<PAGE> 1
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 JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
---- ----
COMMISSION FILE NUMBER 1-12484
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> 2
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I. FINANCIAL INFORMATION Page Number
--------------------- -----------
<S> <C> <C>
Item 1. Financial Statements:
Condensed Consolidated Statements of Operations
(Unaudited) - Three and Six Months Ended June 30, 1997 and 1996 1
Condensed Consolidated Statements of Financial Condition -
June 30, 1997 (Unaudited) and December 31, 1996 2
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Six Months Ended June 30, 1997 and 1996 3 - 4
Notes to Condensed Consolidated Financial Statements (Unaudited) 5 - 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 15
Part II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16 - 17
Exhibit Index 18
Signatures 19
</TABLE>
<PAGE> 3
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------ ------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Commissions $ 576 $ 577 $1,183 $1,182
Principal transactions 250 265 514 543
Investment banking 254 299 518 576
Asset management and administration fees 386 331 762 648
Other 26 29 52 57
------ ------ ------ ------
Total non-interest revenues 1,492 1,501 3,029 3,006
------ ------ ------ ------
Interest and dividends 599 463 1,160 908
Interest expense 482 363 926 713
------ ------ ------ ------
Net interest and dividends 117 100 234 195
------ ------ ------ ------
Net revenues 1,609 1,601 3,263 3,201
------ ------ ------ ------
Expenses, excluding interest:
Employee compensation and benefits 897 898 1,812 1,811
Communications 72 74 145 148
Occupancy and equipment 66 65 129 130
Floor brokerage and other production 41 35 84 74
Other operating and administrative expenses 145 155 306 298
------ ------ ------ ------
Total expenses, excluding interest 1,221 1,227 2,476 2,461
------ ------ ------ ------
Income before provision for income taxes 388 374 787 740
Provision for income taxes 157 145 318 288
------ ------ ------ ------
Net income $ 231 $ 229 $ 469 $ 452
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated financial statements.
1
<PAGE> 4
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1997 1996
------ ----------- ------------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 232 $ 405
Cash segregated and on deposit for Federal and other regulations
and deposits with clearing organizations 1,421 1,384
Securities purchased under agreements to resell 14,610 16,345
Deposits paid for securities borrowed 13,340 8,935
Receivables:
Customers 7,561 6,981
Brokers and dealers 946 323
Other 762 1,698
Securities owned, at market value 14,014 12,465
Property, equipment and leasehold improvements, at cost, net of
accumulated depreciation and amortization of $262 and $242, respectively 450 438
Excess of purchase price over fair value of net assets acquired, net of
accumulated amortization of $74 and $70, respectively 274 278
Other assets 2,127 1,981
------- -------
$55,737 $51,233
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
Commercial paper and other short-term borrowings $ 4,268 $ 3,217
Securities sold under agreements to repurchase 19,479 19,637
Deposits received for securities loaned 6,431 4,034
Payables:
Customers 4,784 5,588
Brokers and dealers 258 221
Other 2,779 2,500
Securities sold not yet purchased, at market value 9,640 8,378
Notes payable 2,735 2,379
Accounts payable and accrued liabilities 2,148 2,295
Subordinated indebtedness 224 226
------- -------
52,746 48,475
------- -------
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 1,183 951
Cumulative translation adjustment 5 4
------- -------
2,991 2,758
------- -------
$55,737 $51,233
======= =======
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated financial statements.
