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Jefferies Group, Inc. – Our Mission
To build the leading investment bank serving growing and mid-sized companies and their investors – led by the strongest capital
markets trading platform in the industry
Sales &Trading
Growing and mid-sized companiesInvestment
BankingSecurities Research
Asset Management
2
Key Franchise Highlights
Leading middle-market focused franchise
Client-oriented culture based on long-term institutional relationships
Outstanding trading platform: equity, high yield and convertibles
Diversified business mix focused on serving growing and mid-sized companies
and investors – trading, investment banking, research, asset management
Strong and liquid capital position with over $1.5 billion, pro forma, in cash and
short-term investments
2,045 employee-shareholders own approximately 53% of Jefferies. Human
capital is our most significant investment
Management: Aligned, experienced and motivated
6 Consecutive Years of Record Revenues and Earnings
3
2005 Highlights – Record Results
Record Gross Revenues $1.5 Billion
Record Net Revenues $1.2 Billion
Record EBITDA $575 million
Record Net Earnings $157 million
Record EPS $2.32
Book Value (Approximately 83% Tangible) $1.3 billion
Current Market Capitalization (fully diluted) $3.5 Billion
RATED BBB+ BY FITCH IN JANUARY 2006UPGRADED TO BAA1 BY MOODY'S IN JANUARY 2005
(1)
(2)
(1) A reconciliation to the most comparable GAAP financial measure is located on page 26.(2) As of close on January 20, 2006; based on the number of diluted shares outstanding as used in the Company’s diluted EPS
calculation for the reported period.
4
Recent Strong Performance
Net RevenuesNet Revenues
$670 $675$830
$1,058$1,205
($ in Millions)($ in Millions)2002 2003
Net EarningsNet Earnings
$60 $63$84
$131$157
($ in Millions)($ in Millions)
Book ValueBook Value
$566 $629$838
$1,039
$1,287
($ in Millions)($ in Millions)2002 2003
CAGR 22%
2004 20052001
Market CapMarket Cap
$1,153 $1,159
$2,016$2,608
$3,461
($ in Millions)($ in Millions)2002 2003
CAGR 31%
2004 Current2001
(1)
CAGR 27%CAGR 16%
Note: CAGR represents compounded annual growth rate over 4 year period.
EBITDAEBITDA
$235 $204$257
$382
$575
($ in Millions)($ in Millions)
2005
2005
EPSEPS
$1.14 $1.14$1.42
$2.06$2.32CAGR 25% CAGR 19%
2002 2003 20042001
2002 2003 2004 20052001
200520042001
2002 2003 20042001
(1) Based on the number of diluted shares outstanding as used in the Company’s diluted EPS calculation for the reported period.
5
JEF Stock Performance Relative to Peers
218% 213%
180%
129%
70%
43% 40%
(17%)(43%)
(77%)
356%
(100%)
(50%)
0%
50%
100%
150%
200%
250%
300%
350%
(1) AMEX Securities Broker/Dealer Index ®.
Change in Stock PriceJanuary 1, 2000 – January 20, 2006
BrokerIndex (1)
MerrillLynch
A.G.Edwards
GoldmanSachs
MorganStanley
CharlesSchwab
KnightTrading
LehmanBrothers
RaymondJames
BearStearnsJefferies
6
(1) Excludes discontinued Investment Technology operations.
Sales & TradingSales & Trading Investment BankingInvestment Banking Asset ManagementAsset Management Interest & OtherInterest & Other
1990 2000
78%
2%
15%
78%
15%5%
2%
Net Revenues
Diversified Revenues – Focused on the Middle Market
2005(1)
85%
0%7%
85%
7%8%
49%41%
3%
7%$128mm$617mm
$1.2 Billion
7
Investment in Human Capital
8851,014
1,2111,357
1,5941,783
2,045
500
1,000
1,500
2,000
2,500
1999 2000 2001 2002 2003 2004 2005
Total Headcount
Headcount Increases by Division Since 1999
Investment Banking Division 477 Research 92Equity Sales, Trading & Execution 170 Asset Management 56Bonds Direct 97 High Yield Division 19
8
Aligned & Motivated Management Team
(1) Includes all equity holdings, options, interests in compensation and incentive plans, and economic interests. Assumes expiration of all vesting and deferral periods.
(2) Based on information contained in Jefferies’ Proxy Statement filed with the SEC on April 15, 2005.(3) Based on information contained in Mr. Friedman’s Form 3 and Form 4s filed with the SEC.(4) Includes all Jefferies employees, management, directors and retirees currently working as consultants to the Company.
