-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AgovFq0HRKqj8+uXoQ7BtGkUSYv380OTeVnga55HokShUQN2R7R8Zr1ZF4NrcK7E 8i0J8xzRRcF7PpbRjQhS/g== 0000950123-97-004429.txt : 19970520 0000950123-97-004429.hdr.sgml : 19970520 ACCESSION NUMBER: 0000950123-97-004429 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NYSE 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: 97609207 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 PAINE WEBBER GROUP INC. 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, 1997 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 9, 1997, the Registrant had outstanding 91,550,117 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, 1997 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Page --------------------- ---- Item 1. Financial Statements. Consolidated Statements of Income (unaudited) for the Three Months Ended March 31, 1997 and 1996. 2 Consolidated Statements of Financial Condition (unaudited) at March 31, 1997 and December 31, 1996. 3 Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 1997 and 1996. 4 Notes to Consolidated Financial Statements (unaudited). 5-14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 15-17 PART II. OTHER INFORMATION ----------------- Item 1. Legal Proceedings. 18 Item 4. Submissions of Matters to a Vote of Security Holders. 18 Item 6. Exhibits and Reports on Form 8-K. 19 Signature. 20 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, ----------------------------- 1997 1996 ------------ ------------ Revenues Commissions $ 370,386 $ 368,185 Principal transactions 256,536 296,376 Asset management 120,968 107,655 Investment banking 97,774 81,855 Other 38,074 30,496 Interest 643,953 545,459 ----------- ----------- Total revenues 1,527,691 1,430,026 Interest expense 542,857 467,391 ----------- ----------- Net revenues 984,834 962,635 ----------- ----------- Non-interest expenses Compensation and benefits 574,017 566,991 Office and equipment 68,067 68,741 Communications 38,207 38,691 Business development 18,620 18,551 Brokerage, clearing & exchange fees 22,555 25,492 Professional services 27,540 23,575 Other 70,924 65,978 ----------- ----------- Total non-interest expenses 819,930 808,019 ----------- ----------- Income before taxes and minority interest 164,904 154,616 ----------- ----------- Provision for income taxes: Federal 45,859 37,353 State, local and foreign 13,361 16,762 ----------- ----------- 59,220 54,115 ----------- ----------- Income before minority interest 105,684 100,501 Minority interest 4,849 -- ----------- ----------- Net income $ 100,835 $ 100,501 ============ ============ Net income applicable to common shares $ 93,788 $ 94,504 ============ ============ Earnings per common share: Primary $ 0.99 $ 0.96 Fully diluted $ 0.95 $ 0.92 Weighted-average common shares: Primary 94,601,898 98,007,758 Fully diluted 100,722,147 104,465,206 Dividends declared per common share $ 0.15 $ 0.12
See notes to consolidated financial statements. 2 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, 1997 1996 ------------ ------------ Assets Cash and cash equivalents $ 244,991 $ 383,856 Cash and securities segregated and on deposit for federal and other regulations 504,391 499,761 Trading assets, at fair value 17,995,295 16,823,307 Securities purchased under agreements to resell 23,059,736 20,746,831 Securities borrowed 8,778,900 7,380,374 Receivables: Clients, net of allowance for doubtful accounts of $20,449 and $12,109 at March 31, 1997 and December 31, 1996, respectively 4,558,307 4,327,996 Brokers and dealers 274,650 273,737 Dividends and interest 347,857 350,796 Fees and other 138,369 136,545 Office equipment and leasehold improvements, net of accumulated depreciation and amortization of $357,085 and $343,322 at March 31, 1997 and December 31, 1996, respectively 313,029 313,261 Other assets 1,415,840 1,277,036 ------------ ------------ $ 57,631,365 $ 52,513,500 ============ ============ Liabilities and Stockholders' Equity Short-term borrowings $ 1,764,905 $ 1,337,646 Trading liabilities, at fair value 8,279,465 6,621,891 Securities sold under agreements to repurchase 30,893,690 28,797,276 Securities loaned 4,614,652 3,459,860 Payables: Clients 4,658,180 4,883,344 Brokers and dealers 211,100 205,437 Dividends and interest 282,260 285,341 Other liabilities and accrued expenses 1,097,207 1,290,555 Accrued compensation and benefits 492,477 737,376 ---------- ---------- 52,293,936 47,618,726 Long-term borrowings 2,976,779 2,781,694 ---------- ---------- 55,270,715 50,400,420 ---------- ---------- Commitments and contingencies Company-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts holding solely Company Guaranteed Related Subordinated Debt 393,750 195,000 Redeemable Preferred Stock 187,908 187,655 Stockholders' Equity: Convertible Preferred Stock 100,000 100,000 Common stock, $1 par value, 200,000,000 shares authorized; issued 108,804,040 shares and 108,358,178 shares at March 31, 1997 and December 31, 1996, respectively 108,804 108,358 Additional paid-in capital 942,676 913,927 Retained earnings 1,089,142 1,009,448 --------- --------- 2,240,622 2,131,733 Treasury stock, at cost; 17,158,361 shares at March 31, 1997 and 15,366,234 shares at December 31, 1996, respectively (402,868) (331,907) Unamortized cost of restricted stock (54,327) (67,533) Foreign currency translation adjustment (4,435) (1,868) ------------ ------------ 1,778,992 1,730,425 ------------ ------------ $ 57,631,365 $ 52,513,500 ============ ============
