<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, 1999
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)
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
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 5, 1999, the latest practicable date, there were 125,565,054 shares
of Common Stock, $0.10 par value, outstanding.
1
<PAGE>
DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1999
TABLE OF CONTENTS
Part I FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements Page Number
----------
<S> <C>
Condensed Consolidated Statements of Financial Condition at March 31, 1999
and December 31, 1998 (Unaudited)......................................... 3
Condensed Consolidated Statements of Income for the three months ended March
31, 1999 and 1998 (Unaudited) ............................................. 5
Condensed Consolidated Statements of Changes in Stockholders' Equity for the
year ended December 31, 1998 and the three months ended March 31, 1999
(Unaudited) ................................................................ 6
Condensed Consolidated Statements of Cash Flows for the three months ended
March 31, 1999 and 1998 (Unaudited)........................................ 7
Notes to Condensed Consolidated Financial Statements (Unaudited)...........
9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................. 15
Part II OTHER INFORMATION
Item 1. Legal Proceedings............................................................... 21
Item 5. Other Information............................................................... 22
Item 6. Exhibits and Reports on Form 8-K................................................ 23
Signature....................................................................... 24
</TABLE>
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,
1999 1998
-------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents.................................................... $ 2,097,829 $ 1,049,253
Cash and securities segregated for regulatory purposes or
deposited with clearing organizations..................................... 1,012,122 1,043,225
Collateralized short-term agreements:
Securities purchased under agreements to resell........................... 28,016,978 20,063,348
Securities borrowed....................................................... 29,360,931 23,967,639
Receivables:
Customers................................................................. 6,855,645 6,523,568
Brokers, dealers and other................................................ 4,559,523 3,773,251
Financial instruments owned, at value:
U.S. government and agency................................................ 7,601,844 5,973,394
Corporate debt............................................................ 4,471,223 4,441,492
Foreign sovereign debt.................................................... 528,418 423,736
Mortgage whole loans...................................................... 1,125,196 722,284
Equity and other.......................................................... 1,843,526 1,634,201
Long-term corporate development investments............................... 532,949 473,756
Office facilities, at cost, (net of accumulated depreciation and amortization of
$318,217 and $297,959, respectively)...................................... 463,272 450,706
Other assets and deferred amounts............................................ 1,782,808 1,742,383
-------------- --------------
Total Assets................................................................. $ 90,252,264 $ 72,282,236
============ ============
</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>
March 31, December 31,
1999 1998
------------ ---------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Commercial paper and short-term borrowings...................................... $ 349,844 $ 515,646
Collateralized short-term financings:
Securities sold under agreements to repurchase.............................. 46,325,058 35,775,580
Securities loaned........................................................... 10,779,789 7,322,186
Payables:
Customers................................................................... 6,952,803 6,847,046
Brokers, dealers and other.................................................. 5,312,236 3,053,337
Financial instruments sold not yet purchased, at value:
U.S. government and agencies................................................ 7,454,864 5,935,629
Corporate debt.............................................................. 388,994 523,909
Equities & other............................................................ 2,513,704 2,479,411
Accounts payable and accrued expenses........................................... 1,595,264 2,282,413
Other liabilities............................................................... 1,065,919 937,377
-------------- --------------
82,738,475 65,672,534
-------------- --------------
Long-term borrowings............................................................ 4,244,665 3,482,003
-------------- --------------
Total liabilities...................................................... 86,983,140 69,154,537
-------------- -------------
Company-obligated mandatorily redeemable preferred securities
of subsidiary trust holding solely debentures of the Company................ 200,000 200,000
-------------- --------------
Stockholders' Equity:
Preferred stock, 50,000,000 shares authorized:
Series A Preferred Stock, at $50.00 per share liquidation
preference (4,000,000 shares issued and outstanding)................... 200,000 200,000
Series B Preferred Stock, at $50.00 per share liquidation
preference (3,500,000 shares issued and outstanding).................. 175,000 175,000
Common stock ($0.10 par value; 300,000,000 shares
authorized; 124,510,367 and 122,812,558 shares issued
and outstanding, respectively)........................................... 12,451 12,281
Restricted stock units (10,358,294 units authorized; 1,101,166
and 2,082,236 units issued and outstanding, respectively)................ 11,277 21,333
Paid-in capital............................................................. 902,238 858,066
Retained earnings........................................................... 1,766,287 1,657,710
Accumulated other comprehensive income...................................... 1,871 3,309
Employee deferred compensation stock trust.................................. 13,591 12,329
Common stock issued to employee deferred compensation trust................. (13,591) (12,329)
---------------- ---------------
Total stockholders' equity............................................. 3,069,124 2,927,699
-------------- -------------
Total Liabilities and Stockholders' Equity...................................... $ 90,252,264 $ 72,282,236
============ ============
</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
March 31,
1999 1998
----------- -----------
<S> <C> <C>
Revenues:
Commissions.................................................................. $ 280,992 $ 198,524
Underwritings................................................................ 256,914 306,158
Fees......................................................................... 287,075 255,371
Interest, net of interest to finance U.S. government, agency and
mortgage-backed securities of $705,251 and $766,071, respectively.......... 476,661 564,789
Principal transactions-net:
Trading.................................................................... 174,045 118,944
Investment................................................................. 3,024 41,298
Other........................................................................ 14,739 8,337
------------ -------------
Total revenues............................................................ 1,493,450 1,493,421
------------ -------------
Costs and Expenses:
Compensation and benefits.................................................... 635,714 644,084
Interest..................................................................... 355,953 373,866
Brokerage, clearing, exchange fees and other................................. 71,221 56,321
Occupancy and equipment...................................................... 73,323 59,434
Communications............................................................... 26,440 19,501
Other operating expenses..................................................... 133,799 122,965
------------- -------------
Total costs and expenses.................................................. 1,296,450 1,276,171
------------- -------------
Income before provision for income taxes......................................... 197,000 217,250
------------- -------------
Provision for income taxes....................................................... 75,350 83,100
------------- -------------
Net income....................................................................... $ 121,650 $ 134,150
============= =============
Dividends on preferred stock..................................................... $ 5,289 $ 5,443
============= =============
Earnings applicable to common shares............................................. $ 116,361 $ 128,707
============= =============
Earnings per share:
Basic........................................................................ $ 0.94 $ 1.12
Diluted...................................................................... $ 0.84 $ 1.00
============== =============
Weighted average common shares:
Basic........................................................................ 123,995 115,088
Diluted...................................................................... 137,850 128,794
============== =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
For the Year Ended December 31, 1998 and the Three Months Ended March 31, 1999
(In thousands, except per share data)
<TABLE>
<CAPTION>
Accumulated
Restricted Other
Preferred Common Stock Paid-in Retained Comprehensive
Stock Stock Units Capital Earnings Income Total
------- -------- ----------- ------- -------- --------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1997... $ 200,000 $ 11,185 $ 67,255 $ 440,926 $ 1,338,220 $ 3,904 $ 2,061,490
Net income....................... - - - - 370,800 - 370,800
Translation adjustment........... - - - - - (595) (595)
Total comprehensive income.... 370,205
Dividends:
Common stock - - - - (30,000) - (30,000)
($0.25 per share)...........
Preferred stock ............... - - - - (21,310) - (21,310)
Issuance of Series B
Preferred Stock................. 175,000 - - - - - 175,000
Sale of common stock to
Equitable/AXA..
