<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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 SMITH BARNEY HOLDINGS 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.)
388 Greenwich Street
New York, New York 10013
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (212) 816-6000
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 |_|
The registrant is a wholly owned subsidiary of Travelers Group Inc. As of the
date hereof, 1000 shares of the registrant's common stock, par value $.01 per
share, were issued and outstanding.
REDUCED DISCLOSURE FORMAT
The registrant meets the conditions set forth in General Instructions H 1 (a)
and (b) of Form 10-Q and therefore is filing this form with the reduced
disclosure format contemplated thereby.
<PAGE> 2
SALOMON SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
Index to Condensed Consolidated Financial Statements
For the Quarter Ended March 31, 1998
<TABLE>
<S> <C>
Part I. Financial Information Page
----
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Statements of Income (Unaudited) -
Three months ended March 31, 1998 and 1997 1
Condensed Consolidated Statements of Financial Condition -
March 31, 1998 (Unaudited) and December 31, 1997 2 - 3
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Three months ended March 31, 1998 and 1997 4
Notes to Condensed Consolidated Financial Statements (Unaudited) 5 - 10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11 - 15
Part II. Other Information
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16
Exhibit Index
Signatures
</TABLE>
<PAGE> 3
SALOMON SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Dollars in millions
Three Months Ended March 31, 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Commissions $ 795 $ 716
Investment banking 628 484
Principal transactions 780 762
Asset management and administration fees 498 389
Other 32 28
- --------------------------------------------------------------------------------
Total noninterest revenues 2,733 2,379
- --------------------------------------------------------------------------------
Interest and dividends 3,318 2,491
Interest expense 2,923 2,169
- --------------------------------------------------------------------------------
Net interest and dividends 395 322
- --------------------------------------------------------------------------------
Revenues, net of interest expense 3,128 2,701
- --------------------------------------------------------------------------------
Noninterest expenses:
Compensation and benefits 1,722 1,479
Communications 117 121
Floor brokerage and other production 110 86
Occupancy and equipment 105 106
Advertising and market development 70 62
Professional services 51 41
Other operating and administrative expenses 143 128
- --------------------------------------------------------------------------------
Total noninterest expenses 2,318 2,023
- --------------------------------------------------------------------------------
Income before income taxes 810 678
Provision for income taxes 308 267
- --------------------------------------------------------------------------------
Net income $ 502 $ 411
================================================================================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
1
<PAGE> 4
SALOMON SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
March 31, December 31,
Dollars in millions 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 1,667 $ 1,808
Cash segregated and on deposit for Federal and other regulations
or deposited with clearing organizations 2,071 2,034
Collateralized short-term financing agreements:
Securities purchased under agreements to resell $71,246 $75,802
Deposits paid for securities borrowed 44,690 33,932
--------------- ---------------
115,936 109,734
Financial instruments and commodities owned and contractual commitments:
U.S. government and government agency securities 50,260 52,109
Non-U.S. government and government agency securities 26,746 46,502
Corporate debt securities 15,379 13,614
Equity securities 7,392 6,420
Contractual commitments 11,380 10,120
Mortgage loans and collateralized mortgage securities 4,664 3,103
Other financial instruments 7,418 6,590
Commodities 1,328 1,274
--------------- ---------------
124,567 139,732
Receivables:
Receivable for securities provided as collateral 25,884 -
Customers 11,964 12,415
Brokers, dealers and clearing organizations 3,455 3,212
Other 2,679 2,387
--------------- ---------------
43,982 18,014
Property, equipment and leasehold improvements, net of
accumulated depreciation and amortization of $918 and
$884, respectively 1,014 986
Other assets 4,586 4,312
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $293,823 $276,620
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
<PAGE> 5
SALOMON SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
March 31, December 31,
Dollars in millions 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Liabilities and Stockholder's Equity:
Commercial paper $ 13,182 $ 7,110
Other short-term borrowings 5,013 4,354
Collateralized short-term financing agreements:
Securities sold under agreements to repurchase $105,172 $113,593
Deposits received for securities loaned 11,195 5,978
-------------- --------------
116,367 119,571
Financial instruments and commodities sold, not
yet purchased, and contractual commitments:
U.S. government and government agency securities 28,621 33,970
Non-U.S. government and government agency securities 17,247 45,166
Contractual commitments 12,961 11,688
Equity securities 4,278 3,462
Corporate debt securities and other 2,070 1,880
-------------- --------------
65,177 96,166
Payables and accrued liabilities:
Obligation to return securities received as collateral 44,705 -
Customers 8,658 9,791
Brokers, dealers and clearing organizations 3,261 2,972
Other 8,458 8,719
-------------- --------------
65,082 21,482
Term debt 19,383 19,074
-------------- -----------------
Total liabilities 284,204 267,757
Guaranteed preferred beneficial interests in Company
subordinated debt securities 345 345
Company-obligated mandatorily redeemable preferred securities
of subsidiary trust holding solely junior subordinated debt
securities of the Company 400 -
Stockholder's equity:
Common stock (par value $.01 per share 1,000 shares
authorized; 1,000 shares issued and outstanding) - -
Additional paid-in capital 1,576 1,574
Retained earnings 7,294 6,943
Cumulative translation adjustments 4 1
-------------- --------------
Total stockholder's equity 8,874 8,518
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $293,823 $276,620
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE> 6
SALOMON SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Dollars in millions
Three Months Ended March 31, 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income adjusted for noncash items -
Net income $ 502 $ 411
Depreciation and amortization 78 75
- ------------------------------------------------------------------------------------------------------
Cash items included in net income 580 486
- ------------------------------------------------------------------------------------------------------
(Increase) decrease in operating assets -
Cash segregated and on deposit for Federal and other regulations or
deposited with clearing organizations (37) (9)
Collateralized short-term financing agreements (6,202) (14,669)
Financial instruments and commodities owned and contractual commitments 15,166 (5,724)
Receivables (26,044) (80)
Other assets (198) (469)
- ------------------------------------------------------------------------------------------------------
Increase in operating assets (17,315) (20,951)
