FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period ended
March 31, 1994
Commission File Number 1-4346
SALOMON INC
(Exact name of registrant as specified in its charter)
Delaware 22-1660266
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Seven World Trade Center, New York, New York 10048
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 783-7000
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
Number of shares of common stock outstanding
at April 30, 1994: 105,933,512
<PAGE>1
XXX BEGIN PAGE 2 XXX
SALOMON INC
Form 10-Q
PART I FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements (unaudited):
Consolidated Statement of Income -
Three months ended March 31, 1994 and 1993 3
Condensed Consolidated Statement of Financial Condition -
March 31, 1994 and December 31, 1993 4-5
Summary of Options and Contractual Commitments -
March 31, 1994 and December 31, 1993 6
Condensed Consolidated Statement of Cash Flows -
Three months ended March 31, 1994 and 1993 7
Notes to Unaudited Condensed Consolidated Financial
Statements 8-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-16
PART II OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of Security Holders 17-18
Item 6 . Exhibits and Reports on Form 8-K 18-19
SIGNATURES 20
<PAGE>2
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
CONSOLIDATED STATEMENT OF INCOME
(unaudited)
<CAPTION>
Dollars in millions, except per share amounts
Three months ended March 31, 1994 1993
<S> <C> <C>
Revenues:
Interest and dividends $1,302 $1,420
Principal transactions 197 (50)
Investment banking 170 149
Commissions 90 66
Other 10 6
Total revenues 1,769 1,591
Interest expense 1,058 1,168
Revenues, net of interest expense 711 423
Noninterest expenses:
Compensation and employee-related 417 338
Technology 61 63
Occupancy 38 49
Professional services and business development 34 28
Clearing and exchange fees 19 14
Other 30 44
Total noninterest expenses 599 536
Income (loss) before taxes and cumulative
effect of change in accounting principles 112 (113)
Income taxes 46 (48)
Income (loss) before cumulative
effect of change in accounting principles 66 (65)
Cumulative effect of change in accounting principles,
net of tax benefit of $28 - (37)
Net income (loss) $ 66 $ (102)
Per common share:
Primary earnings (loss) before cumulative effect of
change in accounting principles $ 0.48 $(0.76)
Cumulative effect of change in accounting principles - (0.34)
Primary earnings (loss) $ 0.48 $(1.10)
Fully diluted earnings (loss) before cumulative
effect of change in accounting principles $ 0.48 $(0.76)
Cumulative effect of change in accounting principles - (0.34)
Fully diluted earnings (loss) $ 0.48 $(1.10)
Dividends $ 0.16 $ 0.16
Weighted average shares of common stock
outstanding (in thousands):
For primary earnings per share 110,600 110,100
For fully diluted earnings per share 111,100 110,100
<FN>
The accompanying Notes to Unaudited Condensed Consolidated Financial
Statements are an integral part of this statement.
</TABLE>
<PAGE>3
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<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(unaudited)
<CAPTION>
Dollars in millions March 31, 1994 December 31, 1993
<S> <C> <C> <C> <C>
ASSETS
Cash $ 688 $ 908
Financial instruments:
U.S. government and agency securities $32,624 $42,485
Non-U.S. government securities 33,127 38,279
Corporate debt securities 13,130 11,876
Options and contractual commitments 10,743 8,485
Equity securities 6,135 7,178
Mortgage loans and collateralized
mortgage securities 4,436 4,227
Money markets, municipal securities
and other 2,266 6,278
102,461 118,808
Commodities-related products and instruments:
Crude oil, refined products and other
physical commodities 389 488
Options and contractual commitments 395 366
784 854
Collateralized short-term financing agreements:
Securities purchased under agreements to resell 37,691 36,924
Securities borrowed and other 12,224 11,965
49,915 48,889
Receivables 13,928 9,659
Assets securing collateralized mortgage obligations 3,657 3,887
Property, plant and equipment, net 1,124 1,122
Other assets, including intangibles 759 708
Total assets $173,316 $184,835
<FN>
The accompanying Notes to Unaudited Condensed Consolidated Financial
Statements are an integral part of this statement.
</TABLE>
<PAGE>4
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<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION (Unaudited)
<CAPTION>
Dollars in millions March 31, 1994 December 31, 1993
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings:
Securities sold under agreements to repurchase $74,167 $86,066
Bank borrowings 4,141 3,644
Securities loaned 2,445 2,172
Deposit liabilities 2,159 1,293
Commercial paper 962 1,344
Other 2,680 3,371
$ 86,554 $ 97,890
Financial and commodities-related energy instruments
sold, not yet purchased, and other contractual
commitments:
U.S. government and agency securities 25,566 30,714
Non-U.S. government securities 12,349 9,604
Financial options and contractual
commitments 10,683 10,619
Equity securities 3,465 3,434
Corporate debt securities 1,945 1,635
Commodities, including options and contractual
commitments 553 464
54,561 56,470
Payables and accrued liabilities 9,645 9,644
Collateralized mortgage obligations 3,499 3,808
Term debt 13,950 11,692
Total liabilities 168,209 179,504
Commitments and contingencies (Note 2)
Redeemable preferred stock, Series A 700 700
Stockholders' equity:
Preferred stock, Series C and D 312 312
Common stock 156 156
Additional paid-in capital 297 295
Retained earnings 5,242 5,208
Cumulative translation adjustments (2) (11)
Equity Partnership Plan,net 45 85
Common stock held in treasury, at cost (1,643) (1,414)
Total stockholders' equity 4,407 4,631
Total liabilities and stockholders' equity $173,316 $184,835
<FN>
The accompanying Notes to Unaudited Condensed Consolidated Financial
Statements are an integral part of this statement.
