-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Aa9elL2WY8ueX7gK6d+hl8WCxnRC/KgOe/ZM1eq2eZ8i7MkJa8MB6wD4FW1mrhmw fwsdAKQkOgKMY2LqmIse5Q== 0000950148-95-000749.txt : 19951130 0000950148-95-000749.hdr.sgml : 19951130 ACCESSION NUMBER: 0000950148-95-000749 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950929 FILED AS OF DATE: 19951113 SROS: BSE SROS: NASD SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: JEFFERIES GROUP INC CENTRAL INDEX KEY: 0000717867 STANDARD INDUSTRIAL CLASSIFICATION: 6211 IRS NUMBER: 952848406 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11669 FILM NUMBER: 95589286 BUSINESS ADDRESS: STREET 1: 11100 SANTA MONICA BLVD CITY: LOS ANGELES STATE: CA ZIP: 90025 BUSINESS PHONE: 3104451199 MAIL ADDRESS: STREET 1: 11100 SANTA MONICA BLVD STREET 2: 10TH FLR CITY: LOS ANGELES STATE: CA ZIP: 90025 10-Q 1 FORM 10-Q FOR PERIOD ENDING 9/29/95 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q / X / QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 29, 1995 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 BLVD, LOS ANGELES, CALIFORNIA 90025 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (310) 445-1199 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes / X / No / / As of September 29, 1995, the registrant had 5,598,490 common shares, $.01 par value, outstanding. Page 1 of 17 2 JEFFERIES GROUP, INC. AND SUBSIDIARIES INDEX TO QUARTERLY REPORT ON FORM 10-Q SEPTEMBER 29, 1995
Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Financial Condition - September 29, 1995 (unaudited) and December 31, 1994 . . . . . . . . . . . . . 3 Consolidated Statements of Earnings (unaudited) - Three Months and Nine Months Ended September 29, 1995 and September 30, 1994. . 4 Consolidated Statement of Changes in Stockholders' Equity (unaudited) - Nine Months Ended September 29, 1995 . . . . . . . . . . . . . . . . . . . . . 5 Consolidated Statements of Cash Flows (unaudited) - Nine Months Ended September 29, 1995 and September 30, 1994 . . . . . . . . . 6 Notes to Consolidated Financial Statements (unaudited) . . . . . . . . . . . . . 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . 12 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . 15
Page 2 of 17 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS JEFFERIES GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (DOLLARS IN THOUSANDS)
September 29, December 31, 1995 1994 ------------- ------------ (unaudited) ASSETS Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . $ 78,495 $ 71,381 Receivable from brokers and dealers. . . . . . . . . . . . . . . . . . . 1,008,331 1,149,670 Receivable from customers, officers and directors. . . . . . . . . . . . 102,030 105,880 Securities owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161,074 144,940 Premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . 25,408 21,071 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,283 64,406 ----------- ----------- $ 1,430,621 $ 1,557,348 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 866 Payable to brokers and dealers . . . . . . . . . . . . . . . . . . . . . 799,555 840,833 Repurchase agreements . . . . . . . . . . .. . . . . . . . . . . . . . . -- 18,696 Payable to customers. . . . . .. . . . . . . . . . . . . . . . . . . . . 175,360 325,396 Securities sold, not yet purchased . . . . . . . . . . . . . . . . . . . 75,275 60,587 Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . 130,420 82,029 ----------- ----------- 1,180,610 1,328,407 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,832 59,570 Minority interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,737 6,136 ----------- ----------- 1,248,179 1,394,113 ----------- ----------- 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 9,136,285 shares in 1995 and 9,017,710 shares in 1994 . . . . 91 90 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . 55,142 51,120 Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . 186,896 165,597 Less treasury stock, at cost; 3,537,795 shares in 1995 and 3,412,672 shares in 1994 . . . . . . . . . . . . . . . . . . . . (59,096) (52,958) Less currency translation adjustments. . . . . . . . . . . . . . . . . (442) (465) Less additional minimum pension liability. . . . . . . . . . . . . . . (149) (149) ----------- ----------- Total stockholders' equity . . . . . . . . . . . . . . . . . . . 182,442 163,235 ----------- ----------- $ 1,430,621 $ 1,557,348 =========== ===========
