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 February 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 1-9466
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 March 31, 1996, 102,378,536 shares of the Registrant's Common Stock, par
value $.10 per share, were outstanding.
<PAGE>
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED FEBRUARY 29, 1996
INDEX
Part I. FINANCIAL INFORMATION Page Number
Item 1. Financial Statements - (unaudited)
Consolidated Statement of Operations -
Three Months Ended February 29, 1996
and February 28, 1995 .....................................4
Consolidated Statement of Financial Condition -
February 29, 1996 and November 30, 1995 ..... ........ 5
Consolidated Statement of Cash Flows -
Three Months Ended February 29, 1996
and February 28, 1995 ....................................7
Notes to Consolidated Financial Statements............ 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.... 11
Part II. OTHER INFORMATION
Item 1. Legal Proceedings ................................. 22
Item 6. Exhibits and Reports on Form 8-K ...................... 25
Signatures.......................................................... 26
EXHIBIT INDEX .............................................. 27
Exhibits
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
<TABLE>
<CAPTION>
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
CONSOLIDATED STATEMENT of OPERATIONS
(Unaudited)
(In millions, except per share data)
Three months
ended
February 29, February 28,
1996 1995
<S> <C> <C>
Revenues
Principal transactions ............................. $ 413 $ 359
Investment banking ................................. 211 137
Commissions ........................................ 96 105
Interest and dividends ............................. 3,187 2,501
Other .............................................. 10 10
------ ------
Total revenues ................................ 3,917 3,112
Interest expense .................................. 3,096 2,405
------ ------
Net revenues .................................. 821 707
------ ------
Non-interest expenses
Compensation and benefits ......................... 416 360
Brokerage, commissions and clearance fees ......... 57 64
Communications .................................... 40 47
Occupancy and equipment ........................... 40 45
Professional services ............................. 34 42
Business development .............................. 27 29
Depreciation and amortization ..................... 24 27
Other ............................................. 24 23
------ ------
Total non-interest expenses .................. 662 637
------ ------
Income before taxes .................................... 159 70
Provision for income taxes ....................... 55 25
------ ------
Net income ............................................. $ 104 $ 45
====== ======
Net income applicable to common stock .................. $ 93 $ 34
====== ======
Average common and common equivalent
shares outstanding .................................. 116.9 110.2
====== ======
Earnings per common share .............................. $ 0.79 $ 0.31
====== ======
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(Unaudited)
(In millions)
ASSETS
February 29, November 30,
1996 1995
<S> <C> <C>
Cash and cash equivalents ................................................................ $ 956 $ 874
Cash and securities segregated and on deposit
for regulatory and other purposes ...................................................... 1,257 945
Securities and other financial instruments owned:
Governments and agencies .............................................................. 27,806 22,849
Corporate obligations and other contractual commitments ............................... 11,770 11,415
Corporate stocks and options .......................................................... 9,614 7,143
Mortgages and mortgage-backed ......................................................... 7,527 6,847
Certificates of deposit and other money market instruments ............................ 1,970 3,068
-------- --------
58,687 51,322
-------- --------
Collateralized short-term agreements:
Securities purchased under agreements to resell ....................................... 44,094 36,234
Securities borrowed ................................................................... 12,159 16,290
Receivables:
Brokers, dealers and clearing organizations ........................................... 4,095 2,845
Customers ............................................................................. 4,663 3,891
Others ................................................................................ 1,349 1,434
Property, equipment and leasehold improvements
(net of accumulated depreciation and amortization
of $605 in 1996 and $585 in 1995) ...................................................... 478 495
Deferred expenses and other assets ....................................................... 786 793
Excess of cost over fair value of net assets
acquired (net of accumulated amortization
of $97 in 1996 and $95 in 1995) ........................................................ 178 180
-------- --------
Total assets ...................................................................... $128,702 $115,303
======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION (Continued)
(Unaudited)
(In millions, except share data)
February 29, November 30,
1996 1995
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Commercial paper and short-term debt ......................................................... $ 6,996 $ 6,235
Securities and other financial instruments sold but not yet purchased:
Governments and agencies .................................................................. 15,306 11,665
Corporate stocks and options .............................................................. 5,263 4,393
Corporate obligations and other contractual commitments ................................... 2,916 3,796
--------- ---------
23,485 19,854
--------- ---------
Collateralized short-term financings:
Securities sold under agreements to repurchase ............................................ 65,627 59,035
Securities loaned ......................................................................... 3,872 1,966
Payables:
Brokers, dealers and clearing organizations ............................................... 917 2,513
Customers ................................................................................. 8,525 6,311
Accrued liabilities and other payables ....................................................... 2,286 2,926
Long-term debt:
Senior notes .............................................................................. 10,805 10,505
Subordinated indebtedness ................................................................. 2,666 2,260
--------- ---------
Total liabilities ................................................................. 125,179 111,605
--------- ---------
Commitments and contingencies
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
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: 105,896,516 in 1996 and 105,684,565 in 1995;
shares outstanding: 102,443,232 in 1996 and 104,565,875 in 1995 ....................... 11 11
Common Stock issuable ..................................................................... 208 211
Additional paid-in capital ................................................................ 3,176 3,172
Foreign currency translation adjustment ................................................... 3 9
Accumulated deficit ....................................................................... (310) (397)
Common Stock in treasury at cost: 3,453,284 shares in 1996
and 1,118,690 shares in 1995 .......................................................... (73) (16)
--------- ---------
Total stockholders' equity ....................................................... 3,523 3,698
--------- ---------
Total liabilities and stockholders' equity ....................................... $ 128,702 $ 115,303
========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In millions)
