<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 SEPTEMBER 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 SEPTEMBER 30, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I. FINANCIAL INFORMATION Page Number
-----------
<S> <C>
Item 1. Financial Statements:
Condensed Consolidated Statements of Operations
(Unaudited) - Three and Nine Months Ended September 30, 1997 and 1996 1
Condensed Consolidated Statements of Financial Condition -
September 30, 1997 (Unaudited) and December 31, 1996 2
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Nine Months Ended September 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 - 16
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 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 Nine months ended
September 30, September 30,
------------------ -----------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues:
Commissions $ 677 $ 498 $1,860 $1,680
Principal transactions 252 243 766 786
Investment banking 364 288 882 864
Asset management and administration fees 433 343 1,195 991
Other 28 22 80 79
------ ------ ------ ------
Total non-interest revenues 1,754 1,394 4,783 4,400
------ ------ ------ ------
Interest and dividends 627 488 1,787 1,396
Interest expense 496 382 1,422 1,095
------ ------ ------ ------
Net interest and dividends 131 106 365 301
------ ------ ------ ------
Net revenues 1,885 1,500 5,148 4,701
------ ------ ------ ------
Expenses, excluding interest:
Employee compensation and benefits 1,034 844 2,846 2,655
Communications 75 77 220 225
Occupancy and equipment 66 65 195 195
Floor brokerage and other production 44 37 128 111
Other operating and administrative expenses 159 136 465 434
------ ------ ------ ------
Total expenses, excluding interest 1,378 1,159 3,854 3,620
------ ------ ------ ------
Income before provision for income taxes 507 341 1,294 1,081
Provision for income taxes 206 134 524 422
------ ------ ------ ------
Net income $ 301 $ 207 $ 770 $ 659
====== ====== ====== ======
</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>
September 30, December 31,
ASSETS 1997 1996
------------- ------------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 268 $ 405
Cash and securities segregated for Federal and other regulations
or deposited with clearing organizations 1,642 1,384
Securities purchased under agreements to resell 18,787 16,345
Deposits paid for securities borrowed 13,542 8,935
Receivables:
Customers 7,908 6,981
Brokers and dealers 221 323
Other 1,000 1,698
Securities owned, at market value 15,518 12,465
Property, equipment and leasehold improvements, at cost, net of
accumulated depreciation and amortization of $279 and $242, respectively 487 438
Excess of purchase price over fair value of net assets acquired, net of
accumulated amortization of $76 and $70, respectively 272 278
Other assets 2,218 1,981
------- -------
$61,863 $51,233
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Commercial paper and other short-term borrowings $ 5,083 $ 3,217
Securities sold under agreements to repurchase 20,874 19,637
Deposits received for securities loaned 7,785 4,034
Payables:
Customers 4,894 5,588
Brokers and dealers 1,326 221
Other 3,015 2,500
Securities sold not yet purchased, at market value 9,989 8,378
Notes payable 3,018 2,379
Accounts payable and accrued liabilities 2,518 2,295
Subordinated indebtedness 222 226
------- -------
58,724 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 1,333 951
Cumulative translation adjustment 3 4
------- -------
3,139 2,758
------- -------
$61,863 $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>
Nine months ended
September 30,
-------------------
1997 1996
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 770 $ 659
Adjustments to reconcile net income to cash provided by
(used in) operating activities:
Depreciation and amortization 158 138
Deferred tax (benefit) provision (33) 14
(Increase) decrease in operating assets:
Cash and securities segregated for Federal
and other regulations or deposited with clearing organizations (258) (163)
Securities purchased under agreements to resell (2,442) (2,043)
Deposits paid for securities borrowed (4,607) (1,504)
Receivable from customers (927) (517)
Receivable from brokers and dealers 102 (232)
Securities owned, at market value (3,053) (1,822)
Other assets 446 884
Increase (decrease) in operating liabilities:
Securities sold under agreements to repurchase 1,237 1,516
Deposits received for securities loaned 3,751 1,751
Payable to customers (694) (601)
Payable to brokers and dealers 1,105 (23)
