SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended February 28, 2002
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from ___________ to ___________
Commission file number 1-8989
------
The Bear Stearns Companies Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3286161
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
383 Madison Avenue, New York, New York 10179
(Address of principal executive offices) (Zip Code)
(212) 272-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of April 11, 2002, the latest practicable date, there were 99,670,287
shares of Common Stock, $1 par value, outstanding.
TABLE OF CONTENTS
-----------------
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Statements of Financial Condition
as of February 28, 2002 (Unaudited) and
November 30, 2001 (Audited) 3
Consolidated Statements of Income (Unaudited)
for the three months ended February 28, 2002 and
February 23, 2001 4
Consolidated Statements of Cash Flows (Unaudited)
for the three months ended February 28, 2002 and
February 23, 2001 5
Notes to Consolidated Financial Statements (Unaudited) 6
Independent Accountants' Report 16
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 17
Item 3. Quantitative and Qualitative Disclosures about Market Risk 29
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 31
Item 6. Exhibits and Reports on Form 8-K 33
Signature 35
2
Part I - Financial Information
Item 1. Financial Statements
THE BEAR STEARNS COMPANIES INC.
Consolidated Statements of
Financial Condition
(Unaudited)
February 28, November 30,
In thousands, except share data 2002 2001
-------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 5,956,350 $ 7,332,747
Cash and securities deposited with clearing organizations or
segregated in compliance with federal regulations 10,322,915 9,287,673
Securities purchased under agreements to resell 35,530,678 41,742,485
Securities received as collateral 5,570,604 3,037,956
Securities borrowed 52,184,323 51,911,092
Receivables:
Customers 17,249,437 17,558,956
Brokers, dealers and others 1,031,571 2,828,081
Interest and dividends 277,685 277,246
Financial instruments owned, at fair value
Pledged as collateral 30,503,897 23,562,448
Not pledged as collateral 23,015,635 24,348,803
Property, equipment and leasehold improvements, net of accumulated
depreciation and amortization of $993,276 and $952,014 in 2002
and 2001, respectively 510,591 519,089
Other assets 3,000,096 3,123,652
-----------------------------------------
Total Assets $ 185,153,782 $ 185,530,228
=========================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings $ 11,788,603 $ 13,658,510
Securities sold under agreements to repurchase 51,763,228 50,135,295
Obligation to return securities received as collateral 5,570,604 3,037,956
Payables:
Customers 51,756,647 53,590,217
Brokers, dealers and others 5,742,572 7,879,469
Interest and dividends 525,300 575,645
Financial instruments sold, but not yet purchased, at fair value 25,612,238 24,749,040
Accrued employee compensation and benefits 538,258 1,284,391
Other liabilities and accrued expenses 792,707 799,624
-----------------------------------------
154,090,157 155,710,147
-----------------------------------------
Commitments and contingencies (Note 3)
Long-term borrowings 24,740,220 23,429,054
-----------------------------------------
Guaranteed Preferred Beneficial Interests in Company Subordinated
Debt Securities 562,500 762,500
-----------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock 800,000 800,000
Common stock, $1.00 par value; 500,000,000 shares authorized as of
February 28, 2002 and November 30, 2001; 184,805,848 shares issued
as of February 28, 2002 and November 30, 2001 184,806 184,806
Paid-in capital 2,732,895 2,728,981
Retained earnings 3,274,353 3,118,635
Employee stock compensation plans 2,002,023 2,015,375
Unearned compensation (213,945) (230,071)
Treasury stock, at cost:
Adjustable Rate Cumulative Preferred Stock Series A:
2,520,750 shares as of February 28, 2002 and November 30, 2001 (103,421) (103,421)
Common stock: 85,139,735 and 84,763,780 shares as of February 28,
2002 and November 30, 2001, respectively (2,915,806) (2,885,778)
-----------------------------------------
Total Stockholders' Equity 5,760,905 5,628,527
-----------------------------------------
Total Liabilities and Stockholders' Equity $ 185,153,782 $ 185,530,228
=========================================
See Notes to Consolidated Financial Statements.
3
THE BEAR STEARNS COMPANIES INC.
Consolidated Statements of
Income
(Unaudited)
Three Months Ended
------------------------------------
February 28, February 23,
In thousands, except share and per share data 2002 2001
----------------------------------------------------------------------------------------------------------------
REVENUES
Commissions $ 264,657 $ 282,401
Principal transactions 660,750 589,571
Investment banking 151,894 138,324
Interest and dividends 598,633 1,086,599
Other income 42,210 39,281
------------------------------------
Total revenues 1,718,144 2,136,176
Interest expense 478,966 922,389
------------------------------------
Revenues, net of interest expense 1,239,178 1,213,787
------------------------------------
NON-INTEREST EXPENSES
Employee compensation and benefits 633,642 635,125
Floor brokerage, exchange and clearance fees 39,749 35,573
Communications and technology 104,673 115,034
Occupancy 44,206 31,257
Advertising and market development 23,524 33,832
Professional fees 33,824 37,428
Other expenses 86,033 72,574
------------------------------------
Total non-interest expenses 965,651 960,823
------------------------------------
Income before provision for income taxes and cumulative effect of
change in accounting principle 273,527 252,964
Provision for income taxes 93,001 87,010
------------------------------------
Income before cumulative effect of change in accounting principle 180,526 165,954
Cumulative effect of change in accounting principle, net of tax - (6,273)
------------------------------------
Net income $ 180,526 $ 159,681
====================================
Net income applicable to common shares $ 170,748 $ 149,903
====================================
Basic earnings per share $ 1.39 $ 1.11 (1)
====================================
Diluted earnings per share $ 1.29 $ 1.06 (1)
====================================
Weighted average common and common equivalent shares outstanding:
Basic 134,793,949 149,080,028
====================================
Diluted 148,115,050 158,617,123
====================================
Cash dividends declared per common share $ 0.15 $ 0.15
====================================
See Notes to Consolidated Financial Statements.
(1) Amount reflects earnings per share after change in accounting principle.
Basic earnings per share and diluted earnings per share before the change in
accounting principle were $1.15 and $1.10, respectively.
Note: Certain reclassifications have been made to prior period amounts to
conform to the current period's presentation.
4
THE BEAR STEARNS COMPANIES INC.
Consolidated Statements of
Cash Flows
(Unaudited)
Three Months Ended
------------------------------------
February 28, February 23,
In thousands 2002 2001
-----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 180,526 $ 159,681
Adjustments to reconcile net income to cash (used in) provided by
operating activities:
Depreciation and amortization 51,132 46,547
Deferred income taxes (20,526) (28,712)
Other 41,024 39,396
(Increases) decreases in operating receivables:
Cash and securities deposited with clearing organizations or
segregated in compliance with federal regulations (1,035,242) (5,237,816)
Securities purchased under agreements to resell 6,211,807 4,205,340
Securities borrowed (273,231) 8,139,487
Receivables:
Customers 309,519 1,255,038
Brokers, dealers and others 1,796,510 (575,024)
Financial instruments owned (5,771,666) (4,974,624)
Other assets 194,969 78,925
Increases (decreases) in operating payables:
Securities sold under agreements to repurchase 1,627,933 (4,415,945)
Payables:
Customers (1,833,570) (116,020)
Brokers, dealers and others (2,139,401) 2,819,839
Financial instruments sold, but not yet purchased 863,198 2,066,088
Accrued employee compensation and benefits (779,989) (976,364)
Other liabilities and accrued expenses (57,262) (18,223)
------------------------------------
Cash (used in) provided by operating activities (634,269) 2,467,613
------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net payments for short-term borrowings (1,869,907) (1,540,917)
Net proceeds from issuance of long-term borrowings 1,977,077 286,643
Redemption of preferred stock issued by a subsidiary (200,000) -
Tax benefit of common stock distributions 3,184 1,541
Payments for:
Retirement of long-term borrowings (544,252) (1,041,676)
Treasury stock purchases (37,200) (128,133)
Cash dividends paid (24,808) (25,911)
------------------------------------
Cash used in financing activities (695,906) (2,448,453)
------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, equipment and leasehold improvements (42,633) (19,419)
Purchases of investment securities and other assets (11,282) (15,909)
Proceeds from sales of investment securities and other assets 7,693 8,124
------------------------------------
Cash used in investing activities (46,222) (27,204)
------------------------------------
Net decrease in cash and cash equivalents (1,376,397) (8,044)
Cash and cash equivalents, beginning of year 7,332,747 2,319,974
------------------------------------
Cash and cash equivalents, end of period $ 5,956,350 $ 2,311,930
====================================
See Notes to Consolidated Financial Statements.
Note: Certain reclassifications have been made to prior period amounts to
conform to the current period's presentation. SFAS No. 140 and SFAS No. 125, as
applicable, require balance sheet recognition for collateral related to certain
secured transactions, which are non-cash activities and did not have an impact
on the Consolidated Statements of Cash Flows.
