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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 |
Delaware | 95-4719745 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
520 Madison Avenue, 12th Floor, New York, New York | 10022 | |
(Address of principal executive offices) | (Zip Code) |
INDEX TO QUARTERLY REPORT ON FORM 10-Q
JUNE 30, 2006
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49 | ||||||||
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52 | ||||||||
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54 | ||||||||
EXHIBIT 31.1 | ||||||||
EXHIBIT 31.2 | ||||||||
EXHIBIT 32 |
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June 30, | December 31, | |||||||
2006 | 2005 | |||||||
ASSETS | ||||||||
Cash and cash equivalents | $ | 406,103 | $ | 255,933 | ||||
Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations | 921,850 | 629,360 | ||||||
Short term bond funds | ¾ | 7,037 | ||||||
Investments | 125,024 | 107,684 | ||||||
Investments in managed funds | 280,863 | 278,116 | ||||||
Securities borrowed | 7,975,344 | 8,143,478 | ||||||
Receivable from brokers, dealers and clearing organizations | 579,749 | 389,994 | ||||||
Receivable from customers | 526,149 | 457,839 | ||||||
Financial instruments owned | 2,455,899 | 1,650,080 | ||||||
Securities pledged to creditors | 1,310,672 | 178,686 | ||||||
Premises and equipment | 76,309 | 69,821 | ||||||
Goodwill | 228,357 | 220,607 | ||||||
Other assets | 417,117 | 392,296 | ||||||
Total Assets | $ | 15,303,436 | $ | 12,780,931 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Securities loaned | $ | 7,588,921 | 7,729,544 | |||||
Payable to brokers, dealers and clearing organizations | 574,888 | 303,480 | ||||||
Payable to customers | 974,692 | 813,896 | ||||||
Financial instruments sold, not yet purchased | 2,752,042 | 1,300,317 | ||||||
Accrued expenses and other liabilities | 556,572 | 530,477 | ||||||
12,447,115 | 10,677,714 | |||||||
Long-term debt | 1,263,476 | 779,873 | ||||||
Mandatorily redeemable convertible preferred stock | 125,000 | ¾ | ||||||
Minority interest | 33,795 | 36,494 | ||||||
Total Liabilities | 13,869,386 | 11,494,081 | ||||||
STOCKHOLDERS’ EQUITY | ||||||||
Common stock, $.0001 par value. Authorized 500,000,000 shares; issued 144,249,378 shares in 2006 and 140,857,994 shares in 2005 | 7 | 7 | ||||||
Additional paid-in capital | 795,854 | 709,447 | ||||||
Retained earnings | 882,086 | 803,262 | ||||||
Less: | ||||||||
Treasury stock, at cost, 25,709,275 shares in 2006 and 24,637,210 shares in 2005 | (244,274 | ) | (220,703 | ) | ||||
Accumulated other comprehensive gain (loss): | ||||||||
Currency translation adjustments | 6,502 | 962 | ||||||
Additional minimum pension liability | (6,125 | ) | (6,125 | ) | ||||
Total accumulated other comprehensive gain (loss) | 377 | (5,163 | ) | |||||
Total stockholders’ equity | 1,434,050 | 1,286,850 | ||||||
Total Liabilities and Stockholders’ Equity | $ | 15,303,436 | $ | 12,780,931 | ||||
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Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Revenues: | ||||||||||||||||
Commissions | $ | 71,634 | $ | 58,239 | $ | 140,636 | $ | 127,147 | ||||||||
Principal transactions | 94,124 | 84,774 | 254,104 | 157,472 | ||||||||||||
Investment banking | 122,932 | 102,519 | 250,666 | 219,961 | ||||||||||||
Asset management fees and investment income from managed funds | 22,527 | 20,434 | 63,349 | 41,718 | ||||||||||||
Interest | 138,851 | 71,420 | 252,611 | 131,271 | ||||||||||||
Other | 7,051 | 6,777 | 19,830 | 10,487 | ||||||||||||
Total revenues | 457,119 | 344,163 | 981,196 | 688,056 | ||||||||||||
Interest expense | 129,776 | 67,605 | 238,439 | 125,488 | ||||||||||||
Revenues, net of interest expense | 327,343 | 276,558 | 742,757 | 562,568 | ||||||||||||
Non-interest expenses: | ||||||||||||||||
Compensation and benefits | 176,675 | 152,003 | 409,409 | 313,991 | ||||||||||||
Floor brokerage and clearing fees | 16,934 | 12,096 | 30,867 | 24,291 | ||||||||||||
Technology and communications | 19,128 | 17,617 | 38,373 | 33,621 | ||||||||||||
Occupancy and equipment rental | 13,399 | 11,083 | 28,571 | 21,916 | ||||||||||||
Business development | 10,801 | 9,413 | 23,404 | 18,047 | ||||||||||||
Other | 9,691 | 14,036 | 34,011 | 28,219 | ||||||||||||
Total non-interest expenses | 246,628 | 216,248 | 564,635 | 440,085 | ||||||||||||
Earnings before income taxes, minority interest and cumulative effect of change in accounting principle | 80,715 | 60,310 | 178,122 | 122,483 | ||||||||||||
Income taxes | 31,357 | 23,621 | 69,789 | 47,066 | ||||||||||||
Earnings before minority interest and cumulative effect of change in accounting principle | 49,358 | 36,689 | 108,333 | 75,417 | ||||||||||||
Minority interest in earnings of consolidated subsidiaries, net | 3,778 | 1,252 | 5,912 | 3,308 | ||||||||||||
Earnings before cumulative effect of change in accounting principle, net | 45,580 | 35,437 | 102,421 | 72,109 | ||||||||||||
Cumulative effect of change in accounting principle, net | ¾ | ¾ | 1,606 | ¾ | ||||||||||||
Net earnings | $ | 45,580 | $ | 35,437 | $ | 104,027 | $ | 72,109 | ||||||||
Earnings per basic share: | ||||||||||||||||
Basic- | ||||||||||||||||
Earnings before cumulative effect of change in accounting principle, net | $ | 0.34 | $ | 0.29 | $ | 0.78 | $ | 0.59 | ||||||||
Cumulative effect of change in accounting principle, net | ¾ | ¾ | 0.01 | ¾ | ||||||||||||
Net earnings | $ | 0.34 | $ | 0.29 | $ | 0.79 | $ | 0.59 | ||||||||
Diluted- | ||||||||||||||||
Earnings before cumulative effect of change in accounting principle, net | $ | 0.32 | $ | 0.26 | $ | 0.72 | $ | 0.54 | ||||||||
Cumulative effect of change in accounting principle, net | ¾ | ¾ | 0.01 | ¾ | ||||||||||||
Net earnings | $ | 0.32 | $ | 0.26 | $ | 0.73 | $ | 0.54 | ||||||||
Weighted average shares: | ||||||||||||||||
Basic | 133,621 | 122,937 | 131,993 | 122,072 | ||||||||||||
Diluted | 147,605 | 134,844 | 145,287 | 133,990 | ||||||||||||
Fixed charge coverage ratio | 4.2X | 5.1X | 4.7X | 5.3X |
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Six Months | Year | |||||||
Ended | Ended | |||||||
June 30, | December 31, | |||||||
2006 | 2005 | |||||||
Common stock, par value $.0001 per share | ||||||||
Balance, beginning of year | $ | 7 | $ | 7 | ||||
Issued stock | — | — | ||||||
Balance, end of period | $ | 7 | $ | 7 | ||||
Additional paid in capital | ||||||||
Balance, beginning of year | $ | 709,447 | $ | 508,221 | ||||
Benefit plan share activity | 16,286 | 13,432 | ||||||
Amortization expense | 41,624 | 100,217 | ||||||
Proceeds from exercise of stock options | 11,695 | 33,661 | ||||||
Acquisitions | — | 26,998 | ||||||
Tax benefits | 16,802 | 26,918 | ||||||
