1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 2000
--------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------- ------------
Commission file number 1-14947
JEFFERIES GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4719745
- ------------------------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11100 Santa Monica Blvd., Los Angeles, California 90025
- -------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 445-1199
-------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
As of September 29, 2000, the registrant had 24,519,811 common shares, $.0001
par value, outstanding.
Page 1 of 18
2
JEFFERIES GROUP, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
SEPTEMBER 29, 2000
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition -
September 29, 2000 (unaudited) and December 31, 1999......................... 3
Consolidated Statements of Earnings (unaudited) -
Three Months and Nine Months Ended September 29, 2000 and
September 24, 1999........................................................... 4
Consolidated Statement of Changes in Stockholders' Equity (unaudited) -
Nine Months Ended September 29, 2000......................................... 5
Consolidated Statements of Cash Flows (unaudited) -
Nine Months Ended September 29, 2000 and September 24, 1999.................. 6
Notes to Consolidated Financial Statements (unaudited)......................... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................... 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................................. 17
Item 6. Exhibits and Reports on Form 8-K............................................... 17
Page 2 of 18
3
JEFFERIES GROUP, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
September 29, December 31,
2000 1999
------------- -----------
(unaudited)
ASSETS
Cash and cash equivalents .............................. $ 20,043 $ 77,197
Cash and securities segregated and on deposit for
regulatory purposes or deposited with clearing and
depository organizations .............................. 111,779 18,317
Receivable from brokers and dealers .................... 2,726,281 1,965,469
Receivable from customers, officers and directors ...... 256,197 226,449
Securities owned ....................................... 340,572 376,506
Investments ............................................ 131,896 119,100
Premises and equipment ................................. 38,973 39,117
Other assets ........................................... 104,481 74,097
----------- -----------
$ 3,730,222 $ 2,896,252
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Bank loans ............................................. $ 90,000 $ --
Payable to brokers and dealers ......................... 2,242,318 1,663,955
Payable to customers ................................... 411,840 271,811
Securities sold, not yet purchased ..................... 152,952 186,420
Accrued expenses and other liabilities ................. 237,260 228,004
----------- -----------
3,134,370 2,350,190
Long-term convertible debt ............................. 2,792 --
Long-term debt ......................................... 149,558 149,485
----------- -----------
3,286,720 2,499,675
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock, $.0001 par value. Authorized
10,000,000 shares; none issued ..................... -- --
Common stock, $.0001 par value. Authorized
100,000,000 shares; issued 25,008,600 shares in 2000
and 24,027,899 shares in 1999 ...................... 3 2
Additional paid-in capital ........................... 82,312 62,367
Retained earnings .................................... 373,201 334,742
Less:
Treasury stock, at cost, 488,789 shares in 2000 and
28,012 shares in 1999 ............................ (10,383) (587)
Accumulated other comprehensive income (loss):
Currency translation adjustments ................. (1,448) 236
Additional minimum pension liability ............. (183) (183)
----------- -----------
Total accumulated other comprehensive income (loss). (1,631) 53
----------- -----------
Total stockholders' equity ..................... 443,502 396,577
----------- -----------
$ 3,730,222 $ 2,896,252
=========== ===========
See accompanying unaudited notes to consolidated financial statements.
