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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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[x] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee Required) For the fiscal year ended June
30, 1995.
or
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required) For the transition period from
___________ to ___________
Commission file number: 1-8989
THE BEAR STEARNS COMPANIES INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3286161
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(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) No.)
245 Park Avenue, New York, New York 10167
(212) 272-2000
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(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
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Common Stock, par value $1.00 per New York Stock Exchange
share
Adjustable Rate Cumulative New York Stock Exchange
Preferred Stock, Series A
Depositary Shares, each representing a New York Stock Exchange
one-eighth interest in a share of
7.88% Cumulative Preferred Stock,
Series B
Depositary Shares, each representing a New York Stock Exchange
one-eighth interest in a share of
7.60% Cumulative Preferred Stock,
Series C
Depositary Shares, each representing New York Stock Exchange
a one-eighth interest in a share of
8% Cumulative Preferred Stock,
Series D (not presently outstanding)
9-1/8% Senior Notes Due 1998 New York Stock Exchange
9-3/8% Senior Notes Due 2001 New York Stock Exchange
5-1/2% MRK Common-Linked Higher Income American Stock Exchange
Participation Securities Due 1997
Amex Hong Kong 30 Index Call Warrants American Stock Exchange
Expiring June 10, 1996
Amex Hong Kong 30 Index Put Warrants American Stock Exchange
Expiring June 10, 1996
Japan Index Call Warrants Expiring American Stock Exchange
July 29, 1997
Japan Index Put Warrants Expiring American Stock Exchange
July 29, 1997
Japan Yen Put Warrants Expiring American Stock Exchange
December 13, 1996
Customized Upside Basket American Stock Exchange
Securities Due 1998
Japan Yen Put Warrants Expiring American Stock Exchange
August 21, 1997
Securities registered pursuant to Section 12(g) of the Act:
NONE
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(Title of Class)
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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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
At September 1, 1995, the aggregate market value of the voting stock held
by non-affiliates of the registrant was approximately $2,046,405,785. For
purposes of this information, the outstanding shares of Common Stock owned
by directors and executive officers of the registrant were deemed to be
shares of Common Stock held by affiliates.
On September 1, 1995, the registrant had outstanding 117,865,334 shares of
Common Stock, par value $1.00 per share, which is the registrant's only
class of common stock.
DOCUMENTS INCORPORATED BY REFERENCE:
Parts II and IV of this Form 10-K incorporate information by reference from
certain portions of the registrant's 1995 Annual Report to Stockholders.
The information required to be furnished pursuant to Part III of this Form
10-K will be set forth in, and incorporated by reference from, the
registrant's definitive proxy statement for the annual meeting of
stockholders to be held October 30, 1995, which definitive proxy statement
will be filed by the registrant with the Securities and Exchange Commission
not later than 120 days after the end of the fiscal year ended June 30, 1995.
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PART I
ITEM 1. BUSINESS.
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(a) General Development of the Business
The Bear Stearns Companies Inc. (the "Company") was incorporated
under the laws of the State of Delaware on August 21, 1985. The
Company is a holding company that through its subsidiaries,
principally Bear, Stearns & Co. Inc. ("Bear Stearns") and Bear,
Stearns Securities Corp. ("BSSC"), is a leading United States
investment banking, securities trading and brokerage firm serving
corporations, governments, institutional and individual investors
worldwide. BSSC, a wholly owned subsidiary of Bear Stearns, provides
professional and correspondent clearing services, in addition to
clearing and settling the Company's proprietary and customer
transactions. The Company succeeded on October 29, 1985 to the
business of Bear, Stearns & Co., a New York limited partnership (the
"Partnership"). As used in this report, the "Company" refers (unless
the context requires otherwise) to The Bear Stearns Companies Inc.,
its subsidiaries and the prior business activities of the Partnership.
(b) Financial Information About Industry Segments
The Company's business activities are highly integrated and
constitute a single industry segment. During each of the three
successive fiscal years ending June 30, 1995, others of the Company's
businesses or classes of similar products or services represented less
than 10% of consolidated revenues, operating-profit, and assets.
Financial information regarding the Company's foreign operations for
each of these fiscal years is set forth under the Notes to the
Consolidated Financial Statements in Footnote 13, entitled "Segment
and Geographic Area Data," in the registrant's 1995 Annual Report to
Stockholders (the "Annual Report"), which is incorporated herein by
reference to Exhibit No. (13) of this report.
(c) Narrative Description of Business
The Company is a holding company which through its principal
subsidiaries, Bear Stearns and BSSC, is a leading United States
investment banking, securities trading and brokerage firm serving
corporations, governments, institutional and individual investors
worldwide. The business of the Company includes: market-making and
trading in corporate, United States Government, government-agency,
mortgage-related, asset-backed and municipal securities;
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trading in options, futures, foreign currencies, interest-rate swaps
and other derivative products; securities and commodities arbitrage;
securities, options and commodities brokerage; underwriting and
distributing securities; providing securities clearance services;
financing customer activities; securities lending; arranging for the
private placement of securities; assisting in mergers, acquisitions,
restructurings and leveraged transactions; providing other financial
advisory services; making principal investments in leveraged
acquisitions; acting as specialist on the floor of the New York Stock
Exchange, Inc. ("NYSE"); providing fiduciary and other services, such
as real-estate brokerage, investment management and investment
advisory; and, securities research.
The Company's business is conducted from its principal offices in
New York City; from domestic regional offices in Atlanta, Boston,
Chicago, Dallas, Los Angeles and San Francisco; from representative
offices in Beijing, Geneva, Hong Kong and Shanghai; through
international subsidiaries in Buenos Aires, Hong Kong, London, Paris,
Sao Paulo and Tokyo; and through joint ventures with other firms in
Karachi, Madrid and Paris. The Company's foreign offices provide
services and engage in investment activities involving foreign clients
and international transactions. The Company provides trust-company
services through its subsidiary, Custodial Trust Company ("CTC"),
located in Princeton, New Jersey.
Bear Stearns and BSSC are broker-dealers registered with the
Securities and Exchange Commission (the "SEC"). They are also members
of the NYSE, all other principal United States securities and
commodities exchanges, the National Association of Securities Dealers,
Inc. ("NASD") and the National Futures Association
("NFA"). Bear Stearns is a "primary dealer" in United States
government securities, as designated by the Federal Reserve Bank of
New York.
As of June 30, 1995, the Company had 7,481 employees.
SECURITIES TRADING ACTIVITIES
General. The Company makes inter-dealer markets and trades on a
principal basis in a wide range of instruments including: corporate
debt and equity securities; United States and foreign-government
securities; government-agency securities; mortgages and mortgage-
backed securities; other asset-backed securities; municipal and other
tax-exempt securities; interest-rate swaps and other derivative
products. Bear Stearns is one of the largest dealers in the United
States in fixed income securities, including United States government
and agency securities, mortgage-backed securities, and corporate and
municipal securities. Inventories of fixed income, listed-equity, and
over-the-counter equity securities are carried to facilitate sales to
customers and other dealers.
NYFS04...:\25\22625\0110\2322\10K8315R.46E
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United States Government and Agency Obligations. The Company is
recognized by the Federal Reserve Bank of New York as a primary dealer
in United States Government, government-guaranteed and agency
obligations, and similar instruments. The Company participates in the
auction of, and maintains proprietary positions in, United States
Treasury bills, notes and bonds. The Company also participates as a
selling group member and/or underwriter in the distribution of various
United States government-agency and sponsored-corporation securities
and maintains proprietary positions in such securities. In connection
with these activities, the Company enters into transactions in
options, futures and forward contracts to hedge its proprietary
positions. As a primary dealer, Bear Stearns furnishes weekly reports
of its inventory positions and market transactions in United States
government securities to the Federal Reserve Bank of New York. Bear
Stearns also buys and sells government securities directly with the
Federal Reserve Bank of New York as part of the Bank's open-market
activities. The Company's daily trading inventory in United States
government, government-guaranteed and agency obligations is mainly
financed through the use of repurchase agreements. In addition, the
Company serves as an intermediary between borrowers and lenders of
short-term funds, mainly via repurchase and reverse-repurchase
agreements.
Corporate Fixed Income Securities. The Company acts as a dealer
in corporate fixed income securities and preferred stocks in New York
and London. It buys and sells these securities for its own account in
principal transactions with institutional and individual customers, as
well as other dealers. The Company conducts trading in the full
spectrum of dollar and non-dollar debt securities. The Company offers
hedging and arbitrage services to domestic and foreign institutional
and individual customers utilizing financial futures and other
instruments. Moreover, the Company offers quantitative, strategic,
and research services relating to fixed income securities to its
domestic and international clients. The Company participates in the
trading and sales of high yield, non-investment-grade securities and
the securities and bank loans of companies subject to pending
bankruptcy proceedings.
Mortgage-Related Securities and Products. The Company trades
and makes markets in the following mortgage-related securities and
products: Government National Mortgage Association ("GNMA")
securities; Federal Home Loan Mortgage Corporation ("FHLMC")
Participation Certificates; Federal National Mortgage Association
("FNMA") mortgage-backed securities; Resolution Trust Corporation
("RTC") mortgage pass-through certificates; Small Business
Administration loans; loans guaranteed by the Farmers Home Loan
Administration; Federal Housing Authority insured multi-family loans;
real estate mortgage investment conduit ("REMIC") and non-REMIC
collateralized mortgage obligations, including residual interests; and
other derivative
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mortgage-backed securities and products, including mortgage servicing
and interest-rate swaps. The Company also trades real estate mortgage
loans originated by unaffiliated mortgage lenders, both on a
securitized and non-securitized basis. The Company acts as
underwriter and placement agent in transactions involving rated and
unrated mortgage-related securities issued by affiliated and
unaffiliated parties. The Company enters into significant commitments
-- such as forward contracts, standby arrangements and futures
contracts -- on GNMA, FNMA, FHLMC and RTC securities, and on other
rated and unrated mortgage-related securities. Certain rated and
unrated mortgage-related securities are considered to be liquid, while
other such securities, and non-securitized mortgage loans, are
considered to be less readily marketable. The market for mortgage-
related securities continues to evolve, presenting both opportunities
and risks.
The Company trades GNMA, FNMA and FHLMC "to be announced"
securities -- securities having a stated coupon and the original term
to maturity, although the issuer and/or the specific pool of mortgage
loans is not known at the time of the transaction. The Company buys
and sells such securities for its own account in transactions with
institutional and individual customers, as well as with other dealers.
Under the Company's trading agreements, the Company generally has the
right to request margin from its counterparty.
Through a special-purpose subsidiary, the Company acts as a
private, secondary-market mortgage-conduit for non-conforming, fixed-
and adjustable-rate, residential mortgage loans. This subsidiary
purchases residential mortgage loans which meet approved criteria for
resale to institutional investors as securitized- or non-securitized
mortgage loans or participation certificates. In connection with
such activities, the Company enters into commitments to purchase and
sell such loans and securities. A staff of mortgage underwriters
analyzes and performs procedures to verify the authenticity and
investment quality of non-securitized mortgage loans in connection
with their purchase by the Company. Loans secured by commercial
properties are also purchased for resale by the Company in securitized
form to institutional investors.
The Company, through another special-purpose subsidiary, has
established a mortgage-banking company to purchase, sell, and service
conventional and FHA/VA fixed- and adjustable-rate mortgage loans --
primarily first liens secured by residential properties. Entire loan
portfolios of varying quality are generally purchased from financial
institutions and other secondary mortgage-market sellers. Prior to
bidding on a portfolio of loans, an analysis of the portfolio is
performed by experienced mortgage-loan underwriters. Upon acquisition
of a loan portfolio, the loans are classified as either investment-
grade or non-investment-grade. Loan collection is emphasized for
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the non-investment-grade segment of the loan portfolio. A collection
department employs a staff of workout specialists and loan counselors
who assist delinquent borrowers. If collection efforts are
unsuccessful, the foreclosure unit will commence and monitor the
foreclosure process until either the borrower makes the loan current,
or the property securing the loan is foreclosed or otherwise acquired.
The portfolio may include real estate which has been foreclosed or was
in the process of foreclosure at the time of its acquisition. The
foreclosure unit maintains and markets properties through regional
real estate brokers. Investment-grade mortgage loans are sold to
other institutional investors in either securitized or non-securitized
form. In addition, special-purpose subsidiaries issue REMIC and non-
REMIC collateralized mortgage obligations directly or through trusts
that are established for this purpose.
The Company conducts a mortgage- and asset-backed securitization
business through a joint venture with Credit Lyonnaise in France. The
Company, through Bear Stearns Spanish Securitization Corp., has
entered into an agreement with a consortium of Spanish banks to
promote asset securitization in Spain.
Asset-Backed Securities. The Company acts as underwriter and
placement agent with respect to investment- and non-investment-grade,
asset-backed securities issued by unaffiliated third parties. These
asset-backed securities include: securities backed by consumer
automobile receivables originated by the captive finance subsidiaries
of automobile manufacturers, commercial banks and finance companies;
credit card receivables; home-equity lines of credit or second
mortgages; timeshare receivables; and computer leases. The Company
also trades and makes markets in these asset-backed securities. The
market for asset-backed securities is of relatively recent origin.
While there are ready markets for the investment-grade, asset-backed
securities described above, other varieties may lack liquidity.
Municipal Securities and Related Products. The Company is a
dealer in tax-exempt and taxable municipal securities and instruments
including: general obligation and revenue bonds; notes; leases; and
variable-rate obligations issued by states, counties, cities, and
state and local governmental authorities. The Company is active as a
managing underwriter of negotiated and competitive new security
issuances. The Company makes markets in a broad spectrum of long- and
short-term municipal securities, mainly to facilitate transactions
with institutional and individual customers, as well as other dealers.
As agent for issuers and for a fee, the Company provides liquidity to
investors in the variable rate, demand bond market. The Company
periodically uses municipal futures to hedge its cash-market bond
inventory. In addition, the Company maintains a municipal arbitrage
portfolio for its own account consisting of municipal
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futures and cash bond positions. The Company's underwriting, trading
and sales activities are supported by a municipal research group.
Arbitrage. The Company engages for its own account in both
"classic" and "risk" securities-arbitrage. The Company's risk
arbitrage activity generally involves the purchase of a security at a
discount from a value which is expected to be realized if a proposed
or anticipated merger, recapitalization, tender or exchange offer is
consummated. In classic arbitrage the Company seeks to profit from
temporary discrepancies (i) between the price of a security in two or
more markets, (ii) between the price of a convertible security and its
underlying security, (iii) between securities that are, or will be,
exchangeable at a later date, and (iv) between the prices of
securities with contracts settling on differing dates.
Block Trading. The Company effects transactions in large blocks
of securities exceeding 50,000 shares, mainly with institutional
customers. Transactions are handled on an agency basis whenever
possible, but the Company may be required to take a long or short
position in a security to the extent that an offsetting purchaser or
seller is not immediately available.
Options and Indexes. The Company maintains substantial
proprietary trading and investment positions in both foreign and
domestic markets in a wide range of derivative securities, including
listed and over-the-counter equity options, stock-index futures,
options swaps, and index swaps. The Company also executes client
transactions in both listed and unlisted options and frequently acts
in a principal capacity in order to facilitate the execution of
customer transactions.
Foreign Exchange. The Company trades in foreign exchange,
including: major and minor currencies on a spot and forward basis;
listed and over-the-counter foreign-currency options; and foreign-
currency futures. Currency option strategies are made available to
customers to help them meet their specific risk management objectives.
Derivatives. The Company specializes in individually-negotiated,
over-the-counter derivative contracts involving interest rates,
currencies, equities, and mortgages. The products include interest-
rate swaps, caps and floors, currency swaps, equity swaps, equity
options, and mortgage swaps. The Company also develops structured
derivative products which combine derivatives having both privately-
and publicly-placed debt or equity issuances. The Company's over-the-
counter derivatives business meets customer needs in areas such as
corporate finance and capital markets.
Over-the-Counter Equity Securities. The Company makes markets on
a principal basis in common and preferred stocks,
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warrants, and other securities traded on the NASD's Automated
Quotation System and otherwise in the over-the-counter market.
Principal transactions with customers are effected at a net price
equal to the prevailing inter-dealer price, plus or minus a mark-up or
mark-down.
Emerging Markets. The Company provides financial services in
various emerging markets worldwide including: securities brokerage;
equity and fixed income trading and sales; securities research; and a
full range of investment banking, capital formation and advisory
services. As part of these activities, the Company manages and
participates in public offerings and arranges with institutional
investors the private placement of debt and equity securities. The
markets currently covered by the Company include all of Latin America,
East Asia (China, Hong Kong and Taiwan), Thailand, Malaysia,
Indonesia, the Philippines, Korea, India, Pakistan and Southern
Europe.
Specialist Activities. The Company is a participant in a
specialist unit on the NYSE which performs specialist functions in 98
NYSE-listed stocks. This market-making operation is conducted through
a joint venture with a member organization pursuant to a joint-account
agreement. The market-making function of the specialist involves risk
of loss during periods of market fluctuation, since specialists are
obliged to take positions in their issues counter to the direction of
the market in order to minimize short-term imbalances in the auction
market.
BROKERAGE ACTIVITIES
A major portion of the Company's revenues is derived from
customer commissions on brokerage transactions in equity and debt
securities. The Company is one of the leading firms in the United
States in providing brokerage services to institutional investors.
The Company's brokerage clients include United States and foreign
institutional investors such as investment advisors, mutual funds,
commercial banks, insurance companies, pension and profit-sharing
funds, and high-net-worth individuals. A significant portion of the
Company's commission business is generated by institutional clients --
often in block trades requiring special marketing and trading
expertise -- and from transactions originated by the correspondent
organizations for whom the Company provides securities-clearance
services. The largest portion of the Company's commission revenue is
derived from brokerage transactions in listed securities.
Institutional. A substantial portion of the Company's commission
business involves the execution of transactions in corporate
securities for domestic and foreign institutional investors. The
primary source of revenue from equity activities is negotiated-
commission revenue earned from providing customers with liquidity,
trading expertise, trade-processing capability, and investment advice.
Investment advice includes economic
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forecasts, industry and company analyses, overall strategic guidance
and Company recommendations.
Individual Investors. The Company's individual-investor sales
force concentrates on servicing individual clients possessing a high
net-worth and corporations engaging in securities transactions of a
size sufficient to benefit from the Company's full range of
institutional-caliber services.
Option and Index Products. The Company provides an array of
equity and index option-related execution services to institutional
and individual clients. The Company utilizes sophisticated research
and computer modeling to formulate for clients specific
recommendations relating to options and index trading.
Commodities. The Company provides transaction services for
customers covering commodity-futures contracts, options on commodity-
futures contracts, and physical commodities. These contracts
typically cover such things as stock indices, fixed income securities,
currencies, agricultural and energy products and precious metals.
Domestic commodity futures trading is subject to extensive regulation
by the Commodity Futures Trading Commission ("CFTC") pursuant to the
Commodity Exchange Act and the Commodity Futures Trading Commission
Act of 1974. International commodity-futures trading activities are
subject to regulation by the respective regulatory authorities in the
location where the commodity exchange resides, including the
Securities and Futures Authority (the "SFA") in the United Kingdom.
The margin requirements covering substantially all transactions
in commodity-futures contracts are subject to the particular
exchange's regulations. Commodity transactions may expose the Company
to the risk of loss in the event a customer's margin deposit does not
cover the losses incurred in the customer's account. In the United
States, the Company is a clearing member of the Chicago Board of
Trade, the Chicago Mercantile Exchange, Inc., the New York Mercantile
Exchange and other principal commodity exchanges. The Company is a
member of the International Petroleum Exchange (the "IPE"), the
London Commodity Exchange (the "LCE"), the London International
Financial Futures Exchange (the "LIFFE"), and Marche a Terme
International de France ("MATIF").
International. Two of the Company's London subsidiaries, Bear,
Stearns International Limited ("BSIL") and Bear Stearns U.K. Limited
("BSUK"), are securities broker-dealers and jointly engage in several
types of activities including principal transactions, agency
transactions, underwriting, and investment banking. BSIL and BSUK are
both members of the SFA; BSIL is also a member of the IPE, the LIFFE,
the International Securities Market Association (the "ISMA") and the
LCE. Another London
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subsidiary, Bear Stearns International Trading ("BSIT"), is a market-
maker in various non-dollar-denominated equity securities and engages
in index and derivative arbitrage. BSIT is a member of the London
Stock Exchange and SEAQ International.
The Company's French subsidiaries are Bear Stearns S.A. ("BSSA")
and Bear Stearns Finance S.A. ("BSFSA"). BSSA sells equity securities
to institutional customers. BSFSA is a regulated French broker-dealer
and is a member of the MATIF.
Bear Stearns (Japan) Ltd. ("BSJL") is a broker-dealer registered
with the Japanese Ministry of Finance (the "MOF"). BSJL sells
equity and fixed income securities to Japanese institutional
customers. Bear Stearns Hong Kong Ltd. ("BSHK") is a member of the
Chicago Board of Trade ("CBOT") and the Securities and Futures
Commission ("SFC"). Bear Stearns Asia Ltd. ("BSAL") sells equity and
fixed income securities to Hong Kong institutional and retail
customers and also provides investment banking services to
institutional clients. Bear Stearns Singapore Pte. Limited sells
fixed income and equity securities to institutional investors in
Singapore and Southeast Asia.
INVESTMENT BANKING
The Company is a major investment banking firm providing a full
range of capital formation and advisory services to a broad spectrum
of corporate, government and other clients. The Company manages and
participates in public offerings and arranges the private placement of
debt and equity securities directly with institutional investors. As
part of these activities, the Company participates in the public
offering and the private placement of high yield, non-investment-
grade securities. The Company provides advisory services to clients
on a wide range of financial matters and assists with mergers,
acquisitions, leveraged buyouts, divestitures, asset-based financings,
corporate reorganizations and recapitalizations. In addition, the
Company manages and participates in underwritings outside the United
States of corporate Eurodollar obligations. The Company has expanded
its capabilities for raising public- and private-sector capital
through Latin American and Asian issuers in the international fixed
income and equity markets.
The Company, principally as a manager or co-manager, is also a major
underwriter of corporate and municipal securities. The Company is a
leading underwriter of mortgage-backed securities; it underwrites and
offers on a principal basis a variety of mortgage-related securities,
including whole loans, pass-through certificates and collateralized
mortgage obligations.
The Company arranges and participates in public offerings and
private placements of debt and equity securities of public- and
private-sector issuers in emerging market countries. The
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Company also trades in emerging-market securities, both as principal
and as agent, for customers in Europe, Latin America, the Far East and
the United States.
As part of its investment banking activities, the Company
occasionally makes investments as principal in leveraged acquisitions
and in leveraged buy-out funds as a limited partner. In addition, the
Company originates, structures and invests in merger, acquisition,
restructuring and leveraged capital transactions, including leveraged
buyouts. The Company's investments generally take the form of equity
securities, either common or preferred stock. Equity securities
purchased in these transactions generally are held for appreciation
and are not readily marketable. While the Company believes that the
current carrying value of these investments is at least equal to their
eventual realizable value, it is not possible to determine whether, or
when, the Company will realize the value of these investments.
Real Estate. The Company is engaged in a variety of real estate
activities on a nationwide basis. It acts as a financial advisor to
both debtors and creditors of financially troubled and/or bankrupt
real estate companies. A wholly owned subsidiary of the Company acts
as a co-general partner in a limited partnership formed to allow
United States pension funds to purchase multi-family properties
nationwide. Another wholly owned subsidiary of the Company is a
licensed real estate broker and engages in the sale of investment-
grade commercial real estate and arranges debt and equity placements
for both existing and proposed projects.
International. The Company sells and trades in a wide variety of
dollar and non-dollar-denominated securities with institutional
investors worldwide. From time to time the Company has facilitated
the private placement of securities in the United Kingdom. The
Company also provides a range of investment banking, corporate
advisory, and merger and acquisition services outside of the United
States.
SECURITIES CLEARANCE ACTIVITIES
The Company provides a full range of securities clearance
services to clients. Correspondent clearing organizations that are
engaged in the retail or institutional brokerage business and are
members of the NYSE and/or NASD comprise one category of clients
called "fully-disclosed correspondents." In addition, the Company has
extensive involvement in the clearing of securities transactions for
other types of clients such as: market-makers, specialists,
arbitrageurs, hedge funds, money managers and other professional
traders.
Besides commissions and service charges realized from securities
clearance activities, the Company also earns
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substantial amounts of interest income. The Company extends credit
directly to the customers of correspondent organizations in order to
facilitate the conduct of customer securities transactions on a margin
basis. The correspondent organizations indemnify the Company against
margin losses on their customers' accounts. The Company also extends
margin credit directly to correspondent organizations to the extent
that such firms pledge proprietary assets as collateral. Because the
Company must rely on the guaranties and general credit of the
correspondent organizations, the Company may be exposed to significant
risk of loss if correspondents are unable to meet their financial
commitments should there be a substantial adverse change in the value
of margined securities. The correspondent-clearing business for risk
arbitrageurs, hedge funds, specialists, market-makers and professional
traders can require a substantial commitment of the Company's capital
involving varying degrees of risk. The Company has developed
computerized control systems to monitor and analyze risk on a daily
basis.
