United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
________________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
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 1-7367
PAINE WEBBER GROUP INC.
========================
(Exact name of Registrant as specified in its charter)
Delaware 13-2760086
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
1285 Avenue of the Americas, New York, N.Y. 10019
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 713-2000
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
_________ __________
______________________
On May 5, 1995, the Registrant had outstanding 99,610,111 shares of
common stock of $1 par value, which is the Registrant's only class
of common stock.
<PAGE>2
PAINE WEBBER GROUP INC.
FORM 10-Q
March 31, 1995
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements.
Consolidated Statements of Income
(unaudited) for the Three Months Ended
March 31, 1995 and 1994. 2
Consolidated Statements of Financial
Condition (unaudited) at March 31, 1995
and December 31, 1994. 3
Consolidated Statements of Cash Flows
(unaudited) for the Three Months Ended
March 31, 1995 and 1994. 4
Notes to Consolidated Financial Statements
(unaudited). 5-13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations. 14-16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 17
Item 4. Submission of Matters to a Vote of
Security Holders. 17-18
Item 6. Exhibits and Reports on Form 8-K. 18
Signature 19
<PAGE>3
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Paine Webber Group Inc.
Consolidated Statements of Income (unaudited)
(In thousands of dollars except share and per share amounts)
Three Months Ended
March 31,
-----------------------
1995 1994
--------- ----------
Revenues
Commissions $ 270,262 $ 280,656
Principal transactions 213,670 183,874
Investment banking 49,800 97,594
Asset management 89,887 91,383
Other 35,887 30,904
Interest 574,404 398,037
---------- ----------
Total revenues 1,233,910 1,082,448
Interest expense 508,126 330,371
---------- ----------
Net revenues 725,784 752,077
---------- ----------
Non-interest expenses
Compensation and benefits 432,957 431,714
Office and equipment 64,680 55,426
Communications 35,157 31,998
Business development 21,550 22,007
Brokerage, clearing & exchange fees 23,532 21,978
Professional services 22,187 18,330
Other 72,936 77,877
---------- ----------
Total non-interest expenses 672,999 659,330
---------- ----------
Income before taxes 52,785 92,747
---------- ----------
Provision for income taxes:
Federal 11,329 23,079
State, local and foreign 7,146 14,020
---------- ----------
18,475 37,099
---------- ----------
Net income $ 34,310 $ 55,648
========== ==========
Net income applicable to common shares $ 27,273 $ 56,711
========== ==========
Earnings per common share:
Primary $ 0.27 $ 0.71
Fully diluted $ 0.27 $ 0.70
Weighted average common shares:
Primary 99,196,163 79,911,116
Fully diluted 107,706,052 81,316,668
Dividends declared per common share $ 0.12 $ 0.12
[FN]
See notes to consolidated financial statements.
<PAGE>4
Paine Webber Group Inc.
Consolidated Statements of Financial Condition (unaudited)
(In thousands of dollars except share and per share amounts)
March 31, December 31,
1995 1994
----------- ------------
Assets
Cash and cash equivalents $ 245,004 $ 259,238
Cash and securities segregated and on deposit for
federal and other regulations 406,873 369,585
Trading inventories, at fair value 11,499,330 10,784,117
Securities borrowed or purchased under agreements
to resell 26,416,780 18,630,656
Receivables:
Clients 5,135,653 3,495,670
Brokers and dealers 409,879 432,565
Dividends and interest 268,153 229,462
Fees and other 244,766 233,027
Office equipment and leasehold improvements, net
of accumulated depreciation and amortization of
$257,101 at March 31, 1995 and $245,225 at
December 31, 1994 301,479 272,365
Other assets 1,287,668 1,149,440
------------ -----------
$46,215,585 $35,856,125
============ ===========
Liabilities and Stockholders' Equity
Short-term borrowings $ 1,148,275 $ 1,889,609
Commitments for securities sold but not yet
purchased, at fair value 8,061,124 6,034,706
Securities loaned or sold under agreements to
repurchase 26,492,734 19,099,766
Payables:
Clients 4,361,636 2,899,240
Brokers and dealers 418,749 303,244
Dividends and interest 251,334 218,719
Other liabilities and accrued expenses 936,822 933,977
Income taxes 18,559 -
Accrued compensation and benefits 250,402 344,981
----------- -----------
41,939,635 31,724,242
Long-term borrowings 2,435,287 2,315,415
----------- -----------
44,374,922 34,039,657
----------- -----------
Commitments and contingencies
Redeemable Preferred Stock 186,226 185,969
Stockholders' Equity:
Convertible Preferred Stock 100,000 100,000
Common stock, $1 par value, 200,000,000 shares
authorized; issued 101,840,236 shares at
March 31, 1995 and 100,613,737 shares at
December 31, 1994 101,840 100,614
Additional paid-in capital 800,364 784,974
Retained earnings 729,897 715,052
----------- -----------
1,732,101 1,700,640
Treasury stock, at cost;
2,072,812 shares at March 31, 1995 and
1,297,081 shares at December 31, 1994 (34,142) (21,981)
Unamortized cost of restricted stock (54,915) (51,803)
Foreign currency translation adjustment 11,393 3,643
----------- -----------
1,654,437 1,630,499
----------- -----------
$46,215,585 $35,856,125
=========== ===========
[FN]
See notes to consolidated financial statements.
<PAGE>5
Paine Webber Group Inc.
Consolidated Statements of Cash Flows (unaudited)
(In thousands of dollars)
Three Months Ended
March 31,
---------------------------
1995 1994
------------ ------------
Cash flows from operating activities:
Net income $ 34,310 $ 55,648
Adjustments to reconcile net income to cash
provided by (used for) operating activities:
Noncash items included in net income:
Depreciation and amortization 13,054 9,593
Deferred income taxes 24,058 (9,793)
Amortization of deferred charges 41,084 30,227
Other 12,439 21,269
(Increase) decrease in operating receivables:
Clients (869,934) (222,656)
Brokers and dealers 22,686 424,781
Dividends and interest (37,813) 10,197
Fees and other (7,198) (52,443)
Increase (decrease) in operating payables:
Clients 1,250,957 (170,492)
Brokers and dealers 115,505 (193,529)
Dividends and interest 32,598 (26,726)
Other (94,100) (76,598)
(Increase) decrease in:
Trading inventories (714,521) 341,429
Securities borrowed or purchased under
agreements to resell (2,009,787) (3,804,739)
Cash and securities on deposit (37,288) (75,858)
Other assets (171,309) (54,060)
Increase (decrease) in:
Commitments for securities sold but not
yet purchased 2,026,418 558,324
Securities loaned or sold under agreements
to repurchase 755,104 2,455,652
---------- -----------
Cash provided by (used for) operating
activities 386,263 (779,774)
---------- -----------
Cash flows from investing activities:
Payments for:
Net assets acquired in business acquisition (624,090) -
Office equipment and leasehold improvements (21,757) (17,926)
---------- -----------
Cash used for investing activities (645,847) (17,926)
---------- -----------
Cash flows from financing activities:
Net proceeds from (payments on):
Short-term borrowings (741,334) (957,699)
Securities sold under agreements to
repurchase, net of securities purchased
under agreements to resell 896,112 1,503,520
Proceeds from:
Long-term borrowings 145,396 382,363
Employee stock transactions 3,631 8,829
Payments for:
Long-term borrowings (25,966) (54,341)
Repurchases of common stock (13,023) (19,735)
Dividends (19,466) (9,199)
----------- ----------
Cash provided by financing activities 245,350 853,738
----------- ----------
(Decrease) increase in cash and cash
equivalents (14,234) 56,038
Cash and cash equivalents, beginning
of period 259,238 241,038
----------- ----------
Cash and cash equivalents, end of period $ 245,004 $ 297,076
=========== ==========
[FN]
See notes to consolidated financial statements.
