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 | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
520 Madison Avenue, 12th Floor, New York, New York | 10022 | |
(Address of principal executive offices) | (Zip Code) |
Yesþ Noo
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Yeso Noþ
INDEX TO QUARTERLY REPORT ON FORM 10-Q
JUNE 30, 2008
Page | ||||||||
PART I. | ||||||||
3 | ||||||||
5 | ||||||||
6 | ||||||||
7 | ||||||||
9 | ||||||||
41 | ||||||||
57 | ||||||||
61 | ||||||||
PART II. | ||||||||
61 | ||||||||
61 | ||||||||
62 | ||||||||
62 | ||||||||
63 | ||||||||
64 | ||||||||
EXHIBIT 10.5 | ||||||||
EXHIBIT 10.6 | ||||||||
EXHIBIT 10.7 | ||||||||
EXHIBIT 31.1 | ||||||||
EXHIBIT 31.2 | ||||||||
EXHIBIT 32 |
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CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
(Dollars in thousands, except per share amounts)
June 30, | December 31, | |||||||
2008 | 2007 | |||||||
ASSETS | ||||||||
Cash and cash equivalents | $ | 1,073,196 | $ | 897,872 | ||||
Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations | 1,336,826 | 659,219 | ||||||
Financial instruments owned, including securities pledged to creditors of $863,292 and $1,087,906 in 2008 and 2007, respectively: | ||||||||
Corporate equity securities | 1,852,260 | 2,266,679 | ||||||
Corporate debt securities | 2,179,172 | 2,162,893 | ||||||
U.S. Government and agency obligations | 245,395 | 730,921 | ||||||
Mortgage- and asset-backed securities | 1,082,113 | 26,895 | ||||||
Loans | 5,144 | ¯ | ||||||
Derivatives | 309,861 | 501,502 | ||||||
Investments at fair value | 90,111 | 104,199 | ||||||
Other | 309 | 2,889 | ||||||
Total financial instruments owned | 5,764,365 | 5,795,978 | ||||||
Investments in managed funds | 104,841 | 293,523 | ||||||
Other investments | 104,365 | 78,715 | ||||||
Securities borrowed | 9,731,455 | 16,422,130 | ||||||
Securities purchased under agreements to resell | 4,661,564 | 3,372,294 | ||||||
Receivable from brokers, dealers and clearing organizations | 565,953 | 508,926 | ||||||
Receivable from customers | 791,943 | 764,833 | ||||||
Premises and equipment | 147,508 | 141,472 | ||||||
Goodwill | 352,442 | 344,063 | ||||||
Other assets | 585,378 | 514,792 | ||||||
Total assets | $ | 25,219,836 | $ | 29,793,817 | ||||
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CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED) — CONTINUED
(Dollars in thousands, except per share amounts)
June 30, | December 31, | |||||||
2008 | 2007 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Bank loans | $ | 16,010 | $ | 280,378 | ||||
Financial instruments sold, not yet purchased: | ||||||||
Corporate equity securities | 1,628,814 | 1,389,099 | ||||||
Corporate debt securities | 1,557,621 | 1,407,387 | ||||||
U.S. Government and agency obligations | 411,297 | 206,090 | ||||||
Derivatives | 291,464 | 331,788 | ||||||
Other | 563 | 314 | ||||||
Total financial instruments sold, not yet purchased | 3,889,759 | 3,334,678 | ||||||
Securities loaned | 5,697,699 | 7,681,464 | ||||||
Securities sold under agreements to repurchase | 7,769,172 | 11,325,562 | ||||||
Payable to brokers, dealers and clearing organizations | 822,476 | 874,028 | ||||||
Payable to customers | 1,797,199 | 1,415,803 | ||||||
Accrued expenses and other liabilities | 552,226 | 627,597 | ||||||
20,544,541 | 25,539,510 | |||||||
Long-term debt | 1,764,440 | 1,764,067 | ||||||
Mandatorily redeemable convertible preferred stock | 125,000 | 125,000 | ||||||
Minority interest | 580,904 | 603,696 | ||||||
Total liabilities | 23,014,885 | 28,032,273 | ||||||
STOCKHOLDERS’ EQUITY | ||||||||
Common stock, $.0001 par value. Authorized 500,000,000 shares; issued 167,827,972 shares in 2008 and 155,375,808 shares in 2007 | 17 | 16 | ||||||
Additional paid-in capital | 1,381,128 | 1,115,011 | ||||||
Retained earnings | 893,655 | 1,031,764 | ||||||
Less: | ||||||||
Treasury stock, at cost, 5,706,578 shares in 2008 and 30,922,634 shares in 2007 | (80,933 | ) | (394,406 | ) | ||||
Accumulated other comprehensive gain: | ||||||||
Currency translation adjustments | 12,911 | 10,986 | ||||||
Additional minimum pension liability | (1,827 | ) | (1,827 | ) | ||||
Total accumulated other comprehensive income | 11,084 | 9,159 | ||||||
Total stockholders’ equity | 2,204,951 | 1,761,544 | ||||||
Total liabilities and stockholders’ equity | $ | 25,219,836 | $ | 29,793,817 | ||||
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CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
(In thousands, except per share and ratio amounts)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Revenues: | ||||||||||||||||
Commissions | $ | 102,521 | $ | 83,094 | $ | 216,172 | $ | 160,126 | ||||||||
Principal transactions | 141,679 | 129,030 | 141,733 | 273,479 | ||||||||||||
Investment banking | 109,372 | 223,093 | 208,579 | 393,208 | ||||||||||||
Asset management fees and investment income (loss) from managed funds | 13,479 | 13,384 | (14,317 | ) | 35,869 | |||||||||||
Interest | 210,540 | 310,739 | 415,431 | 511,901 | ||||||||||||
Other | 6,434 | 7,005 | 12,914 | 15,046 | ||||||||||||
Total revenues | 584,025 | 766,345 | 980,512 | 1,389,629 | ||||||||||||
Interest expense | 191,943 | 300,885 | 387,234 | 505,360 | ||||||||||||
Revenues, net of interest expense | 392,082 | 465,460 | 593,278 | 884,269 | ||||||||||||
Non-interest expenses: | ||||||||||||||||
Compensation and benefits | 277,514 | 251,602 | 537,465 | 479,268 | ||||||||||||
Floor brokerage and clearing fees | 18,588 | 16,527 | 31,536 | 31,109 | ||||||||||||
Technology and communications | 29,478 | 23,703 | 60,394 | 45,860 | ||||||||||||
Occupancy and equipment rental | 20,436 | 17,864 | 37,693 | 36,035 | ||||||||||||
Business development | 10,978 | 12,080 | 23,878 | 25,189 | ||||||||||||
