10-K 1 luk2015123110kcombo.htm LEUCADIA NATIONAL CORPORATION 2015 FORM 10-K LUK-2015.12.31.10K Combined Document


 
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM 10-K
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
                                                               For the fiscal year ended December 31, 2015
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number:  1-5721
LEUCADIA NATIONAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
New York
13-2615557
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
520 Madison Avenue
New York, New York 10022
(212) 460-1900
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Name of Each Exchange on Which Registered
Common Shares, par value $1 per share
 
New York Stock Exchange
 
 
 
Securities registered pursuant to Section 12(g) of the Act:
None.
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes x No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     Yes ¨  No  x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes x   No  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer," "accelerated filer,” and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x
Accelerated filer ¨
Non-accelerated filer   ¨
Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes ¨  No x
Aggregate market value of the voting stock of the registrant held by non-affiliates of the registrant at June 30, 2015 (computed by reference to the last reported closing sale price of the Common Shares on the New York Stock Exchange on such date):  $8,196,406,000.
On February 11, 2016, the registrant had outstanding 362,243,256 Common Shares.

DOCUMENTS INCORPORATED BY REFERENCE:

Certain portions of the registrant’s Definitive Proxy Statement pursuant to Regulation 14A of the Securities Exchange Act of 1934 in connection with the 2016 Annual Meeting of Shareholders are incorporated by reference into Part III of this Form 10-K.

LOCATION OF EXHIBIT INDEX
The index of exhibits is contained in Part IV on page 71.

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PART I
Item 1.
Business.
Overview
Leucadia National Corporation is a diversified holding company focused on return on investment and long-term value creation to maximize shareholder value. Our financial services businesses include Jefferies (investment banking and capital markets), Leucadia Asset Management (asset management), Berkadia (commercial mortgage banking and servicing), FXCM (a publicly traded company providing online foreign exchange trading), HomeFed Corporation ("HomeFed") (a publicly traded real estate company) and Foursight Capital and Chrome Capital (vehicle finance).  We also own and have investments in a diverse array of other businesses, including National Beef (beef processing), HRG Group ("HRG") (a publicly traded diversified holding company), Vitesse Energy and Juneau Energy (oil and gas exploration and development), Garcadia (automobile dealerships), Linkem (fixed wireless broadband services in Italy), Conwed Plastics and Idaho Timber (manufacturing), and Golden Queen (a gold and silver mining project).  The structure of each of our investments was tailored to the unique opportunity each transaction presented.  Our investments may be reflected in our consolidated results as operating subsidiaries, equity investments, receivables, securities or in other ways, depending on the structure of our specific holdings.
We continuously review acquisitions of businesses, securities and assets that have the potential for significant long-term value creation, invest in a broad array of businesses, and evaluate the retention and disposition of our existing operations and holdings.  Changes in the mix of our businesses and investments should be expected.
At December 31, 2015, we and our consolidated subsidiaries had approximately 13,300 full-time employees.  Our executive offices are located at 520 Madison Avenue, New York, NY 10022, as is the global headquarters of Jefferies, our largest subsidiary in terms of invested capital.  Our primary telephone number is (212) 460-1900 and our website address is www.leucadia.com.
The following discussion should be read in conjunction with the Risk Factors presented in Item 1A of Part I and the Cautionary Statement for Forward-Looking Information and Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in Item 7 of Part II.
Recent Transactions
In January 2015, we entered into a credit agreement with FXCM Inc. ("FXCM"), and provided FXCM a $300 million two-year senior secured term loan with rights to a variable proportion of certain distributions in connection with an FXCM sale of assets or certain other events, and to require a sale of FXCM beginning in January 2018.  FXCM is an online provider of foreign exchange trading and related services.  The loan had an initial interest rate of 10% per annum, increasing by 1.5% per annum each quarter, not to exceed 20.5% per annum.  The variable proportion of distributions is as follows: 100% until amounts due under the loan are repaid; 50% of the next $350 million; then 90% of the next $500 million (this was an amount initially set at a range between $500 million to $680 million and based on payments made by FXCM to us through April 16, 2015, this amount became $500 million); and 60% of all amounts thereafter. During the year ended December 31, 2015, we received $144.7 million of principal, interest and fees from FXCM and $192.7 million remained outstanding under the credit agreement as of December 31, 2015.  Leucadia and FXCM have discussed restructuring the variable portion of distributions in a manner that is consistent with a sustainable long-term and value-enhancing strategy for both companies, but there can be no assurances that an agreement will be reached.
During 2013, we formed Leucadia Asset Management (“LAM”), a registered investment adviser, through which we are developing focused alternative asset management businesses. As the adviser and/or general partner to various private investment funds or other types of investment vehicles, LAM provides advisory, portfolio management and operational services to accredited investors and/or qualified purchasers. Once an investment vehicle is formed, it is expected that one of our subsidiaries will be an initial or major investor. LAM's revenues derive from management fees and/or a performance fee based on investment returns generated for the investors. We have invested over $800 million in LAM and other investment strategies managed by investment management companies in which we have a material financial interest and in most cases the investment management companies are subsidiaries of ours, including:
Folger Hill - We invested $400 million in 2015 in Folger Hill, a multi-manager discretionary long/short equity hedge fund platform which has approximately $1.0 billion in assets under management at the end of 2015.


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Mazama - We invested $250 million in 2014 with Mazama, a long-only growth equity fund manager which has $550 million in assets under management at the end of 2015.

Topwater - We invested $100 million beginning in 2013 in Topwater, a multi-strategy, multi-manager investment partnership where each underlying investment manager contributes 10% of the manager's own capital as a first loss layer, shielding Topwater's investors from losses up to 10%. Topwater has $899 million in regulatory assets under management at the end of 2015.

54 Madison - We invested $38 million in the fourth quarter of 2015 in 54 Madison, which manages a fund that provides equity capital for hotel, timeshare, resort, residential and specialty retail real estate development projects in core global markets. Our investment is part of a total capital commitment to invest $225 million in 54 Madison over the next several years as projects are launched. 54 Madison has $500 million of fund commitments from all investors.

CoreCommodity - We own a non-controlling interest in CoreCommodity Management, LLC, an asset manager focused on commodity strategies which has $4.6 billion in assets under management at the end of 2015.

In addition, several investment management businesses operate under Jefferies as described below under Asset Management.
Financial Services Businesses
The following provides more information about each of our financial services businesses and investments and our ownership percentages:
Jefferies, 100% (investment banking & capital markets);
Leucadia Asset Management, various (asset management);
FXCM, variable (online foreign exchange trading);
HomeFed, 65% (45% voting) (real estate);
Berkadia, 50% (commercial mortgage banking and servicing); and
Foursight Capital (100%) and Chrome Capital (83%) (vehicle finance).
Jefferies
Jefferies is a global full-service, integrated securities and investment banking firm. Jefferies principal operating subsidiary, Jefferies LLC, was founded in the U.S. in 1962 and its first international operating subsidiary, Jefferies International Limited (“Jefferies Europe”), was established in the U.K. in 1986. On March 1, 2013, Jefferies Group, Inc. converted into a limited liability company (renamed Jefferies Group LLC) and became an indirect wholly owned subsidiary of Leucadia National Corporation. Following the merger, Jefferies Group LLC retains a credit rating separate from Leucadia and remains an SEC reporting company, filing annual, quarterly and periodic financial reports.  As of November 30, 2015, Jefferies had approximately 3,550 employees in the Americas, Europe, Asia and the Middle East. The net book value and net tangible book value of our investment in Jefferies were $5.5 billion and $3.6 billion, respectively, at December 31, 2015.
Equities
Equities Research, Sales and Trading
Jefferies provides its clients full-service equities research, sales and trading capabilities across global securities markets. Jefferies earns commissions or spread revenue by executing, settling and clearing transactions for clients across these markets in equity and equity-related products, including common stock, American depository receipts, global depository receipts, exchange-traded funds, exchange-traded and over-the-counter (“OTC”) equity derivatives, convertible and other equity-linked products and closed-end funds.
Jefferies equity research, sales and trading efforts are organized across three geographical regions: the Americas; Europe, the Middle East, and Africa (“EMEA”); and Asia Pacific. Jefferies main product lines within the regions are cash equities, electronic trading, derivatives and convertibles. Jefferies clients are primarily institutional market participants such as mutual funds, hedge funds, investment advisors, pension and profit sharing plans, and insurance companies. Through its global research team and sales force, Jefferies maintains relationships with its clients, distributes investment research and strategy, trading ideas, market information and analysis across a range of industries and receives and executes client orders. Jefferies equity research covers over 2,000 companies around the world and a further 700 companies are covered by eight leading local firms in Asia Pacific with whom Jefferies maintains alliances.

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Equity Finance
Jefferies Equity Finance business provides financing, securities lending and other prime brokerage services. Jefferies offers prime brokerage services in the U.S. that provide hedge funds, money managers and registered investment advisors with execution, financing, clearing, reporting and administrative services. Jefferies finances its clients’ securities positions through margin loans that are collateralized by securities, cash or other acceptable liquid collateral. Jefferies earns an interest spread equal to the difference between the amount Jefferies pays for funds and the amount Jefferies receives from its clients. Jefferies also operates a matched book in equity and corporate bond securities, whereby Jefferies borrows and lends securities versus cash or liquid collateral and earns a net interest spread. Jefferies offers selected prime brokerage clients with the option of custodying their assets at an unaffiliated U.S. broker-dealer that is a subsidiary of a bank holding company. Under this arrangement, Jefferies provides its clients directly with all customary prime brokerage services.
Wealth Management
Jefferies provides tailored wealth management services designed to meet the needs of high net worth individuals, their families and their businesses, private equity and venture funds and small institutions. Jefferies advisors provide access to all of its institutional execution capabilities and delivers other financial services. Jefferies open architecture platform affords clients access to products and services from both its firm and from a variety of other major financial services institutions.
Fixed Income
Fixed Income Sales and Trading
Jefferies provides its clients with sales and trading of investment grade corporate bonds, U.S. and European government and agency securities, municipal bonds, mortgage- and asset-backed securities, whole loans, leveraged loans, high yield and distressed securities, emerging markets debt and derivative products. Jefferies is designated as a Primary Dealer by the Federal Reserve Bank of New York and Jefferies International Limited is designated in similar capacities for several countries in Europe and trades a broad spectrum of other European government bonds. Additionally, through the use of repurchase agreements, Jefferies acts as an intermediary between borrowers and lenders of short-term funds and obtains funding for various of its inventory positions. Jefferies trades and makes markets globally in cleared and uncleared swaps and forwards referencing, among other things, interest rates, investment grade and non-investment grade corporate credits, credit indexes and asset-backed security indexes.
Jefferies strategists and economists provide ongoing commentary and analysis of the global fixed income markets. In addition, Jefferies fixed income research professionals, including research and desk analysts, provide investment ideas and analysis across a variety of fixed income products.
Futures and Foreign Exchange
In April 2015, Jefferies entered into a definitive agreement to transfer most of its futures activities to Société Générale S.A. That transaction closed in the second quarter of 2015. As of the end of 2015, Jefferies futures business consists solely of executing certain customer and proprietary futures orders.
Jefferies also offers trade execution in foreign exchange spot, forward, swap and option contracts across major currencies.
Investment Banking
Jefferies provides its clients around the world with a full range of equity capital markets, debt capital markets and financial advisory services. Jefferies services are enhanced by its industry sector expertise, its global distribution capabilities and its senior level commitment to its clients.
Approximately 750 investment banking professionals operate in the Americas, Europe and Asia, and are organized into industry, product and geographic coverage groups. Jefferies sector coverage groups include Consumer & Retailing; Financial Services; Industrials; Healthcare; Energy; Real Estate, Gaming & Lodging; Media & Telecommunications; Technology; Financial Sponsors; and State & Local Governments. Jefferies product coverage groups include equity capital markets; debt capital markets; financial advisory, which includes both mergers and acquisitions and restructuring and recapitalization; and U.K. corporate broking. Jefferies geographic coverage groups include coverage teams based in major cities in the U.S., Canada, Brazil, U.K., France, Germany, Sweden, India, United Arab Emirates, China and Singapore.

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Equity Capital Markets
Jefferies provides a broad range of equity financing capabilities to companies and financial sponsors. These capabilities include private equity placements, initial public offerings, follow-on offerings, block trades and equity-linked convertible securities.
Debt Capital Markets
Jefferies provides a wide range of debt financing capabilities for companies, financial sponsors and government entities. Jefferies focuses on structuring, underwriting and distributing public and private debt, including investment grade and non-investment grade corporate debt, leveraged loans, mortgage- and other asset-backed securities, and liability management solutions.
Advisory Services
Jefferies provides mergers and acquisition and restructuring and recapitalization services to companies, financial sponsors and government entities. In the mergers and acquisition area, Jefferies advises sellers and buyers on corporate sales and divestitures, acquisitions, mergers, tender offers, spinoffs, joint ventures, strategic alliances and takeover and proxy fight defense. Jefferies also provides a broad range of acquisition financing capabilities to assist its clients. In the restructuring and recapitalization area, Jefferies provides to companies, bondholders and lenders a full range of restructuring advisory capabilities as well as expertise in the structuring, valuation and placement of securities issued in recapitalizations.
Asset Management
Jefferies provides investment management services to pension funds, insurance companies and other institutional investors. Its primary asset management programs are systematic, special situation and global macro strategies. Jefferies partners with our asset management business in providing asset management services.
Competition
All aspects of Jefferies business are intensely competitive. Jefferies competes primarily with large global bank holding companies that engage in capital markets activities, but also with firms listed in the AMEX Securities Broker/Dealer Index, other brokers and dealers, and boutique investment banking firms. The large global bank holding companies have substantially greater capital and resources than Jefferies does. Jefferies believes that the principal factors affecting its competitive standing include the quality, experience and skills of its professionals, the depth of its relationships, the breadth of its service offerings, its ability to deliver consistently our integrated capabilities, and its tenacity and commitment to serve its clients.
Regulation
Regulation in the U.S. The financial services industry in which Jefferies operates is subject to extensive regulation. In the U.S., the Securities and Exchange Commission (“SEC”) is the federal agency responsible for the administration of federal securities laws, and the Commodity Futures Trading Commission (“CFTC”) is the federal agency responsible for the administration of laws relating to commodity interests (including futures and swaps). In addition, self-regulatory organizations, principally Financial Industry Regulatory Authority (“FINRA”) and the National Futures Association (“NFA”), are actively involved in the regulation of financial service businesses. The SEC, CFTC and self-regulatory organizations conduct periodic examinations of broker-dealers investment advisers, futures commission merchants (“FCMs”) and swap dealers. The applicable self-regulatory authority for Jefferies activities as a broker-dealer is FINRA, and the applicable self-regulatory authority for Jefferies FCM activities is the NFA. Financial service businesses are also subject to regulation by state securities commissions and attorneys general in those states in which they do business.
Broker-dealers are subject to SEC and FINRA regulations that cover all aspects of the securities business, including sales and trading methods, trade practices among broker-dealers, use and safekeeping of customers’ funds and securities, capital structure of securities firms, anti-money laundering efforts, recordkeeping and the conduct of directors, officers and employees. Registered advisors are subject to, among other requirements, SEC regulations concerning marketing, transactions with affiliates, disclosure to clients, and recordkeeping; and advisors that are also registered as commodity trading advisors or commodity pool operators are also subject to regulation by the CFTC and the NFA. FCMs, introducing brokers and swap dealers that engage in commodities, futures or swap transactions are subject to regulation by the CFTC and the NFA. FCMs, introducing brokers and swap dealers that engage in commodities, futures or swap transactions are subject to regulation by the CFTC and the NFA. Additional legislation, changes in rules promulgated by the SEC, CFTC and self-regulatory organizations, or changes in the interpretation or enforcement of existing laws and rules may directly affect the operations and profitability of broker-dealers, investment advisers, FCMs and swap dealers. The SEC, the CFTC and self-regulatory organizations, state securities commissions and state attorneys general may

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conduct administrative proceedings or initiate civil litigation that can result in censure, fine, suspension, expulsion of a firm, its officers or employees, or revocation of a firm’s licenses.
Net Capital Requirements. U.S. registered broker-dealers are subject to the SEC’s Uniform Net Capital Rule (the “Net Capital Rule”), which specifies minimum net capital requirements. Jefferies Group LLC is not a registered broker-dealer and is therefore not subject to the Net Capital Rule; however, its U.S. broker-dealer subsidiaries, Jefferies and Jefferies Execution Services, Inc. (“Jefferies Execution”), are registered broker-dealers and are subject to the Net Capital Rule. Jefferies and Jefferies Execution have elected to compute their minimum net capital requirement in accordance with the “Alternative Net Capital Requirement” as permitted by the Net Capital Rule, which provides that a broker-dealer shall not permit its net capital, as defined, to be less than the greater of 2% of its aggregate debit balances (primarily customer-related receivables) or $250,000 ($1.5 million for prime brokers). Compliance with the Net Capital Rule could limit operations of our broker-dealers, such as underwriting and trading activities, that require the use of significant amounts of capital, and may also restrict their ability to make loans, advances, dividends and other payments.
U.S. registered FCMs are subject to the CFTC’s minimum financial requirements for futures commission merchants and introducing brokers. Jefferies Group LLC is not a registered FCM or a registered Introducing Broker, and is therefore not subject to the CFTC’s minimum financial requirements; however, Jefferies is registered as a FCM and is therefore subject to the minimum financial requirements. Under the minimum financial requirements, an FCM must maintain adjusted net capital equal to or in excess of the greater of (A) $1,000,000 or (B) the FCM’s risk-based capital requirements totaling (1) 8% of the total risk margin requirement for positions carried by the FCM in customer accounts, plus (2) 8% of the total risk margin requirement for positions carried by the FCM in noncustomer accounts. An FCM’s ability to make capital and certain other distributions is subject to the rules and regulations of various exchanges, clearing organizations and other regulatory agencies which may have capital requirements that are greater than the CFTC’s. Jefferies, as a dually registered broker-dealer and FCM, is required to maintain net capital in excess of the greater of the SEC or CFTC minimum financial requirements.
During October 2015, Jefferies ceased being a full-service FCM. As a result, Jefferies no longer carries customer or proprietary accounts or holds any customer monies or funds. While Jefferies may execute certain customer orders, it no longer clears such transactions.
Jefferies subsidiaries that are registered swap dealers will become subject to capital requirements under the Dodd-Frank Act once they become final. For additional information see Item 1A. Risk Factors.
See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Note 27 to our consolidated financial statements for additional information on net capital calculations.
Regulation outside the U.S.. Jefferies is an active participant in the international capital markets and provides investment banking services internationally, primarily in Europe and Asia. As is true in the U.S., Jefferies subsidiaries are subject to extensive regulations promulgated and enforced by, among other regulatory bodies, the U.K. Financial Conduct Authority, the Hong Kong Securities and Futures Commission, the Japan Financial Services Agency and the Monetary Authority of Singapore. Every country in which Jefferies does business imposes upon us laws, rules and regulations similar to those in the U.S., including with respect to some form of capital adequacy rules, customer protection rules, anti-money laundering and anti-bribery rules, compliance with other applicable trading and investment banking regulations and similar regulatory reform. For additional information see Item 1A. Risk Factors.
Leucadia Asset Management
During 2013, we formed LAM, a registered investment adviser, through which we are developing focused alternative asset management businesses. As the adviser and/or general partner to various private investment funds or other types of investment vehicles, LAM provides advisory, portfolio management and operational services to accredited investors and/or qualified purchasers. Once an investment vehicle is formed, it is typical that we will be an initial or major investor.  LAM's revenues derive from management fees and/or performance fees based on investment returns generated for the investors. Our strategy is to grow third party assets under management, while earning management fees and a reasonable return on our capital until the capital is returned to us. Our LAM and other asset management strategies primarily include Folger Hill, a multi-manager discretionary long/short equity hedge fund platform; Mazama Capital Management, a long-only growth equity fund manager; Topwater Capital, a first-loss hedge fund; 54 Madison Capital, LLC, which targets real estate projects; our investment in Jefferies Structured Alpha Fund B, a fund managed by the Jefferies Strategic Investments Division that focuses on quantitative strategies; our investment in CoreCommodity Management, LLC, an asset manager that focuses on commodity strategies; and our investment in Global Equity Events Opportunity Fund, a fund that focuses on event-driven strategies. 

