\n | \n | Ending | \n\n | December 31, | \n|
| \n | \n | Balance | \n\n | unrealized) (1) | \n\n | Purchases | \n\n | Sales | \n\n | Settlements | \n\n | \n | Level 3 | \n\n | \n | Balance | \n\n | 2013 (1) | \n||
| Assets: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Trading assets: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Corporate equity securities | \n$ | \n13,234 | \n$ | \n1,551 | \n\n | $ | \n3,583 | \n$ | \n(7,141 | \n) | \n$ – | \n\n | $ | \n(1,343 | \n) | \n$ | \n9,884 | \n$ | \n(419 | \n) |
| Corporate debt securities | \n\n | 31,820 | \n\n | (2,454 | \n) | \n\n | 31,014 | \n\n | (34,125 | \n) | \n– | \n\n | \n | (589 | \n) | \n\n | 25,666 | \n\n | (2,749 | \n) |
| Collateralized debt obligations | \n\n | 24,736 | \n\n | (2,309 | \n) | \n\n | 45,437 | \n\n | (32,874 | \n) | \n– | \n\n | \n | 2,226 | \n\n | \n | 37,216 | \n\n | (8,384 | \n) |
| Residential mortgage-backed | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| securities | \n\n | 169,426 | \n\n | (4,897 | \n) | \n\n | 89,792 | \n\n | (150,807 | \n) | \n(11,007 | \n) | \n\n | 12,985 | \n\n | \n | 105,492 | \n\n | (6,932 | \n) |
| Commercial mortgage-backed | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| securities | \n\n | 17,794 | \n\n | (4,469 | \n) | \n\n | 20,130 | \n\n | (13,538 | \n) | \n(100 | \n) | \n\n | (2,249 | \n) | \n\n | 17,568 | \n\n | (3,794 | \n) |
| Other asset-backed securities | \n\n | 1,292 | \n\n | (4,535 | \n) | \n\n | 105,291 | \n\n | (104,711 | \n) | \n– | \n\n | \n | 15,274 | \n\n | \n | 12,611 | \n\n | (3,497 | \n) |
| Loans and other receivables | \n\n | 170,986 | \n\n | 15,008 | \n\n | \n | 287,757 | \n\n | (115,231 | \n) | \n(211,805 | \n) | \n\n | (825 | \n) | \n\n | 145,890 | \n\n | 13,402 | \n|
| Investments, at fair value | \n\n | 75,067 | \n\n | 1,678 | \n\n | \n | 28,594 | \n\n | (102 | \n) | \n(5,012 | \n) | \n\n | 1,017 | \n\n | \n | 101,242 | \n\n | 1,705 | \n|
| Investments in managed funds | \n\n | 59,976 | \n\n | 9,863 | \n\n | \n | 15,651 | \n\n | (17 | \n) | \n(28,188 | \n) | \n\n | – | \n\n | \n | 57,285 | \n\n | 9,863 | \n|
| Liabilities: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Trading liabilities: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Corporate equity securities | \n$ | \n38 | \n$ | \n– | \n\n | $ | \n– | \n\n | $ – | \n\n | $ – | \n\n | $ | \n– | \n\n | $ | \n38 | \n$ | \n– | \n|
| Residential mortgage-backed | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| securities | \n\n | 1,542 | \n\n | (1,542 | \n) | \n\n | – | \n\n | – | \n\n | – | \n\n | \n | – | \n\n | \n | – | \n\n | – | \n|
| Net derivatives (2) | \n\n | 11,185 | \n\n | 4,408 | \n\n | \n | – | \n\n | (300 | \n) | \n(8,515 | \n) | \n\n | 127 | \n\n | \n | 6,905 | \n\n | 1,609 | \n|
| Loans | \n\n | 7,398 | \n\n | 2,959 | \n\n | \n | (16,027 | \n) | \n28,065 | \n\n | 67 | \n\n | \n | – | \n\n | \n | 22,462 | \n\n | (2,970 | \n) |
\n\n
| (1) | \nRealized and unrealized gains (losses) are reported in Principal transactions in the Consolidated Statements of Operations. |
| (2) | \nNet derivatives represent Trading assets - Derivatives and Trading liabilities - Derivatives. |
| (3) | \nIn addition to the above changes in the fair value of our financial assets and liabilities that have been categorized within Level 3 of the fair value hierarchy, during the period from the Jefferies acquisition through December 31, 2013, secured financings of $8.7 million were issued. |
Analysis of Level 3 Assets and Liabilities for the Period from the Jefferies Acquisition through December 31, 2013
\n\nDuring the period from the Jefferies acquisition through December 31, 2013, transfers of assets of $82.4 million from Level 2 to Level 3 of the fair value hierarchy are attributed to:
\n\nDuring the period from the Jefferies acquisition through December 31, 2013, transfers of assets of $55.9 million from Level 3 to Level 2 are attributed to:
\n\nDuring the period from the Jefferies acquisition through December 31, 2013, there were no transfers of liabilities from Level 2 to Level 3 and there were $0.1 million transfers of net derivative liabilities from Level 3 to Level 2 due to an increase in observable inputs used in the valuing of derivative contracts.
\n\nNet gains on Level 3 assets were $9.4 million and net losses on Level 3 liabilities were $5.8 million for the period from the Jefferies acquisition through December 31, 2013. Net gains on Level 3 assets were primarily due to increased valuations of certain corporate equity securities, loans and other receivables, investments at fair value and investments in managed funds, partially offset by a decrease in valuation of certain corporate debt securities, collateralized debt obligations, residential and commercial mortgage-backed securities and other asset-backed securities. Net losses on Level 3 liabilities were primarily due to increased valuations of certain derivative instruments and loan positions.
\n\nQuantitative Information about Significant Unobservable Inputs used in Level 3 Fair Value Measurements
\n\nThe 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 ranges of inputs are reflective of the differences in the underlying characteristics of the financial instruments in each category.
\n\nFor 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 quarters 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.
\n\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | \n | December 31, 2014 | \n\n | \n | \n | \n | \n | \n | |
| \n | \n | Fair Value | \nValuation | \nSignificant | \n\n | \n | \n | \n | Weighted | \n|
| Financial Instruments Owned | \n\n | (in thousands) | \nTechnique | \nUnobservable Input(s) | \n\n | Input/Range | \n\n | \n | Average | \n|
| Corporate equity securities | \n$ | \n19,814 | \n\n | \n | \n | \n | \n | \n | \n | |
| Non-exchange traded securities | \n\n | \n | Market approach | \nEBITDA (a) multiple | \n\n | 3.4to 4.7 | \n\n | \n | 3.6 | \n|
| \n | \n | \n | Scenario analysis | \nEstimated recovery percentage | \n\n | 24 | \n% | \n\n | – | \n|
| Corporate debt securities | \n$ | \n22,766 | \nConvertible bond model | \nDiscount rate/yield | \n\n | 32 | \n% | \n\n | – | \n|
| Collateralized debt obligations | \n$ | \n41,784 | \nDiscounted cash flows | \nConstant prepayment rate | \n\n | 0% to 20% | \n\n | \n | 13 | \n% |
| \n | \n | \n | \n | Constant default rate | \n\n | 0% to 2% | \n\n | \n | 2 | \n% |
| \n | \n | \n | \n | Loss severity | \n\n | 0% to 70% | \n\n | \n | 39 | \n% |
| \n | \n | \n | \n | Yield | \n\n | 2% to 51% | \n\n | \n | 16 | \n% |
| Residential mortgage-backed securities | \n$ | \n82,557 | \nDiscounted cash flows | \nConstant prepayment rate | \n\n | 1% to 50% | \n\n | \n | 13 | \n% |
| \n | \n | \n | \n | Constant default rate | \n\n | 1% to 100% | \n\n | \n | 14 | \n% |
| \n | \n | \n | \n | Loss severity | \n\n | 20% to 80% | \n\n | \n | 50 | \n% |
| \n | \n | \n | \n | Yield | \n\n | 3% to 13% | \n\n | \n | 7 | \n% |
| Commercial mortgage-backed securities | \n$ | \n26,655 | \nDiscounted cash flows | \nYield | \n\n | 8% to 12% | \n\n | \n | 11 | \n% |
| \n | \n | \n | \n | Cumulative loss rate | \n\n | 4% to 72% | \n\n | \n | 15 | \n% |
| \n | \n | \n | Scenario analysis | \nEstimated recovery percentage | \n\n | 90 | \n% | \n\n | – | \n|
| Other asset-backed securities | \n$ | \n2,294 | \nDiscounted cash flows | \nConstant prepayment rate | \n\n | 8 | \n% | \n\n | – | \n|
| \n | \n | \n | \n | Constant default rate | \n\n | 3 | \n% | \n\n | – | \n|
| \n | \n | \n | \n | Loss severity | \n\n | 70 | \n% | \n\n | – | \n|
| \n | \n | \n | \n | Yield | \n\n | 7 | \n% | \n\n | – | \n|
| Loans and other receivables | \n$ | \n88,154 | \nComparable pricing | \nComparable loan price | \n$ | \n100to $101 | \n\n | $ | \n100.3 | \n|
| \n | \n | \n | Market approach | \nYield | \n\n | 3% to 5% | \n\n | \n | 4 | \n% |
| \n | \n | \n | \n | EBITDA (a) multiple | \n\n | 3.4to 8.2 | \n\n | \n | 7.6 | \n|
| \n | \n | \n | Scenario analysis | \nEstimated recovery percentage | \n\n | 10% to 41% | \n\n | \n | 36 | \n% |
| Derivatives | \n$ | \n54,190 | \n\n | \n | \n | \n | \n | \n | \n | |
| Foreign exchange options | \n\n | \n | Option model | \nVolatility | \n\n | 13% to 23% | \n\n | \n | 17 | \n% |
| Commodity forwards | \n\n | \n | Discounted cash flows | \nDiscount rate | \n\n | 17 | \n% | \n\n | – | \n|
| Loan commitments | \n\n | \n | Comparable pricing | \nComparable loan price | \n$ | \n100 | \n\n | \n | – | \n|
| Investments at fair value | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Private equity securities | \n$ | \n32,323 | \nMarket approach | \nTransaction Level | \n$ | \n50 | \n\n | \n | – | \n|
| \n | \n | \n | Market approach | \nDiscount rate | \n\n | 15% to 30% | \n\n | \n | 23 | \n% |
| \n | \n | Fair Value | \nValuation | \nSignificant | \n\n | \n | \n | \n | Weighted | \n|
| Trading Liabilities | \n\n | (in thousands) | \nTechnique | \nUnobservable Input(s) | \n\n | Input/Range | \n\n | \n | Average | \n|
| Derivatives | \n$ | \n49,552 | \n\n | \n | \n | \n | \n | \n | \n | |
| FX options | \n\n | \n | Option model | \nVolatility | \n\n | 13% to 23% | \n\n | \n | 17 | \n% |
| Unfunded commitments | \n\n | \n | Comparable pricing | \nComparable loan price | \n$ | \n89to $100 | \n\n | $ | \n92.0 | \n|
| \n | \n | \n | \n | Credit spread | \n\n | 45 | \nbps | \n\n | – | \n|
| \n | \n | \n | Market approach | \nYield | \n\n | 5 | \n% | \n\n | – | \n|
| Loans | \n$ | \n14,450 | \nComparable pricing | \nComparable loan price | \n$ | \n100 | \n\n | \n | – | \n|
| Other secured financings | \n$ | \n30,825 | \nComparable pricing | \nComparable loan price | \n$ | \n81to $100 | \n\n | $ | \n98.7 | \n
\n\n
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | \n | December 31, 2013 | \n\n | \n | \n | \n | \n | \n | |
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | Fair Value | \nValuation | \nSignificant | \n\n | \n | \n | \n | Weighted | \n|
| Financial Instruments Owned | \n\n | (in thousands) | \nTechnique | \nUnobservable Input(s) | \n\n | Input/Range | \n\n | \n | Average | \n|
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Corporate equity securities | \n$ | \n8,034 | \n\n | \n | \n | \n | \n | \n | \n | |
| Non-exchange traded securities | \n\n | \n | Market approach | \nEBITDA (a) multiple | \n\n | 4.0to 5.5 | \n\n | \n | 4.53 | \n|
| Warrants | \n\n | \n | Option model | \nVolatility | \n\n | 36 | \n% | \n\n | – | \n|
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Corporate debt securities | \n$ | \n17,699 | \nScenario analysis | \nEstimated recovery percentage | \n\n | 24 | \n% | \n\n | – | \n|
| \n | \n | \n | Comparable pricing | \nComparable bond or loan price | \n$ | \n69.10to $70.50 | \n\n | $ | \n69.91 | \n|
| \n | \n | \n | Market approach | \nYield | \n\n | 13 | \n% | \n\n | – | \n|
| Collateralized debt obligations | \n$ | \n34,316 | \nDiscounted cash flows | \nConstant prepayment rate | \n\n | 0% to 20% | \n\n | \n | 13 | \n% |
| \n | \n | \n | \n | Constant default rate | \n\n | 2% to 3% | \n\n | \n | 2 | \n% |
| \n | \n | \n | \n | Loss severity | \n\n | 30% to 85% | \n\n | \n | 38 | \n% |
| \n | \n | \n | \n | Yield | \n\n | 3% to 91% | \n\n | \n | 28 | \n% |
| Residential mortgage-backed securities | \n$ | \n105,492 | \nDiscounted cash flows | \nConstant prepayment rate | \n\n | 2% to 50% | \n\n | \n | 11 | \n% |
| \n | \n | \n | \n | Constant default rate | \n\n | 1% to 100% | \n\n | \n | 17 | \n% |
| \n | \n | \n | \n | Loss severity | \n\n | 30% to 90% | \n\n | \n | 48 | \n% |
| \n | \n | \n | \n | Yield | \n\n | 0% to 20% | \n\n | \n | 7 | \n% |
| Commercial mortgage-backed securities | \n$ | \n17,568 | \nDiscounted cash flows | \nYield | \n\n | 12% to 20% | \n\n | \n | 14 | \n% |
| \n | \n | \n | \n | Cumulative loss rate | \n\n | 5% to 28.2% | \n\n | \n | 11 | \n% |
| Other asset-backed securities | \n$ | \n12,611 | \nDiscounted cash flows | \nConstant prepayment rate | \n\n | 4% to 30% | \n\n | \n | 17 | \n% |
| \n | \n | \n | \n | Constant default rate | \n\n | 2% to 11% | \n\n | \n | 7 | \n% |
| \n | \n | \n | \n | Loss severity | \n\n | 40% to 92% | \n\n | \n | 64 | \n% |
| \n | \n | \n | \n | Yield | \n\n | 3% to 29% | \n\n | \n | 18 | \n% |
| Loans and other receivables | \n$ | \n101,931 | \nComparable pricing | \nComparable bond or loan price | \n$ | \n91to $101 | \n\n | $ | \n98.90 | \n|
| \n | \n | \n | Market approach | \nYield | \n\n | 8.75% to 13.5% | \n\n | \n | 10 | \n% |
| \n | \n | \n | \n | EBITDA (a) multiple | \n\n | 6.9 | \n\n | \n | – | \n|
| \n | \n | \n | Scenario analysis | \nEstimated recovery percentage | \n\n | 16.9% to 92% | \n\n | \n | 74 | \n% |
| Derivatives | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Loan commitments | \n$ | \n1,493 | \nComparable pricing | \nComparable bond or loan price | \n$ | \n100.875 | \n\n | \n | – | \n|
| Investments at fair value | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Private equity securities | \n$ | \n30,203 | \nComparable pricing | \nComparable share price | \n$ | \n414 | \n\n | \n | – | \n|
| \n | \n | \n | Market approach | \nDiscount rate | \n\n | 15% to 30% | \n\n | \n | 23 | \n% |
| \n | \n | Fair Value | \nValuation | \nSignificant | \n\n | \n | \n | \n | Weighted | \n|
| Trading Liabilities | \n\n | (in thousands) | \nTechnique | \nUnobservable Input(s) | \n\n | Input/Range | \n\n | \n | Average | \n|
| Derivatives | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Equity options | \n$ | \n8,398 | \nOption model | \nVolatility | \n\n | 36.25% to 41% | \n\n | \n | 39 | \n% |
| Loans | \n$ | \n8,106 | \nComparable pricing | \nComparable bond or loan price | \n$ | \n101.88 | \n\n | \n | – | \n
\n\n
(a) Earnings before interest, taxes, depreciation and amortization (\"EBITDA\").
The fair values of certain Level 3 assets and liabilities that were determined based on third-party pricing information, unadjusted past transaction prices, reported net asset value or a percentage of the reported enterprise fair value are excluded from the above table. At December 31, 2014 and 2013, asset exclusions consisted of $180.0 million and $127.7 million, respectively, primarily comprised of investments in non-exchange traded securities, private equity securities, investments in reinsurance contracts and certain corporate loans. At December 31, 2014, liability exclusions consisted of $0.3 million comprised of corporate equity and debt securities. At December 31, 2013, liability exclusions consisted of $14.4 million of corporate loan commitments.
\n\nSensitivity of Fair Values to Changes in Significant Unobservable Inputs
\n\nFor recurring fair value measurements categorized within Level 3 of the fair value hierarchy, the sensitivity of the fair value measurement to changes in significant unobservable inputs and interrelationships between those unobservable inputs (if any) are described below:
\n\nFair Value Option Election
\n\nWe have elected the fair value option for all loans and loan commitments made by Jefferies capital markets businesses. These loans and loan commitments include loans entered into by Jefferies investment banking division in connection with client bridge financing and loan syndications, loans purchased by Jefferies leveraged credit trading desk as part of its bank loan trading activities and mortgage loan commitments and fundings in connection with mortgage-backed securitization activities. Loans and loan commitments originated or purchased by Jefferies leveraged credit and mortgage-backed businesses are managed on a fair value basis. Loans are included in Trading assets and loan commitments are included in Trading assets -Derivatives and Trading liabilities – Derivatives. The fair value option election is not applied to loans made to affiliate entities as such loans are entered into as part of ongoing, strategic business ventures. Loans to affiliate entities are included within Loans to and investments in associated companies and are accounted for on an amortized cost basis. We have also elected the fair value option for certain financial instruments held by Jefferies subsidiaries as the investments are risk managed on a fair value basis. The fair value option has also been elected for certain secured financings that arise in connection with Jefferies securitization activities and other structured financings. Other secured financings, receivables from brokers, dealers and clearing organizations, receivables from customers of securities operations, payables to brokers, dealers and clearing organizations and payables to customers of securities operations, are accounted for at cost plus accrued interest rather than at fair value; however, the recorded amounts approximate fair value due to their liquid or short-term nature.
\n\nThe following is a summary of gains (losses) due to changes in instrument specific credit risk on loans and other receivables and loan commitments measured at fair value under the fair value option for the year ended December 31, 2014 and the period from the Jefferies acquisition through December 31, 2013 (in thousands):
\n\n| \n | \n | \n | \n | \n | \n | |
| \n | \n | \n | \n | \n | For the period from the | \n|
| \n | \n | \n | \n | \n | Jefferies acquisition | \n|
| \n | \n | For the year ended | \n\n | \n | through | \n|
| \n | \n | December 31, 2014 | \n\n | \n | December 31, 2013 | \n|
| Financial Instruments Owned: | \n\n | \n | \n | \n | \n | |
| Loans and other receivables | \n$ | \n(24,785 | \n) | \n$ | \n15,327 | \n|
| Financial Instruments Sold: | \n\n | \n | \n | \n | \n | |
| Loans | \n$ | \n(585 | \n) | \n$ | \n(32 | \n) |
| Loan commitments | \n$ | \n(15,459 | \n) | \n$ | \n(1,007 | \n) |
\n\n
The following is a summary of the amount by which contractual principal exceeds fair value for loans and other receivables measured at fair value under the fair value option (in thousands):
\n\n| \n | \n | \n | \n | \n | |
| \n | \n | December 31, | \n\n | \n | December 31, |
| \n | \n | 2014 | \n\n | \n | 2013 |
| Loans and other receivables (1) | \n$ | \n403,119 | \n\n | $ | \n264,896 |
| Loans and other receivables greater than 90 days past due (1) | \n$ | \n5,594 | \n\n | $ | \n– |
| Loans and other receivables on nonaccrual status (1) (2) | \n$ | \n(22,360 | \n) | \n$ | \n– |
\n\n
| (1) | \nInterest income is recognized separately from other changes in fair value and is included within Interest income in the Consolidated Statements of Operations. |
| (2) | \nAmount includes all loans and other receivables greater than 90 or more days past due. |
The aggregate fair value of loans and other receivables that were 90 or more days past due was $0 million and $0 million at December 31, 2014 and 2013, respectively.
\n\nThe aggregate fair value of loans and other receivables on nonaccrual status, which includes all loans and other receivables greater than 90 or more days past due, was $274.6 million at December 31, 2014. There were no loan receivables on nonaccrual status at December 31, 2013.
\n\nPrior to the completion of the Jefferies acquisition, we elected the fair value option for our investment in Jefferies, commencing on the date Jefferies became subject to the equity method of accounting. The increase in the fair value of our investment in Jefferies prior to the acquisition was $182.7 million during 2013 and $301.3 million during 2012. We also elected the fair value option for our investment in Mueller Industries, Inc., which was sold in September 2012. The increase in the fair value of our investment in Mueller was $30.0 million during 2012. The increases in the fair value of our investments in Jefferies and Mueller are reflected as Principal transactions in the Consolidated Statements of Operations.
\n\nWe have elected the fair value option for Jefferies investment in KCG Holdings, Inc. The change in the fair value of this investment was $(14.7) million and $19.5 million for 2014 and 2013, respectively.
\n\nAs of December 31, 2014, we owned approximately 46.6 million common shares of Harbinger, representing approximately 23% of Harbinger's outstanding common shares, which are accounted for under the fair value option and included in our consolidated statement of financial condition at fair value of $659.9 million. The shares were acquired at an aggregate cost of $475.6 million. The increase in the fair value during 2014 of our investment in Harbinger aggregated $119.2 million of which $99.3 million is included in other merchant banking businesses and $19.9 million is included in Jefferies results of operations for the period it owned certain of these shares. We currently have two directors on Harbinger's board. We have agreed not to increase our interest in Harbinger above 27.5% through March 17, 2016. The shares have the benefit of a registration rights agreement, and may be otherwise sold consistent with the securities laws; however, we have agreed not to sell the shares to a party if after such sale the party would own in excess of 4.9% of Harbinger common stock.
\n\nWe believe accounting for these investments at fair value better reflected the economics of these investments, and quoted market prices for these investments provides an objectively determined fair value at each balance sheet date. Our investment in HomeFed is the only other investment accounted for under the equity method of accounting that is also a publicly traded company for which we did not elect the fair value option. HomeFed's common stock is not listed on any stock exchange, and price information for the common stock is not regularly quoted on any automated quotation system. It is traded in the over-the-counter market with high and low bid prices published by the National Association of Securities Dealers OTC Bulletin Board Service; however, trading volume is minimal. For these reasons we did not elect the fair value option for HomeFed.
\n\n
Fair Value Hierarchy
\n\nIn determining fair value, we maximize the use of observable inputs and minimize the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources. Unobservable inputs reflect our assumptions that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. We apply a hierarchy to categorize our fair value measurements broken down into three levels based on the transparency of inputs as follows:
\n\n| \n | |
| Level 1: | \nQuoted prices are available in active markets for identical assets or liabilities as of the reported date. |
| Level 2: | \nPricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as |
| \n | of the reported date. The nature of these financial instruments include cash instruments for which quoted prices |
| \n | are available but traded less frequently, derivative instruments whose fair value have been derived using a model |
| \n | where inputs to the model are directly observable in the market, or can be derived principally from or |
| \n | corroborated by observable market data, and instruments that are fair valued using other financial instruments, |
| \n | the parameters of which can be directly observed. |
| Level 3: | \nInstruments that have little to no pricing observability as of the reported date. These financial instruments are |
| \n | measured using management's best estimate of fair value, where the inputs into the determination of fair value |
| \n | require significant management judgment or estimation. |
\n\n
Financial instruments are valued at quoted market prices, if available. Certain financial instruments have bid and ask prices that can be observed in the marketplace. For financial instruments whose inputs are based on bid-ask prices, the financial instrument is valued at the point within the bid-ask range that meets our best estimate of fair value. We use prices and inputs that are current as of the measurement date. For financial instruments that do not have readily determinable fair values using quoted market prices, the determination of fair value is based upon consideration of available information, including types of financial instruments, current financial information, restrictions on dispositions, fair values of underlying financial instruments and quotations for similar instruments.
\n\nThe valuation of financial instruments may include the use of valuation models and other techniques. Adjustments to valuations derived from valuation models may be made when, in management's judgment, features of the financial instrument such as its complexity, the market in which the financial instrument is traded and risk uncertainties about market conditions require that an adjustment be made to the value derived from the models. Adjustments from the price derived from a valuation model reflect management's judgment that other participants in the market for the financial instrument being measured at fair value would also consider in valuing that same financial instrument. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment.
\n\nThe availability of observable inputs can vary and is affected by a wide variety of factors, including, for example, the type of financial instrument and market conditions. As the observability of prices and inputs may change for a financial instrument from period to period, this condition may cause a transfer of an instrument among the fair value hierarchy levels. Transfers among the levels are recognized at the beginning of each period. The degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.
Financial Instruments and Fair Value
\n\nTrading assets and trading liabilities are recorded at fair value, either as required by accounting pronouncements or through the fair value option election. Gains and losses on trading assets and trading liabilities are recognized in our Consolidated Statements of Operations in Principal transactions. Available for sales securities are reflected at fair value, with unrealized gains and losses reflected as a separate component of equity, net of taxes. When sold, realized gains and losses on available for sale securities are reflected in the caption Net realized securities gains. The cost of securities sold is based on average cost. Fair value is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price).
| \n | \n | \n | \n | \n | \n | |
| \n | \n | \n | \n | \n | For the period from the | \n|
| \n | \n | \n | \n | \n | Jefferies acquisition | \n|
| \n | \n | For the year ended | \n\n | \n | through | \n|
| \n | \n | December 31, 2014 | \n\n | \n | December 31, 2013 | \n|
| Financial Instruments Owned: | \n\n | \n | \n | \n | \n | |
| Loans and other receivables | \n$ | \n(24,785 | \n) | \n$ | \n15,327 | \n|
| Financial Instruments Sold: | \n\n | \n | \n | \n | \n | |
| Loans | \n$ | \n(585 | \n) | \n$ | \n(32 | \n) |
| Loan commitments | \n$ | \n(15,459 | \n) | \n$ | \n(1,007 | \n) |
Foreign Currency Translation
\n\nAssets and liabilities of foreign subsidiaries are translated to U.S. dollars using the currency exchange rates at the end of the relevant period. Revenues and expenses are translated at average exchange rates during the period. The effects of exchange rate changes on the translation of the balance sheets, net of hedging gains or losses and taxes, if any, are included in other comprehensive income (loss) in the Consolidated Statements of Comprehensive Income (Loss) and classified as Accumulated other comprehensive income in the Consolidated Statements of Financial Condition and Consolidated Statements of Changes in Equity. Gains or losses resulting from Jefferies foreign currency transactions are included in Principal transactions in the Consolidated Statements of Operations; gains or losses from foreign currency transactions unrelated to Jefferies were not significant.
