<PAGE> 1
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM 8-K
Current Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report: February 23, 1999
Date of Earliest Event Reported: March 17, 1998
JEFFERIES GROUP, INC.
Delaware 1-11665 95-2848406
(State of (Commission File (IRS Employer
Incorporation) Number) Identification
Number)
11100 Santa Monica Boulevard
Los Angeles, California 90025
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (310) 445-1199
===============================================================================
<PAGE> 2
ITEM 5. OTHER EVENTS
On March 17, 1998, Jefferies Group, Inc. ("Group") and Investment
Technology Group, Inc. ("ITGI") jointly announced plans to separate Group's 100%
owned subsidiary, Jefferies & Company, Inc., and Group's 82.3% owned subsidiary,
ITGI, through a proposed spin-off and related transactions. Attached and
incorporated by reference is information regarding the proposed transactions
filed in a Form 8-K on March 17, 1998 updated to include selected financial
information for the year and quarter ended December 31, 1998. This information
is available on the website of the Group and ITGI (Exhibit 99.1).
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Exhibit Index.
EXHIBIT NO. EXHIBIT DESCRIPTION
99.1 Unaudited financial information concerning Group and ITGI.
SIGNATURES
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.
Dated: February 23, 1999 JEFFERIES GROUP, INC.
By: /s/ JERRY M. GLUCK
-----------------------------
Jerry M. Gluck
Secretary and General Counsel
<PAGE> 1
JEFFERIES GROUP, INC.
UNAUDITED FINANCIAL INFORMATION
RELATING TO PLANNED SPIN-OFF
<PAGE> 2
================================================================================
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HIGHLIGHTS
PLANNED TRANSACTION................................................................ 1-3
UNAUDITED SELECTED HISTORICAL FINANCIAL DATA -- "New JEF".......................... 4
UNAUDITED PRO FORMA FINANCIAL DATA -- "New JEF".................................... 5-7
APPENDIX
UNAUDITED ANNUAL STATEMENTS OF EARNINGS -- "New JEF"............................... A
UNAUDITED QUARTERLY STATEMENTS OF EARNINGS -- "New JEF"............................ B
UNAUDITED STATEMENTS OF FINANCIAL CONDITION -- "New JEF"........................... C
UNAUDITED SELECTED HISTORICAL FINANCIAL DATA OF JEFFERIES GROUP, INC............... D
</TABLE>
This document contains statements concerning the timing, structure and
ramifications of the proposed spin-off and related transactions that are
intended to be "forward-looking statements," as that phrase is defined by the
Private Securities Litigation Reform Act of 1995. Forward-looking statements,
which can be identified by the use of terms such as "plan", "anticipate",
"will", "would", "expect", "estimate" or variations of such terms, may not occur
as presently anticipated in the event necessary approvals are not obtained or
are not obtained on acceptable terms or in the event of adverse developments in
the market for Jefferies Group or ITGI securities or in securities markets in
general. As a result, no forward-looking statement should be regarded as a
representation by Jefferies Group, ITGI or any other person that the presently
anticipated events will occur as described herein.
<PAGE> 3
PLANNED TRANSACTION
================================================================================
Jefferies Group, Inc. is a holding company for two principal lines of business:
a full-service global investment bank serving institutions and small- to
medium-sized corporations (referred to in this document as "New JEF"); and
approximately 81 percent-owned Investment Technology Group, Inc. (referred to in
this document as "ITGI"), the leading provider of technology-based equity
trading services and transaction research to institutional investors and
brokers.
On March 17, 1998, Jefferies Group, Inc. and ITGI announced plans to separate
New JEF and ITGI through a spin-off. After the spin-off, Jefferies Group
stockholders will own 100% of New JEF and approximately 81% of ITGI. The public
ITGI stockholders will continue to own approximately 19% of ITGI. The spin-off
will be accomplished by a tax-free distribution of 100% of the shares of a new
holding company, New JEF, to Jefferies Group stockholders. Jefferies Group's 15
million shares of ITGI would then be its only asset. (As of December 31, 1998,
total outstanding shares of ITGI were 18.6 million). The spin-off would be
followed immediately by a tax-free merger of Jefferies Group and ITGI.
Leading up to the spin-off and merger, certain events will take place regarding
both the capital and legal structures of Jefferies Group, New JEF and ITGI. The
following is a summary of the events relating to the spin-off:
1) In January 1999, Jefferies Group liquidated substantially all of the
Capital Accumulation Plan (see pages 5-7 for details).