Other | 20,617 | 15,293 | 41,098 | 34,924 | ||||||||||||
Total non-interest expenses | 377,611 | 337,069 | 732,064 | 652,385 | ||||||||||||
Earnings (loss) before income taxes and minority interest | 14,471 | 128,391 | (138,786 | ) | 231,884 | |||||||||||
Income taxes | 4,016 | 45,046 | (53,876 | ) | 85,704 | |||||||||||
Earnings (loss) before minority interest | 10,455 | 83,345 | (84,910 | ) | 146,180 | |||||||||||
Minority interest in earnings (loss) of consolidated subsidiaries, net | 14,840 | 15,510 | (19,988 | ) | 16,086 | |||||||||||
Net (loss) earnings | $ | (4,385 | ) | $ | 67,835 | $ | (64,922 | ) | $ | 130,094 | ||||||
(Loss) earnings per share: | ||||||||||||||||
Basic | $ | (0.03 | ) | $ | 0.48 | $ | (0.42 | ) | $ | 0.92 | ||||||
Diluted | $ | (0.03 | ) | $ | 0.45 | $ | (0.42 | ) | $ | 0.86 | ||||||
Weighted average shares: | ||||||||||||||||
Basic | 165,694 | 142,092 | 153,739 | 141,498 | ||||||||||||
Diluted | 165,694 | 154,301 | 153,739 | 153,183 |
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CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY AND
COMPREHENSIVE INCOME (Unaudited)
Six months | ||||||||
ended | Year ended | |||||||
June 30, 2008 | December 31, 2007 | |||||||
Common stock, par value $0.0001 per share | ||||||||
Balance, beginning of period | $ | 16 | $ | 14 | ||||
Issued / stock dividend | 1 | 2 | ||||||
Balance, end of period | 17 | 16 | ||||||
Additional paid in capital | ||||||||
Balance, beginning of period | 1,115,011 | 876,393 | ||||||
Benefit plan share activity (1) | 29,793 | 38,053 | ||||||
Share-based amortization expense | 101,403 | 144,382 | ||||||
Proceeds from exercise of stock options | 679 | 5,233 | ||||||
Acquisitions and contingent consideration | 5,647 | 9,240 | ||||||
Tax benefits for issuance of stock-based awards | 4,082 | 41,710 | ||||||
Issuance of treasury stock | 90,160 | — | ||||||
Dividend equivalents on restricted stock units | 34,353 | — | ||||||
Balance, end of period | 1,381,128 | 1,115,011 | ||||||
Retained earnings | ||||||||
Balance, beginning of period | 1,031,764 | 952,263 | ||||||
Cumulative effect of adjustment from adoption of FIN 48 | — | (410 | ) | |||||
Net (loss) earnings | (64,922 | ) | 144,665 | |||||
Dividends and dividend equivalents | (73,187 | ) | (64,754 | ) | ||||
Balance, end of period | 893,655 | 1,031,764 | ||||||
Treasury stock, at cost | ||||||||
Balance, beginning of period | (394,406 | ) | (254,437 | ) | ||||
Purchases | (9,660 | ) | (147,809 | ) | ||||
Returns / forfeitures | (20,286 | ) | (7,785 | ) | ||||
Issued | 343,419 | 15,625 | ||||||
Balance, end of period | (80,933 | ) | (394,406 | ) | ||||
Accumulated other comprehensive income (loss) | ||||||||
Balance, beginning of period | 9,159 | 6,854 | ||||||
Currency adjustment, net of tax | 1,925 | 1,222 | ||||||
Pension adjustment, net of tax | — | 1,083 | ||||||
Balance, end of period | 11,084 | 9,159 | ||||||
Total stockholders’ equity | $ | 2,204,951 | $ | 1,761,544 | ||||
Comprehensive income | ||||||||
Net (loss) earnings | $ | (64,922 | ) | $ | 144,665 | |||
Other comprehensive income, net of tax | 1,925 | 2,305 | ||||||
Total comprehensive income | $ | (62,997 | ) | $ | 146,970 | |||
(1) | Includes grants related to the Incentive Plan, Deferred Compensation Plan and Director Plan. |
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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
Six Months Ended | ||||||||
June 30, | June 30, | |||||||
2008 | 2007 | |||||||
Cash flows from operating activities: | ||||||||
Net (loss) earnings | $ | (64,922 | ) | $ | 130,094 | |||
Adjustments to reconcile net (loss) earnings to net cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization | 16,270 | 13,173 | ||||||
Accruals related to various benefit plans, stock issuances, net of forfeitures | 110,911 | 95,374 | ||||||
Increase in cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations | (677,434 | ) | (248,279 | ) | ||||
Minority interest | (19,988 | ) | 16,086 | |||||
Decrease (increase) in receivables: | ||||||||
Securities borrowed | 6,690,869 | (9,967,303 | ) | |||||
Brokers, dealers and clearing organizations | (49,082 | ) | (632,768 | ) | ||||
Customers | (27,534 | ) | (113,390 | ) | ||||
Decrease (increase) in financial instruments owned | 72,716 | (1,712,018 | ) | |||||
Increase in other investments | (25,650 | ) | (19,602 | ) | ||||
Decrease (increase) in investments in managed funds | 136,008 | (13,216 | ) | |||||
Increase in securities purchased under agreements to resell | (1,289,270 | ) | (1,479,517 | ) | ||||
Increase in other assets | (57,886 | ) | (38,559 | ) | ||||
(Decrease) increase in payables: | ||||||||
Securities loaned | (1,983,765 | ) | 3,110,333 | |||||
Brokers, dealers and clearing organizations | (51,725 | ) | 624,170 | |||||
Customers | 381,374 | 4,678 | ||||||
Increase in financial instruments sold, not yet purchased | 554,413 | 1,136,303 | ||||||
(Decrease) increase in securities sold under agreements to repurchase | (3,556,390 | ) | 8,465,137 | |||||
Decrease in accrued expenses and other liabilities | (48,066 | ) | (59,865 | ) | ||||
Net cash provided by (used in) operating activities | 110,849 | (689,169 | ) | |||||
Cash flows from investing activities: | ||||||||
Cash paid for contingent consideration | (33,995 | ) | (25,720 | ) | ||||
Business acquisitions, net of cash received | — | (17,185 | ) | |||||
Purchase of premises and equipment | (21,816 | ) | (30,409 | ) | ||||
Net cash used in investing activities | (55,811 | ) | (73,314 | ) | ||||
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CONSOLIDATED STATEMENTS OF CASH FLOWS — CONTINUED (Unaudited)
(Dollars in thousands)
Six Months Ended | ||||||||
June 30, | June 30, | |||||||
2008 | 2007 | |||||||
