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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0 - 10200
SEI INVESTMENTS COMPANY
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-1707341
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(State or other jurisdiction of incorporation or organization) (IRS Employer Identification Number)
1 Freedom Valley Drive, Oaks, Pennsylvania 19456-1100
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 610-676-1000
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Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on Which
Title of Each Class Registered
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None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
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(Title of class)
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 voting stock (Common Stock) held by
non-affiliates of the registrant as of the close of business on February 28,
2002 was approximately $2.6 billion based on the closing sale price as reported
by NASDAQ. For purposes of making this calculation only, the registrant has
defined affiliates as including all directors and beneficial owners of more than
ten percent of the common stock of the registrant.
(Cover page 1 of 2 pages)
1
APPLICABLE ONLY TO REGISTRANTS 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 14(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
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APPLICABLE ONLY TO CORPORATE REGISTRANTS:
Number of shares outstanding of each of the registrant's classes of common
stock, as of the close of business on February 28, 2002:
Common Stock, $.01 par value 109,440,317
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the following documents are incorporated by reference herein:
1. Notice of and Proxy Statement for the 2002 Annual Meeting of
Shareholders to be filed within 120 days after the end of the fiscal
year covered by this annual report, incorporated by reference in Part
III hereof.
(Cover page 2 of 2 pages)
2
TABLE OF CONTENTS
Page
PART I
Item 1. Business. 4
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 the Registrant's Common Equity and Related
Stockholder Matters. 12
Item 6. Selected Financial Data. 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 14
Item 8. Financial Statements and Supplementary Data. 25
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. 53
PART III
Item 10. Directors and Executive Officers of the Registrant. 54
Item 11. Executive Compensation. 55
Item 12. Security Ownership of Certain Beneficial Owners and
Management. 55
Item 13. Certain Relationships and Related Transactions. 55
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K. 56
3
PART I
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Item 1. Business.
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Forward Looking Information
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Our disclosure and analysis in this Annual Report on Form 10-K contains 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. Such
statements may include 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 present or
anticipated products and markets, future revenues, capital expenditures,
expansion plans, future financing and liquidity, personnel, and other statements
regarding matters that are not historical facts or statements of current
condition.
Any or all of our forward-looking statements in this Annual Report on Form 10-K
may turn out to be wrong. They can be affected by inaccurate assumptions we
might make, or by known or unknown risks and uncertainties. Many factors
mentioned in the discussion below will be important in determining future
results. Consequently, we cannot guarantee any forward-looking statements.
Actual future results may vary materially.
We undertake no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or otherwise, except as
required by law. You are advised, however, to consult any further disclosures we
make on related subjects in our filings with the U.S. Securities and Exchange
Commission. This discussion is provided as permitted by the Private Securities
Litigation Reform Act of 1995.
General Development of Business
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SEI Investments Company was incorporated in Pennsylvania in 1968 and initially
offered shares to the public in March 1981. Our principal wholly owned
subsidiaries are SEI Investments Distribution Company ("SIDCO"), SEI Investments
Management Corporation ("SIMC"), and SEI Private Trust Company ("SPTC"). SIDCO
is a broker-dealer registered with the Securities and Exchange Commission
("SEC") under the Securities Exchange Act of 1934 and is a member of the
National Association of Securities Dealers, Inc. SIMC is an investment advisor
registered with the SEC under the Investment Advisers Act of 1940. SPTC is a
federal savings and loan entity chartered and regulated by the Office of Thrift
Supervision.
We introduced our first trust accounting system to bank trust departments in
1972. Today, through SIMC, this technology service is offered through our TRUST
3000(TM) product line that provides product capabilities and processing power to
serve large trust institutions. Through the use of our TRUST 3000 product line,
SPTC provides back-office accounting and processing services to trust
institutions, allowing these institutions to outsource their trust operations
and related investment functions.
In 1982, we began to sponsor a number of investment products, primarily in the
form of registered investment companies sold to institutional investors and
financial intermediaries. SIDCO and SIMC provide various asset management
services that enable clients to establish asset allocation strategies and gain
access to top-quality investment managers. We have expanded our asset management
services outside the United States by targeting selected foreign markets for our
investment management programs.
SIDCO and SIMC also provide a full range of administration and distribution
services to proprietary mutual funds established by banks and other financial
institutions and intermediaries. The client serves as the investment advisor for
the proprietary funds, and the mutual funds are sold primarily to customers of
the client.
4
Industry Segments
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We measure financial information internally through the following segments:
Private Banking & Trust, Investment Advisors, Enterprises, Money Managers, and
Investments in New Businesses. Private Banking & Trust, which accounted for 55
percent of consolidated revenues in 2001, provides investment processing
solutions, fund processing solutions, and investment management programs to
banks and private trust companies. Investment Advisors, which accounted for 24
percent of consolidated revenues in 2001, provides investment management
programs and investment processing solutions to affluent investors through a
network of financial intermediaries: independent registered investment advisors,
financial planners, and other investment professionals. Enterprises, which
accounted for 10 percent of consolidated revenues in 2001, provides retirement
and treasury business solutions for corporations, unions, foundations and
endowments, and other institutional investors. Money Managers, which accounted
for 5 percent of consolidated revenues in 2001, provides investment solutions to
U.S.-based investment managers, U.S.-based mutual fund companies and alternative
investment managers worldwide. Investments in New Businesses, which accounted
for 6 percent of consolidated revenues in 2001, includes our global businesses,
as well as initiatives in new U.S. markets. Our global business offerings
include: investment management, fund processing, and investment processing
solutions to non-U.S. banks, investment advisors, enterprises and money
managers.
