================================================================================
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 FOR THE FISCAL YEAR ENDED NOVEMBER 30, 2001.
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
(212) 272-2000
(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:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
----------------------------------------------------------------- ------------------------------------------------------
Common Stock, par value $1.00 per share New York Stock Exchange
Adjustable Rate Cumulative Preferred Stock, Series A New York Stock Exchange
Depositary Shares, each representing a one-fourth interest in New York Stock Exchange
a share of 6.15% Cumulative Preferred Stock, Series E
Depositary Shares, each representing a one-fourth interest in New York Stock Exchange
a share of 5.72% Cumulative Preferred Stock, Series F
Depositary Shares, each representing a one-fourth interest New York Stock Exchange
in a share of 5.49% Cumulative Preferred Stock, Series G
S&P Linked Notes Due 2003 Chicago Board Options Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
(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. [x]
At February 15, 2002, the aggregate market value of the voting and
non-voting common equity held by non-affiliates of the registrant was
approximately $5,277,528,276. 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 February 15, 2002, the registrant had 99,852,892 outstanding
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 2001 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 March 26, 2002, 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 November 30, 2001.
================================================================================
PART I
ITEM 1. BUSINESS.
(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"); Bear, Stearns Securities Corp. ("BSSC"); Bear, Stearns
International Limited ("BSIL") and Bear Stearns Bank plc ("BSB") is a leading
investment banking, securities and derivatives trading, clearance and brokerage
firm serving corporations, governments, institutional and individual investors
worldwide. BSSC, a subsidiary of Bear Stearns, provides professional and
correspondent clearing services, in addition to clearing and settling customer
transactions and certain proprietary transactions of the Company. 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 is primarily engaged in business as a securities broker
and dealer operating in three principal segments: Capital Markets, Global
Clearing Services and Wealth Management. These segments 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 Capital Markets segment is comprised of the 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 ("OTC") 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 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 debt and high
yield debt products.
The Global Clearing Services segment provides 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 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. The Asset
Management area had $24.2 billion in assets under management at November 30,
2001, which reflected a 24.1% increase over $19.5 billion in assets under
management at November 30, 2000. Strong net inflows and performances from
certain of the funds' investments led to the growth in assets under management.
Asset Management serves the diverse investment needs of corporations, municipal
governments, multi-employer plans, foundations, endowments, family groups and
high-net-worth individuals.
Financial information regarding the Company's business segments and
foreign operations as of November 30, 2001, November 30, 2000, November 26, 1999
and June 30, 1999 and for the fiscal years ended November 30, 2001, November 30,
2000, the five months ended November 26, 1999 and the fiscal year ended June 30,
1999 is set forth under "Item 8. Financial Statements and Supplementary Data" in
Note 16 of Notes to Consolidated Financial Statements, entitled "Segment and
Geographic Area Data," and is incorporated herein by reference.
(c) Narrative Description of Business
The business of the Company includes: market-making and trading in
US government, government agency, corporate debt and equity, mortgage-related,
asset-backed, municipal securities and high yield products; trading in options,
futures, foreign currencies, interest rate swaps and other derivative products;
securities, options and futures brokerage; providing securities clearance
services; managing equity and fixed income assets for institutional and
individual clients; financing customer activities; securities lending;
securities and futures arbitrage; involvement in specialist activities on both
the New York Stock Exchange, Inc. ("NYSE") and the American Stock Exchange, Inc.
("AMEX"); underwriting and distributing securities; arranging for the private
placement of securities; assisting in mergers, acquisitions, restructurings and
leveraged transactions; making principal investments in leveraged acquisitions;
engaging in commercial real estate activities; investment management and
advisory services; fiduciary, custody, agency and securities research services.
The Company's business is conducted from its principal offices in
New York City; from domestic regional offices in Atlanta, Boston, Chicago,
Dallas, Denver, Los Angeles, San Francisco and San Juan; from representative
offices in Herzliya, Milan and Sao Paulo; through international offices in
Dublin, Hong Kong, London, Lugano, Singapore and Tokyo; and through joint
ventures with other firms in Belgium, Greece and Spain. The Company's
international offices provide services and engage in investment activities
involving foreign clients and international transactions. Additionally, certain
of these foreign offices provide services to US clients. The Company provides
trust company and clearance services through its subsidiary, Custodial Trust
Company ("CTC"), which is located in Princeton, New Jersey.
Bear Stearns and BSSC are broker-dealers registered with the
Securities and Exchange Commission (the "SEC"). Additionally, Bear Stearns is
registered as an investment adviser with the SEC. Bear Stearns and/or BSSC are
also members of the NYSE, all other principal US securities and futures
exchanges, the National Association of Securities Dealers, Inc. ("NASD"), the
Commodity Futures Trading Commission ("CFTC"), the National Futures Association
("NFA") and the International Securities Exchange ("ISE"). Bear Stearns is a
"primary dealer" in US government securities as designated by the Federal
Reserve Bank of New York.
BSIL is a full service broker-dealer based in London and is a member
of Eurex (formerly the Deutsche Terminborse), the International Petroleum
Exchange ("IPE"), the London Commodity Exchange ("LCE"), the London
International Financial Futures and Options Exchange ("LIFFE"), the London
Securities & Derivatives Exchange ("OMLX"), Marche a Terme International de
France, SA ("MATIF") and the London Clearing House ("LCH"). BSIL is supervised
by and is regulated in accordance with the rules of the Financial Services
Authority ("FSA").
BSB is an Ireland-based bank, which was registered in 1996 and
subsequently granted a banking license under the Irish Central Bank Act, 1971.
BSB allows the Company's existing and prospective clients the opportunity of
dealing with a banking counterparty.
As of November 30, 2001, the Company had 10,452 employees.
The following areas are included in the three business segments
mentioned above in Item 1(b).
-2-
INSTITUTIONAL EQUITIES
General. The Company provides customers with liquidity, sales and
trading expertise and equity research in products such as domestic and
international equities and convertible securities.
Options 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 specific recommendations relating to options and index trading.
Arbitrage. The Company engages for its own account in both "classic"
and "risk" arbitrage. The Company's risk arbitrage activities generally involve
the purchase of securities at a discount from a value that is expected to be
realized if a proposed or anticipated merger, recapitalization, tender offer 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
future date, and (iv) between the prices of securities with contracts settling
on different dates.
Strategic Structuring and Transactions (SST). The Company targets
mispriced assets using sophisticated models and proprietary quantitative
methods. The Company maintains substantial proprietary trading and investment
positions in domestic and foreign markets covering a wide spectrum of equity and
commodity products which include the use of futures, listed and OTC options and
swaps.
Equity Securities.
(i) OTC. 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 OTC
market.
(ii) Direct Access. The Company operates a direct access business
by providing execution and operations services to qualified
institutional investors. Such investors may directly access
brokers on the floor of the NYSE and execute and service
orders directly with them.
Equity Research. The Equity Research Department provides innovative,
in-depth analysis of the global investment environment. Known for theme-oriented
research underpinned by meticulous financial modeling, the department offers
detailed information on over 1,000 companies in roughly 100 industries
(including approximately 55% of the Standard & Poor's 500 Index). It also has a
group of economists and strategists that closely monitors domestic and
international markets. The department's broad-based domestic coverage is
complemented by research teams in Latin America, Asia and Europe, giving its
clients an advantage in a world where national boundaries are becoming more
porous. This breadth of coverage allows the department to maintain a
particularly wide-ranging recommended securities list and gives clients a steady
stream of new investment ideas and insights into the more obscure corners of the
financial world.
Convertible Securities. The Company engages in research, sales and
trading of equity-linked securities including convertible bonds, convertible
preferreds, equity-linked notes and warrants. Market coverage includes the
United States, Europe and Latin America.
EQUITY SALES
The Company is one of the leading firms in the US providing
brokerage services to institutional investors. Institutional equity sales
involves the execution of transactions in US equity and equity-linked securities
for domestic and foreign institutional customers and providing these customers
with liquidity, trading expertise, trade execution, research and investment
advice. The Company provides transaction services for institutional customers
who trade in futures and futures-related instruments.
-3-
BLOCK TRADING
The Company effects transactions in large blocks of securities
mainly with institutional customers. The Company also provides customers
execution capabilities for baskets of equity securities using sophisticated
computer systems. 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.
SPECIALIST AND MARKET-MAKING ACTIVITIES
The Company engages in specialist and market-making activities on
the NYSE, AMEX and ISE through participation in a joint venture. Such joint
venture performs specialist functions in NYSE-listed stocks as well as stocks
and options traded on the AMEX and performs market-making functions for options
traded on the ISE. The rules of these exchanges generally require specialists to
maintain orderly markets in the securities in which they are specialists, which
may require commitments of significant amounts of capital to the Company's
specialist businesses. The market-making functions of a specialist involve risk
of loss during periods of market fluctuation and volatility, since specialists
are obligated to take positions in their issues counter to the direction of the
market in order to minimize short-term imbalances in the auction market.
Additionally, the Company, apart from the joint venture, performs
market-making functions for options traded on the ISE.
FIXED INCOME
General. The Company makes inter-dealer markets and trades on a
principal basis in a wide range of instruments including: US and foreign
government securities, government agency securities, corporate debt 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 US in such fixed income
securities. Inventories of fixed income securities are generally carried to
facilitate sales to customers and other dealers.
US Government and Agency Obligations. The Company is designated by
the Federal Reserve Bank of New York as a primary dealer in US government
obligations. The Company participates in the auction of, and maintains
proprietary positions in, US Treasury bills, notes, bonds, and stripped
principal and coupon securities. The Company also participates as a selling
group member and/or underwriter in the distribution of various US 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 such positions.
As a primary dealer, Bear Stearns furnishes weekly reports of its
inventory positions and market transactions in US 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
Federal Reserve Bank of New York's open-market activities. In addition, the
Company engages in matched book activities, which involve acting as an
intermediary between borrowers and lenders of short-term funds, mainly via
repurchase agreements and reverse repurchase agreements. The objective of this
matched book activity is to earn a positive spread between interest rates.
Corporate and Sovereign Fixed Income. The Company acts as a dealer
in corporate and sovereign fixed income securities as well as preferred stocks
in New York, London 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
-4-
trading of investment-grade and non-investment-grade corporate debt securities
and commercial loans and sovereign and sovereign agency securities.
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; 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 mortgage-backed securities
and products. 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 non-rated mortgage-related securities issued by affiliated and
unaffiliated parties. The Company enters into significant commitments - such as
forward contracts - on GNMA, FNMA, and FHLMC securities, and on other rated and
non-rated mortgage-related securities. Certain rated and non-rated
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 Company trades GNMA, FNMA and FHLMC "to be announced" securities
(i.e., 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.