Page 3 of 18
4
JEFFERIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended Nine Months Ended
----------------------- -----------------------
Sept. 29, Sept. 24, Sept. 29, Sept. 24,
2000 1999 2000 1999
--------- ---------- ---------- ---------
Revenues:
Commissions ..................... $ 51,411 $ 48,846 $164,061 $148,229
Principal transactions .......... 65,445 49,046 203,865 163,935
Corporate finance ............... 38,240 16,199 73,114 66,491
Interest ........................ 39,589 27,576 124,240 83,718
Asset management ................ 2,941 509 7,249 1,488
Other ........................... 673 3,632 3,148 5,954
-------- -------- -------- --------
Total revenues .................... 198,299 145,808 575,677 469,815
Interest expense .................. 35,047 22,725 104,423 70,165
-------- -------- -------- --------
Revenues, net of interest expense . 163,252 123,083 471,254 399,650
-------- -------- -------- --------
Non-interest expenses:
Compensation and benefits ....... 102,533 76,743 290,750 244,256
Floor brokerage and clearing fees 8,719 8,155 27,484 24,320
Communications .................. 11,526 11,437 35,236 32,532
Occupancy and equipment rental .. 4,873 4,234 14,038 11,359
Travel and promotional .......... 3,728 4,042 13,490 11,635
Other ........................... 6,349 2,981 17,150 14,640
-------- -------- -------- --------
Total non-interest expenses ....... 137,728 107,592 398,148 338,742
-------- -------- -------- --------
Earnings before income taxes ...... 25,524 15,491 73,106 60,908
Income taxes ...................... 10,811 6,651 30,997 25,625
-------- -------- -------- --------
Earnings from continuing operations 14,713 8,840 42,109 35,283
Earnings from discontinued
operations, net of income taxes . -- 91 -- 11,238
-------- -------- -------- --------
Net earnings ...................... $ 14,713 $ 8,931 $ 42,109 $ 46,521
======== ======== ======== ========
Earnings per share:
Basic:
Continuing operations ........... $ 0.62 $ 0.37 $ 1.76 $ 1.49
Discontinued operations ......... -- -- -- 0.47
-------- -------- -------- --------
Net earnings ...................... $ 0.62 $ 0.37 $ 1.76 $ 1.96
======== ======== ======== ========
Diluted:
Continuing operations ........... $ 0.60 $ 0.36 $ 1.74 $ 1.47
Discontinued operations ......... -- 0.01 -- 0.46
-------- -------- -------- --------
Net earnings ...................... $ 0.60 $ 0.37 $ 1.74 $ 1.93
======== ======== ======== ========
Weighted average shares:
Basic ........................... 23,859 23,971 23,862 23,708
Diluted ......................... 24,402 24,288 24,220 23,936
See accompanying unaudited notes to consolidated financial statements.
Page 4 of 18
5
JEFFERIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 29, 2000
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Accumulated Total
Additional Other Stock-
Common Paid-in Retained Treasury Comprehensive holders'
Stock Capital Earnings Stock Income (Loss) Equity
------------ ------------- ------------ ----------- ------------- ------------
Balance, December 31, 1999 .... $ 2 $ 62,367 $ 334,742 $ (587) $ 53 $ 396,577
Exercise of stock options,
including tax benefits
(76,793 shares) ............... -- 1,410 -- -- -- 1,410
Purchase of treasury stock
(460,777 shares) .............. -- -- -- (9,796) -- (9,796)
Issuance of common stock
(313,075 shares) .............. -- 5,678 -- -- -- 5,678
Issuance of restricted stock
(590,833 shares), net of
forfeitures, and additional
vesting of restricted stock
shares, including tax benefits. 1 11,445 -- -- -- 11,446
Employee stock ownership plan
amortization and stock
purchases, net ................ -- 1,412 -- -- -- 1,412
Quarterly dividends
($.05 per share per quarter) .. -- -- (3,650) -- -- (3,650)
Comprehensive income:
Net earnings ................. -- -- 42,109 -- -- 42,109
Other comprehensive income
(loss), net of tax:
Translation adjustment ....... -- -- -- -- (1,684) (1,684)
---------
Comprehensive income ........... -- -- -- -- -- 40,425
--------- --------- --------- --------- --------- ---------
Balance, September 29, 2000 ... $ 3 $ 82,312 $ 373,201 $ (10,383) $ (1,631) $ 443,502
========= ========= ========= ========= ========= =========
See accompanying unaudited notes to consolidated financial statements.
Page 5 of 18
6
JEFFERIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
Nine Months Ended
----------------------------
Sept. 29, Sept. 24,
2000 1999
----------- ----------
Cash flows from operating activities:
Net earnings ........................................................ $ 42,109 $ 46,521
--------- ---------
Adjustments to reconcile net earnings to net cash used in operations:
Depreciation and amortization ..................................... 8,887 6,607
(Increase) decrease in cash and securities segregated
and on deposit for regulatory purposes .......................... (93,462) 8,221
Increase in receivables:
Brokers and dealers ............................................. (760,812) (251,505)
Customers, officers and directors ............................... (29,748) (106,046)
(Increase) decrease in securities owned ........................... 35,934 (110,824)
Increase in investments ........................................... (12,796) (42,398)
Decrease in investment in discontinued operations ................. -- 41,487
Increase in other assets .......................................... (30,384) (22,500)
Increase in operating payables:
Brokers and dealers ............................................. 578,363 371,468
Customers ....................................................... 140,029 9,026
Increase (decrease) in securities sold, not yet purchased ......... (33,468) 40,717
Increase (decrease) in accrued expenses and other
liabilities ..................................................... 9,256 (47,619)
---------- ---------
Total adjustments .................................................... (188,201) (103,366)
---------- ---------
Net cash used in operating activities ................................ (146,092) (56,845)
---------- ---------
Continued on next page.