<PAGE>6
Paine Webber Group Inc.
Notes to Consolidated Financial Statements (unaudited)
(In thousands of dollars except share and per share amounts)
Basis of Presentation
The consolidated financial statements include the accounts of Paine Webber Group
Inc. ("PWG") and its wholly owned subsidiaries, including its principal
subsidiary, PaineWebber Incorporated ("PWI") (collectively, the "Company").
All material intercompany balances and transactions have been eliminated. The
financial information as of and for the periods ended March 31, 1995 and 1994
is unaudited. However, in the opinion of management of the Company, such
information includes all adjustments, consisting only of normal recurring
accruals, necessary for a fair presentation. These financial statements should
be read in conjunction with the Company's Annual Report on Form 10-K for the
year ended December 31, 1994. The Results of Operations reported for interim
periods are not necessarily indicative of the results of operations for the
entire year. Certain reclassifications have been made in prior year amounts
to conform to current year presentations. The Company's principal line of
business is to serve the investment and capital needs of individual,
corporate, institutional and public agency clients.
Business Acquisition
The purchase of certain assets and liabilities (the "net assets") and specific
businesses of Kidder, Peabody Group Inc. ("Kidder") from General Electric
Company was completed in the first quarter of 1995 with the closing on the
retail and asset management businesses. The assets acquired and liabilities
assumed in the first quarter of 1995 were as follows:
Net assets acquired:
Trading inventories $ 692
Receivables 845,985
Other assets 45,712
Payables (268,299)
----------
$ 624,090
==========
The consideration given in exchange for the net assets and businesses acquired
was $624,090 in cash, obtained from various funding sources. The acquisition
has been accounted for under the purchase method of accounting. The following
unaudited pro forma condensed results of operations for the three months ended
March 31, 1994 assumes the acquisition of the Kidder businesses occurred at the
beginning of the year ended December 31, 1994:
Revenues $ 1,349,507
Net revenues $ 936,550
Net income $ 75,847
Earnings per common share:
Primary $0.69 <F1>
Fully diluted $0.66 <F1>
<F1> The unaudited pro forma earnings per common share for the 1994 periods
subsequent to the three months ended March 31, 1994 are favorably impacted
by the acquisition.
The unaudited pro forma condensed results of operations for the three months
ended March 31, 1994 are not necessarily indicative of the Company's results of
operations that might have occurred had the transaction been executed at the
beginning of 1994, or of any future results of operations of the Company.
Adjustments to the first quarter of 1995 to develop pro forma results as if the
retail and asset management closings had occurred on January 1, 1995 were not
material.
Fair Value of Financial Instruments
Substantially all of the Company's financial instruments are carried at fair
value or amounts approximating fair value. Assets, including cash and cash
equivalents, cash and securities segregated for regulatory purposes, trading
inventories, securities borrowed or purchased under agreements to resell, and
certain receivables, are carried at fair value or contracted amounts which
approximate fair value. Similarly, liabilities, including short-term
borrowings, commitments for securities sold but not yet purchased, securities
loaned or sold under agreements to repurchase and, certain payables, are
carried at fair value or contracted amounts approximating fair value.
<PAGE>7
Notes to Consolidated Financial Statements (continued)
At March 31, 1995 and December 31, 1994, the fair value of long-term borrowings
was $2,317,293 and $2,107,538, respectively, as compared to the carrying
amounts of $2,435,287 and $2,315,415, respectively. The estimated fair value
of long-term borrowings is based upon quoted market prices for the same or
similar issues and pricing models. However, for substantially all its fixed
rate debt, the Company enters into interest rate swap agreements to convert
its fixed rate payments into floating payments, which partially offset the
effect of the changes in interest rates on the fair value of the Company's
long-term borrowings.
The fair value of interest rate swaps used to hedge the Company's long-term
borrowings is based upon the amounts the Company would receive or pay to
terminate the agreements, taking into account current interest rates and
creditworthiness of the counterparties. The fair value of the interest rate
swaps was $106,396 payable and $172,193 payable at March 31, 1995 and December
31, 1994, respectively. The carrying amounts of the interest rate swap
agreements at March 31, 1995 and December 31, 1994 were $1,596 payable and
$4,480 receivable, respectively, and are included in "Dividends and interest"
in the Company's Consolidated Statement of Financial Condition.
Trading Inventories
Trading inventories and commitments for securities sold but not yet purchased,
recorded at fair value, consisted of the following:
March 31, December 31,
1995 1994
----------- -----------
Trading inventories:
U.S. government and agency obligations $ 3,655,961 $ 3,560,201
Mortgages and mortgage-backed securities 3,053,251 2,441,940
Corporate debt securities 2,130,084 1,816,747
State and municipal obligations 1,082,520 1,018,875
Corporate equity securities 816,903 703,366
Commercial paper and other short-term debt 760,611 1,242,988
----------- -----------
$11,499,330 $10,784,117
=========== ===========
Commitments for securities sold but not yet purchased:
U.S. government and agency obligations $ 6,248,492 $ 4,918,655
Mortgages and mortgage-backed securities 93,279 44,370
Corporate debt securities 694,372 398,913
State and municipal obligations 41,915 57,751
Corporate equity securities 983,066 615,017
----------- -----------
$ 8,061,124 $ 6,034,706
=========== ===========
Short-Term Borrowings
The Company meets its short-term financing needs by obtaining bank loans on
either a secured or unsecured basis; by issuing commercial paper and
medium-term notes; by entering into agreements to repurchase, whereby
securities are sold with a commitment to repurchase at a future date; and
through securities lending activity.
