FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _____to_____
Commission File Number 1-4346
Salomon Inc
(Exact name of registrant as specified in its charter)
Delaware 22-1660266
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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 July 31, 1996: 105,207,572
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Salomon Inc
Form 10-Q
<CAPTION>
PART I FINANCIAL INFORMATION Page No.
<S> <C>
Item 1. Financial Statements (unaudited):
Consolidated Statement of Income -
Three and Six months ended June 30, 1996 and 1995 3
Condensed Consolidated Statement of Financial Condition -
June 30, 1996 and December 31, 1995 4-5
Summary of Options and Contractual Commitments -
June 30, 1996 and December 31, 1995 6
Consolidated Statement of Cashflows -
Six months ended June 30, 1996 and 1995 7
Notes to Unaudited Condensed Consolidated Financial Statements 8-11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12-18
PART II OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 6. Exhibits and Reports on Form 8-K 19-20
SIGNATURES 21
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<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SALOMON INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(unaudited)
Dollars in millions, except per share amounts Three months Six months
- ---------------------------------------------------------------------------------------------------------------------------
Period ended June 30, 1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
Revenues:
<S> <C> <C> <C> <C>
Interest and dividends $ 1,436 $ 1,944 $ 3,009 $ 3,552
Principal transactions 584 (252) 1,235 118
Investment banking 251 154 432 176
Commissions 75 81 165 170
Other 16 27 (11) 6
- ---------------------------------------------------------------------------------------------------------------------------
Total revenues 2,362 1,954 4,830 4,022
Interest expense 1,143 1,553 2,418 2,878
- ---------------------------------------------------------------------------------------------------------------------------
Revenues, net of interest expense 1,219 401 2,412 1,144
- ---------------------------------------------------------------------------------------------------------------------------
Noninterest expenses:
Compensation and employee-related 551 324 1,107 755
Technology 59 64 114 128
Professional services and business development 51 35 95 80
Occupancy 44 42 87 83
Clearing and exchange fees 18 17 35 33
Other 12 18 29 30
- ---------------------------------------------------------------------------------------------------------------------------
Total noninterest expenses 735 500 1,467 1,109
- ---------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 484 (99) 945 35
Income tax expense (benefit) 193 (39) 378 14
- ---------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 291 $ (60) $ 567 $ 21
===========================================================================================================================
Earnings (loss) available for fully diluted earnings
per common share $ 282 $ (77) $ 552 $ (15)
===========================================================================================================================
Per common share:
Primary earnings (loss) $ 2.58 $ (0.73) $ 5.02 $ (0.14)
Fully diluted earnings (loss)* 2.34 (0.73) 4.55 (0.14)
Cash dividends 0.16 0.16 0.32 0.32
===========================================================================================================================
Weighted average shares of common stock outstanding (in thousands):
For primary earnings (loss) per share 105,400 106,500 106,000 106,400
For fully diluted earnings (loss) per share 120,600 106,500 121,200 106,400
===========================================================================================================================
<FN>
The accompanying Notes to Unaudited Condensed Consolidated Financial Statements
and the Unaudited Summary of Options and Contractual Commitments are integral
parts of this statement.
* Assumes conversion of redeemable preferred stock unless such assumption
results in higher earnings per share than determined under the primary
method.
</FN>
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<CAPTION>
SALOMON INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(unaudited)
Dollars in millions
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS June 30, 1996 December 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and interest bearing equivalents $ 1,813 $ 1,454
Financial instruments and contractual commitments:
Government and government agency securities - U.S. $ 44,704 $ 45,121
Government and government agency securities - non-U.S. 28,776 39,843
Corporate debt securities 11,688 11,150
Options and contractual commitments 4,938 6,713
Equity securities 4,855 3,915
Mortgage loans and collateralized mortgage securities 2,027 1,959
Other 2,539 2,248
--------- ---------
99,527 110,949
Commodities-related products and instruments:
Crude oil, refined products and other
physical commodities 945 1,223
Options and contractual commitments 358 372
--------- ---------
1,303 1,595
Collateralized short-term financing agreements:
Securities purchased under agreements to resell 56,011 48,422
Securities borrowed and other 15,638 16,993
--------- ---------
71,649 65,415
Receivables 4,570 4,472
Assets securing collateralized mortgage obligations 515 2,431
Property, plant and equipment, net 1,347 1,343
Other assets, including intangibles 721 769
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 181,445 $ 188,428
====================================================================================================================================
<FN>
The accompanying Notes to Unaudited Condensed Consolidated Financial Statements
and the Unaudited Summary of Options and Contractual Commitments are integral
parts of this statement.
</FN>
</TABLE>
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<TABLE>
<CAPTION>
SALOMON INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(unaudited)
Dollars in millions
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY June 30, 1996 December 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings:
<S> <C> <C> <C> <C>
Securities sold under agreements to repurchase $ 75,353 $ 91,813
Bank borrowings 2,206 3,856
Securities loaned 1,052 1,040
Deposit liabilities 937 1,347
Commercial paper 856 797
Other 1,291 2,304
--------- ---------
$ 81,695 $ 101,157
Financial and commodities-related instruments sold, not yet purchased, and
contractual commitments:
Government and government agency securities - U.S. 28,934 21,132
Government and government agency securities - non-U.S. 29,583 21,994
Financial options and contractual commitments 6,595 8,858
Equity securities 4,743 3,489
Corporate debt securities and other 1,451 1,448
Commodities, including options and
contractual commitments 397 607
--------- ---------
71,703 57,528
Payables and accrued liabilities 8,655 9,658
Collateralized mortgage obligations 495 2,337
Term debt 13,509 13,045
---------- -----------
Total liabilities 176,057 183,725
---------- -----------
Commitments and contingencies (Note 2)
Redeemable preferred stock, Series A 560 560
---------- -----------
Stockholders' equity:
Preferred stock, Series C, D and E 562 312
Common stock 156 156
Additional paid-in capital 289 296
Retained earnings 5,499 5,001
Cumulative translation adjustments 4 13
Common stock held in treasury, at cost (1,682) (1,635)
-------- ---------
Total stockholders' equity 4,828 4,143
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 181,445 $ 188,428
====================================================================================================================================
<FN>
The accompanying Notes to Unaudited Condensed Consolidated Financial Statements
and the Unaudited Summary of Options and Contractual Commitments are integral
parts of this statement.
