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 September 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 1-6862
DONALDSON, LUFKIN & JENRETTE, INC.
--------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-1898818
--------------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
277 Park Avenue, New York, New York 10172
--------------------------------------- ------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (212) 892-3000
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 than the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes (X) No ( ).
As of November 14, 1996, the latest practicable date, there were 53,300,000
shares of Common Stock, $0.10 par value, outstanding.
<PAGE>
DONALDSON, LUFKIN & JENRETTE, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
TABLE OF CONTENTS
Part I FINANCIAL INFORMATION
Page Number
Item 1. Financial Statements -----------
Condensed Consolidated Statements of Financial
Condition at September 30, 1996 and December 31,
1995 (Unaudited)..................................... 3
Condensed Consolidated Statements of Income for the
three and nine months ended September 30, 1996 and
1995 (Unaudited) .................................... 5
Condensed Consolidated Statements of Changes in
Stockholders' Equity for the year ended December 31,
1995 and the nine months ended September 30, 1996
(Unaudited).......................................... 6
Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 1996 and
1995 (Unaudited)..................................... 7
Notes to Condensed Consolidated Financial
Statements (Unaudited)............................... 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 14
Part II OTHER INFORMATION
Item 1. Legal Proceedings...................................... 21
Item 6. Exhibits and Reports on Form 8-K....................... 22
Signature.............................................. 23
2
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Financial Condition (Unaudited)
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
ASSETS ------------- ------------
<S> <C> <C>
Cash and cash equivalents............................ $ 216,632 $ 107,766
Cash and securities segregated for regulatory purposes or
deposited with clearing organizations.. 569,970 454,470
Securities purchased under agreements to resell...... 22,590,197 18,748,224
Securities borrowed.................................. 9,173,412 9,044,909
Receivables:
Customers.......................................... 2,761,825 2,355,973
Brokers, dealers and other......................... 2,203,878 1,622,858
Securities owned, at value:
U.S. government and agencies....................... 7,522,001 5,601,090
Corporate debt..................................... 4,179,345 3,469,899
Foreign sovereign debt............................. 2,265,270 734,238
Mortgage whole loans............................... 458,415 359,756
Equities and other................................. 766,984 656,290
Long-term corporate development investments........ 233,408 284,498
Mortgages, other receivables collateralized by
real estate assets and real estate owned........... 528,590 466,066
Property, equipment and leasehold improvements, at cost, (net
of accumulated depreciation and amortization of $141,758
and $137,640, respectively)..................... 276,672 192,446
Other assets and deferred amounts.................... 652,031 478,011
------------- ------------
Total Assets......................................... $ 54,398,630 $ 44,576,494
============= ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Financial Condition (Unaudited)
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Short-term borrowings......................................... $ 1,329,311 $ 758,538
Securities sold under agreements to repurchase................ 29,761,255 26,744,797
Securities loaned............................................. 3,175,136 2,624,213
Payables:
Customers.................................................. 3,264,260 2,561,258
Brokers, dealers and other................................. 3,366,180 1,025,574
Securities sold not yet purchased, at value:
U.S. government and agencies............................... 6,113,890 5,407,572
Corporate debt............................................. 601,329 529,273
Foreign sovereign debt..................................... 1,276,626 186,861
Equities and other......................................... 547,779 580,721
Accounts payable and accrued expenses......................... 1,440,883 1,397,465
Other liabilities and deferred amounts........................ 420,026 353,116
------------ ------------
51,296,675 42,169,388
------------ ------------
Long-term borrowings.......................................... 1,294,740 983,386
------------ ------------
Total liabilities..................................... 52,591,415 43,152,774
------------ ------------
Cumulative Exchangeable $8.83 Preferred Stock, at
redemption value........................................... 225,000 225,000
------------ ------------
Company obligated mandatorily redeemable preferred
securities in grantor trusts holding solely junior
subordinated debentures of the Company..................... 200,000 -
------------ ------------
Stockholders' Equity:
Common stock ($0.10 par value; 150,000,000 shares
authorized; 53,300,000 shares issued and outstanding)... 5,330 5,330
Restricted stock units (5,179,147 units authorized;
5,140,205 units and 5,179,147 units issued and outstanding
in 1996 and 1995, respectively) ........................... 105,365 106,163
Paid-in capital............................................ 364,791 363,993
Retained earnings.......................................... 907,171 723,859
Cumulative translation adjustment.......................... (442) (625)
------------ ------------
Total stockholders' equity............................ 1,382,215 1,198,720
------------ ------------
Total Liabilities and Stockholders' Equity.................... $ 54,398,630 $ 44,576,494
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income (Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Commissions................................ $ 129,133 $ 118,125 $ 428,180 $ 343,117
Underwritings.............................. 129,506 146,324 520,473 317,508
Fees....................................... 124,576 90,519 309,319 264,020
Interest, net of interest to finance U.S.
