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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 DECEMBER 31, 2000
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 NO. 001-15361
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NEUBERGER BERMAN INC.
(Exact Name of Registrant As Specified in Its Charter)
DELAWARE 06-1523639
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
605 Third Avenue, New York, NY 10158
(Address of Principal Executive (Zip Code)
Offices)
Registrant's telephone number, including area code (212) 476-9000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of Each Exchange
Title of Each Class on Which Registered
Common Stock $.01 par value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
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. [ ]
The aggregate market value of the common stock held by non-affiliates of the
Registrant, based upon the closing price of $82.09 on February 16, 2001, on the
New York Stock Exchange was $597,931,365. Calculation of holdings of common
stock by non-affiliates is based upon the assumption, for these purposes only,
that executive officers, directors, former principals and the Registrant's
Defined Contribution Stock Incentive Plan are affiliates. As of February 16,
2001, the number of shares of the Registrant's common stock outstanding was
48,884,909.
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Documents Incorporated By Reference
DOCUMENT INCORPORATED PART OF REPORT
BY REFERENCE INTO WHICH INCORPORATED
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The definitive proxy statement for the 2001 Annual Part III
Meeting of Stockholders to be held May 10, 2001.
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TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business.................................................... 3
Overview.................................................. 3
Recent Developments....................................... 3
Business Segments......................................... 4
Private Asset Management.................................. 4
Mutual Fund and Institutional............................. 6
Professional Securities Services.......................... 9
Investment Process and Research........................... 10
Technology Initiatives.................................... 10
Competition............................................... 10
Regulation................................................ 11
Client Protection and Insurance........................... 13
Net Capital Requirements.................................. 13
Intellectual Property..................................... 13
Employees................................................. 13
Item 2. Properties.................................................. 14
Item 3. Legal Proceedings........................................... 14
Item 4. Submission of Matters to a Vote of Security Holders......... 14
PART II
Item 5. Market for Registrant's Common Equity and Related 14
Stockholder Matters.......................................
Item 6. Selected Consolidated Financial Data........................ 15
Item 7. Management's Discussion and Analysis of Financial Condition 16
and Results of Operations.................................
Forward Looking Statements................................ 16
Business Environment...................................... 16
General................................................... 17
Results of Operations..................................... 19
Liquidity and Capital Resources........................... 25
Looking Ahead............................................. 26
Item Quantitative and Qualitative Disclosures about Market 26
7A. Risk......................................................
Item 8. Financial Statements and Supplementary Data................. 27
Item 9. Changes in and Disagreements with Accountants on Accounting 53
and Financial Disclosure..................................
PART
III
Item Directors and Executive Officers of the Registrant.......... 53
10.
Item Executive Compensation...................................... 53
11.
Item Security Ownership of Certain Beneficial Owners and 53
12. Management................................................
Item Certain Relationships and Related Transactions.............. 53
13.
PART IV
Item Exhibits, Financial Statement Schedules and Reports on Form 53
14. 8-K.......................................................
1
FORWARD LOOKING STATEMENTS
Our disclosure and analysis in this report and in documents that are
incorporated by reference contain some forward looking statements. Forward
looking statements give our current expectations or forecasts of future events.
You can identify these statements by the fact that they do not relate strictly
to historical or current facts. They use words such as "anticipate", "estimate",
"expect", "project", "intend", "plan", "believe", and other words and terms of
similar meaning in connection with any discussion of future operating or
financial performance. In particular, these include statements relating to
future actions, future performance of our products, expenses, the outcome of any
legal proceedings, and financial results. Although we believe that our
expectations and beliefs are based on reasonable assumptions within the bounds
of our knowledge of our business and operations, there can be no assurance that
our actual results will not differ materially from our expectations or beliefs.
Some of the factors that could cause our actual results to differ from our
expectations or beliefs include, without limitation, the adverse effect from a
decline in the securities markets or if our products' performance declines, a
general downturn in the economy, changes in government policy or regulation, our
inability to attract or retain key employees and unforeseen costs and other
effects related to legal proceedings or investigations of governmental and
self-regulatory organizations. These statements are provided as permitted by the
Private Litigation Reform Act of 1995. We undertake no obligation to update
publicly any forward looking statements, whether as a result of new information,
future events or otherwise.
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PART I
ITEM 1.--BUSINESS
OVERVIEW
Neuberger Berman Inc., with its subsidiaries, is an investment advisory firm
with approximately $55.5 billion in assets under management as of December 31,
2000. For more than 60 years, the firm and its predecessor companies have
provided clients with a wide array of investment products, services and
strategies. We conduct our business through our subsidiaries, including
Neuberger Berman, LLC and Neuberger Berman Management Inc., both of which are
registered investment advisers and broker-dealers. Neuberger Berman, LLC is also
a member of the New York Stock Exchange, Inc. ("NYSE"). As of February 16, 2001,
we conduct our business from 16 offices in 15 cities.
We were founded in 1939 to be a premier provider of investment products and
services to high net worth individuals. We have built upon the qualities that
have made us successful in the high net worth market to establish a strong
presence in the mutual fund and institutional marketplaces, and to provide
estate planning and trust services through several trust company subsidiaries.
Our clients include individuals, institutions, corporations, pension funds,
foundations and endowments.
We believe that one of our chief competitive advantages is our dedication to
asset management, and in particular, asset management for high net worth
individuals. To build on this competitive advantage, we are actively pursuing
new hires and acquisitions, including the addition of money management teams
with existing client relationships, as well as expanding our national sales
force.
In August 1998, Neuberger Berman Inc. was formed to be the holding company
for Neuberger Berman, LLC and Neuberger Berman Management Inc., which, together
with their predecessors, have conducted business since 1939 and 1970,
respectively. In October 1999, we completed an initial public offering (the
"IPO") of our common stock. As of February 16, 2001, our employees and retired
principals held approximately 85% of our common stock.
When we use the terms "Neuberger Berman", "we", "us", and "our", we mean,
prior to the IPO, Neuberger Berman, LLC, a Delaware limited liability company,
and its consolidated subsidiaries, and Neuberger Berman Management Inc., a New
York corporation, and their predecessors, and, after the IPO, we mean Neuberger
Berman Inc., a Delaware corporation, and its consolidated subsidiaries.
When we use the term "Trust Companies", we mean Neuberger Berman National
Trust Company, which holds a national bank charter; Neuberger Berman Trust
Company, a non-depository trust company chartered under the New York Banking
Law; Neuberger Berman Trust Company of Delaware, a non-depository limited
purpose trust company chartered under the Delaware Banking Code; and Neuberger
Berman Trust Company of Florida, a Florida corporation authorized to engage in
trust business chartered under the Florida Banking Law.
RECENT DEVELOPMENTS
In December 2000, we completed the acquisition of the private asset
management business of Delta Capital Management LLC, which added $536 million to
our assets under management as of December 31, 2000.
During 2000, we opened three new sales offices in Houston, Philadelphia and
Tampa. We increased our national sales force of Client Consultants, from 28
professionals at the end of 1999 to 38 as of December 31, 2000. In 2000, this
national sales force generated $807 million in new assets under management.
During the first quarter of 2001, we added three experienced money
management teams from other institutions and anticipate that their clients will
place approximately $2.1 billion in assets under management with us by the end
of 2001.
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We completed the acquisition of Executive Monetary Management, Inc. ("EMM"),
a wealth management firm for high net worth individuals, in the first quarter of
2001, at which time EMM became a wholly owned subsidiary of Neuberger Berman
Inc. As of the closing date of the EMM acquisition, clients for whom EMM
performs various services had in the aggregate approximately $1.8 billion of
investable assets. EMM has a strong following among senior executives and
leaders within the entertainment, finance and legal communities. We expect our
resources to allow EMM to expand its products and services, as well as its
client base. In turn, we believe EMM will strengthen our presence in the highly
specialized market of upper echelon wealth.
In January 2001, we received a national bank charter and opened the
Neuberger Berman National Trust Company, headquartered in Seattle, Washington.
We believe that the combination of our trust capabilities, our clearing
capabilities and information systems, and our money management expertise will
enhance our ability to attract new clients, retain existing clients' assets and
cross-sell products and services.
Additionally, we continue the ongoing program of diversification in our
mutual fund business. In October 2000, we announced that we will acquire
Fasciano Company, Inc., an investment manager which, through Michael Fasciano,
manages the Fasciano Fund, a small-cap blend mutual fund. As of December 31,
2000, the Fasciano Fund had approximately $237 million in assets. We expect to
close this acquisition at the end of the first quarter of 2001.
BUSINESS SEGMENTS
Our principal businesses include:
- Private Asset Management
- Mutual Fund and Institutional
- Professional Securities Services
A fourth segment, "Corporate", was introduced during the fourth quarter of
2000, to reflect certain corporate results that were previously allocated
primarily to our Professional Securities Services segment.
We derive our revenues primarily from investment advisory and administrative
fees, which are based on assets under management. Our fee revenue is
supplemented by commissions and by income from our Professional Securities
Services segment. We believe our business has attractive margins for several
reasons:
- the majority of our assets under management are held in equity accounts,
which carry higher fees than fixed-income accounts;
- 58.2% of our pre-tax earnings in 2000 were derived from our higher-margin
Private Asset Management segment; and
- we have effectively leveraged our franchise and infrastructure to enhance
profitability by developing complementary businesses such as correspondent
clearing and prime brokerage services.
PRIVATE ASSET MANAGEMENT
Our Private Asset Management segment provides customized investment
management services for high net worth individuals, families and smaller
institutions. It represented 47.2% of net revenues after interest expense in
2000.
Assets under management in this segment reached $22.5 billion as of
December 31, 2000, including assets managed for clients of the Trust Companies.
Net revenues after interest expense for 2000 were
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$290.7 million. This included $94.0 million in commission revenue, derived
principally from listed equity trades executed as broker, on behalf of clients.
In this segment, we managed approximately 14,000 accounts, with an average
relationship size of $3.9 million.
Private Asset Management includes three areas:
- Money Management
- Advisory Services
- Trust Services
MONEY MANAGEMENT. Since our founding, we have specialized in personalized
money management for high net worth investors. Our mission is to provide our
clients with the highest caliber investment expertise, supported by outstanding
personal service. Unlike many investment firms, we do not assign clients to a
model portfolio. We tailor each client's portfolio individually, based on
investment objectives, planning needs, and risk tolerance. We believe this
strategy is best for clients, and it also increases our ability to attract
experienced, talented money managers. Our money managers have, on average, more
than 25 years of investment experience, and each is free to pursue his or her
investment style, subject to compliance oversight. The Private Asset Management
segment has enjoyed long-term client loyalty, sometimes spanning several
generations.
Our money managers use a broad spectrum of investment styles, including
growth and value for equities, fixed-income and international. They accommodate
clients with broadly different objectives or special needs, such as investment
restrictions or large holdings of stock options. As of December 31, 2000, we had
66 money managers in our Private Asset Management segment working in 27 teams.
We vigorously seek to expand our assets under management through internal
growth and new clients, as well as through the hiring of experienced money
management teams and acquisitions of money management firms. We believe that the
acquisition of the private asset management business of Delta Capital Management
LLC and the acquisition of EMM, plus the introduction of Neuberger Berman
National Trust Company, will increase our ability to expand assets under
management. We have hired three teams of senior money managers in the first
quarter of 2001. We intend to continue to seek to hire senior money managers and
to pursue acquisitions, where appropriate.
In 2000, we launched an Internet account access feature for Private Asset
Management clients. This secure, password-protected site allows clients to view
their account statements online, and to make this information available to
accountants or other trusted advisors. We believe a robust Internet site is an
increasingly important part of our customer service strategy. Accordingly, we
are redesigning and upgrading our website, and expect to launch the new site in
the first half of 2001.
ADVISORY SERVICES. We have a national sales force, which is composed of
Client Consultants. It is dedicated to growing and supporting our Private Asset
Management segment, including our money managers and Trust Companies. Our Client
Consultants attract new clients and work with existing clients as liaisons to
our money managers. In 2000, we significantly increased the number of our Client
Consultants, as well as their geographic penetration. Our Private Asset
Management Advisory Services group currently includes 38 professionals supported
by 34 client service administrators, working in New York and regional offices in
Atlanta, Boston, Chicago, Dallas, Houston, Los Angeles, Miami, Philadelphia, San
Francisco, Tampa, and West Palm Beach.
Our Client Consultants are highly trained professionals and their average
industry experience is 16 years. They work closely with our clients to develop
customized asset allocation, trust services, estate and tax planning strategies.
Our Client Consultants also frequently work with our clients' accountants and
attorneys as part of a financial advisory team, and they cultivate relationships
with these professional advisors. New assets generated by our national sales
force grew from $640 million in 1999 to $807 million in 2000.
5
TRUST SERVICES. The Private Asset Management segment also includes
Neuberger Berman National Trust Company for which we received a national bank
charter in January 2001, as well as trust companies in New York, Delaware and
Florida. Our trust companies integrate our investment management expertise with
a wide variety of services for high net worth individuals, wealthy families and
family offices. These services include:
- Retirement, Gift and Estate Tax Planning
- Trust Administration and Agency Services
- Investment Policy Design, Manager Selection and Oversight
- Executor Services
- Charitable Gift Planning
- Retirement Plans and IRA Administration
Our Trust Companies provide multi-jurisdictional trust, partnership and
estate administration services. They oversee and monitor investments by
affiliated and non-affiliated portfolio managers. Our Trust Companies deliver a
broad range of trustee services for employee benefit plans of corporations and
other for-profit institutions. Through our Trust Companies we also provide
investment and administration services for charities' planned giving programs.
In connection with the establishment of our National Trust Company, we have
hired several senior executives. In cooperation with our expanded national sales
force, we intend to market our trust capabilities more aggressively in 2001.
MUTUAL FUND AND INSTITUTIONAL
Our Mutual Fund and Institutional segment includes our family of mutual
funds, institutional separate account products and broker-advised products (wrap
accounts), which we offer to a wide array of clients, from the smallest
individual investors to the largest institutions. This segment generated net
revenues after interest expense of $226.1 million, which represented 36.7% of
our net revenues after interest expense in 2000.
Despite volatility in the securities markets, our assets under management in
this segment increased by $116 million to approximately $33.0 billion as of
December 31, 2000. We experienced net cash outflows for our Mutual Fund and
Institutional segment of $1.2 billion in 2000. The outflows occurred almost
entirely in the first quarter, with most of it coming from one sector, the
traditionally lower margin institutional fixed-income separate accounts
business. Cash flows from our Mutual Fund and Sub-advised Account business were
positive by $546 million for 2000.
The mutual funds and portfolios in this segment cover a large range of asset
types, investment styles and market capitalization ranges. These include
large-cap, mid-cap and small-cap equity products, incorporating value, growth
and blend investment styles as well as international and socially responsive
products. Also in this business segment we offer balanced, fixed-income and
money market products. We make our funds available directly to investors,
without a sales load, and through third parties and sub-advisory relationships.
Mutual Fund and Institutional includes three areas:
- Mutual Fund and Sub-advised Accounts
- Institutional Separate Accounts (Equity and Fixed-Income)
- Consultant Services Group (Wrap accounts)
MUTUAL FUND AND SUB-ADVISED ACCOUNTS. As of December 31, 2000, we managed a
total of $19.5 billion in assets in Mutual Funds and Sub-advised Accounts. We
managed 35 mutual funds (the "Funds") as both adviser and sub-adviser based on
26 investment portfolios that span the range of our
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investment strategies. We also acted as sub-adviser for 17 additional mutual
funds for non-affiliated financial services companies. Net revenues after
interest expense for our Mutual Fund and Sub-advised Account business were
$158.0 million in 2000, consisting primarily of investment advisory and
administrative fees and commissions. In addition to advisory and sub-advisory
fees, we also derive revenues from administrative and service fees for
accounting services, general mutual fund administration (such as coordinating
board meetings, compliance programs and prospectuses, annual and semi-annual
reports) and shareholder services. Approximately 52% of the commissions paid by
the Funds were paid to Neuberger Berman, LLC for executing listed equity trades
as broker.
In 1999 and 2000, we introduced new mutual funds and portfolio products.
Building upon our goal to diversify the types of mutual funds that we offer, we
launched the Neuberger Berman Technology Fund in 2000, which is managed by our
Boston-based Growth Equity Group. We expect to launch the Neuberger Berman
Fasciano Fund, a small-cap blend mutual fund, at the end of the first quarter of
2001.
We offer 18 of our Funds directly to the public with no sales charge. These
include growth, value and blend investment styles across all capitalization
ranges, as well as international, socially responsive and fixed-income
portfolios. We managed assets in direct-sold no load mutual funds that totaled
$10.1 billion at December 31, 2000.
We also make our Funds available through mutual fund supermarkets,
broker-dealers, banks and most recently through our Internet site, where mutual
fund investors can access account information and buy, sell and exchange Fund
shares. The site also has Fund prospectuses and applications, daily share prices
and performance, as well as articles and educational materials. We believe a
dynamic Internet site is an increasingly important part of our customer service
strategy. We are redesigning and upgrading our website, and anticipate launching
the new site in the first half of 2001.
Strategic alliances are an increasingly important distribution channel. As
of December 31, 2000, we had alliances with 91 administrators of defined
contribution plans (such as 401(k), 403(b) and nonqualified deferred
compensation plans). These alliances allow us, as investment adviser, and these
administrators, as record-keepers and plan participant service providers, to
perform the task each of us is best suited to carry out. Defined contribution
plan assets under management in our Funds were $3.9 billion at December 31,
2000.