In addition to clearing trades, the Company provides other
products and services to its correspondents such as recordkeeping,
trading reports, accounting, general back-office support, stock loan,
reorganization and custody of securities. The Company's prime-broker
system provides consolidated reporting and securities processing for
professional customers executing trades at more than one securities
firm. The financial responsibilities arising from the Company's
clearing relationships are allocated in accordance with agreements
with correspondents. To the extent that the correspondent
organization has available resources, the Company is protected against
claims by customers of the correspondent organization when the latter
has been allocated responsibility for a function giving rise to a
claim. However, if the correspondent organization is unable to meet
its obligations, dissatisfied customers may attempt to seek recovery
from the Company.
The Company attempts to broaden, wherever possible, its
relationships with correspondent-clearing customers. In addition to
performing administrative, operational and settlement functions, the
Company also advises correspondents on communications systems and
makes available to them a variety of non-brokerage products and
services on favorable terms enabling them to benefit from the
Company's centralized purchasing power.
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INTEREST
The Company derives substantial net interest income from customer
margin loans and securities lending.
Customer Financing. Securities transactions are effected for
customers on either a cash or margin basis. In margin transactions,
the Company extends credit to the customer, subject to various
regulatory and internal requirements, which is collateralized by
securities and cash in the customer's account, for a portion of the
purchase price. The Company receives income from interest charged on
the extension of credit; the rate of interest charged to customers for
margin financing are based upon the federal-funds rate or brokers-call
rate. By allowing customers to purchase securities on margin, the
Company assumes the risk of loss if an adverse market movement reduces
the value of the collateral below the amount of a customer's
indebtedness. The Company's net interest income is impacted by the
volume of customer borrowings and by the prevailing levels of interest
rates.
Securities Lending Activities. In connection with both its
trading and brokerage activities, the Company borrows and lends
securities to brokers and dealers to cover short sales and to complete
transactions in which customers have failed to deliver securities by
settlement date. The borrower of securities is required to deposit
cash or other collateral or to post a letter of credit with the
lender. The borrower of securities generally receives a rebate (based
on the amount of cash deposited) or pays a fee calculated to yield a
negotiated rate-of-return for the lender. Stock borrow and stock loan
transactions are generally executed pursuant to written agreements
with counterparties which require that (i) securities borrowed and
loaned be marked-to-market on a daily basis, (ii) excess collateral be
refunded, and (iii) deficit collateral be furnished. Mark-to-market
adjustments are usually made on a daily basis through the facilities
of various clearing houses to reflect changes in the market value of
loaned securities.
OTHER ACTIVITIES
Asset Management. The Company's asset-management division
manages investment portfolios on behalf of retirement plans, insurance
companies, corporations, foundations, endowments and high-net-worth
individuals. The Company's asset-management division currently
manages a total of over $7.7 billion of equities and fixed income
securities for its institutional and individual investor clientele.
The division also manages mutual funds.
Securities Research. To provide customers with current
information and opinions on equity investments and the securities
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markets, the Company's equity research unit provides analyses on
approximately 800 companies. It also evaluates the trends and
outlooks for 51 separate industries and the impact of changes in
legislation, regulation and accounting standards on companies and
their businesses.
A fixed income research unit contained within the Company's
Financial Analytics and Structured Transactions Group (F.A.S.T.)
provides financial engineering and securitization capabilities,
investment research, fixed income portfolio management and analytical
systems and trading technology for mortgage-related and fixed income
securities. This unit also performs original research on valuation
techniques and provides consulting services.
A high-grade, fixed income research unit, consisting of
approximately 15 analysts and researchers, provides similar services
in respect of high-grade, fixed income securities. A high yield,
fixed income research unit consisting of approximately 15 analysts and
researchers, provides similar services in respect of high yield, fixed
income securities. The Company derives revenues for its research
activities principally from securities transactions in an agency or
dealer capacity; from its consulting services; and, from offering some
of its research products for a fee.
Insurance. The Company sells deferred annuities and life
insurance as agent for several life insurance companies. Revenues
derived from the sale of such insurance products have not been
significant.
Custodial Trust Company. The Company offers a range of trust
company and securities-clearance services through its wholly owned
subsidiary CTC. CTC provides the Company with banking powers, such as
access to the securities and funds-wire services of the Federal
Reserve System. CTC provides fiduciary, custody and agency services
for institutional accounts; the clearance of government securities for
institutions and dealers; the processing of mortgage and mortgage-
related products, including derivatives and CMO products; and
commercial lending. At June 30, 1995, CTC held over $25 billion of
assets for non-affiliated institutional clients such as pension funds,
mutual funds, endowment funds, religious organizations and insurance
companies.
Fiduciary Services. The Company is an investment consultant
which assists pension and welfare funds, other institutional investors
and high-net-worth individual clients in structuring and executing
their investment affairs.
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ADMINISTRATION AND OPERATIONS
Administration and operations personnel are responsible for the
processing of securities transactions; the receipt, identification and
delivery of funds and securities; internal financial controls;
accounting functions; office services; the custody of customer
securities; and the overseeing of margin accounts of the Company and
correspondent organizations. The processing, settlement, and
accounting for transactions for the Company, correspondent
organizations, and the customers of correspondent organizations is
handled by a staff of approximately 3,300 employees located in
separate operations offices in New York City and Whippany, New Jersey
and, to a lesser extent, the Company's offices worldwide.
The Company executes its own and correspondent transactions on
all United States exchanges and in the over-the-counter market. The
Company clears all of its domestic and international transactions
(i.e., delivery of securities sold, receipt of securities purchased,
and transfer of related funds) through its own facilities,
unaffiliated commercial banks and through memberships in various
clearing corporations. However, certain government, government-agency
and mortgage-related securities transactions are cleared through
Custodial Trust Company.
There is considerable fluctuation in the volume of transactions
the Company processes, clears and settles. Operations personnel
monitor day-to-day operations to assure compliance with applicable
laws, rules and regulations. The Company records transactions and
posts its books on a daily basis. Failure to keep current and
accurate books and records can render the Company liable to
disciplinary action by governmental and self-regulatory organizations.
The Company maintains its own data processing facilities, which
have been expanded significantly in recent years.
The Company believes its internal controls and safeguards are
adequate, but recognizes that fraud and misconduct by customers and
employees, including the possible theft of securities, are risks
inherent in the securities industry. As required by the NYSE and
certain other authorities, the Company carries a broker's blanket-bond
insurance covering the loss or theft of securities, check- and draft-
forgery, embezzlement, and the misplacement of securities. This
blanket-bond policy provides fidelity coverage and coverage for loss
or theft of securities, fraudulent trading, and securities forgery of
up to $200 million subject to a deductible of $2.5 million per
occurrence.
COMPETITION
The Company encounters intense competition in all aspects of the
securities business and competes directly with other
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securities firms -- both domestic and foreign -- many having
substantially greater capital and resources and offering a wider range
of financial services than does the Company. Besides competition from
firms in the securities business, in recent years the Company has
experienced increasing competition from other sources, such as
commercial banks and insurance companies. The Company believes that
the principal factors affecting competition involve the caliber and
abilities of professional personnel, the relative prices of the
services and products being offered, and the quality of its services.
REGULATIONS AND OTHER FACTORS AFFECTING THE COMPANY AND THE SECURITIES
INDUSTRY
The securities industry in the United States is subject to
extensive regulation under both federal and state laws. The SEC is the
federal agency responsible for the administration of the federal
securities laws. Bear Stearns and BSSC are registered as broker-
dealers with the SEC and are registered as broker-dealers in all 50
states and the District of Columbia. Additionally, Bear Stearns is
registered as an investment adviser with the SEC. Much of the
regulation of broker-dealers has been delegated to self-regulatory
organizations, principally the NASD, the Municipal Securities
Rulemaking Board, and national securities exchanges such as the NYSE,
which has been designated by the SEC as the primary regulator of
certain of the Company's subsidiaries, including Bear Stearns and
BSSC. These self-regulatory organizations (i) adopt rules, subject to
approval by the SEC, which govern the industry and (ii) conduct
periodic examinations of the Company's operations. Securities firms
are also subject to regulation by state securities administrators in
those states in which they conduct business.
Broker-dealers are subject to regulations which cover all aspects
of the securities business including: sales methods; trade practices;
use and safekeeping of customer funds and securities; capital
structures; recordkeeping; and, the conduct of directors, officers and
employees. The types of regulations to which investment advisers are
subject include: recordkeeping; fee arrangements; client disclosure;
and, the conduct of directors, officers and employees. The mode of
operation and profitability of broker-dealers or investment advisers
may be directly affected by new legislation; changes in rules
promulgated by the SEC and self-regulatory organizations; and, changes
in the interpretation or enforcement of existing laws and rules. The
SEC, self-regulatory organizations, and state securities commissions
may conduct administrative proceedings which can result in censures,
fines, the issuances of cease-and-desist orders, and the suspension or
expulsion of a broker-dealer or an investment adviser, its officers or
employees. The principal purpose of regulation and discipline of
broker-dealers and investment advisers is the protection of customers
and the securities markets, rather than the protection of creditors
and
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stockholders of broker-dealers or investment advisers. On occasion
the Company's subsidiaries have been subject to routine investigations
and proceedings, and sanctions have been imposed for infractions of
various regulations, none of which, to date, has had a material
adverse effect on the Company or its business.
The Market Reform Act of 1990 was adopted for the following
reasons: (i) to strengthen regulatory oversight of the securities
markets, (ii) to improve the financial condition of market
participants, and (iii) to improve the safety and efficiency of market
mechanisms by creating a system for providing information and
oversight for the parents and other affiliates of broker-dealers. The
SEC has adopted the Risk Assessment Reporting Requirements for Brokers
and Dealers (the "Risk Assessment Rules") to implement the provisions
of the Market Reform Act of 1990. The Risk Assessment Rules require
that broker-dealers: (i) develop an organizational chart; (ii)
maintain risk management procedures or standards for monitoring and
controlling the risks resulting from activities of material associated
persons; (iii) maintain and preserve records and other information;
and (iv) file quarterly reports covering the risk-management
procedures and the financial and securities activities of the holding
companies of broker-dealers, or broker-dealer affiliates or
subsidiaries that are reasonably likely to have a material impact on
the financial and operational condition of the broker-dealer.
The Insider Trading and Securities Fraud Enforcement Act of 1988
augments enforcement of the securities laws through a variety of
measures designed to provide greater deterrence, detection, and
punishment of insider-trading violations. Among other things, the law
(i) expands the scope of civil penalties to controlling persons who
fail to take adequate steps to prevent insider trading, (ii) initiates
a bounty program by giving the SEC discretion to reward informants who
provide assistance to the agency and (iii) requires broker-dealers and
investment advisors to establish and enforce written policies and
procedures reasonably designed to prevent the misuse of inside
information.
The Government Securities Act of 1986 (the "Government Securities
Act") established a comprehensive and coordinated pattern for the
regulation of brokers, dealers and financial institutions who trade in
government securities, which includes Bear Stearns. Under the
Government Securities Act, Bear Stearns is subject to Department of
Treasury regulations covering among other things: capital adequacy;
custody and use of government securities; and, transfers and control
of government securities subject to repurchase transactions.
The commodities industry in the United States is subject to
regulation under the Commodity Exchange Act, as amended. The CFTC is
the federal agency charged with the administration of the Commodity
Exchange Act and the regulations thereunder. Bear
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Stearns and BSSC are registered with the CFTC as futures commission
merchants and are subject to regulation as such by the CFTC and
various domestic boards of trade and other commodity exchanges. Bear
Stearns' and BSSC's commodity-futures business is also regulated by
the NFA, a not-for-profit membership corporation, which has been
designated a registered futures association by the CFTC.
As registered broker-dealers and member firms of the NYSE, both
Bear Stearns and BSSC are subject to the Net Capital Rule (Rule 15c3-1)
under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), which has been adopted through incorporation by
reference in NYSE Rule 325. The Net Capital Rule, which specifies
minimum net capital requirements for registered broker-dealers, is
designed to measure the general financial integrity and liquidity of a
broker-dealer and requires that at least a minimal portion of its
assets be kept in relatively liquid form.
On May 6, 1991 the SEC amended the provisions of the Net Capital
Rule by requiring: (i) a broker-dealer to give written notification
to the SEC and certain other parties at least two business days prior
to making withdrawals of equity capital, either directly or indirectly
to benefit certain related persons, if those withdrawals would exceed,
in any 30-day period, 30% of the broker-dealer's excess net capital;
(ii) a broker-dealer to notify the SEC within two business days after
any direct or indirect withdrawal, advance, or loan to benefit certain
related persons if such withdrawal, advance, or loan would exceed, in
any 30-day period, 20% of the broker-dealer's excess net capital;
(iii) that the withdrawal of equity capital from a broker-dealer be
prohibited if the effect of the withdrawal would be to cause the
broker-dealer's net capital to be less than 25% of its deductions
required by the net capital rule relating to its readily marketable
securities, unless the broker-dealer has the prior consent of the SEC;
and (iv) that the SEC, by order, prohibit withdrawals of capital from
a broker-dealer for a period of up to 20 business days if the
withdrawals would be greater than 30% of the broker-dealer's excess
net capital and the SEC believes such withdrawals would be detrimental
to the financial integrity of the firm or would unduly jeopardize the
broker-dealer's ability to pay its customers' claims or other
liabilities. The effect of the foregoing amendments may be to limit
the ability of Bear Stearns and BSSC to pay dividends and make other
distributions to the Company.
Bear Stearns and BSSC are also subject to the net capital
requirements of the CFTC and various commodity exchanges which
generally require that Bear Stearns and BSSC maintain a minimum net
capital equal to the greater of the alternative net capital
requirement provided for under the Exchange Act or 4% of the funds
required to be segregated under the Commodity Exchange Act and the
regulations promulgated thereunder.
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Compliance with the Net Capital Rule could limit those operations
of Bear Stearns and/or BSSC require significant capital usage, such as
underwriting, trading and the financing of customer margin-account
debit balances. The Net Capital Rule could also restrict the
Company's ability to withdraw capital from Bear Stearns or BSSC, which
in turn could limit the Company's ability to pay dividends, pay
interest, repay debt, or redeem or purchase shares of its outstanding
capital stock. Additional information regarding net-capital
requirements is set forth in the Annual Report, Notes to Consolidated
Financial Statements, Footnote 7, entitled "Regulatory Requirements,"
which is incorporated herein by reference to Exhibit No. (13) of this
report.
Bear Stearns and BSSC are members of the Securities Investor
Protection Corporation ("SIPC") which provides insurance protection
for customer accounts held by the firm of up to $500,000 for each
customer, subject to a limitation of $100,000 for cash balance claims
in the event of the liquidation of a broker-dealer. In addition, the
BSSC purchased $24.5 million of additional security-positions coverage
from a private insurer for each of the BSSC's customers.
The activities of the Company's bank and trust company
subsidiary, CTC, are regulated by the New Jersey Department of Banking
and the Federal Deposit Insurance Corporation ("FDIC"). FDIC
regulations applicable to CTC limit the extent to which CTC and Bear
Stearns may have common officers and directors or may share physical
facilities. FDIC regulations require certain disclosures in
connection with joint advertising or promotional activities conducted
by Bear Stearns and CTC. Such regulations also restrict certain
activities of CTC in connection with the securities business of Bear
Stearns. Federal legislation limits (i) an expansion in the scope of
the activities of CTC, (ii) the annual rate of increase in its assets,
(iii) the cross-marketing of certain services with its affiliates and
(iv) the use of overdrafts at Federal Reserve banks on behalf of
affiliates.
The subsidiaries and employees of the Company that engage in the
insurance business are subject to regulation and supervision by
insurance authorities in the respective states in which they conduct
their business.
The Company does a substantial volume of business in the
international fixed income and equity markets through BSIL and BSUK
and is a market-maker in certain non-dollar-denominated securities and
engages in index and derivative arbitrage through BSIT. BSIL, BSIT
and BSUK are subject to the United Kingdom Financial Services Act
1986, which governs all aspects of the investment business in the
United Kingdom including: regulatory capital; sales and trading
practices; use and safekeeping of customer funds; securities
recordkeeping; margin practices and procedures; registration standards
for individuals; and periodic
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reporting and settlement procedures. BSIL, BSIT and BSUK are subject
to supervision by and are regulated in accordance with the rules of
the SFA. BSIL is a member of the IPE, the LIFFE, the ISMA and the
LCE. BSIT is a member of the London Stock Exchange and SEAQ
International.
The Company, like other securities firms, is directly affected by
such things as: national and international economic and political
conditions; broad trends in business and finance; legislation and
regulations affecting the national and international financial and
business communities; currency values; the level and volatility of
interest rates; and fluctuations in the volume and the price levels in
the securities and commodities markets. These and other factors can
affect the Company's volume of security new-issues, mergers,
acquisitions, and business restructurings; the stability and liquidity
of securities and commodities markets; and, the ability of issuers,
other securities firms and counterparties to perform on their
obligations. Decreases in the volume of security new-issues, mergers,
acquisitions or restructurings generally results in lower revenues
from investment banking and, to a lesser extent, reduced principal
transactions. A reduced volume of securities and commodities
transactions and reduced market liquidity generally result in lower
revenues from principal transactions and commissions. Lower price
levels for securities may result in a reduced volume of transactions,
and may also result in losses from declines in the market value of
securities held in proprietary trading and underwriting accounts. In
periods of reduced sales and trading or investment banking activity,
profitability may be adversely affected because certain expenses
remain relatively fixed. Sudden and sharp declines in the market
values of securities and/or the failure of issuers and counterparties
to perform on their obligations can result in illiquid markets. In
such markets, the Company may not be able to sell securities and/or
may have difficulty in hedging its securities positions. Such market
conditions, if prolonged, may also lower the Company's revenues from
investment banking and principal transactions.
The Company's securities trading, derivatives, arbitrage, market-
making, specialist, leveraged-buyout and underwriting activities are
conducted by the Company on a principal basis and expose the Company
to significant risk of loss. Such risks include market, counterparty
credit, and liquidity risks. In addition, the Company's securities-
trading, market-making, leveraged-buyout and underwriting activities
may involve economic, political, currency, interest-rate and other
risks, any of which could result in an adverse change in the market
price of securities and commodities. The Company's participation in
specialist activities on the NYSE exposes the Company to potential
risk of loss, especially when purchasing securities in a declining
market and selling them in a rising market to comply with exchange
requirements.
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Item 2. Properties.
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The Company's executive offices and principal administrative
offices occupy approximately 689,000 square feet of space at 245 Park
Avenue, New York, New York under leases expiring through 2002.
The Company also leases approximately 268,000 square feet of
office space at One MetroTech Center, Brooklyn, New York pursuant to a
lease expiring in 2004 for its securities processing and clearance
operations. Additionally, the Company leases approximately 13,000,
43,000 and 140,000 square feet of space at three locations in New
York City under leases expiring in 1997, 2001 and 2004,
respectively. The Company's regional offices in Atlanta, Boston,
Chicago, Dallas, Los Angeles and San Francisco occupy an aggregate of
approximately 267,000 square feet, while its eleven foreign offices
occupy a total of approximately 106,000 square feet under leases
expiring on various dates through the year 2016.
The Company owns approximately 65 acres of land in Whippany, New
Jersey, including four buildings comprising an aggregate of
approximately 300,000 square feet. The Company is currently using
the existing facilities on the property to house its data processing
facility and other operational functions. Because the Whippany
property includes land in excess of current needs, the Company has
received approval to construct two additional buildings which it may
develop for itself; conversely, it may sell the land and development
rights to others.
Item 3. Legal Proceedings.
-----------------
The Company and Bear Stearns are parties to the legal
proceedings discussed below, which have arisen in the normal course of
business. In view of the inherent difficulty of predicting the
outcome of litigation and other legal proceedings, the Company cannot
state what the eventual outcome of these pending proceedings will be.
It is the opinion of management, after consultation with independent
counsel, that the legal proceedings referred to below will not,
individually or in the aggregate, have a material adverse effect on
the Company's financial position.
Alpha Group Consultants, et al. v. Weintraub, et al./In re
------------------------------- ----------------- -----
Weintraub Entertainment Group Litigation. On January 31, 1991, Alpha
----------------------------------------
Group Consultants Ltd. and the Allan D. Simon & Stefani R. Simon
Living Trust commenced an action in the United States District Court
for the Southern District of California. On April 24, 1991, an
Amended Complaint was filed. On August 29, 1991 a Second Amended Com-
plaint was filed, and on December 23, 1991 a Third Amended Complaint
was filed. The action is brought individually and on behalf of a
purported class of purchasers of $81 million aggregate amount of
debentures and warrants of
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Weintraub Entertainment Group ("WEG") during the period January 23,
1987 through October 1, 1990. Named as defendants are WEG (WEG is a
debtor in bankruptcy, and is thus named as a defendant only to the
extent permitted under federal bankruptcy law), certain officers and
directors of WEG, including Jerry Weintraub, Kenneth Kleinberg and
Dennis Pope (the "Individual Defendants") and Bear Stearns, the place-
ment agent in WEG's 1987 private placement of WEG debentures and
warrants.
The Third Amended Complaint alleges that at the time of the
offering and thereafter, the defendants made false and misleading
statements concerning WEG's financial condition, the experience of
certain WEG officers, the intended use of proceeds from the sale of
the WEG securities, the prospects for a public market for WEG securi-
ties, WEG's business plans, and certain terms of WEG's contracts with
distributors. The Third Amended Complaint asserts violations of
Sections 12(2) and 15 of the Securities Act of 1933, as amended (the
"Securities Act"), Sections 10(b) and 20 of the Exchange Act and Rule
10b-5 promulgated thereunder, the Racketeer Influenced and Corrupt
Organizations Act ("RICO"), California state statutes, and the common
law fiduciary duties allegedly owed by the defendants to the plain-
tiffs. The action seeks unspecified compensatory and punitive
damages, treble damages under RICO, attorneys fees and expenses.
On August 23, 1991, the court entered an order dismissing
with prejudice all of plaintiffs' claims under the Securities Act and
the Exchange Act. On April 2, 1992, the court entered an order
granting plaintiffs' motion to reinstate plaintiffs' claims under the
Securities Act and the Exchange Act, and denying defendants' motions
to dismiss plaintiffs' Third Amended Complaint. The court's April 2,
1992 order also allowed ALCO Group Trust Fund to intervene as a
plaintiff. On February 4, 1993, the court entered an order allowing
the Pension Reserves Investment Trust Fund of the Commonwealth of
Massachusetts to intervene as a plaintiff.
On May 10, 1993, the court entered a final judgment and
order (the "Settlement Order") approving a settlement among plaintiffs
and the Individual Defendants and barring Bear Stearns from seeking
contribution, indemnity, or reimbursement from the Individual
Defendants. The Settlement Order also provided that Bear Stearns'
liability, if plaintiffs succeed in establishing liability on the part
of Bear Stearns, would be limited to Bear Stearns' proportional share
of the total damages awarded. On September 15, 1993, the court
entered an order granting class certification.
On April 22, 1994, the court denied summary judgment motions
filed by plaintiffs, and granted summary judgment in favor of Bear
Stearns on all claims. A final judgment has been entered. An appeal
is pending.
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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.
In re Daisy Systems Corporation, Debtor. On May 30, 1991,
----------------------------------------
the Chapter 11 Trustee for Daisy Systems Corporation ("Daisy"), a
debtor in bankruptcy, and Daisy/Cadnetix, Inc. ("DCI") filed a
complaint in the United States District Court, Northern District of
California, on behalf of Daisy and DCI against Bear Stearns and six
former directors of Cadnetix, Inc. ("Cadnetix") and/or a Cadnetix
subsidiary. A First Amended Complaint was filed on March 20, 1992,
and a Second Amended Complaint (the "Complaint") filed and served on
July 24, 1992.
Bear Stearns was retained by Daisy in May 1988 to provide
investment banking services to Daisy with respect to the potential
merger of Daisy with Cadnetix. The Complaint alleges that Bear
Stearns was negligent in performing its due diligence with respect to
the merger, and in advising Daisy that it was "highly confident" that
financing could be obtained to fund the merger. The Complaint asserts
that Bear Stearns, among other things, breached fiduciary duties to
Daisy, committed professional malpractice in its efforts on Daisy's
behalf, and made negligent representations upon which Daisy relied,
breached a covenant of good faith and fair dealing implied in its
contracts with Daisy, and should have its unsecured claim in the Daisy
bankruptcy proceeding equitably subrogated to the claims of all other
claimants in the bankruptcy. The plaintiff seeks monetary damages and
exemplary damages in an unspecified amount, as well as costs and
expenses.
On August 17, 1992, Bear Stearns moved to dismiss the
Complaint. The other defendants in the action also moved to dismiss
the Complaint.
On February 3, 1993, the court dismissed plaintiffs' breach
of fiduciary duty and equitable subrogation counts, but denied the
remainder of the Bear Stearns' motion to dismiss. On May 13, 1993,
Bear Stearns answered the Complaint, denying liability and asserting
affirmative defenses. On August 12, 1994, the court granted summary
judgment dismissing all remaining claims against Bear Stearns. On
December 13, 1994 the court denied a motion for rehearing. An appeal
is pending.
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.
