<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 March 27, 1998
-------------------------------
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 March 27, 1998, the registrant had 20,783,495 common shares, $.01 par
value, outstanding.
Page 1 of 15
<PAGE> 2
JEFFERIES GROUP, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
MARCH 27, 1998
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1.Financial Statements
Consolidated Statements of Financial Condition -
March 27, 1998 (unaudited) and December 31, 1997............... 3
Consolidated Statements of Earnings (unaudited) -
Three Months Ended March 27, 1998 and March 28, 1997........... 4
Consolidated Statement of Changes in Stockholders' Equity
(unaudited) - Three Months Ended March 27, 1998................ 5
Consolidated Statements of Cash Flows (unaudited) -
Three Months Ended March 27, 1998 and March 28, 1997........... 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 1.Legal Proceedings................................................ 14
Item 6.Exhibits and Reports on Form 8-K................................. 14
</TABLE>
Page 2 of 15
<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>
March 27, December 31,
1998 1997
----------- -----------
ASSETS (unaudited)
<S> <C> <C>
Cash and cash equivalents ............................. $ 121,558 $ 109,488
Cash and securities segregated and on deposit for
regulatory purposes or deposited with clearing and
depository organizations ............................. 62,551 30,977
Receivable from brokers and dealers ................... 1,995,392 1,269,664
Receivable from customers, officers and directors ..... 122,406 166,284
Securities owned ...................................... 258,501 245,413
Investments ........................................... 173,084 154,584
Premises and equipment ................................ 40,820 42,828
Other assets .......................................... 63,482 80,304
----------- -----------
$ 2,837,794 $ 2,099,542
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Payable to brokers and dealers ........................ $ 1,751,718 $ 981,705
Payable to customers .................................. 208,096 202,255
Securities sold, not yet purchased .................... 199,120 188,703
Accrued expenses and other liabilities ................ 240,693 318,258
----------- -----------
2,399,627 1,690,921
Long-term debt ........................................ 149,314 149,290
Minority interest ..................................... 18,301 16,575
----------- -----------
2,567,242 1,856,786
----------- -----------
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 22,783,196 shares in 1998 and
22,393,910 shares in 1997 ......................... 228 224
Additional paid-in capital .......................... 12,160 39
Retained earnings ................................... 288,765 271,589
Less:
Treasury stock, at cost; 1,999,701 shares in 1998
and 2,107,842 shares in 1997 .................... (28,393) (26,954)
Accumulated other comprehensive income (loss):
Currency translation adjustments ................ (688) (622)
Additional minimum pension liability ............ (1,520) (1,520)
----------- -----------
Total accumulated other comprehensive
income (loss) ................................... (2,208) (2,142)
----------- -----------
Total stockholders' equity .................... 270,552 242,756
----------- -----------
$ 2,837,794 $ 2,099,542
=========== ===========
</TABLE>
See accompanying unaudited notes to consolidated financial statements.
Page 3 of 15
<PAGE> 4
JEFFERIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended
----------------------
March 27, March 28,
1998 1997
-------- --------
<S> <C> <C>
Revenues:
Commissions ...................... $ 81,565 $ 64,843
Principal transactions ........... 47,412 40,220
Corporate finance ................ 54,399 26,957
Interest ......................... 18,958 13,895
Other ............................ 1,074 1,263
-------- --------
Total revenues ................. 203,408 147,178
Interest expense ................... 16,973 11,899
-------- --------
Revenues, net of interest expense .. 186,435 135,279
-------- --------
Non-interest expenses:
Compensation and benefits ........ 107,649 77,006
Floor brokerage and clearing fees 9,065 8,451
Communications ................... 15,504 11,404
Occupancy and equipment rental ... 4,975 4,603
Travel and promotional ........... 6,154 3,884
Software royalties ............... 2,986 2,383
Other ............................ 7,977 5,981
-------- --------
Total non-interest expenses .... 154,310 113,712
-------- --------
Earnings before income taxes and
minority interest .............. 32,125 21,567
Income taxes ....................... 13,346 9,005
-------- --------
Earnings before minority interest .. 18,779 12,562
Minority interest .................. 1,303 1,165
-------- --------
Net earnings ................... $ 17,476 $ 11,397
======== ========
Earnings per share:
Basic .......................... $ 0.79 $ 0.53
======== ========
Diluted ........................ $ 0.75 $ 0.50
======== ========
Weighted average shares:
Basic .......................... 22,067 21,648
Diluted ........................ 22,864 22,324
</TABLE>
See accompanying unaudited notes to consolidated financial statements.
