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
September 30, 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 October 31, 1994: 105,831,135
<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 and Nine months ended September 30, 1994 and 1993 3
Condensed Consolidated Statement of Financial Condition -
September 30, 1994 and December 31, 1993 4-5
Summary of Options and Contractual Commitments -
September 30, 1994 and December 31, 1993 6
Condensed Consolidated Statement of Cash Flows -
Nine months ended September 30, 1994 and 1993 7
Notes to Unaudited Condensed Consolidated Financial
Statements 8-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-21
PART II OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 24
<PAGE>2
XXX BEGIN PAGE 3 XXX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
Salomon Inc and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
(unaudited)
<CAPTION>
Dollars in millions, except per share amounts Three months Nine months
Period ended September 30, 1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenues:
Interest and dividends $ 1,517 $ 1,753 $ 4,164 $ 4,565
Principal transactions (39) (202) (131) 677
Investment banking 121 214 377 541
Commissions 83 61 257 206
Other 16 33 83 46
Total revenues 1,698 1,859 4,750 6,035
Interest expense 1,290 1,272 3,460 3,520
Revenues, net of interest expense 408 587 1,290 2,515
Noninterest expenses:
Compensation and employee-related 399 383 1,154 1,245
Technology 69 74 191 204
Occupancy 44 46 133 189
Professional services and business development 48 41 121 107
Clearing and exchange fees 18 15 52 44
Other 6 10 49 68
Total noninterest expenses 584 569 1,700 1,857
Income (loss) before taxes and cumulative
effect of change in accounting principles (176) 18 (410) 658
Income taxes (72) (2) (168) 270
Income (loss) before cumulative
effect of change in accounting principles (104) 20 (242) 388
Cumulative effect of change in accounting principles,
net of tax benefit of $28 - - - (37)
Net income (loss) $ (104) $ 20 $ (242) $ 351
Per common share:
Primary earnings (loss) before cumulative effect of
change in accounting principles $ (1.13) $ 0.01 $ (2.67) $ 3.01
Cumulative effect of change in accounting principles - - - (0.34)
Primary earnings (loss) $ (1.13) $ 0.01 $ (2.67) $ 2.67
Fully diluted earnings (loss) before cumulative
effect of change in accounting principles $ (1.13) $ 0.01 $ (2.67) $ 2.93
Cumulative effect of change in accounting principles - - - (0.29)
Fully diluted earnings (loss) $ (1.13) $ 0.01 $ (2.67) $ 2.64
Dividends $ 0.16 $ 0.16 $ 0.48 $ 0.48
Weighted average shares of common stock
outstanding (in thousands):
For primary earnings per share 105,700 111,200 107,200 110,900
For fully diluted earnings per share 105,700 111,200 107,200 130,000
<FN>
The accompanying Notes to Unaudited Condensed Consolidated Financial Statements are an integral
part of this statement.
</TABLE>
<PAGE>3
XXX BEGIN PAGE 4 XXX
<TABLE>
Salomon Inc and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(unaudited)
<caption)>
Dollars in millions September 30, 1994 December 31, 1993
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 4,008 $ 5,748
Financial instruments:
U.S. government and agency securities $32,089 $42,485
Non-U.S. government and agency securities 25,320 39,190
Corporate debt securities 11,239 11,876
Options and contractual commitments 9,263 8,485
Equity securities 5,219 7,178
Mortgage loans and collateralized
mortgage securities 2,328 3,316
Municipal securities
and other 1,279 1,438
86,737 113,968
Commodities-related products and instruments:
Crude oil, refined products and other
physical commodities 1,166 488
Options and contractual commitments 291 366
1,457 854
Collateralized short-term financing agreements:
Securities purchased under agreements to resell 39,775 36,924
Securities borrowed and other 14,799 11,965
54,574 48,889
Receivables 6,585 9,659
Assets securing collateralized mortgage obligations 3,310 3,887
Property, plant and equipment, net 1,144 1,122
Other assets, including intangibles 671 708
Total assets $158,486 $184,835
<FN>
<fn1>The accompanying Notes to Unaudited Condensed Consolidated Financial
Statements are an integral part of this statement.
</TABLE>
<PAGE>4
XXX BEGIN PAGE 5 XXX
<TABLE>
Salomon Inc and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION (Unaudited)
<CAPTION>
Dollars in millions September 30, 1994 December 31, 1993
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings:
Securities sold under agreements to repurchase $68,346 $86,066
Bank borrowings 3,025 3,644
Securities loaned 1,794 2,172
Commercial paper 1,091 1,344
Deposit liabilities 1,078 1,293
Other 1,941 3,371
$ 77,275 $ 97,890
Financial and commodities-related instruments
sold, not yet purchased, and other contractual
commitments:
U.S. government and agency securities 19,549 30,714
Non-U.S. government securities 15,641 9,604
Financial options and contractual
commitments 8,550 10,619
Equity securities 3,496 3,434
Corporate debt securities 1,557 1,635
Commodities, including options and contractual
commitments 530 464
49,323 56,470
Payables and accrued liabilities 8,413 9,729
Collateralized mortgage obligations 3,222 3,808
Term debt 15,568 11,692
Total liabilities 153,801 179,589
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 299 295
Retained earnings 4,871 5,208
Cumulative translation adjustments 3 (11)
Common stock held in treasury, at cost (1,656) (1,414)
Total stockholders' equity 3,985 4,546
Total liabilities and stockholders' equity $158,486 $184,835
<FN>
<fn1> The accompanying Notes to Unaudited Condensed Consolidated Financial
Statements are an integral part of this statement.
