SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-8989
The Bear Stearns Companies Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3286161
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
245 Park Avenue, New York, New York 10167
(Address of principal executive offices) (Zip Code)
(212) 272-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of November 10, 1994, the latest practicable date, there
were 112,824,684 shares outstanding of Common Stock, $1 par value.
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition at
September 30, 1994 (Unaudited) and June 30, 1994.
Consolidated Statements of Income (Unaudited) for the
three-month periods ended September 30, 1994 and
September 24, 1993.
Consolidated Statements of Cash Flows (Unaudited) for
the three-month periods ended September 30, 1994 and
September 24, 1993.
Notes to Consolidated Financial Statements
(Unaudited).
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.
Item 6. Exhibits and Reports on Form 8-K.
Signatures.
<TABLE>
THE BEAR STEARNS COMPANIES INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
Assets
<CAPTION>
September 30, June 30,
1994 1994
(Unaudited)
(In thousands, except share data)
<S> <C> <C>
Cash and cash equivalents $ 930,124 $ 294,604
Cash and securities deposited with
clearing organizations or
segregated in compliance with
Federal regulations 1,814,114 2,989,948
Securities purchased under agreements
to resell 16,691,156 19,515,764
Securities borrowed 23,646,240 21,073,208
Receivables
Customers 6,760,807 7,266,609
Brokers, dealers and others 728,306 980,452
Interest and dividends 199,063 178,123
Financial instruments owned-at
market value 16,720,700 14,443,918
Property, equipment and leasehold
improvements, net of accumulated
depreciation and amortization 284,935 271,807
Other assets 363,572 377,585
Total Assets $68,139,017 $67,392,018
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
THE BEAR STEARNS COMPANIES INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
Liabilities and Stockholders' Equity
<CAPTION>
September 30, June 30,
1994 1994
(Unaudited)
(In thousands, except share data)
<S> <C> <C>
Short-term borrowings $ 8,446,821 $ 7,860,311
Securities sold under agreements
to repurchase 26,902,272 26,863,122
Securities loaned 74,684 124,037
Payables
Customers 16,141,734 16,387,932
Broker, dealers and others 850,688 710,053
Interest and dividends 288,118 287,326
Financial instruments sold, but not
yet purchased - at market value 9,083,385 8,351,258
Accrued employee compensation and benefits 161,670 593,742
Other liabilities and accrued expenses 453,975 489,575
62,403,347 61,667,356
Commitments and contingencies
Long-term borrowings 3,434,851 3,408,096
Preferred Stock Issued by Subsidiary 150,000 150,000
Stockholders' Equity
Preferred Stock, $1.00 par value;
10,000,000 shares authorized:
Adjustable Rate Cumulative Preferred
Stock, Series A - $50 liquidation
preference; 3,000,000 shares issued 150,000 150,000
Cumulative Preferred Stock, Series B-$200
liquidation preference; 937,500 shares
issued and outstanding 187,500 187,500
Cumulative Preferred Stock, Series C-$200
liquidation preference; 500,000 shares 100,000 100,000
issued and outstanding
Common Stock, $1.00 par value;
200,000,000 shares authorized;
144,965,094 shares issued at
September 30, 1994 and June 30, 1994,
respectively 144,965 144,965
Paid-in capital 1,449,433 1,447,066
Retained earnings 401,034 388,685
Capital Accumulation Plan 273,330 275,415
Treasury stock, at cost -
Adjustable Rate Cumulative Preferred
Stock, Series A - 2,118,550 shares at
September 30, 1994 and June 30, 1994,
respectively (85,507) (85,507)
Common Stock - 33,026,002 and 31,525,939
shares at September 30, 1994 and June 30, 1994,
respectively (439,260) (410,882)
Note receivable from ESOP Trust (30,676) (30,676)