We also had relationships with 39 insurance companies that offer variable
annuity and variable life insurance products that may be invested, at the
direction of policy holders, in certain of our Funds. As of December 31, 2000,
assets under management in our Mutual Fund and Sub-advised account business
included $2.6 billion in assets related to these insurance products.
During 2000, the operational structure of most of our Funds was reorganized
to realize certain efficiencies and cost savings. The multi-class structure our
Funds adopted is common in the mutual fund industry. This reorganization did not
alter any of the Funds' investment programs. The remainder of our Funds
reorganized in February 2001.
In addition, assets under management in sub-advised funds for non-affiliated
financial services companies grew from $1.7 billion, at December 31, 1999, to
$2.9 billion at December 31, 2000. Our continuing efforts to expand this
business have been successful, and we have established relationships with some
of the leading financial services companies.
In July 1999, we launched the Fund Advisory Service ("FAS"), which is
designed for the relatively affluent investor and the retirement market. This
discretionary investment advisory program offers professional portfolio
management and consolidated record-keeping to mutual fund investors seeking to
build and monitor a customized portfolio of mutual funds from well-known fund
groups, including our own Funds and mutual funds managed by third parties. We
launched FAS as a non-discretionary investment service, but in 2000 we converted
it to a discretionary investment service, in order to better
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meet our clients needs. This also had the benefit of reducing the operational
costs. The great majority of existing FAS clients agreed to the conversion.
We market FAS to our Funds' shareholder base and to the public via
advertising, the Internet and other public relations efforts. In 2000, we
initiated a program to establish strategic alliances with financial advisory
companies to market FAS. These alliances are "private-label" arrangements in
which the financial advisory company markets our FAS product under another name,
but we are the sub-advisor for this product. We currently have three such
private-label arrangements completed, and expect to establish more in 2001.
When third parties make our products available to their clients, we
generally pay the third parties for record-keeping, sub-accounting or other
services that they perform with respect to assets that are invested, either
directly or indirectly, in the Funds.
INSTITUTIONAL SEPARATE ACCOUNTS (EQUITY AND FIXED-INCOME). As of December
31, 2000, we managed $11.7 billion of institutional separate account assets. We
manage over 380 institutional domestic, international and global equity,
balanced, fixed-income and cash management separate account portfolios. Net
revenues after interest expense for the institutional separate account business
were $60.4 million in 2000, consisting primarily of investment advisory fees and
commissions. Assets in the separate accounts business dropped significantly in
2000, but the loss was almost entirely accounted for by fixed-income accounts.
We attribute the decline to intense competition in this area and the decision by
a small number of our larger clients to shift to different fixed-income
strategies offered by other managers.
Some of our institutional separate account clients include: defined benefit
and defined contribution plans for corporations and municipalities, Taft-Hartley
plans, insurance companies, endowments and foundations, mutual funds sponsored
by third parties and hospital and health care organizations.
We offer 13 different investment styles to institutional investors. We
employ the following equity investing styles: small-, small/mid-, mid- and
large-capitalization value and growth. Additionally, we offer socially
responsive, technology, international, global and emerging market equity
portfolios.
In fixed-income separate accounts, we offer 14 different investment
strategies for clients, including varieties of cash management, limited
maturity, high yield, municipal, broad investment grade, opportunistic core and
international. As bond managers, we are value oriented and use sector rotation
and security selection to earn incremental yield. We use active duration
management and volatility analysis to control risk, and, depending on market
conditions, to protect principal or add capital appreciation.
CONSULTANT SERVICES GROUP (WRAP ACCOUNTS). As of December 31, 2000, we
managed $1.8 billion of wrap account assets. We act as investment adviser to
more than 4,900 accounts through ten wrap account programs sponsored by third
party banks and brokerage firms. Net revenues after interest expense for the
wrap account business were $7.7 million in 2000, consisting primarily of
investment advisory fees. Although assets under management remained constant,
the number of accounts and our revenues in this business declined in 2000. We
believe the reduction in our fee revenue was due to the distribution leverage of
third party banks and brokerage firms.
Wrap account programs, which are designed to meet the needs of individuals
and smaller institutions, offer comprehensive investment management services
under a single fee structure covering all charges, including investment
management, brokerage, custody, record-keeping and reporting.
We have relationships with three of the four largest sponsors of wrap
account programs. The sponsors offer mutual fund wrap programs as well as
separate account wrap programs. We provide portfolio management for both types
of programs, in a variety of investment styles, including value, growth and
international, in small-, mid- and large-capitalization stocks. We formed some
new
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relationships with sponsors in 2000, and intend to keep seeking new
relationships, as well as to increase the variety of investment styles that we
offer through this channel.
PROFESSIONAL SECURITIES SERVICES
Our Professional Securities Services segment leverages our asset management
infrastructure to provide services to the professional investment community. It
represented 16.3% of net revenues after interest expense in 2000.
Our Professional Securities Service clients call upon us for trade
execution, clearing, custody, margin financing, portfolio reporting and trust
services, as well as consulting advice. We act as market maker for approximately
150 securities traded primarily on the Nasdaq National Market System. We also
provide our research to about 200 outside investment managers. Because these
services are based upon the capabilities and resources developed for our asset
management businesses, we generally can provide these services at a modest
incremental cost. Net revenues after interest expense for Professional
Securities Services significantly increased to $100.3 million in 2000 from
$76.6 million in 1999.
Professional Securities Services includes three areas:
- Professional Investor Clearing Services
- Research Sales
- Other Activities
PROFESSIONAL INVESTOR CLEARING SERVICES. As of December 31, 2000, we
provided prime brokerage services to 61 private investment partnerships,
registered investment advisers and family offices. We provided correspondent
clearing services to 11 introducing brokers. These services include trade
execution, custody, clearance and settlement, margin financing and the borrowing
of securities to meet short sale obligations, portfolio reporting and consulting
advice regarding communications and information technology required to operate a
small financial concern. In some instances, we provide our clients with the use
of a fully equipped office facility. A dedicated sales team markets these
services directly and through advertising in trade publications. We also seek to
cross-sell our other services to these clients, including research sales and
trust and custody services.
Professional Investor Clearing Services net revenues after interest expense
were $45.0 million for the year ended December 31, 2000. These net revenues
consisted primarily of commissions, clearance fees and net interest income.
RESEARCH SALES. Our centralized research department regularly prepares and
updates research reports for our Private Asset Management and Mutual Fund and
Institutional businesses. Nine sales professionals in the research sales group
also make these research reports available to approximately 200 third-party
investment managers. If these third-party managers decide to buy or sell
securities based on this research, they usually place their trades through us,
although they have no obligation to do so. The research sales group also
includes seven traders who execute these brokerage transactions. Through our
corporate relationships, we participate as part of selling groups in public
offerings of securities (we do not participate in such offerings, however, for
our advisory clients). Research Sales net revenues after interest expense were
$19.3 million for the year ended December 31, 2000. These net revenues consist
primarily of commissions.
OTHER ACTIVITIES. Professional Securities Services also includes market
making activities, custody and record keeping services and treasury management.
We act as market maker for approximately 150 securities traded primarily on the
Nasdaq National Market System, buying or selling such securities as principal.
We impose strict limits on the trading desk and the individual traders to
control our risk. We provide custody and record keeping services to clients of
our trust companies. We also generate net
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interest income by managing cash available as a result of our broker-dealer
activities. Net revenues after interest expense for these activities were $36.0
million for the year ended December 31, 2000. These net revenues consist
primarily of principal transactions in securities, net interest income and
custody income. In 2001, we hired a team of seven individuals to help expand our
stock loan business in order to take further advantage of our securities
infrastructure.
INVESTMENT PROCESS AND RESEARCH
Our portfolio managers generally base their decisions on fundamental
research, attempting to make knowledgeable judgments about the investment merits
of industry groups and specific companies. Our centralized research department
supports all of our investment professionals. Organized primarily by industry,
our securities analysts are responsible for understanding developments within
the companies and industries they follow. To do this, they meet with senior
management of companies they follow and interview customers and competitors of
those companies. In some cases, they employ specialized consultants and develop
earnings and cash flow estimates. At present, there are 15 analysts in the
research department, supported by 17 associate analysts. They follow
approximately 500 companies.
In addition to our centralized research department, many of our investment
groups employ dedicated analysts who focus on securities of particular interest
to their specific investment approach. Their research is augmented by an
established program of on-site visits between our portfolio managers and
analysts and the senior managements of corporations. Hundreds of such meetings
occurred in 2000. They provide the portfolio managers and analysts with valuable
insight and perspective into a company's business, management strategy and
financial prospects. We believe that our long-standing dedication to unbiased,
fundamental research distinguishes us from many of our competitors. Ultimately,
each money manager is responsible for stock selection, tax sensitivity and the
timing of purchases and sales of securities. This permits the manager to adhere
to his or her investment style and to respond quickly to market opportunities or
risks. This flexibility allows our money managers to do what they believe is
best for our clients, without the administrative delays of a system where an
investment committee dictates security selection.
TECHNOLOGY INITIATIVES
Technology is critical to our mission of superior investment performance and
excellent customer service. We invest in information systems and have also
launched a major Internet initiative, in each case, to enhance clients' and
prospects' experience with us. As part of this initiative, we expect to launch a
new website in the first half of this year. The site's architecture is based on
a highly dynamic database of information that provides a different experience
for every user. Whether the user is a mutual fund investor or a high net worth
client or an institutional investor, the new website is designed to present
information appropriate to the user's needs, including account access,
investment information and new products or services that we provide. The site
will target existing clients and prospects for all of our core businesses. It
will also have content targeted to the financial advisors who work with our
clients' accounts. Each user will be invited to personalize the site to provide
the most relevant information. The unifying theme of the site will be our
commitment to personalized investing and excellent customer service. We have
committed resources to the creation of this website because we believe it will
keep us at the forefront of today's rapidly changing investment marketplace.
COMPETITION
We face substantial competition in every aspect of our business. Factors
affecting our business include brand recognition, business reputation,
investment performance, quality of service and the continuity of both client
relationships and assets under management. Fee competition also affects the
10
business, as do expenses, commissions, compensation, administration and/or other
expenses paid to intermediaries.
We compete with a large number of investment management firms. These include
global and domestic investment management companies, commercial banks, brokerage
firms and broker-dealers, insurance companies and other financial institutions.
Many competing firms are parts of larger financial services companies and
attract business through numerous avenues including retail bank offices,
investment banking and underwriting contacts, insurance agencies and
broker-dealers.
U.S. banks and insurance companies can now affiliate with securities firms.
This has accelerated consolidation within the money management and financial
services industries. It has also increased the variety of competition for
traditional money management firms, which businesses are limited to investing
assets on behalf of institutional and individual clients. Foreign banks and
investment firms have entered the U.S. money management industry, either
directly or through partnerships or acquisitions.
Our competitors seek to expand their market share in many of the same arenas
that we serve. Financial intermediaries that provide our products to their
clients may also provide competing products from competing firms, many of which
employ such advisers. Many current and potential competitors have greater brand
name recognition and more extensive client bases, which could be used to our
disadvantage.
We face significant competition from other registered open-end investment
companies. They vary both in size and investment philosophy. Their shares are
offered to the public on a load and no-load basis. Advertising, sales
promotions, the type and quality of services offered, and investment performance
influence competition for mutual fund sales.
We also face intense competition in attracting and retaining qualified
employees. The ability to continue to compete effectively in our businesses
depends in part on our ability to compete effectively in the labor market. As
part of our strategy to retain the best staff, in connection with the IPO, each
employee who did not own shares of our common stock received a restricted stock
grant. Additionally, we offer competitive compensation, a wide range of
benefits, and have implemented two stock-based incentive programs that allow
employees to buy restricted stock at discounted prices.
REGULATION
Our business and the securities industry in general are subject to extensive
regulation in the United States at both the federal and state level, as well as
by self-regulatory organizations. The financial services industry is one of the
nation's most extensively regulated industries. The Securities and Exchange
Commission ("SEC") is responsible for enforcing the federal securities laws and
serves as a supervisory body for all investment advisers to mutual funds, as
well as for national securities exchanges and associations. Our subsidiaries,
Neuberger Berman, LLC and Neuberger Berman Management Inc., are registered
broker-dealers. The regulation of broker-dealers has, to a large extent, been
delegated by the federal securities laws to self-regulatory organizations. These
self-regulatory organizations include all the national securities and
commodities exchanges and the National Association of Securities Dealers, Inc.
("NASD"). Subject to approval by the SEC and the Commodity Futures Trading
Commission ("CFTC"), the self-regulatory organizations adopt rules that govern
the industry and conduct periodic examinations of the operations of Neuberger
Berman, LLC and Neuberger Berman Management Inc. The NYSE and the NASD are the
respective designated self-regulatory organizations for Neuberger Berman, LLC
and Neuberger Berman Management Inc. In addition, these subsidiaries are subject
to regulation under the laws of the fifty states, the District of Columbia and
certain foreign countries in which they are registered to conduct securities,
investment advisory or commodities businesses.
11
Both Neuberger Berman, LLC and Neuberger Berman Management Inc. are
registered as investment advisers with the SEC. As registered advisers, each is
subject to the requirements and regulations of the Investment Advisers Act. Such
requirements relate to, among other things, recordkeeping and reporting
requirements, disclosure requirements, limitations on agency cross and principal
transactions between an adviser and advisory clients, as well as general
anti-fraud prohibitions. Moreover, Neuberger Berman, LLC and Neuberger Berman
Management Inc. and the Funds are subject to the Investment Company Act rules
and regulations. The Investment Company Act regulates the relationship between a
mutual fund and its investment adviser and prohibits or severely restricts
principal transactions and joint transactions.
Neuberger Berman, LLC is registered with the CFTC as a commodity pool
operator, commodity trading adviser and futures commission merchant. Our
commodity futures and options activities are also regulated by the National
Futures Association. Neuberger Berman, LLC limits its futures and options
activities to those permitted by the CFTC to be provided with reduced disclosure
and other requirements to certain eligible clients.
Broker-dealers are subject to regulations which cover all aspects of the
securities business, including sales practices, market making and trading among
broker-dealers, use and safekeeping of clients' funds and securities, capital
structure, recordkeeping and the conduct of directors, officers and employees.
Violation of applicable regulations can result in the revocation of
broker-dealer licenses, the imposition of censures or fines and the suspension
or expulsion of a firm, its officers or employees.
Our registered broker-dealer subsidiaries are each subject to certain net
capital requirements under the Securities Exchange Act of 1934. The net capital
requirements, which specify minimum net capital levels for registered
broker-dealers, are designed to measure the financial soundness and liquidity of
broker-dealers. Neuberger Berman, LLC and Neuberger Berman Management Inc. are
also subject to "Risk Assessment Rules" imposed by the SEC which require, among
other things, that certain broker-dealers maintain and preserve certain
information, describe risk management policies and procedures and report on the
financial condition of certain affiliates whose financial and securities
activities are reasonably likely to have material impact on the financial and
operational condition of broker-dealers.
Our trust company subsidiaries are supervised by federal or relevant state
banking authorities, which regulate such matters as policies and procedures
relating to conflicts of interest, account administration and overall governance
and supervisory procedures. Our national trust company is regulated by the
Office of the Comptroller of the Currency of the United States. Neuberger Berman
Trust Company is subject to oversight by the New York State Banking Department.
Neuberger Berman Trust Company of Delaware is subject to oversight by the State
Bank Commissioner of the State of Delaware. Neuberger Berman Trust Company of
Florida is subject to oversight by the Comptroller of the Department of Banking
and Finance of the State of Florida.
In addition to being regulated in the United States, our business is subject
to regulation by various foreign governments and regulatory bodies. Neuberger
Berman, LLC is registered with and subject to regulation by the Ontario
Securities Commission, the Alberta Securities Commission and the British
Columbia Securities Commission. Foreign regulations govern all aspects of the
investment business, including regulatory capital, sales and trading practices,
use and safekeeping of client funds and securities, recordkeeping, margin
practices and procedures, registration standards, reporting and disclosure. To
the extent that we decide to engage in securities activities in other
jurisdictions, additional regulations may apply.
Additional legislation and regulations, including those relating to the
activities of investment advisers and broker-dealers, changes in rules imposed
by the SEC or other U.S. or foreign regulatory authorities and self-regulatory
organizations or changes in the interpretation or enforcement of existing laws
and rules may adversely affect our business and profitability. Our businesses
may be materially
12
affected not only by regulations applicable to it as an investment adviser or
broker-dealer, but also by regulations of general application. For example, the
volume of our principal investment advisory business in a given time period
could be affected by, among other things, existing and proposed tax legislation
and other governmental regulations and policies (including the interest rate
policies of the Federal Reserve Board) and changes in the interpretation or
enforcement of existing laws and rules that affect the business and financial
communities.
CLIENT PROTECTION AND INSURANCE
Neuberger Berman, LLC is a member of the Securities Investor Protection
Corporation ("SIPC"). Clients of Neuberger Berman, LLC are protected by SIPC
against some losses. SIPC provides protection against lost, stolen or missing
securities (except loss in value due to a rise or fall in market prices) for
clients in the event of the failure of a broker-dealer. Accounts are protected
up to $500,000 per client with a limit of $100,000 for cash balances. In
addition to being a member of SIPC, Neuberger Berman, LLC carries excess SIPC
insurance coverage, which increases the coverage up to $100 million per client
for securities held in their accounts.
NET CAPITAL REQUIREMENTS
As registered broker-dealers and members of the NYSE and NASD, Neuberger
Berman, LLC and Neuberger Berman Management Inc. are subject to the SEC's
Uniform Net Capital Rule 15c3-1 (the "Rule"). The Rule specifies the minimum
level of net capital a broker-dealer must maintain and also requires that part
of its assets be kept in relatively liquid form. Neuberger Berman, LLC is also
subject to the net capital requirements of various securities and other
self-regulatory organizations.
