Past Quarterly Earnings

Fourth Quarter 1998
Lehman Brothers Reports Record 1998 Earnings of $736 Million, Up 14% from 1997

Posts Fourth Quarter Earnings of $74 Million

NEW YORK, January 7, 1999 —
Lehman Brothers Holdings Inc. (NYSE: LEH) today reported that net income was a record $736 million for the full year of fiscal 1998, an increase of 14% from $647 million for fiscal 1997. For the full year, earnings per share were $5.19 (diluted), compared with $4.72 per share (diluted) in fiscal 1997.

For the quarter ended November 30, 1998, net income was $74 million, or $0.51 per common share (diluted), compared with $185 million, or $1.30 per share (diluted), for the fourth quarter of fiscal 1997.

"This was an excellent year for Lehman Brothers, despite the difficult market environment we faced throughout much of the second half of the fiscal year," said Richard S. Fuld, Jr., Chairman and Chief Executive Officer. "Even with unprecedented turmoil in the global debt markets that began in August, and a slower underwriting calendar in September and October, Lehman Brothers achieved higher revenues and earnings in 1998 than in any other year in the Firm's history."

He added: "In 1998, the Firm continued to successfully diversify its business mix, managed its risk profile extremely well throughout the year, and significantly raised its capital base. Lehman Brothers not only weathered the storms of the last few months, but also came through that period profitably, financially strong, and strategically well positioned for 1999."

Mr. Fuld noted that, for the full year, Lehman Brothers posted record results in its investment banking, equities, and high net worth retail businesses, reflecting the continued success of the Firm's efforts to build these businesses and diversify its revenue mix.

For the full fiscal year, net revenues (total revenues less interest expense) were $4.113 billion, an increase of 6 percent from $3.873 billion in fiscal 1997. Net revenues for the fourth quarter were $665 million, down from $1.023 billion in the fourth quarter of fiscal 1997, as extreme market volatility in September and October resulted in weaker prices on a broad range of fixed income products, decreased levels of customer trading activity, and significantly lower syndicate volume.

For the full 12 months of fiscal 1998, non-interest expenses were $3.061 billion. Non-personnel expenses were $975 million, compared with $972 million in the 1997 fiscal year. Non-interest expenses for the fourth quarter were $571 million. Non-personnel expenses for the same period were $234 million, down from $239 million in the previous fiscal year's fourth quarter and from $251 million in the third quarter of fiscal 1998, despite continued investments in a number of key strategic businesses and increased technology expenditures related to the Year 2000 and European Monetary Union. Mr. Fuld noted that compensation and benefits as a percentage of net revenues remained at 50.7 percent for the 15th successive quarter.

For the full year, the Firm's pre-tax margin was 25.6 percent, compared with 24.2 percent for the 12 months of fiscal 1997. Return on common equity was 16.3 percent, compared with 17 percent in fiscal 1997, as common stockholders' equity grew by more than 12 percent over the course of fiscal 1998. For the fiscal 1998 fourth quarter, the Firm's pre-tax margin was 14.1 percent, compared with 25.9 percent in the fourth quarter of fiscal 1997. Return on common equity was 5.6 percent for the quarter ended November 30, 1998, compared with 18.3 percent for the fourth quarter of fiscal 1997. Return on common equity is calculated before any adjustments for special preferred dividends.

As of November 30, 1998, Lehman Brothers stockholders' equity was $5.4 billion, and total capital (stockholders' equity and long-term debt) was $32.8 billion. Book value per common share was $37.06.

Lehman Brothers is a global investment bank with leadership positions in corporate finance, advisory services, 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.

(a)   Effective December 1997, basic and diluted earnings per share replaced the primary and fully diluted calculations in accordance with Statement of Financial Accounting Standards No. 128.
(b)   Return on common equity calculated using net income before adjusting for special preferred dividends.
(c)   Return on common equity calculated using net income after adjusting for special preferred dividends.
(d)   Matched book is defined as the lower of securities purchased under agreements to resell or securities sold under agreements to repurchase.
(e)   This calculation includes restricted stock units granted under the Lehman Stock Award Programs included in stockholders’ equity.