<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 29, 1995
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 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, 1995, the registrant had 5,598,490 common shares, $.01 par
value, outstanding.
Page 1 of 17
<PAGE> 2
JEFFERIES GROUP, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
SEPTEMBER 29, 1995
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition -
September 29, 1995 (unaudited) and December 31, 1994 . . . . . . . . . . . . . 3
Consolidated Statements of Earnings (unaudited) -
Three Months and Nine Months Ended September 29, 1995 and September 30, 1994. . 4
Consolidated Statement of Changes in Stockholders' Equity (unaudited) -
Nine Months Ended September 29, 1995 . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows (unaudited) -
Nine Months Ended September 29, 1995 and September 30, 1994 . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
Page 2 of 17
<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>
September 29, December 31,
1995 1994
------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . $ 78,495 $ 71,381
Receivable from brokers and dealers. . . . . . . . . . . . . . . . . . . 1,008,331 1,149,670
Receivable from customers, officers and directors. . . . . . . . . . . . 102,030 105,880
Securities owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161,074 144,940
Premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . 25,408 21,071
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,283 64,406
----------- -----------
$ 1,430,621 $ 1,557,348
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 866
Payable to brokers and dealers . . . . . . . . . . . . . . . . . . . . . 799,555 840,833
Repurchase agreements . . . . . . . . . . .. . . . . . . . . . . . . . . -- 18,696
Payable to customers. . . . . .. . . . . . . . . . . . . . . . . . . . . 175,360 325,396
Securities sold, not yet purchased . . . . . . . . . . . . . . . . . . . 75,275 60,587
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . 130,420 82,029
----------- -----------
1,180,610 1,328,407
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,832 59,570
Minority interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,737 6,136
----------- -----------
1,248,179 1,394,113
----------- -----------
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 9,136,285 shares in 1995 and 9,017,710 shares in 1994 . . . . 91 90
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . 55,142 51,120
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . 186,896 165,597
Less treasury stock, at cost; 3,537,795 shares in 1995
and 3,412,672 shares in 1994 . . . . . . . . . . . . . . . . . . . . (59,096) (52,958)
Less currency translation adjustments. . . . . . . . . . . . . . . . . (442) (465)
Less additional minimum pension liability. . . . . . . . . . . . . . . (149) (149)
----------- -----------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . 182,442 163,235
----------- -----------
$ 1,430,621 $ 1,557,348
=========== ===========
</TABLE>
See accompanying unaudited notes to consolidated financial statements.
Page 3 of 17
<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 29, Sept 30, Sept 29, Sept 30,
1995 1994 1995 1994
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Commissions . . . . . . . . . . . . . . . . . . . . $ 46,189 $ 39,253 $ 129,063 $ 116,999
Principal transactions . . . . . . . . . . . . . . 30,752 18,216 75,862 49,370
Corporate finance . . . . . . . . . . . . . . . . . 17,317 8,987 55,781 22,606
Interest . . . . . . . . . . . . . . . . . . . . . 15,421 15,469 49,600 34,967
Other . . . . . . . . . . . . . . . . . . . . . . 1,308 241 3,848 1,153
--------- --------- ---------- ----------
Total revenues . . . . . . . . . . . . . . . . . 110,987 82,166 314,154 225,095
Interest expense . . . . . . . . . . . . . . . . . 12,643 12,310 41,533 28,107
--------- --------- ---------- ----------
Revenues, net of interest expense . . . . . . . . . 98,344 69,856 272,621 196,988
--------- --------- ---------- ----------
Non-interest expenses:
Compensation and benefits . . . . . . . . . . . . . 52,537 33,368 148,052 102,941
Floor brokerage and clearing fees . . . . . . . . . 4,937 4,713 14,599 13,513
Telecommunications and data processing services . . 6,823 5,508 18,059 15,231
Occupancy and equipment rental . . . . . . . . . . 3,812 3,495 11,324 10,472
Travel and promotional . . . . . . . . . . . . . . 2,634 2,142 7,004 6,184
