SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 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 1-9466
Lehman Brothers Holdings Inc.
(Exact Name of Registrant As Specified In Its Charter)
Delaware 13-3216325
(State or other jurisdiction
of incorporation (I.R.S. Employer Identification No.)
or organization)
3 World Financial Center
New York, New York 10285
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (212) 526-7000
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 ______
As of June 30, 1995, 104,548,514 shares of the Registrant's Common
Stock, par value $.10 per share, were outstanding.
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED MAY 31, 1995
INDEX
Part I. FINANCIAL INFORMATION Page Number
Item 1. Financial Statements - (unaudited)
Consolidated Statement of Operations -
Three and Six Months Ended May 31, 1995
and June 30, 1994 3
Consolidated Statement of Financial Condition -
May 31, 1995 and November 30, 1994 5
Consolidated Statement of Cash Flows -
Six Months Ended May 31, 1995
and June 30, 1994 7
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations13
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 6. Exhibits and Reports on Form 8-K 24
Signatures 25
EXHIBIT INDEX 26
Exhibits
<TABLE>
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
CONSOLIDATED STATEMENT of OPERATIONS
(Unaudited)
(In millions, except per share data)
<CAPTION>
Three months ended
May 31, June 30,
1995 1994
<S> <C> <C>
Revenues
Principal transactions $ 355 $ 383
Investment banking 152 151
Commissions 121 117
Interest and dividends 2,655 1,699
Other 15 14
Total revenues 3,298 2,364
Interest expense 2,567 1,645
Net revenues 731 719
Non-interest expenses
Compensation and benefits 371 364
Brokerage, commissions and
clearance fees 60 66
Communications 47 51
Occupancy and equipment 45 43
Professional services 42 47
Business development 28 32
Depreciation and amortization 27 34
Other 21 32
Spin-off expenses 15
Total non-interest expenses 641 684
Income before taxes 90 35
Provision for income taxes 32 15
Net income $ 58 $ 20
Net income applicable to common stock $ 48 $ 12
Number of shares used in earnings per
common share computation 110.2 105.7
Earnings per common share $0.43 $0.11
</TABLE>
See notes to consolidated financial statements.
<TABLE>
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
CONSOLIDATED STATEMENT of OPERATIONS
(Unaudited)
(In millions, except per share data)
<CAPTION>
Six months ended
May 31, June 30,
1995 1994
<S> <C> <C>
Revenues
Principal transactions $ 714 $ 845
Investment banking 289 326
Commissions 226 258
Interest and dividends 5,156 3,226
Other 25 30
Total revenues 6,410 4,685
Interest expense 4,972 3,098
Net revenues 1,438 1,587
Non-interest expenses
Compensation and benefits 730 814
Brokerage, commissions and
clearance fees 124 140
Communications 94 101
Occupancy and equipment 90 85
Professional services 84 89
Business development 57 63
Depreciation and amortization 54 65
Other 45 59
Severance charge 33
Spin-off expenses 15
Total non-interest expenses 1,278 1,464
Income before taxes and cumulative
effect of change in accounting principle 160 123
Provision for income taxes 57 48
Income before cumulative effect of
change in accounting principle 103 75
Cumulative effect of change in
accounting principle, net of taxes (13)
Net income $ 103 $ 62
Net income applicable to common stock $ 82 $ 42
Number of shares used in earnings per
common share computation 110.2 105.7
Earnings per common share:
Income before cumulative effect
of change in accounting principle $0.74 $0.52
Cumulative effect of change in
accounting principle (0.12)
Net income $0.74 $0.40
</TABLE>
See notes to consolidated financial statements.
<TABLE>
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(Unaudited)
(In millions)
ASSETS
<CAPTION>
May 31, November 30,
1995 1994
<S> <C> <C>
Cash and cash equivalents $ 1,519 $ 964
Cash and securities segregated and on deposit
for regulatory and other purposes 901 1,420
Securities and other financial instruments owned:
Governments and agencies 27,112 24,840
Corporate obligations and other contractual
commitments 8,908 9,962
Mortgages and mortgage-backed 6,428 6,774
Corporate stocks and options 3,878 4,549
Certificates of deposit and other money market
instruments 2,707 1,348
49,033 47,473
Collateralized short-term agreements:
Securities purchased under agreements to resell 40,306 37,490
Securities borrowed 19,231 10,617
Receivables:
Brokers, dealers and clearing organizations 3,861 4,934
Customers 4,998 2,794
Others 2,115 2,762
Property, equipment and leasehold improvements
(net of accumulated depreciation and amortization
of $549 in 1995 and $520 in 1994) 582 619
Deferred expenses and other assets 691 686
Excess of cost over fair value of net assets
acquired (net of accumulated amortization
of $92 in 1995 and $88 in 1994) 184 188
Total assets $123,421 $109,947
</TABLE>
See notes to consolidated financial statements.
<TABLE>
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION (Continued)
(Unaudited)
(In millions, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
May 31, November 30,
1995 1994
<S> <C> <C>
Short-term financings:
Securities sold under agreements to
repurchase $ 65,607 $ 58,419
Commercial paper and short-term debt 7,885 9,807
Securities loaned 4,925 1,627
Securities and other financial instruments sold
but not yet purchased:
Governments and agencies 8,971 9,867
Corporate obligations and other contractual
commitments 4,112 3,432
Corporate stocks and options 2,555 3,731
15,638 17,030
Payables:
Brokers, dealers and clearing organizations 3,606 2,597
Customers 6,864 3,060
Accrued liabilities and other payables 2,639 2,691
Senior notes 10,752 9,107
Subordinated indebtedness 2,030 2,214
Total liabilities 119,946 106,552
Commitments and contingencies (Note 4)
Stockholders' equity:
Preferred stock, $1 par value; 38,000,000
shares authorized:
5% Cumulative Convertible Voting, Series
A, 13,000,000 shares authorized,
issued and outstanding;
$39.10 liquidation preference per share 508 508
8.44% Cumulative Voting, 8,000,000 shares
issued and outstanding;
$25.00 liquidation preference per share 200 200
Redeemable Voting, 1,000 shares issued
and outstanding;
$1.00 liquidation preference per share
Common Stock, $.10 par value; 300,000,000
shares authorized;
shares issued: 105,639,779 in 1995 and
105,608,423 in 1994;
shares outstanding: 104,524,685 in 1995
and 104,537,690 in 1994 11 11
Common Stock issuable 81 87
Additional paid-in capital 3,172 3,172
Foreign currency translation adjustment 22 6
Accumulated deficit (503) (574)
Common Stock in treasury at cost: 1,115,094
shares in 1995
and 1,070,733 shares in 1994 (16) (15)
Total stockholders' equity 3,475 3,395
Total liabilities and stockholders' equity $123,421 $109,947
</TABLE>
See notes to consolidated financial statements.
