<PAGE>
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, 1997
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 May 14, 1997, the latest practicable date, there were 55,093,392 shares
of Common Stock, $0.10 par value, outstanding.
1
<PAGE>
DONALDSON, LUFKIN & JENRETTE, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1997
TABLE OF CONTENTS
Part I FINANCIAL INFORMATION
Page
Number
------
Item 1. Financial Statements
Condensed Consolidated Statements of Financial Condition
at March 31, 1997 and December 31, 1996 (Unaudited).......... 3
Condensed Consolidated Statements of Income for the three
months ended March 31, 1997 and 1996 (Unaudited) ............ 5
Condensed Consolidated Statements of Changes in
Stockholders' Equity for the year ended December 31, 1996
and the three months ended March 31, 1997 (Unaudited)........ 6
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1997 and 1996 (Unaudited)....... 7
Notes to Condensed Consolidated Financial Statements
(Unaudited).................................................. 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 13
Part II OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 19
Item 5. Other Information.............................................. 19
Item 6. Exhibits and Reports on Form 8-K............................... 20
Signature...................................................... 22
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>
March 31, December 31,
1997 1996
------------ ------------
ASSETS
<S> <C> <C>
Cash and cash equivalents.................................................... $ 194,992 $ 158,831
Cash and securities segregated for regulatory purposes or
deposited with clearing organizations...................................... 985,823 836,406
Securities purchased under agreements to resell.............................. 25,959,436 20,598,738
Securities borrowed.......................................................... 13,280,285 9,355,483
Receivables:
Customers................................................................. 3,409,955 3,169,293
Brokers, dealers and other................................................ 3,287,871 4,001,131
Securities owned, at value:
U.S. government and agencies.............................................. 7,726,289 6,882,604
Corporate debt............................................................ 5,525,403 4,424,649
Foreign sovereign debt.................................................... 2,488,711 3,116,201
Mortgage whole loans...................................................... 653,512 275,510
Equities and other........................................................ 982,033 1,029,094
Long-term corporate development investments............................... 227,939 204,403
Mortgages, other receivables collateralized by
real estate assets and real estate owned.................................. 400,021 405,221
Property, equipment and leasehold improvements, at cost, (net of
accumulated depreciation and amortization of $171,804 and
$163,004, respectively)................................................... 306,263 282,513
Other assets and deferred amounts............................................ 775,675 763,595
------------ ------------
Total Assets................................................................. $ 66,204,208 $ 55,503,672
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
DONALDSON, LUFKIN & JENRETTE, INC. & SUBSIDIARIES
Condensed Consolidated Statements of Financial Condition (Unaudited)
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Short-term borrowings......................................................... $ 2,162,893 $ 1,162,896
Securities sold under agreements to repurchase................................ 37,171,159 29,378,291
Securities loaned............................................................. 4,115,431 2,724,773
Payables:
Customers................................................................. 4,006,905 3,897,817
Brokers, dealers and other................................................ 3,194,642 3,345,424
Securities sold not yet purchased, at value:
U.S. government and agencies.............................................. 7,755,231 6,864,643
Corporate debt............................................................ 655,465 646,421
Foreign sovereign debt.................................................... 1,211,649 1,265,553
Equities & other.......................................................... 726,555 665,053
Accounts payable and accrued expenses......................................... 1,239,244 1,721,255
Other liabilities............................................................. 397,123 442,667
------------ ------------
62,636,297 52,114,793
------------ ------------
Long-term borrowings.......................................................... 1,635,065 1,541,640
------------ ------------
Total liabilities.................................................... 64,271,362 53,656,433
------------ ------------
Company-obligated mandatorily redeemable preferred securities
of subsidiary trust holding solely debentures of the Company.............. 200,000 200,000
------------ ------------
Stockholders' Equity:
Series A Preferred Stock, at liquidation preference ($50.00