</TABLE>
<PAGE>5
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<TABLE>
SUMMARY OF OPTIONS AND CONTRACTUAL COMMITMENTS
(unaudited)
Market or Fair Value Recorded as Assets on the Statement of Financial Condition
<CAPTION>
March 31, Month-end Month-end Quarter* December 31,
Dollars in billions 1994 High Low Average 1993
<S> <C> <C> <C> <C> <C>
Swap agreements, swap options, caps and floors $ 8.0 $ 8.0 $ 5.8 $ 6.4 $ 6.0
Index and equity options and warrants 1.2 1.3 1.1 1.2 1.1
Foreign exchange contracts and options 1.1 1.3 .8 1.1 1.1
Other .4 .4 .3 .4 .3
Total market or fair value of financial options
and contractual commitments $ 10.7 $ 9.1 $ 8.5
Commodities-related instruments $ .4 $ .4 $ .3 $ .4 $ .4
<FN>
* Based on month-end balances; on a weekly basis, average financial
options and contractual commitments were $7.9 billion.
</TABLE>
<TABLE>
Credit Exposure, Net of Collateral, By Risk Class*
<CAPTION>
March 31, 1994
Transactions With More
Dollars in billions All Transactions Than 3 Years to Maturity
Banks NonBanks Banks NonBanks
<S> <C> <C> <C> <C>
Financial over-the-counter derivatives, excluding
foreign exchange:
Risk classes 1 and 2 $ 1.0 $ .3 $ .5 $ .2
Risk class 3 .5 .8 .2 .5
Risk classes 4 and 5 .5 .6 .3 .2
2.0 1.7 1.0 .9
Foreign exchange:
Risk classes 1 and 2 .2 .1 - -
Risk class 3 .1 .1 - -
Risk classes 4 and 5 .1 .3 - -
.4 .5 - -
Total credit exposure, net of collateral $ 2.4 $ 2.2 $ 1.0 $ .9
Commodities-related instruments** $ - $ .4 $ - $ -
<FN>
*To monitor credit risk, the Company utilizes a series of eight internal designations of counterparty credit
quality. These designations are analogous to external credit ratings whereby risk classes one through three are
high quality investment grades. Risk classes four and five include counterparties ranging from the lowest
investment grade to the highest non-investment grade level. Risk classes six, seven and eight represent higher risk
counterparties and, at March 31, 1994, were less than $100 million.
**The substantial majority of credit exposure arising from commodities-related instruments is with
counterparties of investment grade quality. A small portion of such exposure relates to transactions with more
than three years to maturity.
</TABLE>
<TABLE>
Notional Amounts
<CAPTION>
March 31, December 31,
Dollars in billions 1994 1993
<S> <C> <C>
Financial futures contracts $ 588 $ 473
Swap Agreements 277 233
Financial options and warrants sold or written 106 102
Forward securities contracts 103 98
Forward currency contracts 60 51
Interest rate cap and floor agreements written 35 32
Commodities-related contractual commitments and options written 18 10
</TABLE>
<PAGE>6
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<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<CAPTION>
Dollars in millions
Three months ended March 31, 1994 1993
<S> <C> <C>
Cash used in operating activities $ (1,882) $ (962)
Cash flows from financing activities:
Proceeds from -
Issuance of term debt 2,938 1,855
Issuance of preferred stock - 200
Employee stock purchase and option plans 7 16
Total cash proceeds from financing activities 2,945 2,071
Payments for -
Term debt maturities and repurchases 854 758
Collateralized mortgage obligations 337 198
Purchase of common stock for treasury 237 -
Dividends on common stock 18 18
Dividends on preferred stock* 13 18
Equity Partnership Plan, net 40 14
Total cash payments for financing activities 1,499 1,006
Cash provided by financing activities 1,446 1,065
Cash flows from investing activities:
Proceeds from -
Assets securing collateralized mortgage obligations 255 296
Total cash proceeds from investing activities 255 296
Payments for -
Property, plant and equipment 39 43
Total cash payments for investing activities 39 43
Cash provided by investing activities 216 253
Increase (decrease) in cash (220) 356
Cash at January 1 908 620
Cash at March 31 $ 688 $ 976
<FN>
The accompanying Notes to Unaudited Condensed Consolidated Financial Statements are an integral
part of this statement.
