-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, MuzK8zH1Dugb2eHNCZE2UjKf9Or7Pk/Y11VAEx+XYsZguzwlFbN3Bws4dVsGoSry m9p+mRY5YqZ0wTjh2fzVGw== 0000075754-95-000002.txt : 19950516 0000075754-95-000002.hdr.sgml : 19950516 ACCESSION NUMBER: 0000075754-95-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950515 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PAINE WEBBER GROUP INC CENTRAL INDEX KEY: 0000075754 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 132760086 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07367 FILM NUMBER: 95539361 BUSINESS ADDRESS: STREET 1: 1285 AVE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2127132000 FORMER COMPANY: FORMER CONFORMED NAME: PAINE WEBBER INC DATE OF NAME CHANGE: 19840523 10-Q 1 United States SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 ________________________ FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to____________ Commission file number 1-7367 PAINE WEBBER GROUP INC. ======================== (Exact name of Registrant as specified in its charter) Delaware 13-2760086 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 1285 Avenue of the Americas, New York, N.Y. 10019 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 713-2000 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 _________ __________ ______________________ On May 5, 1995, the Registrant had outstanding 99,610,111 shares of common stock of $1 par value, which is the Registrant's only class of common stock. 2 PAINE WEBBER GROUP INC. FORM 10-Q March 31, 1995 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Page Item 1. Financial Statements. Consolidated Statements of Income (unaudited) for the Three Months Ended March 31, 1995 and 1994. 2 Consolidated Statements of Financial Condition (unaudited) at March 31, 1995 and December 31, 1994. 3 Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 1995 and 1994. 4 Notes to Consolidated Financial Statements (unaudited). 5-13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 14-16 PART II. OTHER INFORMATION Item 1. Legal Proceedings. 17 Item 4. Submission of Matters to a Vote of Security Holders. 17-18 Item 6. Exhibits and Reports on Form 8-K. 18 Signature 19 3 PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements Paine Webber Group Inc. Consolidated Statements of Income (unaudited) (In thousands of dollars except share and per share amounts) Three Months Ended March 31, ----------------------- 1995 1994 --------- ---------- Revenues Commissions $ 270,262 $ 280,656 Principal transactions 213,670 183,874 Investment banking 49,800 97,594 Asset management 89,887 91,383 Other 35,887 30,904 Interest 574,404 398,037 ---------- ---------- Total revenues 1,233,910 1,082,448 Interest expense 508,126 330,371 ---------- ---------- Net revenues 725,784 752,077 ---------- ---------- Non-interest expenses Compensation and benefits 432,957 431,714 Office and equipment 64,680 55,426 Communications 35,157 31,998 Business development 21,550 22,007 Brokerage, clearing & exchange fees 23,532 21,978 Professional services 22,187 18,330 Other 72,936 77,877 ---------- ---------- Total non-interest expenses 672,999 659,330 ---------- ---------- Income before taxes 52,785 92,747 ---------- ---------- Provision for income taxes: Federal 11,329 23,079 State, local and foreign 7,146 14,020 ---------- ---------- 18,475 37,099 ---------- ---------- Net income $ 34,310 $ 55,648 ========== ========== Net income applicable to common shares $ 27,273 $ 56,711 ========== ========== Earnings per common share: Primary $ 0.27 $ 0.71 Fully diluted $ 0.27 $ 0.70 Weighted average common shares: Primary 99,196,163 79,911,116 Fully diluted 107,706,052 81,316,668 Dividends declared per common share $ 0.12 $ 0.12 [FN] See notes to consolidated financial statements. 4 Paine Webber Group Inc. Consolidated Statements of Financial Condition (unaudited) (In thousands of dollars except share and per share amounts) March 31, December 31, 1995 1994 ----------- ------------ Assets Cash and cash equivalents $ 245,004 $ 259,238 Cash and securities segregated and on deposit for federal and other regulations 406,873 369,585 Trading inventories, at fair value 11,499,330 10,784,117 Securities borrowed or purchased under agreements to resell 26,416,780 18,630,656 Receivables: Clients 5,135,653 3,495,670 Brokers and dealers 409,879 432,565 Dividends and interest 268,153 229,462 Fees and other 244,766 233,027 Office equipment and leasehold improvements, net of accumulated depreciation and amortization of $257,101 at March 31, 1995 and $245,225 at December 31, 1994 301,479 272,365 Other assets 1,287,668 1,149,440 ------------ ----------- $46,215,585 $35,856,125 ============ =========== Liabilities and Stockholders' Equity Short-term borrowings $ 1,148,275 $ 1,889,609 Commitments for securities sold but not yet purchased, at fair value 8,061,124 6,034,706 Securities loaned or sold under agreements to repurchase 26,492,734 19,099,766 Payables: Clients 4,361,636 2,899,240 Brokers and dealers 418,749 303,244 Dividends and interest 251,334 218,719 Other liabilities and accrued expenses 936,822 933,977 Income taxes 18,559 - Accrued compensation and benefits 250,402 344,981 ----------- ----------- 41,939,635 31,724,242 Long-term borrowings 2,435,287 2,315,415 ----------- ----------- 44,374,922 34,039,657 ----------- ----------- Commitments and contingencies Redeemable Preferred Stock 186,226 185,969 Stockholders' Equity: Convertible Preferred Stock 100,000 100,000 Common stock, $1 par value, 200,000,000 shares authorized; issued 101,840,236 shares at March 31, 1995 and 100,613,737 shares at December 31, 1994 101,840 100,614 Additional paid-in capital 800,364 784,974 Retained earnings 729,897 715,052 ----------- ----------- 1,732,101 1,700,640 Treasury stock, at cost; 2,072,812 shares at March 31, 1995 and 1,297,081 shares at December 31, 1994 (34,142) (21,981) Unamortized cost of restricted stock (54,915) (51,803) Foreign currency translation adjustment 11,393 3,643 ----------- ----------- 1,654,437 1,630,499 ----------- ----------- $46,215,585 $35,856,125 =========== =========== [FN] See notes to consolidated financial statements. 5 Paine Webber Group Inc. Consolidated Statements of Cash Flows (unaudited) (In thousands of dollars) Three Months Ended March 31, --------------------------- 1995 1994 ------------ ------------ Cash flows from operating activities: Net income $ 34,310 $ 55,648 Adjustments to reconcile net income to cash provided by (used for) operating activities: Noncash items included in net income: Depreciation and amortization 13,054 9,593 Deferred income taxes 24,058 (9,793) Amortization of deferred charges 41,084 30,227 Other 12,439 21,269 (Increase) decrease in operating receivables: Clients (869,934) (222,656) Brokers and dealers 22,686 424,781 Dividends and interest (37,813) 10,197 Fees and other (7,198) (52,443) Increase (decrease) in operating payables: Clients 1,250,957 (170,492) Brokers and dealers 115,505 (193,529) Dividends and interest 32,598 (26,726) Other (94,100) (76,598) (Increase) decrease in: Trading inventories (714,521) 341,429 Securities borrowed or purchased under agreements to resell (2,009,787) (3,804,739) Cash and securities on deposit (37,288) (75,858) Other assets (171,309) (54,060) Increase (decrease) in: Commitments for securities sold but not yet purchased 2,026,418 558,324 Securities loaned or sold under agreements to repurchase 755,104 2,455,652 ---------- ----------- Cash provided by (used for) operating activities 386,263 (779,774) ---------- ----------- Cash flows from investing activities: Payments for: Net assets acquired in business acquisition (624,090) - Office equipment and leasehold improvements (21,757) (17,926) ---------- ----------- Cash used for investing activities (645,847) (17,926) ---------- ----------- Cash flows from financing activities: Net proceeds from (payments on): Short-term borrowings (741,334) (957,699) Securities sold under agreements to repurchase, net of securities purchased under agreements to resell 896,112 1,503,520 Proceeds from: Long-term borrowings 145,396 382,363 Employee stock transactions 3,631 8,829 Payments for: Long-term borrowings (25,966) (54,341) Repurchases of common stock (13,023) (19,735) Dividends (19,466) (9,199) ----------- ---------- Cash provided by financing activities 245,350 853,738 ----------- ---------- (Decrease) increase in cash and cash equivalents (14,234) 56,038 Cash and cash equivalents, beginning of period 259,238 241,038 ----------- ---------- Cash and cash equivalents, end of period $ 245,004 $ 297,076 =========== ========== [FN] See notes to consolidated financial statements. 