5
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of The Bear
Stearns Companies Inc. and its subsidiaries (the "Company"). All material
intercompany transactions and balances have been eliminated. Certain prior
period amounts have been reclassified to conform to the current period's
presentation, including reclassifying temporary help costs from employee
compensation and benefits and establishing a professional fees caption.
Temporary help costs approximated $7.1 million for the three months ended
February 23, 2001. The November 30, 2001 Consolidated Statement of
Financial Condition and related information was derived from the audited
financial statements. The Consolidated Statement of Financial Condition as
of February 28, 2002 and the Consolidated Statements of Income and Cash
Flows for the three months ended February 28, 2002 and February 23, 2001
are unaudited.
The consolidated financial statements have been prepared in accordance with
the rules and regulations of the Securities and Exchange Commission (the
"SEC") with respect to the Form 10-Q and reflect all adjustments which in
the opinion of management are normal and recurring, which are necessary for
a fair statement of the results for the interim periods presented. In
accordance with such rules and regulations, certain disclosures that are
normally included in annual financial statements have been omitted. These
financial statements should be read in conjunction with the Company's
Annual Report on Form 10-K for the fiscal year ended November 30, 2001
filed by the Company under the Securities Exchange Act of 1934.
The consolidated financial statements are prepared in conformity with
accounting principles generally accepted in the United States of America
which require management to make certain estimates and assumptions,
including those regarding inventory valuations, stock compensation, certain
accrued liabilities and the potential outcome of litigation, that may
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ materially from these
estimates. The nature of the Company's business is such that the results of
any interim period may not be indicative of the results to be expected for
an entire fiscal year.
The Company, through its principal operating subsidiaries, Bear, Stearns &
Co. Inc. ("Bear Stearns"), Bear, Stearns Securities Corp. ("BSSC"), Bear,
Stearns International Limited ("BSIL") and Bear Stearns Bank plc ("BSB"),
is primarily engaged in business as a securities broker-dealer and operates
in three principal segments--Capital Markets, Global Clearing Services and
Wealth Management. Capital Markets is comprised of the Institutional
Equities,
6
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION (continued)
Fixed Income and Investment Banking areas. Global Clearing Services is
comprised of clearance and commission-related areas that concentrate on the
execution of trades for customers. Wealth Management is comprised of the
Private Client Services ("PCS") and Asset Management areas. See Note 8 of
Notes to Consolidated Financial Statements.
2. FINANCIAL INSTRUMENTS
Financial instruments owned and financial instruments sold, but not yet
purchased, consisting of the Company's proprietary trading and investment
accounts, at fair value, were as follows:
February 28, November 30,
In thousands 2002 2001
----------------------------------------------------------------------------------------------------------
FINANCIAL INSTRUMENTS OWNED:
US government and agency $ 12,853,247 $ 7,182,008
Other sovereign governments 2,263,449 1,337,042
Corporate equity and convertible debt 6,552,773 6,977,353
Corporate debt 6,271,958 7,862,890
Derivative financial instruments 7,624,018 7,275,789
Mortgages and other mortgage-backed securities 16,707,799 16,051,753
Other 1,246,288 1,224,416
---------------------------------------
$ 53,519,532 $ 47,911,251
=======================================
FINANCIAL INSTRUMENTS SOLD, BUT NOT YET PURCHASED:
US government and agency $ 11,082,596 $ 12,621,747
Other sovereign governments 3,038,679 1,327,125
Corporate equity 3,254,409 3,279,875
Corporate debt 2,414,666 2,507,245
Derivative financial instruments 5,821,888 5,013,048
---------------------------------------
$ 25,612,238 $ 24,749,040
=======================================
As of February 28, 2002 and November 30, 2001, all Company-owned securities
pledged to counterparties where the counterparty has the right, by contract
or custom, to rehypothecate the financial instruments are classified as
financial instruments, pledged as collateral, as required by Statement of
Financial Accounting Standards ("SFAS") No. 140.
Financial instruments sold, but not yet purchased, represent obligations of
the Company to deliver the specified financial instrument at the contracted
price, and thereby, create a liability to purchase the financial instrument
in the market at the then-prevailing prices. Accordingly, these
transactions result in off-balance-sheet risk as the Company's ultimate
obligation to purchase such securities may exceed the amount recognized in
the Consolidated Statements of Financial Condition.
7
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. COMMITMENTS AND CONTINGENCIES
See Note 15 of Notes to Consolidated Financial Statements included in the
Company's Annual Report on Form 10-K for the fiscal year ended November 30,
2001 for information about commitments, including term information.
In the normal course of business, the Company has been named as a defendant
in several lawsuits which involve claims for substantial amounts.
Additionally, the Company is involved from time to time in investigations
and proceedings by governmental agencies and self-regulatory organizations.
Although the ultimate outcome of these matters cannot be ascertained at
this time, it is the opinion of management, after consultation with
counsel, that the resolution of the foregoing matters will not have a
material adverse effect on the financial condition of the Company, taken as
a whole; such resolution may, however, have a material effect on the
operating results in any future period, depending on the level of such
results in such period.
4. REGULATORY REQUIREMENTS
Bear Stearns and BSSC are registered broker-dealers and, accordingly, are
subject to Rule 15c3-1 under the Securities Exchange Act of 1934 (the "Net
Capital Rule") and the capital rules of the New York Stock Exchange, Inc.
("NYSE"), the Commodity Futures Trading Commission ("CFTC") and other
principal exchanges of which Bear Stearns and BSSC are members. Included in
the computation of net capital of Bear Stearns is $695.1 million which is
net capital of BSSC in excess of 5.5% of aggregate debit items arising from
customer transactions, as defined. At February 28, 2002, Bear Stearns' net
capital, as defined, of $2.30 billion exceeded the minimum requirement by
$2.26 billion.
BSIL and Bear Stearns International Trading Limited ("BSIT"), London-based
broker-dealer subsidiaries, are subject to regulatory capital requirements
of the Financial Services Authority.
BSB, an Ireland-based bank principally involved in the trading and sales of
fixed income, credit and equity derivative products, is registered in
Ireland and is subject to the regulatory capital requirements of the
Central Bank of Ireland.
At February 28, 2002, Bear Stearns, BSSC, BSIL, BSIT and BSB were in
compliance with their respective regulatory capital requirements.
8
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. EARNINGS PER SHARE
Earnings per share ("EPS") is computed in accordance with SFAS No. 128,
"Earnings Per Share." Basic EPS is computed by dividing net income
applicable to common shares, adjusted for costs related to the Capital
Accumulation Plan for Senior Managing Directors, as amended (the "CAP
Plan"), by the weighted average number of common shares outstanding. Common
shares outstanding includes vested units issued under certain employee
stock compensation plans which are assumed to be distributed as shares of
common stock. Diluted EPS includes the determinants of Basic EPS and, in
addition, gives effect to dilutive potential common shares related to
employee stock compensation plans.
The computations of Basic and Diluted EPS are set forth below:
Three Months Ended
-------------------------------------------------------------------------------------------------
in thousands, except per share amounts February 28, 2002 February 23, 2001
-------------------------------------------------------------------------------------------------
Net income $ 180,526 $ 159,681
Preferred stock dividends (9,778) (9,778)
Income adjustment (net of tax) applicable to
deferred compensation arrangements 19,991 17,641
-------------------------------------------------------------------------------------------------
Net earnings available to common stockholders $ 190,739 $ 167,544
=================================================================================================
Total basic weighted average common
shares outstanding(1) 134,794 149,080
-------------------------------------------------------------------------------------------------
Effect of dilutive securities:
Employee stock options 1,317 1,051
CAP and restricted units 12,004 8,486
-------------------------------------------------------------------------------------------------
Dilutive potential common shares 13,321 9,537
-------------------------------------------------------------------------------------------------
Weighted average number of common shares
outstanding and dilutive potential
common shares 148,115 158,617
=================================================================================================
Basic EPS $ 1.39 $ 1.11(2)
Diluted EPS $ 1.29 $ 1.06(2)
=================================================================================================
(1) Includes vested units issued under certain employee stock
compensation plans which are assumed to be distributed as
shares of common stock.
(2) Net of a $.04 per share loss due to the cumulative effect of
a change in accounting principle.
9
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. CASH FLOW INFORMATION
For purposes of the Consolidated Statements of Cash Flows, the Company has
defined cash equivalents as liquid investments not held for sale in the
ordinary course of business with original maturities of three months or
less. Cash payments for interest approximated interest expense for the
three months ended February 28, 2002 and February 23, 2001. Income taxes
paid totaled $39.0 million and $49.8 million for the three months ended
February 28, 2002 and February 23, 2001, respectively.