</TABLE>
<PAGE>5
XXX BEGIN PAGE 6 XXX
<TABLE>
Salomon Inc and Subsidiaries
SUMMARY OF OPTIONS AND CONTRACTUAL COMMITMENTS
(unaudited)
Market or Fair Value Recorded as Assets on the Statement of Financial Condition
<CAPTION>
Nine
September 30, Month-end Month-end Month December 31,
Dollars in billions 1994 High Low Average 1993
<S> <C> <C> <C> <C> <C>
Swap agreements, swap options, caps and floors $ 6.7 $ 8.0 $ 5.2 $ 6.1 $ 6.0
Index and equity options and warrants 1.2 1.8 1.2 1.3 1.1
Foreign exchange contracts and options .9 1.6 .8 1.1 1.1
Other .5 .5 .3 .4 .3
Total market or fair value of financial options
and contractual commitments $ 9.3 $ 8.9 $ 8.5
Commodities-related instruments $ .3 $ .5 $ .3 $ .4 $ .4
</TABLE>
<TABLE>
Credit Exposure, Net of Collateral, on Swap and Foreign Exchange Contractual Arrangements, By Risk Class*
<CAPTION>
September 30, 1994
Transactions With More
All Transactions Than 3 Years to Maturity
Dollars in billions Banks Non Banks Banks Non Banks
<S> <C> <C> <C> <C>
Swap agreements, swap options, caps and floors:
Risk classes 1 and 2 $ .8 $ .5 $ .4 $ .2
Risk class 3 .4 .6 .2 .3
Risk classes 4 and 5 .4 .6 .2 .2
Risk classes 6, 7 and 8 - .1 - .1
$ 1.6 $ 1.8 $ .8 $ .8
Foreign exchange contracts and options:
Risk classes 1 and 2 $ .2 $ .1 $ .1 $ -
Risk class 3 .1 .1 - -
Risk classes 4 and 5 - .2 - -
$ .3 $ .4 $ .1 $ -
<FN>
<fn1>*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. In the above table, credit exposure is measured based on current market values, and if
market values change sharply, for instance due to a significant movement in interest rates, aggregate credit
exposure would tend to increase. The substantial majority of index and equity options and warrants and other
options owned (primarily options on government securities) are actively traded in organized markets. With respect
to commodities-related instruments, which are not included in the table above, the majority of the Company's
counterparties are of investment grade quality.
</TABLE>
<TABLE>
Notional Amounts
<CAPTION>
September 30, December 31,
Dollars in billions 1994 1993
<S> <C> <C>
Financial futures contracts $ 612 $ 473
Swap Agreements 360 233
Financial options and warrants sold or written 110 102
Forward securities contracts 75 98
Forward currency contracts 43 51
Interest rate cap and floor agreements written 41 32
Commodities-related contractual commitments and options written 20 10
<FN>
<fn1> The accompanying Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of this
summary.
</TABLE>
<PAGE>6
XXX BEGIN PAGE 7 XXX
<TABLE>
Salomon Inc and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<CAPTION>
Dollars in millions
Nine months ended September 30, 1994 1993
<S> <C> <C>
Cash flows from operating activities:
Net income adjusted for noncash items -
Net income (loss) $ (242) $ 351
Cumulative effect of change in accounting principles,
net of tax - 37
Depreciation, amortization and other 139 145
Total cash items included in net income (103) 533
(Increase) decrease in operating assets -
Financial instruments 27,231 (26,975)
Commodities-related products and instruments (603) 52
Collateralized short-term financing agreements (5,685) 12,573
Receivables 3,168 350
Other 235 172
Total (increase) decrease in operating assets 24,346 (13,828)
Increase (decrease) in operating liabilities -
Short-term borrowings (20,615) 12,955
Financial and commodities-related instruments sold,
not yet purchased (7,147) (3,005)
Payables and accrued liabilities (1,316) 2,170
Total increase (decrease) in operating liabilities (29,078) 12,120
Cash used in operating activities (4,835) (1,175)
Cash flows from financing activities:
Proceeds from -
Issuance of term debt 5,994 4,590
Issuance of preferred stock - 200
Employee stock purchase and option plans 10 31
Total cash proceeds from financing activities 6,004 4,821
Payments for -
Term debt maturities and repurchases 2,431 3,236
Collateralized mortgage obligations 759 868
Purchase of common stock for treasury 252 -
Dividends on common stock 51 52
Dividends preferred stock* 44 55
Total cash payments for financing activities 3,537 4,211
Cash provided by financing activities 2,467 610
Cash flows from investing activities:
Proceeds from -
Assets securing collateralized mortgage obligations 752 1,016
Total cash proceeds from investing activities 752 1,016
Payments for -
Property, plant and equipment 124 161
Total cash payments for investing activities 124 161
Cash provided by investing activities 628 855
Increase (decrease) in cash and cash equivalents (1,740) 290
Cash and cash equivalents at January 1 5,748 862
Cash and cash equivalents at September 30 $ 4,008 $ 1,152
<FN>
<fn1> The accompanying Notes to Unaudited Condensed Consolidated Financial Statements are an integral
part of this statement.
<fn2> * For the nine months ended September 30, 1994, dividends on preferred stock were reduced by the aftertax
impact ($23 million) of interest rate swaps that effectively convert the Company's fixed-rate dividend
obligations to variable-rate obligations. In the nine months ended September 30, 1993, the impact of the swaps
related to the Series A Preferred was included in reported earnings.
</TABLE>
<PAGE>7
XXX BEGIN PAGE 8 XXX
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 (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. During the third quarter of 1994, the Company
reclassified Phibro USA's operating profit in the
Consolidated Statement of Income from Principal transactions
to Other revenue. In addition, the Company has reclassified
Equity Partnership Plan, net from Stockholders' equity to
Payables and accrued liabilities on the Condensed
Consolidated Statement of Financial Condition. The Company
has modified its presentation of cash to include cash
equivalents, which include highly liquid investments with
original maturities of three months or less, other than
those held for sale in the ordinary course of business.