See notes to consolidated financial statements. 3 5 Paine Webber Group Inc. Consolidated Statements of Cash Flows (unaudited) (In thousands of dollars)
Three Months Ended March 31, -------------------------------- 1997 1996 ------------------ ----------- Cash flows from operating activities: Net income $ 100,835 $ 100,501 Adjustments to reconcile net income to cash used for operating activities: Noncash items included in net income: Depreciation and amortization 17,350 15,058 Deferred income taxes 15,395 114,095 Amortization of deferred charges 43,806 41,397 Other 23,392 11,670 (Increase) decrease in operating receivables: Clients (221,971) (140,123) Brokers and dealers (913) (589,291) Dividends and interest 2,939 (9,605) Fees and other (1,824) (28,163) Increase (decrease) in operating payables: Clients (225,164) (14,083) Brokers and dealers 5,663 674,537 Dividends and interest (3,081) (9,914) Other (443,501) (408,594) Increase in: Trading assets (1,171,988) (186,972) Securities purchased under agreements to resell (2,312,905) (3,697,713) Securities borrowed (1,398,526) (261,867) Cash and securities on deposit (4,630) (29,457) Other assets (189,472) (145,569) Increase in: Trading liabilities 1,657,574 772,247 Securities sold under agreements to repurchase 2,096,414 2,903,669 Securities loaned 1,154,792 380,929 ----------- ----------- Cash used for operating activities (855,815) (507,248) ----------- ----------- Cash flows from investing activities: (Payments for) proceeds from: Sales of investments -- 122,032 Office equipment and leasehold improvements (16,290) (11,727) ----------- ----------- Cash (used for) provided by investing activities (16,290) 110,305 ----------- ----------- Cash flows from financing activities: Net proceeds from short-term borrowings 427,259 348,854 Proceeds from: Long-term borrowings 261,299 113,436 Employee stock transactions 28,727 12,929 Issuance of Preferred Trust Securities 198,750 -- Payments for: Long-term borrowings (66,733) (31,235) Repurchases of common stock (95,174) (93,342) Dividends (20,888) (18,895) ----------- ----------- Cash provided by financing activities 733,240 331,747 ----------- ----------- Decrease in cash and cash equivalents (138,865) (65,196) Cash and cash equivalents, beginning of period 383,856 222,497 ----------- ----------- Cash and cash equivalents, end of period $ 244,991 $ 157,301 =========== ===========
See notes to consolidated financial statements. 4 6 Paine Webber Group Inc. Notes to Consolidated Financial Statements (Unaudited) (In thousands of dollars except share and per share amounts) Note 1: Summary of Significant Accounting Policies 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, 1997 and 1996 is unaudited. All normal recurring adjustments which, in the opinion of management, are necessary for a fair presentation have been made. The consolidated financial statements are prepared in conformity with generally accepted accounting principles which require management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. These financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 1996. The results of operations reported for interim periods are not necessarily indicative of the results of operations for the entire year. The Company's principal line of business is to serve the investment and capital needs of individual, corporate, institutional and public agency clients. Stock Based Compensation The Company grants stock options to certain employees and non-employee directors with an exercise price equal to the fair market value at the date of grant. The Company accounts for stock option grants in accordance with Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees," and, accordingly, recognizes no compensation expense related to such grants. Accounting Changes In June 1996, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 125 introduces the financial-components approach which focuses on the recognition of financial assets an entity controls and the derecognition of financial assets for which control has been transferred. This statement is effective for certain types of transactions occurring after December 31, 1996, including securitizations, sales of mortgages and other receivables. For the quarter ended March 31, 1997, the Company has adopted this portion of the provision, and this provision did not have a material impact on the Company's Consolidated Financial Statements, taken as a whole. The FASB has deferred the effective date of accounting for other types of transfers of financial assets, including repurchase agreements and securities lending transactions, until January 1, 1998. The Company does not expect the adoption of the deferred portion of this Statement to have a material impact on the Company's Consolidated Financial Statements, taken as a whole. In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation," which allows an entity to continue to measure compensation cost for employee stock compensation plans in accordance with APB No. 25 or adopt the fair value based method of accounting prescribed by SFAS No. 123. Entities electing to continue to apply APB No. 25 must disclose pro forma net income and earnings per share using the fair value method. The Company has elected to continue to account for stock option grants under APB No. 25, however, the disclosure requirements do not apply to interim financial statements. In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share," which is effective for financial statements issued for periods ending after December 15, 1997 and requires restatement of all prior periods. SFAS No. 128 was issued to simplify the standards for calculating earnings per share ("EPS") previously found in APB No. 15, "Earnings Per Share." Under the new requirements for calculating EPS, the presentation of primary EPS will be replaced with basic EPS and fully diluted EPS will be replaced with diluted EPS. Basic EPS excludes dilution and is calculated by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS will reflect all potential dilutive securities (similar to fully diluted EPS under APB No. 15). For the quarters ended March 31, 1997 and 1996, basic EPS would have been $0.09 higher than the amounts reported as primary EPS; the difference between diluted and fully diluted would not have been material. 