Table of Contents
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
Yesþ Noo
Yeso Noþ
Page 1 of 48
SEPTEMBER 30, 2005
Page 2 of 48
Table of Contents
(Dollars in thousands, except per share amounts)
September 30, | December 31, | |||||||
2005 | 2004 | |||||||
ASSETS | ||||||||
Cash and cash equivalents | $ | 220,369 | $ | 284,111 | ||||
Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations | 671,136 | 553,720 | ||||||
Short term bond funds | 6,989 | 6,861 | ||||||
Investments | 116,795 | 97,586 | ||||||
Investments in managed funds | 260,607 | 195,982 | ||||||
Securities borrowed | 8,413,794 | 10,232,950 | ||||||
Receivable from brokers, dealers and clearing organizations | 536,343 | 312,973 | ||||||
Receivable from customers | 869,590 | 371,842 | ||||||
Securities owned | 1,588,503 | 649,299 | ||||||
Securities pledged to creditors | 77,806 | 597,434 | ||||||
Premises and equipment | 67,003 | 57,749 | ||||||
Goodwill | 209,576 | 134,936 | ||||||
Other assets | 563,059 | 329,185 | ||||||
$ | 13,601,570 | $ | 13,824,628 | �� | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Bank loans | $ | — | $ | 70,000 | ||||
Securities loaned | 7,998,627 | 9,330,980 | ||||||
Payable to brokers, dealers and clearing organizations | 472,219 | 376,735 | ||||||
Payable to customers | 1,208,124 | 702,200 | ||||||
Securities sold, not yet purchased | 1,289,130 | 1,120,173 | ||||||
Accrued expenses and other liabilities | 612,294 | 361,254 | ||||||
11,580,394 | 11,961,342 | |||||||
Long-term debt | 781,443 | 789,067 | ||||||
Minority interest | 37,873 | 35,086 | ||||||
12,399,710 | 12,785,495 | |||||||
STOCKHOLDERS’ EQUITY | ||||||||
Preferred stock, $.0001 par value. Authorized 10,000,000 shares; none issued | — | — | ||||||
Common stock, $.0001 par value. Authorized 500,000,000 shares; issued 70,116,943 shares in 2005 and 66,700,773 shares in 2004 | 7 | 7 | ||||||
Additional paid-in capital | 795,934 | 617,587 | ||||||
Unearned compensation | (144,964 | ) | (109,366 | ) | ||||
Retained earnings | 766,110 | 677,464 | ||||||
Less: | ||||||||
Treasury stock, at cost, 12,033,730 shares in 2005 and 9,411,464 shares in 2004 | (211,171 | ) | (149,039 | ) | ||||
Accumulated other comprehensive gain (loss): | ||||||||
Currency translation adjustments | 2,812 | 9,348 | ||||||
Additional minimum pension liability | (6,868 | ) | (6,868 | ) | ||||
Total accumulated other comprehensive gain (loss) | (4,056 | ) | 2,480 | |||||
Total stockholders’ equity | 1,201,860 | 1,039,133 | ||||||
$ | 13,601,570 | $ | 13,824,628 | |||||
Page 3 of 48
Table of Contents
(In thousands, except per share and ratio amounts)
Three Months Ended | Nine Months Ended | |||||||||||||||
Sept. 30 | Sept. 30, | Sept. 30, | Sept. 30, | |||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Revenues: | ||||||||||||||||
Commissions | $ | 58,157 | $ | 62,020 | $ | 185,304 | $ | 200,325 | ||||||||
Principal transactions | 104,415 | 109,012 | 261,887 | 277,669 | ||||||||||||
Investment banking | 107,556 | 72,122 | 327,517 | 247,066 | ||||||||||||
Asset management fees and investment income from managed funds | 21,667 | 11,618 | 63,385 | 54,030 | ||||||||||||
Interest | 81,467 | 35,948 | 212,738 | 85,132 | ||||||||||||
Other | 4,822 | 2,382 | 15,309 | 9,144 | ||||||||||||
Total revenues | 378,084 | 293,102 | 1,066,140 | 873,366 | ||||||||||||
Interest expense | 78,804 | 39,316 | 204,292 | 93,206 | ||||||||||||
Revenues, net of interest expense | 299,280 | 253,786 | 861,848 | 780,160 | ||||||||||||
Non-interest expenses: | ||||||||||||||||
Compensation and benefits | 167,033 | 141,434 | 481,024 | 436,191 | ||||||||||||
Floor brokerage and clearing fees | 11,059 | 12,770 | 35,350 | 39,750 | ||||||||||||
Technology and communications | 16,432 | 16,029 | 50,053 | 48,632 | ||||||||||||
Occupancy and equipment rental | 10,936 | 10,250 | 32,852 | 29,306 | ||||||||||||
Business development | 9,651 | 7,189 | 27,698 | 24,529 | ||||||||||||
Other | 16,632 | 11,164 | 44,851 | 30,907 | ||||||||||||
Total non-interest expenses | 231,743 | 198,836 | 671,828 | 609,315 | ||||||||||||
Earnings before income taxes and minority interest | 67,537 | 54,950 | 190,020 | 170,845 | ||||||||||||
Income taxes | 26,143 | 21,516 | 73,209 | 63,980 | ||||||||||||
Earnings before minority interest | 41,394 | 33,434 | 116,811 | 106,865 | ||||||||||||
Minority interest in earnings of consolidated subsidiaries, net | 2,799 | 1,159 | 6,107 | 10,895 | ||||||||||||
Net earnings | $ | 38,595 | $ | 32,275 | $ | 110,704 | $ | 95,970 | ||||||||
Earnings per share: | ||||||||||||||||
Basic | $ | 0.62 | $ | 0.56 | $ | 1.80 | $ | 1.68 | ||||||||
Diluted | $ | 0.57 | $ | 0.51 | $ | 1.64 | $ | 1.51 | ||||||||
Weighted average shares: | ||||||||||||||||
Basic | 62,224 | 57,833 | 61,434 | 57,233 | ||||||||||||
Diluted | 68,112 | 63,867 | 67,374 | 63,616 | ||||||||||||
Fixed charge coverage ratio | 5.6 | X | 4.8 | X | 5.4 | X | 5.6 | X |
Page 4 of 48
Table of Contents
NINE MONTHS ENDED SEPTEMBER 30, 2005 AND YEAR ENDED DECEMBER 31, 2004
(Dollars in thousands, except per share amounts)
Nine Months | Year | |||||||
Ended | Ended | |||||||
September 30, | December 31, | |||||||
2005 | 2004 | |||||||
Common stock, par value $.0001 per share | ||||||||
Balance, beginning of year | $ | 7 | $ | 6 | ||||
Issued stock | — | 1 | ||||||
Balance, end of period | $ | 7 | $ | 7 | ||||
Additional paid in capital | ||||||||