The SEC and various self-regulatory organizations impose rules that require
notification when net capital falls below certain predefined criteria, dictate
the ratio of subordinated debt to equity in the regulatory capital composition
of a broker-dealer and constrain the ability of a broker-dealer to expand its
business under certain circumstances. Additionally, the Rule imposes certain
requirements that may have the effect of prohibiting a broker-dealer from
distributing or withdrawing capital and requiring prior notice to the SEC for
certain withdrawals of capital. Since our principal assets are our ownership of
our broker-dealer subsidiaries, the rules governing net capital and restrictions
on capital withdrawals could limit our ability to repay debt or pay dividends on
our common stock.
As of December 31, 2000, Neuberger Berman, LLC was required to maintain
minimum net capital of approximately $27,903,000 and had total excess net
capital of approximately $156,772,000. As of December 31, 2000, Neuberger Berman
Management Inc. was required to maintain minimum net capital of $250,000 and had
total excess net capital of approximately $22,374,000.
INTELLECTUAL PROPERTY
We regard our name as material to our business and have made applications
for trademark registrations of the name "Neuberger Berman." We currently hold
trademark registrations of the name "Neuberger & Berman" and trademark
registrations relating to the Funds.
EMPLOYEES
As of December 31, 2000, we employed 1,194 people. None of our personnel are
covered by a collective bargaining agreement. We consider our relations with our
personnel to be satisfactory.
13
ITEM 2.--PROPERTIES
Our executive office is located in leased office space at 605 Third Avenue,
New York, New York. We also lease premises at 55 Water Street, New York, New
York for our securities clearing operation and at 600 Third Avenue, New York,
New York for use by certain of our Professional Investor Clearing Services
clients. A growth equity management group operates alongside sales personnel in
office space leased in Boston, Massachusetts. In addition, as of December 31,
2000, we have leased premises primarily for use as regional sales offices in
Atlanta, Georgia; Chicago, Illinois; Los Angeles and San Francisco, California;
Dallas and Houston, Texas; Columbia, Maryland; Philadelphia, Pennsylvania; and
Miami, Tampa and West Palm Beach, Florida. Neuberger Berman Trust Company of
Delaware leases office space in Wilmington, Delaware and Neuberger Berman
National Trust Company leases office space in Seattle, Washington. We do not own
any real property.
ITEM 3.--LEGAL PROCEEDINGS
In the normal course of business, we are subject to various legal
proceedings. However, in our management's opinion, based on currently available
information, there are no legal proceedings pending against us that would have a
material adverse effect on our consolidated financial position, results of
operations or liquidity.
ITEM 4.--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders.
PART II
ITEM 5.--MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On October 6, 1999, our common stock commenced trading on the NYSE under the
symbol "NEU". Prior to that there was no public market for our common stock. The
following table sets forth, for the fiscal quarters indicated, the high and low
closing prices per share of our common stock as reported by the NYSE:
HIGH LOW
YEAR -------- --------
1999
Fourth Quarter............................ $32.000 $23.750
2000
First Quarter............................. $28.875 $23.875
Second Quarter............................ $47.500 $27.500
Third Quarter............................. $63.375 $44.938
Fourth Quarter............................ $84.000 $57.875
As of February 16, 2001, the closing sales price per share for our common
stock was $82.09. There were approximately 85 stockholders of record of our
common stock at February 16, 2001. We estimate that as of February 16, 2001,
there were approximately 2,500 beneficial stockholders whose shares were held in
street name.
Since the IPO, dividends of $0.10 per share of our common stock were
declared on November 22, 1999, April 13, 2000, July 18, 2000 and October 17,
2000. The dividend declared on November 22, 1999 was paid in 2000. The holders
of our common stock share proportionately on a per share basis in all dividends
declared by our Board of Directors.
14
The declaration of dividends by Neuberger Berman is subject to the
discretion of our Board of Directors. Our Board of Directors will take into
account such matters as general business conditions, our financial results,
capital requirements, contractual, legal and regulatory restrictions on the
payment of dividends by us to our stockholders or by our subsidiaries to us, and
such other factors as our Board of Directors may deem relevant. See
"Business--Net Capital Requirements" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources" for a discussion of certain limitations on our receipt of funds from
our regulated subsidiaries.
To the extent that assets are used to meet minimum net capital requirements
of Neuberger Berman, LLC and Neuberger Berman Management Inc. under the Rule,
they are not available for distribution to stockholders as dividends. See
"Business--Net Capital Requirements". In addition, the debt covenants related to
Neuberger Berman, LLC's outstanding $35 million subordinated note include
certain covenants that limit the percentage by which the aggregate unpaid
principal amount of subordinated liabilities exceed total regulatory capital and
impose a dollar amount below which total ownership capital cannot fall. These
covenants may further restrict our ability to pay dividends to stockholders. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources".
On October 28, 1999, our Board of Directors authorized a repurchase of up to
$50 million of our common stock. The acquired shares may be used for corporate
purposes, including stock option awards and shares issued to employees under our
employee stock purchase plans. As of December 31, 2000, 1,259,058 shares had
been repurchased for approximately $43 million. On January 18, 2001, our Board
of Directors approved the repurchase of up to an additional $75 million of our
common stock.
ITEM 6.--SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for each of our five
years ended December 31, should be read in conjunction with the respective
consolidated financial statements and related notes thereto, and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", as applicable. All amounts are in thousands, except per share
amounts. Assets under management are stated in millions. Certain prior year
amounts have been reclassified to conform with the year ended December 31, 2000
presentation.
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATING DATA:
Net revenues after interest expense.... $ 616,347 $ 572,912 $ 582,134 $ 502,525 $ 416,114
---------- ---------- ---------- ---------- ----------
Net income before taxes................ $ 246,921 $ 123,372 $ 294,457 $ 273,839 $ 210,932
Tax (benefit) expense.................. 96,565 (12,195) 9,506 8,857 8,851
---------- ---------- ---------- ---------- ----------
Net income............................. $ 150,356 $ 135,567 $ 284,951 $ 264,982 $ 202,081
========== ========== ========== ========== ==========
PER SHARE DATA:
Net income per share-Basic............. $ 3.06 $ 3.05 $ 6.68 $ 6.07 $ 4.79
Net income per share-Diluted........... 3.03 3.05 6.68 6.07 4.79
Cash dividends declared................ 0.30 0.10 -- -- --
Cash dividends paid.................... 0.40 -- -- -- --
Book value per share-Basic............. 7.17 5.00 2.56 2.56 2.56
Book value per share-Diluted........... 9.50 5.00 2.56 2.56 2.56
BALANCE SHEET DATA:
Total assets........................... $4,421,763 $3,847,608 $3,829,435 $2,410,213 $2,446,811
Principals' capital and stockholders'
equity............................... 350,139 248,802 109,199 159,031 158,000
ASSETS UNDER MANAGEMENT.................. $ 55,486 $ 54,399 $ 55,587 $ 53,511 $ 44,360
15
ITEM 7.--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Set forth on the following pages is management's discussion and analysis of
the results of operations for the twelve months ended December 31, 2000,
December 31, 1999 and December 31, 1998. Such information should be read in
conjunction with our Consolidated Financial Statements together with the Notes
to the Consolidated Financial Statements.
FORWARD LOOKING STATEMENTS
Our disclosure and analysis in this report and in documents that are
incorporated by reference contain some forward looking statements. Forward
looking statements give our current expectations or forecasts of future events.
You can identify these statements by the fact that they do not relate strictly
to historical or current facts. They use words such as "anticipate", "estimate",
"expect", "project", "intend", "plan", "believe", and other words and terms of
similar meaning in connection with any discussion of future operating or
financial performance. In particular, these include statements relating to
future actions, future performance of our products, expenses, the outcome of any
legal proceedings, and financial results. Although we believe that our
expectations and beliefs are based on reasonable assumptions within the bounds
of our knowledge of our business and operations, there can be no assurance that
our actual results will not differ materially from our expectations or beliefs.
Some of the factors that could cause our actual results to differ from our
expectations or beliefs include, without limitation, the adverse effect from a
decline in the securities markets or if our products' performance declines, a
general downturn in the economy, changes in government policy or regulation, our
inability to attract or retain key employees and unforeseen costs and other
effects related to legal proceedings or investigations of governmental and
self-regulatory organizations. These statements are provided as permitted by the
Private Litigation Reform Act of 1995. We undertake no obligation to update
publicly any forward looking statements, whether as a result of new information,
future events or otherwise.
When we use the terms "Neuberger Berman", "we", "us", and "our", we mean,
prior to the IPO, Neuberger Berman, LLC, a Delaware limited liability company,
and its consolidated subsidiaries, and Neuberger Berman Management Inc., a New
York corporation, and their predecessors, and, after the IPO, we mean Neuberger
Berman Inc., a Delaware corporation, and its consolidated subsidiaries.
When we use the term "Trust Companies", we mean Neuberger Berman National
Trust Company, which holds a national bank charter; Neuberger Berman Trust
Company, a non-depository trust company chartered under the New York Banking
Law; Neuberger Berman Trust Company of Delaware, a non-depository limited
purpose trust company chartered under the Delaware Banking Code; and Neuberger
Berman Trust Company of Florida, a Florida corporation authorized to engage in
trust business chartered under the Florida Banking Law.
BUSINESS ENVIRONMENT
Domestic equity markets suffered widespread losses in 2000, as technology
stocks suffered a dramatic decline and investors grew nervous about signs of a
slowing economy. The Standard & Poor's ("S&P") 500 Index, which has become
heavily weighted toward the technology sector, turned in its first negative
performance in ten years, dropping 10.1%. Profit warnings from a number of
companies sparked heavy selling during the fourth quarter, particularly among
technology shares, which drove the Nasdaq Composite to a 39.3% loss for 2000.
International stock markets did not escape the fallout, as the Morgan Stanley
Capital International Europe, Australasia, Far East Index fell 14.0% in 2000.
16
As investors sought a safe haven, the fixed-income markets rallied strongly
in the latter part of 2000. The Lehman Brothers Aggregate Bond Index returned
11.6% for the year. The bond market's healthy returns were powered in large part
by the U.S. Treasury Department's decision to buy back its own bonds, in
reaction to the shrinking Federal deficit. The Treasury's actions helped to
drive Treasury bond yields to two-year lows. The yield on the 10-year U.S.
Treasury bond ended the year at 5.1%.
Concerns remain over the U.S. economy's prospects. Corporate earnings growth
has slowed dramatically, and consumer confidence has slipped as well. These
indicators of an economic slowdown prompted the Federal Reserve Board, which had
been tightening credit all through 2000, to change course abruptly in January
2001, cutting interest rates by a full percentage point in two steps.
The stock market also remains highly volatile. Overall, the
price-to-earnings ("P/E") ratio for the S&P 500 Index fell back to 24.6 at
December 31, 2000, a significant drop from its record-setting peak of 32.4 at
year-end 1999. Nonetheless, a P/E ratio of 24.6 is still historically high, and
may indicate further volatility ahead.
In this environment, we remain confident that our diversified family of
investment products and services will help us weather turbulent markets. Despite
the erratic securities markets of 2000, we increased our assets under management
by 2.0% to $55.5 billion. Notably, the value style of investing is returning to
favor, as the S&P Barra Value Index outperformed the S&P Barra Growth Index in
2000 for the first time in seven years. While we offer all styles of investing,
we believe our longstanding expertise in value investing will serve us well in a
difficult market environment.
We also believe that the difficult conditions of 2000 could convince more
investors--both individual and institutional--of the inherent value, over the
long term, in seeking professional advice and guidance for the management of
their money.
GENERAL
Our revenues are recorded in the business segments in which they are earned.
We derive our revenues primarily from fees for investment advisory and
administrative services provided to our private asset management, mutual fund,
institutional and wrap fee clients. Investment advisory and administrative fees
that we earn are generally based on the total market value and composition of
assets under management. As a result, fluctuations in financial markets and
client asset additions and withdrawals have a direct effect on our net revenues
and net income. Our fees vary with the type of assets managed, with higher fees
earned on actively managed equity accounts and lower fees earned on fixed-income
and cash management accounts.
Through our broker-dealer, Neuberger Berman, LLC, we earn commissions by
executing equity securities transactions for private asset management, mutual
fund and institutional clients as well as for third parties in professional
investor clearing services and research sales transactions. The majority of our
commissions are earned from transactions for private asset management clients.
Our commissions may fluctuate based on general market conditions. Also, through
Neuberger Berman, LLC, we earn clearance fees for the execution of securities
transactions for various introducing brokers.
We generate additional income by managing cash balances available as a
result of our broker-dealer activities. The three principal areas from which we
generate net interest income are treasury management (managing overnight cash
balances), securities lending activities and client cash and margin balances. We
evaluate these activities by focusing on net interest income. Net interest
income fluctuates based on general market conditions, prevailing interest rates
and the amount of client cash and margin balances.
17
Our operating expenses include direct expenses, such as employee
compensation and benefits, information technology and rent and occupancy, and
indirect expenses, such as general and administrative, research, execution and
clearance expenses. Direct expenses are charged to the business segment in which
they are incurred while indirect expenses are allocated to each business segment
based upon various methodologies determined by management.
Our largest operating expense is employee compensation and benefits, the
most significant component being variable compensation for portfolio managers
and sales personnel, which is based largely on commissions and advisory fees.
Historically, because we had operated as a partnership, substantially all
payments to our principals were accounted for as distributions from principals'
capital and not recorded as compensation expense.
On October 7, 1999, the principals of Neuberger Berman, LLC and the
shareholders of Neuberger Berman Management Inc. exchanged their ownership
interests for 42.7 million shares of our common stock (the "Exchange"). On
October 13, 1999, we completed our IPO. In that offering, we sold 3.0 million
shares of common stock and received net proceeds after expenses of approximately
$88 million. In addition, certain of our stockholders who received our common
stock in the Exchange sold 4,219,697 shares of that stock in the IPO. We did not
receive the proceeds from the sale of that stock. In connection with our IPO, we
incurred pre-tax reorganization and IPO charges totaling approximately $150.1
million (the "Reorganization and IPO Charges"). The Reorganization and IPO
Charges were principally comprised of an initial, irrevocable non-cash
contribution of common stock to our employee defined contribution stock
incentive plan (the "Stock Incentive Plan") of $134.3 million, a cash
contribution to the Neuberger Berman Foundation of $10.0 million and severance
and other charges of $5.8 million. To allow for a more consistent analysis of
expenses, these Reorganization and IPO Charges have not been directly considered
in the discussion of operating results.
Prior to the Exchange, Neuberger Berman, LLC did not pay United States
federal and state taxes because, as a limited liability company, it was treated
as a partnership for tax purposes, and our principals were taxed on their
proportionate share of Neuberger Berman, LLC's taxable income or loss. Neuberger
Berman Management Inc., as an S-Corporation, also did not pay United States
federal taxes prior to the Exchange, but was subject to certain state and local
taxes, and its shareholders were responsible for their own federal income taxes.
Effective with the Exchange, we became subject to federal, state and local
income taxes and we file a consolidated federal income tax return.
18
RESULTS OF OPERATIONS
Our business is divided functionally into three major business segments:
Private Asset Management, Mutual Fund and Institutional and Professional
Securities Services. Our Private Asset Management segment provides customized
investment management services for high net worth individuals, families and
smaller institutions. The investment advisory and administrative services that
we provide through our Mutual Fund and Institutional segment include: the
management of the Neuberger Berman family of mutual funds, investment management
of institutional separate account products and broker-advised products (wrap
accounts). Our Professional Securities Services segment provides trade
execution, clearing, custody, margin financing, portfolio reporting and trust
services, as well as consulting advice. A fourth segment, "Corporate", was
introduced during the fourth quarter of 2000 to reflect certain corporate
results that were previously allocated primarily to our Professional Securities
Services segment. Prior periods have been revised to conform with this
presentation. Each of our business segments represents a grouping of financial
activities and products with similar characteristics. The following tables of
selected financial data present our business segments in a manner consistent
with the way that we manage our businesses.
RESULTS OF OPERATIONS
(IN THOUSANDS)
PRIVATE MUTUAL PROFESSIONAL
ASSET FUND AND SECURITIES
FOR THE YEAR ENDED DECEMBER 31, 2000 MANAGEMENT INSTITUTIONAL SERVICES CORPORATE TOTAL
- ------------------------------------ ---------- ------------- ------------ --------- --------
Net revenues (loss) after interest
expense............................. $290,747 $226,144 $100,314 $ (858) $616,347
Operating expenses.................... 147,056 147,455 63,523 11,392 369,426
-------- -------- -------- --------- --------
Net income (loss) before taxes........ $143,691 $ 78,689 $ 36,791 $ (12,250) $246,921
======== ======== ======== ========= ========
PRIVATE MUTUAL PROFESSIONAL
ASSET FUND AND SECURITIES
FOR THE YEAR ENDED DECEMBER 31, 1999 MANAGEMENT INSTITUTIONAL SERVICES CORPORATE TOTAL
- ------------------------------------ ---------- ------------- ------------ --------- --------
Net revenues after interest expense... $260,114 $234,567 $ 76,594 $ 1,637 $572,912
Operating expenses(1)................. 86,847 150,362 51,494 10,783 299,486
-------- -------- -------- --------- --------
Net income (loss) before
Reorganization and IPO Charges and
taxes............................... $173,267 $ 84,205 $ 25,100 $ (9,146) $273,426
======== ======== ======== ========= ========
PRIVATE MUTUAL PROFESSIONAL
ASSET FUND AND SECURITIES
FOR THE YEAR ENDED DECEMBER 31, 1998 MANAGEMENT INSTITUTIONAL SERVICES CORPORATE TOTAL
- ------------------------------------ ---------- ------------- ------------ --------- --------
Net revenues after interest expense... $237,933 $268,743 $ 74,817 $ 641 $582,134
Operating expenses(1)................. 67,252 162,642 43,458 14,325 287,677
-------- -------- -------- --------- --------
Net income (loss) before taxes........ $170,681 $106,101 $ 31,359 $ (13,684) $294,457
======== ======== ======== ========= ========
NOTE 1: Total operating expenses on a pro forma basis, which assumes the
Exchange had taken place at the beginning of each year, would have been higher
by $44,157 for the year ended December 31, 1999 and $39,504 for the year ended
December 31, 1998. The pro forma adjustments are made to recognize as
compensation expense distributions of capital made prior to the Exchange.