- ------------------------------------------------------------------------------------------------------
Increase (decrease) in operating liabilities -
Collateralized short-term financing agreements (3,204) 14,669
Financial instruments and commodities sold, not yet purchased, and contractual
commitments (30,988) 3,367
Payables and accrued liabilities 43,680 (1,262)
- ------------------------------------------------------------------------------------------------------
Increase in operating liabilities 9,488 16,774
- ------------------------------------------------------------------------------------------------------
Cash used in operating activities (7,247) (3,691)
- ------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Increase (decrease) in commercial paper and other short-term
borrowings 6,731 2,304
Proceeds from issuance of term debt 1,463 2,511
Term debt maturities and repurchases (1,278) (980)
Collateralized mortgage obligations (55) (17)
Issuance of trust preferred securities 400 --
Dividends paid (130) (134)
Other capital transactions 3 (2)
- ------------------------------------------------------------------------------------------------------
Cash provided by financing activities 7,134 3,682
- ------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Assets securing collateralized mortgage obligations 31 17
Property, equipment and leasehold improvements (75) (37)
Other 16 (7)
- ------------------------------------------------------------------------------------------------------
Cash used in investing activities (28) (27)
- ------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (141) (36)
Cash and cash equivalents at January 1, 1,808 1,607
- ------------------------------------------------------------------------------------------------------
Cash and cash equivalents at March 31, $ 1,667 $ 1,571
======================================================================================================
</TABLE>
Interest paid did not differ materially from the amount of interest expense
recorded for financial statement purposes.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE> 7
SALOMON SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. The Merger
----------
On November 28, 1997, a newly formed wholly owned subsidiary of Travelers
Group Inc. ("Travelers") was merged into Salomon Inc ("Salomon") and
Salomon became a wholly owned subsidiary of Travelers. Following this
merger, Salomon and Smith Barney Holdings Inc. ("Smith Barney") were
merged (the "Merger") to form Salomon Smith Barney Holdings Inc. ("SSBH"
and, collectively with its subsidiaries, the "Company"). The transaction
was treated as a tax free exchange.
The condensed consolidated statements of income and cash flows for the
three months ended March 31, 1997 give retroactive effect to the Merger as
a combination of entities under common control in a transaction accounted
for in a manner similar to a pooling of interests. The pooling of
interests method of accounting requires the restatement of all periods
presented as if Salomon and Smith Barney had always been combined. Certain
reclassifications have been made to conform the accounting policies of
Salomon and Smith Barney.
As a result of the Merger, the Company booked a pre-tax restructuring
charge of $838 million ($496 million after tax) in the fourth quarter of
1997. Amounts expended to date against this charge relate primarily to
severance costs. At March 31, 1998, the reserve balance associated with
the restructuring charge was $729 million.
Note 2. Summary of Significant Accounting Policies
------------------------------------------
Basis of Presentation
The interim condensed consolidated financial statements reflect the
accounts of the Company, a wholly owned subsidiary of Travelers. Material
intercompany transactions have been eliminated. These interim condensed
consolidated financial statements are unaudited; however, in the opinion
of management, all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation have been reflected.
The interim condensed consolidated financial statements are prepared in
accordance with generally accepted accounting principles in the United
States, which require the use of management's best judgment and estimates.
Estimates, including the fair value of financial instruments, commodities
and contractual commitments, may vary from actual results.
These interim condensed consolidated 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, 1997.
Certain financial information that is normally included in financial
statements prepared in accordance with generally accepted accounting
principles, but is not required for interim reporting purposes, has been
condensed or omitted.
5
<PAGE> 8
SALOMON SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
New Accounting Pronouncements
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") 127, Deferral of the Effective Date of
Certain Provisions of SFAS 125 ("SFAS 127"), which was effective for
transfers and pledges of certain financial assets and collateral made
after December 31, 1997. Restatement of previously issued financial
statements is not allowed. The adoption of SFAS 127 created additional
assets and liabilities on the Company's condensed consolidated statement
of financial condition related to the recognition of securities provided
and received as collateral. At March 31, 1998, the impact of SFAS 127 on
the Company's condensed consolidated statement of financial position was
an increase to total assets and liabilities of approximately $15 billion.
In addition, as a result of SFAS 127, certain inventory positions,
primarily "Non-U.S. government and government agency securities," have
been reclassified to receivables or payables.
Effective January 1, 1998, the Company adopted SFAS 130, Reporting
Comprehensive Income ("SFAS 130"). SFAS 130 establishes standards for the
reporting and display of comprehensive income and its components in a full
set of general-purpose financial statements. All items that are required
to be recognized under accounting standards as components of comprehensive
income are to be reported in an annual financial statement with the same
prominence as other financial statements. This statement stipulates that
comprehensive income reflect the change in equity of an enterprise during
a period from transactions and other events and circumstances from
nonowner sources. Comprehensive income will thus represent the sum of net
income and other changes in stockholder's equity from nonowner sources.
The accumulated balance of changes in equity from nonowner sources is
required to be displayed separately from retained earnings and additional
paid-in-capital in the statement of financial position. Cumulative
translation adjustments are the only changes in the Company's equity from
nonowner sources. The Company's total changes in equity from nonowner
sources, net of tax, is as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------
1998 1997
---- ----
<S> <C> <C>
Net income $502 $411
Other changes in equity from
nonowner sources 3 (7)
---- ----
Total changes in equity from
nonowner sources $505 $404
==== ====
</TABLE>
In March 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of
Position 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use ("SOP 98-1"). SOP 98-1 provides guidance on
accounting for costs of computer software developed or obtained for
internal use and for determining when specific costs should be capitalized
and when they should be expensed. SOP 98-1 is effective for fiscal years
beginning after December 15, 1998. Restatement of previously issued
financial statements is not allowed. The Company is currently evaluating
the impact of this statement of position.
