SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period endedJune 28, 2002 |
For the quarterly period ended March 29, 2002 OR
OR
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________ to _____________ |
Commission file number 1-14947
JEFFERIES GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware | 95-4719745 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
520 Madison Avenue, 12th Floor, New York, New York | 10022 | |||
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code:(212) 284-2550
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
As of March 29,June 28, 2002, the registrant had 26,774,16826,930,270 common shares, $.0001 par value, outstanding.
Page 1 of 1518
JEFFERIES GROUP, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-QMARCH 29,JUNE 28, 2002
Page | ||||||||
PART | FINANCIAL INFORMATION | |||||||
Item 1. | Financial Statements | |||||||
Consolidated Statements of Financial Condition - | 3 | |||||||
Consolidated Statements of Earnings (unaudited) - Three Months and Six Months Ended | 4 | |||||||
Consolidated Statement of Changes in Stockholders’ Equity (unaudited) - | 5 | |||||||
Consolidated Statements of Cash Flows (unaudited) - | 6 | |||||||
Notes to Consolidated Financial Statements (unaudited) | 8 | |||||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 14 | ||||||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 17 | ||||||
PART | OTHER INFORMATION | |||||||
Item 1. | Legal Proceedings | 17 | ||||||
Item 4. | Submission of Matters to a Vote of Security Holders | 17 | ||||||
Item 6. | Exhibits and Reports on Form 8-K | 17 |
Page 2 of 1518
JEFFERIES GROUP, INC. AND SUBSIDIARIES
March 29, | December 31, | June 28, | December 31, | |||||||||||||||||||||
2002 | 2001 | 2002 | 2001 | |||||||||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||||||||||
ASSETS | ASSETS | ASSETS | ||||||||||||||||||||||
Cash and cash equivalents | Cash and cash equivalents | $ | 23,587 | $ | 188,106 | Cash and cash equivalents | $ | 14,806 | $ | 188,106 | ||||||||||||||
Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations | Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations | 177,683 | 154,989 | Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations | 177,686 | 154,989 | ||||||||||||||||||
Receivable from brokers and dealers | Receivable from brokers and dealers | 4,191,924 | 4,064,626 | Receivable from brokers and dealers | 3,479,153 | 4,064,626 | ||||||||||||||||||
Receivable from customers, officers and directors | Receivable from customers, officers and directors | 244,588 | 136,605 | Receivable from customers, officers and directors | 195,012 | 136,605 | ||||||||||||||||||
Securities owned | Securities owned | 456,268 | 285,372 | Securities owned | 458,552 | 285,372 | ||||||||||||||||||
Securities pledged to creditors | Securities pledged to creditors | 103,933 | 100,262 | Securities pledged to creditors | 83,917 | 100,262 | ||||||||||||||||||
Investments | Investments | 462,462 | 168,863 | Investments | 412,739 | 168,863 | ||||||||||||||||||
Premises and equipment | Premises and equipment | 47,367 | 48,436 | Premises and equipment | 47,242 | 48,436 | ||||||||||||||||||
Other assets | Other assets | 197,895 | 197,478 | Other assets | 220,917 | 197,478 | ||||||||||||||||||
$ | 5,905,707 | $ | 5,344,737 | $ | 5,090,024 | $ | 5,344,737 | |||||||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | LIABILITIES AND STOCKHOLDERS’ EQUITY | LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||||
Bank loans | Bank loans | $ | 184,000 | $ | 50,000 | Bank loans | $ | 121,000 | $ | 50,000 | ||||||||||||||
Payable to brokers and dealers | Payable to brokers and dealers | 3,921,952 | 3,885,842 | Payable to brokers and dealers | 3,186,816 | 3,885,842 | ||||||||||||||||||
Payable to customers | Payable to customers | 356,443 | 313,207 | Payable to customers | 343,886 | 313,207 | ||||||||||||||||||
Securities sold, not yet purchased | Securities sold, not yet purchased | 207,354 | 150,146 | Securities sold, not yet purchased | 197,819 | 150,146 | ||||||||||||||||||
Accrued expenses and other liabilities | Accrued expenses and other liabilities | 195,250 | 226,089 | Accrued expenses and other liabilities | 213,688 | 226,089 | ||||||||||||||||||
4,864,999 | 4,625,284 | 4,063,209 | 4,625,284 | |||||||||||||||||||||
Long-term convertible debt | Long-term convertible debt | 2,752 | 2,817 | Long-term convertible debt | 3,133 | 2,817 | ||||||||||||||||||
Long-term debt | Long-term debt | 466,614 | 150,980 | Long-term debt | 430,258 | 150,980 | ||||||||||||||||||
5,334,365 | 4,779,081 | 4,496,600 | 4,779,081 | |||||||||||||||||||||
Stockholders’ equity: | Stockholders’ equity: | Stockholders’ equity: | ||||||||||||||||||||||
Preferred stock, $.0001 par value. Authorized 10,000,000 shares; none issued | — | — | Preferred stock, $.0001 par value. Authorized 10,000,000 shares; none issued | — | — | |||||||||||||||||||
Common stock, $.0001 par value. Authorized 100,000,000 shares; issued 28,603,256 shares in 2002 and 27,896,622 shares in 2001 | 3 | 3 | Common stock, $.0001 par value. Authorized 100,000,000 shares; issued 28,974,476 shares in 2002 and 27,896,622 shares in 2001 | 3 | 3 | |||||||||||||||||||
Additional paid-in capital | 179,782 | 159,018 | Additional paid-in capital | 191,752 | 159,018 | |||||||||||||||||||
Retained earnings | 455,555 | 439,195 | Retained earnings | 471,809 | 439,195 | |||||||||||||||||||
Less: | Less: | |||||||||||||||||||||||
Treasury stock, at cost, 1,829,088 shares in 2002 and 1,060,788 shares in 2001 | (58,341 | ) | (27,856 | ) | Treasury stock, at cost, 2,044,206 shares in 2002 and 1,060,788 shares in 2001 | (67,723 | ) | (27,856 | ) | |||||||||||||||
Accumulated other comprehensive loss: | Accumulated other comprehensive loss: | |||||||||||||||||||||||
Currency translation adjustments | (3,356 | ) | (2,403 | ) | Currency translation adjustments | (116 | ) | (2,403 | ) | |||||||||||||||
Additional minimum pension liability | (2,301 | ) | (2,301 | ) | Additional minimum pension liability | (2,301 | ) | (2,301 | ) | |||||||||||||||
Total accumulated other comprehensive loss | (5,657 | ) | (4,704 | ) | Total accumulated other comprehensive loss | (2,417 | ) | (4,704 | ) | |||||||||||||||
Total stockholders’ equity | 571,342 | 565,656 | Total stockholders’ equity | 593,424 | 565,656 | |||||||||||||||||||
$ | 5,905,707 | $ | 5,344,737 | $ | 5,090,024 | $ | 5,344,737 | |||||||||||||||||
See accompanying unaudited notes to consolidated financial statements.