</FN>
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<TABLE>
<CAPTION>
SALOMON INC AND SUBSIDIARIES
SUMMARY OF OPTIONS AND CONTRACTUAL COMMITMENTS
(UNAUDITED)
June 30, 1996 December 31, 1995
----------------------------------- -------------------------------------
Current Market or Current Market or
Notional Fair Market Value Notional Fair Market Value
Amounts ------------------------ Amounts ------------------------
Dollars in billions Assets Liabilities Assets Liabilities
- ------------------------------------------------------------------------------------------------------------------------------------
Exchange-issued products:
<S> <C> <C> <C> <C> <C> <C>
Financial futures contracts* $624.8 $ - $ - $ 570.5 $ - $ -
Other exchange-issued products:
Equity contracts 14.1 .1 .2 16.8 .5 .3
Fixed income contracts 108.6 - - 44.5 .2 -
Foreign exchange contracts .1 - - - - -
Commodities-related contracts 5.3 - - 4.3 - -
- -----------------------------------------------------------------------------------------------------------------------------------
Total exchange-issued products 752.9 .1 .2 636.1 .7 .3
- -----------------------------------------------------------------------------------------------------------------------------------
Over-the-counter ("OTC") swaps, swap options,
caps and floors:
Swaps 699.8 555.5
Swap options written 9.9 5.2
Swap options purchased 25.8 20.4
Caps and floors 113.7 100.8
- -----------------------------------------------------------------------------------------------------------------------------------
Total OTC swaps, swap options, caps and floors ** 849.2 2.7 4.6 681.9 4.3 6.5
- -----------------------------------------------------------------------------------------------------------------------------------
OTC foreign exchange contracts and options:
Forward currency contracts** 62.8 .3 .2 57.4 .3 .4
Options written 22.0 - .4 21.0 - .6
Options purchased 22.9 .3 - 20.2 .3 -
- -----------------------------------------------------------------------------------------------------------------------------------
Total OTC foreign exchange contracts and options 107.7 .6 .6 98.6 .6 1.0
- -----------------------------------------------------------------------------------------------------------------------------------
Other options and contractual commitments:
Options and warrants on equities and equity
indices*** 38.8 1.2 .9 24.0 1.0 .6
Options and forward contracts on fixed income
securities*** 163.4 .3 .3 196.6 .1 .5
Commodities-related contracts**** 27.9 .4 .3 21.8 .4 .3
- -----------------------------------------------------------------------------------------------------------------------------------
Total $1,939.9 $5.3 $6.9 $1,659.0 $7.1 $9.2
===================================================================================================================================
<FN>
* Margin on futures contracts is included in receivables/payables on the
Condensed Consolidated Statement of Financial Condition.
** Notional values of swap agreements and forward currency contracts related to
non-trading activities were $15.6 billion and $1.5 billion at June 30, 1996
and $12.8 billion and $1.9 billion at December 31, 1995, respectively.
*** The fair market value of such instruments recorded as assets includes
approximately $.5 billion at June 30, 1996 and $.4 billion at
December 31, 1995 respectively, of over-the-counter instruments
primarily with investment grade counterparties. The remainder
consists primarily of highly liquid instruments actively traded on organized
exchanges.
**** The substantial majority of these over-the-counter contracts are with
investment grade counterparties.
</FN>
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<CAPTION>
CREDIT EXPOSURE, NET OF COLLATERAL ON OTC SWAPS, SWAP OPTIONS,
CAPS AND FLOORS AND OTC FOREIGN EXCHANGE CONTRACTS
AND OPTIONS, BY RISK CLASS*
Note: Amounts represent current exposure and do not include potential credit
exposure that may result from factors that influence market risk.
Transactions with
Dollars in billions All Transactions over 3 years to
maturity
- ------------------------------------------------------------------------------------------------------------------------------------
Other Major
Derivatives Financial Governments/ Year-to-Date
June 30, 1996 Dealers Corporates Institutions Supranationals Other Total Average Total
- ------------------------------------------------------------------------------------------------------------------------------------
Swaps, swap options, caps
and floors:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Risk classes 1 and 2 $ .3 $ - $ .4 $ .1 $ - $.8 $ 1.1 $ .5
Risk class 3 .5 .2 .2 - - .9 .9 .5
Risk classes 4 and 5 .1 .4 .2 - .2 .9 .8 .4
Risk classes 6, 7 and 8 - .1 - - - .1 .1 .1
$ .9 $ .7 $ .8 $ .1 $ .2 $2.7 $ 2.9 $ 1.5
Foreign exchange
contracts and options:
Risk classes 1 and 2 $ .3 $ - $ - $ .1 $ - $.4 $ .4 $ -
Risk class 3 .1 - - - - .1 .2 -
Risk classes 4 and 5 - - - - .1 .1 .1 -
$ .4 $ - $ - $ .1 $ .1 $.6 $ .7 $ -
<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.
</FN>
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<CAPTION>
SALOMON INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
Dollars in millions
- ----------------------------------------------------------------------------------------------------------------------
Six Months ended June 30, 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income adjusted for noncash items -
<S> <C> <C>
Net income $ 567 $ 21
Depreciation, amortization and other 57 69
- -----------------------------------------------------------------------------------------------------------------------
Cash items included in net income 624 90
- ----------------------------------------------------------------------------------------------------------------------
Net (increase) decrease in operating assets -
Financial instruments and contractual commitments 11,422 (3,851)
Commodities-related products and instruments 292 (478)
Collateralized short-term financing agreements (6,234) 9,038
Receivables (157) 3,079
Other (72) 153
- ----------------------------------------------------------------------------------------------------------------------
Net increase in operating assets 5,251 7,941
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in operating liabilities -
Short-term borrowings (19,462) 13,032
Financial and commodities-related instruments sold,
not yet purchased, and contractual commitments 14,175 (19,698)
Payables and accrued liabilities (1,011) (1,289)
- ----------------------------------------------------------------------------------------------------------------------
Net decrease in operating liabilities (6,298) (7,955)
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (423) 76
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from -
Issuance of term debt 2,621 1,972
Issuance of preferred stock, Series E 250 -
Employee stock purchase and option plans - 10
- ----------------------------------------------------------------------------------------------------------------------
Total cash proceeds from financing activities 2,871 1,982
- ----------------------------------------------------------------------------------------------------------------------
Payments for -
Term debt maturities and repurchases 1,969 2,886
Collateralized mortgage obligations 284 417
Purchase of common stock for treasury 49 1
Dividends on common stock 34 35
Dividends on preferred stock* 35 36
- ----------------------------------------------------------------------------------------------------------------------
Total cash payments for financing activities 2,371 3,375
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 500 (1,393)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from -
Assets securing collateralized mortgage obligations 351 376
- ----------------------------------------------------------------------------------------------------------------------
Total cash proceeds from investing activities 351 376
- ----------------------------------------------------------------------------------------------------------------------
Payments for -
Property, plant and equipment 69 154
- ----------------------------------------------------------------------------------------------------------------------
Total cash payments for investing activities 69 154
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 282 222
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and interest bearing equivalents 359 (1,095)
Cash and interest bearing equivalents at January 1, 1,454 3,539
- ----------------------------------------------------------------------------------------------------------------------
Cash and interest bearing equivalents at June 30, $ 1,813 $ 2,444
======================================================================================================================
<FN>
The accompanying Notes to Unaudited Condensed Consolidated Financial Statements
and the Unaudited Summary of Options and Contractual Commitments are integral
parts of this statement.