Our operations and organizational structures were realigned in 2001 into
business units that offer products and services tailored for particular market
segments. Financial information for periods prior to 2001 has been restated to
conform to current year presentation. Financial information about each market
segment is contained in Note 12 of the Notes to Consolidated Financial
Statements in Item 8, and a discussion about each business segment is included
in Management's Discussion and Analysis of Financial Condition and Results of
Operations in Item 7.
Private Banking & Trust
Our comprehensive software products and computer processing services help trust
institutions manage investments for their personal and institutional investors.
TRUST 3000 is a complete trust accounting and investment system with fully
automated securities movement and control linked directly to the Depository
Trust Company. It offers investment management functionality through a number of
integrated products and sub-systems that supports investment accounting, client
administration, portfolio analysis, and trade order processing for both domestic
and global securities processing. TRUST 3000 also provides access to multiple
third-party pricing and asset related information. Through training, custom
programming and our open architecture strategy, we help adapt our products to
each client's particular needs. Clients access TRUST 3000 utilizing terminals
and workstations that are connected to our data center.
The value of TRUST 3000 has been enhanced by the StrataQuest(TM) product line
which includes technology platform products that manage the flow of data and
allow for the integration of TRUST 3000 information with any application
operating in the clients' distributed computing environment. StrataQuest is a
flexible combination of modular workstation application products that transform
data into user-friendly customer service and investment analysis desktop
applications.
Our Internet access products, which run in a service bureau environment, are an
extension of our investment processing services. StrataWeb(TM) is our Internet
solution for accessing trust information. It provides our clients' customers the
ability to access real-time account information through the Internet. StrataWeb
reduces the number of inquiry related phone calls and has e-mail capabilities,
customizable features and a secure website that can be integrated with a
client's website.
For institutional clients who wish to outsource their trust department
operations and processes, we combine our technological strength and investment
expertise to assume the entire back-office trust function. SPTC provides
processing, reporting, and custody services. SPTC also automates and centralizes
the client's trust accounting, income collections, securities settlement, and
securities processing functions. In addition, SPTC prepares and processes
customer statements, investment reviews, and employee benefit accrual reports
and remittances to the clients' customers.
Clients can affect purchases and redemptions of our liquidity products through
an automated subsystem that performs daily sweeps of trust accounts and invests
the available cash. Bank clients can also invest in our Tri-Party Repurchase
Agreement program that offers competitive yields for short-term investing.
5
Some clients can remit payment for services, subject to applicable regulatory
guidelines, by directing brokerage commissions to SIDCO through certain clearing
agents or clearing brokers. These clients may also apply a portion of such
directed brokerage commissions to defray certain other third-party costs. As a
result of the directed brokerage business, revenues may be affected by changes
in market trading volume or changes in government regulations affecting directed
brokerage payments.
The market for our trust accounting and management information services consists
primarily of bank trust departments and other trust institutions. At December
31, 2001, there were approximately 160 trust departments, including trust
departments of 19 of the 50 largest U.S. banks, utilizing our trust accounting
and management information services. Customer contracts are generally between
three to seven years and revenues are based on monthly processing and software
application service fees. Our principal competitors include Fidelity-Trust
Technology Services LLC, SunGard Data Systems, Marshall and Isley, and financial
institutions that operate their own trust accounting systems.
We also provide administration and distribution services to mutual funds and
other pools of money sponsored or held by banks for which the client serves as
the investment advisor. Administration services consist of: fund accounting,
investment tracking, transaction processing, pricing, investment and tax
reporting, regulatory compliance and daily support. Our distribution services
focus on identifying distribution opportunities and establishing product and
program strategies that assist the client in attracting and retaining assets.
This includes assistance with developing and executing business and marketing
plans.
At December 31, 2001, we provided administration and distribution services to 21
banks with proprietary mutual fund assets under administration of approximately
$102.2 billion. Our contracts with bank mutual fund complexes have initial terms
ranging from two to five years. Our principal competitors for our administration
and distribution services provided to bank mutual fund complexes include The
BISYS Group, Federated Investors, Inc., PFPC/First Data Investor Services Group,
State Street Bank and Trust Company, and Investment Company Administrators.
Consolidations in the banking industry may reduce the number of bank prospects
and/or eliminate customers from our user base. However, the economic pressures
on the banking industry may also create a greater demand for outsourcing
services, as banks increasingly focus on their core strengths.
Investment Advisors
We deliver business building solutions to independent broker-dealers, registered
investment advisors, financial planners, and life insurance producers located in
the United States. Our programs permit these advisors to outsource many aspects
of asset management, back-office operations, marketing, and client services;
allowing them to focus their resources on creating financial plans, implementing
investment strategies, and educating and servicing their clients. The investment
programs offered through these financial advisors are targeted to attract the
assets of high-net-worth individuals (defined as individuals with over $500,000
of investable assets) and small to medium sized institutional plans.