Prior period amounts have been reclassified to conform to
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, the ultimate
resolution of these matters will not result in any material
adverse impact on the Company's financial condition;
however, such resolution could have a material adverse
impact on operating results in future periods depending in
part on the results for such periods.
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 September 30, 1994,
SBI's net capital was $912 million, $871 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 September 30,
1994, SBIL's financial resources were $636 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 September 30, 1994, SBAL's net capital
was $603 million above the minimum required by Japan's
Ministry of Finance. SBAG's net capital was $160 million
above the minimum required by Germany's Banking Supervisory
Authority.
4. Revenues by Business Unit and Industry Segment
Reporting
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 and
gathering activities 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 engaged in mortgage lending in the United
Kingdom, 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 were not
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."
The accompanying Management's Discussion and Analysis
section includes a discussion of the operating results of
the Company's industry segments. Segment results for all
periods presented include a partial allocation of Salomon
Inc corporate-level expenses. Expenses incurred for the
benefit of a particular operating segment are allocated
directly to that segment. Those that cannot be directly
associated with the Company's operating segments are
included in "Corporate and Other."
Revenues by Business Unit
The following tables present revenue, net of interest
by business unit for the three month and nine month
periods ended September 30, 1994 and September 30, 1993.
<TABLE>
<CAPTION>
Three Months Ended September 30, 1994
Principal
Transactions
& Net Investment
(Dollars in millions) Interest Banking Commissions Other Total
<S> <C> <C> <C> <C> <C>
Salomon Brothers' Client-Driven Businesses:
Global investment banking $ - $ 121 $ - $ - $ 121
Fixed income secondary markets 128 - 6 - 134
Equities secondary markets 65 - 72 - 137
Foreign exchange (12) - - - (12)
Private Investment Department and
asset management 11 - 3 4 18
Total revenues from Client-Driven
Businesses 192 121 81 4 398
Proprietary Trading Businesses (7) - - - (7)
Total Salomon Brothers' revenues, net of
interest expense 185 121 81 4 391
Phibro Division (15) - 1 - (14)
Phibro USA (3) - - 11 8
Other 21 - 1 1 23
Total Salomon Inc $ 188 $ 121 $ 83 $ 16 $ 408
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended September 30, 1993
Principal
Transactions
& Net Investment
(Dollars in millions) Interest Banking Commissions Other Total
<S> <C> <C> <C> <C> <C>
Salomon Brothers' Client-Driven Businesses:
Global investment banking $ - $ 214 $ - $ - $ 214
Fixed income secondary markets 306 - 12 - 318
Equities secondary markets 23 - 45 - 68
Foreign exchange 66 - - - 66
Private Investment Department and
asset management 9 - 3 13 25
Total revenues from Client-Driven
Businesses 404 214 60 13 691
Proprietary Trading Businesses (123) - - - (123)
Total Salomon Brothers' revenues, net of
interest expense 281 214 60 13 568
Phibro Division 11 - - - 11
Phibro USA (5) - - 20 15
Other (8) - 1 - (7)
Total Salomon Inc $ 279 $ 214 $ 61 $ 33 $ 587
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1994
Principal
Transactions
& Net Investment
(Dollars in millions) Interest Banking Commissions Other Total
<S> <C> <C> <C> <C> <C>
Salomon Brothers' Client-Driven Businesses:
Global investment banking $ - $ 377 $ - $ - $ 377
Fixed income secondary markets 176 - 31 - 207
Equities secondary markets (30) - 213 - 183
Foreign exchange (68) - - - (68)
Private Investment Department and
asset management 22 - 11 16 49
Total revenues from Client-Driven
Businesses 100 377 255 16 748
Proprietary Trading Businesses 274 - - - 274
Total Salomon Brothers' revenues, net of
interest expense 374 377 255 16 1,022
Phibro Division 190 - 1 - 191
Phibro USA (14) - - 65 51
Other 23 - 1 2 26
Total Salomon Inc $ 573 $ 377 $ 257 $ 83 $ 1,290
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1993
Principal
Transactions
& Net Investment
(Dollar in millions) Interest Banking Commissions Other Total
<S> <C> <C> <C> <C> <C>
Salomon Brothers' Client-Driven Businesses:
Global investment banking $ - $ 541 $ - $ - $ 541
Fixed income secondary markets 1,133 - 33 - 1,166
Equities secondary markets 178 - 164 - 342
Foreign exchange 150 - - - 150
Private Investment Department and
asset management 31 - 8 25 64
Total revenues from Client-Driven
Businesses 1,492 541 205 25 2,263
Proprietary Trading Businesses 207 - - - 207
Total Salomon Brothers' revenues, net of
interest expense 1,699 541 205 25 2,470
Phibro Division 49 - - - 49
Phibro USA (19) - - 41 22
Other (7) - 1 (20) (26)
Total Salomon Inc $ 1,722 $ 541 $ 206 $ 46 $ 2,515
</TABLE>
<PAGE> 11
XXX BEGIN PAGE 12 XXX
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 Nine months
Period ended September 30, 1994 1993 1994 1993
<S> <C> <C> <C> <C>
Income (loss) before taxes and cumulative effect
of change in accounting principles by segment:
Salomon Brothers $ (176) $ 19 $ (547) $ 713
Phibro Division (27) (3) 105 6
Phibro USA (4) 0 13 (15)
Corporate and Other 31 2 19 (46)
Total income (loss) before taxes and cumulative
effect of change in accounting principles (176) 18 (410) 658
Income taxes (72) (2) (168) 270
Income (loss) before cumulative effect
of change in accounting principles (104) 20 (242) 388
Cumulative effect of change in accounting principles,
net of tax benefit - - - (37)
Net income (loss) $ (104) $ 20 $ (242) $ 351
Per Common Share:*
Primary earnings (loss) $ (1.13) $ 0.01 $ (2.67) $ 2.67
Fully diluted earnings (loss)** (1.13) 0.01 (2.67) 2.64
Cash dividends 0.16 0.16 0.48 0.48
Book value at period-end 34.50 34.20 34.50 34.20
Annualized return on average common stockholders' equity:*
Primary method (12.8)% 0.1% (9.5)% 12.4%
Fully diluted method** (12.8)% 0.1% (9.5)% 11.8%
<FN>
<fn1>*Primary and fully diluted earnings per share data for the 1993 nine month period include reductions
of $.34 and $.29, respectively, related to a cumulative change in accounting for certain postretirement benefits;
return on average common stockholders' equity was calculated on earnings before the cumulative effect of the change
in accounting principles.