<TABLE>
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In millions)
<CAPTION>
Six months ended
May 31, June 30,
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income before cumulative effect of change
in accounting principle $ 103 $ 75
Adjustments to reconcile income to net cash
provided by
(used in) operating activities:
Depreciation and amortization 54 65
Provisions for losses and other reserves 16 56
Deferred tax liability 138
Other adjustments 22 36
Net change in:
Cash and securities segregated 519 (489)
Receivables from brokers, dealers and clearing
organizations 1,073 (1,403)
Receivables from customers (2,204) (1,069)
Securities purchased under agreements to resell (2,816) (18,090)
Securities borrowed (8,614) (5,795)
Securities and other financial instruments owned (1,560) (11,449)
Payables to brokers, dealers and clearing
organizations 1,009 1,014
Payables to customers 3,471 (281)
Accrued liabilities and other payables (65) (616)
Securities sold under agreements to repurchase 7,188 24,618
Securities loaned 3,298 1,555
Securities and other financial instruments
sold but not yet purchased (1,392) 7,562
Other operating assets and liabilities, net 863 (217)
Net cash provided by (used in) operating
activities $ 965 $(4,290)
</TABLE>
<TABLE>
See notes to consolidated financial statements.
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS--(Continued)
(Unaudited)
(In millions)
<CAPTION>
Six months ended
May 31, June 30,
1995 1994
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of senior notes $3,445 $2,281
Principal payments of senior notes (2,093) (1,506)
Proceeds from issuance of subordinated indebtedness 27 240
Principal payments of subordinated indebtedness (213) (244)
Proceeds from issuance of other indebtedness 1,992 3,774
Principal payments of other indebtedness (2,860) (3,256)
Increase (decrease) in commercial paper and
short-term debt, net (646) 1,799
Proceeds from spin-off 1,193
Dividends paid (32) (70)
Net cash (used in) provided by financing
activities (380) 4,211
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, equipment and leasehold
improvements (30) (71)
Other (25)
Net cash used in investing activities (30) (96)
Effect of exchange rate changes on cash 12
Net change in cash and cash equivalents 555 (163)
Cash and cash equivalents, beginning of period 964 1,333
Cash and cash equivalents, end of period $1,519 $1,170
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (in millions)
Interest paid totaled $4,955 and $3,158 for the six months
ended May 31, 1995 and June 30, 1994, respectively. Income taxes
paid (received) totaled $21 and ($28) for the six months ended May
31, 1995 and June 30, 1994, respectively.
See notes to consolidated financial statements.
1. Basis of Presentation:
The consolidated financial statements include the accounts of
Lehman Brothers Holdings Inc. ("Holdings") and subsidiaries (Holdings
together with its subsidiaries, the "Company" or "Lehman Brothers").
The principal subsidiary of Holdings is Lehman Brothers Inc. ("LBI"),
a registered broker-dealer. All material intercompany accounts and
transactions have been eliminated in consolidation. The Company's
financial statements have been prepared in accordance with the rules
and regulations of the Securities and Exchange Commission (the "SEC")
with respect to the Form 10-Q and reflect all normal recurring
adjustments which are, in the opinion of management, necessary for a
fair presentation of the results for the interim periods presented.
Pursuant to such rules and regulations, certain footnote disclosures
which are normally required under generally accepted accounting
principles have been omitted. The consolidated statement of financial
condition at November 30, 1994 was derived from the audited financial
statements. It is recommended that these financial statements be read
in conjunction with the audited consolidated financial statements
included in the Company's Transition Report on Form 10-K for the
eleven months ended November 30, 1994.
The nature of the Company's business is such that the results of
any interim period may vary significantly from quarter to quarter and
may not be indicative of the results to be expected for the fiscal
year. Certain prior period amounts reflect reclassifications to
conform to the current period's presentation.
Earnings per common share was computed by dividing net income
applicable to common stock by the weighted average number of shares of
common stock and common stock equivalents outstanding. Pursuant to
the SEC requirements, the number of shares used in the earnings per
share calculation for 1994 includes common stock as of May 31, 1994
(the date of the spin-off from the American Express Company).
2. Borrowings:
During the six months ended May 31, 1995, the Company issued
$3,472 million of long-term debt (including $1,051 million of foreign
currency denominated notes), with maturities ranging from 1995 to
2015. These issuances were primarily utilized to refinance maturing
long-term debt and to replace senior notes redeemed by the Company
prior to final maturity during the six months ended May 31, 1995.
Approximately $2,612 million of the Company's new issuances were
fixed rate. Of this amount, $1,697 million were U.S. dollar
denominated issuances with a contractual weighted average interest
rate of 8.23%, and $915 million were foreign currency denominated
notes. The remainder of the Company's new issuances were floating
rate, with contractual interest rates based primarily on the London
Interbank Offered Rate ("LIBOR").
Approximately $1,043 million of the Company's U.S. dollar fixed
rate issuances during the six months ended May 31, 1995 have
effectively been converted to floating rate obligations through the
use of interest rate swaps. In addition to these interest rate swaps,
the Company entered into $654 million notional value of swaptions.
These swaptions, if exercised, would convert $654 million of the
Company's U.S. dollar fixed rate debt issuances during the six months
ended May 31, 1995 to floating interest rates. Additionally,
virtually all of the Company's foreign currency denominated issuances
during the six months ended May 31, 1995 have effectively been
converted to U.S. dollar obligations with U.S. dollar floating
interest rates based primarily on LIBOR through the use of cross
currency swaps.
The Company had approximately $2,306 million of long-term debt
mature during the six months ended May 31, 1995 including notes
redeemed by the Company prior to final maturity.