The Company, through various special purpose subsidiaries,
purchases, sells and services entire loan portfolios of varying quality. These
portfolios 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 undertaken 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
group 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 that has been
foreclosed or was in the process of foreclosure at the time of its acquisition.
The foreclosure group 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. Moreover, special
purpose vehicles issue REMIC and non-REMIC collateralized mortgage obligations
directly or through trusts that are established for this purpose.
The Company also operates a commercial mortgage conduit that
originates and accumulates commercial mortgage loans for the purpose of
securitization. After receipt of loan applications, extensive credit
underwriting reviews are conducted. After completing pricing analysis and
successful negotiations, the loan will "close" and be included in an ensuing
securitization.
Asset-Backed Securities. The Company acts as underwriter and
placement agent with respect to investment-grade and non-investment-grade
asset-backed securities issued by affiliates as well as 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; and home-equity lines of credit or second mortgages. The Company
also trades and is a market-maker in these asset-backed securities. While there
are ready markets for the investment-grade asset-backed securities described
above, non-investment-grade securities and related varieties thereof 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 state and local governments and authorities, as well as
not-for-profit institutions. The Company is active as a managing underwriter of
negotiated and competitive new security
-5-
issuances and on a select basis, provides financial advisory services. The
Company makes markets in a broad spectrum of long-term and short-term municipal
securities, mainly to facilitate transactions with institutional and individual
customers, as well as other dealers. As agent for issuers, the Company earns
fees by remarketing short-term debt instruments to investors in the variable
rate, demand bond market. The Company periodically uses both municipal and
treasury bond 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.
Derivatives. The Company offers to institutional customers, and
trades for its own account, a variety of exchange-traded and OTC derivative
products, including fixed income, credit and equity derivatives. These products
are transacted, as principal, with customers for hedging (credit, currency,
interest rate or market), risk management, asset/liability management,
investment, financing and other purposes. These transactions are in the form of
swaps, options, swaptions, asset swaps and structured notes, as well as more
complex, structured trades which are customized to meet customers' specific
needs. Derivatives enable customers to build tailor-made risk/return profiles,
to customize transaction terms, to develop packaged solutions to a problem, to
implement trades that otherwise could not be executed and to transact business
with standardized documentation. The Company also enters into derivative
transactions for various purposes and to manage the risks to which the Company
is exposed in its various businesses and through its funding activities. The
Company manages its market and counterparty risks arising from derivatives
activities in a manner consistent with its overall risk management policies. The
Company has 24-hour capabilities with personnel based in New York, Chicago,
London, Hong Kong, Tokyo, Singapore and Dublin.
Foreign Exchange. The Company trades foreign exchange with clients
as principal and to hedge its securities positions or other assets and
liabilities. Foreign exchange products include major and minor currencies on a
spot and forward basis, listed and OTC foreign currency options and foreign
exchange futures contracts. Foreign exchange trading desks are maintained in New
York and London and clients can trade or leave orders 24 hours a day. The
Company serves a select list of funds, major corporations and mid-size
commercial banks. Currency option strategies are made available to customers to
help them meet their specific risk management objectives.
Fixed Income Research. The Company is one of the leaders in the
distribution, trading and underwriting of corporate, government, high yield,
emerging markets, municipal debt and mortgage-backed and asset-backed
securities. The Fixed Income Research Department provides ongoing support for
the Company's sales and trading efforts, producing reports, studies and
technical market analyses. The Fixed Income Research Department is comprised of
economists, industry analysts and strategists covering the full range of
research disciplines: quantitative, economic, strategic, credit portfolio,
relative value and market-specific analysis. Fixed Income Research is comprised
of the following three units located in New York and London:
(i) Financial Analytics and Structured Transactions Group
("F.A.S.T.") is a center of expertise for the creation and
analysis of fixed income and derivative securities worldwide.
F.A.S.T. uses innovative solutions that employ
state-of-the-art analytics and technology to help the Company
and its clients successfully meet individual business
objectives. F.A.S.T. is a global resource for financial
engineering and securitization capabilities, fixed income
portfolio management and analytical systems, investment
research, trading technology and general financial expertise.
A strategic partner for the Company's international trading
desks, risk management areas and sales force, F.A.S.T. also
serves the Company's external clients. In addition to
formulating and executing customized strategic investment and
trading solutions, F.A.S.T. develops the tools and
recommendations necessary to quantify relevant risks and
evaluate portfolios and securities. F.A.S.T.'s resources are
used to create and model new types of securities, affording
clients the unique perspectives of both issuer and investor.
(ii) High grade research provides coverage for over 25 industries
and 500 companies whose fixed income securities are investment
grade.
-6-
(iii) High yield research provides coverage for over 250 corporate
and sovereign issuers whose fixed income securities are
non-investment-grade.
INVESTMENT BANKING
The Company is a major global investment banking firm providing a
full range of capital formation and advisory services to a broad spectrum of
clients. The Company manages and participates in public offerings and
arranges the private placement of debt and equity securities directly with
institutional investors. The Company provides advisory services to clients on a
wide range of financial matters and assists with mergers, acquisitions,
leveraged buyouts, divestitures, corporate reorganizations and
recapitalizations.
The Company's strategy is to concentrate a major portion of its
corporate finance business development efforts within those industries in which
the Company has established a leadership position in providing investment
banking services. Industry specialty groups include media and entertainment,
health care, financial institutions, technology and telecommunications. This
list is not exclusive but rather reflects the areas where the Company believes
its knowledge and expertise are strongest. The Company also has a group that
focuses on financial sponsors. These groups are responsible for initiating,
developing and maintaining client relationships and for executing transactions
involving these clients. The Company has focused primarily on those industries
in which the Company also has a strong research capability.
In addition to being structured according to distinct industry
groups, the Company has a number of professionals who specialize in specific
types of transactions. These include mergers and acquisitions ("M&A"), equity
offerings, high yield securities, leveraged and syndicated bank loans, leveraged
acquisitions, commercial real estate and other transaction specialties.
Mergers and Acquisitions. The Company is active in arranging various
M&A transactions for its clients. The Company participates in a broad range of
domestic and international assignments including acquisitions, divestitures,
strategic restructurings, proxy contests, leveraged buyouts and defenses against
unsolicited takeovers.
Equity Offerings. The equity capital markets group focuses on
providing financing for issuers of equity and convertible equity securities in
the public markets. The group assists in the origination and is responsible for
the structuring and execution of transactions for a broad range of clients.
High Yield Securities. The high yield securities group focuses on
providing financing in the public and private capital markets. The group is
responsible for originating, structuring and executing high yield transactions
across a wide range of companies and industries, as well as managing client
relationships with both high yield corporate issuers and financial sponsors of
leveraged transactions.
Leveraged Loan Origination and Syndication. This area of the Company
integrates the origination, structuring, underwriting, distribution and trading
of loans. Such loans include both funded as well as committed investment-grade
and non-investment-grade loans.
Leveraged Acquisitions. As part of its investment banking
activities, the Company makes investments as principal in leveraged acquisitions
and in leveraged buy-out funds as a limited partner. The Company's investments
generally take the form of either common or preferred stock or warrants. 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 instruments is at least equal to their eventual
realizable value, it is not possible to determine whether, or when, the Company
will realize the value of these investments.
Commercial 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.
-7-
EMERGING MARKETS
The Company provides financial services in various emerging markets
worldwide including: securities brokerage, equity and fixed income trading and
sales, and securities research, in addition to offering 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 the private placement of debt and equity securities with institutional
investors. The markets currently covered by the Company include Latin America,
Asia and Eastern Europe.
GLOBAL CLEARING SERVICES ACTIVITIES
Global Clearing Services provides a full range of services to hedge
funds, broker-dealers and registered investment advisors. The services include
custody, clearing, financing, securities lending, execution capabilities and
technology solutions for a broad range of clients.
For start-up and established hedge funds located throughout the
world, Global Clearing Services provides custody, clearing, financing and
securities lending in addition to comprehensive prime brokerage, which includes
advanced web-based portfolio reporting, enhanced leverage programs, term
financing and cash management, capital introductions and risk management.
Broker-dealers conducting retail, institutional and money management
activities utilize the Company's fully disclosed correspondent clearing
services. The Company's advanced proprietary technology, combined with
comprehensive retail products, integrated prime brokerage, operations experience
and exceptional service have enabled the Company to remain an industry leader.
Registered investment advisors whose strategies include the use of
leverage and active trading draw on the Company's unique combination of
web-based portfolio and transparency reporting (i.e., investor reporting),
trading solutions and comprehensive service.
The Company receives revenues both from commissions and service
charges realized from clearing activities, as well as from 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 Company also extends margin credit directly to correspondents to the extent
that such firms pledge proprietary assets as collateral.
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
correspondent 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 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 a margin transaction, the Company
extends credit to a customer for a portion of the purchase price that is
collateralized by securities and cash in the customer's account, in accordance
with regulatory and internal requirements. The Company receives income from
interest charged on the extension of credit. The rate of interest charged to
customers for margin financing is based upon the federal funds rate, brokers
call rate or London Interbank Offered Rate ("LIBOR").
Securities Lending Activities. In connection with both its trading
and brokerage activities, the Company borrows securities from and lends
securities to brokers and dealers and other trading entities to cover short
sales and to complete transactions in which customers have failed to deliver
securities by settlement date.
-8-
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 collateralized mortgage obligations products; and margin
lending. At November 30, 2001, CTC held approximately $103 billion of assets for
clients, including institutional clients such as pension funds, mutual funds,
endowment funds, religious organizations and insurance companies.
FUTURES
The Company, through BSSC and other subsidiaries, provides, directly
or through third-party brokers, futures commission merchant services for
customers and other Bear Stearns affiliates who trade contracts in futures on
financial instruments and physical commodities, including options on futures.
Exchange-traded futures and options derive their values from the values of
selected stock indices, fixed income securities, currencies, agricultural and
energy products and precious metals.
Domestic futures and options trading is subject to extensive
regulation by the CFTC pursuant to the Commodity Exchange Act and the Commodity
Futures Trading Commission Act of 1974. International futures and options
trading activities are subject to regulation by the respective regulatory
authorities in the locations where futures exchanges reside, including the FSA
in the United Kingdom.
Margin requirements (good faith deposits) covering substantially all
transactions in futures and options contracts are subject to each particular
exchange's requirements in addition to other regulations. In the US, the Company
is a clearing member of the Chicago Board of Trade, the Chicago Mercantile
Exchange, the New York Mercantile Exchange and other principal futures
exchanges. In the United Kingdom, the Company is a member of the IPE, the LCE,
the LIFFE and OMLX. The Company also has non-clearing memberships with MATIF and
Eurex in Europe. In Japan, memberships are held with the Tokyo Stock Exchange,
the Osaka Stock Exchange and the Tokyo International Financial Futures Exchange
("TIFFE") for clearing Japanese government bond futures, for clearing Japanese
stock index products and for executing financial futures, respectively.