liquidation preference, 4,000,000 shares authorized,
issued and outstanding)................................................ 200,000 200,000
Common stock ($0.10 par value; 150,000,000 shares
authorized; 54,504,664 and 53,300,000 shares issued
and outstanding, respectively)......................................... 5,450 5,330
Restricted stock units (5,179,147 units authorized;
3,871,941 and 5,081,793 units issued and outstanding,
respectively).......................................................... 79,365 104,167
Paid-in capital........................................................... 399,314 365,989
Retained earnings......................................................... 1,046,209 969,856
Cumulative translation adjustment......................................... 2,508 1,897
------------ ------------
Total stockholders' equity........................................... 1,732,846 1,647,239
------------ ------------
Total Liabilities and Stockholders' Equity.................................... $ 66,204,208 $ 55,503,672
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
DONALDSON, LUFKIN & JENRETTE, INC. & SUBSIDIARIES
Condensed Consolidated Statements of Income (Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
--------- ---------
<S> <C> <C>
Revenues:
Commissions............................................................... $ 168,350 $ 146,534
Underwritings............................................................. 173,920 135,431
Fees...................................................................... 146,132 83,233
Interest, net of interest to finance U.S. government, agency
and mortgage-backed securities of $613,877 and $487,374,
respectively............................................................ 319,728 230,799
Principal transactions-net:
Trading................................................................. 156,318 143,461
Investment.............................................................. 847 25,631
Other..................................................................... 16,108 10,821
--------- ---------
Total revenues......................................................... 981,403 775,910
--------- ---------
Costs and Expenses:
Compensation and benefits................................................. 423,449 344,269
Interest.................................................................. 218,171 175,012
Brokerage, clearing, exchange fees and other.............................. 58,480 44,729
Occupancy and equipment................................................... 39,970 30,612
Communications............................................................ 13,844 10,703
Other operating expenses.................................................. 83,489 62,085
--------- ---------
Total costs and expenses............................................... 837,403 667,410
--------- ---------
Income before provision for income taxes...................................... 144,000 108,500
--------- ---------
Provision for income taxes.................................................... 57,600 43,400
--------- ---------
Net income.................................................................... $ 86,400 $ 65,100
========= =========
Dividends on preferred stock.................................................. $ 3,234 $ 4,967
========= =========
Earnings applicable to common shares.......................................... $ 83,166 $ 60,133
========= =========
Weighted average common shares outstanding.................................... 61,743 59,576
========= =========
Earnings per common share..................................................... $ 1.35 $ 1.01
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
DONALDSON, LUFKIN & JENRETTE, INC. & SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
For the Year Ended December 31, 1996 and the Three Months Ended March 31, 1997
(In thousands, except per share data)
<TABLE>
<CAPTION>
Series A Restricted Cumulative
Preferred Common Stock Paid-in Retained Translation
Stock Stock Units Capital Earnings Adjustment Total
--------- ------- ---------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31,
1995........................... $ 0 $ 5,330 $ 106,163 $ 363,993 $ 723,859 $ (625) $ 1,198,720
Net income....................... - - - - 291,300 - 291,300
Dividends:
Common stock
($0.50 per share)............. - - - - (26,650) - (26,650)
Preferred stock
($8.29 per share)............. - - - - (18,653) - (18,653)
Forfeiture of restricted
stock units................... - - (1,996) 1,996 - - -
Issuance of Series A
preferred stock................ 200,000 - - - - - 200,000
Translation adjustment........... - - - - - 2,522 2,522
--------- ------- ---------- ---------- ----------- -------- -----------
Balances at December 31,
1996........................... 200,000 5,330 104,167 365,989 969,856 1,897 1,647,239
--------- ------- ---------- ---------- ----------- -------- -----------
Net income....................... - - - - 86,400 - 86,400
Dividends:
Common stock
($0.125 per share)............ - - - - (6,813) - (6,813)
Preferred stock
($0.8085 per share)........... - - - - (3,234) - (3,234)
Forfeiture of restricted stock
units......................... - - (106) 106 - - -
Conversion of restricted stock
units to common stock.........