Total Stockholders' Equity 2,150,819 2,166,566
Total Liabilities and Stockholders' Equity $68,139,017 $67,392,018
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
THE BEAR STEARNS COMPANIES INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
Three Months Ended
September 30, September 24,
1994 1993
(In thousands, except share data)
<S> <C> <C>
Revenues
Commissions $ 120,329 $ 107,598
Principal transactions 177,066 286,770
Investment banking 58,352 119,170
Interest and dividends 447,512 246,999
Other income 6,508 10,236
Total revenues 809,767 770,773
Interest expense 376,142 184,673
Revenues, net of
interest expense 433,625 586,100
Non-interest expenses
Employee compensation
and benefits 231,029 289,373
Floor brokerage, exchange
and clearance fees 25,661 23,010
Communications 21,326 16,269
Occupancy 19,989 18,944
Depreciation and
amortization 13,793 10,955
Advertising and market
development 14,424 10,256
Data processing and
equipment 8,407 6,392
Other expenses 41,801 32,909
Total non-interest
expenses 376,430 408,108
Income before provision
for income taxes 57,195 177,992
Provision for income taxes 21,734 73,689
Net income $ 35,461 $ 104,303
Net income applicable to
common shares $ 29,229 $ 98,766
Earnings per share $ 0.25 $ 0.77
Weighted average common
and common equivalent
shares outstanding 128,700,271 130,299,926
Cash dividends declared
per common share $ 0.15 $ 0.15
</TABLE>
<TABLE>
THE BEAR STEARNS COMPANIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended
September 30, September 24,
1994 1993
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 35,461 $ 104,303
Adjustments to reconcile net income to
cash used for operating activities:
Depreciation and amortization 13,793 10,955
Deferred income taxes (5,897) (7,410)
Other 6,661 (75)
(Increases) decreases in operating receivables:
Securities borrowed (2,573,032) (971,732)
Customers 505,802 (627,045)
Brokers, dealers and others 252,146 79,859
Other (9,332) (304,157)
Increases (decreases) in operating payables:
Securities loaned (49,353) 392,529
Customers (246,198) 1,423,090
Brokers, dealers and others 145,428 618,651
Other 792 219,884
(Increases) decreases in:
Cash and securities deposited with clearing
organizations or segregated in compliance
with Federal regulations 1,175,834 (337,768)
Securities purchased under agreements to resell 2,824,608 (500,810)
Financial instruments owned (2,276,382) (5,280,898)
Other assets (6,564) 35,089
Increases (decreases) in:
Securities sold under agreements to repurchase 39,150 4,146,578
Financial instruments sold, but not
yet purchased 732,127 (197,817)
Accrued employee compensation and benefits (436,441) (258,333)
Other liabilities and accrued expenses (30,197) 210,335
Cash provided by (used in) operating 98,406 (1,244,772)
activities
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from short-term borrowings 586,510 685,798
Issuance of long-term borrowings 272,114 460,272
Net proceeds from issuance of Cumulative
Preferred Stock, Series C 96,836
Other common stock transactions 3,619 2,491
Payments for:
Retirement of long-term borrowings (250,000)
Retirement of Subordinated Notes (500)
Treasury stock purchases (37,578) (7,154)
Cash dividends paid (23,112) (21,634)
Cash provided by financing activities 551,553 1,216,109
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, equipment and leasehold
improvements, net (26,921) (17,194)
Proceeds from sale of investment securities and
other assets 1,982 3,096
Proceeds from distributions on investment securities 10,500
Cash used in investing activities (14,439) (14,098)
Net increase (decrease) in cash and cash equivalents 635,520 (42,761)
Cash and cash equivalents, beginning of period 294,604 317,886
Cash and cash equivalents, end of period $ 930,124 $ 275,125
See Notes to Consolidated Financial Statements.
