LEHMAN BROTHERS
PRESS RELEASE
For Immediate Release Media Contact: Hannah Burns
(212) 526-4064
Investor Contact: Shaun Butler
(212) 526-8381
LEHMAN BROTHERS REPORTS
RECORD QUARTERLY RESULTS
- Reports Record Net Revenues, Net Income and
Earnings Per Share For First Quarter -
NEW YORK, March 15, 2005 -- Lehman Brothers Holdings Inc. (ticker symbol: LEH)
today reported net income of $875 million, or $2.91 per common share (diluted),
for the first quarter ended February 28, 2005, representing increases of 31% and
32%, respectively, from net income of $670 million, or $2.21 per common share
(diluted), reported for the first quarter of fiscal 2004, and increases of 50%
and 48%, respectively, from net income of $585 million, or $1.96 per common
share (diluted) for the fourth quarter of fiscal 2004.
First Quarter Business Highlights
o Achieved record revenues in Investment Banking, Capital Markets, Europe and
Asia
o Advising on four of the top ten M&A transactions announced in the first
fiscal quarter
o Grew assets under management to $148 billion from $137 billion
at the end of last quarter
Richard S. Fuld, Jr., chairman and chief executive officer, said, "This was
truly a great quarter. These record results reflect an outstanding performance
from all of our businesses and regions and the earnings power of the Firm. We
have never been stronger than we are today and are very well-positioned for the
future. Our performance and momentum are clearly the result of how well we are
working together as one Firm to deliver on our client-focused strategy."
The Firm reported record net revenues (total revenues less interest expense) for
the first quarter of fiscal 2005 of $3.8 billion, a 21% increase from $3.1
billion in the first quarter of fiscal 2004, and a 32% increase from $2.9
billion in the fourth quarter of fiscal 2004.
Investment Banking revenues increased 34% to a record $683 million for the first
quarter of fiscal 2005, from $508 million for the same period a year ago,
reflecting improved performance across all products, including record results in
debt origination and continued strength in M&A activity. Record Capital Markets
net revenues, which increased 21% to $2.7 billion from $2.2 billion in the first
quarter of fiscal 2004, were driven by record results in Fixed Income Capital
Markets and strong results in Equities Capital Markets. The record results in
Fixed Income Capital Markets reflect a strong performance across all major
businesses, and in particular mortgages and interest rate products. Improved
global equity markets and increased secondary activity contributed to another
quarter of solid performance in Equities Capital Markets. Investment Management,
formerly Client Services, net revenues increased 5% to $437 million for the
first quarter of fiscal 2005, from $416 million in the same period a year ago.
Net revenues in Asset Management reflected a continued increase in Assets Under
Management from strong net inflows as well as market appreciation. A slight
decline in Private Investment Management net revenues was largely attributable
to a decline in fixed income production as investors allocated a larger
proportion of investments into cash.
Non-interest expenses were $2.5 billion in the first quarter of fiscal 2005,
compared to $2.1 billion in the first quarter of fiscal 2004, and $2.0 billion
in the fourth quarter of fiscal 2004. Compensation and benefits as a percentage
of net revenues were 49.5% during the first quarter of fiscal 2005, consistent
with the Firm's full year 2004 ratio. Non-personnel expenses in the first
quarter of fiscal 2005 were $618 million, compared with $527 million (excluding
the $19 million
2
real estate reconfiguration charge) in the previous fiscal
year's first quarter, and $603 million in the previous fiscal year's fourth
quarter.
For the quarter ended February 28, 2005, the Firm's pre-tax margin was 34.3%
versus 32.8% in the first quarter of fiscal 2004, and 30.5% in the fourth
quarter of fiscal 2004. Return on average common equity was 24.5% for the first
quarter of fiscal 2005, compared to 21.1% for the first quarter of fiscal 2004,
and 17.0% for the fourth quarter of fiscal 2004. Return on average tangible
common equity was 32.0% for the first quarter of fiscal 2005, compared with
29.7% for the first quarter of fiscal 2004, and 23.0% for the fourth quarter of
fiscal 2004.
As of February 28, 2005, Lehman Brothers total stockholders' equity was $15.8
billion, and long-term debt was $59.3 billion (including junior subordinated
debentures of $1.2 billion), for total capital of $75.1 billion. Book value per
common share was $51.75.
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 investment management, asset
management and private equity. 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 March 15, 2005. The call will be open to the public.