- 120 (24,696) 24,576 - - -
Income tax benefits attrib-
utable to conversion of
restricted stock units....... - - - 8,643 - - 8,643
Translation adjustment........... - - - - - 611 611
--------- ------- ---------- ---------- ----------- -------- -----------
Balances at March 31,
1997........................... $ 200,000 $ 5,450 $ 79,365 $ 399,314 $ 1,046,209 $ 2,508 $ 1,732,846
========= ======= ========== ========== =========== ======== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
DONALDSON, LUFKIN & JENRETTE, INC. & SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
For the Three Months Ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ----------
<S> <C> <C>
Cash flows from operating activities:
Net income....................................................................... $ 86,400 $ 65,100
------------ ----------
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization................................................. 11,975 7,929
Deferred taxes................................................................ 28,019 6,526
(Increase) decrease in unrealized appreciation of long-term
corporate development investments........................................... 3,436 (10,460)
Other-net..................................................................... 87 85
------------ ----------
129,917 69,180
(Increase) decrease in operating assets:
Cash and securities segregated for regulatory
purposes or deposited with clearing organizations........................... (149,417) (264,226)
Securities purchased under agreements to resell............................... (5,437,843) (2,251,515)
Securities borrowed........................................................... (3,924,802) 665,520
Receivables from customers.................................................... (240,662) (512,254)
Receivables from brokers, dealers and other................................... 713,260 (985,991)
Securities owned, at value.................................................... (1,647,890) (147,271)
Other assets.................................................................. 1,669 (31,779)
Increase (decrease) in operating liabilities:
Securities sold under agreements to repurchase................................ 5,437,843 2,251,515
Securities loaned............................................................. 1,390,658 (16,937)
Payables to customers......................................................... 109,088 337,073
Payables to brokers, dealers and other........................................ (150,782) 1,571,575
Securities sold not yet purchased, at value................................... 907,230 222,122
Accounts payable and accrued expenses......................................... (482,011) (316,460)
Other liabilities and deferred amounts ....................................... (36,901) 22,194
Translation adjustment........................................................ 611 (104)
------------ ----------
Net cash (used in) provided by operating activities................................ $ (3,380,032) $ 612,642
------------ ----------
</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 Three Months Ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from investing activities: Net proceeds from (payments for):
Purchases of long-term corporate development investments.................... $ (37,928) $ (25,796)
Sales of long-term corporate development investments........................ 10,957 11,366
Purchases of property, equipment and leasehold improvements................. (34,784) (47,851)
Purchases of mortgages, other receivables collateralized by real estate
assets and real estate owned.............................................. - (93,147)
Sales of mortgages, other receivables collateralized by real estate assets
and real estate owned..................................................... 4,200 -
Other assets................................................................ (41,710) 3,791
---------- ----------
Net cash used in investing activities........................................... (99,265) (151,637)
---------- ----------
Cash flows from financing activities: Net proceeds from (payments for):
Short-term financings....................................................... 3,432,167 (530,511)
Medium-Term Notes........................................................... - 249,515
Swiss Franc Bonds........................................................... - (105,513)
Subordinated revolving credit agreement..................................... 75,000 -
Structured notes............................................................ (4,817) -
Dividends................................................................... (10,047) (11,629)
Other long-term debt........................................................ 23,155 (1,308)
---------- ----------
Net cash provided by (used in) financing activities............................. 3,515,458 (399,446)
---------- ----------
Increase in cash and cash equivalents........................................... 36,161 61,559
Cash and cash equivalents at beginning of period............................... 158,831 107,766
---------- ----------
Cash and cash equivalents at end of period..................................... $ 194,992 $ 169,325
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
8
<PAGE>
DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 1997
1. Basis of Presentation
The condensed consolidated financial statements include Donaldson, Lufkin &
Jenrette, Inc. and its subsidiaries ("DLJ" or the "Company"). All significant
intercompany balances and transactions have been eliminated. The Company is a
majority owned subsidiary of the Equitable Companies Incorporated and its
subsidiaries (together, "Equitable"). 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 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, 1996 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 condensed consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
2. Income Taxes
Income taxes for interim period condensed consolidated financial statements
have been accrued using the Company's estimated effective tax rate.
Effective January 1, 1997, Equitable's ownership for tax purposes declined to
under 80% and therefore, the Company will file its own U.S. consolidated
Federal income tax return separate and apart from Equitable. Net Federal income
tax equivalents paid to Equitable were $ 7.1 million and $35.0 million during
the three months ended March 31, 1997 and 1996, respectively.
3. Borrowings
Long-term borrowings, including current maturities of $108.4 million and $112.0
million at March 31, 1997 and December 31, 1996, respectively, consist of the
following:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------- -----------
(In thousands)
<S> <C> <C>
Senior notes, 6 7/8% due in 2005..................................... $ 497,241 $ 497,160
Senior subordinated revolving credit agreement
due in 2000........................................................ 281,500 206,500
Subordinated exchange notes, 9 5/8% due in 2003...................... 225,000 225,000
Structured notes..................................................... 211,417 216,234
Medium-term notes, 5 5/8% due in 2016................................ 249,543 249,537
Medium-term notes, 7.88% due in 1997................................. 88,000 88,000
Junior subordinated convertibles debentures, 6.1875%
due in 2001........................................................ 40,500 43,500
Other................................................................ 41,864 15,709
----------- -----------
Total long-term borrowings...................................... $ 1,635,065 $ 1,541,640
=========== ===========
</TABLE>
9
<PAGE>
DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
During the first quarter of 1997, the Company borrowed an additional $75.0
million under its senior subordinated revolving credit agreement and extended
its maturity thereon to January 30, 2000.
