UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number 1-12484
SMITH BARNEY HOLDINGS INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1274088
- ------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
388 Greenwich Street
New York, New York 10013
---------------------- -----
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (212) 816-6000
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
--- ---
The registrant is a wholly owned subsidiary of Travelers Group Inc. As of the
date hereof, 100 shares of the registrant's common stock, par value $.10 per
share, were issued and outstanding.
REDUCED DISCLOSURE FORMAT
The registrant meets the conditions set forth in General Instructions H 1 (a)
and (b) of Form 10-Q and therefore is filing this form with the reduced
disclosure format contemplated thereby.
<PAGE>
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION Page Number
--------------------- -----------
Item 1. Financial Statements:
Condensed Consolidated Statements of Operations
(Unaudited) - Three and Nine Months Ended
September 30, 1996 and 1995 3
Condensed Consolidated Statements of Financial Condition -
September 30, 1996 (Unaudited) and December 31, 1995 4
Condensed Consolidated Statements of Cash Flows
(Unaudited) - Nine Months Ended September
30, 1996 and 1995 5 - 6
Notes to Condensed Consolidated Financial Statements
(Unaudited) 7 - 13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14 - 18
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 19 - 20
Exhibit Index 21
Signatures 22
2
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SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In millions)
Three months ended Nine Months ended
September 30, September 30,
------------------ ----------------
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
Commissions $ 498 $ 536 $1,680 $1,475
Principal trading 243 255 786 762
Investment banking 288 243 864 585
Asset management fees 343 272 991 751
Other 22 24 79 84
------ ------ ------ ------
Total non-interest revenues 1,394 1,330 4,400 3,657
------ ------ ------ ------
Interest and dividends 488 434 1,396 1,311
Interest expense 382 341 1,095 1,029
------ ------ ------ ------
Net interest and dividends 106 93 301 282
------ ------ ------ ------
Net revenues 1,500 1,423 4,701 3,939
------ ------ ------ ------
Expenses, excluding interest:
Employee compensation and benefits 844 829 2,655 2,359
Communications, occupancy and equipment 142 143 420 436
Floor brokerage and other production 37 35 111 102
Other operating and administrative
expenses 136 116 434 337
------ ------ ------ ------
Total expenses, excluding interest 1,159 1,123 3,620 3,234
------ ------ ------ ------
Income before provision for income
taxes 341 300 1,081 705
Provision for income taxes 134 123 422 296
------ ------ ------ ------
Net income $ 207 $ 177 $ 659 $ 409
====== ====== ====== ======
The accompanying notes are an integral part
of these condensed consolidated financial statements.
3
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SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In millions, except share data)
September 30, December 31,
ASSETS 1996 1995
------ ------------- ------------
(Unaudited)
Cash and cash equivalents $ 264 $ 612
Cash segregated and on deposit
for Federal and other regulations 1,123 1,072
Securities purchased under agreements to resell 14,130 12,087
Deposits paid for securities borrowed 9,018 7,514
Receivable from brokers and dealers 742 510
Receivable from customers 6,565 6,048
Securities owned, at market value 10,806 8,984
Property, equipment and leasehold improvements,
at cost, net of accumulated depreciation and
amortization of $225 and $168, respectively 445 448
Excess of purchase price over fair value of net
assets acquired, net of accumulated amortization
of $67 and $61, respectively 281 287
Other assets 2,611 3,397
------- -------
$45,985 $40,959
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
Commercial paper and other short-term borrowings $ 2,781 $ 2,955
Securities sold under agreements to repurchase 18,683 17,167
Deposits received for securities loaned 4,650 2,899
Payable to brokers and dealers 204 227
Payable to customers 3,575 4,176
Securities sold not yet purchased, at market value 6,812 4,563
Notes payable 2,026 1,885
Accounts payable and accrued liabilities 4,374 4,389
Subordinated indebtedness 245 224
------- -------
43,350 38,485
------- -------
Stockholder's equity:
Common stock ($.10 par value, 1,000 shares
authorized; 100 shares issued and outstanding)
Additional paid-in capital 1,803 1,803
Retained earnings 827 666
Cumulative translation adjustment 5 5
------- -------
2,635 2,474
------- -------
$45,985 $40,959
======= =======
The accompanying notes are an integral part
of these condensed consolidated financial statements.
4
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SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
Nine months ended
September 30,
---------------------
1996 1995
---- ----
Cash flows from operating activities:
Net income $ 659 $ 409
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 138 115
Deferred tax (benefit) provision 14 (3)
(Increase) decrease in operating assets:
Cash segregated and on deposit for
Federal and other regulations (51) (84)
Securities purchased under agreements to resell (2,043) (3,723)
Deposits paid for securities borrowed (1,504) 9,789
Receivable from brokers and dealers (232) 50
Receivable from customers (517) 1,616
Securities owned, at market value (1,822) (2,116)
Other assets 772 832
Increase (decrease) in operating liabilities:
Securities sold under agreements to repurchase 1,516 2,614
Deposits received for securities loaned 1,751 (3,419)
Payable to brokers and dealers (23) (973)
Payable to customers (601) (3,817)
Securities sold not yet purchased,
at market value 2,249 815
Accounts payable and accrued liabilities 77 168
------- -------
Cash provided by operating activities 383 2,273
------- -------
Cash flows from investing activities:
Purchase of property, equipment and
leasehold improvements (72) (130)
Other (58) (53)
------- -------
Cash used in investing activities (130) (183)
------- -------
(continued on next page)
5
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SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
(continued)
Nine Months ended
September 30,
---------------------
1996 1995
---- ----
Cash flows from financing activities:
Repayments of commercial paper
and other short-term borrowings, net $ (174) $(1,903)
Proceeds from notes payable 291 675
Repayments of notes payable (150) (408)
Proceeds from subordinated indebtedness 26
Repayments of subordinated indebtedness (5) (157)
Dividends paid to Travelers Group Inc. (584) (156)
------- -------
Cash used in financing activities (596) (1,949)
------- -------
Effect of exchange rate changes on cash (5) 1
------- -------
Net change in cash and cash equivalents (348) 142
Cash and cash equivalents, beginning of period 612 217
------- -------
Cash and cash equivalents, end of period $ 264 $ 359
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,075 $ 1,019
======= =======
Income taxes $ 457 $ 217
======= =======
Dividends declared but not paid $ 100 $ 133
======= =======
The accompanying notes are an integral part of
these condensed consolidated financial statements.
6
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SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In millions)
1. Basis of Presentation
---------------------
The accompanying condensed consolidated financial statements include the
accounts of Smith Barney Holdings Inc., a wholly owned subsidiary of Travelers
Group Inc., and its subsidiaries (the "Company"). The Company's principal
operating subsidiary is Smith Barney Inc. ("Smith Barney"). All material
intercompany balances and transactions have been eliminated. The interim
condensed consolidated financial statements are unaudited; however, in the
opinion of management, all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation have been reflected.
These interim condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
Certain financial information that is normally included in financial statements
prepared in accordance with generally accepted accounting principles but is not
required for interim reporting purposes has been condensed or omitted. Certain
reclassifications have been made to prior period amounts to conform to current
period presentations.
2. Securities, at Market Value
---------------------------
Securities consisted of the following:
September 30, December 31,
Securities owned 1996 1995
- ---------------- ------------- ------------
U.S. Government and agencies
obligations $ 5,954 $ 4,224
Corporate debt 2,327 2,019
Commercial paper and
other short-term debt 796 815
State and municipal obligations 568 698
Corporate convertibles, equities
and other securities 1,161 1,228
------- -------
$10,806 $ 8,984
======= =======
7
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SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In millions)
2. Securities, at Market Value (Cont'd)
------------------------------------
September 30, December 31,
Securities sold not yet purchased 1996 1995
- --------------------------------- ------------- ------------
U.S. Government and agencies
obligations $5,770 $3,493
Corporate debt 353 385
Corporate convertibles, equities
and other securities 689 685
------ ------
$6,812 $4,563
====== ======
3. Commercial Paper and Other Short-term Borrowings
------------------------------------------------
Commercial paper and other short-term borrowings include commercial paper and
collateralized and uncollateralized borrowings used to finance operations,
including the securities settlement process. The collateralized and
uncollateralized borrowings bear interest at variable rates based primarily on
the Federal Funds interest rate. Smith Barney's commercial paper program
consists of both discounted and interest-bearing paper.
Commercial paper and other short-term borrowings consisted of the following:
September 30, December 31,
1996 1995
------------- ------------
Commercial paper $2,604 $2,401
Uncollateralized borrowings 177 399
Collateralized borrowings 155
------ ------
$2,781 $2,955
====== ======
In addition to the revolving credit agreements referenced in Note 4, the Company
has substantial borrowing arrangements consisting of facilities that the Company
has been advised are available, but where no contractual lending obligation
exists.