</TABLE>
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements
include the accounts of The Bear Stearns Companies Inc. and
its subsidiaries (the "Company") and have been prepared
pursuant to the Securities and Exchange Commission's rules and
regulations. The consolidated financial statements reflect
all adjustments which, in the opinion of management, are
normal and recurring and are necessary for a fair statement
of the results for the interim periods presented. All
material intercompany balances and transactions have been
eliminated. The nature of the Company's business is such that
the results of any interim period may not be indicative of the
results to be expected for a full fiscal year. Certain prior
period amounts have been reclassified to conform with the
current period's presentation.
2. FINANCIAL INSTRUMENTS - AT FAIR VALUE
Financial instruments owned and financial instruments sold,
but not yet purchased, consist of the Company's proprietary
trading and investment accounts, at fair value, as follows (in
thousands):
September 30, June 30,
1994 1994
Financial instruments owned:
United States government and agency $ 5,433,167 $ 3,674,261
Non-U.S. government 519,285 495,645
State and municipal 114,086 162,487
Equities and convertible debt 4,564,493 4,295,161
Corporate debt 2,029,157 2,065,930
Derivative financial instruments 1,234,934 989,385
Mortgages and other
mortgage-backed securities 1,958,312 1,964,036
Other 867,266 797,013
$16,720,700 $14,443,918
Financial instruments sold, but not
yet purchased:
United States government and agency $ 4,200,443 $ 3,307,797
Non-U.S. government 611,849 484,062
Corporate equity 3,127,837 3,216,645
Corporate debt 585,786 767,629
Derivative financial instruments 483,995 527,379
Other 73,475 47,746
$ 9,083,385 $ 8,351,258
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. COMMITMENTS AND CONTINGENCIES
At September 30, 1994, the Company is contingently liable for
unsecured letters of credit of approximately $1,204,168,000 and
letters of credit of approximately $117,400,000 secured by
financial instruments owned by the Company, which are
principally used as deposits for securities borrowed and to
satisfy margin deposits at option and commodity exchanges.
The Company, in its capacity as a dealer in over-the-counter
derivative financial instruments and in connection with its
proprietary market-making and trading activities, enters into
transactions in a variety of financial instruments. Derivative
financial instruments include forward and options contracts,
financial futures and interest rate swaps including caps, floors
and collars. Generally, these financial instruments represent
future commitments to exchange interest payment streams or
purchase or sell other financial instruments at specific terms
at specified future dates, or to exchange currencies. The
settlement of these transactions is not expected to have a
material effect on the results of operations or the financial
condition of the Company.
In the normal course of business, the Company has been named as
a defendant in several lawsuits which involve claims for
substantial amounts. Although the ultimate outcome of these
suits cannot be ascertained at this time, it is the opinion of
management, after consultation with counsel, that the resolution
of such suits will not have a material adverse effect on the
results of operations or the financial condition of the Company.
4. NET CAPITAL REQUIREMENTS
The Company's principal operating subsidiary, Bear, Stearns &
Co. Inc. ("Bear Stearns") and Bear Stearns' wholly-owned
subsidiary, Bear, Stearns Securities Corp. ("BSSC"), are
registered broker-dealers and, accordingly, are subject to
Securities and Exchange Commission Rule 15c3-1 (the "Net Capital
Rule") and the capital rules of the New York Stock Exchange,
Inc. ("NYSE") and other principal exchanges of which Bear
Stearns and BSSC are members. Bear Stearns and BSSC have
consistently operated in excess of the minimum net capital
requirements imposed by the capital rules. Included in the
computation of net capital of Bear Stearns, is net capital of
BSSC in excess of 5% of aggregate debit items arising from
customer transactions, as defined. At September 30, 1994, Bear
Stearns' net capital of $1,021,455,000, exceeded the minimum
requirement by $1,005,380,584.
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4.NET CAPITAL REQUIREMENTS (continued)
Bear, Stearns International Limited ("BSIL"), and certain other
wholly-owned London-based broker-dealer subsidiaries, are
subject to regulatory capital requirements of the Securities and
Futures Authority. BSIL and the other subsidiaries have
consistently operated in excess of these requirements.
