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SECURITIES AND EXCHANGE COMMISSION
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 incorporation or organization) | (I.R.S. Employer Identification No.) |
520 Madison Avenue, 12th Floor, New York, New York | 10022 | |
(Address of principal executive offices) | (Zip Code) |
Yesþ Noo
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Yeso Noþ
INDEX TO QUARTERLY REPORT ON FORM 10-Q
MARCH 31, 2008
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JEFFERIES GROUP, INC. AND SUBSIDIARIES
(Dollars in thousands, except per share amounts)
March 31, | December 31, | |||||||
2008 | 2007 | |||||||
ASSETS | ||||||||
Cash and cash equivalents | $ | 452,831 | $ | 897,872 | ||||
Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations | 1,156,630 | 659,219 | ||||||
Financial instruments owned, including securities pledged to creditors of $1,200,651 and $1,087,906 in 2008 and 2007, respectively: | ||||||||
Corporate equity securities | 2,411,426 | 2,266,679 | ||||||
Corporate debt securities | 2,115,588 | 2,162,893 | ||||||
U.S. Government and agency obligations | 780,800 | 730,921 | ||||||
Mortgage and asset backed securities | 11,963 | 26,895 | ||||||
Loans and loan commitments | 13,711 | ¯ | ||||||
Derivatives | 283,838 | 501,502 | ||||||
Investments at fair value | 95,332 | 104,199 | ||||||
Other | 109 | 2,889 | ||||||
Total financial instruments owned | 5,712,767 | 5,795,978 | ||||||
Investments in managed funds | 241,304 | 293,523 | ||||||
Other investments | 78,432 | 78,715 | ||||||
Securities borrowed | 11,679,630 | 16,422,130 | ||||||
Securities purchased under agreements to resell | 1,831,675 | 3,372,294 | ||||||
Receivable from brokers, dealers and clearing organizations | 649,604 | 508,926 | ||||||
Receivable from customers | 682,489 | 764,833 | ||||||
Premises and equipment | 145,686 | 141,472 | ||||||
Goodwill | 343,894 | 344,063 | ||||||
Other assets | 696,063 | 514,792 | ||||||
Total assets | $ | 23,671,005 | $ | 29,793,817 | ||||
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CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED) — CONTINUED
(Dollars in thousands, except per share amounts)
March 31, | December 31, | |||||||
2008 | 2007 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Bank loans | $ | 17,054 | $ | 280,378 | ||||
Financial instruments sold, not yet purchased: | ||||||||
Corporate equity securities | 1,969,278 | 1,389,099 | ||||||
Corporate debt securities | 1,444,802 | 1,407,387 | ||||||
U.S. Government and agency obligations | 211,982 | 206,090 | ||||||
Derivatives | 440,958 | 331,788 | ||||||
Other | 318 | 314 | ||||||
Total financial instruments sold, not yet purchased | 4,067,338 | 3,334,678 | ||||||
Securities loaned | 7,696,914 | 7,681,464 | ||||||
Securities sold under agreements to repurchase | 4,822,639 | 11,325,562 | ||||||
Payable to brokers, dealers and clearing organizations | 1,018,411 | 874,028 | ||||||
Payable to customers | 1,413,100 | 1,415,803 | ||||||
Accrued expenses and other liabilities | 450,457 | 627,597 | ||||||
19,485,913 | 25,539,510 | |||||||
Long-term debt | 1,764,498 | 1,764,067 | ||||||
Mandatorily redeemable convertible preferred stock | 125,000 | 125,000 | ||||||
Minority interest | 565,323 | 603,696 | ||||||
Total liabilities | 21,940,734 | 28,032,273 | ||||||
STOCKHOLDERS’ EQUITY | ||||||||
Common stock, $.0001 par value. Authorized 500,000,000 shares; issued 164,216,568 shares in 2008 and 155,375,808 shares in 2007 | 16 | 16 | ||||||
Additional paid-in capital | 1,169,480 | 1,115,011 | ||||||
Retained earnings | 954,694 | 1,031,764 | ||||||
Less: | ||||||||
Treasury stock, at cost, 31,454,686 shares in 2008 and 30,922,634 shares in 2007 | (405,328 | ) | (394,406 | ) | ||||
Accumulated other comprehensive gain: | ||||||||
Currency translation adjustments | 13,236 | 10,986 | ||||||
Additional minimum pension liability | (1,827 | ) | (1,827 | ) | ||||
Total accumulated other comprehensive gain | 11,409 | 9,159 | ||||||
Total stockholders’ equity | 1,730,271 | 1,761,544 | ||||||
Total liabilities and stockholders’ equity | $ | 23,671,005 | $ | 29,793,817 | ||||
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(In thousands, except per share and ratio amounts)
Three Months Ended | ||||||||
Mar. 31, | Mar. 31, | |||||||
2008 | 2007 | |||||||
Revenues: | ||||||||
Commissions | $ | 113,651 | $ | 77,032 | ||||
Principal transactions | 54 | 144,449 | ||||||
Investment banking | 99,207 | 170,115 | ||||||
Asset management fees and investment (loss) income from managed funds | (27,796 | ) | 22,485 | |||||
Interest | 204,891 | 201,162 | ||||||
Other | 6,480 | 8,041 | ||||||
Total revenues | 396,487 | 623,284 | ||||||
Interest expense | 195,291 | 204,475 | ||||||
Revenues, net of interest expense | 201,196 | 418,809 | ||||||
Non-interest expenses: | ||||||||
Compensation and benefits | 259,951 | 227,666 | ||||||
Floor brokerage and clearing fees | 12,948 | 14,582 | ||||||
Technology and communications | 30,916 | 22,157 | ||||||
Occupancy and equipment rental | 17,257 | 18,171 | ||||||
Business development | 12,900 | 13,109 | ||||||
Other | 20,481 | 19,631 | ||||||
Total non-interest expenses | 354,453 | 315,316 | ||||||
(Loss) earnings before income taxes and minority interest | (153,257 | ) | 103,493 | |||||
Income taxes | (57,892 | ) | 40,658 | |||||
(Loss) earnings before minority interest | (95,365 | ) | 62,835 | |||||
Minority interest in (loss) earnings of consolidated subsidiaries, net | (34,828 | ) | 576 | |||||
Net (loss) earnings | $ | (60,537 | ) | $ | 62,259 | |||
(Loss) earnings per share: | ||||||||
Basic | $ | (0.43 | ) | $ | 0.44 | |||
Diluted | $ | (0.43 | ) | $ | 0.42 | |||
Weighted average shares: | ||||||||
Basic | 141,784 | 140,897 | ||||||
Diluted | 141,784 | 152,058 | ||||||
Fixed charge coverage ratio (1) | — X | 5.0X |
(1) | Earnings in the quarter ended March 31, 2008 were insufficient to cover fixed charges by approximately $119.9 million. |