Note 23. Net Realized Securities Gains (Losses)
\n\nThe following summarizes net realized securities gains (losses) for each of the three years in the period ended December 31, 2014 (in thousands):
\n\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | 2014 | \n\n | \n | 2013 | \n\n | \n | 2012 | \n|
| Net realized gains on securities | \n$ | \n30,686 | \n\n | $ | \n245,262 | \n\n | $ | \n592,978 | \n|
| Write-down of investments (a) | \n\n | (111 | \n) | \n\n | (1,621 | \n) | \n\n | (2,461 | \n) |
| Other | \n\n | (181 | \n) | \n\n | 316 | \n\n | \n | 64 | \n|
| \n | $ | \n30,394 | \n\n | $ | \n243,957 | \n\n | $ | \n590,581 | \n
\n\n
(a) Consists of provisions to write down investments resulting from declines in fair values believed to be other than temporary.
During 2006 and 2007, we invested an aggregate of $452.2 million in Fortescue Metals Group Ltd's Pilbara iron ore and infrastructure project in Western Australia. In exchange for our cash investment, we received 278 million common shares of Fortescue and a $100.0 million unsecured note issued by Fortescue's subsidiary, Chichester Metals Pty Ltd, that accrued interest at 4% of the revenue, net of government royalties, invoiced from the iron ore produced from certain project areas (the \"FMG Note\"). We sold our Fortescue common shares during 2010 to 2012, recognizing net realized security gains on the sales of $543.7 million for the year ended December 31, 2012.
\n\nDuring the fourth quarter of 2012, Chichester redeemed the FMG Note for aggregate cash consideration of $715.0 million, resulting in the recognition in investment and other income of a pre-tax gain of $526.2 million, and the parties agreed to settle all pending litigation and disputes without any additional payment. As a result, we no longer receive interest payments on the FMG Note.
\n\nNet realized gains on securities during 2013 include a gain of $227.6 million related to our exchange of Inmet shares for First Quantum shares and cash as discussed above.
\n\nProceeds from sales of investments classified as available for sale were $1.9 billion, $1.8 billion and $1.4 billion during 2014, 2013 and 2012, respectively. Gross gains of $12.6 million, $240.4 million and $546.4 million were realized on these sales during 2014, 2013 and 2012, respectively; gross losses were not significant during these three years.
\n\n
Note 13. Intangible Assets, Net and Goodwill
\n\nA summary of intangible assets, net and goodwill at December 31, 2014 and 2013 is as follows (in thousands):
\n\n| \n | \n | \n | \n | |
| \n | \n | 2014 | \n\n | 2013 |
| Indefinite lived intangibles: | \n\n | \n | \n | |
| Exchange and clearing organization membership interests and registrations | \n$ | \n14,528 | \n$ | \n14,916 |
| Amortizable intangibles: | \n\n | \n | \n | |
| Customer and other relationships, net of accumulated amortization of | \n\n | \n | \n | |
| $155,548 and $117,139 | \n\n | 493,501 | \n\n | 502,409 |
| Trademarks and tradename, net of accumulated amortization of $47,101 | \n\n | \n | \n | |
| and $30,213 | \n\n | 347,883 | \n\n | 364,779 |
| Supply contracts, net of accumulated amortization of $30,433 and $20,162 | \n\n | 119,562 | \n\n | 129,833 |
| Licenses, net of accumulated amortization of $110 and $4,100 | \n\n | - | \n\n | 7,928 |
| Other, net of accumulated amortization of $4,703 and $4,500 | \n\n | 2,900 | \n\n | 664 |
| Total intangible assets, net | \n\n | 978,374 | \n\n | 1,020,529 |
| Goodwill: | \n\n | \n | \n | |
| National Beef | \n\n | 14,991 | \n\n | 14,991 |
| Jefferies | \n\n | 1,718,847 | \n\n | 1,724,557 |
| Other operations | \n\n | 8,551 | \n\n | 8,551 |
| Total goodwill | \n\n | 1,742,389 | \n\n | 1,748,099 |
| Total intangible assets, net and goodwill | \n$ | \n2,720,763 | \n$ | \n2,768,628 |
\n\n
In connection with Conwed's acquisitions during 2014 for an aggregate purchase price of $47.2 million, subject to working capital adjustment, intangibles increased by $41.7 million, which was primarily allocated to customer relationships ($38.4 million), and which will be amortized over a weighted-average life of 14 years.
\n\nAmortization expense on intangible assets was $66.2 million, $74.8 million and $53.7 million for the years ended December 31, 2014, 2013 and 2012, respectively. The estimated aggregate future amortization expense for the intangible assets for each of the next five years is as follows: 2015 - $64.5 million; 2016 - $63.0 million; 2017 - $63.1 million; 2018 - $63.3 million; and 2019 - $63.1 million.
\n\nGoodwill Impairment Testing
\n\nThe quantitative goodwill impairment test is performed at our reporting unit level and consists of two steps. In the first step, the fair value of each reporting unit is compared with its carrying value, including goodwill and allocated intangible assets. If the fair value is in excess of the carrying value, the goodwill for the reporting unit is considered not to be impaired. If the fair value is less than the carrying value, then a second step is performed in order to measure the amount of the impairment loss, if any, which is based on comparing the implied fair value of the reporting unit's goodwill to the carrying value. Goodwill related to Jefferies, National Beef and other operations was not impaired when tested.
\n\nIntangible Assets Impairment Testing
\n\nWe performed our annual impairment testing of Jefferies indefinite-life intangible assets, which consists of exchange and clearing organization membership interests and registrations, as of August 1, 2014. We elected to perform a quantitative assessment of membership interests and registrations that have available quoted sales prices, and a qualitative assessment of the remainder of Jefferies intangible assets. Our quantitative assessment resulted in an insignificant impairment loss on certain exchange memberships based on quoted sales prices. With regard to our qualitative assessment of the remaining indefinite-life intangible assets, based on our assessment of market conditions, the utilization of the assets and the replacement costs associated with the assets, we concluded that it is not more likely than not that the intangible assets are impaired.
\n\nAs a result of Jefferies management's decisions during the fourth quarter of 2014 to pursue strategic alternatives for Jefferies Futures business and to liquidate Jefferies International Asset Management business, Jefferies performed additional impairment testing of indefinite- and finite-life intangible assets that are associated with those reporting units. Estimating the fair value of customer relationship intangible assets using a discounted cash flow methodology, Jefferies recognized impairment losses at November 30, 2014 of $7.5 million and $0.1 million in the Futures business and the International Asset Management business, respectively, which are recognized in Selling, general and other expenses in the Consolidated Statements of Operations.
Intangible Assets, Net and Goodwill
\n\nIntangible Assets. Intangible assets deemed to have finite lives are generally amortized on a straight line basis over their estimated useful lives, where the useful life is the period over which the asset is expected to contribute directly, or indirectly, to our future cash flows. Intangible assets are reviewed for impairment on an interim basis when certain events or circumstances exist. If future undiscounted cash flows are estimated to be less than the carrying amounts of the asset groups used to generate those cash flows in subsequent reporting periods, particularly for those with large investments in amortizable intangible assets, impairment charges would have to be recorded.
\n\nAn intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when certain events or circumstances exist indicating an assessment for impairment is necessary. Impairment exists when the carrying amount exceeds its fair value. Fair value will be determined using valuation techniques consistent with what a market participant would use. All of our indefinite-lived intangible assets were recognized in connection with the Jefferies acquisition, and our annual impairment testing date is as of August 1.
\n\nGoodwill. At acquisition, we allocate the cost of a business acquisition to the specific tangible and intangible assets acquired and liabilities assumed based upon their fair values. Significant judgments and estimates are often made by management to determine these values, and may include the use of appraisals, consideration of market quotes for similar transactions, use of discounted cash flow techniques or consideration of other information we believe to be relevant. Any excess of the cost of a business acquisition over the fair values of the net assets and liabilities acquired is recorded as goodwill, which is not amortized to expense. Substantially all of our goodwill was recognized in connection with the Jefferies acquisition.
\n\nAt least annually, and more frequently if warranted, we will assess whether goodwill has been impaired. If the estimated fair value exceeds the carrying value, goodwill at the reporting unit level is not impaired. If the estimated fair value is less than carrying value, further analysis is necessary to determine the amount of impairment, if any, by comparing the implied fair value of the reporting unit's goodwill to the carrying value of the reporting unit's goodwill. The fair values will be based on widely accepted valuation techniques that we believe market participants would use, although the valuation process requires significant judgment and often involves the use of significant estimates and assumptions. The methodologies we utilize in estimating fair value include market capitalization, price-to-book multiples of comparable exchange traded companies, multiples of merger and acquisitions of similar businesses and/or projected cash flows. The estimates and assumptions used in determining fair value could have a significant effect on whether or not an impairment charge is recorded and the magnitude of such a charge. Adverse market or economic events could result in impairment charges in future periods. Our annual goodwill impairment testing date related to Jefferies is as of August 1.
\n\nSee Note 13 for further information with respect to our impairment charges related to intangible assets during 2014.
Impairment of Long-Lived Assets
\n\nWe evaluate our long-lived assets for impairment whenever events or changes in circumstances indicate, in management's judgment, that the carrying value of such assets may not be recoverable. When testing for impairment, we group our long-lived assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities (or asset group). The determination of whether an asset group is recoverable is based on management's estimate of undiscounted future cash flows directly attributable to the asset group as compared to its carrying value. If the carrying amount of the asset group is greater than the undiscounted cash flows, an impairment loss would be recognized for the amount by which the carrying amount of the asset group exceeds its estimated fair value.
\n\nDuring the fourth quarter of 2013, after exhausting all opportunities to improve the operating performance of the Brawley beef processing facility, which had been adversely affected by the declining supply of fed cattle available to the plant and fixed cost inefficiencies inherent in a single shift plant, National Beef concluded that this facility would continue to generate losses for the foreseeable future. This resulted in a decision in December 2013 to close the facility in the second quarter of 2014. National Beef plans to hold the plant in \"mothballed\" status indefinitely. National Beef evaluated the recoverability of the long-lived assets at Brawley, which had an aggregate carrying amount of $93.2 million at December 31, 2013, and based on its estimate of future undiscounted cash flows concluded that the carrying value was not recoverable and the facility was impaired. In performing this evaluation, National Beef determined that the Brawley facility was the asset group that represented the lowest level of cash flows that were largely independent of the cash flows of other assets and liabilities.
\n\nThe management of National Beef engaged an independent valuation and appraisal firm to assist in estimating the fair value of the long-lived assets at Brawley. National Beef's estimate of fair value was based on an orderly liquidation technique, which represents the amount that can be realized in a liquidation sale, given a reasonable period of time to find a purchaser, assuming an as-is where-is condition. In preparing its analysis, National Beef considered current market conditions, replacement cost, as well as the age, physical and functional characteristics of the long-lived assets.
\n\nAs a result, National Beef concluded that the fair value of the long-lived assets at the Brawley facility was $29.9 million at December 31, 2013, and recorded an impairment loss of $63.3 million, which is reflected in Selling, general and other expenses in the Consolidated Statement of Operations for the year ended December 31, 2013. As with any estimate of fair value, future market, regulatory and general economic conditions as well as the obsolescence, future deterioration of, or inability to locate a purchaser should National Beef decide to sell the facility could have a significant effect on their future value.
\n\nIn addition to the long-lived asset impairment charge, National Beef incurred additional costs relating to the closing of the facility during 2014 of $6.9 million. These costs include employee separation and retention, systems decommissioning and various other expenses. Of these amounts, $4.6 million related to employee separation, which is included in Compensation and benefits, and the various other costs are included in Selling, general and other expenses in the Consolidated Statement of Operations.
\n\nExcluding the National Beef impairment, we recorded impairment charges in Selling, general and other expenses of $20.0 million in 2013 and $4.2 million in 2012; all related to various real estate development projects. Prior to the impairment charges in 2013, these projects had a book value of $32.3 million; after recognizing the impairment charges the carrying value of the real estate projects was reduced to their estimated fair value of $12.3 million. Estimates of fair value were principally determined using discounted cash flow analyses and/or current and expected market conditions for the specific geographic area. For the year ended December 31, 2013, impairment charges related to real estate include an out of period adjustment of $15.4 million to record charges related to prior periods. There were no significant impairment charges in 2014.
\n\nSubstantially all of our operating businesses sell products or services that are impacted by general economic conditions in the U.S. and to a lesser extent internationally. In recent years general economic conditions reduced the demand for products or services sold by our operating subsidiaries and/or resulted in reduced pricing for products or services. A worsening of current economic conditions could cause a decline in estimated future cash flows expected to be generated by our operations and investments. If future undiscounted cash flows are estimated to be less than the carrying amounts of the asset groups used to generate those cash flows in subsequent reporting periods, particularly for those with large investments in intangible assets, property and equipment and other long-lived assets (for example, Jefferies, National Beef, manufacturing, oil and gas exploration and production and certain associated company investments), impairment charges would have to be recorded.
Note 22. Income Taxes
\n\nThe principal components of deferred taxes at December 31, 2014 and 2013 are as follows (in thousands):
\n\n| \n | \n | \n | \n | \n | \n | |
| \n | \n | 2014 | \n\n | \n | 2013 | \n|
| Deferred Tax Asset: | \n\n | \n | \n | \n | \n | |
| NOL carryover | \n$ | \n1,266,972 | \n\n | $ | \n1,283,947 | \n|
| Compensation | \n\n | 334,576 | \n\n | \n | 400,002 | \n|
| Long-term debt | \n\n | 134,079 | \n\n | \n | 184,669 | \n|
| Other assets | \n\n | 160,586 | \n\n | \n | 118,914 | \n|
| Securities valuation reserves | \n\n | 25,499 | \n\n | \n | 51,597 | \n|
| Intangible assets, net and goodwill | \n\n | 13,842 | \n\n | \n | 17,349 | \n|
| Other liabilities | \n\n | 57,006 | \n\n | \n | 49,074 | \n|
| \n | \n | 1,992,560 | \n\n | \n | 2,105,552 | \n|
| Valuation allowance | \n\n | (110,404 | \n) | \n\n | (132,607 | \n) |
| \n | \n | 1,882,156 | \n\n | \n | 1,972,945 | \n|
| Deferred Tax Liability: | \n\n | \n | \n | \n | \n | |
| Unrealized gains on investments | \n\n | (10,406 | \n) | \n\n | (23,851 | \n) |
| Amortization of intangible assets | \n\n | (97,268 | \n) | \n\n | (98,798 | \n) |
| Property and equipment | \n\n | (866 | \n) | \n\n | (3,822 | \n) |
| Other | \n\n | (61,081 | \n) | \n\n | (36,531 | \n) |
| \n | \n | (169,621 | \n) | \n\n | (163,002 | \n) |
| Net deferred tax asset | \n$ | \n1,712,535 | \n\n | $ | \n1,809,943 | \n
\n\n
As of December 31, 2014, we have consolidated U.S. federal NOLs of $1.2 billion that may be used to offset the taxable income of any member of our consolidated tax group. In addition, we have $2.2 billion of U.S. federal NOLs that are only available to offset the taxable income of certain subsidiaries. Unused federal NOLs do not begin to expire until 2017. Approximately $611.9 million of our NOLs can be used to fully offset federal minimum taxable income, and no federal regular or minimum income tax would be payable on such income. We have various state NOLs that expire at different times, which are reflected in the above table to the extent our estimate of future taxable income will be apportioned to those states. We have gross foreign net operating loss carryforwards of approximately $85.9 million. There is a valuation allowance with respect to $40.6 million of these foreign net operating loss carryforwards. Uncertainties that may affect the utilization of our tax attributes include future operating results, tax law changes, rulings by taxing authorities regarding whether certain transactions are taxable or deductible and expiration of carryforward periods.
\n\nUnder certain circumstances, the ability to use the NOLs and future deductions could be substantially reduced if certain changes in ownership were to occur. In order to reduce this possibility, our certificate of incorporation includes a charter restriction that prohibits transfers of our common stock under certain circumstances.
\n\nAt December 31, 2014, we had approximately $171.0 million of earnings attributable to foreign subsidiaries for which no U.S. federal income tax provision has been recorded because, except to the extent such earnings can be repatriated tax efficiently, these earnings are permanently invested abroad. Accordingly, a deferred tax liability of approximately $46.0 million has not been recorded with respect to these earnings.
\n\nThe provision for income taxes for continuing operations for each of the three years in the period ended December 31, 2014 was as follows (in thousands):
\n\n| \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | 2014 | \n\n | \n | 2013 | \n\n | 2012 |
| State income taxes | \n$ | \n47,939 | \n\n | $ | \n32,917 | \n$ | \n35,489 |
| Federal income taxes: | \n\n | \n | \n | \n | \n | \n | |
| Current | \n\n | 746 | \n\n | \n | 2,900 | \n\n | 1,001 |
| Deferred | \n\n | 119,393 | \n\n | \n | 82,173 | \n\n | 490,474 |
| Increase (decrease) in valuation allowance | \n\n | (22,203 | \n) | \n\n | 12,287 | \n\n | - |
| Foreign income taxes | \n\n | 20,096 | \n\n | \n | 6,204 | \n\n | 12,500 |
| \n | $ | \n165,971 | \n\n | $ | \n136,481 | \n$ | \n539,464 |
\n\n
For the year ended December 31, 2014, we decreased our valuation allowance with respect to certain NOLs which we now believe are more likely than not to be utilized before they expire. For the year ended December 31, 2013, we increased our valuation allowance to reserve for a portion of our net deferred tax asset for state income taxes, resulting from the change in our expected state tax filings as a result of the Jefferies acquisition. In addition, the valuation allowance increased by $11.1 million as a result of the valuation allowance required for Jefferies net deferred tax assets at the date of acquisition.
\n\nThe table below reconciles the expected statutory federal income tax to the actual income tax provision (benefit) (in thousands):
\n\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | 2014 | \n\n | \n | 2013 | \n\n | \n | 2012 | \n|
| Expected federal income tax | \n$ | \n133,428 | \n\n | $ | \n190,955 | \n\n | $ | \n504,710 | \n|
| State income taxes, net of federal income tax benefit | \n\n | 31,160 | \n\n | \n | 21,396 | \n\n | \n | 24,120 | \n|
| Increase (decrease) in valuation allowance | \n\n | (22,203 | \n) | \n\n | 12,287 | \n\n | \n | - | \n|
| Tax expense not provided on income recorded on the Jefferies | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| investment prior to the acquisition | \n\n | - | \n\n | \n | (63,952 | \n) | \n\n | - | \n|
| Reversal of prior years' deferred tax liability related to Jefferies investment | \n\n | - | \n\n | \n | (33,972 | \n) | \n\n | - | \n|
| Foreign rate differential | \n\n | (14,305 | \n) | \n\n | (4,750 | \n) | \n\n | - | \n|
| Permanent differences | \n\n | 2,639 | \n\n | \n | 12,832 | \n\n | \n | 2,921 | \n|
| Nondeductible settlements | \n\n | 24,500 | \n\n | \n | - | \n\n | \n | - | \n|
| Foreign taxes | \n\n | 2,542 | \n\n | \n | 4,033 | \n\n | \n | 8,125 | \n|
| Other | \n\n | 8,210 | \n\n | \n | (2,348 | \n) | \n\n | (412 | \n) |
| Actual income tax provision | \n$ | \n165,971 | \n\n | $ | \n136,481 | \n\n | $ | \n539,464 | \n
\n\n
As discussed above, we elected the fair value option for our investment in Jefferies for periods prior to the Jefferies acquisition in March 2013. As of December 31, 2012, we had recorded a deferred tax liability related to our investment in Jefferies; as reflected in the table above, the income tax provision includes the reversal of that deferred tax liability for the year ended December 31, 2013. Since there was no net income tax provision recorded for income related to the fair value option for Jefferies for the year ended December 31, 2013, our effective tax rate was lower as a result of the acquisition, and the impact on the tax provision is reflected in the table above.
\n\nThe following table reconciles the total amount of unrecognized tax benefits as of the beginning and end of the periods presented (in thousands):
\n\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | Unrecognized | \n\n | \n | \n | \n | \n | \n | |
| \n | \n | Tax Benefits | \n\n | \n | Interest | \n\n | \n | Total | \n|
| As of January 1, 2012 | \n$ | \n6,340 | \n\n | $ | \n3,480 | \n\n | $ | \n9,820 | \n|
| Increases based on tax positions related to current period | \n\n | 5,250 | \n\n | \n | - | \n\n | \n | 5,250 | \n|
| Interest expense recognized | \n\n | - | \n\n | \n | 700 | \n\n | \n | 700 | \n|
| Audit payments | \n\n | - | \n\n | \n | - | \n\n | \n | - | \n|
| Reductions as a result of the lapse of the statute of | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| limitations | \n\n | - | \n\n | \n | - | \n\n | \n | - | \n|
| Balance, December 31, 2012 | \n\n | 11,590 | \n\n | \n | 4,180 | \n\n | \n | 15,770 | \n|
| Jefferies amounts at date of acquisition | \n\n | 129,010 | \n\n | \n | 17,100 | \n\n | \n | 146,110 | \n|
| Increases based on tax positions related to current period | \n\n | 8,750 | \n\n | \n | - | \n\n | \n | 8,750 | \n|
| Increases based on tax positions related to prior periods | \n\n | 14,780 | \n\n | \n | - | \n\n | \n | 14,780 | \n|
| Decreases based on tax positions related to prior periods | \n\n | (18,300 | \n) | \n\n | - | \n\n | \n | (18,300 | \n) |
| Interest expense recognized | \n\n | - | \n\n | \n | 7,000 | \n\n | \n | 7,000 | \n|
| Audit payments | \n\n | (310 | \n) | \n\n | (110 | \n) | \n\n | (420 | \n) |
| Reductions as a result of the lapse of the statute of | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| limitations | \n\n | - | \n\n | \n | - | \n\n | \n | - | \n|
| Balance, December 31, 2013 | \n\n | 145,520 | \n\n | \n | 28,170 | \n\n | \n | 173,690 | \n|
| Increases based on tax positions related to current period | \n\n | 5,630 | \n\n | \n | - | \n\n | \n | 5,630 | \n|
| Increases based on tax positions related to prior periods | \n\n | 4,340 | \n\n | \n | - | \n\n | \n | 4,340 | \n|
| Decreases based on tax positions related to prior periods | \n\n | (3,940 | \n) | \n\n | - | \n\n | \n | (3,940 | \n) |
| Interest expense recognized | \n\n | - | \n\n | \n | 9,200 | \n\n | \n | 9,200 | \n|
| Audit payments | \n\n | (2,960 | \n) | \n\n | (100 | \n) | \n\n | (3,060 | \n) |
| Reductions as a result of the lapse of the statute of | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| limitations | \n\n | - | \n\n | \n | - | \n\n | \n | - | \n|
| Balance, December 31, 2014 | \n$ | \n148,590 | \n\n | $ | \n37,270 | \n\n | $ | \n185,860 | \n
\n\n
The statute of limitations with respect to our federal income tax returns has expired for all years through 2010. Our New York State and New York City income tax returns are currently being audited for the 2009 to 2011 period. Prior to becoming a wholly-owned subsidiary, Jefferies filed a consolidated U.S. federal income tax return with its qualifying subsidiaries and was subject to income tax in various states, municipalities and foreign jurisdictions. Jefferies is currently under examination by the Internal Revenue Service and other major tax jurisdictions. The statute of limitations with respect to Jefferies federal income tax returns has expired for all years through 2005.
\n\nWe do not expect that resolution of these examinations will have a significant effect on our consolidated financial position, but could have a significant impact on the consolidated results of operations for the period in which resolution occurs. Over the next twelve months, we believe it is reasonably possible that various tax examinations will be concluded and statutes of limitation will expire which would have the effect of reducing the balance of unrecognized tax benefits by $6.2 million. If recognized, the total amount of unrecognized tax benefits reflected in the table above would lower our effective income tax rate.
\n\n
Income Taxes
\n\nWe record a valuation allowance to reduce our net deferred tax asset to the net amount that is more likely than not to be realized. If in the future we determine that it is more likely than not that we will be able to realize our net deferred tax asset in excess of our net recorded amount, an adjustment to increase the net deferred tax asset would increase income in such period. If in the future we were to determine that we would not be able to realize all or part of our recorded net deferred tax asset, an adjustment to decrease the net deferred tax asset would be charged to income in such period. We are required to consider all available evidence, both positive and negative, and to weight the evidence when determining whether a valuation allowance is required and the amount of such valuation allowance. Generally, greater weight is required to be placed on objectively verifiable evidence when making this assessment, in particular on recent historical operating results.
\n\nOur estimate of future taxable income considers all available evidence, both positive and negative, about our operating businesses and investments, includes an aggregation of individual projections for each significant operating business and investment, estimated apportionment factors for state and local taxing jurisdictions and included all future years that we estimate we will have available net operating loss carryforwards (\"NOLs\") (until 2029). We believe that our estimate of future taxable income is reasonable but inherently uncertain, and if our current or future operations and investments generate taxable income different than the projected amounts, further adjustments to the valuation allowance are possible. The current balance of the deferred tax valuation allowance principally reserves for NOLs of certain subsidiaries that are not available to offset income generated by other members of the consolidated tax return group.
\n\nWe also record reserves for unrecognized tax benefits based on our assessment of the probability of successfully sustaining tax filing positions. Interest and penalties, if any, are recorded as components of income tax expense. Management exercises significant judgment when assessing the probability of successfully sustaining tax filing positions, and in determining whether a contingent tax liability should be recorded and if so estimating the amount. If our tax filing positions are successfully challenged, payments could be required that are in excess of reserved amounts or we may be required to reduce the carrying amount of our net deferred tax asset, either of which could be significant to our Consolidated Statement of Financial Condition or results of operations.
