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 March 31, 1995
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 May 10, 1995, the latest practicable date, there were 112,070,411
shares of Common Stock, $1 par value, outstanding.
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Statements of Financial Condition at March 31, 1995
(Unaudited) and June 30, 1994.
Consolidated Statements of Income (Unaudited) for the three- and
nine-month periods ended March 31, 1995 and March 25, 1994.
Consolidated Statements of Cash Flows (Unaudited) for the nine-
month periods ended March 31, 1995 and March 25, 1994.
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>
March 31, June 30,
1995 1994
(Unaudited)
(In thousands, except share data)
<S> <C> <C>
Cash and cash equivalents $ 387,602 $ 294,604
Cash and securities deposited with
clearing organizations or
segregated in compliance with
Federal regulations 1,515,328 2,989,948
Securities purchased under agreements
to resell 17,852,845 19,515,764
Securities borrowed 24,833,459 21,073,208
Receivables
Customers 5,703,495 7,266,609
Brokers, dealers and others 1,405,528 980,452
Interest and dividends 187,665 178,123
Financial instruments owned - at
fair value 17,144,622 14,443,918
Property, equipment and leasehold
improvements, net of accumulated
depreciation and amortization 311,843 271,807
Other assets 405,215 377,585
Total Assets $69,747,602 $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>
March 31, June 30,
1995 1994
(Unaudited)
(In thousands, except share data)
<S> <C> <C>
Short-term borrowings $ 8,901,854 $ 7,860,311
Securities sold under agreements
to repurchase 26,261,369 26,863,122
Payables
Customers 16,273,021 16,387,932
Brokers, dealers and others 1,244,469 834,090
Interest and dividends 268,930 287,326
Financial instruments sold, but not
yet purchased - at fair value 10,202,655 8,351,258
Accrued employee compensation and benefits 384,180 593,742
Other liabilities and accrued expenses 351,870 489,575
63,888,348 61,667,356
Commitments and Contingencies
Long-term Borrowings 3,499,914 3,408,096
Preferred Stock Issued by Subsidiary 150,000 150,000
Stockholders' Equity
Preferred Stock 437,500 437,500
Common Stock, $1.00 par value:
200,000,000 shares authorized;
144,965,094 shares issued at
March 31, 1995 and June 30, 1994,
respectively 144,965 144,965
Paid-in capital 1,455,111 1,447,066
Retained earnings 470,266 388,685
Capital Accumulation Plan 256,779 275,415
Treasury stock - at cost:
Adjustable Rate Cumulative Preferred
Stock, Series A - 2,118,550 shares at
March 31, 1995 and June 30, 1994,
respectively (85,507) (85,507)
Common Stock - 32,844,667 and 31,525,939
shares at March 31, 1995 and June 30, 1994,
respectively (444,327) (410,882)
Note receivable from ESOP Trust (25,447) (30,676)
Total Stockholders' Equity 2,209,340 2,166,566
Total Liabilities and Stockholders' Equity $69,747,602 $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 Nine-Months Ended
March 31, March 25, March 31, March 25,
1995 1994 1995 1994
(In thousands, except share data)
<S> <C> <C> <C> <C>
Revenues
Commissions $ 148,925 $ 121,541 $ 395,908 $ 358,657
Principal transactions 253,463 353,704 576,501 1,004,062
Investment banking 99,811 103,571 233,243 399,694
Interest and dividends 519,075 315,231 1,437,111 888,674
Other income 6,148 4,581 19,817 19,587
Total revenues 1,027,422 898,628 2,662,580 2,670,674
Interest expense 439,091 246,381 1,214,021 682,428
Revenues, net of
interest expense 588,331 652,247 1,448,559 1,988,246
Non-interest expenses
Employee compensation
and benefits 300,243 321,042 754,531 989,842
Floor brokerage, exchange
and clearance fees 27,002 22,868 78,735 70,329
Communications 21,642 19,345 64,310 54,317
Occupancy 21,879 19,227 61,971 56,325
Depreciation and
amortization 15,180 12,243 43,392 34,921
Advertising and market
development 11,577 10,997 43,065 34,869
Data processing and
equipment 8,482 7,100 25,385 20,721
Other expenses 48,874 42,927 133,415 120,518
Total non-interest
expenses 454,879 455,749 1,204,804 1,381,842
Income before provision
for income taxes 133,452 196,498 243,755 606,404
Provision for income taxes 50,712 81,048 92,627 251,838
Net income $ 82,740 $ 115,450 $ 151,128 $ 354,566
Net income applicable to