Name Title Years at Jefferies
Years in the Industry Ownership % (1)
Richard B. Handler (2) Chairman and CEO 15 18 9.5%
Brian P Friedman (3) Chairman, Executive Committee
4 21 2.4%
Joseph A. Schenk (2) CFO 11 15 0.6%
Other 6 Executive Committee Members 90 144 6.2%
Total Executive Committee 120 198 18.7%
The Jefferies "Family" (4) 53.2%
9
Equity Sales & Trading – Deep Institutional Relationships
Relationships with over 2,000 accounts
220 person sales force – average senior sales trader has been with Jefferies for approximately 14 years
Primarily low risk agency and principal trading
Diversified customer base – over 300 accounts make up approximately 80% of equity trading revenues, significantly more
than most Wall Street firms
Jefferies traded an average of 75 million shares per trading day in U.S. Equities during 2004
Jefferies Execution Services executes over 145 million shares per day on the NYSE, representing nearly 10% of average
daily reported NYSE volume
Nasdaq Market Maker in more than 2,400 securities, including 500 ADRs
New Product Opportunities - Bulletin Boards (2002), ADR (2002), ETF (2004), Options (2005)
$446
$382 $396 $392
275
212 188 181
50
125
200
275
350
425
500
2002 2003 2004 2005
Rev
(mill
ions
)/Vol
(bill
ions
JEF Equity Trading Revenues ($ millions)Industry Block Trading Volumes (billions)
Gaining market share amid declining industry-
wide block trading volumes
10
Investment Banking – Dominant Player in the Middle Market
$81 $91 $124 $140$230
$353
$495
$0
$100
$200
$300
$400
$500
$600
1999 2000 2001 2002 2003 2004 2005
Investment Banking Revenues ($ in Millions)
Nearly 400 professionals with world class expertise and experience focused primarily on middle market companies
Name The 2005 Middle Market Investment Bank of the Year by Investment Dealers’ Digest
In 2005, Jefferies completed more than 250 transactions valued over $65 billion
Leading M&A Advisor, announcing nearly 500 M&A transactions worth nearly $85 billion since 1997
Top 15 – Deals under $1 billion
#2 – Deals under $250mm
Top in-house restructuring practice, with over $100 billion in restructured liabilities since 1993
CAGR-35%
Note: CAGR represents compounded annual growth rate over 6-year period.
11
High Yield Rankings
2001 – 2005 Single B New Issues Under $150 Million 2005 Single B New Issues Under $150 Million
Deals Manager Proceeds Rank Manager Proceeds Rank Deals
Jefferies & Co Inc Jefferies & Co Inc $3,026.8 1 34 $415.5 1 5
Banc of America Securities LLC 1,734.9 2 27 Banc of America Securities LLC 348.4 2 6 JP Morgan 1,593.5 3 26 Bear Stearns & Co Inc 250.7 3 4 Deutsche Bank AG 1,542.4 4 22 Lehman Brothers 228.0 4 3 Credit Suisse First Boston 1,524.0 5 23 JP Morgan 169.8 5 3 Citigroup 959.3 6 13 Citigroup 150.8 6 3 UBS 909.9 7 13 UBS 136.5 7 3 Wachovia Corp 796.8 8 12 Merrill Lynch & Co Inc 127.5 8 2 Goldman Sachs & Co 734.7 9 9 Wachovia Corp 61.5 9 1 Bear Stearns & Co Inc 674.4 10 9 Deutsche Bank AG 60.0 10 1 Lehman Brothers 633.8 11 9 Credit Suisse First Boston 30.8 11 1 Morgan Stanley 552.5 12 9 Merrill Lynch & Co Inc 403.9 13 7 CIBC World Markets Inc 262.5 14 5 Morgan Joseph & Co Inc 125.0 15 1
Note: Excludes split rated, mortgage and asset-backed securities. Full credit to book runner, equal credit if joint-book runners.Source: Securities Data Corporation and Jefferies & Company, Inc.
12
M&A Ranking
Deals <$1,000 million Deals <$500 million Deals <$250 million Rank Financial Advisor Deals Rank Financial Advisor Deals Rank Financial Advisor Deals
1 Houlihan Lokey 121 1 Houlihan Lokey 117 1 Houlihan Lokey 112 2 Goldman Sachs 99 2 UBS 80 2 Jefferies & Company 64 3 Credit Suisse First Boston 94 3 Goldman Sachs 78 3 UBS 62 4 UBS 93 4 Credit Suisse First Boston 74 4 Credit Suisse First Boston 54 5 Citigroup 90 5* Citigroup 72 5 Morgan Stanley 53 6 JP Morgan 89 5* JP Morgan 72 6 Banc of America Securities 52 7* Banc of America Securities 78 7 Jefferies & Company 68 7 Keefe Bruyette & Woods 50 7* Merrill Lynch 78 8 Banc of America Securities 67 8* Citigroup 48 7* Morgan Stanley 78 9 Morgan Stanley 65 8* JP Morgan 48
10 Lehman Brothers 76 10 Merrill Lynch 64 10 Goldman Sachs 47 11 Jefferies & Company 71 11 Lehman Brothers 62 11 Wachovia Corp 46
Source: SDC Platinum. Transactions Announced 1/1/2005 - 9/30/2005. All Tables Include Transactions Where Value Is Undisclosed. Excludes: Tender Offers, Exchange Offers, Self-tenders, Repurchases, Remaining Interests, Privatizations.