Note 14. Inventory
\n\nA summary of inventory at December 31, 2014 and 2013 which is classified as Other assets is as follows (in thousands):
\n\n| \n | \n | \n | \n | |
| \n | \n | 2014 | \n\n | 2013 |
| Finished goods | \n$ | \n343,959 | \n$ | \n273,291 |
| Work in process | \n\n | 40,951 | \n\n | 34,701 |
| Raw materials, supplies and other | \n\n | 37,993 | \n\n | 56,334 |
| \n | $ | \n422,903 | \n$ | \n364,326 |
\n\n
Inventories and Cost of Sales
\n\nNational Beef's inventories consist primarily of beef products, beef by-products and supplies, and are stated at the lower of cost or market, with cost principally determined under the first-in-first-out method for beef products and average cost for supplies.
\n\nManufacturing inventories are stated at the lower of cost or market, with cost principally determined under the first-in-first-out method. Manufacturing cost of sales principally includes product and manufacturing costs, inbound and outbound shipping costs and handling costs.
Note 9. Available for Sale Securities
\n\nThe amortized cost, gross unrealized gains and losses and estimated fair value of investments classified as available for sale at December 31, 2014 and 2013 are as follows (in thousands):
\n\n| \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | \n | \n | Gross | \n\n | Gross | \n\n | Estimated |
| \n | \n | Amortized | \n\n | Unrealized | \n\n | Unrealized | \n\n | Fair |
| \n | \n | Cost | \n\n | Gains | \n\n | Losses | \n\n | Value |
| 2014 | \n\n | \n | \n | \n | \n | \n | \n | |
| Bonds and notes: | \n\n | \n | \n | \n | \n | \n | \n | |
| U.S. government securities | \n$ | \n593,803 | \n$ | \n33 | \n$ | \n63 | \n$ | \n593,773 |
| Residential mortgage-backed securities | \n\n | 597,402 | \n\n | 10,959 | \n\n | 1,678 | \n\n | 606,683 |
| Commercial mortgage-backed securities | \n\n | 42,991 | \n\n | 484 | \n\n | 74 | \n\n | 43,401 |
| Other asset-backed securities | \n\n | 245,533 | \n\n | 619 | \n\n | 996 | \n\n | 245,156 |
| All other corporates | \n\n | 30,519 | \n\n | 60 | \n\n | 176 | \n\n | 30,403 |
| Total fixed maturities | \n\n | 1,510,248 | \n\n | 12,155 | \n\n | 2,987 | \n\n | 1,519,416 |
| Equity securities: | \n\n | \n | \n | \n | \n | \n | \n | |
| Common stocks: | \n\n | \n | \n | \n | \n | \n | \n | |
| Banks, trusts and insurance companies | \n\n | 31,853 | \n\n | 18,740 | \n\n | – | \n\n | 50,593 |
| Industrial, miscellaneous and all other | \n\n | 20,355 | \n\n | 18,405 | \n\n | – | \n\n | 38,760 |
| Total equity securities | \n\n | 52,208 | \n\n | 37,145 | \n\n | – | \n\n | 89,353 |
| \n | $ | \n1,562,456 | \n$ | \n49,300 | \n$ | \n2,987 | \n$ | \n1,608,769 |
| 2013 | \n\n | \n | \n | \n | \n | \n | \n | |
| Bonds and notes: | \n\n | \n | \n | \n | \n | \n | \n | |
| U.S. government securities | \n$ | \n1,781,052 | \n$ | \n226 | \n$ | \n12 | \n$ | \n1,781,266 |
| Residential mortgage-backed securities | \n\n | 570,642 | \n\n | 9,946 | \n\n | 1,426 | \n\n | 579,162 |
| Commercial mortgage-backed securities | \n\n | 18,271 | \n\n | 13 | \n\n | 299 | \n\n | 17,985 |
| Other asset-backed securities | \n\n | 183,593 | \n\n | 627 | \n\n | 184 | \n\n | 184,036 |
| All other corporates | \n\n | 50,933 | \n\n | 267 | \n\n | 37 | \n\n | 51,163 |
| Total fixed maturities | \n\n | 2,604,491 | \n\n | 11,079 | \n\n | 1,958 | \n\n | 2,613,612 |
| Equity securities: | \n\n | \n | \n | \n | \n | \n | \n | |
| Common stocks: | \n\n | \n | \n | \n | \n | \n | \n | |
| First Quantum Minerals Ltd. | \n\n | 154,281 | \n\n | – | \n\n | 5,616 | \n\n | 148,665 |
| Banks, trusts and insurance companies | \n\n | 22,980 | \n\n | 27,562 | \n\n | – | \n\n | 50,542 |
| Industrial, miscellaneous and all other | \n\n | 21,012 | \n\n | 32,312 | \n\n | – | \n\n | 53,324 |
| Total equity securities | \n\n | 198,273 | \n\n | 59,874 | \n\n | 5,616 | \n\n | 252,531 |
| \n | $ | \n2,802,764 | \n$ | \n70,953 | \n$ | \n7,574 | \n$ | \n2,866,143 |
\n\n
The amortized cost and estimated fair value of investments classified as available for sale at December 31, 2014, by contractual maturity, are shown below. Expected maturities are likely to differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
\n\n| \n | \n | \n | \n | |
| \n | \n | Amortized | \n\n | Estimated |
| \n | \n | Cost | \n\n | Fair Value |
| \n | \n | (In thousands) | ||
| Due within one year | \n$ | \n607,208 | \n$ | \n607,070 |
| Due after one year through five years | \n\n | 17,114 | \n\n | 17,106 |
| Due after five years through ten years | \n\n | – | \n\n | – |
| Due after ten years | \n\n | – | \n\n | – |
| \n | \n | 624,322 | \n\n | 624,176 |
| Mortgage-backed and asset-backed securities | \n\n | 885,926 | \n\n | 895,240 |
| \n | $ | \n1,510,248 | \n$ | \n1,519,416 |
\n\n
At December 31, 2014, the unrealized losses on investments which have been in a continuous unrealized loss position for less than 12 months and 12 months or longer were not significant.
\n\nDuring the first quarter of 2013, we exchanged our investment in Inmet Mining Corporation for 18,202,313 shares of First Quantum, valued at $340.4 million on the date received, and $391.2 million in cash. We recorded a gain on the transaction of $227.6 million during 2013. During 2013 and 2014, we sold our interest in First Quantum.
\n\n
Notes to Consolidated Financial Statements
\n\n1. Nature of Operations
\n\nLeucadia National Corporation (\"Leucadia\" or the \"Company\") is a diversified holding company engaged through its consolidated subsidiaries in a variety of businesses, including investment banking and capital markets (Jefferies Group), asset management (Leucadia Asset Management), beef processing (National Beef Packing Company), manufacturing (Conwed Plastics and Idaho Timber) and oil and gas exploration and production (Juneau Energy and Vitesse Energy). We also own equity interests in businesses which are not consolidated, including, HomeFed Corporation (real estate), Berkadia Commercial Mortgage LLC (commercial mortgage banking and servicing), Harbinger Group Inc. (diversified holding company), Linkem S.p.A. (wireless broadband services provider in Italy), Garcadia (automobile dealerships) and Golden Queen Mining Company, LLC (development of a gold and silver mining project). We continuously review and consider new and add-on acquisitions and investments in businesses, securities and assets. Changes in the scale and mix of our businesses and investments should be expected.
\n\nOn March 1, 2013, Jefferies Group LLC (\"Jefferies\") became our largest wholly-owned subsidiary. Jefferies is a global full-service, integrated securities and investment banking firm. Jefferies shareholders received 0.81 of a share of our common shares for each share of Jefferies common stock they held (the \"Exchange Ratio\"). Prior to the closing, we owned 58,006,024 common shares of Jefferies, representing approximately 28% of the outstanding common shares of Jefferies. Richard Handler, Chairman and Chief Executive Officer of Jefferies, was appointed the Chief Executive Officer and a Director of Leucadia, and Brian P. Friedman, the Chairman of the Executive Committee of Jefferies, was appointed President and a Director of Leucadia.
\n\nJefferies Finance is our joint venture through Jefferies with Babson Capital Management LLC and Massachusetts Mutual Life Insurance Company. Jefferies Finance is a commercial finance company whose primary focus is the origination and syndication of senior secured debt of middle market and growth companies in the form of term and revolving loans.
\n\nThrough Jefferies we also have a 48.5% voting interest in Jefferies LoanCore, a joint venture with the Government of Singapore Investment Corporation and LoanCore, LLC. Jefferies LoanCore originates and purchases commercial real estate loans throughout the United States.
\n\nJefferies has a November 30th fiscal year, which it retains for standalone reporting purposes. We reflect Jefferies in our consolidated financial statements utilizing a one month lag. We have reviewed Jefferies business and internal operating results for the month of December 2014 for the purpose of evaluating whether additional financial statement disclosure or adjustments are required to this Annual Report on Form 10-K, and we have concluded that no additional disclosures or adjustments are warranted.
\n\nWe own approximately 65% of HomeFed, which owns and develops real estate projects. HomeFed is a public company traded on the NASD OTC Bulletin Board. During 2014, we sold substantially all of our standalone real estate operations to HomeFed; see Notes 11 and 29 for more information.
\n\nBerkadia, our 50-50 joint venture with Berkshire Hathaway, originates and brokers commercial real estate loans under various programs and services commercial real estate loans in the U.S.
\n\nWe own 78.9% of National Beef Packing Company. National Beef processes, packages and markets fresh boxed beef, case-ready beef, beef by-products and wet blue leather for domestic and international markets. National Beef operates two beef processing facilities, three consumer-ready facilities and a wet blue tanning facility, all located in the U.S. National Beef's products include boxed beef, ground beef, hides, tallow, and other beef and beef by-products. National Beef operates the largest wet blue tanning facility in the world that sells processed hides to tanners that produce finished leather for the automotive, luxury goods, apparel and furniture industries. National Beef owns Kansas City Steak Company, LLC, which sells portioned beef and other products to customers in the food service and retail channels as well as direct to consumers through the internet and direct mail. National Beef also owns a refrigerated and livestock transportation company that provides transportation services for National Beef and third parties.
\n\nConwed Plastics manufactures and markets lightweight plastic netting used for building and construction, erosion and sediment control, packaging, agricultural purposes, carpet padding, filtration, consumer products and other purposes. Conwed Plastics has four domestic manufacturing facilities, and it owns and operates a manufacturing and sales facility in Belgium.
\n\nIdaho Timber is engaged in the manufacture and/or distribution of various wood products, including the following principal product lines: 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 operates ten facilities located in the U.S.
\n\nJuneau Energy, LLC engages in the exploration, development and production of oil and gas from onshore, unconventional resource areas. Juneau currently has interests in acreage in the Oklahoma and Texas Gulf Coast regions. Vitesse Energy, LLC acquires and develops non-operated working and royalty oil and gas interests in the Bakken Shale oil field in North Dakota.
\n\nWe own approximately 23% of Harbinger, a diversified holding company that operates in four business segments: consumer products, insurance, energy and asset management. Harbinger is a public company traded on the NYSE.
\n\nWe own approximately 42% of the common shares of Linkem and a convertible note which, if converted, would increase our ownership to approximately 55% of Linkem's common shares. Linkem provides residential broadband services using Wimax and LTE technologies deployed over the 3.5 GHz spectrum band. Linkem operates in Italy, which has few cable television systems and poor broadband alternatives.
\n\nGarcadia is a joint venture that owned and operated 26 automobile dealerships in the U.S. as of December 31, 2014.
\n\nGolden Queen Mining Company, LLC owns the Soledad Mountain project, a fully-permitted, open pit, heap leach gold and silver project in Kern County, California. We and the Clay family have formed and made contributions to a limited liability company, controlled by us, through which we invested in Golden Queen Mining Company, LLC for the development and operation of the project. Our effective ownership of Golden Queen Mining Company, LLC is approximately 34%.
\n\nOn February 25, 2013, we distributed to our shareholders the common shares of the Crimson Wine Group, Ltd., a holding company through which we historically conducted our winery operations. The distribution was structured to qualify as a tax-free spin-off for U.S. federal income tax purposes. Our common shareholders on the record date received one share of Crimson common stock for every ten common shares of Leucadia, with cash in lieu of fractional shares. The distribution was a condition to the Jefferies acquisition. As a result, we recorded a dividend of $197.0 million. Crimson was not reflected as a discontinued operation in our consolidated financial statements as amounts were not significant.
\n\nCertain amounts have been reclassified to be consistent with the 2014 presentation.
| \n | \n | \n | \n | |
| \n | \n | \n | \n | Weighted Average |
| \n | \n | \n | \n | Grant Date |
| \n | \n | \n | \n | Fair Value |
| Balance at January 1, 2013 | \n– | \n\n | $ | \n– |
| Converted in connection with the Jefferies acquisition | \n6,895 | \n\n | $ | \n26.90 |
| Grants | \n462 | \n\n | $ | \n27.38 |
| Forfeited | \n(144 | \n) | \n$ | \n26.90 |
| Fulfillment of service requirement | \n(1,971 | \n) | \n$ | \n26.90 |
| Balance at December 31, 2013 | \n5,242 | \n\n | $ | \n26.94 |
| Grants | \n864 | \n\n | $ | \n27.03 |
| Forfeited | \n(202 | \n) | \n$ | \n26.90 |
| Fulfillment of service requirement | \n(2,521 | \n) | \n$ | \n26.89 |
| Balance at December 31, 2014 | \n3,383 | \n\n | $ | \n27.00 |
Note 21. Pension Plans and Postretirement Benefits
\n\nU.S. Pension Plans
\n\nPursuant to the agreement to sell one of our former subsidiaries, WilTel Communications Group, Inc. the responsibility for WilTel's defined benefit pension plan was retained by us. All benefits under this plan were frozen as of the date of sale. Prior to the acquisition of Jefferies, Jefferies sponsored a defined benefit pension plan covering certain employees; benefits under that plan were frozen as of December 31, 2005.
\n\nA summary of activity with respect to both plans is as follows (in thousands):
\n\n| \n | \n | \n | \n | \n | \n | |
| \n | \n | 2014 | \n\n | \n | 2013 | \n|
| Change in projected benefit obligation: | \n\n | \n | \n | \n | \n | |
| Projected benefit obligation, beginning of year | \n$ | \n295,044 | \n\n | $ | \n275,858 | \n|
| Projected benefit obligation of Jefferies plan at date of acquisition | \n\n | – | \n\n | \n | 51,599 | \n|
| Interest cost | \n\n | 14,239 | \n\n | \n | 12,286 | \n|
| Actuarial (gains) losses | \n\n | 52,125 | \n\n | \n | (36,197 | \n) |
| Benefits paid | \n\n | (9,282 | \n) | \n\n | (8,502 | \n) |
| Projected benefit obligation, end of year | \n$ | \n352,126 | \n\n | $ | \n295,044 | \n|
| Change in plan assets: | \n\n | \n | \n | \n | \n | |
| Fair value of plan assets, beginning of year | \n$ | \n239,080 | \n\n | $ | \n194,314 | \n|
| Jefferies plan assets at date of acquisition | \n\n | – | \n\n | \n | 41,290 | \n|
| Actual return on plan assets | \n\n | 11,175 | \n\n | \n | 6,454 | \n|
| Employer contributions | \n\n | – | \n\n | \n | 6,475 | \n|
| Benefits paid | \n\n | (9,282 | \n) | \n\n | (8,502 | \n) |
| Administrative expenses | \n\n | (963 | \n) | \n\n | (951 | \n) |
| Fair value of plan assets, end of year | \n$ | \n240,010 | \n\n | $ | \n239,080 | \n|
| Funded status at end of year | \n$ | \n(112,116 | \n) | \n$ | \n(55,964 | \n) |
\n\n
As of December 31, 2014 and 2013, $126.2 million and $78.8 million, respectively, of the net amount recognized in the consolidated balance sheet was reflected as a charge to accumulated other comprehensive income (loss) (substantially all of which were cumulative losses) and $112.1 million and $56.0 million, respectively, was reflected as accrued pension cost.
\n\nThe following table summarizes the components of net periodic pension cost and other amounts recognized in other comprehensive income (loss) excluding taxes (in thousands):
\n\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | 2014 | \n\n | \n | 2013 | \n\n | \n | 2012 | \n|
| Components of net periodic pension cost: | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| Interest cost | \n$ | \n14,239 | \n\n | $ | \n12,286 | \n\n | $ | \n10,886 | \n|
| Expected return on plan assets | \n\n | (10,115 | \n) | \n\n | (9,746 | \n) | \n\n | (8,292 | \n) |
| Actuarial losses | \n\n | 4,634 | \n\n | \n | 7,464 | \n\n | \n | 5,852 | \n|
| Net periodic pension cost | \n$ | \n8,758 | \n\n | $ | \n10,004 | \n\n | $ | \n8,446 | \n|
| Amounts recognized in other comprehensive income (loss): | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| Net (gain) loss arising during the period | \n$ | \n52,027 | \n\n | $ | \n(31,952 | \n) | \n$ | \n19,604 | \n|
| Amortization of net loss | \n\n | (4,634 | \n) | \n\n | (7,464 | \n) | \n\n | (5,852 | \n) |
| Total recognized in other comprehensive income (loss) | \n$ | \n47,393 | \n\n | $ | \n(39,416 | \n) | \n$ | \n13,752 | \n|
| Net amount recognized in net periodic benefit cost and other | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| comprehensive income (loss) | \n$ | \n56,151 | \n\n | $ | \n(29,412 | \n) | \n$ | \n22,198 | \n
\n\n
The amounts in accumulated other comprehensive income (loss) at the end of each year have not yet been recognized as components of net periodic pension cost in the Consolidated Statements of Operations. The estimated net loss that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost in 2015 is $7.8 million.
\n\nNo employer contributions are expected to be paid in 2015.
\n\nWe use a December 31 measurement date for the WilTel plan and a November 30 date for the Jefferies plan. The assumptions used are as follows:
\n\n| \n | \n | \n | \n | |
| \n | 2014 | \n\n | 2013 | \n|
| WilTel Plan | \n\n | \n | \n | |
| Discount rate used to determine benefit obligation | \n3.76 | \n% | \n4.71 | \n% |
| Weighted-average assumptions used to determine | \n\n | \n | \n | |
| net pension cost: | \n\n | \n | \n | |
| Discount rate | \n4.71 | \n% | \n3.85 | \n% |
| Expected long-term return on plan assets | \n4.00 | \n% | \n4.00 | \n% |
| Jefferies Plan | \n\n | \n | \n | |
| Discount rate used to determine benefit obligation | \n4.30 | \n% | \n5.10 | \n% |
| Weighted-average assumptions used to determine | \n\n | \n | \n | |
| net pension cost: | \n\n | \n | \n | |
| Discount rate | \n5.10 | \n% | \n4.40 | \n% |
| Expected long-term return on plan assets | \n6.75 | \n% | \n6.75 | \n% |
\n\n
The following pension benefit payments are expected to be paid (in thousands):
\n\n| \n | \n | |
| 2015 | \n$ | \n8,252 |
| 2016 | \n\n | 10,493 |
| 2017 | \n\n | 10,815 |
| 2018 | \n\n | 10,786 |
| 2019 | \n\n | 12,367 |
| 2020 – 2024 | \n\n | 99,516 |
\n\n
U.S. Plan Assets
\n\nThe information below on the plan assets for the WilTel plan and the Jefferies plan is presented separately for the plans as the investments are managed independently. Cash equivalents are valued at cost, which approximates fair value and are categorized in Level 1 of the fair value hierarchy. The estimated fair values for securities measured using Level 1 inputs are determined using publicly quoted market prices in active markets for identical assets. Certain fixed income securities are measured using Level 2 inputs. Although these securities trade in brokered markets, the market for certain securities is sometimes inactive. Valuation inputs include benchmark yields, reported trades, broker dealer quotes, issuer spreads, two sided markets, benchmark securities, bids, offers, reference data, and industry and economic events. Neither plan had any assets classified within Level 3 of the fair value hierarchy.
\n\nWilTel Plan Assets. At December 31, 2014 and 2013, the WilTel plan assets at fair value consisted of the following (in thousands):
\n\n| \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | \n | \n | Fair Value Measurements Using | |||
| \n | \n | Total | \n\n | Level 1 | \n\n | \n | Level 2 |
| 2014 | \n\n | \n | \n | \n | \n | \n | |
| Cash and cash equivalents | \n$ | \n14,669 | \n$ | \n14,669 | \n\n | $ | \n– |
| Fixed income securities: | \n\n | \n | \n | \n | \n | \n | |
| U.S. Government and agencies | \n\n | 3,719 | \n\n | 3,719 | \n\n | \n | – |
| Public utilities | \n\n | 15,669 | \n\n | – | \n\n | \n | 15,669 |
| All other corporates | \n\n | 154,868 | \n\n | – | \n\n | \n | 154,868 |
| Total | \n$ | \n188,925 | \n$ | \n18,388 | \n$ | \n170,537 | |
| 2013 | \n\n | \n | \n | \n | \n | \n | |
| Cash and cash equivalents | \n$ | \n20,075 | \n$ | \n20,075 | \n\n | $ | \n– |
| Fixed income securities: | \n\n | \n | \n | \n | \n | \n | |
| U.S. Government and agencies | \n\n | 4,860 | \n\n | 4,860 | \n\n | \n | – |
| Public utilities | \n\n | 13,243 | \n\n | – | \n\n | \n | 13,243 |
| All other corporates | \n\n | 153,486 | \n\n | – | \n\n | \n | 153,486 |
| Total | \n$ | \n191,664 | \n$ | \n24,935 | \n$ | \n166,729 |
\n\n
The current investment objectives are designed to minimize investment losses due to rising interest rates while providing a stable and predictable stream of investment income. To further mitigate investment losses, we have placed certain investment restrictions and limitations over plan assets. The restrictions and limitations include the following:
\n\nThe FI portfolio is managed to maximize the value of plan assets by minimizing exposure to changes in market interest rates while the IG and HY portfolios are managed to enhance investment income with a focus on minimizing credit losses and changes in market interest rates. This investment strategy provides us with more flexibility in managing the plan should interest rates rise and result in a decrease in the discounted value of benefit obligations.
\n\nTo develop the assumption for the expected long-term rate of return on plan assets, we considered the following underlying assumptions: 2.25% current expected inflation, 1.5% to 2.5% real rate of return for short duration risk-free investments, 0.2% inflation risk premium and 0.75% default risk premium for the portion of the portfolio invested in corporate bonds. We then weighted these assumptions based on invested assets and assumed that investment expenses were offset by expected returns in excess of benchmarks, which resulted in the selection of the 4.0% expected long-term rate of return assumption for 2014.
\n\nJefferies Plan Assets. At December 31, 2014 and 2013, the Jefferies plan assets at fair value consisted of the following (in thousands):
\n\n| \n | \n | \n | \n | \n | \n | |
| \n | \n | \n | Fair Value Measurements Using | |||
| \n | \n | Total | \n\n | Level 1 | \n\n | Level 2 |
| 2014 | \n\n | \n | \n | \n | \n | |
| Cash and cash equivalents | \n$ | \n373 | \n$ | \n373 | \n$ | \n– |
| Listed equity securities | \n\n | 31,327 | \n\n | 31,327 | \n\n | – |
| Fixed income securities: | \n\n | \n | \n | \n | \n | |
| Corporate debt securities | \n\n | 6,482 | \n\n | – | \n\n | 6,482 |
| Foreign corporate debt securities | \n\n | 1,321 | \n\n | – | \n\n | 1,321 |
| U.S. Government securities | \n\n | 5,929 | \n\n | 5,929 | \n\n | – |
| Agency mortgage-backed securities | \n\n | 3,883 | \n\n | – | \n\n | 3,883 |
| Commercial mortgage-backed securities | \n\n | 1,080 | \n\n | – | \n\n | 1,080 |
| Asset-backed securities | \n\n | 690 | \n\n | – | \n\n | 690 |
| Total | \n$ | \n51,085 | \n$ | \n37,629 | \n$ | \n13,456 |
| 2013 | \n\n | \n | \n | \n | \n | |
| Cash and cash equivalents | \n$ | \n931 | \n$ | \n931 | \n$ | \n– |
| Listed equity securities | \n\n | 27,663 | \n\n | 27,663 | \n\n | – |
| Fixed income securities: | \n\n | \n | \n | \n | \n | |
| Corporate debt securities | \n\n | 7,743 | \n\n | – | \n\n | 7,743 |
| Foreign corporate debt securities | \n\n | 1,140 | \n\n | – | \n\n | 1,140 |
| U.S. Government securities | \n\n | 4,055 | \n\n | 4,055 | \n\n | – |
| Agency mortgage-backed securities | \n\n | 3,949 | \n\n | – | \n\n | 3,949 |
| Commercial mortgage-backed securities | \n\n | 1,280 | \n\n | – | \n\n | 1,280 |
| Asset-backed securities | \n\n | 461 | \n\n | – | \n\n | 461 |
| Other | \n\n | 194 | \n\n | – | \n\n | 194 |
| Total | \n$ | \n47,416 | \n$ | \n32,649 | \n$ | \n14,767 |
\n\n
Assets in the plan are invested under guidelines adopted by the plan's administrative committee. Because the plan exists to provide a vehicle for funding future benefit obligations, the investment objectives of the portfolio take into account the nature and timing of future plan liabilities. The policy recognizes that the portfolio's long-term investment performance and its ability to meet the plan's overall objectives are dependent on the strategic asset allocation which includes adequate diversification among assets classes.
\n\nThe target allocation of plan assets for 2015 is approximately 50% equities and 50% fixed income securities. The target asset allocation was determined based on the risk tolerance characteristics of the plan and, at times, may be adjusted to achieve the plan's investment objective and to minimize any concentration of investment risk. The plan's administrative committee evaluates the asset allocation strategy and adjusts the allocation if warranted based upon market conditions and the impact of the investment strategy on future contribution requirements. The expected long-term rate of return assumption is based on an analysis of historical experience of the portfolio and the summation of prospective returns for each asset class in proportion to the fund's current asset allocation.
\n\nThe equity portfolio may invest up to 5% of the market value of the portfolio in any one company and may invest up to 10% of the market value of the portfolio in any one sector or up to two times the percentage weighting of any one sector as defined by the S&P 500 or the Russell 1000 Value indices, whichever is higher. Permissible investments specified under the equity portfolio of the plan include equity securities of U.S. and non-U.S. incorporated entities and private placement securities issued pursuant to Rule 144A. At least 75% of the market value of the fixed income portfolio must be invested in investment grade securities rated BBB-/Baa3, including cash and cash equivalents. Permissible investments specified under the fixed income portfolio of the plan include: public or private debt obligations issued or guaranteed by U.S. or foreign issuers; preferred, hybrid, mortgage or asset-backed securities; senior loans; and derivatives and foreign currency exchange contracts.