See accompanying unaudited notes to consolidated financial statements.
Page 6 of 18
7
JEFFERIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (UNAUDITED)
(DOLLARS IN THOUSANDS)
Nine Months Ended
-------------------------
Sept. 29, Sept. 24,
2000 1999
--------- ---------
Cash flows from financing activities:
Net proceeds from (payments on):
Bank loans .................................................. 90,000 (21,000)
Convertible note issuance ................................... 2,792 --
Repurchase of treasury stock ................................ (9,796) (17,587)
Dividends paid .............................................. (3,650) (3,542)
Exercise of stock options ................................... 1,410 28,881
Issuance of common stock shares ............................. 5,678 --
Issuance of restricted stock ................................ 11,446 8,305
Employee Stock Ownership Plan stock purchases ............... (349) --
Capital Accumulation Plan distributions ..................... -- 55,072
Change in proportionate share of subsidiary's equity......... -- 1,121
--------- ---------
Net cash provided by financing activities ................ 97,531 51,250
--------- ---------
Cash flows from investing activities - purchase of premises and
equipment .................................................... (6,909) (17,738)
--------- ---------
Effect of foreign currency translation on cash ................. (1,684) 377
--------- ---------
Net decrease in cash and cash equivalents ................ (57,154) (22,956)
Cash and cash equivalents - beginning of period ................ 77,197 55,581
--------- ---------
Cash and cash equivalents - end of period ...................... $ 20,043 $ 32,625
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest ................................................... $ 102,653 $ 69,060
========= =========
Income taxes ............................................... $ 10,819 $ 12,440
========= =========
See accompanying unaudited notes to consolidated financial statements.
Page 7 of 18
8
JEFFERIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements include the accounts of
Jefferies Group, Inc. ("Group") and all its subsidiaries ("Company"), including
Jefferies & Company, Inc. ("JEFCO"). The accounts of Investment Technology
Group, Inc. and all its subsidiaries (collectively "ITGI"), including its wholly
owned subsidiary, ITG Inc. are included in the financial statements as
discontinued operations. The accounts of W & D Securities, Inc. ("W & D") are
consolidated because of the nature and extent of Group's ownership interest in W
& D. The Company is primarily engaged in a single line of business, as a
securities broker-dealer, which includes several types of services, such as
principal and agency transactions in equity, convertible debt and high yield
securities, as well as corporate finance activities.
All significant intercompany accounts and transactions are eliminated in
consolidation. The consolidated financial statements reflect all adjustments,
which are, in the opinion of management, necessary for the fair statement of the
results for the interim periods and should be read in conjunction with the
Company's annual report for the year ended December 31, 1999.
SECURITIES TRANSACTIONS
All transactions in securities, commission revenues and related expenses
are recorded on a trade-date basis.
Securities owned and securities sold, not yet purchased, are valued at
market, and unrealized gains or losses are reflected in revenues from principal
transactions.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior period's amounts to
conform to the current period's presentation.