Three months ended
February 29, February 28,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ........................................................................................... $ 104 $ 45
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization ...................................................................... 24 27
Provisions for losses and other reserves ........................................................... 10 6
Other adjustments .................................................................................. 9 13
Net change in:
Cash and securities segregated ..................................................................... (312) 163
Receivables from brokers, dealers and clearing organizations ....................................... (1,250) (50)
Receivables from customers ......................................................................... (772) (1,776)
Securities purchased under agreements to resell .................................................... (7,860) (4,557)
Securities borrowed ................................................................................ 4,131 (8,992)
Securities and other financial instruments owned ................................................... (7,365) (2,649)
Payables to brokers, dealers and clearing organizations ............................................ (1,596) 901
Payables to customers .............................................................................. 2,214 3,184
Accrued liabilities and other payables ............................................................. (650) (336)
Securities sold under agreements to repurchase ..................................................... 6,592 8,830
Securities loaned .................................................................................. 1,906 3,687
Securities and other financial instruments sold but
not yet purchased ............................................................................... 3,631 1,019
Other operating assets and liabilities, net ........................................................ 75 812
------- -------
Net cash (used in) provided by operating activities ........................................ $(1,109) $ 327
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS--(Continued)
(Unaudited)
(In millions)
Three months ended
February 29, February 28,
1996 1995
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of senior notes ................................................. $ 693 $ 1,416
Principal payments of senior notes ..................................................... (385) (1,441)
Proceeds from issuance of subordinated indebtedness .................................... 400 6
Principal payments of subordinated indebtedness ........................................ (213)
Proceeds from commercial paper and short-term debt ..................................... 765 256
Payment for repurchase of preferred stock .............................................. (200)
Payments for treasury stock purchases .................................................. (57)
Dividends paid ......................................................................... (21) (12)
------- -------
Net cash provided by financing activities .................................. 1,195 12
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, equipment and leasehold improvements ............................. (4) (20)
------- -------
Net cash used in investing activities ....................................... (4) (20)
------- -------
Net change in cash and cash equivalents .................................... 82 319
------- -------
Cash and cash equivalents, beginning of period ......................................... 874 964
------- -------
Cash and cash equivalents, end of period ................................... $ 956 $ 1,283
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (in millions)
Interest paid totaled $3,158 and $2,395 for the three months ended
February 29, 1996 and for the three months ended February 28, 1995,
respectively. Income taxes paid totaled $22 and $5 for the three months ended
February 29, 1996 and for the three months ended February 28, 1995,
respectively.
</TABLE>
See notes to consolidated financial statements.
<PAGE>
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation:
The consolidated financial statements include the accounts of Lehman
Brothers Holdings Inc. ("Holdings") and subsidiaries (collectively, the
"Company" or "Lehman Brothers"). Lehman Brothers is one of the leading global
investment banks serving institutional, corporate, government and high-net-
worth individual clients and customers. The Company's worldwide headquarters in
New York and regional headquarters in London and Tokyo are complemented by
offices in additional locations in North America, Europe, the Middle East, Latin
and South America and the Asia Pacific region. The Company is engaged primarily
in providing financial services. The principal U.S. 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, 1995 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 Annual Report on Form 10-K for the twelve months ended November 30,
1995.
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.
2. Long-Term Debt:
During the three months ended February 29, 1996, the Company issued
$1,093 million of long-term debt (comprised of $693 million of senior notes and
$400 million of subordinated debt). Of the total issuances for the first quarter
of 1996, $420 million were U.S. dollar fixed rate, $416 million were U.S. dollar
floating rate and $257 million were foreign currency denominated. The U.S.
dollar fixed rate issuances included $200 million 8.30% Quarterly Income Capital
Securities ("Series A QUICS"), which were issued to fund the repurchase of the
$200 million 8.44% cumulative preferred stock from American Express. The
remaining issuances were primarily utilized to refinance maturing long-term
debt.
The Series A QUICS, issued on February 15, 1996 mature in 2035 and are
subject to early redemption by the Company on or after March 31, 2001. The
Company retains the right to defer interest payments on the Series A QUICS on
one or more occasions for a period of up to twenty consecutive quarters.
Interest payments may not be deferred beyond the maturity of the Series A QUICS.
The Series A QUICS are subordinated to all senior and subordinated debt of the
Company.
<PAGE>
The Company's floating rate new issuances contain contractual interest
rates based primarily on Prime and London Interbank Offered Rates ("LIBOR"). All
of the Company's U.S. dollar fixed rate new issuances, including the Series A
QUICS, were effectively converted to floating rate obligations through the use
of interest rate swaps. In addition, all of the Company's foreign currency
denominated new issuances were effectively converted to U.S. dollar obligations
with floating interest rates based primarily on LIBOR through the use of
currency swaps.
The Company had approximately $385 million of long-term debt mature
during the three months ended February 29, 1996.
3. Capital Requirements:
As a registered broker-dealer, LBI is subject to SEC Rule 15c3-1, the
Net Capital Rule, which requires LBI 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 February 29, 1996, LBI's regulatory net
capital, as defined, of $1,452 million exceeded the minimum requirement by
$1,318 million.
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 February 29, 1996, LBIE, LBJ and the other
subsidiaries were in compliance with the applicable local capital adequacy
requirements. The Company's triple-A rated derivatives subsidiary, Lehman
Brothers Financial Products Inc., has established certain capital and operating
restrictions which are reviewed by various rating agencies.
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 the success and
profitability of the Company. 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 Notes 16 and 18 of the
Consolidated Financial Statements in the Company's Annual Report on Form 10-K
for the twelve months ended November 30, 1995.