3. Capital Requirements:
As registered broker-dealers, LBI and Lehman Government
Securities Inc. ("LGSI"), a wholly owned subsidiary of LBI, are
subject to SEC Rule 15c3-1, the Net Capital Rule, which requires LBI
and LGSI to maintain net capital of not less than the greater of 2% of
aggregate debit items arising from customer transactions, as defined,
or 4% of funds required to be segregated for customers' regulated
commodity accounts, as defined. At May 31, 1995, LBI's regulatory net
capital, as defined, of $1,180 million exceeded the minimum
requirement by $1,099 million. LGSI's regulatory net capital, as
defined, of $385 million exceeded the minimum requirement by $338
million at May 31, 1995.
Lehman Brothers International (Europe) ("LBIE"), Lehman Brothers
Japan Inc. ("LBJ"), and other of Holdings' subsidiaries are subject to
various securities, commodities and banking regulations and capital
adequacy requirements promulgated by the regulatory and exchange
authorities of the countries in which they operate. At May 31, 1995,
LBIE, LBJ and the other subsidiaries were in compliance with the
applicable local capital adequacy requirements.
There are no restrictions on Holdings' present ability to pay
dividends on its common stock, other than Holdings' obligation first
to make dividend payments on its preferred stock and the governing
provisions of the Delaware General Corporation Law.
4. Commitments and Contingencies:
In the normal course of its business, the Company has been named
a defendant in a number of lawsuits and other legal proceedings.
After considering all relevant facts, available insurance coverage and
the advice of outside counsel, in the opinion of the Company such
litigation will not, in the aggregate, have a material adverse effect
on the Company's consolidated financial position or results of
operations.
As a leading global investment bank, risk is an inherent part of
all of the Company's businesses and activities. The extent to which
the Company properly and effectively identifies, assesses, monitors
and manages each of the various types of risks involved in its trading
(including derivatives), brokerage, and investment banking activities
is critical to its success and profitability. The principal types of
risks involved in the Company's activities are market risk, credit or
counterparty risk, and transaction risk. Management has developed a
control infrastructure to monitor and manage each type of risk on a
global basis throughout the Company. For further discussion of these
matters, refer to Note 17 of the Consolidated Financial Statements in
the Company's Transition Report on Form 10-K for the eleven months
ended November 30, 1994.
5. Changes in Accounting Principles:
Postemployment Benefits. Effective January 1, 1994, the Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 112,
"Employers' Accounting for Postemployment Benefits". SFAS No. 112
requires the accrual of obligations associated with services rendered
to date for employee benefits accumulated or vested for which payment
is probable and can be reasonably estimated. These benefits
principally include the continuation of salary, health care and life
insurance costs for employees on service disability leaves. The
Company previously expensed the cost of these benefits as they were
incurred.
The cumulative effect of adopting SFAS No. 112 reduced net income
for the first quarter of 1994 by $13 million aftertax ($23 million
pretax). The effect of this change on the 1994 results of operations
was not material, excluding the cumulative effect.
Offsetting of Certain Receivables and Payables. In January 1995,
the Financial Accounting Standards Board issued Interpretation No. 41,
"Offsetting of Amounts Related to Certain Repurchase and Reverse
Repurchase Agreements" ("FIN No. 41"). FIN No. 41 is a modification
to Financial Accounting Standards Board No. 39 "Offsetting of Amounts
Related to Certain Contracts" ("FIN No. 39"), which permits certain
limited exceptions to the criteria established under FIN No. 39 for
offsetting certain repurchase and reverse repurchase agreements with
the same counterparty. The Company adopted this modification in
January 1995.
6. Other Charges:
Severance Charge
During the first quarter of 1994, the Company conducted a review
of personnel needs, which resulted in the termination of certain
personnel. The Company recorded a severance charge of $33 million
pretax ($18 million aftertax) in the first quarter of 1994.
Spin-Off Expenses
During the second quarter of 1994, the Company recorded a charge
of $15 million pretax ($12 million aftertax) in connection with the
spin-off from the American Express Company and certain related
expenses.
7. Change in Year-End:
During 1994, the Company changed its year-end from December 31 to
November 30. Such a change to a non-calendar cycle shifts certain
year-end administrative activities to a time period that conflicts
less with the business needs of the Company's institutional customers.
As such, the second quarter ended May 31, 1995 has been reported on
the basis of the new fiscal year. The prior year's quarter ended June
30, 1994 was reported on the basis of the old calendar year cycle.
8. Subsequent Event:
Incentive Plans
In June 1995, the Compensation and Benefits Committee of the
Board of Directors of Holdings (the "Compensation Committee") approved
the 1995 Stock Award Program, pursuant to the Lehman Brothers
Holdings Inc. 1994 Management Ownership Plan. Under the 1995 Stock
Award Program, eligible employees are to receive, subject to vesting
provisions and transfer restrictions, approximately 6 million
restricted stock units ("RSUs"). These RSUs will vest 80% on July 1,
1996 and 20% on July 1, 2000. In addition, certain senior officers
are eligible to receive RSUs based on the achievement of 1995
performance goals, with 1 million RSUs expected to be awarded. The
Compensation Committee also determined to award RSUs (or Restricted
Stock) to certain senior officers of Lehman Brothers as part of a
three-year long term incentive plan. The number of RSUs (or
Restricted Stock) which may be awarded, if any, will be determined
upon the completion of a two year period; vesting would not occur
until the end of the third year.
Business Environment
The Company's principal business activities, investment banking
and securities trading and sales, are by their nature subject to
volatility, primarily due to changes in interest and foreign exchange
rates, global economic and political trends and industry competition.
As a result, revenues and earnings may vary significantly from quarter
to quarter and from year to year.
The adverse market conditions that prevailed during the last
three quarters of 1994, which were characterized by rising interest
rates and depressed underwriting volumes, continued throughout most of
the first quarter of 1995. The financial crisis in Mexico and the
collapse of Barings Brothers PLC also had a negative impact on both
emerging markets and derivative transaction volumes in the first
quarter of 1995.