government, agency and mortgage-backed
securities of $544,672, $521,687,
$1,535,949 and $1,499,614, respectively.. 278,259 214,883 760,159 638,436
Principal transactions-net:
Trading.................................. 90,719 110,722 365,759 265,655
Investment............................... 5,597 (6,922) 116,723 92,148
Other...................................... 13,217 13,871 37,513 40,376
---------- ---------- ---------- ----------
Total revenues.......................... 771,007 687,522 2,538,126 1,961,260
---------- ---------- ---------- ----------
Costs and Expenses:
Compensation and benefits.................. 329,260 326,826 1,138,212 924,898
Interest................................... 178,967 155,573 531,483 464,486
Brokerage, clearing, exchange fees
and other................................ 36,922 43,741 134,615 122,579
Occupancy and equipment.................... 39,550 31,422 107,462 88,645
Communications............................. 13,169 11,110 36,982 31,313
Other operating expenses................... 81,139 48,850 231,572 126,839
---------- ---------- ---------- ----------
Total costs and expenses................ 679,007 617,522 2,180,326 1,758,760
---------- ---------- ---------- ----------
Income before provision for income taxes...... 92,000 70,000 357,800 202,500
---------- ---------- ---------- ----------
Provision for income taxes.................... 35,900 28,000 139,600 81,000
---------- ---------- ---------- ----------
Net income.................................... $ 56,100 $ 42,000 $ 218,200 $ 121,500
========== ========== ========== ==========
Dividends on preferred stock.................. $ 4,967 $ 4,967 $ 14,901 $ 14,901
========== ========== ========== ==========
Earnings applicable to common shares.......... $ 51,133 $ 37,033 $ 203,299 $ 106,599
========== ========== ========== ==========
Weighted average common shares outstanding.... 59,611 59,763
========== ==========
Earnings per common share..................... $ 0.86 $ 3.40
========== ==========
Pro forma weighted average common
shares outstanding.......................... 51,475 51,475
========== ==========
Pro forma earnings per common share........... $ 0.72 $ 2.07
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
For the Year Ended December 31, 1995 and the Nine Months Ended
September 30, 1996
(In thousands, except per share data)
<TABLE>
<CAPTION>
Restricted Cumulative
Common Stock Paid-in Retained Translation
Stock Units Capital Earnings Adjustment Total
------- ---------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1994...... $ 1,000 $ 0 $ 232,080 $ 587,555 $ (344) $ 820,291
Net income.......................... - - - 179,100 - 179,100
Dividends:
Common stock ($0.45 per share).... - - - (22,928) - (22,928)
Preferred stock ($8.83 per share). - - - (19,868) - (19,868)
Stock split......................... 4,000 - (4,000) - - -
Additional capital contribution from
Equitable......................... - - 55,000 - - 55,000
Net proceeds from issuance of
common stock in Initial Public
Offering.......................... 330 - 80,913 - - 81,243
Issuance of restricted stock units.. - 106,163 - - - 106,163
Translation adjustment.............. - - - - (281) (281)
------- ---------- --------- --------- ----------- -----------
Balances at December 31, 1995...... 5,330 106,163 363,993 723,859 (625) 1,198,720
Net income.......................... - - - 218,200 - 218,200
Dividends:
Common stock ($0.375 per share)... - - - (19,987) - (19,987)
Preferred stock ($6.623 per share) - - - (14,901) - (14,901)
Forfeiture of restricted stock units - (798) 798 - - -
Translation adjustment.............. - - - - 183 183
------- ---------- --------- --------- ----------- -----------
Balances at September 30, 1996..... $ 5,330 $ 105,365 $ 364,791 $ 907,171 $ (442) $ 1,382,215
======= ========== ========= ========= =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
For the Nine Months Ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income...................................................... $ 218,200 $ 121,500
----------- -----------
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization................................ 25,431 22,573
Deferred taxes............................................... (83,360) (41,904)
Decrease in unrealized appreciation of long-term corporate
development investments.................................... 97,393 70,528
Other-net................................................... 259 736
----------- -----------
257,923 173,433
(Increase) decrease in operating assets:
Cash and securities segregated for regulatory
purposes or deposited with clearing organizations.......... (115,500) (132,622)
Securities purchased under agreements to resell.............. (1,126,113) (5,379,608)
Securities borrowed.......................................... (128,503) 56,188
Receivables from customers................................... (405,852) (386,064)
Receivables from brokers, dealers and other.................. (581,020) 191,590
Securities owned, at value................................... (4,370,742) (881,222)
Other assets................................................. (167,129) 15,473
Increase (decrease) in operating liabilities:
Securities sold under agreements to repurchase............... 1,126,113 5,379,608
Securities loaned............................................ 550,923 593,411
Payables to customers........................................ 703,002 305,748
Payables to brokers, dealers and other....................... 2,340,606 (7,593)
Securities sold not yet purchased, at market value........... 1,835,197 1,707,289
Accounts payable and accrued expenses........................ 43,418 212,331
Other liabilities and deferred amounts ...................... 150,270 124,951
Translation adjustment....................................... 183 (214)
----------- -----------
Net cash provided by operating activities........................ $ 112,776 $ 1,972,699
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
7
<PAGE>
DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
For the Nine Months Ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from investing activities:
Net (payments for) proceeds from:
Purchases of long-term corporate development investments...... $ (73,385) $ (66,858)
Sales of long-term corporate development investments.......... 27,082 45,656
Purchases of property, equipment and leasehold improvements... (108,944) (87,759)
Purchases of mortgages, other receivables collateralized by
real estate assets and real estate owned.................... (108,923) (24,864)
Sales of mortgages, other receivables collateralized by real
estate assets and real estate owned......................... 46,399 15,559
Other assets.................................................. (7,604) (4,521)
----------- -----------
Net cash used in investing activities............................ (225,375) (122,787)
----------- -----------
Cash flows from financing activities:
Net (payments for) proceeds from:
Short-term financings......................................... (254,742) (2,040,823)
Structured Notes.............................................. 169,566 24,470
Convertible debentures........................................ 43,500 -
Medium-Term Notes............................................. 249,515 -
Swiss Franc Bonds............................................. (105,513) -
Subordinated debt financings.................................. (2,473) 175
Other long-term debt.......................................... - (86,437)
Company obligated mandatorily redeemable preferred securities. 200,000 -
Dividends..................................................... (34,888) (31,167)
Secured term loan agreement................................... (43,500) 250,000
----------- -----------
Net cash provided by (used in) financing activities.............. 221,465 (1,883,782)
----------- -----------
Increase (decrease) in cash and cash equivalents................. 108,866 (33,870)
Cash and cash equivalents at beginning of period................. 107,766 94,854
----------- -----------
Cash and cash equivalents at end of period....................... $ 216,632 $ 60,984
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
8
<PAGE>
DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 1996
1. Basis of Presentation
The condensed consolidated financial statements include Donaldson, Lufkin &
Jenrette, Inc. and its subsidiaries ("DLJ" or the "Company"). Prior to October
30, 1995, the Company was wholly owned by The Equitable Companies Incorporated
and its subsidiaries (together, "Equitable"). After the completion of an
initial public offering in October 1995, Equitable's ownership in the Company
was reduced from 100 percent to 80.2 percent. The Company's separate financial
statements reflect Equitable's cost basis established at the time of
Equitable's acquisition of the Company in 1985.
Certain financial information that is normally included in annual consolidated
financial statements prepared in accordance with generally accepted accounting
principles but is not required for interim reporting purposes has been
condensed or omitted. These condensed consolidated financial statements
reflect, in the opinion of management, all adjustments (consisting of normal,
recurring accruals) necessary for a fair presentation of the consolidated
financial position and results of operations for the interim periods presented.
The results of operations for interim periods are not necessarily indicative of
results for the entire year. These financial statements should be read in
conjunction with the consolidated financial statements and notes thereto as of
and for the year ended December 31, 1995 included on Form 10-K filed by the
Company under the Securities Act of 1934.
The preparation of condensed consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Certain reclassifications have been made to prior year financial statements to
conform to the 1996 presentation.
2. Income Taxes
The Company and its subsidiaries are included in the consolidated federal
income tax return filed by the Equitable. Income taxes for interim period
condensed consolidated financial statements have been accrued using the
Company's estimated effective tax rate. Net Federal income tax equivalents paid
to Equitable were $180.5 million and $93.1 million for the nine months ended
September 30, 1996 and 1995, respectively.