5 7 Notes to Consolidated Financial Statements (Continued) Note 2: 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 assets, resale agreements, securities borrowed, and certain receivables, are carried at fair value or contracted amounts which approximate fair value. Similarly, liabilities, including short-term borrowings, trading liabilities, repurchase agreements, securities loaned, and certain payables, are carried at fair value or contracted amounts approximating fair value. At March 31, 1997 and December 31, 1996, the fair values of long-term borrowings were $2,942,404 and $2,813,699, respectively, as compared to the carrying amounts of $2,976,779 and $2,781,694, 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 of its fixed rate debt, the Company enters into interest rate swap agreements to convert its fixed rate payments into floating rate 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 values of the interest rate swaps were $69,862 and $21,170 payable at March 31, 1997 and December 31, 1996, respectively. The carrying amounts of the interest rate swap agreements at March 31, 1997 and December 31, 1996 were net receivables of $2,679 and $3,252, respectively, and are included in "Dividends and interest" in the Company's Consolidated Statement of Financial Condition. Note 3: Trading Inventories Trading assets and liabilities, recorded at fair value, consisted of the following:
March 31, December 31, 1997 1996 ----------- ------------ Trading assets: U.S. government and agency obligations $ 6,302,742 $ 4,767,991 Mortgages and mortgage-backed securities 6,077,878 5,968,704 Corporate debt securities 3,126,716 3,284,235 Commercial paper and other short-term debt 1,003,155 1,457,226 Corporate equity securities 768,840 776,352 State and municipal obligations 715,964 568,799 ----------- ----------- $17,995,295 $16,823,307 =========== =========== Trading liabilities: U.S. government and agency obligations $ 6,519,444 $ 5,118,658 Corporate equity securities 805,889 756,686 Corporate debt securities 747,041 672,683 Mortgages and mortgage-backed securities 183,550 53,845 State and municipal obligations 23,541 20,019 ----------- ----------- $ 8,279,465 $ 6,621,891 =========== ===========
NOTE 4: 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. 6 8 Notes to Consolidated Financial Statements (Continued) Short-term borrowings at March 31, 1997 and December 31, 1996 consisted of the following:
March 31, December 31, 1997 1996 ---------- ------------ Commercial paper $ 615,733 $ 688,910 Bank loans and other 999,172 648,736 Medium-Term Notes 150,000 -- ---------- ---------- $1,764,905 $1,337,646 ========== ==========
Note 5: Long-Term Borrowings Long-term borrowings at March 31, 1997 and December 31, 1996 consisted of the following:
March 31, December 31, 1997 1996 ---------- ------------ Fixed Rate Notes due 1998 - 2014 $1,547,503 $1,547,398 Fixed Rate Subordinated Notes due 2002 174,522 174,500 Medium-Term Senior Notes 975,975 747,725 Medium-Term Subordinated Notes 251,150 276,150 Other 27,629 35,921 ---------- ---------- $2,976,779 $2,781,694 ========== ==========
At March 31, 1997, interest rates on the remaining fixed rate notes and subordinated notes due 1998 - 2014 range from 6 1/4% to 9 1/4% and the weighted average interest rate on these notes outstanding at March 31, 1997 was 7.52%. Interest on the notes is payable semi-annually. At March 31, 1997, the Company had outstanding $853,175 of fixed rate Medium-Term Notes and $373,950 of variable rate Medium-Term Notes. The Medium-Term Notes outstanding at March 31, 1997 had an average maturity of 4.9 years and a weighted average interest rate of 6.93%. Total interest payments relating to agreements to repurchase, short-term borrowings, securities loaned and long-term borrowings were $545,938 and $477,305 for the three months ended March 31, 1997 and 1996, respectively. Note 6: Preferred Stock Preferred stock, including preferred securities issued by subsidiary trusts, at March 31, 1997 and December 31, 1996 consisted of the following:
March 31, December 31, 1997 1996 --------- ------------ 9% Cumulative Redeemable Preferred Stock, Series C, $100.00 liquidation value; 2,500,000 shares authorized, issued and outstanding $187,908 $187,655 6% Cumulative Convertible Redeemable Preferred Stock, Series A, $100.00 liquidation value; 1,000,000 shares authorized, issued and outstanding $100,000 $100,000 Company-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts holding solely Company Guaranteed Related Subordinated Debt $393,750 $195,000
