SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): September 23, 1998
LEHMAN BROTHERS HOLDINGS INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
1-9466 13-3216325
(Commission File Number) (IRS Employer Identification No.)
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
<PAGE>
Item 5. Other Events
Third Quarter Earnings
On September 23, 1998 Lehman Brothers Holdings Inc. (the "Registrant")
issued a press release with respect to its third quarter 1998 earnings (the
"Earnings Release").
Copy of the Earnings Release follows.
Item 7. Financial Statements and Exhibits
(c) Exhibits
The following Exhibits are filed as part of this Report.
99.1 Press Release Relating to Third Quarter 1998 Earnings
99.2 Consolidated Statement of Income
(Three Months Ended August 31, 1998)
(Preliminary and Unaudited)
99.3 Consolidated Statement of Income
(Nine Months ended August 31, 1998)
(Preliminary and Unadudited)
99.4 Selected Statistical Information
The Exhibit Index to this Report is incorporated herein by reference.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
LEHMAN BROTHERS HOLDINGS INC.
By: /s/ John L. Cecil
John L. Cecil
Chief Financial Officer
(Principal Financial Officer)
Date: September 23, 1998
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
Exhibit 99.1 Press Release Relating to Third Quarter 1998 Earnings
Exhibit 99.2 Consolidated Statement of Income
(Three Months Ended August 31, 1998)
(Preliminary and Unaudited)
Exhibit 99.3 Consolidated Statement of Income
(Nine Months ended August 31, 1998)
(Preliminary and Unadudited)
Exhibit 99.4 Selected Statistical Information
<PAGE>
[GRAPHIC OMITTED]
EXHIBIT 99.1
For Immediate Release MEDIA CONTACT: William J. Ahearn
(212) 526-4379
INVESTOR CONTACT: Shaun Butler
(212) 526-8381
LEHMAN BROTHERS REPORTS
EARNINGS OF $151 MILLION IN THIRD QUARTER;
RECORD OF $662 MILLION FOR NINE MONTHS
ANNOUNCES PROGRAM TO BUY BACK 7.5 MILLION SHARES
Net Income For First Nine Months Surpasses All of 1997;
Return on Equity Over 20%
NEW YORK, September 23, 1998--Lehman Brothers Holdings Inc. (NYSE: LEH) today
reported net income of $151 million, or $1.10 per common share (diluted), for
the third quarter ended August 31, 1998. Net income was down from the $197
million, or $1.30 per share (diluted) reported for the third quarter of fiscal
1997.
The Firm also announced that its Board of Directors authorized the repurchase of
up to an additional 7.5 million shares of Lehman Brothers stock, as part of the
Firm's program to actively manage its capital position and common shares
outstanding. The Board had already authorized the repurchase of up to 4.5
million shares earlier this year. At August 31, 1998, Lehman Brothers had
approximately 117 million common shares outstanding.
-- more --
<PAGE>
Third Quarter 1998/page 2
For the first nine months of fiscal 1998, net income was a record $662 million,
an increase of 43 percent from $462 million for the first nine months of fiscal
1997.
As previously announced, Lehman Brothers said that earnings for the current-year
third quarter included a reduction in net income of approximately $60 million,
reflecting the impact of significant volatility in Russian and other emerging
markets. This includes trading losses and additional credit reserves that the
Firm has set aside to offset the possible future impact of counterparty
exposures.
"Given the almost unprecedented volatility in global markets, the third quarter
clearly proved to be a difficult period for Lehman Brothers and the industry in
general," said Richard S. Fuld, Jr., Chairman and Chief Executive Officer.
"However, our numbers show that the Firm is benefiting from the significant
improvement we have made in shifting our business mix over the past few years.
Even with the turmoil in fixed income markets globally, our strength in equities
and M&A advisory throughout the quarter enabled us to post a level of quarterly
net income that boosted the Firm to record earnings for the first nine months of
the fiscal year."
Mr. Fuld noted that earnings for the first nine months of fiscal 1998 have
already surpassed Lehman Brothers' full year net income for 1997 of $647
million.
Net revenues (total revenues less interest expense) for the third quarter were
$930 million, down from $1,071 million in the third quarter of fiscal 1997. For
the first nine months of fiscal 1998, net revenues were $3.448 billion, an
increase of 21 percent from $2.850 billion in the fiscal 1997 first nine months.
