10-K
1
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
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: 0-11669
JEFFERIES GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-2848406
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
11100 SANTA MONICA BOULEVARD, 10TH FLOOR 90025
LOS ANGELES, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 445-1199
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
(TITLE OF CLASS)
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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment to
this Form 10-K. / /
State the aggregate market value of the voting stock held by nonaffiliates
of the registrant. $142,368,480 as of March 24, 1995.
Indicate the number of shares outstanding of the registrant's class of
common stock, as of the latest practical date. 5,512,054 shares as of the close
of business March 24, 1995.
DOCUMENTS INCORPORATED BY REFERENCE
See list on following page.
LOCATION OF EXHIBIT INDEX
The index of exhibits is contained in Part IV herein on page 32.
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JEFFERIES GROUP, INC.
1994 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
PAGE
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Item 1. Business..................................................................... 1
Item 2. Properties................................................................... 6
Item 3. Legal Proceedings............................................................ 6
Item 4. Submission of Matters to a Vote of Security Holders.......................... 6
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holder
Matters...................................................................... 7
Item 6. Selected Financial Data...................................................... 8
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................... 9
Item 8. Financial Statements and Supplementary Data.................................. 13
Item 9. Disagreements on Accounting and Financial Disclosure......................... 32
PART III
Item 10. Directors and Executive Officers of the Registrant........................... 32
Item 11. Executive Compensation....................................................... 32
Item 12. Security Ownership of Certain Beneficial Owners and Management............... 32
Item 13. Certain Relationships and Related Transactions............................... 32
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K............ 32
DOCUMENTS INCORPORATED BY REFERENCE
TITLE OF DOCUMENT PART OF FORM 10-K
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Proxy Statement relating to 1995 Annual Meeting of Shareholders (to be
filed)..................................................................... Part III
Exhibit Index located on page 32 of this report.
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PART I
ITEM 1. BUSINESS.
Jefferies Group, Inc. is a holding company which, through its four primary
subsidiaries, Jefferies & Company, Inc., Investment Technology Group, Inc.,
Jefferies International Limited and Jefferies Pacific Limited, is engaged in
securities brokerage and trading, corporate finance and other financial
services. The term "Company" refers, unless the context requires otherwise, to
Jefferies Group, Inc., its subsidiaries, predecessor entities, and W & D
Securities, Inc. The Company was originally incorporated in 1973 as a holding
company for Jefferies & Company, Inc. and was reincorporated in Delaware on
August 10, 1983. The Company and its various subsidiaries maintain offices in
Los Angeles, New York, Short Hills, Jersey City, Chicago, Dallas, Boston,
Atlanta, New Orleans, Houston, San Francisco, Stamford, London, Hong Kong and
Zurich.
As of December 31, 1994, the Company and its subsidiaries had 737 full-time
employees, including 394 representatives registered with the National
Association of Securities Dealers, Inc. ("NASD"). The Company's executive
offices are located at 11100 Santa Monica Boulevard, Los Angeles, California
90025, and its telephone number is (310) 445-1199.
JEFFERIES & COMPANY, INC.
Jefferies & Company, Inc. ("Jefferies") was founded in 1962 and is engaged
in equity, convertible debt and taxable fixed income securities brokerage and
trading and corporate finance. Jefferies is one of the leading national firms
engaged in the distribution and trading of blocks of equity securities and
conducts such activities primarily in the "third market." The term "third
market" refers to transactions in listed equity securities effected away from
national securities exchanges. Jefferies' revenues are derived primarily from
commission revenues and market-making or trading as principal in equity, taxable
fixed income and convertible securities with or on behalf of institutional
investors, with the balance generated by corporate finance and other activities.
INVESTMENT TECHNOLOGY GROUP, INC.
Investment Technology Group, Inc. is a holding company. Its wholly-owned
subsidiary, ITG Inc. ("ITG") is a leading provider of automated securities trade
execution and analysis services to institutional equity investors. ITG's two
principal services are POSIT(R), the largest automated stock crossing system
operated during trading hours, and QuantEX(R), a proprietary decision support
system with integrated trade analysis, routing and management capabilities.
These services employ proprietary software to enhance customers' trading
efficiencies, access to market liquidity and portfolio analysis capabilities. To
supplement ITG's POSIT(R) and QuantEX(R) services, ITG's ISIS service uses a
database of securities, price and liquidity information to provide enhanced
decision support in all aspects of its customers' trade execution and analysis
activities.
In March 1994, the Company formed a new subsidiary, Investment Technology
Group, Inc. ("ITGI") for the purpose of eventually holding 100% of the stock of
the broker-dealer subsidiary Investment Technology Group, Inc. whose name was
then changed to ITG Inc.
In May 1994, ITGI consummated an initial public offering (the "Offering")
and issued 3,700,000 shares of common stock for $48.1 million ($13 per share),
less underwriting discounts and commissions of $3.4 million and offering
expenses of $1.1 million. Immediately prior to the consummation of the Offering,
ITGI issued 15,000,000 shares of its common stock in exchange for all of the
issued and outstanding shares of common stock of ITG Inc. (10,000,000 shares)
held by the Company. This transaction was accounted for as an exchange of
ownership interests under common control and, therefore, the assets and
liabilities of ITG Inc. were not revalued. As a result of these transactions,
ITG Inc. became a wholly-owned subsidiary of ITGI. ITG Inc. has conducted, and
will continue to conduct, the business activities of ITGI. Immediately following
the offering, the Company owned over 80% of the outstanding common stock of
ITGI.
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Immediately prior to the Offering, ITGI entered into an intercompany
borrowing agreement with the Company permitting the borrowing by ITGI of up to
$15,000,000. Any outstanding balance will be due March 31, 1999, and will accrue
interest at 1.75% above the one month London Interbank Offering Rate.
In addition, immediately prior to the Offering, ITGI declared a dividend
payable to its then sole stockholder, Jefferies Group, Inc., in an amount of
$17.0 million. Such dividend was paid after the consummation of the Offering.
JEFFERIES INTERNATIONAL LIMITED AND JEFFERIES PACIFIC LIMITED
Jefferies International Limited ("JIL"), a broker-dealer subsidiary of the
Company, was incorporated in 1986 in England. JIL is a member of The
International Stock Exchange and The Securities and Futures Authority. JIL
introduces customers trading in U.S. securities to Jefferies and also trades as
a broker-dealer in international equity and convertible securities and American
Depositary Receipts ("ADRs"). In 1995, JIL formed a wholly-owned subsidiary,
Jefferies (Switzerland) AG, in Switzerland.
Jefferies Pacific Limited ("JPL"), a broker subsidiary of the Company, was
incorporated in 1992 in Hong Kong. JPL presently introduces foreign customers
trading in U.S. securities to Jefferies. JPL commenced operations in 1993 and
has not yet generated material revenues.
W & D SECURITIES, INC.
W & D Securities, Inc. ("W & D") provides execution services primarily on
the New York Stock Exchange ("NYSE") and other exchanges to Jefferies and ITG.
In order to comply with regulatory requirements of the NYSE that generally
prohibit NYSE members and their affiliates from executing, as principal and, in
certain cases, as agent, transactions in NYSE-listed securities off the NYSE,
the Company gave up its formal legal control of W & D, effective January 1,
1983, by exchanging all of the W & D common stock owned by it for non-voting
preferred stock of W & D. The common stock of W & D is presently held by an
officer of W & D who has agreed with the Company that, at the option of the
Company, he will sell such stock to the Company for nominal consideration. In
the event that the Company were to regain ownership of such common stock, the
Company believes that the NYSE would assert that W & D would be in violation of
the NYSE's rules unless similar arrangements satisfactory to the NYSE were made
with respect to the ownership of the common stock.
While the NYSE has generally approved the above arrangements, there can be
no assurance that it will not raise objections in the future. In light of these
arrangements and the high proportion of the equity of W & D represented by the
non-voting preferred stock held by the Company, W & D is consolidated as a
subsidiary of the Company for financial purposes. The Company believes that it
can make satisfactory alternative arrangements for executing transactions in
listed securities on the NYSE if it were precluded from doing so through W & D.
COMMISSION BUSINESS
A substantial portion of the Company's revenues is derived from customer
commissions on brokerage transactions in equity (primarily listed) and debt
securities for domestic and international investors such as investment advisors,
banks, mutual funds, insurance companies and pension and profit sharing plans.
Such investors normally purchase and sell securities in block transactions, the
execution of which requires special marketing and trading expertise. The Company
is one of the leading national firms in the execution of equity block
transactions, and believes that its institutional customers are attracted by the
quality of the Company's execution (with respect to considerations of quantity,
timing and price) and its competitive commission rates, which are negotiated on
the basis of market conditions, the size of the particular transaction and other
factors. In addition to domestic equity securities, the Company executes
transactions in taxable fixed income securities, domestic and international
convertible securities, international equity securities, ADRs, options,
preferred stocks, financial futures and other similar products.
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All of the Company's equity account executives are electronically
interconnected through a system permitting simultaneous verbal and graphic
communication of trading and order information by all
participants. The Company believes that its execution capability is
significantly enhanced by this system, which permits its account executives to
respond to each other and to negotiate order indications directly with customers
rather than through a separate trading department.
PRINCIPAL TRANSACTIONS
In the regular course of its business, the Company takes securities
positions as a market-maker to facilitate customer transactions and for
investment purposes. In making markets and when trading for its own account, the
Company exposes its own capital to the risk of fluctuations in market value.
Trading profits (or losses) depend primarily upon the skills of the employees
engaged in market-making and position taking, the amount of capital allocated to
positions in securities and the general trend of prices in the securities
markets.
The Company monitors its risk by maintaining its securities positions at or
below certain pre-established levels. These levels reduce certain opportunities
to realize profits in the event that the value of such securities increases.
However, they also reduce the risk of loss in the event of a decrease in such
value and result in controlled interest costs incurred on funds provided to
maintain such positions.
Equities. The Equities Division makes markets in over 400 over-the-counter
equity and ADR securities, operates two specialist posts on the Boston Stock
Exchange, and trades securities for its own account, as well as to accommodate
customer transactions. The International Division engages in hedged trading
involving securities listed or traded in both domestic and foreign markets.
Taxable Fixed Income. The Taxable Fixed Income Department trades high
grade and non-investment grade public and private debt securities. The
Department specializes in trading and making markets in over 300 unrated or less
than investment grade corporate debt securities and accounts for these positions
at market value. At December 31, 1994, the aggregate long and short market value
of these positions was $21.5 million and $3.1 million, respectively. Risk of
loss upon default by the borrower is significantly greater with respect to
unrated or less than investment grade corporate debt securities than with other
corporate debt securities. These securities are generally unsecured and are
often subordinated to other creditors of the issuer. These issuers usually have
high levels of indebtedness and are more sensitive to adverse economic
conditions, such as recession or increasing interest rates, than are investment
grade issuers. There is a limited market for some of these securities and market
quotes are generally available from a small number of dealers.
Convertible Securities and Warrants. The Company also trades domestic and
international convertible securities and warrants and assists corporate and
institutional clients in identifying attractive investments in these securities
and warrants.
Other Proprietary Trading. The Company invests in merger related arbitrage
activities through relationships with independent management firms pursuant to
which the Company delegates investment decisions to the managers. In 1994, the
Company hired an analytical trading group to engage in statistically-defined
market-neutral strategies in the equities markets to earn above market rates on
invested capital.
CORPORATE FINANCE
Jefferies' Corporate Finance Department offers corporations a full range of
advisory as well as debt and equity financing services which include private
placements and public offerings of debt and equity securities, debt
refinancings, recapitalizations, mergers and acquisitions advice, exclusive
sales advice, structured financings and securitizations, consent and waiver
solicitations, and company and bondholder representations in corporate
restructurings.
Investment banking activity involves both economic and regulatory
risks. An underwriter may incur losses if it is unable to sell the securities
it is committed to purchase or if it is forced to liquidate its commitments at
less than the agreed-upon purchase price. In addition, under the Securities Act
of 1933 and other laws and court decisions with respect to underwriters'
liability and limitations on indemnification of underwriters by issuers, an
underwriter is subject to substantial potential liability for material
misstatements
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or omissions in prospectuses and other communications with respect to
underwritten offerings. Further, underwriting commitments constitute a charge
against net capital and the Company's underwriting commitments may be limited
by the requirement that it must, at all times, be in compliance with the
Uniform Net Capital Rule 15c3-1 of the Securities and Exchange Commission (the
"Commission").
The Company intends to continue to pursue opportunities for its corporate
customers which may require it to finance and/or underwrite the issuance of
securities. Under circumstances where the Company is required to act as an
underwriter or to trade on a proprietary basis with its customers, the Company
may assume greater risk than would normally be assumed in certain other
principal transactions.
INTEREST
The Company derives a substantial portion of its interest revenues, and
incurs a substantial portion of its interest expenses, in connection with its
securities borrowed/securities loaned activity. The Company also earns interest
on its securities portfolio, on its operating and segregated balances, on its
margin lending activity and on certain of its investments.
Securities Borrowed/Securities Loaned. In connection with both its trading
and brokerage activities, the Company borrows securities to cover short sales
and to complete transactions in which customers have failed to deliver
securities by the required settlement date, and lends securities to other
brokers and dealers for similar purposes. The Company has an active securities
borrowed and lending matched book business ("Matched Book"), in which the
Company borrows securities from one party and lends them to another party. When
the Company borrows securities, the Company provides cash to the lender as
collateral, which is reflected in the Company's financial statements as
receivable from brokers and dealers. The Company earns interest revenues on this
cash collateral. Similarly, when the Company lends securities to another party,
that party provides cash to the Company as collateral, which is reflected in the
Company's financial statements as payable to brokers and dealers. The Company
pays interest expense on the cash collateral received from the party borrowing
the securities. A substantial portion of the Company's interest revenues and
interest expense results from the Matched Book activity.
Margin Lending. Customers' transactions are executed on either a cash or
margin basis. In a margin transaction, the Company extends credit to the
customer, collateralized by securities and cash in the customer's account, for a
portion of the purchase price, and receives income from interest charged on such
extensions of credit.
In permitting a customer to purchase securities on margin, the Company is
subject to the risk that a market decline could reduce the value of its
collateral below the amount of the customer's indebtedness and that the customer
might otherwise be unable to repay the indebtedness.
In addition to monitoring the creditworthiness of its customers, the
Company also considers the trading liquidity and volatility of the securities it
accepts as collateral for its margin loans. Trading liquidity and volatility may
be dependent, in part, upon the market on which the security is traded, the
number of outstanding shares of the issuer, events affecting the issuer and/or
securities markets in general, and whether or not there are any legal
restrictions on the sale of the securities. Certain types of securities have
historical trading patterns which may assist the Company in making its
evaluation. Historical trading patterns, however, may not be good indicators
over relatively short time periods or in markets which are affected by unusual
or unexpected developments. The Company considers all of these factors at the
time it agrees to extend credit to customers and continues to review its
extensions of credit on an ongoing basis.
The majority of the Company's margin loans are made to United States
citizens or to corporations which are domiciled in the United States. The
Company may extend credit to investors or corporations who are citizens of
foreign countries or who may reside outside the United States. The Company
believes that should such foreign investors default upon their loans with the
Company and should the collateral for those loans be insufficient to satisfy the
investors' obligations to the Company, the Company may experience more
difficulty in collecting investors' outstanding indebtedness than would be the
case if investors were citizens or residents of the United States.
