<PAGE>
FORM 10-Q
SECURITIES EXCHANGE COMMISSION
WASHINGTON, DC 20549
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarter Ended September 30, 1999
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from________to________
Commission file number 001-15361
-------------------
NEUBERGER BERMAN INC.
(Exact name of Registrant as specified in its charter)
Delaware 06-1523639
-----------------------------------------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No)
605 Third Avenue, New York, Ny 10158 (Address of principal
executive offices) (Zip code)
(212) 476-9000
(Registrant's telephone number)
---------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 No X
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
49,970,920 shares of Common Stock, par value $.01 per share, were
outstanding on November 12, 1999.
<PAGE>
NEUBERGER BERMAN INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I - Financial Information
Item 1. - Financial Statements
Condensed Combined Statements of Financial Condition
As of September 30, 1999 (Unaudited) and December 31, 1998..................3
Condensed Combined Statements of Income (Unaudited)
For the Three Months Ended September 1999 and 1998 and the Nine Months
Ended September 1999 and 1998...............................................4
Condensed Combined Statements of Cash Flows (Unaudited)
For the Nine Months Ended September 1999 and 1998...........................5
Notes to Condensed Combined Financial Statements (Unaudited)........................6
Item 2. - Management's Discussion and Analysis of
Financial Condition and Results of Operations..............................10
Item 3. - Quantitative and Qualitative Disclosures About Risk...........................23
Part II - Other Information
Item 1. - Legal Proceedings.............................................................24
Item 2. - Changes in Securities and Use of Proceeds.....................................24
Item 6. - Exhibits and Reports on Form 8-K..............................................25
Signatures..............................................................................28
</TABLE>
NOTE: FORWARD LOOKING STATEMENTS
Statements regarding the Company's expectations as to its future operations and
financial condition and certain other information contained in this Form 10-Q or
in documents incorporated herein by reference constitute forward looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Although the Company believes that its expectations are based on
reasonable assumptions within the bounds of its knowledge of its business and
operations, there can be no assurance that actual results will not differ
materially from its own expectations. Factors which could cause actual results
to differ from expectations include a general downturn in the economy, changes
in the level of activity of securities markets in which the Company participates
and changes in government policy or regulation.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NEUBERGER BERMAN, LLC AND SUBSIDIARIES
AND NEUBERGER BERMAN MANAGEMENT INC.
CONDENSED COMBINED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
-------------------- -------------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 51,865 $ 50,383
Cash and securities segregated for the exclusive benefit
of clients 691,519 657,278
Cash and securities deposited with clearing organizations 5,162 3,591
Securities purchased under agreements to resell 76,400 496,769
Receivable from brokers, dealers and clearing organizations 2,009,369 2,223,870
Receivable from clients 351,295 326,235
Securities owned, at market value 16,299 12,189
Other assets 57,814 59,120
-------------------- -------------------
Total assets $ 3,259,723 $ 3,829,435
==================== ===================
LIABILITIES, PRINCIPALS' CAPITAL
AND STOCKHOLDERS' EQUITY
Liabilities:
Bank loans $ 11,000 $ 25,000
Securities sold under agreements to repurchase 18,000 488,159
Payable to brokers, dealers and clearing organizations 1,268,458 1,368,971
Payable to clients 1,636,739 1,624,894
Securities sold but not yet purchased, at market value 62,950 50,410
Other liabilities and accrued expenses 70,782 59,138
Payable to principals 32,729 53,664
-------------------- -------------------
3,100,658 3,670,236
Subordinated liabilities 50,000 50,000
-------------------- -------------------
Total liabilities 3,150,658 3,720,236
-------------------- -------------------
Commitments and contingencies
Principals' capital and stockholders' equity:
Principals' capital 100,000 100,000
Common stock, $.01 par value; 34,484 shares authorized,
12,500 and 12,668 issued and outstanding as of September
30, 1999 and December 31, 1998, respectively
Paid-in capital 2,742 2,876
Retained earnings 6,323 6,323
-------------------- -------------------
Total principals' capital and stockholders' equity 109,065 109,199
-------------------- -------------------
Total liabilities, principals' capital and stockholders' equity $ 3,259,723 $ 3,829,435
==================== ===================
</TABLE>
The accompanying notes to condensed combined financial
statements are an integral part of these statements.
3
<PAGE>
NEUBERGER BERMAN, LLC AND SUBSIDIARIES
AND NEUBERGER BERMAN MANAGEMENT INC.
CONDENSED COMBINED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September Ended September
--------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Investment advisory and administrative fees $ 95,490 $ 96,638 $279,888 $291,039
Commissions 32,921 37,857 107,169 105,702
Interest 37,601 40,150 114,340 119,903
Principal transactions in securities 882 796 5,997 3,498
Clearance fees 2,945 2,360 8,159 6,520
Other income 683 269 3,537 2,643
-------- -------- -------- --------
Gross revenues 170,522 178,070 519,090 529,305
Interest expense 31,401 33,055 96,554 99,149
-------- -------- -------- --------
Net revenues after interest expense 139,121 145,015 422,536 430,156
-------- -------- -------- --------
OPERATING EXPENSES:
Employee compensation and benefits 34,492 35,451 105,557 100,597
Information technology 4,746 3,532 13,476 10,961
Rent and occupancy 4,654 3,300 11,211 8,985
Brokerage, clearing and exchange fees 2,636 2,931 7,803 7,568
Advertising and sales promotion 755 1,722 6,878 8,757
Distribution and fund administration 2,393 3,207 7,907 9,577
Professional fees 1,903 4,745 6,837 8,932
Depreciation and amortization 2,940 1,866 7,831 5,017
Other expenses 6,429 5,225 15,540 12,291
-------- -------- -------- --------
Total operating expenses 60,948 61,979 183,040 172,685
-------- -------- -------- --------
Net income before principal compensation
and taxes 78,173 83,036 239,496 257,471
Principal compensation 7,274 9,278 22,965 29,203
-------- -------- -------- --------
Net income before taxes 70,899 73,758 216,531 228,268
Taxes 10,492 2,258 15,044 7,064
-------- -------- -------- --------
Net income $ 60,407 $ 71,500 $201,487 $221,204
======== ======== ======== ========
Net income per common share
Basic and diluted:
Net income per share $ 1.42 $ 1.68 $ 4.72 $ 5.19
======== ======== ======== ========
Weighted average common shares
outstanding 42,675 42,565 42,710 42,641
======== ======== ======== ========
</TABLE>
The accompanying notes to condensed combined financial
statements are an integral part of these statements.