common shares $ 76,432 $ 109,250 $ 132,259 $ 336,409
Earnings per share $ 0.60 $ 0.84 $ 1.05 $ 2.53
Weighted average common
and common equivalent
shares outstanding 133,631,997 134,441,415 134,293,463 135,872,282
Cash dividends declared
per common share $ 0.15 $ 0.15 $ 0.45 $ 0.45
</TABLE>
<TABLE>
THE BEAR STEARNS COMPANIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Nine-Months Ended
March 31, March 25,
1995 1994
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 151,128 $ 354,566
Adjustments to reconcile net income to
cash used for operating activities:
Depreciation and amortization 43,392 34,921
Deferred income taxes (24,138) (56,862)
Other 17,880 15,996
(Increases) decreases in operating receivables:
Securities borrowed (3,760,251) (4,015,980)
Customers 1,563,114 (3,126,935)
Brokers, dealers and others (425,076) (2,015,959)
Other (38,582) (87,180)
Increases (decreases) in operating payables:
Customers (114,911) 3,047,844
Brokers, dealers and others 406,459 (220,028)
Other (18,396) 68,544
(Increases) decreases in:
Cash and securities deposited with clearing
organizations or segregated in compliance
with Federal regulations 1,474,620 53,343
Securities purchased under agreements to resell 1,662,919 (7,587,470)
Financial instruments owned (2,700,704) (3,659,750)
Other assets (18,167) 157,907
Increases (decreases) in:
Securities sold under agreements to repurchase (601,753) 12,015,557
Financial instruments sold, but not
yet purchased 1,851,397 835,568
Accrued employee compensation and benefits (225,180) 152,674
Other liabilities and accrued expenses (115,956) (107,979)
Cash used in operating activities (872,205) (4,141,223)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from short-term borrowings 1,041,543 2,663,414
Issuance of long-term borrowings 481,368 1,507,043
Net proceeds from issuance of Cumulative
Preferred Stock, Series C 96,788
Net proceeds from issuance of Preferred Stock
by Subsidiary 145,000
Other common stock transactions 11,026 3,722
Note repayment from ESOP trust 5,229 4,841
Payments for:
Retirement of Senior Notes (400,300) (183,000)
Retirement of Subordinated Notes (1,000)
Treasury stock purchases (51,141) (83,960)
Cash dividends paid (69,460) (69,181)
Cash provided by financing activities 1,018,265 4,083,667
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, equipment and leasehold
improvements, net (83,428) (53,404)
Purchases of investment securities and other assets (1,172) (3,300)
Proceeds from sale of investment securities and
other assets 31,538 9,396
Cash used in investing activities (53,062) (47,308)
Net (decrease)increase in cash and cash equivalents 92,998 (104,864)
Cash and cash equivalents, beginning of period 294,604 317,886
Cash and cash equivalents, end of period $ 387,602 $ 213,022
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 an entire 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):
March 31, June 30,
1995 1994
Financial instruments owned:
United States government and agency $ 5,768,621 $ 3,674,261
Non-U.S. government 820,542 495,645
State and municipal 156,745 162,487
Equities and convertible debt 4,695,277 4,295,161
Corporate debt 2,283,477 2,065,930
Derivative financial instruments 1,264,889 989,385
Mortgages and other
mortgage-backed securities 1,491,722 1,964,036
Other 663,349 797,013
$17,144,622 $14,443,918
Financial instruments sold, but not
yet purchased:
United States government and agency $ 5,409,649 $ 3,307,797
Non-U.S. government 407,672 484,062
Corporate equity 2,434,939 3,216,645
Corporate debt 849,280 767,629
Derivative financial instruments 1,050,940 527,379
Other 50,175 47,746
$10,202,655 $ 8,351,258
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. COMMITMENTS AND CONTINGENCIES
At March 31, 1995, the Company is contingently liable for unsecured letters
of credit of approximately $1.3 billion and letters of credit of
approximately $87.9 million 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 -- which include caps,
floors and collars. Generally, these financial instruments represent
future commitments to exchange interest payment streams or to purchase or
sell other financial instruments on 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 Company's results of
operations or financial condition.