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Although the Company attempts to minimize the risk associated with the
extension of credit in margin accounts, there is no assurance that the
assumptions on which the Company bases its decisions will be correct or that the
Company is in a position to predict factors or events which will have an adverse
impact on any individual customer or issuer, or the securities markets in
general.
COMPETITION
All aspects of the business of the Company are intensely competitive. The
Company competes directly with numerous other brokers and dealers, investment
banking firms and banks. In addition to competition from firms currently in the
securities business, there has been increasing competition from others offering
financial services. These developments and others have resulted, and may
continue to result, in significant additional competition for the Company.
Member firms of the NYSE generally are prohibited from effecting
transactions when acting as principal and, in certain cases, as agents, in
listed equity securities off the NYSE, and therefore, unlike Jefferies, are
precluded from effecting such transactions in the third market. Such firms may
execute certain transactions in listed equity securities in the third market for
customers, although typically they do not do so. Since firms which the Company
regards as its major competitors in the execution of transactions in equity
securities for institutional investors are members of the NYSE, any removal of
these prohibitions could adversely affect the Company's business.
REGULATION
The securities industry in the United States is subject to extensive
regulation under both federal and state laws. The Commission is the federal
agency responsible for the administration of federal securities laws. In
addition, self-regulatory organizations, principally the NASD and the securities
exchanges, are actively involved in the regulation of broker-dealers. These
self-regulatory organizations conduct periodic examinations of member
broker-dealers in accordance with rules they have adopted and amended from time
to time, subject to approval by the Commission. Securities firms are also
subject to regulation by state securities commissions in those states in which
they do business. Jefferies is registered as a broker-dealer in 50 states and
the District of Columbia. ITG Inc. is registered as a broker-dealer in 49 states
and the District of Columbia. W & D is registered as a broker-dealer in 23
states.
Broker-dealers are subject to regulations which cover all aspects of the
securities business, including sales methods, trade practices among
broker-dealers, use and safekeeping of customers' funds and securities, capital
structure of securities firms, record-keeping and the conduct of directors,
officers and employees. Additional legislation, changes in rules promulgated by
the Commission and self-regulatory organizations, or changes in the
interpretation or enforcement of existing laws and rules, may directly affect
the mode of operation and profitability of broker-dealers. The Commission,
self-regulatory organizations and state securities commissions may conduct
administrative proceedings which can result in censure, fine, suspension,
expulsion of a broker-dealer, its officers or employees, or revocation of
broker-dealer licenses. The principal purpose of regulation and discipline of
broker-dealers is the protection of customers and the securities markets, rather
than protection of creditors and stockholders of broker-dealers.
As registered broker-dealers, Jefferies, ITG Inc. and W & D are required by
law to belong to the Securities Investor Protection Corporation ("SIPC"). In the
event of a member's insolvency, the SIPC fund provides protection for customer
accounts up to $500,000 per customer, with a limitation of $100,000 on claims
for cash balances.
Net Capital Requirements. Every U.S. registered broker-dealer doing
business with the public is subject to the Commission's Uniform Net Capital Rule
(the "Rule"), which specifies minimum net capital requirements. Jefferies Group,
Inc. is not a registered broker-dealer and is therefore not subject to the Rule;
however, its United States broker-dealer subsidiaries are subject thereto.
The Rule provides that a broker-dealer doing business with the public shall
not permit its aggregate indebtedness to exceed 15 times its adjusted net
capital (the "primary method") or, alternatively, that it not
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permit its adjusted net capital to be less than 2% of its aggregate debit
balances (primarily receivables from customers and broker-dealers) computed in
accordance with such Rule (the "alternative method"). Jefferies, ITG Inc. and W
& D use the alternative method of calculation.
Compliance with applicable net capital rules could limit operations of
Jefferies or ITG Inc., such as underwriting and trading activities, that require
use of significant amounts of capital, and may also restrict loans, advances,
dividends and other payments by Jefferies or ITG Inc. to the Company. As of
December 31, 1994, Jefferies' net capital of $78.6 million exceeded its minimum
net capital requirements by $71.1 million, ITG Inc.'s net capital of $18.2
million exceeded its minimum net capital requirements by $18.0 million, and W &
D's net capital of $837,000 exceeded its minimum net capital requirements by
$587,000. See note 13 of Notes to Consolidated Financial Statements.
ITEM 2. PROPERTIES.
The Company maintains sales offices in Los Angeles, New York, Short Hills,
Chicago, Dallas, Boston, Atlanta, New Orleans, Houston, San Francisco, Stamford,
London, Hong Kong and Zurich. In addition, the Company maintains operations
offices in Los Angeles and Jersey City. The Company leases all of its office
space which management believes is adequate for the Company's business. For
information concerning leasehold improvements and rental expense, see notes 1, 6
and 11 of Notes to Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS.
In re Nasdaq Market-Makers Antitrust Litigation. Beginning in July 1994,
antitrust class actions were commenced against Jefferies and over thirty other
defendants in various federal courts. Following the filing of those lawsuits,
the Antitrust Division of the United States Department of Justice and the
Securities and Exchange Commission commenced investigations into certain issues
related to the allegations of the lawsuits. As far as Jefferies is aware, those
investigations are continuing.
In October 1994, the lawsuits were consolidated for discovery purposes in
the United States District Court for the Southern District of New York. The
consolidated complaint alleges that the defendants violated the antitrust laws
by conspiring to fix the "spread" paid by plaintiffs and class members to trade
in certain unspecified Nasdaq securities, by refusing to quote bids and asks in
so-called "odd-eighths." The cases purport to be brought on behalf of all
persons who purchased or sold certain unspecified securities on the Nasdaq
National Market during the period May 1, 1989 to May 27, 1994. The plaintiffs
seek damages in an unspecified amount, injunctive relief, and attorneys' fees
and costs. Discovery of the parties has not yet begun, and plaintiffs have not
yet asked the Court to certify the case to proceed as a class action. Jefferies
and the other defendants have filed a motion to dismiss the actions, which is
pending before the Court. Jefferies denies any wrongdoing and intends to
vigorously defend the lawsuits.
Other. Many aspects of the Company's business involve substantial risks of
liability. In the normal course of business, the Company and its subsidiaries
have been named as defendants or co-defendants in lawsuits involving primarily
claims for damages. The Company's management believes that pending litigation
will not have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
The Company's Common Stock trades in the Nasdaq National Market System
under the symbol JEFG. The following table sets forth for the periods indicated,
the range of high and low representative bid prices per share for the Common
Stock as reported by Nasdaq, which prices do not include retail mark-ups,
mark-downs or commissions and represent prices between dealers and not
necessarily actual transactions.
HIGH LOW
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1994
First Quarter...................................................... 45 3/4 28 1/2
Second Quarter..................................................... 44 1/2 37
Third Quarter...................................................... 38 29
Fourth Quarter..................................................... 36 3/4 28 1/2
1993
First Quarter...................................................... 28 1/2 19 1/2
Second Quarter..................................................... 30 1/4 26 1/2
Third Quarter...................................................... 36 1/4 27
Fourth Quarter..................................................... 40 1/2 32 1/2
There were approximately 280 holders of record of the Company's Common
Stock at December 31, 1994.
In 1988, the Company instituted a policy of paying regular quarterly cash
dividends. There are no restrictions on the Company's present ability to pay
dividends on Common Stock, other than the applicable provisions of the Delaware
General Corporation Law.
Dividends per Common Share (declared and paid):
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
1994........................................... $ .05 $ .05 $ .05 $ .05
1993........................................... $ .05 $ .05 $ .05 $ .05
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ITEM 6. SELECTED FINANCIAL DATA.
The selected data presented below as of and for each of the years in the
five-year period ended December 31, 1994, are derived from the consolidated
financial statements of Jefferies Group, Inc. and its subsidiaries, which
financial statements have been audited by KPMG Peat Marwick LLP, independent
auditors. Such data should be read in connection with the consolidated financial
statements contained on pages 13 through 31.
YEAR ENDED DECEMBER 31,
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1994 1993 1992 1991 1990
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(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
EARNINGS STATEMENT DATA
Revenues:
Commissions........................................ $ 155,295 $ 138,133 $ 106,756 $ 84,339 $ 82,098
Principal transactions............................. 67,013 83,361 86,364 69,972 43,417
Corporate finance.................................. 40,665 72,442 23,888 16,745 8,936
Interest........................................... 51,223 21,693 16,801 23,939 32,975
Other.............................................. 1,902 2,512 1,632 955 661
---------- ---------- ---------- ---------- ----------
Total revenues................................... 316,098 318,141 235,441 195,950 168,087
Interest expense..................................... 41,626 17,457 13,250 15,959 23,825
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Revenues, net of interest expense.................... 274,472 300,684 222,191 179,991 144,262
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Non-interest expenses:
Compensation and benefits.......................... 145,372 167,546 118,253 92,294 75,408
Floor brokerage and clearing fees.................. 18,660 15,925 13,830 11,593 12,142
Telecommunications and data processing services.... 20,997 19,040 17,059 16,034 13,839
Occupancy and equipment rental..................... 14,271 12,757 12,126 12,767 7,755
Travel and promotional............................. 8,909 8,587 5,574 3,880 3,856
Software royalties................................. 5,028 4,026 2,229 1,444 1,035
Other.............................................. 30,456 25,459 19,451 24,134 18,045
---------- ---------- ---------- ---------- ----------
Total non-interest expenses...................... 243,693 253,340 188,522 162,146 132,080
---------- ---------- ---------- ---------- ----------
Operating income..................................... 30,779 47,344 33,669 17,845 12,182
Other income:
Gain on initial public offering of Investment
Technology Group, Inc............................ 8,257 -- -- -- --
---------- ---------- ---------- ---------- ----------
Earnings before income taxes, minority interest and
cumulative effect of change in accounting
principle.......................................... 39,036 47,344 33,669 17,845 12,182
Income taxes......................................... 17,568 19,755 14,937 7,975 5,459
---------- ---------- ---------- ---------- ----------
Earnings before minority interest and cumulative
effect of change in accounting principle........... 21,468 27,589 18,732 9,870 6,723
Minority interest.................................... 1,244 -- -- -- --
---------- ---------- ---------- ---------- ----------
Earnings before cumulative effect of change in
accounting principle............................... 20,224 27,589 18,732 9,870 6,723
Cumulative effect on prior years of change in
accounting principle............................... -- 1,358 -- -- --
---------- ---------- ---------- ---------- ----------
Net earnings..................................... $ 20,224 $ 28,947 $ 18,732 $ 9,870 $ 6,723
========== ========== ========== ========== ==========
Earnings per share of Common Stock
Primary earnings before cumulative effect of
accounting change................................ $ 3.25 $ 5.37 $ 3.82 $ 1.74 $ 1.11
Cumulative effect of accounting change............. -- .26 -- -- --
---------- ---------- ---------- ---------- ----------
Primary earnings................................... $ 3.25 $ 5.63 $ 3.82 $ 1.74 $ 1.11
========== ========== ========== ========== ==========
Fully diluted earnings before cumulative effect of
accounting change................................ $ 3.25 $ 4.66 $ 3.08 $ 1.57 $ 1.10
Cumulative effect of accounting change............. -- .22 -- -- --
---------- ---------- ---------- ---------- ----------
Fully diluted earnings............................. $ 3.25 $ 4.88 $ 3.08 $ 1.57 $ 1.10
========== ========== ========== ========== ==========
Weighted average shares of Common Stock
Primary............................................ 6,189,000 5,145,000 4,898,000 5,686,000 6,073,000
Fully diluted...................................... 6,189,000 6,177,000 6,694,000 7,520,000 7,907,000
SELECTED BALANCE SHEET DATA
Total assets......................................... $1,557,348 $1,388,403 $ 531,040 $ 528,984 $ 602,186
Subordinated debt.................................... $ 59,570 $ 9,968 $ 40,978 $ 40,428 $ 40,288
Total stockholders' equity........................... $ 163,235 $ 144,558 $ 96,582 $ 78,085 $ 86,370
Book value per share of Common Stock................. $ 29.12 $ 25.38 $ 20.84 $ 17.05 $ 14.53
Shares outstanding................................... 5,605,038 5,695,427 4,633,435 4,578,980 5,943,973
8
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The Company's principal activities, securities brokerage and the trading of
and market-making in securities, are highly competitive and extremely volatile.
Total assets increased $168.9 million from $1,388.4 million at December 31,
1993 to $1,557.3 million at December 31, 1994. The increase is mostly due to an
increase in receivable from brokers and dealers related to securities borrowed.
The increase in securities borrowed is a result of an increase in payables to
brokers and dealers (related to securities loaned). The increases in cash and
cash equivalents and securities owned is similar in magnitude to the net
proceeds from Jefferies Group, Inc.'s $50,000,000 Senior Note offering and
Investment Technology Group, Inc.'s initial public offering.
Total liabilities increased $150.3 million from $1,243.8 million at
December 31, 1993 to $1,394.1 million at December 31, 1994. The increase is
mostly due to the before-mentioned increases in payable to brokers and dealers
and long-term debt.
The earnings of the Company are subject to wide fluctuations since many
factors over which the Company has little or no control, particularly the
overall volume of trading and the volatility and general level of market prices,
may significantly affect its operations. The following provides a summary of
revenues by source for the past three years.
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1994 1993 1992
------------------- ------------------- -------------------
% OF % OF % OF
TOTAL TOTAL TOTAL
AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
Equities Division..................... $123,236 39% $115,678 36% $100,221 43%
Investment Technology Group........... 54,265 17 47,450 15 28,763 12
International Division................ 29,441 9 23,767 7 22,509 9
Taxable Fixed Income Department....... 7,945 2 24,928 8 33,445 14
Convertible Division.................. 5,154 2 6,995 2 6,695 3
Other Proprietary Trading............. 2,267 1 2,676 1 1,487 1
Corporate Finance..................... 40,665 13 72,442 23 23,888 10
Interest.............................. 51,223 16 21,693 7 16,801 7
Other................................. 1,902 1 2,512 1 1,632 1
-------- ------- -------- ------- -------- -------
Total revenues.............. $316,098 100% $318,141 100% $235,441 100%
======== ======= ======== ======= ======== =======
1994 COMPARED TO 1993
Revenues, net of interest expense, decreased $26.2 million, or 9%, in 1994
as compared to 1993. The decrease was due primarily to a $31.8 million, or 44%,
decrease in corporate finance, a $16.3 million, or 20%, decrease in principal
transactions and a $610,000 decrease in other revenues. These decreases were
partially offset by a $17.2 million, or 12%, increase in commissions and a $5.4
million increase in net interest income (interest revenues less interest
expense). Commission revenues increased mostly due to higher commission revenues
in Investment Technology Group, the Equities Division and the International
Division. Revenues from principal transactions declined primarily due to
decreased Taxable Fixed Income Department trading revenues. Corporate finance
revenues decreased in 1994 because of a reduction in underwriting and private
placement activity. Additionally, 1993 included one transaction which accounted
for $16 million of revenue.