In-Store Advertising Securities Litigation. Beginning on
------------------------------------------
September 3, 1990, a total of fifteen litigations involving a July 19,
1990 initial public offering by In-Store Advertising,
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Inc. ("ISA") were commenced in the United States District Court for
the Southern District of New York. A Consolidated Class Action
Complaint was filed by all of the plaintiffs in these actions on
January 14, 1991. The Consolidated Class Action Complaint named as
defendants ISA, several individual officers and directors of ISA; four
venture capital firms (the "Venture Capital Defendants"); and Alex.
Brown & Sons Incorporated ("Alex. Brown") and the Company. Alex.
Brown and the Company were named individually and as representatives
of a purported class of underwriters.
On August 27, 1991, plaintiffs filed an Amended Consolidated
Class Action Complaint, naming the same defendants as plaintiffs'
Consolidated Class Action Complaint. On October 15, 1991, all
defendants filed answers denying liability and asserting affirmative
defenses.
On April 16, 1993, ISA announced that it had delayed filing
its annual report due on March 31, 1993 for its 1992 fiscal year, in
order to resolve questions related to financial documents for its 1990
fiscal year. ISA also announced at that time that John E. Capps had
resigned as ISA's Chief Financial Officer. On June 11, 1993, ISA
reported that during the third and fourth quarters of 1989 and the
first and second quarters of 1990 -- the four quarters immediately
preceding ISA's initial public offering -- ISA had recognized revenue
before it was earned, resulting in material overstatement of revenues
and earnings for those quarters. On July 8, 1993, ISA filed for
protection under Chapter 11 of the Bankruptcy Code.
Following these developments, on July 16, 1993, plaintiffs
filed a Second Amended Consolidated Class Action Complaint (the
"Second Amended Complaint"). The Second Amended Complaint names as
defendants Robert E. Polansky, ISA's former chairman, president and
chief executive officer, and John E. Capps, ISA's former chief finan-
cial officer, secretary and treasurer (Polansky and Capps are together
referred to as the "Management Defendants"); five other present or
past officers and directors of ISA (collectively, the "Director
Defendants"); the previously named Venture Capital Defendants; Alex.
Brown and the Company, individually and as representatives of a
purported class of underwriters (collectively, the "Underwriter
Defendants"); and ISA's outside auditor, KPMG Peat Marwick. ISA was
not named as a defendant in the Second Amended Complaint, and has been
discharged from any liability in this litigation under a plan of
reorganization approved by the Bankruptcy Court on August 8, 1993.
The Second Amended Complaint alleges claims on behalf of
plaintiffs individually and a purported class consisting of all
persons who purchased ISA common stock from July 19, 1990, the date of
ISA's initial public offering, through and including November 8, 1990.
The Second Amended Complaint also alleges
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claims on behalf of a purported subclass consisting of all persons who
purchased ISA common stock in ISA's initial public offering (the
"Subclass"). The Second Amended Complaint alleges that defendants
made false and misleading statements concerning ISA's past operating
results and prospects for future revenues and profits.
Count I of the Second Amended Complaint asserts violations
of Section 11 of the Securities Act against all defendants other than
the Venture Capital Defendants, and asserts violations of Section 15
of the Securities Act against all defendants other than the
Underwriter Defendants and KPMG Peat Marwick. Count II, alleged by
the Subclass, asserts violations of Section 12(2) of the Securities
Act against the Management Defendants and the Underwriter Defendants,
and asserts violations of Section 15 of the Securities Act against the
Director Defendants and the Venture Capital Defendants. Count III
asserts violations of Section 10(b) of the Securities Exchange Act and
Rule 10b-5 promulgated thereunder against all defendants, and asserts
violations of Section 20 of the Exchange Act against the Director
Defendants and the Venture Capital Defendants. Count IV asserts
common law fraud and deceit claims against all defendants. Count V
asserts negligent misrepresentation claims against all defendants.
Plaintiffs seek compensatory damages, rescissory damages where
applicable, punitive damages, interest and costs, including attorneys'
and experts' fees.
On September 29, 1993, the Underwriter Defendants, including
the Company, filed an answer to the Second Amended Consolidated
Complaint denying all substantive allegations, asserting affirmative
defenses and asserting a cross-claim against KPMG Peat Marwick. On
December 30, 1993, plaintiffs' federal law claims against defendant
KPMG Peat Marwick were dismissed as time barred, but the court
retained jurisdiction over plaintiffs' state law claims against KPMG
Peat Marwick. On June 15, 1994 KPMG Peat Marwick moved to dismiss or
sever plaintiffs' state law claims and the cross-claims asserted
against KPMG Peat Marwick by the Underwriter Defendants, including the
Company and the Venture Capital Defendants.
On February 21, 1995, plaintiffs' state law fraud claims
against KPMG Peat Marwick were dismissed, and 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. Also on February 21, 1995, the court denied a motion
by KPMG Peat Marwick to sever the cross-claims from the action.
On September 5, 1990, David Ackerman, suing derivatively on
behalf of ISA, commenced an action in the United States District Court
for the Southern District of New York, naming as defendants the
Director Defendants, Alex. Brown, KPMG Peat
<PAGE>
<PAGE>
Marwick, the Company and "John Doe". That complaint alleges that
defendants made false and misleading statements concerning ISA's
business prospects, and that when ISA revealed that its second quarter
earnings and revenues in its fiscal year 1990 were below those
publicly forecast and that its near term prospects would also fail to
meet prior forecasts, ISA's stock price declined and class action
lawsuits were filed, resulting in damage to ISA's reputation and
business, and requiring ISA to incur substantial legal fees and
expenses. Claims are asserted under Section 10(b) of the Exchange Act
and Rule 10b-5 and state common law.
On November 30, 1990, ISA moved to dismiss this complaint
due to plaintiff's failure to make a pre-litigation demand on ISA's
board of directors. All other defendants, including Bear Stearns,
joined this motion to dismiss by letter. The motion is currently
pending.
Discovery is proceeding in these actions.
Bear Stearns denies all allegations of wrongdoing asserted
against it in these litigations, intends to defend these claims
vigorously, and believes that it has substantial defenses to these
claims.
Thanksgiving Tower Partners et al. v. Anros Thanksgiving
---------------------------------- ------------------
Partners. On February 8, 1989, Thanksgiving Tower Partners ("TTP")
--------
and two limited partnerships that are general partners of TTP
commenced an action against Anros Thanksgiving Partners ("Anros") in
the United States District Court for the Northern District of Texas.
Bear Stearns Real Estate Group Inc. ("Real Estate Group"), an
affiliate of the Company, was during the relevant time period the
managing general partner of one of the two limited partnerships
referred to above (the interest of Real Estate Group as managing
general partner of this limited partnership was transferred on
September 21, 1988 to another affiliate of the Company). The
complaint seeks a declaratory judgment declaring that plaintiffs acted
properly in drawing on a $5 million letter of credit after Anros
breached contractual obligations in connection with the purchase of an
office building in Dallas, Texas. These contractual obligations arose
out of a June 18, 1988 agreement between the two partners in TTP
referred to above and Anros, providing that Anros would contribute
approximately $50 million in capital for the down payment on the
office building and various other closing costs, and would be admitted
as a third partner in TTP upon satisfaction of these and other
conditions.
On March 8, 1989, Anros filed a third party complaint
against plaintiffs and Real Estate Group, alleging that plaintiffs and
Real Estate Group breached various agreements with Anros, interfered
with its business relations, engaged in intentional and negligent
misrepresentation, and breached fiduciary duties owed to Anros. Anros
seeks as yet undetermined damages
<PAGE>
<PAGE>
alleged to exceed $200 million punitive damages of $50 million
specific enforcement of certain contractual obligations, and declara-
tory relief.
On March 28, 1989, plaintiffs and Real Estate Group filed an
answer to the third party complaint denying liability and asserting
affirmative defenses. Anros' primary counsel subsequently withdrew
from representation of Anros, and, after Anros failed to comply with
court-ordered deadlines regarding retention of counsel and discovery,
the court dismissed all of Anros' claims. Anros appealed the dis-
missal of its claims to the United States Court of Appeals for the
Fifth Circuit, which reversed the dismissal on February 5, 1993 and
remanded the action for a hearing to consider lesser sanctions and for
trial. The district court has not yet considered the sanctions issue
that was remanded by the Fifth Circuit.
On March 30, 1994, the court granted summary judgment in
favor of Real Estate Group, and on May 13, 1994, the court issued an
opinion explaining its decision. The court also awarded Real Estate
Group costs and attorneys' fees, in an amount not yet decided. On
August 18, 1994, the court denied a motion for reconsideration. An
appeal is pending.
Real Estate Group 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.
The Company or a subsidiary of the Company also has been
named as a defendant in numerous other civil actions arising out of
its activities as a broker and dealer in securities, as an
underwriter, as an investment banker, as an employer or arising out of
alleged employee misconduct. Several of these actions allege damages
in large or indeterminate amounts, and some of these actions are class
actions. With respect to claims involving the Partnership, Bear
Stearns has assumed from the Partnership, and has agreed to indemnify
the Partnership against, the Partnership's liability, if any, arising
out of all legal proceedings to which the Partnership is or was named
as a party. In view of the number and diversity of all of the claims
referred to in this paragraph and above, the number of jurisdictions
in which these claims are pending and the inherent difficulty of
predicting the outcome of these claims, the Company cannot state what
the eventual outcome of these claims will be. The Company is con-
testing the allegations in these lawsuits, and believes that there are
meritorious defenses in these lawsuits.
The Company is also involved from time to time in
investigations and proceedings by governmental and self-regulatory
agencies.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
None.
<PAGE>
<PAGE>
Executive Officers of the Company
---------------------------------
The following table sets forth certain information
concerning executive officers of the Company as of September 15, 1995.
<TABLE>
<CAPTION>
AGE AS OF
SEPTEMBER 15, PRINCIPAL OCCUPATION
NAME 1995 AND DIRECTORSHIPS HELD
---- -------------- ----------------------
<S> <C> <S>
Alan C. Greenberg 68 Chairman of the Board of the
Company and Bear Stearns and
Chairman of the Executive
Committee of the Company's Board
of Directors (the "Executive
Committee"); Director, Petrie
Stores Inc.
James E. Cayne 61 President and Chief Executive
Officer of the Company and Bear
Stearns, member of the Executive
Committee and Chairman of the
Management and Compensation
Committee of the Company's Board
of Directors (the "Management and
Compensation Committee")
Mark E. Lehman 44 Executive Vice President of the
Company and Bear Stearns and
member of the Executive Committee
Alan D. Schwartz 45 Executive Vice President of the
Company and Bear Stearns and
member of the Executive Committee
and the Management and
Compensation Committee; Director,
Daka International, Inc. and
Protein Databases, Inc.
Warren J. Spector 37 Executive Vice President of the
Company and Bear Stearns and
member of the Executive Committee
and the Management and
Compensation Committee
Michael L. Tarnopol 59 Executive Vice President of the
Company and Bear Stearns and
member of the Executive Committee;
Director, The Leslie Fay
Companies, Inc.
Richard Harriton 60 Senior Managing Director of Bear
Stearns and member of the
Management and Compensation
Committee
Michael Minikes 52 Treasurer of the Company and Bear
Stearns; Director, Depository
Trust Company
<PAGE>
<PAGE>
<CAPTION>
AGE AS OF
SEPTEMBER 15, PRINCIPAL OCCUPATION
NAME 1995 AND DIRECTORSHIPS HELD
---- -------------- ----------------------
<S> <C> <S>
William J. Montgoris 48 Chief Operating Officer and Chief
Financial Officer of the Company
and Bear Stearns and member of the
Management and Compensation
Committee
Robert M. Steinberg 50 Senior Managing Director of Bear
Stearns and member of the
Management and Compensation
Committee
Samuel L. Molinaro, Jr. 37 Senior Vice President - Finance of
the Company and Bear Stearns
Michael J. Abatemarco 48 Controller of the Company and Bear
Stearns
Frederick B. Casey 56 Assistant Treasurer of the Company
and Bear Stearns
Kenneth L. Edlow 54 Secretary of the Company and Bear
Stearns
</TABLE>
Except as indicated below, each of the executive officers of
the Company has been a Senior Managing Director of Bear Stearns for
more than the past five years.
Mr. Greenberg has been Chairman of the Board of the Company
for more than the past five years. Mr. Greenberg was Chief Executive
Officer of the Company and Bear Stearns from the Company's inception
until July 1993.
Mr. Cayne has been Chief Executive Officer of the Company and
Bear Stearns since July 1993. Mr. Cayne has been President of the
Company for more than the past five years.
Mr. Lehman became an Executive Vice President of the Company
on September 7, 1995. Prior thereto, Mr. Lehman was Senior Vice
President - General Counsel of Bear Stearns for more than the past
five years. Mr. Lehman is General Counsel of the Company and Bear
Stearns.
Mr. Schwartz has been an Executive Vice President of the
Company for more than the past five years. Mr. Schwartz is Chairman
of Bear Stearns' Investment Banking Policy Committee.
Mr. Spector became an Executive Vice President of the
Company in November 1992. Prior thereto, Mr. Spector was involved in
the management of Bear Stearns' Mortgage Department for more than the
past five years. Mr. Spector is responsible for all fixed income
activities of Bear Stearns.
Mr. Tarnopol has been Executive Vice President of the
Company for more than the past five years. Mr. Tarnopol is Chairman
of the Investment Banking Division of Bear Stearns and a member of its
Investment Banking Policy Committee.
<PAGE>
<PAGE>
Mr. Harriton has been in charge of the Company's
correspondent clearing services (through BSSC since July 1, 1991 and
previously through Bear Stearns) for more than the past five years.
Mr. Harriton has been President of BSSC since its inception.
Mr. Minikes has been Treasurer of the Company and Bear
Stearns for more than the past five years.
Mr. Montgoris has been Chief Operating Officer of the
Company and Bear Stearns since August 1993. Mr. Montgoris has been
Chief Financial Officer of the Company and Bear Stearns for more than
the past five years.
Mr. Steinberg has been co-head of Bear Stearns' Risk
Arbitrage Department for more than the past five years. Mr. Steinberg
has been Chairman of the Credit Policy Committee of Bear Stearns
since October 1992.
Mr. Molinaro has been Senior Vice President-Finance of the
Company and Bear Stearns since September 8, 1993 and a Senior Managing
Director of Bear Stearns since September 14, 1993. Mr. Molinaro
served as Assistant Controller of Bear Stearns from July 10, 1989 to
September 7, 1993 and prior thereto was a member of Bear Stearns'
Accounting Department. Mr. Molinaro was a Managing Director of Bear
Stearns from September 4, 1990 to September 13, 1993.
Mr. Abatemarco has been Controller of the Company and Bear
Stearns for more than the past five years.
Mr. Casey has been Assistant Treasurer of the Company and of
Bear Stearns for more than the past five years.
Mr. Edlow has been Secretary of the Company and of Bear
Stearns and a member of the Company's Administration Department for
more than the past five years.
Officers serve at the discretion of the Board of Directors.
<PAGE>
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and
-----------------------------------------
Related Stockholder Matters.
---------------------------
The information required to be furnished pursuant to this
item is set forth under the caption "Price Range of Common Stock and
Dividends" in the Annual Report, which is incorporated herein by
reference to Exhibit No. (13) of this report.
Item 6. Selected Financial Data.
-----------------------
The information required to be furnished pursuant to this
item is set forth under the caption "Selected Financial Data" in the
Annual Report, which is incorporated herein by reference to Exhibit
No. (13) of this report.
Item 7. Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operation.
--------------------------------------------
The information required to be furnished pursuant to this
item is set forth under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the
Annual Report, which is incorporated herein by reference to Exhibit
No. (13) of this report.
Item 8. Financial Statements and Supplementary Data.
-------------------------------------------
The information required to be furnished pursuant to this
item is contained in the Consolidated Financial Statements and the
Notes to Consolidated Financial Statements in the Annual Report. Such
information and the Independent Auditors' Report in the Annual Report
are incorporated herein by reference to Exhibit No. (13) of this
report.
Item 9. Changes in and Disagreements with Accountants on
------------------------------------------------
Accounting and Financial Disclosure.
-----------------------------------
None.
<PAGE>
<PAGE>
PART III
Item 10. Directors and Executive Officers of the
---------------------------------------
Registrant.
----------
The information required to be furnished pursuant to this
item with respect to Directors of the Company will be set forth under
the caption "Election of Directors" in the registrant's proxy
statement (the "Proxy Statement") to be furnished to stockholders in
connection with the solicitation of proxies by the Company's Board of
Directors for use at the 1995 Annual Meeting of Stockholders to be
held on October 30, 1995, and is incorporated herein by reference, and
the information with respect to Executive Officers is set forth,
pursuant to General Instruction G of Form 10-K, under Part I of this
Report.
Item 11. Executive Compensation.
----------------------
The information required to be furnished pursuant to this
item will be set forth under the caption "Executive Compensation" of
the Proxy Statement, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners
-----------------------------------------------
and Management.
--------------
The information required to be furnished pursuant to this
item will be set forth under the captions "Voting Securities" and
"Security Ownership of Management" of the Proxy Statement, and is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
----------------------------------------------
The information required to be furnished pursuant to this
item will be set forth under the caption "Certain Relationships and
Related Party Transactions" of the Proxy Statement, and is
incorporated herein by reference.
<PAGE>
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
--------------------------------------------
Reports on Form 8-K.
-------------------
(a) List of Financial Statements, Financial Statement
Schedules and Exhibits:
Financial Statements:
--------------------
The financial statements required to be filed hereunder are
listed on page F-1 hereof.
Financial Statement Schedules:
-----------------------------
The financial statement schedules required to be filed
hereunder are listed on page F-1 hereof.
Executive Compensation Plans and Arrangements:
---------------------------------------------
1985 Stock Option Plan, as amended (filed as Exhibit (10)(a)(1)
to the registrant's registration statement on Form S-1 (File
No. 33-15948)).
Employee Convertible Debenture Purchase Plan (filed as Exhibit A
to the registrant's proxy statement furnished to stockholders in
connection with the solicitation of proxies for the registrant's
Annual Meeting of Stockholders held on September 21, 1987).
1989 Deferred Compensation Plan for Executive Officers (filed as
Exhibit B to the registrant's proxy statement furnished to
stockholders in connection with the solicitation of proxies for
the registrant's Annual Meeting of Stockholders held on October
29, 1990).
Management Compensation Plan, as amended and restated as of July
1, 1994 (filed as Exhibit 10(a)(4) to the registrant's Annual
Report on Form 10-K for its fiscal year ended June 30, 1994).
Fiscal year 1996 performance standards under the Management
Compensation Plan, adopted September 7, 1995, subject to approval
of Stockholders at the 1995 Annual Meeting (filed herewith).
Capital Accumulation Plan for Senior Managing Directors, as
amended and restated as of July 1, 1993 (the "CAP Plan") (filed
as Exhibit B to the registrant's proxy statement furnished to
stockholders in connection with the solicitation of proxies for
the registrant's Annual Meeting of Stockholders held on October
25, 1993).
<PAGE>
<PAGE>
Amendment to the CAP Plan, adopted April 14, 1994 (filed as
Exhibit 10(a)(6) to the registrant's Annual Report on Form 10-K
for its fiscal year ended June 30, 1994).
Amendment to the CAP Plan, adopted September 1, 1994 (filed as
Exhibit 10(a)(7) to the registrant's Annual Report on Form 10-K
for its fiscal year ended June 30, 1994).
Amendment to CAP Plan, adopted August 7, 1995, certain provisions
of which are subject to the approval of the stockholders at the
1995 Annual Meeting (filed herewith).
Exhibits:
--------
(3)(a)(1) Restated Certificate of Incorporation of the
registrant, filed September 11, 1985 (incor-
porated by reference to Exhibit No. (4)(a)(1) to
the registrant's registration statement on Form
S-8 (File No. 33-49979)).
(3)(a)(2) Certificate of Amendment to the Restated Cer-
tificate of Incorporation of the registrant,
filed October 29, 1985 (incorporated by reference
to Exhibit No. (4)(a)(2) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(3) Certificate of Stock Designation to the Restated
Certificate of Incorporation of the registrant,
filed October 29, 1985 (incorporated by reference
to Exhibit No. (4)(a)(3) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(4) Certificate of Change of Address of Registered
Agent to the Restated Certificate of Incor-
poration of the registrant, filed February 14,
1986 (incorporated by reference to Exhibit
No. (4)(a)(4) to the registrant's registration
statement on Form S-8 (File No. 33-49979)).
(3)(a)(5) Certificate of Amendment to the Restated Cer-
tificate of Incorporation of the registrant,
filed September 18, 1986 (incorporated by refer-
ence to Exhibit No. (4)(a)(5) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(6) Certificate of Stock Designation to the Restated
Certificate of Incorporation of the registrant,
filed February 19, 1987 (incorporated by refer-
ence to Exhibit No. (4)(a)(6) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
<PAGE>
<PAGE>
(3)(a)(7) Certificate of Correction to the Restated Cer-
tificate of Incorporation of the registrant,
filed February 25, 1987 (incorporated by refer-
ence to Exhibit No. (4)(a)(7) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(8) Certificate of Change of Address of Registered
Agent to the Restated Certificate of Incorpora-
tion of the registrant, filed October 27, 1988
(incorporated by reference to Exhibit No.
(4)(a)(8) to the registrant's registration
statement on Form S-8 (File No. 33-49979)).
(3)(a)(9) Certificate of Amendment to the Restated Cer-
tificate of Incorporation of the registrant,
filed November 6, 1989 (incorporated by reference
to Exhibit No. (4)(a)(9) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(10) Certificate of Amendment to the Restated Cer-
tificate of Incorporation of the registrant,
filed November 7, 1990 (incorporated by reference
to Exhibit No. (4)(a)(10) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(11) Certificate of Amendment to the Restated Cer-
tificate of Incorporation of the registrant,
filed November 10, 1992 (incorporated by refer-
ence to Exhibit No. (4)(a)(11) to the regis-
trant's registration statement on Form S-8 (File
No. 33-49979)).
(3)(a)(12) Certificate of Stock Designation to the Restated
Certificate of Incorporation of the registrant,
filed March 23, 1993 (incorporated by reference
to Exhibit No. (4)(a)(12) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(13) Certificate of Stock Designation to the Restated
Certificate of Incorporation of the registrant,
filed July 22, 1993 (incorporated by reference to
Exhibit No. (4)(a)(13) to the registrant's regis-
tration statement on Form S-8 (File No.
33-49979)).
(3)(a)(14) Form of Certificate of Stock Designations to the
Restated Certificate of Incorporation of the
registrant (incorporated by reference to Exhibit
No. 4.4 to the registrant's registration
statement on Form 8-A filed on February 23,
1994).
<PAGE>
<PAGE>
(3)(b) Amended and Restated By-laws of the registrant
(incorporated by reference to Exhibit No. (3)(b)
to registrant's Annual Report on Form 10-K for
its fiscal year ended June 30, 1991 and Exhibit
No. (3)(b) to the registrant's Quarterly Report
on Form 10-Q for the quarterly period ended
December 31, 1992).
(4)(a) Indenture, dated as of April 13, 1989, between
the registrant and Citibank, N.A., as trustee
(incorporated by reference to the identically
numbered exhibit to the registrant's registration
statement on Form S-3 (File No. 33-27713)).
(4)(b) Indenture, dated as of May 31, 1991, between the
registrant and Manufacturers Hanover Trust
Company, as trustee (incorporated by reference to
Exhibit No. (4)(a) to registrant's registration
statement on Form S-3 (File No. 33-40933)).
(4)(c) Except as set forth in (4)(a) and 4(b) above, the
instruments defining the rights of holders of
long-term debt securities of the registrant and
its subsidiaries are omitted pursuant to Section
(b)(4)(iii) of Item 601 of Regulation S-K.
Registrant hereby agrees to furnish copies of
these instruments to the SEC upon request.
(4)(d) Form of Deposit Agreement (incorporated by
reference to Exhibit (4)(d) to the registrant's
registration statement on Form S-3 (File No.
33-59140)).
(10)(a)(1) 1985 Stock Option Plan, as amended (incorporated
by reference to the identically numbered exhibit
to the registrant's registration statement on
Form S-1 (File No. 33-15948)).
(10)(a)(2) Employee Convertible Debenture Purchase Plan
(incorporated by reference to Exhibit A to the
registrant's proxy statement furnished to stock-
holders in connection with the solicitation of
proxies for the registrant's Annual Meeting of
Stockholders held on September 21, 1987).
(10)(a)(3) 1989 Deferred Compensation Plan for Executive
Officers (incorporated by reference to Exhibit B
to the registrant's proxy statement furnished to
stockholders in connection with the solicitation
of proxies for the registrant's Annual Meeting of
Stockholders held on October 29, 1990).
<PAGE>
<PAGE>
(10)(a)(4) Management Compensation Plan, as amended and
restated as of July 1, 1994 (incorporated by
reference to Exhibit 10(a)(4) to the registrant's
Annual Report on Form 10-K for its fiscal year
ended June 30, 1994).
(10)(a)(5) Fiscal year 1996 performance standards under the
Management Compensation Plan, adopted
September 7, 1995, subject to approval of
Stockholders at the 1995 Annual Meeting.
(10)(a)(6) Capital Accumulation Plan for Senior Managing
Directors, as amended and restated as of July 1,
1993 (the "CAP Plan") (incorporated by reference
to Exhibit B to the registrant's proxy statement
furnished to stockholders in connection with the
solicitation of proxies for the registrant's
Annual Meeting of Stockholders held on October
25, 1993).
