<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
---------------
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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 No. 1-15361
NEUBERGER BERMAN INC.
(Exact Name of Registrant As Specified in Its Charter)
<TABLE>
<S> <C>
DELAWARE 06-1523639
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
605 Third Avenue, New York, NY 10158
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (212) 476-9000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<S> <C>
Name of Each Exchange
on Which Registered
-----------------------
Title of Each Class
- ---------------------------
Common Stock $.01 par value New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the common stock held by non-affiliates of the
Registrant, based upon the closing price of $24.75 on February 1, 2000, on the
New York Stock Exchange was $171,859,050. Calculation of holdings of common
stock by non-affiliates is based upon the assumption, for these purposes only,
that executive officers, directors, former principals and the Registrant's
Defined Contribution Stock Incentive Plan are affiliates. As of February 1,
2000, the number of shares of the Registrant's common stock outstanding was
49,614,435.
------------------------
Documents Incorporated By Reference
<TABLE>
<S> <C>
Document Incorporated Part of Report
By Reference Into Which Incorporated
- ---------------------------------------------------------- -----------------------
The definitive proxy statement for the 2000 annual meeting
of stockholders to be held April 27, 2000. Part III
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
PART I
Item 1. Business.................................................... 3
Introduction.............................................. 3
Private Asset Management.................................. 3
Mutual Fund and Institutional............................. 4
Professional Securities Services.......................... 7
Investment Process and Research........................... 8
Competition............................................... 8
Regulation................................................ 9
Client Protection and Insurance........................... 10
Net Capital Requirements.................................. 10
Intellectual Property..................................... 11
Employees................................................. 11
Item 2. Properties.................................................. 11
Item 3. Legal Proceedings........................................... 11
Item 4. Submission of Matters to a Vote of Security Holders......... 11
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 12
Item 6. Selected Consolidated Financial Data........................ 12
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 13
Business Environment...................................... 13
General................................................... 13
Results of Operations..................................... 14
Pro Forma Operating Results............................... 19
Liquidity and Capital Resources........................... 20
Year 2000................................................. 21
Looking Ahead............................................. 21
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk...................................................... 21
Item 8. Financial Statements and Supplementary Data................. 23
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 46
PART III
Item 10. Directors and Executive Officers of the Company............. 46
Item 11. Executive Compensation...................................... 46
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 46
Item 13. Certain Relationships and Related Transactions.............. 46
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 47
</TABLE>
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-K, including, but not limited to, the material under the headings
"Year 2000" and "Legal Proceedings and Contingencies," 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.
<PAGE>
PART I
ITEM 1.--BUSINESS
INTRODUCTION
Neuberger Berman Inc. ("NBI") was organized as a Delaware corporation in
August, 1998 and completed an initial public offering ("IPO") of its shares in
October, 1999. As part of that transaction, NBI became a holding company for its
subsidiaries, Neuberger Berman, LLC ("NB, LLC") and Neuberger Berman
Management Inc. ("NBMI"), which, together with their predecessors, have
conducted business since 1939 and 1970, respectively. Prior to the IPO in
October, 1999, NB, LLC and NBMI were privately owned by 70 principals and their
family affiliates. NBI and its consolidated subsidiaries are collectively
referred to herein as the "Company".
The Company conducts its business primarily through NB, LLC and its
subsidiaries and NBMI, which are both registered investment advisers and
broker-dealers. NB, LLC is also a member of the New York Stock Exchange, Inc.
("NYSE"). 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. Originally founded to be a premier provider
of investment products and services to high net worth individuals, the Company
has established a strong presence in the mutual fund and institutional
marketplaces. In addition to individuals and wealthy families, the Company's
clients include corporations, insurance companies, pension funds, foundations,
endowments, trusts and employee benefit plans. The Company's principal
businesses include:
- Private Asset Management;
- Mutual Fund and Institutional; and
- Professional Securities Services.
The Company derives its revenues principally from investment advisory and
administrative fees, which are based on its assets under management and from
commissions. As of December 31, 1999, the Company had total assets under
management of $54.4 billion. The majority of the Company's assets under
management are held in equity accounts, which carry higher fees than fixed
income accounts. Approximately 46.1% of its net revenues after interest expense
for the year ended December 31, 1999, were derived from the higher margin
Private Asset Management business. The Company has effectively leveraged its
infrastructure to enhance profitability by developing complementary businesses
such as professional investor clearing services and research sales in
Professional Securities Services.
PRIVATE ASSET MANAGEMENT
The Company was founded as an investment management firm for high net worth
individuals. Private Asset Management, which provides investment management
services to individuals, wealthy families and smaller institutions that
generally have at least $500,000 to invest, remains one of the Company's
principal pursuits.
As of December 31, 1999, Private Asset Management managed $21.1 billion in
assets covering approximately 13,000 individual accounts, including assets
managed for clients of the NB, LLC's three trust company subsidiaries. Net
revenues after interest expense for Private Asset Management were
$260.1 million for the year ended December 31, 1999, representing 46.1% of the
Company's net revenues after interest expense. This included $90.1 million in
commission revenue, derived principally from listed equity trades executed as
broker, on behalf of its clients.
3
<PAGE>
Private Asset Management has traditionally grown its business through
referrals from existing clients and marketing efforts by individual portfolio
managers. In 1986, Private Asset Management established a dedicated national
sales force to significantly expand its marketing efforts. More recently, the
Company has also pursued the strategy of attracting new investment teams.
The Company's Private Asset Management national sales force currently
consists of 28 sales professionals supported by 32 client service
administrators, working in New York and regional offices in Atlanta, Boston,
Chicago, Dallas, Los Angeles, Miami, San Francisco, and West Palm Beach. The
Company expects to add five new regional offices in Houston, Philadelphia,
Seattle, Tampa and the Washington, D.C. area, as well as increase the number of
sales professionals to approximately 40, by the end of the year 2000. The
national sales force accounted for $640 million in new assets under management
in 1999.
The Company actively seeks to identify, evaluate and attract experienced
individual investment professionals and small investment management teams with
pre-existing client relationships. The Company provides these professionals and
teams with research, trust and custody services and securities clearing
capabilities. During 1999, three investment teams joined the Company, adding
approximately $814 million in assets under management.
In 1999, the Company launched its first print advertising campaign in
selected publications focused on the high net worth client, which was designed
to increase name recognition of the Company. These efforts are expected to
continue in the year 2000.
Private Asset Management provides the following services for its clients:
CUSTOMIZED INVESTMENT ADVISORY SERVICES. Through close individual contact
with high net worth clients, the portfolio managers and sales professionals can
tailor individual portfolios specifically to address clients' investment goals,
income requirements, capital preservation needs, tax objectives and social
considerations. The Company also offers clients estate planning, trust
administration and safekeeping of investment securities. Private Asset
Management is marked by long-term client loyalty, sometimes spanning several
generations.
TRUST COMPANIES. Through its three trust companies in New York, Delaware
and Florida, the Company provides its clients with an integrated approach to
wealth management through estate, income, financial and retirement planning,
trust administration, fiduciary and other services. The trust companies provide
specialized services designed to address the needs of high net worth clients,
for profit institutions and charities.
The trust companies provide advice on tax planning and investment policy to
high net worth individuals, wealthy families and family offices, combined with
multi-jurisdictional trust, partnership and estate administration services. They
also provide oversight, performance measurement and consolidated statements of
investments managed by affiliated and non-affiliated portfolio managers. The
trust companies also deliver flexible, qualified and nonqualified employee
benefit plan trustee services to corporations and other for profit institutions,
as well as custom-made planned giving program investment and administration
services to charities.
The trust companies obtain the Company's clients from the Company's existing
client base, the Private Asset Management sales force and the trust companies'
own sales efforts. The Company expects to apply for a national trust charter
sometime during the year 2000.
MUTUAL FUND AND INSTITUTIONAL
The Mutual Fund and Institutional business provides advisory services to
mutual funds, institutional clients and wrap fee programs. It offers a wide
range of investment products that accommodate a variety of investment goals
including large-cap, mid-cap and small-cap equity products, incorporating value
or growth-oriented, international and socially responsive investment
philosophies. This business also offers
4
<PAGE>
balanced, fixed income and money market products. Net revenues after interest
expense for Mutual Fund and Institutional were $225.5 million for the year ended
December 31, 1999. As of December 31, 1999, the Company managed $33.3 billion of
mutual fund and institutional assets.
MUTUAL FUND MANAGEMENT. As of December 31, 1999, the Company managed
$17.4 billion in mutual fund assets invested in 42 of the Company's mutual funds
(the "Funds") based on 24 separate investment portfolios that span the entire
range of the Company's investment strategies.
S&P 500 returns exceeded 20% per year during each of the years from 1995 to
1999. While this performance led to rapid growth for the mutual fund industry in
general and for the Company in particular, throughout this period, growth stocks
generally outperformed value stocks and large capitalization stocks generally
outperformed medium and small capitalization stocks. These factors were
especially pronounced in 1998 and 1999. As a result, new investments in mutual
funds flowed increasingly into large capitalization growth stock funds and large
capitalization index funds that attempted to match the performance of the major
market averages. Given the Company's primary focus on value-style mutual funds,
this trend has been unfavorable for it.
During 1999, these factors resulted in a loss of assets under management by
the Funds, with net redemptions totaling $4.8 billion. This loss of assets under
management had a direct effect on investment advisory and administrative fees,
which decreased accordingly.
In light of the Company's traditional emphasis on value-style mutual funds,
it has taken steps to expand its offerings of growth-style mutual funds.
Neuberger Berman Millennium Fund, a small-cap growth fund that commenced
operations in October, 1998, grew to $215 million in assets as of December 31,
1999. Neuberger Berman Century Fund, a large-cap growth fund, was launched in
early December, 1999 and ended the year with $13 million in assets. The Company
filed a registration statement for a technology fund in February, 2000, which is
expected to commence operations in May, 2000. The Company's growth equity group,
which is based in Boston and started operations in July, 1997, had $2.7 billion
in assets under management at December 31, 1999, representing an increase of
$781 million in 1999.
The Company has introduced these new growth style mutual funds to complement
and expand its investment product offerings and meet the changing needs of its
clients in response to competitive developments in the financial market place.
The Company has also filed registration statements for two institutional money
market funds and expects them to commence operations in the second quarter of
year 2000.
The Funds are made available to investors through multiple distribution
channels, strategic alliances and business relationships, upon which the Company
is heavily dependent. The Funds have traditionally been sold directly to
shareholders, without a sales load. Fund shares are marketed through advertising
and through direct mail solicitations principally to existing fund shareholders.
As of December 31, 1999, the Company had strategic alliances with 80
administrators of defined contribution plans (such as 401(k), 403(b) and
nonqualified deferred compensation plans). These alliances allow the Company, as
investment adviser, and these administrators, as recordkeepers and plan
participant service providers, to perform the task each party is best suited to
carry out. Defined contribution plan assets under management in the Funds were
$4.1 billion at December 31, 1999.
As of December 31, 1999, the Company also had relationships with 39
insurance companies that offer variable annuity and variable life insurance
products that may be invested, at the direction of policy holders, in certain
Funds. The amount invested directly in these Funds was $2.4 billion at
December 31, 1999.
5
<PAGE>
In strategic alliances and business relationships with these third parties,
the Company generally pays them for recordkeeping, sub-accounting or other
services that they perform with respect to assets that are invested, either
directly or indirectly, in the Funds.
Fund shares are also made available through mutual fund supermarkets, broker
dealers, banks, and most recently through the Company's internet site, where
mutual fund investors can access account information and buy, sell and exchange
Fund shares. The site also has Fund prospectuses and applications, daily share
prices, performance, articles and educational materials.
In addition to investment advisory and sub-advisory fees, the Company also
generates income from administrative and service fees for accounting services,
general administration of mutual funds (such as coordinating board meetings,
compliance programs and prospectus and semi-annual report production) and
shareholder services.
In July, 1999, the Company launched the Fund Advisory Service, which is
designed for the relatively affluent investor and the retirement market. This
nondiscretionary investment advisory program offers professional advice to
mutual fund investors seeking to build and monitor a customized portfolio of
mutual funds from well-known fund groups, including the Funds and mutual funds
sponsored by third parties. It also provides these investors consolidated
statements, "one-stop" transactions and a variety of mutual fund investment
options. The Company intends to market this service through its internal mutual
fund shareholder base, intra-company client referrals, advertising, the internet
and public relations efforts. The Company is also exploring making this service
available to third parties who may want to offer it to their own clients.
Net revenues after interest expense for the mutual fund business were
$135.7 million for the year ended December 31, 1999, consisting primarily of
investment advisory and administrative fees and commissions. Approximately 49%
of the commissions paid by the Funds for the year ended December 31, 1999, were
paid to NB, LLC for executing listed equity trades as broker.
INSTITUTIONAL ASSET MANAGEMENT. The Company manages domestic, international
and global equity, balanced, fixed income and cash management separate account
portfolios for over 250 U.S. institutional clients. These include, but are not
limited to, defined benefit and defined contribution plans for corporations and
municipalities, Taft-Hartley plans, insurance companies, endowments and
foundations, mutual funds sponsored by third parties and hospital and health
care organizations. As of December 31, 1999, the Company managed $14.1 billion
of institutional separate account assets.
STRATEGIES FOR INSTITUTIONAL ASSET MANAGEMENT. The Company's institutional
equity accounts have predominantly been invested in value stocks. The Company
has diversified the investment styles of its advisory services offered to
institutional investors and currently offers equity products employing small,
mid and large capitalization value and growth investing styles. The Company
manages fixed income accounts in several different investment strategies for its
clients, including cash management, limited maturity, high yield, municipal,
broad investment grade, opportunistic core and international. The Company is a
value oriented fixed income manager that uses sector rotation and security
selection to earn incremental yield, active duration management and volatility
analysis to control risk and, dependent upon market conditions, protect
principal or add capital appreciation.
SUB-ADVISORY SERVICES FOR MUTUAL FUNDS SPONSORED BY THIRD PARTIES. The
Company began providing sub-advisory services to mutual funds that are managed
or sponsored by third parties in 1994. Since entering this business, the assets
under management that the Company sub-advises have grown to $1.7 billion at
December 31, 1999.
Net revenues after interest expense for the institutional asset management
business were $89.8 million for the year ended December 31, 1999, consisting
primarily of investment advisory fees and commissions.
6
<PAGE>
WRAP FEE MANAGEMENT. The Company acts as investment adviser to more than
5,500 accounts through nine wrap fee programs sponsored by third party banks and
brokerage firms. Wrap fee programs, which are designed to meet the needs of
individuals and smaller institutions, offer comprehensive investment management
services under a single fee structure covering all charges, including investment
management, brokerage, custody, recordkeeping and reporting. As of December 31,
1999, the Company managed $1.8 billion of wrap fee assets.
The Company has relationships with three of the four largest sponsors of
wrap fee programs and have begun to offer, through these wrap fee programs, a
range of equity products including large-cap value, mid-cap growth and socially
responsive.
Net revenues after interest expense for the wrap fee business were
$8.2 million for the year ended December 31, 1999, consisting primarily of
investment advisory fees.
PROFESSIONAL SECURITIES SERVICES
The Professional Securities Services business generates income by marketing
services to third party investment advisers and professional investors. Net
revenues after interest expense for Professional Securities Services were
$78.2 million for the year ended December 31, 1999. These services include
professional investor clearing services, research sales, market maker trading
and trust services. Because these services are based upon the capabilities and
resources developed for its asset management businesses, the Company can
generally provide these services at a modest incremental cost.
PROFESSIONAL INVESTOR CLEARING SERVICES. As of December 31, 1999, the
Company provided prime brokerage to 46 private investment partnerships,
registered investment advisers and family offices as well as correspondent
clearing services to ten introducing brokers. These services include trade
execution, custody, clearance and settlement, margin financing and the borrowing
of securities to meet short sale obligations, portfolio reporting and consulting
advice regarding communications and information technology required to operate a
small financial concern. The Company also provides certain clients with the use
of a fully-equipped office facility. These services are actively marketed
through select market channels. The Company also seeks to cross-sell certain of
its other services, including research sales and trust and custody services.
Professional Investor Clearing Services net revenues after interest expense were
$35.1 million for the year ended December 31, 1999. These net revenues consist
primarily of commissions, clearance fees and net interest income.
