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Third Quarter 2002
Lehman Brothers Reports Third Quarter Earnings of $194 Million

Net Income for First Nine Months of Fiscal 2002 Is $788 Million

NEW YORK, September 24, 2002 —
Lehman Brothers Holdings Inc. (ticker symbol: LEH) today reported net income of $194 million, or $0.70 per common share (diluted), for the third quarter ended August 31, 2002, compared with $309 million, or $1.14 per common share (diluted), reported for the third quarter of fiscal 2001.

For the first nine months of fiscal 2002, net income was $788 million, compared with $1,125 million for the comparable period of fiscal 2001.

"The results for the third quarter reflect the extremely difficult market conditions that continue to confront our industry," said Richard S. Fuld, Jr., chairman and chief executive officer. "Notwithstanding the pressure on our financial results, we remain focused on the creation of shareholder value and long-term growth as demonstrated by our gains in market share across our investment banking and capital markets businesses."

Net revenues (total revenues less interest expense) for the third quarter were $1.35 billion, compared to $1.63 billion in the third quarter of fiscal 2001, and $1.66 billion in the fiscal 2002 second quarter. The challenging market conditions experienced in the first half of the year deteriorated further in the third quarter due to widening spreads in the credit markets, driven by a record level of downgraded debt and an increased level of defaults, and a steep decline in global equity markets. In addition, investment banking revenues reflected continued weak merger and acquisition and equity origination levels, as well as lower debt underwriting volume in the market.

For the first nine months of fiscal 2002, net revenues were $4.6 billion, compared with $5.5 billion for the first nine months of fiscal 2001.

Non-interest expenses for the quarter were $1.1 billion, down 10 percent from $1.2 billion in the fiscal 2001 third quarter. Compensation and benefits as a percentage of net revenues remained at 51 percent during the third quarter of fiscal 2002. Nonpersonnel expenses in the fiscal 2002 third quarter were $391 million, compared with $363 million in the previous fiscal year's third quarter.

For the quarter ended August 31, 2002, the Firm's pre-tax operating margin was 20 percent, and the Firm's return on common equity was 9 percent. Despite the prolonged period of challenging market conditions, the Firm's pre-tax operating margin was 25 percent, and return on common equity was 12.5 percent for the first nine months of the year (excluding special preferred dividend).

As of August 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 $48 billion. Book value per common share was $33.49 .

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 Web site at www.lehman.com.

Conference Call
A conference call to discuss the Firm's financial results and outlook will be held at 9:30 a.m. EST on Tuesday, September 24, 2002. Members of the public who would like to access the conference call should dial, from the U.S., 888-942-8132, or, from outside the U.S., 712-257-3664. 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 800-469-5440 (within the U.S.) or 402-220-2271 (from outside the U.S.) beginning approximately one hour after the event, and remaining available until 4:00 p.m. on October 11, 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
  8/31/02 5/31/02 2/28/02 11/30/01 8/31/01 5/31/01
Income Statement            
Net Revenues

$1,347

$1,663

$1,606

$1,203

$1,628

$2,022
Non-Interest
  Expenses:		            
    Compensation
  and Benefits

687

848

819

615

830

1,032
    Nonpersonnel
  Expenses

391

379

347

345

363

365
Net Income (a)

194

296

298

130

309

430
Net Income
  Applicable to
  Common Stock

183

285

262

119

298

369
Earnings per
  Common Share (b)		            
    Basic

$0.74

$1.16

$1.07

$0.49

$1.24

$1.51
    Diluted

$0.70

$1.08

$0.99

$0.46

$1.14

$1.38
             
Financial Ratios (%)            
Return on
  Common Equity
  (annualized) (c)

8.9

14.1

13.4

6.3

16.2

20.6
Return on
  Common Equity
  (annualized,
  excluding the
  special preferred
  dividends, where
  applicable) (d)

8.9

14.1

14.6

6.3

16.2

23.4
             
Pretax Operating
  Margin (e)

20.0

26.2

27.4

9.6

26.7

30.9
             
Compensation &
  Benefits/Net
  Revenues

51.0

51.0

51.0

51.1

51.0

51.0
             
Effective Tax Rate (f)

22.6

29.0

29.0

(24.4)

25.8

29.0
             
Balance Sheet            
Total Assets

$267,000

$267,787

$260,061

$247,816

$243,337

$235,936
Total Assets
  Excluding
  Matched Book (g)

162,000

173,671

168,850

164,538

156,393

152,890
Common
  Stockholders'
  Equity

8,209

8,206

7,948

7,759

7,411

7,279
Total Stockholders'
  Equity + Preferred
  Securities Subject
  to Mandatory
  Redemption

9,619

9,616

9,358

9,169

8,821

8,689
Total Capital (h)

48,402

46,259

47,343

47,470

48,157

46,425
Net Leverage (i)