- 500 - 299,500 - - 300,000
Exercise of stock options,
including related tax
benefits... - 148 - 37,840 - - 37,988
Conversion of restricted
stock units to common
stock, including
related tax benefits......... - 448 (45,890) 70,870 - - 25,428
Forfeiture of restricted
stock units..................... - - (32) 32 - - -
Tax benefit on distribution of
employee stock trust......... - - - 8,898 - - 8,898
--------- -------- ---------- --------- ---------- ---------- ----------
Balances at December 31, 1998.. 375,000 12,281 21,333 858,066 1,657,710 3,309 2,927,699
Net income....................... - - - - 121,650 - 121,650
Translation adjustment........... - - - - - (1,438) (1,438)
Total comprehensive income.... 120,212
Dividends:
Common stock
($.0625 per share).......... - - - - (7,784) - (7,784)
Preferred stock................ - - - - (5,289) - (5,289)
Exercise of stock options,
including related tax
benefits...................... - 69 - 18,383 - - 18,452
Conversion of restricted stock
units to common stock,
including related tax
benefits...................... - 101 (10,056) 25,789 - - 15,834
--------- -------- -------- -------- ----------- -------- -----------
Balances at March 31, 1999....... $ 375,000 $ 12,451 $ 11,277 $902,238 $ 1,766,287 $ 1,871 $ 3,069,124
========= ======== ======== ======== ============ ========= ===========
</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 Three months Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
-------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income....................................................................... $ 121,650 $ 134,150
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization................................................. 21,795 19,980
Deferred taxes................................................................ (20,538) 21,798
Increase in unrealized appreciation of long-term corporate development
investments.................................................................... (16,337) (5,750)
------------- ---------------
106,570 170,178
(Increase) decrease in operating assets:
Cash and securities segregated for regulatory
purposes or deposited with clearing organizations........................... 31,103 (429,007)
Securities purchased under agreements to resell............................... (9,417,458) (232,880)
Securities borrowed........................................................... (5,393,292) (1,019,634)
Receivables from customers.................................................... (332,077) (72,277)
Receivables from brokers, dealers and other................................... (786,272) (1,144,446)
Financial instruments owned, at value......................................... (2,375,100) (2,146,806)
Other assets.................................................................. (4,959) (94,893)
Increase (decrease) in operating liabilities:
Securities sold under agreements to repurchase................................ 9,417,458 232,880
Securities loaned............................................................. 3,457,603 968,012
Payables to customers......................................................... 105,757 46,562
Payables to brokers, dealers and other........................................ 2,258,899 1,321,952
Financial instruments sold not yet purchased, at value........................ 1,418,613 1,082,416
Accounts payable and accrued expenses......................................... (687,149) (295,078)
Other liabilities and deferred amounts ....................................... 152,385 87,517
Translation adjustment........................................................ (1,438) (562)
-------------- ---------------
Net cash used in operating activities.............................................. $ (2,049,357) $ (1,526,066)
-------------- ---------------
</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, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
Cash flows from investing activities: Net (payments for) proceeds from:
Purchases of long-term corporate development investments.................... $ (69,725) $ (219,231)
Sales of long-term corporate development investments........................ 26,869 44,895
Office facilities........................................................... (34,232) (31,666)
Other assets................................................................ (15,057) (40,320)
--------------- ---------------
Net cash used in investing activities........................................... (92,145) (246,322)
---------------- --------------
Cash flows from financing activities: Net proceeds from (payments for):
Short-term financings....................................................... 2,430,046 1,431,993
Senior notes................................................................ 648,288 148,401
Medium-term notes........................................................... 114,756 -
Other long-term debt........................................................ (382) (4,691)
Dividends................................................................... (13,073) (12,751)
Issuance of Series B preferred stock........................................ - 175,000
Exercise of stock options................................................... 10,443 8,702
--------------- --------------
Net cash provided by financing activities....................................... 3,190,078 1,746,654
--------------- --------------
Increase (decrease) in cash and cash equivalents................................ 1,048,576 (25,734)
Cash and cash equivalents at beginning of period................................ 1,049,253 273,164
--------------- --------------
Cash and cash equivalents at end of period...................................... $ 2,097,829 $ 247,430
=============== ==============
</TABLE>
See accompanying notes to condensed consolidated inancial statements.
8
<PAGE>
DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 1999
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 in 1985 when Equitable
acquired the Company.
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 condensed 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, 1998 included on Form 10-K filed by the
Company under the Securities Exchange Act of 1934.
To prepare condensed consolidated financial statements in conformity with
generally accepted accounting principles ("GAAP") management must estimate
certain amounts that affect the reported assets and liabilities, disclosure of
contingent assets and liabilities, and reported revenues and expenses. Actual
results could differ from those estimates. Certain reclassifications have been
made to prior year financial statements to conform to the 1999 presentation.
2. Filing of Registration Statement
--------------------------------
On March 17, 1999, the Company filed a registration statement, which was
subsequently amended on May 6, 1999 with the Securities and Exchange Commission
relating to a proposed initial public offering of a new class of common stock
that will track the performance of DLJdirect, its online brokerage business.
Based on the amendment, the Company currently intends to offer 15 million shares
of stock at $13.00- $15.00 per share.
3. Income Taxes
------------
Income taxes for interim period condensed consolidated financial statements
have been accrued using the Company's estimated effective tax rate. For the
three months ended March 31, 1999, the Company paid $4,716,804 in Federal
income taxes. There were no Federal income taxes paid for the three months
ended March 31, 1998.
4. Borrowings
----------
Short-term borrowings are generally demand obligations with interest
approximating Federal fund rates. Such borrowings are generally used to
facilitate the securities settlement process, to finance securities inventories
and to finance securities purchased by customers on margin.
In 1998, the Company introduced a $1.0 billion commercial paper program.
Obligations issued under this program (the "Notes") are exempt from
registration under the Securities Act of 1933, as amended under Section 4(2)
(the "Securities Act"). At March 31, 1999, there were no notes outstanding
under this program.
9
<PAGE>
DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Long-term borrowings:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
(In thousands)
------------- -------------
<S> <C> <C>
Senior notes, 5.875%-6.875% due various dates through 2008............................ $ 2,039,324 $ 1,391,036
Medium-term notes, 5.402% - 6.90% due various dates through 2016...................... 1,161,403 1,046,647
Senior secured floating rate notes due 2005........................................... 450,000 450,000
Global floating rate notes, due in 2002............................................... 348,469 348,357
Subordinated exchange notes 9.58% due 2003........................................... 225,000 225,000
Other borrowings...................................................................... 20,469 20,963
------------- -----------
Total long-term borrowings....................................................... $ 4,244,665 $ 3,482,003
=========== ===========
Current maturities.................................................................... $ 109,915 $ 100,973
============ ============
</TABLE>
During the three months ended March 31, 1999, the Company issued $115.0 million
of medium-term notes that mature at various dates through 2004.
In March 1999, the Company established a $2.0 billion shelf of debt securities
or preferred stock. During the quarter ended March 31, 1999, the Company issued
$650.0 million 5 7/8% senior notes due 2002 from this shelf.
For the three months ended March 31, 1999 and 1998, interest paid on all
borrowings and financing arrangements amounted to $1.0 billion and $1.1
billion, respectively.
5. Long-term Corporate Development Investments
-------------------------------------------
Long-term corporate development investments represent the Company's involvement
in private debt and equity investments. These investments generally have no
readily available market or may otherwise be restricted as to resale under the
Securities Act of 1933; therefore, 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 $515.1 million and $472.3 million at March
31, 1999 and December 31, 1998, respectively. For the three months ended March
31, 1999 and 1998, the increase in net unrealized appreciation amounted to
$16.3 million and $5.8 million, respectively. Changes in unrealized
appreciation (depreciation) arising from changes in fair value or upon
realization are reflected in revenues, principal transactions-net, investment
revenues in the condensed consolidated statements of income.
6. Net Capital
-----------
The Company's principal wholly-owned 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"). Accordingly, DLJSC is subject to the minimum net capital
requirements of the Securities and Exchange Commission, NYSE and the
Commodities Futures Trading Commission. As such, it is subject to 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, as amended ("the Exchange Act").
Under the alternative method permitted by this rule, the required net capital
may not be less than two percent of aggregate debit balances arising from
customer transactions or four percent of segregated funds whichever is greater.
If a member firm's capital is less than four percent of aggregate debit
balances, the NYSE may require the firm to reduce its business. If a member
firm's net capital is less than five percent of aggregate debit balances, the
NYSE may prevent the firm from expanding its business and declaring cash
dividends. At March 31, 1999, DLJSC's net capital of approximately $1.2 billion
was 18.21 percent of aggregate debit balances and in excess of the minimum
requirement by approximately $1.0 billion.
Certain of the Company's London-based broker-dealer subsidiaries are subject to
the requirements of the Securities and Futures Authority, a self-regulatory
organization established pursuant to the United Kingdom Financial Services Act
of 1986. Other U.S. and foreign broker-dealer subsidiaries of the Company are
subject to net capital requirements of their respective regulatory agencies. At
March 31, 1999, the Company and its broker-dealer subsidiaries complied with
all applicable regulatory capital adequacy requirements.
