NEW YORK, Sept. 13 - Lehman Brothers Holdings Inc. (NYSE: LEH) today reported net income of $916 million for the third quarter ended August 31, 2006, or $1.57 per common share (diluted), representing increases of 4% and 7%, respectively, from net income of $879 million, or $1.47 per common share (diluted), reported for the third quarter of fiscal 2005. Second quarter fiscal 2006 net income was $1.0 billion, or $1.69 per common share (diluted).
For the first nine months of fiscal 2006, the Firm reported record net income of $3.0 billion, or $5.09 per common share (diluted), up 23% and 26%, respectively, from the first nine months of fiscal 2005.
Third Quarter Business Highlights
* Reported record quarterly net revenues in Investment Management and
Europe
* Posted record net revenues in the nine-month period across all segments
and regions
* Felix G. Rohatyn joined Lehman Brothers as senior advisor to the
Chairman and as Chairman of the International Advisory Committees
Chairman and Chief Executive Officer Richard S. Fuld, Jr. said, "Market conditions during the third quarter were clearly more challenging than during the first half of the year. However, despite the market environment and the typically slower activity of the summer months, these results are our best third quarter results ever. These results also contributed to our best nine months ever, which were driven by record performances across all segments and regions. This performance demonstrates the Firm's ability to partner with our clients across cycles and to continue to deliver consistent returns to our shareholders."
Net revenues (total revenues less interest expense) for the third quarter of fiscal 2006 increased to $4.2 billion, up 8% from $3.9 billion in the third quarter of fiscal 2005, and down 5% from $4.4 billion in the second quarter of fiscal 2006. Net revenues for the first nine months of fiscal 2006 increased 19%, to a record $13.1 billion, from $10.9 billion for the first nine months of fiscal 2005.
Investment Banking revenues decreased 11% to $726 million in the third quarter of fiscal 2006, from $815 million in the third quarter of fiscal 2005, reflecting a decrease in completed M&A transactions and equity origination volumes. At August 31, 2006, the Investment Banking fee pipeline was at a record level. Capital Markets net revenues in the third quarter of fiscal 2006 rose 13% to $2.8 billion, compared to $2.5 billion for the same period in fiscal 2005, representing the third highest quarter ever for the segment. Equities Capital Markets reported strong net revenues of $837 million, up 31% from $637 million in the third quarter of 2005, driven by solid customer flow activity in the cash and prime brokerage businesses. Fixed Income Capital Markets net revenues increased 6% to $2.0 billion in the third quarter of fiscal 2006 from $1.9 billion in the third quarter of 2005, reflecting record results in real estate and strong results in foreign exchange products, partially offset by lower performances within mortgages, high yield and interest rate products. Record Investment Management net revenues, which increased 18% to $605 million in the third quarter of fiscal 2006 compared to $511 million a year ago, were attributable to record Private Investment Management revenues, which increased 7% to $256 million from $239 million a year ago, and higher Asset Management revenues. Asset Management reported its second highest revenues ever of $349 million, an increase of 28% from $272 million a year ago. Assets under management grew to a record $207 billion.
Non-interest expenses for the third quarter of fiscal 2006 were $2.8 billion, compared to $2.6 billion in the third quarter of fiscal 2005 and $2.9 billion in the second quarter of fiscal 2006. Compensation and benefits as a percentage of net revenues was 49.3% during the third quarter of fiscal 2006, compared to 49.5% during the third quarter of fiscal 2005 and 49.3% in the second quarter of fiscal 2006. Non-personnel expenses in the third quarter of fiscal 2006 were $751 million, compared to $738 million in the second quarter of fiscal 2006 and $653 million in the third quarter of fiscal 2005.
For the third quarter of fiscal 2006, the Firm's pre-tax margin was 32.7%, compared to 33.6% in the third quarter of fiscal 2005. For the third quarter of fiscal 2006, the Firm's return on average common stockholders' equity was 21.0%, compared to 23.0% in the third quarter of fiscal 2005, and return on average tangible common stockholders' equity was 26.1% for the third quarter of fiscal 2006, compared to 29.4% in the third quarter of fiscal 2005.
As of August 31, 2006, Lehman Brothers stockholders' equity totaled $18.4 billion, and total long-term capital (stockholders' equity and long-term borrowings, excluding remaining maturities less than twelve months) was approximately $93.9 billion. Book value per common share was $32.16.