Page 3 of 1518
JEFFERIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
(In thousands, except per share amounts)
Three Months Ended | Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||
March 29, | March 30, | June 28, | June 29, | June 28, | June 29, | |||||||||||||||||||||||
2002 | 2001 | 2002 | 2001 | 2002 | 2001 | |||||||||||||||||||||||
Revenues: | Revenues: | Revenues: | ||||||||||||||||||||||||||
Commissions | $ | 64,573 | $ | 60,548 | Commissions | $ | 63,063 | $ | 53,859 | $ | 127,636 | $ | 114,407 | |||||||||||||||
Principal transactions | 66,667 | 86,826 | Principal transactions | 67,288 | 72,404 | 133,955 | 159,230 | |||||||||||||||||||||
Corporate finance | 37,668 | 17,012 | Corporate finance | 41,650 | 44,077 | 79,318 | 61,089 | |||||||||||||||||||||
Interest | 21,629 | 39,944 | Interest | 24,447 | 38,332 | 46,076 | 78,276 | |||||||||||||||||||||
Asset management | 3,487 | 4,729 | Asset management | 2,724 | 5,811 | 6,211 | 10,540 | |||||||||||||||||||||
Other | 1,318 | 649 | Other | 1,705 | 1,414 | 3,023 | 2,063 | |||||||||||||||||||||
Total revenues | 195,342 | 209,708 | Total revenues | 200,877 | 215,897 | 396,219 | 425,605 | |||||||||||||||||||||
Interest expense | Interest expense | 17,598 | 32,803 | Interest expense | 22,748 | 34,453 | 40,346 | 67,256 | ||||||||||||||||||||
Revenues, net of interest expense | Revenues, net of interest expense | 177,744 | 176,905 | Revenues, net of interest expense | 178,129 | 181,444 | 355,873 | 358,349 | ||||||||||||||||||||
Non-interest expenses: | Non-interest expenses: | Non-interest expenses: | ||||||||||||||||||||||||||
Compensation and benefits | 104,567 | 107,484 | Compensation and benefits | 101,715 | 111,244 | 206,282 | 218,728 | |||||||||||||||||||||
Floor brokerage and clearing fees | 14,148 | 10,905 | Floor brokerage and clearing fees | 13,442 | 11,183 | 27,590 | 22,088 | |||||||||||||||||||||
Communications | 11,395 | 11,338 | Communications | 13,998 | 12,230 | 25,393 | 23,568 | |||||||||||||||||||||
Occupancy and equipment rental | 6,158 | 5,492 | Occupancy and equipment rental | 6,148 | 6,135 | 12,306 | 11,627 | |||||||||||||||||||||
Travel and promotional | 6,304 | 5,609 | Travel and promotional | 5,686 | 5,703 | 11,990 | 11,312 | |||||||||||||||||||||
Other | 5,208 | 8,946 | Other | 6,468 | 6,375 | 11,676 | 15,321 | |||||||||||||||||||||
Total non-interest expenses | 147,780 | 149,774 | Total non-interest expenses | 147,457 | 152,870 | 295,237 | 302,644 | |||||||||||||||||||||
Earnings before income taxes | 29,964 | 27,131 | ||||||||||||||||||||||||||
Earnings before income taxes and extraordinary item | Earnings before income taxes and extraordinary item | 30,672 | 28,574 | 60,636 | 55,705 | |||||||||||||||||||||||
Income taxes | Income taxes | 12,292 | 11,447 | Income taxes | 12,577 | 12,022 | 24,869 | 23,469 | ||||||||||||||||||||
Earnings before extraordinary item | Earnings before extraordinary item | 18,095 | 16,552 | 35,767 | 32,236 | |||||||||||||||||||||||
Extraordinary item — loss on early extinguishment of debt, net of tax | Extraordinary item — loss on early extinguishment of debt, net of tax | (480 | ) | — | (480 | ) | — | |||||||||||||||||||||
Net earnings | $ | 17,672 | $ | 15,684 | Net earnings | $ | 17,615 | $ | 16,552 | $ | 35,287 | $ | 32,236 | |||||||||||||||
Earnings per share: | Earnings per share: | Earnings per share: | ||||||||||||||||||||||||||
Basic: | Basic: | |||||||||||||||||||||||||||
Earnings before extraordinary item | $ | 0.73 | $ | 0.68 | $ | 1.45 | $ | 1.34 | ||||||||||||||||||||
Early extinguishment of debt | (0.01 | ) | — | (0.02 | ) | — | ||||||||||||||||||||||
Net earnings | $ | 0.72 | $ | 0.68 | $ | 1.43 | $ | 1.34 | ||||||||||||||||||||
Diluted: | Diluted: | |||||||||||||||||||||||||||
Earnings before extraordinary item | $ | 0.66 | $ | 0.65 | $ | 1.31 | $ | 1.27 | ||||||||||||||||||||
Basic | $ | 0.71 | $ | 0.65 | Early extinguishment of debt | (0.02 | ) | — | (0.02 | ) | — | |||||||||||||||||
Diluted | $ | 0.65 | $ | 0.63 | Net earnings | $ | 0.64 | $ | 0.65 | $ | 1.29 | $ | 1.27 | |||||||||||||||
Weighted average shares: | Weighted average shares: | Weighted average shares: | ||||||||||||||||||||||||||
Basic | 24,766 | 24,039 | Basic | 24,626 | 24,206 | 24,695 | 24,124 | |||||||||||||||||||||
Diluted | 27,380 | 25,061 | Diluted | 27,436 | 25,564 | 27,407 | 25,321 | |||||||||||||||||||||
Fixed charge coverage ratio | Fixed charge coverage ratio | 6.3X | 7.3X | Fixed charge coverage ratio | 4.7X | 7.7X | 5.4X | 7.5X |
See accompanying unaudited notes to consolidated financial statements.