<PAGE>
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 favorable market environment experienced during the second half of
1995 continued into 1996. The U.S. bond market continued to rally as
expectations for additional easing by the U.S. Federal Reserve Bank and the
possibility of a deficit reduction package positively impacted the industry as a
whole. Internationally, weakness in the major European economies produced a
round of interest rate cuts from a number of central banks in an effort to
promote stronger economic growth. These actions led to more positive market
conditions in Europe. The favorable worldwide trend in interest rates also
supported strong performance in global equity markets. All of these factors led
to continued strength in debt and equity underwriting volumes.
By mid February, 1996, investor concerns about stronger economic data,
raising the possibility of no further interest rate reductions by the U.S.
Federal Reserve Bank, caused a significant correction in the U.S. fixed income
market and a general increase in interest rates. This change in market
conditions led to a decrease in debt underwriting volumes and more volatile
market conditions. The U.S. equity market continued to exhibit strength on the
basis of positive economic growth. Merger and acquisition activity continued at
record levels due to industry and cross-border consolidation.
Note: Except for the historical information contained herein, this Management's
Discussion and Analysis of Financial Condition and Results of Operations
contains forward-looking statements that discuss the risks and
uncertainties involved in the Company's business.
Results of Operations
For the Three Months Ended February 29, 1996 and February 28, 1995
The Company reported net income of $104 million for the first quarter
ended February 29, 1996 representing an increase of 131% from net income of $45
million for the first quarter ended February 28, 1995. Earnings per common share
increased to $0.79 for the first quarter of 1996 from $0.31 per common share for
the first quarter of 1995. The improved results for 1996 reflect stronger
earnings and enhanced margins which resulted from the fourth consecutive quarter
of both higher revenues and reduced nonpersonnel expenses, amid a period of
generally improved market conditions.
Net revenues increased to $821 million for the first quarter of 1996
from $707 million for the first quarter of 1995 and $755 million for the fourth
quarter of 1995, excluding the special revenue item of $129 million from the
sale of the Company's investment in Omnitel Sistemi Radiocellullari Italiani
S.p.A. ("Omnitel"). The increase in net revenues reflected continued
strengthening in a number of fixed income and equity areas throughout the
Company. Investment banking revenues for 1996 were well above the first quarter
of 1995 but were somewhat below the fourth quarter of 1995 due in large part to
the timing of certain corporate finance advisory fees.
Compensation and benefits expense as a percentage of net revenues was
50.7% for the fourth successive quarter down from 50.9% for the first quarter of
1995. Nonpersonnel expenses declined for the seventh consecutive quarter to $246
million for the first quarter of 1996 from $277 million for the first quarter of
1995. The increase in net revenues and the corresponding reduction in
nonpersonnel expenses led to an improvement in the Company's pretax operating
margin to 19.2% in the first quarter of 1996 from 9.9% for the first quarter of
1995.
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 and along with the Company's proprietary
trading positions, give rise to principal transactions revenues. The Company
utilizes various hedging strategies to minimize its exposure to significant
movements in interest and foreign exchange rates and the equity markets.
Net revenues from the Company's market-making and trading activities in
fixed income and equity products are recognized as either principal transactions
or net interest revenues depending upon the method of financing and/or hedging
related to specific inventory positions. 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
should not be viewed in isolation but should be viewed in conjunction with
revenues from principal transactions. Net interest revenues were $91 million for
the first quarter of 1996 compared to $96 million for the first quarter of 1995.
This decrease was due to changes in the mix of the Company's assets partially
offset by an increase in the volume of fixed income matched book transactions.
<PAGE>
The following table of net revenues by business unit and the
accompanying discussion have been prepared in order to present the Company's net
revenues in a format that reflects the manner in which the Company manages its
businesses. For internal management purposes, the Company has been segregated
into five major business units: Fixed Income, Equity, Corporate Finance
Advisory, Merchant Banking and Asset Management. Each business unit represents a
grouping of financial activities and products with similar characteristics.
These business activities result in revenues that are recognized in multiple
revenue categories contained in the Company's Consolidated Statement of
Operations. Net revenues by business unit contain certain internal allocations,
including funding costs, which are centrally managed.
Three Months Ended February 29, 1996
<TABLE>
<CAPTION>
Principal
Transactions and Investment
Net Interest Commissions Banking Other Total
-----
<S> <C> <C> <C> <C> <C>
Fixed Income ...................................... $ 441 $ 18 $ 73 $ 3 $ 535
Equity ............................................ 64 72 54 2 192
Corporate Finance Advisory ........................ 50 50
Merchant Banking .................................. (3) 34 31
Asset Management .................................. 2 6 5 13
-----
$ 504 $ 96 $ 211 $ 10 $ 821
-----
Three Months Ended February 28, 1995
Principal
Transactions and Investment
Net Interest Commissions Banking Other Total
-----
<S> <C> <C> <C> <C> <C>
Fixed Income ...................................... $ 391 $ 24 $ 28 $ 2 $ 445
Equity ............................................ 76 75 22 1 174
Corporate Finance Advisory ........................ 48 48
Merchant Banking .................................. (8) 39 31
Asset Management .................................. (4) 6 7 9
-----
$ 455 $ 105 $ 137 $ 10 $ 707
-----
</TABLE>
Fixed Income. The Company's fixed income net revenues reflect customer
flow activities (both institutional and high-net-worth retail), secondary
trading, debt underwriting, syndicate and financing activities related to fixed
income products. Fixed income products include dollar- and non-dollar government
securities, mortgage- and asset-backed securities, money market products,
dollar- and non-dollar corporate debt securities, emerging market securities,
municipal securities, financing (global access to debt financing sources
including repurchase and reverse repurchase agreements), foreign exchange,
commodities and fixed income derivative products. Fixed income net revenues
increased 20% to $535 million for the first quarter of 1996 from $445 million
for the first quarter of 1995. Reduced levels of interest rates in Europe and
the strength of the U.S. dollar versus the Japanese yen led to improved customer
flow and secondary trading results across most fixed income products, including
fixed income swaps, mortgages and high grade and high yield corporate bonds.
