10-Q 1 v72193e10-q.txt FORM 10-Q 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 30, 2001 ------------------ 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 1-14947 JEFFERIES GROUP, INC. (Exact name of registrant as specified in its charter) DELAWARE 95-4719745 ----------------------------------- --------------------- (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 30, 2001, the registrant had 24,986,253 common shares, $.0001 par value, outstanding. Page 1 of 15 2 JEFFERIES GROUP, INC. AND SUBSIDIARIES INDEX TO QUARTERLY REPORT ON FORM 10-Q MARCH 30, 2001
Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Financial Condition - March 30, 2001 (unaudited) and December 31, 2000............................. 3 Consolidated Statements of Earnings (unaudited) - Three Months Ended March 30, 2001 and March 31, 2000......................... 4 Consolidated Statement of Changes in Stockholders' Equity (unaudited) - Three Months Ended March 30, 2001............................................ 5 Consolidated Statements of Cash Flows (unaudited) - Three Months Ended March 30, 2001 and March 31, 2000......................... 6 Notes to Consolidated Financial Statements (unaudited)......................... 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................... 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings.............................................................. 14 Item 6. Exhibits and Reports on Form 8-K............................................... 14
Page 2 of 15 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)
March 30, December 31, 2001 2000 ------------ ------------ ASSETS (unaudited) Cash and cash equivalents .............................. $ 54,346 $ 24,996 Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations .............................. 185,619 206,444 Receivable from brokers and dealers .................... 4,663,340 2,860,677 Receivable from customers, officers and directors ...... 192,841 254,562 Securities owned ....................................... 210,737 224,738 Securities pledged to creditors ........................ 82,898 96,324 Investments ............................................ 149,357 136,047 Premises and equipment ................................. 47,848 43,635 Other assets ........................................... 130,108 110,446 ----------- ----------- $ 5,717,094 $ 3,957,869 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Payable to brokers and dealers ......................... $ 4,415,500 $ 2,423,488 Payable to customers ................................... 326,293 501,786 Securities sold, not yet purchased ..................... 146,222 171,685 Accrued expenses and other liabilities ................. 193,387 249,918 ----------- ----------- 5,081,402 3,346,877 Long-term convertible debt ............................. 2,774 2,963 Long-term debt ......................................... 149,607 149,582 ----------- ----------- 5,233,783 3,499,422 ----------- ----------- STOCKHOLDERS' EQUITY: Preferred stock, $.0001 par value. Authorized 10,000,000 shares; none issued ..................... -- -- Common stock, $.0001 par value. Authorized 100,000,000 shares; issued 25,713,792 shares in 2001 and 25,177,419 shares in 2000 ...................... 3 3 Additional paid-in capital ........................... 105,535 86,004 Retained earnings .................................... 399,290 384,846 Less: Treasury stock, at cost, 727,539 shares in 2001 and 489,039 shares in 2000 ........................... (17,068) (10,383) Accumulated other comprehensive loss: Currency translation adjustments ................. (3,311) (885) Additional minimum pension liability ............. (1,138) (1,138) ----------- ----------- Total accumulated other comprehensive loss ......... (4,449) (2,023) ----------- ----------- Total stockholders' equity ..................... 483,311 458,447 ----------- ----------- $ 5,717,094 $ 3,957,869 =========== ===========
See accompanying unaudited notes to consolidated financial statements. Page 3 of 15 4 JEFFERIES GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended ------------------------ March 30, March 31, 2001 2000 --------- ---------- Revenues: Commissions ..................... $ 60,548 $ 58,580 Principal transactions .......... 86,826 79,383 Corporate finance ............... 17,012 15,217 Interest ........................ 39,944 37,689 Asset management ................ 4,729 2,094 Other ........................... 649 1,797 -------- -------- Total revenues .................... 209,708 194,760 Interest expense .................. 32,803 31,099 -------- -------- Revenues, net of interest expense . 176,905 163,661 -------- -------- Non-interest expenses: Compensation and benefits ....... 