Software royalties . . . . . . . . . . . . . . . . 1,566 1,358 4,212 3,934
Other . . . . . . . . . . . . . . . . . . . . . . . 9,932 8,048 27,928 22,241
--------- --------- ---------- ----------
Total non-interest expenses . . . . . . . . . . 82,241 58,632 231,178 174,516
--------- --------- ---------- ----------
Operating income . . . . . . . . . . . . . . . . . 16,103 11,224 41,443 22,472
Other income:
Gain on initial public offering of
Investment Technology Group, Inc. . . . . . . . . -- -- -- 8,257
--------- --------- ---------- ----------
Earnings before income taxes and
minority interest . . . . . . . . . . . . . . 16,103 11,224 41,443 30,729
Income taxes . . . . . . . . . . . . . . . . . . . . 5,027 5,201 16,394 13,883
--------- --------- ---------- ----------
Earnings before minority interest . . . . . . . 11,076 6,023 25,049 16,846
Minority interest . . . . . . . . . . . . . . . . . . 910 658 2,154 860
--------- --------- ---------- ----------
Net earnings . . . . . . . . . . . . . . . . . . $ 10,166 $ 5,365 $ 22,895 $ 15,986
========= ========= ========== ==========
Earnings per share of common stock:
Primary . . . . . . . . . . . . . . . . . . . . $ 1.70 $ 0.85 $ 3.84 $ 2.55
========= ========= ========== ==========
Fully diluted . . . . . . . . . . . . . . . . . $ 1.70 $ 0.85 $ 3.83 $ 2.55
========= ========= ========== ==========
Weighted average shares of common stock:
Primary . . . . . . . . . . . . . . . . . . . . 5,969 6,324 5,963 6,210
Fully diluted . . . . . . . . . . . . . . . . . 5,971 6,328 5,985 6,210
</TABLE>
See accompanying unaudited notes to consolidated financial statements.
Page 4 of 17
<PAGE> 5
JEFFERIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 29, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Additional Total
Additional Currency Minimum Stock-
Common Paid-in Retained Treasury Translation Pension holders'
Stock Capital Earnings Stock Adjustment Liability Equity
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994..... $90 $51,120 $165,597 $(52,958) $(465) $(149) $163,235
Exercise of stock options
(118,575 shares).............. 1 2,758 2,759
Purchase of 269,899
shares of treasury stock...... (8,789) (8,789)
Issuance of 103,473
shares of common stock........ 1,206 2,025 3,231
Issuance of 41,303
shares of restricted stock.... 58 626 684
Increase in proportionate
share of subsidiary's
equity related to
subsidiary's purchase of
treasury stock................ (766) (766)
Cash dividends,
$.05 per share................ (830) (830)
Translation adjustment......... 23 23
Net earnings................... 22,895 22,895
---------------------------------------------------------------------------------------
Balance, September 29, 1995.... $91 $55,142 $186,896 $(59,096) $(442) $(149) $182,442
=======================================================================================
</TABLE>
See accompanying unaudited notes to consolidated financial statements.
Page 5 of 17
<PAGE> 6
JEFFERIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------------
Sept. 29, Sept. 30,
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,895 $ 15,986
------------ ------------
Adjustments to reconcile net earnings to net cash
provided (used) by operations:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . 6,654 5,292
(Increase) decrease in receivables:
Brokers and dealers . . . . . . . . . . . . . . . . . . . . . . . . . . . 141,339 (174,390)
Customers, officers and directors . . . . . . . . . . . . . . . . . . . . 3,850 33,781
(Increase) decrease in securities owned . . . . . . . . . . . . . . . . . . (16,134) (33,959)
(Increase) decrease in other assets . . . . . . . . . . . . . . . . . . . . 8,072 (13,796)
Increase (decrease) in operating payables:
Brokers and dealers . . . . . . . . . . . . . . . . . . . . . . . . . . . (41,278) 265,356
Repurchase agreements . . . . . . . . . . . . . . . . . . . . . . . . . . (18,696) --
Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (150,036) (33,689)
Increase (decrease) in securities sold, not yet purchased . . . . . . . . . 14,688 (20,119)
Increase (decrease) in accrued expenses and other liabilities . . . . . . . . 48,391 (14,435)
Increase (decrease) in minority interest . . . . . . . . . . . . . . . . . . 1,601 6,073
------------ ------------
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . (1,549) 20,114
------------ ------------
Net cash provided (used) by operating activities . . . . . . . . . . 21,346 36,100
------------ ------------
</TABLE>
Continued on next page.