4
<PAGE>
NEUBERGER BERMAN, LLC AND SUBSIDIARIES
AND NEUBERGER BERMAN MANAGEMENT INC.
CONDENSED COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
For the Nine Months For the Nine Months
Ended September 1999 Ended September 1998
------------------------ ------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 201,487 $ 221,204
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 7,831 5,017
(Increase) decrease in operating assets:
Cash and securities segregated for the exclusive
benefit of clients (34,241) (407,648)
Cash and securities deposited with clearing organizations (1,571) (39)
Securities purchased under agreements to resell 420,369 (217,524)
Receivable from brokers, dealers and clearing organizations 214,501 (334,550)
Receivable from clients (25,060) 99,917
Securities owned, at market value (4,110) (214)
Other assets 5,280 3,752
Increase (decrease) in operating liabilities:
Bank loans (14,000) (10,000)
Securities sold under agreements to repurchase (470,159) 204,143
Payable to brokers, dealers and clearing organizations (100,513) 360,625
Payable to clients 11,845 233,125
Securities sold but not yet purchased, at market value 12,540 16,741
Other liabilities and accrued expenses 11,644 8,296
------------------------ ------------------------
Net cash provided by operating activities 235,843 182,845
------------------------ ------------------------
CASH FLOWS FROM INVESTING ACTIVITY:
Payments for purchases of furniture, equipment and
leasehold improvements (11,805) (8,693)
------------------------ ------------------------
Cash used in investing activity (11,805) (8,693)
------------------------ ------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from capital contributions 525 8,410
Payments for capital withdrawals (525) (58,410)
Payments for capital distributions and dividends (222,422) (239,951)
Common stock issuance 134
Repurchase and retirement of common stock (134) (380)
Proceeds from subordinated liabilities 35,000 50,000
Repayment of subordinated liabilities (35,000)
------------------------ ------------------------
Net cash used in financing activities (222,556) (240,197)
------------------------ ------------------------
Net increase (decrease) in cash and cash equivalents 1,482 (66,045)
CASH AND CASH EQUIVALENTS, beginning of period 50,383 103,446
------------------------ ------------------------
CASH AND CASH EQUIVALENTS, end of period $ 51,865 $ 37,401
======================== ========================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 93,833 $ 97,451
Taxes 6,185 5,836
</TABLE>
The accompanying notes to condensed combined financial
statements are an integral part of these statements.
5
<PAGE>
NEUBERGER BERMAN, LLC AND SUBSIDIARIES
AND NEUBERGER BERMAN MANAGEMENT INC.
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
The condensed combined financial statements include the accounts of Neuberger
Berman, LLC and subsidiaries ("NB, LLC"), a Delaware limited liability company,
and Neuberger Berman Management Inc. ("NBMI"), a New York corporation
(collectively, the "Company"). The Company's wholly owned subsidiaries are
Neuberger Berman Trust Company, a New York corporation, Neuberger Berman Trust
Company of Delaware, a Delaware corporation, Neuberger Berman Trust Company of
Florida, a Florida corporation, and Neuberger & Berman Agency Inc., a New York
corporation. Material intercompany transactions and balances have been
eliminated in combination. The condensed combined financial statements do not
include the financial condition and results of operations of NB Associates, LLC
("Associates"), a Delaware limited liability company, which is commonly owned by
the principals and was established to make a subordinated loan to the Company.
The Company is a registered investment advisor providing investment management
services to high net worth clients, mutual funds, and institutional clients. As
a registered investment advisor, the Company manages equity, fixed income,
balanced, socially responsive, and international portfolios for individuals,
families, endowments, foundations, trusts, employee benefit plans, and 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. BASIS OF PRESENTATION
The accompanying unaudited condensed combined financial statements do not
include all of the information and notes required by generally accepted
accounting principles for complete combined financial statements. In the opinion
of management, all adjustments considered necessary for a fair presentation of
condensed combined financial condition and results of operations for the periods
presented have been included. All adjustments are of a normal and recurring
nature. It is suggested that these condensed combined financial statements be
read in conjunction with the combined financial statements and the related notes
included in Neuberger Berman Inc.'s ("NBI") prospectus dated October 6, 1999.
Certain prior year amounts have been reclassified to conform to the nine months
ended September 30, 1999 presentation.
6
<PAGE>
3. SUBORDINATED LIABILITIES
On September 1, 1999, the Travelers Insurance Company loaned NB, LLC $35 million
pursuant to a subordinated promissory note, the proceeds of which were used to
partially pay down an existing $50 million subordinated loan from Associates.
The loan is payable on September 1, 2004 and includes 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. Interest accrues on the
principal amount of the loan at a floating rate adjusted quarterly based on the
three month LIBOR rate plus 75 basis points and is payable quarterly. The loan
was approved by the New York Stock Exchange, Inc. ("NYSE") and the principal
amount is available to NB, LLC in computing net capital under Securities
Exchange Commission ("SEC") Rule 15c3-1.
See Note 8 for additional disclosure.
4. NET CAPITAL
NB, LLC and NBMI, as registered broker-dealers and member firms of the NYSE and
the National Association of Securities Dealers, Inc. ("NASD"), respectively, are
subject to the Uniform Net Capital Rule 15c3-1 of the SEC, which requires that
broker-dealers maintain a minimum level of net capital, as defined. As of
December 31, 1998 and September 30, 1999 (unaudited), NB, LLC and NBMI had
combined net capital in the aggregate of $147,160,000 and $129,027,000,
respectively, which exceeded their combined requirements by $125,137,000 and
$109,247,000, respectively.
5. NET INCOME PER COMMON SHARE
Net income per common share is computed using the weighted average number of
shares of common stock. For purposes of determining weighted average shares
outstanding for the periods prior to the Company's reorganization from
partnership to corporate form in October, 1999, the outstanding shares were
determined based upon the conversion ratio to effect the exchange of principals'
capital for common stock. Pro rata distributions of earnings and capital to the
principals were not considered to effect outstanding shares.
The Company did not have any common stock equivalents for the computation of
diluted earnings per common share.
6. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company is subject to various legal
proceedings. However, in management's opinion, based on currently available
information, there are no legal proceedings pending against the Company or any
of
7
<PAGE>
its subsidiaries that would have a material adverse effect on the Company's
financial position, results of operations or liquidity.
