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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[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, 1996.
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 No.)
Incorporation or Organization)
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
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 SECURITIES AMERICAN STOCK EXCHANGE
DUE 1998
JAPAN YEN PUT WARRANTS EXPIRING AMERICAN STOCK EXCHANGE
AUGUST 21, 1997
VANTAGE POINT PORTFOLIO CALL WARRANTS AMERICAN STOCK EXCHANGE
EXPIRING AUGUST 20, 1997
Securities registered pursuant to Section12(g) of the Act:
NONE
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(Title of Class)
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. [_]
At September 3, 1996, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $2,493,105,412. 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 3, 1996, the registrant had outstanding 117,596,241 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 1996 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 28,
1996, 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, 1996.
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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, 1996, 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 1996 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, 1996, the Company had 7,749 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.
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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, bonds, and
stripped-coupon securities. 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
sovereign and corporate fixed income securities and preferred stocks in New
York, London, Hong Kong and Tokyo. 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.
The Company, through a 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 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.
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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 and on a select basis, provides financial
advisory services. 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 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.
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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 investments, asset liability management, corporate finance, and capital
markets.
Over-the-Counter Equity Securities. The Company makes markets on a
principal basis in common and preferred stocks, 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, Asia and
Southern and Eastern Europe.
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Specialist Activities. The Company is a participant in a specialist
unit on the NYSE which performs specialist functions in 106 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 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
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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"), Marche a Terme International de France ("MATIF") in
Europe; and a "special" member of the Tokyo Stock Exchange for clearing Japanese
government bond futures.
International. Bear, Stearns International Limited ("BSIL") is a London
based securities broker-dealer and engages in several types of activities
including principal transactions, agency transactions, underwriting, and
investment banking. BSIL is a member of the SFA, the IPE, the LIFFE, the
International Securities Market Association (the "ISMA") and the LCE. Another
London 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 subsidiary is Bear Stearns Finance S.A. ("BSFSA").
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. BSJL sells equity and fixed income securities
to Japanese institutional customers. Bear Stearns Hong Kong Ltd. is a member of
the Securities and Futures Commission and sells U.S. commodities to retail
customers. Bear Stearns Asia Ltd. is a member of the Stock Exchange of Hong Kong
and sells equity and fixed income securities and derivative products to
institutional and retail customers in Asia (excluding Japan) and also provides
investment
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banking services to institutional clients. Bear Stearns Singapore Pte. Limited
is a broker-dealer registered with the Monetary Authority of Singapore and 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 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
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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 provides comprehensive real estate-related
investment banking, capital markets and financial advisory services. It also
provides direct commercial mortgage lending on single properties as well as
portfolios. 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 clearing services to
clients. Organizations that are engaged in the retail or institutional brokerage
business and are members of the NYSE and/or NASD comprise one category of
correspondent clearing 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: hedge funds, market-makers,
specialists, arbitrageurs, money managers and other professional traders called
"professional clearing clients".
Besides commissions and service charges realized from securities
clearing activities, the Company also earns substantial amounts of interest
income. The Company extends credit directly to the customers of correspondent
firms in order to facilitate the conduct of customer securities transactions on
a margin basis. The correspondents indemnify the Company against margin losses
on their customers' accounts. The Company also extends margin credit directly to
correspondents to the extent that such firms pledge proprietary assets as
collateral. Since the Company must rely on the guaranties and general credit of
the correspondents, 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 hedge funds, market-makers, risk
arbitrageurs, specialists, and professional traders can require a substantial
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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 plus system provides consolidated
reporting and securities processing for professional investors 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 has available
resources, the Company is protected against claims by customers of the
correspondent when the latter has been allocated responsibility for a function
giving rise to a claim. However, if the correspondent 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 clients. 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
equity and fixed income assets for some of the United States' leading corporate
pension plans, public systems, endowments, foundations, multi-employer plans,
insurance companies, corporations, families and high net-worth individuals. With
more than $8 billion under management, the asset management division provides
its clients with diverse products, expertise and experience for enhancing
investment returns by identifying, and taking advantage of, investment
opportunities in the financial markets. Institutional products include: Large,
Mid
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and Small Cap Value Equity; Global and Emerging Markets Fixed Income; and
Alternative Investment Strategies.
In addition, the asset management division serves individual investors
through its management of The Bear Stearns Funds, a family of mutual funds which
include: S&P Stars; Large Cap Value; Small Cap Value; The Insiders Select; Total
Return Bond; and The Emerging Markets Debt.
Securities Research. To provide customers with current information and
opinions on equity investments and the securities markets, the Company's equity
research unit provides analyses on approximately 800 companies. It also
evaluates the trends and outlooks for 63 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, 1996, CTC held over $34 billion of assets for
non-affiliated institutional clients such as pension funds, mutual
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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.
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 3,400 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
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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 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
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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 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
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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 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.
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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.
Compliance with the Net Capital Rule could limit those operations of
Bear Stearns and/or BSSC which 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
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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 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,
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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.
Item 2. Properties.
-----------
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
276,000 square feet, while its eleven foreign offices occupy a total of
approximately 107,000 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.
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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 Complaint 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
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 placement 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 securities, 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 plaintiffs. 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
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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.
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 Blech Securities Litigation. On October 24, 1994, a shareholder
----------------------------------
of certain biotechnology companies whose securities were underwritten by, or
that otherwise had some relationship with, D. Blech & Co. ("Blech Securities"),
commenced an action in the United States District Court for the Southern
District of New York against D. Blech & Co., David Blech, certain money managers
and investment advisors, and Bear Stearns, which had been a clearing broker for
D. Blech & Co. from September 1993 through September 1994. On December 14, 1994,
the action was consolidated with three related actions that also had named as
defendants twenty-four biotechnology companies as to whose securities D. Blech &
Co. was an underwriter or market-maker.
On March 27, 1995, an Amended Consolidated Class Action Complaint (the
"First Amended Complaint") was filed. Plaintiffs alleged that defendants had
engaged in a scheme to manipulate the market for and to inflate the prices of
Blech Securities. The First Amended Complaint was brought on behalf of a
purported class seeking unspecified money damages on behalf of all persons who
purchased Blech Securities from July 1, 1991 through September 21, 1994, in a
public offering or in the public market. The First Amended Complaint asserted
that Bear Stearns violated Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934 and Rule 10b-5 promulgated thereunder, and the Racketeer Influenced
and Corrupt Organizations Act ("RICO"), and committed common law fraud. On June
6, 1996, the court granted Bear Stearns' motion to dismiss all allegations in
the First Amended Complaint asserted against Bear Stearns, and granted
plaintiffs leave to replead.
On July 26, 1996, a Second Amended Consolidated Class Action Complaint
(the "Second Amended Complaint") was filed on behalf of the same purported class
seeking unspecified money damages against all defendants previously named, with
the exception of the biotechnology companies. Plaintiffs continue to allege that
defendants engaged in a scheme to manipulate the market for and to inflate the
prices of Blech Securities. All claims previously alleged in the First Amended
Complaint against Bear Stearns are
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reasserted in the Second Amended Complaint, except that plaintiffs do not assert
any RICO claims. On September 12, 1996, Bear Stearns filed a motion to dismiss
the Second Amended Complaint.
Bear Stearns denies all allegations of wrongdoing asserted against it
in this litigation, intends to defend against 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
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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, 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 Bear Stearns. Alex. Brown and Bear Stearns 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 financial 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 Bear Stearns, 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.
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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 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 Bear
Stearns, filed an answer to the Second Amended Consolidated Complaint denying
all substantive allegations, asserting affirmative defenses and asserting a
cross-claim for contribution 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 Bear
Stearns, and the Venture Capital Defendants. On February 21, 1995, plaintiffs'
state law fraud claims against KPMG Peat Marwick were dismissed due to
plaintiffs' failure to plead fraud with particularity. The cross-claims for
contribution asserted against KPMG Peat Marwick by the Underwriter Defendants
and Venture Capital Defendants also were dismissed, except to the extent that
the cross-claims 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 April 4,
25
<PAGE>
1996, the court ordered that the contribution claims against KPMG Peat Marwick
be stayed pending resolution of the plaintiffs' claims.
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 Marwick, Bear Stearns 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.
On September 20, 1996, certain defendants in the action, including four
Director Defendants, the Venture Capital Defendants, and the Underwriter
Defendants, including Bear Stearns, entered into a memorandum of understanding
settling the plaintiffs' individual and class claims against these defendants.
Bear Stearns' liability pursuant to the terms of this settlement, which must be
approved by the Court before it becomes effective, is not material.
Henryk de Kwiatkowski v. Bear Stearns & Co., Inc. et al. On
--------------------------------------------------------
June 25, 1996, a Complaint was filed in the United States District Court for the
Southern District of New York by a former customer against Bear Stearns & Co.,
Inc., Bear Stearns Securities Corp., Bear Stearns Forex, Inc. and a registered
representative alleging breach of fiduciary duties, negligence, fraud, negligent
misrepresentation and violations of the Commodity Exchange Act. The Complaint
seeks to recover at least $300 million in losses and at least $100 million in
punitive damages. On August 14, 1996, all defendants in the case moved to
dismiss plaintiff's complaint.
Bear Stearns denies all allegations of wrongdoing asserted against it
in this litigation, intends to defend these claims vigorously, and believes that
it has substantial defenses to these claims.
In re Lady Luck Gaming Corporation Securities Litigation. Beginning in
---------------------------------------------------------
March 1995, several actions were commenced in the
26
<PAGE>
United States District Court for the District of Nevada involving Lady Luck
Gaming Corporation ("Lady Luck"). A Consolidated Class Action Complaint was
filed on August 14, 1995. The Consolidated Class Action Complaint named as
defendants Bear Stearns, Oppenheimer & Co., Inc., Lady Luck and several
directors and officers of Lady Luck. Bear Stearns and Oppenheimer are sued in
their capacity as co-lead underwriters of an initial public offering ("IPO") of
4,500,000 shares of Lady Luck stock on September 29, 1993.
The Consolidated Class Action Complaint alleges claims on behalf of a
purported class consisting of all persons who purchased shares of Lady Luck from
September 29, 1993 to May 4, 1995. The Consolidated Class Action Complaint
asserts violations of Sections 11 and 12 of the Securities Act and Section 10(b)
of the Securities Exchange Act and Rule 10b-5 promulgated thereunder against
Bear Stearns and Oppenheimer. Plaintiffs allege that the prospectus issued in
connection with the IPO contained certain false or misleading statements
regarding Lady Luck and the casino-gaming industry as a whole, and that
defendants continued to make false or misleading statements regarding Lady Luck
until May 4, 1995. Plaintiffs seek unspecified compensatory damages and any
appropriate equitable relief.
On September 18, 1995, defendants moved to dismiss the Consolidated
Class Action Complaint.
Bear Stearns denies all allegations of wrongdoing asserted against it
in this litigation, intends to defend these claims vigorously, and believes that
it has substantial defenses to these claims.
NASDAQ Antitrust Litigation. On July 17, 1996, the Antitrust Division
----------------------------
of the United States Department of Justice filed a civil antitrust complaint
against firms that make markets in NASDAQ securities, including Bear Stearns.
The complaint alleges that these market maker defendants violated Section 1 of
the Sherman Act through a "common understanding" to follow a "quoting
convention" that the complaint asserts had inflated the "inside spread" (the
difference between the best quoted buying price and the best quoted selling
price on NASDAQ) in certain NASDAQ stocks. This allegedly resulted in investors
having to pay higher transaction costs for buying and selling stocks than they
would have paid otherwise. At the same time the complaint was filed, a proposed
settlement of the action was announced, pursuant to which the market maker
defendants in the action have agreed not to engage in certain conduct. The
proposed settlement, which is subject to court approval, provides, among other
things, for the monitoring and tape-recording by each of the market maker
defendants of not less than 3.5 percent, or a maximum of 70 hours per week, of
telephone conversations by its over-the-counter desk traders; the provision to
the Department of Justice of any taped conversation that may violate the terms
of
27
<PAGE>
the settlement; and for Department of Justice representatives to appear
unannounced, during regular business hours, for the purpose of monitoring trader
conversations as the conversations occur.
Primavera Familienstiftung v. David J. Askin, et al./ABF Capital
----------------------------------------------------------------
Management, et al. v. Askin Capital Management, L.P. et al./In Re Granite
- -------------------------------------------------------------------------
Partners, Granite Corporation Quartz Hedge Fund. On April 7, 1994, Granite
- ------------------------------------------------
Partners, L.P., Granite Corporation, and Quartz Hedge Fund (the "Funds" or the
"Debtors"), three investment funds managed by Askin Capital Management L.P.
("ACM") and David J. Askin ("Askin"), filed for bankruptcy in an action entitled
In re Granite Partners, Granite Corp. Quartz Hedge Fund in the United States
- -------------------------------------------------------
District Court for the Southern District of New York (the "Bankruptcy Court")
after suffering losses in mortgage-backed securities and related instruments.
After the Funds defaulted on certain obligations, Bear Stearns, Bear Stearns
Capital Markets and other firms liquidated certain positions in these accounts.
A trustee (the "Trustee") appointed by the Bankruptcy Court determined to
investigate the Debtors' claim that Bear Stearns and other firms acted
improperly in connection with the liquidation of the Debtors' accounts and in
other ways, and are liable to the Funds for damages.
On September 12, 1996, the Trustee filed an adversary proceeding
against Bear Stearns and Bear Stearns Capital Markets in the Bankruptcy Court.
The Complaint alleges that Bear Stearns (and, for certain claims, Bear Stearns
Capital Markets) is liable for violations of the Sherman Antitrust Act, Section
340 of the New York General Business Law (the Donnelly Act), and certain Uniform
Commercial Code provisions, and for breach of contract, retaining certain
liquidation proceeds in violation of Section 559 of the Bankruptcy Code, unjust
enrichment, breach of a purported common law duty to liquidate collateral in a
commercially reasonable manner, and conspiracy to breach such duty. The
Complaint also contains objections to proofs of claim filed in the Bankruptcy
Court by Bear Stearns and Bear Stearns Capital Markets. The complaint alleges
that Bear Stearns conducted a collusive and commercially unreasonable
liquidation and violated its agreements with the Funds during this liquidation.
The suit seeks actual damages alleged to be at least $44 million, treble damages
for the antitrust claims, consequential and punitive damages in an unspecified
amount, the disallowance or subordination of Bear Stearns' claims against the
Debtors, and other relief, plus costs and attorney's fees.
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.
28
<PAGE>
On September 20, 1995, Primavera Familienstiftung, which purports to be
an investor in Granite Corporation, amended its complaint in a previously
commenced action, Primavera Familienstiftung v. David J. Askin, et al. in the
----------------------------------------------------
United States District Court for the Southern District of New York, to include
claims against Bear Stearns and other broker-dealers (the "Broker-Dealer
Defendants"). The complaint purports to be a class action on behalf of all
investors who purchased interests in the Funds after January 26, 1993.
The Complaint alleges that the Broker Dealer Defendants are liable for
violations of Section 10(b) of the Securities Exchange Act and Rule 10b-5
promulgated thereunder, violations of Section 20(a) of the Securities Exchange
Act, common law fraud, aiding and abetting a breach of fiduciary duty by Askin,
breach of contract, and violations of Uniform Commercial Code provisions. The
Complaint seeks compensatory and punitive damages in unspecified amounts,
together with the costs and expenses of the action. On April 9, 1996, the
Bankruptcy Court granted in part and denied in part a motion by the Trustee to
stay the Primavera action. On April 23, 1996, all defendants filed motions in
the District Court to dismiss the complaint.