7 9 Notes to Consolidated Financial Statements (Continued) Preferred Securities Issued by Subsidiary Trusts Company-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts holding solely Company Guaranteed Related Subordinated Debt In March 1997, PWG Capital Trust II, a business trust formed under Delaware law and a wholly owned subsidiary of the Company, issued $198,750 (7,950,000 securities) of 8.08% Preferred Trust Securities to the public at $25.00 per security and $6,147 (245,877 securities) of 8.08% Common Trust Securities to the Company at $25.00 per security. In December 1996, PWG Capital Trust I, a business trust formed under Delaware law and wholly owned subsidiary of the Company, issued $195,000 (7,800,000 securities) of 8.30% Preferred Trust Securities to the public at $25.00 per security and $6,031 (241,238 securities) of 8.30% Common Trust Securities to the Company at $25.00 per security. PWG Capital Trust I and II each exists for the sole purpose of issuing Preferred Trust Securities and Common Trust Securities (the "Trust Securities") and investing the proceeds in an equivalent amount of junior subordinated debentures of the Company. At March 31, 1997, the sole assets of PWG Capital Trust I and II, respectively, were $201,031 of 8.30% Junior Subordinated Debentures due December 1, 2036 and $204,897 of 8.08% Junior Subordinated Debentures due March 1, 2037 (collectively, the "Junior Subordinated Debentures"). The Company guarantees payments due from PWG Capital Trust I and II to the holders of the Preferred Trust Securities, on a subordinated basis, to the extent the Company has made principal and interest payments on the Junior Subordinated Debentures. These guarantees, together with the Company's obligations under the Junior Subordinated Debentures, provide a full and unconditional guarantee on a subordinated basis of amounts due on the Preferred Trust Securities. Distributions on the Preferred Trust Securities have been classified as minority interest in the Company's Consolidated Statement of Income. The Trust Securities have a stated liquidation value of $25.00 per security. Note 7: Common Stock On May 1, 1997, the Board of Directors declared a regular quarterly dividend on the Company's common stock of $0.15 per share payable on July 3, 1997 to stockholders of record on June 3, 1997. As of March 31, 1997, the Company had 35,036,545 authorized shares of common stock reserved for issuance in connection with convertible securities and stock option and stock award plans. Note 8: 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, 1997, PWI's net capital of $1,078,573 was 18% of aggregate debit items and its net capital in excess of the minimum required was $958,766. Note 9: 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 FASB in SFAS 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 8 10 Notes to Consolidated Financial Statements (Continued) Payables whose values are 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 consolidated 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 below 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 Statements of Financial Condition and are indicative only of the volume of activity at March 31, 1997 and December 31, 1996. 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.
Notional or Contract Amount -------------------------------------------------------------- March 31, 1997 December 31, 1996 -------------------------------------------------------------- Purchases Sales Purchases Sales --------------- ------------ ----------- ----------- Mortgage-backed forward contracts and options written and purchased $18,126,310 $21,000,318 $13,443,158 $16,383,162 Foreign currency forward contracts, futures contracts, and options written and purchased 1,638,101 1,662,126 440,864 434,072 Equity securities contracts including futures, forwards, and options written and purchased 545,384 856,795 442,500 888,784 Other fixed income securities contracts including futures, forwards, and options written and purchased 4,722,355 4,258,314 2,916,929 3,183,749 Interest rate swaps and caps 391,046 325,670 438,562 415,597
Set forth below are the fair values of derivative financial instruments held or issued for trading purposes as of March 31, 1997 and December 31, 1996. 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 principal transactions revenues as incurred. The amounts are netted by counterparty only when the criteria of FASB Interpretation No. 39, "Offsetting of Amounts Related to Certain Contracts," are met. 9 11 Notes to Consolidated Financial Statements (Continued)
Fair Value at Fair Value at March 31, 1997 December 31, 1996 ----------------------------------- ---------------------- Assets Liabilities Assets Liabilities -------------- ----------------- ------- ----------- Mortgage-backed forward contracts and options written and purchased $208,600 $177,396 $78,800 $ 50,480 Foreign currency forward contracts, futures contracts, and options written and purchased 31,983 31,583 21,857 21,647 Equity securities contracts including futures, forwards, and options written and purchased 52,098 38,006 56,679 30,919 Other fixed income securities contracts including futures, forwards, and options written and purchased 11,161 117,853 15,431 131,088 Interest rate swaps and caps 10,670 4,828 12,654 8,216
Set forth below are the average fair values of derivative financial instruments held or issued for trading purposes for the three months ended March 31, 1997 and the twelve months ended December 31, 1996. The average fair value is based upon the average of the month-end balances during the periods indicated.
