UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

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

For the transition period from                          to                         

Commission file number 1-14947

JEFFERIES GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware		95-4719745
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

520 Madison Avenue, 10th Floor, New York, New York		10022
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (212) 284-2550

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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

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.

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 199,716,925 shares as of the close of business on September 28, 2011.

 

 

JEFFERIES GROUP, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
AUGUST 31, 2011

		Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition (unaudited) - August 31, 2011 and November 30, 2010			3
Consolidated Statements of Earnings (unaudited) - Three and Nine Months Ended August 31, 2011 and Three and Eight Months Ended August 31, 2010			5
Consolidated Statements of Changes in Stockholders’ Equity (unaudited) - Nine Months Ended August 31, 2011 and Year Ended November 30, 2010			6
Consolidated Statements of Comprehensive Income (unaudited) - Three and Nine Months Ended August 31, 2011 and Three and Eight Months Ended August 31, 2010			7
Consolidated Statements of Cash Flows (unaudited) - Nine Months Ended August 31, 2011 and Eight Months Ended August 31, 2010			8
Notes to Consolidated Financial Statements (unaudited)			10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			67
Item 3. Quantitative and Qualitative Disclosures About Market Risk			94
Item 4. Controls and Procedures			97
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			97
Item 1A. Risk Factors			97
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			98
Item 6. Exhibits			99
Signature			100
EX-31.1
EX-31.2
EX-32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

		August 31,				November 30,
		2011				2010
ASSETS
Cash and cash equivalents (including $283,968 in 2011 and $202,565 in 2010, from VIEs)		$	2,014,950			$	2,188,998
Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations			5,321,012				1,636,755
Financial instruments owned, at fair value, including securities pledged of $14,035,813 and $12,338,728 in 2011 and 2010, respectively:
Corporate equity securities (including $79,927 in 2011 and $120,606 in 2010 from VIEs)			1,676,598				1,565,793
Corporate debt securities (including $300,652 in 2011 and $462,462 in 2010 from VIEs)			4,213,249				3,630,616
Government, federal agency and other sovereign obligations			5,531,554				5,191,973
Mortgage- and asset-backed securities (including $38,629 in 2011 and $43,355 in 2010 from VIEs)			4,787,608				4,921,565
Loans and other receivables (including $372,105 in 2011 and $362,465 in 2010 from VIEs)			528,681				434,573
Derivatives (including $5,147 in 2011 and $7,579 in 2010 from VIEs)			916,142				119,268
Investments, at fair value (including $1,621 in 2011 and $15,612 in 2010 from VIEs)			116,833				77,784
Physical commodities			369,281				—
Total financial instruments owned, at fair value (including $798,081 in 2011 and $1,012,079 in 2010 from VIEs)			18,139,946				15,941,572
Investments in managed funds			73,900				131,585
Other investments			572,764				220,323
Securities borrowed			7,815,663				8,152,678
Securities purchased under agreements to resell			4,505,358				3,252,322
Securities received as collateral			40,401				48,616
Receivables:
Brokers, dealers and clearing organizations (including $177,793 in 2011 and $195,485 in 2010 from VIEs)			3,743,143				2,550,234
Customers			1,319,664				1,328,365
Fees, interest and other (including $6,763 in 2011 and $127 in 2010 from VIEs)			224,545				165,603
Premises and equipment			170,501				142,729
Goodwill			366,823				364,964
Other assets (including $446 in 2011 and $370 in 2010 from VIEs)			816,573				601,799
Total assets (including $1,267,051 in 2011 and $1,410,626 in 2010 from VIEs)		$	45,125,243			$	36,726,543

Continued on next page.

JEFFERIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED) — CONTINUED
(Dollars in thousands, except per share amounts)

		August 31,				November 30,
		2011				2010
LIABILITIES AND STOCKHOLDERS’ EQUITY
Short-term borrowing		$	353,000			$	—
Financial instruments sold, not yet purchased, at fair value:
Corporate equity securities (including $19,341 in 2011 and $2,708 in 2010 from VIEs)			1,736,221				1,638,372
Corporate debt securities (including $202,037 in 2011 and $443,100 in 2010 from VIEs)			2,472,045				2,375,925
Government, federal agency and other sovereign obligations (including $15,605 in 2011 and $0 in 2010 from VIEs)			5,278,235				4,735,288
Mortgage- and asset-backed securities			82,072				129,384
Loans (including $142,645 in 2011 and $150,100 in 2010 from VIEs)			155,646				171,278
Derivatives (including $1,241 in 2011 and $136 in 2010 from VIEs)			595,942				59,552
Total financial instruments sold, not yet purchased, at fair value (including $380,869 in 2011 and $596,044 in 2010 from VIEs)			10,320,161				9,109,799
Securities loaned			3,338,391				3,108,977
Securities sold under agreements to repurchase			10,935,811				10,684,056
Obligation to return securities received as collateral			40,401				48,616
Payables:
Brokers, dealers and clearing organizations (including $134,477 in 2011 and $157,134 in 2010 from VIEs)			2,754,164				1,885,357
Customers			7,708,390				3,716,357
Accrued expenses and other liabilities (including $7,411 in 2011 and $94,402 in 2010 from VIEs)			1,164,164				1,142,850
Long-term debt			4,580,978				3,778,681
Mandatorily redeemable convertible preferred stock			125,000				125,000
Mandatorily redeemable preferred interest of consolidated subsidiaries (including $313,095 in 2011 and $315,885 in 2010 from VIEs)			313,095				315,885
Total liabilities (including $835,852 in 2011 and $1,163,465 in 2010 from VIEs)			41,633,555				33,915,578
STOCKHOLDERS’ EQUITY
Common stock, $.0001 par value. Authorized 500,000,000 shares; issued 203,525,528 shares in 2011 and 200,301,656 shares in 2010			20				20
Additional paid-in capital			2,227,985				2,218,123
Retained earnings			1,036,879				850,654
Less:
Treasury stock, at cost, 3,211,223 shares in 2011 and 28,607,510 shares in 2010			(56,102	)			(539,530	)
Accumulated other comprehensive loss:
Currency translation adjustments			(25,628	)			(42,859	)
Additional minimum pension liability			(8,419	)			(8,419	)
Total accumulated other comprehensive loss			(34,047	)			(51,278	)
Total common stockholders’ equity			3,174,735				2,477,989
Noncontrolling interests			316,953				332,976
Total stockholders’ equity			3,491,688				2,810,965
Total liabilities and stockholders’ equity		$	45,125,243			$	36,726,543

See accompanying unaudited notes to consolidated financial statements.