Securities sold not yet purchased, at market value 1,611 2,249
Accounts payable and accrued liabilities 708 72
------- -------
Cash provided by (used in) operating activities (2,126) 378
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, equipment and leasehold improvements (128) (72)
Other (22) (58)
------- -------
Cash used in investing activities (150) (130)
------- -------
</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>
Nine months ended
September 30,
-------------------
1997 1996
------- -------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (Repayments of) commercial paper
and other short-term borrowings, net $ 1,866 $ (174)
Proceeds from notes payable 816 291
Repayments of notes payable (200) (150)
Proceeds from subordinated indebtedness 26
Repayments of subordinated indebtedness (4) (5)
Dividends paid (339) (584)
------- -------
Cash provided by (used in) financing activities 2,139 (596)
------- -------
Net change in cash and cash equivalents (137) (348)
Cash and cash equivalents, beginning of period 405 612
------- -------
Cash and cash equivalents, end of period $ 268 $ 264
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,390 $ 1,075
======= =======
Income taxes $ 514 $ 457
======= =======
Dividends declared but not paid $ 150 $ 100
======= =======
</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. PENDING MERGER
On September 24, 1997, Travelers Group Inc. and Salomon Inc (Salomon) announced
that they had entered into an agreement and plan of merger pursuant to which a
newly formed wholly owned subsidiary of Travelers Group Inc. will merge with and
into Salomon. The transaction has been approved by the Boards of Directors of
both Travelers Group Inc. and Salomon. Pursuant to the merger agreement, Salomon
common stockholders will receive 1.695 shares of Travelers Group Inc. common
stock (after giving effect to the three-for-two stock split declared by the
Board of Directors of Travelers Group Inc. payable on November 19, 1997) for
each share of Salomon common stock that they own, for a total value of
approximately $9 billion; each share of preferred stock of Salomon will be
exchanged for a share of a substantially identical series of preferred stock of
Travelers Group Inc.; and Salomon will become a wholly owned subsidiary of
Travelers Group Inc. Following the merger, SBH will be merged into Salomon to
form Salomon Smith Barney Holdings Inc. The transaction, which is expected to be
completed by year-end 1997, is intended to be a tax-free exchange and accounted
for as a pooling of interests and is subject to customary closing conditions,
including certain regulatory approvals and the approval of stockholders of
Salomon. As a result of the merger, Salomon Smith Barney Holdings Inc. expects
to record a restructuring charge of between $400-500 million after-tax,
primarily related to severance and costs related to excess or unused office
space and other facilities.
3. SECURITIES, AT MARKET VALUE
Securities consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31,
Securities owned 1997 1996
------------- ------------
<S> <C> <C>
U.S. Government and agencies obligations $ 7,398 $ 6,564
Corporate debt 3,427 2,841
Commercial paper and other short-term debt 1,481 958
State and municipal obligations 1,372 818
Corporate convertibles, equities and other securities 1,840 1,284
------- -------
$15,518 $12,465
======= =======
Securities sold not yet purchased
U.S. Government and agencies obligations $ 8,307 $ 7,388
Corporate convertibles and equities 559 379
Corporate debt and other securities 1,123 611
------- -------
$ 9,989 $ 8,378
======= =======
</TABLE>
4. 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. SBH and Smith Barney have commercial paper
programs that consist of both discounted and interest-bearing paper. The bank
loans and other borrowings bear interest at variable rates based primarily on
the Federal Funds interest rate.
6
<PAGE> 9
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN MILLIONS)
4. COMMERCIAL PAPER AND OTHER SHORT-TERM BORROWINGS (CONTD.)
Commercial paper and other short-term borrowings consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Commercial paper $4,220 $3,028
Bank loans and other borrowings 863 189
------ ------
$5,083 $3,217
====== ======
</TABLE>
In addition to the revolving credit agreements referenced in Note 5, the Company
has substantial borrowing arrangements consisting of facilities that the Company
has been advised are available, but where no contractual lending obligation
exists.