10
<PAGE>
DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
7. Earnings Per Share
------------------
Basic and diluted earnings per common share amounts are calculated by dividing
earnings applicable to common shares (net income less preferred dividends) by
the weighted average common shares outstanding. Diluted earnings per common
share also include the dilutive effects of shares of common stock issuable
under the Restricted Stock Unit Plan and options under the treasury stock
method.
The numerators and denominators of the basic and diluted earnings per common
share computations include the following items:
<TABLE>
<CAPTION>
March 31, March 31,
1999 1998
----------- --------------
Income Shares Income Shares
------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C>
Basic EPS
Earnings applicable to common shares.......... $ 116,361 123,995 $ 128,707 115,088
Effect of Dilutive Securities:
Restricted stock units...................... - 1,285 - 3,566
Stock options............................... - 12,570 - 10,140
--------------- ---------- ---------------- ---------
Diluted EPS.................................... $ 116,361 137,850 $ 128,707 128,794
========= ========= ========== ========
</TABLE>
8. Derivative Financial Instruments
--------------------------------
The Company enters into certain contractual agreements referred to as
derivatives or off-balance sheet financial instruments primarily to provide
products for its clients. Under these agreements, the Company performs the
following activities: writes over-the-counter ("OTC") options to accommodate
customers' needs; trades in forward contracts in U.S. government and agency
issued or guaranteed securities; trades in futures contracts on equity-based
indices, interest rate instruments and currencies; enters into swap
transactions to manage foreign currency, interest rate and equity risks; and
issues structured products based on emerging market financial instruments and
indices. The Company is not significantly involved in commodity derivative
instruments.
Options
- -------
The Company writes option contracts specifically designed to meet customers'
needs. Since the Company, not its counterparty, is obligated to perform, the
options do not expose the Company to credit risk. At the beginning of the
contract period, the Company receives a cash premium. During the contract
period, the Company bears the risk of unfavorable changes in the value of the
financial instruments underlying the options ("market risk"). To cover this
market risk, the Company purchases or sells cash or derivative financial
instruments on a proprietary basis. Such purchases and sales may include debt
and equity securities, forward and futures contracts and options. The
counterparties to these purchases and sales are reviewed to determine whether
they are creditworthy. Future cash requirements for options written equal the
fair value of the options. Option contracts are typically written for a
duration of less than 13 months and are included in the consolidated statements
of financial condition at fair value.
The notional (contract) value, or the market value for cash instruments, of the
written options was $8.4 billion at March 31, 1999 and $5.1 billion at December
31, 1998. These options contracts were covered by the following financial
instruments:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------- ------------
(In millions)
<S> <C> <C>
U.S. government, mortgage-backed securities and options thereon........... $ 2,810 $ 3,396
Foreign sovereign debt securities......................................... 35 89
Forward rate agreements................................................... - 38
Futures contracts......................................................... 444 76
Interest rate swaps....................................................... 2,634 650
Equities and other........................................................ 2,469 895
---------- ---------
Total.......................................................... $ 8,392 $ 5,144
========== =========
</TABLE>
11
<PAGE>
DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
The trading revenues from writing options (net of related interest expense)
were approximately $11.0 million and $15.1 million, for the three months ended
March 31, 1999 and 1998, respectively. The fair value of certain written
options is measured by the unamortized premiums and the intrinsic value
determined from various pricing sources. The average fair value of the options
was approximately $209.0 million at March 31, 1999 and $304.3 million at
December 31, 1998. The fair value of the options was approximately $250.9
million at March 31, 1999 and $397.1 million at year-end 1998.
Forwards and Futures
- --------------------
The Company enters into forward purchases and sales contracts for
mortgage-backed securities and foreign currencies. In addition, the Company
enters into futures contracts on equity-based indices, foreign currencies and
other financial instruments as well as options on futures contracts. Forward
and futures contracts are treated as off-balance sheet items. Market risk is
the price movement on the notional value of the contracts.
For forward contracts, cash is generally not required at inception; cash equal
to the notional value on the contract is required at settlement. For futures
contracts, the original margin is required in cash at inception; cash equal to
the daily change in market value is required at settlement.
Since forward contracts are subject to the financial reliability of the
counterparty, the Company is exposed to credit risk. To monitor this credit
risk, the Company limits transactions with specific counterparties, reviews
credit limits and adheres to internally established credit extension policies.
For futures contracts and options on futures contracts, the change in the
market value is settled with the exchanges in cash each day. As a result, the
credit risk with the futures exchange is limited to the net positive change in
the market value for a single day.
The Company generally enters into forward and futures transactions for periods
of 90 days or less. The remaining maturities for all forwards and futures are
less than 13 months.
<TABLE>
<CAPTION>
March 31, December 31,
Off-balance sheet values: 1999 1998
---- ----
(In millions)
<S> <C> <C>
Forward Contracts:
Purchased at notional (contract) value................................... $ 54,108 $ 41,254
Sold at notional (contract) value........................................ $ 53,296 $ 39,767
Futures Contracts and Options on Futures Contracts:
Purchased at market value................................................ $ 2,258 $ 1,184
Sold at market value..................................................... $ 1,924 $ 1,607
</TABLE>
<TABLE>
<CAPTION>
March 31, December 31,
Values included in the consolidated financial statements: 1999 1998
---- ----
(In millions)
<S> <C> <C>
Forward Contracts:
Average fair values included in liabilities during the period.......... $ 8 $ 2
Unrealized gains included in total assets at end of period............. $ 254 $ 263
Unrealized losses included in total liabilities at end of period....... $ 257 $ 269
Futures Contracts:
Average fair values included in liabilities during the period.......... $ 4 $ 23
Unrealized gains included in total assets at end of period............. $ 13 $ 4
Unrealized losses included in total liabilities at end of period....... $ 12 $ 1
</TABLE>
Average fair values were computed using month-end averages. For forward
contracts, the fair values are estimated based on dealer quotes, pricing models
or quoted prices for financial instruments with similar characteristics. For
futures contracts, the fair values are measured by reference to quoted market
prices.
Net trading losses on forward contracts were $43.0 million and $23.8 million
and net trading losses on futures contracts were $18.0 million and $27.1
million for the three months ended March 31, 1999 and 1998, respectively.
12
<PAGE>
DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Swaps
- -----
The notional (contract) value of swap agreements, consisting primarily of
interest rate and equity swaps, was approximately $13.1 billion and $8.0
billion at March 31, 1999 and December 31, 1998, respectively. The notional or
contract amounts indicate the extent of the Company's involvement in the
derivative instruments noted above. They do not measure the Company's exposure
to market or credit risk and do not represent the future cash requirements of
such contracts.
9. Commitments and Contingencies
-----------------------------
The Company issues letters of credit for which it is contingently liable for
$608.6 million at March 31, 1999.
The Company has outstanding commitments, expiring on March 16, 2000, to finance
$150.0 million to third parties to be secured by mortgage loans on real estate
properties. At March 31, 1999, unfunded commitments outstanding under this
facility amounted to $57.0 million. In addition, the Company enters into
commitments to extend credit to non-investment grade borrowers in connection
with the origination and syndication of senior bank debt. At March 31, 1999,
unfunded senior bank loan commitments outstanding amounted to $215.1 million.
At March 31, 1999, the Company has commitments of $669.5 million to invest on a
side by side basis with merchant banking partnerships.
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 designed 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 Form 10-K for the year ended December 31, 1998.