Bear Stearns denies all allegations of wrongdoing asserted against it
in this litigation, intends to defend these claims vigorously, and believes that
it has substantial defenses to these claims.
On March 27, 1996, other purported investors in the Funds filed a
lawsuit in the Supreme Court of the State of New York against ACM and the
Broker-Dealer Defendants, ABF Capital Management, et al. v. Askin Capital
-----------------------------------------------
Management, L.P., et al. The suit alleges that the Broker-Dealer Defendants
- ------------------------
aided and abetted an alleged fraud and breach of fiduciary duty by ACM, that the
Broker-Dealer Defendants were unjustly enriched, and that the Broker-Dealer
Defendants are liable for violations of the Racketeer Influenced and Corrupt
Organizations Act ("RICO"). Among other things, the Broker-Dealer Defendants are
alleged to have created and encouraged ACM to purchase inappropriate securities,
provided ACM with inflated "marks" for the securities in ACM's portfolios,
unreasonably extended credit to ACM, and departed from the standards of ordinary
care in other ways as well. The suit seeks recovery of the amounts the
plaintiffs paid for their interests in the Funds (alleged to be approximately
$230 million), an unspecified amount of allegedly unjust enrichment, treble
damages, punitive damages alleged to be no less than $1 billion, plus interest,
costs, attorneys fees and other unspecified damages.
On April 24, 1996, this case was removed to the United States District
Court for the Southern District of New York. On May 31, 1996, all defendants
filed motions to dismiss the case. On August 22, 1996, the court dismissed all
claims alleged
29
<PAGE>
against the Broker-Dealer Defendants, with leave to replead the claim that the
Broker-Dealer Defendants aided and abetted ACM's alleged fraud.
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.
* * *
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
contesting the allegations in these lawsuits, and believes that there are
substantial defenses in these lawsuits.
The Company also is 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.
30
<PAGE>
Executive Officers of the Company
- ---------------------------------
The following table sets forth certain information concerning executive
officers of the Company as of September 15, 1996.
AGE AS OF
SEPTEMBER 15, PRINCIPAL OCCUPATION
NAME 1996 AND DIRECTORSHIPS HELD
- ---- ---- ----------------------
Alan C. Greenberg 69 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")
James E. Cayne 62 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 45 Executive Vice President of the
Company and Bear Stearns and
member of the Executive Committee
Alan D. Schwartz 46 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.
Warren J. Spector 38 Executive Vice President of the
Company and Bear Stearns and
member of the Executive Committee
and the Management and
Compensation Committee
Richard Harriton 61 Senior Managing Director of Bear
Stearns and member of the
Management and Compensation
Committee
Michael Minikes 53 Treasurer of the Company and Bear
Stearns; Director, Depository
Trust Company; Chairman of the
Board, International Depository
and Clearing, Inc.; Trustee, The
Milestone Funds
William J. Montgoris 49 Chief Operating Officer and Chief
Financial Officer of the Company
and Bear Stearns and member of the
Management and Compensation
Committee
31
<PAGE>
AGE AS OF
SEPTEMBER 15, PRINCIPAL OCCUPATION
NAME 1996 AND DIRECTORSHIPS HELD
- ---- ---- ----------------------
Robert M. Steinberg 51 Senior Managing Director of Bear
Stearns and member of the
Management and Compensation
Committee
Samuel L. Molinaro Jr. 38 Senior Vice President - Finance of
the Company and Bear Stearns
Michael J. Abatemarco 49 Controller of the Company and Bear
Stearns
Frederick B. Casey 57 Assistant Treasurer of the Company
and Bear Stearns
Kenneth L. Edlow 55 Secretary of the Company and Bear
Stearns
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 in
September 1995. Prior thereto, Mr. Lehman was Senior Vice President - General
Counsel of Bear Stearns for more than 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 responsible for all of the
investment banking activities of Bear Stearns.
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 five years. Mr. Spector is
responsible for all fixed income activities of Bear Stearns.
Mr. Harriton has been in charge of the Company's correspondent clearing
services (through BSSC) for more than the past five years. Mr. Harriton has been
President of BSSC since its inception.
32
<PAGE>
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. 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.
33
<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.
34
<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 1996 Annual
Meeting of Stockholders to be held on October 28, 1996, 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.
The information required to be furnished pursuant to this item with
respect to compliance with Section 16(a) of the Exchange Act will be set forth
under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in
the Proxy Statement and is incorporated herein by reference.
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.
35
<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.
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)).
36
<PAGE>
(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)).
(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)).
37
<PAGE>
(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).
(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).*
38
<PAGE>
(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) Amendment to the Management Compensation Plan,
adopted September 10, 1996, subject to approval
of Stockholders at the 1996 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 the CAP Plan, adopted August 7,
1995, (incorporated by reference to Exhibit
10(a)(9) to the registrant's Annual Report on
Form 10-K for its fiscal year ended June 30,
1995).*
(10)(a)(10) Amendment to the CAP Plan, adopted January 18,
1996 certain provisions of which are subject to
the approval of the Stockholders at the 1996
Annual Meeting (filed as Exhibit 10(a)(10) to the
registrant's Quarterly Report on Form 10-Q for
its fiscal quarter ended December 31, 1995).*
39
<PAGE>
(10)(a)(11) Amendment to the CAP Plan, adopted February 7,
1996 subject to approval of the Stockholders at
the 1996 Annual Meeting (filed as Exhibit
10(a)(11) to the registrant's Quarterly Report on
Form 10-Q for its fiscal quarter ended December
31, 1995).*
(10)(a)(12) Amendment to the CAP Plan, adopted September 10,
1996, certain provisions of which are subject to
approval of the Stockholders at the 1996 Annual
Meeting.*
(10)(a)(13) Performance Compensation Plan, adopted September
10, 1996 subject to approval of Stockholders at
the 1996 Annual Meeting (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 to be held on October 28, 1996).*
(10)(a)(14) The Bear Stearns Companies Inc. AE Investment and
Deferred Compensation Plan, effective January 1,
1989 (the "AE Investment and Deferred
Compensation Plan").*
(10)(a)(15) Amendment to the AE Investment and Deferred
Compensation Plan, adopted April 29, 1996 and
effective as of January 1, 1995.*
(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 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.
40
<PAGE>
(12) Statement re: computation of ratio of earnings to
fixed charges.
(13) 1996 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.
- ---------------------------------
* Executive Compensation Plans and Arrangements
(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 17,
1996, pertaining to the registrant's results
of operations for the three months and nine
months ended March 29, 1996.
A Current Report on Form 8-K dated April 18,
1996, pertaining to the declaration of
dividends.
A Current Report on Form 8-K dated May 23,
1996 pertaining to a tax opinion in
connection with the Company's Medium Term
Note Program.
41
<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 27th day of
September, 1996.
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 27th day of September, 1996.
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
William J. Montgoris Financial Officer
(Principal Financial
Officer); Director
/s/ Alan D. Schwartz
- --------------------------------- Executive Vice
Alan D. Schwartz President; Director
/s/ Warren J. Spector Executive Vice
- --------------------------------- President; Director
Warren J. Spector
42
<PAGE>
NAME TITLE
---- -----
- --------------------------------- Executive Vice
Mark E. Lehman President; Director
- --------------------------------- 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/ Barry J. Cohen Director
- ---------------------------------
Barry J. Cohen
/s/ Wendy L. de Monchaux Director
- ---------------------------------
Wendy L. de Monchaux
- --------------------------------- Director
Grace J. Fippinger
/s/ Bruce E. Geismar Director
- ---------------------------------
Bruce E. Geismar
/s/ Carl D. Glickman Director
- ---------------------------------
Carl D. Glickman
/s/ Thomas R. Green Director
- ---------------------------------
Thomas R. Green
43
<PAGE>
NAME TITLE
---- -----
/s/ Donald J. Harrington Director
- ---------------------------------
Donald J. Harrington
/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
/s/ Bruce M. Lisman Director
- ---------------------------------
Bruce M. Lisman
/s/ Roland N. Livney Director
- ---------------------------------
Roland N. Livney
/s/ Donald R. Mullen Jr. Director
- ---------------------------------
Donald R. Mullen Jr.
/s/ Frank T. Nickell Director
- ---------------------------------
Frank T. Nickell
/s/ Craig M. Overlander Director
- ---------------------------------
Craig M. Overlander
/s/ Stephen E. Raphael Director
- ---------------------------------
Stephen E. Raphael
44
<PAGE>
NAME TITLE
---- -----
/s/ E. John Rosenwald Jr. Director
- ---------------------------------
E. John Rosenwald Jr.
/s/ Lewis A. Sachs Director
- ---------------------------------
Lewis A. Sachs
- --------------------------------- Director
Frederic V. Salerno
/s/ David M. Solomon Director
- ---------------------------------
David M. Solomon
- --------------------------------- Director
Robert M. Steinberg
/s/ Michael L. Tarnopol Director
- ---------------------------------
Michael L. Tarnopol
/s/ Vincent Tese Director
- ---------------------------------
Vincent Tese
- --------------------------------- Director
Fred Wilpon
/s/ Uzi Zucker Director
- ---------------------------------
Uzi Zucker
/s/ Michael J. Abatemarco Controller
- ---------------------------------
Michael J. Abatemarco
/s/ Samuel L. Molinaro Jr. Senior Vice President
- --------------------------------- Finance (Principal
Samuel L. Molinaro Jr. Accounting Officer)
45
<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, 1996, 1995 and 1994 35
(ii) Consolidated Statements of Financial
Condition at June 30, 1996 and 1995 36
(iii) Consolidated Statements of Cash Flows-
fiscal years ended
June 30, 1996, 1995 and 1994 37
(iv) Consolidated Statements of Changes in
Stockholders' Equity - fiscal years
ended June 30, 1994, 1995 and 1996 38-39
(v) Notes to Consolidated Financial
Statements 40-54
Financial Statement Schedules
- -----------------------------
Independent Auditors' Report F-2
I Condensed financial information of
registrant F-3 - F-6
II Valuation and qualifying accounts F-7
* Incorporated by reference from the indicated
pages of the 1996 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.
F-1
<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, 1996 and 1995, and for each of
the three years in the period ended June 30, 1996, and have issued our report
thereon dated August 26, 1996; such consolidated financial statements and report
are included in the Annual Report to Stockholders and are incorporated herein by
reference. Our audit 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
August 26, 1996
F-2
<PAGE>
SCHEDULE I
<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, 1996 June 30, 1995 June 30, 1994
------------- ------------- -------------
<S> <C> <C> <C>
Revenues
Interest
Coupon $ - $ 8,397 $ 8,851
Intercompany 869,127 711,701 361,824
Other 59,811 52,444 49,056
-------- -------- --------
928,938 772,542 419,731
-------- -------- --------
Expenses
Interest 876,536 743,730 415,794
Other 66,502 51,788 48,108
-------- -------- --------
943,038 795,518 463,902
-------- -------- --------
Loss before provision
for (benefit from) income taxes
and equity in earnings of
subsidiaries (14,100) (22,976) (44,171)
Provision for (benefit from)
income taxes 5,689 2,427 (15,320)
-------- -------- --------
Loss before equity in
earnings of subsidiaries (19,789) (25,403) (28,851)
Equity in earnings of
subsidiaries 510,427 266,014 415,816
-------- -------- --------
Net income $ 490,638 $ 240,611 $ 386,965
======== ======== ========
</TABLE>
See Notes to Condensed Financial Information.
F-3
<PAGE>
SCHEDULE I
<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,
1996 1995
----------- ------------
<S> <C> <C>
ASSETS
Cash $ 2,783 $ 2,028
Receivables from subsidiaries 15,306,820 12,119,142
Investments in subsidiaries, at equity 2,958,437 2,421,957
Property, equipment and leasehold improvements,
net of accumulated depreciation and amortization
of $274,319 in 1996 and $214,398 in 1995 263,916 246,111
Other assets 372,055 258,189
---------- ----------
Total Assets $18,904,011 $15,047,427
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings $ 9,531,203 $ 8,224,457
Payables to subsidiaries 24,355 31,750
Other liabilities 368,556 188,958
---------- ----------
9,924,114 8,445,165
---------- ----------
Long-term borrowings 6,043,614 4,059,944
---------- ----------
Long-term borrowings from subsidiaries 190,869 189,857
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value; 10,000,000 shares authorized:
Adjustable Rate Cumulative Preferred Stock,
Series A; $50 liquidation preference; 3,000,000
shares issued 150,000 150,000
Cumulative Preferred Stock, Series B; $200
liquidation preference; 937,500 shares
issued and outstanding 187,500 187,500
Cumulative Preferred Stock, Series C; $200
liquidation preference; 500,000 shares
issued and outstanding 100,000 100,000
Common stock, $1.00 par value; 200,000,000 shares
authorized; 159,803,764 shares and 152,202,724
shares issued in 1996 and 1995, respectively 159,804 152,203
Paid-in capital 1,696,217 1,557,237
Retained earnings 694,108 430,330
Capital Accumulation Plan 471,191 344,338
Treasury stock, at cost -
Adjustable Rate Cumulative Preferred
Stock, Series A; 2,341,350 shares and 2,118,550 shares
in 1996 and 1995, respectively (95,389) (85,507)
Common stock; 41,664,729 shares and 34,866,529
shares in 1996 and 1995, respectively (598,217) (458,193)
Note receivable from ESOP Trust (19,800) (25,447)
---------- ----------
Total Stockholders' Equity 2,745,414 2,352,461
---------- ----------
Total Liabilities and Stockholders' Equity $18,904,011 $15,047,427
========== ==========
</TABLE>
See Notes to Condensed Financial Information.
F-4
<PAGE>
SCHEDULE I
<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, 1996 June 30, 1995 June 30, 1994
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 490,638 $ 240,611 $ 386,965
Adjustments to reconcile net
income to cash used in
operating activities:
Equity in earnings of
subsidiaries, net of dividends
received (300,043) (193,724) (344,529)
Other 66,081 65,118 48,783
(Increases) decreases in assets:
Receivables from subsidiaries (3,187,678) (1,313,631) (3,110,390)
Investments in subsidiaries,
net (236,437) 10,025 (40,231)
Other assets 1,490 (18,744) (105,226)
Increases (decreases) in liabilities:
Payables to subsidiaries (6,383) (477) 117,956
Other liabilities 174,542 48,042 (13,896)
---------- ---------- ----------
Cash used in operating
activities (2,997,790) (1,162,780) (3,060,568)
---------- ---------- ----------
Cash flows from financing activities:
Net proceeds from issuance of
Cumulative Preferred Stock - - 96,689
Net proceeds from short-term
borrowings 1,306,746 648,360 1,584,682
Issuance of long-term borrowings 2,654,134 1,040,090 1,795,979
Capital Accumulation Plan 181,702 87,560 137,084
Common Stock distributions 6,497 18,088 3,733
Note repayment from ESOP Trust 5,647 5,229 4,841
Payments for:
Retirement of Senior Notes (674,000) (400,300) (273,000)
Treasury stock purchases (191,474) (70,373) (147,763)
Cash dividends paid (95,001) (92,642) (90,769)
---------- ---------- ----------
Cash provided by financing
activities 3,194,251 1,236,012 3,111,476
---------- ---------- ----------
Cash flows from investing activities:
Purchases of property, equipment and
leasehold improvements (77,510) (81,282) (65,473)
Purchases of investment securities
and other assets (118,938) - (17,192)
Proceeds from sale of investment
securities and other assets 742 9,217 31,928
--------- ---------- ----------
Cash used in investing activities (195,706) (72,065) (50,737)
--------- ---------- ----------
Net increase in cash 755 1,167 171
Cash, beginning of year 2,028 861 690
--------- ---------- ---------
Cash, end of year $ 2,783 $ 2,028 $ 861
========= ========== =========
</TABLE>
See Notes to Condensed Financial Information.