8
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SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In millions)
4. Notes Payable and Subordinated Indebtedness
-------------------------------------------
Notes payable consisted of the following:
September 30, December 31,
1996 1995
------------- ------------
5 3/8% Notes due 1996 $ 150
7.4% Medium-term Note due 1996 $ 50 50
6% Notes due 1997 200 200
5 5/8% Notes due 1998 150 150
5 1/2% Notes due 1999 200 200
7 7/8% Notes due 1999 150 150
6 5/8% Notes due 2000 150 150
7.98% Notes due 2000 200 200
7% Notes due 2000 150 150
5 7/8% Notes due 2001 250
S&P 500 Equity-Linked Notes due 2001 41
6 1/2% Notes due 2002 150 150
7.50% Notes due 2002 150 150
6 7/8% Notes due 2005 175 175
Other 10 10
------ ------
$2,026 $1,885
====== ======
The Company has a $1,000 revolving credit agreement with a bank syndicate that
extends through May 1999. The Company also has a $500 364-day revolving credit
agreement that extends through May 1997. As of September 30, 1996, there were no
borrowings outstanding under either of these agreements.
Subordinated indebtedness consists of deferred compensation of $245 and $224 at
September 30, 1996 and December 31, 1995, respectively. These deferred
compensation plans have various maturities, primarily ranging from 1996 to 2000,
with interest based on the 30-day Treasury Bill rate.
9
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SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In millions)
5. Derivative Financial Instruments
--------------------------------
The Company uses derivative financial instruments in the normal course of its
business to facilitate customer transactions, to manage exposure from loss due
to interest rate, currency and market risk and in its proprietary activities.
Trading activities are primarily generated by client order flow. To the extent
that the Company's activities are related to servicing customer business, the
objective is to minimize market risk as much as possible.
Derivative financial instruments traded by the Company include forwards,
futures, swaps and options, whose value is based upon an underlying asset, index
or reference rate, and generally represent future commitments to exchange
currencies or cash flows, or to purchase or sell other financial instruments at
specific terms at specified future dates. The Company's derivatives contracts
are generally short-term, with a weighted average maturity of approximately six
months at September 30, 1996 and seven months at December 31, 1995.
The gross notional or contractual amounts of these derivative financial
instruments set forth below do not represent the amounts subject to market risk,
but are an indication of the volume of these transactions. In many cases, these
financial instruments limit the Company's exposure to losses from market risk by
hedging other on- and off-balance sheet transactions.
Notional/Contract Amount
September 30, 1996 December 31, 1995
------------------ -----------------
Purchase Sale Purchase Sale
-------- ---- -------- ----
Mortgage-backed
contracts (TBA) $14,062 $14,969 $ 6,907 $ 7,479
Forward contracts:
Foreign currency $14,860 $16,360 $ 6,127 $ 7,568
Precious metals 394 394 465 465
Interest rate and other 425 25 297
Futures contracts:
Foreign currency $ 2,020 $ 732 $ 1,458 $ 11
Financial 643 3,362 2,889 493
Commodities 2 8 9 8
Held Written Held Written
---- ------- ---- -------
Options:
OTC Foreign currency $ 6,534 $ 6,681 $ 3,266 $ 3,502
Exchange-traded 2,796 172 2,201 62
Interest rate caps,
floors and swaptions 1,636 2,693 550 1,197
OTC debt and equity 656 485 210 207
Open Contracts Open Contracts
-------------- --------------
Interest rate and other swaps $3,589 $2,305
10
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SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In millions)
5. Derivative Financial Instruments (Cont'd)
-----------------------------------------
At September 30, 1996 and December 31, 1995, approximately $12,271 and $5,674,
respectively, of TBA purchase and sale contracts represented offsetting
purchases and sales of the same security, and over 95% of the total contract
values were for settlement within 60 days.
Written foreign currency options consist of $3,037 and $3,644 of put and call
contracts, respectively, at September 30, 1996 and $1,799 and $1,703 of put and
call contracts, respectively, at December 31, 1995.
The Company's exposure to credit risk associated with counterparty
non-performance is limited to the net replacement cost of over-the-counter
contracts (including options held) in a gain position. Options written do not
give rise to counterparty credit risk since they obligate the Company (not its
counterparty) to perform. Exchange-traded financial instruments such as futures
and options on futures generally do not give rise to significant counterparty
exposure due to the margin requirements of the individual exchanges.
6. Commitments and Contingencies
-----------------------------
The Company trades "when-issued" fixed income securities, both to facilitate
customer transactions and to hedge proprietary inventory positions. At September
30, 1996, the Company had commitments to purchase and sell $376 and $612,
respectively, of when-issued fixed income securities. At December 31, 1995, the
Company had commitments to purchase and sell $369 and $324, respectively, of
when-issued fixed income securities.
The Company had outstanding commitments to underwrite variable rate municipal
securities totaling $346 and $800 at September 30, 1996 and December 31, 1995,
respectively; conditions of the offerings include bond insurance and liquidity
support facilities.
At September 30, 1996 and December 31, 1995, the Company borrowed securities
having a market value of $592 and $451, respectively, against which it pledged
securities having a market value of $610 and $459, respectively.
The Company has entered into purchase agreements with various municipal issuers,
whereby the Company has purchased securities for forward delivery. These
securities have been sold to the public for the same forward delivery dates. The
total value of these commitments at September 30, 1996 and December 31, 1995 was
$299 and $475, respectively.
At September 30, 1996 and December 31, 1995, the Company had outstanding forward
repurchase agreements totaling $600 and $1,200, respectively, and forward
reverse repurchase agreements totaling $763 and $625, respectively. These
commitments represent forward financing transactions with agreed upon interest
rates and principal amounts.
11
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SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In millions)
6. Commitments and Contingencies(Cont'd)
-------------------------------------
In the opinion of management, commitments outstanding will settle without a
material adverse effect on the financial position or the results of operations
of the Company.
The Company has been named as a defendant in legal actions relating to its
operations, some of which seek damages of material or indeterminate amounts. In
the opinion of management, based on consultation with legal counsel, these
actions would not be likely to have a material adverse effect on the results of
operations or the financial position or liquidity of the Company.
7. Concentrations of Credit Risk
-----------------------------
A substantial portion of the Company's securities and commodities transactions
is collateralized and executed with and on behalf of commercial banks and other
institutional investors, including other brokers and dealers. The Company's
exposure to credit risk associated with the non-performance of these customers
and counterparties in fulfilling their contractual obligations can be directly
impacted by volatile or illiquid trading markets, which may impair the ability
of customers and counterparties to satisfy their obligations to the Company.
Substantially all of the collateral held by the Company for reverse repurchase
agreements and bonds borrowed, which together represented 39% of total assets at
September 30, 1996, consisted of securities issued by the U.S. Government or
federal agencies. The Company's most significant counterparty concentrations are
other brokers and dealers, commercial banks and institutional clients and other
financial institutions. This concentration arises in the normal course of the
Company's business.
8. Net Capital Requirements
------------------------
Smith Barney, as a broker-dealer, is subject to the Uniform Net Capital Rule of
the Securities and Exchange Commission (Rule 15c3-1). Under the alternative
method permitted by this rule, net capital, as defined, shall not be less than
2% of aggregate debit items arising from customer transactions, as defined. At
September 27, 1996, Smith Barney's net capital of $1,107 exceeded the minimum
requirement by $959.
The Robinson-Humphrey Company, Inc. ("RH Co."), a broker-dealer and a wholly
owned subsidiary of Smith Barney, is also subject to Rule 15c3-1. Under the
basic method permitted by this rule, RH Co., as a block positioner pursuant to
Rule 97.30 of the New York Stock Exchange, Inc., is required to maintain net
capital of $1. At September 27, 1996, RH Co.'s net capital, as defined, of $78
exceeded the minimum requirement by $77.
12
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SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In millions)
8. Net Capital Requirements (Cont'd)
---------------------------------
Smith Barney Europe Ltd. ("Smith Barney Europe"), a United Kingdom registered
broker-dealer and a wholly owned subsidiary of the Company, is subject to
capital requirements of the Securities and Futures Authority ("SFA"). Financial
resources must exceed the financial resources requirement as defined by the SFA.
At September 27, 1996, Smith Barney Europe's financial resources of $106
exceeded the minimum requirement by $65.
13
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SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the three months ended September 30, 1996 and 1995
The Company reported net income of $207 million for the three months ended
September 30, 1996 (the "1996 Quarter"), an increase of 17% from the $177
million reported for the three months ended September 30, 1995 (the "1995
Quarter"). Return on equity was 32.2% in the 1996 Quarter, compared to 28.9% in
the 1995 Quarter. Pre-tax profit margin increased to 22.7% in the 1996 Quarter
from 21.1% in the 1995 Quarter. Revenues, net of interest expense, increased 5%
to $1,500 million in the 1996 Quarter from $1,423 million in the 1995 Quarter.
Commission revenues decreased to $498 million in the 1996 Quarter, down 7% from
the $536 million in the 1995 Quarter. This decrease is a result of lower
activity in listed and over-the-counter securities and options.
Principal trading revenues decreased to $243 million in the 1996 Quarter, down
5% from the $255 million reported in the 1995 Quarter. This decrease is a result
of a decline in equity trading, offset to an extent by an increase in municipal
bond trading.