5. NOTES PAYABLE AND SUBORDINATED INDEBTEDNESS
Notes payable consisted of the following:
<TABLE>
<CAPTION>
September 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 57 44
S&P 500 Equity Linked Notes due 2002 76
Floating Rate Medium Term Notes due 2002 25
6 1/2% Notes due 2002 150 150
7.50% Notes due 2002 150 150
6 5/8% Notes due 2002 250
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
------ ------
$3,018 $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 September 30, 1997, there were no
borrowings outstanding under either of these agreements.
7
<PAGE> 10
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN MILLIONS)
5. NOTES PAYABLE AND SUBORDINATED INDEBTEDNESS (CONTD.)
Subordinated indebtedness consists of deferred compensation of $222 and $226 at
September 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 September 30, 1997, the Company
would have been able to remit approximately $854 to Travelers Group Inc. under
its most restrictive covenants.
6. 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.
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 1.1 years at September 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
September 30, 1997 December 31, 1996
------------------- -------------------
Purchase Sale Purchase Sale
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Mortgage-backed contracts (TBA) $10,590 $11,460 $10,997 $11,490
Forward contracts:
Foreign currency $15,132 $15,565 $13,081 $14,174
Precious metals 315 316 359 359
Interest rate and other 690 150
Futures contracts:
Foreign currency $ 617 $ 511 $ 1,469 $ 520
Financial 1,838 1,752 467 3,110
Commodities 2 3 11
</TABLE>
8
<PAGE> 11
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN MILLIONS)
6. DERIVATIVE FINANCIAL INSTRUMENTS (CONTD.)
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------- -------------------
Purchase Sale Purchase Sale
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Options:
OTC foreign currency $15,563 $15,507 $ 5,849 $ 5,511
Exchange-traded, interest rate 4,912 850 1,230 1,058
Exchange-traded, other 100 241 65 70
Interest rate caps,
floors, and swaptions 5,844 10,038 2,035 2,571
OTC debt and equity 1,363 1,286 756 682
</TABLE>
<TABLE>
<CAPTION>
Open Contracts Open Contracts
-------------- --------------
<S> <C> <C>
Interest rate swaps $12,890 $5,393
</TABLE>
At September 30, 1997 and December 31, 1996, approximately $8,095 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 $8,846 and $6,661 of
put and call contracts, respectively, at September 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
September 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.
7. COMMITMENTS AND CONTINGENCIES
At September 30, 1997 and December 31, 1996, respectively, the Company borrowed
securities having a market value of $2,123 and $2,085, against which it pledged
securities having a market value of $2,175 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 September 30, 1997 and December 31, 1996 was
$309 and $438, respectively.
At September 30, 1997 and December 31, 1996, the Company had outstanding forward
repurchase agreements totaling $650 and $725, respectively, and forward reverse
repurchase agreements totaling $992 and $500, respectively. These commitments
represent forward financing transactions with agreed upon interest rates,
principal amounts and delivery dates.
9
<PAGE> 12
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN MILLIONS)
7. COMMITMENTS AND CONTINGENCIES (CONTD.)
In the opinion of management, commitments outstanding will settle without a
material adverse effect on the financial position, liquidity, or 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.
8. 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 36% of total assets at September 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.
9. 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 26, 1997, Smith Barney's net capital, as defined, of $1,316 was 14% of
aggregate debit items and exceeded the minimum requirement by $1,123.
The Robinson-Humphrey Company LLC ("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 26, 1997, RH Co.'s net capital, as defined, of $74 exceeded
the minimum requirement by $73.
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 September 26, 1997, Smith Barney Europe's financial resources of $117
exceeded the minimum requirement by $69.