Lehman Brothers (NYSE: 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, with regional headquarters in 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 the Firm's Web site at http://www.lehman.com.
Conference Call
A conference call, to discuss the Firm's financial results and outlook, will be held at 10:00 a.m., EDT today. 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., 888-323-4182 or from outside the U.S., 517-623-4500. 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 888-568-0349 (domestic) or 203-369-3465 (international). The replay will be available approximately one hour after the event and will remain available on the Lehman Brothers Web site until 5:00 p.m. EDT on October 13, 2006, and by phone until 11:59 p.m. EDT on October 13, 2006. 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 "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Firm's most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q.
LEHMAN BROTHERS HOLDINGS INC.
SELECTED STATISTICAL INFORMATION
(Preliminary and Unaudited)
(Dollars in millions, except per share data)
At or for the Quarter Ended
8/31/06 5/31/06 2/28/06 11/30/05 8/31/05
Income Statement
Net Revenues $4,178 $4,411 $4,461 $3,690 $3,852
Non-Interest Expenses:
Compensation and Benefits 2,060 2,175 2,199 1,798 1,906
Non-personnel Expenses 751 738 711 675 653
Income Before Cumulative
Effect of Accounting Change 916 1,002 1,038 823 879
Cumulative Effect of
Accounting Change - - 47 - -
Net Income 916 1,002 1,085 823 879
Net Income Applicable
to Common Stock 899 986 1,069 807 864
Earnings per Basic Common
Share: (a)
Before Cumulative Effect of
Accounting Change $1.66 $1.81 $1.87 $1.46 $1.55
Cumulative Effect of
Accounting Change - - $0.09 - -
Earnings per Basic
Common Share $1.66 $1.81 $1.96 $1.46 $1.55
Earnings per Diluted
Common Share: (a)
Before Cumulative Effect of
Accounting Change $1.57 $1.69 $1.75 $1.38 $1.47
Cumulative Effect of
Accounting Change - - $0.08 - -
Earnings per Diluted
Common Share $1.57 $1.69 $1.83 $1.38 $1.47
Financial Ratios (%)
Return on Average Common
Stockholders' Equity
(annualized) (b) 21.0% 23.7% 26.7% 20.9% 23.0%
Return on Average Tangible
Common Stockholders' Equity
(annualized) (c) 26.1% 29.5% 33.5% 26.5% 29.4%
Pre-tax Margin 32.7% 34.0% 34.8% 33.0% 33.6%
Compensation and
Benefits/Net Revenues 49.3% 49.3% 49.3% 48.7% 49.5%
Effective Tax Rate 33.0% 33.1% 33.1% 32.4% 32.0%
Financial Condition
Total Assets $475,000 $456,202 $439,796 $410,063 $384,295
Net Assets (d) 240,736 240,719 227,048 211,424 194,208
Common Stockholders' Equity 17,301 16,887 16,398 15,699 15,239
Total Stockholders' Equity 18,396 17,982 17,493 16,794 16,334
Total Stockholders' Equity
Plus Junior Subordinated
Notes(d) 21,088 20,699 20,116 18,820 18,133
Tangible Equity Capital (d) 17,724 17,402 16,834 15,564 14,871
Total Long-Term Capital (e) 93,866 90,502 76,224 70,693 70,784
Book Value per
Common Share (f) (a) 32.16 31.08 30.01 28.75 27.46
Gross Leverage Ratio (g) 25.8x 25.4x 25.1x 24.4x 23.5x
Net Leverage Ratio (d) 13.6x 13.8x 13.5x 13.6x 13.1x
Other Data (#s)
Employees 24,775 23,387 22,919 22,919 22,047
Assets Under Management
(in billions) $207 $198 $188 $175 $164
Common Stock Outstanding
(in millions) (a) 530.3 540.3 538.3 542.9 538.7
Weighted Average Shares
(in millions): (a)
Basic 540.9 545.1 546.3 551.8 557.3
Diluted 573.3 582.8 584.2 585.2 587.4
See Footnotes to Selected Statistical Information on page 6.
LEHMAN BROTHERS HOLDINGS INC.
FOOTNOTES TO SELECTED STATISTICAL INFORMATION
(Preliminary and Unaudited)
(a) Prior period share and earnings per share amounts have been restated
to reflect the 2 for 1 stock split on April 28, 2006.
(b) 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
10.