* Dividends on preferred stock are adjusted for the after tax impact of interest rate swaps that
effectively convert the Company's fixed-rate dividend obligations to variable-rate obligations. In the
first quarter of 1993, the impact of the swaps related to the Series A Preferred was included in reported
earnings.
</TABLE>
<PAGE>7
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Notes to Unaudited Condensed Consolidated Financial
Statements
1. Basis of Presentation
The Unaudited Condensed Consolidated Financial Statements
include the accounts of Salomon Inc and all majority-owned
subsidiaries for which control is deemed to be other than
temporary (collectively, the "Company"). These financial
statements include all adjustments necessary for a fair
presentation of financial condition, results of operations
and cash flows. The Unaudited Condensed Consolidated
Financial Statements should be read in conjunction with the
audited financial statements included in the Company's
Annual Report on Form 10-K for the year ended December 31,
1993. In the first quarter of 1994, the Company
reclassified precious metals and related options from
Financial instruments to Commodities-related products and
instruments on its Consolidated Statement of Financial
Condition. Prior period amounts have been reclassified to
conform with the current presentation.
2. Legal Proceedings
Outstanding legal and environmental matters are discussed in
Note 14 to the Consolidated Financial Statements included in
the Company's Annual Report on Form 10-K for the year ended
December 31, 1993. In management's opinion, there have been
no changes in the status of, nor additions to, such matters
that will result in any material adverse impact on the
Company's financial condition.
3. Net Capital
Certain U.S. and non-U.S. subsidiaries are subject to
various securities and commodities regulations and capital
adequacy requirements promulgated by the regulatory and
exchange authorities of the countries in which they operate.
The Company's principal regulated subsidiaries are discussed
below.
Salomon Brothers Inc is registered as a broker-dealer with
the U.S. Securities and Exchange Commission ("SEC") and is
subject to the SEC's Uniform Net Capital Rule, Rule 15c3-1,
which requires net capital, as defined under the alternative
method, 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. Although net
capital, aggregate debit items and funds required to be
segregated change from day to day, at March 31, 1994, SBI's
net capital was $1,283 million, $1,209 million in excess of
regulatory requirements.
Salomon Brothers International Limited ("SBIL") is
authorized to conduct investment business in the United
Kingdom by the Securities and Futures Authority ("SFA") in
accordance with the Financial Services Act 1986 (the "Act").
The SFA requires SBIL to have available at all times
financial resources, as defined, sufficient to demonstrate
continuing compliance with its rules. At March 31, 1994,
SBIL's financial resources were $536 million in excess of
regulatory requirements.
Salomon Brothers Asia Limited ("SBAL") and Salomon Brothers
AG ("SBAG") are also subject to regulation in the countries
in which they do business. Such regulations include
requirements to maintain specified levels of net capital or
its equivalent. At March 31, 1994, SBAL's net
<PAGE> 8
XXX BEGIN PAGE 9 XXX
capital was
$789 million above the minimum required by Japan's Ministry
of Finance. SBAG's net capital was $55 million above the
minimum required by Germany's Banking Supervisory Authority.
4. Industry Segment Reporting
The accompanying Management's Discussion and Analysis
section includes a discussion of the operating results of
the Company's industry segments. The Company's investment
banking and securities activities are conducted by Salomon
Brothers Holding Company Inc and its subsidiaries ("Salomon
Brothers"). Commodities trading activities are conducted by
the Phibro Division of Salomon Inc ("Phibro Division") and
crude oil refining activities and certain other asset-based
businesses are conducted by Phibro Energy USA, Inc. ("Phibro
USA"). Results of The Mortgage Corporation Group Limited
("TMC"), an indirect wholly-owned subsidiary of the Company,
are included in "Corporate and Other". Prior to the third
quarter of 1993, TMC's results were included in the Salomon
Brothers segment. Prior period results have not been
restated due to immateriality. The results of Phibro Energy
Production, Inc. ("PEPI"), a partner in the White Nights
Russian-American oil joint venture, are also included in
"Corporate and Other." Industry segment financial
information is prepared in accordance with generally
accepted accounting principles in the United States.
Segment results for all periods presented include a
partial allocation of Salomon Inc corporate-level expenses,
the most significant of which is corporate-level net
interest expense, which is allocated to the respective
operating segments based upon their proportional use of the
Company's equity capital. Corporate-level expenses incurred
for the benefit of a particular operating segment are
allocated directly to that segment. Corporate-level
expenses that cannot be directly associated with the
Company's operating segments are included in "Corporate and
Other."