2
<PAGE> 5
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
Six months ended
June 30,
--------------------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 469 $ 452
Adjustments to reconcile net income to cash
used in operating activities:
Depreciation and amortization 102 91
Deferred tax provision 7 2
(Increase) decrease in operating assets:
Cash segregated and on deposit for Federal
and other regulations and deposits with clearing organizations (37) 22
Securities purchased under agreements to resell 1,735 (374)
Deposits paid for securities borrowed (4,405) (1,271)
Receivable from customers (580) (721)
Receivable from brokers and dealers (623) 64
Securities owned, at market value (1,549) (1,867)
Other assets 766 807
Increase (decrease) in operating liabilities:
Securities sold under agreements to repurchase (158) 1,254
Deposits received for securities loaned 2,397 273
Payable to customers (804) (830)
Payable to brokers and dealers 37 (80)
Securities sold not yet purchased, at market value 1,262 1,719
Accounts payable and accrued liabilities 131 (37)
------- -------
Cash used in operating activities (1,250) (496)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, equipment and leasehold improvements (71) (43)
Other (20) (55)
------- -------
Cash used in investing activities (91) (98)
------- -------
</TABLE>
(continued on next page)
3
<PAGE> 6
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN MILLIONS)
(CONTINUED)
<TABLE>
<CAPTION>
Six months ended
June 30,
------------------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from commercial paper
and other short-term borrowings, net $ 1,051 $ 528
Proceeds from notes payable 541 250
Repayments of notes payable (200) (150)
Proceeds from subordinated indebtedness 26
Repayments of subordinated indebtedness (2) (4)
Dividends paid (222) (409)
------- -----
Cash provided by financing activities 1,168 241
------- -----
Net change in cash and cash equivalents (173) (353)
Cash and cash equivalents, beginning of period 405 612
------- -----
Cash and cash equivalents, end of period $ 232 $ 259
======= =====
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 896 $ 706
======= =====
Income taxes $ 276 $ 243
======= =====
Dividends declared but not paid $ 114 $ 175
======= =====
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated financial statements.
4
<PAGE> 7
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN MILLIONS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of Smith Barney Holdings Inc. ("SBH") and its subsidiaries
(collectively the "Company"). SBH is a wholly owned subsidiary of Travelers
Group Inc. 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, 1996.
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.
ACCOUNTING PRONOUNCEMENTS
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 an 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 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 issued Statement of Financial
Accounting Standards No. 127 which delays until January 1, 1998 the effective
date of certain provisions. Earlier or retroactive application is not permitted.
The adoption of the provisions of this Statement effective January 1, 1997 did
not have a material impact on the results of operations, financial condition or
liquidity of the Company. The Company is currently evaluating the impact of the
provisions whose effective date has been delayed until January 1, 1998.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, Reporting Comprehensive Income and Statement of Financial Accounting
Standards No. 131, Disclosure about Segments of an Enterprise and Related
Information. The impact of adopting these pronouncements will not be material to
the Company.
5
<PAGE> 8
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN MILLIONS)
2. SECURITIES, AT MARKET VALUE
---------------------------
Securities consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
Securities owned 1997 1996
- ---------------- -------- ------------
<S> <C> <C>
U.S. Government and agencies obligations $ 7,641 $ 6,564
Corporate debt 2,688 2,841
Commercial paper and other short-term debt 1,164 958
State and municipal obligations 903 818
Corporate convertibles, equities and other securities 1,618 1,284
------- -------
$14,014 $12,465
======= =======
</TABLE>
<TABLE>
<CAPTION>
June 30, December 31,
Securities sold not yet purchased 1997 1996
- --------------------------------- -------- ------------
<S> <C> <C>
U.S. Government and agencies obligations $ 8,219 $ 7,388
Corporate convertibles and equities 451 379
Corporate debt and other securities 970 611
------- -------
$ 9,640 $ 8,378
======= =======
</TABLE>
3. COMMERCIAL PAPER AND OTHER SHORT-TERM BORROWINGS
------------------------------------------------
Commercial paper and other short-term borrowings include commercial paper and
bank loans and other borrowings used to finance operations, including the
securities settlement process. The bank loans and other borrowings bear interest
at variable rates based primarily on the Federal Funds interest rate. SBH and
Smith Barney have commercial paper programs that consist of both discounted and
interest-bearing paper.
Commercial paper and other short-term borrowings consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- ------------
<S> <C> <C>
Commercial paper $ 4,116 $ 3,028
Bank loans and other borrowings 152 189
------- -------
$ 4,268 $ 3,217
======= =======
</TABLE>
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.
