<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR QUARTER ENDED MARCH 31, 2000
OR
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 001-15361
------------------------
NEUBERGER BERMAN INC.
(Exact Name of Registrant As Specified in Its Charter)
<TABLE>
<S> <C>
DELAWARE 06-1523639
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
605 THIRD AVENUE, NEW YORK, NY 10158
(Address of Principal Executive (Zip Code)
Offices)
</TABLE>
Registrant's telephone number, including area code (212) 476-9000
--------------------------------------------------------------------------
(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 /X/ No / /
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.
49,192,440 shares of Common Stock, par value $.01 per share, were
outstanding on April 30, 2000
- --------------------------------------------------------------------------------
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<PAGE>
NEUBERGER BERMAN INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
PART I--FINANCIAL INFORMATION
Item 1.--Financial Statements............................... 3
Condensed Consolidated Statements of Financial Condition
As of March 31, 2000 (Unaudited) and December 31,
1999.................................................... 3
Condensed Consolidated Statements of Income (Unaudited)
For the Three Months Ended March 31, 2000 and 1999...... 4
Condensed Consolidated Statements of Cash Flows
(Unaudited) For the Three Months Ended March 31, 2000
and 1999................................................ 5
Notes to Condensed Consolidated Financial Statements
(Unaudited)............................................. 6
Item 2.--Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 12
Item 3.--Quantitative and Qualitative Disclosures About
Risk...................................................... 20
PART II--OTHER INFORMATION
Item 1.--Legal Proceedings.................................. 20
Item 6.--Exhibits and Reports on Form 8-K................... 20
Signatures.................................................. 21
</TABLE>
NOTE: FORWARD LOOKING STATEMENTS
Statements regarding the Company's expectations and beliefs as to its future
operations, plans or financial condition and certain other information contained
in the 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 and beliefs 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 expectations or beliefs.
Factors which could cause actual results to differ from expectations or beliefs
include, without limitation, the adverse effect from a decline in the securities
markets or if the Company's products' performance declines, a general downturn
in the economy, changes in government policy or regulation, inability of the
Company to attract or retain key employees and unforeseen costs and other
effects related to legal proceedings or investigation of governmental and
self-regulatory organizations.
2
<PAGE>
PART 1--FINANCIAL INFORMATION
ITEM 1.--FINANCIAL STATEMENTS
NEUBERGER BERMAN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999
-------------- ------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 44,175 $ 91,010
Cash and securities segregated for the exclusive benefit of
clients................................................... 552,229 777,341
Cash and securities deposited with clearing organizations... 4,000 3,910
Securities purchased under agreements to resell............. 915,727 530,300
Receivable from brokers, dealers and clearing
organizations............................................. 2,168,029 1,873,259
Receivable from clients..................................... 518,883 432,814
Securities owned, at market value........................... 19,343 20,266
Fees receivable............................................. 24,181 23,149
Furniture, equipment and leasehold improvements, at cost,
net of accumulated depreciation and amortization of
$18,508 and $16,195 at March 31, 2000 and December 31,
1999, respectively........................................ 37,110 32,192
Other assets................................................ 63,528 63,367
---------- ----------
Total assets.............................................. $4,347,205 $3,847,608
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Bank loans................................................ $ 85,000 $ --
Securities sold under agreements to repurchase............ 392,764 531,762
Payable to brokers, dealers and clearing organizations.... 1,257,352 1,017,483
Payable to clients........................................ 2,129,376 1,871,323
Securities sold but not yet purchased, at market value.... 60,816 34,172
Other liabilities and accrued expenses.................... 107,299 109,066
---------- ----------
4,032,607 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 March 31, 2000 and
December 31, 1999....................................... -- --
Common stock, $.01 par value; 250,000,000 shares
authorized; 50,021,920 shares issued and outstanding at
March 31, 2000 and December 31, 1999.................... 500 500
Paid-in capital........................................... 331,077 331,077
Retained (deficit)........................................ (34,460) (74,701)
---------- ----------
297,117 256,876
Less: treasury stock, at cost, of 682,385 and 305,700 shares
at March 31, 2000 and December 31, 1999, respectively..... (17,519) (8,074)
---------- ----------
Total stockholders' equity................................ 279,598 248,802
---------- ----------
Total liabilities and stockholders' equity................ $4,347,205 $3,847,608
========== ==========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
<PAGE>
NEUBERGER BERMAN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS
ENDED MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
REVENUES:
Investment advisory and administrative fees................. $96,951 $94,606
Commissions................................................. 39,828 38,351
Interest.................................................... 51,025 40,251