\n\nGerman Pension Plan
\n\nIn connection with the acquisition of Jefferies Bache from Prudential in 2011, Jefferies acquired a defined benefits pension plan located in Germany for the benefit of eligible employees of Jefferies Bache in that territory. The German pension plan has no plan assets and is therefore unfunded; however, Jefferies has purchased insurance contracts from multi-national insurers held in the name of Jefferies Bache Limited to provide for the plan's future obligations. The investments in these insurance contracts are included in Financial Instruments owned - Trading assets in the Consolidated Statement of Financial Condition in the amounts of $18.1 million and $19.7 million at December 31, 2014 and 2013, respectively. Jefferies expects to pay the pension liability from the cash flows available to it under the insurance contracts. All costs relating to the plan (including insurance premiums and other costs as computed by the insurers) are paid by Jefferies. In connection with the acquisition, Prudential agreed that any insurance premiums and funding obligations related to pre-acquisition date service will be reimbursed to Jefferies by Prudential.
\n\nThe provisions and assumptions used in the German pension plan are based on local conditions in Germany. Jefferies did not contribute to the plan during the year ended December 31, 2014.
\n\nThe following tables summarize the changes in the projected benefit obligation and the components of net periodic pension cost for the year ended December 31, 2014 and for the period from the acquisition of Jefferies to December 31, 2013 (in thousands):
\n\n| \n | \n | \n | \n | \n | \n | |
| \n | \n | 2014 | \n\n | \n | 2013 | \n|
| Change in projected benefit obligation: | \n\n | \n | \n | \n | \n | |
| Projected benefit obligation, beginning of year | \n$ | \n26,368 | \n\n | $ | \n– | \n|
| Projected benefit obligation at date of acquisition | \n\n | – | \n\n | \n | 24,494 | \n|
| Service cost | \n\n | 40 | \n\n | \n | 51 | \n|
| Interest cost | \n\n | 801 | \n\n | \n | 685 | \n|
| Actuarial losses | \n\n | 4,630 | \n\n | \n | 1,002 | \n|
| Currency adjustment | \n\n | (2,212 | \n) | \n\n | 1,053 | \n|
| Benefits paid | \n\n | (1,193 | \n) | \n\n | (917 | \n) |
| Projected benefit obligation, end of year | \n$ | \n28,434 | \n\n | $ | \n26,368 | \n
| \n | \n | \n | \n | \n | \n | |
| Components of net periodic pension cost: | \n\n | \n | \n | \n | \n | |
| Service cost | \n$ | \n40 | \n\n | $ | \n51 | \n|
| Interest cost | \n\n | 801 | \n\n | \n | 685 | \n|
| Net amortization | \n\n | 244 | \n\n | \n | 179 | \n|
| Net periodic pension cost | \n$ | \n1,085 | \n\n | $ | \n915 | \n
\n\n
The amounts in accumulated other comprehensive income at December 31, 2014 and 2013 are charges of $5.3 million and $1.0 million, respectively. The following are assumptions used to determine the actuarial present value of the projected benefit obligation and net periodic pension benefit cost for the year ended December 31, 2014 and for the period from the acquisition of Jefferies to December 31, 2013:
\n\n| \n | \n | \n | \n | |
| \n | 2014 | \n\n | 2013 | \n|
| Projected benefit obligation | \n\n | \n | \n | |
| Discount rate | \n2.10 | \n% | \n3.40 | \n% |
| Rate of compensation increase | \n3.00 | \n% | \n3.00 | \n% |
| Net periodic pension benefit cost | \n\n | \n | \n | |
| Discount rate | \n3.40 | \n% | \n3.60 | \n% |
| Rate of compensation increase | \n3.00 | \n% | \n3.00 | \n% |
\n\n
The following pension benefit payments are expected to be paid (in thousands):
\n\n| \n | \n | |
| 2015 | \n$ | \n1,308 |
| 2016 | \n\n | 1,324 |
| 2017 | \n\n | 1,304 |
| 2018 | \n\n | 1,300 |
| 2019 | \n\n | 1,275 |
| 2020 – 2024 | \n\n | 6,776 |
\n\n
Other
\n\nWe have defined contribution pension plans covering certain employees. Contributions and costs are a percent of each covered employee's salary. Amounts charged to expense related to such plans were $9.3 million, $6.3 million and $2.8 million for the years ended December 31, 2014, 2013 and 2012, respectively.
\n\nWe provide certain health care and other benefits to certain retired employees under plans which are currently unfunded. We pay the cost of postretirement benefits as they are incurred. Accumulated postretirement benefit obligations and amounts recognized in the consolidated statements of operations and in accumulated other comprehensive income (loss) were not significant.
\n\n
.
\n\n
Note 15. Property, Equipment and Leasehold Improvements, Net
\n\nA summary of property, equipment and leasehold improvements, net at December 31, 2014 and 2013 is as follows (in thousands):
\n\n| \n | \n | \n | \n | \n | \n | \n | |
| \n | Depreciable | \n\n | \n | \n | \n | \n | |
| \n | Lives | \n\n | \n | \n | \n | \n | |
| \n | (in years) | \n\n | 2014 | \n\n | \n | 2013 | \n|
| Land, buildings and leasehold improvements | \n1 - 45 | \n$ | \n321,098 | \n\n | $ | \n510,717 | \n|
| Beef processing machinery and equipment | \n2 - 15 | \n\n | 283,360 | \n\n | \n | 243,026 | \n|
| Other machinery and equipment | \n3 - 15 | \n\n | 110,075 | \n\n | \n | 157,164 | \n|
| Corporate aircraft | \n10 | \n\n | 104,780 | \n\n | \n | 104,780 | \n|
| Furniture, fixtures and office equipment | \n2 - 10 | \n\n | 283,436 | \n\n | \n | 210,916 | \n|
| Construction in progress | \nN/A | \n\n | 40,788 | \n\n | \n | 69,717 | \n|
| Other | \n3 - 10 | \n\n | 4,598 | \n\n | \n | 3,316 | \n|
| \n | \n | \n | 1,148,135 | \n\n | \n | 1,299,636 | \n|
| Accumulated depreciation and amortization | \n\n | \n | (421,759 | \n) | \n\n | (413,777 | \n) |
| \n | \n | $ | \n726,376 | \n\n | $ | \n885,859 | \n
\n\n
Property, equipment and leasehold improvements, net related to Premier were $229.0 million at December 31, 2013. In July 2014, Premier was sold.
Property, Equipment and Leasehold Improvements
\n\nProperty, equipment and leasehold improvements are stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization are provided principally on the straight-line method over the estimated useful lives of the assets or, if less, the term of the underlying lease.
| \n | \n | \n | \n | \n | \n | \n | |
| \n | Depreciable | \n\n | \n | \n | \n | \n | |
| \n | Lives | \n\n | \n | \n | \n | \n | |
| \n | (in years) | \n\n | 2014 | \n\n | \n | 2013 | \n|
| Land, buildings and leasehold improvements | \n1 - 45 | \n$ | \n321,098 | \n\n | $ | \n510,717 | \n|
| Beef processing machinery and equipment | \n2 - 15 | \n\n | 283,360 | \n\n | \n | 243,026 | \n|
| Other machinery and equipment | \n3 - 15 | \n\n | 110,075 | \n\n | \n | 157,164 | \n|
| Corporate aircraft | \n10 | \n\n | 104,780 | \n\n | \n | 104,780 | \n|
| Furniture, fixtures and office equipment | \n2 - 10 | \n\n | 283,436 | \n\n | \n | 210,916 | \n|
| Construction in progress | \nN/A | \n\n | 40,788 | \n\n | \n | 69,717 | \n|
| Other | \n3 - 10 | \n\n | 4,598 | \n\n | \n | 3,316 | \n|
| \n | \n | \n | 1,148,135 | \n\n | \n | 1,299,636 | \n|
| Accumulated depreciation and amortization | \n\n | \n | (421,759 | \n) | \n\n | (413,777 | \n) |
| \n | \n | $ | \n726,376 | \n\n | $ | \n885,859 | \n
Note 32. Selected Quarterly Financial Data (Unaudited)
\n\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | First | \n\n | \n | Second | \n\n | \n | Third | \n\n | \n | Fourth | \n|
| \n | \n | Quarter | \n\n | \n | Quarter | \n\n | \n | Quarter | \n\n | \n | Quarter | \n|
| \n | (In thousands, except per share amounts) | |||||||||||
| 2014 | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Net revenues | \n$ | \n2,942,524 | \n\n | $ | \n2,851,963 | \n\n | $ | \n3,003,643 | \n\n | $ | \n2,688,355 | \n|
| Income (loss) from continuing operations | \n$ | \n100,846 | \n\n | $ | \n70,190 | \n\n | $ | \n58,253 | \n\n | $ | \n(14,038 | \n) |
| Income (loss) from discontinued operations, net of taxes | \n$ | \n(8,909 | \n) | \n$ | \n(4,240 | \n) | \n$ | \n(5,676 | \n) | \n$ | \n932 | \n|
| Gain (loss) on disposal of discontinued operations, net of taxes | \n$ | \n- | \n\n | $ | \n500 | \n\n | $ | \n7,685 | \n\n | $ | \n(6,518 | \n) |
| Net (income) loss attributable to the noncontrolling interest | \n$ | \n(2,537 | \n) | \n$ | \n912 | \n\n | $ | \n1,058 | \n\n | $ | \n1,294 | \n|
| Net (income) loss attributable to the redeemable noncontrolling | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| interests | \n$ | \n5,932 | \n\n | $ | \n(1,273 | \n) | \n$ | \n(5,625 | \n) | \n$ | \n9,582 | \n|
| Preferred stock dividends | \n$ | \n(1,016 | \n) | \n$ | \n(1,015 | \n) | \n$ | \n(1,016 | \n) | \n$ | \n(1,015 | \n) |
| Net income (loss) attributable to Leucadia National Corporation common shareholders | \n$ | \n94,316 | \n\n | $ | \n65,074 | \n\n | $ | \n54,679 | \n\n | $ | \n(9,763 | \n) |
| Basic earnings (loss) per common share attributable to | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Leucadia National Corporation common shareholders: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Income (loss) from continuing operations | \n$ | \n.27 | \n\n | $ | \n.18 | \n\n | $ | \n.14 | \n\n | $ | \n(.01 | \n) |
| Income (loss) from discontinued operations | \n\n | (.02 | \n) | \n\n | (.01 | \n) | \n\n | (.02 | \n) | \n\n | - | \n|
| Gain (loss) on disposal of discontinued operations | \n\n | - | \n\n | \n | - | \n\n | \n | .02 | \n\n | \n | (.02 | \n) |
| Net income (loss) | \n$ | \n.25 | \n\n | $ | \n.17 | \n\n | $ | \n.14 | \n\n | $ | \n(.03 | \n) |
| Number of shares used in calculation | \n\n | 368,487 | \n\n | \n | 371,979 | \n\n | \n | 373,347 | \n\n | \n | 373,617 | \n|
| Diluted earnings (loss) per common share attributable to | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Leucadia National Corporation common shareholders: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Income (loss) from continuing operations | \n$ | \n.27 | \n\n | $ | \n.18 | \n\n | $ | \n.14 | \n\n | $ | \n(.01 | \n) |
| Income (loss) from discontinued operations | \n\n | (.02 | \n) | \n\n | (.01 | \n) | \n\n | (.02 | \n) | \n\n | - | \n|
| Gain (loss) on disposal of discontinued operations | \n\n | - | \n\n | \n | - | \n\n | \n | .02 | \n\n | \n | (.02 | \n) |
| Net income (loss) | \n$ | \n.25 | \n\n | $ | \n.17 | \n\n | $ | \n.14 | \n\n | $ | \n(.03 | \n) |
| Number of shares used in calculation | \n\n | 377,348 | \n\n | \n | 373,179 | \n\n | \n | 373,375 | \n\n | \n | 373,617 | \n
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| 2013 | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Net revenues | \n$ | \n2,297,421 | \n\n | $ | \n2,675,449 | \n\n | $ | \n2,532,052 | \n\n | $ | \n2,920,824 | \n|
| Income from continuing operations | \n$ | \n310,037 | \n\n | $ | \n67,918 | \n\n | $ | \n29,974 | \n\n | $ | \n1,175 | \n|
| Loss from discontinued operations, net of taxes | \n$ | \n(9,423 | \n) | \n$ | \n(9,767 | \n) | \n$ | \n(19,751 | \n) | \n$ | \n(21,085 | \n) |
| Gain (loss) on disposal of discontinued operations, net of taxes | \n$ | \n(325 | \n) | \n$ | \n385 | \n\n | $ | \n4,160 | \n\n | $ | \n8,895 | \n|
| Net (income) loss attributable to the noncontrolling interest | \n$ | \n622 | \n\n | $ | \n729 | \n\n | $ | \n(253 | \n) | \n$ | \n64 | \n|
| Net (income) loss attributable to the redeemable noncontrolling | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| interests | \n$ | \n4,531 | \n\n | $ | \n(5,638 | \n) | \n$ | \n(10,132 | \n) | \n$ | \n20,521 | \n|
| Preferred stock dividends | \n$ | \n(339 | \n) | \n$ | \n(1,015 | \n) | \n$ | \n(1,027 | \n) | \n$ | \n(1,016 | \n) |
| Net income attributable to Leucadia National Corporation common shareholders | \n$ | \n305,103 | \n\n | $ | \n52,612 | \n\n | $ | \n2,971 | \n\n | $ | \n8,554 | \n|
| Basic earnings (loss) per common share attributable to | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Leucadia National Corporation common shareholders: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Income from continuing operations | \n$ | \n1.13 | \n\n | $ | \n.16 | \n\n | $ | \n.05 | \n\n | $ | \n.05 | \n|
| Loss from discontinued operations | \n\n | (.03 | \n) | \n\n | (.02 | \n) | \n\n | (.05 | \n) | \n\n | (.05 | \n) |
| Gain (loss) on disposal of discontinued operations | \n\n | - | \n\n | \n | - | \n\n | \n | .01 | \n\n | \n | .02 | \n|
| Net income | \n$ | \n1.10 | \n\n | $ | \n.14 | \n\n | $ | \n.01 | \n\n | $ | \n.02 | \n|
| Number of shares used in calculation | \n\n | 275,735 | \n\n | \n | 367,752 | \n\n | \n | 367,641 | \n\n | \n | 368,146 | \n|
| Diluted earnings (loss) per common share attributable to | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Leucadia National Corporation common shareholders: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Income from continuing operations | \n$ | \n1.11 | \n\n | $ | \n.16 | \n\n | $ | \n.05 | \n\n | $ | \n.05 | \n|
| Loss from discontinued operations | \n\n | (.03 | \n) | \n\n | (.02 | \n) | \n\n | (.05 | \n) | \n\n | (.05 | \n) |
| Gain (loss) on disposal of discontinued operations | \n\n | - | \n\n | \n | - | \n\n | \n | .01 | \n\n | \n | .02 | \n|
| Net income | \n$ | \n1.08 | \n\n | $ | \n.14 | \n\n | $ | \n.01 | \n\n | $ | \n.02 | \n|
| Number of shares used in calculation | \n\n | 281,587 | \n\n | \n | 367,837 | \n\n | \n | 367,687 | \n\n | \n | 368,262 | \n
\n\n
The second quarter of 2013 includes an out of period adjustment of $16.4 million to record Berkadia income related to prior periods. The fourth quarter of 2013 includes an out of period adjustment of $15.4 million to record real estate impairment charges related to prior periods.
\n\nIn 2014 and 2013, the totals of quarterly per share amounts do not equal annual per share amounts because of changes in outstanding shares during the year.
| \n | \n | \n | \n | \n | \n | \n | |
| Details about Accumulated Other | \n\n | Amount Reclassified from | \n\n | Affected Line Item in the | |||
| Comprehensive Income | \n\n | Accumulated Other | \n\n | Consolidated Statement | |||
| Components | \n\n | Comprehensive Income | \n\n | of Operations | |||
| \n | \n | 2014 | \n\n | \n | 2013 | \n\n | |
| Net unrealized gains (losses) on available for | \n\n | \n | \n | \n | \n | \n | Net realized securities gains |
| sale securities, net of income tax provision | \n\n | \n | \n | \n | \n | \n | |
| of $1,631 and $118,292 | \n$ | \n2,939 | \n\n | $ | \n213,058 | \n\n | |
| Net unrealized foreign exchange gains, net of | \n\n | \n | \n | \n | \n | \n | Loss from discontinued operations, |
| income tax provision of $149 and $0 | \n\n | 267 | \n\n | \n | – | \n\n | net of income tax (benefit) |
| Net unrealized losses on derivatives, net | \n\n | \n | \n | \n | \n | \n | Income related to associated |
| of income tax benefit of $(95) and $0 | \n\n | (169 | \n) | \n\n | – | \n\n | companies |
| Amortization of defined benefit pension | \n\n | \n | \n | \n | \n | \n | Compensation and benefits, which |
| plan actuarial gains (losses), net of | \n\n | \n | \n | \n | \n | \n | includes pension expense. See the |
| income tax benefit of $(1,676) | \n\n | \n | \n | \n | \n | \n | pension footnote for information |
| and $(2,665) | \n\n | (3,201 | \n) | \n\n | (4,799 | \n) | \non this component. |
| Total reclassifications for the period, | \n\n | \n | \n | \n | \n | \n | |
| net of tax | \n$ | \n(164 | \n) | \n$ | \n208,259 | \n\n |
Note 29. Related Party Transactions
\n\nJefferies Capital Partners and JEP IV Related Funds. Jefferies has loans to and/or equity investments in private equity funds and in Jefferies Capital Partners, LLC, the manager of the Jefferies Capital Partners funds, which are managed by a team led by Brian P. Friedman, our President and a Director (\"Private Equity Related Funds\"). Reflected in our Consolidated Statements of Financial Condition at December 31, 2014 and 2013 are loans to and/or equity investments in Private Equity Related Funds of $60.7 million and $61.7 million, respectively. Net losses aggregating $14.9 million were recorded related to the Private Equity Related Funds for the year ended December 31, 2014 and net income aggregating $10.1 million was recorded related to the Private Equity Related Funds for the period from the acquisition of Jefferies through December 31, 2013. For further information regarding our commitments and funded amounts to Private Equity Related Funds, see Note 26.
\n\nBerkadia Commercial Mortgage, LLC. At December 31, 2014 and 2013, Jefferies has commitments to purchase $344.8 million and $300.0 million, respectively, in agency commercial mortgage-backed securities from Berkadia.
\n\nHarbinger Group Inc. As part of Jefferies loan secondary trading activities, it has unsettled purchases and sales of loans pertaining to portfolio companies within funds managed by Harbinger of $232.0 million at December 31, 2014. Our Chairman also serves as Harbinger's Chairman.
\n\nOfficers, Directors and Employees. We have $20.1 million and $13.9 million of loans outstanding to certain employees (none of whom are an executive officer or director of the Company) that are included in Other assets in the Consolidated Statements of Financial Condition at December 31, 2014 and 2013, respectively. Receivables from and payables to customers includes 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. During 2014, Jefferies sold private equity interests with a fair value of $4.0 million at their then fair value to a private equity fund owned by Jefferies employees and has also provided a guarantee of the fund's credit agreement.
\n\nNational Beef. National Beef participates in a cattle supply agreement with a minority owner and holder of a redeemable noncontrolling interest in National Beef. Under this agreement National Beef has agreed to purchase 735,385 head of cattle each year (subject to adjustment), from the members of the minority owner, with prices based on those published by the U.S. Department of Agriculture, subject to adjustments for cattle performance. National Beef obtained approximately 23% and 20% of its cattle requirements under this agreement during 2014 and 2013, respectively.
\n\nNational Beef also enters into transactions with an affiliate of another minority owner and holder of a redeemable noncontrolling interest in National Beef to buy and sell a limited number of beef products. During the year ended December 31, 2014, sales to this affiliate were $43.2 million and purchases were $12.7 million. During the year ended December 31, 2013, sales to this affiliate were $25.6 million and purchases were $9.4 million. At December 31, 2014 and 2013, amounts due from and payable to these related parties were not significant. Both of these arrangements are based on what we believe to be competitive market prices.
\n\nHomeFed. As more fully described in Note 11, during 2014 we sold to HomeFed substantially all of our real estate properties and operations, our interest in BRP and cash of approximately $14.0 million, in exchange for 7,500,000 newly issued unregistered HomeFed common shares. As discussed in Note 11, as a result of a 1998 distribution to all of our shareholders, approximately 4.8% of HomeFed is beneficially owned by our Chairman at December 31, 2014. Our Chairman also serves as HomeFed's Chairman and our President is a Director of HomeFed.
\n\nSee Note 11 for information on transactions with Jefferies Finance and Jefferies LoanCore.
Securities Purchased Under Agreements to Resell and Securities Sold Under Agreements to Repurchase
\n\nSecurities purchased under agreements to resell and Securities sold under agreements to repurchase (collectively \"repos\") are accounted for as collateralized financing transactions and are recorded at their contracted resale or repurchase amount plus accrued interest. Repos are presented in the Consolidated Statements of Financial Condition on a net-basis-by counterparty, where permitted by GAAP. The fair value of the underlying securities is monitored daily versus the related receivable or payable balances. Should the fair value of the underlying securities decline or increase, additional collateral is requested or excess collateral is returned, as appropriate.
| \n | \n | \n | \n | |
| \n | \n | \n | \n | For the period from the |
| \n | \n | \n | \n | Jefferies acquisition |
| \n | \n | For the year ended | \n\n | through |
| \n | \n | December 31, 2014 | \n\n | December 31, 2013 |
| Americas (2) | \n$ | \n2,257,870 | \n$ | \n1,645,110 |
| Europe (3) | \n\n | 634,358 | \n\n | 441,795 |
| Asia | \n\n | 94,097 | \n\n | 47,097 |
| \n | $ | \n2,986,325 | \n$ | \n2,134,002 |
\n\n
(1) At December 31, 2014 and 2013, includes $773.1 million and $701.9 million, respectively, of Jefferies loans to and investments in associated companies and $399.6 million and $524.8 million, respectively, of Jefferies deferred tax asset, net.
\n\n(2) Substantially all relates to United States results.
\n\n(3) Substantially all relates to United Kingdom results.
Revenue Recognition Policies
\n\nBeef Processing and Other Operations
\n\nRevenues are recognized when the following conditions are met: (1) collectibility is reasonably assured; (2) title to the product has passed or the service has been rendered and earned; (3) persuasive evidence of an arrangement exists; and (4) there is a fixed or determinable price. National Beef's revenues are recognized based on the terms of the sale, which for beef processing operations is typically upon delivery to customers. Manufacturing revenues are recognized when title passes.
\n\nInvestment Banking Activities
\n\nCommissions. All customer securities transactions are reported in the Consolidated Statements of Financial Condition on a settlement date basis with related income reported on a trade date basis. We permit institutional customers to allocate a portion of their gross commissions to pay for research products and other services provided by third parties. The amounts allocated for those purposes are commonly referred to as soft dollar arrangements. These arrangements are accounted for on an accrual basis and, as we are not the primary obligor for these arrangements, netted against commission revenues in the Consolidated Statements of Operations. The commissions and related expenses on client transactions executed by Jefferies LLC, a futures commission merchant, are recorded on a half-turn basis.
\n\nPrincipal Transactions. Trading assets and trading liabilities are carried at fair value with gains and losses reflected in Principal transactions in the Consolidated Statements of Operations on a trade date basis. Fees received on loans carried at fair value are also recorded within Principal transactions.
\n\nInvestment Banking. Underwriting revenues and fees from mergers and acquisitions, restructuring and other investment banking advisory assignments or engagements are recorded when the services related to the underlying transactions are completed under the terms of the assignment or engagement. Expenses associated with such assignments are deferred until reimbursed by the client, the related revenue is recognized or the engagement is otherwise concluded. Expenses are recorded net of client reimbursements and netted against revenues. Unreimbursed expenses with no related revenues are included in Selling, general and administrative expenses in the Consolidated Statements of Operations.