Balance, beginning of year | $ | 617,587 | $ | 443,022 | ||||
Stock-based grants (1) | 125,752 | 148,567 | ||||||
Proceeds from exercise of stock options | 29,062 | 10,184 | ||||||
Tax benefits | 23,533 | 15,814 | ||||||
Balance, end of period | $ | 795,934 | $ | 617,587 | ||||
Unearned stock compensation | ||||||||
Balance, beginning of year | $ | (109,366 | ) | $ | (78,248 | ) | ||
Grants | (105,629 | ) | (106,670 | ) | ||||
Amortization expense | 48,491 | 54,935 | ||||||
Previously expensed compensation | 16,795 | 13,904 | ||||||
Forfeitures | 4,745 | 6,713 | ||||||
Balance, end of period | $ | (144,964 | ) | $ | (109,366 | ) | ||
Retained earnings | ||||||||
Balance, beginning of year | $ | 677,464 | $ | 567,632 | ||||
Net earnings | 110,704 | 131,366 | ||||||
Dividends | (22,058 | ) | (21,534 | ) | ||||
Balance, end of period | $ | 766,110 | $ | 677,464 | ||||
Treasury stock, at cost | ||||||||
Balance, beginning of year | $ | (149,039 | ) | $ | (91,908 | ) | ||
Purchases | (69,951 | ) | (59,492 | ) | ||||
Returns / forfeitures | (3,525 | ) | (8,525 | ) | ||||
Issued | 11,344 | 10,886 | ||||||
Balance, end of period | $ | (211,171 | ) | $ | (149,039 | ) | ||
Accumulated other comprehensive income (loss) | ||||||||
Balance, beginning of year | $ | 2,480 | $ | (2,133 | ) | |||
Currency adjustment | (6,536 | ) | 4,017 | |||||
Pension adjustment | — | 596 | ||||||
Balance, end of period | $ | (4,056 | ) | $ | 2,480 | |||
Net stockholders’ equity | $ | 1,201,860 | $ | 1,039,133 | ||||
(1) | Includes grants related to various compensation plans and acquisitions. |
Page 5 of 48
Table of Contents
(Dollars in thousands)
Nine Months Ended | ||||||||
Sept. 30, | Sept. 30, | |||||||
2005 | 2004 | |||||||
Cash flows from operating activities: | ||||||||
Net earnings | $ | 110,704 | $ | 95,970 | ||||
Adjustments to reconcile net earnings to net cash used in operating activities: | ||||||||
Depreciation and amortization | 7,913 | 10,959 | ||||||
Accruals related to various benefit plans, stock issuances, net of forfeitures | 70,975 | 93,752 | ||||||
Increase in cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations | (117,416 | ) | (233,521 | ) | ||||
(Increase) decrease in receivables: | ||||||||
Securities borrowed | 1,819,112 | (2,049,073 | ) | |||||
Brokers, dealers and clearing organizations | (234,576 | ) | (219,351 | ) | ||||
Customers | (513,173 | ) | (123,553 | ) | ||||
Increase in securities owned | (938,936 | ) | (196,524 | ) | ||||
Decrease (increase) in securities pledged to creditors | 519,628 | (67,901 | ) | |||||
Increase in other assets | (227,292 | ) | (31,979 | ) | ||||
Increase (decrease) in operating payables: | ||||||||
Securities loaned | (1,332,353 | ) | 1,457,969 | |||||
Brokers, dealers and clearing organizations | 104,829 | 432,025 | ||||||
Customers | 519,712 | 211,076 | ||||||
Increase in securities sold, not yet purchased | 168,957 | 352,769 | ||||||
Increase in accrued expenses and other liabilities | 268,577 | 7,203 | ||||||
Increase (decrease) in minority interest | 2,787 | (14,232 | ) | |||||
Total adjustments | 118,744 | (370,381 | ) | |||||
Net cash provided by (used in) operating activities | 229,448 | (274,411 | ) | |||||
Page 6 of 48
Table of Contents
(Dollars in thousands)
Nine Months Ended | ||||||||
Sept. 30, | Sept. 30, | |||||||
2005 | 2004 | |||||||
Cash flows from investing activities: | ||||||||
(Increase) decrease in short term bond funds | (128 | ) | 21,010 | |||||
Increase in investments | (18,388 | ) | (2,043 | ) | ||||
Increase in investments in managed funds | (64,625 | ) | (57,298 | ) | ||||
Net additional acquisition payments | (58,336 | ) | (5,941 | ) | ||||
Purchase of premises and equipment | (16,773 | ) | (10,658 | ) | ||||
Net cash used in investing activities | (158,250 | ) | (54,930 | ) | ||||
Cash flows from financing activities: | ||||||||
Net proceeds from (payments on): | ||||||||
Bank loans | (70,000 | ) | 176,000 | |||||
Issuance of 5 1/2% Senior Notes | — | 347,809 | ||||||
Retirement of 10% Senior Notes | — | (300 | ) | |||||
Repurchase of treasury stock | (69,951 | ) | (59,382 | ) | ||||
Dividends | (22,058 | ) | (15,539 | ) | ||||
Exercise of stock options, not including tax benefits | 29,062 | 8,959 | ||||||
Net cash (used in) provided by financing activities | (132,947 | ) | 457,547 | |||||
Effect of foreign currency translation on cash | (1,993 | ) | (558 | ) | ||||
Net (decrease) increase in cash and cash equivalents | (63,742 | ) | 127,648 | |||||
Cash and cash equivalents — beginning of period | 284,111 | 107,876 | ||||||
Cash and cash equivalents — end of period | $ | 220,369 | $ | 235,524 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 208,510 | $ | 92,845 | ||||
Income taxes | $ | 54,344 | $ | 59,045 | ||||
Helix Associates acquisition: | ||||||||
Fair value of assets acquired, including goodwill | $ | 40,151 | ||||||
Liabilities assumed | (3,621 | ) | ||||||
Stock issued (315,597 shares) | (9,498 | ) | ||||||
Cash paid for acquisition | $ | 27,032 | ||||||
Randall & Dewey acquisition: | ||||||||
Fair value of assets acquired, including goodwill | $ | 48,578 | ||||||
Stock issued (456,442 shares) | (17,500 | ) | ||||||
Cash paid for acquisition | $ | 31,078 | ||||||
Page 7 of 48
Table of Contents
(Unaudited)
Page | ||||
9 | ||||
16 | ||||
19 | ||||
19 | ||||
20 | ||||
20 | ||||
21 | ||||
21 | ||||
21 | ||||