7. DERIVATIVES AND HEDGING ACTIVITIES
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," establishes accounting and reporting standards for stand-alone
derivative instruments, derivatives embedded within other contracts or
securities and for hedging activities. It requires that all derivatives,
whether stand-alone or embedded within other contracts or securities
(except in very defined circumstances) be carried on the Company's balance
sheet at their then fair value. An important objective of the Company's
risk management process is to hedge the economic risks associated with its
long and short-term debt. To accomplish this objective the Company modifies
the interest rate characteristics of its debt through derivatives,
typically interest rate swaps. This is part of the on-going asset and
liability risk management function. SFAS No. 133 now requires derivatives
designated as hedges to be carried at their fair value, and that the hedged
items previously carried at their accrued values now be marked to market to
the extent of the mark to market on the derivatives designated as hedges.
Any resultant change in values for both the hedging derivative and the
hedged item is recognized in earnings immediately, with any net impact
being deemed the `ineffective' portion of the hedge. The gains and losses
associated with the ineffective portion of the fair value hedges were
included in principal transactions on the Consolidated Statement of Income
and were immaterial for the three months ended February 28, 2002.
Derivatives Credit Risk
-----------------------
Derivative financial instruments represent contractual commitments between
counterparties that derive their value from changes in an underlying
interest rate, currency exchange rate, index (e.g., Standard & Poor's 500
Index), reference rate (e.g., London Interbank Offered Rate), or asset
value referenced in the related contract. Some derivatives, such as futures
contracts, certain options, and indexed referenced warrants, can be traded
on an exchange. Other derivatives, such as interest rate and currency
swaps, caps, floors, collars, swaptions, equity swaps and options,
structured notes and forward contracts, are negotiated in the
over-the-counter markets. Derivatives generate both on-balance-sheet and
off-balance-sheet risks depending on the nature of the contract.
The Company is engaged as a dealer in over-the-counter derivatives and,
accordingly, enters into transactions involving derivative instruments as
part of its customer-related and
10
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. DERIVATIVES AND HEDGING ACTIVITIES (continued)
proprietary trading activities. The Company's dealer activities require it
to make markets and trade a variety of derivative instruments. In
connection with these activities, the Company attempts to mitigate its
exposure to market risk by entering into hedging transactions which may
include over-the-counter derivative contracts or the purchase or sale of
interest-bearing securities, equity securities, financial futures and
forward contracts. The Company also utilizes derivative instruments in
order to hedge proprietary market-making and trading activities. In this
regard, the utilization of derivative instruments is designed to reduce or
mitigate market risks associated with holding dealer inventories or in
connection with arbitrage-related trading activities. The Company also
utilizes interest rate and currency swaps as well as futures contracts and
US treasury positions to hedge its debt issuances as part of its asset and
liability management.
Credit risk arises from the potential inability of counterparties to
perform in accordance with the terms of the contract. The Company's
exposure, at any point in time, to credit risk associated with counterparty
nonperformance is generally limited to the net replacement cost of
over-the-counter contracts, reported as financial instruments owned, at
fair value in the Company's Consolidated Statements of Financial Condition
on a net-by-counterparty basis. Exchange traded financial instruments, such
as futures and options, generally do not give rise to significant
counterparty exposure due to the margin requirements of the individual
exchanges. Options written generally do not give rise to counterparty
credit risk since they obligate the Company (not its counterparty) to
perform.
The Company has controls in place to monitor credit exposures by assessing
the future creditworthiness of counterparties and limiting transactions
with specific counterparties. The Company also seeks to control credit risk
by following an established credit approval process, monitoring credit
limits and requiring collateral where appropriate.
11
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. DERIVATIVES AND HEDGING ACTIVITIES (continued)
The following table summarizes the counterparty credit quality of the
Company's exposure with respect to over-the-counter derivatives (including
foreign exchange and forward-settling mortgage transactions) as of February
28, 2002:
Derivative Credit Exposure(1)
($ in millions)
Percentage
Exposure, of Exposure,
Net of Net of
Rating(2) Exposure Collateral(3) Collateral(4) Collateral
-------------------------------------------------------------------------------------------------
AAA $ 1,420 $ 538 $ 929 34%
AA 1,074 170 911 32%
A 1,086 517 825 29%
BBB 169 266 66 2%
BB and lower 237 661 87 3%
(1) Excluded are covered transactions that are structured to ensure
that the market values of collateral will at all times equal or
exceed the related exposures. The net exposure for these
transactions will under all circumstances be zero.
(2) Internal counterparty credit ratings as assigned by the Company's
Credit Department, converted to rating agency equivalents.
(3) For lower-rated counterparties, the Company generally receives
collateral in excess of the current market value of derivatives
contracts.
(4) In calculating exposure, net of collateral, collateral amounts
are limited to the amount of current exposure for each
counterparty. Excess collateral is not applied to reduce exposure
because such excess in one counterparty portfolio cannot be
applied to deficient collateral in a different counterparty
portfolio.
8. SEGMENT DATA
The Company operates in three principal segments--Capital Markets, Global
Clearing Services and Wealth Management. These segments offer different
products and services. They are managed separately as different levels and
types of expertise are required to effectively manage the segments'
transactions.
The Capital Markets segment is comprised of Institutional Equities, Fixed
Income and Investment Banking areas. Institutional Equities combines the
efforts of sales, trading and research in such areas as block trading,
convertible bonds, over-the-counter equities, equity derivatives and risk
arbitrage. Fixed Income includes the efforts of sales, trading and research
for institutional clients in a variety of products such as mortgage-backed
and asset-backed securities, corporate and government bonds, municipal and
high yield securities and foreign exchange and fixed income derivatives.
Investment Banking provides capabilities in capital
12
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8. SEGMENT DATA (continued)
raising, strategic advisory, mergers and acquisitions and merchant banking.
Capital raising encompasses the Company's underwriting of equity,
investment-grade and high yield debt securities.
The Global Clearing Services segment provides execution, clearing, margin
lending and securities borrowing to facilitate customer short sales to more
than 2,900 clearing clients worldwide. Such clients include approximately
2,500 prime brokerage clients including hedge funds and clients of money
managers, short sellers, arbitrageurs and other professional investors and
approximately 400 fully disclosed clients, who engage in either the retail
or institutional brokerage business.
The Wealth Management segment is comprised of the PCS and Asset Management
areas. PCS provides high-net-worth individuals with an institutional level
of service. Asset Management serves the diverse investment needs of
corporations, municipal governments, multi-employer plans, foundations,
endowments, family groups and high-net-worth individuals and, in turn,
earns management and/or performance fees on the institutional and
high-net-worth products it offers.
The three business segments are comprised of the many business areas with
interactions among each as they serve the needs of similar clients.
Revenues and expenses reflected below include those which are directly
related to each segment. Revenues from inter-segment transactions are
credited based upon specific criteria or agreed upon rates with such
amounts eliminated in consolidation. Individual segments also include
revenues and expenses relating to various items including corporate
overhead and interest which are internally allocated by the Company
primarily based on balance sheet usage or expense levels. The Company
generally evaluates performance of the segments based on net revenues and
profit or loss before provision for income taxes.
13
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8. SEGMENT DATA (continued)
For the three months ended February 28, 2002:
In thousands Net Revenues Pre-Tax Income Segment Assets
---------------------------------------------------------------------------------------------------------
Capital Markets $ 937,430 $ 273,593 $ 139,712,166
Global Clearing Services 187,380 68,973 48,567,857
Wealth Management 123,211 1,780 3,857,731
Other (1) (8,843) (70,819) (6,983,972)
---------------------------------------------------------------------------------------------------------
Total $ 1,239,178 $ 273,527 $ 185,153,782
=========================================================================================================
For the three months ended February 23, 2001:
In thousands Net Revenues Pre-Tax Income Segment Assets (2)
---------------------------------------------------------------------------------------------------------
Capital Markets $ 801,535 $ 188,281 $ 118,555,178
Global Clearing Services 223,900 79,133 49,019,682
Wealth Management 144,588 16,204 3,771,806
Other (1) 43,764 (30,654) (5,303,946)
---------------------------------------------------------------------------------------------------------
Total $ 1,213,787 $ 252,964 $ 166,042,720
=========================================================================================================
(1) Other is comprised of consolidation/elimination entries,
unallocated revenues (predominantly interest), and certain
corporate administrative functions, including certain legal costs
and costs related to CAP Plan, which were $35.0 million and $31.0
million for the three months ended February 28, 2002 and February
23, 2001, respectively.
(2) Restated in accordance with SFAS No. 140.
9. TRANSFERS OF FINANCIAL ASSETS AND LIABILITIES
Securitizations
The Company regularly securitizes commercial and residential mortgages,
consumer receivables and other financial assets. Interests in these
securitized assets may be retained in the form of senior or subordinated
securities or as residual interests. These retained interests are included
in financial instruments owned and are carried at fair value.
Securitization transactions are generally treated as sales with resulting
gain or loss included in trading revenue. Fair value of retained interests
is determined by reference to quoted market prices when readily available.