\n\nInterest Revenue and Expense. Interest expense that is deducted from Revenues to arrive at Net revenues is related to Jefferies operations. Contractual interest on Trading assets and Trading liabilities is recognized on an accrual basis as a component of Interest income and Interest expense. Interest flows on derivative trading transactions and dividends are included as part of the fair valuation of these contracts and recognized in Principal transactions in the Consolidated Statements of Operations rather than as a component of interest income or expense. Discounts/premiums arising on long-term debt are accreted/amortized to Interest expense using the effective yield method over the remaining lives of the underlying debt obligations. Interest revenue related to Securities borrowed and Securities purchased under agreements to resell activities and interest expense related to Securities loaned and Securities sold under agreements to repurchase activities are recognized on an accrual basis.
| \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | 2014 | \n\n | \n | 2013 | \n\n | \n | 2012 | \n|
| Net unrealized gains on available for sale securities | \n$ | \n577,588 | \n\n | $ | \n589,393 | \n\n | $ | \n803,430 | \n|
| Net unrealized foreign exchange gains (losses) | \n\n | (26,771 | \n) | \n\n | 16,803 | \n\n | \n | (6,097 | \n) |
| Net unrealized losses on derivative instruments | \n\n | – | \n\n | \n | (169 | \n) | \n\n | (154 | \n) |
| Net minimum pension liability | \n\n | (103,735 | \n) | \n\n | (67,977 | \n) | \n\n | (92,050 | \n) |
| \n | $ | \n447,082 | \n\n | $ | \n538,050 | \n\n | $ | \n705,129 | \n
| \n | \n | \n | \n | \n | \n | |
| \n | \n | \n | Fair Value Measurements Using | |||
| \n | \n | Total | \n\n | Level 1 | \n\n | Level 2 |
| 2014 | \n\n | \n | \n | \n | \n | |
| Cash and cash equivalents | \n$ | \n373 | \n$ | \n373 | \n$ | \n– |
| Listed equity securities | \n\n | 31,327 | \n\n | 31,327 | \n\n | – |
| Fixed income securities: | \n\n | \n | \n | \n | \n | |
| Corporate debt securities | \n\n | 6,482 | \n\n | – | \n\n | 6,482 |
| Foreign corporate debt securities | \n\n | 1,321 | \n\n | – | \n\n | 1,321 |
| U.S. Government securities | \n\n | 5,929 | \n\n | 5,929 | \n\n | – |
| Agency mortgage-backed securities | \n\n | 3,883 | \n\n | – | \n\n | 3,883 |
| Commercial mortgage-backed securities | \n\n | 1,080 | \n\n | – | \n\n | 1,080 |
| Asset-backed securities | \n\n | 690 | \n\n | – | \n\n | 690 |
| Total | \n$ | \n51,085 | \n$ | \n37,629 | \n$ | \n13,456 |
| 2013 | \n\n | \n | \n | \n | \n | |
| Cash and cash equivalents | \n$ | \n931 | \n$ | \n931 | \n$ | \n– |
| Listed equity securities | \n\n | 27,663 | \n\n | 27,663 | \n\n | – |
| Fixed income securities: | \n\n | \n | \n | \n | \n | |
| Corporate debt securities | \n\n | 7,743 | \n\n | – | \n\n | 7,743 |
| Foreign corporate debt securities | \n\n | 1,140 | \n\n | – | \n\n | 1,140 |
| U.S. Government securities | \n\n | 4,055 | \n\n | 4,055 | \n\n | – |
| Agency mortgage-backed securities | \n\n | 3,949 | \n\n | – | \n\n | 3,949 |
| Commercial mortgage-backed securities | \n\n | 1,280 | \n\n | – | \n\n | 1,280 |
| Asset-backed securities | \n\n | 461 | \n\n | – | \n\n | 461 |
| Other | \n\n | 194 | \n\n | – | \n\n | 194 |
| Total | \n$ | \n47,416 | \n$ | \n32,649 | \n$ | \n14,767 |
| \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | \n | \n | Fair Value Measurements Using | |||
| \n | \n | Total | \n\n | Level 1 | \n\n | \n | Level 2 |
| 2014 | \n\n | \n | \n | \n | \n | \n | |
| Cash and cash equivalents | \n$ | \n14,669 | \n$ | \n14,669 | \n\n | $ | \n– |
| Fixed income securities: | \n\n | \n | \n | \n | \n | \n | |
| U.S. Government and agencies | \n\n | 3,719 | \n\n | 3,719 | \n\n | \n | – |
| Public utilities | \n\n | 15,669 | \n\n | – | \n\n | \n | 15,669 |
| All other corporates | \n\n | 154,868 | \n\n | – | \n\n | \n | 154,868 |
| Total | \n$ | \n188,925 | \n$ | \n18,388 | \n$ | \n170,537 | |
| 2013 | \n\n | \n | \n | \n | \n | \n | |
| Cash and cash equivalents | \n$ | \n20,075 | \n$ | \n20,075 | \n\n | $ | \n– |
| Fixed income securities: | \n\n | \n | \n | \n | \n | \n | |
| U.S. Government and agencies | \n\n | 4,860 | \n\n | 4,860 | \n\n | \n | – |
| Public utilities | \n\n | 13,243 | \n\n | – | \n\n | \n | 13,243 |
| All other corporates | \n\n | 153,486 | \n\n | – | \n\n | \n | 153,486 |
| Total | \n$ | \n191,664 | \n$ | \n24,935 | \n$ | \n166,729 |
| \n | \n | \n | \n | |
| \n | 2014 | \n\n | 2013 | \n|
| Projected benefit obligation | \n\n | \n | \n | |
| Discount rate | \n2.10 | \n% | \n3.40 | \n% |
| Rate of compensation increase | \n3.00 | \n% | \n3.00 | \n% |
| Net periodic pension benefit cost | \n\n | \n | \n | |
| Discount rate | \n3.40 | \n% | \n3.60 | \n% |
| Rate of compensation increase | \n3.00 | \n% | \n3.00 | \n% |
| \n | \n | \n | \n | |
| \n | 2014 | \n\n | 2013 | \n|
| WilTel Plan | \n\n | \n | \n | |
| Discount rate used to determine benefit obligation | \n3.76 | \n% | \n4.71 | \n% |
| Weighted-average assumptions used to determine | \n\n | \n | \n | |
| net pension cost: | \n\n | \n | \n | |
| Discount rate | \n4.71 | \n% | \n3.85 | \n% |
| Expected long-term return on plan assets | \n4.00 | \n% | \n4.00 | \n% |
| Jefferies Plan | \n\n | \n | \n | |
| Discount rate used to determine benefit obligation | \n4.30 | \n% | \n5.10 | \n% |
| Weighted-average assumptions used to determine | \n\n | \n | \n | |
| net pension cost: | \n\n | \n | \n | |
| Discount rate | \n5.10 | \n% | \n4.40 | \n% |
| Expected long-term return on plan assets | \n6.75 | \n% | \n6.75 | \n% |
Note 4. Acquisitions
\n\nJefferies became a wholly-owned subsidiary on March 1, 2013. Each share of Jefferies common stock was converted at the Exchange Ratio into our common shares, an aggregate of approximately 119,363,000 common shares, and we issued a new series of our 3.25% Cumulative Convertible Preferred Shares ($125.0 million at mandatory redemption value) in exchange for Jefferies outstanding 3.25% Series A-1 Cumulative Convertible Preferred Stock. In addition, each restricted share of Jefferies common stock and each RSU of Jefferies common stock was converted at the Exchange Ratio into an award of restricted shares or RSUs of Leucadia, with all such awards subject to the same terms and conditions, including, without limitation, vesting and, in the case of performance-based RSUs, performance being measured at existing targets. We did not assume or guarantee any of Jefferies outstanding debt securities, but Jefferies 3.875% Convertible Senior Debentures due 2029 ($345.0 million principal amount outstanding) are now convertible into our common shares. As specified in the indenture governing such debentures, the debentures are not currently convertible; if the debentures were currently convertible, the conversion price would be $45.06 per common share.
\n\nThe Jefferies acquisition was accounted for using the acquisition method of accounting. The aggregate purchase price ($4,770.6 million) equaled the sum of the fair value of our common shares issued at closing, the fair value of employee stock based awards attributable to periods prior to closing, the fair value of the Jefferies common stock owned by us ($1.3 billion) and the redemption value of the new series of preferred shares issued at closing, which represents its fair value. The fair values of the Jefferies common stock owned by us and the common shares and employee stock based awards issued were determined by using market prices at closing. Including our investment in Jefferies High Yield Holdings, LLC (\"JHYH\"), which was contributed to Jefferies capital after the acquisition, our aggregate investment in Jefferies is $5.5 billion at December 31, 2014.
\n\nThe following table reflects the allocation of the purchase price to the assets acquired and liabilities assumed at the acquisition date (in thousands):
\n\n| \n | \n | |
| Assets | \n\n | |
| Cash and cash equivalents | \n$ | \n3,017,958 |
| Cash and securities segregated and on deposit for regulatory purposes or | \n\n | |
| deposited with clearing and depository organizations | \n\n | 3,728,742 |
| Trading assets | \n\n | 16,413,535 |
| Loans to and investments in associated companies | \n\n | 766,893 |
| Securities borrowed | \n\n | 5,315,488 |
| Securities purchased under agreements to resell | \n\n | 3,578,366 |
| Intangible assets, net | \n\n | 282,852 |
| Goodwill | \n\n | 1,722,591 |
| Deferred tax asset, net | \n\n | 539,384 |
| Other assets | \n\n | 4,386,419 |
| Total assets | \n\n | 39,752,228 |
| Liabilities | \n\n | |
| Short-term borrowings | \n\n | 100,000 |
| Trading liabilities | \n\n | 9,766,876 |
| Securities loaned | \n\n | 1,902,687 |
| Securities sold under agreements to repurchase | \n\n | 7,976,492 |
| Payables to customers of securities operations | \n\n | 5,450,781 |
| Trade payables, expense accruals and other liabilities | \n\n | 2,724,136 |
| Mandatorily redeemable preferred interest in JHYH held by Leucadia | \n\n | 358,951 |
| Long-term debt | \n\n | 6,345,536 |
| Total liabilities | \n\n | 34,625,459 |
| Noncontrolling interests | \n\n | 356,180 |
| Net assets acquired | \n$ | \n4,770,589 |
\n\n
The fair value of Jefferies customer relationships and tradename were estimated using an income approach which calculates the present value of the estimated future net economic benefits of the assets over their estimated remaining life. Replacement cost was used to estimate the fair value of internally developed software and exchange and clearing organization memberships based on the premise that a prudent investor would not pay more for an asset than its replacement cost. The fair values of trading assets and trading liabilities were determined based upon the methodologies disclosed in Note 5 below. The fair value of long-term debt was principally based on prices observed for recently executed market transactions or based on valuations received from third party brokers. The fair value of noncontrolling interests, which principally represented third-party investors in JHYH, and the fair value of mandatorily redeemable preferred interests in JHYH held by us, was the estimated redemption value of those interests, which was based on their share of the underlying net assets in JHYH. JHYH net assets were valued using the methodologies disclosed in Note 5 below. The third-party interests in JHYH have been redeemed and our interest contributed to Jefferies capital. Approximately $111.5 million of the goodwill recorded at acquisition is deductible for income tax purposes.
\n\nAmounts allocated to intangible assets, the amortization period and goodwill were as follows (dollars in thousands):
\n\n| \n | \n | \n | |
| \n | \n | \n | Amortization |
| \n | \n | Amount | \nYears |
| Customer relationships | \n$ | \n136,002 | \n9 to 18 years |
| Tradenames and related trademarks | \n\n | 131,299 | \n35 years |
| Exchange and clearing organization | \n\n | \n | |
| membership interests and registrations | \n\n | 15,551 | \nIndefinite |
| Subtotal, intangible assets | \n\n | 282,852 | \n|
| Goodwill | \n\n | 1,722,591 | \n|
| Total | \n$ | \n2,005,443 | \n
\n\n
For the year ended December 31, 2013, we expensed costs related to the acquisition of Jefferies of $18.5 million.
\n\nPresented below for the years ended December 31, 2013 and 2012, are unaudited pro forma operating results assuming the acquisition of Jefferies had occurred on January 1, 2012 (in thousands, except per share amounts):
\n\n| \n | \n | \n | \n | |
| \n | \n | 2013 | \n\n | 2012 |
| Net revenues | \n$ | \n11,083,248 | \n$ | \n12,252,511 |
| Net income attributable to Leucadia National Corporation | \n\n | \n | \n | |
| common shareholders | \n$ | \n267,160 | \n$ | \n900,044 |
| Basic income per common share attributable to Leucadia | \n\n | \n | \n | |
| National Corporation common shareholders | \n$ | \n.70 | \n$ | \n2.37 |
| Diluted income per common share attributable to Leucadia | \n\n | \n | \n | |
| National Corporation common shareholders | \n$ | \n.70 | \n$ | \n2.33 |
\n\n
Pro forma adjustments for Jefferies principally reflect an increase to amortization expenses related to the fair value of amortizable intangible assets, a reduction to interest expense for the amortization of the premium recorded to reflect long-term debt at fair value and to reflect the costs related to the acquisition as if they had occurred in the period beginning January 1, 2012. In addition, the pro forma adjustments reflect the elimination from Net revenues amounts recognized from the application of the fair value option to our investment in Jefferies for periods prior to March 1, 2013, as more fully described in Note 5. For the year ended December 31, 2013, pro forma adjustments include the removal of the deferred tax liability reversal related to our investment in Jefferies for periods prior to March 1, 2013 ($34.0 million). For the year ended December 31, 2012, pro forma adjustments include the write-off of the deferred tax asset related to our investment in Jefferies that was reflected in our Consolidated Statement of Financial Condition as of December 31, 2011 ($64.8 million), and the write-off of a portion of our net deferred tax asset for state income taxes resulting from a change in our expected state filing positions ($12.3 million). The unaudited pro forma data is not indicative of future results of operations or what would have resulted if the acquisitions had actually occurred as of January 1, 2012.
| \n | \n | \n | \n | \n | \n | |
| \n | \n | 2014 | \n\n | \n | 2013 | \n|
| Change in projected benefit obligation: | \n\n | \n | \n | \n | \n | |
| Projected benefit obligation, beginning of year | \n$ | \n26,368 | \n\n | $ | \n– | \n|
| Projected benefit obligation at date of acquisition | \n\n | – | \n\n | \n | 24,494 | \n|
| Service cost | \n\n | 40 | \n\n | \n | 51 | \n|
| Interest cost | \n\n | 801 | \n\n | \n | 685 | \n|
| Actuarial losses | \n\n | 4,630 | \n\n | \n | 1,002 | \n|
| Currency adjustment | \n\n | (2,212 | \n) | \n\n | 1,053 | \n|
| Benefits paid | \n\n | (1,193 | \n) | \n\n | (917 | \n) |
| Projected benefit obligation, end of year | \n$ | \n28,434 | \n\n | $ | \n26,368 | \n
| \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | 2014 | \n\n | \n | 2013 | \n\n | 2012 |
| State income taxes | \n$ | \n47,939 | \n\n | $ | \n32,917 | \n$ | \n35,489 |
| Federal income taxes: | \n\n | \n | \n | \n | \n | \n | |
| Current | \n\n | 746 | \n\n | \n | 2,900 | \n\n | 1,001 |
| Deferred | \n\n | 119,393 | \n\n | \n | 82,173 | \n\n | 490,474 |
| Increase (decrease) in valuation allowance | \n\n | (22,203 | \n) | \n\n | 12,287 | \n\n | - |
| Foreign income taxes | \n\n | 20,096 | \n\n | \n | 6,204 | \n\n | 12,500 |
| \n | $ | \n165,971 | \n\n | $ | \n136,481 | \n$ | \n539,464 |
| \n | \n | \n | \n | \n | \n | |
| Components of net periodic pension cost: | \n\n | \n | \n | \n | \n | |
| Service cost | \n$ | \n40 | \n\n | $ | \n51 | \n|
| Interest cost | \n\n | 801 | \n\n | \n | 685 | \n|
| Net amortization | \n\n | 244 | \n\n | \n | 179 | \n|
| Net periodic pension cost | \n$ | \n1,085 | \n\n | $ | \n915 | \n
| \n | \n | \n | \n | \n | \n | |
| \n | \n | 2014 | \n\n | \n | 2013 | \n|
| Deferred Tax Asset: | \n\n | \n | \n | \n | \n | |
| NOL carryover | \n$ | \n1,266,972 | \n\n | $ | \n1,283,947 | \n|
| Compensation | \n\n | 334,576 | \n\n | \n | 400,002 | \n|
| Long-term debt | \n\n | 134,079 | \n\n | \n | 184,669 | \n|
| Other assets | \n\n | 160,586 | \n\n | \n | 118,914 | \n|
| Securities valuation reserves | \n\n | 25,499 | \n\n | \n | 51,597 | \n|
| Intangible assets, net and goodwill | \n\n | 13,842 | \n\n | \n | 17,349 | \n|
| Other liabilities | \n\n | 57,006 | \n\n | \n | 49,074 | \n|
| \n | \n | 1,992,560 | \n\n | \n | 2,105,552 | \n|
| Valuation allowance | \n\n | (110,404 | \n) | \n\n | (132,607 | \n) |
| \n | \n | 1,882,156 | \n\n | \n | 1,972,945 | \n|
| Deferred Tax Liability: | \n\n | \n | \n | \n | \n | |
| Unrealized gains on investments | \n\n | (10,406 | \n) | \n\n | (23,851 | \n) |
| Amortization of intangible assets | \n\n | (97,268 | \n) | \n\n | (98,798 | \n) |
| Property and equipment | \n\n | (866 | \n) | \n\n | (3,822 | \n) |
| Other | \n\n | (61,081 | \n) | \n\n | (36,531 | \n) |
| \n | \n | (169,621 | \n) | \n\n | (163,002 | \n) |
| Net deferred tax asset | \n$ | \n1,712,535 | \n\n | $ | \n1,809,943 | \n
| \n | \n | \n | \n | \n | \n | |
| \n | \n | 2014 | \n\n | \n | 2013 | \n|
| Change in projected benefit obligation: | \n\n | \n | \n | \n | \n | |
| Projected benefit obligation, beginning of year | \n$ | \n295,044 | \n\n | $ | \n275,858 | \n|
| Projected benefit obligation of Jefferies plan at date of acquisition | \n\n | – | \n\n | \n | 51,599 | \n|
| Interest cost | \n\n | 14,239 | \n\n | \n | 12,286 | \n|
| Actuarial (gains) losses | \n\n | 52,125 | \n\n | \n | (36,197 | \n) |
| Benefits paid | \n\n | (9,282 | \n) | \n\n | (8,502 | \n) |
| Projected benefit obligation, end of year | \n$ | \n352,126 | \n\n | $ | \n295,044 | \n|
| Change in plan assets: | \n\n | \n | \n | \n | \n | |
| Fair value of plan assets, beginning of year | \n$ | \n239,080 | \n\n | $ | \n194,314 | \n|
| Jefferies plan assets at date of acquisition | \n\n | – | \n\n | \n | 41,290 | \n|
| Actual return on plan assets | \n\n | 11,175 | \n\n | \n | 6,454 | \n|
| Employer contributions | \n\n | – | \n\n | \n | 6,475 | \n|
| Benefits paid | \n\n | (9,282 | \n) | \n\n | (8,502 | \n) |
| Administrative expenses | \n\n | (963 | \n) | \n\n | (951 | \n) |
| Fair value of plan assets, end of year | \n$ | \n240,010 | \n\n | $ | \n239,080 | \n|
| Funded status at end of year | \n$ | \n(112,116 | \n) | \n$ | \n(55,964 | \n) |
| \n | \n | \n | \n | \n | \n | |
| \n | \n | \n | \n | \n | For the period from the | \n|
| \n | \n | \n | \n | \n | Jefferies acquisition | \n|
| \n | \n | For the year ended | \n\n | \n | through | \n|
| \n | \n | December 31, 2014 | \n\n | \n | December 31, 2013 | \n|
| Interest rate contracts | \n$ | \n(149,587 | \n) | \n$ | \n132,397 | \n|
| Foreign exchange contracts | \n\n | 39,872 | \n\n | \n | 5,514 | \n|
| Equity contracts | \n\n | (327,978 | \n) | \n\n | (21,216 | \n) |
| Commodity contracts | \n\n | 58,746 | \n\n | \n | 45,546 | \n|
| Credit contracts | \n\n | (23,934 | \n) | \n\n | (18,098 | \n) |
| Total | \n$ | \n(402,881 | \n) | \n$ | \n144,143 | \n
| \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | December 31, 2014 | |||||||
| \n | \n | Assets | \n\n | \n | \n | Liabilities | ||
| \n | \n | \n | \n | Number of | \n\n | \n | \n | Number of |
| \n | \n | Fair Value | \n\n | Contracts | \n\n | Fair Value | \n\n | Contracts |
| Interest rate contracts | \n$ | \n2,299,807 | \n\n | 71,505 | \n$ | \n2,292,691 | \n\n | 89,861 |
| Foreign exchange contracts | \n\n | 1,514,881 | \n\n | 12,861 | \n\n | 1,519,349 | \n\n | 12,752 |
| Equity contracts | \n\n | 1,050,990 | \n\n | 2,271,507 | \n\n | 1,058,015 | \n\n | 2,051,469 |
| Commodity contracts | \n\n | 276,726 | \n\n | 1,031,568 | \n\n | 303,206 | \n\n | 1,020,418 |
| Credit contracts: centrally cleared swaps | \n\n | 17,831 | \n\n | 27 | \n\n | 23,264 | \n\n | 22 |
| Credit contracts: other credit derivatives | \n\n | 5,378 | \n\n | 18 | \n\n | 23,608 | \n\n | 27 |
| Total | \n\n | 5,165,613 | \n\n | \n | \n | 5,220,133 | \n\n | |
| Counterparty/cash-collateral netting | \n\n | (4,759,345 | \n) | \n\n | \n | (4,856,618 | \n) | \n|
| Total per Consolidated Statement of Financial Condition | \n$ | \n406,268 | \n\n | \n | $ | \n363,515 | \n\n |
\n\n
| \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | December 31, 2013 | |||||||
| \n | \n | Assets | \n\n | \n | \n | Liabilities | ||
| \n | \n | \n | \n | Number of | \n\n | \n | \n | Number of |
| \n | \n | Fair Value | \n\n | Contracts | \n\n | Fair Value | \n\n | Contracts |
| Interest rate contracts | \n$ | \n1,165,977 | \n\n | 63,967 | \n$ | \n1,131,166 | \n\n | 77,338 |
| Foreign exchange contracts | \n\n | 653,772 | \n\n | 118,707 | \n\n | 693,658 | \n\n | 112,417 |
| Equity contracts | \n\n | 501,784 | \n\n | 1,742,343 | \n\n | 474,985 | \n\n | 1,800,603 |
| Commodity contracts | \n\n | 141,280 | \n\n | 797,529 | \n\n | 173,119 | \n\n | 788,717 |
| Credit contracts: centrally cleared swaps | \n\n | 49,531 | \n\n | 49 | \n\n | 51,632 | \n\n | 46 |
| Credit contracts: other credit derivatives | \n\n | 2,339 | \n\n | 16 | \n\n | 8,130 | \n\n | 19 |
| Total | \n\n | 2,514,683 | \n\n | \n | \n | 2,532,690 | \n\n | |
| Counterparty/cash-collateral netting | \n\n | (2,253,589 | \n) | \n\n | \n | (2,352,611 | \n) | \n|
| Total per Consolidated Statement of Financial Condition | \n$ | \n261,094 | \n\n | \n | $ | \n180,079 | \n\n |
| \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | 2014 | \n\n | \n | 2013 | \n\n | \n | 2012 | \n|
| Revenues and other income: | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| Oil and gas drilling services | \n$ | \n– | \n\n | $ | \n– | \n\n | $ | \n95,674 | \n|
| Gaming entertainment | \n\n | 67,739 | \n\n | \n | 114,844 | \n\n | \n | 119,330 | \n|
| Investment and other income | \n\n | 4,700 | \n\n | \n | 4,691 | \n\n | \n | 5,716 | \n|
| \n | \n | 72,439 | \n\n | \n | 119,535 | \n\n | \n | 220,720 | \n|
| Expenses: | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| Direct operating expenses: | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| Oil and gas drilling services | \n\n | – | \n\n | \n | – | \n\n | \n | 79,143 | \n|
| Gaming entertainment | \n\n | 48,877 | \n\n | \n | 85,233 | \n\n | \n | 88,127 | \n|
| Compensation and benefits | \n\n | 4,503 | \n\n | \n | 19,534 | \n\n | \n | 24,409 | \n|
| Depreciation and amortization | \n\n | 5,208 | \n\n | \n | 8,919 | \n\n | \n | 28,475 | \n|
| Selling, general and other expenses | \n\n | 41,378 | \n\n | \n | 98,178 | \n\n | \n | 60,997 | \n|
| \n | \n | 99,966 | \n\n | \n | 211,864 | \n\n | \n | 281,151 | \n|
| Loss from discontinued | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| operations before income taxes | \n\n | (27,527 | \n) | \n\n | (92,329 | \n) | \n\n | (60,431 | \n) |
| Income tax (benefit) | \n\n | (9,634 | \n) | \n\n | (32,303 | \n) | \n\n | (20,971 | \n) |
| Loss from discontinued | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| operations after income taxes | \n$ | \n(17,893 | \n) | \n$ | \n(60,026 | \n) | \n$ | \n(39,460 | \n) |
| \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | 2014 | \n\n | \n | 2013 | \n\n | \n | 2012 |
| Numerator for earnings (loss) per share: | \n\n | \n | \n | \n | \n | \n | \n | |
| Net income attributable to Leucadia | \n\n | \n | \n | \n | \n | \n | \n | |
| National Corporation common shareholders | \n$ | \n204,306 | \n\n | $ | \n369,240 | \n\n | $ | \n854,466 |
| Less: Allocation of earnings to participating securities (1) | \n\n | (4,761 | \n) | \n\n | (4,919 | \n) | \n\n | – |
| Net income attributable to Leucadia | \n\n | \n | \n | \n | \n | \n | \n | |
| National Corporation common shareholders for | \n\n | \n | \n | \n | \n | \n | \n | |
| basic earnings (loss) per share | \n\n | 199,545 | \n\n | \n | 364,321 | \n\n | \n | 854,466 |
| Less: Adjustment to allocation of earnings to | \n\n | \n | \n | \n | \n | \n | \n | |
| participating securities related to diluted shares (1) | \n\n | (75 | \n) | \n\n | (110 | \n) | \n\n | – |
| Mandatorily redeemable convertible preferred share | \n\n | \n | \n | \n | \n | \n | \n | |
| dividends | \n\n | – | \n\n | \n | 3,397 | \n\n | \n | – |
| Interest on 3.75% Convertible Notes | \n\n | 739 | \n\n | \n | 2,635 | \n\n | \n | 2,626 |
| Net income attributable to Leucadia | \n\n | \n | \n | \n | \n | \n | \n | |
| National Corporation common shareholders for | \n\n | \n | \n | \n | \n | \n | \n | |
| diluted earnings (loss) per share | \n$ | \n200,209 | \n\n | $ | \n370,243 | \n\n | $ | \n857,092 |
| Denominator for earnings (loss) per share: | \n\n | \n | \n | \n | \n | \n | \n | |
| Denominator for basic earnings (loss) per share – | \n\n | \n | \n | \n | \n | \n | \n | |
| weighted average shares | \n\n | 371,889 | \n\n | \n | 339,673 | \n\n | \n | 244,583 |
| Stock options | \n\n | 29 | \n\n | \n | 55 | \n\n | \n | – |
| Warrants | \n\n | – | \n\n | \n | – | \n\n | \n | – |
| Mandatorily redeemable convertible preferred shares | \n\n | – | \n\n | \n | 3,468 | \n\n | \n | – |
| 3.875% Convertible Senior Debentures | \n\n | – | \n\n | \n | – | \n\n | \n | – |
| 3.75% Convertible Notes | \n\n | 1,415 | \n\n | \n | 4,538 | \n\n | \n | 4,331 |
| Denominator for diluted earnings (loss) per share | \n\n | 373,333 | \n\n | \n | 347,734 | \n\n | \n | 248,914 |
\n\n
(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 9,040,900 and 9,353,400 for the years ended December 31, 2014 and 2013, respectively. Dividends declared on participating securities during the years ended December 31, 2014 and 2013 were $2.2 million and $2.8 million, respectively. Undistributed earnings are allocated to participating securities based upon their right to share in earnings if all earnings for the period had been distributed.