RESEARCH SALES. The Company's centralized research department regularly
prepares and updates research reports for the Private Asset Management and
Mutual Fund and Institutional businesses. Nine sales professionals in the
research sales group make these research reports available to approximately 200
third-party investment managers. If these third-party managers decide to buy or
sell securities based on this research, they usually place their trades through
the Company, although they have no obligation to do so. The research sales group
includes seven traders who execute these brokerage transactions. Through the
Company's corporate relationships, it participates in public offerings of
securities (it does not participate in such offerings, however, for its advisory
clients). Research Sales net revenues after interest expense were $19.2 million
for the year ended December 31, 1999. These net revenues consist primarily of
commissions.
OTHER ACTIVITIES. Professional Securities Services also includes market
making trading activities, custody and record keeping services and treasury
management. The Company acts as market maker for approximately 175 securities
traded on the over-the-counter market, buying or selling such securities as
principal. Strict limits are imposed on the trading desk and the individual
traders to limit the Company's risk. The Company provides custody and record
keeping services to clients of its three trust companies. The Company also
generates net interest income by managing cash available as a result of its
broker-dealer activities. Net revenues after interest expense for these other
activities were $23.9 million for the year
7
<PAGE>
ended December 31, 1999. These net revenues consist primarily of principal
transactions in securities, net interest income and custody income.
INVESTMENT PROCESS AND RESEARCH
The Company's portfolio managers generally base their decisions on
fundamental analysis, attempting to make knowledgeable judgments about the
investment merits of industry groups and, even more importantly, specific
companies. A centralized research department supports all of the Company's
investment professionals. Organized primarily by industry, these security
analysts are responsible for understanding developments within the companies and
industries they follow. To do this, they meet with senior management of
companies they follow and interview customers and competitors. In some cases,
they employ specialized consultants and develop earnings and cash flow
estimates. At present, there are 16 analysts in the research department,
supported by 14 research associates. In addition to this centralized research
department, many of the Company's investment groups employ dedicated analysts
who focus on securities of particular interest to their specific investment
approach. Of particular importance to the Company's research is an established
program of on-site visits between its portfolio managers and analysts and the
senior managements of corporations. More than 800 such meetings occurred in
1999, and they provide the portfolio managers and analysts with valuable insight
and perspective into a company's business, management strategy and financial
prospects.
COMPETITION
The Company is subject to substantial competition in all aspects of its
business. The Company believes that the principal competitive factors affecting
its asset management business are the range of products offered, brand
recognition and business reputation, investment performance, the continuity of
client relationships and of assets under management, the quality of service
provided to clients, the level of fees and commissions charged for services in
response to competitive conditions, the level of commissions and other
compensation paid, the level of expenses paid to financial intermediaries
related to administration and/or distribution and financial strength.
The Company competes in all aspects of its business with a large number of
investment management firms, commercial banks, investment banks, broker-dealers,
insurance companies and other financial institutions. A number of these
competitors have greater capital and other resources and offer more
comprehensive lines of products and services. The recent trend toward
consolidation within the investment management and the securities industry has
served to increase the size and strength of the Company's competitors. There are
relatively few barriers to entry by new investment management firms and the
successful efforts of new entrants into its various lines of business, including
major banks and insurance companies, have resulted in increased competition.
Recently enacted federal financial modernization legislation significantly
expands the activities permissible for firms affiliated with a U.S. bank. The
legislation, among other things, enables U.S. banks and insurance firms to
affiliate, facilitates affiliations between U.S. banks and securities firms, and
expands the permissible principal investing activities of U.S. banking
organizations. This legislation may further accelerate consolidation and
increase competition in the financial services industry and will enable banking
organizations to compete more effectively across a broad range of activities.
The Company's competitors are seeking to expand market share in the products
and services the Company offers or intends to offer in the future. The financial
intermediaries who make available certain of the Company's products also make
available numerous competing products, including those sponsored by the firms
that employ such financial intermediaries. Many current and potential
competitors also have greater name recognition and more extensive bases that
could be leveraged, thereby gaining market share to the Company's detriment.
8
<PAGE>
At December 31, 1999, there were approximately 7,800 registered open-end
investment companies of varying sizes and with various investment policies. The
shares of such funds are currently being offered to the public both on a load
and no-load basis. Competition for sales of mutual fund shares is influenced by
advertising and sales promotion efforts, the type and quality of services being
offered and investment performance in terms of attaining the stated objectives
of the particular funds and the fund yields and total returns.
The Company also faces intense competition in attracting and retaining
qualified employees. The ability to continue to compete effectively in its
businesses will depend upon the Company's ability to attract new employees and
retain and motivate its existing employees.
REGULATION
The Company's business and the securities industry in general are subject to
extensive regulation in the United States at both the federal and state level,
as well as by self-regulatory organizations. The securities and commodities
industry is one of the nation's most extensively regulated industries. The
Securities and Exchange Commission ("SEC") is responsible for carrying out the
federal securities laws and serves as a supervisory body for all investment
advisors to mutual funds, as well as for national securities exchanges and
associations. The regulation of broker-dealers has, to a large extent, been
delegated by the federal securities laws to self-regulatory organizations. These
self-regulatory organizations include all the national securities and
commodities exchanges and the National Association of Securities Dealers, Inc.
("NASD"). Subject to approval by the SEC and the Commodity Futures Trading
Commission ("CFTC"), the self-regulatory organizations adopt rules that govern
the industry and conduct periodic examinations of the operations of NB, LLC and
NBMI. In addition, these subsidiaries are subject to regulation under the laws
of the fifty states, the District of Columbia and certain foreign countries in
which they are registered to conduct securities, investment banking, insurance
or commodities businesses.
Both NB, LLC and NBMI are registered as investment advisers with the SEC. As
registered advisers, each is subject to the requirements of the Investment
Advisers Act and the SEC's regulations thereunder. Such requirements relate to,
among other things, recordkeeping and reporting requirements, disclosure
requirements, limitations on agency cross and principal transactions between an
adviser and advisory clients, as well as general anti-fraud prohibitions.
Moreover, NB, LLC, NBMI and the Funds are subject to the Investment Company Act
and the SEC's regulations thereunder. The Investment Company Act regulates the
relationship between a mutual fund and its investment advisor and prohibits or
severely restricts principal transactions and joint transactions.
NB, LLC is registered with the CFTC as a commodity pool operator, commodity
trading adviser and futures commission merchant. NB, LLC's commodity futures and
options activities are also regulated by the National Futures Association. NB,
LLC limits its futures and options activities to those permitted by the CFTC to
be provided with reduced disclosure and other requirements to certain eligible
clients.
Broker-dealers are subject to regulations which cover all aspects of the
securities business, including sales practices, market making and trading among
broker-dealers, use and safekeeping of clients' funds and securities, capital
structure of securities firms, recordkeeping and the conduct of directors,
officers and employees. Violation of applicable regulations can result in the
revocation of broker-dealer licenses, the imposition of censures or fines and
the suspension or expulsion of a firm, its officers or employees.
As registered broker-dealers, NB, LLC and NBMI are each subject to certain
net capital requirements under the Securities Exchange Act of 1934. The net
capital requirements, which specify minimum net capital levels for registered
broker-dealers, are designed to measure the financial soundness and liquidity of
broker-dealers.
NB, LLC's trust company subsidiaries are supervised by relevant state
banking authorities, which regulate such matters as policies and procedures
relating to conflicts of interest, account administration
9
<PAGE>
and overall governance and supervisory procedures. Neuberger Berman Trust
Company is subject to oversight by the New York State Banking Department.
Neuberger Berman Trust Company of Delaware is subject to oversight by the State
Bank Commissioner of the State of Delaware. Neuberger Berman Trust Company of
Florida is subject to oversight by the Comptroller of the Department of Banking
and Finance of the State of Florida.
In addition to being regulated in the United States, the Company's business
is subject to regulation by various foreign governments and regulatory bodies.
NB, LLC is registered with and subject to regulation by the Ontario Securities
Commission, the Alberta Securities Commission and the British Columbia
Securities Commission. Foreign regulations govern all aspects of the investment
business, including regulatory capital, sales and trading practices, use and
safekeeping of client funds and securities, recordkeeping, margin practices and
procedures, registration standards, reporting and disclosure. To the extent that
the Company or its subsidiaries determine to engage in securities activities in
other jurisdictions, such additional regulations may apply.
Additional legislation and regulations, including those relating to the
activities of investment advisers and broker-dealers, changes in rules
promulgated by the SEC or other U.S. or foreign regulatory authorities and
self-regulatory organizations or changes in the interpretation or enforcement of
existing laws and rules may adversely affect the Company's manner of operation
and profitability. The Company's businesses may be materially affected not only
by regulations applicable to it as an investment adviser or broker-dealer, but
also by regulations of general application.
CLIENT PROTECTION AND INSURANCE
NB, LLC is a member of the Securities Investor Protection Corporation
("SIPC"). Clients of NB, LLC are protected by SIPC against some losses. SIPC
provides protection against lost, stolen or missing securities (except loss in
value due to a rise or fall in market prices) for clients in the event of the
failure of a broker-dealer. Accounts are protected up to $500,000 per client
with a limit of $100,000 for cash balances. In addition to being a member of
SIPC, NB, LLC carries excess SIPC insurance coverage, which increases the
coverage up to $100 million per client for securities held in their accounts.
NET CAPITAL REQUIREMENTS
As registered broker-dealers and members of the NYSE and NASD, NB, LLC and
NBMI are subject to the SEC's Uniform Net Capital Rule 15c3-1. The Rule
specifies the minimum level of net capital a broker-dealer must maintain and
also requires that at least a minimum part of its assets be kept in relatively
liquid form. The Rule provides that a broker-dealer doing business with the
public shall not permit its net capital to be less than the greater of a stated
minimum dollar requirement or one-fifteenth of its aggregate indebtedness (the
"basic method") or, alternatively, that it not permit its net capital to be less
than the greater of a stated minimum dollar requirement or 2% of its aggregate
debit items computed in accordance with Rule 15c3-3 (the "alternative method").
As of December 31, 1999, NB, LLC was required to maintain minimum net capital of
approximately $23,519,000 and had total excess net capital of approximately
$109,833,000. As of December 31, 1999, NBMI was required to maintain minimum net
capital of $250,000 and had total excess net capital of approximately
$9,462,000.
In computing net capital under Rule 15c3-1, various adjustments are made to
exclude assets not readily convertible into cash and to provide a conservative
statement of other assets, such as the inventory of securities. Therefore, a
deduction is made against the market value of securities to reflect the
possibility of a market decline prior to their disposition. Thus, this Rule
imposes financial restrictions upon the Company's business that are more severe
than those imposed on concerns in other types of businesses.
In addition, the SEC, NYSE and NASD impose rules that require notification
when net capital falls below certain predefined levels, dictate the ratio of
debt to equity in the regulatory capital composition of a broker-dealer and
limit the ability of a broker-dealer to expand its business volume under certain
10
<PAGE>
circumstances. Moreover, the Uniform Net Capital Rule and the NYSE's and NASD's
rules impose requirements that may have the effect of prohibiting a
broker-dealer from distributing or withdrawing capital and requiring prior
notice to the SEC, NYSE and NASD for certain withdrawals of capital, even
capital in excess of regulatory requirements. Since NBI's principal assets are
its ownership of its broker-dealer subsidiaries, the rules governing net capital
and restrictions on capital withdrawals could prevent NBI from meeting its
financial obligations on a timely basis.
INTELLECTUAL PROPERTY
The Company regards its name as material to its business and has made
applications for trademark registrations of the name "Neuberger Berman." The
Company currently holds trademark registrations of the name "Neuberger & Berman"
and trademark registrations relating to the Funds.
EMPLOYEES
As of December 31, 1999, the Company employed 1,142 people. None of the
Company's personnel are covered by a collective bargaining agreement. The
Company considers its relations with its personnel to be satisfactory.
ITEM 2.--PROPERTIES
The Company's executive office is located in leased office space at 605
Third Avenue, New York, New York. The Company has also leased premises at 55
Water Street for its securities clearing operation and at 600 Third Avenue, New
York, New York. A growth equity management group operates alongside sales
personnel in office space leased in Boston, Massachusetts. In addition, as of
December 31, 1999, the Company has leased premises for regional sales offices in
Atlanta, Georgia; Chicago, Illinois; Los Angeles and San Francisco, California;
Dallas, Texas; Columbia, Maryland; and Miami and West Palm Beach, Florida.
Neuberger Berman Trust Company of Delaware leases office space in Wilmington,
Delaware. The Company does not own any real property.
ITEM 3.--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
consolidated financial position, results of operations or liquidity.
ITEM 4.--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of the year ended December 31, 1999.
11
<PAGE>
PART II
ITEM 5.-- MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
NBI trades its common stock on the New York Stock Exchange ("NYSE") under
the symbol "NEU." There were approximately 93 stockholders of record of NBI's
common stock at February 1, 2000. The Company estimates there are approximately
2,718 beneficial stockholders whose shares are held in street name. As of
December 31, 1999, the closing sales price per share for NBI's common stock was
$24.875. The high and low closing sales price per share for NBI's common stock
for the fourth quarter ended December 31, 1999, as reported by the NYSE, was
$32.00 and $23.75, respectively.
On November 23, 1999, NBI declared an initial quarterly cash dividend on its
common stock of $0.10 per share, payable on January 25, 2000, to stockholders of
record at the close of business on January 11, 2000. To the extent that assets
are used to meet minimum net capital requirements of NB, LLC and NBMI under
Rule 15c3-1 promulgated by the SEC, they are not available for distribution to
stockholders as dividends. See "Business--Net Capital Requirements". 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 capital cannot fall. These
covenants may further restrict NBI's ability to pay dividends to stockholders.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources".
ITEM 6.--SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for the Company for each
of the five years ended December 31, should be read in conjunction with the
respective consolidated financial statements and related notes thereto, and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in this report. All amounts are in thousands, except per
share amounts. Assets under management are stated in millions. Certain prior
year amounts have been reclassified to conform with the year ended December 31,
1999 presentation.
<TABLE>
<CAPTION>
AS OF AND FOR THE
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net revenues after interest expense.... $ 563,861 $ 571,735 $ 502,525 $ 416,114 $ 340,332
---------- ---------- ---------- ---------- ----------
Net income before taxes................ $ 123,372 $ 294,457 $ 273,839 $ 210,932 $ 174,516
Tax (benefit) expense.................. (12,195) 9,506 8,857 8,851 7,397
---------- ---------- ---------- ---------- ----------
Net income............................. $ 135,567 $ 284,951 $ 264,982 $ 202,081 $ 167,119
========== ========== ========== ========== ==========
PER SHARE DATA:
Basic and diluted net income........... $ 3.05 $ 6.68 $ 6.07 $ 4.79 $ 11.31
Cash dividends (1)..................... 0.10 -- -- -- --
Book value............................. 5.00 2.56 2.56 2.56 2.56
BALANCE SHEET DATA:
Total assets........................... $3,847,608 $3,829,435 $2,410,213 $2,446,811 $2,019,476
Principals' capital and stockholders'
equity............................... 248,802 109,199 159,031 158,000 37,769
ASSETS UNDER MANAGEMENT: $ 54,399 $ 55,587 $ 53,511 $ 44,360 $ 38,324
</TABLE>
- ------------------------
(1) Represents Neuberger Berman Inc's initial quarterly cash dividend.
12
<PAGE>
ITEM 7.-- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BUSINESS ENVIRONMENT
Despite a difficult third quarter, domestic equity markets were strong again
in 1999. The S&P 500 closed with a fifth consecutive year of total annual
returns in excess of 20%. Smaller stocks also did well, with the Russell 2000
gaining 21.3% for the year. Across the capitalization spectrum, however, growth
stocks significantly outperformed value stocks. Technology stocks did
exceptionally well in 1999, with the S&P Technology sector appreciating 78.8%
and the tech-heavy NASDAQ composite appreciating 85.6%. In addition, the
International stock markets generally produced strong returns, with the MSCI
Japan index up 61.8% and the emerging markets MSCI EMF index up 66.4%.
In sharp contrast, fixed income markets declined in 1999, as economic
activity around the world accelerated and central banks responded with a series
of tightening measures. The benchmark 30 year Treasury bond produced a negative
total return of -14%, with the yield rising from 5.1% at the end of 1998 to 6.5%
at the end of 1999. This represented the second worst performance for the fixed
income markets since World War II.