Cash flows from financing activities | ||||||||
Tax benefit from the issuance of share based awards | 4,082 | 36,167 | ||||||
Proceeds from reorganization of high yield secondary market trading | — | 354,256 | ||||||
Redemption of capital units related to our reorganization of high yield secondary market trading | — | (25,780 | ) | |||||
Net proceeds from (payments on): | ||||||||
Equity financing | 433,579 | — | ||||||
Bank loans | (264,268 | ) | 63,801 | |||||
Issuance of senior notes | — | 593,176 | ||||||
Minority interest holders of consolidated subsidiaries related to high yield secondary market trading | (5,700 | ) | — | |||||
Minority interest holders of consolidated subsidiaries related to asset management activities | �� | (10 | ) | 525 | ||||
Repurchase of treasury stock | (9,660 | ) | (32,720 | ) | ||||
Dividends | (38,834 | ) | (32,624 | ) | ||||
Exercise of stock options, not including tax benefits | 679 | 2,391 | ||||||
Net cash provided by financing activities | 119,868 | 959,192 | ||||||
Effect of foreign currency translation on cash and cash equivalents | 418 | (89 | ) | |||||
Net increase in cash and cash equivalents | 175,324 | 196,620 | ||||||
Cash and cash equivalents — beginning of period | 897,872 | 513,041 | ||||||
Cash and cash equivalents — end of period | $ | 1,073,196 | $ | 709,661 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid (received) during the period for: | ||||||||
Interest | $ | 394,688 | $ | 485,991 | ||||
Income taxes | $ | (28,733 | ) | $ | 27,112 | |||
Non-cash proceeds from reorganization of high yield secondary market trading | $ | — | $ | 230,169 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
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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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)
June 30, 2008 | December 31, 2007 | |||||||
Cash and cash equivalents: | ||||||||
Cash in banks | $ | 469,104 | $ | 248,174 | ||||
Money market investments | 604,092 | 649,698 | ||||||
Total cash and cash equivalents | 1,073,196 | 897,872 | ||||||
Cash and securities segregated (1) | 1,336,826 | 659,219 | ||||||
$ | 2,410,022 | $ | 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. |
June 30, 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 | $ | 1,852,260 | $ | 1,628,814 | $ | 2,266,679 | $ | 1,389,099 | ||||||||
Corporate debt securities | 2,179,172 | 1,557,621 | 2,162,893 | 1,407,387 | ||||||||||||
U.S. Government and agency obligations | 245,395 | 411,297 | 730,921 | 206,090 | ||||||||||||
Mortgage- and asset-backed securities | 1,082,113 | — | 26,895 | — | ||||||||||||
Loans | 5,144 | — | — | — | ||||||||||||
Derivatives | 309,861 | 291,464 | 501,502 | 331,788 | ||||||||||||
Investments at fair value | 90,111 | — | 104,199 | — | ||||||||||||
Other | 309 | 563 | 2,889 | 314 | ||||||||||||
$ | 5,764,365 | $ | 3,889,759 | $ | 5,795,978 | $ | 3,334,678 | |||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
June 30, 2008 | December 31, 2007 | |||||||
Corporate equity securities | $ | 767,431 | $ | 985,783 | ||||
Corporate debt securities | 95,861 | 102,123 | ||||||
$ | 863,292 | $ | 1,087,906 | |||||
As of June 30, 2008 | ||||||||||||||||||||
Counterparty | ||||||||||||||||||||
and Cash | ||||||||||||||||||||
Collateral | ||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Netting | Total | ||||||||||||||||
Assets: | ||||||||||||||||||||
Financial instruments owned: | ||||||||||||||||||||
Securities | $ | 1,630,456 | $ | 3,328,087 | $ | 400,706 | $ | — | $ | 5,359,249 | ||||||||||
Loans | — | — | 5,144 | — | 5,144 | |||||||||||||||
Derivative instruments | 963,027 | 324,514 | 727 | (978,407 | ) | 309,861 | ||||||||||||||
Investments at fair value | — | — | 90,111 | — | 90,111 | |||||||||||||||
Total financial instruments owned | 2,593,483 | 3,652,601 | 496,688 | (978,407 | ) | 5,764,365 | ||||||||||||||
Level 3 assets for which the firm does not bear economic exposure (1) | (154,094 | ) | ||||||||||||||||||
Level 3 assets for which the firm bears economic exposure | 342,594 | |||||||||||||||||||
Liabilities: | ||||||||||||||||||||
Financial instruments sold, not yet purchased: | ||||||||||||||||||||
Securities | 1,716,072 | 1,834,419 | 47,804 | — | 3,598,295 | |||||||||||||||
Derivative instruments | 434,499 | 2,042,180 | 33,921 | (2,219,136 | ) | 291,464 | ||||||||||||||
Total financial instruments sold, not yet purchased | 2,150,571 | 3,876,599 | 81,725 | (2,219,136 | ) | 3,889,759 |
(1) | Consists of Level 3 assets which are attributable to minority investors or attributable to employee interests in certain consolidated entities. |
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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 entities. |
Three Months Ended June 30, 2008 | ||||||||||||||||||||
Non-derivative | Non-derivative | Derivative | Derivative | |||||||||||||||||
instruments— | instruments— | instruments— | instruments— | |||||||||||||||||
Assets | Liabilities | Assets | Liabilities | Investments | ||||||||||||||||
Balance, March 31, 2008 | $ | 288,956 | $ | (6,583 | ) | $ | — | $ | (23,256 | ) | $ | 95,332 | ||||||||
Total gains/ (losses) (realized and unrealized) (1) | 11,164 | 340 | 184 | (7,516 | ) | 863 | ||||||||||||||
Purchases, sales, settlements, and Issuances | 98,219 | (41,815 | ) | — | (3,149 | ) | (6,084 | ) | ||||||||||||
Net transfers in and/or (out) of Level 3 | 7,511 | 252 | 543 | — | — | |||||||||||||||
Balance, June 30, 2008 | $ | 405,850 | $ | (47,804 | ) | $ | 727 | $ | (33,921 | ) | $ | 90,111 | ||||||||
Change in unrealized gains/ (losses) relating to instruments still held at June 30, 2008 (1) | $ | 15,760 | $ | 9 | $ | 184 | $ | (8,981 | ) | 863 |
(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 June 30, 2007 | ||||||||||||