See accompanying unaudited notes to consolidated financial statements. Page 3 of 17 4 JEFFERIES GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended Nine Months Ended -------------------- ----------------------- Sept 29, Sept 30, Sept 29, Sept 30, 1995 1994 1995 1994 --------- --------- ---------- ---------- Revenues: Commissions . . . . . . . . . . . . . . . . . . . . $ 46,189 $ 39,253 $ 129,063 $ 116,999 Principal transactions . . . . . . . . . . . . . . 30,752 18,216 75,862 49,370 Corporate finance . . . . . . . . . . . . . . . . . 17,317 8,987 55,781 22,606 Interest . . . . . . . . . . . . . . . . . . . . . 15,421 15,469 49,600 34,967 Other . . . . . . . . . . . . . . . . . . . . . . 1,308 241 3,848 1,153 --------- --------- ---------- ---------- Total revenues . . . . . . . . . . . . . . . . . 110,987 82,166 314,154 225,095 Interest expense . . . . . . . . . . . . . . . . . 12,643 12,310 41,533 28,107 --------- --------- ---------- ---------- Revenues, net of interest expense . . . . . . . . . 98,344 69,856 272,621 196,988 --------- --------- ---------- ---------- Non-interest expenses: Compensation and benefits . . . . . . . . . . . . . 52,537 33,368 148,052 102,941 Floor brokerage and clearing fees . . . . . . . . . 4,937 4,713 14,599 13,513 Telecommunications and data processing services . . 6,823 5,508 18,059 15,231 Occupancy and equipment rental . . . . . . . . . . 3,812 3,495 11,324 10,472 Travel and promotional . . . . . . . . . . . . . . 2,634 2,142 7,004 6,184 Software royalties . . . . . . . . . . . . . . . . 1,566 1,358 4,212 3,934 Other . . . . . . . . . . . . . . . . . . . . . . . 9,932 8,048 27,928 22,241 --------- --------- ---------- ---------- Total non-interest expenses . . . . . . . . . . 82,241 58,632 231,178 174,516 --------- --------- ---------- ---------- Operating income . . . . . . . . . . . . . . . . . 16,103 11,224 41,443 22,472 Other income: Gain on initial public offering of Investment Technology Group, Inc. . . . . . . . . -- -- -- 8,257 --------- --------- ---------- ---------- Earnings before income taxes and minority interest . . . . . . . . . . . . . . 16,103 11,224 41,443 30,729 Income taxes . . . . . . . . . . . . . . . . . . . . 5,027 5,201 16,394 13,883 --------- --------- ---------- ---------- Earnings before minority interest . . . . . . . 11,076 6,023 25,049 16,846 Minority interest . . . . . . . . . . . . . . . . . . 910 658 2,154 860 --------- --------- ---------- ---------- Net earnings . . . . . . . . . . . . . . . . . . $ 10,166 $ 5,365 $ 22,895 $ 15,986 ========= ========= ========== ========== Earnings per share of common stock: Primary . . . . . . . . . . . . . . . . . . . . $ 1.70 $ 0.85 $ 3.84 $ 2.55 ========= ========= ========== ========== Fully diluted . . . . . . . . . . . . . . . . . $ 1.70 $ 0.85 $ 3.83 $ 2.55 ========= ========= ========== ========== Weighted average shares of common stock: Primary . . . . . . . . . . . . . . . . . . . . 5,969 6,324 5,963 6,210 Fully diluted . . . . . . . . . . . . . . . . . 5,971 6,328 5,985 6,210
See accompanying unaudited notes to consolidated financial statements. Page 4 of 17 5 JEFFERIES GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 29, 1995 (DOLLARS IN THOUSANDS)
