TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition at December 31, 1993
(Unaudited) and June 30, 1993.
Consolidated Statements of Income (Unaudited) for the three-month
and six-month periods ended December 31, 1993 and 1992
Consolidated Statements of Cash Flows (Unaudited) for the six-month
periods ended December 31, 1993 and 1992.
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 4. Submission of Matters to a Vote of Security Holders.
Item 6. Exhibits and Reports on Form 8-K.
Signatures.
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THE BEAR STEARNS COMPANIES INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
Assets
<CAPTION>
December 31, June 30,
1993 1993
(Unaudited)
(In thousands, except share data)
<S> <C> <C>
Cash and cash equivalents $ 394,610 $ 317,886
Cash and securities deposited with
clearing organizations or
segregated in compliance with
Federal regulations 1,661,580 2,291,992
Securities purchased under agreements
to resell 21,095,107 16,038,657
Securities borrowed 16,207,024 16,721,404
Receivables
Customers 7,621,475 4,954,404
Brokers, dealers and others 1,966,650 1,016,068
Interest and dividends 113,811 109,217
Financial instruments owned-at
market value 17,696,398 15,214,510
Property, equipment and leasehold
improvements, net of accumulated
depreciation and amortization 250,357 238,936
Other assets 377,048 536,431
Total Assets $67,384,060 $57,439,505
See Notes to Consolidated Financial Statements.
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THE BEAR STEARNS COMPANIES INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
Liabilities and Stockholders' Equity
<CAPTION>
December 31, June 30,
1993 1993
(Unaudited)
(In thousands, except share data)
<C> <C> <C>
Short-term borrowings $ 9,160,216 $ 6,118,894
Securities sold under agreements
to repurchase 26,765,923 22,058,354
Securities loaned 497,956 565,584
Payables
Customers 14,972,027 13,038,380
Broker, dealers and others 1,048,952 1,595,098
Interest and dividends 186,068 177,948
Financial instruments sold, but not
yet purchased - at market value 8,971,341 8,973,839
Accrued employee compensation and benefits 440,818 469,376
Other liabilities and accrued expenses 675,443 782,379
62,718,744 53,779,852
Commitments and contingencies
Long-term borrowings 2,624,897 1,883,123
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
issued and outstanding 100,000
Common stock, $1.00 par value;
200,000,000 shares authorized;
138,072,022 and 131,507,178 shares issued
at December 31, and June 30, 1993,
respectively 138,072 131,507
Paid-in capital 1,345,753 1,225,557
Retained earnings 393,740 328,414
Capital Accumulation Plan 138,331 138,331
Treasury stock, at cost -
Adjustable Rate Cumulative Preferred
Stock, Series A - 2,118,550 (85,507) (85,507)
Common Stock - 24,399,771 and 22,203,018
shares at December 31, and June 30,
1993, respectively (291,953) (263,755)
Note receivable from ESOP Trust (35,517) (35,517)
Total Stockholders' Equity 2,040,419 1,776,530
Total Liabilities and Stockholders' Equity $67,384,060 $57,439,505
See Notes to Consolidated Financial Statements.