The performance of the Company's mutual funds generally improved versus
1998, with all but two of the equity funds outperforming their respective
benchmarks. Of particular note was the Millennium Fund, a small-capitalization
growth fund, which appreciated 130.5% versus the Russell 2000 Growth Index
return of 43.1%, and the International Fund, which appreciated 65.9% versus the
EAFE Index return of 25.3%.
Notwithstanding improved performance, the Company's mutual fund business,
which traditionally emphasized a value-style investment program, continued to
experience net asset withdrawals in 1999. By contrast, industry statistics
highlight that the net inflows into mutual funds during 1999 were concentrated
in three categories: large capitalization growth funds, large capitalization
index funds and technology funds. The Company believes that the improved
performance of its value-style mutual funds, the emerging awareness of the
Company as a growth-style mutual fund manager, the introduction in December,
1999 of the Century Fund, a large-cap growth fund, and the planned introduction
of a technology fund in May, 2000, taken together, should be favorable over time
to the Company's mutual fund business.
GENERAL
The Company's revenues are recorded in the business segments in which they
are earned. Operating expenses include direct expenses, such as employee
compensation and benefits, information technology and rent and occupancy, and
indirect expenses, such as general and administrative, research, execution and
clearance expenses. Direct expenses are charged to the business segment in which
they are incurred while indirect expenses are allocated to each business segment
based upon various methodologies determined by management.
The Company derives its revenues primarily from fees for investment advisory
and administrative services provided to its private asset management, mutual
fund, institutional and wrap fee clients. Investment advisory and administrative
fees are generally based on the total market value and composition of assets
under management. As a result, fluctuations in financial markets and client
asset additions and withdrawals have a direct effect on net revenues and net
income. Fees vary with the type of assets managed, with higher fees earned on
actively managed equity accounts and lower fees earned on fixed income and cash
management accounts.
As a broker-dealer, the Company earns commission revenue by executing equity
securities transactions for private asset management, mutual fund and
institutional clients as well as for third parties in professional investor
clearing services and research sales transactions. The majority of the Company's
commissions are earned from transactions for private asset management clients.
Commission revenue may
13
<PAGE>
fluctuate based on general market conditions. The Company also earns clearance
fees for the execution of securities transactions for various introducing
brokers.
The Company generates additional income by managing cash balances available
as a result of its broker-dealer activities. The three principal areas from
which net interest income is generated are treasury management (managing
overnight cash balances), securities lending activities and from client cash and
margin balances. The Company evaluates these activities by focusing on net
interest income. Net interest income fluctuates based on general market
conditions, prevailing interest rates and the amount of client cash and margin
balances.
The Company's largest operating expense is employee compensation and
benefits, the most significant component being variable compensation for
portfolio managers and sales personnel, which is based largely on commissions
and advisory fees.
On October 7, 1999, the principals of NB, LLC and the shareholders of NBMI
exchanged their ownership interests for 42.7 million shares of NBI. On
October 13, 1999, NBI completed its initial public offering ("IPO"). In that
offering, NBI sold 3.0 million shares of common stock and received net proceeds
after expenses of approximately $88 million. In connection with the offering,
NBI incurred pre-tax reorganization and IPO charges totaling approximately
$150.1 million (the "Reorganization and IPO Charges"). The Reorganization and
IPO Charges were principally comprised of an initial, irrevocable non-cash
contribution of common stock to a defined contribution stock incentive plan of
$134.3 million, a cash contribution to the Neuberger Berman Foundation of
$10.0 million and severance and other charges of $5.8 million. To allow for a
more consistent analysis of expenses, these Reorganization and IPO Charges have
not been incorporated in the discussion of operating results for 1999 compared
to 1998.
Prior to its reorganization, the Company's two subsidiaries, NB, LLC and
NBMI, were taxed as a partnership and S-Corporation, respectively. As such, the
principals of NB, LLC were taxed on their proportionate share of the
partnership's taxable income or loss while the shareholders of NBMI were
responsible for their own federal income taxes. Effective with the
reorganization, the Company became subject to federal, state and local income
taxes and will, along with its affiliates, file a consolidated federal income
tax return.
RESULTS OF OPERATIONS
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
consolidated statements of 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.
14
<PAGE>
RESULTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRIVATE MUTUAL PROFESSIONAL
ASSET FUND AND SECURITIES
FOR THE YEAR ENDED DECEMBER 31, 1999 MANAGEMENT INSTITUTIONAL SERVICES TOTAL
- ------------------------------------ ---------- ------------- ------------ --------
<S> <C> <C> <C> <C>
Net revenues after interest expense............. $260,114 $225,516 $78,231 $563,861
Operating expenses.............................. 88,596 144,025 57,814 290,435
-------- -------- ------- --------
Net income before Reorganization and IPO Charges
and taxes..................................... $171,518 $ 81,491 $20,417 $273,426
======== ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
PRIVATE MUTUAL PROFESSIONAL
ASSET FUND AND SECURITIES
FOR THE YEAR ENDED DECEMBER 31, 1998 MANAGEMENT INSTITUTIONAL SERVICES TOTAL
- ------------------------------------ ---------- ------------- ------------ --------
<S> <C> <C> <C> <C>
Net revenues after interest expense............. $237,933 $258,344 $75,458 $571,735
Operating expenses.............................. 68,381 157,784 51,113 277,278
-------- -------- ------- --------
Net income before taxes......................... $169,552 $100,560 $24,345 $294,457
======== ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
PRIVATE MUTUAL PROFESSIONAL
ASSET FUND AND SECURITIES
FOR THE YEAR ENDED DECEMBER 31, 1997 MANAGEMENT INSTITUTIONAL SERVICES TOTAL
- ------------------------------------ ---------- ------------- ------------ --------
<S> <C> <C> <C> <C>
Net revenues after interest expense............. $198,421 $230,852 $73,252 $502,525
Operating expenses.............................. 58,942 132,491 37,253 228,686
-------- -------- ------- --------
Net income before taxes......................... $139,479 $ 98,361 $35,999 $273,839
======== ======== ======= ========
</TABLE>
15
<PAGE>
ASSETS UNDER MANAGEMENT
(IN MILLIONS)
<TABLE>
<CAPTION>
PRIVATE MUTUAL
ASSET FUND AND
FOR THE YEAR ENDED DECEMBER 31, 1999 MANAGEMENT INSTITUTIONAL TOTAL
- ------------------------------------ ---------- ------------- --------
<S> <C> <C> <C>
Assets under management, beginning of year.................. $17,905 $37,682 $55,587
------- ------- -------
Net additions (withdrawals)................................. 337 (7,661) (7,324)
Market appreciation......................................... 2,870 3,266 6,136
------- ------- -------
Net increase (decrease)................................... 3,207 (4,395) (1,188)
------- ------- -------
Assets under management, end of year........................ $21,112 $33,287 $54,399
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
PRIVATE MUTUAL
ASSET FUND AND
FOR THE YEAR ENDED DECEMBER 31, 1998 MANAGEMENT INSTITUTIONAL TOTAL
- ------------------------------------ ---------- ------------- --------
<S> <C> <C> <C>
Assets under management, beginning of year.................. $15,553 $37,958 $53,511
------- ------- -------
Net additions (withdrawals)................................. 76 (2,173) (2,097)
Market appreciation......................................... 2,276 1,897 4,173
------- ------- -------
Net increase (decrease)................................... 2,352 (276) 2,076
------- ------- -------
Assets under management, end of year........................ $17,905 $37,682 $55,587
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
PRIVATE MUTUAL
ASSET FUND AND
FOR THE YEAR ENDED DECEMBER 31, 1997 MANAGEMENT INSTITUTIONAL TOTAL
- ------------------------------------ ---------- ------------- --------
<S> <C> <C> <C>
Assets under management, beginning of year.................. $12,050 $32,310 $44,360
------- ------- -------
Net withdrawals............................................. (120) (139) (259)
Market appreciation......................................... 3,623 5,787 9,410
------- ------- -------
Net increase.............................................. 3,503 5,648 9,151
------- ------- -------
Assets under management, end of year........................ $15,553 $37,958 $53,511
======= ======= =======
</TABLE>
1999 COMPARED TO 1998. The Company reported net income before
Reorganization and IPO Charges and taxes of $273.4 million for the year ended
December 31, 1999, representing a decrease of $21.1 million or 7.2%, compared to
the year ended December 31, 1998. Net revenues after interest expense were
$563.9 million for 1999, a decrease of $7.8 million or 1.4%, compared to 1998.
The operating results for 1999 reflect overall increases in net revenues after
interest expense in Private Asset Management and Professional Securities
Services offset by a larger decrease in Mutual Fund and Institutional. Net asset
additions and appreciation in Private Asset Management were more than offset by
net asset withdrawals in Mutual Fund and Institutional. Professional Securities
Services experienced a reduction in net income before Reorganization and IPO
Charges and taxes of $3.9 million for the year ended 1999.
PRIVATE ASSET MANAGEMENT. Private Asset Management net revenues after
interest expense increased 9.3% to $260.1 million for 1999, from $237.9 million
for 1998. Investment advisory fees increased 14.4% to $166.5 million for 1999,
from $145.6 million in 1998, due to increased average assets under management.
In July 1999, a new investment advisory fee schedule was introduced with rates
the Company believes will be able to attract and retain more clients in an
increasingly competitive environment. In spite of these new rates, which lowered
the average commission charge, the introduction of this schedule is not expected
to have a material impact on future results of operations. Commissions increased
0.4% to $90.1 million for 1999, from $89.7 million during 1998. Net interest
income increased 34.6% to $3.5 million for 1999, from $2.6 million in 1998, due
primarily to higher client margin balances.
16
<PAGE>
MUTUAL FUND AND INSTITUTIONAL. Mutual Fund and Institutional net revenues
after interest expense decreased 12.7% to $225.5 million for 1999, from
$258.3 million for 1998. Investment advisory and administrative fees decreased
12.5% to $202.8 million for 1999, from $231.8 million in 1998, due to a
reduction in average assets under management resulting from net asset
withdrawals. Commissions decreased $3.9 million or 15.4%, primarily due to
decreased share volume in the mutual fund business.
PROFESSIONAL SECURITIES SERVICES. Professional Securities Services net
revenues after interest expense increased 3.6% to $78.2 million for 1999, from
$75.5 million for 1998. Principal transactions in securities increased 57.1% to
$9.9 million for 1999, from $6.3 million in 1998, as a result of strong market
maker trading. Clearance fees increased 22.0% to $11.1 million for 1999, from
$9.1 million during 1998, due to increased market activity. Net interest income
decreased 8.8% to $22.7 million for 1999, primarily due to a combination of
lower client margin balances and higher interest charges associated with the
subordinated liabilities, which combined were outstanding twelve months in 1999,
versus four months in 1998. The reduction in net interest income was partially
offset by decreased financing costs in the fourth quarter of 1999, related to
available proceeds from the IPO.
OPERATING EXPENSES. Total operating expenses were $290.4 million in 1999,
an increase of $13.1 million or 4.7%, compared to 1998. Employee compensation
and benefits increased to $185.4 million for 1999, up $12.0 million or 6.9%,
from $173.4 million for 1998. As a result of the reorganization, principals who
previously received distributions of capital are now compensated as employees.
This resulted in a $14.8 million increase in employee compensation and benefits
in the fourth quarter of 1999. Additionally, there was increased headcount in
information services, marketing and trust services. These increases were
partially offset by a decrease in mutual fund portfolio manager compensation,
consistent with the trend of decreased investment advisory and administrative
fees. Information technology increased to $19.2 million for 1999, up
$3.6 million or 23.1%, from $15.6 million for 1998, due primarily to increases
in software licenses and maintenance agreements, telecommunication and market
data services. The Company is also developing web based strategies and programs
to meet the needs of its clients across all three operating segments. The
Company expects that these initiatives will continue to have an impact on its
results of operations for year 2000 and beyond. Rent and occupancy increased to
$15.3 million for 1999, up $3.1 million or 25.4%, from $12.2 million for 1998,
primarily due to additional office space necessary to accommodate increased
staffing levels. Advertising and sales promotion decreased to $9.3 million for
1999, down $5.4 million or 36.7%, from $14.7 million for 1998. This was
primarily due to reduced expenditures on media advertising and other promotional
activities of $7.8 million in Mutual Fund and Institutional, partially offset by
a new $1.5 million print campaign for Private Asset Management which was
designed to increase name recognition. Distribution and fund administration
costs decreased to $10.4 million for 1999, down $2.0 million or 16.1%, from
$12.4 million for 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 $9.3 million for 1999, down $2.3 million or 19.8%, from
$11.6 million for 1998, due primarily to a net decrease in legal and
professional fees incurred in conjunction with the proposed initial public
offering in 1998, which was partially offset by increased consulting expenses
for various technology initiatives. Depreciation and amortization increased to
$10.5 million for 1999, up $1.8 million or 20.7%, from $8.7 million for 1998,
due primarily to leasehold and information technology write-offs and increased
depreciation resulting from new capital expenditures on telecommunication and
technology related equipment. Other expenses increased to $21.1 million for
1999, up $2.7 million or 14.7%, from $18.4 million for 1998, due primarily to
increases in office expenses and travel and entertainment.
TAXES. There was a net tax benefit of $12.2 million in 1999, a decrease in
taxes of $21.7 million compared to 1998. The 1999 tax benefit consisted of a
$48.4 million net deferred tax benefit primarily attributable to the
Reorganization and IPO Charges offset by current taxes of $36.2 million (which
includes $15.0 million of federal taxes and $21.2 million of state and local
taxes). The Company's effective tax rate after the IPO was 43.3%.
17
<PAGE>
1998 COMPARED TO 1997. The Company reported net income before taxes of
$294.5 million for the year ended December 31, 1998, representing an increase of
$20.7 million or 7.6%, compared to the year ended December 31, 1997. Net
revenues after interest expense were $571.7 million for 1998, an increase of
$69.2 million or 13.8%, compared to 1997.
PRIVATE ASSET MANAGEMENT. Private Asset Management net revenues after
interest expense increased 19.9% to $237.9 million for 1998, from
$198.4 million for 1997. Investment advisory fees increased 24.7% to
$145.6 million for 1998, from $116.8 million for 1997, due to increased average
assets under management. Commissions increased 14.3% to $89.7 million for 1998,
from $78.5 million for 1997, due to the increased volume of equity securities
transactions.
MUTUAL FUND AND INSTITUTIONAL. Mutual Fund and Institutional net revenues
after interest expense increased 11.9% to $258.3 million for 1998, from
$230.9 million for 1997. Mutual Fund and Institutional investment advisory and
administrative fees increased 10.2% to $231.8 million for 1998, from
$210.4 million for 1997. Mutual Fund investment advisory and administrative fees
increased $24.5 million due to higher average assets under management, which
peaked in the second quarter of 1998, notwithstanding net asset withdrawals in
the second half of 1998. This was partially offset by a decrease of
$3.1 million in Institutional investment advisory and administrative fees, due
to a reduction in average assets under management. Commissions increased 32.3%
or $6.2 million, primarily from increased transactions in the mutual fund
business.
PROFESSIONAL SECURITIES SERVICES. Professional Securities Services net
revenues after interest expense increased 3.0% to $75.5 million for 1998, from
$73.3 million for 1997. Commission income increased 13.6% or $3.7 million,
primarily from increases in professional investor clearing services and research
sales activities of $2.8 million and $0.8 million, respectively. Net interest
income decreased 6.4% to $24.9 million for 1998, primarily due to interest
expense on a subordinated liability that was entered into during September,
1998. Clearance fees rose 9.6% or $0.8 million, due to increased market
activity.