107,484 100,687 Floor brokerage and clearing fees 10,905 9,456 Communications .................. 11,338 12,112 Occupancy and equipment rental .. 5,492 4,560 Travel and promotional .......... 5,609 4,802 Other ........................... 8,946 5,843 -------- -------- Total non-interest expenses ....... 149,774 137,460 -------- -------- Earnings before income taxes ...... 27,131 26,201 Income taxes ...................... 11,447 11,177 -------- -------- Net earnings ...................... $ 15,684 $ 15,024 ======== ======== Earnings per share: Basic ........................... $ 0.65 $ 0.63 ======== ======== Diluted ......................... $ 0.63 $ 0.62 ======== ======== Weighted average shares: Basic ........................... 24,039 23,998 Diluted ......................... 25,061 24,232
See accompanying unaudited notes to consolidated financial statements. Page 4 of 15 5 JEFFERIES GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) THREE MONTHS ENDED MARCH 30, 2001 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Accumulated Total Additional Other Stock- Common Paid-in Retained Treasury Comprehensive holders' Stock Capital Earnings Stock Loss Equity --------- --------- --------- ---------- ------------- ----------- Balance, December 31, 2000 .................... $ 3 $ 86,004 $ 384,846 $ (10,383) $ (2,023) $ 458,447 Exercise of stock options, Including tax benefits (53,378 shares) ...................... -- 1,421 -- -- -- 1,421 Purchase of treasury stock (230,500 shares) ..................... -- -- -- (6,548) -- (6,548) Issuance of ESPP shares (89,216 shares) ...................... -- 1,556 -- -- -- 1,556 Issuance of restricted stock (385,779 shares), net of forfeitures, and additional vesting of restricted stock shares, including tax benefits ....... -- 15,827 -- (137) -- 15,690 Employee stock ownership plan amortization and stock purchases, net ....................... -- 727 -- -- -- 727 Quarterly dividends ($.05 per share per quarter) ......... -- -- (1,240) -- -- (1,240) Comprehensive income: Net earnings ........................ -- -- 15,684 -- -- 15,684 Other comprehensive loss, net of tax: Translation adjustment .............. -- -- -- -- (2,426) (2,426) --------- Comprehensive income .................. -- -- -- -- -- 13,258 ----------------------------------------------------------------------------- Balance, March 30, 2001 ....................... $ 3 $ 105,535 $ 399,290 $ (17,068) $ (4,449) $ 483,311 =============================================================================
See accompanying unaudited notes to consolidated financial statements. Page 5 of 15 6 JEFFERIES GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (DOLLARS IN THOUSANDS)
Three Months Ended ---------------------------- March 30, March 31, 2001 2000 ----------- ----------- Cash flows from operating activities: Net earnings ............................................... $ 15,684 $ 15,024 ----------- ----------- Adjustments to reconcile net earnings to net cash provided by (used in) operations: Depreciation and amortization ............................ 3,596 2,931 (Increase) decrease in cash and securities segregated and on deposit for regulatory purposes ................. 20,825 (6,192) (Increase) decrease in receivables: Brokers and dealers .................................... (1,802,663) (1,449,881) Customers, officers and directors ...................... 61,721 (72,486) Decrease in securities owned ............................. 14,001 91,077 Decrease in securities pledged to creditors .............. 13,426 -- Increase in investments .................................. (13,310) (18,864) (Increase) decrease in other assets ...................... (19,988) 8,608 Increase (decrease) in operating payables: Brokers and dealers .................................... 1,992,012 1,272,008 Customers .............................................. (175,493) 193,144 Decrease in securities sold, not yet purchased ........... (25,463) (69,658) Decrease in accrued expenses and other liabilities ....... (56,531) (12,009) ----------- ----------- Total adjustments ................................. 12,133 (61,322) ----------- ----------- Net cash provided by (used in) operating activities 27,817 (46,298) ----------- -----------
Continued on next page. See accompanying unaudited notes to consolidated financial statements. Page 6 of 15 7 JEFFERIES GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (UNAUDITED) (DOLLARS IN THOUSANDS)