6
<PAGE> 9
SALOMON SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 3. Capital Requirements
--------------------
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. Capital requirements related to the Company's principal regulated
subsidiaries are as follows:
<TABLE>
<CAPTION>
Net
Capital Excess over
(Dollars in millions) or Minimum
Subsidiary Jurisdiction Equivalent Requirements
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Salomon Brothers Inc U.S. Securities and Exchange Commission $ 997 $931
Uniform Net Capital Rule (Rule 15c3-1)
Smith Barney Inc. U.S. Securities and Exchange Commission $ 971 $756
Uniform Net Capital Rule (Rule 15c3-1)
Salomon Brothers International Limited United Kingdom's Securities and Futures Authority $ 4,957 $566
Salomon Smith Barney Japan Limited* Japan's Ministry of Finance $ 681 $291
Salomon Brothers AG Germany's Banking Supervisory Authority $ 375 $107
The Robinson-Humphrey Company, LLC U.S. Securities and Exchange Commission $ 76 $ 75
Uniform Net Capital Rule (Rule 15c3-1)
</TABLE>
* Prior to April 1, 1998, this entity was known as Salomon Brothers Asia
Limited.
In addition, in order to maintain its triple-A rating, Salomon Swapco Inc
("Swapco"), a wholly owned subsidiary of the Company, must maintain minimum
levels of capital in accordance with agreements with its rating agencies. At
March 31, 1998, Swapco was in compliance with all such agreements. Swapco's
capital requirements are dynamic, varying with the size and concentration of its
counterparty receivables.
7
<PAGE> 10
SALOMON SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 4. Contractual Commitments
-----------------------
A summary of the Company's contractual commitments as of March 31, 1998
and December 31, 1997 is as follows:
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
------------------------------------ ------------------------------------
Current Market or Current Market or
Fair Value Fair Value
Notional ------------------------ Notional ------------------------
Dollars in billions Amounts Assets Liabilities Amounts Assets Liabilities
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Exchange-issued products:
Futures contracts (a) $987.2 $ - $ - $940.5 $ - $ -
Other exchange-issued products:
Equity contracts 9.7 .2 .5 10.6 .2 .4
Fixed income contracts 225.4 .1 .1 138.1 - -
Commodities contracts 3.0 - - 3.5 - -
- -----------------------------------------------------------------------------------------------------------------------------------
Total exchange-issued products 1,225.3 .3 .6 1,092.7 .2 .4
- -----------------------------------------------------------------------------------------------------------------------------------
Over-the-counter ("OTC") swaps, swap options,
caps and floors:
Swaps 1,524.6 1,345.9
Swap options written 48.1 38.6
Swap options purchased 57.0 48.8
Caps and floors 167.8 161.4
- -----------------------------------------------------------------------------------------------------------------------------------
Total OTC swaps, swap options, caps and floors (b) 1,797.5 6.1 7.0 1,594.7 5.8 6.7
- -----------------------------------------------------------------------------------------------------------------------------------
OTC foreign exchange contracts and options:
Forward currency contracts (b) 140.3 1.2 1.1 115.4 1.0 1.0
Options written 51.7 - .5 41.3 - .6
Options purchased 44.8 .6 - 37.7 .6 -
- -----------------------------------------------------------------------------------------------------------------------------------
Total OTC foreign exchange contracts and options 236.8 1.8 1.6 194.4 1.6 1.6
- -----------------------------------------------------------------------------------------------------------------------------------
Other options and contractual commitments:
Options and warrants on equities and equity
indices 64.7 2.7 3.4 54.8 1.8 2.7
Options and forward contracts on fixed-income
securities 468.6 .2 .2 343.4 .3 .1
Commodities contracts 12.1 .3 .2 14.3 .4 .2
- -----------------------------------------------------------------------------------------------------------------------------------
Total contractual commitments $3,805.0 $11.4 $13.0 $3,294.3 $10.1 $11.7
===================================================================================================================================
</TABLE>
(a) Margin on futures contracts is included in receivable/payables to brokers,
dealers and clearing organizations on the condensed consolidated
statements of financial condition.
(b) Includes notional values of swap agreements and forward currency contracts
for non-trading activities (primarily related to the Company's fixed-rate
long-term debt) of $16.8 billion and $ 3.5 billion at March 31, 1998 and
$17.6 billion and $4.1 billion at December 31, 1997, respectively.
8
<PAGE> 11
SALOMON SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 5. Mandatorily Redeemable Preferred Securities of Subsidiary Trusts
----------------------------------------------------------------
The Company has formed two statutory business trusts under the laws of the
state of Delaware that exist for the exclusive purposes of (i) issuing
trust securities (both common and preferred) representing undivided
beneficial interests in the assets of the Trust; (ii) investing the gross
proceeds of the trust securities in subordinated debt securities of the
Company (in the case of SI Financing Trust I) and junior subordinated
deferrable interest debt securities of the Company (in the case of SSBH
Capital I); and (iii) engaging in only those activities necessary or
incidental thereto. These subordinated debt securities and the related
income effects are eliminated in the condensed consolidated financial
statements. Distributions on the mandatorily redeemable preferred
securities of subsidiary trusts below have been classified as interest
expense in the condensed consolidated statement of income. The following
table summarizes the financial structure of the Company's subsidiary
trusts at March 31, 1998:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
SI Financing SSBH
Trust I Capital I
==============================================================================================================================
<S> <C> <C>
Trust Preferred Securities:
Issuance date July 1996 January 1998
Shares issued 13,800,000 16,000,000
Liquidation preference per share $ 25 $ 25
Liquidation value (in millions) $345 $400
Coupon rate 9.25% 7.20%
Distributions payable Quarterly Quarterly
Distributions guaranteed by SSBH SSBH
Common shares issued to SSBH 426,800 494,880
Subordinated Debt Securities:
Amount owned (in millions) $356 $412
Coupon rate 9.25% 7.20%
Interest payable Quarterly Quarterly
Maturity date June 30, 2026 January 28, 2038
Redeemable by issuer on or after June 30, 2001 January 28, 2003
==============================================================================================================================
</TABLE>
SI Financing Trust I, a wholly owned subsidiary of the Company, issued
TruPS(R) units to the public. Each TruPS(R) unit includes a preferred
security of SI Financing Trust I, as shown in the table above, and a
purchase contract that requires the holder to purchase, in 2021 (or
earlier if the Company elects to accelerate the contract), one depositary
share representing a one-twentieth interest in a share of Travelers 9.50%
Cumulative Preferred Stock, Series L. The Company is obligated under the
terms of each purchase contract to pay contract fees of 0.25% per annum.