* For the six months ended June 30, 1996 and 1995, dividends on preferred stock
were reduced by the aftertax impact ($12 million and $9 million respectively) of
interest rate swaps that effectively convert the Company's fixed-rate
obligations to variable-rate obligations.
</FN>
</TABLE>
<PAGE>
Salomon Inc and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 1996
1. Basis of Presentation
Except as discussed in Note 4, the Unaudited Condensed Consolidated
Financial Statements include the accounts of Salomon Inc and all
majority-owned subsidiaries (collectively, the "Company"). Such
statements are prepared in accordance with generally accepted
accounting principles in the U.S. which requires the use of
management's best judgment and estimates. The Unaudited Condensed
Consolidated Financial Statements include all normal recurring
adjustments necessary for a fair presentation of financial condition,
results of operations and cash flows. Estimates, including the fair
market value of financial instruments, may vary from actual results.
The nature of the Company's business is such that the results of any
interim period are not necessarily indicative of the results for a full
year. The unaudited financial statements should be read in conjunction
with the Audited Consolidated Financial Statements included in the
Company's Annual Report on Form 10-K for the year ended December 31,
1995.
2. Legal Proceedings
Outstanding legal matters are discussed in Note 15 to the Consolidated
Financial Statements included in the Company's Annual Report on Form
10-K for the year ended December 31, 1995. Management of the Company,
after consultation with outside legal counsel, believes that the
ultimate resolution of legal proceedings and environmental matters
(taking into consideration applicable reserves) will not have a
material adverse effect on the Company's financial condition; however,
there could be a material impact on operating results in future periods
depending in part on the results for such periods. Additional
information on legal proceedings is included in "Item 1. Legal
Proceedings."
3. Net Capital
Certain U.S. and non-U.S. subsidiaries are subject to 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 ("SBI") 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 June 30, 1996, SBI's net capital was $1,423
million, $1,380 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 SFA requires SBIL to have available at all times financial
resources, as defined, sufficient to demonstrate continuing compliance
with its rules. At June 30, 1996, SBIL's financial resources were $576
million in excess of regulatory requirements.
<PAGE>
Salomon Brothers Asia Limited ("SBAL") and Salomon Brothers AG ("SBAG")
are also subject to requirements to maintain specified levels of net
capital or its equivalent. At June 30, 1996, SBAL's net capital was
$244 million above the minimum required by Japan's Ministry of Finance.
SBAG's net capital was $198 million above the minimum required by
Germany's Banking Supervisory Authority.
In addition, in order to maintain its triple-A rating, Salomon Swapco
Inc ("Swapco") must maintain minimum levels of capital in accordance
with agreements with its rating agencies. At June 30, 1996, Swapco was
in compliance with all such agreements. Swapco's capital requirements
are dynamic, varying with the size and concentration of its
counterparty receivables.
4. Subsequent Event
In August 1996, the Company completed the sale of The Mortgage
Corporation Limited and its affiliates ("TMC") to First National
Building Society of Ireland. The sale resulted in a pretax gain of
approximately $50 million to be recorded in the 1996 third quarter. In
the accompanying Unaudited Condensed Consolidated Statement of
Financial Condition as of June 30, 1996, the accounts of TMC are not
included on a consolidated basis. The net assets of the activities sold
are instead included as a single amount in other assets.
5. Business Unit Revenues
Global investment banking and securities activities are conducted by
Salomon Brothers Holding Company Inc and its subsidiaries ("Salomon
Brothers"). Commodities trading activities are conducted by Phibro Inc.
and its subsidiaries ("Phibro"). Oil refining and marketing activities
are conducted by Basis Petroleum, Inc. ("Basis Petroleum" or "Basis").
The results of TMC are included in "Corporate and Other," as are the
results of Phibro Energy Production, Inc. ("PEPI"), an investor in the
White Nights Limited Liability Company ("White Nights") a
Russian-American oil production venture located in Western Siberia.
The accompanying Management's Discussion and Analysis section includes
a discussion of the operating results of the Company's respective
business units. Business unit results reflect the allocation of Salomon
Inc corporate-level expenses incurred for the benefit of the business
unit. Corporate-level expenses that cannot be directly associated with
the Company's business units are included in "Corporate and Other."
<PAGE>
<TABLE>
<CAPTION>
Revenues by Business Unit
The following tables present revenues, net of interest expense, by business unit
for the three and six months ended June 30, 1996 and 1995.
