<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 27, 1996
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 1-11665
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 27, 1996, the registrant had 10,672,486 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 27, 1996
<TABLE>
<CAPTION>
Page
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition -
September 27, 1996 (unaudited) and December 31, 1995 . . . . . . . . 3
Consolidated Statements of Earnings (unaudited) -
Three Months and Nine Months Ended
September 27, 1996 and September 29, 1995 . . . . . . . . . . . . . 4
Consolidated Statement of Changes in Stockholders' Equity (unaudited) -
Nine Months Ended September 27, 1996 . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows (unaudited) -
Nine Months Ended September 27, 1996 and September 29, 1995 . . . . 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
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>
September 27, December 31,
1996 1995
------------- --------------
ASSETS (unaudited)
<S> <C> <C>
Cash and cash equivalents . . . . . . . . . . . . . . . $ 64,505 $ 68,318
Cash and securities segregated and on deposit for
regulatory purposes . . . . . . . . . . . . . . . . . 62,958 --
Receivable from brokers and dealers . . . . . . . . . . 786,600 1,118,154
Receivable from customers, officers and directors . . . 81,288 107,158
Securities owned . . . . . . . . . . . . . . . . . . . 202,292 167,210
Premises and equipment . . . . . . . . . . . . . . . . 27,883 26,206
Other assets . . . . . . . . . . . . . . . . . . . . . 109,681 49,923
--------------- ---------------
$ 1,335,207 $ 1,536,969
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Payable to brokers and dealers . . . . . . . . . . . . $ 651,462 $ 864,456
Payable to customers . . . . . . . . . . . . . . . . . 130,137 214,555
Securities sold, not yet purchased . . . . . . . . . . 120,453 82,932
Accrued expenses and other liabilities . . . . . . . . 171,226 124,062
--------------- ---------------
1,073,278 1,286,005
Long-term debt . . . . . . . . . . . . . . . . . . . . 56,521 56,322
Minority interest . . . . . . . . . . . . . . . . . . . 10,804 8,381
--------------- ---------------
1,140,603 1,350,708
--------------- ---------------
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 18,747,062 shares in 1996 and
18,520,706 shares in 1995. . . . . . . . . . . . . 187 93
Additional paid-in capital . . . . . . . . . . . . . 62,196 58,117
Retained earnings . . . . . . . . . . . . . . . . . . 220,931 192,234
Less treasury stock, at cost; 8,074,576 shares in 1996
and 7,263,530 shares in 1995. . . . . . . . . . . . (87,609) (63,075)
Less currency translation adjustments . . . . . . . . (515) (522)
Less additional minimum pension liability . . . . . . (586) (586)
--------------- ---------------
Total stockholders' equity . . . . . . . . . . 194,604 186,261
--------------- ---------------
$ 1,335,207 $ 1,536,969
=============== ===============
</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)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------- -------------------------
Sept. 27, Sept. 29, Sept. 27, Sept. 29,
1996 1995 1996 1995
----------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Revenues:
Commissions . . . . . . . . . . . . . . . $ 57,641 $ 46,189 $ 176,311 $ 129,063
Principal transactions . . . . . . . . . 40,474 30,752 108,121 75,862
Corporate finance . . . . . . . . . . . . 21,846 17,317 63,542 55,781
Interest . . . . . . . . . . . . . . . . 11,212 15,421 36,180 49,600
Other . . . . . . . . . . . . . . . . . 2,186 1,308 3,824 3,848
------------- ------------- ------------- -------------
Total revenues . . . . . . . . . . . . . . 133,359 110,987 387,978 314,154
Interest expense . . . . . . . . . . . . . 8,620 12,643 28,132 41,533
------------- ------------- ------------- -------------
Revenues, net of interest expense . . . . . 124,739 98,344 359,846 272,621
------------- ------------- ------------- -------------
Non-interest expenses:
Compensation and benefits . . . . . . . . 64,224 52,537 187,739 148,052
Floor brokerage and clearing fees . . . . 6,958 4,937 19,694 14,599
Telecommunications and data
processing services . . . . . . . . . . 8,702 6,823 24,924 18,059
Occupancy and equipment rental . . . . . 4,590 3,812 12,152 11,324
Travel and promotional . . . . . . . . . 3,870 2,634 11,703 7,004