10. Industry Segment and Geographic Data
------------------------------------
In 1998 and prior years the Company operated and managed its businesses and
presented segment information through three principal operating segments:
Banking, Capital Markets and Financial Services. Effective January 1, 1999 the
Company changed its structure to operate and manage its businesses through four
operating segments: Banking, Equities, Fixed Income and Financial Services. The
following is a summary of the Company's segment data:
<TABLE>
<CAPTION>
Fixed Financial
Banking Income Equities Services Elimination
For the Quarters Ended: Group Group Group Group & Other Total
----------------------- ----- ----- ----- ----- ------- -----
(in millions)
<S> <C> <C> <C> <C> <C> <C>
March 31, 1999
Net revenues from external
sources........................ $ 324.0 $ 181.3 $ 209.1 $ 319.0 $ (16.6) $ 1,016.8
Net intersegment revenues......... - - (1.1) 14.3 (13.2) 0.0
Net interest revenue.............. (1.5) 28.1 5.4 61.7 27.0 120.7
------- ------- ------- ------- -------- ----------
Total net revenues............. $ 322.5 $ 209.4 $ 213.4 $ 395.0 $ (2.8) $ 1,137.5
======= ======= ======= ======= ======== =========
Income before income taxes........ $ 78.3 $ 62.8 $ 24.7 $ 90.7 $ (59.5) $ 197.0
======= ======= ======= ======= ======= =========
March 31, 1998
Net revenues from external
sources........................ $349.6 $ 237.7 $ 193.8 $ 238.4 $ (90.8) $ 928.7
Net intersegment revenues......... - 0.5 (0.5) 13.1 (13.1) 0.0
Net interest revenue.............. (0.7) 32.6 1.1 48.6 109.4 191.0
------- ------- ------- ------- -------- -----------
Total net revenues............. $ 348.9 $ 270.8 $ 194.4 $ 300.1 $ 5.5 $ 1,119.7
======= ======= ======= ======= ======== ==========
Income before income taxes........ $ 110.9 $ 94.7 $ 30.8 $ 44.6 $ (63.7) $ 217.3
======= ====== ====== ====== ======= ==========
</TABLE>
13
<PAGE>
DONALDSON, LUFKIN & JENRETTE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
<TABLE>
<CAPTION>
Fixed Financial
Banking Income Equities Services Elimination
Group Group Group Group & Other Total
---------- --------- ---------- ------------ ------------- ----------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Balance sheet data:
March 31, 1999
Segment assets.................... $1,179.1 $61,084.3 $3,314.5 $22,499.1 $2,175.2 $90,252.2
======== ========= ======== ========= ======== =========
December 31, 1998
Segment assets.................... $1,132.0 $45,683.7 $2,694.9 $19,925.0 $2,846.6 $72,282.2
======== ========= ======== ========= ======== =========
</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, 1998. These matters have been updated as follows:
In the lawsuits involving Dayton Monetary Associates and Charles Davison, DLJSC
and all the plaintiffs have reached settlements, which are all in the process
of being completed. DLJ's management believes such settlements will not have a
material adverse effect on the Company's consolidated financial condition or
results of operations in any particular period.
With respect to the litigation in Texas State Court regarding National Gypsum,
the State Court in an order dated March 1, 1999, granted motions for summary
judgment filed by DLJSC and the other defendants. The plaintiffs have indicated
that they intend to appeal.
On April 22, 1999, the complaint against DLJSC and the other defendants in the
Rickel Home Centers case was dismissed. Plaintiff's time to appeal has not yet
expired. Although there can be no assurance, DLJ's management does not believe
that the ultimate outcome of this litigation will have a material adverse effect
on DLJ's consolidated financial condition or DLJ's results of operations in any
particular period.
The Mid-American Waste Systems action pending in the Ohio state court, and the
Mid-American Waste Systems action pending in New York Supreme Court, were
settled in May 1999, as against DLJSC, subject to completing settlement document
action. DLJ's management believes such settlements will not have a material
adverse effect on DLJ's consolidated financial condition or results of
operations in any particular period.
In November 1998, three purported class actions (Gillet v. Goldman, Sachs & Co.
et al., Prager v. Goldman, Sachs & Co. et al., and Holzman v. Goldman, Sachs &
Co. et al) were filed in the U.S. District Court for the Southern District of
New York against more than 25 underwriters of initial public offering
securities, including DLJSC. The complaints allege that defendants conspired to
fix the "fee" paid for underwriting initial public offering securities by
setting the underwriters' discount or "spread" at 7%, in violation of the
federal antitrust laws. The complaints seek treble damages in an unspecified
amount and injunctive relief as well as attorney's fees and costs. On March 15,
1999, the plaintiffs filed a Consolidated Amended Complaint captioned In re
Public Offering Fee Antitrust Litigation. A motion by all defendants to dismiss
the complaints on several grounds is pending. Separately, the U.S. Department
of Justice has issued a Civil Investigative Demand to several investment
banking firms, including DLJSC, seeking documents and information relating to
"alleged" price fixing with respect to underwriting spreads in initial public
offerings. The government has not made any charges against DLJSC or the other
investment banking firms. DLJSC is cooperating with the Justice Department in
providing the requested information and believes that no violation of law by
DLJSC has occurred. Although there can be no assurance, DLJ's management does
not believe that the ultimate outcome of these matters will have a material
adverse effect on DLJ's consolidated financial condition. Based upon the
information currently available to it, DLJ's management cannot predict whether
or not these maters 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.
14
<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 (the
"Company") 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 of Financial Condition and Results of Operations included in the
Company's 1998 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 including securities market conditions,
the level and volatility of interest rates, competitive conditions and the size
and timing of transactions.
Robust primary markets and soaring equity valuations contributed to
overall positive market sentiments. In the first quarter of 1999, U.S. equity
markets continued to recover from the lows set in the fall of 1998 on the heels
of the collapse of the Russian economy and the economic conditions in Japan,
Asia and world-wide emerging markets. All major market indices achieved record
highs. In fixed-income markets, evidence that the U.S. economy was accelerating
in the fourth quarter of 1998, combined with the three earlier cuts in interest
rates by the Federal Reserve Bank, led to a sharp rise in U.S. bond yields in
the first quarter of 1999. In addition, the first quarter reflected a steady
advance of merger and acquisition activity involving European companies. Merger
and acquisition activities continued to reflect the trends of consolidation,
deregulation and globalization across industry sectors and borders.
RECENT DEVELOPMENTS
- -------------------
On March 17, 1999, the Company filed a registration statement, which
was subsequently amended on May 6, 1999, with the Securities and Exchange
Commission relating to a proposed initial public offering of a new class of
common stock that will track the performance of DLJdirect, its online brokerage
business. Based on the amendment, the Company currently intends to offer 15
million shares of stock at $13.00- $15.00 per share.
In March 1999, the Company filed a registration statement with the
Securities and Exchange Commission establishing a $2.0 billion shelf of senior
or subordinated debt securities or preferred stock. In April 1999, the Company
issued $650 million 5 7/8% Senior Notes due 2002 from this shelf.
RESULTS OF OPERATIONS
- ---------------------
QUARTER ENDED MARCH 31, 1999 COMPARED TO QUARTER ENDED MARCH 31, 1998
- ---------------------------------------------------------------------
Total revenues for the quarters ended March 31, 1999 and 1998 were
$1.49 billion. Increases in commissions and trading were offset by decreases in
underwritings and interest. Changes in net revenues from external sources for
each of the Company's industry segments were: Banking Group revenues decreased
by $25.6 million primarily as a result of decreased underwriting revenues from
the 1998 record levels and a reduction in merchant banking gains; Equities
Group revenues increased by $15.3 million primarily as a result of increased
revenues from the commencement of non-dollar equities trading in London and
Hong Kong; Fixed Income Group revenues decreased by $56.4 million principally
as a result of decreased underwriting revenues in the high yield and real
estate finance areas and decreases in trading gains; Financial Services Group
revenues increased by $80.6 million primarily as a result of increased
brokerage and correspondent clearance commission revenues and increased
interest income on customer balances and stock loan/borrowed business.
Commission revenues increased by $82.5 million or 41.5% to $281.0
million due to increased business in all areas and is generally consistent with
the overall growth in listed share volume on major equity exchanges.
15
<PAGE>
Underwriting revenues decreased by $49.2 million or 16.1% to $256.9
million representing an industry-wide decline in new issue volume. This decline
is a result of an overall slowdown in new issuance of high-yield bonds and
commercial real estate and mortgage-backed securities. In addition, the
Company's underwritings were at record levels in the first quarter of 1998.
Fee revenues increased by $31.7 million or 12.4% to $287.1 million.
These results reflect the Company's continuing market share growth in both U.S.
and international merger and acquisitions advisory transactions.
Interest, net of interest expense to finance U.S. government, agency
and mortgage-backed securities, decreased by $88.1 million or 15.6% to $476.7
million. Increases in balances of lending activity were more than offset by
reductions in interest rates charged. If the impact of the firm's proprietary
trading activities in emerging markets during the first quarter of 1998 were
excluded, net interest income would have increased 9%. The Company ceased
proprietary trading in emerging markets in the third quarter of 1998.