Note 6. Legal Proceedings
-----------------
The Company has been named as a defendant in legal actions relating to its
operations, some of which seek damages of material or indeterminate
amounts. In addition, from time to time the Company is a party to
examinations and inquiries by various regulatory and self-regulatory
bodies. In connection with its discontinued commodities processing
operations, the Company and certain of its subsidiaries are subject to
claims asserted by the U.S. Environmental Protection Agency, certain state
agencies and private parties in connection with environmental matters.
Management of the Company, after consultation with outside legal counsel,
believes that the ultimate resolution of legal proceedings and
environmental matters (net of
9
<PAGE> 12
SALOMON SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
applicable reserves) will not have a material adverse effect 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.
Note 7. Subsequent Event
----------------
On April 6, 1998, Travelers announced that it had entered into a merger
agreement with Citicorp. The transaction, which is expected to be
completed during the third quarter of 1998, is subject to various
regulatory approvals, including approval by the Federal Reserve Board. The
transaction is also subject to approval by the stockholders of each of
Travelers and Citicorp.
Upon consummation of the merger, Travelers would be a bank holding company
subject to regulation under the Bank Holding Company Act of 1956 (the
"BHCA"), the requirements of the Glass-Steagall Act and certain other laws
and regulations. Section 20 of the Glass-Steagall Act prohibits a member
bank of the Federal Reserve System, such as Citicorp's subsidiary
Citibank, N.A., from being affiliated with a company that is engaged
principally in underwriting and distributing securities. The Federal
Reserve Board has determined that a securities firm that does not generate
more than 25% of its gross revenues from underwriting and dealing in
certain ineligible securities is not deemed for purposes of the
Glass-Steagall Act to be "engaged principally" in securities underwriting
and distribution.
Although the effects of the proposed merger and compliance with the
requirements of the BHCA and the Glass-Steagall Act are still under
review, the Company does not believe that its compliance with applicable
law following the merger involving Travelers and Citicorp will have a
material adverse effect on its ability to continue to operate the
businesses in which it is presently engaged.
10
<PAGE> 13
SALOMON SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Item 2.
RESULTS OF OPERATIONS
The Company reported net income of $502 million for the three months ended March
31, 1998 (the "1998 Quarter"), an increase of 22% from the $411 million reported
for the three months ended March 31, 1997 (the "1997 Quarter"). Revenues, net of
interest expense, increased 16% to $3,128 million in the 1998 Quarter compared
to $2,701 million in the 1997 Quarter.
Commission revenues increased 11% to $795 million in the 1998 Quarter compared
to $716 million in the 1997 Quarter. This increase is a result of strong
activity in listed and over-the-counter securities, as well as mutual fund
commissions.
Investment banking revenues increased 30% to $628 million in the 1998 Quarter
compared to $484 million in the 1997 Quarter. This increase primarily reflects
an increase in merger and acquisition advisory fees as well as revenue growth
from unit trust, equities, and high yield and investment grade debt
underwriting.
Principal transaction revenues increased slightly in the 1998 Quarter to $780
million. Positive results from commodities trading conducted by Phibro Inc. were
offset to an extent by a decline in equities.
Asset management and administration fees increased 28% to $498 million in the
1998 Quarter compared to $389 million in the 1997 Quarter as a result of the
growth in assets under fee-based management. At March 31, 1998, internally
managed assets were $178.3 billion and total fee-based assets under management
were $245.4 billion compared to $139.2 billion and $185.9 billion, respectively,
at March 31, 1997. For further discussion of the Company's fee-based assets
under management refer to the Asset Management Division section of Management's
Discussion and Analysis of Financial Condition and Results of Operations.
Total assets under fee-based management were composed of the following:
<TABLE>
<CAPTION>
As of March 31,
---------------
(in billions) 1998 1997
- ------------ --------- ---------
<S> <C> <C>
Money market funds $ 51.6 $ 43.9
Mutual funds 56.0 40.5
Managed accounts 57.4 46.3
--------- ---------
Salomon Smith Barney Asset Management 165.0 130.7
Financial Consultant managed accounts 13.3 8.5
--------- ---------
Total internally managed assets 178.3 139.2
Consulting Group externally managed assets 67.1 46.7
--------- ---------
Total fee-based assets under management $245.4 $185.9
========= =========
</TABLE>
Net interest and dividends increased to $395 million for the 1998 Quarter from
$322 million in the 1997 Quarter due to a higher level of net interest earning
assets.
11
<PAGE> 14
SALOMON SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Total expenses, excluding interest, increased 15% to $2,318 million in the 1998
Quarter from $2,023 million in the 1997 Quarter, principally as a result of
higher compensation and other expenses related to increased production.
Compensation and benefits expense, as a percentage of net revenues, for the 1998
and 1997 Quarters was 55% and non-compensation expense as a percentage of net
revenues was 19% in the 1998 Quarter compared to 20% in the 1997 Quarter. The
Company continues to maintain its focus on controlling fixed expenses. The
majority of expected future cost savings from the merger of Salomon and Smith
Barney are real estate-related. The Company expects to begin to realize these
cost savings toward the end of 1998 as space is consolidated.