Page 4 of 1518
JEFFERIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)THREESIX MONTHS ENDED MARCH 29,JUNE 28, 2002
(Dollars in thousands, except per share amounts)
Accumulated | Total | Accumulated | Total | |||||||||||||||||||||||||||||||||||||||||||||||
Additional | Other | Stock- | Additional | Other | Stock- | |||||||||||||||||||||||||||||||||||||||||||||
Common | Paid-in | Retained | Treasury | Comprehensive | holders' | Common | Paid-in | Retained | Treasury | Comprehensive | holders' | |||||||||||||||||||||||||||||||||||||||
Stock | Capital | Earnings | Stock | Loss | Equity | Stock | Capital | Earnings | Stock | Loss | Equity | |||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2001 | Balance, December 31, 2001 | $ | 3 | $ | 159,018 | $ | 439,195 | $ | (27,856 | ) | $ | (4,704 | ) | $ | 565,656 | Balance, December 31, 2001 | $ | 3 | $ | 159,018 | $ | 439,195 | $ | (27,856 | ) | $ | (4,704 | ) | $ | 565,656 | ||||||||||||||||||||
Exercise of stock options, including tax benefits (10,218 shares) | — | 264 | — | — | — | 264 | ||||||||||||||||||||||||||||||||||||||||||||
Purchase of treasury stock (668,300 shares) | — | — | — | (27,725 | ) | — | (27,725 | ) | ||||||||||||||||||||||||||||||||||||||||||
Issuance of ESPP/SSPP shares (69,824 shares) | — | 1,957 | — | — | — | 1,957 | ||||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted stock (526,592 shares), net of forfeitures, and additional vesting of restricted stock shares, including tax benefits | — | 17,428 | — | (2,760 | ) | — | 14,668 | |||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options, including tax benefits (73,580 shares) | Exercise of stock options, including tax benefits (73,580 shares) | — | 2,126 | — | — | — | 2,126 | |||||||||||||||||||||||||||||||||||||||||||
Purchase of treasury stock (882,400 shares) | Purchase of treasury stock (882,400 shares) | — | — | — | (37,080 | ) | — | (37,080 | ) | |||||||||||||||||||||||||||||||||||||||||
Issuance of ESPP / SSPP shares (69,824 shares) | Issuance of ESPP / SSPP shares (69,824 shares) | — | 1,957 | — | — | — | 1,957 | |||||||||||||||||||||||||||||||||||||||||||
Issuance of common shares (7,500 shares) | Issuance of common shares (7,500 shares) | — | 370 | — | — | — | 370 | |||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted stock (825,932 shares), net of forfeitures, and additional vesting of restricted stock shares, including tax benefits | Issuance of restricted stock (825,932 shares), net of forfeitures, and additional vesting of restricted stock shares, including tax benefits | — | 26,033 | — | (2,787 | ) | — | 23,246 | ||||||||||||||||||||||||||||||||||||||||||
Employee stock ownership plan amortization and stock purchases, net | Employee stock ownership plan amortization and stock purchases, net | — | 1,115 | — | — | — | 1,115 | Employee stock ownership plan amortization and stock purchases, net | — | 2,248 | — | — | — | 2,248 | ||||||||||||||||||||||||||||||||||||
Quarterly dividends ($.05 per share per quarter) | Quarterly dividends ($.05 per share per quarter) | — | — | (1,312 | ) | — | — | (1,312 | ) | Quarterly dividends ($.05 per share per quarter) | — | — | (2,673 | ) | — | — | (2,673 | ) | ||||||||||||||||||||||||||||||||
Comprehensive income: | Comprehensive income: | Comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||||||
Net earnings | — | — | 17,672 | — | — | 17,672 | Net earnings | — | — | 35,287 | — | — | 35,287 | |||||||||||||||||||||||||||||||||||||
Other comprehensive loss, net of tax: | Other comprehensive gain, net of tax: | |||||||||||||||||||||||||||||||||||||||||||||||||
Translation adjustment | — | — | — | — | (953 | ) | (953 | ) | Translation adjustment | — | — | — | — | 2,287 | 2,287 | |||||||||||||||||||||||||||||||||||
Comprehensive income | Comprehensive income | — | — | — | — | — | 16,719 | Comprehensive income | — | — | — | — | — | 37,574 | ||||||||||||||||||||||||||||||||||||
Balance, March 29, 2002 | $ | 3 | $ | 179,782 | $ | 455,555 | $ | (58,341 | ) | $ | (5,657 | ) | $ | 571,342 | ||||||||||||||||||||||||||||||||||||
Balance, June 28, 2002 | Balance, June 28, 2002 | $ | 3 | $ | 191,752 | $ | 471,809 | $ | (67,723 | ) | $ | (2,417 | ) | $ | 593,424 | |||||||||||||||||||||||||||||||||||
See accompanying unaudited notes to consolidated financial statements.
Page 5 of 1518
JEFFERIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands) Three Months Ended March 29, March 30, 2002 2001 Cash flows from operating activities: Net earnings $ 17,672 $ 15,684 Adjustments to reconcile net earnings to net cash provided by (used in) operations: Depreciation and amortization 5,268 3,596 (Increase) decrease in cash and securities segregated and on deposit for regulatory purposes (22,694 ) 20,825 (Increase) decrease in receivables: Brokers and dealers (127,298 ) (1,802,663 ) Customers, officers and directors (107,983 ) 61,721 (Increase) decrease in securities owned (170,896 ) 14,001 (Increase) decrease in securities pledged to creditors (3,671 ) 13,426 Increase in investments (293,599 ) (13,310 ) Increase in other assets (417 ) (19,988 ) Increase (decrease) in operating payables: Brokers and dealers 36,110 1,992,012 Customers 43,236 (175,493 ) Increase (decrease) in securities sold, not yet purchased 57,208 (25,463 ) Decrease in accrued expenses and other liabilities (30,572 ) (56,531 ) Total adjustments (615,308 ) 12,133 Net cash provided by (used in) operating activities (597,636 ) 27,817 Six Months Ended June 28, June 29, 2002 2001 Cash flows from operating activities: Net earnings $ 35,287 $ 32,236 Adjustments to reconcile net earnings to net cash provided by (used in) operations: Depreciation and amortization 10,552 7,971 (Increase) decrease in cash and securities segregated and on deposit for regulatory purposes (22,697 ) 38,107 (Increase) decrease in receivables: Brokers and dealers 585,473 (93,148 ) Customers, officers and directors (58,407 ) 73,641 Increase in securities owned (173,180 ) (37,166 ) (Increase) decrease in securities pledged to creditors 16,345 (2,871 ) Increase in investments (243,876 ) (21,566 ) Increase in other assets (9,804 ) (21,766 ) Increase (decrease) in operating payables: Brokers and dealers (699,026 ) 350,251 Customers 30,679 (207,377 ) Increase (decrease) in securities sold, not yet purchased 47,673 (18,831 ) Decrease in accrued expenses and other liabilities (12,401 ) (50,516 ) Total adjustments (528,669 ) 16,729 Net cash provided by (used in) operating activities (493,382 ) 48,965
Continued on next page.
See accompanying unaudited notes to consolidated financial statements.
