<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 September 30, 1994
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 0-11669
JEFFERIES GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-2848406
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11100 Santa Monica Boulevard, 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 30, 1994, the Registrant had 5,837,570 common shares, $.01 par
value, outstanding.
Page 1 of 19 Pages
<PAGE> 2
JEFFERIES GROUP, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition -
September 30, 1994 (unaudited) and December 31, 1993 3
Consolidated Statements of Earnings - Three Months and
Nine Months Ended September 30, 1994 (unaudited) and
September 24, 1993 (unaudited) 4
Consolidated Statements of Changes in Stockholders'
Equity - Nine Months Ended September 30, 1994 (unaudited) 5
Consolidated Statements of Cash Flows - Nine Months
Ended September 30, 1994 (unaudited) and September 24, 1993
(unaudited) 6
Notes to Consolidated Financial Statements (unaudited) 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II. - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
</TABLE>
Page 2 of 19 Pages
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JEFFERIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Sept. 30, December 31,
1994 1993
---------- ----------
ASSETS (unaudited)
<S> <C> <C>
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . $ 66,338 $ 26,910
Receivable from brokers and dealers . . . . . . . . . . . . . . . . . 1,243,774 1,069,384
Receivable from customers, officers and directors . . . . . . . . . . 83,154 116,935
Securities owned . . . . . . . . . . . . . . . . . . . . . . . . . . 148,767 114,808
Premises and equipment . . . . . . . . . . . . . . . . . . . . . . . 19,907 18,638
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,524 41,728
---------- ----------
$1,617,464 $1,388,403
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 45,928
Payable to brokers and dealers . . . . . . . . . . . . . . . . . . . 880,572 615,216
Payable to customers . . . . . . . . . . . . . . . . . . . . . . . . 372,037 405,726
Securities sold, not yet purchased . . . . . . . . . . . . . . . . . 54,116 74,235
Accrued expenses and other liabilities . . . . . . . . . . . . . . . 78,454 92,772
---------- ----------
1,385,179 1,233,877
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,485 9,968
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . 6,073 --
---------- ----------
1,450,737 1,243,845
---------- ----------
Stockholders' equity:
Preferred stock, $.01 par value.
Authorized 1,000,000 shares; none issued . . . . . . . . . . . -- --
Common stock $.01 par value.
Authorized 25,000,000 shares; issued
9,016,710 shares in 1994 and 8,907,817
shares in 1993 . . . . . . . . . . . . . . . . . . . . . . . . 90 89
Additional paid-in capital . . . . . . . . . . . . . . . . . . . 51,073 34,930
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . 162,054 146,949
Less treasury stock, at cost; 3,179,140
shares in 1994; and 3,212,390 shares in 1993 . . . . . . . . . (44,864) (35,695)
Less currency translation adjustment . . . . . . . . . . . . . . (446) (652)
Less additional minimum pension liability . . . . . . . . . . . . (1,180) (1,063)
---------- ----------
Total stockholders' equity . . . . . . . . . . . . . . . . . 166,727 144,558
---------- ----------
$1,617,464 $1,388,403
========== ==========
</TABLE>
See accompanying unaudited notes to consolidated financial statements.