Software royalties . . . . . . . . . . . 2,275 1,566 6,520 4,212
Other . . . . . . . . . . . . . . . . . . 12,585 9,932 37,444 27,928
------------- ------------- ------------- -------------
Total non-interest expenses . . . . . . . . 103,204 82,241 300,176 231,178
------------- ------------- ------------- -------------
Earnings before income taxes and
minority interest . . . . . . . . . . 21,535 16,103 59,670 41,443
Income taxes . . . . . . . . . . . . . . . 9,031 5,027 25,412 16,394
------------- ------------- ------------- -------------
Earnings before minority interest . . . . . 12,504 11,076 34,258 25,049
Minority interest . . . . . . . . . . . . . 1,049 910 3,031 2,154
------------- ------------- ------------- -------------
Net earnings . . . . . . . . . . . . . . . $ 11,455 $ 10,166 $ 31,227 $ 22,895
============= ============= ============= =============
Earnings per share of common stock:
Primary . . . . . . . . . . . . . . . . . . $ 0.98 $ 0.85 $ 2.62 $ 1.92
============= ============= ============= =============
Fully diluted . . . . . . . . . . . . . . . $ 0.97 $ 0.85 $ 2.61 $ 1.91
============= ============= ============= =============
Weighted average shares of common stock:
Primary . . . . . . . . . . . . . . . . . . 11,623 11,938 11,818 11,926
Fully diluted . . . . . . . . . . . . . . 11,662 11,942 11,858 11,970
</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)
NINE MONTHS ENDED SEPTEMBER 27, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<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, 1995 . . $ 93 $58,117 $192,234 $(63,075) $ (522) $ (586) $186,261
Exercise of stock
options
(176,230 shares) . . . -- 2,555 -- 97 -- -- 2,652
Purchase of 824,651
shares of treasury -- -- -- (24,690) -- -- (24,690)
stock . . . . . . . .
Issuance of 37,403
shares of common stock -- 767 -- 59 -- -- 826
Issuance of 26,328
shares of restricted
stock . . . . . . . . -- 496 -- -- -- -- 496
Increase in
proportionate
share of subsidiary's
equity related to
subsidiary's purchase
of treasury stock . . -- -- (1,115) -- -- -- (1,115)
Additional vesting of
restricted stock
shares . . . . . . . . -- 355 -- -- -- -- 355
Quarterly dividends:
1st qtr.- $.025 per
share . . . . . . . . (281) (281)
2nd qtr.-$.050 per
share . . . . . . . . (542) (542)
3rd qtr.-$.050 per
share . . . . . . . . (537) (537)
-------- ----------
-- -- (1,360) -- -- -- (1,360)
Redemption of rights,
$.01 per right . . . -- -- (55) -- -- -- (55)
Translation adjustment -- -- -- -- 7 -- 7
Two-for-one stock split 94 (94) -- -- -- -- --
Net earnings . . . . -- -- 31,227 -- -- -- 31,227
-----------------------------------------------------------------------------------------
Balance,
September 27, 1996 . $187 $62,196 $220,931 $(87,609) $ (515) $ (586) $194,604
=========================================================================================
</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. 27, Sept. 29,
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . $ 31,227 $ 22,895
------------ ------------
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and/or amortization of premises and
equipment, capitalized software, goodwill and
discount on long-term debt . . . . . . . . . . . 9,703 6,654
Additional vesting of restricted stock shares . . 355 --
Increase in cash and securities segregated and on
deposit for regulatory purposes . . . . . . . . (62,958) --
(Increase) decrease in receivables:
Brokers and dealers . . . . . . . . . . . . . . 331,554 141,339
Customers, officers and directors . . . . . . . 25,870 3,850
Increase in securities owned . . . . . . . . . . . (35,082) (16,134)
Increase in other assets . . . . . . . . . . . . . (61,448) 8,072
Decrease in operating payables:
Brokers and dealers . . . . . . . . . . . . . . (212,994) (41,278)
Repurchase agreements . . . . . . . . . . . . . -- (18,696)
Customers . . . . . . . . . . . . . . . . . . . (84,418) (150,036)
Increase in securities sold, not yet purchased . . 37,521 14,688
Increase in accrued expenses and other liabilities 47,164 48,391
Increase in minority interest . . . . . . . . . . 2,423 1,601
------------ ------------
Total adjustments . . . . . . . . . . . . . (2,310) (1,549)
------------ ------------
Net cash provided by operating activities . 28,917 21,346
------------ ------------
</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. 27, Sept. 29,