Three Months Ended June 30, 1996
Principal
Transactions
& Net
Interest and Investment
(Dollars in millions) Dividends Banking Commissions Other Total
- -----------------------------------------------------------------------------------------------------------------------------
Salomon Brothers:
<S> <C> <C> <C> <C> <C>
Fixed income sales and trading $ 703 $ - $ 3 $ - $ 706
Equity sales and trading 196 - 72 - 268
Global investment banking - 251 - - 251
Asset management - - - 11 11
- ------------------------------------------------------------------------------------------------------------------------------
Salomon Brothers revenues, net of
interest expense 899 251 75 11 1,236
Phibro (18) - - - (18)
Basis Petroleum (9) - - 5 (4)
Corporate and Other 5 - - - 5
- ------------------------------------------------------------------------------------------------------------------------------
Salomon Inc revenues, net of interest expense $ 877 $ 251 $ 75 $ 16 $ 1,219
==============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30, 1995
Principal
Transactions
& Net
Interest and Investment
(Dollars in millions) Dividends Banking Commissions Other Total
- -----------------------------------------------------------------------------------------------------------------------------
Salomon Brothers:
<S> <C> <C> <C> <C> <C>
Fixed income sales and trading $ 85 $ - $ 8 $ - $ 93
Equity sales and trading 222 - 73 - 295
Global investment banking - 154 - - 154
Asset management 2 - - 8 10
- ------------------------------------------------------------------------------------------------------------------------------
Salomon Brothers revenues, net of
interest expense 309 154 81 8 552
Phibro (178) - - 1 (177)
Basis Petroleum (7) - - 18 11
Corporate and Other 15 - - - 15
- ------------------------------------------------------------------------------------------------------------------------------
Salomon Inc revenues, net of interest expense $ 139 $ 154 $ 81 $ 27 $ 401
==============================================================================================================================
</TABLE>
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<TABLE>
<CAPTION>
Six Months Ended June 30, 1996
Principal
Transactions
& Net
Interest and Investment
(Dollars in millions) Dividends Banking Commissions Other Total
- -----------------------------------------------------------------------------------------------------------------------------
Salomon Brothers:
<S> <C> <C> <C> <C> <C>
Fixed income sales and trading $ 1,430 $ - $ 8 $ - $ 1,438
Equity sales and trading 175 - 157 - 332
Global investment banking - 432 - - 432
Asset management 1 - - 22 23
- ------------------------------------------------------------------------------------------------------------------------------
Salomon Brothers revenues, net of
Interest expense 1,606 432 165 22 2,225
Phibro 217 - - - 217
Basis Petroleum (16) - - (33) (49)
Corporate and Other 19 - - - 19
- ------------------------------------------------------------------------------------------------------------------------------
Salomon Inc revenues, net of interest expense $ 1,826 $ 432 $ 165 $ (11) $ 2,412
==============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1995
Principal
Transactions
& Net
Interest and Investment
(Dollars in millions) Dividends Banking Commissions Other Total
- ------------------------------------------------------------------------------------------------------------------------------
Salomon Brothers:
<S> <C> <C> <C> <C> <C>
Fixed income sales and trading $ 467 $ - $ 24 $ - $ 491
Equity sales and trading 304 - 143 - 447
Global investment banking - 176 - - 176
Asset management - - - 19 19
Other 4 - 2 - 6
- ------------------------------------------------------------------------------------------------------------------------------
Salomon Brothers revenues, net of
interest expense 775 176 169 19 1,139
Phibro 5 - - 2 7
Basis Petroleum (13) - - (16) (29)
Corporate and Other 25 - 1 1 27
- ------------------------------------------------------------------------------------------------------------------------------
Salomon Inc revenues, net of interest expense $ 792 $ 176 $ 170 $ 6 $ 1,144
==============================================================================================================================
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
<TABLE>
<CAPTION>
SUMMARY OF CONSOLIDATED OPERATING RESULTS
Dollars in millions, except per share amounts Three months Six months
Period ended June 30, 1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) before taxes:
<S> <C> <C> <C> <C>
Salomon Brothers $ 525 $ 56 $ 893 $ 116
Phibro (17) (162) 128 (39)
Basis Petroleum (13) 1 (68) (50)
Corporate and Other (11) 6 (8) 8
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 484 (99) 945 35
Income tax expense (benefit) 193 (39) 378 14
- ---------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 291 $ (60) $ 567 $ 21
=================================================================================================================================
Per common share:
Primary earnings (loss) $ 2.58 $ (0.73) $ 5.02 $ (0.14)
Fully diluted earnings (loss)* 2.34 (0.73) 4.55 (0.14)
Cash dividends 0.16 0.16 0.32 0.32
Book value at period-end* 40.08 32.38 40.08 32.38
=================================================================================================================================
Annualized return on average common stockholders' equity:
Primary 26.1 % (8.8) % 26.3 % (0.8) %
Fully diluted* 23.8 (8.8) 23.9 (0.8)
=================================================================================================================================
<FN>
* Assumes conversion of redeemable preferred stock unless such assumption
results in higher earnings per share, book value or return on equity than
determined under the primary method.
</FN>
</TABLE>
Salomon Inc recorded net income of $291 million, or $2.34 per common share on a
fully diluted basis, for the second quarter of 1996, compared with a net loss of
$60 million, or $0.73 per common share in the comparable 1995 quarter. The
favorable 1996 second quarter results were attributable to the strong and
broadly based performance of Salomon Brothers. Net income for the six months
ended June 30, 1996 was $567 million, or $4.55 per share on a fully diluted
basis, up from the $21 million or $(0.14) per common share in the first half of
1995. The first two quarters of 1996 were the most profitable two consecutive
quarters in the Company's history.
The Company's businesses are diverse. Salomon Brothers' results are not closely
correlated with the results of Phibro's commodities trading business or Basis'
oil refining and marketing business. Consequently, it is not unusual for certain
of the Company's businesses to generate positive results during difficult
periods for other businesses.
Corporate and Other includes certain Salomon Inc corporate-level expenses that
cannot be attributed to any of the Company's businesses; the results of PEPI,
whose primary asset is its investment in White Nights, and the results of TMC,
which services residential mortgages in the United Kingdom. (See Note 4 to the
Unaudited Condensed Consolidated Financial Statements.)
<PAGE>
<TABLE>
<CAPTION>
Salomon Brothers
Results of Operations
Dollars in millions
Three months Percent Six months Percent
Period ended June 30, 1996 1995 Change 1996 1995 Change
- ------------------------------------------------------------------------------------------------------------------------------
Revenues:
<S> <C> <C> <C> <C> <C>
Global investment banking:
Advisory $ 72 $ 52 38% $ 132 $ 104 27%
Equity underwriting 132 67 97 185 67 176
Debt underwriting 47 35 34 115 5 2,200
- ------------------------------------------------------------------------------------------------------------------------------
Total global investment banking 251 154 63 432 176 145
Fixed income sales and trading 706 93 659 1,438 491 193
Equity sales and trading 268 295 (9) 332 447 (26)
Asset management 11 10 10 23 19 21
Other - - - - 6 n/m
- ------------------------------------------------------------------------------------------------------------------------------
Total revenues, net of interest expense $1,236 $ 552 124% $2,225 $1,139 95%
==============================================================================================================================
Income before income taxes $ 525 $ 56 838% $ 893 $ 116 670%
==============================================================================================================================
<FN>
n/m - not meaningful
</FN>
</TABLE>
Salomon Brothers, the Company's global investment banking and securities
business, recorded pretax income of $525 million in the second quarter of 1996,
compared with pretax income of $56 million in the 1995 second quarter. For the
first six months of 1996, Salomon Brothers recorded pretax income of $893
million, up from the $116 million reported for the first half of 1995.