22 | ||||
23 | ||||
23 | ||||
24 | ||||
25 | ||||
26 | ||||
27 | ||||
28 | ||||
28 |
Page 8 of 48
Table of Contents
(Unaudited)
Page 9 of 48
Table of Contents
(Unaudited)
Page 10 of 48
Table of Contents
(Unaudited)
Page 11 of 48
Table of Contents
(Unaudited)
Page 12 of 48
Table of Contents
(Unaudited)
Page 13 of 48
Table of Contents
(Unaudited)
Nine Months | Full Year | |||||||
2005 | 2004 | |||||||
(Shares in 000s) | ||||||||
Restricted stock | ||||||||
Balance, beginning of year | 5,271 | 5,811 | ||||||
Grants | 961 | 1,763 | ||||||
Forfeited | (278 | ) | (298 | ) | ||||
RSU conversion | (1,456 | ) | (455 | ) | ||||
Vested | (837 | ) | (1,550 | ) | ||||
Balance, end of period | 3,661 | 5,271 | ||||||
Nine Months | Full Year | |||||||
2005 | 2004 | |||||||
(Shares in 000s) | ||||||||
Restricted stock units (RSU) | ||||||||
Balance, beginning of year | 6,029 | 3,433 | ||||||
Grants, includes dividends | 2,020 | 1,564 | ||||||
Restricted stock conversion | 1,456 | 455 | ||||||
Deferral expiration | (106 | ) | — | |||||
Forfeited | (51 | ) | — | |||||
Grants related to stock option exercises | 67 | 577 | ||||||
Balance, end of period | 9,415 | 6,029 | ||||||
Page 14 of 48
Table of Contents
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
Sept. 30, | Sept. 30, | Sept. 30, | Sept. 30, | |||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Net earnings, as reported | $ | 38,595 | $ | 32,275 | $ | 110,704 | $ | 95,970 | ||||||||
Add: Stock-based employee compensation expense included in reported net earnings, net of related tax effects | 9,188 | 8,842 | 29,726 | 28,589 | ||||||||||||
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects | (9,337 | ) | (9,440 | ) | (30,458 | ) | (30,527 | ) | ||||||||
Pro forma net earnings | $ | 38,446 | $ | 31,677 | $ | 109,972 | $ | 94,032 | ||||||||
Earnings per share: | ||||||||||||||||
Basic — as reported | $ | 0.62 | $ | 0.56 | $ | 1.80 | $ | 1.68 | ||||||||
Basic — pro forma | $ | 0.62 | $ | 0.55 | $ | 1.79 | $ | 1.64 | ||||||||
Diluted — as reported | $ | 0.57 | $ | 0.51 | $ | 1.64 | $ | 1.51 | ||||||||
Diluted — pro forma | $ | 0.56 | $ | 0.50 | $ | 1.63 | $ | 1.48 | ||||||||
Page 15 of 48
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, | September 30, | |||||||
2005 | 2004 | |||||||
Assets under management: | ||||||||
Fixed Income (1) | $ | 717 | $ | 590 | ||||
Equities (2) | 523 | 435 | ||||||
Convertibles (3) | 1,576 | 1,199 | ||||||
Real Assets (4) | 182 | 164 | ||||||
2,998 | 2,388 | |||||||
Assets under management by third parties (5): | ||||||||
Equities, Convertibles and Fixed Income | 399 | 882 | ||||||
Private Equity | 1,035 | 625 | ||||||
1,434 | 1,507 | |||||||
Total | $ | 4,432 | $ | 3,895 | ||||
(1) | The Company’s managed or co-managed assets under management in two Jefferies Partners Opportunity funds, Jefferies Employees Opportunity Fund, LLC, the Jackson Creek CDO and the Victoria Falls CLO, but does not include third-party managed funds. The Company completed the liquidation of the Jackson Creek CDO during the second quarter of 2005. Although the Jefferies Partners Opportunity funds and the Jefferies Employees Opportunity Fund, LLC are often referred to as funds, they are registered with the Securities and Exchange Commission as broker-dealers. | |
(2) | The Jefferies RTS Fund and Jefferies Paragon Fund. | |
(3) | Managed convertible bond assets. | |
(4) | The Jefferies Real Asset Fund. | |
(5) | Third party managed funds in which the Company has a 50% or less interest in the entities that manage these assets or otherwise receives a portion of the management or incentive fees. The Company began to manage the assets of the Asymmetric Convertible Fund beginning October of 2005. |
Three Months Ended | Nine Months Ended | |||||||||||||||
Sept. 30, | Sept. 30, | Sept. 30, | Sept. 30, | |||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Asset management fees: | ||||||||||||||||
Fixed Income (1) | $ | 6,246 | $ | 3,162 | $ | 16,427 | $ | 8,497 | ||||||||
Equities (2) | 5,348 | 2,278 | 16,448 | 9,409 | ||||||||||||
Convertibles (3) | 1,375 | 1,592 | 3,873 | 5,776 | ||||||||||||
Real Assets (4) | 1,269 | 958 | 5,979 | 2,054 | ||||||||||||
14,238 | 7,990 | 42,727 | 25,736 | |||||||||||||
Investment income from managed funds | 7,429 | 3,628 | 20,658 | 28,294 | ||||||||||||
Total | $ | 21,667 | $ | 11,618 | $ | 63,385 | $ | 54,030 | ||||||||
(1) | The Company’s managed or co-managed assets under management in two Jefferies Partners Opportunity funds, Jefferies Employees Opportunity Fund, LLC, the Jackson Creek CDO and the Victoria Falls CLO and certain third-party managed funds. The Company completed the liquidation of the Jackson Creek CDO during the second quarter of 2005. Although the Jefferies Partners Opportunity funds and the Jefferies Employees Opportunity Fund, LLC are often referred to as funds, they are registered with the Securities and Exchange Commission as broker-dealers. | |
(2) | The Jefferies RTS Fund and Jefferies Paragon Fund. | |
(3) | Convertible bond assets managed by the Company, and Asymmetric Convertible Fund, a third party managed fund. The Company began to manage the assets of the Asymmetric Convertible Fund beginning October of 2005. | |
(4) | The Jefferies Real Asset Fund. |
Page 16 of 48
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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) | $ | 142.6 | $ | 8.2 | $ | 2.6 | $ | 5.6 | ||||||||
