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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For the fiscal year ended December 31, 1993 Commission File Number 1-4346
SALOMON INC
(Exact name of registrant as specified in its charter)
Delaware 22-1660266
(State of incorporation) (I.R.S. Employer Identification No.)
Seven World Trade Center, New York, New York 10048 (212) 783-7000
(Address of principal executive offices) (Zip Code) (Registrant's telephone
number, including area
code)
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE
ON WHICH REGISTERED
Common Stock, par value $1 per share New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Depositary Shares, Each Representing a
One-Twentieth Interest in a
Share of 9.50% Cumulative Preferred
Stock, Series C New York Stock Exchange
Depositary Shares, Each Representing a
One-Twentieth Interest in a Share of
8.08% Cumulative Preferred Stock,
Series D New York Stock Exchange
8% Notes due 1996 New York Stock Exchange
11 5/8% Debentures due 2015 New York Stock Exchange
6.750% DEC Common Equity-Linked
Securities due 1996 American Stock Exchange
7.25% ORCL Common Equity-Linked
Securities due 1996 American Stock Exchange
5.00% MSFT Common Equity-Linked
Securities due 1996 American Stock Exchange
5.25% HWP Common Equity-Linked
Securities due 1997 American Stock Exchange
7.625% SNPL Common Equity-Linked
Securities due 1997 American Stock Exchange
6.50% AMGN Common Equity-Linked
Securities due 1997 American Stock Exchange
6.125% PRI Common Equity-Linked
Securities due 1997 American Stock Exchange
AMEX Hong Kong 30 Index Call Warrants
expiring November 3, 1995 American Stock Exchange
Securities registered pursuant to Number of shares of common stock
Section 12(g) of the Act: outstanding at February 28, 1994:
NONE 109,739,338
Aggregate market value at
February 28, 1994:
$5.5 billion
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 and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
--------- --------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
Documents incorporated by reference:
Salomon Inc 1993 Annual Report Financial Information (incorporated in 10-K
Parts I, II and IV)
Proxy Statement for the 1994 Annual Meeting of Stockholders (incorporated, in
part, in 10-K Parts III and IV)
1
PART I
ITEM 1. BUSINESS
Salomon Inc ("the Company") was incorporated in 1960 under the laws of
the State of Delaware. At December 31, 1993, its full time equivalent
number of employees was 8,640. Information concerning the business of
Salomon Inc under the following captions in Exhibit 13, "Salomon Inc 1993
Annual Report Financial Information," is deemed part of this Annual
Report on Form 10-K and is hereby incorporated herein by reference:
Salomon Inc - Overview of 1993 (on pages 13 through 19)
Salomon Brothers - Description of Business (on pages 21 through 23)
Phibro Division - Description of Business (on page 27)
Phibro USA - Description of Business (on pages 28 through 30)
Note 1. Industry Segment and Geographic Data (on pages 60 through
62)
Note 9. Net Capital (on pages 67 and 68)
ITEM 2. PROPERTIES
Information concerning the Company's properties under the following
captions in Exhibit 13, "Salomon Inc 1993 Annual Report Financial
Information," is deemed part of this Annual Report on Form 10-K and is
hereby incorporated herein by reference:
Salomon Brothers - Description of Business (on pages 21 through 23)
Phibro Division - Description of Business (on page 27)
Phibro USA - Description of Business (on pages 28 through 30)
Note 3. Property, Plant and Equipment (on page 63)
2
ITEM 3. LEGAL PROCEEDINGS
I. U.S. Treasury Auction and Related Matters
-----------------------------------------
Governmental Actions
- --------------------
On August 9, 1991, the Company announced that it had uncovered irregularities
by certain employees of its indirect wholly owned subsidiary Salomon Brothers
Inc ("SBI") in connection with certain auctions of U.S. Treasury securities.
During the 1991 third quarter the Company recorded a pretax charge of $200
million to establish a reserve for estimated monetary damages, settlement costs,
fines, penalties, legal expenses and other related costs expected to be incurred
in connection with the private actions and investigations by certain U.S.
governmental authorities, state agencies and self-regulatory authorities arising
out of this matter. In a settlement with U.S. governmental authorities
announced on May 20, 1992, the Company and SBI consented to various sanctions
including the payment of $190 million, the establishment of an additional $100
million private civil claims fund, the issuance of an injunction and the
adoption of an administrative order, and in connection with the matter SBI was
also temporarily suspended from dealing directly with the Federal Reserve Bank
and from executing customer transactions in Treasury auctions. As a result of
the settlement, the Company recorded an additional pretax charge of $185 million
in the 1992 second quarter. The settlement did not resolve the ongoing
industry-wide investigation by the Antitrust Division of the U.S. Department of
Justice into possible collusion by primary dealers and others in bidding at U.S.
Treasury auctions. In January and February of 1993, the Company and SBI made
payments of approximately $4 million to settle claims with 42 states and the
District of Columbia arising out of the U.S. Treasury auction and related
matters.
Private Actions
- ---------------
Over 50 private actions were commenced against the Company, SBI or certain
present and former directors, officers and employees of the Company or SBI with
respect to the U.S. Treasury auction and related matters. All but one of the
actions brought to date can be grouped into three categories: securities
litigation, Treasury litigation and derivative litigation.
Forty-two of the actions were class and derivative actions which have been
consolidated for pre-trial or discovery purposes into three actions in the
United States District Court for the Southern District of New York (the
"Southern District of New York") before The Honorable Robert P. Patterson, Jr.
Amended consolidated complaints have been filed by lead counsel in each of the
three consolidated groups of class actions. In addition, three individual
actions have been coordinated or consolidated with the class actions for pre-
trial purposes.