Average Fair Value Average Fair Value Three Months Ended Twelve Months Ended March 31, 1997 December 31, 1996 ---------------------------------------- ---------------------- Assets Liabilities Assets Liabilities ------------------ ------------------- -------- ----------- Mortgage-backed forward contracts and options written and purchased $125,036 $114,252 $150,053 $145,396 Foreign currency forward contracts, futures contracts, and options written and purchased 36,254 35,778 37,872 43,132 Equity securities contracts including futures, forwards, and options written and purchased 49,159 28,973 34,583 20,699 Other fixed income securities contracts including futures, forwards, and options written and purchased 8,000 129,313 25,027 90,877 Interest rate swaps and caps 10,976 5,024 5,407 1,782
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 Statements of Financial Condition. The off-balance-sheet derivative trading transactions are generally short-term. At March 31, 1997 approximately 99% of the off-balance-sheet derivative trading financial instruments had remaining maturities of less than one year. 10 12 Notes to Consolidated Financial Statements (Continued) 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 Statements of Financial Condition and amounted to $314,512 and $185,421 at March 31, 1997 and December 31, 1996, 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 table below summarizes the Company's principal transaction revenues by business activity for the three months ended March 31, 1997 and 1996. Principal transaction revenues include realized and unrealized gains and losses on trading positions, including hedges. In assessing the profitability of its trading activities, the Company views net interest and principal transactions revenues in the aggregate.
Principal Transaction Revenue ----------------------------- Three Months Ended March 31, --------------- 1997 1996 -------- -------- Taxable fixed income (includes futures and options contracts, mortgage-backed forwards, foreign currency forwards, and other securities) $132,591 $157,483 Equities (includes equity index futures, equity index options and swaps, and equity options contracts) 93,285 106,022 Municipals 30,660 32,871 -------- -------- $256,536 $296,376 ======== ========
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, 1997 and December 31, 1996, the Company had outstanding interest rate swap agreements with commercial banks with notional principal amounts of $2,495,925 and $2,112,200, respectively. These agreements effectively converted substantially all of the Company's fixed rate debt at March 31, 1997 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 $3,120 and $1,921 for the three months ended March 31, 1997 and 1996. 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, 1997 and December 31, 1996. 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. See Note 2 for further discussion of interest rate swap agreements used for hedging purposes. Note 10: 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 11 13 Notes to Consolidated Financial Statements (Continued) trading positions and hedging strategies. The Asset/Liability Management Committee, comprised of senior corporate and business unit managers, is responsible for establishing trading position and exposure limits. Market risk modeling is based on estimating loss exposure through stress testing. These results are compared to established 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. The Company may pledge clients' margined 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, 1997, the market value of client securities loaned to other brokers approximated the amounts due or collateral obtained. Credit Risk in Client and Other 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, trading liabilities 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. Client 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, 1997 were settled without material adverse effect on the Company's consolidated financial statements, taken as a whole. 12 14 Notes to Consolidated Financial Statements (Continued) 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 described above. 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. Note 11: Commitments and Contingencies At March 31, 1997 and December 31, 1996, the Company was contingently liable under unsecured letters of credit totaling $154,458 and $303,543, respectively, which approximates fair value. At March 31, 1997, certain of the Company's subsidiaries were contingently liable as issuer of $85,517 of notes payable to managing general partners of various limited partnerships pursuant to Internal Revenue Service guidelines. There is no market for these contingent liabilities, therefore, it is not practicable to estimate their fair value. In addition, as part of the 1995 limited partnership settlements, the Company has agreed, under certain circumstances, to provide to class members additional consideration including assignment of any and all fees the Company is entitled to receive from certain partnerships. 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. In February 1996, two limited partnerships, in which a subsidiary of the Company serves as the general partner and certain key employees serve as the limited partners, entered into two unsecured credit facilities with a commercial bank under which the bank agreed to make unsecured loans to the limited partnerships of up to $77,525. The Company entered into an agreement with the bank to purchase the loans under certain specific circumstances. At March 31, 1997, $55,709 had been loaned to the limited partnerships. In meeting the financing needs of certain of its clients, the Company may also issue standby letters of credit which are fully collateralized by marginable securities. At March 31, 1997, the Company had outstanding $31,521 of such standby letters of credit. At March 31, 1997 and December 31, 1996, securities with fair value of $229,857 and $215,286, respectively, had been loaned or pledged as collateral for securities borrowed of approximately equal fair value. In the normal course of business, the Company enters into when-issued transactions, underwriting and other commitments. Also, clients may be extended lines of credit collateralized by mortgages and other real estate interests. These commitments are generally entered into at variable rates of interest based on LIBOR. At March 31, 1997, the unused portion of such lines of credit amounted to $636,031, relating to commercial real estate commitments. Settlement of these transactions at March 31, 1997 would not have had a material impact on the Company's consolidated financial statements, taken as a whole. 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. 13 15 Notes to Consolidated Financial Statements (Continued) Note 12: Income Taxes The reconciliation of income taxes, computed at the statutory federal rates, to the provision for income taxes recorded is as follows:
Three Months Ended March 31 --------------------- 1997 1996 ---- ---- Tax at statutory federal rate 35.0% 35.0% State and local income taxes, net of federal tax benefit 4.0 4.3 Foreign rate differential (1.1) (0.8) Nontaxable dividends & interest (0.8) (1.0) Minority interest (1.1) -- Other, net (0.1) (2.5) ---- ---- 35.9% 35.0% ==== ====
Income taxes paid were $102,598 and $47,742 for the three months ended March 31, 1997 and 1996, respectively. Note 13: Earnings Per Common Share For the three months ended March 31, 1997 and 1996, the Company computed its earnings per common share under the modified treasury stock method in accordance with APB Opinion No. 15, "Earnings Per Share", 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 convertible preferred stock, and restricted stock outstanding. 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. Business conditions were generally favorable for the securities industry for the first two months of 1997 before experiencing a market decline in March. Overall, there was considerable volatility in financial markets in the first quarter of 1997. U.S. economic growth was strong during the quarter and the Federal Reserve pursued a more restrictive monetary policy. During the quarter the yield on the 30-year Treasury bond increased from 6.62% to 7.10% and the yield on 90-day Treasury bills increased from 5.21% to 5.33%. Stock prices were volatile, with the S&P 500 Index appreciating 6.8% during the first two months of the quarter but declining 4.3% in March. Trading was active during the quarter, with average daily volume on the New York Stock Exchange of 515 million shares, versus 428 million shares in the first quarter of 1996. 14 16 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Quarter Ended March 31, 1997 compared to Quarter Ended March 31, 1996 The Company's net income for the quarter ended March 31, 1997 was $100.8 million, or $0.99 per primary share ($0.95 per fully diluted share) compared to net income of $100.5 million, or $0.96 per primary share ($0.92 per fully diluted share) earned during the first quarter of 1996. During the first quarter of 1997, revenues, net of interest expense, were $984.8 million, 2.3% higher than the first quarter of 1996. Commission revenues earned during the first quarter of 1997 were $370.4 million, slightly higher than the $368.2 million earned during the prior year quarter. Commissions on the sale of over-the-counter securities increased $5.2 million or 16.2% and mutual funds and insurance commissions increased $3.0 million or 3.0%. These increases were partially offset by a decline in listed securities and options commissions. Principal transactions revenues decreased $39.8 million, or 13.4%, principally reflecting lower results in taxable fixed income securities and equities. Asset management fees increased 12.4% to $121.0 million, due to higher revenues earned on managed or "wrap" and trust accounts. Average assets in wrap and trust accounts during the first quarter of 1997 were approximately 35% higher than during the first quarter of 1996. The average assets under management in money market, institutional and long-term mutual funds were approximately $44.4 billion during the first quarter of 1997 and approximately $45.4 billion during the first quarter of 1996. Investment banking revenues were $97.8 million, 19.4% higher than the $81.9 million earned during the first quarter of 1996. The current year quarter reflects an increase in financial advisory activity and increased level of corporate securities and municipal underwritings. Net interest increased $23.0 million, or 29.5% primarily due to increased margin lending to customers and an increased level of fixed income positions offset by higher interest expense on increased borrowings. Compensation and benefits for the quarter ended March 31, 1997 were $574.0 million as compared to $567.0 million during the prior year quarter. Compensation increased primarily due to normal salary increases. Compensation and benefits as a percent of net revenues were 58.3% during the first quarter of 1997, as compared to 58.9% during the comparable period in 1996. All other operating expenses were $245.9 million, as compared to $241.0 million for the prior year quarter. Principal drivers of the increase in non-compensation costs were technology costs associated with preparations for the millenium, as well as increased legal fees. 15 17 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 highly liquid balance sheet with the majority of assets consisting of trading assets, securities purchased under agreements to resell, securities borrowed, 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, 1997 were $57.6 billion compared to $52.5 billion at December 31, 1996, reflecting increases primarily in securities purchased under agreements to resell, securities borrowed and securities inventory. 