F-5
<PAGE>
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
THE BEAR STEARNS COMPANIES INC.
(PARENT COMPANY ONLY)
NOTES TO CONDENSED FINANCIAL INFORMATION
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 $210.4 million, $72.2 million, and $71.3 million for the fiscal
years ended June 30, 1996, 1995 and 1994, respectively.
3. STATEMENT OF CASH FLOWS
Income taxes paid (consolidated) totaled $279.0 million, $125.6
million, and $276.6 million in the fiscal years ended June 30, 1996,
1995 and 1994, respectively. Cash payments for interest approximated
interest expense for the fiscal years ended June 30, 1996, 1995 and
1994, respectively.
F-6
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
THE BEAR STEARNS COMPANIES INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(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, 1996 $54,175 $ 4,892 $(8,418) $50,649
Year ended June 30, 1995 42,053 6,479 (4,357) 54,175
Year ended June 30, 1994 35,479 12,871 (6,297) 42,053
</TABLE>
F-7
<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)).
EXHIBIT INDEX - 1
<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).
EXHIBIT INDEX - 2
<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) Amendment to the Management Compensation Plan,
adopted September 10, 1996, subject to approval
of Stockholders at the 1996 Annual Meeting.
EXHIBIT INDEX - 3
<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 the CAP Plan, adopted August 7,
1995, (incorporated by reference to Exhibit
10(a)(9) to the registrant's Annual Report on
Form 10-K for its fiscal year ended June 30,
1995).
(10)(a)(10) Amendment to the CAP Plan, adopted January 18,
1996 certain provisions of which are subject to
the approval of the Stockholders at the 1996
Annual Meeting (filed as Exhibit 10(a)(10) to the
registrant's Quarterly Report on Form 10-Q for
its fiscal quarter ended December 31, 1995).
(10)(a)(11) Amendment to CAP Plan, adopted February 7, 1996
subject to the approval of the Stockholders at
the 1996 Annual Meeting (filed as Exhibit
10(a)(11) to the registrant's Quarterly Report on
Form 10-Q for its fiscal quarter ended December
31, 1995).
(10)(a)(12) Amendment to the CAP Plan, adopted September 10,
1996, certain provisions of which are subject to
approval of the Stockholders at the 1996 Annual
Meeting.
(10)(a)(13) Performance Compensation Plan, adopted September
10, 1996 subject to approval of Stockholders at
the 1996 Annual Meeting (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 to be held on October 28, 1996).
EXHIBIT INDEX - 4
<PAGE>
Exhibit No. Exhibit
- ----------- -------
(10)(a)(14) The Bear Stearns Companies Inc. AE Investment and
Deferred Compensation Plan, effective January 1,
1989 (the "AE Investment and Deferred
Compensation Plan").
(10)(a)(15) Amendment to the AE Investment and Deferred
Compensation Plan, adopted April 29, 1996 and
effective as of January 1, 1995.
(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 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) 1996 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.
EXHIBIT INDEX - 5
NYFS04...:\25\22625\0110\6678\10K9196P.17C
Exhibit 10(a)(5)
THE BEAR STEARNS COMPANIES INC.
AMENDMENT TO MANAGEMENT COMPENSATION PLAN
RESOLVED, that Section 6.1 of the Management Compensation
Plan be amended by increasing the maximum share of the Annual
Bonus Pool that may be allocated to any participant in any fiscal
year from 25% to 30%, subject to stockholder approval at the 1996
Annual Meeting of Stockholders.
NYFS04...:\25\22625\0110\6678\EXH9186R.07A
Exhibit 10(a)(12)
THE BEAR STEARNS COMPANIES INC.
AMENDMENT TO CAPITAL ACCUMULATION PLAN
RESOLVED, that The Bear Stearns Companies Inc. Capital
Accumulation Plan for Senior Managing Directors, as amended
and restated as of July 1, 1993 and further amended
thereafter to and including February 7, 1996 (the "Plan"),
by and hereby is amended as follows:
1. The definition of "Board Committee" in Section 2.1
of the Plan is amended by changing the word
"disinterested" to "Non-Employee Directors".
2. The definition of "Deferral Period" in Section 2.1
of the Plan is amended by deleting that portion of
the definition beginning with "(a) in the fifth
line through (b)" in the 10th line.
3. The definition of "Enrollment Period" in Section
2.1 of the Plan is amended by deleting the words
"who is not a Reporting Person and" in the fifth
and sixth lines and by deleting the following
words beginning in the fourteenth line:
"Reporting Persons in no event shall an Enrollment
Period end less than six (6) months before the
beginning of the applicable Deferral Period;
provided, further, that with respect to".
4. Section 4.3 of the Plan is hereby amended by
deleting the following proviso in the last three
lines of the Section: "provided, however, with
respect to Reporting Persons in no event shall an
Enrollment Period end less than six months before
the beginning of the applicable Deferral Period".
5. Section 6.5 of the Plan is amended to read as
follows:
"Special Provisions for Reporting Persons. If
----------------------------------------
required by Rule 16b-3, shares of Common Stock
distributed to Participants who are Reporting
Persons shall bear an appropriate legend to the
effect that such shares of Common Stock may not be
transferred for a period of six (6) months after
they are credited to the Account of such
Participant".
<PAGE>
RESOLVED, that the foregoing amendments shall be
subject to stockholder approval at the 1996 Annual Meeting
of Stockholders of the Corporation.
RESOLVED, that the Plan as amended hereby shall be
Restated as of the date of approval of the foregoing
amendments, together with the applicable amendments adopted
on January 18 and February 7, 1996, at the 1996 Annual
Meeting of Stockholders of the Corporation.
NYFS04...:\25\22625\0110\6678\EXH9186R.030
EXHIBIT 10(a)(14)
THE BEAR STEARNS COMPANIES INC.
AE INVESTMENT AND DEFERRED COMPENSATION PLAN
EFFECTIVE JANUARY 1, 1989
<PAGE>
TABLE OF CONTENTS
Page
Section 1 Purpose and Effective Date.................................. 1
Section 2 Definitions................................................ 1
Section 3 Eligibility................................................... 3
Section 4 Company Benefit.............................................. 3
Section 5 Elective Deferrals............................................ 4
Section 6 Additional Allocation........................................ 5
Section 7 Payment of Benefits........................................... 7
Section 8 Source of Payment............................................. 8
Section 9 Administration of the Plan.................................... 8
Section 10 Amendment and Termination.................................... 9
Section 11 Designation of Beneficiaries.................................. 9
Section 12 General Provisions............................................10
NYFS04...:\25\22625\0110\1324\APP9256P.03A
<PAGE>
THE BEAR STEARNS COMPANIES INC.
AE INVESTMENT AND DEFERRED COMPENSATION PLAN
SECTION 1
PURPOSE AND EFFECTIVE DATE
1.1 The purpose of The Bear Stearns Companies Inc. AE Investment and
Deferred Compensation Plan is to assist The Bear Stearns Companies Inc. in
attracting and retaining account executives who will make a significant
contribution to the success of the business of The Bear Stearns Companies Inc.
and its subsidiary, Bear, Stearns & Co. Inc.
1.2 The effective date of this Plan is January 1, 1989.
SECTION 2
DEFINITIONS
When used herein, the following terms shall have the following meanings:
2.1 "Account" means a Company Contribution Account or a Deferred
Compensation Account under this Plan.
2.2 "Affiliate" means any corporation or other entity which is controlled,
directly or indirectly, by the Company and which the Committee designates as an
"affiliate" for purposes of the Plan from time to time.
2.3 "Associate" means (1) any corporation or organization of which such
Person is an officer or partner or is, directly or indirectly, the Beneficial
Owner of 10% or more of any class of equity securities, (2) any trust or other
estate in which such Person has a substantial beneficial interest or as to which
such Person serves as trustee or in a similar fiduciary capacity, and (3) any
relative or spouse of such Person, or any relative of such spouse, who has the
same home as such Person or who is a director or officer of such Person or any
of its parents or subsidiaries.
2.4 "Bear Stearns" means Bear, Stearns & Co. Inc., a Delaware corporation,
and its successors and assigns.
2.5 "Beneficial Owner," "Beneficial Ownership" and similar terms shall
have the meaning specified in Rule 13d-3 under the Securities Exchange Act of
1934, except that in any case a Person shall be deemed the Beneficial Owner of
any securities owned directly or indirectly by the Affiliates and Associates of
such Person.
2.6 "Beneficiary" means the beneficiary or beneficiaries designated in
accordance with Section 11 to receive the amount, if any, payable hereunder upon
the death of a Participant.
2.7 "Board of Directors" means the Board of Directors of the Company.
<PAGE>
2.8 "Change in Control" means (i) a majority of the Board of Directors
ceases to consist of Continuing Directors; (ii) any Person becomes the
Beneficial Owner of 50% or more of the outstanding voting power of the Company
unless such acquisition is approved by a majority of the Continuing Directors;
(iii) the stockholders of the Company approve an agreement to merge or
consolidate into any other entity, unless such merger or consolidation is
approved by a majority of the Continuing Directors; or (iv) the stockholders of
the Company approve an agreement to dispose of all or substantially all of the
assets of the Company, unless such disposition is approved by a majority of the
Continuing Directors.
2.9 "Committee" means the AE Deferred Compensation and Investment
Committee designated by the Board of Directors or any duly authorized committee
thereof to administer this Plan.
2.10 "Company" means The Bear Stearns Companies Inc., a Delaware
corporation and its successors and assigns.
2.11 "Company Common Stock" means common stock, par value $1.00 per share,
of the Company.
2.12 "Company Contribution Account" means the bookkeeping entry
established and maintained in respect of a Participant pursuant to Section 4.1.
2.13 "Compensation" means all amounts paid to an Employee by the Company
or Bear Stearns during a calendar year, including any elective deferrals under
this Plan. The Bear Stearns Companies Inc. Cash or Deferred Compensation Plan or
any other tax-qualified or nonqualified deferred compensation plan or program,
but excluding any payments of amounts under such plans, payments made under the
Company's or Bear Stearns' short-term sick pay plan, and any other form of
non-cash compensation; provided, however, that with respect to each Employee who
is designated by an Employer as a Senior Managing Director, Compensation means
only commissions and fees (excluding base salary and bonus).
2.14 "Continuing Director" means any member of the Board of Directors who
was such a member on January 1, 1989 or who is elected to the Board of Directors
after January 1, 1989 upon the recommendation or with the approval of a majority
of the Continuing Directors at the time of such recommendation or approval.
2.15 "Deferred Compensation Account" means the bookkeeping entry
established and maintained in respect of a Participant pursuant to Section 5.3.
2.16 "Disability" means the complete and permanent inability of an
individual to perform his duties due to his physical or mental incapacity, all
as determined by the Committee upon the basis of such evidence, including
independent medical reports and data, as the Committee deems appropriate or
necessary. Notwithstanding the above, an individual automatically shall be
deemed to have suffered a Disability if such individual is eligible for
disability benefits under any employer sponsored long term disability program or
under the U.S. Social Security system.
2.17 "Employee" means any person (other than any executive officer or
director of the Company) employed by Bear Stearns or, if so determined by the
Committee, by any Affiliate, as an account executive, provided that such
individual's Compensation in the applicable calendar year is at least $100,000
or such other amount as determined by the Committee.
2.18 "Fund" means any one or more of the investment vehicles selected by
the Committee in order to determine the amounts to be credited or debited on the
unpaid amount in each Company Contribution
2
<PAGE>
Account and Deferred Compensation Account pursuant to Section 6. The Committee
shall determine the investment performance of any Fund or Funds.
2.19 "Hardship" shall mean an unforeseen emergency to the Participating
Director resulting from a sudden and unexpected illness or accident of the
Participating Director or the Participating Director's dependent (as defined in
section 152(a) of the Internal Revenue Code of 1986, as amended), loss of the
Participating Director's property due to casualty or other similar extraordinary
and unforeseeable circumstances arising as a result of events beyond the control
of the Participating Director.
2.20 "Participant" means any Employee, former Employee, Participating
Director or former Participating Director who is eligible to participate in the
Plan or for whom a Company Contribution Account or Deferred Compensation Account
is maintained.
2.21 "Participating Director" shall mean an Employee who is a Senior
Managing Director, Managing Director or Associate Director of the Company.
2.22 "Person" shall mean an individual, a corporation, a partnership, an
association, a joint stock company, a trust, any unincorporated organization or
a government or a political subdivision thereof.
2.23 "Plan" means The Bear Stearns Companies Inc. AE Investment and
Deferred Compensation Plan as set forth herein and as amended and restated from
time to time.
2.24 "Retirement" means the termination of an individual's employment with
the Company on or after attaining age 65 or at such other date as the Committee
determines.
2.25 "Valuation Date" means, for each Fund, the applicable date as
designated by the Committee, on which the value of a Fund or of a Participant's
Account with respect to a Fund is to be determined, including any other date as
the Committee, in its sole discretion, may designate from time to time.
SECTION 3
ELIGIBILITY
3.1 Each Employee shall participate in the Plan in accordance with the terms of
the Plan; provided, however, that only Participating Directors who have filed a
valid Compensation Reduction Agreement (as defined in Section 5.1) with the
Committee shall be eligible to defer Compensation pursuant to Section 5.
SECTION 4
COMPANY BENEFIT
4.1 During the first quarter of each calendar year beginning with the year
1990, the Company shall credit, for bookkeeping purposes only, to each
Employee's Company Contribution Account, the percentage of such Employee's
Compensation for the immediately preceding calendar year determined pursuant to
the following table:
3
<PAGE>
INCREMENTAL
INCREMENTAL COMPENSATION COMPANY CONTRIBUTION
------------------------ --------------------
$100,000 or less................................... 0%
between $100,001-$300,000.......................... 3.25%
between $300,001-$500,000.......................... 4.25%
between $500,001-$700,000.......................... 4.50%
$700,001 and over.................................. 4.75%
An Employee shall not be eligible to receive a Company Contribution under
this Section 4 in any calendar year in which his Compensation is less than or
equal to $100,000 or such other amount as determined by the Committee.
Notwithstanding anything else herein to the contrary, the amount credited
to an Employee's Company Contribution Account for any calendar year shall not
exceed $44,300 (regardless of the amount of the Employee's Compensation for such
year) unless prior to the start of such year the Committee determines to apply a
different limit.
4.2 The amount credited to an Employee's Company Contribution Account
under Section 4.1 for any year, as adjusted pursuant to Section 6.1, shall
become fully vested on the fifth anniversary of the December 31 of the calendar
year to which such credit relates, provided that the Employee has five
consecutive years of service with Bear Stearns or any Affiliate during such
period, or such shorter period as determined by the Committee. In addition, the
entire amount credited to an Employee's Company Contribution Account shall
become fully vested upon his termination of employment with Bear Stearns without
being employed substantially contemporaneously therewith by an Affiliate due to
his death, Disability or Retirement or upon the occurrence of a Change in
Control. Upon termination of an Employee's employment for any reason other than
death, Disability or Retirement, the unvested amount allocated to such
Employee's Company Contribution Account shall be forfeited except such unvested
amount that the Committee, in its sole discretion, determines to vest in the
Employee. If the Company terminates the Plan pursuant to Section 10, the
Committee shall, in its sole discretion, determine whether the Participant shall
continue to vest in unvested amounts credited to the Participant's Company
Contribution Account, whether such amounts shall become immediately vested, or
any combination of the foregoing. The Company shall have no obligation to pay
any Participant or Beneficiary any amounts forfeited under this Section 4.2.