Equities (2) | 65.0 | (1.1 | ) | 0.1 | (1.2 | ) | ||||||||||
Convertibles (3) | 11.2 | 0.2 | ¾ | 0.2 | ||||||||||||
Real Assets (4). | 10.5 | 0.1 | ¾ | 0.1 | ||||||||||||
Total | $ | 229.3 | $ | 7.4 | $ | 2.7 | $ | 4.7 | ||||||||
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) | $ | 104.5 | $ | 5.3 | $ | 1.4 | $ | 3.9 | ||||||||
Equities (2) | 52.9 | (0.9 | ) | ¾ | (0.9 | ) | ||||||||||
Convertibles (3) | 11.8 | (0.8 | ) | ¾ | (0.8 | ) | ||||||||||
Real Assets (4). | 10.1 | 0.0 | ¾ | 0.0 | ||||||||||||
Total | $ | 179.3 | $ | 3.6 | $ | 1.4 | $ | 2.2 | ||||||||
(1) | The Company’s managed or co-managed assets under management in two Jefferies Partners Opportunity funds, Jefferies Employees Opportunity Fund, LLC, the Jackson Creek CDO, the Victoria Falls CLO and certain third-party managed funds. The Company completed the liquidation of the Jackson Creek CDO during the second quarter of 2005. Although the Jefferies Partners Opportunity funds and the Jefferies Employees Opportunity Fund, LLC are often referred to as funds, they are registered with the Securities and Exchange Commission as broker-dealers. | |
(2) | The Jefferies RTS Fund and Jefferies Paragon Fund. | |
(3) | Convertible bond assets managed by the Company, and Asymmetric Convertible Fund, a third party managed fund. The Company began to manage the assets of the Asymmetric Convertible Fund beginning October of 2005. | |
(4) | The Jefferies Real Asset Fund. | |
(5) | The Company has excluded the portion of average investment in managed funds that represent an economic hedge against certain employee deferred compensation obligations. |
Page 17 of 48
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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) | $ | 137.2 | $ | 13.1 | $ | 6.1 | $ | 7.0 | ||||||||
Equities (2) | 62.9 | 6.6 | 0.2 | 6.4 | ||||||||||||
Convertibles (3) | 11.2 | 0.1 | ¾ | 0.1 | ||||||||||||
Real Assets (4). | 10.5 | 0.9 | ¾ | 0.9 | ||||||||||||
Total | $ | 221.8 | $ | 20.7 | $ | 6.3 | $ | 14.4 | ||||||||
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) | $ | 100.9 | $ | 19.5 | $ | 4.2 | $ | 15.3 | ||||||||
Equities (2) | 31.1 | 9.0 | 4.6 | 4.4 | ||||||||||||
Convertibles (3) | 12.2 | (0.5 | ) | ¾ | (0.5 | ) | ||||||||||
Real Assets (4). | 8.9 | 0.3 | ¾ | 0.3 | ||||||||||||
Total | $ | 153.1 | $ | 28.3 | $ | 8.8 | $ | 19.5 | ||||||||
(1) | The Company’s managed or co-managed assets under management in two Jefferies Partners Opportunity funds, Jefferies Employees Opportunity Fund, LLC, the Jackson Creek CDO, the Victoria Falls CLO and certain third-party managed funds. The Company completed the liquidation of the Jackson Creek CDO during the second quarter of 2005. Although the Jefferies Partners Opportunity funds and the Jefferies Employees Opportunity Fund, LLC are often referred to as funds, they are registered with the Securities and Exchange Commission as broker-dealers. | |
(2) | The Jefferies RTS Fund and Jefferies Paragon Fund. | |
(3) | Convertible bond assets managed by the Company, and Asymmetric Convertible Fund, a third party managed fund. The Company began to manage the assets of the Asymmetric Convertible Fund beginning October of 2005. | |
(4) | The Jefferies Real Asset Fund. | |
(5) | The Company has excluded the portion of average investment in managed funds that represent an economic hedge against certain employee deferred compensation obligations. |
Page 18 of 48
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 2005 | December 31, 2004 | |||||||
Cash and cash equivalents: | ||||||||
Cash in banks | $ | 53,587 | $ | 105,814 | ||||
Money market investments | 166,782 | 178,297 | ||||||
Total cash and cash equivalents | 220,369 | 284,111 | ||||||
Cash and securities segregated (1) | 671,136 | 553,720 | ||||||
Short-term bond funds | 6,989 | 6,861 | ||||||
Auction rate preferreds (2) | 26,847 | 50,365 | ||||||
Mortgage-backed securities (2) | 15,608 | 27,511 | ||||||
Asset-backed securities (2) | 33,469 | 21,093 | ||||||
$ | 974,418 | $ | 943,661 | |||||
(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 Securities Owned (see Note 4 below). Items are financial instruments utilized in the Company’s overall cash management activities and are readily convertible to cash. |
September 30, 2005 | December 31, 2004 | |||||||||||||||
Securities | Securities | |||||||||||||||
Sold, | Sold, | |||||||||||||||
Securities | Not Yet | Securities | Not Yet | |||||||||||||
Owned | Purchased | Owned | Purchased | |||||||||||||
Corporate debt securities | $ | 673,604 | $ | 579,568 | $ | 189,684 | $ | 480,882 | ||||||||
U.S. Government and agency obligations | 372,163 | 351,591 | 26,954 | 96,747 | ||||||||||||
Corporate equity securities | 328,544 | 289,098 | 217,478 | 503,536 | ||||||||||||
High-yield securities | 109,657 | 25,603 | 92,364 | 20,340 | ||||||||||||
Asset-backed securities | 33,469 | — | 21,093 | — | ||||||||||||
Options | 28,611 | 42,893 | 22,775 | 18,044 | ||||||||||||
Auction rate preferreds | 26,847 | — | 50,365 | — | ||||||||||||
Mortgage-backed securities. | 15,608 | — | 27,511 | — | ||||||||||||
Other | — | 377 | 1,075 | 624 | ||||||||||||
$ | 1,588,503 | $ | 1,289,130 | $ | 649,299 | $ | 1,120,173 | |||||||||
Page 19 of 48
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 2005 | December 31, 2004 | |||||||
