EX-99 2 f05-06_148kexhibits.txt EXHIBITS LEHMAN BROTHERS Exhibit 99.1 Press Release For Immediate Release Media Contact: Hannah Burns (212) 526-4064 Investor Contact: Shaun Butler (212) 526-8381 LEHMAN BROTHERS REPORTS SECOND QUARTER RESULTS - Second Highest Ever Quarterly Revenues, Net Income and Earnings Per Common Share - NEW YORK - June 14, 2005 -- Lehman Brothers Holdings Inc. (ticker symbol: LEH) today reported net income of $683 million, or $2.26 per common share (diluted), for the second quarter ended May 31, 2005, up 12% from both net income of $609 million and diluted earnings per common share of $2.01, in the second quarter of fiscal 2004. Second quarter 2005 net income and earnings per common share declined compared to both net income of $875 million and diluted earnings per common share of $2.91 from the record first quarter of 2005. For the first half of the fiscal year, the Firm reported record net income of $1.6 billion and record diluted earnings per common share of $5.17, up 22% from the first half of fiscal 2004. Second Quarter Business Highlights o Reported record Investment Management net revenues, driven by a steady increase in Assets Under Management to a record $151 billion o Posted record results in Asia for the second consecutive quarter Chairman and Chief Executive Officer Richard S. Fuld, Jr. said, "Although we faced tougher markets this quarter, we are announcing our second best quarter ever. The Firm is truly benefiting from the regional diversification and increased depth and scale of business that we have worked so hard to achieve. With our continued discipline around expense and risk management, we are well-positioned to continue to deliver strong returns to our shareholders." Net revenues (total revenues less interest expense) for the second quarter were $3.3 billion, up 12%, from $2.9 billion for the same period in fiscal 2004, and down 14% compared to $3.8 billion in the first quarter of 2005. For the first six months of fiscal 2005, the Firm reported record net revenues of $7.1 billion, an increase of 17% from $6.1 billion for the first half of fiscal 2004. Investment Banking revenues increased 6% to $579 million for the second quarter of fiscal 2005, from $546 million for the same period a year ago, reflecting the second highest debt underwriting revenue level ever and the second highest quarterly equity underwriting revenue in almost five years. Capital Markets revenues increased 14% to $2.2 billion in the second quarter of fiscal 2005, from $2.0 billion in the second quarter of 2004. Within this segment, the Fixed Income business reported revenues of $1.8 billion in the second quarter of fiscal 2005, a 23% increase from $1.4 billion reported in the prior year, and down 15% versus the first fiscal quarter of 2005. Mortgages and real estate remained resilient, driven by high levels of securitization and asset monetization activity. Customer flow activity was strong, despite a challenging environment affected by increased volatility in interest rates and credit and by widening credit spreads. Equities Capital Markets revenues decreased 9%, to $474 million, compared to $520 million for the prior year's second quarter, largely attributable to challenging conditions in the convertibles market. Record Investment Management revenues, which increased 10% to $472 million in the second quarter of fiscal 2005, from $429 million in the second quarter of fiscal 2004, were driven by a record Asset Management performance, with revenues increasing 33% compared to a year ago, contributed largely by Neuberger Berman and private equity results. For the second quarter of fiscal 2005, non-U.S. net revenues were $1.3 billion or 40% of the Firm's total net revenues and up 45% from the prior year's quarter. Asia reported record results for the second consecutive quarter, reflecting continued strength in fixed income and investment banking. European net revenues increased 58%, driven by strong performances in interest rate products, mortgage securitizations and equity derivatives. Non-interest expenses for the quarter were $2.3 billion, compared to $2.0 billion for the second quarter of fiscal 2004 and $2.5 billion for the first quarter of fiscal 2005. Compensation and benefits as a percentage of net revenues was 49.5% during the second quarter of fiscal 2005, consistent with the first quarter of fiscal 2005, and compared to 49.8% for the second quarter of fiscal 2004. Non-personnel expenses in the fiscal 2005 second quarter were $642 million, compared to $618 million in the first quarter of fiscal 2005 and $585 million in the second quarter of fiscal 2004. 