4.3 The establishment and maintenance of, or credits to, a Company
Contribution Account shall not vest in any Participant or his Beneficiary any
right, title or interest in or to any specific assets of the Company, or in or
to any specific assets of any Fund.
SECTION 5
ELECTIVE DEFERRALS
5.1 Each Participating Director may execute and file with the Committee a
"Compensation Reduction Agreement," in the form approved by the Committee,
electing that a portion of his Compensation for a calendar year, equal to one
percent and not more than twenty percent (or ten percent in the case of a
Participating Director who is an Associate Director), in multiples of one
percent, of his compensation during a calendar year shall be payable only as
deterred Compensation under the Plan; provided, however, that a Participating
Director shall not be permitted to defer more than $100,000 of Compensation in
any calendar year or such other dollar limit as may, from time to time, be
determined by the Committee.
4
<PAGE>
5.2 (a) Each election to defer Compensation shall be made prior to the end
of the calendar year preceding the calendar year for which such deferral is to
take effect. In addition, any Participating Director may make such an election
(i) within 30 days after the effective date of the Plan, with respect to his
Compensation for services performed during the calendar year in which the
effective date occurs but altar the effective date of the election, and (ii)
within 30 days after becoming a Participating Director, to defer compensation
for services performed during his first calendar year or portion thereof as a
Director after the effective date of the election. In addition, a Participating
Director who changes status from Associate Director to Managing Director may
elect, within 30 days after such change in status, to increase his deferral
election to up to twenty percent, in multiples of one percent, of his
Compensation after the effective date of the election. A Participating Director
who changes status from Managing Director to Associate Director shall not be
allowed to defer more then ten percent of his Compensation in the year following
such change in status.
(b) The election to defer Compensation pursuant to a Compensation
Reduction Agreement shall be irrevocable for a full calendar year or for such
portion thereof remaining after the effective date of the election and shall
continue in effect for each subsequent year until the Participating Director
ceases to be a Participating Director or until the Participating Director
terminates or modifies the election; provided, however, that in the event of a
Hardship, the Committee, in its sole discretion, may terminate any Compensation
Reduction Agreement with respect to a Participating Director for the remainder
of the applicable calendar year. Any such termination or modification shall be
made in writing and filed with the Committee, within the time prescribed by the
Committee and prior to the end of the calendar year preceding the calendar year
for which it is effective.
(c) A Participating Director who has filed a termination of election
pursuant to Section 5.2(b) may thereafter file another election described in
Section 5.2(a) for any calendar year commencing subsequent to the filing of such
election.
(d) If a Participating Director's status charges so that he is no
longer a Participating Director but is still an Employee, no further amounts
shall be credited to such individual's Deferred Compensation Account pursuant to
Section 5 with respect to such individual's Compensation and such individual's
Compensation Reduction Agreement shall be void, all as of the date of such
change in status, but such individual shall continue to be eligible for credits
to his Company Contribution Account pursuant to Section 4 based on his
Compensation as an Employee for the entire calendar year.
5.3 All Compensation deferred under this Section 5 shall be credited to
the Deferred Compensation Account established for the Participating Director by
the end of the month in which it otherwise would have been paid. A Participating
Director shall always be fully vested in the amount credited to his Deferred
Compensation Account as adjusted from time to time pursuant to Section 6.1.
5.4 The establishment and maintenance of, or credits to, such Deferred
Compensation Account shall not vest in any Participating Director or his
Beneficiary any right, title or interest in or to any specific assets of the
Company, or in or to any specific assets of any Fund.
SECTION 6
ADDITIONAL ALLOCATION
6.1 Subject to Section 6.7, each Employee and Participating Director shall
select a Fund or Funds for purposes of allocation under the Plan in multiples of
ten percent for each of his Company Compensation
5
<PAGE>
Account and his Deferred Compensation Account. Such selection shall be made
prior to the later of (i) the date the Employee or Participating Director
becomes eligible to participate in the Plan or (ii) 30 days alter the effective
date of the Plan. A Participant may elect to change his selection of a Fund or
Funds for purposes of allocation under the Plan for a current calendar year
twice in each calendar year. Such an election shall be made on the form and
within the time prescribed by the Committee and no election shall be honored if
received by the Committee earlier or later than such times. No such change in
selection shall be effective prior to 90 days after the effective date of any
prior selection for the current calendar year. A change in selection shall be
effective as of a Valuation Date no later than 30 days after it is timely filed
with the Committee.
6.2 Each Company Contribution Account and each Deferred Compensation
Account shall be credited (or debited) with additional amounts equal to the
investment performance (including interest and dividends paid) of each of the
Fund or Funds selected by the Participant pursuant to Section 6.1 or 6.3 with
respect to the relevant period, which credit (or debit) shall be made as soon as
practicable after the Valuation Date for each of the Fund or Funds. All such
amounts credited (or debited) pursuant to the preceding sentence shall be deemed
to be reinvested in (or deducted from) the Fund to which the amounts relate and
such reinvestment (or deduction) shall be deemed to occur as of the applicable
Valuation Date for such Fund.
6.3 A Participant may select different Funds for purposes of allocation
under the Plan, in multiples of ten percent, with respect to each calendar year
for which amounts are credited to his Company Contribution Account or Deferred
Compensation Account, and, if such different selections are made, each such
Account shall be treated as a separate Account for purposes of allocation and
recordkeeping under the Plan. The selection of Funds for any calendar year may
be changed during such calendar year pursuant to Section 6.1. If a Participant
changes his selection of Funds for amounts credited to any Account in respect of
any prior calendar year alter the end of such year, he shall be deemed to have
changed his selection of Funds for all amounts credited to any Account in
respect of all prior calendar years. Such a change may be made twice in each
calendar year. Such an election shall be made on the form and within the time
prescribed by the Committee and no election shall be honored if received by the
Committee earlier or later than such time. No such change in selection shall be
effective prior to 90 days after the effective date of any prior election for a
prior calendar year. A change in selection shall be effective as of a Valuation
Date no later than 30 days after it is timely filed with the Committee.
6.4 If the effective date of a change in selection made under Section 6.1
or 6.3 is not a Valuation Date for both the Fund which had previously been
selected and the newly selected Fund, the amounts effected by such change shall
be credited (or debited) with additional amounts equal to the investment
performance of the Fund which is a money market fund from the Valuation Date of
the Fund which had been previously selected until the immediately following
Valuation Date of the newly selected Fund.
6.5 A Participant who ceases to be an employee of Bear Stearns without
becoming employed substantially contemporaneously therewith by an Affiliate
shall have no right to select any Fund or Funds thereafter and his Account shall
be credited (or debited) with investment performance thereafter in accordance
with Section 6.6. No selection of any Fund or Funds shall be effective if a
Participant terminates employment with Bear Stearns without becoming employed
substantially contemporaneously therewith by an Affiliate before the applicable
Valuation Date on which such selection would otherwise be effective.
6.6 Each Company Contribution Account and Deferred Compensation Account
shall continue to be credited (or debited) under each of the Fund or Funds
selected by the Participant under this Section 6 until (i) in the case of a
Participant who is expected to receive a distribution on account of a
Distribution Election
6
<PAGE>
which did not specify distribution upon his termination of employment, the
Valuation Date for each of the Fund or Funds immediately preceding the date such
distribution is expected to be payable, or (ii) in the case of a Participant who
terminates employment, the Valuation Date for each of the Fund or Funds
immediately following his termination of employment; and, in either case, such
Company Contribution Account or Deferred Compensation Account shall be credited
(or debited) thereafter with additional amounts equal to the investment
performance of the Fund which is a money market fund until actually distributed
to the Participant. Any amount payable to a Participant on account of
termination of employment may be made, as determined by the Committee, within 60
days after either tile immediately following applicable Valuation Date for each
such Fund or Funds to be valued, or the latest such Valuation Date.
6.7 The Committee may impose any limitations on any Fund or Funds,
including limitations on the minimum and maximum amounts which may be elected by
any or all Participants with respect to any Fund or Funds, and the minimum and
maximum number of Funds which may be selected by a Participant. If a Participant
selects a Fund which is the Company Common Stock fund, he cannot change this
selection at any time. If a Participant fails to make a selection of Fund or
Funds for purposes of allocation of his Company Contribution Account or Deferred
Compensation Account, such Accounts shall be credited (or debited) with
additional amounts equal to the investment performance of the Fund which is a
money market fund pending such selection.
6.8 The Committee may, but need not, make the same Funds available to all
Participants. The Committee may, in its sole discretion, change the Funds
available under the Plan at any time, including to add any Fund or Funds which
are not managed by Bear Stearns.
6.9 The Company and Bear Stearns shall have no obligation to invest a
Participant's Company Contribution Account or Deferred Compensation Account in
any Fund or Funds selected by the Participant.
SECTION 7
PAYMENT OF BENEFITS
7.1 Prior to becoming eligible to participate in the Plan, each Employee
or Participating Director may execute and file with the Committee a
"Distribution Agreement," in the form approved by the Committee, electing that
the vested amount credited to his Company Contribution Account and the amount
credited to his Deferred Compensation Account shall be payable to the Employee
in the form and at the time or times specified in such Distribution Agreement.
If the Employee or Participating Director does not file a Distribution
Agreement, his vested Company Contribution Account and his Deferred Compensation
Account shall be paid in a lump sum within 60 days after the Valuation Date
immediately following the later of the date the Employee terminates his
employment with Bear Stearns without becoming employed substantially
contemporaneously therewith by an Affiliate or attains age 65 A Participant may
file a new Distribution Agreement with the Committee prior to the end of the
calendar year preceding the calendar year for which it is to become effective;
provided, however, that no such new Distribution Agreement shall apply to
amounts credited to his Company Contribution Account or his Deferred
Compensation Account prior to the effective date of such new Distribution
Agreement.
7.2 Notwithstanding any election to the contrary, the vested amount
allocated to each Participant's Company Contribution Account and Deferred
Compensation Account shall be paid in a lump sum on the earliest of the
following dates: (i) within 60 days after the Valuation Date next following a
Change in Control, (ii) within 60 days after the Valuation Date next following
the date the Committee receives written notification of the Participant's death,
(iii) within 60 days after the Valuation Date next following the
7
<PAGE>
termination of the Plan, (iv) at the discretion of the Committee, within 60 days
after the December 31 next following the date the Participant suffers a
Disability and (v) at the discretion of the Committee, as soon as
administratively feasible after the date a Participant requests a distribution
as a result of a Hardship. The Committee may also make payment of amounts due
with respect to any Participant at any time, whether or not he has terminated
employment with the Company or Bear Stearns, regardless of the Participant's
Distribution Agreement.
7.3 Notwithstanding any provision herein to the contrary, upon an
occurrence of a Change in Control, amounts shall not be vested or immediately
distributable under the Plan if and to the extent that the Committee determines
that such vesting or acceleration (taken together with any other payments
received or to be received by the Participant from the Company, Bear Stearns or
an Affiliate in connection with a Change in Control) would constitute or result
in an "excess parachute payment" under Section 280G of the Internal Revenue Code
of 1986, as amended (the "Code"), or any similar provision of the Code or of any
successor federal income tax law, which would cause such amounts to be subject
to an excise tax to the Participant or nondeductible to the Company or, Bear
Stearns, as the case may be.
7.4 All amounts payable under this Plan shall be paid in cash, provided
that any amounts which are calculated by reference to Company Common Stock under
Section 6 may, in the discretion of the Committee, be paid in the form of whole
shares of Company Common Stock with a cash payment in lieu of any fractional
shares.
SECTION 8
SOURCE OF PAYMENT
8.1 All payments provided for under the Plan shall be paid in cash from
the general funds of the Company; provided, however, that amounts to be paid in
Company Common Stock shall be paid in treasury shares or shares of authorized
but unissued common stock, and provided further, that such distributions shall
be reduced by the amount of any payments made to the Participant or his
Beneficiary from any trust or special or separate fund established by the
Company to assure such payments. The Company shall not be required to establish
a special or separate fund or otherwise segregate any assets to assure such
payments and, if the Company shall make any investments to aid it in meeting its
obligations hereunder, the Participant and his Beneficiary shall have no right,
title or interest whatever in or to any such investments except such interest,
if any, as may otherwise be expressly provided in a separate written instrument
relating to such investments. Nothing contained in this Plan, and no action
taken pursuant to its provisions, shall create or be construed to create a trust
of any kind between the Company and any Participant or Beneficiary. To the
extent that any Participant or Beneficiary acquires a right to receive payments
from the Company hereunder, such right shall be no greater than the right of a
general unsecured creditor of the Company.
SECTION 9
ADMINISTRATION OF THE PLAN
9.1 The Plan shall be administered by the Committee, which shall have full
power and authority to interpret, construe and administer the Plan and to review
claims for benefits under the Plan. The Committee's interpretations and
constructions of the Plan and actions thereunder shall be binding and conclusive
on all persons and for all purposes. The Committee's determination of the
amounts in any Fund
8
<PAGE>
or Funds or in any Company Contribution Account or Deferred Compensation Account
shall be final and binding on all persons, including the Company, the
Participant and his Beneficiaries.
9.2 The Committee shall establish and maintain records of the Plan and of
each account established for any Participant hereunder. The Committee shall
engage such certified public accountants, who may be accountants for the
Company, as it shall require or may deem advisable for purposes of the Plan, may
arrange for the engagement of such legal counsel, who may be counsel for the
Company, and may make use of such agents and clerical or other personnel as it
shall require or may deem advisable for purposes of the Plan. The Committee may
rely upon the written opinion of the accountants engaged by the Committee and
such counsel and may delegate to any agent or to any subcommittee or member of
the Committee its authority to perform any act hereunder, including without
limitation those matters involving the exercise of discretion, provided that
such delegation of authority shall be subject to revocation at any time at the
discretion of the Committee. The Company shall pay the fees and expenses of such
accountants, counsel, agents and other personnel and all other costs of
administration of the Plan.
9.3 To the maximum extent permitted by applicable law, no member of the
Committee shall be personally liable by reason of any contract or other
instrument executed by him or on his behalf in his capacity as a member of the
Committee or for any mistake of judgment made in good faith, and the Company
shall indemnify and hold harmless, directly front its own assets (including the
proceeds of any insurance policy the premiums of which are paid from the
Company's own assets), each member of the Committee and each other officer,
employee or director of the Company to whom any duty or power relating to the
administration or interpretation of the Plan or to the management or control of
the assets of the Plan may be delegated or allocated, against any cost or
expense (including fees, disbursements and other charges of legal counsel) or
liability (including any sum paid in settlement of a claim with the approval of
the Company) arising out of any act or omission to act in connection with the
Plan unless arising out of such person's own fraud, willful misconduct or bad
faith.
SECTION 10
AMENDMENT AND TERMINATION
10.1 The Plan may be amended, suspended or terminated, in whole or in
part, by the Board of Directors, but no such action shall retroactively impair
or otherwise adversely affect the rights of any person to benefits under the
Plan which have accrued prior to the dare of such action, as determined by the
Committee.
