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 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 1-9466
Lehman Brothers Holdings Inc.
(Exact Name of Registrant As Specified In Its Charter)
Delaware 13-3216325
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation 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, 1997, 101,317,254 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 28, 1997
INDEX
Part I. FINANCIAL INFORMATION Page Number
Item 1. Financial Statements - (unaudited)
Consolidated Statement of Operations -
Three Months Ended February 28, 1997
and February 29, 1996 .................................. 4
Consolidated Statement of Financial Condition -
February 28, 1997 and November 30, 1996 ................ 5
Consolidated Statement of Cash Flows -
Three Months Ended February 28, 1997
and February 29, 1996................................... 7
Notes to Consolidated Financial Statements............... 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............ 14
Part II. OTHER INFORMATION
Item 1. Legal Proceedings .................................. 26
Item 4. Submission of Matters to a Vote of Security-Holders..... 26
Item 6. Exhibits and Reports on Form 8-K ................... 27
Signatures........................................................... 28
EXHIBIT INDEX ............................................... 29
Exhibits
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<PAGE>
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
CONSOLIDATED STATEMENT of OPERATIONS
(Unaudited)
(In millions, except per share data)
<TABLE>
<CAPTION>
Three months ended
February 28 February 29
1997 1996
---------- ----------
<S> <C> <C>
Revenues
Principal transactions $ 346 $ 413
Investment banking 240 211
Commissions 97 96
Interest and dividends 3,278 2,656
Other 38 10
------- -------
Total revenues 3,999 3,386
Interest expense 3,074 2,565
------ -----
Net revenues 925 821
------- ------
Non-interest expenses
Compensation and benefits 469 416
Brokerage, commissions and clearance fees 57 57
Professional services 41 34
Occupancy and equipment 35 40
Communications 34 40
Business development 25 27
Depreciation and amortization 22 24
Other 23 24
----- -----
Total non-interest expenses 706 662
----- -----
Income before taxes 219 159
Provision for income taxes 75 55
----- -----
Net income $ 144 $ 104
===== =====
Net income applicable to common stock $ 138 $ 93
===== =====
Average common and common equivalent shares
outstanding 118.5 116.9
===== =====
Earnings per common share $1.16 $0.79
===== =====
</TABLE>
See notes to consolidated financial statements.
<PAGE>
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(Unaudited)
(In millions)
<TABLE>
<CAPTION>
February 28 November 30
ASSETS 1997 1996
------------ -----------
<S> <C> <C>
Cash and cash equivalents $ 2,492 $ 2,149
Cash and securities segregated and on deposit
for regulatory and other purposes 1,055 688
Securities and other financial instruments owned:
Governments and agencies 36,936 26,638
Corporate stocks 5,560 6,937
Corporate debt and other 8,678 8,821
Mortgages and mortgage-backed 7,857 8,314
Derivatives and other contractual agreements 7,306 6,909
Certificates of deposit and other money market instruments 3,585 3,834
--------- ---------
69,922 61,453
----------- --------
Collateralized short-term agreements:
Securities purchased under agreements to resell 35,019 32,340
Securities borrowed 27,695 20,651
Receivables:
Brokers, dealers and clearing organizations 3,766 2,878
Customers 6,489 5,813
Others 1,624 1,253
Property, equipment and leasehold improvements
(net of accumulated depreciation and amortization
of $679 in 1997 and $668 in 1996) 468 477
Deferred expenses and other assets 793 722
Excess of cost over fair value of net assets
acquired (net of accumulated amortization
of $105 in 1997 and $103 in 1996) 170 172
---------- ------------
Total assets $149,493 $128,596
======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION (Continued)
(Unaudited)
(In millions, except share data)
<TABLE>
<CAPTION>
February 28 November 30
1997 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Commercial paper and short-term debt $ 8,177 $ 8,202
Securities and other financial instruments sold but not yet purchased:
Governments and agencies 16,742 13,202
Corporate stocks 6,268 4,971
Corporate debt and other 1,551 1,375
Derivatives and other contractual agreements 6,590 6,816
------- -------
31,151 26,364
------- ------
Collateralized short-term financings:
Securities sold under agreements to repurchase 67,221 56,119
Securities loaned 9,279 6,296
Payables:
Brokers, dealers and clearing organizations 1,062 1,004
Customers 8,347 7,582
Accrued liabilities and other payables 2,948 3,233
Long-term debt:
Senior notes 13,615 12,571
Subordinated indebtedness 3,681 3,351
--------- ---------
Total liabilities 145,481 124,722
------- -------
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
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: 107,609,131 in 1997 and 106,793,538 in 1996;
shares outstanding: 101,263,173 in 1997 and 100,449,144 in 1996 11 11
Common Stock issuable 335 326
Additional paid-in capital 3,212 3,198
Foreign currency translation adjustment 5 20
Retained earnings (deficit) 87 (43)
Common Stock in treasury at cost: 6,345,958 shares in 1997
and 6,344,394 shares in 1996 (146) (146)
--------- -----------
Total stockholders' equity 4,012 3,874
--------- -----------
Total liabilities and stockholders' equity $149,493 $128,596
======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
February 28 February 29
1997 1996
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 144 $ 104
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 22 24
Provisions for losses and other reserves 10 10
Other adjustments 18 9
Net change in:
Cash and securities segregated (367) (312)
Securities and other financial instruments owned (8,469) (7,365)
Securities purchased under agreements to resell (2,679) (7,860)
Securities borrowed (7,044) 4,131
Receivables from brokers, dealers and clearing organizations (888) (1,250)
Receivables from customers (676) (772)
Securities and other financial instruments sold but
not yet purchased 4,787 3,631
Securities sold under agreements to repurchase 11,102 6,592
Securities loaned 2,983 1,906
Payables to brokers, dealers and clearing organizations 58 (1,596)
Payables to customers 765 2,214
Accrued liabilities and other payables (294) (650)
Other operating assets and liabilities, net (679) 75
------ -------
Net cash used in operating activities $(1,207) $(1,109)
------ -------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
(In millions)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
February 28 February 29
1997 1996
----------- ---------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of senior notes $1,913 $ 693
Principal payments of senior notes (640) (385)
Proceeds from issuance of subordinated indebtedness 341 400
Principal payments of subordinated indebtedness (9)
Net proceeds from (payments for) commercial paper and
short-term debt (25) 765
Payment for repurchase of preferred stock (200)
Payments for treasury stock purchases (57)
Dividends paid (12) (21)
------- --------
Net cash provided by financing activities 1,568 1,195
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, equipment and leasehold improvements (18) (4)
------- --------
Net cash used in investing activities (18) (4)
------- --------
Net change in cash and cash equivalents 343 82
------- -------
Cash and cash equivalents, beginning of period 2,149 874
------ ------
Cash and cash equivalents, end of period $2,492 $ 956
====== ======
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (in millions)
Interest paid totaled $3,018 and $2,627 for the three months ended
February 28, 1997 and February 29, 1996, respectively. Income taxes paid totaled
$33 and $22 for the three months ended February 28, 1997 and February 29, 1996,
respectively.
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, 1996 was derived from the audited financial
statements. It is recommended that these consolidated 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, 1996 (the "Form 10-K").
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 28, 1997, the Company issued
$2,254 million of long-term debt (comprised of $1,913 million of senior notes
and $341 million of subordinated debt). Of the total issuances for the first
three months of 1997, $961 million were U.S. dollar fixed rate, $367 million
were U.S. dollar floating rate, $307 million were foreign currency denominated
fixed rate, and $619 million were foreign currency denominated floating rate.
The issuances were primarily utilized to refinance current and prefund the
remaining maturities of long-term debt in 1997 and to increase total capital
(stockholders' equity plus long-term debt).
The Company's floating rate new issuances contain contractual interest
rates based primarily on London Interbank Offered Rates ("LIBOR"). All of the
Company's fixed rate new issuances were effectively converted to floating rate
obligations through the use of interest rate swaps.
The Company had approximately $649 million of long-term debt mature
during the three months ended February 28, 1997.
<PAGE>
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS
3. Capital Requirements:
The Company operates globally through a network of subsidiaries with
several being subject to regulatory requirements. In the United States, LBI, as
a registered broker-dealer, 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 28, 1997, LBI's regulatory net capital, as defined, of
$1,466 million exceeded the minimum requirement by $1,352 million.
Lehman Brothers International (Europe) ("LBIE"), a United Kingdom
registered broker-dealer and subsidiary of Holdings, is subject to the capital
requirements of the Securities and Futures Authority ("SFA") of the United
Kingdom. Financial resources, as defined, must exceed the total financial
resources requirement of the SFA. At February 28, 1997, LBIE's financial
resources were $299 million in excess of regulatory requirements. Lehman
Brothers Japan Inc.'s Tokyo branch, a regulated broker-dealer, is subject to the
capital requirements of the Japanese Ministry of Finance and, at February 28,
1997, had net capital of $189 million in excess of the specified levels
required. Certain other non-U.S. 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 28, 1997, these other subsidiaries were in compliance
with their 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. Derivative Financial Instruments:
In the normal course of business, the Company enters into derivative
transactions both in a trading capacity and as an end user. Acting in a trading
capacity, the Company enters into derivative transactions to satisfy the needs
of its clients and to manage the Company's own exposure to market and credit
risks resulting from its trading activities in cash instruments (collectively,
"Trading-Related Derivative Activities"). For a further discussion of the
Company's derivative related activities, refer to "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Off-Balance Sheet
Financial Instruments and Derivatives" and Note 12 to the Consolidated Financial
Statements, included in the Form 10-K.