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Folger Hill - In August 2014, we and Solomon Kumin established Folger Hill Asset Management LLC ("Folger Hill"), which is registered as an investment adviser with the SEC. In March 2015, Folger Hill launched a multi-manager hedge fund which included a $400 million seed investment from us. The fund is a multi-manager discretionary long/short equity hedge fund platform that aims to deliver strong positive results with lower volatility and market correlation than typical equity long/short hedge funds. At the end of 2015, assets under management totaled approximately $1.0 billion.
Mazama Capital Management - Mazama, led by Ron Sauer, has an over 20 year track record of long-only growth equity investing. With historically strong returns on an absolute basis and relative to its benchmark indices, Mazama is working to grow its assets under management on the back of our $250 million seed investment in 2014 in its strategies. At the end of 2015, assets under management totaled $550 million.
Topwater - In August 2013, we launched a "first-loss" fund called Topwater Partners with Bryan Borgia and Travis Taylor. We seeded that fund with $100 million and have raised additional third party capital. Starting in 2004, Topwater founders pioneered the first-loss model of investing, which offers a unique risk-reward trade-off for investors and a prudent way for hedge fund managers to run a managed account on attractive terms. Topwater is a multi-strategy, multi-manager investment partnership where each underlying investment manager contributes 10% of their own capital as a first loss layer, shielding Topwater's investors from losses up to 10%. This unique structure provides a strong layer of principal protection. Regulatory assets under management totaled $899 million at the end of 2015.
54 Madison - In August 2015, we and a team led by Henry Silverman launched 54 Madison Capital, LLC, which manages a fund that provides equity capital for hotel, timeshare, resort, residential and specialty retail real estate development projects in core global markets. We made a capital commitment of $225 million to 54 Madison and through the end of 2015 we have invested $38 million. Total fund commitments to 54 Madison from all investors are $500 million.
Other additions and launches in 2015 include Tenacis Capital, a systematic macro investment platform, and Lake Hill, an electronic trader in listed options and futures across asset classes.
FXCM
FXCM is a leading, global online provider of foreign exchange trading and related services, including contract for difference trading and spread betting, to retail and institutional customers world-wide.  Its mission is to provide global traders with access to foreign exchange trading, the world's largest and most liquid market, by offering innovative trading tools, hiring excellent trading educators, meeting strict financial standards and striving for the best online trading experience in the market. FXCM is a public company traded on the New York Stock Exchange ("NYSE") (Symbol: FXCM).

In January 2015, we entered into a credit agreement with FXCM, and provided FXCM a two-year senior secured term loan with rights to a variable proportion of certain future distributions. We account for our loan to FXCM and associated rights as one integrated transaction and have elected the fair value option for the loan. The total amount of our investment at December 31, 2015 is $625.7 million and we report it within Trading assets, at fair value in our Consolidated Statement of Financial Condition.
HomeFed Corporation
HomeFed Corporation is a developer and owner of residential and mixed-use real estate properties in California, New York, Florida, Virginia, South Carolina and Maine.  After many years in the entitlement process, the majority of HomeFed's assets are now either operating real estate or entitled land ready for sale. HomeFed is a public company traded on the NASD OTC Bulletin Board (Symbol: HOFD).  We own 65% of HomeFed’s common stock; however, our voting rights are limited such that we are not able to vote more than 45% of HomeFed’s total voting securities voting on any matter.  Resulting from a 1998 distribution to all of our shareholders, about 4.8% of HomeFed is beneficially owned by our Chairman, who also serves as HomeFed’s Chairman.  Our President is a Director of HomeFed.
At December 31, 2015, our investment had a net book value of $241.4 million and we report HomeFed as an equity investment in our financial statements.  HomeFed’s strategic priorities vary by project, ranging from pursuing further planning, entitlement and approval, to beginning construction, commencing sales, oversight and management of operating assets, and taking other steps to maximize profits.  HomeFed also continues to look for new opportunities both within, and outside of, the areas where it currently has projects under development.

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Berkadia
Berkadia Commercial Mortgage LLC, and its associated entities, is a joint venture formed in 2009 with Berkshire Hathaway. Berkadia is a commercial real estate company providing capital solutions, investment sales advisory, research and servicing for multifamily and commercial properties. We and Berkshire Hathaway each have a 50% equity interest in Berkadia.
Berkadia originates commercial real estate loans, primarily in respect of multi-family housing units, for Fannie Mae, Freddie Mac, Ginnie Mae and the FHA using their underwriting guidelines, and will typically sell the loan to such entities shortly after it is funded.  Provided Berkadia adheres to their guidelines, these government-related entities must purchase the loan at the face amount plus accrued interest with Berkadia retaining the mortgage servicing rights.  In addition, as a condition to Fannie Mae’s delegation of responsibility for underwriting, originating and servicing of loans, Berkadia assumes a shared loss position throughout the term of each loan sold to Fannie Mae, with a maximum loss percentage of approximately one-third of the original principal balance. During 2015, Berkadia originated $16.1 billion in Fannie Mae, Freddie Mac, Ginnie Mae and FHA loans.  Berkadia also originates and brokers commercial/multifamily mortgage loans which are not part of the government agency programs.  During 2015, Berkadia closed $5.6 billion of loans in this capacity for life companies, conduits and other third-parties.
In addition, Berkadia originates loans for its own balance sheet. These loans provide interim financing to borrowers who intend to refinance the loan with longer-term loans from an eligible government agency or other third party (“Bridge loans”).  Bridge loans are typically floating rate loans with 1 to 3 year maturities. During 2015, Berkadia originated $356.9 million of such loans and held $597.6 million on its balance sheet at December 31, 2015.
Berkadia also provides a unified, national sales and investment platform that is currently focused exclusively on the multifamily industry. This business provides services related to the acquisition and disposition of multifamily real estate projects, including brokerage services, asset review, market research, financial analysis and due diligence support.  During 2015, Berkadia closed over $5.9 billion in sales transactions.
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 (“CMBS”), banks, insurance companies and other financial institutions.  Berkadia is an approved servicer of loans for Fannie Mae, Freddie Mac, Ginnie Mae and the FHA.  As of December 31, 2015, Berkadia serviced approximately 23,000 loans with an unpaid principal balance of $226.9 billion.
As a servicer, Berkadia is frequently responsible for managing, on behalf of its investors and borrowers, the balances that are maintained in custodial accounts for the purposes of collecting and distributing principal and interest, and for managing and disbursing various reserve accounts related to the mortgaged properties among other things.  Berkadia derives certain economic benefits from administering these custodial accounts.  Such balances totaled in excess of $5.3 billion as of December 31, 2015.
Our only capital contribution to Berkadia, in the amount of $217.2 million, was made at the time Berkadia was formed in 2009.  Through December 31, 2015 we have received cumulative cash distributions of $393.9 million.  At December 31, 2015, the net book value of our investment in Berkadia was $191.0 million, and we report Berkadia as an equity investment in our financial statements.  Berkadia's strategic priorities include continued value creation by growing origination and sales advisory volumes and expanding servicing engagements with third parties.
Berkadia is required under its servicing agreements to maintain certain minimum servicer ratings or qualifications from the rating agencies.  A downgrade below a certain level may give rise to the right of a customer or trustee of a securitized transaction to terminate Berkadia as servicer.  Berkadia currently maintains approvals or ratings from Moody’s Investors Service, Fitch Ratings, Standard & Poor’s, Morningstar Credit Ratings and Dominion Bond Rating Services.  These ratings currently exceed the minimum ratings required by the related servicing agreements.  Ratings issued by the rating agencies can be withdrawn or lowered at any time.  In addition, Fannie Mae and Freddie Mac retain broad discretion to terminate Berkadia as a seller/servicer without cause.
Foursight Capital and Chrome Capital
In 2012, we partnered with an experienced management team in the indirect auto finance market to start Foursight Capital, of which we own 100%. Foursight purchases automobile installment contracts originated by franchised and independent dealerships in conjunction with the sale of new and used automobiles and services these loans throughout the life cycle. While Foursight was initially jump started by deal flow from Garcadia, it has grown quickly from third party dealerships which now account for approximately 83% of its originations. In 2015, Foursight originated $215.0 million in auto loans, up from $141.9 million in 2014.

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To further build our consumer finance platform and leverage Foursight's servicing capabilities, we began investing in 2014 in Chrome Capital of which we now own 83%. Chrome, which began operations in 2012, is the largest lessor of used Harley-Davidson motorcycles in the U.S. Through partnerships with 689 new and used dealerships, Chrome generally provides three to four year leases on used Harleys. In 2015, Chrome originated $41.8 million of leases, all of which are being serviced by Foursight.
Merchant Banking
The following provides more information about certain of our other subsidiaries and investments and our ownership percentages, including:
National Beef, 79% (beef processing);
HRG, 23% (diversified holding company);
Vitesse Energy, 96% (oil and gas exploration and development);
Juneau Energy, 98% (oil and gas exploration and development);
Garcadia, about 75% (automobile dealerships);
Linkem, 56% fully-diluted (42% voting) (fixed wireless broadband services);
Conwed Plastics, 100% (manufacturing);
Golden Queen, 35% (a gold and silver mining project); and
Idaho Timber, 100% (manufacturing).
National Beef
National Beef Packing Company, LLC is one of the largest beef processing companies in the U.S., accounting for approximately 12.5% of the market.  National Beef processes and markets fresh boxed beef, consumer-ready beef, beef by-products and wet blue leather for domestic and international markets.  Based in Kansas City, Missouri, National Beef had about 8,400 employees at December 31, 2015 and generated total revenues of $7.4 billion in 2015.  We purchased National Beef in 2011 and own 79%.
The largest share of National Beef’s revenue, about 91%, is generated from the sale of fresh and chilled boxed beef products.  National Beef also generates revenues through value-added production with its consumer-ready products.  In addition, National Beef operates one of the largest wet blue tanning facilities in the world (wet blue tanning refers to the first step in processing raw and brine-cured hides into tanned leather), selling processed hides to tanners that produce finished leather for the automotive, luxury goods, apparel and furniture industries.  Other streams of revenue include sales through its subsidiary,  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 internet, direct mail and direct response television, and service revenues generated by National Carriers, Inc., a wholly owned transportation and logistics company that is one of the largest refrigerated and livestock carrier operations in the U.S. and transports products for National Beef and a variety of other customers. National Beef’s profitability typically fluctuates seasonally as well as cyclically, with relatively higher margins in the spring and summer months and during times of ample cattle availability.
The net book value of our investment in National Beef was $690.7 million at December 31, 2015.
Sales and Marketing
National Beef markets its products to national and regional retailers, including supermarket chains, independent grocers, club stores, wholesalers and distributors, food service providers, further processors and the U.S. military.  In addition, National Beef sells beef by-products to the variety meat, feed processing, fertilizer and pet food industries.  National Beef exports products to more than 20 countries; in 2015, export sales represented approximately 10.5% of revenues.  The demand for beef is generally strongest in the spring and summer months and generally decreases during the winter months.
National Beef emphasizes the sale of higher-margin, value-added products, which include branded boxed beef, consumer-ready beef and pork, portion control beef and wet blue hides.  National Beef believes its value-added products can command higher prices than commodity products because of National Beef’s ability to consistently meet product specifications, based on quality, trim, weight, size, breed or other factors, tailored to the needs of its customers.  In addition to the value-added brands that National Beef owns, National Beef licenses the use of Certified Angus Beef®, a registered trademark of Certified Angus Beef LLC, and Certified Hereford Beef®, a registered trademark of Certified Hereford Beef LLC.

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Raw Materials and Procurement
The primary raw material for the beef processing plants is live cattle. The domestic beef industry is characterized by cattle prices that change daily based on seasonal consumption patterns, supply and demand for beef and other proteins, cattle inventory levels, weather and other factors.
National Beef has entered into a cattle supply agreement with U.S. Premium Beef, LLC (“USPB”), the current owner of a 15.1% interest in National Beef, which sold a substantial portion of its ownership interest to us.  USPB has agreed to supply, and National Beef has agreed to purchase through USPB from the members of USPB, 735,385 head of cattle per year (subject to adjustment), based on pricing grids furnished by National Beef to USPB.  National Beef believes the pricing grids are based on terms that could be obtained from an unaffiliated party.  The cattle supply agreement extends through December 31, 2017, with automatic, but optional one year extensions.  During 2015, National Beef purchased approximately 28% of the total cattle it processed from USPB members pursuant to the cattle supply agreement.  National Beef also purchased additional cattle from certain USPB members outside of the cattle supply agreement as well as from hundreds of other cattle suppliers. 
Processing Facilities
National Beef owns two beef processing facilities located in Liberal and Dodge City, Kansas, which can each process approximately 6,000 cattle per day.  National Beef’s three consumer-ready facilities are in Hummels Wharf, Pennsylvania, Moultrie, Georgia and Kansas City, Kansas.  National Beef’s wet blue tanning facility is in St. Joseph, Missouri.
Competition
Competitive conditions exist both in the purchase of live cattle, as well as in the sale of beef products.  Beef products compete with other protein sources, including pork and poultry, but National Beef’s principal competition comes from other beef processors.  National Beef believes the principal competitive factors in the beef processing industry are price, quality, food safety, customer service, product distribution, technological innovations (such as food safety interventions and packaging technologies) and brand loyalty.  Some of National Beef’s competitors have substantially larger beef operations, greater financial and other resources and wider brand recognition for their products.
Regulation and Environmental
National Beef’s operations are subject to extensive regulation by the USDA including its Food Safety and Inspection Service (“FSIS”) and its Grain Inspection, Packers and Stockyards Administration (“GIPSA”), the Food and Drug Administration (“FDA”), the U.S. Environmental Protection Agency (“EPA”) and other federal, state, local and foreign authorities regarding the processing, packaging, storage, safety, distribution, advertising and labeling of its products.
National Beef is subject to the Packers and Stockyards Act of 1921 (“PSA”).  Among other things, this statute generally requires National Beef to make full payment for livestock purchases not later than the close of business the day after the purchase and transfer of possession or determination of the purchase price.  Under the PSA, National Beef must hold in trust for the benefit of unpaid livestock suppliers all livestock purchased until the sellers have received full payment.  At December 31, 2015, National Beef has obtained from an insurance company a surety bond in the amount of $50.4 million to satisfy these requirements.
The Dodge City and Liberal facilities are subject to Title V permitting pursuant to the Federal Clean Air Act and the Kansas Air Quality Act.  The St. Joseph facility is subject to a secondary air permit which is in place.  The Dodge City, Liberal, Hummels Wharf and Moultrie facilities are subject to Clean Air Act Risk Management Plan requirements relating to the use of ammonia as a refrigerant.
All of National Beef’s plants are indirect dischargers of wastewater to publicly owned treatment works and are subject to requirements under the federal Clean Water Act, state and municipal laws, as well as agreements or permits with municipal or county authorities.  Upon renewal of these agreements and permits, National Beef is from time to time required to make capital expenditures to upgrade or expand wastewater treatment facilities to address new and more stringent discharge requirements imposed at the time of renewal.  Storm water discharges from National Beef’s plants are also regulated by state and local authorities.
All of National Beef’s facilities generate solid waste streams including small quantities of hazardous wastes.  National Beef is subject to laws that provide for strict, and in certain circumstances, joint and several liability for remediation of hazardous substances at contaminated sites; however, National Beef has not received any demands that it has any liability at sites under the Comprehensive Environmental Response, Compensation and Liability Act (“Superfund”) or state counterparts.  All plants are subject to community

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right to know reporting requirements under the Superfund Amendments and Reauthorization Act of 1986, which requires yearly filings as to the substances used on facility premises.
Employees
Of National Beef’s 8,400 employees, about 5,500 are represented by collective bargaining agreements.  About 2,700 employees at the Liberal plant are represented by the United Food and Commercial Workers International Union under a collective bargaining agreement scheduled to expire in December 2017, 2,500 employees at the Dodge City plant are represented by the United Food and Commercial Workers International Union under a collective bargaining agreement scheduled to expire in December 2016, and another 220 employees at the St. Joseph plant are represented by the United Cereal Workers (R.W.D.S.U./U.F.C.W) under a collective bargaining agreement scheduled to expire in June 2019.
HRG Group
HRG is a publicly traded diversified holding company, that operates in four business segments: consumer products, insurance, energy and asset management.  Its consumer products segment contains an approximate 58% ownership stake in Spectrum Brands, a global consumer products company. Its insurance segment includes an approximate 81% ownership stake in Fidelity & Guaranty Life ("FGL") and Front Street Re, its subsidiary engaged in the business of providing long-term reinsurance, including reinsurance to the specialty insurance sector of fixed, deferred and payout annuities. On November 8, 2015, FGL and Anbang Insurance Group Co., Ltd. ("Anbang") entered into a definitive merger agreement pursuant to which Anbang will acquire FGL for $26.80 per share. HRG's energy segment includes its wholly-owned subsidiary, Compass Production GP, LLC, that is engaged in the business of owning, operating, acquiring, exploiting and developing conventional oil and natural gas assets. On December 8, 2015, Compass completed the sale of certain oil and gas interests to Indigo Resources LLC. Proceeds from the transaction were $147.5 million and were used primarily to reduce borrowings under Compass' existing credit facility. Its asset management segment includes its ownership in HGI Asset Management Holdings, LLC, which, through its subsidiaries, provides financing and engages in asset management across a range of industries. HRG is publicly traded on the NYSE under the symbol “HRG.”
As of December 31, 2015, we own 46.6 million common shares of HRG, representing about 23% of its outstanding common shares, which we reflect in our financial results at fair value.  In addition, we have designated two directors on HRG’s board, one of whom is our Chairman and serves as HRG's Chairman.  We have agreed not to increase our interest in HRG above 27.5% through March 17, 2016.  At December 31, 2015, the book value of our holdings in HRG is $631.9 million and our cost was $475.6 million.
Vitesse Energy
During May 2014, we formed Vitesse Energy, LLC, a non-operating owner of oil and gas properties in the core of the Bakken field.  We own 96% of Vitesse, which acquires producing and undeveloped leasehold properties in North Dakota and Montana, and converts the undeveloped leasehold into cash flow producing assets.  Vitesse has acquired approximately 21,000 net acres of Bakken leasehold and has an interest in 1,108 producing wells (26 net wells) and 413 gross wells (9 net wells) that are currently drilling or permitted for drilling.
At December 31, 2015, we have made cumulative cash investments of $258.0 million and our net book value is $278.8 million.  Our strategic priorities for Vitesse are to add to our desired core acreage, increase cash flow from new well development over the next 10 years, and selectively sell assets when appropriate.
Juneau Energy
During February 2014, we made our first investment in Juneau Energy, LLC.  Juneau leases and develops oil and gas properties in Texas and Oklahoma.   We own 98% of Juneau, which engages in the exploration, development and production of oil and gas from onshore, unconventional resource areas.  Juneau has about 48,000 net acres of East Texas leasehold.  At December 31, 2015, we have made cumulative cash investments of $233.2 million and our net book value is $180.0 million.  Our strategic priorities include using our in-house geological and engineering expertise to generate a compelling return, even at lower prices, and to develop a diversified portfolio of quality assets that can grow production and cash flow in the future.