There are five key principles of our investment philosophy: asset allocation,
portfolio structure, tax management, specialist investment, and continuous
portfolio management. Financial advisors are offered various asset allocation
models that provide diversification among investment classes and periodic
rebalancing to achieve the investor's objectives. The programs allow access to
some of the best style-specific money managers normally not available to
individual investors. This innovative approach, called Manager of Managers,
ensures adherence to our disciplined investment principles because each
manager's performance is tracked and scrutinized. We also provide comprehensive
support services, including accounting and investor reporting, to our clients.
Investment management components consist of mutual funds and separate account
managers. Clients are able to customize portfolios to include separate account
managers as well as mutual funds. We offer a wide range of investment solutions
including tax managed programs. Through SIMC, we serve as the administrator,
transfer agent, and fund accountant for the mutual funds. We also act as the
investment advisor for many of these products. The investment advisory and
administration contracts between SIMC and the funds are subject to renewal
annually by the board of trustees of the funds. These contracts provide for the
payment of administrative fees based on a percentage of the average daily net
assets of each fund.
6
At December 31, 2001, there were approximately 4,100 clients using our asset
management programs through separate accounts or through our mutual funds with
$27.4 billion in assets invested. The principal competition for our asset
management products is from other investment advisors and mutual fund companies.
In the advisor distributor channel, our main competition is Lockwood Advisors,
Inc., which offers a separate account wrap product. Revenues are affected by
changes in the value of securities traded in various financial markets. Fees are
earned as a percentage of average assets under management.
Enterprises
We provide investment solutions that enable pension plan sponsors, hospitals,
foundations, endowment funds, and other institutional investors located in the
United States, to outsource their investment management process. Our investment
solution integrates a strategic platform with the Manager of Managers investment
process and complete plan administrative services, including trustee, custodial,
payment, and record keeping services. Using a disciplined fund management
process, we work with each client to develop asset management strategies that
are consistent with the client's actuarial valuation, asset liability modeling,
and investment restrictions. Then, through the combination of our portfolio
construction process, multiple asset classes, and style allocations, we work
toward the client's investment goals. We implement our client's strategy through
our mutual funds that employ sub-advisors that are specialists in a particular
style. The potential benefit of this method is improved performance with reduced
volatility because it eliminates the task of attempting to estimate which style
of investing will be in favor at any point in time. Specialist-advisors are
monitored for performance, so trading strategies conform to predetermined
market, sector, and style characteristics. We maintain the asset class exposure
within the specifically defined boundaries of our client's asset allocation plan
by incorporating a formal rebalancing program in our asset management process.
Overall, diversifying by asset class, manager style, sub-style, and sector tends
to reduce volatility while improving the prospects for long-term growth. The
principal competition for our asset management products offered in this segment
is from Frank Russell, a subsidiary of Northwestern Mutual.
We also apply our expertise to short term investments which primarily consist of
money market funds and our Repurchase Agreement Program. We assist corporations
in developing investment programs to meet their unique cash flow needs by
coordinating investment strategies with expected disbursements.
CashStrategies(R) helps treasurers analyze cash flow and develop dynamic cash
management strategies, which they can then execute with our investment products.
TreasuryPoint(TM) is an ASP solution designed to facilitate a more efficient
working capital process. TreauryPoint offers a trading platform for
institutional money market funds enabling users to select among the top
liquidity families, and then execute on those choices from their desktops. The
target market for our liquidity products and services are corporations located
in the United States. Our principal competitor's in liquidity products and
services include Federated Investors, Inc.; Fidelity Management Corporation;
Goldman, Sachs & Co.; and PNC Bank; and other mutual fund complexes that market
to institutional investors.
At December 31, 2001, there were approximately 500 clients using our liquidity
products and our asset management programs with $15.4 billion in assets
invested. Revenues are affected by changes in the value of securities traded in
various financial markets. Fees are primarily earned as a percentage of average
assets under management.
Money Managers
We provide mutual fund processing to investment managers located in the United
States and to alternative investment managers worldwide including: fund
accounting, administration, marketing and distribution, and shareholder
services. Fund accounting and administration services comprise investment
tracking, transaction processing, pricing, investment and tax reporting,
regulatory compliance and daily support. Distribution services focus on
identifying distribution opportunities and establishing product and program
strategies that will assist the client in attracting and retaining assets. This
includes assistance with developing and executing business and marketing plans.
Additionally, we maintain an office in Dublin, Ireland that offers
administrative services, distribution consulting services, and marketing support
services to fund complexes in international markets. This multidisciplinary
global team is experienced in administering a full range of investment
structures including mutual funds, money funds, and hedge funds. Our principal
competitors include The BISYS Group, Federated Investors, Inc., PFPC/First Data
Investor Services Group, State Street Bank and Trust Company, and Investment
Company Administrators.
7
At December 31, 2001 we provided mutual fund processing services to 100
investment management companies and alternative investment managers with mutual
fund assets under management and administration of approximately $79.4 billion.
Our contracts with mutual fund complexes have initial terms ranging from two to
five years. Revenues are affected by changes in the value of securities traded
in various financial markets. Fees are primarily earned as a percentage of
average assets under management and administration.