<PAGE> 9
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
<TABLE>
SUMMARY OF CONSOLIDATED OPERATING RESULTS
<CAPTION>
Dollars in millions, except per share amounts
Three months ended March 31, 1994 1993
<S> <C> <C>
Income (loss) before taxes and cumulative effect
of change in accounting principles by segment:
Salomon Brothers $ 39 $ (89)
Phibro Division 50 6
Phibro USA 27 (13)
Corporate and Other (4) (17)
Income (loss) before taxes and cumulative
effect of change in accounting principles 112 (113)
Income taxes 46 (48)
Income (loss) before cumulative effect
of change in accounting principles 66 (65)
Cumulative effect of change in accounting principles,
net of related income taxes - (37)
Net income (loss) $ 66 $ (102)
Per Common Share:*
Primary earnings (loss) $ 0.48 $ (1.10)
Fully diluted earnings (loss)** $ 0.48 $ (1.10)
Cash dividends $ 0.16 $ 0.16
Book value at period-end $ 38.23 $ 30.88
Annualized return on average common stockholders' equity:*
Primary method 4.9% (9.7)%
Fully diluted method** 4.9% (9.7)%
<FN>
*1993 earnings per share data includes reductions of $.34 related to a cumulative change in
accounting for certain postretirement benefits; 1993 return on average common stockholders' equity
was calculated on earnings before the cumulative effect of the change in accounting principles.
**Assumes conversion of convertible notes and redeemable preferred stock, unless such assumptions
result in higher returns on equity or earnings per share than determined under the primary method.
</TABLE>
Salomon Inc recorded net income of $66 million for the 1994
first quarter. In the 1993 first quarter, Salomon Inc
recorded a net loss of $102 million, which included a $37
million aftertax charge to reflect the cumulative impact of
a change in accounting for postretirement health and life
insurance benefits.
Earnings volatility is inherent in the Company's businesses.
Salomon Brothers' Proprietary Trading Businesses are
generally the largest source of this volatility. Because
strategies are frequently designed with time horizons of one
year or more but are marked to market continually, profits
or losses reported in interim periods are extremely
sensitive to changes in market prices and can, and do, vary
considerably from period to period. When measured over more
meaningful time periods such as four quarters, Proprietary
Trading results are less volatile and have been consistently
profitable. Revenues from Client-Driven Businesses are also
volatile, although generally to a lesser degree than
Proprietary Trading Businesses. As discussed in Salomon
Brothers Results of Operations, 1994 first quarter revenues
for Client-Driven Businesses were negatively affected by
adverse market conditions.
Corporate and Other includes certain Salomon Inc corporate-
level expenses that cannot be attributed to any of the
Company's operating segments, as well as the results of
PEPI, whose primary asset is its
<PAGE> 10
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investment in the White
Nights Russian-American oil production joint venture. The
1994 first quarter results of Corporate and Other also
include the results of TMC. In the 1993 first quarter, TMC
was included in Salomon Brothers' results.
PEPI's investment in White Nights had a carrying value of
$64 million at March 31, 1994, unchanged since year-end.
The future of White Nights continues to be subject to great
uncertainty, mainly as a result of current Russian tax
policies, and in particular, when and to what extent these
policies will be changed. The 1993 first quarter results of
Corporate and Other included an $8 million addition to the
Company's reserve for environmental matters.
SALOMON BROTHERS
<TABLE>
Results of Operations
<CAPTION>
Dollars in millions
Percent
Three months ended March 31, 1994 1993 Change
<S> <C> <C> <C>
Revenues:
Client-Driven businesses:
Global investment banking $ 170 $ 149 14 %
U.S. secondary markets 250 271 (8)
International secondary markets (68) 195 N/A
Foreign exchange (111) 27 N/A
Private Investment Department and asset
management 14 17 (18)
Total revenues from Client-Driven Businesses 255 659 (61)
Proprietary Trading Businesses 341 (254) N/A
Total revenues, net of interest expense $ 596 $ 405 47%
Income (loss) before taxes and cumulative effect
of change in accounting principles:
Client-Driven Businesses $ (173) $ 230 N/A%
Proprietary Trading Businesses 212 (319) N/A
Total income (loss) before taxes and cumulative
effect of change in accounting principles $ 39 $ (89) N/A%
</TABLE>
Salomon Brothers, the Company's global investment banking
and securities business, recorded pretax earnings of $39
million in the 1994 first quarter as pretax losses of $173
million in Client-Driven Businesses were offset by pretax
earnings of $212 million for Proprietary Trading Businesses.
In the first quarter of 1993, Salomon Brothers recorded a
pretax loss of $89 million as pretax earnings of $230
million in Client-Driven Businesses were exceeded by pretax
losses of $319 million in Proprietary Trading Businesses.
The 1994 first quarter losses incurred by Salomon Brothers'
Client-Driven Businesses were primarily attributable to
losses in foreign exchange and international secondary
markets, as well as a decline in U.S. secondary market
revenues. The Company's foreign exchange and secondary
markets businesses combine both client-related market making
activities and position taking activities in which views are
expressed about short-term changes in price and volatility.
Revenues were adversely affected by declines in the value of
positions in these businesses as well as an overall decline
in customer trading volume in the latter part of the
quarter.
<PAGE> 11
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Proprietary Trading results for the 1994 quarter were
strong, but are better evaluated over longer term periods of
at least one year. For the four quarters ended March 31,
1994, Proprietary Trading Businesses' pretax profits were
$947 million.