Non-derivative | Non-derivative | |||||||||||
instruments— | instruments— | |||||||||||
Assets | Liabilities | Investments | ||||||||||
Balance, March 31, 2007 | $ | 160,377 | $ | — | $ | 97,653 | ||||||
Total gains/ (losses) (realized and unrealized) (1) | 260 | — | 3,307 | |||||||||
Purchases, sales, settlements, and Issuances | 77,055 | (1,318 | ) | (8,037 | ) | |||||||
Net transfers in and/or out of Level 3 | 15,003 | (1,517 | ) | — | ||||||||
Balance, June 30, 2007 | $ | 252,695 | $ | (2,835 | ) | $ | 92,923 | |||||
Change in unrealized gains/ (losses) relating to instruments still held at June 30, 2007 (1) | $ | (17,744 | ) | $ | — | $ | 3,307 |
(1) | Realized and unrealized gains/ (losses) are reported in principal transactions in the Consolidated Statements of Earnings. |
Six Months Ended June 30, 2008 | ||||||||||||||||||||
Non-derivative | Non-derivative | Derivative | Derivative | |||||||||||||||||
instruments— | instruments— | instruments— | instruments— | |||||||||||||||||
Assets | Liabilities | Assets | Liabilities | Investments | ||||||||||||||||
Balance, December 31, 2007 | $ | 248,397 | $ | (8,703 | ) | $ | — | $ | (12,929 | ) | $ | 104,199 | ||||||||
Total gains/ (losses) (realized and unrealized) (1) | (10,389 | ) | 342 | 184 | (7,211 | ) | (4,676 | ) | ||||||||||||
Purchases, sales, settlements, and Issuances | 119,637 | (39,695 | ) | — | 8,577 | (9,412 | ) | |||||||||||||
Net transfers in and/or (out) of Level 3 | 48,205 | 252 | 543 | (22,358 | ) | — | ||||||||||||||
Balance, June 30, 2008 | $ | 405,850 | $ | (47,804 | ) | $ | 727 | $ | (33,921 | ) | $ | 90,111 | ||||||||
Change in unrealized gains/ (losses) relating to instruments still held at June 30, 2008 (1) | $ | 42,756 | $ | 9 | $ | 294 | $ | (8,413 | ) | (4,677 | ) |
(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)
Six Months Ended June 30, 2007 | ||||||||||||
Non-derivative | Non-derivative | |||||||||||
instruments— | instruments— | |||||||||||
Assets | Liabilities | Investments | ||||||||||
Balance, December 31, 2006 | $ | 205,278 | $ | — | $ | 97,289 | ||||||
Total gains/ (losses) (realized and unrealized) (1) | (2,783 | ) | — | 8,661 | ||||||||
Purchases, sales, settlements, and Issuances | 49,633 | (1,318 | ) | (13,027 | ) | |||||||
Net transfers in and/or out of Level 3 | 567 | (1,517 | ) | — | ||||||||
Balance, June 30, 2007 | $ | 252,695 | $ | (2,835 | ) | $ | 92,923 | |||||
Change in unrealized gains/ (losses) relating to instruments still held at June 30, 2007 (1) | $ | (21,364 | ) | $ | — | $ | 8,661 |
(1) | Realized and unrealized gains/ losses are reported in principal transactions in the Consolidated Statements of Earnings. |
June 30, 2008 | December 31, 2007 | |||||||
7.75% Senior Notes, due 2012, net of unamortized discount of $4,003 (2008) | $ | 328,660 | 328,594 | |||||
5.875% Senior Notes, due 2014, net of unamortized discount of $1,485 (2008) | 248,515 | 248,402 | ||||||
5.5% Senior Notes, due 2016, net of unamortized discount of $1,408 (2008) | 348,592 | 348,501 | ||||||
6.45% Senior Debentures, due 2027, net of unamortized discount of $3,711 (2008) | 346,289 | 346,236 | ||||||
6.25% Senior Debentures, due 2036, net of unamortized discount of $7,616 (2008) | 492,384 | 492,334 | ||||||
$ | 1,764,440 | $ | 1,764,067 | |||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Net pension cost included the following components: | ||||||||||||||||
Service cost (1) | $ | 69 | $ | 69 | $ | 138 | $ | 138 | ||||||||
Interest cost on projected benefit obligation | 595 | 590 | 1,189 | 1,180 | ||||||||||||
Expected return on plan assets | (731 | ) | (628 | ) | (1,462 | ) | (1,256 | ) | ||||||||
Amortization of prior service cost | — | — | — | — | ||||||||||||
Amortization of net loss | — | 141 | — | 282 | ||||||||||||
Net periodic pension (income) cost | $ | (67 | ) | $ | 172 | $ | (135 | ) | $ | 344 | ||||||
(1) | Service costs relates to administrative expenses incurred during the three and six month periods. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Net (loss)/ earnings | $ | (4,385 | ) | $ | 67,835 | $ | (64,922 | ) | $ | 130,094 | ||||||
Add: Convertible preferred stock dividends | — | 1,016 | — | 2,032 | ||||||||||||
Net earnings for diluted earnings per share | $ | (4,385 | ) | $ | 68,851 | $ | (64,922 | ) | $ | 132,126 | ||||||
Shares: | ||||||||||||||||
Average shares used in basic computation | 165,694 | 142,092 | 153,739 | 141,498 | ||||||||||||
Unvested restricted stock / restricted stock units | — | 7,577 | — | 7,017 | ||||||||||||
Stock options | — | 568 | — | 608 | ||||||||||||
Convertible preferred stock | — | 4,064 | — | 4,060 | ||||||||||||
Average shares used in diluted computation | 165,694 | 154,301 | 153,739 | 153,183 | ||||||||||||
(Loss)/ earnings per share: | ||||||||||||||||
Basic | $ | (0.03 | ) | $ | 0.48 | $ | (0.42 | ) | $ | 0.92 | ||||||
Diluted | $ | (0.03 | ) | $ | 0.45 | $ | (0.42 | ) | $ | 0.86 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
June 30, 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 | $ | 12,196 | $ | 22,101 | $ | 162,723 | $ | 4,712 | ||||||||
Swaps (1) | 88,205 | 1,097,221 | 2,424 | 417,020 | ||||||||||||
Option contracts (1) | 288,427 | 433,268 | 355,119 | 404,525 | ||||||||||||
Forward contracts | 7,638 | 5,830 | 3,348 | 3,254 | ||||||||||||
Total | $ | 396,466 | $ | 1,558,420 | $ | 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 Statements of Financial Condition. At June 30, 2008, collateral received and collateral pledged were $86.6 million and $1,266.9 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 | ||||||||||||||||||||
Cross- | ||||||||||||||||||||
0 — 12 | 1 — 5 | 5 — 10 | Maturity | |||||||||||||||||
Months | Years | Years | Netting | Total | ||||||||||||||||
Commodity swaps | $ | 18,833 | $ | — | $ | — | $ | — | $ | 18,833 | ||||||||||