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 long-term borrowings. The Company maintains committed and uncommitted credit facilities from a diverse group of banks. The Company has a committed unsecured senior revolving credit agreement to provide up to $1.2 billion through December 1997. Certain of the Company's subsidiaries have a committed secured revolving credit facility to provide up to an aggregate of $750.0 million through August 1997, with provisions for renewal through August 2000. The secured borrowings under this facility can be collateralized using a variety of financial instruments. The facilities are available for general corporate purposes. At March 31, 1997, there were no outstanding borrowings under these credit facilities. Additionally, the Company had approximately $4.9 billion in uncommitted lines of credit at March 31, 1997. The Company maintains public shelf registration statements with the SEC for the issuance of debt securities. During the first quarter of 1997, the Company issued $246.5 million of Medium-Term Senior Notes under these registration statements. At March 31, 1997, the Company had approximately $2.1 billion in debt securities available for issuance under these registration statements. In October 1996, the Company filed a shelf registration statement with the SEC to issue up to an aggregate of $500.0 million of preferred trust securities of PWG Capital Trusts I, II, III, and IV ("Preferred Trust Securities"), business trusts formed under the Delaware law which are wholly owned subsidiaries of the Company, and debt securities of the Company. In December 1996, PWG Capital Trust I issued $195.0 million of 8.30% Preferred Trust Securities, and in January 1997, PWG Capital Trust II issued $198.5 million of 8.08% Preferred Trust Securities, under this registration statement. At March 31, 1997, $106.5 million in Preferred Trust Securities of the remaining business trusts and debt securities of the Company were available for issuance under this registration statement. (For further discussion on the Preferred Trust Securities, see Note 6 in the Company's Notes to Consolidated Financial Statements.) 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. The Company's total capital base, which includes long-term borrowings, preferred stock and stockholders' equity, grew to $5.3 billion at March 31, 1997, an increase of $442.7 million from December 31, 1996. The growth in capital is primarily due to the net increase in long-term borrowings of $195.1 million, the issuance of $198.5 million of Preferred Trust Securities and an increase in stockholders' equity of $48.6 million. 16 18 Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) The increase in long-term borrowings primarily reflects the net issuance of medium term notes. The increase in stockholders' equity is primarily the result of net income for the three months ended March 31, 1997 of $100.8 million, the issuance of approximately 1,998,000 shares of common stock related to employee compensation programs for $28.7 million, and net amortization of restricted stock awards of $13.2 million. These increases were offset by the repurchase of approximately 2,876,000 shares of common stock for $95.2 million and dividends accrued of $20.9 million. At March 31, 1997, the remaining number of shares authorized to be repurchased under the Company's common stock repurchase program was approximately 11.1 million. PWI is subject to the net capital requirements of the Securities and Exchange Commission, the New York Stock Exchange, Inc. and the Commodity 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 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 and Highly Leveraged Transactions In connection with its merchant banking and commercial real estate 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. The Company's activities include underwriting and market-making transactions in high-yield 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, 1997, the Company held $207.9 million of high-yield securities, with approximately 42% of such securities attributable to three issuers. The Company continually monitors its risk positions associated with high-yield 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, 1997 and 1996, the Company recorded pre-tax trading revenues on transactions in high-yield securities of $1.8 million and $2.7 million, respectively. Derivative Financial Instruments A derivative financial instrument represents a contractual agreement between counterparties and has value that 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, such as futures, certain options contracts and structured products (e.g. indexed warrants) are traded on exchanges, while derivatives such as forward contracts, certain option contracts, interest rate swaps, caps and floors, and other structured products are negotiated in over-the-counter markets. 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 Consolidated Statement of Financial Condition. The Company had off-balance-sheet derivative contracts outstanding with gross notional amounts of $56.0 billion and $41.1 billion at March 31, 1997 and December 31, 1996, respectively. These amounts included $36.8 billion and $22.4 billion, respectively, related to "to be announced" mortgage-backed securities requiring forward settlement. For a more detailed discussion and disclosure on derivative financial instruments, see Note 9 "Financial Instruments with Off-Balance-Sheet Risk" and Note 10 "Risk Management" in the Notes to Consolidated Financial Statements. 17 19 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 $168 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 $168 million appear to be sought, or in which punitive or exemplary damages, together with the apparent compensatory damages alleged, appear to exceed $168 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 case below, which was previously reported in the Company's Annual Report on Form 10-K for the year ended December 31, 1996. In Re NASDAQ Market-Maker Antitrust Litigations In Re NASDAQ Market-Maker Antitrust Litigation, the United States District Court for the Southern District of New York granted plaintiffs' motion for certification of a class that includes institutional investors, as well as the retail investors previously certified. The Stipulation and Order among various firms, including PaineWebber Incorporated, and the United States Department of Justice resolving a civil complaint filed by the Department of Justice has been approved by the United States District Court of the Southern District of New York. Limited Partnership Class Actions A notice of appeal to the Federal Court of Appeals has been filed from the judgment approving the settlement by the same investors who objected in the District Court. ITEM 4. Submission of Matters to a Vote of Security Holders (a) Proxies for the Annual Meeting of Stockholders held on May 1, 1997 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 five 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 ---------- -------------- E.G. Bewkes, Jr. 72,366,108 683,125 F.P. Doyle 72,398,557 650,676 N. Kiyono 72,406,433 642,800 E. Randall, III 72,378,089 671,144 Y. Seki 69,796,271 3,252,962