JEFFERIES GROUP, INC. AND SUBSIDIARIES

										Nine Months				Eight Months
		Three Months Ended								Ended				Ended
		August 31,				August 31,				August 31,				August 31,
		2011				2010				2011				2010
Revenues:
Commissions		$	154,896			$	118,571			$	404,108			$	347,527
Principal transactions			(74,003	)			71,044				391,464				317,686
Investment banking			293,750				246,193				861,230				598,450
Asset management fees and investment income from managed funds			3,086				786				37,501				11,804
Interest			353,006				239,557				930,647				625,725
Other			63,369				16,879				105,948				44,240
Total revenues			794,104				693,030				2,730,898				1,945,432
Interest expense			284,822				175,761				736,068				432,995
Net revenues			509,282				517,269				1,994,830				1,512,437
Interest on mandatorily redeemable preferred interest of consolidated subsidiaries			(14,671	)			(2,537	)			6,183				(26	)
Net revenues, less mandatorily redeemable preferred interest			523,953				519,806				1,988,647				1,512,463
Non-interest expenses:
Compensation and benefits			299,640				308,797				1,174,468				877,204
Floor brokerage and clearing fees			32,959				30,111				92,475				84,199
Technology and communications			60,039				46,135				153,563				114,189
Occupancy and equipment rental			22,581				18,433				60,997				49,448
Business development			21,853				17,420				64,248				42,405
Professional services			19,061				13,008				48,437				34,702
Other			12,582				9,404				45,805				37,222
Total non-interest expenses			468,715				443,308				1,639,993				1,239,369
Earnings before income taxes			55,238				76,498				348,654				273,094
Income tax expense			1,228				33,873				107,899				110,277
Net earnings			54,010				42,625				240,755				162,817
Net (loss) earnings to noncontrolling interests			(14,265	)			(2,129	)			4,523				1,865
Net earnings to common shareholders		$	68,275			$	44,754			$	236,232			$	160,952
Earnings per common share:
Basic		$	0.30			$	0.22			$	1.07			$	0.79
Diluted		$	0.30			$	0.22			$	1.07			$	0.79
Weighted average common shares:
Basic			218,426				195,601				209,544				196,943
Diluted			222,541				195,612				213,661				201,062

See accompanying unaudited notes to consolidated financial statements.

JEFFERIES GROUP, INC. AND SUBSIDIARIES

		Nine Months				Eleven Months
		Ended				Ended
		August 31, 2011				November 30, 2010
Common stock, par value $0.0001 per share
Balance, beginning of period		$	20			$	19
Issued			1				1
Retired			(1	)			—
Balance, end of period			20				20
Additional paid-in capital
Balance, beginning of period			2,218,123				2,036,087
Benefit plan share activity (1)			29,281				19,230
Share-based expense, net of forfeitures and clawbacks			46,484				149,799
Proceeds from exercise of stock options			95				108
Acquisitions and contingent consideration			419				419
Tax benefit for issuance of share-based awards			31,619				2,965
Dividend equivalents on share-based plans			6,590				9,515
Issuance of treasury stock			97,773				—
Retirement of treasury stock			(202,399	)			—
Balance, end of period			2,227,985				2,218,123
Retained earnings
Balance, beginning of period			850,654				688,039
Net earnings to common shareholders			236,232				223,666
Dividends			(50,007	)			(61,051	)
Balance, end of period			1,036,879				850,654
Treasury stock, at cost
Balance, beginning of period			(539,530	)			(384,379	)
Purchases			(96,929	)			(140,071	)
Returns / forfeitures			(19,165	)			(15,080	)
Issued			397,122				—
Retirement of treasury stock			202,400				—
Balance, end of period			(56,102	)			(539,530	)
Accumulated other comprehensive (loss) income
Balance, beginning of period			(51,278	)			(41,626	)
Currency adjustment			17,231				(8,490	)
Pension adjustment, net of tax			—				(1,162	)
Balance, end of period			(34,047	)			(51,278	)
Total common stockholders’ equity			3,174,735				2,477,989
Noncontrolling interests
Balance, beginning of period			332,976				321,538
Net earnings to noncontrolling interests			4,523				16,601
Contributions			1,713				12,433
Distributions			(22,056	)			(15,177	)
Deconsolidation of asset management entity			(203	)			(5,477	)
Adoption of accounting changes to ASC 810			—				3,058
Balance, end of period			316,953				332,976
Total stockholders’ equity		$	3,491,688			$	2,810,965

See accompanying unaudited notes to consolidated financial statements.

JEFFERIES GROUP, INC. AND SUBSIDIARIES

										Nine Months				Eight Months
		Three Months Ended								Ended				Ended
		August 31,				August 31,				August 31,				August 31,
		2011				2010				2011				2010
Net earnings to common shareholders		$	68,275			$	44,754			$	236,232			$	160,952
Other comprehensive income:
Currency translation adjustments			(6,266	)			17,381				17,231				(13,602	)
Total other comprehensive (loss) income (1)			(6,266	)			17,381				17,231				(13,602	)
Comprehensive income		$	62,009			$	62,135			$	253,463			$	147,350

See accompanying unaudited notes to consolidated financial statements.

JEFFERIES GROUP, INC. AND SUBSIDIARIES

		Nine Months Ended				Eight Months Ended
		August 31, 2011				August 31, 2010
Cash flows from operating activities:
Net earnings		$	240,755			$	162,817
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization			53,786				27,490
Bargain purchase gain			(52,509	)			—
Fees related to assigned management agreements			(2,728	)			(2,589	)
Interest on mandatorily redeemable preferred interests of consolidated subsidiaries			6,183				(26	)
Accruals related to various benefit plans and stock issuances, net of estimated forfeitures			56,601				30,821
Increase in cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations			(555,008	)			(248,032	)
(Increase) decrease in receivables:
Brokers, dealers and clearing organizations			(840,670	)			226,379
Customers			185,110				(216,894	)
Fees, interest and other			(56,909	)			7,625
Decrease in securities borrowed			375,677				283,616
Increase in financial instruments owned			(1,124,290	)			(4,687,754	)
(Increase) decrease in other investments			(353,053	)			22,359
Decrease (increase) in investments in managed funds			57,685				(9,672	)
(Increase) decrease in securities purchased under agreements to resell			(1,229,802	)			324,488
Increase in other assets			(153,776	)			(118,625	)
Increase (decrease) in payables:
Brokers, dealers and clearing organizations			810,130				816,626
Customers			610,233				(75,927	)
Increase (decrease) in securities loaned			197,357				(408,214	)
Increase in financial instruments sold, not yet purchased			797,320				2,429,942
Increase in securities sold under agreements to repurchase			219,933				1,361,466
Decrease in accrued expenses and other liabilities			(251,027	)			(18,579	)
Net cash used in operating activities			(1,009,002	)			(92,683	)
Cash flows from investing activities:
Net payments on premises and equipment			(60,275	)			(24,678	)
Cash paid for acquisition during the period, net of cash acquired			(318,196	)			—
Cash received from contingent consideration			2,733				1,927
Cash paid for contingent consideration			(754	)			(8,101	)
Net cash used in investing activities			(376,492	)			(30,852	)

Continued on next page.

JEFFERIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS — CONTINUED (Unaudited)
(Dollars in thousands)

		Nine Months Ended				Eight Months Ended
		August 31, 2011				August 31, 2010
Cash flows from financing activities:
Excess tax benefits from the issuance of share-based awards		$	33,311			$	2,148
Gross proceeds from short-term borrowings			2,881,000				2,296,000
Gross payments on short-term borrowings			(2,829,027	)			(2,296,000	)
Net proceeds from (payments on):
Issuance of common shares			494,895				—
Issuance of senior notes, net of issuance costs			794,587				543,510
Mandatorily redeemable preferred interest of consolidated subsidiaries			(8,973	)			(17,077	)
Noncontrolling interest			(20,343	)			(12,577	)
Repurchase of common stock			(96,929	)			(114,893	)
Dividends			(43,417	)			(38,709	)
Exercise of stock options, not including tax benefits			95				108
Net cash provided by financing activities			1,205,199				362,510
Effect of foreign currency translation on cash and cash equivalents			6,247				(2,202	)
Net (decrease) increase in cash and cash equivalents			(174,048	)			236,773
Cash and cash equivalents at beginning of period			2,188,998				1,853,167
Cash and cash equivalents at end of period		$	2,014,950			$	2,089,940
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest		$	667,376			$	428,903
Income taxes, net			143,058				180,420
Acquisitions:
Fair value of assets acquired		$	4,703,533
Liabilities assumed			(4,229,011	)
Bargain purchase gain			(52,509	)
Total purchase price			422,013
Anticipated cash payment for acquisition subsequent to August 31, 2011			(2,474	)
Cash acquired			(101,343	)
Cash paid for acquisition during the period, net of cash acquired		$	318,196

See accompanying unaudited notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Index

		Page
Note 1. Organization and Basis of Presentation			11
Note 2. Summary of Significant Accounting Policies			13
Note 3. Acquisition of the Global Commodities Group			19
Note 4. Cash, Cash Equivalents and Short-Term Investments			23
Note 5. Financial Instruments			23
Note 6. Derivative Financial Instruments			36
Note 7. Collateralized Transactions			40
Note 8. Securitization Activities and Variable Interest Entities			40
Note 9. Jefferies Finance LLC			46
Note 10. Goodwill and Other Intangible Assets			47
Note 11. Short-Term Borrowings			50
Note 12. Long-Term Debt			51
Note 13. Mandatorily Redeemable Convertible Preferred Stock			52
Note 14. Noncontrolling Interests and Mandatorily Redeemable Preferred Interests of Consolidated Subsidiaries			52
Note 15. Benefit Plans			53
Note 16. Compensation Plans			54
Note 17. Earnings Per Share			58
Note 18. Income Taxes			60
Note 19. Commitments, Contingencies and Guarantees			61
Note 20. Net Capital Requirements			63
Note 21. Segment Reporting			64
Note 22. Related Party Transactions			65

JEFFERIES GROUP, INC. AND SUBSIDIARIES

Note 1. Organization and Basis of Presentation

Organization

The accompanying unaudited Consolidated Financial Statements include the accounts of Jefferies Group, Inc. and all its subsidiaries (together, “we” or “us”), including Jefferies & Company, Inc. (“Jefferies”), Jefferies Execution Services, Inc., (“Jefferies Execution”), Jefferies Bache, LLC, Jefferies International Limited, Jefferies Bache, Limited, Jefferies Hong Kong Limited, Jefferies Asset Management, LLC, Jefferies Financial Products, LLC, Jefferies Bache Financial Services, Inc. and all other entities in which we have a controlling financial interest or are the primary beneficiary, including Jefferies High Yield Holdings, LLC (“JHYH”), Jefferies Special Opportunities Partners, LLC (“JSOP”) and Jefferies Employees Special Opportunities Partners, LLC (“JESOP”).

We operate in two business segments, Capital Markets and Asset Management. Capital Markets includes our securities, commodities, futures and foreign exchange trading (including the results of our indirectly partially owned subsidiary, Jefferies High Yield Trading, LLC) and investment banking activities, which provides the research, sales, trading and origination effort for various equity, fixed income and advisory products and services. Asset Management provides investment management services to various private investment funds, separate accounts and mutual funds.

On July 1, 2011, we acquired Prudential Bache’s Global Commodities Group (“Global Commodities Group” or “Jefferies Bache”) from Prudential Finanacial Inc. (“Prudential”). Total cash payments made as consideration for the acquisition were $422.0 million. The Global Commodities Group provides execution and clearing services (including sales and trading activities) covering a wide variety of commodity, financial and foreign exchange futures, swaps and forward contracts to an institutional client base. See Note 3, Acquisition of the Global Commodities Group.

Change in Year End

On April 19, 2010, our Board of Directors approved a change to our fiscal year end from a calendar year basis to a fiscal year ending on November 30. As such, the current period represents the three and nine months ended August 31, 2011 and has been reported on the basis of the new fiscal year beginning as of December 1, 2010. Our prior year period consisted of the three and eight months ended August 31, 2010 and is reported on the basis of the previous calendar year cycle beginning as of January 1, 2010.

Basis of Presentation

The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto included in Jefferies Group, Inc.’s Transition Report on Form 10-K for the eleven months ended November 30, 2010. All adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included.

We have made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with GAAP. The most significant of these estimates and assumptions relate to fair value measurements, compensation and benefits, legal reserves and the realizability of deferred tax assets. Although these and other estimates and assumptions are based on the best available information, actual results could be materially different from these estimates.