3. Borrowings
Long-term borrowings, including current maturities of $14.8 million and $110.3
million at September 30, 1996 and December 31, 1995, respectively, consist of
the following:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------ -----------
(In thousands)
<S> <C> <C>
Senior notes, 6 7/8% due in 2005................................. $ 497,079 $ 496,836
Senior subordinated revolving credit agreement due in 1998....... 206,500 250,000
Junior subordinated convertible debenture, 6.1875% due in 2001... 43,500 -
Structured notes................................................. 194,036 24,470
Medium-term notes, 5 5/8% due in 2016............................ 249,531 -
Medium-term notes, 7.88% due in 1997............................. 88,000 88,000
Swiss Franc bonds, 10.55% due in 1996............................ - 105,513
Other............................................................ 16,094 18,567
------------ -----------
Total long-term borrowings................................... $ 1,294,740 $ 983,386
============ ===========
</TABLE>
9
<PAGE>
DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
In January 1996, the Swiss franc bonds of $105.5 million plus accrued interest
were repaid in full.
On February 12, 1996, a shelf registration statement, which enables the Company
to issue from time to time up to $500 million in aggregate public offering
price of Senior Debt Securities and/or Preferred Stock, was declared effective
by the Securities and Exchange Commission. On February 15, 1996, the Company
completed an offering under such shelf registration statement of $250 million
aggregate principal amount of its 5 5/8% Medium-Term Notes due February 15,
2016. The notes are repayable by the Company, in whole or in part, at the
option of the holders on February 15, 2001.
Structured notes are customized financing instruments in which the amount of
interest or principal paid on the debt obligation is linked to movements in the
value of cash market financial instruments. At September 30, 1996 the weighted
average rate of structured notes, excluding those issued with a zero coupon,
was 12.04%. The notes mature at various dates through 2007.
On September 5, 1996, the Company repaid $43.5 million of the senior
subordinated revolving credit agreement with proceeds received from the
issuance by a subsidiary of junior subordinated convertible debentures. The
debentures are convertible, in whole or in part, into adjustable rate
cumulative redeemable preferred stock of the subsidiary on or after July 31,
1997.
Interest paid on all borrowings and financing arrangements amounted to
approximately $2.0 billion for the nine months ended September 30, 1996 and
1995.
At September 30, 1996, the Company has committed credit facilities which
enables it to borrow up to $1.28 billion on a secured basis and $650 million on
an unsecured basis. Interest rates to be charged are based upon Federal funds,
Eurodollar or negotiated rates, as applicable. There were no borrowings
outstanding at September 30, 1996 and December 31, 1995 under these agreements.
4. Long-term Corporate Development Investments
Long-term corporate development investments represent the Company's involvement
in private debt and equity investments which generally have no readily
available market or may otherwise be restricted as to resale under the
Securities Act of 1933. Accordingly, these investments are carried at estimated
fair value as determined by the Finance Committee of the Board of Directors.
The cost of these investments was $322.5 million and $276.2 million at
September 30, 1996 and December 31, 1995, respectively. The decrease in net
unrealized appreciation of long-term corporate development investments amounted
to $97.4 million and $70.5 million for the nine months ended September 30, 1996
and 1995, respectively. Changes in unrealized appreciation arising from changes
in fair value or upon realization are reflected in revenues, principal
transactions-net, investment in the condensed consolidated statements of
income.
5. Net Capital
The Company's wholly owned principal subsidiary, Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJSC"), is a registered broker-dealer, a registered
futures commission merchant and member firm of The New York Stock Exchange,
Inc. (the "NYSE") and, accordingly, is subject to the minimum net capital
requirements of the Securities and Exchange Commission, the NYSE and the
Commodities Futures Trading Commission. As such, it is subject to the NYSE's
net capital rule which conforms to the Uniform Net Capital Rule pursuant to
rule 15c3-1 of the Securities Exchange Act of 1934. Under the alternative
method permitted by this rule, the required net capital, as defined, shall not
be less than two percent of aggregate debit balances arising from customer
transactions, as defined, or four percent of segregated funds, as defined,
whichever is greater. The NYSE may also require a member firm to reduce its
business if its net capital is less than four percent of aggregate debit
balances and may prohibit a member firm from expanding its business and
declaring cash dividends if its net capital is less than five percent of
aggregate debit balances. At September 30, 1996, DLJSC's net capital of
approximately $612.6 million was 20 percent of aggregate debit balances and in
excess of the minimum requirement by approximately $546.5 million.
10
<PAGE>
DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Certain other U.S. and foreign broker-dealer subsidiaries of the Company are
also subject to net capital requirements of their respective regulatory
agencies. At September 30, 1996, the Company's subsidiaries were in compliance
with all applicable regulatory capital adequacy requirements.
6. Earnings Per Share
Earnings per common share and pro forma earnings per share are computed by
dividing net income applicable to common shares by the weighted average or the
pro forma number of shares of common stock and common stock equivalents
outstanding during each period presented and after deducting the dividends on
preferred stock requirements. Weighted average common shares outstanding are
the same for both primary and fully diluted earnings per common share. The
Restricted Stock Units issued in October 1995 are considered common stock
equivalents upon issuance and also have a dilutive effect on the Company's
historical earnings per share amounts. Weighted average common shares
outstanding have been adjusted for the dilutive effect of the units on the
Company's historical pro forma earnings per share using the treasury stock
method.
7. Preferred Securities
During the third quarter of 1996, the Company and its wholly owned trust, DLJ
Capital Trust I (the "Trust") completed an offering from a shelf registration
of $200 million of the Trust's 8.42% mandatorily redeemable preferred
securities.
The Trust exists for the sole purpose of issuing preferred securities and
common securities and investing the proceeds in an equivalent amount of junior
subordinated debentures of the Company. The only assets of the Trust at
September 30, 1996 were $200 million 8.42% Junior Subordinated Debentures of
the Company. The Junior Subordinated Debentures are redeemable by the Company,
in whole or in part, on or after August 31, 2001. The Trust must redeem its
preferred securities having an aggregate liquidation amount equal to the
aggregate principal amount of junior subordinated debentures redeemed. The
Company guarantees payment to the holders of the preferred securities issued by
the Trust, to the extent the Company has made principal and interest payments
on the junior subordinated debentures.
8. Preferred Stock
On October 23, 1996, the Company exercised its option under the terms of the
$8.83 Cumulative Preferred Stock agreement to exchange all 2.25 million shares
outstanding for $225 million in aggregate principal amount of 9.58%
subordinated exchange notes due October 15, 2003. The notes are redeemable in
whole or in part, at the option of the Company, at any time.
9. Commitments and Contingencies
At September 30, 1996, the Company was contingently liable for unsecured
letters of credit of approximately $128.9 million.