9
12
Other revenues decreased due mostly to the absence of 1993's $700,000 gain from
the termination of an office lease. Net interest income increased as the $29.5
million increase in interest revenues exceeded the $24.2 million increase in
interest expense. Interest revenues increased primarily due to interest on
higher securities borrowed and investment balances. The related increases in
interest on securities loaned and customer short balances only partially offset
the higher interest revenues.
Total non-interest expenses decreased $9.6 million, or 4%, in 1994 as
compared to 1993. Compensation and benefits decreased $22.2 million, or 13%. A
$40.6 million decrease in performance-based compensation was partially offset by
a $7.7 million increase in salaries and a $5.8 million increase in sales
commissions. Salaries increased due mostly to the increased number of employees
in the International Division, Investment Technology Group and the Corporate
Finance Department. Sales commissions were up partly due to a change for certain
account executives from departmental profitability-based to an individual
production-based compensation and partly due to higher commission revenues and
higher commission payout rates on certain types of transactions. Other expense
increased $5.0 million, or 20%, primarily due to higher soft dollar and
technology development expenses. Floor brokerage and clearing fees increased
$2.7 million, or 17%, mostly due to increased futures business and higher trade
volume. Telecommunications and data processing services increased $2.0 million,
or 10%, due to higher trade volume and personnel increases. Occupancy and
equipment rental increased $1.5 million, or 12%, mostly due to the addition of
new sales offices. Software royalties increased $1.0 million, or 25%, due to the
increase in POSIT(R) commissions. Travel and promotional expense remained
relatively unchanged as compared to the prior year's period.
As a result of the above, operating income decreased $16.6 million, or 35%.
In addition, Jefferies Group, Inc. recorded an $8.3 million gain related to
the initial public offering of Investment Technology Group, Inc. The minority
stockholders' ownership interests reduce Jefferies Group, Inc.'s ownership of
Investment Technology Group, Inc. to just over 80%. (See Initial Public Offering
of Investment Technology Group, Inc. in the Notes to Consolidated Financial
Statements.)
Earnings before income taxes, minority interest and cumulative effect of
change in accounting principle were down $8.3 million, or 18%.
Earnings before cumulative effect of change in accounting principle were
down 27% to $20.2 million, as compared to $27.6 million in 1993. Minority
interest of $1.2 million in 1994 represents approximately 19.8% of ITGI's net
earnings since the initial public offering. The effective tax rate was
approximately 45% in 1994 compared to approximately 42% in 1993. The 1993 period
included a $1.1 million adjustment of prior years' estimated tax liabilities to
actual which resulted in a lower tax rate for 1993.
The cumulative effect of the change in accounting for income taxes required
by Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes", was a $1.4 million benefit in 1993. This increased 1993's net
earnings to $28.9 million.
Primary earnings per share were $3.25 in 1994 on 6.2 million shares
compared to $5.63 in 1993 on 5.1 million shares. Primary shares increased
largely due to the conversion, in late 1993, of $29,731,000 aggregate principal
amount of 8 1/2% Convertible Subordinated Debentures and $1,690,000 aggregate
principal amount of 7% Convertible Subordinated Notes into an aggregate of
1,366,092 shares of the Company's Common Stock. Fully diluted earnings per share
were $3.25 in 1994 on 6.2 million shares compared to $4.88 in 1993 on 6.2
million shares. The cumulative effect of the change in accounting principle
increased 1993's earnings per share by $.26 on primary shares and $.22 on fully
diluted shares.
1993 COMPARED TO 1992
Revenues, net of interest expense, increased $78.5 million, or 35%, in 1993
as compared to 1992. The increase was primarily due to a $48.6 million, or 203%,
increase in corporate finance activity and an $18.7 million, or 65%, increase in
Investment Technology Group activity. Commission revenues increased $31.4
million, or 29%, net interest income (interest revenues less interest expense)
increased $685,000, or 19%, and other revenues increased $880,000, or 54%, while
principal transactions decreased $3.0 million, or 3%. The increase in corporate
finance was due to increased activity in underwriting, private placement and
financial
10
13
advisory fees, including approximately $16 million in fees from one
underwriting. The increase in commissions was mostly attributable to increases
in transactions conducted through POSIT(R) and QuantEX(R), two of the Company's
investment technology products. Net interest income increased as the $4.9
million increase in interest revenues exceeded the $4.2 million increase in
interest expense. Interest revenues increased primarily due to higher securities
borrowed balances. The related increases in interest on securities loaned and
customer short balances only partially offset the higher interest revenues. The
increase in other revenues was mostly due to income related to the termination
of an office lease and foreign currency transaction gains. Principal trading
decreased mostly due to a reduction in trading gains of the Taxable Fixed Income
Department partially offset by the improved performance of the Company's
Over-The-Counter Department.
Total non-interest expenses increased $64.8 million, or 34%, in 1993 as
compared to 1992. The increase in total expenses was due to an increase of $49.3
million, or 42%, in compensation and benefits, an increase of $6.0 million, or
31%, in other expense, an increase of $3.0 million, or 54%, in travel and
promotional expense, an increase of $2.1 million, or 15%, in floor brokerage and
clearing fees, an increase of $2.0 million, or 12%, in telecommunications and
data processing services and an increase of $1.8 million, or 81%, in software
royalties. Compensation and benefits increased mostly due to an increase in
profitability-based compensation (including a $4 million increase in expense
related to ITG's performance share plan), payouts related to higher commission
revenues and additional personnel. (See notes 10 and 15 of Notes to Consolidated
Financial Statements.) Other expense increased mostly due to an increase in soft
dollar expenses and research and consulting. Travel and promotional expense
increased due mostly to an increased use of airfare and accommodations. Floor
brokerage and clearing fees increased due to increased volumes of business
executed on the various exchanges. Telecommunications and data processing
services increased due to an increase in the number of offices. Software
royalties increased as a result of higher revenue associated with POSIT(R).
Occupancy and equipment rental expenses remained relatively unchanged as
compared to the 1992 period.
As a result of the above, earnings before income taxes, minority interest
and cumulative effect of change in accounting principle increased from $33.7
million in 1992 to $47.3 million in 1993. The $13.7 million increase was chiefly
due to the increase in revenues from corporate finance activity and investment
technology commissions.
Earnings before cumulative effect of change in accounting principle were up
47% to $27.6 million, as compared to $18.7 million in the 1992 period. The
effective tax rate was approximately 42% for 1993 compared to 44% for the 1992
period. An adjustment of prior years' estimated tax liabilities, to actual,
resulted in the lower tax rate for the 1993 period.
The cumulative effect of the change in accounting for income taxes required
by SFAS 109 was a $1.4 million benefit. This increased net earnings to $28.9
million, which represents an increase of $10.2 million, or 55%, over the 1992
period.
Primary earnings per share were $5.63 on 5.1 million shares in 1993
compared to $3.82 on 4.9 million shares in 1992. Fully diluted earnings per
share were $4.88 on 6.2 million shares in 1993 compared to $3.08 on 6.7 million
shares in 1992. The cumulative effect of the change in accounting principle
increased earnings per share in 1993 by $.26 on primary shares and $.22 on fully
diluted shares.
LIQUIDITY AND CAPITAL RESOURCES
A substantial portion of the Company's assets are liquid, consisting of
cash or assets readily convertible into cash. The majority of securities
positions (both long and short) in the Company's trading accounts are readily
marketable and actively traded. Receivables from brokers and dealers are
primarily current open transactions or securities borrowed transactions which
can be settled or closed out within a few days. Receivables from customers,
officers and directors include margin balances and amounts due on uncompleted
transactions. Most of the Company's receivables are secured by marketable
securities.
The Company's assets are financed by equity capital, senior debt,
subordinated debt, customer free credit balances, bank loans and other payables.
Bank loans represent secured and unsecured short-term borrowings (usually
overnight) which are generally payable on demand. Secured bank loans are
collateralized by a
11
14
combination of customer, noncustomer and firm securities. The Company has always
been able to obtain necessary short-term borrowings in the past and believes
that it will continue to be able to do so in the future. Additionally, the
Company has letters of credit outstanding which are used in the normal course of
business to satisfy various collateral requirements in lieu of depositing cash
or securities.
Jefferies, ITG Inc. and W & D are subject to the net capital requirements
of the Commission and other regulators, which are designed to measure the
general financial soundness and liquidity of broker-dealers. Jefferies, ITG Inc.
and W & D have consistently operated in excess of the minimum requirements. At
December 31, 1994, Jefferies had regulatory net capital, after adjustments as
required by the Commission's Uniform Net Capital Rule, of $78.6 million, which
exceeded the minimum net capital requirements by $71.1 million. At December 31,
1994, ITG Inc. had regulatory net capital, after adjustments as required by the
Commission's Uniform Net Capital Rule, of $18.2 million, which exceeded the
minimum net capital requirements by $18.0 million. At December 31, 1994, W & D
had regulatory net capital, after adjustments as required by the Commission's
Uniform Net Capital Rule, of $837,000, which exceeded the minimum net capital
requirements by $587,000. Jefferies, ITG Inc. and W & D use the alternative
method of calculating their regulatory net capital.
In April 1994, Jefferies Group, Inc. issued $50,000,000 face value of
8.875% Senior Notes due 2004 (the "Notes") in a private placement. Pursuant to a
registration statement filed in July 1994, Jefferies Group, Inc. exchanged all
of the Notes for new 8.875% Series B Senior Notes due 2004. Also in 1994, the
Company repurchased 690,773 shares of its Common Stock at prices ranging from
$31.25 to $37.45.
In October 1993, the Company called for redemption all of its 8 1/2%
Convertible Subordinated Debentures and all of its 7% Convertible Subordinated
Notes. Holders of $29,731,000 aggregate principal amount of 8 1/2% Convertible
Subordinated Debentures and $1,690,000 aggregate principal amount of 7%
Convertible Subordinated Notes elected to convert their securities into an
aggregate of 1,366,092 shares of the Company's Common Stock. Also in 1993, the
Company repurchased 351,837 shares of its Common Stock at prices ranging from
$23.375 to $36.50.
The repurchased shares of Common Stock are presently being held as treasury
shares.
EFFECTS OF CHANGES IN FOREIGN CURRENCY RATES
The Company maintains a foreign securities business in its foreign offices
(London, Hong Kong and Zurich) as well as in some of its domestic offices. Most
of these activities are hedged by related foreign currency liabilities or by
forward exchange contracts. However, the Company is still subject to some
foreign currency risk. A change in the foreign currency rates could create
either a foreign currency transaction gain/loss (recorded in the Company's
Consolidated Statements of Earnings) or a foreign currency translation
adjustment to the Stockholders' equity section of the Company's Consolidated
Statements of Financial Condition.
For an assessment of risk, see Part I, Item 1, Business sections "Principal
Transactions," "Corporate Finance," "Interest," and "Competition" and see Part
II, Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations section "Effects of Changes in Foreign Currency Rates."
12
15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
PAGE
------
Consolidated Financial Statements of Jefferies Group, Inc. and Subsidiaries
Independent Auditors' Report........................................................... 14
Consolidated Statements of Financial Condition as of December 31, 1994 and 1993........ 15
Consolidated Statements of Earnings for the Three Years Ended December 31, 1994........ 16
Consolidated Statements of Changes in Stockholders' Equity for the Three Years Ended
December 31, 1994.................................................................... 17
Consolidated Statements of Cash Flows for the Three Years Ended December 31, 1994...... 18
Notes to Consolidated Financial Statements............................................. 19
13
16
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
JEFFERIES GROUP, INC.:
We have audited the accompanying consolidated statements of financial
condition of Jefferies Group, Inc. and subsidiaries as of December 31, 1994 and
1993 and the related consolidated statements of earnings, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Jefferies
Group, Inc. and subsidiaries as of December 31, 1994 and 1993 and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1994 in conformity with generally accepted accounting
principles.
As discussed in note 1 to the consolidated financial statements, the
Company changed its accounting for income taxes in 1993 to adopt the provisions
of the Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes."
KPMG Peat Marwick LLP
Los Angeles, CA
January 27, 1995
14
17
JEFFERIES GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1994 1993
--------- ----------
ASSETS
Cash and cash equivalents......................................... $ 71,381 $ 26,910
Receivable from brokers and dealers............................... 1,149,670 1,069,384
Receivable from customers, officers and directors................. 105,880 116,935
Securities owned.................................................. 144,940 114,808
Premises and equipment............................................ 21,071 18,638
Other assets...................................................... 64,406 41,728
---------- ----------
$1,557,348 $1,388,403
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Bank loans........................................................ $ 866 $ 45,928
Payable to brokers and dealers.................................... 840,833 615,216
Repurchase agreements............................................. 18,696 --
Payable to customers.............................................. 325,396 405,726
Securities sold, not yet purchased................................ 60,587 74,235
Accrued expenses and other liabilities............................ 82,029 92,772
---------- ----------
1,328,407 1,233,877
Long-term debt.................................................... 59,570 9,968
Minority interest................................................. 6,136 --
---------- ----------
1,394,113 1,243,845
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value. Authorized 1,000,000 shares;
none issued.................................................. -- --
Common stock, $.01 par value. Authorized 25,000,000 shares;
issued 9,017,710 shares in 1994 and 8,907,817 shares in
1993......................................................... 90 89
Additional paid-in capital...................................... 51,120 34,930
Retained earnings............................................... 165,597 146,949
Less:
Treasury stock, at cost; 3,412,672 shares in 1994 and
3,212,390 shares in 1993.................................... (52,958) (35,695)
Currency translation adjustments............................. (465) (652)
Additional minimum pension liability......................... (149) (1,063)
---------- ----------
Net stockholders' equity................................... 163,235 144,558
---------- ----------
$1,557,348 $1,388,403
========== ==========
See accompanying notes to consolidated financial statements.
15
18
JEFFERIES GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
THREE YEARS ENDED DECEMBER 31, 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1994 1993 1992
---------- ---------- ----------
Revenues:
Commissions...................................................... $ 155,295 $ 138,133 $ 106,756
Principal transactions........................................... 67,013 83,361 86,364
Corporate finance................................................ 40,665 72,442 23,888
Interest......................................................... 51,223 21,693 16,801
Other............................................................ 1,902 2,512 1,632
---------- ---------- ----------
Total revenues................................................. 316,098 318,141 235,441
Interest expense................................................. 41,626 17,457 13,250
---------- ---------- ----------
Revenues, net of interest expense.............................. 274,472 300,684 222,191
---------- ---------- ----------
Non-interest expenses:
Compensation and benefits........................................ 145,372 167,546 118,253
Floor brokerage and clearing fees................................ 18,660 15,925 13,830
Telecommunications and data processing services.................. 20,997 19,040 17,059
Occupancy and equipment rental................................... 14,271 12,757 12,126
Travel and promotional........................................... 8,909 8,587 5,574
Software royalties............................................... 5,028 4,026 2,229
Other............................................................ 30,456 25,459 19,451
---------- ---------- ----------
Total non-interest expenses.................................... 243,693 253,340 188,522
---------- ---------- ----------
Operating income............................................... 30,779 47,344 33,669
Other income -- gain on initial public offering of Investment
Technology Group, Inc. (note 15)............................... 8,257 -- --
---------- ---------- ----------
Earnings before income taxes, minority interest and cumulative
effect of change in accounting principle..................... 39,036 47,344 33,669
Income taxes....................................................... 17,568 19,755 14,937
---------- ---------- ----------
Earnings before minority interest and cumulative effect of
change in accounting principle............................... 21,468 27,589 18,732
Minority interest in earnings of consolidated subsidiaries, net.... 1,244 -- --
---------- ---------- ----------
Earnings before cumulative effect of change in accounting
principle.................................................... 20,224 27,589 18,732
Cumulative effect of change in accounting principle................ -- 1,358 --
---------- ---------- ----------
Net earnings................................................... $ 20,224 $ 28,947 $ 18,732
========== ========== ==========
Primary earnings per share:
Earnings before cumulative effect of change in accounting
principle...................................................... $ 3.25 $ 5.37 $ 3.82
Cumulative effect of change in accounting principle.............. -- .26 --
---------- ---------- ----------
Net earnings................................................... $ 3.25 $ 5.63 $ 3.82
========== ========== ==========
Fully diluted earnings per share:
Earnings before cumulative effect of change in accounting
principle...................................................... $ 3.25 $ 4.66 $ 3.08
Cumulative effect of change in accounting principle.............. -- .22 --
---------- ---------- ----------
Net earnings................................................... $ 3.25 $ 4.88 $ 3.08
========== ========== ==========
Weighted average shares of common stock:
Primary.......................................................... 6,189,000 5,145,000 4,898,000
Fully diluted.................................................... 6,189,000 6,177,000 6,694,000
========== ========== ==========
See accompanying notes to consolidated financial statements.