See accompanying unaudited notes to consolidated financial statements.
Page 6 of 17
<PAGE> 7
JEFFERIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------
Sept. 29, Sept. 30,
1995 1994
-------- --------
<S> <C> <C>
Cash flows from financing activities:
Net proceeds (payments) on term debt . . . . . . . . . . . . . . . . . . -- 49,302
Net proceeds (payments) from bank loans . . . . . . . . . . . . . . . . (866) (45,928)
Net payments for:
Repurchase of treasury stock . . . . . . . . . . . . . . . . . . . . . (8,789) (16,025)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . (830) (881)
Proceeds from exercise of stock options . . . . . . . . . . . . . . . . 2,759 3,036
Issuance of common stock shares . . . . . . . . . . . . . . . . . . . . 3,231 19,964
Issuance of restricted stock shares . . . . . . . . . . . . . . . . . . 684 --
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (766) --
-------- --------
Net cash provided (used) by financing activities . . . . . . . . . . . (4,577) 9,468
-------- --------
Cash flows from investing activities - purchase of premises and equipment . . . (9,678) (6,346)
-------- --------
Effect of foreign currency translation on cash . . . . . . . . . . . . . . . . 23 206
-------- --------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . 7,114 39,428
Cash and cash equivalents - beginning of period . . . . . . . . . . . . . . . . 71,381 26,910
-------- --------
Cash and cash equivalents - end of period . . . . . . . . . . . . . . . . . . . $ 78,495 $ 66,338
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40,916 $ 23,795
======== ========
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,642 $ 9,979
======== ========
</TABLE>
See accompanying unaudited notes to consolidated financial statements.
Page 7 of 17
<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. and all of its subsidiaries
(ITGI), including ITGI's wholly-owned subsidiary, ITG Inc. (ITG). The accounts
of W & D Securities, Inc. (W & D) are also consolidated because of the nature
and extent of the Company's ownership interest in W & D. Jefferies Group, Inc.
and its subsidiaries are primarily 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.
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, 1994.
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 29, 1995, of receivable from and payable to
brokers and dealers are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
<S> <C>
Receivable from brokers and dealers:
Securities borrowed . . . . . . . . . . . . $ 991,393
Other . . . . . . . . . . . . . . . . . . . 16,938
----------
$1,008,331
==========
Payable to brokers and dealers:
Securities loaned . . . . . . . . . . . . . $ 791,635
Other . . . . . . . . . . . . . . . . . . . 7,920
----------
$ 799,555
==========
</TABLE>
Page 8 of 17
<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 29,
1995:
<TABLE>
<CAPTION>
Securities
Sold,
Securities Not Yet
Owned Purchased
----------- ----------
(Dollars in Thousands)
<S> <C> <C>
Corporate equity securities . . . . . . . . . . $ 75,010 $67,677
High-yield securities . . . . . . . . . . . . . 31,011 5,902
Corporate debt securities . . . . . . . . . . . 20,389 1,560
U.S. Government and agency obligations . . . . . 34,528 --
Options . . . . . . . . . . . . . . . . . . . . 136 136
----------- ---------
$161,074 $75,275
=========== =========
</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 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
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 17
<PAGE> 10
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, 1995 (in thousands of dollars):
<TABLE>
<CAPTION>
<S> <C>
Cash in banks . . . . . . . . . . . . . . . . . $19,266
Short term investments . . . . . . . . . . . . . 59,229
-------
$78,495
=======
</TABLE>
MINORITY INTEREST
Minority interest represents the minority stockholders' proportionate share
of the equity of ITGI. At September 29, 1995, Jefferies Group, Inc. owned 81% of
ITGI's common stock.
NET CAPITAL REQUIREMENTS
As registered broker-dealers, Jefferies, ITG 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. Jefferies, ITG 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, 1995,
Jefferies' net capital of $70.8 million exceeded its minimum net capital
requirements by $66.4 million. ITG's net capital of $24.6 million exceeded its
minimum net capital requirements by $24.3 million. W & D's net capital of
$879,000 exceeded its minimum net capital requirements by $629,000.
