0 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
Investment Securities Growing and mid-sized companies Banking Research
Asset Management 1 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
2 2005 Highlights – Record Results
Record Gross Revenues $1.5 Billion
Record Net Revenues $1.2 Billion
Record EBITDA $575 million (1)
Record Net Earnings $157 million
Record EPS $2.32
Book Value (Approximately 83% Tangible) $1.3 billion
Current Market Capitalization (fully diluted) (2) $3.5 Billion
RATED BBB+ BY FITCH IN JANUARY 2006 UPGRADED TO BAA1 BY MOODY'S IN JANUARY 2005
(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.
3 Recent Strong Performance
NetNet RevenuesRevenues NetNet EarningsEarnings BookBook ValueValue
$157 CAGR 16% CAGR 27% CAGR 22% $1,287 $1,205 $131 $1,058 $1,039 $830 $84 $838 $670 $675 $60 $63 $566 $629
2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 ($($ inin MiMillllions)ions) ($($ inin MiMillllions)ions) ($($ inin MiMillllions)ions)
EBITDAEBITDA EPSEPS MarketMarket CapCap (1)
CAGR 25% $575 CAGR 19% $2.32 CAGR 31% $3,461 $2.06 $382 $2,608 $1.42 $2,016 $257 $1.14 $1.14 $235 $204 $1,153 $1,159
2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 2001 2002 2003 2004 Current ($($ inin MiMillllions)ions) ($($ inin MiMillllions)ions)
(1) Based on the number of diluted shares outstanding as used in the Company’s diluted EPS calculation for the reported period.
Note: CAGR represents compounded annual growth rate over 4 year period. 4 JEF Stock Performance Relative to Peers
Lehman Raymond Bear Broker Merrill A.G. Goldman Morgan Charles Knight Jefferies Brothers James Stearns Index (1) Lynch Edwards Sachs Stanley Schwab Trading
356% 350% Change in Stock Price January 1, 2000 – January 20, 2006 300%
250% 218% 213%
200% 180%
150% 129%
100% 70% 43% 50% 40%
0%
(17%) (50%) (43%)
(100%) (77%)
(1) AMEX Securities Broker/Dealer Index ®.
5 Diversified Revenues – Focused on the Middle Market
Net Revenues
1990(1) 2000 2005
7% 15% 5% 0% 8% 3% 7% 15% 2% 2% 85% 78% 41% 49%
85% 78% $128mm 7% $617mm
$1.2 Billion
Sales & Trading Investment Banking Asset Management Interest & Other (1) Excludes discontinued Investment Technology operations.
6 Investment in Human Capital
Total Headcount 2, 500 2,045 2, 000 1,783 1,594 1,357 1, 500 1,211 1,014 1, 000 885
500 1999 2000 2001 2002 2003 2004 2 005 Headcount Increases by Division Since 1999 Investment Bank ing Division 477 Researc h 92 Equity Sales, Trading & Execution 170 Asset Managem ent 56 Bonds Direc t 97 High Y ield Division 19
7 Aligned & Motivated Management Team
Years at Years in the Name Title Jefferies Industry Ownership % (1)
Richard B. Handler (2) Chairman and CEO 15 18 9.5%
Brian P Friedman (3) Chairman, Executive 4 21 2.4% Committee
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%
(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. 8 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)
500 s n 425 Gaining market share lio $446 il
(b $392 l 350 $382 $396 amid declining industry- o )/V
s 275 wide block trading n 275 llio i 200 volumes 212 188
(m 181 v
e 125 R 50 2002 2003 2004 2005
JEF Equity Trading Revenues ($ millions) Industry Block Trading Volumes (billions)
9 Investment Banking – Dominant Player in the Middle Market
Nearly 400 professionals with world class expertise and experience focused primarily on middle market companies
Name The 2005 Middle Market Investment Banking Revenues ($ in Millions) Investment Bank of the Year by Investment Dealers’ Digest
In 2005, Jefferies completed more than $600 $495 250 transactions valued over $65 billion CAGR-35% $500 Leading M&A Advisor, announcing $353 nearly 500 M&A transactions worth $400 nearly $85 billion since 1997 $300 $230 z Top 15 – Deals under $1 billion $124 $140 $200 $91 $81 z #2 – Deals under $250mm $100 Top in-house restructuring practice, with over $100 billion in restructured $0 1999 2000 2001 2002 2003 2004 2005 liabilities since 1993 Note: CAGR represents compounded annual growth rate over 6-year period.