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THE BEAR STEARNS COMPANIES INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31, December 31, December 31,
1993 1992 1993 1992
(In thousands, except share data)
<S> <C> <C> <C> <C>
Revenues
Commissions $ 129,518 $ 105,453 $ 237,116 $ 190,339
Principal transactions 363,443 230,475 650,213 478,209
Investment banking 176,953 63,183 296,123 125,557
Interest and dividends 326,461 228,046 573,460 436,207
Other income 6,182 5,412 17,363 7,180
Total revenues 1,002,557 632,569 1,774,275 1,237,492
Interest expense 250,452 177,887 434,458 343,058
Revenues, net of
interest expense 752,105 454,682 1,339,817 894,434
Non-interest expenses
Employee compensation
and benefits 379,427 231,756 668,800 449,063
Floor brokerage, exchange
and clearance fees 24,451 21,381 47,461 38,676
Communications 18,703 14,704 34,972 29,122
Occupancy 18,154 17,364 37,098 34,463
Depreciation and
amortization 11,723 10,354 22,678 20,824
Advertising and market
development 13,616 9,253 23,872 18,038
Data processing and
equipment 7,229 5,994 13,621 14,368
Other expenses 46,888 33,023 81,409 70,483
Total non-interest
expenses 520,191 343,829 929,911 675,037
Income before provision
for income taxes 231,914 110,853 409,906 219,397
Provision for income taxes 97,101 46,559 170,790 92,147
Net income $ 134,813 $ 64,294 $ 239,116 $ 127,250
Net income applicable to
common shares $ 130,314 $ 62,830 $ 230,222 $ 130,156
Earnings per share $ 1.05 $ .52 $ 1.86 $ 1.07
Weighted average common
and common equivalent
shares outstanding 123,602,326 120,687,740 123,845,830 121,496,033
Cash dividends declared
per common share $ 0.15 $ 0.15 $ 0.30 $ 0.30
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THE BEAR STEARNS COMPANIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Six Months Ended
December 31, December 31,
1993 1992
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 239,116 $ 127,250
Adjustments to reconcile net income to
cash used for operating activities:
Depreciation and amortization 22,678 20,824
Deferred income taxes (28,150) 13,449
Other 4,856 24,642
(Increases) decreases in operating receivables:
Securities borrowed 514,380 (2,144,229)
Brokers, dealers and others (950,852) (654,144)
Customers (2,667,071) (124,471)
Other (22,810) 99,707
Increases (decreases) in operating payables:
Securities loaned (67,628) (936,535)
Brokers, dealers and others (545,738) 285,477
Customers 1,933,647 2,246,801
Other 8,120 (76,457)
(Increases) decreases in:
Cash and securities deposited with clearing
organizations or segregated in compliance
with Federal regulations 630,412 (236,520)
Securities purchased under agreements to resell (5,056,450) (9,678,738)
Financial instruments owned (2,481,888) 381,751
Other assets 179,669 (62,809)
Increases (decreases) in:
Securities sold under agreements to repurchase 4,707,569 9,290,186
Financial instruments sold, but not
yet purchased (2,498) 195,750
Accrued employee compensation and benefits (34,504) (187,370)
Other liabilities and accrued expenses (79,777) 113,284
Cash used in operating activities (3,696,919) (1,302,152)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from short-term borrowings 3,041,322 1,156,653
Issuance of long-term borrowings 739,792 243,575
Net proceeds from issuance of Cumulative
Preferred Stock, Series C 96,788
Other common stock transactions 2,740 1,545
Note repayment from ESOP trust 4,483
Payments for:
Retirement of Subordinated Notes (500) (500)
Treasury stock purchases (30,334) (71,757)
Cash dividends paid (44,862) (31,588)
Cash provided by financing activities 3,804,946 1,302,411
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, equipment and leasehold
improvements, net (34,099) (27,326)
Purchases of investment securities and other assets (300) (575)
Proceeds from sale of investment securities and
other assets 3,096 108,601
Cash used in (provided by) investing activities (31,303) 80,700
Net increase in cash and cash equivalents 76,724 80,959
Cash and cash equivalents, beginning of period 317,886 124,088
Cash and cash equivalents, end of period $ 394,610 $ 205,047
See Notes to Consolidated Financial Statements.
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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):
December 31, June 30,
1993 1993
Financial instruments owned:
United States government and agency $ 5,926,161 $ 7,644,206
Non-U.S. government 429,595 82,281
State and municipal 235,296 234,503
Corporate equity 3,061,489 1,602,077
Corporate debt 4,253,059 3,365,013
Mortgages and mortgage-backed 3,138,823 1,663,842
Other 474,001 272,861
$ 17,696,398 $15,214,510
Financial instruments sold, but not
yet purchased:
United States government and agency $ 5,070,563 $ 5,879,085
Non-U.S. government 607,569 432,008
Corporate equity 2,521,576 2,091,996
Corporate debt 515,954 490,563
Other 433,653 429,914
$ 8,971,341 $ 8,973,839
3. COMMITMENTS AND CONTINGENCIES
At December 31, 1993, the Company is contingently liable for unsecured
letters of credit of approximately $560,722,000 and letters of credit of
approximately $53,000,000 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.
<PAGE>
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. COMMITMENTS AND CONTINGENCIES - (continued)
In the normal course of its business, the Company enters into transactions
in a variety of financial instruments in order to meet the financing and
hedging needs of its customers, to reduce its own exposure to market,
currency and interest rate risks and in connection with its proprietary
market-making and trading activities. These financial instruments include
forward and futures contracts, interest rate swaps and the writing of
options, including interest rate caps and floors. The settlement of these
transactions is not expected to have a material effect on the consolidated
financial condition of the Company as of December 31, 1993.