OPERATING EXPENSES. Total operating expenses were $277.3 million in 1998,
an increase of $48.6 million or 21.3%, compared to 1997. Employee compensation
and benefits increased to $173.4 million for 1998, up $25.1 million or 16.9%,
due to the hiring of new portfolio managers, sales professionals and increased
headcount in information services and marketing. Professional fees increased to
$11.6 million for 1998, up $6.4 million or 123.1%, due to higher investment
technology expenditures including Year 2000 related initiatives, the development
and implementation of a new client accounting system and increased legal and
professional fees resulting from a proposed initial public offering that was
subsequently withdrawn. Distribution and fund administration expenses increased
to $12.4 million for 1998, up $2.4 million or 24.0%, as a direct result of
increased average mutual fund assets under management. Rent and occupancy
expenses increased to $12.2 million for 1998, up $2.3 million or 23.2%,
reflecting additional office space necessary to accommodate increased staffing
levels and new regional offices, as well as a new facility for the New York
securities clearing operation. Depreciation and amortization increased to
$8.7 million for 1998, up $2.3 million or 35.9%, primarily due to leasehold
writeoffs and increased depreciation from new capital expenditures on technology
related equipment. Other expenses increased to $18.4 million for 1998, up
$8.6 million or 87.8%, primarily due to increased travel and entertainment
expenses consistent with the hiring of new sales professionals and increased
office expenses.
TAXES. Total tax expense, which included unincorporated business taxes and
state and local taxes, was $9.5 million in 1998, an increase of $0.6 million or
6.7%, compared to 1997.
18
<PAGE>
PRO FORMA OPERATING RESULTS
The following table sets forth the Company's pro forma condensed
consolidated statements of income for the years ended December 31, 1999 and
1998.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
--------------------------------------- -------------------------------------
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- --------- ---------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Investment advisory and
administrative fees..... $ 370,383 $ $ 370,383 $ 378,839 $ $ 378,839
Commissions............... 142,082 142,082 145,969 145,969
Interest.................. 160,022 160,022 164,782 164,782
Principal transactions in
securities.............. 10,003 10,003 6,324 6,324
Clearance fees............ 11,081 11,081 9,146 9,146
Other income.............. 4,059 4,059 4,004 4,004
--------- --------- --------- --------- --------- ---------
GROSS REVENUES.......... 697,630 697,630 709,064 709,064
Interest expense.......... 133,769 (3,237)(A) 130,532 137,329 (2,701)(A) 134,628
--------- --------- --------- --------- --------- ---------
NET REVENUES AFTER
INTEREST EXPENSE...... 563,861 3,237 567,098 571,735 2,701 574,436
--------- --------- --------- --------- --------- ---------
OPERATING EXPENSES:
Employee compensation and
benefits................ 325,310 (139,907)(E) 229,560 173,379 39,504 (B) 212,883
44,157 (B)
Information technology.... 19,172 19,172 15,634 15,634
Rent and occupancy........ 15,313 15,313 12,182 12,182
Brokerage, clearing and
exchange fees........... 10,164 10,164 10,245 10,245
Advertising and sales
promotion............... 9,259 9,259 14,707 14,707
Distribution and fund
administration.......... 10,386 10,386 12,433 12,433
Professional fees......... 9,276 9,276 11,550 11,550
Depreciation and
amortization............ 10,532 10,532 8,716 8,716
Other expenses............ 31,077 (10,146)(E) 20,931 18,432 18,432
--------- --------- --------- --------- --------- ---------
TOTAL OPERATING
EXPENSES.............. 440,489 (105,896) 334,593 277,278 39,504 316,782
--------- --------- --------- --------- --------- ---------
NET INCOME BEFORE
TAXES................. 123,372 109,133 232,505 294,457 (36,803) 257,654
Tax (benefit) expense..... (12,195) 61,000 (C) 100,675 9,506 102,058 (C) 111,564
51,870 (E)
--------- --------- --------- --------- --------- ---------
NET INCOME.............. $ 135,567 $ (3,737) $ 131,830 $ 284,951 $(138,861) $ 146,090
========= ========= ========= ========= ========= =========
NET INCOME PER COMMON
SHARE
Basic and diluted:
Net income per
share............... $ 3.05 $ 2.64(D) $ 6.68 $ 2.92(D)
========= ========= ========= =========
Weighted average
common shares
outstanding......... 44,410 49,998 42,663 50,022
========= ========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME.
19
<PAGE>
BASIS OF PRESENTATION
The pro forma condensed consolidated statements of income were prepared as
if the Company's reorganization and related transactions had taken place at the
beginning of each respective year presented. These pro forma condensed
consolidated statements of income 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 condensed 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.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(a) Reflects decrease in interest expense related to the use of proceeds to
repay a portion of the NB Associates subordinated liability and other
short-term borrowings. In addition, the amount reflects the change in
interest expense related to the refinancing of the remaining portion of the
NB Associates subordinated liability.
(b) 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 in fiscal
1998 and for the period ended 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 year
ended December 31, 1998, and the period ended October 7, 1999, has been
determined as if the new employment agreements had been in place during
these periods, and, for principals whose compensation is formula based, by
applying the formula to actual results for the periods, and, for other
principals, based upon the approved compensation arrangement established
pursuant to their agreements.
(c) 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.
(d) Pro forma basic and diluted earnings per share were calculated by dividing
pro forma net income by weighted average pro forma common shares
outstanding.
(e) Reverses Reorganization and IPO Charges of $150.1 million and the related
tax benefit of $51.9 million.
Certain prior year amounts have been reclassified to conform with the
current years' financial statement presentation.
LIQUIDITY AND CAPITAL RESOURCES
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 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.
20
<PAGE>
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 December 31, 1999, the Company's regulatory net capital exceeded
the minimum requirement by approximately $119 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 uncommitted lines of credit, as well as the net proceeds
from its IPO, 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
December 31, 1999, 305,700 shares had been repurchased for approximately
$8.1 million. The source of the funds for these purchases was internally
generated.
On November 23, 1999, the Company's Board of Directors declared an initial
quarterly cash dividend on its common stock in the amount of $0.10 per share
totaling approximately $5.0 million. The dividend was paid on January 25, 2000,
to stockholders of record at the close of business on January 11, 2000.
YEAR 2000
The Company has dedicated resources over the past several years to address
the potential hardware, software and other computer and technology issues and
related concerns associated with the transition to the Year 2000. In conjunction
with the project, the Company confirmed that its key vendors, financial
intermediaries and trading counterparties took similar measures. As a result of
those efforts, the Company has not experienced any material disruptions to its
operations or mission critical systems in connection with, or following, the
transition to the Year 2000. The Company's Year 2000 costs were approximately
$4.0 million through December 31, 1999, and it does not expect to incur any
material costs during the year 2000.
LOOKING AHEAD
During the year ending December 31, 2000, the Company intends to carry on
its strategic plan to grow its asset management business. The Company plans to
continue to take advantage of the growth opportunities in the high net worth
market by expanding its national sales force and number of regional sales
offices and by aggressively pursuing additional investment management teams. In
addition to adding investment management teams, the Company will evaluate
strategic acquisitions of, or joint ventures with, companies that would add new
product and services offerings, investment capabilities or distribution channels
for its clients.
ITEM 7A.--QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET 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 is based upon the market
value of assets under management. Accordingly, a decline in the prices of
securities generally, or client withdrawals of assets under management, may
cause the Company's revenues and income to decline.
21
<PAGE>
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 $2.0 million
during the year ended December 31, 1999.
22
<PAGE>
ITEM 8.--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
NEUBERGER BERMAN INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Public Accountants.................... 24
Consolidated Financial Statements and Notes
Consolidated Statements of Financial Condition--December
31, 1999 and 1998....................................... 25
Consolidated Statements of Income--Years Ended December
31, 1999, 1998 and 1997................................. 26
Consolidated Statements of Changes in Principals' Capital
and Stockholders' Equity--Years Ended December 31, 1997,
1998 and 1999........................................... 27
Consolidated Statements of Cash Flows--Years Ended
December 31, 1999, 1998 and 1997........................ 28
Notes to Consolidated Financial Statements................ 30
Schedule I--Condensed Financial Statements of the Registrant
Parent and Notes
Statement of Financial Condition--December 31, 1999....... 41
Statement of Operations--For the Period October 8, 1999
through December 31, 1999............................... 42
Statement of Cash Flows--For the Period October 8, 1999
through December 31, 1999............................... 43
Notes to Condensed Financial Statements................... 45
</TABLE>
23
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Neuberger Berman Inc.:
We have audited the accompanying consolidated statements of financial
condition of Neuberger Berman Inc. (a Delaware corporation) and subsidiaries as
of December 31, 1999 and 1998, and the related consolidated statements of
income, changes in principals' capital and stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1999. These
consolidated financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Neuberger
Berman Inc. and subsidiaries as of December 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The condensed financial statements of the
registrant parent and notes contained in Schedule I are presented for purposes
of complying with the Securities and Exchange Commission's rules and are not a
required part of the basic financial statements. This information has been
subjected to the auditing procedures applied in our audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
/s/Arthur Andersen LLP
New York, New York
February 18, 2000
24
<PAGE>
NEUBERGER BERMAN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 91,010 $ 50,383
Cash and securities segregated for the exclusive benefit of
clients................................................... 777,341 657,278
Cash and securities deposited with clearing organizations... 3,910 3,591
Securities purchased under agreements to resell............. 530,300 496,769
Receivable from brokers, dealers and clearing
organizations............................................. 1,873,259 2,223,870
Receivable from clients..................................... 432,814 326,235
Securities owned, at market value........................... 20,266 12,189
Fees receivable............................................. 23,149 26,810
Furniture, equipment and leasehold improvements, at cost,
net of accumulated depreciation and amortization of
$16,195 and $19,169 at December 31, 1999 and 1998,
respectively.............................................. 32,192 25,194
Other assets................................................ 63,367 7,116
---------- ----------
Total assets............................................ $3,847,608 $3,829,435
========== ==========
LIABILITIES, PRINCIPALS' CAPITAL AND STOCKHOLDERS' EQUITY
Liabilities:
Bank loans................................................ $ -- $ 25,000
Securities sold under agreements to repurchase............ 531,762 488,159
Payable to brokers, dealers and clearing organizations.... 1,017,483 1,368,971
Payable to clients........................................ 1,871,323 1,624,894
Securities sold but not yet purchased, at market value.... 34,172 50,410
Other liabilities and accrued expenses.................... 109,066 59,138
Payable to principals..................................... -- 53,664
---------- ----------
3,563,806 3,670,236
---------- ----------
Subordinated liabilities.................................. 35,000 50,000
---------- ----------
Commitments and contingencies
Principals' capital and stockholders' equity:
Principals' capital....................................... -- 100,000
Common stock, $.01 par value of Neuberger Berman
Management Inc.;
34,484 shares authorized; 12,668 shares issued at
December 31, 1998....................................... -- --
Preferred stock, $.01 par value of Neuberger Berman Inc.;
5,000,000 shares authorized; none issued at
December 31, 1999....................................... -- --
Common stock, $.01 par value of Neuberger Berman Inc.;
250,000,000 shares authorized; 50,021,920 shares issued
at December 31, 1999.................................... 500 --
Paid-in capital........................................... 331,077 2,876
Retained (deficit) earnings............................... (74,701) 6,323
---------- ----------
256,876 109,199
Less treasury stock, at cost, 305,700 shares at
December 31, 1999....................................... (8,074) --
---------- ----------
Total principals' capital and stockholders' equity...... 248,802 109,199
---------- ----------
Total liabilities, principals' capital and stockholders'
equity................................................ $3,847,608 $3,829,435
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
25
<PAGE>
NEUBERGER BERMAN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
REVENUES:
Investment advisory and administrative fees................. $370,383 $378,839 $327,898
Commissions................................................. 142,082 145,969 124,911
Interest.................................................... 160,022 164,782 154,280
Principal transactions in securities........................ 10,003 6,324 7,838
Clearance fees.............................................. 11,081 9,146 8,332
Other income................................................ 4,059 4,004 3,796
-------- -------- --------
GROSS REVENUES............................................ 697,630 709,064 627,055
Interest expense............................................ 133,769 137,329 124,530
-------- -------- --------
NET REVENUES AFTER INTEREST EXPENSE....................... 563,861 571,735 502,525
-------- -------- --------
OPERATING EXPENSES:
Employee compensation and benefits.......................... 325,310 173,379 148,301
Information technology...................................... 19,172 15,634 13,642
Rent and occupancy.......................................... 15,313 12,182 9,882
Brokerage, clearing and exchange fees....................... 10,164 10,245 12,727
Advertising and sales promotion............................. 9,259 14,707 12,659
Distribution and fund administration........................ 10,386 12,433 10,031
Professional fees........................................... 9,276 11,550 5,165
Depreciation and amortization............................... 10,532 8,716 6,445
Other expenses.............................................. 31,077 18,432 9,834
-------- -------- --------
TOTAL OPERATING EXPENSES.................................. 440,489 277,278 228,686
-------- -------- --------
NET INCOME BEFORE TAXES................................... 123,372 294,457 273,839
Tax (benefit) expense....................................... (12,195) 9,506 8,857
-------- -------- --------
NET INCOME................................................ $135,567 $284,951 $264,982
======== ======== ========
NET INCOME PER COMMON SHARE
Basic and diluted:
Net income per share.................................... $ 3.05 $ 6.68 $ 6.07
======== ======== ========
Weighted average common shares outstanding.............. 44,410 42,663 43,665
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
26
<PAGE>
NEUBERGER BERMAN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN PRINCIPALS' CAPITAL AND
STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
--------------------------------------------------------------------
RETAINED
PRINCIPALS' COMMON PAID-IN (DEFICIT) TREASURY
CAPITAL STOCK CAPITAL EARNINGS STOCK TOTAL
----------- -------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
BEGINNING BALANCE, DECEMBER 31, 1996............ $ 150,000 $ -- $ 742 $ 7,258 $ -- $ 158,000
Capital contributions......................... 9,196 -- -- -- -- 9,196
Capital withdrawals........................... (9,196) -- -- -- -- (9,196)
Capital distributions......................... (230,639) -- -- -- -- (230,639)
Issuances of common stock--
Neuberger Berman Management Inc............. -- -- 2,000 -- -- 2,000
Dividends -- Neuberger Berman Management
Inc......................................... -- -- -- (35,312) -- (35,312)
Net income.................................... 230,639 -- -- 34,343 -- 264,982
--------- ---- -------- -------- ------- ---------
ENDING BALANCE, DECEMBER 31, 1997............... 150,000 -- 2,742 6,289 -- 159,031
Capital contributions......................... 12,660 -- -- -- -- 12,660
Capital withdrawals........................... (62,660) -- -- -- -- (62,660)
Capital distributions......................... (247,509) -- -- -- -- (247,509)
Issuance of common stock--
Neuberger Berman Management Inc............. -- -- 134 -- -- 134
Dividends--Neuberger Berman Management Inc.... -- -- -- (37,408) -- (37,408)
Net income.................................... 247,509 -- -- 37,442 -- 284,951
--------- ---- -------- -------- ------- ---------
ENDING BALANCE, DECEMBER 31, 1998............... 100,000 -- 2,876 6,323 -- 109,199
Capital contributions......................... 525 -- -- -- -- 525
Capital withdrawals........................... (525) -- -- -- -- (525)
Capital distributions......................... (182,375) -- -- -- -- (182,375)
Dividends--Neuberger Berman Management Inc.... -- -- -- (22,679) -- (22,679)
Acquisition of treasury stock--
Neuberger Berman Management Inc............. -- -- -- -- (134) (134)
Net income (1/1/99-10/7/99)................... 182,375 -- -- 22,931 -- 205,306
--------- ---- -------- -------- ------- ---------
Total before reorganization................... 100,000 -- 2,876 6,575 (134) 109,317
Exchange of principal interests for common
stock of Neuberger Berman Inc............... (100,000) 427 99,573 -- -- --
Exchange of corporate interests for common
stock of Neuberger Berman Inc............... -- -- 6,441 (6,575) 134 --
--------- ---- -------- -------- ------- ---------
Total after reorganization (10/8/99).......... -- 427 108,890 -- -- 109,317
Issuance of common stock to public............ -- 30 87,903 -- -- 87,933
Issuance of common stock to defined
contribution stock incentive plan........... -- 43 134,284 -- -- 134,327
Dividends..................................... -- -- -- (4,962) -- (4,962)
Acquisition of treasury stock................. -- -- -- -- (8,074) (8,074)
Net loss (10/8/99-12/31/99)................... -- -- -- (69,739) -- (69,739)
--------- ---- -------- -------- ------- ---------
ENDING BALANCE, DECEMBER 31, 1999............... $ -- $500 $331,077 $(74,701) $(8,074) $ 248,802
========= ==== ======== ======== ======= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
27
<PAGE>
NEUBERGER BERMAN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
--------- ----------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 135,567 $ 284,951 $ 264,982
Adjustments to reconcile net income to net cash provided by
operating activities--
Depreciation and amortization............................. 10,532 8,716 6,445
Contribution to defined contribution stock incentive
plan.................................................... 134,327 -- --
Deferred tax benefit...................................... (48,427) -- --
(Increase) decrease in operating assets--
Cash and securities segregated for the exclusive benefit
of clients.............................................. (120,063) (437,216) (88,058)
Cash and securities deposited with clearing
organizations........................................... (319) 37 (473)
Securities purchased under agreements to resell........... (33,531) (212,334) (208,171)
Receivable from brokers, dealers and clearing
organizations........................................... 350,611 (1,038,151) 457,950
Receivable from clients................................... (106,579) 213,392 (71,079)
Securities owned, at market value......................... (8,077) (2,087) (6,220)
Fees receivable........................................... 3,661 3,041 (10,753)
Other assets.............................................. (7,825) 4,204 5,581
Increase (decrease) in operating liabilities--
Bank loans................................................ (25,000) 15,000 (29,000)
Securities sold under agreements to repurchase............ 43,603 198,743 219,153
Payable to brokers, dealers and clearing organizations.... (351,488) 786,576 (179,628)
Payable to clients........................................ 246,429 406,145 (77,973)
Securities sold but not yet purchased, at market value.... (16,238) 12,314 (3,993)
Other liabilities and accrued expenses.................... 44,967 12,382 7,567
--------- ----------- ---------
Net cash provided by operating activities............... 252,150 255,713 286,330
--------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITY:
Payments for purchases of furniture, equipment and
leasehold improvements.................................. (17,530) (11,887) (9,531)
--------- ----------- ---------
Cash used in investing activity......................... (17,530) (11,887) (9,531)
--------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of subordinated liability....................... (50,000) -- --
Proceeds from subordinated liabilities.................... 35,000 50,000 --
Proceeds from capital contributions....................... 525 12,660 9,196
Payments for capital withdrawals.......................... (525) (62,660) (9,196)
Payments for capital distributions........................ (236,039) (246,099) (216,732)
Issuance of common stock--Neuberger Berman Management
Inc. ................................................... -- 134 2,000
Issuance of common stock--Neuberger Berman Inc. .......... 87,933 -- --
Payments for dividends--Neuberger Berman Management
Inc. ................................................... (22,679) (50,924) (22,974)
Purchase of treasury stock--Neuberger Berman Management
Inc. ................................................... (134) -- --
Purchase of treasury stock--Neuberger Berman Inc. ........ (8,074) -- --
--------- ----------- ---------
Net cash used in financing activities................... (193,993) (296,889) (237,706)
--------- ----------- ---------
Net increase (decrease) in cash and cash equivalents.... 40,627 (53,063) 39,093
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................ 50,383 103,446 64,353
--------- ----------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR...................... $ 91,010 $ 50,383 $ 103,446
========= =========== =========
</TABLE>
28
<PAGE>
NEUBERGER BERMAN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest payments totaled $132,842, $137,499 and $128,220 during the years
ended December 31, 1999, 1998 and 1997, respectively.
