Lehman Brothers - Past Quarterly Earnings

Past Quarterly Earnings

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First Quarter 2000
Lehman Brothers Reports
Record First Quarter Earnings of $541 Million, Up 156% from a Year Ago

Firm Posts Best Quarter Ever;
Revenues Up 97%, ROE at 37%

NEW YORK, March 20, 2000 —
Lehman Brothers Holdings Inc. (NYSE: LEH) today reported net income of $541 million, or $3.69 per common share (diluted), for the first quarter ended February 29, 2000. Net income increased by 156 percent over the $211 million reported for the first quarter of fiscal 1999. Net income per share increased 135 percent from $1.57 (diluted) in the year-ago quarter. The results for the fiscal 2000 first quarter were the best in the Firm’s history in terms of revenues, net income, operating margin and return on equity.

"This was an extremely strong quarter for Lehman Brothers, one which not only reflects the significant strength of the Firm today, but also underscores our ability to continue to enhance the organization’s potential going forward," said Richard S. Fuld, Jr., Chairman and Chief Executive Officer. "Our businesses across the board performed extremely well this quarter, with equities and investment banking posting record revenues, and fixed income and private client services producing very strong results. The Firm is clearly hitting on all cylinders."

Net revenues (total revenues less interest expense) for the first quarter were $2.202 billion, an increase of 97 percent from $1.118 billion in the first quarter of fiscal 1999. The revenue total was the highest in the Firm’s history, surpassing the next highest quarterly total by more than $700 million. Mr. Fuld noted that the gains in the first quarter reflected record performance in equity underwriting and M&A advisory activities, as well as significant increases in the Firm’s institutional customer flow activities across most equity and fixed income products.

Mr. Fuld also pointed out that the breadth of Lehman Brothers’ revenues for the first quarter of fiscal 2000 underscores the success of the Firm’s efforts to diversify its revenue mix by business and by region. Mr. Fuld said the quarter continued the trend of significant revenue generation from each of the Firm’s major business units, with equities actually representing the largest share of revenues for the period.

Non-interest expenses for the quarter were $1,408 million, compared with $809 million in the fiscal 1999 first quarter. Nonpersonnel expenses in the fiscal 2000 first quarter were $263 million, compared with $242 million in the previous year's first quarter. Nonpersonnel expenses as a percentage of net revenues decreased in the quarter to 11.9 percent from 21.7 percent a year ago. Compensation and benefits as a percentage of net revenues was 52 percent, as the Firm stepped up its rate of investment to accelerate its growth, and take advantage of rapidly expanding opportunities in a number of businesses, particularly investment banking, equities, and Europe. The Firm also increased its investment in information technology and e-commerce activities, to support its growth strategy.

For the fiscal 2000 first quarter, the Firm’s return on common equity was a record 36.8 percent, more than double the 17.2 percent ROE of a year ago. For the quarter ended February 29, 2000, pre-tax operating margin was also a record at 36.1 percent, compared with 27.6 percent in the year-ago first quarter.

Return on common equity for the first fiscal quarter of 2000 is calculated using net income before adjusting for a special preferred dividend.

As a result of the level of earnings Lehman Brothers attained in the first quarter of fiscal 2000, earnings per share calculations include the impact of a special preferred dividend of $50 million expected to be paid to American Express Company and to Nippon Life Insurance Company at year end. American Express and Nippon Life are entitled to receive an annual non-cumulative preferred dividend equal to 50 percent of the amount by which the Firm’s net income for the full fiscal year exceeds $400 million, up to a maximum of $50 million per year, through mid-year 2002.

As of February 29, 2000, Lehman Brothers stockholders’ equity and trust preferred securities totaled $7.3 billion and total capital (stockholders’ equity, trust preferred securities, and long-term debt) was $39.6 billion. Book value per common share was $48.79.

Lehman Brothers is a global investment bank with leadership positions in corporate finance, advisory services, private equity, municipal finance and fixed income and equity sales, trading and research. Lehman Brothers serves the financial needs of corporate, government and institutional clients, and high-net-worth individuals through offices in major financial centers worldwide.

Financial Statements Attached

LEHMAN BROTHERS HOLDINGS INC.
SELECTED STATISTICAL INFORMATION
(Preliminary and Unaudited)
(Dollars in millions, except per share data)

Quarters Ended Twelve Months

2/29/00 11/30/99 8/31/99 5/31/99 2/28/99 1999

Income Statement

Net Revenues

$2,202

$1,411

$1,356

$1,455

$1,118

$5,340

Non-Interest Expenses:

    Compensation and Benefits
1,145

715

688

738

567

2,707

    Nonpersonnel Expenses

263

258

251

251

242

1,002

Net Income

541

301

290

330

211

1,132

Net Income Applicable to
     Common Stock

482

292

279

268

198

1,037

Earnings per Common Share

    Basic
    Diluted

$3.92
$3.69

$2.41
$2.28

$2.30
$2.20

$2.19
$2.09

$1.62
$1.57

$8.53
$8.15

Financial Ratios (%)