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Garcadia
Garcadia is a joint venture between us and Garff Enterprises, Inc. that owns and operates 27 automobile dealerships comprised of domestic and foreign automobile makers.  The Garcadia joint venture agreement specifies that we and Garff shall have equal board representation and equal votes on all matters affecting Garcadia, and that all cash flows from Garcadia will be allocated 65% to us and 35% to Garff, with the exception of one dealership from which we receive 83% of all cash flows and five other dealerships from which we receive 71% of all cash flows.  Garcadia’s strategy is to acquire automobile dealerships in primary or secondary market locations meeting its specified return criteria.  During 2015 we received cash distributions from Garcadia's dealerships of $51.5 million.
In addition, we own the land for certain dealerships and lease it to the dealerships.  During 2015 we received rent payments related to these leases of $8.6 million.  At December 31, 2015, the net book value of our investment in Garcadia was $172.7 million and was $16.7 million for our land leased to the dealerships.
Linkem
Linkem S.p.A is a fixed wireless broadband service provider in Italy.  In 2008, Linkem acquired wireless spectrum licenses in the 3.5GHz band and launched Italy’s first commercial 4G wireless service.  Unlike the U.S. and most of Western Europe, Italy does not have a national cable television system; as a result, Italy’s broadband penetration rate is among the lowest in Europe, and the vast majority of residential broadband service is DSL, which relies on legacy copper telephone lines.  Linkem offers residential broadband services at speeds equal to or faster than DSL, but priced at a discount. 
Our initial investment in Linkem was made in July 2011.  Since that time, we have funded most of Linkem’s growth and become its largest shareholder.  We own about 42% of Linkem’s common shares and $124.0 million of 5% convertible preferred stock convertible in 2020 (dividends can be paid in cash or in kind).  On an if-converted basis, we would own 56% of the common shares of Linkem. 
Linkem owns or has exclusive rights to spectrum holdings of 84MHz covering over 80% of the population and at least 42MHz covering all of Italy. At December 31, 2015, Linkem’s network includes base stations deployed on over 1,400 wireless towers that can reach 48% of the population.  Linkem has over 310,000 subscribers for its services.  Linkem has been aggressively deploying LTE since the fourth quarter of 2014 with 67% of its base stations now LTE-enabled. LTE, provides subscribers with faster download speeds and improved service. Linkem plans to increase its network coverage across Italy over the coming years as it adds subscribers; expansion and customer acquisition costs are expected to result in operating losses over the next few years. 
At December 31, 2015, we have made cumulative cash investments of $259.2 million and our net book value is $150.1 million. 
Conwed Plastics
Conwed 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.  These products are primarily used for containment purposes, reinforcement of other products, packaging for produce and meats, various types of filtration and erosion prevention. Manufacturing facilities are located in Minnesota, Georgia, Illinois, Virginia and Genk, Belgium (totaling approximately 569,000 square feet).
In March 2014, Conwed acquired 80% of Filtrexx, a manufacturer and marketer of a knitted sock product with numerous applications in sediment control and storm water management.  Filtrexx uses Conwed netting products to provide erosion control solutions with primary applications in oil and gas development, civil infrastructure, and commercial and residential construction.  In August 2014, Conwed acquired 100% of Weaver Express, the leading installer of Filtrexx's knitted sock products.
As of December 31, 2015, we have owned Conwed for over thirty years and received cash distributions of $167.4 million in excess of our investment.  At December 31, 2015, the net book value of our investment in Conwed was $105.3 million.  Our strategic priorities include further development of the business created by the Filtrexx and Weaver acquisitions and expansion of the products, markets and applications for Conwed’s core technology.

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Golden Queen Mining Company
The Golden Queen Mining Company LLC (“Golden Queen”) is a joint venture between Golden Queen Mining Co., Ltd. (“GQM”) and Gauss LLC, a newly formed limited liability company.  Golden Queen is developing the Soledad Mountain Project, a fully-permitted, open pit, heap leach gold and silver project located in Kern County, California.  The project will use conventional open pit mining methods, cyanide heap leach and Merrill-Crowe processes to recover gold and silver from crushed, agglomerated ore.  Construction is essentially complete and mining activities and project commissioning commenced in the fourth quarter of 2015. GQM is a Canadian company that has been developing and exploring its mineral properties at Soledad Mountain since 1985.  GQM is publicly traded on both the Toronto Stock Exchange (“GQM”) and on the OTCQX International (“GQMNF”) markets.
During 2014 and 2015, we invested $83.0 million, net in cash in Gauss LLC to partner with GQM and the Clay family, GQM’s largest shareholder, to jointly fund, develop and operate the Project.  In exchange for a noncontrolling ownership interest in Gauss LLC, the Clay family contributed $34.5 million, net in cash. Gauss LLC invested both our and the Clay family’s net contributions totaling $117.5 million to the joint venture, Golden Queen, in exchange for a 50% ownership interest. GQM contributed the Soledad Mountain project to the joint venture in exchange for the other 50% interest.
Our maximum exposure to loss as a result of our involvement with the joint venture is limited to our investment.  The net book value of our investment was $80.6 million at December 31, 2015.
Idaho Timber
Idaho Timber manufactures and distributes an extensive range of quality wood products to markets across North America.  Its activities include 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.  In addition to its headquarters in Meridian, Idaho, Idaho Timber has plants in Idaho, Arkansas, Florida, Louisiana, New Mexico, North Carolina and Texas.
The net book value of our investment was $73.1 million at December 31, 2015.
Financial Information about Segments
Our operating segments consist of the consolidated businesses discussed above, which offer different products and services and are managed separately.  Our three reportable segments, based on both qualitative and quantitative requirements, are Jefferies, National Beef, and Corporate and other.  Our All other businesses and investments consist of our other financial services businesses and investments and our other merchant banking businesses and investments.  Our other financial services businesses and investments include the Leucadia asset management platform, specialty finance companies, the commercial mortgage banking investment, the investment in HomeFed and the investment in FXCM. Our other merchant banking businesses and investments primarily include manufacturing, oil and gas exploration and development, real estate, and our investments in HRG, fixed wireless broadband services, automobile dealerships, and our gold and silver mining project. Our financial information regarding our reportable segments is contained in Note 31, in our consolidated financial statements.
Information about Leucadia on the Internet
The following documents and reports are available on or through our website as soon as reasonably practicable after we electronically file such materials with, or furnish to, the SEC:
Code of Business Practice;
Reportable waivers, if any, from our Code of Business Practice by our executive officers;
Board of Directors Corporate Governance Guidelines;
Charter of the Audit Committee of the Board of Directors;
Charter of the Nominating and Corporate Governance Committee of the Board of Directors;
Charter of the Compensation Committee of the Board of Directors;
Annual reports on Form 10-K;
Quarterly reports on Form 10-Q;
Current reports on Form 8-K;
Beneficial ownership reports on Forms 3, 4 and 5; and
Any amendments to the above-mentioned documents and reports.
Shareholders may also obtain a printed copy of any of these documents or reports free of charge by sending a request to Leucadia National Corporation, Investor Relations, 520 Madison Avenue, New York, NY 10022 or by calling (212) 460-1900.

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Item 1A.
Risk Factors.
Our business is subject to a number of risks.  You should carefully consider the following risk factors, together with all of the other information included or incorporated by reference in this report, before you decide whether to purchase our common shares.  The risks set out below are not the only risks we face.  If any of the following risks occur, our business, financial condition and results of operations could be materially adversely affected.  In such case, the trading price of our common shares could decline, and you may lose all or part of your investment.
Future acquisitions and dispositions of our operations and investments are possible, changing the components of our assets and liabilities, and if unsuccessful could reduce the value of our common shares.  Any future acquisitions or dispositions may result in significant changes in the composition of our assets and liabilities.  Consequently, our financial condition, results of operations and the trading price of our common shares may be affected by factors different from those affecting our financial condition, results of operations and trading price at the present time.
We face numerous risks and uncertainties as we expand our business.  We expect the growth of our business to come primarily from internal expansion and through acquisitions and strategic partnering.  As we expand our business, there can be no assurance that financial controls, the level and knowledge of personnel, operational abilities, legal and compliance controls and other corporate support systems will be adequate to manage our business and growth.  The ineffectiveness of any of these controls or systems could adversely affect our business and prospects.  In addition, if we acquire new businesses and introduce new products, we face numerous risks and uncertainties integrating their controls and systems, including financial controls, accounting and data processing systems, management controls and other operations.  A failure to integrate these systems and controls, and even an inefficient integration of these systems and controls, could adversely affect our business and prospects.
Certain business initiatives, including expansions of existing businesses, may bring Jefferies into contact directly or indirectly, with individuals and entities that are not within its traditional client and counterparty base and may expose Jefferies to new asset classes and new markets.  These business activities expose Jefferies to new and enhanced risks, greater regulatory scrutiny of these activities, increased credit-related, sovereign and operational risks, and reputational concerns regarding the manner in which these assets are being operated or held.
Our business, financial condition and results of operations are dependent upon those of our individual businesses, and our aggregate investment in particular industries. We are a holding company with investments in businesses and assets in a number of industries.  Jefferies is our largest investment and we have significant additional investments in the financial services industry.  Our business, financial condition and results of operations are dependent upon our investments.  Any material adverse change in one of our material investments or in a particular industry in which we invest may cause material adverse changes to our business, financial condition and results of operations.  The more capital we devote to a particular investment or industry may increase the risk that such investment could significantly impact our financial condition and results of operations, possibly in a material adverse way.

Jefferies may incur losses if its risk management is not effective. Jefferies seeks to monitor and control its risk exposure. Its risk management processes and procedures are designed to limit its exposure to acceptable levels as it conducts its business. Jefferies applies a comprehensive framework of limits on a variety of key metrics to constrain the risk profile of its business activities. The size of the limit reflects Jefferies’ risk tolerance for a certain activity. The framework includes inventory position and exposure limits on a gross and net basis, scenario analysis and stress tests, value-at-risk, sensitivities, exposure concentrations, aged inventory, amount of Level 3 assets, counterparty exposure, leverage, cash capital, and performance analysis. While Jefferies employ various risk monitoring and risk mitigation techniques, those techniques and the judgments that accompany their application, including risk tolerance determinations, cannot anticipate every economic and financial outcome or the specifics and timing of such outcomes. As a result, Jefferies may incur losses notwithstanding its risk management processes and procedures.
Recent legislation and new and pending regulation may significantly affect Jefferies business.  In recent years, there has been significant legislation and increased regulation affecting the financial services industry.  These legislative and regulatory initiatives affect not only Jefferies, but also its competitors and certain of its clients.  These changes could have an effect on Jefferies revenue and profitability, limit Jefferies ability to pursue certain business opportunities, impact the value of assets that it holds, require Jefferies to change certain business practices, impose additional costs on Jefferies and otherwise adversely affect its business.  Accordingly, we cannot provide assurance that legislation and regulation will not eventually have an adverse effect on Jefferies business, results of operations, cash flows and financial condition.
Extensive international regulation of Jefferies business limits its activities, and, if Jefferies violates these regulations, it may be subject to significant penalties.  The financial services industry is subject to extensive laws, rules and regulations in every

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country in which Jefferies operates.  Firms that engage in securities and derivatives trading, wealth and asset management and investment banking must comply with the laws, rules and regulations imposed by national and state governments and regulatory and self-regulatory bodies with jurisdiction over such activities.  Such laws, rules and regulations cover all aspects of the financial services business, including, but not limited to, sales and trading methods, trade practices, use and safekeeping of customers’ funds and securities, capital structure, anti-money laundering and anti-bribery and corruption efforts, recordkeeping and the conduct of directors, officers and employees.
Each of Jefferies regulators supervises its business activities to monitor compliance with such laws, rules and regulations in the relevant jurisdiction.  In addition, if there are instances in which Jefferies regulators question its compliance with laws, rules, and regulations, they may investigate the facts and circumstances to determine whether Jefferies has complied.  At any moment in time, Jefferies may be subject to one or more such investigation or similar reviews.  At this time, all such investigations and similar reviews are insignificant in scope and immaterial to Jefferies.  However, there can be no assurance that, in the future, the operations of Jefferies businesses will not violate such laws, rules, or regulations and such investigations and similar reviews will not result in adverse regulatory requirements, regulatory enforcement actions and/or fines.
Changing conditions in financial markets and the economy could impact Jefferies through decreased revenues, losses or other adverse consequences.  As a global securities and investment banking firm, global or regional changes in the financial markets or economic conditions could adversely affect Jefferies business in many ways, including the following:
A market downturn could lead to a decline in the volume of transactions executed for customers and, therefore, to a decline in the revenues Jefferies receives from commissions and spreads.
Unfavorable financial or economic conditions could reduce the number and size of transactions in which Jefferies provides underwriting, financial advisory and other services.  Jefferies investment banking revenues, in the form of financial advisory and sales and trading or placement fees, are directly related to the number and size of the transactions in which Jefferies participates and could therefore be adversely affected by unfavorable financial or economic conditions.
Adverse changes in the market could lead to losses from principal transactions on Jefferies inventory positions.
Adverse changes in the market could also lead to a reduction in revenues from asset management fees and investment income from managed funds and losses on Jefferies own capital invested in managed funds. Even in the absence of a market downturn, below-market investment performance by Jefferies funds and portfolio managers could reduce asset management revenues and assets under management and result in reputational damage that might make it more difficult to attract new investors.
Limitations on the availability of credit, such as occurred during 2008, can affect Jefferies ability to borrow on a secured or unsecured basis, which may adversely affect Jefferies liquidity and results of operations. Global market and economic conditions have been particularly disrupted and volatile in the last several years and may be in the future. Jefferies cost and availability of funding could be affected by illiquid credit markets and wider credit spreads.
New or increased taxes on compensation payments such as bonuses or on balance sheet items may adversely affect Jefferies profits.
Should one of Jefferies customers or competitors fail, Jefferies business prospects and revenue could be negatively impacted due to negative market sentiment causing customers to cease doing business with Jefferies and Jefferies lenders to cease extending credit to Jefferies, which could adversely affect its business, funding and liquidity.
Unfounded allegations about Jefferies could result in extreme price volatility and price declines in its debt securities and loss of revenue, clients, and employees.  Jefferies reputation and business activity can be affected by statements and actions of third parties, even false or misleading statements by them.  While Jefferies has been able to dispel such rumors in the past, its debt-securities prices suffered extreme volatility.  In addition, Jefferies operations in the past have been impacted as some clients either ceased doing business or temporarily reduced the level of business they do, thereby decreasing Jefferies revenue stream.  Although Jefferies was able to reverse the negative impact of such unfounded allegations and false rumors, there is no assurance that Jefferies will be able to do so successfully in the future and the potential failure to do so could have a material adverse effect on Jefferies business, financial condition and liquidity.
A credit rating agency downgrade could significantly impact our and Jefferies businesses.  We and Jefferies have credit ratings issued by various credit rating agencies.  Maintaining our credit ratings is important to our and Jefferies business and financial condition.  We advised certain credit rating agencies that we would target specific concentration, leverage and liquidity principles, expressed in the form of certain ratios and percentages.  Our failure to meet these ratios and percentages may trigger a ratings downgrade.  We and Jefferies intend to access capital markets and issue debt securities from time to time, and a ratings downgrade may decrease demand for such offered security.  A decrease in demand would not only make a successful financing more difficult, but also increase our respective capital costs.  Similarly, our and Jefferies access to other forms of credit may be limited and our respective borrowing costs may increase if our or Jefferies credit ratings are downgraded.  A downgrade could also negatively