<PAGE>
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS
Trading-Related Derivative Activities
The Company records its Trading-Related Derivative Activities on a
mark-to-market basis with realized and unrealized gains (losses) recognized in
principal transactions. The Company currently records unrealized gains and
losses on derivative contracts on a net basis in the Consolidated Statement of
Financial Condition for those transactions with counterparties executed under a
legally enforceable master netting agreement. Listed in the following table is
the fair value and average fair value of the Company's Trading-Related
Derivative Activities (in millions):
<TABLE>
<CAPTION>
Average Fair Value*
Fair Value* Three Months Ended
February 28, 1997 February 28, 1997
----------------- -----------------
Assets Liabilities Assets Liabilities
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate and currency swaps and options
(including caps, collars and floors) $4,276 $2,813 $4,209 $2,820
Foreign exchange forward contracts and options 1,247 1,596 1,060 1,357
Options on other fixed income securities,
mortgage-backed securities forward contracts
and options 276 271 277 295
Equity contracts (including equity swaps, warrants
and options) 1,237 1,337 1,009 766
Commodity contracts (including swaps, forwards,
and options) 270 573 394 517
------------------------------------------------------
Total $7,306 $6,590 $6,949 $5,755
-------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Average Fair Value*
Fair Value* Twelve Months Ended
November 30, 1996 November 30, 1996
----------------- -----------------
Assets Liabilities Assets Liabilities
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate and currency swaps and options
(including caps, collars and floors) $4,008 $3,185 $3,446 $1,945
Foreign exchange forward contracts and options 970 1,206 903 1,200
Options on other fixed income securities,
mortgage-backed securities forward contracts
and options 226 286 239 238
Equity contracts (including equity swaps, warrants
and options) 1,167 1,304 1,118 1,076
Commodity contracts (including swaps, forwards,
and options) 538 835 451 587
------------------------------------------------------
Total $6,909 $6,816 $6,157 $5,046
-----------------------------------------------------
</TABLE>
* Amounts represent carrying value (exclusive of collateral) of contracts and do
not include receivables or payables related to exchange-traded futures
contracts.
<PAGE>
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS
Assets included in the table above represent the Company's unrealized
gains, net of unrealized losses for situations in which the Company has a master
netting agreement. Similarly, liabilities represent net amounts owed to
counterparties. Therefore, the fair value of assets related to derivative
contracts at February 28, 1997 represents the Company's net receivable for
derivative financial instruments before consideration of collateral. Included
within this amount was $6,849 million and $457 million, respectively, related to
OTC and exchange-traded contracts.
With respect to OTC contracts, the Company views its net credit
exposure to be $4,590 million at February 28, 1997, representing the fair value
of the Company's OTC contracts in an unrealized gain position, after
consideration of collateral of $2,259 million. Presented below is an analysis of
the Company's net credit exposure for OTC contracts based upon internal
designations of counterparty credit quality.
Counterparty S&P/Moody's February 28, 1997
Risk Rating Equivalent Net Credit Exposure
- ------------ ------------------------- -------------------
1 AAA/Aaa 24%
2 AA-/Aa3 or higher 19%
3 A-/A3 or higher 38%
4 BBB-/Baa3 or higher 12%
5 BB-/Ba3 or higher 4%
6 B+/B1 or lower 3%
- --------------------------------------------------------------------------------
These designations are based on actual ratings made by external rating
agencies or by equivalent ratings established and utilized by the Company's
Corporate Credit Department.
The Company is also subject to credit risk related to its
exchange-traded derivative contracts. Exchange-traded contracts, including
futures and certain options, are transacted directly on the exchange. To protect
against the potential for a default, all exchange clearing houses impose net
capital requirements for their membership. Additionally, the exchange clearing
house requires counterparties to futures contracts to post margin upon the
origination of the contract and for any changes in the market value of the
contract on a daily basis (certain foreign exchanges extend settlement to three
days). Therefore, the potential for losses from exchange-traded products is
limited.
5. Other 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
<PAGE>
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS
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 Note 14 to the Consolidated
Financial Statements, in the Form 10-K.
6. Incentive Plans:
In the first quarter of 1997, the Company granted approximately 2.2
million options (the "1997 Options") under the 1996 Management Ownership Plan to
members of the Corporate Management Committee and to certain senior officers.
The 1997 Options become exercisable in four and one-half years and expire five
years after grant date; exercisability is accelerated ratably in one-third
increments at such time as the closing price of the Company's common stock
meets, or exceeds, $39, $42, and $45 for fifteen out of twenty consecutive
trading days. If a minimum target price is not reached and maintained for the
specified period in the four and one-half year period following issuance, the
award recipients may then exercise all of their options thereafter. No
compensation expense has been recognized for these stock options as they were
issued with an exercise price above the market price of the common stock on the
date of the grant.
<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 and economic conditions experienced in fiscal
1996, continued into the first quarter of 1997. Market conditions in 1997
reflected strong investor demand in worldwide debt and equity markets, continued
strength in corporate finance advisory activities, and a sustained pace of
underwriting in fixed income products. While worldwide market conditions
continued to be favorable in the first quarter of 1997, certain market factors
weakened from the fourth quarter of 1996.
Global fixed income markets were robust throughout most of the first
quarter of 1997, with heavy trading volumes in both the U.S. and Europe. Trading
activity in the U.S. continued to be strong, reflecting investor optimism that
the environment of sustained growth and low inflation levels would continue.
Additionally, U.S. trading activity was bolstered by active purchases of U.S.
securities by foreign investors due to the uncertainty about the market
implications of European Monetary Union and the strong dollar.
Worldwide equity markets saw continued strength in the level of trading
activity with U.S. trading volumes in the first quarter exceeding the record
levels experienced in the fourth quarter of 1996. Valuation levels on worldwide
exchanges continued to improve, particularly in the U.S. and Europe. In the
U.S., valuation levels were positively impacted by better than expected growth,
favorable earnings prospects and low inflation levels. In Europe, positive
industry fundamentals in terms of market liquidity and earnings prospects along
with the strong U.S. dollar continued to drive the equity markets.
Underwriting volumes in worldwide fixed income products were robust in
the first quarter of 1997. In the U.S., underwriting volumes continued to
benefit from the strength in the spread sectors, particularly in high yield
securities, and from increased financings timed in anticipation of higher
interest rates. Equity and related underwriting volumes were relatively strong,
but considerably below fourth quarter 1996 levels.
In mid-February, investors became concerned about a possible tightening
in U.S. interest rates based upon remarks by the Federal Reserve Board Chairman
and evidence that the U.S. economy was growing more rapidly than expected. This
led to a rise in U.S. interest rates and a general decline in U.S. equity market
valuations, which negatively affected customer flow and origination activities
throughout the latter part of February and into March. On March 25, 1997, the
Federal Reserve raised the Federal Funds rate 25 basis points to 5 1/2%.
<PAGE>
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Corporate finance advisory activities maintained strength in 1997,
reflecting increased consolidation and globalization across industry sectors and
the overall strength of the global capital markets. The pace of strategic merger
and acquisition activity is expected to hold throughout 1997.
While fiscal 1996 and 1997 have been characterized by strong financial
markets, nevertheless, the financial services industry is cyclical. As a result,
the Company's businesses are evaluated across the market cycles for operating
profitability and their contribution to the Company's long-term strategic
objectives. The Company strives to minimize the effects of economic downturns
through its diversified product base, its global presence, and its risk
management practices.
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 are based on current
expectations, estimates and projections about the industries in which the
Company operates. These statements are not guarantees of future
performance and involve certain risks, uncertainties and assumptions
which are difficult to predict. The Company undertakes no obligation to
update publicly any forward-looking statements, whether as a result of
new information, future events or otherwise.
<PAGE>
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
For the Three Months Ended February 28, 1997 and February 29, 1996
The Company reported net income of $144 million for the first quarter
ended February 28, 1997, representing an increase of 38% from net income of $104
million for the first quarter ended February 29, 1996. Earnings per common share
increased to $1.16 for the first quarter of 1997 from $0.79 for the first
quarter of 1996.
Net revenues increased to $925 million for the first quarter of 1997
from $821 million for the first quarter of 1996. The increase in net revenues
from the first quarter of 1996 resulted from broad-based improvement in both the
Company's equity, fixed income and investment banking businesses. This
improvement was due to increased levels of customer flow and origination
activities in many of the Company's fixed income and equity businesses.
Compensation and benefits expense as a percentage of net revenues was
50.7% for both the first quarter of 1997 and 1996, reflecting the eighth
successive quarter of consistent compensation levels relative to net revenues.
Nonpersonnel expenses declined as a percentage of net revenues to 25.6% for the
first quarter of 1997 from 30% for the first quarter of 1996. The reduction in
nonpersonnel expenses from $246 million in the first quarter of 1996 to $237
million in the first quarter of 1997 along with the increase in net revenues led
to an improvement in the Company's pretax operating margin to 23.7% in the first
quarter of 1997 from 19.2% for the first quarter of 1996.
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 that
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. Principal transactions and net interest
revenues increased to $550 million for the first quarter of 1997 from $504
million for the first quarter of 1996. The increase in the combined revenues
from principal transactions and net interest in the first quarter of 1997 was
the result of a mix change in the composition of the Company's fixed income
portfolio, improved spreads across many products, and an increase in net
dividend revenue related to certain structured transactions in equity
derivatives, partially offset by higher interest expenses resulting from the
Company's increased level of long term debt outstanding. During 1997, the
Company's mix change in its fixed income portfolio led to the $113 million
increase in net interest revenue which was partially offset by a reduction of
$67 million in principal transactions revenues.
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 four major business units: Fixed Income, Equity, Corporate Finance
Advisory, and Merchant Banking. 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.
<TABLE>
<CAPTION>
Three Months Ended February 28, 1997
Principal
Transactions and Investment
Net Interest Commissions Banking Other Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fixed Income $468 $ 9 $102 $ 3 $582
Equity 82 84 68 1 235
Corporate Finance Advisory 66 66
Merchant Banking (3) 3
Other 3 4 1 34 42
- ---------------------------------------------------------------------------------------------------------------------------
$550 $97 $240 $38 $925
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended February 29, 1996
Principal
Transactions and Investment
Net Interest Commissions Banking Other Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fixed Income $439 $19 $73 $531
Equity 64 71 54 189
Corporate Finance Advisory 50 50
Merchant Banking (3) 34 31
Other 4 6 10 20
- ---------------------------------------------------------------------------------------------------------------------------
$504 $96 $211 $10 $821
- ---------------------------------------------------------------------------------------------------------------------------
</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 10% to $582 million for the first quarter of 1997 from $531 million
for the first quarter of 1996. The improvement in the first quarter results over
the prior year reflected improved customer flow, origination and net trading
results (principal transactions and net interest) from a number of fixed income
<PAGE>
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
products including derivatives, high-grade corporate bonds, preferred
securities, and high yield. Investment banking revenues, as a component of fixed
income revenues, increased to $102 million for the first quarter of 1997 from
$73 million for the first quarter of 1996 due to increased underwriting 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 24% to $235 million for the first
quarter of 1997 from $189 million for the first quarter of 1996. The increase
versus the first quarter of 1996 resulted from increased contributions from
international equities (primarily Europe), convertible securities and equity
finance. Equity finance revenues improved due to increased net spreads in
certain of the conduit matched books. The improvement in international equities
and convertible securities was primarily due to increased origination revenues.