Page 4 of 15
<PAGE> 5
JEFFERIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
THREE MONTHS ENDED MARCH 27, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Accumulated Total
Additional Other Stock-
Common Paid-in Retained Treasury Comprehensive holders'
Stock Capital Earnings Stock Income (Loss) Equity
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 ...... $ 224 $ 39 $ 271,589 $ (26,954) $ (2,142) $ 242,756
Exercise of stock options
(336,000 shares) ................ 3 6,675 -- -- -- 6,678
Issuance of common stock
(53,286 shares) ................. -- 2,181 -- -- -- 2,181
Purchase of treasury
stock (80,565 shares) ........... -- -- -- (3,102) -- (3,102)
Capital Accumulation Plan
distributions (188,706 shares)... 1 2,431 -- 1,663 -- 4,095
Decrease in proportionate
share of subsidiary's
equity related to stock
issuances at the subsidiary ..... -- -- 727 -- -- 727
Additional vesting of
restricted stock shares ......... -- 834 -- -- -- 834
Quarterly dividends
($.05 per share) ................ -- -- (1,027) -- -- (1,027)
Comprehensive income:
Net earnings ................... -- -- 17,476 -- -- 17,476
Other comprehensive
income (loss), net of tax:
Translation adjustment ......... -- -- -- -- (66) (66)
---------
Comprehensive income ............. 17,410
--------- --------- --------- --------- --------- ---------
Balance, March 27, 1998........... $ 228 $ 12,160 $ 288,765 $ (28,393) $ (2,208) $ 270,552
========= ========= ========= ========= ========= =========
</TABLE>
See accompanying unaudited notes to consolidated financial statements.
Page 5 of 15
<PAGE> 6
JEFFERIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
March 27, March 28,
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings ................................................ $ 17,476 $ 11,397
--------- ---------
Adjustments to reconcile net earnings to net cash
provided by (used in) operations:
Depreciation and/or amortization of premises and
equipment, capitalized software, goodwill and
discount on long-term debt .............................. 5,095 4,164
Additional vesting of restricted stock shares ............. 834 222
Increase in cash and securities segregated and on
deposit for regulatory purposes ......................... (31,574) (25,670)
(Increase) decrease in receivables:
Brokers and dealers ..................................... (725,728) (605,250)
Customers, officers and directors ....................... 43,878 6,592
Increase in securities owned .............................. (13,088) (47,013)
Increase in investments ................................... (18,500) (12,288)
Decrease (increase) in other assets ....................... 16,366 (10,644)
Increase in operating payables:
Brokers and dealers ..................................... 770,013 617,588
Customers ............................................... 5,841 5,114
Increase in securities sold, not yet purchased ............ 10,417 34,774
Decrease in accrued expenses and other
liabilities ............................................. (77,565) (34,140)
Increase in minority interest ............................. 1,726 1,143
--------- ---------
Total adjustments ................................. (12,285) (65,408)
--------- ---------
Net cash provided by (used in) operating activities 5,191 (54,011)
</TABLE>
Continued on next page.
See accompanying unaudited notes to consolidated financial statements.
Page 6 of 15
<PAGE> 7
JEFFERIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
March 27, March 28,
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from financing activities:
Net proceeds from (payments on):
Bank loans ................................................... -- 28,500
Repurchase of treasury stock ................................. (3,102) (16,052)
Dividends paid ............................................... (1,027) (498)
Exercise of stock options .................................... 6,678 459
Issuance of common stock shares .............................. 2,181 3
Capital Accumulation Plan distributions ...................... 4,095 1,422
Change in proportionate share of subsidiary's equity ......... 727 (45)
--------- ---------
Net cash provided by financing activities .......... 9,552 13,789
--------- ---------
Cash flows from investing activities -
purchase of premises and equipment ............................... (2,607) (6,125)
--------- ---------
Effect of foreign currency translation on cash ..................... (66) (413)
--------- ---------
Net increase (decrease) in cash and cash equivalents 12,070 (46,760)
Cash and cash equivalents - beginning of period .................... 109,488 114,142
--------- ---------
Cash and cash equivalents - end of period .......................... $ 121,558 $ 67,382
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest ....................................................... $ 14,261 $ 9,258
========= =========
Income taxes ................................................... $ 13,318 $ 3,521
========= =========
</TABLE>
See accompanying unaudited notes to consolidated financial statements.