Additional Total Additional Currency Minimum Stock- Common Paid-in Retained Treasury Translation Pension holders' Stock Capital Earnings Stock Adjustment Liability Equity --------------------------------------------------------------------------------------- Balance, December 31, 1994..... $90 $51,120 $165,597 $(52,958) $(465) $(149) $163,235 Exercise of stock options (118,575 shares).............. 1 2,758 2,759 Purchase of 269,899 shares of treasury stock...... (8,789) (8,789) Issuance of 103,473 shares of common stock........ 1,206 2,025 3,231 Issuance of 41,303 shares of restricted stock.... 58 626 684 Increase in proportionate share of subsidiary's equity related to subsidiary's purchase of treasury stock................ (766) (766) Cash dividends, $.05 per share................ (830) (830) Translation adjustment......... 23 23 Net earnings................... 22,895 22,895 --------------------------------------------------------------------------------------- Balance, September 29, 1995.... $91 $55,142 $186,896 $(59,096) $(442) $(149) $182,442 =======================================================================================
See accompanying unaudited notes to consolidated financial statements. Page 5 of 17 6 JEFFERIES GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (DOLLARS IN THOUSANDS)
Nine Months Ended ----------------------------- Sept. 29, Sept. 30, 1995 1994 ------------ ------------ Cash flows from operating activities: Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,895 $ 15,986 ------------ ------------ Adjustments to reconcile net earnings to net cash provided (used) by operations: Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . 6,654 5,292 (Increase) decrease in receivables: Brokers and dealers . . . . . . . . . . . . . . . . . . . . . . . . . . . 141,339 (174,390) Customers, officers and directors . . . . . . . . . . . . . . . . . . . . 3,850 33,781 (Increase) decrease in securities owned . . . . . . . . . . . . . . . . . . (16,134) (33,959) (Increase) decrease in other assets . . . . . . . . . . . . . . . . . . . . 8,072 (13,796) Increase (decrease) in operating payables: Brokers and dealers . . . . . . . . . . . . . . . . . . . . . . . . . . . (41,278) 265,356 Repurchase agreements . . . . . . . . . . . . . . . . . . . . . . . . . . (18,696) -- Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (150,036) (33,689) Increase (decrease) in securities sold, not yet purchased . . . . . . . . . 14,688 (20,119) Increase (decrease) in accrued expenses and other liabilities . . . . . . . . 48,391 (14,435) Increase (decrease) in minority interest . . . . . . . . . . . . . . . . . . 1,601 6,073 ------------ ------------ Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . (1,549) 20,114 ------------ ------------ Net cash provided (used) by operating activities . . . . . . . . . . 21,346 36,100 ------------ ------------
Continued on next page. See accompanying unaudited notes to consolidated financial statements. Page 6 of 17 7 JEFFERIES GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (UNAUDITED) (DOLLARS IN THOUSANDS)
Nine Months Ended ------------------------- Sept. 29, Sept. 30, 1995 1994 -------- -------- Cash flows from financing activities: Net proceeds (payments) on term debt . . . . . . . . . . . . . . . . . . -- 49,302 Net proceeds (payments) from bank loans . . . . . . . . . . . . . . . . (866) (45,928) Net payments for: Repurchase of treasury stock . . . . . . . . . . . . . . . . . . . . . (8,789) (16,025) Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . (830) (881) Proceeds from exercise of stock options . . . . . . . . . . . . . . . . 2,759 3,036 Issuance of common stock shares . . . . . . . . . . . . . . . . . . . . 3,231 19,964 Issuance of restricted stock shares . . . . . . . . . . . . . . . . . . 684 -- Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (766) -- -------- -------- Net cash provided (used) by financing activities . . . . . . . . . . . (4,577) 9,468 -------- -------- Cash flows from investing activities - purchase of premises and equipment . . . (9,678) (6,346) -------- -------- Effect of foreign currency translation on cash . . . . . . . . . . . . . . . . 23 206 -------- -------- Net increase (decrease) in cash and cash equivalents . . . . . . . . . 7,114 39,428 Cash and cash equivalents - beginning of period . . . . . . . . . . . . . . . . 71,381 26,910 -------- -------- Cash and cash equivalents - end of period . . . . . . . . . . . . . . . . . . . $ 78,495 $ 66,338 ======== ======== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40,916 $ 23,795 ======== ======== Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,642 $ 9,979 ======== ========