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impact our and Jefferies outstanding debt prices and our stock price.  In addition, in connection with certain over-the-counter derivative contract arrangements and certain other trading arrangements, a ratings downgrade could cause us or Jefferies to provide additional collateral to counterparties, exchanges and clearing organizations which would negatively impact our and Jefferies liquidity and financial condition.  There can be no assurance that our or Jefferies credit ratings will not be downgraded.
Jefferies principal trading and investments expose us to risk of loss.  A considerable portion of Jefferies revenues is derived from trading in which Jefferies acts as principal.  Jefferies may incur trading losses relating to the purchase, sale or short sale of fixed income, high yield, international, convertible, and equity securities and futures and commodities for its own account.  In any period, Jefferies may experience losses on its inventory positions as a result of price fluctuations, lack of trading volume, and illiquidity.  From time to time, Jefferies may engage in a large block trade in a single security or maintain large position concentrations in a single security, securities of a single issuer, securities of issuers engaged in a specific industry, or securities from issuers located in a particular country or region.  In general, because Jefferies inventory is marked to market on a daily basis, any adverse price movement in these securities could result in a reduction of Jefferies revenues and profits.  In addition, Jefferies may engage in hedging transactions that if not successful, could result in losses.
Increased competition may adversely affect Jefferies revenues, profitability and staffing.  All aspects of Jefferies business are intensely competitive.  Jefferies competes directly with a number of bank holding companies and commercial banks, other brokers and dealers, investment banking firms and other financial institutions.  In addition to competition from firms currently in the securities business, there has been increasing competition from others offering financial services, including automated trading and other services based on technological innovations.  Jefferies believes that the principal factors affecting competition involve market focus, reputation, the abilities of professional personnel, the ability to execute the transaction, relative price of the service and products being offered, bundling of products and services and the quality of service.  Increased competition or an adverse change in Jefferies competitive position could lead to a reduction of business and therefore a reduction of revenues and profits.
Competition also extends to the hiring and retention of highly skilled employees.  A competitor may be successful in hiring away employees, which may result in Jefferies losing business formerly serviced by such employees.  Competition can also raise Jefferies costs of hiring and retaining the employees Jefferies needs to effectively operate its business.
Operational risks may disrupt Jefferies business, result in regulatory action against Jefferies or limit Jefferies growth.  Jefferies businesses are highly dependent on its ability to process, on a daily basis, a large number of transactions across numerous and diverse markets in many currencies, and the transactions Jefferies processes have become increasingly complex.  If any of Jefferies financial, accounting or other data processing systems do not operate properly or are disabled or if there are other shortcomings or failures in Jefferies internal processes, people or systems, Jefferies could suffer an impairment to our liquidity, financial loss, a disruption of our businesses, liability to clients, regulatory intervention or reputational damage.  These systems may fail to operate properly or become disabled as a result of events that are wholly or partially beyond Jefferies control, including a disruption of electrical or communications services or Jefferies inability to occupy one or more of our buildings.  The inability of Jefferies systems to accommodate an increasing volume of transactions could also constrain its ability to expand its businesses.
Certain of Jefferies financial and other data processing systems rely on access to and the functionality of operating systems maintained by third parties. If the accounting, trading or other data processing systems on which Jefferies is dependent are unable to meet increasingly demanding standards for processing and security or, if they fail or have other significant shortcomings, Jefferies could be adversely affected. Such consequences may include Jefferies inability to effect transactions and manage Jefferies exposure to risk.
In addition, despite the contingency plans Jefferies has in place, Jefferies ability to conduct business may be adversely impacted by a disruption in the infrastructure that supports its businesses and the communities in which they are located.  This may include a disruption involving electrical, communications, transportation or other services used by Jefferies or third parties with which Jefferies conducts business.
Jefferies operations rely on the secure processing, storage and transmission of confidential and other information in Jefferies computer systems and networks. Although Jefferies takes protective measures and devotes significant resources to maintaining and upgrading its systems and networks with measures such as intrusion and detection prevention systems, monitoring firewall to safeguard critical business applications and supervising third party providers that have access to its systems, Jefferies computer systems, software and networks may be vulnerable to unauthorized access, computer viruses or other malicious code, and other events that could have a security impact. Additionally, if a client’s computer system, network or other technology is compromised by unauthorized access, Jefferies may face losses or other adverse consequences by unknowingly entering into unauthorized transactions. If one or more of such events occur, this potentially could jeopardize Jefferies or its clients’ or counterparties’ confidential and other information processed and stored in, and transmitted through, our computer systems and networks. Furthermore, such events may cause interruptions or malfunctions in Jefferies, its clients’, its counterparties’ or third parties’

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operations, including the transmission and execution of unauthorized transactions. Jefferies may be required to expend significant additional resources to modify its protective measures or to investigate and remediate vulnerabilities or other exposures, and Jefferies may be subject to litigation and financial losses that are either not insured against or not fully covered through any insurance maintained by Jefferies. The increased use of smartphones, tablets and other mobile devices as well as cloud computing may also heighten these and other operational risks. Similar to other firms, Jefferies and its third party providers continue to be the subject of attempted unauthorized access, computer viruses and malware, and cyber attacks designed to disrupt of degrade service or cause other damage and denial of service. Additional challenges are posed by external parties, including foreign state actors. There can be no assurance that such unauthorized access or cyber incidents will not occur in the future, and they could occur more frequently and on a larger scale.
Legal liability may harm Jefferies business.  Many aspects of Jefferies business involve substantial risks of liability, and in the normal course of business, Jefferies has been named as a defendant or codefendant in lawsuits involving primarily claims for damages.  The risks associated with potential legal liabilities often may be difficult to assess or quantify and their existence and magnitude often remain unknown for substantial periods of time.  The expansion of Jefferies business, including increases in the number and size of investment banking transactions and Jefferies expansion into new areas impose greater risks of liability.  In addition, unauthorized or illegal acts of Jefferies employees could result in substantial liability.  Substantial legal liability could have a material adverse financial effect or cause Jefferies significant reputational harm, which in turn could seriously harm Jefferies business and its prospects.
Jefferies business is subject to significant credit risk.  In the normal course of Jefferies businesses, Jefferies is involved in the execution, settlement and financing of various customer and principal securities and derivative transactions.  These activities are transacted on a cash, margin or delivery-versus-payment basis and are subject to the risk of counterparty or customer nonperformance.  Although transactions are generally collateralized by the underlying security or other securities, Jefferies still faces the risks associated with changes in the market value of the collateral through settlement date or during the time when margin is extended and the risk of counterparty nonperformance to the extent collateral has not been secured or the counterparty defaults before collateral or margin can be adjusted.  Jefferies may also incur credit risk in its derivative transactions to the extent such transactions result in uncollateralized credit exposure to counterparties.
Jefferies seeks to control the risk associated with these transactions by establishing and monitoring credit limits and by monitoring collateral and transaction levels daily.  Jefferies may require counterparties to deposit additional collateral or return collateral pledged.  In the case of aged securities failed to receive, Jefferies may, under industry regulations, purchase the underlying securities in the market and seek reimbursement for any losses from the counterparty.  However, there can be no assurances that Jefferies risk controls will be successful.
Derivative transactions may expose Jefferies to unexpected risk and potential losses.  Jefferies is party to a number of derivative transactions that require it to deliver to the counterparty the underlying security, loan or other obligation in order to receive payment.  In a number of cases, Jefferies does not hold the underlying security, loan or other obligation and may have difficulty obtaining, or be unable to obtain, the underlying security, loan or other obligation through the physical settlement of other transactions.  As a result, Jefferies is subject to the risk that it may not be able to obtain the security, loan or other obligation within the required contractual time frame for delivery.  This could cause Jefferies to forfeit the payments due to it under these contracts or result in settlement delays with the attendant credit and operational risk as well as increased costs to the firm.
The prices and availability of key raw materials affects the profitability of our beef processing and manufacturing operations.  The supply and market price of cattle purchased by National Beef are dependent upon a variety of factors over which National Beef has no control, including fluctuations in the size of herds maintained by producers, the relative cost of feed and energy, weather and livestock diseases.  A decline in the supply of fed cattle available for National Beef’s Brawley facility was a key factor in the 2013 decision to close the plant.  The cost of raw materials used by our manufacturing businesses has increased as a result of a variety of factors. Although our manufacturing subsidiaries are not currently experiencing any shortage of raw materials, if the subsidiaries experience shortages, revenues and profitability could decline.
Outbreaks of disease affecting livestock can adversely affect the supply of cattle and the demand for National Beef’s products.  National Beef is subject to risks relating to animal health and disease control.  An outbreak of disease affecting livestock (such as foot-and-mouth disease or bovine spongiform encephalopathy (“BSE”), commonly referred to as mad cow disease) could result in restrictions on sales of products, restrictions on purchases of livestock from suppliers or widespread destruction of cattle.  The discovery of BSE in the past caused certain countries to restrict or prohibit the importation of beef products.  Outbreaks of diseases, or the perception by the public that an outbreak has occurred, or other concerns regarding diseases, can lead to inadequate supply, cancellation of orders by customers and create adverse publicity, any of which can have a significant negative impact on consumer demand and, as a result, on our consolidated financial position, cash flows and results of operations.

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If National Beef’s products or products made by others using its products become contaminated or are alleged to be contaminated, National Beef may be subject to product liability claims that could adversely affect its business. National Beef may be subject to significant liability in excess of insurance policy limits if its products or products made by others using its products cause injury, illness or death.  In addition, National Beef could recall or be required to recall products that are, or are alleged to be, contaminated, spoiled or inappropriately labeled.  Organisms producing food borne illnesses (such as E. coli) could be present in National Beef’s products and result in illness or death if they are not eliminated through further processing or cooking.  Contamination of National Beef’s or its competitors’ products may create adverse publicity or cause consumers to lose confidence in the safety and quality of beef products.  Allegations of product contamination may also be harmful even if they are untrue or result from third-party tampering.  Any of these events may increase costs or decrease demand for beef products, any of which could have a significant adverse effect on our consolidated financial condition, cash flows and results of operations.
National Beef generally does not enter into long-term contracts with customers; as a result the volumes and prices at which beef products are sold are subject to market forces.  National Beef’s customers generally place orders for products on an as-needed basis and, as a result, their order levels have varied from period to period in the past and may vary significantly in the future.  The loss of one or more significant customers, a significant decline in the volume of orders from customers or a significant decrease in beef product prices for a sustained period of time could negatively impact cash flows and results of operations.
National Beef’s international operations expose it to political and economic risks in foreign countries, as well as to risks related to currency fluctuations.  Approximately 10.5% of National Beef’s annual sales are export sales, primarily to Japan, Mexico, South Korea, Hong Kong, China (for hides), Taiwan, Italy and Egypt, and on average these sales have a higher margin than domestic sales of similar products.  A reduction in international sales could adversely affect revenues and margins.  Risks associated with international activities include inflation or deflation and changes in foreign currency exchange rates, including changes in currency exchange rates of other countries that may export beef products in competition with National Beef; the closing of borders by foreign countries to product imports due to disease or other perceived health or food safety issues; exchange controls; changes in tariffs; changes in political or economic conditions; trade restrictions and changes in regulatory requirements.  The occurrence of any of these events could increase costs, lower demand for products or limit operations, which could have a significant adverse effect on cash flows, results of operations and future prospects. 
National Beef incurs substantial costs to comply with environmental regulations and could incur additional costs as a result of new regulations or compliance failures that result in civil or criminal penalties, liability for damages and negative publicity.  National Beef’s operations are subject to extensive and increasingly stringent environmental regulations administered by the EPA and state, local and other authorities with regards to water usage, wastewater and storm water discharge, air emissions and odor, and waste management and disposal.  Failure to comply with these laws and regulations could have serious consequences, including criminal, civil and administrative penalties and negative publicity.  In addition, National Beef incurs and will continue to incur significant capital and operating expenditures to comply with existing and new or more stringent regulations and requirements.  All of National Beef’s processing facilities procure wastewater treatment services from municipal or other regional governmental agencies that are in turn subject to environmental laws and permit limits regarding their water discharges.  As permit limits are becoming more stringent, upgrades and capital improvements to these municipal treatment facilities are likely.  In locations where National Beef is a significant volume discharger, it could be asked to contribute toward the costs of such upgrades or to pay significantly increased water or sewer charges to recoup such upgrade costs.  National Beef may also be required to undertake upgrades and make capital improvements to its own wastewater pretreatment facilities, the cost of which could be significant.  Compliance with environmental regulations has had and will continue to have a significant impact on National Beef’s cash flows and profitability.  In addition, under most environmental laws, most notably the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) and analogous state laws, National Beef could be held liable for the cost to investigate or remediate any contamination at properties it owns or operates, or as to which it arranges for the disposal or treatment of hazardous substances, as such liability is imposed without regard to fault.
National Beef is subject to extensive governmental regulation and noncompliance with or changes in applicable requirements could adversely affect its business, financial condition, cash flows and results of operations.  National Beef’s operations are subject to extensive regulation and oversight by the USDA, including its FSIS and GIPSA agencies, the FDA, and other federal, state, local and foreign authorities regarding the processing, packaging, storage, safety, distribution, advertising and labeling of its products.  Recently, food safety practices and procedures in the meat processing industry have been subject to more intense scrutiny and oversight by the USDA.  National Beef is also subject to a variety of immigration, labor and worker safety laws and regulations, including those relating to the hiring and retention of employees.  Failure to comply with existing or new laws and regulations could result in administrative penalties and injunctive relief, civil remedies, fines, interruption of operations, recalls of products or seizures of properties, potential criminal sanctions and personal injury or other damage claims.  These remedies, changes in the applicable laws and regulations or discovery of currently unknown conditions could increase costs, limit business operations and reduce profitability.

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National Beef’s performance depends on favorable labor relations with its employees, in particular employees represented by collective bargaining agreements.  A substantial number of National Beef’s employees are covered by collective bargaining agreements. A labor-related work stoppage by unionized employees, or employees who become unionized in the future, could limit National Beef’s ability to process and ship products or could increase costs.  Any significant increase in labor costs, deterioration of employee relations, slowdowns or work stoppages at any of National Beef’s locations, whether due to union activities, employee turnover or otherwise, could have a material adverse effect on our financial condition, cash flows and results of operations.
Difficult market conditions can adversely affect our asset management business in many ways, by reducing the value or performance of our funds (including our invested funds and funds invested by third parties) or by reducing the ability of our funds to raise or deploy capital, each of which could negatively impact our income and cash flow and adversely affect our financial condition. The build-out of our asset management business is affected by conditions in the financial markets and economic conditions and events throughout the world, such as interest rates, availability of credit, inflation rates, economic uncertainty, changes in laws and regulations, market perceptions and other factors.  In addition, we have substantially invested in many of our funds.  Adverse changes such as those mentioned above could lead to a reduction in investment income, losses on our own capital invested and lower revenues from asset management fees.  Such adverse changes may also lead to a decrease in new capital raised and may cause investors to withdraw their investments and commitments.  Even in the absence of a market downturn, below-market investment performance by our funds and portfolio managers could reduce asset management revenues and assets under management and result in reputational damage that may make it more difficult to attract new investors or retain existing investors. 
Uncertainties inherent in HRG’s business and operations could impact the realizability of the full value of our investment.  As a diversified holding company, HRG is subject to risks and uncertainties across the industries in which it invests.  It is also subject to risks associated with its holding company structure, which include potential difficulties or limitations in receiving distributions from its subsidiaries, and the risk that acquisitions, dispositions or integrations of subsidiaries may not be successful.  We hold about 23% of the common shares of HRG and we record our investment at fair value.  As we do not control HRG, its management may make decisions that are not in our best interest.  HRG could decide to issue additional common shares, which would dilute our current ownership.  Additionally, changes in the market price of HRG shares may lead to volatility in our results of operations.  For additional risk factors concerning HRG, see its SEC filings.
Uncertainties relating to the results of FXCM could impact the value of our investment in FXCM. FXCM’s revenue and operating results may vary significantly from period to period due to movements and trends in the world’s currency markets and to fluctuations in trading levels. In addition, attrition of customer accounts, which are primarily comprised of individual retail customers, and failure to attract new accounts could impact revenue and profitability. FXCM is also subject to regulatory risks, as well as risks such as those relating to government actions like the unexpected actions of the Swiss National Bank on January 15, 2015, which resulted in the historic movement in the Swiss Franc. As a result of this event, FXCM’s customers suffered significant losses and generated debit balances owed to FXCM of approximately $276.0 million. Our $300 million two-year secured term loan to FXCM allowed FXCM to come into compliance with regulatory net capital requirements. Pursuant to this loan, we have rights to a variable proportion of certain distributions in connection with an FXCM sale of assets or certain other events, and to require a sale of FXCM beginning in January 2018. We do not have the power to direct the activities that most significantly impact FXCM’s performance. We record our investment in FXCM at fair value. As we adjust to fair value each quarter, we anticipate there could be volatility in the FXCM valuation, which could materially impact our results in a given period. For additional risk factors concerning FXCM, see its SEC filings.
The performance of our oil and gas exploration and development investments, Juneau and Vitesse, is impacted by uncertainties specific to the oil and gas industry which we cannot control.  This industry is speculative by its very nature and involves a high degree of risk.  The value of these investments may be impacted by changes in the prices of oil, gas and natural gas liquids, which are affected by local, regional and global events or conditions that affect supply and demand and which have a history of significant price volatility.  These investments are also exposed to changes in regulations affecting the industry, which could increase our cost of compliance, increase taxes or reduce or delay business opportunities.  In addition, there are numerous uncertainties inherent in the estimation of future oil and gas production and future income streams associated with production.  As a result, actual results could materially differ from those we currently anticipate and our ability to profitably grow these investments could be adversely affected.
Declines in the U.S. housing market have reduced revenues of our manufacturing businesses and may continue to do so.  Our manufacturing operations, particularly Idaho Timber, have generated significant revenues when the U.S. housing market was strong.  The weak U.S. housing market during the last few years has resulted in fewer new housing starts, which has adversely impacted revenues of our manufacturing businesses, particularly Idaho Timber; despite some recent improvements in the housing market, revenues are not expected to return to prior levels until the U.S. housing market fully recovers.