6
<PAGE> 9
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:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- ------------
<S> <C> <C>
6% Notes due 1997 $ 200
5 5/8% Notes due 1998 $ 150 150
5 1/2% Notes due 1999 200 200
6.98% Notes due 1999 25
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 250 250
S&P 500 Equity Linked Notes due 2001 53 44
S&P 500 Equity Linked Notes due 2002 72
6 1/2% Notes due 2002 150 150
7.50% Notes due 2002 150 150
6 5/8% Notes due 2003 200 200
7% Notes due 2004 250
6 7/8% Notes due 2005 175 175
7 1/8% Notes due 2006 200 200
7 3/8% Notes due 2007 200
Other 10 10
------ ------
$2,735 $2,379
====== ======
</TABLE>
The Company has a $1,250 revolving credit agreement with a bank syndicate that
extends through May 2000. The Company also has a $750 364-day revolving credit
agreement that extends through May 1998. As of June 30, 1997, there were no
borrowings outstanding under either of these agreements.
Subordinated indebtedness consists of deferred compensation of $224 and $226 at
June 30, 1997 and December 31, 1996, respectively. These deferred compensation
plans have various maturities, primarily ranging from 1997 to 2000, with
interest accrued based on the 30-day Treasury Bill rate.
The Company is limited as to the amount of dividends that may be paid to
Travelers Group Inc. The amount of dividends varies based upon, among other
things, levels of net income of the Company. At June 30, 1997, the Company
would have been able to remit approximately $779 to Travelers Group Inc. under
its most restrictive covenants.
5. DERIVATIVE FINANCIAL INSTRUMENTS
--------------------------------
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 on specified future dates. A derivative contract may be traded on
an exchange or over-the-counter ("OTC"). Exchange-traded derivatives are
standardized and include futures and interest rate, equity and currency option
contracts. OTC derivative contracts are negotiated between contracting parties
and include forwards, swaps and certain options, including interest rate caps,
floors and swaptions.
7
<PAGE> 10
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN MILLIONS)
5. DERIVATIVE FINANCIAL INSTRUMENTS (CONT'D)
-----------------------------------------
Derivative and non-derivative (or cash) financial instruments are subject to
similar market and credit risks. The Company uses cash and derivative financial
instruments in the normal course of its business primarily to facilitate
customer transactions, and to manage exposure from loss due to interest rate,
currency and market risk and in its proprietary activities. The risks of
derivatives should not be viewed in isolation but rather should be considered on
an aggregate basis along with risks related to the Company's non-derivative
trading and other activities.
The Company's derivative contracts are generally short-term, with a weighted
average maturity of approximately 9 months at June 30, 1997, and 7 1/2 months at
December 31, 1996. 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.
<TABLE>
<CAPTION>
Notional/Contract Amount
June 30, 1997 December 31, 1996
------------- -----------------
Purchase Sale Purchase Sale
-------- ---- -------- ----
<S> <C> <C> <C> <C>
Mortgage-backed contracts (TBA) $11,271 $12,058 $10,997 $11,490
Forward contracts:
Foreign currency $18,114 $17,561 $13,081 $14,174
Precious metals 456 457 359 359
Interest rate and other 805 150
Futures contracts:
Foreign currency $ 421 $ 1,291 $ 1,469 $ 520
Financial 841 2,701 467 3,110
Commodities 3 3 11
</TABLE>
<TABLE>
<CAPTION>
Held Written Held Written
---- ------- ---- -------
<S> <C> <C> <C> <C>
Options:
OTC foreign currency $15,784 $15,685 $ 5,849 $ 5,511
Exchange-traded, interest rate 2,966 856 1,230 1,058
Exchange-traded, other 663 622 65 70
Interest rate caps,
floors and swaptions 3,601 5,570 2,035 2,571
OTC debt and equity 1,090 1,409 756 682
</TABLE>
<TABLE>
<CAPTION>
Open Contracts Open Contracts
-------------- --------------
<S> <C> <C>
Interest rate swaps $ 8,942 $ 5,393
</TABLE>
8
<PAGE> 11
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN MILLIONS)
5. DERIVATIVE FINANCIAL INSTRUMENTS (CONT'D)
-----------------------------------------
At June 30, 1997 and December 31, 1996, approximately $9,484 and $9,005,
respectively, of TBA purchase and sale contracts represented offsetting
purchases and sales of the same security, and substantially all of the total
contract values were for settlement within 60 days.