<fn2>**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 reported a net loss of $104 million, or $1.13
per share, for the 1994 third quarter. In the comparable
1993 third quarter, Salomon Inc recorded net income of $20
million, or $0.01 per share. The Company's net loss for the
nine months ended September 30, 1994 was $242 million, or
$2.67 per share, compared with net income of $351 million,
or $2.64 per share (fully diluted), in the comparable 1993
nine-month period.
The Company's three operating segments are diverse. Results
of Salomon Brothers are not closely correlated with the
results of Phibro Division's commodities trading business or
Phibro USA's oil refining and gathering business.
Consequently, it is possible for certain of the Company's
businesses to generate positive results during difficult
periods for other businesses. For example, the Phibro
Division generated strong results for the first nine months
of 1994, a period characterized by upward trending and
volatile commodities prices, particularly with respect to
oil, while Salomon Brothers' Client-Driven Businesses
generated poor results in a very difficult period for the
securities industry. These results contrast sharply with
the comparable 1993 period, when Salomon Brothers' Client-
Driven Businesses benefited from very favorable market
conditions in global securities markets while the Phibro
Division generated only modest profits under less favorable
market conditions.
Earnings volatility is inherent in the Company's businesses.
Salomon Brothers' Proprietary Trading Businesses have
historically been 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.
Corporate and Other includes certain Salomon Inc corporate-
level expenses that cannot be attributed to any of the
Company's operating segments, the results of TMC and the
results of PEPI, whose primary asset is its investment in
the White Nights Russian-American oil production joint
venture. Prior to the third quarter of 1993, TMC's results
were included in the Salomon Brothers segment. The
Company's Corporate and Other segment recorded pretax
earnings of $31 million in the third quarter of 1994
reflecting positive results for TMC and favorable
developments in certain environmental matters resulting in a
reduction in the Company's environmental reserves. The 1993
nine month results of Corporate and Other include a $20
million charge to write down the carrying value of PEPI's
investment in White Nights. The 1993 third quarter and nine
month results of Corporate and Other also include reductions
in the Company's reserve for environmental matters.
PEPI's investment in White Nights, including related loans,
had a carrying value of $60 million at September 30, 1994, a
decrease of $4 million from year-end 1993. The decrease
reflects the commencement of principal and interest payments
from White Nights to PEPI with respect to PEPI's loan to the
venture. The future of White Nights continues to be subject
to uncertainty. However, effective September 1, 1994, the
Russian government approved a three year export tax
exemption for White Nights. White Nights had been required
to pay an export tax at a rate of approximately $5 per
barrel on all oil exported, aggregating to $33 million since
the tax was imposed at the beginning of 1992.
SALOMON BROTHERS
<TABLE>
Results of Operations
<CAPTION>
Dollars in millions
Three months Nine months
Period ended September 30, 1994 1993 Change 1994 1993 Change
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Client-Driven Businesses:
Global investment banking
Advisory $ 50 $ 28 $ 22 $ 143 $ 103 $ 40
Equity Underwriting 43 85 (42) 165 168 (3)
Debt Underwriting 28 101 (73) 69 270 (201)
Total 121 214 (93) 377 541 (164)
Fixed Income secondary markets 134 318 (184) 207 1,166 (959)
Equities secondary markets 137 68 69 183 342 (159)
Foreign exchange (12) 66 (78) (68) 150 (218)
Private Investment Department and
asset management 18 25 (7) 49 64 (15)
Total revenues from Client-Driven Businesses 398 691 (293) 748 2,263 (1,515)
Proprietary Trading Businesses (7) (123) 116 274 207 67
Total revenues, net of interest expense $ 391 $ 568 $ (177) $1,022 $2,470 $(1,448)
Income (loss) before taxes and cumulative effect
of change in accounting principles:
Client-Driven Businesses $ (62) $ 192 $ (254) $ (526) $ 805 $(1,331)
Proprietary Trading Businesses (114) (173) 59 (21) (92) 71
Total income (loss) before taxes and cumulative
effect of change in accounting principles $ (176) $ 19 $ (195) $ (547) $ 713 $(1,260)
</TABLE>
Salomon Brothers, the Company's global investment banking
and securities business, reported a pretax loss of $176
million for the third quarter of 1994 compared with pretax
earnings of $19 million in the 1993 third quarter. For the
1994 nine month period, Salomon Brothers recorded a pretax
loss of $547 million compared with pretax earnings of $713
million in the comparable 1993 period.
Salomon Brothers' Proprietary Trading Businesses recorded a
pretax loss of $114 million in the third quarter compared
with a pretax loss of $173 million in the 1993 third
quarter. Results for these businesses tend to be volatile
and are better evaluated over longer term periods of at
least a year. For the four quarters ended September 30,
1994, Proprietary Trading Businesses generated pretax
earnings of $487 million.
Weakness in underwriting volume and customer trading
activity continued to have an adverse effect on Salomon
Brothers' Client-Driven Businesses in the third quarter.
Although results improved significantly from the 1994 second
quarter, these businesses recorded a third quarter pretax
loss of $62 million. Client-Driven Businesses recorded
pretax earnings of $192 million in the 1993 third quarter.