Short-term borrowings at March 31, 1995 and December 31, 1994 consisted of the
following:
March 31, December 31,
1995 1994
----------- -----------
Bank loans and other $ 676,856 $ 972,959
Commercial paper 471,419 906,650
Medium-Term Notes - 10,000
----------- -----------
$ 1,148,275 $ 1,889,609
=========== ===========
<PAGE>8
Notes to Consolidated Financial Statements (continued)
Long-Term Borrowings
Long-term borrowings at March 31, 1995 and December 31, 1994 consisted of the
following:
March 31, December 31,
1995 1994
----------- -----------
Fixed Rate Senior Notes due 1995-2014 $1,311,431 $1,177,159
Fixed Rate Subordinated Notes due 2002 174,346 174,324
Medium-Term Senior Notes 603,475 618,070
Medium-Term Subordinated Notes 308,150 308,150
Other 37,885 37,712
---------- ----------
$2,435,287 $2,315,415
========== ==========
On March 13, 1995, the Company issued $125,000 of 8 7/8% Senior Notes Due March
15, 2005 at a discount of $509. The Notes are not redeemable prior to
maturity. Interest on the Notes is payable semiannually on March 15 and
September 15. Interest rates on the remaining fixed rate senior notes
outstanding at March 31, 1995 range from 6 1/4% to 9 5/8%. The weighted
average interest rate on the fixed rate senior notes outstanding at
March 31, 1995 was 7.70%. The Fixed Rate Subordinated Notes Due 2002 have
an interest rate of 7 3/4%.
As of March 31, 1995, the Company had $911,625 of Medium-Term Senior and
Subordinated Notes outstanding, with an average maturity of 3.4 years and a
weighted average interest rate of 7.05%.
Total interest payments relating to agreements to repurchase, short-term
borrowings, stock loans and long-term borrowings were $475,870 and $359,996 for
the three months ended March 31, 1995 and 1994, respectively.
Preferred Stock
The Company has authorization to issue up to 20,000,000 shares of preferred
stock, in one or more series, with a par value of $20.00 per share. Preferred
stock outstanding at March 31, 1995 and December 31, 1994 was as follows:
March 31, December 31,
1995 1994
------------ -----------
9% Cumulative Redeemable Preferred Stock,
Series C, $100.00 liquidation value;
2,500,000 shares authorized, issued
and outstanding $186,226 $185,969
6% Cumulative Convertible Redeemable
Preferred Stock, Series A, $100.00
liquidation value; 1,000,000 shares
authorized, issued and outstanding $100,000 $100,000
The Company's 9% Cumulative Redeemable Preferred Stock, Series C, was recorded
at its fair value of $185,000 at the date of issuance and is being increased
periodically by charges to retained earnings, using the interest method, so
that the carrying amount equals the redemption amount at the mandatory
redemption date on December 15, 2014.
Common Stock
As of March 31, 1995, the Company had 35,070,288 authorized shares of common
stock reserved for issuance in connection with convertible securities and stock
option and stock award plans.
On May 4, 1995, the Board of Directors declared a regular quarterly dividend on
the Company's common stock of $0.12 per share payable on July 7, 1995 to
stockholders of record on June 2, 1995.
<PAGE>9
Notes to Consolidated Financial Statements (continued)
Capital Requirements
PWI, a registered broker-dealer, is subject to the Securities and Exchange
Commission Uniform Net Capital Rule and New York Stock Exchange Growth and
Business Reduction capital requirements. Under the method of computing capital
requirements adopted by PWI, minimum net capital shall not be less than 2% of
combined aggregate debit items arising from client transactions, plus excess
margin collected on securities purchased under agreements to resell, as
defined. A reduction of business is required if net capital is less than 4%
of such aggregate debit items. Business may not be expanded if net capital
is less than 5% of such aggregate debit items. As of March 31, 1995, PWI's
net capital of $539,182 was 13% of aggregate debit balances and its net
capital in excess of the minimum required was $445,271.
Financial Instruments with Off-Balance-Sheet Risk
Held or Issued for Trading Purposes
In the normal course of business, the Company engages in a variety of
derivative and non-derivative financial instrument transactions in connection
with its market risk management, its principal trading activities and also on
behalf of its clients. Derivative financial instruments include forward and
futures contracts, options contracts, interest rate swaps and other contracts
committing the Company to purchase or deliver other instruments at specified
future dates and prices, or to make or receive payments based upon notional
amounts and specified rates or indices. As defined by the Financial
Accounting Standards Board ("FASB") in Statement of Financial Accounting
Standards No. 119, "Disclosure about Derivative Financial Instruments and
Fair Value of Financial Instruments," a derivative financial instrument also
includes unsettled purchase and sale agreements and firm or standby
commitments for the purchase of securities. It does not include on-balance-
sheet receivables and payables whose value is derived from changes in the
value of some underlying asset or index, such as mortgage-backed securities
and structured notes.
In connection with its market risk management and principal trading activities,
the Company may enter into a derivative contract to manage the risk arising
from other financial instruments or to take a position based upon expected
future market conditions. The Company also takes positions to facilitate
client transactions and acts as a market-maker in certain listed and unlisted
securities. These contracts are valued at market, and unrealized gains and
losses are reflected in the financial statements.
A large portion of the Company's derivative financial instruments are "to be
announced" mortgage securities requiring forward settlement. As a principal
in the mortgage-backed securitization business, the Company has outstanding
forward purchase and sale agreements committing the Company to deliver
participation certificates and mortgage-backed securities.
Set forth on the following page are the gross contract or notional amounts of
all off-balance-sheet derivative financial instruments held or issued for
trading purposes. These amounts are not reflected in the Consolidated
Statement of Financial Condition and are indicative only of the volume of
activity at March 31, 1995 and December 31, 1994. They do not represent
amounts subject to market risks, and in many cases, limit the Company's
overall exposure to market losses by hedging other on- and off-balance-sheet
transactions.
<PAGE>10
Notes to Consolidated Financial Statements (continued)
Notional or Contract Amount
---------------------------
March 31, 1995 December 31, 1994
-------------- -----------------
Purchases Sales Purchases Sales
----------- ----------- ---------- ----------
Mortgage-backed forward
contracts and options
written and purchased $13,038,635 $13,928,115 $8,757,807 $9,256,738
Foreign currency forward
contracts, futures
contracts, and options
written and purchased 2,552,420 2,641,505 2,325,721 1,855,557
Equity securities
contracts including
futures, forwards,
and options written
and purchased 3,149,510 3,325,644 1,931,330 2,216,565
Other fixed income
securities contracts
including futures,
forwards, and options
written and purchased 7,208,158 6,015,891 5,321,100 5,374,546
Interest rate swaps,
caps and floors 332,250 200,000 285,450 230,000
Set forth below are the fair values of derivative financial instruments held or
issued for trading purposes as of March 31, 1995 and December 31, 1994. The
fair value amounts are determined by quoted market prices and pricing models
which consider the time value and volatility of the underlying instruments.
