<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: November 6, 1998
Date of Earliest Event Reported: March 17, 1998
INVESTMENT TECHNOLOGY GROUP, INC.
Delaware 0-23644 13-3757717
(State of (Commission File (IRS Employer
Incorporation) Number) Identification
Number)
380 Madison Avenue
New York, New York 10017
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (212) 588-4000
================================================================================
<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 quarter ended September 25, 1998. This information is
available on the website of 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: November 6, 1998 INVESTMENT TECHNOLOGY GROUP, INC.
By: /s/ JOHN R. MacDONALD
-------------------------------
John R. MacDonald
Senior Vice President and
Chief Financial Officer
<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
Selected Financial Information................................................. 4-6
Appendix
Jefferies Group, Inc. Consolidating Statements of Financial Condition.......... A
Jefferies Group, Inc. Consolidating Statements of Earnings for Three Months
Ended September 25, 1998 & September 26, 1997.................... B
Jefferies Group, Inc. Consolidating Statements of Earnings for Nine Months
Ended September 25, 1998 & September 26, 1997.................... C
Jefferies Group, Inc. Consolidating Statements of Earnings for Three Years
Ended December 31, 1997 ......................................... D
JEFCO Quarterly Statements of Earnings ........................................ E
JEFCO Annual Statements of Earnings ........................................... F
</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
================================================================================
On March 17, 1998, Jefferies Group, Inc. and Investment Technology Group, Inc.
announced plans to separate Jefferies & Company, Inc. and Investment Technology
Group, Inc. through a spin-off.
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 "JEFCO"); and 81.4
percent-owned Investment Technology Group, Inc., the leading provider of
technology-based equity trading services and transaction research to
institutional investors and brokers.
According to the plan, Jefferies Group shareholders will own 100% of JEFCO and
approximately 81.4% of ITGI when the transaction closes. The public ITGI
shareholders will continue to own approximately 18.6% of ITGI. The spin-off will
be accomplished by a tax-free distribution of 100% of the shares of a new
holding company, JEFCO, to Jefferies Group shareholders. Jefferies Group's 15
million shares of ITGI would then be its only asset. (As of September 25, 1998,
total outstanding shares of ITGI were 18.4 million.) The spin-off would be
followed immediately by a tax-free merger of Jefferies Group and ITGI.
Jefferies Group is seeking a ruling from the IRS regarding the tax-free nature
of the distribution of JEFCO and expects to complete the transaction in January
1999.
1
<PAGE> 4
PLANNED TRANSACTION
================================================================================
Jefferies Group and ITGI expect that both companies will have financial strength
and flexibility for future growth. The spin-off plan calls for:
o Increasing JEFCO's capital base through a combination of
Jefferies Group stock option exercises, termination of Jefferies
Group's deferred compensation plan, various tax benefits and a
special dividend of approximately $50-75 million from ITGI to
all of its stockholders. It is currently anticipated that at the
transaction closing date, JEFCO will have a minimum equity
capital base of $320 million and ITGI will have a minimum equity
capital base of $20 million.
o Assumption by JEFCO of Jefferies Group's existing $150 million
senior unsecured debt obligation.
o Establishing an employee stock ownership plan at JEFCO, which
will further align the interests of employees and stockholders
at JEFCO by providing equity-based compensation incentives
linked directly to JEFCO's operating performance.
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 and ITGI, receipt of a favorable tax ruling from
the IRS and other required regulatory and contractual approvals.