Global investment banking revenues were a record $251 million in the second
quarter of 1996, up 63% from the second quarter of 1995, principally reflecting
a doubling of equity underwriting revenues. Global investment banking revenues
for the first six months of 1996 were $432 million, up from $176 million in the
first half of 1995. The increase was attributable to a significant improvement
in both equity and debt underwriting. Equity and debt underwriting revenues in
the first half of 1995 reflect first quarter pretax losses of $13 million and
$55 million, respectively, on Latin American securities positions. Salomon
Brothers ranked second as a lead manager in underwriting domestic public new
issues during the first half of 1996, up from seventh in the comparable 1995
period (Securities Data Company results, measured by total volume of domestic
debt and equity public new issues, with full credit to lead).
Fixed income sales and trading net revenues (total revenues less interest
expense) in the second quarter increased to $706 million from $93 million in the
second quarter of 1995. For the first half of 1996, such revenues were
nearly triple those reported in the comparable 1995 period. The significant
increases in the second quarter and first half of 1996 were attributable to
disciplined trading and effective risk management in the customer sales and
trading business in a reasonably benign market environment, a strong
performance in foreign exchange trading, as well as excellent results in
trading for the Firm's own account.
Equity sales and trading net revenues were $268 million for the quarter, down
from the exceptional $295 million in the second quarter of 1995. For the first
six months of 1996, equity sales and trading revenues were $332 million,
down from $447 million reported in the first half of 1995. The decline
in 1996 second quarter and six month equity sales and trading revenues from
1995 levels was largely due to lower equity proprietary trading revenues,
partially offset by solid customer sales and trading results.
<PAGE>
<TABLE>
<CAPTION>
Noninterest Expenses
Dollars in millions
Three months Percent Six months Percent
Period ended June 30, 1996 1995 Change 1996 1995 Change
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Compensation and employee-related expenses $ 546 $ 336 63% $ 1,009 $ 702 44%
===================================================================================================================================
Compensation expense ratio* 51% 86% 53% 86%
===================================================================================================================================
Non-compensation expenses:
Technology $ 56 $ 61 (8)% $ 107 $ 121 (12)%
Professional services and business development 43 30 43 79 68 16
Occupancy 42 41 2 84 80 5
Clearing and exchange fees 17 17 - 34 32 6
Other 7 11 (36) 19 20 (5)
- -----------------------------------------------------------------------------------------------------------------------------------
Total non-compensation expenses $ 165 $ 160 3% $ 323 $ 321 1%
===================================================================================================================================
Non-compensation expense ratio** 13% 29% 15% 28%
===================================================================================================================================
<FN>
*Compensation and employee-related expenses as a percentage of earnings before
income taxes and compensation and employee-related expenses.
**Non-compensation expenses as a percentage of revenues, net of interest expense.
</FN>
</TABLE>
As a result of Salomon Brothers improved earnings, compensation and
employee-related expenses, the largest component of noninterest expense,
increased significantly in the three and six month periods ended June 30, 1996
compared with the year ago periods. However, Salomon Brothers' compensation
ratios for the 1996 periods were significantly lower than the comparable 1995
periods.
Non-compensation expenses have increased only marginally in 1996, demonstrating
the Company's commitment to containing costs.
<TABLE>
<CAPTION>
Phibro
Condensed Statement of Income
Dollars in millions
Three months Percent Six months Percent
Period ended June 30, 1996 1995 Change 1996 1995 Change
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Revenues, net of interest expense $(18) $(177) n/m % $ 217 $ 7 3,000 %
- ----------------------------------------------------------------------------------------------------------------------------------
Compensation and employee-related expenses (9) (21) n/m 73 31 135
Other general and administrative expenses 8 6 33 16 15 7
- ----------------------------------------------------------------------------------------------------------------------------------
Total noninterest expenses (1) (15) n/m 89 46 93
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes $ (17) $(162) n/m % $ 128 $(39) n/m %
==================================================================================================================================
Compensation expense ratio * n/m % n/m % 36 % n/m %
Non-compensation expense ratio** n/m n/m 7 214
==================================================================================================================================
<FN>
n/m - not meaningful
*Compensation and employee-related expenses as a percentage of earnings
before income taxes and compensation and employee-related expenses.
**Other general and administrative expenses as a percentage of revenues,
net of interest expense.
</FN>
</TABLE>
Phibro's strategy is to take positions in commodities on a longer-term basis
while also engaging in counterparty flow business on a short-term basis.
Quarter-to-quarter volatility in Phibro's results can be expected. Thus, results
are better evaluated over the longer term. For the first six months of 1996,
Phibro recorded pretax income of $128 million, compared with a pretax loss of
$39 million in the first half of 1995. In the second quarter of 1996, Phibro
recorded a pretax loss of $17 million, compared with a $162 million pretax loss
in the second quarter of 1995. The negative compensation and employee-related
expenses recorded in the second quarters of 1996 and 1995 reflect the reversal
of a portion of previously accrued bonuses as a result of losses recorded in the
respective quarters.
<PAGE>
<TABLE>
<CAPTION>
Basis Petroleum
Condensed Statement of Income
Dollars in millions
Three months Percent Six months Percent
Period ended June 30, 1996 1995 Change 1996 1995 Change
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
Sales $ 2,567 $ 2,629 (2)% $ 4,676 $ 4,804 (3)%
Cost of sales 2,563 2,612 (2) 4,710 4,820 (2)
- -------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 4 17 (76) (34) (16) (113)
Net interest and other (8) (6) (33) (15) (13) (15)
- -------------------------------------------------------------------------------------------------------------------------------
Operating income (loss), net of interest and other (4) 11 n/m (49) (29) (69)
- -------------------------------------------------------------------------------------------------------------------------------
Compensation and employee-related expenses 5 6 (17) 11 13 (15)
Other expenses 4 4 - 8 8 -
- -------------------------------------------------------------------------------------------------------------------------------
Total noninterest expenses 9 10 (10) 19 21 (10)
===============================================================================================================================
Income (loss) before income taxes $ (13) $ 1 n/m % $ (68) $ (50) (36)%
===============================================================================================================================
<FN>
n/m - not meaningful
</FN>
</TABLE>
Basis, the Company's oil refining and marketing business, recorded a pretax loss
of $13 million in the second quarter of 1996, compared with pretax income of $1
million in the second quarter of 1995. Basis' second quarter 1996 results
include nonrecurring income of $23 million in connection with the reduction of
the minimum crude oil inventory required to support Basis' refining activities.