<TABLE>
Noninterest Expenses
<CAPTION>
Dollars in millions
Percent
Three months ended March 31, 1994 1993 Change
<S> <C> <C> <C>
Compensation and employee-related expenses $ 388 $ 320 21%
Compensation ratio* 91% 139%
Non-compensation expenses:
Technology $ 57 $ 60 (5)
Occupancy 39 46 (15)
Professional services and business development 28 22 27
Other 45 46 (2)
Total non-compensation expense $ 169 $ 174 (3)%
Non-compensation expense ratio** 28% 43%
<FN>
*Compensation as a percentage of earnings before taxes and compensation.
<fn2>**Non-compensation expenses as a percentage of revenues, net of interest.
</TABLE>
Compensation and employee-related expenses is the largest
component of noninterest expense. Salomon Brothers'
compensation for its business units is formula-driven, with
aggregate compensation for each business unit based upon the
results for that unit. Under this approach, Salomon
Brothers' total compensation expense is affected not only by
the level of earnings, but by the mix of earnings among the
business units. Although the absolute level of compensation
expense can be expected to increase in periods when Salomon
Brothers generates strong broad-based earnings, the
compensation ratio will generally decline. Conversely,
compensation expense will decrease when results are weak
across a number of businesses although the compensation
ratio will increase. Salomon Brothers' compensation ratios
for the first quarters of both 1994 and 1993 were unusually
high compared with the ratio of 53% for each of the full
years 1993 and 1992.
Occupancy expense decreased 15% from $46 million in the 1993
first quarter to $39 million in the 1994 first quarter. The
decrease is primarily due to prior cost savings initiatives
including the reduction of leased office space in New York
and Tokyo. The increase in professional services and
business development expenses was attributable in part to a
higher level of legal expenses. The high non-compensation
expense ratios in each quarter reflect the relatively low
levels of revenues.
<PAGE>12
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PHIBRO DIVISION
<TABLE>
Condensed Statement of Income
<CAPTION>
Dollars in millions
Percent
Three months ended March 31, 1994 1993 Change
<S> <C> <C> <C>
Revenues, net of interest $ 73 $ 20 265 %
Overhead (including minimum compensation) 13 14 (7)
Variable compensation 10 - N/A
Total noninterest expenses 23 14 64
Income before taxes and cumulative
effect of change in accounting principles $ 50 $ 6 733 %
</TABLE>
The Phibro Division recorded pretax earnings of $50 million
in the first quarter of 1994. In the comparable 1993
quarter, the Phibro Division had pretax earnings of $6
million. Revenues from oil trading activities were $68
million in the first quarter of 1994, up $51 million from
the 1993 quarter, as the Division was able to take advantage
of trading opportunities in oil markets as prices rose and
volatility increased. Revenues in 1994 from other trading
activities, which include non-oil commodities, natural gas,
and metals, increased modestly over last year. The increase
in variable compensation in the 1994 first quarter reflects
bonus accruals based on the increased profitability of the
Division.
PHIBRO USA
<TABLE>
Condensed Statement of Income
<CAPTION>
Dollars in millions
Percent
Three months ended March 31, 1994 1993 Change
<S> <C> <C> <C>
Sales $1,611 $2,161 (25)%
Cost of sales 1,564 2,158 (28)
Operating profit 47 3 N/A
Net interest and other (5) (6) (17)
Operating profit (loss), net of
interest and other 42 (3) N/A
Compensation and employee-related expenses 10 6 67
Other expenses 5 4 25
Total noninterest expenses 15 10 50
Income (loss) before taxes and cumulative
effect of change in accounting principles $ 27 $ (13) N/A%
</TABLE>
Phibro USA had pretax earnings of $27 million in the 1994
first quarter, compared with a $13 million pretax loss in
last year's first quarter. Much of the improvement in
earnings was due to increased refining margins resulting
primarily from weather-related demand in the Northeast for
refined products. Phibro USA's recent expansion of storage
and terminal capacity in the Northeast enabled it to
capitalize on these market opportunities. During the first
quarter of 1994, Phibro USA sold its St. Rose refinery,
located in Louisiana; the sale resulted in a modest gain.
In addition, Phibro USA had improved results in its
petrochemicals, crude oil gathering and marine fuels
businesses.
<PAGE> 13
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SALOMON INC
CAPITAL and LIQUIDITY MANAGEMENT
<TABLE>
<CAPTION>
Dollars in millions
March 31, December 31, September 30, June 30, March 31,
Quarter ended 1994 1993 1993 1993 1993
<S> <C> <C> <C> <C> <C>
Long-term capital at period-end:
Common equity capital* $ 4,794 $ 5,019 $ 4,504 $ 4,564 $ 4,107
Perpetual preferred stock 312 312 312 312 312
Term debt and other 12,680 11,588 9,258 8,661 8,533
Total long-term capital $ 17,786 $ 16,919 $ 14,074 $ 13,537 $ 12,952
AVERAGE WEEKLY BALANCE SHEET INFORMATION:
U.S. government securities $ 39,779 $ 45,227 $ 44,753 $ 40,486 $ 39,875
Non-U.S. government securities 35,627 36,293 37,475 33,124 31,704
Financial options and contractual commitments 7,904 8,857 8,167 8,155 7,944
Other financial instruments owned 29,337 23,908 21,242 18,499 16,375
Collateralized short-term financing agreements 53,876 51,396 57,912 58,690 60,685
Other assets 17,588 15,004 12,984 14,122 13,868
Average total assets $ 184,111 $ 180,685 $ 182,533 $ 173,076 $ 170,451
Period-end total assets $ 173,316 $ 184,835 $ 172,863 $ 169,265 $ 176,617
Period-end working capital usage $ 15,700 $ 12,900 $ 12,900 $ 13,500 $ 12,400
Ratios at period end:
Working capital coverage 113% 132% 109% 100% 104%
Working capital uses to equity 3.07 2.41 2.68 2.77 2.81
Average assets to ending equity 36.1 33.9 37.9 35.5 38.6
Total capital basis double leverage 0.94 0.95 1.13 1.10 1.09
Equity capital basis double leverage 1.33 1.42 1.58 1.54 1.60
Common shares outstanding (in millions) 105.9 110.6 110.8 110.4 110.3
<FN>
<fn1>*Including convertible preferred stock.