Investment banking revenues, as a component of fixed income revenues, increased
to $73 million for 1996 from $28 million for 1995 due to a strengthening in
origination volumes and an improved mix of underwriting revenues.
Equity. Equity net revenues reflect customer flow activities (both
institutional and high-net-worth retail), secondary trading, equity
underwriting, equity finance, equity derivatives and arbitrage activities. The
Company's equity net revenues increased 10% to $192 million for 1996 from $174
for 1995 primarily due to improved customer flow trading activities including
the equity derivatives and NASDAQ businesses. Investment banking revenues, as a
component of equity revenues, increased to $54 million for 1996 from $22 million
for 1995 due to a strengthening in origination volumes and an improved mix of
underwriting revenues.
Corporate Finance Advisory. Corporate finance advisory net revenues,
classified in the Consolidated Statement of Operations as a component of
investment banking revenues, result primarily from fees earned by the Company in
its role as strategic advisor to its clients. This role primarily consists of
advising clients on mergers and acquisitions, divestitures, leveraged buyouts,
financial restructuring, and a variety of cross-border transactions. The net
revenues for corporate finance advisory were $50 million in 1996 and $48 million
in 1995. The first quarter 1996 results, however, were below the fourth quarter
1995 results due primarily to the timing of certain merger and acquisition fees.
Merchant Banking. The Company is the fund manager for six merchant
banking partnerships, including three institutional funds and three employee
investment vehicles. In December 1995, the Company established the third of its
employee investment vehicles, Capital Partners III. Current merchant banking
investments held by the partnerships include both publicly traded and privately
held companies diversified on a geographic and industry basis. At February 29,
1996 the Company's investment in such merchant banking partnerships, for which
the Company acts as a general partner, was $290 million. At February 29, 1996
the Company had commitments to fund up to $200 million in Capital Partners III.
There are no remaining commitments to the remaining five partnerships.
Merchant banking net revenues primarily represent the Company's
proportionate share of net realized and net unrealized gains and losses from the
sale and revaluation of investments held by the partnerships. Such amounts are
classified in the Consolidated Statement of Operations as a component of
investment banking revenues. Merchant banking net revenues also reflect the
related net interest expense relating to the financing of the Company's
investment in the partnerships. Merchant banking revenues for the first quarter
of 1996, net of financing costs, were unchanged when compared to the prior year
period.
Asset Management. Revenues from asset management activities increased
to $13 million for 1996 from $9 million for 1995. These revenues primarily
consist of fees from the management of various funds, commissions from the sale
of funds to customers and fees from the management of certain accounts for
institutions and high-net-worth individuals.
Non-Interest Expenses. Non-interest expenses were $662 million for the
first quarter of 1996 and $637 million for the first quarter of 1995.
Compensation and benefits expense as a percentage of net revenues was 50.7% for
the fourth successive quarter down from 50.9% for the first quarter of 1995.
Compensation and benefits expense increased to $416 million in 1996 from $360
million in 1995. Nonpersonnel expenses declined for the seventh consecutive
quarter to $246 million for the first quarter of 1996 from $277 million for the
first quarter of 1995 and $254 million for the fourth quarter of 1995.
The $300 million cost reduction program originally announced at
year-end 1994 was completed by year-end 1995. As a result, the Company's expense
base has been permanently lowered. The Company plans to continue its focus on
nonpersonnel costs, with the goal of achieving further annual cost savings in
excess of $50 million by the end of 1996. During the first quarter of 1996,
additional annualized cost savings were $31 million relative to the fourth
quarter 1995 run rate.
Income Taxes. The Company's income tax provision was $55 million for
the first quarter of 1996 as compared to $25 million for the first quarter of
1995. The effective tax rate was 34% for the first quarter of 1996 and 36% for
the first quarter of 1995. The 1996 effective tax rate is lower than that of
1995 primarily due to a reduction in state and local taxes and continued
benefits from the restructuring of certain legal entities in 1995.
<PAGE>
Liquidity and Capital Resources
The Company's total assets increased to $128.7 billion at February 29, 1996 from
$115.3 billion at November 30, 1995. The increase in total assets is primarily
attributable to an increase in securities purchased under agreements to resell
(reverse repos) and government and agency inventory positions.
The Company's balance sheet is highly liquid and consists primarily of cash and
cash equivalents, securities and other financial instruments owned which are
marked-to-market daily and collateralized short-term financing agreements which
arise primarily from the Company's customer flow securities transactions. As the
Company's primary activities are based on customer flow transactions, the
Company experiences a rapid asset turnover rate. In addition, the highly liquid
nature of these assets provides the Company with flexibility in financing and
managing its business. The overall size of the Company's total assets and
liabilities fluctuates from time to time and at specific points in time (such as
calendar quarter ends) may be higher than fiscal quarter ends.
Balance sheet leverage ratios are one methodology to evaluate the financial risk
inherent in the balance sheet. The Company evaluates this risk by monitoring its
adjusted leverage, defined as total assets less the lower of securities
purchased under agreements to resell or securities sold under agreements to
repurchase, which represent short-term collateralized transactions with high
quality assets, divided by stockholders' equity. At February 29, 1996, and
November 30, 1995, the Company's adjusted leverage ratios were 24.0x and 21.4x,
respectively, which are in line with the period end leverage ratios of the
Company's peer group of competitor firms.