Page 7 of 15
<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. The term "Company"
refers, unless the context requires otherwise, to Jefferies Group, Inc., its
subsidiaries, predecessor entities, and W & D. Operations of the Company include
agency and principal transactions and other securities-related financial
services.
All significant intercompany accounts and transactions are eliminated in
consolidation. The consolidated financial statements reflect all adjustments
which are, in the opinion of management, necessary for the fair statement of the
results for the interim periods and should be read in conjunction with the
Company's annual report for the year ended December 31, 1997.
SECURITIES TRANSACTIONS
All transactions in securities, commission revenues and related expenses are
recorded on a trade-date basis.
Securities owned and securities sold, not yet purchased, are valued at
market, and unrealized gains or losses are reflected in revenues from principal
transactions.
COMMON STOCK
All share, share price and per share information included in the
consolidated financial statements and notes thereto has been restated to
retroactively reflect the effect of the November 19, 1997 two-for-one stock
split.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year's amounts to
conform to the current year's presentation.
RECEIVABLE FROM, AND PAYABLE TO, BROKERS AND DEALERS
Receivable from and payable to brokers and dealers consists of the following
as of March 27, 1998 (in thousands of dollars):
<TABLE>
<S> <C>
Receivable from brokers and dealers:
Securities borrowed ................................... $1,886,083
Securities purchased under agreements to resell........ 63,256
Other ................................................. 46,053
----------
$1,995,392
==========
Payable to brokers and dealers:
Securities loaned ..................................... $1,678,355
Securities sold under agreements to repurchase......... 59,189
Other ................................................. 14,174
----------
$1,751,718
==========
</TABLE>
Page 8 of 15
<PAGE> 9
JEFFERIES GROUP, INC. AND SUBSIDIARIES
SECURITIES OWNED AND SECURITIES SOLD, NOT YET PURCHASED
The following is a summary of the market value of major categories of
securities owned and securities sold, not yet purchased, as of March 27, 1998
(in thousands of dollars):
<TABLE>
<CAPTION>
Securities
Sold,
Securities Not Yet
Owned Purchased
-------- --------
<S> <C> <C>
Corporate equity securities ............ $158,442 $156,734
High-yield securities .................. 36,210 37,407
Corporate debt securities .............. 36,795 583
U.S. Government and agency obligations.. 26,966 3,980
Options ................................ 88 416
-------- --------
$258,501 $199,120
======== ========
</TABLE>
INVESTMENTS
Investments consist of the following as of March 27, 1998 (in thousands of
dollars):
<TABLE>
<S> <C>
Debt and equity investments................ $ 88,609
Partnership interests...................... 73,416
Equity and debt interests in affiliates.... 11,059
-----------
$ 173,084
===========
</TABLE>
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash in banks and short term investments.
Cash equivalents are part of the cash management activities of the Company and
generally mature within 90 days. The following is a summary of cash and cash
equivalents as of March 27, 1998 (in thousands of dollars):
<TABLE>
<S> <C>
Cash in banks.............................. $ 21,259
Short term investments..................... 100,299
-----------
$ 121,558
===========
</TABLE>
MINORITY INTEREST
Minority interest represents the minority stockholders' proportionate share
of the equity of ITGI. At March 27, 1998, Jefferies Group, Inc. owned
approximately 82% of ITGI's common stock.
Page 9 of 15
<PAGE> 10
JEFFERIES GROUP, INC. AND SUBSIDIARIES
EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations for the three month periods
ended March 27, 1998 and March 28, 1997 (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
Three Months Ended
-----------------------
March 27, March 28,
1998 1997
-------- --------
<S> <C> <C>
Net Earnings for basic earnings per share .......... $ 17,476 $ 11,397
Earnings adjustment - stock options on subsidiary . (294) (156)
======== ========
Adjusted earnings for diluted earnings per share ... $ 17,182 $ 11,241
======== ========
Shares of common stock and common stock equivalents:
Average number of common shares .................... 20,669 20,230
Capital Accumulation Plan unissued shares .......... 1,398 1,418
-------- --------
Average shares used in basic computation ........... 22,067 21,648
Stock options ...................................... 612 520
Other unissued common stock equivalents ............ 185 156
-------- --------
Average shares used in diluted computation ......... 22,864 22,324
======== ========
Earnings per share:
Basic .............................................. $ 0.79 $ 0.53
======== ========
Diluted ............................................ $ 0.75 $ 0.50
======== ========
</TABLE>
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 March 27, 1998, Jefferies',
ITG's and W & D's net capital was $140.2 million, $41.5 million and $1.2
million, respectively, which exceeded minimum net capital requirements by $136.5
million, $41.2 million and $921,000, 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.