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COMPREHENSIVE INCOME (Unaudited)
Three months | ||||||||
ended | Year ended | |||||||
March 31, 2008 | December 31, 2007 | |||||||
Common stock, par value $0.0001 per share | ||||||||
Balance, beginning of year | $ | 16 | $ | 14 | ||||
Issued / stock dividend | — | 2 | ||||||
Balance, end of year | 16 | 16 | ||||||
Additional paid in capital | ||||||||
Balance, beginning of year | 1,115,011 | 876,393 | ||||||
Benefit plan share activity (1) | 7,391 | 38,053 | ||||||
Share-based amortization expense | 43,015 | 144,382 | ||||||
Proceeds from exercise of stock options | 120 | 5,233 | ||||||
Acquisitions and contingent consideration | 1,566 | 9,240 | ||||||
Tax benefits for issuance of stock-based awards | 2,377 | 41,710 | ||||||
Balance, end of year | 1,169,480 | 1,115,011 | ||||||
Retained earnings | ||||||||
Balance, beginning of year | 1,031,764 | 952,263 | ||||||
Cumulative effect of adjustment from adoption of FIN 48 | — | (410 | ) | |||||
Net (loss) earnings | (60,537 | ) | 144,665 | |||||
Dividends | (16,533 | ) | (64,754 | ) | ||||
Balance, end of year | 954,694 | 1,031,764 | ||||||
Treasury stock, at cost | ||||||||
Balance, beginning of year | (394,406 | ) | (254,437 | ) | ||||
Purchases | (6,326 | ) | (147,809 | ) | ||||
Returns / forfeitures | (4,596 | ) | (7,785 | ) | ||||
Issued | — | 15,625 | ||||||
Balance, end of year | (405,328 | ) | (394,406 | ) | ||||
Accumulated other comprehensive income (loss) | ||||||||
Balance, beginning of year | 9,159 | 6,854 | ||||||
Currency adjustment, net of tax | 2,250 | 1,222 | ||||||
Pension adjustment, net of tax | — | 1,083 | ||||||
Balance, end of year | 11,409 | 9,159 | ||||||
Total stockholders’ equity | $ | 1,730,271 | $ | 1,761,544 | ||||
Comprehensive income | ||||||||
Net (loss) earnings | $ | (60,537 | ) | $ | 144,665 | |||
Other comprehensive income, net of tax | 2,250 | 2,305 | ||||||
Total comprehensive income | $ | (58,287 | ) | $ | 146,970 | |||
(1) | Includes grants related to the Incentive Plan, Deferred Compensation Plan and Director Plan. |
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(Dollars in thousands)
Three Months Ended | ||||||||
March 31, | March 31, | |||||||
2008 | 2007 | |||||||
Cash flows from operating activities: | ||||||||
Net (loss)/ earnings | $ | (60,537 | ) | $ | 62,259 | |||
Adjustments to reconcile net (loss)/ earnings to net cash used in operating activities: | ||||||||
Depreciation and amortization | 13,844 | 5,693 | ||||||
Accruals related to various benefit plans, stock issuances, net of forfeitures | 45,974 | 42,804 | ||||||
Increase in cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations | (497,216 | ) | (184,458 | ) | ||||
Minority interest | (34,828 | ) | 576 | |||||
Decrease (increase) in receivables: | ||||||||
Securities borrowed | 4,743,141 | (5,241,270 | ) | |||||
Brokers, dealers and clearing organizations | (139,992 | ) | (468,817 | ) | ||||
Customers | 82,009 | 136,652 | ||||||
Decrease (increase) in financial instruments owned | 83,887 | (2,234,120 | ) | |||||
Decrease (increase) in other investments | 282 | (9,190 | ) | |||||
Decrease (increase) in investments in managed funds | 52,219 | (58,496 | ) | |||||
Decrease (increase) in securities purchased under agreements to resell | 1,540,619 | (31,036 | ) | |||||
Increase in other assets | (180,334 | ) | (58,156 | ) | ||||
Increase (decrease) in payables: | ||||||||
Securities loaned | 15,450 | 3,281,950 | ||||||
Brokers, dealers and clearing organizations | 143,946 | 313,719 | ||||||
Customers | (2,701 | ) | 207,233 | |||||
Increase in financial instruments sold, not yet purchased | 732,660 | 1,339,392 | ||||||
(Decrease) increase in securities sold under agreements to repurchase | (6,502,923 | ) | 2,596,151 | |||||
Decrease in accrued expenses and other liabilities | (145,728 | ) | (196,884 | ) | ||||
Net cash used in operating activities | (110,228 | ) | (495,998 | ) | ||||
Cash flows from investing activities: | ||||||||
Cash paid for contingent consideration | (30,329 | ) | (14,567 | ) | ||||
Purchase of premises and equipment | (17,579 | ) | (14,236 | ) | ||||
Net cash used in investing activities | (47,908 | ) | (28,803 | ) | ||||
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CONSOLIDATED STATEMENTS OF CASH FLOWS — CONTINUED (Unaudited)
(Dollars in thousands)
Three Months Ended | ||||||||
March 31, | March 31, | |||||||
2008 | 2007 | |||||||
Cash flows from financing activities | ||||||||
Tax benefit from the issuance of stock based awards | 2,377 | 30,896 | ||||||
Net (payments on) proceeds from: | ||||||||
Bank loans | (263,375 | ) | 231,927 | |||||
Minority interest holders of consolidated subsidiaries related to high yield secondary market trading | (3,304 | ) | — | |||||
Minority interest holders of consolidated subsidiaries related to asset management activities | (241 | ) | (5,060 | ) | ||||
Repurchase of treasury stock | (6,326 | ) | (16,657 | ) | ||||
Dividends | (16,533 | ) | (16,206 | ) | ||||
Exercise of stock options, not including tax benefits | 120 | 1,720 | ||||||
Net cash (used in) provided by financing activities | (287,282 | ) | 226,620 | |||||
Effect of foreign currency translation on cash and cash equivalents | 377 | 1,717 | ||||||
Net decrease in cash and cash equivalents | (445,041 | ) | (296,464 | ) | ||||
Cash and cash equivalents — beginning of period | 897,872 | 513,041 | ||||||
Cash and cash equivalents — end of period | $ | 452,831 | $ | 216,577 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid (received) during the period for: | ||||||||
Interest | $ | 218,510 | $ | 212,192 | ||||
Income taxes | $ | (19,702 | ) | $ | 7,104 |
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(Unaudited)
Page | ||||||
Note 1. | Organization and Summary of Significant Accounting Policies | 10 | ||||
Note 2. | Asset Management Fees and Investment Income (Loss) From Managed Funds | 19 | ||||
Note 3. | Cash, Cash Equivalents and Short-Term Investments | 21 | ||||