19
SUMMARIZED ASSETS UNDER MANAGEMENT
(IN MILLIONS)
PRIVATE MUTUAL
ASSET FUND AND
FOR THE YEAR ENDED DECEMBER 31, 2000 MANAGEMENT INSTITUTIONAL(2) TOTAL
- ------------------------------------ ------------ ---------------- --------
Assets under management, beginning of year.............. $21,539 $32,860 $54,399
------- ------- -------
Net additions (withdrawals)............................. 1,154 (1,190) (36)
Market (depreciation) appreciation...................... (183) 1,306 1,123
------- ------- -------
Net increase.......................................... 971 116 1,087
------- ------- -------
Assets under management, end of year.................... $22,510 $32,976 $55,486
======= ======= =======
PRIVATE MUTUAL
ASSET FUND AND
FOR THE YEAR ENDED DECEMBER 31, 1999 MANAGEMENT(1) INSTITUTIONAL(1) TOTAL
- ------------------------------------ ------------- ---------------- --------
Assets under management, beginning of year.............. $18,267 $37,320 $55,587
------- ------- -------
Net additions (withdrawals)............................. 324 (7,648) (7,324)
Market appreciation..................................... 2,948 3,188 6,136
------- ------- -------
Net increase (decrease)............................... 3,272 (4,460) (1,188)
------- ------- -------
Assets under management, end of year.................... $21,539 $32,860 $54,399
======= ======= =======
PRIVATE MUTUAL
ASSET FUND AND
FOR THE YEAR ENDED DECEMBER 31, 1998 MANAGEMENT(1) INSTITUTIONAL(1) TOTAL
- ------------------------------------ ------------- ---------------- --------
Assets under management, beginning of year.............. $15,819 $37,692 $53,511
------- ------- -------
Net additions (withdrawals)............................. 76 (2,173) (2,097)
Market appreciation..................................... 2,372 1,801 4,173
------- ------- -------
Net increase (decrease)............................... 2,448 (372) 2,076
------- ------- -------
Assets under management, end of year.................... $18,267 $37,320 $55,587
======= ======= =======
NOTE 1: Segment assets under management and related market flows for prior
periods have been reclassified to reflect presentation consistent with current
period segment reporting.
NOTE 2: As of December 31, 2000, Mutual Fund and Institutional includes $88
million of client assets invested in the Fund Advisory Service wrap mutual fund
program with third party funds.
20
DETAILED ASSETS UNDER MANAGEMENT
(IN MILLIONS)
FOR THE YEAR ENDED
-----------------------------
DECEMBER 31, DECEMBER 31,
2000 1999
------------- -------------
PRIVATE ASSET MANAGEMENT
- ------------------------------------------------------------
ASSET UNDER MANAGEMENT (1).................................. $22,510 $21,539
MARKET FLOWS (1)
Net additions............................................. $ 1,154 $ 324
Market appreciation (depreciation)........................ (183) 2,948
------- -------
Total increase............................................ $ 971 $ 3,272
======= =======
MUTUAL FUND & INSTITUTIONAL
- ------------------------------------------------------------
EQUITY SEPARATE ACCOUNTS
- ------------------------------------------------------------
ASSETS UNDER MANAGEMENT (1)................................. $ 6,402 $ 6,458
MARKET FLOWS (1)
Net withdrawals........................................... $ (494) $(2,592)
Market appreciation....................................... 438 1,250
------- -------
Total decrease............................................ $ (56) $(1,342)
======= =======
FIXED INCOME SEPARATE ACCOUNTS
- ------------------------------------------------------------
ASSETS UNDER MANAGEMENT (1)................................. $ 5,298 $ 5,924
MARKET FLOWS (1)
Net withdrawals........................................... $(1,084) $ (932)
Market appreciation (depreciation)........................ 458 (93)
------- -------
Total decrease............................................ $ (626) $(1,025)
======= =======
CONSULTANT SERVICES GROUP
- ------------------------------------------------------------
ASSETS UNDER MANAGEMENT (1)................................. $ 1,796 $ 1,839
MARKET FLOWS (1)
Net additions (withdrawals)............................... $ (158) $ 133
Market appreciation....................................... 115 35
------- -------
Total increase (decrease)................................. $ (43) $ 168
======= =======
MUTUAL FUND AND SUB-ADVISED ACCOUNTS
- ------------------------------------------------------------
ASSETS UNDER MANAGEMENT (1)(2).............................. $19,480 $18,639
MARKET FLOWS (1)(2)
Net additions (withdrawals)............................... $ 546 $(4,257)
Market appreciation....................................... 295 1,996
------- -------
Total increase (decrease)................................. $ 841 $(2,261)
======= =======
SUB-TOTAL MUTUAL FUND & INSTITUTIONAL
- ------------------------------------------------------------
ASSETS UNDER MANAGEMENT..................................... $32,976 $32,860
MARKET FLOWS
Net withdrawals........................................... $(1,190) $(7,648)
Market appreciation....................................... 1,306 3,188
------- -------
Total increase (decrease)................................. $ 116 $(4,460)
======= =======
TOTAL
- ------------------------------------------------------------
ASSETS UNDER MANAGEMENT..................................... $55,486 $54,399
MARKET FLOWS
Net withdrawals........................................... $ (36) $(7,324)
Market appreciation....................................... 1,123 6,136
------- -------
Total increase (decrease)................................. $ 1,087 $(1,188)
======= =======
NOTE 1: Segment assets under management and related market flows for prior
periods have been reclassified to reflect presentation consistent with current
period segment reporting.
NOTE 2: As of December 31, 2000, Mutual Fund and Sub-Advised Accounts includes
$88 million of client assets invested in the Fund Advisory Service wrap mutual
fund program with third party funds.
21
2000 COMPARED WITH 1999
We reported net income before taxes of $246.9 million for the year ended
December 31, 2000, representing a decrease of $26.5 million or 9.7%, compared to
$273.4 million (as adjusted for the $150.1 million of Reorganization and IPO
Charges) for the year ended December 31, 1999. Our net revenues after interest
expense were $616.3 million for 2000, an increase of $43.4 million or 7.6%,
compared to 1999. Our operating results for 2000 reflect overall increases in
net revenues after interest expense in Private Asset Management and Professional
Securities Services, offset by a decrease in Mutual Fund and Institutional. The
net asset additions in Private Asset Management were offset by the net
withdrawals in our Mutual Fund and Institutional segment, virtually all of which
were in the lower fee institutional fixed-income area, while the market
depreciation in Private Asset Management was outweighed by market appreciation
in our Mutual Fund and Institutional segment.
PRIVATE ASSET MANAGEMENT. Our net revenues after interest expense from the
Private Asset Management segment increased 11.8% to $290.7 million for 2000,
from $260.1 million for 1999. Our investment advisory fees increased 15.0% to
$191.4 million for 2000, from $166.5 million for 1999, due to increases in
average quarterly billable assets under management from $19.5 billion in 1999 to
$22.0 billion in 2000. Our commissions increased 4.3% to $94.0 million for 2000,
from $90.1 million for 1999, due to the increased volume of equity securities
transactions. Our net interest income increased 44.1% to $5.0 million for 2000,
from $3.5 million in 1999, due primarily to higher client margin balances.
MUTUAL FUND AND INSTITUTIONAL. Our Mutual Fund and Institutional net
revenues after interest expense decreased 3.6% to $226.1 million for 2000, from
$234.6 million for 1999. Our investment advisory and administrative fees
decreased 2.3% to $207.0 million for 2000, from $211.8 million for 1999, due
primarily to a lower average asset base in the first six months of 2000 relative
to the comparable period in 1999. Commissions decreased 21.3% or $4.6 million as
a result of a decrease in transaction volume, while net interest income
increased by $1.2 million as a result of higher cash balances.
PROFESSIONAL SECURITIES SERVICES. Our Professional Securities Services net
revenues after interest expense increased 31.0% to $100.3 million for 2000, from
$76.6 million for 1999. Our commission income increased 17.3% or $5.3 million as
a result of increased transaction volume. Principal transactions in securities
increased 34.7% to $10.7 million for 2000, from $7.9 million for 1999, primarily
due to market making activity. Clearance fees increased 22.1% to $13.5 million
for 2000, from $11.1 million for 1999, due to increased transaction volume from
new and existing clients, while net interest income increased 50.0% or $11.5
million, primarily due to higher margin balances.
CORPORATE. Our Corporate net revenues after interest expense decreased
152.4% to a net loss of $0.9 million in 2000, from net revenue of $1.6 million
in 1999, primarily as a result of a decrease in value of the corporate
investment in our mutual funds.
OPERATING EXPENSES. Our total operating expenses were $369.4 million in
2000, an increase of $69.9 million or 23.4%, compared to $299.5 million (as
adjusted for the $150.1 million of Reorganization and IPO Charges) in 1999.
Employee compensation and benefits increased to $245.4 million for 2000, up
$60.0 million or 32.4% from $185.4 million (as adjusted for the $139.9 million
of compensation expenses included in the Reorganization and IPO Charges) for the
same period in 1999. As a result of the Exchange, principals who previously
received distributions of capital began receiving compensation as employees.
Compensation that was not previously reported as such for employees who were
principals was $45.6 million for the year ended December 31, 2000. In addition,
salary and benefits and incentive compensation increased in 2000. Our
information technology expenses increased to $22.9 million for 2000, up $3.8
million or 19.6% from $19.2 million in 1999, due primarily to increases in third
party processing fees from increased securities transactions, as well as
increases in communication services and software licenses. We have committed
resources to launch a new website in the first half of
22
2001 to enhance clients' and prospects' experience with us. Our rent and
occupancy costs increased to $17.8 million for 2000, up $2.5 million or 16.2%
from $15.3 million in 1999, primarily due to the rental of additional space in
the head office as well as the opening of three new branch offices in 2000,
coupled with the full year of rent expense for the branch offices opened during
1999. Our professional fees increased to $11.2 million for 2000, up $1.9 million
or 20.8% from $9.3 million in 1999, primarily due to the impact of outsourcing
mutual fund administration coupled with an increase in employment agency fees.
Other expenses increased to $22.7 million for 2000, up $1.7 million or 8.3% from
$20.9 million (as adjusted for the $10.1 million of other expenses included in
the Reorganization and IPO Charges) in 1999, due primarily to increases in
travel and entertainment and office expenses.
TAXES. Our taxes increased to $96.6 million for the year ended December 31,
2000, up $56.9 million from $39.7 million (as adjusted for the $51.9 million tax
benefit resulting from the Reorganization and IPO Charges) for the same period
in 1999. Prior to the Exchange, Neuberger Berman, LLC did not pay United States
federal and state taxes because, as a limited liability company, it was treated
as a partnership for tax purposes, and our principals were taxed on their
proportionate share of Neuberger Berman, LLC's taxable income or loss. Neuberger
Berman Management Inc., as an S-Corporation, also did not pay United States
federal taxes prior to the Exchange, but was subject to certain state and local
taxes, and its shareholders were responsible for their own federal income taxes.
Effective with the Exchange, we became subject to federal, state and local
income taxes and we file a consolidated federal income tax return. The 2000
provision for income taxes includes federal, state and local taxes at our
effective tax rate as a corporation of approximately 43%, less a financial
statement tax benefit of $9.8 million related to the change in the price of our
common stock from December 31, 1999 to June 30, 2000, in connection with our
employee defined contribution stock incentive plan (the "Stock Incentive Plan").
In March 2000, the Financial Accounting Standards Board (the "FASB") issued FASB
Interpretation No. 44 "Accounting for Certain Transactions Involving Stock
Compensation," an interpretation of APB Opinion No. 25 ("FIN 44"). We adjusted,
based upon the price of our common stock at the close of business on June 30,
2000, the carrying value of the deferred tax asset that related to unvested
shares in the Stock Incentive Plan. FIN 44 became effective on July 1, 2000, and
now requires that the deferred tax asset be determined by the compensation
expense recognized for financial reporting purposes. Accordingly, at June 30,
2000, we fixed the carrying value of our deferred tax asset for unvested shares
in our Stock Incentive Plan, based upon the price of our common stock at the
close of business that day.
1999 COMPARED WITH 1998
We reported net income before taxes of $273.4 million (as adjusted for the
$150.1 million of Reorganization and IPO Charges) for the year ended December
31, 1999, representing a decrease of $21.0 million or 7.1%, compared to the year
ended December 31, 1998. Our net revenues after interest expense were $572.9
million for 1999, a decrease of $9.2 million or 1.6%, compared to 1998. Our
operating results for 1999 reflected overall increases in net revenues after
interest expense in Private Asset Management and Professional Securities
Services offset by a larger decrease in Mutual Fund and Institutional. The net
additions of assets under management and asset appreciation in the Private Asset
Management segment were more than offset by net asset withdrawals in our Mutual
Fund and Institutional segment.
PRIVATE ASSET MANAGEMENT. Our Private Asset Management net revenues after
interest expense increased 9.3% to $260.1 million for 1999, from $237.9 million
for 1998. Our investment advisory fees increased 14.3% to $166.5 million for
1999, from $145.6 million in 1998, due to increased average assets under
management. Our commissions increased 0.5% to $90.1 million for 1999, from $89.7
million during 1998. Net interest income increased 35.6% to $3.5 million for
1999, from $2.6 million in 1998, due primarily to higher client margin balances.
23
MUTUAL FUND AND INSTITUTIONAL. Our Mutual Fund and Institutional net
revenues after interest expense decreased 12.7% to $234.6 million for 1999, from
$268.7 million for 1998. Our investment advisory and administrative fees
decreased 12.5% to $211.8 million for 1999, from $242.2 million in 1998, due to
a reduction in average assets under management resulting from net asset
withdrawals. Our commissions decreased $3.8 million or 15.0%, primarily due to
decreased share volume in the mutual fund business.
PROFESSIONAL SECURITIES SERVICES. The net revenues after interest expense
in our Professional Securities Services segment increased 2.4% to $76.6 million
for 1999, from $74.8 million for 1998. Principal transactions in securities
increased 43.9% to $7.9 million for 1999, from $5.5 million in 1998, as a result
of strong market maker trading. Our clearance fees increased 21.2% to $11.1
million for 1999, from $9.1 million during 1998, due to increased market
activity. Our net interest income decreased 8.0% to $23.0 million for 1999,
primarily due to a combination of lower client margin balances and higher
interest charges associated with our subordinated liabilities, which were
outstanding twelve months in 1999, versus four months in 1998. The reduction in
net interest income was partially offset by decreased financing costs in the
fourth quarter of 1999, related to available proceeds from the IPO.
CORPORATE. Our corporate net revenues after interest expense increased
155.4% to $1.6 million for 1999, from $0.6 million for 1998, primarily as a
result of an increase in value of the corporate investment in our mutual funds.
OPERATING EXPENSES. Our total operating expenses were $299.5 million (as
adjusted for the $150.1 million of Reorganization and IPO Charges) in 1999, an
increase of $11.8 million or 4.1%, compared to 1998. Our employee compensation
and benefits increased to $185.4 million (as adjusted for the $139.9 million of
compensation expenses included in the Reorganization and IPO Charges) for 1999,
up $12.0 million or 6.9%, from $173.4 million for 1998. As a result of the
Exchange, principals who previously received distributions of capital began
receiving compensation as employees. This resulted in a $14.8 million increase
in employee compensation and benefits in the fourth quarter of 1999.
Additionally, the number of employees in our information services, marketing and
trust services groups increased. These increases were partially offset by a
decrease in mutual fund portfolio manager compensation, which was consistent
with the trend of decreased investment advisory and administrative fees. Our
expenses for information technology increased to $19.2 million for 1999, up $3.5
million or 22.6%, from $15.6 million for 1998, due primarily to increases in
software licenses and maintenance agreements, telecommunication and market data
services. Our rent and occupancy increased to $15.3 million for 1999, up $3.1
million or 25.7%, from $12.2 million for 1998, primarily due to additional
leased office space necessary to accommodate increased staffing levels. Our
advertising and sales promotion decreased to $9.3 million in 1999, down $5.4
million or 37.0%, from $14.7 million for 1998. This was primarily due to reduced
expenditures on media advertising and other promotional activities of $7.8
million in Mutual Fund and Institutional, partially offset by a new $1.5 million
print campaign for Private Asset Management which was designed to increase name
recognition. Our distribution and fund administration costs decreased to $19.4
million in 1999, down $3.4 million or 14.9%, from $22.8 million for 1998, due to
a reduction of average mutual fund assets under management, which have a direct
effect on payments to third parties. Our professional fees decreased to $9.3
million for 1999, down $2.3 million or 19.7%, from $11.6 million for 1998, due
primarily to a net decrease in legal and professional fees incurred in
conjunction with the proposed initial public offering in 1998, which was
partially offset by increased consulting expenses for various technology
initiatives. Depreciation and amortization increased to $10.5 million for 1999,
up $1.8 million or 20.8%, from $8.7 million for 1998, due primarily to leasehold
and information technology write-offs and increased depreciation resulting from
new capital expenditures on telecommunication and technology related equipment.