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We may not be able to insure certain risks economically.  We cannot be certain that we will be able to insure all risks that we desire to insure economically or that all of our insurers or reinsurers will be financially viable if we make a claim.  If an uninsured loss or a loss in excess of insured limits should occur, or if we are required to pay a deductible for an insured loss, results of operations could be adversely affected.  Damages from storms could result in the closing of our facilities to make repairs, resulting in lost business and adversely affecting results of operations.
If Berkadia does not maintain certain specified ratings from the credit rating agencies it could lose its mortgage servicing rights.  Berkadia is required to maintain specified servicer ratings from the credit rating agencies, and failure to do so would give its customers the right to terminate their mortgage servicing agreements.  If mortgage servicing agreements were terminated as a result of a servicer ratings downgrade, we could lose our entire equity investment.
When Berkadia originates loans for Fannie Mae, it is often required to share in the losses on such loans, which could be in excess of reserved amounts.  Berkadia carries a reserve on its balance sheet for contingent losses on loans originated for Fannie Mae that have loss sharing requirements.  If actual losses exceed amounts reserved, Berkadia’s profitability and cash flows will be reduced.
The loss of or changes in Berkadia’s relationships with U.S. Government-Sponsored Enterprises and federal agencies would have an adverse effect on Berkadia’s business.  Berkadia’s failure to comply with U.S. Government-Sponsored Enterprise or agency requirements may result in its termination as an approved seller/servicer, mortgagee or issuer.  The loss of any such status could have a significant adverse impact on Berkadia’s results of operations, could result in a loss of similar approvals from other U.S. Government-Sponsored Enterprises or federal agencies and could have other adverse consequences to the business.  Fannie Mae and Freddie Mac retain broad discretion to terminate Berkadia as a seller/servicer without cause upon notice.
Changes in existing government-sponsored and federal mortgage programs could negatively affect Berkadia’s business.  Berkadia’s ability to generate income through mortgage sales to institutional investors depends in part on programs sponsored by Fannie Mae, Freddie Mac and the FHA, which purchase such loans from Berkadia and/or facilitate the issuance of mortgage-backed securities in the secondary market.  The federal government has announced that the continuation of these programs is under review, and that any or all of the government agency programs could be substantially modified or eliminated in the future.  Any discontinuation of, or significant reduction or change in, the operation of those programs would have an adverse effect on Berkadia’s loan origination and servicing business and results of operations.
Berkadia’s fee-for-service businesses may be terminated on short notice.  Some of Berkadia's fee-for-service customers are permitted to terminate Berkadia on short notice, usually 30 days.  If Berkadia loses fee-for-service customers, it would negatively impact Berkadia’s results of operations and cash flows.
Certain loan programs expose Berkadia to credit and interest rate risk that it is not subject to with its government agency lending programs.  Unlike its government agency lending programs, Berkadia makes certain short term, floating rate bridge loans ("Bridge Loans") and may from time to time originate loans for sale into commercial mortgage-backed securitizations ("CMBS Loans"). Berkadia cannot be assured it will be able to sell CMBS Loans and Bridge Loans at par value to a third-party without any exposure to credit or interest rate risk.  If for any reason Berkadia is unable to sell a CMBS Loan into the securitization market or if a borrower is unable to refinance a Bridge Loan, Berkadia will retain all risks associated with such loan for as long as it owns the loan.  Berkadia may be forced to foreclose on defaulted loans and suffer a loss, or to sell loans to a third party at a discount, either of which would reduce Berkadia’s profitability and cash flows. As of December 31, 2015, the aggregate amount of Bridge Loans on Berkadia's balance sheet was $597.6 million. Berkadia is not currently originating any CMBS Loans and as of December 31, 2015, had no such loans held for sale.
If Berkadia suffered significant losses and was unable to repay its commercial paper borrowings, we would be exposed to loss pursuant to a reimbursement obligation to Berkshire Hathaway.  Berkadia obtains funds generated by commercial paper sales of an affiliate of Berkadia.  All of the proceeds from the commercial paper sales are used by 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 a Berkshire Hathaway corporate guaranty, and we have agreed to reimburse Berkshire Hathaway for one-half of any losses incurred thereunder.  If Berkadia suffers significant losses and is unable to repay its commercial paper borrowings, we would suffer losses to the extent of its reimbursement obligation to Berkshire Hathaway.  As of December 31, 2015, the aggregate amount of commercial paper outstanding was $2.47 billion.
Berkadia’s business is significantly affected by general economic conditions, particularly in the commercial real estate industry, and could be harmed in the event of a continued economic slowdown, prolonged recession or other market downturn or disruption.  Berkadia’s business and earnings are sensitive to changes in government policies and regulations, changes in interest rates, inflation, deflation, oversupply of real estate properties, fluctuations in the real estate and debt capital markets and

20


developments in national and local economies.  Unfavorable economic conditions could have an adverse effect on Berkadia’s business, including decreasing the demand for new loans and the servicing of loans originated by third parties.
Garcadia’s business is dependent, in part, upon revenue from new and used car sales at its dealerships, and declines in revenues due to industry or other factors could result in reduced profitability, reduced cash flows and/or impairment charges.  Garcadia has recorded impairment charges in the past, principally for goodwill and other intangible assets, and if the automobile industry experiences a downturn in the future, additional impairment charges are likely, reducing our profitability.
From time to time we may invest in illiquid securities that are subject to standstill agreements or are otherwise restricted.  From time to time we may invest in securities that are subject to restrictions which prohibit us from selling the subject securities for a period of time.  Although we are not a party to any such agreement currently should we enter into these agreements in the future and need to generate liquidity quickly, such agreements would limit our ability to dispose of the underlying investment while the agreement is effective.
We could experience significant increases in operating costs and reduced profitability due to competition for skilled management and staff employees in our operating businesses.  We compete with many other entities for skilled management and staff employees, including entities that operate in different market sectors than us.  Costs to recruit and retain adequate personnel could adversely affect results of operations.
Extreme weather, loss of electrical power or other forces beyond our control could negatively impact our business.  Natural disasters, fire, terrorism, pandemic or extreme weather, including droughts, floods, excessive cold or heat, hurricanes or other storms, could interfere with our operating businesses due to power outages, fuel shortages, water shortages, damage to facilities or disruption of transportation channels, among other things.  Any of these factors, as well as disruptions to information systems, could have an adverse effect on financial results.
We rely on the security of our information technology systems and those of our third party providers to protect our proprietary information and information of our customers. Some of our businesses involve the storage and transmission of customers’ personal information, consumer preferences and credit card information.  While we believe that we have implemented protective measures to effectively secure information and prevent security breaches, our information technology systems may be vulnerable to unauthorized access, computer hacking, computer viruses or other unauthorized attempts by third parties to access the proprietary information of our customers.  Information technology breaches and failures could disrupt our ability to function in the normal course of business resulting in lost revenue, the disclosure or modification of sensitive or confidential information and the incurrence of remediation and notification costs, resulting in legal and financial exposure.  Moreover, loss of confidential customer identification information could harm our reputation and subject us to liability under laws that protect confidential personal data, resulting in increased costs or loss of revenues.
From time to time we are subject to litigation, for which we may be unable to accurately assess our level of exposure and which if adversely determined, may have a significant adverse effect on our consolidated financial condition or results of operations.  We and our subsidiaries are or may become parties to legal proceedings that are considered to be either ordinary, routine litigation incidental to our business or not significant to our consolidated financial position or liquidity.  Although our current assessment is that, other than as disclosed in this report, there is no pending litigation that could have a significant adverse impact, if our assessment proves to be in error, then the outcome of litigation could have a significant impact on our financial statements.
We may not be able to generate sufficient taxable income to fully realize our deferred tax asset, which would also have to be reduced if U.S. federal income tax rates are lowered.  At December 31, 2015, we have recognized net deferred tax assets of $1.6 billion.  If we are unable to generate sufficient taxable income, we will not be able to fully realize the recorded amount of the net deferred tax asset.  If we are unable to generate sufficient taxable income prior to the expiration of our federal income tax net operating loss carryforwards (“NOLs”), the NOLs would expire unused.  Our projections of future taxable income required to fully realize the recorded amount of the net deferred tax asset reflect numerous assumptions about our operating businesses and investments, and are subject to change as conditions change specific to our business units, investments or general economic conditions.  Changes that are adverse to us could result in the need to increase the deferred tax asset valuation allowance resulting in a charge to results of operations and a decrease to total stockholders’ equity.  In addition, if U.S. federal income tax rates are lowered, we would be required to reduce our net deferred tax asset with a corresponding reduction to earnings during the period.
If our tax filing positions were to be challenged by federal, state and local or foreign tax jurisdictions, we may not be wholly successful in defending our tax filing positions.  We record reserves for unrecognized tax benefits based on our assessment of the probability of successfully sustaining tax filing positions.  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

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excess of reserved amounts or we may be required to reduce the carrying amount of our net deferred tax asset, either of which result could be significant to our Consolidated Statement of Financial Condition or results of operations.
We have indicated our intention to pay dividends at the annual rate of $0.25 per common share, on a quarterly basis.  The payment of dividends in the future is subject to the discretion of the Board of Directors and will depend upon general business conditions, legal and contractual restrictions on the payment of dividends and other factors that the Board of Directors may deem to be relevant.
Our common shares are subject to transfer restrictions.  We and certain of our subsidiaries have significant NOLs and other tax attributes, the amount and availability of which are subject to certain qualifications, limitations and uncertainties.  In order to reduce the possibility that certain changes in ownership could result in limitations on the use of the tax attributes, our certificate of incorporation contains provisions that generally restrict the ability of a person or entity from acquiring ownership (including through attribution under the tax law) of 5% or more of our common shares and the ability of persons or entities now owning 5% or more of our common shares from acquiring additional common shares.  The restriction will remain until the earliest of (a) December 31, 2024, (b) the repeal of Section 382 of the Internal Revenue Code (or any comparable successor provision) and (c) the beginning of a taxable year to which these tax benefits may no longer be carried forward.  The restriction may be waived by our Board of Directors on a case by case basis.  Shareholders are advised to carefully monitor their ownership of our common shares and consult their own legal advisors and/or us to determine whether their ownership of our common shares approaches the proscribed level.
Item 1B.
Unresolved Staff Comments.
Not applicable.

Item 2.
Properties.
Our and Jefferies global executive offices and principal administrative offices are located at 520 Madison Avenue, New York, New York under an operating lease arrangement.  Jefferies maintains additional offices in over 30 cities throughout the world including, in the U.S., Charlotte, Chicago, Boston, Houston, Los Angeles, San Francisco, Stamford, and Jersey City, and internationally, London, Frankfurt, Milan, Paris, Zurich, Hong Kong, Singapore, Tokyo and Mumbai.  In addition, Jefferies maintains backup data center facilities with redundant technologies for each of its three main data center hubs in Jersey City, London and Hong Kong.  Jefferies leases all of its office space, or contract via service arrangement, which management believes is adequate for its business.
National Beef’s processing facilities, which are the principal properties used in its business, are described in Item 1 of this report.  National Beef also leases corporate office space in Kansas City, Missouri for its headquarters facility.
Conwed Plastics manufacturing facilities and Idaho Timber’s plants, which are the principal properties used in their businesses, are described in Item 1 of this report.
Our businesses lease numerous other manufacturing, warehousing, office and headquarters facilities.  The facilities vary in size and have leases expiring at various times, subject, in certain instances, to renewal options.  See Note 26 to our consolidated financial statements.

Item 3.
Legal Proceedings.
The information required by this Item 3 is incorporated by reference from the “Contingencies” section in Note 26 in the notes to consolidated financial statements in Item 8 of Part II of this report, which is incorporated herein by reference.
Item 4.
Mine Safety Disclosures.
Not applicable.

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PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common shares are traded on the NYSE under the symbol LUK.  The following table sets forth, for the calendar periods indicated, the high and low sales price per common share on the consolidated transaction reporting system, as reported by the Bloomberg Professional Service provided by Bloomberg L.P.
 
Common Share
 
High
 
Low
 
 
 
 
2014
 
 
 
First Quarter
$
28.72

 
$
26.04

Second Quarter
28.09

 
24.52

Third Quarter
26.50

 
23.74

Fourth Quarter
24.72

 
20.96

 
 
 
 
2015
 

 
 

First Quarter
$
24.80

 
$
21.28

Second Quarter
25.09

 
22.22

Third Quarter
25.39

 
19.64

Fourth Quarter
21.29

 
15.93

 
 
 
 
2016
 

 
 

First Quarter (through February 11, 2016)
$
17.39

 
$
14.33

As of February 11, 2016, there were approximately 1,815 record holders of the common shares.
We paid cash dividends of $.0625 per share each quarter during 2015, 2014 and 2013.  We have indicated our intention to pay dividends currently at the annual rate of $0.25 per common share on a quarterly basis.  The payment of dividends in the future is subject to the discretion of the Board of Directors and will depend upon general business conditions, legal and contractual restrictions on the payment of dividends and other factors that the Board of Directors may deem to be relevant.
Certain of our subsidiaries have significant NOLs and other tax attributes, the amount and availability of which are subject to certain qualifications, limitations and uncertainties.  In order to reduce the possibility that certain changes in ownership could result in limitations on the use of our tax attributes, our certificate of incorporation contains provisions which generally restrict the ability of a person or entity from acquiring ownership (including through attribution under the tax law) of five percent or more of the common shares and the ability of persons or entities now owning five percent or more of the common shares from acquiring additional common shares.  The restrictions will remain in effect until the earliest of (a) December 31, 2024, (b) the repeal of Section 382 of the Internal Revenue Code (or any comparable successor provision) or (c) the beginning of a taxable year to which these tax benefits may no longer be carried forward.

23


The following table presents information on our purchases of our common shares during the three months ended December 31, 2015:
 
Total
Number of
Shares
Purchased
 
Average
Price Paid
per Share
 
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs
 
Maximum Number
of Shares that May Yet
Be Purchased Under the
Plans or Programs
 
 
 
 
 
 
 
 
October 2015
11,349

 
$
20.26

 

 
20,000,000

November 2015
11,522

 
$
19.30

 

 
20,000,000

December 2015
216,810

 
$
16.99

 

 
20,000,000

Total
239,681

 
 

 

 
 

In November 2012, our Board of Directors authorized a share repurchase program pursuant to which we may, from time to time, purchase up to an aggregate of 25,000,000 of our common shares, inclusive of prior authorizations.  During 2015, we repurchased a total of 4,295,194 shares pursuant to this program. Separately, during the three months ended December 31, 2015, we repurchased an aggregate of 239,681 shares in connection with our share compensation plans which allow participants to use shares to satisfy certain tax liabilities arising from the vesting of restricted shares and the distribution of restricted share units. The total number of shares purchased does not include unvested shares forfeited back to us pursuant to the terms of our share compensation plans.
There were no unregistered sales of equity securities during the period covered by this report.
Stockholder Return Performance Graph
Set forth below is a graph comparing the cumulative total stockholder return on our common shares against the cumulative total return of the Standard & Poor’s 500 Stock Index and the Standard & Poor’s 500 Financials Index for the period commencing December 31, 2010 to December 31, 2015.  Index data was furnished by Standard & Poor’s Capital IQ.  The graph assumes that $100 was invested on December 31, 2010 in each of our common stock, the S&P 500 Index and the S&P 500 Financials Index and that all dividends were reinvested.

24


Item 6.
Selected Financial Data.
The following selected financial data have been summarized from our consolidated financial statements and are qualified in their entirety by reference to, and should be read in conjunction with, such consolidated financial statements and Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations of this report.
 
Year Ended December 31,
 
2015
 
2014
 
2013
 
2012
 
2011
 
(In thousands, except per share amounts)
SELECTED INCOME STATEMENT DATA: (a)
 
 
 
 
 
 
 
 
 
Net revenues (b)
$
10,886,458

 
$
11,486,485

 
$
10,425,746

 
$
9,404,584

 
$
637,265

Expenses
10,640,203

 
11,243,790

 
9,999,202

 
8,051,204

 
578,701

Income from continuing operations before income taxes
356,536

 
381,222

 
545,585

 
1,442,029

 
120,577

Income tax provision
109,947

 
165,971

 
136,481

 
539,464

 
71,237

Income from continuing operations
246,589

 
215,251

 
409,104

 
902,565

 
49,340

Income (loss) from discontinued operations, including gain (loss) on disposal, net of taxes
5,522

 
(16,226
)
 
(46,911
)
 
(37,924
)
 
(24,384
)
Net income attributable to Leucadia National Corporation common shareholders
279,587

 
204,306

 
369,240

 
854,466

 
25,231

Per share:
 

 
 

 
 

 
 

 
 

Basic earnings (loss) per common share attributable to Leucadia National Corporation common shareholders:
 

 
 

 
 

 
 

 
 

Income from continuing operations
$
0.73

 
$
0.58

 
$
1.20

 
$
3.64

 
$
0.20

Income (loss) from discontinued operations, including gain (loss) on disposal
0.01

 
(0.04
)
 
(0.13
)
 
(0.15
)
 
(0.10
)
Net income
$
0.74

 
$
0.54

 
$
1.07

 
$
3.49

 
$
0.10

Diluted earnings (loss) per common share attributable to Leucadia National Corporation common shareholders:
 

 
 

 
 

 
 

 
 

Income from continuing operations
$
0.73

 
$
0.58

 
$
1.20

 
$
3.59

 
$
0.20

Income (loss) from discontinued operations, including gain (loss) on disposal
0.01

 
(0.04
)
 
(0.14
)
 
(0.15
)
 
(0.10
)
Net income
$
0.74

 
$
0.54

 
$
1.06

 
$
3.44

 
$
0.10

 
At December 31,
 
2015
 
2014
 
2013
 
2012
 
2011
 
(In thousands, except per share amounts)
SELECTED BALANCE SHEET DATA: (a)
 
 
 
 
 
 
 
 
 
Total assets
$
46,339,812

 
$
52,623,908

 
$
47,866,781

 
$
9,349,118

 
$
9,263,189

Long-term debt
7,407,594

 
8,527,929

 
8,180,865

 
1,358,695

 
1,903,653

Mezzanine equity
316,633

 
311,686

 
366,075

 
241,649

 
235,909

Shareholders’ equity
10,401,211

 
10,302,158

 
10,102,462

 
6,767,268

 
6,174,396

Book value per common share
$
28.68

 
$
28.03

 
$
27.71

 
$
27.67

 
$
25.24

Cash dividends per common share
$
0.25

 
$
0.25

 
$
0.25

 
$
0.25

 
$
0.25

(a)
Subsidiaries are reflected above as consolidated entities from the date of acquisition.  Jefferies was acquired on March 1, 2013.  National Beef was acquired on December 30, 2011; however, since its operating activities subsequent to the acquisition during 2011 were not significant they were not included in the 2011 consolidated statement of operations.
(b)
Includes net realized securities gains of $63.0 million, $30.4 million, $244.0 million, $590.6 million and $641.5 million for the years ended December 31, 2015, 2014, 2013, 2012 and 2011, respectively.

25



Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The purpose of this section is to discuss and analyze our consolidated financial condition, liquidity and capital resources and results of operations.  This analysis should be read in conjunction with the consolidated financial statements and related footnote disclosures contained in this report and the following “Cautionary Statement for Forward-Looking Information.”
Cautionary Statement for Forward-Looking Information
Statements included in this report may contain forward-looking statements.  Such statements may relate, but are not limited, to projections of revenues, income or loss, development expenditures, plans for growth and future operations, competition and regulation, as well as assumptions relating to the foregoing.  Such forward-looking statements are made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted or quantified.  When used in this report, the words “will,” “could,” “estimates,” “expects,” “anticipates,” “believes,” “plans,” “intends” and variations of such words and similar expressions are intended to identify forward-looking statements that involve risks and uncertainties.  Future events and actual results could differ materially from those set forth in, contemplated by or underlying the forward-looking statements.
Factors that could cause actual results to differ materially from any results projected, forecasted, estimated or budgeted or may materially and adversely affect our actual results include, but are not limited to, those set forth in Item 1A. Risk Factors and elsewhere in this report and in our other public filings with the SEC.
Undue reliance should not be placed on these forward-looking statements, which are applicable only as of the date hereof.  Except as may be required by law, we undertake no obligation to revise or update these forward-looking statements to reflect events or circumstances that arise after the date of this report or to reflect the occurrence of unanticipated events.
Results of Operations
We invest in a broad variety of businesses and focus on long-term value creation.  We often have changes in the mix of our businesses and investments.  Our investments may be reflected in our consolidated results as operating subsidiaries, equity investments, receivables, available for sale securities, or in other ways, depending on the structure of our holdings.  Further, as our investments span a number of industries, each may be impacted by different factors.  For these reasons, our pre-tax income is not predictable from period to period.