Dividends per Common Share (declared and paid):
<TABLE>
<CAPTION>
1st Qtr.
--------
<S> <C>
1998..... $.050
1997..... $.025
</TABLE>
Page 10 of 15
<PAGE> 11
JEFFERIES GROUP, INC. AND SUBSIDIARIES
OFF-BALANCE SHEET RISK
In the normal course of business, the Company had letters of credit
outstanding aggregating $20.8 million at March 27, 1998, to satisfy various
collateral requirements in lieu of depositing cash or securities.
NASDAQ MARKET-MAKERS ANTITRUST LITIGATION
In re Nasdaq Market-Makers Antitrust Litigation. Beginning in July 1994,
antitrust class actions were commenced against Jefferies and 33 other defendants
in various federal courts (the "Lawsuits"). In October 1994, the Lawsuits were
consolidated alleging the defendants violated antitrust laws by conspiring to
fix the spread paid to trade in certain Nasdaq securities. In order to avoid the
uncertainties of litigation Jefferies has entered into a settlement agreement
which has received the preliminary approval of the United States District Court
for the Southern District of New York (the "Court"), but which is still subject
to final approval of the Court. The amount of the settlement has been previously
provided for and will not have a material adverse effect on the Company's
statement of earnings.
JEFFERIES GROUP, INC. AND INVESTMENT TECHNOLOGY GROUP, INC. ANNOUNCE INTENTION
TO CONSIDER SEPARATING INTO TWO INDEPENDENT COMPANIES
On March 17, 1998, Jefferies Group, Inc. and Investment Technology Group,
Inc. jointly announced that they are considering the separation, through a
spin-off and restructuring, of Jefferies & Company, Inc. and other Jefferies
Group, Inc. subsidiaries ("JEFCO") and Investment Technology Group, Inc.
("ITGI").
If the separation is completed, Jefferies Group, Inc. shareholders will own
100% of JEFCO and approximately 82.3% of ITGI. The public ITGI shareholders will
continue to own 17.7% of ITGI. (The ITGI percentage ownership could change
slightly as a result of ITGI stock repurchases or issuances before the
transaction closing date.) The spin-off will be accomplished by a tax-free
distribution of 100% of the shares of the new company, JEFCO, to Jefferies
Group, Inc. shareholders. Jefferies Group, Inc.'s 15 million shares of ITGI
would then be its only asset. The spin-off would be followed immediately by a
tax-free merger of Jefferies Group, Inc. and ITGI, with ITGI's public
shareholders receiving shares of Jefferies Group, Inc. Jefferies Group, Inc.
would then be renamed Investment Technology Group, Inc.
The spin-off and restructuring transactions are contingent on a number of
factors, including receipt of all required Board of Directors and shareholder
approvals of Jefferies Group, Inc. and ITGI, receipt of a favorable tax ruling
from the Internal Revenue Service and other required regulatory and contractual
approvals.