Investment banking revenues, as a component of equity revenues, increased to $68
million for the first quarter of 1997 from $54 million for the first quarter of
1996 due to increased underwriting volumes.
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 restructurings, and a variety of cross-border transactions. Net
revenues from corporate finance advisory increased to $66 million for the first
quarter of 1997 reflecting a 32% increase from the $50 million recognized in the
first quarter of 1996. This increase reflected continued strength in the overall
merger and acquisition market environment.
Merchant Banking. The Company is the general partner for six merchant
banking partnerships. Current merchant banking investments held by the
partnerships include both publicly traded and privately held companies
diversified on a geographic and industry basis. 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 net interest expense relating to the financing of the
Company's investment in the partnerships. Merchant banking net revenues were
less than $1 million for the first quarter of 1997 and $31 million in the first
quarter of 1996. This decrease was principally due to a reduction in the net
gains recognized on the publicly traded investments held by the partnerships.
Other. Other net revenues for the first quarter of 1997 includes
approximately $25 million relating to the realization of certain non-core
assets.
<PAGE>
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Non-Interest Expenses. Non-interest expenses were $706 million for the
first quarter of 1997 and $662 million for the first quarter of 1996.
Compensation and benefits expense as a percentage of net revenues remained
unchanged from the prior year quarter at 50.7%. Nonpersonnel expenses declined
from $246 million in the first quarter of 1996 to $237 million in the first
quarter of 1997. The decline in nonpersonnel expenses is the result of the
Company's continued focus on improving productivity and reducing costs.
Income Taxes. The Company's income tax provision was $75 million for
the first quarter of 1997 compared to $55 million for the first quarter of 1996.
The effective tax rate was 34% for both the first quarter of 1997 and 1996. The
1997 effective tax rate, although the same as 1996, reflects an increase in
benefits derived from income subject to preferential tax treatment, offset by a
decrease in benefits from foreign operations.
<PAGE>
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Overview
As a leading global investment bank that actively participates in the global
capital markets, the Company has large and diverse capital requirements. Many of
the businesses in which the Company operates are capital intensive. Capital is
required to finance, among other things, the Company's securities inventory,
underwriting activities, principal investments, merchant banking activities and
investments in fixed assets.
The Company's total assets increased to $149.5 billion at February 28, 1997 from
$128.6 billion at November 30, 1996. The increase in total assets is primarily
attributable to an increase in matched book fixed income and equity financing
activities as well as an increased level of government and agency securities
owned.
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. 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) and may be higher than at fiscal quarter ends.
Funding and Capital Policies
The Company's Finance Committee, which includes senior officers from key areas
of the Company, is responsible for establishing and managing the funding and
liquidity policies of the Company. The Finance Committee's funding and liquidity
policies include recommendations for capital and balance sheet size as well as
the allocation of capital and balance sheet to product areas. In addition, the
Finance Committee works with the Regional Asset and Liability Committees 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 the Finance Committee and for monitoring and managing liquidity for the
region.
The primary goal of the Company's funding policies is to provide sufficient
liquidity and availability of funding sources at all times and throughout all
market environments. There are five key elements to the Company's funding
strategy which are:
o To maintain an appropriate Total Capital structure to support the
business activities in which the Company is engaged.
o To minimize liquidity and refinancing risk by funding the Company's assets
on a global basis with liabilities which have maturities similar to the
anticipated holding period of the assets.
<PAGE>
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
o To maintain sufficient liquidity during a period of financial stress
through a combination of collateralized short-term financings and Total
Capital. Financial stress is defined as any event which severely
constraints the Company's access to unsecured funding sources.
o To obtain diversified funding through a global investor base which
maximizes liquidity and reduces concentration risk.
o To maintain funding availability well in excess of actual utilization.
Short-Term Funding
The Company strives to maximize the portion of the Company's balance sheet that
is funded through collateralized borrowing sources, which in turn minimizes the
reliance placed upon unsecured short-term debt.
Collateralized borrowing sources include securities and other financial
instruments sold but not yet purchased, as well as collateralized short-term
financings, defined as securities sold under agreements to repurchase ("repos")
and securities loaned. Because of their secured nature, repos and other types of
collateralized borrowing sources are less credit-sensitive and have historically
been a more stable financing source under adverse market conditions. Also,
collateralized borrowing sources generally provide the Company with access to
lower cost funding.
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 vast majority of the Company's assets are funded with collateralized
borrowing sources. At February 28, 1997 and November 30, 1996, $108 billion and
$89 billion, respectively, of the Company's total balance sheet was financed
using collateralized borrowing sources.
As of February 28, 1997 and November 30, 1996, respectively, commercial paper
and short-term debt outstanding was $8.2 billion. Of these amounts, commercial
paper outstanding as of February 28, 1997 was $3.6 billion with an average
maturity of 66 days, compared to $3.1 billion with an average maturity of 64
days as of November 30, 1996.
At February 28, 1997, Holdings maintained a Revolving Credit Agreement with a
syndicate of banks. Under the terms of the credit agreement, the banks have
committed to provide up to $2 billion for up to 364 days. The credit agreement
contains covenants which require, among other things, that the Company maintain
specified levels of liquidity, consolidated capital and tangible net worth, as
defined.
In addition, the Company maintains 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 for
up to 364 days on a secured basis. Any loans outstanding on the commitment
termination date may mature on the first anniversary of the commitment
<PAGE>
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
termination date at the option of LBIE. 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. The credit agreement
contains covenants which require, among other things, that LBIE maintain
specified levels of tangible net worth, and regulatory capital, and that the
Company maintain specified levels of consolidated stockholders' equity and
tangible net worth, as defined.
There were no borrowings outstanding under the Facility or the Revolving Credit
Agreement as of February 28, 1997. The Company uses the Facility for general
corporate purposes from time to time. The Company maintained compliance with the
applicable covenants for both the Revolving Credit Agreement and the Facility at
all times.
Total Capital
In accordance with the Company's liquidity policies, the Company increased its
Total Capital base in 1997 to $21.3 billion at February 28, 1997 from $19.8
billion at November 30, 1996. Total Capital increased primarily due to an
increase in long-term debt and the retention of earnings.
Total Capital
February 28 November 30
(in millions) 1997 1996
- -------------------------------------------------------------------------------
Long-Term Debt
Senior Notes $13,615 $12,571
Subordinated Indebtedness 3,681 3,351
------- -------
17,296 15,922
Stockholder's Equity
Preferred Equity 508 508
Common Equity 3,504 3,366
------- -------
4,012 3,874
- -------------------------------------------------------------------------------
Total Capital $21,308 $19,796
- -------------------------------------------------------------------------------
During the first quarter of 1997, the Company issued $2.3 billion in long-term
debt, which was $1.6 billion in excess of its maturing debt. Long-term debt
increased to $17.3 billion at February 28, 1997 from $15.9 billion at November
30, 1996 with a weighted average maturity of 4.1 years at both February 28, 1997
and November 30, 1996.
The increase in Total Capital also reflects an increase in stockholders' equity
to $4.0 billion at February 28, 1997 from $3.9 billion at November 30, 1996. The
net increase in stockholders' equity was primarily due to the retention of
earnings partially offset by the payment of dividends.
At February 28, 1997, the Company had approximately $6.7 billion available for
the issuance of debt securities under various shelf registrations and debt
programs.
<PAGE>
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Balance sheet leverage ratios are one methodology utilized to evaluate
the capital adequacy of a company relative to financial risk inherent in the
balance sheet. The Company's leverage ratios computed as the ratio of
quarter-end assets to quarter-end stockholders' equity were 37.3x and 33.2x at
February 28, 1997 and November 30, 1996, respectively. However, the Company's
adjusted leverage ratios, a better measure of market risk, defined as total
assets less the lower of securities purchased under agreements to resell or
securities sold under agreements to repurchase divided by stockholders' equity
were 28.5x and 24.8x at February 28, 1997 and November 30, 1996, respectively.
As mentioned earlier, the increase in gross leverage is primarily attributable
to an increase in matched book fixed income and equity financing activities as
well as the increased level of government and agency securities. The increase in
net leverage is principally attributable to the increased level of government
and agency securities.
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. The
Company's access and cost of funding is generally dependent upon its short- and
long-term debt ratings. As of February 28, 1997, the current short- and
long-term senior debt ratings of Holdings and Lehman Brothers Inc. ("LBI") were
as follows:
<TABLE>
<CAPTION>
Holdings LBI
Short-term Long-term Short-term Long-term**
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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-
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Provisional ratings on shelf registration
** Senior/subordinated
+ Long term ratings outlook revised to negative on September 21, 1994
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 rated
companies. For purposes of this discussion, high yield debt securities are
defined as securities or loans to companies rated 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 28, 1997 and
November 30, 1996 included long positions with an aggregate market value of
<PAGE>
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
approximately $2.0 billion and $1.7 billion, respectively, and short positions
with an aggregate market value of approximately $235 million and $127 million,
respectively. The portfolio may from time to time contain concentrated holdings
of selected issues. The Company's largest high yield position was $75 million
and $80 million at February 28, 1997 and November 30, 1996, respectively.
Merchant Banking Activities. The Company's merchant banking activities
include investments in six partnerships, for which the Company acts as general
partner, as well as direct investments. At February 28, 1997, the investment in
merchant banking partnerships was $329 million. The Company's policy is to carry
its investments, including its partnership interests, at fair value based upon
the Company's assessment of the underlying investments.