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
consolidated 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 December 31, 1993, Bear Stearns' net capital of $876,050,392,
exceeded the minimum requirement by $865,515,679.
Bear, Stearns International Limited ("BSIL") and Bear Stearns International
Trading Limited ("BSIT") wholly-owned London-based subsidiaries, are subject
to regulatory capital requirements of the Securities and Futures Authority.
BSIL and BSIT have consistently operated in excess of these requirements.
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. EARNINGS PER SHARE
Earnings per share is computed by dividing net income applicable to common
shares and 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 earnings accruals
related thereto. Additionally, shares of Common Stock issued or issuable
under various employee benefit plans are included as common stock
equivalents.
6. CASH FLOW INFORMATION
Cash payments for interest approximated interest expense for the six months
ended December 31, 1993 and 1992, respectively. Income taxes paid totaled
$150,467,000 and $79,945,000 for the six months ended December 31, 1993 and
1992, respectively. Noncash financing activities totaled $2,438,000 for the
six months ended December 31, 1993.
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 December 31, 1993
Compared to December 31, 1992
The December 1993 quarter was marked by very favorable equity and fixed
income market conditions. Stock prices on all domestic markets continued
to rise largely reflecting the domestic interest rate environment and the
domestic economic growth during this quarter. The Dow Jones Industrial
Average reached record levels on increased volume on all major exchanges.
The December 1992 quarter was characterized by increased average trading
volume and unsettled equity markets reflecting concern over the
presidential election and the direction of long-term interest rates.
Net income in the 1993 quarter was $134,813,000, an increase of 109.7% as
compared with $64,294,000 for the 1992 quarter. Revenues, net of interest
expense ("net revenues") increased to $752,105,000 in the 1993 quarter
from $454,682,000 in the 1992 quarter an increase of 65.4% The growth was
primarily attributable to principal transactions and investment
banking, which increased 57.7% and 180.1%, respectively. Earnings per
share for the 1993 quarter were $1.05 compared to $0.52 in the 1992
quarter.
Commission revenues rose 22.8% in the 1993 quarter to $129,518,000 from
$105,453,000 in the 1992 quarter. Revenues derived from retail and
institutional customers increased reflecting the increased volume.
Commission revenues related to the securities clearance activities
increased due to increased investor demand and the continued growth in the
Company's client base.
Revenues from principal transactions increased 57.7% to 363,443,000 in the
1993 quarter from $230,475,000 in the 1992 quarter reflecting favorable
fixed income market conditions and increased demand from both retail and
institutional investors. Fixed income revenues increased significantly
during the 1993 quarter reflecting increases in mortgage-backed securities
, derivatives and bankruptcy/high yield activities. Additionally,
the Company also experienced an increase in revenues derived from its
equity related activities, including over-the-counter, emerging markets
and arbitrage.
Investment banking revenues increased dramatically to $176,953,000 in the
1993 quarter from $63,183,000 in the 1992 quarter, a 180.1% rise. This
increase largely reflects increased underwriting revenues and management
fees attributable to higher levels of new issue volume of common equity,
investment grade and non-investment grade debt and municipal securities
and an increase in the Company's market share. In addition, the Company
also experienced growth in merger and acquisition fees.
Net interest and dividends (revenues from interest and net dividends less
interest expense) increased 51.5% in the 1993 quarter to $76,009,000 from
$50,159,000 in the comparable 1992 quarter and an increase in salesmen's
compensation as a result of higher commission revenues. The increase in
net interest and dividends principally reflect higher levels of interest
earning assets, particularly customer margin debt.
Employee compensation and benefits increased 63.7% to $379,427,000 in the
1993 quarter from $231,756,000 in the 1992 quarter. The increase is
attributable to higher incentive and discretionary bonus accruals
associated with the increased earnings in the 1993 quarter and an increase
in salesmen's compensation as a result of high commission revenues.
However, employee compensation and benefits as a percentage of net
revenues decreased to 50.4% from 51.0% in the 1992 quarter.