2
<PAGE> 5
PLANNED TRANSACTION
================================================================================
<TABLE>
<S> <C> <C> <C>
-------------------
/ JEF GROUP /
/---------> / SHAREHOLDERS /
/ / 100% OWNERSHIP /
/ -------------------
/ /
/ /
/ /
/ -------------------
/ / / ---------------------
/ / JEFFERIES / / ITGI /
/ / --------- / / MINORITY INTEREST /
/ / GROUP, INC. /-----------------------------/ /
------------ / / / /
/ SPIN-OFF / / 81% OWNERSHIP / / 19% OWNERSHIP /
------------ ------------------- --------------------
/ / / /
/ / / UPSTREAM MERGER /
/ / / --------------- /
/ / / - MERGE ITGI INTO JEF GROUP AND /
/ / / EXCHANGE MINORITY INTEREST SHARES /
/ / / IN ITGI FOR JEF GROUP SHARES /
/ / / - CHANGE JEF GROUP NAME TO ITGI /
/ / / /
/ / / /
------------ / ---------------- /
/ / / / INVESTMENT / /
/ "JEFCO" / ------------/ TECHNOLOGY /------------------
/ / / GROUP, INC. /
----------- ----------------
- - - Post Spin-Off - - Post Spin-Off
Minimum Equity: $320mm Minimum Equity: $20mm
</TABLE>
3
<PAGE> 6
JEFFERIES GROUP, INC. CONSOLIDATED FINANCIAL INFORMATION
================================================================================
SELECTED CONSOLIDATED FINANCIAL DATA
- --------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------ ------------------------------
SEPTEMBER 25, SEPTEMBER 26, SEPTEMBER 25, SEPTEMBER 26,
1998 1997 1998 1997
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
STATEMENT OF EARNINGS(a)
Net Revenues $ 163,932 $ 166,263 $ 529,191 $ 487,482
Operating Income 32,009 26,405 99,151 83,299
Income Taxes 13,761 10,863 42,496 34,065
Minority Interest 2,572 1,122 5,677 3,669
------------ ------------ ------------ ------------
Net Earnings $ 15,676 $ 14,420 $ 50,978 $ 45,565
EARNINGS PER SHARE
Diluted Earnings $ 0.66 $ 0.63 $ 2.18 $ 2.01
Diluted Weighted Average Shares Outstanding 22,965 22,300 22,918 22,310
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1997 1996 1995
------------------------------------------------
<S> <C> <C> <C>
STATEMENT OF EARNINGS(a)
Net Revenues $ 703,038 $ 478,774 $ 351,222
Operating Income 115,950 83,187 53,238
Income Taxes 47,677 35,438 21,911
Minority Interest 4,706 4,189 2,798
------------ ------------ ------------
Net Earnings $ 63,567 $ 43,560 $ 28,529
EARNINGS PER SHARE
Diluted Earnings $ 2.80 $ 1.84 $ 1.19
Diluted Weighted Average Shares Outstanding 22,349 23,410 23,922
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
---------------- ------------------------------------------
SEPTEMBER 25,
1998 1997 1996 1995
---------------- ------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL CONDITION(a)
Cash, Cash Equivalents, and Short Term Investments $ 374,193 $ 224,465 $ 180,435 $ 72,821
Total Assets 2,588,426 2,099,542 1,568,087 1,536,969
Long-Term Debt 149,363 149,290 52,987 56,322
Stockholders' Equity 303,623 242,756 195,445 186,261
Shares Outstanding 21,030 20,286 20,726 22,514
SELECTED RATIOS:
Pre-Tax Margin (as a % of Net Revenue) 19% 16% 17% 15%
Return on Average Equity 25%(b) 30% 23% 17%
Book Value Per Share Outstanding $ 14.44 $ 11.97 $ 9.43 $ 8.28
</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 from Jefferies Group, Inc.
(b) Annualized Return on Average Equity.
4
<PAGE> 7
SEGMENT FINANCIAL INFORMATION - "JEFCO"
================================================================================
SELECTED FINANCIAL DATA
The following represents historical financial information of Jefferies Group,
Inc.'s core brokerage and banking business - "JEFCO."
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------- ----------------------------
SEPTEMBER 25, SEPTEMBER 26, SEPTEMBER 25, SEPTEMBER 26,
1998 1997 1998 1997
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
STATEMENT OF EARNINGS(c)
Net Revenues $ 103,738 $ 133,536 $ 380,270 $ 388,641
Contribution to Consolidated Jefferies Group, Inc. Net Earnings 4,364 9,073 25,481 28,226
EARNINGS PER SHARE
Contribution to Consolidated Jefferies Group, Inc.
