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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, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER: 1-14947
JEFFERIES GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-4719745
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
11100 SANTA MONICA BOULEVARD, 11TH 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:
COMMON STOCK, $.0001 PAR VALUE (TITLE OF CLASS)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
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 common stock held by nonaffiliates
of the registrant. $510,213,093 as of March 1, 2001.
Indicate the number of shares outstanding of the registrant's class of
common stock, as of the latest practical date. 25,056,139 shares as of the close
of business March 1, 2001.
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's Definitive Proxy Statement with respect to the 2001 Annual
Meeting of Stockholders to be held on June 7, 2001 is incorporated by reference
into Part III of this Form 10-K.
LOCATION OF EXHIBIT INDEX
THE INDEX OF EXHIBITS IS CONTAINED IN PART IV HEREIN ON PAGE 41.
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JEFFERIES GROUP, INC.
2000 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PAGE
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PART I
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
Stockholder Matters......................................... 7
Item 6. Selected Financial Data..................................... 8
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 9
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 12
Item 8. Financial Statements and Supplementary Data................. 14
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 41
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 41
Item 11. Executive Compensation...................................... 41
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 41
Item 13. Certain Relationships and Related Transactions.............. 41
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on
Form 8-K.................................................... 41
Exhibit Index located on page 41 of this report.
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PART I
ITEM 1. BUSINESS.
Jefferies Group, Inc. is a holding company which, through its three primary
subsidiaries, Jefferies & Company, Inc., Jefferies International Limited and
Jefferies Pacific Limited, is engaged as an international investment bank that
focuses on capital raising, research, mergers and acquisitions, advisory and
restructuring services for small- to medium-sized companies and trading in
equity and high yield securities, convertible bonds, options, futures and
international securities for institutional clients. The term "Company" refers,
unless the context requires otherwise, to Jefferies Group, Inc., its
subsidiaries and W & D Securities, Inc. The Company and its various subsidiaries
maintain 21 offices worldwide, including Boston, Chicago, Dallas, Hong Kong,
London, Los Angeles, New York, Paris, San Francisco, Tokyo and Zurich.
As of December 31, 2000, the Company and its subsidiaries had 1,014
full-time employees, including 504 representatives registered with NASD
Regulation, Inc. ("NASDR"). The Company's executive offices are located at 11100
Santa Monica Boulevard, Los Angeles, California 90025, and its telephone number
is (310) 445-1199.
SEPARATION OF INVESTMENT TECHNOLOGY GROUP, INC. FROM JEFFERIES GROUP, INC.
The Company was originally incorporated in 1998 as a holding company under
the name JEF Holding Company, Inc. At the time of its incorporation, JEF Holding
Company, Inc. was a wholly owned subsidiary of a predecessor company also named
Jefferies Group, Inc. ("Old Group"). On April 20, 1999, the stockholders of Old
Group approved and adopted the Agreement and Plan of Merger (the "Merger
Agreement") between Old Group and Old Group's approximately 80.5% owned
subsidiary, Investment Technology Group, Inc. ("ITGI"). The Merger Agreement
provided for the merger (the "Merger") of ITGI with and into Old Group and for
the issuance of shares of the common stock of Old Group to all stockholders of
ITGI other than Old Group.
Prior to the effective date of the Merger, Old Group distributed all of the
outstanding common stock of JEF Holding Company, Inc. to Old Group stockholders
in a spin-off transaction (the "Spin-Off"). Prior to the Spin-Off, Old Group
transferred all of the assets of Old Group, except for the common stock of ITGI,
and all of Old Group's liabilities other than liabilities related to ITGI to JEF
Holding Company, Inc. (the "Transfer" and, together with the Spin-Off, the
"Transactions"). Coincident with the Merger, Old Group, as the surviving
corporation in the Merger, changed its name to Investment Technology Group, Inc.
and JEF Holding Company, Inc. changed its name to Jefferies Group, Inc.
JEFFERIES & COMPANY, INC.
Jefferies & Company, Inc. ("JEFCO") was founded in 1962 and is engaged in
equity, convertible debt and high yield securities brokerage and trading and
corporate finance. JEFCO is one of the leading national firms engaged in the
distribution and trading of blocks of equity securities both on the national
securities exchanges and in the "third market." The term "third market" refers
to transactions in listed equity securities effected away from national
securities exchanges. JEFCO's revenues are derived primarily from commission
revenues and market making or trading as principal in equity, high yield,
convertible securities, options, futures and international securities with or on
behalf of institutional investors, with the balance generated by corporate
finance and other activities. JEFCO currently provides fundamental equity and/or
high yield research in the areas of: Banks, Thrifts & Wired Financials;
eFinance/Financial Technology; eLearning; Electric Utilities; Energy Exploration
& Production; Gaming & Leisure; Healthcare -- Acute-Care Hospitals; Healthcare
Information Systems & Services; Healthcare Information Technology; Healthcare
Internet Technology; Healthcare Services -- Facility-Based; Internet - Content &
Commerce; Internet Services; Maritime Shipping; Media & Entertainment; Oil
Services; Pharmaceutical IT; Pharmaceutical Services; Retail -- Apparel;
Retail -- Specialty; Specialty Healthcare Services; Software -- Enterprise;
Software -- Interactive Entertainment; Telecom Services; Telecommunications
Equipment; and Wireless Telecom.
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JEFFERIES INTERNATIONAL LIMITED AND JEFFERIES PACIFIC LIMITED
Jefferies International Limited ("JIL"), a broker-dealer subsidiary, 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 JEFCO 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 Swiss subsidiary, Jefferies
(Switzerland) Ltd. In 1996, JIL formed a wholly owned English subsidiary,
Jefferies (Japan) Limited, which maintains a branch office in Tokyo.
Jefferies Pacific Limited ("JPL"), a broker subsidiary, was incorporated in
1992 in Hong Kong. JPL presently introduces foreign customers trading in U.S.
securities to JEFCO.
THE EUROPE COMPANY LIMITED
To expand its European capabilities, the Company acquired The Europe
Company Ltd. in the third quarter of 2000, with a combination of restricted
stock, zero coupon unsecured Euro denominated convertible loan notes and cash
totaling approximately $18.0 million. The acquisition was accounted for as a
purchase and resulted in approximately $13.6 million in goodwill.
The approximately $3.0 million in zero coupon unsecured Euro denominated
convertible loan notes mature in 2010 and have been classified on the
consolidated statement of financial condition as long-term convertible debt. The
conversion price for the notes is approximately 28.80 Euros (as of December 31,
2000, this was equivalent to approximately $27.00) per common share until August
4, 2003 and the closing stock price on the date of conversion subsequent to that
date.
W & D SECURITIES, INC.
W & D Securities, Inc. ("W & D") primarily provides execution services on
the New York Stock Exchange ("NYSE") and other exchanges to Jefferies and
others. 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
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 statement purposes.
DISCONTINUED OPERATIONS OF ITGI
On April 27, 1999, Old Group and ITGI consummated the Transactions that
resulted in the separation of ITGI from the other Old Group businesses. On April
22, 1999, Old Group transferred all non-ITGI assets and liabilities to JEF
Holding Company, Inc., a holding company. Old Group then distributed all of the
common stock of JEF Holding Company, Inc. to Old Group stockholders through a
tax-free Spin-Off. After the transfers, Old Group's 15 million shares of ITGI
became its only asset. The Spin-Off was immediately followed by a tax-free
Merger of ITGI with and into Old Group. Following the Merger, Old Group was
renamed Investment Technology Group, Inc. and JEF Holding Company, Inc. was
renamed Jefferies Group, Inc., the Registrant in this annual report.
The Transactions were treated for financial reporting purposes as if Old
Group had spun-off its entire 80.5% stake in ITGI to Old Group stockholders.
Accordingly, since the results of ITGI were previously consolidated with Old
Group, all financial information for the periods prior to April 27, 1999 have
been restated to reflect the results of ITGI as a discontinued operation. The
net assets of ITGI have been segregated for prior periods from the other assets
and liabilities of Old Group. For financial reporting purposes, the net assets
of ITGI as of April 27, 1999 have been treated as a distribution to Old Group
stockholders.
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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. JEFCO, for
example, 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 its 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, JEFCO executes transactions in high
yield securities, domestic and international convertible securities,
international equity securities, ADRs, options, preferred stocks, financial
futures and other similar products.
All of JEFCO's equity account executives are electronically interconnected
through a system permitting simultaneous verbal and graphic communication of
trading and order information by all participants. JEFCO 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.
Prime Brokerage. JEFCO offers centralized custody and clearance of security
trades for professional money managers who require institutional execution,
financing services and stock loan access.
PRINCIPAL TRANSACTIONS
In the regular course of its business, JEFCO 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, JEFCO 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.
JEFCO 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 of JEFCO makes markets in over 1,000
over-the-counter equity and ADR securities, and trades securities for its own
account, as well as to accommodate customer transactions. The Equities and
International Divisions engage in hedged trading involving securities listed or
traded in both domestic and foreign markets.
High Yield. The High Yield Division of Jefferies trades high grade and
non-investment grade public and private debt securities. The Division
specializes in trading and making markets in over 400 unrated or less than
investment grade corporate debt securities and accounts for these positions at
market value. At December 31, 2000, the aggregate long and short market value of
these positions was $107.5 million and $6.2 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. JEFCO also trades domestic and
international convertible securities and warrants and assists corporate and
institutional clients in identifying attractive investments in these securities
and warrants.
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Other Proprietary Trading. JEFCO has investments in partnerships and mutual
funds as well as other relationships with independent management firms, which
contribute to revenues from principal transactions.
CORPORATE FINANCE
JEFCO's Corporate Finance Division offers corporations (primarily middle
market growth companies) a full range of financial advisory services as well as
debt, equity, and convertible financing services. Products include acquisition
financing, bridge and senior loan financing, private placements and public
offerings of debt and equity securities, debt refinancings, restructuring,
merger and acquisition and 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 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 or omissions in prospectuses and other
communications with respect to underwritten offerings. Further, underwriting
commitments constitute a charge against net capital and JEFCO'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 Commission.
JEFCO 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 JEFCO is required to act as an underwriter
or to trade on a proprietary basis with its customers, JEFCO may assume greater
risk than would normally be assumed in certain other principal transactions.
INTEREST
JEFCO 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. JEFCO 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, JEFCO 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. JEFCO has an active securities borrowed and lending
matched book business ("Matched Book"), in which JEFCO borrows securities from
one party and lends them to another party. When JEFCO borrows securities, JEFCO
provides cash to the lender as collateral, which is reflected in the Company's
financial statements as receivable from brokers and dealers. JEFCO earns
interest revenues on this cash collateral. Similarly, when JEFCO lends
securities to another party, that party provides cash to JEFCO as collateral,
which is reflected in the Company's financial statements as payable to brokers
and dealers. JEFCO pays interest expense on the cash collateral received from
the party borrowing the securities. A substantial portion of JEFCO's interest
revenues and interest expense results from the Matched Book activity. The
initial collateral advanced or received approximates or is greater than, the
fair value of the securities borrowed or loaned. JEFCO monitors the fair value
of the securities borrowed and loaned on a daily basis and requests additional
collateral or returns excess collateral, as appropriate.
Margin Lending. Customers' transactions are executed on either a cash or
margin basis. In a margin transaction, JEFCO 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, JEFCO 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.
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In addition to monitoring the creditworthiness of its customers, JEFCO 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 JEFCO 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. JEFCO 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 JEFCO's margin loans are made to United States citizens or
to corporations which are domiciled in the United States. JEFCO may extend
credit to investors or corporations who are citizens of foreign countries or who
may reside outside the United States. JEFCO believes that should such foreign
investors default upon their loans and should the collateral for those loans be
insufficient to satisfy the investors' obligations, it may be more difficult to
collect such investors' outstanding indebtedness than would be the case if
investors were citizens or residents of the United States.
Although JEFCO attempts to minimize the risk associated with the extension
of credit in margin accounts, there is no assurance that the assumptions on
which JEFCO bases its decisions will be correct or that it 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.
ASSET MANAGEMENT
The Company receives asset management fees from its management of five
funds domestically and twelve funds internationally. The domestic funds (three
high yield funds, a fund of funds and a venture capital fund) began activities
in 2000.
