<PAGE> 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 June 30, 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 June 30, 2000, the registrant had 24,284,119 common shares, $.0001 par
value, outstanding.
Page 1 of 18
<PAGE> 2
JEFFERIES GROUP, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
JUNE 30, 2000
<TABLE>
<CAPTION>
Page
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition -
June 30, 2000 (unaudited) and December 31, 1999.............................. 3
Consolidated Statements of Earnings (unaudited) -
Three Months and Six Months Ended June 30, 2000 and June 25, 1999............ 4
Consolidated Statement of Changes in Stockholders' Equity (unaudited) -
Six Months Ended June 30, 2000............................................... 5
Consolidated Statements of Cash Flows (unaudited) -
Six Months Ended June 30, 2000 and June 25, 1999............................. 6
Notes to Consolidated Financial Statements (unaudited)......................... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................... 14
Item 4. Submission of Matters to a Vote of Security Holders............................ 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................................. 17
Item 6. Exhibits and Reports on Form 8-K............................................... 17
</TABLE>
Page 2 of 18
<PAGE> 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)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------------------- --------------------
<S> <C> <C>
ASSETS (unaudited)
Cash and cash equivalents................................. $ 94,032 $ 77,197
Cash and securities segregated and on deposit for
regulatory purposes or deposited with clearing and
depository organizations................................. 63,010 18,317
Receivable from brokers and dealers....................... 3,292,141 1,965,469
Receivable from customers, officers and directors......... 216,856 226,449
Securities owned.......................................... 274,888 376,506
Investments............................................... 130,502 119,100
Premises and equipment.................................... 37,842 39,117
Other assets.............................................. 75,995 74,097
-------------------- --------------------
$ 4,185,266 $ 2,896,252
==================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Bank loans................................................ $ 77,000 $ --
Payable to brokers and dealers............................ 2,818,172 1,663,955
Payable to customers...................................... 313,357 271,811
Securities sold, not yet purchased........................ 193,346 186,420
Accrued expenses and other liabilities.................... 210,512 228,004
-------------------- --------------------
3,612,387 2,350,190
Long-term debt............................................ 149,533 149,485
-------------------- --------------------
3,761,920 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 24,687,758 shares in 2000
and 24,027,899 shares in 1999......................... 2 2
Additional paid-in capital.............................. 73,040 62,367
Retained earnings....................................... 359,706 334,742
Less:
Treasury stock, at cost, 403,639 shares in 2000 and
28,012 shares in 1999............................... (8,518) (587)
Accumulated other comprehensive income (loss):
Currency translation adjustments.................... (701) 236
Additional minimum pension liability................ (183) (183)
-------------------- --------------------
Total accumulated other comprehensive income (loss)... (884) 53
-------------------- --------------------
Total stockholders' equity........................ 423,346 396,577
-------------------- --------------------
$ 4,185,266 $ 2,896,252
==================== ====================
</TABLE>
See accompanying unaudited notes to consolidated financial statements.