The reduction reflects changes in feedstock supply patterns as a result of the
ongoing integration of the Residfiner/ROSE unit complex into Basis' operations.
The decrease in Basis' second quarter 1996 results was largely attributable to
approximately a $.70 per barrel decline in industry refining margins from the
second quarter of 1995. For the first six months of 1996, Basis recorded a
pretax loss of $68 million, compared with a pretax loss of $50 million in
the first half of 1995. Six month results were adversely impacted by
historically weak refining margins, a severely backwardated crude oil market
and higher refinery operating costs related to the commissioning of the
Residfiner/ROSE complex. The Residfiner/ROSE unit is expected to be fully
operational in the third quarter, however Basis will not realize the full
quarterly impact on its results until the fourth quarter.
At June 30, 1996, the Company's total investment in Basis was $1.0 billion,
comprised of $112 million of working capital advances, $525 million of
intercompany subordinated debt and $395 million in equity.
In July 1996, Basis signed a non-binding letter of intent with Howell
Corporation, providing that following a definitive agreement the two entities
will contribute their respective crude oil gathering, marketing and
transportation activities to form a Master Limited Partnership ("MLP"). The new
entity would be 54% owned by Basis and 46% owned by Howell Corporation. In the
latter part of 1996, concurrent with the formation of the MLP, it is expected
that interests in the MLP will be offered for sale to the public pursuant to a
prospectus. The book value of the fixed assets being contributed by Basis was
approximately $3 million at June 30, 1996.
<PAGE>
<TABLE>
<CAPTION>
SALOMON INC
Capital and Liquidity Management
Dollars in millions
- ------------------------------------------------------------------------------------------------------------------------------------
June 30, March 31, December 31, September 30, June 30,
Quarter ended 1996 1996 1995 1995 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average Weekly Balance Sheet Information:
Government and agency securities - U.S. $ 43,106 $ 44,470 $ 41,446 $ 33,871 $ 32,904
Government and agency securities - non-U.S. 34,770 35,001 34,466 33,202 38,749
Financial options and contractual commitments 5,619 6,230 5,731 5,988 6,919
Other financial instruments owned 20,372 19,206 20,421 18,500 19,014
- ------------------------------------------------------------------------------------------------------------------------------------
Total financial instrument inventories 103,867 104,907 102,064 91,561 97,586
- ------------------------------------------------------------------------------------------------------------------------------------
Collateralized short-term financing agreements 75,257 73,692 68,567 56,817 61,163
Other assets 13,380 12,472 13,002 14,122 17,260
- ------------------------------------------------------------------------------------------------------------------------------------
Average total assets $ 192,504 $ 191,071 $ 183,633 $ 162,500 $ 176,009
====================================================================================================================================
Period-end total assets $ 181,445 $ 185,341 $ 188,428 $ 162,586 $ 163,693
====================================================================================================================================
Period-end net assets* $ 107,468 $ 112,104 $ 119,128 $ 99,816 $ 106,644
====================================================================================================================================
Average net assets* $ 112,169 $ 113,195 $ 110,748 $ 101,042 $ 109,494
====================================================================================================================================
Average net assets, excluding
government securities* $ 34,293 $ 33,724 $ 34,836 $ 33,969 $ 37,841
====================================================================================================================================
Long-term capital at period-end $ 16,253 $ 15,685 $ 15,433 $ 16,112 $ 16,715
====================================================================================================================================
Ratios at period-end:**
Working capital coverage 1.13 1.10 1.10 1.24 1.22
Total capital basis double leverage 0.82 0.88 0.98 0.88 0.91
Equity capital basis double leverage 0.90 0.98 1.19 1.18 1.24
Average net assets to total equity* 21 22 24 22 24
Average net assets, excluding
government securities, to total equity* 6 7 7 7 8
====================================================================================================================================
Common shares outstanding (in millions) 105.2 106.5 106.4 106.4 106.2
====================================================================================================================================
<FN>
* Net assets are total assets less collateralized short-term financing
agreements, cash and interest-bearing equivalents and assets securing
collateralized mortgage obligations.
**For equity-based ratios, total equity includes the Company's common equity,
perpetual preferred stock and redeemable
preferred stock.
</FN>
</TABLE>
Average assets for the second quarter of 1996 were approximately $193 billion,
compared with $191 billion in the first quarter of 1996. Due to the nature of
the Company's trading and funding activities, including its matched-book
activities, it is not uncommon for the Company's asset levels to fluctuate from
period to period.
As of June 30, 1996, TMC's assets were no longer included on a consolidated
basis in the Company's Condensed Consolidated Statement of Financial
Condition. (See Note 4 to the Unaudited Condensed Consolidated Financial
Statements.) This resulted in a $2.1 billion reduction in total assets from
December 31, 1995.
<PAGE>
The Company's long-term capital includes common equity, redeemable preferred
stock, perpetual preferred stock, unsecured obligations and long-term deferred
taxes. Long-term capital includes all amounts maturing beyond one year and a
portion of amounts maturing between six months and one year (weighted by
maturity), and excludes all amounts scheduled to mature within six months.
Long-term capital increased from $15.4 billion at December 31, 1995 to $16.3
billion at June 30, 1996. The increase of approximately $900 million reflects a
$250 million issuance of Cumulative Preferred Stock, Series E in the first
quarter of 1996, term debt issuances (net of retirements and rolloffs), a
decrease in long-term deferred income taxes and the impact of the Company's
earnings on the equity component of capital.
The Company's equity capital basis double leverage ratio was 0.90 at June 30,
1996, down from 1.19 at year end 1995. Equity capital basis double leverage is
computed by dividing the equity of the Company's operating units by the sum of
the Company's common equity and perpetual and redeemable preferred stock.
In July, the Company issued $345 million of 9.5% Trust Preferred Stock Units
("TruPS "). Each TruPS unit consists of a preferred security of the SI Financing
Trust 1 (the "Trust"), and a purchase contract which requires the holder to
purchase, in 2021 (or earlier if the Company elects to accelerate the contract),
one depositary share of Salomon Inc's 9.5% Cumulative Preferred Stock, Series F
("Series F Preferred"). Each preferred security of the Trust represents a
preferred undivided interest in the Trust's assets, which consist solely of a
subordinated debt security of Salomon Inc due in 2026. Tax counsel to the
Company has advised the Company that interest on the subordinated debt security
will be deductible for Federal income tax purposes. It is the Company's
understanding that the rating agencies, in their analysis of the Company's
capital structure, will treat the TruPS units similarly to the Company's
perpetual preferred stock. The Series F Preferred and TruPS units are redeemable
at the option of the Company at any time after the later of June 30, 2001 or the
date of issue. The Company has entered into an interest rate swap agreement to
effectively convert the fixed rate obligation on the TruPS units to variable
rate obligations.
