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 December 31, 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 February 8, 1995, the latest practicable date, there were 112,309,113
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 December 31, 1994
(Unaudited) and June 30, 1994.
Consolidated Statements of Income (Unaudited) for the three- and
six-month periods ended December 31, 1994 and December 31, 1993.
Consolidated Statements of Cash Flows (Unaudited) for the six-month
periods ended December 31, 1994 and December 31, 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 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
Signatures.
<TABLE>
THE BEAR STEARNS COMPANIES INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
Assets
<CAPTION>
December 31, June 30,
1994 1994
(Unaudited)
(In thousands, except share data)
<S> <C> <C>
Cash and cash equivalents $ 739,986 $ 294,604
Cash and securities deposited with
clearing organizations or
segregated in compliance with
Federal regulations 3,310,556 2,989,948
Securities purchased under agreements
to resell 14,092,634 19,515,764
Securities borrowed 22,674,645 21,073,208
Receivables
Customers 6,066,779 7,266,609
Brokers, dealers and others 2,554,252 980,452
Interest and dividends 172,828 178,123
Financial instruments owned - at
fair value 16,570,445 14,443,918
Property, equipment and leasehold
improvements, net of accumulated
depreciation and amortization 299,741 271,807
Other assets 360,230 377,585
Total Assets $66,842,096 $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>
December 31, June 30,
1994 1994
(Unaudited)
(In thousands, except share data)
<S> <C> <C>
Short-term borrowings $ 7,752,968 $ 7,860,311
Securities sold under agreements
to repurchase 23,133,263 26,863,122
Payables
Customers 16,655,046 16,387,932
Brokers, dealers and others 1,643,525 834,090
Interest and dividends 252,344 287,326
Financial instruments sold, but not
yet purchased - at fair value 10,813,735 8,351,258
Accrued employee compensation and benefits 227,823 593,742
Other liabilities and accrued expenses 552,695 489,575
61,031,399 61,667,356
Commitments and Contingencies
Long-term Borrowings 3,503,428 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
December 31, 1994 and June 30, 1994,
respectively 144,965 144,965
Paid-in capital 1,451,173 1,447,066
Retained earnings 410,685 388,685
Capital Accumulation Plan 258,698 275,415
Treasury stock - at cost:
Adjustable Rate Cumulative Preferred
Stock, Series A - 2,118,550 shares at
December 31, 1994 and June 30, 1994,
respectively (85,507) (85,507)
Common Stock - 32,620,006 and 31,525,939
shares at December 31, 1994 and June 30, 1994,
respectively (434,798) (410,882)
Note receivable from ESOP Trust (25,447) (30,676)
Total Stockholders' Equity 2,157,269 2,166,566
Total Liabilities and Stockholders' Equity $66,842,096 $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 Six-Months Ended
December 31, December 31, December 31, December 31,
1994 1993 1994 1993
(In thousands, except share data)
<S> <C> <C> <C> <C>
Revenues
Commissions $ 126,654 $ 129,518 $ 246,983 $ 237,116
Principal transactions 145,092 363,511 323,038 650,358
Investment banking 75,080 176,953 133,432 296,123
Interest and dividends 472,746 326,441 918,036 573,443
Other income 7,161 4,770 13,669 15,006
Total revenues 826,733 1,001,193 1,635,158 1,772,046
Interest expense 400,130 251,294 774,930 436,047
Revenues, net of
interest expense 426,603 749,899 860,228 1,335,999
Non-interest expenses
Employee compensation
and benefits 223,259 379,427 454,288 668,800
Floor brokerage, exchange
and clearance fees 26,072 24,451 51,733 47,461
Communications 21,342 18,703 42,668 34,972
Occupancy 20,103 18,154 40,092 37,098
Depreciation and
amortization 14,419 11,723 28,212 22,678
Advertising and market
development 17,064 13,616 31,488 23,872
Data processing and
equipment 8,496 7,229 16,903 13,621
Other expenses 42,740 44,682 84,541 77,591
Total non-interest
expenses 373,495 517,985 749,925 926,093
Income before provision
for income taxes 53,108 231,914 110,303 409,906
Provision for income taxes 20,181 97,101 41,915 170,790
Net income $ 32,927 $ 134,813 $ 68,388 $ 239,116
Net income applicable to
common shares $ 26,598 $ 128,393 $ 55,827 $ 227,159
Earnings per share $ 0.22 $ 1.00 $ 0.47 $ 1.77
Weighted average common
and common equivalent
shares outstanding 127,824,137 129,782,442 128,269,863 130,038,122
Cash dividends declared
per common share $ 0.15 $ 0.15 $ 0.30 $ 0.30
</TABLE>
<TABLE>
THE BEAR STEARNS COMPANIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Six-Months Ended
December 31, December 31,
1994 1993
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 68,388 $ 239,116
Adjustments to reconcile net income to
cash used for operating activities:
Depreciation and amortization 28,212 22,678
Deferred income taxes (8,494) (28,150)
Other 11,382 4,856
(Increases) decreases in operating receivables:
Securities borrowed (1,601,437) 514,380
Brokers, dealers and others (1,573,800) (950,852)
Customers 1,199,830 (2,667,071)
Other 20,109 (22,810)
Increases (decreases) in operating payables:
Brokers, dealers and others 805,927 (613,366)
Customers 267,114 1,933,647
Other (34,982) 8,120
(Increases) decreases in:
Cash and securities deposited with clearing
organizations or segregated in compliance
with Federal regulations (320,608) 630,412
Securities purchased under agreements to resell 5,423,130 (5,056,450)
Financial instruments owned (2,126,527) (2,481,888)
Other assets (16,694) 179,669
Increases (decreases) in:
Securities sold under agreements to repurchase (3,729,859) 4,707,569
Financial instruments sold, but not
yet purchased 2,462,477 (2,498)
Accrued employee compensation and benefits (373,856) (34,504)
Other liabilities and accrued expenses 78,724 (79,777)
Cash provided by (used) in operating activities 579,036 (3,696,919)
CASH FLOWS FROM FINANCING ACTIVITIES
Net (payments) proceeds from short-term borrowings (107,343) 3,041,322
Issuance of long-term borrowings 367,368 739,792
Net proceeds from issuance of Cumulative
Preferred Stock, Series C 96,788
Other common stock transactions 3,564 2,740
Note repayment from ESOP Trust 5,229
Payments for:
Retirement of long-term borrowings (279,050)
Retirement of subordinated notes (500)
Treasury stock purchases (44,670) (30,334)
Cash dividends paid (46,306) (44,862)
Cash (used) provided by financing activities (101,208) 3,804,946
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, equipment and leasehold
improvements, net (56,146) (34,099)
Purchases of investment securities and other assets (300)
Proceeds from sale of investment securities and
other assets 23,700 3,096
Cash used in investing activities (32,446) (31,303)
Net increase in cash and cash equivalents 445,382 76,724
Cash and cash equivalents, beginning of period 294,604 317,886
Cash and cash equivalents, end of period $ 739,986 $ 394,610
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):
December 31, June 30,
1994 1994
Financial instruments owned:
United States government and agency $ 4,845,261 $ 3,674,261
Non-U.S. government 803,954 495,645
State and municipal 177,689 162,487
Equities and convertible debt 4,243,214 4,295,161
Corporate debt 2,805,361 2,065,930
Derivative financial instruments 1,084,884 989,385
Mortgages and other
mortgage-backed securities 1,718,487 1,964,036
Other 891,595 797,013
$16,570,445 $14,443,918
Financial instruments sold, but not
yet purchased:
United States government and agency $ 6,480,830 $ 3,307,797
Non-U.S. government 174,465 484,062
Corporate equity 2,646,299 3,216,645
Corporate debt 728,628 767,629
Derivative financial instruments 718,389 527,379
Other 65,124 47,746
$10,813,735 $ 8,351,258
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. COMMITMENTS AND CONTINGENCIES
At December 31, 1994, the Company is contingently liable for unsecured
letters of credit of approximately $1.5 billion and letters of credit of
approximately $369.7 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 December 31, 1994, Bear Stearns' net
capital of $1.0 billion exceeded the minimum requirement by $991.4
million.
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.
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 arrange-
ments, 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 six-
months ended December 31, 1994 and 1993, respectively. Income taxes paid
totaled $59.5 million and $150.5 million for the six-months ended December
31, 1994 and 1993, respectively. Non-cash financing activities totaled
$1.3 million and $2.4 million for the six-months ended December 31, 1994
and 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 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 December 31, 1994
Compared to December 31, 1993
The December 1994 quarter was characterized by difficult conditions in both
the fixed-income and equity markets as a result of lower levels of client
and issuer activity which reflected concerns over the prospect of increased
inflation and rising interest rates. Net income in the 1994 quarter was
$32.9 million, a decrease of 75.6% from the $134.8 million reported in the
comparable 1993 quarter. Revenues, net of interest expense ("net
revenues"), fell 43.1% to $426.6 million in the 1994 quarter from $749.9
million in the 1993 quarter. This decrease was primarily attributable to
principal transactions and investment banking which declined 60.1% and
57.6%, respectively. Earnings per share were $0.22 for the 1994 quarter
versus $1.00 for the comparable 1993 quarter.