Principal transactions-net, trading revenues increased by $55.1
million or 46.3% to $174.0 million primarily from improvements in most areas
and the elimination in 1999 of trading losses in the Emerging Markets group.
If the impact of the firm's proprietary trading activities in emerging markets
during the first quarter of 1998 were excluded, net trading revenues would have
increased 16%.
Principal transactions-net, investment revenues decreased by $38.3
million or 92.7% to $3.0 million. The reduction in realized gains on sales of
investments was $48.9 million. Net unrealized appreciation increased by $10.6
million, which includes the elimination of net unrealized appreciation of $10.9
million on investments sold and a decrease in net unrealized appreciation of
$0.3 million on retained investments.
Total costs and expenses for the first quarter of 1999 were $1.3
billion, an increase of $20.3 million or 1.6% over the first quarter of 1998,
primarily due to growth at Pershing as well as the Company's international
expansion in Europe.
Compensation and benefits decreased $8.4 million or 1.3% to $635.7
million. Incentive and production-related compensation decreased by 9.7% in
1999, primarily because the first quarter of 1998 included a $29 million
provision for costs associated primarily with the Company's plans for
significant expansion in Europe. Base compensation, including benefits and all
payroll taxes, increased by 25.4% due to expansion in various business groups.
At March 31, 1999, full-time personnel totaled 8,672 compared to 7,377 at March
31, 1998, an increase of 1,295 or 17.6%.
Interest expense decreased $17.9 million or 4.8% to $356.0 million due
to reduction of interest rates on increased levels of borrowings. In addition,
the Company's inventory positions decreased in the first quarter of 1999.
All other expenses, as noted below, increased by $46.6 million or
18.0% to $304.8 million for the first quarter of 1999.
Brokerage, clearing, exchange fees and other expenses increased by
$14.9 million due to increased share volume and transaction fee payments.
Occupancy and equipment costs increased by $13.9 million as a result of the
Company's domestic and international expansion. Communications costs increased
by $6.9 million due to expanded facilities and overall growth in professional
staff. All other operating expenses increased by $10.8 million. Included
therein are professional fees, travel and entertainment, and printing and
stationery which increased due to an overall increase in the level of business
activity. Data processing costs increased due to expansion of the Company's
international operations and the implementation and development of new systems.
In addition, these costs increased due to the overhaul of the on-line customer
trading and information system for the Company's correspondent brokerage
network as well as costs relating to the Year 2000 project.
The changes in income before income taxes for each industry segment
were: Banking Group pre-tax income decreased by $32.6 million, primarily as a
result of decreased underwriting revenues and a reduction in merchant banking
gains; Equities Group pre-tax income decreased by $6.1 million principally as
continued investment spending related to international expansion more than
offset the related increase in revenues; Fixed Income Group pre-tax income
decreased by $31.9 million as a result of decreased underwriting revenues in
the high yield and real estate finance areas; Financial Services Group pre-tax
income increased $46.1 million as a result of increased brokerage and
correspondent clearance commissions and interest income.
The Company's income tax provision for the first quarter of 1999 and
1998 was $75.4 million and $83.1 million, respectively, which represented a
38.25% effective tax rate.
Net income for the quarter ended March 31, 1999 was $121.7 million, a
decrease of $12.5 million or 9.3% from the comparable 1998 period. Basic and
diluted earnings per common share after giving effect to the stock split, using
the treasury stock method were $0.94 and $1.12 and $0.84 and $1.00 for the
first quarter of 1999 and 1998, respectively.
16
<PAGE>
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 that turn over frequently from
customers, brokers and dealers. To meet client needs, as a securities dealer,
the Company may carry significant levels of trading inventories. As such,
because of changes relating to customer needs, economic and market conditions
and proprietary trading strategies, the Company's total assets or the
individual components of total assets vary significantly from period to period.
A relatively small percentage of total assets is fixed or held for a period of
longer than one year. At March 31, 1999 and December 31, 1998, the Company's
total assets were $90.3 billion and $72.3 billion, respectively.
The majority of the Company's assets are financed through daily
operations by repurchase agreements, financial instruments sold not yet
purchased, securities loaned, bank loans, and through payables to brokers and
dealers. Short-term funding is generally obtained at rates related to Federal
funds, LIBOR and money market rates. Depending upon prevailing market
conditions, other borrowing costs are negotiated. The Company monitors overall
liquidity by tracking the extent to which unencumbered marketable assets exceed
short-term unsecured borrowings.
The Company maintains a $2.8 billion revolving credit facility with
various banks, of which $1.7 billion may be unsecured. There were no borrowings
outstanding under this agreement at March 31, 1999.
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.
In the first quarter of 1999, the Company filed a registration
statement, which was subsequently amended on May 6, 1999, with the Securities
and Exchange Commission relating to a proposed initial public offering of a new
class of common stock that will track the performance of DLJdirect, its online
brokerage business. Based on the amendment, the Company currently intends to
offer 15 million shares of stock at $13.00-$15.00 per share
During the first quarter of 1999, the Company has been active in
raising additional long-term financing. In March 1999, the Company established
a $2.0 billion senior or subordinated debt securities or preferred stock shelf
registration. In April 1999, $650.0 million of 5 7/8% Senior Notes were issued
from this shelf. In addition, $115.0 million of medium-term notes were issued
at various rates and maturities.
The Company's current credit ratings of its long-term debt and commercial paper
are as follows:
<TABLE>
<CAPTION>
Long-Term Debt Commercial Paper
-------------- ----------------
<S> <C> <C>
Duff & Phelps A D-1
Fitch IBCA A F-1
Moody's A3 P-2
Standard & Poors A- A-2
Thomson BankWatch A+ TBW-1
</TABLE>
The Company's principal wholly-owned subsidiary, Donaldson, Lufkin &
Jenrette Securities Corporation ("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
17
<PAGE>
which regulate the general capital adequacy and liquidity of broker-dealers
and/or futures commission merchants. DLJSC has consistently maintained capital
substantially in excess of the minimum requirements of such capital rules. At
March 31, 1999, DLJSC had aggregate regulatory "net capital," after adjustments
required by Rule 15c3-1 under the Exchange Act, of approximately $1.2 billion,
which exceeded minimum net capital requirements by $1.0 billion and which
exceeded the net capital required by DLJSC's most restrictive debt covenants by
$694.9 million. Certain of the Company's London-based broker-dealer subsidiaries
are subject to the requirements of the Securities and Futures Authority, a
self-regulatory organization established pursuant to the United Kingdom
Financial Services Act of 1986. Other U.S. and foreign broker-dealer
subsidiaries of the Company are subject to net capital requirements of their
respective regulatory agencies. At March 31, 1999, the Company and its
broker-dealer subsidiaries were in compliance with all applicable regulatory
capital adequacy requirements.
The Company continues to explore potential acquisition opportunities
as a means of expanding its business. Such opportunities may involve
acquisitions which are material in size and may require the raising of
additional capital.
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.
Three Months Ended March 31, 1999 and 1998
At March 31, 1999 and 1998, cash and cash equivalents totaled $2.1
billion and $247.4 million, an increase of $1.0 billion and a decrease of $25.7
million, respectively.
Cash used in operating activities totaled $2.0 billion and $1.5
billion for the three months ended March 31, 1999 and 1998, respectively, and
reflects primarily an increase in operating assets. In the first three months
of 1999, there were increases in assets including financial instruments owned
of $2.4 billion, and securities borrowed of $5.4 billion. These increases were
partially offset by increases in liabilities including payables to brokers,
dealers and other of $2.3 billion, securities loaned of $3.5 billion and
financial instruments sold not yet purchased of $1.4 billion.
For the three months ended March 31, 1999 and 1998, cash of $92.1
million and $246.3 million, respectively, was used in investing activities.
These generally consist of purchases of long-term corporate development
investments and office facilities.
For the first three months of 1999 and 1998, net cash provided by
financing activities totaled $3.2 billion and $1.7 billion, respectively, of
which, $2.4 billion and $1.4 billion was provided by short-term financings
(principally repurchase agreements). Additionally, in 1999, $648.3 million was
provided by issuing Senior Notes and $115.0 million was provided by issuing
medium-term notes.
