While the lawyers have had there say on this document I thought it added insight about one of the larger financial entities. As I am not a economic wiz there is no editing or commentary, just the statement for your information. This just seemed to damm interesting. EDGAR ONLINE SEC Filing

For the quarterly period ended May 31, 1999

  Commission file number 1-9466

Lehman Brothers Holdings Inc.
 (Exact Name of Registrant As Specified In Its Charter)
 

CONDITION and RESULTS of OPERATIONS

Year 2000 Readiness Disclosure

The year 2000 issue originates from computer programs and imbedded chips using two digits rather than four to define the calendar year. Computer programs that have date-sensitive software may recognize a date using "00"as the year 1900 rather than the year 2000.

If not addressed and completed on a timely basis, failure of the Company's computer systems to process year 2000 related data correctly could have a material adverse effect on the Company's operations and financial condition. Failures of this kind could, for example, lead to incomplete or inaccurate accounting, settlement failures, trade processing or recording errors in securities, currencies, commodities or other assets. It could also lead to uncertainty regarding risk, exposures and liquidity. If not addressed, the potential risks to the Company include financial loss, legal liability, interruption of business and regulatory actions.

The Company established a team in 1996 to modify or replace and then test the appropriate software and equipment to ensure that year 2000 issues were addressed. The Company presently believes that, with modifications to existing software and conversions to new software, the year 2000 issue will be resolved for all the Company's own systems worldwide.

In its approach to the year 2000 problem, Lehman Brothers has been guided by a three-step methodology. The steps are:

o Inventory and Assessment o Remediation o Testing

Inventory and assessment consisted of initial technical and functional analysis across the Company's applications. Initial analysis identified systems and applications. Each application was then reviewed and classified as highly critical, critical or non-critical. This process is complete.

Remediation is divided into three phases. Applications specified as year 2000 non-compliant have been analyzed to determine business impact and those that have been deemed critical were targeted for remediation. Selected Lehman Brothers mainframe applications were sent to an outside vendor for remediation, while the remaining applications have been repaired internally. Remediation of critical applications was completed by the end of the second quarter of 1999.

All remediated applications are tested for non-year 2000 functionality to confirm they still run correctly prior to year 2000 testing. At the time of remediation, applications are logged into a change management system to further ensure any additional changes are monitored and re-tested for year 2000 compliance.

LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL CONDITION and RESULTS of OPERATIONS

Testing for year 2000 compliance has also been organized into three phases. Phase one involves testing individual applications or groups of applications on mainframe or on distributed platforms. Consultants were engaged to assist with the testing of distributed applications classified as highly critical. Phase two involves real-time testing across platforms (integration testing). Phase three involves testing applications between firms (external testing).

Each of these phases has been pursued in a worldwide effort coordinated in New York, London and Tokyo where project teams and segregated lab environments have been established.

External testing itself is being performed in three steps. "Point-to-point" testing confirms that application interfaces between the Company and individual services and utilities function correctly. Point-to-point testing began in February 1998. "Beta" testing for a product follows Point-to-point testing and is a dress rehearsal for industrywide testing. Beta testing is only performed in the U.S. Many of the markets are not providing Industrywide testing, but they are providing some amount of end-to-end testing, where data is passed to more than one exchange or utility. Industrywide testing follows beta testing as the final external testing step.

In 1998, the Company participated in two Beta tests in the U.S., for the SIA and for the Futures Industry Association (FIA). The Company has also participated in the SIA Money Market Beta Test, the Mortgage-Backed Securities Clearing Corporation Test, the Participant Trust Company Mortgage Test and the Government Securities Clearing Corporation Test, the SIA Market Data Beta Test. Overseas tests in which the Company has participated include the Central Gilts Office (CGO) and CREST in the United Kingdom and the Singapore International Monetary Exchange (SIMEX) test in Singapore.

In March and April of 1999, the Company participated in the SIA Industrywide Test, as well as the Stock Loan Test and SIA Market Data Test in May. The Company has participated in a variety of point-to-point oversees tests in Hong Kong and Tokyo. We are currently participating in Industrywide testing in Japan with a June 27 completion. The Company has participated in testing in Germany, Italy, U.K., Sweden, and France. The Company is also participating in a cooperative test with Euroclear. The Company is also participating in Custody 2000 testing of cash and securities settlement systems with banks in Italy and Poland. Additional European tests are scheduled to October, 1999. All tests to date have been successful.