Commission revenues declined 2.2% in the 1994 quarter to $126.7 million from
$129.5 million in the comparable 1993 quarter. Revenues derived from retail
customers declined due to lower volume, while clearance and commodity
commissions increased, reflecting higher levels of customer activity and
the continued expansion of the correspondent business.
Revenues from principal transactions decreased 60.1% to $145.1 million in
the 1994 quarter from $363.5 million in the 1993 quarter, reflecting
declining revenues in most fixed-income and equity businesses. The decline
of trading revenues during the 1994 quarter was a result of uncertainty in
most market sectors and declining market volume.
Investment banking revenues decreased 57.6% to $75.1 million in the 1994
quarter from $177.0 million in the 1993 quarter. This reduction largely
reflects decreases in underwriting revenue attributable to lower
industrywide levels of new issue volume in both common equity and non-
investment-grade debt.
Net interest and dividends (revenues from interest and net dividends, less
interest expense) decreased 3.4% in the 1994 quarter to $72.6 million from
$75.1 million in the comparable 1993 quarter. The decrease reflects a
combination of rising interest rates and proportionately higher levels of
non-interest earning assets.
Employee compensation and benefits decreased 41.2% to $223.3 million in the
1994 quarter from $379.4 million in the comparable 1993 quarter. The
reduction 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 52.3% from 50.6% in the comparable 1993 quarter.
All other operating expenses increased 8.4% to $150.2 million in the 1994
quarter as compared to $138.6 million in the 1993 quarter. This increase
is principally related to higher levels of communications, depreciation and
promotional expenses reflecting the expansion of the Company's business
activities.
The Company's effective tax rate decreased to 38.0% in the 1994 quarter
compared to 41.9% the 1993 quarter, due to decreased earnings in the 1994
quarter.
Six-Months Ended December 31, 1994
Compared to December 31, 1993
Net income for the six-months ended December 31, 1994 was $68.4 million, a
decrease of 71.4% from $239.1 million for the comparable 1993 six-month
period. Net revenues decreased 35.6% to $860.2 million in the 1994 period
from $1.3 billion in the comparable 1993 period, mainly due to declines in
principal transactions and investment banking. Earnings per share for the
1994 period were $0.47 compared to $1.77 for the comparable 1993 period.
Commission revenues increased 4.2% to $247.0 million in the 1994 period from
$237.1 million in the comparable 1993 period. Commission revenues derived
from institutional investors and securities clearance activities increased
reflecting the higher levels of activity and the continued expansion of the
Company's correspondent clearing business.
Principal transactions decreased 50.3% to $323.0 million in the 1994 period
from $650.4 million in the comparable 1993 period, primarily due to weakness
in most businesses, particularly convertible arbitrage, mortgage-backed and
bankruptcy/high yield.
Investment banking revenues decreased 54.9% to $133.4 million in the 1994
period from $296.1 million in the comparable 1993 period. The reduction
reflects a decline in underwriting revenues associated with the decline in
new issue volume in both the equity and fixed-income markets.
Net interest and dividends increased 4.2% to $143.1 million in the 1994
period from $137.4 million in the comparable 1993 period. The increase in
net interest and dividends principally reflects higher levels of interest-
earning assets such as customer margin debt.
Employee compensation and benefits decreased 32.1% to $454.3 million in the
1994 period compared with $668.8 million in the comparable 1993 period.
The reduction is attributable to lower incentive and discretionary bonus
accruals associated with the decreased earnings in the 1994 period.
Employee compensation and benefits as a percentage of net revenues increased
to 52.8% from 50.1% in the comparable 1993 period.
All other operating expenses increased 14.9% to $295.6 million in the 1994
period from $257.3 million in the comparable 1993 period. This increase is
primarily due to increases in promotional, depreciation, data processing and
communications expenses associated with the expansion in the Company's
business activities.
The decrease in the effective tax rate to 38.0% in the 1994 period from
41.7% in the comparable 1993 period is attributable to reduced levels of
taxable income.
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 December 31, 1994 were $66.8 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.
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.