Principal transaction in securities......................... 5,076 2,085
Clearance fees.............................................. 3,622 2,813
Other income................................................ 838 1,069
------- -------
GROSS REVENUES............................................ 197,340 179,175
Interest expense............................................ 41,928 34,588
------- -------
NET REVENUES AFTER INTEREST EXPENSE....................... 155,412 144,587
------- -------
OPERATING EXPENSES:
Employee compensation and benefits.......................... 65,933 43,261
Information technology...................................... 5,221 4,182
Rent and occupancy.......................................... 4,164 3,145
Brokerage, clearing and exchange fees....................... 2,843 3,021
Advertising and sales promotion............................. 2,452 2,716
Distribution and fund administration........................ 4,392 5,219
Professional fees........................................... 2,277 2,364
Depreciation and amortization............................... 2,460 2,095
Other expenses.............................................. 5,452 4,364
------- -------
TOTAL OPERATING EXPENSES.................................. 95,194 70,367
------- -------
NET INCOME BEFORE TAXES................................... 60,218 74,220
Taxes....................................................... 19,977 2,420
------- -------
NET INCOME................................................ $40,241 $71,800
======= =======
NET INCOME PER COMMON SHARE
Basic and diluted:
Net income per share.................................... $ 0.81 $ 1.68
======= =======
Weighted average common shares outstanding.............. 49,476 42,727
======= =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
<PAGE>
NEUBERGER BERMAN INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income................................................ $ 40,241 $ 71,800
Adjustments to reconcile net income to net cash provided
by (used in) operating activities--
Depreciation and amortization........................... 2,460 2,095
Deferred tax benefit.................................... (6,097) --
(Increase) decrease in operating assets--
Cash and securities segregated for the exclusive benefit
of clients............................................ 225,112 57,853
Cash and securities deposited with clearing
organizations......................................... (90) (97)
Securities purchased under agreements to resell......... (385,427) (47,354)
Receivable from brokers, dealers and clearing
organizations......................................... (294,770) 368,968
Receivable from clients................................. (86,069) (86,454)
Securities owned, at market value....................... 923 13
Fees receivable......................................... (1,032) 2,435
Other assets............................................ 5,936 (3,965)
Increase (decrease) in operating liabilities--
Bank loans.............................................. 85,000 (25,000)
Securities sold under agreements to repurchase.......... (138,998) 47,564
Payable to brokers, dealers and clearing
organizations......................................... 239,869 (229,725)
Payable to clients...................................... 258,053 (96,292)
Securities sold but not yet purchased, at market
value................................................. 26,644 14,780
Other liabilities and accrued expenses.................. 3,194 (2,354)
--------- ---------
Net cash provided by (used in) operating activities... (25,051) 74,267
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITY:
Payments for purchases of furniture, equipment and
leasehold improvements.................................. (7,378) (2,043)
--------- ---------
Cash used in investing activity....................... (7,378) (2,043)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments for capital distributions........................ -- (61,714)
Payments for dividends--Neuberger Berman Management
Inc..................................................... -- (8,484)
Payments for dividends--Neuberger Berman Inc.............. (4,961) --
Purchase of treasury stock--Neuberger Berman Inc.......... (9,445) --
--------- ---------
Cash used in financing activities..................... (14,406) (70,198)
--------- ---------
Net increase (decrease) in cash and cash
equivalents......................................... (46,835) 2,026
CASH AND CASH EQUIVALENTS, beginning of period.............. 91,010 50,383
--------- ---------
CASH AND CASH EQUIVALENTS, end of period.................... $ 44,175 $ 52,409
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest................................................ $ 41,286 $ 34,165
Taxes................................................... 23,710 2,483
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
<PAGE>
NEUBERGER BERMAN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 a holding company for Neuberger Berman,
LLC ("NB, LLC") and Neuberger Berman Management Inc. ("NBMI") and to allow for
the issuance of common stock. On October 7, 1999, the principals of NB, LLC and
the shareholders of NBMI exchanged their ownership interests for shares of NBI
and on October 13, 1999, NBI completed its initial public offering.
The condensed 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. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements do
not include all of the information and notes required by generally accepted
accounting principles for complete consolidated financial statements. In the
opinion of management, all adjustments considered necessary for a fair
presentation of condensed consolidated 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 consolidated
financial statements be read in conjunction with the consolidated financial
statements and the related notes included in the Company's 1999 Annual Report on
Form 10-K. Certain prior period amounts have been reclassified to conform to the
three months ended March 31, 2000 presentation.