16.8x

18.1x

18.0x

17.9x

17.7x

17.6x
Book Value per
  Common Share (j)

33.49

33.22

32.47

31.81

30.83

29.93
             
Other Data (#s)            
Employees

12,980

12,694

12,851

13,090

13,281

12,426
Common Stock
  Outstanding

   239,033,699

   243,573,905

   244,169,647

   237,534,091

   239,046,975

   244,202,014
Weighted Average
  Shares		            
    Basic

246,653,851

245,767,129

245,284,387

241,933,119

240,414,784

243,852,453
    Diluted

261,040,475

263,491,206

265,202,416

261,545,485

261,755,211

266,878,412

(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, stockholders' equity and preferred securities subject to mandatory redemption.
(i) Net leverage ratio is calculated by comparing total assets excluding matched book to total stockholders' equity and other preferred securities.
(j) The book value per common share calculation includes restricted stock units granted under Lehman Stock Award Programs included in stockholders' equity.
   

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

      Three Months Ended
 Percentage Change
Inc/(Dec)
      August 31
2002
 August 31
2001
Revenues:            
    Principal transactions

$ 234

  

$ 637

      
    Investment banking

427

  

491

      
    Commissions

357

  

253

      
    Interest and dividends

3,048

  

3,657

      
    Other

       9

  

       19

      
        Total revenues

4,075

  

5,057

      
    Interest expense

2,728

  

3,429

      
        Net revenues

1,347

  

1,628

  

(17%)

  
             
Non-interest expenses:            
    Compensation and benefits

687

  

830

      
    Technology and communications

140

  

131

      
    Brokerage and clearance fees

87

  

82

      
    Occupancy

73

  

52

      
    Business development

37

  

44

      
    Professional fees

36

  

38

      
    Other

      18

  

      16

      
        Total non-interest expenses

1,078

  

1,193

  

(10%)

  
Income before taxes and dividends
  on trust preferred securities

269

  

435

      
    Provision for income taxes

61

  

112

      
    Dividends on trust preferred securities

      14

  

      14

      
Net income

$ 194

  

$ 309

  

(37%)

  
    Preferred stock dividends

11

  

11

      
Net income applicable to common stock

$ 183

  

$ 298

  

(39%)

  
                   
Earnings per common share        
    Basic

$ 0.74

  

$ 1.24

      
    Diluted

$ 0.70

  

$ 1.14

      

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

      Nine Months Ended
 Percentage Change
Inc/(Dec)
      August 31
2002
 August 31
2001
Revenues:            
    Principal transactions

$ 1,431

  

$ 2,619

      
    Investment banking

1,362

  

1,539

      
    Commissions

978

  

827

      
    Interest and dividends

8,843

  

13,070

      
    Other

      34

  

      38

      
        Total revenues

12,648

  

18,093

      
    Interest expense

8,032

  

12,560

      
        Net revenues

4,616

  

5,533

  

(17%)

  
             
Non-interest expenses:            
    Compensation and benefits

2,354

  

2,822

      
    Technology and communications

404

  

376

      
    Brokerage and clearance fees

237

  

232

  
    Occupancy

213

  

137

  
    Business development

112

  

149

  
    Professional fees

90

  

125

  
    Other

      61

  

      59

  
        Total non-interest expenses

3,471

  

3,900

(11%)
Income before taxes and dividends
  on trust preferred securities

1,145

  

1,633

  
    Provision for income taxes

315

  

466

  
    Dividends on trust preferred securities

      42

  

      42

  
Net income

$ 788

  

$ 1,125

(30%)
    Preferred stock dividends

58

  

84

  
Net income applicable to common stock

$ 730

  

$ 1,041

(30%)
               
Earnings per common share        
    Basic

$ 2.97

  

$ 4.28

  
    Diluted

$ 2.77

  

$ 3.91

  

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

      Three Months Ended
   Nine Months Ended
      Aug. 31
2002
 Aug. 31
2001
   Aug. 31
2002
 Aug. 31
2001
Investment Banking:                  
    Equity Underwriting

$ 93

  

$ 101

    

$ 365

  

$ 364
    Debt Underwriting

208

228

  

679

676
    Merger and Acquisition Advisory

      117

      131

  

      287

      442
        Total

      418

  

      460

    

    1,331

  

  1,482

  
                   
Capital Markets:          
    Equities

200

302

  

788

1,598
    Fixed Income

      529

      663

  

  1,886

  1,849
        Total

      729

  

      965

    

  2,674

  

  3,447

  
           
Client Services:          
    Private Client

191

171

  

579

546
    Private Equity

          9

        32

  

        32

        58
        Total

      200

  

      203

    

      611

  

      604

  
                   
        Total Lehman

$ 1,347

$ 1,628

$ 4,616

$ 5,533