PCS
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.
ASSET MANAGEMENT
The Company's Asset Management Department manages equity, fixed
income and alternative assets for some of the leading corporate pension plans,
public systems, endowments, foundations, multi-employer plans, insurance
companies, corporations, families and high-net-worth individuals in the US and
abroad. With more than $21 billion in assets under management as of November 30,
2001, the Asset Management Department provides diverse products, expertise and
experience and seeks to enhance investment returns by identifying and
capitalizing on investment opportunities in the financial markets. Institutional
and high-net-worth products span a broad spectrum of equity strategies including
large cap, small cap, core and value equity; fixed income strategies including
cash management, short, intermediate, core, emerging market, high yield and
leveraged loans; and alternative investment strategies including multiple hedge
funds, a fund of proprietary hedge funds, private equity funds of funds, venture
capital and structured products.
In addition, the Asset Management Department offers individual
investors STRATIS, a multi-manager wrap account, and The Bear Stearns Funds, a
family of mutual funds which includes the S&P STARS, S&P
-9-
STARS Opportunities, Large Cap Value, Small Cap Value, Insiders Select, Focus
List, International Equity, Balanced, Income, High Yield Total Return and
Emerging Markets Debt Portfolios.
ADMINISTRATION AND OPERATIONS
Administration and operations personnel are responsible for the
processing of securities transactions; receipt, identification and delivery of
funds and securities; internal financial controls; accounting functions;
regulatory and financial reporting; office services; the custody of customer
securities; the overseeing of margin accounts of the Company and correspondent
organizations as well as other functions. The processing, settlement and
accounting for transactions for the Company, correspondent organizations and the
customers of correspondent organizations are handled by employees located in
offices in New York, New Jersey and, to a lesser extent, the Company's offices
worldwide.
The Company executes its own and correspondent transactions on US
exchanges and in the OTC 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, other broker-dealers and through memberships in
various clearing corporations.
INTERNATIONAL
Outside the US, the Company, through its international subsidiaries,
provides various services including investment banking, securities and
derivatives trading and brokerage and clearing activities to corporations,
governments, institutions and individual clients throughout the world. These
international subsidiaries of the Company have memberships on various foreign
securities and futures exchanges.
BSIL is based in London and provides investors and issuers with a
full range of products and services in both international and US equities, fixed
income, exchange-traded futures and options and foreign exchange. In addition,
BSIL is a major sales and trading center within the Company's global fixed
income and equity-related derivative businesses. BSIL has a growing investment
banking capability and is also enhancing its service to the Company's growing
clearance business in Europe.
Bear Stearns Japan, Ltd. ("BSJL"), based in Tokyo, serves the
diverse needs of Japanese corporations, financial institutions and government
agencies by offering a range of international fixed income and equity products
as well as listed futures. BSJL also offers a range of derivative products
within Japan with special focus on credit and equity derivatives. Mergers and
acquisitions, corporate finance and restructuring services are also available
for local and cross-border business.
Bear Stearns Asia Limited ("BSAL"), based in Hong Kong, acts as the
regional headquarters for the Company's activities in the Asia-Pacific region,
excluding Japan. This office provides international equity sales, trading and
research services to institutional and individual clients in Asia.
BSB, based in Dublin, allows the Company's existing and prospective
clients the opportunity of dealing with a banking counterparty. BSB also serves
as a platform from which the Company directs its international banking
activities, gaining easier access to worldwide markets and thereby expanding its
capacity to increase its client base and product range. BSB engages in capital
market activities with particular focus on the trading and sales of OTC interest
rate derivative products.
COMPETITION
The Company encounters intense competition in all aspects of the
securities business, particularly underwriting, trading and advisory services,
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. The Company's competitors
include other brokers and dealers, commercial banks, investment banking firms,
investment advisors, mutual funds and hedge funds. In addition to competition
from
-10-
securities firms, in recent years the Company has experienced increasing
competition from other sources, such as insurance companies.
The Company believes that the principal factors affecting
competition involve the caliber and abilities of professional personnel, the
relative price of the service and products being offered, the ability to assist
with financing arrangements and the quality of service.
In recent years, there has been substantial consolidation and
convergence as institutions involved in a broad range of financial services
industries have either ceased operations or have been acquired by or merged into
other firms. This has resulted in competitors gaining greater capital and other
resources, such as the ability to offer a wider range of products and services.
In addition, recent legislative changes in the US have expanded the activities
of commercial banks, as such institutions are allowed to enter businesses
previously limited to investment banks. This legislation may further increase
competition and accelerate consolidation.
REGULATIONS AND OTHER FACTORS AFFECTING THE COMPANY AND THE SECURITIES
INDUSTRY
The securities industry in the US is subject to extensive regulation
under both federal and state laws. Moreover, 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,
that 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 where they conduct business.
US broker-dealers are subject to regulations which cover all aspects
of the securities business including: sales methods; trade practices; use and
safekeeping of customer funds and securities; capital structures; recordkeeping;
and the conduct of directors, officers and employees. The types of regulations
to which investment advisers are subject include: recordkeeping; fee
arrangements; client disclosure; and the conduct of directors, officers and
employees. The mode of operation and profitability of broker-dealers or
investment advisers may be directly affected by new legislation, changes in
rules promulgated by the SEC and self-regulatory organizations and changes in
the interpretation or enforcement of existing laws and rules. The SEC,
self-regulatory organizations and state securities commissions may conduct
administrative proceedings that can result in censures, fines, the issuance 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 (the "Market Reform Act") was adopted
to strengthen the SEC's regulatory oversight of the national securities markets
and increase the efficacy and stability of such markets by, among other things:
(i) providing the SEC with discretion to halt securities trading on any national
exchange for the protection of investors; (ii) requiring broker-dealers and
other registrants to regularly provide information to the SEC regarding holding
companies and other affiliated entities whose activities can impact their
financial condition; (iii) requiring broker-dealers and other registrants who
execute large-trade orders to provide information to the SEC regarding such
transactions; and (iv) allowing the SEC to prosecute market participants who
violate SEC rules and regulations designed to maintain fair and orderly markets.
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. The Risk Assessment Rules require that broker-dealers: (i) have an
organizational chart; (ii) maintain risk management procedures or standards for
monitoring and controlling risks; (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
-11-
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 was
adopted to strengthen the SEC's ability to deter, detect and punish insider
trading by, among other things: (i) increasing civil penalties that can be
assessed against controlling persons who purposefully or recklessly fail to take
adequate measures to prevent insider trading; (ii) allowing the SEC to provide
cash rewards to individuals who provide evidence of insider trading; (iii)
affirming the government's ability to obtain criminal sanctions against those
found guilty of insider trading; and (iv) requiring broker-dealers and
investment advisors to establish and enforce written procedures reasonably
designed to prevent the misuse of material, nonpublic information.
The Government Securities Act of 1986 was adopted to decrease
volatility and increase investor confidence and liquidity in the government
securities market by creating a coordinated and comprehensive regulatory
structure for the market where none had previously existed. In particular, the
Government Securities Act: (i) requires broker-dealers solely involved in
government securities to register with the SEC; (ii) allows the Secretary of the
Treasury to adopt rules regarding the custody, use, transfer and control of
government securities; and (iii) bestows upon the SEC authority to enforce such
rules as to broker-dealers and other SEC registrants.
The futures industry in the US 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 futures exchanges. Bear Stearns' and BSSC's futures
business is also regulated by the NFA, a not-for-profit membership organization,
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) (the "Net
Capital Rule") 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 broker-dealers and requires that at least a
minimal portion of its assets be kept in relatively liquid form.
Bear Stearns and BSSC are also subject to the net capital
requirements of the CFTC and various futures 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 that 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 under "Item 8. Financial
Statements and Supplementary Data" in Note 7 of Notes to Consolidated Financial
Statements entitled "Regulatory Requirements".
Bear Stearns and BSSC are members of the Securities Investor
Protection Corporation ("SIPC"), which provides insurance protection for
customer accounts held by these entities 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, all BSSC security accounts are
protected by an excess securities bond issued by the Travelers Casualty and
Surety Company, up to the amount of their total net equity (both cash and
securities) in excess of the underlying SIPC protection.
The activities of the Company's bank and trust company subsidiary,
CTC, are regulated by the New Jersey Department of Banking and Insurance and the
Federal Deposit Insurance Corporation ("FDIC"). FDIC
-12-
regulations applicable to CTC limit the extent to which CTC and Bear Stearns may
have common 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. The Competitive Equality in Banking Act, as amended, limits the use of
overdrafts at Federal Reserve Banks on behalf of affiliates.
BSIL is a full service broker-dealer based in London and is a member
of the Eurex, IPE, LCE, LIFFE, OMLX, MATIF and LCH. Another London subsidiary,
Bear Stearns International Trading Limited ("BSIT"), is a market-maker in
various non-dollar-denominated equity securities and is a member of the London
Stock Exchange. BSIL and BSIT are subject to the United Kingdom Financial
Services and Markets Act 2000, 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,
periodic reporting and settlement procedures. BSIL and BSIT are supervised by
and are regulated in accordance with the rules of the FSA.
BSJL is a Tokyo broker-dealer registered with the Japanese Ministry
of Finance. BSJL has a membership on the Tokyo Stock Exchange, TIFFE and the
Osaka Stock Exchange. Bear Stearns Hong Kong Limited is a member of the
Securities and Futures Commission and sells US futures to retail customers. BSAL
is a member of the Shanghai Stock Exchange and the Stock Exchange of Hong Kong.
Bear Stearns Singapore Pte. Limited is a broker-dealer registered with the
Monetary Authority of Singapore and sells fixed income and equity securities,
including derivatives, to institutional investors in Singapore, Southeast Asia,
Australia and New Zealand.
BSB is an Ireland-based bank, which was registered in 1996 and
subsequently granted a banking license under the Irish Central Bank Act, 1971.
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, in particular, 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, the level and volatility of equity prices,
competitive conditions, liquidity of global markets, international and regional
political conditions, regulatory developments, monetary and fiscal policy,
investment sentiment, availability and cost of capital, technological changes
and events and the size, volume and timing of transactions. These and other
factors can affect the Company's volume of security new-issues, mergers and
acquisitions and business restructurings; the stability and liquidity of
securities and futures markets; and ability of issuers, other securities firms
and counterparties to perform on their obligations. Decrease in the volume of
security new-issues, mergers and 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 futures
transactions and reduced market liquidity generally results 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. The Company's securities trading, derivatives,
arbitrage, market-making, specialist, leveraged lending, 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. See "Item 7A. Quantitative and
Qualitative Disclosures about Market Risk."