3. EMPLOYEE COMPENSATION AND BENEFITS
Prior to the initial public offering completed on October 13, 1999, the
Company historically distributed substantially all of its net income to its
principals and shareholders in the form of capital distributions and dividends,
respectively. Certain shareholders of NBMI were also paid through compensation
expense. Accordingly, for the three months ended March 31, 1999, employee
compensation and benefits include approximately $7,901,000 of payments made to
NBMI shareholders.
6
<PAGE>
NEUBERGER BERMAN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. NET CAPITAL
NB, LLC and NBMI, as registered broker-dealers and member firms of the New
York Stock Exchange, Inc. and the National Association of Securities Dealers,
Inc., respectively, are subject to the Uniform Net Capital Rule 15c3-1 of the
Securities and Exchange Commission (the "Rule"), which requires that
broker-dealers maintain a minimum level of net capital, as defined. As of
March 31, 2000, NB, LLC and NBMI had net capital of approximately $155,439,000
and $15,478,000, respectively, which exceeded their requirements by
approximately $131,504,000 and $15,228,000, 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 March 31, 2000, the
payments of dividends and advances to the Company by NB, LLC and NBMI is limited
to $95,600,000 and $15,178,000, respectively, under the most restrictive of
these requirements.
5. NET INCOME PER COMMON SHARE
Net income per common share is computed using the weighted average number of
shares of common stock outstanding. For purposes of determining weighted average
shares outstanding for the periods prior to the Company's initial public
offering and reorganization in October 1999, the outstanding shares were
determined based upon the conversion ratio to effect the exchange of principals'
capital and shareholders' equity for common stock. Pro rata distributions of
earnings and capital to the principals were not considered to effect outstanding
shares.
Under the treasury stock method of accounting, options representing
2,790,000 shares of common stock were not included in the calculation of diluted
earnings per share due to their anti-dilutive effect.
6. COMMITMENTS AND CONTINGENCIES
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 condensed consolidated financial condition, results of operations
or liquidity of the Company.
7. STOCK OPTIONS
On September 29, 1999, the Board of Directors of the Company (the "Board")
approved the 1999 Neuberger Berman Inc. Long-Term Incentive Plan (the "1999
Plan") and reserved for issuance 10,000,000 shares of the Company'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 the Company's common stock.
On March 27, 2000, 2,760,000 of non-qualified stock options (reload options)
were granted to employees of the Company under the 1999 Plan. In addition, on
March 27, 2000, 30,000 of non-qualified stock options (reload options) were
granted to directors of the Company under the 1999 Directors Plan. Options
granted under the 1999 Plan and the 1999 Directors Plan have provided for annual
vesting ratably over five years after the date of grant. All options granted
have exercise prices equal to or greater than the fair market value of the
Company's common stock on the date of the grant and have a ten-year term.
7
<PAGE>
NEUBERGER BERMAN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
7. STOCK OPTIONS (CONTINUED)
At March 31, 2000, 7,240,000 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:
<TABLE>
<CAPTION>
OPTIONED SHARES
----------------------------
WEIGHTED AVERAGE
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
--------- ----------------
<S> <C> <C>
Balance at December 31, 1999....................... -- $ --
Options granted.................................. 2,790,000 29.10
---------
Balance at March 31, 2000.......................... 2,790,000 29.10
---------
</TABLE>
The following table summarizes information about stock options outstanding
at March 31, 2000:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------------------------
NUMBER REMAINING EXERCISE PRICE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PER SHARE
- --------------- ----------- ---------------- --------------
<S> <C> <C> <C>
$28.13................................ 2,090,000 10.0 $28.13
32.00................................ 700,000 10.0 32.00
---------
2,790,000
=========
</TABLE>
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 period ended
March 31, 2000:
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
ASSUMPTIONS MARCH 31, 2000
- ----------- ----------------
<S> <C>
Dividend Yield............................................ 1.30%
Expected volatility....................................... 34.0%
Risk-free interest rate................................... 6.41%
Expected lives............................................ 5
</TABLE>
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 the Company'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 of awards at grant date in a manner consistent with the
methodology of Statement of Financial Accounting Standards No. 123
("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
8
<PAGE>
NEUBERGER BERMAN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
7. STOCK OPTIONS (CONTINUED)
of the Plans is amortized to expense over the vesting period and is
representative of the quarterly charge for the year ended December 31, 2000.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31, 2000
-------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C>
NET INCOME
As reported................................ $40,241
SFAS 123 fair value adjustment--net........ (611)
-------
Pro forma.................................. $39,630
=======
NET INCOME PER COMMON SHARE:
BASIC AND DILUTED
As reported................................ $ 0.81
SFAS 123 fair value adjustment--net........ (0.01)
-------
Pro forma.................................... $ 0.80
=======
</TABLE>
The effects of applying SFAS 123 for providing pro forma disclosures during
the initial phase-in period may not be representative of the effects on reported
net income for future years.