16
19
JEFFERIES GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1994
(DOLLARS IN THOUSANDS)
ADDITIONAL
ADDITIONAL CURRENCY MINIMUM NET
COMMON PAID-IN RETAINED TREASURY DEFERRED TRANSLATION PENSION STOCKHOLDERS'
STOCK CAPITAL EARNINGS STOCK COMPENSATION ADJUSTMENT LIABILITY EQUITY
------- ---------- -------- --------- ------------ ---------- ---------- -------------
Balance, December 31,
1991...................... $83 $25,985 $101,178 $(47,860) $(1,301) $ -- $ -- $ 78,085
Exercise of stock options
(533,794 shares).......... 6 8,030 -- -- -- -- -- 8,036
Purchase of 479,339 shares
of treasury stock......... -- -- -- (8,120) -- -- -- (8,120)
Repayment of ESOP loan..... -- -- -- -- 1,301 -- -- 1,301
Net earnings............... -- -- 18,732 -- -- -- -- 18,732
Dividends paid............. -- -- (916) -- -- -- -- (916)
Currency translation
adjustment................ -- -- -- -- -- (536) -- (536)
--
---- ------- -------- -------- ------- ------ ------- --------
Balance, December 31,
1992...................... 89 34,015 118,994 (55,980) -- (536) -- 96,582
Exercise of stock options
(42,565 shares)........... -- 885 -- -- -- -- -- 885
Purchase of 351,837 shares
of treasury stock......... -- -- -- (11,228) -- -- -- (11,228)
Issuance of restricted
stock (5,172 shares)...... -- -- -- 93 -- -- -- 93
Conversion of convertible
debt into common shares
(1,366,092 shares)........ -- 30 -- 31,420 -- -- -- 31,450
Additional minimum pension
liability................. -- -- -- -- -- -- (1,063) (1,063)
Net earnings............... -- -- 28,947 -- -- -- -- 28,947
Dividends paid............. -- -- (992) -- -- -- -- (992)
Currency translation
adjustment................ -- -- -- -- -- (116) -- (116)
--
---- ------- -------- --------- ------- ------ ------- --------
Balance, December 31,
1993...................... 89 34,930 146,949 (35,695) -- (652) (1,063) 144,558
Exercise of stock options
(124,893 shares).......... 1 2,936 -- 216 -- -- -- 3,153
Purchase of 690,773 shares
of treasury stock......... -- -- -- (24,190) -- -- -- (24,190)
Issuance of common stock
(438,492 shares).......... -- 13,119 -- 5,945 -- -- -- 19,064
Issuance of restricted
stock (19,318 shares)..... -- 135 -- 213 -- -- -- 348
Capital Accumulation Plan
distribution (17,681
shares)................... -- -- -- 553 -- -- -- 553
Reduction in additional
minimum pension
liability................. -- -- -- -- -- -- 914 914
Increase in proportionate
share of subsidiary's
equity related to
subsidiary's purchase of
treasury stock............ -- -- (407) -- -- -- -- (407)
Net earnings............... -- -- 20,224 -- -- -- -- 20,224
Dividends paid............. -- -- (1,169) -- -- -- -- (1,169)
Currency translation
adjustment................ -- -- -- -- -- 187 -- 187
--
---- ------- -------- -------- ------- ------ ------- --------
Balance, December 31,
1994...................... $90 $51,120 $165,597 $(52,958) $ -- $ (465) $ (149) $163,235
==== ======= ======== ======== ======= ====== ======= ========
See accompanying notes to consolidated financial statements.
17
20
JEFFERIES GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1994
(DOLLARS IN THOUSANDS)
1994 1993 1992
-------- --------- --------
Cash flows from operating activities:
Net earnings....................................................... $ 20,224 $ 28,947 $ 18,732
-------- --------- --------
Adjustments to reconcile net earnings to net cash provided
by (used in) operating activities:
Depreciation and amortization.................................... 7,921 6,665 6,080
Deferred income taxes............................................ 15,945 (7,438) (1,103)
(Increase) decrease in receivables:
Brokers and dealers............................................ (80,286) (797,034) 25,727
Customers, officers and directors.............................. 11,055 (22,588) 22,507
Increase in securities owned..................................... (30,132) (11,815) (35,140)
(Increase) decrease in other assets.............................. (39,366) (13,484) 5,365
Increase (decrease) in payables:
Brokers and dealers............................................ 225,617 467,602 (28,928)
Customers...................................................... (80,330) 254,641 16,350
Increase (decrease) in securities sold, not yet purchased........ (13,648) 26,312 1,724
Increase (decrease) in accrued expenses and other liabilities.... (9,829) 45,507 652
-------- --------- --------
Net cash provided by (used in) operating activities............ 27,171 (22,685) 31,966
-------- --------- --------
Cash flows from financing activities:
Net proceeds from (payments on) bank loans......................... (45,062) 45,928 (5,686)
Issuance of long-term debt......................................... 49,302 -- --
Net proceeds (payments) from:
Repurchase of treasury stock..................................... (24,190) (11,228) (8,120)
Repayment of ESOP loan........................................... -- -- 1,301
Dividends paid................................................... (1,169) (992) (916)
Proceeds from exercise of stock options............................ 3,153 885 8,036
Increase in minority interest...................................... 6,136 -- --
Increase in proportionate share of subsidiary's equity............. (407) -- --
Distribution of Capital Accumulation Plan shares................... 553 -- --
Proceeds from repurchase agreements................................ 18,696 -- --
Issuance of restricted shares...................................... 348 93 --
Issuance of common shares.......................................... 19,064 -- --
-------- --------- --------
Net cash provided by (used in) financing activities............ 26,424 34,686 (5,385)
-------- --------- --------
Cash flows from investing activities -- purchase of premises and
equipment.......................................................... $ (9,311) (10,053) (6,903)
-------- --------- --------
Effect of currency translation on cash............................... 187 (116) (536)
-------- --------- --------
Net increase in cash and cash equivalents...................... 44,471 1,832 19,142
Cash and cash equivalents at beginning of year....................... 26,910 25,078 5,936
-------- --------- --------
Cash and cash equivalents at end of year............................. $ 71,381 $ 26,910 $ 25,078
======== ========= ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest......................................................... $ 37,435 $ 15,970 $ 13,282
Income taxes..................................................... 9,793 20,112 16,007
======== ========= ========
Supplemental disclosure of noncash financing activities:
In September 1993, the Company called for redemption of all of its then
outstanding convertible subordinated debentures and notes. Holders of
$29,731,000 face value of 8-1/2% Convertible Subordinated Debentures and
$1,690,000 face value of 7% Convertible Subordinated Notes elected to
convert their debentures and notes into 1,366,092 shares of the Company's
common stock.
In 1993, the Company recognized an additional minimum pension liability of
$1,063,000 related to the Company's pension plan, which resulted in an
increase to accrued expenses and other liabilities and an offsetting
decrease in stockholders' equity. In 1994, the additional minimum pension
liability included in stockholder' equity of $149,000 resulted from a
decrease of $914,000 to accrued expenses and other liabilities and an
offsetting increase in stockholders' equity.
See accompanying notes to consolidated financial statements.
18
21
JEFFERIES GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Jefferies Group, Inc. (Company) and all subsidiaries, including Jefferies &
Company, Inc. (Jefferies) and Investment Technology Group, Inc. (ITGI) and its
wholly owned subsidiary, ITG Inc. (ITG). The accounts of W & D Securities, Inc.
(W & D) are also consolidated because of the nature and extent of the Company's
ownership interest in W & D. The Company and its subsidiaries are primarily
engaged in equity and taxable fixed income securities brokerage and trading.
Operations of the Company include agency and principal transactions and other
securities-related financial services.
All significant intercompany accounts and transactions are eliminated in
consolidation.
SECURITIES TRANSACTIONS
Starting January 1, 1993, all transactions in securities, commission
revenues and related expenses are recorded on a trade-date basis, which does not
differ materially from the Company's previously used settlement-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, CUSTOMERS, OFFICERS AND DIRECTORS
Receivable from, and payable to, customers includes amounts receivable and
payable on cash and margin transactions. Securities owned by customers and held
as collateral for these receivables are not reflected in the accompanying
consolidated financial statements. Receivable from officers and directors
represents balances arising from their individual security transactions. Such
transactions are subject to the same regulations as customer transactions.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Substantially all of the Company's financial instruments are carried at
fair value or amounts approximating fair value. Assets, including cash and cash
equivalents, securities owned, securities borrowed or purchased under agreements
to sell, and certain receivables are carried at fair value or contracted
amounts, which approximate fair value. Similarly, liabilities including bank
loans, securities sold, not yet purchased, securities loaned or sold under
agreements to repurchase, and certain payables are carried at amounts
approximating fair value.
The Company has derivative financial instrument positions in option
contracts and foreign exchange forward contracts which are measured at fair
value with gains and losses recognized in earnings. The gross contracted or
notional amount of these contracts is not reflected in the consolidated
statement of financial condition.
PREMISES AND EQUIPMENT
Premises and equipment are depreciated using the straight-line method over
the estimated useful lives of the related assets (generally three to ten years).
Leasehold improvements are amortized using the straight-line method over the
term of related leases or the estimated useful lives of the assets, whichever is
shorter.
19
22
JEFFERIES GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
GOODWILL
Goodwill, which represents the excess of cost over net assets acquired, is
amortized on a straight-line basis over the expected ten-year period to be
benefited. The Company assesses the recoverability of this intangible asset by
determining whether the amortization of the goodwill balance over its remaining
life can be recovered through future operating cash flows of the acquired
business.
CAPITALIZED SOFTWARE
The Company capitalizes software development costs where technological
feasibility of the product has been established. The establishment of
technological feasibility and the ongoing assessment of recoverability of
capitalized software development costs requires considerable judgment by
management with respect to certain external factors, including, but not limited
to, technological feasibility, anticipated future gross revenues, estimated
economic life and changes in software and hardware technologies. The Company is
amortizing capitalized software costs using the straight-line method over the
estimated economic useful life. Amortization begins when the product is
available for release to the customers. As of December 31, 1994 and 1993,
respectively, the Company had $2.0 million and $418,000 of capitalized software
costs, net of accumulated amortization included in other assets. In 1994, 1993
and 1992, the Company amortized software costs of $173,000.
INCOME TAXES
The Company files a consolidated U.S. Federal income tax return which
includes all qualifying subsidiaries. Amounts provided for income taxes are
based on income reported for financial statement purposes and do not necessarily
represent amounts currently payable. Deferred income taxes are provided for
temporary differences in reporting certain items, principally state income
taxes, depreciation, deferred compensation and unrealized gains and losses on
securities owned. Tax credits are recorded as a reduction of income taxes when
realized.
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes."
Statement 109 requires a change from the deferred method of accounting for
income taxes of APB Opinion 11 to the asset and liability method of accounting
for income taxes. Under the asset and liability method of Statement 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under Statement 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Effective January 1, 1993, the Company adopted Statement 109 and has
reported the cumulative effect of that change in the method of accounting for
income taxes in the 1993 consolidated statement of earnings.
Pursuant to the deferred method under APB Opinion 11 which was applied in
1992 and prior years, deferred income taxes are recognized for income and
expense items that are reported in different years for financial reporting
purposes and income tax purposes using the tax rate applicable for the year of
the calculation. Under the deferred method, deferred taxes are not adjusted for
subsequent changes in tax rates.
CASH AND CASH EQUIVALENTS
The Company generally invests its excess cash in money market funds and
other short-term investments. At December 31, 1994 and 1993, such cash
equivalents amounted to $49,174,000 and $4,500,000, respec-
20
23
JEFFERIES GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
tively. Cash equivalents are part of the cash management activities of the
Company and generally mature within 90 days.
REPURCHASE AGREEMENTS
Repurchase agreements consist of sales of U.S. Treasury notes under
agreements to repurchase. They are treated as collateralized financing
transactions and are recorded at their contracted repurchase amount. At December
31, 1994, the Company had two repurchase agreements outstanding with Eastbridge
Capital, Inc., which had a weighted average maturity of 28 days. The market
value of the securities to be repurchased was $18,734,000.
EARNINGS PER COMMON SHARE
Primary earnings per share of common stock are computed by dividing net
earnings by the average number of shares of common stock and dilutive common
stock equivalents outstanding during the period. Fully diluted earnings per
share of common stock have been further adjusted for conversion of convertible
subordinated debt, if dilutive.
FOREIGN CURRENCY TRANSLATION
In accordance with SFAS 52, "Accounting for Foreign Currency Translation,"
the Company's foreign revenues, costs and expenses are translated at average
current rates during each reporting period. Foreign currency transaction gains
and losses are currently included in the consolidated statement of earnings.
Gains and losses resulting from translation of financial statements are excluded
from the consolidated statement of earnings and are recorded directly to a
separate component of stockholders' equity.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' amounts to
conform to the current year's presentation.
(2) GOODWILL
At December 31, 1994 and 1993, excess of purchase price over net assets
acquired remaining was $3,701,000 and $4,271,000, net of accumulated
amortization of $1,696,000 and $1,126,000, respectively, and is included in
other assets.
21
24
JEFFERIES GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) RECEIVABLE FROM, AND PAYABLE TO, BROKERS AND DEALERS
The following is a summary of the major categories of receivable from, and
payable to, brokers and dealers as of December 31, 1994 and 1993 (in thousands
of dollars):
1994 1993
----------- -----------
Receivable from brokers and dealers:
Securities borrowed............................................... $1,132,930 $1,012,659
Other............................................................. 16,740 56,725
---------- ----------
$1,149,670 $1,069,384
========= ==========
Payable to brokers and dealers:
Securities loaned................................................. $ 835,069 $ 604,916
Other............................................................. 5,764 10,300
--------- ----------
$ 840,833 $ 615,216
========= ==========
The Company has a securities borrowed versus securities loaned business
with other brokers. The Company also borrows securities to cover short sales and
to complete transactions in which customers have failed to deliver securities by
the required settlement date, and lends securities to other brokers and dealers
for similar purposes. From these activities, the Company derives interest
revenues and interest expenses.