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from financing activities:
Net proceeds from (payments on):
Bank loans . . . . . . . . . . . . . . . . . . . . . -- (866)
Repurchase of treasury stock . . . . . . . . . . . . (24,690) (8,789)
Dividends paid . . . . . . . . . . . . . . . . . . . (1,360) (830)
Redemption of rights . . . . . . . . . . . . . . . . (55) --
Exercise of stock options . . . . . . . . . . . . . 2,652 2,759
Issuance of common stock shares . . . . . . . . . . 826 3,231
Issuance of restricted stock shares . . . . . . . . 496 684
Increase in proportionate share of subsidiary's equity (1,115) (766)
------------ ------------
Net cash used in financing activities . . . (23,246) (4,577)
------------ ------------
Cash flows from investing activities -
purchase of premises and equipment . . . . . . . . . . . (9,491) (9,678)
------------ ------------
Effect of foreign currency translation on cash . . . . . . 7 23
------------ ------------
Net (decrease) increase in cash and
cash equivalents . . . . . . . . . . . . (3,813) 7,114
Cash and cash equivalents - beginning of period . . . . . . 68,318 71,381
------------ ------------
Cash and cash equivalents - end of period . . . . . . . . . $ 64,505 $ 78,495
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . $ 27,873 $ 40,916
============ ============
Income taxes . . . . . . . . . . . . . . . . . . . . . $ 32,333 $ 12,642
============ ============
</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,
1995.
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 and losses are reflected in revenues from principal
transactions.
COMMON STOCK
On March 2, 1996, the Company's Board of Directors approved a
two-for-one split of all of the outstanding shares of the Company's common
stock, payable March 29, 1996 to stockholders of record at the close of business
on March 15, 1996. A total of 9,349,668 shares of common stock were issued in
connection with the split. The stated par value of each share was not changed
from $0.01. A total of $94,000 was reclassified from the Company's additional
paid-in capital account to the Company's common stock account. All share and
per share amounts have been restated to retroactively reflect the stock split.
On March 15, 1996, the Company's common stock began trading on the NYSE
under the symbol JEF. Previously, the common stock traded in the Nasdaq National
Market System under the symbol JEFG.
RECEIVABLE FROM, AND PAYABLE TO, BROKERS AND DEALERS
The components, at September 27, 1996, of receivable from and payable
to brokers and dealers are as follows (in thousands of dollars):
<TABLE>
<S> <C>
Receivable from brokers and dealers:
Securities borrowed . . . . . . . . . . . . $ 757,681
Other . . . . . . . . . . . . . . . . . . . 28,919
------------
$ 786,600
============
Payable to brokers and dealers:
Securities loaned . . . . . . . . . . . . . $ 636,871
Other . . . . . . . . . . . . . . . . . . . 14,591
------------
$ 651,462
============
</TABLE>
Page 8 of 17
<PAGE> 9
JEFFERIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 27,
1996 (in thousands of dollars):
<TABLE>
<CAPTION>
Securities
Sold,
Securities Not Yet
Owned Purchased
------------ ------------
<S> <C> <C>
Corporate equity securities . . . . . . . . . . $ 113,251 $ 107,639
High-yield securities . . . . . . . . . . . . . 19,861 10,079
Corporate debt securities . . . . . . . . . . . 28,625 1,851
U.S. Government and agency obligations . . . . . 34,468 --
Municipal obligations . . . . . . . . . . . . . 5,475 --
Options . . . . . . . . . . . . . . . . . . . . 612 884
------------ ------------
$ 202,292 $ 120,453
============ ============
</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 Division trades high grade and non-investment
grade public and private debt securities. The Division 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.
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 27, 1996 (in thousands of dollars):
<TABLE>
<S> <C>
Cash in banks . . . . . . . . . . . . . . . . . $ 7,263
Short term investments . . . . . . . . . . . . . 57,242
------------
$ 64,505
============
</TABLE>
Page 9 of 17
<PAGE> 10
JEFFERIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MINORITY INTEREST
Minority interest represents the minority stockholders' proportionate
share of the equity of ITGI. At September 27, 1996, Jefferies Group, Inc.
owned over 82% of ITGI's common stock.