Tax payments totaled $7,621, $3,450 and $9,277 during the years ended
December 31, 1999, 1998 and 1997, respectively.
SUPPLEMENTAL DISCLOSURES OF NON-CASH OPERATING AND FINANCING ACTIVITIES:
On October 7, 1999, the principals of Neuberger Berman, LLC and the
shareholders of Neuberger Berman Management Inc. exchanged their ownership
interests for common stock of Neuberger Berman Inc. with a carrying value of
$109,317.
In connection with Neuberger Berman Inc.'s initial public offering, an
initial, irrevocable non-cash contribution of 4,264,344 shares of its common
stock was made to a defined contribution stock incentive plan. The non-cash
expense associated with the contribution totaled $134,327 and was recognized on
the date it was funded, in accordance with Statement of Financial Accounting
Standards No. 87. Neuberger Berman Inc. recorded a deferred tax benefit of
$46,262 related to the contribution.
On November 23, 1999, Neuberger Berman Inc. declared an initial quarterly
cash dividend on its common stock in the amount of $0.10 per share. The dividend
will be payable on January 25, 2000, to stockholders of record at the close of
business on January 11, 2000.
On December 27, 1999, Neuberger Berman Inc. made a cash contribution of
$10,000 to the Neuberger Berman Foundation. In connection with the cash
contribution, Neuberger Berman Inc. recorded a deferred tax benefit of $2,165.
The accompanying notes are an integral part of the consolidated financial
statements.
29
<PAGE>
NEUBERGER BERMAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Neuberger Berman Inc. ("NBI") was organized as a Delaware corporation on
August 13, 1998. NBI was formed to be 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. Accordingly,
these entities will be consolidated pursuant to reorganization accounting. In
connection with its reorganization and initial public offering, NBI incurred
pre-tax charges totaling approximately $150,054,000 (the "Reorganization and IPO
Charges"). The Reorganization and IPO Charges are primarily comprised of an
initial, irrevocable non-cash contribution of common stock to a defined
contribution stock incentive plan, a cash contribution to the Neuberger Berman
Foundation and severance and other payments.
The consolidated financial statements include the accounts of NBI and its
subsidiaries. NBI's wholly owned subsidiaries are NB, LLC, a Delaware limited
liability company, and its subsidiaries, and NBMI, a New York corporation
(collectively, the "Company"). NB, LLC's wholly owned subsidiaries are Neuberger
Berman Trust Company, a non-depository trust company chartered under the New
York Banking Law, Neuberger Berman Trust Company of Delaware, a non-depository
limited purpose trust company chartered under the Delaware Banking Code,
Neuberger Berman Trust Company of Florida, a Florida corporation authorized to
engage in trust business chartered under the Florida Banking Law, and
Neuberger & Berman Agency Inc., a New York corporation. Material intercompany
transactions and balances have been eliminated in consolidation. The
consolidated financial statements do not include the financial condition and
results of operations of NB Associates, LLC ("Associates"), a Delaware limited
liability company, which was commonly owned by the principals and was
established to make a subordinated loan to the Company.
The Company is a registered investment adviser providing investment
management services to high net worth clients, mutual funds, and institutional
clients. As a registered investment adviser, the Company manages equity, fixed
income, balanced, socially responsive, and international portfolios for
individuals, families, endowments, foundations, trusts and employee benefit
plans. In addition, the Company advises the Neuberger Berman family of funds. As
a registered broker-dealer, the Company executes securities transactions for its
clients and others and provides prime brokerage and correspondent clearing
services to other firms.
2. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements are prepared in accordance with
generally accepted accounting principles. The preparation of the financial
statements requires management to make estimates and assumptions that affect the
reported amounts in the financial statements. Management does not believe that
actual results will differ materially from these estimates.
Securities owned and securities sold but not yet purchased are valued at
market. Principal transactions in securities and the related revenues and
expenses are recorded on a trade date basis. Client transactions in securities
and the related commission income are recorded on a settlement date basis, which
is not materially different from trade date.
For purposes of the consolidated statements of financial condition, the
Company considers all investments in money market funds to be cash equivalents.
The majority of investment advisory fees earned from high net worth and
institutional clients are charged or billed to accounts quarterly based upon the
account's net asset value at the beginning of a
30
<PAGE>
NEUBERGER BERMAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
quarter. Investment advisory and administrative fees earned from the Company's
mutual fund business (the "Funds") are charged monthly to the Funds based upon
average daily net assets under management.
The Company has changed its depreciation method for furniture and equipment
from various accelerated methods to the straight-line method of depreciation. As
a result, furniture and equipment are depreciated using the straight-line method
over their estimated useful lives. The impact of this change in accounting
principle did not have a material effect on the Company's consolidated financial
statements. Leasehold improvements are amortized using the straight-line method
over the lesser of the economic life of the improvement or the life of the
lease.
Securities purchased and sold under agreements to resell and repurchase,
respectively, as well as securities borrowed and loaned for which cash is
deposited or received, are treated as collateralized financing transactions and
are recorded at contract amount.
The Company continues to report assets as owned when they are pledged as
collateral in secured financing arrangements and the secured party cannot sell
or repledge the assets or the Company can substitute collateral or otherwise
redeem it on short notice. The Company continues not to report securities
received as collateral in secured financing arrangements because the debtor
typically has the right to substitute or redeem the collateral on short notice.
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 reorganization, the
outstanding shares were determined based upon the conversion ratio to effect the
exchange of principals' capital and stockholders' equity for common stock. Pro
rata distribution 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.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" ("SOP 98-1"). SOP 98-1 provides guidance on accounting for the
costs of computer software developed or obtained for internal use and for
determining when specific costs should be capitalized and when they should be
expensed. SOP 98-1 has been implemented by the Company in 1999. The adoption of
SOP 98-1 did not have a material impact on the Company's consolidated financial
statements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
imbedded in other contracts, and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial condition and measure those instruments at fair value.
SFAS No. 133 is effective prospectively on January 1, 2001, for calendar year
companies. The impact of the provisions of SFAS No. 133 is not anticipated to
have a material impact on the Company's consolidated financial statements.
Certain prior year amounts have been reclassified to conform with the
December 31, 1999, presentation.
31
<PAGE>
NEUBERGER BERMAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. RECEIVABLE FROM AND PAYABLE TO CLIENTS
Receivable from and payable to clients represent amounts due from or to
clients of the Company in connection with cash and margin securities
transactions. Amounts receivable are collateralized by clients' securities held
by NB, LLC and by others for delivery to NB, LLC, the value of which is not
reflected in the accompanying consolidated financial statements.
4. RECEIVABLE FROM AND PAYABLE TO BROKERS, DEALERS AND CLEARING ORGANIZATIONS
As of December 31, 1999 and 1998, amounts receivable from and payable to
brokers, dealers and clearing organizations include approximately
$1,848 million and $2,203 million of securities borrowed and approximately
$983 million and $1,347 million of securities loaned, respectively.
5. BANK LOANS
Bank loans represent unsecured short-term borrowings payable to commercial
banks. For the years ended December 31, 1999, 1998 and 1997, interest expense
incurred on these borrowings was approximately $2,287,000, $4,142,000 and
$2,486,000 based upon weighted average interest rates of 5.13%, 5.76% and 5.73%,
respectively.
6. SUBORDINATED LIABILITIES
During 1998, the principals of NB, LLC withdrew $50 million of capital and
invested it in a newly formed entity, Associates. Concurrently, Associates
loaned the $50 million to NB, LLC in the form of a subordinated liability. The
subordinated liability bore interest at 6.75% per annum and was approved by the
New York Stock Exchange, Inc. ("NYSE") as capital for the purpose of computing
net capital under Rule 15c3-1 of the Securities and Exchange Commission ("SEC").
For the years ended December 31, 1999 and 1998, interest expense incurred on the
subordinated liability was approximately $2,411,000 and $1,137,000,
respectively. On October 29, 1999, the subordinated liability was fully repaid.
On September 1, 1999, the Travelers Insurance Company loaned NB, LLC
$35 million pursuant to a subordinated promissory note (the "Note"). This amount
is payable on September 1, 2004. Interest accrues on the unpaid principal amount
of the Note at a floating rate adjusted quarterly based on the three month LIBOR
rate plus 75 basis points and is payable quarterly. The Note was approved by the
NYSE and the unpaid principal amount is available to NB, LLC in computing net
capital under SEC Rule 15c3-1. The Note contains certain covenants that limit
the percentage by which the aggregate unpaid principal amount of subordinated
liabilities exceed total regulatory capital and impose a dollar amount below
which total ownership equity cannot fall. For the year ended December 31, 1999,
interest expense incurred on the Note was approximately $747,000.
7. EMPLOYEE COMPENSATION AND BENEFITS
In connection with the Company's initial public offering, an initial,
irrevocable contribution of 4,264,344 shares of its common stock was contributed
to a defined contribution stock incentive plan. Included in employee
compensation and benefits for the year ended December 31, 1999, is non-cash
compensation of approximately $134,327,000 related to the initial, irrevocable
contribution of shares. The non-cash expense has been recognized on the date it
was funded, in accordance with SFAS No. 87.
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 years ended December 31, 1999, 1998
and 1997,
32
<PAGE>
NEUBERGER BERMAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. EMPLOYEE COMPENSATION AND BENEFITS (CONTINUED)
employee compensation and benefits include approximately $23,536,000,
$35,144,000 and $33,684,000, respectively, of payments made to NBMI
shareholders.
8. NET CAPITAL
NB, LLC and NBMI, as registered broker-dealers and member firms of the NYSE
and the National Association of Securities Dealers, Inc., respectively, are
subject to the 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 December 31, 1999, NB, LLC and NBMI had
net capital of approximately $133,352,000 and $9,712,000, respectively, which
exceeded their requirements by approximately $109,833,000 and $9,462,000,
respectively.
The Rule also provides that equity capital may not be withdrawn or cash
dividends paid if the resulting net capital of a broker-dealer would be less
than the amount required under the Rule. Accordingly, at December 31, 1999, the
payments of dividends and advances to the Company by NB, LLC and NBMI is limited
to $74,554,000 and $9,162,000, respectively, under the most restrictive of these
requirements.
9. COMMITMENTS AND CONTINGENCIES
The Company leases office space and equipment under lease agreements
expiring on various dates through 2012. Office space leases are subject to
escalation based on increases in costs incurred by the lessor. Minimum rentals,
excluding office space escalation, under these lease agreements are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31, AMOUNT
- ------------ ------
<S> <C>
2000........................................................ $13,805,000
2001........................................................ 13,761,000
2002........................................................ 13,648,000
2003........................................................ 12,745,000
2004........................................................ 11,745,000
Thereafter.................................................. 31,794,000
</TABLE>
Rent expense for premises and equipment for the years ended December 31,
1999, 1998 and 1997, was approximately $13,483,000, $11,011,000 and $8,494,000,
respectively.
The Company has satisfied margin requirements with clearing organizations by
obtaining letters of credit in favor of the clearing organizations. Open
unsecured letters of credit as of December 31, 1999 and 1998, were approximately
$22,312,000 and $9,000,000, respectively. Unused committed lines of credit were
approximately $150,000,000 as of December 31, 1999 and 1998.
In the normal course of business, the Company is subject to various legal
proceedings. In the opinion of management, based on discussions with legal
counsel, the resolution of pending proceedings will not have a material adverse
effect on the consolidated financial condition, results of operations or
liquidity of the Company.
33
<PAGE>
NEUBERGER BERMAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. EMPLOYEE BENEFIT PLANS
The Company has defined contribution plans consisting of an employee
profit-sharing plan and a money purchase pension plan covering all full-time
employees and qualifying part-time employees who have completed one year of
continuous service, as defined. Contributions to the plans, which are at the
discretion of management, are determined annually but do not exceed the amount
permitted under the Internal Revenue Code as a deductible expense. Contributions
to the plans for the years ended December 31, 1999, 1998 and 1997, were
approximately $6,854,000, $7,670,000 and $7,906,000, respectively.
The Company made an initial, irrevocable contribution of 4,264,344 shares of
its common stock to a newly created defined contribution stock incentive plan on
behalf of its employees. The common stock is restricted, with full vesting on
the initial contribution occurring on October 8, 2003. All benefits of
ownership, including the payment of any dividends declared during the restricted
period, belong to the employees. Unvested common stock that becomes forfeited
upon employee termination will be reallocated in the sole and absolute
discretion of the compensation committee, including determination of vesting
periods. Included in employee compensation and benefits is a non-cash charge of
approximately $134,327,000, related to the contribution of common stock.
11. INCOME TAXES
Prior to the reorganization, the Company primarily operated as two different
type tax entities. These entities included a Limited Liability Company (taxed as
a Partnership) and S-Corporation and as such, the combined entities income prior
to October 7, 1999 were not subject to U.S. federal income taxes. The principals
of the Company's predecessor partnership were taxed on their proportionate share
of the partnership's taxable income or loss.
Effective with the reorganization from a Limited Liability Company and
S-Corporation on October 8, 1999 and October 7, 1999, respectively, the Company
became subject to U.S. federal, state and local corporate income taxes.
Effective October 8, 1999, these entities will file a federal consolidated
income tax return.
