SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 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 November 9, 1995, the latest practicable date, there were
118,779,062 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 September 29, 1995
(Unaudited) and June 30, 1994.
Consolidated Statements of Income (Unaudited) for the three-month
periods ended September 29, 1995 and September 30, 1994.
Consolidated Statements of Cash Flows (Unaudited) for the three-
month periods ended September 29, 1995 and September 30, 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>
September 29, June 30,
1995 1995
(Unaudited)
(In thousands, except share data)
<S> <C> <C>
Cash and cash equivalents $ 406,359 $ 700,501
Cash and securities deposited with
clearing organizations or
segregated in compliance with
Federal regulations 748,886 1,309,573
Securities purchased under agreements
to resell 24,740,599 18,940,744
Securities borrowed 24,531,550 24,632,088
Receivables
Customers 6,454,507 5,993,772
Brokers, dealers and others 1,032,226 578,676
Interest and dividends 216,072 227,069
Financial instruments owned - at
fair value 20,751,472 21,509,498
Property, equipment and leasehold
improvements, net of accumulated
depreciation and amortization 310,109 312,867
Other assets 325,659 392,372
Total Assets $79,517,439 $74,597,160
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
THE BEAR STEARNS COMPANIES INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
Liabilities and Stockholders' Equity
<CAPTION>
September 29, June 30,
1995 1995
(Unaudited)
(In thousands, except share data)
<S> <C> <C>
Short-term borrowings $ 9,299,870 $ 8,570,777
Securities sold under agreements
to repurchase 31,906,733 29,584,724
Payables
Customers 16,869,610 16,236,611
Brokers, dealers and others 1,521,342 1,167,311
Interest and dividends 343,166 311,101
Financial instruments sold, but not
yet purchased - at fair value 12,063,587 11,241,118
Accrued employee compensation and benefits 222,933 469,189
Other liabilities and accrued expenses 527,275 453,924
72,754,516 68,034,755
Commitments and Contingencies
Long-term Borrowings 4,204,856 4,059,944
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;
152,202,724 shares issued at
September 29, 1995 and June 30, 1995 152,203 152,203
Paid-in capital 1,562,750 1,557,237
Retained earnings 500,232 430,330
Capital Accumulation Plan 328,740 344,338
Treasury stock - at cost:
Adjustable Rate Cumulative Preferred
Stock, Series A - 2,118,550 shares at
September 29, 1995 and June 30, 1995 (85,507) (85,507)
Common Stock - 34,560,390 and 34,866,529
shares at September 29, 1995 and June 30,
1995, respectively (462,404) (458,193)
Note receivable from ESOP Trust (25,447) (25,447)
Total Stockholders' Equity 2,408,067 2,352,461
Total Liabilities and Stockholders' Equity $79,517,439 $74,597,160
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
THE BEAR STEARNS COMPANIES INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
Three Months Ended
September 29, September 30,
1995 1994
(In thousands, except share data)
<S> <C> <C>
Revenues
Commissions $ 155,190 $ 120,329
Principal transactions 269,915 178,796
Investment banking 87,405 58,352
Interest and dividends 553,921 444,440
Other income 8,003 6,508
Total revenues 1,074,434 808,425
Interest expense 456,945 374,800
Revenues, net of interest expense 617,489 433,625
Non-interest expenses
Employee compensation and benefits 306,997 231,029
Floor brokerage, exchange
and clearance fees 29,746 25,661
Communications 22,498 21,326
Occupancy 21,146 19,989
Depreciation and amortization 16,276 13,793
Advertising and market development 12,524 14,424
Data processing and equipment 8,981 8,407
Other expenses 42,911 41,801
Total non-interest expenses 461,079 376,430
Income before provision for
income taxes 156,410 57,195
Provision for income taxes 62,564 21,734
Net income $ 93,846 $ 35,461
Net income applicable to
common shares $ 87,636 $ 29,229
Earnings per share $ .67 $ .23
Weighted average common and
common equivalent shares
outstanding 136,934,498 135,135,285
Cash dividends declared
per common share $ .15 $ .15
</TABLE>
<PAGE>
<TABLE>
THE BEAR STEARNS COMPANIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Three-Months Ended
September 29, September 30,
1995 1994
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 93,846 $ 35,461
Adjustments to reconcile net income to
cash used for operating activities:
Depreciation and amortization 16,276 13,793
Deferred income taxes (6,136) (5,897)
Other 9,126 6,661
(Increases) decreases in operating receivables:
Securities borrowed 100,538 (2,573,032)
Customers (453,550) 505,802
Brokers, dealers and others (460,735) 252,146
Other 35,870 (9,332)
Increases (decreases) in operating payables:
Customers 632,999 (246,198)
Brokers, dealers and others 352,885 96,075
Other 32,065 792
(Increases) decreases in:
Cash and securities deposited with clearing
organizations or segregated in compliance
with Federal regulations 560,687 1,175,834