Balance, end of period | $ | 795,854 | $ | 709,447 | ||||
Retained earnings | ||||||||
Balance, beginning of year | $ | 803,262 | $ | 677,464 | ||||
Net earnings | 104,027 | 157,443 | ||||||
Dividends | (25,203 | ) | (31,645 | ) | ||||
Balance, end of period | $ | 882,086 | $ | 803,262 | ||||
Treasury stock, at cost | ||||||||
Balance, beginning of year | $ | (220,703 | ) | $ | (149,039 | ) | ||
Purchases | (15,218 | ) | (76,291 | ) | ||||
Returns / forfeitures | (8,353 | ) | (6,717 | ) | ||||
Issued | — | 11,344 | ||||||
Balance, end of period | $ | (244,274 | ) | $ | (220,703 | ) | ||
Accumulated other comprehensive income (loss) | ||||||||
Balance, beginning of year | $ | (5,163 | ) | $ | 2,480 | |||
Currency adjustment | 5,540 | (8,386 | ) | |||||
Pension adjustment | — | 743 | ||||||
Balance, end of period | $ | 377 | $ | (5,163 | ) | |||
Total stockholders’ equity | $ | 1,434,050 | $ | 1,286,850 | ||||
Comprehensive income | ||||||||
Net earnings | $ | 104,027 | $ | 157,443 | ||||
Other comprehensive income (loss) | 5,540 | (7,643 | ) | |||||
Total comprehensive income | $ | 109,567 | $ | 149,800 | ||||
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Six Months Ended | ||||||||
June 30, | June 30, | |||||||
2006 | 2005 | |||||||
Cash flows from operating activities: | ||||||||
Net earnings | $ | 104,027 | $ | 72,109 | ||||
Adjustments to reconcile net earnings to net cash used in operating activities: | ||||||||
Cumulative effect of accounting change, net | 1,606 | — | ||||||
Depreciation and amortization | 9,593 | 5,751 | ||||||
Tax benefit from the issuance of stock based awards | — | 11,373 | ||||||
Accruals related to various benefit plans, stock issuances, net of forfeitures | 46,794 | 40,877 | ||||||
(Increase) decrease in cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations | (292,527 | ) | 25,210 | |||||
(Increase) decrease in receivables: | ||||||||
Securities borrowed | 168,137 | 1,717,310 | ||||||
Brokers, dealers and clearing organizations | (181,543 | ) | (150,811 | ) | ||||
Customers | (58,612 | ) | (164,742 | ) | ||||
Increase in financial instruments owned | (804,580 | ) | (774,461 | ) | ||||
(Increase) decrease in securities pledged to creditors | (1,131,986 | ) | 461,677 | |||||
Increase in other assets | (31,885 | ) | (35,300 | ) | ||||
Increase (decrease) in operating payables: | ||||||||
Securities loaned | (140,623 | ) | (1,521,928 | ) | ||||
Brokers, dealers and clearing organizations | 261,915 | 204,527 | ||||||
Customers | 155,412 | (24,784 | ) | |||||
Increase (decrease) in financial instruments sold, not yet purchased | 1,451,725 | (23,867 | ) | |||||
Increase in accrued expenses and other liabilities | 18,845 | 18,761 | ||||||
(Decrease) increase in minority interest | (2,699 | ) | 18 | |||||
Net cash used in operating activities | (426,401 | ) | (138,280 | ) | ||||
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CONSOLIDATED STATEMENTS OF CASH FLOWS — CONTINUED (Unaudited)
(Dollars in thousands)
Six Months Ended | ||||||||
June 30, | June 30, | |||||||
2006 | 2005 | |||||||
Cash flows from investing activities: | ||||||||
Decrease (increase) in short term bond funds | 7,037 | (80 | ) | |||||
Increase in investments | (17,256 | ) | (1,914 | ) | ||||
Increase in investments in managed funds | (2,747 | ) | (39,659 | ) | ||||
Net additional acquisition payments | — | (54,481 | ) | |||||
Purchase of premises and equipment | (15,107 | ) | (10,688 | ) | ||||
Net cash used in investing activities | (28,073 | ) | (106,822 | ) | ||||
Cash flows from financing activities | ||||||||
Tax benefit from the issuance of stock based awards | 16,802 | — | ||||||
Net proceeds from (payments on): | ||||||||
Bank loans | — | 125,000 | ||||||
Issuance of senior notes | 492,155 | — | ||||||
Issuance of mandatorily redeemable convertible preferred stock | 125,000 | — | ||||||
Repurchase of treasury stock | (15,218 | ) | (20,195 | ) | ||||
Dividends | (25,203 | ) | (14,687 | ) | ||||
Exercise of stock options, not including tax benefits | 11,695 | 9,799 | ||||||
Net cash provided by financing activities | 605,231 | 99,917 | ||||||
Effect of foreign currency translation on cash and cash equivalents | (587 | ) | (5,908 | ) | ||||
Net increase (decrease) in cash and cash equivalents | 150,170 | (151,093 | ) | |||||
Cash and cash equivalents – beginning of period | 255,933 | 284,111 | ||||||
Cash and cash equivalents – end of period | $ | 406,103 | $ | 133,018 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 217,162 | $ | 125,223 | ||||
Income taxes | $ | 94,921 | $ | 50,019 | ||||
Helix Associates acquisition: | ||||||||
Fair value of assets acquired, including goodwill | $ | 40,151 | ||||||
Liabilities assumed | (3,621 | ) | ||||||
Stock issued (631,194 shares) | (9,498 | ) | ||||||
Cash paid for acquisition | $ | 27,032 | ||||||
Randall & Dewey acquisition: | ||||||||
Fair value of assets acquired, including goodwill | $ | 44,723 | ||||||
Stock issued (912,884 shares) | (17,500 | ) | ||||||
Cash paid for acquisition | $ | 27,223 | ||||||
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Page | ||||||
Note 1. | Organization and Summary of Significant Accounting Policies | 9 | ||||
Note 2. | Asset Management Fees and Investment Income From Managed Funds | 15 | ||||
Note 3. | Cash, Cash Equivalents, and Short-Term Investments | 18 | ||||
Note 4. | Financial Instruments Owned, Securities Pledged to Creditors and Financial Instruments Sold, Not Yet Purchased | 19 | ||||
Note 5. | Long-Term Debt | 19 | ||||
Note 6. | Mandatorily Redeemable Convertible Preferred Stock | 20 | ||||
Note 7. | Benefit Plans | 20 | ||||
Note 8. | Minority Interest | 20 | ||||
Note 9. | Earnings Per Share | 21 | ||||
Note 10. | Derivative Financial Instruments | 21 | ||||
Note 11. | Other Comprehensive Gain (Loss) | 24 | ||||
Note 12. | Net Capital Requirements | 25 | ||||
Note 13. | Commitments, Contingencies and Guarantees | 26 | ||||
Note 14. | Segment Reporting | 27 | ||||
Note 15. | Goodwill | 29 | ||||
Note 16. | Quarterly Dividends | 29 | ||||
Note 17. | Variable Interest Entities (“VIEs”) | 30 | ||||
Note 18. | Related Party Disclosures | 30 | ||||
Note 19. | Stock Based Compensation | 31 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
June 30, | June 30, | |||||||
2006 | 2005 | |||||||
Assets under management: | ||||||||
Fixed Income (1) | $ | 1,077 | $ | 680 | ||||
Equities (2) | 465 | 533 | ||||||
Convertibles (3) | 1,987 | 1,479 | ||||||
Real Assets (4) | ¾ | 191 | ||||||
3,529 | 2,883 | |||||||
Assets under management by third parties (5): | ||||||||
Equities, Convertibles and Fixed Income | 254 | 442 | ||||||
Private Equity | 807 | 655 | ||||||
1,061 | 1,097 | |||||||
Total | $ | 4,590 | $ | 3,980 | ||||