Page 11 of 15
<PAGE> 12
JEFFERIES GROUP, INC. AND SUBSIDIARIES
SEGMENT REPORTING
The Company's operations have been classified into two business segments:
Financial services and ITGI. The Financial services segment includes the
traditional securities brokerage and investment banking activities of Jefferies
Group, Inc. and its subsidiaries, except ITGI and its subsidiaries. The ITGI
segment includes the automated equity trading and transaction research
activities of ITGI and its subsidiaries. Financial information by segment for
the three months ended March 27, 1998 and March 28, 1997 are summarized as
follows (in thousands of dollars):
<TABLE>
<CAPTION>
FINANCIAL ELIMINATIONS /
SERVICES ITGI RECLASSIFICATIONS CONSOLIDATED
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1998
Total revenues.......................... $ 163,848 $ 41,387 $ (1,827) $ 203,408
Operating income........................ 19,075 13,050 -- 32,125
Identifiable assets..................... 2,718,456 126,940 (7,602) 2,837,794
Capital expenditures.................... 1,805 802 -- 2,607
Depreciation and amortization........... 3,112 1,983 -- 5,095
1997
Total revenues.......................... 116,993 30,654 (469) 147,178
Operating income........................ 10,206 11,361 -- 21,567
Identifiable assets..................... 2,135,451 90,125 (7,972) 2,217,604
Capital expenditures.................... 1,915 4,210 -- 6,125
Depreciation and amortization........... 2,820 1,344 -- 4,164
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ANALYSIS OF FINANCIAL CONDITION
Total assets increased $738.3 million from $2,099.5 million at December 31,
1997 to $2,837.8 million at March 27, 1998. The increase in assets is mostly due
to an increase in securities borrowed (included in receivable from brokers and
dealers). The increase in securities borrowed is related to an increase in
securities loaned (included in payable to brokers and dealers).
FIRST QUARTER 1998 VERSUS FIRST QUARTER 1997
Revenues, net of interest expense, increased 38% to $186.4 million, compared
to $135.3 million for the first quarter of 1997. The increase was due primarily
to a $27.4 million, or 102%, increase in corporate finance, a $16.7 million, or
26%, increase in commissions, and a $7.2 million, or 18%, increase in principal
transactions. Commission revenues increased, led by ITG and the Equities
Division. Revenues from principal transactions increased primarily due to
increased trading gains in the Equities Division, the Taxable Fixed Income
Division and the International Division. Corporate finance revenues benefited
from increased debt financing deals. Net interest income (interest revenues less
interest expense) was comparable to the first quarter of 1997.
Total non-interest expenses increased 36% to $154.3 million, compared to
$113.7 million for the first quarter of 1997. Compensation and benefits
increased $30.6 million, or 40%, mostly due to higher incentive based
compensation accruals. Communications increased $4.1 million, or 36%, primarily
due to increased trade volume, personnel, and system upgrades. Travel and
promotional increased $2.3 million, or 58%, largely due to increased business
travel related to corporate finance activities. Other expense increased $2.0
million, or 33%, largely due to increased reserves. Floor brokerage and clearing
fees increased $614,000, or 7%, due to increased volume of business executed on
the various exchanges. Software royalties increased $603,000, or 25%, due to
higher
Page 12 of 15
<PAGE> 13
JEFFERIES GROUP, INC. AND SUBSIDIARIES
POSIT(R) commission revenues. Occupancy and equipment rental increased
$372,000, or 8%, largely due to office space relocation and expansion in several
divisions.
Earnings before income taxes and minority interest were up 49% to $32.1
million, compared to $21.6 million for the same prior year period. The effective
tax rate was approximately 42% for both the first quarter of 1998 and 1997.
Minority interest (approximately 18% of the earnings of ITGI) was $1.3
million for the first quarter of 1998 as compared to $1.2 million in the
comparable 1997 period. The increase in minority interest expense was due to
increased ITGI earnings.
Basic earnings per share were $0.79 for the first quarter of 1998 on
22,067,000 shares compared to $0.53 in the 1997 period on 21,648,000 shares.
Diluted earnings per share were $0.75 for the first quarter of 1998 on
22,864,000 shares compared to $0.50 in the comparable 1997 period on 22,324,000
shares.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 1998, the Company repurchased 80,565 shares
(including 34,500 shares purchased in connection with the Company's Capital
Accumulation Plan) of its common stock versus 816,168 shares (including 107,000
shares purchased in connection with the Company's Capital Accumulation Plan) for
the comparable 1997 period.
REVENUES BY SOURCE
The following provides a breakdown of total revenues by source for the three
months ended March 27, 1998 and March 28, 1997.
