10-Q

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 29, 2002        

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 incorporation or organization)	(I.R.S. Employer Identification No.)

520 Madison Avenue, 12th Floor, New York, New York	10022
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code:         (212) 284-2550        

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 29, 2002, the registrant had 26,774,168 common shares, $.0001 par value, outstanding.

Page 1 of 15

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
		CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
		CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
		CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)
		CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosure About Market Risk
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
EXHIBIT 10.8

JEFFERIES GROUP, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
MARCH 29, 2002

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Statements of Financial Condition - March 29, 2002 (unaudited) and December 31, 2001		3
	Consolidated Statements of Earnings (unaudited) - Three Months Ended March 29, 2002 and March 30, 2001		4
	Consolidated Statement of Changes in Stockholders’ Equity (unaudited) - Three Months Ended March 29, 2002		5
	Consolidated Statements of Cash Flows (unaudited) - Three Months Ended March 29, 2002 and March 30, 2001		6
	Notes to Consolidated Financial Statements (unaudited)		8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		14
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings		14
Item 6.	Exhibits and Reports on Form 8-K		14

Page 2 of 15

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 29,			December 31,
					2002			2001
					(unaudited)
ASSETS
Cash and cash equivalents					$	23,587		$	188,106
Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations						177,683			154,989
Receivable from brokers and dealers						4,191,924			4,064,626
Receivable from customers, officers and directors						244,588			136,605
Securities owned						456,268			285,372
Securities pledged to creditors						103,933			100,262
Investments						462,462			168,863
Premises and equipment						47,367			48,436
Other assets						197,895			197,478
					$	5,905,707		$	5,344,737
LIABILITIES AND STOCKHOLDERS’ EQUITY
Bank loans					$	184,000		$	50,000
Payable to brokers and dealers						3,921,952			3,885,842
Payable to customers						356,443			313,207
Securities sold, not yet purchased						207,354			150,146
Accrued expenses and other liabilities						195,250			226,089
						4,864,999			4,625,284
Long-term convertible debt						2,752			2,817
Long-term debt						466,614			150,980
						5,334,365			4,779,081
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 28,603,256 shares in 2002 and 27,896,622 shares in 2001					3			3
	Additional paid-in capital					179,782			159,018
	Retained earnings					455,555			439,195
	Less:
		Treasury stock, at cost, 1,829,088 shares in 2002 and 1,060,788 shares in 2001				(58,341	)		(27,856	)
		Accumulated other comprehensive loss:
			Currency translation adjustments			(3,356	)		(2,403	)
			Additional minimum pension liability			(2,301	)		(2,301	)
		Total accumulated other comprehensive loss				(5,657	)		(4,704	)
				Total stockholders’ equity		571,342			565,656
					$	5,905,707		$	5,344,737

See accompanying unaudited notes to consolidated financial statements.

Page 3 of 15

JEFFERIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
(In thousands, except per share amounts)

			Three Months Ended
			March 29,		March 30,
			2002		2001
Revenues:
	Commissions		$	64,573	$	60,548
	Principal transactions			66,667		86,826
	Corporate finance			37,668		17,012
	Interest			21,629		39,944
	Asset management			3,487		4,729
	Other			1,318		649
		Total revenues		195,342		209,708
Interest expense				17,598		32,803
Revenues, net of interest expense				177,744		176,905
Non-interest expenses:
	Compensation and benefits			104,567		107,484
	Floor brokerage and clearing fees			14,148		10,905
	Communications			11,395		11,338
	Occupancy and equipment rental			6,158		5,492
	Travel and promotional			6,304		5,609
	Other			5,208		8,946
		Total non-interest expenses		147,780		149,774
Earnings before income taxes				29,964		27,131
Income taxes				12,292		11,447
		Net earnings	$	17,672	$	15,684
Earnings per share:
	Basic		$	0.71	$	0.65
	Diluted		$	0.65	$	0.63
Weighted average shares:
	Basic			24,766		24,039
	Diluted			27,380		25,061
Fixed charge coverage ratio				6.3X		7.3X

See accompanying unaudited notes to consolidated financial statements.