</TABLE>
The Company's long-term capital, which includes common
equity, convertible preferred stock, perpetual preferred
stock, unsecured obligations maturing beyond one year,
portions of unsecured obligations maturing within one year
(weighted by maturity) and long-term deferred taxes,
increased by $867 million since December 31, 1993.
Presented in the accompanying table is average weekly
balance sheet information. Average assets for the 1994
first quarter were $184 billion, up from $170 billion in
last year's first quarter. Much of the year-to-year
increase was attributable to higher inventories of corporate
fixed income and equity securities.
Salomon Brothers' trading portfolio of high-yield
securities, carried at market value, totaled $2.6 billion at
March 31, 1994, unchanged from December 31, 1993. High-
yield securities include corporate debt, convertible debt,
preferred and convertible preferred equity securities rated
lower than "triple B-" by internationally recognized rating
agencies as well as sovereign debt issued by less developed
countries in currencies other than their local currencies
and which are not collateralized by U.S. government
securities. Unrated securities with market yields
comparable to entities rated below "triple B-" are also
included in high-yield securities. The largest single high-
yield exposure was $93 million at March 31, 1994.
<PAGE> 14
XXX BEGIN PAGE 15 XXX
During the first quarter of 1994, the Company repurchased
4.9 million of its common shares for treasury at an
aggregate cost of $237 million, or $48.55 per share. Book
value per share declined modestly from $38.57 at the end of
1993 to $38.23 at March 31, 1994, partly because common
share repurchases were at an average price above book value.
Over the last year, book value per share has increased by
24% from $30.88 at March 31, 1993.
In May 1994, the Company's Board of Directors authorized the
repurchase of up to 10 million shares of its common stock,
including 4.6 million shares remaining under a previous
authorization. In addition, the Board of Directors waived a
previous contractual restriction pursuant to which neither
Berkshire Hathaway nor its affiliates were permitted to
acquire more than 20% of the Company's outstanding voting
securities prior to October 1, 1994 without prior consent of
the Company.
<PAGE>15
XXX BEGIN PAGE 16 XXX
<TABLE>
SUMMARY OF SELECTED QUARTERLY FINANCIAL INFORMATION (unaudited)
<CAPTION>
Three Months Ended
March 31, December 31, September 30, June 30, March 31,
Dollars in millions, except per share amounts 1994 1993 1993 1993 1993
<S> <C> <C> <C> <C> <C>
For the quarter:
Revenues:
Principal transactions, including net interest
and dividends $ 441 $1,344 $298 $1,261 $ 202
Investment banking 170 250 214 178 149
Commissions and other 100 90 75 66 72
Revenues, net of interest expense 711 1,684 587 1,505 423
Noninterest expenses:
Compensation and employee-related 417 655 383 524 338
Other noninterest expenses 182 222 186 228 198
Total noninterest expenses 599 877 569 752 536
Income (loss) before taxes and cumulative effect
of change in accounting principles 112 807 18 753 (113)
Income taxes 46 331 (2) 320 (48)
Income (loss) before cumulative effect of
change in accounting principles 66 476 20 433 (65)
Cumulative effect of change in accounting
principles, net of tax benefit - - - - (37)
Net income (loss) $ 66 $ 476 $ 20 $ 433 $ (102)
Annualized return on average common stockholders'
equity before cumulative effect of change
in accounting principles:
Primary 4.9% 47.2% 0.1% 46.1% (9.7)%
Fully diluted** 4.9% 39.5% 0.1% 40.0% (9.7)%
Income (loss) before taxes and cumulative effect of
change in accounting principles by segment:
Salomon Brothers $ 39 $ 862 $ 19 $ 783 $ (89)
Phibro Division 50 (21) (3) 3 6
Phibro USA 27 (31) 0 (2) (13)
Corporate and Other (4) (3) 2 (31) (17)
Total income (loss) before taxes and cumulative
effect of change in accounting principles $ 112 $ 807 $ 18 $ 753 $ (113)
Per common share:
Primary earnings (loss) $0.48 $4.33 $ 0.01 $3.75 $(1.10)*
Fully diluted earnings (loss)** 0.48 3.64 0.01 3.32 (1.10)*
Cash dividends 0.16 0.16 0.16 0.16 0.16
High market price 52 3/4 50 1/2 51 7/8 39 3/8 41 7/8
Low market price 44 3/4 41 1/2 37 5/8 34 3/8 35 3/4
Ending market price 48 1/2 47 5/8 47 3/4 38 1/4 38 3/4
Book value at period-end 38.23 38.57 34.33 35.00 30.88
<FN>
<fn1>*Includes a reduction of $.34 related to a cumulative change in accounting principles for postretirement benefits.