Investment banking revenues increased 19% to $288 million in the 1996 Quarter
from $243 million in the 1995 Quarter. This increase results from higher fee
income generated by the Company's merger and acquisition advisory activity, as
well as strong volume in taxable fixed income underwriting.
Asset management fees rose to a record $343 million in the 1996 Quarter, an
increase of 26% from the $272 million reported in the 1995 Quarter. This
increase is, to a great extent, directly related to the increase in assets under
management as well as bringing in-house all of the administrative functions for
proprietary mutual funds and money market funds in the third quarter of 1995.
Assets under management reached a record $105.4 billion at September 30, 1996
compared to $92.2 billion at September 30, 1995. Assets under management are
comprised of money market funds, mutual funds, managed accounts and accounts
managed by financial consultants.
Net interest and dividends increased 14% to a record $106 million for the 1996
Quarter from $93 million in the 1995 Quarter, primarily due to increased margin
lending to clients and increased taxable fixed income inventories.
Total expenses, excluding interest, increased 3% to $1,159 million in the 1996
Quarter from $1,123 million in the 1995 Quarter. This increase is primarily
attributable to higher production-related compensation and benefits expense, and
other operating expenses. Expenses other than interest and employee compensation
and benefits expense were $315 million in the 1996 Period compared to $294
million in the 1995 Period. Employee compensation and benefits expense, as a
percentage of net revenues, for the 1996 Quarter declined to 56.3% from 58.3% in
the 1995 Quarter and the ratio of non-compensation expenses to net revenues was
21.0% in the 1996 Quarter compared to 20.7% in the 1995 Quarter.
The Company continues to maintain its focus on controlling fixed expenses.
The Company's business is significantly affected by the levels of activity in
the securities markets. Many factors have an impact on securities markets,
including the level and trend of interest rates, the general state of the
economy and the national and worldwide political environments. An increasing
interest rate environment could have an adverse impact on the Company's
businesses, including commissions (which are linked in part to the economic
attractiveness of securities relative to time deposits) and investment banking
(which is affected by the relative benefit to corporations and other entities of
issuing debt and/or equity versus other avenues for raising capital). Such
effects, however, could be at least partially offset by a strengthening U.S.
economy that would include growth in the business sector -- accompanied by an
increase in the demand for capital -- and an increase in the capacity of
individuals to invest. A decline in interest rates could favorably impact the
Company's business. The Company's asset management business
14
<PAGE>
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
provides a more predictable and steady income stream than its other businesses.
The Company continues to maintain tight expense controls that management
believes will help the firm weather periodic downturns in market conditions.
The Company's principal business activities are, by their nature, highly
competitive and subject to various risks, particularly volatile trading markets
and fluctuations in the volume of market activity. While higher volatility can
increase risk, it can also increase order flow, which drives many of the
Company's businesses. Other market and economic conditions and the size, number
and timing of transactions, may also affect net income. As a result, revenues
and profitability can vary significantly from year to year, and from quarter to
quarter.
For the nine months ended September 30, 1996 and 1995
The Company reported net income of $659 million for the nine months ended
September 30, 1996 (the "1996 Period"), an increase of 61% from the $409 million
reported for the nine months ended September 30, 1995 (the "1995 Period").
Return on equity was 34.9% in the 1996 Period compared to 22.9% in the 1995
Period. Pre-tax profit margin increased to 23.0% in the 1996 Period from 17.9%
in the 1995 Period. Revenues, net of interest expense, increased 19% to $4,701
million in the 1996 Period from $3,939 million in the 1995 Period.
Commission revenues increased 14% to $1,680 million in the 1996 Period from
$1,475 million in the 1995 Period. This increase reflects strong activity in
listed and over-the-counter securities, as well as insurance and mutual fund
sales.
Principal trading revenues increased 3% to $786 million in the 1996 Period from
$762 million in the 1995 Period. This increase is a result of a strong
performance in over-the-counter equities, offset by a decline in municipal and
taxable fixed income trading.
Investment banking revenues increased 48% to $864 million in the 1996 Period
from $585 million in the 1995 Period. This increase reflects strong volume in
equity, public finance and taxable fixed income underwriting, as well as fee
income from merger and acquisition advisory activity.
Asset management fees increased to $991 million in the 1996 Quarter, an increase
of 32% from the $751 million reported in the 1995 Quarter. This increase is, to
a great extent, directly related to the increase in assets under management as
well as bringing in-house all of the administrative functions for proprietary
mutual funds and money market funds in the third quarter of 1995. Assets under
management reached a record $105.4 billion at September 30, 1996 compared to
$92.2 billion at September 30, 1995. Assets under management are comprised of
money market funds, mutual funds, managed accounts and accounts managed by
financial consultants.
Net interest and dividends increased 7% to $301 million in the 1996 Period from
$282 million in the 1995 Period primarily due to increased margin lending to
clients and increased taxable fixed income inventories.
Total expenses, excluding interest, increased 12% to $3,620 million for the 1996
Period from $3,234 million in the 1995 Period. This increase is primarily the
result of higher production-related employee compensation and benefits expense,
and other operating expenses. These increases were partially offset by a decline
in communications, occupancy and equipment expense. Expenses other than interest
and employee compensation and benefits were $965 million in the 1996 Period
compared to $875 million in the 1995 period. Employee compensation and benefits
expense
15
<PAGE>
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
as a percentage of net revenues for the 1996 Period declined to 56.5% from 59.9%
in the 1995 Period and the ratio of non-compensation expenses to net revenues
was 20.5% in the 1996 Period compared to 22.2% in the 1995 Period.
The Company continues to maintain its focus on controlling fixed expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company maintains a highly liquid balance sheet, with substantially all of
its assets consisting of marketable securities and short-term collateralized
receivables arising from securities transactions. The highly liquid nature of
these assets provides the Company with flexibility in financing and managing its
business. The Company monitors and evaluates the adequacy of its capital and
borrowing base on a daily basis in order to allow for flexibility in its
funding, to maintain liquidity, and to ensure that its capital base supports the
regulatory capital requirements of its subsidiaries.
The Company funds its operations through the use of its equity, long-term
borrowings, commercial paper, collateralized and uncollateralized borrowings
(through both committed and uncommitted facilities), internally generated funds,
repurchase transactions and securities lending arrangements. The maturities of
borrowings generally correspond to the anticipated holding periods of the assets
being financed. At September 30, 1996, there was $1,500 million in committed
uncollateralized revolving lines of credit available, none of which was
utilized. In addition, the Company has substantial borrowing arrangements
consisting of facilities that the Company has been advised are available, but
where no contractual lending obligation exists. These arrangements are reviewed
on an ongoing basis to ensure flexibility in meeting the Company's short-term
requirements.
As of September 30, 1996, total long-term public debt was $2,016 million, of
which $50 million will mature on November 17, 1996, compared to total long-term
public debt of $1,875 million at December 31, 1995. On October 10, 1996, the
Company issued $200 million aggregate principal amount of 7 1/8% Notes due
October 1, 2006. As of November 5, 1996, the Company had $485 million available
for issuance under a shelf registration statement filed with the Securities and
Exchange Commission.
The Company's borrowing relationships are with a broad range of banks, financial
institutions and other firms from which it draws funds. The volume of the
Company's borrowings generally fluctuates in response to changes in the level of
the Company's securities inventories, customer balances, the amount of reverse
repurchase transactions outstanding (i.e., purchases of securities under
agreements to resell the same security) and securities borrowed transactions. As
the Company's activities increase, borrowings generally increase to fund the
additional activities. Availability of financing to the Company can vary
depending upon market conditions, credit ratings, and the overall availability
of credit to the securities industry.
The Company seeks to expand and diversify its funding mix as well as its
creditor sources. Concentration levels for these sources, particularly for
short-term lenders, are closely monitored in terms of both single investor
limits and daily maturities.
The Company monitors liquidity by tracking asset levels, collateral and funding
availability to maintain flexibility to meet its financial commitments. As a
policy, the Company attempts to maintain sufficient capital and funding sources
in order to have the capacity to finance itself on a fully collateralized basis
at all times, including periods of financial stress. In addition, the Company
monitors its leverage and capital ratios on a daily basis. The Company's
leverage ratio (total assets to equity) at September 30, 1996 and December 31,
1995 was 17.5x and 16.6x, respectively.
16
<PAGE>
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For significant transactions, the Company's credit review process includes an
initial evaluation of the counterparty's creditworthiness, with periodic reviews
of credit standing, and collateral and various other credit enhancements
obtained in certain circumstances. The Company establishes general counterparty
credit limits by product type, taking into account the perceived risk associated
with the product. Increases to these credit limits are determined individually
based on the underlying financial strength and management of the counterparty.
The usage and resultant exposure from these credit limits are monitored daily by
the Credit Analysis group.
