-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JnTq28wnZ7/DNmmS1SHOeetfgtEAboagO8xiWy9VUNguwrhx/o1O0bqG8ADlwJ2U WjX9ZInnwReN6yC4FCFggg== 0000950123-02-005153.txt : 20020514 0000950123-02-005153.hdr.sgml : 20020514 ACCESSION NUMBER: 0000950123-02-005153 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SALOMON SMITH BARNEY HOLDINGS INC CENTRAL INDEX KEY: 0000200245 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 112418067 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04346 FILM NUMBER: 02647698 BUSINESS ADDRESS: STREET 1: 388 GREENWICH ST STREET 2: 28TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10013 BUSINESS PHONE: 2128166000 MAIL ADDRESS: STREET 1: SEVEN WORLD TRADE CENTER STREET 2: 29TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10048 FORMER COMPANY: FORMER CONFORMED NAME: PHIBRO CORP DATE OF NAME CHANGE: 19820526 FORMER COMPANY: FORMER CONFORMED NAME: SALOMON INC DATE OF NAME CHANGE: 19920703 10-Q 1 y60572e10-q.txt SALOMON SMITH BARNEY HOLDINGS INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------- FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______ COMMISSION FILE NUMBER 1-4346 SALOMON SMITH BARNEY HOLDINGS INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) NEW YORK 11-2418067 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 388 GREENWICH STREET NEW YORK, NEW YORK 10013 (ADDRESS OF PRINCIPAL (ZIP CODE) EXECUTIVE OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 816-6000 INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES __X__ NO______ THE REGISTRANT IS A WHOLLY OWNED SUBSIDIARY OF CITIGROUP INC. AS OF THE DATE HEREOF, 1000 SHARES OF THE REGISTRANT'S COMMON STOCK, PAR VALUE $.01 PER SHARE, WERE ISSUED AND OUTSTANDING. REDUCED DISCLOSURE FORMAT THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H 1 (a) AND (b) OF FORM 10-Q AND THEREFORE IS FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT CONTEMPLATED THEREBY. AVAILABLE ON THE WEB @ www.citigroup.com SALOMON SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER ENDED MARCH 31, 2002
PAGE ---- Part I. Financial Information Item 1. Condensed Consolidated Financial Statements: Condensed Consolidated Statements of Income (Unaudited) - Three months ended March 31, 2002 and 2001 1 Condensed Consolidated Statements of Financial Condition - March 31, 2002 (Unaudited) and December 31, 2001 2 - 3 Condensed Consolidated Statements of Cash Flows (Unaudited) - Three months ended March 31, 2002 and 2001 4 Notes to Condensed Consolidated Financial Statements (Unaudited) 5 - 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 - 17 Item 3. Quantitative and Qualitative Disclosures about Market Risk 18 Part II. Other Information Item 1. Legal Proceedings 18 Item 6. Exhibits and Reports on Form 8-K 18 Exhibit Index 20 Signatures 21
SALOMON SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
- ------------------------------------------------------------------------------------- Dollars in millions Three Months Ended March 31, 2002 2001 - ------------------------------------------------------------------------------------- Revenues: Commissions $ 955 $ 1,013 Investment banking 916 1,108 Asset management and administration fees 831 841 Principal transactions 607 1,152 Other 87 217 - ------------------------------------------------------------------------------------- Total noninterest revenues 3,396 4,331 - ------------------------------------------------------------------------------------- Interest and dividends 2,231 4,102 Interest expense 1,553 3,701 - ------------------------------------------------------------------------------------- Net interest and dividends 678 401 - ------------------------------------------------------------------------------------- Revenues, net of interest expense 4,074 4,732 - ------------------------------------------------------------------------------------- Noninterest expenses: Compensation and benefits 2,257 2,490 Communications 152 170 Floor brokerage and other production 144 203 Occupancy and equipment 127 163 Advertising and market development 69 118 Professional services 53 102 Other operating and administrative expenses 70 227 Restructuring charge -- 70 - ------------------------------------------------------------------------------------- Total noninterest expenses 2,872 3,543 - ------------------------------------------------------------------------------------- Income before income taxes and cumulative effect of changes in accounting principles 1,202 1,189 Provision for income taxes 449 422 - ------------------------------------------------------------------------------------- Income before cumulative effect of changes in accounting principles 753 767 Cumulative effect of changes in accounting principles (net of tax benefit of $16 and $1, respectively) (24) (1) - ------------------------------------------------------------------------------------- Net income $ 729 $ 766 =====================================================================================
The accompanying notes are an integral part of these condensed consolidated financial statements. 1 SALOMON SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
- ----------------------------------------------------------------------------------------------------------------------------- March 31, December 31, Dollars in millions, except share data 2002 2001 - ----------------------------------------------------------------------------------------------------------------------------- (Unaudited) Assets: Cash and cash equivalents $ 2,498 $ 3,018 Cash segregated and on deposit for Federal and other regulations or deposited with clearing organizations 2,930 5,327 Collateralized short-term financing agreements: Securities purchased under agreements to resell $109,515 $94,204 Deposits paid for securities borrowed 50,743 45,337 -------- -------- 160,258 139,541 Financial instruments owned and contractual commitments: (Approximately $20 billion and $34 billion were pledged to various parties at March 31, 2002 and December 31, 2001, respectively) U.S. government and government agency securities 40,437 45,813 Corporate debt securities 17,025 13,463 Equity securities 11,954 10,987 Non-U.S. government and government agency securities 9,975 8,084 Contractual commitments 8,311 9,333 Money market instruments 6,291 4,663 Mortgage loans and collateralized mortgage securities 6,169 6,868 Other financial instruments 4,100 5,157 -------- -------- 104,262 104,368 Receivables: Customers 19,459 19,353 Brokers, dealers and clearing organizations 7,746 15,441 Other 1,969 2,793 -------- -------- 29,174 37,587 Property, equipment and leasehold improvements, net of accumulated depreciation and amortization of $1,015 and $959, respectively 1,174 1,204 Goodwill 1,521 1,400 Intangibles 788 941 Other assets 5,467 7,466 - ----------------------------------------------------------------------------------------------------------------------------- Total assets $308,072 $300,852 =============================================================================================================================
