QUARTERLY FINANCIAL REPORT Form 8 K

Note 1 - Basis of Presentation

Objectives

On the Effective Date, the Plan became effective and the Debtors emerged from bankruptcy with a new Board of Directors (LBHI's Board of Directors hereinafter referred to as the "Board"). The Company continues to pursue the objectives of asset value maximization and timely distributions to creditors of available cash through the optimal execution of an orderly wind down process. Pursuant to the Plan, the Plan Administrator has made and expects to continue to make distributions to creditors of LBHI.

Basis of Presentation

The information and data included in the Quarterly Financial Report, including the Notes to the Cash Flow Estimates (the "Quarterly Financial Report") are derived from sources available to LBHI and LBHI-Controlled Affiliates (collectively, the "Company"). The term "LBHI-Controlled Affiliates" refers to those affiliates that are directly or indirectly controlled by LBHI and have not filed for protection under Chapter 11 of the Bankruptcy Code. LBHI-Controlled Affiliates excludes, among others, certain affiliates (such as Lehman Brothers International (Europe) (in administration) ("LBIE")) that were not managed or controlled by LBHI as of the Effective Date and are under separate administrations abroad (collectively, "Non-Controlled Affiliates").

The information and data included in these cash flow estimates and notes thereto (the "October 3, 2024 Cash Flow Estimates") were prepared to update the June 30, 2024 Cash Flow Estimates filed on September 6, 2024 (the "June 30, 2024 CFE") and are based on estimated cash flows from assets managed in an orderly wind down and/or sale (and related costs of operations) until the Company's activities are fully resolved.

These October 3, 2024 Cash Flow Estimates include an estimated recovery for all of the Company's assets. In previously filed Quarterly Financial Reports, certain assets subject to litigation were treated as "Excluded Recovery" matters and therefore were not included in the Cash Flow Estimates. Those assets are no longer treated as "Excluded Recovery" matters, since the Company entered into the Amended Framework Agreement to resolve the ECAPS Litigation (See Note 4 - Legal Proceedings - ECAPS for further information).

These October 3, 2024 Cash Flow Estimates include an estimate of expenses to be paid through final termination of the Company on such matters as asset disposition, litigation, administrative wind-down, and related activities. These estimates also include the estimated costs of a small subset of the Company's current staff committed to stay for many years, if necessary, to oversee the resolution of remaining disputes, other matters, and residual wind down activities. These estimates are subject to ongoing review and revision. Actual expenses may differ materially from these estimates.

The Company has prepared the Quarterly Financial Report based on the information available to the Company at the date of filing; however, such information may be incomplete and may be materially deficient. Material uncertainties continue to exist regarding the ultimate value realizable from the Company's assets, the timing of asset recoveries, future costs, and the eventual level of allowed creditors' claims. Accordingly, the Quarterly Financial Report is not meant to be relied upon as a complete description of the Company, its business, condition (financial or otherwise), results of operations, prospects, assets, or liabilities. The Company reserves all rights to revise this report.

In preparing the Quarterly Financial Report, the Company made various estimates and assumptions based on information available to the Company. As such, this report contains forward-looking statements that involve known and unknown risks, uncertainties and other factors which may cause the Company's actual results, performance, or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including all statements containing information regarding the intent, belief or current expectation of the Company and members of its management. Accordingly, the financial information herein is subject to change and any such change may be material.

Note 1 - Basis of Presentation (continued)

The Quarterly Financial Report should be read in conjunction with the Company's previous filings, including Form 8-K reports as filed with the United States Securities and Exchange Commission ("SEC"), the Plan and related Disclosure Statement (the "Disclosure Statement") dated August 31, 2011, and other documents filed after the Commencement Dates with various regulatory agencies or the Bankruptcy Court by LBHI and LBHI-Controlled Affiliates.

Future expenses and distributions are dependent in large measure on the resolution of various legal matters involving the Company and its Non-Controlled Affiliates. (See Litigation below.) The remaining legal matters require resolution in the United States, and multiple foreign jurisdictions. The timing for achieving final administrative or judicial resolution of these legal issues is uncertain. Consequently, the Company cannot definitively specify a date for the final termination of its activities.

All cash flows in these Estimates are presented on an undiscounted basis.

This Quarterly Financial Report reflects activities through October 3, 2024, and is neither audited nor prepared in accordance with U.S. Generally Accepted Accounting Principles ("GAAP").

Key Assumptions

Recoveries from Non-Controlled Affiliates

Estimates of recoveries from Non-Controlled Affiliates are based on information obtained from Non-Controlled Affiliates' fiduciaries, including the Company's involvement on creditors' committees. (See Note 2 - Due from Non-Controlled Affiliates for additional information)

Certain receivables from Non-Controlled Affiliates are denominated in foreign currencies, and as such, estimated recoveries related to these receivables are subject to movements in foreign exchange rates. The Company does not hedge against movements in foreign exchange rates.