6 Paine Webber Group Inc. Notes to Consolidated Financial Statements (unaudited) (In thousands of dollars except share and per share amounts) Basis of Presentation The consolidated financial statements include the accounts of Paine Webber Group Inc. ("PWG") and its wholly owned subsidiaries, including its principal subsidiary, PaineWebber Incorporated ("PWI") (collectively, the "Company"). All material intercompany balances and transactions have been eliminated. The financial information as of and for the periods ended March 31, 1995 and 1994 is unaudited. However, in the opinion of management of the Company, such information includes all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation. These financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 1994. The Results of Operations reported for interim periods are not necessarily indicative of the results of operations for the entire year. Certain reclassifications have been made in prior year amounts to conform to current year presentations. The Company's principal line of business is to serve the investment and capital needs of individual, corporate, institutional and public agency clients. Business Acquisition The purchase of certain assets and liabilities (the "net assets") and specific businesses of Kidder, Peabody Group Inc. ("Kidder") from General Electric Company was completed in the first quarter of 1995 with the closing on the retail and asset management businesses. The assets acquired and liabilities assumed in the first quarter of 1995 were as follows: Net assets acquired: Trading inventories $ 692 Receivables 845,985 Other assets 45,712 Payables (268,299) ---------- $ 624,090 ========== The consideration given in exchange for the net assets and businesses acquired was $624,090 in cash, obtained from various funding sources. The acquisition has been accounted for under the purchase method of accounting. The following unaudited pro forma condensed results of operations for the three months ended March 31, 1994 assumes the acquisition of the Kidder businesses occurred at the beginning of the year ended December 31, 1994: Revenues $ 1,349,507 Net revenues $ 936,550 Net income $ 75,847 Earnings per common share: Primary $0.69 Fully diluted $0.66 The unaudited pro forma earnings per common share for the 1994 periods subsequent to the three months ended March 31, 1994 are favorably impacted by the acquisition. The unaudited pro forma condensed results of operations for the three months ended March 31, 1994 are not necessarily indicative of the Company's results of operations that might have occurred had the transaction been executed at the beginning of 1994, or of any future results of operations of the Company. Adjustments to the first quarter of 1995 to develop pro forma results as if the retail and asset management closings had occurred on January 1, 1995 were not material. 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, cash and securities segregated for regulatory purposes, trading inventories, securities borrowed or purchased under agreements to resell, and certain receivables, are carried at fair value or contracted amounts which approximate fair value. Similarly, liabilities, including short-term borrowings, commitments for securities sold but not yet purchased, securities loaned or sold under agreements to repurchase and, certain payables, are carried at fair value or contracted amounts approximating fair value. 7 Notes to Consolidated Financial Statements (continued) At March 31, 1995 and December 31, 1994, the fair value of long-term borrowings was $2,317,293 and $2,107,538, respectively, as compared to the carrying amounts of $2,435,287 and $2,315,415, respectively. The estimated fair value of long-term borrowings is based upon quoted market prices for the same or similar issues and pricing models. However, for substantially all its fixed rate debt, the Company enters into interest rate swap agreements to convert its fixed rate payments into floating payments, which partially offset the effect of the changes in interest rates on the fair value of the Company's long-term borrowings. The fair value of interest rate swaps used to hedge the Company's long-term borrowings is based upon the amounts the Company would receive or pay to terminate the agreements, taking into account current interest rates and creditworthiness of the counterparties. The fair value of the interest rate swaps was $106,396 payable and $172,193 payable at March 31, 1995 and December 31, 1994, respectively. The carrying amounts of the interest rate swap agreements at March 31, 1995 and December 31, 1994 were $1,596 payable and $4,480 receivable, respectively, and are included in "Dividends and interest" in the Company's Consolidated Statement of Financial Condition. Trading Inventories Trading inventories and commitments for securities sold but not yet purchased, recorded at fair value, consisted of the following: March 31, December 31, 1995 1994 ----------- ----------- Trading inventories: U.S. government and agency obligations $ 3,655,961 $ 3,560,201 Mortgages and mortgage-backed securities 3,053,251 2,441,940 Corporate debt securities 2,130,084 1,816,747 State and municipal obligations 1,082,520 1,018,875 Corporate equity securities 816,903 703,366 Commercial paper and other short-term debt 760,611 1,242,988 ----------- ----------- $11,499,330 $10,784,117 =========== =========== Commitments for securities sold but not yet purchased: U.S. government and agency obligations $ 6,248,492 $ 4,918,655 Mortgages and mortgage-backed securities 93,279 44,370 Corporate debt securities 694,372 398,913 State and municipal obligations 41,915 57,751 Corporate equity securities 983,066 615,017 ----------- ----------- $ 8,061,124 $ 6,034,706 =========== =========== Short-Term Borrowings The Company meets its short-term financing needs by obtaining bank loans on either a secured or unsecured basis; by issuing commercial paper and medium-term notes; by entering into agreements to repurchase, whereby securities are sold with a commitment to repurchase at a future date; and through securities lending activity. Short-term borrowings at March 31, 1995 and December 31, 1994 consisted of the following: March 31, December 31, 1995 1994 ----------- ----------- Bank loans and other $ 676,856 $ 972,959 Commercial paper 471,419 906,650 Medium-Term Notes - 10,000 ----------- ----------- $ 1,148,275 $ 1,889,609 =========== =========== 8 Notes to Consolidated Financial Statements (continued) Long-Term Borrowings Long-term borrowings at March 31, 1995 and December 31, 1994 consisted of the following: March 31, December 31, 1995 1994 ----------- ----------- Fixed Rate Senior Notes due 1995-2014 $1,311,431 $1,177,159 Fixed Rate Subordinated Notes due 2002 174,346 174,324 Medium-Term Senior Notes 603,475 618,070 Medium-Term Subordinated Notes 308,150 308,150 Other 37,885 