Three Months Ended -------------------------- March 30, March 31, 2001 2000 ----------- ---------- Cash flows from financing activities: Net proceeds from (payments on): Bank loans ....................................................... -- 16,000 Repurchase of treasury stock ..................................... (6,548) (34) Dividends paid ................................................... (1,240) (1,210) Exercise of stock options ........................................ 1,421 1,154 Issuance of ESPP shares .......................................... 1,556 3,402 Issuance of restricted stock ..................................... 15,690 3,982 Employee Stock Ownership Plan stock purchases .................... -- (349) -------- -------- Net cash provided by financing activities .................... 10,879 22,945 -------- -------- Cash flows from investing activities - purchase of premises and equipment .................................... (6,731) (2,199) -------- -------- Effect of foreign currency translation on cash .......................... (2,615) (166) -------- -------- Net increase (decrease) in cash and cash equivalents.......... 29,350 (25,718) Cash and cash equivalents - beginning of period ......................... 24,996 77,197 -------- -------- Cash and cash equivalents - end of period ............................... $ 54,346 $ 51,479 ======== ======== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest ............................................................ $ 36,759 $ 28,567 ======== ======== Income taxes ........................................................ $ 3,507 $(19,553) ======== ========
See accompanying unaudited notes to consolidated financial statements. Page 7 of 15 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. ("Group") and all its subsidiaries ("Company"), including Jefferies & Company, Inc. ("JEFCO"). The accounts of W & D Securities, Inc. ("W & D") are consolidated because of the nature and extent of Group's ownership interest in W & D. The Company and its subsidiaries operate and are managed as a single business segment, that of a securities broker-dealer, which includes several types of financial services, such as principal and agency transactions in equity, convertible debt and high yield, as well as corporate finance activities. Since the Company's services are provided using the same distribution channels, support services and facilities and all are provided to meet client needs, the Company does not identify assets or allocate all expenses to any service, or class of service as a separate business segment. 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, 2000. 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. RECLASSIFICATIONS Certain reclassifications have been made to the prior period's amounts to conform to the current period'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 30, 2001 (in thousands of dollars): Receivable from brokers and dealers: Securities borrowed ............................. $4,070,966 Securities purchased under agreements to resell . 430,499 Other ........................................... 161,875 ---------- $4,663,340 ========== Payable to brokers and dealers: Securities loaned ............................... $3,935,005 Securities sold under agreements to repurchase .. 430,499 Other ........................................... 49,996 ---------- $4,415,500 ==========
Page 8 of 15 9 JEFFERIES GROUP, INC. AND SUBSIDIARIES SECURITIES OWNED, SECURITIES PLEDGED TO CREDITORS 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 30, 2001 (in thousands of dollars):
Securities Sold, Securities Not Yet Owned Purchased ------------ ----------- Corporate equity securities................. $107,158 $137,746 High-yield securities ...................... 67,408 3,619 Corporate debt securities .................. 35,625 4,715 Options .................................... 546 142 -------- -------- $210,737 $146,222 ======== ========
The following is a summary of the market value of major categories of securities pledged to creditors as of March 30, 2001 (in thousands of dollars):
Securities Pledged To Creditors ------------ Corporate equity securities.......................... $ 50,287 High yield securities................................ 12,585 Corporate debt securities............................ 20,026 ----------- $ 82,898 ===========
INVESTMENTS Investments consist of the following as of March 30, 2001 (in thousands of dollars): Debt and equity investments.......................... $ 18,274 Partnership interests................................ 53,944 Equity and debt interests in affiliates.............. 77,139 --------- $ 149,357 =========
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 30, 2001 (in thousands of dollars): Cash in banks........................................ $ 15,124 Short term investments............................... 39,222 --------- $ 54,346 =========