2) Obtain favorable tax ruling from IRS.
3) Obtain Board of Director approvals for both Jefferies Group
and ITGI.
4) Solicit and obtain Jefferies Group and ITGI stockholder approvals.
5) ITGI to declare and pay special cash dividend of $4 per share to
all stockholders, including Jefferies Group.
6) Transfer all non-ITGI assets and liabilities, including long term
debt, from Jefferies Group to New JEF or its subsidiaries (see table
II on page 3).
7) Spin-off New JEF to Jefferies Group stockholders (see table III on
page 3).
1
<PAGE> 4
8) Merge ITGI into Jefferies Group, Inc. (merged company referred to in
this document as "New ITGI"). In conjunction with the merger, the
publicly-traded shares of ITGI common stock (other than those held by
Jefferies Group) will be exchanged for shares of New ITGI pursuant to
the exchange ratio. The exchange ratio has been established to
provide:
o the non-Jefferies Group stockholders of ITGI with the same
proportionate common stock ownership of New ITGI that
they held of ITGI prior to the spin-off (approximately 19%),
and
o the Jefferies Group stockholders, as an entirety, with
the same collective percentage ownership of New ITGI that
Jefferies Group held of ITGI prior to the merger (approximately
81%).
The exchange ratio is the ratio of the number of shares of Jefferies
Group common stock at the time of the spin-off (estimated to be 23.9
million -- see pages 5-7 for details) divided by the number of ITGI
common shares held by Jefferies Group (15 million). (see table IV on
page 3).
In summary, a stockholder of Jefferies Group is expected to receive
one share of New JEF and one share of New ITGI (the equivalent of
0.628 shares of ITGI), after the special cash dividend of $4 by ITGI,
for each share of Jefferies Group.
9) Rename New JEF to "Jefferies Group, Inc." and New ITGI to "Investment
Technology Group, Inc." Both of the new companies are expected to
trade on the New York Stock Exchange.
2
<PAGE> 5
I. Equity Ownership Prior to the Transfers, Spin-Off and Merger
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Jefferies Group, Inc. Public Stockholders
Stockholders of ITGI
| (excluding Group)
100% |
--------------------------- |
Jefferies Group, Inc. |
(NYSE: JEF)("Group") |
--------------------------- | 19%
| |
--------------------------------------------------------------------------------------------- |
| | | | | | | |
| | | | | 100% of | |
100% 100% 100% 100% 100% Preferred Stock 81% |
- ---------------- -------------- ------------- ------------- ------------- --------------- --------------------------
Jefferies & Jefferies JEF Holding Jefferies Jefferies W&D Investment
Company, Inc. International Company, Inc. Analytical Pacific Securities, Technology
("JEFCO") Limited ("New JEF") Trading Limited Inc, Group, Inc.
("JIL") Group, Inc. ("JPL") ("W&D") (NASD: ITGI)
("ITGI")
- ---------------- -------------- -------------- ------------- ------------- -------------- -------------------------
| |
--------------- |
| | |
100% 100% 100%
---------- --------- --------------
Jefferies Jefferies ITG Inc.
(Switzerland) (Japan) ("ITG")
Ltd. Limited
---------- --------- --------------
</TABLE>
II. Equity Ownership Immediately After the Transfers
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Jefferies Group, Inc. Public Stockholders
Stockholders of ITGI
| (excluding Group)
| |
100% |
------------------------- |
Jefferies Group, Inc. |
("Group") 19%
-------------------------- |
| | |
| ------------------------------------------- |
100% 81% | |
--------------------------------- ------------------------------------
JEF Holding Investment Technology
Company, Inc. Group, Inc. (NASD: ITGI)
("New JEF") ("ITGI")
--------------------------------- ------------------------------------
| |
------------------------------------------------------------------------ -----------------------------------
| | | | | |
| | | | 100% of |
100% 100% 100% 100% Preferred Stock 100%
- ---------------- --------------- ------------- ------------- ------------------- -----------------------------------
Jefferies & Jefferies Jefferies Jefferies W&D
Company, Inc. International Analytical Pacific Securities, Inc. ITG Inc.