RECEIVABLE FROM, AND PAYABLE TO, BROKERS AND DEALERS
Receivable from and payable to brokers and dealers consists of the
following as of September 29, 2000 (in thousands of dollars):
Receivable from brokers and dealers:
Securities borrowed ........................... $2,441,036
Securities purchased under agreements to resell 3,232
Other ......................................... 282,013
----------
$2,726,281
==========
Payable to brokers and dealers:
Securities loaned ............................. $2,212,445
Securities sold under agreements to repurchase 3,157
Other ......................................... 26,716
----------
$2,242,318
==========
Page 8 of 18
9
JEFFERIES GROUP, INC. AND SUBSIDIARIES
SECURITIES OWNED AND SECURITIES SOLD, NOT YET PURCHASED
The following is a summary of the market value of major categories of
securities owned and securities sold, not yet purchased, as of September 29,
2000 (in thousands of dollars):
Securities
Sold,
Securities Not Yet
Owned Purchased
----------- ----------
Corporate equity securities .............. $186,798 $147,452
High-yield securities .................... 93,261 3,769
Corporate debt securities ................ 55,488 664
U.S. Government and agency obligations.... 2,913 --
Options .................................. 2,112 1,067
-------- --------
$340,572 $152,952
======== ========
INVESTMENTS
Investments consist of the following as of September 29, 2000 (in thousands
of dollars):
Debt and equity investments ................ $ 20,394
Partnership interests ...................... 53,613
Equity and debt interests in affiliates..... 57,889
--------
$131,896
========
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash in banks and short term investments.
Cash equivalents are part of the cash management activities of the Company and
generally mature within 90 days. The following is a summary of cash and cash
equivalents as of September 29, 2000 (in thousands of dollars):
Cash in banks ............ $16,615
Short term investments.... 3,428
-------
$20,043
=======
THE EUROPE COMPANY LIMITED
To expand its European capabilities, the Company acquired The Europe
Company Ltd. in the third quarter of 2000, with a combination of restricted
stock, zero coupon unsecured Euro denominated convertible loan notes and cash
totaling approximately $18.0 million. The acquisition was accounted for as a
purchase and resulted in approximately $13.3 million in goodwill.
The approximately $2.8 million in zero coupon unsecured Euro denominated
convertible loan notes mature in 2010 and have been classified on the
consolidated statement of financial condition as long-term convertible debt. The
conversion price for the notes is 28.8037 Euros (as of September 29, 2000, this
was equivalent to approximately $25.45) per common share until August 4, 2003
and subsequently, the closing stock price on the date of conversion.
Page 9 of 18
10
JEFFERIES GROUP, INC. AND SUBSIDIARIES
EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations for the three month and nine
month periods ended September 29, 2000 and September 24, 1999 (in thousands,
except per share amounts):
Three Months Ended Nine Months Ended
------------------------ ------------------------
Sept. 29, Sept. 24, Sept. 29, Sept. 24,
2000 1999 2000 1999
-------- ---------- ---------- --------
Earnings from continuing operations ...... $ 14,713 $ 8,840 $ 42,109 $ 35,283
Earnings from discontinued operations .... -- 91 -- 11,238
-------- -------- -------- --------
Net earnings for basic earnings per share 14,713 8,931 42,109 46,521
Adjustment - stock options on subsidiary -- (2) -- (422)
-------- -------- -------- --------
Adjusted earnings - diluted calculation .. $ 14,713 $ 8,929 $ 42,109 $ 46,099
======== ======== ======== ========
Shares for basic and diluted calculations:
Average common shares and equivalents .... 23,859 23,971 23,862 23,702
Capital Accumulation Plan unissued shares -- -- -- 6
-------- -------- -------- --------
Average shares used in basic computation . 23,859 23,971 23,862 23,708
Stock options ............................ 325 302 208 207
Restricted stock ......................... 218 15 150 21
-------- -------- -------- --------
Average shares used in diluted computation 24,402 24,288 24,220 23,936
======== ======== ======== ========
Earnings per share:
Basic:
Earnings from continuing operations ...... $ 0.62 $ 0.37 $ 1.76 $ 1.49
Earnings from discontinued operations .... -- -- -- 0.47
-------- -------- -------- --------
