Past Quarterly Earnings

Third Quarter 2000
Lehman Brothers Reports Earnings Of $457 Million In Third Quarter, Up 58%

2 For 1 Stock Split Announced
Posts Record Nine Months Earnings of $1.376 Billion, Up 66%

NEW YORK, September 20, 2000 —
Lehman Brothers Holdings Inc. (NYSE: LEH) today reported net income of $457 million, or $3.37 per common share (diluted), for the third quarter ended August 31, 2000. Net income rose 58 percent from the $290 million of net income the Firm reported in the third quarter of fiscal 1999, while net income per common share increased by 53 percent from $2.20 per share a year ago. The quarter's performance represented the second-highest total of quarterly earnings and net revenues that Lehman Brothers has ever posted.

The Firm also announced that its Board of Directors approved a two-for-one common stock split. The stock split will be effected in the form of a 100% common stock dividend, payable October 20, 2000, to shareholders of record as of October 5, 2000. (Per share amounts have not been adjusted for the stock split.)

For the first nine months of fiscal 2000, net income was a record $1.376 billion, an increase of 66 percent from $830 million in net income for the first nine months of fiscal 1999. In the first nine months of 2000, Lehman Brothers earned more than it had in any full year since going public in 1994.

"By all measures, this was an extremely strong quarter for Lehman Brothers, even though this is typically the time of year when business is at its slowest," said Richard S. Fuld, Jr., Chairman and Chief Executive Officer. "Our excellent performance this quarter is another confirmation that the Firm has built a powerful franchise that can compete effectively and perform well across our major business lines, in all markets, and in differing economic conditions."

Mr. Fuld, noting that the three quarters of 2000 represent the three best quarters in the Firm's 150-year history, said that the planned stock split underscored the sustained strength of the Firm's stock price.

Net revenues (total revenues less interest expense) for the third quarter were $2.052 billion, an increase of 51 percent from $1.356 billion in the third quarter of fiscal 1999. Mr. Fuld noted that the quarter was the second best the Firm had ever posted in terms of net revenues, and reflected significant strength in Lehman Brothers' investment banking and capital markets activities globally. Within investment banking, M&A advisory revenues for the third quarter were the highest the Firm ever posted, he said. Lehman Brothers' non-U.S. activities accounted for approximately 38 percent of total net revenues, with Europe representing approximately 31 percent.

For the first nine months of fiscal 2000, net revenues were a record $6.009 billion, an increase of 53 percent from $3.929 billion in the fiscal 1999 first nine months.

"The third-quarter and nine-months revenues not only illustrate the balance Lehman Brothers has achieved among its equity, fixed income and investment banking businesses, but also show the financial and strategic potential of new businesses the Firm has been building, including private equity and high-net-worth activities," Mr. Fuld said.

Non-interest expenses for the third quarter were $1,379 million. Nonpersonnel expenses for the same period were $312 million, compared with $251 million in the previous fiscal year's third quarter. Nonpersonnel expenses as a percentage of net revenues decreased in the quarter to 15.2 percent from 18.5 percent a year ago. Compensation and benefits as a percentage of net revenues were 52 percent, unchanged from the fiscal 2000 first and second quarters, as the Firm continued its aggressive growth plan in investment banking, equities, and in Europe, as well as investing in information technology and e-commerce activities.

For the fiscal 2000 third quarter, the Firm's pre-tax margin was 32.8 percent, up from 30.8 percent in the third quarter of fiscal 1999. Return on common equity was 27.5 percent for the quarter ended August 31, 2000, compared with 22.1 percent a year ago. For the first nine months of fiscal 2000, the Firm's pre-tax margin was 33.7 percent, compared with 30.3 percent for the first nine months of fiscal 1999; for the same period, return on common equity was 29.2 percent, compared with 21.9 percent in fiscal 1999. Return on common equity for all periods is calculated using net income before adjusting for a special preferred dividend.

As of August 31, 2000, Lehman Brothers stockholders' equity and trust preferred securities were $8.25 billion and total capital (stockholders' equity, trust preferred, and long-term debt) was $43.7 billion. Book value per common share was $55.16. At the end of the third quarter, Lehman Brothers' market capitalization exceeded $17 billion.

Earnings per share calculations include the impact of a special preferred dividend of $50 million in the first fiscal quarter of 2000 and the second fiscal quarter of 1999. The dividend is expected to be paid to American Express Company and to Nippon Life Insurance Company at fiscal 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.

Lehman Brothers (NYSE: LEH), an innovator in global finance, focuses on serving 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 44 offices around the world. For further information about Lehman Brothers' services, products, and recruitment opportunities, visit our Web site at www.lehman.com.

(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 quarters ended August 31 and May 31, 2000, the assumed conversion of Series A and B convertible Preferred Stock into 1,219,188, common shares had the effect of decreasing diluted earnings per share by $0.01. For the quarter ended February 29, 2000, the assumed conversion of Series A and B convertible Preferred Stock into 1,219,302 common shares had the effect of decreasing diluted earnings per share by $0.02.