(1) | Our managed or co-managed assets under management in two Jefferies Partners Opportunity funds, Jefferies Employees Opportunity Fund, LLC, the Jackson Creek CDO, the Summit Lake CLO, the Victoria Falls CLO, and start-up funds in which we are the sole or primary investor, but does not include third-party managed funds. We completed the liquidation of the Jackson Creek CDO during the second quarter of 2005. | |
(2) | The Jefferies RTS Fund, Jefferies Paragon Fund and start-up funds in which we are the sole or primary investor. | |
(3) | Convertible bond assets managed by us and Global Convertible Fund Ltd (formerly known as Asymmetric Convertible Fund). We began to manage the assets of the Global Convertible Fund Ltd. beginning October of 2005. | |
(4) | The Jefferies Real Asset Fund. The Jefferies Real Asset Fund was liquidated during the second quarter of 2006. | |
(5) | Third party managed funds in which we have a 50% or less interest in the entities that manage these assets or otherwise receive a portion of the management or incentive fees. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(Unaudited)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Asset management fees: | ||||||||||||||||
Fixed Income (1) | $ | 11,068 | $ | 3,543 | $ | 16,110 | $ | 10,181 | ||||||||
Equities (2) | (5,247 | ) | 6,203 | 11,883 | 11,100 | |||||||||||
Convertibles (3) | 3,054 | 1,006 | 4,697 | 2,498 | ||||||||||||
Real Assets (4) | 43 | 2,828 | 2,237 | 4,710 | ||||||||||||
8,918 | 13,580 | 34,927 | 28,489 | |||||||||||||
Investment income from managed funds | 13,609 | 6,854 | 28,422 | 13,229 | ||||||||||||
Total | $ | 22,527 | $ | 20,434 | $ | 63,349 | $ | 41,718 | ||||||||
(1) | Our managed or co-managed assets under management in two Jefferies Partners Opportunity funds, Jefferies Employees Opportunity Fund, LLC, the Jackson Creek CDO, the Summit Lake CLO, the Victoria Falls CLO and certain third-party managed funds. We completed the liquidation of the Jackson Creek CDO during the second quarter of 2005. | |
(2) | The Jefferies RTS Fund, Jefferies Paragon Fund and start-up funds in which we are the sole or primary investor. | |
(3) | Convertible bond assets managed by us and Global Convertible Fund Ltd. (formerly known as Asymmetric Convertible Fund). We began to manage the assets of the Global Convertible Fund Ltd. beginning October of 2005. | |
(4) | The Jefferies Real Asset Fund. The Jefferies Real Asset Fund was liquidated during the second quarter of 2006. |
Investment | Net | |||||||||||||||
Investment | Income from | Investment | ||||||||||||||
Income from | Managed Funds – | Income from | ||||||||||||||
Average | Managed | Minority Interest | Managed | |||||||||||||
Investment(5) | Funds | Portion | Funds | |||||||||||||
Fixed Income (1) | $ | 185.7 | $ | 13.3 | $ | 4.1 | $ | 9.2 | ||||||||
Equities (2) | 74.0 | ¾ | ¾ | ¾ | ||||||||||||
Convertibles (3) | 12.8 | 0.3 | ¾ | 0.3 | ||||||||||||
Real Assets (4) | 3.0 | ¾ | ¾ | ¾ | ||||||||||||
Total | $ | 275.5 | $ | 13.6 | $ | 4.1 | $ | 9.5 | ||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(Unaudited)
Investment | Net | |||||||||||||||
Investment | Income from | Investment | ||||||||||||||
Income from | Managed Funds – | Income from | ||||||||||||||
Average | Managed | Minority Interest | Managed | |||||||||||||
Investment (5) | Funds | Portion | Funds | |||||||||||||
Fixed Income (1) | $ | 143.6 | $ | 2.5 | $ | 1.4 | $ | 1.1 | ||||||||
Equities (2) | 61.4 | 3.9 | ¾ | 3.9 | ||||||||||||
Convertibles (3) | 11.1 | ¾ | ¾ | ¾ | ||||||||||||
Real Assets(4) | 10.4 | 0.5 | ¾ | 0.5 | ||||||||||||
Total | $ | 226.5 | $ | 6.9 | $ | 1.4 | $ | 5.5 | ||||||||
(1) | Our managed or co-managed assets under management in two Jefferies Partners Opportunity funds, Jefferies Employees Opportunity Fund, LLC, the Jackson Creek CDO, the Summit Lake CLO, the Victoria Falls CLO, start-up funds in which we are the sole or primary investor and certain third-party managed funds. We completed the liquidation of the Jackson Creek CDO during the second quarter of 2005. | |
(2) | The Jefferies RTS Fund, Jefferies Paragon Fund, certain third-party managed private equity funds and start-up funds in which we are the sole or primary investor. | |
(3) | Convertible bond assets managed by us and Global Convertible Fund Ltd. (formerly known as Asymmetric Convertible Fund). We began to manage the assets of the Global Convertible Fund Ltd. beginning October of 2005. | |
(4) | The Jefferies Real Asset Fund. The Jefferies Real Asset Fund was liquidated during the second quarter of 2006. | |
(5) | We have excluded the portion of average investment in managed funds that represent an economic hedge against certain employee deferred compensation obligations. |
Investment | Net | |||||||||||||||
Investment | Income from | Investment | ||||||||||||||
Income from | Managed Funds – | Income from | ||||||||||||||
Average | Managed | Minority Interest | Managed | |||||||||||||
Investment (5) | Funds | Portion | Funds | |||||||||||||
Fixed Income (1) | $ | 171.9 | $ | 20.8 | $ | 5.8 | $ | 15.0 | ||||||||
Equities (2) | 74.1 | 5.9 | ¾ | 5.9 | ||||||||||||
Convertibles (3) | 12.5 | 1.0 | ¾ | 1.0 | ||||||||||||
Real Assets (4) | 7.1 | 0.7 | ¾ | 0.7 | ||||||||||||
Total | $ | 265.6 | $ | 28.4 | $ | 5.8 | $ | 22.6 | ||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(Unaudited)
Investment | Net | |||||||||||||||
Investment | Income from | Investment | ||||||||||||||
Income from | Managed Funds – | Income from | ||||||||||||||
Average | Managed | Minority Interest | Managed | |||||||||||||
Investment (5) | Funds | Portion | Funds | |||||||||||||
Fixed Income (1) | $ | 134.5 | $ | 4.9 | $ | 3.5 | $ | 1.4 | ||||||||
Equities (2) | 62.0 | 7.6 | 0.1 | 7.5 | ||||||||||||
Equity-linked (3) | 11.2 | (0.1 | ) | ¾ | (0.1 | ) | ||||||||||
Real Assets (4) | 10.4 | 0.8 | ¾ | 0.8 | ||||||||||||
Total | $ | 218.1 | $ | 13.2 | $ | 3.6 | $ | 9.6 | ||||||||
(1) | Our managed or co-managed assets under management in two Jefferies Partners Opportunity funds, Jefferies Employees Opportunity Fund, LLC, the Jackson Creek CDO, the Summit Lake CLO, the Victoria Falls CLO, start-up funds in which we are the sole or primary investor and certain third-party managed funds. We completed the liquidation of the Jackson Creek CDO during the second quarter of 2005. | |
(2) | The Jefferies RTS Fund, Jefferies Paragon Fund, certain third-party managed private equity funds and start-up funds in which we are the sole or primary investor. | |
(3) | Convertible bond assets managed by us and Global Convertible Fund Ltd. (formerly known as Asymmetric Convertible Fund). We began to manage the assets of the Global Convertible Fund Ltd. beginning October of 2005. | |