The Company has a commitment to invest up to $199 million in one of its
merchant banking employee investment vehicles. The Company has no remaining
commitments to the other five merchant banking partnerships or other direct
investments. During 1996, the Company began the process of establishing a new
institutional fund for which it will act as general partner. This prospective
fund is expected to total $1.5 billion, a portion of which may be contributed by
the Company either directly or through an employee investment vehicle.
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 $3.9 billion of partnership investment capital
and manages the remaining real estate investment portfolio. At February 28,
1997, the Company had $20 million of investments in these real estate
activities, as well as $53 million of commitments and contingent liabilities
under guarantees and credit enhancements, both net of applicable reserves. The
Company believes any exposure under these commitments and contingent liabilities
has been adequately reserved. In certain circumstances, the Company has elected
to provide 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. 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 at their fair value,
which approximates $80 million at February 28, 1997.
Management's intention with regard to non-core assets is the prudent
liquidation of these investments as and when possible. This is evidenced by the
realization of certain non-core assets during the first quarter which resulted
in the recognition of $25 million of revenue.
<PAGE>
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Recent Developments
In February 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 128, Earnings Per Share, which is effective for annual and
interim financial statements issued for periods ending after December 15, 1997.
SFAS No. 128 was issued to simplify the standards for calculating earnings per
share ("EPS") previously found in APB No. 15, Earnings Per Share. SFAS 128
replaces the presentation of primary EPS with a presentation of basic EPS. The
new rules also require dual presentation of basic and diluted EPS on the face of
the statement of operations for companies with a complex capital structure. For
the Company, basic EPS will exclude the dilutive effects of stock options and
certain non-vested RSUs. Diluted EPS for the Company will reflect all potential
dilutive securities (similar to fully diluted EPS under APB No. 15). Under the
provisions of FAS 128, basic EPS would have been $0.10 and $0.07 higher than the
amounts reported in the first quarter of 1997 and 1996, respectively. Diluted
EPS would have been the same as the reported amounts.
<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.
Action Relating to Mutual Fund Redemptions
On March 5, 1997, the NASD Regulation Inc. accepted a letter of Acceptance,
Waiver and Consent from LBI. Without admitting or denying the allegations,
Lehman Brothers consented to the entry of findings that, during the period
between October 1, 1990 and February 16, 1996, the Company charged excessive
fees/commissions aggregating $1,963,485.70 for executing non-proprietary mutual
fund redemption transactions in violation of NASD Conduct Rules 2830(j) and
2110. Lehman Brothers consented to a censure, a fine in the amount of $250,000,
and agreed to disgorge to the relevant retail customers $2,923,482.61, including
pre-judgment interest.
ITEM 4 Submission of Matters to a Vote of Security-Holders
At the annual meeting of shareholders of the Company held on March 26,
1997, the following matters were submitted to a vote of security-holders:
A) A proposal was submitted for the election of all Class III Directors.
The results were 94,271,133 votes for all nominees, and 729,579 votes
withheld from all nominees.
B) A proposal was submitted for the ratification of the Company's selection of
Ernst & Young LLP as the Company's independent auditors for the 1997 fiscal
year. The results were 94,770,100 votes for, 113,301 against, and 117,516
abstained.
<PAGE>
ITEM 6 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:
3 By-Laws of the Registrant, as amended as of March 26, 1997
11 Computation of Per Share Earnings
12.A Computation in Support of Ratio of Earnings to Fixed Charges
12.B 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 26, 1997, Items 5 and 7.
<PAGE>
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 14, 1997 By /s/ Richard S. Fuld Jr.
--------------------------------
Richard S. Fuld, Jr.
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: April 14, 1997 By /s/ Charles B. Hintz
-----------------------------
Charles B. Hintz
Chief Financial Officer
(Principal Financial Officer)
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
Exhibit 3 By-Laws of the Registrant, as amended as of March 26, 1997
Exhibit 11 Computation of Per Share Earnings
Exhibit 12.A Computation in Support of Ratio of Earnings to Fixed Charges
Exhibit 12.B Computation in Support of Ratio of Earnings to Combined Fixed
Charges and Preferred Dividends
Exhibit 27 Financial Data Schedule
<PAGE>
Exhibit 3
<PAGE>
Amended and Restated
By-Laws
Effective: March 26, 1997
LEHMAN BROTHERS HOLDINGS INC.
Incorporated Under the Laws of the
State of Delaware
BY-LAWS
ARTICLE I
OFFICES
Lehman Brothers Holdings Inc. (the "Corporation") shall maintain a
registered office in the State of Delaware. The Corporation may also have other
offices at such places, either within or without the State of Delaware, as the
Board of Directors may from time to time designate or the business of the
Corporation may require.
ARTICLE II
STOCKHOLDERS
Section 1. Place of Meetings. Meetings of the stockholders for
the election of directors or for any other purpose shall be held on such date,
at such time and at such place, either within or without the State of Delaware,
as shall be designated from time to time by the Board of Directors and stated in
the notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meeting. The Annual Meeting of Stockholders
shall be held on such date and at such time as shall be designated from time to
time by the Board of Directors and stated in the notice of the meeting, at which
meeting the stockholders shall elect by a plurality vote a Board of Directors
and transact only such other business as is properly brought before the meeting
in accordance with these By-Laws. Written notice of the Annual Meeting stating
the place, date and hour of the meeting shall be given as permitted by law to
each stockholder entitled to vote at such meeting not less than ten (10) nor
more than sixty (60) days before the date of the meeting.
Section 3. Special Meetings. Unless otherwise prescribed by
law or the Restated Certificate of Incorporation (such Certificate, as amended
from time to time, including resolutions adopted from time to time by the Board
of Directors establishing the designation, rights, preferences and other terms
of any class or series of capital stock, the "Certificate of Incorporation"),
special meetings of the stockholders may be called only by the Chairman of the
Board, the Chief Executive Officer, the President in the absence or disability
of the Chairman of the Board and the Chief Executive Officer, or the Secretary
at the request of the Board of Directors. Written notice of a Special Meeting
stating the place, date and hour of the meeting and the purposes for which the
meeting is called shall be given not less than ten (10) nor more than sixty (60)
days before the date of the meeting to each stockholder entitled to vote at such
meeting. Only such business as is specified in the notice of special meeting
shall come before such meeting.
Section 4. Quorum. Except as otherwise provided by law or by the
Certificate of Incorporation, the holders of a majority of the shares of capital
stock issued and outstanding and entitled to vote thereat ("Voting Stock"),
present in person or represented by proxy, shall constitute a quorum at all
meetings of the stockholders for the transaction of business. If, however, such
quorum shall not be present or represented at a meeting of the stockholders, the
stockholders entitled to vote thereat, present or represented by proxy, shall
have the power to adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed. If the adjournment is for more than thirty
(30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder entitled to vote at the meeting. When a quorum is once present, it
is not broken by the subsequent withdrawal of any stockholder.
Section 5. Appointment of Inspectors of Election. The Board of
Directors shall, in advance of sending to the stockholders any notice of a
meeting of the holders of any class of shares, appoint one or more inspectors of
election ("inspectors") to act at such meeting or any adjournment or
postponement thereof and make a written report thereof. The Board of Directors
may designate one or more persons as alternate inspectors to replace any
inspector who fails to act. If no inspector or alternate is so appointed or if
no inspector or alternate is able to act, the Chairman of the Board shall
appoint one or more inspectors to act at such meeting. Each inspector, before
entering upon the discharge of such inspector's duties, shall take and sign an
oath faithfully to execute the duties of inspector with strict impartiality and
according to the best of such inspector's ability. The inspectors shall not be
directors, officers or employees of the Corporation.
Section 6. Voting. Except as otherwise provided by law or by
the Certificate of Incorporation, each stockholder of record of any class or
series of stock having a preference over the Common Stock of the Corporation as
to dividends or upon liquidation shall be entitled on each matter submitted to a
vote at each meeting of stockholders to such number of votes for each share of
such stock as may be fixed in the Certificate of Incorporation, and each
stockholder of record of Common Stock shall be entitled at each meeting of
stockholders to one vote for each share of such stock, in each case, registered
in such stockholder's name on the books of the Corporation on the date fixed
pursuant to Section 5 of Article VI of these By-Laws as the record date for the
determination of stockholders entitled to notice of and to vote at such meeting,
or if no such record date shall have been so fixed, then at the close of
business on the day next preceding the day on which notice of such meeting is
given, or if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held.
Each stockholder entitled to vote at any meeting may vote
either in person or by proxy, duly appointed by an instrument in writing
executed by such stockholder and bearing a date not more than three years prior
to said meeting, unless said proxy provides for a longer period. Any such proxy
shall be delivered to the Secretary of such meeting at or prior to the time
designated for holding such meeting, but in any event not later than the time
designated in the order of business for so delivering such proxies.
At all meetings of stockholders all matters, except as
otherwise provided by law, the Certificate of Incorporation, or these By-Laws
shall be determined by a majority vote of the stockholders present in person or
by proxy and entitled to vote thereat, and where a separate vote by class is
required, a majority of the votes cast by the stockholders of such class present
in person or by proxy, shall be the act of such class.
The vote on any matter, including the election of directors,
shall be by written ballot. Each ballot shall be signed by the stockholder
voting, or by such stockholder's proxy, and shall state the number of shares
voted.
Proxy cards shall be returned in envelopes addressed to the
inspectors, who shall receive, inspect and tabulate the proxies. Comments
written on proxies, consents or ballots shall be transcribed and provided to the
Secretary with the name and address of the stockholder.
Nothing in this Section 6 shall prohibit the inspector from
making available to the Corporation, during the period prior to any annual or
special meeting, information as to which stockholders have not voted and
periodic status reports on the aggregate vote.
Section 7. List of Stockholders Entitled to Vote. The officer
of the Corporation who has charge of the stock ledger of the Corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder of the Corporation who is
present.