Members of the public who would like to access the conference call should dial,
from the U.S., 888-456-0338 or from outside the U.S., 212-547-0182. The pass
code for all callers is LEHMAN. The conference call will also be accessible
through the "Shareholders" section of the Firm's Web site 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 866-443-1209 (domestic) or
203-369-1089 (international). The replay will be available approximately one
hour after the event and will remain available on the Lehman Brothers Web site
until
3
5:00 p.m. EDT on April 15, 2005, and by phone until 11:59 p.m. EDT on
April 15, 2005. Please direct any questions regarding the conference call to
Shaun Butler at 212-526-8381, sbutler@lehman.com or Elizabeth Besen at
212-526-2733, ebesen@lehman.com.
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 risks and uncertainties
relating to market fluctuations and volatility, industry competition and changes
in the competitive environment, investor sentiment, liquidity and credit
ratings, credit exposures, operational risks and legal and regulatory matters.
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 and, accordingly, readers are cautioned not to place
undue reliance on such statements. The Firm undertakes no obligation to update
any forward-looking statements, whether as a result of new information, future
events or otherwise. 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
Operations" in the Firm's most recent Annual Report on Form 10-K.
###
4
LEHMAN BROTHERS HOLDINGS INC.
SELECTED STATISTICAL INFORMATION
(Preliminary and Unaudited)
(Dollars in millions, except per share data)
Quarter Ended
------------------------------------------------------------------
2/28/05 11/30/04 8/31/04 5/31/04 2/29/04
------- -------- ------- ------- -------
Income Statement
- ----------------
Net Revenues $3,810 $2,883 $2,623 $2,926 $3,144
Non-Interest Expenses:
Compensation and Benefits 1,886 1,401 1,306 1,457 1,566
Non-personnel Expenses 618 603 594 585 527
Real Estate Reconfiguration Charge -- -- -- -- 19
Net Income 875 585 505 609 670
Net Income Applicable to Common Stock 856 566 487 592 653
Earnings per Common Share:
Basic $3.07 $2.07 $1.79 $2.14 $2.37
Diluted $2.91 $1.96 $1.71 $2.01 $2.21
Financial Ratios (%)
- ----------------
Return on Average Common Stockholders' Equity
(annualized) (a) 24.5% 17.0% 15.0% 18.6% 21.1%
Return on Average Tangible Common Stockholders'
Equity (annualized) (b) 32.0% 23.0% 20.9% 26.0% 29.7%
Pretax Margin 34.3% 30.5% 27.6% 30.2% 32.8%
Compensation and Benefits/Net Revenues 49.5% 48.6% 49.8% 49.8% 49.8%
Effective Tax Rate 33.0% 33.5% 30.2% 31.1% 32.8%
Financial Condition
- -------------------
Total Assets $370,000 $357,168 $340,890 $346,499 $328,064
Net Assets (c) 189,630 175,221 171,308 175,452 171,600
Long-Term Debt 59,320 56,486 50,043 52,380 50,982
Common Stockholders' Equity 14,409 13,575 13,076 12,831 12,601
Total Stockholders' Equity 15,754 14,920 14,421 14,006 13,776
Total Stockholders' Equity Plus Junior
Subordinated Debentures(c) 16,979 15,920 15,421 15,391 15,086
Tangible Equity Capital (c) 13,709 12,636 11,763 11,536 11,296
Total Capital (d) 75,074 71,406 64,464 66,386 64,758
Book Value per Common Share (e) 51.75 49.32 48.10 47.05 45.45
Gross Leverage Ratio(f) 23.5x 23.9x 23.6x 24.7x 23.8x
Net Leverage Ratio(c) 13.8x 13.9x 14.6x 15.2x 15.2x
Other Data (#s)
- ----------
Employees 20,267 19,579 19,286 17,625 16,505
Assets Under Management (in billions) $147.7 $136.7 $130.9 $129.3 $128.0
Common Stock Outstanding (in millions) 275.4 274.2 269.5 272.7 277.2
Weighted Average Shares (in millions):
Basic 278.6 273.2 272.8 276.8 275.5
Diluted 294.0 288.5 285.0 294.2 294.7
See Footnotes to Selected Statistical Information on page 6.
5
LEHMAN BROTHERS HOLDINGS INC.
FOOTNOTES TO SELECTED STATISTICAL INFORMATION
(Preliminary and Unaudited)
(a) Return on average common stockholders' equity is computed by dividing
annualized net income applicable to common stock for the period by average
common stockholders' equity. See the reconciliation on page 9.
(b) Return on average tangible common stockholders' equity is computed by
dividing annualized net income applicable to common stock for the period by
average tangible common stockholders' equity. Average tangible common
stockholders' equity equals average total common stockholders' equity less
average identifiable intangible assets and goodwill. See the reconciliation
on page 9. Management believes tangible common stockholders' equity is a
meaningful measure because it reflects the common stockholders' equity
deployed in our businesses.