8. INCOME TAXES
Upon completion of the Company's initial public offering, it became subject
to U.S. federal, state and local corporate income taxes. Accordingly, the
Company accounts for taxes in accordance with SFAS No. 109, "Accounting for
Income Taxes." Deferred income taxes reflect the net 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. The Company's net
deferred tax asset as of March 31, 2000, is primarily attributable to deferred
tax assets consisting of compensation and benefits and depreciation and
amortization and deferred tax liabilities consisting 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.
The Company's effective tax rate for the period ended March 31, 2000,
includes a rate benefit related to the upward movement in the price of the
Company's stock from the last measurement date as applied to the unvested shares
in the defined contribution stock incentive plan. The final benefit will be
determined when the restricted shares vest. For the period ended March 31, 1999,
the Company's effective tax rate includes a rate benefit attributable to the
Company generally not being subject to corporate taxes on its earnings prior to
its conversion to corporate form.
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"). FIN 44 is
effective on and after July 1, 2000, except for certain items which require an
earlier implementation date. The Company presently adjusts the carrying value of
the deferred tax asset relating to unvested shares in the defined contribution
stock incentive plan based upon
9
<PAGE>
NEUBERGER BERMAN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
8. INCOME TAXES (CONTINUED)
fluctuations in the price of its common stock if below the stock price on the
contribution date. FIN 44 requires that the deferred tax asset be determined by
the compensation expense recognized for financial reporting purposes rather than
by adjusting the carrying value of the deferred tax asset based upon changes in
the price of a company's stock. Accordingly, at June 30, 2000, the Company will
fix the carrying value of its deferred tax asset for unvested shares in its
defined contribution stock incentive plan, based upon the price of its common
stock at the close of business that day.
9. 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 also 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 revenue from transactions between segments
(referred to as inter-segment 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.
10
<PAGE>
NEUBERGER BERMAN INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
9. SEGMENT INFORMATION (CONTINUED)
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 MARCH 31,
---------------------
2000 1999
--------- ---------
<S> <C> <C>
PRIVATE ASSET MANAGEMENT
NET REVENUES AFTER INTEREST EXPENSE......................... $ 73,539 $ 63,100
NET INCOME BEFORE TAXES..................................... $ 36,173 $ 45,943
MUTUAL FUND & INSTITUTIONAL
NET REVENUES AFTER INTEREST EXPENSE......................... $ 55,754 $ 62,506
NET INCOME BEFORE TAXES..................................... $ 16,504 $ 22,585
PROFESSIONAL SECURITIES SERVICES
NET REVENUES AFTER INTEREST EXPENSE......................... $ 26,119 $ 18,981
NET INCOME BEFORE TAXES..................................... $ 7,541 $ 5,692
TOTAL
NET REVENUES AFTER INTEREST EXPENSE......................... $155,412 $144,587
NET INCOME BEFORE TAXES..................................... $ 60,218 $ 74,220
</TABLE>
10. SUBSEQUENT EVENT
On April 13, 2000, NBI declared a quarterly cash dividend on its common
stock in the amount of $0.10 per share. The dividend will be payable on May 16,
2000, to stockholders of record at the close of business on May 2, 2000.
11
<PAGE>
ITEM 2.--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BUSINESS ENVIRONMENT
The investing climate was broadly favorable during the first quarter of
2000, notwithstanding two interest rate hikes by the Federal Reserve ("Fed").
The S&P 500 advanced 2.3%, with large-cap growth stocks continuing to do
somewhat better than value stocks, although this gap narrowed in the last weeks
of the period. Small-cap stocks continued to outperform, with the Russell 2000
advancing 7.1% through the end of March. Here, too, growth stocks outpaced value
stocks, with the gap also closing by the end of the quarter. Despite the actions
of the Fed and other central banks, fixed income markets generally produced
positive returns.
Net withdrawals in Mutual Fund and Institutional persisted in the first
quarter, although at $1.2 billion were significantly lower than the $2.1 billion
experienced in the fourth quarter of 1999. Of the $1.2 billion total, $0.5
billion were in mutual fund and subadvised accounts, also a much-reduced rate
from fourth quarter levels. Notably, the Company's growth funds had positive
inflows in the period. Inflows for Private Asset Management were slightly
positive.