Section 8. Stock Ledger. The stock ledger of the Corporation
shall be the only evidence as to who are the stockholders entitled to examine
the stock ledger, the list required by Section 6 of this Article II or the books
of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
Section 9. Advance Notice of Stockholder-Proposed Business at
Annual Meeting. To be properly brought before the Annual Meeting, business must
be either (a) specified in the notice of meeting (or any supplement thereto)
given by or at the direction of the Board of Directors, (b) otherwise properly
brought before the meeting by or at the direction of the Board of Directors or
(c) otherwise properly brought before the meeting by a stockholder. For business
to be properly brought before an Annual Meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
the Corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation not
less than ninety (90) nor more than one hundred twenty (120) days prior to the
one year anniversary of the date of the Annual Meeting of the previous year;
provided, however, that in the event that the Annual Meeting is called for a
date that is not within thirty (30) days before or after such anniversary date,
notice by the stockholder in order to be timely must be so received not earlier
than one hundred twenty (120) days prior to such Annual Meeting and not later
than the close of business on the tenth (10th) day following the day on which
notice of the date of the Annual Meeting was mailed or public disclosure of the
date of the annual meeting was made, whichever first occurs. A stockholder's
notice to the Secretary shall set forth as to each matter the stockholder
proposes to bring before the Annual Meeting (i) a brief description of the
business desired to be brought before the Annual Meeting and the reasons for
conducting such business at the Annual Meeting, (ii) the name and address, as
they appear on the Corporation's books, of the stockholder proposing such
business, (iii) the class and number of shares of the Corporation that are
beneficially owned by the stockholder, (iv) any material interest of the
stockholder in such business and (v) any other information relating to the
person or the proposal that is required to be disclosed pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended (or any successor
provision or law) or applicable law.
Notwithstanding anything in these By-Laws to the contrary, no
business shall be conducted at an Annual Meeting except in accordance with the
procedures set forth in this Section 9; provided, however, that nothing in this
Section 9 shall be deemed to preclude discussion by any stockholder of any
business properly brought before the Annual Meeting. The Chairman of an Annual
Meeting shall, if the facts warrant, determine and declare to the meeting that
business was not properly brought before the meeting in accordance with the
provisions of this Section 9 and if he should so determine, he shall so declare
to the meeting and any such business not properly brought before the meeting
shall not be transacted.
Section 10. Nomination of Directors; Advance Notice of
Stockholder Nominations. Only persons who are nominated in accordance with the
procedures set forth in this Section 10 shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of the
Corporation at the Annual Meeting or at any special meeting of stockholders
called in the manner set forth in Article II, Section 3 hereof for the purpose
of electing directors may be made at a meeting of stockholders by or at the
direction of the Board of Directors, by any nominating committee or person
appointed for such purpose by the Board of Directors, or by any stockholder of
the Corporation entitled to vote for the election of directors at the meeting
who complies with the notice procedures set forth in this Section 10. Such
nominations, other than those made by, or at the direction of, or under the
authority of the Board of Directors, shall be made pursuant to timely notice in
writing to the Secretary of the Corporation. To be timely, a stockholder's
notice shall be delivered to or mailed and received at the principal executive
offices of the Corporation (a) in the case of an Annual Meeting, not less than
ninety (90) nor more than one hundred twenty (120) days prior to the one year
anniversary of the date of the Annual Meeting of the previous year; provided,
however, that in the event that the Annual Meeting is called for a date that is
not within thirty (30) days before or after such anniversary date, notice by the
stockholder in order to be timely must be so received not earlier than one
hundred twenty (120) days prior to such Annual Meeting and not later than the
close of business on the tenth (10th) day following the day on which notice of
the date of the annual meeting was mailed or public disclosure of the date of
the Annual Meeting was made, whichever first occurs; and (b) in the case of a
special meeting of stockholders called in the manner set forth in Article II,
Section 3 hereof for the purpose of electing directors, not earlier than one
hundred twenty (120) days prior to such special meeting and not later than the
close of business on the tenth (10th) day following the day on which notice of
the date of the special meeting was mailed or public disclosure of the date of
the special meeting was made, whichever first occurs. Such stockholder's notice
to the Secretary shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or re-election as a director, (i) the name,
age, business address and residence address of the person, (ii) the principal
occupation or employment of the person, (iii) the class and number of shares of
capital stock of the Corporation, if any, which are beneficially owned by the
person and (iv) any other information relating to the person that is required to
be disclosed in solicitations for proxies for election of directors pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (or any
successor provision or law) or applicable law; and (b) as to the stockholder
giving the notice (i) the name and record address of the stockholder and (ii)
the class and number of shares of capital stock of the Corporation which are
beneficially owned by the stockholder.
The Chairman of the meeting shall, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the foregoing procedures and, if he should so determine, he
shall so declare to the meeting and the defective nomination shall be
disregarded.
ARTICLE III
DIRECTORS
Section 1. Number; Resignation; Removal. Except as otherwise
required by the Certificate of Incorporation, the number of directors which
shall constitute the whole Board of Directors shall be fixed from time to time
by resolution of the Board of Directors, but shall not be less than six (6) nor
more than twenty-four (24). Except as provided in Section 2 of this Article III
and in the Certificate of Incorporation, directors shall be elected by a
plurality of the votes cast at the Annual Meeting of Stockholders. The directors
shall be divided into three classes, designated Class I, Class II and Class III,
as provided in the Certificate of Incorporation. A director may resign at any
time upon notice to the Corporation. A director may be removed only for cause.
Section 2. Vacancies. Vacancies and newly created
directorships resulting from any increase in the authorized number of directors
may be filled by a majority of the remaining directors then in office, though
less than a quorum, or by a sole remaining director, and the directors so
elected shall hold office until the next election for such class and until their
successors are duly elected and qualified, or until their earlier resignation or
removal. If there are no directors in office, then an election of directors may
be held in the manner provided by the General Corporation Law of the State of
Delaware. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
Section 3. Duties and Powers. The business of the Corporation
shall be managed by or under the direction of the Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by these
By-Laws directed or required to be exercised or done solely by the stockholders.
Section 4. Meetings. The Board of Directors of the Corporation
may hold meetings, both regular and special, either within or without the State
of Delaware. Regular meetings of the Board of Directors may be held without
notice at such time and at such place as may from time to time be determined by
the Board of Directors. Special meetings of the Board of Directors may be called
by the Chairman of the Board, the Chief Executive Officer, the President or any
director. Notice thereof stating the place, date and hour of the meeting shall
be given to each director either (i) by mail or courier not less than
forty-eight (48) hours before the date of the meeting or (ii) by telephone,
telegram or facsimile transmission, not less than twenty-four (24) hours before
the time of the meeting or on such shorter notice as the person or persons
calling such meeting may deem necessary or appropriate in the circumstances
(provided that notice of any meeting need not be given to any director who shall
either, before or after such meeting, submit a signed waiver of notice or
attends the meeting without protesting, prior to its commencement, the lack of
notice).
Section 5. Quorum. Except as may be otherwise provided by law,
the Certificate of Incorporation or these By-Laws, a majority of the entire
Board of Directors shall be necessary to constitute a quorum for the transaction
of business, and the vote of a majority of the directors present at a meeting at
which a quorum is present shall be the act of the Board of Directors. If a
quorum is not present at a meeting of the Board of Directors, a majority of the
directors present may adjourn the meeting to such time and place as they may
determine without notice other than an announcement at the meeting until enough
directors to constitute a quorum shall attend.
Section 6. Action Without A Meeting. Unless otherwise provided
by the Certificate of Incorporation or these By-Laws, any action required or
permitted to be taken by the Board of Directors or any committee thereof may be
taken without a meeting if all members of the Board of Directors or the
committee consent in writing to the adoption of a resolution authorizing the
action. The resolution and the written consents thereto by the members of the
Board of Directors or committee shall be filed with the minutes of the
proceedings of the Board of Directors or such committee.
Section 7. Participation By Telephone. Unless otherwise
provided by the Certificate of Incorporation or these By-Laws, any one or more
members of the Board of Directors or any committee thereof may participate in a
meeting of the Board of Directors or such committee by means of a conference
telephone or similar communications equipment allowing all persons participating
in the meeting to hear each other. Participation by such means shall constitute
presence in person at the meeting.
Section 8. Compensation. The directors may be paid their
expenses, if any, for attendance at each meeting of the Board of Directors or
any committee thereof and may be paid compensation as a director, committee
member or chairman of any committee and for attendance at each meeting of the
Board of Directors or committee thereof. No such payment shall preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefore or entering into transactions otherwise permitted by the
Certificate of Incorporation, these By-Laws or applicable law.
Section 9. Resignation. Any director may resign at any time.
Such resignation shall be made in writing and shall take effect at the time
specified therein, or, if no time be specified, at the time of its receipt by
the Chairman of the Board, or if none, by the Chief Executive Officer, President
or the Secretary. The acceptance of a resignation shall not be necessary to make
it effective unless so specified therein.
ARTICLE IV
COMMITTEES
Section 1. Committees. The Board of Directors may designate
one or more committees, each committee to consist of one or more of the
directors of the Corporation. The Board of Directors may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of any such committee. In the absence or
disqualification of a member of a committee, and in the absence of a designation
by the Board of Directors of an alternate member to replace the absent or
disqualified member, the member or members thereof present at any meeting and
not disqualified from voting, whether or not such member or member constitute a
quorum, may by unanimous vote appoint another member of the Board of Directors
to act at the meeting in the place of any absent or disqualified member. Any
committee, to the extent allowed by law and provided in the resolution
establishing such committee or in the By-Laws, shall have and may exercise all
the powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation, including the power to adopt a
certificate of ownership and merger pursuant to Section 253 of the Delaware
General Corporation Law, the authority to issue shares, and the authority to
declare a dividend, except as limited by Delaware General Corporation Law or
other applicable law, but no such committee shall have the power or authority in
reference to the following matters: (i) approving or adopting, or recommending
to the stockholders, any action or matter expressly required by the Delaware
General Corporation Law to be submitted to stockholders for approval or (ii)
adopting, amending or repealing any By-Law of the Corporation. All acts done by
any committee within the scope of its powers and duties pursuant to these
By-Laws and the resolutions adopted by the Board of Directors shall be deemed to
be, and may be certified as being, done or conferred under authority of the
Board of Directors. The Secretary or any Assistant Secretary is empowered to
certify that any resolution duly adopted by any such committee is binding upon
the Corporation and to execute and deliver such certifications from time to time
as may be necessary or proper to the conduct of the business of the Corporation.