The Company has taken a leading role in the industry's efforts to deal with the year 2000 issue by actively participating and in some cases, leading, industrywide testing efforts. Lehman Brothers chaired the Participants' Industrywide Testing Subcommittee of the Securities Industry Association (SIA) which, with partners such as exchanges, depositories, market data vendors and buy-side firms, set up, refined and coordinated industrywide testing in the United States. Industrywide testing is the forum in which firms within the financial industry test the applications that transfer data between them. These tests started in March 1999 and are expected to be completed in July, 1999.

LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL CONDITION and RESULTS of OPERATIONS

In addition to its leadership in U.S. testing efforts, through membership in the Executive Committee of Global 2000, a group of international financial firms, the Company is participating in the coordination of global year 2000 readiness in the financial community. The Company is also pursuing separate point-to- point testing with firms not participating in industrywide testing. Lehman Brothers also serves as a member of the Custody 2000 Working Group whose goal is to assist the financial community in the assessment of year 2000 readiness of custodians in a variety of global markets. The Custody 2000 Working Group will also conduct proxy testing of selected sub-custodians in a number of markets globally.

Year 2000 also affects building and infrastructure systems. The Company is engaged in a global effort to address facilities issues. Critical areas include facilities components such as building management systems, elevators, heating systems, security and fire alarm systems, electrical and other building services. Facilities staff has surveyed and continues to test equipment and components and, with the Third Party Vendor team, is working to ensure that vendors and suppliers are year 2000 ready.

However, even if these changes are successful, the Company remains at risk from year 2000 failures caused by third parties. Externally, the Company is an active participant in the SIA Third Party Vendor Committee. Internally, the Company is evaluating efforts of key counterparties, banks, exchanges, agencies, utilities and suppliers, among others, to assess and remediate their year 2000 issues. As part of this effort, the Third Party Vendor team has inventoried and has sent surveys to vendors whose software and hardware products the Company uses and whose services the Company employs to determine their year 2000 readiness. The team is also testing critical software and hardware products to ensure year 2000 readiness. To date the Company has received information from 99% of its vendors, including overseas vendors whose year 2000 awareness seems to be less advanced than in the United States.

Examples of problems that could result from the failure by third parties with whom the Company interacts to remediate year 2000 bugs include: (i) in the case of exchanges and clearing agents, funding disruptions, failure to trade in certain markets and settlement failures; (ii) in the case of counterparties and clients, accounting and financial difficulties to those parties that may expose the Company to increased credit risk and lost business; (iii) in the case of vendors, service failures such as power, telecommunications, elevator operations and loss of security access control; (iv) in the case of banks and other lenders, the potential for liquidity stress due to disruptions to funding flows; and, (v) in the case of data providers, inaccurate or out of date information that would impair the Company's ability to perform critical functions such as pricing securities and currencies.

Additionally, general uncertainty regarding the success of remediation may cause many market participants to reduce their market activities temporarily as they address and assess their year 2000 efforts in 1999. This could result in a general reduction in market activities and revenue opportunities in late 1999 and early 2000. Management cannot predict the magnitude of any such reduction or its impact on the Company 's financial results. However, the Company's Risk Management Department continues to evaluate third party and credit risks posed by year 2000.

LEHMAN BROTHERS HOLDINGS INC. and SUBSIDIARIES MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL CONDITION and RESULTS of OPERATIONS

Recognizing the uncertainty of external dependencies, the Company is also preparing a contingency plan that identifies potential problems, actions to minimize the likelihood of them occurring and action plans to be invoked should they occur. The plan includes backup processes that do not rely on computer systems, where appropriate. The base contingency plan was finalized at the end of April 1999. The Company's business units continue to review and fine tune the contingency plan and to respond to new information about year 2000 risks as such information becomes available.

However, as stated above, there can be no guarantee or assurance that the systems of other companies on which the Company's systems rely will be remediated in a timely manner. This or a failure to remediate by another company or a remediation that is incompatible with the Company's systems could have a material adverse effect on the Company.