-- more --
<PAGE>
Third Quarter 1998/page 3
Mr. Fuld noted that despite a significant slowdown in underwriting towards the
end of the quarter, the Firm posted its highest-ever total of investment
banking fees in the fiscal 1998 third quarter. The Firm's equity business
also posted strong results, driven by a large origination calendar, derivatives
activities, and record customer volumes.
Non-interest expenses for the quarter were $723 million. Compensation and
benefits as a percentage of net revenues remained at 50.7 percent for the 14th
consecutive quarter. Non-personnel expenses for the third quarter were $251
million, essentially flat with the previous fiscal year's quarter, despite
continued investments in a number of key strategic businesses, and increased
technology expenditures related to the Year 2000 and European Monetary Union.
For the first nine months of fiscal 1998, non-interest expenses were $2.490
billion. Non-personnel expenses were $741 million, compared with $733
million in the first nine months of fiscal 1997.
For the first nine months, the Firm's pre-tax margin was 27.8 percent, compared
with 23.6 percent for the first nine months of fiscal 1997; for the same period,
return on common equity was 20.1 percent, compared with 16.5 percent in fiscal
1997. For the fiscal 1998 third quarter, the Firm's pre-tax margin was 22.3
percent, compared with 26.2 percent in the third quarter of fiscal 1997. Return
on common equity was 13 percent for the quarter ended August 31, 1998, compared
with 20.5 percent for the third quarter of 1997.
Return on common equity is calculated before any adjustments for special
preferred dividends.
-- more --
<PAGE>
Third Quarter 1998/page 4
As of August 31, 1998, Lehman Brothers stockholders' equity was $5.349 billion,
and total capital (stockholders' equity and long-term debt) was $33.730 billion.
Book value per common share was $36.35.
Lehman Brothers is a global investment bank with leadership positions in
corporate finance, advisory services, municipal finance and fixed income and
equity sales, trading and research. Lehman Brothers serves the financial needs
of corporate, government and institutional clients, and high-net-worth
individuals through offices in major financial centers worldwide.
# # #
Financial Statements Attached
<PAGE>
EXHIBIT 99.2
LEHMAN BROTHERS HOLDINGS INC.
CONSOLIDATED STATEMENT OF INCOME
(Preliminary and Unaudited)
(In millions, except per share data)
Three Months Ended Percentage of
------------------ -------------
August 31 August 31 Dollar Change
1998 1997 Inc/(Dec)
-------------- ----------- -----------
Revenues:
Investment banking $ 493 $ 396 24%
Principal transactions 131 389 (66)
Commissions 137 111 23
Interest and dividends 5,254 3,554 48
Other (52) 19 #
--------- -------
Total revenues 5,963 4,469 33
Interest expense 5,033 3,398 48
----- -----
Net revenues 930 1,071 (13)
------ -----
Non-interest expenses
Compensation and benefits 472 543 (13)
Brokerage, commissions and
clearance fees 61 54 13
Professional services 49 43 14
Communications 37 35 6
Occupancy and equipment 34 35 (3)
Business development 29 25 16
Depreciation and amortization 23 22 5
Other 18 33 (45)
------ -------
Total non-interest expenses 723 790 (8)
----- ------
Income before taxes 207 281 (26)
Provision for income taxes 56 84 (33)
----- -------
Net income $151 $ 197 (23)
==== ======
Net income applicable to common stock $139 $ 160 (13)
==== ======
Average shares
Basic 121.5 118.7
===== =====
Diluted 126.2 122.4
===== =====
Earnings per common share
Basic $ 1.15 $ 1.34
====== ======
Diluted $ 1.10 $ 1.30
====== ======
# denotes greater than 100%
<PAGE>
EXHIBIT 99.3
LEHMAN BROTHERS HOLDINGS INC.