As a securities broker and dealer, risk is an inherent part of the Company's
business activities. The principal types of risks involved in the Company's
activities are market risk, credit or counterparty risk and transaction risk.
The Company has developed an infrastructure to control, monitor and manage each
type of risk. For a further discussion of these matters, refer to Notes 9 and
10 of the Consolidated Financial Statements in the Company's Annual Report on
Form 10-K for the year ended December 31, 1995.
11
<PAGE>
DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
10. Employee Benefit Plans
In addition to the employee benefit plans disclosed in the Company's Form 10-K
for December 31, 1995, the Company maintains the following plans:
1996 Stock Option Plan
In the second quarter of 1996, the stockholders approved the 1996 Stock Option
Plan. Options to purchase a maximum of approximately 8.8 million shares of
Common Stock, exclusive of forfeitures from the 1995 Stock Option Plan, are
available under the 1996 Stock Option Plan. As of September 30, 1996, options
to purchase an aggregate 607,500 shares of Common Stock with exercise prices
ranging from $27.63-32.50 were outstanding.
1996 Incentive Compensation Plan
In the second quarter of 1996, the stockholders approved the 1996 Incentive
Compensation Plan (the "Plan"). The Plan is effective January 1, 1996. Awards
under the Plan are determined by the Compensation and Management Committee of
the Board of Directors. The Plan provides for the creation of short-term and
long-term award pools to be awarded to key employees of the Company. Short-term
award pools are for a performance period up to two years and are based on 10%
of pre-tax earnings, as defined. Long-term award pools are for performance
periods of three to 10 years and are based on a percentage of pre-tax earnings
and vary with the Company's average return on common equity during the
performance period. Participants may receive awards in the form of cash,
options, shares or restricted stock units, however stock-based payments are
limited to a total of 8.8 million shares. Under certain circumstances,
participants may defer the receipt of part or all of any award.
11. Derivative Financial Instruments
The Company enters into certain contractual agreements referred to as
derivatives or off-balance sheet financial instruments involving futures,
forwards and options. The Company's derivative activities consist of writing
over-the-counter options to accommodate its customers' needs, trading in
forward contracts in U.S. government and agency issued or guaranteed securities
and in futures contracts on equity-based indices, interest rate instruments and
currencies and issuing structured notes. The Company's involvement in swap
contracts is not significant. Substantially all of the Company's activities
related to derivatives are, by their nature, trading activities which are
primarily for the purpose of customer accommodations.
Option contracts are typically written for a duration of less than 13 months.
The notional value of written option contracts outstanding was approximately
$7.5 billion at September 30, 1996. These written option contracts are
substantially covered by various financial instruments that the Company has
purchased or sold as principal.
The notional contract and market values of the forward and futures contracts at
September 30, 1996 and December 31, 1995, were as follows:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------------ ------------------------
Purchases Sales Purchases Sales
--------- --------- --------- ---------
(In millions) (In millions)
<S> <C> <C> <C> <C>
Forward Contracts
(Notional Contract Value)........ $ 18,610 $ 24,290 $ 18,186 $ 17,066
========= ========= ========= =========
Futures Contracts
(Notional Market Value).......... $ 2,653 $ 3,546 $ 1,129 $ 1,932
========= ========= ========= =========
</TABLE>
12
<PAGE>
DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
12. Legal Proceedings
Certain significant legal proceedings and matters have been previously
disclosed in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995 and there have been no material developments in such
proceedings and matters. With respect to the Spectravision litigation,
plaintiffs have filed an amended complaint in which DLJSC is no longer named as
a defendant.
In addition to the significant proceedings and matters referred to above, the
Company has been named as a defendant in a number of actions relating to its
various businesses including various civil actions and arbitrations arising out
of its activities as a broker-dealer in securities, as an underwriter and as an
employer and arising out of alleged employee misconduct. Some of the actions
have been brought on behalf of various classes of claimants and seek damages of
material or indeterminate amounts. The Company is also involved, from time to
time, in proceedings with, and investigations by, governmental agencies and
self-regulatory organizations. Although there can be no assurance that such
other actions, proceedings, investigations and litigation will not have a
material adverse effect on the results of operations of the Company in any
future period, depending in part on the results for such period, in the opinion
of management of the Company the ultimate resolution of any such other actions,
proceedings, investigations and litigation against the Company will not have a
material adverse effect on the consolidated financial condition and/or results
of operations of the Company.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following analysis of the consolidated results of operations and financial
condition of Donaldson, Lufkin & Jenrette, Inc. and Subsidiaries should be read
in conjunction with the Condensed Consolidated Financial Statements and the
related Notes to Condensed Consolidated Financial Statements included elsewhere
herein, and with the Management's Discussion and Analysis section included in
the Company's 1995 Annual Report on Form 10-K.
BUSINESS ENVIRONMENT
The Company's principal business activities, which consist of
investment and merchant banking, securities sales and trading and correspondent
brokerage services are, by their nature, highly competitive and subject to
general market conditions, volatile trading markets and fluctuations in the
volume of market activity. Consequently, the Company's net income and revenues
have been and are likely to continue to be, subject to wide fluctuations,
reflecting the impact of many factors beyond the Company's control, including
securities market conditions, the level and volatility of interest rates,
competitive conditions and the size and timing of transactions.
The strong conditions that existed in the second half of 1995 continued
to improve during the first nine months of 1996. Rising stock prices and record
levels of underwriting improved operating results throughout the securities
industry. However, during the third quarter of 1996, commissions and
underwritings have declined from the record levels of the previous three
quarters.
RECENT DEVELOPMENTS
During the third quarter of 1996, the Company and its wholly owned
Trust completed an offering from a shelf registration of $200 million of the
Trust's 8.42% mandatorily redeemable preferred stock. The preferred stock is
redeemable, in whole or in part, at the option of the Company on or after
August 31, 2001.
During the third quarter of 1995, the Company provided $28.8 million
for a potential loss with respect to a merchant banking bridge loan aggregating
$150 million to a company experiencing financial difficulties. In October, 1996
a planned acquisition of such company was announced, which, if completed, would
result in the realization by the Company of its entire investment, plus
interest. The transaction is expected to close in early 1997.
During the second quarter of 1996, the Financial Accounting Standards
Board issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities." The new standard provides more
consistent standards for distinguishing transfers of financial assets that are
sales from those that are secured borrowings, and provides guidance on the
recognition and measurement of servicing assets and liabilities. The new
standard is to be applied prospectively to transactions which occur after
December 31, 1996. The Financial Accounting Standards Board is considering
deferring, for one year, the effective date of portions of this standard,
although no final decision has been reached. The Company is currently
evaluating the impact of this standard on its financial statements.