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 these suits will not have a material adverse effect
on the Company's results of operations or financial condition.
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 those of other principal exchanges in 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 the
net capital of BSSC in excess of 5% of aggregate debit items arising from
customer transactions, as defined. At March 31, 1995, Bear Stearns' net
capital of $1.32 billion exceeded the minimum requirement by $1.31 billion.
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 ("SFA"). BSIL
and the other subsidiaries have consistently operated in excess of SFA
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 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. CASH FLOW INFORMATION
Cash payments for interest approximated interest expense for the nine-
months ended March 31, 1995 and March 25, 1994, respectively. Income taxes
paid totaled $89.8 million and $255.1 million for the nine-months ended
March 31, 1995 and March 25, 1994, respectively.
7. SUBSEQUENT EVENT
On April 19, 1995, the Board of Directors declared a 5% stock dividend on
the Company's Common Stock to Shareholders of record at May 12, 1995, to
be distributed May 26, 1995. Per share amounts and weighted average shares
outstanding for all periods included in the consolidated financial
statements are presented after giving retroactive effect to the stock
dividend.<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 been, and may continue to be, subject to wide fluctuations,
reflecting the impact of many factors including: economic and securities-
market conditions; the level and volatility of interest rates; competitive
conditions within the industry; and the size and timing of transactions over
which the Company has little control. Moreover, the results of operations
for a particular interim period may not be indicative of results to be
expected for an entire fiscal year.
Three-Months Ended March 31, 1995
Compared to March 25, 1994
The March 1995 quarter was characterized by improving conditions in the
fixed-income and equity markets reflecting increased investor optimism that
inflation and interest rates had stabilized. Net income in the 1995 quarter
was $82.7 million, a decrease of 28.3% from the $115.5 million in the
comparable prior year quarter. Revenues, net of interest expense ("net
revenues"), declined 9.8% to $588.3 million in the 1995 quarter from $652.2
million in the 1994 quarter. The decline was primarily attributable to a
decline in principal transactions partially offset by an increase in
commissions. Earnings per share were $0.60 for the 1995 quarter versus
$0.84 for the comparable 1994 quarter. The earnings per share amounts
reflect all stock dividends declared through the date of this filing.
Commission revenues increased 22.5% in the 1995 quarter to $148.9 million
from $121.5 million in the comparable 1994 quarter. Clearance, commodity
and institutional commissions increased reflecting continued expansion of
the correspondent business and higher levels of customer activity. This
increase was partially offset by revenues derived from retail customers
which declined slightly due to decreased volume.
Revenues from principal transactions decreased 28.3% in the 1995 quarter to
$253.5 million from $353.7 million in the 1994 quarter, primarily reflecting
a decrease in the Company's fixed-income activities due to declining
customer demand resulting from rising interest rates.
Investment banking revenues decreased 3.6% to $99.8 million in the 1995
quarter from $103.6 million in the 1994 quarter. This decline reflects a
decrease in underwriting revenue attributable to lower industrywide levels
of new issue volume in both equity and non-investment-grade debt offset by
an increase in both advisory and merger and acquisition fees.
Net interest and dividends (revenues from interest and net dividends, less
interest expense) increased 16.2% to $80.0 million in the 1995 quarter from
$68.9 million in the 1994 quarter. This increase is attributable to higher
levels of interest earning assets and rising interest rates.
Employee compensation and benefits decreased 6.5% to $300.2 million in the
1995 quarter from $321.0 million in the comparable 1994 quarter. The
reduction is attributable to lower incentive and discretionary bonus
accruals associated with the decreased earnings in the 1995 quarter.
Employee compensation and benefits, as a percentage of net revenues,
increased to 51.0% in the 1995 quarter from 49.2% in the 1994 quarter.
All other expenses increased 14.8% to $154.6 million in the 1995 quarter
from $134.7 million in the 1994 quarter. Floor brokerage, exchange and
clearance fees increased 18.1% in the 1995 quarter from the 1994 quarter
reflecting the increase in volume of securities transactions processed. The
remaining increase in other operating expenses is related to higher levels
of communications, depreciation and occupancy costs reflecting the expansion
of the Company's business activities. The increase in other expenses is
primarily due to the reorganization of several product lines.