Page 6 of 1518
JEFFERIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS — CONTINUED (Unaudited)
(Dollars in thousands)
Three Months Ended | Six Months Ended | |||||||||||||||||||||||
March 29, | March 30, | June 28, | June 29, | |||||||||||||||||||||
2002 | 2001 | 2002 | 2001 | |||||||||||||||||||||
Cash flows from financing activities: | Cash flows from financing activities: | Cash flows from financing activities: | ||||||||||||||||||||||
Net proceeds from (payments on): | ||||||||||||||||||||||||
Bank loans | 71,000 | — | ||||||||||||||||||||||
8 7/8% Senior Notes | (49,861 | ) | — | |||||||||||||||||||||
Net proceeds from (payments on): | 7 3/4% Senior Notes | 315,315 | — | |||||||||||||||||||||
Bank loans | 134,000 | — | Subordinated loans on consolidated subsidiary | — | 1,300 | |||||||||||||||||||
Senior Notes | 315,315 | — | Repurchase of treasury stock | (37,080 | ) | (6,741 | ) | |||||||||||||||||
Repurchase of treasury stock | (27,725 | ) | (6,548 | ) | Dividends paid | (2,673 | ) | (2,514 | ) | |||||||||||||||
Dividends paid | (1,312 | ) | (1,240 | ) | Exercise of stock options | 2,126 | 1,771 | |||||||||||||||||
Exercise of stock options | 264 | 1,421 | Issuance of ESPP / SSPP shares | 1,957 | 2,405 | |||||||||||||||||||
Issuance of ESPP/SSPP shares | 1,957 | 1,556 | Issuance of common shares | 370 | — | |||||||||||||||||||
Issuance of restricted stock | 14,668 | 15,690 | Issuance of restricted stock | 23,246 | 22,468 | |||||||||||||||||||
Net cash provided by financing activities | 437,167 | 10,879 | Net cash provided by financing activities | 324,400 | 18,689 | |||||||||||||||||||
Cash flows from investing activities - purchase of premises and equipment | Cash flows from investing activities - purchase of premises and equipment | (3,032 | ) | (6,731 | ) | Cash flows from investing activities - purchase of premises and equipment | (6,921 | ) | (11,720 | ) | ||||||||||||||
Effect of foreign currency translation on cash | Effect of foreign currency translation on cash | (1,018 | ) | (2,615 | ) | Effect of foreign currency translation on cash | 2,603 | (2,847 | ) | |||||||||||||||
Net increase (decrease) in cash and cash equivalents | (164,519 | ) | 29,350 | Net increase (decrease) in cash and cash equivalents | (173,300 | ) | 53,087 | |||||||||||||||||
Cash and cash equivalents — beginning of period | Cash and cash equivalents — beginning of period | 188,106 | 24,996 | Cash and cash equivalents — beginning of period | 188,106 | 24,996 | ||||||||||||||||||
Cash and cash equivalents — end of period | Cash and cash equivalents — end of period | $ | 23,587 | $ | 54,346 | Cash and cash equivalents — end of period | $ | 14,806 | $ | 78,083 | ||||||||||||||
Supplemental disclosures of cash flow information: | Supplemental disclosures of cash flow information: | Supplemental disclosures of cash flow information: | ||||||||||||||||||||||
Cash paid during the period for: | Cash paid during the period for: | |||||||||||||||||||||||
Interest | $ | 16,255 | $ | 36,759 | Interest | $ | 33,631 | $ | 73,688 | |||||||||||||||
Income taxes | $ | 12,456 | $ | 3,507 | Income taxes | $ | 30,185 | $ | 29,893 | |||||||||||||||
See accompanying unaudited notes to consolidated financial statements.
Page 7 of 1518
JEFFERIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Consolidated Financial Statements
The accompanying consolidated financial statements include the accounts of Jefferies Group, Inc. (“Group”) and all its subsidiaries (“Company”), including Jefferies & Company, Inc. (“JEFCO”). The accounts of Helfant Group, Inc. (“Helfant”) are consolidated because of the nature and extent of Group’s ownership interest in Helfant. The Company and its subsidiaries operate and are managed as a single business segment, that of a securities broker-dealer, which includes several types of financial services, such as principal and agency transactions in equity, convertible debt and high yield, as well as corporate finance activities. Since the Company’s services are provided using the same distribution channels, support services and facilities and all are provided to meet client needs, the Company does not identify assets or allocate all expenses to any service, or class of service as a separate business segment.
All significant intercompany accounts and transactions are eliminated in consolidation. The consolidated financial statements reflect all adjustments, which are, in the opinion of management, necessary for the fair statement of the results for the interim periods and should be read in conjunction with the Company’s annual report for the year ended December 31, 2001.
Securities Transactions
All transactions in securities, commission revenues and related expenses are recorded on a trade-date basis.
Securities owned and securities sold, not yet purchased, are valued at market, and unrealized gains or losses are reflected in revenues from principal transactions.
Receivable from, and Payable to, Brokers and Dealers
Receivable from and payable to brokers and dealers consists of the following as of March 29,June 28, 2002 (in thousands of dollars):
Receivable from brokers and dealers: | Receivable from brokers and dealers: | Receivable from brokers and dealers: | ||||||||
Securities borrowed | $ | 3,822,037 | Securities borrowed | $ | 3,237,823 | |||||
Other | 369,887 | Other | 241,330 | |||||||
$ | 4,191,924 | $ | 3,479,153 | |||||||
Payable to brokers and dealers: | Payable to brokers and dealers: | Payable to brokers and dealers: | ||||||||
Securities loaned | $ | 3,779,623 | Securities loaned | $ | 3,047,350 | |||||
Other | 142,329 | Other | 139,466 | |||||||
$ | 3,921,952 | $ | 3,186,816 | |||||||
Page 8 of 1518
JEFFERIES GROUP, INC. AND SUBSIDIARIES
Securities Owned, Securities Pledged to Creditors and Securities Sold, Not Yet Purchased
The following is a summary of the market value of major categories of securities owned and securities sold, not yet purchased, as of March 29,June 28, 2002 (in thousands of dollars):
Securities | Securities | |||||||||||||||
Sold, | Sold, | |||||||||||||||
Securities | Not Yet | Securities | Not Yet | |||||||||||||
Owned | Purchased | Owned | Purchased | |||||||||||||
Corporate equity securities | $ | 70,925 | $ | 118,196 | $ | 49,057 | $ | 69,640 | ||||||||
High-yield securities | 230,376 | 9,204 | 182,281 | 918 | ||||||||||||
Corporate debt securities | 149,625 | 68,578 | 213,146 | 93,341 | ||||||||||||
U.S. Government and agency obligations | 4,555 | 11,039 | 13,212 | 33,622 | ||||||||||||
Options | 787 | 337 | 856 | 298 | ||||||||||||
$ | 456,268 | $ | 207,354 | $ | 458,552 | $ | 197,819 | |||||||||
The following is a summary of the market value of major categories of securities pledged to creditors as of March 29,June 28, 2002 (in thousands of dollars):
Corporate equity securities | $ | 83,807 | $ | 56,111 | ||||
High yield securities | 2,562 | 13,859 | ||||||
Corporate debt securities | 17,564 | 13,947 | ||||||
$ | 103,933 | $ | 83,917 | |||||
Investments
Investments consist of the following as of March 29,June 28, 2002 (in thousands of dollars):
Short term bond funds | $ | 315,269 | $ | 268,506 | ||||
Debt and equity investments | �� | 12,791 | 10,358 | |||||
Partnership interests | 45,740 | 44,203 | ||||||
Equity and debt interests in affiliates | 88,662 | 89,672 | ||||||
$ | 462,462 | $ | 412,739 | |||||
Long Term Convertible Debt and Long Term Debt
The following summarizes long term convertible debt and long term debt outstanding as of March 29,June 28, 2002 (in thousands of dollars):
Long-Term Convertible Debt | ||||||||
Zero coupon, unsecured Euro denominated Convertible Loan Notes | $ | 2,752 | $ | 3,133 | ||||
Long-Term Debt | ||||||||
8 7/8% Senior Notes, due 2004, less unamortized discount of $145 | 49,855 | |||||||
7 1/2% Senior Notes, due 2007, less unamortized discount of $150 | 99,850 | |||||||
7 3/4% Senior Notes, due 2012, less unamortized discount of $7,546 | 315,609 | |||||||
7 1/2% Senior Notes, due 2007, less unamortized discount of $144 | $ | 99,856 | ||||||
7 3/4% Senior Notes, due 2012, less unamortized discount of $7,421 | 329,102 | |||||||
10% Subordinated Loans, due 2003 | 1,000 | 1,000 | ||||||
10% Subordinated Loans, due 2004 | 300 | 300 | ||||||
$ | 466,614 | $ | 430,258 | |||||
In March 2002, the Company issued $325 million aggregate principal amount of unsecured 7 3/4% senior notes due March 15, 2012, with a yield of 8.09%.