See accompanying unaudited notes to consolidated financial statements. Page 7 of 17 8 JEFFERIES GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS The accompanying consolidated financial statements include the accounts of Jefferies Group, Inc. and all subsidiaries, including Jefferies & Company, Inc. (Jefferies) and Investment Technology Group, Inc. and all of its subsidiaries (ITGI), including ITGI's 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. Jefferies Group, Inc. and its subsidiaries are primarily 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. All significant intercompany accounts and transactions are eliminated in consolidation. The consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary for the fair statement of the results for the interim period and should be read in conjunction with the Company's annual report for the year ended December 31, 1994. SECURITIES TRANSACTIONS The Company records its commission and principal transaction revenues and related expenses on a trade date basis. RECEIVABLE FROM, AND PAYABLE TO, BROKERS AND DEALERS The components, at September 29, 1995, of receivable from and payable to brokers and dealers are as follows (in thousands of dollars):
Receivable from brokers and dealers: Securities borrowed . . . . . . . . . . . . $ 991,393 Other . . . . . . . . . . . . . . . . . . . 16,938 ---------- $1,008,331 ========== Payable to brokers and dealers: Securities loaned . . . . . . . . . . . . . $ 791,635 Other . . . . . . . . . . . . . . . . . . . 7,920 ---------- $ 799,555 ==========
Page 8 of 17 9 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 September 29, 1995:
Securities Sold, Securities Not Yet Owned Purchased ----------- ---------- (Dollars in Thousands) Corporate equity securities . . . . . . . . . . $ 75,010 $67,677 High-yield securities . . . . . . . . . . . . . 31,011 5,902 Corporate debt securities . . . . . . . . . . . 20,389 1,560 U.S. Government and agency obligations . . . . . 34,528 -- Options . . . . . . . . . . . . . . . . . . . . 136 136 ----------- --------- $161,074 $75,275 =========== =========
In the regular course of its business, Jefferies 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, Jefferies 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. Jefferies 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. 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. 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. INCOME TAXES Deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Page 9 of 17 10 CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash in banks and short term investments. Cash equivalents are part of the cash management activities of the Company and generally mature within 90 days. The following is a summary of cash and cash equivalents as of September 29, 1995 (in thousands of dollars):
Cash in banks . . . . . . . . . . . . . . . . . $19,266 Short term investments . . . . . . . . . . . . . 59,229 ------- $78,495 =======
MINORITY INTEREST Minority interest represents the minority stockholders' proportionate share of the equity of ITGI. At September 29, 1995, Jefferies Group, Inc. owned 81% of ITGI's common stock. NET CAPITAL REQUIREMENTS As registered broker-dealers, Jefferies, ITG and W & D are subject to the Securities and Exchange Commission's Uniform Net Capital Rule (Rule 15c3-1), which requires the maintenance of minimum net capital. 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. Net capital changes from day to day, but as of September 29, 1995, Jefferies' net capital of $70.8 million exceeded its minimum net capital requirements by $66.4 million. ITG's net capital of $24.6 million exceeded its minimum net capital requirements by $24.3 million. W & D's net capital of $879,000 exceeded its minimum net capital requirements by $629,000. QUARTERLY DIVIDENDS In 1988, the Company instituted a policy of paying regular quarterly dividends. There are no restrictions on the Company's present ability to pay dividends on common stock, other than the governing provisions of the Delaware General Corporation Law. Dividends per Common Share (declared and paid):