Consolidation

Our policy is to consolidate all entities in which we own more than 50% of the outstanding voting stock and have control. In addition, we consolidate entities which lack characteristics of an operating entity or business for which we

JEFFERIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)

are the primary beneficiary. The primary beneficiary is the party who has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and who has an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant to the entity. In situations where we have significant influence but not control of an entity that does not qualify as a variable interest entity, we apply the equity method of accounting or fair value accounting. We also have formed nonconsolidated investment vehicles with third-party investors that are typically organized as partnerships or limited liability companies. We act as general partner or managing member for these investment vehicles and have generally provided the third-party investors with termination or “kick-out” rights.

Intercompany accounts and transactions are eliminated in consolidation.

Immaterial Restatements

As indicated in our Transition Report on Form 10-K for the eleven months ended November 30, 2010 (hereafter in this Note referred to as “adjustments”), we made correcting adjustments to our financial statements for the three and eight months ended August 31, 2010 relating to the netting of interest income and interest expense, differences with our former clearing bank, and certain other immaterial adjustments. We do not believe that these adjustments are material to our financial statements for these periods. For additional information on these adjustments, see Note 1, Organization and Basis of Presentation, and Note 23, Selected Quarterly Financial Data (Unaudited), of the Consolidated Financial Statements of our Transition Report on Form 10-K for the eleven months ended November 30, 2010.

The following table sets forth the effects of the adjustments on Net earnings, on an after tax basis, for the three and eight months ended August 31, 2010 (in thousands):

Decrease in Net earnings to common shareholders

		Three Months				Eight Months
		Ended				Ended
		August 31, 2010				August 31, 2010
Previously reported Net earnings to common shareholders		$	46,256			$	164,795
Netting of interest revenues and expense			—				—
Differences with clearing bank			(1,738	)			(3,453	)
Other items (1)			236				(390	)
Total adjustments			(1,502	)			(3,843	)
Adjusted Net earnings to common shareholders		$	44,754			$	160,952

The following table sets forth the effects of the adjustments on major caption items within our Consolidated Statement of Earnings for the three and eight months ended August 31, 2010 (in thousands, except per share amounts):

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		Three Months Ended								Eight Months Ended
		August 31, 2010								August 31, 2010
		As Previously								As Previously
		Reported				Adjusted				Reported				Adjusted
Principal transactions		$	74,282			$	71,044			$	324,037			$	317,686
Interest			152,546				239,557				430,902				625,725
Total revenues			609,257				693,030				1,756,961				1,945,432
Interest expense			89,159				175,761				237,493				432,995
Net revenues			520,098				517,269				1,519,468				1,512,437
Net revenues, less mandatorily redeemable perferred interest			522,635				519,806				1,519,494				1,512,463
Floor brokerage and clearing fees			30,244				30,111				84,702				84,199
Total non-interest expenses			443,441				443,308				1,239,874				1,239,369
Earnings before income taxes			79,194				76,498				279,620				273,094
Income tax expense			35,067				33,873				112,960				110,277
Net earnings			44,127				42,625				166,660				162,817
Net earnings to common shareholders			46,256				44,754				164,795				160,952
Earnings per common share:
Basic		$	0.23			$	0.22			$	0.81			$	0.79
Diluted		$	0.23			$	0.22			$	0.81			$	0.79

These adjustments affected certain line items within cash flows from operating activities on the Consolidated Statement of Cash Flows for the eight months ended August 31, 2010, with no net effect on net cash used in operating activities. In addition, supplemental disclosures for cash paid for interest were also adjusted.

Note 2. Summary of Significant Accounting Policies

Revenue Recognition Policies

Commissions. All customer transactions are reported on the Consolidated Statements of Financial Condition on a settlement date basis with related income reported on a trade-date basis. We permit institutional customers to allocate a portion of their gross commissions to pay for research products and other services provided by third parties. The amounts allocated for those purposes are commonly referred to as soft dollar arrangements. Soft dollar expenses amounted to $14.1 million and $8.7 million for the three months ended August 31, 2011 and 2010, respectively, and $36.4 million and $25.8 million for the nine months ended August 31, 2011 and eight months ended August 31, 2010, respectively. We account for the cost of these arrangements on an accrual basis. As we are not the primary obligor for these arrangements, expenses relating to soft dollars are netted against commission revenues. The commissions and related expenses on client transactions executed by Jefferies Bache, LLC, a futures commission merchant, are recorded on a half turn basis.

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

Investment Banking. Underwriting revenues and fees from mergers and acquisitions, restructuring and other investment banking advisory assignments or engagements are recorded when the services related to the underlying transactions are completed under the terms of the assignment or engagement. Expenses associated with such assignments are deferred until reimbursed by the client, the related revenue is recognized or the engagement is otherwise concluded. Out-of-pocket expenses are recorded net of client reimbursements. Revenues are presented net

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of related out-of-pocket unreimbursed expenses. Unreimbursed out-of-pocket expenses with no related revenues are included in Business development and Professional services expenses in the Consolidated Statements of Earnings.

Asset Management Fees and Investment Income From Managed Funds. Asset management fees and investment income from managed funds include revenues we earn from management, administrative and performance fees from funds managed by us, revenues from management and performance fees we earn from related-party managed funds and investment income from our investments in these funds. We earn fees in connection with management and investment advisory services performed for various funds and managed accounts. These fees are based on assets under management or an agreed upon notional amount and may include performance fees based upon the performance of the funds. Management and administrative fees are generally recognized over the period that the related service is provided. Generally, performance fees are earned when the return on assets under management exceeds certain benchmark returns, “high-water marks” or other performance targets. Performance fees are accrued (or reversed) on a monthly basis based on measuring performance to date versus any relevant benchmark return hurdles stated in the investment management agreement. Performance fees are not subject to adjustment once the measurement period ends (generally annual periods) and the performance fees have been realized.

Interest Revenue and Expense. We recognize contractual interest on Financial instruments owned and Financial instruments sold, but not yet purchased, on an accrual basis as a component of interest revenue and expense. Interest flows on derivative trading transactions and dividends are included as part of the fair valuation of these contracts in Principal transactions in the Consolidated Statements of Earnings and are not recognized as a component of interest revenue or expense. We account for our short-term, long-term borrowings and our mandatorily redeemable convertible preferred stock on an accrual basis with related interest recorded as interest expense. In addition, we recognize interest revenue related to our securities borrowed and securities purchased under agreements to resell activities and interest expense related to our securities loaned and securities sold under agreements to repurchase activities on an accrual basis.

Cash Equivalents

Cash equivalents include highly liquid investments, including money market funds, not held for resale with original maturities of three months or less.