Page 3 of 19 Pages
<PAGE> 4
JEFFERIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------- ---------------------
Sept 30, Sept 24, Sept 30, Sept 24,
1994 1993 1994 1993
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Commissions . . . . . . . . . . . . . . . . . . . $39,253 $35,899 $116,999 $ 97,512
Principal transactions . . . . . . . . . . . . . 18,216 18,521 49,370 63,365
Corporate finance . . . . . . . . . . . . . . . . 8,987 24,615 22,606 46,297
Interest . . . . . . . . . . . . . . . . . . . . 15,469 5,353 34,967 13,351
Other . . . . . . . . . . . . . . . . . . . . . . 241 867 1,153 3,035
------- ------- -------- --------
Total revenues . . . . . . . . . . . . . . . . 82,166 85,255 225,095 223,560
Interest expense . . . . . . . . . . . . . . . . 12,310 4,024 28,107 10,600
------- ------- -------- --------
Revenues, net of interest expense . . . . . . . . 69,856 81,231 196,988 212,960
------- ------- -------- --------
Non-interest expenses:
Compensation and benefits . . . . . . . . . . . 33,368 46,834 102,941 119,719
Floor brokerage and clearing fees . . . . . . . . 4,713 4,181 13,513 11,630
Telecommunications and data
processing services . . . . . . . . . . . . . . 5,508 5,071 15,231 13,802
Occupancy and equipment rental . . . . . . . . . 3,495 3,411 10,472 9,406
Travel and promotional . . . . . . . . . . . . . 2,142 2,686 6,184 5,863
Software royalties . . . . . . . . . . . . . . . 1,358 973 3,934 2,525
Other . . . . . . . . . . . . . . . . . . . . . . 8,048 6,667 22,241 16,610
------- ------- -------- --------
Total non-interest expenses . . . . . . . . . 58,632 69,823 174,516 179,555
------- ------- -------- --------
Operating income . . . . . . . . . . . . . . . . . 11,224 11,408 22,472 33,405
Other income:
Gain on initial public offering of
Investment Technology Group, Inc. . . . . . . . -- -- 8,257 --
------- ------- -------- --------
Earnings before income taxes, minority
interest and cumulative effect of
change in accounting principle . . . . . . . . . 11,224 11,408 30,729 33,405
Income taxes . . . . . . . . . . . . . . . . . . . 5,201 4,925 13,883 13,584
Minority interest . . . . . . . . . . . . . . . . . 658 -- 860 --
------- ------- -------- --------
Earnings before cumulative effect of
change in accounting principle . . . . . . . . . 5,365 6,483 15,986 19,821
Cumulative effect on prior years of
change in accounting principle . . . . . . . . . -- -- -- 1,358
------- ------- -------- --------
Net earnings . . . . . . . . . . . . . . . . . . . $ 5,365 $ 6,483 $ 15,986 $ 21,179
======= ======= ======== ========
Earnings per share of common stock:
Primary earnings before cumulative
effect of accounting change . . . . . . . . . . $ 0.85 $ 1.34 $ 2.55 $ 4.11
Cumulative effect of accounting change . . . . . -- -- -- .28
------- ------- -------- --------
Primary earnings . . . . . . . . . . . . . . . . $ 0.85 $ 1.34 $ 2.55 $ 4.39
======= ======= ======== ========
Fully diluted earnings before cumulative
effect of accounting change . . . . . . . . . . $ 0.85 $ 1.10 $ 2.55 $ 3.37
Cumulative effect of accounting change . . . . . -- -- -- .22
------- ------- -------- --------
Fully diluted earnings . . . . . . . . . . . . . $ 0.85 $ 1.10 $ 2.55 $ 3.59
======= ======= ======== ========
Weighted average shares of common stock:
Primary . . . . . . . . . . . . . . . . . . . . . 6,324 4,840 6,210 4,828
Fully diluted . . . . . . . . . . . . . . . . . . 6,328 6,207 6,210 6,217
</TABLE>
See accompanying unaudited notes to consolidated financial statements.
Page 4 of 19 Pages
<PAGE> 5
JEFFERIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Currency Add'l Total
Additional Trans- Minimum Stock-
Common Paid-in Retained Treasury lation Pension holders'
Stock Capital Earnings Stock Adjustment Liability Equity
------ ---------- ---------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1993. $89 $34,930 $146,949 $(35,695) $(652) $(1,063) $144,558
Exercise of stock
options
(118,893 shares).. 1 2,890 145 3,036
Purchase of 452,211
shares of treasury
stock............. (16,025) (16,025)
Capital Accum-
ulation Plan ("CAP")
distribution
(17,681 shares).... 553 553
Issuance of
457,780 shares.... 13,253 6,158 19,411
Cash dividends,
$.05 per share.... (881) (881)
Currency translation
adjustment........ 206 206
Pension adjustment (117) (117)
Net earnings....... 15,986 15,986
--- ------- -------- -------- ----- -------- --------
Balance,
Sept. 30, 1994.... $90 $51,073 $162,054 $(44,864) $(446) $(1,180) $166,727
=== ======= ======== ======== ===== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 5 of 19 Pages
<PAGE> 6
JEFFERIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
For the Nine Months Ended
-------------------------
Sept. 30, Sept. 24,
1994 1993
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . $ 15,986 $ 21,179
--------- ---------
Adjustments to reconcile net earnings to
net cash provided (used) by operations:
Depreciation and amortization . . . . . . . . . . . . . . 5,292 4,391
(Increase) decrease in receivables:
Brokers and dealers . . . . . . . . . . . . . . . . . . (174,390) (299,930)
Customers, officers and directors . . . . . . . . . . . 33,781 (7,017)
(Increase) decrease in securities owned . . . . . . . . . (33,959) 856
(Increase) decrease in other assets . . . . . . . . . . . (13,796) (17,832)
Increase (decrease) in operating payables:
Brokers and dealers . . . . . . . . . . . . . . . . . . 265,356 55,527
Customers . . . . . . . . . . . . . . . . . . . . . . . (33,689) 172,892
Increase (decrease) in securities sold,
not yet purchased . . . . . . . . . . . . . . . . . . . (20,119) 22,168
Increase (decrease) in accrued expenses
and other liabilities . . . . . . . . . . . . . . . . . (14,435) 34,125
--------- ---------
Total adjustments . . . . . . . . . . . . . . . 14,041 (34,820)
--------- ---------
Net cash provided (used) by
operating activities . . . . . . . . . . . . 30,027 (13,641)
--------- ---------
</TABLE>
Continued on next page.