For the 1994 nine month period, Client-Driven Businesses had
a pretax loss of $526 million compared with pretax earnings
of $805 million in the comparable 1993 nine month period.
Results for the 1994 nine month period were adversely
affected by reduced customer trading volume and underwriting
activity, inventory losses, and trading losses incurred by
certain Client-Driven Businesses. The businesses most
severely affected were U.S. fixed income, European secondary
markets and foreign exchange. Salomon Brothers has reduced
Client-Driven Businesses' inventories with a focus on aged
positions, particularly with respect to mortgage securities.
Having reviewed the outlook for the pace of activity in its
Client-Driven Business, Salomon Brothers plans no increase
in its headcount in 1995, other than carefully targeted
additions in its global equities and investment banking
business, its asset management business, its proprietary
trading activities, and in certain critical support areas.
<TABLE>
Noninterest Expenses
<CAPTION>
Dollars in millions
Three months Percent Nine months Percent
Period ended September 30, 1994 1993 Change 1994 1993 Change
<S> <C> <C> <C> <C> <C> <C>
Compensation and employee-related expenses $ 382 $ 359 6 % $ 1,051 $ 1,183 (11)%
Recurring non-compensation expenses:
Technology $ 65 $ 70 (7) % $ 179 $ 193 (7)%
Occupancy 43 43 - 120 136 (12)
Professional services and business development 42 34 24 104 86 21
Clearing and exchange fees 17 15 13 50 43 16
Other 18 28 (36) 53 71 (25)
Total recurring non-compensation expenses 185 190 (3) 506 529 (4)
Non-recurring non-compensation expenses - - - 12 45 (73)
Total non-compensation expenses $ 185 $ 190 (3) % $ 518 $ 574 (10)%
</TABLE>
Compensation and employee-related expenses is the largest
component of noninterest expense. Salomon Brothers'
compensation for its business units for the compensation
years ended September 30, 1994 and 1993 were formula-driven,
with aggregate compensation for each business unit based
upon the results for that unit but subject to specified
minimums for each unit. Beginning in the 1995 compensation
year, which began October 1, 1994, Salomon Brothers will
manage its Client-Driven Businesses as a single, integrated
global business rather than as a group of related but
separate businesses. Additionally, the Company will change
the way in which managing directors of Salomon Brothers'
Client-Driven Business are compensated. The managing
directors of the Client-Driven Business will receive a fixed
minimum compensation (approximately 35% of their 1994
compensation) plus 40% of the earnings of the Client-Driven
Business in excess of an after tax return to shareholders
that will be fixed initially at 7% of applicable equity
capital and will be increased to 10% over a two-year phase-
in. The managing directors in this business will have their
compensation depend upon performance of the whole Client-
Driven Business, and their compensation will be more
variable. Salomon Brothers' Proprietary Trading Businesses
will continue to have formula driven compensation
arrangements for each of the three separate business units.
However, beginning with the 1995 compensation year these
agreements will be multiple year compensation arrangements
based on the accumulation of deferred compensation accounts
that will be reduced in the event of losses in subsequent
years.
Recurring non-compensation expenses in the 1994 third
quarter were $185 million, down 3% from the comparable 1993
period. For the nine month period ended September 30, 1994,
these expenses were $506 million, down 4% from the
comparable 1993 period. Occupancy expense decreased 12% in
the nine month period ended September 30, 1994 from the
comparable 1993 period. The decrease reflects prior expense
reduction initiatives including the reduction of leased
office space in New York and Tokyo.
Non-recurring expenses in the first nine months of 1993
consist of occupancy charges related to decisions to reduce
office space in New York and Tokyo. The 1994 non-recurring
expenses include an occupancy charge related to a decision
to relocate leased office space in Tokyo.
PHIBRO DIVISION
<TABLE>
Condensed Statement of Income
<CAPTION>
Dollars in millions
Three months Percent Nine months Percent
Period ended September 30, 1994 1993 Change 1994 1993 Change
<S> <C> <C> <C> <C> <C> <C>
Revenues, net of interest $ (14) $ 11 N/A % $ 191 $ 49 290 %
Overhead (including minimum compensation) 16 14 14 44 43 2
Variable compensation (3) - N/A 42 - N/A
Total noninterest expenses 13 14 (7) 86 43 100
Income (loss) before taxes and cumulative
effect of change in accounting principles $ (27) $ (3) N/A % $ 105 $ 6 1,650 %
</TABLE>
The Phibro Division, the Company's commodities trading
business, had a pretax loss of $27 million in the 1994 third
quarter, compared with a pretax loss of $3 million in the
third quarter of 1993. Despite the third quarter loss, the
Phibro Division's results for the 1994 nine month period
were quite strong. In the comparable 1993 period, the
Division recorded pretax earnings of $6 million.
The Division's recent addition of trading in soft
commodities (coffee, grains, cocoa and sugar), together with
its metals, oil, natural gas, petrochemicals, coal, coke and
fertilizer trading activities, position the Division to take
advantage of future opportunities across a broad and diverse
range of markets.
PHIBRO USA
<TABLE>
Condensed Statement of Income
<CAPTION>
Dollars in millions
Three months Percent Nine months Percent
Period ended September 30, 1994 1993 Change 1994 1993 Change
<S> <C> <C> <C> <C> <C> <C>
Sales $2,136 $1,563 37 % $ 5,334 $ 6,295 (15) %
Cost of sales 2,126 1,544 38 5,273 6,258 (16)
Operating profit 10 19 (47) 61 37 65
Net interest and other (2) (4) 50 (10) (15) 34
Operating profit, net of
interest and other 8 15 (47) 51 22 132
Compensation and employee-related expenses 7 8 (13) 24 22 9
Other expenses 5 7 (29) 14 15 (7)
Total noninterest expenses 12 15 (20) 38 37 3
Income (loss) before taxes and cumulative
effect of change in accounting principles $ (4) $ 0 N/A % $ 13 $ (15) N/A %
</TABLE>
Phibro USA, the Company's oil refining and gathering
business, incurred a pretax loss of $4 million for the 1994
third quarter compared with break-even results in the
comparable 1993 quarter. The 1994 third quarter loss
reflects narrow refining margins which have prevailed
throughout the last six months. For the 1994 nine month
period, Phibro USA recorded pretax earnings of $13 million
compared with a pretax loss of $15 million in 1993. The
positive nine month results are attributable to favorable
first quarter 1994 refining margins which benefited from
strong weather-related demand for refined products.