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

In accordance with Rule 15c3-3 of the Securities Exchange Act of 1934, Jefferies as a broker-dealer carrying client accounts, is subject to requirements related to maintaining cash or qualified securities in a segregated reserve account for the exclusive benefit of its clients. In addition, certain financial instruments used for initial and variation margin purposes with clearing and depository organizations are recorded in this caption. Jefferies Bache, LLC, as a futures commission merchant, is obligated by rules mandated by the Commodities Futures Trading Commission under the Commodities Exchange Act, to segregate or set aside cash or qualified securities to satisfy such regulations, which regulations have been promulgated to protect customer assets.

Foreign Currency Translation

Assets and liabilities of foreign subsidiaries having non-U.S. dollar functional currencies are translated at exchange rates at the end of a period. Revenues and expenses are translated at average exchange rates during the period. The gains or losses resulting from translating foreign currency financial statements into U.S. Dollars, net of hedging gains or losses and taxes, if any, are included in Other comprehensive income. Gains or losses resulting from foreign currency transactions are included in Principal transactions in the Consolidated Statements of Earnings.

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Financial Instruments

Financial instruments owned and Financial instruments sold, not yet purchased are recorded at fair value, either as required by accounting pronouncements or through the fair value option election. These instruments primarily represent our trading activities and include both cash and derivative products. Gains and losses are recognized in Principal transactions in our Consolidated Statements of Earnings. The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price).

Fair Value Hierarchy

In determining fair value, we maximize the use of observable inputs and minimize the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources. Unobservable inputs reflect our assumptions that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. We apply a hierarchy to categorize our fair value measurements broken down into three levels based on the transparency of inputs as follows:

	Level 1:		Quoted prices are available in active markets for identical assets or liabilities as of the reported date.
	Level 2:		Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these financial instruments include cash instruments for which quoted prices are available but traded less frequently, derivative instruments whose fair value have been derived using a model where inputs to the model are directly observable in the market, or can be derived principally from or corroborated by observable market data, and instruments that are fair valued using other financial instruments, the parameters of which can be directly observed.
	Level 3:		Instruments that have little to no pricing observability as of the reported date. These financial instruments are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

The availability of observable inputs can vary and is affected by a wide variety of factors, including, for example, the type of financial instrument and market conditions. To the extent that valuation is based on models or input that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.

We use prices and inputs that are current as of the measurement date. As the observability of prices and inputs may change for a financial instrument from period to period, this condition may cause a transfer of an instrument among the fair value hierarchy levels. Transfers among the levels are recognized at the beginning of each period.

Valuation Process for Financial Instruments

Financial instruments are valued at quoted market prices, if available. Certain financial instruments have bid and ask prices that can be observed in the marketplace. For financial instruments whose inputs are based on bid-ask prices, we allow for mid-market pricing and adjust to the point within the bid-ask range that meets our best estimate of fair value. For offsetting positions in the same financial instrument, the same price within the bid-ask spread is used to measure both the long and short positions.

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For financial instruments that do not have readily determinable fair values using quoted market prices, the determination of fair value is based upon consideration of available information, including types of financial instruments, current financial information, restrictions on dispositions, fair values of underlying financial instruments and quotations for similar instruments. The valuation process for financial instruments may include the use of valuation models and other techniques. Adjustments to valuations (such as counterparty, credit, concentration or liquidity) derived from valuation models may be made when, in management’s judgment, either the size of the position in the financial instrument in a nonactive market or other features of the financial instrument such as its complexity, or the market in which the financial instrument is traded require that an adjustment be made to the value derived from the models. An adjustment may be made if a financial instrument is subject to sales restrictions that would result in a price less than the quoted market price. Adjustments from the price derived from a valuation model reflect management’s judgment that other participants in the market for the financial instrument being measured at fair value would also consider in valuing that same financial instrument and are adjusted for assumptions about risk uncertainties and market conditions. Results from valuation models and valuation techniques in one period may not be indicative of future period fair value measurements.

See Note 5, Financial Instruments, for a description of valuation techniques applied to the classes of financial instruments at fair value.

Investments in Managed Funds

Investments in managed funds include our investments in funds managed by us and our investments in related-party managed funds in which we are entitled to a portion of the management and/or performance fees. Investments in nonconsolidated managed funds are accounted for on the equity method or fair value. Gains or losses on our investments in managed funds are included in Asset management fees and investment income from managed funds in the Consolidated Statements of Earnings.

Other Investments

Other investments includes investments and loans entered into where we exercise significant influence over operating and capital decisions in private equity and other operating entities in connection with our capital market activities and loans issued in connection with such activities. Other investments are accounted for on the equity method or at cost, as appropriate. Revenues on Other investments are included in Other income in the Consolidated Statement of Earnings.

Receivable from, and Payable to, Customers

Receivable from and payable to customers includes amounts receivable and payable on cash and margin transactions. Securities owned by customers and held as collateral for these receivables are not reflected in the accompanying consolidated financial statements. Receivable from officers and directors included within this financial statement line item represents balances arising from their individual security transactions. These transactions are subject to the same regulations as customer transactions and are provided on substantially the same terms.

Securities Borrowed and Securities Loaned

Securities borrowed and securities loaned are carried at the amounts of cash collateral advanced and received in connection with the transactions and accounted for as collateralized financing transactions. In connection with both trading and brokerage activities, we borrow securities to cover short sales and to complete transactions in which customers have failed to deliver securities by the required settlement date, and lend securities to other brokers and dealers for similar purposes. We have an active securities borrowed and lending matched book business in which we borrow securities from one party and lend them to another party. When we borrow securities, we generally provide cash to the lender as collateral, which is reflected in our Consolidated Statements of Financial Condition as Securities borrowed. We earn interest revenues on this cash collateral. Similarly, when we lend securities to another party, that party provides cash to us as collateral, which is reflected in our Consolidated Statements of Financial Condition as

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Securities loaned. We pay interest expense on the cash collateral received from the party borrowing the securities. The initial collateral advanced or received approximates or is greater than the fair value of the securities borrowed or loaned. We monitor the fair value of the securities borrowed and loaned on a daily basis and request additional collateral or return excess collateral, as appropriate.

Securities Purchased Under Agreements to Resell and Securities Sold Under Agreements to Repurchase

Securities purchased under agreements to resell and Securities sold under agreements to repurchase (collectively “repos”) are accounted for as collateralized financing transactions and are recorded at their contracted repurchase amount. We earn and incur interest from this activity which is reflected in our Consolidated Statements of Earnings. We monitor the fair value of the underlying securities daily versus the related receivable or payable balances. Should the fair value of the underlying securities decline or increase, additional collateral is requested or excess collateral is returned, as appropriate. We carry repos on a net basis by counterparty when appropriate.