Funding and Capital Policies
The Company's Global Asset and Liability Committee ("ALCO"), which includes
senior officers from key areas of the Company, is responsible for establishing
and managing the funding and liquidity policies of the Company. This includes
recommendations for balance sheet size as well as the allocation of balance
sheet to product areas as determined by internal profitability models and return
on equity targets. In addition, in coordination with the Regional Asset and
Liability Committees, ALCO works to ensure coordination of global funding
efforts. The Regional Asset and Liability Committees are aligned with the
Company's geographic funding centers and are responsible for implementing
funding strategies consistent with the direction set by ALCO and to monitor and
manage liquidity for the each region. The primary goal of the Company's funding
principles as set by ALCO are to provide sufficient liquidity and availability
of funding sources throughout all market environments.
As a policy, the Company attempts to maintain sufficient capital and funding to
finance itself on a fully secured basis, through its liquidity contingency plan.
This liquidity contingency plan meets the Company's funding requirements through
a combination of collateralized short-term financings and short-term secured
debt, as well as Total Capital, defined as long-term debt, including both senior
notes and subordinated indebtedness, plus stockholders' equity. To achieve this
objective, the Company's liquidity policies include maintaining sufficient
excess unencumbered securities to use as collateral to obtain secured financing,
if necessary, to meet maturities of short-term unsecured liabilities as well as
current maturities of long-term debt. Also, the Company maintains a sufficient
amount of Total Capital to enable the Company to fund those assets which are
less liquid.
The Company's liquidity contingency plans are continually reviewed and updated
as the Company's asset/liability mix and liquidity requirements change.
Additionally, the Company periodically tests its secured and unsecured credit
facilities to insure availability and operational readiness. The Company's
liquidity and Total Capital policies are designed to ensure that the Company can
meet its funding needs over a wide range of economic, credit and market
environments. The Company met all liquidity and Total Capital policy
requirements at February 29, 1996.
Short-Term Funding
Each business is required to fund its products primarily through global
collateralized financings. There are two principal business areas which are
responsible for these efforts, Lehman Brothers' Fixed Income Financing
("Financing") and Equity Finance. Financing works in conjunction with the
institutional fixed income sales and trading professionals to provide financing
to customers and the Company through the repurchase markets. Equity Finance
provides a similar function in the equity markets typically through securities
loaned/securities borrowed transactions. The ability of the Company to leverage
its global market expertise and the distribution capabilities are key to a
successful financing effort. The amount of the Company's collateralized
borrowing activities will vary reflecting changes in the mix and overall levels
of securities and other financial instruments owned and global market
conditions. However, at all times, the majority of the Company's assets are
funded with collateralized borrowing sources.
The Company's treasury area works closely with Financing and Equity Finance to
develop funding plans to support the business areas, as well as to execute daily
funding activities. On a daily basis, treasury is responsible for meeting any
funding needs not met through Financing and Equity Finance. Treasury funding is
managed globally through regional centers which have access to the capital
markets though the issuance of commercial paper as well as bank lines of credit
and other short- and long-term debt instruments.
At February 29, 1996 and at November 30, 1995, $93 billion and $81 billion
respectively, of the Company's total balance sheet was financed using
collateralized borrowing sources. The remainder of the financing for the balance
sheet was comprised of commercial paper and short-term debt, payables and Total
Capital. As of February 29, 1996 and November 30, 1995, commercial paper and
short-term debt were $7.0 billion and $6.2 billion respectively. Of these
amounts, commercial paper outstanding at February 29, 1996 was $2.7 billion with
an average maturity of 51 days, compared to $1.4 billion with an average
maturity of 78 days at November 30, 1995.
At February 29, 1996, Holdings maintained a Revolving Credit Agreement with a
group of banks. Under the terms of the credit agreement, the banks have
committed to provide up to $2 billion. The credit agreement contains restrictive
covenants which require, among other things that the Company maintain specified
levels of consolidated stockholders' equity and tangible net worth, as defined.
The Company has been in compliance with these terms at all times. There were no
borrowings outstanding under this agreement as of February 29, 1996.
In addition, the Company maintained a $1 billion Secured Revolving Credit
Facility (the "Facility") for Lehman Brothers International (Europe) ("LBIE"),
the Company's major operating entity in Europe. Under the terms of this
committed facility, the bank group has committed to provide up to $1 billion on
a secured basis with a variety of financial instruments as collateral. The bank
group has further committed to provide loans under the Facility for up to 6
months beyond the Facility maturity date. The loans provided by the bank group
are available in several currencies including U.S. Dollar, British pound
sterling, Deutsche mark, ECU, French franc, and Italian lira, as well as many
other currencies as required. There were no borrowings outstanding under this
Facility as of February 29, 1996. However, the Company anticipates utilizing
this Facility for general corporate purposes from time to time.
In addition, the Company maintains uncommitted lines of credit with a broad
range of banks and financial institutions from which it draws funds in a variety
of currencies. 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 Total Capital. The Company maintains Total
Capital 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.
At February 29, 1996 and November 30, 1995, Total Capital consisted of the
following:
<TABLE>
<CAPTION>
February 29,November 30,
Long-term debt: 1996 1995
<S> <C> <C>
Senior notes .............................. $10,805 $10,505
Subordinated indebtedness ................. 2,666 2,260
------- -------
13,471 12,765
------- -------
Stockholders' equity:
Preferred equity .......................... 508 708
Common equity ............................. 3,015 2,990
------- -------
3,523 3,698
------- -------
Total Capital .................................. $16,994 $16,463
======= =======
</TABLE>
During the three months ended February 29, 1996, the Company issued $1.1 billion
in long term-debt, which was $708 million in excess of its maturing debt. As
part of these issuances, the Company issued $200 million of Quarterly Income
Capital Securities ("Series A QUICS"). Excluding the Series A QUICS, these
issuances were primarily utilized to refinance current and prefund expected
maturities of long-term debt in 1996.