The Company has established an internal auditing plan to ensure ongoing compliance of tested applications.

The Company's total year 2000 project cost is based on presently available information. The total remaining cost of the year 2000 project is estimated at approximately $22 million, which will be funded through operating cash flow and expensed as incurred over the next one year. The Company has incurred and expensed approximately $16 million in 1997, $31 million in 1998, and $19 million through May 31, 1999, related to the year 2000 project.

The costs of year 2000 testing, modifications and/or replacements and the date on which the Company plans to complete the project are based on management's best estimates. These estimates were derived using numerous assumptions of future events including the continued availability of certain resources, third party modification plans and other factors.

New Accounting Standards

In June 1997, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 131 "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 is effective for the Company in Fiscal 1999 and establishes standards for related disclosures about products and services, geographic areas and major customers. The Company will adopt SFAS No. 131 in its 1999 Annual Report.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", which requires all derivatives to be recorded on the balance sheet at fair value. In June 1999, the FASB extended the implementation date of SFAS No. 133 by one year. As a result, SFAS No. 133 will now be effective for the Company on December 1, 2000 (Fiscal Year 2001). The expected impact of adoption on the Company's results of operations has not yet been determined, however it is not likely to be material since most of the Company's derivatives are carried at fair value.

-- Brian (imager@home.com), July 26, 1999

Answers

Oh I forgot to mention

"New Accounting Standards" Is a new little blurb on the SEC Filings that corps must submit if they have derivative investments. Any comments on this new developement would be welcome from the smarter members of the forum.:o) The implimentation date seems to be during the start of next year. Another facet of Y2K.

-- Brian (imager@home.com), July 26, 1999.

Very Interesting Post Brian.... Alot of unnecessary work being done to support a " bump in the road " senariao. It looks as though they've "got it" and are planning accordingly. No guarantees either way.

-- kevin (innxxs@yahoo.com), July 26, 1999.

Let's put it through the Mumbleizer:

The year 2000, mumble, mumble, could have a material adverse effect on the Company's operations and financial condition, mumble, mumble, incomplete or inaccurate accounting, settlement failures, trade processing or recording errors in securities, currencies, commodities or other assets, mumble, mumble, uncertainty regarding risk, exposures and liquidity. Mumble, mumble, potential risks to the Company include financial loss, legal liability, interruption of business and regulatory actions.

Mumble, mumble, team in 1996 to modify or replace and then test, mumble, mumble, with modifications to existing software and conversions to new software mumble, mumble, for all the Company's own systems worldwide.

Mumble, mumble, identified systems and applications. Each application was then reviewed and classified as highly critical, critical or non-critical, mumble, mumble. Applications specified as year 2000 non-compliant have been analyzed to determine business impact and . . .critical were targeted for remediation. Mumble, mumble, remediation of critical applications was completed by the end of the second quarter of 1999. . .

Testing, mumble, mumble, pursued in a worldwide effort coordinated in New York, London and Tokyo, mumble, mumble. Beta testing is only performed in the U.S. Many of the markets are not providing Industrywide testing, but they are providing some amount of end-to-end testing. . . Additional European tests are scheduled to October, 1999. All tests to date have been successful.

Mumble, mumble, Industrywide testing is the forum in which firms within the financial industry test the applications that transfer data between them. These tests started in March 1999 and are expected to be completed in July, 1999.

Mumble, mumble, building and infrastructure systems, mumble, mumble, global effort to address facilities issues. Critical areas include facilities components such as building management systems, elevators, heating systems, security and fire alarm systems, electrical and other building services. Facilities staff has surveyed and continues to test equipment and components and, with the Third Party Vendor team, is working to ensure that vendors and suppliers are year 2000 ready.

However, even if these changes are successful, the Company remains at risk from year 2000 failures caused by third parties. Externally, the Company is an active participant in the SIA Third Party Vendor Committee. Internally, the Company is evaluating efforts of key counterparties, banks, exchanges, agencies, utilities and suppliers, among others, to assess and remediate their year 2000 issues. Mumble, mumble, To date the Company has received information from 99% of its vendors, including overseas vendors whose year 2000 awareness seems to be less advanced than in the United States.