26


A summary of results of continuing operations for the year ended December 31, 2015 is as follows (in thousands):
 
Jefferies
 
National Beef
 
Other Financial Services Businesses and Investments
 
Other Merchant Banking Businesses and Investments
 
Corporate and Other
 
Parent Company Interest
 
Inter-company Eliminations
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net revenues
$
2,476,133

 
$
7,402,419

 
$
524,053

 
$
426,731

 
$
78,122

 
$

 
$
(21,000
)
 
$
10,886,458

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 

 
 
 
 

 
 
 
 
 
 
 
 
Cost of sales

 
7,347,874

 

 
329,359

 

 

 

 
7,677,233

Compensation and benefits
1,467,752

 
34,781

 
35,054

 
24,657

 
103,221

 

 

 
1,665,465

Floor brokerage and clearing fees
199,780

 

 

 

 

 

 

 
199,780

Interest

 
15,962

 
7,059

 
2,507

 

 
85,884

 

 
111,412

Depreciation and amortization
92,165

 
89,317

 
8,176

 
30,731

 
3,744

 

 

 
224,133

Selling, general and other expenses (including provision for doubtful accounts)
597,271

 
38,400

 
50,624

 
79,500

 
17,385

 

 
(21,000
)
 
762,180

Total expenses
2,356,968

 
7,526,334

 
100,913

 
466,754

 
124,350

 
85,884

 
(21,000
)
 
10,640,203

Income (loss) from continuing operations before income taxes and income related to associated companies
119,165

 
(123,915
)
 
423,140

 
(40,023
)
 
(46,228
)
 
(85,884
)
 

 
246,255

Income related to associated companies

 

 
81,688

 
27,957

 
636

 

 

 
110,281

Income (loss) from continuing operations before income taxes
$
119,165

 
$
(123,915
)
 
$
504,828

 
$
(12,066
)
 
$
(45,592
)
 
$
(85,884
)
 
$

 
$
356,536



27


A summary of results of continuing operations for the year ended December 31, 2014 is as follows (in thousands):
 
Jefferies
 
National Beef
 
Other Financial Services Businesses and Investments
 
Other Merchant Banking Businesses and Investments
 
Corporate and Other
 
Parent Company Interest
 
Inter-company Eliminations
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net revenues
$
2,986,325

 
$
7,832,424

 
$
68,241

 
$
538,775

 
$
60,720

 
$

 
$

 
$
11,486,485

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Cost of sales

 
7,708,007

 

 
316,279

 

 

 

 
8,024,286

Compensation and benefits
1,697,533

 
38,660

 
12,530

 
21,917

 
71,034

 

 

 
1,841,674

Floor brokerage and clearing fees
215,329

 

 

 

 

 

 

 
215,329

Interest

 
14,503

 
3,012

 
1,544

 

 
98,115

 

 
117,174

Depreciation and amortization
78,566

 
85,305

 
4,266

 
12,229

 
5,627

 

 

 
185,993

Selling, general and other expenses (including provision for doubtful accounts)
636,501

 
26,252

 
13,715

 
53,470

 
129,396

 

 

 
859,334

Total expenses
2,627,929


7,872,727


33,523


405,439


206,057


98,115

 


11,243,790

Income (loss) from continuing operations before income taxes and income related to associated companies
358,396


(40,303
)

34,718


133,336


(145,337
)

(98,115
)
 


242,695

Income related to associated companies

 

 
104,337

 
33,361

 
829

 

 

 
138,527

Income (loss) from continuing operations before income taxes
$
358,396


$
(40,303
)

$
139,055


$
166,697


$
(144,508
)

$
(98,115
)
 
$


$
381,222


28


A summary of results of continuing operations for the year ended December 31, 2013 is as follows (in thousands):
 
Jefferies
 
National Beef
 
Other Financial Services Businesses and Investments
 
Other Merchant Banking Businesses and Investments
 
Corporate and Other
 
Parent Company Interest
 
Inter-company Eliminations
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net revenues
$
2,134,002

 
$
7,487,724

 
$
186,148

 
$
567,682

 
$
50,190

 
$

 
$

 
$
10,425,746

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Cost of sales

 
7,308,580

 

 
259,127

 

 

 

 
7,567,707

Compensation and benefits
1,213,908

 
33,447

 
2,370

 
19,924

 
83,005

 

 

 
1,352,654

Floor brokerage and clearing fees
150,774

 

 

 

 

 

 

 
150,774

Interest

 
12,272

 
475

 

 

 
72,217

 

 
84,964

Depreciation and amortization
59,631

 
88,484

 
117

 
9,269

 
9,924

 

 

 
167,425

Selling, general and other expenses (including provision for doubtful accounts)
448,705

 
87,299

 
3,151

 
83,950

 
52,573

 

 

 
675,678

Total expenses
1,873,018

 
7,530,082

 
6,113

 
372,270

 
145,502

 
72,217

 

 
9,999,202

Income (loss) from continuing operations before income taxes and income related to associated companies
260,984

 
(42,358
)
 
180,035

 
195,412

 
(95,312
)
 
(72,217
)
 

 
426,544

Income related to associated companies

 

 
95,395

 
20,251

 
3,395

 

 

 
119,041

Income (loss) from continuing operations before income taxes
$
260,984

 
$
(42,358
)
 
$
275,430

 
$
215,663

 
$
(91,917
)
 
$
(72,217
)
 
$

 
$
545,585




29


Jefferies
Jefferies was acquired on March 1, 2013 and is reflected in our consolidated financial statements utilizing a one month lag; Jefferies fiscal year ends on November 30th and its fiscal quarters end one month prior to our reporting periods.  A summary of results of operations for Jefferies included in the years ended December 31, 2015 and 2014 and for the period from the Jefferies acquisition through December 31, 2013 is as follows (in thousands):
 
Year Ended
December 31, 2015
 
Year Ended
December 31, 2014
 
For the Period From the Jefferies Acquisition Through
December 31, 2013
 
 
 
 
 
 
Net revenues
$
2,476,133

 
$
2,986,325

 
$
2,134,002

 
 
 
 
 
 
Expenses:
 

 
 

 
 

Compensation and benefits
1,467,752

 
1,697,533

 
1,213,908

Floor brokerage and clearing fees
199,780

 
215,329

 
150,774

Depreciation and amortization
92,165

 
78,566

 
59,631

Provision for doubtful accounts
(396
)
 
55,355

 
179

Selling, general and other expenses
597,667

 
581,146

 
448,526

Total expenses
2,356,968

 
2,627,929

 
1,873,018

 
 
 
 
 
 
Income before income taxes
$
119,165

 
$
358,396

 
$
260,984

Jefferies comprises many business units, with many interactions and much integration among them.  Business activities include the sales, trading, origination and advisory effort for various equity, fixed income, commodities, foreign exchange and advisory services.  Jefferies business, by its nature, does not produce predictable or necessarily recurring revenues or earnings.  Jefferies results in any given period can be materially affected by conditions in global financial markets, economic conditions generally, and its own activities and positions.
On April 9, 2015, Jefferies entered into an agreement to transfer certain of the client activities of its Jefferies Bache (also referred to as Futures) business to Société Générale S.A. At December 31, 2015, Jefferies has transferred all of its client accounts to Société Générale S.A. and other brokers. Jefferies substantially completed the exit of the Bache business during the third quarter of fiscal 2015. Total expenses, since the agreement on April 9, 2015, include costs of $73.1 million, on a pre-tax basis, related to the exit of the Bache business. These costs consist primarily of severance, retention and benefit payments for employees, incremental amortization of outstanding restricted stock and cash awards, contract termination costs and incremental amortization expense of capitalized software expected to no longer be used subsequent to the wind-down of the business. Net revenues from this business activity, which are included within Jefferies fixed income results, were $80.2 million in 2015, $202.8 million in 2014 and $158.4 million in the 2013 period. This is comprised of commissions, principal transaction revenues and net interest revenues. Expenses directly related to the Bache business, which are included within total expenses, were $214.8 million in 2015, $293.3 million in 2014 and $193.4 million in the 2013 period. For further information, refer to Note 32 in our consolidated financial statements.
As more fully described in our discussion of Critical Accounting Estimates, Goodwill, Jefferies recognized goodwill impairment losses of $54.0 million in its stand-alone financial statements for 2014 based on an evaluation performed on the basis of its reporting units.  In accordance with U.S. GAAP, we have not recognized these losses on a consolidated basis.
The discussion below is presented on a detailed product and expense basis.  Net revenues presented for equity and fixed income businesses include allocations of interest income and interest expense as Jefferies assesses the profitability of these businesses inclusive of the net interest revenue or expense associated with the respective sales and trading activities, which is a function of the mix of each business’s associated assets and liabilities and the related funding costs.

30


The following provides a summary of net revenues by source included in the years ended December 31, 2015 and 2014 and for the period from the Jefferies acquisition through December 31, 2013 (in thousands):
 
Year Ended
December 31, 2015
 
Year Ended
December 31, 2014
 
For the Period From the Jefferies Acquisition Through
December 31, 2013
 
 
 
 
 
 
Equities
$
757,764

 
$
690,793

 
$
578,045

Fixed income
271,947

 
751,848

 
507,285

Total sales and trading
1,029,711

 
1,442,641

 
1,085,330

Investment banking:
 

 
 

 
 

Capital markets:
 

 
 

 
 

Equities
408,474

 
339,683

 
228,394

Debt
397,979

 
627,536

 
410,370

Advisory
632,354

 
559,418

 
369,191

Total investment banking
1,438,807

 
1,526,637

 
1,007,955

Other
7,615

 
17,047

 
40,717

 
 
 
 
 
 
Total net revenues
$
2,476,133

 
$
2,986,325

 
$
2,134,002

Net Revenues
Net revenues for 2015 reflect the impact of challenging market conditions throughout the year on Jefferies fixed income business, partially offset by increased revenues in Jefferies equities business. Almost all of Jefferies fixed income credit businesses were impacted by lower levels of liquidity due to the expectations of interest rate increases by the Federal Reserve and deterioration in the global energy and distressed markets. There were a number of periods of extreme volatility, which were followed by periods of low trading volume. Jefferies 2015 results include a net gain of $49.1 million from its investment in KCG Holdings, Inc. (“KCG”)
Net revenues for 2014 reflect record investment banking revenues, partially offset by lower revenue due to challenging trading environments in Jefferies fixed income business, particularly in the fourth quarter of 2014.  Jefferies core equities business performed relatively well during 2014.  Jefferies 2014 results include a loss of $14.7 million from its investment in KCG and a gain of $19.9 million from its investment in HRG.
Net revenues for the period from the Jefferies acquisition through December 31, 2013 reflect solid performance in Jefferies equity sales and trading business and continued strength in its investment banking platform.  Jefferies fixed income businesses experienced difficult trading conditions for a portion of the period as a result of a change in expectations for interest rates surrounding the Federal Reserve’s plans for tapering its asset purchase program; though fixed income performance significantly improved during the fourth quarter of 2013.  Results include gains of $89.3 million in aggregate within Equities Principal transaction revenues from Jefferies investments in KCG and HRG.
Equities Revenue
Equities revenue is comprised of equity commissions, principal transactions and net interest revenue relating to cash equities, electronic trading, equity derivatives, convertible securities, prime brokerage, securities finance and alternative investment strategies.  Equities revenue is heavily dependent on the overall level of trading activity of its clients.  Equities revenue also includes Jefferies share of the net earnings from Jefferies joint venture investments in Jefferies Finance, LLC and Jefferies LoanCore, LLC, which are accounted for under the equity method, as well as any changes in the value of its investments in KCG and HRG, which are accounted for at fair value.
Equities revenue for the year ended December 31, 2015 include a net gain of $49.1 million from Jefferies investment in KCG, and for the year ended December 31, 2014 include a loss of $14.7 million from Jefferies investment in KCG and a gain of $19.9 million

31


from its investment in HRG, and for the period from the acquisition of Jefferies to December 31, 2013 include a gain of $19.5 million from its investment in KCG and a gain of $69.8 million from its investment in HRG.  Additionally, during the first quarter of 2014, Jefferies recognized a gain of $12.2 million in connection with its investment in CoreCommodity Management LLC.  For the years ended December 31, 2015 and 2014 and the period from the acquisition of Jefferies to December 31, 2013, included within Interest expense allocated to Jefferies equities business is positive income of $48.9 million, $45.1 million and $33.7 million, respectively, related to the amortization of premiums arising from the adjustment of Jefferies long-term debt to fair value as part of acquisition accounting.
U.S. equity market conditions during the 2015 period were characterized by instability in stock prices and moderate economic growth. In the equity markets, the NASDAQ Composite Index increased 6.6% and the S&P 500 Index increased 0.6%, while the Dow Jones Industrial Average decreased by 0.6% during the fiscal year. In Europe and Asia, the recovery remains gradual and economic developments vary across regions. Strong revenues, as a result of increased trading volumes, from Jefferies electronic trading platform contributed to higher commissions revenues. Total equities revenue also includes higher revenues from the Asia equity cash desk and net mark-to-market gains from equity investments, as well as growth from Jefferies wealth management platform. This was partially offset by lower revenues from equity block trading results from Jefferies U.S. equity cash desk and lower commissions in its Europe equity cash desk.
Equities revenue from the Jefferies LoanCore joint venture during the year ended December 31, 2015 includes higher revenues from an increase in loan closings and securitizations by the venture over the comparable prior year period. Equities revenue from the Jefferies Finance joint venture during the year ended December 31, 2015 includes lower revenues as a result of syndicate costs associated with the sell down of commitments, as well as reserves taken on certain loans held for investment as compared with the prior year period.
For 2014, U.S. stock prices continued an overall upward trend with company earnings and economic data largely meeting expectations and the outlook for monetary policy remaining favorable.  While the markets in the fourth quarter were relatively unsettled, the S&P 500 Index was up 14.5% for the fiscal year and exchange trading volumes increased generally, which contributed to increased commission revenue.  Similarly, European exchange volumes grew significantly throughout the 2014 year.  Additionally, the performance from Jefferies electronic trading platform and prime brokerage business has continued to increase.
Equities revenue from the Jefferies Finance joint venture during the nine months ended December 31, 2014 were comparable to those from the joint venture during the same period in 2013.  Equities revenue from Jefferies LoanCore joint venture decreased during 2014 as compared to the 2013 period due to fewer securitizations.
U.S. equity market conditions during the 2013 period were characterized by continually increasing stock prices as the U.S. government maintained its monetary stimulus program.  In the equity markets, the NASDAQ Composite Index, the S&P 500 Index and the Dow Jones Industrial Average increased by 28%, 19% and 14%, respectively, with the S&P Index registering a series of record closing highs.  However, economic data in the U.S. continued to indicate a slow recovery and geopolitical concerns regarding the Middle East and a U.S. federal government shutdown added volatility in the U.S. and international markets.  Despite the rally in the equity markets in 2013, overall market volumes were subdued moderating customer flow in Jefferies U.S. cash equity business, although Jefferies benefited from certain block trading opportunities during the period.  In Europe, during the 2013 period, liquidity returned to the market as the European Central Bank convinced investors that it would not allow the Eurozone to breakup aiding results to both Jefferies cash and option desks, although the results were still impacted by relatively low trading volumes given the region’s fragile economy.  Additionally, Asian equity commissions were stronger, particularly in Japan with new monetary policies increasing trading volumes on the Nikkei Exchange.
Jefferies Securities Finance desk also contributed solidly to Equities revenue for the 2013 period and the performance of certain strategic investment strategies were strong.  Revenue from Jefferies sales and trading of convertible securities is reflective of increased market share as Jefferies has expanded its team in this business.  Net earnings from Jefferies Finance and LoanCore joint ventures reflect a solid level of securitization deals and loan closings during the 2013 period.
Fixed Income Revenue
Fixed income revenue includes commissions, principal transactions and net interest revenue from investment grade corporate bonds, mortgage- and asset-backed securities, government and agency securities, municipal bonds, emerging markets debt, high yield and distressed securities, bank loans, foreign exchange and commodities trading activities.
Included within Interest expense for the years ended December 31, 2015 and 2014 and for the 2013 period is positive income of $51.3 million, $55.5 million and $40.1 million, respectively, from the allocation to Jefferies fixed income business of a portion of the amortization of premiums arising from adjusting Jefferies long-term debt to fair value as part of acquisition accounting.