Page 9 of 15 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 30, 2001 and March 31, 2000 (in thousands, except per share amounts):
Three Months Ended ------------------------- March 30, March 31, 2001 2000 --------- --------- Net earnings ........................................ $15,684 $15,024 ------- ------- Shares for basic and diluted calculations: Average shares used in basic computation ............ 24,039 23,998 Stock options ....................................... 420 168 Restricted stock .................................... 602 66 ------- ------- Average shares used in diluted computation........... 25,061 24,232 ======= ======= Earnings per share: Basic ............................................... $ 0.65 $ 0.63 ======= ======= Diluted ............................................. $ 0.63 $ 0.62 ======= =======
ASSET MANAGEMENT The following summarizes revenues from asset management for the three month periods ended March 30, 2001 and March 31, 2000 (in thousands of dollars):
Three Months Ended -------------------------- March 30, March 31, 2001 2000 --------- --------- HIGH YIELD (HY) Performance based ...................... $3,386 $1,501 Asset based ............................ 500 78 NON-HY EMPLOYEE FUNDS Asset based ............................ 81 -- INTERNATIONAL .......................... 762 515 ------ ------ Total .................................. $4,729 $2,094 ====== ======
OTHER COMPREHENSIVE LOSS The following summarizes other comprehensive income and accumulated other comprehensive income at March 30, 2001 and for the three months then ended (in thousands of dollars):
Before-Tax Income Tax Net-of-Tax Amount or Benefit Amount ---------- --------------- ------------ Currency translation adjustments ......... $(2,426) $ -- $(2,426) Minimum pension liability adjustment...... -- -- -- ------- -------------- ------- Other comprehensive loss ................. $(2,426) $ -- $(2,426) ======= ============== =======
Page 10 of 15 11 JEFFERIES GROUP, INC. AND SUBSIDIARIES
Minimum Accumulated Currency Pension Other Translation Liability Comprehensive Adjustments Adjustment Income (Loss) ----------- ---------- ------------ Beginning at December 31, 2000................. $ (885) $(1,138) $(2,023) Change in first quarter of 2001................ (2,426) -- (2,426) ------- ------- ------- Ending at March 30, 2001 ...................... $(3,311) $(1,138) $(4,499) ======= ======= =======
The following summarizes other comprehensive income and accumulated other comprehensive income at March 31, 2000 and for the three months then ended (in thousands of dollars):
Before-Tax Income Tax Net-of-Tax Amount or Benefit Amount ---------- -------------- ---------- Currency translation adjustments ........... $(166) $ -- $(166) Minimum pension liability adjustment........ -- -- -- ----- -------------- ----- Other comprehensive loss ................... $(166) $ -- $(166) ===== ============== ===== Minimum Accumulated Currency Pension Other Translation Liability Comprehensive Adjustments Adjustment Income (Loss) ---------- --------- ---------- Beginning at December 31, 1999............. $ 236 $(183) $ 53 Change in first quarter of 2000............ (166) -- (166) ----- ----- ----- Ending at March 31, 2000 .................. $ 70 $(183) $(113) ===== ===== =====
Comprehensive income for the three months ended March 30, 2001 and March 31, 2000 was as follows:
March 30, March 31, 2001 2000 --------- --------- Net earnings .................................. $ 15,684 $ 15,024 Other comprehensive loss....................... (2,426) (166) -------- -------- Comprehensive income .......................... $ 13,258 $ 14,858 ======== ========
NET CAPITAL REQUIREMENTS As registered broker-dealers, JEFCO 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. JEFCO 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 30, 2001, JEFCO's and W & D's net capital was $68.3 million and $2.4 million, respectively, which exceeded minimum net capital requirements by $64.4 million and $2.1 million, respectively. Page 11 of 15 12 JEFFERIES GROUP, INC. AND SUBSIDIARIES 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):
1st Qtr. -------- 2001.................................. $.05 2000.................................. $.05