On October 23, 1996, the Company exercised its option under the terms
of the $8.83 Cumulative Preferred Stock agreement to exchange all 2.25 million
shares outstanding for $225 million in aggregate principal amount of 9.58%
subordinated exchange notes due October 15, 2003. The notes are redeemable in
whole or in part, at the option of the Company, at any time.
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 1996 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1995
Total revenues for the quarter ended September 30, 1996 were $771.0
million, an increase of $83.5 million or 12.1% over the quarter ended September
30, 1995. Revenues increased in most of the Company's major areas of activity
during the third quarter of 1996.
Commission revenues increased by $11.0 million or 9.3% to $129.1
million due to increased business in all areas and is generally consistent with
the overall growth in listed share volume on major equity exchanges.
14
<PAGE>
Underwriting revenues decreased by $16.8 million or 11.5% to $129.5
million. The Company experienced decreases in all areas of underwriting during
the third quarter of 1996 consistent with the results of the securities
industry.
Fee revenues increased by $34.1 million or 37.6% to $124.6 million.
Overall, merger and acquisition ("M&A") and other advisory services activities
increased during the third quarter of 1996.
Interest, net of interest expense to finance U.S. government, agency
and mortgage-backed securities, increased by $63.4 million or 29.5% to $278.3
million. Higher levels of foreign local fixed income securities in the
Company's Emerging Markets Business accounted for approximately one half of the
increase. The remaining increase was due to higher levels of inventory in the
Fixed Income Division and customer margin balances at Pershing.
Principal transactions-net, trading revenues decreased by $20.0 million
or 18.1% to $90.7 million. Most of the Company's major trading areas
experienced declines from the quarter ended September 30, 1995.
Principal transactions-net, investment revenues increased by $12.5
million or 180.9% to $5.6 million. Realized gains on investments were $13.8
million. Net unrealized carrying values decreased by $8.2 million, which
includes the elimination of net unrealized appreciation of $6.5 million on
investments sold and a decrease in net unrealized appreciation of $1.7 million
on retained investments. During the third quarter of 1995, the Company provided
$28.8 million for a potential loss with respect to a merchant banking bridge
loan aggregating $150 million to a company experiencing financial difficulties.
Other revenues, consisting primarily of dividends and miscellaneous
transaction revenues, decreased by $0.6 million or 4.7% to $13.2 million.
Total costs and expenses for the third quarter of 1996 were $679.0
million, an increase of $61.5 million or 10.0% over the third quarter of 1995.
Compensation and benefits increased $2.4 million or 0.7% to $329.3
million. Incentive and production-related compensation decreased by 2.6% in
1996, while base compensation, including benefits and all payroll taxes,
increased by 9.7% due to expansion in various business groups. At September 30,
1996, full-time personnel totaled 5,706 compared to 4,781 at September 30,
1995, an increase of 925 or 19.3%.
Interest expense increased $23.4 million or 15.0% to $179.0 million.
Most of this increase was related to expanded levels of fixed income related
products including equity derivatives and foreign local fixed income
securities.
All other expenses, as noted below, increased by $35.7 million or 26.4%
to $170.8 million for the third quarter of 1996.
Brokerage, clearing, exchange fees and other expenses decreased by $6.8
million due to decreased underwriting related expenses and transaction fee
payments offset in part by increases in brokerage and clearance fees related to
increases in share volume. Occupancy and equipment costs increased by $8.1
million as a result of the expansion of the Company's principal office in the
U.S. and the expansion of the Company's domestic and overseas offices.
Communications costs increased by $2.1 million. All other operating expenses
increased by $32.3 million. Included therein are data processing, professional
fees, travel and entertainment, and printing and stationery which increased by
$19.3 million reflecting an overall increase in the level of business activity.
In addition, for the quarter ended September 30, 1996, $14.7 million of
expenses were incurred for mortgage-related securities previously underwritten
by the Company.
The Company's income tax provision for the third quarter of 1996 and
1995 was $35.9 million and $28.0 million, respectively, which represented a 39%
and 40% effective tax rate for each period, respectively.
Net income for the quarter ended September 30, 1996 was $56.1 million,
up $14.1 million or 33.6% from the comparable 1995 period. Earnings per common
share and pro forma earnings per common share using the treasury stock method
were $0.86 and $0.72 for the third quarter of 1996 and 1995, respectively.
15
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1995
Total revenues for the nine months ended September 30, 1996 were
$2,538.1 million, an increase of $576.9 million or 29.4% over the nine months
ended September 30, 1995. Revenues increased in most of the Company's major
areas of activity during the third quarter of 1996.
Commission revenues increased by $85.1 million or 24.8% to $428.2
million due to increased business in all areas and is generally consistent with
the overall growth in listed share volume on major equity exchanges.
Underwriting revenues increased by $203.0 million or 63.9% to $520.5
million. The Company experienced increases in all areas of underwriting during
the first nine months of 1996.
Fee revenues increased by $45.3 million or 17.2% to $309.3 million.
Overall, merger and acquisition ("M&A") and other advisory services activities
have increased during the first nine months of 1996.
Interest, net of interest expense to finance U.S. government, agency
and mortgage-backed securities, increased by $121.7 million or 19.1% to $760.2
million. Higher levels of foreign fixed income securities in the Company's
Emerging Markets business accounted for approximately one half of the increase.
The remaining increase was due to higher levels of inventory in the Fixed
Income Division and increased margin balances at Pershing.
Principal transactions-net, trading revenues increased by $100.1
million or 37.7% to $365.8 million. All of the Company's major trading areas
experienced improved results over the nine months ended September 30, 1995.
Principal transactions-net, investment revenues increased by $24.6
million or 26.7% to $116.7 million. Realized gains on investments were $214.1
million. Net unrealized carrying values decreased by $97.4 million, which
includes the elimination of net unrealized appreciation of $81.8 million on
investments sold and a decrease in net unrealized appreciation of $15.6 million
on retained investments. During the third quarter of 1995, the Company provided
$28.8 million for a potential loss with respect to a merchant banking bridge
loan aggregating $150 million to a company experiencing financial difficulties.
Other revenues, consisting primarily of dividends and miscellaneous
transaction revenues, decreased by $2.9 million or 7.1% to $37.5 million.
Total costs and expenses for the nine months ended September 30, 1996
were $2,180.3 million, an increase of $421.6 million or 24% over the nine
months ended September 30, 1995.