13
Investment Banking – New Strategic Partners
JEF acquired Broadview for approximately $36.4mm in initial consideration (57% cash & 43% JEF stock) and a 5 year contingency for additional consideration.
75 professionals in New York, Silicon Valley, Boston and London;
Over the last 5 years, Broadview has completed 321 M&A transactions worth $54.3 billion;
JEF acquired Quarterdeck for approximately $29.5mm in initial consideration and a 5 year contingency for additional consideration. The initial consideration, net of cash acquired in the acquisition, was comprised of approximately 55% cash and 45% JEF restricted stock
Expands investment banking for aerospace, defense, space and government IT; leverages JEF platform
JEF acquired Randall & Dewey for approximately $43.2mm in initial consideration and a 5 year contingency for additional consideration.
Expands investment banking for global oil and gas companies; leverages JEF platform
Over 100 professionals in Houston, London and Calgary.
JEF acquired Helix for approximately $35.1mm in initial consideration and a five year contingency for additional consideration.
Expands the array of services that JEF can offer private equity firms as Helix is one of Europe's leading independent placement agents with over $17.5 billion raised since 1998.
Five Executive Directors and seven other placement professionals in London with expansion plans for New York and Los Angeles.
14
Investment Banking – Diversified Service and Industry Focus
Technology
Aerospace / Defense
Consumer
Exploration and Production
Financial Services
Gaming
Industries
Healthcare
Industrials
Media
Oil Services & Maritime
Financial Sponsors / General
Equity
Convertibles
High Yield
Structured Finance
Private Placements
M&A Advisory
Restructuring
Services
Fund Placement
Investment Grade
Loans
Capital Markets Products
Advisory Products
Telecom Growth Industries
Basic Industries
New since 2000
15
Investment Banking – Diversified by Product and Industry
By Industry – FY 2005
Media/ Telecomm
2%
Healthcare3%
Technology15%
Fin Svcs6%
Aerospace/ Defense
8%Gaming
4%
General6%
Energy24%
Consumer12%
Industrial15%
Telecom5%
M&A38%
Convertible3%
Advisory10%Debt
24%
Equity18%
Restructuring7%
By Product – FY 2005
16
Investment Banking – Jefferies Babson Finance, LLC
Partners: Jefferies and MassMutual’s Babson Capital
Objective: Provide senior lending to middle market customers
Estimated loans to be written over 3-4 years: $10 billion
Estimated hold capacity of JV: $2 billion in loans
Equity: $250 million commitment by each partner
Partners’ responsibilities:
– Jefferies - origination
– Babson - analytical and portfolio management services
17
High Yield Sales & Trading
A top secondary market trader, trading approximately $20 billion face value in securities annually
Makes markets in more than 500 issues with over 300 institutions
Focus on “Single B” credits and distressed debt
Each high yield trader has at least 14 years industry experience
Consistently profitable in all environments since 1990
Asset Management – Jefferies Partners Family of Opportunity Funds
$27$40 $45
$62
$0
$20
$40
$60
$80
2002 2003 2004 2005
High Yield Secondary Trading Revenues ($ in millions)
18
Research – Small and Mid-Cap Focus
CoveredProfessionals Companies
Equity 89 597High Yield 14 300Converts 1 80International 12 123
Total 116 1,100
Equity - Covered Companies by Market Cap
$0-$500mm 22%$500mm-$2.0B 37%$2.0B-$5.0B 17%$5.0B + 24%
SectorsUnder Coverage
Post-ReorganizationServices
Special Situations
Technology
Telecommunications
Energy
Financials
Gaming & Leisure
Healthcare
Industrials
Media &Entertainment Consumer
Oil Servicesand Maritime
Ranked No. 2 Firm in the Wall Street Journal’s “2005 Best on the Street” survey and a Top 10 firm in the 2004 Forbes/StarMine Analyst Awards
216262
343412
505
597
200
300
400
500
600
2000 2001 2002 2003 2004 Q32005
Equity Research – Companies Covered
19
Asset Management – Leveraging the Platform
Continued to build the infrastructure for a substantial asset management business -total headcount of 56
Leverage relationships with trading, investment banking and sponsor groups
Current strategies – High Yield, Private Equity, International Convertible Bonds, Long/Short, CDO, and Real Assets
Fees largely performance-based
$20$33
$81 $82
$0$20$40$60$80
$100
2002 2003 2004 2005
Asset Management Revenues ($ in millions)
$732$417
$971$581$22
$1,767
$602$464$190
$1,656
$1,038$505$140
$0
$1,000
$2,000
$3,000
$4,000
2002 2003 2004 2005