SECTION 11
DESIGNATION OF BENEFICIARIES
11.1 Such Participant who participates in the Plan shall file with the
Committee a written designation of one or more persons as the Beneficiary who
shall be entitled to receive the amount, if any, payable under the Plan upon his
death. A Participant, from time to time, may revoke or change his Beneficiary
designation without the consent of any prior Beneficiary by filing a new such
designation with the Committee. The most recent such designation received by the
Committee shall be controlling; provided, however, that no designation, or
change of revocation thereof, shall be effective unless received by the
Committee prior to the Participant's death, and in no event shall it be
effective as of the date prior to such receipt.
9
<PAGE>
11.2 If no such Beneficiary designation is in effect at the time of a
Participant's death, or if no designated Beneficiary survives the Participant,
or if such designation conflicts with law, the Participant's estate shall be
deemed to have been designated his Beneficiary and shall receive the payment of
the amount; if any, payable under the Plan upon his death. If the Committee is
in doubt as to the right of any person to receive such amount, the Committee may
retain such amount, without liability for any interest thereon, until the rights
thereto are determined, or the Committee may pay such amount into any court of
appropriate jurisdiction and such payment shall be a complete discharge of the
liability of the Plan and the Company therefor.
SECTION 12
GENERAL PROVISIONS
12.1 The Plan shall be binding upon and inure to the benefit of the
Company and its successors and assigns and the Participant, his Beneficiaries
and his estate.
12.2 Neither the Plan nor any action taken hereunder shall be construed as
giving to a Participant the right to be retained in the employ of the Company or
any subsidiary or affiliate thereof or as affecting the right of the Company or
any subsidiary or affiliate thereof to dismiss any Participant.
12.3 The Company may withhold from any amounts payable under this Plan all
federal, state, city or other taxes as may be required pursuant to any law or
governmental regulation or ruling.
12.4 No right to any amount payable at any time under the Plan may be
assigned, transferred, pledged or encumbered, either voluntarily or by operation
of law, except as provided expressly herein (including in Section 12.6) as to
payments to a Participant or Beneficiary or as may otherwise be required by law.
If, by reason of any attempted assignment, transfer, pledge or encumbrance, or
any bankruptcy or other event happening at any time, any amount payable under
the Plan would be made subject to the debts or liabilities of the Participant or
his Beneficiary or Beneficiaries or would otherwise not be enjoyed by him, then
the Committee, if it so elects, may terminate such person's interest in any such
payment and direct that the same be held and applied to or for the benefit of
the Participant, his Beneficiary or Beneficiaries, or any other person deemed to
be the natural objects of his bounty, taking into account the expressed wishes
or the Participant (or, in the event of his death, his Beneficiary or
Beneficiaries).
12.5 If the Committee shall find that any person to whom any amount is or
was payable hereunder is unable to care for his affairs because of illness or
accident, or has died, then the Committee, if it so elects, may direct that any
payment due him or his estate (unless a prior claim therefore has been made by a
duly appointed legal representative) or any part thereof be paid or applied for
the benefit of such person or to or for the benefit of his spouse, children or
other dependents, an institution maintaining or having custody of such person,
any guardian or any other person deemed by the Committee to be a proper
recipient on behalf of such person otherwise entitled to payment, or any of
them, in such manner and proportion as the Committee may deem proper. Any such
payment shall be in complete discharge of the liability therefor of the Company,
the Plan or the Committee or any member, officer or employee thereof.
12.6 The Company, Bear Stearns, and any Affiliate shall have the absolute
right to withhold any amounts payable to any Participant or Beneficiary under
the terms of the Plan, to the extent of any amount owed for any reason by such
Participant in the case of a payment to such Participant, or to the extent of
any amount owed for any reason by the Participant or such Beneficiary in the
case of payment to a Beneficiary, to the Company, Bear Stearns or any Affiliate,
and to set off and apply the amounts so withheld to payment
10
<PAGE>
of any such amount owed to the Company, Bear Stearns or any Affiliate, whether
or not such amounts shall then be immediately due and payable and in such order
or priority as among such amounts owed as the Committee in its sole discretion
shall determine.
12.7 All elections, designations, requests, notices, instructions and
other communications from a Participant, Beneficiary or other person to the
Committee required or permitted under the Plan shall be in such form as is
prescribed from time to time by the Committee, shall be mailed by first-class
mail or delivered to such location as shall be specified by the Committee, and
shall be deemed to have been given and delivered only upon actual receipt
thereof at such location.
12.8 The benefits payable under this Plan shall be in addition to any
other benefits provided for Participants.
12.9 The captions preceding the sections and articles hereof have been
inserted solely as a matter of convenience and in no way define or limit the
scope or intent of any provisions of the Plan.
12.10 References to Sections herein are to the specified Sections of this
Plan unless another reference is specifically stated.
12.11 This Plan shall be governed by the laws of the State of New York as
from time to time in effect.
12.12 The masculine pronoun wherever used herein shall include the
feminine pronoun.
12.13 Whenever it is stated herein that the Committee may take any action
or make any determination, it may do so at any time and from time to time as in
its sole discretion it determines, unless specifically stated to the contrary
herein.
11
EXHIBIT 10(a)(15)
THE BEAR STEARNS COMPANIES INC.
AMENDMENT TO THE AE INVESTMENT AND DEFERRED COMPENSATION PLAN
EFFECTIVE JANUARY 1, 1995
RESOLVED, that the definition of "Employee" in Section 2.17 of the AE
Investment and Deferred Compensation Plan is amended by modifying the
parenthetical clause to provide "(other than any executive officer or director
of the Company unless such person is an account executive who becomes a
director)".
NYFS04...:\25\22625\0110\1324\APP9266U.430
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, 1996 June 30, 1995 June 30, 1994
------------- ------------- -------------
(In thousands, except per share data)
<S> <C> <C> <C>
Weighted average Common
and Common Equivalent
shares outstanding (1):
Common Stock outstanding 123,463 124,144 130,549
Common Stock equivalents:
Common Stock issuable assuming
conversion of CAP Units 17,905 15,831 9,521
Common stock issuable under employee
benefits plans 399 743 1,105
-------- -------- --------
Total weighted average common and
common equivalent shares outstanding 141,767 140,718 141,175
======== ======== ========
Net income $ 490,638 $ 240,611 $ 386,965
Preferred Stock dividend requirements (24,493) (25,137) (24,373)
Income adjustment (net of tax)
applicable to deferred compensation
arrangements 20,205 12,153 7,274
-------- --------- --------
Net Income Applicable to Common and
Common Equivalent Shares $ 486,350 $ 227,627 $ 369,866
======== ======== ========
Earnings per share $ 3.43 $ 1.62 $ 2.62
======== ======== ========
<FN>
(1) Adjusted to reflect stock dividends.
</FN>
</TABLE>
NYFS04...:\25\22625\0110\6678\EXH9186R.100
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, 1996 June 30, 1995 June 30, 1994 June 30, 1993 June 30, 1992
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Earnings before taxes on $ 834,926 $ 388,082 $ 642,799 $ 614,398 $ 507,625
income --------- ---------- --------- --------- ---------
Add: Fixed Charges
Interest 1,981,171 1,678,515 1,023,866 710,086 834,859
Interest factor in
rents 25,672 24,594 21,772 20,084 20,874
--------- --------- --------- --------- ---------
Total fixed charges 2,006,843 1,703,109 1,045,638 730,170 855,733
--------- --------- --------- --------- ---------
Earnings before fixed charges, $2,841,769 $2,091,191 $1,688,437 $1,344,568 $1,363,358
and provison for income taxes ========= ========= ========= ========= =========
Ratio of earnings to fixed charges 1.4 1.2 1.6 1.8 1.6
========= ========= ========= ========= =========
</TABLE>
NYFS04...:\25\22625\0110\6678\EXH9186R.100
EXHIBIT 13
THE BEAR STEARNS COMPANIES INC.
<TABLE>
<CAPTION>
TEN-YEAR SUMMARY OF
SELECTED FINANCIAL DATA
Fiscal Year Fiscal Year Fiscal Year FiscalYear Fiscal Year
Ended Ended Ended Ended Ended
April 30, April 30, June 30, June 30, June 30,
In thousands, except share and employee data 1987 1988 1989 1990 1991
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
====================================================================================================================================
Revenues $ 1,774,003 $ 1,893,678 $ 2,364,737 $ 2,386,053 $ 2,379,953
Interest expense 549,998 673,823 1,089,879 1,217,212 1,141,029
- ------------------------------------------------------------------------------------------------------------------------------------
Revenues, net of interest expense 1,224,005 1,219,855 1,274,858 1,168,841 1,238,924
- ------------------------------------------------------------------------------------------------------------------------------------
Non-interest expenses
Employee compensation and benefits 628,997 613,373 627,378 608,291 652,186
Other 265,883 405,227 360,097 368,018 357,237
- ------------------------------------------------------------------------------------------------------------------------------------
Total non-interest expenses 894,880 1,018,600 987,475 976,309 1,009,423
- ------------------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 329,125 201,255 287,383 192,532 229,501
Provision for income taxes 152,652 58,371 114,979 73,164 86,636
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 173,134(5) $ 142,884 $ 172,404 $ 119,368 $ 142,865
- ------------------------------------------------------------------------------------------------------------------------------------
Net income applicable to common shares $ 171,469(5) $ 131,972 $ 164,621 $ 114,877 $ 139,028
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
FINANCIAL POSITION
====================================================================================================================================
Total assets $ 25,247,152 $ 32,299,523 $ 36,410,438 $ 31,574,487 $ 39,284,913
Long-term borrowings $ 386,830 $ 385,854 $ 384,873 $ 383,890 $ 681,846
Stockholders' equity $ 938,221 $ 1,024,686 $ 1,065,699 $ 1,076,057 $ 1,096,023
Common shares outstanding(2) 159,985,443 159,702,557 156,850,830 151,420,279 138,803,199
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
PER SHARE DATA
====================================================================================================================================
Earnings per share(2), (3) $ 1.07 $ .83 $ 1.04 $ .75 $ .98
Cash dividends declared per common share $ .45 $ .49 $ .49 $ .56 $ .57
Book value per common share(2) $ 4.93 $ 5.53 $ 6.33 $ 6.73 $ 7.35
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
OTHER DATA
====================================================================================================================================
Return on average common equity 25.0% 16.2% 17.9% 11.5% 13.6%
Profit margin(4) 26.9% 16.5% 22.5% 16.5% 18.5%
Employees 5,715 6,063 5,994 5,732 5,612
- ------------------------------------------------------------------------------------------------------------------------------------
<PAGE>
[TABLE RESTUBBED FROM ABOVE]
<CAPTION>
Fiscal Year Fiscal Year Fiscal Year FiscalYear Fiscal Year
Ended Ended Ended Ended Ended
June 30, June 30, June 30, June 30, June 30,
In thousands, except share and employee data 1992 1993 1994 1995 1996
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
====================================================================================================================================
Revenues $ 2,678,933 $ 2,853,185 $ 3,440,638 $ 3,753,572 $ 4,963,863
Interest expense 834,859 710,086 1,023,866 1,678,515 1,981,171
- ------------------------------------------------------------------------------------------------------------------------------------
Revenues, net of interest expense 1,844,074 2,143,099 2,416,772 2,075,057 2,982,692
- ------------------------------------------------------------------------------------------------------------------------------------
Non-interest expenses
Employee compensation and benefits 909,916 1,037,099 1,227,061 1,080,487 1,469,448
Other 426,533 491,602 546,912 606,488 678,318
- ------------------------------------------------------------------------------------------------------------------------------------
Total non-interest expenses 1,336,449 1,528,701 1,773,973 1,686,975 2,147,766
- ------------------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 507,625 614,398 642,799 388,082 834,926
Provision for income taxes 213,047 251,951 255,834 147,471 344,288
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 294,578 $ 362,447 $ 386,965 $ 240,611 $ 490,638
- ------------------------------------------------------------------------------------------------------------------------------------
Net income applicable to common shares $ 291,350 $ 355,696 $ 362,592 $ 215,474 $ 466,145
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
FINANCIAL POSITION
====================================================================================================================================
Total assets $ 45,768,333 $ 57,439,505 $ 67,392,018 $ 74,597,160 $ 92,085,157
Long-term borrowings $ 1,040,396 $ 1,883,123 $ 3,408,096 $ 4,059,944 $ 6,043,614
Stockholders' equity $ 1,276,984 $ 1,776,530 $ 2,316,566(1) $ 2,502,461(1)$ 2,895,414(1)
Common shares outstanding(2) 142,390,426 142,241,455 142,103,257 144,253,301 144,071,156
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
PER SHARE DATA
====================================================================================================================================
Earnings per share(2), (3) $ 2.12 $ 2.59 $ 2.62 $ 1.62 $ 3.43
Cash dividends declared per common share $ .65 $ .60 $ .60 $ .60 $ .60
Book value per common share(2) $ 8.66 $ 10.84 $ 12.92 $ 14.01 $ 16.83
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
OTHER DATA
====================================================================================================================================
Return on average common equity 27.6% 28.8% 23.3% 13.5% 25.6%
Profit margin(4) 27.5% 28.7% 26.6% 18.7% 28.0%
Employees 5,873 6,306 7,321 7,481 7,749
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Includes $150,000 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.
(5) Includes extraordinary item, net of income tax benefit, of $3,339.
</FN>
</TABLE>
<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
in the past have 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
The business environment during fiscal 1996 was generally characterized by
moderate economic growth and declining interest rates, which contributed to
strong domestic equity and fixed income markets, and robust underwriting and
merger and acquisition activity. Bond prices rose steadily for most of the year
with interest rates falling to their lowest levels in two years. The New York
Stock Exchange and the NASDAQ average daily trading volumes reached record
levels in fiscal 1996. Additionally, major stock indices, such as the Dow Jones
Industrial Average, the Standard & Poor's 500 Index, and the NASDAQ Composite,
climbed into new territory, each setting an impressive series of records. These
improved financial conditions led to increased investor activity and improved
commissions and trading revenues. Additionally, the favorable environment
created by rising stock prices and falling interest rates provided a strong
investment banking backdrop.
Financial market conditions during fiscal 1995 were driven by investor
concerns regarding the level and direction of inflation and interest rates.
During the first half of fiscal 1995 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 the Federal Reserve Board lowered interest rates, 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.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
================================================================================
RESULTS OF OPERATIONS
The Company reported net income of $490.6 million, or $3.43 per share, in fiscal
1996, which represented an increase of 103.9% from $240.6 million, or $1.62 per
share, in fiscal 1995. The Company reported net income of $387.0 million, or
$2.62 per share, in fiscal 1994.
Revenues, net of interest expense ("net revenues"), increased 43.7% to $3.0
billion in fiscal 1996 from $2.1 billion in fiscal 1995, reflecting increases in
all revenue categories. Net revenues in fiscal 1994 amounted to $2.4 billion.
Commission revenues in fiscal 1996 increased 25.5% to $686.5 million, from
$546.9 million in fiscal 1995. 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 continued growth in the Company's client base.
Fiscal 1995 commission revenues improved 13.2% from $483.0 million in fiscal
1994, reflecting higher levels of activity and continued growth of the Company's
securities clearance client base.
Revenues from principal transactions in fiscal 1996 increased 47.1% to $1.2
billion, from $842.6 million in fiscal 1995, reflecting increases in revenues
from the Company's fixed income activities, particularly in the mortgage-backed
securities, US government, and bankruptcy/high yield areas. These increases
reflected a favorable interest rate environment and increased customer demand.