37,712 ---------- ---------- $2,435,287 $2,315,415 ========== ========== On March 13, 1995, the Company issued $125,000 of 8 7/8% Senior Notes Due March 15, 2005 at a discount of $509. The Notes are not redeemable prior to maturity. Interest on the Notes is payable semiannually on March 15 and September 15. Interest rates on the remaining fixed rate senior notes outstanding at March 31, 1995 range from 6 1/4% to 9 5/8%. The weighted average interest rate on the fixed rate senior notes outstanding at March 31, 1995 was 7.70%. The Fixed Rate Subordinated Notes Due 2002 have an interest rate of 7 3/4%. As of March 31, 1995, the Company had $911,625 of Medium-Term Senior and Subordinated Notes outstanding, with an average maturity of 3.4 years and a weighted average interest rate of 7.05%. Total interest payments relating to agreements to repurchase, short-term borrowings, stock loans and long-term borrowings were $475,870 and $359,996 for the three months ended March 31, 1995 and 1994, respectively. Preferred Stock The Company has authorization to issue up to 20,000,000 shares of preferred stock, in one or more series, with a par value of $20.00 per share. Preferred stock outstanding at March 31, 1995 and December 31, 1994 was as follows: March 31, December 31, 1995 1994 ------------ ----------- 9% Cumulative Redeemable Preferred Stock, Series C, $100.00 liquidation value; 2,500,000 shares authorized, issued and outstanding $186,226 $185,969 6% Cumulative Convertible Redeemable Preferred Stock, Series A, $100.00 liquidation value; 1,000,000 shares authorized, issued and outstanding $100,000 $100,000 The Company's 9% Cumulative Redeemable Preferred Stock, Series C, was recorded at its fair value of $185,000 at the date of issuance and is being increased periodically by charges to retained earnings, using the interest method, so that the carrying amount equals the redemption amount at the mandatory redemption date on December 15, 2014. Common Stock As of March 31, 1995, the Company had 35,070,288 authorized shares of common stock reserved for issuance in connection with convertible securities and stock option and stock award plans. On May 4, 1995, the Board of Directors declared a regular quarterly dividend on the Company's common stock of $0.12 per share payable on July 7, 1995 to stockholders of record on June 2, 1995. 9 Notes to Consolidated Financial Statements (continued) Capital Requirements PWI, a registered broker-dealer, is subject to the Securities and Exchange Commission Uniform Net Capital Rule and New York Stock Exchange Growth and Business Reduction capital requirements. Under the method of computing capital requirements adopted by PWI, minimum net capital shall not be less than 2% of combined aggregate debit items arising from client transactions, plus excess margin collected on securities purchased under agreements to resell, as defined. A reduction of business is required if net capital is less than 4% of such aggregate debit items. Business may not be expanded if net capital is less than 5% of such aggregate debit items. As of March 31, 1995, PWI's net capital of $539,182 was 13% of aggregate debit balances and its net capital in excess of the minimum required was $445,271. Financial Instruments with Off-Balance-Sheet Risk Held or Issued for Trading Purposes In the normal course of business, the Company engages in a variety of derivative and non-derivative financial instrument transactions in connection with its market risk management, its principal trading activities and also on behalf of its clients. Derivative financial instruments include forward and futures contracts, options contracts, interest rate swaps and other contracts committing the Company to purchase or deliver other instruments at specified future dates and prices, or to make or receive payments based upon notional amounts and specified rates or indices. As defined by the Financial Accounting Standards Board ("FASB") in Statement of Financial Accounting Standards No. 119, "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments," a derivative financial instrument also includes unsettled purchase and sale agreements and firm or standby commitments for the purchase of securities. It does not include on-balance- sheet receivables and payables whose value is derived from changes in the value of some underlying asset or index, such as mortgage-backed securities and structured notes. In connection with its market risk management and principal trading activities, the Company may enter into a derivative contract to manage the risk arising from other financial instruments or to take a position based upon expected future market conditions. The Company also takes positions to facilitate client transactions and acts as a market-maker in certain listed and unlisted securities. These contracts are valued at market, and unrealized gains and losses are reflected in the financial statements. A large portion of the Company's derivative financial instruments are "to be announced" mortgage securities requiring forward settlement. As a principal in the mortgage-backed securitization business, the Company has outstanding forward purchase and sale agreements committing the Company to deliver participation certificates and mortgage-backed securities. Set forth on the following page are the gross contract or notional amounts of all off-balance-sheet derivative financial instruments held or issued for trading purposes. These amounts are not reflected in the Consolidated Statement of Financial Condition and are indicative only of the volume of activity at March 31, 1995 and December 31, 1994. They do not represent amounts subject to market risks, and in many cases, limit the Company's overall exposure to market losses by hedging other on- and off-balance-sheet transactions. 10 Notes to Consolidated Financial Statements (continued) Notional or Contract Amount --------------------------- March 31, 1995 December 31, 1994 -------------- ----------------- Purchases Sales Purchases Sales ----------- ----------- ---------- ---------- Mortgage-backed forward contracts and options written and purchased $13,038,635 $13,928,115 $8,757,807 $9,256,738 Foreign currency forward contracts, futures contracts, and options written and purchased 2,552,420 2,641,505 2,325,721 1,855,557 Equity securities contracts including futures, forwards, and options written and purchased 3,149,510 3,325,644 1,931,330 2,216,565 Other fixed income securities contracts including futures, forwards, and options written and purchased 7,208,158 6,015,891 5,321,100 5,374,546 Interest rate swaps, caps and floors 332,250 200,000 285,450 230,000 Set forth below are the fair values of derivative financial instruments held or issued for trading purposes as of March 31, 1995 and December 31, 1994. The fair value amounts are determined by quoted market prices and pricing models which consider the time value and volatility of the underlying instruments. Changes in fair value are reflected in trading revenues or net interest as incurred, depending on the nature of the contract. The amounts are netted by counterparty only when the criteria of FASB Interpretation No. 39, "Offsetting of Amounts Related to Certain Contracts," are met. Fair Value at Fair Value at March 31, 1995 December 31, 1994 ------------------------ ----------------------- Assets Liabilities Assets Liabilities -------- ----------- ------- ----------- Mortgage-backed forward contracts and options written and purchased $84,779 $77,776 $30,606 $25,209 Foreign currency forward contracts, futures contracts, and options written and purchased 82,129 84,408 55,345 44,244 Equity securities contracts including futures, forwards, and options written and purchased 278,973 105,700 204,938 116,973 Other fixed income securities contracts including futures, forwards, and options written and purchased 11,382 8,053 10,150 8,988 Interest rate swaps, caps and floors 1,260 176 1,372 128 Set forth on the following page are the average fair values of derivative financial instruments held or issued for trading purposes for the three months ended March 31, 1995 and the twelve months ended December 31, 1994. Average fair value is based upon the average of the month-end balances during the periods indicated. 