A. Securities Litigation
---------------------
The securities litigation is comprised of two individual actions (which the
Company believes are not material) and In re Salomon Inc Securities Litigation,
---------------------------------------
91 Civ. 5442 (S.D.N.Y., consolidated Aug. 30, 1991), which consolidated for pre-
trial purposes 16 purported class actions and one individual action (Discount
--------
Bank and Trust Company v. Salomon Inc., et al.) brought by purchasers of various
- ----------------------------------------------
of the Company's publicly traded securities, including Common Stock, Preferred
Stock and debt instruments. These actions claim, among other things, that the
defendants (the Company, SBI and others) violated provisions of the Federal
securities laws by knowingly or recklessly not disclosing improprieties with
respect to U.S. Treasury securities and potential adverse financial and
3
business consequences of the improprieties, and by falsely portraying the
Company as a well-run, conservatively managed enterprise whose activities were
in compliance with government rules and regulations. The actions allege that the
market prices of the Company's securities were artificially inflated or
maintained as a consequence of the alleged Federal securities law violations,
and that plaintiffs purchased their securities at such artificial prices. The
actions primarily seek unspecified compensatory and punitive damages for
plaintiffs as a result of such alleged misconduct, as well as costs, interests
and other relief.
Following an agreement in principle reached on June 10, 1993, on September 13,
1993 the Company, while denying any violation of law, entered into a formal
stipulation of settlement to settle the consolidated class action. The
settlement is subject to court approval, and hearings have been held to
determine whether the settlement should be approved. Under the terms of the
settlement, $54.5 million will be paid to the plaintiff class out of the $100
million private claims fund established pursuant to the 1992 settlement
described above. The Company also has agreed to pay plaintiffs' attorneys' fees
and expenses as awarded by the court, in an amount not to exceed $12.5 million.
B. Treasury Litigation
-------------------
The Treasury litigation is comprised of six individual actions and In re
-----
Salomon Brothers Treasury Litigation, 91 Civ. 5471 (S.D.N.Y., consolidated Aug.
- ------------------------------------
28, 1991), which consolidated for discovery purposes 10 purported class actions.
Three of the six individual actions (Three Crown Limited Partnership, et al. v.
------------------------------------------
Salomon Brothers, Inc., et al., 92 Civ. 3142; Kevin Connors & Co., L.P. v.
- ------------------------------ ----------------------------
Salomon Brothers, Inc., 92 Civ. 3714 (currently stayed and the parties ordered
- ----------------------
to proceed in arbitration); and New York Capital Markets Inc. v. Salomon
----------------------------------------
Brothers, Inc., et. al., 92 Civ. 5885), as well as In re Salomon Brothers
- ----------------------- ----------------------
Treasury Litigation, were each originally brought in the Southern District of
- -------------------
New York and are pending before The Honorable Robert P. Patterson, Jr. Two
individual actions (Commonwealth Financial Futures Fund, et al. v. Salomon
------------------------------------------------------
Brothers Inc., 92 Civ. 7691; SWS Financial Fund A, et al. v. Salomon Brothers
- ------------- ------------------------------------------------
Inc., 92 Civ. 6602, 92 Civ. 6935), were transferred to the Southern District of
- ----
New York by the Judicial Panel on Multidistrict Litigation and assigned to Judge
Patterson for inclusion in the coordinated or consolidated pre-trial proceedings
taking place in connection with In re Salomon Brothers Treasury Litigation. The
------------------------------------------
final individual action (State of Louisiana v. Salomon, Inc., et al., No. 94-
-------------------------------------------
0904I), was filed on March 17, 1994 in the United States District Court for the
Eastern District of Louisiana.
These actions claim, among other things, that the Company, SBI and certain
former officers and employees violated provisions of the Federal securities
laws, the Racketeer Influenced and Corrupt Organization Act ("RICO") and the
antitrust laws, in some instances in collusion with others, by repeatedly
purchasing quantities of U.S. Treasury securities in excess of Federal
regulatory limits and manipulating the market in U.S. Treasury securities. The
actions primarily seek unspecified compensatory and punitive damages, and treble
damages pursuant to the antitrust and RICO counts, for plaintiffs as a result of
such alleged misconduct, as well as costs, interest and other relief.
On March 30, 1994, the Company and SBI advised Judge Patterson that they had
reached an agreement in principle, while denying any violation of law, to settle
the class actions included in the Treasury Litigation. The settlement is subject
to approval by the court. Under the terms of the settlement, which involves
other defendants, the Company and SBI will pay $66 million. This amount includes
plaintiffs' attorneys' fees to be awarded by the court. The Company and SBI
expect that substantially more than half of the $66 million payment will be paid
from the $100 million private claims fund established pursuant to the 1992
settlement
4
described above.
C. Derivative Litigation
---------------------
In re Salomon Inc Shareholders' Derivative Litigation, 91 Civ. 5500 (S.D.N.Y.,
-----------------------------------------------------
consolidated Aug. 30, 1991), consolidated for all pre-trial purposes 16 actions
which asserted derivative claims purportedly on behalf of the Company against
members of the Company's Board of Directors and others. The actions claim, among
other things, that SBI employees violated U.S. Treasury and Federal Reserve
Board regulations governing the purchase of U.S. Treasury securities at auctions
by repeatedly purchasing quantities of U.S. Treasury securities in excess of
federal regulatory limits and submitting bids for those securities in the names
of persons who had not authorized such bids. The claims, as originally filed,
further asserted that the director defendants breached their fiduciary
obligations to the Company by engaging in or recklessly disregarding these
allegedly illegal practices, thereby exposing the Company to potential
liabilities and adverse business consequences. The actions seek to require the
individual defendants to recompense the Company for all damages caused by them,
to return compensation received by them and to pay punitive damages, as well as
costs, interest and other relief. The Company moved to dismiss the complaint on
the grounds that plaintiffs had failed to make a demand on the Company's Board
of Directors. Thereafter the parties entered into a stipulation and order which
deferred consideration of the motion to dismiss the amended consolidated
complaint until the earlier of (i) final resolution by judgment or settlement of
all actions pending before Judge Patterson arising out of the U.S. Treasury
auction and related matters or (ii) a request by all parties to the stipulation
and order to undertake further consideration of the motion. In January 1994, the
derivative plaintiffs amended their complaint to, among other things, dismiss
without prejudice their complaint against all defendants other than those who
ceased to be officers or directors of the Company following the announcement of
irregularities in August 1991.