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.
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 NASDR 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. JEFCO is registered as a broker-dealer in 50 states, the
District of Columbia and Puerto Rico. W & D is registered as a broker-dealer in
3 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
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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, JEFCO 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 "basic method") or, alternatively, that it not 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"). JEFCO and W & D use the alternative method of
calculation.
Compliance with applicable net capital rules could limit operations of
JEFCO, 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 JEFCO or W & D to the Company. As of December 31, 2000,
JEFCO's and W & D's net capital was $190.1 million and $2.2 million,
respectively, which exceeded minimum net capital requirements by $182.6 million
and $2.0 million, respectively. See note 15 of Notes to Consolidated Financial
Statements.
RISK MANAGEMENT
As an international investment bank, risk is an inherent part of the
Company's business. Global markets, by their nature, are prone to uncertainty
and subject participants to a variety of risks. The Company has developed
policies and procedures to identify, measure and monitor each of the risks
involved in its trading, brokerage and corporate finance activities on an
international basis. Risk management is considered to be of paramount
importance. The Company devotes significant resources across all of its
worldwide trading operations to the measurement, management and analysis of
risk, including investments in personnel, information technology infrastructure
and systems.
ITEM 2. PROPERTIES.
The Company maintains sales offices in Austin, Atlanta, Boston, Chicago,
Dallas, Hong Kong, Houston, London, Los Angeles, Nashville, New Brighton, New
Orleans, New York, Richmond, Paris, San Francisco, Short Hills, Stamford, Tokyo
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 its business. For information concerning leasehold
improvements and rental expense, see notes 1, 6 and 12 of Notes to Consolidated
Financial Statements.
ITEM 3. 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.
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock began trading on the NYSE on March 15, 1996,
under the symbol JEF. Previously, the Common Stock traded 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 prices per share for the Common
Stock as reported by the NYSE. Stock prices prior to April 27, 1999 are not
presented, due to the nature and extent of the spin-off of ITGI and the related
ITGI special dividend and their effect on the comparability of the Company's
stock price.
HIGH LOW
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2000
First Quarter............................................ $24.94 $19.00
Second Quarter........................................... 24.25 19.50
Third Quarter............................................ 32.38 20.25
Fourth Quarter........................................... 33.13 24.19
1999
Second Quarter........................................... $27.63 $22.00
Third Quarter............................................ 30.38 20.13
Fourth Quarter........................................... 23.94 18.50
There were approximately 364 holders of record of the Company's Common
Stock at March 1, 2001.
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
------- ------- ------- -------
2000..................................... $ .05 $ .05 $ .05 $ .05
1999..................................... $ .05 $ .05 $ .05 $ .05
During August and September of 2000, the Company issued 168,306 shares of
restricted common stock and 3,160,889 Euros aggregate principal amount of Zero
Coupon Unsecured Convertible Notes as partial consideration for the Company's
acquisition of The Europe Company Ltd. The securities were issued in a
transaction not involving a public offering and were exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933.
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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, 2000, are derived from the consolidated
financial statements of Jefferies Group, Inc. and its subsidiaries, which
financial statements have been audited by KPMG LLP, independent auditors. Such
data should be read in connection with the consolidated financial statements
contained on pages 15 through 40. Certain reclassifications have been made to
the prior period amounts to conform to the current period's presentation.
YEAR ENDED DECEMBER 31,
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2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
EARNINGS STATEMENT DATA
Revenues:
Commissions.................................... $ 221,471 $ 202,803 $ 190,870 $ 148,940 $ 113,512
Principal transactions....................... 264,130 232,239 177,189 179,081 145,207
Corporate finance............................ 90,743 80,749 126,651 228,640 97,870
Interest..................................... 172,124 115,425 91,024 70,656 47,443
Asset management............................. 9,560 1,973 926 -- --
Other........................................ 3,835 6,958 3,955 3,525 2,991
---------- ---------- ---------- ---------- ----------
Total revenues............................. 761,863 640,147 590,615 630,842 407,023
Interest expense............................... 144,460 96,496 75,153 61,314 37,840
---------- ---------- ---------- ---------- ----------
Revenues, net of interest expense.............. 617,403 543,651 515,462 569,528 369,183
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Non-interest expenses:
Compensation and benefits.................... 376,571 329,769 321,943 373,619 234,446
Floor brokerage and clearing fees............ 36,908 33,815 32,425 26,754 21,606
Communications............................... 45,398 42,427 47,210 40,305 24,474
Occupancy and equipment rental............... 19,193 16,003 14,036 15,701 13,003
Travel and promotional....................... 18,432 16,676 17,710 15,300 10,703
Other........................................ 25,508 20,866 22,945 29,159 22,765
---------- ---------- ---------- ---------- ----------
Total non-interest expenses................ 522,010 459,556 456,269 500,838 326,997
---------- ---------- ---------- ---------- ----------
Earnings before income taxes................... 95,393 84,095 59,193 68,690 42,186
Income taxes................................... 40,412 35,256 22,992 27,334 17,772
---------- ---------- ---------- ---------- ----------
Earnings from continuing operations............ 54,981 48,839 36,201 41,356 24,414
Discontinued operations of ITGI, net of tax.... -- 12,888 33,481 22,211 19,146
---------- ---------- ---------- ---------- ----------
Net earnings................................. $ 54,981 $ 61,727 $ 69,682 $ 63,567 $ 43,560
========== ========== ========== ========== ==========
Earnings per share of Common Stock:
Basic:
Continuing operations...................... $ 2.30 $ 2.05 $ 1.62 $ 1.92 $ 1.06
Discontinued operations of ITGI, net of
tax...................................... -- 0.55 1.50 1.03 0.84
---------- ---------- ---------- ---------- ----------
Net earnings............................... $ 2.30 $ 2.60 $ 3.12 $ 2.95 $ 1.90
========== ========== ========== ========== ==========
Diluted:
Continuing operations...................... $ 2.26 $ 2.04 $ 1.58 $ 1.85 $ 1.04
Discontinued operations of ITGI, net of
tax...................................... -- 0.51 1.38 0.95 0.80
---------- ---------- ---------- ---------- ----------
Net earnings............................... $ 2.26 $ 2.55 $ 2.96 $ 2.80 $ 1.84
========== ========== ========== ========== ==========
Weighted average shares of Common Stock:
Basic........................................ 23,912 23,778 22,346 21,552 22,980
Diluted...................................... 24,335 23,992 22,954 22,349 23,410
Cash dividends per common share................ $ 0.200 $ 0.200 $ 0.200 $ 0.125 $ 0.087
SELECTED BALANCE SHEET DATA
Total assets................................... $3,957,869 $2,896,252 $2,617,864 $2,058,106 $1,533,906
Long-term debt................................. $ 152,545 $ 149,485 $ 149,387 $ 149,290 $ 52,987
Total stockholders' equity..................... $ 458,447 $ 396,577 $ 334,775 $ 242,756 $ 195,445
Book value per share of Common Stock........... $ 18.57 $ 16.52 $ 15.77 $ 11.97 $ 9.43
Shares outstanding............................. 24,688 24,000 21,230 20,286 20,726
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.
Total assets increased $1,061.6 million from $2,896.3 million at December
31, 1999 to $3,957.9 million at December 31, 2000. The increase is mostly due to
a $895.2 million increase in receivable from brokers and dealers related to
securities borrowed. The increase in securities borrowed is mostly a result of
an increase in payable to brokers and dealers (related to securities loaned).
Total liabilities increased $999.7 million from $2,499.7 million at
December 31, 1999 to $3,499.4 million at December 31, 2000. The increase is
largely due to the before-mentioned increase in payable to brokers and dealers.
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,
--------------------------------------------------------------------
2000 1999 1998
-------------------- -------------------- --------------------
% OF % OF % OF
TOTAL TOTAL TOTAL
AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
Commissions and principal
transactions:
Equities.................. $339,438 45% $282,711 44% $261,664 44%
International............. 79,523 10 62,604 10 50,889 9
High Yield................ 36,411 5 45,346 7 40,071 7
Convertible............... 25,030 3 19,367 3 13,011 2
Other Proprietary
Trading................ 5,199 1 25,014 4 2,424 --
-------- --- -------- --- -------- ---
Total............. 485,601 64 435,042 68 368,059 62
-------- --- -------- --- -------- ---
Corporate Finance........... 90,743 12 80,749 13 126,651 22
Interest.................... 172,124 23 115,425 18 91,024 15
Asset Management............ 9,560 1 1,973 -- 926 --
Other....................... 3,835 -- 6,958 1 3,955 1
-------- --- -------- --- -------- ---
Total revenues.... $761,863 100% $640,147 100% $590,615 100%
======== === ======== === ======== ===
2000 COMPARED TO 1999
Revenues, net of interest expense, increased $73.8 million, or 14%, in 2000
as compared to 1999. The increase was due primarily to a $31.9 million, or 14%,
increase in principal transactions, a $18.7 million, or 9%, increase in
commissions, a $10.0 million, or 12%, increase in corporate finance, a $8.7
million, or 46%, increase in net interest income (interest revenues less
interest expense), and a $7.6 million, or 385%, increase in asset management,
partially offset by a $3.1 million, or 45%, decrease in other income.
Commissions and principal transactions revenue increased mostly due to the
Equities and International Divisions. Corporate finance revenues increased due
mostly to an increase in advisory fees. Net interest income was up largely due
to an increase in the securities borrowed/securities loaned finder business and
to increased interest income on proprietary securities positions. Asset
management increased due to the Jefferies Partners Opportunity family of funds,
two of which began trading in January 2000. Other income decreased largely due
to a reduction in correspondent income.
Total non-interest expenses increased $62.5 million, or 14%, in 2000 as
compared to 1999. Compensation and benefits increased $46.8 million, or 14%,
mostly due to an increase in incentive based compensation accruals, as well as
increased headcount. Other expense increased $4.6 million or 22%, primarily due
to an
9
12
increase in legal expense. Occupancy and equipment rental increased $3.2
million, or 20%, mostly due to office expansion. Floor brokerage and clearing
fees increased $3.1 million, or 9%, due to increased volume of business executed
on the various exchanges. Communications increased $3.0 million, or 7%, due
mostly to increased trade volume. Travel and promotional increased $1.8 million,
or 11%, primarily due to higher expenses associated with account executive T&Es
and customer events.
As a result of the above, earnings before income taxes were up $11.3
million, or 13%. The effective tax rate was approximately 42.4% in 2000 and
approximately 41.9% in 1999. Earnings from continuing operations were up $6.1
million to $55.0 million, compared to $48.8 million in 1999.
Earnings from discontinued operations, net of income taxes, amounted to
zero in 2000, due to the cessation of ITGI as a subsidiary of the Company in
April 1999.
Basic earnings from continuing operations per share were $2.30 in 2000 on
23.9 million shares compared to $2.05 in 1999 on 23.8 million shares. Diluted
earnings from continuing operations per share were $2.26 in 2000 on 24.3 million
shares compared to $2.04 in 1999 on 24.0 million shares.
Basic net earnings per share were $2.30 in 2000 on 23.9 million shares
compared to $2.60 in 1999 on 23.8 million shares. Diluted earnings per share
were $2.26 in 2000 on 24.3 million shares compared to $2.55 in 1999 on 24.0
million shares.
1999 COMPARED TO 1998
Revenues, net of interest expense, increased $28.2 million, or 5%, in 1999
as compared to 1998. The increase was due to a $55.1 million, or 31%, increase
in principal transactions, an $11.9 million, or 6%, increase in commissions, a
$3.0 million increase in other revenues and a $3.1 million, or 19% increase in
net interest income (interest income less interest expense), partially offset by
a $45.9 million, or 36%, decrease in corporate finance. Commission revenues
increased, led by the Equities and Convertible Divisions. Revenues from
principal transactions increased primarily due to increase trading gains in
other proprietary trading (mostly investments in clients or funds of clients),
the Equities Division and International Division. Corporate finance revenues
declined due to the currently difficult environment for underwritings. Net
interest income increased mostly due to interest from investments.