Note 4. | Financial Instruments | 21 | ||||
Note 5. | Short-Term Borrowings | 24 | ||||
Note 6. | Long-Term Debt | 24 | ||||
Note 7. | Mandatorily Redeemable Convertible Preferred Stock | 25 | ||||
Note 8. | Income Taxes | 25 | ||||
Note 9. | Benefit Plans | 25 | ||||
Note 10. | Minority Interest | 26 | ||||
Note 11. | Earnings Per Share | 27 | ||||
Note 12. | Derivative Financial Instruments | 27 | ||||
Note 13. | Other Comprehensive Gain (Loss), Net of Tax | 30 | ||||
Note 14. | Net Capital Requirements | 30 | ||||
Note 15. | Commitments, Contingencies and Guarantees | 31 | ||||
Note 16. | Segment Reporting | 33 | ||||
Note 17. | Goodwill | 34 | ||||
Note 18. | Quarterly Dividends | 35 | ||||
Note 19. | Variable Interest Entities (“VIEs”) | 35 | ||||
Note 20. | High Yield Secondary Market Trading | 36 | ||||
Note 21. | Stock Based Compensation | 37 | ||||
Note 22. | Subsequent Events | 40 |
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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)
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. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Level 3: | Instruments that have little to no pricing observability as of the reported date. These financial instruments do not have two-way markets and 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. |
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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)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
March 31, | March 31, | |||||||
2008 | 2007 | |||||||
Assets under management: | ||||||||
Fixed Income (1) | $ | 1,663 | $ | 1,838 | ||||
Equities | 239 | 388 | ||||||
Convertibles | 2,746 | 2,715 | ||||||
Real assets | 2 | — | ||||||
4,650 | 4,941 | |||||||
Assets under management by third parties (2): | ||||||||
Equities, Convertibles and Fixed Income | — | 291 | ||||||
Private Equity | 600 | 600 | ||||||
600 | 891 | |||||||
Total | $ | 5,250 | $ | 5,832 | ||||
(1) | With the reorganization of our high yield secondary market trading activities, we no longer include high yield assets as assets under management as of April 2, 2007. Prior period amounts include $353 million in assets under management from our high yield funds. | |
(2) | 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 fees. |
Three Months Ended | ||||||||
Mar. 31, | Mar. 31, | |||||||
2008 | 2007 | |||||||
Asset management fees: | ||||||||
Fixed Income (1) | $ | 2,591 | $ | 4,440 | ||||
Equities | 552 | 2,180 | ||||||
Convertibles | 3,142 | 2,831 | ||||||
6,285 | 9,451 | |||||||
Investment income (loss) from managed funds (1) | (34,081 | ) | 13,034 | |||||
Total | $ | (27,796 | ) | $ | 22,485 | |||
(1) | With the reorganization of our high yield secondary market trading activities, we no longer record asset management fees and investment income from managed funds related to these activities as of April 2, 2007. For the three-month period ending March 31, 2007 asset management fees and investment income from managed funds related to our high yield funds amounted to $1.7 million and $2.3 million, respectively. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Investment (Loss) | ||||||||||||||||
Investment (Loss) | Income from Managed | Net Investment | ||||||||||||||
Average | Income from Managed | Funds — Minority | (Loss) Income from | |||||||||||||
Investment (2) | Funds | Interest Portion | Managed Funds | |||||||||||||
Fixed Income (1) | $ | 166.8 | $ | (23.8 | ) | $ | — | $ | (23.8 | ) | ||||||
Equities | 206.3 | (9.1 | ) | (0.8 | ) | (8.3 | ) | |||||||||
Convertibles | 34.4 | (1.9 | ) | — | (1.9 | ) | ||||||||||
Real Assets | 7.9 | 0.7 | — | 0.7 | ||||||||||||
Total | $ | 415.4 | $ | (34.1 | ) | $ | (0.8 | ) | $ | (33.3 | ) | |||||
(1) | Excludes high yield secondary market trading activities. | |
(2) | Includes our average investment in consolidated asset management entities of $117.8 million for which we are not recognizing asset management fees. Because these entities are consolidated, the financial instruments are reflected in financial instruments owned or financial instruments sold, not yet purchased, in our consolidated financial statements. |
Investment Income | ||||||||||||||||
from Managed Funds — | Net Investment | |||||||||||||||
Average | Investment Income | Minority | Income from Managed | |||||||||||||
Investment (3) | from Managed Funds | Interest Portion | Funds | |||||||||||||
Fixed Income | $ | 274.7 | $ | 7.4 | $ | 0.4 | $ | 7.0 | ||||||||
Equities | 161.7 | 5.1 | 0.1 | 5.0 | ||||||||||||
Convertibles | 33.5 | 0.5 | — | 0.5 | ||||||||||||
Total | $ | 469.9 | $ | 13.0 | $ | 0.5 | $ | 12.5 | ||||||||
(3) | Includes our average investment in consolidated asset management entities of $91.4 million for which we are not recognizing asset management fees. Because these entities are consolidated, the financial instruments are reflected in financial instruments owned or financial instruments sold, not yet purchased, in our consolidated financial statements. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
March 31, 2008 | December 31, 2007 | |||||||
Cash and cash equivalents: | ||||||||
Cash in banks | $ | 98,336 | $ | 248,174 | ||||
Money market investments | 354,495 | 649,698 | ||||||
Total cash and cash equivalents | 452,831 | 897,872 | ||||||
Cash and securities segregated (1) | 1,156,630 | 659,219 | ||||||
$ | 1,609,461 | $ | 1,557,091 | |||||
(1) | Consists of deposits at exchanges and clearing organizations, as well as deposits in accordance with Rule 15c3-3 of the Securities Exchange Act of 1934, which subjects Jefferies, as a broker dealer carrying client accounts, to requirements related to maintaining cash or qualified securities in a segregated reserve account for the exclusive benefit of its clients. |
March 31, 2008 | December 31, 2007 | |||||||||||||||
Financial | Financial | |||||||||||||||
Instruments | Instruments | |||||||||||||||
Financial | Sold, | Financial | Sold, | |||||||||||||