The majority of estimated remaining recoveries from Non-Controlled Affiliates are contingent upon (i) the resolution of matters in dispute and/or active litigation, (ii) the receipt of non-U.S. government and/or Court approvals, and/or (iii) the final wind down of estates not controlled by LBHI. As such, the timing and amount of future recoveries from Non-Controlled Affiliates are uncertain, and actual recoveries may differ materially from these estimates.

Litigation

The Company is involved indirectly in several litigations and disputes that will impact its recoveries from Non-Controlled Affiliates. The Company's estimates of recoveries from Non-Controlled Affiliates incorporate the Company's own current assumptions regarding the resolution of these matters, except for recoveries from LBH PLC, for which the company derived its estimated recoveries from the "Base case" scenario per the most recent estimated outcome statement disclosed by its administrator, PWC.

Reporting of Claim Assignments

As part of the Company's planned operational wind down and legal entity dissolution process, LBHI has received claims against itself by way of assignment from various affiliated entities, with no resulting economic effect on estimated overall recoveries. The receivables and payables of such claims are netted in this Quarterly Financial Report.

Due from Affiliates

(as shown in the Balance Sheets and Note 2 and Note 3 herein)

Due from Affiliates represents (i) LBHI and LBHI-Controlled Affiliates receivables related to transactions with Non-Controlled Affiliates, and (ii) LBHI receivables related to transactions with LBHI-Controlled Affiliates.

In these October 3, 2024 Balance Sheets, Due from Non-Controlled Affiliates and Due from LBHI-Controlled Affiliates are recorded at estimated maximum potential remaining recoveries. These estimates for maximum potential remaining recoveries are materially higher in the aggregate than the Company's current total estimated recoveries on these claims. These estimates are subject to ongoing review and revision.

Note 2 - Due from Non-Controlled Affiliates (continued)

The Company owns the following claims against LBH PLC, a non-controlled affiliate in administration in the UK: (i) senior claims with an aggregate remaining unpaid balance of £49 million; and (ii) subordinated claims of £1.061 billion.

In accordance with the Amended Framework Agreement, and the Company's agreements with holders of approximately 16.8% of ECAPS, the Company is the beneficiary of future LBH PLC distributions recoveries as follows:

(a)	The remaining unpaid balance on the Company's senior claims in the amount of £49 million;

(b)	~36% of any funds available for subordinated creditors up to £225 million of funds available; and

(c)	~64% of any funds available for subordinated creditors in excess of £225 million of funds available.

In LBH PLC's most recent estimated outcome statement, LBH PLC reported "Base case" estimated future distributions to its subordinated creditors of £132 million. Using this estimate, LBHI would receive £48 million (or $62 million USD equivalent), which is included in the Company's Cash Flow Estimates. Note: LBH PLC also reported "High case" estimated future distributions to its subordinated creditors of £327 million, which would result in a recovery to LBHI of £146 million.

LBH PLC is the sole beneficiary of all distributions flowing from LB Holdings Intermediate 2 Limited. ("LBHI2"). LBHI2, through its interest in the Wentworth Joint Venture, is the partial beneficiary of future distributions flowing from Lehman Brothers International Europe ("LBIE") as follows:

(1)	50% of any future distributions from LBIE up to £67 million; and

(2)	75% of any future distributions from LBIE above £67 million.

(a)	LBIE vs. AG Financial Products ("AGR")

In November 2011, LBIE sued AG Financial Products Inc. ("AGR"), an affiliate of Assured Guaranty Corp., which in the past had provided credit protection to counterparties under credit default swaps. LBIE's complaint, which was filed in the Supreme Court of the State of New York (the "New York Supreme Court"), alleged that AGR improperly terminated nine credit derivative transactions between LBIE and AGR and improperly calculated the termination payment in connection with the termination of 28 other credit derivative transactions between LBIE and AGR. LBIE asserted in the complaint that AGR owes LBIE a termination payment of approximately $1.4 billion.

In July 2018, the New York Supreme Court dismissed LBIE's claims with respect to the nine allegedly improperly terminated transactions in their entirety. That ruling remains subject to appeal. The Court also dismissed the claim that AGR breached its implied duty of good faith and fair dealing with respect to the valuation of the 28 terminated credit derivatives transactions but found that there is a genuine question of fact as to the reasonableness and good faith of AGR's calculation of its loss, and which allowed LBIE to proceed with its claim against AGR for breach of contract.

The trial in the New York Supreme Court concluded in November 2021. In March 2023, the Court issued its decision in favor of AGR and granted AGR's claim. LBIE appealed that decision, and in March 2024, the Appellate Division of the Supreme Court, First Judicial Department ("Appellate Division") issued its decision upholding the lower court ruling in all respects. LBIE filed an application to appeal that decision to the New York Court of Appeals in August 2024. A decision on that application to appeal is pending.

The ultimate outcome of this litigation will have a material effect on the results of LBH PLC (indirect beneficiary of LBIE). The Company has claims against LBH PLC (see Note 2 - Due from Non-Controlled Affiliates).