Other expenses increased to $20.9 million (as adjusted for the $10.1 million of
other expenses included in the
24
Reorganization and IPO Charges) for 1999, up $2.5 million or 13.6%, from $18.4
million for 1998, due primarily to increases in office expenses and travel and
entertainment.
TAXES. Our taxes increased to $39.7 million (as adjusted for the $51.9
million tax benefit resulting from the Reorganization and IPO Charges) in 1999,
up $30.2 million compared to 1998. Prior to the Exchange, Neuberger Berman, LLC
did not pay United States federal and state taxes because, as a limited
liability company, it was treated as a partnership for tax purposes, and our
principals were taxed on their proportionate share of Neuberger Berman, LLC's
taxable income or loss. Neuberger Berman Management Inc., as an S-Corporation,
also did not pay United States federal taxes prior to the Exchange, but was
subject to certain state and local taxes, and its shareholders were responsible
for their own federal income taxes. Effective with the Exchange, we became
subject to federal, state and local income taxes and we file a consolidated
federal income tax return. Our effective tax rate after the IPO was
approximately 43%.
LIQUIDITY AND CAPITAL RESOURCES
Our investment advisory business does not require us to maintain significant
capital balances. However, as a result of our broker-dealer activities, our
statements of financial condition include higher levels of assets and
liabilities than is typical for an investment adviser of our size. Our
broker-dealer activities provide financing, trade execution, clearing and
custody services for clients of the Private Asset Management, Mutual Fund and
Institutional and Professional Securities Services segments.
Our financial condition is highly liquid with the significant majority of
our assets readily convertible to cash. Our receivables from and payables to
brokers, dealers and clearing organizations represent either current open
transactions that settle within a few days or the activity of securities lending
that is collateralized and normally can be closed out within a few days. Our
receivables from and payables to clients arise in the normal course of business
in connection with cash and margin securities transactions. These client
receivables are secured by securities held as collateral.
Our cash flows provided by operating activities totaled $81.3 million,
$252.2 million and $255.7 million for the years ended December 31, 2000, 1999
and 1998, respectively. The change from 1999 to 2000 is primarily attributable
to a net increase in receivables from brokers and dealers resulting from stock
lending activities. We expect that cash flows provided by operating activities
will continue to serve as the principal source of working capital in our near
future.
Our cash flows used in investing activities totaled $29.4 million,
$17.5 million and $11.9 million for the years ended December 31, 2000, 1999 and
1998, respectively. The increase in 2000 is due to the acquisition of the
private asset management business of Delta Capital Management LLC and an
increase in capital expenditures for furniture, equipment and leasehold
improvements.
Our cash flows used in financing activities totaled $54.9 million,
$194.0 million and $296.9 million for the years ended December 31, 2000, 1999
and 1998, respectively. The decrease in 2000 is primarily attributable to the
net effect from capital distributions and common stock issuance in 1999 related
to the IPO.
It is our policy to monitor and evaluate continuously the adequacy of our
capital. We have consistently maintained net capital in excess of the regulatory
requirements for broker-dealers prescribed by the SEC and other regulatory
authorities. At December 31, 2000, our regulatory net capital exceeded the
minimum requirement by approximately $179 million. The Rule imposes certain
requirements that may have the effect of prohibiting a broker-dealer from
distributing or withdrawing capital and requiring prior notice to the SEC for
certain withdrawals of capital. In addition, the debt covenants related to
Neuberger Berman, LLC's $35 million outstanding subordinated note include
certain covenants that limit the percentage by which the aggregate unpaid
principal amount of subordinated liabilities exceed total regulatory capital and
impose a dollar amount below which total
25
ownership equity cannot fall. We believe that our cash flow from operations and
existing committed and uncommitted lines of credit will be more than adequate to
meet our anticipated capital requirements and debt and other obligations as they
come due.
On October 28, 1999, our Board of Directors authorized a repurchase of up to
$50 million of our common stock. The acquired shares may be used for corporate
purposes, including stock option awards and shares issued to employees under our
employee stock purchase plans. As of December 31, 2000, 1,259,058 shares had
been repurchased for approximately $43 million. The source of the funds for
these purchases was internally generated. On January 18, 2001, our Board of
Directors approved the repurchase of up to an additional $75 million of our
common stock. The additional authorization has the same provisions as the
initial authorization with respect to how and when we can repurchase our common
stock.
LOOKING AHEAD
During the year ending December 31, 2001, we intend to carry on our
strategic plan to grow our asset management business. We plan to continue to
take advantage of the growth opportunities in the high net worth market by
utilizing our expanded national sales force and by aggressively pursuing
additional investment management teams. In addition to adding investment
management teams, we will continue to evaluate, where appropriate, strategic
acquisitions of, or joint ventures with, companies that would add new product
and services offerings, investment capabilities or distribution channels.
ITEM 7A.--QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our risk management policies and procedures have been established to
identify, monitor and manage risk continuously. The major types of risk that we
face include credit risk and market risk.
Credit risk is the potential for loss due to a client or counterparty
failing to perform its contractual obligations. In order to mitigate risk, our
policy is to monitor the credit standing of our clients and maintain collateral
to support margin loans to our clients.
A significant portion of our revenues is based upon the market value of
assets under management. Accordingly, a decline in the prices of securities
generally, or client withdrawals of assets under management, may cause our
revenues and income to decline.
Interest rate risk is the possibility of a loss in the value of financial
instruments from changes in interest rates. Our primary exposure to interest
rate risk arises from our interest earning assets (mainly securities purchased
under agreements to resell and receivables from brokers, dealers and clearing
organizations) and funding sources (bank loans, subordinated liabilities and
payables to brokers, dealers and clearing organizations).
Equity price risk generally means the risk of loss that may result from the
potential change in the value of a financial instrument as a result of absolute
and relative price movements, price volatility or changes in liquidity, over
which we have no control. Our market making activities expose our capital to
potential equity price risk. To mitigate this risk, we impose strict investment
limits on both the trading desk and individual traders. Moreover, our monthly
average net long position for our market making activities was $1.4 million
during the year ended December 31, 2000 and $2.0 million during the year ended
December 31, 1999.
26
ITEM 8.--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
NEUBERGER BERMAN INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
--------
Report of Independent Public Accountants.................... 28
Consolidated Financial Statements and Notes
Consolidated Statements of Financial Condition--December
31, 2000 and 1999....................................... 29
Consolidated Statements of Income--Years Ended December
31, 2000, 1999 and 1998................................. 30
Consolidated Statements of Changes in Principals' Capital
and Stockholders' Equity--Years Ended December 31, 1998,
1999 and 2000........................................... 31
Consolidated Statements of Cash Flows--Years Ended
December 31, 2000, 1999 and 1998........................ 32
Notes to Consolidated Financial Statements................ 34
Schedule I--Condensed Financial Statements of the Registrant
Parent and Notes.......................................... 48
Statement of Financial Condition--December 31, 2000 and
1999.................................................... 48
Statement of Operations--Year Ended December 31, 2000 and
the Period October 8, 1999 through December 31, 1999.... 49
Statement of Cash Flows--Year Ended December 31, 2000 and
the Period October 8, 1999 through December 31, 1999.... 50
Notes to Condensed Financial Statements................... 52
27
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Neuberger Berman Inc.:
We have audited the accompanying consolidated statements of financial
condition of Neuberger Berman Inc. (a Delaware corporation) and subsidiaries as
of December 31, 2000 and 1999, and the related consolidated statements of
income, changes in principals' capital and stockholders' equity and cash flows
for each of the three years in the period ended December 31, 2000. These
consolidated financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Neuberger
Berman Inc. and subsidiaries as of December 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The condensed financial statements of the
registrant parent and notes contained in Schedule I are presented for purposes
of complying with the Securities and Exchange Commission's rules and are not a
required part of the basic financial statements. This information has been
subjected to the auditing procedures applied in our audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
New York, New York
February 16, 2001
28
NEUBERGER BERMAN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
-----------------------
2000 1999
---------- ----------
ASSETS
Cash and cash equivalents................................... $ 88,117 $ 91,010
Cash and securities segregated for the exclusive benefit of
clients................................................... 911,182 777,341
Cash and securities deposited with clearing organizations... 5,973 3,910
Securities purchased under agreements to resell............. 282,720 530,300
Receivable from brokers, dealers and clearing
organizations............................................. 2,466,102 1,873,259
Receivable from clients..................................... 456,691 432,814
Securities owned, at market value........................... 67,688 20,266
Fees receivable............................................. 23,012 23,149
Furniture, equipment and leasehold improvements, at cost,
net of accumulated depreciation and amortization of
$26,797 and $16,195 at December 31, 2000 and 1999,
respectively.............................................. 43,089 32,192
Other assets................................................ 77,189 63,367
---------- ----------
Total assets............................................ $4,421,763 $3,847,608
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Bank loans................................................ $ 3,000 $ --
Securities sold under agreements to repurchase............ 234,972 531,762
Payable to brokers, dealers and clearing organizations.... 1,461,267 1,017,483
Payable to clients........................................ 2,199,169 1,871,323
Securities sold but not yet purchased, at market value.... 9,522 34,172
Other liabilities and accrued expenses.................... 128,694 109,066
---------- ----------
4,036,624 3,563,806
---------- ----------
Subordinated liability.................................... 35,000 35,000
---------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value;
5,000,000 shares authorized; none issued at
December 31, 2000 and 1999.............................. -- --
Common stock, $.01 par value;
250,000,000 shares authorized; 50,021,920 shares issued;
48,803,006 and 49,716,220 shares outstanding at
December 31, 2000 and 1999, respectively................ 500 500
Paid-in capital........................................... 332,870 331,077
Retained (deficit) earnings............................... 60,971 (74,701)
---------- ----------
394,341 256,876
Less: Treasury stock, at cost, 1,218,914 and 305,700
shares at December 31,
2000 and 1999, respectively.......................... (41,904) (8,074)
Unearned compensation................................ (2,298) --
---------- ----------
Total stockholders' equity.............................. 350,139 248,802
---------- ----------
Total liabilities and stockholders' equity.............. $4,421,763 $3,847,608
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
29
NEUBERGER BERMAN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
2000 1999 1998
--------- --------- ---------
REVENUES:
Investment advisory and administrative fees............... $399,907 $379,434 $389,238
Commissions............................................... 146,589 142,082 145,969
Interest.................................................. 223,709 160,022 164,782
Principal transactions in securities...................... 9,623 10,003 6,324
Clearance fees............................................ 13,532 11,081 9,146
Other income.............................................. 6,428 4,059 4,004
-------- -------- --------
GROSS REVENUES.......................................... 799,788 706,681 719,463
Interest expense............................................ 183,441 133,769 137,329
-------- -------- --------
NET REVENUES AFTER INTEREST EXPENSE..................... 616,347 572,912 582,134
-------- -------- --------
OPERATING EXPENSES:
Employee compensation and benefits........................ 245,445 325,310 173,379
Information technology.................................... 22,925 19,172 15,634
Rent and occupancy........................................ 17,796 15,313 12,182
Brokerage, clearing and exchange fees..................... 10,514 10,164 10,245
Advertising and sales promotion........................... 9,251 9,259 14,707
Distribution and fund administration...................... 18,977 19,437 22,832
Professional fees......................................... 11,205 9,276 11,550
Depreciation and amortization............................. 10,638 10,532 8,716
Other expenses............................................ 22,675 31,077 18,432
-------- -------- --------
TOTAL OPERATING EXPENSES................................ 369,426 449,540 287,677
-------- -------- --------
NET INCOME BEFORE TAXES................................. 246,921 123,372 294,457
Tax (benefit) expense....................................... 96,565 (12,195) 9,506
-------- -------- --------
NET INCOME.............................................. $150,356 $135,567 $284,951
======== ======== ========
NET INCOME PER COMMON SHARE
Net income per share - Basic.............................. $ 3.06 $ 3.05 6.68
======== ======== ========
Net income per share - Diluted............................ $ 3.03 $ 3.05 6.68
======== ======== ========
Weighted average common shares outstanding - Basic........ 49,099 44,410 42,663
======== ======== ========
Weighted average common shares outstanding - Diluted...... 49,595 44,410 42,663
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
30
NEUBERGER BERMAN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN PRINCIPALS' CAPITAL AND STOCKHOLDERS'
EQUITY
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
------------------------------------------------------------------------------------
RETAINED
PRINCIPALS' COMMON PAID-IN (DEFICIT) TREASURY UNEARNED
CAPITAL STOCK CAPITAL EARNINGS STOCK COMPENSATION TOTAL
----------- -------- -------- --------- -------- ------------- ---------
BEGINNING BALANCE, DECEMBER 31,
1997................................ $ 150,000 $ -- $ 2,742 $ 6,289 $ -- $ -- $ 159,031
Capital contributions............... 12,660 -- -- -- -- -- 12,660
Capital withdrawals................. (62,660) -- -- -- -- -- (62,660)
Capital distributions............... (247,509) -- -- -- -- -- (247,509)
Issuance of common stock--
Neuberger Berman Management Inc... -- -- 134 -- -- -- 134
Dividends--Neuberger Berman
Management Inc.................... -- -- -- (37,408) -- -- (37,408)
Net income.......................... 247,509 -- -- 37,442 -- -- 284,951
--------- -------- -------- --------- -------- -------- ---------
ENDING BALANCE, DECEMBER 31, 1998..... 100,000 -- 2,876 6,323 -- -- 109,199
Capital contributions............... 525 -- -- -- -- -- 525
Capital withdrawals................. (525) -- -- -- -- -- (525)
Capital distributions............... (182,375) -- -- -- -- -- (182,375)
Dividends--Neuberger Berman
Management Inc.................... -- -- -- (22,679) -- -- (22,679)
Acquisition of treasury stock--
Neuberger Berman Management Inc... -- -- -- -- (134) -- (134)
Net income (1/1/99-10/7/99)......... 182,375 -- -- 22,931 -- -- 205,306
--------- -------- -------- --------- -------- -------- ---------
Total before reorganization......... 100,000 -- 2,876 6,575 (134) -- 109,317
Exchange of principal interests for
common stock of Neuberger Berman
Inc............................... (100,000) 427 99,573 -- -- -- --
Exchange of corporate interests for
common stock of Neuberger Berman
Inc............................... -- -- 6,441 (6,575) 134 -- --
--------- -------- -------- --------- -------- -------- ---------
Total after reorganization
(10/8/99)......................... -- 427 108,890 -- -- -- 109,317
Issuance of common stock to
public............................ -- 30 87,903 -- -- -- 87,933
Issuance of common stock to defined
contribution stock incentive
plan.............................. -- 43 134,284 -- -- -- 134,327
Dividends........................... -- -- -- (4,962) -- -- (4,962)
Acquisition of treasury stock....... -- -- -- -- (8,074) -- (8,074)
Net loss (10/8/99-12/31/99)......... -- -- -- (69,739) -- -- (69,739)
--------- -------- -------- --------- -------- -------- ---------
ENDING BALANCE, DECEMBER 31, 1999..... -- 500 331,077 (74,701) (8,074) -- 248,802
Dividends........................... -- -- -- (14,684) -- -- (14,684)
Acquisition of treasury stock....... -- -- -- -- (35,210) -- (35,210)
Issuance of common stock............ -- -- 1,793 -- 1,380 (2,298) 875
Net income.......................... -- -- -- 150,356 -- -- 150,356
--------- -------- -------- --------- -------- -------- ---------
ENDING BALANCE, DECEMBER 31, 2000..... $ -- $ 500 $332,870 $ 60,971 $(41,904) $ (2,298) $ 350,139
========= ======== ======== ========= ======== ======== =========
The accompanying notes are an integral part of the consolidated financial
statements.
31
NEUBERGER BERMAN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE DATA)
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
2000 1999 1998
--------- --------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 150,356 $ 135,567 $ 284,951
Adjustments to reconcile net income to net cash provided by
operating activities--
Depreciation and amortization............................. 10,638 10,532 8,716
Contribution to defined contribution stock incentive
plan.................................................... -- 134,327 --
Deferred tax benefit...................................... (9,750) (48,427) --
(Increase) decrease in operating assets--
Cash and securities segregated for the exclusive benefit
of clients.............................................. (133,841) (120,063) (437,216)
Cash and securities deposited with clearing
organizations........................................... (2,063) (319) 37
Securities purchased under agreements to resell........... 247,580 (33,531) (212,334)
Receivable from brokers, dealers and clearing
organizations........................................... (592,843) 350,611 (1,038,151)
Receivable from clients................................... (23,877) (106,579) 213,392
Securities owned, at market value......................... (47,422) (8,077) (2,087)
Fees receivable........................................... 137 3,661 3,041
Other assets.............................................. 4,649 (7,825) 4,204
Increase (decrease) in operating liabilities--
Bank loans................................................ 3,000 (25,000) 15,000
Securities sold under agreements to repurchase............ (296,790) 43,603 198,743
Payable to brokers, dealers and clearing organizations.... 443,784 (351,488) 786,576
Payable to clients........................................ 327,846 246,429 406,145
Securities sold but not yet purchased, at market value.... (24,650) (16,238) 12,314
Other liabilities and accrued expenses.................... 24,590 44,967 12,382
--------- --------- -----------
Net cash provided by operating activities............... 81,344 252,150 255,713
--------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchases of furniture, equipment and
leasehold improvements.................................. (21,499) (17,530) (11,887)
Cash paid for acquisition................................. (7,882) -- --
--------- --------- -----------
Cash used in investing activities....................... (29,381) (17,530) (11,887)
--------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of subordinated liability....................... -- (50,000) --
Proceeds from subordinated liabilities.................... -- 35,000 50,000
Proceeds from capital contributions....................... -- 525 12,660
Payments for capital withdrawals.......................... -- (525) (62,660)
Payments for capital distributions........................ -- (236,039) (246,099)
Issuance of common stock--Neuberger Berman Management
Inc..................................................... -- -- 134
Issuance of common stock--Neuberger Berman Inc............ -- 87,933 --
Payments for dividends--Neuberger Berman Management
Inc..................................................... -- (22,679) (50,924)
Purchase of treasury stock--Neuberger Berman Management
Inc..................................................... -- (134) --
Payments for dividends--Neuberger Berman Inc.............. (19,646) -- --
Purchase of treasury stock--Neuberger Berman Inc.......... (35,210) (8,074) --
--------- --------- -----------
Net cash used in financing activities................... (54,856) (193,993) (296,889)
--------- --------- -----------
Net (decrease) increase in cash and cash equivalents.... (2,893) 40,627 (53,063)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................ 91,010 50,383 103,446
--------- --------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR...................... $ 88,117 $ 91,010 $ 50,383
========= ========= ===========
The accompanying notes are an integral part of the consolidated financial
statements.