Investments in New Businesses
We have several other business ventures intended to expand our asset management
programs and services to high-net-worth investors, pension plans, governmental
organizations, and private corporations in certain foreign countries.
Using the same asset management disciplines that have benefited our U.S.
clients, we provide investment management programs tailored to the needs of
institutional and affluent individual investors in selected target markets:
Canada, Europe/South Africa, Latin America, and Asia. These initial efforts have
created distribution channels for our asset management services and have
positioned us for the introduction of new products. We have begun to enter the
global asset management marketplace through acquisitions, joint ventures with
local firms and the startup of satellite offices outside the United States.
Our approach is to expand existing business lines into a coherent global
business consistent with our U.S. strategy of providing portfolio solution
offerings rather than product sales. These portfolio solution offerings are
focused on allocation of assets among the portfolio's specialist money managers
and direction and evaluation of the investment services provided by these
selected managers. Additionally, our services include the delivery of local
investment management as part of a portfolio solution and local distribution and
marketing.
We are expanding our investment solutions to include affluent families located
in the United States. The family wealth management solution offers a flexible
family office that offers a highly personalized solution while utilizing the
Manager of Managers investment process.
At December 31, 2001, there were approximately 240 clients who utilize our
international asset management programs with $10.8 billion in assets invested.
The global market for financial services is highly competitive and is subject to
regulatory and financial constraints. Additionally, we have to overcome
recognition and branding hurdles caused by lack of a historical record in a
particular market. We attempt to overcome these obstacles by partnering with
local firms with an established market presence. We believe that this also helps
us in making decisions about product packaging and distribution strategies
because we get access to a staff that understands the culture. Revenues are
affected by changes in the value of securities traded in various financial
markets. Fees are primarily earned as a percentage of average assets under
management.
Other
Equity Investments
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LSV Asset Management ("LSV") is a partnership formed with three leading
academics in the field of finance. LSV, a registered investment advisor,
provides investment advisory services to institutions, including pension plans
and investment companies. LSV is a value-oriented, contrarian money manager that
offers a deep-value investment alternative utilizing a proprietary equity
investment model to identify securities that are generally considered to be out
of favor by the market. LSV is currently the specialist advisor to a portion of
the SEI Large Cap Value Funds and the SEI Small Cap Value Funds. In addition,
LSV is a portfolio manager to a portion of our global investment products.
Approximately 10 percent of the total assets managed by LSV relate to our
products. LSV is accounted for using the equity method of accounting due to our
less than 50 percent ownership. At December 31, 2001, our interest in LSV was
approximately 44 percent of the partnership's total interests. Our portion of
LSV's net operating income was $10.3 million in 2001, $7.5 million in 2000, and
$6.8 million in 1999.
Marketing and Sales
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We employ 34 sales representatives in Private Banking & Trust, 41 sales
representatives in Investment Advisors, 31 sales representatives in Enterprises,
21 sales representatives in Money Managers, and 31 sales representatives in
Investments in New Businesses. These sales personnel operate from 17 offices
located in Oaks, Pennsylvania; San Francisco, California; Chicago, Illinois;
Boston, Massachusetts; New York, New York; Norcross, Georgia; Toronto, Ontario;
Montreal, Quebec; Vancouver, British Columbia; Halifax, Nova Scotia; Paris,
8
France; Dublin, Ireland; Johannesburg, South Africa; Central Hong Kong, Hong
Kong; Buenos Aires, Argentina, Mexico City, Mexico; and London, United Kingdom.
Customers
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We currently serve approximately 5,300 clients. For the year ended December 31,
2001, no single customer accounted for more than 10 percent of revenues in any
industry segment.
Research and Development Expenditures
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We expended, including amounts capitalized, approximately $61,521,000 (9.3
percent of revenues) in 2001, $58,666,000 (9.8 percent of revenues) in 2000, and
$42,788,000 (9.4 percent of revenues) in 1999 to design, develop, and modify
existing or new products and services.
Development of New Products and Services
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We believe service to existing and potential customers is enhanced by
substantial investment in improving existing software products and developing
new products and services for the financial industry. To sustain and enhance our
competitive position in the industry, we are committed to a continuous and high
level of expenditures for research and development. We utilize numerous
professionals solely dedicated to the design, development, and enhancement of
our software products. Maintenance and enhancement releases occur regularly for
each platform.
Business Builder is a web site created to assist a Registered Investment Advisor
("RIA") with the ability to access pertinent information about their client's
accounts and to transfer information requests to us via e-mail. This information
would include items such as the investment holdings in the account, the market
value, transactions and tax lots, and statement and tax-related data. The site
also provides reporting capabilities that allows an RIA to see information
across all of their accounts, such as transactions, transfers, and
correspondence with the RIA's clients. By providing account level and summary
information of the RIA's business, they are then able to make decisions about
what clients need the most servicing, the value of their account base, and a
status report of investment activities submitted to us.
The Separately Managed Investment Accounts Program provides financial advisors
with another investment strategy to offer to high-net-worth and institutional
investors. This integrated program is comprised of specialists money mangers
that manage individual portfolios of stocks or bonds based on a specific
investment style. We simplify the administration tasks for advisors by providing
an integrated back-office, standard reporting as well as after-tax performance
reporting. We also offer tax-efficient transiting of securities, automatic
quarterly rebalancing and the option of restricting individual or groups of
securities.