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>
1995 . . . . . . . . . . . $.05 $.05 $.05
1994 . . . . . . . . . . . $.05 $.05 $.05
</TABLE>
OFF-BALANCE SHEET RISK
The Company has contractual commitments arising in the ordinary course of
business for bank loans, securities loaned or purchased under agreements to
sell, securities sold but not yet purchased, future purchases and sales of
foreign currencies, securities transactions on a when-issued basis, options
contracts and underwriting. Each of these financial instruments and activities
contains varying degrees of off-balance sheet risk whereby the market values of
the securities underlying the financial instruments may be in excess of, or less
than, the contract amount. The settlement of these transactions is not expected
to have a material effect upon the Company's consolidated financial statements.
Page 10 of 17
<PAGE> 11
In the normal course of business, the Company had letters of credit
outstanding aggregating $17.4 million at September 29, 1995, to satisfy various
collateral requirements in lieu of depositing cash or securities.
CREDIT 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
to changes in the market value of the security through settlement date or to the
extent of margin balances.
Page 11 of 17
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ANALYSIS OF FINANCIAL CONDITION
Total assets decreased $126.7 million from $1,557.3 million at December 31,
1994 to $1,430.6 million at September 29, 1995. The decrease is mostly due to a
decrease in receivable from brokers and dealers related to securities borrowed.
The decrease in securities borrowed is mostly a result of a decrease in payable
to customers.
FIRST THREE QUARTERS 1995 VERSUS FIRST THREE QUARTERS 1994
Revenues, net of interest expense, increased $75.6 million, or 38%, in the
first three quarters of 1995 compared to the same prior year period. The
increase was due primarily to a $33.2 million, or 147%, increase in corporate
finance, a $26.5 million, or 54%, increase in principal transactions, a $12.1
million, or 10%, increase in commissions, a $2.7 million increase in other
revenues and a $1.2 million, or 18%, increase in net interest income (interest
revenues less interest expense). Commission revenues increased, led by ITGI and
the Equities Division. Revenues from principal transactions increased primarily
due to increased trading gains in the Taxable Fixed Income Department, the
Equities Division and the International Division. Corporate finance revenues
benefited from increases in underwriting and advisory fees. Net interest income
increased as the $14.6 million increase in interest revenues exceeded the $13.4
million increase in interest expense. Interest revenues increased due primarily
to higher stock borrow, customer margin and investment interest income. The
related increases in interest on stock loan only partially offset the growth in
interest revenues. Other revenues increased partly due to currency gains.
Total non-interest expenses increased $56.7 million, or 32%, in the first
three quarters of 1995 compared to the same prior year period. Compensation and
benefits increased $45.1 million, or 44%, largely due to higher incentive based
compensation accruals. Other expense increased $5.7 million, or 26%, largely due
to higher technology development expenses. Telecommunications and data
processing services increased $2.8 million, or 19%, primarily due to increased
trade volumes and personnel. Floor brokerage and clearing fees increased $1.1
million, or 8%, due to increased volumes of business executed on the various
exchanges. Occupancy and equipment rental increased $852,000, or 8%, partly due
to the relocation and addition of offices. Travel and promotional increased
$820,000, or 13%, mostly due to increased travel expenses. Software royalties
remained relatively unchanged from last year.
The first three quarters' results for 1994 included a pre-tax gain of $8.3
million on the initial public offering of ITGI. The minority stockholders'
ownership interest reduced the Company's ownership of ITGI to approximately 80%.
Earnings before income taxes and minority interest were up 35% to $41.4
million in the 1995 period, as compared to $30.7 million in the 1994 period. The
effective tax rate was approximately 40% in the first three quarters of 1995
versus approximately 45% in the first three quarters of 1994. The 1995 effective
tax rate was lower due to a reduction in the effective state tax rates and
research and development tax credits.
Minority interest (approximately 19% of the 1995 earnings of ITGI) was $2.2
million in the first three quarters of 1995. Minority interest was only $860,000
in the comparable 1994 period, because minority interest did not exist until
ITGI went public in May, 1994.
Primary earnings per share were $3.84 in the first three quarters of 1995 on
5,963,000 shares compared to $2.55 in the 1994 period on 6,210,000 shares. Fully
diluted earnings per share were $3.83 in the first three quarters of 1995 on
5,985,000 shares compared to $2.55 in the 1994 period on 6,210,000 shares.