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.
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 27, 1996,
Jefferies', ITG's and W&D's net capital was $84.9 million, $29.8 million and
$813,000, respectively, which exceeded minimum net capital requirements by
$82.7 million, $29.6 million and $563,000, respectively.
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. On March 2, 1996, the Board of Directors approved a
two-for-one stock split and the continuation after the split of the quarterly
dividend rate at $0.05 per share. This effectively doubled the quarterly
dividend rate.
Dividends per Common Share (declared and paid):
<TABLE>
<CAPTION>
1st Qtr. 2nd Qtr. 3rd Qtr.
-------- -------- --------
<S> <C> <C> <C>
1996 . . $.025 $.050 $.050
1995 . . $.025 $.025 $.025
</TABLE>
TERMINATION OF STOCKHOLDERS RIGHTS PLAN
In March 1996, the Company redeemed all outstanding rights originally
issued pursuant to a Stockholder Rights Plan adopted by the Company in May,
1988. The rights were redeemed for a redemption price of $0.01 per right.
OFF-BALANCE SHEET RISK
The Company has contractual commitments arising in the ordinary course
of business for 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,
futures index contracts, commodities futures 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
Page 10 of 17
<PAGE> 11
JEFFERIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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.
In the normal course of business, the Company had letters of credit
outstanding aggregating $22.9 million at September 27, 1996, 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.
The Company seeks to control the risk associated with these
transactions by establishing and monitoring credit limits and by monitoring
collateral and transaction levels daily. The Company may require
counterparties to deposit additional collateral or return collateral pledged.
In the case of aged securities failed to receive, the Company may, under
industry regulations, purchase the underlying securities in the market and seek
reimbursement for any losses from the counterparty.
CONCENTRATION OF CREDIT RISK
As a major securities firm, the Company's activities are executed
primarily with and on behalf of other financial institutions, including brokers
and dealers, banks and other institutional customers. Concentrations of credit
risk can be affected by changes in economic, industry or geographical factors.
The Company seeks to control its credit risk and the potential risk
concentration through a variety of reporting and control procedures, including
those described in the preceding discussion of credit risk.
Page 11 of 17
<PAGE> 12
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 decreased $201.8 million from $1,537.0 million at
December 31, 1995 to $1,335.2 million at September 27, 1996. The decrease is
mostly due to a decrease in receivable from brokers and dealers related to
securities borrowed. The decrease in securities borrowed is related to
decreases in securities loaned (included in payable to brokers and dealers) and
customer short sales (included in payable to customers).
NINE MONTHS 1996 VERSUS NINE MONTHS 1995
Revenues, net of interest expense, increased 32% to $359.8 million,
compared to $272.6 million for the same prior year period. The increase was
due primarily to a $47.2 million, or 37%, increase in commissions, a $32.3
million, or 43%, increase in principal transactions, and a $7.8 million, or
14%, increase in corporate finance. Commission revenues increased, led by ITG,
the Equities Division, International Division, and the Convertibles Division.
Revenues from principal transactions increased primarily due to increased
trading gains in the Equities Division, the Taxable Fixed Income Division, the
Analytical Trading Division, and the International Division. Corporate finance
revenues benefited from increases in private placement fees and advisory fees.
Net interest income (interest revenues less interest expense) remained
relatively unchanged compared to the same prior year period.
Total non-interest expenses increased 30% to $300.2 million, compared
to $231.2 million for the same prior year period. Compensation and benefits
increased $39.7 million, or 27%, mostly due to higher incentive based
compensation accruals. Other expense increased $9.5 million, or 34%, largely
due to higher soft dollar expenses. Telecommunications and data processing
services increased $6.9 million, or 38%, primarily due to increased trade
volume and personnel. Floor brokerage and clearing fees increased $5.1
million, or 35%, due to increased volume of business executed on the various
exchanges. Travel and promotional increased $4.7 million, or 67%, mostly due
to increased business travel. Software royalties increased $2.3 million, or
55%, due to higher POSIT(R) commission revenues. Occupancy and equipment
rental remained relatively unchanged compared to the same prior year period.
Earnings before income taxes and minority interest were up 44% to
$59.7 million, compared to $41.4 million for the same prior year period. The
effective tax rate was approximately 43% for the nine months of 1996 versus
approximately 40% for the nine months of 1995. The 1996 effective tax rate was
higher due to a reduction in research and development tax credits.