(4) RECEIVABLE FROM, AND PAYABLE TO, CUSTOMERS, OFFICERS AND DIRECTORS
The following is a summary of the major categories of receivables from
customers, officers and directors as of December 31, 1994 and 1993 (in thousands
of dollars):
1994 1993
--------- ---------
Customers (net of allowance for uncollectible accounts of $1,882 in
1994 and $829 in 1993)............................................... $ 103,735 $ 115,578
Officers and directors................................................. 2,145 1,357
--------- ---------
$ 105,880 $ 116,935
========= =========
Interest is paid on free credit balances in accounts of customers who have
indicated that the funds will be used for investment at a future date. The rate
of interest paid on such free credit balances varies between the thirteen-week
treasury bill rate and 1% below that rate, depending upon the size of the
customers' free credit balances.
Uncollectible accounts expense amounted to $712,000, $708,000 and
$1,080,000 for the years ended December 31, 1994, 1993 and 1992, respectively,
and is included in other expense.
22
25
JEFFERIES GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) SECURITIES OWNED AND SECURITIES SOLD, NOT YET PURCHASED
The following is a summary of the market value of major categories of
securities owned and securities sold, not yet purchased, as of December 31, 1994
and 1993:
1994 1993
------------------------- -------------------------
SECURITIES SECURITIES
SOLD, SOLD,
SECURITIES NOT YET SECURITIES NOT YET
OWNED PURCHASED OWNED PURCHASED
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
Corporate equity securities.................... $ 72,652 $ 52,068 $ 51,220 $ 66,910
High-yield securities.......................... 21,457 3,058 34,105 5,193
Corporate debt securities...................... 18,392 4,927 26,663 1,779
Certificate of deposit......................... 10,000 -- -- --
U.S. Government and agency obligations......... 22,416 -- 2,637 --
Options........................................ 23 534 183 353
--------- -------- --------- --------
$ 144,940 $ 60,587 $ 114,808 $ 74,235
========= ======== ========= ========
(6) PREMISES AND EQUIPMENT
The following is a summary of premises and equipment as of December 31,
1994 and 1993 (in thousands of dollars):
1994 1993
------- -------
Furniture, fixtures and equipment...................................... $38,553 $30,708
Leasehold improvements................................................. 7,422 5,995
------- -------
Total................................................................ 45,975 36,703
Less accumulated depreciation and amortization......................... 24,904 18,065
------- -------
$21,071 $18,638
======= =======
Depreciation and amortization expense amounted to $6,878,000, $4,350,000
and $4,909,000 for the years ended December 31, 1994, 1993 and 1992,
respectively.
Included in furniture, fixtures and equipment is leased computer and office
equipment totaling $5,290,000 and related accumulated amortization of
$4,031,000.
(7) BANK LOANS
Bank loans represent short-term borrowings that are payable on demand and
generally bear interest at the brokers' call loan rate. At December 31, 1994,
firm loans amounted to $866,000. The loans were fully collateralized by firm
securities having a market value of $1,361,000. At December 31, 1993, secured
and unsecured firm loans amounted to $25,928,000 and $20,000,000, respectively.
The secured loans were fully collateralized by firm securities having a market
value of $41,888,000.
23
26
JEFFERIES GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) LONG-TERM DEBT
The following summarizes long-term debt outstanding at December 31, 1994
and 1993 (in thousands of dollars):
1994 1993
-------- -------
8 7/8% Subordinated Notes, due 1997, less unamortized discount of $509 and
$762 in 1994 and 1993, respectively, effective rate of 12%.............. $10,221 $9,968
8 7/8% Series B Senior Notes, due 2004, less unamortized discount of $651
in 1994, effective rate of 9%........................................... 49,349 --
------- ------
$59,570 $9,968
======= ======
In April 1994, the Company issued $50,000,000 face value of 8.875% Senior
Notes due 2004 (the Notes) in a private placement. Pursuant to a registration
statement filed in July 1994, Jefferies Group, Inc. exchanged all of the Notes
for new 8.875% Series B Senior Notes due 2004.
In 1992, the Company issued $10,730,000 face value of 8 7/8% Subordinated
Notes in exchange for 7% Convertible Subordinated Notes having the same face
value. Beginning October 1, 1995, the Subordinated Notes have sinking fund
requirements to redeem $3,577,000 annually through October 1, 1997.
In September 1993, the Company called for redemption of all of its then
outstanding convertible subordinated debentures and notes. Holders of
$29,731,000 face value of 8 1/2% Convertible Subordinated Debentures and
$1,690,000 face value of 7% Convertible Subordinated Notes elected to convert
their debentures and notes into 1,366,092 shares of the Company's common stock.
(9) INCOME TAXES
As discussed in note 1, the Company adopted Statement 109 as of January 1,
1993. The cumulative effect of this change in accounting for income taxes of
$1,358,000 is determined as of January 1, 1993 and is reported separately in the
consolidated statement of earnings for the year ended December 31, 1993. Prior
years' financial statements have not been restated to apply the provisions of
Statement 109.
Total income taxes for the years ended December 31, 1994 and 1993 was
allocated as follows (in thousands of dollars):
1994 1993
------- -------
Income from continuing operations........................................ $17,568 $19,755
Stockholders' equity, for compensation expense for tax purposes in excess
of amounts recognized for financial reporting purposes and unpaid
interest on conversion of debt to equity............................... (1,230) 177
------- -------
$16,338 $19,932
======= =======
24
27
JEFFERIES GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income taxes (benefit) for the years ended December 31, 1994, 1993 and 1992
consists of the following:
1994 1993 1992
------- ------- -------
(DOLLARS IN THOUSANDS)
Current:
Federal..................................................... $ 667 $19,407 $11,456
State and city.............................................. 956 7,786 4,584
------- ------- -------
1,623 27,193 16,040
------- ------- -------
Deferred:
Federal..................................................... 12,103 (5,473) (1,031)
State and city.............................................. 3,842 (1,965) (72)
------- ------- -------
15,945 (7,438) (1,103)
------- ------- -------
$17,568 $19,755 $14,937
======= ======= =======
Income taxes differed from the amounts computed by applying the Federal
income tax rate of 35% for 1994 and 1993 and 34% for 1992 as a result of the
following:
1994 1993 1992
--------------- --------------- ---------------
AMOUNT % AMOUNT % AMOUNT %
------- ----- ------- ----- ------- -----
(DOLLARS IN THOUSANDS)
Computed expected income taxes........... $13,663 35.0% $16,570 35.0% $11,447 34.0%
Increase (decrease) in income taxes
resulting from:
State and city income taxes, net of
Federal income tax benefit.......... 3,119 8.0 3,784 8.0 2,978 8.9
Limited deductibility of meals and
entertainment....................... 645 1.7 323 .7 252 .7
Adjustment of estimated tax liabilities
to actual........................... -- -- (1,094) (2.3) -- --
Other, net............................. 141 .3 172 .3 260 .8
------- ----- ------- ----- ------- -----
Total income taxes.................. $17,568 45.0% $19,755 41.7% $14,937 44.4%
======= ===== ======= ===== ======= =====
The deferred tax benefit of $7,438,000 for the year ended December 31, 1993
included a $101,000 benefit from adjustments to deferred tax assets and
liabilities for enacted changes in tax laws and rates.
25
28
JEFFERIES GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The cumulative tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities at December 31,
1994 and 1993 are presented below (in thousands of dollars):
1994 1993
------- -------
Deferred tax assets:
Long-term compensation............................................... $ 7,602 $ 9,319
Lease allowances..................................................... 603 618
Accounts receivable.................................................. 1,612 1,449
State income taxes................................................... 402 1,285
Net operating loss carryforward...................................... 2,397 139
Royalty income....................................................... 220 252
Securities inventories............................................... 112 --
Premises and equipment............................................... 117 --
------- -------
Total gross deferred tax assets................................... 13,065 13,062
Valuation allowance.................................................. -- --
------- -------
Net deferred tax assets........................................... 13,065 13,062
------- -------
Deferred tax liabilities:
Investment in subsidiaries........................................... (16,512) --
Notes payable........................................................ (219) (328)
Securities inventories............................................... -- (459)
Premises and equipment............................................... -- (192)
Other................................................................ (224) (28)
------- -------
Total gross deferred tax liabilities.............................. (16,955) (1,007)
------- -------
Net deferred tax asset (liability)................................ $(3,890) $12,055
======= =======
There was no valuation allowance for deferred tax assets as of January 1,
1993 and no allowance was added during the two years ended December 31, 1994.
Management believes it is more likely than not that the Company will
generate sufficient taxable income in the future to realize the deferred tax
asset.
For the year ended December 31, 1992, a deferred tax benefit of $1,103,000
resulted from temporary differences in the recognition of income and expense for
income tax and financial reporting purposes. The sources and tax effects of
those timing differences are presented below (in thousands of dollars):
Long-term compensation............................................. $(1,585)
Lease reserves..................................................... (167)
Accounts receivable................................................ 413
State income taxes................................................. 264
Interest payable................................................... (317)
Other.............................................................. 289
-------
$(1,103)
=======
The Company has net operating losses in the aggregate amount of $5,400,000
arising principally from termination of the ITG Performance Share Plan. For
Federal tax purposes, all net operating losses are due to expire through 2009.
26
29
JEFFERIES GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) BENEFIT PLANS
PENSION PLAN
The Company has a defined benefit pension plan which covers substantially
all employees of the Company and its subsidiaries. The plan is subject to the
provisions of the Employee Retirement Income Security Act of 1974. The Company's
funding policy is to contribute to the plan at least the minimum amount that can
be deducted for Federal income tax purposes.
The following tables set forth the plan's funded status and amounts
recognized in the Company's accompanying consolidated statements of financial
condition:
DECEMBER 31
-------------------
1994 1993
------- -------
(DOLLARS IN
THOUSANDS)
Actuarial present value of benefit obligations -- accumulated benefit
obligation, including vested benefits of $8,030 and $9,365 as of
December 31, 1994 and 1993, respectively............................... $ 8,447 $ 9,894
======= =======
Projected benefit obligation for service rendered to date................ $ 8,967 $10,485
Plan assets, at fair market value........................................ 7,754 8,135
------- -------
Excess of the projected benefit obligation over plan assets......... 1,213 2,350
Unrecognized prior service cost.......................................... 820 657
Unrecognized net transition obligation being recognized over 15 years.... (300) (343)
Unrecognized net loss.................................................... (1,188) (1,968)
Adjustment to recognize minimum liability................................ 149 1,063
------- -------
Pension liability included in other liabilities..................... $ 694 $ 1,759
======= =======
YEAR ENDED DECEMBER 31
---------------------------
1994 1993 1992
------- ----- -----
(DOLLARS IN THOUSANDS)
Net pension cost included the following components:
Service cost -- benefits earned during the period.............. $ 683 $ 693 $ 589
Interest cost on projected benefit obligation.................. 843 765 641
Actual loss (return) on plan assets............................ 539 (909) (823)
Net amortization............................................... (1,111) 409 431
------- ----- -----
Net periodic pension cost................................... $ 954 $ 958 $ 838
======= ===== =====
The weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 8.75% and 5.00%, respectively, in 1994 and
7.50% and 5.00%, respectively, in 1993. The expected long-term rate of return on
assets was 8.40%.
STOCK PLANS
The Company has a stock ownership and long-term incentive plan (the Plan)
which allows awards in the form of incentive stock options (within the meaning
of Section 422 of the Internal Revenue Code), nonqualified stock options, stock
appreciation rights, restricted stock, unrestricted stock, performance awards,
dividend equivalents or other stock based awards. The maximum number of shares
of common stock of the Company with respect to which any awards may be made in
any calendar year during the term of the Plan
27
30
JEFFERIES GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
may not exceed 20% of the number of shares of common stock issued and
outstanding as of the first day of the calendar year in which awards are made,
less the number of shares of common stock reserved for issuance with respect to,
or underlying, any award, made pursuant to the Plan or any predecessor plan, as
of such date.
The following is a summary of the stock option transactions under the Plan
and predecessor stock option plans for the year ended December 31, 1994 and
1993:
1994 1993
------------------------- ------------------------
NUMBER NUMBER
OF OF
SHARES OPTION PRICE SHARES OPTION PRICE
-------- ------------ ------- ------------
Stock options outstanding, beginning of
year.................................... 492,126 $11.00-34.00 419,341 $11.00-17.75
Stock options granted..................... 93,800 32.50-43.00 116,000 17.00-34.00
Stock options exercised................... (109,893) 11.00-17.75 (42,565) 11.00-17.00
Stock options canceled.................... -- (650) 11.00
-------- -------
Stock options outstanding, end of year.... 476,033 11.00-43.00 492,126 11.00-34.00
======== =========== ======= ===========
At December 31, 1994, of the 476,033 options outstanding, 403,033 options
were exercisable and 472,033 were nonqualified.
Additionally, each director, who is not an employee of the Company, has
nonqualified options to purchase shares of the Company's common stock at
exercise prices of $13.25 through $43.00. In total, the directors have 15,000
options. During the year, 5,000 options were granted to directors at an exercise
price of $43.00 and 15,000 options were exercised by directors at exercise
prices of $13.25 through $14.50. At December 31, 1994, all of the options were
exercisable.
During 1994, there were restricted stock awards of 28,200 shares with a
corresponding market value of $1,019,000. There were no restricted stock awards
in 1993. As of December 31, 1994, restricted stock awards covering 65,200 shares
were outstanding and 54,750 were vested.
OTHER BENEFIT PLANS
The Company incurs expenses related to various benefit plans covering
substantially all employees, including an Employee Stock Purchase Plan (ESPP)
and a profit sharing plan, which includes a salary reduction feature designed to
qualify under Section 401(k) of the Internal Revenue Code.
In 1993, the Company created a Capital Accumulation Plan for certain
officers and key employees of the Company. Participation in the plan is
optional, with those who elect to participate agreeing to defer graduated
percentages of their compensation. The plan allows selected employees to acquire
the Company's common stock at a 15% discount with 50% of the amount deferred.
The remaining 50% of the amount deferred is placed in a Profit-Based Deferred
Compensation Account that earns interest at a rate based on the performance of
the Company. The Company will from time to time repurchase shares of its common
stock in the open market for use in this plan. The Company has acquired 251,230
shares since the inception of the plan and has made distributions of 17,681
shares.
Expenses related to these employee benefit plans amounted to $3,300,000,
$3,945,000 and $1,654,000 in 1994, 1993 and 1992, respectively.
PERFORMANCE SHARE PLAN
The Company had a Performance Share Plan, until May 1994, awarding
ownership in ITG in the form of phantom equity interest to key ITG employees, of
which a 12.7% interest was outstanding at December 31,
28
31
JEFFERIES GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1993. Expense under this plan was $8,635,000 and $3,797,000 in 1993 and 1992,
respectively. In connection with the initial public offering of ITGI (see note
15), the Performance Share Plan was terminated in May 1994. The Performance
Share Plan expense for 1994 was $1,528,000, prior to the termination of the
plan.