Asset Management Division
Included in the Company's consolidated results is the following data relating to
the Salomon Smith Barney Asset Management Division ("SSBAM"):
<TABLE>
<CAPTION>
(Unaudited) Three
(in millions) Months Ended
March 31,
1998 1997
---- ----
<S> <C> <C>
Revenues:
Investment advisory, administrative
and distribution fees $202 $168
Unit Investment Trust revenues - net 13 9
Other 10 9
---- ----
Total revenues 225 186
---- ----
Expenses:
Compensation and benefits 42 35
Deferred commission amortization 35 33
Other expenses 48 45
---- ----
Total expenses 125 113
---- ----
Income before income taxes 100 73
Provision for income taxes 40 29
---- ----
Net income $ 60 $ 44
==== ====
</TABLE>
SSBAM's net income increased 36% to $60 million in the 1998 Quarter from $44
million in the 1997 Quarter. Total revenues increased 21% to $225 million in the
1998 Quarter. SSBAM's earnings growth reflects continued strength in mutual
funds, managed accounts and its share of unit trust revenues, as well as the
acquisition of $5.9 billion of Common Sense(R) Trust assets at year-end 1997.
SSBAM's total assets under management reached $165.0 billion in the 1998
Quarter, an increase of 26% from the $130.7 billion reported in the 1997
Quarter. The increase in assets under management consisted of an 18% increase in
money market funds, a 38% increase in mutual funds, and a 24% increase in
accounts managed for high net worth individuals, pension funds corporations and
other institutions. Investment advisory,
12
<PAGE> 15
SALOMON SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
administration and distribution fees rose 20% to $202 million in the 1998
Quarter as a result of the 26% growth in assets under management since the 1997
Quarter.
In the mutual fund sector, there was a significant increase not only in dollar
inflows but also in performance, with the number of Morningstar 4- and 5-star
rated funds rising to 23 in the 1998 Quarter, up from 15 in the 1997 Quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company's total assets were $294 billion at March 31, 1998, up from $277
billion at year-end 1997. Due to the nature of the Company's trading activities,
including its matched book activities, it is not uncommon for the Company's
asset levels to fluctuate from period to period (see Note 2 to the condensed
consolidated financial statements for a discussion of the impact of SFAS 127 on
assets and liabilities). A "matched book" transaction involves a security
purchased under an agreement to resell (i.e., reverse repurchase transaction)
and simultaneously sold under an agreement to repurchase (i.e., repurchase
transaction). The Company's balance sheet is highly liquid, with the vast
majority of its assets consisting of marketable securities and collateralized
short-term financing agreements arising from securities transactions. The highly
liquid nature of these assets provides the Company with flexibility in financing
and managing its business. The Company monitors and evaluates the adequacy of
its capital and borrowing base on a daily basis in order to allow for
flexibility in its funding, to maintain liquidity, and to ensure that its
capital base supports the regulatory capital requirements of its subsidiaries.
The Company funds its operations through the use of collateralized and
uncollateralized short-term borrowings, long-term borrowings, trust preferred
securities, and its equity. Collateralized short-term financing, including
repurchase agreements and collateralized loans, is the Company's principal
funding source. Such borrowings are reported net by counterparty, when
applicable, pursuant to the provisions of Financial Accounting Standards Board
Interpretation 41, Offsetting of Amounts Related to Certain Repurchase and
Reverse Repurchase Agreements ("FIN 41"). Excluding the impact of FIN 41,
short-term collateralized borrowings totaled $173.5 billion at March 31, 1998.
Uncollateralized short-term borrowings provide the Company with a source of
short-term liquidity and are also utilized as an alternative to collateralized
financing when they represent a cheaper funding source. Sources of short-term
uncollateralized borrowings include commercial paper, uncollateralized bank
borrowings and letters of credit, deposit liabilities, promissory notes and
corporate loans. Short-term uncollateralized borrowings totaled $17.1 billion at
March 31, 1998.
SSBH has committed uncollateralized revolving lines of credit totaling $2.0
billion. In addition, Salomon Brothers Inc ("SBI") has a $2.1 billion committed
secured standby bank credit facility for financing securities positions, which
enables it to borrow on a secured basis using a variety of financial instruments
as collateral. Salomon Brothers International Limited ("SBIL") has a similar
committed securities repurchase facility in the amount of $1.0 billion. At March
31, 1998, there were no outstanding borrowings under these facilities. In the
second quarter of 1998, SSBH expects to increase the amounts available under its
committed uncollateralized revolving lines of credit to $5.0 billion and
terminate the facilities for SBI and SBIL. The Company also has substantial
borrowing arrangements consisting of facilities that the Company has been
advised are available, but where no contractual lending obligation exists. These
arrangements are reviewed on an ongoing basis to ensure flexibility in meeting
the Company's short-term requirements.
The Company's borrowing relationships are with a broad range of banks, financial
institutions and other firms
13
<PAGE> 16
SALOMON SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
from which it draws funds. The volume of the Company's borrowings generally
fluctuates in response to changes in the level of the Company's financial
instruments, commodities and contractual commitments, customer balances, the
amount of reverse repurchase transactions outstanding and securities borrowed
transactions. As the Company's activities increase, borrowings generally
increase to fund the additional activities. Availability of financing to the
Company can vary depending upon market conditions, credit ratings, and the
overall availability of credit to the securities industry. The Company seeks to
diversify its funding mix as well as its creditor sources. Concentration levels
for these sources, particularly for short-term lenders, are closely monitored
both in terms of single investor limits and daily maturities.
The Company monitors liquidity by tracking asset levels, collateral and funding
availability to maintain flexibility to meet its financial commitments. As a
policy, the Company attempts to maintain sufficient capital and funding sources
in order to have the capacity to finance itself on a fully collateralized basis
in the event that the Company's access to uncollateralized financing is
temporarily impaired. The Company's liquidity management process includes a
contingency funding plan designed to ensure adequate liquidity even if access to
uncollateralized funding sources is severely restricted or unavailable. This
plan is reviewed periodically to keep its funding options current and in line
with market conditions. The management of this plan includes an analysis used to
determine the Company's ability to withstand varying levels of stress, which
could impact its liquidation horizons and required margins. In addition, the
Company monitors leverage and liquidity ratios on a daily basis. The ratio of
total assets less securities purchased under agreements to resell to equity
(including trust preferred securities) at March 31, 1998 was 23.1x and at
December 31, 1997 was 22.7x.