Page 4 of 15

JEFFERIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)
THREE MONTHS ENDED MARCH 29, 2002
(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, 2001		$	3	$	159,018	$	439,195		$	(27,856	)	$	(4,704	)	$	565,656
Exercise of stock options, including tax benefits (10,218 shares)			—		264		—			—			—			264
Purchase of treasury stock (668,300 shares)			—		—		—			(27,725	)		—			(27,725	)
Issuance of ESPP/SSPP shares (69,824 shares)			—		1,957		—			—			—			1,957
Issuance of restricted stock (526,592 shares), net of forfeitures, and additional vesting of restricted stock shares, including tax benefits			—		17,428		—			(2,760	)		—			14,668
Employee stock ownership plan amortization and stock purchases, net			—		1,115		—			—			—			1,115
Quarterly dividends ($.05 per share per quarter)			—		—		(1,312	)		—			—			(1,312	)
Comprehensive income:
	Net earnings		—		—		17,672			—			—			17,672
	Other comprehensive loss, net of tax:
	Translation adjustment		—		—		—			—			(953	)		(953	)
Comprehensive income			—		—		—			—			—			16,719
Balance, March 29, 2002		$	3	$	179,782	$	455,555		$	(58,341	)	$	(5,657	)	$	571,342

See accompanying unaudited notes to consolidated financial statements.

Page 5 of 15

JEFFERIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)

					Three Months Ended
					March 29,			March 30,
					2002			2001
Cash flows from operating activities:
	Net earnings				$	17,672		$	15,684
	Adjustments to reconcile net earnings to net cash provided by (used in) operations:
		Depreciation and amortization				5,268			3,596
		(Increase) decrease in cash and securities segregated and on deposit for regulatory purposes				(22,694	)		20,825
		(Increase) decrease in receivables:
			Brokers and dealers			(127,298	)		(1,802,663	)
			Customers, officers and directors			(107,983	)		61,721
		(Increase) decrease in securities owned				(170,896	)		14,001
		(Increase) decrease in securities pledged to creditors				(3,671	)		13,426
		Increase in investments				(293,599	)		(13,310	)
		Increase in other assets				(417	)		(19,988	)
		Increase (decrease) in operating payables:
			Brokers and dealers			36,110			1,992,012
			Customers			43,236			(175,493	)
		Increase (decrease) in securities sold, not yet purchased				57,208			(25,463	)
		Decrease in accrued expenses and other liabilities				(30,572	)		(56,531	)
				Total adjustments		(615,308	)		12,133
				Net cash provided by (used in) operating activities		(597,636	)		27,817

Continued on next page.

See accompanying unaudited notes to consolidated financial statements.

Page 6 of 15

JEFFERIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS — CONTINUED (Unaudited)
(Dollars in thousands)

					Three Months Ended
					March 29,			March 30,
					2002			2001
Cash flows from financing activities:
			Net proceeds from (payments on):
			Bank loans			134,000			—
			Senior Notes			315,315			—
			Repurchase of treasury stock			(27,725	)		(6,548	)
			Dividends paid			(1,312	)		(1,240	)
			Exercise of stock options			264			1,421
			Issuance of ESPP/SSPP shares			1,957			1,556
			Issuance of restricted stock			14,668			15,690
				Net cash provided by financing activities		437,167			10,879
Cash flows from investing activities - purchase of premises and equipment						(3,032	)		(6,731	)
Effect of foreign currency translation on cash						(1,018	)		(2,615	)
				Net increase (decrease) in cash and cash equivalents		(164,519	)		29,350
Cash and cash equivalents — beginning of period						188,106			24,996
Cash and cash equivalents — end of period					$	23,587		$	54,346
Supplemental disclosures of cash flow information:
	Cash paid during the period for:
		Interest			$	16,255		$	36,759
		Income taxes			$	12,456		$	3,507

See accompanying unaudited notes to consolidated financial statements.

Page 7 of 15

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 Helfant Group, Inc. (“Helfant”) are consolidated because of the nature and extent of Group’s ownership interest in Helfant. 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, 2001.

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.