The remaining operating expense increased 25.6% to $140,764,000 in the
1993 quarter as compared to $112,073,000 in the 1992 quarter. This
increase is principally related to increased floor brokerage,
communications, data processing and promotional costs attributable to the
continued growth in the Company's business activities.
Six Months Ended December 31, 1993
Compared to December 31, 1992
Net income for the six-months ended December 31, 1993 was $239,116,000 as
compared with $127,250,000 for the 1992 six-month period, an increase of
87.9% Net revenues increased 49.8% to $1,339,817,000 in the 1993 period
from $894,434,000 in the 1992 period, principally due to increased
contributions from principal transactions and investment banking.
Earnings per share for the 1993 period was $1.86 compared to $1.07 for
the 1992 period.
Commission revenues increased 24.6% to $237,116,000 in the 1993 period
from $190,339,000 in the 1992 period. Commission revenues derived from
retail and institutional investors and securities clearance activities
increased reflecting the higher levels of activity throughout the period.
Principal transactions increased 36.0% to $650,213,000 in the 1993 period
from $478,209,000 in the comparable period in 1992 primarily due to the
strength of the fixed income securities areas, particularly bankruptcy/
high yield, convertible bonds and mortgage-backed securities.
Additionally, the Company experienced growth in the over-the-counter,
emerging markets and arbitrage trading areas.
Investment banking revenues have increased 135.8% to $296,123,000 in the
1993 period from $125,557,000 in the 1992 period. The increase reflects
higher underwriting revenues and management fees associated with the
increased new issue volume in both the equity and fixed income markets.
In addition to benefitting from an industry-wide rise in underwriting
activities, the Company has also experienced an expansion in its market
share.
Net interest and dividends increased 49.2% to $139,002,000 for the 1993
six-month period from $93,149,000 in the 1992 period. The increase in net
interest and dividends principally reflects higher levels of interest
earning assets, particularly customer margin debt. The increase in
customer margin debt reflects favorable market conditions and an
increase in the securities clearance client base.
Employee compensation and benefits increased 48.9% to $668,800,000 in the
1993 period compared with $449,063,000 in the 1992 period. The increase
is attributable to higher incentive and discretionary bonus accruals
associated with the increased earnings in the 1993 period and an increase
in salesmen's compensation as a result of higher commission revenues.
Employee compensation and benefits as a percentage of net
revenues decreased to 49.9% from 50.2% in the 1992 period, despite
the increase in headcount.
Remaining operating expense increased 15.5% to $261,111,000 in the 1993
period as compared to $225,974,000 in the 1992 period. This increase is
primarily due to increased floor brokerage, communications, data
processing and promotional expenses due to the growth in the Company's
business activities. The increase in occupancy an depreciation costs were
the result of the Company's expansion of its international operations.
The decrease in the effective tax rate to 41.7% in the 1993 period from
42.0% in the 1992 period is attributable to the Company's adoption of
Statement of Financial Accounting Standards No. 109 partially offset by
the increase in the corporate Federal statutory rate to 35.0% pursuant to
the Omnibus Budget Reconciliation Act of 1993.
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, 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 December 31, 1993 increased to $67.4 billion from
$57.4 billion at June 30, 1993. The increase in total assets is attributable to
growth in highly liquid assets such as securities borrowed and resale
agreements. 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 counter-
parties 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 a cost effective manner. In addition
to short-term funding sources, the Company utilizes long-term senior 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. The Company also maintains
$1,495,000,000 of committed unsecured revolving lines of credit which support
the Company's commercial paper programs. At December 31, 1993, no amounts were
outstanding under the revolving lines of credit.
Capital Resources
The Company conducts substantially all of its operating activities within its
regulated broker-dealer subsidiaries, Bear, Stearns & Co. Inc. ("Bear Stearns"),
Bear, Stearns Securities Corp. ("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.
During the 1993 quarter, the Company continued to expand and diversify its long-
term borrowing base through the issuance of $200,000,000 of senior notes due
1996, which were issued in the Euromarket. Additionally, the Company continued
to extend maturities through the issuance of $1,269,000,000 of medium term notes
with maturities ranging from one to thirty years. The net proceeds from the
issuances of the senior notes and medium-term notes were used by the Company for
general corporate purposes and to lengthen the average maturity of the Company's
borrowings.