Generally, quoted market prices are not available; therefore, consistent
with the valuation of similar inventory, fair value is estimated based on
internal valuation pricing models that consider management's estimates of
key variables such as forward yield curves, prepayment speeds, default
rates, loss severity, interest rate volatilities and spreads.
During the quarter ended February 28, 2002, the Company securitized
approximately $28.5 billion of financial assets. The Company is an active
market-maker in these securities and therefore may own retained interests
in assets it securitizes, predominantly highly rated or government agency
backed securities. Retained interests are recorded in financial instruments
owned at fair value with resultant gains or losses reflected in net income.
Retained interests in the assets securitized, including senior and
subordinated securities, approximated $2.6 billion and $3.8 billion at
February 28, 2002 and November 30, 2001, respectively.
14
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9. TRANSFERS OF FINANCIAL ASSETS AND LIABILITIES (continued)
Collateralized Financing Arrangements
The Company enters into secured borrowing or lending agreements to obtain
collateral necessary to effect settlements, finance inventory positions,
meet customer needs or re-lend as part of its dealer operations.
The Company receives collateral under reverse repurchase agreements,
securities borrowing transactions and in connection with derivative
transactions, customer margin loans and other secured money lending
activities. In most instances, the Company is permitted to rehypothecate
such securities. The Company also pledges its own assets to collateralize
certain financing arrangements. These securities are recorded as financial
instruments owned, pledged as collateral in the accompanying Statements of
Financial Condition.
At February 28, 2002 and November 30, 2001, the Company had received
securities pledged as collateral that can be repledged, delivered or
otherwise used with a fair value of approximately $190 billion and $192
billion, respectively. This collateral was generally obtained under reverse
repurchase, securities borrowing or margin lending agreements. Of these
securities, approximately $127 billion and $134 billion were repledged,
delivered or otherwise used, generally as collateral under repurchase
agreements, securities lending agreements or to cover short sales at
February 28, 2002 and November 30, 2001, respectively.
15
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders of
The Bear Stearns Companies Inc.
We have reviewed the accompanying consolidated statement of financial
condition of The Bear Stearns Companies Inc. and Subsidiaries as of
February 28, 2002, and the related consolidated statements of income and
cash flows for the three months ended February 28, 2002 and February 23,
2001. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and of making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with auditing standards generally
accepted in the United States of America, the objective of which is the
expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United
States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated statement of
financial condition of The Bear Stearns Companies Inc. and Subsidiaries as
of November 30, 2001, and the related consolidated statements of income,
cash flows and changes in stockholders' equity for the fiscal year then
ended (not presented herein) included in The Bear Stearns Companies Inc.'s
Annual Report on Form 10-K for the fiscal year ended November 30, 2001; and
in our report dated January 14, 2002, we expressed an unqualified opinion
on those consolidated financial statements. In our opinion, the information
set forth in the accompanying consolidated statement of financial condition
as of November 30, 2001 is fairly stated, in all material respects, in
relation to the consolidated statement of financial condition from which it
has been derived.
/s/ DELOITTE & TOUCHE LLP
New York, New York
April 15, 2002
16
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company's principal business activities, investment banking, securities
and derivatives trading, clearance and brokerage, are by their nature
highly competitive and subject to various risks, including volatile
trading markets and fluctuations in the volume of market activity.
Consequently, the Company's net income and revenues have been, and are
likely to continue to be, subject to wide fluctuations reflecting the
impact of many factors, including general economic conditions, securities
market conditions, the level and volatility of interest rates and equity
prices, competitive conditions, liquidity of global markets, international
and regional political conditions, regulatory developments, monetary and
fiscal policy, investor sentiment, availability and cost of capital,
technological changes and events and the size, volume and timing of
transactions.
Certain statements contained in this discussion are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements concerning management's
expectations, strategic objectives, business prospects, anticipated
economic performance and financial condition and other similar matters are
subject to risks and uncertainties, including those previously mentioned,
which could cause actual results to differ materially from those discussed
in the forward-looking statements. Forward-looking statements speak only as
of the date of the document in which they are made. We disclaim any
obligation or undertaking to provide any updates or revisions to any
forward-looking statement to reflect any change in our expectations or any
change in events, conditions or circumstances on which the forward-looking
statement is based.
For a description of the Company's business, including its trading in cash
instruments and derivative products, its underwriting and trading policies,
and their respective risks, and the Company's risk management policies and
procedures, see the Company's Annual Report on Form 10-K for the fiscal
year ended November 30, 2001.
Business Environment
The business environment during the first quarter ended February 28, 2002
was characterized by difficult economic conditions and low inflation. The
Federal Reserve Board (the "Fed") met twice during the quarter and in the
December 2001 meeting cut the Federal Funds rate 25 basis points to 1.75%.
The Fed also reported during the quarter that inflation was not a
significant concern and maintained a bias toward economic weakness in the
foreseeable future. The financial markets reacted to several negative
factors during the quarter including issues surrounding corporate
accounting and reporting practices and continued pressure on corporate
profits. Despite these negative factors, there was a growing sentiment that
the US economy and corporate profits were gaining strength and economic
reports evidenced that the economy was emerging from recession.
Trading volumes on the exchanges were mixed. Average daily trading volume
on the New York Stock Exchange ("NYSE") increased 10.6% while average daily
trading volume on the NASDAQ declined 17.0% from the quarter ended February
23, 2001. The performances of the major indices were also mixed during the
quarter. The Dow Jones Industrial Average increased 2.6% while the Standard
& Poor's 500 Index and the Nasdaq Composite Index decreased 2.9% and 10.3%,
respectively.
17
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Global stock issuance volumes continued to feel the impact of difficult
equity capital market conditions reflecting continued lack of investor
demand. Global and US announced merger and acquisition volumes remained at
low levels. However, the economic and interest rate environment provided
favorable conditions for fixed income activities reflecting strong demand
for domestic debt issuances and strong secondary market activity.
The business environment during the first quarter ended February 23, 2001
was characterized by a slowdown in US economic growth and moderate
inflation which resulted in volatile equity markets and record volume, with
the NYSE and NASDAQ average trading volume rising 23.8% and 38.1%,
respectively, from the quarter ended February 25, 2000. With investors
concerned that a slowing economy would bring more modest growth in
corporate earnings and indications that consumer confidence was declining,
the Fed moved aggressively to stimulate the economy, cutting the Federal
Funds rate twice for a total of 100 basis points. The Fed's actions
initially rallied the markets as the major indices all gained, but a major
sell-off followed in February as investors reacted to a deteriorating
corporate earnings environment.
Results of Operations
Significant Accounting Policies
-------------------------------
For a description of critical accounting policies, including those which
involve varying degrees of judgement, see Management's Discussion and
Analysis and Results of Operations in the Company's Annual Report on Form
10-K for the fiscal year ended November 30, 2001. In addition, see Note 1
of Notes to Consolidated Financial Statements included in the Company's
Annual Report on Form 10-K for the fiscal year ended November 30, 2001 for
a more comprehensive listing of significant accounting policies.
In the discussion to follow, results for the three months ended February
28, 2002 (the "2002 quarter") will be compared to the results for the three
months ended February 23, 2001 (the "2001 quarter"). Certain
reclassifications have been made to prior period amounts to conform to the
current period's presentation. See Note 1 of Notes to Consolidated
Financial Statements.
Three Months Ended February 28, 2002
Compared to Three Months Ended February 23, 2001
------------------------------------------------
The Company reported net income of $180.5 million, or $1.29 per diluted
share, for the 2002 quarter, which represented an increase of 13.1% from
$159.7 million, or $1.06 per diluted share, for the 2001 quarter.
Revenues, net of interest expense ("net revenues") increased 2.1% to $1.24
billion in the 2002 quarter from $1.21 billion in the 2001 quarter. The
increase in net revenues reflects an increase in principal transactions and
investment banking revenues, substantially offset by reduced net interest
and commission revenues. The increase in principal transactions revenues
was primarily due to strong performances from the Company's fixed income
businesses (see discussion below). The increase in investment banking
revenues reflected higher levels of equity and fixed income new issue
volume. Lower levels of customer margin debt from professional and retail
investors in the 2002 quarter resulted in reduced net interest revenues.
18
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company's principal transactions revenues by reporting categories were
as follows:
Three Months Ended
--------------------------------------------------
February 28, February 23, % Increase
In thousands 2002 2001 (Decrease)
----------------------------------------------------------------------------------------------------------
Fixed Income $ 465,771 $ 287,199 62.2%
Equity 93,812 188,941 (50.3%)
Derivative financial instruments 101,167 113,431 (10.8%)
----------------------------------------------------------------------------------------------------------
Total principal transactions $ 660,750 $ 589,571 12.1%
==========================================================================================================
Revenues from principal transactions in the 2002 quarter increased 12.1% to
$660.8 million from $589.6 million in the 2001 quarter, reflecting strong
results from the Company's fixed income activities, particularly in the
mortgage-backed securities, high yield and government bond areas. These
business areas benefited from a favorable interest rate environment,
characterized by a low level of short term interest rates and a steep yield
curve, and increased customer order flow. The increase in revenues derived
from fixed income activities was partially offset by a decrease in revenues
derived from equity activities as weak global equity market conditions and
reduced capital markets activities combined with lower volatility levels
depressed investor activity.