CERTAIN STATEMENTS CONTAINED IN THIS DISCUSSION INCLUDING (WITHOUT
LIMITATION) CERTAIN MATTERS DISCUSSED UNDER "LEGAL PROCEEDINGS" IN PART I, ITEM
3 OF THIS REPORT, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" INCORPORATED BY REFERENCE IN PART II, ITEM 7 OF THIS
REPORT, AND "QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK"
INCORPORATED BY REFERENCE IN PART II, ITEM 7A OF THIS REPORT ARE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE
-13-
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. THE COMPANY
DISCLAIMS ANY OBLIGATION OR UNDERTAKING TO PROVIDE ANY UPDATES OR REVISIONS TO
ANY FORWARD-LOOKING STATEMENT TO REFLECT ANY CHANGE IN THE COMPANY'S
EXPECTATIONS OR ANY CHANGE IN EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH THE
FORWARD-LOOKING STATEMENT IS BASED.
ITEM 2. PROPERTIES.
The Company is currently relocating its executive offices and
principal administrative offices from 245 Park Avenue, New York, New York ("245
Park"), which contains approximately 753,000 square feet of space, to 383
Madison Avenue, New York, New York ("383 Madison"). The leases at 245 Park were
originally scheduled to expire December 31, 2002. However, the Company has
negotiated an early surrender of all its leased premises at 245 Park and expects
to fully vacate the facility by spring 2002.
The Company has entered into an operating lease arrangement relating
to its new worldwide headquarters at 383 Madison, which contains 1.2 million
square feet. The lease arrangement expires on May 20, 2007. At the end of the
lease, the Company may request a lease renewal. In the event the lease renewal
cannot be negotiated, the Company has the right to purchase the building for the
amount of the then outstanding indebtedness of the lessor or to arrange for the
sale of the property with the proceeds of the sale being used to satisfy the
lessor's debt obligation.
The Company also leases approximately 320,000 square feet of office
space at One MetroTech Center, Brooklyn, New York pursuant to a lease expiring
in 2004 for its securities processing, accounting and clearance operations.
Additionally, the Company leases approximately 30,000, 140,000, 13,000, 59,000
and 61,000 square feet of space at four locations in New York City under leases
expiring in 2002, 2004, 2007, 2009 and 2011, respectively. The Company's offices
in Atlanta, Boston, Chicago, Dallas, Denver, Houston, Irving, Los Angeles,
Philadelphia, Pound Ridge, Princeton, San Francisco, San Juan and Tampa occupy
an aggregate of approximately 634,000 square feet, while its fourteen foreign
offices occupy a total of approximately 186,000 square feet under leases
expiring on various dates through the year 2018.
The Company owns approximately 65 acres of land in Whippany, New
Jersey, including six buildings comprising an aggregate of approximately 681,000
square feet. The Company is currently using the existing facilities on the
property to house its data processing facility and other operations, compliance,
personnel and accounting functions.
ITEM 3. LEGAL PROCEEDINGS.
In the normal course of business, the Company and/or subsidiaries of
the Company have been named as defendants 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 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 upon the level of income for such
period.
A.I.A. HOLDING, S.A., ET AL. V. LEHMAN BROTHERS, INC., ET AL. On
July 8, 1997, 277 alleged customers of Ahmad Ihsan El-Daouk ("Daouk") commenced
an action in the United States District Court for the Southern District of New
York against Lehman Brothers, Inc. ("Lehman") and Bear Stearns. Plaintiffs
alleged that Daouk, acting through corporations he controlled, entered into
introducing broker agreements with Lehman and then Bear Stearns, and that he
arranged for each of the plaintiffs to invest funds with Lehman and/or Bear
Stearns.
-14-
On July 3, 1998, 276 of the 277 original plaintiffs filed an amended
complaint against Lehman and Bear Stearns. As amended, the complaint alleges,
among other things, that the defendants committed breach of fiduciary duty,
fraud, constructive fraud, breach of contract, negligent hiring, retention and
supervision, aided and abetted fraud and aided and abetted breach of fiduciary
duty in connection with alleged improper trading activities in the accounts of
Daouk's customers. Plaintiffs seek compensatory damages in unspecified amounts
and imposition of constructive trusts with respect to any property that
"belongs, or may belong" to plaintiffs in Lehman's or Bear Stearns' possession.
On May 5, 1999, the court granted permission to 21 moving plaintiffs
to dismiss their cases with prejudice on the condition that each provides a
covenant not to sue and a release.
The court has randomly divided the remaining plaintiffs into
fourteen separate groups for purposes of trial. On January 23, 2002, the court
granted in part Bear Stearns' and Lehman's motions for summary judgment with
respect to the first group of plaintiffs set for trial. The court dismissed all
claims asserted by four of the fourteen plaintiffs in this first group. In
addition, the court granted in part defendants' motions with respect to ten of
these fourteen plaintiffs, and dismissed all claims except those for breach of
fiduciary duty, aiding and abetting a breach of fiduciary duty and aiding and
abetting fraud.
Bear Stearns has denied all allegations of wrongdoing asserted
against it in this litigation and believes that it has substantial defenses to
these claims.
A.R. BARON & COMPANY, INC. The following matters arise out of Bear
Stearns' role as clearing broker for A.R. Baron & Company, Inc. ("Baron") from
July 20, 1995 through June 28, 1996:
(i) JOHN BERWECKY, ET AL. V. BEAR, STEARNS & CO. INC., ET AL./JACK
PERRY V. BEAR, STEARNS & CO. INC., ET AL. On July 21 and August 22, 1997,
shareholders of companies whose securities were underwritten by, or that
otherwise had some relationship with Baron (these securities are referred to
below as "Baron securities") commenced two actions in the United States District
Court for the Southern District of New York against Bear Stearns, BSSC and a
managing director of Bear Stearns.
On January 13, 1998, the Berwecky and Perry cases were consolidated
for all purposes and lead plaintiffs and lead counsel for plaintiffs were
appointed. On April 1, 1998, an amended consolidated class action complaint was
filed. As amended, the complaint alleges, among other things, that Bear Stearns,
Bear, Stearns Securities Corp. ("BSSC"), a managing director of Bear Stearns and
Baron engaged in a scheme to manipulate the market for and to inflate the prices
of the Baron securities. Plaintiffs allege violations of Sections 10(b) and
20(a) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5
promulgated thereunder. Plaintiffs purport to represent a class consisting of
all persons who acquired Baron securities from Baron between July 20, 1995 and
June 28, 1996. Damages in an unspecified amount are sought.
On September 18, 2000, the court certified a class consisting of all
persons who acquired Baron securities from Baron between July 20, 1995 and June
28, 1996.
Bear Stearns has denied all allegations of wrongdoing asserted
against it in this litigation and believes that it has substantial defenses to
these claims.
(ii) FEZANNI, ET AL. V. BEAR, STEARNS & CO. INC., ET AL. On February
2, 1999, an action was commenced in the United States District Court for the
Southern District of New York by eleven individuals or entities that allegedly
purchased certain securities underwritten by Baron. Named as defendants are Bear
Stearns, BSSC, an officer of BSSC, thirteen former officers and employees of
Baron, and 33 other individuals and entities that allegedly participated in
alleged misconduct by Baron involving attempts to manipulate the market for
securities underwritten by Baron. The complaint alleges that the Bear Stearns
defendants violated Sections 9 and 10(b) of the Exchange Act and Rule 10b-5
promulgated thereunder and RICO, aided and abetted breach of fiduciary duty and
committed common law fraud in connection with providing clearing services and
financing for Baron. The complaint seeks to recover compensatory damages in
excess of $6.5 million, treble damages in
-15-
excess of $19.5 million, punitive damages of $6.5 million from each defendant
other than Bear Stearns and BSSC, and punitive damages in the aggregate of $130
million from Bear Stearns and BSSC.
Bear Stearns has denied all allegations of wrongdoing asserted
against it in this litigation, and believes that it has substantial defenses to
these claims.
(iii) 110958 ONTARIO INC. V. BEAR, STEARNS & CO. INC., ET AL. On
February 19, 1997, a brokerage customer of Baron commenced a National
Association of Securities Dealers ("NASD") arbitration proceeding against Bear
Stearns, BSSC, and three Bear Stearns directors and/or officers. On September 9,
1997, an amended Statement of Claim was filed. Claimant alleges, among other
things, that defendants violated Sections 10(b) and 20(a) of the Exchange Act
and Rule 10b-5 promulgated thereunder, and committed common law fraud, breach of
contract, and negligence, in connection with alleged misconduct by Baron (for
whom Bear Stearns acted as clearing broker), Baron's principal and Baron's
parent corporation, The Baron Group Inc. ("BGI"), including engaging in
unauthorized trading in claimant's brokerage account and fraudulently inducing
claimant to give Baron a secured demand note and to invest in BGI. Claimant
seeks compensatory damages of $22 million and punitive damages of $75 million.
Bear Stearns has denied all allegations of wrongdoing asserted
against it in this arbitration proceeding 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. On
March 27, 1995, an amended consolidated class action complaint was filed. On
June 6, 1996, the court dismissed, with leave to replead, all claims in the
first amended complaint asserted against Bear Stearns. On July 26, 1996, a
second amended consolidated complaint was filed.
Plaintiffs' current pleading alleges, among other things, a scheme
to manipulate the market for and to inflate the prices of Blech Securities, and
alleges that Bear Stearns violated Sections 10(b) and 20(a) of the Exchange Act
and Rule 10b-5 promulgated thereunder, and committed common law fraud. On April
2, 1997, the court dismissed plaintiffs' Section 20(a) claim. Plaintiffs seek
damages in an unspecified amount.
On May 11, 1999, the court certified the following sub-classes: (i)
all persons who traded Blech Securities in the "primary market" between October
21, 1991 and September 21, 1994; (ii) all persons who traded Blech Securities in
the "secondary market" between October 21, 1991 and September 21, 1994; and
(iii) all persons who traded Blech Securities in the secondary market between
September 27, 1993, the date on which Bear Stearns became a clearing broker for
D. Blech & Co., Inc., and September 21, 1994.
Bear Stearns has denied all allegations of wrongdoing asserted
against it in this litigation and believes that it has substantial defenses to
these claims.
KENNILWORTH PARTNERS LP, ET AL. V. BEAR, STEARNS SECURITIES CORP.,
ET AL. On May 2, 2000, Kennilworth Partners LP and Kennilworth Partners II LP
commenced an NASD arbitration proceeding against BSSC and Bear Stearns.
Claimants allege that respondents committed breach of contract, breach of the
covenant of good faith and fair dealing, breach of fiduciary duty, common law
fraud and tortious interference with contract in connection with the provision
of clearing services to the claimants. Compensatory and punitive damages in
excess of $50 million are sought.
Bear Stearns and BSSC have denied all allegations of wrongdoing
asserted against them in this NASD arbitration proceeding, and believe that they
have substantial defenses to these claims.