| \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | 2014 | \n\n | \n | 2013 | \n\n | \n | 2012 | \n|
| Expected federal income tax | \n$ | \n133,428 | \n\n | $ | \n190,955 | \n\n | $ | \n504,710 | \n|
| State income taxes, net of federal income tax benefit | \n\n | 31,160 | \n\n | \n | 21,396 | \n\n | \n | 24,120 | \n|
| Increase (decrease) in valuation allowance | \n\n | (22,203 | \n) | \n\n | 12,287 | \n\n | \n | - | \n|
| Tax expense not provided on income recorded on the Jefferies | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| investment prior to the acquisition | \n\n | - | \n\n | \n | (63,952 | \n) | \n\n | - | \n|
| Reversal of prior years' deferred tax liability related to Jefferies investment | \n\n | - | \n\n | \n | (33,972 | \n) | \n\n | - | \n|
| Foreign rate differential | \n\n | (14,305 | \n) | \n\n | (4,750 | \n) | \n\n | - | \n|
| Permanent differences | \n\n | 2,639 | \n\n | \n | 12,832 | \n\n | \n | 2,921 | \n|
| Nondeductible settlements | \n\n | 24,500 | \n\n | \n | - | \n\n | \n | - | \n|
| Foreign taxes | \n\n | 2,542 | \n\n | \n | 4,033 | \n\n | \n | 8,125 | \n|
| Other | \n\n | 8,210 | \n\n | \n | (2,348 | \n) | \n\n | (412 | \n) |
| Actual income tax provision | \n$ | \n165,971 | \n\n | $ | \n136,481 | \n\n | $ | \n539,464 | \n
| \n | \n | |
| 2015 | \n$ | \n1,308 |
| 2016 | \n\n | 1,324 |
| 2017 | \n\n | 1,304 |
| 2018 | \n\n | 1,300 |
| 2019 | \n\n | 1,275 |
| 2020 – 2024 | \n\n | 6,776 |
| \n | \n | |
| 2015 | \n$ | \n8,252 |
| 2016 | \n\n | 10,493 |
| 2017 | \n\n | 10,815 |
| 2018 | \n\n | 10,786 |
| 2019 | \n\n | 12,367 |
| 2020 – 2024 | \n\n | 99,516 |
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | December 31, 2014 | |||||||||
| \n | \n | \n | \n | \n | \n | \n | \n | Counterparty | \n\n | \n | |
| \n | \n | \n | \n | \n | \n | \n | \n | and | \n\n | \n | |
| \n | \n | \n | \n | \n | \n | \n | \n | Cash | \n\n | \n | |
| \n | \n | \n | \n | \n | \n | \n | \n | Collateral | \n\n | \n | |
| \n | \n | Level 1 (1) | \n\n | Level 2 (1) | \n\n | Level 3 | \n\n | Netting (2) | \n\n | \n | Total |
| Assets: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Trading assets, at fair value: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Corporate equity securities | \n$ | \n3,130,892 | \n$ | \n226,441 | \n$ | \n20,964 | \n$ | \n– | \n\n | $ | \n3,378,297 |
| Corporate debt securities | \n\n | – | \n\n | 3,342,276 | \n\n | 55,918 | \n\n | – | \n\n | \n | 3,398,194 |
| Collateralized debt obligations | \n\n | – | \n\n | 306,218 | \n\n | 91,498 | \n\n | – | \n\n | \n | 397,716 |
| U.S. government and federal agency securities | \n\n | 2,694,268 | \n\n | 81,273 | \n\n | – | \n\n | – | \n\n | \n | 2,775,541 |
| Municipal securities | \n\n | – | \n\n | 590,849 | \n\n | – | \n\n | – | \n\n | \n | 590,849 |
| Sovereign obligations | \n\n | 1,968,747 | \n\n | 790,764 | \n\n | – | \n\n | – | \n\n | \n | 2,759,511 |
| Residential mortgage-backed securities | \n\n | – | \n\n | 2,879,954 | \n\n | 82,557 | \n\n | – | \n\n | \n | 2,962,511 |
| Commercial mortgage-backed securities | \n\n | – | \n\n | 966,651 | \n\n | 26,655 | \n\n | – | \n\n | \n | 993,306 |
| Other asset-backed securities | \n\n | – | \n\n | 137,387 | \n\n | 2,294 | \n\n | – | \n\n | \n | 139,681 |
| Loans and other receivables | \n\n | – | \n\n | 1,458,760 | \n\n | 97,258 | \n\n | – | \n\n | \n | 1,556,018 |
| Derivatives | \n\n | 65,145 | \n\n | 5,046,278 | \n\n | 54,190 | \n\n | (4,759,345 | \n) | \n\n | 406,268 |
| Investments at fair value | \n\n | – | \n\n | 73,152 | \n\n | 119,212 | \n\n | – | \n\n | \n | 192,364 |
| Physical commodities | \n\n | – | \n\n | 62,234 | \n\n | – | \n\n | – | \n\n | \n | 62,234 |
| Total trading assets | \n$ | \n7,859,052 | \n$ | \n15,962,237 | \n$ | \n550,546 | \n$ | \n(4,759,345 | \n) | \n$ | \n19,612,490 |
| Available for sale securities: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Corporate equity securities | \n$ | \n89,353 | \n$ | \n– | \n$ | \n– | \n\n | $ – | \n\n | $ | \n89,353 |
| Corporate debt securities | \n\n | – | \n\n | 30,403 | \n\n | – | \n\n | – | \n\n | \n | 30,403 |
| U.S. government securities | \n\n | 593,773 | \n\n | – | \n\n | – | \n\n | – | \n\n | \n | 593,773 |
| Residential mortgage-backed securities | \n\n | – | \n\n | 606,683 | \n\n | – | \n\n | – | \n\n | \n | 606,683 |
| Commercial mortgage-backed securities | \n\n | – | \n\n | 43,401 | \n\n | – | \n\n | – | \n\n | \n | 43,401 |
| Other asset-backed securities | \n\n | – | \n\n | 245,156 | \n\n | – | \n\n | – | \n\n | \n | 245,156 |
| Total available for sale securities | \n$ | \n683,126 | \n$ | \n925,643 | \n$ | \n– | \n\n | $ – | \n\n | $ | \n1,608,769 |
| Cash and cash equivalents | \n$ | \n4,276,775 | \n$ | \n– | \n$ | \n– | \n\n | $ – | \n\n | $ | \n4,276,775 |
| Investments in managed funds | \n\n | $ – | \n$ | \n226,488 | \n$ | \n54,982 | \n\n | $ – | \n\n | $ | \n281,470 |
| Cash and securities segregated and on deposit for regulatory | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| purposes or deposited with clearing and depository | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| organizations (3) | \n$ | \n3,444,674 | \n$ | \n– | \n$ | \n– | \n\n | $ – | \n\n | $ | \n3,444,674 |
| Securities received as collateral | \n$ | \n5,418 | \n$ | \n– | \n$ | \n– | \n\n | $ – | \n\n | $ | \n5,418 |
| Liabilities: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Trading liabilities: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Corporate equity securities | \n$ | \n1,934,469 | \n$ | \n74,681 | \n$ | \n38 | \n\n | $ – | \n\n | $ | \n2,009,188 |
| Corporate debt securities | \n\n | – | \n\n | 1,611,994 | \n\n | 223 | \n\n | – | \n\n | \n | 1,612,217 |
| Collateralized debt obligations | \n\n | – | \n\n | 4,557 | \n\n | – | \n\n | – | \n\n | \n | 4,557 |
| U.S. government and federal agency securities | \n\n | 2,253,055 | \n\n | – | \n\n | – | \n\n | – | \n\n | \n | 2,253,055 |
| Sovereign obligations | \n\n | 1,217,075 | \n\n | 574,010 | \n\n | – | \n\n | – | \n\n | \n | 1,791,085 |
| Loans | \n\n | – | \n\n | 856,525 | \n\n | 14,450 | \n\n | – | \n\n | \n | 870,975 |
| Derivatives | \n\n | 52,778 | \n\n | 5,117,803 | \n\n | 49,552 | \n\n | (4,856,618 | \n) | \n\n | 363,515 |
| Total trading liabilities | \n$ | \n5,457,377 | \n$ | \n8,239,570 | \n$ | \n64,263 | \n$ | \n(4,856,618 | \n) | \n$ | \n8,904,592 |
| Other secured financings | \n\n | $ – | \n$ | \n– | \n$ | \n30,825 | \n\n | $ – | \n\n | $ | \n30,825 |
| Obligation to return securities received as collateral | \n$ | \n5,418 | \n$ | \n– | \n$ | \n– | \n\n | $ – | \n\n | $ | \n5,418 |
\n\n
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | December 31, 2013 | ||||||||||
| \n | \n | \n | \n | \n | \n | \n | \n | Counterparty | \n\n | \n | ||
| \n | \n | \n | \n | \n | \n | \n | \n | and | \n\n | \n | ||
| \n | \n | \n | \n | \n | \n | \n | \n | Cash | \n\n | \n | ||
| \n | \n | \n | \n | \n | \n | \n | \n | Collateral | \n\n | \n | ||
| \n | \n | Level 1 (1) | \n\n | Level 2 (1) | \n\n | Level 3 | \n\n | Netting (2) | \n\n | \n | Total | |
| Assets: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Trading assets, at fair value: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Corporate equity securities | \n$ | \n1,957,963 | \n$ | \n175,493 | \n$ | \n9,884 | \n\n | $ | \n– | \n\n | $ | \n2,143,340 |
| Corporate debt securities | \n\n | – | \n\n | 2,961,857 | \n\n | 25,666 | \n\n | \n | – | \n\n | \n | 2,987,523 |
| Collateralized debt obligations | \n\n | – | \n\n | 182,095 | \n\n | 37,216 | \n\n | \n | – | \n\n | \n | 219,311 |
| U.S. government and federal agency securities | \n\n | 2,293,221 | \n\n | 40,389 | \n\n | – | \n\n | \n | – | \n\n | \n | 2,333,610 |
| Municipal securities | \n\n | – | \n\n | 664,054 | \n\n | – | \n\n | \n | – | \n\n | \n | 664,054 |
| Sovereign obligations | \n\n | 1,458,803 | \n\n | 889,685 | \n\n | – | \n\n | \n | – | \n\n | \n | 2,348,488 |
| Residential mortgage-backed securities | \n\n | – | \n\n | 2,932,268 | \n\n | 105,492 | \n\n | \n | – | \n\n | \n | 3,037,760 |
| Commercial mortgage-backed securities | \n\n | – | \n\n | 1,130,410 | \n\n | 17,568 | \n\n | \n | – | \n\n | \n | 1,147,978 |
| Other asset-backed securities | \n\n | – | \n\n | 55,475 | \n\n | 12,611 | \n\n | \n | – | \n\n | \n | 68,086 |
| Loans and other receivables | \n\n | – | \n\n | 1,203,238 | \n\n | 145,890 | \n\n | \n | – | \n\n | \n | 1,349,128 |
| Derivatives | \n\n | 40,952 | \n\n | 2,472,238 | \n\n | 1,493 | \n\n | \n | (2,253,589 | \n) | \n\n | 261,094 |
| Investments at fair value | \n\n | – | \n\n | 40 | \n\n | 101,242 | \n\n | \n | – | \n\n | \n | 101,282 |
| Physical commodities | \n\n | – | \n\n | 37,888 | \n\n | – | \n\n | \n | – | \n\n | \n | 37,888 |
| Total trading assets | \n$ | \n5,750,939 | \n$ | \n12,745,130 | \n$ | \n457,062 | \n\n | $ | \n(2,253,589 | \n) | \n$ | \n16,699,542 |
| Available for sale securities: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Corporate equity securities | \n$ | \n252,531 | \n$ | \n– | \n$ | \n– | \n\n | $ | \n– | \n\n | $ | \n252,531 |
| Corporate debt securities | \n\n | – | \n\n | 51,163 | \n\n | – | \n\n | \n | – | \n\n | \n | 51,163 |
| U.S. government securities | \n\n | 1,781,266 | \n\n | – | \n\n | – | \n\n | \n | – | \n\n | \n | 1,781,266 |
| Residential mortgage-backed securities | \n\n | – | \n\n | 579,162 | \n\n | – | \n\n | \n | – | \n\n | \n | 579,162 |
| Commercial mortgage-backed securities | \n\n | – | \n\n | 17,985 | \n\n | – | \n\n | \n | – | \n\n | \n | 17,985 |
| Other asset-backed securities | \n\n | – | \n\n | 184,036 | \n\n | – | \n\n | \n | – | \n\n | \n | 184,036 |
| Total available for sale securities | \n$ | \n2,033,797 | \n$ | \n832,346 | \n$ | \n– | \n\n | $ | \n– | \n\n | $ | \n2,866,143 |
| Cash and cash equivalents | \n$ | \n3,907,595 | \n$ | \n– | \n$ | \n– | \n\n | $ | \n– | \n\n | $ | \n3,907,595 |
| Investments in managed funds | \n$ | \n– | \n$ | \n– | \n$ | \n57,285 | \n\n | $ | \n– | \n\n | $ | \n57,285 |
| Cash and securities segregated and on deposit for regulatory | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| purposes or deposited with clearing and depository | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| organizations (3) | \n$ | \n3,616,602 | \n$ | \n– | \n$ | \n– | \n\n | $ | \n– | \n\n | $ | \n3,616,602 |
| Securities received as collateral | \n$ | \n11,063 | \n$ | \n– | \n$ | \n– | \n\n | $ | \n– | \n\n | $ | \n11,063 |
| Liabilities: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Trading liabilities: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Corporate equity securities | \n$ | \n1,804,392 | \n$ | \n40,358 | \n$ | \n38 | \n\n | $ | \n– | \n\n | $ | \n1,844,788 |
| Corporate debt securities | \n\n | – | \n\n | 1,346,078 | \n\n | – | \n\n | \n | – | \n\n | \n | 1,346,078 |
| U.S. government and federal agency securities | \n\n | 1,324,326 | \n\n | – | \n\n | – | \n\n | \n | – | \n\n | \n | 1,324,326 |
| Sovereign obligations | \n\n | 1,360,269 | \n\n | 471,088 | \n\n | – | \n\n | \n | – | \n\n | \n | 1,831,357 |
| Residential mortgage-backed securities | \n\n | – | \n\n | 34,691 | \n\n | – | \n\n | \n | – | \n\n | \n | 34,691 |
| Loans | \n\n | – | \n\n | 672,838 | \n\n | 22,462 | \n\n | \n | – | \n\n | \n | 695,300 |
| Derivatives | \n\n | 43,829 | \n\n | 2,480,463 | \n\n | 8,398 | \n\n | \n | (2,352,611 | \n) | \n\n | 180,079 |
| Physical commodities | \n\n | – | \n\n | 36,483 | \n\n | – | \n\n | \n | – | \n\n | \n | 36,483 |
| Total trading liabilities | \n$ | \n4,532,816 | \n$ | \n5,081,999 | \n$ | \n30,898 | \n\n | $ | \n(2,352,611 | \n) | \n$ | \n7,293,102 |
| Other secured financings | \n$ | \n– | \n$ | \n31,000 | \n$ | \n8,711 | \n\n | $ | \n– | \n\n | $ | \n39,711 |
| Obligation to return securities received as collateral | \n$ | \n11,063 | \n\n | $ – | \n$ | \n– | \n\n | $ | \n– | \n\n | $ | \n11,063 |
\n\n
| (1) | \nDuring 2014, equity options presented within Trading assets and Trading liabilities of $6.1 million and $6.6 million, respectively, were transferred from Level 1 to Level 2 as adjustments were incorporated into the valuation approach for such contracts to estimate the point within the bid-ask range that meets the best estimate of fair value. During 2013, listed equity options with a fair value of $403.0 million within Trading assets and $423.0 million within Trading liabilities were transferred from Level 1 to Level 2 as adjustments to the exchange closing price are necessary to best reflect the fair value of the population at its exit price. |
| (2) | \n\n\n Represents counterparty and cash collateral netting across the levels of the fair value hierarchy for positions with the same counterparty. |
| (3) | \nSecurities comprise U.S. government securities segregated for regulatory purposes with a fair value of $453.7 million and $304.2 million at December 31, 2014 and 2013, respectively, and, at December 31, 2014, Commodities Futures Trading Commission (\"CFTC\") approved money market funds with a fair value of $545.0 million. |
| \n | \n | \n | |
| 2015 | \n$ | \n67,549 | \n|
| 2016 | \n\n | 70,453 | \n|
| 2017 | \n\n | 67,300 | \n|
| 2018 | \n\n | 62,641 | \n|
| 2019 | \n\n | 59,434 | \n|
| Thereafter | \n\n | 453,842 | \n|
| \n | \n | 781,219 | \n|
| Less: sublease income | \n\n | (8,308 | \n) |
| \n | $ | \n772,911 | \n
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | Expected Maturity Date | \n\n | ||||||||||
| \n | \n | \n | \n | \n | \n | 2017 | \n\n | 2019 | \n\n | 2021 | \n\n | Notional/ |
| \n | \n | \n | \n | \n | \n | and | \n\n | and | \n\n | and | \n\n | Maximum |
| Guarantee Type | \n\n | 2015 | \n\n | 2016 | \n\n | 2018 | \n\n | 2020 | \n\n | Later | \n\n | Payout |
| Derivative contracts – non-credit related | \n$ | \n59,875.6 | \n$ | \n229.6 | \n$ | \n252.1 | \n$ | \n721.8 | \n$ | \n487.7 | \n$ | \n61,566.8 |
| Written derivative contracts – credit | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| related | \n\n | – | \n\n | – | \n\n | – | \n\n | 485.0 | \n\n | – | \n\n | 485.0 |
| Total derivative contracts | \n$ | \n59,875.6 | \n$ | \n229.6 | \n$ | \n252.1 | \n$ | \n1,206.8 | \n$ | \n487.7 | \n$ | \n62,051.8 |
| \n | \n | \n | \n | |
| \n | \n | 2014 | \n\n | 2013 |
| Indefinite lived intangibles: | \n\n | \n | \n | |
| Exchange and clearing organization membership interests and registrations | \n$ | \n14,528 | \n$ | \n14,916 |
| Amortizable intangibles: | \n\n | \n | \n | |
| Customer and other relationships, net of accumulated amortization of | \n\n | \n | \n | |
| $155,548 and $117,139 | \n\n | 493,501 | \n\n | 502,409 |
| Trademarks and tradename, net of accumulated amortization of $47,101 | \n\n | \n | \n | |
| and $30,213 | \n\n | 347,883 | \n\n | 364,779 |
| Supply contracts, net of accumulated amortization of $30,433 and $20,162 | \n\n | 119,562 | \n\n | 129,833 |
| Licenses, net of accumulated amortization of $110 and $4,100 | \n\n | - | \n\n | 7,928 |
| Other, net of accumulated amortization of $4,703 and $4,500 | \n\n | 2,900 | \n\n | 664 |
| Total intangible assets, net | \n\n | 978,374 | \n\n | 1,020,529 |
| Goodwill: | \n\n | \n | \n | |
| National Beef | \n\n | 14,991 | \n\n | 14,991 |
| Jefferies | \n\n | 1,718,847 | \n\n | 1,724,557 |
| Other operations | \n\n | 8,551 | \n\n | 8,551 |
| Total goodwill | \n\n | 1,742,389 | \n\n | 1,748,099 |
| Total intangible assets, net and goodwill | \n$ | \n2,720,763 | \n$ | \n2,768,628 |
| \n | \n | \n | \n | |
| \n | \n | 2014 | \n\n | 2013 |
| Finished goods | \n$ | \n343,959 | \n$ | \n273,291 |
| Work in process | \n\n | 40,951 | \n\n | 34,701 |
| Raw materials, supplies and other | \n\n | 37,993 | \n\n | 56,334 |
| \n | $ | \n422,903 | \n$ | \n364,326 |
| \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | Future | \n\n | No Future | \n\n | \n | Future | \n\n | No Future |
| \n | Service | \n\n | Service | \n\n | \n | Service | \n\n | Service |
| \n | Required | \n\n | Required | \n\n | \n | Required | \n\n | Required |
| Balance at January 1, 2013 | \n– | \n\n | – | \n\n | $ | \n– | \n$ | \n– |
| Converted in connection with the Jefferies acquisition | \n5,167 | \n\n | 9,527 | \n\n | $ | \n26.90 | \n$ | \n26.90 |
| Grants | \n– | \n\n | 145 | \n\n | $ | \n– | \n$ | \n24.32 |
| Distributions of underlying shares | \n– | \n\n | (1,603 | \n) | \n$ | \n– | \n$ | \n26.90 |
| Forfeited | \n(106 | \n) | \n(21 | \n) | \n$ | \n26.90 | \n$ | \n26.83 |
| Fulfillment of service requirement | \n(268 | \n) | \n268 | \n\n | $ | \n26.90 | \n$ | \n26.90 |
| Balance at December 31, 2013 | \n4,793 | \n\n | 8,316 | \n\n | $ | \n26.90 | \n$ | \n26.86 |
| Grants | \n– | \n\n | 97 | \n\n | $ | \n– | \n$ | \n20.89 |
| Distributions of underlying shares | \n– | \n\n | (366 | \n) | \n$ | \n– | \n$ | \n26.85 |
| Forfeited | \n(135 | \n) | \n– | \n\n | $ | \n26.90 | \n$ | \n– |
| Fulfillment of service requirement | \n(420 | \n) | \n420 | \n\n | $ | \n26.90 | \n$ | \n26.90 |
| Balance at December 31, 2014 | \n4,238 | \n\n | 8,467 | \n\n | $ | \n26.90 | \n$ | \n26.79 |
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | First | \n\n | \n | Second | \n\n | \n | Third | \n\n | \n | Fourth | \n|
| \n | \n | Quarter | \n\n | \n | Quarter | \n\n | \n | Quarter | \n\n | \n | Quarter | \n|
| \n | (In thousands, except per share amounts) | |||||||||||
| 2014 | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Net revenues | \n$ | \n2,942,524 | \n\n | $ | \n2,851,963 | \n\n | $ | \n3,003,643 | \n\n | $ | \n2,688,355 | \n|
| Income (loss) from continuing operations | \n$ | \n100,846 | \n\n | $ | \n70,190 | \n\n | $ | \n58,253 | \n\n | $ | \n(14,038 | \n) |
| Income (loss) from discontinued operations, net of taxes | \n$ | \n(8,909 | \n) | \n$ | \n(4,240 | \n) | \n$ | \n(5,676 | \n) | \n$ | \n932 | \n|
| Gain (loss) on disposal of discontinued operations, net of taxes | \n$ | \n- | \n\n | $ | \n500 | \n\n | $ | \n7,685 | \n\n | $ | \n(6,518 | \n) |
| Net (income) loss attributable to the noncontrolling interest | \n$ | \n(2,537 | \n) | \n$ | \n912 | \n\n | $ | \n1,058 | \n\n | $ | \n1,294 | \n|
| Net (income) loss attributable to the redeemable noncontrolling | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| interests | \n$ | \n5,932 | \n\n | $ | \n(1,273 | \n) | \n$ | \n(5,625 | \n) | \n$ | \n9,582 | \n|
| Preferred stock dividends | \n$ | \n(1,016 | \n) | \n$ | \n(1,015 | \n) | \n$ | \n(1,016 | \n) | \n$ | \n(1,015 | \n) |
| Net income (loss) attributable to Leucadia National Corporation common shareholders | \n$ | \n94,316 | \n\n | $ | \n65,074 | \n\n | $ | \n54,679 | \n\n | $ | \n(9,763 | \n) |
| Basic earnings (loss) per common share attributable to | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Leucadia National Corporation common shareholders: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Income (loss) from continuing operations | \n$ | \n.27 | \n\n | $ | \n.18 | \n\n | $ | \n.14 | \n\n | $ | \n(.01 | \n) |
| Income (loss) from discontinued operations | \n\n | (.02 | \n) | \n\n | (.01 | \n) | \n\n | (.02 | \n) | \n\n | - | \n|
| Gain (loss) on disposal of discontinued operations | \n\n | - | \n\n | \n | - | \n\n | \n | .02 | \n\n | \n | (.02 | \n) |
| Net income (loss) | \n$ | \n.25 | \n\n | $ | \n.17 | \n\n | $ | \n.14 | \n\n | $ | \n(.03 | \n) |
| Number of shares used in calculation | \n\n | 368,487 | \n\n | \n | 371,979 | \n\n | \n | 373,347 | \n\n | \n | 373,617 | \n|
| Diluted earnings (loss) per common share attributable to | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Leucadia National Corporation common shareholders: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Income (loss) from continuing operations | \n$ | \n.27 | \n\n | $ | \n.18 | \n\n | $ | \n.14 | \n\n | $ | \n(.01 | \n) |
| Income (loss) from discontinued operations | \n\n | (.02 | \n) | \n\n | (.01 | \n) | \n\n | (.02 | \n) | \n\n | - | \n|
| Gain (loss) on disposal of discontinued operations | \n\n | - | \n\n | \n | - | \n\n | \n | .02 | \n\n | \n | (.02 | \n) |
| Net income (loss) | \n$ | \n.25 | \n\n | $ | \n.17 | \n\n | $ | \n.14 | \n\n | $ | \n(.03 | \n) |
| Number of shares used in calculation | \n\n | 377,348 | \n\n | \n | 373,179 | \n\n | \n | 373,375 | \n\n | \n | 373,617 | \n
| \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| 2013 | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Net revenues | \n$ | \n2,297,421 | \n\n | $ | \n2,675,449 | \n\n | $ | \n2,532,052 | \n\n | $ | \n2,920,824 | \n|
| Income from continuing operations | \n$ | \n310,037 | \n\n | $ | \n67,918 | \n\n | $ | \n29,974 | \n\n | $ | \n1,175 | \n|
| Loss from discontinued operations, net of taxes | \n$ | \n(9,423 | \n) | \n$ | \n(9,767 | \n) | \n$ | \n(19,751 | \n) | \n$ | \n(21,085 | \n) |
| Gain (loss) on disposal of discontinued operations, net of taxes | \n$ | \n(325 | \n) | \n$ | \n385 | \n\n | $ | \n4,160 | \n\n | $ | \n8,895 | \n|
| Net (income) loss attributable to the noncontrolling interest | \n$ | \n622 | \n\n | $ | \n729 | \n\n | $ | \n(253 | \n) | \n$ | \n64 | \n|
| Net (income) loss attributable to the redeemable noncontrolling | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| interests | \n$ | \n4,531 | \n\n | $ | \n(5,638 | \n) | \n$ | \n(10,132 | \n) | \n$ | \n20,521 | \n|
| Preferred stock dividends | \n$ | \n(339 | \n) | \n$ | \n(1,015 | \n) | \n$ | \n(1,027 | \n) | \n$ | \n(1,016 | \n) |
| Net income attributable to Leucadia National Corporation common shareholders | \n$ | \n305,103 | \n\n | $ | \n52,612 | \n\n | $ | \n2,971 | \n\n | $ | \n8,554 | \n|
| Basic earnings (loss) per common share attributable to | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Leucadia National Corporation common shareholders: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Income from continuing operations | \n$ | \n1.13 | \n\n | $ | \n.16 | \n\n | $ | \n.05 | \n\n | $ | \n.05 | \n|
| Loss from discontinued operations | \n\n | (.03 | \n) | \n\n | (.02 | \n) | \n\n | (.05 | \n) | \n\n | (.05 | \n) |
| Gain (loss) on disposal of discontinued operations | \n\n | - | \n\n | \n | - | \n\n | \n | .01 | \n\n | \n | .02 | \n|
| Net income | \n$ | \n1.10 | \n\n | $ | \n.14 | \n\n | $ | \n.01 | \n\n | $ | \n.02 | \n|
| Number of shares used in calculation | \n\n | 275,735 | \n\n | \n | 367,752 | \n\n | \n | 367,641 | \n\n | \n | 368,146 | \n|
| Diluted earnings (loss) per common share attributable to | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Leucadia National Corporation common shareholders: | \n\n | \n | \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| Income from continuing operations | \n$ | \n1.11 | \n\n | $ | \n.16 | \n\n | $ | \n.05 | \n\n | $ | \n.05 | \n|
| Loss from discontinued operations | \n\n | (.03 | \n) | \n\n | (.02 | \n) | \n\n | (.05 | \n) | \n\n | (.05 | \n) |
| Gain (loss) on disposal of discontinued operations | \n\n | - | \n\n | \n | - | \n\n | \n | .01 | \n\n | \n | .02 | \n|
| Net income | \n$ | \n1.08 | \n\n | $ | \n.14 | \n\n | $ | \n.01 | \n\n | $ | \n.02 | \n|
| Number of shares used in calculation | \n\n | 281,587 | \n\n | \n | 367,837 | \n\n | \n | 367,687 | \n\n | \n | 368,262 | \n
| \n | \n | |
| Assets | \n\n | |
| Cash and cash equivalents | \n$ | \n3,017,958 |
| Cash and securities segregated and on deposit for regulatory purposes or | \n\n | |
| deposited with clearing and depository organizations | \n\n | 3,728,742 |
| Trading assets | \n\n | 16,413,535 |
| Loans to and investments in associated companies | \n\n | 766,893 |
| Securities borrowed | \n\n | 5,315,488 |
| Securities purchased under agreements to resell | \n\n | 3,578,366 |
| Intangible assets, net | \n\n | 282,852 |
| Goodwill | \n\n | 1,722,591 |
| Deferred tax asset, net | \n\n | 539,384 |
| Other assets | \n\n | 4,386,419 |
| Total assets | \n\n | 39,752,228 |
| Liabilities | \n\n | |
| Short-term borrowings | \n\n | 100,000 |
| Trading liabilities | \n\n | 9,766,876 |
| Securities loaned | \n\n | 1,902,687 |
| Securities sold under agreements to repurchase | \n\n | 7,976,492 |
| Payables to customers of securities operations | \n\n | 5,450,781 |
| Trade payables, expense accruals and other liabilities | \n\n | 2,724,136 |
| Mandatorily redeemable preferred interest in JHYH held by Leucadia | \n\n | 358,951 |
| Long-term debt | \n\n | 6,345,536 |
| Total liabilities | \n\n | 34,625,459 |
| Noncontrolling interests | \n\n | 356,180 |
| Net assets acquired | \n$ | \n4,770,589 |
| \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | 2014 | \n\n | \n | 2013 | \n\n | \n | 2012 | \n|
| \n | \n | \n | \n | \n | (In thousands) | \n\n | \n | \n | |
| Net Revenues: | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| Reportable Segments: | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| Jefferies | \n$ | \n2,986,325 | \n\n | $ | \n2,134,002 | \n\n | $ | \n– | \n|
| National Beef | \n\n | 7,832,424 | \n\n | \n | 7,487,724 | \n\n | \n | 7,480,934 | \n|
| Corporate and other | \n\n | 60,720 | \n\n | \n | 50,190 | \n\n | \n | 67,039 | \n|
| Total net revenues related to reportable | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| segments | \n\n | 10,879,469 | \n\n | \n | 9,671,916 | \n\n | \n | 7,547,973 | \n|
| All other | \n\n | 607,016 | \n\n | \n | 753,830 | \n\n | \n | 1,856,611 | \n|
| Total consolidated net revenues | \n$ | \n11,486,485 | \n\n | $ | \n10,425,746 | \n\n | $ | \n9,404,584 | \n|