Total non-interest expenses increased $3.3 million, or 1%, in 1999 as
compared to 1998. Compensation and benefits increased $7.8 million, or 2%,
mostly due to an increase in incentive based compensation accruals.
Communications decreased $4.8 million, or 10%, primarily due to a reduction in
Y2K costs. Other expense decreased $2.1 million, or 9%, mostly due to reductions
in printing and postage/courier expense. Occupancy and equipment rental
increased $2.0 million, or 14%, due mostly to office space relocation expenses.
Floor brokerage and clearing fees increased $1.4 million, or 4%, mostly due to
increased volume of business executed on the various exchanges. Travel and
promotional expense decreased $1.0 million, or 6%, largely due to a reduction in
airfare and hotel rates paid by the Company. The reduction is mostly due to new
negotiated agreements with service providers.
As a result of the above, earnings before income taxes and discontinued
operations were up $24.9 million, or 42%. The effective tax rate was
approximately 41.9% in 1999 and approximately 38.8% in 1998. The increase in the
tax rate is mostly due to the favorable impact on the 1998 tax rate of a
reversal of deferred taxes. The net effect of the increase in earnings before
income taxes and the increase in effective tax rate was that earnings from
continuing operations were up 35% to $48.8 million, compared to $36.2 million
for the prior year.
Earnings from discontinued operations of ITGI, net of income taxes, were
down $20.6 million, or 62%, mostly due to the cessation of ITGI as a subsidiary
of the Company in April 1999.
Basic earnings from continuing operations per share were $2.05 in 1999 on
23.8 million shares compared to $1.62 in 1998 on 22.3 million shares. Diluted
earnings from continuing operations per share were $2.04 in 1999 on 24.0 million
shares compared to $1.58 in 1998 on 23.0 million shares.
10
13
Basic net earnings per share were $2.60 in 1999 on 23.8 million shares
compared to $3.12 in 1998 on 22.3 million shares. Diluted earnings per share
were $2.55 in 1999 on 24.0 million shares compared to $2.96 in 1998 on 23.0
million 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 funded by equity capital, senior debt,
subordinated debt, securities loaned, 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 combination of customer, non-customer 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.
JEFCO 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. JEFCO and W & D have
consistently operated in excess of the minimum requirements. As of December 31,
2000, JEFCO's and W & D's net capital was $190.1 million and $2.2 million,
respectively, which exceeded minimum net capital requirements by $182.6 million
and $2.0 million, respectively. JEFCO and W & D use the alternative method of
calculating their regulatory net capital.
During 1999, JEFCO obtained an NASDR-approved $120 million revolving credit
facility to be used in connection with underwriting activities. During June
2000, JEFCO terminated the revolving credit facility. There were no borrowings
against the revolving credit facility in either 2000 or 1999.
EFFECTS OF CHANGES IN FOREIGN CURRENCY RATES
The Company maintains a foreign securities business in its foreign offices
(Hong Kong, London, Paris, Tokyo 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.
NEW ACCOUNTING STANDARD ON DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities," establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
condition and measure those instruments at fair value.
This statement was amended by both SFAS No. 137 and SFAS No. 138 and is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
On January 1, 2001, the Company implemented this statement without a material
impact on the Company.
11
14
NEW ACCOUNTING STANDARD ON TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES
SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities," establishes accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities. Those standards are based on consistent application of a
financial-components approach that focuses on control. SFAS No. 140 requires a
debtor to (a) reclassify financial assets pledged as collateral and report those
assets in its statement of financial condition separately from other assets not
so encumbered if the secured party has the right by contract or custom to sell
or repledge the collateral and (b) disclose assets pledged as collateral that
have not been reclassified and separately reported in the statement of financial
condition.
This statement is effective for recognition and reclassification of
collateral and for disclosures relating to securitization transactions and
collateral for fiscal years ending after December 15, 2000. Disclosures about
securitizations and collateral accepted need not be reported for periods on or
before December 15, 2000, for which financial statements are presented for
comparative purposes. On December 31, 2000, the Company implemented this
statement without a material impact on the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company maintains equity securities inventories in exchange-listed,
Nasdaq and private securities on both a long and short basis as well as various
partnership interests. The fair value of these securities at December 31, 2000,
was $301 million in long positions and $159 million in short positions. The
potential loss in fair value, using a hypothetical 10% decline in prices, is
estimated to be approximately $14 million due to the offset of losses in long
positions with gains in short positions. In addition, the Company generally
enters into exchange-traded option and index futures contracts to hedge against
potential losses in inventory positions, thus reducing this potential loss
exposure. This hypothetical 10% decline in prices would not be material to the
Company's financial condition, results of operations or cash flows.
The Company also invests in money market funds, high-yield, corporate and
U.S. Government agency debt and mutual bond funds. Money market funds do not
have maturity dates and do not present a material market risk. The fair value of
the Company's high yield, corporate and U.S. Government agency debt at December
31, 2000 was $148 million in long positions and $12 million in short positions.
Mutual bond funds also do not have maturity dates; the Company's position in
such funds totaled $5 million at December 31, 2000. The potential loss in fair
value of the high-yield, corporate and U.S. Government agency debt and the
mutual bond funds, using a hypothetical 5% decline in value, is estimated to be
approximately $7 million due to the offset of losses in long positions with
gains in short positions. This hypothetical 5% decline in value would not be
material to the Company's financial condition, results of operations or cash
flows.
At December 31, 2000, the Company had $150 million aggregate principal
amount of Senior Notes outstanding, with fixed interest rates. The Company has
no cash flow exposure regarding these Notes due to the fixed rate of interest.
In addition, at December 31, 2000, the Company had $3.0 million aggregate
principal amount of zero coupon Euro denominated Convertible Loan Notes. The
Company has no cash flow exposure regarding these Notes because of the zero
coupon.
12
15
The table below provides information about the Company's derivative
financial instruments and other financial instruments that are sensitive to
changes in interest rates, exchange rates and stock price movements (in
thousands of dollars.) For debt obligations and reverse repurchase agreements,
the table presents principal cash flows with expected maturity dates. For
foreign exchange forward contracts, index futures contracts and option
contracts, the table presents notional amounts with expected maturity dates.
EXPECTED MATURITY DATE
---------------------------------
2001 2004 AFTER 2004 TOTAL FAIR VALUE
-------- ------- ---------- -------- ----------
INTEREST RATE SENSITIVITY
8.875% Senior Notes.................. $50,000 $ 50,000 $ 47,750
7.5% Senior Notes.................... $100,000 $100,000 $ 87,500
Reverse repurchase agreements(1),
weighted average interest rate of
6.11%.............................. $170,042 $170,042 $170,042
Repurchase agreements, weighted
average interest rate of 2.00%..... $ 541 $ 541 $ 541
EXCHANGE RATE SENSITIVITY
Foreign exchange forward contracts
Purchase........................... $ 21,027 $ 21,027 $ 21,027
Sale............................... $ 25,339 $ 25,339 $ 25,339
STOCK PRICE SENSITIVITY
Index futures contracts
Sale............................... $ 1,734 $ 1,734 $ 65
Option contracts
Purchase........................... $ 24,325 $ 24,325 $ 2,610
Sale............................... $ 858 $ 858 $ 98
- ---------------
(1) Includes reverse repurchase agreements of $169.5 million included in cash
and securities segregated and on deposit for regulatory purposes or
deposited with clearing and depository organizations.
13
16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Consolidated Financial Statements of Jefferies Group, Inc.
and Subsidiaries Independent Auditors' Report............. 15
Consolidated Statements of Financial Condition as of
December 31, 2000 and 1999................................ 16
Consolidated Statements of Earnings for the Three Years
Ended December 31, 2000................................... 17
Consolidated Statements of Changes in Stockholders' Equity
for the Three Years Ended December 31, 2000............... 18
Consolidated Statements of Cash Flows for the Three Years
Ended December 31, 2000................................... 19
Notes to Consolidated Financial Statements.................. 20
14
17
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, 2000 and
1999 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, 2000. 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 auditing standards generally
accepted in the United States of America. 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, 2000 and 1999 and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States of America.
KPMG LLP
Los Angeles, California
January 17, 2001
15
18
JEFFERIES GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2000 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2000 1999
---------- ----------
ASSETS
Cash and cash equivalents................................... $ 24,996 $ 77,197
Cash and securities segregated and on deposit for regulatory
purposes or deposited with clearing and depository
organizations............................................. 206,444 18,317
Receivable from brokers and dealers......................... 2,860,677 1,965,469
Receivable from customers, officers and directors........... 254,562 226,449
Securities owned............................................ 224,738 376,506
Securities pledged to creditors............................. 96,324 --
Investments................................................. 136,047 119,100
Premises and equipment...................................... 43,635 39,117
Other assets................................................ 110,446 74,097
---------- ----------
$3,957,869 $2,896,252
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Payable to brokers and dealers.............................. $2,423,488 $1,663,955
Payable to customers........................................ 501,786 271,811
Securities sold, not yet purchased.......................... 171,685 186,420
Accrued expenses and other liabilities...................... 249,918 228,004
---------- ----------
3,346,877 2,350,190
Long-term convertible debt.................................. 2,963 --
Long-term debt.............................................. 149,582 149,485
---------- ----------
Total long-term debt................................... 152,545 149,485
---------- ----------
3,499,422 2,499,675
---------- ----------
Stockholders' equity:
Preferred stock, $.0001 par value. Authorized 10,000,000
shares;
none issued............................................ -- --
Common stock, $.0001 par value. Authorized 100,000,000
shares; issued 25,177,419 shares in 2000 and 24,027,899
shares in 1999......................................... 3 2
Additional paid-in capital................................ 86,004 62,367
Retained earnings......................................... 384,846 334,742
Less:
Treasury stock, at cost; 489,039 shares in 2000 and
28,012 shares in 1999................................. (10,383) (587)
Accumulated other comprehensive income (loss):
Currency translation adjustments....................... (885) 236
Additional minimum pension liability adjustment........ (1,138) (183)
---------- ----------
Total accumulated other comprehensive income (loss).... (2,023) 53
---------- ----------
Net stockholders' equity............................. 458,447 396,577
---------- ----------
$3,957,869 $2,896,252
========== ==========
See accompanying notes to consolidated financial statements.
16
19
JEFFERIES GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
THREE YEARS ENDED DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2000 1999 1998
-------- -------- --------
REVENUES:
Commissions.............................................. $221,471 $202,803 $190,870
Principal transactions................................... 264,130 232,239 177,189
Corporate finance........................................ 90,743 80,749 126,651
Interest................................................. 172,124 115,425 91,024
Asset management......................................... 9,560 1,973 926
Other.................................................... 3,835 6,958 3,955
-------- -------- --------
Total revenues........................................ 761,863 640,147 590,615
Interest expense......................................... 144,460 96,496 75,153
-------- -------- --------
Revenues, net of interest expense..................... 617,403 543,651 515,462
-------- -------- --------
NON-INTEREST EXPENSES:
Compensation and benefits................................ 376,571 329,769 321,943
Floor brokerage and clearing fees........................ 36,908 33,815 32,425
Communications........................................... 45,398 42,427 47,210
Occupancy and equipment rental........................... 19,193 16,003 14,036
Travel and promotional................................... 18,432 16,676 17,710
Other.................................................... 25,508 20,866 22,945
-------- -------- --------
Total non-interest expenses........................... 522,010 459,556 456,269
-------- -------- --------
Earnings before income taxes............................... 95,393 84,095 59,193
Income taxes............................................... 40,412 35,256 22,992
-------- -------- --------
Earnings from continuing operations........................ 54,981 48,839 36,201
Discontinued operations of ITGI, net of tax................ -- 12,888 33,481
-------- -------- --------
Net earnings............................................... $ 54,981 $ 61,727 $ 69,682
======== ======== ========
EARNINGS PER SHARE:
Basic:
Continuing operations.................................... $ 2.30 $ 2.05 $ 1.62
Discontinued operations of ITGI, net of tax.............. -- 0.55 1.50
-------- -------- --------
Net earnings............................................. $ 2.30 $ 2.60 $ 3.12
======== ======== ========
Diluted:
Continuing operations.................................... $ 2.26 $ 2.04 $ 1.58
Discontinued operations of ITGI, net of tax.............. -- 0.51 1.38
-------- -------- --------
Net earnings............................................. $ 2.26 $ 2.55 $ 2.96
======== ======== ========
WEIGHTED AVERAGE SHARES OF COMMON STOCK:
Basic.................................................... 23,912 23,778 22,346
Diluted.................................................. 24,335 23,992 22,954
See accompanying notes to consolidated financial statements.