Receivable from, and Payable to, Brokers and Dealers

     Receivable from and payable to brokers and dealers consists of the following as of March 29, 2002 (in thousands of dollars):

Receivable from brokers and dealers:
	Securities borrowed	$	3,822,037
	Other		369,887
		$	4,191,924
Payable to brokers and dealers:
	Securities loaned	$	3,779,623
	Other		142,329
		$	3,921,952

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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 29, 2002 (in thousands of dollars):

			Securities
			Sold,
	Securities		Not Yet
	Owned		Purchased
Corporate equity securities	$	70,925	$	118,196
High-yield securities		230,376		9,204
Corporate debt securities		149,625		68,578
U.S. Government and agency obligations		4,555		11,039
Options		787		337
	$	456,268	$	207,354

     The following is a summary of the market value of major categories of securities pledged to creditors as of March 29, 2002 (in thousands of dollars):

Corporate equity securities	$	83,807
High yield securities		2,562
Corporate debt securities		17,564
	$	103,933

Investments

     Investments consist of the following as of March 29, 2002 (in thousands of dollars):

Short term bond funds	$	315,269
Debt and equity investments		12,791
Partnership interests		45,740
Equity and debt interests in affiliates		88,662
	$	462,462

Long Term Convertible Debt and Long Term Debt

     The following summarizes long term convertible debt and long term debt outstanding as of March 29, 2002 (in thousands of dollars):

Long-Term Convertible Debt
Zero coupon, unsecured Euro denominated Convertible Loan Notes	$	2,752
Long-Term Debt
8 7/8% Senior Notes, due 2004, less unamortized discount of $145		49,855
7 1/2% Senior Notes, due 2007, less unamortized discount of $150		99,850
7 3/4% Senior Notes, due 2012, less unamortized discount of $7,546		315,609
10% Subordinated Loans, due 2003		1,000
10% Subordinated Loans, due 2004		300
	$	466,614

     In March 2002, the Company issued $325 million aggregate principal amount of unsecured 7 3/4% senior notes due March 15, 2012, with a yield of 8.09%.

     The Company has entered into a fair value hedge with no ineffectiveness using interest rate swaps in order to convert $200 million aggregate principal amount of unsecured 7 3/4% senior notes due March 15, 2012 into floating rates based

Page 9 of 15

JEFFERIES GROUP, INC. AND SUBSIDIARIES

upon LIBOR. The effective interest rate on the $200 million aggregate principal amount of unsecured 7 3/4% senior notes, after giving effect to the swaps, was 4.16%. The fair value of the mark to market of the swaps was a negative $1.8 million as of March 29, 2002, which was recorded as a reduction to the book value of the debt and an increase in accrued expenses and other liabilities.

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 29, 2002 (in thousands of dollars):

Cash in banks	$	20,460
Short term investments		3,127
	$	23,587

Goodwill

     Goodwill represents the excess of cost over net assets acquired and is included in other assets. Goodwill will no longer be amortized, but will be tested for impairment at least annually by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The following is a summary of goodwill as of March 29, 2002 (in thousands of dollars):

					Excess of
	Excess of				Purchase
	Purchase				Price Over
	Price Over				Net Assets
	Net Assets		Accumulated		Acquired		Acquisition
Acquisition	Acquired		Amortization		Remaining		Date
The Europe Company	$	12,953	$	1,830	$	11,123	Aug. 2000
Lawrence Helfant, Inc.		23,477		—		23,477	Sept. 2001
	$	36,430	$	1,830	$	34,600

Earnings per Share

     The following reconciles the numerators and denominators of the basic and diluted earnings per share computations for the three month periods ended March 29, 2002 and March 30, 2001 (in thousands, except per share amounts):

	Three Months Ended
	March 29,		March 30,
	2002		2001
Net earnings	$	17,672	$	15,684
Shares for basic and diluted calculations:
Average shares used in basic computation		24,766		24,039
Stock options		879		420
Restricted stock		1,735		602
Average shares used in diluted computation		27,380		25,061
Earnings per share:
Basic	$	0.71	$	0.65
Diluted	$	0.65	$	0.63

Page 10 of 15

JEFFERIES GROUP, INC. AND SUBSIDIARIES

Asset Management

     The following summarizes revenues from asset management for the three month periods ended March 29, 2002 and March 30, 2001 (in thousands of dollars):

		Three Months Ended
		March 29,		March 30,
		2002		2001
High Yield (HY)
	Performance based	$	1,798	$	3,386
	Asset based		826		500
Non-HY Employee Funds			86		81
International			777		762
Total		$	3,487	$	4,729