(2) The ratification of the selection by the Board of Directors of Ernst & Young LLP as the Company's independent public accountants for the 1997 fiscal year. Votes for: 72,765,123 Votes against: 119,610 Abstentions: 164,500 Broker Non-Votes: 0
18 20 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 Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K: None 19 21 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, 1997 By: /s/ Regina A. Dolan ------------------------- Regina A. Dolan Vice President, Chief Financial Officer 20 EX-11 2 COMPUTATION OF EARNINGS PER COMMON SHARE 1 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, ---------------------------- 1997 1996 ---- ---- Primary: Weighted-average common shares outstanding 86,898,693 89,810,621 Incremental stock options and awards 7,703,205 8,197,137 ------------- ------------- Weighted-average common and common equivalent shares 94,601,898 98,007,758 ============= ============== Net income $ 100,835 $ 100,501 Interest savings on convertible debentures and short-term borrowings 331 1,326 Preferred dividend requirements (7,378) (7,323) ------------- ------------- Net income applicable to common shares $ 93,788 $ 94,504 ============= ============= Primary earnings per common share $ 0.99 $ 0.96 ============= ============= Fully Diluted: Weighted-average common shares outstanding 86,898,693 89,810,621 Incremental stock options and awards 8,203,229 8,197,137 Weighted-average common shares issuable assuming conversion of 8% Convertible Debentures and 6% Cumulative Convertible Redeemable Preferred Stock 5,620,224 6,457,448 ------------- -------------- Weighted-average common and common equivalent shares 100,722,146 104,465,206 ============= ============== Net income $ 100,835 $ 100,501 Interest savings on convertible debentures and short-term borrowings 350 1,144 Preferred dividend requirements (5,878) (5,823) ------------- -------------- Net income applicable to common shares $ 95,307 $ 95,822 ============= ============== Fully diluted earnings per common share $ 0.95 $ 0.92 ============= ==============
EX-12.1 3 COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED 1 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 December 31, Ended March 31, ---------------------------------------------------------------------- 1997 * 1996 * 1995 1994 1993 1992 ------ ------ ---- ---- ---- ---- Income before taxes $160,055 $ 558,999 $ 102,677 $ 44,385 $ 407,576 $ 339,115 -------- ---------- ---------- ---------- ---------- ---------- Preferred stock dividends 11,310 43,712 36,260 1,710 5,828 27,789 -------- ---------- ---------- ---------- ---------- ---------- Fixed charges: Interest 542,857 1,971,788 1,969,811 1,428,653 1,130,712 879,242 Interest factor in rents 14,248 54,537 59,491 51,102 50,133 45,962 -------- ---------- ---------- ---------- ---------- ---------- Total fixed charges 557,105 2,026,325 2,029,302 1,479,755 1,180,845 925,204 -------- ---------- ---------- ---------- ---------- ---------- Total fixed charges and preferred stock dividends 568,415 2,070,037 2,065,562 1,481,465 1,186,673 952,993 -------- ---------- ---------- ---------- ---------- ---------- Income before taxes and fixed charges $717,160 $2,585,324 $2,131,979 $1,524,140 $1,588,421 $1,264,319 ======== ========== ========== ========== ========== ========== Ratio of earnings to fixed charges and preferred stock dividends 1.3 1.2 1.0 1.0 1.3 1.3 ======== ========== ========== ========== ========== ==========
For purposes of computing the ratio of earnings to combined fixed charges and preferred stock dividends (tax effected), "earnings" consist of income 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, preferred trust securities and that portion of rental expense estimated to be representative of the interest factor. * Income before taxes includes minority interest in wholly owned subsidiary trusts. EX-12.2 4 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 1 Exhibit 12.2 Paine Webber Group Inc. Computation of Ratio of Earnings to Fixed Charges (In thousands of dollars)
Three Months Years Ended December 31, Ended March 31, --------------------------------------------------------------------- 1997 * 1996 * 1995 1994 1993 1992 ------ ------ ---- ---- ---- ---- Income before taxes $160,055 $ 558,999 $ 102,677 $ 44,385 $ 407,576 $ 339,115 -------- ---------- ---------- ---------- ---------- ---------- Fixed charges: Interest 542,857 1,971,788 1,969,811 1,428,653 1,130,712 879,242 Interest factor in rents 14,248 54,537 59,491 51,102 50,133 45,962 -------- ---------- ---------- ---------- ---------- ---------- Total fixed charges 557,105 2,026,325 2,029,302 1,479,755 1,180,845 925,204 -------- ---------- ---------- ---------- ---------- ---------- Income before taxes and fixed charges $717,160 $2,585,324 $2,131,979 $1,524,140 $1,588,421 $1,264,319 ======== ========== ========== ========== ========== ========== Ratio of earnings to fixed charges 1.3 1.3 1.1 1.0 1.3 1.4 ======== ========== ========== ========== ========== ==========
For purposes of computing the ratio of earnings to fixed charges, "earnings" consist of income 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, preferred trust securities and that portion of rental expense estimated to be representative of the interest factor. * Income before taxes includes minority interest in wholly owned subsidiary trusts. EX-27 5 FINANCIAL DATA SCHEDULE
BD THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF PAINE WEBBER GROUP INC. FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1997 MAR-31-1997 749,382 6,735,023 23,059,736 8,778,900 17,995,295 313,029 57,631,365 1,764,905 6,741,224 30,893,690 4,614,652 8,279,465 2,976,779 581,658 100,000 108,804 1,570,188 57,631,365 256,536 643,953 370,386 97,774 120,968 542,857 574,017 164,904 100,835 0 0 100,835 0.99 0.95
-----END PRIVACY-ENHANCED MESSAGE-----