("JEFCO") Limited Trading Limited ("W&D") ("ITG")
("JIL") Group, Inc. ("JPL")
- ---------------- --------------- ------------- ------------- ------------------- -----------------------------------
|
------------------
| |
100% 100%
------------- ---------
Jefferies Jefferies
(Switzerland) (Japan)
Ltd. Limited
--------------- ---------
</TABLE>
III. Equity Ownership Immediately After the Spin-Off
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Jefferies Group, Inc. Public Stockholders
/ Stockholders \ of ITGI
/ \ (excluding Group)
/ \ |
100% 100% |
--------------------------------- ------------------------- |
JEF Holding Company, Inc. Jefferies Group, Inc. |
(NYSE: JEF) ("Group") |
("New JEF") 19%
---------------------------------- ------------------------ |
| | |
81% |
-------------------------------------------------------------------------- ----------------------------------
| | | | |
| | | | 100% of
100% 100% 100% 100% Preferred Stock
- ---------------- --------------- ------------- ------------- ------------------- Investment Technology
Jefferies & Jefferies Jefferies Jefferies W&D Group, Inc.
Company, Inc. International Analytical Pacific Securities, Inc. (NASD: ITGI)
("JEFCO") Limited Trading Limited ("W&D") ("ITGI")
("JIL") Group, Inc. ("JPL")
- ---------------- --------------- ------------- ------------- ------------------- --------------------------------
| |
------------------ |
| | |
100% 100% 100%
------------- --------- -----------------------
Jefferies Jefferies ITG Inc.
(Switzerland) (Japan) ("ITG")
Ltd. Limited -----------------------
--------------- ---------
</TABLE>
IV. Equity Ownership Immediately After the Merger and Name Changes
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Public Stockholders of New ITGI,
including 81% position represented
by former Jefferies Group Stockholders,
and 19% position represented by former
ITGI Public Stockholders (excluding
Jefferies Group, Inc. Group), prior to the Merger
Stockholders |
| |
100% 100%
--------------------------------- --------------------------------------
Jefferies Group, Inc. Investment Technology Group, Inc.
(formerly known as (as the renamed Surviving
JEF Holding Company, Inc.) Corporation of the
(NYSE: JEF) (NYSE: ITG) ("New ITGI")
("New JEF") ----------------------------------
---------------------------------- |
| |
-------------------------------------------------------------------------- 100%
| | | | | |
100% 100% 100% 100% 100% |
of Preferred
Stock
- ---------------- --------------- ------------- ------------- ------------------- ----------------------
Jefferies & Jefferies Jefferies Jefferies W&D
Company, Inc. International Analytical Pacific Securities, Inc. ITG Inc.
("JEFCO") Limited Trading Limited ("W&D") ("ITG")
("JIL") Group, Inc. ("JPL")
- ---------------- --------------- ------------- ------------- ------------------- -----------------------
|
------------------
| |
100% 100%
------------- ---------
Jefferies Jefferies
(Switzerland) (Japan)
Ltd. Limited
--------------- ---------
</TABLE>
3
<PAGE> 6
UNAUDITED SELECTED HISTORICAL FINANCIAL DATA -- "New JEF"
================================================================================
Below is historical financial data of Jefferies Group, Inc., reclassified to
show ITGI as a discontinued operation and New JEF as the continuing, successor
corporation to Jefferies Group, Inc. assuming the spin-off is consummated. (FOR
A SUMMARY OF HISTORICAL FINANCIAL INFORMATION OF JEFFERIES GROUP, INC., SEE
APPENDIX D.)