2 For the quarter ended May 31, 2005, the Firm's pretax margin was 30.9%, compared to 30.2% in the fiscal 2004 second quarter and 34.3% in the fiscal 2005 first quarter. For the fiscal 2005 second quarter, the Firm's return on average common equity was 18.2%, compared to 18.6% in the fiscal 2004 second quarter and 24.5% in the fiscal 2005 first quarter. Return on average tangible common equity was 23.5% for the second quarter of fiscal 2005, compared with 26.0% in the second quarter of fiscal 2004 and 32.0% in the first quarter of fiscal 2005. As of May 31, 2005, Lehman Brothers stockholders' equity totaled $15.9 billion, and total capital (stockholders' equity and long-term debt) was approximately $76 billion. Book value per common share was $53.27. Lehman Brothers (ticker symbol: LEH), an innovator in global finance, serves the financial needs of corporations, governments and municipalities, institutional clients, and high net worth individuals worldwide. Founded in 1850, Lehman Brothers maintains leadership positions in equity and fixed income sales, trading and research, investment banking, private investment management, asset management and private equity. The Firm is headquartered in New York, London, and Tokyo and operates in a network of offices around the world. For further information about Lehman Brothers' services, products and recruitment opportunities, visit our Web site at www.lehman.com. Conference Call A conference call, to discuss the Firm's financial results and outlook, will be held at 9:30 a.m., EDT today. The call will be open to the public. Members of the public who would like to access the conference call should dial, from the U.S., 888-323-4182 or from outside the U.S., 517-623-4500. The pass code for all callers is LEHMAN. The conference call will also be accessible through the "Shareholders" section of the Firm's Web site under the subcategory "Webcasts." For those unable to listen to the live broadcast, a replay will be available on the Firm's Web site or by dialing 866-416-1185 (domestic) or 203-369-0716 (international). The replay will be available approximately one hour after the event and will remain available on the Lehman Brothers Web site until 5:00 p.m. EDT on July 14, 2005, and by phone until 11:59 p.m. EDT on July 14, 2005. Please direct any questions regarding the conference call to Shaun Butler at 212-526-8381, sbutler@lehman.com or Elizabeth Besen at 212-526-2733, ebesen@lehman.com. 3 Cautionary Note Regarding Forward-Looking Statements This press release may contain forward-looking statements. These statements are not historical facts, but instead represent only the Firm's expectations, estimates and projections regarding future events. These statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict, which may include risks and uncertainties relating to market fluctuations and volatility, industry competition and changes in the competitive environment, investor sentiment, liquidity and credit ratings, credit exposures, operational risks and legal and regulatory matters. The Firm's actual results and financial condition may differ, perhaps materially, from the anticipated results and financial condition in any such forward-looking statements and, accordingly, readers are cautioned not to place undue reliance on such statements. The Firm undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. For more information concerning the risks and other factors that could affect the Firm's future results and financial condition, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Firm's most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q. # # # 4
LEHMAN BROTHERS HOLDINGS INC. SELECTED STATISTICAL INFORMATION (Preliminary and Unaudited) (Dollars in millions, except per share data) At or for the Quarter Ended -------------------------------------------------------------------------- 5/31/05 2/28/05 11/30/04 8/31/04 5/31/04 ------- ------- -------- ------- ------- Income Statement Net Revenues $3,278 $3,810 $2,883 $2,623 $2,926 Non-Interest Expenses: Compensation and Benefits 1,623 1,886 1,401 1,306 1,457 Non-personnel Expenses 642 618 603 594 585 Net Income 683 875 585 505 609 Net Income Applicable to Common Stock 664 856 566 487 592 Earnings per Common Share: Basic $2.37 $3.07 $2.07 $1.79 $2.14 Diluted $2.26 $2.91 $1.96 $1.71 $2.01 Financial Ratios (%) Return on Average Common Stockholders' Equity (annualized) (a) 18.2% 24.5% 17.0% 15.0% 18.6% Return on Average Tangible Common Stockholders' Equity (annualized) (b) 23.5% 32.0% 23.0% 20.9% 26.0% Pretax Margin 30.9% 34.3% 30.5% 27.6% 30.2% Compensation and Benefits/Net Revenues 49.5% 49.5% 48.6% 49.8% 49.8% Effective Tax Rate 32.6% 33.0% 33.5% 30.2% 31.1% Financial Condition Total Assets $372,000 $363,692 $357,168 $340,890 $346,499 Net Assets (c) 195,210 183,387 175,221 171,308 175,452 Long-Term Debt 59,809 59,366 56,486 50,043 52,380 Common Stockholders' Equity 14,783 14,409 13,575 13,076 12,831 Total Stockholders' Equity 15,878 15,754 14,920 14,421 14,006 Total Stockholders' Equity Plus Junior Subordinated Debentures and Perpetual Subordinated Notes(c) 17,384 16,979 15,920 15,421 15,391 Tangible Equity Capital (c) 14,094 13,705 12,636 11,763 11,536 Total Capital (d) 75,687 75,120 71,406 64,464 66,386 Book Value per Common Share (e) 53.27 51.75 49.32 48.10 47.05 Gross Leverage Ratio(f) 23.4x 23.1x 23.9x 23.6x 24.7x Net Leverage Ratio(c) 13.9x 13.4x 13.9x 14.6x 15.2x Other Data (#s) Employees 20,717 20,267 19,579 19,286 17,625 Assets Under Management (in billions) $151.2 $147.7 $136.7 $130.9 $129.3 Common Stock Outstanding (in millions) 272.5 275.4 274.2 269.5 272.7 Weighted Average Shares (in millions): Basic 279.6 278.6 273.2 272.8 276.8 Diluted 294.0 294.0 288.5 285.0 294.2 See Footnotes to Selected Statistical Information on page 6. 5 LEHMAN BROTHERS HOLDINGS INC. FOOTNOTES TO SELECTED STATISTICAL INFORMATION (Preliminary and Unaudited) (a) Return on average common stockholders' equity is computed by dividing annualized net income applicable to common stock for the period by average common stockholders' equity. See the reconciliation on page 10. (b) Return on average tangible common stockholders' equity is computed by dividing annualized net income applicable to common stock for the period by average tangible common stockholders' equity. Average tangible common stockholders' equity equals average total common stockholders' equity less average identifiable intangible assets and goodwill. See the reconciliation on page 10. Management believes tangible common stockholders' equity is a meaningful measure because it reflects the common stockholders' equity deployed in our businesses. (c) Net leverage ratio is defined as net assets (total assets excluding: 1) cash and securities segregated and on deposit for regulatory and other purposes, 2) securities received as collateral, 3) securities purchased under agreements to resell, 4) securities borrowed and 5) identifiable intangible assets and goodwill) divided by tangible equity capital. We believe net assets is a measure more useful to investors than total assets when comparing companies in the securities industry because it excludes certain assets considered to have a low risk profile and identifiable intangible assets and goodwill. We believe tangible equity capital to be a more representative measure of our equity for purposes of calculating net leverage because such measure includes total stockholders' equity plus junior subordinated debentures and perpetual subordinated notes, less identifiable intangible assets and goodwill. We believe total stockholders' equity plus junior subordinated debentures and perpetual subordinated notes to be a more meaningful measure of our equity because the junior subordinated debentures are subordinated and have maturities at issuance of 49 years and we can defer interest payments for up to 20 consecutive quarters if the junior subordinated debentures are not in default and the perpetual subordinated notes have no stated maturity. In addition, a leading rating agency views these securities as equity capital for purposes of calculating net leverage. See the reconciliation on page 12. Further, we do not view the amount of equity used to support identifiable intangible assets and goodwill as available to support our remaining net assets. Accordingly, we believe net leverage, based on net assets divided by tangible equity capital, both as defined above, to be a more meaningful measure of leverage to evaluate companies in the securities industry. These definitions of net assets, tangible equity capital and net leverage are used by many of our creditors and a leading rating agency. These measures are not necessarily comparable to similarly-titled measures provided by other companies in the securities industry because of different methods of calculation. (d) Total capital includes long-term debt (including junior subordinated debentures and perpetual subordinated notes) and total stockholders' equity. We believe total capital is useful to investors as a measure of our financial strength. (e) The book value per common share calculation includes amortized restricted stock units granted under stock award programs, which have been included in total stockholders' equity. (f) Gross leverage ratio is defined as total assets divided by total stockholders' equity. 