Page 3 of 18
<PAGE> 4
JEFFERIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------------- ---------------------------------
June 30, June 25, June 30, June 25,
2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Commissions......................... $ 54,070 $ 49,698 $ 112,650 $ 99,383
Principal transactions.............. 59,037 58,615 138,420 114,889
Corporate finance................... 19,657 35,984 34,874 50,292
Interest ........................... 46,962 28,943 84,651 56,142
Asset management.................... 2,214 979 4,308 979
Other .............................. 678 1,110 2,475 2,322
-------------- -------------- -------------- --------------
Total revenues........................ 182,618 175,329 377,378 324,007
Interest expense...................... 38,277 24,866 69,376 47,440
-------------- -------------- -------------- --------------
Revenues, net of interest expense..... 144,341 150,463 308,002 276,567
-------------- -------------- -------------- --------------
Non-interest expenses:
Compensation and benefits........... 87,530 91,892 188,217 167,513
Floor brokerage and clearing fees... 9,309 8,301 18,765 16,165
Communications...................... 11,598 10,898 23,710 21,095
Occupancy and equipment rental...... 4,605 3,785 9,165 7,125
Travel and promotional.............. 4,960 4,135 9,762 7,593
Other............................... 4,958 6,405 10,801 11,659
-------------- -------------- -------------- --------------
Total non-interest expenses........... 122,960 125,416 260,420 231,150
-------------- -------------- -------------- --------------
Earnings before income taxes.......... 21,381 25,047 47,582 45,417
Income taxes.......................... 9,009 10,270 20,186 18,974
-------------- -------------- -------------- --------------
Earnings from continuing operations... 12,372 14,777 27,396 26,443
Earnings from discontinued
operations, net of income taxes..... -- 6,192 -- 11,147
-------------- -------------- -------------- --------------
Net earnings.......................... $ 12,372 $ 20,969 $ 27,396 $ 37,590
============== ============== ============== ==============
Earnings per share:
Basic:
Continuing operations............. $ 0.51 $ 0.62 $ 1.14 $ 1.12
Discontinued operations........... -- 0.26 -- 0.47
-------------- -------------- -------------- --------------
Net earnings...................... $ 0.51 $ 0.88 $ 1.14 $ 1.59
============== ============== ============== ==============
Diluted:
Continuing operations............. $ 0.51 $ 0.61 $ 1.13 $ 1.11
Discontinued operations........... -- 0.26 -- 0.45
-------------- -------------- -------------- --------------
Net earnings...................... $ 0.51 $ 0.87 $ 1.13 $ 1.56
============== ============== ============== ==============
Weighted average shares:
Basic............................... 24,052 23,936 24,000 23,576
Diluted............................. 24,258 24,114 24,217 23,808
</TABLE>
See accompanying unaudited notes to consolidated financial statements.
Page 4 of 18
<PAGE> 5
JEFFERIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2000
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Accumulated Total
Additional Other Stock-
Common Paid-in Retained Treasury Comprehensive holders'
Stock Capital Earnings Stock Income (Loss) Equity
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1999.............. $2 $62,367 $334,742 $(587) $53 $396,577
Exercise of stock options,
including tax benefits
(66,354 shares)................ -- 1,274 -- -- -- 1,274
Purchase of treasury stock
(375,627 shares)............... -- -- -- (7,931) -- (7,931)
Issuance of common stock
(182,461 shares)............... -- 3,402 -- -- -- 3,402
Issuance of restricted stock
(411,044 shares), net of
forfeitures, and additional
vesting of restricted stock
shares, including tax benefits. -- 5,269 -- -- -- 5,269
Employee stock ownership plan
amortization and stock
purchases, net................. -- 728 -- -- -- 728
Quarterly dividends
($.05 per share per quarter)... -- -- (2,432) -- -- (2,432)
Comprehensive income:
Net earnings.................. -- -- 27,396 -- -- 27,396
Other comprehensive
income (loss), net of tax:
Translation adjustment........ -- -- -- -- (937) (937)
---------
Comprehensive income............ -- -- -- -- -- 26,459
----------------------------------------------------------------------------------
Balance,
June 30, 2000................. $2 $73,040 $359,706 $ (8,518) $(884) $423,346
==================================================================================
</TABLE>
See accompanying unaudited notes to consolidated financial statements
Page 5 of 18
<PAGE> 6
JEFFERIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------------
June 30, June 25,
2000 1999
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings............................................ $ 27,396 $ 37,590
---------------- ----------------
Adjustments to reconcile net earnings to net cash
used in operations:
Depreciation and amortization......................... 5,697 4,473
(Increase) decrease in cash and securities segregated
and on deposit for regulatory purposes.............. (44,693) 45,267
(Increase) decrease in receivables:
Brokers and dealers................................. (1,326,672) (911,414)
Customers, officers and directors................... 9,593 (92,444)
(Increase) decrease in securities owned............... 101,618 (120,409)
Increase in investments............................... (11,402) (7,254)
Increase in investment in discontinued operations..... -- 41,534
Increase in other assets.............................. (1,898) (28,871)
Increase in operating payables:
Brokers and dealers................................. 1,154,217 995,949
Customers........................................... 41,546 (3,882)
Increase in securities sold, not yet purchased........ 6,926 52,573
Decrease in accrued expenses and other liabilities.... (17,492) (67,637)
---------------- ----------------
Total adjustments.............................. (82,560) (92,115)
---------------- ----------------
Net cash used in operating activities.......... (55,164) (54,525)
---------------- ----------------
</TABLE>
Continued on next page.