ASSETS AND LIABILITIES
Asset and liability levels are primarily determined by order flow and can
fluctuate depending upon economic and market conditions, customer demand and
transactional volume. The Company's total assets increased to $46.0 billion at
September 30, 1996 from $41.0 billion at December 31, 1995. Securities owned at
market value increased due to trading activities, primarily in U.S. Government
and agencies obligations. The increase in securities sold not yet purchased, at
market value relates to the hedging of market risk and increased financing
requirements associated with this increased trading activity. Securities
purchased under agreements to resell and securities sold under agreements to
repurchase were impacted by higher levels of "matched book" activity. Deposits
paid for securities borrowed and deposits received for securities loaned were
impacted by higher levels of "conduit" transactions.
The Company engages in "matched book" transactions in government and
mortgage-backed securities as well as "conduit" transactions in corporate equity
and debt securities. These transactions are similar in nature. A "matched book"
transaction involves a security purchased under an agreement to resell (i.e.,
reverse repurchase transaction) and simultaneously sold under an agreement to
repurchase (i.e., repurchase transaction). A "conduit" transaction involves the
borrowing of a security from a counterparty and the simultaneous lending of the
security to another counterparty. These transactions are reported gross in the
Condensed Consolidated Statement of Financial Position and typically yield
interest spreads ranging from 10 to 30 basis points. The interest spread results
from the net of interest received on the reverse repurchase or security borrowed
transaction and the interest paid on the corresponding repurchase or security
loaned transaction. Interest rates charged or credited in these activities are
usually based on current Federal Funds rates but can fluctuate based on security
availability and other market conditions. The size of balance sheet positions
resulting from these activities can vary significantly, depending primarily on
levels of activity in the bond markets, but would not materially impact net
income.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
Financial Accounting Standard No. 123, Accounting for Stock-Based Compensation
("FAS 123"), is effective for 1996 reporting. This statement addresses the
accounting for the cost of stock-based compensation, such as stock options and
restricted stock. FAS 123 permits either expensing the value of stock-based
compensation over the period earned or disclosing in the financial statement
footnotes the pro forma impact to net income as if the value of stock-based
compensation awards had been expensed. The value of awards would be measured at
the grant date based upon estimated fair value, using option pricing models. The
Company along with affiliated companies, participates in stock option and other
stock-based incentive plans sponsored by Travelers Group Inc. The Company has
selected the disclosure alternative that requires such pro forma disclosures to
be included in annual financial statements.
17
<PAGE>
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FUTURE APPLICATION OF ACCOUNTING STANDARDS (Cont'd)
In June 1996, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities ("FAS 125").
FAS 125 provides accounting and reporting standards for transfers and servicing
of financial assets and extinguishments of liabilities. These standards are
based on consistent application of a financial-components approach that focuses
on control. Under that approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred, derecognizes financial assets when control has been surrendered,
and derecognizes liabilities when extinguished. FAS 125 provides consistent
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. This Statement is effective for transfers
and servicing of financial assets and extinguishments of liabilities occurring
after December 31, 1996, and is to be applied prospectively; however, the FASB
has announced its intention to delay until January 1, 1998 the effective date
of certain provisions. The Company is currently evaluating the impact of this
Statement.
18
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
For information concerning several class action lawsuits filed against
Smith Barney in connection with three funds managed by Hyperion Capital
Management Inc., see the descriptions that appear in the third paragraph on page
2 of the Company's Current Report on Form 8-K, dated November 9, 1993, and the
second paragraph on page 10 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1995, which descriptions are incorporated by reference
herein. A copy of the pertinent paragraphs of such filings is included as an
exhibit to this Form 10-Q. In October 1996, the U.S. Court of Appeals for the
Second Circuit affirmed the district court's dismissal of the claims. Plaintiffs
have applied for a rehearing en banc.
For information concerning two purported class actions filed in October
1994 in connection with certain public offering documents of Greyhound Bus
Lines, Inc., see the descriptions that appear in the second paragraph on page 16
of the Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 1994 and the fourth paragraph on page 10 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1995, which descriptions are
incorporated by reference herein. A copy of the pertinent paragraphs of such
filings is included as an exhibit to this Form 10-Q. Although the defendants'
motion to dismiss was granted in October 1996, plaintiffs subsequently filed a
second amended complaint. In addition, in late October 1996, a purported class
action was filed against Smith Barney, among others, in the District Court,
Dallas County, Texas, entitled Clarkson v. Greyhound Lines, Inc., et al., with
allegations similar to those in the federal case referred to above. The Company
believes it has meritorious defenses to this action and intends to contest the
allegations.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
See Exhibit Index.
(b) Reports on Form 8-K:
On July 15, 1996, the Company filed a Current Report on Form 8-K,
dated July 15, 1996, reporting under Item 5 thereof the results of its
operations for the three months and six months ended June 30, 1996, and certain
other selected financial data.
On August 7, 1996, the Company filed a Current Report on Form 8-K,
dated August 7, 1996, reporting under Item 5 thereof certain additional
information regarding legal proceedings involving the Company.
On August 9, 1996, the Company filed a Current Report on Form 8-K,
dated August 7, 1996, filing certain exhibits under Item 7 thereof relating to
the offer and sale of the Company's S&P 500 Equity Linked Notes due August 13,
2001.
19
<PAGE>
No other reports on Form 8-K have been filed by the Company during the
quarter ended September 30, 1996; however, on October 9, 1996, the Company filed
a Current Report on Form 8-K, dated October 7, 1996, filing certain exhibits
under Item 7 thereof relating to the offer and sale of the Company's 7 1/8%
Notes due October 1, 2006; and on October 15, 1996, the Company filed a Current
Report on Form 8-K, dated October 14, 1996, reporting under Item 5 thereof the
results of its operations for the three months and nine months ended September
30, 1996, and certain other selected financial data.
20
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Filing
Number Description of Exhibit Method
- ------ ---------------------- ------
3.01 Restated Certificate of Incorporation of Smith Barney
Holdings Inc. (the "Company") and the Certificate of
Amendment thereto, effective June 1, 1994, incorporated
by reference to Exhibit 3.01 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1994 (File No. 1-12484) (the "Company's 1994 10-K").
3.02 Restated By-Laws of the Company, as amended September
26, 1994, incorporated by reference to Exhibit 3.02 to
the Company's 1994 10-K.
10.01 Cumulative Amendment dated as of May 28, 1996 to the Electronic
Three-Year Competitive Advance and Revolving Credit
Facility Agreement dated as of July 23, 1993, as amended
and restated as of May 31, 1994, among the Company, the
Lenders named therein, Chemical Bank, Citibank, N.A. and
Credit Lyonnais New York Branch, as Managing Agents, the
banks named therein, as Co-Agents, and Chemical Bank, as
Administrative Agent, incorporated by reference to
Exhibit 10.02 to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30, 1994
(File No. 1-12484).
12.01 Computation of Ratio of Earnings to Fixed Charges. Electronic
27.01 Financial Data Schedule. Electronic
99.01 The third paragraph on page 2 of the Company's Current Electronic
Report on Form 8-K, dated November 9, 1993 (File No.
0-21966), and the second paragraph on page 10 of the
Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995 (File No. 1-12484).
99.02 The second paragraph on page 16 of the Company's Quarterly Electronic
Report on Form 10-Q for the fiscal quarter ended
September 30, 1994 (File No. 1-12484) and the fourth
paragraph on page 10 of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995
(File No. 1-12484).
The total amount of securities authorized pursuant to any
instrument defining rights of holders of long-term debt of
the Company does not exceed 10% of the total assets of the
Company and its consolidated subsidiaries. The Company will
furnish copies of any such instrument to the Commission
upon request.
21
<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.
SMITH BARNEY HOLDINGS INC.
--------------------------
(Registrant)
Date: November 12, 1996 By: /s/ Charles W. Scharf
-----------------------------------
Charles W. Scharf
Vice President and Chief Financial Officer
By: /s/ Michael J. Day
-----------------------------------
Michael J. Day
Vice President and Controller
22
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Filing
Number Description of Exhibit Method
- ------ ---------------------- ------
3.01 Restated Certificate of Incorporation of Smith Barney
Holdings Inc. (the "Company") and the Certificate of
Amendment thereto, effective June 1, 1994, incorporated
by reference to Exhibit 3.01 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1994 (File No. 1-12484) (the "Company's 1994 10-K").
3.02 Restated By-Laws of the Company, as amended September
26, 1994, incorporated by reference to Exhibit 3.02 to
the Company's 1994 10-K.
10.01 Cumulative Amendment dated as of May 28, 1996 to the Electronic
Three-Year Competitive Advance and Revolving Credit
Facility Agreement dated as of July 23, 1993, as amended
and restated as of May 31, 1994, among the Company, the
Lenders named therein, Chemical Bank, Citibank, N.A. and
Credit Lyonnais New York Branch, as Managing Agents, the
banks named therein, as Co-Agents, and Chemical Bank, as
Administrative Agent, incorporated by reference to
Exhibit 10.02 to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30, 1994
(File No. 1-12484).
12.01 Computation of Ratio of Earnings to Fixed Charges. Electronic
27.01 Financial Data Schedule. Electronic
99.01 The third paragraph on page 2 of the Company's Current Electronic
Report on Form 8-K, dated November 9, 1993 (File No.