Compensation and benefits increased $213.3 million or 23.1% to $1,138.2
million. Most of the increase was due to increased variable incentive and
production-related compensation, which resulted from higher revenues and
operating results. Incentive and production-related compensation increased by
28.6% in 1996, while base compensation, including benefits and payroll taxes,
increased by 8.7% due to expansion in various business groups. At September 30,
1996, full-time personnel totaled 5,706 compared to 4,781 at September 30,
1995, an increase of 925 or 19.3%.
Interest expense increased $67.0 million or 14.4% to $531.5 million.
Most of this increase was related to expanded levels of inventory of fixed
income related products including equity derivatives and foreign local fixed
income securities.
All other expenses, as noted below, increased by $141.3 million or
38.2% to $510.6 million for the first nine months of 1996.
16
<PAGE>
Brokerage, clearing, exchange fees and other expenses increased by
$12.0 million due to increased share volume, underwriting related expenses and
transaction fee payments. Occupancy and equipment costs increased by $18.8
million as a result of the expansion of the Company's principal office in the
U.S. and the expansion of the Company's domestic and overseas offices.
Communications costs increased by $5.7 million. All other operating expenses
increased by $104.7 million. Included therein are data processing, professional
fees, travel and entertainment, and printing and stationery which increased by
$52.3 million reflecting an overall increase in the level of business activity.
In addition, for the nine months ended September 30, 1996, $38.1 million of
expenses were incurred for mortgage-related securities previously underwritten
by the Company.
The Company's income tax provision for the nine months ended September
30, 1996 and 1995 was $139.6 million and $81.0 million, respectively, which
represented a 39% and 40% effective tax rate for each period.
Net income for the nine months ended September 30, 1996 was $218.2
million, up $96.7 million or 79.6% from the comparable 1995 period. Earnings
per common share and pro forma earnings per common share using the treasury
stock method were $3.40 and $2.07 for the first nine months of 1996 and 1995,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's assets are highly liquid with the majority consisting of
securities inventories and collateralized receivables, both of which fluctuate
depending on the levels of proprietary trading and customer business. Such
collateralized receivables consist primarily of resale agreements and
securities borrowed, both of which are secured by U.S. government and agency
securities and marketable corporate debt and equity securities. In addition,
the Company has significant receivables from customers, brokers and dealers
which turn over frequently. As a securities dealer, the Company may carry
significant levels of trading inventories to meet client needs. As such, the
Company's total assets or the individual components of total assets vary
significantly from period to period because of changes relating to customer
needs, economic and market conditions and proprietary trading strategies. A
relatively small percentage of total assets is fixed or held for a period of
longer than one year. The Company's total assets at September 30, 1996 and
December 31, 1995 were $54.4 billion and $44.6 billion, respectively.
The majority of the Company's assets are financed through daily
operations by repurchase agreements, securities sold not yet purchased,
securities loaned, bank loans, and through payables to customers and brokers
and dealers. Short-term funding is generally obtained at rates related to
Federal funds, LIBOR and money market rates. Other borrowing costs are
negotiated depending upon prevailing market conditions. The Company monitors
overall liquidity by tracking the extent to which unencumbered marketable
assets exceed short-term unsecured borrowings.
The Company maintains borrowing relationships with a broad range of
banks, financial institutions, counterparties and others including $6.0 billion
at September 30, 1996 in uncommitted and committed bank credit lines with 50
domestic and international banks. These include $4.0 billion of uncommitted
bank credit lines, $1.28 billion of secured and $650 million of unsecured
committed bank lines.
Certain of the Company's businesses are capital intensive. In addition
to normal operating requirements, capital is required to cover financing and
regulatory charges on securities inventories, merchant banking investments and
investments in fixed assets. The Company's overall capital needs are
continually reviewed to ensure that its capital base can appropriately support
the anticipated needs of its business units as well as the regulatory capital
requirements of subsidiaries. Based upon these analyses, management believes
that the Company's debt and equity base is adequate for current operating
levels. The Company increased the amount of credit available under its
unsecured credit facility to $650 million. There were no borrowings outstanding
under this facility at September 30, 1996.
17
<PAGE>
Mortgages and other receivables collateralized by real estate assets
and real estate owned amounting to $528.6 million at September 30, 1996 and
$466.1 million at December 31, 1995, generally represent the Company's interest
in mortgages receivable including certain mortgage-related securities
previously underwritten by the Company which were primarily repurchased in
1994, and are carried at amounts approximating fair value, determined by, among
other things, the discounted cash flow and/or estimated sales prices of the
underlying properties.
The Company issues structured notes which are customized financing
instruments in which the amount of interest or principal paid on a debt
obligation is linked to movements in the value of cash market financial
instruments. At September 30, 1996 and 1995, the Company had issued long term
structured notes with principal amounts of $194.0 million and $24.5 million
outstanding, respectively. The Company expects the volume of this activity to
increase in the future. The Company covers its obligations on structured notes
primarily by purchasing and selling the securities to which the value of its
structured notes are linked.
On October 30, 1995, the Company completed an Initial Public Offering
(IPO) of its shares. The Company's net proceeds from the IPO totaled $81.2
million. Concurrent with the IPO, the Company completed the offering of $500
million aggregate principal amount of 6 7/8% Senior Notes due November 1, 2005
(the "Senior Debt Offering"). The proceeds from this offering totaled $493.5
million (net of underwriting discounts and commissions).
On February 12, 1996, a shelf registration statement, which enables the
Company to issue up to $500 million in aggregate public offering price of
Senior Debt Securities and/or Preferred Stock, was declared effective by the
Securities and Exchange Commission. On February 15, 1996, the Company completed
an offering under such shelf registration statement of $250 million aggregate
principal amount of its 5 5/8% Medium-Term Notes due February 15, 2016. The
notes are repayable by the Company, in whole or in part, at the option of the
holders on February 15, 2001. Net proceeds to the Company from this offering
were $248.3 million (net of underwriting discounts and commissions).
In March 1996, the Company moved its principal offices from 140
Broadway to 277 Park Avenue in New York City. The Company is presently
financing expenditures related to the move from currently available operating
capital.
During the third quarter of 1996, the Company and its wholly owned
Trust completed an offering from a shelf registration of $200 million of the
Trust's 8.42% mandatorily redeemable preferred stock. The preferred stock is
redeemable, in whole or in part, at the option of the Company on or after
August 31, 2001.
On October 23, 1996, the Company exercised its option under the terms
of the $8.83 Cumulative Preferred Stock to exchange all 2.25 million shares
outstanding for $225 million in aggregate principal amount of 9.58%
subordinated exchange notes due October 15, 2003. The notes are redeemable in
whole or in part, at the option of the Company, at any time.