OFF-BALANCE SHEET RISK In the normal course of business, the Company had letters of credit outstanding aggregating $33.0 million at March 30, 2001, to satisfy various collateral requirements in lieu of depositing cash or securities. SEGMENT REPORTING The company's operations have been classified into a single business segment, a securities broker-dealer, which includes several types of financial services. This segment includes the traditional securities brokerage and investment banking activities of the Company. The Company's business is predominantly in the United States with less than 10% of revenues and 2% of assets attributable to international operations. Page 12 of 15 13 JEFFERIES GROUP, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ANALYSIS OF FINANCIAL CONDITION Total assets increased $1,759.2 million from $3,957.9 million at December 31, 2000 to $5,717.1 million at March 30, 2001. The increase in assets is mostly due to an increase in the balances associated with JEFCO's securities borrowed and loaned matched book business. FIRST QUARTER 2001 VERSUS FIRST QUARTER 2000 Revenues, net of interest expense, increased 8% to $176.9 million, compared to $163.7 million for the first quarter of 2000. The increase was due primarily to a $7.4 million, or 9%, increase in principal transactions, a $2.6 million, or 126%, increase in asset management, a $2.0 million, or 3%, increase in commissions, a $1.8 million, or 12%, increase in corporate finance, and a $551,000, or 8%, increase in net interest income (interest revenues less interest expense), partially offset by a $1.1 million, or 64%, decrease in other income. Commissions and principal transactions revenue increased mostly due to the Equities, High Yield and Convertibles Divisions. Corporate finance revenues increased due mostly to an increase in advisory fees. Net interest income was up mostly due to increased securities borrowed and loaned matched book business. Asset management increased due to more assets under management and greater profitability. Other income decreased mostly due to a decrease in correspondent income. Total non-interest expenses increased 9% to $149.8 million, compared to $137.5 million for the first quarter of 2000. Compensation and benefits increased $6.8 million, or 7%, mostly due to an increase in incentive based compensation accruals, as well as increased headcount. Other expense increased $3.1 million or 53%, largely due to higher legal expense. Floor brokerage and clearing fees increased $1.4 million, or 15%, due to increased volume of business executed on the various exchanges. Occupancy and equipment rental increased $932,000, or 20%, mostly due to office expansion. Travel and promotional increased $807,000, or 17%, largely due to an increase in business travel. Communications were decreased $774,000 or 6%, mostly due to a reduction in technology consulting expense. Earnings before income taxes were up 4% to $27.1 million, compared to $26.2 million for the same prior year period. The effective tax rate was approximately 42.2% for the first quarter of 2001 compared to 42.7% for the first quarter of 2000. Net earnings were up $660,000 to $15.7 million, compared to $15.0 million for the same prior year period. Basic net earnings per share were $0.65 for the first quarter of 2001 on 24,039,000 shares compared to $0.63 in the 2000 period on 23,998,000 shares. Diluted net earnings per share were $0.63 for the first quarter of 2001 on 25,061,000 shares compared to $0.62 in the comparable 2000 period on 24,232,000 shares. Page 13 of 15 14 JEFFERIES GROUP, INC. AND SUBSIDIARIES REVENUES BY SOURCE The following provides a breakdown of total revenues by source for the three months ended March 30, 2001 and March 31, 2000.
Three Months Ended ----------------------------------------------------- March 30, 2001 March 31, 2000 ------------------------ ------------------------- % of % of Total Total Amount Revenues Amount Revenues ------ -------- ------ -------- (Dollars in thousands) Commissions and principal transactions: Equities .......................... $101,031 48% $ 92,109 47% International ..................... 19,440 9 24,753 13 High Yield ........................ 16,182 8 12,688 6 Convertible ....................... 10,386 5 6,982 4 Other proprietary trading ......... 335 -- 1,431 1 -------- -------- -------- -------- Total ............................. 147,374 70 137,963 71 Corporate finance ..................... 17,012 8 15,217 8 Interest .............................. 39,944 19 37,689 19 Asset management ...................... 4,729 2 2,094 1 Other ................................. 649 1 1,797 1 -------- -------- -------- -------- Total revenues .................... $209,708 100% $194,760 100% ======== ======== ======== ========
PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 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. EXHIBITS AND REPORTS ON FORM 8-K (b) Reports on Form 8-K. None. Page 14 of 15 15 JEFFERIES GROUP, INC. AND SUBSIDIARIES 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 11, 2001 By: /s/ Joseph A. Schenk ------------------ -------------------------------- Joseph A. Schenk Chief Financial Officer Page 15 of 15