The Company's investment performance overall was strong during the first
quarter, with all but two of the equity mutual funds outperforming both their
benchmark indices and peer groups.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 2000 AND 1999
The Company has been segregated into three major business segments: Private
Asset Management, Mutual Fund and Institutional and Professional Securities
Services. The Private Asset Management segment provides investment management
services to high net worth individuals, families and smaller institutions. The
Mutual Fund and Institutional segment provides advisory services to mutual
funds, institutional clients and wrap fee programs. 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. 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 consolidated statements of income. The following tables of selected
financial data, which includes pro forma data (adjusted as if the initial public
offering, reorganization and other related transactions had taken place at the
beginning of 1999), present the Company's segments in a manner consistent with
the way the Company manages its businesses and assesses profitability.
RESULTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRIVATE MUTUAL PROFESSIONAL
ACTUAL RESULTS FOR THE ASSET FUND AND SECURITIES
THREE MONTHS ENDED MARCH 31, 2000 MANAGEMENT INSTITUTIONAL SERVICES TOTAL
- --------------------------------- ---------- ------------- ------------ --------
<S> <C> <C> <C> <C>
Net revenues after interest expense............. $73,539 $55,754 $26,119 $155,412
Operating expenses.............................. 37,366 39,250 18,578 95,194
------- ------- ------- --------
Net income before taxes......................... $36,173 $16,504 $ 7,541 $ 60,218
======= ======= ======= ========
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
PRIVATE MUTUAL PROFESSIONAL
ACTUAL RESULTS FOR THE ASSET FUND AND SECURITIES
THREE MONTHS ENDED MARCH 31, 1999 MANAGEMENT INSTITUTIONAL SERVICES TOTAL
- --------------------------------- ---------- ------------- ------------ --------
<S> <C> <C> <C> <C>
Net revenues after interest expense............. $63,100 $62,506 $18,981 $144,587
Operating expenses.............................. 17,157 39,921 13,289 70,367
------- ------- ------- --------
Net income before taxes......................... $45,943 $22,585 $ 5,692 $ 74,220
======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
PRIVATE MUTUAL PROFESSIONAL
PRO FORMA RESULTS FOR THE ASSET FUND AND SECURITIES
THREE MONTHS ENDED MARCH 31, 1999 MANAGEMENT INSTITUTIONAL SERVICES TOTAL
- --------------------------------- ---------- ------------- ------------ --------
<S> <C> <C> <C> <C>
Net revenues after interest expense............. $63,100 $62,506 $20,010 $145,616
Operating expenses.............................. 30,739 38,728 14,944 84,411
------- ------- ------- --------
Net income before taxes......................... $32,361 $23,778 $ 5,066 $ 61,205
======= ======= ======= ========
</TABLE>
ASSETS UNDER MANAGEMENT
(IN MILLIONS)
<TABLE>
<CAPTION>
PRIVATE MUTUAL
ASSET FUND AND
FOR THE THREE MONTHS ENDED MARCH 31, 2000 MANAGEMENT INSTITUTIONAL TOTAL
- ----------------------------------------- ---------- ------------- --------
<S> <C> <C> <C>
Assets under management, beginning of period................ $21,112 $33,287 $54,399
------- ------- -------
Net additions (withdrawals)................................. 53 (1,211) (1,158)
Market appreciation......................................... 638 1,591 2,229
------- ------- -------
Net increase................................................ 691 380 1,071
------- ------- -------
Assets under management, end of period...................... $21,803 $33,667 $55,470
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
PRIVATE MUTUAL
ASSET FUND AND
FOR THE THREE MONTHS ENDED MARCH 31, 1999 MANAGEMENT INSTITUTIONAL TOTAL
- ----------------------------------------- ---------- ------------- --------
<S> <C> <C> <C>
Assets under management, beginning of period................ $17,905 $37,682 $55,587
------- ------- -------
Net additions (withdrawals)................................. 24 (2,087) (2,063)
Market appreciation......................................... 1,054 385 1,439
------- ------- -------
Net increase (decrease)..................................... 1,078 (1,702) (624)
------- ------- -------
Assets under management, end of period...................... $18,983 $35,980 $54,963
======= ======= =======
</TABLE>
The Company reported net income before taxes of $60.2 million for the first
quarter ended March 2000, representing a decrease of $14.0 million or 18.9% from
$74.2 million compared to the actual results of the first quarter ended March
1999. Net income before taxes of $60.2 million for the first quarter of 2000
represents a decrease of $1.0 million or 1.6% when compared to the pro forma
results for the first quarter ended March 1999. Private Asset Management and
Professional Securities Services net income before taxes were $36.2 and $7.5
million for the first quarter of 2000, increasing 11.7% and 47.1% respectively,
when compared to the pro forma results for the prior year period. These
increases were more than offset in Mutual Fund and Institutional where net
income before taxes was $16.5 million, a decrease of 30.7% when compared to the
pro forma results for the prior year period.
