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Second Quarter 2002
Lehman Brothers Reports Second Quarter Earnings of $296 Million

Net Income for First Six Months of Fiscal 2002 Is $594 Million

NEW YORK, June 18, 2002 —
Lehman Brothers Holdings Inc. (ticker symbol: LEH) today reported net income of $296 million, or $1.08 per common share (diluted), for the second quarter ended May 31, 2002, compared with $430 million, or $1.38 per common share (diluted) reported for the second quarter of fiscal 2001.

For the first six months of fiscal 2002, net income was $594 million, compared with $817 million for the first half of fiscal 2001.

"The strength and diversity of the Lehman Brothers franchise again enabled the Firm to post solid earnings and returns for our shareholders, in spite of the continuation of difficult market conditions in the second quarter," said Richard S. Fuld, Jr., Chairman and Chief Executive Officer. "We are pleased with our performance given the market environment. We have continued to focus on delivering our global platform to meet the needs of our clients. This focus has translated into strong market share gains in many investment banking product categories and near-record-level fixed income revenues."

Net revenues (total revenues less interest expense) for the second quarter were $1.7 billion, down from $2 billion in the second quarter of fiscal 2001, but an increase from $1.6 billion in the fiscal 2002 first quarter. Mr. Fuld noted that the level and composition of revenues recorded in the second quarter were similar to what the Firm experienced in the first quarter: strong fixed income capital markets revenues and strong performance in debt origination and high-net-worth activities, offset by industry-wide weakness in M&A advisory. Equity capital markets revenues, while lower than a year ago, increased by over 20 percent from the fiscal 2002 first quarter.

For the first six months of fiscal 2002, net revenues were $3.3 billion, compared with $3.9 billion for the first six months of fiscal 2001.

Non-interest expenses for the quarter were $1,227 million, down 12 percent from $1,397 million in the fiscal 2001 second quarter. Nonpersonnel expenses in the fiscal 2002 second quarter were $379 million, compared with $365 million in the previous fiscal year's second quarter. Compensation and benefits as a percentage of net revenues remained at 51 percent during the second quarter of fiscal 2002.

For the quarter ended May 31, 2002, the Firm's pre-tax operating margin was 26.2 percent, compared with 30.9 percent in the fiscal 2001 second quarter. For the fiscal 2002 second quarter, the Firm's return on common equity was 14.1 percent, essentially unchanged from the fiscal 2002 first quarter and down from 23.4 percent in the fiscal 2001 second quarter. Return on common equity is calculated before any adjustments for special preferred dividends. Mr. Fuld noted that the Firm's record of performance, in both difficult and favorable markets, continues to position Lehman Brothers among the industry's leaders in profitability.

As of May 31, 2002, Lehman Brothers stockholders' equity and trust preferred securities totaled $9.6 billion, and total capital (stockholders' equity, trust preferred securities, and long-term debt) was approximately $46 billion. Book value per common share was $33.22.

Earnings per share calculations include the impact of a special preferred dividend of $50 million in the second quarter of fiscal 2001 and $25 million in the first quarter of fiscal 2002 on the Redeemable Voting Preferred Stock owned by American Express Company and Nippon Life Insurance Company. The holders were 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 exceeded $400 million, up to a maximum of $50 million per year, through the end of fiscal 2001. The Redeemable Voting Preferred Stock has been called for redemption; the final special preferred dividend is 50 percent of the amount by which the Firm's net income in the first half of fiscal 2002 exceeded $200 million, up to a maximum of $25 million. The maximum dividend of $25 million was accrued during the first quarter of fiscal 2002, as the Firm's net income during the quarter exceeded $250 million.

Lehman Brothers (ticker symbol: LEH), an innovator in global finance, serves the financial needs of corporations, governments and municipalities, institutional clients, and high-net-worth individuals worldwide. Founded in 1850, Lehman Brothers maintains leadership positions in equity and fixed income sales, trading and research, investment banking, private equity, and private client services. The Firm is headquartered in New York, London, and Tokyo and operates in a network of offices around the world. For further information about Lehman Brothers' services, products, and recruitment opportunities, visit our Website at www.lehman.com.