Premises and Equipment

Premises and equipment are depreciated using the straight-line method over the estimated useful lives of the related assets (generally three to ten years). Leasehold improvements are amortized using the straight-line method over the term of the related leases or the estimated useful lives of the assets, whichever is shorter.

Goodwill and Intangible Assets

Goodwill. At least annually, and more frequently if warranted, we assess whether goodwill has been impaired by comparing the estimated fair value of each reporting unit with its estimated net book value. Periodically estimating the fair value of a reporting unit requires significant judgment and often involves the use of significant estimates and assumptions. These estimates and assumptions could have a significant effect on whether or not an impairment charge is recorded and the magnitude of such a charge. We completed our annual assessment of goodwill as of June 1, 2011 and no impairment was identified. (Refer to Note 10, Goodwill and Other Intangible Assets, for further details on our annual assessment of goodwill.)

Intangible Assets. Intangible assets deemed to have finite lives are amortized on a straight line basis over their estimated useful lives, where the useful life is the period over which the asset is expected to contribute directly, or indirectly, to our future cash flows. Intangible assets are reviewed for impairment on an interim basis when certain events or circumstances exist. For amortizable intangible assets, impairment exists when the carrying amount of the intangible asset exceeds its fair value. At least annually, the remaining useful life is evaluated.

An intangible asset with an indefinite useful life is not amortized but assessed annually, or more frequently when certain events or circumstances exist, for impairment. Impairment exists when the carrying amount exceeds its fair value.

For both goodwill and intangible assets, to the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted. For amortizable intangible assets, the new cost basis is amortized over the remaining useful life of that asset. Adverse market or economic events could result in impairment charges in future periods.

Income Taxes

We file a consolidated U.S. federal income tax return, which includes all of our qualifying subsidiaries. We also are subject to income tax in various states and municipalities and those foreign jurisdictions in which we operate. Amounts provided for income taxes are based on income reported for financial statement purposes and do not necessarily represent amounts currently payable. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for tax loss carry-forwards. Deferred tax assets and liabilities are

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measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income taxes are provided for temporary differences in reporting certain items, principally, share-based compensation, deferred compensation, unrealized gains and losses on investments and tax amortization on intangible assets. The realization of deferred tax assets is assessed and a valuation allowance is recorded to the extent that it is more likely than not that any portion of the deferred tax asset will not be realized.

The tax benefit related to dividends and dividend equivalents paid on nonvested share based payment awards and outstanding equity options is recognized as an increase to Additional paid in capital. These amounts are included in tax benefits for issuance of share-based awards on the Consolidated Statement of Changes in Stockholders’ Equity.

Legal Reserves

In the normal course of business, we have been named, from time to time, as a defendant in various legal actions, including arbitrations, class actions and other litigation, arising in connection with our activities as a global securities and investment banking firm. We are also involved, from time to time, in other reviews, investigations and proceedings (both formal and informal) by governmental and self-regulatory agencies regarding our businesses, certain of which may result in judgments, settlements, fines, penalties or other injunctions.

We recognize a liability for a contingency in Accrued expenses and other liabilities when it is probable that a liability has been incurred and when the amount of loss can be reasonably estimated. When a range of probable loss can be estimated, we accrue the most likely amount of such loss, and if such amount is not determinable, then we accrue the minimum of the range of probable loss. The determination of the outcome and loss estimates requires significant judgment on the part of management.

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

Share-based Compensation

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

Earnings per Common Share

Basic earnings per share (“EPS”) is computed by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding and certain other shares committed to be, but not yet issued. Net earnings available to common shareholders represent net earnings to common shareholders reduced by the allocation of earnings to participating securities. Losses are not allocated to participating securities. Common shares outstanding and certain other shares committed to be, but not yet issued, include restricted stock and restricted stock units for which no future service is required. Diluted EPS is computed by dividing net earnings available to common shareholders plus dividends on dilutive mandatorily redeemable convertible preferred stock by the weighted average number of common shares outstanding and certain other shares committed to be, but not yet issued, plus all dilutive common stock equivalents outstanding during the period.

Unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and, therefore, are included in the earnings allocation in computing earnings per share under the two-class method of earning per share. We grant restricted stock and restricted stock

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units as part of our share-based compensation that contain nonforfeitable rights to dividends and dividend equivalents, respectively, and therefore, prior to the requisite service being rendered for the right to retain the award, restricted stock and restricted stock units meet the definition of a participating security. As such, we calculate Basic and Diluted earnings per share under the two-class method.

Securitization Activities

We engage in securitization activities related to commercial mortgage loans and mortgage-backed and other asset-backed securities. Such transfers of financial assets are generally accounted for as sales when we have relinquished control over the transferred assets. The gain or loss on sale of such financial assets depends, in part, on the previous carrying amount of the assets involved in the transfer allocated between the assets sold and the retained interests, if any, based upon their respective fair values at the date of sale. We may retain interests in the securitized financial assets as one or more tranches of the securitization. These retained interests are included within Financial instruments owned in the Consolidated Statement of Financial Condition at fair value. Any changes in the fair value of such retained interests are recognized within Principal transactions revenues in the Consolidated Statement of Earnings.

When a transfer of assets does not meet the criteria of a sale, that transfer is treated as a secured borrowing. We continue to recognize the assets of a secured borrowing in Financial instruments owned and recognize the associated financing in Other liabilities in the Consolidated Statements of Financial Condition.

New Accounting Developments

Testing Goodwill for Impairment . In September 2011, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) Testing Goodwill for Impairment (“ASU 2011-08”) to Topic 350, Intangibles — Goodwill and Other. The update outlines amendments to the two step goodwill impairment test permitting an entity to first assess qualitative factors, as described in the ASU 2011-08, in determining whether the fair value of a reporting unit is less than its carrying amount. We do not believe that the adoption of this guidance will have an impact on our financial condition, or results of operation.

Fair Value Measurements and Disclosures. In May 2011, the FASB issued accounting updates to ASC 820, Fair Value Measurements Topic — Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, which provide clarifying guidance on how to measure fair value and additional disclosure requirements. The amendments prohibit the use of blockage factors at all levels of the fair value hierarchy and provide guidance on measuring financial instruments that are managed on a net portfolio basis. Additional disclosure requirements include transfers between Levels 1 and 2; and for Level 3 fair value measurements, a description of our valuation processes and additional information about unobservable inputs impacting Level 3 measurements. The updates are effective March 1, 2012 and will be applied prospectively. We are currently evaluating the impact, if any, that these updates will have on our financial condition, results of operations or cash flows.