Net earnings ............................. $ 0.62 $ 0.37 $ 1.76 $ 1.96
======== ======== ======== ========
Diluted:
Earnings from continuing operations ...... $ 0.60 $ 0.36 $ 1.74 $ 1.47
Earnings from discontinued operations .... -- 0.01 -- 0.46
-------- -------- -------- --------
Net earnings ............................. $ 0.60 $ 0.37 $ 1.74 $ 1.93
======== ======== ======== ========
ASSET MANAGEMENT
The following summarizes revenues from asset management for the three month
and nine month periods ended September 29, 2000 and September 24, 1999 (in
thousands, except per share amounts):
Three Months Ended Nine Months Ended
------------------------ -------------------------
Sept. 29, Sept. 24, Sept. 29, Sept. 24,
2000 1999 2000 1999
-------- ---------- --------- --------
HIGH YIELD (HY) ..... $ $ $ $
Performance based ... 1,883 -- 4,893 --
Asset based ......... 444 -- 871 --
NON-HY EMPLOYEE FUNDS
Asset based ......... 57 -- 57 --
INTERNATIONAL ....... 557 509 1,428 1,488
------ ------ ------ ------
Total ............... $2,941 $ 509 $7,249 $1,488
====== ====== ====== ======
Page 10 of 18
11
JEFFERIES GROUP, INC. AND SUBSIDIARIES
OTHER COMPREHENSIVE INCOME
The following summarizes other comprehensive income and accumulated other
comprehensive income at September 29, 2000 and for the three months then ended
(in thousands of dollars):
Before-Tax Income Tax Net-of-Tax
Amount or Benefit Amount
--------- ---------- ---------
Currency translation adjustments ................ $(747) $ -- $(747)
Minimum pension liability adjustment............. -- -- --
----- --------- -----
Other comprehensive income (loss) ............... $(747) $ -- $(747)
===== ========= =====
Minimum Accumulated
Currency Pension Other
Translation Liability Comprehensive
Adjustments Adjustment Income (Loss)
------------- ----------- -------------
Beginning at June 30, 2000 ...................... $ (701) $ (183) $ (884)
Change in third quarter of 2000.................. (747) -- (747)
-------- ------- -------
Ending at September 29, 2000 .................... $(1,448) $ (183) $(1,631)
======== ======= =======
The following summarizes other comprehensive income and accumulated other
comprehensive income at September 24, 1999 and for the three months then ended
(in thousands of dollars):
Before-Tax Income Tax Net-of-Tax
Amount or Benefit Amount
---------- ---------- ---------
Currency translation adjustments ................ $1,017 $ -- $1,017
Minimum pension liability adjustment............. -- -- --
------ ---------- ------
Other comprehensive income (loss) ............... $1,017 $ -- $1,017
====== ========== ======
Minimum Accumulated
Currency Pension Other
Translation Liability Comprehensive
Adjustments Adjustment Income (Loss)
------------ ----------- -------------
Beginning at June 25, 1999 ...................... $ (689) $(1,669) $(2,358)
Change in third quarter of 1999.................. 1,017 -- 1,017
------- ------- -------
Ending at September 24, 1999 .................... $ 328 $(1,669) $(1,341)
======= ======= =======
Comprehensive income for the three months ended September 29, 2000 and
September 24, 1999 was as follows:
Sept. 29, Sept. 24,
2000 1999
--------- ---------
Net earnings .................................... $ 14,713 $ 8,931
Other comprehensive income (loss) ............... (747) 1,017
-------- --------
Comprehensive income ............................ $ 13,966 $ 9,948
======== ========
The following summarizes other comprehensive income and accumulated other
comprehensive income at September 29, 2000 and for the nine months then ended
(in thousands of dollars):
Before-Tax Income Tax Net-of-Tax
Amount or Benefit Amount
---------- ---------- ---------
Currency translation adjustments ................ $(1,684) $ -- $(1,684)
Minimum pension liability adjustment............. -- -- --
------- -------- -------
Other comprehensive income (loss) ............... $(1,684) $ -- $(1,684)
======= ======== =======
Page 11 of 18
12
JEFFERIES GROUP, INC. AND SUBSIDIARIES
Minimum Accumulated
Currency Pension Other
Translation Liability Comprehensive
Adjustments Adjustment Income (Loss)
----------- ---------- ------------
Beginning at December 31, 1999................... $ 236 $ (183) $ 53
Change in 2000 .................................. (1,684) -- (1,684)
------- ------- -------
Ending at September 29, 2000 .................... $(1,448) $ (183) $(1,631)
======= ======= =======
The following summarizes other comprehensive income and accumulated other