During the six months ended December 31, 1993, the Company repurchased
1,375,794 shares of Common Stock in connection with the Capital Accumulation for
Senior Managing Directors and the Performance Unit Plan for Senior Managing
Directors (collectively the "Plans") at a cost of approximately $30,459,000. 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 Plans. Repurchases of Common Stock pursuant
to the Plans 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 Bear Stearns International Trading, Limited ("BSIT"),
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 BSIT 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 December 31, 1993, 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 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 December 31, 1993, the Company held in inventory
approximately $1,567,750,000 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.
However, 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.
Effects of Statements of Financial Accounting Standards
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 112,"Employers' Accounting for Postemployment Benefits"
("SFAS 112") which is effective for fiscal years beginning after December 15,
1993. SFAS 112 establishes accounting standards for employers who provide
benefits to former or inactive employees after employment but before retirement.
The statement requires employees to accrue the obligations associated with
service rendered to date for employee benefits accumulated or vested where
payment is probable and can be reasonably estimated. The Company does not
expect initial adoption of SFAS 112 to have a material effect on the liquidity,
operating results or financial condition of the Company.
<PAGE>
Part II OTHER INFORMATION
Item 1. Legal Proceedings
ALPHA GROUP CONSULTANTS, Et AL. V. WEINTRAUB, ET AL.
As previously reported in the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1993 (the "1993 Form 10-K"), Bear
Stearns is a defendant in a litigation entitled Alpha Group
Consultants, et al. v. Weintraub, et al., which is pending in the
United States District Court for the Southern District of California.
The action is a class action on behalf of purchasers of debentures and
warrants of Weintraub Entertainment Group during the period January 23,
1987 through October 1, 1990 (the 1993 Form 10-K mistakenly referred
to March 31, 1990 as the end of the class period).
On October 20, 1993, the court denied without prejudice Bear Stearns'
September 20, 1993 motion for summary judgment or, in the alternative,
for specification of material facts without controversy pending
completion of certain specified discovery. Bear Stearns intends to
refile its motion on February 16, 1994. The hearing on the motion is
scheduled for March 18, 1994.
IN-STORE ADVERTISING SECURITIES LITIGATION
As previously reported in the Company's 1993 10-K, Bear Stearns is a
defendant in a litigation entitled In re In-Store Advertising
Securities Litigation, which is pending in the United States District
Court for the Southern District of New York.
On September 29, 1993, the Underwriter Defendants, including Bear
Stearns, filed an answer to the Second Amended Consolidated Complaint
denying all substantive allegations, asserting affirmative defenses and
asserting a cross-claim against KPMG Peat Marwick. By stipulation,
KPMG Pear Marwick has until February 22, 1994 to respond to the
Underwriter Defendants' cross-claim.
On September 10, 1993, KPMG Peat Marwick filed a motion to dismiss the
Second Amended Consolidated Complaint as against KPMG Peat Marwick.
This motion was granted with respect to plaintiffs' federal claims, but
denied with respect to plaintiffs' state law claims against KPMG Peat
Marwick.
JENNY CRAIG, INC. LITIGATION
As previously reported in the Company's 1993 Form 10-K, Bear Stearns
is a defendant in a litigation entitled In re Jenny Craig, Inc.
Litigation, which is pending in the United States District Court for
the Southern District of California.
On September 8, 1993, Bear Stearns filed an answer denying liability
and asserting affirmative defenses.
SOUTHEAST HOTEL PROPERTIES LIMITED PARTNERSHIP LITIGATION
As previously reported in the Company's 1993 Form 10-K, Bear Stearns
is a defendant in a litigation entitled Southeast Hotel Properties
Limited Partnership Litigation, which is pending in the United States
District Court for the Western District of North Carolina.
On October 26, 1993, the Court granted plaintiffs' motion for class
certification and certified a class including "all persons or entities
throughout the United States that purchased limited partnership
interests in the Southeast Hotel Properties Limited Partnership during
the relevant time period. Excluded from the class are the individual
defendants, their employees, and the members of the immediate families
of each of the individual defendants."
The Court further ordered that plaintiffs Ruben, Sturm and Smith shall
serve as class representatives for the claims for damages under the
federal securities laws, and that plaintiffs Ruben, Sturm, Smith,
Schnair, Rosenthal and Weisman shall serve as class representatives for
the claims of common law fraud, breach or fiduciary duties, and claims
under the Illinois Consumer Fraud and Deceptive Business Practices Act.