0-21966), and the second paragraph on page 10 of the
Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995 (File No. 1-12484).
99.02 The second paragraph on page 16 of the Company's Quarterly Electronic
Report on Form 10-Q for the fiscal quarter ended
September 30, 1994 (File No. 1-12484) and the fourth
paragraph on page 10 of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995
(File No. 1-12484).
The total amount of securities authorized pursuant to any
instrument defining rights of holders of long-term debt of
the Company does not exceed 10% of the total assets of the
Company and its consolidated subsidiaries. The Company will
furnish copies of any such instrument to the Commission
upon request.
Exhibit 10.01
KEY: [SO/ {TEXT}] MEANS STRIKE OUT
[DBL/ {TEXT}] MEANS DOUBLE UNDERLINING
Cumulative amendment (this amendment) dated as of May 28,
1996 to the Three-Year Competitive Advance and Revolving
Credit Facility Agreement dated as of July 23, 1993 as
amended and restated as of May 31, 1994 (as so amended and
restated, together with its Exhibits and Schedules, the 1994
Agreement), and as further amended by the amendment dated as
of May 30, 1995 (the 1995 Amendment), among
o Smith Barney Holdings Inc. (formerly Smith Barney Shearson
Holdings Inc.), a Delaware corporation,
o the Lenders,
o Bank of America National Trust and Savings Association,
Chemical Bank,
Citibank, N.A. and
Credit Lyonnais New York Branch,
as Managing Agents,
o Bank of Montreal,
The Bank of New York,
The Bank of Tokyo -- Mitsubishi Trust Company,
Barclays Bank PLC,
Canadian Imperial Bank of Commerce,
Deutsche Bank AG New York Branch and/or Cayman
Islands Branch,
First Union National Bank
Fleet National Bank
Mellon Bank, N.A.
Morgan Guaranty Trust Company of New York
NationsBank, N.A. (South),
PNC Bank, National Association
Royal Bank of Canada,
Societe Generale, New York Branch and
Wells Fargo Bank, N.A.,
as Co-Agents, and
o Chemical Bank,
as Administrative Agent
- ------------------------------------------------------------
The parties, intending to be legally bound, agree as follows:
1 Terms, etc. Except as otherwise stated in this amendment,
terms used in this amendment that are defined in
a defined terms the 1994 Agreement shall have the meanings given
them in the 1994 Agreement.
<PAGE>
- --------------------------------------------------------------------------------
b section references Except as otherwise stated, page and section
references are to the 1994 Agreement.
c revision markings Except as otherwise stated, in this amendment,
where a section is shown as amended by this
amendment, new language is shown [DBL/ double
underlined], deleted language is shown in [SO/
strikeout], and language that is unchanged is
indicated by an ellipsis (...). Deleted language,
double underlining and ellipses are for
convenience only and are not part of the 1994
Agreement as amended by this amendment (as so
amended, the 1996 Agreement). New and deleted
language are shown with reference to the 1994
Agreement as amended by the 1995 Amendment. Where
a provision is carried over from the 1995
Amendment, a bracketed notation to that effect is
made in the relevant heading.
2 1995 Amendment Except to the extent restated in this amendment,
the provisions of the 1995 Amendment shall be of
no further effect.
3 Amendments The 1994 Agreement is amended as follows:
a Agents The terms 'Managing Agent' and 'Co-Agent' shall
each refer to the financial institutions
identified as such above.
b Smith Barney On June 1, 1994, Smith Barney Shearson Holdings
Holdings Inc. changed its name to 'Smith Barney Holdings
Inc.' Accordingly, all occurrences of 'Smith
Barney Shearson Holdings Inc.' are replaced by
'Smith Barney Holdings Inc.'
c Smith Barney Inc. On June 1, 1994, Smith Barney Shearson Inc.
changed its name to 'Smith Barney Inc.'
Accordingly,
o The definition of 'SBS' in section 1.01 (p 31)
is deleted.
o A new definition is inserted immediately
following the definition of 'SIPC' in Section
1.01 to read:
"Smith Barney" shall mean Smith Barney Inc.,
------------
a Delaware corporation and a wholly owned
subsidiary of the Borrower. Smith Bar-
2
<PAGE>
- --------------------------------------------------------------------------------
ney was formerly called Smith Barney Shearson
Inc. and before that Smith Barney, Harris Upham
& Co. Incorporated.
o All occurrences of 'Smith Barney Shearson Inc.'
(except for the occurrence in the new
definition of 'Smith Barney') shall be replaced
by 'Smith Barney Inc.,' and all occurrences of
'SBS' shall be replaced by 'Smith Barney.'
d Travelers Group Inc. On April 26, 1995, The Travelers Inc. changed its
name to Travelers Group Inc. Accordingly, the
definition of 'Travelers' in section 1.01 (p 33)
shall read (revisions not marked):
"Travelers" shall mean Travelers Group Inc.,
---------
a Delaware corporation, of which the Borrower
is a subsidiary. Prior to April 26, 1995,
Travelers was named The Travelers Inc. and
prior to January 1, 1994, Travelers was named
Primerica Corporation.
e Applicable Fee The table in the definition of 'Applicable Fee
Percentage Percentage' in Section 1.01 (p 5) shall read:
================================================================
Ratings Facility
------- --------
Applicable to Index Fee
------------------- ---
Debt
----
----------------------------------------------------------------
Category 1
----------
A- or higher by S&P [SO/ .1500%][DBL/ .1250%]
A3 or higher by
Moodys
----------------------------------------------------------------
Category 2
----------
BBB+, BBB by S&P [SO/ .2000%][DBL/ .1875%]
Baa1, Baa2 by Moodys
----------------------------------------------------------------
Category 3
----------
BBB- by S&P .2500%
Baa3 by Moody's
----------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
----------------------------------------------------------------
Category 4
----------
BB+ or below* by S&P .3750%
Ba1 or below* by
Moody's
================================================================
* or unrated
f Applicable Margin The table in the definition of 'Applicable
Margin' in Section 1.01 (p 6) shall read:
================================================================
Eurodollar
----------
Ratings Standby CD Loan ABR Loan
------- ------- ------- --------
Applicable to Loan Margin Margin
------------- ---- ------ ------
Index Debt Margin
---------- ------
----------------------------------------------------------------
Category 1
----------
A- or higher by
S&P [SO/ .2000%] [SO/ .3250%] 0%
A3 or higher by [DBL/ .2250%] [DBL/ .3500%]
Moodys
----------------------------------------------------------------
Category 2
----------
BBB+, BBB by S&P [SO/ .3000%] [SO/ .4250%] 0%
Baa1, Baa2 by [DBL/ .3125%] [DBL/ .4375%]
Moodys
----------------------------------------------------------------
Category 3
----------
BBB- by S&P .3750% .5000% 0%
Baa3 by Moody's
----------------------------------------------------------------
Category 4
----------
BB+ or below* by .6250% .7500% .500%
S&P
Ba1 or below* by
Moody's
================================================================
* or unrated
g Maturity Date The definition of 'Maturity Date' in Section 1.01
(p 3 of the 1995 Amendment) shall read:
"Maturity Date" shall mean [SO/ May 30,
-------------
1998] [DBL/ May 28, 1999].
h Required Lenders The definition of 'Required Lenders' in Section
[unchanged from 1995 1.01 (p 4 of 1995 Amendment) shall read:
4
<PAGE>
- --------------------------------------------------------------------------------
Amendment] "Required Lenders" shall mean, at any time,
----------------
Lenders having Commitments representing at
least 66-2/3% of the Total Commitments or, for
purposes of actions taken to accelerate Loans
under Article VII, Lenders holding Loans
representing at least 66-2/3% of the aggregate
principal amount of the Loans outstanding.
i Significant Subsidi- The definition of 'Significant Subsidiary' in
ary Section 1.01 (p 31) shall read:
"Significant Subsidiary" shall mean at any
----------------------
time [SO/ MMC, SBA, SSI,] Smith Barney and any
other Subsidiary which at such time shall be a
"significant subsidiary" of the Borrower within
the meaning of Rule 1-02 of Regulation S-X of
the SEC as in effect on the date hereof.
j deleted definitions The definitions of 'Acquisition,' 'MMC,' '1993
364-Day Facility,' 'Refinancing Facility,' 'SBA,'
'SBH Subordinated Loan,' 'SBI,' 'SLB' and 'SSI'
in Section 1.01 are deleted.
k Lenders and Schedule 2.01, which shows the name and address
Commitments of each Lender, its contact person (with phone
and telecopy number) and its Commitment, is
replaced by Schedule 2.01 to this amendment.