Corporate equity securities | $ | 51,326 | $ | 99,407 | ||||
High-yield securities | 14,261 | 25,929 | ||||||
Corporate debt securities | 12,219 | 429,278 | ||||||
U.S. Government and agency obligations | — | 42,820 | ||||||
$ | 77,806 | $ | 597,434 | |||||
September 30, 2005 | December 31, 2004 | |||||||
71/2% Senior Notes, due 2007, less unamortized discount of $53 (2005) | $ | 99,947 | $ | 99,926 | ||||
73/4% Senior Notes, due 2012, less unamortized discount of $5,523 (2005) | 333,403 | 341,184 | ||||||
51/2% Senior Notes, due 2016, less unamortized discount of $1,907 (2005) | 348,093 | 347,957 | ||||||
$ | 781,443 | $ | 789,067 | |||||
Page 20 of 48
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
Sept. 30 | Sept. 30 | Sept. 30 | Sept. 30 | |||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Net pension cost included the following components: | ||||||||||||||||
Service cost — benefits earned during the period | $ | 543 | $ | 631 | $ | 1,535 | $ | 1,354 | ||||||||
Interest cost on projected benefit obligation | 661 | 677 | 1,890 | 1,780 | ||||||||||||
Expected return on plan assets | (658 | ) | (561 | ) | (1,581 | ) | (1,285 | ) | ||||||||
Amortization of prior service cost | (3 | ) | (3 | ) | (9 | ) | (9 | ) | ||||||||
Amortization of net loss (gain) | 211 | 365 | 807 | 827 | ||||||||||||
Net periodic pension cost | $ | 754 | $ | 1,109 | $ | 2,642 | $ | 2,667 | ||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
Sept. 30, | Sept. 30, | Sept. 30, | Sept. 30, | |||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Earnings | $ | 38,595 | $ | 32,275 | $ | 110,704 | $ | 95,970 | ||||||||
Shares: | ||||||||||||||||
Average shares used in basic computation | 62,224 | 57,833 | 61,434 | 57,233 | ||||||||||||
Stock options | 1,269 | 1,730 | 1,489 | 1,965 | ||||||||||||
Unvested restricted stock and restricted stock units | 4,619 | 4,304 | 4,451 | 4,418 | ||||||||||||
Average shares used in diluted computation | 68,112 | 63,867 | 67,374 | 63,616 | ||||||||||||
Earnings per share: | ||||||||||||||||
Basic | $ | 0.62 | $ | 0.56 | $ | 1.80 | $ | 1.68 | ||||||||
Diluted | $ | 0.57 | $ | 0.51 | $ | 1.64 | $ | 1.51 | ||||||||
Page 21 of 48
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Minimum | Accumulated | |||||||||||
Currency | Pension | Other | ||||||||||
Translation | Liability | Comprehensive | ||||||||||
Adjustments | Adjustment | Loss | ||||||||||
Beginning at June 30, 2005 | $ | 3,440 | $ | (6,868 | ) | $ | (3,428 | ) | ||||
Change in third quarter of 2005 | (628 | ) | ¾ | (628 | ) | |||||||
Ending at September 30, 2005 | $ | 2,812 | $ | (6,868 | ) | $ | (4,056 | ) | ||||
Minimum | Accumulated | |||||||||||
Currency | Pension | Other | ||||||||||
Translation | Liability | Comprehensive | ||||||||||
Adjustments | Adjustment | Loss | ||||||||||
Beginning at June 25, 2004 | $ | 5,987 | $ | (7,464 | ) | $ | (1,477 | ) | ||||
Change in third quarter of 2004 | (1,214 | ) | ¾ | (1,214 | ) | |||||||
Ending at September 30, 2004 | $ | 4,773 | $ | (7,464 | ) | $ | (2,691 | ) | ||||
September 30, | September 30, | |||||||
2005 | 2004 | |||||||
Net earnings | $ | 38,595 | $ | 32,275 | ||||
Other comprehensive loss | (628 | ) | (1,214 | ) | ||||
Comprehensive income | $ | 37,967 | $ | 31,061 | ||||
Minimum | Accumulated | |||||||||||
Currency | Pension | Other | ||||||||||
Translation | Liability | Comprehensive | ||||||||||
Adjustments | Adjustment | Gain (Loss) | ||||||||||
Beginning at December 31, 2004 | $ | 9,348 | $ | (6,868 | ) | $ | 2,480 | |||||
Change in first nine months of 2005 | (6,536 | ) | ¾ | (6,536 | ) | |||||||
Ending at September 30, 2005 | $ | 2,812 | $ | (6,868 | ) | $ | (4,056 | ) | ||||
Page 22 of 48
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Minimum | Accumulated | |||||||||||
Currency | Pension | Other | ||||||||||
Translation | Liability | Comprehensive | ||||||||||
Adjustments | Adjustment | Loss | ||||||||||
Beginning at December 31, 2003 | $ | 5,331 | $ | (7,464 | ) | $ | (2,133 | ) | ||||
Change in first nine months of 2004 | (558 | ) | ¾ | (558 | ) | |||||||
Ending at September 30, 2004 | $ | 4,773 | $ | (7,464 | ) | $ | (2,691 | ) | ||||
September 30, | September 30, | |||||||
2005 | 2004 | |||||||
Net earnings | $ | 110,704 | $ | 95,970 | ||||
Other comprehensive loss | (6,536 | ) | (558 | ) | ||||
Comprehensive income | $ | 104,168 | $ | 95,412 | ||||
Net Capital | Excess Net Capital | |||||||
Jefferies | $ | 191,865 | $ | 170,989 | ||||
Jefferies Execution | $ | 13,570 | $ | 13,320 |
1st Quarter | 2nd Quarter | 3rd Quarter | ||||||||||
2005 | $ | .120 | $ | .120 | $ | .120 | ||||||
2004 | $ | .080 | $ | .080 | $ | .100 |
Page 23 of 48
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
0 — 12 | 1 — 5 | 5 — 10 | ||||||||||||||
(in millions) | Months | Years | Years | Total | ||||||||||||
Swaps | $ | (141.7 | ) | $ | — | $ | — | $ | (141.7 | ) | ||||||
Options | — | (25.7 | ) | (0.7 | ) | (26.4 | ) | |||||||||
FX forwards | — | (0.1 | ) | — | (0.1 | ) | ||||||||||
Exchange—traded futures and options | 182.0 | 1.8 | — | 183.8 | ||||||||||||
Total | $ | 40.3 | $ | (24.0 | ) | $ | (0.7 | ) | $ | 15.6 | ||||||
Page 24 of 48
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Fair Value | ||||||||
September 30, | December 31, | |||||||
(in millions) | 2005 | 2004 | ||||||
Counterparty credit quality: | ||||||||
A or higher | $ | (168.2 | ) | $ | 17.3 | |||