The accompanying notes are an integral part of these condensed consolidated financial statements. 2 SALOMON SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
- -------------------------------------------------------------------------------------------------------------------------- March 31, December 31, Dollars in millions, except share data 2002 2001 - -------------------------------------------------------------------------------------------------------------------------- (Unaudited) Liabilities and Stockholder's Equity: Commercial paper and other short-term borrowings $ 20,640 $ 15,877 Collateralized short-term financing agreements: Securities sold under agreements to repurchase $ 132,560 $ 126,118 Deposits received for securities loaned 15,124 13,050 --------- --------- 147,684 139,168 Financial instruments sold, not yet purchased, and contractual commitments: U.S. government and government agency securities 22,965 20,024 Non-U.S. government and government agency securities 17,384 14,970 Contractual commitments 8,234 9,542 Corporate debt securities and other 6,431 6,034 Equity securities 5,559 5,670 --------- --------- 60,573 56,240 Payables and accrued liabilities: Customers 14,784 20,463 Brokers, dealers and clearing organizations 10,867 13,382 Other 12,534 16,405 --------- --------- 38,185 50,250 Term debt 28,525 27,219 Company-obligated mandatorily redeemable securities of subsidiary trust holding solely junior subordinated debt securities of the Company 400 400 Stockholder's equity: Common stock (par value $.01 per share 1,000 shares authorized; 1,000 shares issued and outstanding) -- -- Additional paid-in capital 2,487 2,479 Retained earnings 9,583 9,224 Accumulated changes in equity from nonowner sources (5) (5) --------- --------- Total stockholder's equity 12,065 11,698 - -------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholder's equity $ 308,072 $ 300,852 ==========================================================================================================================
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 SALOMON SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------- Dollars in millions Three Months Ended March 31, 2002 2001 - -------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 729 $ 766 Depreciation and amortization 82 131 - -------------------------------------------------------------------------------------------------------------- Net income adjusted for noncash items 811 897 - -------------------------------------------------------------------------------------------------------------- (Increase) decrease in operating assets - Cash segregated and on deposit for Federal and other regulations or deposited with clearing organizations 2,397 (110) Collateralized short-term financing agreements (20,717) (26,201) Financial instruments owned and contractual commitments 106 (4,775) Receivables 8,413 1,819 Goodwill, intangibles and other assets, net 1,908 339 - -------------------------------------------------------------------------------------------------------------- Increase in operating assets (7,893) (28,928) - -------------------------------------------------------------------------------------------------------------- Increase (decrease) in operating liabilities - Collateralized short-term financing agreements 8,516 30,114 Financial instruments sold, not yet purchased, and contractual commitments 4,333 (395) Payables and accrued liabilities (12,169) (3,582) - -------------------------------------------------------------------------------------------------------------- Increase in operating liabilities 680 26,137 - -------------------------------------------------------------------------------------------------------------- Net cash used in operating activities (6,402) (1,894) - -------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Increase (decrease) in commercial paper and other short-term borrowings 4,763 (160) Proceeds from issuance of term debt 4,090 5,024 Term debt maturities and repurchases (2,660) (2,357) Dividends paid (266) (351) Other capital transactions 4 198 - -------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 5,931 2,354 - -------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Purchase of subsidiary -- (198) Property, equipment and leasehold improvements, net (49) (148) - -------------------------------------------------------------------------------------------------------------- Cash used in investing activities (49) (346) - -------------------------------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents (520) 114 Cash and cash equivalents at January 1, 3,018 2,623 - -------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at March 31, $ 2,498 $ 2,737 ==============================================================================================================
Interest paid did not differ materially from the amount of interest expense recorded for financial statement purposes. The Company paid cash for income taxes, net of refunds, of $1,438 million during the three months ended March 31, 2002 and paid cash for income taxes, net of refunds, of $110 million during the three months ended March 31, 2001. The accompanying notes are an integral part of these condensed consolidated financial statements. 4 SALOMON SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The condensed consolidated financial statements reflect the accounts of Salomon Smith Barney Holdings Inc. ("SSBH"), a New York corporation, and its subsidiaries (collectively, the "Company"). The Company is a wholly owned subsidiary of Citigroup Inc. Material intercompany transactions have been eliminated. The condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which require the use of management's best judgment and estimates. Estimates, including the fair value of financial instruments and contractual commitments, the outcome of litigation, realization of deferred tax assets and other matters that affect the reported amounts and disclosures of contingencies in the condensed consolidated financial statements, may vary from actual results. The condensed consolidated financial statements are unaudited; however, in the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation have been reflected. Certain prior period amounts have been reclassified or restated to conform to the current period presentation. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in SSBH's Annual Report on Form 10-K for the year ended December 31, 2001. Certain financial information that is normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, but that is not required for interim reporting purposes, has been condensed or omitted. ACCOUNTING CHANGES GOODWILL AND INTANGIBLE ASSETS Effective July 1, 2001, the Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 141, Business Combinations and certain provisions of SFAS No. 142, Goodwill and Other Intangible Assets ("SFAS 142") as required for goodwill and intangible assets resulting from business combinations consummated after June 30, 2001. The new rules require that all business combinations initiated after June 30, 2001 be accounted for under the purchase method. The nonamortization provisions of the new rules affecting goodwill and intangible assets deemed to have indefinite lives are effective for all purchase business combinations completed after June 30, 2001. On January 1, 2002, the Company adopted the remaining provisions of SFAS 142, when the rules became effective for calendar year companies. Under the new rules, effective January 1, 2002, goodwill and intangible assets deemed to have indefinite lives are no longer amortized, but are subject to annual impairment tests. Other intangible assets will continue to be amortized over their useful lives. The Company has performed the required impairment tests of goodwill and indefinite lived intangible assets as of January 1, 2002. There was no impairment of goodwill upon adoption of SFAS 142. The initial adoption resulted in a cumulative adjustment of $24 million (net of tax benefit of $16 million) recorded as a charge to earnings related to the impairment of certain intangible assets related to the Asset Management Segment. 5 SALOMON SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Net income for the first three months of 2002 and 2001 adjusted to exclude amortization expense (net of taxes) related to goodwill and indefinite lived intangible assets are as follows:
(In millions) Three Months ended March 31, 2002 2001 - ---------------------------------------------------------------- Net income: Reported net income $729 $766 Goodwill amortization 16 Indefinite lived intangible assets 10 - ---------------------------------------------------------------- Adjusted net income $729 $792 ================================================================
During the first quarter of 2001, the after-tax amortization expense related to goodwill and indefinite lived intangible assets which are no longer amortized included $16 million related to the Investment Services segment and $10 million related to the Asset Management segment. At January 1, 2002, the goodwill balance was $1,366 million for the Investment services segment and $34 million for the Asset Management segment. During the first quarter of 2002, no goodwill was impaired or written off. In connection with the adoption of SFAS 142, the Company reviewed the classification of intangible assets and determined that $117 million of workforce in-place should be reclassified to goodwill at January 1, 2002. In the first quarter of 2002, the Company recorded additional goodwill of $4 million related to an adjustment to the purchase price of AST StockPlan, Inc. Each of these changes related to the Investment Services segment. The Company's goodwill balance at March 31, 2002 was $1,487 million for the Investment Services segment and $34 million for the Asset Management segment. At March 31, 2002, $760 million of the Company's acquired intangible assets, primarily asset management and administration contracts, were considered to be of indefinite life and not subject to amortization. All other acquired intangible assets are subject to amortization. During the first quarter of 2002, the Company acquired $5 million in software licenses which will be amortized over approximately 3 years. No significant residual value is estimated for these intangible assets. Intangible assets amortization expense for the first three months of 2002 and 2001 was $4 million and $1 million, respectively. The components of intangible assets that are subject to amortization were as follows:
March 31, 2002 December 31, 2001 -------------- ----------------- Gross Carrying Accumulated Gross Carrying Accumulated (In millions) Amount Amortization Amount Amortization - -------------------------------------------------------------------------------------- Software licenses $47 $19 $42 $15 ======================================================================================
Intangible assets amortization expense is estimated to be $8 million for the remainder of 2002, $6 million in 2003, $5 million in 2004, $4 million in 2005, $4 million in 2006, and $1 million in 2007. 6 SALOMON SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SFAS 133 The Company adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended ("SFAS 133"), on January 1, 2001 and recorded a cumulative after-tax transition charge of $1 million. Under SFAS 133, an entity is required to recognize all freestanding and embedded derivative instruments at fair value in earnings unless the derivative instruments can be designated as hedges of certain exposures for which specific hedge accounting is prescribed. If certain conditions are met, a derivative instrument may be designated as a hedge of the fair value changes of a recognized asset, liability or an unrecognized firm commitment; or a hedge of the exposure to variable cash flows of a recognized asset, liability or a forecasted transaction; or a hedge of the foreign currency exposure of a recognized asset, liability, a net investment in a foreign operation, an unrecognized firm commitment or a forecasted transaction. If certain conditions are met, a non-derivative instrument may be designated as a fair value hedge of a foreign currency denominated unrecognized firm commitment or a hedge of the foreign currency exposure of a net investment in a foreign operation. For the three months ended March 31, 2002 and 2001, hedge ineffectiveness resulting from designating interest rate swaps as fair value hedges of fixed rate term debt was reported in the condensed consolidated statement of income in "Other revenue" and was not material. For the three months ended March 31, 2002 and 2001, hedges of net investments in foreign operations were considered effective and the loss of $3 million and the gain of $73 million, respectively, that pertained to the designated hedging instruments are included in cumulative translation adjustments, a component of "Accumulated changes in equity from nonowner sources" in the condensed consolidated statement of financial condition. NOTE 2. RESTRUCTURING CHARGES During 2001, the Company recorded restructuring charges of $70 million ($41 million after tax), $42 million ($26 million after tax) and $5 million ($3 million after tax) in the first, second and fourth quarters of 2001, respectively, for severance and related costs associated with the reduction of staffing in certain businesses and are expected to be fully paid out by the end of 2002. These amounts apply to the involuntary termination of approximately 2,000 employees (90% located in the United States and 10% overseas). The second quarter charge is net of a reversal of $18 million ($11 million after tax) which relates to the accrual in the first quarter of 2001 of severance and other related costs associated with the reduction of staffing in certain businesses which were subsequently sold. These related costs were not borne by the Company in the sale which closed in the third quarter of 2001. At March 31, 2002, the remaining restructuring reserve balance of $11 million is included in the condensed consolidated statement of financial condition in "Payables and accrued liabilities-other". 7 SALOMON SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 3. COMPREHENSIVE INCOME Comprehensive income represents the sum of net income and other changes in stockholder's equity from nonowner sources which, for the Company, are comprised of cumulative translation adjustments, net of tax:
- ----------------------------------------------------------------------- Dollars in millions Three months ended March 31, 2002 2001 - ----------------------------------------------------------------------- Net income $729 $766 Other changes in equity from nonowner sources -- (8) - ----------------------------------------------------------------------- Total comprehensive income $729 $758 =======================================================================
NOTE 4. CAPITAL REQUIREMENTS Certain U.S. and non-U.S. subsidiaries are subject to securities and commodities regulations and capital adequacy requirements promulgated by the regulatory and exchange authorities of the countries in which they operate. Capital requirements related to SSBH's principal regulated subsidiaries at March 31, 2002 are as follows:
NET EXCESS OVER (DOLLARS IN MILLIONS) CAPITAL OR MINIMUM SUBSIDIARY JURISDICTION EQUIVALENT REQUIREMENTS - ------------------------------------------------------------------------------------------------------------------------ Salomon Smith Barney Inc. U.S. Securities and Exchange Commission Uniform Net Capital Rule (Rule 15c3-1) $3,325 $2,876 Salomon Brothers International Limited United Kingdom's Financial Services Authority $2,649 $ 533 - ------------------------------------------------------------------------------------------------------------------------
In addition, in order to maintain its triple-A rating, Salomon Swapco Inc. ("Swapco"), an indirect wholly owned subsidiary of SSBH, must maintain minimum levels of capital in accordance with agreements with its rating agencies. At March 31, 2002, Swapco was in compliance with all such agreements. Swapco's capital requirements are dynamic, varying with the size and concentration of its counterparty receivables. 8 SALOMON SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 5. CONTRACTUAL COMMITMENTS Contractual commitments used for trading purposes include derivative instruments such as interest rate, equity, currency and commodity swap agreements, swap options, caps and floors, options, warrants and financial commodity futures and forward contracts. The fair values (unrealized gains and losses) associated with contractual commitments are reported net by counterparty, provided a legally enforceable master netting agreement exists, and are netted across products and against cash collateral when such provisions are stated in the master netting agreement. Contractual commitments in a net receivable position, as well as options owned and warrants held, are reported as assets in "Contractual commitments." Similarly, contractual commitments in a net payable position, as well as options written and warrants issued, are reported as liabilities in "Contractual commitments." Revenues generated from these contractual commitments are reported primarily as "Principal transactions" and include realized gains and losses as well as unrealized gains and losses resulting from changes in the market or fair value of such instruments. A summary of the Company's contractual commitments as of March 31, 2002 and December 31, 2001 is as follows:
MARCH 31, 2002 DECEMBER 31, 2001 -------------- ----------------- Current Market or Current Market or Notional Fair Value Notional Fair Value or Contractual ----------------------- or Contractual ---------------------- Dollars in billions Amounts Assets Liabilities Amounts Assets Liabilities - --------------------------------------------------------------------------------------------------------------------------------- Exchange-issued products: Futures contracts (a) $ 120.8 $ -- $ -- $ 172.5 $ -- $ -- Other exchange-issued products: Equity contracts 107.4 .4 .5 86.2 .4 .5 Fixed income contracts 12.8 -- -- 26.1 -- -- Commodities contracts 1.2 -- -- 1.0 -- -- - --------------------------------------------------------------------------------------------------------------------------------- Total exchange-issued products 242.2 .4 .5 285.8 .4 .5 - --------------------------------------------------------------------------------------------------------------------------------- Over-the-counter ("OTC") swaps, swap options, caps, floors and forward rate agreements: Swaps 2,608.6 2,603.1 Swap options written 89.6 86.2 Swap options purchased 47.3 50.4 Caps, floors and forward rate agreements 173.2 181.4 - --------------------------------------------------------------------------------------------------------------------------------- Total OTC swaps, swap options, caps, floors and forward rate agreements (b) 2,918.7 6.1 5.3 2,921.1 6.7 5.9 - --------------------------------------------------------------------------------------------------------------------------------- Other options and contractual commitments: Options and warrants on equities and equity indices 65.1 1.0 2.0 66.8 1.1 2.2 Options and forward contracts on fixed-income securities 1,140.9 .6 .2 1,134.8 .5 .3 Foreign exchange contracts and options(b) 56.5 .1 .1 49.1 .5 .5 Commodities contracts 13.1 .1 .1 9.9 .1 .1 - --------------------------------------------------------------------------------------------------------------------------------- Total contractual commitments $4,436.5 $ 8.3 $8.2 $4,467.5 $9.3 $9.5 =================================================================================================================================
(a) Margin on futures contracts is included in receivable/payables to brokers, dealers and clearing organizations on the condensed consolidated statements of financial condition. (b) Includes notional values of swap agreements and forward currency contracts for non-trading activities (primarily related to the Company's fixed-rate long-term debt) of $14.0 billion and $4.8 billion at March 31, 2002 and $14.1 billion and $2.7 billion at December 31, 2001, respectively. 9 SALOMON SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 6. SEGMENT INFORMATION The following table summarizes the results of operations for the Company's two operating segments, Investment Services and Asset Management.