DERIVATIVE FINANCIAL INSTRUMENTS
- --------------------------------
Derivatives are financial instruments, the payments on which are
linked to the prices, or relationships between prices, of securities or
commodities, interest rates, currency exchange rates or other financial
measures (collectively, "cash market instruments"). Derivatives enable the
Company and its clients to manage their exposure to interest rates and currency
exchange rates, and security and other price risks. Derivatives may include
options, forward and futures contracts and swaps. Certain types of derivatives,
including forwards and certain options, are traded in the over-the-counter
("OTC") markets. Other types of derivatives, including futures contracts and
listed options, are traded on regulated exchanges. The Company uses derivatives
primarily to provide products to its clients, rather than to cover its own
positions.
The Company has focused its derivative activities on writing OTC
options contracts to accommodate its customers' needs, trading in forward
contracts in U.S. government and agency issued or guaranteed securities,
trading in futures contracts on equity-based indices, interest rate
instruments, and foreign currencies, and issuing structured products based on
emerging market financial instruments and indices.
Options Contracts:
-----------------
Options contracts are typically written for a duration of less than 13
months and are included in the consolidated statements of financial condition
at fair value Revenues from these activities (net of related interest
18
<PAGE>
expenses) were approximately $11.0 million and $15.1 million for the three
months ended March 31, 1999 and 1998, respectively. Option writing revenues are
primarily from the amortization of option premiums.
The notional (contract) value, or the market value for cash
instruments, of the written options contracts was approximately $8.4 billion
and $6.7 billion at March 31, 1999 and 1998, respectively. These options
contracts were covered by various financial instruments that the Company has
purchased or sold as principal.
Forward and Futures Contracts:
------------------------------
The Company enters into forward purchases and sales contracts for
mortgage-backed securities and foreign currencies. In addition, the Company
enters into futures contracts on equity-based indices, foreign currencies and
other financial instruments. Forward and futures contracts are treated as
off-balance sheet items. Market risk is the price movement on the notional
value of the contracts.
For the three months ended March 31, 1999 and 1998, net trading losses
on forward contracts were $43.0 million and $23.8 million and net trading
(losses) on futures contracts were $18.0 million and $27.1 million,
respectively.
Off-balance sheet values:
<TABLE>
<CAPTION>
March 31, 1999 March 31, 1998
-------------- --------------
Purchases Sales Purchases Sales
--------- ------- ----------- --------
(In millions)
<S> <C> <C> <C> <C>
Forward Contracts
(Notional Contract Value)................ $ 54,108 $ 53,296 $ 23,288 $ 23,555
======== ======== ======== ========
Futures Contracts and Options on
Futures Contracts (Market Value)......... $ 2,258 $ 1,924 $ 1,210 $ 2,117
======= ======= ======= =======
</TABLE>
Swap Agreements:
- ----------------
The notional (contract) value of swap agreements consisting primarily
of interest rate and equity swaps, was approximately $13.1 billion and $8.0
billion at March 31, 1999 and December 31, 1998, respectively. The notional or
contract amounts indicate the extent of the Company's involvement in the
derivative instruments noted above. They do not measure the Company's exposure
to market or credit risk and do not represent the future cash requirements of
such contracts.
MERCHANT BANKING AND BRIDGE LENDING ACTIVITIES
- ----------------------------------------------
The Company's merchant banking activities include investments in
various partnerships, for which subsidiaries of the Company act as general
partner, as well as direct investments in connection with its merchant banking
activities. At March 31, 1999 the Company had investments of $427.1 million and
has commitments to invest up to an additional $669.5 million.
Equitable has committed, subject to approval by Equitable on a
transaction-by-transaction basis, to provide $750.0 million of subordinated
debt financing to the DLJ Bridge Fund. The Bridge Fund provides short-term
loans in connection with DLJ's merchant banking and financial advisory
businesses. The Company has agreed to pay Equitable the first $25.0 million of
aggregate principal losses incurred by Equitable with respect to all bridge
loans. To the extent such payments by the Company do not fully cover any such
losses incurred by Equitable, Equitable is entitled to receive all other
distributions otherwise payable to the Company with respect to DLJ Bridge Fund
activities until such losses have been recovered. The Company has also agreed
to pay Equitable the amount, if any, by which any principal loss on an
individual loan exceeds $150.0 million. At March 31, 1999, the DLJ Bridge Fund
has one individual bridge loan outstanding in excess of $150.0 million. At
March 31, 1999, the DLJ Bridge Fund had extended $ 298.8 million of short-term
bridge loans.
HIGH-YIELD AND OTHER NON-INVESTMENT GRADE DEBT
- ----------------------------------------------
The Company underwrites, trades, sells and holds high-yield and
non-investment-grade securities. Non-investment-grade securities are securities
or loans to companies rated BB+ or lower as well as non-rated securities or
loans. Due to credit considerations, liquidity of secondary trading markets and
vulnerability to general economic conditions, these securities generally
involve greater risk than investment-grade holdings.
19
<PAGE>
The Company records high-yield securities at market value and records
non-investment grade holdings at market or fair value, except for senior bank
debt which is carried at lower of cost or market. Unrealized gains and losses
are recognized currently in earnings. Long and short financial holdings
(excluding derivatives and structured notes) are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------------ ------------
(In millions)
Long Short Long Short
---------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
High-Yield.................................. $ 426.0 $ 209.4 $ 429.3 $ 345.3
Senior Bank Debt............................ 961.6 - 1,261.6 -
Foreign Sovereign Debt...................... 522.2 1.9 423.6 13.8
Mortgage Whole Loans ....................... 1,125.2 30.1 722.3 -
Convertible Securities...................... 549.7 5.6 460.6 8.0
Other Non-Investment Grade.................. 245.1 36.0 243.2 21.5
---------- ---------- ----------- ----------
Totals...................................... $ 3,829.8 $ 283.0 $ 3,540.6 $ 388.6
========== ========== =========== ==========
</TABLE>
RISK MANAGEMENT AND VALUE AT RISK
- ---------------------------------
For a description of the Company's risk management policies and
procedures and value-at-risk ("VAR") model, including such model's assumptions
and limitations, refer to the Management's Discussion and Analysis of Financial
Condition and Results of Operations included in the Company's 1998 Annual
Report on form 10-K.
The Company-wide VAR was approximately $24.0 million and $22.0 million at March
31, 1999 and December 31, 1998, respectively. The Company-wide VAR is less than
the sum of the individual components below due to the benefit of
diversification among the risks presented below. The VAR for the two main
components of market risk, expressed in terms of theoretical fair values at
March 31, 1999 and December 31, 1998 is as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------- ---------
(In millions)
<S> <C> <C>
Interest rate risk............... $ 15 $ 16
Equity risk...................... $ 11 $ 11
</TABLE>
YEAR 2000
- ---------
The Company has been actively engaged in addressing Year 2000 issues.
Such issues relate to potential problems resulting from non-Year 2000 compliant
systems processing transactions using two-digit date fields rather than four
digit date fields for the year of a transaction. If these systems are not
identified and reconfigured, Year 2000 transactions would be processed as year
"00," which could lead to processing inaccuracies and potential inoperability
and could have a material adverse effect on the Company's business.
As a result of the Company's recent expansion, entry into new product
markets and move to its new corporate headquarters, many of the Company's
communications and data processing systems are Year 2000 compliant. However,
the Company, has undertaken a Year 2000 Project to identify and modify any
non-Year 2000 compliant systems. The Year 2000 Project is the Company's highest
priority. The Year 2000 Project is decentralized by functional area and is
focused on both information technology and non-information technology systems.
A written Year 2000 Plan has been developed for each unit (Business Units and
Administrative Units) and the units are responsible for all steps necessary to
ensure that their respective assets and systems are Year 2000 compliant. The
Year 2000 Project is overseen by two Project Management Offices: one for the
Company's correspondent clearance business and the other responsible for the
Company's remaining functional units. The Project Managers report to a Steering
Committee, comprised of Senior Business Managers, which in turn reports to the
Company's Chief Financial Officer and Chief Executive Officer. The Company has
also retained the services of several consulting firms having considerable
expertise in advising corporations on Year 2000 issues.
The Company has inventoried all systems, identified mission critical
systems (those systems where loss of their function would result in an
immediate stoppage or significant impairment to core business areas) and
determined which of these systems are not Year 2000 compliant. The Company's
correspondent clearance business has renovated, tested and returned all of its
non-Year 2000 compliant applications to production, as remediation has been
completed. With respect to the rest of the Company's systems, all mission
critical systems have been renovated, implemented and tested. The same process
is being performed for non-critical systems and is expected to be completed by
the second quarter of 1999. None of the Company's other major information
technology projects have been affected significantly due to the implementation
of the Year 2000 Project.