6 LEHMAN BROTHERS HOLDINGS INC. CONSOLIDATED STATEMENT OF INCOME (Preliminary and Unaudited) (In millions, except per share data) Quarter Ended % Change from ------------------------------------------- --------------------------- May 31, Feb 28, May 31, Feb 28, May 31, 2005 2005 2004 2005 2004 ------------ ----------- ----------- ----------- ------------ Revenues: Principal transactions $1,644 $2,195 $1,479 Investment banking 579 683 546 Commissions 421 411 407 Interest and dividends 4,454 3,884 2,609 Asset management and other 237 218 187 ------------ ----------- ----------- Total revenues 7,335 7,391 5,228 Interest expense 4,057 3,581 2,302 ------------ ----------- ----------- Net revenues 3,278 3,810 2,926 (14)% 12% ------------ ----------- ----------- Non-interest expenses: Compensation and benefits 1,623 1,886 1,457 Technology and communications 195 200 185 Brokerage and clearance fees 129 120 116 Occupancy 123 119 104 Professional fees 69 62 70 Business development 61 53 55 Other 65 64 55 ------------ ----------- ----------- Total non-interest expenses 2,265 2,504 2,042 (10)% 11% ------------ ----------- ----------- Income before provision for income taxes 1,013 1,306 884 Provision for income taxes 330 431 275 ------------ ----------- ----------- Net income $ 683 $ 875 $ 609 (22)% 12% ============ =========== =========== Net income applicable to common stock $ 664 $ 856 $ 592 (22)% 12% ============ =========== =========== Earnings per common share: Basic $2.37 $3.07 $2.14 (23)% 11% ============ =========== =========== Diluted $2.26 $2.91 $2.01 (22)% 12% ============ =========== =========== 7 LEHMAN BROTHERS HOLDINGS INC. CONSOLIDATED STATEMENT OF INCOME (Preliminary and Unaudited) (In millions, except per share data) Six Months Ended % Change from -------------------------- --------------------- May 31, May 31, May 31, 2005 2004 2004 ------------ ------------ --------------------- Revenues: Principal transactions $3,839 $3,218 Investment banking 1,262 1,054 Commissions 832 797 Interest and dividends 8,338 4,913 Asset management and other 455 371 ------------ ------------ Total revenues 14,726 10,353 Interest expense 7,638 4,283 ------------ ------------ Net revenues 7,088 6,070 17% ------------ ------------ Non-interest expenses: Compensation and benefits 3,509 3,023 Technology and communications 395 355 Brokerage and clearance fees 249 223 Occupancy 242 206 Professional fees 131 117 Business development 114 99 Other 129 112 Real estate related charge - 19 ------------ ------------ Total non-interest expenses 4,769 4,154 15% ------------ ------------ Income before taxes and dividends on trust preferred 2,319 1,916 securities (a) Provision for income taxes 761 613 Dividends on trust preferred securities (a) - 24 ------------ ------------ Net income $1,558 $1,279 22% ============ ============ Net income applicable to common stock $1,520 $1,245 22% ============ ============ Earnings per common share: Basic $ 5.44 $ 4.50 21% ============ ============ Diluted $ 5.17 $ 4.23 22% ============ ============ (a) At February 29, 2004, preferred securities subject to mandatory redemption were reclassified to junior subordinated debentures issued to trusts (a component of long-term debt) pursuant to the adoption of FIN 46. In periods subsequent to February 29, 2004, dividends on trust preferred securities are included in interest expense. 8 LEHMAN BROTHERS HOLDINGS INC. SEGMENT NET REVENUE INFORMATION (Preliminary and Unaudited) (In millions) Quarter Ended % Change from -------------------------------------------- --------------------------- May 31, Feb 28, May 31, Feb 28, May 31, 2005 2005 2004 2005 2004 ------------ ---------- ------------ ------------ ----------- Investment Banking: Global Finance - Debt $ 310 $ 326 $ 256 Global Finance - Equity 172 188 142 Advisory Services 97 169 148 ------------ ---------- ------------ Total 579 683 546 (15)% 6% ------------ ---------- ------------ Capital Markets: Fixed Income 1,753 2,068 1,431 Equities 474 622 520 ------------ ---------- ------------ Total 2,227 2,690 1,951 (17)% 14% ------------ ---------- ------------ Investment Management: Asset Management 255 234 192 Private Investment Management 217 203 237 ------------ ---------- ------------ Total 472 437 429 8% 10% ------------ ---------- ------------ Total Net Revenues $3,278 $3,810 $2,926 (14)% 12% ============ ========== ============ Six Months Ended % Change from -------------------------- --------------------- May 31, May 31, May 31, 2005 2004 2004 ----------- ---------- --------------------- Investment Banking: Global Finance - Debt $ 636 $ 473 Global Finance - Equity 360 285 Advisory Services 266 296 ----------- ---------- Total 1,262 1,054 20% ----------- ---------- Capital Markets: Fixed Income 3,821 3,032 Equities 1,096 1,139 ----------- ---------- Total 