See accompanying unaudited notes to consolidated financial statements.
Page 6 of 19 Pages
<PAGE> 7
JEFFERIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
For the Nine Months Ended
-------------------------
Sept. 30, Sept. 24,
1994 1993
----------- -----------
<S> <C> <C>
Cash flows from financing activities:
Net proceeds (payments) on term debt . . . . . . . . . . 49,302 --
Net proceeds (payments) on bank loans . . . . . . . . . . (45,928) 8,700
Net payments for:
Repurchase of treasury stock . . . . . . . . . . . . . (16,025) (2,075)
Dividends paid . . . . . . . . . . . . . . . . . . . . (881) (691)
Issuance of common stock shares . . . . . . . . . . . . . 19,411 --
Distribution of CAP plan shares . . . . . . . . . . . . . 553 --
Proceeds from exercise of stock options . . . . . . . . . 3,036 586
-------- --------
Net cash provided (used) by
financing activities . . . . . . . . . . . . 9,468 6,520
-------- --------
Cash flows from investing activities -
purchase of premises and equipment . . . . . . . . . . . (6,346) (6,348)
-------- --------
Increase (decrease) in minority interest . . . . . . . . . . . 6,073 --
Effect of foreign currency translation . . . . . . . . . . . . 206 (72)
-------- --------
Net increase (decrease) in cash
and cash equivalents . . . . . . . . . . . . 39,428 (13,541)
Cash and cash equivalents at the beginning
of the period . . . . . . . . . . . . . . . . . . . . . . . . 26,910 21,078
-------- --------
Cash and cash equivalents at the end
of the period . . . . . . . . . . . . . . . . . . . . . . . . $ 66,338 $ 7,537
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . $ 23,795 $ 5,066
======== ========
Income taxes . . . . . . . . . . . . . . . . . . . . . . . $ 9,979 $ 15,778
======== ========
</TABLE>
See accompanying unaudited notes to consolidated financial statements.
Page 7 of 19 Pages
<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. and all subsidiaries, including Jefferies & Company, Inc.
(Jefferies) and Investment Technology Group, Inc. The accounts of W & D
Securities, Inc. (W & D) are also consolidated because of the nature and extent
of Jefferies Group Inc.'s ownership interest in W & D. Jefferies Group, Inc.'s
subsidiaries are engaged in securities brokerage and trading, corporate finance
and other financial services. The term "Company" refers, unless the context
requires otherwise, to Jefferies Group, Inc., its subsidiaries, predecessor
entities, and W & D. The term "ITG" refers, unless the context requires
otherwise, to Investment Technology Group, Inc. and its subsidiaries including
its broker-dealer subsidiary ITG Inc.
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 period and should be read in conjunction with the
Company's annual report for the year ended December 31, 1993.
SECURITIES TRANSACTIONS
The Company records its commission and principal transaction revenues and
related expenses on a trade date basis.