(10)(a)(7) Amendment to the CAP Plan, adopted April 14, 1994
(incorporated by reference to Exhibit 10(a)(6) to
the registrant's Annual Report on Form 10-K for
its fiscal year ended June 30, 1994).
(10)(a)(8) Amendment to the CAP Plan, adopted September 1,
1994, (incorporated by reference to Exhibit
10(a)(7) to the registrant's Annual Report on
Form 10-K for its fiscal year ended June 30,
1994)
(10)(a)(9) Amendment to CAP Plan, adopted August 7, 1995,
certain provisions of which are subject to
approval of the stockholders at the 1995 Annual
Meeting.
(10)(b)(1) Lease, dated as of November 1, 1991, between
Forest City Jay Street Associates and The Bear
Stearns Companies Inc. with respect to the
premises located at One Metrotech Center,
Brooklyn, New York (incorporated by reference to
Exhibit (10)(b)(1) to the registrant's Annual
Report on Form 10-K for its fiscal year ended
June 30, 1992).
(10)(b)(2) Lease, dated as of March 6, 1987, among Olympia &
York 245 Lease Company, 245 Park Avenue Company
and The Bear Stearns Companies Inc. (incorporated
by reference to Exhibit (10)(c)(2) to the
registrant's registration statement on Form S-1
(File No. 33-15948)).
<PAGE>
<PAGE>
(10)(b)(3) Lease, dated as of August 26, 1994, between Tenth
City Associates and The Bear Stearns Companies
Inc. (incorporated by reference to Exhibit
10(b)(3) to the registrant's Annual Report on
Form 10-K for its fiscal year ended June 30,
1994).
(11) Statement re: computation of per share earnings.
(12) Statement re: computation of ratio of earnings to
fixed charges.
(13) 1995 Annual Report to Stockholders (only those
portions expressly incorporated by reference
herein shall be deemed filed with the
Commission).
(21) Subsidiaries of the registrant.
(23) Consent of Deloitte & Touche LLP.
(27) Financial Data Schedule.
(b) Reports on Form 8-K. The Company filed the
-------------------
following Current Report on Form 8-K during the
last quarter of the period covering this report:
A Current Report on Form 8-K dated
April 19, 1995, pertaining to the
registrant's results of operations
for the three months and nine
months ended March 31, 1995 and to
the declaration of dividends.
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 28th day of September, 1995.
THE BEAR STEARNS COMPANIES INC.
-------------------------------
(Registrant)
By: /s/ William J. Montgoris
------------------------
William J. Montgoris
Chief Operating Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities indicated on the
28th day of September, 1995.
NAME TITLE
---- -----
/s/ Alan C. Greenberg Chairman of the Board;
---------------------------------
Alan C. Greenberg Director
/s/ James E. Cayne President and Chief
--------------------------------- Executive Officer;
James E. Cayne Director
/s/ William J. Montgoris Chief Operating
--------------------------------- Officer and Chief Financial
William J. Montgoris Officer (Principal
Financial Officer);
Director
Executive Vice
--------------------------------- President; Director
Michael L. Tarnopol
<PAGE>
<PAGE>
NAME TITLE
---- -----
Executive Vice
--------------------------------- President; Director
Alan D. Schwartz
/s/ Warren J. Spector Executive Vice
--------------------------------- President; Director
Warren J. Spector
/s/ Mark E. Lehman Executive Vice
--------------------------------- President; Director
Mark E. Lehman
Treasurer; Director
---------------------------------
Michael Minikes
/s/ E. Garrett Bewkes, III Director
---------------------------------
E. Garrett Bewkes, III
Director
---------------------------------
Denis A. Bovin
/s/ Peter D. Cherasia Director
---------------------------------
Peter D. Cherasia
/s/ Stephen M. Cunningham Director
---------------------------------
Stephen M. Cunningham
Director
---------------------------------
Kevin J. Finnerty
/s/ Grace J. Fippinger Director
---------------------------------
Grace J. Fippinger
<PAGE>
<PAGE>
NAME TITLE
---- -----
/s/ Carl D. Glickman Director
-----------------------------------
Carl D. Glickman
/s/ Thomas R. Green Director
-----------------------------------
Thomas R. Green
/s/ Rev. Donald J. Harrington, C.M. Director
-----------------------------------
Rev. Donald J. Harrington, C.M.
/s/ Richard Harriton Director
-----------------------------------
Richard Harriton
/s/ Daniel L. Keating Director
-----------------------------------
Daniel L. Keating
/s/ John W. Kluge Director
-----------------------------------
John W. Kluge
/s/ David A. Liebowitz Director
-----------------------------------
David A. Liebowitz
Director
-----------------------------------
Bruce M. Lisman
/s/ Donald R. Mullen, Jr. Director
-----------------------------------
Donald R. Mullen, Jr.
/s/ Frank T. Nickell Director
-----------------------------------
Frank T. Nickell
<PAGE>
<PAGE>
NAME TITLE
---- -----
/s/ Craig M. Overlander Director
---------------------------------
Craig M. Overlander
/s/ Stephen E. Raphael Director
---------------------------------
Stephen E. Raphael
/s/ E. John Rosenwald, Jr. Director
---------------------------------
E. John Rosenwald, Jr.
/s/ Frederic V. Salerno Director
---------------------------------
Frederic V. Salerno
/s/ Robert M. Steinberg Director
---------------------------------
Robert M. Steinberg
/s/ Vincent Tese Director
---------------------------------
Vincent Tese
Director
---------------------------------
Fred Wilpon
Director
---------------------------------
Uzi Zucker
/s/ Michael J. Abetemarco Controller
---------------------------------
Michael J. Abatemarco
/s/ Samuel L. Molinaro, Jr. Senior Vice President
--------------------------------- Finance (Principal
Samuel L. Molinaro, Jr. Accounting Officer)
<PAGE>
<PAGE>
THE BEAR STEARNS COMPANIES INC.
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
ITEMS 14 (a) (1) and 14 (a) (2)
Financial Statements Page Reference
--------------------
Annual
Form 10-K Report *
--------- --------
Independent Auditors' Report 55
The Bear Stearns Companies Inc.
-------------------------------
(i) Consolidated Statements of Income-
fiscal years ended
June 30, 1995, 1994 and 1993 35
(ii) Consolidated Statements of Financial
Condition at June 30, 1995 and 1994 36
(iii) Consolidated Statements of Cash Flows-
fiscal years ended
June 30, 1995, 1994 and 1993 37
(iv) Consolidated Statements of Changes in
Stockholders' Equity - fiscal years
ended June 30, 1993, 1994 and 1995 38-39
(v) Notes to Consolidated Financial
Statements 40-54
Financial Statement Schedules
-----------------------------
Independent Auditors' Report F-2
III Condensed financial information of
registrant F-3 - F-6
VIII Valuation and qualifying accounts F-7
IX Short-term borrowings F-8
* Incorporated by reference from the indicated
pages of the 1995 Annual Report to Stockholders.
All other schedules are omitted because they are
not applicable or the requested information is
included in the consolidated financial statements
or notes thereto.
<PAGE>
<PAGE>
DELOITTE &
TOUCHE LLP
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and Stockholders of
The Bear Stearns Companies Inc.:
We have audited the consolidated financial statements of The Bear
Stearns Companies Inc. and Subsidiaries as of June 30, 1995 and 1994,
and for each of the three years in the period ended June 30, 1995, and
have issued our report thereon dated August 25, 1995; such
consolidated financial statements and report are included in the
Annual Report to Stockholders and are incorporated herein by
reference. Our audits also included the financial statement schedules
of The Bear Stearns Companies Inc. and Subsidiaries, listed in Item 14.
These financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion
based on our audits. In our opinion, such financial statement
schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
DELOITTE & TOUCHE LLP
New York, New York
August 25, 1995
<PAGE>
<PAGE>
SCHEDULE III
<TABLE>
<CAPTION>
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
THE BEAR STEARNS COMPANIES INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF INCOME
(In thousands)
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
June 30, 1995 June 30, 1994 June 30, 1993
------------- ------------- -------------
<S> <C> <C> <C>
Revenues
Interest
Coupon $ 8,397 $ 8,851 $ 15,176
Intercompany 711,701 361,824 179,213
Other 52,444 49,056 34,528
-------- -------- -------
772,542 419,731 228,917
-------- -------- -------
Expenses
Interest 743,730 415,794 215,303
Other 51,788 48,108 40,149
-------- -------- -------
795,518 463,902 255,452
-------- -------- -------
Loss before provision
for (benefit from) income taxes
and equity in earnings of
subsidiaries (22,976) (44,171) (26,535)
Provision for (benefit from)
income taxes 2,427 (15,320) (11,473)
-------- -------- -------
Loss before equity in
earnings of subsidiaries (25,403) (28,851) (15,062)
Equity in earnings of
subsidiaries 266,014 415,816 377,509
-------- -------- -------
Net income $ 240,611 $ 386,965 $ 362,447
======== ======== =======
<FN>
See Notes to Condensed Financial Information.
</TABLE>
<PAGE>
<PAGE>
SCHEDULE III
<TABLE>
<CAPTION>
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
THE BEAR STEARNS COMPANIES INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
June 30, June 30,
1995 1994
---------- ----------
<S> <C> <C>
ASSETS
Cash $ 2,028 $ 861
Receivables from subsidiaries 12,119,142 10,805,511
Investments in subsidiaries, at equity 2,421,957 2,238,258
Property, equipment and leasehold improvements,
net of accumulated depreciation and amortization
of $214,398 in 1995 and $170,020 in 1994 246,111 224,103
Other assets 258,189 240,961
---------- ----------
Total Assets $15,047,427 $13,509,694
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings $ 8,224,457 $ 7,576,097
Payables to subsidiaries 221,607 222,084
Other liabilities 188,958 136,851
---------- ----------
8,635,022 7,935,032
---------- ----------
Long-term borrowings 4,059,944 3,408,096
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value; 10,000,000 shares
authorized:
Adjustable Rate Cumulative Preferred Stock,
Series A; $50 liquidation preference; 3,000,000
shares issued 150,000 150,000
Cumulative Preferrred Stock, Series B; $200
liquidation preference; 937,500 shares
issued and outstanding 187,500 187,500
Cumulative Preferred Stock, Series C; $200
liquidation preference; 500,000 shares
issued and outstanding 100,000 100,000
Common stock, $1.00 par value; 200,000,000 shares
authorized; 152,202,724 shares and 144,965,094
shares issued in 1995 and 1994, respectively 152,203 144,965
Paid-in capital 1,557,237 1,447,066
Retained earnings 430,330 388,685
Capital Accumulation Plan 344,338 275,415
Treasury stock, at cost -
Adjustable Rate Cumulative Preferred
Stock, Series A; 2,118,550 shares in 1995 and
1994, respectively (85,507) (85,507)
Common stock; 34,866,529 shares in 1995 and
31,525,939 shares in 1994 (458,193) (410,882)
Note receivable from ESOP Trust (25,447) (30,676)
---------- ----------
Total Stockholders' Equity 2,352,461 2,166,566
---------- ----------
Total Liabilities and Stockholders' Equity $15,047,427 $13,509,694
========== ==========
<FN>
See Notes to Condensed Financial Information.
</TABLE>
<PAGE>
<PAGE>
SCHEDULE III
<TABLE>
<CAPTION>
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
THE BEAR STEARNS COMPANIES INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
June 30, 1995 June 30, 1994 June 30, 1993
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income $ 240,611 $ 386,965 $ 362,447
Adjustments to reconcile net
income to cash used in
operating activities:
Equity in earnings of
subsidiaries, net of dividends
received (193,724) (344,529) (302,317)
Other 65,118 48,783 44,409
(Increases) decreases in assets:
Receivables from subsidiaries (1,313,631) (3,110,390) (3,323,849)
Investments in subsidiaries,
net 10,025 (40,231) (10,240)
Other assets (18,744) (105,226) (95,698)
Increases (decreases) in liabilities:
Payables to subsidiaries (477) 117,956 93,484
Other liabilities 48,042 (13,896) 51,666
---------- ---------- ----------
Cash used in operating
activities (1,162,780) (3,060,568) (3,180,098)
---------- ---------- ----------
Cash flows from financing activities:
Net proceeds from issuance of
Cumulative Preferred Stock - 96,689 181,307
Net proceeds from short-term
borrowings 648,360 1,584,682 2,175,100
Issuance of long-term borrowings 1,040,090 1,795,979 840,347
Capital Accumulation Plan 68,923 137,084 138,331
Other common stock transactions 36,725 3,733 2,577
Note repayment from ESOP Trust 5,229 4,841 4,483
Payments for:
Retirement of Senior Notes (400,300) (273,000)
Treasury stock purchases (70,373) (147,763) (140,504)
Cash dividends paid (92,642) (90,769) (66,425)
---------- ---------- ----------
Cash provided by financing
activities 1,236,012 3,111,476 3,135,216
---------- ---------- ----------
Cash flows from investing activities:
Purchases of property, equipment and
leasehold improvements (81,282) (65,473) (50,429)
Purchases of investment securities
and other assets - (17,192) (11,030)
Proceeds from sale of investment
securities and other assets 9,217 31,928 105,989
--------- ---------- ----------
Cash (used in) provided by
investing activities (72,065) (50,737) 44,530
--------- ---------- ----------
Net increase (decrease) in cash 1,167 171 (352)
Cash, beginning of year 861 690 1,042
--------- ---------- ---------
Cash, end of year $ 2,028 $ 861 $ 690
========= ========== =========
<FN>
See Notes to Condensed Financial Information.
</TABLE>
<PAGE>
<PAGE>
SCHEDULE III
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
THE BEAR STEARNS COMPANIES INC.
(PARENT COMPANY ONLY)
NOTES TO CONDENSED FINANCIAL INFORMATION
(In thousands)
1. GENERAL
The condensed financial information of the Company (Parent
Company Only) should be read in conjunction with the consolidated
financial statements of The Bear Stearns Companies Inc. and the
notes thereto incorporated by reference in this report.
2. DIVIDENDS RECEIVED FROM SUBSIDIARIES
The Company received from its consolidated subsidiaries cash
dividends of $72,215, $71,270, and $75,192 for the fiscal years
ended June 30, 1995, 1994 and 1993, respectively.
3. STATEMENT OF CASH FLOWS
Income taxes paid (consolidated) totaled $125,627, $276,565 and
$223,550 in the fiscal years ended June 30, 1995, 1994 and 1993,
respectively. Cash payments for interest approximated interest
expense for the fiscal years ended June 30, 1995, 1994 and 1993,
respectively.
<PAGE>
<PAGE>
SCHEDULE VIII
<TABLE>
<CAPTION>
THE BEAR STEARNS COMPANIES INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(In thousands)
Charged to
Balance at Costs and Balance at
Description Beginning of Period Expenses Deductions End of Period
----------- ------------------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Allowance for Doubtful
Accounts:
Year ended June 30, 1995 $42,053 $16,479 $(4,357) $54,175
Year ended June 30, 1994 35,479 12,871 (6,297) 42,053
Year ended June 30, 1993 36,727 1,059 (2,307) 35,479
</TABLE>
<PAGE>
<PAGE>
SCHEDULE IX
<TABLE>
<CAPTION>
THE BEAR STEARNS COMPANIES INC.
SHORT-TERM BORROWINGS
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(Dollars in thousands)
Maximum Average
Weighted month-end month-end Weighted
Category average amount amount average
of aggregate interest outstanding outstanding interest
short-term Balance at rate at end during during rate during
borrowings (1) end of period of period the period the period the period (2)
-------------- ------------- ----------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Bank loans-
June 30, 1995 $ 731,220 7.24% $ 1,795,419 $ 993,208 5.44%
June 30, 1994 294,214 6.20% 2,868,691 1,372,245 3.61%
June 30, 1993 127,479 4.69% 1,630,019 383,298 3.70%
Medium-Term Notes-
June 30, 1995 $ 3,915,282 6.29% $ 3,915,282 $ 3,607,199 5.64%
June 30, 1994 3,892,191 4.43% 3,892,191 3,107,130 3.65%
June 30, 1993 1,587,255 3.54% 1,587,255 1,062,730 3.77%
Commercial paper-
June 30, 1995 $ 3,924,275 6.07% $ 4,971,508 $ 4,551,651 5.38%
June 30, 1994 3,673,906 4.39% 4,496,000 4,275,000 3.46%
June 30, 1993 4,404,160 3.27% 4,404,160 3,387,155 3.43%
Securities sold
under agreements
to repurchase-
June 30, 1995 $29,584,724 6.10% $37,770,952 $30,856,283 5.30%
June 30, 1994 26,863,122 3.22% 39,789,202 30,166,372 3.20%
June 30, 1993 22,058,354 2.98% 30,080,950 25,333,785 2.98%
<FN>
(1) The general terms of each category of aggregate short-term borrowings are contained in the Notes to
Consolidated Financial Statements appearing under the captions "Summary of Significant Accounting
Policies" and "Short-Term Financing" of the Annual Report incorporated elsewhere herein by reference.
(2) The weighted average interest rate during the period was computed based upon the average amounts
outstanding daily.
</TABLE>
<PAGE>
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Exhibit
----------- -------
(3)(a)(1) Restated Certificate of Incorporation of the
registrant, filed September 11, 1985 (incor-
porated by reference to Exhibit No. (4)(a)(1) to
the registrant's registration statement on Form
S-8 (File No. 33-49979)).
(3)(a)(2) Certificate of Amendment to the Restated Cer-
tificate of Incorporation of the registrant,
filed October 29, 1985 (incorporated by reference
to Exhibit No. (4)(a)(2) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(3) Certificate of Stock Designation to the Restated
Certificate of Incorporation of the registrant,
filed October 29, 1985 (incorporated by reference
to Exhibit No. (4)(a)(3) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(4) Certificate of Change of Address of Registered
Agent to the Restated Certificate of Incor-
poration of the registrant, filed February 14,
1986 (incorporated by reference to Exhibit
No. (4)(a)(4) to the registrant's registration
statement on Form S-8 (File No. 33-49979)).
(3)(a)(5) Certificate of Amendment to the Restated Cer-
tificate of Incorporation of the registrant,
filed September 18, 1986 (incorporated by refer-
ence to Exhibit No. (4)(a)(5) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(6) Certificate of Stock Designation to the Restated
Certificate of Incorporation of the registrant,
filed February 19, 1987 (incorporated by refer-
ence to Exhibit No. (4)(a)(6) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(7) Certificate of Correction to the Restated Cer-
tificate of Incorporation of the registrant,
filed February 25, 1987 (incorporated by refer-
ence to Exhibit No. (4)(a)(7) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
<PAGE>
<PAGE>
Exhibit No. Exhibit
----------- -------
(3)(a)(8) Certificate of Change of Address of Registered
Agent to the Restated Certificate of Incorpora-
tion of the registrant, filed October 27, 1988
(incorporated by reference to Exhibit No.
(4)(a)(8) to the registrant's registration
statement on Form S-8 (File No. 33-49979)).
(3)(a)(9) Certificate of Amendment to the Restated Cer-
tificate of Incorporation of the registrant,
filed November 6, 1989 (incorporated by reference
to Exhibit No. (4)(a)(9) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(10) Certificate of Amendment to the Restated Cer-
tificate of Incorporation of the registrant,
filed November 7, 1990 (incorporated by reference
to Exhibit No. (4)(a)(10) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(11) Certificate of Amendment to the Restated Cer-
tificate of Incorporation of the registrant,
filed November 10, 1992 (incorporated by refer-
ence to Exhibit No. (4)(a)(11) to the regis-
trant's registration statement on Form S-8 (File
No. 33-49979)).
(3)(a)(12) Certificate of Stock Designation to the Restated
Certificate of Incorporation of the registrant,
filed March 23, 1993 (incorporated by reference
to Exhibit No. (4)(a)(12) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(13) Certificate of Stock Designation to the Restated
Certificate of Incorporation of the registrant,
filed July 22, 1993 (incorporated by reference to
Exhibit No. (4)(a)(13) to the registrant's regis-
tration statement on Form S-8 (File No.
33-49979)).
(3)(a)(14) Form of Certificate of Stock Designations to the
Restated Certificate of Incorporation of the
registrant (incorporated by reference to Exhibit
No. 4.4 to the registrant's registration
statement on Form 8-A filed on February 23,
1994).
(3)(b) Amended and Restated By-laws of the registrant
(incorporated by reference to Exhibit No. (3)(b)
to registrant's Annual Report on Form 10-K for
its fiscal year ended June 30, 1991 and Exhibit
No. (3)(b) to the registrant's Quarterly Report
on Form 10-Q for the quarterly period ended
December 31, 1992).
<PAGE>
<PAGE>
Exhibit No. Exhibit
----------- -------
(4)(a) Indenture, dated as of April 13, 1989, between
the registrant and Citibank, N.A., as trustee
(incorporated by reference to the identically
numbered exhibit to the registrant's registration
statement on Form S-3 (File No. 33-27713)).
(4)(b) Indenture, dated as of May 31, 1991, between the
registrant and Manufacturers Hanover Trust
Company, as trustee (incorporated by reference to
Exhibit No. (4)(a) to registrant's registration
statement on Form S-3 (File No. 33-40933)).
(4)(c) Except as set forth in (4)(a) and 4(b) above, the
instruments defining the rights of holders of
long-term debt securities of the registrant and
its subsidiaries are omitted pursuant to Section
(b)(4)(iii) of Item 601 of Regulation S-K.
Registrant hereby agrees to furnish copies of
these instruments to the SEC upon request.
(4)(d) Form of Deposit Agreement (incorporated by
reference to Exhibit (4)(d) to the registrant's
registration statement on Form S-3 (File No.
33-59140)).
(10)(a)(1) 1985 Stock Option Plan, as amended (incorporated
by reference to the identically numbered exhibit
to the registrant's registration statement on
Form S-1 (File No. 33-15948)).
(10)(a)(2) Employee Convertible Debenture Purchase Plan
(incorporated by reference to Exhibit A to the
registrant's proxy statement furnished to stock-
holders in connection with the solicitation of
proxies for the registrant's Annual Meeting of
Stockholders held on September 21, 1987).
(10)(a)(3) 1989 Deferred Compensation Plan for Executive
Officers (incorporated by reference to Exhibit B
to the registrant's proxy statement furnished to
stockholders in connection with the solicitation
of proxies for the registrant's Annual Meeting of
Stockholders held on October 29, 1990).
(10)(a)(4) Management Compensation Plan, as amended and
restated as of July 1, 1994 (incorporated by
reference to Exhibit 10(a)(4) to the registrant's
Annual Report on Form 10-K for its fiscal year
ended June 30, 1994).
(10)(a)(5) Fiscal year 1996 performance standards under the
Management Compensation Plan, adopted Septem-
ber 7, 1995, subject to approval of Stockholders
at the 1995 Annual Meeting.
<PAGE>
<PAGE>
Exhibit No. Exhibit
----------- -------
(10)(a)(6) Capital Accumulation Plan for Senior Managing
Directors, as amended and restated as of July 1,
1993 (the "CAP Plan") (incorporated by reference
to Exhibit B to the registrant's proxy statement
furnished to stockholders in connection with the
solicitation of proxies for the registrant's
Annual Meeting of Stockholders held on October
25, 1993).
(10)(a)(7) Amendment to the CAP Plan, adopted April 14, 1994
(incorporated by reference to Exhibit 10(a)(6) to
the registrant's Annual Report on Form 10-K for
its fiscal year ended June 30, 1994).
(10)(a)(8) Amendment to the CAP Plan, adopted September 1,
1994 (incorporated by reference to Exhibit
10(a)(7) to the registrant's Annual Report on
Form 10-K for its fiscal year ended June 30,
1994).
(10)(a)(9) Amendment to CAP Plan, adopted August 7, 1995,
certain provisions of which are subject to
approval of the stockholders at the 1995 Annual
Meeting.
(10)(b)(1) Lease, dated as of November 1, 1991, between
Forest City Jay Street Associates and The Bear
Stearns Companies Inc. with respect to the
premises located at One Metrotech Center,
Brooklyn, New York (incorporated by reference to
Exhibit (10)(b)(1) to the registrant's Annual
Report on Form 10-K for its fiscal year ended
June 30, 1992).
(10)(b)(2) Lease, dated as of March 6, 1987, among Olympia &
York 245 Lease Company, 245 Park Avenue Company
and The Bear Stearns Companies Inc. (incorporated
by reference to Exhibit (10)(c)(2) to the
registrant's registration statement on Form S-1
(File No. 33-15948)).
(10)(b)(3) Lease, dated August 26, 1994, between Tenth
Avenue Associates and The Bear Stearns Companies
Inc. (incorporated by reference to Exhibit
10(b)(3) to the registrant's Annual Report on
Form 10-K for its fiscal year ended June 30,
1994).
(11) Statement re: computation of per share earnings.
(12) Statement re: computation of ratio of earnings to
fixed charges.
(13) 1995 Annual Report to Stockholders (only those
portions expressly incorporated by reference
herein shall be deemed filed with the
Commission).
<PAGE>
<PAGE>
Exhibit No. Exhibit
----------- -------
(21) Subsidiaries of the registrant.
(23) Consent of Deloitte & Touche LLP.
(27) Financial Data Schedule.