The Company's effective tax rate decreased to 38.0% in the 1995 quarter
compared to 41.2% in the 1994 quarter due to decreased earnings in the 1995
quarter.
Nine-Months Ended March 31, 1995
Compared to March 25, 1994
Net income for the nine-months ended March 31, 1995 was $151.1 million, a
decrease of 57.4% from $354.6 million for the comparable 1994 period,
principally due to declines in principal transactions and investment
banking. Revenues, net of interest expense ("net revenues"), declined 27.1%
to $1.4 billion in the 1995 period from $2.0 billion in comparable 1994
period. Earnings per share for the 1995 period were $1.05 compared with
$2.53 for the comparable 1994 period. The earnings per share amounts
reflect all stock dividends declared through the date of this filing.
Commission revenues increased 10.4% to $395.9 million in the 1995 period
from $358.7 million in the 1994 period. Commission revenues derived from
securities clearance activities and institutional investors increased
reflecting the continued expansion of the Company's correspondent clearing
business and increased levels of institutional investors' activity. These
increases were partially offset by decreases in commissions derived from
retail customers due to decreased volume.
Principal transactions decreased 42.6% to $576.5 million in the 1995 period
from $1.0 billion in the comparable 1994 period, due to declines in most
businesses, particularly fixed-income securities and convertible bonds.
Investment banking revenues decreased 41.6% to $233.2 million in the 1995
period from $399.7 million in the comparable 1994 period. The decrease
represents a reduction in underwriting revenues due to a decline in new
issue volume in both the equity and fixed-income markets partially offset
by an increase in advisory and merger and acquisition fees.
Net interest and dividends increased 8.2% to $223.1 million in the 1995
period from $206.2 million in the comparable 1994 period. This increase is
primarily attributable to higher levels of interest earning assets
particularly customer margin debt.
Employee compensation and benefits decreased 23.8% to $754.5 million in the
1995 period from $989.8 million in the comparable 1994 period. The
reduction is attributable to lower incentive and discretionary bonus
accruals associated with the decreased earnings in the 1995 period.
Employee compensation and benefits, as a percentage of net revenues,
increased to 52.1% in the 1995 period from 49.8% in the 1994 period.
All other operating expenses increased 14.9% to $450.3 million in the 1995
period from $392.0 million in the 1994 period. Floor brokerage, exchange
and clearance fees increased 12.0% in the 1995 period from the 1994 period
reflecting the increase in volume of securities transactions processed. The
remaining increase in other operating expenses is related to higher levels
of communications, depreciation, occupancy and promotional expenses
reflecting the expansion of the Company's business activities.
The Company's effective tax rate decreased to 38.0% in the 1995 period
compared to 41.5% in the 1994 period due to decreased earnings in the 1995
period.
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, the overall volume of
activity, customer demands and underwriting commitments.
The Company's total assets at March 31, 1995 were $69.7 billion versus $67.4
billion at June 30, 1994. The Company's ability to support fluctuations in
total assets is a function of its ability to obtain short-term secured and
unsecured funding and to obtain long-term capital in the form of long-term
borrowings and equity, which together form 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 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 and/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 (generally maturities from one-day to one-year)
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.
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.
Moreover, the Company utilizes medium-term note financing as an important
component of its funding mix. 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.
On March 28, 1995, Standard & Poor's Ratings Group ("S&P") announced that
it had revised its long-term ratings outlooks for six securities firms
(including the Company) and their related entities to negative from stable
because of uncertainty about the future depth and duration of the earnings
downturn affecting all of them. S&P affirmed its long-term and short-term
ratings for all six firms.
The Company maintains an alternative liquidity strategy focusing on the
liquidity of its underlying assets and the ability to self-fund. 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 new commercial paper or other unsecured debt. 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 this analysis, the Company continuously evaluates the
adequacy of its equity base and its schedule of maturing term debt
supporting its present asset levels. The Company periodically adjusts its
maturity schedule to reflect market conditions and funding alternatives.
The Company, maintains a committed revolving-credit facility (the
"facility") totaling $2.0 billion which permits borrowing on a secured basis
by Bear, Stearns & Co. Inc. ("Bear Stearns"), Bear Stearns Securities Corp.