comprehensive income at September 24, 1999 and for the nine months then ended
(in thousands of dollars):
Before-Tax Income Tax Net-of-Tax
Amount or Benefit Amount
------------ ------------- -----------
Currency translation adjustments................. $ 377 $ -- $ 377
Minimum pension liability adjustment............. -- -- --
--------- ------------ --------
Other comprehensive income (loss)................ $ 377 $ -- $ 377
========= ============ =========
Minimum Accumulated
Currency Pension Other
Translation Liability Comprehensive
Adjustments Adjustment Income (Loss)
------------ ------------ -------------
Beginning at December 31, 1998................... $ (49) $ (1,669) $ (1,718)
Change in 1999................................... 377 -- 377
---------- ----------- -----------
Ending at September 24, 1999..................... $ 328 $ (1,669) $ (1,341)
========== =========== ===========
Comprehensive income for the nine months ended September 29, 2000 and
September 24, 1999 was as follows:
Sept. 29, Sept. 24,
2000 1999
--------- ---------
Net earnings..................................... $ 42,109 $ 46,521
Other comprehensive income (loss)................ (1,684) 377
--------- ---------
Comprehensive income............................. $ 40,425 $ 46,898
========== =========
NET CAPITAL REQUIREMENTS
As registered broker-dealers, JEFCO and W & D are subject to the Securities
and Exchange Commission's Uniform Net Capital Rule (Rule 15c3-1), which requires
the maintenance of minimum net capital. JEFCO and W & D have elected to use the
alternative method permitted by the Rule, which requires that they each maintain
minimum net capital, as defined, equal to the greater of $250,000 or 2% of the
aggregate debit balances arising from customer transactions, as defined.
Net capital changes from day to day, but as of September 29, 2000, JEFCO's
and W & D's net capital was $183.1 million and $1.9 million, respectively, which
exceeded minimum net capital requirements by $175.5 million and $1.7 million,
respectively.
Page 12 of 18
13
JEFFERIES GROUP, INC. AND SUBSIDIARIES
QUARTERLY DIVIDENDS
In 1988, the Company instituted a policy of paying regular quarterly
dividends. There are no restrictions on the Company's present ability to pay
dividends on common stock, other than the governing provisions of the Delaware
General Corporation Law.
Dividends per Common Share (declared and paid):
1st Qtr. 2nd Qtr. 3rd Qtr.
-------- -------- --------
2000....... $.05 $.05 $.05
1999....... $.05 $.05 $.05
OFF-BALANCE SHEET RISK
In the normal course of business, the Company had letters of credit
outstanding aggregating $33.0 million at September 29, 2000, to satisfy various
collateral requirements in lieu of depositing cash or securities.
SEGMENT REPORTING
The Company's business is predominantly in the United States with
approximately 10% of revenues and 3% of assets attributable to international
operations.
On April 27, 1999, Group and ITGI consummated the separation of ITGI from
the other Group businesses.
Financial information for the discontinued business segment is summarized
as follows (in thousands of dollars):
COMPONENTS OF DISCONTINUED OPERATIONS OF ITGI
THREE MONTHS NINE MONTHS
ENDED ENDED
----------------- -----------------
SEPT. 24, 1999 SEPT. 24, 1999
----------------- -----------------
Net earnings of ITGI................................... $ 63 $ 9,201
Deferred taxes on ITGI's IPO gain...................... -- 12,843
Less: Write-off of goodwill on JEF related to ITGI..... -- 5,208
Less: Company's net spin-off related expenses.......... (41) 3,807
Less: Minority interest in ITGI........................ 13 1,791
------- -------
Discontinued operations of ITGI........................ $ 91 $11,238
======= =======
Cash paid for interest and income taxes
The interest paid and income taxes paid amounts included in the
Consolidated Statements of Cash Flows included amounts related to discontinued
operations of ITGI (in thousands of dollars).
SEPT. 24,
1999
----------
Interest paid........................................ $ 31
Income taxes paid.................................... $ 6,538
Page 13 of 18
14
JEFFERIES GROUP, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ANALYSIS OF FINANCIAL CONDITION
Total assets increased $833.9 million from $2,896.3 million at December 31,
1999 to $3,730.2 million at September 29, 2000. The increase in assets is mostly
due to an increase in the balances associated with JEFCO's securities borrowed
and loaned matched book business.