Commodity options | 5,082 | 30,135 | — | — | 35,217 | |||||||||||||||
Credit default swaps | — | 1,374 | — | — | 1,374 | |||||||||||||||
Total return swaps | 631 | 67,367 | — | — | 67,998 | |||||||||||||||
Forward contracts | 7,638 | 2,070 | — | (2,070 | ) | 7,638 | ||||||||||||||
Total | $ | 32,184 | $ | 100,946 | $ | — | $ | (2,070 | ) | $ | 131,060 | |||||||||
OTC derivative Liabilities | ||||||||||||||||||||
Cross- | ||||||||||||||||||||
0 — 12 | 1 — 5 | 5 — 10 | Maturity | |||||||||||||||||
Months | Years | Years | Netting | Total | ||||||||||||||||
Commodity swaps | $ | 1,067,243 | $ | 3,192 | $ | — | $ | — | $ | 1,070,435 | ||||||||||
Commodity options | 55,389 | 145,171 | — | — | 200,560 | |||||||||||||||
Equity options | 4,530 | 51 | 33,197 | — | 37,778 | |||||||||||||||
Loan commitments | 724 | — | — | — | 724 | |||||||||||||||
Credit default swaps | 275 | 146 | — | — | 421 | |||||||||||||||
Total return swaps | 26,365 | — | — | — | 26,365 | |||||||||||||||
Forward contracts | 7,900 | — | — | (2,070 | ) | 5,830 | ||||||||||||||
Total | $ | 1,162,426 | $ | 148,560 | $ | 33,197 | $ | (2,070 | ) | $ | 1,342,113 | |||||||||
Total pre-credit | Credit | Total post- credit | ||||||||||
enhancement | enhancement | enhancement | ||||||||||
nettting | netting (1) | netting | ||||||||||
Counterparty credit quality: | ||||||||||||
A or higher | $ | 70,794 | (147 | ) | 70,647 | |||||||
B to BBB | — | — | — | |||||||||
Lower than B | — | — | — | |||||||||
Unrated | 60,413 | — | 60,413 | |||||||||
Total | $ | 131,207 | (147 | ) | 131,060 | |||||||
(1) | Credit enhancement netting relates to JFP credit intermediation facilities with AA-rated European banks. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Minimum | Accumulated | |||||||||||
Currency | Pension | Other | ||||||||||
Translation | Liability | Comprehensive | ||||||||||
Adjustments | Adjustment | Income | ||||||||||
Beginning at March 31, 2008 | $ | 13,236 | $ | (1,827 | ) | $ | 11,409 | |||||
Change in second quarter of 2008 | (325 | ) | — | (325 | ) | |||||||
Ending at June 30, 2008 | $ | 12,911 | $ | (1,827 | ) | $ | 11,084 | |||||
Minimum | Accumulated | |||||||||||
Currency | Pension | Other | ||||||||||
Translation | Liability | Comprehensive | ||||||||||
Adjustments | Adjustment | Income (Loss) | ||||||||||
Beginning at March 31, 2007 | $ | 13,430 | $ | (2,910 | ) | $ | 10,520 | |||||
Change in second quarter of 2007 | (2,277 | ) | — | (2,277 | ) | |||||||
Ending at June 30, 2007 | $ | 11,153 | $ | (2,910 | ) | $ | 8,243 | |||||
June 30, | June 30, | |||||||
2008 | 2007 | |||||||
Net (loss)/ earnings | $ | (4,385 | ) | $ | 67,835 | |||
Other comprehensive loss | (325 | ) | (2,277 | ) | ||||
Comprehensive (loss)/ income | $ | (4,710 | ) | $ | 65,558 | |||
Minimum | Accumulated | |||||||||||
Currency | Pension | Other | ||||||||||
Translation | Liability | Comprehensive | ||||||||||
Adjustments | Adjustment | Income | ||||||||||
Beginning at December 31, 2007 | $ | 10,986 | $ | (1,827 | ) | $ | 9,159 | |||||
Change in first half of 2008 | 1,925 | — | 1,925 | |||||||||
Ending at June 30, 2008 | $ | 12,911 | $ | (1,827 | ) | $ | 11,084 | |||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Minimum | Accumulated | |||||||||||
Currency | Pension | Other | ||||||||||
Translation | Liability | Comprehensive | ||||||||||
Adjustments | Adjustment | Income (Loss) | ||||||||||
Beginning at December 31, 2006 | $ | 9,764 | $ | (2,910 | ) | $ | 6,854 | |||||
Change in first half of 2007 | 1,389 | — | 1,389 | |||||||||
Ending at June 30, 2007 | $ | 11,153 | $ | (2,910 | ) | $ | 8,243 | |||||
June 30, | June 30, | |||||||
2008 | 2007 | |||||||
Net (loss)/ earnings | $ | (64,922 | ) | $ | 130,094 | |||
Other comprehensive income | 1,925 | 1,389 | ||||||
Comprehensive (loss)/ income | $ | (62,997 | ) | $ | 131,483 | |||
Net Capital | Excess Net Capital | |||||||
Jefferies | $ | 421,140 | $ | 392,510 | ||||
Jefferies Execution | $ | 16,298 | $ | 16,048 | ||||
Jefferies High Yield Trading | $ | 570,667 | $ | 570,417 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Maturity Date | ||||||||||||||||||||||||
Notional / | 2010 | 2012 | 2014 | |||||||||||||||||||||
Maximum | and | and | and | |||||||||||||||||||||
Payout | 2008 | 2009 | 2011 | 2013 | Later | |||||||||||||||||||
(Dollars in Millions) | ||||||||||||||||||||||||
Standby letters of credit | $ | 213.5 | $ | 213.1 | $ | 0.4 | — | — | — | |||||||||||||||
Bank credit | $ | 40.7 | — | — | — | $ | 36.0 | $ | 4.7 | |||||||||||||||
Equity commitments | $ | 456.4 | — | $ | 0.1 | $ | 1.6 | $ | 2.0 | $ | 452.7 | |||||||||||||
Loan commitments | $ | 321.4 | $ | 315.0 | — | $ | 6.4 | — | — | |||||||||||||||
Derivative contracts | $ | 1,498.0 | $ | 1,123.9 | $ | 342.4 | $ | 16.7 | $ | 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 June 30, 2008 | ||||||||||||
Net revenues | $ | 381.1 | $ | 11.0 | $ | 392.1 | ||||||
Expenses | 363.3 | 14.3 | 377.6 | |||||||||
Earnings (loss) before income taxes and minority interest | $ | 17.8 | $ | (3.3 | ) | $ | 14.5 | |||||
Six months ended June 30, 2008 | ||||||||||||
Net revenues | $ | 592.2 | $ | 1.1 | $ | 593.3 | ||||||
Expenses | 703.6 | 28.5 | 732.1 | |||||||||
Loss before income taxes and minority interest | $ | (111.4 | ) | $ | (27.4 | ) | $ | (138.8 | ) | |||
Segment assets | $ | 24,909.7 | $ | 310.1 | $ | 25,219.8 | ||||||
Three months ended June 30, 2007 | ||||||||||||
Net revenues | $ | 449.6 | $ | 15.9 | $ | 465.5 | ||||||
Expenses | 326.6 | 10.5 | 337.1 | |||||||||
Earnings before income taxes and minority interest | $ | 123.0 | $ | 5.4 | $ | 128.4 | ||||||
Six months ended June 30, 2007 | ||||||||||||
Net revenues | $ | 851.0 | $ | 33.3 | $ | 884.3 | ||||||
Expenses | 630.7 | 21.7 | 652.4 | |||||||||