Phibro USA's minimum physical inventory of crude oil and
other energy products, which is recorded at the lower of
cost or market value, was carried at $181 million at
September 30, 1994, $36 million less than its then aggregate
market value of $217 million. In July 1994, Phibro USA sold
its land-based drilling operation, as well as certain assets
related to its Louisiana marine fuel business; the impact on
third quarter earnings was not significant.
SALOMON INC
CAPITAL and LIQUIDITY MANAGEMENT
<TABLE>
<CAPTION>
Dollars in millions
September 30, June 30, March 31, December 31, September 30,
Quarter ended 1994 1994 1994 1993 1993
<S> <C> <C> <C> <C> <C>
Long-term capital at period end:
Common equity capital* $ 4,373 $ 4,504 $ 4,750 $ 4,934 $ 4,490
Perpetual preferred stock 312 312 312 312 312
Term debt and other 13,177 13,107 12,679 11,588 9,258
Total long-term capital $ 17,862 $ 17,923 $ 17,741 $ 16,834 $ 14,060
AVERAGE WEEKLY BALANCE SHEET INFORMATION:
U.S. government and agency securities $ 28,758 $ 31,398 $ 39,779 $ 45,227 $ 44,753
Non-U.S. government and agency securities 31,384 32,518 36,434 37,069 38,176
Financial options and contractual commitments 9,119 9,580 7,904 8,857 8,167
Other financial instruments owned 21,443 22,141 26,848 19,775 17,621
Total inventories 90,704 95,637 110,965 110,928 108,717
Collateralized short-term financing agreements 64,572 56,653 53,876 51,396 57,912
Other assets 19,237 23,444 19,270 18,361 15,904
Average total assets $ 174,513 $ 175,734 $ 184,111 $ 180,685 $ 182,533
Period-end total assets $ 158,486 $ 175,549 $ 173,316 $ 184,835 $ 172,863
Average net assets** $ 102,154 $ 112,107 $ 123,311 $ 121,597 $ 116,775
Period-end working capital usage $ 15,383 $ 16,131 $ 15,655 $ 12,767 $ 12,886
Ratios at period end:
Working capital coverage 116% 111% 113% 132% 109%
Working capital uses to equity 3.28 3.35 3.09 2.43 2.68
Average net assets to total equity 21.8 23.3 24.4 23.2 24.3
Total capital basis double leverage 0.85 0.88 0.94 0.95 1.13
Equity capital basis double leverage 1.23 1.32 1.33 1.42 1.63
Common shares outstanding (in millions) 105.8 105.7 105.9 110.6 110.8
<FN>
<fn1>*Including convertible preferred stock.
<fn2>**Average Total assets less collateralized short-term financing agreements, cash and cash equivalents
and assets securing collateralized mortgage obligations.
</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 was
$17,862 million at September 30, 1994, an increase of $1.0
billion since December 31, 1993.
Presented in the accompanying table is average weekly
balance sheet information. Average assets for the 1994
third quarter were $175 billion, down from $183 billion in
last year's third quarter. Since December 31, 1993,
inventories in Salomon Brothers' Client-Driven Businesses
have declined by 25%, reflecting the Company's decision to
decrease its inventory positions, which had particular
impact on aged mortgage securities positions. Due to the
nature of the Company's trading and funding activities, it
is not uncommon for the Company's asset levels, including
Client-Driven and Proprietary Trading inventories, to
fluctuate significantly from period to period.
Salomon Brothers' trading portfolio of high-yield
securities, carried at market value, totaled $2.3 billion at
September 30, 1994, down from $2.6 billion at year-end 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 $100 million at September 30, 1994.
During the nine months ended September 30, 1994, the Company
repurchased 5.2 million of its common shares for treasury at
an aggregate cost of $252 million, or $48.57 per share.
Book value per share declined from $37.93 at December 31,
1993 to $34.50 at September 30, 1994.
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. At September 30, 1994, shares authorized for
additional repurchase totaled 9.8 million.
Subsequent to September 30, 1994, one rating agency
downgraded the Company's credit ratings on its senior debt,
subordinated debt and preferred stock, and affirmed the
Company's commercial paper rating. The downgrade will have
a negative impact on the Company's funding costs and
derivatives business and may result in reduced access to
borrowings. Other rating agencies have either affirmed or
are currently reviewing the Company's long-term debt
ratings.
Risk Management
As a major participant in financial and commodities markets,
the Company derives substantial revenue from trading
activities, which subject the Company to market, credit and
operational risks.
Market risk represents the potential loss the Company may
incur as a result of absolute and relative price movements
in financial and commodities-related instruments, price
volatility, changes in yield curves, currency fluctuations
and changes in market liquidity. Any activity in which the
Company's business units take positions in financial
instruments, contractual commitments or physical commodities
exposes the Company to market risk. The vast majority of
financial instruments, including derivatives, are recorded
at either market or fair value, with changes in value
recorded currently in the Company's Consolidated Statement
of Income. Salomon Brothers' Risk Management Group
identifies and reports to the Company's Chief Executive
Officer and its Board of Directors, on a timely basis, the
major elements of risk in the strategies undertaken by the
trading businesses. The Risk Management Group also
enhances, through peer review, the analysis and management
of major risks by the heads of the trading desks, and, when
appropriate, adjusts the levels of risk assumed.