The Series A QUICS are subordinated to all senior and subordinated debt of the
Company. The Company repurchased the $200 million 8.44% Cumulative Preferred
stock owned by American Express ("Cumulative Preferred Stock") with the proceeds
from the Series A QUICS. The repurchase of the preferred stock included a
premium of $2 million over the par value. In future periods, preferred dividends
will decrease by $16.9 million on an annual basis, with net income available to
common stockholders' and cash flow increasing by approximately $7 million on an
annual basis, assuming a 40% effective tax rate for interest paid on the Series
A QUICS. Net income available to common stockholders' decreased by approximately
$1.7 million in the first quarter of 1996 due to the premium paid on the
repurchase of the preferred stock net of the partial period savings realized on
the issuance of the Series A QUICS. Because of the repayment of the Cumulative
Preferred Stock, in the quarter ended February 29, 1996, total stockholders'
equity decreased by $200 million; however, with the issuance of the Series A
QUICS, Total Capital remained unchanged.
At February 29, 1996, the Company had approximately $6.7 billion available for
issuance of debt securities under various shelf registrations and debt programs.
Preferred stockholders' equity decreased to $508 million at February 29, 1996
from $708 million at November 30, 1995 due to the repayment of the Cumulative
Preferred Stock. Common stockholders' equity increased to $3,015 million at
February 29, 1996 from $2,990 million at November 30, 1995 due to the retention
of earnings partially offset by the repurchase of approximately 2.2 million
shares of treasury stock and the payment of dividends.
Dependence on Credit Ratings
The Company, like other companies in the securities industry, relies on external
sources to finance a significant portion of its day-to-day operations. Access to
global capital markets for short-term financing, such as commercial paper and
short-term debt, senior notes and subordinated indebtedness are dependent on the
Company's short- and long-term debt ratings. The current short- and long-term
senior debt ratings of Holdings and the current short- and long-term senior and
subordinated ratings of the Company's principal subsidiary, Lehman Brothers Inc.
("LBI") are as follows:
Holdings LBI
Short-term Long-term Short-term Long-term**
Duff & Phelps Credit Rating Co. D-1 A D-1 A/A-
Fitch Investors Service Inc. F-1 A F-1 A/A-
IBCA .............................A1 A- A1 A/A-
Moody's ..........................P2 Baa1 P2 A3*/Baa1
S&P + ............................A-1 A A-1 A+*/A
Thomson BankWatch ................TBW-1 A- TBW-1 A/A-
* Provisional ratings on shelf registration
** Senior/subordinated
+ Long term ratings outlook revised to negative on September 21, 1994
<PAGE>
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 February 29, 1996 and
November 30, 1995 included long positions with an aggregate market value of
approximately $1.4 billion and $1.2 billion, respectively, and short positions
with an aggregate market value of approximately $122 million and $172 million,
respectively. The portfolio may from time to time contain concentrated holdings
of selected issues. The Company's largest high yield position was $73 million at
February 29, 1996 and November 30, 1995.
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, asset sales and mortgage remittances. The Company's original
investment in the partnership was approximately $136 million. The Company also
advanced approximately $750 million of financing to the partnership in 1993,
which has subsequently been repaid in its entirety from proceeds related to the
disposition of the real estate assets. In August 1995, the Company agreed to
purchase the partnership interests owned by Westinghouse. The Company also
entered into an agreement to sell a portion of its partnership interests to an
affiliate of Lennar Inc., a third party mortgage servicer, so that the Company
and Lennar Inc. would own 75% and 25%, respectively, of the partnership. The
Company's net investment in the partnership at February 29, 1996 is $120
million. As a result of its increased ownership percentage, the Company's
consolidated financial statements at February 29, 1996 include the accounts of
the partnership. The partnership expects to substantially liquidate the
remaining real estate assets by the end of 1996.
Non-core 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 billion of partnership investment capital
and manages the remaining real estate investment portfolio. At February 29,
1996, the Company had $17 million of investments in these real estate
activities, as well as $107 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.
The Company also has equity, partnership and debt investments made in
previous years that are unrelated to its
ongoing businesses. These investments are awaiting disposition or the occurrence
of certain events which will ultimately lead to their liquidation. The Company
carries these equity, partnership and debt investments, at their estimated net
realizable value, which approximates $85 million at February 29, 1996.
Non-core activities and investments have declined 11% since November
30, 1995. Management's intention with regard to noncore assets is the prudent
liquidation of these investments as and when possible.
<PAGE>
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.
Macmillan, Inc. v. Bishopsgate Investment Trust, Shearson Lehman Brothers
Holdings Plc. et al. (Reported in Holdings' Annual Report on Form 10-K)
The House of Lords has denied Macmillan's request for leave to appeal.
Sinochem (USA) Inc. v. Lehman Brothers Inc. et al. (Reported in Holdings'
Annual Report on Form 10-K)
Prior to the filing of defendants' answer and counterclaims, the
parties settled this dispute. The case has been dismissed.
Leetate Smith. et al. v. Merrill Lynch . et al. (Reported in Holdings' Annual
Report on Form 10-K)
On September 28, 1995, a class action complaint was filed in the
Superior Court for the State of California in Orange County (the "State Court
Complaint"). The State Court Complaint was brought purportedly on behalf of the
same class as the complaint filed in the federal court and asserts the same
claims, except that it does not include a claim under Section 10(b) of the
Exchange Act of 1934. Certain of the defendants, including LBI, (the "Settling
Defendants") have reached separate agreements in principle to settle all claims,
which will be subject to court approval; and the parties are documenting those
settlements. Plaintiffs have agreed to adjourn the Settling Defendants time to
answer or respond to the State Court Complaint indefinitely. The plaintiffs have
subsequently voluntarily dismissed the action in federal court.