Diluted Earnings(a) $ 0.19 $ 0.41 $ 1.11 $ 1.27
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1997 1996 1995
--------------------------------------------
<S> <C> <C> <C>
STATEMENT OF EARNINGS(c)
Net Revenues $ 569,528 $ 369,183 $ 279,939
Contribution to Consolidated Jefferies Group, Inc. Net Earnings 41,356 24,414 16,422
EARNINGS PER SHARE
Contribution to Consolidated Jefferies Group, Inc.
Diluted Earnings(a) $ 1.85 $ 1.04 $ 0.69
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
---------------- ------------------------------------------
SEPTEMBER 25,
1998 1997 1996 1995
---------------- ------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL CONDITION(c)
Cash, Cash Equivalents, and Short Term Investments $ 276,491 $ 173,202 $ 136,480 $ 54,861
Total Assets 2,430,991 1,994,684 1,493,117 1,497,351
Long-Term Debt 149,363 149,290 52,987 56,322
Stockholders' Equity 199,923 165,568 140,314 149,163
SELECTED RATIOS:
Pre-Tax Margin (as a % of Net Revenue) 11% 12% 11% 10%
Return on Average Equity 17%(b) 27% 17% 11%
</TABLE>
(a) Contribution is calculated based on consolidated Jefferies Group, Inc.
diluted weighted average shares outstanding.
(b) Annualized Return on Average Equity.
(c) Subsequent to the completion of the transaction, ITGI will be shown
as a discontinued operation on the JEFCO financial statements.
5
<PAGE> 8
SEGMENT FINANCIAL INFORMATION - "ITGI"
================================================================================
SELECTED FINANCIAL DATA
The following represents historical financial information of Jefferies Group,
Inc.'s equity ownership of approximately 81% currently of Investment Technology
Group, Inc. - "ITGI."
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------- ----------------------------
SEPTEMBER 25, SEPTEMBER 26, SEPTEMBER 25, SEPTEMBER 26,
1998 1997 1998 1997
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
STATEMENT OF EARNINGS
Net Revenues $ 57,680 $ 33,430 $ 149,958 $ 100,663
Contribution to Consolidated Jefferies Group, Inc.
Net Earnings(a) 11,312 5,347 25,497 17,339
EARNINGS PER SHARE
Contribution to Consolidated Jefferies Group, Inc.
Diluted Earnings(b) $ 0.47 $ 0.22 $ 1.07 $ 0.74
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1997 1996 1995
--------------------------------------------
<S> <C> <C> <C>
STATEMENT OF EARNINGS
Net Revenues $ 136,896 $ 111,333 $ 72,328
Contribution to Consolidated Jefferies Group, Inc.
Net Earnings(a) 22,211 19,146 12,107
EARNINGS PER SHARE
Contribution to Consolidated Jefferies Group, Inc.
Diluted Earnings(b) $ 0.95 $ 0.80 $ 0.50
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
--------------- ------------------------------------------
SEPTEMBER 25,
1998 1997 1996 1995
--------------- ------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL CONDITION
Cash, Cash Equivalents, and Short Term Investments $ 97,702 $ 51,263 $ 43,955 $ 17,960
Total Assets 166,652 113,641 82,798 55,318
Long-Term Debt 0 0 0 0
Selected Ratios:
Pre-Tax Margin (as a % of Net Revenue) 38% 35% 37% 34%
</TABLE>
(a) Contribution to consolidated Jefferies Group, Inc. net earnings
represent Jefferies Group, Inc.'s ownership percentage of approximately
81% of ITGI.
(b) Contribution is calculated based on consolidated Jefferies Group, Inc.
diluted weighted average shares outstanding including earnings
adjustments for stock options of ITGI.
6
<PAGE> 9
APPENDIX A
================================================================================
JEFFERIES GROUP INC. CONSOLIDATING STATEMENTS OF FINANCIAL CONDITION AS OF
SEPTEMBER 25, 1998 AND DECEMBER 31, 1997
The following table represents the historical assets and liabilities of
Jefferies Group, Inc. broken down between its core brokerage and banking
business - "JEFCO" - and its approximately 81% ownership interest of ITGI.