The Real Time Messaging ("RTM") platform is an extension of our open
architecture strategy that will link our products to multiple financial
networks, financial partners and service providers. The RTM platform
communicates in a real-time mode to allow us to share trade information with our
partners. By employing a hub technology, the RTM platform reduces the complexity
and cost of integrating disparate applications and provides standard and
proprietary message formats and standard communication connectivity. It also
provides a common foundation to accommodate rapidly changing enterprise
applications.
The Net Asset Value ("NAV") platform is being developed to provide significant
improvement in the ratio of portfolios per analyst, the standard measure of
productivity in the funds processing business. Currently, analysts spend most of
their time in actual data processing activities or identifying problem areas
instead of resolving them. The concept of NAV is to have the system perform all
the standard data processing and validation functions and to identify exceptions
to the processing rules which can not be resolved by the system. NAV is expected
to make the analysts job more analytical rather than task oriented by providing
access to multiple best of breed accounting systems without retraining staff,
and a platform from which to disseminate data back to our clients more
efficiently.
As part of our full service solution for clients, we have invested significantly
in software products that would enhance our client service capabilities.
ImageStation is a highly sophisticated document imaging and workflow system
comprised of five applications that allows the processing and imaging of over
9,000 documents on a
9
weekly basis. It also allows our service teams instant online access to
documents that can be referenced during client service calls. NxAS is a
transaction processing system that is a web-based application designed to
enhance and streamline the processing of transactions, especially the new
account opening process. NxAS is expected to reduce new account data entry by an
estimated 75 percent and significantly reduce the number of errors during
account setup.
Regulatory Considerations
SIDCO and SIMC are subject to various federal and state laws and regulations
that grant supervisory agencies, including the SEC, broad administrative powers.
In the event of a failure to comply with such laws and regulations, the possible
sanctions that may be imposed include the suspension of individual employees,
limitations on the permissibility of SIDCO, SIMC, SEI, and other SEI
subsidiaries to engage in business for specified periods of time, the revocation
of applicable registration as a broker-dealer or investment advisor, as the case
may be, censures, and fines. Each of SEI Trust and SPTC is subject to laws and
regulations imposed by Federal and state banking authorities. In the event of a
failure to comply with these laws and regulations, restrictions, including,
without limitation, revocation of applicable banking charter, may be placed on
the business of each of SPTC and SEI Trust. Additionally, the securities and
banking laws applicable to SEI and its subsidiaries provide for certain private
rights of action that could give rise to civil litigation. Any such litigation
could have significant financial and non-financial consequences including money
judgments and the requirement to take action or limit activities that could
ultimately affect our business.
We offer investment and banking products that also are subject to regulation by
the federal and state securities and banking authorities, as well as non-U.S.
regulatory authorities, where applicable. Existing or future regulations that
affect these products could lead to a reduction in sales of such products.
Directed brokerage payment arrangements offered by us are also subject to SEC
and other federal regulatory authorities. Changes in the regulation of directed
brokerage or soft dollar payment arrangements could affect sales of some
services, primarily our brokerage services.
Bank clients are subject to supervision by federal and state banking authorities
concerning the manner in which such clients purchase and receive our products
and services. Plan sponsor clients are subject to supervision by the Department
of Labor and compliance with employee benefit regulations. Investment advisor
clients are regulated by the SEC and state securities authorities. Existing or
future regulations applicable to our clients may affect such clients' purchase
of our products and services.
Personnel
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At February 28, 2002, we had approximately 1,800 full-time and 90 part-time
employees. None of our employees are represented by a labor union. Management
considers employee relations to be good.
10
Item 2. Properties.
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Our corporate headquarters is located in Oaks, Pennsylvania. The corporate
campus consists of six buildings situated on approximately 90 acres. We own and
operate the land and buildings, which encompasses approximately 265,000 square
feet. We are currently constructing two additional buildings and a parking
structure that will be completed by the end of 2002. Our data center and
warehouse facility is housed in an additional 70,000 square feet of leased space
in Wayne, Pennsylvania. We also lease an additional 67,500 square feet of space
in Wayne for our mutual funds operation. All other offices that we lease
aggregate 92,000 square feet. Additionally, we own a New York City condominium
(3,400 square feet) used for business purposes.
Item 3. Legal Proceedings.
------------------
There are no legal proceedings to which we are a party or to which any of our
properties is subject that we believe will have a material adverse effect on our
business.
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 2001.
Information with regard to our executive officers is contained in Item 10 hereof
and is incorporated by reference to this Part I.
11
PART II
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Item 5. Market for the Registrant's Securities and Related Stockholder Matters.
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Price Range of Common Stock:
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Our common stock is traded in the NASDAQ National Market System under the symbol
"SEIC". The following table shows the range of sales prices on the NASDAQ
National Market System for the periods indicated.
2001 High Low
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First Quarter $54.91 $27.88
Second Quarter 48.00 26.25
Third Quarter 51.75 27.27
Fourth Quarter 46.00 28.85
2000 High Low
- ---- ------ ------
First Quarter $20.13 $14.38
Second Quarter 24.58 16.50
Third Quarter 37.56 21.00
Fourth Quarter 62.84 27.19
As of February 28, 2002, there were approximately 700 shareholders of record.