Changes in fair value are reflected in trading revenues or net interest as
incurred, depending on the nature of the contract. The amounts are netted by
counterparty only when the criteria of FASB Interpretation No. 39, "Offsetting
of Amounts Related to Certain Contracts," are met.
Fair Value at Fair Value at
March 31, 1995 December 31, 1994
------------------------ -----------------------
Assets Liabilities Assets Liabilities
-------- ----------- ------- -----------
Mortgage-backed forward
contracts and options
written and purchased $84,779 $77,776 $30,606 $25,209
Foreign currency forward
contracts, futures
contracts, and options
written and purchased 82,129 84,408 55,345 44,244
Equity securities
contracts including
futures, forwards,
and options written
and purchased 278,973 105,700 204,938 116,973
Other fixed income
securities contracts
including futures,
forwards, and options
written and purchased 11,382 8,053 10,150 8,988
Interest rate swaps,
caps and floors 1,260 176 1,372 128
Set forth on the following page are the average fair values of derivative
financial instruments held or issued for trading purposes for the three months
ended March 31, 1995 and the twelve months ended December 31, 1994. Average
fair value is based upon the average of the month-end balances during the
periods indicated.
<PAGE>11
Notes to Consolidated Financial Statements (continued)
Average Fair Value Average Fair Value
Three Months ended Twelve Months ended
March 31, 1995 December 31, 1994
------------------------ ------------------------
Assets Liabilities Assets Liabilities
-------- ----------- -------- -----------
Mortgage-backed forward
contracts and options
written and purchased $128,269 $128,269 $202,484 $191,687
Foreign currency forward
contracts, futures
contracts, and options
written and purchased 73,473 84,952 56,528 53,810
Equity securities
contracts including
futures, forwards,
and options written
and purchased 262,298 110,241 162,388 155,422
Other fixed income
securities contracts
including futures,
forwards, and options
written and purchased 14,130 10,687 23,527 13,293
Interest rate swaps,
caps and floors 1,404 270 1,757 1,147
The Company also enters into agreements to sell securities, at predetermined
prices, which have not yet been purchased. The Company is exposed to market
risk since to satisfy the obligation, the Company must acquire the securities
at market prices, which may exceed the values reflected on the Consolidated
Statement of Financial Condition.
The Company's risk of loss in the event of counterparty default is limited to
the current fair value or the replacement cost on contracts in which the
Company has recorded an unrealized gain. These amounts are reflected as
assets on the Company's Consolidated Statement of Financial Condition and
amounted to $458,523 and $302,411 at March 31, 1995 and December 31, 1994,
respectively. Options written do not expose the Company to credit risk since
they do not obligate the counterparty to perform. Transactions in futures
contracts are conducted through regulated exchanges which have margin
requirements, and are settled in cash on a daily basis, thereby minimizing
credit risk.
The following table summarizes the Company's principal transaction revenue (net
trading revenues) by business activity for the three months ended March 31,
1995.
Corporate equities (includes equity securities, equity
index futures, equity index options and swaps, and
equity options contracts) $ 82,055
Municipals (includes municipal and government securities) 42,557
U.S. government (includes U.S. government securities, financial
futures and options contracts) 26,197
Mortgage and mortgage-backed (includes mortgage-backed and
government securities, mortgage-backed forwards and
options contracts) 17,205
Corporate debt and other (includes debt, foreign currency
forwards, futures and options contracts and other securities) 45,656
----------
$ 213,670
==========
Principal transaction revenues include realized and unrealized gains and losses
in the fair value of derivative and other financial instruments.
<PAGE>12
Notes to Consolidated Financial Statements (continued)
Held or Issued for Purposes Other Than Trading
The Company enters into interest rate swap agreements to ensure that the
interest rate characteristics of assets and liabilities are matched. As of
March 31, 1995 and December 31, 1994, the Company had outstanding interest rate
swap agreements with commercial banks with a notional principal amount of
$1,836,250. These agreements effectively converted approximately 86% of the
Company's fixed rate debt at March 31, 1995 into floating rate debt. The
interest rate swap agreements entered into have had the effect of reducing net
interest expense on the Company's long-term borrowings by $585 and $9,913 for
the three months ended March 31, 1995 and 1994, respectively. The difference
to be received or paid on the swap agreements is included in interest expense
as incurred and any related receivable from or payable to counterparties is
reflected as an asset or liability, accordingly. The Company had no deferred
gains or losses related to terminated swap agreements at March 31, 1995 and
December 31, 1994. The Company is subject to market risk as interest rates
fluctuate. The interest rate swaps contain credit risk to the extent the
Company is in a receivable or gain position and the counterparty defaults.
However, the counterparties to the agreements are large financial institutions
and the Company has not experienced defaults in the past and management does
not anticipate any counterparty defaults in the foreseeable future.
Risk Management
Transactions involving derivative and non-derivative financial instruments
involve varying degrees of both market and credit risk. The Company monitors
its exposure to market and credit risk on a daily basis and through a variety
of financial, security position and credit exposure reporting and control
procedures.
Market Risk
Market risk is the potential change in value of the financial instrument caused
by unfavorable changes in interest rates, foreign currency exchange rates or
the fair values of the securities underlying the instrument. The Company has a
variety of methods to monitor its market risk profile. The senior management
of each business group is responsible for reviewing trading positions,
exposures, profits and losses, and trading strategies on a daily basis. The
Company also has an independent risk management group which aids in setting
and monitoring risk management policies of the Company, including monitoring
adherence to the established limits, performing market risk modeling, and
reviewing trading positions and hedging strategies. The Asset/Liability
Management Committee is responsible for establishing trading position and
exposure limits and is comprised of senior corporate and business unit
managers.
Market risk modeling is based on estimating loss exposure through daily stress
testing. These results are compared to daily limits and exceptions are subject
to review and approval by senior management. Other market risk control
procedures include monitoring inventory agings, reviewing traders' marks and
regular meetings between the senior management of the business groups and the
risk management group.
Credit Risk in Proprietary Transactions
Counterparties to the Company's proprietary trading, hedging, financing and
arbitrage activities are primarily financial institutions, including brokers
and dealers, banks and institutional clients. Credit losses could arise should
counterparties fail to perform and the value of any collateral proves
inadequate. The Company manages credit risk by monitoring net exposure to
individual counterparties on a daily basis, monitoring credit limits and
requiring additional collateral where appropriate.
Derivative credit exposures are calculated, aggregated and compared to
established limits by the credit department. Credit reserve requirements are
determined by senior management in conjunction with the Company's continuous
credit monitoring procedures. Historically, reserve requirements arising from
instruments with off-balance-sheet risk have not been material.