Earnings before income taxes and minority interest | $ | 220.3 | $ | 11.6 | $ | 231.9 | ||||||
Segment assets | $ | 32,286.0 | $ | 227.1 | $ | 32,513.1 | ||||||
Three months | Six months | |||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Americas (1) | $ | 319,838 | $ | 398,482 | $ | 479,089 | $ | 770,822 | ||||||||
Europe | 69,943 | 60,210 | 107,523 | 104,349 | ||||||||||||
Asia (including Middle East) | 2,301 | 6,768 | 6,666 | 9,098 | ||||||||||||
Net Revenues | $ | 392,082 | $ | 465,460 | $ | 593,278 | $ | 884,269 | ||||||||
(1) | Substantially all relates to U.S. results. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Six Months Ended | ||||
June 30, 2008 | ||||
Balance, at December 31, 2007 | $ | 344,063 | ||
Add: Contingent consideration | 8,379 | |||
Balance, at June 30, 2008 | $ | 352,442 | ||
1st Quarter | 2nd Quarter | |||||||
2008 | $ | 0.125 | $ | 0.125 | ||||
2007 | $ | 0.125 | $ | 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 | ||||||||
Six Months Ended | Average Grant | |||||||
June 30, 2008 | Date Fair Value | |||||||
(Shares in 000s) | ||||||||
Restricted stock | ||||||||
Balance, beginning of year | 7,317 | $ | 25.34 | |||||
Grants | 8,569 | $ | 16.75 | |||||
Forfeited | (956 | ) | $ | 23.27 | ||||
Vested | (1,528 | ) | $ | 23.89 | ||||
Balance, end of period | 13,402 | $ | 20.15 | |||||
Weighted | ||||||||||||||||
Six Months Ended | Average Grant | |||||||||||||||
June 30, 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 | 4,725 | 676 | (1) | $ | 14.19 | $ | 2.93 | (1) | ||||||||
Deferral expiration | — | (2,614 | ) | $ | — | $ | 14.68 | |||||||||
Forfeited | (743 | ) | (30 | ) | $ | 19.59 | $ | 20.16 | ||||||||
Vested | (2,986 | ) | 2,986 | $ | 18.76 | $ | 18.76 | |||||||||
Balance, end of period | 15,875 | 18,264 | $ | 19.63 | $ | 10.64 | ||||||||||
(1) | Represents dividend equivalents on restricted stock units declared during the six month period ending June 30, 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-Average | ||||||||
Dollars and shares in thousands, except per share data | Options | Exercise Price | ||||||
Outstanding, December 31, 2007 | 204 | $ | 9.87 | |||||
Exercised | (78 | ) | $ | 8.68 | ||||
Outstanding, June 30, 2008 | 126 | $ | 10.62 | |||||
Outstanding | ||||||||
Net of Expected | Options | |||||||
June 30, 2008 | Forfeitures | Exercisable | ||||||
Number of options | 126 | 126 | ||||||
Weighted-average exercise price | $ | 10.62 | $ | 10.62 | ||||
Aggregate intrinsic value | $ | 781 | $ | 781 | ||||
Weighted-average remaining contractual term, in years | 2.91 | 2.91 |
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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 | Six Months Ended | |||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Equity | $ | 149,142 | 144,563 | $ | 287,335 | 317,620 | ||||||||||
Fixed income and commodities: | ||||||||||||||||
Fixed income (excluding high yield) and commodities (1) | 69,499 | 40,443 | 103,167 | 86,571 | ||||||||||||
High yield (2) | 31,993 | 34,123 | (19,683 | ) | 44,460 | |||||||||||
Total | 101,492 | 74,566 | 83,484 | 131,031 | ||||||||||||
Investment banking | 109,372 | 223,093 | 208,579 | 393,208 | ||||||||||||
Asset management fees and investment income (loss) from managed funds (3): | ||||||||||||||||
Asset management fees | 4,758 | 7,294 | 11,043 | 16,745 | ||||||||||||
Investment income (loss) from managed funds | 8,721 | 6,090 | (25,360 | ) | 19,124 | |||||||||||
Total | 13,479 | 13,384 | (14,317 | ) | 35,869 | |||||||||||
Interest revenue | 210,540 | 310,739 | 415,431 | 511,901 | ||||||||||||
Total revenues | $ | 584,025 | 766,345 | $ | 980,512 | 1,389,629 | ||||||||||
Interest expense | 191,943 | 300,885 | 387,234 | 505,360 | ||||||||||||
Net revenues | $ | 392,082 | 465,460 | $ | 593,278 | 884,269 | ||||||||||
(1) | Fixed income and commodities revenue is primarily comprised of investment grade fixed income, mortgage-backed securities, 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 half of 2008 and second quarter of 2007 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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Three Months Ended | ||||||||||||
June 30, | June 30, | Percentage | ||||||||||
2008 | 2007 | Change | ||||||||||
(Dollars in Thousands) | ||||||||||||
Capital markets | $ | 24,507 | $ | 135,635 | (82 | )% | ||||||
Advisory | 84,865 | 87,458 | (3 | )% | ||||||||
Total | $ | 109,372 | $ | 223,093 | (51 | )% | ||||||
Six Months Ended | ||||||||||||
June 30, 2008 | June 30, 2007 | Percentage Change | ||||||||||
(Dollars in Thousands) | ||||||||||||
Capital markets | $ | 57,905 | $ | 225,935 | (74 | )% | ||||||
Advisory | 150,674 | 167,273 | (10 | )% | ||||||||
Total | $ | 208,579 | $ | 393,208 | (47 | )% | ||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Asset management fees (2): | ||||||||||||||||
Fixed Income | $ | 2,023 | $ | 3,162 | $ | 4,614 | $ | 7,602 | ||||||||
Equities | 145 | 965 | 697 | 3,145 | ||||||||||||
Convertibles | 2,575 | 3,167 | 5,717 | 5,998 | ||||||||||||
Real Assets | 15 | — | 15 | — | ||||||||||||
4,758 | 7,294 | 11,043 | 16,745 | |||||||||||||
Investment income (loss) from managed funds (1)(2) | 8,721 | 6,090 | (25,360 | ) | 19,124 | |||||||||||
Total | $ | 13,479 | $ | 13,384 | $ | (14,317 | ) | $ | 35,869 | |||||||
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(1) | Of the total investment income (loss) from managed funds, $(0.2) million and $(1.0) million is attributed to minority interest holders for the three and six month periods ended June 30, 2008, respectively, and $0.3 million and $0.8 million is attributed to minority interest holders for the three and six month periods ended June 30, 2007, respectively. | |