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS
EXCEPT PER SHARE AMOUNTS) THREE MONTHS ENDED YEAR ENDED DECEMBER 31,
------------------------- ------------------------------------------------------------
DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997 1996 1995 1994
------------------------- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS
Net revenues $135,192 $180,887 $515,462 $569,528 $369,183 $279,939 $206,968
Earnings from continuing operations,
net of income taxes 9,616 13,130 36,201 41,356 24,414 16,422 6,632
Earnings from discontinued operations,
net of income taxes and
minority interest(a) 9,088 4,872 33,481 22,211 19,146 12,107 13,592
-------- -------- -------- -------- -------- -------- --------
Net earnings $ 18,704 $ 18,002 $ 69,682 $ 63,567 $ 43,560 $ 28,529 $ 20,224
DILUTED EARNINGS PER SHARE
Continuing operations,
net of income taxes $ 0.42 $ 0.59 $ 1.58 $ 1.85 $ 1.04 $ 0.69 $ 0.27
Discontinued operations,
net of income taxes
and minority interest(a) 0.37 0.20 1.38 0.95 0.80 0.50 0.54
-------- -------- -------- -------- -------- -------- --------
Diluted earnings per share $ 0.79 $ 0.79 $ 2.96 $ 2.80 $ 1.84 $ 1.19 $ 0.81
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------------------------
FINANCIAL CONDITION 1998 1997 1996 1995 1994
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents, and short-term investments $ 161,809 $ 173,202 $ 136,480 $ 54,861 $ 52,087
Net assets of discontinued operations 108,333 65,057 40,789 22,598 11,257
Total assets 2,617,864 2,058,106 1,533,906 1,519,949 1,538,126
Long-term debt 149,387 149,290 52,987 56,322 59,570
Stockholders' equity 334,775 242,756 195,445 186,261 163,235
SELECTED RATIOS:
Pre-tax margin (as a % of net revenue)
on continuing operations 11% 12% 11% 10% 6%
Return on average equity for continuing operations 18% 26% 15% 10% 4%
</TABLE>
(a) Included in discontinued operations are Jefferies Group's costs
associated with the spin-off of $3.5 million or $.15 per diluted
share and $1.5 million or $.07 per diluted share for the year and
three months ended December 31, 1998, respectively.
4
<PAGE> 7
UNAUDITED PRO FORMA FINANCIAL DATA -- "New JEF"
================================================================================
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION OF
NEW JEF (EXCLUDING DISCONTINUED OPERATION)
The following unaudited pro forma condensed consolidated Statement of Financial
Condition of New JEF as of December 31, 1998 has been derived from unaudited
financial statements prepared by New JEF. These financial statements reflect the
financial condition of New JEF assuming the transfer and spin-off are
consummated. In the opinion of management, the unaudited pro forma statement of
financial condition, which gives effect to the spin-off as if it had occurred on
December 31, 1998, includes all significant, normal and recurring adjustments
necessary for the fair presentation of the financial position. The unaudited pro
forma information is presented for illustrative purposes only and is not
necessarily indicative of the financial position that will actually occur when
the transaction is consummated.
In connection with the spin-off, it is anticipated that certain events will take
place that will increase both New JEF's stockholders' equity and the number of
shares outstanding. Following is a summary of such events:
1. Prior to the spin-off, ITGI will declare and pay a special cash dividend
to all of its shareholders, including Jefferies Group. For purposes of
this pro forma statement of financial condition, the special cash dividend
is assumed to be $4 per share. Jefferies Group owns 15 million shares of
ITGI and would receive approximately $60 million. Prior to the spin-off,
Jefferies Group will contribute its entire share of the special cash
dividend to New JEF or its subsidiaries.
2. In January 1999, Jefferies Group liquidated substantially all of the
Jefferies Group Capital Accumulation Plan which resulted in the issuance
of approximately 1.5 million shares of Jefferies Group stock and a cash
payment of approximately $40 million (the "Jefferies Group CAP Plan
Termination"). In connection with the Jefferies Group CAP Plan
Termination, Jefferies Group expects to realize a tax benefit of
approximately $23 million. The obligation under the Jefferies Group CAP
Plan, which had been fully accrued on Jefferies Group's statement of
financial condition, was eliminated upon the issuance of shares and
payment of cash pursuant to, and coincident with, the liquidation of the
Jefferies Group CAP Plan.
3. Prior to the spin-off, Jefferies Group will accelerate the vesting of all
outstanding options issued prior to January 1, 1998 and issue restricted
stock to certain employees. Jefferies Group will not adjust the terms of
the outstanding stock options that were issued prior to January 1, 1998 to
reflect the economic impact of the spin-off. As such, it is anticipated
that all options issued prior to January 1, 1998, will be exercised before
the spin-off and will result in net exercise proceeds of $9 million and a
related tax benefit of $12 million for purposes of this pro forma
statement of financial condition (based on the closing price of Jefferies
Group Common Stock on the NYSE on February 19, 1999 of $39.75 per share).
The exact amount of the tax benefit will be dependent upon the fair market
value of Jefferies Group Common Stock on the date of issuance of the
shares. Assuming a Jefferies Group Common Stock price range of $35 to $50,
the expected tax benefit will range from approximately $11 million to
approximately $14 million. The exercise of options and issuance of
restricted shares is expected to result in an increase of Jefferies Group
common shares outstanding of 1.2 million.
4. New JEF's share of the transaction costs for 1999 is expected to be
approximately $6.3 million.