Receivables and payables with brokers and dealers, and agreements to resell and
repurchase securities are generally collateralized by cash, U.S. government and
government-agency securities, and letters of credit. The market value of the
initial collateral received is, at a minimum, equal to the contract value.
Additional collateral is requested when considered necessary.
<PAGE>13
Notes to Consolidated Financial Statements (continued)
The Company may pledge clients' securities as collateral in support of
securities loaned and bank loans as well as to satisfy margin requirements at
clearing organizations. The amounts loaned or pledged are limited to the
extent permitted by applicable margin regulations. Should the counterparty
fail to return the clients' securities, the Company may be required to
replace them at prevailing market prices. At March 31, 1995, the market
value of client securities loaned to other brokers approximated the amounts
due or collateral obtained.
Credit Risk in Client Activities
Client transactions are entered on either a cash or margin basis. In a margin
transaction, the Company extends credit to a client for the purchase of
securities, using the securities purchased and/or other securities in the
client's account as collateral for amounts loaned. Amounts loaned are limited
by margin regulations of the Federal Reserve Board and other regulatory
authorities and are subject to the Company's credit review and daily
monitoring procedures. Market declines could, however, reduce the value of
any collateral below the principal amount loaned, plus accrued interest,
before the collateral can be sold.
Client transactions include positions in commodities and financial futures,
securities sold but not yet purchased and written options. The risk to the
Company's clients in these transactions can be substantial, principally due
to price volatility which can reduce the clients' ability to meet their
obligations. Margin deposit requirements pertaining to commodity futures and
options transactions are generally lower than those for exchange traded
securities. To the extent clients are unable to meet their commitments to the
Company and margin deposits are insufficient to cover outstanding liabilities,
the Company may take market action and credit losses could be realized.
Trades are recorded on a settlement date basis. Should either the client or
broker fail to perform, the Company may be required to complete the transaction
at prevailing market prices. Trades pending at March 31, 1995 were settled
without adverse effect on the Company's financial statements, taken as a whole.
Concentrations of Credit Risk
Concentrations of credit risk that arise from financial instruments (whether
on- or off-balance-sheet) exist for groups of counterparties when they have
similar economic characteristics that would cause their ability to meet
obligations to be similarly affected by economic, industry or geographic
factors. As a major securities firm, the Company engages in activities with
a broad range of corporations, governments, and institutional and individual
investors. The Company has no significant exposure to any individual
counterparty. The Company seeks to control its credit risk and the
potential for risk concentration through a variety of reporting and control
procedures.
The Company's most significant industry concentration, which arises within its
normal course of business activities, is financial institutions including
banks, brokers and dealers, mutual funds and insurance companies. At
March 31, 1995 and December 31, 1994, the Company had outstanding resale
agreements and securities borrowed of $12,719,642 and $9,523,562,
respectively, with commercial banks and $6,757,212 and $5,352,506,
respectively, with brokers and dealers which were collateralized by cash and
securities of approximately equal fair value.
Commitments and Contingencies
At March 31, 1995 and December 31, 1994, the Company was contingently liable
under unsecured letters of credit totaling $314,880 and $212,211, respectively,
which approximates fair value. In addition, at March 31, 1995, certain of the
Company's subsidiaries were contingently liable as issuer of $86,160 of notes
payable to managing general partners of various limited partnerships pursuant
to Internal Revenue Service guidelines. There is no market for these
guarantees, therefore, it is not practicable to estimate their fair value.
In the opinion of management, these contingencies will not have a material
adverse effect on the Company's consolidated financial statements, taken as
a whole. The Company also had conditional commitments of $18,889 to
contribute capital to limited partnerships as of March 31, 1995.
The Company has been named as defendant in numerous legal actions in the
ordinary course of business. While the outcome of such matters cannot be
predicted with certainty, in the opinion of management of the Company, after
consultation with various counsel handling such matters, these actions will be
resolved with no material adverse effect on the Company's consolidated
financial statements, taken as a whole.
<PAGE>14
Notes to Consolidated Financial Statements (continued)
At March 31, 1995 and December 31, 1994, securities with a fair value of
$1,025,712 and $674,669, respectively, had been loaned or pledged as collateral
for securities borrowed of approximately equal fair value.
In meeting the financing needs of certain of its clients, PWI has issued
standby letters of credit which amounted to $17,131 at March 31, 1995. The
standby letters of credit are fully collateralized by marginable securities.
Income Taxes
The reconciliation of income taxes, computed at the statutory federal rates, to
income taxes recorded is as follows:
Three Months Ended
March 31,
------------------
1995 1994
------- -------
Tax at statutory federal rates 35.0% 35.0%
State and local income taxes,
net of federal tax benefit 4.2 5.5
Foreign rate differential 2.2 (0.3)
Nontaxable dividends & interest (2.7) (1.0)
Other, net (3.7) 0.8
------- -------
35.0% 40.0%
======= =======
Income taxes paid were $1,243 and $16,491 for the three months ended March 31,
1995 and 1994, respectively.
Earnings Per Common Share
The Company computed its earnings per common share under the modified treasury
stock method in accordance with Accounting Principles Board Opinion No. 15 by
dividing net income, adjusted for preferred stock dividends and any interest
savings, by the weighted average common and common equivalent shares
outstanding during each period presented. Common equivalent shares include
common shares issuable under the Company's stock option and award plans, the
conversion of convertible debentures and preferred stock, and restricted
stock outstanding.
<PAGE>15
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
General
The Company's principal business activities are, by their nature, affected by
many factors, including general economic and financial conditions, the level
and volatility of interest rates, currency and security valuations, competitive
conditions, counterparty risk, transactional volume and market liquidity. As
a result, revenues and profitability have been in the past, and are likely to
continue to be, subject to fluctuations reflecting the impact of these factors.
Results of Operations
Quarter Ended March 31, 1995 compared to Quarter Ended March 31, 1994
The Company's net income for the quarter ended March 31, 1995 was $34.3 million
or $0.27 per primary and fully diluted share, as compared to the $55.6 million
or $0.71 per primary share ($0.70 per fully diluted share) earned during the
first quarter of 1994. Total revenues of $1,233.9 million were 14.0% higher
than those reported for the first quarter of 1994, primarily due to increased
interest income. Revenues, net of interest expense, decreased $26.3 million
to $725.8 million.
Commission revenues of $270.3 million were 3.7% lower than the $280.7 million
earned during the first quarter of 1994, primarily due to lower sales of mutual
funds, insurance annuities and options. Mutual fund commissions decreased $12.1
million or 24.8%, insurance annuity commissions decreased $7.7 million or 24.3%
and option commissions decreased $4.7 million or 19.4%. These decreases were
partially offset by a $13.4 million or 9.3% increase in commissions earned from
the sale of listed securities.