See accompanying unaudited notes to consolidated financial statements.
Page 6 of 18
<PAGE> 7
JEFFERIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
Six Months Ended
------------------------------------
June 30, June 25,
2000 1999
---------------- ----------------
<S> <C> <C>
Cash flows from financing activities:
Net proceeds from (payments on):
Bank loans................................................ 77,000 (21,000)
Repurchase of treasury stock.............................. (7,931) (17,000)
Dividends paid............................................ (2,432) (2,343)
Exercise of stock options................................. 1,274 27,710
Issuance of common stock shares........................... 3,402 --
Issuance of restricted stock.............................. 5,269 6,570
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.............. 76,233 50,130
---------------- ----------------
Cash flows from investing activities -
purchase of premises and equipment............................. (3,297) (7,603)
---------------- ----------------
Effect of foreign currency translation on cash................... (937) (640)
---------------- ----------------
Net increase (decrease) in cash and cash equivalents... 16,835 (12,638)
Cash and cash equivalents - beginning of period.................. 77,197 55,581
---------------- ----------------
Cash and cash equivalents - end of period........................ $ 94,032 $ 42,943
================ ================
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest..................................................... $ 66,786 $ 45,783
================ ================
Income taxes................................................. $ 1,051 $ 8,701
================ ================
</TABLE>
See accompanying unaudited notes to consolidated financial statements.
Page 7 of 18
<PAGE> 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 June 30, 2000 (in thousands of dollars):
<TABLE>
<S> <C>
Receivable from brokers and dealers:
Securities borrowed.............................. $ 3,060,279
Securities purchased under agreements to resell.. 2,597
Other............................................ 229,265
--------------
$ 3,292,141
==============
Payable to brokers and dealers:
Securities loaned................................ $ 2,722,237
Securities sold under agreements to repurchase... 2,597
Other............................................ 93,338
--------------
$ 2,818,172
==============
</TABLE>
Page 8 of 18
<PAGE> 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 June 30, 2000 (in
thousands of dollars):
<TABLE>
<CAPTION>
Securities
Sold,
Securities Not Yet
Owned Purchased
---------------- ----------------
<S> <C> <C>
Corporate equity securities.......................... $ 156,126 $ 184,440
High-yield securities................................ 70,146 6,714
Corporate debt securities............................ 43,983 1,338
U.S. Government and agency obligations............... 3,403 --
Options.............................................. 1,230 854
---------------- ----------------
$ 274,888 $ 193,346
================ ================
</TABLE>
INVESTMENTS
Investments consist of the following as of June 30, 2000 (in thousands of
dollars):
<TABLE>
<S> <C>
Debt and equity investments.......................... $ 21,620
Partnership interests................................ 63,542
Equity and debt interests in affiliates.............. 45,340
----------------
$ 130,502
================
</TABLE>
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 June 30, 2000 (in thousands of dollars):
<TABLE>
<S> <C>
Cash in banks........................................ $ 90,040
Short term investments............................... 3,992
----------------
$ 94,032
================
</TABLE>
Page 9 of 18
<PAGE> 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 six
month periods ended June 30, 2000 and June 25, 1999 (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------- -------------------------------
June 30, June 25, June 30, June 25,
2000 1999 2000 1999
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Earnings from continuing operations..... $ 12,372 $ 14,777 $ 27,396 $ 26,443
Earnings from discontinued operations... -- 6,192 -- 11,147
------------- -------------- ------------- --------------
Net earnings for basic earnings per share 12,372 20,969 27,396 37,590
Adjustment - stock options on subsidiary -- (35) -- (420)
------------- -------------- ------------- --------------
Adjusted earnings - diluted calculation. $ 12,372 $ 20,934 $ 27,396 $ 37,170
============= ============== ============= ==============
Shares for basic and diluted calculations:
Average number of common shares......... 24,052 23,936 24,000 23,568
Capital Accumulation Plan unissued shares -- -- -- 8
------------- -------------- ------------- --------------
Average shares used in basic computation 24,052 23,936 24,000 23,576
Stock options........................... 147 166 155 208
Other unissued common stock equivalents. 59 12 62 24
------------- -------------- ------------- --------------
Average shares used in diluted
computation............................. 24,258 24,114 24,217 23,808
============= ============== ============= ==============
Earnings per share:
Basic:
Earnings from continuing operations..... $ 0.51 $ 0.62 $ 1.14 $ 1.12
Earnings from discontinued operations... -- 0.26 -- 0.47
------------- -------------- ------------- --------------
Net earnings............................ $ 0.51 $ 0.88 $ 1.14 $ 1.59
============= ============== ============= ==============
Diluted:
Earnings from continuing operations..... $ 0.51 $ 0.61 $ 1.13 $ 1.11
Earnings from discontinued operations... -- 0.26 -- 0.45
------------- -------------- ------------- --------------
Net earnings............................ $ 0.51 $ 0.87 $ 1.13 $ 1.56
============= ============== ============= ==============
</TABLE>
ASSET MANAGEMENT
The following summarizes revenues from asset management for the three month
and six month periods ended June 30, 2000 and June 25, 1999 (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------------------- -------------------------------------
June 30, June 25, June 30, June 25,
2000 1999 2000 1999
----------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
HIGH YIELD $ $ $ $
Performance based.... 1,509 -- 3,010 --
Asset based.......... 349 -- 427 --
INTERNATIONAL........ 356 979 871 979
---------------- ---------------- --------------- ---------------
Total .............. $ 2,214 $ 979 $ 4,308 $ 979
================ ================ =============== ===============
</TABLE>
OTHER COMPREHENSIVE INCOME
The following summarizes other comprehensive income and accumulated other
comprehensive income at June 30, 2000 and for the three months then ended (in
thousands of dollars):
Page 10 of 18
<PAGE> 11
JEFFERIES GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Before-Tax Income Tax Net-of-Tax
Amount or Benefit Amount
------------------ ---------------- -----------------
<S> <C> <C> <C>
Currency translation adjustments............ $ (771) $ -- $ (771)
Minimum pension liability adjustment........ -- -- --
------------------ ---------------- -----------------
Other comprehensive income (loss)........... $ (771) $ -- $ (771)
================== ================ =================
Minimum Accumulated
Currency Pension Other
Translation Liability Comprehensive
Adjustments Adjustment Income (Loss)
------------------ ---------------- ------------------
Beginning at March 31, 2000................. $ 70 $ (183) $ (113)
Change in second quarter of 2000............ (771) -- (771)
------------------ ---------------- ------------------
Ending at June 30, 2000..................... $ (701) $ (183) $ (884)
================== ================ ==================
</TABLE>
The following summarizes other comprehensive income and accumulated other
comprehensive income at June 25, 1999 and for the three months then ended (in
thousands of dollars):
<TABLE>
<CAPTION>
Before-Tax Income Tax Net-of-Tax
Amount or Benefit Amount
------------------- ----------------- ------------------
<S> <C> <C> <C>
Currency translation adjustments............ $ (187) $ -- $ (187)
Minimum pension liability adjustment........ -- -- --
------------------- ----------------- ------------------
Other comprehensive income (loss)........... $ (187) $ -- $ (187)
=================== ================= ==================
</TABLE>
<TABLE>
<CAPTION>
Minimum Accumulated
Currency Pension Other
Translation Liability Comprehensive
Adjustments Adjustment Income (Loss)
------------------- ------------------ ------------------
<S> <C> <C> <C>
Beginning at March 26, 1999................. $ (502) $ (1,669) $ (2,171)
Change in second quarter of 1999............ (187) -- (187)
------------------- ------------------ ------------------
Ending at June 25, 1999..................... $ (689) $ (1,669) $ (2,358)
=================== ================== ==================
</TABLE>
Comprehensive income for the three months ended June 30, 2000 and June 25,
1999 was as follows:
<TABLE>
<CAPTION>
June 30, June 25,
2000 1999
------------------- -------------------
<S> <C> <C>
Net earnings................................ $ 12,372 $ 20,969
Other comprehensive income.................. (771) (187)
------------------- -------------------