- ------------------------------------------------------------------------ Dollars in millions Three months ended March 31, 2002 2001 - ------------------------------------------------------------------------ Noninterest revenues: Investment Services $3,064 $4,010 Asset Management 332 321 - ------------------------------------------------------------------------ Total $3,396 $4,331 ======================================================================== Net interest and dividends: Investment Services $ 678 $ 404 Asset Management -- (3) - ------------------------------------------------------------------------ Total $ 678 $ 401 ======================================================================== Income before cumulative effect of changes in accounting principles: Investment Services $ 652 $ 686 Asset Management 101 81 - ------------------------------------------------------------------------ Total $ 753 $ 767 ========================================================================
Total assets of the Investment Services and Asset Management segments were $306.4 billion and $1.7 billion, respectively, at March 31, 2002 and $299.2 billion and $1.7 billion, respectively, at December 31, 2001. For further discussion of the Company's operating segments, please refer to the Results of Operations section of Management's Discussion and Analysis. NOTE 7. LEGAL PROCEEDINGS The Company has been named as a defendant in legal actions relating to its operations, some of which seek damages of material or indeterminate amounts. In addition, from time to time the Company is a party to examinations and inquiries by various regulatory and self-regulatory bodies. In connection with its discontinued commodities processing operations, the Company and certain of its subsidiaries are subject to claims asserted by the U.S. Environmental Protection Agency, certain state agencies and private parties in connection with environmental matters. Management of the Company, after consultation with outside legal counsel, believes that the ultimate resolution of legal proceedings and environmental matters (net of applicable reserves) will not have a material adverse effect on the Company's financial condition; however, such resolution could have a material adverse impact on operating results in future periods depending, in part, on the results for such periods. 10 SALOMON SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ITEM 2. RESULTS OF OPERATIONS The Company recorded net income of $729 million for the three months ended March 31, 2002 (the "2002 Quarter") compared to net income of $766 million for the three months ended March 31, 2001 (the "2001 Quarter"). Revenues, net of interest expense, were $4,074 million in the 2002 Quarter compared to $4,732 million in the 2001 Quarter. Principal transaction revenues decreased in the 2002 Quarter as a result of decreases in global equities and global fixed income trading. For fixed income, the decline was more than offset by increased net interest revenue related to fixed income trading activities. Investment banking revenues declined as a result of decreases in merger and acquisition fees and high grade debt underwriting, offset to an extent by an increase in equity underwriting, including fees from the Travelers Property and Casualty Corp. initial public offering. Commission revenues declined due to decreases in listed securities and option commissions, partially offset by increases in OTC securities commissions. Total expenses in the 2002 Quarter decreased 15% compared to the 2001 Quarter, excluding the restructuring charge in the 2001 Quarter and the impact of a change in the presentation of intercompany balances and the absence of goodwill and other indefinite-lived intangible amortization due to the adoption of Statement of Financial Accounting Standards ("SFAS") No. 141, Business Combinations and certain provisions of SFAS No. 142, Goodwill and Other Intangible Assets ("SFAS 142"). Included in the results for the 2001 Quarter was a restructuring charge of $70 million ($41 million net of tax) relating to severance and related costs associated with the reduction of staffing in certain businesses (see Note 2 to the condensed consolidated financial statements for further discussion of the restructuring charge). In the 2002 Quarter, the Company recorded a cumulative after-tax loss of $24 million (net of tax benefit of $16 million) which related to the adoption of SFAS 142. During the 2001 Quarter, the Company recorded a cumulative after-tax loss of $1 million (net of tax benefit of $1 million) which relates to the adoption of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (See Note 1 to the condensed consolidated financial statements for further discussion of accounting changes). Following is a discussion of the Company's two operating segments, Investment Services and Asset Management. 11 SALOMON SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INVESTMENT SERVICES
- -------------------------------------------------------------------------------- Dollars in millions For the three months ended March 31, 2002 2001 - -------------------------------------------------------------------------------- Revenues: Commissions $ 951 $1,011 Investment banking 912 1,095 Principal transactions 605 1,157 Asset management and administration fees 509 533 Other 87 214 - -------------------------------------------------------------------------------- Total noninterest revenues 3,064 4,010 - -------------------------------------------------------------------------------- Net interest and dividends 678 404 - -------------------------------------------------------------------------------- Revenues, net of interest expense 3,742 4,414 - -------------------------------------------------------------------------------- Noninterest expenses: Operating and administrative expenses 2,707 3,287 Restructuring charge -- 70 - -------------------------------------------------------------------------------- Total noninterest expense 2,707 3,357 - -------------------------------------------------------------------------------- Income before income taxes and cumulative effect of changes in accounting principles 1,035 1,057 - -------------------------------------------------------------------------------- Provision for income taxes 383 371 - -------------------------------------------------------------------------------- Income before cumulative effect of changes in accounting principles $ 652 $ 686 ================================================================================