In May 2002, the Company retired $50 million aggregate principal amount of 8 7/8% senior notes due 2004. This resulted in an extraordinary after tax loss of $480,000.
Page 9 of 18
JEFFERIES GROUP, INC. AND SUBSIDIARIES
The Company has entered into a fair value hedge with no ineffectiveness using interest rate swaps in order to convert $200 million aggregate principal amount of unsecured 7 3/4% senior notes due March 15, 2012 into floating rates based
Page 9 of 15
JEFFERIES GROUP, INC. AND SUBSIDIARIES
upon LIBOR. The effective interest rate on the $200 million aggregate principal amount of unsecured 7 3/4% senior notes, after giving effect to the swaps, was 4.16%4.15%. The fair value of the mark to market of the swaps was a negative $1.8positive $11.5 million as of March 29,June 28, 2002, which was recorded as a reduction toan increase in the book value of the debt and an increase in accrued expenses and other liabilities.assets.
Cash and Cash Equivalents
Cash and cash equivalents include cash in banks and short term investments. Cash equivalents are part of the cash management activities of the Company and generally mature within 90 days. The following is a summary of cash and cash equivalents as of March 29,June 28, 2002 (in thousands of dollars):
Cash in banks | $ | 20,460 | $ | 10,538 | ||||
Short term investments | 3,127 | 4,268 | ||||||
$ | 23,587 | $ | 14,806 | |||||
Goodwill
Goodwill represents the excess of cost over net assets acquired and is included in other assets. Goodwill will no longer be amortized, but will be tested for impairment at least annually by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The following is a summary of goodwill as of MarchJune 28, 2002 and the impact of goodwill amortization on earnings for the three month and six month periods ended June 28, 2002 and June 29, 20022001 (in thousands of dollars):
Excess of | ||||||||||||||||||||||||||||||||
Excess of | Purchase | |||||||||||||||||||||||||||||||
Purchase | Price Over | |||||||||||||||||||||||||||||||
Price Over | Net Assets | Excess of Purchase | ||||||||||||||||||||||||||||||
Net Assets | Accumulated | Acquired | Acquisition | Excess of Purchase Price Over Net | Accumulated | Price Over Net Assets | ||||||||||||||||||||||||||
Acquisition | Acquired | Amortization | Remaining | Date | Assets Acquired | Amortization | Acquired Remaining | Acquisition Date | ||||||||||||||||||||||||
The Europe Company | $ | 12,953 | $ | 1,830 | $ | 11,123 | Aug. 2000 | $ | 12,953 | $ | 1,830 | $ | 11,123 | Aug.2000 | ||||||||||||||||||
Lawrence Helfant, Inc. | 23,477 | — | 23,477 | Sept. 2001 | 23,853 | — | 23,853 | Sept.2001 | ||||||||||||||||||||||||
Bonds Direct Securities LLC | 300 | — | 300 | June2002 | ||||||||||||||||||||||||||||
$ | 36,430 | $ | 1,830 | $ | 34,600 | $ | 37,106 | $ | 1,830 | $ | 35,276 | |||||||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 28, | June 29, | June 28, | June 29, | |||||||||||||
2002 | 2001 | 2002 | 2001 | |||||||||||||
Reported earnings before extraordinary item | $ | 18,095 | $ | 16,552 | $ | 35,767 | $ | 32,236 | ||||||||
Add back goodwill amortization | — | 269 | — | 595 | ||||||||||||
Adjusted earnings before extraordinary item | 18,095 | 16,821 | 35,767 | 32,831 | ||||||||||||
Extraordinary item — loss on early extinguishment of debt, net of tax | (480 | ) | — | (480 | ) | — | ||||||||||
Adjusted net earnings | $ | 17,615 | $ | 16,821 | $ | 35,287 | $ | 32,831 | ||||||||
Page 10 of 18
JEFFERIES GROUP, INC. AND SUBSIDIARIES
Earnings per Share
The following reconciles the numerators and denominators of the basic and diluted earnings per share computations for the three month and six month periods ended March 29,June 28, 2002 and March 30,June 29, 2001 (in thousands, except per share amounts):
Three Months Ended | ||||||||
March 29, | March 30, | |||||||
2002 | 2001 | |||||||
Net earnings | $ | 17,672 | $ | 15,684 | ||||
Shares for basic and diluted calculations: | ||||||||
Average shares used in basic computation | 24,766 | 24,039 | ||||||
Stock options | 879 | 420 | ||||||
Restricted stock | 1,735 | 602 | ||||||
Average shares used in diluted computation | 27,380 | 25,061 | ||||||
Earnings per share: | ||||||||
Basic | $ | 0.71 | $ | 0.65 | ||||
Diluted | $ | 0.65 | $ | 0.63 | ||||
Page 10 of 15
JEFFERIES GROUP, INC. AND SUBSIDIARIES Three Months Ended Six Months Ended June 28, June 29, June 28, June 29, 2002 2001 2002 2001 Earnings before extraordinary item $ 18,095 $ 16,552 $ 35,767 $ 32,236 Extraordinary item — loss on early extinguishment of debt, net of tax (480 ) — (480 ) — Net earnings $ 17,615 $ 16,552 $ 35,287 $ 32,236 Shares for basic and diluted calculations: Average shares used in basic computation 24,626 24,206 24,695 24,124 Stock options 895 529 887 472 Restricted stock 1,915 829 1,825 725 Average shares used in diluted computation 27,436 25,564 27,407 25,321 Earnings per share: Basic: Earnings before extraordinary item $ 0.73 $ 0.68 $ 1.45 $ 1.34 Early extinguishment of debt (0.01 ) — (0.02 ) — Net earnings $ 0.72 $ 0.68 $ 1.43 $ 1.34 Diluted: Earnings before extraordinary item $ 0.66 $ 0.65 $ 1.31 $ 1.27 Early extinguishment of debt (0.02 ) — (0.02 ) — Net earnings $ 0.64 $ 0.65 $ 1.29 $ 1.27
Asset Management
The following summarizes revenues from asset management for the three month and six month periods ended March 29,June 28, 2002 and March 30,June 29, 2001 (in thousands of dollars):
Three Months Ended | |||||||||
March 29, | March 30, | ||||||||
2002 | 2001 | ||||||||
High Yield (HY) | |||||||||
Performance based | $ | 1,798 | $ | 3,386 | |||||
Asset based | 826 | 500 | |||||||
Non-HY Employee Funds | 86 | 81 | |||||||
International | 777 | 762 | |||||||
Total | $ | 3,487 | $ | 4,729 | |||||
Three Months Ended | Six Months Ended | ||||||||||||||||
June 28, | June 29, | June 28, | June 29, | ||||||||||||||
2002 | 2001 | 2002 | 2001 | ||||||||||||||
High Yield (HY) Performance based | $ | 1,237 | $ | 4,489 | $ | 3,035 | $ | 7,875 | |||||||||