In its role as a market intermediary, the Company acts as a principal in foreign
currency forward and options contracts. These transactions expose the firm to
foreign exchange rate risk, which is generally hedged by entering into foreign
currency forward, futures and options contracts with inverse market risk
profiles. Written OTC foreign currency options consist of $7,041 and $8,644 of
put and call contracts, respectively, at June 30, 1997 and $2,373 and $3,138 of
put and call contracts, respectively, at December 31, 1996. The Company's
foreign currency forward, futures and options contracts are generally
short-term, with a weighted average maturity of approximately 80 days at June
30, 1997 and December 31, 1996.
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
-----------------------------
At June 30, 1997 and December 31, 1996, respectively, the Company borrowed
securities having a market value of $773 and $2,085, against which it pledged
securities having a market value of $792 and $2,132.
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 June 30, 1997 and December 31, 1996 was $564
and $438, respectively.
At June 30, 1997 and December 31, 1996, the Company had outstanding forward
repurchase agreements totaling $500 and $725, respectively, and forward reverse
repurchase agreements totaling $275 and $500, respectively. These commitments
represent forward financing transactions with agreed upon interest rates,
principal amounts and delivery dates.
In the opinion of management, commitments outstanding will settle without a
material adverse effect on the financial position, liquidity 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
addition, from time to time the Company is a party to examinations and inquiries
by various regulatory and self-regulatory bodies. In the opinion of management,
based on consultation with legal counsel, these matters would not be likely to
have a material adverse effect on the results of operations, financial position
or liquidity of the Company.
9
<PAGE> 12
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN MILLIONS)
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 (included in securities borrowed), which together
represented 35% of total assets at June 30, 1997, 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
June 27, 1997, Smith Barney's net capital of $1,300 was 15% of aggregate debit
items and exceeded the minimum requirement by $1,122.
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 June 27, 1997, RH Co.'s net capital, as defined, of $77
exceeded the minimum requirement by $76.
Smith Barney Europe, Ltd. ("Smith Barney Europe"), a United Kingdom registered
broker-dealer and a wholly owned subsidiary of SBH, 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 June 27, 1997, Smith Barney Europe's financial resources of $127 exceeded the
minimum requirement by $91.
10
<PAGE> 13
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 AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Despite a difficult trading and underwriting environment in April, the Company
reported earnings of $231 million for the three months ended June 30, 1997 (the
"1997 Quarter") up slightly from the $229 million reported for the three months
ended June 30, 1996 (the "1996 Quarter") and less than 3% below the record 1997
first quarter. Return on equity was 31.5% in the 1997 Quarter, compared to 36.6%
in the 1996 Quarter. Pre-tax profit margin increased to 24.1% in the 1997
Quarter from 23.4% in the 1996 Quarter. Revenues, net of interest expense,
increased to $1,609 million in the 1997 Quarter from $1,601 million in the 1996
Quarter. Annualized retail gross production per Financial Consultant declined 3%
to $358,000 in the 1997 Quarter, from $369,000 in the 1996 Quarter.
The Company reported net income of $469 million for the six months ended June
30, 1997 (the "1997 Period"), an increase of 4% from the $452 million reported
for the six months ended June 30, 1996 (the "1996 Period"). Return on equity was
32.6% in the 1997 Period compared to 36.3% in the 1996 Period. Pre-tax profit
margin increased to 24.1% in the 1997 Period compared to 23.1% in the 1996
Period. Revenues, net of interest expense, increased 2% to $3,263 million in the
1997 Period compared to $3,201 million in the 1996 Period. Annualized retail
gross production per Financial Consultant increased 2% to $375,000 in the 1997
Period, from $366,000 in the 1996 Period.