In addition to the foregoing purported derivative actions, a purported
derivative action asserting claims similar to those in In re Salomon Inc
-----------------
Shareholders' Derivative Litigation, Sands, et al. v. Salomon Inc, et al. Civil
- ----------------------------------- ------------------------------------
Action No. 1155-K, was filed in Delaware Chancery Court for Kent County. On
November 4, 1991, a motion was made to dismiss this action, but it has not been
briefed. A briefing schedule on the motion will be set by the court shortly.
Private Claims Fund
- -------------------
The private claims fund described above will be available to pay judgments and
settlements (including interest thereon) with respect to claims for compensatory
damages against the Company or SBI in these and any future private actions with
respect to the U.S. Treasury auction and related matters. The fund does not
cover attorneys' fees or expenses or certain other liabilities. The residual
amount, if any, in the fund will be paid to the United States. The liability of
the Company and SBI for private compensatory damages with respect to the U.S.
Treasury auction and related matters may exceed the amount in the fund. The
proposed settlements in the Securities Litigation and the Treasury Litigation
described above would, if approved, exhaust all but a relatively small portion
of the fund.
Former Officers
- ---------------
In late 1992 and early 1993, the Company and SBI settled certain employment-
related compensation claims with three of the four senior officers whose
employment with the Company and SBI ended following the August 1991 announcement
of certain earlier
5
improprieties by former employees. The Company has not resolved the compensation
claims of the remaining former officer, John Gutfreund; these claims are now the
subject of arbitration pursuant to New York Stock Exchange rules.
Additional Information
- ----------------------
Additional information concerning proceedings relating to the U.S. Treasury
auction and related matters is contained in Note 14, "Legal Proceedings", of
Exhibit 13, "Salomon Inc 1992 Annual Report to Stockholders", and is hereby
incorporated herein by reference. For further information, copies of documents
relating to the settlement with certain governmental authorities and copies of
the amended consolidated complaints were filed as Exhibits 28(a) and 28(b),
respectively, to the Company's 1992 Annual Report on Form 10-K. Based on
information currently available and established reserves, the Company believes
the ultimate disposition of pending legal proceedings in connection with the
United States Treasury auction and related matters will not have a material
adverse effect on the Company's consolidated financial condition.
II. Other Legal Proceedings
-----------------------
Commencing in 1987, 21 purported derivative lawsuits were filed in Delaware
Chancery Court, New Castle County, New York Supreme Court, New York County and
in the Southern District of New York (In re Salomon Inc Shareholder Litigation)
-----------------------------------------
against, among others, the Company and its directors (including its current
directors other than Messrs. Buffett, Denham, Hall, Maughan, Munger, Simpson and
Young) and in two instances Berkshire Hathaway Inc. ("Berkshire") arising out of
the Company's purchase of 21,282,070 shares of its Common Stock beneficially
owned by Minerals and Resources Corporation Limited at $38.00 per share and the
Company's sale for $700 million of 700,000 shares of its Preferred Stock to
affiliates of Berkshire. In addition, the lawsuits challenge the Company's
distribution of Preferred Share Purchase Rights to its shareholders on February
18, 1988 and the amendment of certain of the Company's employment benefit plans.
The complaints allege, among other things, that the aforesaid corporate actions
were part of a scheme to maintain the positions of the defendant directors with
the Company in derogation of their fiduciary duties and that the Company had the
opportunity to sell the Preferred Stock on superior terms. The complaints seek,
among other things, injunctive relief with respect to the challenged corporate
actions, rescission of such corporate actions and monetary damages. The
litigation in Delaware (consisting of 19 of the purported derivative lawsuits)
had been consolidated under the caption In re Salomon Inc Shareholder
-----------------------------
Litigation, Civil Action No. 9296. The Delaware court, on May 24, 1993, entered
- ----------
into a stipulation and order of dismissal without prejudice with respect to this
consolidated action.
SBI has been named as a defendant in a purported class action brought in May
1988 in the Delaware Chancery Court for New Castle County (Shields and Van De
------------------
Walle v. L.F. Rothchild, Unterberg, Towbin Holdings, Inc., et al.). The
- -----------------------------------------------------------------
defendants include L.F. Rothchild, Unterberg, Towbin Holdings, Inc.
("Holdings"), certain of its officers and directors, certain selling
shareholders and controlling persons and the lead underwriters for Holdings'
March 1986 public offering of 7,676,325 shares of Common Stock at $20.50 per
share. Plaintiffs purport to represent a class of all persons who purchased
stock pursuant to that offer. Together with Shearson Lehman Brothers
Incorporated and L.F. Rothchild Incorporated ("L.F. Rothchild"), SBI acted as
one of the lead underwriters with a participation of 1,074,441 shares. In
general, the complaint alleges that the prospectus prepared in connection with
the offering contained untrue statements of material fact and omitted to state
material facts in violation of
6
the Federal securities laws. The complaint seeks, among other things,
compensation and punitive damages in unspecified amounts as well as the costs of
the action. Both Holdings and L.F. Rothchild have been reorganized in bankruptcy
proceedings which are continuing. In February 1990, the court determined that
the action should be stayed as to all defendants pending resolution of a class
proof of claim filed by the Shields and Van De Walle plaintiffs in the Holdings
------------------------
bankruptcy proceeding that alleges the same claims contained in the Shields and
-----------
Van De Walle complaint. That proof of claim was withdrawn, and with the
- ------------
completion of the reorganization of Holdings, the stay has been lifted and pre-
trial proceedings have resumed.