Structured notes are customized financing instruments in which the amount of
interest or principal paid on the debt obligation is linked to the return on
specific cash market financial instruments. At March 31, 1997 and December 31,
1996 the weighted average interest rate of structured notes issued with a
stated coupon, was 10.32% and 11.12%, respectively. The notes mature at various
dates through 2007.
Interest paid on all borrowings and financing arrangements amounted to $758.5
million and $664.3 million for the three months ended March 31, 1997 and 1996,
respectively.
At March 31, 1997, the Company has committed credit facilities which enables it
to borrow up to $1.28 billion on a secured basis and $650.0 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 March 31, 1997 and December 31, 1996 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 $273.3 million and $246.4 million at March
31, 1997 and December 31, 1996, respectively. The increase in net unrealized
(depreciation) appreciation of long-term corporate development investments
amounted to $(3.4) million and $10.5 million for the three months ended March
31, 1997 and 1996, respectively. Changes in unrealized (depreciation)
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 March 31, 1997, DLJSC's net capital of
approximately $604.1 million was 17 percent of aggregate debit balances and in
excess of the minimum requirement by approximately $523.5 million.
Certain U.S. and foreign subsidiaries of the Company are subject to net capital
requirements of their respective regulatory agencies. At March 31, 1997, the
Company and its subsidiaries were in compliance with all applicable regulatory
capital adequacy requirements.
6. Earnings Per Share
Earnings per common share are computed by dividing net income applicable to
common shares after deducting the dividends on the Series A preferred stock
requirement by the weighted average number of shares of common stock and common
stock equivalents outstanding during each period presented. Weighted average
common shares and common share equivalents outstanding are substantially the
same for both primary and fully diluted earnings per common share.
10
<PAGE>
DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
7. Commitments and Contingencies
At March 31, 1997, the Company was contingently liable for unsecured letters of
credit of approximately $162.6 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 8, 9
and 10 of the Consolidated Financial Statements in the Company's Annual Report
on the Form 10-K for the year ended December 31, 1996.
8. Stockholders' Equity
On February 3, 1997, 1.8 million restricted stock units vested. Of the vested
units, 1.2 million were converted to common stock from the Company's authorized
and unissued shares. On April 2, 1997, substantially all of the remaining
vested units were converted to common stock and deposited in a grantor trust
pursuant to the Executive Deferred Compensation Plan which was effective
January 1, 1997.
9. Employee Benefits Plans
During the first quarter of 1997, the Management and Compensation Committee of
the Board of Directors authorized the creation of a long-term award pool under
the 1996 Incentive Compensation Plan (the "Plan"). The long-term award pool is
for the performance period from January 1, 1997 to December 31, 1999 and is
based on a percentage of the Company's pre-tax earnings and varies with the
Company's average return on common equity during the performance period. Each
unit granted under the Plan is equal to a percentage interest in the long-term
award pool. The units vest at the rate of 33 1/3% per year during the
performance period. The amount charged to expense for the Plan was $40.3
million for the three months ended March 31, 1997.
10. 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 ("OTC") 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.
Options contracts are typically written for a duration of less than 13 months.
The notional value of written options contracts outstanding was approximately
$9.3 billion at March 31, 1997. These written option contracts are
substantially covered by various financial instruments that the Company has
purchased or sold as principal.
11
<PAGE>
DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
The notional contract and market values of the forward and futures contracts at
March 31, 1997 and December 31, 1996, were as follows:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
Purchases Sales Purchases Sales
--------- ----- --------- -----
(In millions) (In millions)
<S> <C> <C> <C> <C>
Forward Contracts
(Notional Contract Value).... $ 17,222 $ 26,189 $ 14,070 $ 17,917
======== ======== ======== ========
Futures Contracts and Options
on Futures Contracts
(Notional Market Value)...... $ 2,193 $ 6,844 $ 1,420 $ 2,774
======== ======== ======== =========
</TABLE>
11. 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, 1996 and there have been no material developments in such
proceedings and matters, with the exception of Harrah's Jazz Company and
Harrah's Jazz Finance Corp. On February 26, 1997, the parties agreed to a
settlement of these actions, subject to the District Court's approval.
12
<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 1996 Annual Report on Form 10-K.
BUSINESS ENVIRONMENT
The Company's principal business activities, 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. These factors include securities market
conditions, the level and volatility of interest rates, competitive conditions
and the size and timing of transactions.
Although the strong conditions that existed in 1996 continued through the
first quarter of 1997, certain market factors weakened from the fourth quarter
of 1996. Trading volume slowed from levels achieved earlier in the year,
however the average daily volume remained higher than the levels sustained a
year ago. Underwriting activity declined for most of the industry during the
first quarter. In mid-February, the anticipation of an increase in interest
rates by the Federal Reserve resulted in a decrease in equity issuances. The
impact of such decreases was offset by increases in total corporate debt
issuances, particularly mortgages and high-yield debt.