(11) LEASES
As lessee, the Company leases certain premises and equipment under
noncancelable agreements expiring at various dates through 2004. Assets under
capitalized leases are capitalized using interest rates appropriate at the
inception of the lease. Future minimum lease payments for assets under capital
leases at December 31, 1994 follow:
DOLLARS
IN THOUSANDS
------------
1995..................................................................... $1,291
1996..................................................................... 571
1997..................................................................... 26
------
Total minimum obligations.............................................. 1,888
Less interest............................................................ 172
------
Present value of minimum lease obligations............................. $1,716
======
Future minimum lease payments for all noncancelable operating leases at
December 31, 1994 are as follows:
DOLLARS
IN THOUSANDS
------------
1995..................................................................... $6,249
1996..................................................................... 7,058
1997..................................................................... 6,750
1998..................................................................... 6,286
1999..................................................................... 5,212
Thereafter............................................................... 9,746
=====
Rental expense, net of subleases, for the Company was $5,507,000 in 1994,
$5,118,000 in 1993 and $5,110,000 in 1992.
(12) FINANCIAL INSTRUMENTS
OFF-BALANCE SHEET RISK
The Company has contractual commitments arising in the ordinary course of
business for securities loaned or purchased under agreements to sell, securities
sold but not yet purchased, repurchase agreements, future purchases and sales of
foreign currencies, securities transactions on a when-issued basis, options
contracts and underwriting. Each of these financial instruments and activities
contains varying degrees of off-balance sheet risk whereby the market values of
the securities underlying the financial instruments may be in excess of, or less
than, the contract amount. The settlement of these transactions is not expected
to have a material effect upon the Company's consolidated financial statements.
In the normal course of business, the Company had letters of credit
outstanding aggregating $20,911,000 at December 31, 1994 to satisfy various
collateral requirements in lieu of depositing cash or securities.
29
32
JEFFERIES GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The gross contracted or notional amount of options contracts and foreign
exchange forward contracts, which are not reflected in the consolidated
statement of financial condition, is set forth in the table below and provide
only a measure of the Company's involvement in these contracts at December 31,
1994. They do not represent amounts subject to market risk and, in many cases,
serve to reduce the Company's overall exposure to market and other risks:
NOTIONAL OR CONTRACTED
AMOUNT
-------------------------
PURCHASE SALE
---------- ----------
Option contracts.................................... $1,515,000 $5,874,000
Foreign exchange forward contracts.................. 524,000 1,130,000
========== ==========
CREDIT RISK
In the normal course of business, the Company is involved in the execution,
settlement and financing of various customer and principal securities
transactions. Customer activities are transacted on a cash, margin or
delivery-versus-payment basis. Securities transactions are subject to the risk
of counterparty or customer nonperformance. However, transactions are
collateralized by the underlying security, thereby reducing the associated risk
to changes in the market value of the security through settlement date or to the
extent of margin balances.
The Company seeks to control the risk associated with these transactions by
establishing and monitoring credit limits and by monitoring collateral and
transaction levels daily. The Company may require counterparties to deposit
additional collateral or return collateral pledged. In the case of aged
securities failed to receive, the Company may, under industry regulations,
purchase the underlying securities in the market and seek reimbursement for any
losses from the counterparty.
CONCENTRATION OF CREDIT RISK
As a major securities firm, the Company's activities are executed primarily
with and on behalf of other financial institutions, including brokers and
dealers, banks and other institutional customers. Concentrations of credit risk
can be affected by changes in economic, industry or geographical factors. The
Company seeks to control its credit risk and the potential risk concentration
through a variety of reporting and control procedures, including those described
in the preceding discussion of credit risk.
FAIR VALUE OF DERIVATIVE FINANCIAL INSTRUMENTS
The Company has derivative financial instrument positions in option
contracts and foreign exchange forward contracts which are measured at fair
value with realized and unrealized gains and losses recognized in earnings. The
option positions taken are generally part of a strategy in which related equity
positions are taken. The foreign exchange forward contract positions are
generally taken to lock in the dollar cost or proceeds of foreign currency
commitments associated with unsettled foreign denominated securities purchases
or sales. The average maturity of the forward contracts is generally less than
two weeks.
The following is an aggregate summary of the average 1994 and December 31,
1994 fair values of derivative financial instruments:
PURCHASES SALES
-------------------------- --------------------------
AVERAGE END OF PERIOD AVERAGE END OF PERIOD
---------- ------------- ---------- -------------
Option contracts..................... $ 120,000 $ 23,000 $ 256,000 $ 534,000
Foreign exchange forward contracts... 2,114,000 524,000 3,170,000 1,130,000
========== ======== ========== ==========
30
33
JEFFERIES GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(13) NET CAPITAL REQUIREMENTS
As registered broker-dealers, Jefferies, ITG and W & D are subject to the
Securities and Exchange Commission Uniform Net Capital Rule (Rule 15c3-1), which
requires the maintenance of minimum net capital. Jefferies, ITG and W & D have
elected to use the alternative method permitted by the Rule, which requires that
they each maintain minimum net capital, as defined, equal to the greater of
$250,000 or 2% of the aggregate debit balances arising from customer
transactions, as defined.
At December 31, 1994, Jefferies had net capital of $78,554,000, which was
21% of aggregate debit balances and $71,105,000 in excess of required net
capital. At December 31, 1994, ITG had net capital of $18,224,000, which was
$17,974,000 in excess of required net capital. At December 31, 1994, W & D had
net capital of $837,000 which was $587,000 in excess of required net capital.
(14) CONTINGENCIES
The Company is involved in various legal actions arising in the normal
course of business. After taking into consideration legal counsel's evaluation
of such actions, management is of the opinion that their outcome will not have a
material effect on the Company's financial statements.
(15) INITIAL PUBLIC OFFERING OF INVESTMENT TECHNOLOGY GROUP, INC.
The Company formed a new subsidiary (ITGI) in March 1994 for the purpose of
holding 100% of the stock of ITG. ITGI provides automated securities trade
execution and analysis services to institutional equity investors. In May 1994,
ITGI issued 3,700,000 shares of common stock at $13 per share, in an initial
public offering for net proceeds of $43.6 million ($48.1 million, less
underwriting discounts and commissions of $3.4 million and offering expenses of
$1.1 million).
Immediately prior to the consummation of the offering, ITGI issued
15,000,000 shares of its common stock in exchange for all 10,000,000 shares
issued and outstanding of ITG common stock held by the Company. In addition,
immediately prior to the offering, ITGI issued a note in the amount of $17
million in payment of a dividend to the Company. Such note was paid after the
consummation of the offering. Following the offering, the Company owned over 80%
of the outstanding common stock of ITGI.
In conjunction with the offering, certain management employment agreements,
the ITG Performance Share Plan and noncompensatory ITG stock options were
terminated on May 1, 1994 in exchange for $40.5 million, of which $900,000 was
recorded as expense in 1994 prior to the offering and $9.4 million had been
accrued at December 31, 1993. The remaining liability of $30.2 million was
recorded as a plan termination expense at the time of the offering. A portion of
the total plan termination payments amounting to $19.1 million was used to
purchase 438,492 shares of Jefferies Group, Inc. common stock at $43.50 per
share. The remaining $21.4 million of plan termination cost was to be paid in
cash of which $20.6 million was paid during 1994. Additionally, noncompensatory
options to purchase 2,726,178 shares of ITGI common stock were granted to senior
management and other employees at an exercise price equal to the initial public
offering price.
The net proceeds from the offering of $43.6 million, less the ownership
interest sold in the offering of $5.1 million and plan termination expenses of
$30.2 million, resulted in a pretax gain of $8.3 million. The Company has
recorded deferred taxes as a result of the gain recognized from the offering.
31
34
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information with respect to this item will be contained in the Proxy
Statement for the 1995 Annual Meeting of Shareholders, which is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information with respect to this item will be contained in the Proxy
Statement for the 1995 Annual Meeting of Shareholders, which is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Information with respect to this item will be contained in the Proxy
Statement for the 1995 Annual Meeting of Shareholders, which is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information with respect to this item will be contained in the Proxy
Statement for the 1995 Annual Meeting of Shareholders, which is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON
FORM 8-K.
PAGES
-----
(a)1. FINANCIAL STATEMENTS
Included in Part II of this report:
Independent Auditors' Report.................................................. 14
Consolidated Statements of Financial Condition................................ 15
Consolidated Statements of Earnings........................................... 16
Consolidated Statements of Changes in Stockholders' Equity.................... 17
Consolidated Statements of Cash Flows......................................... 18
Notes to Consolidated Financial Statements.................................... 19
All Schedules are omitted because they are not applicable or because the
required information is shown in the financial statements or notes thereto.
(a)3. EXHIBITS
(3.1) Amended Certificate of Incorporation is incorporated by reference to Exhibit
3.1 of the Registrant's Form 10-K filed for the fiscal year ended December 31,
1987.
(3.2) Amended By-Laws are incorporated by reference to Exhibit 3.2 of the
Registrant's Form 10-K filed for the fiscal year ended December 31, 1986.
(4.1) Specimen stock certificate of the Registrant is incorporated by reference to
Exhibit 4.1 to Registrant's Registration Statement on Form S-1 (No. 2-85950)
filed on August 18, 1983, including amendments thereto.
32
35
(4.2) Rights Agreement dated as of May 12, 1988, between the Registrant and the
First National Bank of Chicago relating to Preferred Share Purchase Rights
including Form of Rights Certificate and Form of Summary of Rights is
incorporated by reference to Exhibit 1 of Registrant's Form 8-K filed on May
17, 1988.
(10.1) Incentive Compensation Plan for Frank E. Baxter, Chairman, President and Chief
Executive Officer, Jefferies Group, Inc. is incorporated by reference to
Exhibit 10.1 of Registrant's Form 10-K filed for the fiscal year ended
December 31, 1992.
(10.2) Agreement among Raymond L. Killian, Jr., Investment Technology Group, Inc. and
Jefferies Group, Inc., dated as of April 1, 1992 is incorporated by reference
to Exhibit 10.2 of Registrant's Form 10-K filed for the fiscal year ended
December 31, 1992.
(10.3) Amendment to Agreement among Raymond L. Killian, Jr., Investment Technology
Group, Inc. and Jefferies Group, Inc. dated as of August 18, 1993 is
incorporated by reference to Exhibit 10.3 of Registrant's Form 10-K for the
fiscal year ended December 31, 1993.
(10.3.1) Form of Employment Agreement between Investment Technology Group, Inc. and
Raymond L. Killian, Jr. is incorporated by reference to Exhibit 10.3.2 of
Investment Technology Group, Inc.'s Registration Statement on Form S-1 (No.
33-76474) filed on March 15, 1994, including amendments thereto.
(10.4) Second Modified Compensation Agreement between David A. Sydorick, Jefferies
Group, Inc., and Jefferies & Company, Inc. dated as of February 1, 1994, is
incorporated by reference to Exhibit 10.5 of Registrant's Form 10-K for the
fiscal year ended December 31, 1993.
(10.5)* Second Modified Compensation Agreement among Jefferies Group, Inc., Jefferies
& Company, Inc. and Richard B. Handler, dated as of February 1, 1994.
(10.6)* Restricted Stock Agreement among Jefferies Group, Inc., Jefferies & Company,
Inc. and Richard B. Handler, dated as of April 1, 1994.
(10.7) Jefferies Group, Inc. 1983 Incentive Stock Option Plan filed as part of
Registrant's Registration Statement on Form S-8 (No. 2-94727) filed on
December 6, 1984.
(10.8) 1985 Incentive Stock Option Plan of Jefferies Group, Inc. filed as part of
Registrant's Registration Statement on Form S-8 (No. 33-17065) filed on
September 8, 1987.
(10.9) Jefferies Group, Inc. 1985 Nonqualified Stock Option Plan filed as part of
Registrant's Registration Statement on Form S-8 (No. 33-17065) filed on
September 8, 1987.
(10.10)* Description of compensation arrangements for Named Executive Officers.
(10.11) Jefferies Group, Inc. 1993 Stock Ownership and Long-Term Incentive Plan filed
as part of Registrant's Registration Statement on Form S-8 (No. 33-64490)
filed on June 15, 1993.
(10.12) Jefferies Group, Inc. Capital Accumulation Plan for Key Employees filed as
part of Registrant's Registration Statement on Form S-8 (No. 33-64490) filed
on June 15, 1993.
(10.13) Jefferies Group, Inc. Non-Employee Directors' Stock Option Plan, incorporated
by reference to Appendix C of Registrant's Proxy Statement filed on April 4,
1994.
(10.14) Jefferies Group, Inc. Pay-for-Performance Incentive Plan, incorporated by
reference to Appendix B of Registrant's Proxy Statement filed on April 4,
1994.
(10.15) Material contracts filed as part of Registrant's Registration Statement on
Form S-1 (No. 2-85950) filed on August 18, 1983, including amendments thereto.
(10.16) Material contracts filed as part of Registrant's Registration Statement on
Form S-1 (No. 2-96596) filed on March 22, 1985, including amendments thereto.
(11)* Statement of computation of per share earnings is attached hereto as Exhibit
11.
(20) Form of Letter to Shareholders dated May 24, 1988, announcing the adoption of
the Stockholders Rights Plan is incorporated by reference to Exhibit 3 of
Registrant's Form 8-K filed on May 17, 1988.
33
36
(21) List of Subsidiaries of Registrant is incorporated by reference to Exhibit 22
of Registrant's Form 10-K filed for the fiscal year ended December 31, 1992.
(23)* Consent by KPMG Peat Marwick LLP to incorporate by reference its report dated
January 27, 1995, relating to the consolidated financial statements of
Jefferies Group, Inc. as of December 31, 1994.
---------------
*Filed herewith.
ALL OTHER EXHIBITS ARE OMITTED BECAUSE THEY ARE NOT APPLICABLE.
(b) No reports on Form 8-K have been filed by the Registrant.
(c) Index to Exhibits.
See list of exhibits at Item 14(a)3 above and exhibit following.
Exhibits 10.1 to and including 10.14 are management contracts or
compensatory plans or arrangements.
34
37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By FRANK E. BAXTER
------------------------------------
Frank E. Baxter
Dated: March 27, 1995 Chairman of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
FRANK E. BAXTER Chairman of the Board of March 27, 1995
------------------------------------- Directors, President and
Frank E. Baxter Chief Executive Officer
CLARENCE T. SCHMITZ Executive Vice President March 27, 1995
------------------------------------- and Chief Financial Officer
Clarence T. Schmitz
RICHARD G. DOOLEY Director March 27, 1995
-------------------------------------
Richard G. Dooley
TRACY G. HERRICK Director March 27, 1995
-------------------------------------
Tracy G. Herrick
MICHAEL L. KLOWDEN Director March 27, 1995
-------------------------------------
Michael L. Klowden
FRANK J. MACCHIAROLA Director March 27, 1995
-------------------------------------
Frank J. Macchiarola
BARRY M. TAYLOR Director March 27, 1995
-------------------------------------
Barry M. Taylor
MARK A. WOLFSON Director March 27, 1995
-------------------------------------
Mark A. Wolfson
35
38
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
-------------
(3.1) Amended Certificate of Incorporation is incorporated by reference
to Exhibit 3.1 of the Registrant's Form 10-K filed for the fiscal
year ended December 31, 1987.......................................
(3.2) Amended By-Laws are incorporated by reference to Exhibit 3.2 of the
Registrant's Form 10-K filed for the fiscal year ended December 31,
1986...............................................................