Business Segments
The remainder of Results of Operations is presented on a business segment
basis. The Company's three business segments--Capital Markets, Global
Clearing Services and Wealth Management--are analyzed separately due to the
distinct nature of the products they provide and the clients they serve.
Certain Capital Markets products are distributed by the Wealth Management
and Global Clearing Services distribution networks with the related
revenues of such intersegment services allocated to the respective
segments.
The following segment operating results exclude certain unallocated
revenues (predominantly interest) as well as certain corporate
administrative functions, such as certain legal costs and costs related to
the Capital Accumulation Plan for Senior Managing Directors, as amended
(the "CAP Plan").
CAPITAL MARKETS
Three Months Ended
------------------------------------------------
February 28, February 23, % (Decrease)
In thousands 2002 2001 Increase
--------------------------------------------------------------------------------------------------------
Net revenues
Institutional Equities $ 247,918 $ 341,171 (27.3%)
Fixed Income 548,194 340,389 61.0%
Investment Banking 141,318 119,975 17.8%
--------------------------------------------------------------------------------------------------------
Total net revenues $ 937,430 $ 801,535 17.0%
========================================================================================================
Pre-tax income $ 273,593 $ 188,281 45.3%
========================================================================================================
19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Capital Markets segment is comprised of the Institutional Equities,
Fixed Income and Investment Banking areas. Institutional Equities consists
of sales, trading and research in such areas as institutional domestic and
international equity sales, block trading, convertible bonds,
over-the-counter equities, equity derivatives, risk arbitrage and NYSE and
American Stock Exchange, Inc. ("AMEX") specialist activities. Fixed Income
includes the efforts of sales, trading and research for institutional
clients in a variety of products such as mortgage-backed and asset-backed
securities, corporate and government bonds, municipal and high yield
products, foreign exchange and fixed income derivatives. Investment Banking
provides capabilities in capital raising, strategic advice, mergers and
acquisitions and merchant banking. Capital raising encompasses the
Company's underwriting of equity, investment-grade and high yield debt
securities.
Net revenues for Capital Markets were $937.4 million in the 2002 quarter,
an increase of 17.0% from $801.5 million in the 2001 quarter. Pre-tax
income for Capital Markets was $273.6 million in the 2002 quarter, an
increase of 45.3% from $188.3 million in the 2001 quarter.
Institutional Equities net revenues in the 2002 quarter decreased 27.3% to
$247.9 million from $341.2 million in the 2001 quarter reflecting lower
revenues from the risk arbitrage and convertible arbitrage areas. Risk
arbitrage revenues continued to be adversely impacted by lower levels of
announced mergers and acquisitions activity, which consequently provided
fewer risk arbitrage opportunities. Declining volatility and widening
credit spreads served to negatively impact convertible arbitrage activity
during the 2002 quarter. In addition, revenues derived from equity
derivatives decreased reflecting lower volatility and reduced customer
activity.
Fixed Income net revenues increased to a record $548.2 million in the 2002
quarter, an increase of 61.0% from $340.4 million in the 2001 quarter. The
low level of short-term interest rates and a steep yield curve as well as
increased customer volume resulted in increased levels of activity and
revenues across the board, particularly in the mortgage-backed securities,
high yield, municipals and government bond securities areas.
Investment Banking net revenues in the 2002 quarter increased 17.8% to
$141.3 million from $120.0 million in the 2001 quarter. Investment Banking
net revenues includes underwriting, advisory services and merchant banking
revenues. Underwriting revenues increased 79.2% to $104.9 million in the
2002 quarter from $58.5 million in the 2001 quarter reflecting higher
levels of equity and fixed income underwriting activity compared to the
2001 quarter. Advisory services and other revenues decreased to $33.0
million or 8.7% from $36.2 million in the 2001 quarter as the level of
completed mergers and acquisitions activity continued to decline. Mergers
and acquisitions revenues are likely to be negatively impacted over the
balance of the year by the low level of announced US mergers and
acquisitions volumes. Merchant banking revenues decreased 86.5% to $3.4
million in the 2002 quarter from $25.3 million for the 2001 quarter.
20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GLOBAL CLEARING SERVICES
Three Months Ended
--------------------------------------------------------
February 28, February 23,
In thousands 2002 2001 % Decrease
---------------------------------------------------------------------------------------------------------
Net revenues $ 187,380 $ 223,900 (16.3%)
Pre-tax income $ 68,973 $ 79,133 (12.8%)
The Global Clearing Services segment provides execution, clearing, margin
lending and securities borrowing to facilitate customer short sales to more
than 2,900 clearing clients worldwide. Such clients include approximately
2,500 prime brokerage clients including hedge funds and clients of money
managers, short sellers, arbitrageurs and other professional investors and
approximately 400 fully disclosed clients, who engage in either the retail
or institutional brokerage business.
Net revenues for Global Clearing Services decreased 16.3% to $187.4 million
in the 2002 quarter from $223.9 million for the 2001 quarter. Pre-tax
income for Global Clearing Services was $69.0 million in the 2002 quarter,
a decrease of 12.8%, from $79.1 million for the 2001 quarter. Lower prime
brokerage and fully disclosed trading activity and lower levels of customer
margin debt and customer shorts adversely impacted results in the 2002
quarter. Difficult equity market conditions characterized by unstable share
prices produced fewer investment opportunities and resulted in lower
leverage levels being employed by prime brokerage and fully disclosed
customers. Average margin debt balances were $35.1 billion during the 2002
quarter compared to $42.0 billion during the 2001 quarter. Margin debt
balances totaled $34.6 billion at February 28, 2002 compared to $37.6
billion at February 23, 2001. Average customer short balances were $47.3
billion during the 2002 quarter compared to $55.0 billion during the 2001
quarter and totaled $54.5 billion at February 28, 2002, an increase from
$53.8 billion at February 23, 2001. Average free credit balances were $19.6
billion during the 2002 quarter compared to $18.3 billion during the 2001
quarter and totaled $17.9 billion at February 28, 2002, an increase from
$17.3 billion at February 23, 2001.
WEALTH MANAGEMENT
Three Months Ended
-------------------------------------------------
February 28, February 23,
In thousands 2002 2001 % Decrease
-----------------------------------------------------------------------------------------------------
Net revenues $ 123,211 $ 144,588 (14.8%)
Pre-tax income $ 1,780 $ 16,204 (89.0%)
The Wealth Management segment is comprised of the Private Client Services
("PCS") and Asset Management areas. PCS provides high-net-worth individuals
with an institutional level of service, including access to the Company's
resources and professionals. PCS maintains approximately 450 account
executives in its principal office and six regional offices.
Net revenues for Wealth Management were $123.2 million in the 2002 quarter,
a decrease of 14.8%, from $144.6 million for the 2001 quarter. Pre-tax
income for Wealth Management was $1.8 million in the 2002 quarter, a
decrease of 89.0%, from $16.2 million for 2001 quarter. Private Client
Services revenues decreased 16.2% to $87.2 million in the 2002 quarter from
$104.2 million in the 2001 quarter due to a reduction in retail trading
volume as a result of uncertain economic conditions and lower customer
margin debt balances as individual investors continued to retreat from the
equity markets. Asset Management revenues decreased 11.0% to $36.0 million
in the 2002 quarter from $40.4 million in the 2001 quarter due to lower
levels of performance-based fees from proprietary hedge fund products,
partially offset by increased management fees from mutual funds and
alternative investments.
21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Asset Management area had $25.8 billion in assets under management at
February 28, 2002, which reflected a 20.0% increase over $21.5 billion in
assets under management at February 23, 2001. Strong net inflows led to the
growth in assets under management. Assets from alternative investment
products grew 47.9% to approximately $6.8 billion under management at
February 28, 2002 from $4.6 billion at February 23, 2001, while assets from
mutual funds increased 23.1% to $6.4 billion at February 28, 2002 from $5.2
billion at February 23, 2001.