Commission revenues were $576 million in the 1997 Quarter, compared to $577
million in the 1996 Quarter, as declines in mutual funds and over-the-counter
securities commissions were offset by an increase in listed securities
commissions. Commission revenues were $1,183 million in the 1997 Period compared
to $1,182 in the 1996 Period. Commission revenues were composed of the
following:
<TABLE>
<CAPTION>
Three Six
Months Ended Months Ended
June 30, June 30,
---------------- ------------------
(in millions) 1997 1996 1997 1996
- ------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Listed & over-the-counter $402 $400 $ 830 $ 818
Mutual funds 92 99 193 206
Other 82 78 160 158
---- ---- ------ ------
Total commission revenues $576 $577 $1,183 $1,182
==== ==== ====== ======
</TABLE>
11
<PAGE> 14
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Principal transactions revenues were $250 million in the 1997 Quarter, down 6%
from the $265 million reported in the 1996 Quarter. This decrease is a result of
a decline in equity and municipal trading, offset to an extent by an increase in
taxable fixed income trading. Overall, principal transactions revenues decreased
5% to $514 million in the 1997 Period compared to $543 million in the 1996
Period. This decrease is a result of a decline in equity and taxable fixed
income trading. Principal transactions revenues were composed of the following:
<TABLE>
<CAPTION>
Three Six
Months Ended Months Ended
June 30, June 30,
---------------- ----------------
(in millions) 1997 1996 1997 1996
- ------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Equities $107 $135 $228 $268
Taxable fixed income 73 64 149 157
Municipals 50 54 96 95
Foreign exchange, derivative and
other financial instruments 20 12 41 23
---- ---- ---- ----
Total principal transactions revenues $250 $265 $514 $543
==== ==== ==== ====
</TABLE>
Investment banking revenues were $254 million in the 1997 Quarter, down 15% from
$299 million in the 1996 Quarter, primarily due to a decline in equity
underwriting revenues. Investment banking revenues declined 10% to $518 million
in the 1997 Period compared to $576 million in the 1996 Period. Also
contributing to the decline in the 1997 Period was a decrease in merger and
acquistion advisory activity.
Asset management and administration fees rose to a record $386 million in the
1997 Quarter, an increase of 17% from the $331 million reported in the 1996
Quarter. This increase reflects broad growth in all recurring fee-based
products, led by a 25% increase in managed accounts, a 19% increase in
Consulting Group revenues and a 10% increase in money market and mutual fund
revenues. At June 30, 1997, internally managed assets reached a record $124.3
billion, and total fee-based assets under management were a record $177.4
billion compared to $103.8 billion and $143.5 billion, respectively, at June 30,
1996. Asset management fees increased 18% to $762 million in the 1997 Period
compared to $648 million in the 1996 Period.
Asset management and administration fees were composed of the following:
<TABLE>
<CAPTION>
Three Six
Months Ended Months Ended
June 30, June 30,
---------------- ----------------
(in millions) 1997 1996 1997 1996
- ------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Money market and mutual funds $155 $142 $309 $282
Managed accounts 97 78 189 149
Consulting Group externally managed assets 134 111 264 217
---- ---- ---- ----
Total asset management and administration fees $386 $331 $762 $648
==== ==== ==== ====
</TABLE>
12
<PAGE> 15
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Total assets under fee-based management were composed of the following:
<TABLE>
<CAPTION>
As of June 30,
---------------------
(in billions) 1997 1996
- ------------- ------ ------
<S> <C> <C>
Money market funds $ 43.8 $ 38.5
Mutual funds 37.7 33.1
Managed accounts 33.0 25.5
Financial Consultant managed accounts 9.8 6.7
------- -------
Total internally managed assets 124.3 103.8
------- -------
Consulting Group externally managed assets 53.1 39.7
------- -------
Total fee-based assets under management $ 177.4 $ 143.5
======= =======
</TABLE>
Net interest and dividends increased 17% to $117 million in the 1997 Quarter
from $100 million in the 1996 Quarter, primarily due to increased margin lending
to clients and higher levels of interest-earning net assets. Net interest and
dividends increased 20% to $234 million in the 1997 Period compared to $195
million in the 1996 Period.