<PAGE>
EXHIBIT 10(a)(5)
Fiscal Year 1996 Performance Standards
under the
Management Compensation Plan
RESOLVED, that the performance standards applicable to fiscal
year ending June 30, 1996 under The Bear Stearns Companies Inc.
Management Compensation Plan, as amended and restated as of July 1,
1994, be, and hereby are as follows, subject to stockholder approval
at the 1995 Annual Meeting of Stockholders:
The Annual Bonus Pool for the fiscal year ending June 30,
1996 shall be determined as soon as practicable after the end of such
fiscal year of the Company and shall be determined as follows:
(a) if the Company's Adjusted Pre-Tax Return on Equity
is 2% or less, the Annual Bonus Pool for such year
shall be zero;
(b) if the Company's Adjusted Pre-Tax Return on Equity
is greater than 2% but does not exceed 5%, the
Annual Bonus Pool for such year shall be $4.6
million multiplied by a fraction (i) the numerator
which is the excess of (A) the Company's Adjusted
Pre-Tax Return on Equity over (B) 2% and (ii) the
denominator of which is 3%;
(c) if the Company's Adjusted Pre-Tax Return on Equity
is greater than 5% but does not exceed 10% the
Annual Bonus Pool for such year shall be the sum
of (a) $4.6 million and (b) $7.8 million
multiplied by a fraction (i) the numerator of
which is the excess of (A) the Company's Adjusted
Pre-Tax Return on Equity over (B) 5% and (ii) the
denominator of which is 5%;
(d) if the Company's Adjusted Pre-Tax Return on Equity
is greater than 10% but does not exceed 15% the
Annual Bonus Pool for such year shall be the sum
of (a) $12.4 million and (b) $8.32 million
multiplied by a fraction (i) the numerator of
which is the excess of (A) the Company's Adjusted
Pre-Tax Return on Equity over (B) 10% and (ii) the
denominator of which is 5%;
NYFS04...:\25\22625\0110\2322\EXH9085M.450
<PAGE>
<PAGE>
(e) if the Company's Adjusted Pre-Tax Return on Equity
is greater than 15% but does not exceed 20%, the
Annual Bonus Pool for such year shall be the sum
of (a) $20.72 million and (b) $8.44 million
multiplied by a fraction (i) the numerator of
which is the excess of (A) the Company's Adjusted
Pre-Tax Return on Equity over (B) 15% and (ii) the
denominator of which is 5%;
(f) if the Company's Adjusted Pre-Tax Return on Equity
is greater than 20% but does not exceed 30%, the
Annual Bonus Pool for such year shall be the sum
of (a) $29.16 million and (b) $17.028 million
multiplied by a fraction (i) the numerator of
which is the excess of (A) the Company's Adjusted
Pre-Tax Return on Equity over (B) 20% and (ii) the
denominator of which is 10%; and
(g) if the Company's Adjusted Pre-Tax Return on Equity
is greater than 30%, the Annual Bonus Pool for
such year shall be the sum of (a) $46.188 million
and (b) $1,738,000 multiplied by the product of
(i) the excess of (A) the Company's Adjusted Pre-
Tax Return on Equity over (B) 30% and (ii) 100.
<PAGE>
Exhibit 10(a)(9)
THE BEAR STEARNS COMPANIES INC.
AMENDMENT TO THE CAPITAL ACCUMULATION PLAN
RESOLVED, that Section 6.2(c)(ii) of the Bear Stearns Companies
Inc. Capital Accumulation Plan for Senior Managing Directors as
amended and restated as of July 1, 1993 (the "Cap Plan") be, and
hereby is, amended in its entirety to read as follows:
(ii) the Appropriate Committee shall have the right in its
sole discretion to accelerate any Termination Date with
respect to any Plan Year of a Participant whose
employment with the Company and its Affiliates
terminates to the last day of the Fiscal Year in which
such employment terminates or to the last day of any
subsequent Fiscal Year, in which case the date so
determined by the Appropriate Committee with respect to
each such Plan Year shall be the Participant's
Termination Date for all purposes of this Plan with
respect to each such Plan Year. The Appropriate
Committee shall give notice of any such determination
to the Participant at least ten days prior to the
earliest of such accelerated Termination Dates. In
addition, if a Participant whose employment with the
Company has terminated shall request the Appropriate
Committee to accelerate the Termination Date with
respect to any Plan Year of such Participant to the
last day of the Fiscal Year immediately preceding the
Fiscal Year in which such Participant's employment
terminates, the Appropriate Committee may in its sole
discretion so accelerate the Termination Date with
respect to any such Plan Year of such Participant. If
the Appropriate Committee takes such action, such
Participant's distribution from the Plan for any Plan
Year the Termination Date of which is so accelerated
shall be based on the Total CAP Units and his Cash
Balance at the end of such prior Fiscal Year for each
such Plan Year, without giving effect to any
adjustments otherwise required to be made during the
Fiscal Year in which his employment terminates,
including, without limitation, for Net Earnings
Adjustments, dividends on the Common Stock, or
interest, and the distributions called for in Section
6.1 of the Plan shall be made as soon as practicable
after such action is taken by the Appropriate
Committee;
RESOLVED, that the foregoing amendment to the CAP Plan be
effective as of July 1, 1995; provided, however, that the foregoing
amendment is subject to stockholder approval at the 1995 Annual
Meeting of Stockholders of the Corporation.
NYFS04...:\25\22625\0110\2322\EXH9075N.480
<PAGE>
EXHIBIT 11
<TABLE>
<CAPTION>
THE BEAR STEARNS COMPANIES INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
June 30, 1995 June 30, 1994 June 30, 1993
------------- ------------- -------------
(In thousands, except per share data)
<S> <C> <C> <C>
Weighted average common
and common equivalent
shares outstanding (1):
Common Stock 118,233 124,333 125,869
Common Stock equivalents:
Common Stock issuable assuming
conversion of CAP Units 15,078 9,068 5,116
Common stock issuable under
benefits plans 708 1,053 1,103
-------- -------- --------
Total weighted average common and
common equivalent shares outstanding 134,019 134,454 132,088
======== ======== ========
Net income $ 240,611 $ 386,965 $ 362,447
Adjustable Rate Cumulative Preferred
Stock dividend requirements (25,137) (24,373) (6,751)
Income adjustment, net of tax,
applicable to conversion of CAP Units 12,153 7,274 3,687
-------- -------- --------
Adjusted net income $ 227,627 $ 369,866 $ 359,383
======== ======== ========
Earnings per share $ 1.70 $ 2.75 $ 2.72
======== ======== ========
<FN>
(1) Adjusted to reflect stock dividends.
</TABLE>
NYFS04...:\25\22625\0110\2322\EXH9075M.000
<PAGE>
EXHIBIT 12
<TABLE>
<CAPTION>
THE BEAR STEARNS COMPANIES INC.
STATEMENT RE COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In thousands, except for ratio)
Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended Ended Ended
June 30, 1995 June 30, 1994 June 30, 1993 June 30, 1992 June 30, 1991
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Earnings before taxes on $ 388,082 $ 642,799 $ 614,398 $ 507,625 $ 229,501
income --------- --------- --------- --------- ---------
Add: Fixed Charges
Interest 1,678,515 1,023,866 710,086 834,859 1,141,029
Interest factor in
rents 24,594 21,772 20,084 20,874 18,715
--------- --------- --------- --------- ---------
Total fixed charges 1,703,109 1,045,638 730,170 855,733 1,159,744
--------- --------- --------- --------- ---------
Earnings before fixed charges, $2,091,191 $1,688,437 $1,344,568 $1,363,358 $1,389,245
and provison for income taxes ========= ========= ========= ========= =========
Ratio of earnings to fixed charges 1.2 1.6 1.8 1.6 1.2
========= ========= ========= ========= =========
</TABLE>
<PAGE>
EXHIBIT 13
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
THE BEAR STEARNS COMPANIES INC.
Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended Ended Ended
In thousands, except share and employee data June 30, 1995 June 30, 1994 June 30, 1993 June 30, 1992 June 30, 1991
------------- ------------- ------------- ------------- -------------
Operating Results
-----------------
<S> <C> <C> <C> <C> <C>
Revenues $ 3,753,572 $ 3,440,638 $ 2,853,185 $ 2,678,933 $ 2,379,953
Interest expense 1,678,515 1,023,866 710,086 834,859 1,141,029
- ------------------------------------------------------------------------------------------------------------------------
Revenues, net of interest expense 2,075,057 2,416,772 2,143,099 1,844,074 1,238,924
- ------------------------------------------------------------------------------------------------------------------------
Non-interest expenses
Employee compensation and benefits 1,080,487 1,227,061 1,037,099 909,916 652,186
Other 606,488 546,912 491,602 426,533 357,237
- ------------------------------------------------------------------------------------------------------------------------
Total non-interest expenses 1,686,975 1,773,973 1,528,701 1,336,449 1,009,423
- ------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 388,082 642,799 614,398 507,625 229,501
Provision for income taxes 147,471 255,834 251,951 213,047 86,636
- ------------------------------------------------------------------------------------------------------------------------
Net income $ 240,611 $ 386,965 $ 362,447 $ 294,578 $ 142,865
========================================================================================================================
Net income applicable to common shares $ 215,474 $ 362,592 $ 355,696 $ 291,350 $ 139,028
========================================================================================================================
<CAPTION>
Financial Position
------------------
<S> <C> <C> <C> <C> <C>
Total assets $ 74,597,160 $ 67,392,018 $ 57,439,505 $ 45,768,333 $ 39,284,913
Long-term borrowings $ 4,059,944 $ 3,408,096 $ 1,883,123 $ 1,040,396 $ 681,846
Stockholders' equity $ 2,502,461(1) $ 2,316,566(1)$ 1,776,530 $ 1,276,984 $ 1,096,023
Common shares outstanding(2) 137,384,096 135,336,435 136,054,260 135,609,930 132,193,523
========================================================================================================================
<CAPTION>
Per share data
--------------
<S> <C> <C> <C> <C> <C>
Earnings per share(2),(3) $ 1.70 $ 2.75 $ 2.72 $ 2.22 $ 1.02
Cash dividends declared per common share $ .60 $ .60 $ .60 $ .65 $ .57
Book value per common share(2) $ 14.71 $ 13.57 $ 11.38 $ 9.10 $ 7.72
========================================================================================================================
<CAPTION>
Other data
----------
<S> <C> <C> <C> <C> <C>
Return on average common equity 13.5% 23.3% 28.8% 27.6% 13.6%
Profit margin(4) 18.7% 26.6% 28.7% 27.5% 18.5%
Employees 7,481 7,321 6,306 5,873 5,612
========================================================================================================================
<FN>
_______________
(1) Includes $150,000,000 of Exchangeable Preferred Income Cumulative Shares, which were issued by a subsidiary of the
Company. See note 8 of Notes to Consolidated Financial Statements.
(2) Adjusted to reflect stock dividends.
(3) See Note 1 of Notes to Consolidated Financial Statements.
(4) Represents the ratio of income before provision for income taxes to revenues, net of interest expense.
</TABLE>
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company's principal business activities, investment banking,
securities trading and brokerage, are, by their nature, highly
competitive and subject to various risks, particularly volatile
trading markets and fluctuations in the volume of market activity.
Consequently, the Company's net income and revenues have in the past
been and are likely to continue to be, subject to wide fluctuations,
reflecting the impact of many factors, including securities market
conditions, the level and volatility of interest rates, competitive
conditions and the size and timing of transactions.
BUSINESS ENVIRONMENT
Financial market conditions during fiscal 1995 were driven by
investor concerns regarding the level and direction of inflation and
interest rates. The first half of the Company's fiscal year saw the
continuation of upward interest rate movements which had negatively
affected results during the last four months of fiscal 1994. During
this period, the Federal Reserve Board raised interest rates on three
occasions, which impaired investor confidence and resulted in price
volatility and declining trading volume in the fixed income markets.
In addition, in December 1994, the government of Mexico moved to
devalue the peso, which resulted in a significant disruption in the
markets for Mexican and other Latin American debt and equity
instruments. As a result, commissions, trading and underwriting
revenues derived from the Company's fixed income activities declined,
which placed downward pressure on the Company's results of operations
during this period.
The business environment improved dramatically in the latter half
of fiscal 1995, as stock and bond markets staged significant rallies
and merger and acquisition activity accelerated. The fixed income and
equity markets began to improve in February 1995 as the Federal
Reserve Board began to lower interest rates. During the second half of
fiscal 1995, the Dow Jones Industrial Average rose 300 points and the
yield on 30-year treasury bonds dropped 150 basis points. These
changes resulted in increased investor activity causing a rise in
commissions and trading revenues. While underwriting activity
generally continued to decline from prior year levels, there was a
significant increase in merger and acquisition activity during this
period.
<PAGE>
<PAGE>
Fiscal 1994 was marked by two dramatically contrasting scenarios.
The first seven months of fiscal 1994 were characterized by continued
declining interest rates which contributed to strong domestic equity
and fixed income markets and increased underwriting activities. The
latter portion of fiscal 1994 saw significantly more instability in
the global fixed income markets due to increases in short-term
interest rates. The volatile fixed income markets also affected the
domestic equity markets with a sharp decline in equity underwriting
activity. Stock prices and average daily trading volumes decreased
due to investor concern over the outlook of the domestic economy.
International markets also weakened resulting in significantly lower
levels of new issues and trading volume.
RESULTS OF OPERATIONS
The Company reported net income of $240.6 million, or $1.70 per
share, in fiscal 1995 which represented a decrease of 37.8% from
$387.0 million, or $2.75 per share, in fiscal 1994. The Company
reported net income of $362.4 million or $2.72 per share, in fiscal
1993.
Revenues, net of interest expense ("net revenues"), declined
14.1% to $2.1 billion in fiscal 1995 from $2.4 billion in fiscal 1994,
reflecting declines in revenues from principal transactions and
investment banking, which were partially offset by increases in
revenues from commissions. Net revenues in fiscal 1993 amounted to
$2.1 billion.
Commission revenues in fiscal 1995 increased 13.2% to $546.9
million from $483.0 million in fiscal 1994. Commission revenues
derived from retail and institutional investors increased, reflecting
higher levels of activity throughout the period. Securities clearance
revenues increased reflecting higher levels of activity and the
continued growth in the Company's client base. Fiscal 1994 commission
revenues improved 14.7% from $421.1 million in fiscal 1993, reflecting
higher levels of activity.
Revenues from principal transactions in fiscal 1995 decreased
24.1% to $860.4 million from $1.1 billion in fiscal 1994, reflecting
decreases in revenues from the Company's fixed income activities as
rising interest rates and inflationary uncertainties had a negative
impact on customer activities. The decreases were partially offset by
increases in revenues derived from the Company's equity activities.
Fiscal 1994 principal transactions revenues decreased 2.0% from $1.2
billion in fiscal 1993, reflecting decreases in revenues from the
Company's fixed income activities.
<PAGE>
<PAGE>
Investment banking revenues in fiscal 1995 decreased 29.3% to
$348.9 million from $493.7 million in fiscal 1994. Underwriting
revenues, management fees and selling concessions decreased during
fiscal 1995, reflecting decreased volume of new issues of
investment-grade and non-investment-grade debt, common equity and
municipal securities. The decrease was partially offset by revenues
derived from merger & acquisition and advisory fees. Fiscal 1994
investment banking revenues increased 41.2% from $349.7 million in
fiscal 1993, principally reflecting a significant increase in
underwriting revenues and advisory fees.
Net interest and dividends (revenues from interest and net
dividends less interest expense) in fiscal 1995 increased 4.7% to
$291.0 million from $278.0 million in fiscal 1994, principally
reflecting higher levels of interest-earning assets, particularly
customer margin debt. The increase in the Company's customer margin
debt reflected both an increase in the securities clearance client
base and favorable equity market conditions. Net interest and
dividends in fiscal 1994 increased 39.2% from $199.7 million in fiscal
1993, reflecting higher levels of interest-earning assets due to
favorable equity market conditions and an increase in the securities
clearance client base.
Employee compensation and benefits in fiscal 1995 decreased 11.9%
to $1.1 billion from $1.2 billion in fiscal 1994. The decrease is
attributable to reduced incentive and discretionary bonuses associated
with the decrease in net revenues and earnings in fiscal 1995.
Employee compensation and benefits, as a percentage of net revenues,
increased to 52.1% for fiscal 1995 from 50.8% in fiscal 1994. Employee
compensation and benefits in fiscal 1994 increased 18.3% from $1.0
billion in fiscal 1993, reflecting increased discretionary and
incentive bonuses associated with higher earnings in fiscal 1994 and
an increase in salespersons' compensation.
Other non-interest expenses in fiscal 1995 increased 10.9% to
$606.5 million from $546.9 million in fiscal 1994. Floor brokerage,
exchange and clearance fees increased 10.6% in fiscal 1995, reflecting
the increase in the volume of securities transactions processed in
fiscal 1995. The balance of other non-interest expenses increased
11.0% in fiscal 1995 reflecting expansion of the Company's business
activities. Other non-interest expenses in fiscal 1994 increased 11.3%
from $491.6 million in fiscal 1993, principally attributable to
increases in communications and promotional costs.
<PAGE>
<PAGE>
The decrease in the Company's effective tax rate to 38.0% in
fiscal 1995 from 39.8% in fiscal 1994 is principally attributable to
the combination of higher levels of tax preference items and lower
levels of pretax earnings. In fiscal 1994, the effective tax rate
decreased from 41.0% in fiscal 1993 due to proportionately higher
levels of tax preference items and the Company's adoption of Statement
of Financial Accounting Standards No. 109, partially offset by the
increase in the Federal statutory rate to 35%.
During the year ended June 30, 1995, the Company adopted
Statement of Financial Accounting Standards No. 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial
Instruments." The effect of initial adoption did not have a material
impact on the Company's financial statement disclosures.
Additionally, during the year ended June 30, 1995, the Company
implemented Interpretation No. 39, "Offsetting of Amounts Related to
Certain Contracts" ("Interpretation 39"). Interpretation 39 requires
that unrealized gains and losses on swaps, forwards, options and
similar contracts be recognized as assets and liabilities,
respectively. Netting is permitted only when a legal right of setoff
exists with the same counterparty under a master netting agreement. At
June 30, 1995, total assets and liabilities increased by approximately
$162.9 million due to the implementation of Interpretation 39.
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 predominantly 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 nature
of the Company's business as a securities dealer requires it to carry
significant levels of securities inventories in order to meet its
customer and proprietary trading needs. Additionally, the Company's
role as a financial intermediary for customer activities which it
<PAGE>
<PAGE>
conducts on a principal basis, together with its customer-related
activities attributable to its clearance business, result in
significant levels of customer-related balances, including customer
margin debt and repurchase activity. Accordingly, the Company's total
assets and financial leverage can fluctuate significantly depending
largely upon economic and market conditions, volume of activity,
customer demand and underwriting commitments.
The Company's total assets at June 30, 1995 increased to $74.6
billion from $67.4 billion at June 30, 1994. The increase is primarily
attributable to the growth in financial instruments owned and
securities borrowed. The Company funded this increase with secured
borrowings (principally repurchase agreements), unsecured commercial
paper and medium-term notes and an increase in the Company's capital,
including long-term borrowings and stockholders' equity.
The Company's ability to support increases in total assets is a
function of its ability to obtain short-term secured and unsecured
funding and its access to sources of long-term capital. The Company
continuously monitors the adequacy of its capital base which is a
function of asset quality and liquidity. 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 or liquidity require higher margin levels, and consequently
increased levels of required capital, in order to obtain secured
financing. The level of customer receivables and proprietary
inventories the Company can maintain, within Bear, Stearns Securities
Corp. ("BSSC"), is also limited by Securities and Exchange Commission
Rule 15c3-1 (the "Net Capital Rule"). 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
<PAGE>
<PAGE>
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 during fiscal 1995 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 the underlying assets. The
objective of the strategy is to maintain sufficient sources of
alternative funding to enable the Company to fund debt obligations
maturing within one year without issuing any new unsecured debt,
including commercial paper. The most significant source of alternative
funding is the Company's ability to hypothecate or pledge its
unencumbered assets as collateral for short-term funding.
As part of the Company's alternative 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. A key factor in this analysis is
determining for each asset category the level of
overcollateralization, or margin, that may be required by a lender in
providing secured financing in accordance with legal and regulatory
guidelines and market practice. The next component of the analysis is
the determination of the estimated length of time that would be
required to convert the asset into cash based upon the depth of the
market in which the asset is traded versus the size of the position,
assuming conventional settlement periods. For each class of asset, the
Company categorizes the margin requirement by maturity from overnight
to in excess of one year. The Company attempts to match the schedule
of its liabilities with its prospective funding needs in terms of
timing and amount.
Through the use of this analysis, the Company can continuously
evaluate the adequacy of its equity base and the schedule of maturing
term-debt supporting its present asset levels. The Company can then
seek to adjust its maturity schedule, as necessary, in light of market
conditions and funding alternatives.
<PAGE>
<PAGE>
As part of the Company's alternative funding strategy, the
Company maintains 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"), 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 agreement provides for defined margin levels on a wide
range of eligible financial instruments which may be pledged under the
secured portion of the facility. There were no borrowings outstanding
under this facility at June 30, 1995.
CAPITAL RESOURCES
The Company conducts a substantial portion of 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 fiscal 1995, the Company expanded its long-term borrowing
base to $4.1 billion through the issuance of $1.0 billion of long-term
debt, which along with the growth in retained earnings, increased
total capital to $6.6 billion. The increases in the Company's
long-term borrowings and equity capital base reflect both the
availability of long-term financing opportunities and growth in the
Company's balance sheet and liquidity needs.
At June 30, 1995, the Company's long-term debt ratings were as
follows:
----------------------------------------------------------
Moody's Investors Services A2
Standard & Poor's Rating Group A
IBCA, Ltd. A+
Thomson BankWatch AA-
----------------------------------------------------------<PAGE>
<PAGE>
The Company's Capital Accumulation Plan for Senior Managing
Directors (the "CAP Plan") allows participants to defer portions of
their annual compensation and ultimately to receive shares of the
Company's Common Stock in satisfaction thereof. In connection with the
CAP Plan, the Company repurchased a total of 4,293,726 shares of
Common Stock through open market transactions at a cost of
approximately $73.1 million during the fiscal year ended June 30,
1995. Repurchases of Common Stock pursuant to the CAP Plan were not
made pursuant to the Company's Stock Repurchase Program authorized by
the Board of Directors and were not included in calculating the
maximum aggregate number of shares of Common Stock that the Company
may repurchase under the Stock Repurchase Program. The Company
intends, subject to market conditions, to continue to purchase in
future periods a sufficient number of shares of Common Stock in the
open market to enable the Company to issue shares in respect of all
compensation deferred and any additional amounts allocated to
participants under the CAP Plan.
CASH FLOWS
Cash and cash equivalents increased to $700.5 million at the end
of fiscal 1995 from $294.6 million at the end of fiscal 1994, an
increase of $405.9 million. Fiscal 1994 year-end cash and cash
equivalents decreased $23.3 million from $317.9 million at the end of
fiscal 1993. Cash provided from financing activities was primarily
used to support the growth in operating activities in each of the
three fiscal years.
Cash used in operating activities in fiscal 1995 was $823.1
million. The usage was primarily attributable to increases in
financial instruments owned of $7.1 billion and securities borrowed of
$3.6 billion, partially offset by increases in financial instruments
sold, but not yet purchased of $2.9 billion and in securities sold
under agreements to repurchase of $2.7 billion and decreases in cash
and securities deposited with clearing organizations or segregated in
compliance with Federal regulations of $1.7 billion and customer
receivables of $1.3 billion.
Cash used in operating activities in fiscal 1994 was $3.4 billion
and was primarily attributable to increases in securities borrowed of
$4.4 billion, customer receivables of $2.3 billion and securities
purchased under agreements to resell of $3.5 billion. These were
offset by an increase in customer payables of $3.3 billion and
securities sold under agreements to repurchase of $4.8 billion.
<PAGE>
<PAGE>
Cash used in operating activities in fiscal 1993 was $3.1 billion
and was primarily attributable to increases in securities borrowed of
$7.0 billion, financial instruments owned of $3.0 billion and customer
receivables of $1.2 billion, partially offset by increases in customer
payables of $3.6 billion, securities sold under agreements to
repurchase of $2.7 billion and financial instruments sold, but not yet
purchased of $2.8 billion.
Cash provided by financing activities in each of the three fiscal
years ended June 30, 1995, 1994 and 1993 was primarily attributable to
increased net borrowings which were used to support the Company's
growth over the same periods while taking advantage of favorable
long-term financing opportunities.
Investing activities in fiscal 1995 used $69.2 million of cash
primarily for purchases of $100.3 million of property, equipment and
leasehold improvements, partially offset by proceeds from the sale of
investment securities and other assets of $32.3 million.
Investing activities in fiscal 1994 used $66.1 million in cash,
primarily for purchases of $80.9 million of property, equipment and
leasehold improvements and $17.2 million of investment securities and
other assets, partially offset by proceeds from the sale of investment
securities and other assets of $31.9 million.
Investing activities in fiscal 1993 provided $48.2 million. Cash
of $113.5 million was provided by the proceeds from the sale of
investment securities and other assets partially offset by the
purchase of investment securities and other assets of $11.0 million.
Cash of $54.2 million was used for the purchase of property, equipment
and leasehold improvements.
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.