4,917 4,171 18% ----------- ---------- Client Services: Asset Management 489 396 Private Investment Management 420 449 ----------- ---------- Total 909 845 8% ----------- ---------- Total Net Revenues $7,088 $6,070 17% =========== ========== 9 LEHMAN BROTHERS HOLDINGS INC. RECONCILIATION OF AVERAGE COMMON STOCKHOLDERS' EQUITY TO AVERAGE TANGIBLE COMMON STOCKHOLDERS' EQUITY (Preliminary and Unaudited) (In millions) Quarter Ended -------------------------------------------------------------------------------------- May 31, Feb 28, Nov 30, Aug 31, May 31, 2005 2005 2004 2004 2004 ---------------- -------------- ------------- ------------- -------------- Average common stockholders' equity $14,596 $13,992 $13,326 $12,954 $12,716 Less: average identifiable intangible assets and goodwill (3,282) (3,279) (3,471) (3,641) (3,617) ---------------- -------------- ------------- ------------- -------------- Average tangible common stockholders' $11,314 $10,713 $ 9,855 $ 9,313 $ 9,099 equity ================ ============== ============= ============= ============== 10 LEHMAN BROTHERS HOLDINGS INC. ASSETS UNDER MANAGEMENT (Preliminary and Unaudited) (In billions) May 31, Feb 28, May 31, Composition of Assets Under Management 2005 2005 2004 ---- ---- ---- Equity $ 61.6 $ 59.1 $ 47.2 Fixed Income 54.4 53.7 49.5 Money Markets 21.2 21.8 22.5 (a) Alternative Investments 14.0 13.1 10.1 -------- -------- -------- Total Assets under Management $151.2 $147.7 $129.3 (a) ====== ====== ====== Quarter Ended ________________________________________________ May 31, Feb 28, May 31, Assets Under Management Rollforward 2005 2005 2004 ---- ---- ---- Balance, beginning of period $147.7 $136.7 $128.0 Net additions 3.1 7.0 2.5 Net market appreciation / (depreciation) 0.4 4.0 (1.2) ---------- --------- --------- Total increase 3.5 11.0 1.3 ---------- -------- --------- Balance, end of period $ 151.2 $147.7 $129.3 (a) ======= ====== ======= (a) Total assets under management at May 31, 2004 have been restated to include $4.5 billion of discretionary cash management assets. 11 LEHMAN BROTHERS HOLDINGS INC. GROSS LEVERAGE and NET LEVERAGE CALCULATIONS (Preliminary and Unaudited) (In millions) May 31, Feb 28, Nov 30, Aug 31, May 31, 2005 2005 2004 2004 2004 ------------- ------------- -------------- --------------- ------------- Net assets: Total assets $372,000 $363,692 $357,168 $340,890 $346,499 Less: Cash and securities segregated and on deposit for regulatory and other purposes (4,100) (4,278) (4,085) (4,800) (4,606) Securities received as collateral (4,200) (3,767) (4,749) (4,463) (4,376) Collateralized agreements (165,200) (168,986) (169,829) (156,661) (158,441) Identifiable intangible assets and goodwill (3,290) (3,274) (3,284) (3,658) (3,624) ------------- ------------- -------------- --------------- ------------- Net assets $195,210 $183,387 $175,221 $171,308 $175,452 ============= ============= ============== =============== ============= Tangible equity capital: Total stockholders' equity $ 15,878 $ 15,754 $ 14,920 $ 14,421 $ 14,006 Perpetual subordinated notes (a) 281 - - - - Junior subordinated debentures (subject to a limit) (b) 1,225 1,225 1,000 1,000 1,154 Less: Identifiable intangible assets and goodwill (3,290) (3,274) (3,284) (3,658) (3,624) ------------- ------------- -------------- --------------- ----------- Tangible equity capital $ 14,094 $ 13,705 $ 12,636 $ 11,763 $ 11,536 ============= ============= ============== =============== =========== Gross leverage (total assets / total stockholders' equity) 23.4x 23.1x 23.9x 23.6x 24.7x Net leverage (net assets / tangible equity capital) 13.9x 13.4x 13.9x 14.6x 15.2x (a) In March 2005, Lehman Brothers UK Capital Funding LP, a special purpose entity, issued (euro)225 million ($297 million) fixed rate to constant maturity swap-linked guaranteed non-voting non-cumulative perpetual preferred securities (the "Preferred Securities"). A corresponding principal amount of subordinated notes (the "Perpetual Subordinated Notes") were issued by Lehman Brothers Holdings plc to Lehman Brothers UK Capital Funding LP. We accounted for this transaction in accordance with FIN 46R, which requires us to deconsolidate Lehman Brothers UK Capital Funding LP and classify the Perpetual Subordinated Notes within Subordinated Indebtedness in the Consolidated Statement of Financial Condition, in the same manner we classify junior subordinated debentures. (b) Under the definition of tangible equity capital used by a leading rating agency, the maximum equity credit given to junior subordinated debentures is 10% of tangible equity capital. (Junior subordinated debentures are included in the calculation to determine the limit.) 12