The components of pre-tax earnings and income tax expense and benefits
reflected in the consolidated statements of income are set forth below (000's
omitted):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
NET INCOME BEFORE TAXES....................... $123,372 $294,457 $273,839
======== ======== ========
CURRENT TAXES:
U.S. federal.............................. $ 14,982 $ -- $ --
State and local........................... 21,250 9,506 8,857
-------- -------- --------
36,232 9,506 8,857
-------- -------- --------
DEFERRED TAXES:
U.S. federal.............................. (35,290) -- --
State and local........................... (13,137) -- --
-------- -------- --------
(48,427) -- --
-------- -------- --------
TAX (BENEFIT) EXPENSE......................... $(12,195) $ 9,506 $ 8,857
======== ======== ========
</TABLE>
34
<PAGE>
NEUBERGER BERMAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. INCOME TAXES (CONTINUED)
The Company accounts for taxes in accordance with SFAS No. 109, "Accounting
for Income Taxes." Deferred income taxes reflect the net tax effects of
temporary differences between the financial reporting and tax bases of assets
and liabilities and are measured using the enacted tax rates and laws that will
be in effect when such differences are expected to reverse. Significant
components of the Company's net deferred tax assets as of December 31, 1999,
include deferred tax assets consisting of; compensation and benefits,
contributions, depreciation and amortization. Deferred tax liabilities consist
of unrealized gains on marketable securities.
Management of the Company has not established a valuation allowance for its
net deferred tax asset because they conclude that it is more likely than not the
benefit will be realized.
A reconciliation of the statutory U.S. federal income tax rate of 35% to the
Company's effective income tax rate is set forth below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
U.S. STATUTORY RATE......................................... 35.00% -- --
INCREASE RELATED TO:
State and local taxes, net of U.S. income tax effects... 8.17% 3.23% 3.23%
Other................................................... 0.13% -- --
------- ----- -----
Rate before Reorganization and IPO Charges and effect from
changes in the value of the stock price................... 43.30% 3.23% 3.23%
Rate benefit for partnership period......................... (63.02%) -- --
Reduction in benefit related to movement in stock price..... 9.84% -- --
------- ----- -----
EFFECTIVE TAX RATE.......................................... (9.88%) 3.23% 3.23%
======= ===== =====
</TABLE>
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.
The value of the Company's deferred tax asset relating to the unvested
shares in the defined contribution stock incentive plan fluctuates with the
price of the Company's stock. A reduction is reflected in the Company's 1999 tax
provision. The final benefit will be determined when the restricted shares vest.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
Substantially all financial instruments carried at contract value, such as
receivable and payable to clients, brokers and dealers, repurchase agreements,
fees receivable and the Note, approximate market value due to their relatively
short-term nature or variable market rates of interest.
13. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK
In the normal course of business, the Company enters into various debt and
equity transactions as principal or agent. The execution, settlement and
financing of these transactions can result in off-balance sheet risk or
concentrations of credit risk.
35
<PAGE>
NEUBERGER BERMAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK (CONTINUED)
The Company has a high net worth and institutional client base. The Company
records client securities transactions on a settlement date basis, which is
generally three business days after trade date. The Company is exposed to
off-balance sheet risk of loss on unsettled transactions in the event clients
and other counterparties are unable to fulfill contractual obligations.
The Company's policy is to continuously monitor its exposure to market and
counterparty risk through the use of a variety of credit exposure, position and
financial reporting and control procedures. In addition, the Company has a
policy of reviewing the credit standing, where applicable, of each
broker-dealer, client and other counterparty with which it conducts business.
The Company monitors the market value of collateral and requests and receives
additional collateral when required.
For transactions in which the Company extends credit to clients, the Company
seeks to control the risks associated with these activities by requiring clients
to maintain margin collateral in compliance with various regulatory and internal
guidelines. The Company monitors required margin levels daily and, pursuant to
such guidelines, requests the deposit of additional collateral, or reduces
securities positions when necessary. The Company's policy is to take possession
of securities purchased under agreements to resell.
SFAS No. 105, "Disclosure of Information About Financial Instruments with
Off-Balance Sheet Risk and Financial Instruments with Concentrations of Credit
Risk," and SFAS No. 119, "Disclosure About Derivative Financial Instruments and
Fair Value of Financial Instruments," require the disclosure of notional or
contractual amounts and other information about derivative financial instruments
that give rise to off-balance sheet risk. Notional amounts discussed below are
indicative only of the volume of activity. Notional amounts should not be
interpreted as a measure of actual market or credit risk; to do so could be
materially misleading.
As part of its prime brokerage business, the Company writes covered
over-the-counter ("OTC") put options on listed equity securities with certain of
its prime brokerage clients. Market risk is mitigated as the options are
generally deep in the money and covered by an equivalent number of securities
sold but not yet purchased. The notional amounts of options sold were
approximately $33,211,000 and $49,549,000, at December 31, 1999 and 1998,
respectively.
A summary of the fair value of OTC options included in the consolidated
statements of financial condition appears below. Averages are based on
quarter-end balances (000's omitted):
<TABLE>
<CAPTION>
LIABILITIES
---------------------
FAIR VALUE AVERAGE
---------- --------
<S> <C> <C>
OPTION CONTRACTS:
December 31, 1999....................................... $3,694 $7,068
December 31, 1998....................................... $8,647 $9,828
</TABLE>
The Company's net gain from such activity was approximately $1,688,000 and
$1,940,000, for the years ended December 31, 1999 and 1998, respectively.
14. SEGMENT INFORMATION
Under the provisions of SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," the Company has three reportable segments:
Private Asset Management, Mutual Fund and
36
<PAGE>
NEUBERGER BERMAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. SEGMENT INFORMATION (CONTINUED)
Institutional and Professional Securities Services. The Private Asset Management
segment provides investment 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, trading
revenues and clearance fees.
The Company does not record revenues from transactions between segments
(referred to as intersegment revenues).
The Company evaluates performance of its segments based on profit or loss
from operations before Reorganization and IPO Charges and taxes. No single
client accounted for more than 10% of the Company's combined revenues.
Information on statement of financial condition data by segment is not disclosed
because it is not used for evaluating segment performance and deciding how to
allocate resources to segments. Substantially all of the Company's revenues and
assets are attributable to or located in the United States.
Summarized information for the Company's reportable segments is presented in
the following table (000's omitted):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
----------------------------------------------------
MUTUAL
PRIVATE FUND PROFESSIONAL
ASSET AND SECURITIES
MANAGEMENT INSTITUTIONAL SERVICES TOTAL
---------- ------------- ------------ --------
<S> <C> <C> <C> <C>
Investment advisory and administrative fees..... $166,454 $202,788 $ 1,141 $370,383
Commissions..................................... 90,132 21,544 30,406 142,082
Net interest income............................. 3,498 30 22,725 26,253
Principal transactions in securities............ -- 142 9,861 10,003
Clearance fees.................................. -- -- 11,081 11,081
Other income.................................... 30 1,012 3,017 4,059
-------- -------- -------- --------
Net revenues after interest expense............. 260,114 225,516 78,231 563,861
Operating expenses excluding Reorganization and
IPO Charges................................... 88,596 144,025 57,814 290,435
-------- -------- -------- --------
Net income before Reorganization and IPO Charges
and taxes..................................... $171,518 $ 81,491 $ 20,417 $273,426
======== ======== ======== ========
</TABLE>
37
<PAGE>
NEUBERGER BERMAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
----------------------------------------------------
MUTUAL
PRIVATE FUND PROFESSIONAL
ASSET AND SECURITIES
MANAGEMENT INSTITUTIONAL SERVICES TOTAL
---------- ------------- ------------ --------
<S> <C> <C> <C> <C>
Investment advisory and administrative fees..... $145,578 $231,792 $ 1,469 $378,839
Commissions..................................... 89,705 25,352 30,912 145,969
Net interest income............................. 2,580 13 24,860 27,453
Principal transactions in securities............ -- 9 6,315 6,324
Clearance fees.................................. -- -- 9,146 9,146
Other income.................................... 70 1,178 2,756 4,004
-------- -------- -------- --------
Net revenues after interest expense............. 237,933 258,344 75,458 571,735
Operating expenses.............................. 68,381 157,784 51,113 277,278
-------- -------- -------- --------
Net income before taxes......................... $169,552 $100,560 $ 24,345 $294,457
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------------
MUTUAL
PRIVATE FUND PROFESSIONAL
ASSET AND SECURITIES
MANAGEMENT INSTITUTIONAL SERVICES TOTAL
---------- ------------- ------------ ---------
<S> <C> <C> <C> <C>
Investment advisory and administrative fees.... $ 116,816 $ 210,376 $ 706 $ 327,898
Commissions.................................... 78,518 19,205 27,188 124,911
Net interest income............................ 3,087 18 26,645 29,750
Principal transactions in securities........... -- 238 7,600 7,838
Clearance fees................................. -- -- 8,332 8,332
Other income................................... -- 1,015 2,781 3,796
--------- --------- --------- ---------
Net revenues after interest expense............ 198,421 230,852 73,252 502,525
Operating expenses............................. 58,942 132,491 37,253 228,686
--------- --------- --------- ---------
Net income before taxes........................ $ 139,479 $ 98,361 $ 35,999 $ 273,839
========= ========= ========= =========
</TABLE>
38
<PAGE>
NEUBERGER BERMAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. SEGMENT INFORMATION (CONTINUED)
The following table is a reconciliation of reportable segment net income,
before Reorganization and IPO Charges and taxes, to the Company's consolidated
totals.
<TABLE>
<CAPTION>
TOTAL
--------
<S> <C>
DECEMBER 31, 1999
Net income before Reorganization and IPO Charges and
taxes................................................... $273,426
Reorganization and IPO Charges............................ (150,054)
Tax benefit............................................... 12,195
--------
Net income................................................ $135,567
========
DECEMBER 31, 1998
Net income before taxes................................... $294,457
Tax expense............................................... (9,506)
--------
Net income................................................ $284,951
========
DECEMBER 31, 1997
Net income before taxes................................... $273,839
Tax expense............................................... (8,857)
--------
Net income................................................ $264,982
========
</TABLE>
15. RELATED PARTY TRANSACTIONS
During the years ended December 31, 1999, 1998 and 1997, the Company earned
approximately $17,799,000, $19,779,000 and $13,969,000, respectively, in
brokerage commissions from the Funds.
Certain employees of the Company are officers and/or trustees of the Funds.
The Company also reimbursed certain Funds for expenses during the years ended
December 31, 1999, 1998 and 1997, of approximately $2,225,000, $1,502,000 and
$1,503,000, respectively, to the extent that such Funds exceeded their specified
expense limitations.
16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1999
-----------------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
NET REVENUES AFTER INTEREST EXPENSE................. $142,202 $141,213 $139,121 $141,325
OPERATING EXPENSES.................................. 68,000 69,783 68,222 234,484
-------- -------- -------- --------
NET INCOME (LOSS) BEFORE TAXES...................... 74,202 71,430 70,899 (93,159)
TAX (BENEFIT) EXPENSE............................... 2,421 2,131 10,492 (27,239)
-------- -------- -------- --------
NET INCOME (LOSS)................................... $ 71,781 $ 69,299 $ 60,407 $(65,920)
======== ======== ======== ========
NET INCOME (LOSS) PER COMMON SHARE:
BASIC AND DILUTED................................. $ 1.68 $ 1.62 $ 1.42 $ (1.33)
======== ======== ======== ========
</TABLE>
39
<PAGE>
NEUBERGER BERMAN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
1998
-----------------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
NET REVENUES AFTER INTEREST EXPENSE................. $135,816 $149,325 $145,015 $141,579
OPERATING EXPENSES.................................. 62,388 68,243 71,257 75,390
-------- -------- -------- --------
NET INCOME BEFORE TAXES............................. 73,428 81,082 73,758 66,189
TAXES............................................... 2,076 2,730 2,258 2,442
-------- -------- -------- --------
NET INCOME.......................................... $ 71,352 $ 78,352 $ 71,500 $ 63,747
======== ======== ======== ========
NET INCOME PER COMMON SHARE:
BASIC AND DILUTED................................. $ 1.67 $ 1.84 $ 1.68 $ 1.49
======== ======== ======== ========
</TABLE>
40
<PAGE>
NEUBERGER BERMAN INC. AND SUBSIDIARIES
SCHEDULE 1 -- CONDENSED FINANCIAL STATEMENTS OF THE REGISTRANT PARENT
STATEMENT OF FINANCIAL CONDITION
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------
<S> <C>
ASSETS
Receivables from subsidiaries............................... $ 49,575
Investment in subsidiaries.................................. 177,033
Deferred tax asset.......................................... 48,427
--------
Total assets.......................................... $275,035
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Dividend payable.......................................... $ 4,962
Taxes payable............................................. 21,101
Other liabilities and accrued expenses.................... 170
--------
26,233
--------
Stockholders' equity:
Common stock.............................................. 500
Deficit and other equity.................................. 248,302
--------
Total liabilities and stockholders' equity.............. $275,035
========
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
41
<PAGE>
NEUBERGER BERMAN INC. AND SUBSIDIARIES
SCHEDULE 1 -- CONDENSED FINANCIAL STATEMENTS OF THE REGISTRANT PARENT
(CONTINUED)
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 8, 1999
THROUGH DECEMBER 31, 1999
-------------------------
<S> <C>
OPERATING EXPENSES:
Employee compensation and benefits.......................... $ 137,273
Other expenses.............................................. 10,000
---------
147,273
---------
Loss before equity in income of subsidiaries and taxes...... (147,273)
Equity in income of subsidiaries............................ 26,845
---------
Net loss before taxes..................................... (120,428)
Tax benefit................................................. (50,689)
---------
Net loss.................................................. $ (69,739)
=========
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
42
<PAGE>
NEUBERGER BERMAN INC. AND SUBSIDIARIES
SCHEDULE 1 -- CONDENSED FINANCIAL STATEMENTS OF THE REGISTRANT PARENT
(CONTINUED)
STATEMENT OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 8, 1999
THROUGH
DECEMBER 31, 1999
-----------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(69,739)
Adjustments to reconcile net loss to net cash used in
operating activities--
Equity in income of subsidiaries.......................... (26,845)
Contribution to defined contribution stock incentive
plan.................................................... 134,327
Deferred tax benefit...................................... (48,427)
(Increase) decrease in operating assets--
Receivables from subsidiaries............................. (49,575)
Increase (decrease) in operating liabilities--
Taxes payable............................................. 21,101
Other liabilities and accrued expenses.................... 170
--------
Net cash used in operating activities................... (38,988)
--------
CASH FLOWS FROM INVESTING ACTIVITY:
Investment in subsidiary.................................. (40,871)
--------
Cash used in investing activity......................... (40,871)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock.................................. 87,933
Purchase of treasury stock................................ (8,074)
--------
Net cash provided by financing activities............... 79,859
--------
Net increase (decrease) in cash and cash equivalents.... --
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. --
--------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ --
========
</TABLE>
43
<PAGE>
NEUBERGER BERMAN INC. AND SUBSIDIARIES
SCHEDULE 1 -- CONDENSED FINANCIAL STATEMENTS OF THE REGISTRANT PARENT
(CONTINUED)
STATEMENT OF CASH FLOWS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
For the period October 8, 1999 through December 31, 1999, NBI made no
interest or tax payments.
SUPPLEMENTAL DISCLOSURES OF NON-CASH OPERATING AND FINANCING ACTIVITIES:
On October 7, 1999, the principals of NB, LLC and the shareholders of NBMI
exchanged their ownership interests for shares of NBI. As a result, NBI
recognized a non-cash increase of $109,317 in investment in subsidiaries.
In connection with NBI's initial public offering, an initial, irrevocable
non-cash contribution of 4,264,344 shares of its common stock was made to a
defined contribution stock incentive plan. The non-cash expense associated with
the contribution totaled $134,327 and was recognized on the date it was funded,
in accordance with SFAS No. 87. NBI recorded a deferred tax benefit of $46,262
related to the contribution.
On November 23, 1999, NBI declared an initial quarterly cash dividend on its
common stock in the amount of $0.10 per share. The dividend will be payable on
January 25, 2000, to stockholders of record at the close of business on
January 11, 2000.
On December 27, 1999, NBI made a cash contribution of $10,000 to the
Neuberger Berman Foundation. In connection with the cash contribution, NBI
recorded a deferred tax benefit of $2,165.