Minority interest (approximately 18% of the earnings of ITGI) was $3.0
million in nine months of 1996 as compared to $2.2 million in the comparable
1995 period. The increase in minority interest expense was due to increased
ITGI earnings.
Primary earnings per share were $2.62 in the nine months of 1996 on
11,818,000 shares compared to $1.92 in the 1995 period on 11,926,000 shares.
Fully diluted earnings per share were $2.61 in the nine months of 1996 on
11,858,000 shares compared to $1.91 in the 1995 period on 11,970,000 shares.
During the nine months of 1996, the Company repurchased 824,651 shares
of its common stock versus 539,798 shares for the comparable 1995 period.
Page 12 of 17
<PAGE> 13
JEFFERIES GROUP, INC. AND SUBSIDIARIES
THIRD QUARTER 1996 VERSUS THIRD QUARTER 1995
Revenues, net of interest expense, increased 27% to $124.7 million,
compared to $98.3 million for the third quarter of 1995. The increase was due
primarily to an $11.5 million, or 25%, increase in commissions, a $9.7 million,
or 32%, increase in principal transactions, and a $4.5 million, or 26%,
increase in corporate finance. Commission revenues increased, led by ITG and
the Equities Division. Revenues from principal transactions increased
primarily due to increased trading gains in the Taxable Fixed Income Division,
the Equities Division, and the Analytical Trading Division. Corporate finance
revenues benefited from increases in advisory fees and private placement fees.
Net interest income (interest revenues less interest expense) remained
relatively unchanged compared to the same prior year period.
Total non-interest expenses increased 25% to $103.2 million, compared
to $82.2 million for the third quarter of 1995. Compensation and benefits
increased $11.7 million, or 22%, mostly due to higher incentive based
compensation accruals. Other expense increased $2.7 million, or 27%, largely
due to higher soft dollar expenses. Floor brokerage and clearing fees
increased $2.0 million, or 41%, due to increased volume of business executed on
the various exchanges. Telecommunications and data processing services
increased $1.9 million, or 28%, primarily due to increased trade volume and
personnel. Travel and promotional increased $1.2 million, or 47%, mostly due
to increased business travel. Occupancy and equipment rental increased
$778,000, or 20%, largely due to ITGI office space relocation and additions.
Software royalties increased $709,000, or 45%, due to higher POSIT(R)
commission revenues.
Earnings before income taxes and minority interest were up 34% to
$21.5 million, compared to $16.1 million for the same prior year period. The
effective tax rate was approximately 42% for the third quarter of 1996 versus
approximately 31% for the third quarter of 1995. The 1995 effective tax rate
benefited from the cumulative effect of research and development tax credits
applicable to previous periods.
Minority interest (approximately 18% of the earnings of ITGI) was $1.0
million for the third quarter of 1996 as compared to $910,000 in the comparable
1995 period. The increase in minority interest expense was due to increased
ITGI earnings.
Primary earnings per share were $0.98 for the third quarter of 1996 on
11,623,000 shares compared to $0.85 in the 1995 period on 11,938,000 shares.
Fully diluted earnings per share were $0.97 for the third quarter of 1996 on
11,662,000 shares compared to $0.85 in the 1995 period on 11,942,000 shares.
During the third quarter of 1996, the Company repurchased 197,178
shares of its common stock versus 82,512 shares for the comparable 1995 period.
Page 13 of 17
<PAGE> 14
JEFFERIES GROUP, INC. AND SUBSIDIARIES
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 27, 1996 and September 29, 1995.