Other Comprehensive Loss

     The following summarizes other comprehensive loss and accumulated other comprehensive loss at March 29, 2002 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	$	(953	)	$	—	$	(953	)
Minimum pension liability adjustment		—			—		—
Other comprehensive loss	$	(953	)	$	—	$	(953	)

				Minimum			Accumulated
	Currency			Pension			Other
	Translation			Liability			Comprehensive
	Adjustments			Adjustment			Loss
Beginning at December 31, 2001	$	(2,403	)	$	(2,301	)	$	(4,704	)
Change in first quarter of 2002		(953	)		—			(953	)
Ending at March 29, 2002	$	(3,356	)	$	(2,301	)	$	(5,657	)

     The following summarizes other comprehensive loss and accumulated other comprehensive loss 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	)

				Minimum			Accumulated
	Currency			Pension			Other
	Translation			Liability			Comprehensive
	Adjustments			Adjustment			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	)	$	(4,449	)

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JEFFERIES GROUP, INC. AND SUBSIDIARIES

     Comprehensive income for the three months ended March 29, 2002 and March 30, 2001 was as follows:

	March 29,			March 30,
	2002			2001
Net earnings	$	17,672		$	15,684
Other comprehensive loss		(953	)		(2,426	)
Comprehensive income	$	16,719		$	13,258

Net Capital Requirements

     As registered broker-dealers, JEFCO and Helfant 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 Helfant 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 29, 2002, JEFCO’s and Helfant’s net capital was $144.1 million and $4.6 million, respectively, which exceeded minimum net capital requirements by $138.1 million and $4.4 million, respectively.

Quarterly Dividends

     In 1988, the Company instituted a policy of paying regular quarterly dividends. There are no restrictions on the Company’s present ability to pay dividends on common stock, other than the governing provisions of the Delaware General Corporation Law.

     Dividends per Common Share (declared and paid):

	1st Qtr.
2002	$	.05
2001	$	.05

Off-Balance Sheet Risk

     In the normal course of business, the Company had letters of credit outstanding aggregating $36.8 million at March 29, 2002, 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.

Subsequent Event — Redemption of 8 7/8% Senior Notes

     On April 10, 2002, the Company announced its decision to call its $50 million aggregate principal amount of 8 7/8% Senior Notes due 2004 (“Notes”) for redemption on May 13, 2002. Pursuant to the terms of the Notes, holders will receive $1,012 in cash per $1,000 principal amount, plus accrued interest.

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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 $561.0 million from $5,344.7 million at December 31, 2001 to $5,905.7 million at March 29, 2002. The increase in total assets mostly relates to increases of $293.6 million in investments, $170.9 million in securities owned, and $127.3 million in receivables from brokers and dealers. The increases in assets were primarily funded by the issuance of $325 million aggregate principal amount of unsecured 7 3/4% senior notes due March 15, 2012 and $134.0 million in bank loans.

First Quarter 2002 Versus First Quarter 2001

     Revenues, net of interest expense, were $177.7 million, compared to $176.9 million for the first quarter of 2001. The slight increase was due primarily to a $20.7 million, or 121%, increase in corporate finance, a $4.0 million, or 7%, increase in commissions, partially offset by a $20.2 million, or 23%, decrease in principal transactions, a $3.1 million, or 44%, decrease in net interest income (interest revenues less interest expense) and a $1.2 million, or 26%, decrease in asset management. Commissions increased mostly due to the addition of the Helfant execution business. Principal transaction revenues decreased mostly due to the Equities and High Yield Divisions. Corporate finance revenues increased due mostly to a rise in debt offerings and advisory fees. Net interest income was down largely due to a decreased spread on the securities borrowed and loaned matched book business. Asset management revenues decreased due to the decrease in revenue attributable to the High Yield Funds.

     Total non-interest expenses decreased slightly to $147.8 million, compared to $149.8 million for the first quarter of 2001. Other expense decreased $3.7 million or 42%, largely due to lower legal and general consulting expenses. Floor brokerage and clearing fees increased $3.2 million, or 30%, due to increased volume of business executed on the various exchanges, including additional volume related to Helfant, which was acquired on September 28, 2001. Compensation and benefits decreased $2.9 million, or 3%, mostly due to a decrease in incentive based compensation accruals. Travel and promotional increased $695,000, or 12%, largely due to increased business travel. Occupancy and equipment rental increased $666,000, or 12%, mostly due to office expansion. Communications remained relatively unchanged as compared to the prior year’s quarter.