RECENT DEVELOPMENTS
In March 1997, the Company acquired a London based financial advisory firm,
Phoenix Group Limited (Phoenix). Phoenix is an international financial advisory
and investment management business with offices in London and Hong Kong. It has
two principal operations, a corporate finance and advisory business and a
private equity fund management business investing in unquoted securities. It
also makes investments as principal.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share", which is effective for periods ending after December
15, 1997. The statement was issued to simplify the standards for computing
earnings per share previously found in APB Opinion No. 15, "Earnings per
Share". The statement replaces the presentation of primary earnings per share
with a presentation of basic earnings per share. Basic earnings per share will
exclude the dilutive effects of stock options, non-vested Restricted Stock
Units and convertible debt. Diluted earnings per share will reflect all
potential dilutive securities. Under the provisions of SFAS No. 128, basic
earnings per share would have increased the amounts reported for the first
quarter of 1997 and 1996 by $0.18 and $0.12, respectively. Diluted earnings per
share would have been the same as amounts reported for primary earnings per
share for both periods.
RESULTS OF OPERATIONS
Quarter Ended March 31, 1997 Compared TO Quarter Ended March 31, 1996
Total revenues for the quarter ended March 31, 1997 were $981.4 million, an
increase of $205.5 million or 26.5% over the quarter ended March 31, 1996.
Revenues increased in most of the Company's major areas of activity during the
first quarter of 1997.
13
<PAGE>
Commission revenues increased by $21.8 million or 14.9% to $168.4 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 $38.5 million or 28.4% to $173.9
million. The Company experienced increases in all areas of underwriting during
the first quarter of 1997.
Fee revenues increased by $62.9 million or 75.6% to $146.1 million.
Overall, merger and acquisition ("M&A"), asset management and other advisory
services activities have increased during the first quarter of 1997.
Interest, net of interest expense to finance U.S. government, agency and
mortgage-backed securities, increased by $88.9 million or 38.5% to $319.7
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 $12.9 million or
9.0% to $156.3 million. Most of the increase took place in the Fixed Income
Division due to improved trading results in high-yield and mortgage-backed
securities.
Principal transactions-net, investment revenues decreased by $24.8 million
or 96.7% to $0.8 million. Realized gains on investments were $4.3 million. Net
unrealized carrying values decreased by $3.4 million, which includes the
elimination of net unrealized appreciation of $0.5 million on investments sold
and an increase in net unrealized depreciation of $2.9 million on retained
investments.
Other revenues, consisting primarily of dividends and miscellaneous
transaction revenues, increased by $5.3 million or 48.9% to $16.1 million.
Total costs and expenses for the first quarter of 1997 were $837.4 million,
an increase of $170.0 million or 25.5% over the first quarter of 1996.
Compensation and benefits increased $79.2 million or 23.0% to $423.4
million. Incentive and production-related compensation increased by 23.0% in
1997 due to higher revenues and operating results. Similarly, base
compensation, including benefits and all payroll taxes, increased by 23.0% due
to expansion in various business groups. At March 31, 1997, full-time personnel
totaled 6,046 compared to 5,041 at March 31, 1996, an increase of 1,005 or
19.9%.
Interest expense increased $43.2 million or 24.7% to $218.2 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 as well as increased business activity at Pershing.
All other expenses, as noted below, increased by $47.7 million or 32.2% to
$195.8 million for the first quarter of 1997.
Brokerage, clearing, exchange fees and other expenses increased by $13.8
million due to increased share volume, underwriting related expenses and
transaction fee payments. Occupancy and equipment costs increased by $9.4
million as a result of the expansion of the Company's principal office in the
U.S. and the expansion of the Company's other domestic and overseas offices.
Communications costs increased by $3.1 million due to expanded facilities and
growth in professional staff. All other operating expenses increased by $21.4
million. Included therein are data processing, professional fees, travel and
entertainment, and printing and stationery which increased by $9.6 million
reflecting an overall increase in the level of business activity. In addition,
for the quarter ended March 31, 1997, $11.5 million of expenses were incurred
in connection with mortgage-related securities previously underwritten by the
Company.
The Company's income tax provision for the first quarter of 1997 and 1996
was $57.6 million and $43.4 million, respectively, which represented a 40%
effective tax rate for both periods.
