Lehman Brothers - Past Quarterly Earnings

Past Quarterly Earnings

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Fourth Quarter 1999
Lehman Brothers Reports Record 1999 Earnings of $1.13 Billion, Up 54% from 1998

Fourth Quarter Earnings Quadruple to $301 Million

NEW YORK, January 6, 2000 —
Lehman Brothers Holdings Inc. (NYSE: LEH) today reported that net income was a record $1.13 billion for the full year of fiscal 1999, an increase of 54 percent from the $736 million of net income reported in fiscal 1998. For the full year, earnings per common share increased 57 percent to a record $8.15 (diluted), compared with $5.19 per share (diluted) in fiscal 1998.

For the quarter ended November 30, 1999, net income was $301 million, or $2.28 per common share (diluted), an increase of 307 percent from $74 million, or $0.51 per share (diluted), reported in the fourth quarter of fiscal 1998.

"By any measure, this was a terrific year for Lehman Brothers," said Richard S. Fuld, Jr., Chairman and Chief Executive Officer. "This year's record results reflect how far the Firm has come since becoming a public company five years ago. Underscoring our position as a leading global investment bank, our earnings in 1999 represent a tenfold increase from our first year’s net income level."

In addition to posting record net income, Lehman Brothers also posted record revenues and return on equity for the full year of 1999. Mr. Fuld noted that 1999 marked the first year that the Firm has passed the billion-dollar level for earnings, and the $5 billion-level for net revenues. He said that both the quarterly and full-year results reflect a number of successes for the Firm, including the successful diversification of its business mix, its global expansion, and the effective management of both expenses and risk.

For the full year, Lehman Brothers posted record results in its investment banking and capital markets businesses, including equities, fixed income, and high net worth retail. The Firm also posted a record year in its European operations.

For the full fiscal year, net revenues (total revenues less interest expense) were $5.3 billion, an increase of 30 percent from $4.1 billion in fiscal 1998. Net revenues for the fourth quarter were $1.4 billion, an increase of 112 percent from $665 million in the fourth quarter of fiscal 1998.

For the full 12 months of fiscal 1999, non-interest expenses were $3.7 billion. Non-personnel expenses were $1 billion, compared with $975 million in the 1998 fiscal year. Non-interest expenses for the fourth quarter were $973 million. Non-personnel expenses for the same period were $258 million, compared with $234 million in the previous fiscal year's fourth quarter, reflecting continued investments in a number of key strategic businesses and increased technology expenditures related to the Year 2000. Mr. Fuld noted that compensation and benefits as a percentage of net revenues remained at 50.7 percent for the 19th successive quarter.

For the full year, the Firm's pre-tax margin was 31 percent, compared with 26 percent for the 12 months of fiscal 1998. Return on common equity was 22 percent, compared with 16 percent in fiscal 1998. For the fiscal 1999 fourth quarter, the Firm's pre-tax margin was also 31 percent, compared with 14 percent in the fourth quarter of fiscal 1998. Return on common equity was 22 percent for the quarter ended November 30, 1999, compared with 6 percent for the fourth quarter of fiscal 1998. Return on common equity is calculated before any adjustments for special preferred dividends.

As of November 30, 1999, Lehman Brothers stockholders' equity and trust preferred securities totaled $7 billion, and total capital (stockholders' equity, trust preferred securities, and long-term debt) was $37.7 billion. Book value per common share was $45.50.

As a result of the level of earnings Lehman Brothers attained in 1999 and 1998, earnings per share calculations include the impact of a special preferred dividend of $50 million 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.