RECEIVABLE FROM, AND PAYABLE TO, BROKERS AND DEALERS
The components, at September 30, 1994, of receivable from and payable to
brokers and dealers are as follows:
<TABLE>
<CAPTION>
(Dollars in
Thousands)
-----------
<S> <C>
Receivable from brokers and dealers:
Securities borrowed . . . . . . . . . . . . . . . . . . . $1,227,571
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 16,203
----------
$1,243,774
==========
Payable to brokers and dealer:
Securities loaned . . . . . . . . . . . . . . . . . . . . $ 870,619
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 9,953
----------
$ 880,572
==========
</TABLE>
Page 8 of 19 Pages
<PAGE> 9
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 30,
1994:
<TABLE>
<CAPTION>
(Dollars in Thousands)
------------------------
Securities
Sold,
Securities Not Yet
Owned Purchased
---------- ----------
<S> <C>
Corporate equity securities . . . . . . . . . . . . . . . $ 72,535 $43,227
High-yield securities . . . . . . . . . . . . . . . . . . 32,401 10,044
Corporate debt securities . . . . . . . . . . . . . . . . 11,116 490
U.S. Government and agency obligations . . . . . . . . . . 22,620 --
Bank certificates of deposit . . . . . . . . . . . . . . . 10,000 --
Options . . . . . . . . . . . . . . . . . . . . . . . . . 95 355
-------- -------
$148,767 $54,116
======== =======
</TABLE>
In the regular course of its business, Jefferies takes securities positions
as a market-maker to facilitate customer transactions and for investment
purposes. In making markets and when trading for its own account, Jefferies
exposes its own capital to the risk of fluctuations in market value. Trading
profits (or losses) depend primarily upon the skills of the employees engaged
in market-making and position taking, the amount of capital allocated to
positions in securities and the general trend of prices in the securities
markets.
Jefferies monitors its risk by maintaining its securities positions at or
below certain pre-established levels. These levels reduce certain
opportunities to realize profits in the event that the value of such securities
increases. However, they also reduce the risk of loss in the event of a
decrease in such value and result in controlled interest costs incurred on
funds provided to maintain such positions.
The Jefferies' Capital Division includes the activities of the Corporate
Finance and Taxable Fixed Income Departments. The Taxable Fixed Income
Department trades high grade and non-investment grade public and private debt
securities. The Department specializes in trading and making markets in over
300 unrated or less than investment grade corporate debt securities and accounts
for these positions at market value. Risk of loss upon default by the borrower
is significantly greater with respect to unrated or less than investment grade
corporate debt securities than with other corporate debt securities. These
securities are generally unsecured and are often subordinated to other
creditors of the issuer. These issuers usually have high levels of
indebtedness and are more sensitive to adverse economic conditions, such as
recession or increasing interest rates, than are investment grade issuers.
There is a limited market for some of these securities and market quotes are
generally available from a small number of dealers.
INCOME TAXES
In 1993, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes," which requires recognition of
deferred tax liabilities and assets for the expected future tax consequences of
events that have been included in the financial statements or tax returns.
Under this method, deferred tax liabilities and assets are determined based on
the difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
Page 9 of 19 Pages
<PAGE> 10
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash in banks, U.S. Treasuries purchased
under agreements to resell to a financial institution and investments in money
market funds. The U.S. Treasuries are held in the Company's safekeeping
account at a bank. 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 30, 1994:
<TABLE>
<CAPTION>
(Dollars in
Thousands)
-----------
<S> <C>
Cash in banks . . . . . . . . . . . . . . . . . . . . . . . . . $17,245
U.S. Treasuries purchased under agreements
to resell to a financial institution . . . . . . . . . . . . 9,300
Short term investments . . . . . . . . . . . . . . . . . . . . 39,793
-------
$66,338
=======
</TABLE>
MINORITY INTEREST
Minority interest represents the minority stockholders' proportionate share
of the equity of Investment Technology Group, Inc. At September 30, 1994,
Jefferies Group, Inc. owned 80.2% of Investment Technology Group, Inc.'s common
stock.
NET CAPITAL REQUIREMENTS
As registered broker-dealers, Jefferies, W & D and ITG Inc. are subject to
the Securities and Exchange Commission Uniform Net Capital Rule (Rule 15c3-1),
which requires the maintenance of minimum net capital. Jefferies, W & D and
ITG Inc. 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 30, 1994,
Jefferies' net capital of $75.7 million exceeded its minimum net capital
requirements by $67.8 million. ITG Inc.'s net capital of $12.3 million
exceeded its minimum net capital requirements by $12.0 million. W & D's net
capital of $844,000 exceeded its minimum net capital requirements by $594,000.
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):
<TABLE>
<CAPTION>
1st Qtr. 2nd Qtr. 3rd Qtr.
<S> <C> <C> <C>
1994.................. $.05 $.05 $.05
1993.................. $.05 $.05 $.05
</TABLE>
OFF-BALANCE SHEET RISK
In the normal course of business, the Company is involved in the execution,
settlement and financing of various customer and principal securities
transactions. Customer activities are transacted on a cash, margin or
delivery-versus-payment basis. Securities transactions are subject to the risk
of counterparty or customer nonperformance. However, transactions are
collateralized by the underlying security, thereby reducing the associated risk
Page 10 of 19 Pages
<PAGE> 11
to change in the market value of the security through settlement date or to the
extent of margin balances.