The accompanying notes are an integral part of the condensed financial
statements.
44
<PAGE>
NEUBERGER BERMAN INC. AND SUBSIDIARIES
SCHEDULE 1 -- CONDENSED FINANCIAL STATEMENTS OF THE REGISTRANT PARENT
(CONTINUED)
NOTES TO CONDENSED FINANCIAL STATEMENTS:
The condensed financial statements of the registrant should be read in
conjunction with the consolidated financial statements and notes to consolidated
financial statements which are included elsewhere herein.
Investment in subsidiaries represent NBI's investment in its subsidiary
companies. Income and losses of the subsidiaries are recognized using equity
method accounting.
Receivables from subsidiaries include cash advances and amounts due under
intra-corporate tax sharing arrangements.
No dividends were paid to NBI by its wholly owned subsidiaries for the
period ended December 31, 1999.
45
<PAGE>
ITEM 9. -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
ITEM 10. -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 is incorporated by reference to the
Company's definitive proxy statement for the 2000 Annual Meeting of Stockholders
to be filed with the Securities and Exchange Commission.
ITEM 11. -- EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated by reference to the
Company's definitive proxy statement for the 2000 Annual Meeting of Stockholders
to be filed with the Securities and Exchange Commission.
ITEM 12. -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is incorporated by reference to the
Company's definitive proxy statement for the 2000 Annual Meeting of Stockholders
to be filed with the Securities and Exchange Commission.
ITEM 13. -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is incorporated by reference to the
Company's definitive proxy statement for the 2000 Annual Meeting of Stockholders
to be filed with the Securities and Exchange Commission.
46
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
NEUBERGER BERMAN INC.
Dated: By: /s/ JEFFREY B. LANE
-----------------------------------------
Jeffrey B. Lane
President and Chief Executive Officer
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ LAWRENCE ZICKLIN
------------------------------------ Chairman of the Board and Director March 20, 2000
Lawrence Zicklin
/s/ JEFFREY B. LANE
------------------------------------ President, Chief Executive Officer March 20, 2000
Jeffrey B. Lane and Director
/s/ RICHARD A. CANTOR
------------------------------------ Vice Chairman and Director March 20, 2000
Richard A. Cantor
------------------------------------ Vice Chairman and Director
Marvin C. Schwartz
/s/ MICHAEL M. KASSEN Executive Vice President,
------------------------------------ Chief Investment Officer March 20, 2000
Michael M. Kassen and Director
/s/ ROBERT MATZA Executive Vice President,
------------------------------------ Chief Administrative Officer March 20, 2000
Robert Matza and Director
/s/ HEIDI L. SCHNEIDER
------------------------------------ Executive Vice President March 20, 2000
Heidi L. Schneider and Director
/s/ PETER E. SUNDMAN
------------------------------------ Executive Vice President March 20, 2000
Peter E. Sundman and Director
/s/ PHILIP AMBROSIO
------------------------------------ Senior Vice President March 20, 2000
Philip Ambrosio and Chief Financial Officer
</TABLE>
49
<PAGE>
SIGNATURES (CONTINUED)
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ MATTHEW S. STADLER
------------------------------------ Vice President and Controller March 20, 2000
Matthew S. Stadler
------------------------------------ Director
David W. Glenn
------------------------------------ Director
Jon C. Madonna
------------------------------------ Director
Jack H. Nusbaum
</TABLE>
50
<PAGE>
Exhibit 10.5
NEUBERGER BERMAN INC.
EMPLOYEE DEFINED CONTRIBUTION STOCK INCENTIVE PLAN
(as amended January 21, 2000)
The purpose of this Neuberger Berman Inc. Employee Defined Contribution Stock
Incentive Plan is to provide its directors and certain select employees of
Neuberger Berman Inc. with an ownership interest in the equity of the Company
and its Subsidiaries with an ownership interest in the Company and to align the
interests of such persons with those of the Company's shareholders. The Plan is
not intended to be qualified under Section 401(a) of the Internal Revenue Code,
as amended, and is not subject to the Employee Retirement Income Security Act of
1974, as amended ("ERISA").
ARTICLE I
DEFINITIONS
I.1. CERTAIN DEFINITIONS. Capitalized terms used herein without definition shall
have the respective meanings set forth below:
"ACT" means the Securities Exchange Act of 1934, as amended.
"ACCOUNT" means a Participant's Stock Account or the Unallocated Stock
Account, or both, as the context requires.
"BENEFICIARY" means the person or persons (including a trust or estate)
who are entitled to receive any benefit payable hereunder by reason of
the death of a Participant, as designated pursuant to Section 9.1.
"BOARD" means the Board of Directors of the Company.
"CAUSE" means any of:
(1) the Participant's having been convicted of, or entered a
plea of NOLO CONTENDERE to, a crime that constitutes a felony
or a misdemeanor involving fraud, false statements or
misleading omissions, perjury, embezzlement, bribery, forgery
or counterfeiting or other similar crime (or an equivalent
charge in jurisdictions that do not use such designations);
(2) the willful failure by the Participant (other than due to
physical or mental illness) to perform substantially his
duties as an employee of the Company or any Subsidiary after
reasonable notice to the Participant of such failure;
(3) the Participant's violation of any securities or
commodities laws, any rules or regulations issued pursuant to
such laws, or the rules and regulations of any securities or
commodities exchange or association of which the Company or
any of its Subsidiaries or affiliates is a member;
(4) the Participant's violation of any Company policy
concerning hedging or confidential or proprietary information,
or material violation of any other Company policy as in effect
from time to time;
(5) the Participant's engaging in any act or making any
statement which impairs, impugns, denigrates, disparages or
negatively reflects upon the name, reputation or business
interests of the Company or any of its Subsidiaries;
(6) the Participant's engaging in any conduct that is
injurious to the Company or any Subsidiary; or
<PAGE>
(7) the breach by the Participant of any written covenant or
agreement with the Company or any Subsidiary not to disclose
any information pertaining to the Company or any Subsidiary or
not to compete or interfere with the Company or any
Subsidiary.
The determination as to whether "Cause" has occurred shall be made by
the Committee. The Committee shall also have the authority to waive the
consequences under the Plan of the existence or occurrence of any of
the events, acts or omissions constituting "Cause."
"CHANGE IN CONTROL" means the occurrence of any of the following events:
(a) the members of the Board at the beginning of any
consecutive twenty-four calendar month period (the "INCUMBENT
DIRECTORS") cease for any reason other than due to death to
constitute at least a majority of the members of the Board,
provided that any director whose election, or nomination for
election by the Company's stockholders, was approved by a vote
of at least a majority of the members of the Board then still
in office who were members of the Board at the beginning of
such twenty-four calendar month period other than as a result
of a proxy contest, or any agreement arising out of an actual
or threatened proxy contest, shall be treated as an Incumbent
Director; or
(b) any "person," including a "group" (as such terms are used
in Sections 13(d) and 14(d)(2) of the Act), but excluding the
Company, any Subsidiary or any employee benefit plan of the
Company or any Subsidiary becomes the "beneficial owner" (as
defined in Rule 13(d)-3 under the Act), directly or
indirectly, of securities of the Company representing 20% or
more of the combined voting power of the Company's then
outstanding securities; or
(c) the stockholders of the Company shall approve a definitive
agreement (I) for the merger or other business combination of
the Company with or into another corporation, a majority of
the directors of which were not directors of the Company
immediately prior to the merger and in which the stockholders
of the Company immediately prior to the effective date of such
merger own a percentage of the voting power in such
corporation that is less than one-half of the percentage of
the voting power they owned in the Company immediately prior
to such transaction or (II) for the sale or other disposition
of all or substantially all of the assets of the Company to
any other entity; PROVIDED, in each case, that such
transaction shall have been consummated; or
(d) the purchase of Stock pursuant to any tender or exchange
offer made by any "person," including a "group" (as such terms
are used in Sections 13(d) and 14(d)(2) of the Act), other
than the Company, any Subsidiary, or an employee benefit plan
of the Company or any Subsidiary, for 20% or more of the Stock
of the Company.
Notwithstanding the foregoing, a "Change in Control" shall not be
deemed to occur in the event the Company files for bankruptcy,
liquidation or reorganization under the United States Bankruptcy Code.
"CODE" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
<PAGE>
"COMMITTEE" means the Compensation Committee of the Board, or when section
162(m) of the Code or Rule 16b promulgated under the Act would require
action to be taken by a committee of "outside directors" or
"Non-Employee Directors," as the case may be, the "Committee" shall be
deemed to refer to a subcommittee of the Compensation Committee that
consists of two or more members meeting such requirements, or the full
Board in the absence of such a subcommittee.
"COMPANY" means Neuberger Berman Inc., a Delaware corporation, and any
successor thereto.
"EMPLOYEE" means any officer or employee of the Company or any Subsidiary.
"FAIR MARKET VALUE" means, with respect to a share of Stock on any day, the
fair market value as determined in accordance with a valuation methodology
approved by the Committee.
"INITIAL PUBLIC OFFERING" shall mean the first offering of the Stock to the
general public pursuant to an underwritten public offering.
"IPO CONTRIBUTION" means the initial 4,264,344 shares of Stock contributed
to the Plan at the time of or promptly following the date of the
consummation of the Initial Public Offering.
"IPO DISTRIBUTION DATE" means the first day of each Window Period that
begins on or immediately follows each of the second, third and fourth
anniversaries of the date of the consummation of the Initial Public
Offering.
"PARTICIPANT" means an Employee or director of the Company who is
designated as a Participant by the Committee pursuant to Article II.
"PLAN" shall mean this Neuberger Berman Inc. Employee Defined Contribution
Stock Incentive Plan, as described herein and as hereinafter amended.
"PLAN YEAR" shall mean any calendar year or part thereof beginning on the
Effective Date.
"STOCK" means the common stock of the Company, par value $0.01 per share.
"STOCK ACCOUNT" means the separate account established in the name of each
Participant under Section 4.1 to hold Stock that has been allocated to such
Participant and any distributions received with respect to such Stock.
"SUBSIDIARY" means any corporation in which the Company owns, directly or
indirectly, stock representing 50% or more of the voting power of all
classes of stock entitled to vote and any other business organization,
regardless of form, in which the Company possesses directly or indirectly
50% or more of the total combined equity interests in such organization.
"TRUST" means the legal entity created by the Trust Agreement.
"TRUST AGREEMENT" means the agreement, dated as of the Effective Date, by
and between the Company and the Trustee, including any amendments thereto,
setting forth the rights and obligations of the parties thereto in respect
of the contributions to and distributions from the Trust, and the
establishment and administration of the Accounts pursuant to the Plan.
"TRUSTEE" means any corporation, individual or individuals who shall accept
the appointment as trustee to execute the duties of the trustee pursuant to
the Trust Agreement.
"UNALLOCATED STOCK ACCOUNT" means a separate account established under
Section 4.1 to hold Stock pending the allocation and reallocation of such
Stock to the Stock Accounts of Participants, and any distributions received
with respect to such Stock.
"WINDOW PERIOD" means a period designated by the Committee during which
employees of the the Company generally are permitted to purchase or sell
shares of Stock.
<PAGE>
ARTICLE II
ELIGIBILITY AND PARTICIPATION
Each Employee or director of the Company designated by the Committee shall
become a Participant in the Plan on the date he or she is so designated. A
Participant shall remain a Participant until the date he or she receives a
distribution of the entire vested portion of his or her Stock Account or, if
earlier, the date such Participant's interest in his or her Stock Account is
forfeited in accordance with Article V.
ARTICLE III
CONTRIBUTIONS
On the Effective Date, the Company shall establish the Trust and irrevocably
contribute the IPO Contribution to the Trust. The Company may contribute
additional shares of Stock or cash to the Trust from time to time at its sole
discretion.
ARTICLE IV
ALLOCATION OF CONTRIBUTIONS
IV.1. ESTABLISHMENT OF ACCOUNTS. There shall be established a Stock Account in
the name of each Participant and a separate account (the Unallocated Stock
Account) to which any forfeitures occurring hereunder shall be credited pending
allocation to Participants. The Accounts shall also hold any distributions with
respect to any shares of Stock held therein until such distributions are payable
pursuant to the Plan.
IV.2. ALLOCATIONS TO PARTICIPANTS' ACCOUNTS. The Committee shall in its sole
discretion designate the number of shares of Stock allocable to the Stock
Account of each Participant with respect to the IPO Contribution. With respect
to each contribution other than the IPO Contribution, the Committee shall
designate the number of shares of Stock (or the amount of cash) allocable to the
Stock Account of each Participant on a formulaic basis as determined by the
Committee in its sole discretion. Any Stock and distributions in respect of
Stock in the Unallocated Stock Account as of the last day of each Plan Year
shall be allocated among the Stock Accounts of each Participant who is an
employee or director on the last day of such Plan Year in the proportion that
each such Participant's allocation in respect of the Company's contributions for
such Plan Year bears to the allocations of such contributions for all
Participants who are employees and directors on the last day of such Plan Year,
or on such other formulaic basis as determined by the Committee in its sole
discretion.
IV.3. VOTING OF STOCK; TENDER OR EXCHANGE OFFERS. With respect to Stock
allocated to Participants' Stock Accounts, each Participant shall be entitled to
instruct the Trustee, on a confidential basis (A) as to the manner in which the
Trustee's voting rights will be exercised with respect to any matter which
involves the voting of such Stock allocated to the Participant's Stock Account,
and (B) in the event of a tender or exchange offer for all or substantially all
of the Stock of the Company, whether such Stock shall be tendered or exchanged
by the Trustee. Without limiting the foregoing, the Trustee shall have no
discretion and shall be required to vote, tender or exchange shares of Stock
held by the Trust as follows: (A) shares of Stock allocated to a Participant's
Stock Account shall be voted, tendered or exchanged, as applicable, in
accordance with any instructions received from such Participant or such
Participant's authorized representative pursuant to a duly executed power of
attorney or similar instrument, (B) shares of Stock held in a Participant's
Stock Account with respect to which the Trustee does not receive instructions
shall not be voted, tendered or exchanged, as applicable, and (C) shares of
Stock held in the Unallocated Stock Account shall be voted, tendered or
exchanged, as
<PAGE>
applicable, in the same proportion as the shares of Stock allocated to
Participants' Stock Accounts with respect to which instructions are received by
the Trustee are voted, tendered or exchanged.
ARTICLE V
VESTING
V.1. VESTING OF IPO CONTRIBUTION. Except as otherwise provided in this Article
V, a Participant shall vest on each IPO Distribution Date in one-third of his or
her Stock Account attributable to the IPO Contribution (subject to rounding in
the discretion of the Committee to avoid the vesting of fractional shares of
Stock).
V.2. SPECIAL RULE FOR IPO CONTRIBUTION.
(1) DEATH OF A PARTICIPANT. Notwithstanding any other provision of this Plan ,
provided that a Participant's Stock Account has not previously been forfeited,
such Participant shall be 100% vested in the portion of his or her Stock Account
attributable to the IPO Contribution upon the death of such Participant.
(2) CHANGE IN CONTROL. Except as provided in the next sentence, in the event of
a Change in Control, provided that a Participant's Stock Account has not
previously been forfeited, such Participant shall be 100% vested in the portion
of his or her Stock Account attributable to the IPO Contribution upon such
Change in Control. Notwithstanding the foregoing, no acceleration of vesting
shall occur if the Committee reasonably determines in good faith prior to the
occurrence of a Change in Control that such award or awards shall be honored or
assumed following such Change in Control; PROVIDED that (A) following such
Change in Control the shares held in the Trust with respect to the IPO
Contribution shall be of a class that is traded on an established securities
market, or which will be so traded within 60 days of the Change in Control, (B)
such Participant's rights and entitlements with respect to the Participant's
Stock Account will be substantially equivalent to or better than the rights,
terms and conditions provided herein (including, but not limited to, an
identical or better exercise or vesting schedule and identical or better timing
and methods of payment), (C) the Participant's Stock Account will have
substantially equivalent economic value (determined at the time of the Change in
Control) and (D) the Participant will be 100% vested in the event that the
Participant's employment or service as a director is involuntarily terminated or
constructively terminated. For this purpose, a constructive termination shall
mean a termination by a Participant following a material reduction in the
Participant's base salary or a Participant's incentive compensation opportunity
or a material reduction in the Participant's responsibilities, in either case
without the Participant's written consent.