Page 12 of 17
<PAGE> 13
During the first three quarters of 1995, the Company repurchased 269,899
shares of its common stock versus 452,211 shares for the comparable 1994 period.
THIRD QUARTER 1995 VERSUS THIRD QUARTER 1994
Revenues, net of interest expense, increased $28.5 million, or 41%, in the
third quarter of 1995 compared to the same prior year period. The increase was
due to a $12.5 million, or 69%, increase in principal transactions, a $8.3
million, or 93%, increase in corporate finance, a $6.9 million, or 18%, increase
in commissions and a $1.1 million increase in other revenues, partially offset
by a $381,000, or 12%, decrease in net interest income (interest revenues less
interest expense). Revenues from principal transactions increased primarily due
to increased trading gains in the Taxable Fixed Income Department, the
International Division and the Equities Division. Corporate finance revenue
benefited from increases in underwriting and advisory fees. Commission revenues
increased, led by ITGI, the Equities Division and the International Division.
Other revenues increased partly due to currency gains. Net interest income
decreased mostly due to the $333,000, or 3%, increase in interest expense.
Total non-interest expenses increased $23.6 million, or 40%, in the third
quarter of 1995 compared to the same prior year period. Compensation and
benefits increased $19.2 million, or 57%, largely due to higher incentive based
compensation accruals. Other expense increased $1.9 million, or 23%, mostly due
to reserves and higher technology development expenses. Telecommunications and
data processing services increased $1.3 million, or 24%, primarily due to
increased trade volumes and personnel. Travel and promotional increased
$492,000, or 23%, mostly due to increased travel. Occupancy and equipment rental
increased $317,000, or 9%, partly due to the relocation and addition of offices.
Software royalties increased $208,000, or 15%, due to the increase in POSIT(R)
commissions. Floor brokerage and clearing fees remained relatively unchanged
from last year.
Earnings before income taxes and minority interest were up 43% to $16.1
million in the 1995 period, as compared to $11.2 million in the 1994 period. The
effective tax rate was approximately 31% in the third quarter of 1995 compared
to approximately 46% in the 1994 period. The effective tax rate for the third
quarter of 1995 was reduced by an adjustment related to a reduction in the
effective state tax rates and research and development tax credits.
Minority interest (approximately 19% of the earnings of ITGI) was $910,000
in the third quarter of 1995 as compared to $658,000 in the comparable 1994
period. The change in minority interest is related to the increase in ITGI's
1995 third quarter net earnings over the comparable 1994 period.
Primary earnings per share were $1.70 in the third quarter of 1995 on
5,969,000 shares compared to $.85 in the 1994 period on 6,324,000 shares. Fully
diluted earnings per share were $1.70 in the third quarter of 1995 on 5,971,000
shares compared to $.85 in the 1994 period on 6,328,000 shares.
During the third quarter of 1995, the Company repurchased 41,256 shares of
its common stock versus 325,411 shares for the comparable 1994 period.
Page 13 of 17
<PAGE> 14
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 total
revenues by source for the nine months and three months ended September 29, 1995
and September 30, 1994.
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------------------------------
September 29, September 30,
1995 1994
------------------------- -------------------------
% of % of
Total Total
Amount Revenues Amount Revenues
------------ -------- ------------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Commissions and principal transactions:
Equities Division . . . . . . . . . . . $102,840 33% $ 88,916 39%
ITGI . . . . . . . . . . . . . . . . . . 51,789 16 43,168 19
International Division . . . . . . . . . 29,637 9 23,151 10
Taxable Fixed Income Department . . . . 9,759 3 4,386 2
Convertible Division . . . . . . . . . . 5,214 2 3,824 2
Other proprietary trading . . . . . . . 5,758 2 2,924 1
Corporate finance . . . . . . . . . . . . . . 55,781 18 22,606 10
Interest . . . . . . . . . . . . . . . . . . 49,600 16 34,967 16
Other . . . . . . . . . . . . . . . . . . . 3,776 1 1,153 1
------------------------- -------------------------
Total revenues . . . . . . . . . . . . $314,154 100% $225,095 100%
========================= =========================
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------
September 29, September 30,
1995 1994
------------------------- -------------------------
% of % of
Total Total
Amount Revenues Amount Revenues
------------ -------- ------------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Commissions and principal transactions:
Equities Division . . . . . . . . . . . $ 36,163 33% $30,671 37%
ITGI . . . . . . . . . . . . . . . . . . 19,164 17 15,992 19
International Division . . . . . . . . . 12,090 11 8,050 10
Taxable Fixed Income Department . . . . 5,021 4 (103) 0
Convertible Division . . . . . . . . . . 1,770 2 1,448 2
Other proprietary trading . . . . . . . 2,805 2 1,411 2
Corporate finance . . . . . . . . . . . . . . 17,317 16 8,987 11
Interest . . . . . . . . . . . . . . . . . . 15,421 14 15,469 19
Other . . . . . . . . . . . . . . . . . . . 1,236 1 241 0
------------------------- -------------------------
Total revenues . . . . . . . . . . . . $110,987 100% $82,166 100%
========================= =========================
</TABLE>
Page 14 of 17
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11. Computation of Earnings Per Share (page 16 attached)
(b) Reports on Form 8-K.