7. SEGMENT INFORMATION
Under the provisions of Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information," the
Company has three reportable segments: Private Asset Management, Mutual Fund and
Institutional and Professional Securities Services. The Private Asset Management
segment provides asset management services to high net worth individuals,
families and smaller institutions. Its revenues are principally investment
advisory fees and commissions. The Mutual Fund and Institutional segment
provides advisory services to mutual funds, institutional clients and wrap fee
programs. Its revenues are principally investment advisory and
administrative fees and commissions. The Professional Securities Services
segment generates income primarily by marketing services to third party
investment advisors and professional investors. These services include
professional investor clearing services, research sales, market maker trading
and trust services. The revenues derived by this segment are principally
commissions, net interest and clearance fees.
The Company does not record revenues from transactions between segments
(referred to as intersegment revenues).
The Company evaluates the performance of its segments based on profit or loss
from operations before 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 financial information for the Company's reportable segments is
presented in the following table (000's omitted):
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September September
------------------------------ -------------------------------
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
PRIVATE ASSET MANAGEMENT
Net revenues after interest expense $ 65,271 $ 60,408 $ 194,398 $ 177,216
Net income before taxes $ 45,148 $ 43,583 $ 137,991 $ 126,103
MUTUAL FUND AND INSTITUTIONAL
Net revenues after interest expense $ 57,352 $ 65,308 $ 172,801 $ 198,489
Net income before taxes $ 22,002 $ 27,801 $ 64,155 $ 84,516
PROFESSIONAL SECURITIES SERVICES
Net revenues after interest expense $ 16,498 $ 19,299 $ 55,337 $ 54,451
Net income before taxes $ 3,749 $ 2,374 $ 14,385 $ 17,649
TOTAL
Net revenues after interest expense $ 139,121 $ 145,015 $ 422,536 $ 430,156
Net income before taxes $ 70,899 $ 73,758 $ 216,531 $ 228,268
</TABLE>
8
<PAGE>
8. SUBSEQUENT EVENTS
On October 7, 1999, the principals of NB, LLC and the shareholders of NBMI
exchanged their ownership interests for 42,727,273 shares of NBI. On October 13,
1999, NBI completed its initial public offering. In that offering, NBI sold
3,030,303 shares of common stock and received net proceeds after expenses of
approximately $89 million.
During the fourth quarter of fiscal 1999, the Company intends to take a
non-recurring charge of approximately $150 million before taxes for the
following items: an initial irrevocable contribution to the Company's defined
contribution plan, a cash contribution to the Neuberger Berman Foundation and
severance payments.
On October 29, 1999, NB, LLC paid back the remaining $15 million subordinated
liability with Associates, pursuant to NYSE approval.
The Company's Board of Directors has authorized a discretionary repurchase of up
to $50 million of common stock. This authorization states that purchases may be
made from time to time in the open market and in negotiated transactions,
subject to market conditions.
9
<PAGE>
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS ENVIRONMENT
The third quarter of 1999 was a challenging one for the U.S. equity markets. The
Federal Reserve Board increased short-term interest rates twice during the
summer in an attempt to forestall a potential re-acceleration of inflation in a
relatively fast-growing economy. While higher short-term rates had little actual
impact on corporate earnings, stock market investors responded by selling off
their holdings in a variety of industries, including financial services, capital
goods, consumer staples and consumer cyclicals. Investors especially punished
financial stocks for earnings disappointments amidst the rising interest rate
environment. About the only sectors that performed well were the technology and
energy sectors of the economy. As a result, the S&P 500 Index decreased 6.23% in
the quarter. The Russell 2000 Index, made up of small-cap stocks, decreased
6.32%. The technology-laden Nasdaq Composite, on the other hand, increased by a
modest 2.24%.
Also, the value-stock rally that had begun in April 1999 was not sustained in
the third quarter. During the third quarter, value stocks underperformed growth
stocks, evidenced by a negative 9.80% return by the Russell 1000 Value Index
compared to a negative 3.66% return by the Russell 1000 Growth Index.
The Company's mutual fund business continues to pursue an aggressive
multi-channel distribution strategy, targeting both the number and penetration
of its relationships with various types of institutions. The Company's immediate
goal is to reverse the recent downturn in assets under management and related
revenues in the Mutual Fund and Institutional segment. The pace of net asset
withdrawals slowed in the third quarter of 1999 to $1.0 billion. This represents
a decline in net asset withdrawals from $2.4 billion in the second quarter of
1999 and $2.1 billion in the first quarter of 1999. The addition of several
seasoned portfolio managers, a restructuring of certain investment teams, and
more diversification in our product offerings and investment styles have
produced improvement in the performance of our portfolios in 1999.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 1999 AND 1998
The Company reported net income before taxes of $70.9 million for the third
quarter ended September 1999, representing a decrease of $2.9 million, or 3.9%
compared to the third quarter ended September 1998. The results for 1999 reflect
an overall decrease in profitability in the Mutual Fund and Institutional
segment which had net asset withdrawals. The Private Asset Management segment
was slightly more profitable in the third quarter of 1999 versus the third
quarter of 1998, increasing $1.6 million. The Professional Securities Services
segment net income before taxes increased $1.4 million in the third quarter of
1999 as compared to the third quarter of
10
<PAGE>
1998. Excluding the expenses attributable to the 1998 proposed initial public
offering that was withdrawn, net income before taxes decreased by $1.1 million.
Net revenues decreased by $5.9 million for the third quarter of 1999, to $139.1
million, a decrease of 4.1% compared to the same period in 1998. Strong results
in the Private Asset Management segment were offset by a decrease in the Mutual
Fund and Institutional segment due to lower levels of average assets under
management resulting from net asset withdrawals. Net revenues in the
Professional Securities Services segment decreased slightly due to lower
commissions and net interest income.
The following tables of selected financial data present the Company's segments
in a manner consistent with the way the Company manages its businesses. The
Company has been segregated into three major business segments: Private Asset
Management, Mutual Fund and Institutional and Professional Securities Services.
Each business segment represents a grouping of financial activities and products
with similar characteristics. These segments result in revenues that are
recognized in multiple categories contained in the Company's condensed combined
statements of income.