-16-
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, BSSC,
Bear Stearns Forex Inc. ("Forex") and a registered representative. On November
4, 1996, an amended complaint was filed, and on October 22, 1998, a second
amended complaint was filed against the same individual and entities that were
named as defendants in the original complaint. As amended, the complaint
alleges, among other things, claims for breach of fiduciary duty and negligence
and violations of Section 4(0) of the Commodity Exchange Act. Plaintiff seeks to
recover at least $300 million in losses and at least $100 million in punitive
damages.
On May 17, 2000, a jury returned a verdict finding that Bear
Stearns, BSSC and Forex were liable to plaintiff for negligence and awarded
damages in the amount of $111.5 million. The jury also found that defendants had
not breached any fiduciary duties. On June 2, 2000, the court also awarded
pre-judgement interest of $52.3 million. On December 29, 2000, the court denied
defendants' motions to overturn the verdict. Defendants have appealed the
verdict to the United States Court of Appeals for the Second Circuit.
MCKESSON HBOC, INC. The following matters arise out of a merger
between McKesson Corporation ("McKesson") and HBO & Company ("HBOC") resulting
in an entity called McKesson HBOC, Inc. ("McKesson HBOC").
(i) MITCHELL V. MCCALL, ET AL. On June 23, 1999, a shareholder of
McKesson HBOC commenced a purported derivative action on behalf of McKesson HBOC
in the Superior Court of the State of California, County of San Francisco,
against Bear Stearns, Arthur Andersen LLP, and certain present and former
directors and/or officers of McKesson HBOC, McKesson and/or HBOC. On March 31,
2000, plaintiffs filed an amended complaint against the same defendants as were
named in the original complaint. As amended, the complaint alleges, among other
things, that Bear Stearns committed breach of fiduciary duty and negligence in
connection with acting as a financial advisor to McKesson with respect to a
merger between McKesson and HBOC. Compensatory and punitive damages in
unspecified amounts are sought.
(ii) IN RE MCKESSON HBOC, INC. SECURITIES LITIGATION. Beginning on
June 29, 1999, 53 purported class actions were commenced in the United States
District Court for the Northern District of California. On November 2, 1999,
these actions were consolidated, and on February 25, 2000, an amended
consolidated complaint was filed. Plaintiffs purport to represent a class
consisting of all persons who either (i) acquired publicly traded securities of
HBOC between January 20, 1997 and January 12, 1999, or (ii) acquired publicly
traded securities of McKesson or McKesson HBOC between October 18, 1998 and
April 27, 1999, and who held McKesson securities on November 27, 1998 and
January 22, 1999. Named as defendants are McKesson HBOC, certain present and
former directors and/or officers of McKesson HBOC, McKesson and/or HBOC, Bear
Stearns and Arthur Andersen LLP. The complaint alleges, among other things, that
Bear Stearns violated Section 14(a) of the Exchange Act 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.
On September 28, 2000, the court entered an order dismissing without
prejudice the claims against Bear Stearns.
On November 14, 2000, the plaintiffs filed a second amended
consolidated complaint asserting claims against Bear Stearns under Sections
10(b) and 14(a) of the Exchange Act with respect to the joint proxy
statement/prospectus issued in connection with the McKesson/HBOC merger.
Compensatory damages in an unspecified amount are sought.
On January 7, 2002, the court granted Bear Stearns' motion and
dismissed the second amended complaint without prejudice.
(iii) UTAH STATE RETIREMENT BOARD AND PUBLIC EMPLOYEES' RETIREMENT
ASSOCIATION OF COLORADO V. MCKESSON HBOC, INC., ET AL. / MINNESOTA STATE BOARD
OF INVESTMENT V. MCKESSON HBOC, INC., ET AL. / STATE OF
-17-
OREGON, BY AND THROUGH THE OREGON PUBLIC EMPLOYEES RETIREMENT BOARD V. BEAR,
STEARNS & CO. INC., ET AL. On April 23, 2001, complaints were filed by the Utah
State Retirement Board, the Public Employees' Retirement Association of Colorado
and the Minnesota State Board of Investment in the Superior Court of California,
City and County of San Francisco, asserting allegations similar to those alleged
in the second amended consolidated complaint filed in the litigation entitled In
re McKesson HBOC, Inc. Securities Litigation pending in the United States
District Court for the Northern District of California. In addition, on April
26, 2001, a similar complaint was filed in the Superior Court in San Francisco
by the State of Oregon, by and through the Oregon Public Employees Retirement
Board. These complaints assert claims against Bear Stearns based on violations
of California Corporate Securities Code Sections 25500 and 25504.2, California
Business and Professions Code Sections 17200 et seq., California Civil Code
Sections 1709 and 1710, common law fraud and deceit, intentional
misrepresentation, negligent misrepresentation, aiding and abetting alleged
breaches of fiduciary duty owed by former officers of HBOC and McKesson and
Georgia common law and the Georgia Securities Law. Compensatory and punitive
damages in an unspecified amount are sought in each of these complaints.
On June 22, 2001, Bear Stearns filed motions to dismiss each of the
complaints. On December 5, 2001, the court issued a tentative ruling in which it
indicated that it intended to grant Bear Stearns' motion and dismiss all claims
except the claims for fraud and deceit, intentional and negligent
misrepresentation, and for violations of Section 25500 of the California
Corporations Code and Sections 1709 and 1710 of the California Civil Code.
(iv) KELLY V. BEAR, STEARNS & CO. INC., ET AL. On April 19, 2001, a
complaint was filed in the Court of Common Pleas, Trial Division, Philadelphia
County, Pennsylvania, by former shareholders of KWS&P, Inc. and KWS&P/SFA, Inc.
(collectively, "KWS&P") against the Company and a former employee of the Company
arising out of the Company's engagement by KWS&P in connection with a merger
between KWS&P and McKesson HBOC. The complaint alleges claims based on common
law fraud, civil conspiracy, breach of fiduciary duty, tortious interference
with contract, misrepresentation and omission, negligence and violations of the
Pennsylvania Unfair Trade Practices and Consumer Protection Law as well as for
negligent supervision against the Company.
Compensatory and punitive damages in an unspecified amount are
sought. On July 2, 2001, the defendants filed preliminary objections to the
complaint. On December 18, 2001, the court sustained defendants' preliminary
objections and dismissed the complaint. On January 7, 2002, plaintiff filed a
notice of appeal.
(v) ASH, ET AL. V. CHARLES W. MCCALL, ET AL. On January 22, 2001,
Bear Stearns was added as a defendant in a purported derivative action commenced
by four shareholders of McKesson HBOC in the Chancery Court of the State of
Delaware, New Castle County. Also named as defendants are Arthur Andersen LLP
and certain present and former directors and/or officers of McKesson HBOC,
McKesson and/or HBOC. The third amended complaint in this action alleges, among
other things, that Bear Stearns committed negligence and breach of contract and
aided and abetted a breach of fiduciary duty in connection with acting as a
financial advisor to McKesson with respect to a merger between McKesson and
HBOC. Compensatory damages in an unspecified amount are sought.
Plaintiffs have voluntarily dismissed this action without prejudice.
(vi) PACHA, ET AL V. MCKESSON HBOC, INC., ET AL. On July 27, 2001,
an action was commenced in the United States District Court for the Northern
District of California by individuals who owned McKesson common stock that was
converted into common stock of McKesson HBOC in connection with the
McKesson/HBOC merger. Named as defendants are McKesson HBOC, certain present or
former directors and/or officers of McKesson HBOC, McKesson and/or HBOC, Bear
Stearns and Arthur Andersen LLP. The complaint alleges, among other things, that
Bear Stearns violated Section 14(a) of the Exchange Act and aided and abetted a
breach of fiduciary duty 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 and punitive damages in an
unspecified amount are sought.
-18-
On November 13, 2001, this action was consolidated for pre-trial
purposes with the In re McKesson HBOC, Inc. Securities Litigation described
above.
Bear Stearns has denied all allegations of wrongdoing asserted
against it in these litigations, and believes that it has substantial defenses
to these claims.
MANHATTAN INVESTMENT FUND LIMITED. The following matters arise out
of the failure and subsequent bankruptcy filing of Manhattan Investment Fund
Limited ("MIFL").
(i) SCOTIA NOMINEES, AS NOMINEES FOR L.C.O. INVESTMENTS, LTD. V.
MICHAEL BERGER, ET AL. On January 25, 2000, an action was commenced in the
Supreme Court of the State of New York, County of New York, by Scotia Nominees,
a shareholder of MIFL. On March 27, 2000, plaintiff filed an amended complaint.
Named as defendants in the amended complaint are MIFL, three directors of MIFL,
Manhattan Capital Management, Inc., BSSC, Deloitte & Touche, and Fund
Administration Services (Bermuda) Ltd. ("FASB"). The complaint alleges, among
other things, that BSSC committed breach of duty and aided and abetted a breach
of fiduciary duty by failing to alert the shareholders of MIFL about false and
misleading statements made by certain of the other defendants related to the
financial condition of MIFL. Compensatory damages in excess of $5 million are
sought from Bear Stearns.
On March 6, 2001, plaintiffs filed a second amended complaint
against the same defendants as were named in the first amended complaint. As
amended, the complaint alleges that BSSC aided and abetted a breach of fiduciary
duty and conspired to convert plaintiffs' funds by, among other things, failing
to alert the shareholders of MIFL about false and misleading statements made by
certain of the other defendants related to the financial condition of MIFL and
continuing to provide credit to MIFL. Compensatory damages in excess of $5
million are sought from BSSC.
On June 18, 2001, the court announced a tentative ruling dismissing
all claims against BSSC. The court has not yet issued a final ruling.
BSSC has denied all allegations of wrongdoing asserted against it in
this litigation, and believes that it has substantial defenses to these claims.
(ii) CROMER FINANCE LTD. V. MICHAEL BERGER, ET AL. On March 24,
2000, a purported class action was commenced in the United States District Court
for the Southern District of New York by Cromer Finance, Ltd., a shareholder of
MIFL, on behalf of a purported class consisting of all persons who purchased
securities of MIFL and suffered damages between September 1, 1996 through
January 18, 2000. On September 8, 2000, plaintiff filed an amended complaint.
Named as defendants are a director of MIFL, Deloitte & Touche, FASB, Ernst &
Young LLP, and BSSC. The complaint alleges, among other things, that BSSC aided
and abetted common law fraud in connection with providing clearing services for
MIFL. Compensatory and punitive damages in unspecified amounts are sought. On
April 17, 2001, the court granted BSSC's motion to dismiss this action.