32
NEUBERGER BERMAN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest payments totaled $181,075, $132,842 and $137,499 during the years
ended December 31, 2000, 1999 and 1998, respectively.
Tax payments totaled $117,670, $7,621 and $3,450 during the years ended
December 31, 2000, 1999 and 1998, respectively.
SUPPLEMENTAL DISCLOSURES OF NON-CASH OPERATING, INVESTING AND FINANCING
ACTIVITIES:
On October 7, 1999, the principals of Neuberger Berman, LLC and the
shareholders of Neuberger Berman Management Inc. exchanged their ownership
interests for common stock of Neuberger Berman Inc. with a carrying value of
$109,317.
In connection with Neuberger Berman Inc.'s initial public offering, an
initial, irrevocable non-cash contribution of 4,264,344 shares of its common
stock was made to an employee defined contribution stock incentive plan. The
non-cash expense associated with the contribution totaled $134,327 and was
recognized on the date it was funded, in accordance with Statement of Financial
Accounting Standards No. 87. Neuberger Berman Inc. recorded a deferred tax
benefit of $46,262 related to the contribution.
On November 23, 1999, Neuberger Berman Inc. declared an initial quarterly
cash dividend on its common stock in the amount of $0.10 per share. The dividend
was paid on January 25, 2000, to stockholders of record at the close of business
on January 11, 2000.
On December 27, 1999, Neuberger Berman Inc. made a cash contribution of
$10,000 to the Neuberger Berman Foundation. In connection with the cash
contribution, Neuberger Berman Inc. recorded a deferred tax benefit of $2,165.
During the first six months of 2000, Neuberger Berman Inc. increased, based
upon the price of its common stock at the close of business on June 30, 2000,
the carrying value of the deferred tax asset resulting from its initial,
irrevocable non-cash contribution of 4,264,344 shares referred to above, by
$9,750.
As part of the purchase price for the private asset management business of
Delta Capital Management LLC, on December 15, 2000, Neuberger Berman Inc. issued
10,973 shares of common stock from treasury with a market value of $875.
In connection with an employee stock ownership plan, Neuberger Berman Inc.
issued 29,171 shares of common stock, with a market value of $2,298, from
treasury. This purchase of shares was recorded as a credit to capital stock with
a corresponding debit to unearned compensation.
The accompanying notes are an integral part of the consolidated financial
statements.
33
NEUBERGER BERMAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Neuberger Berman Inc. ("NBI") was organized as a Delaware corporation on
August 13, 1998. NBI was formed to be the holding company for Neuberger Berman,
LLC ("NB, LLC") and Neuberger Berman Management Inc. ("NBMI"), and to allow for
the issuance of common stock to the public. On October 7, 1999, the principals
of NB, LLC and the shareholders of NBMI exchanged their ownership interests in
the respective entities for shares of NBI (the "Exchange"), and on October 13,
1999, NBI completed its initial public offering (the "IPO"). Accordingly, these
entities have been consolidated pursuant to reorganization accounting. In
connection with the Exchange and the IPO, NBI incurred pre-tax charges totaling
approximately $150,054,000 (the "Reorganization and IPO Charges"). The
Reorganization and IPO Charges are primarily comprised of an initial,
irrevocable non-cash contribution of common stock to an employee defined
contribution stock incentive plan, a cash contribution to the Neuberger Berman
Foundation and severance and other payments.
The consolidated financial statements include the accounts of NBI and its
subsidiaries. NBI's wholly owned subsidiaries are NB, LLC, a Delaware limited
liability company, and its subsidiaries, and NBMI, a New York corporation
(collectively, the "Company"). NB, LLC's wholly owned subsidiaries are Neuberger
Berman Trust Company, a non-depository trust company chartered under the New
York Banking Law, Neuberger Berman Trust Company of Delaware, a non-depository
limited purpose trust company chartered under the Delaware Banking Code,
Neuberger Berman Trust Company of Florida, a Florida corporation authorized to
engage in trust business chartered under the Florida Banking Law, and Neuberger
& Berman Agency Inc., a New York corporation. Material intercompany transactions
and balances have been eliminated in consolidation.
The Company is a registered investment adviser providing investment
management services to high net worth clients, mutual funds, and institutional
clients. As a registered investment adviser, the Company manages equity, fixed
income, balanced, socially responsive, and international portfolios for
individuals, families, endowments, foundations, trusts and employee benefit
plans. In addition, the Company advises the Neuberger Berman family of funds. As
a registered broker-dealer, the Company executes securities transactions for its
clients and others and provides prime brokerage and correspondent clearing
services to other firms.
2. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements are prepared in accordance with
generally accepted accounting principles. The preparation of the financial
statements requires management to make estimates and assumptions that affect the
reported amounts in the financial statements. Management does not believe that
actual results will differ materially from these estimates.
Securities owned and securities sold but not yet purchased are valued at
market. Principal transactions in securities and the related revenues and
expenses are recorded on a trade date basis. During the year ended December 31,
2000, the Company began recording its commission income and related expenses on
a trade date basis. There was no material impact resulting from this change.
For purposes of the consolidated statements of financial condition, the
Company considers all investments in money market funds to be cash equivalents.
The majority of investment advisory fees earned from high net worth and
institutional clients are charged or billed to accounts quarterly based upon the
account's net asset value at the beginning of a quarter. Investment advisory and
administrative fees earned from the Company's mutual fund business
34
NEUBERGER BERMAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(the "Funds") are charged monthly to the Funds based upon average daily net
assets under management.
Furniture and equipment are depreciated using the straight-line method over
their estimated useful lives. Leasehold improvements are amortized using the
straight-line method over the lesser of the economic life of the improvement or
the life of the lease.
In September of 2000, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 140, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities - a replacement of FASB Statement No. 125". SFAS 140 amends the
recognition and reclassification of collateral and disclosures related to
securitization transactions and collateral. These changes are effective for
fiscal years ending after December 15, 2000. SFAS 140 also amends the accounting
for transfers and servicing of financial assets and extinguishments of
liabilities occurring after March 31, 2001. The impact of the SFAS 140
provisions effective subsequent to March 31, 2001, is not anticipated to have a
material impact on the Company's consolidated financial statements.
Basic earnings per common share is calculated by dividing net income by the
weighted average common shares outstanding. Diluted earnings per common share is
calculated by dividing net income by the total weighted average number of shares
of common stock outstanding and common stock equivalents. Common stock
equivalents are comprised of dilutive potential shares from stock options and
certain restricted stock awards. Common stock equivalents are excluded from the
computation if their effect is anti-dilutive. Diluted earnings per share is
computed using the treasury stock method. For purposes of determining weighted
average common shares outstanding for the periods prior to the Exchange, the
outstanding shares were determined based upon the conversion ratio to effect the
exchange of principals' capital and stockholders' equity for NBI common stock.
Pro rata distributions of earnings and capital to the principals were not
considered to effect outstanding shares.
On December 15, 2000, the Company completed its acquisition of the private
asset management business of Delta Capital Management LLC for common stock and
cash. The allocation of purchase price has yet to be finalized.
Certain prior year amounts have been reclassified to conform with the
December 31, 2000, presentation.
3. SECURITIES PURCHASED AND SOLD UNDER AGREEMENTS TO RESELL AND REPURCHASE
Securities purchased and sold under agreements to resell and repurchase are
accounted for as collateralized financing transactions and are carried at
contract value plus accrued interest. It is the policy of the Company to obtain
possession of collateral, comprised of market value and cash, equal to or in
excess of principal amounts received and pledged under resale and repurchase
agreements, respectively. Collateral is valued daily, and the Company may
require counterparties to deposit additional collateral when appropriate. As of
December 31, 2000, the Company had received and pledged securities with market
values of approximately $1,209 million and $234 million, respectively, related
to these resale and repurchase agreements.
As of December 31, 2000, the Company repledged $1,209 million of the
securities it had received under its resale agreements.
35
NEUBERGER BERMAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. RECEIVABLE FROM AND PAYABLE TO CLIENTS
Receivable from and payable to clients represent amounts due from or to
clients of the Company in connection with cash and margin securities
transactions. Amounts receivable are collateralized by clients' securities held
by NB, LLC and by others for delivery to NB, LLC, the value of which is not
reflected in the accompanying consolidated financial statements.
In the normal course of business, the Company is permitted to use client
margin securities to finance customer securities transactions subject to certain
regulatory guidelines.
5. RECEIVABLE FROM AND PAYABLE TO BROKERS, DEALERS AND CLEARING ORGANIZATIONS
As of December 31, 2000 and 1999, amounts receivable from and payable to
brokers, dealers and clearing organizations included approximately $2,454
million and $1,855 million of securities borrowed and approximately $1,427
million and $987 million of securities loaned, respectively.
Securities borrowed and securities loaned transactions are reported as
collateralized financing transactions. Securities borrowed transactions require
the Company to deposit cash with the lender. With respect to securities loaned,
the Company receives collateral in the form of cash in an amount generally in
excess of the market value of securities loaned. The Company monitors the market
value of securities borrowed and loaned on a daily basis, with additional
collateral obtained or refunded as necessary. As of December 31, 2000, the
Company had received securities with a market value of approximately $2,300
million related to its securities borrowed transactions. As of December 31,
2000, the Company had pledged securities with a market value of approximately
$1,342 million related to its securities loaned transactions.
As of December 31, 2000, the Company repledged $2,300 million of the
securities it had received under its securities borrowed transactions.
6. BANK LOANS
Bank loans represent unsecured short-term borrowings payable to commercial
banks. For the years ended December 31, 2000, 1999 and 1998, interest expense
incurred on these borrowings was approximately $5,076,000, $2,287,000 and
$4,142,000 based upon weighted average interest rates of 6.53%, 5.13% and 5.76%,
respectively.
7. SUBORDINATED LIABILITIES
During 1998, the principals of NB, LLC withdrew $50 million of capital and
invested it in a newly formed entity, NB Associates, LLC ("Associates").
Concurrently, Associates loaned the $50 million to NB, LLC in the form of a
subordinated liability. The subordinated liability bore interest at 6.75% per
annum and was approved by the New York Stock Exchange, Inc. ("NYSE") as capital
for the purpose of computing net capital under Rule 15c3-1 (the "Rule") of the
Securities and Exchange Commission ("SEC"). For the years ended December 31,
1999 and 1998, interest expense incurred on the subordinated liability was
approximately $2,411,000 and $1,137,000, respectively. On October 29, 1999, the
subordinated liability was fully repaid.
On September 1, 1999, The Travelers Insurance Company loaned NB, LLC $35
million pursuant to a subordinated promissory note (the "Note"). This amount is
payable on September 1, 2004. Interest accrues on the unpaid principal amount of
the Note at a floating rate adjusted quarterly, based on the three month LIBOR
rate plus 75 basis points and is payable quarterly. The Note was approved by the
36
NEUBERGER BERMAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. SUBORDINATED LIABILITIES (CONTINUED)
NYSE and the unpaid principal amount is available to NB, LLC in computing net
capital under the Rule. The Note contains certain covenants that limit the
percentage by which the aggregate unpaid principal amount of subordinated
liabilities exceed total regulatory capital and impose a dollar amount below
which total ownership equity cannot fall. In the opinion of management, the
Company is in compliance with its debt covenants. For the years ended December
31, 2000 and 1999, interest expense incurred on the Note was approximately
$2,588,000 and $747,000, respectively.
8. STOCK OPTIONS
On September 29, 1999, the Board of Directors of NBI (the "Board") approved
the 1999 Neuberger Berman Inc. Long-Term Incentive Plan (the "1999 Plan") and
reserved for issuance 10,000,000 shares of NBI's common stock. In addition, on
September 29, 1999, the Board approved the 1999 Neuberger Berman Inc. Directors
Stock Incentive Plan (the "1999 Directors Plan") and reserved for issuance
200,000 shares of NBI's common stock.
On March 27, 2000, 2,760,000 of non-qualified stock options (reload options)
were granted to certain employees of the Company under the 1999 Plan, 15,000 of
which were subsequently forfeited. In addition, on December 15, 2000, 30,000 of
non-qualified stock options (reload options) were granted under the 1999 Plan in
connection with the acquisition of the private asset management business of
Delta Capital Management LLC. On March 27, 2000, 30,000 of non-qualified stock
options (reload options) were granted to certain directors of NBI under the 1999
Directors Plan. Options granted under the 1999 Plan and the 1999 Directors Plan
provide for annual vesting ratably over five years, commencing on the first
anniversary of the date of issuance. All options granted have exercise prices
equal to or greater than the fair market value of NBI's common stock on the date
of the grant and have a ten-year term.
At December 31, 2000, 7,225,000 and 170,000 shares were available for future
grant under the 1999 Plan and the 1999 Directors Plan, respectively. The
following table summarizes transactions in stock options granted under the
Plans:
OPTIONED SHARES
----------------------------
WEIGHTED AVERAGE
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
--------- ----------------
Balance at December 31, 1999................................ -- $ --
Options granted........................................... 2,820,000 29.62
Options forfeited......................................... (15,000) (28.13)
---------
Balance at December 31, 2000................................ 2,805,000 29.63
=========
The following table summarizes information about stock options outstanding
at December 31, 2000:
OPTIONS OUTSTANDING
------------------------------
NUMBER REMAINING
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE
- --------------- ----------- ----------------
$28.13.......................... 2,075,000 9.2 years
32.00.......................... 700,000 9.2 years
78.59.......................... 30,000 9.9 years
---------
2,805,000
=========
37
NEUBERGER BERMAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK OPTIONS (CONTINUED)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants under the option plans for the year ended December
31, 2000:
FOR THE YEAR ENDED
ASSUMPTIONS DECEMBER 31, 2000
- ----------- ------------------
Dividend Yield............................. 1.30%
Expected volatility........................ 30.20%
Risk-free interest rate.................... 6.40%
Expected lives............................. 5
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because NBI's stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its employee stock options.
Had the Company accounted for its stock-based compensation plans based on
the fair value awards at grant date in a manner consistent with the methodology
of SFAS 123, the Company's net income and net income per common share would have
decreased as indicated in the table below. For purposes of pro forma
disclosures, the estimated fair value of the Plans is amortized to expense over
the vesting period and is representative of the charge for the year ended
December 31, 2000.
FOR THE YEAR ENDED
DECEMBER 31, 2000
--------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net income:
As reported.............................................. $150,356
SFAS 123 fair value adjustment--net...................... (2,241)
--------
Pro Forma................................................ $148,115
========
BASIC DILUTED
-------- -------
Net income per common share:
As reported.............................................. $ 3.06 $ 3.03
SFAS 123 fair value adjustment--net...................... (0.05) (0.05)
-------- -------
Pro Forma................................................ $ 3.01 $ 2.98
======== =======
The effects of applying SFAS 123 for providing pro forma disclosures may not
be representative of the effects on reported net income for future years.
38
NEUBERGER BERMAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share for the year ended December 31, 2000:
2000
----------------------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
Net Income.................................................. $150,356
--------
Basic weighted average shares outstanding................... 49,099
Dilutive potential shares from stock options and certain
restricted stock awards................................... 496
--------
Dilutive weighted average shares outstanding................ 49,595
--------
Basic earnings per share.................................... $ 3.06
========
Diluted earnings per share.................................. $ 3.03
========
Options on 30,000 shares have been excluded from the earnings per share
computation above due to their anti-dilutive effect.
10. NET CAPITAL
NB, LLC and NBMI, as registered broker-dealers and member firms of the NYSE
and the National Association of Securities Dealers, Inc., respectively, are
subject to the Rule, which requires that broker-dealers maintain a minimum level
of net capital, as defined. As of December 31, 2000, NB, LLC and NBMI had net
capital of approximately $184,675,000 and $22,624,000, respectively, which
exceeded their requirements by approximately $156,772,000 and $22,374,000,
respectively.
The Rule also provides that equity capital may not be withdrawn or cash
dividends paid if the resulting net capital of a broker-dealer would be less
than the amount required under the Rule. Accordingly, at December 31, 2000, the
payments of dividends and advances to NBI by NB, LLC and NBMI is limited to
$114,918,000 and $22,324,000, respectively, under the most restrictive of these
requirements.
