XML 57 R11.htm IDEA: XBRL DOCUMENT

Investments In Associated Companies

9 Months Ended

Sep. 30, 2011

3.	Investments in Associated Companies

A summary of investments in associated companies at September 30, 2011 and December 31, 2010 is as follows:


	September 30,		December 31,
	2011		2010
	(In thousands)
Investments in associated companies accounted for
under the equity method of accounting:
Jefferies High Yield Holdings, LLC ("JHYH")	$	307,683	$	321,023
Berkadia Commercial Mortgage LLC ("Berkadia")		200,689		475,071
Garcadia		38,561		35,943
HomeFed Corporation ("HomeFed")		46,251		46,083
Brooklyn Renaissance Plaza		30,296		30,539
Other		40,345		51,277
Total accounted for under the equity method of accounting		663,825		959,936

Investments in associated companies carried at fair value:
Jefferies Group, Inc. ("Jefferies")		701,240		1,314,227
Mueller Industries, Inc. ("Mueller")		402,218		–
Total accounted for at fair value		1,103,458		1,314,227

Total investments in associated companies	$	1,767,283	$	2,274,163

In June 2011, Berkadia fully repaid the amount outstanding under its secured credit facility including $250,000,000 that was loaned by the Company.

Income (losses) related to associated companies includes the following for the three and nine month periods ended September 30, 2011 and 2010:


	For the Three Month						For the Nine Month
	Period Ended September 30,						Period Ended September 30,
	2011			2010			2011			2010
	(In thousands)

Jefferies	$	(431,755	)	$	81,866		$	(751,270	)	$	(39,597	)
Mueller		(5,363	)		–			(5,363	)		–
AmeriCredit Corp. ("ACF")		–			211,539			–			182,216
JHYH		(18,293	)		72			(4,368	)		2,588
Berkadia		(5,561	)		3,043			16,135			13,336
Cobre Las Cruces, S.A. ("CLC")		–			23,804			–			(13,064	)
Garcadia		5,595			4,030			14,593			11,364
HomeFed		590			222			168			(670	)
Pershing Square IV, L.P. ("Pershing Square")		–			2,110			–			3,033
Brooklyn Renaissance Plaza		1,211			232			3,925			446
Other		(4,752	)		(5,588	)		(2,260	)		(13,747	)
Income (losses) related to associated
companies before income taxes		(458,328	)		321,330			(728,440	)		145,905
Income tax benefit		161,516			3,382			257,784			8,079
Income (losses) related to associated
companies, net of taxes	$	(296,812	)	$	324,712		$	(470,656	)	$	153,984

Investments accounted for under the equity method of accounting are initially recorded at their original cost and subsequently increased for the Company's share of the investees' earnings, decreased for the Company's share of the investees' losses, reduced for dividends received and impairment charges recorded, if any, and increased for any additional investment of capital.

As of September 30, 2011, the Company had acquired 10,422,859 common shares of Mueller, representing approximately 27.5% of the outstanding common shares of Mueller, a company listed on the New York Stock Exchange (Symbol: MLI), for aggregate cash consideration of $408,558,000. Mueller is a leading manufacturer of copper, brass, plastic, and aluminum products. In September 2011, the Company entered into a standstill agreement with Mueller for the two year period ending September 2, 2013, pursuant to which, among other things, the Company has agreed not to sell its shares if the buyer would own more than 4.9% of the outstanding shares, not to increase its ownership interest to more than 27.5% of the outstanding Mueller common shares (subject to certain provisions), and has received the right to nominate two directors to the board of directors of Mueller. Mueller has agreed to give the Company registration rights covering all of the Mueller shares of common stock owned by the Company.

In accordance with GAAP, the Company is allowed to choose, at specified election dates, to measure many financial instruments and certain other items at fair value (the "fair value option") that would not otherwise be required to be measured at fair value. If the fair value option is elected for a particular financial instrument or other item, the Company is required to report unrealized gains and losses on those items in earnings. The Company's investment in Mueller is one of the eligible items for which the fair value option was elected, commencing on the date the Company acquired the right to vote 20% of the Mueller common stock and the investment became subject to the equity method of accounting.

The Company's investments in ACF (which was sold on October 1, 2010), Jefferies and Mueller are the only eligible items for which the fair value option was elected, commencing on the date the investments became subject to the equity method of accounting. If these investments were accounted for under the equity method, the Company would have to record its share of their results of operations employing a reporting lag because of the investees' public reporting requirements. In addition, electing the fair value option eliminates some of the uncertainty involved with impairment considerations, since quoted market prices for these investments provides a readily determinable fair value at each balance sheet date. The Company's investment in HomeFed is the only other investment in an associated company that is also a publicly traded company but for which the Company did not elect the fair value option. HomeFed's common stock is not listed on any stock exchange, and price information for the common stock is not regularly quoted on any automated quotation system. It is traded in the over-the-counter market with high and low bid prices published by the National Association of Securities Dealers OTC Bulletin Board Service; however, trading volume is minimal. For these reasons the Company did not elect the fair value option for HomeFed.

As of September 30, 2011, the Company owns approximately 28% of the outstanding common shares of Jefferies, a company listed on the New York Stock Exchange (Symbol: JEF). In April 2011, in connection with Jefferies' sale of approximately 20,600,000 common shares in a public offering, the Company purchased 5,154,639 Jefferies common shares for cash consideration of $125,000,000. In September 2011, the Company purchased 2,000,000 Jefferies common shares in a private transaction for cash consideration of $25,160,000.

The Company's investment in CLC was sold in 2010.

The following tables provide summarized data with respect to significant investments in associated companies. The information is provided for those investments whose current relative significance to the Company could result in the Company including separate audited financial statements for such investments in its Annual Report on Form 10-K for the year ended December 31, 2011. The information for Jefferies is for the nine month period ended August 31, 2011 and for the eight month period ended August 31, 2010.


	2011			2010
	(In thousands)

Jefferies:
Total revenues	$	2,730,900		$	1,945,400
Income from continuing operations before extraordinary items		236,200			161,000
Net income		236,200			161,000

JHYH:
Total revenues	$	51,800		$	70,500
Income (loss) from continuing operations before extraordinary items		(13,200	)		7,800
Net income (loss)		(13,200	)		7,800

Berkadia:
Total revenues	$	244,200		$	244,000
Income from continuing operations before extraordinary items		14,700			17,400
Net income		14,700			17,400

Under GAAP, JHYH is considered a variable interest entity that is consolidated by Jefferies, since Jefferies is the primary beneficiary. The Company owns less than half of JHYH's capital, including its indirect interest through its investment in Jefferies. The Company has not provided any guarantees, nor is it contingently liable for any of JHYH's liabilities, all of which are non-recourse to the Company. The Company's maximum exposure to loss as a result of its investment in JHYH is limited to the book value of its investment plus any additional capital it decides to invest.