17
20
JEFFERIES GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 2000
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ACCUMULATED
OTHER
ADDITIONAL COMPREHENSIVE NET
COMMON PAID-IN RETAINED TREASURY INCOME STOCKHOLDERS'
STOCK CAPITAL EARNINGS STOCK (LOSS) EQUITY
------ ---------- -------- -------- ------------- -------------
Balance, December 31, 1997...................... $ 224 $ 39 $271,589 $(26,954) $(2,142) $242,756
Exercise of stock options, including tax
benefits (737,125 shares)..................... 7 15,144 -- -- -- 15,151
Purchase of 334,234 shares of treasury stock.... -- -- -- (13,815) -- (13,815)
Issuance of common stock (53,286 shares)........ 1 2,180 -- -- -- 2,181
Issuance of restricted stock, including tax
benefits and additional vesting (182,095
shares)....................................... 2 8,170 -- (22) -- 8,150
Capital Accumulation Plan distributions,
including tax benefits (305,690 shares)....... -- 3,410 -- 3,666 -- 7,076
Net decrease in proportionate share of
subsidiary's equity........................... -- -- 7,337 -- -- 7,337
Comprehensive income:
Net earnings.................................. -- -- 69,682 -- -- 69,682
Other comprehensive income (loss), net of tax:
Currency translation adjustment............... -- -- -- -- 573 573
Additional minimum pension liability
adjustment.................................. -- -- -- -- (149) (149)
------- --------
Other comprehensive income (loss)............. 424 424
--------
Comprehensive income............................ 70,106
Dividends paid ($.20 per share)................. -- -- (4,167) -- -- (4,167)
----- -------- -------- -------- ------- --------
Balance, December 31, 1998...................... 234 28,943 344,441 (37,125) (1,718) 334,775
Exercise of stock options, including tax
benefits (1,108,880 shares)................... 10 28,957 -- -- -- 28,967
Purchase of 375,601 shares of treasury stock.... -- -- -- (17,587) -- (17,587)
Issuance of restricted stock, net of
forfeitures, including tax benefits and
additional vesting (324,029 shares)........... 3 9,862 -- -- -- 9,865
Capital Accumulation Plan distributions,
including tax benefits (1,712,549 shares)..... -- 24,335 -- 30,737 -- 55,072
Change in proportionate share of subsidiary's
equity related to stock issuances/purchases at
the subsidiary................................ -- -- 1,121 -- -- 1,121
Spin-off of ITGI, net of $60,000 cash
dividend...................................... (245) (23,143) (67,806) 23,388 -- (67,806)
Employee stock ownership plan purchases......... -- (6,587) -- -- -- (6,587)
Comprehensive income:
Net earnings.................................. -- -- 61,727 -- -- 61,727
Other comprehensive income (loss), net of tax:
Currency translation adjustment............... -- -- -- -- 285 285
Additional minimum pension liability
adjustment.................................. -- -- -- -- 1,486 1,486
------- --------
Other comprehensive income (loss)............. 1,771 1,771
--------
Comprehensive income............................ 63,498
Dividends paid ($.20 per share)................. -- -- (4,741) -- -- (4,741)
----- -------- -------- -------- ------- --------
Balance, December 31, 1999...................... 2 62,367 334,742 (587) 53 396,577
Exercise of stock options, including tax
benefits (76,793 shares)...................... -- 1,410 -- -- -- 1,410
Purchase of 442,987 shares of treasury stock.... -- -- -- (9,544) -- (9,544)
Issuance of common stock (313,075 shares)....... -- 5,678 -- -- -- 5,678
Issuance of restricted stock, net of
forfeitures, including tax benefits and
additional vesting (741,612 shares)........... 1 14,421 -- (252) -- 14,170
Employee stock ownership plan amortization and
purchases, net................................ -- 2,128 -- -- -- 2,128
Comprehensive income:
Net earnings.................................. -- -- 54,981 -- -- 54,981
Other comprehensive income (loss), net of tax:
Currency translation adjustment............... -- -- -- -- (955) (955)
Additional minimum pension liability
adjustment.................................. -- -- -- -- (1,121) (1,121)
------- --------
Other comprehensive income (loss)............. (2,076) (2,076)
--------
Comprehensive income............................ 52,905
Dividends paid ($.20 per share)................. -- -- (4,877) -- -- (4,877)
----- -------- -------- -------- ------- --------
Balance, December 31, 2000...................... $ 3 $ 86,004 $384,846 $(10,383) $(2,023) $458,447
===== ======== ======== ======== ======= ========
See accompanying notes to consolidated financial statements.
18
21
JEFFERIES GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 2000
(DOLLARS IN THOUSANDS)
2000 1999 1998
--------- --------- ---------
Cash flows from operating activities:
Net earnings.............................................. $ 54,981 $ 61,727 $ 69,682
--------- --------- ---------
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization........................... 13,039 9,181 10,027
Deferred income taxes................................... (16,545) 24,537 (5,285)
(Increase) decrease in cash and securities segregated... (188,127) 44,201 (31,541)
(Increase) decrease in receivables:
Brokers and dealers................................... (895,208) 52,621 (748,426)
Customers, officers and directors..................... (28,113) (132,923) 72,758
(Increase) decrease in securities owned................. 151,768 (275,709) 144,258
Increase in securities pledged to creditors............. (96,324) -- --
(Increase) decrease in investments...................... (16,947) (25,637) 41,373
(Increase) decrease in investment in discontinued
operations of ITGI.................................... -- 40,527 (43,276)
Increase in other assets................................ (36,911) (9,065) (535)
Increase in payables:
Brokers and dealers................................... 759,533 61,049 621,201
Customers............................................. 229,975 45,037 24,519
Increase (decrease) in securities sold, not yet
purchased............................................. (14,735) 147,055 (149,335)
Increase (decrease) in accrued expenses and other
liabilities........................................... 37,504 16,368 (37,531)
--------- --------- ---------
Net cash provided by (used in) operating activities... (46,110) 58,969 (32,111)
--------- --------- ---------
Cash flows from financing activities:
Net proceeds from (payments on) bank loans................ -- (21,000) 21,000
Issuance of long term debt................................ 2,963 -- --
Net payments on:
Repurchase of treasury stock............................ (9,544) (17,587) (13,815)
Dividends paid.......................................... (4,877) (4,741) (4,167)
Proceeds from exercise of stock options................... 1,410 28,967 15,151
Net decrease (increase) in proportionate share of
subsidiary's equity..................................... -- 1,121 7,337
Employee Stock Ownership Plan purchases................... (349) (6,587) --
Issuance of restricted shares............................. 14,170 9,865 8,150
Issuance of common shares................................. 5,678 -- 2,181
--------- --------- ---------
Net cash provided by (used in) financing activities... 9,451 (9,962) 35,837
--------- --------- ---------
Cash flows from investing activities -- purchase of premises
and equipment............................................. (14,421) (27,676) (6,943)
--------- --------- ---------
Effect of currency translation on cash...................... (1,121) 285 573
--------- --------- ---------
Net (decrease) increase in cash and cash
equivalents......................................... (52,201) 21,616 (2,644)
Cash and cash equivalents at beginning of year.............. 77,197 55,581 58,225
--------- --------- ---------
Cash and cash equivalents at end of year.................... $ 24,996 $ 77,197 $ 55,581
========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest................................................ $ 139,438 $ 93,221 $ 73,757
Income taxes............................................ 23,377 19,364 50,018
Supplemental disclosure of non-cash financing activities:
In 1998, the additional minimum pension liability included in stockholders'
equity of $1,669 resulted from an increase of $149 to accrued expenses and
other liabilities and an offsetting decrease in stockholders' equity. In
1999, the additional minimum pension liability included in stockholders'
equity of $183 resulted from a decrease of $1,486 to accrued expenses and
other liabilities and an offsetting increase in stockholders' equity. In
2000, the additional minimum pension liability included in stockholders'
equity of $1,138 resulted from a increase of $955 to accrued expenses and
other liabilities and an offsetting decrease in stockholders' equity.
In April 1999, Jefferies Group, Inc. spun-off its investment in Investment
Technology Group, Inc., which resulted in a $67,806 reduction in
stockholders' equity.
See accompanying notes to consolidated financial statements.
19
22
JEFFERIES GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Jefferies Group, Inc. and all its subsidiaries ("Company"), including Jefferies
& Company, Inc. ("JEFCO"). The accounts of Investment Technology Group, Inc. and
all its subsidiaries ("ITGI"), including its wholly owned subsidiary, ITG Inc.
are included in the consolidated financial statements through April 27, 1999 as
discontinued operations. The accounts of W & D Securities, Inc. ("W & D") are
consolidated because of the nature and extent of the Company's ownership
interest in W & D. The Company and its subsidiaries operate and are managed as a
single business segment, that of a securities broker-dealer, which includes
several types of financial services, such as principal and agency transactions
in equity, convertible debt and high yield, as well as corporate finance
activities. Since the Company's services are provided using the same
distribution channels, support services and facilities and all are provided to
meet client needs, the Company does not identify assets or allocate all expenses
to any service, or class of service as a separate business segment.
The Company was originally incorporated in 1998 as a holding company under
the name JEF Holding Company, Inc. At the time of its incorporation, JEF Holding
Company, Inc. was a wholly owned subsidiary of a predecessor company also named
Jefferies Group, Inc. ("Old Group"). On April 20, 1999, the stockholders of Old
Group approved and adopted the Agreement and Plan of Merger (the "Merger
Agreement") between Old Group and Old Group's approximately 80.5% owned
subsidiary, Investment Technology Group, Inc. ("ITGI"). The Merger Agreement
provided for the merger (the "Merger") of ITGI with and into Old Group and for
the issuance of shares of the common stock of Old Group to all stockholders of
ITGI other than Old Group.
Prior to the effective date of the Merger, Old Group distributed all of the
outstanding common stock of JEF Holding Company, Inc. to Old Group stockholders
in a spin-off transaction (the "Spin-Off"). Prior to the Spin-Off, Old Group
transferred all of the assets of Old Group, except for the common stock of ITGI,
and all of Old Group's liabilities other than liabilities related to ITGI to JEF
Holding Company, Inc. (the "Transfer" and, together with the Spin-Off, the
"Transactions"). Coincident with the Merger, Old Group, as the surviving
corporation in the Merger, changed its name to Investment Technology Group, Inc.
and JEF Holding Company, Inc. changed its name to Jefferies Group, Inc.
All significant intercompany accounts and transactions are eliminated in
consolidation.
DISCONTINUED OPERATIONS OF ITGI
On April 27, 1999, Old Group and ITGI consummated the Transactions that
resulted in the separation of ITGI from the other Old Group businesses. On April
22, 1999, Old Group transferred all non-ITGI assets and liabilities to JEF
Holding Company, Inc., a holding company. Old Group then distributed all of the
common stock of JEF Holding Company, Inc. to Old Group stockholders through a
tax-free Spin-Off. After the transfers, Old Group's 15 million shares of ITGI
became its only asset. The Spin-Off was immediately followed by a tax-free
Merger of ITGI with and into Old Group. Following the Merger, Old Group was
renamed Investment Technology Group, Inc. and JEF Holding Company, Inc. was
renamed Jefferies Group, Inc., the Registrant in this annual report.
The Transactions were treated for financial reporting purposes as if Old
Group had spun-off its entire 80.5% stake in ITGI to Old Group stockholders.
Accordingly, since the results of ITGI were previously consolidated with Old
Group, all financial information for the periods prior to April 27, 1999 have
been restated to reflect the results of ITGI as a discontinued operation. The
net assets of ITGI have been
20
23
JEFFERIES GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000 AND 1999
segregated for prior periods from the other assets and liabilities of Old Group.
For financial reporting purposes, the net assets of ITGI as of April 27, 1999
have been treated as a distribution to Old Group stockholders.