11
<PAGE>
<TABLE>
<CAPTION>
Three months ended September
1999
Mutual Fund Professional
Private Asset and Securities
Management Institutional Services Total
--------------- --------------- -------------- -------------
<S> <C> <C> <C> <C>
(in thousands)
Net revenues after interest expense $ 65,271 $ 57,352 $ 16,498 $ 139,121
Net income before taxes $ 45,148 $ 22,002 $ 3,749 $ 70,899
(in millions)
Assets under management $ 19,131 $ 32,325 N/A $ 51,456
Market flows
Net assets additions (withdrawals) $ 137 $ (995) N/A $ (858)
Market depreciation (1,510) (2,940) N/A (4,450)
--------------- --------------- -------------- -------------
Total decrease $ (1,373) $ (3,935) N/A $ (5,308)
=============== =============== ============== =============
<CAPTION>
Three months ended September
1998
Mutual Fund Professional
Private Asset and Securities
Management Institutional Services Total
--------------- --------------- -------------- ------------
<S> <C> <C> <C> <C>
(in thousands)
Net revenues after interest expense $ 60,408 $ 65,308 $ 19,299 $ 145,015
Net income before taxes $ 43,583 $ 27,801 $ 2,374 $ 73,758
(in millions)
Assets under management $ 15,490 $ 34,228 N/A $ 49,718
Market flows
Net assets withdrawals $ (141) $ (1,224) N/A $ (1,365)
Market depreciation (2,175) (5,831) N/A (8,006)
--------------- --------------- -------------- ------------
Total decrease $ (2,316) $ (7,055) N/A $ (9,371)
=============== =============== ============== ============
</TABLE>
PRIVATE ASSET MANAGEMENT. The Private Asset Management segment provides asset
management service to high net worth individuals, families and smaller
institutions. Net revenues increased 8.1% to $65.3 million for the third quarter
of 1999 from $60.4 million for the third quarter of 1998. Investment advisory
fees increased 13.9% to $44.4 million for the third quarter of 1999 from $38.9
million for the third quarter of 1998 due to increased average assets under
management. This was offset by a slight decrease in commissions of $0.8 million
or 3.8% due to lower share volume.
MUTUAL FUND AND INSTITUTIONAL. The Mutual Fund and Institutional segment
provides advisory services to mutual funds, institutional clients and wrap fee
programs. Net revenues decreased 12.2% to $57.4 million for the third quarter of
1999 from $65.3 million for the third quarter of 1998. Investment advisory and
administrative fees decreased 10.7% to $51.0 million for the third quarter of
1999 from $57.1 million for the third quarter of 1998 as a result of decreased
average assets under management primarily due to net asset withdrawals.
Commissions decreased $2.0 million or 24.1% as a result of a decrease in share
volume.
12
<PAGE>
PROFESSIONAL SECURITIES SERVICES. The Professional Securities Services segment
generates additional income by marketing services to third party investment
advisers and professional investors. These services include professional
investor clearing services, research sales, market maker trading and trust
services. Net revenues decreased 14.5% to $16.5 million for the third quarter of
1999 from $19.3 million for the third quarter of 1998. Commissions decreased
$2.2 million or 24.2%. This resulted from lower commissions in research sales
and the professional investor clearing services groups. Net interest income
decreased $1.1 million or 18.1% due to lower average net client balances.
OPERATING EXPENSES. Total expenses for the three months ended September 1999
remained stable, decreasing by $1.0 million, or 1.7% from $62.0 million for the
third quarter of 1998 to $60.9 million for the third quarter of 1999. Employee
compensation and benefits decreased to $34.5 million in the third quarter of
1999, down $1.0 million, or 2.7% from $35.5 million in the third quarter of
1998. The decrease in employee compensation and benefits was primarily due to a
reduction in incentive based compensation in the Mutual Fund and Institutional
segment, offset by increases in salaries due to an increase in employees.
Information technology increased to $4.7 million in the third quarter of 1999,
up $1.2 million, or 34.4% from $3.5 million in the third quarter of 1998 due to
increases in telecommunications and market data services as well as software
maintenance. Rent and occupancy increased to $4.7 million in the third quarter
of 1999, up $1.4 million, or 41.0% from $3.3 million in the third quarter of
1998 primarily due to additional office space needed to accommodate increases in
staffing levels. Advertising and sales promotion decreased to $0.8 million in
the third quarter of 1999, down $1.0 million, or 56.2% from $1.7 million in the
third quarter of 1998 due primarily to decreases in mutual fund advertising.
Distribution and fund administration decreased to $2.4 million in the third
quarter of 1999, down $0.8 million, or 25.4% from $3.2 million in the third
quarter of 1998 as a result of decreased average assets under management.
Professional fees decreased to $1.9 million in the third quarter of 1999, down
$2.8 million, or 59.9% from $4.7 million in the third quarter of 1998 due
primarily to a reduction in legal and professional fees of $2.5 million that
were incurred in the third quarter of 1998 for the proposed initial public
offering that was withdrawn. In addition, technical consulting expenses
increased by $0.6 million while employment agency fees decreased by $0.3
million. Depreciation and amortization increased to $2.9 million in the third
quarter of 1999, up $1.1 million, or 57.6% from $1.9 million in the third
quarter of 1998 due primarily to leasehold and information technology write-offs
and increased depreciation resulting from new capital expenditures on
telecommunications and technology-related equipment. Other expenses increased to
$6.4 million in the third quarter of 1999, up $1.2 million, or 23.0% from $5.2
million in the third quarter of 1998 due primarily to increases in travel and
entertainment and office expenses.
TAXES. Taxes increased to $10.5 million in the third quarter of 1999, up $8.2
million, or 364.7% from $2.3 million in the third quarter of 1998. This increase
is primarily due to management's determination that an increase to the Company's
tax reserves was appropriate.
13
<PAGE>
RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 1999 AND 1998
The Company reported net income before taxes of $216.5 million for the nine
months ended September 1999 representing a decrease of $11.7 million or 5.1%
compared to the nine months ended September 1998. The results for 1999 reflect
an overall increase in the profitability in the Private Asset Management segment
offset by a larger decrease in the Mutual Fund and Institutional segment. Net
asset additions and appreciation in the Private Asset Management segment have
more than been offset by the net asset withdrawals in the Mutual Fund and
Institutional segment. The Professional Securities Services segment experienced
a reduction in net income before taxes of $3.3 million for the nine months ended
1999. Excluding the expenses attributable to the 1998 proposed initial public
offering that was withdrawn, net income before taxes decreased by $5.8 million.
Net revenues decreased by $7.6 million for the nine months ended September 1999
to $422.5 million, a decrease of 1.8% compared to the same period in 1998. Net
revenue growth was strong in the Private Asset Management segment, due to higher
average assets under management. Net revenues in the Mutual Fund and
Institutional segment decreased as a result of reduced average assets under
management.