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF SEPTEMBER 25, 1998
--------------------------------------------
JEFFERIES
ITGI(a) JEFCO(a)(b) GROUP, INC.
-------------- ------------- ------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 97,702 $ 60,248 $ 157,950
Cash and securities segregated and on deposit for
regulatory purposes or deposited with clearing and
depository organizations 0 48,498 48,498
Receivables from brokers and dealers 5,377 1,835,225 1,835,225
Receivables from customers, officers and directors 0 146,763 146,763
Securities owned 272 135,861 136,133
Investments 11,308 139,119 150,427
Premises and equipment 19,270 20,422 39,692
Other assets 32,723 44,855 73,738
------------ ------------ ------------
$ 166,652 $ 2,430,991 $ 2,588,426
============ ============ ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Bank loans $ 2,000 $ 0 $ 2,000
Payable to brokers and dealers 0 1,580,937 1,580,937
Payable to customers 0 185,070 185,070
Securities sold, not yet purchased 170 63,545 63,715
Accrued expenses and other liabilities 37,117 252,153 280,053
------------ ------------ ------------
39,287 2,081,705 2,111,775
Long-term debt 0 149,363 149,363
Minority interest 23,665 0 23,665
------------ ------------ ------------
62,952 2,231,068 2,284,803
Stockholders' equity 103,700 199,923 303,623
------------ ------------ ------------
$ 166,652 $ 2,430,991 $ 2,588,426
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
--------------------------------------------
JEFFERIES
ITGI(a) JEFCO(a)(b) GROUP, INC.
------------ ------------ -------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 51,263 $ 58,225 $ 109,488
Cash and securities segregated and on deposit for
regulatory purposes or deposited with clearing and
depository organizations 0 30,977 30,977
Receivables from brokers and dealers 2,931 1,269,664 1,269,664
Receivables from customers, officers and directors 0 166,284 166,284
Securities owned 358 245,055 245,413
Investments 10,935 143,649 154,584
Premises and equipment 19,506 23,322 42,828
Other assets 28,648 57,508 80,304
------------ ------------ ------------
$ 113,641 $ 1,994,684 $ 2,099,542
============ ============ ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Bank loans $ 0 $ 0 $ 0
Payable to brokers and dealers 0 981,705 981,705
Payable to customers 0 202,255 202,255
Securities sold, not yet purchased 3 188,700 188,703
Accrued expenses and other liabilities 19,875 307,166 318,258
------------ ------------ ------------
19,878 1,679,826 1,690,921
Long-term debt 0 149,290 149,290
Minority interest 16,575 0 16,575
------------ ------------ ------------
36,453 1,829,116 1,856,786
Stockholders' equity 77,188 165,568 242,756
------------ ------------ ------------
$ 113,641 $ 1,994,684 $ 2,099,542
============ ============ ============
</TABLE>
(a) Each company's financial statements, which are shown here on a stand
alone basis, include intercompany balances which would eliminate in
consolidation. As a result, the sum of the two companies may not total
the consolidated Jefferies Group, Inc. balance shown.
(b) Subsequent to the completion of the transaction, ITGI will be shown as
a discontinued operation on the JEFCO financial statements.
7
<PAGE> 10
APPENDIX B
================================================================================
JEFFERIES GROUP, INC. CONSOLIDATING STATEMENTS OF EARNINGS FOR THREE MONTHS
ENDED SEPTEMBER 25, 1998 AND SEPTEMBER 26, 1997
The following table represents the results of operations of Jefferies Group,
Inc. broken down between its core brokerage and banking business - "JEFCO" - and
its approximately 81% ownership interest of ITGI.
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 25, 1998
------------------------------------------------
JEFFERIES
ITGI(a) JEFCO(a)(c) GROUP, INC.