SECURITIES TRANSACTIONS
All transactions in securities, commission revenues and related expenses
are recorded on a trade-date basis.
Securities owned, securities pledged to creditors, and securities sold, not
yet purchased, are valued at market, and unrealized gains or losses are
reflected in revenues from principal transactions.
INVESTMENTS
Partnership interests are recorded at their initial cost. The carrying
values of these investments are adjusted when the adjustment can be supported by
quoted market prices, adjusted for liquidity and other relevant factors. In
addition, the carrying values are reduced when the Company determines that the
estimated realizable value is less than the carrying value based on relevant
financial and market information.
Debt and equity investments consist primarily of mutual funds, which are
valued at market, based on available quoted prices.
Equity and debt interests in affiliates are recorded under either the
equity or cost method depending on the Company's level of ownership and control.
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 borrowed or purchased under agreements to sell, and
certain receivables, are carried at fair value or contracted amounts, which
approximate fair value due to the short period to maturity. Similarly,
liabilities, including bank loans, securities loaned or sold under agreements to
repurchase and certain payables, are carried at amounts approximating fair
value. Long-term debt is carried at face value less unamortized discount.
Securities owned and securities sold, not yet purchased, are valued at quoted
market prices, if available. For securities without quoted prices, the reported
fair value is estimated using various sources of information, including quoted
prices for comparable securities.
The Company has derivative financial instrument positions in option
contracts, foreign exchange forward contracts and index futures 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 statements of financial condition (see note 13 of the notes to
consolidated financial statements.)
21
24
JEFFERIES GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000 AND 1999
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.
GOODWILL
Goodwill, which represents the excess of cost over net assets acquired, is
amortized on a straight-line basis over ten years. 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.
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 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. 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. 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.
CASH EQUIVALENTS
The Company generally invests its excess cash in money market funds and
other short-term investments. At December 31, 2000 and 1999, such cash
equivalents amounted to $2,966,000 and $54,105,000, respectively. Cash
equivalents are part of the cash management activities of the Company and
generally mature within 90 days.
SECURITIES BORROWED AND SECURITIES LOANED
In connection with both its trading and brokerage activities, JEFCO 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. JEFCO has an
active securities borrowed and lending matched book business ("Matched Book"),
in which JEFCO borrows securities from one party and lends them to another
party. When JEFCO borrows securities, JEFCO provides cash to the lender as
collateral, which is reflected in the Company's consolidated financial
statements as receivable from brokers and dealers. JEFCO earns interest revenues
on this cash collateral. Similarly, when JEFCO lends securities to another
party, that party provides cash to JEFCO as collateral, which is reflected in
the Company's consolidated financial statements as payable to brokers and
dealers. JEFCO pays interest expense on the cash collateral received from the
party borrowing the securities. A substantial portion of JEFCO's interest
revenues and interest expense results from the Matched Book activity. The
initial collateral advanced or received approximates or is greater than, the
fair value of the securities borrowed or loaned. JEFCO monitors the fair value
of the securities borrowed and loaned on a daily basis and requests additional
collateral or returns excess collateral, as appropriate.
22
25
JEFFERIES GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000 AND 1999
REPURCHASE AND REVERSE 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.
Reverse repurchase agreements consist of purchases of U.S. Treasury notes
under agreements to re-sell. They are treated as collateralized financing
transactions and are recorded at their contracted re-sale amount.
The Company monitors the fair value of the securities purchased and sold
under these agreements daily versus the related receivable or payable balances.
Should the fair value of the securities purchased decline or the fair value of
the securities sold increase, additional collateral is requested or excess
collateral is returned, as appropriate.
STOCK OPTIONS
The Company applies APB Opinion No. 25 in accounting for its stock options.
Accordingly, no compensation cost is recognized for fixed stock option grants,
unless the exercise price of the option is below the market price of the common
stock on the date of grant. However, the Company provides pro forma net earnings
and earnings per share disclosures as if the fair value of all stock options as
of the grant date were recognized as expense over the vesting period.
EARNINGS PER COMMON SHARE
Basic earnings per share of common stock are computed by dividing net
earnings by the average number of shares outstanding and certain other shares
committed to be, but not yet issued. Diluted earnings per share of common stock
are computed by dividing net earnings by the average number of shares
outstanding of common stock and all dilutive common stock equivalents
outstanding during the period.
COMMON STOCK
In conjunction with the spin-off of ITGI, the stated par value per share of
both the Company's common and preferred stock was changed from $0.01 to $.0001
and 774,278 shares of treasury stock were retired. A total of $245,000 was
reclassified to the Company's additional paid-in capital account from the
Company's common stock account.
NEW ACCOUNTING STANDARD ON DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities," establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
condition and measure those instruments at fair value.
This statement was amended by both SFAS No. 137 and SFAS No. 138 and is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
On January 1, 2001, the Company implemented this statement without a material
impact on the Company.
NEW ACCOUNTING STANDARD ON TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES
SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities," establishes accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities. Those standards are based on consistent application of a
financial-components
23
26
JEFFERIES GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000 AND 1999
approach that focuses on control. SFAS No. 140 requires a debtor to (a)
reclassify financial assets pledged as collateral and report those assets in its
statement of financial condition separately from other assets not so encumbered
if the secured party has the right by contract or custom to sell or repledge the
collateral and (b) disclose assets pledged as collateral that have not been
reclassified and separately reported in the statement of financial condition.
This statement is effective for recognition and reclassification of
collateral and for disclosures relating to securitization transactions and
collateral for fiscal years ending after December 15, 2000. Disclosures about
securitizations and collateral accepted need not be reported for periods on or
before December 15, 2000, for which financial statements are presented for
comparative purposes. On December 31, 2000, the Company implemented this
statement without a material impact on the Company.
FOREIGN CURRENCY TRANSLATION
The Company's foreign revenues and expenses are translated at average
current rates during each reporting period. Foreign currency transaction gains
and losses are 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.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
24
27
JEFFERIES GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000 AND 1999
(2) 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, 2000 and 1999 (in thousands
of dollars):
2000 1999
---------- ----------
Receivable from brokers and dealers:
Securities borrowed....................................... $2,643,185 $1,842,888
Reverse repurchase agreements............................. 541 2,370
Other..................................................... 216,951 120,211
---------- ----------
$2,860,677 $1,965,469
========== ==========
Payable to brokers and dealers:
Securities loaned......................................... $2,402,528 $1,616,493
Repurchase agreement...................................... 541 31,685
Other..................................................... 20,419 15,777
---------- ----------
$2,423,488 $1,663,955
========== ==========
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
revenue and interest expense.
(3) 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, 2000 and 1999 (in thousands
of dollars):
2000 1999
-------- --------
Customers (net of allowance for uncollectible accounts of
$4,600 in 2000 and $4,505 in 1999)........................ $250,655 $218,334
Officers and directors...................................... 3,907 8,115
-------- --------
$254,562 $226,449
======== ========
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.
25
28
JEFFERIES GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000 AND 1999
(4) 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 December 31, 2000
and 1999 (in thousands of dollars):
2000 1999
------------------------ ------------------------
SECURITIES SECURITIES
SOLD, SOLD,
SECURITIES NOT YET SECURITIES NOT YET
OWNED PURCHASED OWNED PURCHASED
---------- ---------- ---------- ----------
Corporate equity securities..................... $146,482 $159,303 $162,958 $166,443
High yield securities........................... 68,474 6,172 114,223 15,037
Corporate debt securities....................... 6,419 6,112 65,443 4,264
U.S. Government and agency obligations.......... 753 -- 30,835 --
Other........................................... 2,610 98 3,047 676
-------- -------- -------- --------
$224,738 $171,685 $376,506 $186,420
======== ======== ======== ========
The following is a summary of the market value of major categories of
securities pledged to creditors as of December 31, 2000 (in thousands of
dollars):
SECURITIES
PLEDGED
TO CREDITORS
------------
Corporate equity securities................................. $23,557
High yield securities....................................... 39,065
Corporate debt securities................................... 33,702
-------
$96,324
=======
(5) INVESTMENTS
The following is a summary of the major categories of investments, as of
December 31, 2000 and 1999 (in thousands of dollars):
2000 1999
-------- --------
Partnership interests....................................... $ 52,356 $ 74,124
Debt and equity investments................................. 17,691 35,709
Equity and debt interests in affiliates..................... 66,000 9,267
-------- --------
$136,047 $119,100
======== ========
26
29
JEFFERIES GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000 AND 1999
(6) PREMISES AND EQUIPMENT
The following is a summary of premises and equipment as of December 31,
2000 and 1999 (in thousands of dollars):
2000 1999
------- -------
Furniture, fixtures and equipment........................... $66,816 $56,370
Leasehold improvements...................................... 30,999 27,028
------- -------
Total............................................. 97,815 83,398
Less accumulated depreciation and amortization.............. 54,180 44,281
------- -------
$43,635 $39,117
======= =======
Depreciation and amortization expense amounted to $9,903,000, $9,083,000
and $9,741,000 for the years ended December 31, 2000, 1999 and 1998,
respectively. Depreciation and amortization expense included in discontinued
operations of ITGI amounted to $2,515,000 and $7,503,000 for the years ended
December 31, 1999 and 1998, respectively.
(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, 2000 and
1999 there were no bank loans.
(8) LONG TERM CONVERTIBLE DEBT AND LONG TERM DEBT
The following summarizes long term debt outstanding at December 31, 2000
and 1999 (in thousands of dollars):
2000 1999
-------- --------
LONG-TERM CONVERTIBLE DEBT
Zero coupon, unsecured Euro denominated Convertible Loan
Notes..................................................... $ 2,963 $ --
======== ========
LONG-TERM DEBT
8 7/8% Series B Senior Notes, due 2004, less unamortized
discount of $233 and $302 in 2000 and 1999, respectively,
effective rate of 9%...................................... $ 49,767 $ 49,698
7 1/2% Senior Notes, due 2007, less unamortized discount of
$185 and $213 in 2000 and 1999, respectively, effective
rate of 8%................................................ 99,815 99,787
-------- --------
$149,582 $149,485
======== ========
To expand its European capabilities, the Company acquired The Europe
Company Ltd. in the third quarter of 2000, with a combination of restricted
stock, zero coupon unsecured Euro denominated convertible loan notes and cash
totaling approximately $18.0 million. The acquisition was accounted for as a
purchase and resulted in approximately $13.6 million in goodwill.
The approximately $3.0 million in zero coupon unsecured Euro denominated
convertible loan notes mature in 2010 and have been classified on the
consolidated statement of financial condition as long-term convertible debt. The
conversion price for the notes is approximately 28.80 Euros (as of December 31,
2000, this was equivalent to approximately $27.00) per common share until August
4, 2003 and the closing stock price on the date of conversion subsequent to that
date.
27
30
JEFFERIES GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000 AND 1999
During 1999, JEFCO obtained an NASDR-approved $120,000,000 revolving credit
facility to be used in connection with underwriting activities. During June
2000, JEFCO terminated the revolving credit facility. There were no borrowings
against the revolving credit facility in either 2000 or 1999.