(iii) ARGOS, ET AL. V. MICHAEL BERGER, ET AL. On March 31, 2000, an
action was commenced in the United States District Court for the Southern
District of New York by 17 shareholders of MIFL. Named as defendants are a
director of MIFL, Financial Asset Management, Inc., FASB, Ernst & Young
International, Deloitte & Touche, Bear Stearns and BSSC. The complaint alleges,
among other things, that the Bear Stearns defendants aided and abetted a breach
of fiduciary duty in connection with BSSC providing clearing services and
financing for MIFL. Compensatory damages in excess of $53 million, and $1
billion in punitive damages from each defendant, are sought.
On June 21, 2000, an amended complaint was filed adding nine
shareholders of Manhattan Investment Fund Limited as plaintiffs and asserting
the same claims against the same defendants as were named in the original
complaint. Compensatory damages in excess of $93.5 million, and $1 billion in
punitive damages from each defendant, are sought.
-19-
On May 15, 2001, the court granted the Bear Stearns defendants'
motion to dismiss this action.
(iv) HELEN GREDD, CHAPTER 11 TRUSTEE FOR MANHATTAN INVESTMENT FUND
LTD. V. BEAR, STEARNS SECURITIES CORP. On April 24, 2001, an action was
commenced in the United States Bankruptcy Court for the Southern District of New
York by the Chapter 11 Trustee for MIFL. BSSC is the sole defendant. The
complaint alleges, among other things, that certain transfers of cash and
securities to BSSC in connection with short sales of securities by MIFL in 1999
were "fraudulent transfers" made in violation of Sections 548 and 550 of the
United States Bankruptcy Code and are recoverable by the Trustee. The Trustee
also alleges that any claim that may be asserted by BSSC against MIFL should be
equitably subordinated to the claims of other creditors pursuant to Sections 105
and 510 of the Bankruptcy Code. The Trustee seeks to recover in excess of $1.9
billion in connection with the allegedly fraudulent transfers to BSSC.
BSSC has denied all allegations of wrongdoing asserted against it in
this litigation, and believes that it has substantial defenses to these claims.
STERLING FOSTER & CO., INC. The following matters arise out of Bear
Stearns' role as clearing broker for Sterling Foster & Co., Inc. ("Sterling
Foster").
(i) ROGERS V. STERLING FOSTER & CO., INC. On February 16, 1999, Bear
Stearns, BSSC and an officer of BSSC were added as defendants in a purported
class action pending in the United States District Court for the Eastern
District of New York. The action is brought on behalf of a purported class
consisting of all persons who purchased or otherwise acquired certain securities
that were underwritten by Sterling Foster. Named as defendants, in addition to
the Bear Stearns defendants set forth above, are Sterling Foster, seven
individuals alleged to have had an employment relationship with, or exercised
control over, Sterling Foster, six companies that issued securities underwritten
by Sterling Foster, eight individuals who were directors, officers and/or
employees of these issuers, and Bernstein & Wasserman LLP and two of its
partners. The second amended complaint alleges, among other things, that the
Bear Stearns defendants violated Section 10(b) of the Exchange Act and Rule
10b-5 promulgated thereunder and Section 349 of the New York General Business
Law and committed common law fraud in connection with providing clearing
services to Sterling Foster. Compensatory damages in an unspecified amount are
sought.
(ii) LEVITT, ET AL. V. BEAR STEARNS, ET AL. On February 16, 1999, a
purported class action was commenced in the United States District Court for the
Southern District of New York on behalf of all persons who purchased ML Direct,
Inc. common stock or warrants through Sterling Foster between September 4, 1996
and December 31, 1996. Named as defendants are Bear Stearns and BSSC. The
complaint alleges, among other things, that the defendants violated Sections
10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder and
committed common law fraud in connection with providing clearing services to
Sterling Foster with respect to certain transactions by customers of Sterling
Foster in ML Direct common stock and warrants. Compensatory damages of $50
million and punitive damages of approximately $100 million are sought.
On March 15, 1999, this action was transferred by the Judicial Panel
on Multi-District Litigation to the United States District Court for the Eastern
District of New York.
Bear Stearns and BSSC have denied all allegations of wrongdoing
asserted against them in these litigations, and believe that they have
substantial defenses to these claims.
IN RE TWINLAB SECURITIES LITIGATION. On March 16, 1999, two
previously filed purported class actions commenced in the United States District
Court for the Eastern District of New York were consolidated into a single
action. On May 14, 1999, an amended consolidated complaint was filed. As
amended, the action purports to be brought on behalf of all persons who
purchased Twinlab Corp. ("Twinlab") common stock between April 8, 1998 and
February 24, 1999. Named as defendants are four directors of Twinlab, an officer
of Twinlab, two stockholders of Twinlab, Donaldson, Lufkin & Jenrette, Inc. and
Bear Stearns. The complaint alleges, among other things, that the defendants
violated Sections 11 and 12(a)(2) of the Securities Act in connection with
-20-
disclosure contained in offering documents with respect to a public offering of
Twinlab common stock. Compensatory damages in an unspecified amount are sought.
On August 10, 2000, Bear Stearns filed an answer to the complaint in
which it denied liability and asserted affirmative defenses.
On or around March 7, 2001, the parties reached an agreement,
subject to court approval, to settle this action.
IPO ALLOCATION SECURITIES AND ANTITRUST LITIGATIONS
The Company, along with many other financial services firms, has
been named as a defendant in many putative class actions filed during 2001 in
the United States District Court for the Southern District of New York involving
the allocation of securities in certain initial public offerings ("IPOs"). The
complaints in these purported class actions generally allege, among other
things, that between 1998 and 2000: (i) the underwriters of certain "hot" IPOs
of technology and internet-related companies obtained excessive compensation by
allocating shares in these IPOs to preferred customers who, in return,
purportedly agreed to pay additional compensation to the underwriters, and the
underwriters failed to disclose this additional compensation; and/or (ii) the
underwriters' customers, in return for a favorable allocation of these
securities, agreed to purchase additional shares in the aftermarket at
pre-arranged prices or to pay additional compensation in connection with other
transactions. The complaints allege, among other things, that the underwriters
violated Sections 11 and 12(a)(2) of the Securities Act and Section 10(b) of the
Exchange Act and Rule 10b-5 promulgated thereunder.
In January 2002, the Company was named as a defendant, along with
nine other financial services firms, in an antitrust complaint filed in the same
Court on behalf of a putative class of purchasers who, either in IPOs or the
aftermarket, purchased technology-related securities during the period March
1997 to December 2000. Plaintiffs allege that the defendants conspired to
require that customers, in return for an allocation in the IPOs, (i) pay charges
in addition to the IPO price, such as non-competitively determined commissions
on the purchase or sale of other securities; and/or (ii) agree to purchase the
IPO securities in the aftermarket at prices above the IPO price. Plaintiffs
claim that these alleged practices violated section 1 of the Sherman Act and
state antitrust laws and seek compensatory and treble damages.
The Company denies all allegations of wrongdoing asserted against it
in these litigations, and believes that it has substantial defenses to these
claims.
* * *
The Company and/or subsidiaries of the Company also have been named
as defendants in numerous other civil actions arising out of its activities as a
broker and dealer, 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. 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 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 upon the level of income for such period.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
-21-
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information as of January 31,
2002 concerning executive officers of the Company as of November 30, 2001.
AGE AS OF
JANUARY 31,
NAME 2002 PRINCIPAL OCCUPATION
------------------------- ----------- --------------------------------------
James E. Cayne........... 67 Chairman of the Board and Chief
Executive Officer of the Company and
Bear Stearns and member of the
Executive Committee of the Company
(the "Executive Committee")
Alan C. Greenberg........ 74 Chairman of the Executive Committee
Mark E. Lehman........... 50 Executive Vice President and General
Counsel of the Company and Bear
Stearns and member of the Executive
Committee
Marshall J Levinson...... 59 Controller of the Company
Michael Minikes.......... 58 Treasurer of the Company and Bear
Stearns
Samuel L. Molinaro Jr.... 44 Executive Vice President and Chief
Financial Officer of the Company and
Bear Stearns and member of the
Executive Committee
Alan D. Schwartz......... 51 President and Co-Chief Operating
Officer of the Company and Bear
Stearns and member of the Executive
Committee
Warren J. Spector........ 44 President and Co-Chief Operating
Officer of the Company and Bear
Stearns and member of the Executive
Committee
-22-
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. Cayne became Chairman of the Board on June 25, 2001. Mr. Cayne
has been Chief Executive Officer of the Company and Bear Stearns for more than
the past five years and prior to June 25, 2001, was President of the Company and
Bear Stearns for more than the past five years.
Mr. Greenberg has been Chairman of the Executive Committee for more
than the past five years and prior to June 25, 2001, was Chairman of the Board
of the Company for more than the past five years.
Mr. Lehman has been an Executive Vice President of the Company and
Bear Stearns since September 1995. Prior thereto, Mr. Lehman was Senior Vice
President-General Counsel of Bear Stearns for more than five years. Mr. Lehman
has been General Counsel of the Company and Bear Stearns for more than the past
five years.
Mr. Levinson has been Controller of the Company since October 1998.
Prior thereto, Mr. Levinson was Chief Financial Officer and Chief Administrative
Officer of Bear, Stearns International Limited in London. Prior to September
1996, Mr. Levinson was in charge of the Company's internal audit function.
Mr. Minikes has been Treasurer of the Company and Bear Stearns for
more than the past five years.
Mr. Molinaro became Executive Vice President of the Company and Bear
Stearns on December 1, 2001 and has been Chief Financial Officer of the Company
and Bear Stearns since October 1996. Prior to December 1, 2001, Mr. Molinaro was
the Senior Vice President-Finance of the Company and Bear Stearns for more than
the past five years.
Mr. Schwartz became President and Co-Chief Operating Officer of the
Company and Bear Stearns and a member of the Executive Committee on June 25,
2001 and was an Executive Vice President of Bear Stearns for more than the past
five years. Prior to June 30, 1999, Mr. Schwartz was an Executive Vice President
of the Company and a member of the Executive Committee for more than the past
five years. Mr. Schwartz is responsible for all of the investment banking
activities of Bear Stearns.
Mr. Spector became President and Co-Chief Operating Officer of the
Company and Bear Stearns and a member of the Executive Committee on June 25,
2001 and was an Executive Vice President of Bear Stearns for more than the past
five years. Prior to June 30, 1999, Mr. Spector was an Executive Vice President
of the Company and a member of the Executive Committee for more than the past
five years. Mr. Spector is responsible for all of the fixed income activities of
Bear Stearns.
Officers serve at the discretion of the Board of Directors.
-23-
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 OPERATIONS.
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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required to be furnished pursuant to this item is
set forth under the caption "Risk Management" 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 together with the Notes to
Consolidated Financial Statements and the Independent Auditors' Report, all
included in the Annual Report. Such information is 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.
-24-
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 2002 Annual
Meeting of Stockholders to be held on March 26, 2002, 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" in 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" in 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" in the Proxy Statement, and is incorporated herein by reference.