The Company also has contractual commitments arising in the ordinary course
of business for bank loans, securities loaned, securities sold, not yet
purchased, repurchase agreements, future purchases and sales of foreign
currency, security transactions on a when-issued basis and underwriting. Each
of these financial instruments contains varying degrees of off-balance sheet
risk whereby the market values of the securities underlying the financial
instruments may be in excess of the contract amount. The settlement of these
transactions is not expected to have a material effect upon the Company's
accompanying consolidated financial statements.
In the normal course of business, the Company had letters of credit
outstanding aggregating $20,969,000 at September 30, 1994, to satisfy various
collateral requirements in lieu of depositing cash or securities.
INITIAL PUBLIC OFFERING OF INVESTMENT TECHNOLOGY GROUP, INC.
In March 1994, Investment Technology Group, Inc. (the "ITG Holding
Company") was formed for the purpose of holding 100% of the stock of the
broker-dealer subsidiary Investment Technology Group, Inc. whose name was then
changed to ITG Inc. After its formation, the ITG Holding Company had a capital
structure of preferred stock (5,000,000 shares authorized, par value $.01 per
share, no shares issued or outstanding) and common stock (30,000,000 shares
authorized, par value $.01 per share, no shares issued or outstanding).
In May 1994, the ITG Holding Company consummated an initial public offering
(the "Offering") and issued 3,700,000 shares of common stock for $48.1 million
($13 per share), less underwriting discounts and commissions of $3.4 million
and offering expenses of $1.1 million. Following the Offering, the Company
owned 80.2% of the outstanding common stock of the ITG Holding Company.
The initial public offering of the ITG Holding Company resulted in a net
gain (gross gain less expenses related to the termination of various employee
plans) for the Company of $8.3 million.
JEFFERIES GROUP, INC. ISSUES $50,000,000 IN SENIOR NOTES
In April 1994, Jefferies Group, Inc. issued $50,000,000 face value of
8.875% Senior Notes due 2004 (the "Notes") in a private placement. Pursuant to
a registration statement filed in July 1994, Jefferies Group, Inc. exchanged
all of the Notes for new 8.875% Series B Senior Notes due 2004.
Page 11 of 19 Pages
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ANALYSIS OF FINANCIAL CONDITION
Total assets increased $229.1 million from $1,388.4 million at December 31,
1993 to $1,617.5 million at September 30, 1994. The increase is mostly due to
an increase in receivable from brokers and dealers related to securities
borrowed balances. The increased securities borrowed balances are a result of
an increase in payable to brokers and dealers (related to securities loaned
balances). The increases in cash and cash equivalents and securities owned
mostly represent the net proceeds from Jefferies Group, Inc.'s $50,000,000
Senior Note offering and Investment Technology Group, Inc.'s initial public
offering.
Total liabilities increased $206.9 million from $1,243.8 million at
December 31, 1993 to $1,450.7 million at September 30, 1994. The increase is
mostly due to the before-mentioned increases in payable to brokers and dealers
and long-term debt.
FIRST THREE QUARTERS 1994 VERSUS FIRST THREE QUARTERS 1993
Revenues, net of interest expense, decreased $16.0 million, or 8%, in the
first three quarters of 1994 compared to the same prior year period. The
decrease was due primarily to a $23.7 million, or 51%, decrease in corporate
finance, a $14.0 million, or 22%, decrease in principal transactions and a $1.9
million decrease in other revenues. These decreases were partially offset by a
$19.5 million, or 20%, increase in commissions and a $4.1 million increase in
net interest income (interest revenues less interest expense). Commission
revenues increased mostly due to higher commission revenues in Investment
Technology Group, the Equity Division and the International Division. Revenues
from principal transactions declined primarily due to decreased Taxable Fixed
Income Division trading revenues. Corporate finance revenues decreased in 1994
primarily because one transaction in 1993 accounted for $16 million of revenue.
Other revenues decreased due mostly to a reduction in foreign currency
transaction gains. Net interest income increased as the $21.6 million increase
in interest revenues exceeded the $17.5 million increase in interest expense.
Interest revenues increased primarily due to interest on higher securities
borrowed and investment balances. The related increases in interest on
securities loaned and customer short balances only partially offset the higher
interest revenues.