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
PENDING MERGER
On September 24, 1997, Travelers Group Inc. and Salomon Inc (Salomon) announced
that they had entered into an agreement and plan of merger pursuant to which a
newly formed wholly owned subsidiary of Travelers Group Inc. will merge with and
into Salomon. The transaction has been approved by the Boards of Directors of
both Travelers Group Inc. and Salomon. Pursuant to the merger agreement, Salomon
common stockholders will receive 1.695 shares of Travelers Group Inc. common
stock (after giving effect to the three-for-two stock split declared by the
Board of Directors of Travelers Group Inc. payable on November 19, 1997) for
each share of Salomon common stock that they own, for a total value of
approximately $9 billion; each share of preferred stock of Salomon will be
exchanged for a share of a substantially identical series of preferred stock of
Travelers Group Inc.; and Salomon will become a wholly owned subsidiary of
Travelers Group Inc. Following the merger, SBH will be merged into Salomon to
form Salomon Smith Barney Holdings Inc. The transaction, which is expected to be
completed by year-end 1997, is intended to be a tax-free exchange and accounted
for as a pooling of interests and is subject to customary closing conditions,
including certain regulatory approvals and the approval of stockholders of
Salomon. As a result of the merger, Salomon Smith Barney Holdings Inc. expects
to record a restructuring charge of between $400-500 million after-tax,
primarily related to severance and costs related to excess or unused office
space and other facilities.
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
The Company reported record earnings of $301 million for the three months ended
September 30, 1997 (the "1997 Quarter"), up 45% from the $207 million reported
for the three months ended September 30, 1996 (the "1996 Quarter"). Return on
equity was 39.3% in the 1997 Quarter, compared to 32.2% in the 1996 Quarter.
Pre-tax profit margin increased to 26.9% in the 1997 Quarter from 22.7% in the
1996 Quarter. Revenues, net of interest expense, increased to a record $1,885
million in the 1997 Quarter from $1,500 million in the 1996 Quarter. Annualized
retail gross production per Financial Consultant rose 28% to a record $428,000
in the 1997 Quarter, compared with $334,000 in the 1996 Quarter.
The Company reported net income of $770 million for the nine months ended
September 30, 1997 (the "1997 Period"), an increase of 17% from the $659 million
reported for the nine months ended September 30, 1996 (the "1996 Period").
Return on equity was 34.9% in the 1997 and 1996 Periods. Pre-tax profit margin
increased to 25.1% in the 1997 Period compared to 23.0% in the 1996 Period.
Revenues, net of interest expense, increased 10% to $5,148 million in the 1997
Period compared to $4,701 million in the 1996 Period. Annualized retail gross
production per Financial Consultant increased 11% to $393,000 in the 1997
Period, from $355,000 in the 1996 Period.
Commission revenues were a record $677 million in the 1997 Quarter, compared to
$498 million in the 1996 Quarter, reflecting strong increases in listed and
over-the-counter securities, as well as mutual funds commissions. Commission
revenues were $1,860 million in the 1997 Period compared to $1,680 in the 1996
Period.
11
<PAGE> 14
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Commission revenues were composed of the following:
<TABLE>
<CAPTION>
Three Nine
Months Ended Months Ended
September 30, September 30,
---------------- ----------------
(in millions) 1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Listed & over-the-counter $ 477 $ 340 $1,307 $1,158
Mutual funds 111 86 304 292
Other 89 72 249 230
------ ------ ------ ------
Total commission revenues $ 677 $ 498 $1,860 $1,680
====== ====== ====== ======
</TABLE>
Principal transactions revenues were $252 million in the 1997 Quarter, a 4%
improvement over the $243 million reported in the 1996 Quarter, with an increase
in taxable fixed income trading partially offset by a decline in municipal
trading. Principal transactions revenues decreased 3% to $766 million in the
1997 Period compared to $786 million in the 1996 Period. 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. Principal transactions revenues were
composed of the following:
<TABLE>
<CAPTION>
Three Nine
Months Ended Months Ended
September 30, September 30,
------------ ------------
(in millions) 1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Equities $105 $110 $333 $377
Taxable fixed income 85 66 234 222
Municipals 40 52 136 147
Foreign exchange, derivative and
other financial instruments 22 15 63 40
---- ---- ---- ----
Total principal transactions revenues $252 $243 $766 $786
==== ==== ==== ====
</TABLE>
Investment banking revenues were a record $364 million in the 1997 Quarter, up
26% from $288 million in the 1996 Quarter, primarily reflecting revenue
increases in unit trust, high grade debt, and public finance underwriting.