11 Notes to Consolidated Financial Statements (continued) Average Fair Value Average Fair Value Three Months ended Twelve Months ended March 31, 1995 December 31, 1994 ------------------------ ------------------------ Assets Liabilities Assets Liabilities -------- ----------- -------- ----------- Mortgage-backed forward contracts and options written and purchased $128,269 $128,269 $202,484 $191,687 Foreign currency forward contracts, futures contracts, and options written and purchased 73,473 84,952 56,528 53,810 Equity securities contracts including futures, forwards, and options written and purchased 262,298 110,241 162,388 155,422 Other fixed income securities contracts including futures, forwards, and options written and purchased 14,130 10,687 23,527 13,293 Interest rate swaps, caps and floors 1,404 270 1,757 1,147 The Company also enters into agreements to sell securities, at predetermined prices, which have not yet been purchased. The Company is exposed to market risk since to satisfy the obligation, the Company must acquire the securities at market prices, which may exceed the values reflected on the Consolidated Statement of Financial Condition. The Company's risk of loss in the event of counterparty default is limited to the current fair value or the replacement cost on contracts in which the Company has recorded an unrealized gain. These amounts are reflected as assets on the Company's Consolidated Statement of Financial Condition and amounted to $458,523 and $302,411 at March 31, 1995 and December 31, 1994, respectively. Options written do not expose the Company to credit risk since they do not obligate the counterparty to perform. Transactions in futures contracts are conducted through regulated exchanges which have margin requirements, and are settled in cash on a daily basis, thereby minimizing credit risk. The following table summarizes the Company's principal transaction revenue (net trading revenues) by business activity for the three months ended March 31, 1995. Corporate equities (includes equity securities, equity index futures, equity index options and swaps, and equity options contracts) $ 82,055 Municipals (includes municipal and government securities) 42,557 U.S. government (includes U.S. government securities, financial futures and options contracts) 26,197 Mortgage and mortgage-backed (includes mortgage-backed and government securities, mortgage-backed forwards and options contracts) 17,205 Corporate debt and other (includes debt, foreign currency forwards, futures and options contracts and other securities) 45,656 ---------- $ 213,670 ========== Principal transaction revenues include realized and unrealized gains and losses in the fair value of derivative and other financial instruments. 12 Notes to Consolidated Financial Statements (continued) Held or Issued for Purposes Other Than Trading The Company enters into interest rate swap agreements to ensure that the interest rate characteristics of assets and liabilities are matched. As of March 31, 1995 and December 31, 1994, the Company had outstanding interest rate swap agreements with commercial banks with a notional principal amount of $1,836,250. These agreements effectively converted approximately 86% of the Company's fixed rate debt at March 31, 1995 into floating rate debt. The interest rate swap agreements entered into have had the effect of reducing net interest expense on the Company's long-term borrowings by $585 and $9,913 for the three months ended March 31, 1995 and 1994, respectively. The difference to be received or paid on the swap agreements is included in interest expense as incurred and any related receivable from or payable to counterparties is reflected as an asset or liability, accordingly. The Company had no deferred gains or losses related to terminated swap agreements at March 31, 1995 and December 31, 1994. The Company is subject to market risk as interest rates fluctuate. The interest rate swaps contain credit risk to the extent the Company is in a receivable or gain position and the counterparty defaults. However, the counterparties to the agreements are large financial institutions and the Company has not experienced defaults in the past and management does not anticipate any counterparty defaults in the foreseeable future. Risk Management Transactions involving derivative and non-derivative financial instruments involve varying degrees of both market and credit risk. The Company monitors its exposure to market and credit risk on a daily basis and through a variety of financial, security position and credit exposure reporting and control procedures. Market Risk Market risk is the potential change in value of the financial instrument caused by unfavorable changes in interest rates, foreign currency exchange rates or the fair values of the securities underlying the instrument. The Company has a variety of methods to monitor its market risk profile. The senior management of each business group is responsible for reviewing trading positions, exposures, profits and losses, and trading strategies on a daily basis. The Company also has an independent risk management group which aids in setting and monitoring risk management policies of the Company, including monitoring adherence to the established limits, performing market risk modeling, and reviewing trading positions and hedging strategies. The Asset/Liability Management Committee is responsible for establishing trading position and exposure limits and is comprised of senior corporate and business unit managers. Market risk modeling is based on estimating loss exposure through daily stress testing. These results are compared to daily limits and exceptions are subject to review and approval by senior management. Other market risk control procedures include monitoring inventory agings, reviewing traders' marks and regular meetings between the senior management of the business groups and the risk management group. Credit Risk in Proprietary Transactions Counterparties to the Company's proprietary trading, hedging, financing and arbitrage activities are primarily financial institutions, including brokers and dealers, banks and institutional clients. Credit losses could arise should counterparties fail to perform and the value of any collateral proves inadequate. The Company manages credit risk by monitoring net exposure to individual counterparties on a daily basis, monitoring credit limits and requiring additional collateral where appropriate. Derivative credit exposures are calculated, aggregated and compared to established limits by the credit department. Credit reserve requirements are determined by senior management in conjunction with the Company's continuous credit monitoring procedures. Historically, reserve requirements arising from instruments with off-balance-sheet risk have not been material. Receivables and payables with brokers and dealers, and agreements to resell and repurchase securities are generally collateralized by cash, U.S. government and government-agency securities, and letters of credit. The market value of the initial collateral received is, at a minimum, equal to the contract value. Additional collateral is requested when considered necessary. 