NON-INTEREST EXPENSES
Three Months Ended
-----------------------------------------------
February 28, February 23, % (Decrease)
In thousands 2002 2001 Increase
----------------------------------------------------------------------------------------------------
Employee compensation and benefits $ 633,642 $ 635,125 (0.2%)
Floor brokerage, exchange and clearance fees 39,749 35,573 11.7%
Communications and technology 104,673 115,034 (9.0%)
Occupancy 44,206 31,257 41.4%
Advertising and market development 23,524 33,832 (30.5%)
Professional fees 33,824 37,428 (9.6%)
Other expenses 86,033 72,574 18.5%
----------------------------------------------------------------------------------------------------
Total non-interest expenses $ 965,651 $ 960,823 0.5%
====================================================================================================
Employee compensation and benefits for the 2002 quarter were $633.6
million, down slightly from $635.1 million for the 2001 quarter. Employee
compensation and benefits as a percentage of net revenues was 51.1% for the
2002 quarter compared to 52.3% for the 2001 quarter. Full-time employees
decreased to 10,341 at February 28, 2002 from 11,298 at February 23, 2001.
Non-compensation expenses were $332.0 million for the 2002 quarter, an
increase of 1.9% from $325.7 million in the 2001 quarter. An increase of
approximately $19.0 million of non-recurring costs in connection with the
Company's relocation of its world headquarters to 383 Madison Avenue were
offset by non-compensation expense savings achieved through the aggressive
expense reduction measures taken during fiscal 2001, most notably in
advertising and market development, communications and technology and
professional fees. The increase in other expenses was primarily related to
increased charitable contributions associated with September 11th and CAP
Plan expenses. Expenses related to the CAP Plan were $35.0 million for the
2002 quarter, an increase from $31.0 million in the 2001 quarter,
reflecting the higher level of earnings in the 2002 quarter as compared to
the 2001 quarter. The expense control measures enabled the Company to
achieve a pre-tax profit margin of 22.1% for the 2002 quarter compared to
19.0% in fiscal 2001.
The Company's effective tax rate was 34% in both the 2002 quarter and 2001
quarter.
22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Financial Leverage
------------------
The Company maintains a highly liquid balance sheet with the vast majority
of the Company's assets consisting of cash, marketable securities
inventories and collateralized receivables arising from customer-related
and proprietary securities transactions.
Collateralized receivables consist of resale agreements secured
predominantly by US government and agency securities, customer margin loans
and securities borrowed, which are typically secured by marketable
corporate debt and equity securities. The nature of the Company's business
as a securities dealer requires it to carry significant levels of
securities inventories in order to meet its customer and proprietary
trading needs. Additionally, the Company's role as a financial intermediary
for customer activities which it conducts on a principal basis, together
with its customer-related activities attributable to its clearance
business, results in significant levels of customer-related balances,
including customer margin debt, securities borrowing and repurchase
activity. The Company's total assets and financial leverage can fluctuate,
depending largely upon economic and market conditions, volume of activity
and customer demand.
The Company's total assets at February 28, 2002 decreased to $185.2 billion
from $185.5 billion at November 30, 2001. The decrease was primarily
attributable to a decrease in securities purchased under agreements to
resell, substantially offset by an increase in financial instruments owned,
at fair value. The Company's total capital base, which consists of
long-term debt, preferred equity issued by subsidiaries and total
stockholders' equity, increased to $31.1 billion at February 28, 2002 from
$29.8 billion at November 30, 2001 primarily due to net issuances of
long-term debt and was partially offset by the redemption of $200 million
in preferred securities issued by Capital Trust I, a wholly owned
subsidiary of the Company.
The amount of long-term debt, as well as total capital, that the Company
maintains is a function of its asset composition. The Company's ability to
support increases in total assets is a function of its ability to obtain
short-term secured and unsecured funding, as well as its access to
longer-term sources of capital (i.e., long-term debt and equity). The
Company regularly measures and monitors its total capital requirements,
which are a function of balance sheet risk (i.e., market, credit and
liquidity) and regulatory capital requirements. The Company seeks to ensure
the adequacy of its total capital base, the size of which is determined
primarily as a function of the self-funding ability of its assets. As such,
the mix and liquidity characteristics of assets being held are the primary
determinant of required total capital, thus significantly influencing the
amount of leverage that the Company can employ.
23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table sets forth total assets, adjusted assets, and net
adjusted assets with the resultant leverage ratios at February 28, 2002 and
November 30, 2001. With respect to a comparative measure of financial risk
and capital adequacy, the Company believes that the low risk spread nature
of its resale and securities borrowed positions renders net adjusted
leverage as the most relevant measure.
February 28, November 30,
In billions, except ratios 2002 2001
-------------------------------------------------------------------------
Total Assets $ 185.2 $ 185.5
Adjusted Assets (1) $ 144.1 $ 140.7
Net Adjusted Assets (2) $ 91.9 $ 88.8
Leverage Ratio (3) 29.3 29.0
Adjusted Leverage Ratio (4) 22.8 22.0
Net Adjusted Leverage Ratio (5) 14.5 13.9
(1) Adjusted Assets represent Total Assets less securities purchased under
agreements to resell and the securities received as collateral.
(2) Net Adjusted Assets represent Adjusted Assets less securities borrowed.
(3) Leverage Ratio equals Total Assets divided by stockholders' equity and
preferred stock issued by subsidiaries.
(4) Adjusted Leverage Ratio equals Adjusted Assets divided by stockholders'
equity and preferred stock issued by subsidiaries.
(5) Net Adjusted Leverage Ratio equals Net Adjusted Assets divided by
stockholders' equity and preferred stock issued by subsidiaries.
Funding Strategy
----------------
The Company's general funding strategy seeks to ensure liquidity and
diversity of funding sources in order to meet the Company's financing needs
at all times and in all market environments. The Company attempts to
finance its balance sheet by maximizing, where economically competitive,
its use of secured funding. In addition, with respect to short-term,
unsecured financing, the Company's emphasis on diversification by product,
geography, maturity and instrument results in prudent, moderate usage of
more credit sensitive, potentially less stable funding. Short-term sources
of cash consist principally of collateralized borrowings, including
repurchase transactions, sell/buy arrangements, securities lending
arrangements and customer free credit balances. Short-term funding also
includes commercial paper, medium-term notes and bank borrowings generally
having maturities from overnight to one year.
In addition to short-term funding sources, the Company utilizes equity,
long-term senior debt and medium-term notes, as well as lines of credit as
longer-term sources of secured and unsecured financing. The firm regularly
monitors and analyzes the size, composition and liquidity characteristics
of its asset base in the context of each asset's ability to be used to
obtain secured financing. This analysis results in a determination of the
Company's aggregate need for longer-term funding sources (i.e., long-term
debt and equity). During the three months ended February 28, 2002, the
Company received proceeds of approximately $2.0 billion from the issuance
of long-term debt, which was offset by payments approximating $0.5 billion
relating to the retirements of long-term debt. The Company views long-term
debt as a stable source of funding and thus additive to overall liquidity.
The Company views its secured funding as inherently less credit sensitive
and therefore a more stable source of funding due to the collateralized
nature of the borrowing. The Company seeks to prudently manage its reliance
on short-term unsecured borrowings by maintaining an adequate total capital
base and extensive use of secured funding.
24
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company maintains an alternative funding strategy focused on the
liquidity and self-funding ability of the underlying assets. The objective
is to maintain sufficient total capital and funding sources to enable the
Company to refinance unsecured borrowings with fully secured borrowings.
The analysis focuses on a twelve-month time period and assumes that the
Company does not liquidate assets and cannot issue any new unsecured debt,
including commercial paper. Within this context, the Company monitors its
cash position and the borrowing value of unencumbered, unhypothecated
marketable securities in relation to its unsecured debt maturing over the
next twelve months, striving to maintain the ratio of liquidity sources to
maturing debt at 100% or greater.
In addition, the Company monitors the maturity profile of its unsecured
debt to minimize refinancing risk, maintains relationships with a broad
global base of debt investors and bank creditors, establishes and adheres
to strict short-term debt investor concentration limits and periodically
tests its secured and unsecured committed credit facilities. The Company
also maintains available sources of short-term funding that exceed actual
utilization to allow it to endure changes in investor appetite and credit
capacity to hold the Company's debt obligations.
The Company has in place a committed Revolving Credit Facility (the
"Facility") totaling $3.03 billion, which permits borrowing on a secured
basis by Bear, Stearns & Co. Inc. ("Bear Stearns"), Bear, Stearns
Securities Corp. ("BSSC") and certain affiliates. The Facility also
provides that The Bear Stearns Companies Inc. may borrow up to $1.515
billion of the Facility on an unsecured basis. Secured borrowings can be
collateralized by both investment-grade and non-investment-grade financial
instruments as the Facility provides for defined margin levels on a wide
range of financial instruments eligible to be pledged. The Facility
contains financial covenants which require, among other things, maintenance
of specified levels of stockholders' equity of the Company and net capital
of BSSC. The Facility terminates in February 2003 with all loans
outstanding at that date payable no later than February 2004. There were no
borrowings outstanding under the Facility at February 28, 2002.