1st Qtr 2nd Qtr 3rd Qtr ------- ------- ------- 1995 . . . . . . . . . . . $.05 $.05 $.05 1994 . . . . . . . . . . . $.05 $.05 $.05
OFF-BALANCE SHEET RISK The Company has contractual commitments arising in the ordinary course of business for bank loans, securities loaned or purchased under agreements to sell, securities sold but not yet purchased, 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. Page 10 of 17 11 In the normal course of business, the Company had letters of credit outstanding aggregating $17.4 million at September 29, 1995, to satisfy various collateral requirements in lieu of depositing cash or securities. 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. Page 11 of 17 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ANALYSIS OF FINANCIAL CONDITION Total assets decreased $126.7 million from $1,557.3 million at December 31, 1994 to $1,430.6 million at September 29, 1995. The decrease is mostly due to a decrease in receivable from brokers and dealers related to securities borrowed. The decrease in securities borrowed is mostly a result of a decrease in payable to customers. FIRST THREE QUARTERS 1995 VERSUS FIRST THREE QUARTERS 1994 Revenues, net of interest expense, increased $75.6 million, or 38%, in the first three quarters of 1995 compared to the same prior year period. The increase was due primarily to a $33.2 million, or 147%, increase in corporate finance, a $26.5 million, or 54%, increase in principal transactions, a $12.1 million, or 10%, increase in commissions, a $2.7 million increase in other revenues and a $1.2 million, or 18%, increase in net interest income (interest revenues less interest expense). Commission revenues increased, led by ITGI and the Equities Division. Revenues from principal transactions increased primarily due to increased trading gains in the Taxable Fixed Income Department, the Equities Division and the International Division. Corporate finance revenues benefited from increases in underwriting and advisory fees. Net interest income increased as the $14.6 million increase in interest revenues exceeded the $13.4 million increase in interest expense. Interest revenues increased due primarily to higher stock borrow, customer margin and investment interest income. The related increases in interest on stock loan only partially offset the growth in interest revenues. Other revenues increased partly due to currency gains. Total non-interest expenses increased $56.7 million, or 32%, in the first three quarters of 1995 compared to the same prior year period. Compensation and benefits increased $45.1 million, or 44%, largely due to higher incentive based compensation accruals. Other expense increased $5.7 million, or 26%, largely due to higher technology development expenses. Telecommunications and data processing services increased $2.8 million, or 19%, primarily due to increased trade volumes and personnel. Floor brokerage and clearing fees increased $1.1 million, or 8%, due to increased volumes of business executed on the various exchanges. Occupancy and equipment rental increased $852,000, or 8%, partly due to the relocation and addition of offices. Travel and promotional increased $820,000, or 13%, mostly due to increased travel expenses. Software royalties remained relatively unchanged from last year. The first three quarters' results for 1994 included a pre-tax gain of $8.3 million on the initial public offering of ITGI. The minority stockholders' ownership interest reduced the Company's ownership of ITGI to approximately 80%. Earnings before income taxes and minority interest were up 35% to $41.4 million in the 1995 period, as compared to $30.7 million in the 1994 period. The effective tax rate was approximately 40% in the first three quarters of 1995 versus approximately 45% in the first three quarters of 1994. The 1995 effective tax rate was lower due to a reduction in the effective state tax rates and research and development tax credits. Minority interest (approximately 19% of the 1995 earnings of ITGI) was $2.2 