Exchange-traded futures and options (1) | 183.8 | (6.0 | ) | |||||
Total | $ | 15.6 | $ | 11.3 | ||||
(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 | ||||||||
September 30, | December 31, | |||||||
(in millions) | 2005 | 2004 | ||||||
Foundations, trust and endowments | $ | (22.2 | ) | $ | — | |||
Financial services | (45.2 | ) | — | |||||
Collective investment vehicles (including pension plans, mutual funds and other institutional counterparties) | (100.8 | ) | 17.3 | |||||
Exchanges (1) | 183.8 | (6.0 | ) | |||||
Total | $ | 15.6 | $ | 11.3 | ||||
(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. |
Page 25 of 48
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 2005 | December 31, 2004 | |||||||||||||||
(in thousands) | Assets | Liabilities | Assets | Liabilities | ||||||||||||
Futures contracts | $ | 276,214 | $ | (94,285 | ) | $ | 338 | $ | (10,239 | ) | ||||||
Commodity related swaps | 171 | (141,938 | ) | 20,497 | (3,531 | ) | ||||||||||
Option contracts | 28,705 | (44,258 | ) | 22,775 | (18,044 | ) | ||||||||||
Foreign exchange forward contracts | 81 | (64 | ) | ¾ | (27 | ) | ||||||||||
Interest rate swaps | 13,926 | ¾ | 22,209 | ¾ |
Page 26 of 48
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Page 27 of 48
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2004 | 2005 | 2005 | Acquisition | |||||||||||
Acquisition | Balance | Activity | Balance | Date | ||||||||||
Broadview International LLC | $ | 48,827 | $ | (1,243 | ) | $ | 47,584 | Dec. 2003 | ||||||
Randall & Dewey | ¾ | 45,325 | 45,325 | Jan. 2005 | ||||||||||
Helfant Group, Inc. | 26,062 | ¾ | 26,062 | Sept. 2001 | ||||||||||
Quarterdeck Investment Partners, LLC | 25,170 | 5,025 | 30,195 | Dec. 2002 | ||||||||||
Bonds Direct Securities LLC | 20,943 | ¾ | 20,943 | Sept. 2004 | ||||||||||
The Europe Company | 11,123 | ¾ | 11,123 | Aug. 2000 | ||||||||||
Helix Associates | ¾ | 25,307 | 25,307 | May 2005 | ||||||||||
Other | 2,811 | 226 | 3,037 | Aug. 2000 | ||||||||||
$ | 134,936 | $ | 74,640 | $ | 209,576 | |||||||||
Page 28 of 48
Table of Contents
Condition and Results of Operations
• | the risk factors contained in this report under the caption “Factors Affecting Our Business”; | ||
• | 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. |
Page 29 of 48
Table of Contents
September 30, 2005 | December 31, 2004 | |||||||
Stockholders’ equity | $ | 1,201,860 | $ | 1,039,133 | ||||
Less: Goodwill | (209,576 | ) | (134,936 | ) | ||||
Tangible stockholders’ equity | $ | 992,284 | $ | 904,197 | ||||
Stockholders’ equity | $ | 1,201,860 | $ | 1,039,133 | ||||
Add: Projected tax benefit on vested portion of restricted stock | 121,673 | 99,057 | ||||||
Pro forma stockholders’ equity | $ | 1,323,533 | $ | 1,138,190 | ||||
Tangible stockholders’ equity | $ | 992,284 | $ | 904,197 | ||||
Add: Projected tax benefit on vested portion of restricted stock | 121,673 | 99,057 | ||||||
Pro forma tangible stockholders’ equity | $ | 1,113,957 | $ | 1,003,254 | ||||
Shares outstanding | 58,083,213 | 57,289,309 | ||||||
Add: Shares not issued, to the extent of related expense amortization | 9,804,151 | 8,065,362 | ||||||
Less: Shares issued, to the extent related expense has not been amortized | (1,455,257 | ) | (2,006,365 | ) | ||||
Adjusted shares outstanding | 66,432,107 | 63,348,306 | ||||||
Book value per share (1) | $ | 20.69 | $ | 18.14 | ||||
Pro forma book value per share (2) | $ | 19.92 | $ | 17.97 | ||||
Tangible book value per share (3) | $ | 17.08 | $ | 15.78 | ||||
Pro forma tangible book value per share (4) | $ | 16.77 | $ | 15.84 | ||||
(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 vested 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 vested 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. |
Page 30 of 48
Table of Contents
2004 | 2003 | 2002 | ||||||||||
Commissions and principal transactions: | ||||||||||||
Equities | $ | 446,565 | $ | 395,375 | $ | 381,622 | ||||||
High Yield | 44,884 | 40,291 | 26,905 | |||||||||
Convertibles | 44,989 | 50,934 | 50,750 | |||||||||
Execution | 32,546 | 23,737 | 29,310 | |||||||||
Bonds Direct | 41,023 | 27,242 | 11,516 | |||||||||
Other proprietary | 7,044 | 13,911 | (3,455 | ) | ||||||||
Total | 617,051 | 551,490 | 496,648 | |||||||||
Investment banking | 352,804 | 229,608 | 139,828 | |||||||||
Asset management fees and investment income from managed funds: | ||||||||||||
Asset management fees | 38,208 | 17,268 | 12,026 | |||||||||
Investment income from managed funds | 42,976 | 15,501 | 7,617 | |||||||||
Total | 81,184 | 32,769 | 19,643 | |||||||||
Interest | 134,450 | 102,403 | 92,027 | |||||||||
Other | 13,150 | 10,446 | 6,630 | |||||||||
Total Revenues | $ | 1,198,639 | $ | 926,716 | $ | 754,776 | ||||||
Three Months Ended | ||||||||||||||||
September 30, 2005 | September 30, 2004 | |||||||||||||||
% of | % of | |||||||||||||||
Total | Total | |||||||||||||||
Amount | Revenues | Amount | Revenues | |||||||||||||
Commissions and principal transactions: | ||||||||||||||||
Equities | $ | 105,360 | 28 | % | $ | 127,764 | 43 | % | ||||||||
High Yield | 20,985 | 6 | 10,845 | 4 | ||||||||||||
Convertibles | 9,514 | 2 | 9,368 | 3 | ||||||||||||
Execution | 5,074 | 1 | 7,989 | 3 | ||||||||||||
Bonds Direct | 7,612 | 2 | 11,604 | 4 | ||||||||||||
Other proprietary | 14,027 | 4 | 3,462 | 1 | ||||||||||||
Total | 162,572 | 43 | 171,032 | 58 | ||||||||||||