(9) INCOME TAXES
Total income taxes for the years ended December 31, 2000, 1999 and 1998
were allocated as follows (in thousands of dollars):
2000 1999 1998
------- -------- --------
Continuing operations....................................... $40,412 $ 35,256 $ 22,992
Discontinued operations of ITGI............................. -- (5,952) 37,541
Stockholders' equity, for compensation expense for tax
purposes in excess of amounts recognized for financial
reporting purposes........................................ (525) (37,588) (12,804)
------- -------- --------
$39,887 $ (8,284) $ 47,729
======= ======== ========
Income taxes (benefits) on continuing operations for the years ended
December 31, 2000, 1999 and 1998 consist of the following (in thousands of
dollars):
2000 1999 1998
-------- ------- -------
CURRENT:
Federal................................................... $ 45,745 $ 8,027 $22,650
State and city............................................ 11,212 2,692 5,627
-------- ------- -------
56,957 10,719 28,277
-------- ------- -------
DEFERRED:
Federal................................................... (13,454) 20,495 (3,921)
State and city............................................ (3,091) 4,042 (1,364)
-------- ------- -------
(16,545) 24,537 (5,285)
-------- ------- -------
$ 40,412 $35,256 $22,992
======== ======= =======
Income taxes differed from the amounts computed by applying the Federal
income tax rate of 35% for 2000, 1999 and 1998 as a result of the following (in
thousands of dollars):
2000 1999 1998
--------------- --------------- ---------------
AMOUNT % AMOUNT % AMOUNT %
------- ---- ------- ---- ------- ----
Computed expected income taxes.......... $33,388 35.0% $29,433 35.0% $20,718 35.0%
Increase (decrease) in income taxes
resulting from:
State and city income taxes, net of
Federal income tax benefit............ 5,279 5.5 4,377 5.2 2,770 4.7
Limited deductibility of meals and
entertainment......................... 1,259 1.3 946 1.1 1,142 1.9
Foreign income.......................... 1,563 1.7 369 0.4 654 1.1
Non-taxable interest income............. (116) (0.1) (416) (0.5) (304) (0.5)
Research and development tax credits.... (264) (0.3) (264) (0.3) (264) (0.5)
Other, net.............................. (697) (0.7) 811 1.0 (1,724) (2.9)
------- ---- ------- ---- ------- ----
Total income taxes............ $40,412 42.4% $35,256 41.9% $22,992 38.8%
======= ==== ======= ==== ======= ====
28
31
JEFFERIES GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000 AND 1999
The cumulative tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities at December 31,
2000 and 1999 are presented below (in thousands of dollars):
2000 1999
------- -------
Deferred tax assets:
Long-term compensation.................................... $18,757 $ 8,270
Accounts receivable....................................... 3,419 4,538
State income taxes........................................ 2,392 (998)
Premises and equipment.................................... 2,988 --
Investments............................................... 1,114 --
Other..................................................... -- 315
------- -------
Total gross deferred tax assets................... 28,670 12,125
Valuation allowance....................................... -- --
------- -------
Net deferred tax asset, included in other
assets........................................... $28,670 $12,125
======= =======
There was no valuation allowance for deferred tax assets as of December 31,
2000, 1999 and 1998.
Management believes it is more likely than not that the Company will
realize the deferred tax asset.
(10) BENEFIT PLANS
PENSION PLAN
The Company has a defined benefit pension plan which covers certain
employees of the Company and its subsidiaries. The plan is subject to the
provisions of the Employee Retirement Income Security Act of 1974. Benefits are
based on years of service and the employee's career average pay. 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 and consolidated statements of earnings (in thousands of dollars):
DECEMBER 31
------------------
2000 1999
------- -------
Projected benefit obligation for service rendered to date... $24,208 $20,889
Plan assets, at fair market value........................... 19,093 17,037
------- -------
Excess of the projected benefit obligation over plan
assets................................................. 5,115 3,852
Unamortized prior service cost.............................. (167) 208
Unrecognized net transition obligation being recognized over
15 years.................................................. (30) (63)
Unrecognized net loss....................................... (4,996) (2,645)
Adjustment to recognize minimum liability................... 1,979 313
------- -------
Pension liability included in other liabilities........... $ 1,901 $ 1,665
======= =======
29
32
JEFFERIES GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000 AND 1999
YEAR ENDED DECEMBER 31,
-----------------------------
2000 1999 1998
------- ------- -------
Net pension cost included the following components:
Service cost -- benefits earned during the period......... $ 1,266 $ 1,773 $ 1,895
Interest cost on projected benefit obligation............. 1,786 1,592 1,551
Expected return on plan assets............................ (1,709) (1,438) (1,310)
Settlement loss/(gain).................................... 653 -- --
Curtailment loss/(gain)................................... -- (51) --
Net amortization.......................................... 48 305 363
------- ------- -------
Net periodic pension cost......................... $ 2,044 $ 2,181 $ 2,499
======= ======= =======
YEAR ENDED
DECEMBER 31,
------------------
2000 1999
------- -------
Fair value of assets, beginning of year..................... $17,037 $17,203
Employer contributions...................................... 3,140 1,914
Benefit payments made....................................... (95) (1,127)
Settlements................................................. (3,165) --
Total investment return..................................... 2,176 (953)
------- -------
Fair value of assets, end of year........................... $19,093 $17,037
======= =======
YEAR ENDED
DECEMBER 31,
------------------
2000 1999
------- -------
Projected benefit obligation, beginning of year............. $20,889 $24,837
Service cost................................................ 1,266 1,773
Interest cost............................................... 1,786 1,592
Actuarial gains and losses.................................. 3,527 (4,934)
Benefits paid............................................... (95) (1,127)
Settlements................................................. (3,165) --
Recognized curtailment loss/(gain).......................... -- (1,338)
Plan amendments............................................. -- 86
------- -------
Projected benefit obligation, end of year................... $24,208 $20,889
======= =======
The net periodic pension costs above include the costs related to
discontinued operations of ITGI of $385,000 in 1998.
The plan assets consist of approximately 60% equities and 40% fixed income
securities.
The weighted average discount rate and the rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 7.50% and 4.00%, respectively, in 2000, 7.75%
and 5.00%, respectively, in 1999 and 6.75% and 5.00%, respectively, in 1998. The
expected long-term rate of return on assets was 8.40% in 2000, 1999 and 1998.
STOCK COMPENSATION PLANS
At December 31, 2000, the Company had five stock-based compensation plans,
which are described below. The Company applied APB Opinion No. 25 in accounting
for its plans. Accordingly, no compensation
30
33
JEFFERIES GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000 AND 1999
cost has been recognized for fixed stock option plans. Had compensation cost for
the Company's stock-based compensation plans been determined consistent with
SFAS 123, the Company's net earnings and earnings per share would have been
reduced to the pro forma amounts indicated below (in thousands of dollars,
except per share amounts):
2000 1999 1998
-------------------- -------------------- --------------------
REPORTED PRO FORMA REPORTED PRO FORMA REPORTED PRO FORMA
-------- --------- -------- --------- -------- ---------
EARNINGS:
Earnings from continuing
operations...................... $54,981 $51,215 $48,839 $46,553 $36,201 $33,131
Earnings from discontinued
operations...................... -- -- 12,888 12,446 33,481 32,109
------- ------- ------- ------- ------- -------
Net earnings...................... $54,981 $51,215 $61,727 $58,999 $69,682 $65,240
======= ======= ======= ======= ======= =======
BASIC EARNINGS PER SHARE:
Earnings from continuing
operations...................... $ 2.30 $ 2.14 $ 2.05 $ 1.96 $ 1.62 $ 1.48
Earnings from discontinued
operations...................... -- -- 0.55 0.52 1.50 1.44
------- ------- ------- ------- ------- -------
Net earnings...................... $ 2.30 $ 2.14 $ 2.60 $ 2.48 $ 3.12 $ 2.92
======= ======= ======= ======= ======= =======
DILUTED EARNINGS PER SHARE:
Earnings from continuing
operations...................... $ 2.26 $ 2.10 $ 2.04 $ 1.94 $ 1.58 $ 1.44
Earnings from discontinued
operations...................... -- -- 0.51 0.50 1.38 1.33
------- ------- ------- ------- ------- -------
Net earnings...................... $ 2.26 $ 2.10 $ 2.55 $ 2.44 $ 2.96 $ 2.77
======= ======= ======= ======= ======= =======
INCENTIVE PLAN
The Company has an Incentive Compensation Plan ("Incentive 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 plan imposes a limit on
the number of shares of common stock of the Company that may be subject to
awards. An award relating to shares may be granted if the aggregate number of
shares subject to then-outstanding awards plus the number of shares subject to
the award being granted do not exceed 25% of the number of shares issued and
outstanding immediately prior to the grant. Under the Incentive Plan, the
exercise price of each option is generally not less than the market price of the
Company's stock on the date of grant and the option's maximum term is ten years.
Restricted Stock. The Incentive Plan allows for grants of restricted stock
awards, whereby certain key employees are granted restricted shares of common
stock subject to forfeiture until the restrictions lapse or terminate. With
certain exceptions, the employee must remain with the Company for a period of
years after the date of grant to receive the full number of shares granted.
During 2000, 1999 and 1998, there were restricted stock awards of 676,223
shares, 400,000 shares and 183,947 shares, respectively, with a corresponding
market value of $15,781,000, $15,791,000 and $6,488,000, respectively. Grants
are expensed over their vesting periods, generally one to four years. The
compensation cost charged against earnings was $12,269,000, $10,354,000 and
$5,183,000 in 2000, 1999 and 1998, respectively. As of December 31, 2000, 1999
and 1998, restricted stock shares outstanding were 1,042,299 shares, 507,905
shares and 381,585 shares, respectively.
Performance-based Stock Options. While the Incentive Plan allows for the
granting of performance-based stock options, no such options were granted during
2000, 1999 and 1998, and no such options were outstanding at December 31, 2000,
1999 and 1998.
31
34
JEFFERIES GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000 AND 1999
DIRECTOR PLAN
The Company also has a Directors' Stock Compensation Plan ("Directors'
Plan") which provides for an annual grant to each non-employee director of an
option to purchase 4,000 shares of the Company's common stock. Such grants will
be made automatically on the date directors are elected or reelected at the
Company's annual meeting. In addition, the Directors' Plan provides for the
automatic grant to a non-employee director, at the time he or she is first
elected or appointed, of an option to purchase 5,000 shares of the Company's
common stock.
Additionally, the Directors' Plan permits each non-employee director to
elect to be paid annual retainer fees and annual fees for service as chairman of
a Board committee in the form of stock options and to defer receipt of any
director fees in an interest-bearing cash account or as deferred shares in a
deferred share account.
A total number of 500,000 shares of the Company's common stock are reserved
under the Directors' Plan. Under the Directors' Plan, the exercise price of each
option equals the market price of the Company's stock on the date of grant and
the option's maximum term is ten years.
EMPLOYEE STOCK PURCHASE PLAN
The Company has an Employee Stock Purchase Plan ("ESPP") which qualifies
under Section 423 of the U.S. Internal Revenue Code. All regular full-time
employees and employees who work part-time over 20 hours per week are eligible
for the ESPP. Employee contributions are voluntary and are made via payroll
deduction. The employee contributions are used to purchase the Company's common
stock. The stock purchase price is based on the lower of 85 percent of the stock
price at the beginning or end of the period. The stock price used is the Volume
Weighted Average Price ("VWAP") for the particular day. The difference between
the employees' stock purchase price and the market value of the stock is
considered a Company contribution. The Company's contribution vests after a
minimum of one year. The Company does not recognize compensation cost related to
its ESPP contributions.
In addition, the Company has a Supplemental Stock Purchase Plan ("SSPP")
which is a non-qualified plan that is similar to the Company's ESPP. The Company
recognizes compensation cost related to its SSPP contributions.
In the past, the Company's stock purchase plan matched employee
contributions at a rate of 15% (more, if profits exceeded targets set by the
Company's Board of Directors). The Company recognized compensation cost related
to its matching.
The compensation cost charged against continuing operations was $84,000,
$34,000 and $293,000 in 2000, 1999 and 1998, respectively. The charge against
discontinued operations of ITGI was $4,000 in 1998.
CAPITAL ACCUMULATION PLAN
The Company had a Capital Accumulation Plan (CAP) for certain officers and
key employees of the Company. Participation in the plan was optional, with those
who elected to participate agreeing to defer graduated percentages of their
compensation. The plan allowed 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 was placed in a Profit-Based Deferred Compensation
Account that earned interest at a rate based on the performance of the Company.
In January 1999, the Company liquidated its CAP plan. The Company had
recognized compensation cost related to the 15% discount and interest on
Profit-Based Deferred Compensation Accounts. The compensation
32
35
JEFFERIES GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000 AND 1999
cost charged against continuing operations was $4,115,000 in 1998. The charge
against discontinued operations of ITGI was $219,000 in 1998.