Instruments | Not Yet | Instruments | Not Yet | |||||||||||||
Owned | Purchased | Owned | Purchased | |||||||||||||
Corporate equity securities | $ | 2,411,426 | $ | 1,969,278 | $ | 2,266,679 | $ | 1,389,099 | ||||||||
Corporate debt securities | 2,115,588 | 1,444,802 | 2,162,893 | 1,407,387 | ||||||||||||
U.S. Government and agency obligations | 780,800 | 211,982 | 730,921 | 206,090 | ||||||||||||
Mortgage and asset backed securities | 11,963 | — | 26,895 | — | ||||||||||||
Loans and loan commitments | 13,711 | — | — | — | ||||||||||||
Derivatives | 283,838 | 440,958 | 501,502 | 331,788 | ||||||||||||
Investments at fair value | 95,332 | — | 104,199 | — | ||||||||||||
Other | 109 | 318 | 2,889 | 314 | ||||||||||||
$ | 5,712,767 | $ | 4,067,338 | $ | 5,795,978 | $ | 3,334,678 | |||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
March 31, 2008 | December 31, 2007 | |||||||
Corporate equity securities | $ | 1,093,383 | $ | 985,783 | ||||
Corporate debt securities | 107,268 | 102,123 | ||||||
$ | 1,200,651 | $ | 1,087,906 | |||||
As of March 31, 2008 | ||||||||||||||||||||
Counterparty and | ||||||||||||||||||||
Cash Collateral | ||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Netting | Total | ||||||||||||||||
Assets: | ||||||||||||||||||||
Financial instruments owned: | ||||||||||||||||||||
Securities | $ | 2,257,231 | $ | 2,787,410 | $ | 275,245 | $ | — | $ | 5,319,886 | ||||||||||
Loans and loan commitments (1) | — | — | 13,711 | — | 13,711 | |||||||||||||||
Derivative instruments | 538,385 | 434,919 | — | (689,466 | ) | 283,838 | ||||||||||||||
Investments at fair value | — | — | 95,332 | — | 95,332 | |||||||||||||||
Total financial instruments owned | 2,795,616 | 3,222,329 | 384,288 | (689,466 | ) | 5,712,767 | ||||||||||||||
Level 3 assets for which the firm does not bear economic exposure (2) | (115,278 | ) | ||||||||||||||||||
Level 3 assets for which the firm bears economic exposure | 269,010 | |||||||||||||||||||
Liabilities: | ||||||||||||||||||||
Financial instruments sold, not yet purchased: | ||||||||||||||||||||
Securities | 2,024,990 | 1,594,807 | 6,583 | — | 3,626,380 | |||||||||||||||
Derivative instruments | 752,731 | 676,767 | 23,257 | (1,011,797 | ) | 440,958 | ||||||||||||||
Total financial instruments sold, not yet purchased | 2,777,721 | 2,271,574 | 29,840 | (1,011,797 | ) | 4,067,338 |
(1) | No gains or losses were recorded for loans and loan commitments during the three months ended March 31, 2008. | |
(2) | Consists of level 3 assets which are attributable to minority investors or attributable to employee interests in certain consolidated funds. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
As of December 31, 2007 | ||||||||||||||||||||
Counterparty and | ||||||||||||||||||||
Cash Collateral | ||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Netting | Total | ||||||||||||||||
Assets: | ||||||||||||||||||||
Financial instruments owned: | ||||||||||||||||||||
Securities | $ | 2,122,640 | $ | 2,819,240 | $ | 248,397 | $ | — | $ | 5,190,277 | ||||||||||
Derivative instruments | 763,529 | 118,905 | — | (380,932 | ) | 501,502 | ||||||||||||||
Investments at fair value | — | — | 104,199 | — | 104,199 | |||||||||||||||
Total financial instruments owned | 2,886,169 | 2,938,145 | 352,596 | (380,932 | ) | 5,795,978 | ||||||||||||||
Level 3 assets for which the firm does not bear economic exposure (1) | (106,106 | ) | ||||||||||||||||||
Level 3 assets for which the firm bears economic exposure | 246,490 | |||||||||||||||||||
Liabilities: | ||||||||||||||||||||
Financial instruments sold, not yet purchased: | ||||||||||||||||||||
Securities | 1,425,789 | 1,568,398 | 8,703 | — | 3,002,890 | |||||||||||||||
Derivative instruments | 532,895 | 642,507 | 12,929 | (856,543 | ) | 331,788 | ||||||||||||||
Total financial instruments sold, not yet purchased | 1,958,684 | 2,210,905 | 21,632 | (856,543 | ) | 3,334,678 |
(1) | Consists of level 3 assets which are attributable to minority investors or attributable to employee interests in certain consolidated funds. |
Three Months Ended March 31, 2008 | ||||||||||||||||
Non-derivative | Non-derivative | Derivative | ||||||||||||||
instruments — | instruments — | instruments — | ||||||||||||||
Assets | Liabilities | Liabilities | Investments | |||||||||||||
Balance, December 31, 2007 | $ | 248,397 | $ | (8,703 | ) | $ | (12,929 | ) | $ | 104,199 | ||||||
Total gains/ (losses) (realized and unrealized) (1) | (21,554 | ) | — | 304 | (5,539 | ) | ||||||||||
Purchases, sales, settlements, and issuances | 21,418 | 2,120 | 11,726 | (3,328 | ) | |||||||||||
Net transfers in and/or (out) of Level 3 | 40,695 | — | (22,358 | ) | — | |||||||||||
Balance, March 31, 2008 | $ | 288,956 | $ | (6,583 | ) | $ | (23,257 | ) | $ | 95,332 | ||||||
Change in unrealized gains/ (losses) relating to instruments still held at March 31, 2008 (1) | $ | (11,391 | ) | $ | — | $ | 938 | $ | (5,539 | ) |
(1) | Realized and unrealized gains/ (losses) are reported in principal transactions in the Consolidated Statements of Earnings. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Three Months Ended March 31, 2007 | ||||||||
Non-derivative | ||||||||
instruments — | ||||||||
Assets | Investments | |||||||
Balance, December 31, 2006 | $ | 205,278 | $ | 97,289 | ||||
Total gains/ (losses) (realized and unrealized) (1) | (3,043 | ) | 5,354 | |||||
Purchases, sales, settlements, and issuances | (27,422 | ) | (4,990 | ) | ||||
Net transfers in and/or (out) of Level 3 | (14,436 | ) | — | |||||
Balance, March 31, 2007 | $ | 160,377 | $ | 97,653 | ||||
Change in unrealized gains/ (losses) relating to instruments still held at March 31, 2007 (1) | $ | (3,620 | ) | 5,354 |
(1) | Realized and unrealized gains/ (losses) are reported in principal transactions in the Consolidated Statements of Earnings. |
March 31, 2008 | December 31, 2007 | |||||||
7.75% Senior Notes, due 2012, net of unamortized discount of $4,206 (2008) | $ | 328,872 | 328,594 | |||||