V.3. FORFEITURE AND REALLOCATION OF IPO CONTRIBUTION. Unless the Committee
determines otherwise, and except under the circumstances specified in Section
5.2, a Participant's unvested Stock in his or her Stock Account attributable to
the IPO Contribution shall be forfeited and such Stock shall not be
distributable to such Participant if:
(a) prior to the relevant IPO Distribution Date:
(i) such Participant's employment with the Company or any of its
Subsidiaries is terminated for any reason, or such Participant is no longer
actively employed with the Company or any of its Subsidiaries (except as
provided in Section 5.2); or
(ii) with respect to such Participant, any of the events that constitute
Cause has occurred; or
<PAGE>
(b) such Participant fails to certify to the Company in accordance with
procedures established by the Committee, with respect to any relevant IPO
Distribution Date that such Participant has complied, or the Committee
determines that such Participant in fact as of such date has not complied,
with all the terms and conditions of the Plan. By accepting the
distribution of Stock (or cash) under the Plan, such Participant shall be
deemed to have represented and certified at such time that he or she has
complied with all the terms and conditions of the Plan.
In the event that Stock in a Participant's Stock Account attributable to the IPO
Contribution is forfeited by reason of this Section 5.3, such forfeited Stock
shall be reallocated to other Participants' Stock Accounts in accordance with
Section 4.2, and the Committee shall specify the terms and conditions (including
timing) under which each such Participant shall vest in such reallocated
amounts.
V.4. VESTING OF ONGOING CONTRIBUTIONS. With respect to each Plan contribution
(other than the IPO Contribution), the Committee shall specify the terms and
conditions (including timing) under which a Participant shall vest in any or all
of his or her Account attributable to such contributions (or forfeitures of such
contributions reallocated to such Participant).
ARTICLE VI
DISTRIBUTIONS
Section VI.1. GENERAL. (1) Except as provided below, all amounts and all shares
of Stock credited to the Stock Account in which a Participant has vested under
Article V shall be promptly distributable to such Participant (or, if
applicable, his or her Beneficiary), and shall be subject to the provisions of
Sections 9.8 and 9.9.
(2) Any cash dividends on shares of Stock allocated to a Participant's Stock
Account on the record date for such dividend shall be distributed to such
Participant as soon as practicable following the end of the calendar quarter in
which such dividend is received without regard to whether such Participant is
vested in the Stock in respect of which such dividend is received. No interest
shall be payable on any dividends allocated to a Participant's Stock Account but
not yet distributed.
ARTICLE VII
ADMINISTRATION OF PLAN
VII.1. THE COMMITTEE. The Committee shall be responsible for the administration
of the Plan, including, without limitation, determining which Participants
receive awards, what kind of awards are made under the Plan and for what number
of shares, and the other terms and conditions of each such award. The Committee
shall have the responsibility of construing and interpreting the Plan and of
establishing and amending such rules and regulations as it may deem necessary or
desirable for the proper administration of the Plan. Any decision or action
taken or to be taken by the Committee, arising out of or in connection with the
construction, administration, interpretation and effect of the Plan and of its
rules and regulations, shall, to the greatest extent permitted by applicable
law, be within its absolute discretion (except as otherwise specifically
provided herein) and shall be conclusive and binding upon the Company and its
Subsidiaries, all Participants and any person claiming under or through any
Participant.
VII.2. DELEGATION BY THE COMMITTEE. The Committee may delegate its authority
under this Plan; PROVIDED that the Committee shall in no event delegate its
authority with respect to the compensation of the Chief Executive Officer of the
Company, the four most highly compensated
<PAGE>
executive officers (as determined under Section 162(m) of the Code and
regulations thereunder) of the Company and any other individual whose
compensation the Board or Committee reasonably believes may become subject to
Section 162(m) of the Code.
ARTICLE VIII
AMENDMENT, TERMINATION, ETC.
The Board reserves the right at any time and from time to time to modify, alter,
amend, suspend, discontinue and terminate the Plan or the Trust Agreement;
PROVIDED that, no such modification, alteration, amendment, suspension,
discontinuance or termination shall materially adversely affect, without their
consent, the rights of Participants under this Plan with respect to
contributions previously made except that the Board reserves the right to (1)
accelerate the vesting of Participants' Stock Accounts and in its discretion
provide that Stock distributed from such Stock Accounts may not be transferable
until the distribution dates as of which such Stock would have otherwise become
vested (and that in respect of such Stock the Participants may remain subject to
the repayment obligations of Section 9.9 in the circumstances under which the
Stock would not have been distributed pursuant to Section 5.3) and (2) make
distributions to Participants upon the termination of the Plan. Notwithstanding
the foregoing, no modification, alteration, amendment or termination of the Plan
may be made which would cause or permit any part of the assets of the Trust to
be used for, or diverted to, purposes other than for the exclusive benefit of
Participants or their Beneficiaries, or which would cause any part of the assets
of the Trust to revert to or become the property of the Company or any of its
Subsidiaries.
ARTICLE IX
MISCELLANEOUS
IX.1. DESIGNATION OF BENEFICIARIES. A Participant may designate, in accordance
with procedures established by the Committee, a Beneficiary or Beneficiaries to
receive all or part of the amounts payable hereunder in the event of such
Participant's death. A designation of a Beneficiary may be replaced by a new
designation or may be revoked by a Participant at any time in accordance with
procedures established by the Committee. In the event of a Participant's death,
the amounts payable hereunder with respect to which a designation of Beneficiary
has been made shall be paid in accordance with the Plan to such designated
Beneficiary or Beneficiaries. Any amounts payable upon death and not subject to
such designation shall be distributed to the Participant's estate. If there is
any question as to the legal right of any Beneficiary to receive payment of
amounts hereunder, the amounts in question may be paid to the Participant's
estate, in which event the Company and its Subsidiaries shall have no further
liability to anyone with respect to such amounts. A Beneficiary shall have no
rights under the Plan other than the right, subject to the immediately preceding
sentence, to receive such amounts, if any, as may be payable under this Section
9.1.
IX.2. NONASSIGNABILITY. No rights granted to any Participant or any Beneficiary
under the Plan (including any interest in the Accounts) may be sold, exchanged,
transferred, assigned, pledged, hypothecated or otherwise disposed of (including
through the use of any cash-settled instrument) (each such action being
hereinafter referred to as an "assignment"), whether voluntarily or
involuntarily, other than by will or by the laws of descent and distribution.
Any assignment in violation of the provisions of this Section 9.2 shall be void.
All the terms of this Plan shall be binding upon such permitted successors and
assigns.
<PAGE>
IX.3. NO GUARANTEE OF EMPLOYMENT PARTICIPATION. Nothing in the Plan shall
interfere with or limit in any way the right of the Company or any Subsidiary to
terminate any Participant's employment or service as a director at any time, nor
to confer upon any Participant any right to continue in the employ of the
Company or any Subsidiary. No Employee or director shall have a right to be
selected as a Participant, or, having been so selected, to receive any future
awards.
IX.4. LIMIT ON LIABILITY. No person shall have any right or interest in the Plan
and/or the Trust other than as provided herein. The Trust assets shall under no
circumstances be available to the creditors of the Company. All distributions
under the Plan shall be paid or provided solely from the Trust assets, and the
Company shall have no responsibility or liability to any Participant or
Beneficiary relating to the Stock or other assets contributed to the Trust. Any
final distribution to any Participant or Beneficiary in accordance with the
provisions of the Plan shall be in full satisfaction of all claims against the
Trust, the Trustee, the Committee, the Board, the Company and its Subsidiaries
and its employees with respect to the Plan or Trust.
IX.5. GOVERNING LAW. The Plan shall be construed in accordance with and governed
by the laws of the State of New York, without reference to principles of
conflict of laws which would require application of the law of another
jurisdiction, except to the extent that the corporate law of the State of
Delaware specifically and mandatorily applies.
IX.6. TAXES AND WITHHOLDING. (1) Upon a Participant's vesting in all or any
portion of his or her Stock Account, or in connection with any distribution or
other event that gives rise to a federal or other governmental tax withholding
obligation relating to the Plan (including, without limitation, FICA tax), the
Trustee shall be entitled to require that the Participant remit cash in an
amount sufficient in the opinion of the Trustee and the Committee to satisfy
such withholding obligation. Alternatively, if the event giving rise to the
withholding obligation involves a transfer of shares of Stock, then, at the
discretion of the Committee, the Participant may elect to satisfy the
withholding obligation described above by (i) remitting cash, (ii) instructing
the Trustee to withhold shares of Stock or tendering previously owned shares of
Stock (in each case having a Fair Market Value equal to the amount of tax to be
withheld) or (iii) any other mechanism as may be required or appropriate to
conform with local tax and other rules. For this purpose, Fair Market Value
shall be determined as of the date on which the amount of tax to be withheld is
determined (and any fractional share amount may be settled in cash). If the
Participant does not satisfy the withholding obligation in accordance with any
of the methods described above in this Section 9.6(a), the Trustee may cause
such withholding taxes to be deducted or withheld from the vested portion of the
Participant's Stock Account or any payment or distribution to the Participant
pursuant to the Plan, and the Company or any of its Subsidiaries may deduct or
withhold (or cause to be deducted or withheld) such taxes from any other payment
or distribution by the Company or any of its Subsidiaries to the Participant.
(2) The Trustee may transfer to the Company any amounts (cash or shares of
Stock) withheld or received from the Participant pursuant to Section 9.6(a). Any
deduction of shares of Stock from the Participant's Stock Account by the Trustee
pursuant to this section 9.6 shall be treated as a distribution from the Trust
to such Participant and an election by the Participant to have such shares of
Stock applied to satisfy the withholding obligation.
(3) No Participant may make an election pursuant to section 83(b) of the Code
with respect to his or her interest in the Trust, any shares of Stock or any
other property held by the Trust.
IX.7. RIGHT OF OFFSET. The Committee shall have the right to direct the Trustee
to withhold distribution of the vested portion of a Participant's Stock Account
until the Participant settles
<PAGE>
any outstanding amounts such Participant then owes to the the Company or any of
its Subsidiaries.
IX.8. CONSENTS AND LEGENDS. The vesting and distribution to a Participant of any
shares of Stock may be conditioned on the receipt to the full satisfaction of
the Committee of (1) any and all listings, registrations or qualifications in
respect thereof upon any securities exchange or under any federal, state or
local law, or law, rule or regulation of a jurisdiction outside the United
States, (2) any and all written agreements and representations by the grantee
with respect to the disposition of shares, or with respect to any other matter,
which the Committee shall deem necessary or desirable to comply with the terms
of any such listing, registration or qualification or to obtain an exemption
from the requirement that any such listing, qualification or registration be
made, (3) any and all other consents, clearances and approvals in respect of a
plan action by any governmental or other regulatory body or any stock exchange
or self-regulatory agency that the Committee may determine to be necessary or
advisable and (4) any and all consents or authorizations required to comply
with, or required to be obtained under, applicable local law or otherwise
required by the Committee. Nothing herein shall require the Company Inc. to
list, register or qualify the shares of Stock on any securities exchange. The
Company may affix to any stock certificate (or other document or evidence of
ownership) representing shares of Stock distributed under the Plan any legend
that the Committee determines in its sole discretion to be necessary or
advisable (including to reflect any restrictions to which a Participant may be
subject under a separate agreement with the Company). The Company may advise the
transfer agent to place a stop order against any legended shares of Stock.
IX.9. FORFEITURE AND REPAYMENT AFTER ERRONEOUS VESTING. If, following any date
on which a Participant becomes vested in all or any portion of his or her Stock
Account (the "erroneously vested portion"), the Committee determines that all
terms and conditions of the Plan were not satisfied on the relevant vesting
date, such Participant or former Participant shall cease to be vested in, and
shall forfeit, such erroneously vested portion, and the Trust shall be entitled
to receive, and such Participant or former Participant shall be obligated to pay
the Trust immediately upon demand therefor the Fair Market Value of any Stock
(determined as of the date of vesting) and the amount of any cash delivered in
respect of any distribution of the erroneously vested portion, without reduction
for any Stock (or cash) applied to satisfy withholding tax or other obligations
in respect of such erroneous vesting event.
IX.10. EFFECTIVE DATE. The Plan shall be effective as of the date of the
Initial Public Offering (the "Effective Date").
IX.11. SEVERABILITY; ENTIRE AGREEMENT. If any of the provisions of this Plan is
finally held to be invalid, illegal or unenforceable (whether in whole or in
part), such provision shall be deemed modified to the extent, but only to the
extent, of such invalidity, illegality or unenforceability and the remaining
provisions shall not be affected thereby; provided, that if any of the
provisions of this Plan is finally held to be invalid, illegal, or unenforceable
because it exceeds the maximum scope determined to be acceptable to permit such
provision to be enforceable, such provision shall be deemed to be modified to
the minimum extent necessary to modify such scope in order to make such
provision enforceable hereunder. The Plan contains the entire agreement of the
parties with respect to the subject matter hereof and supersedes all prior
agreements, promises, covenants, arrangements, communications, representations
and warranties between them, whether written or oral with respect to the subject
matter hereof.
<PAGE>
IX.12. EXPENSES. All expenses incurred by the Committee and the Trustee in
connection with administering this Plan and the Trust shall be paid by the
Company. All taxes imposed on the Trust related to income credited to or
attributable to Trust assets shall be paid from such assets and charged against
the Stock Account to which the income is allocated as though it were payable
directly to the Participant.
IX.13. NO THIRD PARTY BENEFICIARIES. Except as expressly provided herein, the
Plan shall not confer on any person other than the the Company and its
Subsidiaries and any Participant any rights or remedies thereunder.
IX.14. NO IMPACT ON BENEFITS. Except as may otherwise be specifically stated
under any employee benefit plan, policy or program, no amount payable in respect
of any award shall be treated as compensation for purposes of calculating an
Employee's or director's right under any such plan, policy or program.
IX.15. NO CONSTRAINT ON CORPORATE ACTION. Nothing in this Plan shall be
construed (A) to limit, impair or otherwise affect the Company's right or power
to make adjustments, reclassifications, reorganizations or changes of its
capital or business structure, or to merge or consolidate, or dissolve,
liquidate, sell, or transfer all or any part of its business or assets or (B) to
limit the right or power of the Company, or any Subsidiary to take any action
which such entity deems to be necessary or appropriate.
IX.16. SUCCESSORS AND ASSIGNS. The terms of this Plan shall be binding upon and
inure to the benefit of the Company and each of its Subsidiaries that adopts the
Plan and its and their successors and assigns.
IX.17. HEADINGS AND CAPTIONS. The headings and captions herein are provided for
reference and convenience only, shall not be considered part of this Plan, and
shall not be employed in the construction of this Plan.
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF THE COMPANY
Neuberger Berman, LLC
Neuberger Berman Management Inc.
Neuberger Berman Trust Company
Neuberger Berman Trust Company of Delaware
Neuberger Berman Trust Company of Florida
Neuberger & Berman Agency, Inc.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated February 18, 2000 (and to all references to our Firm) included in
or made a part of this Form 10-K. It should be noted that we have not audited
any financial statements of the company subsequent to December 31, 1999 or
performed any audit procedures subsequent to the date of our report.
/s/ Arthur Andersen LLP
New York, New York
March 24, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 872,261
<RECEIVABLES> 2,329,222
<SECURITIES-RESALE> 530,300
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 20,266
<PP&E> 32,192
<TOTAL-ASSETS> 3,847,608
<SHORT-TERM> 0
<PAYABLES> 2,888,806
<REPOS-SOLD> 531,762
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 34,172
<LONG-TERM> 35,000
0
0
<COMMON> 500
<OTHER-SE> 248,302
<TOTAL-LIABILITY-AND-EQUITY> 3,847,608
<TRADING-REVENUE> 10,003
<INTEREST-DIVIDENDS> 160,022
<COMMISSIONS> 142,082
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 370,383
<INTEREST-EXPENSE> 133,769
<COMPENSATION> 325,310
<INCOME-PRETAX> 123,372
<INCOME-PRE-EXTRAORDINARY> 135,567
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 135,567
<EPS-BASIC> 3.05
<EPS-DILUTED> 3.05
</TABLE>