Other
High Yield Portfolio
The Company's activities include trading securities that are less than
investment grade, characterized as "high yield." High yield securities include
corporate debt, convertible debt, preferred and convertible preferred equity
securities rated lower than "triple B-" by internationally recognized rating
agencies, unrated securities with market yields comparable to entities rated
below "triple B-," as well as sovereign debt issued by certain 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 the Company's holdings of "Brady Bonds," but include
such securities to the extent they are not collateralized. The Company's trading
portfolio of high yield securities owned is carried at market or fair value and
totaled $6.6 billion at March 31, 1998; the largest high yield exposure to one
counterparty was $401 million.
Year 2000 and European Economic and Monetary Union
The Company has analyzed the impact of the year 2000 on its systems and
processes and is in the process of enhancing and testing its systems to process
dates starting with the year 2000. Beginning in early 1999, the Company plans to
participate in industry-wide testing coordinated by the Securities Industry
Association. In addition, the Company is addressing the technological
implications that will result from regulatory and market changes, such as
Europe's Economic and Monetary Union.
Forward Looking Statements
Certain of the statements contained herein that are not historical facts are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act. The Company's actual results may differ materially from
those included in the forward-looking statements. Forward-looking statements are
typically identified by the words "believe," "expect," "anticipate," "intend,"
"estimate," and similar expressions. These forward-
14
<PAGE> 17
SALOMON SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
looking statements involve risks and uncertainties including, but not limited
to, the following: the resolution of legal proceedings and environmental
matters; SSBH's ability to implement certain contractual arrangements with its
lenders; and the possibility that the Company will be unable to achieve
anticipated levels of operational efficiencies related to recently acquired
companies, as well as achieving its other cost-savings initiatives.
15
<PAGE> 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
For infomation concerning the City of Denver's imposition of a fee
relating to a Superfund site, see the description that appears in the
tenth and eleventh paragraphs under the caption "Legal Proceedings"
beginning on page 13 of the Annual Report on Form 10-K of the Company for
the year ended December 31, 1997 (File No. 1-4346), which description is
incorporated by reference herein. A copy of the foregoing description is
included as an exhibit to this Form 10-Q. In April 1998, the Court granted
Shattuck's motion for a preliminary injunction enjoining Denver from
enforcing the ordinance during the pendency of this action.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
See Exhibit Index.
(b) Reports on Form 8-K:
On January 9, 1998, the Company filed a Current Report on Form 8-K,
dated January 7, 1998, filing certain exhibits under Item 7 thereof
relating to the offer and sale of the Company's 6 1/4% Notes due
January 15, 2005.
On January 26, 1998, the Company filed a Current Report on Form 8-K,
dated January 26, 1998, reporting under Item 5 thereof the results
of its operations for the quarter and year ended December 31, 1997,
and certain other selected financial data.
On February 2, 1998, the Company filed a Current Report on Form 8-K,
dated January 29, 1998, filing certain exhibits under Item 7 thereof
relating to the offer and sale of the Company's 6 1/8% Notes due
January 15, 2003.
On March 3, 1998, the Company filed a Current Report on Form 8-K,
dated February 26, 1998, filing certain exhibits under Item 7
thereof relating to the offer and sale of the Company's Equity
Linked Notes based upon the Dow Jones Industrial Average(SM) Due
September 6, 2005.
No other reports on Form 8-K were filed during the first quarter of
1998; however, on April 17, 1998, the Company filed a Current Report
on Form 8-K, dated April 16, 1998, reporting under Item 5 thereof
that Travelers, the parent of the Company, had entered into a
definitive merger agreement with Citicorp; on April 20, 1998, the
Company filed a Current Report on Form 8-K, dated April 20, 1998,
reporting under Item 5 thereof the results of its operations for the
quarter ended March 31, 1998, and certain other selected financial
data; and on May 13, 1998, the Company filed a Current Report on
Form 8-K, dated May 11, 1998, filing certain exhibits under Item 7
thereof relating to the offer and sale of the Company's 6 1/4% Notes
due May 15, 2003.
16
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------ ----------------------
<S> <C>
3.01 Amended and Restated Certificate of Incorporation of Salomon Smith
Barney Holdings Inc. (the "Company"), effective December 1, 1997,
incorporated by reference to Exhibit 4(a) to Amendment No. 2 to the
Company's Registration Statement on Form S-3 (No. 333-38931).
3.02 By-Laws of the Company, incorporated by reference to Exhibit 4(b) to
Amendment No. 2 to the Company's Registration Statement on Form S-3
(No. 333-38931).
10.01+ 1998 Lease Amendment dated as of March 27, 1998 between State Street
Bank and Trust Company of Connecticut, National Association, as
Trustee (Lessor), and Smith Barney Inc., Salomon Brothers Inc,
Travelers Group Inc. (formerly The Travelers Inc.), Mutual
Management Corp. (formerly Smith Barney Mutual Funds Management
Inc., which was successor by merger to Mutual Management Corp.),
Smith Barney Capital Services Inc., Smith Barney Commercial Corp.,
Smith Barney Futures Management Inc. and Smith Barney Global Capital
Management, Inc., as tenants in common (Lessee), to the 1994 Lease.
12.01+ Computation of ratio of earnings to fixed charges.
27.01+ Financial Data Schedule.
99.01+ Tenth and eleventh paragraphs under the caption "Legal Proceedings"
beginning on page 13 of the Annual Report on Form 10-K of the
Company for the year ended December 31, 1997 (File No. 1-4346).
</TABLE>
The total amount of securities authorized pursuant to any instrument defining
rights of holders of long-term debt of the Company does not exceed 10% of the
total assets of the Company and its consolidated subsidiaries. The Company will
furnish copies of any such instrument to the SEC upon request.