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------
March 27, March 28,
1998 1997
--------------------- --------------------
% of % of
Total Total
Amount Revenues Amount Revenues
---------- ------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commissions and principal transactions:
Equities............................ $ 57,683 28% $ 48,579 33%
Investment Technology Group......... 39,230 19 29,623 20
International....................... 13,775 7 12,153 8
Taxable Fixed Income................ 9,702 5 8,658 6
Convertible......................... 2,973 1 2,110 1
Other proprietary trading........... 5,614 3 3,940 3
---------- ------- --------- --------
Total.......................... 128,977 63 105,063 71
Corporate finance....................... 54,399 27 26,957 18
Interest................................ 18,958 9 13,895 10
Other .................................. 1,074 1 1,263 1
---------- ------- --------- --------
Total revenues.................... $203,408 100% $ 147,178 100%
========== ======= ========= ========
</TABLE>
Page 13 of 15
<PAGE> 14
JEFFERIES GROUP, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In re Nasdaq Market-Makers Antitrust Litigation. Beginning in July 1994,
antitrust class actions were commenced against Jefferies and 33 other defendants
in various federal courts (the "Lawsuits"). Following the filing of the
Lawsuits, the Antitrust Division of the United States Department of Justice
("DOJ") and the Securities and Exchange Commission ("SEC") commenced
investigations into certain issues related to the allegations of the Lawsuits.
In August 1996, the DOJ entered into an antitrust consent decree with 24
defendants who are market makers in Nasdaq stocks. Jefferies was neither asked
nor required to settle with the DOJ. Shortly after the DOJ settlement, the SEC
filed a Section 21(a) report against the National Association of Securities
Dealers, Inc. ("NASD"), criticizing various practices by market makers, and the
NASD for failing to police adequately or discipline the market makers for those
practices. However, the SEC did not take any action at that time against the
market maker firms.
In October 1994, the Lawsuits were consolidated for discovery purposes in
the United States District Court for the Southern District of New York (the
"Court"). The consolidated complaint alleges that the defendants violated the
antitrust laws by conspiring to fix the spread paid by plaintiffs and class
members to trade in certain Nasdaq securities, by refusing to quote bids and
asks in so-called odd-eighths. The cases purport to be brought on behalf of all
persons who purchased or sold certain securities on the Nasdaq National Market
System during the period May 1, 1989 to May 27, 1994. The plaintiffs seek
damages in an unspecified amount.
In order to avoid the uncertainties of litigation, Jefferies has entered
into a settlement agreement which received the preliminary approval of the Court
on October 15, 1997, but which is still subject to final approval of the Court.
The amount of the settlement has been previously provided for in reserves and
will not have a material adverse effect on the Company.
Other. Many aspects of the Company's business involve substantial risks of
liability. In the normal course of business, the Company and its subsidiaries
have been named as defendants or co-defendants in lawsuits involving primarily
claims for damages. The Company's management believes that pending litigation
will not have a material adverse effect on the Company.
ITEM 6. REPORTS ON FORM 8-K
(b) Reports on Form 8-K.
On March 18, 1998, the Company filed a Form 8-K announcing plans to
separate the Company's 100% owned subsidiary, Jefferies & Company,
Inc., and its 82.3% owned subsidiary, Investment Technology Group,
Inc., through a proposed spin-off and related transactions.
Page 14 of 15
<PAGE> 15
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: May 1, 1998 By: /s/ Clarence T. Schmitz
----------------------- ----------------------------------
Clarence T. Schmitz
Chief Financial Officer
Page 15 of 15
<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 MARCH 27, 1998 AND FOR THE QUARTER THEN ENDED AND THE NOTES
THERETO AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS FILED IN THE FIRST QUARTER 1998 JEFFERIES GROUP, INC. 10-Q FILING.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-27-1998
<CASH> 121,558
<RECEIVABLES> 168,459
<SECURITIES-RESALE> 63,256
<SECURITIES-BORROWED> 1,886,083
<INSTRUMENTS-OWNED> 258,501
<PP&E> 40,820
<TOTAL-ASSETS> 2,837,794
<SHORT-TERM> 0
<PAYABLES> 222,270
<REPOS-SOLD> 59,189
<SECURITIES-LOANED> 1,678,355
<INSTRUMENTS-SOLD> 199,120
<LONG-TERM> 149,314
0
0
<COMMON> 228
<OTHER-SE> 270,324
<TOTAL-LIABILITY-AND-EQUITY> 2,837,794
<TRADING-REVENUE> 47,412
<INTEREST-DIVIDENDS> 18,958
<COMMISSIONS> 81,565
<INVESTMENT-BANKING-REVENUES> 54,399
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 16,973
<COMPENSATION> 107,649
<INCOME-PRETAX> 32,125
<INCOME-PRE-EXTRAORDINARY> 32,125
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,476
<EPS-PRIMARY> 0.79
<EPS-DILUTED> 0.75
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