million in the first three quarters of 1995. Minority interest was only $860,000 in the comparable 1994 period, because minority interest did not exist until ITGI went public in May, 1994. Primary earnings per share were $3.84 in the first three quarters of 1995 on 5,963,000 shares compared to $2.55 in the 1994 period on 6,210,000 shares. Fully diluted earnings per share were $3.83 in the first three quarters of 1995 on 5,985,000 shares compared to $2.55 in the 1994 period on 6,210,000 shares. Page 12 of 17 13 During the first three quarters of 1995, the Company repurchased 269,899 shares of its common stock versus 452,211 shares for the comparable 1994 period. THIRD QUARTER 1995 VERSUS THIRD QUARTER 1994 Revenues, net of interest expense, increased $28.5 million, or 41%, in the third quarter of 1995 compared to the same prior year period. The increase was due to a $12.5 million, or 69%, increase in principal transactions, a $8.3 million, or 93%, increase in corporate finance, a $6.9 million, or 18%, increase in commissions and a $1.1 million increase in other revenues, partially offset by a $381,000, or 12%, decrease in net interest income (interest revenues less interest expense). Revenues from principal transactions increased primarily due to increased trading gains in the Taxable Fixed Income Department, the International Division and the Equities Division. Corporate finance revenue benefited from increases in underwriting and advisory fees. Commission revenues increased, led by ITGI, the Equities Division and the International Division. Other revenues increased partly due to currency gains. Net interest income decreased mostly due to the $333,000, or 3%, increase in interest expense. Total non-interest expenses increased $23.6 million, or 40%, in the third quarter of 1995 compared to the same prior year period. Compensation and benefits increased $19.2 million, or 57%, largely due to higher incentive based compensation accruals. Other expense increased $1.9 million, or 23%, mostly due to reserves and higher technology development expenses. Telecommunications and data processing services increased $1.3 million, or 24%, primarily due to increased trade volumes and personnel. Travel and promotional increased $492,000, or 23%, mostly due to increased travel. Occupancy and equipment rental increased $317,000, or 9%, partly due to the relocation and addition of offices. Software royalties increased $208,000, or 15%, due to the increase in POSIT(R) commissions. Floor brokerage and clearing fees remained relatively unchanged from last year. Earnings before income taxes and minority interest were up 43% to $16.1 million in the 1995 period, as compared to $11.2 million in the 1994 period. The effective tax rate was approximately 31% in the third quarter of 1995 compared to approximately 46% in the 1994 period. The effective tax rate for the third quarter of 1995 was reduced by an adjustment related to a reduction in the effective state tax rates and research and development tax credits. Minority interest (approximately 19% of the earnings of ITGI) was $910,000 in the third quarter of 1995 as compared to $658,000 in the comparable 1994 period. The change in minority interest is related to the increase in ITGI's 1995 third quarter net earnings over the comparable 1994 period. Primary earnings per share were $1.70 in the third quarter of 1995 on 5,969,000 shares compared to $.85 in the 1994 period on 6,324,000 shares. Fully diluted earnings per share were $1.70 in the third quarter of 1995 on 5,971,000 shares compared to $.85 in the 1994 period on 6,328,000 shares. During the third quarter of 1995, the Company repurchased 41,256 shares of its common stock versus 325,411 shares for the comparable 1994 period. Page 13 of 17 14 The Company's principal activities, securities brokerage and the trading of and market-making in securities, are highly competitive and extremely volatile. 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 breakdown of total revenues by source for the nine months and three months ended September 29, 1995 and September 30, 1994.