20
<PAGE>
The Company has identified all significant third parties, such as
fiduciary agents, vendors, custodial banks, correspondents and facility
operators, and has contacted them regarding their Year 2000 readiness. All such
parties have assured the Company that they are taking the necessary steps to
prepare for the Year 2000.
The Company has completed various types of testing including the
Securities Industry Association's industry-wide beta testing, electronic file
testing with correspondents and vendor-supplied business applications testing.
For each of the tests in which it has participated, the Company has achieved
successful results. Throughout 1999, internal and external systems will
continue to be tested to ensure that all remediated systems remain compliant.
Costs
- -----
The total cost to ensure that the Company's systems are Year 2000
compliant is not expected to be material to the Company's financial position.
Based upon current information, the total cost of the Year 2000 project is
currently estimated to be between $85 and $90 million, which has been approved
by the Board of Directors of the Company. Based on progress to date, the
current funding level has been found to be adequate. More than half of the Year
2000 budget is allocated to renovate and test applications. The budget includes
Year 2000 compliance testing, full system testing, peer to peer testing with
industry agencies, correspondents and third party vendors and other
industry-wide testing. The budget also includes developing a contingency plan.
Costs related to the Year 2000 project are expensed as incurred. At March 31,
1999, costs since inception totaled $86.0 million. The cost of the project is
being funded by operations.
Risks
- -----
The Year 2000 issue includes many risks including the possibility that
the Company's computer and non-information technology systems will fail. The
Company cannot ensure that the schedule for compliance outlined above will be
met or that the systems of other companies on which the Company depends will be
timely converted. Due to this uncertainty, the Company is unable to determine
whether the Year 2000 will have a material impact on the Company's business,
results of operations or financial condition. If the Year 2000 risks are not
remedied, the Company may experience business interruption or shutdown,
financial loss, regulatory actions, damage to the Company's global franchise
and legal liability. However, the Year 2000 Project is expected to reduce
significantly the Company's level of uncertainty regarding the Year 2000
readiness of internal and third-party systems. The Company believes that with
the completion of the Project as scheduled, the possibility of significant
interruptions of normal operations as a result of the Year 2000, should be
reduced.
Contingencies
- -------------
The Company's action plan is designed to safeguard the interests of
the Company and its customers; however, except as discussed below, a formal
contingency plan does not exist. The Company is assessing contingency
requirements and will develop a contingency plan by June 30, 1999. DLJ' s
correspondent clearance business has a written general contingency plan, which
covers a variety of independent events that may require recovery/contingency
plans, including Year 2000 system failures. To enhance this plan, Year
2000-specific scenarios are being developed.
To the fullest extent permitted by law, the foregoing discussion is a
"Year 2000 Readiness Disclosure" within the meaning of the Year 2000
Information and Readiness Disclosure Act 105 P.L. 271.
Forward looking statements contained under "YEAR 2000" above should be
read in conjunction with the Company's disclosure under the heading "FORWARD
LOOKING STATEMENTS" below.
FORWARD-LOOKING STATEMENTS
- --------------------------
The Company has made in this report, and from time to time may
otherwise make in its public filings, press releases and discussions with
Company management, forward looking statements concerning the Company's
operations, economic performance and financial condition, as well as its
strategic objectives, including, without limitation, global expansion. Such
forward looking statements are subject to various risks and uncertainties and
the Company claims the protection afforded by the safe harbor for
forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995. Actual results could differ materially from those currently
anticipated due to a number of factors in addition to those discussed elsewhere
herein and in the Company's other public filings, press releases and
discussions with Company management, including (i) the volatile nature of the
securities business, which is affected by, among other things, the availability
of capital, the level and volatility of interest rates and the uncertainties of
the global and U.S. economies, (ii) the competitive nature of the securities
business, (iii) the effect of extensive federal, state and
21
<PAGE>
foreign regulation on the Company's business, (iv) market, credit and liquidity
risks associated with the Company's underwriting, securities trading,
market-making and arbitrage activities, (v) potential losses that could result
from the Company's merchant banking activities as a result of its capital
intensive nature, (vi) risks associated with the Company's use of derivative
financial instruments, (vii) the availability of adequate financing to support
the Company's business, (viii) potential restrictions on the business of, and
withdrawal of capital from, certain subsidiaries of the Company due to net
capital requirements, (ix) potential liability under federal and state
securities and other laws, (x) the effect of any future acquisitions, (xi) the
risks associated with Year 2000 issues, including failure to meet the schedule
for Year 2000 compliance, the uncertainty surrounding Year 2000 readiness of
third parties, and increased costs associated with the implementation of the
Year 2000 project and (xii) factors that may affect the timeliness of Year 2000
compliance include the ability to locate, correct and successfully test all
relevant computer code according to schedule, the continued availability of
certain resources including personnel, timely responses and corrections by
third-parties and suppliers and the compatibility of new systems with those
systems not being replaced.
22
<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, 1998. These matters have been updated as follows:
In the lawsuits involving Dayton Monetary Associates and Charles Davison, DLJSC
and all the plaintiffs have reached settlements, which are all in the process
of being completed. DLJ's management believes such settlements will not have a
material adverse effect on the Company's consolidated financial condition or
results of operations in any particular period.
With respect to the litigation in Texas State Court regarding National Gypsum,
the State Court in an order dated March 1, 1999, granted motions for summary
judgment filed by DLJSC and the other defendants. The plaintiffs have indicated
that they intend to appeal.
On April 22, 1999, the complaint against DLJSC and the other defendants in the
Rickel Home Centers case was dismissed. Plaintiff's time to appeal has not yet
expired. Although there can be no assurance, DLJ's management does not believe
that the ultimate outcome of this litigation will have a material adverse effect
on DLJ's consolidated financial condition or DLJ's results of operations in any
particular period.
The Mid-American Waste Systems action pending in the Ohio state court, and the
Mid-American Waste Systems action pending in New York Supreme Court, were
settled in May 1999, as against DLJSC, subject to completing settlement
documentation. DLJ's management believes such settlements will not have a
material adverse effect on DLJ's consolidated financial condition or results of
operations in any particular period.
In November 1998, three purported class actions (Gillet v. Goldman, Sachs & Co.
et al., Prager v. Goldman, Sachs & Co. et al., and Holzman v. Goldman, Sachs &
Co. et al) were filed in the U.S. District Court for the Southern District of
New York against more than 25 underwriters of initial public offering
securities, including DLJSC. The complaints allege that defendants conspired to
fix the "fee" paid for underwriting initial public offering securities by
setting the underwriters' discount or "spread" at 7%, in violation of the
federal antitrust laws. The complaints seek treble damages in an unspecified
amount and injunctive relief as well as attorney's fees and costs. On March 15,
1999, the plaintiffs filed a Consolidated Amended Complaint captioned In re
Public Offering Fee Antitrust Litigation. A motion by all defendants to dismiss
the complaints on several grounds is pending. Separately, the U.S. Department
of Justice has issued a Civil Investigative Demand to several investment
banking firms, including DLJSC, seeking documents and information relating to
"alleged" price fixing with respect to underwriting spreads in initial public
offerings. The government has not made any charges against DLJSC or the other
investment banking firms. DLJSC is cooperating with the Justice Department in
providing the requested information and believes that no violation of law by
DLJSC has occurred. Although there can be no assurance, DLJ's management does
not believe that the ulimate outcome of these matters will have a material
adverse affect on DLJ's consolidated financial condition. Based upon the
information currently available to it, DLJ's management cannot predict whether
or not these matters 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.
23
<PAGE>
ITEM 5. OTHER INFORMATION
The Company's Annual Meeting of Stockholders was held on April 21, 1999.
At the meeting, (i) nineteen persons were elected as directors of the Company,
(ii) the selection of KPMG LLP to serve as the Company's independent auditors
for the fiscal year ending December 31, 1999 was ratified, (iii) the sale of
$300,000,000 of common stock to Equitable was approved, and (iv) an amendment
to the Company's 1996 Stock Option plan, including increasing the number of
shares of common stock authorized under such plan by 15,000,000 was approved.