10 High Yield Rankings
2001 – 2 005 S ingle B New Is sues U nder $150 Millio n 2005 Sing le B N ew Issu es Under $150 M illion
Manager Proceeds Rank Deals Man ager Proceeds Rank Deals
Jefferies & Co Inc $3,026.8 1 34 Jefferies & Co Inc $415.5 1 5 Banc o f America Secu rities LLC 1 ,734.9 2 27 Banc of America Securities LLC 348.4 2 6 JP Mo rgan 1 ,593.5 3 26 Bear Stearns & Co Inc 250.7 3 4 Deutsche Bank AG 1 ,542.4 4 22 Lehma n Brothers 228.0 4 3 Credit Suisse First Boston 1 ,524.0 5 23 JP Morgan 169.8 5 3 Citigrou p 959.3 6 13 Citigroup 150.8 6 3 UBS 909.9 7 13 UBS 136.5 7 3 Wacho via Cor p 796.8 8 12 Merrill Lyn ch & 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 Deu tsch e Bank AG 60.0 10 1 Lehm an Brothe rs 633.8 11 9 Credit Suisse First Boston 30.8 11 1 Morgan Stanley 552.5 12 9 Merrill Lynch & Co In c 403.9 13 7 CIBC World Markets Inc 262.5 14 5 Morga n Joseph & Co In c 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.
11 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.
12 Investment Banking – New Strategic Partners
JEF acquired Broadview for approximately $36.4mm JEF acquired Quarterdeck for approximately $29.5mm in initial consideration (57% cash & 43% JEF stock) in initial consideration and a 5 year contingency for and a 5 year contingency for additional additional consideration. The initial consideration, net consideration. of cash acquired in the acquisition, was comprised of approximately 55% cash and 45% JEF restricted stock 75 professionals in New York, Silicon Valley, Boston and London; Expands investment banking for aerospace, defense, space and government IT; leverages JEF platform Over the last 5 years, Broadview has completed 321 M&A transactions worth $54.3 billion;
JEF acquired Randall & Dewey for approximately JEF acquired Helix for approximately $35.1mm in initial $43.2mm in initial consideration and a 5 year consideration and a five year contingency for additional contingency for additional consideration. consideration.
Expands investment banking for global oil and gas Expands the array of services that JEF can offer private companies; leverages JEF platform equity firms as Helix is one of Europe's leading independent placement agents with over $17.5 billion Over 100 professionals in Houston, London and raised since 1998. Calgary. Five Executive Directors and seven other placement professionals in London with expansion plans for New York and Los Angeles. 13 Investment Banking – Diversified Service and Industry Focus Services Industries Equity Media Convertibles Telecom Growth Capital High Yield Healthcare Industries Markets Investment Grade Technology Products Loans Financial Sponsors / General
Structured Finance Exploration and Production
Private Placements Industrials Advisory M&A Advisory Aerospace / Defense Basic Products Restructuring Gaming Industries Fund Placement Oil Services & Maritime
Consumer
New since 2000 Financial Services
14 Investment Banking – Diversified by Product and Industry
By Product – FY 2005 By Industry – FY 2005
Aerospace/ Restructuring Defense Consumer Telecom 7% 8% 12% 5% M&A Gaming 38% 4% Equity 18% Industrial 15%
Energy General 24% 6%
Advisory Healthcare Debt 10% 3% 24% Convertible Media/ 3% Telecomm Fin Svcs Technology 2% 6% 15%
15 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
16 High Yield Sales & Trading
A top secondary market trader, trading approximately $20 billion face value in securities annually
Makes markets in more than 500 issues with over 300 institutions
Focus on “Single B” credits and distressed debt
Each high yield trader has at least 14 years industry experience
Consistently profitable in all environments since 1990
Asset Management – Jefferies Partners Family of Opportunity Funds
High Yield Secondary Trading Revenues ($ in millions)
$80 $62 $45 $60 $40 $27 $40 $20 $0 2002 2003 2004 2005
17 Research – Small and Mid-Cap Focus
Covered Sectors Professionals Companies Under Coverage