Investment banking revenues increased slightly to $882 million in the 1997
Period compared to $864 million in the 1996 Period as a result of the
aforementioned increases in the 1997 Quarter, offset to an extent by declines in
equity underwriting and fee income from merger and acquisition activity.
Asset management and administration fees rose to a record $433 million in the
1997 Quarter, an increase of 26% from the $343 million reported in the 1996
Quarter. This increase reflects broad growth in all recurring fee-based
products, led by a 40% increase in managed accounts, a 31% increase in
Consulting Group revenues and a 15% increase in money market and mutual fund
revenues. At September 30, 1997, internally managed assets reached a record
$129.7 billion, and total fee-based assets under management were $188.1 billion
compared to $105.4 billion and $146.7 billion, respectively, at September 30,
1996. Asset management fees increased 21% to $1,195 million in the 1997 Period
compared to $991 million in the 1996 Period.
12
<PAGE> 15
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Asset management and administration fees were composed of the following:
<TABLE>
<CAPTION>
Three Nine
Months Ended Months Ended
September 30, September 30,
---------------- ----------------
(in millions) 1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Money market and mutual funds $ 165 $ 143 $ 474 $ 425
Managed accounts 114 81 303 230
Consulting Group externally managed assets 154 119 418 336
------ ------ ------ ------
Total asset management and administration fees $ 433 $ 343 $1,195 $ 991
====== ====== ====== ======
</TABLE>
Total assets under fee-based management were composed of the following:
<TABLE>
<CAPTION>
As of September 30,
------------------
(in billions) 1997 1996
------- -------
<S> <C> <C>
Money market funds $ 44.9 $ 38.5
Mutual funds 39.8 33.8
Managed accounts 33.9 25.9
Financial Consultant managed accounts 11.1 7.2
------- -------
Total internally managed assets 129.7 105.4
Consulting Group externally managed assets 58.4 41.3
------- -------
Total fee-based assets under management $ 188.1 $ 146.7
======= =======
</TABLE>
Net interest and dividends increased 24% to a record $131 million in the 1997
Quarter from $106 million in the 1996 Quarter, primarily due to increased margin
lending to clients and higher levels of securities lending activity. Net
interest and dividends increased 21% to $365 million in the 1997 Period compared
to $301 million in the 1996 Period.
Total expenses, excluding interest, increased 19% to $1,378 million in the 1997
Quarter from $1,159 million in the 1996 Quarter, primarily the result of higher
production related compensation expense. Employee compensation and benefits
expense, as a percentage of net revenues, in the 1997 Quarter declined to 54.9%
from 56.3% in the 1996 Quarter and non-compensation expenses, as a percentage of
net revenues was 18.2% in the 1997 Quarter compared to 21.0% in the 1996
Quarter. The Company continues to maintain its focus on controlling fixed
expenses.
Total expenses, excluding interest, were $3,854 million in the 1997 Period
compared to $3,620 million in the 1996 Period. Employee compensation and
benefits expense as a percentage of net revenues in the 1997 Period declined to
55.3% compared to 56.5% in the 1996 Period and non-compensation expenses, as a
percentage of net revenues decreased to 19.6% in the 1997 compared to 20.5% in
the 1996 Period.
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
13
<PAGE> 16
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
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 September 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 September 30, 1997, total long-term public debt was $2,983 million,
compared to total long-term public debt of $2,369 million at December 31, 1996.
On October 3, 1997, the Company issued $62 million aggregate principal amount of
S&P 500 Equity Linked Notes due 2003. On October 8, 1997, the Company issued
$200 million aggregate principal amount of 6 3/8% Notes due 2004. As of November
7, 1997, the Company had $463 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
14
<PAGE> 17
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, 1997 and December 31,
1996 was 19.7x and 18.6x, respectively.
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 $61.9 billion at
September 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.
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
15
<PAGE> 18
SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 marketplace, but
would not materially impact net income.
16
<PAGE> 19
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
See Exhibit Index.
(b) Reports on Form 8-K:
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.