THANKSGIVING TOWER PARTNERS ET AL. V. ANROS THANKSGIVING PARTNERS.
As previously reported in the Company's 1993 Form 10-K, Bear Stearns
is a defendant in a litigation entitled Thanksgiving Tower Partners et
al. v. Anros Thanksgiving Partners, which is pending in the United
States District Court for the Northern District of Texas. The deadline
for completing discovery has been extended to February 25, 1994.
U.S. REFINING AND MARKETING COMPANY, INC. V. HUDSON-RAM L.P. ET AL.
As previously reported in the Company's 1993 Form 10-K, Bear Stearns
is a defendant in a litigation entitled U.S. Refining and Marketing
Company, Inc. v. Hudson-Ram L.P. et al., which is pending in the
Bankruptcy Court in the United States District Court for the Central
District of California.
On November 24, 1993 the Court dismissed the bankruptcy petitions of
Hudson-Ram and the Refining Partnership. A motion for reconsideration
has been filed.
ROBINS V. THE GITANO GROUP, INC.
As previously reported in the 1993 Form 10-K and Quarterly Report on
Form 10-Q for the quarter ending September 24, 1993, Bear Stearns is
a defendant in litigation entitled Robbins v. The Gitano Group, Inc.
which is pending in the United States District Court for the Southern
District of New York.
Following the October 4, 1993 execution of the Memorandum of
Understanding, plaintiffs filed a Fourth Amended and Supplemental Class
Action Complaint (the "Fourth Complaint"), which, among other things,
enlarged the Class to include purchasers of Gitano's common stock
through April 5, 1993, but continued to limit the claims asserted
against Bear Stearns and Goldman, Sachs & Co. to matters arising out
of the June 12, 1990 public offering.
The Memorandum of Understanding provided that if the settlement was not
consummated, the Fourth Amendment was to be withdrawn, and that the
operative pleadings would be those filed prior to the Fourth Amendment.
On January 24, 1994, Gitano announced that it would seek a sale of its
business and that it was unlikely that such a sale would realize
amounts in excess of the debt owed to Gitano's secured lenders.
Gitano's lenders also notified the company that they would not consent
to Gitano's issuance of notes and warrants which constituted a portion
of the settlement consideration that was to be received by the Class.
As a result of these developments, it is not possible for the
settlement to proceed as contemplated. The parties are continuing too
consult with one another, but at this time there can be no assurance
that the action will be settled or as to the terms of any such
settlement.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders of the Company held on October
25, 1993 (the "Annual Meeting"), the stockholders of the Company
approved the Company's Amended and Restated Management Compensation
Plan (the "Restated Management Compensation Plan"), the Company's
Amended and Restated Capital Accumulation Plan for Senior Managing
Director's (the "Restated Capital Accumulation Plan") and the Company's
Performance Unit Plan for Senior Managing Directors ("Performance Unit
Plan") (collectively the "Plans"). In addition, at the Annual Meeting
the stockholders of the Company elected thirty-five directors to serve
until the next Annual Meeting of Stockholders or until their successors
are duly elected and qualified.
The affirmative vote of a majority of the 114,801,398 shares of Common
Stock outstanding on September 15, 1993 was required to approve the
Amendment and the affirmative vote of a plurality of the votes cast by
holders of shares of Common Stock was required to elect the directors.