5.875% Senior Notes, due 2014, net of unamortized discount of $1,542 (2008) | 248,458 | 248,402 | ||||||
5.5% Senior Notes, due 2016, net of unamortized discount of $1,453 (2008) | 348,547 | 348,501 | ||||||
6.45% Senior Debentures, due 2027, net of unamortized discount of $3,738 (2008) | 346,262 | 346,236 | ||||||
6.25% Senior Debentures, due 2036, net of unamortized discount of $7,641 (2008) | 492,359 | 492,334 | ||||||
$ | 1,764,498 | $ | 1,764,067 | |||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Three Months Ended | ||||||||
Mar. 31, | Mar. 31, | |||||||
2008 | 2007 | |||||||
Net pension cost included the following components: | ||||||||
Service cost (1) | $ | 69 | $ | 69 | ||||
Interest cost on projected benefit obligation | 595 | 590 | ||||||
Expected return on plan assets | (731 | ) | (628 | ) | ||||
Amortization of net loss | — | 141 | ||||||
Net periodic pension (income)/ cost | $ | (67 | ) | $ | 172 | |||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
(1) | Service costs relates to administrative expenses incurred during the three month periods. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Three Months Ended | ||||||||
March 31, | March 31, | |||||||
2008 | 2007 | |||||||
Net (loss)/ earnings | $ | (60,537 | ) | $ | 62,259 | |||
Add: Convertible preferred stock dividends | — | 1,016 | ||||||
Net (loss)/ earnings for diluted earnings per share | $ | (60,537 | ) | $ | 63,275 | |||
Shares: | ||||||||
Average shares used in basic computation | 141,784 | 140,897 | ||||||
Unvested restricted stock / restricted stock units | — | 6,457 | ||||||
Stock options | — | 647 | ||||||
Mandatorily redeemable convertible preferred stock | — | 4,057 | ||||||
Average shares used in diluted computation | 141,784 | 152,058 | ||||||
(Loss)/ earnings per share: | ||||||||
Basic | $ | (0.43 | ) | $ | 0.44 | |||
Diluted | $ | (0.43 | ) | $ | 0.42 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
March 31, 2008 | December 31, 2007 | |||||||||||||||
(in thousands) | Assets | Liabilities | Assets | Liabilities | ||||||||||||
Derivative instruments included in financial instruments owned and financial instruments sold, not yet purchased: | ||||||||||||||||
Exchange traded futures | $ | 56 | $ | 260,266 | $ | 162,723 | $ | 4,712 | ||||||||
Swaps (1) | 73,467 | 182,007 | 2,424 | 417,020 | ||||||||||||
Option contracts (1) | 224,973 | 337,164 | 355,119 | 404,525 | ||||||||||||
Forward contracts | 1,989 | 499 | 3,348 | 3,254 | ||||||||||||
Total | $ | 300,485 | $ | 779,936 | $ | 523,614 | $ | 829,511 |
(1) | Option and swap contracts in the table above are gross of collateral received and/ or collateral pledged. Option and swap contracts are recorded net of collateral received and/ or collateral pledged on the Consolidated Statement of Financial Condition. At March 31, 2008, collateral received and collateral pledged were $16.7 million and $338.9 million, respectively. At December 31, 2007, collateral received and collateral pledged were $22.1 million and $497.7 million, respectively |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
OTC derivative assets | ||||||||||||||||||||
0 - 12 Months | 1 - 5 Years | 5 - 10 Years | Cross-Maturity Netting | Total | ||||||||||||||||
Commodity swaps | $ | 50,408 | $ | — | $ | — | $ | — | $ | 50,408 | ||||||||||
Commodity options | 6,411 | 21,513 | — | (533 | ) | 27,391 | ||||||||||||||
Equity options | — | — | — | — | — | |||||||||||||||
Credit default swaps | — | 1,631 | — | — | 1,631 | |||||||||||||||
Total return swaps | 5,738 | 15,690 | — | — | 21,428 | |||||||||||||||
Forward contracts | 1,439 | 1,785 | — | (1,235 | ) | 1,989 | ||||||||||||||
Total | $ | 63,996 | $ | 40,619 | $ | — | $ | (1,768 | ) | $ | 102,847 | |||||||||
OTC derivative liabilities | ||||||||||||||||||||
0 - 12 Months | 1 - 5 Years | 5 - 10 Years | Cross-Maturity Netting | Total | ||||||||||||||||
Commodity swaps | $ | 179,746 | $ | 1,515 | $ | — | $ | — | $ | 181,261 | ||||||||||
Commodity options | 51,934 | 106,671 | — | (533 | ) | 158,072 | ||||||||||||||
Equity options | 7,646 | — | 22,022 | — | 29,668 | |||||||||||||||
Credit default swaps | 193 | 184 | — | — | 377 | |||||||||||||||
Total return swaps | — | 369 | — | — | 369 | |||||||||||||||
Forward contracts | 1,734 | — | — | (1,235 | ) | 499 | ||||||||||||||
Total | $ | 241,253 | $ | 108,739 | $ | 22,022 | $ | (1,768 | ) | $ | 370,246 | |||||||||
Total pre-credit | ||||||||||||
enhancement | Credit enhancement | Total post- credit | ||||||||||
nettting | netting (1) | enhancement netting | ||||||||||
Counterparty credit quality: | ||||||||||||
A or higher | $ | 208,973 | (122,993 | ) | 85,980 | |||||||
B to BBB | 369 | — | 369 | |||||||||
Lower than B | — | — | — | |||||||||
Unrated | 16,498 | — | 16,498 | |||||||||
Total | $ | 225,840 | (122,993 | ) | 102,847 | |||||||
(1) | Credit enhancement netting relates to the JFP credit intermediation facility with a AA-rated European bank. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Minimum | Accumulated | |||||||||||
Currency | Pension | Other | ||||||||||
Translation | Liability | Comprehensive | ||||||||||
Adjustments | Adjustment | Gain | ||||||||||
Beginning at December 31, 2007 | $ | 10,986 | $ | (1,827 | ) | $ | 9,159 | |||||
Change in first quarter of 2008 | 2,250 | — | 2,250 | |||||||||
Ending at March 31, 2008 | $ | 13,236 | $ | (1,827 | ) | $ | 11,409 | |||||
Minimum | Accumulated | |||||||||||
Currency | Pension | Other | ||||||||||
Translation | Liability | Comprehensive | ||||||||||
Adjustments | Adjustment | (Loss) Gain | ||||||||||
Beginning at December 31, 2006 | $ | 9,764 | $ | (2,910 | ) | $ | 6,854 | |||||
Change in first quarter of 2007 | 3,666 | — | 3,666 | |||||||||
Ending at March 31, 2007 | $ | 13,430 | $ | (2,910 | ) | $ | 10,520 | |||||
March 31, | March 31, | |||||||
2008 | 2007 | |||||||
Net (loss)/ earnings | $ | (60,537 | ) | $ | 62,259 | |||
Other comprehensive income | 2,250 | 3,666 | ||||||
Comprehensive (loss)/ income | $ | (58,287 | ) | $ | 65,925 | |||
Net Capital | Excess Net Capital | |||||||