The Company has in place a $1.25 billion committed Revolving Securities
Repo Facility (the "Repo Facility"), which permits borrowings secured by a
broad range of collateral, under a repurchase arrangement, by Bear, Stearns
International Limited ("BSIL"), Bear Stearns International Trading Limited
("BSIT") and Bear Stearns Bank plc ("BSB"). The Repo Facility contains
financial covenants which require, among other things, maintenance of
specified levels of stockholders' equity of the Company. The Repo Facility
terminates in August 2002 with all repos outstanding at that date payable
no later than August 2003. There were no borrowings outstanding under the
Repo Facility at February 28, 2002.
The Company has in place a $400 million committed Revolving Credit Facility
(the "Credit Facility"), which permits borrowing on a secured basis
collateralized by Japanese securities. The Credit Facility contains
financial covenants which require, among other things, maintenance of
specified levels of stockholders' equity of the Company and net capital of
BSSC. The Credit Facility terminates in December 2002 with all loans
outstanding at that date payable no later than December 2003. There were no
borrowings outstanding under the Credit Facility at February 28, 2002.
25
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Capital Resources
-----------------
The Company conducts a substantial portion of its operating activities
within its regulated subsidiaries Bear Stearns, BSSC, BSIL, BSIT and BSB.
In connection therewith, a substantial portion of the Company's long-term
borrowings and equity has been used to fund investments in, and advances
to, these regulated subsidiaries. The Company regularly monitors the nature
and significance of assets or activities conducted outside the regulated
subsidiaries and attempts to fund such assets with either capital or
borrowings having maturities consistent with the nature and self-funding
ability of the assets being financed.
Long-term debt totaling $19.7 billion had remaining maturities beyond one
year at February 28, 2002 and November 30, 2001. The Company's access to
external sources of financing, as well as the cost of that financing, is
dependent upon various factors and could be adversely affected by a
deterioration of the Company's operating performance and/or the Company's
short-term and long-term debt ratings. At February 28, 2002, the Company's
long-term/short-term debt ratings were as follows:
---------------------------------------------------------------
Moody's Investors Service A2/P-1
---------------------------------------------------------------
Standard & Poor's A/A-1
---------------------------------------------------------------
Fitch A+/F1+
---------------------------------------------------------------
Dominion Bond Rating Service Limited A/R-1 (middle)
---------------------------------------------------------------
Rating & Investment Information, Inc. A+/nr
---------------------------------------------------------------
nr - does not assign a short-term rating
The Company has various employee stock compensation plans designed to
increase the emphasis on stock-based incentive compensation and align the
compensation of its key employees with the long-term interests of
stockholders. Such plans provide for annual grants of stock units and stock
options. The Company intends to offset the potentially dilutive impact of
the annual grants by purchasing common stock throughout the year in open
market and private transactions. On January 8, 2002, the Board of Directors
of the Company approved an amendment to the Stock Repurchase Program
("Repurchase Program") to replenish the previous authorization to allow the
Company to purchase up to $1.2 billion of common stock in fiscal 2002 or
beyond. During the quarter ended February 28, 2002, the Company purchased
under the current and previous authorizations a total of 706,024 shares at
a cost of approximately $40.2 million.
Cash Flows
----------
Cash and cash equivalents decreased $1.4 billion to $6.0 billion at
February 28, 2002. Cash used in operating activities was $634.3 million,
primarily attributable to an increase in financial instruments owned, a
decrease in payables to brokers, dealers and others and a decrease in
payables to customers, partially offset by a decrease in securities
purchased under agreements to resell and a decrease in receivables from
brokers, dealers and others. Cash used in financing activities of $695.9
million reflected net payments for short-term borrowings, retirements of
long-term borrowings and the redemption of preferred stock issued by a
subsidiary, partially offset by net proceeds from issuances of long-term
borrowings. Cash used in investing activities of $46.2 million reflected
purchases of property, equipment and leasehold improvements and net
purchases of investment securities and other assets.
26
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Regulated Subsidiaries
----------------------
As registered broker-dealers, Bear Stearns and BSSC are subject to the net
capital requirements of the Securities Exchange Act of 1934, as amended,
the NYSE and the Commodity Futures Trading Commission, which are designed
to measure the general financial soundness and liquidity of broker-dealers.
BSIL and BSIT, London-based broker-dealer subsidiaries, are subject to the
regulatory capital requirements of the Financial Services Authority.
Additionally, BSB is subject to the regulatory capital requirements of the
Central Bank of Ireland. At February 28, 2002, Bear Stearns, BSSC, BSIL,
BSIT and BSB were in compliance with their respective regulatory capital
requirements.
Merchant Banking Investments
----------------------------
As part of its merchant banking activities, the Company participates from
time to time in principal investments in leveraged transactions. As part of
these activities, the Company originates, structures and invests in merger,
acquisition, restructuring and leveraged capital transactions, including
leveraged buyouts. The Company's principal investments in these
transactions are generally made in the form of equity investments,
equity-related investments or subordinated loans and have not historically
required significant levels of capital investment. At February 28, 2002,
the Company held investments in 24 leveraged transactions with an aggregate
recorded value of approximately $198.4 million, reflected in the Statement
of Financial Condition in other assets. In addition, the Company has
various direct and indirect principal investments in, as well as
commitments to participate in, private investment funds that invest in
leveraged transactions. See the summary table under Commitments below.
High Yield Positions
--------------------
As part of the Company's fixed income activities, the Company participates
in the underwriting, securitization and trading of non-investment-grade
debt securities, non-performing mortgage loans, non-investment-grade
commercial and leveraged loans and securities of companies that are the
subject of pending bankruptcy proceedings (collectively "high yield
positions"). Also included in high yield positions is a portfolio of
Chapter 13 and other credit card receivables from individuals.
Non-investment-grade debt securities have been defined as
non-investment-grade corporate debt, asset securitization vehicles and
emerging market debt rated BB+ or lower or equivalent ratings recognized by
credit rating agencies. Non-performing mortgage loans are principally
secured by residential properties. At February 28, 2002 and November 30,
2001, the Company held high yield positions approximating $3.8 billion and
$3.0 billion, respectively, in long inventory, and $742.3 million and
$700.7 million, respectively, in short inventory. Included in these amounts
is a portfolio of non-performing mortgage loans as well as a portfolio of
Chapter 13 and other credit card receivables aggregating $1.7 billion and
$1.1 billion at February 28, 2002 and November 30, 2001, respectively.
27
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Also included in the high yield positions are extensions of credit to
highly leveraged companies. At February 28, 2002 and November 30, 2001, the
amount outstanding to highly leveraged borrowers totaled $433.0 million and
$413.1 million, respectively. Additionally, the Company has lending
commitments to non-investment-grade borrowers. See the summary table under
Commitments below. The Company also has exposure to non-investment-grade
counterparties related to its trading-related derivative activities; such
amounts at February 28, 2002 and November 30, 2001 were $87.0 million and
$55.0 million, net of collateral, respectively.
The Company's Risk Committee monitors exposure to market and credit risk
with respect to high yield positions and establishes limits with respect to
overall market exposure and concentrations of risk by individual issuer.
High yield positions generally involve greater risk than investment-grade
debt securities due to credit considerations, liquidity of secondary
trading markets and increased vulnerability to changes in general economic
conditions. The level of the Company's high yield positions, and the impact
of such activities upon the Company's results of operations, can fluctuate
from period to period as a result of customer demand and economic and
market considerations.
Commitments
-----------
The Company had the following commitments (excluding derivative financial
instruments) at February 28, 2002:
(in millions)
Commercial loan commitments:
Investment-grade $ 1,152
Non-investment grade 401
Construction lending 62
Purchase obligations:
Mortgages 170
Chapter 13 and other credit card receivables 183
Commitments to invest in private equity related
investments and partnerships 719
Underwriting commitments (primarily mortgage
securitizations) 3,142
Guaranteed indebtedness of a non-consolidated lessor 556
Future minimum lease payments 400
Other commitments 58
See Note 15 of Notes to Consolidated Financial Statements in the Company's
Annual Report on Form 10-K for the fiscal year ended November 30, 2001 for
additional information about the above commitments, including their term
information.
The Company's long-term borrowings (including fair value adjustment made in
accordance with SFAS No. 133) maturing in the next 12 months approximate $5
billion. See Note 8 of Notes to Consolidated Financial Statements in the
Company's Annual Report on Form 10-K for the fiscal year ended November 30,
2001 for information about preferred stock terms including maturities.
28
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
For a description of the Company's risk management policies and
Value-at-Risk ("VaR") model, including a discussion of the Company's
primary market risk exposures, which include interest rate risk, foreign
exchange rate risk and equity price risk and a discussion of how those
exposures are managed, refer to the Company's Annual Report on Form 10-K
for the fiscal year ended November 30, 2001.
The total VaR presented below is less than the sum of the individual
components (i.e., interest rate risk, foreign exchange rate risk, equity
risk) due to the benefit of diversification among the risks. This table
illustrates the VaR for each component of market risk at February 28, 2002,
November 30, 2001 and February 23, 2001.