14
<PAGE>
Net income for the quarter ended March 31, 1997 was $86.4 million, up $21.3
million or 32.7% from the comparable 1996 period. Earnings per common share
using the treasury stock method were $1.35 and $1.01 for the first quarter of
1997 and 1996, 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 customer business and proprietary trading. Such
collateralized receivables consist primarily of resale agreements and
securities borrowed, both of which are secured by U.S. government and agency
securities and highly 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 March 31, 1997 and December
31, 1996 were $66.2 billion and $55.5 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
March 31, 1997, 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 committed bank lines and $650.0 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 has been active in raising additional long-term financing,
including extending the maturity of its $325.0 million senior subordinated
revolving credit agreement. As of March 31, 1997, $281.5 million was
outstanding under this facility.
Mortgages and other receivables collateralized by real estate assets and
real estate owned amounting to $400.0 million at March 31, 1997 and $405.2
million at December 31, 1996, 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.
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 March 31, 1997, DLJSC had
aggregate regulatory "net capital," after adjustments required by Rule 15c3-1
under the Exchange Act of 1934, of approximately $604.1 million, which exceeded
minimum net capital requirements by $523.5 million and which exceeded the net
capital required by DLJSC's most restrictive debt covenants by $330.3 million.
15
<PAGE>
The Company issues structured notes which are customized financing
instruments in which the amount of interest or principal paid on the debt
obligation is linked to the return on specific cash market financial
instruments. At March 31, 1997 and December 31, 1996, the Company had issued
long-term structured notes with principal amounts of $211.4 million and $216.2
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.
The Company's credit ratings of its long-term debt at March 31, 1997 are as
follows: Duff & Phelps A; Fitch A; IBCA A; Moody's Baal; Standard & Poors A-;
and Thomson BankWatch A+.
As a portion of the total consideration paid in connection with the Phoenix
acquisition, the Company issued $28,779,000 aggregate principal amount of 5%
Junior Subordinated Convertible Debentures due 2004 (the "Convertible
Debentures") to the former shareholders of Phoenix, pursuant to Regulation S
under the Securities Act of 1933, as amended. The Convertible Debentures are
convertible into Common Stock of the Company beginning 40 days after issuance
at a conversion price of $42.00 per share. The acquisition does not have a
material effect on the Company's results of operations or financial condition
at March 31, 1997.
In April 1997 the Company commenced a program for the offering of up to
$300 million Medium-Term Notes due nine months or more from the date of
issuance. The Medium-Term Notes are part of a shelf registration previously
filed by the Company. The notes may bear interest at fixed or floating rates
and may be issued as indexed notes, dual currency notes, renewable notes,
amortizing notes or original issue discount notes.
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.
Cash Flows
The Company's condensed consolidated statements of consolidated 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.
Quarters Ended March 31, 1997 and 1996
Cash and cash equivalents at March 31, 1997 and 1996, totaled $195.0
million and $169.3 million, respectively, an increase of $36.2 million and
$61.6 million, respectively, for the comparable periods.
Cash (used in) provided by operating activities totaled $(3.4) billion and
$612.6 million for the first three months of 1997 and 1996, respectively, and
reflects primarily an increase in operating assets in 1997 and an increase in
operating liabilities in 1996. In the first three months of 1997, there were
increases in securities borrowed of $3.9 billion and trading inventories of
$1.6 billion. These increases were partially offset by increases in liabilities
including securities loaned of $1.4 billion and securities sold not yet
purchased of $907.2 million. In the first three months of 1996, there were
increases in payables to brokers, dealers and other of $1.6 billion, payables
to customers of $337.1 million and a decrease in securities borrowed of $665.5
million. These increases were partially offset by increases in operating assets
including receivables from brokers, dealers and other of $986.0 million and
receivables from customers of $512.3 million.
For the first three months of 1997 and 1996, cash of $99.3 million and
$151.6 million, respectively, was used in investing activities. These generally
consist of fixed asset purchases and purchases of long-term corporate
development investments. Additionally, in 1997, cash was used for the purchase
of net assets related to the Phoenix Group acquisition. In 1996, cash was also
used for the purchase of mortgage receivables collateralized by real estate
assets.
For the first three months of 1997 and 1996, cash of $3.4 billion and
$(530.5) million, respectively, was provided by (used in) short-term funding
(principally repurchase agreements). Additionally, in the first quarter of
1996, $105.5 million was used to repay Swiss Franc Bonds which matured in
January 1996 and $249.5 million was provided by the issuance of Medium-Term
Notes.
