-----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, GlRU4CneIKYvkxyGrISNStabnTrqtnlIAQ2X9xEN+3yGzyXtzjZXfv8oGptOM2Qz 9LpIVxPhKrfOuL16Law6Mw== 0000806085-95-000169.txt : 19951017 0000806085-95-000169.hdr.sgml : 19951017 ACCESSION NUMBER: 0000806085-95-000169 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951016 FILED AS OF DATE: 19951016 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LEHMAN BROTHERS HOLDINGS INC CENTRAL INDEX KEY: 0000806085 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 133216325 STATE OF INCORPORATION: DE FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09466 FILM NUMBER: 95580906 BUSINESS ADDRESS: STREET 1: AMERICAN EXPRESS TWR STREET 2: 3 WORLD FINANCIAL CNTR CITY: NEW YORK STATE: NY ZIP: 10048 BUSINESS PHONE: 2125267000 MAIL ADDRESS: STREET 1: AMERICAN EXPRESS TOWER 15TH FL STREET 2: 2 WORLD TRADE CENTER CITY: NEW YORK STATE: NY ZIP: 10048 FORMER COMPANY: FORMER CONFORMED NAME: SHEARSON LEHMAN HUTTON HOLDINGS INC DATE OF NAME CHANGE: 19901017 10-Q 1 LEHMAN BROTHERS HOLDINGS INC. FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended August 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 1-9466 Lehman Brothers Holdings Inc. (Exact Name of Registrant As Specified In Its Charter) Delaware 13-3216325 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 3 World Financial Center New York, New York 10285 (Address of principal (Zip Code) executive offices) Registrant's telephone number, including area code: (212) 526-7000 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 ______ As of September 30, 1995, 104,558,051 shares of the Registrant's Common Stock, par value $.10 per share, were outstanding. LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES FORM 10-Q FOR THE QUARTER ENDED AUGUST 31, 1995 INDEX Part I. FINANCIAL INFORMATION Page Number Item 1. Financial Statements - (unaudited) Consolidated Statement of Operations - Three and Nine Months Ended August 31, 1995 and Three and Eight Months Ended August 31, 1994 3 Consolidated Statement of Financial Condition - August 31, 1995 and November 30, 1994 5 Consolidated Statement of Cash Flows - Nine Months Ended August 31, 1995 and Eight Months Ended August 31, 1994 7 Notes to Consolidated Financial Statements 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Part II. OTHER INFORMATION Item 1. Legal Proceedings 23 Item 6. Exhibits and Reports on Form 8-K 25 Signatures 26 EXHIBIT INDEX 27 Exhibits LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES CONSOLIDATED STATEMENT of OPERATIONS (Unaudited) (In millions, except per share data)
Three months ended August 31, 1995 1994 Revenues Principal transactions $ 245 $ 335 Investment banking 251 172 Commissions 116 113 Interest and dividends 2,830 1,901 Other 11 16 Total revenues 3,453 2,537 Interest expense 2,703 1,818 Net revenues 750 719 Non-interest expenses Compensation and benefits 380 388 Brokerage, commissions and clearance fees 59 58 Communications 43 51 Occupancy and equipment 44 45 Professional services 39 49 Business development 27 33 Depreciation and amortization 26 33 Other 23 29 Total non-interest expenses 641 686 Income before taxes 109 33 Provision for income taxes 38 11 Net income $ 71 $ 22 Net income applicable to common stock $ 60 $ 11 Number of shares used in earnings per common share computation 116.2 109.1 Earnings per common share $0.52 $ 0.10
See notes to consolidated financial statements. LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES CONSOLIDATED STATEMENT of OPERATIONS (Unaudited) (In millions, except per share data)
Nine months ended Eight months ended August 31, August 31, 1995 1994 Revenues Principal transactions $ 959 $1,054 Investment banking 540 421 Commissions 342 333 Interest and dividends 7,986 4,547 Other 36 40 Total revenues 9,863 6,395 Interest expense 7,675 4,365 Net revenues 2,188 2,030 Non-interest expenses Compensation and benefits 1,111 1,057 Brokerage, commissions and clearance fees 183 179 Communications 137 136 Occupancy and equipment 134 114 Professional services 123 121 Business development 84 85 Depreciation and amortization 80 86 Other 67 76 Severance charge 33 Spin-off expenses 15 Total non-interest expenses 1,919 1,902 Income before taxes and cumulative effect of change in accounting principle 269 128 Provision for income taxes 95 48 Income before cumulative effect of change in accounting principle 174 80 Cumulative effect of change in accounting principle, net of taxes (13) Net income $ 174 $ 67 Net income applicable to common stock $ 142 $ 40 Number of shares used in earnings per common share computation 112.2 107.0 Earnings per common share: Income before cumulative effect of change in accounting principle $ 1.27 $0.49 Cumulative effect of change in accounting principle (0.12) Net income $ 1.27 $0.37
See notes to consolidated financial statements. LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES CONSOLIDATED STATEMENT OF FINANCIAL CONDITION (Unaudited) (In millions) ASSETS
August 31, November 30, 1995 1994 Cash and cash equivalents $2,101 $ 964 Cash and securities segregated and on deposit for regulatory and other purposes 766 1,420 Securities and other financial instruments owned: Governments and agencies 24,162 24,840 Corporate obligations and other contractual commitments 9,250 9,962 Mortgages and mortgage-backed 6,014 6,774 Corporate stocks and options 5,950 4,549 Certificates of deposit and other money market instruments 2,799 1,348 48,175 47,473 Collateralized short-term agreements: Securities purchased under agreements to resell 37,173 37,490 Securities borrowed 18,178 10,617 Receivables: Brokers, dealers and clearing organizations 4,232 4,934 Customers 4,174 2,794 Others 1,318 2,762 Property, equipment and leasehold improvements (net of accumulated depreciation and amortization of $565 in 1995 and $520 in 1994) 558 619 Deferred expenses and other assets 661 686 Excess of cost over fair value of net assets acquired (net of accumulated amortization of $94 in 1995 and $88 in 1994) 182 188 Total assets $117,518 $109,947
See notes to consolidated financial statements. LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES CONSOLIDATED STATEMENT OF FINANCIAL CONDITION (Continued) (Unaudited) (In millions, except share data) LIABILITIES AND STOCKHOLDERS' EQUITY
August 31, November 30, 1995 1994 Short-term financings: Securities sold under agreements to repurchase $ 57,887 $ 58,419 Commercial paper and short-term debt 5,742 9,807 Securities loaned 3,425 1,627 Securities and other financial instruments sold but not yet purchased: Governments and agencies 12,923 9,867 Corporate obligations and other contractual commitments 3,930 3,432 Corporate stocks and options 3,591 3,731 20,444 17,030 Payables: Brokers, dealers and clearing organizations 2,214 2,597 Customers 8,589 3,060 Accrued liabilities and other payables 2,689 2,691 Senior notes 10,635 9,107 Subordinated indebtedness 2,262 2,214 Total liabilities 113,887 106,552 Commitments and contingencies (Note 5) Stockholders' equity: Preferred stock, $1 par value; 38,000,000 shares authorized: 5% Cumulative Convertible Voting, Series A, 13,000,000 shares authorized, issued and outstanding; $39.10 liquidation preference per share 508 508 8.44% Cumulative Voting, 8,000,000 shares issued and outstanding; $25.00 liquidation preferenc per share 200 200 Redeemable Voting, 1,000 shares issued and outstanding; $1.00 liquidation preference per share Common Stock, $.10 par value; 300,000,000 shares authorized; shares issued:105,673,212 in 1995 and 105,608,423 in 1994; shares outstanding: 104,558,121 in 1995 and 104,537,690 in 1994 11 11 Common Stock issuable 199 87 Additional paid-in capital 3,172 3,172 Foreign currency translation adjustment 6 6 Accumulated deficit (449) (574) Common Stock in treasury at cost: 1,115,091 shares in 1995 and 1,070,733 shares in 1994 (16) (15) Total stockholders' equity 3,631 3,395 Total liabilities and stockholders' equity $117,518 $109,947