Reconsideration of Effective Control for Repurchase Agreements. In April 2011, the FASB issued accounting guidance that removes the requirement to consider whether sufficient collateral is held when determining whether to account for repurchase agreements and other agreements that both entitle and obligate the transferor to repurchase or redeem financial assets before their maturity as sales or as secured financings. The guidance is effective prospectively for transactions beginning on January 1, 2012. We do not believe that the adoption of this guidance will have an impact on our financial condition, results of operations or cash flows.

Note 3. Acquisition of the Global Commodities Group

On July 1, 2011, we acquired Prudential Bache’s Global Commodities Group from Prudential. Total cash payments made as consideration for the acquisition were $422.0 million (a cash payment of $419.5 million was made on July 1, 2011 and an additional payment of $2.5 million is anticipated). The acquisition included 100% of the equity interests in Prudential Bache Commodities LLC, a US-based full-service futures commission merchant; Prudential Bache Securities LLC, a US-based registered broker dealer; Bache Commodities Limited, a UK-based global commodities

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and financial derivatives broker; Prudential Bache Asset Management, Inc., a US-based registered investment advisor and commodity trading advisor, Prudential Bache Financial Services, Inc., a global over-the-counter commodities dealer; and Bache Commodities (Hong Kong) Ltd., a Hong Kong-based licensed futures dealer. In addition, we acquired related information technology assets and related contracts used by the Global Commodities Group.

The Global Commodities Group provides sales, trading, clearing and execution services covering a wide variety of commodity, financial and foreign exchange futures, swaps and forward contracts to an institutional client base. The acquisition of the Global Commodities Group will allow us to offer clients globally an increased range of products, including exchange-traded futures and over-the-counter trading in energy, metals and agricultural markets.

In connection with the acquisition of the Global Commodities Group on July 1, 2011, certain acquired entities entered into a $1.0 billion credit facility agreement with Prudential that was terminated by us on September 16, 2011. For further details, see Note 11, Short-Term Borrowings. On August 26, 2011, Jefferies Bache Financial Services, Inc., Jefferies Bache, LLC and Jefferies Bache Limited, as borrowers, entered into a senior secured revolving credit facility in aggregate totaling $950.0 million with a group of commercial banks. See Note 12, Long-Term Borrowings for further information.

We accounted for the acquisition under the purchase method of accounting. Accordingly, the assets acquired, including identifiable intangible assets, and liabilities assumed were recorded at their respective fair values as of the date of acquisition.

The fair values of the net assets acquired, including identifiable intangible assets, was approximately $474.5 million, which exceeded the purchase price of $422.0 million, resulting in a bargain purchase gain of approximately $52.5 million. The bargain purchase gain is included within Other income in the Consolidated Statements of Earnings, is not taxable and is presented within the Capital Market Business Segment. The business of the Global Commodities Group are included within the Capital Market Business Segment.

We believe we were able to acquire the Global Commodities Group for less than the fair value of its assets as the business activities of the Global Commodities Group were not a core business for Prudential and therefore Prudential was willing to exit the commodities trading business at such a price.

Approximately $18.3 million was recognized as the fair value of intangible assets. Of this amount, $5.8 million represents the fair value of customer relationships, $11.2 million represents the fair value of exchange and clearing organization membership interests and registrations and $1.3 million represents the fair value of the Bache trade name. See Note 10, Goodwill and Other Intangible Assets for further details. Additionally, we recognized in the acquisition approximately $6.3 million of internally developed software that is recorded within Premises and equipment on the Consolidated Statements of Financial Condition.

Condensed statement of net assets acquired

The following reflects the fair value of assets acquired and liabilities assumed, by major class, on July 1, 2011 (in thousands):

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Assets acquired:
Cash and cash equivalents		$	101,343
Cash and securities segregated			3,130,586
Financial instruments owned, at fair value			918,598
Securities purchased under agreements to resell			1,489
Receivables:
Brokers, dealers and clearing organizations			313,939
Customers			173,477
Fees, interest and other			122
Premises and equipment			13,584
Indefinite-lived intangible exchange memberships and licences (1)			11,219
Finite-lived intangible customer relationships (1)(2)			5,800
Trade names (1)(3)			1,300
Other assets			32,076
Total assets		$	4,703,533
Liabilities assumed:
Short-term borrowings		$	301,027
Financial instruments sold, not yet purchased, at fair value			267,200
Payables:
Brokers, dealers and clearing organizations			43,588
Customers			3,384,263
Accrued expenses and other liabilities			232,933
Total liabilities		$	4,229,011
Fair value of net assets acquired		$	474,522
Purchase price:
Cash		$	422,013
Total purchase price		$	422,013
Bargain purchase gain		$	52,509

Unaudited pro forma condensed combined financial information

Our third quarter results of operation include the operations of the acquired entities for the period from July 1, 2011 to August 31, 2011. The Consolidated Statement of Earnings for the three months ended August 31, 2011, include $43.5 million of Net revenues and $6.4 million of Net earnings contributed by the Global Commodities Group.

Set forth below are unaudited pro forma combined financial information as they may have appeared if the acquisition had been completed on January 1, 2010 taking into account certain adjustments described below, including the exclusion of the bargain purchase gain of $52.5 million related to the acquisition. The unaudited pro forma combined financial information includes the Global Commodities Group’s actual results from January 1, 2010 to August 31, 2010 and December 1, 2010 to August 31, 2011.

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		Three months ended								Nine months ended				Eight months ended
(in millions, except per share data)		August 31, 2011				August 31, 2010				August 31, 2011				August 31, 2010
Total net revenues		$	473.3			$	566.7			$	2,079.7			$	1,703.0
Net earnings to common shareholders		$	16.7			$	37.6			$	198.4			$	210.8
Earnings per common share:
Basic		$	0.07			$	0.18			$	0.90			$	1.03
Diluted		$	0.07			$	0.18			$	0.90			$	1.03
Weighted average common shares:
Basic			218,426				195,601				209,544				196,943
Diluted (1)			218,431				195,612				213,661				201,062

The unaudited pro forma combined financial information is presented for illustrative purposes only and does not purport to be indicative of the financial results we would have achieved had the acquisition been completed as of January 1, 2010, nor is it indicative of the results of operations in future periods.