(2) | 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 six-month period ending June 30, 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. |
June 30, 2008 | June 30, 2007 | |||||||
Assets under management (1)(2): | ||||||||
Fixed Income | $ | 1,674 | $ | 1,481 | ||||
Equities | 205 | 235 | ||||||
Convertibles | 2,504 | 2,872 | ||||||
Real assets | 2 | — | ||||||
4,385 | 4,588 | |||||||
Assets under management by third parties (3): | ||||||||
Equities, Convertibles and Fixed Income | — | 303 | ||||||
Private Equity | 600 | 600 | ||||||
600 | 903 | |||||||
Total | $ | 4,985 | $ | 5,491 | ||||
(1) | Assets under management represent assets actively managed by us and third parties including hedge funds, collateralized loan obligations, managed accounts and other private investment funds. | |
(2) | Of the total assets under management, $192.6 million and $95.2 million is consolidated at June 30, 2008 and June 30, 2007, respectively, and we are therefore not recognizing the related 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. | |
(3) | 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. |
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Three Month Period Ending | Six Month Period Ending | |||||||||||||||||||||||
June 30, | June 30, | Percent | June 30, | June 30, | Percent | |||||||||||||||||||
In millions | 2008 | 2007 | Change | 2008 | 2007 | Change | ||||||||||||||||||
Balance, beginning of period | $ | 5,250 | $ | 5,832 | (10 | %) | $ | 5,775 | $ | 5,282 | 9 | % | ||||||||||||
Net cash flow (out) in | (296 | ) | (425 | ) | (709 | ) | 14 | |||||||||||||||||
Net market appreciation (depreciation) | 31 | 84 | (81 | ) | 195 | |||||||||||||||||||
(265 | ) | (341 | ) | (790 | ) | 209 | ||||||||||||||||||
Balance, end of period | $ | 4,985 | $ | 5,491 | (9 | %) | $ | 4,985 | $ | 5,491 | (9 | %) | ||||||||||||
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June 30, 2008 | December 31, 2007 | |||||||
Cash and cash equivalents: | ||||||||
Cash in banks | $ | 469,104 | $ | 248,174 | ||||
Money market investments | 604,092 | 649,698 | ||||||
Total cash and cash equivalents | 1,073,196 | 897,872 | ||||||
Cash and securities segregated (1) | 1,336,826 | 659,219 | ||||||
$ | 2,410,022 | $ | 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 $2,205.0 million, preferred stock of $125.0 million and long-term borrowings (debt obligations scheduled to mature in more than 12 months) of $1,764.4 million comprise our total capital of $4,094.4 million as of June 30, 2008, which exceeded cash capital requirements. |
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June 30, 2008 | December 31, 2007 | |||||||
Stockholders’ equity | $ | 2,204,951 | $ | 1,761,544 | ||||
Less: Goodwill | (352,442 | ) | (344,063 | ) | ||||
Tangible stockholders’ equity | $ | 1,852,509 | $ | 1,417,481 | ||||
Stockholders’ equity | $ | 2,204,951 | $ | 1,761,544 | ||||
Add: Projected tax benefit on vested portion of restricted stock | 15,941 | 84,729 | ||||||
Pro forma stockholders’ equity | $ | 2,220,892 | $ | 1,846,273 | ||||
Tangible stockholders’ equity | $ | 1,852,509 | $ | 1,417,481 | ||||
Add: Projected tax benefit on vested portion of restricted stock | 15,941 | 84,729 | ||||||
Pro forma tangible stockholders’ equity | $ | 1,868,450 | $ | 1,502,210 | ||||
Shares outstanding | 162,121,394 | 124,453,174 | ||||||
Add: Shares not issued, to the extent of related expense amortization | 22,259,989 | 22,577,007 | ||||||
Less: Shares issued, to the extent related expense has not been amortized | (9,198,563 | ) | (4,439,790 | ) | ||||
Adjusted shares outstanding | 175,182,820 | 142,590,391 | ||||||
Book value per share (1) | $ | 13.60 | $ | 14.15 | ||||
Tangible book value per share (2) | $ | 11.43 | 11.39 | |||||
Pro forma book value per share (3) | $ | 12.68 | $ | 12.95 | ||||
Pro forma tangible book value per share (4) | $ | 10.67 | $ | 10.54 | ||||
(1) | Book value per share equals stockholders’ equity divided by common shares outstanding. | |
(2) | Tangible book value per share equals tangible stockholders’ equity divided by common shares outstanding. | |
(3) | 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. | |
(4) | Pro forma tangible book value per share equals tangible stockholders’ equity plus the projected deferred tax benefit on the amortized portion of restricted stock and RSUs divided by common shares outstanding adjusted for shares not yet issued to the extent of the related expense amortization and shares issued to the extent the related expense has not been amortized. |
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June 30, | December 31, | |||||||
2008 | 2007 | |||||||
Long-Term Debt | $ | 1,764,440 | $ | 1,764,067 | ||||
Mandatorily Redeemable Convertible Preferred Stock | 125,000 | 125,000 | ||||||
Total Stockholders’ Equity | 2,204,951 | 1,761,544 | ||||||
Total Capital | $ | 4,094,391 | $ | 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 | $ | 421,140 | $ | 392,510 | ||||
Jefferies Execution | $ | 16,298 | $ | 16,048 | ||||
Jefferies High Yield Trading | $ | 570,667 | $ | 570,417 |
�� | ||||||||||||||||||||||||
Maturity Date | ||||||||||||||||||||||||
Notional / | 2010 | 2012 | 2014 | |||||||||||||||||||||
Maximum | and | and | and | |||||||||||||||||||||
Payout | 2008 | 2009 | 2011 | 2013 | Later | |||||||||||||||||||
(Dollars in Millions) | ||||||||||||||||||||||||
Standby letters of credit | $ | 213.5 | $ | 213.1 | $ | 0.4 | — | — | — | |||||||||||||||
Bank credit | $ | 40.7 | — | — | — | $ | 36.0 | $ | 4.7 | |||||||||||||||
Equity commitments | $ | 456.4 | — | $ | 0.1 | $ | 1.6 | $ | 2.0 | $ | 452.7 | |||||||||||||
Loan commitments | $ | 321.4 | $ | 315.0 | — | $ | 6.4 | — | — | |||||||||||||||
Derivative contracts | $ | 1,498.0 | $ | 1,123.9 | $ | 342.4 | $ | 16.7 | $ | 15.0 | — |