14
<PAGE>
<TABLE>
<CAPTION>
Nine months ended September 1999
Mutual Fund Professional
Private Asset and Securities
Management Institutional Services Total
--------------- --------------- -------------- -------------
<S> <C> <C> <C> <C>
(in thousands)
Net revenues after interest expense $ 194,398 $ 172,801 $ 55,337 $ 422,536
Net income before taxes $ 137,991 $ 64,155 $ 14,385 $ 216,531
(in millions)
Assets under management $ 19,131 $ 32,325 N/A $ 51,456
Market flows
Net assets additions (withdrawals) $ 446 $ (5,533) N/A $ (5,087)
Market appreciation 780 176 N/A 956
--------------- --------------- -------------- -------------
Total increase (decrease) $ 1,226 $ (5,357) N/A $ (4,131)
=============== =============== ============== =============
<CAPTION>
Nine months ended September 1998
Mutual Fund Professional
Private Asset and Securities
Management Institutional Services Total
--------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
(in thousands)
Net revenues after interest expense $ 177,216 $ 198,489 $ 54,451 $ 430,156
Net income before taxes $ 126,103 $ 84,516 $ 17,649 $ 228,268
(in millions)
Assets under management $ 15,490 $ 34,228 N/A $ 49,718
Market flows
Net assets additions (withdrawals) $ 210 $ (864) N/A $ (654)
Market depreciation (273) (2,866) N/A (3,139)
--------------- --------------- -------------- --------------
Total decrease $ (63) $ (3,730) N/A $ (3,793)
=============== =============== ============== ==============
</TABLE>
PRIVATE ASSET MANAGEMENT. Private Asset Management net revenues increased 9.7%
to $194.4 million for the nine months ended September 1999 from $177.2 million
for the nine months ended September 1998. Investment advisory fees increased
11.2% to $124.0 million for the nine months ended September 1999 from $111.5
million during the same period in 1998 due to increased average net assets under
management. Commissions increased 6.5% to $67.9 million for the nine months
ended September 1999 from $63.8 million during the same period in 1998 as a
result of generally strong and volatile equity markets. Net interest income
increased 31.9% to $2.5 million for the nine months ended September 1999 from
$1.9 million during the same period in 1998 due primarily to higher client
credit balances.
MUTUAL FUND AND INSTITUTIONAL. Mutual Fund and Institutional net revenues
decreased 12.9% to $172.8 million for the nine months ended September 1999 from
$198.5 million for the nine months ended September 1998. Investment advisory and
administrative fees decreased 13.2% to $155.0 million for the nine months ended
September 1999 from $178.6 million during the same period in 1998 as a result of
decreased average net assets under management due to net asset withdrawals.
Commissions decreased $2.1 million or 11.2%.
15
<PAGE>
PROFESSIONAL SECURITIES SERVICES. Professional Securities Services net revenues
increased 1.6% to $55.3 million for the nine months ended September 1999 from
$54.5 million for the nine months ended September 1998. Trading and investment
income increased 67.1% to $6.0 million for the nine months ended September 1999
from $3.6 million during the same period in 1998 as a result of strong market
maker trading. Syndicate revenues increased 44.8% to $2.4 million for the nine
months ended September 1999 from $1.6 million during the same period in 1998 due
to the favorable equity underwriting environment. Clearance income increased
4.0% to $8.2 million for the nine months ended September 1999 from $7.9 million
during the same period in 1998. Net interest income decreased $3.6 million or
19.0% primarily due to interest expense incurred on a subordinated loan.
OPERATING EXPENSES. Total expenses for the nine months ended September 1999,
increased by $10.4 million, or 6.0% from $172.7 million for the nine months
ended September 1998 to $183.0 million for the nine months ended September 1999.
Employee compensation and benefits increased to $105.6 million for the nine
months ended September 1999, up $5.0 million, or 4.9% from $100.6 million for
the nine months ended September 1998. The increase was primarily due to
increased salespeople and the addition of new Private Asset Management money
management groups. Information technology increased to $13.5 million for the
nine months ended September 1999, up $2.5 million, or 22.9% from $11.0 million
for the nine months ended September 1998 due primarily to increases in
telecommunication expenses and market data services and increases in third party
processing. Rent and occupancy increased to $11.2 million for the nine months
ended September 1999, up $2.2 million, or 24.8% from $9.0 million for the nine
months ended September 1998 primarily due to additional office space needed to
accommodate increases in staffing levels. Advertising and sales promotion
decreased to $6.9 million for the nine months ended September 1999, down $1.9
million, or 21.5% from $8.8 million for the nine months ended September 1998 due
to decreased advertising in the Mutual Fund and Institutional segment. The
decrease was offset by a new $1.5 million print campaign for Private Asset
Management. Distribution and fund administration costs decreased to $7.9 million
for the nine months ended September 1999, down $1.7 million, or 17.4% from $9.6
million for the nine months ended September 1998 due to a reduction of average
mutual fund assets under management which have a direct effect on payments to
third parties. Professional fees decreased to $6.8 million for the nine months
ended September 1999, down $2.1 million, or 23.5% from $8.9 million for the nine
months ended September 1998 due primarily to a decrease in legal and
professional fees incurred in conjunction with the proposed initial public
offering in 1998 which was subsequently withdrawn. Depreciation and amortization
increased to $7.8 million for the nine months ended September 1999, up $2.8
million, or 56.1% from $5.0 million for the nine months ended September 1998 due
primarily to leasehold and information technology write-offs and increased
depreciation resulting from new capital expenditures on telecommunications and
technology-related equipment. Other expenses increased to $15.5 million for the
nine months ended September 1999, up $3.2 million, or 26.4% from $12.3 million
for the nine months ended September 1998 due primarily to increases in office
expenses, travel and entertainment and insurance.
16
<PAGE>
TAXES. Taxes increased to $15.0 million for the nine months ended September
1999, up $8.0 million, or 113.0% from $7.1 million for the nine months ended
September 1998. This increase is primarily due to management's determination
that an increase to the Company's tax reserves was appropriate.