The Board of Directors declared a $.05 dividend in May and December of 2001, and
a $.04 dividend in May and December of 2000. The Board of Directors has
indicated its intention to pay future dividends on a semiannual basis. All stock
prices have been restated to reflect the two-for-one stock split paid in
February 2001 (See Note 8 of the Notes to the Consolidated Financial
Statements).
12
Item 6. Selected Financial Data.
-----------------------
(In thousands, except per share data)
The following table summarizes selected financial data for the five years in the
period ended December 31, 2001. The historical selected financial data for each
of the three years in the period ended December 31, 2001 are derived from, and
are qualified by reference to, the financial statements which are included with
Item 8 in this report. Those financial statements have been audited by Arthur
Andersen LLP, independent public accountants, to the extent indicated in their
reports. This data should be read in conjunction with the financial statements
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in this report.
For the Year Ended December 31, 2001 2000 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
Revenues ........................................... $658,013 $598,806 $456,192 $366,119 $292,749
Expenses:
Operating and development ......................... 298,728 279,024 215,216 180,937 148,536
Sales and marketing ............................... 152,642 154,984 126,184 103,834 84,770
General and administrative ........................ 23,457 16,839 12,298 13,463 13,931
-------- -------- -------- -------- --------
Income from operations ............................. 183,186 147,959 102,494 67,885 45,512
Equity in the earnings of unconsolidated affiliate . 10,342 7,533 6,765 3,015 --
Interest income .................................... 6,945 6,419 2,285 1,558 983
Interest expense ................................... (2,149) (2,293) (2,375) (2,575) (2,488)
-------- -------- -------- -------- --------
Income from continuing operations
before income taxes ............................... 198,324 159,618 109,169 69,883 44,007
Income taxes ....................................... 73,380 60,655 42,030 26,904 17,163
-------- -------- -------- -------- --------
Income from continuing operations .................. 124,944 98,963 67,139 42,979 26,844
Income from disposal of
discontinued operations ........................... -- -- 1,292 710 --
-------- -------- -------- -------- --------
Net income ......................................... $124,944 $ 98,963 $ 68,431 $ 43,689 $ 26,844
- ---------------------------------------------------------------------------------------------------------------
Basic earnings per common share from
continuing operations (a) ......................... $ 1.15 $ .93 $ .63 $ .40 $ .25
Basic earnings per common share from
discontinued operations (a) ....................... -- -- .01 .01 --
-------- -------- -------- -------- --------
Basic earnings per common share (a) ................ $ 1.15 $ .93 $ .64 $ .41 $ .25
Shares used to calculate basic earnings per
common share (a) .................................. 108,596 106,490 106,632 106,962 109,890
- ---------------------------------------------------------------------------------------------------------------
Diluted earnings per common share from
continuing operations (a) ......................... $ 1.09 $ .87 $ .59 $ .37 $ .23
Diluted earnings per common share from
discontinued operations (a) ....................... -- -- .01 .01 --
-------- -------- -------- -------- --------
Diluted earnings per common share (a) .............. $ 1.09 $ .87 $ .60 $ .38 $ .23
Shares used to calculate diluted earnings per
common share (a) .................................. 114,810 113,820 113,826 114,756 115,416
- ---------------------------------------------------------------------------------------------------------------
Cash dividends declared per common share (a) ....... $ .10 $ .08 $ .07 $ .05 $ .05
- ---------------------------------------------------------------------------------------------------------------
Financial Position as of December 31,
Cash and cash equivalents .......................... $163,685 $147,676 $ 73,206 $ 52,980 $ 16,891
Total assets ....................................... $460,916 $375,582 $253,779 $208,772 $168,884
Long-term debt (including short-term portion) ...... $ 50,611 $ 29,000 $ 31,000 $ 33,000 $ 35,000
Shareholders' equity ............................... $270,593 $197,421 $ 79,002 $ 59,685 $ 46,410
- ---------------------------------------------------------------------------------------------------------------
(a) All share and per share information has been adjusted to reflect the
three-for-one stock split paid in June 2000 and the two-for-one stock split paid
in February 2001. See Note 8 of the Notes to the Consolidated Financial
Statements.
13
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations.
-------------
(In thousands, except per share data)
This discussion reviews and analyzes the consolidated financial condition at
December 31, 2001 and 2000, the consolidated results of operations for the past
three years, and other factors that may affect future financial performance.
This discussion should be read in conjunction with the Consolidated Financial
Statements, Notes to the Consolidated Financial Statements and Selected
Financial Data.
Certain statements contained in this discussion may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. These statements are based upon estimates and assumptions that involve
risks, uncertainties, and other factors, many of which are beyond our control,
that could cause actual results to differ materially from our expected results.
We have no obligation to publicly update or revise any forward-looking
statements, except as required by law.
Results of Operations
- ---------------------
Consolidated Overview
- ---------------------
Our operations and organizational structures were realigned in 2001 into
business units that offer products and services tailored for particular market
segments. Our reportable segments are Private Banking and Trust, Investment
Advisors, Enterprises, Money Managers, and Investments in New Businesses. The
accounting policies of our business segments are the same as those used in
preparation of the consolidated financial statements. Management evaluates
financial performance of its operating segments based on Income from operations.