Conference Call
A conference call to discuss the Firm's financial results and outlook will be held at 10:00 a.m. EST on Tuesday, June 18, 2002. Members of the public who would like to access the conference call should dial, from the U.S., 800-369-1137, or, from outside the U.S., 212-547-0422. The passcode for all callers is LEHMAN. The conference call will also be accessible through the "Shareholders" section of the Firm's web site, www.lehman.com, under the subcategory "Webcasts." For those unable to listen to the live broadcast, a replay will be available on the Firm's web site or by dialing 888-568-0810 (within the U.S.) or 402-998-0237 (from outside the U.S.) beginning approximately one hour after the event, and remaining available until 5:00 p.m. on July 12, 2002.

Cautionary Note Regarding Forward-Looking Statements
This press release may contain forward-looking statements. These statements are not historical facts, but instead represent only the Firm's expectations, estimates and projections regarding future events. These statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict, which may include market, credit or counterparty, liquidity, legal and operational risks. The Firm's actual results and financial condition may differ, perhaps materially, from the anticipated results and financial condition in any such forward-looking statements. For more information concerning the risks and other factors that could affect the Firm's future results and financial condition, see "Management's Discussion and Analysis of Financial Condition and Results of Operation" in the Firm's most recent Annual Report to Shareholders and Quarterly Report on Form 10-Q.

 

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Financial Statements Attached

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

  Quarters Ended
  5/31/02 2/28/02 11/30/01 8/31/01 5/31/01 2/28/01
Income Statement            
Net Revenues

$1,663

$1,606

$1,203

$1,628

$2,022

$1,883
Non-Interest
  Expenses:		            
    Compensation
  and Benefits

848

819

615

830

1,032

960
    Nonpersonnel
  Expenses

379

347

345

363

365

350
Net Income (a)

296

298

130

309

430

387
Net Income
  Applicable to
  Common Stock

285

262

119

298

369

375
Earnings per
  Common Share (b)		            
    Basic

$1.16

$1.07

$0.49

$1.24

$1.51

$1.52
    Diluted

$1.08

$0.99

$0.46

$1.14

$1.38

$1.39
             
Financial Ratios (%)            
Return on
  Common Equity
  (annualized) (c)

14.1

13.4

6.3

16.2

20.6

21.2
Return on
  Common Equity
  (annualized,
  excluding the
  special preferred
  dividends, where
  applicable) (d)

14.1

14.6

6.3

16.2

23.4

21.2
             
Pretax Operating
  Margin (e)

26.2

27.4

9.6

26.7

30.9

30.4
             
Compensation &
  Benefits/Net
  Revenues

51.0

51.0

51.1

51.0

51.0

51.0
             
Effective Tax Rate (f)

29.0

29.0

(24.4)

25.8

29.0

30.0
             
Balance Sheet            
Total Assets

$270,000

$260,061

$247,816

$243,337

$235,936

$236,287
Total Assets
  Excluding
  Matched Book (g)

178,000

168,850

164,538

156,393

152,890

155,766
Common
  Stockholders'
  Equity

8,206

7,948

7,759

7,411

7,279

7,047
Total Stockholders'
  Equity + Preferred
  Securities Subject
  to Mandatory
  Redemption

9,616

9,358

9,169

8,821

8,689

8,457
Total Capital (h)

46,259

47,343

47,470

48,157

46,425

44,769
Net Leverage (i)

18.5x

18.0x

17.9x

17.7x

17.6x

18.4x
Book Value per
  Common Share (j)