DLJSC is subject to the capital requirements of the Securities and
Exchange Commission, the New York Stock Exchange, Inc., the Commodities Futures
Trading Commission and the Chicago Board of Trade, all of which ensure the
general capital adequacy and liquidity of broker-dealers and futures commission
merchants. DLJSC has consistently maintained capital substantially in excess of
the minimum requirements of such capital rules. At September 30, 1996, DLJSC
had aggregate regulatory "net capital," after adjustments required by Rule
15c3-1 under the Exchange Act of 1934, of approximately $612.6 million, which
exceeded minimum net capital requirements by $546.5 million and which exceeded
the net capital required by DLJSC's most restrictive debt covenants by $384.7
million.
The Company's overall capital and funding needs are continually
reviewed to ensure that its capital base can support the estimated needs of its
business units.
18
<PAGE>
CASH FLOWS
The Company's condensed consolidated statements of cash flows classify
cash flow into three broad categories: cash flows from operating activities,
investing activities and financing activities. The Company's net cash flows are
principally associated with operating and financing activities, which support
the Company's trading, customer and banking activities.
Nine Months Ended September 30, 1996 and 1995
Cash and cash equivalents at September 30, 1996 and 1995, totaled
$216.6 million and $61.0 million, respectively, an increase (decrease) of
$108.9 million and $(33.9) million, respectively, for the comparable periods.
Cash provided by operating activities totaled $112.8 million and $2.0
billion for the first nine months of 1996 and 1995, respectively, and reflects
primarily an increase in operating liabilities and in operating assets. In the
first nine months of 1996, there were increases in payables to customers of
$703.0 million, payables to brokers, dealers and other of $2.3 billion,
securities loaned of $550.9 million and securities sold not yet purchased of
$1.8 billion. These increases were partially offset by increases in assets
including receivables from customers of $405.9, receivables from brokers,
dealers and others of $581.0 million and trading inventories of $4.4 billion.
In the first nine months of 1995, there were increases in securities sold not
yet purchased of $1.7 billion, securities loaned of $593.4 million and all
other receivables and payables, net, which rose by $316.0 million. These
increases were offset by increases in assets including trading inventories of
$881.2 million.
During the first nine months of 1996 and 1995, net cash used in
investing activities of $225.4 million and $122.8 million, respectively was
comprised primarily of fixed asset purchases in connection with the Company's
move of its principal offices and purchases of mortgages receivables
collateralized by real estate assets.
For the first nine months of 1996 net cash provided by financing
activities totaled $221.5 million. In 1996, $105.5 million was used to repay
Swiss Franc Bonds which matured in January 1996, $249.5 million was provided by
the issuance of Medium-Term Notes and $200.0 million was provided by the
issuance of mandatorily redeemable preferred securities by the Company's wholly
owned trust. In addition, $254.7 million was used to repay short term
financings. During the first nine months of 1995, cash of $1.9 billion was used
by financing activities (principally resale agreements) in the normal course of
operations.
19
<PAGE>
DERIVATIVE FINANCIAL INSTRUMENTS
The Company's derivative activities are not as extensive as many of its
competitors. Instead, the Company has focused its derivative activities on
writing over-the-counter ("OTC") options to accommodate its customers needs,
trading in forward contracts in U.S. government and agency issued or guaranteed
securities and engaging in futures contracts on equity-based indices, interest
rate instruments, and currencies, and issuing structured notes. The Company's
involvement in swap contracts is not significant. As a result, the Company's
involvement in derivative products is related primarily to revenue generation
through the provision of products to its clients as opposed to hedges against
the Company's own positions.
Options Contracts:
Option contracts are typically written for a duration of less than 13
months. Revenues from these activities (net of related interest expenses) were
approximately $51.2 million and $65.7 million for the nine months ended
September 30, 1996 and 1995, respectively. Option writing revenues are
primarily from the amortization of option premiums. The decrease in revenues
primarily resulted from lower premiums received by the Company due to a number
of factors, including market conditions and competition from other financial
institutions.
The notional value of written options contracts outstanding was
approximately $7.5 billion and $4.2 billion at September 30, 1996 and 1995,
respectively. The increase in the notional value of options was due primarily
to increases in customer activity related to U.S. government obligations and
foreign debt securities. Such written option contracts are substantially
covered by various financial instruments that the Company has purchased or sold
as principal.
Futures and Forward Contracts:
As part of the Company's trading activities, the Company enters into
forward and futures contracts primarily involving securities, foreign
currencies, indices and forward rate agreements. Such forward and futures
contracts are entered into as part of the Company's covering transactions and
generally are not used for speculative purposes.
Net trading (losses) gains on forward contracts were $(39.7) million
and $126.3 million and net trading gains (losses) on futures contracts were
$20.9 million and $(53.3) million for the nine months ended September 30, 1996
and 1995, respectively.
The notional contract and market values of the forward and futures contracts
at September 30, 1996 and 1995, were as follows:
<TABLE>
<CAPTION>
September 30, 1996 September 30, 1995
------------------------ -----------------------
Purchases Sales Purchases Sales
--------- --------- ---------- ---------
(In millions)
<S> <C> <C> <C> <C>
Forward Contracts
(Notional Contract Value)........ $ 18,610 $ 24,290 $ 15,104 $ 14.944
========= ========= ========== =========
Futures Contracts
(Notional Market Value).......... $ 2,653 $ 3,546 $ 272 $ 1.004
========= ========= ========== =========
</TABLE>
HIGH YIELD TRANSACTIONS
The Company accounts for its high-yield inventory positions at market
value with unrealized gains and losses being recognized currently in earnings.
At September 30, 1996 and December 31, 1995, the Company had long inventory of
$595.7 million and $500.7 million, respectively, and short inventory of $316.4
million and $219.6 million, respectively, of high-yield securities, which
accounted for less than 5% of the Company's overall inventory positions.
20
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Certain significant legal proceedings and matters have been previously
disclosed in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995 and there have been no material developments in such
proceedings and matters. With respect to the Spectravision litigation,
plaintiffs have filed an amended complaint in which DLJSC is no longer named as
a defendant.
In addition to the significant proceedings and matters referred to
above, the Company has been named as a defendant in a number of actions
relating to its various businesses including various civil actions and
arbitrations arising out of its activities as a broker-dealer in securities, as
an underwriter and as an employer and arising out of alleged employee
misconduct. Some of the actions have been brought on behalf of various classes
of claimants and seek damages of material or indeterminate amounts. The Company
is also involved, from time to time, in proceedings with, and investigations
by, governmental agencies and self regulatory organizations. Although there can
be no assurance that such other actions, proceedings, investigations and
litigation will not have a material adverse effect on the results of operations
of the Company in any future period, depending in part on the results for such
period, in the opinion of management of the Company the ultimate resolution of
any such other actions, proceedings, investigations and litigation against the
Company will not have a material adverse effect on the consolidated financial
condition and/or results of operations of the Company.