(4) | The Jefferies Real Asset Fund. The Jefferies Real Asset Fund was liquidated during the second quarter of 2006. | |
(5) | We have excluded the portion of average investment in managed funds that represent an economic hedge against certain employee deferred compensation obligations. |
June 30, 2006 | December 31, 2005 | |||||||
Cash and cash equivalents: | ||||||||
Cash in banks | $ | 53,041 | $ | 85,191 | ||||
Money market investments | 353,062 | 170,742 | ||||||
Total cash and cash equivalents | 406,103 | 255,933 | ||||||
Cash and securities segregated (1) | 921,850 | 629,360 | ||||||
Short-term bond funds | ¾ | 7,037 | ||||||
Auction rate preferreds (2) | 30,706 | 28,756 | ||||||
Mortgage-backed securities (2) | 41,371 | 13,458 | ||||||
Asset-backed securities (2) | 28,977 | 33,159 | ||||||
$ | 1,429,007 | $ | 967,703 | |||||
(1) | 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, deposits with clearing and depository organizations are included in this caption. | |
(2) | Items are included in Financial Instruments Owned (see Note 4 below). Items are financial instruments utilized in our overall cash management activities and are readily convertible to cash. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(Unaudited)
June 30, 2006 | December 31, 2005 | |||||||||||||||
Financial | Financial | |||||||||||||||
Instruments | Instruments | |||||||||||||||
Financial | Sold, | Financial | Sold, | |||||||||||||
Instruments | Not Yet | Instruments | Not Yet | |||||||||||||
Owned | Purchased | Owned | Purchased | |||||||||||||
Corporate equity securities | $ | 526,929 | $ | 1,339,644 | $ | 291,724 | $ | 224,235 | ||||||||
High-yield securities | 158,182 | 40,814 | 107,560 | 34,853 | ||||||||||||
Corporate debt securities | 1,148,742 | 790,925 | 756,931 | 589,967 | ||||||||||||
U.S. Government and agency obligations | 456,403 | 331,365 | 402,316 | 370,863 | ||||||||||||
Auction rate preferreds | 30,706 | ¾ | 28,756 | ¾ | ||||||||||||
Mortgage-backed securities | 41,371 | ¾ | ¾ | ¾ | ||||||||||||
Asset-backed securities | 28,977 | ¾ | ¾ | ¾ | ||||||||||||
Other | 7,455 | 318 | 500 | 665 | ||||||||||||
Swaps | 9,085 | 90,264 | 37,298 | 39,752 | ||||||||||||
Options | 48,049 | 158,712 | 24,995 | 39,982 | ||||||||||||
$ | 2,455,899 | $ | 2,752,042 | $ | 1,650,080 | $ | 1,300,317 | |||||||||
June 30, 2006 | December 31, 2005 | |||||||
Corporate equity securities | $ | 969,009 | $ | 99,764 | ||||
Corporate debt securities | 341,663 | 16,882 | ||||||
Mortgage-backed securities | ¾ | 13,458 | ||||||
Asset-backed securities | ¾ | 33,159 | ||||||
High-yield securities | ¾ | 15,423 | ||||||
$ | 1,310,672 | $ | 178,686 | |||||
June 30, 2006 | December 31, 2005 | |||||||
71/2% Senior Notes, due 2007, net of unamortized discount of $32 (2006) | $ | 99,968 | $ | 99,954 | ||||
73/4% Senior Notes, due 2012, net of unamortized discount of $5,042 (2006 ) | 323,086 | 331,781 | ||||||
51/2% Senior Notes, due 2016, net of unamortized discount of $1,771 (2006) | 348,229 | 348,138 | ||||||
61/4% Senior Notes, due 2036, net of unamortized discount of $7,807 (2006) | 492,193 | ¾ | ||||||
$ | 1,263,476 | $ | 779,873 | |||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(Unaudited)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Net pension cost included the following components: | ||||||||||||||||
Service cost — benefits earned during the period | $ | ¾ | $ | 496 | $ | ¾ | $ | 992 | ||||||||
Interest cost on projected benefit obligation | 638 | 614 | 1,276 | 1,229 | ||||||||||||
Expected return on plan assets | (560 | ) | (461 | ) | (1,120 | ) | (923 | ) | ||||||||
Amortization of prior service cost | ¾ | (3 | ) | ¾ | (6 | ) | ||||||||||
Amortization of net loss | 255 | 298 | 510 | 596 | ||||||||||||
Net periodic pension cost | $ | 333 | $ | 944 | $ | 666 | $ | 1,888 | ||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(Unaudited)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Earnings before cumulative effect of change | $ | 45,580 | $ | 35,437 | $ | 102,421 | $ | 72,109 | ||||||||
Cumulative effect of change in accounting principle, net | ¾ | ¾ | 1,606 | ¾ | ||||||||||||
Net earnings | $ | 45,580 | $ | 35,437 | $ | 104,027 | $ | 72,109 | ||||||||
Add: Convertible preferred stock dividends | 1,016 | ¾ | 1,512 | ¾ | ||||||||||||
Net earnings for diluted earnings per share | $ | 46,596 | $ | 35,437 | $ | 105,539 | $ | 72,109 | ||||||||
Shares: | ||||||||||||||||
Average shares used in basic computation | 133,621 | 122,937 | 131,993 | 122,072 | ||||||||||||
Unvested restricted stock / restricted stock units | 8,660 | 2,974 | 8,885 | 3,184 | ||||||||||||
Stock options | 1,290 | 8,933 | 1,422 | 8,734 | ||||||||||||
Convertible preferred stock | 4,034 | ¾ | 2,987 | ¾ | ||||||||||||
Average shares used in diluted computation | 147,605 | 134,844 | 145,287 | 133,990 | ||||||||||||
Earnings per share: | ||||||||||||||||
Basic- | ||||||||||||||||
Earnings before cumulative effect of change | $ | 0.34 | $ | 0.29 | $ | 0.78 | $ | 0.59 | ||||||||
Cumulative effect of change in accounting principle, net | ¾ | ¾ | 0.01 | ¾ | ||||||||||||
Net earnings | $ | 0.34 | $ | 0.29 | $ | 0.79 | $ | 0.59 | ||||||||
Diluted- | ||||||||||||||||
Earnings before cumulative effect of change | $ | 0.32 | $ | 0.26 | $ | 0.72 | $ | 0.54 | ||||||||
Cumulative effect of change in accounting principle, net | ¾ | ¾ | 0.01 | ¾ | ||||||||||||
Net earnings | $ | 0.32 | $ | 0.26 | $ | 0.73 | $ | 0.54 | ||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(Unaudited)
0 – 12 | 1 – 5 | 5 – 10 | ||||||||||||||
(in millions) | Months | Years | Years | Total | ||||||||||||
Swaps | $ | (81.2 | ) | $ | (0.0 | ) | $ | ¾ | $ | (81.2 | ) | |||||
Options | (44.4 | ) | (68.0 | ) | (0.4 | ) | (112.8 | ) | ||||||||
FX forwards | 1.1 | 0.1 | ¾ | 1.2 | ||||||||||||
Exchange-traded futures and options | 49.3 | 2.4 | ¾ | 51.7 | ||||||||||||
Total | $ | (75.2 | ) | $ | (65.5 | ) | $ | (0.4 | ) | $ | (141.1 | ) | ||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(Unaudited)
Fair Value | ||||||||
June 30, | December 31, | |||||||
(in millions) | 2006 | 2005 | ||||||
Counterparty credit quality: | ||||||||
A or higher | $ | (192.8 | ) | $ | (29.5 | ) | ||
Exchange-traded futures and options (1) | 51.7 | 95.7 | ||||||
Total | $ | (141.1 | ) | $ | 66.2 | |||
(1) | Exchange-traded commodities and foreign exchange futures and options are not deemed to have significant credit exposures as the exchanges guarantee that every contract will be properly settled on a daily basis. |
Fair Value | ||||||||
June 30, | December 31, | |||||||
(in millions) | 2006 | 2005 | ||||||
Foundations, trust and endowments | $ | (14.2 | ) | $ | (0.1 | ) | ||
Financial services | (148.4 | ) | (45.1 | ) | ||||