Securities purchased under agreements to resell (5,799,855) 2,824,608
Financial instruments owned 758,026 (2,276,382)
Other assets 33,823 (6,564)
Increases (decreases) in:
Securities sold under agreements to repurchase 2,322,009 39,150
Financial instruments sold, but not
yet purchased 822,469 732,127
Accrued employee compensation and benefits (252,556) (436,441)
Other liabilities and accrued expenses 74,473 (30,197)
Cash (used in) provided by operating activities (1,127,740) 98,406
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from short-term borrowings 729,093 586,510
Issuance of long-term borrowings 370,918 272,114
Capital Accumultion Plan (15,598) -
Other common stock transactions 20,828 3,619
Payments for:
Retirement of Senior Notes (229,000) (250,000)
Treasury stock purchases (21,149) (37,578)
Cash dividends paid (23,849) (23,112)
Cash provided by financing activities 831,243 551,553
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, equipment and leasehold
improvements, net (13,518) (26,921)
Purchases of investment securities and other assets (1,258) 1,982
Proceeds from sales of investment securities 17,131 10,500
Cash provided by (used in) investing activities 2,355 (14,439)
Net (decrease)increase in cash and cash equivalents (294,142) 635,520
Cash and cash equivalents, beginning of period 700 501 294,604
Cash and cash equivalents, end of period $ 406,359 $ 930,124
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. FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments owned and financial instruments sold,
but not yet purchased, consist of the Company's proprietary
trading and investment accounts, at fair value, as follows
(in thousands):
September 29, June 30,
1995 1995
Financial instruments owned:
United States government and agency $ 6,332,962 $ 8,688,713
Non-US government 1,287,072 1,256,859
State and municipal 136,147 100,224
Corporate equity and convertible debt 6,182,230 5,235,219
Corporate debt 2,501,417 2,723,564
Derivative financial instruments 1,397,077 1,223,258
Mortgages and other
mortgage-backed securities 2,497,395 1,771,735
Other 417,172 509,926
$20,751,472 $21,509,498
Financial instruments sold, but not
yet purchased:
United States government and agency $ 5,147,593 $ 6,111,612
Non-US government 987,174 765,230
Corporate equity 3,441,882 2,424,455
Corporate debt 981,939 781,792
Derivative financial instruments 1,503,690 1,155,527
Other 1,309 2,502
$12,063,587 $11,241,118
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. COMMITMENTS AND CONTINGENCIES
At September 29, 1995, the Company is contingently liable for unsecured
letters of credit of approximately $1.4 billion and letters of credit of
approximately $111.9 million secured by financial instruments owned by the
Company, which are principally used as collateral for securities borrowed
and to satisfy margin deposits at option and commodity exchanges.
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 September 29, 1995, Bear Stearns'
net capital of $1.39 billion exceeded the minimum requirement by $1.38
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.
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 three-
months ended September 29, 1995 and September 30, 1994, respectively.
Income taxes paid totaled $40.4 million and $37.8 million for the three-
months ended September 29, 1995 and September 30, 1994, respectively.
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
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 cash and
derivative financial instruments in order to reduce its exposure to market,
currency and interest rate risk. SFAS No. 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments,"
defines a derivative as a future, forward, swap or option contract, or
other financial instrument with similar characteristics such as caps,
floors and collars. Generally these financial instruments represent future
commitments to exchange interest payment streams or currencies or to
purchase or to sell other financial instruments at specific terms at
specified future dates. Option contracts provide the holder with the
right, but not the obligation, to purchase or sell a financial instrument
at a defined price before or on an established date. These financial
instruments may have market and/or credit risk in excess of amounts
recorded in the Consolidated Statements of Financial Condition.
In order to measure derivative activity, notional or contract amounts are
frequently utilized. Notional/contract amounts, which are not included on
the balance sheet, are used to calculate contractual cash flows to be
exchanged and are generally not actually paid or received, with the
exception of currency swaps and foreign exchange forwards. The
notional/contract amounts of financial instruments that give rise to
off-balance-sheet market risk are indicative only of the extent of
involvement in the particular class of financial instrument and are not
necessarily an indication of overall market risk.