See notes to consolidated financial statements. LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (In millions)
Nine months Eight months ended ended August 31, August 31, 1995 1994 CASH FLOWS FROM OPERATING ACTIVITIES Income before cumulative effect of change in accounting principle 174 80 Adjustments to reconcile income to net cash provided by (used in) operating activities: Depreciation and amortization 80 86 Provisions for losses and other reserves 28 54 Deferred tax liability 138 Other adjustments 150 70 Net change in: Cash and securities segregated 654 (345) Receivables from brokers, dealers and clearing organizations 702 (1,271) Receivables from customers (1,380) (404) Securities purchased under agreements to resell 317 (18,523) Securities borrowed (7,561) (4,721) Securities and other financial instruments owned (702) (16,050) Payables to brokers, dealers and clearing organizations (383) 1,103 Payables to customers 5,196 (866) Accrued liabilities and other payables (25) (505) Securities sold under agreements to repurchase (532) 28,635 Securities loaned 1,798 872 Securities and other financial instruments sold but not yet purchased 3,414 7,580 Other operating assets and liabilities, net 1,492 (265) Net cash provided by (used in) operating activities $ 3,422 $(4,332)
See notes to consolidated financial statements. LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS--(Continued) (Unaudited) (In millions)
Nine months Eight months ended ended August 31, August 31, 1995 1994 CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of senior notes $4,301 $2,537 Principal payments of senior notes (2,885) (1,767) Proceeds from issuance of subordinated indebtedness 258 540 Principal payments of subordinated indebtedness (214) (294) Proceeds from issuance of other indebtedness 2,488 3,949 Principal payments of other indebtedness (3,893) (4,151) Increase (decrease) in commercial paper and short-term debt, net (2,252) 2,046 Proceeds from spin-off 1,193 Dividends paid (49) (82) Net cash (used in) provided by financing activities (2,246) 3,971 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, equipment and leasehold improvements (39) (137) Other Net cash used in investing activities (39) (137) Effect of exchange rate changes on cash 12 Net change in cash and cash equivalents 1,137 (486) Cash and cash equivalents, beginning of period 964 1,333 Cash and cash equivalents, end of period $2,101 $ 847
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (in millions) Interest paid totaled $7,611 and $4,286 for the nine months ended August 31, 1995 and for the eight months ended August 31, 1994, respectively. Income taxes paid (received) totaled $65 and ($43) for the nine months ended August 31, 1995 and for the eight months ended August 31, 1994, respectively. See notes to consolidated financial statements. LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES NOTES to CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation: The consolidated financial statements include the accounts of Lehman Brothers Holdings Inc. ("Holdings") and subsidiaries (Holdings together with its subsidiaries, the "Company" or "Lehman Brothers"). The principal subsidiary of Holdings is Lehman Brothers Inc. ("LBI"), a registered broker-dealer. All material intercompany accounts and transactions have been eliminated in consolidation. The Company's financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the "SEC") with respect to the Form 10-Q and reflect all normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. Pursuant to such rules and regulations, certain footnote disclosures which are normally required under generally accepted accounting principles have been omitted. The consolidated statement of financial condition at November 30, 1994 was derived from the audited financial statements. It is recommended that these financial statements be read in conjunction with the audited consolidated financial statements included in the Company's Transition Report on Form 10-K for the eleven months ended November 30, 1994. The nature of the Company's business is such that the results of any interim period may vary significantly from quarter to quarter and may not be indicative of the results to be expected for the fiscal year. Certain prior period amounts reflect reclassifications to conform to the current period's presentation. Earnings per common share was computed by dividing net income applicable to common stock by the weighted average number of shares of common stock and common stock equivalents outstanding. Pursuant to the SEC requirements, the number of shares used in the earnings per share calculation for 1994 includes common stock as of May 31, 1994 (the date of the spin-off from the American Express Company). 2. Borrowings: During the nine months ended August 31, 1995, the Company issued $4,559 million of long-term debt (including $1,261 million of foreign currency denominated notes), with maturities ranging from 1995 to 2015. These issuances were primarily utilized to refinance maturing long-term debt and to replace senior notes redeemed by the Company prior to final maturity during the nine months ended August 31, 1995. Approximately $3,444 million of the Company's new issuances were fixed rate. Of this amount, $2,320 million were U.S. dollar denominated issuances with a contractual weighted average interest rate of 8.0%, and $1,124 million were foreign currency denominated notes with a contractual weighted average interest rate of 4.8%. This rate is based on the contractual foreign interest rates of the notes. The remainder of the Company's new issuances were floating rate, with contractual interest rates based primarily on the London Interbank Offered Rate ("LIBOR"). Approximately $1,666 million of the Company's U.S. dollar fixed rate issuances during the nine months ended August 31, 1995 have effectively been converted to floating rate obligations through the use of interest rate swaps. In addition to these interest rate swaps, the Company entered into $654 million notional value of swaptions. These swaptions, if exercised, would convert $654 million of the Company's U.S. dollar fixed rate debt issuances during the nine months ended August 31, 1995 to floating interest rates. Additionally, virtually all of the Company's foreign currency denominated issuances during the nine months ended August 31, 1995 have effectively been converted to U.S. dollar obligations with U.S. dollar floating interest rates based primarily on LIBOR through the use of cross currency swaps. The Company had approximately $3,099 million of long-term debt mature during the nine months ended August 31, 1995, including notes redeemed by the Company prior to final maturity. 