Examples of problems that could result from the failure by third parties, mumble, mumble, include: (i) in the case of exchanges and clearing agents, funding disruptions, failure to trade in certain markets and settlement failures; (ii) in the case of counterparties and clients, accounting and financial difficulties to those parties that may expose the Company to increased credit risk and lost business; (iii) in the case of vendors, service failures such as power, telecommunications, elevator operations and loss of security access control; (iv) in the case of banks and other lenders, the potential for liquidity stress due to disruptions to funding flows; and, (v) in the case of data providers, inaccurate or out of date information that would impair the Company's ability to perform critical functions such as pricing securities and currencies.

Additionally, general uncertainty regarding the success of remediation may cause many market participants to reduce their market activities temporarily as they address and assess their year 2000 efforts in 1999. This could result in a general reduction in market activities and revenue opportunities in late 1999 and early 2000. Management cannot predict the magnitude of any such reduction or its impact on the Company 's financial results. However, the Company's Risk Management Department continues to evaluate third party and credit risks posed by year 2000.

Mumble, mumble, the Company is also preparing a contingency plan that identifies potential problems, actions to minimize the likelihood of them occurring and action plans to be invoked should they occur. The plan includes backup processes that do not rely on computer systems, where appropriate. The base contingency plan was finalized at the end of April 1999. The Company's business units continue to review and fine tune the contingency plan and to respond to new information about year 2000 risks as such information becomes available.

However, as stated above, there can be no guarantee or assurance that the systems of other companies on which the Company's systems rely will be remediated in a timely manner. This or a failure to remediate by another company or a remediation that is incompatible with the Company's systems could have a material adverse effect on the Company. . . .

The Company's total year 2000 project cost, mumble, mumble, approximately $22 million, mumble, mumble, has incurred and expensed approximately $16 million in 1997, $31 million in 1998, and $19 million through May 31, 1999. . . .

-- Old Git (anon@spamproblems.com), July 26, 1999.

Pretty funny, Old Git, but overall, this is pretty frightnening. I don't think there gonna make it.

-- (uhoh@big.problems), July 26, 1999.

Thanks Brian... VERY interesting read.

Diane

-- Diane J. Squire (sacredspaces@yahoo.com), July 26, 1999.

...mumble, mumble we thought we estimated well enough the costs and requirements... mumble, mumble ... we messed up..mumble.. we are probably going to see problems, mumble,...if we say it now...mumble mumble, we can avoid public blame mumble... (most of us are going to have serious problems, mumble)

don't we sound very professional, mumble

-- Living in (the@real.world), July 26, 1999.

OG

Once again you impress me with your skills. Have you thought of taking up the legal trade?

-- Brian (imager@home.com), July 26, 1999.

Brian LOL!

Actually she might consider a "legal translator" position. Either that or marketing a software product that de-mumbleizes the legal- speak.

Diane

-- Diane J. Squire (sacredspaces@yahoo.com), July 26, 1999.

thanks, old git... you do know how to find the meat of the coconut, don't you... i knew it was an important read and you made the mumbo/ jumbo of it most understandable... the meat of this coconut, however, is not so sweet... thanks again for.. getting it...!!! really... best to you...

-- booann (cantsay@lovemyjob.edu), July 26, 1999.

Thanks for saving us a little reading time Old Git!

These people get it! This is one of the reasons people talk about the financial industry as being further along.

If I were to leave my money in the stock market (and I'm not) I would consider the suggestions of these people because they understand the uncertainty involved. The moron mutual fund message I posted last week from Alliance Capital was garbage. Of course, this is an SEC filing and not the blurb in the newsletter, but still.

-- nothere nothere (notherethere@hotmail.com), July 26, 1999.

It's very kind of you all to say such nice things but I mustn't take credit for doing anything brilliant. I'm afraid that's the way my addled brain reads such stuff. It's a bit like, well, um, "this is your brain on Metamucil." Typical of an

-- Old Git (anon@spamproblems.com), July 26, 1999.

What? Can't be? I paid these guy's to do it right. GET those damn lawyers back in here, fast! :) :) ;(

-- FLAME AWAY (BLehman202@aol.com), July 26, 1999.