------------------------------------------------
<S> <C> <C> <C>
Total revenues $57,697 $124,041 $184,281
Interest expense 17 20,303 20,349
--------------------------------------------
Revenues, net of interest expense 57,680 103,738 163,932
Total non-interest expenses 31,949 97,460 131,923
--------------------------------------------
Earnings before income taxes and minority interest 25,731 6,278 32,009
Income taxes 11,847 1,914 13,761
--------------------------------------------
Earnings before minority interest 13,884 4,364 18,248
Minority interest 2,572 0 2,572
--------------------------------------------
Net earnings $11,312 $ 4,364 $ 15,676
EARNINGS PER SHARE
Basic Earnings(b) $ 0.51 $ 0.19 $ 0.70
Diluted Earnings(b) $ 0.47 $ 0.19 $ 0.66
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 26, 1997
------------------------------------------------
JEFFERIES
ITGI(a) JEFCO(a)(c) GROUP, INC.
------------------------------------------------
<S> <C> <C> <C>
Total revenues $33,437 $152,090 $184,823
Interest expense 7 18,554 18,560
--------------------------------------------
Revenues, net of interest expense 33,430 133,536 166,263
Total non-interest expenses 22,104 118,457 139,858
--------------------------------------------
Earnings before income taxes and minority interest 11,326 15,079 26,405
Income taxes 4,857 6,006 10,863
--------------------------------------------
Earnings before minority interest 6,469 9,073 15,542
Minority interest 1,122 0 1,122
--------------------------------------------
Net earnings $ 5,347 $ 9,073 $ 14,420
EARNINGS PER SHARE
Basic Earnings(b) $ 0.25 $ 0.42 $ 0.67
Diluted Earnings(b) $ 0.22 $ 0.41 $ 0.63
</TABLE>
(a) Each company's financial statements, which are shown here on a stand
alone basis, include intercompany balances which would eliminate in
consolidation. As a result, the sum of the two companies may not total
the consolidated Jefferies Group, Inc. balance shown.
(b) For ITGI and JEFCO, the earnings per share represent the contribution to
consolidated Jefferies Group, Inc. earnings per share for basic and
diluted.
(c) Subsequent to the completion of the transaction, ITGI will be shown as
a discontinued operation on the JEFCO financial statements.
8
<PAGE> 11
APPENDIX C
================================================================================
JEFFERIES GROUP, INC. CONSOLIDATING STATEMENTS OF EARNINGS FOR NINE MONTHS ENDED
SEPTEMBER 25, 1998 AND SEPTEMBER 26, 1997
The following table represents the results of operations of Jefferies Group,
Inc. broken down between its core brokerage and banking business - "JEFCO" - and
its approximately 81% ownership interest of ITGI.
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 25, 1998
--------------------------------------------
JEFFERIES
ITGI(a) JEFCO(a)(c) GROUP, INC.
--------------------------------------------
<S> <C> <C> <C>
Total revenues $ 149,989 $ 437,588 $ 586,521
Interest expense 31 57,318 57,330
---------- ---------- ----------
Revenues, net of interest expense 149,958 380,270 529,191
Total non-interest expenses 92,510 338,567 430,040
---------- ---------- ----------
Earnings before income taxes and minority interest 57,448 41,703 99,151
Income taxes 26,274 16,222 42,496
---------- ---------- ----------
Earnings before minority interest 31,174 25,481 56,655
Minority interest 5,677 0 5,677
---------- ---------- ----------
Net earnings $ 25,497 $ 25,481 $ 50,978
EARNINGS PER SHARE
Basic Earnings(b) $ 1.14 $ 1.15 $ 2.29
Diluted Earnings(b) $ 1.07 $ 1.11 $ 2.18
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 26, 1997
--------------------------------------------
JEFFERIES
ITGI(a) JEFCO(a)(c) GROUP, INC.
--------------------------------------------
<S> <C> <C> <C>
Total revenues $ 100,770 $ 434,531 $ 533,486
Interest expense 107 45,890 46,004
---------- ---------- ----------
Revenues, net of interest expense 100,663 388,641 487,482
Total non-interest expenses 64,051 341,954 404,183
---------- ---------- ----------
Earnings before income taxes and minority interest 36,612 46,687 83,299
Income taxes 15,604 18,461 34,065
---------- ---------- ----------
Earnings before minority interest 21,008 28,226 49,234
Minority interest 3,669 0 3,669
---------- ---------- ----------
Net earnings $ 17,339 $ 28,226 $ 45,565
EARNINGS PER SHARE
Basic Earnings(b) $ 0.81 $ 1.31 $ 2.12
Diluted Earnings(b) $ 0.74 $ 1.27 $ 2.01
</TABLE>
(a) Each company's financial statements, which are shown here on a stand
alone basis, include intercompany balances which would eliminate in
consolidation. As a result, the sum of the two companies may not total
the consolidated Jefferies Group, Inc. balance shown.