3. Capital Requirements: As a registered broker-dealer, LBI is subject to SEC Rule 15c3-1, the Net Capital Rule, which requires LBI to maintain net capital of not less than the greater of 2% of aggregate debit items arising from customer transactions, as defined, or 4% of funds required to be segregated for customers' regulated commodity accounts, as defined. At August 31, 1995, LBI's regulatory net capital, as defined, of $1,606 million exceeded the minimum requirement by $1,481 million. On August 31, 1995, Lehman Government Securities Inc., a wholly owned subsidiary of LBI and a registered broker-dealer, was merged into LBI. Lehman Brothers International (Europe) ("LBIE"), Lehman Brothers Japan Inc. ("LBJ") and other of Holdings' subsidiaries are subject to various securities, commodities and banking regulations and capital adequacy requirements promulgated by the regulatory and exchange authorities of the countries in which they operate. At August 31, 1995, LBIE, LBJ and the other subsidiaries were in compliance with the applicable local capital adequacy requirements. There are no restrictions on Holdings' present ability to pay dividends on its common stock, other than Holdings' obligation first to make dividend payments on its preferred stock and the governing provisions of the Delaware General Corporation Law. 4. Incentive Plans: In June 1995, the Compensation and Benefits Committee of the Board of Directors of Holdings (the "Compensation Committee") approved the 1995 Stock Award Program, pursuant to the Lehman Brothers Holdings Inc. 1994 Management Ownership Plan. Under the 1995 Stock Award Program, eligible employees are to receive as a portion of their total compensation approximately 6 million restricted stock units ("RSUs"), subject to vesting provisions and transfer restrictions. In addition, certain senior officers are eligible to receive RSUs based on the achievement of 1995 performance goals, with 1 million RSUs expected to be awarded. There were no costs to employees and senior officers associated with these awards. These RSU awards will vest 80% on July 1, 1996 and 20% on July 1, 2000. The Compensation Committee also determined to award RSUs (or Restricted Stock) to certain senior officers of Lehman Brothers as part of a three-year long term incentive plan. The number of RSUs (or Restricted Stock) which may be awarded, if any, will be determined upon the completion of a two year period; vesting would not occur until the end of the third year. The Company records compensation expense for all RSU programs granted based on the market value of the common stock and the vesting provisions. 5. Commitments and Contingencies: In the normal course of its business, the Company has been named a defendant in a number of lawsuits and other legal proceedings. After considering all relevant facts, available insurance coverage and the advice of outside counsel, in the opinion of the Company such litigation will not, in the aggregate, have a material adverse effect on the Company's consolidated financial position or results of operations. As a leading global investment bank, risk is an inherent part of all of the Company's businesses and activities. The extent to which the Company properly and effectively identifies, assesses, monitors and manages each of the various types of risks involved in its trading (including derivatives), brokerage, and investment banking activities is critical to its success and profitability. The principal types of risks involved in the Company's activities are market risk, credit or counterparty risk, and transaction risk. Management has developed a control infrastructure to monitor and manage each type of risk on a global basis throughout the Company. For further discussion of these matters, refer to Note 17 of the Consolidated Financial Statements in the Company's Transition Report on Form 10-K for the eleven months ended November 30, 1994. 6. Changes in Accounting Principles: Postemployment Benefits. Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 112, "Employers' Accounting for Postemployment Benefits". SFAS No. 112 requires the accrual of obligations associated with services rendered to date for employee benefits accumulated or vested for which payment is probable and can be reasonably estimated. These benefits principally include the continuation of salary, health care and life insurance costs for employees on service disability leaves. The Company previously expensed the cost of these benefits as they were incurred. The cumulative effect of adopting SFAS No. 112 reduced net income for the first quarter of 1994 by $13 million aftertax ($23 million pretax). The effect of this change on the 1994 results of operations was not material, excluding the cumulative effect. Offsetting of Certain Receivables and Payables. In January 1995, the Financial Accounting Standards Board issued Interpretation No. 41, "Offsetting of Amounts Related to Certain Repurchase and Reverse Repurchase Agreements" ("FIN No. 41"). FIN No. 41 is a modification to Financial Accounting Standards Board No. 39 "Offsetting of Amounts Related to Certain Contracts" ("FIN No. 39"), which permits certain limited exceptions to the criteria established under FIN No. 39 for offsetting certain repurchase and reverse repurchase agreements with the same counterparty. The Company adopted this modification in January 1995. 7. Other Charges: Severance Charge. During the first quarter of 1994, the Company conducted a review of personnel needs, which resulted in the termination of certain personnel. The Company recorded a severance charge of $33 million pretax ($18 million aftertax) in the first quarter of 1994. Spin-Off Expenses. During the second quarter of 1994, the Company recorded a charge of $15 million pretax ($12 million aftertax) in connection with the spin-off from the American Express Company and certain related expenses. 8. Change in Year-End: During 1994, the Company changed its year-end from December 31 to November 30. Such a change to a non-calendar cycle shifts certain year-end administrative activities to a time period that conflicts less with the business needs of the Company's institutional customers. In conjunction with the decision to change its year-end, the Company is reporting its third quarter 1994 results on the basis of its new fiscal year. 9. Subsequent Events: On September 9, 1995, the Company entered into an agreement to sell its 8% interest in an Italian cellular telephone venture, Omnitel Sistemi Radiocellulari S.p.A. ("Omnitel") to Ing. C. Olivetti & Co. S.p.A ("Olivetti"), subject to the completion of Olivetti's announced rights offering (the "Rights Offering"). The Company will receive approximately $175 million of proceeds (at current exchange rates) from the sale of Omnitel. In connection with this transaction, the Company, under certain circumstances, may be required to purchase and subscribe to rights for up to a total cost of $82.5 million (at current exchange rates) during the Rights Offering. In addition, the Company has an underwriting commitment relating to its role as a co-lead manager in the Rights Offering. The Rights Offering will be considered for final approval by the stockholders of Olivetti on October 26, 1995 and, if approved, is expected to be launched on November 16, 1995. Subject to the foregoing, the Company currently anticipates recognizing an aftertax gain of approximately $50 million in the fourth quarter related to the sale. On September 6, 1995, the Company agreed to sell the net assets of certain of its European branch operations as well as Lehman Brothers Bank (Switzerland) to Prudential Securities. In August, 1995, the Company also agreed to sell certain of its domestic retail brokerage accounts