In the second quarter of 1995, market conditions showed signs of
improvement as expectations for lower U.S. interest rates prompted
strong rallies in the stock and bond markets. Although customer
volumes increased in both the debt and equity markets, activity
continued to be inconsistent during this period. In general,
investors remained conservative and defensive due to uncertainties
surrounding further declines in U.S. interest rates and the value of
the dollar. Over the same period, derivative transaction volumes
showed improvement as customers and clients were looking for
protection in a declining interest rate and volatile currency
environment.
The market rallies experienced during the second quarter of 1995
resulted in increased syndicate activities from the first quarter 1995
levels, with the majority of this increase in debt issuances. Such
syndicate volumes, however, remained below those experienced during
the comparable 1994 period. The environment for merger and
acquisition activity remained strong throughout the first half of
fiscal 1995.
Results of Operations
For the Three Months Ended May 31, 1995 and June 30, 1994
Summary. Net income increased to $58 million for the second
quarter ended May 31, 1995 from $20 million for the second quarter
ended June 30, 1994. The 1994 results include a $12 million after-tax
charge in connection with the spin-off from the American Express
Company and certain related expenses (the "Spin-off Charge").
Earnings per common share increased to $0.43 for the second quarter of
1995 from $0.11 per common share for the second quarter of 1994 (as
adjusted for the number of shares of common stock outstanding on May
31, 1994).
Net revenues increased to $731 million in the second quarter of
1995 from $707 million in the first quarter of 1995 and $719 million
for the second quarter of 1994. The increase in net revenues
reflected an improving market environment in the second quarter of
1995, as changing interest rate expectations caused rallies in the
U.S. stock and bond markets and generally higher levels of customer
activity.
Compensation and benefits expense as a percentage of net revenues
was 50.7% for both the second quarter of 1995 and 1994, down from
50.9% in the first quarter of 1995. Non-personnel expenses declined
for the fourth consecutive quarter to $270 million in the second
quarter of 1995 from $305 million in the second quarter of 1994,
excluding the Spin-off Charge. The increase in net revenues and the
corresponding reduction in non-interest expenses caused an improvement
in the Company's pre-tax operating margin to 12.3% in the second
quarter of 1995 from 6.8% in the second quarter of 1994, excluding the
Spin-off Charge.
Principal Transactions. Principal transactions revenues include
the results of the Company's market making and trading activity
related to its customer business, as well as proprietary trading for
the Company's own account. The Company, through its subsidiaries, is
a market maker in all major equity and fixed income products in both
the domestic and international markets. As part of its market-making
activities, the Company maintains inventory positions of varying
amounts across a broad range of financial instruments which are marked-
to-market on a daily basis, along with the Company's proprietary
trading positions. The Company utilizes various hedging strategies to
minimize its exposure to significant movements in interest and foreign
exchange rates and the equity and commodity markets. Principal
transactions revenues decreased 7% to $355 million for the second
quarter of 1995 from $383 million for the second quarter of 1994.
This decline in principal transactions revenues was primarily due to a
slight decrease in customer flow activities in certain fixed income
products, partially offset by increased net revenues from derivatives
activities and foreign exchange.
Investment Banking. Investment banking revenues were $152
million for the second quarter of 1995 virtually unchanged from the
prior year period but up 11% from revenues of $137 million in the
first quarter of 1995. The increase in investment banking revenues
during the second quarter of 1995 versus the first quarter of 1995 was
primarily attributable to higher levels of underwriting activity.
Revenues from strategic advisory activities remained strong with
consistent revenues in the second quarter of 1995 when compared to the
second quarter of 1994 and the first quarter of 1995.
Commissions. Commission revenues increased 3% to $121 million
for the second quarter of 1995 from $117 million for the second
quarter of 1994, reflecting an improvement in the Company's
institutional trading volumes of listed securities partially offset by
the effects of restructuring the Company's high net worth brokerage
unit. Commission revenues are generated from the Company's agency
activities on behalf of corporations, institutions and high-net-worth
individuals.
Interest and Dividends. Interest and dividend revenues increased
to $2,655 million for the second quarter of 1995 from $1,699 million
for the second quarter of 1994. This increase is the result of higher
levels of interest rates in the second quarter of 1995 versus the
second quarter of 1994 and an increase in the Company's volume of
matched book transactions.
Net interest and dividend income increased 63% to $88 million in
the second quarter of 1995 from $54 million in the second quarter of
1994. Net interest and dividend revenue amounts are closely related
to the Company's trading activities. The Company evaluates its
trading strategies on an overall profitability basis which includes
both principal transactions revenues and net interest. Therefore,
changes in net interest and dividend revenue from period to period
should not be viewed in isolation but should be viewed in conjunction
with revenues from principal transactions. Net interest and dividend
revenue is impacted by the balance sheet size and mix of assets, the
amount and mix of short- and long-term funding sources, as well as the
prevailing level, term structure and volatility of interest rates. In
the second quarter of 1995, the increase in net interest and dividend
revenue was due to a higher level of interest earning assets and a
reduction in the Company's funding costs due to the $1.2 billion
infusion of capital in connection with the May 31, 1994 spin-off from
the American Express Company, the conversion of a portion of the
Company's existing long-term debt portfolio from fixed to floating
rate through the use of interest rate swaps and the use of other
derivatives products.
Non-Interest Expenses. Non-interest expenses decreased 6% to
$641 million for the second quarter of 1995 from $684 million for the
second quarter of 1994. Compensation and benefits expense as a
percentage of net revenues was unchanged at 50.7% for both the second
quarter of 1995 and 1994 and down from 50.9% in the first quarter of
1995. Compensation and benefits expense was $371 million for the
second quarter of 1995 and $364 million for the second quarter of
1994.
Nonpersonnel expenses were $270 million for the second quarter of
1995 down from $320 million for the second quarter of 1994 and $277
million for the first quarter of 1995. Included in the 1994 results
was a $15 million Spin-off Charge. Excluding this charge,
nonpersonnel expenses decreased 11% to $270 million for the second
quarter of 1995 from $305 million in the second quarter of 1994.