Principal transactions revenues increased $29.8 million or 16.2% from the first
quarter of 1994, reflecting improved results in mortgages, corporate debt and
municipal securities. These improvements were offset by a decline in U.S.
government securities.
Investment banking revenues were $49.8 million, as compared to $97.6 million
for the prior year quarter, reflecting the industry wide decline in
underwritings of new corporate debt and equity securities.
Asset management fees, which are largely recurring in nature, decreased $1.5
million or 1.6% from the first quarter of 1994, primarily due to lower
distribution and investment advisory fees earned on long-term mutual funds.
Average assets in long-term mutual funds were $9.0 billion during the first
quarter of 1995, as compared to $12.6 billion during the prior year period.
This decline was offset by higher fees earned on money market funds and
managed or wrap accounts, as average asset levels in money market funds and
wrap accounts increased over the first quarter 1994 by approximately 17% and
26%, respectively.
Net interest decreased $1.4 million or 2.1% due to lower fixed income inventory
positions at a lower net spread partially offset by higher net interest
resulting from expansion of the stock loan business and increased margin
lending to clients.
Other income increased $5.0 million to $35.9 million due to higher transaction
and account fees and increased proxy service revenues. The number of Individual
Retirement Accounts increased approximately 17% from March 31, 1994.
Compensation and benefits were $433.0 million, as compared to $431.7 million
during the first quarter of 1994. Compensation costs increased in response to
the acquisition of the Kidder, Peabody Group Inc. ("Kidder") businesses and
normal salary increases. These increases were offset by lower revenue driven
compensation paid to retail investment executives and lower performance based
incentive compensation. Compensation and benefits as a percentage of net
revenues was 59.7% during the first quarter of 1995, as compared to 57.4%
during the first quarter of 1994.
All other operating expenses increased $12.4 million or 5.5% from the first
quarter of 1994, primarily due to incremental office, communications and
brokerage, clearing and exchange fees attributable to the acquired Kidder
businesses.
<PAGE>16
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Liquidity and Capital Resources
The primary objectives of the Company's funding policies are to insure ample
liquidity at all times and a strong capital base. These objectives are met by
maximization of self-funded assets, diversification of funding sources,
maintenance of prudent liquidity and capital ratios, and contingency planning.
Liquidity
The Company maintains a liquid balance sheet with the majority of assets
consisting of inventories, securities borrowed or purchased under agreements to
resell, and receivables from clients, brokers and dealers, which are readily
convertible into cash. The nature of the Company's business as a securities
dealer results in carrying significant levels of trading inventories in order
to meet its client and proprietary trading needs. The Company's total assets
may fluctuate from period to period as a result of changes in the level of
trading positions held to facilitate client transactions, the volume of
resale and repurchase transactions, and proprietary trading strategies.
These fluctuations depend significantly upon economic and market conditions,
and transactional volume.
The Company's total assets at March 31, 1995 were $46.2 billion compared to
$35.9 billion at December 31, 1994, reflecting an increase primarily in
securities purchased under agreements to resell. The majority of the Company's
assets are financed by daily operations such as securities sold under
agreements to repurchase, free credit balances in client accounts and
securities lending activity. Additional financing sources are available
through bank loans and commercial paper, committed and uncommitted lines of
credit, and the issuance of long-term senior and subordinated debt.
The Company maintains committed and uncommitted credit facilities from a
diverse group of banks. The Company has two unsecured senior revolving credit
agreements to provide up to $2.0 billion, including $1.2 billion, which
expires in December 1995 with provisions for renewal through December 1997
and $800.0 million, which expires in December 1997. At March 31, 1995,
there was $300.0 million outstanding under these credit facilities.
Additionally, the Company had more than $5 billion in uncommitted lines of
credit at March 31, 1995.
The Company maintains public shelf registration statements for the issuance of
debt securities with the Securities and Exchange Commission ("SEC"). During
the first quarter of 1995, the Company issued $125.0 million of 8 7/8% Senior
Notes under these registration statements. At March 31, 1995, the Company
had $732.6 million in debt securities available for issuance.
Capital Resources and Capital Adequacy
The Company's businesses are capital intensive. In addition to a funding
policy which provides for diversification of funding sources and maximization
of liquidity, the Company maintains a strong capital base. At
March 31, 1995, the Company's total capital base, which includes long-term
borrowings, redeemable preferred stock and stockholders' equity, was $4.3
billion, an increase of $144.1 million from December 31, 1994. The additions
to capital primarily reflect increases in both long-term borrowings and
stockholders' equity of $119.9 million and $23.9 million, respectively.
The increase in long-term borrowings reflects the issuance of $125.0 million
of 8 7/8% Senior Notes in March 1995 Due 2005. The increase in stockholders'
equity is primarily the result of the Company's net income for the quarter of
$34.3 million and net amortization of restricted stock awards of $10.6
million. These increases were offset by the repurchase of approximately
826,000 shares of common stock for $13.0 million. At March 31, 1995, the
remaining number of shares of common stock authorized to be repurchased by
the Company's Board of Directors was 8,055,224 shares.
On April 19, 1995, Moody's Investors Service, Inc. ("Moody's") announced that
it lowered its ratings on the Company's senior debt from A3 to Baa1 and on
the Company's subordinated debt from Baa1 to Baa2. Moody's confirmed the
Company's Prime-2 commercial paper rating.
<PAGE>17
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Liquidity and Capital Resources (continued)
Capital Resources and Capital Adequacy (continued)
On May 2, 1995, the Company issued $125,000 of 8 1/4% Senior Notes Due May 1,
2002. The Notes are not redeemable prior to maturity. Interest on the Notes
is payable semiannually on May 1 and November 1. This issuance replaces
$150,000 of 9 5/8% Senior Notes that matured on May 1, 1995.
PWI is subject to the net capital requirements of the SEC, the New York Stock
Exchange and the Commodities Futures Trading Commission, which are designed to
measure the financial soundness and liquidity of broker-dealers. PWI has
consistently maintained net capital in excess of the minimum requirements as
imposed by these agencies. In addition, the Company has other banking and
securities subsidiaries, both domestic and foreign, which have also
consistently maintained net regulatory capital in excess of requirements.
Merchant Banking, Highly Leveraged and Structured Securities Transactions
In connection with its merchant banking activities, the Company has provided
financing and made investments in companies, some of which are involved in
highly leveraged transactions. Positions taken or commitments made by the
Company may involve credit or market risk from any one issuer or industry.