Actions Relating to First Capital Holdings Inc. (Reported in Holdings' Annual
Report on Form 10-K)
American Express Shareholder Action and American Express Derivative
Action. On March 14, 1996, the parties in the executed a Stipulation of
Settlement to resolve both cases. On March 16, the plaintiffs proceeded to
obtain court approval of that settlement by filing with the court a motion for
an order preliminarily approving the settlement, which will be heard on April
15.
<PAGE>
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS (Continued)
Easton & Co. v. Mutual Benefit Life Insurance Co., et al.; Easton & Co. v.
Lehman Brothers Inc. (Reported in Holdings' Annual Report on Form 10-K)
On or about March 1, 1996, LBI entered into a Stipulation of Settlement
covering both Easton I and Easton II. The settlement is subject to approval by
the N.J. District Court. In connection with the settlement, the class in Easton
II is to be expanded to include purchasers of one of the fixed-rate bond issues
(the "Banyan Bay" bonds), who purchased their bonds between March 28, 1991 and
April 18, 1991, and who still held those bonds as of July 16, 1991.
Warren D. Chisum, et al. v. Lehman Brothers Inc. et al.
On February 28, 1994 a purported class action was filed in the United
States District Court for the Northern District of Texas. An amended complaint
was filed on December 15, 1994. The amended complaint names LBI and two former
EFH employees as defendants. The complaint alleges that defendants violated
Section 10(b) of the Exchange Act and RICO, breached their fiduciary duties and
the limited partners' contract and committed fraud in connection with the
origination, sale and operation of nine EFH net lease real estate limited
partnerships. Plaintiffs seek: (i) to certify a class of all persons who
purchased limited partnership interests in the nine partnerships at issue, (ii)
unspecified damages, plus interest or rescission, (iii) treble damages, (iv)
punitive damages and (v) accounting and attorneys' fees. On April 2, 1996 the
Court filed an opinion and order certifying the litigation as a class action,
consisting of all persons who purchased interests in the nine EFH net lease
limited partnerships.
Actions Relating to the Sales and Marketing of Limited Partnerships
Subsequent to a January 26, 1996 article in the Wall Street Journal
entitled "SEC, Brokers Study Pact on Partnerships," various putative class
actions were filed in different state courts relating to the sales and marketing
of limited partnerships by E.F. Hutton & Co. and Shearson and their affiliates
during the 1980's.
Under the terms of an agreement between American Express and Holdings,
American Express has agreed to indemnify Holdings for liabilities which it may
incur in connection with any action relating to any business conducted by The
Balcor Company, a former Lehman Brothers subsidiary ("Balcor") in which Holdings
is named as a parent company or control person of Balcor. Holdings believes that
some of the allegations in certain of the actions described below are covered by
this indemnity.
Nancy Sword, et al. v. Lehman Brothers Holdings, Inc., et al. On
February 6, 1996, a purported class action apparently asserted on behalf of all
persons (with certain exceptions) who invested in various limited partnerships,
was filed in the Circuit Court for the City of Baltimore, Maryland. The
complaint names Holdings, E.F. Hutton & Company, Inc. and two limited
partnerships as defendants. The complaint alleges claims for fraud, negligent
misrepresentation, breach of fiduciary duty, unjust enrichment, conversion and
an accounting based on purportedly false and misleading sales practices employed
by the defendants to promote investments in the limited partnerships. On March
21, 1996, the defendants removed the action to the United States District
<PAGE>
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS (Continued)
Court for the District of Maryland. The complaint seeks (i) class certification;
(ii) unspecified compensatory damages; (iii) punitive damages; (iv) disgorgement
or restitution; and (v) attorneys' fees.
Ronald Ressner, et al. v. Lehman Brothers Inc., et al. On March 7,
1996, a purported class action, asserted on behalf of all persons (with certain
exceptions) who invested in limited partnerships sold by LBI or its predecessors
between January 1, 1984 and the date of the complaint, was filed in the Court of
Chancery for New Castle County, Delaware. The complaint names LBI and the
general partners of certain limited partnerships as defendants. The complaint
alleges that the defendants breached fiduciary duties by, among other things,
using false and misleading sales practices to promote investments in limited
partnerships. The complaint seeks (i) class certification; (ii) a declaration
that defendants breached their fiduciary duties; (iii) other equitable relief;
and (iv) attorneys' fees.
Lawrence Green, et al. v. Lehman Brothers, Inc., et al. On March 29,
1996, a purported class action, asserted on behalf of all persons (with certain
exceptions) who invested in limited partnerships organized and offered by LBI or
its predecessors between January 1, 1982 and the date of the complaint, was
filed in the Court of Chancery for New Castle County, Delaware. The complaint
names LBI, American Express and the general partners of certain limited
partnerships as defendants. The complaint alleges that the defendants breached
fiduciary duties by, among other things, using false and misleading sales
practices to promote investments in limited partnerships. The complaint seeks
(i) class certification; (ii) a declaration that defendants breached their
fiduciary duties; (iii) other equitable relief; and (iv) attorneys' fees.
Raymond Masri v. Lehman Brothers, Inc. et al. On or about February 28,
1996, a purported class action, asserted on behalf of all persons (with certain
exceptions) who invested in limited partnerships organized and offered by LBI or
its predecessors or certain affiliates between January 1981 and the date of the
complaint, was filed in the Supreme Court of the State of New York, New York
County. The complaint names LBI, Smith Barney Holdings Inc., twenty-six
Balcor-originated limited partnerships and three Shearson-originated limited
partnerships as defendants. The complaint alleges claims for fraud, negligent
misrepresentation, breach of fiduciary duty and breach of the implied covenant
of good faith and fair dealing under customer agreements and limited partnership
agreements based on purportedly false and misleading sales practices employed by
the defendants to promote investments in limited partnerships. The complaint
seeks (i) class certification; (ii) unspecified compensatory damages; (iii)
punitive damages; (iv) disgorgement or restitution; and (v) attorneys' fees.