References in this amendment to the Lenders shall
refer to the Lenders as shown on Schedule 2.01 to
this amendment. On and as of the Effective Date,
the Lenders shall make any necessary payments,
assignments and purchases among themselves so
that any outstanding Loans will be held by the
Lenders ratably in accordance with the
Commitments set forth on Schedule 2.01 to this
Amendment. The Administrative Agent shall
determine the final payments, assignments or
purchases necessary to effect the transactions
contemplated by the preceding sentence, which
shall be deemed to have been effected in
accordance with Section 9.04, 'Successors and
Assigns,' of the 1996 Agreement.
l funding Section 2.02 (c) (p 17) shall read:
5
<PAGE>
- --------------------------------------------------------------------------------
(c) Subject to Section 2.05, each Lender
shall make each Loan to be made by it hereunder
on the proposed date thereof by wire transfer
of immediately available funds to the
Administrative Agent in New York, New York, not
later than 11:00 a.m., New York City time [DBL/
(or 2:00 p.m., New York City time, in the case
of an ABR Loan to be made on the same day as a
Standby Borrowing Request therefor is given)],
and the Administrative Agent shall by 2:00
p.m., New York City time [DBL/ (or 5:00 p.m.,
New York City time, in the case of such an ABR
Loan)], credit the amounts so received to the
general deposit account of the Borrower with
the Administrative Agent ....
m Notice for ABR Clause (c) of the first sentence of Section 2.04,
Borrowing 'Standby Borrowing Procedure' (p 41), shall read:
... (c) in the case of an ABR Borrowing, not
later than [SO/ 9:30] [DBL/ 11:00] a.m., New
York City time, on the same Business Day of a
proposed borrowing.
n environmental Section 3.16, 'Environmental and Safety Matters'
representation (p 66) and the related Schedule 3.16 are deleted.
o added condition to A new paragraph (d) is added to Article IV,
lending 'Conditions of Lending' (p 67), immediately
following paragraph (c) to read as follows:
(d) At the time of and immediately after
such Borrowing, no "Default" and no "Event of
Default" (as such terms are defined in the
Other Bank Facility) shall have occurred and be
continuing under the Other Bank Facility.
and the last sentence of Article IV shall read:
Each Borrowing shall be deemed to constitute
a representation and warranty by the Borrower
on the date of such Borrowing as to the matters
specified in paragraphs (b)[DBL/ ,] [SO/ and]
(c) [DBL/ and (d)] of this Article IV.
6
<PAGE>
- --------------------------------------------------------------------------------
p Reports Section 5.04(d) (p 70) shall read:
(d) promptly after the filing with or
submission thereof to the NYSE or the SEC, a
complete copy of each monthly and quarterly
FOCUS Report of Smith Barney [SO/ and any
reports filed by MMC or SBA with the SEC, NYSE
or any similar regulatory authority];
q Notice of affiliate Section 5.05(c) (p 71) shall read:
transactions
(c) all communications given by the Borrower or
Smith Barney to, or received by the Borrower
or Smith Barney from, the SEC, NASD, NYSE, or
any similar regulatory authorities (x) pursuant
to Rule 15c3-1 regarding [SO/ (i)] proposed or
actual capital withdrawals from Smith Barney of
$5,000,000 or more or [SO/ (ii) advances or
loans to affiliates by Smith Barney of
$5,000,000 or more, (iii) other material
affiliate transactions of Smith Barney or (iv)]
any order or other restriction imposed by any
such authority limiting or prohibiting capital
withdrawals from Smith Barney or (y) regarding
any material violations of rules or regulations
applicable to Smith Barney.
r Use of Proceeds Section 5.08 (p 72) shall read:
SECTION 5.08. Use of Proceeds. Use the
---------------
proceeds of the Loans only for general
corporate purposes not otherwise prohibited by
the provisions of this Agreement, including to
repay existing Indebtedness[SO/ ,] [DBL/ or] to
make loans or advances to Subsidiaries [SO/ and
to finance a portion of the cash purchase price
payable to SLB in the Acquisition].
s Affiliate
transactions Subsections (a), (c) and (d) of Section 6.04 (p
75), which restrict loans or advances to or by
non-subsidiary affiliates, are deleted so that
the section reads (deleted language not shown):
SECTION 6.04. [DBL/ Subordinated] Loans and
----------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
Advances [DBL/ to Subsidiaries]. Make or permit
------------------------------
to exist any loans or advances to any
Subsidiary which constitute Subordinated
Indebtedness of such Subsidiary, other than (i)
Qualifying Subordinated Indebtedness of Smith
Barney owed to the Borrower, (ii) Subordinated
Indebtedness owed to the Borrower or a
Subsidiary by domestic or foreign regulated
securities Subsidiaries and (iii) approximately
$19,000,000 of existing Subordinated
Indebtedness of Smith Barney owed to a
subsidiary of Smith Barney.
t Net worth Section 6.09 (p 78) shall read:
SECTION 6.09. Consolidated Adjusted Net
-------------------------
Worth. At any time after [SO/ the Closing Date]
-----
[DBL/ December 31, 1995] permit Consolidated
Adjusted Net Worth of the Borrower to be less
than the sum of (i) [SO/ $1,350,000,000][DBL/
$1,600,000,000] plus (ii) an amount equal to
the sum of (A) 25% of the Borrower's
Consolidated Net Income in each fiscal year
ending after December 31, [SO/ 1992,][DBL/
1995], if any, in which such Consolidated Net
Income is positive and (B) .....
u Maintenance of Section 6.10 (p 78) shall read:
liquidity
SECTION 6.10. Maintenance of liquidity.
------------------------
Permit (i) the sum of (a) ... plus (d) the
----
aggregate amount of undrawn commitments under
the Revolving Credit Facilities[SO/ , any
Refinancing Facility] and any [SO/ other]
Qualifying Committed Credit Facility, .... For
purposes of this Section 6.10, during the
60-day period immediately prior to the maturity
date or scheduled termination date of the Other
Bank Facility [SO/ or any Refinancing
Facility], all undrawn commitments under the
Other Bank Facility [SO/ or such Refinancing
Facility] shall be disregarded and all
outstanding borrowings under the Other Bank
Facility [SO/ or such Refinancing Facility], to
the extent not due and payable, shall also be
disregarded.
8
<PAGE>
- --------------------------------------------------------------------------------
v Double leverage, SBI Section 6.14, 'Double Leverage' (p 79), Section
subsidiaries and 6.15, 'SBI Subsidiaries' (p 80) and Section 6.16,
capital investments 'Capital Investments in Certain Significant
Subsidiaries' (p 80), are deleted, as are the
references to such sections in Section 5.04(c).
w notice of default in Paragraph (c) of Article VII, 'Events of Default'
payment of interest (p 80) shall read:
or fees
(c) default shall be made in the payment of
any interest on any Loan or any Fee or any
other amount (other than an amount referred to
in (b) above) due under this Agreement, when
and as the same shall become due and payable,
and such default shall continue unremedied for
a period of five Business Days [DBL/ after
written notice thereof from the Administrative
Agent or any Lender is received by the
Borrower];
x cross default Paragraph (g) of Article VII (p 81) shall read:
(g) the Borrower or any Significant
Subsidiary shall (i) fail to pay any principal
or interest, regardless of amount, due under
the Other Bank Facility or due in respect of
any other Debt in a principal amount of [SO/
$25,000,000] [DBL/ $50,000,000] or more, when
and as the same shall become due and payable
(after expiration of any applicable grace
period specified in any instrument or agreement
evidencing or governing such Debt), or (ii)
....
y Non-voting preferred Paragraph (n) of Article VII (p 3 of the 1995
stock Amendment) shall read:
(n) the Borrower shall, on and after [SO/
the Closing Date][DBL/ May 28, 1996], cease to
own directly 100% of the capital stock of Smith
Barney, [SO/ MMC, SBA or SSI(] other than[SO/ ,
in the case of Smith Barney,] shares of
nonvoting, nonconvertible preferred stock of
Smith Barney issued to one or more registered
broker-dealers [SO/ , pro-]
9
<PAGE>
- --------------------------------------------------------------------------------
[SO/ vided that the aggregate redemption value
of all of such stock shall at no time exceed
$25,000,000)];
z SIPC proceeding Paragraph (p) of Article VII (p 84) shall read:
(p) SIPC shall apply for a protective decree
with respect to Smith Barney as provided in
SIPA [DBL/ , and such action is not dismissed
within 10 days];
aa Maturity of SB To reflect the extension of certain of Smith
Subordinated Barney's Subordinated Indebtedness to the
Indebtedness [partly Borrower:
from 1995 Amendment]
o Section 1.1 of Exhibit E, 'Terms of the
Borrower's Subordinated Loans to Smith Barney,'
shall read:
The Advances. The Borrower shall make
Advances to Smith Barney from time to time from
the effective date of this agreement to June
25, [SO/ 1995] [DBL/ 1999]....
o Section 1.3 of Exhibit E shall read:
Repayment. Smith Barney shall repay the
aggregate unpaid principal amount of each
Advance on June 25, [SO/ 1996] [DBL/ 2000].
o 'June 25, 1996' in the first paragraph of
Exhibit A to Exhibit E, 'Subordinated
Promissory Note,' shall be replaced by 'June
25, 2000.'