Increases were also noted in the Company's equity trading activities,
particularly in the convertible bonds and over-the-counter market-making areas.
Additionally, revenues from the Company's derivative activities increased, due
to expansion of the Company's derivative business. Fiscal 1995 principal
transactions revenues decreased 26.8% from $1.2 billion in fiscal 1994,
reflecting decreases in revenues from the Company's fixed income activities,
partially offset by increases in the Company's equity activities.
Investment banking revenues in fiscal 1996 increased 74.1% to $607.3
million, from $348.9 million in fiscal 1995. Underwriting revenues increased,
due to increases in volume most notably from investment- and
non-investment-grade debt, common equity, and municipal issuances. Merger and
acquisition fees also increased, reflecting both increased activity and growth
in the Company's market share. Fiscal 1995 investment banking revenues decreased
29.3% from $493.7 million in fiscal 1994, reflecting decreases in underwriting
revenues, due to lower new issue volume. The decrease in investment banking
revenues was partially offset by increases in merger and acquisition and
advisory fees.
Net interest and dividends (revenues from interest and net dividends less
interest expense) in fiscal 1996 increased 33.5% to $412.1 million, from $308.8
million in fiscal 1995, principally due to the large increase in customer margin
debt and growth in customer securities lending activities associated with the
Company's clearance business. Net interest and dividends in fiscal 1995
increased 18.3% from $261.1 million in fiscal 1994, reflecting higher levels of
interest-earning assets due to favorable equity market conditions and an
increase in the Company's securities clearance client base.
Employee compensation and benefits in fiscal 1996 increased 36.0% to $1.5
billion, from $1.1 billion in fiscal 1995. The increase was principally
attributable to increased incentive and discretionary bonuses associated with
the increase in net revenues and earnings in fiscal 1996. Employee compensation
and benefits, as a percentage of net revenues, decreased to 49.3% for fiscal
1996, from 52.1% in fiscal 1995. Employee compensation and benefits in fiscal
1995 decreased 11.9% from $1.2 billion in fiscal 1994, reflecting decreased
discretionary and incentive bonuses associated with the decrease in net revenues
and earnings in fiscal 1995.
Other non-interest expenses in fiscal 1996 increased 11.8% to $678.3
million, from $606.5 million in fiscal 1995. Floor brokerage, exchange, and
clearance fees increased 18.8% in fiscal 1996, reflecting the increase in the
volume of securities transactions processed during the fiscal year. The balance
of other non-interest expenses increased 10.3% in fiscal 1996, primarily
reflecting increases in depreciation and amortization, communications expenses,
and professional fees. Other non-interest expenses in fiscal 1995 increased
10.9% from $546.9 million in fiscal 1994, principally reflecting expansion of
the Company's business activities.
The increase in the Company's effective tax rate to 41.2% in fiscal 1996,
from 38.0% in fiscal 1995, was principally attributable to increases in state
and local taxes. The effective tax rate in fiscal 1995 decreased, from 39.8% in
fiscal 1994, due to proportionately higher levels of tax preference items and
lower levels of pre-tax earnings.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
================================================================================
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 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, securities lending, 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, 1996 had increased to $92.1 billion
from $74.6 billion at June 30, 1995. The increase is primarily attributable to
the growth in securities purchased under agreements to resell, 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 levels of overcollateralization, or margin, and
consequently increased levels of capital, in order to obtain secured financing.
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
The Company's general funding strategy provides for the diversification of its
short-term funding sources in order to maximize liquidity. Sources of short-term
funding consist principally of collateralized borrowings, including repurchase
transactions and securities lending arrangements, customer free credit balances,
unsecured commercial paper, medium-term notes, and bank borrowings generally
having maturities from overnight to one year. Repurchase transactions, whereby
securities are sold with a commitment for repurchase by the Company at a future
date, represent the dominant component of secured short-term funding. The
Company continued to increase its utilization of medium-term note financing
during fiscal 1996 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 margin levels for each asset category
that may be required by a lender in providing secured financing in accordance
with legal and regulatory guidelines and market practices. 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 assets, the Company categorizes the
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
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.
As part of the Company's alternative funding strategy, the Company
maintains a committed revolving-credit facility (the "facility") totaling $2.0
billion which permits borrowing on a secured basis by Bear, Stearns & Co. Inc.
("Bear Stearns"), Bear, Stearns Securities Corp. ("BSSC"), and certain
affiliates. The facility provides that up to $1.0 billion of the total facility
may be borrowed by the Company on an unsecured basis. Secured borrowings can be
collateralized by both investment-grade and non-investment-grade financial
instruments. In addition, this agreement provides for defined margin levels on a
wide range of eligible financial instruments that may be pledged under the
secured portion of the facility. There were no borrowings outstanding under the
facility at June 30, 1996.
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 has 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 1996 the Company expanded its long-term borrowing base to
$6.0 billion through the issuance of $2.7 billion of long-term debt, which along
with the growth in retained earnings, increased total capital to $8.9 billion.
The increases in the Company's long-term borrowings and equity capital base
reflect both the availability of long-term financing opportunities and the
growth in the Company's balance sheet and liquidity needs.
At June 30, 1996, the Company's long-term debt ratings were as follows:
- --------------------------------------------------------------------------------
Moody's Investors Services A2
Standard & Poor's Rating Group A
IBCA Inc. A+
Thomson BankWatch AA-
- --------------------------------------------------------------------------------
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, during the fiscal year ended June 30,
1996, the Company repurchased a total of 8,513,944 shares of Common Stock
through open market transactions at a cost of approximately $187.2 million.
During the year ended June 30, 1996, a total of 8,262,120 shares were credited
to the participants of the CAP Plan in consideration of the related compensation
deferrals and earnings thereon at a cost of approximately $181.7 million. 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.
On July 30, 1996, the Company announced the adoption of a Stock Repurchase
Plan (the "Repurchase Plan"). The Repurchase Plan allows for the purchase of up
to $250.0 million of Common Stock from time to time, in the open market or
otherwise, at prices then prevailing. Purchases of shares under the Repurchase
Plan will be in addition to any shares regularly purchased under the CAP Plan.
As of August 26, 1996, there have been no purchases under the Repurchase Plan.
Cash Flows
Cash and cash equivalents decreased to $127.8 million at the end of fiscal 1996,
from $700.5 million at the end of fiscal 1995, a decrease of $572.7 million.
Fiscal 1995 year-end cash and cash equivalents increased $405.9 million from
$294.6 million at the end of fiscal 1994. Fiscal 1994 year-end cash
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 1996 was $3.6 billion. The
usage was primarily attributable to increases in securities purchased under
agreements to resell of $5.6 billion, securities borrowed of $5.0 billion, and
financial instruments owned of $4.7 billion. This increase was partially offset
by increases in customer payables of $5.7 billion, and securities sold under
agreements to repurchase of $3.8 billion.
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.
Cash provided by financing activities in each of the three fiscal years
ended June 30, 1996, 1995, and 1994 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 1996 used $203.5 million primarily for
purchases of $134.3 million of investment securities and other assets, as well
as purchases of $88.9 million of property, equipment, and leasehold
improvements.
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 of $32.3 million from the sale of
investment securities and other assets.
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 of $31.9 million from the sale of investment
securities and other assets.
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. 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, 1996 the
Company held direct equity investments in 13 leveraged transactions with an
aggregate carrying value of approximately $24.6 million. The Company did not
make any significant direct investments in leveraged acquisitions during fiscal
1996.
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, 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. At June 30, 1996 and 1995, the Company held in inventory approximately
$1.5 billion and $2.0 billion, respectively, of high yield securities. These
investments generally involve greater risk than investment-grade debt securities
due to credit
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
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.
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 (e.g., S&P 500), reference rate (e.g.,
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, floors, collars, and swaptions, equity swaps and options,
structured notes, 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.
In connection with the Company's dealer activities, the Company formed Bear
Stearns Financial Products Inc. ("BSFP") and Bear Stearns Trading Risk
Management Inc. ("BSTRM"). BSFP and BSTRM were established to provide clients
with a AAA-rated counterparty offering a wide range of global fixed income and
equity derivative products. Additionally, the Company is able to provide either
a termination or continuation structure.
As of June 30, 1996 and 1995, respectively, the Company had
notional/contract amounts of $288.2 billion and $127.8 billion of derivative
financial instruments, of which $69.2 billion and $17.3 billion were listed
futures and option contracts. 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. 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. 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. The unrealized gains or losses are recorded in net income.
Unrealized gains and losses on derivative financial instruments used to
hedge the Company's long-term debt 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 $15.9 million, $21.1
million, and $54.4 million during fiscal years 1996, 1995, and 1994,
respectively.
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 requiring the posting of collateral to secure replacement cost exposures
or, in the event of a counterparty being downgraded, requiring the posting of
additional collateral or the termination of 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 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.
33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 principally consisting 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. This is
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, establish and review appropriate credit limits for
institutional customers. The Credit Policy Committee is primarily composed of
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 is scheduled to meet weekly 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 that inflation causes
interest rates to rise and has other effects on 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.
================================================================================
EFFECTS OF STATEMENTS
OF FINANCIAL ACCOUNTING
STANDARDS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, ("SFAS 125"). SFAS 125
introduces the financial-components approach which results in the recognition of
financial assets based upon control and the derecognition of financial assets
when control has been surrendered.
SFAS 125 requires that, in cases where the secured party has taken control,
debtors reclassify financial assets that are pledged as collateral and that
secured parties recognize those assets and their obligation to return them. If
the secured party is permitted to sell or repledge such collateral on reverse
repurchase agreements where the debtor does not have the right to redeem the
collateral on short notice, the secured party shall recognize the collateral as
its assets and also the obligation to return it. Based on this approach, SFAS
125 will affect the current accounting for reverse repurchase and repurchase
agreements and securities lending transactions. This statement is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996. The effect of the Company adopting SFAS 125
cannot be determined at this time.
34
<PAGE>
THE 1996 FINANCIAL REPORT
<TABLE>
<CAPTION>
THE BEAR STEARNS COMPANIES INC.
Consolidated Statements of Income
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
In thousands, except share data June 30, 1996 June 30, 1995 June 30, 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
========
Commissions $ 686,548 $ 546,939 $ 482,988
Principal transactions 1,239,697 842,575 1,150,890
Investment banking 607,338 348,886 493,739
Interest and dividends 2,393,266 1,987,297 1,284,982
Other income 37,014 27,875 28,039
- ------------------------------------------------------------------------------------------------------------------------------------
Total revenues 4,963,863 3,753,572 3,440,638
Interest expense 1,981,171 1,678,515 1,023,866
- ------------------------------------------------------------------------------------------------------------------------------------
Revenues, net of interest expense 2,982,692 2,075,057 2,416,772
- ------------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSES
=====================
Employee compensation and benefits 1,469,448 1,080,487 1,227,061
Floor brokerage, exchange and clearance fees 129,509 109,040 98,592
Communications 92,827 85,711 75,406
Occupancy 85,899 83,247 76,317
Depreciation and amortization 69,878 59,274 47,984
Advertising and market development 56,797 57,036 52,693
Data processing and equipment 34,305 33,650 27,404
Other expenses 209,103 178,530 168,516
- ------------------------------------------------------------------------------------------------------------------------------------
Total non-interest expenses 2,147,766 1,686,975 1,773,973
- ------------------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 834,926 388,082 642,799
Provision for income taxes 344,288 147,471 255,834
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 490,638 $ 240,611 $ 386,965
====================================================================================================================================
Net income applicable to common shares $ 466,145 $ 215,474 $ 362,592
====================================================================================================================================
Earnings per share $ 3.43 $ 1.62 $ 2.62
====================================================================================================================================
Weighted average common and
common equivalent shares outstanding 141,766,713 140,719,983 141,176,539
====================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
35
<PAGE>
THE 1996 FINANCIAL REPORT
<TABLE>
<CAPTION>
THE BEAR STEARNS COMPANIES INC.
Consolidated Statements of Financial Condition
In thousands, except share data June 30, 1996 June 30, 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
======
Cash and cash equivalents $ 127,847 $ 700,501
Cash and securities deposited with clearing organizations
or segregated in compliance with Federal regulations 1,702,124 1,309,573
Securities purchased under agreements to resell 24,517,275 18,940,744
Securities borrowed 29,611,207 24,632,088
Receivables:
Customers 7,976,373 5,993,772
Brokers, dealers, and others 811,391 578,676
Interest and dividends 305,725 227,069
Financial instruments owned, at fair value 26,222,134 21,509,498
Property, equipment, and leasehold improvements, net of accumulated depreciation
and amortization of $318,657 and $257,199 in 1996 and 1995, respectively 331,924 312,867
Other assets 479,157 392,372
- ---------------------------------------------------------------------------------------------------------------------------
Total Assets $ 92,085,157 $ 74,597,160
- ---------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
====================================
Short-term borrowings $ 9,867,619 $ 8,570,777
Securities sold under agreements to repurchase 33,353,899 29,584,724
Payables:
Customers 21,905,015 16,236,611
Brokers, dealers, and others 1,847,599 1,167,311
Interest and dividends 448,121 311,101
Financial instruments sold, but not yet purchased, at fair value 13,916,581 11,241,118
Accrued employee compensation and benefits 712,962 469,189
Other liabilities and accrued expenses 1,094,333 453,924
- ---------------------------------------------------------------------------------------------------------------------------
83,146,129 68,034,755
- ---------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Long-term borrowings 6,043,614 4,059,944
- ---------------------------------------------------------------------------------------------------------------------------
Preferred Stock issued by subsidiary 150,000 150,000
- ---------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
====================
Preferred Stock 437,500 437,500
Common Stock, $1.00 par value; 200,000,000 shares authorized;
159,803,764 shares and 152,202,724 shares issued in 1996 and 1995, respectively 159,804 152,203
Paid-in capital 1,696,217 1,557,237
Retained earnings 694,108 430,330
Capital Accumulation Plan 471,191 344,338
Treasury stock, at cost
Preferred Stock: 2,341,350 shares and 2,118,550 shares in 1996 and 1995, respectively (95,389) (85,507)
Common Stock: 41,664,729 shares and 34,866,529 shares in 1996 and 1995, respectively (598,217) (458,193)
Note receivable from ESOP trust (19,800) (25,447)
- ---------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 2,745,414 2,352,461
- ---------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 92,085,157 $ 74,597,160
===========================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
36
<PAGE>
THE 1996 FINANCIAL REPORT
<TABLE>
<CAPTION>
THE BEAR STEARNS COMPANIES INC.