- ----------
+ Filed herewith.
17
<PAGE> 20
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 SMITH BARNEY HOLDINGS INC.
----------------------------------
(Registrant)
Date: May 13, 1998 By: /s/ Charles W. Scharf
------------------------------
Charles W. Scharf
Chief Financial Officer
By: /s/ Michael J. Day
------------------------------
Michael J. Day
Controller
18
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------ ----------------------
<S> <C>
3.01 Amended and Restated Certificate of Incorporation of Salomon Smith
Barney Holdings Inc. (the "Company"), effective December 1, 1997,
incorporated by reference to Exhibit 4(a) to Amendment No. 2 to the
Company's Registration Statement on Form S-3 (No. 333-38931).
3.02 By-Laws of the Company, incorporated by reference to Exhibit 4(b) to
Amendment No. 2 to the Company's Registration Statement on Form S-3
(No. 333-38931).
10.01+ 1998 Lease Amendment dated as of March 27, 1998 between State Street
Bank and Trust Company of Connecticut, National Association, as
Trustee (Lessor), and Smith Barney Inc., Salomon Brothers Inc,
Travelers Group Inc. (formerly The Travelers Inc.), Mutual
Management Corp. (formerly Smith Barney Mutual Funds Management
Inc., which was successor by merger to Mutual Management Corp.),
Smith Barney Capital Services Inc., Smith Barney Commercial Corp.,
Smith Barney Futures Management Inc. and Smith Barney Global Capital
Management, Inc., as tenants in common (Lessee), to the 1994 Lease.
12.01+ Computation of ratio of earnings to fixed charges.
27.01+ Financial Data Schedule.
99.01+ Tenth and eleventh paragraphs under the caption "Legal Proceedings"
beginning on page 13 of the Annual Report on Form 10-K of the
Company for the year ended December 31, 1997 (File No. 1-4346).
</TABLE>
The total amount of securities authorized pursuant to any instrument defining
rights of holders of long-term debt of the Company does not exceed 10% of the
total assets of the Company and its consolidated subsidiaries. The Company will
furnish copies of any such instrument to the SEC upon request.
- ----------
+ Filed herewith.
<PAGE> 1
EXHIBIT 10.01
1998 LEASE AMENDMENT
- ------------------------------------------------
March 27, 1998
PARTIES
o State Street Bank and Trust Company of Connecticut,
National Association,
not in its individual capacity, but solely as Trustee
(Lessor)
o Smith Barney Inc.,
Salomon Brothers Inc,
Travelers Group Inc. (formerly The Travelers Inc.),
Mutual Management Corp. (formerly Smith Barney Mutual
Funds Management Inc., which was successor by
merger to Mutual Management Corp.),
Smith Barney Capital Services Inc.,
Smith Barney Commercial Corp.,
Smith Barney Futures Management Inc. and
Smith Barney Global Capital Management, Inc.,
as tenants in common (Lessee)
BACKGROUND
This 1998 Lease Amendment (this amendment) amends the Amended and Restated Lease
dated as of December 30, 1994 (the 1994 lease).
AGREEMENT
1 Terms, etc. Except as otherwise stated in this amendment:
a defined terms o Terms used in this amendment that are defined in
the 1994 lease have the meanings given them in the
1994 lease.
b section references o Page and section references are to the 1994 lease.
c revision markings o Changes from the 1994 lease are shown
double underlined, deleted language is shown in
-----------------
-----------------
[STRIKEOUT]strikeout[/STRIKEOUT], and language
that is unchanged is indicated by an
ellipsis (...).
o Where this amendment changes all occurrences of a
term in the 1994 lease, the changes are not
<PAGE> 2
- --------------------------------------------------------------------------------
marked.
o Deleted language, double underlining and ellipses
are for convenience only and are not part of the
1994 lease as amended by this amendment (as so
amended, the 1998 lease).
2 Amendments The 1994 lease is amended as follows:
a term Section 3, "Term" (p 3) shall read:
3. Term. The Property is leased for a term (the
"Term"), which commenced as of July 30, 1993 and
shall end on [STRIKEOUT]December 30, 1999[/STRIKOUT]
March 27, 2003 (the "Expiration Date") or on such
--------------
--------------
earlier date as this Lease shall be terminated
pursuant to any provision hereof.
b assignment The last proviso to section 17(f) (p 13), which deals
with assignments, shall read
; provided, that the Company and Salomon Brothers
--------------------
--------------------
Inc shall at all times retain [STRIKEOUT]an
---
---
[/STRIKEOUT]a combined undivided 51% interest in
----------
----------
this Lease as [STRIKEOUT]a[/STRIKEOUT] tenants in
-
-
common with the other entities comprising the
Lessee.
c memorandum of lease Exhibit A, "Form of Memorandum of Lease," is replaced
by exhibit A to this amendment, "Form of Memorandum
of Lease," showing the new termination date for
the Lease.
d tenancy in common Schedule C, "Interests of Tenants in Common," is
replaced by Schedule C to this amendment.
3 Effective date This amendment shall become effective on the later of
March 27, 1998 or the first date on which all of the
following conditions are satisfied (the later of
such dates being the Effective Date):
a signature pages The Lessor and each of the tenants-in-common
comprising the Lessee have executed and delivered an
original or telecopied signature page to this
amendment.
2
<PAGE> 3
- --------------------------------------------------------------------------------
b Participation The 1998 Cumulative Amendment to Participation
Agreement Agreement dated as of March 27, 1998 has been
executed and delivered by each of its parties.
c compliance The Lessee is in compliance with all of the terms of
the 1998 lease and no Default or Event of Default
under the 1998 lease is continuing.
d legal matters All legal matters incident to the 1998 lease are
satisfactory to the Lessor and its counsel.
4 Expenses The Lessee shall reimburse the Lessor for its
reasonable out-of-pocket expenses in connection with
this amendment, including its counsel's reasonable
fees and disbursements.