5
<PAGE> 8
UNAUDITED PRO FORMA FINANCIAL DATA -- "New JEF"
================================================================================
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION OF
New JEF (EXCLUDING DISCONTINUED OPERATION)
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) DECEMBER 31, 1998 (UNAUDITED)
-----------------------------------------------
HISTORICAL
CONTINUING PRO FORMA
OPERATIONS ADJUSTMENTS REF PRO FORMA
----------- ----------- --- -----------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 55,581 $ 22,401 (a) $ 77,982
Receivables from brokers and dealers 2,018,090 2,018,090
Other Assets 435,860 34,722 (b) 470,582
---------- -------- ----------
Total assets $2,509,531 $ 57,123 $2,566,654
========== ======== ==========
LIABILITIES AND
STOCKHOLDER'S EQUITY
Payable to brokers and dealers $1,602,906 $1,602,906
Securities sold, not yet purchased, payables to
customers, bank loans, and accrued expenses
and other liabilities 530,796 (61,789) (c) 469,007
Long-term debt 149,387 149,387
---------- -------- ----------
Total liabilities 2,283,089 (61,789) 2,221,300
---------- -------- ----------
Stockholders' equity 226,442 118,912 (d) 345,354
---------- -------- ----------
Total liabilities and stockholders' equity $2,509,531 $ 57,123 $2,566,654
========== ======== ==========
Outstanding shares 21,230 23,900 (e)
========== ==========
Book value per share $ 10.67 $ 14.45
========== ==========
</TABLE>
See footnotes to pro forma condensed consolidated statement of financial
condition on page 7.
6
<PAGE> 9
UNAUDITED PRO FORMA FINANCIAL DATA -- "New JEF"
================================================================================
FOOTNOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
(a) Pro Forma Cash Adjustment includes the following:
Special cash dividend from ITGI ..................................... $ 60,000
Stock option exercise proceeds ...................................... 8,752
Jefferies Group CAP Plan cash payment ............................... (40,101)
Transaction costs ................................................... (6,250)
---------
Total ............................................................ $ 22,401
=========
(b) Pro Forma Other Asset Adjustment includes the following:
Stock option exercise tax benefit ................................... $ 11,583
Jefferies Group CAP Plan distribution tax benefit ................... 23,139
---------
Total ............................................................ $ 34,722
=========
(c) Pro Forma Accrued Expenses adjustment includes the following:
Elimination of Jefferies Group CAP Plan liability ................... $ (61,789)
=========
(d) Pro Forma Stockholders' Equity adjustment includes the following:
Special cash dividend from ITGI ..................................... $ 60,000
Stock option net exercise proceeds .................................. 8,752
Transaction costs ................................................... (6,250)
Other asset adjustments (see (b) above) ............................. 34,722
Stock-based portion of Jefferies Group CAP Plan distribution ........ 21,688
---------
Total ............................................................ $ 118,912
=========
(e) Outstanding share rollforward (in millions):
Shares outstanding at December 31, 1998 ............................. 21.2
Jefferies Group CAP Plan termination ................................ 1.5
Stock option exercises and restricted stock grants .................. 1.2
---------
Pro forma outstanding shares at December 31, 1998 ................... 23.9
=========
</TABLE>
7
<PAGE> 10
APPENDIX A
================================================================================
UNAUDITED ANNUAL STATEMENTS OF EARNINGS -- "New JEF"
The unaudited financial data of New JEF presented below for each of the years in
the five-year period ended December 31, 1998, reflects the historical financial
statements of New JEF, as successor to Jefferies Group, Inc., and as
reclassified to show the effects on results of operations of New JEF assuming
the spin-off was consummated, and ITGI is reported as a discontinued operation.
