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Table of Contents
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For Quarter Ended June 30, 2002
 
OR
 
¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                  to                 
 
Commission file number 001-15361
 
 
Neuberger Berman Inc.
(Exact Name of Registrant As Specified in Its Charter)
 
Delaware
(State or Other Jurisdiction
of Incorporation or Organization)
  
06-1523639
(I.R.S. Employer
Identification No.)
605 Third Avenue, New York, NY
(Address of Principal Executive Offices)
  
10158
(Zip Code)
 
Registrant’s telephone number, including area code (212) 476-9000
(Former name, former address and former fiscal year, if changed since last report)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes  x    No  ¨
 
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
 
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
 
Yes  ¨    No  ¨
 
APPLICABLE ONLY TO CORPORATE ISSUERS:
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock,
as of the latest practicable date.
 
69,873,823 shares of Common Stock, par value $.01 per share, were outstanding on July 31, 2002.
 

Table of Contents
NEUBERGER BERMAN INC.
 
Form 10-Q
 
Index
 
           
Page
Part I—Financial Information
     
  
2
      
Condensed Consolidated Statements of Financial Condition As of June 30, 2002 (Unaudited) and December 31, 2001
   
2
      
Condensed Consolidated Statements of Income (Unaudited) For The Three and Six Months Ended June 30, 2002 and 2001
   
3
      
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) For The Three Months Ended March 31, 2002 and June 30, 2002
   
4
      
Condensed Consolidated Statements of Cash Flows (Unaudited) For The Six Months Ended June 30, 2002 and 2001
   
5
         
7
Item 2.— Management’s Discussion and Analysis of Financial Condition and Results of Operations
   
13
  
23
Part II—Other Information
     
  
24
  
24
  
25
  
26
 
Forward Looking Statements
 
Our disclosure and analysis in this report or in documents that are incorporated by reference contain some forward looking statements. Forward looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. They use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance of our products, expenses, the outcome of any legal proceedings, and financial results. Although we believe that our expectations and beliefs are based on reasonable assumptions within the bounds of our knowledge of our business and operations, there can be no assurance that our actual results will not differ materially from our expectations or beliefs. Some of the factors that could cause our actual results to differ from our expectations or beliefs include, without limitation, the adverse effect from a decline in the securities markets or if our products’ performance declines, a general downturn in the economy, changes in government policy or regulation, our inability to attract or retain key employees and unforeseen costs and other effects related to legal proceedings or investigations of governmental and self-regulatory organizations. These statements are provided as permitted by the Private Litigation Reform Act of 1995. We undertake no obligation to update publicly any forward looking statements, whether as a result of new information, future events or otherwise.

1

Table of Contents
 
Part I—Financial Information
 
Item 1.— Financial Statements
 
Neuberger Berman Inc. and Subsidiaries
 
Condensed Consolidated Statements of Financial Condition
(in thousands, except share data)
 
    
June 30,
2002
     
December 31, 2001
  
    
(Unaudited)
         
ASSETS
                  
Cash and cash equivalents
   
$
278,655
 
   
$
282,040
 
Cash and securities segregated for the exclusive benefit of clients
   
 
426,981
 
   
 
593,973
 
Cash and securities deposited with clearing organizations (including securities with market values of $11,966 and $11,957 at June 30, 2002 and December 31, 2001, respectively)
   
 
14,872
 
   
 
13,189
 
Securities purchased under agreements to resell
   
 
—  
 
   
 
304,576
 
Receivable from brokers, dealers and clearing organizations
   
 
2,488,134
 
   
 
2,109,110
 
Receivable from clients
   
 
297,467
 
   
 
773,854
 
Securities owned, at market value
   
 
106,327
 
   
 
88,058
 
Fees receivable
   
 
33,303
 
   
 
29,719
 
Furniture, equipment and leasehold improvements, at cost, net of accumulated depreciation and amortization of $45,969 and $38,651 at June 30, 2002 and December 31, 2001, respectively
   
 
45,773
 
   
 
43,793
 
Other assets
   
 
145,595
 
   
 
144,175
 
    
  
Total assets
   
$
3,837,107
 
   
$
4,382,487
 
    
  
LIABILITIES AND STOCKHOLDERS’ EQUITY
                  
Liabilities:
                  
Securities sold under agreements to repurchase
   
$
—  
 
   
$
608,538
 
Payable to brokers, dealers and clearing organizations
   
 
2,214,183
 
   
 
1,703,745
 
Payable to clients
   
 
981,177
 
   
 
1,415,904
 
Securities sold but not yet purchased, at market value
   
 
10,899
 
   
 
6,174
 
Other liabilities and accrued expenses
   
 
96,519
 
   
 
135,316
 
    
  
    
 
3,302,778
 
   
 
3,869,677
 
    
  
Long-term debt
   
 
144,397
 
   
 
151,420
 
    
  
Subordinated liability
   
 
35,000
 
   
 
35,000
 
    
  
Stockholders’ equity:
                  
Preferred stock, $.01 par value; 5,000,000 shares authorized; none issued at June 30, 2002 and December 31, 2001
   
 
—  
 
   
 
—  
 
Common stock, $.01 par value; 250,000,000 shares authorized; 75,709,913 and 75,310,547 shares issued at June 30, 2002 and December 31, 2001, respectively; 70,164,694 and 70,416,985 shares outstanding at June 30, 2002 and December 31, 2001, respectively
   