Nine Months Ended --------------------------------------------------------- September 29, September 30, 1995 1994 ------------------------- ------------------------- % of % of Total Total Amount Revenues Amount Revenues ------------ -------- ------------ -------- (Dollars in Thousands) Commissions and principal transactions: Equities Division . . . . . . . . . . . $102,840 33% $ 88,916 39% ITGI . . . . . . . . . . . . . . . . . . 51,789 16 43,168 19 International Division . . . . . . . . . 29,637 9 23,151 10 Taxable Fixed Income Department . . . . 9,759 3 4,386 2 Convertible Division . . . . . . . . . . 5,214 2 3,824 2 Other proprietary trading . . . . . . . 5,758 2 2,924 1 Corporate finance . . . . . . . . . . . . . . 55,781 18 22,606 10 Interest . . . . . . . . . . . . . . . . . . 49,600 16 34,967 16 Other . . . . . . . . . . . . . . . . . . . 3,776 1 1,153 1 ------------------------- ------------------------- Total revenues . . . . . . . . . . . . $314,154 100% $225,095 100% ========================= =========================
Three Months Ended --------------------------------------------------------- September 29, September 30, 1995 1994 ------------------------- ------------------------- % of % of Total Total Amount Revenues Amount Revenues ------------ -------- ------------ -------- (Dollars in Thousands) Commissions and principal transactions: Equities Division . . . . . . . . . . . $ 36,163 33% $30,671 37% ITGI . . . . . . . . . . . . . . . . . . 19,164 17 15,992 19 International Division . . . . . . . . . 12,090 11 8,050 10 Taxable Fixed Income Department . . . . 5,021 4 (103) 0 Convertible Division . . . . . . . . . . 1,770 2 1,448 2 Other proprietary trading . . . . . . . 2,805 2 1,411 2 Corporate finance . . . . . . . . . . . . . . 17,317 16 8,987 11 Interest . . . . . . . . . . . . . . . . . . 15,421 14 15,469 19 Other . . . . . . . . . . . . . . . . . . . 1,236 1 241 0 ------------------------- ------------------------- Total revenues . . . . . . . . . . . . $110,987 100% $82,166 100% ========================= =========================
Page 14 of 17 15 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 11. Computation of Earnings Per Share (page 16 attached) (b) Reports on Form 8-K. There were no reports filed on Form 8-K during the quarter ended September 29, 1995. Page 15 of 17 16 EXHIBIT 11 JEFFERIES GROUP, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
Three Months Ended Nine Months Ended ---------------------- ----------------------- Sept. 29, Sept. 30, Sept. 29, Sept. 30, 1995 1994 1995 1994 --------- --------- ---------- --------- Common stock and common stock equivalents Average common stock outstanding . . . . . . . . . . . . 5,556 5,971 5,526 5,862 Common stock equivalent shares related to various employee stock and stock option plans . . . . . . . . . 413 353 437 348 --------------------- ---------------------- Total average common stock and common stock equivalents used for primary computation . . . . . . 5,969 6,324 5,963 6,210 Adjust average common stock equivalents to period- end market price, if higher than average price . . . . 2 4 22 -- --------------------- ---------------------- Total average common stock, common stock equivalents and other dilutive securities . . . . . . 5,971 6,328 5,985 6,210 ===================== ====================== Earnings: Net earnings . . . . . . . . . . . . . . . . . . . . . . $10,166 $ 5,365 $22,895 $15,986 Adjustment to subsidiary earnings - common stock equivalents on subsidiary . . . . . . . . -- -- -- 125 --------------------- ---------------------- Total earnings for primary and fully diluted . . . . . $10,166 $ 5,365 $22,895 $15,861 ===================== ====================== Earnings per share: Primary . . . . . . . . . . . . . . . . . . . . . . . . $1.70 $0.85 $3.84 $2.55 ===================== ====================== Fully diluted . . . . . . . . . . . . . . . . . . . . . $1.70 $0.85 $3.83 $2.55 ===================== ======================
Page 16 of 17 17 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. JEFFERIES GROUP, INC. --------------------- (Registrant) Date: November 10, 1995 By: /s/ Clarence T. Schmitz ----------------- ----------------------------- Clarence T. Schmitz Executive Vice President, Chief Financial Officer Page 17 of 17 EX-27 2 FINANCIAL DATA SCHEDULE
BD THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION AND THE CONSOLIDATED STATEMENTS OF EARNINGS AS OF SEPTEMBER 29, 1995 AND FOR THE NINE MONTHS THEN ENDED AND THE NOTES THERETO AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS FILED IN THE 1995 JEFFERIES GROUP, INC. THIRD QUARTER 10-Q FILING. 1,000 U.S. DOLLARS 9-MOS DEC-31-1995 JAN-01-1995 SEP-29-1995 1 78,495 118,968 0 991,393 161,074 25,408 1,430,621 0 183,280 0 791,635 75,275 59,832 91 0 0 182,351 1,430,621 75,862 49,600 129,063 55,781 0 41,533 148,052 41,443 41,443 0 0 22,895 3.84 3.83
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