Return on Common Equity
     (annualized) ^(a)

36.8

21.6

22.1

26.3

17.2

21.8

Return on Common Equity
     (annualized) ^(b)

33.3

21.6

22.1

22.1

17.2

20.8

Pretax Operating Margin

36.1

31.1

30.8

32.0

27.6

30.5

Compensation & Benefits/

    Net Revenues

52.0

50.7

50.7

50.7

50.7

50.7

Effective Tax Rate

30.1

28.0

27.0

27.0

31.0

28.0

Balance Sheet

Total Assets

$214,000

$192,244

$202,149

$191,543

$179,305

Total Assets Excluding Matched Book ^(c)

137,000

130,022

136,106

128,822

121,881

Common Stockholders' Equity

5,986

5,595

5,192

4,935

4,731

Total Stockholders' Equity + Trust Preferred
    Securities

7,296

6,993

6,660

6,453

5,964

Total Capital ^(d)

39,610

37,684

36,517

34,915

32,682

Book Value per Common Share ^(e)

48.79

45.50

42.91

40.58

38.72

Other Data (#s)

Employees

9,026

8,893

8,729

8,511

8,695

Common Stock Outstanding

120,150,218

119,912,810

120,070,089

119,700,830

118,977,746

Average Shares

Basic
Diluted ^{(f) (g)}

123,027,441
131,205,984

120,761,065
128,994,372

121,317,358
129,063,197

122,144,018
130,364,705

121,942,892
125,776,277

121,477,059
129,282,672

^(a) Return on common equity calculated using net income before adjusting for special preferred dividends.
^(b) Return on common equity calculated using net income after adjusting for special preferred dividends.
^(c) Matched book is defined as the lower of securities purchased under agreements to resell or securities sold under agreements to repurchase.
^(d) Total capital includes long-term debt, Trust Preferred Securities and stockholders’ equity.
^(e) This calculation includes restricted stock units granted under the Lehman Stock Award Programs included in stockholders’ equity.
^(f) For the quarters ended November 30, August 31 and May 31, 1999, the assumed conversion of Series A and B Convertible Preferred Stock into 2,118,396, 2,607,680 and 2,912,505 common shares had the effect of decreasing diluted earnings per share by $0.01. For the year ended November 30, 1999 the assumed conversion of Series A and B Convertible Preferred Stock into 2,779,737 common shares had the effect of decreasing diluted earnings per share by $0.04.
^(g) For the quarter ended February 29, 2000, the assumed conversion of Series A and B convertible Preferred Stock into 1,221,740 common shares had the effect of decreasing diluted earnings per share by $0.02.

LEHMAN BROTHERS HOLDINGS INC.
SEGMENT INFORMATION
(Preliminary and Unaudited)
(In millions)

		Three Months Ended		Percentage Change
		February 29 2000	February 28 1999	Percentage Change
Investment Banking:
	Net Revenue	$ 593	$ 309	92%
	Pre-Tax	179	84	113%
Capital Markets:
	Net Revenue	1,339	$ 687	95%
	Pre-Tax	506	203	149%
Client Services:
	Net Revenue	270	$ 122	121%
	Pre-Tax	109	22	395%
Total Firm:
	Net Revenue	$ 2,202	$1,118	97%
	Pre-Tax	794	309	157%

Note – Segment lines include the following business activities: Investment Banking – Equity and debt underwriting Mergers and acquisitions and other financial advisory Capital Markets – Institutional sales and trading in equity and fixed income products Client Services – Customer flow and asset management services to high net worth retail clients Private equity management and incentive fee

LEHMAN BROTHERS HOLDINGS INC.
CONSOLIDATED STATEMENT OF INCOME
(Preliminary and Unaudited)
(In millions, except per share data)

			Three Months Ended		Percentage of Dollar Change Inc/(Dec)
			February 29 2000	February 28 1999	Percentage of Dollar Change Inc/(Dec)
Revenues:
	Principal transactions		$ 1,114	$ 534
	Investment banking		602	313
	Commissions		229	146
	Interest and dividends		4,313	3,581
	Other		82	17
		Total revenues	6,340	4,591
	Interest expense		4,138	3,473
		Net revenues	2,202	1,118	97%
Non-interest expenses:
	Compensation and benefits		1,145	567
	Technology and communications		84	82
	Brokerage and clearance		58	58
	Business development		35	28
	Professional fees		32	22
	Occupancy		30	28
	Other		24	24
		Total non-interest expenses	1,408	809	74%
Income before taxes and dividends on trust preferred securities			794	309	157%
	Provision for income taxes		239	96
	Dividends on trust preferred securities		14	2
Net income			$ 541	$ 211	156%
Net income applicable to common stock			$ 482	$ 198	143%

Earnings per common share
	Basic		$3.92	$1.62
	Diluted		$3.69	$1.57