Sovereign entities | (20.1 | ) | ¾ | |||||
Collective investment vehicles (including pension plans, mutual funds and other institutional counterparties) | (10.1 | ) | 15.7 | |||||
Exchanges (1) | 51.7 | 95.7 | ||||||
Total | $ | (141.1 | ) | $ | 66.2 | |||
(1) | Exchange-traded commodities and foreign exchange futures and options are not deemed to have significant credit exposures as the exchanges guarantee that every contract will be properly settled on a daily basis. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(Unaudited)
June 30, 2006 | December 31, 2005 | |||||||||||||||
(in millions) | Assets | Liabilities | Assets | Liabilities | ||||||||||||
Exchange traded futures contracts | $ | 221.0 | $ | (167.3 | ) | $ | 189.8 | $ | (96.5 | ) | ||||||
Commodity related swaps | 9.1 | (90.3 | ) | 37.3 | (39.8 | ) | ||||||||||
Option contracts | 48.0 | (158.7 | ) | 25.0 | (40.0 | ) | ||||||||||
Foreign exchange forward contracts | 1.5 | (0.3 | ) | 0 | 0 | |||||||||||
Interest rate swaps | 3.1 | ¾ | 12.2 | ¾ |
Minimum | Accumulated | |||||||||||
Currency | Pension | Other | ||||||||||
Translation | Liability | Comprehensive | ||||||||||
Adjustments | Adjustment | Loss | ||||||||||
Beginning at March 31, 2006 | $ | 1,415 | $ | (6,125 | ) | $ | (4,710 | ) | ||||
Change in second quarter of 2006 | 5,087 | ¾ | 5,087 | |||||||||
Ending at June 30, 2006 | $ | 6,502 | $ | (6,125 | ) | $ | 377 | |||||
Minimum | Accumulated | |||||||||||
Currency | Pension | Other | ||||||||||
Translation | Liability | Comprehensive | ||||||||||
Adjustments | Adjustment | Gain (Loss) | ||||||||||
Beginning at March 31, 2005 | $ | 7,343 | $ | (6,868 | ) | $ | 475 | |||||
Change in second quarter of 2005 | (3,903 | ) | ¾ | (3,903 | ) | |||||||
Ending at June 30, 2005 | $ | 3,440 | $ | (6,868 | ) | $ | (3,428 | ) | ||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(Unaudited)
June 30, | June 30, | |||||||
2006 | 2005 | |||||||
Net earnings | $ | 45,580 | $ | 35,437 | ||||
Other comprehensive gain (loss) | 5,087 | (3,903 | ) | |||||
Comprehensive income | $ | 50,667 | $ | 31,534 | ||||
Minimum | Accumulated | |||||||||||
Currency | Pension | Other | ||||||||||
Translation | Liability | Comprehensive | ||||||||||
Adjustments | Adjustment | Loss | ||||||||||
Beginning at December 31, 2005 | $ | 962 | $ | (6,125 | ) | $ | (5,163 | ) | ||||
Change in first half of 2006 | 5,540 | ¾ | 5,540 | |||||||||
Ending at June 30, 2006 | $ | 6,502 | $ | (6,125 | ) | $ | 377 | |||||
Minimum | Accumulated | |||||||||||
Currency | Pension | Other | ||||||||||
Translation | Liability | Comprehensive | ||||||||||
Adjustments | Adjustment | Gain | ||||||||||
Beginning at December 31, 2004 | $ | 9,348 | $ | (6,868 | ) | $ | 2,480 | |||||
Change in first half of 2005 | (5,908 | ) | ¾ | (5,908 | ) | |||||||
Ending at June 30, 2005 | $ | 3,440 | $ | (6,868 | ) | $ | (3,428 | ) | ||||
June 30, | June 30, | |||||||
2006 | 2005 | |||||||
Net earnings | $ | 104,027 | $ | 72,109 | ||||
Other comprehensive gain (loss) | 5,540 | (5,908 | ) | |||||
Comprehensive income | $ | 109,567 | $ | 66,201 | ||||
Net Capital | Excess Net Capital | |||||||
Jefferies | $ | 216,859 | $ | 201,706 | ||||
Jefferies Execution | $ | 22,839 | $ | 22,589 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(Unaudited)
Maturity Date | ||||||||||||||||||||||||
Notional / | 2008 | 2010 | 2012 | |||||||||||||||||||||
Maximum | and | and | and | |||||||||||||||||||||
Payout | 2006 | 2007 | 2009 | 2011 | Later | |||||||||||||||||||
(Dollars in Millions) | ||||||||||||||||||||||||
Standby letters of credit | $ | 197.6 | $ | 197.6 | — | — | — | — | ||||||||||||||||
Undrawn bank credit | $ | 60.0 | $ | 60.0 | — | — | — | — | ||||||||||||||||
Equity commitments | $ | 270.7 | — | — | — | — | $ | 270.7 | ||||||||||||||||
Derivative contracts | $ | 590.0 | $ | 590.0 | — | — | — | — |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(Unaudited)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(Unaudited)
• | Net revenues and expenses directly associated with each business segment are included in determining income before taxes. |
• | Net revenues and expenses not directly associated with specific business segments are allocated based on the most relevant measures applicable, including each segment’s net revenues, headcount and other factors. |
• | Segment assets include an allocation of indirect corporate assets that have been fully allocated to our segments, generally based on each segment’s capital utilization. |
Capital | Asset | |||||||||||
Markets | Management | Total | ||||||||||
Three months ended June 30, 2006 | ||||||||||||
Net revenues | $ | 330.4 | $ | (3.1 | ) | $ | 327.3 | |||||
Expenses | 248.6 | (2.0 | ) | 246.6 | ||||||||
Income before taxes | $ | 81.8 | $ | (1.1 | ) | $ | 80.7 | |||||
Six months ended June 30, 2006 | ||||||||||||
Net revenues | $ | 716.1 | $ | 26.6 | $ | 742.7 | ||||||
Expenses | 539.6 | 25.0 | 564.6 | |||||||||
Income before taxes | $ | 176.5 | $ | 1.6 | $ | 178.1 | ||||||
Segment assets | $ | 15,164.6 | $ | 138.8 | $ | 15,303.4 | ||||||
Three months ended June 30, 2005 | ||||||||||||
Net revenues | $ | 263.3 | $ | 13.2 | $ | 276.5 | ||||||
Expenses | 205.1 | 11.1 | 216.2 | |||||||||
Income before taxes | $ | 58.2 | $ | 2.1 | $ | 60.3 | ||||||
Six months ended June 30, 2005 | ||||||||||||
Net revenues | $ | 538.6 | $ | 24.0 | $ | 562.6 | ||||||
Expenses | 417.1 | 23.0 | 440.1 | |||||||||
Income before taxes | $ | 121.5 | $ | 1.0 | $ | 122.5 | ||||||
Segment assets | $ | 12,710.1 | $ | 19.1 | $ | 12,729.2 | ||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(Unaudited)
December 31, | First Half | June 30, | ||||||||||||||
2005 | 2006 | 2006 | Acquisition | |||||||||||||
Acquisition | Balance | Activity | Balance | Date | ||||||||||||
Broadview International LLC | $ | 54,825 | $ | (101 | ) | $ | 54,724 | Dec. 2003 | ||||||||
Randall & Dewey | 48,383 | 4,937 | 53,320 | Jan. 2005 | ||||||||||||
Quarterdeck Investment Partners, LLC | 30,955 | 2,914 | 33,869 | Dec. 2002 | ||||||||||||
Helix Associates | 25,307 | ¾ | 25,307 | May 2005 | ||||||||||||
Bonds Direct Securities LLC | 20,943 | ¾ | 20,943 | Sept. 2004 | ||||||||||||
Other | 40,194 | ¾ | 40,194 | |||||||||||||
$ | 220,607 | $ | 7,750 | $ | 228,357 | |||||||||||
1st Quarter | 2nd Quarter | |||||||
2006 | $ | 0.075 | $ | 0.125 | ||||
2005 | $ | 0.060 | $ | 0.060 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(Unaudited)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(Unaudited)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(Unaudited)
Six Months | Weighted | |||||||
Ended | Average Grant | |||||||
June 30, 2006 | Date Fair Value | |||||||
(Shares in 000s) | ||||||||
Restricted stock | ||||||||