("BSSC") and certain affiliates. The facility provides that up to $1.0
billion of the total facility may be borrowed by the Company on a unsecured
basis. Secured borrowings can be collateralized by both investment-grade
and non-investment-grade financial investments. The facility terminates on
November 7, 1995. As of March 31, 1995, no amounts were outstanding under
the facility.
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 equity or borrowings having maturities
consistent with the nature and liquidity of the assets being financed.
Total cash and cash equivalents increased by $93.0 million during the nine-
months ended March 31, 1995 to $387.6 million. Total cash and cash
equivalents decreased $104.9 million during the nine-months ended March 25,
1994 to $213.0 million. Cash used in operating activities during the nine-
months ended March 31, 1995 was $872.2 million, mainly representing
increases in secured borrowing activities. Financing activities provided
cash of $1.0 billion, primarily derived from short-term borrowing proceeds.
Cash provided by financing activities in the nine-months ended March 25,
1994 was used for operating and investing activities.
During the nine-months ended March 31, 1995, the Company repurchased
3,247,930 shares of Common Stock in connection with the Capital Accumulation
Plan for Senior Managing Directors (the "Plan") at a cost of approximately
$55.1 million. 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 (the "SFA"), 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 SFA capital adequacy requirements.
Merchant Banking and Non-Investment-Grade Debt Securities
As part of the Company's merchant banking activities, it participates
periodically 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 March 31, 1995, the Company's aggregate investments in
leveraged transactions and its exposure related to any one transaction was
not material.
As part of its fixed-income securities activities, the Company underwrites,
trades and holds non-investment-grade debt securities, such as high-yield
securities, non-investment-grade mortgage loans and securities and bank
loans of companies subject to pending bankruptcy proceedings. Non-
investment-grade mortgage loans are non-performing loans which are
principally secured by residential properties. In addition, the Company
owns foreclosed real estate properties. As of March 31, 1995, the Company
held in inventory approximately $1.6 billion of non-investment-grade debt
instruments and foreclosed real estate properties.
These investments generally involve greater risk than investment-grade debt
securities due to credit considerations, secondary-market liquidity factors
and greater vulnerability to general economic conditions.
The level of the Company's non-investment-grade debt 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 plus
economic and market factors. The Company's Risk Committee continuously
monitors exposure to market and credit risk with respect to non-investment-
grade 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 in the Company's
earnings on a current basis.
Effects of Statements of Financial Accounting Standards
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 119, "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments" ("SFAS 119"), which is
effective for financial statements issued for fiscal years ending after
December 15, 1994. The adoption of SFAS 119 is not expected to have a
material impact on the Company's financial statement disclosures.
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") and the Company's Quarterly Report on
Form 10-Q for the first quarter ending September 30, 1994
(the "First Quarter 1995 10-Q"), 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.
A Stipulation of Settlement dated as of March 29, 1995
pursuant to which Bear Stearns will bear no expense has
been signed by the parties. This Stipulation is subject
to court approval.
Rufus Winsor v. Home Owners Federal Savings and Loan
Association, et al.
As previously reported in the 1994 Form 10-K, the First
Quarter 1995 10-Q and the Company's Quarterly Report on
Form 10-Q for the second quarter ending December 31, 1995
(the "Second Quarter 1995 10-Q"), 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 settlement agreement between Bear Stearns and
plaintiffs pursuant to which Bear Stearns paid an
immaterial amount on December 21, 1994 received final
court approval on February 15, 1995. The settlement
agreement between the plaintiffs and the remaining
defendants received final court approval on March 20,
1995. The third party action between Bear Stearns and
Peat Marwick was dismissed on April 24, 1995.
U.S. Refining and Marketing, Inc. v. Hudson-Ram, L.P.,
Bear Stearns & Co. Inc., Michael Tennenbaum, et al.
As previously reported in the 1994 Form 10-K, the First
Quarter 1995 10-Q and the Second Quarter 1995 10-Q, Bear
Stearns is a defendant in a litigation entitled U.S.
Refining and Marketing, Inc. v. Hudson-Ram, L.P., Bear
Stearns & Co. Inc., Michael Tennenbaum, et al., which is
pending in the United States Bankruptcy Court for the
Central District of California.