32



The lower revenues during the 2015 period were primarily due to tighter trading conditions across most core businesses and losses in Jefferies high yield distressed sales and trading business and international mortgages business, partially offset by higher revenues in its U.S. and International rates businesses, as well as its U.S. investment grade corporate credit business.
The fixed income markets during 2015 were impacted at various points by the expectations of and uncertainty related to interest rate increases by the Federal Reserve, deterioration in the global energy markets, the slowdown of China's economic growth, geopolitical concerns in the Middle East, the potential of a Greece default, and economic uncertainty, which led to volatility in currency markets. The uncertainty as to the timing of the interest rate increases by the Federal Reserve and extremely low rates globally drove investors to seek spread and yield primarily in more liquid investments. The higher revenues in Jefferies U.S. and International rates businesses, as well as its U.S. investment grade corporate credit business, resulted from higher transaction volumes as volatility caused attractive yields and interest in new issuances. However, that same volatility negatively impacted the municipal securities business as prices declined and the sector experienced overall net cash outflows. Most of Jefferies credit fixed income businesses were negatively impacted during 2015 by periods of extreme volatility and market conditions, as investors focused on liquidity, resulting in periods of low trading volume during the year. In addition, results in Jefferies distressed trading businesses were negatively impacted by its position in the energy sector and led to mark-to-market write-downs in its inventory and results in its emerging markets business were lower due to slower growth in the emerging markets during the year. Revenues from futures sales and trading were also lower for 2015 as Jefferies exited this business activity. Jefferies mortgages business was also negatively impacted by market volatility as credit spreads tightened for these asset classes and expectations of future rate increases resulted in lower trading volumes and revenues.
The fixed income markets during 2014 were impacted at various points by uncertainty with respect to U.S. economic data and concerns about the global economy, as well as reactions to legal matters regarding Freddie Mac and Fannie Mae and anticipated monetary policy, which created market uncertainty.  Client trading demand was lower across most of the fixed income platform with the exception of increased customer flow in Jefferies international rates business, which benefited from tightening yields in Europe.  Credit spreads continued to tighten as the U.S. Federal Reserve continued to taper its bond buyback program at a measured pace.  In the fourth quarter of 2014, the volatility in the equity markets and the lowering of oil prices, put downward pressure on high yield bonds, especially those in the energy and transport sectors, as well as on the distressed trading markets.  Jefferies experienced a decline in the results of its efforts in distressed trading for the year, which was primarily due to mark-to-market inventory losses as a result of the broad sell-off in distressed and post-reorganization securities although investor interest in high yield asset classes was strong during the year as investors continued to migrate to certain asset classes in search of higher yields.  Futures sales and trading revenues for 2014 were negatively impacted by challenging market conditions for foreign currency trading and U.S. futures trading given political and economic instability in various global environments.
Jefferies second quarter of fiscal 2013 was characterized by improving U.S. macroeconomic conditions, and, through the first half of May 2013, the U.S. Federal Reserve’s policies resulted in historically low yields for fixed income securities motivating investors to take on more risk in search for yield.  In May 2013, however, the Treasury market experienced a steep sell-off and credit spreads widened across the U.S. fixed income markets in reaction to an anticipated decrease in Federal Reserve treasury issuances and mortgage debt security purchases in future periods.  These market conditions negatively impacted Jefferies U.S. rates, corporates and U.S. mortgages revenues through August as the volatility made it difficult to realize net revenue from Jefferies customer flow.  In the latter part of the 2013 year, the fixed income markets stabilized with lower volatility and tightening spreads increasing overall customer flows across the various fixed income product classes.
While revenues rebounded towards the end of Jefferies fiscal year for its mortgage-backed securities business, the mid-year sell-off in U.S. Treasuries and the widening of credit spreads for mortgage products negatively impacted the overall results for 2013 by reducing trading volumes and increasing market volatility.  Corporate bond revenues were also negatively impacted by the widening of credit spreads in the third quarter though there was significant improvement during the fourth quarter of 2013 with more robust trading volumes and narrowing credit spreads.  Municipal securities underperformed as an asset class for a large part of the period as investors discounted greater risk than they had previously although investors began to return to the municipal market at the end of the period increasing Jefferies trading volumes.  Components of Jefferies futures business experienced varying degrees of fluctuations in customer trading volume but trading volume was relatively constant when considered overall and across the full period.
While Jefferies U.S. rates, corporates and U.S. mortgages desks underperformed, its leveraged credit business produced solid results as investors sought investment yields in this fixed income class and issuers of bank debt were active with the supply level creating a positive effect on liquidity in the secondary market.  Further, the low interest rate environment in the U.S. caused investors to seek higher yields in emerging market debt.  In addition, suppressed long-term interest rates in the U.S. encouraged investment in international mortgage-backed securities resulting in increased trading volumes, improved market liquidity and ultimately increased

33


revenues on Jefferies international mortgage desk, despite experiencing reduced market liquidity and consequently lower levels of secondary market activity during the summer months of 2013.
Investment Banking Revenue
Jefferies provides a full range of capital markets and financial advisory services to its clients across most industry sectors in the Americas, Europe and Asia.  Capital markets revenue includes underwriting and placement revenue related to corporate debt, municipal bonds, mortgage- and asset-backed securities and equity and equity-linked securities.  Advisory revenue consists primarily of advisory and transaction fees generated in connection with merger, acquisition and restructuring transactions.
During 2015, Jefferies generated $1,438.8 million in investment banking revenues, reflecting lower debt capital market revenues, partially offset by record equity capital markets and advisory revenues. Overall, capital markets revenues of $806.5 million in 2015 were lower primarily due to significantly lower transaction volume in the leveraged finance market. Record advisory revenues of $632.4 million in 2015 were primarily due to higher transaction volume.
From equity and debt capital raising activities, Jefferies generated $408.5 million and $398.0 million in revenues, respectively. During 2015, Jefferies completed 1,003 public and private debt financings that raised $199.8 billion in aggregate and Jefferies completed 191 public equity and convertible offerings that raised $53.9 billion (176 of which it acted as sole or joint bookrunner). Financial advisory revenues totaled $632.4 million, including revenues from 158 merger and acquisition transactions and 13 restructuring and recapitalization transactions with an aggregate transaction value of $141.0 billion.
Low borrowing costs and generally strong capital market conditions throughout most of 2014 were important factors in driving the growth in Jefferies debt and equity capital markets businesses.  These factors, together with generally strong corporate balance sheets and record equity valuations, were important in driving the growth in its merger and acquisition advisory business.
During 2014, from equity and debt capital raising activities, Jefferies generated $339.7 million and $627.5 million in revenues, respectively.  During 2014, Jefferies completed 1,109 public and private debt financings that raised $250.0 billion and Jefferies completed 193 public equity financings and convertible offerings that raised $66.0 billion (159 of which it acted as sole or joint bookrunner).  Financial advisory revenues totaled $559.4 million, including revenues from 132 merger and acquisition transactions and 12 restructuring and recapitalization transactions with an aggregate transaction value of $176.0 billion.
During the 2013 period, despite uneven U.S. economic growth and uncertainty surrounding the U.S. Federal Reserve’s decision on quantitative easing, capital market conditions continued to improve due to the availability of low-priced credit and a general rise in the stock market during 2013.  Mergers and acquisition activity gained momentum through the later part of the 2013 period.
During the 2013 period, from equity and debt capital raising activities, Jefferies generated $228.4 million and $410.4 million in revenues, respectively. Since the acquisition, Jefferies completed 412 public and private debt financings that raised $162.3 billion in aggregate, as companies took advantage of low borrowing costs and Jefferies completed 130 public equity financings that raised $32.9 billion (111 of which Jefferies acted as sole or joint bookrunner).  Jefferies financial advisory revenues totaled $369.2 million during this period, including revenues from 108 merger and acquisition transactions where Jefferies served as financial advisor.
Compensation and Benefits
Compensation and benefits expense consists of salaries, benefits, cash bonuses, commissions, annual cash compensation awards, historical annual share-based compensation awards and the amortization of certain non-annual share-based and cash compensation awards to employees.  Historical share-based awards and a portion of cash awards granted to employees as part of year end compensation contain provisions such that employees who terminate their employment or are terminated without cause may continue to vest in their awards, so long as those awards are not forfeited as a result of other forfeiture provisions (primarily non-compete clauses) of those awards.  Accordingly, the compensation expense for such awards granted at year end as part of annual compensation is fully recorded in the year of the award. Separately, a portion of cash awards granted to employees as part of year end compensation are subject to ratable vesting terms with service requirements. Accordingly, the compensation expense for this portion of awards granted at year end as part of annual compensation is recognized in each period over the relevant service period, which is generally considered to start at the beginning of the annual compensation year.
Included within Compensation and benefits expense are share-based amortization expense for senior executive awards granted in September 2012, non-annual share-based and cash-based awards to other employees and certain year end awards that contain future service requirements for vesting.  Such awards are being amortized over their respective future service periods and amounted to compensation expense of $307.7 million, $283.3 million and $232.0 million for 2015, 2014 and for the period from the Jefferies acquisition through December 31, 2013, respectively.  In addition, compensation and benefits expense includes $13.3 million, $14.4

34


million and $11.0 million for 2015, 2014 and for the 2013 period, respectively, of additional amortization expense related to the write-up of the cost of outstanding share-based awards which had future service requirements at the acquisition date.  Compensation and benefits as a percentage of Net revenues was 59.3%, 56.8% and 56.9% for 2015, 2014 and for the 2013 period, respectively.
Compensation and benefits expense directly related to Jefferies Bache business was $87.7 million, $98.6 million and $87.1 million for 2015, 2014 and for the period from the Jefferies acquisition through December 31, 2013, respectively. Included within Compensation and benefits expense for the Bache business for 2015 are severance, retention and related benefits costs of $38.2 million, incurred as part of decisions surrounding the exit of this business.
Non-Compensation Expenses
Non-compensation expenses include floor brokerage and clearing fees, technology and communications expense, occupancy and equipment rental expense, business development, professional services, bad debt provision, impairment charges, depreciation and amortization expense and other costs.  All of these expenses, other than floor brokerage and clearing fees, bad debt provision and depreciation and amortization expense, are included within Selling, general and other expenses in the Consolidated Statements of Operations.
For 2015, technology and communications expenses includes costs associated with the development of the various trading systems and projects associated with corporate support infrastructure, as well as accelerated amortization expense of $19.7 million related to capitalized software and $11.2 million in contract termination costs related to Jefferies Bache business. Floor brokerage and clearing expenses for the year are reflective of the exit of the Bache business, partially offset by higher trading volumes in Jefferies equities trading businesses. Business development costs reflect Jefferies continued efforts to continue to build market share. Jefferies continues to incur legal and consulting fees as part of implementing various regulatory requirements.
Non-compensation expenses for 2014 includes approximately $7.6 million in impairment losses related to customer relationship intangible assets within its Jefferies Bache business and its International Asset Management business, which is included within Selling, general and other expenses in the Consolidated Statements of Operations.  During 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 it provided futures clearing and execution services, which declared bankruptcy.
Floor brokerage and clearing expenses for 2014 are reflective of the trading volumes in Jefferies equities trading businesses. Technology and communications expense includes costs associated with development of the various trading systems and projects associated with corporate support infrastructure, including communication enhancements to Jefferies global headquarters and incremental amortization expense associated with fair value adjustments to capitalized software recognized as part of acquisition accounting.  Occupancy and equipment rental expense reflects incremental office re-configuration expenditures at Jefferies global headquarters.  Business development costs reflect Jefferies continued efforts to continue to build market share, including its loan origination business conducted through its Jefferies Finance joint venture.  Jefferies continues to incur legal and consulting fees as part of implementing various regulatory requirements.
Non-compensation expenses for the 2013 period include approximately $21.1 million in incremental amortization expense associated with fair value adjustments to identifiable tangible and intangible assets recognized as part of acquisition accounting, $6.3 million in additional lease expense related to recognizing existing leases at their current market value and $11.6 million in merger-related investment banking filing fees.  Additionally, during 2013 an $8.7 million charge was recognized due to vacating certain office space in London.  Other expenses for 2013 include $38.4 million in litigation expenses, which includes litigation costs related to the final judgment on Jefferies last outstanding auction rate securities legal matter and to agreements reached in principle with the relevant authorities pertaining to an investigation of purchases and sales of mortgage-backed securities.
Floor brokerage and clearing expenses for the 2013 period are reflective of the trading volumes in Jefferies fixed income and equities trading businesses, including a meaningful volume of trading by its foreign exchange business.  Technology and communications expense includes costs associated with development of the various trading systems and various projects associated with corporate support infrastructure, including technology initiatives to support Dodd-Frank reporting requirements.  Jefferies continued to incur legal and consulting fees as part of implementing various regulatory requirements.
Non-compensation expenses associated directly with the activities of the Bache business were $127.2 million, $197.7 million and $106.3 million for 2015, 2014 and for the period from the Jefferies acquisition through December 31, 2013, respectively.

35


National Beef
A summary of results of operations for National Beef for the three years in the period ended December 31, 2015 is as follows (in thousands):
 
2015
 
2014
 
2013
 
 
 
 
 
 
Net revenues
$
7,402,419

 
$
7,832,424

 
$
7,487,724

 
 
 
 
 
 
Expenses:
 
 
 

 
 

Cost of sales
7,347,874

 
7,708,007

 
7,308,580

Compensation and benefits
34,781

 
38,660

 
33,447

Interest
15,962

 
14,503

 
12,272

Depreciation and amortization
89,317

 
85,305

 
88,484

Selling, general and other expenses
38,400

 
26,252

 
87,299

Total expenses
7,526,334

 
7,872,727

 
7,530,082

 
 
 
 
 
 
Income (loss) before income taxes
$
(123,915
)
 
$
(40,303
)
 
$
(42,358
)
National Beef’s profitability is dependent, in large part, on the spread between its cost for live cattle, the primary raw material for its business, and the value received from selling boxed beef and other products coupled with its overall volume and capacity utilization.  National Beef operates in a large and liquid commodity market and it does not have much influence over the price it pays for cattle or the selling price it receives for the products it produces.  National Beef’s profitability typically fluctuates seasonally as well as cyclically, with relatively higher margins in the spring and summer months and during times of ample cattle availability.
The USDA reports market values for cattle, beef, offal and other products produced by ranchers, farmers and beef processors.  Generally, National Beef expects its profitability to improve as the ratio of the USDA comprehensive boxed beef cutout (a weekly reported measure of the total value of all USDA inspected primal cuts, grind and trim produced from fed cattle) to the USDA 5-area weekly average slaughter cattle price increases and for profitability to decline as the ratio decreases.  While the ratio during 2015 was the highest since 2010, the drop credit value (amount received for all products other than beef that are produced when cattle are processed) as a percentage of cattle price was at a historically low level and had a negative impact on profitability.
Revenues in 2015 decreased about 5% in comparison to 2014, due to lower sales volume, as fewer cattle were processed, and lower average prices for beef and beef by-products. Additionally, during 2015 decreases to revenues of $52.9 million were recorded as a result of National Beef's use of derivatives in its hedging activity associated with its forward sales of boxed beef and driven by a significant drop in live cattle futures prices amidst unusually high price volatility in the second half of the year. Revenues in 2014 increased about 5% in comparison to 2013, due primarily to higher selling prices despite lower sales volume, as fewer cattle were processed.  For 2015, cost of sales declined as compared to 2014, due to fewer cattle processed, and a small decrease in the price of cattle. Cost of sales increased markedly during 2014 as compared to 2013 as industry slaughter declined approximately 5% from 2013 and cattle prices increased approximately 22% on average. 
The combined effects of both lower volumes and tighter margins due to the relative price of cattle compared to the selling price of beef and beef by-products impacted margins leading to reduced profitability in 2015 compared to 2014. Selling, general and other expenses in 2013 included a $63.3 million impairment charge in connection with National Beef’s decision to close its Brawley, California beef processing plant.  An additional impairment charge related to the Brawley plant of $4.7 million was included in Selling, general and other expenses in 2015. Also in connection with closing the Brawley facility, National Beef recognized $6.9 million of costs including employee separation and retention, systems decommissioning and various other expenses in 2014.  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. 

36



Corporate and Other Results
A summary of results of operations for corporate and other for the three years in the period ended December 31, 2015 is as follows (in thousands):
 
2015
 
2014
 
2013
 
 
 
 
 
 
Net revenues
$
78,122

 
$
60,720

 
$
50,190

 
 
 
 
 
 
Expenses:
 
 
 

 
 

Corporate compensation and benefits
52,385

 
61,736

 
72,800

WilTel pension
50,836

 
9,298

 
10,205

Depreciation and amortization
3,744

 
5,627

 
9,924

Selling, general and other expenses
17,385

 
129,396

 
52,573

Total expenses
124,350

 
206,057

 
145,502

 
 
 
 
 
 
Income (loss) before income taxes and income related to associated companies
(46,228
)
 
(145,337
)
 
(95,312
)
Income related to associated companies
636

 
829

 
3,395

Pre-tax income (loss) from continuing operations
$
(45,592
)
 
$
(144,508
)
 
$
(91,917
)
Net revenues include net realized securities gains of $63.0 million, $30.4 million and $16.0 million for the years ended December 31, 2015, 2014 and 2013, respectively.  The net realized securities gains in 2015, primarily relate to a recovery of $35.0 million of an investment in a non-public security that was recently sold and had been written off in prior years. Net revenues also include interest income of $10.9 million, $22.6 million and $20.1 million for 2015, 2014 and 2013, respectively, and other income, which in 2013 included $6.4 million received in connection with the settlement of certain litigation.
For the years ended December 31, 2015, 2014 and 2013, Corporate compensation and benefits includes accrued incentive bonus expense of $17.4 million, $13.9 million and $22.1 million, respectively. In addition, Compensation and benefits for 2013 includes an accrual of $8.3 million related to retention agreements with certain executive officers.  Share-based compensation expense was $14.6 million, $26.3 million and $22.8 million in 2015, 2014 and 2013, respectively.
Pursuant 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.  WilTel pension expense in 2015 includes $40.7 million related to a settlement charge for pension plan participants who elected to receive a lump sum payment from pension plan assets in 2015. See Note 21 to our consolidated financial statements for further information.
Selling, general and other expenses for the 2015 period reflects a reduction of $20.1 million in insurance payments covering previously expensed legal fees. Selling, general and other expenses for 2014 include a charge relating to the agreement to settle certain litigation related to the Jefferies acquisition for an aggregate payment of $70.0 million plus legal fees. Selling, general and other expenses for 2013 include costs related to the acquisition of Jefferies of $7.0 million and consent fees of $2.3 million paid to amend a covenant in our senior note indenture to permit additional borrowings by Material Subsidiaries. 
Income related to associated companies is comprised of our share of various investee’s underlying net income or loss, none of which is significant during the three year period.

37


Other Financial Services Businesses and Investments
A summary of results of operations for other financial services businesses and investments for the three years in the period ended December 31, 2015 is as follows (in thousands):
 
2015
 
2014
 
2013
Revenues:
 
 
 
 
 
Principal transactions
$
498,869

 
$
39,548

 
$
182,719

Interest income
21,207

 
8,987

 
2,456

Net realized securities gains

 

 
426

Other
3,977

 
19,706

 
547

Total net revenues
524,053

 
68,241

 
186,148

 
 
 
 
 
 
Expenses:
 
 
 

 
 

Compensation and benefits
35,054

 
12,530

 
2,370

Interest
7,059

 
3,012

 
475

Depreciation and amortization
8,176

 
4,266

 
117

Selling, general and other expenses
50,624

 
13,715

 
3,151

Total expenses
100,913

 
33,523

 
6,113

 


 


 


Income before income taxes and income related to associated companies
423,140

 
34,718

 
180,035

Income related to associated companies
81,688

 
104,337

 
95,395

Pre-tax income from continuing operations
$
504,828

 
$
139,055

 
$
275,430

Our other financial services businesses and investments include the consolidated results of certain Leucadia Asset Management fund managers, the returns on our investments in these funds, the consolidated results of Foursight Capital and Chrome Capital (vehicle finance), our share of the income of Berkadia, the results of our investment in FXCM, our share of the income of HomeFed, and prior to the Jefferies acquisition, the results of Jefferies High Yield Holdings, LLC (“JHYH”) and our investment in Jefferies.
As more fully discussed in Note 5 to our consolidated financial statements, in January 2015, we entered into a credit agreement with FXCM, for a $300 million two-year senior secured term loan with rights to a variable proportion of certain distributions in connection with an FXCM sale of assets or certain other events, and our right to require a sale of FXCM beginning in January 2018.  FXCM is an online provider of foreign exchange trading and related services.  We are accounting for our loan and rights at fair value.  During 2015, we recognized $491.3 million of unrealized and realized gains from our FXCM investment, including the component related to interest income, which is recorded within Principal transactions revenues.