(4.1) Specimen stock certificate of the Registrant is incorporated by
reference to Exhibit 4.1 to Registrant's Registration Statement on
Form S-1 (No. 2-85950) filed on August 18, 1983, including
amendments thereto.................................................
(4.2) Rights Agreement dated as of May 12, 1988, between the Registrant
and the First National Bank of Chicago relating to Preferred Share
Purchase Rights including Form of Rights Certificate and Form of
Summary of Rights is incorporated by reference to Exhibit 1 of
Registrant's Form 8-K filed on May 17, 1988........................
(10.1) Incentive Compensation Plan for Frank E. Baxter, Chairman,
President and Chief Executive Officer, Jefferies Group, Inc. is
incorporated by reference to Exhibit 10.1 of Registrant's Form 10-K
filed for the fiscal year ended December 31, 1992..................
(10.2) Agreement among Raymond L. Killian, Jr., Investment Technology
Group, Inc. and Jefferies Group, Inc., dated as of April 1, 1992 is
incorporated by reference to Exhibit 10.2 of Registrant's Form 10-K
filed for the fiscal year ended December 31, 1992..................
(10.3) Amendment to Agreement among Raymond L. Killian, Jr., Investment
Technology Group, Inc. and Jefferies Group, Inc. dated as of August
18, 1993 is incorporated by reference to Exhibit 10.3 of
Registrant's Form 10-K for the fiscal year ended December 31,
1993...............................................................
(10.3.1) Form of Employment Agreement between Investment Technology Group,
Inc. and Raymond L. Killian, Jr. is incorporated by reference to
Exhibit 10.3.2 of Investment Technology Group, Inc.'s Registration
Statement on Form S-1 (No. 33-76474) filed on March 15, 1994,
including amendments thereto.......................................
(10.4) Second Modified Compensation Agreement between David A. Sydorick,
Jefferies Group, Inc., and Jefferies & Company, Inc. dated as of
February 1, 1994, is incorporated by reference to Exhibit 10.5 of
Registrant's Form 10-K for the fiscal year ended December 31,
1993...............................................................
(10.5)* Second Modified Compensation Agreement among Jefferies Group, Inc.,
Jefferies & Company, Inc. and Richard B. Handler, dated as of
February 1, 1994...................................................
(10.6)* Restricted Stock Agreement among Jefferies Group, Inc., Jefferies &
Company, Inc. and Richard B. Handler, dated as of April 1, 1994....
(10.7) Jefferies Group, Inc. 1983 Incentive Stock Option Plan filed as
part of Registrant's Registration Statement on Form S-8 (No.
2-94727) filed on December 6, 1984.................................
(10.8) 1985 Incentive Stock Option Plan of Jefferies Group, Inc. filed as
part of Registrant's Registration Statement on Form S-8 (No.
33-17065) filed on September 8, 1987...............................
(10.9) Jefferies Group, Inc. 1985 Nonqualified Stock Option Plan filed as
part of Registrant's Registration Statement on Form S-8 (No.
33-17065) filed on September 8, 1987...............................
39
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
-------------
(10.10)* Description of compensation arrangements for Named Executive
Officers...........................................................
(10.11) Jefferies Group, Inc. 1993 Stock Ownership and Long-Term Incentive
Plan filed as part of Registrant's Registration Statement on Form
S-8 (No. 33-64490) filed on June 15, 1993..........................
(10.12) Jefferies Group, Inc. Capital Accumulation Plan for Key Employees
filed as part of Registrant's Registration Statement on Form S-8
(No. 33-64490) filed on June 15, 1993..............................
(10.13) Jefferies Group, Inc. Non-Employee Directors' Stock Option Plan,
incorporated by reference to Appendix C of Registrant's Proxy
Statement filed on April 4, 1994...................................
(10.14) Jefferies Group, Inc. Pay-for-Performance Incentive Plan,
incorporated by reference to Appendix B of Registrant's Proxy
Statement filed on April 4, 1994...................................
(10.15) Material contracts filed as part of Registrant's Registration
Statement on Form S-1 (No. 2-85950) filed on August 18, 1983,
including amendments thereto.......................................
(10.16) Material contracts filed as part of Registrant's Registration
Statement on Form S-1 (No. 2-96596) filed on March 22, 1985,
including amendments thereto.......................................
(11)* Statement of computation of per share earnings is attached hereto
as Exhibit 11......................................................
(20) Form of Letter to Shareholders dated May 24, 1988, announcing the
adoption of the Stockholders Rights Plan is incorporated by
reference to Exhibit 3 of Registrant's Form 8-K filed on May 17,
1988...............................................................
(21) List of Subsidiaries of Registrant is incorporated by reference to
Exhibit 22 of Registrant's Form 10-K filed for the fiscal year
ended December 31, 1992............................................
(23)* Consent by KPMG Peat Marwick LLP to incorporate by reference its
report dated January 27, 1995, relating to the consolidated
financial statements of Jefferies Group, Inc. as of December 31,
1994...............................................................
---------------
*Filed herewith.
EX-10.5
2
SECOND MIDIFIED COMPENSATION AGREEMENT
1
EXHIBIT 10.5
SECOND MODIFIED COMPENSATION AGREEMENT
THIS AGREEMENT, made as of the 1st day of February, 1994, by and among
Jefferies Group, Inc. ("Jefferies"), Jefferies & Company, Inc. (the "Company")
and Richard B. Handler ("Employee"), is made with reference to the following
facts:
WHEREAS, the parties hereto previously entered into that certain Employee
Compensation Agreement and Modified Compensation Agreement (the "Compensation
Agreements"), dated as of April 1, 1992, and November 9, 1992, respectively,
pursuant to which Jefferies agreed to transfer to Employee 50,000, thereafter
reduced to 25,000, previously issued shares of Jefferies $.01 par value common
stock that had been repurchased by Jefferies and remained issued but not
outstanding (the "Shares") as a performance bonus beyond Employee's normal
compensation;
WHEREAS, Jefferies has not yet transferred any of the Shares to Employee;
WHEREAS, Employee has requested Jefferies to revise the restriction on
transferability of employees' shares by providing for an accelerated vesting
schedule, as more fully set forth in Section 6 of this Agreement;
WHEREAS, Jefferies, the Company and Employee have mutually agreed that the
performance bonus reference above should be in the form of Revised Shares (as
defined below) which are subject to the terms set forth below;
NOW, THEREFORE, the parties agree as follows:
1. REVISION OF MODIFIED COMPENSATION AGREEMENT
The Modified Compensation Agreement dated as of November 9, 1992, is hereby
revised and all of the rights and obligations of the parties are set forth in
this Agreement (the "Second Modified Compensation Agreement") in their entirety.
2. EMPLOYEE'S REPRESENTATION CONCERNING TRANSFER OF THE SHARES
Employee represents and warrants that he has not transferred or attempted
to transfer any right, title or interest in the Shares to any other party.
2
3. EMPLOYEE'S ACKNOWLEDGEMENT, WAIVER AND RELEASE
Employee acknowledges that he has never received any of the Shares of
Jefferies pursuant to the Modified Compensation Agreement and hereby waives and
releases each of Jefferies and the Company from any claim he might have to the
Shares to be issued pursuant to the Modified Compensation Agreement.
4. CONTINUED EMPLOYMENT
Each of Jefferies, the Company and Employee agree that revision of the
Modified Compensation Agreement provided for by the Second Modified Compensation
Agreement shall have no effect on Employee's right to continued employment with
the Company or to restrict in any way the right of the Company to terminate his
employment.
5. TRANSFER OF REVISED SHARES TO EMPLOYEE
Following execution of the Second Modified Compensation Agreement and
subject to the restrictions set forth in Section 6 below, Jefferies will
transfer and convey to Employee 25,000 previously issued shares of Jefferies
$.01 par value common stock that have been repurchased by Jefferies and remain
issued but not outstanding (the "Revised Shares"). Employee shall be entitled to
all the rights and benefits of a holder of common stock of Jefferies, including
without limitation, all voting rights and rights to receive dividends. Jefferies
shall issue one or more certificates to Employee representing all of the Revised
Shares. The certificates shall contain the legend set forth in Paragraph 8
below.
6. RESTRICTIONS ON TRANSFERABILITY OF EMPLOYEE'S REVISED SHARES
(a) 8,333 of the Revised Shares transferred to Employee will be deemed
"Vested" as of April 1, 1994, and the remaining 16,667 of the Revised Shares
will vest on March 31, 1995. All Unvested Shares shall remain Unvested unless
Vested pursuant to 6(a) or (b) hereof.
(b) Upon the termination of Employee's employment, whether by Jefferies,
the Company or Employee, following a Change of Control, as defined in Section 9
below, Employee's Revised Shares shall become fully vested without regard to
such termination.
2
3
(c) Upon the occurrence of each of the following events, as defined in
Section 9 below, Jefferies will have the right to reacquire for $1.00
consideration of all of Employee's Unvested Shares upon demand of Company:
(i) The death or Permanent Disability of Employee;
(ii) The Voluntary Termination of Employee's employment;
(iii) The termination of Employee's employment by Company with Cause;
or
(iv) The termination of Employee's employment by the Company without
Cause.
(d) Employee may not sell, assign, devise, dispose, convey or otherwise
transfer any of the Unvested Shares without the prior written consent of
Jefferies, given in its sole discretion.
7. TRANSFER OF VESTED SHARES
Employee acknowledges and agrees that in connection with Employee's
ownership and/or a transfer or contemplated transfer or other disposition of the
Vested Shares, federal and state securities laws, the rules and regulations of
the NASD and certain stock exchanges may require Company to make filings with
the SEC or one or more of the foregoing entities or take other action. Employee
hereby agrees to notify Company in writing at least five (5) business days in
advance of any contemplated transfer or other disposition of the Vested Shares.
In addition, Employee represents, warrants and covenants that Employee is
acquiring the Revised Shares for his own account and not with a view to, or for
the sale in connection with, any distribution of the Revised Shares, within the
meaning of that term under the Securities Act of 1933, as amended, nor with any
present intention of distributing or selling the Revised Shares, and such
Revised Shares will not be sold, assigned, pledged, transferred or otherwise
disposed of in violation of the Securities Act of 1933, as amended, and the
applicable rules and regulations of the SEC promulgated thereunder. Employee
acknowledges and agrees that any certificate evidencing the Revised Shares will
contain a legend to the effect that the Revised Shares may not be sold or
otherwise disposed of in violation of the Securities Act of 1933. Employee
further agrees to (i) fully and timely cooperate with Company in connection with
preparing and delivering any filings to the SEC, NASD or stock exchanges, as
required, or (ii) promptly take any other action Company reasonably deems
necessary in order to comply with federal and state securities laws, or the
rules and regulations of NASD or any stock exchange, and to otherwise comply
with Company's policies with respect to the transfer by employee of any common
stock of Jefferies owned by such employee.
3
4
8. LEGEND
Until such time as the Revised Shares are Vested, Employee agrees that any
share certificate representing the Revised Shares shall bear the following
legend prominently displayed:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS AGAINST TRANSFER UNDER THE TERMS OF AN AGREEMENT ENTERED
INTO BY THE JEFFERIES GROUP, INC. ("THE COMPANY"), JEFFERIES &
COMPANY, INC. AND RICHARD B. HANDLER, A COPY OF WHICH IS ON FILE AND
MAY BE EXAMINED AT THE PRINCIPAL OFFICE OF THE COMPANY BY ANY PERSON
WHO CAN DEMONSTRATE AN INTEREST THEREIN TO THE SATISFACTION OF
OFFICERS OF THE COMPANY. ANY TRANSFER OF SECURITIES REPRESENTED BY
THIS CERTIFICATE IN CONTRAVENTION OF SUCH AGREEMENT IS VOID."
Once the Revised Shares become Vested, Employee may surrender the share
certificate representing such Revised Shares and receive from Jefferies a new
share certificate without the legend set forth above.
9. DEFINITIONS
"Cause" used in connection with a termination of employment of Employee
shall mean a termination of employment of Employee by Company following (i) the
failure of Employee to render services to Company in accordance with his
employment, which failure amounts to gross and habitual neglect of his duties to
Company of such a nature as to have a material adverse effect on Company,
following written notice and reasonable opportunity to cure; or (ii) the
commission by Employee of an act which is in violation of his duties to Company
(including, but not limited to, the unauthorized disclosure of confidential
information, engaging during his employment in any other business which is
competitive with the business of Company, the failure during his employment to
devote full-time business time and effort to Company or compliance with
Company's written employment policies and guidelines) of such a nature as to
have an adverse effect on Company, following written notice and a reasonable
opportunity to cure; or (iii) the violation of any federal or state securities
law or any rule, regulation, directive of the U.S. Securities and Exchange
Commission ("SEC") or National Association of Securities Dealers, Inc. ("NASD").
4
5
"Permanent Disability" of Employee shall mean the inability of such
Employee to perform substantially his work duties by reason of a single physical
or mental disability or infirmity (i) for a total of one hundred and twenty
(120) days in any calendar year, or (ii) at such earlier time as Employee
submits satisfactory medical evidence that he has a physical or mental
disability or infirmity which will likely prevent him from returning to the
performance of his work duties for four (4) months or longer.
"Voluntary Termination" of Employee's employment shall mean the voluntary
termination by Employee of his employment by voluntary resignation.
"Termination without Cause" of Employee's employment shall mean the
termination of employment by the Company for any reason other than for Cause, by
Voluntary Termination or as a result of Permanent Disability or Death.
"Change of Control" shall mean a change of control of a nature that would
be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (or any successor provision), provided that, without
limitation, such a change of control shall be deemed to have occurred if any
"person" (as such term is used in Section 13(d) and 14(d) of the Exchange Act),
other than Employee, any "person" who on the date hereof is a director or
officer of Jefferies or a "person" whose acquisition of securities of Jefferies
is approved by the vote of a majority of the Board of Directors, is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of Jefferies representing 50.1% or more of
the combined voting power of Jefferies' then outstanding securities and results
in a significant adverse change in the nature or scope of the authorities,
powers, functions, responsibilities or duties attached to the position with the
Company that the Employee held immediately prior to the Change of Control or
which results in any material adverse change in the Employee's compensation
arrangement in existence immediately prior to the Change in Control, and which
adverse change is not remedied within thirty (30) calendar days after receipt by
the Company of written notice from the Employee specifying, in reasonable
detail, the nature of such change, reduction or termination as the case may be.
10. MISCELLANEOUS
(a) Governing Law. The Second Modified Compensation Agreement shall be
governed by, and construed in accordance with, the laws of the State of
California.
5
6
(b) Notices. Any notice to be given hereunder shall be in writing and
shall be delivered personally or by overnight mail or courier to the address of
the party set forth below, or to such other address as the party to whom the
notice is to be given may provide. No notice shall be effective except upon
actual delivery.
If to Jefferies or the Company:
Jerry M. Gluck, Esq.
11100 Santa Monica Boulevard
12th Floor
Los Angeles, California 90025
If to Employee:
Mr. Richard B. Handler
2704 The Strand
Manhattan Beach, California 90266
(c) Entire Agreement. The Second Modified Compensation Agreement embodies
the entire understanding between the parties relating to the subject matter
hereof, whether written or oral, and there are no prior representations,
warranties or agreements between the parties not contained in the Second
Modified Compensation Agreement. The terms defined herein shall apply solely to
the Second Modified Compensation Agreement.