Net revenues after interest expense increased by $10.8 million for the first
quarter of 2000, to $155.4 million, an increase of 7.5% compared to the actual
results for the first quarter ended March 1999. The net revenues after interest
expense of $155.4 million for the first quarter of 2000 represents an increase
of $9.8 million or 6.7% when compared to the pro forma results for the first
quarter ended March 1999. Strong
13
<PAGE>
results in Private Asset Management and Professional Securities Services were
attributable to increased investment advisory fees, commissions and net interest
income. Mutual Fund and Institutional net revenues after interest expense
decreased due to lower investment advisory and administrative fees.
PRIVATE ASSET MANAGEMENT. Private Asset Management net revenues after
interest expense increased 16.5% to $73.5 million for the first quarter of 2000
from $63.1 million on a pro forma basis for the first quarter of 1999.
Investment advisory fees increased 19.5% to $46.5 million for the first quarter
of 2000 from $38.9 million for the prior year period due to increased average
assets under management. Commissions increased 8.9% to $25.6 million for the
first quarter of 2000 from $23.5 million for the prior year period, due to an
increase in transaction volume and the addition of three new investment
management groups during the second half of 1999.
MUTUAL FUND AND INSTITUTIONAL. Mutual Fund and Institutional net revenues
after interest expense decreased 10.7% to $55.8 million for the first quarter of
2000 from $62.5 million on a pro forma basis for the first quarter of 1999.
Investment advisory and administrative fees decreased 8.9% to $50.1 million for
the first quarter of 2000 from $55.0 million for the prior year period as a
result of decreased average assets under management, primarily due to net asset
withdrawals. Commissions decreased $2.0 million or 27.8% as a result of a
decrease in share volume.
PROFESSIONAL SECURITIES SERVICES. Professional Securities Services net
revenues after interest expense increased 30.5% to $26.1 million for the first
quarter of 2000 from $20.0 million on a pro forma basis for the first quarter of
1999. Principal transactions in securities increased $2.9 million or 138.1% as a
result of strong market maker trading. Net interest income increased $1.7
million or 28.3% due to higher average net client balances. Commissions
increased $1.4 million or 18.4%. This resulted from an increase in share volume
from the research sales and the professional investor clearing services groups.
OPERATING EXPENSES (ACTUAL). Total operating expenses were $95.2 million
for the first quarter ended March 2000, an increase of $24.8 million or 35.2%
from $70.4 million for the first quarter of 1999. Employee compensation and
benefits increased to $65.9 million for the first quarter ended March 2000, up
$22.6 million or 52.2 % from $43.3 million for the same period in 1999. As a
result of the Company's reorganization, principals who previously received
distributions of capital are now compensated as employees. Compensation for
employees who formerly were principals, not previously reported as compensation,
for the first quarter of 2000 was $15.4 million. Also included in employee
compensation and benefits in the first quarter of 2000 is a $750,000
restructuring charge for employee termination benefits related to a decision to
outsource certain administrative activities in the Mutual Fund and Institutional
segment. Information technology increased to $5.2 million in the first quarter
of 2000, up $1.0 million or 23.8% from $4.2 million for the same period of 1999
due primarily to increases in third party processing from increased securities
transactions, as well as increases in market data services, software licenses
and maintenance agreements. Rent and occupancy increased to $4.2 million in the
first quarter of 2000, up $1.1 million or 35.5% from $3.1 million for the same
period of 1999 primarily due to additional office space needed to accommodate
increases in staffing levels. Distribution and fund administration decreased to
$4.4 million in the first quarter of 2000, down $0.8 million or 15.4% from $5.2
million for the same period of 1999 as a result of decreased average mutual fund
assets under management. A reclassification was recorded in both quarters ended
March 2000 and 1999, to present gross, administrative fees received by the
Company from their mutual funds and paid to third party administrators as fund
administration expense, previously presented net. Depreciation and amortization
increased to $2.5 million in the first quarter of 2000, up $0.4 million or 19.0%
from $2.1 million for the same period of 1999 due primarily to amortization of
new leasehold improvements and depreciation resulting from new capital
expenditures on technology-related equipment. Other expenses increased to $5.5
million in the first quarter of 2000, up $1.1 million or 25.0% from $4.4 million
for the same period of 1999 due primarily to increases in travel and
entertainment and office expenses.