Consolidated Statements of Cash Flows
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
In thousands June 30, 1996 June 30, 1995 June 30, 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
====================================
Net income $ 490,638 $ 240,611 $ 386,965
Adjustments to reconcile net income to cash used in operating activities:
Depreciation and amortization 69,878 59,274 47,984
Deferred income taxes (189) (11,488) (63,381)
Other 61,474 28,351 (9,414)
(Increases) decreases in operating receivables:
Securities borrowed (4,979,119) (3,558,880) (4,351,804)
Brokers, dealers, and others (232,715) 401,776 35,616
Customers (1,982,601) 1,272,837 (2,312,205)
Other (74,530) (65,253) (85,730)
Increases (decreases) in operating payables:
Brokers, dealers, and others 675,016 330,678 (1,324,645)
Customers 5,668,404 (151,321) 3,349,552
Other 137,020 23,775 109,378
(Increases) decreases in:
Cash and securities deposited with clearing organizations or
segregated in compliance with Federal regulations (392,551) 1,680,375 (697,956)
Securities purchased under agreements to resell (5,576,531) 575,020 (3,477,107)
Financial instruments owned (4,712,636) (7,065,580) 795,307
Other assets 7,091 (20,605) 165,322
Increases (decreases) in:
Securities sold under agreements to repurchase 3,769,175 2,721,602 4,804,768
Financial instruments sold, but not yet purchased 2,675,463 2,889,860 (622,581)
Accrued employee compensation and benefits 207,023 (146,346) 108,491
Other liabilities and accrued expenses 636,188 (27,739) (227,934)
- -----------------------------------------------------------------------------------------------------------------------------
Cash used in operating activities (3,553,502) (823,053) (3,369,374)
- -----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
====================================
Net proceeds from issuance of Cumulative Preferred Stock 96,689
Net proceeds from issuance of Preferred Stock by subsidiary 145,000
Net proceeds from short-term borrowings 1,296,842 710,466 1,741,417
Issuance of long-term borrowings 2,654,134 1,040,090 1,795,979
Capital Accumulation Plan 181,702 87,560 137,084
Common Stock distributions 6,497 18,088 3,733
Note repayment from ESOP trust 5,647 5,229 4,841
Payments for:
Retirement of Senior Notes (674,000) (400,300) (273,000)
Retirement of Subordinated Notes (1,000)
Treasury Stock purchases (191,474) (70,373) (147,763)
Cash dividends paid (95,001) (92,642) (90,769)
- -----------------------------------------------------------------------------------------------------------------------------
Cash provided by financing activities 3,184,347 1,298,118 3,412,211
- -----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
====================================
Purchases of property, equipment, and leasehold improvements (88,935) (100,334) (80,855)
Purchases of investment securities and other assets (134,321) (1,172) (17,192)
Proceeds from sale of investment securities and other assets 19,757 32,338 31,928
- -----------------------------------------------------------------------------------------------------------------------------
Cash used in investing activities (203,499) (69,168) (66,119)
- -----------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (572,654) 405,897 (23,282)
Cash and cash equivalents, beginning of year 700,501 294,604 317,886
- -----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 127,847 $ 700,501 $ 294,604
=============================================================================================================================
Non-cash financing activities totaled $7,522, $2,250, and $1,947 for the
years ended June 30, 1996, 1995, and 1994, respectively.
</TABLE>
See Notes to Consolidated Financial Statements.
37
<PAGE>
THE 1996 FINANCIAL REPORT
<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)$(35,517)
Net income 386,965
Cash
dividends
declared:
Common
($ .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)
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
38
<PAGE>
THE 1996 FINANCIAL REPORT
<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 $1 Par from ESOP
except share data Preference Preference Preference Value Capital Earnings Plan Preference Value Trust
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June
30, 1994 150,000 187,500 100,000 144,965 1,447,066 388,685 275,415 (85,507) (410,882) (30,676)
Net income 240,611
Cash
dividends
declared:
Common
($ .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)
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
38
<PAGE>
THE 1996 FINANCIAL REPORT
<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, 1995 $150,000 $187,500 $100,000 $152,203 $1,557,237 $430,330 $344,338 $(85,507) $(458,193)$(25,447)
Net income 490,638
Cash
dividends
declared:
Common
($ .60 per
share) (70,293)
Preferred (24,493)
Issuance of
Cumulative
Preferred
Stock,
Series B
Purchase of
treasury stock:
Adjustable
Rate Cumulative
Preferred
Stock,
Series A
(222,800
shares) (9,882)
Common Stock
(8,513,944
shares) (186,863)
Common Stock
issued out
of treasury
(3,289,549
shares) 9,213 (54,849) 46,839
Income tax
benefits
attributable
to Common Stock
issued out of
treasury 5,294
5% stock
dividend
(7,601,040
shares) 7,601 124,473 (132,074)
Note repayment
from ESOP
trust 5,647
Allocations
under Capital
Accumulation
Plan 181,702
- --------------------------------------------------------------------------------------------------------------------------------
Balance, June
30, 1996 $150,000 $187,500 $100,000 $159,804 $1,696,217 $694,108 $471,191 $(95,389) $(598,217)$(19,800)
================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
39
<PAGE>
THE BEAR STEARNS COMPANIES INC.
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 consolidated financial statements are
prepared in conformity with generally accepted accounting principles which
require management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. Actual
results could differ from these estimates.
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 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 marketplace. Reductions in 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.
40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 when 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 financial instruments. 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 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. The Company accounts for income taxes under the
provisions of 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 computed by dividing net income applicable to Common and
Common Equivalent Shares by the weighted average number of Common and Common
Equivalent Shares outstanding during each period presented. Common Equivalent
Shares include the assumed distribution of shares of Common Stock issuable under
certain of the Company's deferred compensation arrangements, with appropriate
adjustments made to net income for expense accruals related thereto.
Additionally, shares of Common Stock issued or issuable under various employee
benefit plans are included as Common Equivalent Shares.
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,
1996, 1995, and 1994. Income taxes paid totaled $279.0 million, $125.6 million,
and $276.6 million for the fiscal years ended June 30, 1996, 1995, and 1994,
respectively.
================================================================================
-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 99.6% 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
41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1996 for debt
obligations of similar maturity, was approximately $6.0 billion, which is less
than the aggregate carrying value by approximately $27.8 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 and losses
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.
================================================================================
-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:
In thousands June 30, 1996 June 30, 1995
- --------------------------------------------------------------------------------
FINANCIAL INSTRUMENTS OWNED:
US government and agency $ 8,258,074 $ 8,688,713
Other sovereign governments 656,699 1,256,859
State and municipal 149,697 100,224
Corporate equity and convertible debt 8,492,570 5,235,219
Corporate debt 4,739,512 2,723,564
Derivative financial instruments 1,855,617 1,223,258
Mortgages and other mortgage-backed securities 1,796,322 1,771,735
Other 273,643 509,926
- --------------------------------------------------------------------------------
$26,222,134 $21,509,498
- --------------------------------------------------------------------------------
FINANCIAL INSTRUMENTS SOLD, BUT
NOT YET PURCHASED:
US government and agency $ 5,502,459 $ 6,111,612
Other sovereign governments 964,808 765,230
Corporate equity and convertible debt 4,482,426 2,424,455
Corporate debt 877,576 781,792
Derivative financial instruments 2,088,621 1,155,527
Other 691 2,502
- --------------------------------------------------------------------------------
$13,916,581 $11,241,118
================================================================================
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 purchased may exceed the amount
recognized in the Consolidated Statements of Financial Condition.
42
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
-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.
At both June 30, 1996 and 1995, the Company had outstanding $33.4 billion
and $29.6 billion of repurchase agreements. During the years ended June 30, 1996
and 1995, the weighted average interest rates on the repurchase agreements were
5.41% and 5.30%, respectively. The weighted average rates at June 30, 1996 and
1995 were 5.15% and 6.10%, respectively.
Short-term borrowings at June 30, 1996 and 1995, included $651.1 million
and $731.2 million, respectively, of bank loans. During the years ended 1996 and
1995, the weighted average interest rates on such bank loans were 5.40% and
5.44%, respectively. The weighted average rates at June 30, 1996 and 1995 were
5.33% and 7.24%, respectively.
Borrowings made under the Company's commercial paper programs were $4.3
billion and $3.9 billion, respectively. During the years ended June 30, 1996 and
1995, the weighted average interest rates on such borrowings were 5.66% and
5.38%, respectively. The weighted average rates at June 30, 1996 and 1995 were
5.33% and 6.07%, respectively.
At June 30, 1996 and 1995, the Company had outstanding $4.9 billion and
$3.9 billion, respectively, principal amount of Medium-Term Notes maturing from
six 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, 1996 and 1995, the weighted average
interest rates on the Medium-Term Notes were 5.85% and 5.64%, respectively. The
weighted average rates at June 30, 1996 and 1995 were 5.55% and 6.29%,
respectively.
================================================================================
-5-
LONG-TERM BORROWINGS
Long-term borrowings at June 30 consisted of the following:
In thousands 1996 1995
- --------------------------------------------------------------------------------
Floating-Rate Notes due 1995 to 2030 $ 924,129 $ 865,148
Fixed-Rate Senior Notes due 1996 to 2005;
interest rates ranging from 5 3/4% to 9 3/8% 2,568,696 1,946,232
Medium-Term Notes and Other 2,550,789 1,248,564
- --------------------------------------------------------------------------------
$6,043,614 $4,059,944
================================================================================
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, 1996 and 1995, the weighted average effective interest rates on
the Floating-Rate Notes were 6.29% and
43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6.00%, respectively. The weighted average effective interest rates on the
Floating-Rate Notes at June 30, 1996 and 1995 were 5.85% and 6.43%,
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, 1996 and 1995 were 6.45% and 6.30%,
respectively. The weighted average effective interest rates on the Company's
Senior Notes at June 30, 1996 and 1995 were 6.01% and 6.68%, respectively.
The Company's Medium-Term Notes have maturities ranging from 18 months to
30 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, 1996
and 1995, the weighted average interest rates on the Medium-Term Notes were
6.11% and 6.03%, respectively. The weighted average interest rates on the
Company's Medium-Term Notes at June 30, 1996 and 1995 were 5.81% and 6.46%,
respectively.
Maturities of long-term borrowings at June 30, 1996 consisted of the
following:
In thousands
-----------------------------------------------
FISCAL YEAR
1997 $ 955,892
1998 1,527,603
1999 515,036
2000 594,370
2001 1,203,904
Thereafter 1,246,809
-----------------------------------------------
$ 6,043,614
-----------------------------------------------
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, Bear Stearns, and BSSC. At June
30, 1996, the Company, Bear Stearns, and BSSC 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
consisted of:
In thousands 1996 1995 1994
- --------------------------------------------------------------------------------
Current:
Federal $ 212,686 $ 103,944 $ 206,010
State and local 108,652 40,681 83,746
Foreign 23,139 14,334 29,459
- --------------------------------------------------------------------------------
344,477 158,959 319,215
- --------------------------------------------------------------------------------
Deferred:
Federal 2,596 (8,322) (43,265)
State and local (2,785) (3,166) (20,116)
- --------------------------------------------------------------------------------
(189) (11,488) (63,381)
- --------------------------------------------------------------------------------
$ 344,288 $ 147,471 $ 255,834
================================================================================
44
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Significant components of the Company's deferred tax assets (liabilities) as of
June 30 were as follows:
In thousands 1996 1995 1994
- --------------------------------------------------------------------------------
Deferred tax assets:
Deferred compensation $ 214,484 $ 153,564 $ 121,463
Valuation reserves 77,047 38,154 41,089
Other 13,264 5,833 1,470
- --------------------------------------------------------------------------------
Total deferred tax assets $ 304,795 $ 197,551 $ 164,022
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Real estate partnership $ (82,314) $ (60,893) $ (51,348)
Unrealized appreciation (98,787) (4,864) (8,432)
Depreciation (19,026) (19,266) (7,985)
Accrued dividends (7,781) (4,343) (1,572)
Other (6,898) (18,385) (16,373)
- --------------------------------------------------------------------------------
Total deferred tax liabilities $(214,806) $(107,751) $ (85,710)
- --------------------------------------------------------------------------------
Net deferred tax asset $ 89,989 $ 89,800 $ 78,312
================================================================================
Undistributed earnings of foreign subsidiaries, which would be subject to
additional income taxes if repatriated, were not material as of June 30, 1996.
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.
A reconciliation of the statutory federal income tax rate and the Company's
effective tax rate is as follows:
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
June 30, 1996 June 30, 1995 June 30, 1994
- --------------------------------------------------------------------------------
Statutory rate 35.0% 35.0% 35.0%
State and local income taxes,
net of federal benefit 8.5 6.3 6.4
Dividend exclusion (1.9) (3.6) (1.1)
Other, net (0.4) 0.3 (0.5)
- --------------------------------------------------------------------------------
41.2% 38.0% 39.8%
================================================================================
This reconciliation table does not include approximately $5.3 million, $4.7
million, and $2.3 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 1996, 1995, and 1994, respectively.
45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
-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, 1996, Bear Stearns' net capital, as
defined, of $1.15 billion exceeded the minimum requirement by $1.12 billion.
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, 1996, approximately $1.7 billion of net
assets of consolidated subsidiaries were 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 Company issued 3.0 million shares of Adjustable Rate Cumulative
Preferred Stock, Series A (the "Preferred Stock"). 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 5.65% during the year
ended June 30, 1996. During the year ended June 30, 1996 the Company repurchased
222,800 shares at a cost of approximately $9.9 million. At June 30, 1996 the
Company held 2,341,350 shares of Preferred Stock in treasury.
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 (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
46
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1996, 1995, and 1994 was $11.1 million, $4.5
million, and $7.5 million, respectively.
The Company maintains a non-qualified 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 accrued. The Company's expense for this plan for the years ended June
30, 1996, 1995, and 1994 was $7.2 million, $4.5 million, and $3.8 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, 1996, 1995, and 1994
was $6.2 million, $6.0 million, and $6.2 million, respectively.
================================================================================
-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, 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, 1996, 1995, and 1994, participants deferred
compensation of approximately $139.7 million, $71.8 million, and $120.6 million,
respectively. During the years ended June 30, 1996, 1995, and 1994, the Company
recognized expense of approximately $36.7 million, $20.9 million, and $13.3
million, respectively, attributable to CAP Units or cash credited to
participants' deferred compensation accounts with respect to earnings
adjustments. During September 1995, 245,456 CAP Units were credited to
participants' deferred compensation accounts with respect to the deferrals made
during fiscal year 1995. As of July 1, 1996, pursuant to the terms of the CAP
Plan, 8,016,664 CAP Units were credited to participants' deferred compensation
accounts with respect to the deferrals made during fiscal year 1996. The
aggregate number of shares of
47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Common Stock distributable pursuant to the Company's obligation for CAP Units at
June 30, 1996, 1995, and 1994 was approximately 25.9 million, 21.1 million, and
16.9 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.
Performance Unit Plan
Effective January 1, 1993, the Company established the Performance Unit Plan
(the "PUP Plan") and granted 7.3 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. During the
year ended June 30, 1994, the Company incurred costs of $3.3 million
attributable to the PUP earnings adjustment. The number of Earnings Units
credited for the years ended June 30, 1994 was 180,299. In October 1994, 456,900
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 10.9
million shares of Common Stock to certain key employees of the Company. On
August 17, 1989, the Company granted stock options for 2.4 million shares of
Common Stock with an exercise price of $9 5/8. As of June 30, 1994, there were
1,575,831 options outstanding. These options 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 instruments 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 principal transactions revenues, including derivatives, by
reporting categories are as follows:
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
In thousands June 30, 1996 June 30, 1995 June 30, 1994
- --------------------------------------------------------------------------------
Fixed income $ 677,475 $ 473,704 $ 738,248
Equity 389,898 306,326 320,504
Foreign exchange & other
derivative financial
instruments 172,324 62,545 92,138
- --------------------------------------------------------------------------------
$1,239,697 $ 842,575 $1,150,890
================================================================================
48
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, foreign
exchange forwards, and exercised options. The notional/contract amounts of
financial instruments that give rise to off-balance sheet market risk are
indicative only of the extent of involvement in the particular class of
financial instrument and are not necessarily an indication of overall market
risk.