Total expenses, excluding interest, decreased slightly to $1,221 million in the
1997 Quarter from $1,227 million in the 1996 Quarter. Employee compensation and
benefits expense, as a percentage of net revenues, in the 1997 Quarter declined
to 55.7% from 56.1% in the 1996 Quarter and the ratio of non-compensation
expenses to net revenues was 20.1% in the 1997 Quarter compared to 20.6% in the
1996 Quarter. The Company continues to maintain its focus on controlling fixed
expenses.
Total expenses, excluding interest, were $2,476 million in the 1997 Period
compared to $2,461 million in the 1996 Period. Employee compensation and
benefits expense as a percentage of net revenues in the 1997 Period declined to
55.5% compared to 56.6% in the 1996 Period and the ratio of non-compensation
expenses to net revenues stood at 20.3% in each of the 1997 and 1996 Periods.
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 businesses. The Company's asset management business 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.
13
<PAGE> 16
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
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, medium and
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 June 30, 1997, there was $2 billion 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 June 30, 1997, total long-term public debt was $2,700 million, compared to
total long-term public debt of $2,369 million at December 31, 1996. On July 9,
1997, the Company issued $250 million aggregate principal amount of 6 5/8% Notes
due July 1, 2002. As of August 11, 1997, the Company had $750 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.
14
<PAGE> 17
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 June 30, 1997 and December 31, 1996
was 18.6x.
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 Company's 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 $55.7 billion at
June 30, 1997 from $51.2 billion at December 31, 1996. Securities owned at
market value increased due to trading activities, primarily in U.S. Government
and agency 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. Deposits paid for
securities borrowed and deposits received for securities loaned were impacted by
higher levels of "conduit" transactions, as well as increased business volume
related to the revision of the securities borrowing provisions of Federal
Reserve Board Regulation T.
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.
15
<PAGE> 18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
For information concerning several purported class action lawsuits
filed against Smith Barney Inc. 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, the second paragraph on page 10 of the Company's Annual Report on Form
10-K for the year ended December 31, 1995, the first paragraph on page 19 of the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1996, the fourth full paragraph on page 10 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1996 and the first paragraph on page
18 of the Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1997, 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 June 1997, the U.S. Supreme Court denied plaintiffs' petition for
certiorari.
For information concerning two purported class actions filed in
October 1994 and one purported class action filed in October 1996 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, the
fourth paragraph on page 10 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1995, the second paragraph on page 19 of the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 and the
fifth full paragraph on page 10 of the Company's Annual Report on Form 10-K for
the year ended December 31, 1996, 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 April 1997, the Company's plea and abatement
in Clarkson v. Greyhound Lines, Inc., et al. was denied.
For information concerning a complaint seeking equitable relief that
was filed by the U.S. Department of Justice, naming 24 major brokerage firms,
including Smith Barney Inc., see the description that appears in the second
paragraph on page 2 of the Company's Current Report on Form 8-K, dated August 7,
1996 (filed August 7, 1996), 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-Q. In April 1997, the U.S. District Court for the
Southern District of New York approved the settlement previously agreed to by
the parties. In May 1997, plaintiffs in the related civil action challenged
certain provisions of the settlement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
See Exhibit Index.
(b) Reports on Form 8-K:
On May 16, 1997, the Company filed a Current Report on Form
8-K, dated May 14, 1997, filing certain exhibits under Item 7 thereof relating
to the offer and sale of the Company's 7 3/8% Notes due May 15, 2007.