THIRD QUARTER 2000 VERSUS THIRD QUARTER 1999
Revenues, net of interest expense, increased 33% to $163.3 million,
compared to $123.1 million for the third quarter of 1999. The increase was due
primarily to a $22.0 million, or 136%, increase in corporate finance, a $16.4
million, or 33%, increase in principal transactions, a $2.6 million, or 5%,
increase in commissions, and a $2.4 million, or 478%, increase in asset
management, partially offset by a $3.0 million, 81%, decrease in other income
and a $309,000, or 6%, decrease in net interest income (interest revenues less
interest expense). Commissions and principal transactions revenue increased
mostly due to the Equities, High Yield and International Divisions. Corporate
finance revenues increased due mostly to an increase in advisory fees. Net
interest income was down mostly due to decreased interest income on proprietary
securities positions. Asset management increased due to the Opportunity Funds,
two of which began trading in January 2000. Other income decreased due to
certain one-time investment gains recorded in the third quarter of 1999.
Total non-interest expenses increased 28% to $137.7 million, compared to
$107.6 million for the third quarter of 1999. Compensation and benefits
increased $25.8 million, or 34%, mostly due to an increase in incentive based
compensation accruals, as well as increased headcount. Other expense increased
$3.4 million or 113%, largely due to reductions to legal and bad debt expense
accruals made in the third quarter of 1999. Occupancy and equipment rental
increased $639,000, or 15%, mostly due to office expansion. Floor brokerage and
clearing fees increased $564,000, or 7%, due to increased volume of business
executed on the various exchanges. Travel and promotional decreased $314,000, or
8%, largely due to a reduction in business travel. Communications were
relatively unchanged from the prior year's period.
Earnings before income taxes were up 65% to $25.5 million, compared to
$15.5 million for the same prior year period. The effective tax rate was
approximately 42.4% for the third quarter of 2000 compared to 42.9% for the
third quarter of 1999. Earnings from continuing operations were up $5.9 million
to $14.7 million, compared to $8.8 million for the same prior year period.
Earnings from discontinued operations, net of income taxes, amounted to
zero in the third quarter of 2000, due to the cessation of ITGI as a subsidiary
of the Company in April 1999.
Basic earnings from continuing operations per share were $0.62 for the
third quarter of 2000 on 23,859,000 shares compared to $0.37 in the 1999 period
on 23,971,000 shares. Diluted earnings from continuing operations per share were
$0.60 for the third quarter of 2000 on 24,402,000 shares compared to $0.36 in
the comparable 1999 period on 24,288,000 shares.
Basic net earnings per share were $0.62 for the third quarter of 2000 on
23,859,000 shares compared to $0.37 in the 1999 period on 23,971,000 shares.
Diluted net earnings per share were $0.60 for the third quarter of 2000 on
24,402,000 shares compared to $0.37 in the comparable 1999 period on 24,288,000
shares.
FIRST NINE MONTHS 2000 VERSUS FIRST NINE MONTHS 1999
Revenues, net of interest expense, increased 18% to $471.3 million,
compared to $399.7 million for the first nine months of 1999. The increase was
due primarily to a $39.9 million, or 24%, increase in principal transactions, a
$15.8 million, or 11%, increase in commissions, a $6.6 million, or 10%, increase
in corporate finance, a $6.3
Page 14 of 18
15
JEFFERIES GROUP, INC. AND SUBSIDIARIES
million, or 46%, increase in net interest income (interest revenues less
interest expense), and a $5.8 million, or 387%, increase in asset management,
partially offset by a $2.8 million, or 47%, decrease in other income.
Commissions and principal transactions revenue increased mostly due to the
Equities and International Divisions. Corporate finance revenues increased due
mostly to an increase in advisory fees. Net interest income was up largely due
to increased interest income on proprietary securities positions. Asset
management increased due to the Opportunity Funds, two of which began trading in
January 2000. Other income decreased due to certain one-time investment gains
recorded in the third quarter of 1999.
Total non-interest expenses increased 18% to $398.1 million, compared to
$338.7 million for the first nine months of 1999. Compensation and benefits
increased $46.5 million, or 19%, mostly due to an increase in incentive based
compensation accruals, as well as increased headcount. Floor brokerage and
clearing fees increased $3.2 million, or 13%, due to increased volume of
business executed on the various exchanges. Communications increased $2.7
million, or 8%, due mostly to increased trade volume. Occupancy and equipment
rental increased $2.7 million, or 24%, mostly due to office expansion. Other
expense increased $2.5 million, or 17%, primarily due to an increase in legal
expense. Travel and promotional increased $1.9 million, or 16%, primarily due to
higher expenses associated with account executive T&Es and customer events.