On September 25, 1997, the Company filed a Current Report on Form
8-K, dated September 24, 1997 (which was amended by a Form 8-K/A-1 filed October
28, 1997), reporting under Item 5 thereof the entering into of a definitive
agreement by Travelers Group Inc. and Salomon Inc for a subsidiary of Travelers
Group Inc. to merge with and into Salomon Inc, and filing under Item 7 thereof
certain pro forma and other financial information.
On September 30, 1997, the Company filed a Current Report on Form
8-K, dated September 30, 1997, filing certain exhibits under Item 7 thereof
relating to the offer and sale of the Company's Smith Barney S&P 500 Equity
Linked Notes due October 3, 2003.
No other reports on Form 8-K have been filed by the Company
during the quarter ended September 30, 1997; however, on October 7, 1997, the
Company filed a Current Report on Form 8-K, dated October 3, 1997, filing
certain exhibits under Item 7 thereof relating to the offer and sale of the
Company's 6 3/8% Notes due October 1, 2004, and on October 14, 1997, the Company
filed a Current Report on Form 8-K, dated October 13, 1997, reporting under Item
5 thereof the results of its operations for the three months and nine months
ended September 30, 1997, and certain additional financial information.
17
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT FILING
NUMBER DESCRIPTION OF EXHIBIT METHOD
- ------ ---------------------- ------
<S> <C> <C>
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
</TABLE>
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)
<TABLE>
<S> <C>
Date: November 12, 1997 By: /s/ Charles W. Scharf
----------------------------------------------------
Charles W. Scharf
Executive Vice President and Chief Financial Officer
By: /s/ Michael J. Day
----------------------------------------------------
Michael J. Day
Executive Vice President and Controller
</TABLE>
19
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT FILING
NUMBER DESCRIPTION OF EXHIBIT METHOD
- ------ ---------------------- ------
<S> <C> <C>
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
</TABLE>
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>
Nine months ended
September 30,
-----------------
1997 1996
------ ------
<S> <C> <C>
Earnings before income taxes $1,294 $1,081
------ ------
Interest expense 1,422 1,095
Portion of rentals deemed to be interest 42 44
------ ------
Total fixed charges 1,464 1,139
------ ------
Earnings before income taxes and fixed charges $2,758 $2,220
====== ======
Ratio of earnings to fixed charges 1.88x 1.95x
====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1997 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-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,910<F1>
<SECURITIES> 9,129<F2>
<RECEIVABLES> 18,787
<ALLOWANCES> 13,542
<INVENTORY> 15,518
<CURRENT-ASSETS> 487
<PP&E> 61,863
<DEPRECIATION> 5,083
<TOTAL-ASSETS> 9,235<F3>
<CURRENT-LIABILITIES> 20,874
<BONDS> 7,785
9,989
3,240<F4>
<COMMON> 0<F5>
<OTHER-SE> 0<F5>
<TOTAL-LIABILITY-AND-EQUITY> 0<F5>
<SALES> 3,139<F6>
<TOTAL-REVENUES> 61,863
<CGS> 766
<TOTAL-COSTS> 1,787
<OTHER-EXPENSES> 1,860
<LOSS-PROVISION> 882
<INTEREST-EXPENSE> 1,195
<INCOME-PRETAX> 1,422
<INCOME-TAX> 2,846
<INCOME-CONTINUING> 1,294
<DISCONTINUED> 1,294
<EXTRAORDINARY> 0<F5>
<CHANGES> 0<F5>
<NET-INCOME> 770
<EPS-PRIMARY> 0<F5>
<EPS-DILUTED> 0<F5>
<FN>
<F1>Includes the following items from the financial statements: Cash and cash
equivalents $268; Cash segregated and on deposit for Federal and other
regulations and deposits with clearing organizations $1,642.
<F2>Includes the following items from the financial statements: Receivable from
brokers and dealers $221; Receivable from customers $7,908; Other receivables
$1,000.
<F3>Includes the following items from the financial statements: Payable to brokers
and dealers $1,326; Payable to customers $4,894; Other payables $3,015.
<F4>Includes the following items from the financial statements: Notes payable
$3,018; Subordinated indebtedness $222.
<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 $1,333; Cumulative translation adjustment $3.
</FN>
</TABLE>