Financial information for periods prior to 2001 has been restated to conform to
current year presentation.
Revenues and Income from operations by segment for 2001, 2000, and 1999 are as
follows:
(In thousands) Year ended December 31,
------------------------------
2001 2000 1999
-------- -------- --------
Private Banking and Trust:
Revenues $360,069 $338,416 $294,673
Income from operations 144,225 130,522 109,919
Investment Advisors:
Revenues 154,988 133,959 76,831
Income from operations 61,060 44,510 18,120
Enterprises:
Revenues 64,522 55,034 36,749
Income from operations 20,003 10,365 4,727
Money Managers:
Revenues 36,576 32,349 22,738
Income (loss) from operations 4,944 2,556 (557)
Investments in New Businesses:
Revenues 41,858 39,048 25,201
Loss from operations (23,589) (23,155) (17,417)
General and Administrative:
Loss from operations (23,457) (16,839) (12,298)
Consolidated Segment Totals:
Revenues $658,013 $598,806 $456,192
Income from operations $183,186 $147,959 $102,494
14
Consolidated revenues in 2001 were $658.0 million, an increase of $59.2 million,
or 10 percent, from 2000. Consolidated revenues in 2000 increased $142.6
million, or 31 percent, to $598.8 million over 1999. Our revenues are primarily
derived from information processing services or from assets we manage and
administer. Approximately 65 percent of our revenues were derived from the
assets we manage and administer during 2001, 2000, and 1999. The remaining 35
percent for each year were received from our information processing services.
The key factor contributing to higher revenues in 2001 and 2000 was increased
sales to new clients and the delivery of new products and services to existing
clients. We believe this is the result of strong acceptance of our products and
services in most of our target markets. Another primary factor affecting our
revenues was the growth in the value of the assets we manage and administer.
Declines in the capital markets during the latter half of 2001 have inhibited
our revenue expansion. Also, economic uncertainty during the past year has
slowed many purchase decisions in most of our target markets.
Operating income improved in 2001 by $35.2 million, or 23.8 percent, and in 2000
by $45.5 million, or 44.4 percent, over prior year comparable periods. We also
experienced improved operating margins. Operating margins were 27.8 percent in
2001, 24.7 percent in 2000, and 22.5 percent in 1999. This was primarily due to
the increase in our revenues and the economies of scale and operational
efficiencies built into our operations. The investment in our operating
infrastructure and in the Internet has improved client service and created other
efficiencies in our operations. Also, a portion of our personnel costs are paid
in the form of incentive and sales compensation that are tied to predetermined
performance goals at the corporate and business unit levels. Actual performance
is compared to the target goals and determines the actual amount of bonuses to
be paid for the year. As a percentage of sales, incentive and sales compensation
expense for 2001 was lower than 2000, whereas 2000 was higher than 1999.
Our future growth is dependent upon our ability to deliver new products and
services in our portfolio of businesses. Also, we must continue to generate
economies of scale in our back-office and investment management operations, and
focus our technology spending. However, any expected growth in revenues and
earnings may be negated by a decrease in the capital markets, mergers and
acquisitions among our client base, loss of clients to competitors, and deferred
decision-making among our target client base.
Asset Balances
(In millions)
As of December 31,
------------------------------
2001 2000 1999
-------- -------- --------
Assets invested in equity and fixed income programs $ 55,986 $ 51,851 $ 41,695
Assets invested in liquidity funds 21,562 24,481 22,556
-------- -------- --------
Assets under management 77,548 76,332 64,251
Client proprietary assets under administration 180,430 200,113 170,787
-------- -------- --------
Assets under management and administration $257,978 $276,445 $235,038
======== ======== ========
Assets under management consist of total assets invested in our equity and fixed
income investment programs and liquidity funds for which we provide management
services. Assets under management and administration consist of total assets for
which we provide management and administrative services, including client
proprietary fund balances for which we provide administration and/or
distribution services.
15
Private Banking and Trust
- -------------------------
Private Banking and Trust provides investment processing solutions, fund
processing solutions, and investment management programs to banks and private
trust companies. Investment processing services primarily include outsourcing
services provided through our TRUST 3000 product line. TRUST 3000 includes many
integrated products and sub-systems that provide a complete investment
accounting and management information system for trust institutions. Revenues
are primarily earned from monthly processing and project fees.
Fund processing solutions include administration and distribution services
provided to bank proprietary mutual funds. These services primarily include fund
administration and accounting, legal services, shareholder recordkeeping, and
marketing. Revenues are based on a percentage, referred to as basis points, of
the average daily net asset value of the proprietary funds.
Investment management revenues are primarily earned through management fees that
are based upon a percentage, referred to as basis points, of the average daily
net asset value of assets under management.