(c) Net leverage ratio is defined as net assets (total assets excluding: 1)
cash and securities segregated and on deposit for regulatory and other
purposes, 2) securities received as collateral, 3) securities purchased
under agreements to resell, 4) securities borrowed and 5) identifiable
intangible assets and goodwill) divided by tangible equity capital. We
believe net assets is a measure more useful to investors than total assets
when comparing companies in the securities industry because it excludes
certain assets considered to have a low risk profile and identifiable
intangible assets and goodwill. We believe tangible equity capital to be a
more representative measure of our equity for purposes of calculating net
leverage because such measure includes total stockholders' equity plus
junior subordinated debentures, less identifiable intangible assets and
goodwill. We believe total stockholders' equity plus junior subordinated
debentures to be a more meaningful measure of our equity because the junior
subordinated debentures are subordinated and have maturities at issuance of
49 years and we can defer interest payments for up to 20 consecutive
quarters if the junior subordinated debentures are not in default. In
addition, a leading rating agency views these securities as equity capital
for purposes of calculating net leverage. Further, we do not view the
amount of equity used to support identifiable intangible assets and
goodwill as available to support our remaining net assets. Accordingly, we
believe net leverage, based on net assets divided by tangible equity
capital, both as defined above, to be a more meaningful measure of leverage
to evaluate companies in the securities industry. See the reconciliation on
page 11. These definitions of net assets, tangible equity capital and net
leverage are used by many of our creditors and a leading rating agency.
These measures are not necessarily comparable to similarly-titled measures
provided by other companies in the securities industry because of different
methods of calculation.
(d) Total capital includes long-term debt (including junior subordinated
debentures) and total stockholders' equity. We believe total capital is
useful to investors as a measure of our financial strength.
(e) The book value per common share calculation includes amortized restricted
stock units granted under stock award programs, which have been included in
total stockholders' equity.
(f) Gross leverage ratio is defined as total assets divided by total
stockholders' equity.
6
LEHMAN BROTHERS HOLDINGS INC.
CONSOLIDATED STATEMENT OF INCOME
(Preliminary and Unaudited)
(In millions, except per share data)
Quarter Ended % Change from
----------------------------------------- -------------------------
Feb 28, Nov 30, Feb 29, Nov 30, Feb 29,
2005 2004 2004 2004 2004
----------- ---------- ---------- ---------- -----------
Revenues:
Principal transactions $2,195 $1,264 $1,739
Investment banking 683 608 508
Commissions 411 392 390
Interest and dividends 3,884 3,350 2,304
Asset management and other 218 232 184
----------- ---------- ----------
Total revenues 7,391 5,846 5,125
Interest expense 3,581 2,963 1,981
----------- ---------- ----------
Net revenues 3,810 2,883 3,144 32% 21%
----------- ---------- ----------
Non-interest expenses:
Compensation and benefits 1,886 1,401 1,566
Technology and communications 200 214 170
Brokerage and clearance fees 120 116 107
Occupancy 119 108 102
Professional fees 62 61 47
Business development 53 56 44
Other 64 48 57
Real estate reconfiguration charge - - 19
----------- ---------- ----------
Total non-interest expenses 2,504 2,004 2,112 25% 19%
----------- ---------- ----------
Income before taxes and dividends on trust
preferred securities (a) 1,306 879 1,032
Provision for income taxes 431 294 338
Dividends on trust preferred
securities (a) -- -- 24
----------- ---------- ----------
Net income $875 $585 $670 50% 31%
=========== ========== ==========
Net income applicable to common stock $856 $566 $653 51% 31%
=========== ========== ==========
Earnings per common share:
Basic $3.07 $2.07 $2.37 48% 30%
=========== ========== ==========
Diluted $2.91 $1.96 $2.21 48% 32%
=========== ========== ==========
(a) We adopted FIN 46R effective February 29, 2004, which required us to
deconsolidate the trusts that issued the trust preferred securities.
Accordingly, at and subsequent to February 29, 2004, trust preferred
securities were reclassified to junior subordinated debentures (a component
of Subordinated indebtedness). Dividends on trust preferred securities
presented in the Consolidated Statement of Income through February 29,
2004, are included in Interest expense in periods subsequent to February
29, 2004.
7
LEHMAN BROTHERS HOLDINGS INC.