(b)	LBF- Enasarco

Enasarco v. LBF is a dispute regarding the appropriate valuation of a terminated derivative transaction. Enasarco filed a claim of CHF 67 million against LBF based on the alleged loss incurred on the replacement of its derivative trade. The replacement trade was executed several months after the termination date of the original trade with LBF. LBF argued, among other things, that Enasarco had an obligation to value the trade as of the Early Termination Date, which would have resulted in a receivable to LBF, but in any event by a date earlier than that used by Enasarco.

LBF pursued the receivable in the UK courts but was not successful. In Switzerland, LBF rejected Enasarco's claim and Enasarco objected. Enasarco's claim was litigated in first instance Swiss Court (on remand), and in December 2021, that court ruled in favor of Enasarco, granting Enasarco the full amount of its filed claim plus certain legal costs. LBF appealed this ruling to the Superior Court of the Canton of Zurich and in October 2022, the Superior Court denied LBF's appeal on procedural grounds. LBF appealed this decision to the Swiss Federal Supreme Court, and in September 2023, the Court granted LBF's appeal. The appeal is now proceeding in the Superior Court.

LBHI is the largest creditor of LBF, a non-controlled affiliate in liquidation in Switzerland. LBF's remaining future distributions will be materially impacted by the outcome of this legal proceeding.

In addition, the outcome of LBHI's lone remaining disputed claim will be based on the outcome of this litigation (see footnote (3) on page 5 for more information).

(c)

ECAPS

LBHI owns a claim of GBP 1.061 billion related to the subordinated debt issued by LBH PLC, a non-controlled affiliate in administration in the UK. LBH PLC also has outstanding subordinated notes owned by three third party trusts known as ECAPS I, II, and III. A dispute over the relative priority of these subordinated debt instruments issued by LBH PLC was litigated in the UK courts. The Court of Appeal held that the subordinated notes owned by ECAPS I-III are senior to the subordinated debt owned by LBHI. In August 2022, the Supreme Court declined to consider LBHI's appeal of that decision.

In October 2023, a trial was conducted before Justice Hildyard in the UK High Court on the question of whether statutory interest on ECAPS' subordinated notes claims should be paid before principal on LBHI's subordinated debt claim.

In November 2023, the Court issued its decision in favor of ECAPS, finding that statutory interest on ECAPS's subordinated notes claims should be paid before principal on LBHI's subordinated debt claim.

In January 2024, LBHI filed a request to appeal this decision with the UK Court of Appeal. In April 2024, the UK Court of Appeal issued an order accepting LBHI's request for appeal.

In October 2024, LBHI, LBH PLC, LB GP No. 1 Limited and Deutsche Bank A.G. (London Branch ("the Parties") entered into an agreement to resolve the disputes between the Parties due to be heard at the Appeal (the "Amended Framework Agreement". For details related to the Amended Framework Agreement, please refer to Notice Regarding Certain UK Litigation [Docket 61695] and https://www.pwc.co.uk/services/business-restructuring/administrations/lehman/lehman-brothers-holdings.html

Note 5 - Taxes Payable

Taxes payable is an estimate of tax liabilities, net of the estimated impact of any refund claims, deposits, and net operating losses ("NOL"). Taxes payable have been allocated among the members of the LBHI Tax Group pursuant to the Debtor Allocation Agreement. The Debtor Allocation Agreement, which became effective on the Effective Date, addresses the relationship among the Debtors and certain Affiliates with respect to consolidated federal/combined state/local income taxes for pre-petition and post-petition years.

As of October 3, 2024, the Company recorded an estimate of $6.6 million for potential pre- and post-petition amounts owed to federal, state, local and international taxing authorities, net of expected refund claims. Between July 1, 2024, and October 3, 2024, the Company has reduced its net taxes payable by $2.0 million as a result of global tax audit progress.

Net Operating Losses

The NOLs of the LBHI Tax Group (including LBHI-Controlled Affiliates) are subject to audit and adjustment by the IRS. Substantially all of the LBHI Tax Group's current consolidated net operating loss carryovers are attributable to the Debtor. The Plan provides for an orderly liquidation of the Debtors. As previously disclosed in the Company's Quarterly Financial Report as of March 31, 2012 [Docket No. 29731], the LBHI Tax Group received a private letter ruling from the IRS in connection with the Plan going effective that stated (i) the liquidation of the Debtor for U.S. federal income tax purposes may occur over an extended period, and (ii) the reduction of the LBHI Tax Group's NOLs as a result of the discharge

of debt pursuant to the Plan generally would not occur until completion of the liquidation.

In January 2020, the Company received a supplemental IRS ruling extending the original ruling relating to the Company's liquidation. All remaining Debtor NOLs not previously utilized to absorb taxable income of the LBHI Tax Group are expected to be fully utilized to offset income resulting from the discharge of debt on the final date of liquidation of LBHI.