14
<PAGE>
OPERATING EXPENSES (PRO FORMA). Total operating expenses were $95.2 million
for the first quarter ended March 2000, an increase of $10.8 million or 12.8%
from $84.4 million for the first quarter of 1999. Employee compensation and
benefits increased to $65.9 million for the first quarter ended March 2000, up
$8.6 million or 15.0% from $57.3 million for the same period in 1999.
TAXES (ACTUAL). Taxes increased to $20.0 million in the first quarter of
2000, up $17.6 million from $2.4 million in the first quarter of 1999. This
increase is attributable to the Company's initial public offering and
reorganization in October 1999. The first quarter of 2000 provision for income
taxes includes federal, state and local taxes at the Company's effective tax
rate, as a corporation, of approximately 43.3% less a financial statement tax
benefit of $6.1 million related to the change in the price of the Company's
stock from December 31, 1999 to March 31, 2000, in connection with the Company's
defined contribution stock incentive plan. Taxes for the first quarter of 1999
reflect unincorporated business taxes incurred as a partnership and state and
local taxes. 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"). FIN 44 is effective on and after July 1, 2000, except for certain items
which require an earlier implementation date. The Company presently adjusts the
carrying value of the deferred tax asset relating to unvested shares in the
defined contribution stock incentive plan based upon fluctuations in the price
of its common stock if below the stock price on the contribution date. FIN 44
requires that the deferred tax asset be determined by the compensation expense
recognized for financial reporting purposes rather than by adjusting the
carrying value of the deferred tax asset based upon changes in the price of a
company's stock. Accordingly, at June 30, 2000, the Company will fix the
carrying value of its deferred tax asset for unvested shares in its defined
contribution stock incentive plan, based upon the price of its common stock at
the close of business that day.
TAXES (PRO FORMA). Taxes decreased to $20.0 million in the first quarter of
2000, down $6.5 million or 24.5% primarily due to the $6.1 million financial
statement tax benefit related to the change in the price of the Company's stock.
15
<PAGE>
ACTUAL AND PRO FORMA OPERATING RESULTS
The following table sets forth the Company's actual and pro forma condensed
consolidated statements of income for the three months ended March 31, 2000 and
1999, respectively:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
ACTUAL PRO FORMA
2000 1999
--------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
REVENUES
Investment advisory and administrative fees................. $ 96,951 $ 94,606
Commissions................................................. 39,828 38,351
Interest.................................................... 51,025 40,251
Principal transactions in securities........................ 5,076 2,085
Clearance fees.............................................. 3,622 2,813
Other income................................................ 838 1,069
-------- --------
GROSS REVENUES.......................................... 197,340 179,175
Interest expense............................................ 41,928 33,559(1)
-------- --------
NET REVENUES AFTER INTEREST EXPENSE..................... 155,412 145,616
-------- --------
OPERATING EXPENSES:
Employee compensation and benefits.......................... 65,933 57,305(2)
Information technology...................................... 5,221 4,182
Rent and occupancy.......................................... 4,164 3,145
Brokerage, clearing and exchange fees....................... 2,843 3,021
Advertising and sales promotion............................. 2,452 2,716
Distribution and fund administration........................ 4,392 5,219
Professional fees........................................... 2,277 2,364
Depreciation and amortization............................... 2,460 2,095
Other expenses.............................................. 5,452 4,364
-------- --------
TOTAL OPERATING EXPENSES................................ 95,194 84,411
-------- --------
NET INCOME BEFORE TAXES................................. 60,218 61,205
Provision for income taxes.................................. 19,977 26,502(3)
-------- --------
NET INCOME.............................................. $ 40,241 $ 34,703
======== ========
NET INCOME PER COMMON SHARE
Basic and diluted:
Net income per share.................................... $ 0.81 $ 0.69(4)
======== ========
Weighted average common shares outstanding.............. 49,476 50,022
======== ========
</TABLE>
See accompanying notes to actual and pro forma condensed consolidated statements
of income.
BASIS OF PRESENTATION
The 1999 pro forma condensed consolidated statement of income was prepared
as if the Company's initial public offering, reorganization and other related
transactions had taken place at the beginning of 1999. The pro forma condensed
consolidated statement of income is not necessarily indicative of the results
that would have been achieved had the pro forma adjustments occurred on this
date or that may be achieved in the future.