Comprehensive income........................ $ 11,601 $ 20,782
=================== ===================
</TABLE>
The following summarizes other comprehensive income and accumulated other
comprehensive income at June 30, 2000 and for the six months then ended (in
thousands of dollars):
<TABLE>
<CAPTION>
Before-Tax Income Tax Net-of-Tax
Amount or Benefit Amount
------------------- ----------------- ------------------
<S> <C> <C> <C>
Currency translation adjustments............ $ (937) $ -- $ (937)
Minimum pension liability adjustment........ -- -- --
------------------- ----------------- ------------------
Other comprehensive income (loss)........... $ (937) $ -- $ (937)
=================== ================= ==================
</TABLE>
Page 11 of 18
<PAGE> 12
JEFFERIES GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Minimum Accumulated
Currency Pension Other
Translation Liability Comprehensive
Adjustments Adjustment Income (Loss)
------------------- ----------------- -------------------
<S> <C> <C> <C>
Beginning at December 31, 1999.............. $ 236 $ (183) $ 53
Change in first half of 2000................ (937) -- (937)
------------------- ----------------- -------------------
Ending at June 30, 2000..................... $ (701) $ (183) $ (884)
=================== ================= ===================
</TABLE>
The following summarizes other comprehensive income and accumulated other
comprehensive income at June 25, 1999 and for the six months then ended (in
thousands of dollars):
<TABLE>
<CAPTION>
Before-Tax Income Tax Net-of-Tax
Amount or Benefit Amount
------------------- ----------------- ------------------
<S> <C> <C> <C>
Currency translation adjustments............ $ (640) $ -- $ (640)
Minimum pension liability adjustment........ -- -- --
------------------- ----------------- ------------------
Other comprehensive income (loss)........... $ (640) $ -- $ (640)
=================== ================= ==================
Minimum Accumulated
Currency Pension Other
Translation Liability Comprehensive
Adjustments Adjustment Income (Loss)
------------------- ------------------ ------------------
Beginning at December 31, 1998.............. $ (49) $ (1,669) $ (1,718)
Change in first half of 1999................ (640) -- (640)
------------------- ------------------ ------------------
Ending at June 25, 1999..................... $ (689) $ (1,669) $ (2,358)
=================== ================== ==================
</TABLE>
Comprehensive income for the six months ended June 30, 2000 and June 25,
1999 was as follows:
<TABLE>
<CAPTION>
June 30, June 25,
2000 1999
------------------- -------------------
<S> <C> <C>
Net earnings................................ $ 27,396 $ 37,590
Other comprehensive income.................. (937) (640)
------------------- -------------------
Comprehensive income........................ $ 26,459 $ 36,950
=================== ===================
</TABLE>
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 June 30, 2000, JEFCO's and
W & D's net capital was $207.3 million and $2.3 million, respectively, which
exceeded minimum net capital requirements by $201.2 million and $2.0 million,
respectively.
Page 12 of 18
<PAGE> 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.
-------- --------
2000....... $.05 $.05
1999....... $.05 $.05
OFF-BALANCE SHEET RISK
In the normal course of business, the Company had letters of credit
outstanding aggregating $33.0 million at June 30, 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 8% of revenues and 2% 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
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS ENDED
ENDED
----------------- -----------------
JUNE 25, 1999 JUNE 25, 1999
----------------- -----------------
<S> <C> <C>
Net earnings of ITGI.............................. $ 779 $ 9,137
Deferred taxes on ITGI's IPO gain................. 12,843 12,843
Less: Write-off of goodwill on JEF related to ITGI 5,207 5,207
Less: Company's net spin-off related expenses..... 2,071 3,848
Less: Minority interest in ITGI................... 152 1,778
----------------- -----------------
Discontinued operations of ITGI................... $ 6,192 $ 11,147
================= =================
</TABLE>
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).
<TABLE>
<S> <C>
JUNE 25,
1999
----------------
Interest paid................................... $ 31
Income taxes paid............................... $ 6,538
</TABLE>
Page 13 of 18
<PAGE> 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 $1,289.0 million from $2,896.3 million at December
31, 1999 to $4,185.3 million at June 30, 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.