On November 8, 1994, the Company, executed a committed revolving-credit
facility (the "facility") totalling $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, and any amounts outstanding are
repayable pursuant to a six-month-term loan. The facility replaces the $1.5
billion committed, unsecured, revolving credit line which was used in
support of the Company's commercial paper program.
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 $445.4 million during the six-
months ended December 31, 1994 to $740.0 million. Total cash and cash
equivalents increased $76.7 million during the six-months ended December 31,
1993 to $394.6 million. Cash provided by operating activities during the
six-months ended December 31, 1994 was $579.0 million, primarily derived
from operating income and net cash provided by secured borrowing activities.
Financing activities utilized cash of $101.2 million, mainly representing
payments for cash dividends, purchases of treasury stock and a net decline
in short- and long-term borrowings. Cash provided by financing activities
in the six-months ended December 31, 1993 was used for operating and
investing activities.
During the six-months ended December 31, 1994, the Company repurchased
2,460,404 shares of Common Stock in connection with the Capital Accumulation
Plan for Senior Managing Directors (the "Plan") at a cost of approximately
$41.2 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 December 31, 1994, 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 December 31, 1994, the
Company held in inventory approximately $1.7 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 results of operations or financial
condition.
Part II Other Information
Item 1. Legal Proceedings
Rufus Winsor v. Home Owners Federal Savings and Loan Association,
et al
As previously reported in the Company's Annual Report on Form 10-K
for the fiscal year ending 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 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.
On or about December 15, 1994, settlement agreements executed by
all the parties were preliminarily approved by the Court, subject
to a hearing on February 15, 1995, after notice of the settlement
is provided to members of the class. Pursuant to the settlement
agreement between Bear Stearns and plaintiffs, Bear Stearns paid an
immaterial amount on December 21, 1994. Also on December 15,
1994, Bear Stearns and Peat Marwick agreed to settle their third
party action.
In re Daisy Systems Corporation, Debtor
As previously reported in the 1994 Form 10-K, Bear Stearns is a
defendant in a litigation entitled In re Daisy Systems Corporation,
Debtor which is pending in the United States District Court for the
Northern District of California.
On December 13, 1994, the Court denied plaintiff's motion for a
rehearing. On December 29, 1994, plaintiff filed a notice of
appeal to the Court of Appeals for the Ninth Circuit.
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 and the First 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.
On December 8, 1994, the Bankruptcy Court entered an order
approving the parties' settlement pursuant to which Bear Stearns
and Michael Tennenbaum will pay an immaterial amount.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of the Company held on October 24, 1994 (the
"Annual Meeting"), the stockholders of the Company approved the
Company's Performance Goals in the Amended and Restated Management
Compensation Plan (the "Performance Goals") and the amendments to
the Capital Accumulation Plan for Senior Managing Directors (the
"Amendments"). In addition, at the Annual Meeting the stockholders
of the Company elected thirty-eight 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 shares of Common Stock
represented at the Annual Meeting and entitled to vote on each
matter was required to approve the Performance Goals and
Amendments, while 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 Performance Goals and the
Amendments, set forth below is information on the results of the
votes cast at the Annual Meeting.
Broker
For Against Abstained Non-Votes
Performance Goals 54,857,102 9,015,191 847,131 19,800,328
Amendments 60,679,035 3,302,853 737,536 19,800,328
<PAGE>
With respect to the election of directors, set forth below is
information with respect to the nominees elected as directors of
the Company at the Annual Meeting and the votes cost and/or
withheld with respect to each such nominee.