Total non-interest expenses decreased $5.0 million, or 3%, in the first
three quarters of 1994 compared to the same prior year period. Compensation
and benefits decreased $16.8 million, or 14%. A $29.2 million decrease in
profitability based compensation was partially offset by a $6.2 million
increase in sales commissions and a $5.1 million increase in salaries. Sales
commissions were up mostly due to higher commission revenues and higher
commission payout rates. Salaries increased due mostly to the increased number
of employees in Investment Technology Group, the Corporate Finance Department
and the International Division. Other expense increased $5.6 million, or 34%,
primarily due to higher soft dollar and technology development expenses. Floor
brokerage and clearing fees increased $1.9 million, or 16%, mostly due to
increased futures business and higher volumes of business executed on the
various exchanges. Telecommunications and data processing services increased
$1.4 million, or 10%, due to higher trade volume and personnel increases.
Software royalties increased $1.4 million, or 56%, due to the increase in
POSIT(R) commissions. Occupancy and equipment rental increased $1.1 million,
or 11%, mostly due to the depreciation on new equipment and the addition of new
sales offices. Travel and promotional expense remained relatively unchanged as
compared to the prior year's period.
As a result of the above, operating income decreased $10.9 million, or 33%.
Page 12 of 19 Pages
<PAGE> 13
In addition, Jefferies Group, Inc. recorded an $8.3 million gain related to
the initial public offering of Investment Technology Group, Inc. The minority
stockholders' ownership interests reduce Jefferies Group, Inc.'s ownership of
Investment Technology Group, Inc. to 80.2%. (See Initial Public Offering of
Investment Technology Group, Inc. in the Notes to Consolidated Financial
Statements).
Earnings before income taxes, minority interest and cumulative effect of
change in accounting principle were down $2.7 million, or 8%.
Earnings before cumulative effect of change in accounting principle were
down 19% to $16.0 million, as compared to $19.8 million in the 1993 period.
Minority interest of $860,000 in 1994, represents 19.8% of ITG's net earnings
since the initial public offering. The effective tax rate was approximately
45% in the first three quarters of 1994 compared to approximately 41% in the
1993 period. The 1993 period included a $1.1 million adjustment of prior
years' estimated tax liabilities to actual which resulted in a lower tax rate
for 1993.
The cumulative effect of the change in accounting for income taxes required
by SFAS 109 was a $1.4 million benefit in 1993. This increased 1993's net
earnings to $21.2 million.
Primary earnings per share were $2.55 in the first three quarters of 1994
on 6,210,000 shares compared to $4.39 in the 1993 period on 4,828,000 shares.
Primary shares increased largely due to the conversion, late in 1993, of
$29,731,000 aggregate principal amount of 8 1/2% Convertible Subordinated
Debentures and $1,690,000 aggregate principal amount of 7% Convertible
Subordinated Notes into an aggregate of 1,366,092 shares of the Company's
Common Stock. Fully diluted earnings per share were $2.55 in the first three
quarters of 1994 on 6,210,000 shares compared to $3.59 in the 1993 period on
6,217,000 shares. The cumulative effect of the change in accounting principle
increased 1993's earnings per share for the first three quarters by $.28 on
primary shares and $.22 on fully diluted shares.
During the first three quarters of 1994, Jefferies Group, Inc. repurchased
452,211 shares of its common stock versus repurchases of 76,270 shares for the
comparable 1993 period.
THIRD QUARTER 1994 VERSUS THIRD QUARTER 1993
Revenues, net of interest expense, decreased $11.4 million, or 14%, in the
third quarter of 1994 compared to the same prior year period. The decrease was
due primarily to a $15.6 million, or 64%, decrease in corporate finance, a
$626,000 decrease in other revenues and a $305,000, or 2%, decrease in
principal transactions. These decreases were partially offset by a $3.4
million, or 9%, increase in commissions, and a $1.8 million increase in net
interest income (interest revenues less interest expense). Commission revenues
increased mostly due to higher commission revenues in the Investment Technology
Group, Equity Division and the International Division. Corporate finance
revenues decreased primarily because in the third quarter of 1993 one
transaction accounted for $16 million of revenues. Other revenues decreased
due mostly to a reduction in foreign currency transaction gains. Net interest
income increased as the $10.1 million increase in interest revenues exceeded
the $8.3 million increase in interest expense. Interest revenues increased
primarily due to interest on higher securities borrowed and investment
balances. The related increases in interest on securities loaned and customer
short balances only partially offset the higher interest revenues.
Total non-interest expenses decreased $11.2 million, or 16%, in the third
quarter of 1994 compared to the same prior year period. Compensation and
benefits decreased $13.5 million, or 29%. A $16.6 million decrease in
Page 13 of 19 Pages
<PAGE> 14
profitability based compensation was partially offset by a $1.6 million
increase in salaries and a $900,000 increase in sales commissions. Salaries
increased due mostly to the increased number of employees in the Corporate
Finance Department, International Division and Investment Technology Group.