11. COMMITMENTS AND CONTINGENCIES
The Company leases office space and equipment under lease agreements
expiring on various dates through 2013. Office space leases are subject to
escalation based on increases in costs incurred by the lessor. Minimum rentals,
excluding office space escalation, under these lease agreements are as follows:
YEARS ENDING
DECEMBER 31, AMOUNT
- ------------ -----------
2001........................................................ $15,692,000
2002........................................................ 15,866,000
2003........................................................ 15,150,000
2004........................................................ 14,416,000
2005........................................................ 13,650,000
Thereafter.................................................. 45,666,000
39
NEUBERGER BERMAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Rent expense for premises and equipment for the years ended December 31,
2000, 1999 and 1998, was approximately $16,390,000, $13,483,000 and $11,011,000,
respectively.
The Company has satisfied margin requirements with clearing organizations by
obtaining letters of credit in favor of the clearing organizations. Open
unsecured letters of credit as of December 31, 2000 and 1999, were approximately
$44,312,000 and $22,312,000, respectively. Unused committed lines of credit were
approximately $100,000,000 and $150,000,000 as of December 31, 2000 and 1999,
respectively.
In the normal course of business, the Company is subject to various legal
proceedings. In the opinion of management, based on discussions with legal
counsel, the resolution of pending proceedings will not have a material adverse
effect on the consolidated financial condition, results of operations or
liquidity of the Company.
12. EMPLOYEE BENEFIT PLANS
The Company has defined contribution plans consisting of an employee
profit-sharing plan and a money purchase pension plan covering all full-time
employees and qualifying part-time employees who have completed one year of
continuous service, as defined. Contributions to the plans, which are at the
discretion of management, are determined annually but do not exceed the amount
permitted under the Internal Revenue Code as a deductible expense. Contributions
to the plans for the years ended December 31, 2000, 1999 and 1998, were
approximately $5,437,000, $6,854,000 and $7,670,000, respectively.
The Company made an initial, irrevocable contribution of 4,264,344 shares of
its common stock to an employee defined contribution stock incentive plan (the
"Stock Incentive Plan") on behalf of its employees. Common stock that was
awarded to employees in conjunction with the IPO is restricted and vests in
three installments on October 8th of 2001, 2002 and 2003. Certain benefits of
ownership, including the payment of any dividends declared during the restricted
period, belong to the employees. Unvested common stock that becomes forfeited
upon an employee's termination of employment is reallocated in the sole and
absolute discretion of the compensation committee, including determination of
vesting periods. The common stock contributed may not revert to the Company.
Included in employee compensation and benefits for the year ended December 31,
1999, is a non-cash charge of approximately $134,327,000, related to the
contribution of common stock.
On July 18, 2000, the Board adopted, upon the recommendation of its
compensation committee, two plans that will facilitate employee stock ownership,
an Employee Stock Purchase Plan (the "ESPP"), and the Wealth Accumulation Plan
(the "Plan").
The ESPP provides that employees may elect to acquire NBI common stock
through payroll deductions, on an after tax basis, at a 15% discount from market
value of such stock. Employees may not transfer the common stock acquired
through the ESPP for one year from purchase date. In accordance with the terms
and provisions of the ESPP, employees are precluded from acquiring, on an annual
basis, shares of common stock that have an aggregate purchase price (as defined
in the ESPP documentation) in excess of $10,000. The ESPP, which has a term of
ten years, became effective during September 2000, but must be ratified by NBI's
stockholders at its Annual Meeting for stockholders. Subsequent to December 31,
2000, in connection with the initial acquisition of shares pursuant to the
40
NEUBERGER BERMAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. EMPLOYEE BENEFIT PLANS (CONTINUED)
ESPP, the Company issued from treasury 10,639 shares of common stock, at a 15%
discount, with an approximate value of $751,000.
The Plan provides that on an annual basis, employees who are eligible for a
bonus may elect to defer all or a portion of their bonus and employees who
receive commissions and other direct pay, may elect to defer a portion of such
compensation. In each case, up to 20% of total compensation may be deferred with
a maximum deferral of up to $500,000; provided that employees who receive an
annual bonus may, in any event, defer no more than 100% of any bonus. Amounts
deferred by employees are used to acquire, on a pretax basis, NBI common stock
at a 25% discount from the market value of such stock. Any common stock so
acquired is restricted with respect to transfer or sale for a period of three
years (during which time the employee is required to render service to the
Company) from the respective bonus payment or commission payment date, as such
terms are defined in the Plan. Certain benefits of ownership, including the
payment of any dividends declared during the restricted period, belong to the
employees. Unlike the ESPP, cash amounts credited to a participant's deferral
account and shares of common stock acquired through the Plan are subject to
forfeiture in certain events of termination of employment. Unearned compensation
associated with the restricted stock represents the market value of NBI common
stock at the date of issuance and is recognized as compensation expense ratably
over the vesting period. The Plan, which has an unlimited term, became effective
during September 2000. In December 2000, the Company recorded a credit to
capital stock and a corresponding debit to unearned compensation for the
issuance of 29,171 shares of common stock with an approximate market value of
$2,298,000 related to the Plan. Subsequent to December 31, 2000, the Company
issued from treasury, 71,264 shares of common stock with an approximate market
value of $5,635,000 related to the Plan.
13. INCOME TAXES
Prior to the Exchange in 1999, the Company primarily operated as two
different types of tax entities. These entities included a Limited Liability
Company (taxed as a Partnership) and S-Corporation and as such, the combined
entities income prior to October 7, 1999, was not subject to U.S. federal income
taxes. The principals of the Company's predecessor partnership were taxed on
their proportionate share of the partnership's taxable income or loss.
Effective with the Exchange, the Company became subject to U.S. federal,
state and local corporate income taxes and has elected to file a federal
consolidated income tax return.
41
NEUBERGER BERMAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. INCOME TAXES (CONTINUED)
The components of pre-tax earnings and income tax expense and benefits
reflected in the consolidated statements of income are set forth below (000's
omitted):
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
2000 1999 1998
--------- ---------- ---------
NET INCOME BEFORE TAXES.............................. $246,921 $ 123,372 $294,457
======== ========= ========
CURRENT TAXES:
U.S. federal..................................... $ 75,356 $ 14,982 $ --
State and local.................................. 30,959 21,250 9,506
-------- --------- --------
106,315 36,232 9,506
-------- --------- --------
DEFERRED TAXES:
U.S. federal..................................... (6,922) (35,290) --
State and local.................................. (2,828) (13,137) --
-------- --------- --------
(9,750) (48,427) --
-------- --------- --------
TAX (BENEFIT) EXPENSE................................ $ 96,565 $ (12,195) $ 9,506
======== ========= ========
The Company accounts for taxes in accordance with SFAS No. 109, "Accounting
for Income Taxes." Deferred income taxes reflect the net tax effects of
temporary differences between the financial reporting and tax bases of assets
and liabilities and are measured using the enacted tax rates and laws that will
be in effect when such differences are expected to reverse. Significant
components of the Company's net deferred tax assets as of December 31, 2000 and
1999, include deferred tax assets consisting of: compensation and benefits,
charitable contributions, depreciation and amortization. Deferred tax
liabilities consist of unrealized gains on marketable securities.
Management of the Company has not established a valuation allowance for its
net deferred tax asset because they conclude that it is more likely than not the
benefit will be realized.
A reconciliation of the statutory U.S. federal income tax rate of 35% to the
Company's effective income tax rate is set forth below:
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
2000 1999 1998
------- -------- -----
U.S. STATUTORY RATE..................................... 35.00% 35.00% --
INCREASE (DECREASE) RELATED TO:
State and local taxes, net of U.S. income tax
effects........................................... 8.15% 8.17% 3.23%
Other............................................... (.09%) 0.13% --
------- -------- -----
Rate before Reorganization and IPO Charges and effect
from changes in the value of the stock price.......... 43.06% 43.30% 3.23%
Rate benefit for partnership period..................... -- (63.02%) --
Adjustment in benefit related to movement in stock
price................................................. (3.95%) 9.84% --
------- -------- -----
EFFECTIVE TAX RATE...................................... 39.11% (9.88%) 3.23%
======= ======== =====
The Company's effective tax rate in 1999 included a rate benefit
attributable to the Company generally not being subject to corporate taxes on
its earnings prior to its conversion to corporate form.
42
NEUBERGER BERMAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. INCOME TAXES (CONTINUED)
The value of the Company's deferred tax asset relating to the unvested
shares in the Stock Incentive Plan fluctuated with the price of the Company's
stock from December 31, 1999 to June 30, 2000. In March 2000, the FASB issued
FASB Interpretation No. 44 "Accounting for Certain Transactions Involving Stock
Compensation," an interpretation of APB Opinion No. 25 ("FIN 44"). The Company
adjusted, based upon the price of its common stock at the close of business on
June 30, 2000, the carrying value of the deferred tax asset that relates to
unvested shares in the Stock Incentive Plan. FIN 44 became effective on July 1,
2000, and now requires that the deferred tax asset be determined by the
compensation expense recognized for financial reporting purposes. Accordingly,
at June 30, 2000, the Company fixed the carrying value of its deferred tax asset
for unvested shares in its Stock Incentive Plan, based upon the price of NBI's
common stock at the close of business that day.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
Substantially all financial instruments carried at contract value, such as
receivable and payable to clients, brokers, dealers and clearing organizations,
repurchase agreements, fees receivable, bank loans and the Note, approximate
market value due to their relatively short-term nature or variable market rates
of interest.
15. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK
In the normal course of business, the Company enters into various debt and
equity transactions as principal or agent. The execution, settlement and
financing of these transactions can result in off-balance sheet risk or
concentrations of credit risk.
The Company has a high net worth and institutional client base. The Company
records client securities transactions on a settlement date basis, which is
generally three business days after trade date. The Company is exposed to
off-balance sheet risk of loss on unsettled transactions in the event clients
and other counterparties are unable to fulfill contractual obligations.
The Company's policy is to monitor continuously its exposure to market and
counterparty risk through the use of a variety of credit exposure, position and
financial reporting and control procedures. In addition, the Company has a
policy of reviewing the credit standing, where applicable, of each
broker-dealer, client and other counterparty with which it conducts business.
The Company monitors the market value of collateral and requests and receives
additional collateral when required.
For transactions in which the Company extends credit to clients, the Company
seeks to control the risks associated with these activities by requiring clients
to maintain margin collateral in compliance with various regulatory and internal
guidelines. The Company monitors required margin levels daily and, pursuant to
such guidelines, requests the deposit of additional collateral, or reduces
securities positions when necessary. The Company's policy is to take possession
of securities purchased under agreements to resell.
As part of its prime brokerage business, the Company writes covered
over-the-counter put options on listed equity securities with certain of its
prime brokerage clients. Market risk is mitigated as the options are generally
deep in the money and covered by an equivalent number of securities sold but not
yet purchased. The fair value of such options was approximately $1,633,000 and
$3,694,000, at December 31, 2000 and 1999, respectively.
43
NEUBERGER BERMAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SEGMENT INFORMATION
Under the provisions of SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," the Company has four reportable segments:
Private Asset Management, Mutual Fund and Institutional, Professional Securities
Services and Corporate. The Private Asset Management segment provides customized
investment management services for high net worth individuals, families and
smaller institutions. Its revenues are principally investment advisory fees and
commissions. The investment advisory and administrative services that are
provided through our Mutual Fund and Institutional segment include: the
management of the Neuberger Berman family of mutual funds, investment management
of institutional separate account products and broker-advised products (wrap
accounts). Its revenues are principally investment advisory and administrative
fees and commissions. The Professional Securities Services segment provides
trade execution, clearing, custody, margin financing, portfolio reporting and
trust services, as well as consulting advice. The revenues derived by this
segment are principally commissions, net interest, trading revenues and
clearance fees. A fourth segment, "Corporate", has been introduced during the
fourth quarter of 2000, to reflect certain corporate results that were
previously allocated primarily to the Professional Securities Services segment.
Prior periods have been revised to conform with this presentation.
The Company does not record revenues from transactions between segments
(referred to as intersegment revenues).
The Company evaluates performance of its segments based on profit or loss
from operations before Reorganization and IPO Charges and taxes. No single
client accounted for more than 10% of the Company's combined revenues.
Information on statement of financial condition data by segment is not disclosed
because it is not used for evaluating segment performance and deciding how to
allocate resources to segments. Substantially all of the Company's revenues and
assets are attributable to or located in the United States.
Summarized information for the Company's reportable segments is presented in
the following table (000's omitted):
YEAR ENDED DECEMBER 31, 2000
----------------------------------------------------------------
MUTUAL
PRIVATE FUND PROFESSIONAL
ASSET AND SECURITIES
MANAGEMENT INSTITUTIONAL SERVICES CORPORATE TOTAL
---------- ------------- ------------ --------- --------
Investment advisory and
administrative fees......... $191,438 $206,965 $ 1,504 $ -- $399,907
Commissions................... 93,967 16,958 35,664 -- 146,589
Net interest income........... 5,041 1,229 34,544 (546) 40,268
Principal transactions in
securities.................. -- 72 10,670 (1,119) 9,623
Clearance fees................ -- -- 13,532 -- 13,532
Other income.................. 301 920 4,400 807 6,428
-------- -------- -------- --------- --------
Net revenues (loss) after
interest expense............ 290,747 226,144 100,314 (858) 616,347
Operating expenses............ 147,056 147,455 63,523 11,392 369,426
-------- -------- -------- --------- --------
Net income (loss) before
taxes....................... $143,691 $ 78,689 $ 36,791 $ (12,250) $246,921
======== ======== ======== ========= ========
44
NEUBERGER BERMAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SEGMENT INFORMATION (CONTINUED)
YEAR ENDED DECEMBER 31, 1999
----------------------------------------------------------------
MUTUAL
PRIVATE FUND PROFESSIONAL
ASSET AND SECURITIES
MANAGEMENT INSTITUTIONAL SERVICES CORPORATE TOTAL
---------- ------------- ------------ --------- --------
Investment advisory and
administrative fees......... $166,454 $211,839 $ 1,141 $ -- $379,434
Commissions................... 90,132 21,544 30,406 -- 142,082
Net interest income........... 3,498 30 23,025 (300) 26,253
Principal transactions in
securities.................. -- 142 7,924 1,937 10,003
Clearance fees................ -- -- 11,081 -- 11,081
Other income.................. 30 1,012 3,017 -- 4,059
-------- -------- -------- --------- --------
Net revenues after interest
expense..................... 260,114 234,567 76,594 1,637 572,912
Operating expenses excluding
Reorganization and IPO
Charges..................... 86,847 150,362 51,494 10,783 299,486
-------- -------- -------- --------- --------
Net income (loss) before
Reorganization and and IPO
Charges and taxes........... $173,267 $ 84,205 $ 25,100 $ (9,146) $273,426
======== ======== ======== ========= ========
YEAR ENDED DECEMBER 31, 1998
----------------------------------------------------------------
MUTUAL
PRIVATE FUND PROFESSIONAL
ASSET AND SECURITIES
MANAGEMENT INSTITUTIONAL SERVICES CORPORATE TOTAL
---------- ------------- ------------ --------- --------
Investment advisory and
administrative fees......... $145,578 $242,191 $ 1,469 $ -- $389,238
Commissions................... 89,705 25,352 30,912 -- 145,969
Net interest income........... 2,580 13 25,026 (166) 27,453
Principal transactions in
securities.................. -- 9 5,508 807 6,324
Clearance fees................ -- -- 9,146 -- 9,146
Other income.................. 70 1,178 2,756 -- 4,004
-------- -------- -------- --------- --------
Net revenues after interest
expense..................... 237,933 268,743 74,817 641 582,134
Operating expenses............ 67,252 162,642 43,458 14,325 287,677
-------- -------- -------- --------- --------
Net income (loss) before
taxes....................... $170,681 $106,101 $ 31,359 $ (13,684) $294,457
======== ======== ======== ========= ========
45
NEUBERGER BERMAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SEGMENT INFORMATION (CONTINUED)
The following table is a reconciliation of reportable segment net income,
before Reorganization and IPO Charges and taxes, to the Company's consolidated
totals.
TOTAL
--------
FOR THE YEAR ENDED DECEMBER 31, 2000
Net income before taxes................................... $246,921
Tax expense............................................... (96,565)
--------
Net income................................................ $150,356
========
FOR THE YEAR ENDED DECEMBER 31, 1999
Net income before Reorganization and IPO Charges and
taxes................................................... $273,426
Reorganization and IPO Charges............................ (150,054)
Tax benefit............................................... 12,195
--------
Net income................................................ $135,567
========
FOR THE YEAR ENDED DECEMBER 31, 1998
Net income before taxes................................... $294,457
Tax expense............................................... (9,506)
--------
Net income................................................ $284,951
========
17. RELATED PARTY TRANSACTIONS
During the years ended December 31, 2000, 1999 and 1998, the Company earned
approximately $13,028,000, $17,799,000 and $19,779,000, respectively, in
brokerage commissions from the Funds.
Certain employees of the Company are officers and/or trustees of the Funds.
The Company also reimbursed certain Funds for expenses during the years ended
December 31, 2000, 1999 and 1998, of approximately $1,770,000, $2,225,000 and
$1,502,000, respectively, to the extent that such Funds exceeded their specified
expense limitations.
Included in cash and cash equivalents is approximately $76,494,000 and
$78,038,000 related to investments in affiliated funds at December 31, 2000 and
1999, respectively.