The Company announced in July, that on August 15, 1996 it would redeem all
225,000 shares as represented by 4.5 million depositary shares, ($112 million)
of its outstanding 9.5% Cumulative Preferred Stock, Series C, for $500 a share,
plus any accrued and unpaid dividends.
Salomon Inc's long-term debt and commercial paper credit ratings at June 30,
1996 remained unchanged from the previous quarter. During the quarter, Moody's
updated its rating outlook for Salomon Inc to stable from negative. As of July
31, 1996 the Company's credit ratings were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Duff &
Phelps Fitch IBCA Moody's S&P
- --------------------------- ------------- ------------- ------------- ------------- -------------
Long-term debt A- BBB+ A- Baa1 BBB
Commercial paper D-1 F-2 A1 P-2 A2
- --------------------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
Salomon Brothers' trading portfolio of high-yield securities, carried at market
value, totaled $2.7 billion at June 30, 1996, compared with $2.3 billion at
December 31, 1995. 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. For
example, high-yield securities exclude the collateralized portion of "Brady
Bonds," but include such securities to the extent they are not collateralized.
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 $106 million at June 30, 1996.
Book value per share increased to $40.08 at June 30, 1996, from $35.84 at
December 31, 1995. As previously reported, in connection with a partial
restructuring of the Company's Equity Partnership Plan, the Company repurchased
1.3 million common shares for approximately $49 million in April.
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF SELECTED QUARTERLY FINANCIAL INFORMATION (unaudited)
Three Months Ended
- ------------------------------------------------------------------------------------------------------------------------------------
June 30, March 31, December 31, September 30, June 30,
Dollars in millions, except per share amounts 1996 1996 1995 1995 1995
- ------------------------------------------------------------------------------------------------------------------------------------
For the quarter:
Revenues:
<S> <C> <C> <C> <C> <C>
Principal transactions, including net interest
and dividends $ 877 $ 949 $ 578 $ 947 $ 139
Investment banking 251 181 168 128 154
Commissions and other 91 63 80 106 108
- ------------------------------------------------------------------------------------------------------------------------------------
Revenues, net of interest expense 1,219 1,193 826 1,181 401
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest expenses:
Compensation and employee-related 551 556 425 557 324
Other noninterest expenses 184 176 167 185 176
- ------------------------------------------------------------------------------------------------------------------------------------
Total noninterest expenses 735 732 592 742 500
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 484 461 234 439 (99)
Income tax expense (benefit) 193 185 66 171 (39)
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 291 $ 276 $ 168 $ 268 $ (60)
====================================================================================================================================
Annualized return on average common
stockholders' equity:
Primary 26.1% 26.4% 16.4% 28.0% (8.8)%
Fully diluted* 23.8 24.0 15.1 24.6 (8.8)
====================================================================================================================================
Income (loss) before taxes:
Salomon Brothers $ 525 $ 368 $ 207 $ 381 $ 56
Phibro (17) 145 56 68 (162)
Basis Petroleum (13) (55) (32) (9) 1
Corporate and Other (11) 3 3 (1) 6
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before taxes $ 484 $ 461 $ 234 $ 439 $ (99)
====================================================================================================================================
Per common share:
Primary earnings (loss) $ 2.58 $ 2.44 $ 1.42 $ 2.36 $ (0.73)
Fully diluted earnings (loss)* 2.34 2.21 1.32 2.10 (0.73)
Cash dividends 0.16 0.16 0.16 0.16 0.16
High market price 44 1/4 39 1/4 40 5/8 41 1/8 43 1/4
Low market price 36 1/8 34 7/8 33 7/8 34 3/4 33 1/4
Ending market price 44 37 1/2 35 3/8 38 1/2 40 1/8
Book value at period-end* 40.08 37.98 35.84 34.49 32.38
====================================================================================================================================
<FN>
* Assumes conversion of redeemable preferred stock outstanding unless such
assumption results in higher earnings per share, book value or return
on equity than determined under the primary method.
</FN>
</TABLE>
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On July 17, 1996 Salomon Brothers entered into a settlement
agreement with the Department of Justice. Over twenty other Nasdaq
market makers, including Salomon Brothers' primary competitors in the
U.S. equity markets, also settled with the Department. The Department's
complaint basically alleged that a common understanding arose among
Nasdaq market makers, including the settling firms, which when followed
worked to widen quoted spreads in Nasdaq stocks. Salomon Brothers did
not admit liability in its settlement and there were no fines,
penalties, or other payments of monies in connection with the
settlement. Salomon Brothers and the other settling firms did agree,
however, to implement additional compliance procedures, including the
naming of an Antitrust Compliance Officer and random taping of market
making activity to guard against deviations in practice from the
principles set forth in the settlement. The SEC has concluded a portion
of its investigation of the Nasdaq market by settling an administrative
proceeding against the NASD and issuing a report under Section 21 (a)
of the Securities Exchange Act regarding the NASD and the Nasdaq
market. The private civil cases remain outstanding.
Item 4. Submission of Matters to a Vote of Security Holders
The 1996 Annual meeting of shareholders was held on May 1, 1996. A
Proxy Statement, dated April 1, 1996, was distributed by management
pursuant to Regulation 14 of the Securities and Exchange Act of 1934.
The shareholders voted on proposals to (1) approve the election of
directors and (2) amend the Equity Partnership Plan. All nominees for
the board were elected. In addition, the vote of the shareholders
(71,143,722 for and 17,618,369 against) resulted in the approval of
amendments to the Equity Partnership Plan.
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*
27 Financial Data Schedule*
*filed herewith
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K dated April 29, 1996,
reporting under item 7 ("Financial Statements, Pro Forma Financial
Information and Exhibits") exhibit 4, Eighth Supplemental Indenture
dated May 8, 1996 between Salomon Inc. and Citibank N.A.; and exhibit
24, Form T-1 Statement of Eligibility and Qualification of Chemical
Bank Under the Trust Indenture Act of 1939.
The Company filed a Current Report on Form 8-K dated May 30, 1996,
reporting under item 7 ("Financial Statements, Pro Forma Financial
Information and Exhibits"), exhibit 24, Form T-1 Statement of
Eligibility and Qualification of The Bank of New York Under the Trust
Indenture Act of 1939.