Nominees For Withheld
E. Garrett Bewkes, III 83,638,884 880,868
Denis A. Bovin 83,604,949 914,803
James E. Cayne 83,618,658 901,094
Peter Cherasia 83,606,924 912,828
Stephen M. Cunningham 83,608,776 910,976
Peter Drittel 83,613,932 905,820
Kevin J. Finnerty 83,616,547 903,205
Grace J. Fippinger 83,622,961 896,791
Carl D. Glickman 83,615,774 903,978
Thomas R. Green 83,517,913 1,001,839
Alan C. Greenberg 83,612,754 906,998
Donald J. Harrington, C.M. 83,597,139 922,613
Richard Harriton 83,617,302 902,450
Nancy E. Havens-Hasty 83,606,567 913,185
Jonathan Ilany 83,608,975 910,777
Daniel L. Keating 83,608,850 910,902
John W. Kluge 82,363,248 2,156,504
David E. Liebowitz 83,408,677 1,111,075
Bruce M. Lisman 83,451,706 1,068,046
Matthew J. Mancuso 83,612,838 906,914
Vincent J. Mattone 83,620,290 899,462
Michael Minikes 83,627,237 892,515
William J. Montgoris 83,590,147 929,605
Donald R. Mullen, Jr. 83,607,053 912,699
Frank T. Nickell 83,507,411 1,012,341
Craig M. Overlander 83,613,320 906,432
Stephen E. Raphael 83,600,100 919,652
Jeffrey P. Reich 83,606,811 912,941
R. Blaine Roberts 83,612,329 907,423
E. John Rosenwald, Jr. 83,457,250 1,062,502
Frederic V. Salerno 83,602,356 917,396
Alan D. Schwartz 83,621,433 898,319
John C. Sites, Jr. 83,619,919 899,833
Warren J. Spector 83,623,779 895,973
Robert M. Steinberg 83,625,631 894,121
Michael L. Tarnopol 83,622,233 897,519
Fred Wilpon 83,626,666 893,086
Uzi Zucker 83,617,034 902,718
There were no broker non-votes with respect to the election of
directors.
Item 5.
Other Information
On December 12, 1994 the Company's Board of Directors
unanimously elected Vincent Tese to serve on the
Company's board, effective December 16, 1994. Mr. Tese
had served in New York Governor Mario Cuomo's
administration for the past twelve years, most recently
as the Director of Economic Development.
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 October
18, 1994, pertaining to the Company's
results of operations for the three-months
ended September 30, 1994.
(ii) A Current Report on Form 8-K dated December 15,
1994, pertaining to the form of a Warrant Agreement
relating to the Japanese Yen Put Warrants issued by
the Company.
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 14, 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 Six Months Ended
December 31, December 31, December 31, December 31,
1994 1993 1994 1993
(In thousands, except share data)
<S> <C> <C> <C> <C>
Weighted average common
and common equivalent
shares outstanding:
Average Common Stock
outstanding 112,688 120,066 113,071 120,253
Average Common Stock
equivalents:
Common Stock issuable
under employee
benefit plans 713 1,080 776 1,149
Common Stock issuable
assuming conversion
of CAP Units 14,423 8,636 14,423 8,636
Total weighted average
common and common
equivalent shares
outstanding 127,824 129,782 128,270 130,038
Net income $ 32,927 $134,813 $ 68,388 $239,116
Preferred Stock dividend
requirements (6,329) (6,420) (12,561) (11,957)
Income adjustment
(net of tax) applicable
to deferred compensation
arrangements 1,923 1,921 4,365 3,063
Adjusted net income $ 28,521 $130,314 $ 60,192 $230,222
Earnings per share $ 0.22 $ 1.00 $ 0.47 $ 1.77
</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>
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, 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 $110,303 $ 409,906 $ 642,799 $ 614,398 $ 507,625 $ 229,501 $ 192,532
Add: Fixed Charges
Interest 774,930 436,047 1,020,055 710,086 834,859 1,141,029 1,217,212
Interest factor
in rents 11,802 10,624 21,772 20,084 20,874 18,715 18,999
Total fixed charges 786,732 446,671 1,041,827 730,170 855,733 1,159,744 1,236,211
Earnings before
fixed charges and
taxes on income $897,035 $ 856,577 $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> 6-MOS
<FISCAL-YEAR-END> JUN-30-1994
<PERIOD-END> DEC-31-1994
<CASH> 739,986
<RECEIVABLES> 8,793,859
<SECURITIES-RESALE> 14,092,634
<SECURITIES-BORROWED> 22,674,645
<INSTRUMENTS-OWNED> 16,570,445
<PP&E> 299,741
<TOTAL-ASSETS> 66,842,096
<SHORT-TERM> 7,752,968
<PAYABLES> 18,550,915
<REPOS-SOLD> 23,133,263
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 10,813,735
<LONG-TERM> 3,503,428
<COMMON> 144,965
0
437,500
<OTHER-SE> 1,574,804
<TOTAL-LIABILITY-AND-EQUITY> 66,842,096
<TRADING-REVENUE> 323,038
<INTEREST-DIVIDENDS> 918,036
<COMMISSIONS> 246,983
<INVESTMENT-BANKING-REVENUES> 133,432
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 774,930
<COMPENSATION> 454,288
<INCOME-PRETAX> 110,303
<INCOME-PRE-EXTRAORDINARY> 110,303
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,388
<EPS-PRIMARY> .47
<EPS-DILUTED> .47
</TABLE>