CONSOLIDATED STATEMENT OF INCOME
(Preliminary and Unaudited)
(In millions, except per share data)
Nine Months Ended Percentage of
----------------- -------------
August 31 August 31 Dollar Change
1998 1997 Inc/(Dec)
------------------------------------
Revenues:
Investment banking $ 1,336 $ 910 47%
Principal transactions 1,142 1,061 8
Commissions 378 299 26
Interest and dividends 13,235 9,931 33
Other 6 73 (92)
-------- --------
Total revenues 16,097 12,274 31
Interest expense 12,649 9,424 34
------ ------
Net revenues 3,448 2,850 21
------ ------
Non-interest expenses:
Compensation and benefits 1,749 1,445 21
Brokerage, commissions and
clearance fees 175 172 2
Professional services 134 131 2
Communications 111 105 6
Occupancy and equipment 102 104 (2)
Business development 84 76 11
Depreciation and amortization 67 65 3
Other 68 80 (15)
------ -------
Total non-interest expenses 2,490 2,178 14
----- -----
Income before taxes 958 672 43
Provision for income taxes 296 210 41
------- ------
Net income $ 662 $ 462 43
====== ======
Net income applicable to common stock $ 587 $ 412 42
====== ======
Average shares
Basic 120.9 117.9
===== =====
Diluted 125.8 120.6
===== =====
Earnings per common share
Basic $4.86 $3.49
===== =====
Diluted $4.67 $3.41
===== =====
<PAGE>
EXHIBIT 99.4
LEHMAN BROTHERS HOLDINGS INC.
SELECTED STATISTICAL INFORMATION
(Preliminary and Unaudited)
(Dollars in millions, except per share data)
<TABLE>
<CAPTION>
Quarters Ended
--------------
8/31/98 5/31/98 2/28/98 11/30/97 8/31/97 5/31/97
------- ------- ------- -------- ------- -------
Income Statement
<S> <C> <C> <C> <C> <C> <C>
Net Revenues $930 $1,473 $1,045 $1,023 $1,071 $ 854
Non-Interest Expenses:
Compensation and Benefits 472 747 530 519 543 433
Nonpersonnel Expenses 251 250 240 239 247 249
Net Income 151 324 187 185 197 121
Net Income Applicable to
Common Stock 139 268 180 160 160 114
Earnings per Common Share (a)
Basic $1.15 $2.22 $1.49 $1.34 $1.34 $0.97
Diluted $1.10 $2.12 $1.44 $1.30 $1.30 $0.95
Financial Ratios (%)
Return on Common Equity
(annualized) (b) 13.0 29.9 17.6 18.3 20.5 12.8
Return on Common Equity
(annualized) (c) 13.0 25.2 17.6 16.4 17.2 12.8
Pretax Operating Margin 22.3 32.4 26.3 25.9 26.2 20.2
Compensation & Benefits/
Net Revenues 50.7 50.7 50.7 50.7 50.7 50.7
Effective Tax Rate 27.0 32.0 32.0 30.0 30.0 30.0
Balance Sheet
Total Assets $191,000 $179,067 $175,643 $151,705 $147,894 $145,118
Total Assets Excluding
Matched Book (d) 134,000 130,140 124,225 108,099 104,626 105,025
Common Stockholders' Equity 4,391 4,326 4,175 4,015 3,795 3,630
Total Stockholders' Equity 5,349 5,084 4,683 4,523 4,303 4,138
Total Capital (long-term debt
plus
stockholders' equity) 33,730 31,929 28,597 24,784 23,207 22,083
Book Value per Common Share (e) 36.35 35.93 34.56 33.39 31.86 30.67
Other Data (#s)
Employees 8,839 8,387 8,314 8,340 8,190 7,788
Common Stock Outstanding (f) 116,673,240 117,114,203 118,551,437 116,612,074 101,939,516 101,541,385
Average Shares
Basic 121,523,227 120,633,663 120,638,144 118,976,492 118,722,434 118,009,833
Diluted 126,222,483 126,301,259 124,797,348 123,003,138 122,363,228 120,420,733
</TABLE>
(a) Effective December 1997, basic and diluted earnings per share replaced the
primary and fully diluted calculations in accordance with Statement of
Financial Accounting Standards No. 128.
(b) Return on common equity calculated using net income before adjusting for
special preferred dividends.
(c) Return on common equity calculated using net income after adjusting for
special preferred dividends.
(d) Matched book is defined as the lower of securities purchased under
agreements to resell or securities sold under agreements to repurchase.
(e) This calculation includes restricted stock units granted under the Lehman
Stock Award Programs included in stockholders' equity.
(f) The increase at 11/30/97 represents the establishment of a trust to provide
common stock voting rights to employees who hold restricted stock units.
The establishment of the trust did not impact the total number of shares
used in the computation of earnings per common share.