4 Effective date This amendment shall become effective on the
later of May 28, 1996 or the first date on which
all of the following conditions are satisfied
(the later of such dates being the Effective
Date):
a signature pages The Borrower, the Administrative Agent and each
Managing Agent and Lender have executed and
delivered to the Administrative Agent an original
or telecopied signature page to this amendment.
b representations and The representations and warranties in Article III
warranties of the 1996 Agreement shall be true in all
material respects as of the Effective Date,
except to the extent the representations and
warranties expressly relate to an earlier
10
<PAGE>
- --------------------------------------------------------------------------------
date. In addition, the Borrower represents and
warrants to each Lender that, as of the Effective
Date, there will not have occurred a material
adverse change since March 31, 1996 in the
consolidated financial condition, assets or
result of operations of the Borrower and the
Subsidiaries, taken as a whole (it being
understood that, unless a general market decline
results in such a material adverse change, it
shall not be deemed to constitute such a material
adverse change).
c compliance The Borrower is in compliance with all of the
terms of the 1996 Agreement, and no Default or
Event of Default under the 1996 Agreement is
continuing.
d legal opinion The Administrative Agent has received a favorable
written opinion of the General Counsel of the
Borrower, dated the Effective Date and addressed
to the Lenders under the 1996 Agreement,
covering, for the 1996 Agreement, substantially
those matters covered by the opinion dated May
31, 1994 delivered in connection with the closing
of the 1994 Agreement.
e legal matters All legal matters incident to the 1996 Agreement
are satisfactory to the Lenders under the 1996
Agreement and to Cravath, Swaine & Moore, counsel
to the Administrative Agent (in such capacity,
Cravath).
f certificates The Administrative Agent has received
(i) a copy of the Borrower's certificate of
incorporation as in effect on the Effective Date,
certified as of a recent date by the Delaware
Secretary of State, and a certificate as of a
recent date from such Secretary of State as to
the Borrower's good standing;
(ii) a certificate of the Borrower's Secretary or
Assistant Secretary dated the Effective Date and
certifying
o that attached is a true and complete copy of
the by-laws of the Borrower as in effect on the
Effective Date,that attached is a true and
complete copy of resolutions duly adopted by
the Borrower's board of directors authorizing
the execution, delivery and performance of this
amendment, and that such
11
<PAGE>
- --------------------------------------------------------------------------------
resolutions are in full force and effect,
o that the Borrower's certificate of
incorporation has not been amended since the
date of the last amendment shown on the
certificate of good standing furnished pursuant
to clause (i) above, and
as to the identity of each officer executing this
amendment or any other document delivered on
behalf of the Borrower in connection with this
amendment; and
(iii) such other documents as the Lenders or
Cravath reasonably request.
g officer's The Administrative Agent has received a
certificate certificate, dated the Effective Date and signed
by a Financial Officer of the Borrower,
confirming compliance with the conditions
precedent set forth in paragraphs (b) and (c)
above.
5 Expenses The Borrower shall reimburse the Administrative
Agent for its reasonable out-of-pocket expenses
in connection with this amendment, including
Cravath's reasonable fees and disbursements.
6 New York law This amendment shall be governed by and construed
in accordance with the laws of the State of New
York.
Smith Barney Holdings Inc.
By: /s/ Michael Yellin
----------------------------------------
Treasurer
By: /s/ Joseph J. Martinelli
----------------------------------------
Assistant Treasurer
Chemical Bank,
individually, as Managing Agent and as
Administrative Agent
By: /s/ Robert J. Gould
----------------------------------------
Managing Director
12
<PAGE>
- --------------------------------------------------------------------------------
Bank of America National Trust and Savings
Association,
individually and as Managing Agent
By: /s/ Robert A. Jennings
----------------------------------------
Managing Director
Citibank, N.A.,
individually and as Managing Agent
By: /s/ David A. Dodge
----------------------------------------
Vice President and Attorney-in-Fact
Credit Lyonnais New York Branch,
individually and as Managing Agent
By: /s/ Renaud d'Herbes
----------------------------------------
Senior Vice President
Bank of Montreal
By: /s/ Pamela M. Tebbutt
----------------------------------------
Director
The Bank of New York
By: /s/ Brian A. Ruane
----------------------------------------
Vice President
The Bank of Tokyo -- Mitsubishi Trust
Company
By: /s/ David H. Place
----------------------------------------
Vice President
13
<PAGE>
- --------------------------------------------------------------------------------
Barclays Bank PLC
By: /s/ Karen M. Wagner
----------------------------------------
Associate Director
Canadian Imperial Bank of Commerce
By: /s/ Gerald J. Girardi
----------------------------------------
Authorized Signatory
Deutsche Bank AG New York Branch
and/or Cayman Islands Branch
By: /s/ Marc A.G. Gorr
----------------------------------------
Assistant Vice President
By: /s/ Robert M. Powers
----------------------------------------
Assistant Vice President
First Union National Bank
By: /s/ Alan Lilienthal
----------------------------------------
Vice President
Fleet National Bank
By: /s/ Jane C. Lee
----------------------------------------
Vice President
Mellon Bank, N.A.
By: /s/ William F. Casey, III
----------------------------------------
Vice President
14
<PAGE>
- --------------------------------------------------------------------------------
Morgan Guaranty Trust Company of New York
By: /s/ Richard Ungaro
----------------------------------------
Vice President
NationsBank, N.A. (South)
By: /s/ James F. Dever, Jr
----------------------------------------
Senior Vice President
PNC Bank, National Association
By: /s/ Brenda J. Peck
----------------------------------------
Vice President
Royal Bank of Canada
By: /s/ Terry L. Grant
----------------------------------------
Manager
Societe Generale, New York Branch
By: /s/ Sean M.G. Bradley
----------------------------------------
Vice President
Wells Fargo Bank, N.A.
By: /s/ Robert C. Meyer
----------------------------------------
Vice President
By: /s/ Jonathan S. David
----------------------------------------
Assistant Vice President
15
<PAGE>
- --------------------------------------------------------------------------------
Banque Paribas New York Branch
By: /s/ C.T. Spinnen
----------------------------------------
Senior Vice President
By: /s/ Frank Sodano
----------------------------------------
Vice President
Barnett Bank of Palm Beach County
By: /s/ D. Mark Seale
----------------------------------------
Vice President
The Dai-Ichi Kangyo Bank, Ltd., New York Branch
By: /s/ Matthew G. Murphy
----------------------------------------
Vice President
Norwest Bank Minnesota, N.A.
By: /s/ Douglas B. Niemann
----------------------------------------
Commercial Banking Officer
AmSouth Bank N.A.
By: /s/ R. Mark Graf
----------------------------------------
Vice President
Arab Bank PLC
By: /s/ Peter Boyadjian
----------------------------------------
Senior Vice President
16
<PAGE>
- --------------------------------------------------------------------------------
Banca Commerciale Italiana, New York Branch
By: /s/ Charles Dougherty
----------------------------------------
Vice President
By: /s/ Sarah Kim
----------------------------------------
Assistant Vice President
Bank Brussels Lambert, New York Branch
By: /s/ Eileen Stekeur
----------------------------------------
Assistant Vice President
By: /s/ Dominick H.J. Vangaever
----------------------------------------
Vice President
Bank of Hawaii
By: /s/ Alison Sierens
----------------------------------------
Assistant Vice President
Banque Nationale de Paris, New York Branch
By: /s/ Riva L. Howard
----------------------------------------
Vice President
By: /s/ William Shaheen
----------------------------------------
Vice President
Credit Suisse
By: /s/ Joseph M. Colgan
----------------------------------------
Member of Senior Management
By: /s/ Anthony Giordano
----------------------------------------
Associate
17
<PAGE>
- --------------------------------------------------------------------------------
The First National Bank of Boston
By: /s/ Charles A. Garrity
----------------------------------------
Vice President
Gulf International Bank, B.S.C.
By: /s/ Abdel-Fattah Tahoun
----------------------------------------
Senior Vice President
By: /s/ Haytham F. Khalil
----------------------------------------
Assistant Vice President
Bayerische Hypotheken- und Wechsel-Bank,
Aktiengesellschaft, New York Branch
By: /s/ Wolfgang H. Haugk
----------------------------------------
First Vice President
By: /s/ Wolfgang Novotny
----------------------------------------
Vice President
The Industrial Bank of Japan, Limited,
New York Branch
By: /s/ Takeshi Kawano
----------------------------------------
Senior Vice President
Istituto Bancario San Paolo di Torino S.p.A.
By: /s/ Cathy R. Lesse
----------------------------------------
Vice President
By: /s/ Robert Wurster
----------------------------------------
First Vice President
18
<PAGE>
- --------------------------------------------------------------------------------
Kredietbank N.V.