5. EARNINGS PER SHARE
Earnings per share is computed by dividing net income applicable
to common shares by the weighted average number of shares of
Common Stock and common stock equivalents outstanding during
each period presented. Common stock equivalents include the
assumed distribution of shares of Common Stock issuable under
certain of the Company's deferred compensation arrangements with
appropriate adjustments made to net income for expense accruals
related thereto. Additionally, shares of Common Stock issued
or issuable under various employee benefit plans are included
as common stock equivalents.
6. ACCOUNTING CHANGE
During the quarter ended September 30, 1994, the Company
implemented the provisions of Financial Accounting Standards
Board Interpretation No. 39, Offsetting of Amounts Related to
Certain Contracts. The effect of the implementation was not
material to the unaudited Consolidated Statement of Financial
Condition.
7. CASH FLOW INFORMATION
Cash payments for interest approximated interest expense for the
three months ended September 30, 1994 and September 24, 1993,
respectively. Income taxes paid totaled $37,803,000 and
$8,187,000 for the three months ended September 30, 1994 and
September 24, 1993, respectively.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The Company's principal business activities, investment banking,
securities trading and brokerage, are, by their nature, highly
competitive and subject to various risks, particularly volatile
trading markets and fluctuations in the volume of market activity.
Consequently, the Company's net income and revenues have in the
past been, and may continue to be, subject to wide fluctuations,
reflecting the impact of many factors, including securities market
conditions, the level and volatility of interest rates, competitive
conditions and the size and timing of transactions, over which the
Company has little control. In addition, results of operations of
any particular interim period may not be indicative of results to
be expected for a full fiscal year.
Three Months Ended September 30, 1994
Compared to September 24, 1993
The September 1994 quarter was characterized by volatility as both
the fixed income and equity markets reflected investor concerns
over the prospect of increased inflation and rising interest rates.
Net income in the 1994 quarter was $35,461,000, a decrease of 66.0
% as compared with $104,303,000 for the 1993 quarter. Revenues,
net of interest expense ("net revenues") decreased to $433,625,000
in the 1994 quarter from $586,100,000 in the 1993 quarter, a
decrease of 26.0%. The decrease was primarily attributable to
principal transactions and investment banking, which decreased
38.3% and 51.0%, respectively, partially offset by an 11.8%
increased in commission revenues. Earnings per share were $0.25
for the 1994 quarter and $0.77 for the 1993 quarter.
Commission revenues rose 11.8 % in the 1994 quarter to $120,329,000
from $107,598,000 in the 1993 quarter. Revenues derived from
clearance activities increased due to higher trade count reflecting
active equity markets and a continued expansion of the
correspondent business. Institutional commission also rose as a
result of increased volume.
Revenues from principal transactions decreased 38.3% to
$177,066,000 in the 1994 quarter from $286,770,000 in the 1993
quarter reflecting decreases in revenues generated by mortgage-
backed securities, convertible bond and bankruptcy/high yield
activities. These decreases were partially offset by increased
revenues derived from emerging markets, derivatives and risk
arbitrage activities.
Investment banking revenues decreased to $58,352,000 in the 1994
quarter from $119,170,000 in the 1993 quarter, a 51.0 % decline.
This decrease largely reflects decreased syndicate commissions
and underwriting and management fees attributable to lower levels
of industry-wide new issue volume of common equity and non-
investment-grade debt.
Net interest and dividends (revenues from interest and net
dividends less interest expense) increased 14.5 % in the 1994
quarter to $71,370,000 from $62,326,000 in the comparable 1993
quarter. The increase in net interest and dividends principally
reflects higher levels of interest earning assets, primarily
customer margin debt.
Employee compensation and benefits decreased 20.2% to
$231,029,000 in the 1994 quarter from $289,373,000 in the 1993
quarter. The decrease is attributable to lower incentive and
discretionary bonus accruals associated with the decreased
earnings in the 1994 quarter. Employee compensation and benefits
as a percentage of net revenues increased to 53.3 % from 49.4 %
in the 1993 quarter.