13 Notes to Consolidated Financial Statements (continued) The Company may pledge clients' securities as collateral in support of securities loaned and bank loans as well as to satisfy margin requirements at clearing organizations. The amounts loaned or pledged are limited to the extent permitted by applicable margin regulations. Should the counterparty fail to return the clients' securities, the Company may be required to replace them at prevailing market prices. At March 31, 1995, the market value of client securities loaned to other brokers approximated the amounts due or collateral obtained. Credit Risk in Client Activities Client transactions are entered on either a cash or margin basis. In a margin transaction, the Company extends credit to a client for the purchase of securities, using the securities purchased and/or other securities in the client's account as collateral for amounts loaned. Amounts loaned are limited by margin regulations of the Federal Reserve Board and other regulatory authorities and are subject to the Company's credit review and daily monitoring procedures. Market declines could, however, reduce the value of any collateral below the principal amount loaned, plus accrued interest, before the collateral can be sold. Client transactions include positions in commodities and financial futures, securities sold but not yet purchased and written options. The risk to the Company's clients in these transactions can be substantial, principally due to price volatility which can reduce the clients' ability to meet their obligations. Margin deposit requirements pertaining to commodity futures and options transactions are generally lower than those for exchange traded securities. To the extent clients are unable to meet their commitments to the Company and margin deposits are insufficient to cover outstanding liabilities, the Company may take market action and credit losses could be realized. Trades are recorded on a settlement date basis. Should either the client or broker fail to perform, the Company may be required to complete the transaction at prevailing market prices. Trades pending at March 31, 1995 were settled without adverse effect on the Company's financial statements, taken as a whole. Concentrations of Credit Risk Concentrations of credit risk that arise from financial instruments (whether on- or off-balance-sheet) exist for groups of counterparties when they have similar economic characteristics that would cause their ability to meet obligations to be similarly affected by economic, industry or geographic factors. As a major securities firm, the Company engages in activities with a broad range of corporations, governments, and institutional and individual investors. The Company has no significant exposure to any individual counterparty. The Company seeks to control its credit risk and the potential for risk concentration through a variety of reporting and control procedures. The Company's most significant industry concentration, which arises within its normal course of business activities, is financial institutions including banks, brokers and dealers, mutual funds and insurance companies. At March 31, 1995 and December 31, 1994, the Company had outstanding resale agreements and securities borrowed of $12,719,642 and $9,523,562, respectively, with commercial banks and $6,757,212 and $5,352,506, respectively, with brokers and dealers which were collateralized by cash and securities of approximately equal fair value. Commitments and Contingencies At March 31, 1995 and December 31, 1994, the Company was contingently liable under unsecured letters of credit totaling $314,880 and $212,211, respectively, which approximates fair value. In addition, at March 31, 1995, certain of the Company's subsidiaries were contingently liable as issuer of $86,160 of notes payable to managing general partners of various limited partnerships pursuant to Internal Revenue Service guidelines. There is no market for these guarantees, therefore, it is not practicable to estimate their fair value. In the opinion of management, these contingencies will not have a material adverse effect on the Company's consolidated financial statements, taken as a whole. The Company also had conditional commitments of $18,889 to contribute capital to limited partnerships as of March 31, 1995. The Company has been named as defendant in numerous legal actions in the ordinary course of business. While the outcome of such matters cannot be predicted with certainty, in the opinion of management of the Company, after consultation with various counsel handling such matters, these actions will be resolved with no material adverse effect on the Company's consolidated financial statements, taken as a whole. 14 Notes to Consolidated Financial Statements (continued) At March 31, 1995 and December 31, 1994, securities with a fair value of $1,025,712 and $674,669, respectively, had been loaned or pledged as collateral for securities borrowed of approximately equal fair value. In meeting the financing needs of certain of its clients, PWI has issued standby letters of credit which amounted to $17,131 at March 31, 1995. The standby letters of credit are fully collateralized by marginable securities. Income Taxes The reconciliation of income taxes, computed at the statutory federal rates, to income taxes recorded is as follows: Three Months Ended March 31, ------------------ 1995 1994 ------- ------- Tax at statutory federal rates 35.0% 35.0% State and local income taxes, net of federal tax benefit 4.2 5.5 Foreign rate differential 2.2 (0.3) Nontaxable dividends & interest (2.7) (1.0) Other, net (3.7) 0.8 ------- ------- 35.0% 40.0% ======= ======= Income taxes paid were $1,243 and $16,491 for the three months ended March 31, 1995 and 1994, respectively. Earnings Per Common Share The Company computed its earnings per common share under the modified treasury stock method in accordance with Accounting Principles Board Opinion No. 15 by dividing net income, adjusted for preferred stock dividends and any interest savings, by the weighted average common and common equivalent shares outstanding during each period presented. Common equivalent shares include common shares issuable under the Company's stock option and award plans, the conversion of convertible debentures and preferred stock, and restricted stock outstanding. 15 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results ----------------------------------------------------------------------- of Operations ------------- General The Company's principal business activities are, by their nature, affected by many factors, including general economic and financial conditions, the level and volatility of interest rates, currency and security valuations, competitive conditions, counterparty risk, transactional volume and market liquidity. As a result, revenues and profitability have been in the past, and are likely to continue to be, subject to fluctuations reflecting the impact of these factors. Results of Operations Quarter Ended March 31, 1995 compared to Quarter Ended March 31, 1994 The Company's net income for the quarter ended March 31, 1995 was $34.3 million or $0.27 per primary and fully diluted share, as compared to the $55.6 million or $0.71 per primary share ($0.70 per fully diluted share) earned during the first quarter of 1994. Total revenues of $1,233.9 million were 14.0% higher than those reported for the first quarter of 1994, primarily due to increased interest income. Revenues, net of interest expense, decreased $26.3 million to $725.8 million. Commission revenues of $270.3 million were 3.7% lower than the $280.7 million earned during the first quarter of 1994, primarily due to lower sales of mutual funds, insurance annuities and options. Mutual fund commissions decreased $12.1 million