<fn2>**Assumes conversion of convertible notes and redeemable preferred stock, unless such assumptions result in higher
returns or earnings per share than determined under the primary method.
</TABLE>
<PAGE> 16
XXX BEGIN PAGE 17 XXX
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Environmental Proceedings:
In April 1994, the Company, the City of Bartlesville,
Oklahoma and one other potentially responsible party
(collectively the "Respondents") entered into a Consent
Agreement and Final Order ("CAFO") with the Oklahoma State
Department of Environmental Quality whereunder the
Respondents agreed to perform a remedial investigation
feasibility study and remedial design for the National Zinc
site in Bartlesville. The Company estimates that its cost
to perform the work required by the CAFO will be
approximately $1.5 million. The Company also currently
estimates it will spend an additional $6.0 million to
perform certain other known and required removal and related
activities at the site. Any additional costs of remediation
at the site cannot be determined at this time because of the
preliminary nature of the investigation of site conditions.
Other Legal Proceedings:
On April 18, 1994, the United States Supreme Court denied
certiorari in Salomon Forex Inc. v. Tauber, discussed in
Item 3 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993. The Supreme Court's
denial, which finalizes the action, lets stand a decision of
the United States Court of Appeals for the Fourth Circuit in
favor of Salomon Forex Inc., an indirect wholly-owned
subsidiary of the Company.
During 1994, certain customers of Salomon Brothers Inc's
("SBI") Private Investment Department indicated that they
will assert claims against SBI with respect to transactions
involving collateralized mortgage obligations. SBI has been
advised that arbitrations have been filed on behalf of
certain of these customers with the National Association of
Securities Dealers with respect to such claims.
Other legal proceedings, including a discussion of the U.S.
Treasury auction and related matters, are discussed in Item
3 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1993.
Item 4. Submission of Matters to a Vote of Security Holders
The 1994 Annual meeting of shareholders was held on May 4,
1994. In addition to electing directors and ratifying the
appointment of Arthur Andersen & Co. as independent public
accountants, the results of shareholder voting were as
follows:
* The shareholders approved by a vote of 79,654,476
shares for and 13,286,319 shares against, the adoption of
the amended Equity Partnership Plans. Pursuant to the
Plans, as amended, up to 40,000,000 shares of the Company's
common stock, including the 30,000,000 shares already
authorized, may be purchased and allocated to employees of
the Company who are participants in the Plans and the Board
of Directors has appointed the Compensation and Employee
Benefits Committee of the Board of Directors to administer
the Plans. Certain other elements of the Plans have been
modified to better fulfill their purposes.
<PAGE> 17
XXX BEGIN PAGE 18 XXX
* The shareholders approved by a vote of 75,798,099
shares for and 16,847,573 shares against, the adoption of
the Salomon Inc Stock Incentive Plan ("SIP"). The SIP
provides for an aggregate grant of up to five million shares
in the form of (i) non-qualified stock options, (ii)
incentive stock options, (iii) limited stock appreciation
rights, (iv) tandem stock appreciation rights, (v) stand-
alone stock appreciation rights, (vi) shares of restricted
stock, (vii) shares of phantom stock, (viii) stock bonuses
and (ix) cash bonuses to key employees, including officers,
whether or not they are directors, of the Company and its
affiliates.
* The shareholders approved by a vote of 103,639,584
shares for and 4,478,613 shares against, the Salomon Inc
Executive Officer Performance Bonus Plan. This plan links
the compensation of the Chief Executive Officer of SBI to
the performance of the Salomon Brothers' Securities Segment.
* The shareholders rejected by a vote of 84,135,774
shares against and 7,321,608 shares for, a stockholder's
proposal recommending that the Company disclose in all
future proxy statements the name, corporate title and cash
compensation of executive officers who are contractually
entitled to receive in excess of $100,000 annually as base
salary.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
12(a) Calculation of ratio of earnings to fixed
charges*
12(b) Calculation of ratio of earnings to combined
fixed charges and preferred dividends*
*filed herewith
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K dated January
12, 1994, reporting under Item 7 ("Financial Statements, Pro
Forma Financial Information and Exhibits") a Form T-1
Statement of Eligibility of the Bank of New York.
The Company filed a Current Report on Form 8-K dated January
18, 1994, reporting under Item 7 ("Financial Statements, Pro
Forma Financial Information and Exhibits") an Indenture
between Salomon Inc and Chemical Bank as Trustee; and a Form
T-1 Statement of Eligibility of Chemical Bank.