Section 2. Resignation. Any member of a committee may resign
at any time. Such resignation shall be made in writing and shall take effect at
the time specified therein, or, if no time be specified, at the time of its
receipt by the Chairman of the Board, or if none, by the Chief Executive
Officer, President or the Secretary. The acceptance of a resignation shall not
be necessary to make it effective unless so specified therein.
Section 3. Quorum. A majority of the members of a committee
shall constitute a quorum. The vote of a majority of the members of a committee
present at any meeting at which a quorum is present shall be the act of such
committee.
Section 4. Record of Proceedings. Each committee shall keep a
record of its acts and proceedings, and shall report the same to the Board of
Directors when and as required by the Board of Directors.
Section 5. Organization, Meetings, Notices. A committee may
hold its meetings at the principal office of the Corporation, or at any other
place upon which a majority of the committee may at any time agree. Each
committee may make such rules as it may deem expedient for the regulation and
carrying on of its meetings and proceedings.
ARTICLE V
OFFICERS
Section 1. General. The officers of the Corporation shall be
elected by the Board of Directors and shall consist of a Chairman of the Board,
Chief Executive Officer, a President, a Chief Financial Officer, one or more
Senior Executive Vice Presidents, one or more Executive Vice Presidents, one or
more Senior Vice Presidents, one or more First Vice Presidents, one or more Vice
Presidents, a Secretary, a Treasurer and a Controller. The Board of Directors,
in its discretion, may also elect and specifically identify as officers of the
Corporation one or more Vice Chairmen of the Board, one or more Assistant Vice
Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers
and one or more Assistant Controllers as in its judgment may be necessary or
desirable. Any number of offices may be held by the same person, unless
otherwise prohibited by law, the Certificate of Incorporation or these By-Laws.
The officers of the Corporation need not be stockholders or directors of the
Corporation.
Section 2. Election; Removal; Remuneration. The Board of
Directors at its first meeting held after each Annual Meeting of Stockholders
shall elect the officers of the Corporation who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board of Directors and may elect additional
officers and may fill vacancies among the officers previously elected at any
subsequent meeting of the Board of Directors; and all officers of the
Corporation shall hold office until their successors are chosen and qualified,
or until their earlier resignation or removal. Any officer elected by the Board
of Directors may be removed at any time, either for or without cause, by the
affirmative vote of a majority of the Board of Directors. The compensation of
all officers of the Corporation shall be fixed by the Board of Directors or a
committee thereof.
Section 3. Voting Securities Owned by the Corporation. Powers
of attorney, proxies, waivers of notice of meetings, consents and other
instruments relating to securities owned by the Corporation may be executed in
the name of and on behalf of the Corporation by the Chairman of the Board, Chief
Executive Officer, the President, Secretary or any Senior Executive Vice
President, Executive Vice President, Senior Vice President, First Vice
President, Vice President or Assistant Secretary and any such officer may, in
the name and on behalf of the Corporation, take all such action as any such
officer may deem advisable to vote in person or by proxy at any meeting of
security holders of any corporation in which the Corporation may own securities
and at any such meeting shall possess and may exercise any and all rights and
powers incident to the ownership of such securities and which, as the owner
thereof, the Corporation might have exercised and possessed if present. The
Board of Directors may, by resolution, from time to time confer like powers upon
any other person or persons.
Section 4. Chairman of the Board. The Chairman of the Board
may be, but need not be, a person other than the Chief Executive Officer of the
Corporation. The Chairman of the Board may be, but need not be, an officer or
employee of the Corporation. The Chairman of the Board shall preside at meetings
of the Board of Directors and shall establish agendas for such meetings. In
addition, the Chairman of the Board shall assure that matters of significant
interest to stockholders and the investment community are addressed by
management. The Chairman of the Board shall be an ex-officio member of each
standing committee of the Board to which the Board of Directors has not
specifically designated him as a member.
Section 5. Chief Executive Officer. The Chief Executive
Officer shall, subject to the direction of the Board of Directors, have general
and active control of the affairs and business of the Corporation and general
supervision of its officers, officials, employees and agents. The Chief
Executive Officer shall preside at all meetings of the stockholders and shall
preside at all meetings of the Board of Directors and any committee thereof of
which he is a member, unless the Board of Directors or such committee shall have
chosen another chairman. The Chief Executive Officer shall see that all orders
and resolutions of the Board are carried into effect, and in addition, the Chief
Executive Officer shall have all the powers and perform all the duties generally
appertaining to the office of the chief executive officer of a corporation. The
Chief Executive Officer shall designate the person or persons who shall exercise
his powers and perform his duties in his absence or disability and the absence
or disability of the President.
Section 6. President. The President shall have such powers and
perform such duties as are prescribed by the Chief Executive Officer or the
Board of Directors, and in the absence or disability of the Chief Executive
Officer, the President shall have the powers and perform the duties of the Chief
Executive Officer, except to the extent the Board of Directors shall have
otherwise provided. In addition, the President shall have such powers and
perform such duties generally appertaining to the office of the president of a
corporation, except to the extent the Chief Executive Officer or the Board of
Directors shall have otherwise provided.
Section 7. Vice Chairmen of the Board. The Vice Chairmen of
the Board shall be members of the Board of Directors and shall perform such
duties and have such powers as may be prescribed by the Board of Directors, the
Chairman of the Board or these By-Laws.
Section 8. Senior Executive Vice Presidents. The Senior
Executive Vice Presidents of the Corporation shall perform such duties and have
such powers as may, from time to time, be assigned to them by these By-Laws, the
Board of Directors, the Chairman of the Board, the Chief Executive Officer or
the President.
Section 9. Executive Vice Presidents. The Executive Vice
Presidents of the Corporation shall perform such duties and have such powers as
may, from time to time, be assigned to them by these By-Laws, the Board of
Directors, the Chairman of the Board, the Chief Executive Officer, the President
or a Senior Executive Vice President.
Section 10. First Vice Presidents. The First Vice Presidents
of the Corporation shall perform such duties and have such powers as may, from
time to time, be assigned to them by these By-Laws, the Board of Directors, the
Chairman of the Board, the Chief Executive Officer, the President, a Senior
Executive Vice President or an Executive Vice President.
Section 11. Vice Presidents. The Vice Presidents of the
Corporation shall perform such duties and have such powers as may, from time to
time, be assigned to them by these By-Laws, the Board of Directors, the Chairman
of the Board, the Chief Executive Officer, the President, a Senior Executive
Vice President, an Executive Vice President or a First Vice President.
Section 12. Secretary. The Secretary shall attend all meetings
of the Board of Directors and of the stockholders and record all votes and the
minutes of all proceedings in a book to be kept for that purpose, and shall
perform like duties for any committee appointed by the Board of Directors. The
Secretary shall keep in safe custody the seal of the Corporation and affix it to
any instrument when so authorized by the Board of Directors. The Secretary shall
give or cause to be given, notice of all meetings of stockholders and special
meetings of the Board of Directors and shall perform generally all the duties
usually appertaining to the office of secretary of a corporation and shall
perform such other duties and have such other powers as may be prescribed by the
Board of Directors or these By-Laws. The Board of Directors may give general
authority to any other officer to affix the seal of the Corporation and to
attest the affixing by his signature.
Section 13. Assistant Secretaries. The Assistant Secretaries
shall be empowered and authorized to perform all of the duties of the Secretary
in the absence or disability of the Secretary and shall perform such other
duties and have such other powers as may be prescribed by the Board of
Directors, the Secretary or these By-Laws.
Section 14. Chief Financial Officer. The Chief Financial
Officer shall have responsibility for the administration of the financial
affairs of the Corporation and shall exercise supervisory responsibility for the
performance of the duties of the Treasurer and the Controller. The Chief
Financial Officer shall render to the Board of Directors, at its regular
meetings, or when the Board of Directors so requires, an account of all of the
transactions effected by the Treasurer and Controller and of the financial
condition of the Corporation. The Chief Financial Officer shall generally
perform all the duties usually appertaining to the affairs of a chief financial
officer of a corporation and shall perform such other duties and have such other
powers as may be prescribed by the Board of Directors or these By-Laws.
Section 15. Treasurer. The Treasurer shall have the custody of
the corporate funds and securities and shall cause to be kept full and accurate
accounts of receipts and disbursements in books belonging to the Corporation and
shall deposit all monies and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by persons
authorized by the Board of Directors. The Treasurer shall disburse the funds of
the Corporation as may be ordered by the Board of Directors, taking proper
vouchers for such disbursements, and shall render to the Chairman of the Board,
the President and the Board of Directors whenever they may require it, an
account of all of the transactions effected by the Treasurer and of the
financial condition of the Corporation. The Treasurer may be required to give a
bond for the faithful discharge of his or her duties. The Treasurer shall
generally perform all duties appertaining to the office of treasurer of a
corporation and shall perform such other duties and have such other powers as
may be prescribed by the Board of Directors or these By-Laws.
Section 16. Assistant Treasurers. The Assistant Treasurers
shall be empowered and authorized to perform all the duties of the Treasurer in
the absence or disability of the Treasurer and shall perform such other duties
and have such other powers as may be prescribed by the Board of Directors, the
Treasurer or these By-Laws.
Section 17. Controller. The Controller shall prepare and have
the care and custody of the books of account of the Corporation. The Controller
shall keep a full and accurate account of all monies, received and paid on
account of the Corporation, and shall render a statement of the Controller's
accounts whenever the Board of Directors shall require. The Controller shall
generally perform all the duties usually appertaining to the affairs of the
controller of a corporation and shall perform such other duties and have such
other powers as may be prescribed by the Board of Directors, the Chief Financial
Officer or these By-Laws. The Controller may be required to give a bond for the
faithful discharge of his or her duties.
Section 18. Assistant Controllers. The Assistant Controllers
shall in the absence or disability of the Controller perform the duties and
exercise the powers of the Controller and shall perform such other duties and
have such other powers as may be prescribed by the Board of Directors, the
Controller or these By-Laws.
Section 19. Additional Powers and Duties. In addition to the
foregoing especially enumerated duties and powers, the several officers of the
Corporation shall perform such other duties and exercise such further powers as
the Board of Directors may, from time to time, determine or as may be assigned
to them by any superior officer.
Section 20. Other Officers. The Board of Directors may
designate such other officers having such duties and powers as it may specify
from time to time.