Numerous purported class actions, which are consolidated in the United States
District Court for the Eastern District of Louisiana (In re Taxable Municipal
------------------------
Bond Securities Litigation), were commenced in 1990 and 1991 in connection with
- --------------------------
various taxable municipal bond offerings in 1986 managed by Drexel Burnham
Lambert Incorporated ("Drexel Burnham"), including bonds issued by authorities
in Colorado, Louisiana, Nebraska, Tennessee and Texas. The defendants include
the issuing authorities, the co-managers of the offerings (other than Drexel
Burnham which has undergone bankruptcy proceedings) and certain of their
officers, Michael R. Milken, Executive Life Insurance Company, First Executive
Corporation, law firms, the bond trustees, and the underwriting syndicates for
the offerings. SBI was a member of the above underwriting syndicates with an
aggregate participation of approximately $50 million, and has been named as a
defendant in certain of the actions described above. The plaintiffs purport to
represent a class of bond purchasers who purchased the various bonds during the
period from the issuance of the bonds in 1986 through approximately April 1990
and were damaged thereby. In general, the complaints allege that the offering
documents prepared in connection with the offerings contained untrue statements
of material fact and omitted to state material facts in violation of various
Federal and state securities laws as well as fraud, negligent misrepresentation
and breach of fiduciary duty. The complaints seek, among other things,
compensatory and punitive damages in unspecified amounts, rescission, interest
and costs and expenses of the actions. Executive Life Insurance Company, the
company that issued and guaranteed investment contracts in which the proceeds of
the bond issues were invested, has been placed in conservatorship by the
California Commissioner of Insurance.
Salomon Forex Inc ("Salomon Forex"), an indirect wholly owned subsidiary of
the Company, filed an amended complaint in a collection action in the United
States District Court for the Eastern District of Virginia (Salomon Forex Inc v.
---------------------
Tauber) in November 1991 against Laszlo N. Tauber ("Tauber") seeking to recover
- ------
approximately $26 million payable under certain foreign exchange transactions
Salomon Forex entered at various dates which matured in July and August 1991.
Tauber filed an answer raising numerous defenses and a counterclaim and third-
party complaint raising numerous claims against Salomon Forex, the Company and
SBI, as well as certain employees of SBI, asserting that the counterclaim and
third-party defendants violated U.S. commodities, New York and Virginia gambling
and New York bucketing laws, as well as committed common law fraud, breach of
fiduciary duty, breach of implied covenants of good faith and fair dealing and
breach of a duty to disclose material information. The counterclaim and third-
party complaint sought unspecified compensatory damages asserted to exceed $20
million, unspecified punitive damages in an amount equal to twice compensatory
damages and a judgment that certain transactions be declared null and void. On
March 27, 1992, summary judgment was entered in favor of Salomon Forex for the
principal amount due of $25,831,453.01, plus prejudgment interest of
$1,435,134.79. Tauber appealed unsuccessfully to the United States Court of
Appeals for the Fourth Circuit and has petitioned the United States Supreme
Court for review of that decision.
SBI privately placed in three separate offerings approximately $157.2 million
of first mortgage notes issued by Motels of America, Inc. ("MOA") to finance the
purchases of three
7
portfolios of motel properties: $70.6 million of such notes placed in August
1987 ("Portfolio I"); $23.4 million of such notes placed in March 1988
("Portfolio II"); and $63.2 million of such notes placed in August 1989
("Portfolio III"). In each offering, the notes were nonrecourse to MOA and
secured by mortgages on the respective portfolios of motel properties being
purchased by MOA. SBI received three participation interests in net operating
income from the properties securing the mortgage notes, 95% of which in two
instances and 100% of which in one instance were then sold to Ameritech Pension
Trust ("APT") for purchase prices aggregating approximately $19.3 million.
Following MOA's bankruptcy filing in the United States Bankruptcy Court for the
District of Delaware, in or about December 1991, MOA and Ben Franklin
Properties, Inc. ("Ben Franklin"), an assignee of the participation interests
which had been sold to APT, commenced an adversary proceeding in the MOA
bankruptcy case against SBI and Salomon Brothers Realty Corporation ("SBRC").
Although SBI and SBRC denied the material allegations of the adversary
complaint, on March 27, 1992, SBI and SBRC entered into a settlement agreement
with MOA and Ben Franklin, which settlement was approved by the Bankruptcy Court
on July 23, 1992. On September 9, 1992, the Bankruptcy Court approved the plan
of reorganization for MOA.