The remaining operating expenses increased 22.5 % to $145,401,000
in the 1994 quarter as compared to $118,735,000 in the 1993
quarter. This increase is principally related to increased
communication and advertising and market development expenses
which reflect the expansion of the Company's business activities.
The decrease in the Company's effective tax rate from 41.4% in
the 1993 quarter to 38.0% in the 1994 quarter is attributable to
decreased earnings in the 1994 quarter.
Liquidity and Capital Resources
Financial Leverage
The Company maintains a highly liquid balance sheet with a
majority of the Company's assets consisting of marketable
securities inventories, which are marked to market daily, and
collateralized receivables arising from customer-related and
proprietary securities transactions. Collateralized receivables
consist of resale agreements, generally secured by U.S.
government and agency securities, and customer margin loans and
securities borrowed which are typically secured with marketable
corporate debt and equity securities. The Company's total assets
and financial leverage can fluctuate significantly depending upon
economic and market conditions, volume of activity, customer
demand and underwriting commitments.
The Company's total assets at September 30, 1994 increased to $
68.1 billion from $67.4 billion at June 30, 1994. The Company's
ability to support increases in total assets is a function of its
ability to obtain short-term secured and unsecured funding and
its access to sources of long-term capital, consisting of long-
term borrowings and equity which forms its capital base. The
adequacy of the Company's capital base is continually monitored
by the Company and is a function of asset quality and liquidity.
The relationship between an asset's liquidity and the level of
capital required to support the asset reflects the need to
provide counterparties with additional collateral, or margin, in
order to obtain secured financings. Highly liquid assets such as
U.S. government and agency securities typically are funded by the
use of repurchase agreements and securities lending arrangements
which require very low levels of margin.
In contrast, assets of lower quality or liquidity require higher
margin levels and consequently increased capital in order to
obtain secured financing. The level of customer receivables and
proprietary inventories the Company can maintain is also limited
by Securities and Exchange Commission Rule 15c3-1. Accordingly,
the mix of assets being held by the Company significantly
influences the amount of leverage the Company can employ and the
adequacy of its capital base.
Funding Strategy
Generally, the Company's funding strategy provides for the
diversification of its short-term funding sources in order to
maximize liquidity. Sources of short-term funding consist
principally of collateralized borrowings, including repurchase
transactions and securities lending arrangements, customer free
credit balances, unsecured commercial paper, medium-term notes
and bank borrowings, generally having maturities from overnight
to one year. Repurchase transactions, whereby securities are
sold with a commitment for repurchase by the Company at a future
date, represent the dominant component of secured short-term
funding. Additionally, the Company utilizes medium-term note
financing as an important component of its funding mix. The use
of medium-term note financing has served to improve liquidity by
lengthening the average maturities of the Company's short-term
borrowings. In addition to short-term funding sources, the
Company utilizes long-term senior borrowings as a longer term
source of unsecured financing.
The Company maintains an alternative liquidity strategy focused
on the liquidity and self funding ability of the underlying
assets. The objective of the strategy is to maintain sufficient
sources of alternative funding to enable the Company to fund debt
obligations maturing within one year without issuing any new
unsecured debt, including commercial paper. The most significant
source of alternative funding is the Company's ability to
hypothecate or pledge its unencumbered assets as collateral for
short-term funding.
As part of the Company's alternative liquidity strategy, the
Company regularly monitors and analyzes the size, composition and
liquidity characteristics of the assets being financed and
evaluates its liquidity needs in light of current market
conditions and available funding alternatives. Through the use
of this analysis, the Company can continuously evaluate the
adequacy of its equity base and schedule of maturing term debt
supporting its present asset levels. The Company can then seek
to adjust its maturity schedule, as necessary, in light of market
conditions and funding alternatives.