to Prudential Securities. These transactions are expected to close in the fourth quarter. The Company does not expect any material gain or loss on these transactions. Business Environment The Company's principal business activities, investment banking and securities trading and sales, are by their nature subject to volatility, primarily due to changes in interest and foreign exchange rates, global economic and political trends and industry competition. As a result, revenues and earnings may vary significantly from quarter to quarter and from year to year. The adverse market conditions that prevailed during the last three quarters of 1994, which were characterized by rising interest rates and depressed underwriting volumes, continued throughout most of the first quarter of 1995. In the second quarter of 1995, market conditions showed signs of improvement as expectations for lower U.S. interest rates prompted strong rallies in the stock and bond markets. Although customer volumes increased in both the debt and equity markets, activity continued to be volatile during this period. In general, investors remained conservative and defensive due to uncertainties surrounding the direction of U.S. interest rates and the value of the dollar. Over the same period, derivative transaction volumes showed improvement as customers and clients were looking for protection in a declining interest rate and volatile currency environment. The positive momentum established during the second quarter of 1995 continued into the third quarter of 1995. In early July 1995, the U.S. Federal Reserve Banks reduced the federal funds rate by one- quarter of a percentage point. Investors reacted favorably to this long-awaited rate cut, leading to a rally in the bond market. However, by the middle of July 1995, positive economic data caused renewed investor concerns regarding inflation, the growth rate of the economy, and the future direction of interest rates. Towards the end of the third quarter, the market tone turned decidedly more positive as investors concluded that further rate increases would be unnecessary. In addition, the dollar continued to strengthen against key currencies such as the yen and the deutschemark, providing further support for a more stable interest rate environment. The fixed income and equity markets rallied as a result of these factors. Improved market conditions allowed for a continuing increase in debt and equity origination activity. Driving the robust equity markets were strong individual company and industry fundamentals, near record levels of merger and acquisition activity and substantial cash inflows into mutual funds. The positive market conditions experienced during the third quarter of 1995 continued into the early part of the fourth quarter. LEHMAN BROTHERS HOLDINGS INC. and SUBIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations For the Three Months Ended August 31, 1995 and August 31, 1994 Summary. Net income increased to $71 million for the third quarter ended August 31, 1995 from $22 million for the third quarter ended August 31, 1994. Earnings per common share increased to $0.52 for the third quarter of 1995 from $0.10 per common share for the third quarter of 1994 (as adjusted for the number of shares of common stock outstanding on May 31, 1994). Net revenues increased to $750 million in the third quarter of 1995 from $731 million in the second quarter of 1995 and $719 million for the third quarter of 1994. The increase in net revenues reflected the continuation of an improved market environment, as the U.S. Federal Reserve Banks reduction of the federal funds rate and the strengthening dollar led to stronger U.S. debt and equity markets which benefitted the Company's customer flow business. Compensation and benefits expense as a percentage of net revenues was 50.7% for both the third and second quarters of 1995, down from 53.9% in the third quarter of 1994. Non-personnel expenses declined for the fifth consecutive quarter to $261 million in the third quarter of 1995 from $298 million in the third quarter of 1994. The increase in net revenues and the corresponding reduction in non-interest expenses caused an improvement in the Company's pretax operating margin to 14.5% in the third quarter of 1995 from 4.6% in the third quarter of 1994. Principal Transactions. Principal transactions revenues include the results of the Company's market making and trading activity related to its customer business, as well as proprietary trading for the Company's own account. The Company, through its subsidiaries, is a market maker in all major equity and fixed income products in both the domestic and international markets. As part of its market-making activities, the Company maintains inventory positions of varying amounts across a broad range of financial instruments which are marked- to-market on a daily basis, along with the Company's proprietary trading positions. The Company utilizes various hedging strategies to minimize its exposure to significant movements in interest and foreign exchange rates and the equity and commodity markets. Principal transactions revenues decreased 27% to $245 million for the third quarter of 1995 from $335 million for the third quarter of 1994. This decline in principal transactions revenues was primarily due to decreased net revenues from foreign exchange and fixed income derivatives. Investment Banking. Investment banking revenues increased 46% to $251 million for the third quarter of 1995 from $172 million for the third quarter of 1994 and increased 65% from revenues of $152 million in the second quarter of 1995. The increase in investment banking revenues during the third quarter of 1995 versus the third quarter of 1994 and the second quarter of 1995 was primarily attributable to higher levels of underwriting activity due predominantly to a strengthened equity syndicate calendar. Revenues from strategic advisory activities remained strong, with increased revenues in the third quarter of 1995 compared to the third quarter of 1994 and the second quarter of 1995. Merchant banking results increased primarily as a result of net unrealized gains in the value of certain publicly traded equity investments. Commissions. Commission revenues were $116 million for the third quarter of 1995, virtually unchanged from both the prior year period and the second quarter of 1995, reflecting an improvement in the Company's institutional trading volumes of listed securities offset by the effects of restructuring the Company's high net worth brokerage unit. Commission revenues are generated from the Company's agency activities on behalf of corporations, institutions and high net worth individuals. Interest and Dividends. Interest and dividend revenues increased to $2,830 million for the third quarter of 1995 from $1,901 million for the third quarter of 1994. This increase is the result of higher levels of interest rates in the third quarter of 1995 versus the third quarter of 1994 and an increase in the Company's volume of matched book transactions. Net interest and dividend revenues increased 53% to $127 million in the third quarter of 1995 from $83 million in the third quarter of 1994. Net interest and dividend revenue amounts are closely related to the Company's trading activities. The Company evaluates its trading strategies on an overall profitability basis which includes both principal transactions revenues and net interest. Therefore, changes in net