Cost Reduction Effort. At year end 1994, the Company announced a
cost reduction target of $300 million on an annualized basis (pre-tax)
compared to the third quarter 1994 annualized expenses. The Company
has continued its progress in reducing costs concentrating on both
personnel and non-personnel expenses. During the second quarter of
1995, headcount was further reduced to 8,195 employees at May 31, 1995
from 8,428 at February 28, 1995. Such reductions were achieved
despite certain strategic hires by the Company in a number of business
units. The Company also continued to reduce nonpersonnel expenses
with annualized savings of approximately $28 million being achieved in
the second quarter when compared to the first quarter 1995 expense
level. The Company expects to achieve its remaining cost reduction
objectives by year end 1995.
In addition to the cost reduction efforts described above, the
Company continues to review its activities, realigning and consolidating
operations and facilities where possible.
Income Taxes. For the second quarter of 1995, the Company's
income tax provision was $32 million as compared to $15 million for
the second quarter of 1994. The effective tax rate was 36% for the
second quarter of 1995 as compared to 42% in the second quarter of
1994. The 1994 results include a tax charge related to the non-
deductibility of a portion of the Spin-off Charge. In addition, the
lower tax rate for 1995 is a result of a decrease in the state tax
rate, partially offset by a decrease in tax benefits attributable to
income subject to preferential tax treatment.
Results of Operations
For the Six Months Ended May 31, 1995 and June 30, 1994
Summary. The Company reported net income of $103 million for the
six months ended May 31, 1995 as compared to net income of $62 million
for the six months ended June 30, 1994. The 1994 results include an
$18 million aftertax severance charge related to the Company's review
of its personnel needs, a $12 million aftertax Spin-off Charge and a
$13 million aftertax charge for the cumulative effect of a change in
accounting for postemployment benefits as a result of the adoption of
Statement of Financial Accounting Standards No. 112. Excluding these
charges, net income declined slightly to $103 million for the six
months ended May 31, 1995 from $105 million for the six months ended
June 30 1994.
Earnings per common share for the six months ended May 31, 1995
were $0.74. Earnings per common share for the six months ended June
30, 1994 were $0.40 after the cumulative effect of a change in
accounting principle and were $0.52 before the cumulative effect of a
change in accounting principle (as adjusted for the number of shares
of common stock outstanding on May 31, 1994).
Net revenues decreased 9% to $1,438 million for the six months
ended May 31, 1995 from $1,587 million for the six months ended June
30, 1994. The decline in net revenues was primarily due to decreased
revenues in the first quarter of 1995 from the first quarter of 1994
as a result of a significant weakening in the global business
environment. The first quarter of 1994 reflected the carryover of the
1993 robust operating environment. This cycle was characterized by
historically low interest rates, strong syndicate activity and heavy
customer volumes. The first quarter of 1995 reflected a more
difficult business environment, due to significantly increased
interest rates, reduced levels of debt and equity underwritings and
increased volatility in the secondary markets. Partially offsetting
this decrease was a somewhat improved operating environment in the
second quarter of 1995 as compared to the prior year, due to a change
in the expectations for interest rates and rallies in the stock and
bond markets.
Principal Transactions. Principal transactions revenues decreased
16% to $714 million for the six months ended May 31, 1995 from $845
million for the six months ended June 30, 1994. The decline in
principal transactions revenues was principally due to lower customer
flow activities, particularly in derivatives and certain fixed income
products, in the first quarter of fiscal 1995 from that experienced
during the first quarter of 1994. Customer flow volumes increased in
the second quarter of 1995 from the first quarter 1995 levels due to
changes in the expectations regarding interest rates and rallies in
both the stock and bond markets.
Investment Banking. Investment banking revenues decreased 11% to
$289 million for the six months ended May 31, 1995 from $326 million
for the six months ended June 30, 1994. Underwriting activity
continued at low levels industrywide as demand for debt and equity
issuance remained below the comparable levels present during 1994.
Accordingly, the Company's origination volumes overall were below
those achieved during 1994. Partially offsetting this decrease were
improved results from merchant banking activities. Results from
strategic advisory activities for the six months ended May 31, 1995
were consistent with the prior year period.
Commissions. Commission revenues decreased 12% to $226 million
for the six months ended May 31, 1995 from $258 million for the six
months ended June 30, 1994. The decline in commission revenues
reflects lower volumes of customer trading in listed securities
primarily due to the effects of restructuring the Company's high net
worth brokerage unit. Commission revenues are generated from the
Company's agency activities on behalf of corporations, institutions
and high-net-worth individuals.
Interest and Dividends. Interest and dividend revenues increased
to $5,156 million for the six months ended May 31, 1995 from $3,226
million for the six months ended June 30, 1994. This increase is the
result of higher levels of interest rates in the six months ended May
31, 1995 versus the six months ended June 30, 1994 and an increase in
the Company's volume of matched book transactions.
Net interest and dividend income increased 44% to $184 million
for the six months ended May 31, 1995 from $128 million for the six
months ended June 30, 1994. The 1995 increase in net interest and
dividend revenue was due to a higher level of interest earning assets
and a reduction in the Company's funding costs due to the $1.2 billion
infusion of capital in connection with the May 31, 1994 spin-off from
the American Express Company, the conversion of a portion of the
Company's existing long-term debt portfolio from fixed to floating
rate through the use of interest rate swaps and the use of other
derivatives products.
Non-Interest Expenses. Non-interest expenses were $1,278 million
for the six months ended May 31, 1995 and $1,464 million for the six
months ended June 30, 1994. Compensation and benefits expense was
$730 million for the six months ended May 31, 1995 and $814 million
for the six months ended June 30, 1994. Compensation and benefits
expense as a percentage of net revenues decreased to 50.8% for the six
months ended May 31, 1995 from 51.3% for the six months ended June 30,
1994.
Nonpersonnel expenses were $548 million for the six months ended
May 31, 1995 and $650 million for the six months ended June 30, 1994.
Included in the 1994 results was a $33 million severance charge and a
$15 million Spin-off Charge. Excluding these charges, nonpersonnel
expenses decreased 9% to $548 million for the six months ended May 31,
1995 from $602 million for the six months ended June 30, 1994.