Credit risk is the potential loss the Company could incur if
an issuer or counterparty is unable to perform on its
commitments, including the timely payment of principal and
interest or settlement of swap and foreign exchange
transactions, repurchase agreements, securities purchases
and sales, and other contractual obligations. Credit risk
is managed globally by Salomon Brothers' Credit Review
Department. The credit risk management process considers the
many factors that influence the probability of potential
loss, including, but not limited to, the issuer's or
counterparty's financial profile, prospects and business
reputation, the specific terms and duration of the
transactions, the exposure of the transactions to market
risk, macroeconomic developments and sovereign risk.
Contractual commitments, the largest categories of which are
swap agreements and foreign exchange transactions, represent
the principal source of credit risk to the Company. See the
Summary of Options and Contractual Commitments included in
the accompanying financial statements for further
information regarding the Company's exposure to credit risk.
Operational support of the Company's participation in
worldwide financial and commodities markets is critical to
its success. Of particular importance is the Company's
transition from an increasingly stressed central processing
environment to a more efficient and flexible distributed
technology environment. In connection with operational
systems migrations and detailed reviews of databases
supporting general ledger balances, the Company has
identified certain unreconciled balances. These balances
are under examination, and could result in a charge against
fourth quarter earnings. The amount of such charge cannot
be accurately estimated at this time. Depending on fourth
quarter earnings, such a charge could be material to
operating results in that period, but will not be material
to the Company's financial condition.
<TABLE>
SUMMARY OF SELECTED QUARTERLY FINANCIAL INFORMATION (unaudited)
<CAPTION>
Three Months Ended
September 30, June 30, March 31, December 31 September 30,
Dollars in millions, except per share amounts 1994 1994 1994 1993 1993
<S> <C> <C> <C> <C> <C>
For the quarter:
Revenues:
Principal transactions, including net
interest and dividends $ 188 $ (9) $ 394 $1,328 $ 279
Investment banking 121 86 170 250 214
Commissions and other 99 94 147 106 94
Revenues, net of interest expense 408 171 711 1,684 587
Noninterest expenses:
Compensation and employee-related 399 338 417 655 383
Other noninterest expenses 185 179 182 222 186
Total noninterest expenses 584 517 599 877 569
Income (loss) before taxes (176) (346) 112 807 18
Income taxes (72) (142) 46 331 (2)
Net income (loss) $ (104) $ (204) $ 66 $ 476 $ 20
Annualized return on average common
stockholders' equity:
Primary (12.8) % (22.0) % 5.0% 47.7% 0.1%
Fully diluted* (12.8) % (22.0) % 5.0% 39.9% 0.1%
Income (loss) before taxes by segement:
Salomon Brothers:
Client-Driven Businesses $ (62) $ (291) $ (173) $ 354 $ 192
Proprietary Trading Businesses (114) (119) 212 508 (173)
Total Salomon Brothers (176) (410) 39 862 19
Phibro Division (27) 82 50 (21) (3)
Phibro USA (4) (10) 27 (31) 0
Corporate and Other 31 (8) (4) (3) 2
Total income (loss) before taxes $ (176) $ (346) $ 112 $ 807 $ 18
Per common share:
Primary earnings (loss) $ (1.13) $ (2.08) $0.48 $4.33 $ 0.01
Fully diluted earnings (loss)* (1.13) (2.08) 0.48 3.64 0.01
Cash dividends 0.16 0.16 0.16 0.16 0.16
High market price 48 1/4 52 5/8 52 3/4 50 1/2 51 7/8
Low market price 38 1/2 47 1/4 44 3/4 41 1/2 37 5/8
Ending market price 39 1/2 47 3/4 48 1/2 47 5/8 47 3/4
Book value at period-end 34.50 35.71 37.87 37.93 34.20
<FN>
<fn1>*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> 21
XXX BEGIN PAGE 22 XXX
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
With respect to the U.S. Treasury auction and related
matters discussed under Item 3 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1993
(the "1993 Form 10-K"):
(a) on September 28, 1994, the United States District
Court for the Southern District of New York granted the
individual defendants' motion in In re Salomon Inc
Shareholders' Derivative Litigation to stay trial of the
action and compel arbitration, subject to determination by
the New York Stock Exchange ("NYSE") as to whether the
claims are arbitrable and whether the NYSE would exercise
jurisdiction over the claims.
(b) a NYSE arbitration panel on May 13, 1994 denied in
their entirety the employment-related compensation claims of
a former officer of the Company, John Gutfreund, who sought
to recover $55.3 million. On August 12, 1994, Mr. Gutfreund
filed a petition in the Supreme Court of New York for New
York County seeking to vacate the arbitration panel's
decision and require a new arbitration.
With respect to the class actions that were being litigated
in the United States District Court for the Eastern District
of Louisiana (In re Taxable Municipal Bond Securities
Litigation), discussed under Item 3 of the Company's 1993
Form 10-K, the underwriters have reached a settlement with
most of the plaintiffs, subject to court approval.
With respect to the Motels of America, Inc. ("MOA") matter
discussed under Item 3 of the 1993 Form 10-K, the Internal
Revenue Service has advised the Company's indirect wholly-
owned subsidiary, Salomon Brothers Inc ("SBI"), that it is
reviewing the transactions in which Ameritech Pension Trust
acquired MOA participation interests.
In connection with the antitrust litigation involving
numerous companies that make markets in securities traded on
the National Association of Securities Dealers Automated
Quotations System ("NASDAQ"), discussed under Item 1 of the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1994, the federal court lawsuits have
recently been consolidated for pretrial purposes in the
Southern District of New York (In re NASDAQ Market Maker
Antitrust and Securities Litigation). The state court
lawsuit, Abel v. Merrill Lynch & Co., Inc., has been
temporarily stayed by the California Superior Court.