On November 8, 1994, the Company, executed a $2,000,000,000
committed revolving credit facility (the "facility") which allows
borrowing on both a secured and unsecured basis. The facility
provides that $1,000,000,000 may be borrowed by the Company on an
unsecured basis, while up to $2,000,000,000 may be borrowed on a
secured basis by Bear, Stearns & Co. Inc. ("Bear Stearns"), Bear,
Stearns Securities Corp. ("BSSC") and certain affiliates.
Secured borrowings can be collateralized by a pool of both
investment grade and non-investment grade financial investments.
The facility terminates on November 7, 1995 and amounts
outstanding, if any, are repayable pursuant to a six month term
loan. The facility replaces the $1,495,000,000 of committed
unsecured revolving credit lines of credit which was used in
support of the Company's commercial paper program. It has never
been necessary for the Company to borrow under these or any prior
revolving credit agreements.
Capital Resources
The Company conducts substantially all of its operating
activities within its regulated broker-dealer subsidiaries, Bear
Stearns, BSSC and Bear, Stearns International Limited ("BSIL").
In connection therewith, a substantial portion of the Company's
long-term borrowings and equity have been used to fund
investments in and advances to Bear Stearns, BSSC and BSIL. The
Company regularly monitors the nature and significance of those
assets or activities conducted outside the broker-dealer
subsidiaries and attempts to fund such assets with either capital
or borrowings having maturities consistent with the nature and
liquidity of the assets being financed.
Total cash and cash equivalents increased by $635.5 million in
the 1994 quarter to $930.1 million at September 30, 1994. Total
cash and cash equivalents decreased $42.8 million in the 1993
quarter to $ 275.1 million at September 24, 1993. Cash provided
by operating activities in the 1994 quarter was $98.4 million,
primarily attributable to operating income and net cash provided
by secured borrowings activities. Financing activities provided
the Company with cash of $551.6 million, primarily representing
net proceeds from short-and long-term borrowings of $586.5 and
$272.1 million, respectively, offset by the $250.0 million
retirement of Senior and medium-term notes. Cash provided by
financing activities in the 1993 quarter was used for operating
and investing activities.
During the three months ended September 30, 1994, the Company
repurchased 1,927,383 shares of Common Stock in connection with
the Capital Accumulation Plan for Senior Managing Directors (the
"Plan") at a cost of approximately $32,817,000. The Company
intends, subject to market conditions, to purchase a sufficient
number of shares in respect of all compensation deferred and any
additional amounts allocated to participants under the Plan.
Repurchases of Common Stock pursuant to the Plan are not made
pursuant to the Company's Stock Repurchase Program authorized by
the Board of Directors and are not included in calculating the
maximum aggregate number of shares of Common Stock that the
Company may repurchase under the Stock Repurchase Program.
Regulated Subsidiaries
As registered broker-dealers, Bear Stearns and BSSC are subject
to the net capital requirements of the Securities and Exchange
Commission, the New York Stock Exchange, Inc. and the Commodity
Futures Trading Commission, which are designed to measure the
general financial soundness and liquidity of broker-dealers.
Bear Stearns and BSSC have consistently operated in excess of the
minimum net capital requirements imposed by these agencies.
Additionally, BSIL and certain other wholly-owned London-based
broker-dealer subsidiaries, are subject to the regulatory capital
requirements of the Securities and Futures Authority, a self
regulatory organization established pursuant to the United
Kingdom Financial Services Act of 1986. BSIL and the other
subsidiaries have consistently operated in compliance with these
capital adequacy requirements.
Merchant Banking and High-Yield Securities
As part of the Company's merchant banking activities, it
participates from time to time in principal investments in
leveraged acquisitions. As part of these activities, the Company
originates, structures and invests in merger, acquisition,
restructuring and leveraged capital transactions, including
leveraged buyouts. The Company's principal investments in these
transactions are generally made in the form of equity investments
or subordinated loans and have not required significant levels of
capital investment. At September 30, 1994, the Company's
aggregate investments in leveraged transactions and its exposure
to any individual transaction were not material.