interest and dividend revenue from period to period should not be viewed in isolation but should be viewed in conjunction with revenues from principal transactions. Net interest and dividend revenue is impacted by the balance sheet size and mix of assets, the amount and mix of short- and long-term funding sources, as well as the prevailing level, term structure and volatility of interest rates. In the third quarter of 1995, the increase in net interest and dividend revenue was due to a higher level of interest earning assets, increased spreads on certain fixed income products as a result of the lower interest rate environment and the benefit of the Company's liability management activities. Such activities included the conversion of a portion of the Company's existing long-term debt portfolio from fixed to floating rate through the use of interest rate swaps. Non-Interest Expenses. Non-interest expenses decreased 7% to $641 million for the third quarter of 1995 from $686 million for the third quarter of 1994. Compensation and benefits expense as a percentage of net revenues was 50.7% for both the third and second quarters of 1995 down from 53.9% in the third quarter of 1994. Compensation and benefits expense decreased to $380 million for the third quarter of 1995 from $388 million for the third quarter of 1994. Nonpersonnel expenses were $261 million for the third quarter of 1995 down from $298 million for the third quarter of 1994 and $270 million for the second quarter of 1995. Cost Reduction Effort. At year end 1994, the Company announced a cost reduction target of $300 million on an annualized basis (pre-tax) compared to the third quarter 1994 annualized expenses. The Company has continued its progress in reducing costs concentrating on both personnel and non-personnel expenses. During the third quarter of 1995, headcount was further reduced to 8,069 employees at August 31, 1995 from 8,195 at May 31, 1995. Such reductions were achieved despite certain strategic hires by the Company in a number of business units. The Company also continued to reduce nonpersonnel expenses with annualized savings of approximately $37 million being achieved in the third quarter when compared to the second quarter 1995 expense level. The Company expects to achieve its remaining cost reduction objectives by year end 1995. In addition to the cost reduction efforts described above, the Company continues to review its activities, realigning and consolidating operations where possible. These realignments and consolidations could result in the relocation of personnel and the identification of excess operating facilities. Income Taxes. The Company's income tax provision was $38 million for the third quarter of 1995 as compared to $11 million for the third quarter of 1994. The effective tax rate was 35% for the third quarter of 1995 and the third quarter of 1994. The 1995 rate, although the same as 1994, includes a decrease in the state and local tax rate and an improvement in certain foreign operations, partially offset by a decrease in tax benefits attributable to income subject to preferential tax treatment. Results of Operations For the Nine Months Ended August 31, 1995 and Eight Months Ended August 31, 1994 Summary. The Company reported net income of $174 million for the nine months ended August 31, 1995 and $67 million for the eight months ended August 31, 1994. The 1994 results included an $18 million aftertax severance charge related to the Company's review of its personnel needs, a $12 million aftertax charge in connection with the spin-off from the American Express Company and certain related expenses (the "Spin-off Charge") and a $13 million aftertax charge for the cumulative effect of a change in accounting for postemployment benefits as a result of the adoption of Statement of Financial Accounting Standards No. 112. Excluding these charges, net income was $110 million for the eight months ended August 31, 1994. Earnings per common share for the nine months ended August 31, 1995 were $1.27. Earnings per common share for the eight months ended August 31, 1994 were $0.37 after the cumulative effect of a change in accounting principle and were $0.49 before the cumulative effect of a change in accounting principle (as adjusted for the number of shares of common stock outstanding on May 31, 1994). Net revenues were $2,188 million for the nine months ended August 31, 1995 and $2,030 million for the eight months ended August 31, 1994. Although the first quarter of 1994 reflected the carryover of the 1993 robust operating environment, net revenue levels for the remainder of 1994 were adversely affected by significantly reduced underwriting volumes and a less favorable mix of investor activity due to increasing interest rates and volatile equity markets. The first quarter of 1995 reflected a continuation of the difficult business environment, due to further interest rate increases, reduced levels of debt and equity underwritings and increased volatility in the secondary markets. Although market conditions showed signs of improvement during the second quarter of 1995 as a result of expectations for lower U.S. interest rates, investors still remained defensive. The third quarter of 1995 reflected the continuation of an improved market environment, as the U.S. Federal Reserve Banks reduction of the federal funds rate and the strengthening dollar led to stronger U.S. debt and equity markets. Principal Transactions. Principal transactions revenues were $959 million for the nine months ended August 31, 1995 and $1,054 million for the eight months ended August 31, 1994. Principal transactions revenues were adversely affected by lower customer flow activities, particularly in fixed income derivatives. Investment Banking. Investment banking revenues were $540 million for the nine months ended August 31, 1995 and $421 million for the eight months ended August 31, 1994. During the first six months of 1995, underwriting activity continued at low levels industrywide as demand for debt and equity issuance remained below the comparable levels present during 1994. Investment banking revenues in the third quarter of 1995 were positively affected by higher levels of underwriting activity due predominantly to a strengthened equity syndicate calendar. Strong results from merchant banking and strategic advisory activities continued to positively impact investment banking revenues in 1995. Commissions. Commission revenues were $342 million for the nine months ended August 31, 1995 and $333 million for the eight months ended August 31, 1994. Commission revenues in 1995 reflect lower volumes of customer trading in listed securities, primarily due to the effects of restructuring the Company's high net worth brokerage unit. Commission revenues are generated from the Company's agency activities on behalf of corporations, institutions and high-net-worth individuals. Interest and Dividends. Interest and dividend revenues were $7,986 million for the nine months ended August 31, 1995 and $4,547 million for the eight months ended August 31, 1994. Interest and dividend revenues in 1995 reflects higher levels of interest rates and an increase in the Company's volume of matched book transactions. Net interest and dividend income was $311 million for the nine months ended August 31, 1995 and $182 million for the eight months ended August 31, 1994. Net interest and dividend revenue in 1995 reflected decreased financing costs due to the $1.2 billion infusion of capital in connection with the May 31, 1994 spin-off from the American Express Company, a higher level of interest earning assets and the benefit of the Company's liability management activities. These activities included the conversion of a portion of the Company's existing long-term debt portfolio from fixed to floating rate through the use of interest rate swaps. Non-Interest Expenses. Non-interest expenses were $1,919 million for the nine months ended August 31, 1995 and $1,902 million for the eight months ended August 31, 1994. Compensation and benefits expense was $1,111 million for the nine months ended August 31, 1995 and $1,057 million for the eight months ended August 31, 1994. Compensation and benefits expense as a percentage of net revenues was 50.8% for the nine months ended August 31, 1995 from 52.1% for the eight months ended August 31, 1994. Nonpersonnel expenses were $808 million for the nine months ended August 31, 1995 and $845 million for the eight months ended August 31, 1994. Included in the 1994 results was a $33 million severance charge and a $15 million Spin-off Charge. Excluding these charges, nonpersonnel expenses were $797 million for the eight months ended August 31, 1994. Income Taxes. The Company's income tax provision was $95 million for the nine months ended August 31, 1995 and $48 million for the eight months ended August 31, 1994. The effective tax rate was 35% for the nine months ended August 31, 1995 and 38% for the eight months ended August 31, 1994. The 1994 results include a tax charge related to the non-deductibility of a portion of the Spin-off Charge. In addition, the lower tax rate for 1995 is a result of a decrease in the state and local tax rate and an improvement in certain foreign operations, partially offset by a decrease in tax benefits attributable to income subject to preferential tax treatment. Liquidity and Capital Resources Total assets increased to $117.5 billion at August 31, 1995 from $109.9 billion at November 30, 1994. The increase in total assets is primarily the result of the change in the Company's clearing arrangements. After the close of business on February 17, 1995, the Company became self-clearing for equities, municipal securities and corporate debt securities. As a result of this arrangement, assets increased by approximately $11 billion which were predominantly funded with offsetting liabilities. The Company's consolidated statement of financial condition now includes accounts previously cleared, settled and carried by Smith Barney Inc. The Company has entered into an agreement, for a term of five years, with the Bear Stearns Securities Corp. ("BSSC") pursuant to which BSSC has agreed to process the transactions previously cleared by Smith Barney Inc. The Company's asset base consists primarily of cash and cash equivalents and assets which can be converted to cash within one year, including securities and other financial instruments owned, collateralized short-term agreements and receivables. Long-term assets consist primarily of other receivables, property, equipment and leasehold improvements, deferred expenses and other assets, and excess of cost over fair value of net assets acquired. On June 22, 1995, $700 million of a $945 million interest bearing receivable from the American Express Company due in June 1996 was prepaid. The maturity of the remaining $245 million interest bearing note was extended to the year 2000. Portions of this note will be prepaid by American Express prior to such date in proportion to the Company's payments and prepayments on any indebtedness related to the World Financial Center. On a daily basis the Company reviews its mix of long- and short- term borrowings as it relates to maturity matching and the availability of secured and unsecured financing. In addition, the Company periodically tests its secured and unsecured credit facilities to ensure availability and monitors its unencumbered collateral positions to ensure maximum availability of secured borrowing facilities. Short-Term Secured Funding. The Company finances its short-term assets primarily on a secured basis. At August 31, 1995, 79% of the Company's securities and other financial instruments owned, securities purchased under agreements to resell and securities borrowed are financed by securities and other financial instruments sold but not yet purchased, securities sold under agreements to repurchase and securities loaned. Short-Term Unsecured Funding. The Company uses short-term unsecured borrowing sources to fund short-term assets not financed on a secured basis. The Company's primary sources of short-term, unsecured general purpose funding include commercial paper and short- term debt, including master notes and bank borrowings under uncommitted lines of credit. Commercial paper and short-term debt outstanding totaled $5.7 billion at August 31, 1995, compared to $9.8 billion at November 30, 1994. The decrease in unsecured short-term funding is primarily due to an increase in long-term debt and stockholders' equity, repayment of the $700 million of the American Express receivable and increased usage of secured funding for the Company's securities and other financial instruments owned. Of these amounts, commercial paper outstanding totaled $1.0 billion at August 31, 1995 compared to $2.8 billion at November 30, 1994. At August 31, 1995, Holdings had $2.5 billion of unused committed bank credit lines to support its commercial paper programs. The Company's uncommitted lines of credit provide an additional source of secured and unsecured short-term financing. At August 31, 1995, the Company had $14.2 billion in uncommitted lines of credit compared to $12.5 billion at November 30, 1994. Uncommitted lines consist of facilities that the Company has been advised are available but for which no contractual lending obligation exists. Total Capital. Long-term assets are financed with a combination of long-term debt and stockholders' equity (collectively, "Total Capital"). The Company's long-term unsecured funding sources are senior notes and subordinated indebtedness. The Company maintains long-term debt in excess of its long-term assets to provide additional liquidity, which the Company uses to meet its short-term funding requirements and to reduce its reliance on commercial paper and short- term debt. The Company issued $4.6 billion in long-term debt for the nine months ended August 31, 1995 and $3.1 billion for the eight months ended August 31, 1994. These issuances were primarily utilized to refinance long-term debt and to replace long-term debt redeemed by the Company prior to maturity during the nine months ended August 31, 1995. The Company staggers the maturities of its long-term debt to minimize refunding risk. At August 31, 1995, the Company had long- term debt outstanding of $12.9 billion compared to $11.3 billion at November 30, 1994. At August 31, 1995, the Company had approximately $4.5 billion available for issuance of debt securities under various shelf registrations and debt programs. Credit Ratings. The current short-term and long-term senior debt ratings of Holdings and the current short-term and subordinated debt ratings of the Company's principal subsidiary, Lehman Brothers Inc. ("LBI") are as follows: Holdings LBI Short- Long- Short- subordina term term term ted debt Duff & Phelps Credit Rating Co D-1 A D-1 A- Fitch Investors Service Inc. F-1 A F-1 A- IBCA A1 A- A1 A- Moody's P2 