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June 30, 2008 | December 31, 2007 | |||||||
Total assets | $ | 25,219,836 | $ | 29,793,817 | ||||
Deduct: Securities borrowed | (9,731,455 | ) | (16,422,130 | ) | ||||
Securities purchased under agreements to resell | (4,661,564 | ) | (3,372,294 | ) | ||||
Add: Financial instruments sold, not yet purchased | 3,889,759 | 3,334,678 | ||||||
Less derivative liabilities | (291,464 | ) | (331,788 | ) | ||||
Subtotal | 3,598,295 | 3,002,890 | ||||||
Deduct: Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations | (1,336,826 | ) | (659,219 | ) | ||||
Goodwill | (352,442 | ) | (344,063 | ) | ||||
Adjusted assets | $ | 12,735,844 | $ | 11,999,001 | ||||
Total stockholders’ equity | $ | 2,204,951 | $ | 1,761,544 | ||||
Deduct: Goodwill | (352,442 | ) | (344,063 | ) | ||||
Tangible stockholders’ equity | 1,852,509 | 1,417,481 | ||||||
Leverage ratio (1) | 11.4 | 16.9 | ||||||
Adjusted leverage ratio (2) | 6.9 | 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 | 6/30/08 | 3/31/08 | 12/31/07 | 6/30/08 | 3/31/08 | 12/31/07 | ||||||||||||||||||
Interest Rates | $ | 2.20 | $ | 1.71 | $ | 1.70 | $ | 1.81 | $ | 1.54 | $ | 1.55 | ||||||||||||
Equity Prices | $ | 5.88 | $ | 6.10 | $ | 16.73 | $ | 11.18 | $ | 7.87 | $ | 10.28 | ||||||||||||
Currency Rates | $ | 0.48 | $ | 0.76 | $ | 0.47 | $ | 0.74 | $ | 0.58 | $ | 0.53 | ||||||||||||
Commodity Prices | $ | 1.56 | $ | 2.32 | $ | 2.07 | $ | 1.44 | $ | 1.51 | $ | 1.46 | ||||||||||||
Diversification Effect (2) | $ | (5.17 | ) | $ | (4.66 | ) | $ | (7.24 | ) | $ | (4.39 | ) | $ | (3.87 | ) | $ | (4.31 | ) | ||||||
Firmwide | $ | 4.95 | $ | 6.23 | $ | 13.73 | $ | 10.78 | $ | 7.63 | $ | 9.51 | ||||||||||||
(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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Daily VaR (1) | ||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Value-At-Risk Highs and Lows for Three Months Ended | ||||||||||||||||||||||||
06/30/08 | 03/31/08 | 12/31/07 | ||||||||||||||||||||||
Risk Categories | High | Low | High | Low | High | Low | ||||||||||||||||||
Interest Rates | $ | 3.22 | $ | 1.18 | $ | 1.90 | $ | 1.13 | $ | 2.24 | $ | 1.19 | ||||||||||||
Equity Prices | $ | 24.01 | $ | 4.18 | $ | 16.23 | $ | 3.40 | $ | 17.01 | $ | 5.82 | ||||||||||||
Currency Rates | $ | 0.98 | $ | 0.40 | $ | 0.80 | $ | 0.42 | $ | 1.06 | $ | 0.21 | ||||||||||||
Commodity Prices | $ | 3.21 | $ | 0.44 | $ | 2.93 | $ | 0.65 | $ | 2.36 | $ | 0.60 | ||||||||||||
Firmwide | $ | 23.35 | $ | 4.26 | $ | 14.21 | $ | 4.03 | $ | 14.02 | $ | 5.45 | ||||||||||||
(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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(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 | ||||||||||||
April 1 — April 30, 2008 | 11,529 | 17.27 | — | 16,073,578 | ||||||||||||
May 1 — May 31, 2008 | 104,381 | 18.44 | — | 16,073,578 | ||||||||||||
June 1 — June 30, 2008 | 62,223 | 19.44 | — | 16,073,578 | ||||||||||||
Total | 178,133 | 18.72 | — |
(1) | We repurchased an aggregate of 178,133 shares other than as part of a publicly announced plan or program. We repurchased these securities in connection with our share-based 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 share-based 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 |
Director | For Votes | Withheld Votes | ||||||
Richard B. Handler | 105,419,190 | 9,216,988 | ||||||
Brian P. Friedman | 105,572,308 | 10,063,870 | ||||||
W. Patrick Campbell | 98,660,493 | 16,975,685 | ||||||
Richard G. Dooley | 96,943,523 | 18,692,655 | ||||||
Robert E. Joyal | 101,183,671 | 14,452,507 | ||||||
Michael T. O’Kane | 101,241,824 | 14,394,354 | ||||||
Ian Cumming | 111,236,313 | 4,399,865 | ||||||
Joseph Steinberg | 111,566,469 | 4,069,709 |
For Votes 67,051,605 | Votes Against 46,840,681 | Votes Abstain 1,743,893 |
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Exhibits | ||
3.1 | Amended and Restated Certificate of Incorporation of Jefferies Group, Inc. is incorporated herein by reference to Exhibit 3 of the Registrant’s Form 8-K filed on May 26, 2004. | |
3.2 | Registrant’s Certificate of Designations of 3.25% Series A Cumulative Convertible Preferred Stock is incorporated herein by reference to Exhibit 3.1 of 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. | |
10.1 | Summary of the 2008 Executive Compensation Total Direct Pay Program for Messrs. Handler, Friedman, Broadbent and Feller is incorporated herein by reference to Exhibit 10 of Registrant’s Form 10-Q filed on May 12, 2008. | |
10.2 | Investment Agreement by and between Leucadia National Corporation and Jefferies Group, Inc. dated as of April 20, 2008 is incorporated herein by reference to Exhibit 10.1 of Registrant’s Form 8-K filed on April 21, 2008. | |
10.3 | Standstill Agreement by and between Leucadia National Corporation and Jefferies Group, Inc. dated as of April 20, 2008 is incorporated herein by reference to Exhibit 10.2 of Registrant’s Form 8-K filed on April 21, 2008. | |
10.4 | Amended and Restated 2003 Incentive Compensation Plan is incorporated herein by reference to Appendix 1 of Registrant’s proxy statement filed on April 16, 2008. | |
10.5* | Stock Purchase Agreement dated as of June 4, 2008 by and between Ian M. Cumming and Jefferies Group, Inc. | |
10.6* | Stock Purchase Agreement dated as of June 4, 2008 by and between STH Company, Inc.-A and Jefferies Group, Inc. | |
10.7* | Stock Purchase Agreement dated as of June 4, 2008 by and between The Joseph S. and Diane H. Steinberg 1992 Charitable Trust and Jefferies Group, Inc. | |
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: August 11, 2008 | By: | /s/ Peregrine C. Broadbent | ||
Peregrine C. Broadbent | ||||
Chief Financial Officer (duly authorized officer) | ||||
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