As part of the Company's fixed income securities activities, the
Company participates in the trading and sales of high yield, non-
investment-grade debt securities, non-investment-grade mortgage
loans (including real estate owned) and the securities of
companies that are the subject of pending bankruptcy proceedings
("high yield securities"). Non-investment-grade mortgage loans
are principally secured by residential properties and include
both non-performing loans and real estate owned properties. As
of September 30, 1994, the Company held in inventory
approximately $1,636,715,000 of high yield securities.
Collectively, these securities generally involve greater risk
than investment grade debt securities due to credit
considerations, liquidity of secondary trading markets and
vulnerability to general economic conditions.
The level of the Company's high yield securities inventories, and
the impact of such activities upon the Company's results of
operations, can fluctuate from period to period as a result of
customer demands and economic and market considerations. The
Company's Risk Committee continuously monitors exposure to market
and credit risk with respect to high yield securities inventories
and establishes limits with respect to overall market exposure
and concentrations of risk by both individual issuer and industry
group. The Company accounts for such inventory positions on a
market value basis with unrealized gains and losses being
recognized currently in earnings.
Part II Other Information
Item 1. Legal Proceedings
Jenny Craig, Inc. Litigation
As previously reported in the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1994 (the
"1994 Form 10-K"), Bear Stearns is a defendant in a
litigation entitled Jenny Craig, Inc. Litigation, which is
pending in the United States District Court for the
Southern District of California.
By court order dated October 25, 1994, the court granted
the motion by New York Life Insurance Company, Security
Pacific National Bank, TA Associates and the Bank of New
York, joined by Bear Stearns and Morgan Stanley, to
dismiss the secondary liability claims asserted in the
action under Section 10 (b) of the Securities Exchange
Act.
Robbins et al. v. The Gitano Group, Inc. et al.
As previously reported in the 1994 Form 10-K, Bear Stearns
is a defendant in a litigation entitled Robbins et al. v.
The Gitano Group, Inc. et al. which is pending in the
United States District Court for the Southern District of
New York.
By court order dated October 31, 1994, the court approved
the settlement contained in the October 1993 Memorandum of
Understanding, pursuant to which Bear Stearns agreed to
pay an immaterial amount and the claims were dismissed.
Rufus Winsor v. Home Owners Federal Savings and
Loan Association, et al
As previously reported in the 1994 Form 10-K, Bear Stearns
is a defendant in a litigation entitled Rufus Winsor v.
Home Owners Federal Savings and Loan Association , et al.
which is pending in the United States District Court for
the District of Massachusetts.
The parties to the litigation have agreed to a settlement
in principle pursuant to which Bear Stearns will pay an
immaterial amount. The settlement is subject to the
approval of the Court.
U.S. Refining and Marketing, Inc. v. Hudson-Ram, LP.
Bear Stearns & Co. Inc., Michael Tennenbaum, et al.
As previously reported in the 1994 Form 10-K, Bear Stearns
is a defendant in a litigation entitled U.S. Refining and
Marketing, Inc. v. Hudson Ram, LP, Bear Stearns & Co.
Inc., Michael Tennenbaum, et al. which is pending in the
United States Bankruptcy Court for the Central District of
California.
The parties to the litigation have reached a settlement in
principle pursuant to which Bear Stearns and Michael
Tennenbaum will pay an immaterial amount. The settlement
is subject to the approval of the Bankruptcy Court.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Statement Re Computation of Per Share
Earnings.
(12) Statement Re Computation of Ratio of
Earnings to Fixed Charges.
(27) Financial Data Schedule.
(b) Reports on Form 8-K
During the quarter, the Company filed the following
Current Reports on Form 8-K:
(i) A Current Report on Form 8-K dated July 26,
1994, pertaining to the Company's results of
operations for the three months and fiscal year
ended June 30, 1994.
(ii) A Current Report on Form 8-K dated July 29,
1994, pertaining to the forms of Warrant
Agreements relating to the Japan Index Call and
Put Warrants issued by the Company.