16
<PAGE>
These actual and pro forma condensed consolidated statements of income and
notes should be read in conjunction with the actual and pro forma condensed
consolidated statements of income and the related notes included in the
Company's 1999 Annual Report on Form 10-K.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(1) Reflects decrease in interest expense related to the use of proceeds to
repay a portion of the NB Associates subordinated note and other short-term
borrowings. In addition, the amount reflects the change in interest expense
related to the financing of the remaining portion of the NB Associates
subordinated liability.
(2) Because Neuberger Berman had operated as a partnership, there was no actual
historical measure of the compensation and benefits that would have been
paid, in corporate form, to the principals for services rendered prior to
October 7, 1999. Accordingly, this adjustment is made to reflect
compensation amounts, based on the new employment agreements for principals,
which became effective on October 8, 1999. The pro forma adjustment for
principals' compensation and benefits for the period ended March 31, 1999
has been determined as if the new employment agreements had been in place
during this period.
(3) Reflects a provision for federal, state and local taxes in corporate form at
an effective rate of approximately 43% and reverses 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.
Certain prior period amounts have been reclassified to conform with the
current periods' financial statement presentation.
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 condensed consolidated statements of financial
condition include 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 the
Private Asset Management, Mutual Fund and Institutional and Professional
Securities Services segments.
The Company's financial condition is highly liquid with the 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 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 Securities and Exchange Commission
(the "SEC") and other regulatory authorities. At March 31, 2000, the Company's
regulatory net capital exceeded the minimum requirement by approximately $146.7
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 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 equity cannot fall. The Company believes that
its cash flow from operations and existing committed and
17
<PAGE>
uncommitted lines of credit will be more than adequate to meet its anticipated
capital requirements and debt and other obligations as they come due.
On October 28, 1999, the Company's Board of Directors authorized a
discretionary repurchase of up to $50 million of the Company's common stock. The
authorization stated that purchases may be made from time to time in the open
market and in negotiated transactions, subject to market conditions. As of
March 31, 2000, 682,385 shares had been repurchased for approximately $17.5
million. The source of the funds for these purchases was internally generated.
ITEM 3.--QUANTITATIVE AND QUALITATIVE DISCLOSURES 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 was
$2.1 and $1.6 million during the three months ended March 31, 2000 and 1999,
respectively.
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 6.--EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<S> <C>
(a) Exhibits:
11 Computation of Net Income per Common Share.
27 Financial Data Schedule.
</TABLE>
(b) Form 8-K filed January 31, 2000. On January 25, 2000, Neuberger Berman Inc.
reported results of operations for the three and twelve months ended
December 31, 1999.
18
<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.
<TABLE>
<S> <C> <C>
NEUBERGER BERMAN INC.
May 11, 2000 By: /s/ ROBERT MATZA
----------------------------------------
Name: Robert Matza
Title: Chief Administrative Officer
May 11, 2000 By: /s/ PHILIP AMBROSIO
----------------------------------------
Name: Philip Ambrosio
Title: Chief Financial Officer
</TABLE>
19
<PAGE>
EXHIBIT 11
NEUBERGER BERMAN INC.
AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS
ENDED MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Total average common stock used for earnings per share
computation--basic and diluted.......................... 49,476 42,727
------- -------
Net income................................................ $40,241 $71,800
------- -------
Net income per common share--basic and diluted............ $ 0.81 $ 1.68
------- -------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<CIK> 0001068144
<NAME> NEUBERGER BERMAN INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 600,404
<RECEIVABLES> 2,711,093
<SECURITIES-RESALE> 915,727
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 19,343
<PP&E> 37,110
<TOTAL-ASSETS> 4,347,205
<SHORT-TERM> 85,000
<PAYABLES> 3,386,728
<REPOS-SOLD> 392,764
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 60,816
<LONG-TERM> 35,000
0
0
<COMMON> 500
<OTHER-SE> 279,098
<TOTAL-LIABILITY-AND-EQUITY> 4,347,205
<TRADING-REVENUE> 5,076
<INTEREST-DIVIDENDS> 51,025
<COMMISSIONS> 39,828
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 96,951
<INTEREST-EXPENSE> 41,928
<COMPENSATION> 65,933
<INCOME-PRETAX> 60,218
<INCOME-PRE-EXTRAORDINARY> 40,241
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,241
<EPS-BASIC> .81
<EPS-DILUTED> .81
</TABLE>