-25-
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
(incorporated by reference to Exhibit (4)(a)(1) to the
registrant's registration statement on Form S-3 (File No.
333-57083)).
(3)(a)(2) Certificate of Amendment of Restated Certificate of
Incorporation of the registrant (incorporated by reference to
Exhibit 4(a)(2) to the registrant's registration statement on
Form S-8 (File No. 333-92357)).
(3)(a)(3) Certificate of Stock Designation relating to the registrant's
Adjustable Rate Cumulative Preferred Stock, Series A
(incorporated by reference to Exhibit 4(a)(6) to the
registrant's registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(4) Certificate of Correction to the Certificate of Stock
Designation relating to the registrant's Adjustable Rate
Cumulative Preferred Stock, Series A (incorporated by
reference to Exhibit 4(a)(7) to the registrant's registration
statement on Form S-8 (File No. 33-49979)).
(3)(a)(5) Certificate of Stock Designation relating to the registrant's
6.15% Cumulative Preferred Stock, Series E (incorporated by
reference to Exhibit 1.4 to the registrant's registration
statement on Form 8-A filed on January 14, 1998).
(3)(a)(6) Certificate of Stock Designation relating to the registrant's
5.72% Cumulative Preferred Stock, Series F (incorporated by
reference to Exhibit 1.4 to the registrant's registration
statement on Form 8-A filed on April 20, 1998).
(3)(a)(7) Certificate of Stock Designation relating to the registrant's
5.49% Cumulative Preferred Stock, Series G (incorporated by
reference to Exhibit 1.4 to the registrant's registration
statement on Form 8-A filed on June 18, 1998).
(3)(a)(8) 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 registrant (incorporated by reference to Exhibit
4(d)(9) to the registrant's Current Report on Form 8-K filed
with the Commission on January 15, 2002).
(3)(a)(9) Certificate of Elimination of the 7.88% Cumulative Convertible
Preferred Stock, Series B of the registrant (incorporated by
reference to Exhibit 4(d)(10) to the registrant's Current
Report on Form 8-K filed with the Commission on January 15,
2002).
(3)(a)(10) Certificate of Elimination of the 7.60% Cumulative Convertible
Preferred Stock, Series C of the registrant (incorporated by
reference to Exhibit 4(d)(11) to the registrant's Current
Report on Form 8-K filed with the Commission on January 15,
2002).
(3)(b) Amended and Restated By-laws of the registrant as amended
through January 8, 2002 (incorporated by reference to Exhibit
4(d)(6) to the registrant's Current Report on Form 8-K filed
with the Commission on
-26-
January 15, 2002).
(4)(a) Indenture, dated as of May 31, 1991, between the registrant
and JPMorgan Chase Bank (formerly, The Chase Manhattan Bank),
as trustee (incorporated by reference to Exhibit (4)(a) to
registrant's registration statement on Form S-3 (File No.
33-40933)).
(4)(b) Supplemental Indenture, dated as of January 29, 1998, between
the registrant and JPMorgan Chase Bank (formerly, The Chase
Manhattan Bank), as trustee (incorporated by reference to
Exhibit 4(a)(2) to the registrant's Current Report on Form 8-K
filed with the Commission on February 2, 1998).
(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) Capital Accumulation Plan for Senior Managing Directors, as
amended and restated as of October 28, 1999 (incorporated by
reference to Exhibit (10)(a)(4) to the registrant's Quarterly
Report on Form 10-Q for its fiscal quarter ended December 31,
1999).*
(10)(a)(2) Capital Accumulation Plan for Senior Managing Directors, as
amended and restated as of November 29, 2000 for Plan Years
beginning on or after July 1, 1999 (incorporated by reference
to Exhibit 10(a)(1) to the registrant's Quarterly Report on
Form 10-Q for its fiscal quarter ended February 23, 2001).*
(10)(a)(3) Performance Compensation Plan, as amended and restated as of
October 28, 1999 (incorporated by reference to Exhibit
10(a)(5) to the registrant's Quarterly Report on Form 10-Q for
its fiscal quarter ended December 31, 1999).*
(10)(a)(4) Stock Award Plan, as amended and restated as of March 29, 2001
(incorporated by reference to Exhibit 4(c) to the
Post-Effective Amendment No. 1 to the registrant's
registration statement on Form S-8 (File No. 333-92357)).*
(10)(a)(5) Non-Employee Directors' Stock Option Plan, (incorporated by
reference to Exhibit 4(c) to the registrant's registration
statement on Form S-8 (File No. 333-63002)).*
(10)(a)(6) Restricted Stock Unit Plan, as of November 29, 2000
(incorporated by reference to Exhibit 10(a)(6) to the
registrant's Quarterly Report on Form 10-Q for its fiscal
quarter ended February 23, 2001).*
(10)(a)(7) The Bear Stearns Companies Inc. AE Investment and Deferred
Compensation Plan, effective January 1, 1989 (the "AE
Investment and Deferred Compensation Plan") (incorporated by
reference to Exhibit 10(a)(14) to the registrant's Annual
Report on Form 10-K for its fiscal year ended June 30, 1996).*
(10)(a)(8) Amendment to the AE Investment and Deferred Compensation Plan,
adopted April 29, 1996 and effective as of January 1, 1995
(incorporated by reference to Exhibit 10(a)(15) to the
registrant's Annual Report on Form 10-K for its fiscal year
ended June 30, 1996).*
(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) First Amendment to Lease, dated December 20, 1999, between
Forest City Jay Street Associates, L.P. and The Bear Stearns
Companies Inc. with respect to the premises located at One
MetroTech Center, Brooklyn, New York.
-27-
(10)(b)(3) 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)(4) 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).
(10)(b)(5) Lease, dated as of November 20, 2000 between WFP 245 Park Co.
L.P. and The Bear Stearns Companies Inc. with respect to the
premises located on the 15th - 20th floors of 245 Park Avenue,
New York, New York (incorporated by reference to Exhibit
10(b)(4) to the registrant's Annual Report on Form 10-K for
its fiscal year ended November 30, 2000).
(11) Statement re: computation of per share earnings. (The
calculation of per share earnings is in Part II, Item 8,
Note 9 to the Consolidated Financial Statements (Earnings Per
Share) and is omitted in accordance with Section (b)(11) of
Item 601 of Regulation S-K).
(12) Statement re: computation of ratio of earnings to fixed
charges and computation of ratio of earnings to fixed charges
and preferred stock dividends.
(13) 2001 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.
* Executive Compensation Plans and Arrangements
(B) REPORTS ON FORM 8-K.
The Company filed the following Current Reports on Form 8-K during
the last quarter of the period covered by this report:
(i) A Current Report on Form 8-K dated September 26, 2001 and
filed September 28, 2001, pertaining to the Company's results
of operations for the quarter ended August 31, 2001.
(ii) A Current Report on Form 8-K dated and filed October 19, 2001,
announcing the Company's implementation of a firm-wide
workforce reduction.
-28-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on the
28th day of February 2002.
THE BEAR STEARNS COMPANIES INC.
(Registrant)
By: /s/ SAMUEL L. MOLINARO JR.
..................................
Samuel L. Molinaro Jr.
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 28th day of February 2002.
NAME TITLE
---- -----
/s/ ALAN C. GREENBERG
.................................
Alan C. Greenberg Chairman of the Executive Committee
and Director
/s/ JAMES E. CAYNE
.................................
James E. Cayne Chairman of the Board and Chief
Executive Officer (Principal Executive
Officer) and Director
/s/ CARL D. GLICKMAN
.................................
Carl D. Glickman Director
/s/ DONALD J. HARRINGTON
.................................
Donald J. Harrington Director
/s/ WILLIAM L. MACK
.................................
William L. Mack Director
/s/ FRANK T. NICKELL
.................................
Frank T. Nickell Director
/s/ FREDERIC V. SALERNO
.................................
Frederic V. Salerno Director
/s/ ALAN D. SCHWARTZ
.................................
Alan D. Schwartz President, Co-Chief Operating Officer
and Director
-29-
/s/ WARREN J. SPECTOR
.................................
Warren J. Spector President, Co-Chief Operating Officer
and Director
/s/ VINCENT TESE
.................................
Vincent Tese Director
/s/ FRED WILPON
.................................
Fred Wilpon Director
/s/ SAMUEL L. MOLINARO JR.
................................. Executive Vice President and Chief
Samuel L. Molinaro Jr. Financial Officer (Principal Financial
Officer)
/s/ MARSHALL J LEVINSON
.................................
Marshall J Levinson Controller (Principal Accounting
Officer)
-30-
THE BEAR STEARNS COMPANIES INC.
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
ITEMS 14 (A) (1) AND 14 (A) (2)
PAGE REFERENCE
FINANCIAL STATEMENTS FORM ANNUAL
-------------------- 10-K REPORT*
---- -------
Independent Auditors' Report 73
THE BEAR STEARNS COMPANIES INC.
-------------------------------
(i) Consolidated Statements of Income--fiscal years ended November 30,
2001 and November 30, 2000, five months ended November 26, 1999 and
the fiscal year ended June 30, 1999 47
(ii) Consolidated Statements of Financial Condition at November 30, 2001
and November 30, 2000 48
(iii) Consolidated Statements of Cash Flows--fiscal years ended November
30, 2001 and November 30, 2000, five months ended November 26, 1999
and the fiscal year ended June 30, 1999 49
(iv) Consolidated Statements of Changes in Stockholders' Equity-- fiscal
years ended November 30, 2001 and November 30, 2000, five months ended
November 26, 1999 and the fiscal year ended June 30, 1999 50-51
(v) Notes to Consolidated Financial Statements 52-72
FINANCIAL STATEMENT SCHEDULES
-----------------------------
Independent Auditors' Report F-2
I Condensed financial information of registrant F-3 - F-6
* Incorporated by reference from the indicated pages of the 2001 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
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
The Bear Stearns Companies Inc.:
We have audited the consolidated statements of financial condition of The Bear
Stearns Companies Inc. and Subsidiaries (the "Company") as of November 30, 2001
and November 30, 2000, and the related consolidated statements of income, cash
flows and changes in stockholders' equity for the fiscal years ended November
30, 2001 and November 30, 2000, the five months ended November 26, 1999 and the
fiscal year ended June 30, 1999, and have issued our report thereon dated
January 14, 2002; such consolidated financial statements and report are included
in the Annual Report to Stockholders and are incorporated herein by reference.
Our audits also included the financial statement schedules of The Bear Stearns
Companies Inc. (Parent Company Only), listed in Item 14. These financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statement schedules
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.