The following table represents the notional/contract amounts of the
Company's outstanding derivative financial instruments at September 29,
1995 and June 30, 1995 (in billions):
Notional/Contract Amount
September 29, June 30,
1995 1995
Interest Rate:
Swap agreements $73.7 $68.5
Futures contracts 17.3 15.4
Foreign Exchange:
Futures contracts 1.2 .7
Forward contracts 5.6 4.7
Options held 2.0 2.1
Options written 2.0 1.8
Mortgage-Backed Securities:
Forward contracts 23.9 28.1
Equity:
Swap agreements 4.4 3.0
Futures contracts .4 .3
Options held 4.4 1.6
Options written 2.0 1.6
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK - continued
The derivative instruments used in the Company's trading and dealer
activities, are marked to market daily with the resulting unrealized gains
or losses recorded in the Consolidated Statements of Financial Condition
and the related income or loss reflected in revenues derived from principal
transactions. The fair values of derivative financial instruments held or
issued for trading purposes and the average monthly fair value of the
instruments are as follows (in millions):
Fair Value at Fair Value at
September 29, 1995 June 30, 1995
Assets Liabilities Assets Liabilities
Swap agreements $ 497 $ 511 $ 587 $ 492
Forward contracts 302 324 209 181
Options held 598 427
Options written 669 483
Total $1,397 $1,504 $1,223 $1,156
Average Fair Value(1) Average Fair Value(1)
Assets Liabilities Assets Liabilities
Swap agreements $ 504 $ 483 $ 598 $ 398
Forward contracts 189 178 131 120
Options held 500 393
Options written 573 262
Total $1,193 $1,234 $1,122 $ 780
<F1>
(1) Average fair values represent monthly balances for the quarter ended
September 29, 1995 and the fiscal year ended June 30, 1995.
The notional/contract amounts of these instruments do not represent the
Company's potential risk of loss due to counterparty nonperformance.
Credit risk arises from the potential inability of counterparties to
perform in accordance with the terms of the contract. The Company's
exposure to credit risk associated with counterparty nonperformance is
limited to the replacement cost of over-the-counter contracts in a gain
position which are recognized in the Company's Consolidated Statements of
Financial Condition, net of collateral held ("net replacement cost").
Exchange traded financial instruments, such as futures and options,
generally do not give rise to significant counterparty exposure due to
the margin requirements of the individual exchanges. Options written
generally do not give rise to counterparty credit risk since they
obligate the Company (not its counterparty) to perform. The Company's
net replacement cost of over-the-counter contracts in a gain position at
September 29, 1995, is approximately $353.2 million.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The Company's principal business activities, investment banking, securities
trading and brokerage, are, by their nature, highly competitive and subject
to various risks, particularly volatile trading markets and fluctuations in
the volume of market activity. Consequently, the Company's net income and
revenues have in the past and are likely to 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. Moreover, the results of operations for a particular interim
period may not be indicative of results to be expected for an entire fiscal
year.
For a description of the Company's business, including its trading in cash
instruments and derivative products, its underwriting and trading policies,
and their respective risks, and the Company's risk management policies and
procedures, see the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1995.
Three-Months Ended September 29, 1995
Compared to September 30, 1994
The September 1995 quarter was characterized by favorable debt and equity
markets as a result of stabilized interest rates. Net income in the 1995
quarter was $93.8 million, an increase of 164.6% from the $35.5 million in
the comparable prior year quarter. Revenues, net of interest expense ("net
revenues"), increased 42.4% to $617.5 million in the 1995 quarter from
$433.6 million in the 1994 quarter. The increase was attributable to
increases in all revenue categories particularly principal transactions.
Earnings per share were $0.67 for the 1995 quarter versus $0.23 for the
comparable 1994 quarter.
Commission revenues increased 29.0% in the 1995 quarter to $155.2 million
from $120.3 million in the comparable 1994 quarter. Clearance, futures,
institutional and retail commissions increased reflecting continued
expansion of the correspondent business and higher levels of customer
activity.
Revenues from principal transactions increased 51.0% in the 1995 quarter to
$269.9 million from $178.8 million in the 1994 quarter, reflecting an
increase in the Company's fixed-income and equity trading activities due to
increased customer demand and improved market conditions.