ARTICLE VI
CAPITAL STOCK
Section 1. Form of Certificate. Every holder of stock in the
Corporation shall be entitled to have a certificate signed in the name of the
Corporation (i) by the Chairman of the Board, the Chief Executive Officer, the
President or any Vice President and (ii) by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary, certifying the number of
shares owned by such holder in the Corporation.
Section 2. Signatures. Any signature required to be on a
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
Section 3. Lost, Stolen or Destroyed Certificates. The Board
of Directors may direct a new certificate to be issued in place of any
certificate theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate, or his legal
representative, to advertise the same in such manner as the Board of Directors
shall require and/or to give the Corporation a bond in such sum as it may direct
as indemnity against any claim that may be made against the Corporation with
respect to the certificate alleged to have been lost, stolen or destroyed.
Section 4. Transfers. Stock of the Corporation shall be
transferable in the manner prescribed by law and in these By-Laws. Transfers of
stock shall be made on the books of the Corporation only by the holder of record
or by such person's attorney duly authorized upon surrender and cancellation of
certificates for a like number of shares properly endorsed and the payment of
all taxes due thereon.
Section 5. Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to express consent to
corporate action, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty (60) days nor less than ten (10) days before
the date of such meeting, nor more than sixty (60) days prior to any other
action. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 6. Beneficial Owners. The Corporation shall be
entitled to recognize the exclusive right of the person registered on its books
as the owner of a share to receive dividends and to vote as such owner, and to
hold liable for calls and assessments a person registered on its books as the
owner of shares, and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by law.
Section 7. Dividends. Subject to the provisions of the
Certificate of Incorporation or applicable law, dividends upon the capital stock
of the Corporation, if any, may be declared by the Board of Directors at any
regular or special meeting, and may be paid in cash, in property, or in shares
of capital stock. Before payment of any dividend, there may be set aside out of
any funds of the Corporation available for dividends such sum or sums as the
Board of Directors from time to time, in its absolute discretion, deems proper
as a reserve or reserves to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the Corporation or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.
ARTICLE VII
INDEMNIFICATION
Section 1. Indemnification Respecting Third Party Claims. (a)
The Corporation, to the full extent and in a manner permitted by Delaware law as
in effect from time to time, shall indemnify, in accordance with the provisions
of this Article, any person (including the heirs, executors, administrators or
estate of any such person) who was or is made a party to or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding
(including any appeal thereof), whether civil, criminal, administrative,
regulatory or investigative in nature (other than an action by or in the right
of the Corporation), by reason of the fact that such person is or was a director
or officer of the Corporation, or, at a time when he was a director or officer
of the Corporation, is or was either serving at the request of the Corporation
as a director, officer, partner, trustee, fiduciary, employee or agent (a
"Subsidiary Officer") of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise (an "Associated Entity"), against
expenses (including attorneys' fees and disbursements), costs, judgments, fines,
penalties and amounts paid in settlement actually and reasonably incurred by
such person in connection with such action, suit or proceeding if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful; provided, however, that (i) the Corporation shall not be obligated
to indemnify a person who is or was a director or officer of the Corporation
against expenses incurred in connection with an action, suit, proceeding or
investigation to which such person is threatened to be made a party but does not
become a party unless the incurring of such expenses was authorized by or under
the authority of the Board of Directors and (ii) the Corporation shall not be
obligated to indemnify against any amount paid in settlement unless the Board of
Directors has consented to such settlement. The termination of any action, suit
or proceeding by judgment, order, settlement or conviction or upon a plea of
nolo contendere or its equivalent shall not, of itself, create a presumption
that the person did not act in good faith and in a manner which such person
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, that such
person had reasonable cause to believe that his conduct was unlawful.
Notwithstanding anything to the contrary in the foregoing provisions of this
Section 1(a), a person shall not be entitled, as a matter of right, to
indemnification pursuant to this Section 1(a) against costs or expenses incurred
in connection with any action, suit or proceeding commenced by such person
against the Corporation or any Associated Entity or any person who is or was a
director, officer, fiduciary, employee or agent of the Corporation or a
Subsidiary Officer of any Associated Entity, but such indemnification may be
provided by the Corporation in a specific case as permitted by Section 6 below
in this Article.
(b) The Corporation may indemnify any employee or agent of the
Corporation in the manner and to the same extent as it is required to indemnify
any director or officer under Section 1(a) above in this Article.
Section 2. Indemnification Respecting Derivative Claims. (a)
The Corporation, to the full extent and in a manner permitted by Delaware law as
in effect from time to time, shall indemnify, in accordance with the provisions
of this Article, any person (including the heirs, executors, administrators or
estate of any such person) who was or is made a party to or is threatened to be
made a party to any threatened, pending or completed action or suit (including
any appeal thereof) brought in the right of the Corporation to procure a
judgment in its favor by reason of the fact that such person is or was a
director or officer of the Corporation, or, at a time when he was a director or
officer of the Corporation, is or was serving at the request of the Corporation
as a Subsidiary Officer of an Associated Entity against expenses (including
attorneys' fees and disbursements) and costs actually and reasonably incurred by
such person in connection with the defense or settlement of such action or suit
if such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the Corporation,
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation unless, and only to the extent that the Board of Directors or a
court having jurisdiction with respect shall determine that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses and
costs as the Board of Directors or such court shall deem proper; provided,
however, that the Corporation shall not be obligated to indemnify a director or
officer of the Corporation against expenses incurred in connection with an
action or suit to which such person is threatened to be made a party but does
not become a party unless the incurrence of such expenses was authorized by or
under the authority of the Board of Directors. Notwithstanding anything to the
contrary in the foregoing provisions of this Section 2(a), a person shall not be
entitled, as a matter of right, to indemnification pursuant to this Section 2(a)
against costs and expenses incurred in connection with any action or suit in the
right of the Corporation commenced by such person, but such indemnification may
be provided by the Corporation in any specific case as permitted by Section 6
below in this Article.
(b) The Corporation may indemnify any employee or agent of the
Corporation in the manner and to the same extent as it is required to indemnify
any director or officer under Section 2(a) above in this Article.
Section 3. Determination of Entitlement to Indemnification.
Any indemnification to be provided under any of Section 1(a), 1(b), 2(a) or 2(b)
above in this Article (unless ordered by a court of competent jurisdiction)
shall be made by the Corporation only as authorized in the specific case upon a
determination that indemnification is proper under the circumstances because
such person had met the applicable standard of conduct set forth in such section
of this Article. Such determination shall be made (i) by the Board of Directors
by a majority vote of a quorum consisting of directors who were not parties to
the action, suit or proceeding in respect of which indemnification is sought or
by majority vote of the members of a committee of the Board of Directors
composed of at least two members each of whom is not a party to such action,
suit or proceeding, or (ii) if such a quorum is not obtainable and/or such a
committee is not established or available, or, even if such a quorum is
obtainable or committee available, if a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (iii) by action
of the stockholders taken as permitted by law. In the event a request for
indemnification is made by any person referred to in paragraph 1(a) or 2(a)
above in this Article, the Corporation shall use its reasonable best efforts to
cause such determination to be made not later than sixty (60) days after such
request is made.
Section 4. Right to Indemnification upon Successful Defense
and for Service as a Witness. (a) Notwithstanding the other provisions of this
Article, to the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in any of Section 1(a), 1(b), 2(a) or
2(b) above in this Article, or in defense of any claim, issue or matter therein,
such person shall be indemnified against expenses (including attorneys' fees and
disbursements) and costs actually and reasonably incurred by such person in
connection therewith.
(b) To the extent any person who is or was a director or
officer of the Corporation in office on the effective date of this Article or
thereafter has served or prepared to serve as a witness in, but is not a party
to, any action, suit or proceeding (whether civil, criminal, administrative,
regulatory or investigative in nature), including any investigation by any
legislative body or any securities or commodities exchange of which the
Corporation or an Associated Entity is a member or to the jurisdiction of which
it is subject, by reason of his or her services as a director or officer of the
Corporation or his or her service as a Subsidiary Officer of an Associated
Entity at a time when he or she was a director or officer of the Corporation
(assuming such person is or was, as evidenced by a writing to such effect,
serving at the request of, or to represent the interests of, the Corporation as
a Subsidiary Officer of such Associated Entity), the Corporation may indemnify
such person against expenses (including attorneys' fees and disbursements) and
out-of-pocket costs actually and reasonably incurred by such person in
connection therewith and shall use its reasonable best efforts to provide such
indemnity within sixty (60) days after receipt by the Corporation from such
person of a statement requesting such indemnification, averring such service and
reasonably evidencing such expenses and costs; it being understood, however,
that the Corporation shall have no obligation under this Article to compensate
such person for such person's time or efforts so expended. The Corporation shall
indemnify any employee or agent of the Corporation in the manner and to the same
extent as it is required to indemnify any director or officer of the Corporation
pursuant to the foregoing sentence of this Section 4(b).
Section 5. Advance of Expenses. (a) Expenses and costs
incurred by any person referred to in Section 1(a) or 2(a) above in this Article
in defending a civil, criminal, administrative, regulatory or investigative
action, suit or proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking in writing by or on behalf of such person to repay such amount if it
shall ultimately be determined that such person is not entitled to be
indemnified in respect of such costs and expenses by the Corporation as
authorized by this Article.
(b) Expenses and costs incurred by any person referred to in
Section 1(b) or 2(b) above in this Article in defending a civil, criminal,
administrative, regulatory or investigative action, suit or proceeding may be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding as authorized by or under the authority of the Board of Directors
upon receipt of an undertaking in writing by or on behalf of such person to
repay such amount if it shall ultimately be determined that such person is not
entitled to be indemnified by the Corporation in respect of such costs and
expenses as authorized by this Article and subject to any limitations or
qualifications provided by or under the authority of the Board of Directors.
Section 6. Indemnification Not Exclusive. The provision of
indemnification to or the advancement of expenses and costs to any person under
this Article, or the entitlement of any person to indemnification or advancement
of expenses and costs under this Article, shall not limit or restrict in any way
the power of the Corporation to indemnify or advance expenses and costs to such
person in any other way permitted by law or be deemed exclusive of, or
invalidate, any right to which any person seeking indemnification or advancement
of expenses and costs may be entitled under any law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such
person's capacity as an officer, director, employee or agent of the Corporation
and as to action in any other capacity.