Equity 89 597 Media & High Yield 14 300 Consumer Entertainment Converts 180 Oil Services International 12 123 Energy and Maritime Total 116 1,100 Post-Reorganization Financials Services
Equity - Covered Companies by Market Cap Gaming & Leisure Special Situations
$0-$500mm 22% Healthcare Technology $500mm-$2.0B 37% $2.0B-$5.0B 17% Industrials Telecommunications $5.0B + 24%
Equity Research – Companies Covered Ranked No. 2 Firm in the Wall Street Journal’s 59 7 “2005 Best on the Street” survey and a Top 10 firm in the 600 50 5 2004 Forbes/StarMine Analyst Awards 500 41 2 400 34 3 26 2 300 21 6 200 2000 2001 2002 2003 2004 Q3 2005
18 Asset Management – Leveraging the Platform
Continued to build the infrastructure for a substantial asset management business - total headcount of 56
Leverage relationships with trading, investment banking and sponsor groups
Current strategies – High Yield, Private Equity, International Convertible Bonds, Long/Short, CDO, and Real Assets
Fees largely performance-based
Asset Management Revenues ($ in millions) Asset Under Management ($ in millions)
$81 $82 $3.3BB $100 $4,000 $3.0BB $140 $80 $190 $505 $3,000 $1.6BB $464 $1.1BB $1,038 $60 $33 $602 $2,000 $22 $20 $40 $581 $1,767 $417 $1,656 $1,000 $971 $20 $732 $0 $0 2002 2003 2004 2005 2002 2003 2004 2005 Strategy Equity-linked Debt Equities Commodities 19 Other Products
Convertibles Sales & Trading
z $37 million in 2005 revenues
z 75 experienced professions located on trading desks in New York, London, Tokyo, Zurich and Paris who have relationships with over 350 accounts
z Make markets in over 400 convertible securities
Jefferies Bonds Direct
z $29 million in 2005 revenues
z Management team with over 125 years of combined experience; 95 employees
Securities Lending
z $27 million in 2005 revenues
z Approximately $7.7 billion matched assets / liabilities
z Significant cash flows
z Low risk with high margins
Correspondent Clearing
z $23 million in 2005 revenues
Jefferies Financial Products
z $46 million in 2005 revenues 20 Highly Variable Cost Structure
Jefferies’ highly variable expense structure is responsive to all economic environments – more than 60% of total compensation expense is variable
Restricted / retention stock is a significant and meaningful portion of employee compensation
($ in millions) 2005
Compensation & Benefits $ 670 Comp & Benefits 56% of Net Revenues Floor Brokerage & Clearing 46 Comp & Benefits as a % of Net Revenues
70% Other Non-Compensation Costs 220 61% 60% 57% 57% 60% 56% 56% Total Non-Interest Expense $ 936
50% Pretax Income Margin 22% 2000 2001 2002 2003 2004 2005
Net Income $ 157
21 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
22 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
z Upgraded to Baa1 by Moody’s in January 2005
z BBB by S&P since November 2003
z BBB+ by Fitch in January 2006
Jefferies continues to maintain relatively low leverage and strong liquidity
z Pro forma long-term Debt/Equity ratio of approximately 107% (versus approximately 380% for comparable broker-dealers
As of September 30, 2005 Pro Forma As Reported Adjustments Pro Forma Long-Term Debt $781 $500 $1,281 Series A Convertible Preferred $125 $125 Total Stockholder's Equity 1,201 1,201 Total Capitalization $1,982 $625 $2,607
Credit Statistics: Long-Term Debt/Equity 65% 107% Liquid Assets/Total Assets 93% 94% Total Assets/Stockholders' Equity 11.3x 11.8x
23 Pro Forma Debt Statistics
Adjusted Leverage (excluding Stock Borrow & Repos)
18x 15x 12x 9x 6x 3x x Jefferies (1) Lehman Merrill Goldman Bear MSDW
Long Term Debt to Stockholders’ Equity
500% 400% 300% 200% 100% 0% Jefferies Merrill MSDW Goldman Lehman Bear
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. 24 CONCLUSION
A global investment bank and institutional securities firm serving growing and mid-sized companies and their investors.
25 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).
Ye ar s Ende d 2001 2002 2003 2004 2005
Net Earnings $59,539 $62,571 $84,051 $131,366 $157,443 Add: 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
26