16
<PAGE> 19
No other reports on Form 8-K have been filed by the Company
during the quarter ended June 30, 1997; however the following reports on Form
8-K have been filed by the Company subsequent to the quarter ended June 30,
1997:
On July 11, 1997, the Company filed a Current Report on Form
8-K, dated July 9, 1997, filing certain exhibits under Item 7 thereof relating
to the offer and sale of the Company's 6 5/8% Notes due July 1, 2002.
On July 15, 1997, the Company filed a Current Report on Form
8-K, dated July 15, 1997, reporting under Item 5 thereof the results of its
operations for the three months and six months ended June 30, 1997, and certain
additional financial information.
On July 25, 1997, the Company filed a Current Report on Form
8-K, dated July 24, 1997, filing certain exhibits under Item 7 thereof relating
to commencement of the program for the Company's Medium-Term Notes, Third
Series, Due Nine Months or More from Date of Issue.
17
<PAGE> 20
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.
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, the second
paragraph on page 10 of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995
(the "Company's 1995 10-K"), the first paragraph on page
19 of the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended September 30, 1996, the fourth
full paragraph on page 10 of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996
(the "Company's 1996 10-K") and the first paragraph on
page 18 of the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended March 31,1997.
99.02 The second paragraph on page 16 of the Company's Electronic
Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1994, the fourth paragraph on page
10 of the Company's 1995 10-K the second paragraph on
page 19 of the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended September 30, 1996 and the
fifth full paragraph on page 10 of the Company's 1996
10-K.
99.03 The second paragraph on page 2 of the Company's Current Electronic
Report on Form 8-K, dated August 7, 1996 (filed August
7, 1996).
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.
18
<PAGE> 21
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: August 12, 1997 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
19
<PAGE> 22
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.
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, the second
paragraph on page 10 of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995
(the "Company's 1995 10-K"), the first paragraph on page
19 of the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended September 30, 1996, the fourth
full paragraph on page 10 of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996
(the "Company's 1996 10-K") and the first paragraph on
page 18 of the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended March 31,1997.
99.02 The second paragraph on page 16 of the Company's Electronic
Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1994, the fourth paragraph on page
10 of the Company's 1995 10-K the second paragraph on
page 19 of the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended September 30, 1996 and the
fifth full paragraph on page 10 of the Company's 1996
10-K.
99.03 The second paragraph on page 2 of the Company's Current Electronic
Report on Form 8-K, dated August 7, 1996 (filed August
7, 1996).
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.
<PAGE> 1
EXHIBIT 12.01
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN MILLIONS, EXCEPT RATIO)
<TABLE>
<CAPTION>
Six months ended
June 30,
------------------
1997 1996
---- ----
<S> <C> <C>
Earnings before income taxes $ 787 $ 740
------ ------
Interest expense 926 713
Portion of rentals deemed to be interest 28 29
------ ------
Total fixed charges 954 742
------ ------
Earnings before income taxes and fixed charges $1,741 $1,482
====== ======
Ratio of earnings to fixed charges 1.82x 2.00x
</TABLE> ====== ======
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1997 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF SMITH BARNEY HOLDINGS INC.
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FIANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000911562
<NAME> SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> $ 1,653<F1>
<RECEIVABLES> 9,269<F2>
<SECURITIES-RESALE> 14,610
<SECURITIES-BORROWED> 13,340
<INSTRUMENTS-OWNED> 14,014
<PP&E> 450
<TOTAL-ASSETS> 55,737
<SHORT-TERM> 4,268
<PAYABLES> 7,821<F3>
<REPOS-SOLD> 19,479
<SECURITIES-LOANED> 6,431
<INSTRUMENTS-SOLD> 9,640
<LONG-TERM> 2,959<F4>
0<F5>
0<F5>
<COMMON> 0<F5>
<OTHER-SE> 2,991<F6>
<TOTAL-LIABILITY-AND-EQUITY> 55,737
<TRADING-REVENUE> 514
<INTEREST-DIVIDENDS> 1,160
<COMMISSIONS> 1,183
<INVESTMENT-BANKING-REVENUES> 518
<FEE-REVENUE> 762
<INTEREST-EXPENSE> 926
<COMPENSATION> 1,812
<INCOME-PRETAX> 787
<INCOME-PRE-EXTRAORDINARY> 787
<EXTRAORDINARY> 0<F5>
<CHANGES> 0<F5>
<NET-INCOME> 469
<EPS-PRIMARY> 0<F5>
<EPS-DILUTED> 0<F5>
<FN>
<F1>INCLUDES THE FOLLOWING ITEMS FROM THE FINANCIAL STATEMENTS: CASH AND CASH
EQUIVALENTS $232; CASH SEGREGATED AND ON DEPOSITS FOR FEDERAL AND OTHER
REGULATIONS AND DEPOSITS WITH CLEARING ORGANIZATIONS $1,421.