<PAGE>
<PAGE>
Additionally, BSIL and BSIT, London-based broker-dealer
subsidiaries, are subject to the regulatory capital requirements of
the Securities and Futures Authority, a self-regulatory organization
established pursuant to the United Kingdom Financial Services Act of
1986. BSIL and BSIT have consistently operated in compliance with
these capital adequacy requirements.
MERCHANT BANKING AND HIGH YIELD SECURITIES
As part of the Company's merchant banking activities, it
participates from time to time in principal investments in leveraged
acquisitions. As part of these activities, the Company originates,
structures and invests in merger, acquisition, restructuring and
leveraged capital transactions, including leveraged buyouts. The
Company's principal investments in these transactions are generally
made in the form of equity investments or subordinated loans and have
not required significant levels of capital investment. At June 30,
1995, the Company held direct equity investments in 13 leveraged
transactions with an aggregate carrying value of approximately $48.6
million. The Company did not make any significant direct investments
in leveraged acquisitions during fiscal 1995.
As part of the Company's fixed income securities activities, the
Company participates in the trading and sale of high yield,
non-investment-grade debt securities, non-investment-grade mortgage
loans (including real estate owned) and the securities of companies
that are the subject of pending bankruptcy proceedings (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. At June 30,
1995 and 1994, respectively, the Company held in inventory
approximately $2.0 billion and $1.6 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>
<PAGE>
DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments represent contractual
commitments between counterparties which derive their value from
changes in the underlying interest rate, currency exchange rate, index
(eg. S&P 500), reference rate (eg. LIBOR) or asset value referenced in
the related contract. Some derivatives, such as futures contracts,
certain options and indexed referenced warrants can be traded on an
exchange. Other derivatives, such as interest rate and currency swaps,
caps, collars, swaptions, equity derivatives, structured notes, floors
and forward contracts are negotiated in the over-the-counter markets.
Derivatives generate both on- and off-balance sheet considerations
depending on the nature of the contract.
The Company is engaged as a dealer in over-the-counter
derivatives and, accordingly, enters into transactions involving
derivative instruments as part of its customer-related and proprietary
trading activities. The Company's dealer activities require it to make
markets and trade a variety of derivative instruments. In connection
with these activities, the Company attempts to mitigate its exposure
to market risk by entering into essentially offsetting hedging
transactions which may include over-the-counter derivative contracts
or the purchase or sale of interest-bearing securities, equity
securities, financial futures and forward contracts. The Company also
utilizes derivative instruments in order to hedge proprietary
market-making and trading activities. In this regard, the utilization
of derivative instruments is designed to reduce or mitigate market
risks associated with holding dealer inventories or in connection with
arbitrage related trading activities. The Company also utilizes
interest rate and currency swaps to hedge its fixed rate debt
issuances as part of its asset and liability management.
The aggregate notional/contract value of derivative contracts is
a reflection of the level of activity and does not represent the
amounts that are recorded in the Consolidated Statements of Financial
Condition. As of June 30, 1995 and 1994, respectively, the Company had
notional/contract amounts of $127.8 billion and $96.5 billion of
derivative financial instruments, of which $17.3 billion and $24.4
billion were listed futures and option contracts. The Company's
derivative financial instruments, which are used to either hedge
trading positions or are part of its derivative dealer activities, are
marked to fair value. The unrealized gains or losses are recorded in
the Consolidated Financial Statements. Unrealized gains and losses on
derivative financial instruments used to hedge the Company's long-term
debt
<PAGE>
<PAGE>
issuances are deferred and related income and expense is recorded on
an accrual basis together with the interest expense incurred on the
underlying debt instrument. The Company hedges its long-term debt
issuances principally by converting fixed rate instruments to floating
rate debt, generally based on LIBOR, using interest rate swaps. This
strategy allows the Company to manage interest rate exposure on its
assets and liabilities and has enabled the Company to reduce its
interest expense by $21.1 million, $54.4 million and $38.5 million
during fiscal 1995, 1994 and 1993, respectively.
Fair value on exchange traded derivative financial instruments is
based upon quoted market values, while over-the-counter derivative
financial instruments are generally valued at mid-market based upon
dealer price quotations and valuation pricing models. Valuation
pricing models consider time value and volatility factors underlying
each of the financial instruments, as well as other relevant economic
factors such as market, credit, and liquidity risk.
Exposures to market risk arising from derivative financial
instruments are often similar to the market risks of cash securities.
The Company actively manages its market risk profile through the use
of pricing and risk management models. These techniques include
projecting the effects of potential changes, such as the level, or
volatility, of interest and foreign exchange rates or equity prices,
on the Company's derivative portfolio in order to measure market risk
sensitivity.
Credit risk from derivative financial instruments arises from the
potential failure of counterparties to perform in accordance with the
terms of their contracts. The Company's exposure to credit risk
associated with counterparty non-performance is measured by the
current replacement cost of derivative contracts in a gain position,
net of any related collateral held. The Company attempts to control
its exposure to credit risk arising from derivatives by adhering to an
established credit approval process including the establishment of
credit limits and the use of credit enhancement techniques. Such
techniques include the requirement to post collateral to secure
replacement cost exposures or, in the event of a counterparty being
downgraded, the requirement to post additional collateral or to
terminate the contract. The Company also attempts to obtain master
netting agreements which provide protection in the event of
counterparty default by allowing for the net settlement of open
obligations. Credit exposures are monitored on a daily basis and are
analyzed to verify that
<PAGE>
<PAGE>
current and potential credit exposures are within prescribed limits.
For further discussion of the Company's derivative activities and the
associated risks, see Note 11 to the Consolidated Financial
Statements.
RISK MANAGEMENT
The Company's exposure to market risk is directly related to its
role as a financial intermediary in customer-related transactions and
to its proprietary trading and arbitrage activities. As a financial
intermediary, the Company often acts as principal in customer-related
transactions in financial instruments which exposes the Company to the
risk of market price movements. The Company seeks to manage this risk
by entering into hedging transactions designed to offset the market
risk the Company has taken for its customers.
The Company also engages in proprietary trading and arbitrage
activities. The Company makes dealer markets in investment-grade
corporate debt and equity securities, non-investment-grade corporate
debt securities, US government and agency securities, mortgages and
mortgage-backed securities and municipal bonds. In connection
therewith, the Company may be required to maintain significant
inventories in order to ensure availability and facilitate customer
order flow. The Company attempts to hedge its exposure to market risk
with respect to its dealer inventories by entering into essentially
offsetting transactions, including options, futures and forward
contracts, designed to reduce or mitigate the Company's market risk
profile. Additionally, the Company marks to market its securities
inventories daily and regularly monitors the aging of inventory
positions.
The Company's arbitrage activities are designed to take advantage
of market price discrepancies between securities trading in different
markets or between related products or derivative securities.
Arbitrage activities involve maintaining offsetting positions in other
financial instruments. In many instances, the Company may be required
to purchase or sell derivative financial instruments as part of the
arbitrage of a cash market security. These transactions may involve
forward settling transactions such as forwards or futures, where the
objective may be to capture differences in the time value of money, or
option transactions, which seek to capture differences between the
expected and actual volatility of the underlying instrument.
<PAGE>
<PAGE>
In addition to those specific methods discussed above, the
Company takes other risk management measures. These measures include
daily profit and loss statements, position reports and weekly meetings
of Bear Stearns' Risk Committee composed of Senior Managing Directors
of the various trading departments and chaired by Alan C. Greenberg,
Chairman of the Board of the Company and of Bear Stearns. In addition,
the Company's Risk Management Department together with departmental
management, consisting principally of Senior Managing Directors who
have day-to-day responsibility for management oversight, review the
age and composition of their departments' proprietary accounts and the
profits and losses of each portfolio on a daily basis in order to
ensure that trading strategies are being adhered to within acceptable
risk parameters. Additionally, trading department management reports
positions, profits and losses and trading strategies to the Risk
Committee on a weekly basis. The Company utilizes highly automated
analytical systems in order to monitor the Company's risk profile and
enhance management oversight.
Bear Stearns' Credit Policy Committee and its subcommittee, the
Global Credit Committee, establishes and reviews appropriate credit
limits for institutional customers. The Credit Policy Committee is
composed of primarily Senior Managing Directors who are generally
management personnel not involved in the operations of the departments
seeking credit approval for customers. The Credit Policy Committee
generally meets once a week and establishes policies and guidelines,
which the Global Credit Committee enforces by setting credit limits
and by monitoring exposure for customers seeking repurchase and resale
agreement facilities, derivative financial instruments and other forms
of secured and unsecured credit, including derivative contracts.
EFFECTS OF INFLATION
Since the Company's assets are primarily recorded at their
current market value, they are not significantly affected by
inflation. However, the rate of inflation affects the Company's
expenses, such as employee compensation, office leasing costs and
communications charges, which may not be readily recoverable in the
price of services offered by the Company. To the extent inflation
results in rising interest rates and has other effects upon the
securities markets and on the value of securities held in inventory,
it may adversely affect the Company's financial position and results
of operations.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
The Bear Stearns Companies Inc.
Consolidated Statements of Income
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
In thousands, except share data June 30, 1995 June 30, 1994 June 30, 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Commissions $ 546,939 $ 482,988 $ 421,090
Principal transactions 860,366 1,134,008 1,156,816
Investment banking 348,886 493,739 349,736
Interest and dividends 1,969,506 1,301,864 909,809
Other income 27,875 28,039 15,734
- -----------------------------------------------------------------------------------------------------------------------------
Total revenues 3,753,572 3,440,638 2,853,185
Interest expense 1,678,515 1,023,866 710,086
- -----------------------------------------------------------------------------------------------------------------------------
Revenues, net of interest expense 2,075,057 2,416,772 2,143,099
- -----------------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSES
Employee compensation and benefits 1,080,487 1,227,061 1,037,099
Floor brokerage, exchange and clearance fees 109,040 98,592 85,693
Communications 85,711 75,406 59,705
Occupancy 83,247 76,317 69,818
Depreciation and amortization 59,274 47,984 41,234
Advertising and market development 57,036 52,693 43,718
Data processing and equipment 33,650 27,404 27,051
Other expenses 178,530 168,516 164,383
- -----------------------------------------------------------------------------------------------------------------------------
Total non-interest expenses 1,686,975 1,773,973 1,528,701
- -----------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 388,082 642,799 614,398
Provision for income taxes 147,471 255,834 251,951
- -----------------------------------------------------------------------------------------------------------------------------
Net income $ 240,611 $ 386,965 $ 362,447
=============================================================================================================================
Net income applicable to common shares $ 215,474 $ 362,592 $ 355,696
=============================================================================================================================
Earnings per share $ 1.70 $ 2.75 $ 2.72
=============================================================================================================================
Weighted average common and
common equivalent shares outstanding 134,019,032 134,453,847 132,087,763
=============================================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
The Bear Stearns Companies Inc.
Consolidated Statements of Financial Condition
In thousands, except share data June 30, 1995 June 30, 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 700,501 $ 294,604
Cash and securities deposited with clearing organizations
or segregated in compliance with Federal regulations 1,309,573 2,989,948
Securities purchased under agreements to resell 18,940,744 19,515,764
Securities borrowed 24,632,088 21,073,208
Receivables
Customers 5,993,772 7,266,609
Brokers, dealers and others 578,676 980,452
Interest and dividends 227,069 178,123
Financial instruments owned-at fair value 21,509,498 14,443,918
Property, equipment and leasehold improvements,
net of accumulated depreciation and amortization of
$214,398 and $170,020 in 1995 and 1994, respectively 312,867 271,807
Other assets 392,372 377,585
----------------------------------------------------------------------------------------------------------
Total Assets $74,597,160 $67,392,018
==========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings $ 8,570,777 $ 7,860,311
Securities sold under agreements to repurchase 29,584,724 26,863,122
Payables
Customers 16,236,611 16,387,932
Brokers, dealers and others 1,167,311 834,090
Interest and dividends 311,101 287,326
Financial instruments sold, but not yet purchased-at fair value 11,241,118 8,351,258
Accrued employee compensation and benefits 469,189 593,742
Other liabilities and accrued expenses 453,924 489,575
----------------------------------------------------------------------------------------------------------
68,034,755 61,667,356
----------------------------------------------------------------------------------------------------------
Commitments and contingencies
Long-term borrowings 4,059,944 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;
152,202,724 shares and 144,965,094 shares issued in
1995 and 1994, respectively 152,203 144,965
Paid-in capital 1,557,237 1,447,066
Retained earnings 430,330 388,685
Capital Accumulation Plan 344,338 275,415
Treasury stock, at cost-
Preferred Stock; 2,118,550 shares in 1995 and 1994 (85,507) (85,507)
Common Stock; 34,866,529 and 31,525,939
shares in 1995 and 1994, respectively (458,193) (410,882)
Note receivable from ESOP Trust (25,447) (30,676)
-----------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 2,352,461 2,166,566
-----------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $74,597,160 $67,392,018
===========================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
The Bear Stearns Companies Inc.
Consolidated Statements of Cash Flows
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
In thousands June 30, 1995 June 30, 1994 June 30, 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 240,611 $ 386,965 $ 362,447
Adjustments to reconcile net income to cash used in
operating activities:
Depreciation and amortization 59,274 47,984 41,234
Deferred income taxes (11,488) (63,381) 5,528
Other 28,351 (9,414) (6,723)
(Increases) decreases in operating receivables:
Securities borrowed (3,558,880) (4,351,804) (7,030,538)
Brokers, dealers and others 401,776 35,616 (452,640)
Customers 1,272,837 (2,312,205) (1,206,310)
Other (65,253) (85,730) 83,933
Increases (decreases) in operating payables:
Brokers, dealers and others 330,678 (1,324,645) (1,195,763)
Customers (151,321) 3,349,552 3,565,820
Other 23,775 109,378 (70,067)
(Increases) decreases in:
Cash and securities deposited with clearing organizations
or segregated in compliance with Federal regulations 1,680,375 (697,956) (132,653)
Securities purchased under agreements to resell 575,020 (3,477,107) 251,311
Financial instruments owned (7,065,580) 795,307 (3,033,106)
Other assets (20,605) 165,322 (30,498)
Increases (decreases) in:
Securities sold under agreements to repurchase 2,721,602 4,804,768 2,740,390
Financial instruments sold, but not yet purchased 2,889,860 (622,581) 2,806,958
Accrued employee compensation and benefits (146,346) 108,491 34,353
Other liabilities and accrued expenses (27,739) (227,934) 150,227
-----------------------------------------------------------------------------------------------------------------------
Cash used in operating activities (823,053) (3,369,374) (3,116,097)
-----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of Cumulative Preferred Stock 96,689 181,307
Net proceeds from issuance of Preferred Stock by subsidiary 145,000
Net proceeds from short-term borrowings 710,466 1,741,417 2,302,560
Issuance of long-term borrowings 1,040,090 1,795,979 840,347
Capital Accumulation Plan 68,923 137,084 138,331
Other Common Stock transactions 36,725 3,733 2,577
Note repayment from ESOP trust 5,229 4,841 4,483
Payments for:
Retirement of Senior Notes (400,300) (273,000)
Retirement of Subordinated Notes (1,000) (1,000)
Treasury Stock purchases (70,373) (147,763) (140,504)
Cash dividends paid (92,642) (90,769) (66,425)
------------------------------------------------------------------------------------------------------------------------
Cash provided by financing activities 1,298,118 3,412,211 3,261,676
------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, equipment and leasehold improvements (100,334) (80,855) (54,202)
Purchases of investment securities and other assets (1,172) (17,192) (11,030)
Proceeds from sale of investment securities and other assets 32,338 31,928 113,451
-----------------------------------------------------------------------------------------------------------------------
Cash (used in) provided by investing activities (69,168) (66,119) 48,219
-----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 405,897 (23,282) 193,798
Cash and cash equivalents, beginning of year 294,604 317,886 124,088
-----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 700,501 $ 294,604 $ 317,886
=======================================================================================================================
<FN>
Non-cash financing activities totaled $2,250, $1,947 and $2,846 for the years ended June 30, 1995, 1994 and 1993,
respectively.
See Notes to Consolidated Financial Statements.
/TABLE
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
The Bear Stearns Companies Inc.
Consolidated Statements of Changes in Stockholders' Equity
Treasury Stock
--------------------
Adjustable
Adjustable Rate
Rate Cumulative
Cumulative Cumulative Cumulative Preferred
Preferred Preferred Preferred Stock
Stock, Stock, Stock, Common Capital Series Common Note
Series A-$50 Series B-$200 Series C-$200 Stock Accumu- A-$50 Stock Receivable
In thousands, Liquidation Liquidation Liquidation $1 Par Paid-In Retained lation Liquidation $1 Par from ESOP
except share data Preference Preference Preference Value Capital Earnings Plan Preference Value Trust
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June
30, 1992 $150,000 $ $ $125,255 $1,138,386 $113,467 $137,503 $(85,063) $(262,564) $(40,000)
Net income 362,447
Cash
dividends
declared -
Common
($0.60 per
share) (62,625)
Preferred (7,225)
Issuance of
Cumulative
Preferred
Stock,
Series B 187,500 (6,193)
Purchase of
treasury stock -
Adjustable
Rate
Cumulative
Preferred Stock,
Series A
(10,000 shares) (444)
Common Stock
(8,882,232
shares) (135,307)
Common Stock
issued out
of treasury
(10,210,238
shares) 9,621 (137,503) 134,116
Income tax
benefits
attributable
to Common Stock
issued out of
treasury 12,345
5% stock
dividend
(6,252,011
shares) 6,252 71,398 (77,650)
Note repayment
from ESOP
Trust 4,483
Allocations
under Capital
Accumulation
Plan 138,331
- -----------------------------------------------------------------------------------------------------------------------------
Balance, June
30, 1993 $150,000 $187,500 $ $131,507 $1,225,557 $328,414 $138,331 $(85,507) $(263,755) $(35,517)
=============================================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
/TABLE
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
The Bear Stearns Companies Inc.
Consolidated Statements of Changes in Stockholders' Equity
Treasury Stock
--------------------
Adjustable
Adjustable Rate
Rate Cumulative
Cumulative Cumulative Cumulative Preferred
Preferred Preferred Preferred Stock
Stock, Stock, Stock, Common Capital Series Common Note
Series A-$50 Series B-$200 Series C-$200 Stock Accumu- A-$50 Stock Receivable
In thousands, Liquidation Liquidation Liquidation $1 Par Paid-In Retained lation Liquidation $1 Par from ESOP
except share data Preference Preference Preference Value Capital Earnings Plan Preference Value Trust
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June
30, 1993 $150,000 $187,500 $ $131,507 $1,225,557 $328,414 $138,331 $(85,507) $(263,755) $(35,517)
Net income 386,965
Cash
dividends
declared -
Common
($0.60 per
share) (67,150)
Preferred (24,667)
Issuance of
Cumulative
Preferred
Stock,
Series C 100,000 (3,311)
Purchase of
treasury
stock -
Common Stock
(7,477,587
shares) (149,710)
Common Stock
issued out
of treasury
(416,769
shares) 1,150 2,583
Income tax
benefits
attributable
to Common Stock
issued out of
treasury 2,251
5% stock
dividends
(13,457,916
shares) 13,458 221,419 (234,877)
Note repayment
from ESOP
Trust 4,841
Allocations
under Capital
Accumulation
Plan 137,084
- -----------------------------------------------------------------------------------------------------------------------------
Balance, June
30, 1994 $150,000 $187,500 $100,000 $144,965 $1,447,066 $388,685 $275,415 $(85,507) $(410,882) $(30,676)
=============================================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
The Bear Stearns Companies Inc.
Consolidated Statements of Changes in Stockholders' Equity
Treasury Stock
--------------------
Adjustable
Adjustable Rate
Rate Cumulative
Cumulative Cumulative Cumulative Preferred
Preferred Preferred Preferred Stock
Stock, Stock, Stock, Common Capital Series Common Note
Series A-$50 Series B-$200 Series C-$200 Stock Accumu- A-$50 Stock Receivable
In thousands, Liquidation Liquidation Liquidation $1 Par Paid-In Retained lation Liquidation $1 Par from ESOP
except share data Preference Preference Preference Value Capital Earnings Plan Preference Value Trust
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June
30, 1994 $150,000 $187,500 $100,000 $144,965 $1,447,066 $388,685 $275,415 $(85,507) $(410,882) $(30,676)
Net income 240,611
Cash
dividends
declared -
Common
($0.60 per
share) (67,475)
Preferred (25,137)
Purchase of
treasury
stock -
Common Stock
(4,293,726
shares) (72,915)
Common Stock
issued out
of treasury
(2,561,732
shares) 6,475 (18,637) 25,604
Income tax
benefits
attributable
to Common Stock
issued out of
treasury 4,674
5% stock
dividend
(7,237,630
shares) 7,238 99,022 (106,354)
Note repayment
from ESOP
Trust 5,229
Allocations
under Capital
Accumulation
Plan 87,560
- -----------------------------------------------------------------------------------------------------------------------------
Balance, June
30, 1995 $150,000 $187,500 $100,000 $152,203 $1,557,237 $430,330 $344,338 $(85,507) $(458,193) $(25,447)
=============================================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of The
Bear Stearns Companies Inc. and its subsidiaries (the "Company"). All
material intercompany transactions and balances have been eliminated.
Certain prior year amounts have been reclassified to conform with the
current year's presentation or restated for the effects of stock
dividends.
The Company, through its principal subsidiaries, Bear, Stearns &
Co. Inc. ("Bear Stearns"), Bear, Stearns Securities Corp. ("BSSC") and
Bear, Stearns International Limited ("BSIL"), is primarily engaged in
a single line of business as a securities broker and dealer, which
comprises several classes of services, such as principal transactions,
agency transactions and underwriting and investment banking.
FINANCIAL INSTRUMENTS
Proprietary securities and commodities transactions, commission
revenues and related expenses are recorded on a trade date basis.
Financial instruments owned and financial instruments sold, but not
yet purchased, including contractual commitments arising pursuant to
futures, forward and option contracts, interest rate swaps and other
derivative contracts are recorded at fair value with the resulting net
unrealized gains and losses reflected in net income.
Fair value is generally based on quoted market prices. If quoted
market prices are not available, or if liquidating the Company's
position is reasonably expected to impact market prices, fair value is
determined based on other relevant factors, including dealer price
quotations, price activity for equivalent instruments and valuation
pricing models. Valuation pricing models consider time value and
volatility factors underlying financial instruments as well as other
relevant economic measurements.
Equity securities acquired as a result of leveraged acquisition
transactions are reflected in the financial statements at their
initial cost until such time as significant transactions or
developments indicate that a change in the carrying value of the
securities is appropriate. Generally the carrying values of these
securities will be increased only in those instances where market
values are readily ascertainable by reference to substantial
transactions occurring in the
NYFS04...:\25\22625\0110\2322\EXH9195W.09C
<PAGE>
<PAGE>
marketplace. Reductions to the carrying value of these securities are
made in the event that the Company's estimate of net realizable value
has declined below the carrying value.
SECURITIES TRANSACTIONS
Customer transactions are recorded on a settlement date basis,
which is generally three business days after trade date, while the
related commission revenues and expenses are recorded on a trade date
basis.
COLLATERALIZED SECURITIES TRANSACTIONS
Transactions involving purchases of securities under agreements
to resell ("reverse repurchase agreements") or sales of securities
under agreements to repurchase ("repurchase agreements") are treated
as collateralized financing transactions and are recorded at their
contracted resale or repurchase amounts plus accrued interest. It is
the Company's policy to take possession of securities with a market
value in excess of the principal amount loaned plus accrued interest
in order to collateralize reverse repurchase agreements. Similarly,
the Company is required to provide securities to counterparties in
order to collateralize repurchase agreements. The Company's
agreements with counterparties generally contain contractual
provisions to allow for additional collateral to be obtained, or
excess collateral returned, when necessary. It is the Company's
policy to value collateral daily and to obtain additional collateral
or retrieve excess collateral from counterparties where deemed
appropriate.
Securities borrowed and securities loaned are recorded at the
amount of cash collateral advanced or received. Securities borrowed
transactions require the Company to deposit cash, letters of credit or
other collateral with the lender. With respect to securities loaned,
the Company receives collateral in the form of cash or other
collateral. The amount of collateral required to be deposited for
securities borrowed or received for securities loaned is an amount
generally in excess of the market value of the applicable securities
borrowed or loaned. The Company monitors the market value of
securities borrowed and loaned on a daily basis, with additional
collateral obtained or refunded as necessary.
FIXED ASSETS
Depreciation of property and equipment is provided by the Company
on a straight-line basis over the estimated useful life
<PAGE>
<PAGE>
of the asset. Amortization of leasehold improvements is provided on a
straight-line basis over the lesser of the respective estimated useful
life of the asset or the remaining life of the lease.
TRANSLATION OF FOREIGN CURRENCIES
Assets and liabilities denominated in foreign currencies are
translated at year-end rates of exchange, while income statement items
are translated at average rates of exchange for the year. Gains or
losses resulting from foreign currency transactions are included in
net income.
INCOME TAXES
The Company and certain of its wholly owned subsidiaries file a
consolidated Federal income tax return. During the quarter ended
September 24, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). Under SFAS 109, deferred income taxes are provided based upon
the net tax effects of temporary differences between the financial
reporting and tax bases of assets and liabilities. In addition,
deferred income taxes are determined using the enacted tax rates and
laws which will be in effect when the related temporary differences
are expected to be reversed.