Income Taxes. For the six months ended May 31, 1995, the
Company's income tax provision was $57 million as compared to $48
million for the six months ended June 30, 1994. The effective tax
rate was 36% for the six months ended May 31, 1995 as compared to 39%
for the six months ended June 30, 1994. The 1994 results include a
tax charge related to the non-deductibility of a portion of the Spin-
off Charge. In addition, the lower tax rate for 1995 is a result of a
decrease in the state tax rate, partially offset by a decrease in tax
benefits attributable to income subject to preferential tax treatment.
Liquidity and Capital Resources
Total assets increased to $123.4 billion at May 31, 1995 from
$109.9 billion at November 30, 1994. The increase in total assets is
primarily the result of the change in the Company's clearing
arrangements. After the close of business on February 17, 1995, the
Company became self-clearing for equities, municipal securities and
corporate debt securities. Previously all clearing and settlement for
these products was performed by Smith Barney Inc. The Company has
entered into an agreement, for a term of five years, with the Bear
Stearns Securities Corp. ("BSSC") pursuant to which BSSC has agreed
to process the transactions previously cleared by Smith Barney Inc.
As of result of this arrangement, assets increased by approximately
$11 billion which were predominantly funded with offsetting
liabilities.
The Company's asset base consists primarily of cash and cash
equivalents and assets which can be converted to cash within one year,
including securities and other financial instruments owned,
collateralized short-term agreements and receivables. Long-term
assets consist primarily of other receivables, which included a $945
million interest bearing receivable from the American Express Company
due in June 1996, property, equipment and leasehold improvements,
deferred expenses and other assets, and excess of cost over fair value
of net assets acquired. On June 22, 1995, $700 million of the
receivable was prepaid by the American Express Company. The maturity
of the remaining $245 million interest bearing note was extended to
the year 2000. Portions of this note will be prepaid by American
Express prior to such date in proportion to the Company's payments and
prepayments on any indebtedness related to the World Financial Center.
On a daily basis the Company reviews its mix of long- and short-
term borrowings as it relates to maturity matching and the
availability of secured and unsecured financing. In addition, the
Company periodically tests its secured and unsecured credit facilities
to ensure availability and monitors its unencumbered collateral
positions to ensure maximum availability of secured borrowing
facilities.
Short-Term Secured Funding. The Company finances its short-term
assets primarily on a secured basis. At May 31, 1995, 79% of the
Company's securities and other financial instruments owned, securities
purchased under agreements to resell and securities borrowed are
financed by securities and other financial instruments sold but not
yet purchased, securities sold under agreements to repurchase and
securities loaned.
Short-Term Unsecured Funding. The Company uses short-term
unsecured borrowing sources to fund short-term assets not financed on
a secured basis. The Company's primary sources of short-term,
unsecured general purpose funding include commercial paper and short-
term debt, including master notes and bank borrowings under
uncommitted lines of credit. Commercial paper and short-term debt
outstanding totaled $7.9 billion at May 31, 1995, compared to $9.8
billion at November 30, 1994. Of these amounts, commercial paper
outstanding totaled $2.7 billion at May 31, 1995 compared to $2.8
billion at November 30, 1994. At May 31, 1995, Holdings had $2.5
billion of unused committed bank credit lines to support its
commercial paper programs.
The Company's uncommitted lines of credit provide an additional
source of secured and unsecured short-term financing. At May 31,
1995, the Company had $13.7 billion in uncommitted lines of credit
compared to $12.5 billion at November 30, 1994. Uncommitted lines
consist of facilities that the Company has been advised are available
but for which no contractual lending obligation exists.
Total Capital. Long-term assets are financed with a combination
of long-term debt and stockholders' equity (collectively, "Total
Capital"). The Company's long-term unsecured funding sources are
senior notes and subordinated indebtedness. The Company maintains
long-term debt in excess of its long-term assets to provide additional
liquidity, which the Company uses to meet its short-term funding
requirements and to reduce its reliance on commercial paper and short-
term debt.
For the six months ended May 31, 1995, the Company issued $3.5
billion in long-term debt compared to $2.5 billion for the six months
ended June 30, 1994. These issuances were primarily utilized to
refinance long-term debt and to replace long-term debt redeemed by the
Company prior to maturity during the six months ended May 31, 1995.
The Company staggers the maturities of its long-term debt to minimize
refunding risk. At May 31, 1995, the Company had long-term debt
outstanding of $12.8 billion compared to $11.3 billion at November 30,
1994.
At May 31, 1995, the Company had approximately $5.5 billion
available for issuance of debt securities under various shelf
registrations and debt programs.
Credit Ratings. The current short-term and long-term senior debt
ratings of Holdings and the current short-term and subordinated debt
ratings of the Company's principal subsidiary, Lehman Brothers Inc.
("LBI") are as follows:
Holdings LBI
Short- Long- Short- subordinated
term term term debt
Duff & Phelps Credit Rating Co D-1 A D-1 A-
Fitch Investors Services Inc. F-1 A F-1 A-
IBCA A1 A- A1 -
Moody's P2 Baa1 P2 Baa1
S&P A-1 A A-1 A
Thomson BankWatch TBW-1 A- TBW-1 A-
Specific Business Activities and Transactions
The following sections include information on specific business
activities of the Company which affect overall liquidity and capital
resources:
High Yield Securities. The Company underwrites, trades, invests
and makes markets in high yield corporate debt securities. The
Company also syndicates, trades and invests in loans to below
investment grade companies. For purposes of this discussion, high
yield debt securities are defined as securities or loans to companies
rated as BB+ or lower, or equivalent ratings by recognized credit
rating agencies, as well as non-rated securities or loans which, in
the opinion of management, are non-investment grade. Non-investment
grade securities generally involve greater risks than investment grade
securities due to the issuer's creditworthiness and the liquidity of
the market for such securities. In addition, these issuers have
higher levels of indebtedness, resulting in an increased sensitivity
to adverse economic conditions. The Company recognizes these risks
and aims to reduce market and credit risk through the diversification
of its products and counterparties. High yield debt securities are
carried at market value and unrealized gains or losses for these
securities are reflected in the Company's consolidated statement of
operations. The Company's portfolio of such securities at May 31,
1995 and November 30, 1994 included long positions with an aggregate
market value of approximately $825 million and $1.1 billion,
respectively, and short positions with an aggregate market value of
approximately $80 million and $94 million, respectively. The
portfolio may from time to time contain concentrated holdings of
selected issues. The Company's two largest high yield positions were
$94 million and $57 million at May 31, 1995 and $252 million and $89
million at November 30, 1994.