The following table represents the notional/contract amounts of the Company's
outstanding derivative financial instruments at June 30, 1996 and 1995:
In billions June 30, 1996 June 30, 1995
- --------------------------------------------------------------------------------
Interest Rate:
Swap agreements, including options, swaptions,
caps, collars, and floors $ 175.2 $ 68.0
Futures contracts 60.5 15.4
Options held 3.0 .5
Options written 3.1
Foreign Exchange:
Futures contracts 2.3 .7
Forward contracts 7.9 4.7
Options held 3.2 2.1
Options written 3.3 1.8
Mortgage-Backed Securities:
Forward contracts 23.0 28.1
Equity:
Swap agreements 3.8 3.0
Futures contracts .5 .3
Options held 1.1 1.6
Options written 1.3 1.6
================================================================================
49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
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, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
June 30, 1996 June 30, 1995
- ---------------------------------------------------------------------------------------------------------------------------
In millions Assets Liabilities Assets Liabilities
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Swap agreements $678 $846 $587 $492
Futures and forward contracts 280 307 209 181
Options held 897 427
Options written 968 483
</TABLE>
The average monthly fair values of the derivative financial instruments for the
fiscal years ended June 30, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
June 30, 1996 June 30, 1995
- ---------------------------------------------------------------------------------------------------------------------------
In millions Assets Liabilities Assets Liabilities
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Swap agreements $611 $698 $598 $398
Futures and forward contracts 286 275 131 120
Options held 704 393
Options written 795 262
</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 2.22
years and 2.25 years at June 30, 1996 and 1995, 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 (except percentages) 1 Year Years Years 5 Years Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Swap agreements $ 83.7 $41.0 $28.0 $26.3 $179.0
Futures contracts 50.2 10.5 2.6 63.3
Forward contracts 30.9 30.9
Options held 6.7 .6 7.3
Options written 6.9 .8 7.7
- ---------------------------------------------------------------------------------------------------------------------------
Total $178.4 $51.5 $30.6 $27.7 $288.2
Percent of total 61.9% 17.9% 10.6% 9.6% 100%
===========================================================================================================================
</TABLE>
50
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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. Additionally, the Company
attempts to obtain master netting agreements which provide protection in the
event of counterparty default by allowing for the net settlement of open
obligations.
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 $414.8 million of collateral) of contracts in a gain
position at June 30, 1996:
In millions
---------------------------------------------------
RATING NET REPLACEMENT COST
AAA $ 48.0
AA 86.1
A 93.2
BBB 25.6
BB and lower 2.6
Non-rated 21.3
---------------------------------------------------
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 various
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 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 that are monitored daily. 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, when deemed appropriate, in the event of excess market
exposure. Moreover, the Company establishes credit limits for such activities
and monitors compliance on a daily basis.
51
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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
appropriate. 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. When deemed necessary, the Company will require the
customer to deposit additional margin collateral, or to 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.
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, 1996 and 1995, the Company had outstanding interest rate and
currency swap agreements with notional principal amounts of $6.0 billion and
$4.2 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 $15.9 million, $21.1 million, and $54.4 million for the fiscal
years ended June 30, 1996, 1995, and 1994, respectively. The difference to be
received or paid on the swap agreements is 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, 1996, future minimum aggregate annual rentals payable under
these noncancelable leases (net of subleases) for the fiscal years ending 1997
through 2001, and the aggregate amount thereafter, are as follows:
In thousands
----------------------------------------------
Fiscal Year
1997 $ 50,579
1998 48,476
1999 47,277
2000 42,936
2001 42,516
Aggregate amount thereafter 113,578
----------------------------------------------
52
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $77.0 million, $73.8 million, and
$65.3 million, for the years ended June 30, 1996, 1995, and 1994, respectively.
Letters of Credit
At June 30, 1996, the Company was contingently liable for unsecured letters of
credit of $2.0 billion and letters of credit of $213.4 million secured by
financial instruments. These letters of credit are principally used as deposits
for securities borrowed and to satisfy margin deposits at option and commodity
exchanges.
Borrow Versus Pledge
At June 30, 1996, US government and agency securities with a market value of
approximately $5.5 billion were pledged against borrowed securities with an
approximate market value of $5.4 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. Information regarding the
Company's operations is as follows:
<TABLE>
<CAPTION>
In thousands 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Foreign revenues $ 460,055 $ 252,825 $ 199,461
Domestic revenues 4,503,808 3,500,747 3,241,177
- ---------------------------------------------------------------------------------------------------------------------------
Consolidated revenues $ 4,963,863 $ 3,753,572 $ 3,440,638
===========================================================================================================================
Foreign income before provision for income taxes $ 53,470 $ 3,147 $ 52,461
Domestic income before provision for income taxes 781,456 384,935 590,338
- ---------------------------------------------------------------------------------------------------------------------------
Consolidated income before provision for income taxes $ 834,926 $ 388,082 $ 642,799
===========================================================================================================================
Foreign assets $17,219,879 $10,428,506 $ 8,925,849
Domestic assets 74,865,278 64,168,654 58,466,169
- ---------------------------------------------------------------------------------------------------------------------------
Consolidated assets $92,085,157 $74,597,160 $67,392,018
===========================================================================================================================
</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.
53
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
-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, 1996
Revenues $1,074,434 $1,190,063 $1,295,996 $1,403,370 $4,963,863
- ---------------------------------------------------------------------------------------------------------------------------
Interest expense 456,945 502,403 503,754 518,069 1,981,171
- ---------------------------------------------------------------------------------------------------------------------------
Revenues, net of interest expense 617,489 687,660 792,242 885,301 2,982,692
Non-interest expenses
Employee compensation and benefits 306,997 345,427 392,442 424,582 1,469,448
Other 154,082 161,352 177,985 184,899 678,318
- ---------------------------------------------------------------------------------------------------------------------------
Total non-interest expenses 461,079 506,779 570,427 609,481 2,147,766
- ---------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 156,410 180,881 221,815 275,820 834,926
Provision for income taxes 62,564 75,725 92,944 113,055 344,288
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 93,846 $ 105,156 $ 128,871 $ 162,765 $ 490,638
===========================================================================================================================
Earnings per share $ .63 $ .72 $ .90 $ 1.18 $ 3.43
===========================================================================================================================
Cash dividends declared per common share $ .15 $ .15 $ .15 $ .15 $ .60
===========================================================================================================================
<CAPTION>
First Second Third Fourth
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 $ .22 $ .20 $ .58 $ .62 $ 1.62
===========================================================================================================================
Cash dividends declared per common share $ .15 $ .15 $ .15 $ .15 $ .60
===========================================================================================================================
</TABLE>
54
<PAGE>
================================================================================
INDEPENDENT AUDITORS' REPORT
Deloitte &
Touche LLP
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, 1996 and 1995, 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, 1996. 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, 1996 and 1995, and
the results of their operations and their cash flows for each of the
three years in the period ended June 30, 1996 in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
New York, New York
August 26, 1996
55
<PAGE>
CORPORATE
INFORMATION
================================================================================
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 31, 1996, and the cash dividends declared
on the Common Stock.
As of September 3, 1996, there were 3,344 holders of record of the
Company's Common Stock. On September 3, 1996, the last reported sales price of
the Company's Common Stock was $23 1/2.
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 for a further
description.
Cash Dividends
Declared
Per Common
High Low Share
- --------------------------------------------------------------------------------
FISCAL YEAR ENDED JUNE 30, 1995
First Quarter (through September 30, 1994) $ 16 5/8 $ 14 1/2 $ .15
Second Quarter (through December 31, 1994) 15 1/8 13 3/8 .15
Third Quarter (through March 31, 1995) 17 1/8 14 1/8 .15
Fourth Quarter (through June 30, 1995) 21 3/4 16 7/8 .15
- --------------------------------------------------------------------------------
FISCAL YEAR ENDED JUNE 30, 1996
First Quarter (through September 29, 1995) $ 22 $ 18 3/4 $ .15
Second Quarter (through December 31, 1995) 20 7/8 18 3/8 .15
Third Quarter (through March 29, 1996) 24 1/8 18 1/8 .15
Fourth Quarter (through June 30, 1996) 24 5/8 21 7/8 .15
58
EXHIBIT 21
Subsidiaries of The Bear Stearns Companies Inc.
-----------------------------------------------
Jurisdiction of
Incorporation
or Organization
---------------
Battery Park Capital Corp. New York
Bear Stearns Acquisition Corp. Delaware
Bear Stearns Acquisition II, Inc. Delaware
Bear Stearns Acquisition Corporation IV Delaware
CDG Holdings, Inc. Massachusetts
Cambridge Dry Goods Co. Inc. Massachusetts
Bear Stearns Acquisition V, Inc. Delaware
Bear Stearns Acquisition Corp. VII Delaware
Bear Stearns Acquisition XII, Inc. Delaware
Bear Stearns Acquisition XIV, Inc. Delaware
MV Holdings, Inc. Delaware
ALIMAX Corp. New York
Bear Stearns Argentina Inc. Delaware
Bear Stearns Asset Backed Investors Corp Delaware
Bear Stearns Asset Backed Securities, Inc. Delaware
Bear Stearns Capital Markets Inc. Delaware
BSCGP Inc. Delaware
The BSC Employee Fund, L.P. Delaware
BSCP Cayman, Inc. Cayman Islands
Bear Stearns China SPC, Inc. Delaware
Bear Stearns China, L.P. Cayman Islands
Bear Stearns China Direct Investment Cayman Islands
Fund, L.P.
Bear Stearns Fiduciary Services, Inc. Delaware
Bear Stearns Finance S.A. France
CLBS Titrisation France
ABC Gestion France
Bear Stearns Financial Products Inc. Delaware
Bear Stearns Trading Risk Management Inc. Delaware
Bear Stearns Financial Technologies Inc. Delaware
Bear Stearns Forex Inc. Delaware
Bear Stearns Funds Management Inc. New York
Bear Stearns FLLC Corp. Delaware
Bear Stearns Finance LLC Cayman Islands
Bear Stearns Global Asset Holdings, Ltd. Cayman Islands
Bear Stearns Global Equity Derivatives Inc. Delaware
Bear Stearns Global Investors Inc. New York
Bear Stearns Government Products Corp. Delaware
Bear, Stearns Government Securities, Inc. New York
Gregory Properties Inc. Delaware
<PAGE>
Subsidiaries of The Bear Stearns Companies Inc.
-----------------------------------------------
Jurisdiction of
Incorporation
or Organization
---------------
Bear Stearns Holdings Limited United Kingdom
Bear, Stearns International Limited United Kingdom
Bear Stearns U.K. United Kingdom
Bear Stearns International Trading Limited United Kingdom
Bear Stearns Oil Trading Limited United Kingdom
Bear, Stearns Insurance Agency Incorporated Massachusetts
Bear Stearns Insurance Agency of California,
Incorporated California
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 Holdings
Pte Ltd. Singapore
Bear Stearns Investment Advisors Inc. Delaware
Bear Stearns Irish Holdings Inc. Delaware
Bear Stearns (Israel), Inc. Delaware
LIBOR Asset Securities, Inc. Delaware
Bear Stearns Mortgage Capital Corporation Delaware
Bear, Stearns Funding, Inc. Delaware
Bear Stearns Mortgage Securities Inc. Delaware
Bear Stearns Municipal Capital Markets Inc. Delaware
Bear, Stearns Netherlands Holding B.V. Netherland &
Delaware
Bear Stearns GmbH Germany
New Castle Holding, Inc. Delaware
Bear Stearns N. Y., Inc. New York
Bear Stearns Overseas Ltd. Cayman Islands
Bear Stearns Park Avenue Trading Corporation Delaware
Bear Stearns Philippines Ltd. Delaware
Bear Stearns State Asia, Inc. Philippines
Bear Stearns Real Estate Group Inc. New York
Bear, Stearns Realty Investors, Inc. Delaware
Bear Stearns Realty Partners Corporation Delaware
Bear Stearns Realty Partners Apartment
Fund I LP Delaware
Bear Stearns Secured Investors Inc. Delaware
Bear Stearns Secured Investors Inc. II Delaware
Bear Stearns Securities Administration
Corporation Delaware
Bear Stearns Spanish Securitization Corp. Delaware
Bear Stearns Structured Products Corp. Delaware
Bear Stearns Structured Securities Inc. Delaware
2
<PAGE>
Subsidiaries of The Bear Stearns Companies Inc.
-----------------------------------------------
Jurisdiction of
Incorporation
or Organization
---------------
Bear, Stearns & Co. Inc. Delaware
Bear, Stearns Securities Corp. ("BSSC") 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. Delaware
Bear Stearns Benefits Planning Group New York
Research Conversion Corp. Delaware
Status Securities Inc. New York
Bear Stearns Global Asset Trading, Ltd. Cayman Islands
Bear Stearns (Japan), Ltd. Delaware
Bear, Stearns & Co. L.P. New York
Bear TEL Corp. Delaware
BBT 1995-I Corp. Delaware
BS Agency GP Capital Inc. Delaware
BS Fund America 1993-C GP Capital Inc. Delaware
BS Fund America 1993-D GP Capital Inc. Delaware
BSC Hotel Capital Corporation New York
BSC Service Corp. Delaware
BSMSI 1993-12 Reserve Fund Corp. Delaware
BSTE Funding I Inc. Delaware
BSTE Funding II Inc. Delaware
BSTE Funding III Inc. Delaware
Bear Stearns Commercial Mortgage, Inc. New York
Bear, Stearns Commercial Mortgage
Securities Inc. Delaware
Custodial Trust Company New Jersey
CTC Services, Inc. New York
Custrust (Nominee) New Jersey
EMC Mortgage Corporation Delaware
EMC GP Capital Inc. Delaware
EMC Funding Corporation Delaware
EMC Funding Corporation Two Delaware
EMC Residential Mortgage Corporation Delaware
ISB Real Estate Corporation Delaware
AMC Real Estate Inc. Texas
MAX Recovery Inc. Delaware
MAX Flow Corp. Delaware
Thanksgiving Properties, Inc. Texas
3
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, 33-63561, and 333-03685 and Form
S-8, File Nos. 33-50012, 33-55804, 33-49979, and 33-56103 of our
reports dated August 26, 1996, 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, 1996.
DELOITTE & TOUCHE LLP
New York, New York
September 27, 1996
NYFS04...:\25\22625\0110\2322\EXH9205N.07A
<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-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 127,847
<RECEIVABLES> 9,093,489
<SECURITIES-RESALE> 24,517,275
<SECURITIES-BORROWED> 29,611,207
<INSTRUMENTS-OWNED> 26,222,134
<PP&E> 331,924
<TOTAL-ASSETS> 92,085,157
<SHORT-TERM> 9,867,619
<PAYABLES> 24,200,735
<REPOS-SOLD> 33,353,899
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 13,916,581
<LONG-TERM> 6,043,614
0
437,500
<COMMON> 159,804
<OTHER-SE> 2,148,110
<TOTAL-LIABILITY-AND-EQUITY> 92,085,157
<TRADING-REVENUE> 1,239,697
<INTEREST-DIVIDENDS> 2,393,266
<COMMISSIONS> 686,548
<INVESTMENT-BANKING-REVENUES> 607,338
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 1,981,171
<COMPENSATION> 1,469,448
<INCOME-PRETAX> 834,926
<INCOME-PRE-EXTRAORDINARY> 834,926
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 490,638
<EPS-PRIMARY> 3.43
<EPS-DILUTED> 3.43
</TABLE>