EARNINGS PER SHARE
Earnings per share is based upon net income applicable to common
shares and the weighted average number of shares of Common Stock and
common stock equivalents outstanding during each period presented.
Common stock equivalents include the assumed distribution of shares of
Common Stock issuable under certain of the Company's deferred
compensation arrangements with appropriate adjustments made to net
income for earnings accruals related thereto. Additionally, shares of
Common Stock issued or issuable under various employee benefit plans
are included as common stock equivalents.
STATEMENT OF CASH FLOWS
For purposes of the Consolidated Statements of Cash Flows, the
Company has defined cash equivalents as liquid investments not held
for sale in the ordinary course of business with original maturities
of three months or less. Cash payments for interest approximated
interest expense for the years ended June 30, 1995, 1994 and 1993.
Income taxes paid totaled $125.6 million, $276.6 million and
$223.6 million for the fiscal years ended June 30, 1995, 1994
and 1993, respectively.
<PAGE>
<PAGE>
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
--------------------------------------
Statement of Financial Accounting Standards No. 107, "Disclosures
about Fair Value of Financial Instruments" requires the Company to
report the fair value of financial instruments, as defined.
Approximately 99.1% of the Company's assets and 99.4% of the Company's
liabilities are carried at fair value or contracted amounts which
approximate fair value.
Financial instruments owned and financial instruments sold, but
not yet purchased are carried at fair value. Assets which are
recorded at contracted amounts approximating fair value consist
largely of short-term secured receivables, and include reverse
repurchase agreements, securities borrowed, and certain other
receivables. Similarly, the Company's short-term liabilities pursuant
to bank loans, commercial paper, medium-term notes, repurchase
agreements, securities loaned and certain other payables are recorded
at contracted amounts approximating fair value. These instruments
generally have variable interest rates or short-term maturities, in
many cases overnight, and, accordingly, are not materially affected by
changes in interest rates.
The estimated market value of the Company's long-term borrowings,
based upon market rates of interest available to the Company at June
30, 1995 for debt obligations of similar maturity, is approximately
$4.1 billion, which exceeds the aggregate carrying value by
approximately $35.3 million. However, the Company enters into
interest rate swaps and other transactions designed to either convert
its fixed rate debt into floating rates or otherwise hedge its
exposure to interest rate movements. Accordingly, unrecognized gains
on interest rate swaps and other transactions hedging the Company's
long-term borrowings substantially offset the effect of changes in
interest rates on the fair value of the Company's long-term
borrowings. For discussion of the Company's financial instruments
with off-balance-sheet risk see Note 11.
<PAGE>
<PAGE>
3. 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:
<TABLE>
<CAPTION>
IN THOUSANDS JUNE 30, 1995 JUNE 30, 1994
----------------------------------------------------------------------------
<S> <C> <C>
FINANCIAL INSTRUMENTS OWNED:
United States government and agency $ 8,688,713 $ 3,674,261
Non-US government 1,256,859 495,645
State and municipal 100,224 162,487
Corporate equity and convertible debt 5,235,219 4,295,161
Corporate debt 2,723,564 2,065,930
Derivative financial instruments 1,223,258 989,385
Mortgages and other mortgage-
backed securities 1,771,735 1,964,036
Other 509,926 797,013
-------------------------------------------------------------------------
$21,509,498 $14,443,918
=========================================================================
<CAPTION>
FINANCIAL INSTRUMENTS SOLD, BUT
NOT YET PURCHASED:
<S> <C> <C>
United States government and agency $ 6,111,612 $ 3,307,797
Non-US government 765,230 484,062
Corporate equity 2,424,455 3,216,645
Corporate debt 781,792 767,629
Derivative financial instruments 1,155,527 527,379
Other 2,502 47,746
-------------------------------------------------------------------------
$11,241,118 $ 8,351,258
=========================================================================
</TABLE>
Financial instruments sold, but not yet purchased represent
obligations of the Company to deliver the specified financial
instrument at the contracted price, and thereby create a liability to
repurchase the financial instrument in the market at prevailing
prices. Accordingly, these transactions result in off-balance-sheet
risk as the Company's ultimate obligation to satisfy the sale of
financial instruments sold, but not yet
<PAGE>
<PAGE>
purchased may exceed the amount recognized in the Consolidated
Statements of Financial Condition.
4. SHORT-TERM FINANCING
-----------------------
The Company's short-term financing is generally obtained on a
secured basis through the use of repurchase agreements and securities
lending arrangements. Additionally, the Company obtains short-term
financing on an unsecured basis through the issuance of commercial
paper, medium-term notes and bank loans. Repurchase agreements are
collateralized principally by US government and agency securities.
Securities lending arrangements are typically secured by corporate
equity and debt securities, utilizing both securities owned by the
Company and customers' securities. The interest rates on such
short-term borrowings reflect money market rates of interest at the
time of the transactions.
Short-term borrowings at June 30, 1995 and 1994, include $3.9
billion and $3.7 billion, respectively, of borrowings made under the
Company's commercial paper programs. During the years ended June 30,
1995 and 1994, the weighted average interest rates on such borrowings
were 5.38% and 3.46%, respectively.
At both June 30, 1995 and 1994, the Company had outstanding $3.9
billion principal amount of Medium-Term Notes maturing from nine to
eighteen months from the date of issue. The Medium-Term Notes
generally bear interest at variable rates based upon the London
Interbank Offered Rate ("LIBOR"). During the years ended June 30,
1995 and 1994, the weighted average interest rates
on the Medium-Term Notes were 5.64% and 3.65%, respectively.
5. LONG-TERM BORROWINGS
-----------------------
Long-term borrowings at June 30 consist of the following:
<TABLE>
<CAPTION>
IN THOUSANDS 1995 1994
------------------------------------------------------------------------------
<S> <C> <C>
THE BEAR STEARNS COMPANIES INC.
Floating Rate Notes due 1995 to 2030 $ 865,148 $ 895,000
Fixed-Rate Senior Notes due 1996 to 2004;
interest rates ranging from
5 7\8% to 9 3\8% 1,946,232 1,596,510
Medium-Term Notes & Other 1,248,564 916,586
------------------------------------------------------------------------------
$4,059,944 $3,408,096
==============================================================================
</TABLE>
<PAGE>
<PAGE>
The Floating Rate Notes are unsecured and bear interest at
rates primarily related to LIBOR. For those Floating Rate Notes which
are not based upon LIBOR, the Company has entered into interest rate
swaps and certain other transactions in order to convert them into
floating rates based upon LIBOR. During the years ended June 30, 1995
and 1994, the weighted average effective interest rates on the
Floating Rate Notes were 6.00% and 3.96%, respectively. The weighted
average effective interest rates on the Floating Rate Notes at June
30, 1995 and 1994 were 6.43% and 4.83%, respectively.
The Company has entered into interest rate swaps and certain
other transactions in order to convert its fixed-rate Senior Notes
into floating rates based upon LIBOR. The weighted average effective
interest rates on the Company's Senior Notes during the years ended
June 30, 1995 and 1994 were 6.30% and 4.22%, respectively. The
weighted average effective interest rates on the Company's Senior
Notes at June 30, 1995 and 1994 were 6.68% and 4.94%, respectively.
The Company's Medium-Term Notes have maturities ranging from
eighteen months to thirty years from the date of issue and bear
interest at either a fixed rate or a variable rate primarily based
upon LIBOR. During the years ended June 30, 1995 and 1994, the
weighted average interest rates on the Medium-Term Notes were 6.03%
and 4.40%, respectively. The weighted average interest rates on the
Company's Medium-Term Notes at June 30, 1995 and 1994 were 6.46% and
4.93%, respectively.
Maturities of long-term borrowings at June 30, 1995 consist of
the following:
<TABLE>
<CAPTION>
IN THOUSANDS
------------------------------------------------------------
FISCAL YEAR AMOUNT
<S> <C>
1996 $644,000
1997 851,450
1998 454,006
1999 272,000
2000 576,169
Thereafter 1,262,319
------------------------------------------------------------
$4,059,944
============================================================
</TABLE>
<PAGE>
<PAGE>
Instruments governing certain indebtedness of the Company contain
various covenants, the most significant of which require the
maintenance of minimum levels of stockholders' equity by the Company
and Bear Stearns. At June 30, 1995, the Company and Bear Stearns were
in compliance with all covenants contained in these various debt
agreements.
6. INCOME TAXES
---------------
The provision (benefit) for income taxes for the fiscal years ended
June 30 consists of:
<TABLE>
<CAPTION>
IN THOUSANDS 1995 1994 1993
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $103,944 $206,010 $167,302
State and local 40,681 83,746 71,816
Foreign 14,334 29,459 7,305
-------------------------------------------------------------------------------
158,959 319,215 246,423
-------------------------------------------------------------------------------
Deferred:
Federal (8,322) (43,265) 3,585
State and local (3,166) (20,116) 1,943
-------------------------------------------------------------------------------
(11,488) (63,381) 5,528
-------------------------------------------------------------------------------
$147,471 $255,834 $251,951
===============================================================================
</TABLE>
<PAGE>
<PAGE>
Significant components of the Company's deferred tax assets
(liabilities) as of June 30 are as follows:
<TABLE>
<CAPTION>
IN THOUSANDS 1995 1994 1993(1)
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred Tax Assets:
Deferred compensation $ 153,564 $121,463 $ 61,236
Valuation reserves 14,491 12,680 9,220
Liability reserves 23,663 28,409 19,529
Other 5,833 1,470 6,613
--------------------------------------------------------------------------------
Total deferred tax assets $ 197,551 $164,022 $ 96,598
---------------------------------------------------------------------------------
Deferred Tax Liabilities:
Real estate partnership $ (60,893) $(51,348) $(41,975)
Unrealized appreciation (4,864) (8,432) (15,288)
Depreciation (19,266) (7,985) (11,798)
Accrued dividends (4,343) (1,572) (516)
Other (18,385) (16,373) (12,090)
---------------------------------------------------------------------------------
Total deferred tax
liabilities $(107,751) $(85,710) $(81,667)
---------------------------------------------------------------------------------
Net Deferred Tax Asset $ 89,800 $ 78,312 $14,931
=================================================================================
<FN>
(1) The deferred tax assets (liabilities) as of June 30, 1993 have been restated
for the adoption of SFAS 109.
</TABLE>
Undistributed earnings of foreign subsidiaries, which would
be subject to additional income taxes if repatriated, amounted to
approximately $26.1 million as of June 30, 1995. No deferred Federal
income taxes have been provided for these undistributed earnings as
the Company intends to permanently reinvest earnings of foreign
subsidiaries. In the event these undistributed earnings are
repatriated, the amount of potential Federal income tax is not
expected to be material.
<PAGE>
<PAGE>
A reconciliation of the statutory Federal income tax rate
and the Company's effective tax rate is as follows:
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
June 30, 1995 June 30, 1994 June 30, 1993
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate 35.0% 35.0% 34.0%
State and local income taxes,
net of Federal benefit 6.3 6.4 7.9
Dividend exclusion (3.6) (1.1) (0.6)
Other, net 0.3 (0.5) (0.3)
---------------------------------------------------------------------------------
38.0% 39.8% 41.0%
=================================================================================
</TABLE>
The Omnibus Budget Reconciliation Act of 1993 (the "Revenue Act")
was enacted on August 10, 1993. Under the Revenue Act, the corporate
statutory rate was increased to 35.0% retroactive to January 1, 1993.
The impact of this change was not reflected in the fiscal 1993 results
of operations as the Revenue Act was passed into law subsequent to
June 30, 1993. The cumulative effect of the retroactive increase in
the corporate statutory rate was not material.
Not included in the reconciliation table reflected above are
approximately $4.7 million, $2.3 million and $12.3 million of income
tax benefits attributable to the distribution of Common Stock under
the Capital Accumulation Plan for Senior Managing Directors, as
amended (the "CAP Plan"), other deferred compensation plans and the
exercise of stock options, credited directly to paid-in capital, for
fiscal 1995, 1994 and 1993, respectively.
7. REGULATORY REQUIREMENTS
--------------------------
Bear Stearns and BSSC, a wholly owned subsidiary of Bear Stearns,
are registered broker-dealers and, accordingly, are subject to
Securities and Exchange Commission Rule 15c3-1 (the "Net Capital
Rule") and the capital rules of the New York Stock Exchange, Inc.
("NYSE") and other principal exchanges of which Bear Stearns and BSSC
are members. Bear Stearns and BSSC have consistently operated in
excess of the minimum net capital requirements imposed by the capital
rules. Included in the computation of net capital of Bear Stearns is
net capital of BSSC in excess of 5% of aggregate debit items arising
from customer transactions, as defined. At June 30, 1995, Bear
Stearns' net capital, as defined, of $1.3 billion exceeded the minimum
requirement by $1.2 billion.
<PAGE>
<PAGE>
BSIL and certain other wholly owned London-based subsidiaries are
subject to regulatory capital requirements of the Securities and
Futures Authority, a self regulatory organization established pursuant
to the United Kingdom Financial Services Act of 1986. BSIL and the
other subsidiaries have consistently operated in excess of these
requirements.
The regulatory rules referred to above, and certain covenants
contained in various instruments governing indebtedness of the
Company, Bear Stearns and other regulated subsidiaries, may restrict
the Company's ability to withdraw capital from its regulated
subsidiaries, which in turn could limit the Company's ability to pay
dividends. At June 30, 1995, approximately $1.0 billion of net assets
of consolidated subsidiaries are restricted as to the payment of cash
dividends and advances to the Company.
8. PREFERRED STOCK
------------------
PREFERRED STOCK ISSUED BY THE BEAR
STEARNS COMPANIES INC.
The Adjustable Rate Cumulative Preferred Stock, Series A (the
"Preferred Stock") has a liquidation preference of $50 per share and
is entitled to dividends, on a cumulative basis, at a rate equal to
135 basis points below the highest of the Treasury Bill Rate, the Ten
Year Constant Maturity Rate and the Thirty Year Constant Maturity
Rate, as defined; however, the dividend rate for any dividend period
may not be less than 5.50% per annum, nor greater than 11.00% per
annum. The Company may redeem the Preferred Stock, either in whole or
in part, at a redemption price of $50 per share plus accumulated and
unpaid dividends. The weighted average dividend rate on the Preferred
Stock was 6.29% during the year ended June 30, 1995.
The Company has outstanding 7.5 million depositary shares
representing 937,500 shares of Cumulative Preferred Stock, Series B
("Series B Preferred Stock"), having an aggregate liquidation
preference of $187.5 million. Each depositary share represents a
one-eighth interest in a share of Series B Preferred Stock. Dividends
on the Series B Preferred Stock are payable at an annual rate of
7.88%. Series B Preferred Stock is redeemable at the option of the
Company at any time on or after April 15, 1998, in whole or in part,
at a redemption price of $200 per share
<PAGE>
<PAGE>
(equivalent to $25 per depositary share), plus accrued and unpaid
dividends.
The Company has outstanding 4.0 million depositary shares
representing 500,000 shares of Cumulative Preferred Stock, Series C
("Series C Preferred Stock"), having an aggregate liquidation
preference of $100.0 million. Each depositary share represents a
one-eighth interest in a share of Series C Preferred Stock. Dividends
on the Series C Preferred Stock are payable at an annual rate of
7.60%. Series C Preferred Stock is redeemable at the option of the
Company at any time on or after July 15, 1998, in whole or in part, at
a redemption price of $200 per share (equivalent to $25 per depositary
share), plus accrued and unpaid dividends.
PREFERRED STOCK ISSUED BY SUBSIDIARY
Bear Stearns Finance LLC ("BSF"), a wholly owned subsidiary of
the Company, has outstanding Exchangeable Preferred Income Cumulative
Shares ("EPICS"), Series A, which have a liquidation value of $25 per
share, and an annual dividend rate of 8.00%. The EPICS are callable
at the option of BSF, in whole or in part, at any time, on or after
February 28, 1999, at their stated liquidation value.
The proceeds of the EPICS issuance were loaned by BSF to the
Company under the terms of a 30-year subordinated loan agreement. This
agreement allows the Company to extend the maturity of the loan
through two 30-year renewal options. On any given monthly dividend
date, the Company has the right, subject to certain conditions, to
issue to BSF, in exchange for such note, depositary shares evidencing
Preferred Stock of the Company. In the event of such exchange, BSF is
required to redeem the EPICS, in their entirety, solely in exchange
for such depositary shares.
9. EMPLOYEE BENEFIT PLANS
-------------------------
The Company has a qualified noncontributory profit sharing plan
covering substantially all employees. Contributions are made at the
discretion of management in amounts that relate to the Company's level
of income before provision for income taxes. The Company's expense
related to the profit sharing plan for the years ended June 30, 1995,
1994 and 1993 was $2.7 million, $9.9 million, and $8.9 million,
respectively.
The Company maintains a nonqualified defined contribution
retirement plan covering substantially all account executives. The
plan provides for retirement benefits to be paid based upon a
percentage of each participant's compensation and the performance of
certain participant selected investment options for benefits
<PAGE>
<PAGE>
accrued. The Company's expense for this plan for the years ended June
30, 1995, 1994 and 1993 was $4.5 million, $3.8 million and $3.5
million, respectively.
The Company maintains a $40 million leveraged employee stock
ownership plan (the "ESOP") covering substantially all full time
employees. Pursuant to the terms of a Brokerage and Loan Agreement,
the Company advanced funds to the ESOP trust to acquire shares of
Common Stock in open market transactions. Advances made under the
ESOP Note (the "Note") bear interest at a rate of 8.00% per annum.
The Note is repayable in seven annual principal installments which
commenced December 31, 1992. The Note is expected to be repaid
through a combination of contributions by the Company and dividends on
the shares of Common Stock held by the ESOP trust. The note
receivable from the ESOP trust is reflected as a reduction in the
Company's stockholders' equity. The Company's expense related to the
ESOP for the years ended June 30, 1995, 1994 and 1993 was $6.0, $6.2
million and $6.3 million, respectively.
The Company maintains a benefit plan which provides health care
benefits for retired employees. During the year ended June 30, 1994,
the Company adopted Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" ("SFAS 106"). SFAS 106 requires that the Company accrue the
expected cost of providing various postretirement benefits during the
years that the employee renders the necessary service. The adoption
of SFAS 106 did not have a material impact on the Company.
10. EMPLOYEE STOCK PLANS
------------------------
CAPITAL ACCUMULATION PLAN
The CAP Plan allows participants to defer a defined minimum
percentage of their total annual compensation. Participants'
compensation generally must be deferred for a minimum of five years
from the date it was otherwise payable and is credited to
participants' deferred compensation accounts in the form of CAP Units.
The number of CAP Units credited is a function of the amount deferred
by each participant and the average per share cost of Common Stock
acquired by the Company in the open market on behalf of the CAP Plan.
The aggregate number of CAP Units that may be credited to participants
in any fiscal year may not exceed the number of shares of Common Stock
acquired by the Company.
Each CAP Unit gives the participant an unsecured right to
receive, on an annual basis, an amount equal to the Company's pre-tax
income or loss per share, as defined by the CAP Plan,
<PAGE>
<PAGE>
less the value of changes in the Company's book value per Common Share
during such fiscal year resulting from increases or decreases in the
Company's consolidated retained earnings (the "earnings adjustment").
The earnings adjustment will be credited to each participant's
deferred compensation account in the form of additional CAP Units,
subject to the limitations discussed above, based on the number of CAP
Units in such account at the end of each fiscal year. Upon completion
of the deferral period, participants are entitled to receive shares of
Common Stock equal to the number of CAP Units then credited to their
respective deferred compensation accounts.
During the years ended June 30, 1995, 1994 and 1993, participants
deferred compensation of approximately $71.8 million, $120.6 million
and $127.8 million, respectively. During the years ended June 30,
1995, 1994 and 1993, the Company recognized expense of approximately
$20.9 million, $13.3 million and $6.3 million, respectively,
attributable to CAP Units or cash credited to participants' deferred
compensation accounts with respect to earnings adjustments. As of
July 1, 1995, pursuant to the terms of the CAP Plan, 4,969,651 CAP
Units were credited to participants' deferred compensation accounts.
The balance of the deferral was credited to participants' deferred
compensation cash accounts. The aggregate number of shares of Common
Stock distributable pursuant to the Company's obligation for CAP Units
at June 30, 1995, 1994 and 1993 was approximately 20.0 million, 16.2
million and 8.8 million, respectively. Compensation deferred pursuant
to the CAP Plan and allocated to participants' deferred compensation
accounts in the form of CAP Units is shown as a separate component of
the Company's stockholders' equity.
On December 16, 1992, the Company terminated all deferrals
previously made for fiscal 1991 and 1992 pursuant to the CAP Plan and
concurrently distributed 10.6 million shares of Common Stock in
satisfaction of its obligations thereunder.
PERFORMANCE UNIT PLAN
Effective January 1, 1993, the Company established the
Performance Unit Plan (the "PUP Plan") and granted 7.0 million
Performance Units to eligible employees.
Each Performance Unit gave the participant solely an unsecured
right to receive an amount in cash or stock equal to the Company's
annual pre-tax income or loss per share, as defined by the PUP Plan,
net of an adjustment which reflects changes in the Company's book
value per common share (the PUP "earnings adjustment"). Effective
June 30, 1994, the PUP Plan was terminated.
<PAGE>
<PAGE>
During the year ended June 30, 1994 and the six months ended June
30, 1993, the Company incurred costs of $3.3 million and $4.2 million
attributable to the earnings adjustment. The number of Earnings Units
credited for the years ended June 30, 1994 and 1993 were 171,714 and
272,417, respectively. In October 1994, 435,143 shares of Common
Stock were distributed to the participants in satisfaction of the
Company's obligations thereunder.
STOCK OPTION PLAN
The Company has a stock option plan providing for the issuance of
up to 10.4 million shares of Common Stock to certain key employees of
the Company. On August 17, 1989, the Company granted stock options
for 2.3 million shares of Common Stock with an exercise price of $10
1/8. As of June 30, 1994, there were 1,500,792 options outstanding.
These shares were all exercised during the fiscal year ended June 30,
1995.
11. 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 specific 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. The Company's
<PAGE>
<PAGE>
principal transactions revenues by reporting categories, including
derivatives, are as follows:
<TABLE>
<CAPTION>
IN THOUSANDS JUNE 30, 1995 JUNE 30, 1994 JUNE 30, 1993
------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed Income $ 474,593 $ 722,588 $ 852,546
Equity 323,228 319,282 256,476
Foreign Exchange & Other
Derivative Financial
Instruments 62,545 92,138 47,794
------------------------------------------------------------------------------
$ 860,366 $1,134,008 $1,156,816
==============================================================================
</TABLE>
MARKET RISK
Derivative financial instruments involve varying degrees of
off-balance-sheet market risk whereby changes in the level or
volatility of interest rates, foreign currency exchange rates or
market values of the underlying financial instruments or commodities
may result in changes in the value of the financial instrument in
excess of the amounts currently reflected in the Consolidated
Statements of Financial Condition. The Company's exposure to market
risk is influenced by a number of factors, including the relationships
among financial instruments with off-balance-sheet risk and between
financial instruments with off-balance-sheet risk and the Company's
proprietary securities and commodities inventories as well as the
volatility and liquidity in the markets in which the financial
instruments are traded. In many cases, the use of financial
instruments serves to modify or offset market risk associated with
other transactions and, accordingly, serves to decrease the Company's
overall exposure to market risk. The Company attempts to control its
exposure to market risk arising from the use of these financial
instruments through the use of hedging strategies and various
analytical monitoring techniques. 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.
<PAGE>
<PAGE>
The following table represents the notional/contract amounts of
the Company's outstanding derivative financial instruments at
June 30, 1995 and 1994:
<TABLE>
<CAPTION>
NOTIONAL/CONTRACT AMOUNT
----------------------------
IN BILLIONS JUNE 30, 1995 JUNE 30, 1994
------------------------------------------------------------------------
<S> <C> <C>
Interest Rate:
Swap agreements, including options,
swaptions, caps, collars and floors $68.0 $32.3
Futures contracts 15.4 19.9
Options held .5 3.4
Foreign Exchange:
Futures contracts .7 3.8
Forward contracts 4.7 2.1
Options held 2.1 1.6
Options written 1.8 1.6
Mortgage-Backed Securities:
Forward contracts 28.1 26.1
Equity:
Swap agreements 3.0
Futures contracts .3 .3
Options held 1.6 2.4
Options written 1.6 3.0
========================================================================
</TABLE>
FAIR VALUE
The derivative instruments used in the Company's trading and
dealer activities, as described further in Note 1, 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 as of June 30, 1995
<PAGE>
<PAGE>
and the average monthly fair value of the instruments for the
fiscal year ended June 30, 1995 are as follows:
<TABLE>
<CAPTION>
FAIR VALUE AT YEAR END AVERAGE FAIR VALUES
------------------------------------------------
IN MILLIONS ASSETS LIABILITIES ASSETS LIABILITIES
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Swap agreements $ 587 $ 492 $ 598 $ 398
Forward contracts 209 181 131 120
Options held 427 393
Options written 483 262
----------------------------------------------------------------------------
Total $1,223 $1,156 $1,122 $ 780
============================================================================
</TABLE>
The majority of the Company's transactions with off-balance-sheet
risk are short-term in duration with a weighted average maturity of
approximately 2.25 and 1.48 years at June 30, 1995 and 1994,
respectively. The remaining maturities for notional/contract amounts
outstanding for derivative financial instruments are as follows:
<TABLE>
<CAPTION>
LESS THAN 1 TO 3 3 TO 5 GREATER THAN
IN BILLIONS 1 YEAR YEARS YEARS 5 YEARS TOTAL
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Swap agreements $19.0 $24.1 $16.3 $11.6 $ 71.0
Futures contracts 9.7 5.9 .8 16.4
Forward contracts 32.8 32.8
Options held 4.1 .1 4.2
Options written 3.3 .1 3.4
----------------------------------------------------------------------------
Total $68.9 $30.2 $17.1 $11.6 $127.8
----------------------------------------------------------------------------
Percent of total 54% 24% 13% 9% 100%
============================================================================
</TABLE>
CREDIT RISK
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 net replacement cost of
over-the-counter contracts in a gain position which are recognized in
the Company's Consolidated
<PAGE>
<PAGE>
Statements of Financial Condition. 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 has controls in place to monitor credit exposures by
limiting transactions with specific counterparties and assessing the
future creditworthiness of counterparties. The Company also seeks to
control credit risk by following an established credit approval
process, monitoring credit limits, and requiring collateral where
appropriate.