Investment banking | 107,556 | 28 | 72,122 | 25 | ||||||||||||
Asset management fees and investment income from managed funds: | ||||||||||||||||
Asset management fees | 14,239 | 4 | 7,990 | 3 | ||||||||||||
Investment income from managed funds | 7,428 | 2 | 3,628 | 1 | ||||||||||||
Total | 21,667 | 6 | 11,618 | 4 | ||||||||||||
Interest | 81,467 | 22 | 35,948 | 12 | ||||||||||||
Other | 4,822 | 1 | 2,382 | 1 | ||||||||||||
Total revenues | $ | 378,084 | 100 | % | $ | 293,102 | 100 | % | ||||||||
Page 31 of 48
Table of Contents
Nine Months Ended | ||||||||||||||||
September 30, 2005 | September 30, 2004 | |||||||||||||||
% of | % of | |||||||||||||||
Total | Total | |||||||||||||||
Amount | Revenues | Amount | Revenues | |||||||||||||
Commissions and principal transactions: | ||||||||||||||||
Equities | $ | 292,344 | 27 | % | $ | 341,969 | 39 | % | ||||||||
High Yield | 51,823 | 5 | 35,055 | 4 | ||||||||||||
Convertibles | 26,577 | 3 | 34,505 | 4 | ||||||||||||
Execution | 17,606 | 2 | 25,196 | 3 | ||||||||||||
Bonds Direct | 21,986 | 2 | 33,551 | 4 | ||||||||||||
Other proprietary | 36,855 | 3 | 7,718 | 1 | ||||||||||||
Total | 447,191 | 42 | 477,994 | 55 | ||||||||||||
Investment banking | 327,517 | 31 | 247,066 | 28 | ||||||||||||
Asset management fees and investment income from managed funds: | ||||||||||||||||
Asset management fees | 42,728 | 4 | 25,736 | 3 | ||||||||||||
Investment income from managed funds | 20,657 | 2 | 28,294 | 3 | ||||||||||||
Total | 63,385 | 6 | 54,030 | 6 | ||||||||||||
Interest | 212,738 | 20 | 85,132 | 10 | ||||||||||||
Other | 15,309 | 1 | 9,144 | 1 | ||||||||||||
Total revenues | $ | 1,066,140 | 100 | % | $ | 873,366 | 100 | % | ||||||||
Page 32 of 48
Table of Contents
Three Months Ended | ||||||||||||
September 30, | September 30, | Percentage | ||||||||||
2005 | 2004 | Change | ||||||||||
(Dollars in Thousands) | ||||||||||||
Capital markets | $ | 51,463 | $ | 43,405 | 19 | % | ||||||
Advisory | 56,093 | 28,717 | 95 | % | ||||||||
Total | $ | 107,556 | $ | 72,122 | 49 | % | ||||||
Page 33 of 48
Table of Contents
3rd Quarter | 3rd Quarter | |||||||
2005 | 2004 | |||||||
Stock based compensation (1) | $ | 16,030 | $ | 16,206 | ||||
Net revenues | $ | 299,280 | $ | 253,786 | ||||
Compensation and benefits | $ | 167,033 | $ | 141,434 | ||||
Average employees | 2,001 | 1,749 | ||||||
Stock based compensation / net revenues | 5 | % | 6 | % | ||||
Stock based compensation / compensation and benefits | 10 | % | 11 | % | ||||
Annualized average net stock based compensation / employee | $ | 19 | $ | 23 |
(1) | Stock based compensation is the pre-tax expense associated with all of our employee stock-based compensation plans, including the discount on DCP deferred shares, restricted stock amortization, discounts on employee stock purchase plans and ESOP contributions. |
Page 34 of 48
Table of Contents
Page 35 of 48
Table of Contents
Nine Months Ended | ||||||||||||
September 30, | September 30, | Percentage | ||||||||||
2005 | 2004 | Change | ||||||||||
(Dollars in Thousands) | ||||||||||||
Capital markets | $ | 172,450 | $ | 129,137 | 34 | % | ||||||
Advisory | 155,067 | 117,929 | 31 | % | ||||||||
Total | $ | 327,517 | $ | 247,066 | 33 | % | ||||||
Page 36 of 48
Table of Contents
Nine Months | Nine Months | |||||||
2005 | 2004 | |||||||
Stock based compensation (1) | $ | 52,288 | $ | 52,406 | ||||
Net revenues | $ | 861,848 | $ | 780,160 | ||||
Compensation and benefits | $ | 481,024 | $ | 436,191 | ||||
Average employees | 1,911 | 1,684 | ||||||
Stock based compensation / net revenues | 6 | % | 7 | % | ||||
Stock based compensation / compensation and benefits | 11 | % | 12 | % | ||||
Annualized average net stock based compensation / employee | $ | 21 | $ | 26 |
(1) | Stock based compensation is the pre-tax expense associated with all of our employee stock-based compensation plans, including the discount on DCP deferred shares, restricted stock amortization, discounts on employee stock purchase plans and ESOP contributions. |
Page 37 of 48
Table of Contents
September 30, 2005 | December 31, 2004 | |||||||
Cash and cash equivalents: | ||||||||
Cash in banks | $ | 53,587 | $ | 105,814 | ||||
Money market investments | 166,782 | 178,297 | ||||||
Total cash and cash equivalents | 220,369 | 284,111 | ||||||
Cash and securities segregated | 671,136 | 553,720 | ||||||
Short-term bond funds | 6,989 | 6,861 | ||||||
Auction rate preferreds (1) | 26,847 | 50,365 | ||||||
Mortgage-backed securities (1) | 15,608 | 27,511 | ||||||
Asset-backed securities (1) | 33,469 | 21,093 | ||||||
$ | 974,418 | $ | 943,661 | |||||
(1) | Items are included in Securities Owned. Items are financial instruments utilized in the Company’s overall cash management and are readily convertible to cash. |
Page 38 of 48
Table of Contents
Net Capital | Excess Net Capital | |||||||
Jefferies | $ | 191,865 | $ | 170,989 | ||||
Jefferies Execution | $ | 13,570 | $ | 13,320 |
Page 39 of 48
Table of Contents
• | A market downturn could lead to a decline in the volume of transactions executed for customers and, therefore, to a decline in the revenues we receive from commissions and spreads. | |
• | Unfavorable financial or economic conditions could likely reduce the number and size of transactions in which we provide underwriting, financial advisory and other services. Our investment banking revenues, in the form of financial advisory and underwriting or placement fees, are directly related to the number and size of the transactions in which we participate and could therefore be adversely affected by unfavorable financial or economic conditions. | |