(d) Enlargement of Employment Rights. Nothing in the Second Modified
Compensation Agreement shall be construed to confer upon the Employee any right
to continued employment with the Company or to restrict in any way the right of
the Company to terminate his employment.
(e) Invalidity. If any provision of the Second Modified Compensation
Agreement is declared invalid or unenforceable by a court having competent
jurisdiction, it is mutually agreed that the Second Modified Compensation
Agreement shall endure except for the part declared invalid or unenforceable by
order of such court. The parties shall consult and use their best efforts to
agree upon a valid and enforceable provision which shall be a reasonable
substitute for such invalid or unenforceable provision in light of the intent of
the Second Modified Compensation Agreement.
(f) Amendments. Any amendment or modification of any provision of the
Second Modified Compensation Agreement must be in writing, dated and signed by
both parties hereto.
(g) Headings. The headings in the Second Modified Compensation Agreement
are for convenience of reference only and shall not control or affect the
meaning or construction of any provisions hereof.
6
7
(h) Counterparts. The Second Modified Compensation Agreement may be
executed in any number of counterparts, all of which taken together shall
constitute one and the same agreement, and any of the parties hereto may execute
the Second Modified Compensation Agreement by signing such counterpart.
Executed the day and date first above written.
JEFFERIES GROUP, INC.
By: DAVID F. EISNER
------------------------------------
David F. Eisner
Executive Vice President
JEFFERIES & COMPANY, INC.
By: DAVID F. EISNER
------------------------------------
David F. Eisner
Executive Vice President
EMPLOYEE
By: RICHARD B. HANDLER
------------------------------------
Richard B. Handler
7
EX-10.6
3
RESTRICTED STOCK AGREEMENT
1
EXHIBIT 10.6
RESTRICTED STOCK AGREEMENT
THIS AGREEMENT, made as of the 1st day of April, 1994, by and among
Jefferies Group, Inc. ("Jefferies"), Jefferies & Company, Inc. (the "Company")
and Richard B. Handler ("Employee"), is made with reference to the following
facts:
WHEREAS, the Employee is serving as an Executive Vice President of the
Company; and
WHEREAS, Jefferies desires to grant to Employee an award of Restricted
Stock (as defined below) under Jefferies' 1993 Stock Ownership and Long-Term
Incentive Plan (the "Plan"), in furtherance of the purposes of the Plan and in
recognition of the Employee's service as an officer of the Company subject to
the terms and conditions set forth below;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties agree as follows:
1. RESTRICTED STOCK AWARD
(a) Subject to the terms and conditions hereof, Jefferies hereby grants to
the Employee an award of 25,000 shares of Jefferies' $.01 par value common stock
(the "Restricted Shares"). Employee shall be entitled to all the rights and
benefits of a holder of common stock of Jefferies, including without limitation,
all voting rights and rights to receive dividends. Jefferies shall issue one or
more certificates to Employee representing all of the Restricted Shares. The
certificates shall contain the legend set forth in Paragraph 2 below.
(b) The Restricted Shares have been awarded to Employee under the Plan, a
copy of which is attached hereto. All of the terms, conditions and other
provisions of the Plan are hereby incorporated by reference into this Restricted
Stock Agreement (the "Agreement"). Capitalized terms used in this Agreement but
not defined herein shall have the same meanings as in the Plan. If there is any
conflict between the provisions of this Agreement and the provisions of the
Plan, the provisions of the Plan shall govern. Employee hereby acknowledges
receipt of the attached copy of the Plan and agrees to be bound by all the terms
and provisions thereof (as presently in effect or hereafter amended), rules and
regulations adopted from time to time thereunder, and decisions and
determinations of the Committee made from time to time thereunder.
2. RESTRICTIONS ON TRANSFERABILITY OF EMPLOYEE'S RESTRICTED SHARES
(a) 8,333 of the Restricted Shares transferred to Employee will be deemed
"Vested" as of April 1, 1994, and the remaining Restricted Shares transferred to
Employee will be deemed "Vested" on March 31, 1995, provided that corporate
finance revenues for the period April 1, 1994 to December 31, 1994, exceed $10
million. All Unvested Shares shall remain Unvested unless Vested pursuant to
2(a) or (b) hereof.
2
(b) Prior to March 31, 1995, if Employee's employment is terminated by the
Company without Cause, that portion of the Unvested Restricted Shares will
immediately vest at the rate of 1,389 shares for each full month from April 1,
1994, to March 31, 1995.
(c) Upon the occurrence of each of the following events, as defined in
Section 5 below, Jefferies will have the right to reacquire for $1.00
consideration all of Employee's Unvested Restricted Shares upon demand of the
Company:
(i) The death or Permanent Disability of Employee;
(ii) The Voluntary Termination of Employee's employment; or
(iii) The termination of Employee's employment by Company with Cause.
(d) Employee may not sell, assign, devise, dispose, convey or otherwise
transfer any of the Unvested Restricted Shares without the prior written consent
of Jefferies, given in its sole discretion.
3. TRANSFER OF VESTED RESTRICTED SHARES
Employee acknowledges and agrees that in connection with Employee's
ownership and/or a transfer or contemplated transfer or other disposition of the
Vested Restricted Shares, federal and state securities laws, the rules and
regulations of the NASD and certain stock exchanges may require Company to make
filings with the SEC or one or more of the foregoing entities or take other
action. Employee hereby agrees to notify Company in writing at least five (5)
business days in advance of any contemplated transfer or other disposition of
the Vested Restricted Shares. In addition, Employee represents, warrants and
covenants that Employee is acquiring the Restricted Shares for his own account
and not with a view to, or for the sale in connection with, any distribution of
the Restricted Shares, within the meaning of that term under the Securities Act
of 1933, as amended, nor with any present intention of distributing or selling
the Restricted Shares, and such Restricted Shares will not be sold, assigned,
pledged, transferred or otherwise disposed of in violation of the Securities Act
of 1933, as amended, and the applicable rules and regulations of the SEC
promulgated thereunder. Employee acknowledges and agrees that any certificate
evidencing the Restricted Shares will contain a legend to the effect that the
Restricted Shares may not be sold or otherwise disposed of in violation of the
Securities Act of 1933. Employee further agrees to (i) fully and timely
cooperate with Jefferies in connection with preparing and delivering any filings
to the SEC, NASD or stock exchanges, as required, or (ii) promptly take any
other action Jefferies reasonably deems necessary in order to comply with
federal and state securities laws, or the rules and regulations of the NASD or
any stock exchange, and to otherwise comply with Jefferies' policies with
respect to the transfer by employee of any common stock of Jefferies owned by
such employee.
2
3
4. LEGEND
Until such time as the Restricted Shares are Vested, Employee agrees that a
share certificate representing the Restricted Shares shall bear the following
legend prominently displayed:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS AGAINST TRANSFER UNDER THE TERMS OF AN AGREEMENT ENTERED
INTO BY JEFFERIES GROUP, INC. ("GROUP"), JEFFERIES & COMPANY, INC. AND
RICHARD B. HANDLER, A COPY OF WHICH IS ON FILE AND MAY BE EXAMINED AT
THE PRINCIPAL OFFICE OF GROUP BY ANY PERSON WHO CAN DEMONSTRATE AN
INTEREST THEREIN TO THE SATISFACTION OF OFFICERS OF GROUP. ANY
TRANSFER OF SECURITIES REPRESENTED BY THIS CERTIFICATE IN
CONTRAVENTION OF SUCH AGREEMENT IS VOID."
Once the Restricted Shares become Vested, Employee may surrender the share
certificate representing such Restricted Shares and receive from Jefferies a new
share certificate without the legend set forth above.
5. DEFINITIONS
"Cause" used in connection with a termination of employment of Employee
shall mean a termination of employment of Employee by Company following (i) the
failure of Employee to render services to Company in accordance with his
employment, which failure amounts to gross and habitual neglect of his duties to
Company of such a nature as to have a material adverse effect on Company,
following written notice and reasonable opportunity to cure; or (ii) the
commission by Employee of an act which is in violation of his duties to Company
(including, but not limited to, the unauthorized disclosure of confidential
information, engaging during his employment in any other business which is
competitive with the business of Company, the failure during his employment to
devote full-time business time and effort to Company or compliance with
Company's written employment policies and guidelines) of such a nature as to
have an adverse effect on Company, following written notice and a reasonable
opportunity to cure; or (iii) the violation of any federal or state securities
law or any rule, regulation, directive of the U.S. Securities and Exchange
Commission ("SEC") or National Association of Securities Dealers, Inc. ("NASD").
"Permanent Disability" of Employee shall mean the inability of such
Employee to perform substantially his work duties by reason of a single physical
or mental disability or infirmity (i) for a total of one hundred and twenty
(120) days in any calendar year, or (ii) at such earlier time as Employee
submits satisfactory medical evidence that he has a physical or mental
disability or infirmity which will likely prevent him from returning to the
performance of his work duties for four (4) months or longer.
3
4
"Voluntary Termination" of Employee's Employment shall mean the voluntary
termination by Employee of his employment by voluntary resignation.
"Termination without Cause" of Employee's employment shall mean the
termination of employment by the Company for any reason other than for Cause, by
Voluntary Termination or as a result of Permanent Disability or Death.
6. MISCELLANEOUS
(a) Governing Law. The Restricted Stock Agreement shall be governed by,
and construed in accordance with, the laws of the State of California.
(b) Notices. Any notice to be given hereunder shall be in writing and
shall be delivered personally or by overnight mail or courier to the address of
the party set forth below, or to such other address as the party to whom the
notice is to be given may provide. No notice shall be effective except upon
actual delivery.
If to Jefferies or the Company:
Jerry M. Gluck, Esq.
Jefferies Group, Inc.
11100 Santa Monica Boulevard
12th Floor
Los Angeles, California 90025
If to Employee:
Mr. Richard B. Handler
2704 The Strand
Manhattan Beach, California 90266
(c) Entire Agreement. The Restricted Stock Agreement embodies the entire
understanding between the parties relating to the subject matter hereof, whether
written or oral, and there are no prior representations, warranties or
agreements between the parties not contained in the Restricted Stock Agreement.
(d) Enlargement of Employment Rights. Nothing in the Restricted Stock
Agreement shall be construed to confer upon the Employee any right to continued
employment with the Company or to restrict in any way the right of the Company
to terminate his employment.
(e) Invalidity. If any provision of the Restricted Stock Agreement is
declared invalid or unenforceable by a court having competent jurisdiction, it
is mutually agreed that the Restricted Stock Agreement shall endure except for
the part declared invalid or unenforceable by order of such court. The parties
shall consult and use their best efforts to agree upon a valid and enforceable
provision which shall be a reasonable substitute for such invalid or
unenforceable provision in light of the intent of the Restricted Stock
Agreement.
4
5
(f) Amendments. Any amendment or modification of any provision of the
Restricted Stock Agreement must be in writing, dated and signed by both parties
hereto.
(g) Headings. The headings in the Restricted Stock Agreement are for
convenience of reference only and shall not control or affect the meaning or
construction of any provisions hereof.
(h) Counterparts. The Restricted Stock Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same agreement, and any of the parties hereto may execute the Restricted Stock
Agreement by signing such counterpart.
Executed the day and date first above written.
JEFFERIES GROUP, INC.
By: DAVID F. EISNER
------------------------------------
David F. Eisner
Executive Vice President
JEFFERIES & COMPANY, INC.
By: DAVID F. EISNER
--------------------------------------
David F. Eisner
Executive Vice President
EMPLOYEE
RICHARD B. HANDLER
--------------------------------------
Richard B. Handler
5
EX-10.10
4
COMPENSATION AGREEMENT
1
EXHIBIT 10.10
COMPENSATION ARRANGEMENTS FOR
NAMED EXECUTIVE OFFICERS
Compensation paid to Louis V. Bellucci and Richard B. Handler consists
of a base salary and/or draw and an annual bonus which is determined by
departmental or divisional profitability. Compensation paid to Barry M. Taylor
consists of commissions earned by Mr. Taylor as a salesperson of equity
securities and a discretionary bonus. Compensation paid to Raymond L. Killian,
Jr. is paid pursuant to Mr. Killian's Employment Agreement filed herewith as
Exhibit 10.3.1.
EX-11
5
COMPUTATION OF EARNINGS PER SHARE
1
EXHIBIT 11
JEFFERIES GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
---------------------------
1994 1993 1992
------- ------- -------
Common stock and common equivalents:
Average number of common shares................................. 5,810 4,919 4,655
Common stock equivalent shares related to employee stock option
plans........................................................ 379 226 243
------- ------- -------
Total average common stock and common stock equivalents
used for primary computation.......................... 6,189 5,145 4,898
Average common stock assumed issued pursuant to convertible
subordinated debentures and an adjustment of average common
stock equivalents to period-end market price, if higher than
average price................................................... -- 1,032 1,796
------- ------- -------
Total average common stock, common stock equivalents and
other dilutive securities............................. 6,189 6,177 6,694
======= ======= =======
Earnings:
Net earnings.................................................... $20,224 $28,947 $18,732
Adjustment to subsidiary earnings --
common stock equivalents on subsidiary....................... (125) -- --
------- ------- -------
Total earnings for primary computation.................. 20,099 28,947 18,732
Eliminate interest expense (net of taxes) on convertible
subordinated debentures......................................... -- 1,191 1,905
------- ------- -------
Total earnings for fully diluted computation............ $20,099 $30,138 $20,637
======= ======= =======
Earnings per share:
Primary......................................................... $ 3.25 $ 5.63 $ 3.82
======= ======= =======
Fully diluted................................................... $ 3.25 $ 4.88 $ 3.08
======= ======= =======
EX-23
6
CONSENT BY KPMG PEAT MARWICK LLP
1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Jefferies Group, Inc.:
We consent to incorporation by reference in the Registration Statements No.
2-94727 dated December 6, 1984; No. 33-17065 dated September 8, 1987; No.
33-19741 dated January 21, 1988; No. 33-63418 dated May 27, 1993; No. 33-64490
dated June 15, 1993; No. 33-52139 dated February 3, 1994 and No. 33-54373 dated
June 30, 1994, all on Form S-8, and No. 33-54265 dated July 14, 1994 on Form S-4
of Jefferies Group, Inc. of our report dated January 27, 1995, relating to the
consolidated statements of financial condition of Jefferies Group, Inc. and
subsidiaries as of December 31, 1994 and 1993 and the related consolidated
statements of earnings, changes in stockholders' equity and cash flows for each
of the years in the three-year period ended December 31, 1994, which report
appears in the December 31, 1994 annual report on Form 10-K of Jefferies
Group, Inc. Our report refers to a change in the method of accounting for
income taxes in 1993.
KPMG PEAT MARWICK LLP
Los Angeles, California
March 28, 1995
EX-27
7
FINANCIAL DATA SCHEDULE
BD
1,000
U.S. DOLLARS
YEAR
DEC-31-1994
JAN-01-1994
DEC-31-1994
1
71,381
122,620
0
1,132,930
144,940
21,071
1,557,348
866
331,160
18,696
835,069
60,587
59,570
90
0
0
163,145
1,557,348
67,013
51,223
155,295
40,665
0
41,626
145,372
39,036
39,036
0
0
20,224
3.25
3.25