In September 1992, Harris Trust and Savings Bank (as trustee for APT),
Ameritech Corporation, and an officer of Ameritech filed a complaint against SBI
and SBRC in the United States District Court for the Northern District of
Illinois (the "Northern District of Illinois"), alleging that all three
purchases by APT of MOA participation interests, as well as a fourth purchase by
APT of a similar participation interest with respect to a portfolio of motels
owned by Best Inns, violated the Employee Retirement Income Security Act
("ERISA"), and that the purchase of the participation interest for Portfolio III
violated RICO and the Illinois Consumer Fraud and Deceptive Business Practices
Act, and is actionable as common law fraud and negligent misrepresentation. SBI
and SBRC moved to dismiss the APT complaint. On December 24, 1992, the Court
dismissed one of the ERISA claims and all of the RICO claims. On March 5, 1993,
plaintiffs filed a second amended complaint alleging that all four purchases of
the participation interests violated ERISA and that the purchases of the
participation interests for Portfolio III and for the Best Inns portfolio
violated RICO and state law. Plaintiffs' second amended complaint seeks (i) a
judgment on the ERISA claims in the amount of the purchase prices of the four
participation interests (alleged to be approximately $20.9 million), for
rescission and for disgorgement of profits, as well as other relief, and (ii) a
judgment on the claims brought under RICO and state law in the amount of $12.3
million, with damages trebled to $37 million on the RICO claims and punitive
damages in excess of $37 million on certain of the state law claims, as well as
other relief. On April 5, 1993 SBI and SBRC answered the second amended
complaint in part, moved to dismiss in part and asserted counterclaims against
plaintiff Ameritech Corp. On August 16, 1993 the court (i) again dismissed the
RICO claims as well as plaintiffs' claims for breach of contract and unjust
enrichment; (ii) denied SBI's motion to dismiss the repleaded claim under ERISA
alleging that SBI participated in a fiduciary's breach; and (iii) denied
Ameritech's motion to dismiss SBI's counterclaims. Discovery with respect to the
remaining claims is ongoing. The Department of Labor has advised SBI that it is
reviewing the transactions in which APT acquired such participation interests.
Golder, Thoma, Cressey Fund III Limited Partnership, et al. v. Salomon
----------------------------------------------------------------------
Brothers Inc, is a lawsuit brought by Golder, Thoma, Cressey Fund III Limited
- ------------
Partnership and three individuals purporting to represent eleven members of
senior management of Health Care and Retirement Corporation of America ("HCRA"),
in the Circuit Court of Cook County, Illinois on July 10, 1992 against SBI in
connection with SBI's performance in providing financial advisory services for
the proposed acquisition by the plaintiffs of HCRA in 1991. The lawsuit asserts
claims for negligence, breach of fiduciary duty, negligent misrepresentation and
breach of contract. Plaintiffs seek to recover damages purported to exceed $190
million due to their alleged
8
inability to complete the acquisition at an advantageous price, $6 million of
alleged fees and expenses, punitive damages and attorneys' fees, as well as
costs and other relief.
SBI is a defendant in three actions arising out of the acquisition of The
Pacific Lumber Company ("Pacific Lumber") in 1985 by MAXXAM Group, Inc.
("MAXXAM") in which SBI acted as financial adviser to Pacific Lumber. One of
such actions, originally filed in October 1988, was transferred on May 25, 1989
and is now pending in the United States District Court for the Southern District
of New York as part of a consolidated proceeding captioned In re Ivan F.
-------------
Boesky Securities Litigation, MDL No. 732. The complaint in this action
- ----------------------------
asserts federal securities law claims against SBI by individual plaintiffs
who claim to be former shareholders of Pacific Lumber, and includes
allegations that there were allegedly false and misleading statements or
omissions in connection with SBI's opinion that the final price of $40 per share
offered and ultimately paid by MAXXAM for the approximately 20 million
outstanding shares of Pacific Lumber stock in the acquisition was fair to the
shareholders of Pacific Lumber from a financial point of view. The complaint
also asserts claims against several other defendants in connection with the
acquisition of Pacific Lumber, including MAXXAM and various of its affiliates,
as well as Pacific Lumber and the former directors of Pacific Lumber. Although
the complaint does not specify the amount of damages sought from the defendants,
plaintiffs claim that the Pacific Lumber stock was worth substantially more than
what was paid by MAXXAM. A trial date of April 11, 1994 has been scheduled by
the Court in this action. SBI is also named as a defendant in two state court
class actions arising out of the acquisition of Pacific Lumber, Russ et al. v.
--------------
Milken et al. DR 85429, and Thompson, et al. v. Elam, et al., which were filed
- ------------- --------------------------------
in October 1989 in the Humboldt County Superior Court in California. The state
court actions have been stayed pursuant to stipulations between counsel.
Information concerning environmental proceedings involving the Company
contained in the third through ninth paragraphs of Note 14, "Legal Proceedings"
of Exhibit 13, "Salomon Inc 1993 Annual Report Financial Information", is hereby
incorporated herein by reference.
In addition, other legal proceedings are pending against or involve the
Company and its subsidiaries. Based on information currently available and
established reserves, the Company believes the ultimate disposition of legal
proceedings involving the Company will not have a material adverse effect on the
Company's consolidated financial condition.
9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1993.
EXECUTIVE OFFICERS OF THE REGISTRANT
Name and Age Office
- ------------ ------
Jerome H. Bailey (41) Chief Financial Officer since June 1993, previously
employed at Morgan Stanley in various executive
capacities for more than five years
Robert E. Denham (48)* Chairman and Chief Executive Officer since June 1992;
previously General Counsel from September 1991;
previously a partner in the law firm of Munger, Tolles
& Olson, Los Angeles, California, for more than four
years. He rejoined Munger, Tolles & Olson as a partner
in August 1992 and resigned from that firm on December
31, 1993.
David C. Fisher (47) Controller since 1989; previously employed by Salomon
Brothers Inc in various executive capacities from 1985
10
EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)
Name and Age Office
- ------------ ------
Andrew J. Hall (43)* Executive Vice President since May 1991; Chairman and
President of the Phibro Division since January 1, 1993;
Chairman and Chief Executive Officer of Phibro Energy,
Inc. from January 1992 to December 1992 and President
of Phibro Energy, Inc. from 1987 to December 1992
Gedale B. Horowitz (61)* Executive Vice President since 1981
John G. Macfarlane (39) Treasurer since 1989; Treasurer of Salomon Brothers Inc
since 1989; previously employed by Salomon Brothers Inc
in various executive capacities from 1979
Deryck C. Maughan (46)* Executive Vice President since May 1993; Chairman and
Chief Executive Officer of Salomon Brothers Inc since
May 1992; previously Chief Operating Officer of Salomon
Brothers Inc from August 1991; Vice Chairman of Salomon
Brothers Inc from January 1991 to August 1991; Chairman
of Salomon Brothers Asia Limited from 1986 to 1991
Robert H. Mundheim (61) Executive Vice President and General Counsel since
December 1993; General Counsel since September 1992;
previously co-chairman of the law firm Fried, Frank,
Harris, Shriver and Jacobson, New York, from March 1990
after having served as Dean of the University of
Pennsylvania Law School for more than seven years
* Also a Director of Salomon Inc
Officers of the Registrant are elected annually at the May meeting of the
Company's Board of Directors that follows the Annual Meeting of Stockholders.