EMPLOYEE STOCK OWNERSHIP PLAN
The Company has an Employee Stock Ownership Plan ("ESOP") which was
established in 1988. In 1999, the Company re-established annual contributions to
the ESOP. In 1999, 278,744 shares of common stock were purchased for $6,487,000,
which was funded by a loan from the Company. The loan is being repaid over 4
years at an annual interest rate of 5.22%. The Company makes contributions to
the ESOP sufficient to fund principal and interest payments and may make
additional contributions at the discretion of the Board of Directors. As of
December 31, 2000, the loan balance was $4,579,000 relating to 196,744 shares of
common stock. Additionally, during 2000 and 1999, 18,000 and 100,000 shares of
common stock, respectively, were purchased for $349,000 and $2,441,000,
respectively. These shares were paid for substantially through a Company
contribution.
The compensation cost charged against continuing operations was $2,478,000
and $2,341,000 in 2000 and 1999, respectively.
PROFIT SHARING PLAN
The Company has a profit sharing plan, covering substantially all
employees, which includes a salary reduction feature designed to qualify under
Section 401(k) of the Internal Revenue Code. Expenses of this plan related to
continuing operations amounted to $2,640,000, $2,954,000 and $6,778,000 in 2000,
1999 and 1998, respectively. Expenses of this plan related to discontinued
operations of ITGI amounted to $43,000 and $2,362,000 in 1999 and 1998,
respectively.
OPTIONS ISSUED UNDER ALL PLANS
The fair value of all option grants for all the Company's plans are
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted-average assumptions used for all fixed option grants in
2000, 1999 and 1998, respectively: dividend yield of 0.9%, 0.9%, and 0.6%;
expected volatility of 42.0%, 42.0%, and 32.6%; risk-free interest rates of
6.4%, 5.2%, and 5.5%; and expected lives of 5.1 years, 5.0 years, and 5.0 years.
A summary of the status of Company stock options in all its stock-based
plans as of December 31, 2000 and 1999 and changes during the year then ended is
presented below:
2000 1999
----------------------------- ------------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- ---------------- ---------- ----------------
Outstanding at beginning of year.... 2,277,165 $20.04 1,442,817 $21.12
Granted............................. 574,694 21.49 2,389,213 20.01
Exercised........................... (76,793) 15.08 (1,108,882) 15.07
Exchanged for cash.................. -- -- (111,444) 40.00
Exchanged for options............... -- -- (283,494) 36.47
Forfeited........................... (523,307) 22.22 (51,045) 22.56
--------- ----------
Outstanding at end of year.......... 2,251,759 $20.08 2,227,165 $20.04
========= ==========
Options exercisable at year-end..... 1,172,964 $17.85 1,279,235 $17.71
Weighted-average fair value of
options granted during the year... $ 9.17 $ 8.51
33
36
JEFFERIES GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000 AND 1999
The following table summarizes information about stock options outstanding
at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------- ------------------------
NUMBER WEIGHTED NUMBER
OUTSTANDING AVERAGE WEIGHTED EXERCISABLE WEIGHTED
AT REMAINING AVERAGE AT AVERAGE
DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
RANGE OF EXERCISE PRICES 2000 LIFE (YEARS) PRICE 2000 PRICE
------------------------ ------------ ------------ -------- ------------ --------
$ 6.20 to 9.99.................. 91,925 3.0 $ 7.65 91,925 $ 7.65
$10.00 to 19.99.................. 690,488 2.4 16.19 688,692 16.18
$20.00 to 29.63.................. 1,469,346 3.7 22.68 392,347 23.16
--------- ---------
$ 6.20 to 29.63.................. 2,251,759 3.2 $20.08 1,172,964 $17.85
========= =========
(11) EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations for the years 2000, 1999 and
1998 (in thousands, except per share amounts):
YEAR ENDED DECEMBER 31,
-----------------------------
2000 1999 1998
------- ------- -------
Earnings from continuing operations......................... $54,981 $48,839 $36,201
Discontinued operations of ITGI, net of tax................. -- 12,888 33,481
------- ------- -------
Net earnings for basic earnings per share................... 54,981 61,727 69,682
Earnings adjustment -- stock options on subsidiary........ -- (475) (1,672)
------- ------- -------
Adjusted earnings for diluted earnings per share.......... $54,981 $61,252 $68,010
======= ======= =======
Shares of common stock and common stock equivalents:
Average shares used in basic computation.................. 23,912 23,778 22,346
Stock options............................................. 240 191 508
Other unissued common shares.............................. 183 23 100
------- ------- -------
Average shares used in diluted computation................ 24,335 23,992 22,954
======= ======= =======
Earnings per share:
Basic:
Earnings from continuing operations....................... $ 2.30 $ 2.05 $ 1.62
Discontinued operations of ITGI, net of tax............... -- 0.55 1.50
------- ------- -------
Net earnings.............................................. $ 2.30 $ 2.60 $ 3.12
======= ======= =======
Diluted:
Earnings from continuing operations....................... $ 2.26 $ 2.04 $ 1.58
Discontinued operations of ITGI, net of tax............... -- 0.51 1.38
------- ------- -------
Net earnings.............................................. $ 2.26 $ 2.55 $ 2.96
======= ======= =======
The Company had no anti-dilutive securities during 2000, 1999 and 1998.
34
37
JEFFERIES GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000 AND 1999
(12) LEASES
As lessee, the Company leases certain premises and equipment under
noncancelable agreements expiring at various dates through 2013. Future minimum
lease payments for all noncancelable operating leases at December 31, 2000 are
as follows (in thousands of dollars):
GROSS SUB-LEASES NET
------- ---------- -------
2001........................................................ $14,275 $1,385 $12,890
2002........................................................ 12,805 572 12,233
2003........................................................ 12,040 304 11,736
2004........................................................ 11,691 228 11,463
2005........................................................ 11,325 57 11,268
Thereafter.................................................. 47,368 -- 47,368
Rental expense related to continuing operations amounted to $12,535,000,
$9,326,000 and $7,295,000, in 2000, 1999 and 1998, respectively. Rental expense
related to discontinued operations of ITGI amounted to $0, $873,000 and
$2,556,000, in 2000, 1999 and 1998, respectively.
(13) 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, futures index 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 $33,005,000 at December 31, 2000 to satisfy various
collateral requirements in lieu of depositing cash or securities.
The Company has derivative financial instrument positions in foreign
exchange forward contracts, option contracts, and index futures contracts, all
of which are measured at fair value with realized and unrealized gains and
losses recognized in earnings. 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 option positions taken are generally part of a strategy in which
offsetting equity positions are taken. The index futures positions are taken as
a hedge against securities positions.
The gross contracted or notional amount of index futures contracts,
commodities futures contracts, 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 (in thousands of dollars) and provide
only a measure of the Company's involvement in these contracts at December 31,
2000 and 1999. They do not
35
38
JEFFERIES GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000 AND 1999
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
-----------------------------------------
2000 1999
------------------- ------------------
PURCHASE SALE PURCHASE SALE
-------- ------- -------- ------
Index futures contracts.............................. $ -- $ 1,734 $ -- $1,792
Option contracts..................................... 24,325 858 18,260 7,953
Foreign exchange forward contracts................... 21,027 25,339 4,089 5,588
FAIR VALUE OF DERIVATIVE FINANCIAL INSTRUMENTS
The following is an aggregate summary of the average 2000 and 1999 and
December 31, 2000 and 1999 fair values of derivative financial instruments (in
thousands of dollars):
2000 1999
------------------------ ------------------------
AVERAGE END OF PERIOD AVERAGE END OF PERIOD
------- ------------- ------- -------------
Index futures contracts:
In a favorable position...................... $ 100 $ 65 $ 42 $ --
In an unfavorable position................... 22 -- 50 63
Option contracts:
Purchase..................................... 2,144 2,610 1,249 3,047
Sale......................................... 1,342 98 830 676
Foreign exchange forward contracts:
Purchase..................................... 21,904 21,027 7,013 4,089
Sale......................................... 17,451 25,339 7,079 5,588
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.
36
39
JEFFERIES GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000 AND 1999
(14) OTHER COMPREHENSIVE INCOME
The following summarizes other comprehensive income and accumulated other
comprehensive income at December 31, 2000 and for the year then ended (in
thousands of dollars):
BEFORE-TAX INCOME TAX NET-OF-TAX
AMOUNT OR BENEFIT AMOUNT
---------- ---------- ----------
Currency translation adjustments.......................... $(1,121) $ -- $(1,121)
Minimum pension liability adjustment...................... (1,666) 711 (955)
------- ---- -------
Other comprehensive income (loss)......................... $(2,787) $711 $(2,076)
======= ==== =======
ACCUMULATED
MINIMUM OTHER
CURRENCY PENSION COMPREHENSIVE
TRANSLATION LIABILITY INCOME
ADJUSTMENTS ADJUSTMENT (LOSS)
----------- ---------- -------------
Beginning balance...................................... $ 236 $ (183) $ 53
Change in 2000......................................... (1,121) (955) (2,076)
------- ------- -------
Ending balance......................................... $ (885) $(1,138) $(2,023)
======= ======= =======
The following summarizes other comprehensive income and accumulated other
comprehensive income at December 31, 1999 and for the year then ended (in
thousands of dollars):
BEFORE-TAX INCOME TAX NET-OF-TAX
AMOUNT OR BENEFIT AMOUNT
---------- ---------- ----------
Currency translation adjustments.......................... $ 285 $ -- $ 285
Minimum pension liability adjustment...................... 2,540 (1,054) 1,486
------ ------- ------
Other comprehensive income (loss)......................... $2,825 $(1,054) $1,771
====== ======= ======
ACCUMULATED
MINIMUM OTHER
CURRENCY PENSION COMPREHENSIVE
TRANSLATION LIABILITY INCOME
ADJUSTMENTS ADJUSTMENT (LOSS)
----------- ---------- -------------
Beginning balance...................................... $(49) $(1,669) $(1,718)
Change in 1999......................................... 285 1,486 1,771
---- ------- -------
Ending balance......................................... $236 $ (183) $ 53
==== ======= =======
The following summarizes other comprehensive income and accumulated other
comprehensive income at December 31, 1998 and for the year then ended (in
thousands of dollars):
BEFORE-TAX INCOME TAX NET-OF-TAX
AMOUNT OR BENEFIT AMOUNT
---------- ---------- ----------
Currency translation adjustments.......................... $ 573 $ -- $ 573
Minimum pension liability adjustment...................... (254) 105 (149)
----- ---- -----
Other comprehensive income (loss)......................... $ 319 $105 $ 424
===== ==== =====
37
40
JEFFERIES GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000 AND 1999
ACCUMULATED
MINIMUM OTHER
CURRENCY PENSION COMPREHENSIVE
TRANSLATION LIABILITY INCOME
ADJUSTMENTS ADJUSTMENT (LOSS)
----------- ---------- -------------
Beginning balance...................................... $(622) $(1,520) $(2,142)
Change in 1998......................................... 573 (149) 424
----- ------- -------
Ending balance......................................... $ (49) $(1,669) $(1,718)
===== ======= =======
(15) NET CAPITAL REQUIREMENTS
As registered broker-dealers, JEFCO 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. JEFCO and W & D have elected to use the
alternative method permitted by the Rule, which requires that they each maintain
minimum net capital, as defined, equal to the greater of $250,000 or 2% of the
aggregate debit balances arising from customer transactions, as defined.
At December 31, 2000, JEFCO's and W & D's net capital was $190,130,000 and
$2,215,000, respectively, which exceeded minimum net capital requirements by
$182,565,000 and $1,965,000, respectively.
(16) CONTINGENCIES
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.
(17) 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 approximately 10% of revenues and under
2% of assets attributable to international operations. In April 1999, the
Company spun-off its only other segment, ITGI, which included the automated
equity trading and transaction research activities of ITGI and its subsidiaries.