The Company's investment services segment reported income of $652 million for the 2002 Quarter compared to $686 million for the 2001 Quarter. Revenues, net of interest expense, decreased to $3,742 million in the 2002 Quarter compared to $4,414 million in the 2001 Quarter. Commission revenues decreased to $951 million in the 2002 Quarter, compared to $1,011 million in the 2001 Quarter, primarily reflecting lower customer transaction activity. Decreases in listed securities and option commissions were offset to an extent by an increase in OTC securities commissions. During the 2002 Quarter, annualized revenue per financial consultant was $473,000, down from $501,000 in the 2001 Quarter. Investment banking revenues decreased to $912 million in the 2002 Quarter, compared to $1,095 million in the 2001 Quarter, due primarily to decreases in merger and acquisition fees and high grade debt underwritings. These decreases were partially offset by an increase in equity underwriting, including fees from the Travelers Property Casualty Corp. initial public offering. Principal transactions revenues decreased to $605 million in the 2002 Quarter, compared to $1,157 million in the 2001 Quarter, due to decreases in fixed income and equity trading. For fixed income, the decline was more than offset by increased net interest revenue related to fixed income trading activities. 12 SALOMON SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The investment services segment results include asset management and administration fees from assets managed by the Company's Financial Consultants and assets that are managed through the Consulting Group. Asset management and administration fees decreased 5% to $509 million in the 2002 Quarter. This decrease primarily reflects a shift in the mix of asset levels whose billings are calculated based on asset levels on a one quarter lag. Other revenue decreased to $87 million in the 2002 Quarter compared to $214 million in the 2001 Quarter. The decrease is due, in part, to decreased revenues from Nikko Salomon Smith Barney Limited, the Company's joint venture with Nikko Securities Co. Ltd., and the impact of a change in the presentation of intercompany balances that had the effect of reducing other revenue and other expense. Net interest and dividends increased 68% to $678 million in the 2002 Quarter due to widening spreads in fixed income products, particularly mortgage backed securities. Total expenses, excluding interest and the restructuring charge, decreased to $2,707 million in the 2002 Quarter, compared to $3,287 million in the 2001 Quarter, primarily as a result of a decrease in compensation and benefits expense, reduced occupancy and floor brokerage expense, and savings from restructuring actions initiated during the first and second quarters of 2001. The Company continues to maintain its focus on controlling fixed expenses. Also contributing to the decline in the 2002 Quarter was the impact of a change in the presentation of intercompany balances that had the impact of reducing other revenue and other expense, and the absence of goodwill and other indefinite-lived intangible amortization due to the adoption of SFAS 141 and SFAS 142. 13 SALOMON SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ASSET MANAGEMENT
-------------------------------------------------------------------- Dollars in millions For the three months ended March 31, 2002 2001 -------------------------------------------------------------------- Revenues: Asset management and administration fees $322 $308 Other revenue, net 10 10 -------------------------------------------------------------------- Revenues, net of interest expense 332 318 -------------------------------------------------------------------- Noninterest expenses: Operating and administrative expenses 165 186 -------------------------------------------------------------------- Total noninterest expense 165 186 -------------------------------------------------------------------- Income before income taxes and cumulative effect of changes in accounting principles 167 132 -------------------------------------------------------------------- Provision for income taxes 66 51 -------------------------------------------------------------------- Income before cumulative effect of changes in accounting principles $101 $ 81 ====================================================================
The Company's asset management segment revenues, net of interest expense, rose to $332 million in the 2002 Quarter compared to $318 million in the 2001 Quarter. The primary revenue for the asset management segment is asset management and administration fees, which were $322 million in the 2002 Quarter compared to $308 million in the 2001 Quarter. The increase in total revenues reflects continued strong net flows partially offset by a reduction in U.S. money market assets. Assets under management for the segment reached $283.3 billion at March 31, 2002 compared to $234.8 billion at March 31, 2001. Other revenues include the net revenue contribution to the asset management segment for the structuring of unit investment trusts, as well as custody fees, and realized and unrealized investment income. Total noninterest expenses were $165 million in the 2002 Quarter compared to $186 million in the 2001 Quarter. The decrease in expenses is primarily due to the absence of goodwill and indefinite-lived intangible amortization as a result of adopting SFAS 141 and SFAS 142, as well as reduced occupancy expenses and lower advertising and marketing expenses.