16
<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:
Options contracts are typically written for a duration of less than 13
months. Revenues from these activities (net of related interest expenses) were
approximately $9.6 million and $8.8 million for the three months ended March
31, 1997 and 1996, respectively. Option writing revenues are primarily from the
amortization of option premiums. The increase in revenues primarily resulted
from higher levels of activity, both in size and number of transactions, by the
Company's institutional customers and favorable market conditions.
The notional value of written options contracts outstanding was
approximately $9.3 billion and $4.9 billion at March 31, 1997 and 1996,
respectively. The overall increase in the notional value of all options was due
primarily to increases in customer activity related to U.S. government
obligations. Such written options 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, including trading activities
in the related cash market instruments, the Company enters into forward and
futures contracts primarily involving securities, foreign currencies, indices
and forward rate agreements, as well as options on futures contracts. 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 gains (losses) on forward contracts were $29.3 million and
$(23.9) million and net trading gains on futures contracts were $5.7 million
and $8.7 million for the three months ended March 31, 1997 and 1996,
respectively.
The notional contract and market values of the forward and futures
contracts at March 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
March 31, 1997 March 31, 1996
-------------- --------------
Purchases Sales Purchases Sales
--------- ----- --------- -----
(In millions)
<S> <C> <C> <C> <C>
Forward Contracts
(Notional Contract Value)........... $ 17,222.2 $ 26,188.6 $17,945.2 $17,297.3
========== ========== ========= =========
Futures Contracts and Options on
Futures Contracts (Market Value).... $ 2,193.1 $ 6,843.6 $ 1,672.6 $ 1,001.7
========== ========== ========= =========
</TABLE>
17
<PAGE>
Structured Notes:
Structured notes are customized financing instruments in which the amount
of interest or principal paid on a debt obligation is linked to the return on
specific cash market financial instruments. At March 31, 1997 and December 31,
1996, the Company had issued long-term structured notes totaling $211.4 million
and $216.2 million, 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 or selling the securities to which the
value of its structured notes are linked.
HIGH YIELD TRANSACTIONS
The Company participates in the underwriting, trading and sales of
high-yield non-investment-grade securities. These securities generally involve
greater risk than investment-grade debt securities due to credit
considerations, liquidity of secondary trading markets and vulnerability to
general economic conditions.
The Company accounts for its high-yield inventory positions on a market
basis with unrealized gains and losses being recognized currently in earnings.
At March 31, 1997 and December 31, 1996 the Company had long inventory of
$598.2 million and $502.6 million, respectively, and short inventory of $447.9
million and $378.5 million, respectively, of high-yield securities which
accounted for less than 4.0% of the Company's overall inventory positions.
18
<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, 1996 and there have been no material developments in such
proceedings and matters, with the exception of Harrah's Jazz Company and
Harrah's Jazz Finance Corp. On February 26, 1997, the parties agreed to a
settlement of these actions, subject to the District Court's approval.
On May 2, 1997, DLJ was named as a defendant in the First Amended
Derivative Complaint in James G. Caven v. Charles R. Miller, et al., an action
in the United States District Court for the Southern District of Texas. The
action is a derivative action allegedly brought on behalf of Paracelsus
Healthcare Corporation ("Paracelsus"), and in turn on behalf of Champion
Healthcare Corporation ("Champion"), in connection with Champion's merger with
Paracelsus on or about August 16, 1996. Other defendants named in the amended
complaint are certain officers and directors of Champion, Paracelsus, certain
officers and directors of Paracelsus, and Paracelsus' auditors. With respect to
DLJ, the amended complaint alleges that DLJ was engaged by Champion to act as
its investment advisor in identifying suitable merger and acquisition prospects
in the healthcare industry, and that DLJ was negligent in recommending
Paracelsus to Champion as a suitable merger partner and in rendering an opinion
to Champion's board of directors that the exchange ratio of Paracelsus common
stock for Champion common stock in the merger was fair from a financial point
of view to holders of Champion common stock. The amended complaint seeks
damages in an unspecified amount, recession of the merger, interest, attorney's
fees and costs, and other relief. Due to the early stage of such litigation,
based on the information currently available to it, DLJ's management cannot
make an estimate of loss, if any, or predict whether or not such litigation
will have a material adverse effect on DLJ's results of operations in any
particular period.
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.
19
<PAGE>
ITEM 5. OTHER INFORMATION
The Company's Annual Meeting of Stockholders was held on April 16, 1997. At
the meeting, (i) eighteen persons were elected as directors of the Company,
(ii) the selection of KPMG Peat Marwick LLP to serve as the independent
auditors of the Company for the fiscal year ending December 31, 1997 was
ratified, and (iii) the Donaldson, Lufkin & Jenrette, Inc. 1996 Non-Employee
Directors Stock Plan was approved.