Election of Directors:
<TABLE>
<CAPTION>
Nominee For Withheld Against
<S> <C> <C> <C>
John S. Chalsty 119,088,408 106,899
Anthony F. Daddino 119,089,480 105,827
Henri de Castries 119,089,368 105,939
David DeLucia 119,089,110 106,197
Denis Duverne 119,086,768 108,539
Jane Mack Gould 119,087,883 107,424
Louis Harris 119,105,569 89,738
Michael Hegarty 119,088,413 106,894
Henri G. Hottinguer 119,124,380 70,927
Hamilton E. James 119,090,180 105,127
W. Edwin Jarmain 119,124,530 70,777
Francis Jungers 119,091,938 103,369
Edward D. Miller 119,085,877 109,430
Richard S. Pechter 119,091,255 104,052
Stuart M. Robbins 119,090,625 104,682
Joe L. Roby 119,089,980 105,327
W.J. Sanders III 116,345,384 2,849,923
Stanley B. Tulin 119,089,193 106,114
John C. West 119,107,212 88,095
Ratification of Auditors 119,136,648 26,716 31,943
Approval of the sale of common stock
to Equitable in July 1998 108,858,849 50,917 393,282
Approval of an amendment to
the Company's 1996 Stock Option Plan 102,348,952 49,745 6,904,351
</TABLE>
24
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
3.1 Amended and Restated Certificate of Incorporation.
3.2 By-Laws.
11 Statement re: computation of basic earnings per share.
11.1 Statement re: computation of diluted earnings per share.
12 Ratio of earnings to fixed charges
12.1 Ratio of earnings to fixed charge and preferred dividends
27 Financial Data Schedule
(b) Reports on Form 8-K 1.
1. Form 8-K dated January 11, 1999
2. Form 8-K dated January 25, 1999
3. Form 8-K dated March 16, 1999
4. Form 8-K dated March 17, 1999
5. Form 8-K dated April 21, 1999
6. Form 8-K dated April 22, 1999
25
<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.
May 14, 1999 /s/ Anthony F. Daddino
--------------------------------------------
Anthony F. Daddino
Executive Vice President and Chief Financial
Officer
(On behalf of the Registrant and as
Principal Financial Officer)
26
<PAGE>
EXHIBIT INDEX
3.1 Amended and Restated Certificate of Incorporation. (Incorporated herein
by reference to Exhibit 3.1 to the Company's Quarterly report on Form
10-Q for the period ended March 31, 1998.
3.2 By-Laws. (Incorporated herein by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-3, File No. 333-53499).
11 Statement re: computation of basic earnings per share.
11.1 Statement re: computation of diluted earnings per share.
12. Ratio of earnings to fixed charges
12.1 Ratio of earnings to fixed charges and preferred dividends
27 Financial Data Schedule
27
<PAGE>
EXHIBIT 11
DONALDSON, LUFKIN & JENRETTE, INC. & SUBSIDIARIES
Computation of Basic Earnings Per Share
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
------------ --------------
<S> <C> <C>
Weighted Average Common Shares:
Average Common Shares Outstanding 123,837 114,972
Average Restricted Stock Units Outstanding 158 116
------------ -------------
Weighted Average Common Shares Outstanding 123,995 115,088
============ =============
Earnings:
Net Income $ 121,650 $ 134,150
Less: Preferred Stock Dividend Requirement 5,289 5,443
------------ -------------
Earnings Applicable to Common Shares $ 116,361 $ 128,707
============ =============
Basic Earnings Per Common Share $ 0.94 $ 1.12
============ =============
</TABLE>
<PAGE>
EXHIBIT 11-1
DONALDSON, LUFKIN & JENRETTE, INC. & SUBSIDIARIES
Computation of Diluted Earnings Per Share
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
------------ ------------
<S> <C> <C>
Weighted Average Common Shares:
Average Common Shares Outstanding 123,995 115,088
Average Restricted Stock Units Outstanding 1,285 3,566
Average Common Shares Issuable Under Employee Benefit Plans 12,570 10,140
------------ -----------
Weighted Average Common Shares Outstanding 137,850 128,794
============ ===========
Earnings:
Net Income $ 121,650 $ 134,150
Less: Preferred Stock Dividend Requirement 5,289 5,443
------------ ------------
Earnings Applicable to Common Shares $ 116,361 $ 128,707
============ ============
Diluted Earnings Per Common Share $ 0.84 $ 1.00
============ ============
</TABLE>
<PAGE>
Exhibit 12
DONALDSON, LUFKIN & JENRETTE, INC.
STATEMENT RECOMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
FOR THE QUARTER
FOR THE YEARS ENDED ENDED
-------------------------------------------------------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998 1999
Earnings:
Income before provision for
Income taxes $ 205,000 $ 298,500 $ 473,800 $ 661,100 $ 600,500 $ 197,000
Add: Fixed Charges
Interest (gross) 2,116,655 2,699,789 2,865,800 4,012,209 4,501,242 1,061,204
Interest factor in rents 18,565 22,064 25,515 29,351 38,517 11,610
----------- ---------- ---------- ---------- --------- ----------
Total fixed charges 2,135,220 2,721,833 2,891,315 4,041,560 4,539,759 1,072,814
Earning before fixed charges
and provision for income taxes $ 2,340,220 $ 3,020,333 $3,365,115 $4,702,660 $5,140,259 $1,269,814
============ =========== ========== ========== ========== ==========
Ratio of earnings to fixed charges 1.10 1.11 1.16 1.16 1.13 1.18
============ =========== ========== ========== ========== ==========
</TABLE>
<PAGE>
Exhibit 12.1
DONALDSON, LUFKIN & JENRETTE, INC.
STATEMENT RECOMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED DIVIDENDS
<TABLE>
<CAPTION>
FOR THE QUATER
FOR THE YEARS ENDED ENDED
-------------------------------------------------------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998 1999
Earnings:
Income before provision for
Income taxes $ 205,000 $ 298,500 $ 473,800 $ 661,100 $ 600,500 $ 197,000
Add: Fixed Charges
Interest (gross) 2,116,655 2,699,769 2,865,800 4,012,209 4,501,242 1,061,204
Interest factor in rents 18,565 22,064 25,515 29,351 38,517 11,610
----------- ---------- ---------- ---------- --------- ----------
Total fixed charges 2,135,220 2,721,833 2,891,315 4,041,560 4,539,759 1,072,814
Add: Preferred dividends 20,970 19,868 18,653 12,144 21,310 5,289
Combined fixed charges and
preferred dividends 2,156,190 2,741,701 2,909,968 4,053,704 4,561,069 1,078,103
Earning before fixed charges
and provision for income taxes $ 2,340,220 $ 3,020,333 $3,365,115 $4,702,660 $5,140,259 $1,269,814
============ =========== ========== ========== ========== ==========
Ratio of earning to fixed charges
and preferred dividends 1.09 1.10 1.16 1.16 1.13 1.18
============ =========== ========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<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.
DONALDSON, LUFKIN & JENRETTE, INC. & SUBSIDIARIES
Financial Data Schedule
(In thousands, except per share data)
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,109,951
<RECEIVABLES> 11,415,168
<SECURITIES-RESALE> 28,016,978
<SECURITIES-BORROWED> 29,360,931
<INSTRUMENTS-OWNED> 16,103,156
<PP&E> 463,272
<TOTAL-ASSETS> 90,252,264
<SHORT-TERM> 349,844
<PAYABLES> 12,265,039
<REPOS-SOLD> 46,325,058
<SECURITIES-LOANED> 10,779,789
<INSTRUMENTS-SOLD> 10,367,562
<LONG-TERM> 4,244,665
200,000
375,000
<COMMON> 12,451
<OTHER-SE> 2,481,673
<TOTAL-LIABILITY-AND-EQUITY> 90,252,264
<TRADING-REVENUE> (99,700)
<INTEREST-DIVIDENDS> 486,474
<COMMISSIONS> 280,426
<INVESTMENT-BANKING-REVENUES> 309,926
<FEE-REVENUE> 22,118
<INTEREST-EXPENSE> 355,953
<COMPENSATION> 635,714
<INCOME-PRETAX> 197,000
<INCOME-PRE-EXTRAORDINARY> 197,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 121,650
<EPS-PRIMARY> 0.94
<EPS-DILUTED> 0.84
</TABLE>