Other legal proceedings, including a full discussion of the
U.S. Treasury auction and related matters, are discussed
under Item 3 of the Company's 1993 Form 10-K.
<PAGE>22
XXX BEGIN PAGE 23 XXX
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 July 6,
1994, reporting under Item 5 ("Other Events") the issuance
of a press release.
The Company filed a Current Report on Form 8-K dated July
21, 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 October
6, 1994, reporting under Item 5 ("Other Events") the
issuance of a press release.
The Company filed a Current Report on Form 8-K dated October
11, 1994, reporting under Item 5 ("Other Events") various
financial information.
The Company filed a Current Report on Form 8-K dated October
20, 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>23
XXX BEGIN PAGE 24 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 November 8, 1994 /s/ David C. Fisher
Controller
Date November 8, 1994 /s/ Arnold S. Olshin
Secretary
<PAGE> 24
XXX BEGIN PAGE 25 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>25
<TABLE>
EXHIBIT 12(a)
SALOMON INC AND SUBSIDIARIES
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
<CAPTION>
Nine
Months
Ended
September 30, Years Ended December 31,
Dollars in millions 1994 1993 1992 1991 1990 1989
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Income (loss) before taxes and
cumulative effect of
change in accounting
principles $ (410) $ 1,465 $ 1,056 $ 919 $ 506 $ 740
Add fixed charges (see below) 3,481 4,644 4,373 5,704 6,032 6,147
Other adjustments (2) 22 20 (4) (16) (10)
------- ------- ------- ------- ------- -------
Earnings as defined $ 3,069 $ 6,131 $ 5,449 $ 6,619 $ 6,522 $ 6,877
======= ======= ======= ======= ======= =======
Fixed Charges:
Interest expense $ 3,460 $ 4,600 $ 4,324 $ 5,638 $ 5,959 $ 6,093
Other adjustments 21 44 49 66 73 54
------- ------- ------- ------- ------- -------
Fixed charges as defined $ 3,481 $ 4,644 $ 4,373 $ 5,704 $ 6,032 $ 6,147
======= ======= ======= ======= ======= =======
Ratio of earnings to
fixed charges 0.88* 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.
* For the nine months ended September 30, 1994, earnings as defined were inadequate to cover fixed charges. The
amount by which
fixed charges exceeded earnings as defined for the nine-month period was $412 million.
</TABLE>
<TABLE>
EXHIBIT 12(b)
SALOMON INC AND SUBSIDIARIES
Calculation of Ratio of Earnings to Combined
Fixed Charges and Preferred Dividends
(Unaudited)
<CAPTION>
Nine
Months
Ended
September 30, 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 $ (410) $ 1,465 $ 1,056 $ 919 $ 506 $ 740
Add fixed charges (see below) 3,481 4,644 4,373 5,704 6,032 6,147
Other adjustments (2) 22 20 (4) (16) (10)
------- ------- ------- ------- ------- -------
Earnings as defined $ 3,069 $ 6,131 $ 5,449 $ 6,619 $ 6,522 $ 6,877
======= ======= ======= ======= ======= =======
Fixed Charges and
Preferred Dividends:
Interest expense $ 3,460 $ 4,600 $ 4,324 $ 5,638 $ 5,959 $ 6,093
Other adjustments 21 44 49 66 73 54
------- ------- ------- ------- ------- -------
Fixed charges as defined 3,481 4,644 4,373 5,704 6,032 6,147
Preferred dividends (tax
equivalent basis) 75 83 131 121 105 99
------- ------- ------- ------- ------- -------
Combined fixed charges
and preferred dividends $ 3,556 $ 4,727 $ 4,504 $ 5,825 $ 6,137 $ 6,246
======= ======= ======= ======= ======= =======
Ratio of earnings to combined
fixed charges and preferred
dividends 0.86* 1.30 1.21 1.14 1.06 1.10
======= ======= ======= ======= ======= =======
<FN>
<fn1>
NOTES:
<fn1>
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.
* For the nine months ended September 30, 1994, earnings as defined were inadequate to cover fixed charges,
including preferred dividends. The amount by which fixed charges, including preferred dividends,
exceeded earnings as defined for the nine-month period was $487 million.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTH
ENDED SEPTEMBER 30, 1994 AND THE UNAUDITED CONDENSED CONSOLIDATED
STATEMENT OF FINANCIAL CONDITION AS OF SEPTEMBER 30, 1994 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 4,008<F1>
<RECEIVABLES> 6,585
<SECURITIES-RESALE> 39,775
<SECURITIES-BORROWED> 14,799
<INSTRUMENTS-OWNED> 88,194<F2>
<PP&E> 1,144
<TOTAL-ASSETS> 158,486
<SHORT-TERM> 7,135
<PAYABLES> 8,413
<REPOS-SOLD> 68,346
<SECURITIES-LOANED> 1,794
<INSTRUMENTS-SOLD> 49,323<F3>
<LONG-TERM> 15,568
<COMMON> 455
700
312
<OTHER-SE> 3,218
<TOTAL-LIABILITY-AND-EQUITY> 158,486
<TRADING-REVENUE> (131)
<INTEREST-DIVIDENDS> 4,164
<COMMISSIONS> 257
<INVESTMENT-BANKING-REVENUES> 377
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 3,460
<COMPENSATION> 1,154
<INCOME-PRETAX> (410)
<INCOME-PRE-EXTRAORDINARY> (410)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (242)
<EPS-PRIMARY> (2.67)
<EPS-DILUTED> (2.67)
<FN>
<F1>Includes cash equivalents (highly liquid investments with original
maturities of three months or less, other than those held for sale in the
ordinary course of business).
<F2>Instruments-owned includes $1,457 million of commodities-related
products and instruments.
<F3>Instruments-sold includes $530 million of commodities, including
options and contractual commitments.
</FN>
</TABLE>