Section 7. Corporate Obligations; Reliance. The provisions of
Sections 1 through 6 above of this Article shall be deemed to create a binding
obligation on the part of the Corporation to the officers and directors of the
Corporation on the effective date of this Article and persons thereafter elected
as officers and directors (including persons who served as officers and
directors on or after such date but who are no longer officers and directors at
the time they present claims for advancement of expenses or indemnity), and such
persons in acting in their capacities as officers or directors of the
Corporation or Subsidiary Officers of any Associated Entity shall be entitled to
rely on such provisions of this Article, without giving notice thereof to the
Corporation.
Section 8. Successors. The right of any person who is or was a
director, officer, employee or agent of the Corporation to indemnification or
advancement of expenses under Sections 1 through 7 above in this Article shall
continue after he shall have ceased to be a director, officer, employee or agent
and shall inure to the benefit of the heirs, distributees, executors,
administrators and other legal representatives of such person.
Section 9. Insurance. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of, or
to represent the interests of, the Corporation as a Subsidiary Officer of any
Associated Entity, against any liability asserted against such person and
incurred by such person in any capacity, or arising out of such person's status
as such, whether or not the Corporation would have the power to indemnify such
person against such liability under the provisions of this Article or applicable
law.
Section 10. Definitions of Certain Terms. (a) For purposes of
this Article, references to the "Corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed into the Corporation after the effective date of this
Article in a consolidation or merger if such corporation would have been
permitted (if its corporate existence had continued) under applicable law to
indemnify its directors, officers, employees or agents, so that any person who
is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request, or to represent the interests
of, such constituent corporation as a director, officer, employee or agent of
any Associated Entity shall stand in the same position under the provisions of
Sections 1 through 9 above in this Article with respect to the resulting or
surviving corporation as such person would have with respect to such constituent
corporation if its separate existence had continued; provided, however, that, no
such person shall be entitled to indemnity from the Corporation in respect of
his service to such constituent corporation, or at the request or to represent
the interests of such constituent corporation, pursuant to Section 1(a) or 2(a)
above but may be indemnified by the Corporation in respect thereof as permitted
by Section 1(b) or 2(b) above.
(b) For purposes of this Article, references to "fines" shall
include any excise taxes assessed on a person with respect to any employee
benefit plan; references to "serving at the request of the Corporation" shall
include any service as a director, officer, trustee, fiduciary, employee or
agent of the Corporation or any Associated Entity which service imposes duties
on, or involves services by, such director, officer, trustee, fiduciary,
employee or agent with respect to any employee benefit plan, its participants,
or beneficiaries; and a person who acted in good faith and in a manner such
person reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article.
ARTICLE VIII
GENERAL
Section 1. Fiscal Year. The fiscal year of the Corporation
shall be such date as shall be fixed by resolution of the Board of Directors
from time to time.
Section 2. Corporate Seal. The corporate seal shall have
inscribed thereon the name of the Corporation, the year of its organization and
the words "Corporate Seal, Delaware" The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise upon any
paper, certificate or document.
Section 3. Disbursements. All checks, drafts or demands for
money out of the funds of the Corporation and all notes and other evidences of
indebtedness of the Corporation shall be signed by such officer or officers or
such other person or persons as the Board of Directors may from time to time
designate.
Section 4. Amendments. These By-Laws may be altered, amended
or repealed, in whole or in part, or new By-Laws may be adopted by the
stockholders or by the Board of Directors at any meeting thereof; provided,
however, that notice of such alteration, amendment, repeal or adoption of new
By-Laws shall be contained in the notice of such meeting of stockholders or in a
notice of such meeting of the Board of Directors, as the case may be. Unless a
higher percentage is required by the Certificate of Incorporation as to any
matter which is the subject of these By-Laws, all such amendments must be
approved by either the holders of at least a majority of the outstanding capital
stock entitled to vote thereon or by a majority of the entire Board of Directors
then in office.
Section 5. Definitions. As used in this Article and in these
By-Laws generally, the term "entire Board of Directors" means the total number
of directors which the Corporation would have if there were no vacancies.
<PAGE>
Exhibit 11
<PAGE>
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
COMPUTATION of PER SHARE EARNINGS
(Unaudited)
(In millions, except share data)
Three months Three months
ended ended
February 28 February 29
1997 1996
------------- ------------
Primary:
Weighted average shares outstanding:
Common stock 100,677,195 104,087,157
Common stock issuable 16,316,956 11,794,792
Common stock equivalents 1,466,064 1,050,748
-------------- --------------
Total common stock and common stock
equivalents 118,460,215 116,932,697
=========== ===========
Net income $ 144.4 $ 104.1
Preferred dividends (1) (6.4) (11.2)
------- -------
Net income applicable to common stock $ 138.0 $ 92.9
======= =======
Earnings Per Common Share $ 1.16 $ 0.79
======= =======
Fully diluted:
Weighted average shares outstanding:
Common stock 100,677,195 104,087,157
Common stock issuable 16,316,956 11,794,792
Common stock equivalents 1,607,273 1,344,782
-------------- ------------
Total common stock and common stock
equivalents 118,601,424 117,226,731
=========== ===========
Net income $ 144.4 $ 104.1
Preferred dividends (1) (6.4) (11.2)
------- -------
Net income applicable to common stock $ 138.0 $ 92.9
======= =======
Earnings Per Common Share $ 1.16 $ 0.79
======= =======
(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.A
<PAGE>
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
COMPUTATION in SUPPORT of RATIO of EARNINGS to FIXED CHARGES
(Dollars in millions)
(Unaudited)
<TABLE>
<CAPTION>
For the For the For the For the For the
year eleven months twelve months year three months
ended ended ended ended ended
December 31 November 30 November 30 November 30 February 28
-------------------- ----------- ----------- ----------- -----------
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Fixed Charges:
Interest expense:
Subordinated indebtedness $ 150 $ 144 $ 158 $ 206 $ 220 $ 62
Bank loans and other
borrowings* 5,035 5,224 6,294 10,199 10,596 3,012
Interest component of rentals
of office and equipment 74 76 42 44 34 6
Other adjustments** 2 7 4 28 16 4
---------- --------- --------- ---------- ---------- ---------
TOTAL (A) $5,261 $5,451 $6,498 $10,477 $10,866 $3,084
======= ====== ======== ======= ======= ======
Earnings:
Pretax income (loss) from
continuing operations $ (247) $ 27 $ 193 $ 369 $ 637 $ 219
Fixed charges 5,261 5,451 6,498 10,477 10,866 3,084
Other adjustments*** _____ (6) (4) (28) (14) (4)
------- ------- --------- --------- --------
TOTAL (B) $5,014 $5,472 $6,687 $10,818 $11,489 $3,299
====== ====== ====== ======= ======= ======
(B / A) **** 1.00 1.03 1.03 1.06 1.07
</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 $247 million in 1992 in order to
cover the deficiencies.
<PAGE>
Exhibit 12.B
<PAGE>
LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES
COMPUTATION in SUPPORT of RATIO of EARNINGS to COMBINED
FIXED CHARGES and PREFERRED DIVIDENDS
(Dollars in millions)
(Unaudited)
<TABLE>
<CAPTION>
For the For the For the For the For the
year eleven months twelve months year three months
ended ended ended ended ended
December 31 November 30 November 30 November 30 February 28
------------------ ----------- ----------- ----------- -----------
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
and Preferred Dividends:
Interest expense:
Subordinated indebtedness $ 150 $ 144 $ 158 $ 206 $ 220 $ 62
Bank loans and other
borrowings* 5,035 5,224 6,294 10,199 10,596 3,012
Interest component of rentals
of office and equipment 74 76 42 44 34 6
Other adjustments** 2 7 4 28 16 4
---------- --------- --------- --------- --------- ---------
Total fixed charges 5,261 5,451 6,498 10,477 10,866 3,084
Preferred dividends (tax
equivalent basis) 48 48 58 64 58 9
-------- -------- -------- --------- --------- ---------
TOTAL (A) $5,309 $5,499 $6,556 $10,541 $10,924 $3,093
====== ====== ====== ======= ======= ======
Earnings:
Pretax income (loss) from
continuing operations $ (247) $ 27 $ 193 $ 369 $ 637 $ 219
Fixed charges 5,261 5,451 6,498 10,477 10,866 3,084
Other adjustments*** _____ (6) (4) (28) (14) (4)
-------- ------- -------- -------- --------
TOTAL (B) $5,014 $5,472 $6,687 $ 10,818 $11,489 $3,299
====== ====== ====== ======= ======= ======
(B / A) **** **** 1.02 1.03 1.05 1.07
</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.
<PAGE>
Exhibit 27
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
This schedule contains summary financial information extracted from
the Company's Consolidated Statement of Financial Condition at February 28,
1997 (Unaudited) and the Consolidated Statement of Operations for the three
months ended February 28, 1997 (Unaudited) and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000806085
<NAME> Lehman Brothers Holdings Inc.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> FEB-28-1997
<CASH> 3,547
<RECEIVABLES> 11,879
<SECURITIES-RESALE> 35,019
<SECURITIES-BORROWED> 27,695
<INSTRUMENTS-OWNED> 69,222
<PP&E> 468
<TOTAL-ASSETS> 149,493
<SHORT-TERM> 8,177
<PAYABLES> 9,409
<REPOS-SOLD> 67,221
<SECURITIES-LOANED> 9,279
<INSTRUMENTS-SOLD> 31,151
<LONG-TERM> 17,296
<COMMON> 11
0
508
<OTHER-SE> 3,493
<TOTAL-LIABILITY-AND-EQUITY> 149,493
<TRADING-REVENUE> 346
<INTEREST-DIVIDENDS> 3,278
<COMMISSIONS> 97
<INVESTMENT-BANKING-REVENUES> 240
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 3,074
<COMPENSATION> 469
<INCOME-PRETAX> 219
<INCOME-PRE-EXTRAORDINARY> 144
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 144
<EPS-PRIMARY> $1.16
<EPS-DILUTED> $1.16
</TABLE>