11
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Information concerning the market for the Registrant's common equity and
related stockholder matters in Exhibit 13, "Salomon Inc 1993 Annual
Report Financial Information," under the caption "Common Stock Data" on
page 85, is deemed part of this Annual Report on Form 10-K and is hereby
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data in Exhibit 13, "Salomon Inc 1993 Annual Report
Financial Information," under the caption "Five Year Summary of Selected
Financial Information" on page 86, is deemed part of this Annual Report
on Form 10-K and is hereby incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results
of Operations contained under the following captions in Exhibit 13,
"Salomon Inc 1993 Annual Report Financial Information," is deemed part of
this Annual Report on Form 10-K and is hereby incorporated herein by
reference:
Financial Highlights (page 1)
Overview of 1993 (on pages 13 through 19)
Segment Information (on pages 20 through 30)
Capital and Liquidity Management (on pages 31 through 38)
Risk Management (on pages 39 through 45)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of the Company and subsidiaries,
together with the Summary of Accounting Policies, the Notes to
Consolidated Financial Statements and the Report of Independent Public
Accountants, contained in Exhibit 13, "Salomon Inc 1993 Annual Report
Financial Information" on pages 48 through 84, and the information
appearing under the caption "Selected Quarterly Financial Data
(Unaudited)" on page 85 of such Exhibit are deemed part of this Annual
Report on Form 10-K and are hereby incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in or disagreements with accountants reportable
herein.
12
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors -
---------
Information concerning directors of the Registrant is contained
under the caption "Election of Directors" in the Proxy Statement for
the 1994 Annual Meeting of Stockholders, which information is hereby
incorporated herein by reference.
(b) Executive Officers -
------------------
Information concerning executive officers of the Registrant is
presented in Part I of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation is contained under the
captions "Election of Directors - Executive Compensation" and "Election
of Directors - Board of Directors' Meetings, Committees and Fees" in the
Proxy Statement for the 1994 Annual Meeting of Stockholders, which
information is hereby incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial owners
and management is contained under the caption "Election of Directors
- Information as to Certain Stockholdings" in the Proxy Statement for the
1994 Annual Meeting of Stockholders, which information is hereby
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions
is contained under the caption "Election of Directors - Certain
Transactions and Legal Matters" in the Proxy Statement for the 1994
Annual Meeting of Stockholders, which information is hereby incorporated
herein by reference.
13
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules
----------------------------------
(1) Financial Statements
The Consolidated Financial Statements of the Company and subsidiaries, together
with the Summary of Accounting Policies, the Notes to Consolidated Financial
Statements and the Report of Independent Public Accountants, dated February 10,
1994, are contained in Exhibit 13, "Salomon Inc 1993 Annual Report Financial
Information," and are hereby incorporated herein by reference.
(2) Schedules
Report of Independent Public Accountants on Schedules I and II
Schedule I - Marketable Securities
Schedule II - Amounts Receivable From Related Parties and Underwriters,
Promoters and Employees Other Than Related Parties
(Other schedules are omitted because the required information either is not
applicable or is included in the financial statements or the notes thereto.)
(3) Exhibits
3(a) Certificate of Incorporation of the Company, as amended (incorporated by
reference to Exhibits 3 to Quarterly Reports on Form 10-Q for the
quarters ended June 30, 1987 and June 30, 1986, Exhibit 4(a) to
Registration Statement Number 2-84733 on Form S-3 filed June 30, 1983,
Exhibit 4 to Quarterly Report on Form 10-Q for the quarter ended
September 30, 1987, Exhibit A to Exhibit 1 to Registration Statement on
Form 8-A filed February 11, 1988, Exhibit 3 to Current Report on Form 8-K
dated June 13, 1991, and Exhibit 4(a) to Current Report on Form 8-K dated
February 22, 1993)
3(b) By-laws of the Company, as amended (incorporated by reference to Exhibit
3 to Quarterly Report on Form 10-Q for the quarter ended September 30,
1992)
4(a) Certificate of Incorporation of the Company. See Exhibit 3(a) above.
4(b) Rights Agreement dated as of February 8, 1988 between Salomon Brothers
Inc and Morgan Shareholders Services Trust Company and related letter
dated February 9, 1988 from Berkshire Hathaway Inc. (incorporated by
reference to Exhibit 28 to Annual Report on Form 10-K for the year ended
December 31, 1987)
14
ITEM 14. (CONTINUED)
(c) Exhibits (continued)
--------------------
4(c) First Amendment dated December 7, 1988 to Rights Agreement dated as of
February 8, 1988 between Salomon Inc and Morgan Shareholder Services
Trust Company (incorporated by reference to Exhibit 28 to Annual Report
on Form 10-K for the year ended December 31, 1988)
4(d) Contract dated September 27, 1987 between Berkshire Hathaway Inc. and
Salomon Inc and letter dated September 28, 1987 amending said contract
(incorporated by reference to Exhibit 10(c) to Annual Report on Form 10-K
for the year ended December 31, 1987)
4(e) The Company agrees to furnish the Securities and Exchange Commission upon
its request a copy of any instrument which defines the rights of holders
of long-term debt of the Company and its consolidated subsidiaries that
does not exceed 10 percent of the total consolidated assets of the
Company.