The settlement agreement between the parties to the
litigation pursuant to which Bear Stearns and defendant
Michael Tennenbaum will pay an immaterial amount received
final court approval on December 19, 1994.
In-Store Advertising Securities Litigation
As previously reported in the Company's 1994 Form 10-K,
Bear Stearns is a defendant in a litigation entitled In-
Store Advertising Securities Litigation, which is pending
in the United States District Court for the Southern
District of New York.
The plaintiff's state law fraud claims against KPMG Peat
Marwick were dismissed on February 21, 1995. Also on
February 21, 1995, the cross-claims for contribution
asserted against KPMG Peat Marwick by the Underwriter
Defendants and Venture Capital Defendants were dismissed
except to the extent that they seek contribution pursuant
to Section 11 of the Securities Act of 1933. The court
denied KPMG Peat Marwick's motion to sever the cross-
claims from the action.
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 Report on Form 8-K:
(i) A Current Report on Form 8-K dated January 19,
1995, pertaining to the Company's results of
operations for the six-months ended December 31,
1994.
<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: May 15, 1995 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.
<TABLE>
Exhibit 11
THE BEAR STEARNS COMPANIES INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
<CAPTION>
Three Months Ended Nine-Months Ended
March 31, March 25, March 31, March 25,
1995 1994 1995 1994
(In thousands, except share data)
<S> <C> <C> <C> <C>
Weighted average common
and common equivalent
shares outstanding:
Average Common Stock
outstanding 117,803 124,289 118,422 125,646
Average Common Stock
equivalents:
Common Stock issuable
under employee
benefit plans 751 1,084 793 1,158
Common Stock issuable
assuming conversion
of CAP Units 15,078 9,068 15,078 9,068
Total weighted average
common and common
equivalent shares
outstanding 133,632 134,441 134,293 135,872
Net income $ 82,740 $115,450 $151,128 $354,566
Preferred Stock dividend
requirements (6,308) (6,200) (18,869) (18,157)
Income adjustment
(net of tax) applicable
to deferred compensation
arrangements 4,309 3,894 8,689 6,957
Adjusted net income $ 80,741 $113,144 $140,948 $343,366
Earnings per share $ 0.60 $ 0.84 $ 1.05 $ 2.53
</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>
Nine-Months Nine-Months Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended Ended Ended Ended Ended
March 31, March 25, June 30, 1994 June 30, 1993 June 30, 1992 June 30, 1991 June 30, 1990
1995 1994
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings before taxes
on income $243,755 $ 606,404 $ 642,799 $ 614,398 $ 507,625 $ 229,501 $ 192,532
Add: Fixed Charges
Interest 1,214,021 682,428 1,020,055 710,086 834,859 1,141,029 1,217,212
Interest factor
in rents 18,264 16,165 21,772 20,084 20,874 18,715 18,999
Total fixed charges 1,232,285 698,593 1,041,827 730,170 855,733 1,159,744 1,236,211
Earnings before
fixed charges and
taxes on income $1,476,040 $1,304,997 $1,684,626 $1,344,568 $1,363,358 $1,389,245 $1,428,743
Ratio of earnings to
fixed charges 1.2 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> 9-MOS
<FISCAL-YEAR-END> JUN-30-1994
<PERIOD-END> MAR-31-1995
<CASH> 387,602
<RECEIVABLES> 7,296,688
<SECURITIES-RESALE> 17,852,845
<SECURITIES-BORROWED> 24,833,459
<INSTRUMENTS-OWNED> 17,144,622
<PP&E> 311,843
<TOTAL-ASSETS> 69,747,602
<SHORT-TERM> 8,901,854
<PAYABLES> 17,786,420
<REPOS-SOLD> 26,261,369
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 10,202,655
<LONG-TERM> 3,499,914
<COMMON> 144,965
0
437,500
<OTHER-SE> 1,626,875
<TOTAL-LIABILITY-AND-EQUITY> 69,747,602
<TRADING-REVENUE> 576,501
<INTEREST-DIVIDENDS> 1,437,111
<COMMISSIONS> 395,908
<INVESTMENT-BANKING-REVENUES> 233,243
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 1,214,021
<COMPENSATION> 754,531
<INCOME-PRETAX> 243,755
<INCOME-PRE-EXTRAORDINARY> 243,755
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 151,128
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.05
</TABLE>