Balance, beginning of year | 7,358 | $ | 16.56 | |||||
Grants | 395 | $ | 25.70 | |||||
Forfeited | (569 | ) | $ | 18.03 | ||||
Vested | (2,253 | ) | $ | 12.23 | ||||
Balance, end of period | 4,931 | $ | 19.06 | |||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(Unaudited)
Six Months | Weighted | |||||||||||||||
Ended | Average Grant | |||||||||||||||
June 30, 2006 | Date Fair Value | |||||||||||||||
(Shares in 000s) | ||||||||||||||||
Future | No Future | Future | No Future | |||||||||||||
Service | Service | Service | Service | |||||||||||||
Required | Required | Required | Required | |||||||||||||
Restricted stock units (RSU) | ||||||||||||||||
Balance, beginning of year | 16,077 | 8,585 | $ | 16.64 | $ | 4.88 | ||||||||||
Grants, includes dividends | 1,547 | 174 | $ | 24.81 | $ | — | ||||||||||
Deferral expiration | — | (192 | ) | $ | — | $ | 15.63 | |||||||||
Forfeited | (313 | ) | — | $ | 19.44 | $ | — | |||||||||
Vested | (3,670 | ) | 3,670 | $ | 12.33 | $ | 12.33 | |||||||||
Grants related to stock option exercises | — | 236 | $ | — | $ | — | ||||||||||
Balance, end of period | 13,641 | 12,473 | $ | 18.67 | $ | 6.75 | ||||||||||
Weighted- | ||||||||
Average | ||||||||
Options | Exercise Price | |||||||
Outstanding, December 31, 2005 | 4,533 | $ | 9.75 | |||||
Granted | ¾ | ¾ | ||||||
Exercised | (1,603 | ) | $ | 8.24 | ||||
Canceled | (18 | ) | $ | 11.58 | ||||
Outstanding, June 30, 2006 | 2,912 | $ | 10.57 | |||||
Outstanding | ||||||||
Net of Expected | Options | |||||||
June 30, 2006 | Forfeitures | Exercisable | ||||||
Number of options | 2,912 | 2,912 | ||||||
Weighted-average exercise price | $ | 10.57 | $ | 10.57 | ||||
Aggregate intrinsic value | $ | 55,493 | $ | 55,493 | ||||
Weighted-average remaining contractual term, in years | 1.1 | 1.1 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(Unaudited)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Compensation and benefits, as reported | $ | 176,675 | 152,003 | 409,409 | 313,991 | |||||||||||
Effect of expensing share based awards granted to retirement-eligible employees (1) | (3,344 | ) | 8,259 | (6,050 | ) | 14,199 | ||||||||||
Pro forma compensation and benefits costs | 173,331 | 160,262 | 403,359 | 328,190 |
(1) | Compensation and benefits, as reported for 2006, includes the amortization of such pre-2006 awards. The 2006 pro forma impact represents the presumed benefit associated with amortizing pre-2006 awards over the service period prior to the grant date for retirement-eligible employees. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(Unaudited)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Net earnings, as reported | $ | 45,580 | $ | 35,437 | $ | 104,027 | $ | 72,109 | ||||||||
Add: Stock based employee compensation expense included in reported net earnings, net of related tax effects | 10,890 | 10,340 | 25,198 | 20,537 | ||||||||||||
Deduct: Total stock based employee compensation expense determined under fair value based method for all awards, net of related tax effects | (10,890 | ) | (10,554 | ) | (25,198 | ) | (21,120 | ) | ||||||||
Pro forma net earnings | $ | 45,580 | $ | 35,223 | $ | 104,027 | $ | 71,526 | ||||||||
Earnings per share: | ||||||||||||||||
Basic – as reported | $ | 0.34 | $ | 0.29 | $ | 0.79 | $ | 0.59 | ||||||||
Basic – pro forma | $ | 0.34 | $ | 0.29 | $ | 0.79 | $ | 0.59 | ||||||||
Diluted – as reported | $ | 0.32 | $ | 0.26 | $ | 0.73 | $ | 0.54 | ||||||||
Diluted – pro forma | $ | 0.32 | $ | 0.26 | $ | 0.73 | $ | 0.53 | ||||||||
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• | the risk factors contained in our annual report on Form 10-K for the fiscal year ended December 31, 2005 and filed with the SEC on March 1, 2006; | ||
• | the discussion of our analysis of financial condition and results of operations contained in this report under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations”; | ||
• | the notes to consolidated financial statements contained in this report; and | ||
• | cautionary statements we make in our public documents, reports and announcements. |
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Year Ended December 31, | ||||||||||||||||||||||||
2005 | 2004 | 2003 | ||||||||||||||||||||||
% of | % of | % of | ||||||||||||||||||||||
Total | Total | Total | ||||||||||||||||||||||
Amount | Revenues | Amount | Revenues | Amount | Revenues | |||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||
Equity | $ | 438,080 | 29 | % | $ | 503,848 | 42 | % | $ | 441,181 | 48 | % | ||||||||||||
Fixed Income & Commodities | 178,674 | 12 | 126,353 | 11 | 120,755 | 13 | ||||||||||||||||||
Total | 616,754 | 41 | 630,201 | 53 | 561,936 | 61 | ||||||||||||||||||
Investment banking | 495,014 | 33 | 352,804 | 29 | 229,608 | 25 | ||||||||||||||||||
Asset management fees and investment income from managed funds: | ||||||||||||||||||||||||
Asset management fees | 50,943 | 4 | 38,208 | 3 | 17,268 | 2 | ||||||||||||||||||
Investment income from managed funds | 31,109 | 2 | 42,976 | 4 | 15,501 | 1 | ||||||||||||||||||
Total | 82,052 | 6 | 81,184 | 7 | 32,769 | 3 | ||||||||||||||||||
Interest | 304,053 | 20 | 134,450 | 11 | 102,403 | 11 | ||||||||||||||||||
Total revenues | $ | 1,497,873 | 100 | % | $ | 1,198,639 | 100 | % | $ | 926,716 | 100 | % | ||||||||||||
Three Months Ended | ||||||||||||||||
June 30, 2006 | June 30, 2005 | |||||||||||||||
% of | % of | |||||||||||||||
Total | Total | |||||||||||||||
Amount | Revenues | Amount | Revenues | |||||||||||||
Equity | $ | 101,173 | 22 | % | $ | 104,621 | 30 | % | ||||||||
Fixed Income & Commodities | 71,636 | 16 | 45,169 | 13 | ||||||||||||
Total | 172,809 | 38 | 149,790 | 43 | ||||||||||||
Investment banking | 122,932 | 27 | 102,519 | 30 | ||||||||||||
Asset management fees and investment income from managed funds: | ||||||||||||||||
Asset management fees | 8,918 | 2 | 13,580 | 4 | ||||||||||||
Investment income from managed funds | 13,609 | 3 | 6,854 | 2 | ||||||||||||
Total | 22,527 | 5 | 20,434 | 6 | ||||||||||||
Interest | 138,851 | 30 | 71,420 | 21 | ||||||||||||
Total revenues | $ | 457,119 | 100 | % | $ | 344,163 | 100 | % | ||||||||
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Six Months Ended | ||||||||||||||||
June 30, 2006 | June 30, 2005 | |||||||||||||||
% of | % of | |||||||||||||||
Total | Total | |||||||||||||||
Amount | Revenues | Amount | Revenues | |||||||||||||
Equity | $ | 274,282 | 28 | % | $ | 207,284 | 30 | % | ||||||||
Fixed Income & Commodities | 140,288 | 14 | 87,822 | 13 | ||||||||||||
Total | 414,570 | 42 | 295,106 | 43 | ||||||||||||
Investment banking | 250,666 | 26 | 219,961 | 32 | ||||||||||||
Asset management fees and investment income from managed funds: | ||||||||||||||||