The Company filed a Current Report on Form 8-K dated January
27, 1994 reporting under Item 5 ("Other Events") and Item 7
("Financial Statements, Pro Forma Financial Information and
Exhibits") the issuance of a press release.
The Company filed a Current Report on Form 8-K dated March
7, 1994, reporting under Item 7 ("Financial Statements, Pro
Forma Financial Information and Exhibits") a Form T-1
Statement of Eligibility of the First National Bank of
Chicago.
<PAGE>18
XXX BEGIN PAGE 19 XXX
The Company filed a Current Report on Form 8-K dated April
25, 1994, reporting under Item 5 ("Other Events") and Item 7
("Financial Statements, Pro Forma Financial Information and
Exhibits") the issuance of a press release.
<PAGE>19
XXX BEGIN PAGE 20 XXX
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.
Salomon Inc
(Registrant)
Date May 13, 1994 /s/ David C. Fisher
Controller
Date May 13, 1994 /s/ Arnold S. Olshin
Secretary
<PAGE> 20
XXX BEGIN PAGE 21 XXX
Form 10-Q Exhibit Index
The following exhibits are filed herewith:
Exhibit Number
12(a) Calculation of ratio of earnings to
fixed charges
12(b) Calculation of ratio of earnings to
combined fixed charges and preferred
dividends
<PAGE>21
<TABLE>
EXHIBIT 12(a)
SALOMON INC AND SUBSIDIARIES
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
<CAPTION>
Three
Months
Ended
March 31, Years Ended December 31,
Dollars in millions 1994 1993 1992 1991 1990 1989
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Income before taxes and
cumulative effect of
change in accounting
principles $ 112 $ 1,465 $ 1,056 $ 919 $ 506 $ 740
Add fixed charges (see below) 1,065 4,644 4,373 5,704 6,032 6,147
Other adjustments 0 22 20 (4) (16) (10)
------- ------- ------- ------- ------- -------
Earnings as defined $ 1,177 $ 6,131 $ 5,449 $ 6,619 $ 6,522 $ 6,877
Fixed Charges and
Preferred Dividends:
Interest expense $ 1,058 $ 4,600 $ 4,324 $ 5,638 $ 5,959 $ 6,093
Other adjustments 7 44 49 66 73 54
------- ------- ------- ------- ------- -------
Fixed charges as defined 1,065 4,644 4,373 5,704 6,032 6,147
Ratio of earnings to
fixed charges 1.11 1.32 1.25 1.16 1.08 1.12
======= ======= ======= ======= ======= =======
<FN>
<fn1>
NOTE:
The ratio of earnings to fixed charges is calculated by dividing fixed charges
into the sum of income before taxes and fixed charges. Fixed charges consist
of interest expense, including capitalized interest and a portion of rental
expense representative of the interest factor.
</TABLE>
<TABLE>
EXHIBIT 12(b)
SALOMON INC AND SUBSIDIARIES
Calculation of Ratio of Earnings toCombined Fixed Charges
and Preferred Dividends
(Unaudited)
<CAPTION>
Three
Months
Ended
March 31, Years Ended December 31,
Dollars in millions 1994 1993 1992 1991 1990 1989
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Income before taxes and
cumulative effect of
change in accounting
principles $ 112 $ 1,465 $ 1,056 $ 919 $ 506 $ 740
Add fixed charges (see below) 1,065 4,644 4,373 5,704 6,032 6,147
Other adjustments 0 22 20 (4) (16) (10)
------- ------- ------- ------- ------- -------
Earnings as defined $ 1,177 $ 6,131 $ 5,449 $ 6,619 $ 6,522 $ 6,877
Fixed Charges and
Preferred Dividends:
Interest expense $ 1,058 $ 4,600 $ 4,324 $ 5,638 $ 5,959 $ 6,093
Other adjustments 7 44 49 66 73 54
------- ------- ------- ------- ------- -------
Fixed charges as defined 1,065 4,644 4,373 5,704 6,032 6,147
Preferred dividends (tax
equivalent basis) 22 83 131 121 105 99
------- ------- ------- ------- ------- -------
Combined fixed charges
and preferred dividends $ 1,087 $ 4,727 $ 4,504 $ 5,825 $ 6,137 $ 6,246
======= ======= ======= ======= ======= =======
Ratio of earnings to combined
fixed charges and preferred
dividends 1.08 1.30 1.21 1.14 1.06 1.10
======= ======= ======= ======= ======= =======
<FN>
<fn1>
NOTES:
The ratio of earnings to combined fixed charges and preferred dividends was calculated by dividing
the sum of fixed charges and tax equivalent preferred dividends into the sum of earnings before taxes
and fixed charges.
Fixed charges consist of interest expense, including capitalized interest and a
portion of rental expense representative of the interest factor.
Tax equivalent preferred dividends represent the pretax earnings necessary to cover preferred
stock dividend requirements, assuming such earnings are taxed at the Company's consolidated
effective income tax rate.
</TABLE>