10(a) Lease between 7 World Trade Center Company and Salomon Inc dated November
23, 1988 (incorporated by reference to Exhibit 10(a) to the Annual Report
on Form 10-K, as amended, for the year ended December 31, 1991)
10(b) Foundation Agreement for the creation of the Joint Enterprise "White
Nights" between Varyeganneftegaz Production Association, Phibro Energy
Production, Inc. and Anglo-Suisse (U.S.S.R.) L.P. dated November 1, 1990.
(incorporated by reference to Exhibit 10(b) to the Annual Report on Form
10-K, as amended, for the year ended December 31, 1991)
10(c) Charter of the Joint Enterprise "White Nights" (incorporated by reference
to Exhibit 10(c) to the Annual Report on Form 10-K, as amended, for the
year ended December 31, 1991)
10(d) Non-Qualified Stock Option Plan of 1984 (incorporated by reference to
Exhibit A to the Proxy Statement for the 1988 Annual Meeting of the
Stockholders)
12(a)* Calculation of Ratio of Earnings to Fixed Charges
12(b)* Calculation of Ratio of Earnings to Combined Fixed Charges and Preferred
Dividends
13* Salomon Inc 1993 Annual Report Financial Information (furnished for the
information of the Securities and Exchange Commission and not deemed
"filed" as part of this Report except for those portions which are
expressly incorporated by reference)
21* Subsidiaries of the Registrant
23* Consent of Independent Public Accountants
24* Powers of Attorney
* Filed herewith
15
ITEM 14. (CONTINUED)
(c) Exhibits (continued)
--------------------
99(a) Copies of the settlement documents relating to the resolution of certain
governmental investigations with respect to the U.S. Treasury auction and
related matters. (incorporated by reference to Exhibit 28(a) to the
Annual Report on Form 10-K for the year ended December 31, 1992)
99(b) Copies of the amended consolidated complaints filed in connection with In
re Salomon Inc Securities Litigation, In re Salomon Brothers Treasury
Litigation and In re Salomon Inc Shareholders' Derivative Litigation.
(incorporated by reference to Exhibit 28(b) to the Annual Report on Form
10-K for the year ended December 31, 1992)
99(c) Summaries of the complaints filed against the Company, SBI and certain
present and former directors, officers and employees of the Company and
SBI in the six individual actions named in Item 3 with respect to the
U.S. Treasury auction and related matters. (incorporated by reference to
Exhibit 28(c) to the Annual Report on Form 10-K for the year ended
December 31, 1992)
99(d) Copies of the six complaints summarized in Exhibit 28(c) which were
filed against the Company, SBI or certain present and former directors,
officers and employees of the Company and SBI with respect to the U.S.
Treasury auction and related matters (incorporated by reference to
Exhibit 28(c) to the Company's Annual Report on Form 10-K, as amended,
for the year ended December 31, 1991; Exhibit 28(h) to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1991;
Exhibit 28(b) to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1992; Exhibit 28(a) to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1992; Exhibit 28(f) to
the Company's Current Report on Form 8-K dated September 16, 1991 and
Exhibits 28(b) and (c) to the Company's Current Report on Form 8-K dated
July 28, 1992.
16
ITEM 14. (CONTINUED)
(b) Reports on Form 8-K
-------------------
The Company filed a Current Report on Form 8-K dated November 5, 1993,
reporting under Item 5 ("Other Events:") and Item 7 ("Financial
Statements, Pro Forma Financial Information and Exhibits") the completed
offering and sale of 1,150,000 of the Company's AMEX Hong Kong 30 Index
Call Warrants Expiring November 3, 1995 and the related Underwriting
Agreement, Warrant Agreement and Opinions of counsel.
The Company filed a Current Report on Form 8-K dated December 17, 1993,
reporting under Item 7 ("Financial Statements, Pro Forma Financial
Information and Exhibits") a Form T-1 Statement of Eligibility.
The Company filed a Current Report on Form 8-K dated January 12, 1994,
reporting under Item 7 ("Financial Statements, Pro Forma Financial
Information and Exhibits") a Form T-1 Statement of Eligibility.
The Company filed a Current Report on Form 8-K dated January 18, 1994,
reporting under Item 7 ("Financial Statements, Pro Forma Financial
Information and Exhibits") an Indenture and a Form T-1 Statement of
Eligibility.
The Company filed a Current Report on Form 8-K dated January 27, 1994,
reporting under Item 5 ("Other Events:") and Item 7 ("Financial
Statements, Pro Forma Financial Information and Exhibits") the issuance
of a press release.
The Company filed a Current Report on Form 8-K dated March 7, 1994,
reporting under Item 7 ("Financial Statements, Pro Forma Financial
Information and Exhibits") a Form T-1 Statement of Eligibility.
17
SALOMON INC
FINANCIAL STATEMENT SCHEDULE INDEX
Schedule
Number Description
- ------ -----------
Report of Independent Public Accountants on
Schedules I and II
I Marketable Securities
II Amounts Receivable From Related Parties and
Underwriters, Promoters and Employees Other Than
Related Parties
18
Report of Independent Public Accountants on Schedules I and II -
To Salomon Inc:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Salomon Inc and subsidiaries included in
Exhibit 13, "Salomon Inc 1993 Annual Report Financial Information," incorporated
by reference and deemed part of this Annual Report on Form 10-K, and have issued
our report thereon dated February 10, 1994. Our audits were made for the
purpose of forming an opinion on those financial statements taken as a whole.
Schedules I and II are the responsibility of the Company's management. They are
presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements. These
schedules have been subjected to the auditing procedures applied in our audits
of the basic financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
New York, New York ARTHUR ANDERSEN & CO.