SECOND QUARTER 2000 VERSUS SECOND QUARTER 1999
Revenues, net of interest expense, decreased 4% to $144.3 million, compared
to $150.5 million for the second quarter of 1999. The decrease was due primarily
to a $16.3 million, or 45%, decrease in corporate finance, partially offset by a
$4.6 million, or 113%, increase in net interest income (interest revenues less
interest expense), a $4.4 million, or 9%, increase in commissions, a $1.2
million, or 126%, increase in asset management and a $422,000, or 1%, increase
in principal transactions. Commissions and principal transactions revenue
increased mostly due to the International and Equities Divisions. Corporate
finance revenues decreased due to a reduction in high yield debt underwritings.
Net interest income was up mostly due to increased interest income on
proprietary securities positions and from securities borrowed. Asset management
increased due to the Opportunity Funds, two of which began trading in January
2000. Other income decreased due to a decrease in correspondent revenues.
Total non-interest expenses decreased 2% to $123.0 million, compared to
$125.4 million for the second quarter of 1999. Compensation and benefits
decreased $4.4 million, or 5%, mostly due to a decrease in incentive based
compensation accruals. Other expense decreased $1.4 million or 23%, primarily
due to a reduction in general litigation expenses. Floor brokerage and clearing
fees increased $1.0 million, or 12%, due to increased volume of business
executed on the various exchanges. Travel and promotional increased $825,000, or
20%, primarily due to increased business travel. Occupancy and equipment rental
increased $820,000, or 22%, mostly due to higher office rental expenses.
Communications increased $700,000, or 6%, due mostly to increased trade volume.
Earnings before income taxes were down 15% to $21.4 million, compared to
$25.0 million for the same prior year period. The effective tax rate was
approximately 42% for the second quarter of 2000 compared to 41% for the second
quarter of 1999. Earnings from continuing operations were down $2.4 million to
$12.4 million, compared to $14.8 million for the same prior year period.
Earnings from discontinued operations, net of income taxes, amounted to
zero in the second 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 $0.51 for the
second quarter of 2000 on 24,052,000 shares compared to $0.62 in the 1999 period
on 23,936,000 shares. Diluted earnings from continuing operations per share were
$0.51 for the second quarter of 2000 on 24,258,000 shares compared to $0.61 in
the comparable 1999 period on 24,114,000 shares.
Basic net earnings per share were $0.51 for the second quarter of 2000 on
24,052,000 shares compared to $0.88 in the 1999 period on 23,936,000 shares.
Diluted net earnings per share were $0.51 for the second quarter of 2000 on
24,258,000 shares compared to $0.87 in the comparable 1999 period on 24,114,000
shares.
FIRST HALF 2000 VERSUS FIRST HALF 1999
Revenues, net of interest expense, increased 11% to $308.0 million,
compared to $276.6 million for the first half of 1999. The increase was due
primarily to a $23.5 million, or 20%, increase in principal transactions, a
$13.3 million, or 13%, increase in commissions, a $6.6 million, or 76%, increase
in net interest income (interest revenues less interest expense), a $3.3
million, or 340%, increase in asset management, partially offset by a $15.4
million, or 31%, decrease in corporate finance. Commissions and principal
transactions revenue increased mostly due to the
Page 14 of 18
<PAGE> 15
JEFFERIES GROUP, INC. AND SUBSIDIARIES
Equities and International Divisions. Corporate finance revenues decreased due
to a reduction in high yield debt underwritings. Net interest income was up
mostly 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 remained relatively unchanged.
Total non-interest expenses increased 13% to $260.4 million, compared to
$231.2 million for the first half of 1999. Compensation and benefits increased
$20.7 million, or 12%, mostly due to an increase in incentive based compensation
accruals. Communications increased $2.6 million, or 12%, due mostly to increased
trade volume. Floor brokerage and clearing fees increased $2.6 million, or 16%,
due to increased volume of business executed on the various exchanges. Travel
and promotional increased $2.2 million, or 29%, primarily due to higher expenses
associated with account executive T&Es and customer events. Occupancy and
equipment rental increased $2.0 million, or 29%, mostly due to higher office
rental expenses. Other expense decreased $858,000, or 7%, primarily due to a
reduction in general litigation expenses.