or 24.8%, insurance annuity commissions decreased $7.7 million or 24.3% and option commissions decreased $4.7 million or 19.4%. These decreases were partially offset by a $13.4 million or 9.3% increase in commissions earned from the sale of listed securities. Principal transactions revenues increased $29.8 million or 16.2% from the first quarter of 1994, reflecting improved results in mortgages, corporate debt and municipal securities. These improvements were offset by a decline in U.S. government securities. Investment banking revenues were $49.8 million, as compared to $97.6 million for the prior year quarter, reflecting the industry wide decline in underwritings of new corporate debt and equity securities. Asset management fees, which are largely recurring in nature, decreased $1.5 million or 1.6% from the first quarter of 1994, primarily due to lower distribution and investment advisory fees earned on long-term mutual funds. Average assets in long-term mutual funds were $9.0 billion during the first quarter of 1995, as compared to $12.6 billion during the prior year period. This decline was offset by higher fees earned on money market funds and managed or wrap accounts, as average asset levels in money market funds and wrap accounts increased over the first quarter 1994 by approximately 17% and 26%, respectively. Net interest decreased $1.4 million or 2.1% due to lower fixed income inventory positions at a lower net spread partially offset by higher net interest resulting from expansion of the stock loan business and increased margin lending to clients. Other income increased $5.0 million to $35.9 million due to higher transaction and account fees and increased proxy service revenues. The number of Individual Retirement Accounts increased approximately 17% from March 31, 1994. Compensation and benefits were $433.0 million, as compared to $431.7 million during the first quarter of 1994. Compensation costs increased in response to the acquisition of the Kidder, Peabody Group Inc. ("Kidder") businesses and normal salary increases. These increases were offset by lower revenue driven compensation paid to retail investment executives and lower performance based incentive compensation. Compensation and benefits as a percentage of net revenues was 59.7% during the first quarter of 1995, as compared to 57.4% during the first quarter of 1994. All other operating expenses increased $12.4 million or 5.5% from the first quarter of 1994, primarily due to incremental office, communications and brokerage, clearing and exchange fees attributable to the acquired Kidder businesses. 16 Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Liquidity and Capital Resources The primary objectives of the Company's funding policies are to insure ample liquidity at all times and a strong capital base. These objectives are met by maximization of self-funded assets, diversification of funding sources, maintenance of prudent liquidity and capital ratios, and contingency planning. Liquidity The Company maintains a liquid balance sheet with the majority of assets consisting of inventories, securities borrowed or purchased under agreements to resell, and receivables from clients, brokers and dealers, which are readily convertible into cash. The nature of the Company's business as a securities dealer results in carrying significant levels of trading inventories in order to meet its client and proprietary trading needs. The Company's total assets may fluctuate from period to period as a result of changes in the level of trading positions held to facilitate client transactions, the volume of resale and repurchase transactions, and proprietary trading strategies. These fluctuations depend significantly upon economic and market conditions, and transactional volume. The Company's total assets at March 31, 1995 were $46.2 billion compared to $35.9 billion at December 31, 1994, reflecting an increase primarily in securities purchased under agreements to resell. The majority of the Company's assets are financed by daily operations such as securities sold under agreements to repurchase, free credit balances in client accounts and securities lending activity. Additional financing sources are available through bank loans and commercial paper, committed and uncommitted lines of credit, and the issuance of long-term senior and subordinated debt. The Company maintains committed and uncommitted credit facilities from a diverse group of banks. The Company has two unsecured senior revolving credit agreements to provide up to $2.0 billion, including $1.2 billion, which expires in December 1995 with provisions for renewal through December 1997 and $800.0 million, which expires in December 1997. At March 31, 1995, there was $300.0 million outstanding under these credit facilities. Additionally, the Company had more than $5 billion in uncommitted lines of credit at March 31, 1995. The Company maintains public shelf registration statements for the issuance of debt securities with the Securities and Exchange Commission ("SEC"). During the first quarter of 1995, the Company issued $125.0 million of 8 7/8% Senior Notes under these registration statements. At March 31, 1995, the Company had $732.6 million in debt securities available for issuance. Capital Resources and Capital Adequacy The Company's businesses are capital intensive. In addition to a funding policy which provides for diversification of funding sources and maximization of liquidity, the Company maintains a strong capital base. At March 31, 1995, the Company's total capital base, which includes long-term borrowings, redeemable preferred stock and stockholders' equity, was $4.3 billion, an increase of $144.1 million from December 31, 1994. The additions to capital primarily reflect increases in both long-term borrowings and stockholders' equity of $119.9 million and $23.9 million, respectively. The increase in long-term borrowings reflects the issuance of $125.0 million of 8 7/8% Senior Notes in March 1995 Due 2005. The increase in stockholders' equity is primarily the result of the Company's net income for the quarter of $34.3 million and net amortization of restricted stock awards of $10.6 million. These increases were offset by the repurchase of approximately 826,000 shares of common stock for $13.0 million. At March 31, 1995, the remaining number of shares of common stock authorized to be repurchased by the Company's Board of Directors was 8,055,224 shares. On April 19, 1995, Moody's Investors Service, Inc. ("Moody's") announced that it lowered its ratings on the Company's senior debt from A3 to Baa1 and on the Company's subordinated debt from Baa1 to Baa2. Moody's confirmed the Company's Prime-2 commercial paper rating. 