Asset management fees | 34,927 | 3 | 28,489 | 4 | ||||||||||||
Investment income from managed funds | 28,422 | 3 | 13,229 | 2 | ||||||||||||
Total | 63,349 | 6 | 41,718 | 6 | ||||||||||||
Interest | 252,611 | 26 | 131,271 | 19 | ||||||||||||
Total revenues | $ | 981,196 | 100 | % | $ | 688,056 | 100 | % | ||||||||
Quarter Ended | ||||||||||||
June 30, | June 30, | Percentage | ||||||||||
2006 | 2005 | Change | ||||||||||
(Dollars in Thousands) | ||||||||||||
Capital markets | $ | 43,014 | $ | 47,558 | (10 | %) | ||||||
Advisory | 79,918 | 54,961 | 45 | % | ||||||||
Total | $ | 122,932 | $ | 102,519 | 20 | % | ||||||
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Changes in Assets under Management
Three | Three | |||||||||||
Month | Month | |||||||||||
Period | Period | |||||||||||
Ending | Ending | |||||||||||
June 30, | June 30, | Percent | ||||||||||
In millions | 2006 | 2005 | Change | |||||||||
Balance, beginning of period | $ | 4,248 | $ | 3,852 | 10 | % | ||||||
Net cash flow in | 288 | 44 | 555 | % | ||||||||
Net market appreciation | 54 | 84 | (36 | %) | ||||||||
342 | 128 | 167 | % | |||||||||
Balance, end of period | $ | 4,590 | $ | 3,980 | 15 | % | ||||||
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Six Months Ended | ||||||||||||
June 30, | June 30, | Percentage | ||||||||||
2006 | 2005 | Change | ||||||||||
(Dollars in Thousands) | ||||||||||||
Capital markets | $ | 89,933 | $ | 98,975 | (9 | %) | ||||||
Advisory | 160,733 | 120,986 | 33 | % | ||||||||
Total | $ | 250,666 | $ | 219,961 | 14 | % | ||||||
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Six Month | Six Month | |||||||||||
Period | Period | |||||||||||
Ending | Ending | |||||||||||
June 30, | June 30, | Percent | ||||||||||
In millions | 2006 | 2005 | Change | |||||||||
Balance, beginning of period | $ | 4,260 | $ | 3,770 | 13 | % | ||||||
Net cash flow in | 105 | 111 | (5 | %) | ||||||||
Net market appreciation | 225 | 99 | 127 | % | ||||||||
330 | 210 | 57 | % | |||||||||
Balance, end of period | $ | 4,590 | $ | 3,980 | 15 | % | ||||||
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June 30, 2006 | December 31, 2005 | |||||||
Cash and cash equivalents: | ||||||||
Cash in banks | $ | 53,041 | $ | 85,191 | ||||
Money market investments | 353,062 | 170,742 | ||||||
Total cash and cash equivalents | 406,103 | 255,933 | ||||||
Cash and securities segregated (1) | 921,850 | 629,360 | ||||||
Short-term bond funds | — | 7,037 | ||||||
Auction rate preferreds (2) | 30,706 | 28,756 | ||||||
Mortgage-backed securities (2) | 41,371 | 13,458 | ||||||
Asset-backed securities (2) | 28,977 | 33,159 | ||||||
$ | 1,429,007 | $ | 967,703 | |||||
(1) | 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, deposits with clearing and depository organizations are included in this caption. | |
(2) | Items are included in Financial Instruments Owned and Securities Pledged to Creditors (see note 4 of the Notes to the Consolidated Financial Statements). Items are financial instruments utilized in our overall cash management activities and are readily convertible to cash. |
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• | The repayment of our unsecured debt maturing within twelve months (no such amounts outstanding at June 30, 2006); |
• | The payment of interest expense on our long term debt; |
• | The anticipated funding of outstanding investment commitments; |
• | The anticipated fixed costs over the next 12 months; |
• | Potential stock repurchases; and |
• | All current liabilities. |
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June 30, 2006 | December 31, 2005 | |||||||
Stockholders’ equity | $ | 1,434,050 | $ | 1,286,850 | ||||
Less: Goodwill | (228,357 | ) | (220,607 | ) | ||||
Tangible stockholders’ equity | $ | 1,205,693 | $ | 1,066,243 | ||||
Stockholders’ equity | $ | 1,434,050 | $ | 1,286,850 | ||||
Add: Projected tax benefit on vested portion of restricted stock | 159,589 | 137,193 | ||||||
Pro forma stockholders’ equity | $ | 1,593,639 | $ | 1,424,043 | ||||
Tangible stockholders’ equity | $ | 1,205,693 | $ | 1,066,243 | ||||
Add: Projected tax benefit on vested portion of restricted stock | 159,589 | 137,193 | ||||||
Pro forma tangible stockholders’ equity | $ | 1,365,282 | $ | 1,203,436 | ||||
Shares outstanding | 118,540,103 | 116,220,784 | ||||||
Add: Shares not issued, to the extent of related expense amortization | 23,611,487 | 21,093,398 | ||||||
Less: | ||||||||
Shares issued, to the extent related expense has not been amortized | (2,274,706 | ) | (2,618,570 | ) | ||||
Adjusted shares outstanding | 139,876,884 | 134,695,612 | ||||||
Book value per share (1) | $ | 12.10 | $ | 11.07 | ||||
Pro forma book value per share (2) | $ | 11.39 | $ | 10.57 | ||||
Tangible book value per share (3) | $ | 10.17 | $ | 9.17 | ||||
Pro forma tangible book value per share (4) | $ | 9.76 | $ | 8.93 | ||||
(1) | Book value per share equals stockholders’ equity divided by common shares outstanding. | |
(2) | Pro forma book value per share equals stockholders’ equity plus the projected deferred tax benefit on the amortized portion of restricted stock and RSUs divided by common shares outstanding adjusted for shares not yet issued to the extent of the related expense amortization and shares issued to the extent the related expense has not been amortized. | |
(3) | Tangible book value per share equals tangible stockholders’ equity divided by common shares outstanding. | |
(4) | Pro forma tangible book value per share equals tangible stockholders’ equity plus the projected deferred tax benefit on the amortized portion of restricted stock and RSUs divided by common shares outstanding adjusted for shares not yet issued to the extent of the related expense amortization and shares issued to the extent the related expense has not been amortized. |
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June 30, | December 31, | |||||||
2006 | 2005 | |||||||
Long Term Debt (1) | $ | 1,263,476 | $ | 779,873 | ||||
Mandatorily Redeemable Convertible Preferred Stock | 125,000 | — | ||||||
Total Stockholders’ Equity | 1,434,050 | 1,286,850 | ||||||
Total Capital | $ | 2,822,526 | $ | 2,066,723 | ||||
(1) | Long term debt includes amounts contractually due greater than one year from the as of date, less unamortized discount, and adjusted for the basis difference attributed to the application of hedge accounting. |
Rating | ||||
Moody’s Investors Services | Baa1 | |||
Standard and Poor’s | BBB+ | |||
Fitch Ratings | BBB+ |
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Net Capital | Excess Net Capital | |||||||
Jefferies | $ | 216,859 | $ | 201,706 | ||||
Jefferies Execution | $ | 22,839 | $ | 22,589 |
June 30, 2006 | December 31, 2005 | |||||||