     Earnings before income taxes were up 10% to $30.0 million, compared to $27.1 million for the same prior year period. The effective tax rate was approximately 41% for the first quarter of 2002 compared to 42% for the first quarter of 2001. Net earnings were up $2.0 million, or 13%, to $17.7 million, compared to $15.7 million for the same prior year period.

     Basic net earnings per share were $0.71 for the first quarter of 2002 on 24,766,000 shares compared to $0.65 in the 2001 period on 24,039,000 shares. Diluted net earnings per share were $0.65 for the first quarter of 2002 on 27,380,000 shares compared to $0.63 in the comparable 2001 period on 25,061,000 shares.

Liquidity and Capital Resources

     The Company’s liquidity and capital resources is largely unchanged since December 31, 2001, except for the issuance of $325 million aggregate principal amount of unsecured 7 3/4% senior notes due March 15, 2012.

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JEFFERIES GROUP, INC. AND SUBSIDIARIES

Revenues by Source

     The following provides a breakdown of total revenues by source for the three months ended March 29, 2002 and March 30, 2001.

		Three Months Ended
		March 29, 2002					March 30, 2001
				% of					% of
				Total					Total
		Amount		Revenues			Amount		Revenues
		(Dollars in thousands)
Commissions and principal transactions:
	Equities	$	83,163		43	%	$	100,549		48	%
	International		16,985		9			19,440		9
	High Yield		10,263		5			16,182		8
	Convertibles		7,463		4			10,386		5
	Execution		8,826		4			482		0
	Other proprietary trading		4,540		2			335		0
	Total		131,240		67			147,374		70
Corporate finance			37,668		19			17,012		8
Interest			21,629		11			39,944		19
Asset management			3,487		2			4,729		2
Other			1,318		1			649		1
	Total revenues	$	195,342		100	%	$	209,708		100	%

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     The Company’s market risk is largely unchanged from December 31, 2001, except for the issuance of $325 million aggregate principal amount of unsecured 7 3/4% senior notes due March 15, 2012 and related interest rate swaps to convert $200 million aggregate principal amount of the notes into floating rates based upon LIBOR.

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

(a) Exhibits

(10.8)  Letter agreement between Frank E. Baxter and Registrant dated February 15, 2002.

(b)	Reports on 8-K
	On March 12, 2002, the Company filed a Form 8-K disclosing its underwriting agreement, dated March 7, 2002, with respect to the sale of its 7 3/4% Senior Notes due 2012.

Page 14 of 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 10, 2002	By:	/s/     Joseph A. Schenk
		Joseph A. Schenk               Chief Financial Officer