Sales commissions were up mostly due to higher commission revenues. Other
expense increased $1.4 million or 21%, mostly due to higher soft dollar and
technology development expenses. Travel and promotional expense decreased
$544,000, or 20%, due mostly to lower airfare, travel and entertainment
expenses. Floor brokerage and clearing fees increased $532,000, or 13%, due to
increased futures business and higher volumes of business executed on the
various exchanges. Telecommunications and data processing services increased
$437,000, or 9%, mostly due to business expansion and higher trade volume.
Software royalties increased $385,000, or 40%, due to the increase in POSIT(R)
commissions. Occupancy and equipment rental remained relatively unchanged as
compared to the prior year's period.
As a result of the above, earnings before income taxes and minority
interest decreased $184,000, or 2%.
Net earnings were down 17% to $5.4 million, as compared to $6.5 million in
the 1993 period. Minority interest of $658,000 in 1994, represents 19.8% of
ITG's net earnings. The effective tax rate was approximately 46% in the third
quarter of 1994 compared to approximately 43% in the 1993 period. The higher
effective tax rate in 1994 primarily resulted from the increased impact of non-
deductible expenses in 1994 compared to 1993.
Primary earnings per share were $.85 in the third quarter of 1994 on
6,324,000 shares compared to $1.34 in the 1993 period on 4,840,000 shares.
Primary shares increased largely due to the conversion, late in 1993, of
$29,731,000 aggregate principal amount of 8 1/2% Convertible Subordinated
Debentures and $1,690,000 aggregate principal amount of 7% Convertible
Subordinated Notes into an aggregate of 1,366,092 shares of the Company's
Common Stock. Fully diluted earnings per share were $.85 in the third quarter
of 1994 on 6,328,000 shares compared to $1.10 in the 1993 period on 6,207,000
shares.
During the third quarter of 1994, Jefferies Group, Inc. repurchased 325,411
shares of its common stock versus repurchases of 30,000 shares for the
comparable 1993 period.
Page 14 of 19 Pages
<PAGE> 15
The Company's principal activities, securities brokerage and the trading of
and market-making in securities, are highly competitive and extremely volatile.
The earnings of the Company are subject to wide fluctuations since many factors
over which the Company has little or no control, particularly the overall
volume of trading and the volatility and general level of market prices, may
significantly affect its operations. The following provides a breakdown of
revenues by division for the nine months ended September 30, 1994 and September
24, 1993.
<TABLE>
<CAPTION>
For the Nine Months Ended
--------------------------------------
Sept 30, 1994 Sept 24, 1993
----------------- -----------------
% of % of
Total Total
Amount Revenues Amount Revenues
------ -------- ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Equity Division . . . . . . . . . . . . . . . . . $ 88,601 39% $ 82,718 37%
International Division . . . . . . . . . . . . . 27,871 12 23,144 11
Capital Division:
Corporate Finance Department . . . . . . . . . 13,287 6 25,080 11
Taxable Fixed Income Department . . . . . . . . 12,979 6 40,668 18
Investment Technology Group . . . . . . . . . . . 45,463 20 33,950 15
Convertible Division . . . . . . . . . . . . . . 5,451 3 8,534 4
Other Unallocated Revenues. . . . . . . . . . . . 31,443 14 9,466 4
-------- --- -------- ---
Total revenues . . . . . . . . . . . . . . . . . $225,095 100% $223,560 100%
======== === ======== ===
</TABLE>
Page 15 of 19 Pages
<PAGE> 16
The following provides a breakdown of revenues by division for the three
months ended September 30, 1994 and September 24, 1993.
<TABLE>
<CAPTION>
For the Three Months Ended
--------------------------------------
Sept 30, 1994 Sept 24, 1993
----------------- -----------------
% of % of
Total Total
Amount Revenues Amount Revenues
------ -------- ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Equity Division . . . . . . . . . . . . . . . . . $ 31,200 38% $ 28,618 33%
International Division . . . . . . . . . . . . . 9,334 11 8,663 10
Capital Division:
Corporate Finance Department . . . . . . . . . 5,112 6 13,325 16
Taxable Fixed Income Department . . . . . . . . 2,942 4 14,399 17
Investment Technology Group . . . . . . . . . . . 16,319 20 13,395 16
Convertible Division . . . . . . . . . . . . . . 1,938 2 2,751 3
Other Unallocated Revenues. . . . . . . . . . . . 15,321 19 4,104 5
-------- --- --------- ---
Total revenues . . . . . . . . . . . . . . . . . $ 82,166 100% $ 85,255 100%
======== === ======== ===
</TABLE>
Page 16 of 19 Pages
<PAGE> 17
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<S> <C>
(a) Exhibits
(11) Computation of Earnings Per Share (Page 18 attached)
(27) Financial Data Schedule
(b) Reports on Form 8-K.