Total assets under fee-based management were as follows: - -------------------------------------------------------------------------------- Dollars in billions At March 31, 2002 2001 - -------------------------------------------------------------------------------- Money market and institutional liquidity funds $101.1 $ 78.1 Mutual funds 75.7 66.8 Managed accounts 99.5 82.1 Unit investment trusts held in client accounts 7.0 7.8 - -------------------------------------------------------------------------------- Salomon Smith Barney Asset Management 283.3 234.8 Financial Consultant managed accounts * 55.2 51.9 Consulting Group and internally managed assets * 154.3 134.4 - -------------------------------------------------------------------------------- Total assets under fee-based management $492.8 $421.1 ================================================================================
* Related results included in Investment Services segment. 14 SALOMON SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES The Company's total assets were $308 billion at March 31, 2002, an increase from $301 billion at year-end 2001. Due to the nature of the Company's trading activities, it is not uncommon for the Company's asset levels to fluctuate from period to period. The Company's condensed consolidated statement of financial condition is highly liquid, with the vast majority of its assets consisting of marketable securities and collateralized short-term financing agreements arising from securities transactions. The highly liquid nature of these assets provides the Company with flexibility in financing and managing its business. The Company monitors and evaluates the adequacy of its capital and borrowing base on a daily basis in order to allow for flexibility in its funding, to maintain liquidity, and to ensure that its capital base supports the regulatory capital requirements of its subsidiaries. The Company funds its operations through the use of collateralized and uncollateralized short-term borrowings, long-term borrowings, mandatorily redeemable securities of subsidiary trusts, and its equity. Collateralized short-term financing, including repurchase agreements and secured loans, is the Company's principal funding source. Such borrowings are reported net by counterparty, when applicable, pursuant to the provisions of Financial Accounting Standards Board Interpretation 41, Offsetting of Amounts Related to Certain Repurchase and Reverse Repurchase Agreements ("FIN 41"). Excluding the impact of FIN 41, short-term collateralized borrowings totaled $213.5 billion at March 31, 2002. Uncollateralized short-term borrowings provide the Company with a source of short-term liquidity and are also utilized as an alternative to secured financing when they represent a cheaper funding source. Sources of short-term uncollateralized borrowings include commercial paper, unsecured bank borrowings and letters of credit, deposit liabilities, promissory notes and corporate loans. Short-term uncollateralized borrowings totaled $20.6 billion at March 31, 2002. The Company has a $5.0 billion 364-day committed uncollateralized revolving line of credit with unaffiliated banks. Commitments to lend under this facility terminate in May 2002. Any borrowings under this facility would mature in May 2004. The Company may borrow under this revolving credit facility at various interest rate options (LIBOR or base rate), and compensates the banks for this facility through facility fees. At March 31, 2002, there were no outstanding borrowings under this facility. The Company also has committed long-term financing facilities with unaffiliated banks. At March 31, 2002, the Company had drawn down the full $950 million then available under these facilities. A bank can terminate its facility by giving the Company one year's notice. The Company compensates the banks for the facilities through facility fees. Under all of these facilities, the Company is required to maintain a certain level of consolidated adjusted net worth (as defined in the respective agreements). At March 31, 2002, these requirements were exceeded by approximately $4.7 billion. The Company also has substantial borrowing arrangements consisting of facilities that the Company has been advised are available, but where no contractual lending obligation exists. These arrangements are reviewed on an ongoing basis to ensure flexibility in meeting the Company's short-term requirements. The Company's borrowing relationships are with a broad range of banks, financial institutions and other firms from which it draws funds. The volume of the Company's borrowings generally fluctuates in response to changes in the level of the Company's financial instruments, commodities and contractual commitments, customer balances, the amount of securities purchased under agreements to resell and securities borrowed transactions. As the Company's activities increase, borrowings generally increase to fund the additional activities. Availability of financing to the Company can vary depending upon market conditions, credit ratings, and the overall availability of credit to the securities industry. The Company seeks to expand and diversify its 15 SALOMON SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS funding mix as well as its creditor sources. Concentration levels for these sources, particularly for short-term lenders, are closely monitored both in terms of single investor limits and daily maturities. The Company monitors liquidity by tracking asset levels, collateral and funding availability to maintain flexibility to meet its financial commitments. As a policy, the Company attempts to maintain sufficient capital and funding sources in order to have the capacity to finance itself on a fully collateralized basis in the event that the Company's access to uncollateralized financing is temporarily impaired. The Company's liquidity management process includes a contingency funding plan designed to ensure adequate liquidity even if access to unsecured funding sources is severely restricted or unavailable. This plan is reviewed periodically to keep the funding options current and in line with market conditions. The management of this plan includes an analysis used to determine the Company's ability to withstand varying levels of stress, including ratings downgrades, which could impact its liquidation horizons and required margins. In addition, the Company monitors its leverage and capital ratios on a daily basis. RISK MANAGEMENT MARKET RISK Measuring market risk using statistical risk management models has recently become the main focus of risk management efforts by many companies whose earnings are exposed to changes in the fair value of financial instruments. Management believes that statistical models alone do not provide a reliable method of monitoring and controlling risk. While Value at Risk ("VAR") models are relatively sophisticated, they are of limited use for internal risk management because they do not give any indication of the direction or magnitude of individual risk exposures or which market scenarios represent the largest risk exposures. These models are used by the Company only as a supplement to other risk management tools. The following table shows the results of the Company's VAR analysis, which includes substantially all of the Company's financial assets and liabilities, including all financial instruments owned and sold, contractual commitments, repurchase and resale agreements, and related funding at March 31, 2002 and December 31, 2001. The VAR relating to non-trading instruments has been excluded from this analysis.