<PAGE>
(b) Reports on Form 8-K (continued):
The Company filed a Current Report on Form 8-K dated June 5, 1996,
reporting under item 7 ("Financial Statements, Pro Forma Financial
Information and Exhibits") exhibit 4, Form of Resettable Exchangeable
Standard & Poor's 500 Index Notes ("SPINS") Due 2001.
The Company filed a Current Report on Form 8-K dated June 26, 1996,
reporting under item 7 ("Financial Statements, Pro Forma Financial
Information and Exhibits") exhibit 7(a) Exhibit 5(a) Opinion of
Cravath, Swaine & Moore to file No. 333-2897 and exhibit 7(b) Exhibit 5
(b) Opinion of Morris, Nichols, Arsht & Tunnell to file No. 333-2897.
The Company filed a Current Report on Form 8-K dated June 28, 1996,
reporting under item 7 ("Financial Statements, Pro Forma Financial
Information and Exhibits") exhibit 7(a) Exhibit 4(n) Certificate of
Designations relating to the Series F Preferred Stock to file No.
333-2897.
The Company filed a Current Report on Form 8-K dated July 23, 1996,
reporting under Item 5 ("Other Events") and Item 7 ("Financial
Statements, Pro Forma Financial Information and Exhibits") the issuance
of a press release.
<PAGE>
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 August 13, 1996 /s/ Richard Carbone
Controller and Chief
Accounting Officer
Date August 13, 1996 /s/ Arnold S. Olshin
Secretary
<PAGE>
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
27 Financial Data Schedule
<TABLE>
<CAPTION>
EXHIBIT 12(a)
SALOMON INC AND SUBSIDIARIES
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
Six
Months
Ended
June 30, Years Ended December 31,
------------------------------------------------------------
Dollars in millions 1996 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------
Earnings:
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes and cumulative
effect of change in accounting principles $ 945 $ 708 $ (831) $ 1,465 $ 1,056 $ 919
Add fixed charges (see below) 2,440 5,825 4,919 4,644 4,373 5,704
Other adjustments (4) (11) (3) 22 20 (4)
--------- -------- -------- -------- -------- --------
Earnings as defined $ 3,381 $ 6,522 $ 4,085 $ 6,131 $ 5,449 $ 6,619
========= ======== ======== ======== ======== ========
Fixed Charges:
Interest expense $ 2,418 $ 5,782 $ 4,892 $ 4,600 $ 4,324 $ 5,638
Other adjustments 22 43 27 44 49 66
--------- -------- -------- -------- -------- --------
Fixed charges as defined $ 2,440 $ 5,825 $ 4,919 $ 4,644 $ 4,373 $ 5,704
========= ======== ======== ======== ======== ========
Ratio of earnings to
fixed charges 1.39 1.12 0.83* 1.32 1.25 1.16
========= ======== ======== ======== ======== ========
<FN>
NOTE:
The ratio of earnings to fixed charges is calculated by dividing fixed charges
into the sum of income before income 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 year ended December 31, 1994, earnings as defined were inadequate to
cover fixed charges. The amount by which fixed charges exceeded earnings as
defined for the year was $834 million.
</FN>
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 12(b)
SALOMON INC AND SUBSIDIARIES
Calculation of Ratio of Earnings to Combined
Fixed Charges and Preferred Dividends
(Unaudited)
Six
Months
Ended
June 30, Years Ended December 31,
---------------------------------------------------------
Dollars in millions 1996 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------
Earnings:
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes and cumulative
effect of change in accounting principles $ 945 $ 708 $ (831) $ 1,465 $ 1,056 $ 919
Add fixed charges (see below) 2,440 5,825 4,919 4,644 4,373 5,704
Other adjustments (4) (11) (3) 22 20 (4)
-------- -------- -------- -------- -------- -------
Earnings as defined $ 3,381 $ 6,522 $ 4,085 $ 6,131 $ 5,449 $ 6,619
======== ======== ======== ======== ======== =======
Fixed Charges and
Preferred Dividends:
Interest expense $ 2,418 $ 5,782 $ 4,892 $ 4,600 $ 4,324 $ 5,638
Other adjustments 22 43 27 44 49 66
-------- -------- -------- -------- -------- -------
Fixed charges as defined 2,440 5,825 4,919 4,644 4,373 5,704
Preferred stock dividends (tax
equivalent basis) 58 106 129 83 131 121
-------- -------- -------- -------- -------- -------
Combined fixed charges
and preferred dividends $ 2,498 $ 5,931 $ 5,048 $ 4,727 $ 4,504 $ 5,825
======== ======== ======== ======== ======== =======
Ratio of earnings to
combined fixed charges
and preferred dividends 1.35 1.10 0.81* 1.30 1.21 1.14
======= ======== ======== ======= ======== =======
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 income taxes and fixed charges. Fixed
charges consist of interest expense, including capitalized interest and a
portion of rental expense representative of the interest factor.
The preferred stock dividend amounts represent the pretax earnings necessary to
cover preferred dividends after adjusting for the effects of interest rate
swaps, which effectively convert these fixed rate obligations into variable rate
obligations.
<FN>
* For the year ended December 31, 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 year ended December 31, 1994 was $963 million.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
EXHIBIT 27
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND THE UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION AS OF JUNE
30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<MULTIPLIER> 1,000,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,813
<RECEIVABLES> 4,570
<SECURITIES-RESALE> 56,011
<SECURITIES-BORROWED> 15,638
<INSTRUMENTS-OWNED> 99,527
<PP&E> 1,347
<TOTAL-ASSETS> 181,445
<SHORT-TERM> 5,290
<PAYABLES> 8,655
<REPOS-SOLD> 75,353
<SECURITIES-LOANED> 1,052
<INSTRUMENTS-SOLD> 71,703
<LONG-TERM> 13,509
<COMMON> 156
560
562
<OTHER-SE> 4,110
<TOTAL-LIABILITY-AND-EQUITY> 181,445
<TRADING-REVENUE> 1,235
<INTEREST-DIVIDENDS> 3,009
<COMMISSIONS> 165
<INVESTMENT-BANKING-REVENUES> 432
<FEE-REVENUE> (11)
<INTEREST-EXPENSE> 2,418
<COMPENSATION> 1,107
<INCOME-PRETAX> 945
<INCOME-PRE-EXTRAORDINARY> 567
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 567
<EPS-PRIMARY> 5.02
<EPS-DILUTED> 4.55
</TABLE>