Asset based | 789 | 537 | 1,615 | 1,037 | |||||||||||||
Non-HY Employee Funds | 84 | 84 | 171 | 165 | |||||||||||||
International | 614 | 701 | 1,390 | 1,463 | |||||||||||||
Total | $ | 2,724 | $ | 5,811 | $ | 6,211 | $ | 10,540 | |||||||||
Page 11 of 18
JEFFERIES GROUP, INC. AND SUBSIDIARIES
Other Comprehensive LossGain (Loss)
The following summarizes other comprehensive gain and accumulated other comprehensive loss at June 28, 2002 and for the three months then ended (in thousands of dollars): Minimum Accumulated Currency Pension Other Translation Liability Comprehensive Adjustments Adjustment Loss Beginning at March 29, 2002 $ (3,356 ) $ (2,301 ) $ (5,657 ) Change in second quarter of 2002 3,240 — 3,240 Ending at June 28, 2002 $ (116 ) $ (2,301 ) $ (2,417 )
The following summarizes other comprehensive loss and accumulated other comprehensive loss at MarchJune 29, 20022001 and for the three months then ended (in thousands of dollars): Minimum Accumulated Currency Pension Other Translation Liability Comprehensive Adjustments Adjustment Loss Beginning at March 30, 2001 $ (3,311 ) $ (1,138 ) $ (4,449 ) Change in second quarter of 2001 (143 ) — (143 ) Ending at June 29, 2001 $ (3,454 ) $ (1,138 ) $ (4,592 )
Comprehensive income for the three months ended June 28, 2002 and June 29, 2001 was as follows:
Before-Tax | Income Tax | Net-of-Tax | ||||||||||
Amount | or Benefit | Amount | ||||||||||
Currency translation adjustments | $ | (953 | ) | $ | — | $ | (953 | ) | ||||
Minimum pension liability adjustment | — | — | — | |||||||||
Other comprehensive loss | $ | (953 | ) | $ | — | $ | (953 | ) | ||||
June 28, | June 29, | |||||||
2002 | 2001 | |||||||
Net earnings | $ | 17,615 | $ | 16,552 | ||||
Other comprehensive gain (loss) | 3,240 | (143 | ) | |||||
Comprehensive income | $ | 20,855 | $ | 16,409 | ||||
Minimum | Accumulated | |||||||||||
Currency | Pension | Other | ||||||||||
Translation | Liability | Comprehensive | ||||||||||
Adjustments | Adjustment | Loss | ||||||||||
Beginning at December 31, 2001 | $ | (2,403 | ) | $ | (2,301 | ) | $ | (4,704 | ) | |||
Change in first quarter of 2002 | (953 | ) | — | (953 | ) | |||||||
Ending at March 29, 2002 | $ | (3,356 | ) | $ | (2,301 | ) | $ | (5,657 | ) | |||
The following summarizes other comprehensive gain and accumulated other comprehensive loss at June 28, 2002 and for the six months then ended (in thousands of dollars): Minimum Accumulated Currency Pension Other Translation Liability Comprehensive Adjustments Adjustment Loss Beginning at December 31, 2001 $ (2,403 ) $ (2,301 ) $ (4,704 ) Change in first half of 2002 2,287 — 2,287 Ending at June 28, 2002 $ (116 ) $ (2,301 ) $ (2,417 )
The following summarizes other comprehensive loss and accumulated other comprehensive loss at March 30,June 29, 2001 and for the threesix months then ended (in thousands of dollars):
Before-Tax | Income Tax | Net-of-Tax | ||||||||||
Amount | or Benefit | Amount | ||||||||||
Currency translation adjustments | $ | (2,426 | ) | $ | — | $ | (2,426 | ) | ||||
Minimum pension liability adjustment | — | — | — | |||||||||
Other comprehensive loss | $ | (2,426 | ) | $ | — | $ | (2,426 | ) | ||||
Minimum | Accumulated | |||||||||||
Currency | Pension | Other | ||||||||||
Translation | Liability | Comprehensive | ||||||||||
Adjustments | Adjustment | Loss | ||||||||||
Beginning at December 31, 2000 | $ | (885 | ) | $ | (1,138 | ) | $ | (2,023 | ) | |||
Change in first quarter of 2001 | (2,426 | ) | — | (2,426 | ) | |||||||
Ending at March 30, 2001 | $ | (3,311 | ) | $ | (1,138 | ) | $ | (4,449 | ) | |||
Minimum | Accumulated | |||||||||||
Currency | Pension | Other | ||||||||||
Translation | Liability | Comprehensive | ||||||||||
Adjustments | Adjustment | Loss | ||||||||||
Beginning at December 31, 2000 | $ | (885 | ) | $ | (1,138 | ) | $ | (2,023 | ) | |||
Change in first half of 2001 | (2,569 | ) | — | (2,569 | ) | |||||||
Ending at June 29, 2001 | $ | (3,454 | ) | $ | (1,138 | ) | $ | (4,592 | ) | |||
Page 1112 of 1518
JEFFERIES GROUP, INC. AND SUBSIDIARIES
Comprehensive income for the threesix months ended March 29, 2002 and March 30, 2001 was as follows:
March 29, | March 30, | June 28, | June 29, | |||||||||||||
2002 | 2001 | 2002 | 2001 | |||||||||||||
Net earnings | $ | 17,672 | $ | 15,684 | $ | 35,287 | $ | 32,236 | ||||||||
Other comprehensive loss | (953 | ) | (2,426 | ) | ||||||||||||
Other comprehensive gain (loss) | 2,287 | (2,569 | ) | |||||||||||||
Comprehensive income | $ | 16,719 | $ | 13,258 | $ | 37,574 | $ | 29,667 | ||||||||
Net Capital Requirements
As registered broker-dealers, JEFCO and Helfant are subject to the Securities and Exchange Commission’s Uniform Net Capital Rule (Rule 15c3-1), which requires the maintenance of minimum net capital. JEFCO and Helfant have elected to use the alternative method permitted by the Rule, which requires that they each maintain minimum net capital, as defined, equal to the greater of $250,000 or 2% of the aggregate debit balances arising from customer transactions, as defined.
Net capital changes from day to day, but as of March 29,June 28, 2002, JEFCO’s and Helfant’s net capital was $144.1$199.6 million and $4.6$4.3 million, respectively, which exceeded minimum net capital requirements by $138.1$194.9 million and $4.4$4.1 million, respectively.
Quarterly Dividends
In 1988, the Company instituted a policy of paying regular quarterly dividends. There are no restrictions on the Company’s present ability to pay dividends on common stock, other than the governing provisions of the Delaware General Corporation Law.
Dividends per Common Share (declared and paid):
1st Qtr. | 1st Qtr. | 2nd Qtr | |||||||||||
2002 | $ | .05 | $ | .05 | $ | .05 | |||||||
2001 | $ | .05 | $ | .05 | $ | .05 |
Off-Balance Sheet Risk
In the normal course of business, the Company had letters of credit outstanding aggregating $36.8$41.5 million at March 29,June 28, 2002, to satisfy various collateral requirements in lieu of depositing cash or securities.