<PAGE>
The Company's principal transaction revenues by reporting categories
including derivatives, are as follows (in thousands):
September 29, September 30,
1995 1994
Fixed Income $129,181 $ 98,017
Equity 108,761 64,194
Foreign Exchange & Other
Derivative Financial
Instruments 31,973 16,585
$269,915 $178,796
Investment banking revenues increased 49.8% to $87.4 million in the 1995
quarter from $58.4 million in the 1994 quarter. This increase reflected both
an increase in underwriting revenue attributable to increased levels of new
issue volume related to both equity and debt issues and an increase in
merger and acquisition fees.
Net interest and dividends (revenues from interest and net dividends, less
interest expense) increased 39.3% to $97.0 million in the 1995 quarter from
$69.6 million in the 1994 quarter. This increase is attributable to higher
levels of margin debt reflecting the continued expansion of customer
activities in the correspondent business. Average quarterly margin debt
increased to $18.5 billion in the 1995 quarter from $14.6 billion in the 1994
quarter. Average free credit balances increased to $5.7 billion in the 1995
quarter from $5.6 in the 1994 quarter.
Employee compensation and benefits increased 32.9% to $307.0 million in the
1995 quarter from $231.0 million in the comparable 1994 quarter. The
increase is attributable to higher incentive and discretionary bonus
accruals associated with the increased earnings in the 1995 quarter.
Employee compensation and benefits, as a percentage of net revenues,
decreased to 49.7% in the 1995 quarter from 53.3% in the 1994 quarter.
All other expenses increased 6.0% to $154.1 million in the 1995 quarter from
$145.4 million in the 1994 quarter. Floor brokerage, exchange and clearance
fees increased 15.9% 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 Company's effective tax rate increased to 40.0% in the 1995 quarter
compared to 38.0% in the 1994 quarter due to increased state and local
taxes.
<PAGE>
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 US government and agency
securities and customer margin loans and securities borrowed which are
typically secured by 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
demands and underwriting commitments.
The Company's total assets at September 29, 1995 were $79.5 billion versus
$74.6 billion at June 30, 1995. The increase is primarily attributable to
the growth in securities purchased under agreements to resell. 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 its access to sources
of long-term capital in the form of long-term borrowings and equity, which
together form its capital base. The Company continously monitors the
adequacy of its capital base which 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 US 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 in certain of its regulated subsidiaries is also limited by rules
of both the Securities and Exchange Commission and the Securities and
Futures Authority ("SFA") in London. 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.
The Company continued to increase its utilization of medium-term note
financing in order to extend maturities and achieve additional
diversification of its funding sources. In addition to short-term funding
sources, the Company utilizes long-term senior debt, including medium-term
notes, as a longer term source of unsecured financing.
The Company maintains an alternative funding strategy focused on the
liquidity and self-funding ability of its 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 funding 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 can evaluate the adequacy of its equity
base and its schedule of maturing term-debt supporting its present asset
levels. The Company can then seek to adjust its maturity schedule, in light
of market conditions and funding alternatives.
In addition, 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 an
unsecured basis. Secured borrowings can be collateralized by both
investment-grade and non-investment-grade financial investments. In
addition, this facility provides for defined margin levels on a wide range
of eligible financial instruments which may be pledged under the secured
portion of the facility. The facility terminates in October 1996. As of
September 29, 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, Bear, Stearns
International Limited ("BSIL") and Bear Stearns International Trading
Limited ("BSIT"). 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, BSIL and BSIT.
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 three-months ended September 29, 1995, the Company repurchased
1,036,174 shares of Common Stock in connection with the Capital Accumulation
Plan for Senior Managing Directors (the "Plan") at a cost of approximately
$22.3 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.
Cash Flows
Total cash and cash equivalents decreased by $294.1 million in the 1995
quarter to $406.4 million at September 29, 1995. Total cash and cash
equivalents increased by $635.5 million in the 1994 quarter to $930.1
million at September 30, 1994. Cash used in operating activities in the
1995 quarter was $1.1 billion, mainly representing increases in secured
borrowing activities. Financing activities provided cash of $831.2 million,
primarily derived from short-term borrowing proceeds.
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 BSIT, London-based broker-dealer subsidiaries, are
subject to the regulatory capital requirements of the SFA, 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 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 September 29, 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 participates
in the trading and sale of high yield, non-investment-grade securities, non-
investment-grade mortgage loans (including real estate owned) and securities
of companies that are subject to pending bankruptcy proceedings
(collectively "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. In addition, the Company
owns foreclosed real estate properties. As of September 29, 1995, the
Company held in inventory approximately $1.5 billion of high yield
securities.