| Pre-tax income (loss) from continuing | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| operations: | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| Reportable Segments: | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| Jefferies | \n$ | \n358,396 | \n\n | $ | \n260,984 | \n\n | $ | \n– | \n|
| National Beef | \n\n | (40,303 | \n) | \n\n | (42,358 | \n) | \n\n | 59,048 | \n|
| Corporate and other | \n\n | (144,508 | \n) | \n\n | (91,917 | \n) | \n\n | (122,476 | \n) |
| Pre-tax income (loss) from continuing | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| operations related to reportable segments | \n\n | 173,585 | \n\n | \n | 126,709 | \n\n | \n | (63,428 | \n) |
| All other | \n\n | 305,752 | \n\n | \n | 491,093 | \n\n | \n | 1,585,607 | \n|
| Parent Company interest | \n\n | (98,115 | \n) | \n\n | (72,217 | \n) | \n\n | (80,150 | \n) |
| Total consolidated pre-tax income from | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| continuing operations | \n$ | \n381,222 | \n\n | $ | \n545,585 | \n\n | $ | \n1,442,029 | \n|
| Depreciation and amortization expenses: | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| Reportable Segments: | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| Jefferies | \n$ | \n78,566 | \n\n | $ | \n59,631 | \n\n | $ | \n– | \n|
| National Beef | \n\n | 85,305 | \n\n | \n | 88,483 | \n\n | \n | 83,063 | \n|
| Corporate and other | \n\n | 5,627 | \n\n | \n | 9,924 | \n\n | \n | 12,785 | \n|
| Total depreciation and amortization | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| expenses related to reportable segments | \n\n | 169,498 | \n\n | \n | 158,038 | \n\n | \n | 95,848 | \n|
| All other | \n\n | 16,495 | \n\n | \n | 9,387 | \n\n | \n | 20,540 | \n|
| Total consolidated depreciation and | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| amortization expenses | \n$ | \n185,993 | \n\n | $ | \n167,425 | \n\n | $ | \n116,388 | \n|
| Identifiable assets employed: | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| Reportable Segments: | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| Jefferies (1) | \n$ | \n44,563,808 | \n\n | $ | \n40,168,572 | \n\n | $ | \n– | \n|
| National Beef | \n\n | 1,718,521 | \n\n | \n | 1,703,662 | \n\n | \n | 1,797,152 | \n|
| Corporate and other | \n\n | 3,192,877 | \n\n | \n | 4,495,819 | \n\n | \n | 3,958,327 | \n|
| Identifiable assets employed related to | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| reportable segments | \n\n | 49,475,206 | \n\n | \n | 46,368,053 | \n\n | \n | 5,755,479 | \n|
| All other | \n\n | 2,209,275 | \n\n | \n | 942,260 | \n\n | \n | 2,786,165 | \n|
| Loans to and investments in associated | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| companies | \n\n | 939,427 | \n\n | \n | 556,468 | \n\n | \n | 807,474 | \n|
| Total consolidated assets | \n$ | \n52,623,908 | \n\n | $ | \n47,866,781 | \n\n | $ | \n9,349,118 | \n
| \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | \n | \n | \n | Weighted- | \n\n | |
| \n | Common | \n\n | \n | Weighted- | \nAverage | \n\n | |
| \n | Shares | \n\n | \n | Average | \nRemaining | \n\n | Aggregate |
| \n | Subject | \n\n | \n | Exercise | \nContractual | \n\n | Intrinsic |
| \n | to Option | \n\n | \n | Prices | \nTerm | \n\n | Value |
| Balance at December 31, 2011 | \n2,251,455 | \n\n | $ | \n27.62 | \n\n | \n | |
| Granted | \n919,500 | \n\n | $ | \n23.20 | \n\n | \n | |
| Exercised | \n– | \n\n | $ | \n– | \n\n | $ | \n– |
| Cancelled | \n(593,455 | \n) | \n$ | \n27.42 | \n\n | \n | |
| Balance at December 31, 2012 | \n2,577,500 | \n\n | $ | \n26.10 | \n\n | \n | |
| Granted | \n51,432 | \n\n | $ | \n26.06 | \n\n | \n | |
| Exercised | \n(184,276 | \n) | \n$ | \n24.65 | \n\n | $ | \n603,000 |
| Cancelled | \n(27,408 | \n) | \n$ | \n38.68 | \n\n | \n | |
| Balance at December 31, 2013 | \n2,417,248 | \n\n | $ | \n25.64 | \n\n | \n | |
| Granted | \n– | \n\n | $ | \n– | \n\n | \n | |
| Exercised | \n(35,536 | \n) | \n$ | \n22.87 | \n\n | $ | \n58,000 |
| Cancelled | \n(741,678 | \n) | \n$ | \n27.39 | \n\n | \n | |
| Balance at December 31, 2014 | \n1,640,034 | \n\n | $ | \n24.91 | \n2.9 years | \n$ | \n9,000 |
| Exercisable at December 31, 2014 | \n946,193 | \n\n | $ | \n25.42 | \n2.6 years | \n$ | \n8,000 |
| \n | \n | \n | \n | \n | \n | |
| \n | \n | 2013 | \n\n | \n | 2012 | \n|
| \n | \n | Options | \n\n | \n | Options | \n|
| Risk free interest rate | \n\n | 1.26 | \n% | \n\n | .53 | \n% |
| Expected volatility | \n\n | 39.17 | \n% | \n\n | 37.66 | \n% |
| Expected dividend yield | \n\n | .85 | \n% | \n\n | 1.08 | \n% |
| Expected life | \n\n | 4.0 years | \n\n | \n | 4.0 years | \n|
| Weighted-average fair value per grant | \n$ | \n7.67 | \n\n | $ | \n5.97 | \n
Securities Borrowed and Securities Loaned
\n\nSecurities borrowed and securities loaned are carried at the amounts of cash collateral advanced and received in connection with the transactions and accounted for as collateralized financing transactions. In connection with both trading and brokerage activities, Jefferies borrows securities to cover short sales and to complete transactions in which customers have failed to deliver securities by the required settlement date, and lend securities to other brokers and dealers for similar purposes. Jefferies has an active securities borrowed and lending matched book business in which it borrows securities from one party and lends them to another party. When Jefferies borrows securities, it generally provides cash to the lender as collateral, which is reflected in the Consolidated Statements of Financial Condition as Securities borrowed. Jefferies earns interest revenues on this cash collateral. Similarly, when Jefferies lends securities to another party, that party provides cash to Jefferies as collateral, which is reflected in the Consolidated Statements of Financial Condition as Securities loaned. Jefferies pays interest expense on the cash collateral received from the party borrowing the securities. The initial collateral advanced or received approximates or is greater than the fair value of the securities borrowed or loaned. Jefferies monitors the fair value of the securities borrowed and loaned on a daily basis and requests additional collateral or returns excess collateral, as appropriate.
Note 31. Segment Information
\n\nOur operating segments consist of our consolidated businesses, which offer different products and services and are managed separately. Our reportable segments, based on qualitative and quantitative requirements, are Jefferies, National Beef, and Corporate and other. Jefferies is a global full-service, integrated securities and investment banking firm. National Beef processes and markets fresh boxed beef, case-ready beef, beef by-products and wet blue leather for domestic and international markets. All other consists of our other financial services businesses and our other merchant banking businesses. Our other financial services businesses include the Leucadia asset management platform, specialty finance companies, the commercial mortgage banking investment and the investment in HomeFed. Our other merchant banking businesses primarily include manufacturing, oil and gas exploration and production, real estate, and our investments in fixed wireless broadband services, automobile dealerships, and our gold and silver mining project.
\n\nCorporate and other assets primarily consist of financial instruments owned, the deferred tax asset (exclusive of Jefferies deferred tax asset), cash and cash equivalents and corporate and other revenues primarily consist of interest, other income and net realized securities gains and losses. We do not allocate Corporate and other revenues or overhead expenses to the operating units.
\n\nCertain information concerning our segments for the years ended December 31, 2014, 2013 and 2012 is presented in the following table. Consolidated subsidiaries are reflected as of the date a majority controlling interest was acquired. As discussed above, Jefferies became our wholly-owned subsidiary on March 1, 2013 and is reflected in our consolidated financial statements utilizing a one month lag. We have made changes to the corporate segment to reflect the way we currently manage our business, and have reclassified the prior years to conform to the current year's presentation.
\n\n| \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | 2014 | \n\n | \n | 2013 | \n\n | \n | 2012 | \n|
| \n | \n | \n | \n | \n | (In thousands) | \n\n | \n | \n | |
| Net Revenues: | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| Reportable Segments: | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| Jefferies | \n$ | \n2,986,325 | \n\n | $ | \n2,134,002 | \n\n | $ | \n– | \n|
| National Beef | \n\n | 7,832,424 | \n\n | \n | 7,487,724 | \n\n | \n | 7,480,934 | \n|
| Corporate and other | \n\n | 60,720 | \n\n | \n | 50,190 | \n\n | \n | 67,039 | \n|
| Total net revenues related to reportable | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| segments | \n\n | 10,879,469 | \n\n | \n | 9,671,916 | \n\n | \n | 7,547,973 | \n|
| All other | \n\n | 607,016 | \n\n | \n | 753,830 | \n\n | \n | 1,856,611 | \n|
| Total consolidated net revenues | \n$ | \n11,486,485 | \n\n | $ | \n10,425,746 | \n\n | $ | \n9,404,584 | \n|
| Pre-tax income (loss) from continuing | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| operations: | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| Reportable Segments: | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| Jefferies | \n$ | \n358,396 | \n\n | $ | \n260,984 | \n\n | $ | \n– | \n|
| National Beef | \n\n | (40,303 | \n) | \n\n | (42,358 | \n) | \n\n | 59,048 | \n|
| Corporate and other | \n\n | (144,508 | \n) | \n\n | (91,917 | \n) | \n\n | (122,476 | \n) |
| Pre-tax income (loss) from continuing | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| operations related to reportable segments | \n\n | 173,585 | \n\n | \n | 126,709 | \n\n | \n | (63,428 | \n) |
| All other | \n\n | 305,752 | \n\n | \n | 491,093 | \n\n | \n | 1,585,607 | \n|
| Parent Company interest | \n\n | (98,115 | \n) | \n\n | (72,217 | \n) | \n\n | (80,150 | \n) |
| Total consolidated pre-tax income from | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| continuing operations | \n$ | \n381,222 | \n\n | $ | \n545,585 | \n\n | $ | \n1,442,029 | \n|
| Depreciation and amortization expenses: | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| Reportable Segments: | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| Jefferies | \n$ | \n78,566 | \n\n | $ | \n59,631 | \n\n | $ | \n– | \n|
| National Beef | \n\n | 85,305 | \n\n | \n | 88,483 | \n\n | \n | 83,063 | \n|
| Corporate and other | \n\n | 5,627 | \n\n | \n | 9,924 | \n\n | \n | 12,785 | \n|
| Total depreciation and amortization | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| expenses related to reportable segments | \n\n | 169,498 | \n\n | \n | 158,038 | \n\n | \n | 95,848 | \n|
| All other | \n\n | 16,495 | \n\n | \n | 9,387 | \n\n | \n | 20,540 | \n|
| Total consolidated depreciation and | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| amortization expenses | \n$ | \n185,993 | \n\n | $ | \n167,425 | \n\n | $ | \n116,388 | \n|
| Identifiable assets employed: | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| Reportable Segments: | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| Jefferies (1) | \n$ | \n44,563,808 | \n\n | $ | \n40,168,572 | \n\n | $ | \n– | \n|
| National Beef | \n\n | 1,718,521 | \n\n | \n | 1,703,662 | \n\n | \n | 1,797,152 | \n|
| Corporate and other | \n\n | 3,192,877 | \n\n | \n | 4,495,819 | \n\n | \n | 3,958,327 | \n|
| Identifiable assets employed related to | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| reportable segments | \n\n | 49,475,206 | \n\n | \n | 46,368,053 | \n\n | \n | 5,755,479 | \n|
| All other | \n\n | 2,209,275 | \n\n | \n | 942,260 | \n\n | \n | 2,786,165 | \n|
| Loans to and investments in associated | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| companies | \n\n | 939,427 | \n\n | \n | 556,468 | \n\n | \n | 807,474 | \n|
| Total consolidated assets | \n$ | \n52,623,908 | \n\n | $ | \n47,866,781 | \n\n | $ | \n9,349,118 | \n
\n\n
Net revenues for Jefferies are recorded in the geographic region in which the position was risk-managed, in the case of investment banking, in which the senior coverage banker is located, or for asset management, according to the location of the investment advisor. Net revenues by geographic region for Jefferies for the year ended December 31, 2014 and for the period from the Jefferies acquisition through December 31, 2013 were as follows (in thousands):
\n\n| \n | \n | \n | \n | |
| \n | \n | \n | \n | For the period from the |
| \n | \n | \n | \n | Jefferies acquisition |
| \n | \n | For the year ended | \n\n | through |
| \n | \n | December 31, 2014 | \n\n | December 31, 2013 |
| Americas (2) | \n$ | \n2,257,870 | \n$ | \n1,645,110 |
| Europe (3) | \n\n | 634,358 | \n\n | 441,795 |
| Asia | \n\n | 94,097 | \n\n | 47,097 |
| \n | $ | \n2,986,325 | \n$ | \n2,134,002 |
\n\n
(1) At December 31, 2014 and 2013, includes $773.1 million and $701.9 million, respectively, of Jefferies loans to and investments in associated companies and $399.6 million and $524.8 million, respectively, of Jefferies deferred tax asset, net.
\n\n(2) Substantially all relates to United States results.
\n\n(3) Substantially all relates to United Kingdom results.
Consolidated net revenues exclusive of Jefferies principally relate to the United States for 2014, 2013 and 2012.
\n\nNet realized securities gains for Corporate and other aggregated $30.4 million, $16.0 million and $46.9 million during 2014, 2013 and 2012, respectively. In 2013, All other includes realized security gains of $227.6 million related to the sale of Inmet. In 2012, All other includes realized securities gains of $543.7 million from the sale of our common shares of Fortescue and other income from the gain on the redemption of the FMG Note of $526.2 million.
\n\nInterest expense classified as a component of Net revenues relates to Jefferies. For the years ended December 31, 2014, 2013 and 2012, interest expense classified as a component of Expenses was primarily comprised of National Beef ($14.5 million, $12.3 million and $12.4 million, respectively) and parent company interest ($98.1 million, $72.2 million and $80.2 million, respectively).
Share-based Compensation
\n\nShare-based awards are measured based on the fair value of the award as determined in accordance with GAAP and recognized over the required service or vesting period. The fair value of options and warrants are estimated at the date of grant using the Black-Scholes option pricing model. Expected forfeitures are included in determining share-based compensation expense.
Note 16. Short-Term Borrowings
\n\nShort-term borrowings represent Jefferies bank loans that are payable on demand and generally bear interest at a spread over the federal funds rate. Unsecured bank loans are typically overnight loans used to finance trading assets or clearing related balances, but are not part of Jefferies systemic funding model. At December 31, 2014 and 2013, $12.0 million and $12.0 million, respectively, was outstanding, all of which was secured financing.
Note 2. Significant Accounting Policies
\n\nThe 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.
\n\nConsolidation
\n\nOur policy is to consolidate all entities in which we can vote a majority of the outstanding voting stock. In addition, we consolidate entities which meet the definition of a variable interest entity for which we are the primary beneficiary. The primary beneficiary is the party who has the power to direct the activities of a variable interest entity that most significantly impact the entity's economic performance and who has an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant to the entity. We consider special allocations of cash flows and preferences, if any, to determine amounts allocable to noncontrolling interests. All intercompany transactions and balances are eliminated in consolidation.
\n\nIn situations where we have significant influence, but not control, of an entity that does not qualify as a variable interest entity, we apply either the equity method of accounting or fair value accounting pursuant to the fair value option election under GAAP. We have also formed nonconsolidated investment vehicles with third-party investors that are typically organized as partnerships or limited liability companies and are carried at fair value. Our subsidiaries may act as general partner or managing member for these investment vehicles and have generally provided the third-party investors with termination or \"kick-out\" rights.
Revenue Recognition Policies
\n\nBeef Processing and Other Operations
\n\nRevenues are recognized when the following conditions are met: (1) collectibility is reasonably assured; (2) title to the product has passed or the service has been rendered and earned; (3) persuasive evidence of an arrangement exists; and (4) there is a fixed or determinable price. National Beef's revenues are recognized based on the terms of the sale, which for beef processing operations is typically upon delivery to customers. Manufacturing revenues are recognized when title passes.
\n\nInvestment Banking Activities
\n\nCommissions. All customer securities transactions are reported in the Consolidated Statements of Financial Condition on a settlement date basis with related income reported on a trade date basis. We permit institutional customers to allocate a portion of their gross commissions to pay for research products and other services provided by third parties. The amounts allocated for those purposes are commonly referred to as soft dollar arrangements. These arrangements are accounted for on an accrual basis and, as we are not the primary obligor for these arrangements, netted against commission revenues in the Consolidated Statements of Operations. The commissions and related expenses on client transactions executed by Jefferies LLC, a futures commission merchant, are recorded on a half-turn basis.
\n\nPrincipal Transactions. Trading assets and trading liabilities are carried at fair value with gains and losses reflected in Principal transactions in the Consolidated Statements of Operations on a trade date basis. Fees received on loans carried at fair value are also recorded within Principal transactions.
\n\nInvestment Banking. Underwriting revenues and fees from mergers and acquisitions, restructuring and other investment banking advisory assignments or engagements are recorded when the services related to the underlying transactions are completed under the terms of the assignment or engagement. Expenses associated with such assignments are deferred until reimbursed by the client, the related revenue is recognized or the engagement is otherwise concluded. Expenses are recorded net of client reimbursements and netted against revenues. Unreimbursed expenses with no related revenues are included in Selling, general and administrative expenses in the Consolidated Statements of Operations.
\n\nInterest Revenue and Expense. Interest expense that is deducted from Revenues to arrive at Net revenues is related to Jefferies operations. Contractual interest on Trading assets and Trading liabilities is recognized on an accrual basis as a component of Interest income and Interest expense. Interest flows on derivative trading transactions and dividends are included as part of the fair valuation of these contracts and recognized in Principal transactions in the Consolidated Statements of Operations rather than as a component of interest income or expense. Discounts/premiums arising on long-term debt are accreted/amortized to Interest expense using the effective yield method over the remaining lives of the underlying debt obligations. Interest revenue related to Securities borrowed and Securities purchased under agreements to resell activities and interest expense related to Securities loaned and Securities sold under agreements to repurchase activities are recognized on an accrual basis.
Cash Equivalents
\n\nCash equivalents include highly liquid investments, including money market funds, not held for resale with original maturities of three months or less.
Cash and Securities Segregated and on Deposit for Regulatory Purposes or Deposited With Clearing and Depository Organizations
\n\nIn accordance with Rule 15c3-3 of the Securities Exchange Act of 1934, Jefferies LLC, as a broker-dealer carrying client accounts, is subject to requirements related to maintaining cash or qualified securities in a segregated reserve account for the exclusive benefit of its clients. In addition, certain financial instruments used for initial and variation margin purposes with clearing and depository organizations are recorded in this caption. Jefferies LLC, as a futures commission merchant, is obligated by rules mandated by the Commodities Futures Trading Commission under the Commodities Exchange Act, to segregate or set aside cash or qualified securities to satisfy such regulations, which regulations have been promulgated to protect customer assets. Certain other entities are also obligated by rules mandated by their primary regulators to segregate or set aside cash or equivalent securities to satisfy regulations, promulgated to protect customer assets.
Financial Instruments and Fair Value
\n\nTrading assets and trading liabilities are recorded at fair value, either as required by accounting pronouncements or through the fair value option election. Gains and losses on trading assets and trading liabilities are recognized in our Consolidated Statements of Operations in Principal transactions. Available for sales securities are reflected at fair value, with unrealized gains and losses reflected as a separate component of equity, net of taxes. When sold, realized gains and losses on available for sale securities are reflected in the caption Net realized securities gains. The cost of securities sold is based on average cost. Fair value is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price).
Fair Value Hierarchy
\n\nIn determining fair value, we maximize the use of observable inputs and minimize the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources. Unobservable inputs reflect our assumptions that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. We apply a hierarchy to categorize our fair value measurements broken down into three levels based on the transparency of inputs as follows:
\n\n| \n | |
| Level 1: | \nQuoted prices are available in active markets for identical assets or liabilities as of the reported date. |
| Level 2: | \nPricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as |
| \n | of the reported date. The nature of these financial instruments include cash instruments for which quoted prices |
| \n | are available but traded less frequently, derivative instruments whose fair value have been derived using a model |
| \n | where inputs to the model are directly observable in the market, or can be derived principally from or |
| \n | corroborated by observable market data, and instruments that are fair valued using other financial instruments, |
| \n | the parameters of which can be directly observed. |
| Level 3: | \nInstruments that have little to no pricing observability as of the reported date. These financial instruments are |
| \n | measured using management's best estimate of fair value, where the inputs into the determination of fair value |
| \n | require significant management judgment or estimation. |
\n\n
Financial instruments are valued at quoted market prices, if available. Certain financial instruments have bid and ask prices that can be observed in the marketplace. For financial instruments whose inputs are based on bid-ask prices, the financial instrument is valued at the point within the bid-ask range that meets our best estimate of fair value. We use prices and inputs that are current as of the measurement date. For financial instruments that do not have readily determinable fair values using quoted market prices, the determination of fair value is based upon consideration of available information, including types of financial instruments, current financial information, restrictions on dispositions, fair values of underlying financial instruments and quotations for similar instruments.
\n\nThe valuation of financial instruments may include the use of valuation models and other techniques. Adjustments to valuations derived from valuation models may be made when, in management's judgment, features of the financial instrument such as its complexity, the market in which the financial instrument is traded and risk uncertainties about market conditions require that an adjustment be made to the value derived from the models. Adjustments from the price derived from a valuation model reflect management's judgment that other participants in the market for the financial instrument being measured at fair value would also consider in valuing that same financial instrument. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment.