/s/ Deloitte & Touche LLP
New York, New York
January 14, 2002
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 FIVE MONTHS FISCAL YEAR
ENDED ENDED ENDED ENDED
NOVEMBER 30, 2001 NOVEMBER 30, 2000 NOVEMBER 26, 1999 JUNE 30, 1999
----------------- ------------------- -------------------- ------------------
REVENUES
Interest............................................ $ 1,327,435 $ 1,863,498 $ 522,973 $ 1,264,041
Other .............................................. 331,757 155,932 67,300 178,904
----------- ----------- ----------- -----------
1,659,192 2,019,430 590,273 1,442,945
----------- ----------- ----------- -----------
EXPENSES
Interest ........................................... 1,752,063 2,483,116 711,874 1,500,137
Other .............................................. 214,748 105,860 43,986 91,620
----------- ----------- ----------- -----------
1,966,811 2,588,976 755,860 1,591,757
----------- ----------- ----------- -----------
Loss before benefit from income taxes,
cumulative effect of change in accounting
principle and equity in earnings of
subsidiaries .................................... (307,619) (569,546) (165,587) (148,812)
Benefit from income taxes .......................... 180,162 118,740 31,005 34,823
----------- ----------- ----------- -----------
Loss before cumulative effect of change in
accounting principle and equity in earnings
of subsidiaries ................................. (127,457) (450,806) (134,582) (113,989)
Cumulative effect of change in accounting
principle, net of tax ........................... (6,273) -- -- --
Equity in earnings of subsidiaries, net of tax ..... 752,422 1,223,989 420,396 787,037
----------- ----------- ----------- -----------
Net income.......................................... $ 618,692 $ 773,183 $ 285,814 $ 673,048
=========== =========== =========== ===========
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)
NOVEMBER 30, 2001 NOVEMBER 30, 2000
----------------- ------------------
ASSETS
Cash and cash equivalents ........................................ $ 6,712,580 $ 1,004,787
Receivables from subsidiaries .................................... 19,889,935 27,136,182
Subordinated loans receivables from subsidiaries ................. 4,697,000 4,497,000
Investments in subsidiaries, at equity ........................... 5,882,014 5,807,576
Other assets ..................................................... 2,633,836 2,434,022
------------ ------------
Total Assets ..................................................... $ 39,815,365 $ 40,879,567
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings ............................................ $ 9,293,866 $ 13,575,506
Payables to subsidiaries ......................................... 990,629 679,016
Other liabilities ................................................ 435,391 793,925
------------ ------------
10,719,886 15,048,447
------------ ------------
Long-term borrowings ............................................. 22,688,988 19,661,368
Long-term borrowings from subsidiaries ........................... 777,964 515,464
STOCKHOLDERS' EQUITY
Preferred stock .................................................. 800,000 800,000
Common stock, $1.00 par value; 500,000,000 and 200,000,000
shares authorized as of November 30, 2001 and November
30, 2000, respectively; 184,805,848 shares issued
as of November 30, 2001 and November 30, 2000.................. 184,806 184,806
Paid-in capital .................................................. 2,728,981 2,583,638
Retained earnings ................................................ 3,118,635 2,600,149
Employee stock compensation plans ................................ 2,015,375 1,916,708
Unearned compensation ............................................ (230,071) (218,791)
Treasury stock, at cost:
Adjustable Rate Cumulative Preferred Stock Series A:
2,520,750 shares as of November 30, 2001 and
November 30, 2000............................................ (103,421) (103,421)
Common stock: 84,763,780 and 75,823,544 shares as of
November 30, 2001 and November 30, 2000, respectively......... (2,885,778) (2,108,801)
------------ ------------
Total Stockholders' Equity ....................................... 5,628,527 5,654,288
------------ ------------
Total Liabilities and Stockholders' Equity ....................... $ 39,815,365 $ 40,879,567
============ ============
---------------------------------------------------
See Notes to Condensed Financial Information.
Note: Certain reclassifications have been made to prior year amounts to
conform to the current year's presentation.
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
ENDED ENDED
NOVEMBER 30, 2001 NOVEMBER 30, 2000
--------------------- ---------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................................ $ 618,692 $ 773,183
Adjustments to reconcile net income to cash provided by (used in) operating
activities:
Equity in earnings of subsidiaries, net of dividends received ........ (1,032) (926,686)
Other ................................................................ 41,078 157,294
Decreases (increases) in assets:
Receivables from subsidiaries ........................................ 7,538,113 (2,934,186)
Subordinated loans receivables from subsidiaries ..................... (200,000) (590,045)
Investments in subsidiaries, net ..................................... (73,406) 235,261
Other assets ......................................................... 109,135 (1,025,993)
Increases (decreases) in liabilities:
Payables to subsidiaries ............................................. 314,278 90,275
Other liabilities .................................................... (359,521) (137,748)
----------- -----------
Cash provided by (used in) operating activities ........................... 7,987,337 (4,358,645)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (payments for) proceeds from short-term borrowings .................... (3,565,215) 1,396,226
Net proceeds from issuance of long-term borrowings ........................ 6,103,526 8,183,991
Increase in long-term borrowings from subsidiaries ........................ 254,231 --
Employee stock compensation plans ......................................... 370,413 679,500
Tax benefit of common stock distributions ................................. 143,387 72,973
Proceeds from put option premium .......................................... -- 1,065
Note repayment from ESOP Trust ............................................ -- --
Payments for:
Retirement of long-term borrowings ..................................... (4,149,578) (4,304,964)
Treasury stock purchases ............................................... (1,048,015) (726,836)
Cash dividends paid ....................................................... (100,206) (99,329)
----------- -----------
Cash (used in) provided by financing activities ........................... (1,991,457) 5,202,626
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Business acquisition ...................................................... (242,983) --
Purchases of investment securities and other assets ....................... (48,930) (51,202)
Proceeds from sale of investment securities and other assets .............. 3,826 9,854
----------- -----------
Cash used in investing activities ......................................... (288,087) (41,348)
----------- -----------
Net increase in cash and cash equivalents ................................. 5,707,793 802,633
Cash and cash equivalents, beginning of period ............................ 1,004,787 202,154
----------- -----------
Cash and cash equivalents, end of period .................................. $ 6,712,580 $ 1,004,787
========== ===========
See Notes to Condensed Financial Information.
Note: Certain reclassifications have been made to prior period amounts to
conform to the current year's presentation.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
THE BEAR STEARNS COMPANIES INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(continued)
FIVE MONTHS FISCAL YEAR
ENDED ENDED
NOVEMBER 26, 1999 JUNE 30, 1999
----------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................................ $ 285,814 $ 673,048
Adjustments to reconcile net income to cash provided by (used in) operating
activities:
Equity in earnings of subsidiaries, net of dividends received ........ (365,319) (656,715)
Other ................................................................ 3,575 --
Decreases (increases) in assets:
Receivables from subsidiaries ........................................ 63,052 (468,624)
Subordinated loans receivables from subsidiaries ..................... (10,000) (21,908)
Investments in subsidiaries, net ..................................... 398,090 (140,808)
Other assets ......................................................... 64,659 (136,514)
Increases (decreases) in liabilities:
Payables to subsidiaries ............................................. 321,582 138,247
Other liabilities .................................................... (58,897) 122,121
----------- -----------
Cash provided by (used in) operating activities ........................... 702,556 (491,153)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (payments for) proceeds from short-term borrowings .................... (1,330,822) (932,133)
Net proceeds from issuance of long-term borrowings ........................ 1,776,547 4,179,637
Increase in long-term borrowings from subsidiaries ........................ -- 140,055
Employee stock compensation plans ......................................... 70,406 483,260
Tax benefit of common stock distributions ................................. 2,568 92,893
Proceeds from put option premium .......................................... -- --
Note repayment from ESOP Trust ............................................ -- 7,114
Payments for:
Retirement of long-term borrowings ..................................... (668,656) (2,846,752)
Treasury stock purchases ............................................... (311,289) (482,818)
Cash dividends paid ....................................................... (54,548) (107,666)
----------- -----------
Cash (used in) provided by financing activities ........................... (515,794) 533,590
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Business acquisition ...................................................... -- --
Purchases of investment securities and other assets ....................... (4,031) (26,290)
Proceeds from sale of investment securities and other assets .............. 146 3,126
----------- -----------
Cash used in investing activities ......................................... (3,885) (23,164)
----------- -----------
Net increase in cash and cash equivalents ................................. 182,877 19,273
Cash and cash equivalents, beginning of period ............................ 19,277 4
----------- -----------
Cash and cash equivalents, end of period .................................. $ 202,154 $ 19,277
=========== ===========
See Notes to Condensed Financial Information.
Note: Certain reclassifications have been made to prior period amounts to
conform to the current year's presentation.
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 subsidiaries and the Notes
thereto in The Bear Stearns Companies Inc. 2001 Annual Report to
Stockholders (the "Annual Report") incorporated by reference in this
Form 10-K.
The condensed unconsolidated financial statements are prepared in
conformity with accounting principles generally accepted in the United
States of America which require management to make estimates and
assumptions that affect the amounts reported in the condensed
unconsolidated financial statements and accompanying notes. Actual
results could differ from these estimates.
Investments in subsidiaries are accounted for using the equity method.
For information on the following, refer to the indicated Notes to the
Consolidated Financial Statements within the Annual Report.
o Long-term borrowings (Note 5)
o Preferred stock (Note 8 - refer to section entitled "Preferred
Stock Issued by The Bear Stearns Companies Inc.")
o Commitments and contingencies (Note 15)
The Company engages in derivatives activities in order to modify the
interest rate characteristics of its long and short-term debt.
On January 18, 2000, the Company's Board of Directors elected to change
its fiscal year-end to November 30 from June 30, effective with the year
beginning November 27, 1999.
2. STATEMENT OF CASH FLOWS
Income taxes paid (consolidated) totaled $55.0 million, $985.0 million,
$57.8 million and $223.2 million for the fiscal years ended November 30,
2001 and 2000, five months ended November 26, 1999 and the fiscal year
ended June 30, 1999, respectively. Cash payments for interest
approximated interest expense for each of the periods presented.
3. TRANSACTIONS WITH SUBSIDIARIES
The Company received from its consolidated subsidiaries dividends of
$751.4 million, $297.3 million, $55.1 million and $132.3 million for the
fiscal years ended November 30, 2001 and 2000, five months ended
November 26, 1999 and the fiscal year ended June 30, 1999, respectively.
The Company has transactions with its subsidiaries determined on an
agreed-upon basis. The Company also guarantees certain unsecured lines
of credit and certain other obligations of subsidiaries, including
obligations associated with foreign exchange forward contracts and
interest rate swap transactions. Additionally, the Company guarantees
obligations related to Guaranteed Preferred Beneficial Interests in
Company Subordinated Debt Securities issued by subsidiaries.
The Company also issues guarantees of counterparty obligations to
subsidiaries in connection with certain activities of such subsidiaries.
F-6