Baa1 P2 Baa1 S&P A-1 A A-1 A Thomson BankWatch TBW-1 A- TBW-1 A- Specific Business Activities and Transactions The following sections include information on specific business activities of the Company which affect overall liquidity and capital resources: High Yield Securities. The Company underwrites, trades, invests and makes markets in high yield corporate debt securities. The Company also syndicates, trades and invests in loans to below investment grade companies. For purposes of this discussion, high yield debt securities are defined as securities or loans to companies rated as BB+ or lower, or equivalent ratings by recognized credit rating agencies, as well as non-rated securities or loans which, in the opinion of management, are non-investment grade. Non-investment grade securities generally involve greater risks than investment grade securities due to the issuer's creditworthiness and the liquidity of the market for such securities. In addition, these issuers have higher levels of indebtedness, resulting in an increased sensitivity to adverse economic conditions. The Company recognizes these risks and aims to reduce market and credit risk through the diversification of its products and counterparties. High yield debt securities are carried at market value and unrealized gains or losses for these securities are reflected in the Company's consolidated statement of operations. The Company's portfolio of such securities at August 31, 1995 and November 30, 1994 included long positions with an aggregate market value of approximately $957 million and $1.1 billion, respectively, and short positions with an aggregate market value of approximately $89 million and $94 million, respectively. The portfolio may from time to time contain concentrated holdings of selected issues. The Company's two largest high yield positions were $100 million and $72 million at August 31, 1995 and $252 million and $89 million at November 30, 1994. Westinghouse. In May 1993, the Company and Westinghouse Electric Corporation ("Westinghouse") entered into a partnership to facilitate the disposition of Westinghouse's commercial real estate portfolio, valued at approximately $1.1 billion, to be accomplished substantially through securitizations, asset sales and mortgage remittances. The Company's original investment in the partnership was approximately $136 million. The Company also advanced approximately $750 million of financing to the partnership in 1993, which has subsequently been repaid in its entirety from proceeds related to the disposition of the real estate assets. In August 1995, the Company agreed to purchase the partnership interests owned by Westinghouse. The Company also entered into an agreement to sell a portion of its partnership interests to an affiliate of Lennar Inc., a third party mortgage servicer, so that the Company and Lennar Inc. would own 75% and 25%, respectively, of the partnership. The Compay's net investment in the partnership at August 31, 1995 is $179 million. As a result of its increased ownership percentage, the Company's consolidated financial statements at August 31, 1995 include the accounts of the partnership. The Company expects to substantially liquidate the remaining loans by the end of 1996. Merchant Banking Partnerships. At August 31, 1995, the Company's investment in merchant banking partnerships was $313 million. At August 31, 1995, the Company had no remaining commitments to make investments through these partnerships. The Company's policy is to carry its interests in merchant banking partnerships at fair value based upon the Company's assessment of the underlying investments. The Company's merchant banking investments, made primarily through a series of partnerships, are consistent with the terms of those partnerships, and are expected to be sold or otherwise monetized during the remaining term of the partnerships. Noncore Activities and Investments. In March 1990, the Company discontinued the origination of partnerships (the assets of which are primarily real estate) and investments in real estate. Currently, the Company acts as a general partner for approximately $4.1 billion of partnership investment capital and manages the remaining real estate investment portfolio. At August 31, 1995, the Company had $44 million of investments in these real estate activities, as well as $135 million of commitments and contingent liabilities under guarantees and credit enhancements, both net of applicable reserves. In certain circumstances, the Company provides financial and other support and assistance to such investments to maintain investment values. There is no contractual requirement that the Company continue to provide this support. Although a decline in the real estate market or the economy in general or a change in the Company's disposition strategy could result in additional reserves, the Company believes that it is adequately reserved for its investments in real estate and commitments and contingent liabilities. The Company has equity, partnership and debt investments made in previous years that are unrelated to its ongoing businesses. The Company holds $98 million of long-term subordinated indebtedness and equity securities of American Marketing Industries Holdings Inc. ("AMI"). The subordinated debt, as amended, matures in 1997, and includes certain provisions which limit cash interest payments and provides for payment-in-kind securities above such cash interest payments. The AMI loan is current in payment in accordance with its terms. The Company has other investments that are also awaiting their disposition or the occurrence of certain events which will ultimately lead to their liquidation. The Company carries these equity, partnership and debt investments, including AMI, at their estimated net realizable value, which approximates $173 million at August 31, 1995. Management's intention with regard to noncore assets is the prudent liquidation of these investments as and when possible. LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES PART II - OTHER INFORMATION ITEM 1 LEGAL PROCEEDINGS Lehman Brothers is involved in a number of judicial, regulatory and arbitration proceedings concerning matters arising in connection with the conduct of its business. Such proceedings include actions brought against LBI and others with respect to transactions in which LBI acted as an underwriter or financial advisor, actions arising out of LBI's activities as a broker or dealer in securities and commodities and actions brought on behalf of various classes of claimants against many securities and commodities firms of which LBI is one. Although there can be no assurance as to the ultimate outcome, Lehman Brothers has denied, or believes it has meritorious defenses and will deny, liability in all significant cases pending against it including the matters described below, and intends to defend vigorously each such case. Although there can be no assurance as to the ultimate outcome, based on information currently available and established reserves, the Company believes that the eventual outcome of the actions against it, including the matters described below, will not, in the aggregate, have a material adverse effect on its business or consolidated financial condition. In re Computervision Securities Litigation (Reported in Holdings' Annual Report on Form 10-K) Plaintiffs dropped the remaining claim on their original complaint and sought to amend the complaint. On September 