(b) For ITGI and JEFCO, the earnings per share represent the contribution to
consolidated Jefferies Group, Inc. earnings per share for basic and
diluted.
(c) Subsequent to the completion of the transaction, ITGI will be shown as a
discontinued operation of the JEFCO financial statements.
9
<PAGE> 12
APPENDIX D
================================================================================
JEFFERIES GROUP, INC. CONSOLIDATING STATEMENTS OF EARNINGS FOR THREE YEARS
ENDED DECEMBER 31, 1997
The following table represents the results of operations of Jefferies Group,
Inc. broken down between its core brokerage and banking business - "JEFCO" - and
its approximately 81% ownership interest of ITGI.
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
--------------------------------------------
JEFFERIES
ITGI(a) JEFCO(a)(c) GROUP, INC.
------------ ------------ ------------
<S> <C> <C> <C>
Total revenues $ 137,042 $ 630,842 $ 764,504
Interest expense 146 61,314 61,466
------------ ------------ ------------
Revenues, net of interest expense 136,896 569,528 703,038
Total non-interest expenses 89,636 500,838 587,088
------------ ------------ ------------
Earnings before income taxes and minority interest 47,260 68,690 115,950
Income taxes 20,343 27,334 47,677
------------ ------------ ------------
Earnings before minority interest 26,917 41,356 68,273
Minority interest 4,706 0 4,706
------------ ------------ ------------
Net earnings $ 22,211 $ 41,356 $ 63,567
EARNINGS PER SHARE
Basic Earnings(b) $ 1.03 $ 1.92 $ 2.95
Diluted Earnings(b) $ 0.95 $ 1.85 $ 2.80
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
--------------------------------------------
JEFFERIES
ITGI(a) JEFCO(a)(c) GROUP, INC.
------------ ------------ ------------
<S> <C> <C> <C>
Total revenues $ 111,556 $ 407,023 $ 516,626
Interest expense 223 37,840 37,852
------------ ------------ ------------
Revenues, net of interest expense 111,333 369,183 478,774
Total non-interest expenses 70,332 326,997 395,587
------------ ------------ ------------
Earnings before income taxes and minority interest 41,001 42,186 83,187
Income taxes 17,666 17,772 35,438
------------ ------------ ------------
Earnings before minority interest 23,335 24,414 47,749
Minority interest 4,189 0 4,189
------------ ------------ ------------
Net earnings $ 19,146 $ 24,414 $ 43,560
EARNINGS PER SHARE
Basic Earnings(b) $ 0.84 $ 1.06 $ 1.90
Diluted Earnings(b) $ 0.80 $ 1.04 $ 1.84
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
--------------------------------------------
JEFFERIES
ITGI(a) JEFCO(a)(c) GROUP, INC.
------------ ------------ ------------
<S> <C> <C> <C>
Total revenues $ 72,381 $ 334,282 $ 405,587
Interest expense 53 54,343 54,365
------------ ------------ ------------
Revenues, net of interest expense 72,328 279,939 351,222
Total non-interest expenses 47,440 251,589 297,984
------------ ------------ ------------
Earnings before income taxes and minority interest 24,888 28,350 53,238
Income taxes 9,983 11,928 21,911
------------ ------------ ------------
Earnings before minority interest 14,905 16,422 31,327
Minority interest 2,798 0 2,798
------------ ------------ ------------
Net earnings $ 12,107 $ 16,422 $ 28,529
EARNINGS PER SHARE
Basic Earnings(b) $ 0.52 $ 0.71 $ 1.23
Diluted Earnings(b) $ 0.50 $ 0.69 $ 1.19
</TABLE>
(a) Each company's financial statements, which are shown here on a stand
alone basis, include intercompany balances which would eliminate in
consolidation. As a result, the sum of the two companies may not total
the consolidated Jefferies Group, Inc. balance shown.