At March 31, 1995, the Company had investments in merchant banking transactions
which were affected by liquidity, reorganization or restructuring issues
amounting to $57.5 million, net of reserves, compared to $56.9 million, net of
reserves, at December 31, 1994. These investments have not had a material
effect on the Company's results of operations. Included in the portfolio at
March 31, 1995 was an investment of $52.2 million in a limited partnership
which specializes in investments in corporate restructurings and special
situations. The Company did not enter into any significant merchant banking
transactions during the first quarter of 1995.
The Company's trading activities include market-making transactions in high-
yield debt securities. These securities generally involve greater risks than
investment-grade corporate debt securities because these issuers usually have
high levels of indebtedness and lower credit ratings and are, therefore, more
vulnerable to general economic conditions. At March 31, 1995, the Company held
in long and short inventory $92.9 million and $17.2 million, respectively, of
high-yield debt securities, which accounted for less than 1% of gross inventory
positions. No one issuer accounted for more than 15% of the total amount. The
Company continually monitors its risk positions associated with high-yield debt
securities and establishes limits with respect to overall market exposure,
industry group and individual issuer. The Company accounts for these positions
at fair value, with unrealized gains and losses reflected in revenues. For the
three months ended March 31, 1995 and 1994, the Company recorded pre-tax
trading revenues on transactions in high-yield securities of $4.5 million
and $2.6 million, respectively.
Derivative Financial Instruments
A derivative financial instrument represents a contractual agreement between
counterparties whose value is derived from changes in the value of some other
underlying asset such as the price of another security, interest rates,
currency exchange rates, specified rates (e.g. LIBOR) or indices (e.g. S&P
500), or the value referenced in the contract. Derivatives may be traded on
exchanges such as futures, certain options contracts and structured products
(e.g. indexed warrants) or negotiated in over-the-counter markets such as
forward contracts, interest rate swaps, caps and floors, and other
structured products.
In the normal course of business, the Company engages in a variety of
derivative transactions in connection with its proprietary trading activities
and asset and liability management, as well as on behalf of its clients. As
a dealer, the Company regularly makes a market in and trades a variety of
securities. The Company is also engaged in creating structured products
which are sold to clients. In connection with these activities, the Company
attempts to reduce its exposure to market risk by entering into offsetting
hedging transactions which may include derivative financial instruments.
The Company also enters into interest rate swap contracts to hedge its fixed
rate borrowings and reduce overall borrowing costs.
The notional amount of a derivative contract is used to measure the volume of
activity and is not reflected on the statement of financial condition. The
Company had off-balance-sheet derivative contracts outstanding with gross
notional amounts of $54.2 billion and $39.4 billion at March 31, 1995 and
December 31, 1994, respectively, which included $23.8 billion and $16.3
billion, respectively, related to "to be announced" mortgage securities
requiring forward settlement. Also included in these amounts was $1.8
billion of interest rate swap agreements used to hedge the Company's
long-term borrowings at March 31, 1995 and December 31, 1994.
For a more detailed discussion and disclosure on derivative financial
instruments, see "Financial Instruments with Off-Balance-Sheet Risk", "Risk
Management" and "Concentrations of Credit Risk" in the Notes to Consolidated
Financial Statements.
<PAGE>18
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
-----------------
The Company is involved in a number of proceedings concerning matters arising
in connection with the conduct of its business. Certain actions in which
compensatory damages of $155.4 million or more appear to be sought, and in
which there have been material developments during the quarter, are
described below. The Company is also involved in numerous proceedings in
which compensatory damages of less than $155.4 million appear to be sought,
or in which punitive or exemplary damages, together with the apparent
compensatory damages alleged, appear to exceed $155.4 million. The Company
has denied, or believes it has legitimate defenses and will deny, liability
in all significant cases pending against it, and intends to defend actively
each such case. The following developments have occurred in the indicated
cases, which were previously reported in the Company's Annual Report on Form
10-K for the year ended December 31, 1994.
General Development Corporation Securities Litigation
On April 4, 1995, the United States Court of Appeals for the Third Circuit
entered an order in Rolo v. City Investing Liquidating Trust, et al., vacating
its order of November 8, 1994, granting appellant's application for rehearing
and remanded the case to the district court for reconsideration.
In Re NASDAQ Market-Maker Antitrust and Securities Litigation
In February 1995, the Judicial Panel on Multidistrict Litigation conditionally
transferred Newton et al. v. Merrill Lynch et al., which has since been
consolidated under the caption In Re Merrill Lynch et al. Securities Litigation
(the "Merrill Lynch action"), to the Southern District of New York as a tag-
along action as part of the multidistrict litigation, In Re NASDAQ Market-Maker
Antitrust Litigation (the "NASDAQ Litigation"). With the filing of a
consolidated complaint by plaintiffs in the NASDAQ Litigation in December 1994
dropping the federal securities law claims, the caption in the NASDAQ
Litigation has been changed to delete any reference to "Securities
Litigation". On February 2, 1995, the defendants in the NASDAQ Litigation
moved to dismiss the complaint. That motion is currently pending.
On March 22, 1995, plaintiffs in the Merrill Lynch action filed an amended
complaint. On March 29, 1995, plaintiffs in the Merrill Lynch action moved to
vacate the conditional transfer order. That motion is currently pending. On
May 5, 1995, PaineWebber moved to dismiss the complaint in the Merrill Lynch
action. That motion is pending as well.
Limited Partnership Class Actions
In March 1995, a purported class action was filed in state court in Cook
County, Illinois on behalf of investors in the Pegasus aircraft leasing
partnerships. In this case, Jacobson v. PaineWebber Incorporated, plaintiff
alleges claims based upon fraud, misrepresentation and breach of fiduciary
duty in connection with the sale of these limited partnership interests.
The complaint seeks unspecified damages.
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) Proxies for the Annual Meeting of Stockholders held on May 4, 1995 were
solicited by the Company pursuant to Regulation 14A of the Securities
Act of 1934, as amended.
(c) Matters voted upon at the Annual Meeting of Stockholders:
(1) The election of four directors to the Board of Directors to hold office
for a term of three years.
There was no solicitation in opposition of the nominees and all such
nominees were elected. There were no broker non-votes with respect to
the election of Directors.
Votes For Votes Withheld
------------ ----------------
J.A. Bult 85,794,340 1,076,522
J.E. Kilgore, Jr. 85,853,038 1,017,824
R.M. Loeffler 85,866,809 1,004,053
H. Rosovsky 85,892,588 978,274
<PAGE>19
ITEM 4. Submission of Matters to a Vote of Security Holders (continued)
---------------------------------------------------------------
(2) The approval of certain conversion rights contained in the 6% Cumulative
Convertible Redeemable Preferred Stock, Series A, of the Company
authorizing the issuance of common stock which, when combined with
common stock previously issued in connection with the purchase of
certain assets and liabilities and specific businesses of Kidder,
Peabody Group Inc., may exceed 20% of the total common stock outstanding.