Segment Reporting
The company’s operations have been classified into a single business segment, a securities broker-dealer, which includes several types of financial services. This segment includes the traditional securities brokerage and investment banking activities of the Company. The Company’s business is predominantly in the United States with less thanabout 10% of revenues and 2%3% of assets attributable to international operations.
Subsequent Event — RedemptionPage 13 of 8 7/8% Senior Notes
On April 10, 2002, the Company announced its decision to call its $50 million aggregate principal amount of 8 7/8% Senior Notes due 2004 (“Notes”) for redemption on May 13, 2002. Pursuant to the terms of the Notes, holders will receive $1,012 in cash per $1,000 principal amount, plus accrued interest.
Page 12 of 1518
JEFFERIES GROUP, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
Analysis of Financial Condition
Total assets increased $561.0decreased $254.7 million from $5,344.7 million at December 31, 2001 to $5,905.7$5,090.0 million at March 29,June 28, 2002. The increasedecrease in total assets mostly relates to increasesa decrease of $293.6$585.5 million in investments, $170.9 million in securities owned, and $127.3 million in receivablesreceivable from brokers and dealers.dealers, partially offset by an increase of $243.9 million in investments. Total liabilities decreased $282.5 million from $4,779.1 million at December 31, 2001 to $4,496.6 million at June 28, 2002. The increasesdecrease in assets were primarily fundedtotal liabilities mostly relates to a decrease of $699.0 million in payable to brokers and dealers, partially offset by the issuance of $325 million aggregate principal amount of unsecured 7 3/73/4% senior notes due March 15, 2012 and $134.0$71.0 million more in bank loans.
FirstRevenues by Source
The following provides a breakdown of total revenues by source for the three and six months ended June 28, 2002 and June 29, 2001. Three Months Ended June 28, 2002 June 29, 2001 % of % of Total Total Amount Revenues Amount Revenues (Dollars in thousands) Commissions and principal transactions: Equities $ 76,257 38 % $ 83,889 39 % International 19,563 10 15,659 7 High Yield 9,826 5 17,897 8 Convertibles 7,573 4 6,718 3 Execution 8,262 4 385 0 Other proprietary trading 8,870 4 1,715 1 Total 130,351 65 126,263 58 Corporate finance 41,650 21 44,077 20 Interest 24,447 12 38,332 18 Asset management 2,724 1 5,811 3 Other 1,705 1 1,414 1 Total revenues $ 200,877 100 % $ 215,897 100 %
Page 14 of 18
JEFFERIES GROUP, INC. AND SUBSIDIARIES Six Months Ended June 28, 2002 June 29, 2001 % of % of Total Total Amount Revenues Amount Revenues (Dollars in thousands) Commissions and principal transactions: Equities $ 159,420 40 % $ 184,438 43 % International 36,548 9 35,099 8 High Yield 20,089 5 34,079 8 Convertibles 15,036 4 17,104 4 Execution 17,088 4 867 0 Other proprietary trading 13,410 4 2,050 1 Total 261,591 66 273,637 64 Corporate finance 79,318 20 61,089 14 Interest 46,076 12 78,276 18 Asset management 6,211 1 10,540 3 Other 3,023 1 2,063 1 Total revenues $ 396,219 100 % $ 425,605 100 %
Second Quarter 2002 Versus FirstSecond Quarter 2001
Revenues, net of interest expense, were $177.7$178.1 million, compared to $176.9$181.4 million for the firstsecond quarter of 2001. The slight increasedecrease was due primarily to a $20.7$3.1 million, or 121%53%, increasedecrease in asset management, a $2.4 million, or 6%, decrease in corporate finance, and a $4.0$2.2 million, or 7%, increase in commissions, partially offset by a $20.2 million, or 23%, decrease in principal transactions, a $3.1 million, or 44%56%, decrease in net interest income (interest revenues less interest expense) and, partially offset by a $1.2$4.1 million, or 26%3%, decreaseincrease in asset management. Commissionstrading revenues (commissions and principal transactions). Trading revenues increased mostly due to the addition of the Helfant execution business. Principal transaction revenues decreased mostly due tobusiness, which was acquired on September 28, 2001 and the Equitiesother proprietary trading activities of stock loan and Bonds Direct, partially offset by High Yield Divisions.and Equities. Corporate finance revenues increaseddecreased due mostly to a reduction in fees from debt offerings, partially offset by an increase in advisory fees. The reduction in fees from debt offerings was primarily in the Consumer Business and Energy industries, while the rise in debt offeringsadvisory fees was mostly in the Telecommunications and advisory fees.Gaming industries. Net interest income was down largely due to a decreased spread on the securities borrowed and loaned matched book business. Asset management revenues decreased due to the decreasea reduction in revenue attributable toperformance fees from the High Yield Funds.
Total non-interest expenses decreased slightly to $147.8$147.5 million, compared to $149.8$152.9 million for the firstsecond quarter of 2001. Other expenseCompensation and benefits decreased $3.7$9.5 million, or 42%9%, largelymostly due to lower legal and general consulting expenses.a decrease in the equity trading payout. Floor brokerage and clearing fees increased $3.2$2.3 million, or 30%20%, due to increased volume of business executed on the various exchanges, including additional volume related to Helfant, which was acquired on September 28, 2001. Compensation and benefits decreased $2.9Helfant. Communications increased $1.8 million, or 3%14%, mostly due to a decrease in incentive based compensation accruals. Travel and promotional increased $695,000, or 12%, largely due to increased business travel.the addition of Helfant. Occupancy and equipment rental, increased $666,000, or 12%, mostly due to office expansion. Communicationstravel and promotional and other expense all remained relatively unchanged as compared to the prior year’s quarter.
Earnings before income taxes and extraordinary item were up 10%7% to $30.0$30.7 million, compared to $27.1$28.6 million for the same prior year period. The effective tax rate was approximately 41% for the second quarter of 2002 compared to 42% for the second quarter of 2001. Earnings before extraordinary item were up $1.5 million, or 9%, to $18.1 million, compared to $16.6 million for the same prior year period. The extraordinary item relates to a $480,000 after tax loss on the early extinguishment of $50 million face value of 8?% senior notes due 2004. Net earnings were up $1.1 million, or 6%, to $17.6 million, compared to $16.6 million for the same prior year period.
Page 15 of 18
JEFFERIES GROUP, INC. AND SUBSIDIARIES
Basic earnings per share before extraordinary item were $0.73 for the second quarter of 2002 on 24,626,000 shares compared to $0.68 in the 2001 period on 24,206,000 shares. Diluted earnings per share before extraordinary item were $0.66 for the second quarter of 2002 on 27,436,000 shares compared to $0.65 in the comparable 2001 period on 25,564,000 shares.
Basic net earnings per share were $0.72 for the second quarter of 2002 on 24,626,000 shares compared to $0.68 in the 2001 period on 24,206,000 shares. Diluted net earnings per share were $0.64 for the second quarter of 2002 on 27,436,000 shares compared to $0.65 in the comparable 2001 period on 25,564,000 shares.