<PAGE>
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.
The Bear Stearns Companies Inc.
(Registrant)
Date: November 14, 1994 By: /s/ Samuel L. Molinaro, Jr.
Samuel L. Molinaro, Jr.
Senior Vice President -
Finance and Chief
Accounting Officer
<PAGE>
THE BEAR STEARNS COMPANIES INC.
FORM 10-Q
Exhibit Index
Exhibit No. Description Page
(11) Statement Re Computation of Per Share Earnings.
(12) Statement Re Computation of Ratio of
Earnings to Fixed Charges.
(27) Financial Data Schedule.
<PAGE>
<TABLE>
Exhibit 11
THE BEAR STEARNS COMPANIES INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
<CAPTION>
Three Months Ended
September 30, September 24,
1994 1993
(In thousands, except share data)
<S> <C> <C>
Weighted average common
and common equivalent
shares outstanding:
Average Common Stock
outstanding 112,558 120,465
Average Common Stock
equivalents:
Common Stock issuable
under employee
benefit plans 824 1,198
Common Stock issuable
assuming conversion
of CAP Units 15,318 8,637
Total weighted average
common and common
equivalent shares
outstanding 128,700 130,300
Net income $ 35,461 $104,303
Preferred Stock dividend
requirements (6,232) (5,537)
Income adjustment
(net of tax) applicable
to deferred compensation
arrangements 2,442 1,141
Adjusted net income $ 31,671 $ 99,907
Earnings per share $ .25 $ .77
</TABLE>
<TABLE>
Exhibit 12
THE BEAR STEARNS COMPANIES INC.
STATEMENT RE COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In thousands, except for ratio)
<CAPTION>
Three Months Three Months Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended Ended Ended Ended Ended
September 30, September 24, June 30, 1994 June 30, 1993 June 30, 1992 June 30, 1991 June 30, 1990
1994 1993
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings before taxes
on income $ 57,195 $ 177,992 $ 642,799 $ 614,398 $ 507,625 $ 229,501 $ 192,532
Add: Fixed Charges
Interest 376,142 184,673 1,020,055 710,086 834,859 1,141,029 1,217,212
Interest factor
in rents 6,663 5,371 21,772 20,084 20,874 18,715 18,999
Total fixed charges 382,805 190,044 1,041,827 730,170 855,733 1,159,744 1,236,211
Earnings before
fixed charges and
taxes on income $440,000 $ 368,036 $1,684,626 $1,344,568 $1,363,358 $1,389,245 $1,428,743
Ratio of earnings to
fixed charges 1.1 1.9 1.6 1.8 1.6 1.2 1.2
</TABLE>
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
This Schedule contains summary financial information extracted from the
financial statements contained in the body of the accompanying Form 10-Q
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1994
<PERIOD-END> SEP-30-1994
<CASH> 930,124
<RECEIVABLES> 7,688,176
<SECURITIES-RESALE> 16,691,156
<SECURITIES-BORROWED> 23,646,240
<INSTRUMENTS-OWNED> 16,720,700
<PP&E> 284,935
<TOTAL-ASSETS> 68,139,017
<SHORT-TERM> 8,446,821
<PAYABLES> 17,280,540
<REPOS-SOLD> 26,902,272
<SECURITIES-LOANED> 74,684
<INSTRUMENTS-SOLD> 9,083,385
<LONG-TERM> 3,434,851
<COMMON> 144,965
0
437,500
<OTHER-SE> 1,568,354
<TOTAL-LIABILITY-AND-EQUITY> 68,139,017
<TRADING-REVENUE> 177,066
<INTEREST-DIVIDENDS> 447,512
<COMMISSIONS> 120,329
<INVESTMENT-BANKING-REVENUES> 58,352
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 376,142
<COMPENSATION> 231,029
<INCOME-PRETAX> 57,195
<INCOME-PRE-EXTRAORDINARY> 57,195
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,461
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