<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS) YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
REVENUES:
Commissions $190,870 $148,940 $113,512 $ 95,892 $ 89,459
Principal transactions 177,189 179,081 145,207 98,629 67,412
Corporate finance 126,651 228,640 97,870 72,003 39,818
Interest 91,024 70,656 47,443 65,784 50,918
Other 4,881 3,525 2,991 1,974 948
-------- -------- -------- -------- --------
Total revenues 590,615 630,842 407,023 334,282 248,555
Interest expense 75,153 61,314 37,840 54,343 41,587
-------- -------- -------- -------- --------
Revenues, net of interest expense 515,462 569,528 369,183 279,939 206,968
-------- -------- -------- -------- --------
NON-INTEREST EXPENSES:
Compensation and benefits 321,943 373,619 234,446 175,101 127,826
Floor brokerage and clearing fees 32,425 26,754 21,606 15,874 15,999
Communications 47,210 40,305 24,474 18,762 16,014
Occupancy and equipment rental 14,036 15,701 13,003 13,047 11,657
Travel and promotional 17,710 15,300 10,703 7,770 7,538
Other 22,945 29,159 22,765 21,035 14,927
-------- -------- -------- -------- --------
Total non-interest expenses 456,269 500,838 326,997 251,589 193,961
-------- -------- -------- -------- --------
Earnings from continuing operations before income taxes 59,193 68,690 42,186 28,350 13,007
Income taxes 22,992 27,334 17,772 11,928 6,375
-------- -------- -------- -------- --------
Earnings from continuing operations 36,201 41,356 24,414 16,422 6,632
Discontinued operations, net of income tax (a) 33,481 22,211 19,146 12,107 13,592
-------- -------- -------- -------- --------
Net earnings $ 69,682 $ 63,567 $ 43,560 $ 28,529 $ 20,224
======== ======== ======== ======== ========
EARNINGS PER SHARE OF COMMON STOCK:
Basic:
Continuing operations $ 1.62 $ 1.92 $ 1.06 $ 0.71 $ 0.28
Discontinued operations of ITGI, net of taxes 1.50 1.03 0.84 0.52 0.56
-------- -------- -------- -------- --------
Net Earnings $ 3.12 $ 2.95 $ 1.90 $ 1.23 $ 0.84
======== ======== ======== ======== ========
Diluted:
Continuing operations $ 1.58 $ 1.85 $ 1.04 $ 0.69 $ 0.27
Discontinued operations of ITGI, net of taxes(a) 1.38 0.95 0.80 0.50 0.54
-------- -------- -------- -------- --------
Net Earnings $ 2.96 $ 2.80 $ 1.84 $ 1.19 $ 0.81
======== ======== ======== ======== ========
Weighted average shares of Common Stock:
Basic 22,346 21,552 22,980 23,270 23,956
Diluted 22,954 22,349 23,410 23,922 24,756
</TABLE>
(a) For the year ended December 31, 1998, Jefferies Group's cost associated with
the spin-off of $3.5 million or $.15 per diluted share are included in
discontinued operations.
A
<PAGE> 11
APPENDIX B
================================================================================
UNAUDITED QUARTERLY STATEMENTS OF EARNINGS -- "New JEF"
The unaudited financial data of New JEF presented below for each of the quarters
in the three-year period ended December 31, 1998, reflects the historical
financial statements of New JEF, as successor to Jefferies Group, Inc., and as
reclassified to show the effects on results of operations of New JEF assuming
the spin-off was consummated, and ITGI is reported as a discontinued operation.
<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1998 1997
----------------------------------------------- ---------------------
4th Qtr 3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr
----------------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Commissions $ 57,454 $ 49,399 $ 41,995 $ 42,022 $ 43,124 $ 35,266
Principal transactions 53,852 34,103 41,508 47,726 45,582 47,687
Corporate finance 17,047 13,489 41,716 54,399 88,164 47,511
Interest 23,011 25,934 23,111 18,968 18,303 21,114
Other 1,663 1,116 1,369 733 1,138 512
----------------------------------------------- ---------------------
Total revenues 153,027 124,041 149,699 163,848 196,311 152,090
Interest expense 17,835 20,303 20,058 16,957 15,424 18,554
----------------------------------------------- ---------------------
Revenues, net of interest expense 135,192 103,738 129,641 146,891 180,887 133,536
NON-INTEREST EXPENSES:
Compensation and benefits 84,780 63,855 77,878 95,430 117,788 87,473
Floor Brokerage and clearing fees 8,937 8,399 7,729 7,360 7,303 6,764