• | Adverse changes in the market could lead to a reduction in revenues from principal transactions and commissions. | |
• | Adverse changes in the market could also lead to a reduction in revenues from asset management fees and investment income from managed funds and losses from managed funds. Continued increases in our asset management business, including increases in the amount of our investments in managed funds, would make us more susceptible to adverse changes in the market. |
Page 40 of 48
Table of Contents
Page 41 of 48
Table of Contents
Page 42 of 48
Table of Contents
• | 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). |
Page 43 of 48
Table of Contents
Daily VaR(1) | ||||||||||||||||||||||||
(In Millions) | ||||||||||||||||||||||||
Value at Risk in trading portfolios | ||||||||||||||||||||||||
Var at | Ave VaR 3 Months Ended | |||||||||||||||||||||||
Risk Categories | 9/30/05 | 6/30/05 | 12/31/04 | 9/30/05 | 6/30/05 | 12/31/04 | ||||||||||||||||||
Interest Rates | $ | 0.49 | $ | 0.95 | $ | 0.55 | $ | 0.50 | $ | 0.81 | $ | 0.54 | ||||||||||||
Equity Prices | $ | 2.40 | $ | 2.25 | $ | 1.23 | $ | 2.72 | $ | 2.02 | $ | 0.90 | ||||||||||||
Currency Rates | $ | 0.19 | $ | 0.18 | $ | 0.03 | $ | 0.15 | $ | 0.11 | $ | 0.12 | ||||||||||||
Commodity Prices | $ | 1.83 | $ | 0.92 | $ | 0.02 | $ | 1.52 | $ | 0.79 | $ | 0.21 | ||||||||||||
Diversification Effect2 | -$ | 1.72 | -$ | 1.68 | -$ | 0.47 | -$ | 1.73 | -$ | 1.33 | -$ | 0.69 | ||||||||||||
Firmwide | $ | 3.18 | $ | 2.62 | $ | 1.35 | $ | 3.16 | $ | 2.40 | $ | 1.08 | ||||||||||||
Daily VaR(1) | ||||||||||||||||||||||||
(In Millions) | ||||||||||||||||||||||||
Value at Risk Highs and Lows for Three Months Ended | ||||||||||||||||||||||||
9/30/05 | 6/30/05 | 12/31/04 | ||||||||||||||||||||||
Risk Categories | High | Low | High | Low | High | Low | ||||||||||||||||||
Interest Rates | $ | 0.79 | $ | 0.35 | $ | 1.49 | $ | 0.43 | $ | 0.85 | $ | 0.31 | ||||||||||||
Equity Prices | $ | 3.16 | $ | 1.84 | $ | 2.64 | $ | 1.51 | $ | 1.43 | $ | 0.58 | ||||||||||||
Currency Rates | $ | 0.45 | $ | 0.06 | $ | 0.29 | $ | 0.03 | $ | 0.60 | $ | 0.02 | ||||||||||||
Commodity Prices | $ | 2.45 | $ | 0.16 | $ | 1.85 | $ | 0.31 | $ | 0.55 | $ | 0.01 | ||||||||||||
Firmwide | $ | 3.89 | $ | 2.46 | $ | 3.09 | $ | 1.75 | $ | 1.49 | $ | 0.81 | ||||||||||||
(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. |
Page 44 of 48
Table of Contents
![(LINE GRAPH)](https://capedge.com/proxy/10-Q/0000950129-05-010039/v13679v1367901.gif)
![(BAR CHART)](https://capedge.com/proxy/10-Q/0000950129-05-010039/v13679v1367902.gif)
Page 45 of 48
Table of Contents
($ in millions)
![(BAR CHART)](https://capedge.com/proxy/10-Q/0000950129-05-010039/v13679v1367903.gif)
Page 46 of 48
Table of Contents
(c) Total Number of | ||||||||||||||||
(a) Total | (b) | Shares Purchased as | (d) Maximum Number of | |||||||||||||
Number of | Average | Part of Publicly | Shares that May Yet Be | |||||||||||||
Shares | Price Paid | Announced Plans or | Purchased Under the | |||||||||||||
Period | Purchased (1) | per Share | Programs (2) | Plans or Programs | ||||||||||||
July 1 — July 31, 2005 | 1,263,784 | 38.49 | 625,000 | 3,000,000 | ||||||||||||
August 1 — August 31, 2005 | 27,322 | 40.63 | — | 3,000,000 | ||||||||||||
September 1 — September 30, 2005 | — | — | — | 3,000,000 | ||||||||||||
Total | 1,291,106 | 38.54 | 625,000 |
(1) | We repurchased an aggregate of 666,106 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 the Company pursuant to the terms of our stock compensation plans. | |
(2) | On October 24, 2002, we issued a press release announcing the authorization by our Board of Directors to repurchase, from time to time, up to 1,500,000 shares of our stock. As of June 30, 2005, we were authorized to repurchase, from time to time, up to 953 ,600 shares under our publicly announced program, after adjusting for the 2-for-1 stock split effected as a stock dividend on August 15, 2003. On July 19, 2005, we repurchased 625,000 shares from John C. Shaw, Jr., at a per share price of $35.40. On July 26, 2005, we issued a press release announcing an amendment to our repurchase program and the authorization by our Board of Directors to repurchase, from time to time, up to an aggregate of 3,000,000 shares. |
Exhibits | ||
2 | Share and Membership Interest Purchase Agreement dated as of July 18, 2005, by and among Brian P. Friedman, James L. Luikart, 2055 Partners L.P., Jefferies Capital Partners IV LLC, JCP IV LLC, and Jefferies Group, Inc. is incorporated herein by reference to Exhibit 2 of the Registrant’s Form 8-K filed on July 21, 2005. | |
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 | 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. | |
10 | Summary of the Total Direct Pay Program from Brian P. Friedman is incorporated herein by reference to Exhibit 10 of the Registrant’s Form 8-K filed on August 16, 2005. | |
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. |
Page 47 of 48
Table of Contents
JEFFERIES GROUP, INC. | ||||||
(Registrant) | ||||||
Date: October 24, 2005 | By: | /s/ Joseph A. Schenk | ||||
Joseph A. Schenk | ||||||
Chief Financial Officer |
Page 48 of 48