SEGMENT NET REVENUE INFORMATION
(Preliminary and Unaudited)
(In millions)
Quarter Ended % Change from
-------------------------------------------- -----------------------
Feb 28, Nov 30, Feb 29, Nov 30, Feb 29,
2005 2004 2004 2004 2004
----------- ---------- ----------- ---------- ---------
Investment Banking:
Debt Underwriting $326 $288 $217
Equity Underwriting 188 141 143
Merger and Acquisition Advisory 169 179 148
----------- ---------- -----------
Total 683 608 508 12% 34%
----------- ---------- -----------
Capital Markets:
Fixed Income 2,068 1,326 1,601
Equities 622 497 619
----------- ---------- -----------
Total 2,690 1,823 2,220 48% 21%
----------- ---------- -----------
Investment Management:
Private Investment Management 203 212 212
Asset Management 234 240 204
----------- ---------- -----------
Total 437 452 416 (3)% 5%
----------- ---------- -----------
Total Net Revenues $3,810 $2,883 $3,144 32% 21%
=========== ========== ===========
8
LEHMAN BROTHERS HOLDINGS INC.
RECONCILIATION OF AVERAGE COMMON STOCKHOLDERS' EQUITY TO
AVERAGE TANGIBLE COMMON STOCKHOLDERS' EQUITY
(Preliminary and Unaudited)
(In millions)
Quarter Ended
----------------------------------------------------------------------------
Feb 28, Nov 30, Aug 31, May 31, Feb 29,
2005 2004 2004 2004 2004
------------ ------------ ------------ ------------ ------------
Average common stockholders' equity $13,992 $13,326 $12,954 $12,716 $12,365
Less: average identifiable intangible
assets and goodwill (3,277) (3,471) (3,641) (3,617) (3,586)
------------ ------------ ------------ ------------ ------------
Average tangible common stockholders' $10,715 $ 9,855 $ 9,313 $ 9,099 $ 8,779
equity ============ ============ ============ ============ ============
9
LEHMAN BROTHERS HOLDINGS INC.
ASSETS UNDER MANAGEMENT
(Preliminary and Unaudited)
(In billions)
Feb 28, Nov 30, Feb 29,
Composition of Assets Under Management 2005 2004 2004
---- ---- ----
Money Markets $ 21.8 $ 19.0 $ 20.1
Fixed Income 53.7 51.7 50.5
Equity 59.1 54.3 47.5
Alternative Investments 13.1 11.7 9.9
-------- -------- --------
Assets under Management $147.7 $136.7 $128.0 (a)
====== ====== ======
Quarter Ended
---------------------------------------------
Feb 28, Nov 30, Feb 29,
Assets Under Management Rollforward 2005 2004 2004
---- ---- ----
Balance, beginning of period $136.7 $130.9 $120.1
Net additions 7.0 0.1 2.9
Net market appreciation 4.0 5.7 5.0
-------- -------- --------
Total increase 11.0 5.8 7.9
------- -------- --------
Balance, end of period $147.7 $136.7 $128.0 (a)
====== ====== ======
(a) Total assets under management at February 29, 2004 have been restated to
include $4.2 billion of discretionary cash management assets.
10
LEHMAN BROTHERS HOLDINGS INC.
GROSS LEVERAGE and NET LEVERAGE CALCULATIONS
(Preliminary and Unaudited)
(In millions)
Feb 28, Nov 30, Aug 31, May 31, Feb 29,
2005 2004 2004 2004 2004
------------ ------------- -------------- ------------- ------------
Net assets:
Total assets $370,000 $357,168 $340,890 $346,499 $328,064
Less:
Cash and securities segregated and
on deposit for regulatory and
other purposes (4,300) (4,085) (4,800) (4,606) (3,633)
Secured financing arrangements
(reverse repo and securities
borrowed) (169,000) (169,829) (156,661) (158,441) (143,563)
Securities received as collateral (3,800) (4,749) (4,463) (4,376) (5,658)
Identifiable intangible assets and
goodwill (3,270) (3,284) (3,658) (3,624) (3,610)
------------ ------------- -------------- ------------- ------------
Net assets $189,630 $175,221 $171,308 $175,452 $171,600
============ ============= ============== ============= ============
Tangible equity capital:
Total stockholders' equity $15,754 $14,920 $14,421 $14,006 $13,776
Junior subordinated debentures
(subject to a limit) (a) 1,225 1,000 1,000 1,154 1,130
Less: Identifiable intangible assets
and goodwill (3,270) (3,284) (3,658) (3,624) (3,610)
------------ ------------- -------------- ------------- ------------
Tangible equity capital $13,709 $12,636 $11,763 $11,536 $11,296
============ ============= ============== ============= ============
Gross leverage (total assets / total
stockholders' equity) 23.5x 23.9x 23.6x 24.7x 23.8x
Net leverage (net assets / tangible
equity capital) 13.8x 13.9x 14.6x 15.2x 15.2x
(a) Under the definition of tangible equity capital used by a leading rating
agency, the maximum equity credit given to junior subordinated debentures
is 10% of tangible equity capital. (Junior subordinated debentures are
included in the calculation to determine the limit).
11