17 Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Liquidity and Capital Resources (continued) Capital Resources and Capital Adequacy (continued) On May 2, 1995, the Company issued $125,000 of 8 1/4% Senior Notes Due May 1, 2002. The Notes are not redeemable prior to maturity. Interest on the Notes is payable semiannually on May 1 and November 1. This issuance replaces $150,000 of 9 5/8% Senior Notes that matured on May 1, 1995. PWI is subject to the net capital requirements of the SEC, the New York Stock Exchange and the Commodities Futures Trading Commission, which are designed to measure the financial soundness and liquidity of broker-dealers. PWI has consistently maintained net capital in excess of the minimum requirements as imposed by these agencies. In addition, the Company has other banking and securities subsidiaries, both domestic and foreign, which have also consistently maintained net regulatory capital in excess of requirements. Merchant Banking, Highly Leveraged and Structured Securities Transactions In connection with its merchant banking activities, the Company has provided financing and made investments in companies, some of which are involved in highly leveraged transactions. Positions taken or commitments made by the Company may involve credit or market risk from any one issuer or industry. At March 31, 1995, the Company had investments in merchant banking transactions which were affected by liquidity, reorganization or restructuring issues amounting to $57.5 million, net of reserves, compared to $56.9 million, net of reserves, at December 31, 1994. These investments have not had a material effect on the Company's results of operations. Included in the portfolio at March 31, 1995 was an investment of $52.2 million in a limited partnership which specializes in investments in corporate restructurings and special situations. The Company did not enter into any significant merchant banking transactions during the first quarter of 1995. The Company's trading activities include market-making transactions in high- yield debt securities. These securities generally involve greater risks than investment-grade corporate debt securities because these issuers usually have high levels of indebtedness and lower credit ratings and are, therefore, more vulnerable to general economic conditions. At March 31, 1995, the Company held in long and short inventory $92.9 million and $17.2 million, respectively, of high-yield debt securities, which accounted for less than 1% of gross inventory positions. No one issuer accounted for more than 15% of the total amount. The Company continually monitors its risk positions associated with high-yield debt securities and establishes limits with respect to overall market exposure, industry group and individual issuer. The Company accounts for these positions at fair value, with unrealized gains and losses reflected in revenues. For the three months ended March 31, 1995 and 1994, the Company recorded pre-tax trading revenues on transactions in high-yield securities of $4.5 million and $2.6 million, respectively. Derivative Financial Instruments A derivative financial instrument represents a contractual agreement between counterparties whose value is derived from changes in the value of some other underlying asset such as the price of another security, interest rates, currency exchange rates, specified rates (e.g. LIBOR) or indices (e.g. S&P 500), or the value referenced in the contract. Derivatives may be traded on exchanges such as futures, certain options contracts and structured products (e.g. indexed warrants) or negotiated in over-the-counter markets such as forward contracts, interest rate swaps, caps and floors, and other structured products. In the normal course of business, the Company engages in a variety of derivative transactions in connection with its proprietary trading activities and asset and liability management, as well as on behalf of its clients. As a dealer, the Company regularly makes a market in and trades a variety of securities. The Company is also engaged in creating structured products which are sold to clients. In connection with these activities, the Company attempts to reduce its exposure to market risk by entering into offsetting hedging transactions which may include derivative financial instruments. The Company also enters into interest rate swap contracts to hedge its fixed rate borrowings and reduce overall borrowing costs. The notional amount of a derivative contract is used to measure the volume of activity and is not reflected on the statement of financial condition. The Company had off-balance-sheet derivative contracts outstanding with gross notional amounts of $54.2 billion and $39.4 billion at March 31, 1995 and December 31, 1994, respectively, which included $23.8 billion and $16.3 billion, respectively, related to "to be announced" mortgage securities requiring forward settlement. Also included in these amounts was $1.8 billion of interest rate swap agreements used to hedge the Company's long-term borrowings at March 31, 1995 and December 31, 1994. For a more detailed discussion and disclosure on derivative financial instruments, see "Financial Instruments with Off-Balance-Sheet Risk", "Risk Management" and "Concentrations of Credit Risk" in the Notes to Consolidated Financial Statements. 18 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings ----------------- The Company is involved in a number of proceedings concerning matters arising in connection with the conduct of its business. Certain actions in which compensatory damages of $155.4 million or more appear to be sought, and in which there have been material developments during the quarter, are described below. The Company is also involved in numerous proceedings in which compensatory damages of less than $155.4 million appear to be sought, or in which punitive or exemplary damages, together with the apparent compensatory damages alleged, appear to exceed $155.4 million. The Company has denied, or believes it has legitimate defenses and will deny, liability in all significant cases pending against it, and intends to defend actively each such case. The following developments have occurred in the indicated cases, which were previously reported in the Company's Annual Report on Form 10-K for the year ended December 31, 1994. General Development Corporation Securities Litigation On April 4, 1995, the United States Court of Appeals for the Third Circuit entered an order in Rolo v. City Investing Liquidating Trust, et al., vacating its order of November 8, 1994, granting appellant's application for rehearing and remanded the case to the district court for reconsideration. In Re NASDAQ Market-Maker Antitrust and Securities Litigation In February 1995, the Judicial Panel on Multidistrict Litigation conditionally transferred Newton et al. v. Merrill Lynch et al., which has since been consolidated under the caption In Re Merrill Lynch et al. Securities Litigation (the "Merrill Lynch action"), to the Southern District of New York as a tag- along action as part of the multidistrict litigation, In Re NASDAQ Market-Maker Antitrust Litigation (the "NASDAQ Litigation"). With the filing of a consolidated complaint by plaintiffs in the NASDAQ Litigation in December 1994 dropping the federal securities law claims, the caption in the NASDAQ Litigation has been changed to delete any reference to "Securities Litigation". On February 2, 1995, the defendants in the NASDAQ Litigation moved to dismiss the complaint. That motion is currently pending. On March 22, 1995, plaintiffs in the Merrill Lynch action filed an amended complaint. On March 29, 1995, plaintiffs in the Merrill Lynch action moved to vacate the conditional transfer order. That motion is currently pending. On May 5, 1995, PaineWebber moved to dismiss the complaint in the Merrill Lynch action. That motion is pending as well. Limited Partnership Class Actions In March 1995, a purported class action was filed in state court in Cook County, Illinois on behalf of investors in the Pegasus aircraft leasing partnerships. In this case, Jacobson v. PaineWebber Incorporated, plaintiff alleges claims based upon fraud, misrepresentation and breach of fiduciary duty in connection with the sale of these limited partnership interests. The complaint seeks unspecified damages. ITEM 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- (a) Proxies for the Annual Meeting of Stockholders held on May 4, 1995 were solicited by the Company pursuant to Regulation 14A of the Securities Act of 1934, as amended. (c) Matters voted upon at the Annual Meeting of Stockholders: (1) The election of four directors to the Board of Directors to hold office for a term of three years. There was no solicitation in opposition of the nominees and all