38
41
JEFFERIES GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000 AND 1999
Financial information for the discontinued business segment is summarized
as follows (in thousands of dollars):
ITGI CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
PERIOD ENDED YEAR ENDED
APRIL 27, DECEMBER 31,
1999 1998
------------ ------------
Revenues.................................................... $76,180 $212,205
Expenses.................................................... 56,536 131,270
------- --------
Earnings before income tax expense.......................... 19,644 80,935
Income tax expense.......................................... 9,250 37,541
------- --------
Net earnings................................................ $10,394 $ 43,394
======= ========
COMPONENTS OF DISCONTINUED OPERATIONS OF ITGI
Net earnings of ITGI........................................ $10,394 $ 43,394
Deferred taxes on ITGI's IPO gain........................... 12,843 --
Less: Write-off of goodwill on JEF related to ITGI.......... 5,208 --
Less: Company's spin-off related expenses................... 3,116 1,936
Less: Minority interest in ITGI............................. 2,025 7,977
------- --------
Discontinued operations of ITGI............................. $12,888 $ 33,481
======= ========
CASH PAID FOR INTEREST AND INCOME TAXES
The interest paid and income taxes paid amounts included in the
Consolidated Statements of Cash Flows included amounts related to discontinued
operations of ITGI (in thousands of dollars).
2000 1999 1998
---- ------ -------
Interest paid............................................... $-- $ 31 $ 20
Income taxes paid to affiliate.............................. -- 6,538 30,296
(18) THE EUROPE COMPANY LIMITED
To expand its European capabilities, the Company acquired The Europe
Company Ltd. in the third quarter of 2000, with a combination of restricted
stock, zero coupon unsecured Euro denominated convertible loan notes and cash
totaling approximately $18.0 million. The acquisition was accounted for as a
purchase and resulted in approximately $13.6 million in goodwill.
At December 31, 2000, excess of purchase price over net assets acquired
remaining was $13.0 million, net of accumulated amortization of $0.6 million and
is included in other assets.
The approximately $3.0 million in zero coupon unsecured Euro denominated
convertible loan notes mature in 2010 and have been classified on the
consolidated statement of financial condition as long-term convertible debt. The
conversion price for the notes is approximately 28.80 Euros (as of December 31,
2000, this was equivalent to approximately $27.00) per common share until August
4, 2003 and the closing stock price on the date of conversion subsequent to that
date.
The shares and share equivalents related to both the restricted stock and
zero coupon unsecured Euro denominated convertible loan notes were included in
the denominator of the basic earnings per share calculation.
39
42
JEFFERIES GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000 AND 1999
(19) ASSET MANAGEMENT
The following summarizes revenues from asset management for the years 2000,
1999 and 1998 (in thousands of dollars):
2000 1999 1998
------ ------ ----
HIGH YIELD (HY)
Performance based................................... $5,919 $ -- $ --
Asset based......................................... 1,514 -- --
NON-HY EMPLOYEE FUNDS
Asset based......................................... 143 -- --
INTERNATIONAL............................................ 1,984 1,973 926
------ ------ ----
Total............................................... $9,560 $1,973 $926
====== ====== ====
(20) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of unaudited quarterly statements of earnings
for the years ended December 31, 2000 and 1999 (in thousands of dollars, except
per share amounts):
MARCH JUNE SEPTEMBER DECEMBER YEAR
-------- -------- --------- -------- --------
2000
Revenues.................................... $194,760 $182,618 $198,299 $186,186 $761,863
Earnings before income taxes................ 26,201 21,381 25,524 22,287 95,393
Net earnings................................ 15,024 12,372 14,713 12,872 54,981
Net earnings per share:
Basic....................................... $ 0.63 $ 0.51 $ 0.62 $ 0.54 $ 2.30
======== ======== ======== ======== ========
Diluted..................................... $ 0.62 $ 0.51 $ 0.60 $ 0.52 $ 2.26
======== ======== ======== ======== ========
1999
Revenues.................................... $148,678 $175,329 $145,808 $170,332 $640,147
Earnings before income taxes................ 20,370 25,047 15,491 23,187 84,095
Earnings from continuing operations......... 11,666 14,777 8,840 13,556 48,839
Earnings from discontinued operations of
ITGI...................................... 4,955 6,192 91 1,650 12,888
Net earnings................................ 16,621 20,969 8,931 15,206 61,727
Basic:
Earnings from continuing operations per
share..................................... $ 0.50 $ 0.62 $ 0.37 $ 0.56 $ 2.05
Earnings from discontinued operations....... 0.22 0.26 -- 0.07 0.55
-------- -------- -------- -------- --------
Net earnings per share...................... $ 0.72 $ 0.88 $ 0.37 $ 0.63 $ 2.60
======== ======== ======== ======== ========
Diluted:
Earnings from continuing operations per
share..................................... $ 0.50 $ 0.61 $ 0.36 $ 0.56 $ 2.04
Earnings from discontinued operations....... 0.19 0.26 0.01 0.07 0.51
-------- -------- -------- -------- --------
Net earnings per share...................... $ 0.69 $ 0.87 $ 0.37 $ 0.63 $ 2.55
======== ======== ======== ======== ========
40
43
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS 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 2001 Annual Meeting of Stockholders, 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 2001 Annual Meeting of Stockholders, 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 2001 Annual Meeting of Stockholders, 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 2001 Annual Meeting of Stockholders, 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...................... 15
Consolidated Statements of Financial Condition.... 16
Consolidated Statements of Earnings............... 17
Consolidated Statements of Changes in
Stockholders' Equity.............................. 18
Consolidated Statements of Cash Flows............. 19
Notes to Consolidated Financial Statements........ 20
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) Registrant's Amended and Restated Certificate of
Incorporation is incorporated by reference to Exhibit 3.1 of
the Registrant's Form 8-K filed on April 30, 1999.
(3.2) Registrant's By-Laws are incorporated by reference to
Exhibit 3.2 of Registrant's Form 10 filed on April 20, 1999.
(4.1) Indenture dated as of August 18, 1997 by and between
Jefferies Group, Inc. and The Bank of New York, as Trustee,
including form of 7 1/2% Series B Senior Notes due 2007 is
incorporated by reference to Exhibit 4.1 to Jefferies Group,
Inc.'s Registration Statement on Form S-4 (No. 333-40263)
filed on November 14, 1997 including amendments thereto.
41
44
[4.1(a)] First Supplemental Indenture dated as of March 15, 1999
between Jefferies Group, Inc. and The Bank of New York, as
Trustee, supplementing the Indenture dated as of August 18,
1997 is incorporated by reference to Exhibit [4.1(a)] of
Registrant's Form 10-K filed on March 27, 2000.
[4.1(b)] Second Supplemental Indenture dated as of March 17, 1999
between JEF Holding Company, Inc., Jefferies Group, Inc. and
The Bank of New York, as Trustee, supplementing the
Indenture dated as of August 18, 1997, as amended on March
15, 1999 is incorporated by reference to Exhibit [4.1(b)] of
Registrant's Form 10-K filed on March 27, 2000.
(4.2) Registration Rights Agreement dated as of August 18, 1997 by
and among Jefferies Group, Inc. and the purchasers of
Jefferies Group, Inc.'s 7 1/2% Series B Senior Notes due
2007 is incorporated by reference to Exhibit 10.2 to
Jefferies Group, Inc.'s Registration Statement on Form S-4
(No. 333-40263) filed on November 14, 1997 including
amendments thereto.
(4.3) Indenture dated as of April 28, 1994 by and between
Jefferies Group, Inc. and The Bank of New York, as Trustee,
including form of 8 7/8% Senior Notes due 2004 is
incorporated by reference to Exhibit 4.1 of Amendment No. 1
to Jefferies Group, Inc.'s Registration Statement on Form
S-4 (No. 333-54265) filed on July 14, 1994.
[4.3(a)] Form of first Supplemental Indenture dated as of July 14,
1994 by and between Jefferies Group, Inc. and The Bank of
New York, as Trustee, is incorporated by reference to
Exhibit 4.2 of Amendment No. 1 to Jefferies Group, Inc.'s
Registration Statement on Form S-4 (No. 333-54265) filed on
July 14, 1994.
[4.3(b)] Second Supplemental Indenture dated as of March 26, 1999
between JEF Holding Company, Inc., Jefferies Group, Inc. and
The Bank of New York, as Trustee, supplementing the
Indenture dated as of April 28, 1994, as amended on July 14,
1994 is incorporated by reference to Exhibit [4.3(b)] of
Registrant's Form 10-K filed on March 27, 2000.
[4.3(c)] Third Supplemental Indenture dated as of April 1, 1999
between JEF Holding Company, Inc., Jefferies Group, Inc. and
The Bank of New York, as Trustee, supplementing the
Indenture dated as of April 28, 1994, as amended on July 14,
1994 and March 26, 1999 is incorporated by reference to
Exhibit [4.3(c)] of Registrant's Form 10-K filed on March
27, 2000.
(4.4) Registration Rights Agreement dated as of April 28, 1994 by
and among Jefferies Group, Inc. and the purchasers of the
8 7/8% Series B Senior Notes due 2004 is incorporated by
reference to Exhibit 10.2 of Amendment No. 1 to Jefferies
Group, Inc.'s Registration Statement on Form S-4 (No.
333-54265) filed on July 14, 1994.
(4.5) Zero Coupon Unsecured Convertible Notes (the "Notes");
Registrant hereby agrees to provide copies of such Notes to
the Commission upon request.
(10.1) Registrant's 1999 Incentive Compensation Plan is
incorporated by reference to Exhibit 10.1 of Registrant's
Form 10 filed on April 20, 1999.
(10.2) Registrant's 1999 Directors' Stock Compensation Plan is
incorporated by reference to Exhibit 10.2 of Registrant's
Form 10 filed on April 20, 1999.
(10.3) Distribution Agreement, dated as of March 17, 1999, by and
between Jefferies Group, Inc. and JEF Holding Company, Inc.
is incorporated by reference to Exhibit 10.3 of Registrant's
Form 10 filed on April 20, 1999.
(10.4) Tax Sharing and Indemnification Agreement, dated as of March
17, 1999, by and among Investment Technology Group, Inc.,
Jefferies Group, Inc. and the JEF Holding Company, Inc. is
incorporated by reference to Exhibit 10.4 of Registrant's
Form 10 filed on April 20, 1999.
42
45
(10.5) Amended and Restated Tax Sharing Agreement, dated as of
March 17, 1999, by and among Investment Technology Group,
Inc., Jefferies Group, Inc. and JEF Holding Company, Inc. is
incorporated by reference to Exhibit 10.5 of Registrant's
Form 10 filed on April 20, 1999.
(10.6) Benefits Agreement, dated as of March 17, 1999, by and
between Jefferies Group, Inc. and JEF Holding Company, Inc.
is incorporated by reference to Exhibit 10.6 of Registrant's
Form 10 filed on April 20, 1999.
(10.7)* Jefferies Group, Inc. Deferred Compensation Plan, dated
effective January 1, 2001.
(21)* List of Subsidiaries of Registrant.
(23)* Consent of KPMG LLP.
- ---------------
* Filed herewith.
Exhibits 10.1, 10.2 and 10.7 are management contracts or compensatory plans
or arrangements.
ALL OTHER EXHIBITS ARE OMITTED BECAUSE THEY ARE NOT APPLICABLE.
(b) No reports on Form 8-K have been filed by the Registrant during the
fourth quarter of 2000.
43
46
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: /s/ FRANK E. BAXTER
------------------------------------
Frank E. Baxter
Chairman of the Board of Directors
Dated: March 30, 2001
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.
NAME TITLE DATE
---- ----- ----
/s/ FRANK E. BAXTER Chairman of the Board of March 30, 2001
- ----------------------------------------------------- Directors
Frank E. Baxter
/s/ RICHARD B. HANDLER Director, Chief Executive March 30, 2001
- ----------------------------------------------------- Officer
Richard B. Handler
/s/ JOHN C. SHAW, JR. Director, President and March 30, 2001
- ----------------------------------------------------- Chief Operating Officer
John C. Shaw, Jr.
/s/ JOSEPH A. SCHENK Executive Vice President and March 30, 2001
- ----------------------------------------------------- Chief Financial Officer
Joseph A. Schenk
/s/ W. PATRICK CAMPBELL Director March 30, 2001
- -----------------------------------------------------
W. Patrick Campbell
/s/ RICHARD G. DOOLEY Director March 30, 2001
- -----------------------------------------------------
Richard G. Dooley
/s/ SHELDON B. LUBAR Director March 30, 2001
- -----------------------------------------------------
Sheldon B. Lubar
/s/ FRANK J. MACCHIAROLA Director March 30, 2001
- -----------------------------------------------------
Frank J. Macchiarola
44