First Half 2002 Versus First Half 2001
Revenues, net of interest expense, were $355.9 million, compared to $358.3 million for the first half of 2001. The slight decrease was due primarily to a $12.0 million, or 4%, decrease in trading revenues (commissions and principal transactions), a $5.3 million, or 48%, decrease in net interest income (interest revenues less interest expense) and a $4.3 million, or 41%, decrease in asset management, partially offset by, a $18.2 million, or 30%, increase in corporate finance and a $960,000 increase in other income. Trading revenues decreased mostly due to High Yield and Equities, partially offset by increase from the Helfant execution business, which was acquired on September 28, 2001 and the other proprietary trading activities of stock loan, firm investment and Bonds Direct. Corporate finance revenues increased due mostly to a rise in advisory fees. The rise in advisory fees was primarily in the Telecommunications and Gaming industries. Net interest income was down largely due to a decreased spread on the securities borrowed and loaned matched book business. Asset management revenues decreased due to a reduction in performance fees from the High Yield Funds. Other income increased mostly due to higher correspondent revenue.
Total non-interest expenses decreased slightly to $295.2 million, compared to $302.6 million for the first half of 2001. Compensation and benefits decreased $12.4 million, or 6%, mostly due to a decrease in the equity trading payout. Floor brokerage and clearing fees increased $5.5 million, or 25%, due to increased volume of business executed on the various exchanges, including additional volume related to Helfant. Other expense decreased $3.6 million or 24%, largely due to lower legal and general consulting expenses. Communications increased $1.8 million, or 8%, mostly due to the addition of Helfant. Occupancy and equipment rental increased $679,000, or 6%, mostly due to office expansion. Travel and promotional increased $678,000, or 6%, largely due to increased advertising and promotion.
Earnings before income taxes and extraordinary item were up 9% to $60.6 million, compared to $55.7 million for the same prior year period. The effective tax rate was approximately 41% for the first quarterhalf of 2002 compared to 42% for the first quarterhalf of 2001. Earnings before extraordinary item were up $3.5 million, or 11%, to $35.8 million, compared to $32.2 million for the same prior year period. The extraordinary item relates to a $480,000 after tax loss on the early extinguishment of $50 million face value of 8?% senior notes due 2004. Net earnings were up $2.0$3.1 million, or 13%9%, to $17.7$35.3 million, compared to $15.7$32.2 million for the same prior year period.
Basic earnings per share before extraordinary item were $1.45 for the first half of 2002 on 24,695,000 shares compared to $1.34 in the 2001 period on 24,124,000 shares. Diluted earnings per share before extraordinary item were $1.31 for the first half of 2002 on 27,407,000 shares compared to $1.27 in the comparable 2001 period on 25,321,000 shares.
Basic net earnings per share were $0.71$1.43 for the first quarterhalf of 2002 on 24,766,00024,695,000 shares compared to $0.65$1.34 in the 2001 period on 24,039,00024,124,000 shares. Diluted net earnings per share were $0.65$1.29 for the first quarterhalf of 2002 on 27,380,00027,407,000 shares compared to $0.63$1.27 in the comparable 2001 period on 25,061,00025,321,000 shares.
Liquidity and Capital Resources
The Company’s liquidity and capital resources is largely unchanged since December 31, 2001, except for the issuance of $325 million aggregate principal amount of unsecured 7 3/73/4% senior notes due March 15, 2012.2012 and the retirement of $50 million aggregate principal amount of 8?% senior notes due 2004.
Page 1316 of 1518
JEFFERIES GROUP, INC. AND SUBSIDIARIES
Revenues by Source
The following provides a breakdown During the six months ended June 28, 2002, the Company purchased 882,400 shares of total revenues by sourcetreasury stock for $37.1 million, at prices ranging from $40.58 to $48.55 per share versus 237,000 shares of treasury stock for $6.7 million, at prices ranging from $26.21 to $31.00 per share for the three months ended March 29, 2002 and March 30, 2001.comparable 2001 period.
Three Months Ended | |||||||||||||||||
March 29, 2002 | March 30, 2001 | ||||||||||||||||
% of | % of | ||||||||||||||||
Total | Total | ||||||||||||||||
Amount | Revenues | Amount | Revenues | ||||||||||||||
(Dollars in thousands) | |||||||||||||||||
Commissions and principal transactions: | |||||||||||||||||
Equities | $ | 83,163 | 43 | % | $ | 100,549 | 48 | % | |||||||||
International | 16,985 | 9 | 19,440 | 9 | |||||||||||||
High Yield | 10,263 | 5 | 16,182 | 8 | |||||||||||||
Convertibles | 7,463 | 4 | 10,386 | 5 | |||||||||||||
Execution | 8,826 | 4 | 482 | 0 | |||||||||||||
Other proprietary trading | 4,540 | 2 | 335 | 0 | |||||||||||||
Total | 131,240 | 67 | 147,374 | 70 | |||||||||||||
Corporate finance | 37,668 | 19 | 17,012 | 8 | |||||||||||||
Interest | 21,629 | 11 | 39,944 | 19 | |||||||||||||
Asset management | 3,487 | 2 | 4,729 | 2 | |||||||||||||
Other | 1,318 | 1 | 649 | 1 | |||||||||||||
Total revenues | $ | 195,342 | 100 | % | $ | 209,708 | 100 | % | |||||||||
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company’s market risk is largely unchanged from December 31, 2001, except for the issuance of $325 million aggregate principal amount of unsecured 7 3/4% senior notes due March 15, 2012, andthe related interest rate swaps to convert $200 million aggregate principal amount of the notes into floating rates based upon LIBOR.LIBOR and the retirement of $50 million aggregate principal amount of 8 7/8% senior notes due 2004.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Many aspects of the Company’s business involve substantial risks of liability. In the normal course of business, the Company and its subsidiaries have been named as defendants or co-defendants in lawsuits involving primarily claims for damages. The Company’s management believes that pending litigation will not have a material adverse effect on the Company.
Item 4. Submission of Matters to a Vote of Security Holders
An annual meeting of the Company’s shareholders was held on May 23, 2002. At the meeting, with respect to the matters under consideration, the following votes were cast in the following manner:
For | Withheld | Non-vote | ||||||||||
Election of Directors | ||||||||||||
W. Patrick Campbell | 13,423,920 | 91,729 | 0 | |||||||||
Richard G. Dooley | 13,423,052 | 92,597 | 0 | |||||||||
Richard B. Handler | 12,005,085 | 1,510,564 | 0 | |||||||||
Sheldon B. Lubar | 13,423,052 | 92,597 | 0 | |||||||||
Frank J. Macchiarola | 13,422,261 | 93,388 | 0 | |||||||||
John C. Shaw, Jr. | 12,006,976 | 1,508,673 | 0 |
Item 6. Exhibits and Reports on Form 8-K
(a)Exhibits
(3.2) | ||
(99.1)* | Certification by the |
* | Filed herewith. |
(b)Reports on 8-K
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JEFFERIES GROUP, INC. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
JEFFERIES GROUP, INC. | ||
(Registrant) |
Date: | August 12, 2002 | By: | /s/ Joseph A. Schenk | |||
Joseph A. Schenk Chief Financial Officer |
Page 1518 of 1518