46
NEUBERGER BERMAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
2000
-----------------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NET REVENUES AFTER INTEREST EXPENSE................. $155,412 $151,810 $151,650 $157,475
OPERATING EXPENSES.................................. 95,194 90,206 89,672 94,354
-------- -------- -------- --------
NET INCOME BEFORE TAXES............................. 60,218 61,604 61,978 63,121
TAX EXPENSE......................................... 19,977 22,899 26,713 26,976
-------- -------- -------- --------
NET INCOME.......................................... $ 40,241 $ 38,705 $ 35,265 $ 36,145
======== ======== ======== ========
NET INCOME PER COMMON SHARE:
BASIC............................................. $ 0.81 $ 0.79 $ 0.72 $ 0.74
======== ======== ======== ========
DILUTED........................................... $ 0.81 $ 0.78 $ 0.71 $ 0.73
======== ======== ======== ========
1999
------------------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NET REVENUES AFTER INTEREST EXPENSE................. $144,586 $143,602 $141,328 $ 143,396
OPERATING EXPENSES.................................. 70,384 72,172 70,429 236,555
-------- -------- -------- ---------
NET INCOME (LOSS) BEFORE TAXES...................... 74,202 71,430 70,899 (93,159)
TAX EXPENSE (BENEFIT)............................... 2,421 2,131 10,492 (27,239)
-------- -------- -------- ---------
NET INCOME (LOSS)................................... $ 71,781 $ 69,299 $ 60,407 $ (65,920)
======== ======== ======== =========
NET INCOME (LOSS) PER COMMON SHARE:
BASIC AND DILUTED................................. $ 1.68 $ 1.62 $ 1.42 $ (1.33)
======== ======== ======== =========
1998
-----------------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NET REVENUES AFTER INTEREST EXPENSE................. $138,446 $152,131 $147,558 $143,999
OPERATING EXPENSES.................................. 65,018 71,049 73,800 77,810
-------- -------- -------- --------
NET INCOME BEFORE TAXES............................. 73,428 81,082 73,758 66,189
TAX EXPENSE......................................... 2,076 2,730 2,258 2,442
-------- -------- -------- --------
NET INCOME.......................................... $ 71,352 $ 78,352 $ 71,500 $ 63,747
======== ======== ======== ========
NET INCOME PER COMMON SHARE:
BASIC AND DILUTED................................. $ 1.67 $ 1.84 $ 1.68 $ 1.49
======== ======== ======== ========
19. SUBSEQUENT EVENT
On January 18, 2001, NBI declared a quarterly cash dividend on its common
stock in the amount of $0.10 per share. The dividend was paid on February 13,
2001, to stockholders of record at the close of business on February 1, 2001.
47
NEUBERGER BERMAN INC. AND SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL STATEMENTS OF THE REGISTRANT PARENT
STATEMENT OF FINANCIAL CONDITION
(IN THOUSANDS)
DECEMBER 31, 2000 DECEMBER 31, 1999
----------------- -----------------
ASSETS
Receivables from subsidiaries............................... $ 47,971 $ 49,575
Investment in subsidiaries.................................. 248,331 177,033
Tax asset-net............................................... 46,811 27,326
Furniture, equipment and leasehold improvements and other
assets.................................................... 7,660 --
-------- --------
Total assets............................................ $350,773 $253,934
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Dividend payable.......................................... $ -- $ 4,962
Other liabilities and accrued expenses.................... 634 170
-------- --------
634 5,132
-------- --------
Stockholders' equity:
Common stock.............................................. 500 500
Other equity.............................................. 349,639 248,302
-------- --------
Total liabilities and stockholders' equity.............. $350,773 $253,934
======== ========
The accompanying notes are an integral part of the condensed financial
statements.
48
NEUBERGER BERMAN INC. AND SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL STATEMENTS OF THE REGISTRANT PARENT
(CONTINUED)
STATEMENT OF OPERATIONS
(IN THOUSANDS)
FOR THE PERIOD
FOR THE YEAR OCTOBER 8, 1999
ENDED DECEMBER 31, 2000 THROUGH DECEMBER 31, 1999
------------------------ -------------------------
REVENUES:
Other income.............................. $ 608 $ --
-------- --------
OPERATING EXPENSES:
Employee compensation and benefits........ 126 137,273
Other expenses............................ 1,950 10,000
-------- --------
TOTAL OPERATING EXPENSES................ 2,076 147,273
-------- --------
Loss from operations before equity in income
of subsidiaries and taxes................. (1,468) (147,273)
Equity in income of subsidiaries............ 141,384 26,845
-------- --------
NET INCOME (LOSS) BEFORE TAXES.......... 139,916 (120,428)
Tax benefit................................. (10,440) (50,689)
-------- --------
NET INCOME (LOSS)....................... $150,356 $(69,739)
======== ========
The accompanying notes are an integral part of the condensed financial
statements.
49
NEUBERGER BERMAN INC. AND SUBSIDIARIES
SCHEDULE I -- CONDENSED FINANCIAL STATEMENTS OF THE REGISTRANT PARENT
(CONTINUED)
STATEMENT OF CASH FLOWS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE PERIOD
FOR THE YEAR OCTOBER 8,, 1999
ENDED THROUGH
DECEMBER 31, 2000 DECEMBER 31, 1999
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................ $ 150,356 $ (69,739)
Adjustments to reconcile net income (loss) to net cash
used in operating activities--
Equity in income of subsidiaries....................... (141,384) (26,845)
Contribution to defined contribution stock incentive
plan................................................. -- 134,327
Deferred tax benefit................................... (9,750) (48,427)
Depreciation and amortization.......................... 608 --
(Increase) decrease in operating assets--
Receivables from subsidiaries.......................... 1,604 (49,575)
Tax asset--net......................................... (9,735) 21,101
Other assets........................................... (23) --
Increase (decrease) in operating liability--.............
Other liabilities and accrued expenses................. 464 170
--------- ---------
Net cash used in operating activities................ (7,860) (38,988)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of furniture, equipment and
leasehold improvements............................... (8,245) --
Cash received from subsidiaries........................ 80,000 --
Cash paid for acquisition.............................. (7,882) --
Investment in subsidiaries............................. (1,157) (40,871)
--------- ---------
Cash provided by (used in) investing activities...... 62,716 (40,871)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock............................... -- 87,933
Payments for dividends................................. (19,646) --
Purchase of treasury stock............................. (35,210) ( 8,074)
--------- ---------
Net cash (used in) provided by financing
activities......................................... (54,856) 79,859
--------- ---------
Net increase (decrease) in cash and cash
equivalents........................................ -- --
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........... -- --
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD................. $ -- $ --
========= =========
The accompanying notes are an integral part of the condensed financial
statements.
50
NEUBERGER BERMAN INC. AND SUBSIDIARIES
SCHEDULE I -- CONDENSED FINANCIAL STATEMENTS OF THE REGISTRANT PARENT
(CONTINUED)
STATEMENT OF CASH FLOWS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
NBI made no interest payments for the year ended December 31, 2000, and for
the period October 8, 1999 through December 31, 1999.
Tax payments totaled $109,683 during the year ended December 31, 2000. NBI
made no tax payments for the period October 8, 1999 through December 31, 1999.
SUPPLEMENTAL DISCLOSURES OF NON-CASH OPERATING, INVESTING AND FINANCING
ACTIVITIES:
On October 7, 1999, the principals of NB, LLC and the shareholders of NBMI
exchanged their ownership interests for shares of NBI. As a result, NBI
recognized a non-cash increase of $109,317 in investment in subsidiaries.
In connection with NBI's initial public offering, an initial, irrevocable
non-cash contribution of 4,264,344 shares of its common stock was made to a
defined contribution stock incentive plan. The non-cash expense associated with
the contribution totaled $134,327 and was recognized on the date it was funded,
in accordance with SFAS No. 87. NBI recorded a deferred tax benefit of $46,262
related to the contribution.
On November 23, 1999, NBI declared an initial quarterly cash dividend on its
common stock in the amount of $0.10 per share. The dividend was paid on January
25, 2000, to stockholders of record at the close of business on January 11,
2000.
On December 27, 1999, NBI made a cash contribution of $10,000 to the
Neuberger Berman Foundation. In connection with the cash contribution, NBI
recorded a deferred tax benefit of $2,165.
NBI increased, based upon the price of its common stock at the close of
business on June 30, 2000, the carrying value of the deferred tax asset
resulting from its initial, irrevocable non-cash contribution of 4,264,344
shares referred to above, by $9,750.
As part of the purchase price for the private asset management business of
Delta Capital Management LLC ("Delta"), on December 15, 2000, NBI issued 10,973
shares of common stock from treasury with a market value of $875. In addition,
NBI contributed its $8,757 investment in Delta to NB, LLC.
In connection with an employee stock ownership plan, NBI issued 29,171
shares of common stock, with a market value of $2,298, from treasury. This
purchase of shares was recorded as a credit to capital stock with a
corresponding debit to other equity.
The accompanying notes are an integral part of the condensed financial
statements.
51
NEUBERGER BERMAN INC. AND SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL STATEMENTS OF THE REGISTRANT PARENT
(CONTINUED)
NOTES TO CONDENSED FINANCIAL STATEMENTS:
The condensed financial statements of the registrant should be read in
conjunction with the consolidated financial statements and notes to consolidated
financial statements which are included elsewhere in this report.
Investment in subsidiaries represents NBI's investment in its subsidiary
companies. Income and losses of the subsidiaries are recognized using equity
method accounting.
Receivables from subsidiaries include cash advances and amounts due under
intra-corporate tax sharing arrangements.
Dividends paid to NBI by its wholly owned subsidiaries, NB,LLC and NBMI,
were $55,000,000 and $25,000,000, respectively, for the year ended December 31,
2000. No dividends were paid to NBI for the period October 8, 1999 through
December 31, 1999.
Certain prior year amounts have been reclassified to conform with the
December 31, 2000, presentation.
SUBSEQUENT EVENT
On January 18, 2001, NBI declared a quarterly cash dividend on its common
stock in the amount of $0.10 per share. The dividend was paid on February 13,
2001, to stockholders of record at the close of business on February 1, 2001.
52
ITEM 9.-- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10.--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 is incorporated by reference to the
Company's definitive proxy statement for the 2001 Annual Meeting of Stockholders
to be filed with the Securities and Exchange Commission.
ITEM 11.--EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated by reference to the
Company's definitive proxy statement for the 2001 Annual Meeting of Stockholders
to be filed with the Securities and Exchange Commission.
ITEM 12.--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is incorporated by reference to the
Company's definitive proxy statement for the 2001 Annual Meeting of Stockholders
to be filed with the Securities and Exchange Commission.
ITEM 13.--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is incorporated by reference to the
Company's definitive proxy statement for the 2001 Annual Meeting of Stockholders
to be filed with the Securities and Exchange Commission.
PART IV
ITEM 14.--EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) DOCUMENTS FILED AS PART OF THIS REPORT:
1. Consolidated Financial Statements.
The consolidated financial statments required to be filed as
part of this Annual Report on Form 10-K are listed in the
index to Item 8 of this Report.
2. Financial Statement Schedules.
The financial statement schedules required to be filed as
part of this Annual Report on Form 10-K are listed in the
index to Item 8 of this Report.
3. Exhibits.
2.1 Plan of Merger and Exchange Agreement, dated as of
August 2, 1999, by and among Neuberger Berman Inc.,
Neuberger Berman, LLC, the members of Neuberger Berman, LLC,
Neuberger Berman Management Inc., the shareholders of
Neuberger Berman Management Inc. and Neuberger Berman Sub
Inc., a New York corporation.*
2.2 Amendment No. 1, dated as of September 30, 1999, to the Plan
of Merger and Exchange Agreement, dated as of August 2,
1999.**
3.1 Certificate of Incorporation.*
53
3.2 By-Laws, as amended October 7, 1999. (filed herewith)
4.1 Specimen of Common Stock Certificate.*
4.2 Stockholders Agreement, dated as of August 2, 1999, by and
among Neuberger Berman Inc. and the stockholders named
therein.*
10.1 1999 Neuberger Berman Inc. Directors Stock Incentive Plan.*
10.2 1999 Neuberger Berman Inc. Long-Term Incentive Plan.*
10.3 1999 Neuberger Berman Inc. Annual Incentive Plan.*
10.4 1999 Neuberger Berman Inc. Deferred Compensation Plan.*
10.5 Neuberger Berman Inc. Employee Defined Contribution Stock
Incentive Plan, as amended January 21, 2000.***
10.6 Non-Competition Agreement, dated as of August 2, 1999, by
and among the Company and the stockholders named therein.*
10.7 Form of Employment Agreement, dated August 2, 1999, between
Neuberger Berman, LLC and each continuing principal.*
10.8 Subordinated Loan Agreement, dated as of August 31, 1998,
between Neuberger Berman, LLC and NB Associates, LLC.*
10.9 First Amendment, dated March 30, 1999, to Subordinated Loan
Agreement, dated August 31, 1998, between Neuberger Berman,
LLC and NB Associates, LLC.*
10.10 Second Amendment, dated September 1, 1999, to subordinated
Loan Agreement, dated August 31, 1998, between Neuberger
Berman, LLC and NB Associates, LLC.*
10.11 $15,000,000 Promissory Note due September 1, 2000, issued by
Neuberger Berman, LLC to NB Associates, LLC on September 1,
1999.*
10.12 Subordinated Note Purchase Agreement, dated September 1,
1999, between Neuberger Berman, LLC and The Travelers
Insurance Company.*
10.13 $10,000,000 Floating Rate Subordinated Note due
September 1, 2004, issued by Neuberger Berman, LLC to Tral &
Co. on September 1, 1999.*
10.14 $25,000,000 Floating Rate Subordinated Note due September 1,
2004, issued by Neuberger Berman, LLC to Tral & Co. on
September 1, 1999.*
10.15 Neuberger Berman Inc. Wealth Accumulation Plan.****
10.16 Neuberger Berman Inc. Employee Stock Purchase Plan.****
10.17 Amendment No. 1 to the 1999 Neuberger Berman Inc. Directors
Stock Incentive Plan (filed herewith).
10.18 Amendment No. 1 to the 1999 Neuberger Berman Inc. Long-Term
Incentive Plan (filed herewith).
10.19 Amendment No. 1 to the 1999 Neuberger Berman Inc. Annual
Incentive Plan (filed herewith).
10.20 Amendment No. 2 to the Neuberger Berman Inc. Employee
Defined Contribution Stock Incentive Plan (filed herewith).
10.21 Neuberger Berman Inc. Wealth Accumulation Plan, Amended and
Restated as of September 1, 2000 (filed herewith).
10.22 Neuberger Berman Inc. Employee Stock Purchase Plan, Amended
and Restated as of September 1, 2000 (filed herewith).
21.1 Subsidiaries of the Company (filed herewith).
54
23.1 Consent of Arthur Andersen LLP (filed herewith).
- ------------------------
* Incorporated by reference to the corresponding exhibit to the Registrant's
Registration Statement on Form S-1 (No. 333-84525).
** Incorporated by reference to the corresponding exhibit to the Registrant's
Amendment No. 4 to Registration Statement on Form S-1 (No. 333-84525).
*** Incorporated by reference to the corresponding exhibit to the Registrant's
Annual Report on Form 10-K for the period ended December 31, 1999 (No.
001-15361)
****Incorporated by reference to the corresponding exhibit to the Registrant's
Quarterly Report on Form 10-Q, filed on August 11, 2000 (No. 001-15361)
(B) REPORTS ON FORM 8-K:
1. Form 8-K dated October 16, 2000, Items 5 and 7
Exhibits:
Exhibit 99.1 Press release with respect to the agreement to acquire the
business of Fasciano Company, Inc.
Financial Statements:
Exhibit 99.2 Results of Operations for the three months ended
September 30, 2000
Exhibit 99.3 Declaration of Third Quarter Dividend
2. Form 8-K dated October 31, 2000, Items 5 and 7
Exhibits:
Exhibits 99.1 Press release with respect to the agreement to acquire the
private asset management business of Delta Capital
Management, LLC.
3. Form 8-K dated December 21, 2000, Items 5 and 7
Exhibits:
Exhibit 99.1 Press release with respect to the agreement to acquire
Executive Monetary Management Inc.
55
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.
NEUBERGER BERMAN INC.
By: /s/ JEFFREY B. LANE
-----------------------------------------
Jeffrey B. Lane
President and Chief Executive Officer
Dated: March 9, 2001
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 and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ LAWRENCE ZICKLIN
------------------------------------------- Chairman of the Board March 9, 2001
Lawrence Zicklin and Director
/s/ RICHARD A. CANTOR
------------------------------------------- Vice Chairman and Director March 9, 2001
Richard A. Cantor
/s/ MARVIN C. SCHWARTZ
------------------------------------------- Vice Chairman and Director March 9, 2001
Marvin C. Schwartz
/s/ JEFFREY B. LANE
------------------------------------------- President, Chief Executive March 9, 2001
Jeffrey B. Lane Officer and Director
/s/ NATHAN GANTCHER
------------------------------------------- Director March 9, 2001
Nathan Gantcher
/s/ DAVID W. GLENN
------------------------------------------- Director March 9, 2001
David W. Glenn
/s/ MICHAEL M. KASSEN Executive Vice President,
------------------------------------------- Chief Investment Officer March 9, 2001
Michael M. Kassen and Director
56
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JON C. MADONNA
------------------------------------------- Director March 9, 2001
Jon C. Madonna
/s/ ROBERT MATZA Executive Vice President,
------------------------------------------- Chief Operating Officer March 9, 2001
Robert Matza and Director
/s/ JACK H. NUSBAUM
------------------------------------------- Director March 9, 2001
Jack H. Nusbaum
/s/ HEIDI L. SCHNEIDER
------------------------------------------- Executive Vice President March 9, 2001
Heidi L. Schneider and Director
/s/ CHRISTINE SMITH
------------------------------------------- Controller March 9, 2001
Christine Smith
/s/ MATTHEW S. STADLER
------------------------------------------- Senior Vice President March 9, 2001
Matthew S. Stadler and Chief Financial Officer
/s/ PETER E. SUNDMAN
------------------------------------------- Executive Vice President March 9, 2001
Peter E. Sundman and Director
57