With respect to the approval of the Plans, set forth below is certain
information regarding the results of the votes cast at the Annual
Meeting:
Broker
Plan For Against Abstained Non-Votes
Restated Management
Compensation Plan 54,138,058 7,701,235 2,504,869 21,908,945
Restated Capital
Accumulation Plan 53,589,723 8,374,268 2,308,171 21,908,945
Performance Unit Plan 54,502,346 7,433,992 2,407,824 21,908,945
<PAGE>
With respect to the election of directors, set forth below is certain
information with respect to the nominees elected as directors of the
Company at the Annual Meeting and the votes cast and/or withheld with
respect to each such nominee:
Nominees For Withheld
E. Garrett Bewkes, III 85,239,255 1,013,852
Denis A. Bovin 85,129,003 1,124,104
James E. Cayne 85,223,940 1,029,167
Peter Cherasia 85,204,825 1,048,282
Michael R. Dabney 85,240,790 1,012,317
Kevin J. Finnerty 85,210,902 1,042,205
Grace J. Fippinger 85,240,948 1,012,159
Carl D. Glickman 85,235,978 1,017,129
Thomas R. Green 85,244,487 1,008,620
Alan C. Greenberg 85,244,513 1,008,594
Donald J. Harrington, C.M. 85,231,364 1,021,743
Richard Harriton 85,238,550 1,014,557
Nancy E. Havens-Hasty 85,200,984 1,052,123
Jonathan Ilany 85,232,472 1,020,635
Daniel L. Keating 85,217,498 1,035,609
John W. Kluge 84,065,277 2,187,830
David E. Liebowitz 85,235,729 1,017,378
Bruce M. Lisman 85,209,485 1,043,622
Matthew J. Mancuso 85,217,777 1,035,330
Vincent J. Mattone 84,991,661 1,261,446
Michael Minikes 85,244,118 1,008,989
William J. Montgoris 85,227,692 1,025,415
Donald R. Mullen, Jr. 85,235,725 1,017,382
Frank T. Nickell 85,232,467 1,020,640
R. Blaine Roberts 85,110,157 1,142,950
E. John Rosenwald, Jr. 85,244,008 1,009,099
Frederic V. Salerno 85,240,340 1,012,767
Alan D. Schwartz 85,238,480 1,014,627
John C. Sites, Jr. 85,243,111 1,009,996
Warren J. Spector 85,240,210 1,012,897
Robert M. Steinberg 85,222,307 1,030,800
John Steinhardt 85,215,403 1,037,704
Michael L. Tarnopol 85,220,287 1,032,820
Fred Wilpon 85,227,833 1,025,274
Uzi Zucker 85,222,971 1,030,136
There were no broker non-votes with respect to the election of
directors.
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.
(b) Reports on Form 8-K
During the quarter, the Company filed the following Current Report on
Form 8-K:
(i) A Current Report on Form 8-K dated October 12, 1993, pertaining
to the Company's results of operations for the three months
ended September 24, 1993.
<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 : February 10, 1994 By: /s/ Samuel L. Molinaro, Jr.
Samuel L. Molinaro, Jr.
Senior Vice
President - Finance
<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.
<TABLE>
Exhibit 11
THE BEAR STEARNS COMPANIES INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31, December 31, December 31,
1993 1992 1993 1992
(In thousands, except share data)
<S> <C> <C> <C> <C>
Weighted average common
and common equivalent
shares outstanding:
Average Common Stock
outstanding 114,349 111,311 114,527 111,295
Average Common Stock
equivalents:
Common Stock issuable
under employee
benefit plans 1,029 975 1,095 997
Common Stock issuable
assuming conversion
of CAP Units 8,224 8,402 8,224 9,204
Total weighted average
common and common
equivalent shares
outstanding 123,602 120,688 123,846 121,496
Net income $134,813 $ 64,294 $239,116 $127,250
Adjustable Rate Cumulative
Preferred Stock dividend
requirements (6,420) (698) (11,957) (1,409)
Income adjustment
(net of tax) applicable
to deferred compensation
arrangements 1,921 (766) 3,063 4,315
Adjusted net income $130,314 $ 62,830 $230,222 $130,156
Earnings per share $ 1.05 $ .52 $ 1.86 $ 1.07
</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>
Six Months Six Months Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended Ended Ended Ended Ended
December 31, December 31, June 30, 1993 June 30, 1992 June 30, 1991 June 30, 1990 June 30, 1989
1993 1992
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings before taxes
on income $409,906 $219,397 $ 614,398 $ 507,625 $ 229,501 $ 192,532 $ 287,383
Add: Fixed Charges
Interest 434,458 343,058 710,086 834,859 1,141,029 1,217,212 1,089,879
Interest factor
in rents 10,624 10,066 20,084 20,874 18,715 18,999 18,798
Total fixed charges 445,082 353,124 730,170 855,733 1,159,744 1,236,211 1,108,677
Earnings before
fixed charges and
taxes on income $854,988 $572,521 $1,344,568 $1,363,358 $1,389,245 $1,428,743 $1,396,060
Ratio of earnings to
fixed charges 1.9 1.6 1.8 1.6 1.2 1.2 1.3
</TABLE>