such nominees were elected. There were no broker non-votes with respect to the election of Directors. Votes For Votes Withheld ------------ ---------------- J.A. Bult 85,794,340 1,076,522 J.E. Kilgore, Jr. 85,853,038 1,017,824 R.M. Loeffler 85,866,809 1,004,053 H. Rosovsky 85,892,588 978,274 19 ITEM 4. Submission of Matters to a Vote of Security Holders (continued) --------------------------------------------------------------- (2) The approval of certain conversion rights contained in the 6% Cumulative Convertible Redeemable Preferred Stock, Series A, of the Company authorizing the issuance of common stock which, when combined with common stock previously issued in connection with the purchase of certain assets and liabilities and specific businesses of Kidder, Peabody Group Inc., may exceed 20% of the total common stock outstanding. Votes for: 77,644,379 Votes against: 1,761,665 Abstentions: 591,347 Broker Non-Votes: 6,925,778 (3) The ratification of the selection by the Board of Directors of Ernst & Young LLP as the Company's independent public accountants for the 1995 fiscal year. Votes for: 86,274,338 Votes against: 126,407 Abstentions: 133,330 Broker Non-Votes: 389,094 ITEM 6. Exhibits and Reports on Form 8-K -------------------------------- (a) The following exhibits are filed herewith: Exhibit 11 - Computation of Earnings per Common Share Exhibit 12.1 - Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends Exhibit 12.2 - Computation of Ratio of Earnings to Fixed Charges (b) Reports on Form 8-K: The Company filed a Current Report on Form 8-K dated May 1, 1995 with the Securities and Exchange Commission reporting under Item 5 ("Other Events") and Item 7 ("Financial Statements and Exhibits") in connection with the issuance by the Company of 1,050,000 U.S. Dollar Increase Warrants on the Japanese Yen Expiring April 30, 1996. 20 SIGNATURE ========= 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. Paine Webber Group Inc. ----------------------- (Registrant) Date: May 15, 1995 By: /s/ Regina A. Dolan ------------ ------------------- Regina A. Dolan Vice President, Chief Financial Officer 21 Exhibit 11 Paine Webber Group Inc. Computation of Earnings Per Common Share (In thousands of dollars except share and per share amounts)
Three Months Ended March 31, ---------------------------------- 1995 1994 ----------- ---------- Primary: Weighted average common shares outstanding 93,150,593 71,695,578 Incremental stock options and awards 6,045,570 8,215,538 ----------- ----------- Average common and common equivalent shares 99,196,163 79,911,116 =========== =========== Net income $ 34,310 $ 55,648 Interest savings on convertible debentures and short-term borrowings 276 1,063 Preferred dividend requirements (7,313) - ---------- ----------- Net income applicable to common shares $ 27,273 $ 56,711 =========== =========== Earnings per common share $ 0.27 $ 0.71 =========== =========== Fully Diluted: Weighted average common shares outstanding 93,150,593 71,695,578 Incremental stock options and awards 6,188,516 8,215,538 Weighted average common shares issuable assuming conversion of 8% Convertible Debentures and 6% Cumulative Convertible Redeemable Preferred Stock 8,366,943 1,405,552 ----------- ----------- Average common and common equivalent shares 107,706,052 81,316,668 =========== =========== Net income $ 34,310 $ 55,648 Interest savings on convertible debentures and short-term borrowings 506 1,274 Preferred dividend requirements (5,813) - ----------- ----------- Net income applicable to common shares $ 29,003 $ 56,922 ============ =========== Earnings per common share $ 0.27 $ 0.70 ============ ===========
22 Exhibit 12.1
Paine Webber Group Inc. Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends (In thousands of dollars) Three Months Years Ended Ended March 31, December 31, --------- ----------------------------------------------------- 1995 1994 1993 1992 1991 1990 --------- ------- -------- -------- -------- --------- Income (loss) before taxes $52,785 $44,385 $407,576 $339,115 $226,247 $(102,633) --------- ------- -------- -------- -------- --------- Preferred stock dividends 11,251 1,710 5,828 27,789 34,732 23,174 --------- ------- -------- ------- ------- --------- Fixed charges: Interest 508,126 1,428,653 1,130,712 879,242 1,056,124 1,242,151 Interest factor in rents 14,598 51,102 50,133 45,962 43,804 42,223 ------- -------- -------- ------- --------- --------- Total fixed charges 522,724 1,479,755 1,180,845 925,204 1,099,928 1,284,374 -------- --------- --------- ------- --------- --------- Total fixed charges and preferred stock dividends 533,975 1,481,465 1,186,673 952,993 1,134,660 1,307,548 -------- --------- --------- ------- --------- --------- Income before taxes and fixed charges $575,509 $1,524,140 $1,588,421 $1,264,319 $1,326,175 $1,181,741 ========= ========== ========== ========== ========== ========== Ratio of earnings to fixed charges and preferred stock dividends 1.1 1.0 1.3 1.3 1.2 ========= ========= ========= ========= ======== ========== For purposes of computing the ratio of earnings to combined fixed charges and preferred stock dividends (tax effected), "earnings" consist of income (loss) before taxes and fixed charges. "Fixed charges" consist of interest expense incurred on securities sold under agreements to repurchase, short-term borrowings, long-term borrowings and that portion of rental expense estimated to be representative of the interest factor. Earnings were inadequate to cover fixed charges and would have had to increase approximately $125,807 in order to cover the deficiency.
23 Exhibit 12.2 Paine Webber Group Inc. Computation of Ratio of Earnings to Fixed Charges (In thousands of dollars)
Three Months Years Ended Ended March 31, December 31, ----------- --------------------------------------------------- 1995 1994 1993 1992 1991 1990 ---------- -------- -------- -------- -------- ------- Income (loss) before taxes $ 52,785 $ 44,385 $407,576 $339,115 $226,247 $(102,633) --------- -------- --------- -------- -------- --------- Fixed charges: Interest 508,126 1,428,653 1,130,712 879,242 1,056,124 1,242,151 Interest factor in rents 14,598 51,102 50,133 45,962 43,804 42,223 --------- --------- --------- ------- -------- --------- Total fixed charges 522,724 1,479,755 1,180,845 925,204 1,099,928 1,284,374 --------- --------- --------- -------- --------- --------- Income before taxes and fixed charges $ 575,509 $1,524,140 $1,588,421 $1,264,319 $1,326,175 $1,181,741 ========= ========== ========== ========== ========== ========== Ratio of earnings to fixed charges 1.1 1.0 1.3 1.4 1.2 ========= ========== ========= ========= ========= ======== For purposes of computing the ratio of earnings to fixed charges, "earnings" consist of income (loss) before taxes and fixed charges. "Fixed charges" consist of interest expense incurred on securities sold under agreements to repurchase, short-term borrowings, long-term borrowings and that portion of rental expense estimated to be representative of the interest factor. Earnings were inadequate to cover fixed charges and would have had to increase approximately $102,633 in order to cover the deficiency.
EX-27 2
BD This schedule contains summary financial information extracted from the financial statements of Paine Webber Group Inc. for the period ended March 31, 1995 and is qualified in its entirety by reference to such financial statements. 1000 3-MOS DEC-31-1995 MAR-31-1995 651,877 6,058,451 17,780,791 8,635,989 11,499,330 301,479 46,215,585 1,148,275 5,968,541 23,495,524 2,997,210 8,061,124 2,435,287 101,840 186,226 100,000 1,452,597 46,215,585 213,670 574,404 270,262 49,800 89,887 508,126 432,957 52,785 34,310 0 0 34,310 0.27 0.27
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