17
<PAGE>
PRO FORMA OPERATING RESULTS
The following table sets forth the Company's pro forma consolidated statements
of income for the three months ended September 1999 and 1998 and the nine
months ended September 1999 and 1998:
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September Ended September
------------------------------------------------------------------------
1999 1998 1999 1998
---------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
REVENUES:
Investment advisory and administrative fees $ 95,490 $ 96,638 $ 279,888 $ 291,039
Commissions 32,921 37,857 107,169 105,702
Interest 37,601 40,150 114,340 119,903
Principal transactions in securities 882 796 5,997 3,498
Clearance fees 2,945 2,360 8,159 6,520
Other income 683 269 3,537 2,643
---------------- ----------------- ---------------- ----------------
Gross revenues 170,522 178,070 519,090 529,305
Interest expense (Note 1) 30,570 32,309 93,438 97,131
---------------- ----------------- ---------------- ----------------
Net revenues after interest expense 139,952 145,761 425,652 432,174
---------------- ----------------- ---------------- ----------------
OPERATING EXPENSES:
Employee compensation and benefits (Note 2) 56,193 54,473 171,769 156,227
Information technology 4,746 3,532 13,476 10,961
Rent and occupancy 4,654 3,300 11,211 8,985
Brokerage, clearing and exchange fees 2,636 2,931 7,803 7,568
Advertising and sales promotion 755 1,722 6,878 8,757
Distribution and fund administration 2,393 3,207 7,907 9,577
Professional fees 1,903 4,745 6,837 8,932
Depreciation and amortization 2,940 1,866 7,831 5,017
Other expenses 6,429 5,225 15,540 12,291
---------------- ----------------- ---------------- ----------------
Total operating expenses 82,649 81,001 249,252 228,315
---------------- ----------------- ---------------- ----------------
Net income before provision for income taxes 57,303 64,760 176,400 203,859
Provision for income taxes (Note 3) 24,812 28,041 76,381 88,271
---------------- ----------------- ---------------- ----------------
Net income $ 32,491 $ 36,719 $ 100,019 $ 115,588
================ ================= ================ ================
Net income per common share (Note 4)
Basic and diluted:
Net income per share $ 0.65 $ 0.73 $ 2.00 $ 2.31
================ ================= ================ ================
Weighted average common shares
outstanding 50,022 50,022 50,022 50,022
================ ================= ================ ================
</TABLE>
See accompanying pro forma notes.
BASIS OF PRESENTATION
The pro forma consolidated statement of income was prepared as if the Company's
conversion to corporate form and related transactions had taken place at the
beginning of 1998. These pro forma consolidated financial statements are not
necessarily indicative of the results that would have been achieved had the pro
forma adjustments occurred on these dates or that may be achieved in the future.
These pro forma consolidated statements of income and notes should be read in
conjunction with the pro forma combined statements of income and the related
notes included in the Company's prospectus dated October 6, 1999.
18
<PAGE>
NEUBERGER BERMAN INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
1. Adjusted to reflect a decrease in interest expense related to the use of
proceeds to repay a portion of the Associates subordinated note and other
short-term borrowings. In addition, amount is adjusted to reflect the
change in interest expense related to the financing of the remaining
portion of the Associates subordinated note.
2. Adjusted to reflect employee compensation and benefits in corporate
form.
3. Adjusted to reflect a provision for Federal, state and local taxes in
corporate form at an effective rate of approximately 43% and to reverse
actual unincorporated business tax and state and local taxes.
4. Pro forma basic and diluted earnings per share were calculated by dividing
pro forma net income by weighted average common shares outstanding.
19
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
The Company's investment advisory business does not require it to maintain
significant capital balances. However, as a result of the Company's
broker-dealer activities, its balance sheet includes higher levels of assets and
liabilities than is typical for an investment adviser of its size. The Company's
broker-dealer activities provide financing, trade execution, clearing and
custody services for clients of its Private Asset Management, Mutual Fund and
Institutional, and Professional Securities Services segments.
The Company's financial condition is highly liquid with a significant majority
of its assets readily convertible to cash. 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.
Receivables from and payables to the Company's clients arise in the normal
course of business in connection with cash and margin securities transactions.
Client receivables are secured by securities held as collateral.
It is the Company's policy to continuously monitor and evaluate the adequacy of
its capital. The Company has consistently maintained net capital in excess of
the regulatory requirements prescribed by the SEC and other regulatory
authorities. At September 30, 1999, the Company's regulatory net capital
exceeded the minimum requirement by $109 million. The SEC net capital rule
imposes financial restrictions which are more severe than those imposed on most
other businesses. In addition, the debt covenants related to NB, LLC's
subordinated loan 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 equity
cannot fall. The Company believes that its cash flow from operations and
existing committed and uncommitted lines of credit, as well as the net proceeds
from its initial public offering, will be more than adequate to meet its debt
and other obligations as they come due and anticipated capital requirements.
On October 13, 1999, NBI completed its initial public offering. In that
offering, NBI sold 3,030,303 shares of common stock and received net proceeds
after expenses of approximately $89 million.
During the fourth quarter of fiscal 1999, the Company intends to take a
non-recurring charge of approximately $150 million, before taxes for the
following items: an initial irrevocable contribution to the Company's defined
contribution plan, a cash contribution to the Neuberger Berman Foundation and
severance payments.
On October 29, 1999, NB, LLC paid back the remaining $15 million subordinated
liability with Associates, pursuant to NYSE approval.
The Company's Board of Directors has authorized a discretionary repurchase of up
to $50 million of common stock. This authorization states that purchases may be
made from time to time in the open market and in negotiated transactions,
subject to market conditions.
20
<PAGE>
YEAR 2000 READINESS DISCLOSURE
The Company recognized the need to upgrade, modify or replace portions of its
information technology systems in order to satisfy all Year 2000 issues. Many
computer systems in use today were designed and developed using two digits
rather than four, to specify the year. As a result, such systems will recognize
the year 2000 as "00". This could cause many computer applications to fail
completely or to create erroneous results unless corrective measures are taken.
In June 1997, the Company initiated a comprehensive Year 2000 project. This
project was based on a six-phase approach that included: awareness, inventory,
assessment, remediation, testing and contingency planning. A Y2K committee met
on a monthly basis to review progress of the project and coordinate Y2K
activities. The committee included representatives from senior management,
information services, selected business units, internal audit and legal and
compliance.
The Company completed its inventory and assessment phases in September, 1998.
The remediation of its technical infrastructure and internally developed systems
was completed in the first quarter of 1999.
The Company tracked the progress of its key vendors, financial intermediaries
and trading counterparties throughout the course of its Year 2000 project. As
part of the inventory and assessment phases, the Company attempted to identify
and contact vendors and business counterparties that presented a risk of a Year
2000 adverse impact. The responses received from these third parties were
evaluated as they were received to determine risk potential and what actions, if
any, were required. Vendor responses included discussions of Year 2000 readiness
of current products and/or services and indicated, if upgrades or service
enhancements were necessary, the cost of such upgrades or enhancements and the
date they would be available. Responses from financial intermediaries and
trading counterparties contained overviews of their Year 2000 projects and
status reports on assessment, code renovation, internal and point-to-point
testing and contingency planning. The depth at which the Company tracked the
progress of third parties was directly related to how important the third
parties were. The third parties that were considered critical indicated that
they have achieved or will achieve Year 2000 readiness on a timely basis.
Testing was the most critical phase of the Year 2000 project. The Company's
approach was to first address its internal technology infrastructure and then
integrate testing with third parties. The Company completed internal testing in
June 1999 and no Year 2000 problems were revealed that remain outstanding.