Votes for: 77,644,379
Votes against: 1,761,665
Abstentions: 591,347
Broker Non-Votes: 6,925,778
(3) The ratification of the selection by the Board of Directors of Ernst &
Young LLP as the Company's independent public accountants for the 1995
fiscal year.
Votes for: 86,274,338
Votes against: 126,407
Abstentions: 133,330
Broker Non-Votes: 389,094
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) The following exhibits are filed herewith:
Exhibit 11 - Computation of Earnings per Common Share
Exhibit 12.1 - Computation of Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividends
Exhibit 12.2 - Computation of Ratio of Earnings to Fixed
Charges
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K dated May 1, 1995 with
the Securities and Exchange Commission reporting under Item 5 ("Other
Events") and Item 7 ("Financial Statements and Exhibits") in
connection with the issuance by the Company of 1,050,000 U.S. Dollar
Increase Warrants on the Japanese Yen Expiring April 30, 1996.
<PAGE>20
SIGNATURE
=========
Pursuant to the requirements of Section 13 or 15(d) 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.
Paine Webber Group Inc.
-----------------------
(Registrant)
Date: May 15, 1995 By: /s/ Regina A. Dolan
------------ -------------------
Regina A. Dolan
Vice President,
Chief Financial Officer
<PAGE>21
<TABLE>
Exhibit 11
Paine Webber Group Inc.
Computation of Earnings Per Common Share
(In thousands of dollars except share and per share amounts)
<CAPTION>
Three Months Ended March 31,
----------------------------------
1995 1994
----------- ----------
<C> <C>
<S>
Primary:
Weighted average common
shares outstanding 93,150,593 71,695,578
Incremental stock options
and awards 6,045,570 8,215,538
----------- -----------
Average common and common
equivalent shares 99,196,163 79,911,116
=========== ===========
Net income $ 34,310 $ 55,648
Interest savings on
convertible debentures and
short-term borrowings 276 1,063
Preferred dividend requirements (7,313) -
---------- -----------
Net income applicable to
common shares $ 27,273 $ 56,711
=========== ===========
Earnings per common share $ 0.27 $ 0.71
=========== ===========
Fully Diluted:
Weighted average common
shares outstanding 93,150,593 71,695,578
Incremental stock
options and awards 6,188,516 8,215,538
Weighted average common shares
issuable assuming
conversion of 8%
Convertible Debentures
and 6% Cumulative Convertible
Redeemable Preferred Stock 8,366,943 1,405,552
----------- -----------
Average common and common
equivalent shares 107,706,052 81,316,668
=========== ===========
Net income $ 34,310 $ 55,648
Interest savings on
convertible debentures
and short-term borrowings 506 1,274
Preferred dividend requirements (5,813) -
----------- -----------
Net income applicable to
common shares $ 29,003 $ 56,922
============ ===========
Earnings per common share $ 0.27 $ 0.70
============ ===========
</TABLE>
<PAGE>22
<TABLE>
Exhibit 12.1
<CAPTION>
Paine Webber Group Inc.
Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends
(In thousands of dollars)
Three Months Years Ended
Ended March 31, December 31,
--------- -----------------------------------------------------
1995 1994 1993 1992 1991 1990
--------- ------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Income (loss)
before taxes $52,785 $44,385 $407,576 $339,115 $226,247 $(102,633)
--------- ------- -------- -------- -------- ---------
Preferred stock
dividends 11,251 1,710 5,828 27,789 34,732 23,174
--------- ------- -------- ------- ------- ---------
Fixed charges:
Interest 508,126 1,428,653 1,130,712 879,242 1,056,124 1,242,151
Interest factor
in rents 14,598 51,102 50,133 45,962 43,804 42,223
------- -------- -------- ------- --------- ---------
Total fixed
charges 522,724 1,479,755 1,180,845 925,204 1,099,928 1,284,374
-------- --------- --------- ------- --------- ---------
Total fixed
charges and
preferred stock
dividends 533,975 1,481,465 1,186,673 952,993 1,134,660 1,307,548
-------- --------- --------- ------- --------- ---------
Income before
taxes and
fixed charges $575,509 $1,524,140 $1,588,421 $1,264,319 $1,326,175 $1,181,741
========= ========== ========== ========== ========== ==========
Ratio of
earnings to
fixed charges
and preferred
stock dividends 1.1 1.0 1.3 1.3 1.2 <F1>
========= ========= ========= ========= ======== ==========
<FN>
For purposes of computing the ratio of earnings to combined fixed charges and
preferred stock dividends (tax effected), "earnings" consist of income (loss)
before taxes and fixed charges. "Fixed charges" consist of interest expense
incurred on securities sold under agreements to repurchase, short-term
borrowings, long-term borrowings and that portion of rental expense estimated
to be representative of the interest factor.
<F1> Earnings were inadequate to cover fixed charges and would have had to
increase approximately $125,807 in order to cover the deficiency.
</TABLE>
<PAGE>23
<TABLE>
Exhibit 12.2
Paine Webber Group Inc.
Computation of Ratio of Earnings to Fixed Charges
(In thousands of dollars)
<CAPTION>
Three Months Years Ended
Ended March 31, December 31,
----------- ---------------------------------------------------
1995 1994 1993 1992 1991 1990
---------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Income (loss)
before taxes $ 52,785 $ 44,385 $407,576 $339,115 $226,247 $(102,633)
--------- -------- --------- -------- -------- ---------
Fixed charges:
Interest 508,126 1,428,653 1,130,712 879,242 1,056,124 1,242,151
Interest factor
in rents 14,598 51,102 50,133 45,962 43,804 42,223
--------- --------- --------- ------- -------- ---------
Total fixed
charges 522,724 1,479,755 1,180,845 925,204 1,099,928 1,284,374
--------- --------- --------- -------- --------- ---------
Income before
taxes and fixed
charges $ 575,509 $1,524,140 $1,588,421 $1,264,319 $1,326,175 $1,181,741
========= ========== ========== ========== ========== ==========
Ratio of
earnings to
fixed charges 1.1 1.0 1.3 1.4 1.2 <F1>
========= ========== ========= ========= ========= ========
<FN>
For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of income (loss) before taxes and fixed charges. "Fixed charges"
consist of interest expense incurred on securities sold under agreements to
repurchase, short-term borrowings, long-term borrowings and that portion of
rental expense estimated to be representative of the interest factor.
<F1> Earnings were inadequate to cover fixed charges and would have had to
increase approximately $102,633 in order to cover the deficiency.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Paine Webber Group Inc. for the period ended March 31,
1995 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 651,877
<RECEIVABLES> 6,058,451
<SECURITIES-RESALE> 17,780,791
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186,226
100,000
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</TABLE>