Earnings before income taxes were up 20% to $73.1 million, compared to
$60.9 million for the same prior year period. The effective tax rate was
approximately 42% for the first nine months of both 2000 and 1999. Earnings from
continuing operations were up $6.8 million to $42.1 million, compared to $35.3
million for the same prior year period.
Earnings from discontinued operations, net of income taxes, amounted to
zero in the first nine months of 2000, due to the cessation of ITGI as a
subsidiary of the Company in April 1999.
Basic earnings from continuing operations per share were $1.76 for the
first nine months of 2000 on 23,862,000 shares compared to $1.49 in the 1999
period on 23,708,000 shares. Diluted earnings from continuing operations per
share were $1.74 for the first nine months of 2000 on 24,220,000 shares compared
to $1.47 in the comparable 1999 period on 23,936,000 shares.
Basic net earnings per share were $1.76 for the first nine months of 2000
on 23,862,000 shares compared to $1.96 in the 1999 period on 23,708,000 shares.
Diluted net earnings per share were $1.74 for the first nine months of 2000 on
24,220,000 shares compared to $1.93 in the comparable 1999 period on 23,936,000
shares.
LIQUIDITY AND CAPITAL RESOURCES
During June 2000, JEFCO terminated its NASD Regulation, Inc. - approved
$120 million revolving credit facility. There have been no borrowings against
the revolving credit facility in either 2000 or 1999.
Page 15 of 18
16
JEFFERIES GROUP, INC. AND SUBSIDIARIES
REVENUES BY SOURCE
The following provides a breakdown of total revenues by source for the
three months and nine months ended September 29, 2000 and September 24, 1999.
Three Months Ended
------------------------------------------------------
September 29, 2000 September 24, 1999
------------------------- -----------------------
% of % of
Total Total
Amount Revenues Amount Revenues
------ -------- ------ --------
(Dollars in thousands)
Commissions and principal transactions:
Equities .............................. $ 78,962 40% $ 64,123 44%
International ......................... 19,706 10 15,322 10
High Yield ............................ 11,848 6 6,700 5
Convertible ........................... 6,031 3 4,074 3
Other proprietary trading ............. 309 -- 7,673 5
-------- -------- -------- --------
Total ................................. 116,856 59 97,892 67
Corporate finance ..................... 38,240 19 16,199 11
Interest .............................. 39,589 20 27,576 19
Asset management ...................... 2,941 2 509 --
Other ................................. 673 -- 3,632 3
-------- -------- -------- --------
Total revenues ........................ $198,299 100% $145,808 100%
======== ======== ======== ========
Nine Months Ended
---------------------------------------------------
September 29, 2000 September 24, 1999
------------------------- ----------------------
% of % of
Total Total
Amount Revenues Amount Revenues
------ -------- ------ --------
(Dollars in thousands)
Commissions and principal transactions:
Equities .............................. $248,521 43% $206,543 44%
International ......................... 64,223 11 41,651 9
High Yield ............................ 32,464 6 37,498 8
Convertible ........................... 19,073 3 14,477 3
Other proprietary trading ............. 3,645 1 11,995 3
-------- -------- -------- --------
Total ................................. 367,926 64 312,164 67
Corporate finance ..................... 73,114 13 66,491 14
Interest .............................. 124,240 22 83,718 18
Asset management ...................... 7,249 1 1,488 --
Other ................................. 3,148 -- 5,954 1
-------- -------- -------- --------
Total revenues ........................ $575,677 100% $469,815 100%
======== ======== ======== ========
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17
JEFFERIES GROUP, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Many aspects of the Company's business involve substantial risks of
liability. In the normal course of business, the Company and its subsidiaries
have been named as defendants or co-defendants in lawsuits involving primarily
claims for damages. The Company's management believes that pending litigation
will not have a material adverse effect on the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) Reports on Form 8-K.
None.
Page 17 of 18
18
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JEFFERIES GROUP, INC.
(Registrant)
Date: November 9, 2000 By: /s/ Joseph A. Schenk
--------------------- ----------------------------
Joseph A. Schenk
Chief Financial Officer
Page 18 of 18