<F2>INCLUDES THE FOLLOWING ITEMS FROM THE FINANCIAL STATEMENTS: RECIEVABLE FROM
BROKERS AND DEALERS $946; RECEIVABLE FROM CUSTOMERS $7,561; OTHER RECEIVABLES
$762.
<F3>INCLUDES THE FOLLOWING ITEMS FROM THE FINANCIAL STATEMENTS: PAYABLE TO BROKERS
AND DEALERS $258; PAYABLE TO CUSTOMERS $4,784; OTHER PAYABLES $2,779.
<F4>INCLUDES THE FOLLOWING ITEMS FROM THE FINANCIAL STATEMENTS: NOTES PAYABLE
$2,735; SUBORDINATED INDEBTEDNESS $224.
<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 $1,183; CUMULATIVE TRANSLATION ADJUSTMENT $5.
</FN>
</TABLE>
<PAGE> 1
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> 2
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.
<PAGE> 3
Company's Form 10-Q
September 30, 1996
Page 19
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.
<PAGE> 4
Company's Form 10-K
December 31, 1996
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, the second
paragraph on page 10 of the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 and the first paragraph on page 19 of the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, 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-K.
Plaintiffs' petition for a rehearing en banc was denied in January 1997.
<PAGE> 5
Company's Form 10-Q
March 31, 1997
Page 18
ITEM 1. LEGAL PROCEEDINGS.
For information concerning several purported class action lawsuits
filed against Smith Barney Inc. 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, the second paragraph on page 10 of the Company's Annual Report on Form
10-K for the year ended December 31, 1995, the first paragraph on page 19 of the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996
and the fourth full paragraph on page 10 of the Company's Annual Report on Form
10-K for the year ended December 31, 1996, 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 March 1997, plaintiffs filed a
petition for certiorari with the U.S. Supreme Court.
<PAGE> 1
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 convertible debentures and common stock
of Greyhound. SBI was lead manager or co-lead manager on the underwriting 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> 2
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.
<PAGE> 3
Company's Form 10-Q
September 30, 1996
Page 19
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.
<PAGE> 4
Company's Form 10-K
December 31, 1996
Page 10
For information concerning two purported class actions filed in October
1994 and one purported class action filed in October 1996 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, the
fourth paragraph on page 10 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1995 and the second paragraph on page 19 of the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1996, 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-K. In December 1996, the Company filed a plea and abatement in Clarkson v.
Greyhound Lines, Inc., et al.
<PAGE> 1
Exhibit 99.03
Company's Form 8-K
August 7, 1996
Page 2
In July 1996, a complaint seeking equitable relief was filed in the
U.S. District Court for the Southern District of New York by the U.S. Department
of Justice, naming twenty-four major brokerage firms, including the Company's
subsidiary Smith Barney Inc., as defendants. A proposed settlement has been
agreed to by the parties, subject to approval of the court. Pursuant to this
settlement, the defendants, without admitting any liability, would agree not to
engage in certain practices relating to the quoting of Nasdaq securities and
would further agree to implement a program to ensure compliance with federal
antitrust laws and with the terms of the settlement. No monetary fines or
penalties are imposed as part of the settlement.