Revenues and pre-tax results for 2013 include principal transactions related to unrealized gains of $182.7 million from the change in value in securities classified as trading assets for which the fair value option was elected.  This amount related to our investment in Jefferies prior to the Jefferies acquisition in March 2013.

Excluding the FXCM revenues in 2015 and Jefferies revenues in 2013 discussed above, the net revenues in other financial services businesses and investments reflect revenues of $32.7 million in 2015, $68.2 million in 2014 and $3.4 million in 2013. The year-over-year decrease in 2015 primarily reflects lower returns on investments recorded at market value related to the Leucadia Asset Management businesses partially offset by growth in our vehicle finance businesses. The increase in 2014 compared to 2013 is primarily due to returns on investments recorded at market value.

Compensation and benefits expense increased in 2015 compared to 2014 due to growth in our asset management businesses.

Selling, general and other expenses for 2015 include $21.0 million of investment banking and advisory fees paid to Jefferies in connection with our entering into the agreement with FXCM, and which Jefferies recognized in net revenues during the first quarter.  These intercompany fees have been eliminated in our consolidated results. Selling, general and other expenses also increased in 2015 due to the growth of our vehicle finance business.

38


For the years ended December 31, 2015, 2014 and 2013, income related to Berkadia was $78.1 million, $101.2 million and $84.7 million, respectively. Berkadia's results were impacted by investment gains of $15.4 million in 2015 and $69.8 million in 2014, of which we then recorded our applicable share. In 2013, our equity income related to Berkadia includes an out of period adjustment of $16.4 million to record income related to prior periods.  As our share of profits from Berkadia are primarily taxed at the Leucadia level, the income discussed above is pre-tax. For 2013, income related to JHYH was $7.2 million.  Our share of HomeFed’s results was not significant during the three year period.
Other Merchant Banking Businesses and Investments
A summary of results for other merchant banking businesses and investments for the three years in the period ended December 31, 2015 is as follows (in thousands):
 
2015
 
2014
 
2013
Revenues:
 
 
 
 
 
Principal transactions
$
(27,960
)
 
$
99,254

 
$

Interest income
903

 
604

 
917

Net realized securities gains

 

 
227,581

Other
453,788

 
438,917

 
339,184

Net revenues
426,731

 
538,775

 
567,682

 
 
 
 
 
 
Expenses:
 
 
 

 
 

Cost of sales
329,359

 
316,279

 
259,127

Compensation and benefits
24,657

 
21,917

 
19,924

Interest
2,507

 
1,544

 

Depreciation and amortization
30,731

 
12,229

 
9,269

Selling, general and other expenses
79,500

 
53,470

 
83,950

Total expenses
466,754

 
405,439

 
372,270

 
 
 
 
 
 
Income (loss) before income taxes and income related to associated companies
(40,023
)
 
133,336

 
195,412

Income related to associated companies
27,957

 
33,361

 
20,251

Pre-tax income (loss) from continuing operations
$
(12,066
)
 
$
166,697

 
$
215,663

Our other merchant banking operations include the consolidated results of Vitesse Energy and Juneau Energy (oil and gas exploration and development) and Conwed Plastics and Idaho Timber (manufacturing).  It also includes our equity investments in Garcadia (automobile dealerships), Linkem (fixed wireless services in Italy) and Golden Queen (a gold and silver mining project), as well as our ownership of HRG shares, which is accounted for at fair value, and impacts our results through its mark-to-market adjustment reflected within net revenues. Other merchant banking operations also included our real estate operations, substantially all of which were sold to HomeFed during March 2014 in exchange for HomeFed common shares. 

Net revenues and pre-tax results decreased in 2015 as compared to 2014, primarily due to a decline in the value of our investment in HRG. We classified HRG as a trading asset for which the fair value option was elected and we reflect mark-to-market adjustments through Principal transactions revenues. Unrealized gains (losses) of $(28.0) million and $99.3 million for 2015 and 2014 were recorded as a result of the change in fair value of our investment. In addition, net revenues for 2014 include a $22.7 million gain on the sale of an equity interest for cash proceeds of $33.0 million. These year-over-year declines were partially offset by increased oil and gas exploration and development revenues in 2015. Net revenues and pre-tax income decreased in 2014 as compared to 2013, due to the impact of net realized securities gains of $227.6 million in 2013 related to the sale of our common shares of Inmet Mining Corporation. This decline in revenues and pre-tax income was partially offset by the $99.3 million unrealized HRG gain.
For the years ended December 31, 2015, 2014 and 2013, net revenues for manufacturing were $392.1 million, $380.5 million and $310.8 million, and net revenues for real estate were $3.7 million, $11.2 million and $16.7 million.  Net revenues during 2015 and 2014 for our oil and gas exploration and development businesses were $54.1 million and $19.9 million.

39


For the years ended December 31, 2015, 2014 and 2013, selling, general and other expenses for manufacturing were $8.6 million, $8.5 million and $5.8 million.  Selling, general and other expenses for our oil and gas exploration and development businesses were $49.8 million in 2015 and $15.7 million in 2014. The increase is primarily due to impairment charges totaling $20.3 million recorded in 2015 for the write down of Juneau Energy oil field assets to fair value. Selling, general and other expenses for real estate were $4.8 million, $8.8 million and $34.1 million for 2015, 2014 and 2013; included in these amounts were impairment charges for various real estate projects of $20.0 million for 2013.  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. 
Depreciation and amortization for the oil and gas exploration and development businesses were $25.1 million in 2015 and $3.9 million in 2014. The significant increase in 2015 is due to increased production and additional wells compared to 2014.
For the years ended December 31, 2015, 2014 and 2013, pre-tax profits for manufacturing were $31.1 million, $31.7 million and $24.9 million.  Pre-tax losses for the oil and gas exploration and development businesses were $31.9 million for 2015 and $0.8 million for 2014.  Real estate generated pre-tax losses of $6.4 million in 2015, $2.9 million in 2014 and $23.0 million in 2013.  Pre-tax losses for the Oregon LNG project were $7.5 million, $6.8 million and $14.4 million for 2015, 2014 and 2013.
Income related to associated companies primarily relates to our investments in Linkem and Garcadia.  For the years ended December 31, 2015, 2014 and 2013, losses related to Linkem were $15.6 million, $14.6 million and $22.7 million, and income related to Garcadia were $53.2 million, $49.4 million and $39.4 million. In addition, pre-tax losses for the oil and gas exploration and development businesses include a loss of $7.9 million in 2015 related to an oil and gas equity method investment.
Parent Company Interest
Parent company interest totaled $85.9 million for 2015, $98.1 million for 2014 and $72.2 million for 2013.  The decline in interest expense in 2015 compared to 2014 is primarily due to the redemption of the 8.125% Senior Notes in September 2015. The change in interest expense during 2014 as compared to 2013 primarily reflects the issuance of $750.0 million principal amount of 5.50% Senior Notes due 2023 and $250.0 million principal amount of 6.625% Senior Notes due 2043 in October 2013 and the maturity of certain of our debt securities during 2013 and 2014. 
Income Taxes
For the year ended December 31, 2015, our provision for income taxes was $109.9 million, representing an effective tax rate of about 31%.  Our 2015 provision was impacted by $10.7 million, which lowered our effective rate by 3%. This related to benefits recorded for certain state and local net operating loss carryforwards which we now believe are more likely than not to be realized in the future, a significant portion of which results from recently enacted state and local tax law changes.
For the year ended December 31, 2014, our provision for income taxes was $166.0 million, representing an effective tax rate of about 44%.  Our 2014 provision was impacted by $24.5 million, which increased our effective rate by 6%. This related to the charge recorded to settle the litigation concerning the Jefferies acquisition, which was nondeductible.  Our 2014 provision includes an offsetting benefit of $22.2 million, or 6%, for the reduction of the valuation allowance with respect to certain net operating loss carryovers, which we now believe are more likely than not to be utilized before they expire.  Excluding these items, our tax rate was higher primarily due to state income taxes, which were lower in 2013 as a result of favorable audit resolutions.
For the year ended December 31, 2013, our provision for income taxes was $136.5 million, and our effective tax rate was about 25%.  Our 2013 provision was impacted by $12.3 million, which increased our effective rate by 2%. This related to a charge 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.  Our 2013 provision includes offsetting benefits of $97.9 million, which reduced our effective tax rate by 18%, related to the Jefferies acquisition.  In periods prior to 2013, we recorded income tax expense and a related deferred tax liability for the unrealized gain on our Jefferies investment, which at that time we recorded at fair value.  Upon acquisition of Jefferies, we reversed that deferred tax liability, benefitting our provision for income taxes by $34.0 million.  In addition, we did not record income tax expense with respect to the income from our Jefferies investment and the related deferred tax liability during the portion of the first quarter of 2013 prior to our acquisition of Jefferies, which benefitted our provision for income taxes by $64.0 million.

40


Discontinued Operations
Our loss from discontinued operations, net of tax and our gain (loss) on disposal from discontinued operations, net of tax include the impact of a number of changes in the mix of our businesses and investments.  During the three years ended December 31, 2015, discontinued operations include: our decision in September 2014 not to proceed with further development of the Lake Charles clean energy project that would have used gasification technology to convert low-grade fossil fuels into clean-energy products; our July 2014 sale of Premier, through which we had conducted our gaming entertainment operations; our sale in December 2013 of our subsidiary, Empire Insurance Company, which had been undergoing a voluntary liquidation; our conclusion in October 2013 that we would no longer continue to fund Sangart’s research and development operations, through which we had conducted our medical product development operations; and other transactions whose impact are not significant to our consolidated results.
Our loss from discontinued operations, net of income tax totaled $17.9 million in 2014 and $60.0 million in 2013.  Our 2014 loss consisted primarily of $25.4 million in losses related to our Lake Charles clean energy project, offset by income of about $6.1 million from Premier.  Our 2013 loss includes primarily $47.8 million in losses related to Lake Charles and $23.7 million in losses from Sangart, offset by income of $11.9 million from Premier.  Our income from discontinued operations in 2015 was not significant.
Our gain on disposal from discontinued operations, net of tax totaled $5.1 million in 2015, $1.7 million in 2014 and $13.1 million in 2013.  Gain on disposal of discontinued operations for 2015 primarily relates to additional consideration received related to the 2012 sale of our small Caribbean-based telecommunications provider and a reversal of a legal reserve. Our 2013 gain includes $8.7 million related to the sale of Empire and the impact of a number of other insignificant transactions. 
For further information, see Note 30 to our consolidated financial statements.

41


Selected Balance Sheet Data

In addition to preparing our Consolidated Statements of Financial Condition in accordance with U.S. GAAP, we also review the tangible capital associated with each of our businesses and investments, which is a non-GAAP presentation and may not be comparable to similar non-GAAP presentations used by other companies. We believe that this presentation is meaningful because it is consistent with the way we view our businesses and investments. We define tangible capital as Total Leucadia National Corporation shareholders' equity less Intangible assets, net and goodwill.

The table below presents our tangible capital by significant business and investment (in thousands):
 
Tangible Capital as of
 
December 31, 2015
 
December 31, 2014
Jefferies
$
3,592,801

 
$
3,513,905

 
 
 
 
National Beef
45,625

 
106,143

 
 
 
 
Other Financial Services Businesses and Investments:
 
 
 
  Leucadia Asset Management (1)
560,251

 
155,155

  FXCM
625,689

 

  HomeFed
241,368

 
236,572

  Berkadia
190,986

 
208,511

  Foursight and Chrome
81,275

 
60,737

    Total Other Financial Services Businesses and Investments
1,699,569

 
660,975

 
 
 
 
Other Merchant Banking Businesses and Investments:
 
 
 
  HRG
631,896

 
659,856

  Vitesse Energy
278,833

 
246,456

  Juneau Energy
179,972

 
175,846

  Garcadia
189,356

 
183,477

  Linkem
150,149

 
159,054

  Golden Queen
80,604

 
69,929

  Idaho Timber
73,057

 
70,335

  Conwed
42,915

 
41,140

  Other
21,868

 
(21,373
)
    Total Other Merchant Banking Businesses and Investments
1,648,650

 
1,584,720

 
 
 
 
Corporate liquidity and other assets, net of all Corporate liabilities including long-term debt
766,204

 
1,715,652

 
 
 
 
Total Tangible Capital
$
7,752,849

 
$
7,581,395

 
 
 
 
(1) Leucadia Asset Management excludes $366.3 million and $399.5 million at December 31, 2015 and 2014 of liquid marketable securities that are available for sale immediately. These liquid marketable securities are included in Corporate liquidity and other assets, net of all Corporate liabilities including long-term debt.

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

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

Other Financial Services Businesses and Investments include:
Leucadia Asset Management platform seeds and develops focused alternative asset management businesses led by distinct management teams.
Our investment in FXCM consists of a two-year senior secured term loan ($192.7 million outstanding at December 31, 2015), with rights to a variable proportion of certain distributions in connection with an FXCM sale of assets or certain other events, and our right to require a sale of FXCM beginning in January 2018. FXCM is a leading, global online provider of foreign exchange trading and related services, including contract for difference trading and spread betting, to retail and institutional customers world-wide. FXCM is a public company traded on the NYSE.

42


Our approximately 65% equity method interest in HomeFed, is a developer and owner of residential and mixed-use real estate properties. HomeFed is a public company traded on the NASD OTC Bulletin Board.
Berkadia, our 50-50 equity method joint venture with Berkshire Hathaway, is a commercial real estate company providing capital solutions, investment sales advisory, research and servicing for multifamily and commercial properties.
Foursight Capital purchases automobile installment contracts originated by franchised and independent dealerships in conjunction with the sale of new and used automobiles and services these loans throughout their life cycle. Chrome Capital is a lessor of used Harley-Davidson motorcycles in the U.S. We consolidate both of these subsidiaries.

Other Merchant Banking Businesses and Investments include:
We own approximately 23% of HRG, a diversified holding company that operates in four business segments: consumer products, insurance, energy and asset management.  Its consumer products segment contains an approximate 58% ownership stake in Spectrum Brands, a global consumer products company. HRG is a public company traded on the NYSE and we reflect this investment at fair value.
Vitesse Energy, LLC is our 96% owned consolidated subsidiary that acquires producing and undeveloped leasehold properties in North Dakota and Montana, and converts the undeveloped leasehold into cash flow producing assets.
Juneau Energy, LLC, a 98% owned consolidated subsidiary, 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.
Garcadia is an equity method joint venture that owns and operates 27 automobile dealerships in the U.S. We own approximately 75%.
We own approximately 42% of the common shares of Linkem and convertible preferred equity which, if converted, would increase our ownership to approximately 56% 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. Linkem is accounted for under the equity method.
Conwed Plastics is our consolidated subsidiary that 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. In 2014, Conwed acquired 80% of Filtrexx, a manufacturer and marketer of a knitted sock product with numerous applications in sediment control and storm water management, and 100% of Weaver Express, the leading installer of Filtrexx's knitted sock projects.
Golden 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 35% and is accounted for under the equity method.
Idaho Timber is our consolidated subsidiary that manufactures and distributes an extensive range of quality wood products, including: 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.

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


43


The tables below reconcile tangible capital to our U.S. GAAP balance sheet (in thousands):
 
December 31, 2015
 
Jefferies
 
National Beef
 
Other Financial Services Businesses and Investments (1)
 
Other Merchant Banking Businesses and Investments
 
Corporate liquidity and other assets, net of Corporate liabilities
 
Inter-company Eliminations
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
3,510,163

 
$
17,814

 
$
22,203

 
$
30,940

 
$
57,528

 
$

 
$
3,638,648

Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations
751,084

 

 

 

 

 

 
751,084

Financial instruments owned
16,559,116

 
891

 
647,936

 
639,253

 
653,249

 

 
18,500,445

Investments in managed funds
85,775

 

 
488,940

 

 
55,317

 
(26,312
)
 
603,720

Loans to and investments in associated companies
825,908

 

 
466,364

 
441,970

 
23,127

 

 
1,757,369

Securities borrowed
6,975,136

 

 

 

 

 

 
6,975,136

Securities purchased under agreements to resell
3,854,746

 

 

 

 

 

 
3,854,746

Receivables
3,023,899

 
208,107

 
463,545

 
51,558

 
83,858

 

 
3,830,967

Property, equipment and leasehold improvements, net
243,486

 
394,506

 
11,479

 
46,894

 
25,510

 

 
721,875

Intangible assets, net and goodwill
1,938,582

 
645,049

 
2,336

 
62,395

 

 

 
2,648,362

Deferred tax asset, net
320,198

 

 

 

 
1,255,170

 

 
1,575,368

Other assets
520,863

 
249,763

 
92,172

 
681,530

 
61,175

 
(123,411
)
 
1,482,092

    Total Assets
38,608,956

 
1,516,130

 
2,194,975

 
1,954,540

 
2,214,934

 
(149,723
)
 
46,339,812

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt (2)
5,641,892

 
441,180

 
259,919

 
75,993

 
988,610

 

 
7,407,594

Other liabilities
27,408,213

 
194,918

 
218,153

 
116,702

 
335,120

 
(123,411
)
 
28,149,695

  Total liabilities
33,050,105

 
636,098

 
478,072

 
192,695

 
1,323,730

 
(123,411
)
 
35,557,289

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Redeemable noncontrolling interests

 
189,358

 

 
2,275

 

 

 
191,633

Mandatorily redeemable convertible preferred shares

 

 

 

 
125,000

 

 
125,000

Noncontrolling interests
27,468

 

 
14,998

 
48,525

 

 
(26,312
)
 
64,679

Total Leucadia National Corporation shareholders' equity
$
5,531,383

 
$
690,674

 
$
1,701,905

 
$
1,711,045

 
$
766,204

 
$

 
$
10,401,211

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation to Tangible Capital
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Leucadia National Corporation shareholders' equity
$
5,531,383

 
$
690,674

 
$
1,701,905

 
$
1,711,045

 
$
766,204

 
$

 
10,401,211

Less: Intangible assets, net and goodwill
(1,938,582
)
 
(645,049
)
 
(2,336
)
 
(62,395
)
 

 

 
(2,648,362
)
Tangible Capital
$
3,592,801

 
$
45,625

 
$
1,699,569

 
$
1,