Westinghouse. In May 1993, the Company and Westinghouse Electric
Corporation ("Westinghouse") entered into a partnership to facilitate
the disposition of Westinghouse's commercial real estate portfolio,
valued at approximately $1.1 billion, to be accomplished substantially
through securitizations and asset sales. The Company's original
investment in the partnership was approximately $136 million, after
consideration of a 10% limited partnership interest purchased by
Lennar Inc. In addition, the Company made collateralized loans to the
partnership of $752 million.
At May 31, 1995, the carrying value of the Company's investment in
the partnership was $114 million. The outstanding balance of the loan
to the partnership was fully paid in the first quarter of 1995. The
remaining investment should be principally recovered by the end of
1995 through a combination of securitizations, asset sales, mortgage
remittances and refinancings by third parties.
Merchant Banking Partnerships. At May 31, 1995, the Company's
investment in merchant banking partnerships was $307 million, which
included $14 million in one employee-related partnership in which the
Company, as general partner, is entitled to a priority return. At May
31, 1995, the Company had no remaining commitments to make investments
through these partnerships. The Company's policy is to carry its
interests in merchant banking partnerships at fair value based upon
the Company's assessment of the underlying investments. The Company's
merchant banking investments, made primarily through a series of
partnerships are consistent with the terms of those partnerships, and
are expected to be sold or otherwise monetized during the remaining
term of the partnerships.
Noncore Activities and Investments. In March 1990, the Company
discontinued the origination of partnerships (the assets of which are
primarily real estate) and investments in real estate. Currently, the
Company acts as a general partner for approximately $4.1 billion of
partnership investment capital and manages the remaining real estate
investment portfolio. At May 31, 1995, the Company had net exposure to
these investments of $179 million. This amount includes $45 million
of investments in these real estate activities, as well as $134
million of commitments and contingent liabilities under guarantees and
credit enhancements, both net of applicable reserves. In certain
circumstances, the Company provides financial and other support and
assistance to such investments to maintain investment values. There
is no contractual requirement that the Company continue to provide
this support. Although a decline in the real estate market or the
economy in general or a change in the Company's disposition strategy
could result in additional reserves, the Company believes that it is
adequately reserved for its investments in real estate and commitments
and contingent liabilities.
The Company has equity, partnership and debt investments made in
previous years that are unrelated to its ongoing businesses. The Company holds
$98 million of long-term subordinated indebtedness and equity securities of
American Marketing Industries Holdings Inc. ("AMI"). The subordinated debt,
as amended, matures in 1997, and includes certain provisions which limit cash
interest payments and provides for payment-in-kind securities above such cash
interest payments. The AMI loan is current in payment in accordance with its
terms. The Company has other investments that are also awaiting their
disposition or the occurrence of certain events which will ultimately lead
to their liquidation. The Company carries these equity, partnership and
debt investments, including AMI, at their estimated net realizable value,
which approximates $171 million at May 31, 1995.
Management's intention with regard to noncore assets is the
prudent liquidation of these investments as and when possible.
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
Lehman Brothers is involved in a number of judicial, regulatory
and arbitration proceedings concerning matters arising in connection
with the conduct of its business. Such proceedings include actions
brought against LBI and others with respect to transactions in which
LBI acted as an underwriter or financial advisor, actions arising out
of LBI's activities as a broker or dealer in securities and
commodities and actions brought on behalf of various classes of
claimants against many securities and commodities firms of which LBI
is one.
Although there can be no assurance as to the ultimate outcome,
Lehman Brothers has denied, or believes it has meritorious defenses
and will deny, liability in all significant cases pending against it
including the matters described below, and intends to defend
vigorously each such case. Although there can be no assurance as to
the ultimate outcome, based on information currently available and
established reserves, the Company believes that the eventual outcome
of the actions against it, including the matters described below, will
not, in the aggregate, have a material adverse effect on its business
or consolidated financial condition.
Glynwil Investment, Ltd. v. Shearson Lehman Brothers Inc. (Reported in
Holdings' Annual Report on Form 10-K and First Quarter Report on Form
10-Q)
On June 13, 1995, the Appellate Division, First Department,
reversed the summary judgment in favor of Lehman Brothers and remanded
the case back to the trial court for further proceedings. The case is
scheduled to go to trial on October 16, 1995.
First Capital Holdings Inc. - Bankruptcy Court Action. (Reported in
Holdings' Annual Report on Form 10-K)
The parties have agreed to a settlement of all claims, with all
defendants agreeing to pay a total of $80 million. On June 30, 1995,
the Bankruptcy Court entered an order in the case which, inter alia,
establishes notice procedures for serving shareholders and bondholders
with the settlement motion and setting August 9, 1995 as the hearing
date for the motion.
Lehman Brothers Commercial Corporation and Lehman Brothers Special
Financing Inc. v. China International United Petroleum and Chemical
Co., Ltd. (Reported in Holdings' Annual Report on Form 10-K and First
Quarter Report on Form 10-Q)
Unipec has asserted fifteen counterclaims against Lehman entities
based on violations of federal securities and commodities laws and
rules, and theories of fraud, breach of fiduciary duty, conversion and
business torts. Unipec seeks $8 million in compensatory damages, as
well as punitive damages. The Lehman counterclaim defendants have
moved to dismiss the six counterclaims based on fraud and the two
based on business tort theories. Discovery is commencing.
Lehman Brothers Commercial Corporation and Lehman Brothers Special
Financing Inc. v. Minmetals International Non-Ferrous Metals Trading
Company (Reported in Holdings' Annual Report on Form 10-K and First
Quarter Report on Form 10-Q)
CNM filed a motion to dismiss the claims against it. The court
granted the motion, but also granted LBCC and LBSF leave to replead.
Minmetals filed fourteen counterclaims against Lehman entities based
on violations of federal securities and commodities laws and rules,
and theories of fraud, breach of fiduciary duty and conversion. The
Lehman counterclaim defendants have moved to dismiss the six fraud
based counterclaims. Discovery is commencing.
EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits and reports on Form 8-K are filed as part of
this Quarterly Report, or where indicated, were heretofore filed and
are hereby incorporated by reference:
(a) Exhibits:
11. Computation of Per Share Earnings
12. Computation in Support of Ratio of Earnings to Fixed
Charges
27. Financial Data Schedule
(b) Reports on Form 8-K:
1. Form 8-K filed June 28, 1995, Items 5 and 7.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
LEHMAN BROTHERS HOLDINGS INC.
(Registrant)
Date: July 14, 1995 By /s/ Richard S. Fuld Jr.
Richard S. Fuld, Jr.
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: July 14, 1995 By /s/ Robert Matza
Robert Matza
Chief Financial Officer
(Principal Financial Officer)
EXHIBIT INDEX
Exhibit No. Exhibit
Exhibit 11 Computation of Per Share Earnings
Exhibit 12 Computation in Support of Ratio of Earnings to Fixed Charges
Exhibit 27 Financial Data Schedule
Exhibit 11
<TABLE>
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
COMPUTATION of PER SHARE EARNINGS
(Unaudited)
(In millions, except share data)
<CAPTION>
Three months Six months
ended ended
May 31, June 30, May 31, June 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Primary:
Weighted average shares
outstanding:
Common stock 104,510,057 105,594,043 104,514,659 105,601,193
Common stock issuable 5,466,763 11,667 5,510,020 11,667
Common stock equivalents 271,927 61,389 166,658 61,389
Total common stock and
common stock equivalents 110,248,747 105,667,099 110,191,337 105,674,249
Income before cumulative effect
of change in accounting
principle $ 58.2 $ 20.1 $103.2 $ 75.0
Cumulative effect of change in
accounting principle (12.7)
Net income 58.2 20.1 103.2 62.3
Preferred dividends (10.6) (8.0) (21.2) (20.0)
Net income applicable to
stock common $ 47.6 $ 12.1 $ 82.0 $ 42.3
Earnings Per Share:
Income before cumulative effect
of change in accounting
principle $ 0.43 $ 0.11 $ 0.74 $ 0.52
Cumulative effect of change in
accounting principle (0.12)
Earnings per common share $ 0.43 $ 0.11 $ 0.74 $ 0.40
Fully diluted:
Weighted average shares
outstanding:
Common stock 104,510,057 105,594,043 104,514,659 105,601,193
Common stock issuable 5,466,763 11,667 5,510,020 11,667
Common stock equivalents 369,522 61,389 227,668 61,389
Total common stock and
common stock equivalents 110,346,342 105,667,099 110,252,347 105,674,249
Income before cumulative
effect of change in
accounting principle $ 58.2 $ 20.1 $103.2 $ 75.0
Cumulative effect of change in
accounting principle (12.7)
Net income 58.2 20.1 103.2 62.3
Preferred dividends (10.6) (8.0) (21.2) (20.0)
Net income applicable to common
stock $47.6 $12.1 $82.0 $42.3
Earnings Per Share:
Income before cumulative effect
of change in
accounting principle $ 0.43 $ 0.11 $ 0.74 $ 0.52
Cumulative effect of change in
accounting principle (0.12)
Earnings per common share $ 0.43 $ 0.11 $ 0.74 $ 0.40
</TABLE>
Exhibit 12
<TABLE>
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
COMPUTATION in SUPPORT of RATIO of EARNINGS to FIXED CHARGES
(Dollars in millions)
(Unaudited)
<CAPTION>
For the For the
Eleven Months Six Months
Ended Ended
For the Year Ended December 31, November 30, May 31,
1990 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C>
Fixed charges:
Interest expense:
Subordinated
indebtedness $ 203 $ 170 $ 150 $ 144 $ 158 $ 101
Bank loans and other
borrowings* 4,531 4,755 5,035 5,224 6,294 4,871
Interest component
of rentals
of office and
equipment 62 70 74 76 42 23
Other adjustments** 8 2 2 7 4 16
TOTAL (A) $4,804 $4,997 $5,261 $5,451 $6,498 $5,011
Earnings:
Pretax income (loss)
from continuing
operations $ (749) $ 150 $ (247) $ 27 $ 193 $ 160
Fixed charges 4,804 4,997 5,261 5,451 6,498 5,011
Other adjustments** (17) 7 (6) (4) (15)
TOTAL (B) $4,038 $5,154 $5,014 $5,472 $6,687 $5,156
(B / A) 1.03 1.00 1.03 1.03
</TABLE>
* Includes amortization of long-term debt discount.
** Other adjustments include capitalized interest and debt issuance
costs and amortization of capitalized interest.
*** Other adjustments include adding the net loss of affiliates
accounted for at equity whose debt is not guaranteed by the
Company and subtracting capitalized interest and debt issuance
costs and undistributed net income of affiliates accounted for at
equity.
**** Earnings were inadequate to cover fixed charges and would have
had to increase approximately $766 million in 1990 and $247
million in 1992 in order to cover the deficiency.
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Financial Condition at May 31, 1995 (Unaudited) and
the Consolidated Statement of Operations for the six months ended May 31, 1995
(Unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000806085
<NAME> LEHMAN BROTHERS HOLDINGS INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> MAY-31-1995
<CASH> 2,420
<RECEIVABLES> 10,974
<SECURITIES-RESALE> 40,306
<SECURITIES-BORROWED> 19,231
<INSTRUMENTS-OWNED> 49,033
<PP&E> 582
<TOTAL-ASSETS> 123,421
<SHORT-TERM> 7,885
<PAYABLES> 10,470
<REPOS-SOLD> 65,607
<SECURITIES-LOANED> 4,925
<INSTRUMENTS-SOLD> 15,638
<LONG-TERM> 12,782
<COMMON> 11
0
708
<OTHER-SE> 2,756
<TOTAL-LIABILITY-AND-EQUITY> 123,421
<TRADING-REVENUE> 714
<INTEREST-DIVIDENDS> 5,156
<COMMISSIONS> 226
<INVESTMENT-BANKING-REVENUES> 289
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 4,972
<COMPENSATION> 730
<INCOME-PRETAX> 160
<INCOME-PRE-EXTRAORDINARY> 103
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 103
<EPS-PRIMARY> 0.74
<EPS-DILUTED> 0.74
</TABLE>