The following table summarizes the credit quality of the
Company's trading-related derivatives by showing counterparty credit
ratings for the replacement cost (net of $324.6 million of collateral)
of contracts in a gain position at June 30, 1995:
<TABLE>
<CAPTION>
IN MILLIONS
------------------------------------------------
RATING(1) NET REPLACEMENT COST
<S> <C>
AAA $54
AA 88
A 137
BBB and lower 41
Other(2) 105
===============================================
<FN>
(1) Rating Agency Equivalent
(2) Other indicates counterparties for which no credit rating was available
from an independent third party source. It does not necessarily
indicate the counterparties credit rating is below investment-grade.
</TABLE>
CUSTOMER ACTIVITIES
The Company's clearance activities for customers and
correspondents ("customers") involve the execution, settlement and
financing of various customer securities and commodities transactions.
Customer securities activities are transacted on either a cash or
margin basis and customer commodity transactions are generally
transacted on a margin basis subject to individual exchange
regulations. In connection with these activities, the Company
executes and clears customer transactions involving the sale of
securities not yet purchased ("short sales") and the writing of option
contracts. These transactions may expose the Company to
off-balance-sheet risk in the event the customer is unable to fulfill
its contracted obligations and margin requirements are not sufficient
to fully cover losses which
<PAGE>
<PAGE>
customers may incur. In the event the customer fails to satisfy its
obligations, the Company may be required to purchase or sell financial
instruments at prevailing market prices in order to fulfill the
customer's obligations.
The Company seeks to control the risks associated with its
customer activities by requiring customers to maintain margin
collateral in compliance with various regulatory and internal
guidelines. The Company monitors required margin levels daily and,
pursuant to such guidelines, requires the customers to deposit
additional collateral, or reduce positions, when necessary. The
Company also establishes credit limits for customers engaged in
commodity futures activities, which are monitored daily.
Additionally, with respect to the Company's correspondent clearing
activities, introducing correspondent brokers are required to
guarantee the performance of their customers in meeting contracted
obligations.
The Company's customer financing and securities settlement
activities may require the Company to pledge customer securities as
collateral in support of various secured-financing sources such as
bank loans, securities loaned and repurchase agreements and to satisfy
margin deposits of various exchanges. In the event the counterparty
is unable to meet its contracted obligation to return customer
securities pledged as collateral, the Company may be exposed to the
risk of acquiring the securities at prevailing market prices in order
to satisfy its customer obligations. The Company controls this risk
by monitoring the market value of securities pledged on a daily basis
and by requiring adjustments of collateral levels in the event of
excess market exposure. Additionally, the Company establishes credit
limits for such activities and monitors compliance on a daily basis.
CONCENTRATIONS OF CREDIT RISK
As a securities broker and dealer, the Company is engaged in
various securities underwriting, brokerage and trading activities.
These services are provided to a diverse group of domestic and foreign
corporations, governments and institutional and individual investors.
A substantial portion of the Company's transactions are collateralized
and are executed with and on behalf of institutional investors
including other brokers and dealers, commercial banks, insurance
companies, pension plans and mutual funds and other financial
institutions. The Company's exposure to credit risk associated with
the nonperformance of these customers in fulfilling their contractual
obligations pursuant to securities and commodities transactions can be
directly impacted by volatile or illiquid trading markets which may
impair the customers' ability to satisfy their obligations to
<PAGE>
<PAGE>
the Company. The Company attempts to minimize credit risk associated
with these activities by monitoring customer credit exposure and
collateral values on a daily basis and requiring additional collateral
to be deposited with or returned to the Company when deemed necessary.
A significant portion of the Company's securities processing
activities includes clearing transactions for specialists,
market-makers, risk arbitrageurs, hedge funds and other professional
traders. Due to the nature of their operations, which may include
significant levels of margin lending and involve short sales and
option writing, the Company may have significant credit exposure due
to the potential inability of these customers to meet their
commitments. The Company seeks to control this risk by monitoring
margin collateral levels on a daily basis for compliance with both
regulatory and internal guidelines and requesting additional
collateral where necessary. Additionally, in order to further control
this risk, the Company has developed computerized risk control systems
which analyze the customer's sensitivity to major market movements.
Where deemed necessary, the Company will require the customer to
deposit additional margin collateral, or reduce positions, if it is
determined that the customer's activities may be subject to
above-normal market risks.
NON-TRADING DERIVATIVES ACTIVITY
In order to modify the interest rate characteristics of its long-
and short-term debt, the company also engages in non-trading
derivatives activities. The Company has issued dollar and foreign
currency-denominated debt with both variable and fixed-rate interest
payment obligations. The Company has entered into interest rate swaps
in order to convert fixed-rate interest payments on its debt
obligations into variable-rate payments, primarily based on LIBOR.
Interest payment obligations on variable-rate debt obligations may
also be modified through interest rate swaps which may change the
underlying basis or reset frequency. In addition, for foreign
currency debt obligations which are not used to fund assets in the
same currency, the Company has entered into currency swap agreements
which effectively convert the debt into dollar obligations.
<PAGE>
<PAGE>
These financial instruments with off-balance-sheet risk are
subject to the same market and credit risks as those which are traded
in connection with the Company's market-making and trading activities.
The Company has the same controls in place to monitor these risks.
At June 30, 1995 and 1994, the Company had outstanding interest
rate and currency swap agreements with a notional principal amount
of $4.2 billion and $3.6 billion, respectively. The interest rate
swap agreements entered into reduced net interest expense on the
Company's long-term and short-term debt obligations by $21.1 million,
$54.4 million and $38.5 million for the fiscal years ended June 30, 1995,
1994 and 1993, respectively. The difference to be received or paid on
the swap agreements are included in interest expense as incurred and
any related receivable or payable is reflected accordingly as an
asset or liability.
12. COMMITMENTS AND CONTINGENCIES
----------------------------------
LEASES
The Company occupies office space under leases which expire at
various dates through 2016. The lease commitments include the lease
of the Company's headquarters at 245 Park Avenue, New York City which
expires on December 31, 2002. At June 30, 1995, future minimum
aggregate annual rentals payable under these noncancelable leases (net
of subleases) for the fiscal years ending 1996 through 2000 and the
aggregate amount thereafter, are as follows:
<TABLE>
<CAPTION>
IN THOUSANDS
-------------------------------------------
FISCAL YEAR
<S> <C>
1996 $ 52,495
1997 50,726
1998 48,214
1999 47,072
2000 42,588
Aggregate amount thereafter 155,848
===========================================
</TABLE>
The various leases contain provisions for periodic escalations to
the extent of increases in certain operating and other costs. Rental
expense, including escalations, under these leases was $73.8 million,
$65.3 million, and $60.3 million, for the years ended June 30, 1995,
1994 and 1993, respectively.
<PAGE>
<PAGE>
LETTERS OF CREDIT
At June 30, 1995, the Company is contingently liable for
unsecured letters of credit of $1.2 billion and letters of credit of
$109.5 million secured by financial instruments which are principally
used as deposits for securities borrowed and to satisfy margin
deposits at option and commodity exchanges.
BORROW VERSUS PLEDGE
At June 30, 1995, US government and agency securities with a
market value of approximately $4.0 billion have been pledged against
borrowed securities with an approximate market value of $3.7 billion.
LITIGATION
In the normal course of business, the Company has been named as a
defendant in several lawsuits which involve claims for substantial
amounts. Although the ultimate outcome of these suits cannot be
ascertained at this time, it is the opinion of management, after
consultation with counsel, that the resolution of such suits will not
have a material adverse effect on the results of operations or the
financial condition of the Company.
13. SEGMENT AND GEOGRAPHIC AREA DATA
-------------------------------------
The Company is primarily engaged in a single line of business as
a securities broker and dealer, which comprises several classes of
services, such as principal transactions, agency transactions, and
underwriting and investment banking. These activities constitute a
single industry segment for purposes of Statement of Financial
Accounting Standards No. 14.
<PAGE>
<PAGE>
Information regarding the Company's operations are as follows:
<TABLE>
<CAPTION>
IN THOUSANDS 1995 1994 1993
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Foreign revenues $ 252,825 $ 199,461 $ 134,349
Domestic revenues 3,500,747 3,241,177 2,718,836
------------------------------------------------------------------------------
Consolidated revenues $ 3,753,572 $ 3,440,638 $ 2,853,185
==============================================================================
Foreign income before provision $ 3,147 $ 52,461 $ 4,450
for income taxes
Domestic income before provision
for income taxes 384,935 590,338 609,948
------------------------------------------------------------------------------
Consolidated income before
provision for income taxes $ 388,082 $ 642,799 $ 614,398
==============================================================================
Foreign assets $ 10,428,506 $ 8,925,849 $ 8,229,623
Domestic assets 64,168,654 58,466,169 49,209,882
------------------------------------------------------------------------------
Consolidated assets $ 74,597,160 $67,392,018 $57,439,505
==============================================================================
</TABLE>
Because of the international nature of the financial markets and
the resultant integration of US and non-US services, it is difficult
to precisely separate foreign operations. The Company conducts and
manages these activities with a view toward the profitability of the
Company as a whole. Accordingly, the foreign operations information
is, of necessity, based upon management judgments and internal
allocations.
<PAGE>
<PAGE>
14. QUARTERLY INFORMATION (UNAUDITED)
--------------------------------------
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
IN THOUSANDS, EXCEPT PER SHARE DATA QUARTER QUARTER QUARTER QUARTER TOTAL
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FISCAL YEAR ENDED JUNE 30, 1995
Revenues $ 808,425 $ 826,733 $ 1,027,422 $1,090,992 $3,753,572
Interest expense 374,800 400,130 439,091 464,494 1,678,515
--------------------------------------------------------------------------------------------------------------
Revenues, net of interest expense 433,625 426,603 588,331 626,498 2,075,057
--------------------------------------------------------------------------------------------------------------
Non-interest expenses
Employee compensation and benefits 231,029 223,259 300,243 325,956 1,080,487
Other 145,401 150,236 154,636 156,215 606,488
--------------------------------------------------------------------------------------------------------------
Total non-interest expenses 376,430 373,495 454,879 482,171 1,686,975
--------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 57,195 53,108 133,452 144,327 388,082
Provision for income taxes 21,734 20,181 50,712 54,844 147,471
--------------------------------------------------------------------------------------------------------------
Net income $ 35,461 $ 32,927 $ 82,740 $ 89,483 $ 240,611
==============================================================================================================
Earnings per share(1) $ .23 $ .21 $ .60 $ .65 $ 1.70
==============================================================================================================
Cash dividends declared per
common share $ .15 $ .15 $ .15 $ .15 $ .60
==============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
IN THOUSANDS, EXCEPT PER SHARE DATA QUARTER QUARTER QUARTER QUARTER TOTAL
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FISCAL YEAR ENDED JUNE 30, 1994
Revenues $ 770,853 $1,001,193 $ 898,628 $ 769,964 $3,440,638
Interest expense 184,753 251,294 246,381 341,438 1,023,866
--------------------------------------------------------------------------------------------------------------
Revenues, net of interest expense 586,100 749,899 652,247 428,526 2,416,772
--------------------------------------------------------------------------------------------------------------
Non-interest expenses
Employee compensation and benefits 289,373 379,427 321,042 237,219 1,227,061
Other 118,735 138,558 134,707 154,912 546,912
--------------------------------------------------------------------------------------------------------------
Total non-interest expenses 408,108 517,985 455,749 392,131 1,773,973
--------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 177,992 231,914 196,498 36,395 642,799
Provision for income taxes 73,689 97,101 81,048 3,996 255,834
--------------------------------------------------------------------------------------------------------------
Net income $ 104,303 $ 134,813 $ 115,450 $ 32,399 $ 386,965
==============================================================================================================
Earnings per share(1) $ .73 $ .96 $ .84 $ .20 $ 2.75
==============================================================================================================
Cash dividends declared per
common share $ .15 $ .15 $ .15 $ .15 $ .60
==============================================================================================================
<FN>
(1) The sum of the quarters' earnings per share amounts does not equal the full fiscal years' amounts due
to the effect of averaging the number of shares of Common Stock and common stock equivalents
throughout the year.
/TABLE
<PAGE>
<PAGE>
DELOITTE &
TOUCHE LLP
INDEPENDENT AUDITORS' REPORT
----------------------------
To The Board of Directors and Stockholders of the Bear Stearns
Companies Inc.:
We have audited the accompanying consolidated statements of
financial condition of The Bear Stearns Companies Inc. and
Subsidiaries as of June 30, 1995 and 1994, and the related
consolidated statements of income, cash flows and changes in
stockholders' equity for each of the three years in the period
ended June 30, 1995. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of The Bear
Stearns Companies Inc. and Subsidiaries at June 30, 1995 and 1994, and
the results of their operations and their cash flows for each of the
three years in the period ended June 30, 1995 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
August 25, 1995
<PAGE>
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock of the Company is traded on the NYSE under
the symbol BSC. The following table sets forth for the periods
indicated the high and low sales prices for the Common Stock, as
adjusted to reflect the 5% stock dividend distributed on the Common
Stock on May 26, 1995, and the cash dividends declared on the Common
Stock.
As of September 1, 1995, there were 3,621 holders of record
of the Company's Common Stock. On September 1, 1995, the last reported
sales price of the Company's Common Stock was $21.
Dividends are payable on January 15, April 15, July 15, and
October 15 in each year on the Company's outstanding Adjustable Rate
Cumulative Preferred Stock, Series A, Cumulative Preferred Stock,
Series B and Cumulative Preferred Stock, Series C (collectively, the
"Preferred Stock"). The terms of the Preferred Stock require that all
accrued dividends in arrears be paid prior to the payment of any
dividend on the Common Stock.
Since the Company is a holding company, its ability to pay
dividends is limited by the ability of its subsidiaries to pay
dividends and to make advances to the Company. See the Notes to
Consolidated Financial Statements under the caption "Regulatory
Requirements" for a further description.
<TABLE>
<CAPTION>
Cash Dividends
Declared
Per Common
High Low Share
------------------------------------------------------------------------------
<S> <C> <C> <C>
FISCAL YEAR ENDED JUNE 30, 1994
First Quarter (through September 24, 1993) $ 22 7\8 $ 19 3\4 $ .15
Second Quarter (through December 31, 1993) 23 3\8 18 3\8 .15
Third Quarter (through March 25, 1994) 22 18 5\8 .15
Fourth Quarter (through June 30, 1994) 20 1\2 16 .15
------------------------------------------------------------------------------
FISCAL YEAR ENDED JUNE 30, 1995
First Quarter (through September 30, 1994) $ 17 1\2 $ 15 1\8 $ .15
Second Quarter (through December 31, 1994) 15 7\8 14 .15
Third Quarter (through March 31, 1995) 18 14 7\8 .15
Fourth Quarter (through June 30, 1995) 22 7\8 17 5\8 .15
</TABLE>
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE BEAR STEARNS COMPANIES INC. (REGISTRANT)
------------------------------------------------------------
Jurisdiction of
Incorporation
Subsidiary or Organization
---------- ---------------
Battery Park Capital Corp. New York
BS Agency GP Capital Inc. Delaware
Bear Stearns (Israel), Inc. Delaware
Bear Stearns Acquisition Corp. Delaware
Bear Stearns Acquisition II, Inc. Delaware
Bear Stearns Acquisition Corporation IV, Inc. Delaware
CDG Holdings, Inc. Massachusetts
Cambridge Dry Goods Co. Inc. Massachusetts
Bear Stearns Acquisition V, Inc. Delaware
Bear Stearns Acquisition Corporation VI Delaware
Bear Stearns Acquisition XII, Inc. Delaware
Bear Stearns Acquisition XIV, Inc. Delaware
MV Holdings, Inc. Delaware
Bear Stearns Argentina Inc. Delaware
Bear Stearns Asset Backed Investors Corp. Delaware
Bear Stearns Asset Backed Securities, Corp. Delaware
Bear Stearns Capital Markets Inc. Delaware
Bear Stearns Fiduciary Services, Inc. Delaware
Bear Stearns Forex Inc. Delaware
NYFS04...:\25\22625\0110\2322\EXH9075M.010
<PAGE>
<PAGE>
SUBSIDIARIES OF THE BEAR STEARNS COMPANIES INC. (REGISTRANT)
------------------------------------------------------------
Jurisdiction of
Incorporation
Subsidiary or Organization
---------- ---------------
Bear Stearns Funds Management Inc. New York
Bear Stearns Investment Advisors Inc. Delaware
Street Pricing Service Delaware
Bear Stearns Mortgage Capital Corporation Delaware
Bear, Stearns Funding, Inc. Delaware
Bear, Stearns Mortgage Securities Inc. Delaware
Bear Stearns Municipal Capital Markets Delaware
Bear Stearns N.Y., Inc. New York
Bear, Stearns Netherlands Holding B.V. Netherlands
Bear Stearns Jahangir Siddiqui Ltd. Pakistan
Bear Stearns Bank GmbH Germany
Bear Stearns Securities Administration Corporation Delaware
Bear Stearns Real Estate Group Inc. New York
Bear, Stearns Realty Investors, Inc. Delaware
Bear Stearns Realty Partners Corporation Delaware
Bear Stearns Realty Partners Delaware LP
Apartment Fund I LP (GP)
Bear Stearns Secured Investors Inc. Delaware
Bear Stearns Secured Investors Inc. II Delaware
<PAGE>
<PAGE>
SUBSIDIARIES OF THE BEAR STEARNS COMPANIES INC. (REGISTRANT)
------------------------------------------------------------
Jurisdiction of
Incorporation
Subsidiary or Organization
---------- ---------------
Bear Stearns Spanish Securitization Corp. Delaware
Bear Stearns Structured Products Corp. Delaware
Bear, Stearns & Co. Inc. Delaware
Bear, Stearns & Co. L.P. Delaware
Bear, Stearns Government Securities, Inc. New York
Bear Stearns FLLC Corp. Delaware
Bear Stearns Finance LLC Cayman Island
Bear Stearns Global Asset Holdings, Ltd. Cayman Island
Bear Stearns Government Products Corp. Delaware
Bear Stearns Global Equity Derivatives Inc. Delaware
Bear Stearns Global Investors Inc. New York
Bear Stearns Finance S.A. France
CLBS Titrisation S.A. France
ABC Gestion France
<PAGE>
<PAGE>
SUBSIDIARIES OF THE BEAR STEARNS COMPANIES INC. (REGISTRANT)
------------------------------------------------------------
Jurisdiction of
Incorporation
Subsidiary or Organization
---------- ---------------
Bear Stearns Holdings Limited United Kingdom
Bear, Stearns International Limited United Kingdom
Bear Stearns U.K. Limited United Kingdom
Bear Stearns International Trading Limited United Kingdom
Bear Stearns Oil Trading Limited United Kingdom
BSCP Cayman, Inc. Cayman Islands
Bear Stearns China SPC, Inc. Delaware
Bear Stearns China L.P. Delaware
Bear Stearns China Direct Cayman Islands
Investment Fund L.P.
Bear, Stearns Insurance Agency Incorporated Massachusetts
Bear Stearns Insurance Agency of California, California
Incorporated
Bear, Stearns International Holdings Inc. New York
Bear Stearns do Brasil Ltda. Brazil
Bear Stearns Far East Limited Hong Kong
Bear Stearns Hong Kong Limited Hong Kong
Bear Stearns Asia Limited Hong Kong
Bear Stearns Singapore Pte Limited Singapore
Bear Stearns Singapore Asset Singapore
Holdings Pte Ltd
<PAGE>
<PAGE>
SUBSIDIARIES OF THE BEAR STEARNS COMPANIES INC. (REGISTRANT)
------------------------------------------------------------
Jurisdiction of
Incorporation
Subsidiary or Organization
---------- ---------------
Bear Stearns Mortgage Capital Corporation Delaware
Bear, Stearns Funding, Inc. Delaware
Bear, Stearns Mortgage Securities Inc. Delaware
Bear Stearns Municipal Capital Markets Delaware
Bear Stearns Commercial Mortgage Delaware
Securities, Inc.
Bear Tel Corp. Delaware
BS Fund America 1993-C GP Capital Inc. Delaware
BS Fund America 1993-D GP Capital Inc. Delaware
BSC Hotel Capital Corporation Delaware
BSC Service Corp. Delaware
Custodial Trust Company New Jersey
CTC Service, Inc. New York
Custrust New York
EMC Mortgage Corporation Delaware
EMC Funding Corporation Delaware
EMC Funding Corporation Two Delaware
EMC GP Capital Inc. Delaware
EMC Residential Mortgage Corporation Delaware
ISB Real Estate Corporation Delaware
<PAGE>
<PAGE>
SUBSIDIARIES OF THE BEAR STEARNS COMPANIES INC. (REGISTRANT)
------------------------------------------------------------
Jurisdiction of
Incorporation
Subsidiary or Organization
---------- ---------------
Bear Stearns Park Avenue Trading Corporation Delaware
Sloate, Weisman, Bear, Stearns Capital Delaware
Management, Inc.
MAX Recovery Inc. Delaware
Bear Stearns Philippines Ltd. Delaware
Bear Stearns State Asia, Inc. Philippines
BBT 1995-1 Corp. Delaware
BSMI 1993-12 Reserve Fund Corp. Delaware
BSTE Funding I Inc. Delaware
BSTE Funding II Inc. Delaware
BSTE Funding III Inc. Delaware
Thanksgiving Properties, Inc. Texas
BSC Thanksgiving Partners, Inc. Texas
Blaylock & Co. L.P. Delaware
<PAGE>
<PAGE>
SUBSIDIARIES OF THE BEAR STEARNS COMPANIES INC. (REGISTRANT)
------------------------------------------------------------
Jurisdiction of
Incorporation
Subsidiary or Organization
---------- ---------------
Bear, Stearns Securities Corp. Delaware
Common Back Office, Inc. Delaware
BSC Securities Corp. New York
Bear Stearns S.A. France
Bear Specialist, Inc. New York
Bear Hunter L. L. C. New York
Bear Stearns American Specialist Inc. New York
Bear, Stearns Benefits Planning Group Inc. New York
Bear Stearns Benefits Planning Group New York
Autobond Inc. New York
Bear Stearns Global Asset Trading, Ltd. Cayman Islands
Bear Stearns (Japan), Ltd. Delaware
<PAGE>
EXHIBIT 23
DELOITTE &
TOUCHE LLP
INDEPENDENT AUDITORS' CONSENT
-----------------------------
We consent to the incorporation by reference in Registration
Statements of The Bear Stearns Companies Inc. on Form S-3
(File Nos. 33-59140, 33-56009, 33-55673, 33-60065) and Form
S-8 (File Nos. 33-50012, 33-55804, 33-49979, 33-56103) of
our reports dated August 25, 1995, appearing in and
incorporated by reference in the Annual Report on
Form 10-K of The Bear Stearns Companies Inc. for the year
ended June 30, 1995.
DELOITTE & TOUCHE LLP
New York, New York
August 25, 1995
NYFS04...:\25\22625\0110\2322\EXH9205N.070
<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-K and is qualified in its
entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 700,501
<RECEIVABLES> 6,799,517
<SECURITIES-RESALE> 18,940,744
<SECURITIES-BORROWED> 24,632,088
<INSTRUMENTS-OWNED> 21,509,498
<PP&E> 312,867
<TOTAL-ASSETS> 74,597,160
<SHORT-TERM> 8,570,777
<PAYABLES> 17,715,023
<REPOS-SOLD> 29,584,724
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 11,241,118
<LONG-TERM> 4,059,944
0
437,500
<COMMON> 152,203
<OTHER-SE> 1,762,758
<TOTAL-LIABILITY-AND-EQUITY> 74,597,160
<TRADING-REVENUE> 860,366
<INTEREST-DIVIDENDS> 1,969,506
<COMMISSIONS> 546,939
<INVESTMENT-BANKING-REVENUES> 348,886
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 1,678,515
<COMPENSATION> 1,080,487
<INCOME-PRETAX> 388,082
<INCOME-PRE-EXTRAORDINARY> 388,082
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 240,611
<EPS-PRIMARY> 1.70
<EPS-DILUTED> 1.70
</TABLE>