20, 1995, the Court denied plaintiffs' motion for leave to serve an amended complaint and entered judgment for defendants. Glynwil Investment, Ltd. v. Shearson Lehman Brothers Inc. (Reported in Holdings' Annual Report on Form 10-K and First Quarter Report on Form 10-Q) Subject to the execution of a definitive agreement, the parties have agreed to a settlement of this action. First Capital Holdings Inc. - Bankruptcy Court Action. (Reported in Holdings' Annual Report on Form 10-K) On August 9, 1995, the Bankruptcy Court approved the FCH creditors' settlement. Actions Relating to National Association of Securities Dealers Automated Quotations System ("NASDAQ") Market Maker Antitrust and Securities Litigation. The Court dismissed the action, with leave to replead, stating that the compliant failed to identify the securities involved with sufficient specificity. The plaintiffs have repled and the defendants will answer the amended complaint on November 17, 1995. LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES PART II - OTHER INFORMATION ITEM 1 LEGAL PROCEEDINGS (Continued) Berlitz International Inc. v. Macmillan Inc. et al. (Reported in Holdings' Annual Report on Form 10-K) On the motion of LBIE and PLC, the case was remanded back to the Court. Following the remand, the parties entered into a stipulation pursuant to which all proceedings have been stayed pending the outcome of the appeal in Macmillan v. Bishopsgate Investment Trust et al., referred to below. Macmillan, Inc. v. Bishopsgate Investment Trust, Shearson Lehman Brothers Holdings PLC et al. (Reported in Holdings' Annual Report on Form 10-K) The Court of Appeal in London is expected to give judgment shortly on Macmillan's contention that the High Court was wrong to apply New York law to this dispute. No date has been fixed for the revised Macmillan appeal. MCC Proceeds Inc. v. Lehman Brothers International (Europe) This action was commenced by issuance of a writ in the High Court of Justice in London, England on 14 July 1995. In this action, MCC Proceeds Inc., as successor to Macmillan, Inc., seeks relief identical to that sought in the Berlitz action described above, but based on a legal theory which was initially pleaded but ultimately abandoned by the plaintiff in Berlitz. LBIE has issued an application to dismiss the proceeding. EXHIBITS AND REPORTS ON FORM 8-K The following exhibits and reports on Form 8-K are filed as part of this Quarterly Report, or where indicated, were heretofore filed and are hereby incorporated by reference: (a) Exhibits: 11. Computation of Per Share Earnings 12. Computation in Support of Ratio of Earnings to Fixed Charges 27. Financial Data Schedule (b) Reports on Form 8-K: 1. Form 8-K filed September 21, 1995, Items 5 and 7. SIGNATURES Pursuant to the requirements 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. LEHMAN BROTHERS HOLDINGS INC. (Registrant) Date: October 16, 1995 By /s/ Richard S. Fuld Jr. Richard S. Fuld, Jr. Chairman of the Board and Chief Executive Officer (Principal Executive Officer) Date: October 16, 1995 By /s/ Robert Matza Robert Matza Chief Financial Officer (Principal Financial Officer) EXHIBIT INDEX Exhibit No. Exhibit Exhibit 11 Computation of Per Share Earnings Exhibit 12 Computation in Support of Ratio of Earnings to Fixed Charges Exhibit 27 Financial Data Schedule Exhibit 11 LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES COMPUTATION of PER SHARE EARNINGS (Unaudited) (In millions, except share data)
Three Three Nine Eight months months months months ended ended ended ended August 31, August 31, August 31, August 31, 1995 1994 1995 1994 Primary: Weighted average shares outstanding: Common stock 104,549,710 105,555,348 104,526,430 105,588,233 Common stock issuable 10,984,492 3,497,819 7,348,161 1,331,527 Common stock equivalents 623,663 61,389 319,000 61,389 Total common stock and common stock equivalents 116,157,865 109,114,556 112,193,591 106,981,149 Income before cumulative effect of change inaccounting principle $ 70.7 $ 22.0 $173.9 $ 79.7 Cumulative effect of change in accounting principle (12.7) Net income 70.7 22.0 173.9 67.0 Preferred dividends (10.6) (11.0) (31.8) (27.0) Net income applicable to common stock $ 60.1 $ 11.0 $142.1 $ 40.0 Earnings Per Share: Income before cumulative effect of change in accounting principle $ 0.52 $ 0.10 $ 1.27 $ 0.49 Cumulative effect of change in accounting principle (0.12) Earnings per common share $ 0.52 $ 0.10 $ 1.27 $ 0.37 Fully diluted: Weighted average shares outstanding: Common stock 104,549,710 105,555,348 104,526,430 105,588,233 Common stock issuable 10,984,492 3,497,819 7,348,161 1,331,527 Common stock equivalents 872,012 61,389 442,456 61,389 Total common stock and common stock equivalents 116,406,214 109,114,556 112,317,047 106,981,149 Income before cumulative effect of change in accounting principle $ 70.7 $ 22.0 $173.9 $ 79.7 Cumulative effect of change in accounting principle (12.7) Net income 70.7 22.0 173.9 67.0 Preferred dividends (10.6) (11.0) (31.8) (27.0) Net income applicable to common stock $ 60.1 $ 11.0 $142.1 $ 40.0 Earnings Per Share: Income before cumulative effect of change in accounting principle $ 0.52 $ 0.10 $ 1.27 $ 0.49 Cumulative effect of change in accounting principle (0.12) Earnings per common share $ 0.52 $ 0.10 $ 1.27 $ 0.37
Exhibit 12 LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES COMPUTATION in SUPPORT of RATIO of EARNINGS to FIXED CHARGES (Dollars in millions) (Unaudited)
For the For the Eleven Nine Months Months Ended Ended For the Year Ended December 31, November 30 August 31 1990 1991 1992 1993 1994 1995 Fixed charges: Interest expense: Subordinated indebtedness 203 170 150 144 158 152 Bank loans and other borrowings* 4,531 4,755 5,035 5,224 6,294 7,523 Interest component of rentals of office and equipment 62 70 74 76 42 34 Other adjustments** 8 2 2 7 4 22 TOTAL (A) $4,804 $4,997 $5,261 $5,451 $6,498 $7,731 Earnings: Pretax income (loss) from continuing operati (749) 150 (247) 27 193 269 Fixed charges 4,804 4,997 5,261 5,451 6,498 7,731 Other adjustments*** (17) 7 (6) (4) (21) TOTAL (B) $4,038 $5,154 $5,014 $5,472 $6,687 $7,979 (B / A) **** 1.03 **** 1.00 1.03 1.03
* Includes amortization of long-term debt discount. ** Other adjustments include capitalized interest and debt issuance costs and amortization of capitalized interest. *** Other adjustments include adding the net loss of affiliates accounted for at equity whose debt is not guaranteed by the Company and subtracting capitalized interest and debt issuance costs and undistributed net income of affiliates accounted for at equity. **** Earnings were inadequate to cover fixed charges and would have had to increase approximately $766 million in 1990 and $247 million in 1992 in order to cover the deficiency. EX-27 2 FDS
BD LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES This schedule contains summary financial information extracted from the Statement of Financial Condition at August 31, 1995 (Unaudited) and the Consolidated Statement of Operations for the nine months ended August 31, 1995 (Unaudited) and is qualified in its entirety by reference to such financial statements. 0000806085 LEHMAN BROTHERS HOLDINGS INC. 1,000,000 9-MOS NOV-30-1995 DEC-01-1994 AUG-31-1995 2,867 9,724 37,173 18,178 48,175 558 117,518 5,742 10,803 57,887 3,425 20,444 12,897 11 0 708 2,912 117,518 959 7,986 342 540 0 7,675 1,111 269 174 0 0 174 $1.27 $1.27
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