21
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
3.1 Certificate of Incorporation. (Incorporated herein by reference to
Exhibit 3.1 to the Company's Registration Statement on Form S-1, File
No. 33-96276).
3.2 By-Laws. (Incorporated herein by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-1, File No. 33-96276).
4.1 Form of Subordinated Debt Indenture between the Company and The Bank
of New York as Trustee. (Incorporated herein by reference to Exhibit
4.3 of the Company's Registration Statement on Form S-3, File No.
333-07657).
4.2 Form of Subordinated Debt Securities. (Incorporated herein by
reference to Exhibit 4.4 of the Company's Registration Statement on
Form S-3, File No. 333-07657).
4.3 Form of Junior Subordinated Debt Indenture between the Company and The
Bank of New York as Trustee. (Incorporated herein by reference to
Exhibit 4.5 of the Company's Registration Statement on Form S-3, File
No. 333-07657).
4.4 Form of Preferred Security. (Incorporated herein by reference to
Exhibit 4.15 of the Company's Registration Statement on Form S-3, File
No. 333-07657).
4.5 Form of Supplemental Indenture to be used in connection with issuance
of Junior Subordinated Debt Securities and Preferred Securities.
(Incorporated herein by reference to Exhibit 4.16 of the Company's
Registration Statement on Form S-3, File No. 333-07657).
4.6 Form of Junior Subordinated Debt Security. (Incorporated herein by
reference to Exhibit 4.17 of the Company's Registration Statement on
Form S-3, File No. 333-07657).
4.7 Form of Guarantee with respect to Preferred Securities. (Incorporated
by reference to Exhibit 4.18 of the Company's Registration Statement on
Form S-3, File No. 333-07657).
11 Statement re: Computation of Earnings Per Share.
27 Financial Data Schedule.
22
<PAGE>
Signature
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.
DONALDSON, LUFKIN & JENRETTE, INC.
Date: November 14, 1996 /s/ Anthony F. Daddino
---------------------------------------------
Anthony F. Daddino
Executive Vice President and Chief Financial Officer
(On behalf of the Registrant and as
Principal Financial Officer)
23
<PAGE>
EXHIBIT INDEX
3.1 Certificate of Incorporation. (Incorporated herein by reference to
Exhibit 3.1 to the Company's Registration Statement on Form S-1, File
No. 33-96276).
3.2 By-Laws. (Incorporated herein by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-1, File No. 33-96276).
4.1 Form of Subordinated Debt Indenture between the Company and The Bank
of New York as Trustee. (Incorporated herein by reference to Exhibit
4.3 of the Company's Registration Statement on Form S-3, File No.
333-07657).
4.2 Form of Subordinated Debt Securities. (Incorporated herein by
reference to Exhibit 4.4 of the Company's Registration Statement on
Form S-3, File No. 333-07657).
4.3 Form of Junior Subordinated Debt Indenture between the Company and The
Bank of New York as Trustee. (Incorporated herein by reference to
Exhibit 4.5 of the Company's Registration Statement on Form S-3, File
No. 333-07657).
4.4 Form of Preferred Security. (Incorporated herein by reference to
Exhibit 4.15 of the Company's Registration Statement on Form S-3, File
No. 333-07657).
4.5 Form of Supplemental Indenture to be used in connection with issuance
of Junior Subordinated Debt Securities and Preferred Securities.
(Incorporated herein by reference to Exhibit 4.16 of the Company's
Registration Statement on Form S-3, File No. 333-07657).
4.6 Form of Junior Subordinated Debt Security. (Incorporated herein by
reference to Exhibit 4.17 of the Company's Registration Statement on
Form S-3, File No. 333-07657).
4.7 Form of Guarantee with respect to Preferred Securities. (Incorporated
by reference to Exhibit 4.18 of the Company's Registration Statement on
Form S-3, File No. 333-07657).
11 Statement re: Computation of Earnings Per Share.
27 Financial Data Schedule.
24
EXHIBIT 11
DONALDSON, LUFKIN & JENRETTE, INC. & SUBSIDIARIES
Computation of Earnings Per Share
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted Average Common Shares:
Average Common Shares Outstanding 53,300 50,000 53,300 50,000
Average Restricted Stock Units Outstanding 5,140 5,160
Average Common Shares Issuable Under
Employee Benefit Plans 1,171 1,303
Pro forma average common shares upon
issuance of Restricted Stock Units Under
the Treasury Stock Method - 1,475 1,475
---------- ---------- ---------- ----------
-
Weighted Average Common Shares Outstanding 59,611 59,763
========== ==========
Pro forma Weighted Average Common Shares
Outstanding 51,475 51,475
========== ==========
Earnings:
Net Income $ 56,100 $ 42,000 $ 218,200 $ 121,500
Less: Preferred Stock Dividend Requirement 4,967 4,967 14,901 14,901
---------- ---------- ---------- ----------
Earnings Applicable to Common Shares $ 51,133 $ 37,033 $ 203,299 $ 106,599
========== ========== ========== ==========
Earnings Per Common Share $ 0.86 $ 3.40
========== ==========
Pro forma Earnings Per Common Share $ 0.72 $ 2.07
========== ==========
</TABLE>
Weighted average common shares outstanding are the same for both primary and
fully diluted earnings per common share.
25
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated financial statements and is qualified in its entirety by
reference to such condensed consolidated financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 786,602
<RECEIVABLES> 4,965,703
<SECURITIES-RESALE> 22,590,197
<SECURITIES-BORROWED> 9,173,412
<INSTRUMENTS-OWNED> 15,425,423
<PP&E> 276,672
<TOTAL-ASSETS> 54,398,630
<SHORT-TERM> 1,329,311
<PAYABLES> 6,630,440
<REPOS-SOLD> 29,761,255
<SECURITIES-LOANED> 3,175,136
<INSTRUMENTS-SOLD> 8,539,624
<LONG-TERM> 1,294,740
425,000
0
<COMMON> 5,330
<OTHER-SE> 1,376,885
<TOTAL-LIABILITY-AND-EQUITY> 54,398,630
<TRADING-REVENUE> 365,759
<INTEREST-DIVIDENDS> 795,744
<COMMISSIONS> 428,180
<INVESTMENT-BANKING-REVENUES> 713,400
<FEE-REVENUE> 26,165
<INTEREST-EXPENSE> 531,483
<COMPENSATION> 1,138,212
<INCOME-PRETAX> 357,800
<INCOME-PRE-EXTRAORDINARY> 357,800
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 218,200
<EPS-PRIMARY> 3.40
<EPS-DILUTED> 3.40
</TABLE>
