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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;
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.
6
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
12
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
13
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
14
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
15
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
16
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.
17
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
18
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,
19
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.
20
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
21
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
22
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
23
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.
24
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
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
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
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
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
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
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
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
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
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
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
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
(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
(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
(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
(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
(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
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
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
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
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
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
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
SCHEDULE I
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
------------- ------------- -------------
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
======== ======== ========
See Notes to Condensed Financial Information.
F-3
SCHEDULE I
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
----------- ------------
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
========== ==========
See Notes to Condensed Financial Information.
F-4
SCHEDULE I
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
------------- ------------- -------------
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
========= ========== =========
See Notes to Condensed Financial Information.
F-5
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
SCHEDULE II
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
----------- ------------------- -------- ---------- -------------
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
F-7
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
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
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
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
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