Page 15 of 15 EX-10.8 3 v81359ex10-8.txt EXHIBIT 10.8 JEFFRIES & COMPANY, INC. 11100 Santa Monica Boulevard, 10th Floor, Los Angeles, California 90025 Telephone (310) 445-1199 Cable JEFFCO Exhibit 10.8 As of February 15, 2002 Mr. Frank E. Baxter 519 Ocampo Drive Pacific Palisades, CA 90272 Dear Frank: This letter confirms your resignation from the following positions: Jefferies Group, Inc. ("Group") -- Chairman Jefferies & Company, Inc. ("Jefco") -- Chairman and Director Jefferies International Limited -- Chairman Jefferies Pacific Limited -- Director Jefferies Venture Capital Fund I LLC -- President and Chief Executive Officer Jefferies FOF Manager Inc. -- Director Jefferies MB Manager Inc. -- Director Jefferies Employees Fund of Funds LLC -- President and Chief Executive Officer Jefferies Advisers Inc. -- Director Jefferies Realty Investment Corp. -- President and Director Jefferies International Realty Corp. -- President and Director Jefferies Global Trading Inc. -- Director In addition to the foregoing, you have indicated that you will not stand for reelection as a director of Group at the Annual Meeting of Shareholders to be held in May 2002. This letter also sets forth the terms and conditions of your retention as Chairman Emeritus of and consultant to Group. The above listed resignations and your retention will all be effective on February 15, 2002. Except as otherwise provided for herein, the term of this agreement shall be the period from February 15, 2002 (the "Effective Date") to February 14, 2004 (the "Term"). You will be paid a retainer at the rate of $500,000.00 per annum during the Term, to be paid in equal installments on the 15th and last day of each month. The amounts set forth in this paragraph are gross amounts and will be paid to you as such. As a consultant, you will be responsible for the payments of all taxes on payments made to you. During such time as you remain a consultant to Group, Jefco will maintain your securities registrations with Jefco. For a period of a five years from the Effective Date, you will receive the same medical and dental health insurance benefits as Group employees. Effective at the close of business on the Effective Date, you will no longer be eligible to participate in Group's 401k, Profit Sharing, Employee Stock Purchase, Supplemental Stock Purchase, Deferred Compensation, or Employee Stock Ownership Plans or any similar plans. However, you Mr. Frank E. Baxter As of February 15, 2002 Page 2 retain your right to benefits you have earned and are entitled to under these Plans through the Effective Date. Effective at the close of business on the Effective Date, your coverage under Group's group life insurance and short term and long term disability policies will also cease. However, Group will continue to make the payments on the split-dollar insurance policy purchased by Group in 2000 for your benefit. Group will provide you with office space in its Los Angeles office and with secretarial support for a period of five years from the Effective Date. The office space to be provided to you will be comparable in size and proximity to other senior executives in Los Angeles. The secretarial support which you receive will be comparable to that currently being provided to you. Group will reimburse you for travel and entertainment expenses incurred by you on behalf of Group in accordance with Group's policies on reimbursement of such expenses. This letter agreement may be terminated by Group for Cause or in the event of your death or disability. For purposes hereof, Cause shall mean that you commit an act which, in Jefco's reasonable opinion, constitutes fraud, gross negligence, willful misconduct or knowing breach of your fiduciary duties; willfully engage in misconduct injurious to Jefco or which violates Jefco's internal policies or procedures (as amended from time to time), including but not limited to Group's Statement of Employee Conduct, as amended from time to time; or commit an act which, in Jefco's reasonable opinion, may lead to your or Jefco's censure, suspension or bar by any regulatory body or self-regulatory organization having jurisdiction over Jefco and/or you, including but not limited to commission of a felony or an act of moral turpitude. The parties agree that any and all controversies which may arise between them or between you and Jefco arising out of or related to this Agreement shall be determined by arbitration. Any such arbitration shall be determined before the National Association of Securities Dealers ("NASD") in the city of New York, in the State of New York, in accordance with NASD rules. Judgment upon arbitration awards may be entered in any court, state or federal, having jurisdiction. This letter agreement constitutes the entire agreement between you and Group with respect to the subject matters referred to herein, and supersedes all prior or contemporaneous negotiations, promises, covenants, agreements and representations of every kind or nature with respect thereto, all of which have become merged and finally integrated into this letter agreement. Mr. Frank E. Baxter As of February 15, 2002 Page 3 If this agreement conforms to your understanding and is acceptable to you, please indicate your agreement by signing and dating the enclosed copy of this agreement in the space provided below and returning the signed agreement to Jerry Gluck, at Jefferies' Los Angeles address. Sincerely /s/ RICHARD B. HANDLER -------------------------- Richard B. Handler Chief Executive Officer Enclosure ACCEPTED AND AGREED: /s/ FRANK E. BAXTER Dated: 2/28/, 2002 - ------------------------- ----- Frank E. Baxter -----END PRIVACY-ENHANCED MESSAGE-----

EX-10.8

                                                        JEFFRIES & COMPANY, INC.

         11100 Santa Monica Boulevard, 10th Floor, Los Angeles, California 90025
                                           Telephone (310) 445-1199 Cable JEFFCO



                                                                    Exhibit 10.8

                              As of February 15, 2002


Mr. Frank E. Baxter
519 Ocampo Drive
Pacific Palisades, CA 90272

Dear Frank:

     This letter confirms your resignation from the following positions:

     Jefferies Group, Inc. ("Group") -- Chairman
     Jefferies & Company, Inc. ("Jefco") -- Chairman and Director
     Jefferies International Limited -- Chairman
     Jefferies Pacific Limited -- Director
     Jefferies Venture Capital Fund I LLC -- President and Chief Executive
       Officer
     Jefferies FOF Manager Inc. -- Director
     Jefferies MB Manager Inc. -- Director
     Jefferies Employees Fund of Funds LLC -- President and Chief Executive
       Officer
     Jefferies Advisers Inc. -- Director
     Jefferies Realty Investment Corp. -- President and Director
     Jefferies International Realty Corp. -- President and Director
     Jefferies Global Trading Inc. -- Director

     In addition to the foregoing, you have indicated that you will not stand
for reelection as a director of Group at the Annual Meeting of Shareholders to
be held in May 2002.