(b) For ITGI and JEFCO, the earnings per share represent the contribution to
consolidated Jefferies Group, Inc. earnings per share for basic and
diluted.
(c) Subsequent to the completion of the transaction, ITGI will be shown as
a discontinued operation on the JEFCO financial statements.
10
<PAGE> 13
APPENDIX E
================================================================================
JEFCO QUARTERLY STATEMENTS OF EARNINGS
(Dollars in thousands)
<TABLE>
<CAPTION>
1998
--------------------------------------------
3rd Qtr 2nd Qtr 1st Qtr
--------------------------------------------
<S> <C> <C> <C>
Revenues:
Commissions $ 49,399 $ 41,995 $ 42,022
Principal transactions 34,103 41,508 47,726
Corporate finance 13,489 41,716 54,399
Interest 25,934 23,111 18,968
Other 1,116 1,369 733
--------------------------------------------
Total revenues 124,041 149,699 163,848
Interest expense 20,303 20,058 16,957
--------------------------------------------
Revenues, net of interest expense 103,738 129,641 146,891
Non-interest expenses:
Compensation and benefits 63,855 77,878 95,430
Floor Brokerage and clearing fees 8,399 7,729 7,360
Communications 12,213 12,486 10,912
Occupancy and equipment rental 3,347 3,436 3,613
Travel and promotional 4,203 5,125 4,954
Other 5,443 6,637 5,547
--------------------------------------------
Total non-interest expenses 97,460 113,291 127,816
--------------------------------------------
Earnings before income taxes 6,278 16,350 19,075
Income taxes 1,914 6,650 7,658
--------------------------------------------
Net earnings $ 4,364 $ 9,700 $ 11,417
</TABLE>
<TABLE>
<CAPTION>
1997
------------------------------------------------------------
4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Commissions $ 43,124 $ 35,266 $ 35,742 $ 34,808
Principal transactions 45,582 47,687 45,188 40,624
Corporate finance 88,164 47,511 66,008 26,957
Interest 18,303 21,114 17,393 13,846
Other 1,138 512 1,117 758
--------------------------------------------------------
Total revenues 196,311 152,090 165,448 116,993
Interest expense 15,424 18,554 15,462 11,874
--------------------------------------------------------
Revenues, net of interest expense 180,887 133,536 149,986 105,119
Non-interest expenses:
Compensation and benefits 117,788 87,473 99,536 68,822
Floor Brokerage and clearing fees 7,303 6,764 6,331 6,356
Communications 11,809 10,103 9,966 8,427
Occupancy and equipment rental 4,397 4,185 3,612 3,507
Travel and promotional 5,296 3,161 3,534 3,309
Other 12,291 6,771 5,605 4,492
--------------------------------------------------------
Total non-interest expenses 158,884 118,457 128,584 94,913
--------------------------------------------------------
Earnings before income taxes 22,003 15,079 21,402 10,206
Income taxes 8,873 6,006 8,280 4,175
--------------------------------------------------------
Net earnings $ 13,130 $ 9,073 $ 13,122 $ 6,031
</TABLE>
<TABLE>
<CAPTION>
1996
------------------------------------------------------------
4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Commissions $ 29,680 $ 25,180 $ 27,539 $ 31,113
Principal transactions 36,085 40,835 33,179 35,108
Corporate finance 39,715 20,299 22,008 15,848
Interest 11,529 11,121 11,854 12,939
Other 503 1,688 168 632
--------------------------------------------------------
Total revenues 117,512 99,123 94,748 95,640
Interest expense 9,711 8,621 9,446 10,062
--------------------------------------------------------
Revenues, net of interest expense 107,801 90,502 85,302 85,578
Non-interest expenses:
Compensation and benefits 68,402 56,823 54,965 54,256
Floor Brokerage and clearing fees 5,734 5,504 5,192 5,176
Communications 7,444 5,845 5,989 5,196
Occupancy and equipment rental 3,786 3,298 2,951 2,968
Travel and promotional 2,946 2,604 2,635 2,518
Other 7,281 5,100 5,539 4,845
--------------------------------------------------------
Total non-interest expenses 95,593 79,174 77,271 74,959
--------------------------------------------------------
Earnings before income taxes 12,208 11,328 8,031 10,619
Income taxes 5,212 4,701 3,464 4,395
--------------------------------------------------------
Net earnings $ 6,996 $ 6,627 $ 4,567 $ 6,224
</TABLE>
NOTE: Subsequent to the completion of the transaction, ITGI will be shown as a
discontinued operation on the JEFCO financial statements.