External testing was completed in August 1999.
The Company has participated in various industry-wide tests, such as the
"Streetwide" test coordinated by the Securities Industry Association in March
and April 1999 in which more than 400 firms participated. Other tests
coordinated by the Securities Industries Association in which the Company
participated included the
21
<PAGE>
Market Data Test, Securities Lending Test and the National Securities Clearing
Corporation testing for the Automated Customer Account Transfer Service.
Additionally, the Company participated in the Year 2000 testing organized by the
Futures Industry Association "Streetwide" test, with no Year 2000 related
problem with its internal systems. We encountered no internal or external Year
2000 related problems which remain unresolved with any tests.
The Company completed its contingency planning in March 1999, subject to
continuing review and revision of those plans. Contingency plans were designed
to ensure the continued operation of the systems and functions supporting the
Company's primary business processes if a Year 2000 problem occurs. A
Coordination and Communication Center has been created to manage the changeover
weekend from December 31, 1999 through January 3, 2000, as well as a detailed
Event Management Plan that lays out anticipated responses to specific system
failures, if any. Critical technical employees and project managers will be on
site and on call during the changeover weekend. The Company has "frozen" its
computer systems, thereby restricting changes to programs and existing hardware.
This is intended to stabilize the systems for the upcoming date change. Finally,
additional electronic and hard copy back-ups of critical data such as client and
mutual fund shareholder status and securities transactions is planned to be
made.
The Company has incurred substantially all the budgeted expenses deemed
necessary to complete the remediation and testing of internally developed
systems and the replacement and testing of third-party products and services,
including non-technology products and services, in order to achieve Year 2000
compliance.
22
<PAGE>
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT RISK
The Company's risk management policies and procedures have been established to
continually identify, monitor and manage risk. The major types of risk that the
Company faces 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, the Company's
policy is to monitor the credit standing of its clients and maintain collateral
to support margin loans to clients.
A significant portion of the Company's revenues are 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 the
Company's 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. The Company's primary exposure to
interest rate risk arises from its interest earning assets (mainly securities
purchased under agreements to resell and receivable from brokers, dealers and
clearing organizations) and funding sources (bank loans, subordinated
liabilities and payable 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 the Company has no control. The Company's market making activities expose
its capital to potential equity price risk. To mitigate this risk, strict limits
are imposed on both the trading desk and individual traders. In addition, the
Company's monthly average net long position for its market making activities
were $1.4 million during the year ended December 31, 1998 and $1.9 million
during the nine months ended September 30, 1999.
23
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
In the normal course of business, the Company is subject to various legal
proceedings. However, in management's opinion, based on currently available
information, there are no legal proceedings pending against the Company or any
of its subsidiaries that would have a material adverse effect on the Company's
financial position, results of operations or liquidity.
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
RECENT SALES OF UNREGISTERED SECURITIES
In connection with its conversion to corporate form, the Company issued on
October 7, 1999 42,727,273 shares of common stock, par value $0.01 per share
(the "Common Stock"), to the former principals of NB, LLC and shareholders of
NBMI (collectively, the "Principals") in exchange for all of their interests in
NB, LLC and shares of NBMI. Also, simultaneously with its conversion to
corporate form, the Company made an irrevocable contribution of 4,264,344 shares
to the trust underlying the Neuberger Berman Inc. Employee Defined Contribution
Stock Incentive Plan (the "Plan") and, immediately thereafter, made awards under
the Plan to substantially all of the Company's employees of all such shares held
by the Plan.
The offering and sale of Common Stock to the Principals was not registered under
the Securities Act of 1933 because the offering and sale was made in reliance on
the exemption provided by Section 4(2) of the Securities Act of 1933 and Rule
506 thereunder for transactions by an issuer not involving a public offering
(with the recipients representing their intentions to acquire the securities for
their own accounts and not with a view to the distribution thereof and
acknowledging that the securities were issued in a transaction not registered
under the Securities Act of 1933). The foregoing contribution of Common Stock
and awards were not registered under the Securities Act of 1933 because the
contribution and awards either did not involve an offer or sale for purposes of
Section 2(a)(3) of the Securities Act of 1933, in reliance on the fact that the
awards were made to a relatively broad class of employees who provided no
consideration in exchange for their awards, or were offered and sold in
transactions not involving a public offering, exempt from registration under the
Securities Act of 1933 pursuant to Section 4(2).
USE OF PROCEEDS
The effective date of the Company's first registration statement, filed on Form
S-1 under the Securities Act of 1933 (File No. 333-84525) relating to the
Company's initial public offering of Common Stock, was October 6, 1999. A total
of 7,250,000 shares were sold. Of this amount, 6,250,000 were offered in the
United States (the "U.S. Offering") and 1,000,000 shares were offered outside
the United State (the "International Offering" and, together with the U.S.
Offering, the "offerings"). The managing underwriters for the U.S. Offering were
Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan
Stanley & Co. Incorporated,
24
<PAGE>
Salomon Smith Barney Inc., Bear Stearns & Co. Inc., CIBC World Markets Corp.,
Donaldson, Lufkin & Jenrette Securities Corporation and Schroder & Co., Inc. The
managing underwriters for the International Offering were Goldman Sachs
International, Merrill Lynch International, Morgan Stanley & Co. International,
Salomon Brothers International Limited, Bear Stearns International Limited, CIBC
World Markets International Limited, Donaldson, Lufkin & Jenrette International
and J. Henry Schroder & Co. Limited.
The offerings commenced on October 6, 1999 and were completed on October 13,
1999. Of the 7,250,000 shares of Common Stock registered, 3,030,303 were offered
and sold by the Company and 4,219,697 shares were offered and sold by the
Principals. The aggregate offering price was $96,969,696 with respect to the
shares offered and sold by the Company and $135,030,304 with respect to the
shares offered and sold by the Principals. The underwriting discount was
$15,080,000. The Company estimates that it incurred approximately $2.1 million
of other expenses in connection with the offerings. The net proceeds to the
Company after deducting the underwriting discount and offering expenses incurred
by the Company totaled approximately $89 million.
From the time of receipt through October 31, 1999, $15 million of the proceeds
were applied to repay the $15 million subordinated note held by Associates due
September 1, 2000 and the remainder of the proceeds was applied to repay short
term borrowings or applied to working capital in lieu of additional short term
borrowings. Associates is wholly-owned by the Principals.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) 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
stockholders of Neuberger Berman Management Inc. and Neuberger Berman
Sub Inc., a New York corporation (incorporated herein by reference to
Exhibit 2.1 to NB Inc.'s registration statement on Form S-1 (No.
333-84525)).