Asset Under Management ($ in millions)
Equity-linked Debt
$1.1BB $1.6BB
$3.0BB $3.3BB
Strategy
CommoditiesEquities
20
Other Products
Convertibles Sales & Trading$37 million in 2005 revenues
75 experienced professions located on trading desks in New York, London, Tokyo, Zurich and
Paris who have relationships with over 350 accounts
Make markets in over 400 convertible securities
Jefferies Bonds Direct $29 million in 2005 revenues
Management team with over 125 years of combined experience; 95 employees
Securities Lending $27 million in 2005 revenues
Approximately $7.7 billion matched assets / liabilities
Significant cash flows
Low risk with high margins
Correspondent Clearing$23 million in 2005 revenues
Jefferies Financial Products$46 million in 2005 revenues
21
Highly Variable Cost Structure
Jefferies’ highly variable expense structure is responsive to all economicenvironments – more than 60% of total compensation expense is variable
Restricted / retention stock is a significant and meaningful portion of employee compensation
($ in millions) 2005
Compensation & Benefits $ 670
Floor Brokerage & Clearing 46
Other Non-Compensation Costs 220
Total Non-Interest Expense $ 936
Pretax Income Margin 22%
Net Income $ 157
61% 60%57% 57% 56% 56%
50%
60%
70%
2000 2001 2002 2003 2004 2005
Comp & Benefits56% of Net Revenues
Comp & Benefits as a % of Net Revenues
22
Strong Risk Management
Trading is primarily agency and low risk principal trading – identifying natural buyers
and sellers
Majority of customers are top-tier, high-quality institutions
All traders subject to real-time monitoring and strict trading limits
Expanded legal and compliance departments
High employee ownership and long-term tenure of key employees
23
Strong Capital Position
Almost $2 billion in capital
Over $1.5 billion, pro forma, in cash and short-term investments
Investment grade since debt offering in 1994
Upgraded to Baa1 by Moody’s in January 2005
BBB by S&P since November 2003
BBB+ by Fitch in January 2006
Jefferies continues to maintain relatively low leverage and strong liquidity
Pro forma long-term Debt/Equity ratio of approximately 107% (versus approximately 380% for
comparable broker-dealers
Pro FormaAs Reported Adjustments Pro Forma
$781 $500 $1,281$125 $125
Total Stockholder's Equity 1,201 1,201Total Capitalization $1,982 $625 $2,607
Long-Term Debt/Equity 65% 107%Liquid Assets/Total Assets 93% 94%Total Assets/Stockholders' Equity 11.3x 11.8x
As of September 30, 2005
Credit Statistics:
Long-Term DebtSeries A Convertible Preferred
24
Pro Forma Debt Statistics
0%100%200%300%400%500%
Jefferies Merrill MSDW Goldman Lehman Bear
x3x6x9x
12x15x18x
Jefferies Lehman Merrill Goldman Bear MSDW
Long Term Debt to Stockholders’ Equity
Note: Pro forma debt statistics assumes an issue size of $500 million.(1) Calculated as Total Assets less Securities Borrowed / Stockholders’ Equity as of Sep 30, 2005.
(1)
Adjusted Leverage (excluding Stock Borrow & Repos)
25
CONCLUSION
A global investment bank and institutional securities firm serving growing and mid-sized companies and their
investors.
26
Appendix A – EBITDA Reconciliation
EBITDA represents earnings (loss) before income taxes, interest expense, depreciation and amortization and is an approximation of cash flow from operations before tax. The Company uses EBITDA as an internal measure of performance and believes it is a useful and commonly used measure of financial performance in addition to earnings (loss) before taxes and other profitability measures under generally accepted accounting principles (GAAP).
EBITDA is not a measure of performance under GAAP. EBITDA should not be construed as an alternative to operating income and earnings (loss) before taxes as an indicator of the company’s operations in accordance with GAAP. Nor is EBITDA an alternative to cash flow from operating activities in accordance with GAAP. The Company’s definition of EBITDA can differ from that of other companies.
The following table reconciles net earnings, the most comparable measure under GAAP, to EBITDA for the stated periods (in thousands).
Years Ended2001 2002 2003 2004 2005
Net Earnings $59,539 $62,571 $84,051 $131,366 $157,443Add:Minority Interest - - 7,631 11,668 6,875 Interest Expense 114,709 80,087 97,102 140,394 293,173 Income Taxes 43,113 41,121 52,851 83,955 104,089 Depreciation and amortization 17,230 20,281 15,519 14,544 12,965
EBITDA $234,591 $204,060 $257,154 $381,927 $574,545
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