By: /s/ John F. Donohoe
----------------------------------------
Assistant Treasurer
By: /s/ Robert Snauffer
----------------------------------------
Vice President
National Australia Bank Limited
ACN 004044937
By: /s/ Michael G. McHugh
----------------------------------------
Vice President
The Northern Trust Company
By: /s/ Curtis C. Tatham, III
----------------------------------------
Commercial Banking Officer
The Sakura Bank, Limited New York Branch
By: /s/ Masahiro Nakajo
----------------------------------------
Senior Vice President & Manager
The Sanwa Bank, Limited, New York Branch
By: /s/ Jean-Michel Fatovic
----------------------------------------
Vice President
The Sumitomo Bank, Limited, New York Branch
By: /s/ Yoshinori Kawamura
----------------------------------------
Joint General Manager
19
<PAGE>
- --------------------------------------------------------------------------------
Union Bank of Switzerland
By: /s/ Mark T. Lancaster
----------------------------------------
Vice President
By: /s/ Richard W. Fortney
----------------------------------------
Managing Director
The Boatmen's National Bank of St. Louis
By: /s/ Timothy L. Drone
----------------------------------------
Vice President
The First National Bank of Maryland
By: /s/ Stewart T. Shettle
----------------------------------------
Vice President
Australia and New Zealand Banking Group Limited
By: /s/ Amit K. Walia
----------------------------------------
First Vice President
Bank Austria Aktiengesellschaft
By: /s/ Clark P. Davis
----------------------------------------
Vice President
By: /s/ J. Anthony Seay
----------------------------------------
Vice President
Branch Banking and Trust Co.
By: /s/ Allan M. Bookout
----------------------------------------
Vice President
20
<PAGE>
- --------------------------------------------------------------------------------
Banca Nazionale del Lavoro S.p.A. -- New
York Branch
By: /s/ Giulio Giovine
----------------------------------------
Vice President
By: /s/ Giuliano Violetta
----------------------------------------
First Vice President
CARIPLO-Cassa di Risparmio delle Provincie
Lombarde S.p.A., Grand Cayman Branch
By: /s/ Anthony F. Giobbi
----------------------------------------
Vice President
By: /s/ Renato Bassi
----------------------------------------
First Vice President
Compagnie Financiere de CIC et de l'Union
Europeenne
By: /s/ Dora DeBlasi Hyduk
----------------------------------------
Vice President
By: /s/ Eric Longuet
----------------------------------------
Vice President
Commerzbank AG
By: /s/ Jurgen Boysen
----------------------------------------
Senior Vice President
By: /s/ William M. Early
----------------------------------------
Vice President
21
<PAGE>
- --------------------------------------------------------------------------------
Banco di Napoli, S.p.A.
By: /s/ Vito Spada
----------------------------------------
Executive Vice President
By: /s/ Claude P. Mapes
----------------------------------------
First Vice President
The Mitsubishi Trust and Banking Corporation,
New York Branch
By: /s/ Patricia Loret de Mola
----------------------------------------
Senior Vice President
Banca Monte dei Paschi di Siena, S.p.A.,
New York Branch
By: /s/ S.M. Sondak
----------------------------------------
First Vice President &
Deputy General Manager
By: /s/ Brian R. Landy
----------------------------------------
Vice President
Standard Chartered Bank
By: /s/ Angela Perry
----------------------------------------
Senior Vice President
Svenska Handelsbanken
By: /s/ Geoffrey Walker
----------------------------------------
Senior Vice President
By: /s/ H.N. Bacon
----------------------------------------
Vice President
22
<PAGE>
- --------------------------------------------------------------------------------
Toronto-Dominion (New York), Inc.
By: /s/ Kimberly Burleson
----------------------------------------
Vice President
Bankers Trust Company
By: /s/ Robert P. Tinari
----------------------------------------
Managing Director
Banco Central Hispanoamericano S.A.
By: /s/ Louis Ferreira
----------------------------------------
Vice President
The Chase Manhattan Bank, N.A.
By: /s/ Robert J. Gould
----------------------------------------
Managing Director
Lloyds Bank Plc
By: /s/ Michael J. Gilligan
----------------------------------------
Vice President
By: /s/ Stephen J. Attree
----------------------------------------
Assistant Vice President
23
Exhibit 12.01
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In millions, except ratio)
Nine months ended
September 30,
---------------------
1996 1995
---- ----
Earnings before income taxes $1,081 $ 705
------ ------
Interest expense 1,095 1,029
Portion of rentals deemed
to be interest 44 42
------ ------
Total fixed charges 1,139 1,071
------ ------
Earnings before income taxes and
fixed charges $2,220 $1,776
====== ======
Ratio of earnings to fixed charges 1.95 1.66
====== ======
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
Exhibit 27.01
Smith Barney Holdings Inc. and Subsidiaries
Financial Data Schedule
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1996 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF SMITH BARNEY
HOLDINGS INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,387 <F1>
<RECEIVABLES> 7,307 <F2>
<SECURITIES-RESALE> 14,130
<SECURITIES-BORROWED> 9,018
<INSTRUMENTS-OWNED> 10,806
<PP&E> 445
<TOTAL-ASSETS> 45,985
<SHORT-TERM> 2,781
<PAYABLES> 3,779 <F3>
<REPOS-SOLD> 18,683
<SECURITIES-LOANED> 4,650
<INSTRUMENTS-SOLD> 6,812
<LONG-TERM> 2,271 <F4>
0 <F5>
0 <F5>
<COMMON> 0 <F5>
<OTHER-SE> 2,635 <F6>
<TOTAL-LIABILITY-AND-EQUITY> 45,985
<TRADING-REVENUE> 786
<INTEREST-DIVIDENDS> 1,396
<COMMISSIONS> 1,680
<INVESTMENT-BANKING-REVENUES> 864
<FEE-REVENUE> 991
<INTEREST-EXPENSE> 1,095
<COMPENSATION> 2,655
<INCOME-PRETAX> 1,081
<INCOME-PRE-EXTRAORDINARY> 1,081
<EXTRAORDINARY> 0 <F5>
<CHANGES> 0 <F5>
<NET-INCOME> 659
<EPS-PRIMARY> 0 <F5>
<EPS-DILUTED> 0 <F5>
<FN>
<F1> Includes the following items from the financial statements: Cash and
cash equivalents $264; Cash segregated and on deposit for Federal and
other regulations $1,123.
<F2> Includes the following items from the financial statements: Receivable
from brokers and dealers $742; Receivable from customers $6,565.
<F3> Includes the following items from the financial statements: Payable to
brokers and dealers $204; Payable to customers $3,575.
<F4> Includes the following items from the financial statements: Notes
payable $2,026; Subordinated indebtedness $245.
<F5> Items which are inapplicable relative to the underlying financial
statements are indicated with a zero as required.
<F6> Includes the following items from the financial statements: Additional
paid-in capital $1,803; Retained earnings $827; Cumulative translation
adjustment $5.
</FN>
</TABLE>
Exhibit 99.01
Company's Form 8-K
November 9, 1993
Page 2
In October 1993, several purported class action lawsuits were filed in the
Federal District Court for the Southern District of New York naming Smith
Barney, Harris Upham & Co. Incorporated ("SBS") as defendant. The cases arise
from SBS's participation as lead or co-underwriter in the initial public
offerings of three separate funds managed by Hyperion Capital Management Inc.
The plaintiffs have also named as defendants the funds' directors and the
co-underwriters and their representatives. Plaintiffs allege that the
registration statements and prospectuses by which the offerings were made
between June 1992 and October 1992 were materially false and misleading, and are
seeking unspecified damages in claims brought under the Federal securities laws.
The Company believes it has meritorious defenses to these actions and intends to
defend against them vigorously.
<PAGE>
Company's Form 10-K
December 31, 1995
Page 10
For information concerning several purported class action lawsuits filed
against SBI in connection with three funds managed by Hyperion Capital
Management Inc., see the description that appears in the third paragraph on page
2 of the Company's Current Report on Form 8-K dated November 9, 1993, which
description is incorporated by reference herein. A copy of the pertinent
paragraph of such filing is included as an exhibit to this Form 10-K. The
actions were consolidated under the title In re: Hyperion Securities Litigation.
SBI's motion to dismiss the claims was granted in July 1995. In August 1995, an
appeal was filed in the U.S. Court of Appeals for the Second Circuit.
Exhibit 99.02
Company's Form 10-Q
September 30, 1994
Page 16
Item 1. Legal Proceedings.
Two purported class actions were filed in October 1994 against Greyhound
Bus Lines, Inc. ("Greyhound"), various of its officers and directors and SBI and
one of its managing directors, in the United States District Court for the
Northern District of Texas. The plaintiffs purport to represent purchasers of
senior notes, subordinated covertible debentures and common stock of Greyhound.
SBI was lead manager or co-lead manager on the underwritng of certain of these
securities. The actions allege, among other things, that the prospectuses and
other public statements contained inaccurate statements relating to Greyhound's
financial prospects. The plaintiffs are seeking money damages in an unspecified
amount. The Company is reviewing the allegations, believes that it has
meritorious defenses and intends to vigorously defend against these actions.
<PAGE>
Company's Form 10-K
December 31, 1995
Page 10
For information concerning two purported class actions filed in October
1994 in connection with certain public offering documents of Greyhound Bus
Lines, Inc., see the description that appears in the second paragraph of page 16
of the Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 1994, which description is incorporated by reference herein. A copy of the
pertinent paragraph is included as an exhibit to this Form 10-K. An amended
complaint was filed in July 1995, and the defendants filed a motion to dismiss
in September 1995. A motion to certify this matter as a class action was filed
in January 1996.