- ----------------------------------------------------------------------------------------------------- RISK EXPOSURES March 31, First Quarter First Quarter First Quarter December 31, (DOLLARS IN MILLIONS) 2002 2002 Average 2002 High 2002 Low 2001 - ----------------------------------------------------------------------------------------------------- Interest rate $ 40 $ 40 $49 $35 $ 37 Equities 27 23 55 14 4 Commodities 19 15 20 11 14 Currency -- -- -- -- -- Diversification Benefit (26) (22) N/A N/A (12) - ----------------------------------------------------------------------------------------------------- Total $ 60 $ 56 $88 $43 $ 43 - -----------------------------------------------------------------------------------------------------
The quantification of market risk using VAR analysis requires a number of key assumptions. In calculating VAR at March 31, 2002, the Company simulates changes in market factors by using historical volatilities and correlations and assuming lognormal distributions for changes in each market factor. VAR is calculated at the 99% confidence level, assuming a static portfolio subject to a one-day change in market factors. The historical volatilities and correlations used in the simulation are calculated using a look back period of three years. The 16 SALOMON SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Company is in the middle of a large scale, long term process of calculating its VAR by a more robust methodology. Approximately 50% of the total portfolio is calculated under a new methodology which simulates tens of thousands of market factors to measure VAR. The previous methodology simulated fewer market factors to measure VAR. VAR reflects the risk profile of the Company at March 31, 2002, and is not a predictor of future results. FORWARD-LOOKING STATEMENTS Certain of the statements contained herein that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. The Company's actual results may differ materially from those included in the forward-looking statements. Forward-looking statements are typically identified by the words "believe," "expect," "anticipate," "intend," "estimate," and similar expressions. These forward-looking statements involve risks and uncertainties including, but not limited to, the following: changes in economic conditions, including the performance of global financial markets, and risks associated with fluctuating currency values and interest rates; competitive, regulatory or tax changes that affect the cost of or the demand for the Company's products; the impact of the implementation of new accounting rules; and the resolution of legal proceedings and environmental matters. 17 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations." PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. The Company and various of its affiliates, together with numerous other parties, are named as defendants in a number of lawsuits, including putative class actions, arising out of and relating to dealings with Enron Corp. and Enron-related securities. These lawsuits allege violations of certain federal and state securities laws (including Sections 11 and 15 of the Securities Act of 1933, as amended, and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended), certain federal statutes (including the Employment Retirement Income Security Act of 1974 and the Racketeer Influenced and Corrupt Organizations Act), and certain common law claims (including negligence, civil conspiracy and fraud). The Company has also received inquiries from regulatory agencies and Congressional committees, with which it is fully cooperating. In April 2002, consolidated amended complaints were filed against the Company and other investment banks named in numerous putative class actions filed in the United States District Court for the Southern District of New York alleging violations of certain federal securities laws (including Section 11 of the Securities Act of 1933, as amended, and Section 10(b) of the Securities Exchange Act of 1934, as amended) with respect to the allocation of shares for certain initial public offerings and related aftermarket transactions and damage to investors caused by allegedly biased research analyst reports. Also pending in the Southern District of New York against the Company and other investment banks are several putative class actions which have been consolidated into a single class action alleging violations of certain federal and state antitrust laws in connection with the allocation of shares in initial public offerings when acting as underwriters. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: See Exhibit Index. (b) Reports on Form 8-K: On January 18, 2002, the Company filed a Current Report on Form 8-K, dated January 17, 2002, reporting under Item 5 thereof the results of 2001 and 2000. On January 23, 2002, the Company filed a Current Report on Form 8-K, dated January 17, 2002, filing certain exhibits under Item 7 thereof relating to the offer and sale of its Equity Linked Securities (ELKS) based on the common stock of Cisco Systems, Inc. due January 24, 2003. On March 19, 2002, the Company filed a Current Report on Form 8-K, dated March 14, 2002, filing certain exhibits under Item 7 thereof relating to the offer and sale of its Equity Linked Securities (ELKS) based on the common stock of Motorola, Inc. due March 20, 2003. No other reports on Form 8-K were filed during the first quarter of 2002, however: 18 On April 16, 2002, the Company filed a Current Report on Form 8-K, dated April 15, 2002, reporting under Item 5 thereof the results of its operations for the three-month periods ended March 31, 2002 and 2001. On April 16, 2002, the Company filed a Current Report on Form 8-K, dated April 11, 2002, filing certain exhibits under Item 7 thereof relating to the offer and sale of its Equity Linked Securities (ELKS) based on the common stock of Intel Corporation due April 17, 2003. 19 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------ ---------------------- 3.01 Restated Certificate of Incorporation of Salomon Smith Barney Holdings Inc. (the "Company"), effective July 1, 1999, incorporated by reference to Exhibit 3.2 to Post-Effective Amendment No. 1 to the Company's Registration Statement on Form S-3 (No. 333-38931). 3.02 By-Laws of the Company, incorporated by reference to Exhibit 3.3 to Post-Effective Amendment No. 1 to the Company's Registration Statement on Form S-3 (No. 333-38931). 12.01+ Computation of ratio of earnings to fixed charges.
- -------------------- + Filed herewith. The total amount of securities authorized pursuant to any instrument defining rights of holders of long-term debt of the Company does not exceed 10% of the total assets of the Company and its consolidated subsidiaries. The Company will furnish copies of any such instrument to the SEC upon request. 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SALOMON SMITH BARNEY HOLDINGS INC. ---------------------------------- (Registrant) Date: May 14, 2002 By: /s/ Barbara Yastine ---------------------------- Barbara Yastine Chief Financial Officer By: /s/ Michael J. Day ---------------------------- Michael J. Day Controller 21 EX-12.01 3 y60572ex12-01.txt COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12.01 SALOMON SMITH BARNEY HOLDINGS INC. AND SUBSIDIARIES CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES (Unaudited)
Three Months Ended March 31, 2002 --------- Dollars in millions Earnings from operations: Income before income taxes and cumulative effect of change in accounting principles $1,202 Add fixed charges (see below) 1,589 ------ Earnings as defined $2,791 ====== Fixed charges from operations: Interest expense $1,553 Other adjustments 36 ------ Fixed charges from operations as defined $1,589 ====== Ratio of earnings to fixed charges 1.76 ======
NOTE: The ratio of earnings to fixed charges was calculated by dividing the sum of fixed charges into the sum of income before income taxes and cumulative effect of change in accounting principles and fixed charges. Fixed charges consist of interest expense, including capitalized interest and a portion of rental expense representative of the interest factor. -----END PRIVACY-ENHANCED MESSAGE-----