February 28, November 30, February 23,
In millions 2002 2001 2001
-------------------------------------------------------------------------------
MARKET RISK
Interest rate $ 17.8 $ 12.6 $ 15.3
Currency 0.7 1.1 0.8
Equity 4.3 5.3 5.9
Diversification benefit (4.5) (5.3) (5.5)
-------------------------------------------------------------------------------
Total $ 18.3 $ 13.7 $ 16.5
===============================================================================
The table below illustrates the high, low and average (calculated on a
monthly basis) VaR for each component of market risk and aggregate market
risk during the 2002 quarter:
In millions High Low Average
-------------------------------------------------------------------------------
MARKET RISK
Interest rate $ 19.2 $ 12.6 $ 16.5
Currency 1.1 0.7 1.0
Equity 5.3 4.3 4.9
Aggregate VaR 20.0 13.7 17.3
-------------------------------------------------------------------------------
The following charts represent a summary of the daily principal
transactions revenues and reflect a combination of trading revenues, net
interest revenues for certain trading areas and other revenues for the
quarters ended February 28, 2002 and February 23, 2001, respectively. These
charts represent a historical summary of the results generated by the
Company's trading activities as opposed to the probability approach used by
the VaR model. The average daily trading profit was $11.0 million and $10.5
million for the quarters ended February 28, 2002 and February 23, 2001,
respectively. During the quarters ended February 28, 2002 and February 23,
2001, there were no trading days in which daily trading losses exceeded the
reported period end VaR amounts. The frequency distribution of the
Company's daily net trading revenues reflects the Company's historical
ability to manage its exposure to market risk and the diversified nature of
its trading activities. While no guarantee can be given regarding future
net trading revenues or future earnings volatility, the Company will
continue to pursue policies and procedures that assist the firm in
measuring and monitoring its risks.
29
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
-------------------------------------------------------------------------------
DAILY NET TRADING REVENUES FREQUENCY DISTRIBUTION
-------------------------------------------------------------------------------
[Vertical bar graphs of Frequency (y-axis) versus Daily Net Trading
Revenues (x-axis) representing the following information appear here in
paper format]
Quarter Ended February 28, 2002
Daily Net Trading Frequency
Revenues (Number of
($ in millions) Trading Days)
(10)+ 0
(10)-(5) 0
(5)-0 4
0-5 6
5-10 15
10-15 14
15-20 18
20-25 3
25-30 0
30-35 0
Quarter Ended February 23, 2001
Daily Net Trading Frequency
Revenues (Number of
($ in millions) Trading Days)
(10)+ 0
(10)-(5) 0
(5)-0 1
0-5 6
5-10 26
10-15 13
15-20 8
20-25 1
25-30 0
30-35 2
30
Part II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
McKesson HBOC, Inc. Litigations
As previously reported in the Company's Fiscal Year 2001 Form 10-K
(the "2001 Form 10-K"), Bear Stearns is a defendant in various litigations
arising out of a merger between McKesson Corporation ("McKesson") and HBO &
Company ("HBOC") resulting in an entity called McKesson HBOC, Inc.
("McKesson HBOC").
IN RE MCKESSON HBOC, INC. SECURITIES LITIGATION. As previously
reported in the Company's 2001 Form 10-K, Bear Stearns is a defendant in a
litigation pending in the United States District Court for the Northern
District of California.
On February 15, 2002, plaintiffs filed a third amended complaint on
behalf of the same purported class and against the same defendants as were
named in the second amended complaint. As amended, the complaint alleges
that Bear Stearns violated Sections 10(b) and 14(a) of the Securities
Exchange Act of 1934 and Rule 10b-5 promulgated thereunder in connection
with allegedly false and misleading disclosure contained in a joint proxy
statement/prospectus that was issued with respect to the McKesson/HBOC
merger. Compensatory damages in an unspecified amount are sought.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC., ET AL. V. MCKESSON HBOC,
INC., ET AL. On or around March 19, 2002, an action was commenced in the
Superior Court of the State of California, County of San Francisco, by two
investment funds that acquired the common stock of McKesson HBOC between
February 5 and March 12, 1999. Named as defendants are McKesson HBOC, HBOC,
certain present or former officers and/or directors of McKesson, HBOC
and/or McKesson HBOC, Arthur Andersen and Bear Stearns. The complaint
alleges, among other things, that Bear Stearns violated Section 25500 of
the California Corporations Code and committed common law fraud, negligent
misrepresentation and conspiracy in connection with allegedly false and
misleading disclosure contained in a joint proxy statement/prospectus that
was issued with respect to the McKesson/HBOC merger. Compensatory damages
in an unspecified amount are sought. Bear Stearns has not been served with
the complaint in this action.
The Company has denied all allegations of wrongdoing asserted against
it in these litigations, and believes that it has substantial defenses to
these claims.
HELEN GREDD, CHAPTER 11 TRUSTEE FOR MANHATTAN INVESTMENT FUND LIMITED
("MIFL"). V. BEAR, STEARNS SECURITIES CORP.
As previously reported in the Company's 2001 Form 10-K, Bear, Stearns
Securities Corp. ("BSSC") is a defendant in a litigation pending in the
United States District Court for the Southern District of New York.
31
LEGAL PROCEEDINGS
On March 21, 2002, the court dismissed the trustee's claims seeking to
recover allegedly fraudulent transfers in amounts exceeding $1.9 billion.
The district court also remanded to the bankruptcy court the trustee's
remaining claims, which seek to recover allegedly fraudulent transfers in
the amount of $141.4 million and to equitably subordinate any claim that
may be asserted by BSSC against MIFL to the claims of other creditors.
The Company has denied all allegations of wrongdoing asserted against it in
this litigation, and believes that it has substantial defenses to these
claims.
The Company also is involved from time to time in investigations and
proceedings by governmental agencies and self-regulatory organizations.
32
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(11) Computation of Per Share Earnings. (The calculation of per share
earnings is in Note 5 of Notes to Consolidated Financial Statements
(Earnings Per Share) and is omitted in accordance with Section (b) (11) of
Item 601 of Regulation S-K).
(12) Computation of Ratio of Earnings to Fixed Charges
(15) Letter re: Unaudited Interim Financial Information
(b) Reports on Form 8-K
During the quarter, the Company filed the following Current Reports on Form
8-K.
(i) A Current Report on Form 8-K dated December 20, 2001 and filed on
December 21, 2001, pertaining to the Company's results of operations for
the three months and fiscal year ended November 30, 2001.
(ii) A Current Report on Form 8-K dated January 8, 2002 and filed on
January 9, 2002, announcing its regular quarterly cash dividend on its
outstanding shares of common stock and the approval by the Board of
Directors of the Company of an amendment to its share repurchase program to
allow the Company to purchase up to $1.2 billion in aggregate cost of
common stock.
(iii) A Current Report on Form 8-K dated January 8, 2002 and filed on
January 15, 2002, pertaining to:
(a) Amended and Restated By-laws of the Company, as amended
through January 8, 2002.
(b) Certificate of Elimination of the Cumulative Convertible
Preferred Stock, Series A, Cumulative Convertible Preferred
Stock, Series B, Cumulative Convertible Preferred Stock,
Series C and Cumulative Convertible Preferred Stock, Series
D of the Company.
(c) Certificate of Elimination of the 7.88% Cumulative Preferred
Stock, Series B and Certificate of Elimination of the 7.60%
Cumulative Preferred Stock, Series C of the Company.
(d) Certificate of Correction of the Certificate of Stock
Designation relating to the Company's Adjustable Rate
Cumulative Preferred Stock, Series A.
33
EXHIBITS AND REPORTS ON FORM 8-K
(e) Opinion of Cadwalader, Wickersham & Taft as to the legality
of the 5.70% Global Notes due 2007 ("Global Notes") issued
by the Company, certain federal income tax consequences in
connection with the offering of the Global Notes, and a
consent in connection with the offering of the Global Notes.
(iv) A Current Report on Form 8-K dated and filed on January 25, 2002,
pertaining to an opinion of Cadwalader, Wickersham & Taft as to certain
federal income tax consequences described in the Prospectus Supplement
dated January 25, 2002 included in the Registration Statement on Form S-3
filed by the Company relating to the registration of up to $10,006,693,162
aggregate principal amount of Medium Term Notes and a consent in connection
with the Registration Statement.
34
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Bear Stearns Companies Inc.
-------------------------------
(Registrant)
Date: April 15, 2002 By: /s/ Marshall J Levinson
-----------------------
Marshall J Levinson
Controller
(Principal Accounting Officer)
35
THE BEAR STEARNS COMPANIES INC.
FORM 10-Q
EXHIBIT INDEX
Exhibit No. Description Page
----------- ----------- ----
(12) Computation of Ratio of Earnings to Fixed Charges 37
(15) Letter re: Unaudited Interim Financial Information 38
36