(c) 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 10. Management believes
tangible common stockholders' equity is a meaningful measure because
it reflects the common stockholders' equity deployed in our
businesses.
(d) 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
notes, less identifiable intangible assets and goodwill. We believe
total stockholders' equity plus junior subordinated notes to be a more
meaningful measure of our equity because the junior subordinated notes
are subordinated and have maturities at issuance from 30 to 49 years.
In addition, a leading rating agency views these securities as equity
capital for purposes of calculating net leverage. See the
reconciliation on page 12. 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. 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.
(e) Total long-term capital includes long-term borrowings (excluding any
borrowings with remaining maturities under twelve months) and total
stockholders' equity. We believe total long-term capital is useful to
investors as a measure of our financial strength.
(f) The book value per common share calculation includes amortized
restricted stock units granted under stock award programs.
(g) Gross leverage ratio is defined as total assets divided by total
stockholders' equity.
LEHMAN BROTHERS HOLDINGS INC.
CONSOLIDATED STATEMENT OF INCOME
(Preliminary and Unaudited)
(In millions, except per share data)
Quarter Ended % Change from
Aug 31, May 31, Aug 31, May 31, Aug 31,
2006 2006 2005 2006 2005
Revenues:
Principal transactions $2,204 $2,506 $2,085
Investment banking 726 741 815
Commissions 564 587 420
Interest and dividends 7,867 7,327 5,078
Asset management
and other 366 354 241
Total revenues 11,727 11,515 8,639
Interest expense 7,549 7,104 4,787
Net revenues 4,178 4,411 3,852 (5)% 8%
Non-interest expenses:
Compensation and
benefits 2,060 2,175 1,906
Technology and
communications 247 238 217
Brokerage, clearance and
distribution fees (a) 164 158 138
Occupancy 128 139 122
Professional fees 90 83 72
Business development 77 74 56
Other (a) 45 46 48
Total non-interest
expenses 2,811 2,913 2,559 (4)% 10%
Income before provision
for income taxes 1,367 1,498 1,293
Provision for income taxes 451 496 414
Net income $916 $1,002 $879 (9)% 4%
Net income applicable
to common stock $899 $986 $864 (9)% 4%
Earnings per
common share: (b)
Basic $1.66 $1.81 $1.55 (8)% 7%
Diluted $1.57 $1.69 $1.47 (7)% 7%
(a) Amounts for the quarter ended August 31, 2005 have been reclassified
to conform to the August 31, 2006 presentation.
(b) Prior period earnings per share amounts have been restated to reflect
the 2 for 1 stock split on April 28, 2006.
LEHMAN BROTHERS HOLDINGS INC.
CONSOLIDATED STATEMENT OF INCOME
(Preliminary and Unaudited)
(In millions, except per share data)
Nine Months Ended % Change from
Aug 31, Aug 31, Aug 31,
2006 2005 2005
Revenues:
Principal transactions $7,183 $5,924
Investment banking 2,302 2,077
Commissions 1,623 1,252
Interest and dividends 21,386 13,416
Asset management and other 1,055 696
Total revenues 33,549 23,365
Interest expense 20,499 12,425
Net revenues 13,050 10,940 19%
Non-interest expenses:
Compensation and benefits 6,434 5,415
Technology and communications 713 612
Brokerage, clearance and
distribution fees (a) 463 408
Occupancy 408 364
Professional fees 245 203
Business development 211 170
Other (a) 160 156
Total non-interest expenses 8,634 7,328 18%
Income before taxes and cumulative
effect of accounting change 4,416 3,612
Provision for income taxes 1,460 1,175
Income before cumulative effect
of accounting change 2,956 2,437 21%
Cumulative effect of
accounting change 47 -
Net income $3,003 $2,437 23%
Net income applicable
to common stock $2,954 $2,383 24%
Earnings per basic common share: (b)
Before cumulative effect of
accounting change $5.34 $4.27
Cumulative effect of
accounting change .09 -
Earnings per basic common share $5.43 $4.27 27%
Earnings per diluted common share: (b)
Before cumulative effect
of accounting change $5.01 $4.05
Cumulative effect of
accounting change .08 -
Earnings per diluted common share $5.09 $4.05 26%
(a) Prior period amounts have been reclassified to conform to the August
31, 2006 presentation.
(b) Prior period earnings per share amounts have been restated to reflect
the 2 for 1 stock split on April 28, 2006.