     This letter also sets forth the terms and conditions of your retention as
Chairman Emeritus of and consultant to Group. The above listed resignations and
your retention will all be effective on February 15, 2002. Except as otherwise
provided for herein, the term of this agreement shall be the period from
February 15, 2002 (the "Effective Date") to February 14, 2004 (the "Term").

     You will be paid a retainer at the rate of $500,000.00 per annum during the
Term, to be paid in equal installments on the 15th and last day of each month.
The amounts set forth in this paragraph are gross amounts and will be paid to
you as such. As a consultant, you will be responsible for the payments of all
taxes on payments made to you. During such time as you remain a consultant to
Group, Jefco will maintain your securities registrations with Jefco.

     For a period of a five years from the Effective Date, you will receive the
same medical and dental health insurance benefits as Group employees.

     Effective at the close of business on the Effective Date, you will no
longer be eligible to participate in Group's 401k, Profit Sharing, Employee
Stock Purchase, Supplemental Stock Purchase, Deferred Compensation, or Employee
Stock Ownership Plans or any similar plans. However, you

Mr. Frank E. Baxter
As of February 15, 2002
Page 2

retain your right to benefits you have earned and are entitled to under these
Plans through the Effective Date. Effective at the close of business on the
Effective Date, your coverage under Group's group life insurance and short term
and long term disability policies will also cease. However, Group will continue
to make the payments on the split-dollar insurance policy purchased by Group in
2000 for your benefit.

     Group will provide you with office space in its Los Angeles office and with
secretarial support for a period of five years from the Effective Date. The
office space to be provided to you will be comparable in size and proximity to
other senior executives in Los Angeles. The secretarial support which you
receive will be comparable to that currently being provided to you.

     Group will reimburse you for travel and entertainment expenses incurred by
you on behalf of Group in accordance with Group's policies on reimbursement of
such expenses.

     This letter agreement may be terminated by Group for Cause or in the event
of your death or disability. For purposes hereof, Cause shall mean that you
commit an act which, in Jefco's reasonable opinion, constitutes fraud, gross
negligence, willful misconduct or knowing breach of your fiduciary duties;
willfully engage in misconduct injurious to Jefco or which violates Jefco's
internal policies or procedures (as amended from time to time), including but
not limited to Group's Statement of Employee Conduct, as amended from time to
time; or commit an act which, in Jefco's reasonable opinion, may lead to your or
Jefco's censure, suspension or bar by any regulatory body or self-regulatory
organization having jurisdiction over Jefco and/or you, including but not
limited to commission of a felony or an act of moral turpitude.

     The parties agree that any and all controversies which may arise between
them or between you and Jefco arising out of or related to this Agreement shall
be determined by arbitration. Any such arbitration shall be determined before
the National Association of Securities Dealers ("NASD") in the city of New York,
in the State of New York, in accordance with NASD rules. Judgment upon
arbitration awards may be entered in any court, state or federal, having
jurisdiction.

     This letter agreement constitutes the entire agreement between you and
Group with respect to the subject matters referred to herein, and supersedes all
prior or contemporaneous negotiations, promises, covenants, agreements and
representations of every kind or nature with respect thereto, all of which have
become merged and finally integrated into this letter agreement.



Mr. Frank E. Baxter
As of February 15, 2002
Page 3


     If this agreement conforms to your understanding and is acceptable to you,
please indicate your agreement by signing and dating the enclosed copy of this
agreement in the space provided below and returning the signed agreement to
Jerry Gluck, at Jefferies' Los Angeles address.


                                                 Sincerely

                                                 /s/ RICHARD B. HANDLER
                                                 --------------------------
                                                 Richard B. Handler
                                                 Chief Executive Officer


Enclosure

ACCEPTED AND AGREED:

   /s/ FRANK E. BAXTER                           Dated: 2/28/, 2002
- -------------------------                               -----
     Frank E. Baxter