 
757
 
   
 
753
 
Paid-in capital
   
 
350,934
 
   
 
341,344
 
Retained earnings
   
 
228,393
 
   
 
173,265
 
    
  
    
 
580,084
 
   
 
515,362
 
Less:  Treasury stock, at cost, of 5,545,219 and 4,893,562 shares at June 30, 2002 and December 31, 2001, respectively
   
 
(210,464
)
   
 
(181,488
)
Unearned compensation
   
 
(14,688
)
   
 
(7,484
)
    
  
Total stockholders’ equity
   
 
354,932
 
   
 
326,390
 
    
  
Total liabilities and stockholders’ equity
   
$
3,837,107
 
   
$
4,382,487
 
    
  
 
 
 
The accompanying notes are an integral part of the condensed consolidated financial statements.

2

Table of Contents
 
Neuberger Berman Inc. and Subsidiaries
 
Condensed Consolidated Statements of Income (Unaudited)
(in thousands, except per share data)
 
    
For The Three Months Ended June 30,
   
For The Six Months Ended June 30,
    
2002
   
2001
   
2002
   
2001
REVENUES:
                            
Investment advisory and administrative fees
   
$
113,355
   
$
102,603
   
$
222,267
   
$
205,895
Commissions
   
 
37,319
   
 
38,188
   
 
76,917
   
 
74,881
Interest
   
 
18,523
   
 
44,594
   
 
37,901
   
 
102,302
Principal transactions in securities, net
   
 
762
   
 
997
   
 
1,264
   
 
1,556
Clearance fees
   
 
3,133
   
 
2,994
   
 
6,064
   
 
6,808
Other income
   
 
678
   
 
1,290
   
 
3,513
   
 
1,867
    
  
  
  
Gross revenues
   
 
173,770
   
 
190,666
   
 
347,926
   
 
393,309
Interest expense
   
 
13,440
   
 
33,632
   
 
27,401
   
 
81,443
    
  
  
  
Net revenues after interest expense
   
 
160,330
   
 
157,034
   
 
320,525
   
 
311,866
    
  
  
  
OPERATING EXPENSES:
                            
Employee compensation and benefits
   
 
66,713
   
 
65,199
   
 
135,152
   
 
130,771
Information technology
   
 
6,075
   
 
5,470
   
 
11,872
   
 
10,920
Rent and occupancy
   
 
5,739
   
 
4,883
   
 
11,242
   
 
9,508
Brokerage, clearing and exchange fees
   
 
3,270
   
 
3,054
   
 
6,309
   
 
5,756
Advertising and sales promotion
   
 
2,248
   
 
3,177
   
 
4,441
   
 
5,723
Distribution and fund administration
   
 
6,328
   
 
4,953
   
 
12,148
   
 
9,324
Professional fees
   
 
3,192
   
 
2,736
   
 
5,734
   
 
4,700
Depreciation and amortization
   
 
3,803
   
 
3,192
   
 
7,500
   
 
5,963
Other expenses
   
 
6,251
   
 
6,196
   
 
11,595
   
 
11,971
    
  
  
  
Total operating expenses
   
 
103,619
   
 
98,860
   
 
205,993
   
 
194,636
    
  
  
  
Net income before taxes
   
 
56,711
   
 
58,174
   
 
114,532
   
 
117,230
Provision for income taxes
   
 
24,243
   
 
24,490
   
 
48,817
   
 
49,312
    
  
  
  
Net income
   
$
32,468
   
$
33,684
   
$
65,715
   
$
67,918
    
  
  
  
Net income per common share
                            
Net income per share—Basic
   
$
0.46
   
$
0.46
   
$
0.94
   
$
0.93
    
  
  
  
Net income per share—Diluted
   
$
0.46
   
$
0.45
   
$
0.92
   
$
0.91
    
  
  
  
Weighted average common shares outstanding—Basic
   
 
69,878
   
 
73,284
   
 
69,961
   
 
73,225
    
  
  
  
Weighted average common shares outstanding—Diluted
   
 
70,885
   
 
74,577
   
 
71,082
   
 
74,623
    
  
  
  
 
 
 
The accompanying notes are an integral part of the condensed consolidated financial statements.

3

Table of Contents
Neuberger Berman Inc. and Subsidiaries
 
Condensed Consolidated Statements of Changes
In Stockholders’ Equity (Unaudited)
(in thousands)
 
    
For The Three Months Ended March 31, 2002 and June 30, 2002
  
    
Common
Stock
  
Paid-in
Capital
    
Retained
Earnings
    
Treasury
Stock
     
Unearned
Compensation
    
Total
  
Beginning balance, December 31, 2001
   
$
753
  
$
341,344
 
  
$
173,265
 
  
$
(181,488
)
   
$
(7,484
)
  
$
326,390
 
Dividends
   
 
—  
  
 
—  
 
  
 
(5,302
)
  
 
—  
 
   
 
—  
 
  
 
(5,302
)
Acquisition of treasury stock
   
 
—  
  
 
—  
 
  
 
—  
 
  
 
(18,168
)
   
 
—  
 
  
 
(18,168
)
Issuance of common stock
   
 
4
  
 
8,344
 
  
 
—  
 
  
 
2,823
 
   
 
(8,889
)
  
 
2,282
 
Amortization of unearned compensation.