February 10, 1994
19
SCHEDULE I
SALOMON INC AND SUBSIDIARIES
MARKETABLE SECURITIES
DECEMBER 31, 1993
Amount Carried
in the
Statement of
Financial Condition
(Market Value)
Financial Instruments (Dollars in millions)
--------------------- ---------------------
U.S. government and agencies, various $ 42,485
issues
Non-U.S. government securities:
Italy, various issues $11,258
United Kingdom, various issues 9,290
Germany, various issues 6,132
Other governments 11,599* 38,279
-------
Options and contractual commitments 8,581*
Corporate debt securities 11,876*
Mortgage loans and collateralized 4,227*
mortgage securities
Equity securities 7,178*
Money market instruments 333
Precious metals 19
Other 5,945*
---------------
$118,923
===============
* No individual issuer or counterparty exceeds 2% of consolidated total assets.
20
SCHEDULE II
SALOMON INC AND SUBSIDIARIES
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
BALANCE AT BALANCE AT
BEGINNING OF AMOUNT END OF
NAME OF DEBTOR PERIOD ADDITIONS COLLECTED PERIOD*
- -------------------------------------------------------------------------------
Year Ended December 31, 1993
- ----------------------------
Joseph Anastasio $704,000 $ $ $704,000 (a)
Richard Barrett 400,000 (200,000) 200,000 (b)
Richard Boughrum 33,639 (33,639)
Douglas Brengel 250,000 250,000 (c)
Christopher Campbell 40,000 (40,000)
Mark Field 740,000 (740,000)
Chris Franke 78,500 (13,000) 65,500 (d)
Dennis Keegan 2,500,000 (2,500,000)
Robert Mundheim 900,000 900,000 (e)
George Styskal 75,000 (18,750) 56,250 (f)
James Worms 700,000 700,000 (g)
* All loans outstanding at December 31, 1993 are non-interest bearing except for
Chris Franke who is no longer an employee.
(a) In February 1994 the Company assumed title to the home financed by this
loan, thus eliminating the obligation.
(b) Remaining balance of $200,000 repaid January 15, 1994.
(c) Remaining balance of $250,000 repaid January 31, 1994.
(d) $5,000 repaid January 16, 1994, remainder due upon sale of home.
(e) Balance payable in three $200,000 and one $300,000 annual installments
commencing November 30, 1995.
(f) Remaining balance payable in three $18,750 annual installments commencing
January 31, 1994.
(g) $700,000 due upon sale of home.
21
SCHEDULE II
(Continued)
SALOMON INC AND SUBSIDIARIES
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
BALANCE AT BALANCE AT
BEGINNING OF AMOUNT END OF
NAME OF DEBTOR PERIOD ADDITIONS COLLECTED PERIOD
- -------------------------------------------------------------------------------
Year Ended December 31, 1992
- ----------------------------
Joseph Anastasio $ 704,000 $ $ $ 704,000
Richard Barrett 600,000 (200,000) 400,000
Richard Boughrum 33,639 33,639
Douglas Brengel 750,000 (500,000) 250,000
Christopher Campbell 80,000 (40,000) 40,000
Mark Field 805,000 (65,000) 740,000
Chris Franke 92,000 (13,500) 78,500
George Styskal 100,000 (25,000) 75,000
Daniel Tyree 1,000,000 (1,000,000)
Sumner White 200,000 (200,000)
Year Ended December 31, 1991
- ----------------------------
Joseph Anastasio $ $704,000 $ $ 704,000
Richard Barrett 800,000 (200,000) 600,000
Richard Boughrum 33,639 33,639
Douglas Brengel 1,000,000 (250,000) 750,000
Christopher Campbell 120,000 (40,000) 80,000
Michael Corbat 75,000 (75,000)
Mark Field 935,000 (130,000) 805,000
Chris Franke 92,000 92,000
Robert Powers 40,000 (40,000)
George Styskal 150,000 (50,000) 100,000
Daniel Tyree 1,000,000 1,000,000
Sumner White 200,000 200,000
22
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, on the 30th day of March, 1994.
SALOMON INC By /s/ Arnold S. Olshin
- ----------------------- --------------------------
(Registrant) (Secretary)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Robert E. Denham Chief Executive Officer
and Director March 30, 1994
Jerome H. Bailey Chief Financial Officer March 30, 1994
David C. Fisher Chief Accounting Officer March 30, 1994
Dwayne O. Andreas* Director March 30, 1994
Warren E. Buffett* Director March 30, 1994
Andrew J. Hall* Director March 30, 1994
Gedale B. Horowitz* Director March 30, 1994
Deryck C. Maughan* Director March 30, 1994
William F. May* Director March 30, 1994
Charles T. Munger* Director March 30, 1994
Louis A. Simpson* Director March 30, 1994
David I. Young* Director March 30, 1994
Robert G. Zeller* Director March 30, 1994
*The undersigned, by signing his name hereto, does hereby sign this report on
behalf of each of the above-indicated directors of the Registrant pursuant to
powers of attorney, executed on behalf of each such director, on the 30th day of
March, 1994.
By /s/ Arnold S. Olshin
-----------------------------
(Attorney-In-Fact)
23
SALOMON INC
FORM 10-K EXHIBIT INDEX
Certain exhibits to this Form 10-K have been incorporated by reference in Part
IV Item 14. The following exhibits are being filed herewith:
Exhibit Number Description
- -------------- -----------
12(a) Calculation of Ratio of Earnings to Fixed
Charges
12(b) Calculation of Ratio of Earnings to Combined
Fixed Charges and Preferred Dividends
13 Salomon Inc 1993 Annual Report Financial
Information
21 Subsidiaries of the Registrant
23 Consent of Independent Public Accountants
24 Powers of Attorney
24