Jefferies | $ | 638,503 | $ | 613,395 | ||||
Jefferies Execution | $ | 32,735 | $ | 32,485 | ||||
Jefferies High Yield Trading | $ | 572,662 | $ | 572,412 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Maturity Date | ||||||||||||||||||||||||
2010 | 2012 | 2014 | ||||||||||||||||||||||
Notional / Maximum | and | and | and | |||||||||||||||||||||
Payout | 2008 | 2009 | 2011 | 2013 | Later | |||||||||||||||||||
(Dollars in Millions) | ||||||||||||||||||||||||
Standby letters of credit | $ | 288.5 | $ | 288.1 | $ | 0.4 | — | — | — | |||||||||||||||
Bank credit | $ | 61.0 | $ | 20.0 | — | — | $ | 36.0 | $ | 5.0 | ||||||||||||||
Equity commitments | $ | 481.9 | — | $ | 0.1 | $ | 1.0 | $ | 1.9 | $ | 478.9 | |||||||||||||
High yield loan commitment | $ | 6.6 | — | — | $ | 6.6 | — | — | ||||||||||||||||
Derivative contracts | $ | 1,062.4 | $ | 868.7 | $ | 176.2 | $ | 2.5 | $ | 15.0 | — |
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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 reportable business segment are included in determining earnings before taxes. | |
• | Net revenues and expenses not directly associated with specific reportable business segments are allocated based on the most relevant measures applicable, including each reportable business segment’s net revenues, headcount and other factors. | |
• | Reportable business segment assets include an allocation of indirect corporate assets that have been fully allocated to our reportable business segments, generally based on each reportable business segment’s capital utilization. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Capital | Asset | |||||||||||
Markets | Management | Total | ||||||||||
Three months ended March 31, 2008 | ||||||||||||
Net revenues | $ | 211.2 | $ | (10.0 | ) | $ | 201.2 | |||||
Expenses | 340.2 | 14.3 | 354.5 | |||||||||
Earnings before income taxes and minority interest | $ | (129.0 | ) | $ | (24.3 | ) | $ | (153.3 | ) | |||
Segment assets | $ | 23,434.1 | $ | 236.9 | $ | 23,671.0 | ||||||
Three months ended March 31, 2007 | ||||||||||||
Net revenues | $ | 401.3 | $ | 17.5 | $ | 418.8 | ||||||
Expenses | 304.2 | 11.1 | 315.3 | |||||||||
Earnings before income taxes and minority interest | $ | 97.1 | $ | 6.4 | $ | 103.5 | ||||||
Segment assets | $ | 25,497.9 | $ | 197.6 | $ | 25,695.5 | ||||||
Three months ended: | ||||||||
March 31, | March 31, | |||||||
2008 | 2007 | |||||||
Americas (1) | $ | 159,251 | $ | 372,340 | ||||
Europe | 37,580 | 44,139 | ||||||
Asia (including Middle East) | 4,365 | 2,330 | ||||||
Net Revenues | $ | 201,196 | $ | 418,809 | ||||
(1) | Substantially all relates to U.S. results. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Three Months Ended | ||||
March 31, 2008 | ||||
Balance, at December 31, 2007 | $ | 344,063 | ||
Less: Purchase price adjustment | (169 | ) | ||
Balance, at March 31, 2008 | $ | 343,894 | ||
1st Quarter | ||||
2008 | $ | 0.125 | ||
2007 | $ | 0.125 |
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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)
Weighted | ||||||||
Three Months Ended | Average Grant | |||||||
March 31, 2008 | Date Fair Value | |||||||
(Shares in 000s) | ||||||||
Restricted stock | ||||||||
Balance, beginning of year | 7,317 | $ | 25.34 | |||||
Grants | 7,689 | $ | 16.89 | |||||
Forfeited | (135 | ) | $ | 26.08 | ||||
Vested | (1,036 | ) | $ | 24.29 | ||||
Balance, end of period | 13,835 | $ | 20.72 | |||||
Weighted | ||||||||||||||||
Three Months Ended | Average Grant | |||||||||||||||
March 31, 2008 | Date Fair Value | |||||||||||||||
(Shares in 000s) | ||||||||||||||||
Future | No Future | Future | No Future | |||||||||||||
Service | Service | Service | Service | |||||||||||||
Required | Required (2) | Required | Required | |||||||||||||
Restricted stock units | ||||||||||||||||
Balance, beginning of year | 14,879 | 17,246 | $ | 21.18 | $ | 10.18 | ||||||||||
Grants, includes dividends | 3,629 | 211 | (1) | $ | 14.64 | $ | — | (1) | ||||||||
Deferral expiration | — | (643 | ) | $ | — | $ | 11.69 | |||||||||
Forfeited | (167 | ) | (10 | ) | $ | 20.55 | $ | 21.52 | ||||||||
Vested | (1,037 | ) | 1,037 | $ | 20.99 | $ | 20.99 | |||||||||
Balance, end of period | 17,304 | 17,841 | $ | 19.83 | $ | 10.65 | ||||||||||
(1) | Represents dividend equivalents on restricted stock units declared during the three month period ending March 31, 2008. | |
(2) | Represents fully vested restricted stock units which are still subject to transferability restrictions. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Weighted- | ||||||||
Dollars and shares in thousands, except per share data | Average | |||||||
Options | Exercise Price | |||||||
Outstanding, December 31, 2007 | 204 | $ | 9.87 | |||||
Granted | — | — | ||||||
Exercised | (23 | ) | $ | 5.11 | ||||
Canceled | — | — | ||||||
Outstanding, March 31, 2008 | 181 | $ | 10.49 | |||||
Outstanding | ||||||||
Net of Expected | Options | |||||||
March 31, 2008 | Forfeitures | Exercisable | ||||||
Number of options | 181 | 181 | ||||||
Weighted-average exercise price | $ | 10.49 | $ | 10.49 | ||||
Aggregate intrinsic value | $ | 1,021 | $ | 1,021 | ||||
Weighted-average remaining contractual term, in years | 2.44 | 2.44 |
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Condition and Results of Operations
• | the description of our business and risk factors contained in our annual report on Form 10-K for the fiscal year ended December 31, 2007 and filed with the SEC on February 29, 2008; | ||
• | 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 the consolidated financial statements contained in this report; and | ||
• | cautionary statements we make in our public documents, reports and announcements. |
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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 do not have two-way markets and 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. |
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Three Months Ended | ||||||||||||||||