These investments generally involve greater risk than investment-grade debt
securities due to credit considerations, liquidity of secondary trading
markets and vulnerability to general economic conditions.
The level of the Company's high yield securities inventories, and the impact
of such activities upon the Company's results of operations, can fluctuate
from period to period as a result of customer demands and economic and
market considerations. Bear Stearns' 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.
<PAGE>
Part II Other Information
Item 1. Legal Proceedings
In-Store Advertising Securities Litigation
As previously reported in the Company's 1995 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.
On August 30, 1995, the Venture Capital Defendants filed a motion for severance,
or a separate trial, of their section 11 contribution claim against KPMG Peat
Marwick. On September 7, 1995, KPMG Marwick joined the Venture Capital
Defendants' motion, and again moved for severance, or a separate trial, of the
Underwriter Defendants' section 11 contribution claim.
Thanksgiving Tower Partners et al. v. Anros Thanksgiving Partners
As previously reported in the Company's 1995 Form 10-K, Bear Stearns is a
defendant in a litigation entitled Thanksgiving Tower Partners.
In an opinion dated September 20, 1995, the United States Court of Appeals for
the Fifth Circuit affirmed the judgment of the district court.
In re Lady Luck Gaming Corporation Securities Litigation
Beginning on March 1995, several actions were commenced in the United States
District Court for the District of Nevada involving Lady Luck Gaming Corporation
("Lady Luck"). A Consolidated Class Action Complaint was filed on August 14,
1995. The Consolidated Class Action Complaint named as defendants Bear Stearns,
Oppenheimer & Co.,Inc., Lady Luck, and several directors and officers of Lady
Luck. Bear Stearns, along with Oppenheimer, is being sued in its capacity as
Co-Lead Underwriter of the initial public offering ("IPO") of 4,500,000
shares of Lady Luck on September 29, 1993.
The Consolidated Class Action Complaint alleges claims on behalf of a purported
class consisting of all persons who purchased shares of Lady Luck from September
29, 1993 to May 4, 1995. The Consolidated Class Action Complaint asserts
violations of Sections 11, 12 and 15 of the Securities Act of 1933 and Sections
10(b) (and Rule 10b-5 promulgated thereunder) and 20 of the Securities Exchange
Act of 1934. Plaintiffs allege that the Prospectus issued in connection with
the IPO contained certain false or misleading statements regarding Lady Luck and
the casino-gaming industry as a whole, and that defendants continued to make
false or misleading statements regarding Lady Luck until May 4, 1995.
Plaintiffs seek unspecified compensatory damages and any appropriate equitable
relief.
On September 18, 1995, defendants moved to dismiss the Consolidated Class Action
Complaint.
Bear Stearns denies all allegations of wrongdoing asserted against it in this
litigation, intends to defend these claims vigorously, and believes that it has
substantial defenses to these claims.
Primavera Familienstiftung v. Askin Capital Management L.P., Bear, Stearms & Co.
Inc., et al.
In April 1994, Granite Partners, L.P., Granite Corporation, and Quartz Hedge
Fund (the "Funds" or the "Debtors") three investment funds managed by Askin
Capital Management L.P. ("ACM") and David J. Askin ("Askin") filed for
bankruptcy after suffering losses in mortgage-backed securities and related
instruments. After the Funds defaulted on certain obligations, Bear Stearns,
Bear, Stearns Capital Markets and other firms liquidated certain positions
in these accounts. The trustee (the "Trustee") appointed to supervise the
Debtors in the bankruptcy determined to investigate the Debtors' claim that Bear
Stearns and other firms acted improperly in connection with the liquidation of
the Debtors' accounts and in other ways, are liable to the Funds for damages.
In April 1995, the Trustee provided Bear Stearns and other firms with a
Preliminary Draft Report containing certain tentative conclusions and analyses.
The report is sealed pursuant to a court order but was the subject of a Wall
Street Journal article on June 23, 1995. In May 1995, Bear Stearns submitted
comments to the Preliminary Draft Report. The Trustee's investigation is
continuing. The Trustee has stated that a final report will be ready no sooner
than the end of 1995.
On September 20, 1995, Primavera Familienstiftung commenced an action in the
United States District Court for the Northern District of California,
purportedly on behalf of itself and all other investors in the Funds. The
Complaint named as defendants Askin; Geoffrey Bradshaw-Mack; Kidder, Peabody &
Co. Incorporated; Donaldson, Lufkin & Jenrette Securities Corp.; and Bear
Stearns (collectively, the "Broker Dealers"). The action was transferred to the
United States District Court for the Southern District of New York.