<TABLE>
<CAPTION>
Nine Months Ended
----------------------------------------------------
September 27, September 29,
1996 1995
------------------- --------------------
% of % of
Total Total
Amount Revenues Amount Revenues
------ -------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commissions and principal transactions:
Equities . . . . . . . . . . . . . . . . $ 129,588 33% $ 102,840 33%
Investment Technology Group . . . . . . 83,487 22 51,789 16
International . . . . . . . . . . . . . 33,108 9 29,637 9
Taxable Fixed Income . . . . . . . . . . 20,023 5 9,759 3
Convertible . . . . . . . . . . . . . . 5,747 2 5,214 2
Other proprietary trading . . . . . . . 12,479 3 5,686 2
Corporate finance . . . . . . . . . . . . . . 63,542 16 55,781 18
Interest . . . . . . . . . . . . . . . . . . 36,180 9 49,600 16
Other . . . . . . . . . . . . . . . . . . . 3,824 1 3,848 1
----------------------- -----------------------
Total revenues . . . . . . . . . . . . $ 387,978 100% $ 314,154 100%
----------------------- -----------------------
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------
September 27, September 29,
1996 1995
------------------- --------------------
% of % of
Total Total
Amount Revenues Amount Revenues
------ -------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C>
Commissions and principal transactions:
Equities . . . . . . . . . . . . . . . . $ 42,186 32% $ 36,163 33%
Investment Technology Group . . . . . . 29,346 22 19,164 17
International . . . . . . . . . . . . . 9,375 7 12,090 11
Taxable Fixed Income . . . . . . . . . . 11,291 9 5,021 4
Convertible . . . . . . . . . . . . . . 1,880 1 1,770 2
Other proprietary trading . . . . . . . 4,037 3 2,733 2
Corporate finance . . . . . . . . . . . . . . 21,846 16 17,317 16
Interest . . . . . . . . . . . . . . . . . . 11,212 8 15,421 14
Other . . . . . . . . . . . . . . . . . . . 2,186 2 1,308 1
----------------------- -----------------------
Total revenues . . . . . . . . . . . . $ 133,359 100% $ 110,987 100%
----------------------- -----------------------
</TABLE>
Page 14 of 17
<PAGE> 15
JEFFERIES GROUP, INC. AND SUBSIDIARIES
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 27, 1996.
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. 27, Sept. 29, Sept. 27, Sept. 29,
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Earnings . . . . . . . . . . . . . . . . . . . $ 11,455 $ 10,166 $ 31,227 $ 22,895
Adjustment to subsidiary earnings - common stock
equivalents on subsidiary . . . . . . . . . . (112) -- (320) --
----------- ----------- ----------- -----------
Adjusted earnings . . . . . . . . . . . . . . . $ 11,343 $ 10,166 $ 30,907 $ 22,895
=========== =========== =========== ===========
Shares of common stock and common stock
equivalents:
Average number of common shares . . . . . . . . 10,715 11,112 10,951 11,052
Average common stock equivalent shares
related to employee stock based plans . . . 908 826 867 874
----------- ----------- ----------- -----------
Average shares used in primary computation . . 11,623 11,938 11,818 11,926
Adjust average common stock equivalents to
period-end market price, if higher than
average price . . . . . . . . . . . . . . . 39 4 40 44
----------- ----------- ----------- -----------
Average shares used in fully diluted computation 11,662 11,942 11,858 11,970
=========== =========== =========== ===========
Earnings per share:
Primary . . . . . . . . . . . . . . . . . . . $ 0.98 $ 0.85 $ 2.62 $ 1.92
=========== =========== =========== ===========
Fully diluted . . . . . . . . . . . . . . . . $ 0.97 $ 0.85 $ 2.61 $ 1.91
=========== =========== =========== ===========
</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 8, 1996 By: /s/ Clarence Schmitz
---------------- ------------------------------
Clarence Schmitz
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 27, 1996 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 1996 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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-27-1996
<EXCHANGE-RATE> 1
<CASH> 64,505
<RECEIVABLES> 110,207
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 757,681
<INSTRUMENTS-OWNED> 202,292
<PP&E> 27,883
<TOTAL-ASSETS> 1,335,207
<SHORT-TERM> 0
<PAYABLES> 144,728
<REPOS-SOLD> 0
<SECURITIES-LOANED> 636,871
<INSTRUMENTS-SOLD> 120,453
<LONG-TERM> 56,521
0
0
<COMMON> 187
<OTHER-SE> 194,417
<TOTAL-LIABILITY-AND-EQUITY> 1,335,207
<TRADING-REVENUE> 108,121
<INTEREST-DIVIDENDS> 36,180
<COMMISSIONS> 176,311
<INVESTMENT-BANKING-REVENUES> 63,542
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 28,132
<COMPENSATION> 187,739
<INCOME-PRETAX> 59,670
<INCOME-PRE-EXTRAORDINARY> 59,670
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,227
<EPS-PRIMARY> 2.62
<EPS-DILUTED> 2.61
</TABLE>