March 31, 2008 | March 31, 2007 | |||||||||||||||
% of | % of | |||||||||||||||
Net | Net | |||||||||||||||
Amount | Revenues | Amount | Revenues | |||||||||||||
Equity | $ | 138,193 | 69 | % | $ | 173,057 | 41 | % | ||||||||
Fixed income and commodities: | ||||||||||||||||
Fixed income (excluding high yield) and commodities (1) | 33,668 | 17 | 46,128 | 11 | ||||||||||||
High yield (2) | (51,676 | ) | (26 | ) | 10,337 | 3 | ||||||||||
Total | (18,008 | ) | (9 | ) | 56,465 | 14 | ||||||||||
Investment banking | 99,207 | 49 | 170,115 | 41 | ||||||||||||
Asset management fees and investment income (loss) from managed funds (3): | ||||||||||||||||
Asset management fees | 6,285 | 3 | 9,451 | 2 | ||||||||||||
Investment income (loss) from managed funds | (34,081 | ) | (17 | ) | 13,034 | 3 | ||||||||||
Total | (27,796 | ) | (14 | ) | 22,485 | 5 | ||||||||||
Interest revenue | 204,891 | 102 | 201,162 | 48 | ||||||||||||
Total revenues | $ | 396,487 | 197 | $ | 623,284 | 149 | ||||||||||
Interest expense | 195,291 | (97 | ) | 204,475 | (49 | ) | ||||||||||
Net revenues | 201,196 | 100 | % | 418,809 | 100 | % | ||||||||||
(1) | Fixed income and commodities revenue is primarily comprised of investment grade fixed income, convertible and commodities product revenue. | |
(2) | High yield revenue is comprised of revenue generated by our reorganized high yield secondary market trading activities during the first quarter of 2008 and revenue generated by our pari passu share of high yield revenue during the first quarter of 2007. | |
(3) | Prior period amounts include asset management revenue from high yield funds. Effective April 2, 2007, with the commencement of our reorganized high yield secondary market trading activities, we do not record asset management revenue associated with these activities. |
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Quarter Ended | ||||||||||||
March 31, | March 31, | Percentage | ||||||||||
2008 | 2007 | Change | ||||||||||
(Dollars in Thousands) | ||||||||||||
Capital markets | $ | 33,398 | $ | 90,300 | (63 | )% | ||||||
Advisory | 65,809 | 79,815 | (18 | )% | ||||||||
Total | $ | 99,207 | $ | 170,115 | (42 | )% | ||||||
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Three | Three | |||||||||||
Month | Month | |||||||||||
Period | Period | |||||||||||
Ending | Ending | |||||||||||
March 31, | March 31, | Percent | ||||||||||
In millions | 2008 | 2007 | Change | |||||||||
Balance, beginning of period | $ | 5,775 | $ | 5,282 | 9 | % | ||||||
Net cash flow (out) in | (413 | ) | 439 | |||||||||
Net market (depreciation) appreciation | (112 | ) | 111 | |||||||||
(525 | ) | 550 | ||||||||||
Balance, end of period | $ | 5,250 | $ | 5,832 | (10 | %) | ||||||
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March 31, 2008 | December 31, 2007 | |||||||
Cash and cash equivalents: | ||||||||
Cash in banks | $ | 98,336 | $ | 248,174 | ||||
Money market investments | 354,495 | 649,698 | ||||||
Total cash and cash equivalents | 452,831 | 897,872 | ||||||
Cash and securities segregated (1) | 1,156,630 | 659,219 | ||||||
$ | 1,609,461 | $ | 1,557,091 | |||||
(1) | Consists of deposits at exchanges and clearing organizations, as well as deposits in accordance with Rule 15c3-3 of the Securities Exchange Act of 1934, which subjects Jefferies, as a broker dealer carrying client accounts, to requirements related to maintaining cash or qualified securities in a segregated reserve account for the exclusive benefit of its clients. |
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• | Funding Action Plan. The Funding Action Plan models a potential liquidity contraction over a one-year time period. Our funding action plan model scenarios incorporate potential cash outflows during a liquidity stress event, including, but not limited to, the following: (a) repayment of all unsecured debt maturing within one year and no incremental unsecured debt issuance; (b) maturity roll-off of outstanding letters of credit with no further issuance and replacement with cash collateral; (c) higher haircuts on or lower availability of secured funding; (d) client cash withdrawals; (e) the anticipated funding of outstanding investment commitments and (f) certain accrued expenses and other liabilities and fixed costs. | |
• | Cash Capital Policy. We maintain a cash capital model that measures long-term funding sources against requirements. Sources of cash capital include our equity, preferred stock and the non-current portion of long-term borrowings. Uses of cash capital include the following: (a) illiquid assets such as buildings, equipment, goodwill, net intangible assets, exchange memberships, deferred tax assets and principal investments; (b) a portion of securities inventory that is not expected to be financed on a secured basis in a credit-stressed environment (i.e., stressed haircuts) and (c) drawdowns of unfunded commitments. We seek to maintain a surplus cash capital position. Our equity capital of $1,730.3 million, preferred stock of $125.0 million and long-term borrowings (debt obligations scheduled to mature in more than 12 months) of $1,764.5 million comprise our total capital of $3,619.8 million as of March 31, 2008, which exceeded cash capital requirements. |
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March 31, 2008 | December 31, 2007 | |||||||
Stockholders’ equity | $ | 1,730,271 | $ | 1,761,544 | ||||
Less: Goodwill | (343,894 | ) | (344,063 | ) | ||||
Tangible stockholders’ equity | $ | 1,386,377 | $ | 1,417,481 | ||||
Stockholders’ equity | $ | 1,730,271 | $ | 1,761,544 | ||||
Add: Projected tax benefit on vested portion of restricted stock | 8,746 | 84,729 | ||||||
Pro forma stockholders’ equity | $ | 1,739,017 | $ | 1,846,273 | ||||
Tangible stockholders’ equity | $ | 1,386,377 | $ | 1,417,481 | ||||
Add: Projected tax benefit on vested portion of restricted stock | 8,746 | 84,729 | ||||||
Pro forma tangible stockholders’ equity | $ | 1,395,123 | $ | 1,502,210 | ||||