<TABLE>
<CAPTION>
Election of Directors:
Nominee For Withheld Against Non-Vote
- ------- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Claude Bebear 52,841,880 331,911
John S. Chalsty 53,090,480 83,311
Anthony F. Daddino 53,090,280 83,511
Henri de Castries 53,090,480 83,311
Jerry de St. Paer 53,090,480 83,311
Denis Duverne 53,090,280 83,511
Louis Harris 53,085,879 87,912
Henri Baron Hottinguer 53,090,280 83,511
Hamilton E. James 53,090,480 83,311
W. Edwin Jarmain 53,090,480 83,311
Francis Jungers 53,087,379 86,412
Joseph J. Melone 53,087,546 86,245
Carl B. Menges 53,090,256 83,535
Richard S. Pechter 53,090,480 83,311
Joe L. Roby 53,090,357 83,434
W.J. Sanders III 52,841,880 331,911
Theodore P. Shen 53,090,480 83,311
John C. West 53,085,679 88,112
Ratification of Auditors 53,151,199 8,512 14,080
Approval of 1996 Non-Employee
Directors Stock Plan 51,879,672 31,339 1,262,780
</TABLE>
20
<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).
10.88 1996 Non- Employee Directors Stock Plan (Incorporated herein by
reference to Exhibit 10.88 to the Company's Form 10-K for the year
ended December 31, 1996, File No. 1-6862).
11 Statement re: computation of per share earnings.
27 Financial Data Schedule
(b) Reports on Form 8-K.
1. Form 8-K dated April 10, 1997; items 5 and 7
21
<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: May 14, 1997 /s/ Anthony F. Daddino
----------------------
Anthony F. Daddino
Executive Vice President and Chief
Financial Officer
(On behalf of the Registrant and as
Principal Financial Officer)
22
<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).
10.88 1996 Non-Employee Directors Stock Plan (Incorporated herein by
reference to Exhibit 10.88 to the Company's Form 10-K for the year
ended December 31, 1996, File No. 1-6862).
11 Statement re: computation of per share earnings.
27 Financial Data Schedule
23
<PAGE>
EXHIBIT 11
DONALDSON, LUFKIN & JENRETTE, INC. & SUBSIDIARIES
Computation of Earnings Per Share
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
-------- ---------
<S> <C> <C>
Weighted Average Common Shares:
Average Common Shares Outstanding 54,050 53,300
Average Restricted Stock Units Outstanding 4,330 5,179
Average Common Shares Issuable Under Employee Benefit
Plans 3,363 1,097
-------- ---------
Weighted Average Common Shares Outstanding 61,743 59,576
======== =========
Earnings:
Net Income $ 86,400 $ 65,100
Less: Preferred Stock Dividend Requirement 3,234 4,967
-------- ---------
Earnings Applicable to Common Shares $ 83,166 $ 60,133
======== =========
Earnings Per Common Share $ 1.35 $ 1.01
======== =========
</TABLE>
Weighted average common shares outstanding are substantially the same for both
primary and fully diluted earnings per common share.
24
<TABLE> <S> <C>
<ARTICLE> BD
<PAGE>
<LEGEND>
The schedule contains summary financial information extracted from the condensed
consolidated financial statements and is qualified in its entirety by reference
to such financial statements.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,180,815
<RECEIVABLES> 6,697,826
<SECURITIES-RESALE> 25,959,436
<SECURITIES-BORROWED> 13,280,285
<INSTRUMENTS-OWNED> 17,603,887
<PP&E> 306,263
<TOTAL-ASSETS> 66,204,208
<SHORT-TERM> 2,162,893
<PAYABLES> 7,201,547
<REPOS-SOLD> 37,171,159
<SECURITIES-LOANED> 4,115,431
<INSTRUMENTS-SOLD> 10,348,900
<LONG-TERM> 1,635,065
200,000
200,000
<COMMON> 5,450
<OTHER-SE> 1,527,396
<TOTAL-LIABILITY-AND-EQUITY> 66,204,208
<TRADING-REVENUE> 156,252
<INTEREST-DIVIDENDS> 334,166
<COMMISSIONS> 167,974
<INVESTMENT-BANKING-REVENUES> 190,637
<FEE-REVENUE> 12,827
<INTEREST-EXPENSE> 218,827
<COMPENSATION> 423,449
<INCOME-PRETAX> 144,000
<INCOME-PRE-EXTRAORDINARY> 144,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 86,400
<EPS-PRIMARY> $1.35
<EPS-DILUTED> $1.35
</TABLE>