\n\nThe availability of observable inputs can vary and is affected by a wide variety of factors, including, for example, the type of financial instrument and market conditions. As the observability of prices and inputs may change for a financial instrument from period to period, this condition may cause a transfer of an instrument among the fair value hierarchy levels. Transfers among the levels are recognized at the beginning of each period. The degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.
Jefferies Valuation Process for Financial Instruments
\n\nThe Jefferies Independent Price Verification (\"IPV\") Group, which is part of the Jefferies finance department, in partnership with Jefferies Risk Management, is responsible for establishing Jefferies valuation policies and procedures. The IPV Group and Risk Management, which are independent of business functions, play an important role and serve as a control function in determining that Jefferies financial instruments are appropriately valued and that fair value measurements are reliable. This is particularly important where prices or valuations that require inputs are less observable. In the event that observable inputs are not available, the control processes are designed to assure that the valuation approach utilized is appropriate and consistently applied and that the assumptions are reasonable. The IPV Group reports to the Jefferies Global Controller and is subject to the oversight of the IPV Committee, which includes senior members of Jefferies finance department and other personnel. Jefferies independent price verification policies and procedures are reviewed, at a minimum, annually and changes to the policies require the approval of the IPV Committee.
\n\nPrice Testing Process. Jefferies business units are responsible for determining the fair value of Jefferies financial instruments using approved valuation models and methodologies. In order to ensure that the business unit valuations represent a fair value exit price, the IPV Group tests and validates the fair value of the financial instruments inventory. In the testing process, the IPV Group obtains prices and valuation inputs from sources independent of Jefferies, consistently adheres to established procedures set forth in the valuation policies for sourcing prices and valuation inputs and utilizing valuation methodologies. Sources used to validate fair value prices and inputs include, but are not limited to, exchange data, recently executed transactions, pricing data obtained from third party vendors, pricing and valuation services, broker quotes and observed comparable transactions.
\n\nTo the extent discrepancies between the business unit valuations and the pricing or valuations resulting from the price testing process are identified, such discrepancies are investigated by the IPV Group and fair values are adjusted, as appropriate. The IPV Group maintains documentation of its testing, results, rationale and recommendations and prepares a monthly summary of its valuation results. This process also forms the basis for the classification of fair values within the fair value hierarchy (i.e., Level 1, Level 2 or Level 3). The IPV Group utilizes the additional expertise of Risk Management personnel in valuing more complex financial instruments and financial instruments with less or limited pricing observability. The results of the valuation testing are reported to the IPV Committee on a monthly basis, which discusses the results and is charged with the final conclusions as to the financial instrument fair values in the consolidated financial statements. This process specifically assists management in asserting as to the fair presentation of our financial condition and results of operations as included within our Quarterly Reports on Form 10-Q and Annual Report on Form 10-K. At each quarter end, the overall valuation results, as concluded upon by the IPV Committee, are presented to the Jefferies Audit Committee.
\n\nJudgment exercised in determining Level 3 fair value measurements is supplemented by daily analysis of profit and loss performed by the Product Control functions. Gains and losses, which result from changes in fair value, are evaluated and corroborated daily based on an understanding of each of the trading desks' overall risk positions and developments in a particular market on the given day. Valuation techniques generally rely on recent transactions of suitably comparable financial instruments and use the observable inputs from those comparable transactions as a validation basis for Level 3 inputs. Level 3 fair value measurements are further validated through subsequent sales testing and market comparable sales, if such information is available. Level 3 fair value measurements require documentation of the valuation rationale applied, which is reviewed for consistency in application from period to period; and the documentation includes benchmarking the assumptions underlying the valuation rationale against relevant analytic data.
\n\nThird Party Pricing Information. Pricing information obtained from external data providers (including independent pricing services and brokers) may incorporate a range of market quotes from dealers, recent market transactions and benchmarking model derived prices to quoted market prices and trade data for comparable securities. External pricing data is subject to evaluation for reasonableness by the IPV Group using a variety of means including comparisons of prices to those of similar product types, quality and maturities, consideration of the narrowness or wideness of the range of prices obtained, knowledge of recent market transactions and an assessment of the similarity in prices to comparable dealer offerings in a recent time period. Jefferies has a process whereby it challenges the appropriateness of pricing information obtained from external data providers (including independent pricing services and brokers) in order to validate the data for consistency with the definition of a fair value exit price. Jefferies process includes understanding and evaluating the external data providers' valuation methodologies. For corporate, U.S. government and agency, and municipal debt securities, and loans, to the extent independent pricing services or broker quotes are utilized in our valuation process, the vendor service providers are collecting and aggregating observable market information as to recent trade activity and active bid-ask submissions. The composite pricing information received from the independent pricing service is not based on unobservable inputs or proprietary models. For mortgage- and other asset-backed securities and collateralized debt obligations, the independent pricing service uses a matrix evaluation approach incorporating both observable yield curves and market yields on comparable securities as well as implied inputs from observed trades for comparable securities in order to determine prepayment speeds, cumulative default rates and loss severity. Further, Jefferies considers pricing data from multiple service providers as available as well as compares pricing data to prices observed for recent transactions, if any, in order to corroborate valuation inputs.
\n\nModel Review Process. Where a pricing model is to be used to determine fair value, the pricing model is reviewed for theoretical soundness and appropriateness by Risk Management, independent from the trading desks, and then approved by Risk Management to be used in the valuation process. Review and approval of a model for use may include benchmarking the model against relevant third party valuations, testing sample trades in the model, backtesting the results of the model against actual trades and stress-testing the sensitivity of the pricing model using varying inputs and assumptions. In addition, recently executed comparable transactions and other observable market data are considered for purposes of validating assumptions underlying the model. Models are independently reviewed and validated by Risk Management annually or more frequently if market conditions or use of the valuation model changes.
Investments in Managed Funds
\n\nInvestments in managed funds include our investments in funds managed by us and our investments in related party managed funds in which we are entitled to a portion of the management and/or performance fees. Investments in nonconsolidated managed funds are accounted for at fair value with gains or losses included in the Consolidated Statements of Operations.
\n\nAsset management fees and investment income from managed funds include revenues we earn from management, administrative and performance fees from funds and accounts managed by us, revenues from management and performance fees we earn from related-party managed funds and investment income from our investments in these funds. We earn fees in connection with management and investment advisory services performed for various funds and managed accounts. These fees are based on assets under management or an agreed upon notional amount and may include performance fees based upon the performance of the funds. Management and administrative fees are generally recognized over the period that the related service is provided. Generally, performance fees are earned when the return on assets under management exceeds certain benchmark returns, \"high-water marks\" or other performance targets. Performance fees are accrued (or reversed) on a monthly basis based on measuring performance to date versus any relevant benchmark return hurdles stated in the investment management agreement. Performance fees are not subject to adjustment once the measurement period ends (generally annual periods) and the performance fees have been realized.
Loans to and Investments in Associated Companies
\n\nLoans to and investments in associated companies include investments in private equity and other operating entities in which we exercise significant influence over operating and capital decisions and loans issued in connection with such investments. Loans to and investments in associated companies are accounted for using the equity method. See Notes 11 and 29 for additional information regarding certain of these investments.
\n\nUnder the equity method of accounting, our share of the investee's underlying net income or loss is recorded as Income (loss) related to associated companies, or as part of Other revenues if such investees are considered to be an extension of our business. Income (loss) for investees for which the fair value option was elected is reported as Principal transactions revenues.
Receivables and Provision for Doubtful Accounts
\n\nAt December 31, 2014 and 2013, receivables include receivables from brokers, dealers and clearing organizations of $2,187.5 million and $2,181.0 million, respectively, and receivables from customers of securities operations of $1,250.5 million and $1,046.9 million, respectively.
\n\nDuring the fourth quarter of 2014, Jefferies recognized a bad debt provision, which primarily relates to a receivable of $52.3 million from a client to which Jefferies provided futures clearing and execution services, which declared bankruptcy.
Securities Borrowed and Securities Loaned
\n\nSecurities borrowed and securities loaned are carried at the amounts of cash collateral advanced and received in connection with the transactions and accounted for as collateralized financing transactions. In connection with both trading and brokerage activities, Jefferies borrows securities to cover short sales and to complete transactions in which customers have failed to deliver securities by the required settlement date, and lend securities to other brokers and dealers for similar purposes. Jefferies has an active securities borrowed and lending matched book business in which it borrows securities from one party and lends them to another party. When Jefferies borrows securities, it generally provides cash to the lender as collateral, which is reflected in the Consolidated Statements of Financial Condition as Securities borrowed. Jefferies earns interest revenues on this cash collateral. Similarly, when Jefferies lends securities to another party, that party provides cash to Jefferies as collateral, which is reflected in the Consolidated Statements of Financial Condition as Securities loaned. Jefferies pays interest expense on the cash collateral received from the party borrowing the securities. The initial collateral advanced or received approximates or is greater than the fair value of the securities borrowed or loaned. Jefferies monitors the fair value of the securities borrowed and loaned on a daily basis and requests additional collateral or returns excess collateral, as appropriate.
Securities Purchased Under Agreements to Resell and Securities Sold Under Agreements to Repurchase
\n\nSecurities purchased under agreements to resell and Securities sold under agreements to repurchase (collectively \"repos\") are accounted for as collateralized financing transactions and are recorded at their contracted resale or repurchase amount plus accrued interest. Repos are presented in the Consolidated Statements of Financial Condition on a net-basis-by counterparty, where permitted by GAAP. The fair value of the underlying securities is monitored daily versus the related receivable or payable balances. Should the fair value of the underlying securities decline or increase, additional collateral is requested or excess collateral is returned, as appropriate.
Property, Equipment and Leasehold Improvements
\n\nProperty, equipment and leasehold improvements are stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization are provided principally on the straight-line method over the estimated useful lives of the assets or, if less, the term of the underlying lease.
Impairment of Long-Lived Assets
\n\nWe evaluate our long-lived assets for impairment whenever events or changes in circumstances indicate, in management's judgment, that the carrying value of such assets may not be recoverable. When testing for impairment, we group our long-lived assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities (or asset group). The determination of whether an asset group is recoverable is based on management's estimate of undiscounted future cash flows directly attributable to the asset group as compared to its carrying value. If the carrying amount of the asset group is greater than the undiscounted cash flows, an impairment loss would be recognized for the amount by which the carrying amount of the asset group exceeds its estimated fair value.
\n\nDuring the fourth quarter of 2013, after exhausting all opportunities to improve the operating performance of the Brawley beef processing facility, which had been adversely affected by the declining supply of fed cattle available to the plant and fixed cost inefficiencies inherent in a single shift plant, National Beef concluded that this facility would continue to generate losses for the foreseeable future. This resulted in a decision in December 2013 to close the facility in the second quarter of 2014. National Beef plans to hold the plant in \"mothballed\" status indefinitely. National Beef evaluated the recoverability of the long-lived assets at Brawley, which had an aggregate carrying amount of $93.2 million at December 31, 2013, and based on its estimate of future undiscounted cash flows concluded that the carrying value was not recoverable and the facility was impaired. In performing this evaluation, National Beef determined that the Brawley facility was the asset group that represented the lowest level of cash flows that were largely independent of the cash flows of other assets and liabilities.
\n\nThe management of National Beef engaged an independent valuation and appraisal firm to assist in estimating the fair value of the long-lived assets at Brawley. National Beef's estimate of fair value was based on an orderly liquidation technique, which represents the amount that can be realized in a liquidation sale, given a reasonable period of time to find a purchaser, assuming an as-is where-is condition. In preparing its analysis, National Beef considered current market conditions, replacement cost, as well as the age, physical and functional characteristics of the long-lived assets.
\n\nAs a result, National Beef concluded that the fair value of the long-lived assets at the Brawley facility was $29.9 million at December 31, 2013, and recorded an impairment loss of $63.3 million, which is reflected in Selling, general and other expenses in the Consolidated Statement of Operations for the year ended December 31, 2013. As with any estimate of fair value, future market, regulatory and general economic conditions as well as the obsolescence, future deterioration of, or inability to locate a purchaser should National Beef decide to sell the facility could have a significant effect on their future value.
\n\nIn addition to the long-lived asset impairment charge, National Beef incurred additional costs relating to the closing of the facility during 2014 of $6.9 million. These costs include employee separation and retention, systems decommissioning and various other expenses. Of these amounts, $4.6 million related to employee separation, which is included in Compensation and benefits, and the various other costs are included in Selling, general and other expenses in the Consolidated Statement of Operations.
\n\nExcluding the National Beef impairment, we recorded impairment charges in Selling, general and other expenses of $20.0 million in 2013 and $4.2 million in 2012; all related to various real estate development projects. Prior to the impairment charges in 2013, these projects had a book value of $32.3 million; after recognizing the impairment charges the carrying value of the real estate projects was reduced to their estimated fair value of $12.3 million. Estimates of fair value were principally determined using discounted cash flow analyses and/or current and expected market conditions for the specific geographic area. For the year ended December 31, 2013, impairment charges related to real estate include an out of period adjustment of $15.4 million to record charges related to prior periods. There were no significant impairment charges in 2014.
\n\nSubstantially all of our operating businesses sell products or services that are impacted by general economic conditions in the U.S. and to a lesser extent internationally. In recent years general economic conditions reduced the demand for products or services sold by our operating subsidiaries and/or resulted in reduced pricing for products or services. A worsening of current economic conditions could cause a decline in estimated future cash flows expected to be generated by our operations and investments. If future undiscounted cash flows are estimated to be less than the carrying amounts of the asset groups used to generate those cash flows in subsequent reporting periods, particularly for those with large investments in intangible assets, property and equipment and other long-lived assets (for example, Jefferies, National Beef, manufacturing, oil and gas exploration and production and certain associated company investments), impairment charges would have to be recorded.
Intangible Assets, Net and Goodwill
\n\nIntangible Assets. Intangible assets deemed to have finite lives are generally amortized on a straight line basis over their estimated useful lives, where the useful life is the period over which the asset is expected to contribute directly, or indirectly, to our future cash flows. Intangible assets are reviewed for impairment on an interim basis when certain events or circumstances exist. If future undiscounted cash flows are estimated to be less than the carrying amounts of the asset groups used to generate those cash flows in subsequent reporting periods, particularly for those with large investments in amortizable intangible assets, impairment charges would have to be recorded.
\n\nAn intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when certain events or circumstances exist indicating an assessment for impairment is necessary. Impairment exists when the carrying amount exceeds its fair value. Fair value will be determined using valuation techniques consistent with what a market participant would use. All of our indefinite-lived intangible assets were recognized in connection with the Jefferies acquisition, and our annual impairment testing date is as of August 1.
\n\nGoodwill. At acquisition, we allocate the cost of a business acquisition to the specific tangible and intangible assets acquired and liabilities assumed based upon their fair values. Significant judgments and estimates are often made by management to determine these values, and may include the use of appraisals, consideration of market quotes for similar transactions, use of discounted cash flow techniques or consideration of other information we believe to be relevant. Any excess of the cost of a business acquisition over the fair values of the net assets and liabilities acquired is recorded as goodwill, which is not amortized to expense. Substantially all of our goodwill was recognized in connection with the Jefferies acquisition.
\n\nAt least annually, and more frequently if warranted, we will assess whether goodwill has been impaired. If the estimated fair value exceeds the carrying value, goodwill at the reporting unit level is not impaired. If the estimated fair value is less than carrying value, further analysis is necessary to determine the amount of impairment, if any, by comparing the implied fair value of the reporting unit's goodwill to the carrying value of the reporting unit's goodwill. The fair values will be based on widely accepted valuation techniques that we believe market participants would use, although the valuation process requires significant judgment and often involves the use of significant estimates and assumptions. The methodologies we utilize in estimating fair value include market capitalization, price-to-book multiples of comparable exchange traded companies, multiples of merger and acquisitions of similar businesses and/or projected cash flows. The estimates and assumptions used in determining fair value could have a significant effect on whether or not an impairment charge is recorded and the magnitude of such a charge. Adverse market or economic events could result in impairment charges in future periods. Our annual goodwill impairment testing date related to Jefferies is as of August 1.
\n\nSee Note 13 for further information with respect to our impairment charges related to intangible assets during 2014.
Inventories and Cost of Sales
\n\nNational Beef's inventories consist primarily of beef products, beef by-products and supplies, and are stated at the lower of cost or market, with cost principally determined under the first-in-first-out method for beef products and average cost for supplies.
\n\nManufacturing inventories are stated at the lower of cost or market, with cost principally determined under the first-in-first-out method. Manufacturing cost of sales principally includes product and manufacturing costs, inbound and outbound shipping costs and handling costs.
Payables, expense accruals and other liabilities
\n\nAt December 31, 2014 and 2013, payables, expense accruals and other liabilities include payables to brokers, dealers and clearing organizations of $2,280.1 million and $1,379.2 million, respectively, and payables to customers of securities operations of $6,242.0 million and $5,208.8 million, respectively.
Income Taxes
\n\nWe record a valuation allowance to reduce our net deferred tax asset to the net amount that is more likely than not to be realized. If in the future we determine that it is more likely than not that we will be able to realize our net deferred tax asset in excess of our net recorded amount, an adjustment to increase the net deferred tax asset would increase income in such period. If in the future we were to determine that we would not be able to realize all or part of our recorded net deferred tax asset, an adjustment to decrease the net deferred tax asset would be charged to income in such period. We are required to consider all available evidence, both positive and negative, and to weight the evidence when determining whether a valuation allowance is required and the amount of such valuation allowance. Generally, greater weight is required to be placed on objectively verifiable evidence when making this assessment, in particular on recent historical operating results.
\n\nOur estimate of future taxable income considers all available evidence, both positive and negative, about our operating businesses and investments, includes an aggregation of individual projections for each significant operating business and investment, estimated apportionment factors for state and local taxing jurisdictions and included all future years that we estimate we will have available net operating loss carryforwards (\"NOLs\") (until 2029). We believe that our estimate of future taxable income is reasonable but inherently uncertain, and if our current or future operations and investments generate taxable income different than the projected amounts, further adjustments to the valuation allowance are possible. The current balance of the deferred tax valuation allowance principally reserves for NOLs of certain subsidiaries that are not available to offset income generated by other members of the consolidated tax return group.
\n\nWe also record reserves for unrecognized tax benefits based on our assessment of the probability of successfully sustaining tax filing positions. Interest and penalties, if any, are recorded as components of income tax expense. Management exercises significant judgment when assessing the probability of successfully sustaining tax filing positions, and in determining whether a contingent tax liability should be recorded and if so estimating the amount. If our tax filing positions are successfully challenged, payments could be required that are in excess of reserved amounts or we may be required to reduce the carrying amount of our net deferred tax asset, either of which could be significant to our Consolidated Statement of Financial Condition or results of operations.
Share-based Compensation
\n\nShare-based awards are measured based on the fair value of the award as determined in accordance with GAAP and recognized over the required service or vesting period. The fair value of options and warrants are estimated at the date of grant using the Black-Scholes option pricing model. Expected forfeitures are included in determining share-based compensation expense.
Foreign Currency Translation
\n\nAssets and liabilities of foreign subsidiaries are translated to U.S. dollars using the currency exchange rates at the end of the relevant period. Revenues and expenses are translated at average exchange rates during the period. The effects of exchange rate changes on the translation of the balance sheets, net of hedging gains or losses and taxes, if any, are included in other comprehensive income (loss) in the Consolidated Statements of Comprehensive Income (Loss) and classified as Accumulated other comprehensive income in the Consolidated Statements of Financial Condition and Consolidated Statements of Changes in Equity. Gains or losses resulting from Jefferies foreign currency transactions are included in Principal transactions in the Consolidated Statements of Operations; gains or losses from foreign currency transactions unrelated to Jefferies were not significant.
Earnings per Common Share
\n\nBasic earnings per share (\"EPS\") is computed by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding and certain other shares committed to be, but not yet issued. Net earnings available to common shareholders represent net earnings to common shareholders reduced by the allocation of earnings to participating securities. Losses are not allocated to participating securities. Common shares outstanding and certain other shares committed to be, but not yet issued, include restricted stock and restricted stock units (\"RSUs\") for which no future service is required. Diluted EPS is computed by dividing net earnings available to common shareholders plus dividends on dilutive mandatorily redeemable convertible preferred shares and interest on convertible notes by the weighted average number of common shares outstanding and certain other shares committed to be, but not yet issued, plus all dilutive common stock equivalents outstanding during the period.
\n\nUnvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and, therefore, are included in the earnings allocation in computing earnings per share under the two-class method of earnings per share. Restricted stock and RSUs granted as part of share-based compensation contain nonforfeitable rights to dividends and dividend equivalents, respectively, and therefore, prior to the requisite service being rendered for the right to retain the award, restricted stock and RSUs meet the definition of a participating security. As such, we calculate basic and diluted earnings per share under the two-class method.
Securitization Activities
\n\nJefferies engages in securitization activities related to corporate loans, commercial mortgage loans and mortgage-backed and other asset-backed securities. Such transfers of financial assets are accounted for as sales when we have relinquished control over the transferred assets. The gain or loss on sale of such financial assets depends, in part, on the previous carrying amount of the assets involved in the transfer allocated between the assets sold and the retained interests, if any, based upon their respective fair values at the date of sale. We may retain interests in the securitized financial assets as one or more tranches of the securitization. These retained interests are included within Trading assets in the Consolidated Statements of Financial Condition at fair value. Any changes in the fair value of such retained interests are recognized within Principal transactions in the Consolidated Statements of Operations.
\n\nWhen we transfer assets that do not meet the criteria of a sale, the transfer is accounted for as a secured borrowing and we continue to recognize the assets of a secured borrowing, and recognize the associated financing in Other secured financings.
Contingencies
\n\nIn the normal course of business, we have been named, from time to time, as a defendant in legal and regulatory proceedings. We are also involved, from time to time, in other exams, investigations and similar reviews (both formal and informal) by governmental and self-regulatory agencies regarding our businesses, certain of which may result in judgments, settlements, fines, penalties or other injunctions.
\n\nWe recognize a liability for a contingency when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. If the reasonable estimate of a probable loss is a range, we accrue the most likely amount of such loss, and if such amount is not determinable, then we accrue the minimum in the range as the loss accrual. The determination of the outcome and loss estimates requires significant judgment on the part of management, can be highly subjective and is subject to significant change with the passage of time as more information becomes available. Estimating the ultimate impact of litigation matters is inherently uncertain, in particular because the ultimate outcome will rest on events and decisions of others that may not be within our power to control. We do not believe that any of our current litigation will have a significant adverse effect on our consolidated financial position, results of operations or liquidity; however, if amounts paid at the resolution of litigation are in excess of recorded reserve amounts, the excess could be significant in relation to results of operations for that period. For further information, see Note 26.
| \n | \n | \n | \n | \n | \n | \n | \n | \n | |
| \n | \n | Unrecognized | \n\n | \n | \n | \n | \n | \n | |
| \n | \n | Tax Benefits | \n\n | \n | Interest | \n\n | \n | Total | \n|
| As of January 1, 2012 | \n$ | \n6,340 | \n\n | $ | \n3,480 | \n\n | $ | \n9,820 | \n|
| Increases based on tax positions related to current period | \n\n | 5,250 | \n\n | \n | - | \n\n | \n | 5,250 | \n|
| Interest expense recognized | \n\n | - | \n\n | \n | 700 | \n\n | \n | 700 | \n|
| Audit payments | \n\n | - | \n\n | \n | - | \n\n | \n | - | \n|
| Reductions as a result of the lapse of the statute of | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| limitations | \n\n | - | \n\n | \n | - | \n\n | \n | - | \n|
| Balance, December 31, 2012 | \n\n | 11,590 | \n\n | \n | 4,180 | \n\n | \n | 15,770 | \n|
| Jefferies amounts at date of acquisition | \n\n | 129,010 | \n\n | \n | 17,100 | \n\n | \n | 146,110 | \n|
| Increases based on tax positions related to current period | \n\n | 8,750 | \n\n | \n | - | \n\n | \n | 8,750 | \n|
| Increases based on tax positions related to prior periods | \n\n | 14,780 | \n\n | \n | - | \n\n | \n | 14,780 | \n|
| Decreases based on tax positions related to prior periods | \n\n | (18,300 | \n) | \n\n | - | \n\n | \n | (18,300 | \n) |
| Interest expense recognized | \n\n | - | \n\n | \n | 7,000 | \n\n | \n | 7,000 | \n|
| Audit payments | \n\n | (310 | \n) | \n\n | (110 | \n) | \n\n | (420 | \n) |
| Reductions as a result of the lapse of the statute of | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| limitations | \n\n | - | \n\n | \n | - | \n\n | \n | - | \n|
| Balance, December 31, 2013 | \n\n | 145,520 | \n\n | \n | 28,170 | \n\n | \n | 173,690 | \n|
| Increases based on tax positions related to current period | \n\n | 5,630 | \n\n | \n | - | \n\n | \n | 5,630 | \n|
| Increases based on tax positions related to prior periods | \n\n | 4,340 | \n\n | \n | - | \n\n | \n | 4,340 | \n|
| Decreases based on tax positions related to prior periods | \n\n | (3,940 | \n) | \n\n | - | \n\n | \n | (3,940 | \n) |
| Interest expense recognized | \n\n | - | \n\n | \n | 9,200 | \n\n | \n | 9,200 | \n|
| Audit payments | \n\n | (2,960 | \n) | \n\n | (100 | \n) | \n\n | (3,060 | \n) |
| Reductions as a result of the lapse of the statute of | \n\n | \n | \n | \n | \n | \n | \n | \n | |
| limitations | \n\n | - | \n\n | \n | - | \n\n | \n | - | \n|
| Balance, December 31, 2014 | \n$ | \n148,590 | \n\n | $ | \n37,270 | \n\n | $ | \n185,860 | \n
Securitization Activities
\n\nJefferies engages in securitization activities related to corporate loans, commercial mortgage loans and mortgage-backed and other asset-backed securities. Such transfers of financial assets are accounted for as sales when we have relinquished control over the transferred assets. The gain or loss on sale of such financial assets depends, in part, on the previous carrying amount of the assets involved in the transfer allocated between the assets sold and the retained interests, if any, based upon their respective fair values at the date of sale. We may retain interests in the securitized financial assets as one or more tranches of the securitization. These retained interests are included within Trading assets in the Consolidated Statements of Financial Condition at fair value. Any changes in the fair value of such retained interests are recognized within Principal transactions in the Consolidated Statements of Operations.
\n\nWhen we transfer assets that do not meet the criteria of a sale, the transfer is accounted for as a secured borrowing and we continue to recognize the assets of a secured borrowing, and recognize the associated financing in Other secured financings.