11
<PAGE> 14
APPENDIX F
- --------------------------------------------------------------------------------
JEFCO STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
(Dollars in thousands) YEAR ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
------------------------------------
<S> <C> <C> <C>
REVENUES:
Commissions $148,940 $113,512 $ 95,892
Principal transactions 179,081 145,207 98,629
Corporate finance 228,640 97,870 72,003
Interest 70,656 47,443 65,784
Other 3,525 2,991 1,974
------------------------------------
Total revenues 630,842 407,023 334,282
Interest expense 61,314 37,840 54,343
------------------------------------
Revenues, net of interest expense 569,528 369,183 279,939
------------------------------------
NON-INTEREST EXPENSES:
Compensation and benefits 373,619 234,446 175,101
Floor brokerage and clearing fees 26,754 21,606 15,874
Telecommunications and data processing services 40,305 24,474 18,762
Occupancy and equipment rental 15,701 13,003 13,047
Travel and promotional 15,300 10,703 7,770
Other 29,159 22,765 21,035
------------------------------------
Total non-interest expenses 500,838 326,997 251,589
------------------------------------
Operating income 68,690 42,186 28,350
OTHER INCOME:
Gain on initial public offering of Investment Technology Group, Inc. 0 0 0
------------------------------------
Earnings from continuing operations before income
taxes and cumulative effect of change in accounting principle 68,690 42,186 28,350
Income taxes 27,334 17,772 11,928
------------------------------------
Earnings from continuing operations before cumulative
effect of change in accounting principle 41,356 24,414 16,422
Cumulative effect on prior years of change in accounting principle 0 0 0
------------------------------------
NET EARNINGS $ 41,356 $ 24,414 $ 16,422
====================================
</TABLE>
<TABLE>
<CAPTION>
(Dollars in thousands) YEAR ENDED DECEMBER 31,
----------------------
1994 1993
----------------------
<S> <C> <C>
REVENUES:
Commissions $ 89,459 $ 82,066
Principal transactions 67,412 83,361
Corporate finance 39,818 72,442
Interest 50,918 21,600
Other 948 1,458
----------------------
Total revenues 248,555 260,927
Interest expense 41,587 17,457
----------------------
Revenues, net of interest expense 206,968 243,470
----------------------
NON-INTEREST EXPENSES:
Compensation and benefits 127,826 143,008
Floor brokerage and clearing fees 15,999 12,430
Telecommunications and data processing services 16,014 15,217
Occupancy and equipment rental 11,657 10,021
Travel and promotional 7,538 6,869
Other 14,927 15,007
----------------------
Total non-interest expenses 193,961 202,552
----------------------
Operating Income 13,007 40,918
OTHER INCOME:
Gain on initial public offering of Investment Technology Group, Inc. 38,420 0
----------------------
Earnings from continuing operations before income
taxes and cumulative effect of change in accounting principle 51,427 40,918
Income taxes 22,097 16,656
----------------------
Earnings from continuing operations before cumulative
effect of change in accounting principle 29,330 24,262
Cumulative effect on prior years of change in accounting principle 0 1,358
----------------------
NET EARNINGS $ 29,330 $ 25,620
======================
</TABLE>
NOTE: Subsequent to the completion of the transaction, ITGI will be shown as a
discontinued operation on the JEFCO financial statements.