The Complaint alleges, among other things, violations of Section 10(b) of the
Securities Exchange Act of 1934 (the "1934 Act") and Rule 10b-5 promulgated
thereunder; violations of Section 20(a) of the 1934 Act; common law fraud;
aiding and abetting Askin's breach of fiduciary duty; breach of contract; and
violations of the Uniform Commercial Code, in connection with the Broker
Dealers' transactions with Funds. The Complaint seeks compensatory and punitive
damages in unspecified amounts, together with the costs and expenses of the
action. Other investors have indicated that they are considering whether they
have additional claims against Bear Stearns and other firms in connection with
their dealings with the Funds.
<PAGE>
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 August 1, 1995,
pertaining to the Company's results of operations for the
three-months and fiscal year ended June 30, 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Bear Stearns Companies Inc.
(Registrant)
Date: November 13, 1995 By: \s\ William J. Montgoris
William J. Montgoris
Chief Financial Officer
and Chief Operating Officer
<PAGE>
THE BEAR STEARNS COMPANIES INC.
FORM 10-Q
Exhibit Index
Exhibit No. Description Page
(11) Statement Re Computation of Per
Share Earnings.
(12) Statement Re Computation of Ratio of
Earnings to Fixed Charges.
(27) Financial Data Schedule.
<PAGE>
<TABLE>
Exhibit 11
THE BEAR STEARNS COMPANIES INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
<CAPTION>
Three Months Ended
September 29, September 30,
1995 1994
(In thousands, except share data)
<S> <C> <C>
Weighted average common
and common equivalent
shares outstanding:
Average Common Stock
outstanding 117,516 118,186
Average Common Stock
equivalents:
Common Stock issuable
under employee
benefit plans 383 865
Common Stock issuable
assuming conversion
of CAP Units 19,035 16,084
Total weighted average
common and common
equivalent shares
outstanding 136,934 135,135
Net income $ 93,846 $ 35,461
Preferred Stock dividend
requirements (6,210) (6,232)
Income adjustment
(net of tax) applicable
to deferred compensation
arrangements 3,534 2,442
Adjusted net income $ 91,170 $ 31,671
Earnings per share $ 0.67 $ 0.23
</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>
(Unaudited) (Unaudited)
Three Months Three Months Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended Ended Ended Ended Ended
September 29, September 30, June 30, 1995 June 30, 1994 June 30, 1993 June 30, 1992 June 30, 1991
1995 1994
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings before taxes
on income $156,410 $ 57,195 $ 388,082 $ 642,799 $ 614,398 $ 507,625 $ 229,501
Add: Fixed Charges
Interest 456,945 374,800 1,678,515 1,020,055 710,086 834,859 1,141,029
Interest factor
in rents 6,459 6,663 24,594 21,772 20,084 20,874 18,715
Total fixed charges 463,404 381,463 1,703,109 1,041,827 730,170 855,733 1,159,744
Earnings before
fixed charges and
taxes on income $619,814 $ 438,658 $2,091,191 $1,684,626 $1,344,568 $1,363,358 $1,389,245
Ratio of earnings to
fixed charges 1.3 1.1 1.2 1.6 1.8 1.6 1.2
</TABLE>
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
This Schedule contains summary financial information extracted from the
financial statements contained in the body of the accompanying Form 10-Q
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> SEP-29-1995
<CASH> 406,359
<RECEIVABLES> 7,702,805
<SECURITIES-RESALE> 24,740,599
<SECURITIES-BORROWED> 24,531,550
<INSTRUMENTS-OWNED> 20,751,472
<PP&E> 310,109
<TOTAL-ASSETS> 79,517,439
<SHORT-TERM> 9,299,870
<PAYABLES> 18,734,118
<REPOS-SOLD> 31,906,733
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 12,063,587
<LONG-TERM> 4,204,856
<COMMON> 152,203
0
437,500
<OTHER-SE> 1,818,364
<TOTAL-LIABILITY-AND-EQUITY> 79,517,439
<TRADING-REVENUE> 269,915
<INTEREST-DIVIDENDS> 533,921
<COMMISSIONS> 155,190
<INVESTMENT-BANKING-REVENUES> 87,405
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 456,945
<COMPENSATION> 306,997
<INCOME-PRETAX> 156,410
<INCOME-PRE-EXTRAORDINARY> 156,410
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 93,846
<EPS-PRIMARY> 0.67
<EPS-DILUTED> 0.67
</TABLE>