Shares outstanding | 132,761,882 | 124,453,174 | ||||||
Add: Shares not issued, to the extent of related expense amortization | 21,282,479 | 22,577,007 | ||||||
Less: Shares issued, to the extent related expense has not been amortized | (10,366,564 | ) | (4,439,790 | ) | ||||
Adjusted shares outstanding | 143,677,797 | 142,590,391 | ||||||
Book value per share (1) | $ | 13.03 | $ | 14.15 | ||||
Pro forma book value per share (2) | $ | 12.10 | $ | 12.95 | ||||
Tangible book value per share (3) | $ | 10.44 | $ | 11.39 | ||||
Pro forma tangible book value per share (4) | $ | 9.71 | $ | 10.54 | ||||
(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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March 31, | December 31, | |||||||
2008 | 2007 | |||||||
Long-Term Debt | $ | 1,764,498 | $ | 1,764,067 | ||||
Mandatorily Redeemable Convertible Preferred Stock | 125,000 | 125,000 | ||||||
Total Stockholders’ Equity | 1,730,271 | 1,761,544 | ||||||
Total Capital | $ | 3,619,769 | $ | 3,650,611 | ||||
Rating | ||
Moody’s Investors Services | Baa1 | |
Standard and Poor’s | BBB+ | |
Fitch Ratings | BBB |
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Net Capital | Excess Net Capital | |||||||
Jefferies | $ | 638,503 | $ | 613,395 | ||||
Jefferies Execution | $ | 32,735 | $ | 32,485 | ||||
Jefferies High Yield Trading | $ | 572,662 | $ | 572,412 |
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March 31, 2008 | December 31, 2007 | |||||||
Total assets | $ | 23,671,005 | $ | 29,793,817 | ||||
Deduct: Securities borrowed | (11,679,630 | ) | (16,422,130 | ) | ||||
Securities purchased under agreements to resell | (1,831,675 | ) | (3,372,294 | ) | ||||
Add: Financial instruments sold, not yet purchased | 4,067,338 | 3,334,678 | ||||||
Less derivative liabilities | (440,958 | ) | (331,788 | ) | ||||
Subtotal | 3,626,380 | 3,002,890 | ||||||
Deduct: Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations | (1,156,630 | ) | (659,219 | ) | ||||
Goodwill | (343,894 | ) | (344,063 | ) | ||||
Adjusted assets | 12,285,556 | 11,999,001 | ||||||
Total stockholders’ equity | $ | 1,730,271 | $ | 1,761,544 | ||||
Deduct: Goodwill | (343,894 | ) | (344,063 | ) | ||||
Tangible stockholders’ equity | 1,386,377 | 1,417,481 | ||||||
Leverage ratio (1) | 13.7 | 16.9 | ||||||
Adjusted leverage ratio (2) | 8.9 | 8.5 | ||||||
(1) | Leverage ratio equals total assets divided by total stockholders’ equity. | |
(2) | Adjusted leverage ratio equals adjusted assets divided by tangible 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 Three Months Ended | |||||||||||||||||||||||
Risk Categories | 3/31/08 | 12/31/07 | 9/30/07 | 3/31/08 | 12/31/07 | 9/30/07 | ||||||||||||||||||
Interest Rates | $ | 1.71 | $ | 1.70 | $ | 1.48 | $ | 1.54 | $ | 1.55 | $ | 1.78 | ||||||||||||
Equity Prices | $ | 6.10 | $ | 16.73 | $ | 10.37 | $ | 7.87 | $ | 10.28 | $ | 8.34 | ||||||||||||
Currency Rates | $ | 0.76 | $ | 0.47 | $ | 0.46 | $ | 0.58 | $ | 0.53 | $ | 0.47 | ||||||||||||
Commodity Prices | $ | 2.32 | $ | 2.07 | $ | 1.20 | $ | 1.51 | $ | 1.46 | $ | 1.29 | ||||||||||||
Diversification Effect (2) | $ | (4.66 | ) | $ | (7.24 | ) | $ | (3.39 | ) | $ | (3.87 | ) | $ | (4.31 | ) | $ | (4.03 | ) | ||||||
Firmwide | $ | 6.23 | $ | 13.73 | $ | 10.12 | $ | 7.63 | $ | 9.51 | $ | 7.85 | ||||||||||||
(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)
Value-At-Risk Highs and Lows for Three Months Ended | ||||||||||||||||||||||||
03/31/08 | 12/31/07 | 09/30/07 | ||||||||||||||||||||||
Risk Categories | High | Low | High | Low | High | Low | ||||||||||||||||||
Interest Rates | $ | 1.90 | $ | 1.13 | $ | 2.24 | $ | 1.19 | $ | 2.24 | $ | 1.37 | ||||||||||||
Equity Prices | $ | 16.23 | $ | 3.40 | $ | 17.01 | $ | 5.82 | $ | 12.40 | $ | 6.59 | ||||||||||||
Currency Rates | $ | 0.80 | $ | 0.42 | $ | 1.06 | $ | 0.21 | $ | 0.54 | $ | 0.30 | ||||||||||||
Commodity Prices | $ | 2.93 | $ | 0.65 | $ | 2.36 | $ | 0.60 | $ | 2.36 | $ | 0.78 | ||||||||||||
Firmwide | $ | 14.21 | $ | 4.03 | $ | 14.02 | $ | 5.45 | $ | 11.35 | $ | 5.95 | ||||||||||||
(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. |
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($ in millions)
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(c) Total Number of | (d) Maximum Number | |||||||||||||||
Shares Purchased as | of Shares that May | |||||||||||||||
(a) Total Number of | Part of Publicly | Yet Be Purchased | ||||||||||||||
Shares Purchased | (b) Average Price | Announced Plans or | Under the Plans or | |||||||||||||
Period | (1) | Paid per Share | Programs(2)(3) | Programs | ||||||||||||
January 1 — January 31, 2008 | 313,825 | 18.51 | 4,400 | 16,076,978 | ||||||||||||
February 1 — February 29, 2008 | 26,286 | 18.24 | 3,400 | 16,073,578 | ||||||||||||
March 1 — March 31, 2008 | 1,492 | 26.34 | — | 16,073,578 | ||||||||||||
Total | 341,603 | 18.52 | 7,800 |
(1) | We repurchased an aggregate of 333,803 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. | |
(3) | On January 23, 2008, we issued a press release announcing the authorization by our Board of Directors to repurchase, from time to time, up to an additional 15,000,000 shares of our common stock |
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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 the 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 of Registrant’s Form 8-K filed on December 4, 2007. | |
10* | Summary of the 2008 Executive Compensation Total Direct Pay Program for Messrs. Handler, Friedman, Broadbent and Feller. | |
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. | |
32* | 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 Officer. |
* | Filed herewith. |
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JEFFERIES GROUP, INC. (Registrant) | ||||
Date: May 9, 2008 | By: | /s/ Peregrine C. Broadbent | ||
Peregrine C. Broadbent | ||||
Chief Financial Officer (duly authorized officer) | ||||
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