3.1 Certificate of Incorporation (incorporated herein by reference to
Exhibit 3.1 to NB Inc.'s registration statement on Form S-1 (No.
333-84525)).
3.2 By-Laws (incorporated herein by reference to Exhibit 3.2 to NB Inc.'s
registration statement on Form S-1 (No. 333-84525)).
4.1 Specimen of Common Stock Certificate (incorporated herein by
reference to Exhibit 4.1 to NB Inc.'s registration statement on Form
S-1 (No. 333-84525)).
4.2 Stockholders Agreement, dated as of August 2, 1999, by and among
Neuberger Berman Inc. and the stockholders named therein
(incorporated
25
<PAGE>
herein by reference to Exhibit 4.2 to NB Inc.'s registration
statement on Form S-1 (No. 333-84525)).
10.1 1999 Neuberger Berman Inc. Directors Stock Incentive Plan
(incorporated herein by reference to Exhibit 10.1 to NB Inc.'s
registration statement on Form S-1 (No. 333-84525)).
10.2 1999 Neuberger Berman Inc. Long-Term Incentive Plan (incorporated
herein by reference to Exhibit 10.2 to NB Inc.'s registration
statement on Form S-1 (No. 333-84525)).
10.3 1999 Neuberger Berman Inc. Annual Incentive Plan (incorporated herein
by reference to Exhibit 10.3 to NB Inc.'s registration statement on
Form S-1 (No. 333-84525)).
10.4 1999 Neuberger Berman Inc. Deferred Compensation Plan (incorporated
herein by reference to Exhibit 10.4 to NB Inc.'s registration
statement on Form S-1 (No. 333-84525)).
10.5 Neuberger Berman Inc. Employee Defined Contribution Stock Incentive
Plan (incorporated herein by reference to Exhibit 10.5 to NB Inc.'s
registration statement on Form S-1 (No. 333-84525)).
10.6 Non-Competition Agreement, dated as of August 2, 1999, by and among
the Company and the stockholders named therein (incorporated herein
by reference to Exhibit 10.6 to NB Inc.'s registration statement on
Form S-1 (No. 333-84525)).
10.7 Form of Employment Agreement, dated August 2, 1999, between Neuberger
Berman, LLC and each continuing principal (incorporated herein by
reference to Exhibit 10.7 to NB Inc.'s registration statement on Form
S-1 (No. 333-84525)).
10.8 Subordinated Loan Agreement, dated as of August 31, 1998, between
Neuberger Berman, LLC and NB Associates, LLC (incorporated herein by
reference to Exhibit 10.8 to NB Inc.'s registration statement on Form
S-1 (No. 333-84525)).
10.9 First Amendment, dated March 30, 1999, to Subordinated Loan
Agreement, dated August 31, 1998, between Neuberger Berman, LLC and
NB Associates, LLC (incorporated herein by reference to Exhibit 10.9
to NB Inc.'s registration statement on Form S-1 (No. 333-84525)).
10.10 Second Amendment, dated September 1, 1999, to Subordinated Loan
Agreement, dated August 31, 1998, between Neuberger Berman, LLC and
NB Associates, LLC (incorporated herein by reference to Exhibit 10.10
to NB Inc.'s registration statement on Form S-1 (No. 333-84525)).
10.11 $15,000,000 Promissory Note due September 1, 2000, issued by
Neuberger Berman, LLC to NB Associates, LLC on September 1, 1999
(incorporated herein by reference to Exhibit 10.11 to NB Inc.'s
registration statement on Form S-1 (No. 333-84525)).
10.12 Subordinated Note Purchase Agreement, dated September 1, 1999,
between Neuberger Berman, LLC and The Travelers Insurance Company
26
<PAGE>
(incorporated herein by reference to Exhibit 10.12 to NB Inc.'s
registration statement on Form S-1 (No. 333-84525)).
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
(incorporated herein by reference to Exhibit 10.13 to NB Inc.'s
registration statement on Form S-1 (No. 333-84525)).
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
(incorporated herein by reference to Exhibit 10.14 to NB Inc.'s
registration statement on Form S-1 (No. 333-84525)).
11 Computation of Net Income per Common Share.
27 Financial Data Schedule.
(b) The Company filed one report on Form 8-K subsequent to the quarter ended
September 30, 1999. The report, dated November 3, 1999, was filed in regard to
the Company's reporting of its third quarter results and the announcement of the
authorization of its stock repurchase program.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEUBERGER BERMAN INC.
November 16, 1999 BY: /s/ Robert Matza
---------------------------
Name: Robert Matza
Title: Chief Administrative
Officer
November 16, 1999 BY: /s/ Philip Ambrosio
-----------------------------
Name: Philip Ambrosio
Title: Chief Financial Officer
31
<PAGE>
EXHIBIT 11
NEUBERGER BERMAN, LLC AND SUBSIDIARIES
AND NEUBERGER BERMAN MANAGEMENT INC.
COMPUTATION OF NET INCOME PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER SEPTEMBER
-------------------------- -------------------------
1999 1998 1999 1998
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Total average common stock used for earnings
per share computation - basic and diluted 42,675 42,565 42,710 42,641
------------ ------------ ------------ -----------
Net income $ 60,407 $ 71,500 201,487 $ 221,204
------------ ------------ ------------ -----------
Net income per common share - basic and diluted $ 1.42 $ 1.68 $ 4.72 $ 5.19
------------ ------------ ------------ -----------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<CIK> 0001068144
<NAME> NEUBERGER BERMAN INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999<F1>
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 748,546
<RECEIVABLES> 2,371,758
<SECURITIES-RESALE> 76,400
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 16,299
<PP&E> 29,168
<TOTAL-ASSETS> 3,259,723
<SHORT-TERM> 11,000
<PAYABLES> 2,937,926
<REPOS-SOLD> 18,000
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 62,950
<LONG-TERM> 50,000
0
0
<COMMON> 0
<OTHER-SE> 109,065
<TOTAL-LIABILITY-AND-EQUITY> 3,259,723
<TRADING-REVENUE> 5,997
<INTEREST-DIVIDENDS> 114,340
<COMMISSIONS> 107,169
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 279,888
<INTEREST-EXPENSE> 96,554
<COMPENSATION> 128,552
<INCOME-PRETAX> 216,531
<INCOME-PRE-EXTRAORDINARY> 201,487
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 201,487
<EPS-BASIC> 4.72
<EPS-DILUTED> 4.72
<FN>
<F1>The amounts disclosed in the financial data summary should be read in
conjunction with the condensed combined financial statements and the notes
thereto.
</FN>
</TABLE>