The pro forma information was derived from historical financial information for 2011 and 2010 adjusted to give effect for events directly attributable to the acquisition and factually supportable and expected to have a continuing impact on the combined results. The adjustments include:

	a)		the bargain purchase gain of $52.5 million has been excluded from Net revenues and Net earnings for the periods ended August 31, 2011 and included in Net revenues and Net earnings for the eight months ended August 31, 2010;
	b)		an adjustment to reflect Global Commodities Group’s physical commodities at market value;
	c)		acquisition costs totaling $4.4 million recognized in Professional services has been excluded from the periods ended August 31, 2011 and included in the eight months ended August 31, 2010;
	d)		additional amortization expense on the acquired intangible assets and internally developed software of $0.2 million and $1.6 million for the three month and nine month periods ended August 31, 2011 and $.07 million and $1.9 million for the three and eight month periods ended August 31, 2010;
	e)		the recording of income tax expense resulting from the pro forma adjustments before tax at an effective rate of 44.9% and 36.5% for the three month and nine month periods ended August 31, 2011 and 45.4% and 33.8% for the three and eight month periods ended August 31, 2010.

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Note 4. Cash, Cash Equivalents and Short-Term Investments

We generally invest our excess cash in money market funds and other short-term investments. Cash equivalents include highly liquid investments not held for resale with original maturities of three months or less. The following are financial instruments that are cash and cash equivalents that are deemed by us to be generally readily convertible into cash as of August 31, 2011 and November 30, 2010 (in thousands):

		August 31,				November 30,
		2011				2010
Cash and cash equivalents:
Cash in banks		$	807,414			$	325,227
Money market investments			1,207,536				1,863,771
Total cash and cash equivalents		$	2,014,950			$	2,188,998
Cash and securities segregated (1)		$	5,321,012			$	1,636,755

Note 5. Financial Instruments

The following is a summary of our financial assets and liabilities that are accounted for at fair value on a recurring basis as of August 31, 2011 and November 30, 2010 by level within the fair value hierarchy (in thousands):

JEFFERIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)

		As of August 31, 2011
														Counterparty
														and Cash
														Collateral
		Level 1 (3)				Level 2 (3)				Level 3				Netting (2)				Total
Assets:
Financial instruments owned:
Corporate equity securities		$	1,523,277			$	141,909			$	11,412			$	—			$	1,676,598
Corporate debt securities			7,438				4,150,581				55,230				—				4,213,249
Collateralized debt obligations			—				92,298				96,664				—				188,962
U.S. government and federal agency securities			1,932,703				230,780				—				—				2,163,483
Municipal securities			—				682,807				686				—				683,493
Sovereign obligations			1,994,296				690,154				128				—				2,684,578
Residential mortgage-backed securities			—				3,787,720				171,519				—				3,959,239
Commercial mortgage-backed securities			—				488,196				40,195				—				528,391
Other asset-backed securities			—				107,538				3,478				—				111,016
Loans and other receivables			—				364,518				164,163				—				528,681
Derivatives			967,618				1,557,787				155				(1,609,418	)			916,142
Investments at fair value			—				24,405				92,428				—				116,833
Physical commodities			—				369,281				—				—				369,281
Total financial instruments owned		$	6,425,332			$	12,687,974				636,058			$	(1,609,418	)		$	18,139,946
Level 3 assets for which the firm does not bear economic exposure (1)											(68,987	)
Level 3 assets for which the firm bears economic exposure										$	567,071
Cash and securities segregated and on deposit for regulatory purposes		$	407,096			$	—			$	—			$	—			$	407,096
Securities received as collateral		$	40,401			$	—			$	—			$	—			$	40,401
Liabilities:
Financial instruments sold, not yet purchased:
Corporate equity securities		$	1,622,547			$	113,615			$	59			$	—			$	1,736,221
Corporate debt securities			21,901				2,450,144				—				—				2,472,045
U.S. government and federal agency securities			2,381,050				351,749				—				—				2,732,799
Sovereign obligations			1,830,082				715,354				—				—				2,545,436
Residential mortgage-backed securities			—				81,955				—				—				81,955
Commercial mortgage-backed securities			—				117				—				—				117
Loans			—				144,188				11,458				—				155,646
Derivatives			674,857				1,836,983				3,601				(1,919,499	)			595,942
Total financial instruments sold, not yet purchased		$	6,530,437			$	5,694,105			$	15,118			$	(1,919,499	)		$	10,320,161
Obligation to return securities received as collateral		$	40,401			$	—			$	—			$	—			$	40,401

JEFFERIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)

		As of November 30, 2010
														Counterparty
														and Cash
														Collateral
		Level 1				Level 2				Level 3				Netting (2)				Total
Assets:
Financial instruments owned:
Corporate equity securities		$	1,453,744			$	89,430			$	22,619			$	—			$	1,565,793
Corporate debt securities			25				3,557,183				73,408				—				3,630,616
Collateralized debt obligations			—				27,863				31,121				—				58,984
U.S. government and federal agency securities			2,322,204				210,422				—				—				2,532,626
Municipal securities			—				477,462				472				—				477,934
Sovereign obligations			1,600,762				580,651				—				—				2,181,413
Residential mortgage-backed securities			—				3,912,708				132,359				—				4,045,067
Commercial mortgage-backed securities			—				524,614				6,004				—				530,618
Other asset-backed securities			—				286,329				567				—				286,896
Loans and other receivables			—				206,977				227,596				—				434,573
Derivatives			279,811				176,069				—				(336,612	)			119,268
Investments at fair value			—				—				77,784				—				77,784
Total financial instruments owned		$	5,656,546			$	10,049,708				571,930			$	(336,612	)		$	15,941,572
Level 3 assets for which the firm does not bear economic exposure (1)											(204,139	)
Level 3 assets for which the firm bears economic exposure										$	367,791
Securities received as collateral		$	48,616			$	—			$	—			$	—			$	48,616
Liabilities:
Financial instruments sold, not yet purchased:
Corporate equity securities		$	1,554,489			$	83,845			$	38			$	—			$	1,638,372
Corporate debt securities			—				2,375,925				—				—				2,375,925
U.S. government and federal agency securities			1,688,684				51,604				—				—				1,740,288
Municipal securities			—				170				—				—				170
Sovereign obligations			2,180,667				814,163				—				—				2,994,830
Residential mortgage-backed securities			—				127,547				—				—				127,547
Commerical mortgage-backed securities			—				1,837				—				—				1,837
Loans			—				124,050				47,228				—				171,278
Derivatives			241,860				240,866				2,346				(425,520	)			59,552
Total financial instruments sold, not yet purchased		$	5,665,700			$	3,820,007			$	49,612			$	(425,520	)		$	9,109,799
Obligation to return securities received as collateral		$	48,616			$	—			$	—			$	—			$	48,616