<PAGE>
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 Combined Fixed Charges and
Preferred Dividends
27. Financial Data Schedule
(b) Reports on Form 8-K:
1. Form 8-K dated March 20, 1996, 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: April 15, 1996 By /s/ Richard S. Fuld Jr.
--------------------------------
Richard S. Fuld, Jr.
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: April 15, 1996 By /s/ Charles B. Hintz
-----------------------------
Charles B. Hintz
Chief Financial Officer
(Principal Financial Officer)
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
Exhibit 11 Computation of Per Share Earnings
Exhibit 12 Computation in Support of Ratio of Earnings to Combined
Fixed Charges and Preferred Dividends
Exhibit 27 Financial Data Schedule
<PAGE>
Exhibit 11
<PAGE>
<TABLE>
<CAPTION>
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
COMPUTATION of PER SHARE EARNINGS
(Unaudited)
(In millions, except share data)
Three months Three months
ended ended
February 29, February 28,
1996 1995
<S> <C> <C>
Primary:
Weighted average shares outstanding:
Common stock ............................................................ 104,087,157 104,519,365
Common stock issuable ................................................... 11,794,792 5,609,915
Common stock equivalents ................................................ 1,050,748 61,389
--------------- ---------------
Total common stock and common stock equivalents ......................... 116,932,697 110,190,669
=============== ===============
Net income ................................................................. $ 104.1 $ 45.0
Preferred dividends (1) .................................................... (11.2) (10.6)
--------------- ---------------
Net income applicable to common stock ...................................... $ 92.9 $ 34.4
=============== ===============
Earnings Per Common Share .................................................. $ 0.79 $ 0.31
=============== ===============
Fully diluted:
Weighted average shares outstanding:
Common stock ............................................................ 104,087,157 104,519,365
Common stock issuable ................................................... 11,794,792 5,609,915
Common stock equivalents ................................................ 1,344,782 61,389
--------------- ---------------
Total common stock and common stock equivalents ......................... 117,226,731 110,190,669
=============== ===============
Net income ................................................................. $ 104.1 $ 45.0
Preferred dividends (1) .................................................... (11.2) (10.6)
--------------- ---------------
Net income applicable to common stock ...................................... $ 92.9 $ 34.4
=============== ===============
Earnings Per Common Share .................................................. $ 0.79 $ 0.31
=============== ===============
(1) Amount for 1996 includes $2 million premium paid over par value to
repurchase the $200 million 8.44% cumulative preferred stock owned by the
American Express Company.
<PAGE>
Exhibit 12
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
COMPUTATION in SUPPORT of RATIO of EARNINGS to COMBINED
FIXED CHARGES and PREFERRED DIVIDENDS
(Dollars in millions)
(Unaudited)
For the For the For the
Eleven Months Twelve Months Three Months
For the Year Ended Ended Ended Ended
December 31 November 30 November 30 February 29
1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
Combined Fixed Charges
and Preferred Dividends:
Interest expense:
Subordinated indebtedness ............. $ 170 $ 150 $ 144 $ 158 $ 206 $ 52
Bank loans and other
borrowings* ......................... 4,755 5,035 5,224 6,294 10,199 3,044
Interest component of rentals
of office and equipment ............. 70 74 76 42 44 9
Other adjustments** ..................... 2 2 7 4 28 6
-------- -------- -------- -------- -------- --------
Total fixed charges ..................... 4,997 5,261 5,451 6,498 10,477 3,111
Preferred dividends (tax
equivalent basis) ..................... 48 48 48 58 64 17
-------- -------- -------- -------- -------- --------
TOTAL (A) ............................ $ 5,045 $ 5,309 $ 5,499 $ 6,556 $ 10,541 $ 3,128
======== ======== ======== ======== ======== ========
Earnings:
Pretax income (loss) from
continuing operations ................. $ 150 $ (247) $ 27 $ 193 $ 369 $ 159
Fixed charges ........................... 4,997 5,261 5,451 6,498 10,477 3,111
Other adjustments*** .................... 7 ____ (6) (4) (28) (6)
TOTAL (B) ............................. $ 5,154 $ 5,014 $ 5,472 $ 6,687 $ 10,818 $ 3,264
======== ======== ======== ======== ======== ========
(B / A) ................................... 1.02 **** **** 1.02 1.03 1.04
</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 preferred dividends
and would have had to increase $295 million in 1992 and $27 million in
1993 in order to cover the deficiencies.
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
This schedule contains summary financial extracted from the Company's
Consolidated Statement of Financial Condition at February 29, 1996 (Unaudited)
and the Consolidated Statement of Operations for the three months ended
February 29, 1996 (Unaudited) and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> FEB-29-1996
<CASH> 2,213
<RECEIVABLES> 10,107
<SECURITIES-RESALE> 44,094
<SECURITIES-BORROWED> 12,159
<INSTRUMENTS-OWNED> 58,687
<PP&E> 478
<TOTAL-ASSETS> 128,702
<SHORT-TERM> 6,996
<PAYABLES> 9,442
<REPOS-SOLD> 65,627
<SECURITIES-LOANED> 3,872
<INSTRUMENTS-SOLD> 23,485
<LONG-TERM> 13,471
<COMMON> 11
0
508
<OTHER-SE> 3,004
<TOTAL-LIABILITY-AND-EQUITY> 128,702
<TRADING-REVENUE> 413
<INTEREST-DIVIDENDS> 3,187
<COMMISSIONS> 96
<INVESTMENT-BANKING-REVENUES> 211
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 3,096
<COMPENSATION> 416
<INCOME-PRETAX> 159
<INCOME-PRE-EXTRAORDINARY> 104
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 104
<EPS-PRIMARY> $0.79
<EPS-DILUTED> $0.79
</TABLE>