Communications 11,599 12,213 12,486 10,912 11,809 10,103
Occupancy and equipment rental 3,640 3,347 3,436 3,613 4,397 4,185
Travel and promotional 3,428 4,203 5,125 4,954 5,296 3,161
Other 6,422 4,891 6,236 5,396 12,291 6,771
----------------------------------------------- ---------------------
Total non-interest expenses 118,806 96,908 112,890 127,665 158,884 118,457
----------------------------------------------- ---------------------
Earnings from continuing operations
before income taxes 16,386 6,830 16,751 19,226 22,003 15,079
Income taxes 6,770 1,914 6,650 7,658 8,873 6,006
----------------------------------------------- ---------------------
Earnings from continuing operations 9,616 4,916 10,101 11,568 13,130 9,073
Discontinued operations, net of income taxes (a) 9,088 10,760 7,725 5,908 4,872 5,347
----------------------------------------------- ---------------------
Net earnings $ 18,704 $ 15,676 $ 17,826 $ 17,476 $ 18,002 $ 14,420
=============================================== =====================
Diluted earnings per
share from continuing operations $ 0.42 $ 0.21 $ 0.44 $ 0.51 $ 0.59 $ 0.41
Diluted earnings per
share from discontinued operations 0.37 0.45 0.32 0.24 0.20 0.22
----------------------------------------------- ---------------------
Diluted earnings per share $ 0.79 $ 0.66 $ 0.76 $ 0.75 $ 0.79 $ 0.63
=============================================== =====================
Diluted weighted average shares outstanding 23,097 22,965 22,909 22,864 22,399 22,300
</TABLE>
<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1997 1996
--------------------- -----------------------------------------------
2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
--------------------- -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Commissions $ 35,742 $ 34,808 $ 29,680 $ 25,180 $ 27,539 $ 31,113
Principal transactions 45,188 40,624 36,085 40,835 33,179 35,108
Corporate finance 66,008 26,957 39,715 20,299 22,008 15,848
Interest 17,393 13,846 11,529 11,121 11,854 12,939
Other 1,117 758 503 1,688 168 632
--------------------- -----------------------------------------------
Total revenues 165,448 116,993 117,512 99,123 94,748 95,640
Interest expense 15,462 11,874 9,711 8,621 9,446 10,062
--------------------- -----------------------------------------------
Revenues, net of interest expense 149,986 105,119 107,801 90,502 85,302 85,578
NON-INTEREST EXPENSES:
Compensation and benefits 99,536 68,822 68,402 56,823 54,965 54,256
Floor Brokerage and clearing fees 6,331 6,356 5,734 5,504 5,192 5,176
Communications 9,966 8,427 7,444 5,845 5,989 5,196
Occupancy and equipment rental 3,612 3,507 3,786 3,298 2,951 2,968
Travel and promotional 3,534 3,309 2,946 2,604 2,635 2,518
Other 5,605 4,492 7,281 5,100 5,539 4,845
--------------------- -----------------------------------------------
Total non-interest expenses 128,584 94,913 95,593 79,174 77,271 74,959
--------------------- -----------------------------------------------
Earnings from continuing operations
before income taxes 21,402 10,206 12,208 11,328 8,031 10,619
Income taxes 8,280 4,175 5,212 4,701 3,464 4,395
--------------------- -----------------------------------------------
Earnings from continuing operations 13,122 6,031 6,996 6,627 4,567 6,224
Discontinued operations, net of income taxes (a) 6,626 5,366 5,337 4,828 4,573 4,408
--------------------- -----------------------------------------------
Net earnings $ 19,748 $ 11,397 $ 12,333 $ 11,455 $ 9,140 $ 10,632
===================== ===============================================
Diluted earnings per
share from continuing operations $ 0.59 $ 0.27 $ 0.31 $ 0.29 $ 0.19 $ 0.26
Diluted earnings per
share from discontinued operations 0.28 0.23 0.23 0.20 0.20 0.18
--------------------- -----------------------------------------------
Diluted earnings per share $ 0.87 $ 0.50 $ 0.54 $ 0.49 $ 0.39 $ 0.44
===================== ===============================================
Diluted weighted average shares outstanding 22,290 22,324 22,762 23,246 23,566 24,082
</TABLE>
(a) For the first, second, third and fourth quarter of 1998, spin-off costs
incurred by Jefferies Group of $1.5 million, $1.0 million, $550,000 and
$460,000 are included in discontinued operations, respectively.