LEHMAN BROTHERS HOLDINGS INC.
SEGMENT NET REVENUE INFORMATION
(Preliminary and Unaudited)
(In millions)
Quarter Ended % Change from
Aug 31, May 31, Aug 31, May 31, Aug 31,
2006 2006 2005 2006 2005
Investment Banking:
Global Finance - Debt $348 $289 $336
Global Finance - Equity 183 208 255
Advisory Services 195 244 224
Total 726 741 815 (2)% (11)%
Capital Markets:
Fixed Income 2,010 2,200 1,889
Equities 837 878 637
Total 2,847 3,078 2,526 (8)% 13%
Investment Management:
Asset Management 349 347 272
Private Investment
Management 256 245 239
Total 605 592 511 2% 18%
Total Net Revenues $4,178 $4,411 $3,852 (5)% 8%
Nine Months Ended % Change from
Aug 31, Aug 31, Aug 31,
2006 2005 2005
Investment Banking:
Global Finance - Debt $1,047 $972
Global Finance - Equity 590 615
Advisory Services 665 490
Total 2,302 2,077 11%
Capital Markets:
Fixed Income 6,312 5,710
Equities 2,659 1,733
Total 8,971 7,443 21%
Investment Management:
Asset Management 1,064 761
Private Investment Management 713 659
Total 1,777 1,420 25%
Total Net Revenues $13,050 $10,940 19%
LEHMAN BROTHERS HOLDINGS INC.
RECONCILIATION OF AVERAGE COMMON STOCKHOLDERS' EQUITY TO
AVERAGE TANGIBLE COMMON STOCKHOLDERS' EQUITY
(Preliminary and Unaudited)
(In millions)
Quarter Ended
Aug 31, May 31, Feb 28, Nov 30, Aug 31,
2006 2006 2006 2005 2005
Average common
stockholders' equity $17,094 $16,643 $16,049 $15,469 $15,011
Less: average
identifiable intangible
assets and goodwill (3,331) (3,290) (3,269) (3,259) (3,274)
Average tangible common
stockholders' equity $13,763 $13,353 $12,780 $12,210 $11,737
LEHMAN BROTHERS HOLDINGS INC.
ASSETS UNDER MANAGEMENT
(Preliminary and Unaudited)
(In billions)
At
Composition of Assets Aug 31, May 31, Aug 31,
Under Management 2006 2006 2005
Equity $87 $86 $70
Fixed Income 58 56 53
Money Markets 43 38 26
Alternative Investments 19 18 15
Assets Under Management $207 $198 $164
Quarter Ended
Assets Under Management Aug 31, May 31, Aug 31,
Rollforward 2006 2006 2005
Balance, beginning of period $198 $188 $151
Net additions 6 9 7
Net market appreciation 3 1 6
Total increase 9 10 13
Balance, end of period $207 $198 $164
LEHMAN BROTHERS HOLDINGS INC.
GROSS LEVERAGE and NET LEVERAGE CALCULATIONS
(Preliminary and Unaudited)
(In millions)
Aug 31, May 31, Feb 28, Nov 30, Aug 31,
2006 2006 2006 2005 2005
Net assets:
Total assets $475,000 $456,202 $439,796 $410,063 $384,295
Less:
Cash and securities
segregated and on
deposit for
regulatory and
other purposes (5,700) (6,810) (5,569) (5,744) (4,531)
Securities received
as collateral (5,000) (5,382) (5,001) (4,975) (5,419)
Collateralized
agreements (220,200) (199,994) (198,896) (184,664) (176,875)
Identifiable
intangible assets
and goodwill (3,364) (3,297) (3,282) (3,256) (3,262)
Net assets $240,736 $240,719 $227,048 $211,424 $194,208
Tangible equity capital:
Total stockholders'
equity $18,396 $17,982 $17,493 $16,794 $16,334
Junior subordinated
notes 2,692 2,717 2,623 2,026 1,799
Less: Identifiable
intangible assets
and goodwill (3,364) (3,297) (3,282) (3,256) (3,262)
Tangible equity
capital $17,724 $17,402 $16,834 $15,564 $14,871
Gross leverage (total
assets / total
stockholders' equity) 25.8x 25.4x 25.1x 24.4x 23.5x
Net leverage (net
assets / tangible
equity capital) 13.6x 13.8x 13.5x 13.6x 13.1x