There were no reports filed on Form 8-K during the quarter ended
September 30, 1994.
</TABLE>
Page 17 of 19 Pages
<PAGE> 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 11, 1994 By: /s/ Maxine Syrjamaki
-------------------------------
Maxine Syrjamaki
Controller
Page 19 of 19 Pages
<PAGE> 1
EXHIBIT 11
JEFFERIES GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
For The Three For The Nine
Months Ended Months Ended
------------- ------------
Sept 30, Sept 24, Sept 30, Sept 24,
1994 1993 1994 1993*
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Common stock and common stock
equivalents:
Average common stock outstanding . . . . . . . . 5,971 4,613 5,862 4,624
Common stock equivalent shares
related to employee stock
options and restricted stock . . . . . . . . . 353 227 348 204
------ ---- ------- -------
Total average common stock and
common stock equivalents
used for primary computation . . . . . . . . 6,324 4,840 6,210 4,828
Average common stock assumed issued
pursuant to convertible subordinated
debentures and an adjustment of
average common stock equivalents to
period-end market price, if higher
than average price . . . . . . . . . . . . . . 4 1,367 -- 1,389
------ ------ ------- -------
Total average common stock,
common stock equivalents
and other dilutive securities . . . . . . . 6,328 6,207 6,210 6,217
====== ====== ======= =======
Earnings:
Net earnings . . . . . . . . . . . . . . . . . . $5,365 $6,483 $15,986 $21,179
Adjustment to subsidiary earnings -
common stock equivalents on
subsidiary . . . . . . . . . . . . . . . . . . -- -- 125 --
------ ------ ------- -------
Total earnings for
primary computation . . . . . . . . . . . . 5,365 6,483 15,861 21,179
Eliminate interest expense (net
of taxes) on convertible
subordinated debentures -- 370 -- 1,118
------ ------ ------- -------
Total earnings for
fully diluted computation . . . . . . . . . $5,365 $6,853 $15,861 $22,297
====== ====== ======= =======
Earnings per share:
Primary . . . . . . . . . . . . . . . . . . . . $ 0.85 $ 1.34 $ 2.55 $ 4.39
====== ====== ======= =======
Fully diluted . . . . . . . . . . . . . . . . . $ 0.85 $ 1.10 $ 2.55 $ 3.59
====== ====== ======= =======
</TABLE>
* The 1993 first quarter includes a benefit for the cumulative effect of
changes in accounting principle of $.28 and $.22 per share primary and fully
diluted, respectively.
Page 18 of 19 Pages
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION AS OF SEPTEMBER 30, 1994
AND THE NOTES THERETO AND THE UNAUDITED STATEMENT OF EARNINGS FOR THE NINE
MONTHS THEN ENDED OF JEFFERIES GROUP, INC. AND SUBSIDIARIES AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<EXCHANGE-RATE> 1
<CASH> 57,038
<RECEIVABLES> 99,357
<SECURITIES-RESALE> 9,300
<SECURITIES-BORROWED> 1,227,571
<INSTRUMENTS-OWNED> 148,767
<PP&E> 19,907
<TOTAL-ASSETS> 1,617,464
<SHORT-TERM> 0
<PAYABLES> 381,990
<REPOS-SOLD> 0
<SECURITIES-LOANED> 870,619
<INSTRUMENTS-SOLD> 54,116
<LONG-TERM> 59,485
<COMMON> 90
0
0
<OTHER-SE> 166,637
<TOTAL-LIABILITY-AND-EQUITY> 1,617,464
<TRADING-REVENUE> 49,370
<INTEREST-DIVIDENDS> 34,967
<COMMISSIONS> 116,999
<INVESTMENT-BANKING-REVENUES> 22,606
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 28,107
<COMPENSATION> 102,941
<INCOME-PRETAX> 30,729
<INCOME-PRE-EXTRAORDINARY> 30,729
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,986
<EPS-PRIMARY> 2.55
<EPS-DILUTED> 2.55
</TABLE>