33.22

32.47

31.81

30.83

29.93

28.90
             
Other Data (#s)            
Employees

12,694

12,851

13,090

13,281

12,426

11,925
Common Stock
  Outstanding

   243,573,905

   244,169,647

   237,534,091

   239,046,975

   244,202,014

   247,321,056
Weighted Average
  Shares		            
    Basic

245,767,129

245,284,387

241,933,119

240,414,784

243,852,453

246,154,488
    Diluted

263,491,206

265,202,416

261,545,485

261,755,211

266,878,412

270,689,336

(a) Fourth quarter 2001 net income includes a $71 million after tax charge ($127 million pre-tax) for September 11th related write-offs and expenses, net.
(b) The Company's September 11th charge recorded in the fourth quarter of 2001 resulted in a decrease to basic and fully diluted EPS of $0.30 and $0.27, respectively.
(c) The Company's return on common equity was reduced by approximately 3.7% as a result of the September 11th charge recorded in the fourth quarter of 2001.
(d) Return on common equity calculated using net income before adjusting for special preferred dividends of $25 million in the first quarter of 2002 and $50 million in the second quarter of 2001.
(e) Pre-tax operating margin in the fourth quarter of 2001 was reduced by approximately 10.6% as a result of the September 11th charge.
(f) The effective tax rate in the fourth quarter of 2001 excluding the special charge was 11.5%.
(g) Matched book is defined as the lower of securities purchased under agreements to resell or securities sold under agreements to repurchase.
(h) Total capital includes long-term debt, stockholder's equity and preferred securities subject to mandatory redemption.
(i) Net leverage ratio is calculated using total assets excluding matched book to total stockholders' equity and other preferred securities.
(j) This calculation includes restricted stock units granted under Lehman Stock Award Programs included in stockholder's equity.
   

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)
      May 31
2002
 May 31
2001
Revenues:            
    Principal transactions

$ 627

  

$ 984

      
    Investment banking

465

  

565

      
    Commissions

332

  

295

      
    Interest and dividends

2,910

  

4,433

      
    Other

      13

  

        7

      
        Total revenues

4,347

  

6,284

      
    Interest expense

2,684

  

4,262

      
        Net revenues

1,663

  

2,022

  

(18%)

  
             
Non-interest expenses:            
    Compensation and benefits

848

  

1,032

      
    Technology and communications

142

  

134

      
    Brokerage and clearance fees

76

  

73

      
    Occupancy

71

  

44

      
    Business development

40

  

54

      
    Professional fees

34

  

41

      
    Other

      16

  

      19

      
        Total non-interest expenses

1,227

  

1,397

  

(12%)

  
Income before taxes and dividends
  on trust preferred securities

436

  

625

      
    Provision for income taxes

126

  

181

      
    Dividends on trust preferred securities

      14

  

      14

      
Net income

$ 296

  

$ 430

  

(31%)

  
    Preferred stock dividends

11

  

61

      
Net income applicable to common stock

$ 285

  

$ 369

  

(23%)

  
                   
Earnings per common share        
    Basic

$ 1.16

  

$ 1.51

      
    Diluted

$ 1.08

  

$ 1.38

      

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

      Six Months Ended
 Percentage of
Dollar Change
Inc/(Dec)
      May 31
2002
 May 31
2001
Revenues:            
    Principal transactions

$ 1,196

  

$ 1,981

      
    Investment banking

935

  

1,048

      
    Commissions

621

  

574

      
    Interest and dividends

5,796

  

9,414

      
    Other

      25

  

      19

      
        Total revenues

8,573

  

13,036

      
    Interest expense

5,304

  

9,131

      
        Net revenues

3,269

  

3,905

  

(16%)

  
             
Non-interest expenses:            
    Compensation and benefits

1,667

  

1,992

      
    Technology and communications

264

  

245

      
    Brokerage and clearance fees

151

  

150

  
    Occupancy

140

  

85

  
    Business development

74

  

104

  
    Professional fees

54

  

88

  
    Other

      43

  

      43

  
        Total non-interest expenses

2,393

  

2,707

(12%)
Income before taxes and dividends
  on trust preferred securities

876

  

1,198

  
    Provision for income taxes

254

  

353

  
    Dividends on trust preferred securities

      28

  

      28

  
Net income

$ 594

  

$ 817

(27%)
    Preferred stock dividends

47

  

73

  
Net income applicable to common stock

$ 547

  

$ 744

(27%)
               
Earnings per common share        
    Basic

$ 2.23

  

$ 3.04

  
    Diluted

$ 2.07

  

$ 2.77

  

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

      Three Months Ended
   Six Months Ended
      May 31
2002
 May 31
2001
   May 31
2002
 May 31
2001
Investment Banking:                  
    Equity Underwriting

$ 109

  

$ 158

    

$ 272

  

$ 263
    Debt Underwriting

266

265

  

471

448
    Merger and Acquisition Advisory

        79

      128

  

      170

      311
        Total

      454

  

      551

    

      913

  

  1,022

  
                   
Capital Markets:          
    Equities

324

611

  

588

1,296
    Fixed Income

      676

      663

  

  1,357

  1,186
        Total

  1,000

  

  1,274

    

  1,945

  

  2,482

  
           
Client Services:          
    Private Client

197

183

  

388

375
    Private Equity

        12

        14

  

        23

        26
        Total

      209

  

      197

    

      411

  

      401

  
                   
        Total Lehman

$ 1,663

$ 2,022

$ 3,269

$ 3,905