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)

	Twelve Months		Quarters Ended
	1999	1998	11/30/99	8/31/99	5/31/99	2/28/99	11/30/98

Income Statement
Net Revenues	$5,340	$4,113	$1,411	$1,356	$1,455	$1,118	$665
Non-Interest Expenses:
Compensation and Benefits	2,707	2,086	715	688	738	567	337
Nonpersonnel Expenses	1,002	975	258	251	251	242	234
Net Income	1,132	736	301	290	330	211	74
Net Income Applicable to Common Stock	1,037	649	292	279	268	198	62
Earnings per Common Share
Basic	$8.53	$5.37	$2.41	$2.30	$2.19	$1.62	$0.51
Diluted	$8.15	$5.19	$2.28	$2.20	$2.09	$1.57	$0.51

Financial Ratios (%)
Return on Common Equity (annualized) (a)	21.8	16.3	21.6	22.1	26.3	17.2	5.6
Return on Common Equity (annualized) (b)	20.8	15.2	21.6	22.1	22.1	17.2	5.6
Pretax Operating Margin	30.5	25.6	31.1	30.8	32.0	27.6	14.1
Compensation & Benefits/ Net Revenues	50.7	50.7	50.7	50.7	50.7	50.7	50.7
Effective Tax Rate	28.0	30.0	28.0	27.0	27.0	31.0	20.5

Balance Sheet
Total Assets			$192,000	$202,149	$191,543	$179,305	$153,890
Total Assets Excluding Matched Book (c)			130,000	136,106	128,822	121,881	111,509
Common Stockholders' Equity			5,595	5,192	4,935	4,731	4,505
Total Stockholders' Equity + Trust Preferred Securities			6,993	6,660	6,453	5,964	5,413
Total Capital (d)			37,684	36,517	34,915	32,682	32,754
Book Value per Common Share(e)			45.50	42.91	40.58	38.72	37.06

Other Data(#s)
Employees			8,893	8,729	8,511	8,695	8,873
Common Stock Outstanding			119,912,810	120,070,089	119,700,830	118,977,746	113,657,877
Average Shares
Basic	121,477,059	120,909,920	120,761,065	121,317,358	122,144,018	121,942,892	120,726,366
Diluted(f)	129,282,672	124,991,831	128,994,372	129,063,197	130,364,705	125,776,277	122,527,953

(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 and stockholders' equity, as well as, Trust Preferred Securities, where applicable.
(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.

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)
			November 30 1999	November 30 1998	Percentage of Dollar Change Inc/(Dec)
Revenues:
	Principal transactions		$ 623	$ 90
	Investment banking		432	246
	Commissions		186	135
	Interest and dividends		3,453	3,307
	Other		7	19
		Total revenues	4,701	3,797
	Interest expense		3,290	3,132
		Net revenues	1,411	665	112%
Non-interest expenses:
	Compensation and benefits		715	337
	Technology and communications		85	73
	Brokerage and clearance		57	57
	Business development		31	29
	Occupancy		32	27
	Professional fees		33	30
	Other		20	18
		Total non-interest expenses	973	571	70%
Income before taxes and dividends on trust preferred securities			438	94	366%
	Provision for income taxes		122	20
	Dividends on trust preferred securities		15
Net income			$ 301	$ 74	307%
Net income applicable to common stock			$ 292	$ 62	371%

Earnings per common share
	Basic		$2.41	$0.51
	Diluted		$2.28	$0.51

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

			Twelve Months Ended		Percentage of Dollar Change Inc/(Dec)
			November 30 1999	November 30 1998	Percentage of Dollar Change Inc/(Dec)
Revenues:
	Principal transactions		$ 2,341	$ 1,232
	Investment banking		1,682	1,582
	Commissions		651	513
	Interest and dividends		14,251	16,542
	Other		64	25
		Total revenues	18,989	19,894
	Interest expense		13,649	15,781
		Net revenues	5,340	4,113	30%
Non-interest expenses:
	Compensation and benefits		2,707	2,086
	Technology and communications		327	316
	Brokerage and clearance		232	239
	Business development		122	109
	Occupancy		116	113
	Professional fees		115	109
	Other		90	89
		Total non-interest expenses	3,709	3,061	21%
Income before taxes and dividends on trust preferred securities			1,631	1,052	55%
	Provision for income taxes		457	316
	Dividends on trust preferred securities		42
Net income			$ 1,132	$ 736	54%
Net income applicable to common stock			$ 1,037	$ 649	60%

Earnings per common share
	Basic		$8.53	$5.37
	Diluted		$8.15	$5.19