5 New York law This amendment shall be governed by the laws of the
State of New York.
State Street Bank and Trust Company of
Connecticut, National Association,
not in its individual capacity, but solely as Trustee
/s/ Arthur J. MacDonald
By: _______________________
Name: Arthur J. MacDonald
Title: Assistant Vice President
Smith Barney Inc.
/s/ Mark I. Kleinman
By: _______________________
Name: Mark I. Kleinman
Title: Deputy Treasurer
/s Joseph J. Martinelli
By: _______________________
Name: Joseph J. Martinelli
Title: Assistant Treasurer
3
<PAGE> 4
- --------------------------------------------------------------------------------
Salomon Brothers Inc
/s/ Mark I. Kleinman
By: _______________________
Name: Mark I. Kleinman
Title: Deputy Treasurer
/s/ Thomas W. Jasper
By: _______________________
Name: Thomas W. Jasper
Title: Treasurer
Travelers Group Inc.
/s/ Robert Matea
By: _______________________
Name: Robert Matea
Title: Deputy Treasurer
/s/ Firoz B. Tarapore
By: _______________________
Name: Firoz B. Tarapore
Title: Deputy Treasurer
Mutual Management Corp.
/s/ Michael J. Day
By: _______________________
Name: Michael J. Day
Title: Treasurer
/s/ James S. Conahan
By: _______________________
Name: James S. Conahan
Title: Controller
Smith Barney Capital Services Inc.
/s/ Mark I. Kleinman
By: _______________________
Name: Mark I. Kleinman
Title: Treasurer
/s/ Lee Grohman
By: _______________________
Name: Lee Grohman
Title: Assistant Treasurer
4
<PAGE> 5
- --------------------------------------------------------------------------------
Smith Barney Commercial Corp.
/s/ Mark I. Kleinman
By: _______________________
Name: Mark I. Kleinman
Title: Treasurer
/s/ Lee Grohman
By: _______________________
Name: Lee Grohman
Title: Assistant Treasurer
Smith Barney Futures Management Inc.
/s/ Daniel G. Dontuono
By: _______________________
Name: Daniel G. Dontuono
Title: Treasurer
/s/ Lee Grohman
By: _______________________
Name: Lee Grohman
Title: Assistant Treasurer
Smith Barney Global Capital Management,
Inc.
/s/ Mark I. Kleinman
By: _______________________
Name: Mark I. Kleinman
Title: Treasurer
/s/ Lee Grohman
By: _______________________
Name: Lee Grohman
Title: Assistant Treasurer
5
<PAGE> 1
EXHIBIT 12.01
SALOMON SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
<TABLE>
<CAPTION>
Three
Months
Ended
March 31,
Dollars in millions 1998
---------
<S> <C>
Earnings from continuing operations:
Income from continuing operations before income taxes $ 810
Add fixed charges (see below) 2,946
------
Earnings as defined $3,756
======
Fixed charges from continuing operations:
Interest expense $2,923
Other adjustments 23
------
Fixed charges from continuing operations as defined $2,946
======
Ratio of earnings to fixed charges 1.27
======
</TABLE>
NOTE:
The ratio of earnings to fixed charges from continuing operations is calculated
by dividing fixed charges into the sum of income from continuing operations
before income taxes and cumulative effect of change in accounting principles and
fixed charges. Fixed charges consist of interest expense, including capitalized
interest and a portion of rental expense representative of the interest factor.
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
THE SCHEDULE CONTAINS CERTAIN SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S MARCH 31, 1998 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS INCLUDED
HEREIN AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,738
<RECEIVABLES> 43,982
<SECURITIES-RESALE> 71,246
<SECURITIES-BORROWED> 44,690
<INSTRUMENTS-OWNED> 124,567
<PP&E> 1,014
<TOTAL-ASSETS> 293,823
<SHORT-TERM> 18,195
<PAYABLES> 65,082
<REPOS-SOLD> 105,172
<SECURITIES-LOANED> 11,195
<INSTRUMENTS-SOLD> 65,177
<LONG-TERM> 19,383
0
0
<COMMON> 0
<OTHER-SE> 8,874
<TOTAL-LIABILITY-AND-EQUITY> 293,823
<TRADING-REVENUE> 780
<INTEREST-DIVIDENDS> 3,318
<COMMISSIONS> 795
<INVESTMENT-BANKING-REVENUES> 628
<FEE-REVENUE> 498
<INTEREST-EXPENSE> 2,923
<COMPENSATION> 1,722
<INCOME-PRETAX> 810
<INCOME-PRE-EXTRAORDINARY> 502
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 502
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
EXHIBIT 99.01
TENTH AND ELEVENTH PARAGRAPHS UNDER THE CAPTION "LEGAL PROCEEDINGS"
BEGINNING ON PAGE 13 OF THE ANNUAL REPORT ON FORM 10-K OF THE COMPANY FOR THE
YEAR ENDED DECEMBER 31, 1997 (FILE NO. 1-4346).
In August 1992, EPA issued an administrative order for remedial studies
and action to be performed by Shattuck under CERCLA at a Superfund site (Denver
Radium Site, Operable Unit VIII), which includes property owned by, and a metal
processing plant previously operated by, Shattuck in Denver, Colorado. Shattuck
has since performed significant remediation activities at the site and has
maintained financial assurance of $26.6 million to guarantee performance of the
remediation, both in accordance with the order.
In July 1996, Denver enacted an ordinance imposing a substantial "fee" on
any radioactive waste or radium-contaminated material disposed of in the City
of Denver. Under this ordinance, Denver assessed Shattuck $9.35 million for
certain disposal already carried out. This "fee," and any additional "fees," if
upheld, would greatly increase remediation costs for the Denver Radium Site.
Shattuck has sued to enjoin imposition of the "fee" on constitutional grounds.
Denver has counterclaimed and has moved to add SSBH as a defendant. These
cases, which have been consolidated, are now pending before the U.S. District
Court in Colorado.