Total assets | $ | 15,303,436 | $ | 12,780,931 | ||||
Adjusted assets (1) | 14,381,586 | 12,151,571 | ||||||
Net adjusted assets (2) | 6,406,242 | 4,008,093 | ||||||
Leverage ratio (3) | 10.7 | 9.9 | ||||||
Adjusted leverage ratio (4) | 10.0 | 9.4 | ||||||
Net adjusted leverage ratio (5) | 4.5 | 3.1 |
(1) | Adjusted assets are total assets less cash and securities segregated. | |
(2) | Net adjusted assets are adjusted assets, less securities borrowed. | |
(3) | Leverage ratio equals total assets divided by stockholders’ equity. | |
(4) | Adjusted leverage ratio equals adjusted assets divided by stockholders’ equity. | |
(5) | Net adjusted leverage ratio equals net adjusted assets divided by stockholders’ equity. |
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• | inventory position and exposure limits, on a gross and net basis; | ||
• | scenario analyses, stress tests and other analytical tools that measure the potential effects on our trading net revenues of various market events, including, but not limited to, a large widening of credit spreads, a substantial decline in equities markets and significant moves in selected emerging markets; and | ||
• | risk limits based on a summary measure of risk exposure referred to as Value-at-Risk (VaR). |
Daily VaR(1) | ||||||||||||||||||||||||
(In Millions) | ||||||||||||||||||||||||
Value-at-Risk in trading portfolios | ||||||||||||||||||||||||
VaR at | Average VaR 3 Months Ended | |||||||||||||||||||||||
Risk Categories | 6/30/06 | 3/31/06 | 12/30/05 | 6/30/06 | 3/31/06 | 12/30/05 | ||||||||||||||||||
Interest Rates | $ | 0.89 | $ | 0.66 | $ | 0.56 | $ | 0.54 | $ | 0.72 | $ | 0.48 | ||||||||||||
Equity Prices | $ | 4.38 | $ | 2.51 | $ | 2.11 | $ | 3.32 | $ | 3.81 | $ | 2.50 | ||||||||||||
Currency Rates | $ | 0.44 | $ | 0.40 | $ | 0.36 | $ | 0.38 | $ | 0.34 | $ | 0.29 | ||||||||||||
Commodity Prices | $ | 1.15 | $ | 4.87 | $ | 0.20 | $ | 2.22 | $ | 2.47 | $ | 1.42 | ||||||||||||
Diversification Effect2 | -$ | 2.30 | -$ | 3.45 | -$ | 1.10 | -$ | 2.45 | -$ | 2.51 | -$ | 1.64 | ||||||||||||
Firmwide | $ | 4.56 | $ | 4.99 | $ | 2.13 | $ | 4.01 | $ | 4.83 | $ | 3.05 | ||||||||||||
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Daily VaR(1) | ||||||||||||||||||||||||
(In Millions) | ||||||||||||||||||||||||
Value-at-Risk Highs and Lows for Three Months Ended | ||||||||||||||||||||||||
6/30/06 | 3/31/06 | 12/30/05 | ||||||||||||||||||||||
Risk Categories | High | Low | High | Low | High | Low | ||||||||||||||||||
Interest Rates | $ | 0.89 | $ | 0.41 | $ | 0.98 | $ | 0.55 | $ | 0.62 | $ | 0.33 | ||||||||||||
Equity Prices | $ | 5.66 | $ | 1.23 | $ | 13.30 | $ | 1.10 | $ | 3.38 | $ | 1.99 | ||||||||||||
Currency Rates | $ | 0.46 | $ | 0.29 | $ | 0.43 | $ | 0.27 | $ | 0.45 | $ | 0.14 | ||||||||||||
Commodity Prices | $ | 4.67 | $ | 0.85 | $ | 4.87 | $ | 0.62 | $ | 2.60 | $ | 0.10 | ||||||||||||
Firmwide | $ | 6.01 | $ | 1.95 | $ | 13.90 | $ | 2.08 | $ | 3.73 | $ | 2.13 | ||||||||||||
(1) | VaR is the potential loss in value of our trading positions due to adverse market movements over a defined time horizon with a specific confidence level. For the VaR numbers reported above, a one-day time horizon and 95% confidence level were used. | |
(2) | Equals the difference between firmwide VaR and the sum of the VaRs by risk categories. This effect is due to the market categories not being perfectly correlated. |
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($ in millions)
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(c) Total Number of | ||||||||||||||||
(a) Total | (b) | Shares Purchased as | (d) Maximum Number | |||||||||||||
Number of | Average | Part of Publicly | of Shares that May Yet | |||||||||||||
Shares | Price Paid | Announced Plans or | Be Purchased Under the | |||||||||||||
Period | Purchased (1) | per Share | Programs | Plans or Programs (2) | ||||||||||||
April 1 – April 30, 2006 | 139,594 | 27.26 | — | 6,000,000 | ||||||||||||
May 1 – May 31, 2006 | 4,224 | 33.09 | — | 6,000,000 | ||||||||||||
June 1 – June 30, 2006 | 182 | 33.23 | — | 6,000,000 | ||||||||||||
Total | 144,000 | 27.44 | — |
(1) | We repurchased an aggregate of 144,000 shares other than as part of a publicly announced plan or program. We repurchased these securities in connection with our stock compensation plans which allow participants to use shares to pay the exercise price of options exercised and to use shares to satisfy tax liabilities arising from the exercise of options or the vesting of restricted stock. The number above does not include unvested shares forfeited back to us pursuant to the terms of our stock compensation plans. | |
(2) | On July 26, 2005, we issued a press release announcing the authorization by our Board of Directors to repurchase, from time to time, up to an aggregate of 3,000,000 shares of our common stock. After giving effect to the 2-for-1 stock split effected as a stock dividend on May 15, 2006, this authorization increased to 6,000,000 shares. |
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Abstentions | ||||||||||||
and Broker | ||||||||||||
For | Withheld | non-votes | ||||||||||
Election of Directors | ||||||||||||
W. Patrick Campbell | 38,631,439 | 7,158,990 | * | |||||||||
Richard G. Dooley | 39,814,367 | 5,976,062 | * | |||||||||
Brian P. Friedman | 40,931,052 | 4,859,377 | * | |||||||||
Richard B. Handler | 41,655,971 | 4,134,458 | * | |||||||||
Robert E. Joyal | 45,418,130 | 372,299 | * | |||||||||
Frank J. Macchiarola | 38,552,927 | 7,237,502 | * | |||||||||
Michael T. O’Kane | 45,418,145 | 372,284 | * |
* | not applicable |
Exhibits | ||
3.1 | Amended and Restated Certificate of Incorporation of Jefferies Group, Inc. is incorporated herein by reference to Exhibit 3 of the Registrant’s Form 8-K filed on May 26, 2004. | |
3.2 | Registrant’s Certificate of Designations of 3.25% Series A Cumulative Convertible Preferred Stock is incorporated herein by reference to Exhibit 3.1 of Registrant’s Form 8-K filed on February 21, 2006. | |
3.3 | By-Laws of Jefferies Group, Inc are incorporated herein by reference to Exhibit 3.2 of Registrant’s Form 10-K filed on March 28, 2003. | |
31.1* | Rule 13a-14(a)/15d-14(a) Certification by the Chief Financial Officer. | |
31.2* | Rule 13a-14(a)/15d-14(a) Certification by the Chief Executive Officer. Rule 13a-14(b)/15d-14(b) and Section 1350 of Title 18 U.S.C. Certification by the Chief Executive Officer and Chief Financial | |
32* | Officer. |
* | Filed herewith. |
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JEFFERIES GROUP, INC. (Registrant) | ||||
Date: August 7, 2006 | By: | /s/ Joseph A. Schenk | ||
Joseph A. Schenk | ||||
Chief Financial Officer | ||||
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