B
<PAGE> 12
APPENDIX C
================================================================================
UNAUDITED STATEMENTS OF FINANCIAL CONDITION -- "New JEF"
The unaudited financial data of New JEF presented below for each of the years in
the five-year period ended December 31, 1998, reflects the historical financial
statements of New JEF, as successor to Jefferies Group, Inc., and as
reclassified to show the effects on financial condition of New JEF assuming the
spin-off was consummated, and ITGI is reported as a discontinued operation.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) AS OF DECEMBER 31,
----------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 55,581 $ 58,225 $ 70,187 $ 50,358 $ 41,935
Cash and securities segregated and on deposit for
regulatory purposes or deposited with clearing and
depository organizations 62,518 30,977 29,107 2,294 10,152
Receivables from brokers and dealers 2,018,090 1,269,664 965,625 1,118,154 1,149,670
Receivables from customers, officers and directors 93,526 166,284 113,872 107,158 105,880
Securities owned 100,797 245,055 192,962 158,701 144,940
Investments 93,463 134,836 43,259 23,179 21,563
Net assets of discontinued operations 108,333 65,057 40,789 22,598 11,257
Premises and equipment 20,524 23,322 22,429 21,354 20,434
Other assets 65,032 64,686 55,676 16,153 32,295
---------- ---------- ---------- ---------- ----------
$2,617,864 $2,058,106 $1,533,906 $1,519,949 $1,538,126
========== ========== ========== ========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Bank loans $ 21,000 $ 0 $ 0 $ 0 $ 866
Payable to brokers and dealers 1,597,845 981,705 805,713 864,456 840,833
Repurchase agreements 5,061 0 0 0 18,696
Payable to customers 226,774 202,255 170,384 214,555 325,396
Securities sold, not yet purchased 39,365 188,700 123,089 82,932 60,587
Accrued expenses and other liabilities 243,657 293,400 186,288 115,423 68,943
---------- ---------- ---------- ---------- ----------
2,133,702 1,666,060 1,285,474 1,277,366 1,315,321
Long-term debt 149,387 149,290 52,987 56,322 59,570
---------- ---------- ---------- ---------- ----------
2,283,089 1,815,350 1,338,461 1,333,688 1,374,891
Stockholders' equity 334,775 242,756 195,445 186,261 163,235
---------- ---------- ---------- ---------- ----------
$2,617,864 $2,058,106 $1,533,906 $1,519,949 $1,538,126
========== ========== ========== ========== ==========
</TABLE>
C
<PAGE> 13
APPENDIX D
================================================================================
UNAUDITED SELECTED HISTORICAL FINANCIAL DATA OF JEFFERIES GROUP, INC.
<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT
PER SHARE AMOUNTS) THREE MONTHS ENDED YEAR ENDED DECEMBER 31,
--------------------------- ------------------------------------------------------------
DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997 1996 1995 1994
--------------------------- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS(a)
Net revenues $194,341 $215,556 $723,532 $703,038 $478,774 $351,222 $262,538
Operating income 39,041 32,651 138,192 115,950 83,187 53,238 30,779
Earnings before income taxes
and minority interest 39,041 32,651 138,192 115,950 83,187 53,238 39,036
Income taxes 18,037 13,612 60,533 47,677 35,438 21,911 17,568
Minority interest 2,300 1,037 7,977 4,706 4,189 2,798 1,244
--------------------------- ------------------------------------------------------------
Net earnings $ 18,704 $ 18,002 $ 69,682 $ 63,567 $ 43,560 $ 28,529 $ 20,224
EARNINGS PER SHARE
Diluted earnings per share $ 0.79 $ 0.79 $ 2.96 $ 2.80 $ 1.84 $ 1.19 $ 0.81
Diluted weighted average
shares outstanding 23,097 22,399 22,954 22,349 23,410 23,922 24,756
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------------------------
1998 1997 1996 1995 1994
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FINANCIAL CONDITION(a)
Cash, cash equivalents, and short-term investments $ 278,733 $ 224,465 $ 180,435 $ 72,821 $ 73,533
Total assets 2,683,640 2,099,542 1,568,087 1,536,969 1,557,348
Long-term debt 149,387 149,290 52,987 56,322 59,570
Stockholders' equity 334,775 242,756 195,445 186,261 163,235
Shares outstanding 21,230 20,286 20,726 22,514 22,420
SELECTED RATIOS:
Pre-tax margin (as a % of net revenue) 19% 16% 17% 15% 15%
Return on average equity 24% 30% 23% 17% 13%
Book value per share outstanding $ 15.77 $ 11.97 $ 9.43 $ 8.28 $ 7.28
</TABLE>
(a) ITGI is fully consolidated into Jefferies Group, Inc. The minority
interest in ITGI is recorded as a liability. This liability representing
the minority interest is increased each period by the minority's share of
net income from ITGI and such amount is deducted from the determination of
net earnings of Jefferies Group, Inc.
D