There were no reports filed on Form 8-K during the quarter ended
September 29, 1995.
Page 15 of 17
<PAGE> 16
EXHIBIT 11
JEFFERIES GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------- -----------------------
Sept. 29, Sept. 30, Sept. 29, Sept. 30,
1995 1994 1995 1994
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Common stock and common stock equivalents
Average common stock outstanding . . . . . . . . . . . . 5,556 5,971 5,526 5,862
Common stock equivalent shares related to various
employee stock and stock option plans . . . . . . . . . 413 353 437 348
--------------------- ----------------------
Total average common stock and common stock
equivalents used for primary computation . . . . . . 5,969 6,324 5,963 6,210
Adjust average common stock equivalents to period-
end market price, if higher than average price . . . . 2 4 22 --
--------------------- ----------------------
Total average common stock, common stock
equivalents and other dilutive securities . . . . . . 5,971 6,328 5,985 6,210
===================== ======================
Earnings:
Net earnings . . . . . . . . . . . . . . . . . . . . . . $10,166 $ 5,365 $22,895 $15,986
Adjustment to subsidiary earnings -
common stock equivalents on subsidiary . . . . . . . . -- -- -- 125
--------------------- ----------------------
Total earnings for primary and fully diluted . . . . . $10,166 $ 5,365 $22,895 $15,861
===================== ======================
Earnings per share:
Primary . . . . . . . . . . . . . . . . . . . . . . . . $1.70 $0.85 $3.84 $2.55
===================== ======================
Fully diluted . . . . . . . . . . . . . . . . . . . . . $1.70 $0.85 $3.83 $2.55
===================== ======================
</TABLE>
Page 16 of 17
<PAGE> 17
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 10, 1995 By: /s/ Clarence T. Schmitz
----------------- -----------------------------
Clarence T. Schmitz
Executive Vice President,
Chief Financial Officer
Page 17 of 17
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION AND THE CONSOLIDATED STATEMENTS
OF EARNINGS AS OF SEPTEMBER 29, 1995 AND FOR THE NINE MONTHS THEN ENDED AND THE
NOTES THERETO AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS FILED IN THE 1995 JEFFERIES GROUP, INC. THIRD QUARTER 10-Q FILING.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-29-1995
<EXCHANGE-RATE> 1
<CASH> 78,495
<RECEIVABLES> 118,968
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 991,393
<INSTRUMENTS-OWNED> 161,074
<PP&E> 25,408
<TOTAL-ASSETS> 1,430,621
<SHORT-TERM> 0
<PAYABLES> 183,280
<REPOS-SOLD> 0
<SECURITIES-LOANED> 791,635
<INSTRUMENTS-SOLD> 75,275
<LONG-TERM> 59,832
<COMMON> 91
0
0
<OTHER-SE> 182,351
<TOTAL-LIABILITY-AND-EQUITY> 1,430,621
<TRADING-REVENUE> 75,862
<INTEREST-DIVIDENDS> 49,600
<COMMISSIONS> 129,063
<INVESTMENT-BANKING-REVENUES> 55,781
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 41,533
<COMPENSATION> 148,052
<INCOME-PRETAX> 41,443
<INCOME-PRE-EXTRAORDINARY> 41,443
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,895
<EPS-PRIMARY> 3.84
<EPS-DILUTED> 3.83
</TABLE>