Earnings before income taxes were up 5% to $47.6 million, compared to $45.4
million for the same prior year period. The effective tax rate was approximately
42% for both the first half of 2000 and 1999. Earnings from continuing
operations were up $1.0 million to $27.4 million, compared to $26.4 million for
the same prior year period.
Earnings from discontinued operations, net of income taxes, amounted to
zero in the first half 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 $1.14 for the
first half of 2000 on 24,000,000 shares compared to $1.12 in the 1999 period on
23,576,000 shares. Diluted earnings from continuing operations per share were
$1.13 for the first half of 2000 on 24,217,000 shares compared to $1.11 in the
comparable 1999 period on 23,808,000 shares.
Basic net earnings per share were $1.14 for the first half of 2000 on
24,000,000 shares compared to $1.59 in the 1999 period on 23,576,000 shares.
Diluted net earnings per share were $1.13 for the first half of 2000 on
24,217,000 shares compared to $1.56 in the comparable 1999 period on 23,808,000
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
<PAGE> 16
JEFFERIES GROUP, INC. AND SUBSIDIARIES
REVENUES BY SOURCE
The following provides a breakdown of total revenues by source for the
three months and six months ended June 30, 2000 and June 25, 1999.
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------
June 30, 2000 June 25, 1999
---------------------------- -----------------------------
% of % of
Total Total
Amount Revenues Amount Revenues
------ -------- --------- --------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Commissions and principal transactions:
Equities................................ $ 77,450 43% $ 73,678 42%
International........................... 19,764 11 11,523 6
High Yield.............................. 7,928 4 16,437 9
Convertible............................. 6,060 3 5,207 3
Other proprietary trading............... 1,905 1 1,468 1
------------- ------ ---------- -------
Total................................... 113,107 62 108,313 61
Corporate finance........................... 19,657 11 35,984 21
Interest.................................... 46,962 26 28,943 16
Asset management............................ 2,214 1 979 1
Other....................................... 678 -- 1,110 1
------------- ------ ---------- -------
Total revenues.......................... $ 182,618 100% $ 175,329 100%
============= ====== ========== =======
Six Months Ended
--------------------------------------------------------------
June 30, 2000 June 25, 1999
----------------------------- -----------------------------
% of % of
Total Total
Amount Revenues Amount Revenues
------ -------- ------------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commissions and principal transactions:
Equities................................ $ 169,559 45% $ 142,420 44%
International........................... 44,517 12 26,329 8
High Yield.............................. 20,616 6 30,798 10
Convertible............................. 13,042 3 10,403 3
Other proprietary trading............... 3,336 1 4,322 1
------------- ------ ----------- ------
Total................................... 251,070 67 214,272 66
Corporate finance........................... 34,874 9 50,292 16
Interest.................................... 84,651 22 56,142 17
Asset management............................ 4,308 1 979 --
Other....................................... 2,475 1 2,322 1
------------- ------ ----------- ------
Total revenues.......................... $ 377,378 100% $ 324,007 100%
============= ====== =========== ======
</TABLE>
Page 16 of 18
<PAGE> 17
JEFFERIES GROUP, INC. AND SUBSIDIARIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Date of Meeting -- May 26, 2000
Type of Meeting -- Annual Meeting of Shareholders
(b) Not applicable
(c)(1) At the meeting, with respect to the matters under consideration,
the following votes were cast in the following manner:
<TABLE>
<CAPTION>
For Withheld Non-vote
--- -------- --------
<S> <C> <C> <C>
ELECTION OF DIRECTORS
Frank E. Baxter ............................ 21,014,367 38,251 --
W. Patrick Campbell......................... 20,850,037 202,581 --
Richard G. Dooley........................... 21,012,665 39,953 --
Richard B. Handler.......................... 21,012,440 40,178 --
Sheldon B. Lubar............................ 21,012,665 39,953 --
Frank J. Macchiarola........................ 21,015,315 37,303 --
John C. Shaw, Jr............................ 21,014,467 38,151 --
</TABLE>
(d) Not applicable
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
<PAGE> 18
JEFFERIES GROUP, INC. AND SUBSIDIARIES
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: August 11, 2000 By: /s/ Joseph A. Schenk
-------------------- -----------------------------
Joseph A. Schenk
Chief Financial Officer
Page 18 of 18