Year ended December 31,
------------------------------
2001 2000 1999
-------- -------- --------
Revenues:
Investment processing fees $230,985 $208,887 $172,597
Fund processing fees 85,361 87,755 83,052
Investment management fees 43,723 41,774 39,024
-------- -------- --------
Total revenues 360,069 338,416 294,673
Expenses:
Operating and development 167,904 163,212 141,565
Sales and marketing 47,940 44,682 43,189
-------- -------- --------
Income from operations $144,225 $130,522 $109,919
======== ======== ========
Operating margin 40% 39% 37%
Percent of Revenue:
Operating and development 47% 48% 48%
Sales and marketing 13% 13% 15%
Revenues increased in 2001 by $21.7 million, or 6 percent, as compared to 2000,
and accounted for 55 percent of consolidated revenues, down slightly from 57
percent in 2000. Revenues increased in 2000 by $43.7 million, or 15 percent,
over 1999. Investment processing fees accounts for the majority of this segments
revenue growth and was largely due to increased sales activity in our core
service bureau business. Revenue increases were primarily driven by new clients
and merger activity in the national and regional bank segment, and increased
brokerage services during 2000. Revenue increases in 2001 came mostly from the
cross-selling of new products and services that provide our clients with a
broader business solution that incorporates the use of new technology.
Revenue growth for 2001 and 2000 were also affected by events in Fund processing
fees. Fund processing fees decreased during 2001 because of the loss of several
significant clients involved in mergers. The loss of these clients caused our
assets under administration to decline by approximately $30 billion in the third
quarter of 2001. Fund processing fees in 2000 increased due to an increase in
average assets under administration, though these gains were partially offset by
a decrease in average basis points earned relating to fee concessions extended
to existing clients in exchange for longer-term contracts and a reduction in the
range of certain services provided to large bank clients.
Operating income in 2001 increased $13.7 million, or 10 percent, as compared to
2000. Operating income in 2000 increased $20.6 million, or 19 percent, over
1999. Operating margins also increased slightly each year. The increase in
operating income and margin in each comparable period was primarily due to the
increase in revenues already discussed. An additional factor affecting operating
income and margin was our business model that seeks economies of scale and
operational efficiencies and the timing of various marketing and development
expenses.
16
We believe our future growth in revenues and income will come from our ability
to develop new products and services for existing markets and expansion into new
markets. However, future revenue growth will be affected by the loss of the fund
processing clients in the third quarter of 2001. In addition, consolidations
among our banking clients, as well as deferred decision-making will continue to
be major strategic issues facing this segment.
Investment Advisors
- -------------------
Investment Advisors provides investment management programs and investment
processing solutions to affluent investors distributed through a network of
investment professionals. Revenues are primarily earned through management fees
that are based upon a percentage, referred to as basis points, of the average
daily net asset value of assets under management.
Year ended December 31,
-----------------------------
2001 2000 1999
-------- -------- -------
Revenues $154,988 $133,959 $76,831
Expenses:
Operating and development 45,906 39,009 23,630
Sales and marketing 48,022 50,440 35,081
-------- -------- -------
Income from operations $ 61,060 $ 44,510 $18,120
======== ======== =======
Operating margin 39% 33% 24%
Percent of Revenues:
Operating and development 30% 29% 31%
Sales and marketing 31% 38% 45%
Revenues in 2001 increased $21.0 million, or 16 percent, as compared to 2000 and
accounted for 24 percent of consolidated revenues in 2001, up from 22 percent in
2000. Revenues in 2000 grew $57.1 million, or 74 percent, as compared to 1999.
The increase in revenues in both comparable periods was primarily due to growth
in assets under management as a result of our success at recruiting new
registered investment advisors. Our total advisor network consists of
approximately 8,700 advisors and increased by approximately 1,100 advisors in
2001 and 1,800 advisors in 2000. Revenues were also affected by movements in the
capital markets.
Operating income and margin improved in each period primarily due to new
business activity. Operating income increased $16.6 million, or 37 percent, in
2001 over 2000 and $26.4 million, or 146 percent, in 2000 over 1999. Despite
this improvement in operating income, new business activity was negatively
impacted by the significant devaluation in the capital markets during 2001.
Operating income and margins also were affected by our ability to utilize many
shared resources across a larger revenue base, thereby creating some
efficiencies in our operations.
Future growth in revenues and income from operations depends, in part, on our
ability to generate new business and obtain additional assets under management
from existing customers. We plan to sustain new business activity through new
product offerings. However, the capital markets will remain unpredictable.
17
Enterprises
- -----------
Enterprises provides retirement business solutions and treasury business
solutions for corporations, unions, foundations and endowments, and other
institutional investors. Revenues are primarily earned through management fees
that are based upon a percentage, referred to as basis points, of the average
daily net asset value of assets under management.
Year ended December 31,
---------------------------
2001 2000 1999
------- ------- -------
Revenues $64,522 $55,034 $36,749
Expenses:
Operating and development 21,943 19,505 13,453
Sales and marketing 22,576 25,164 18,569
------- ------- -------
Income from operations $20,003 $10,365 $ 4,727
======= ======= =======
Operating margin 31% 19% 13%
Percent of Revenue:
Operating and development 34% 35% 37%
Sales and marketing 35% 46% 50%
Revenues increased in 2001 by $9.5 million, or 17 percent, as compared to 2000
and accounted for approximately 10 percent of consolidated revenues, as compared
to 9 percent in 2000. Revenues in 2000 grew by $18.3 million, or 50 percent,
over 1999. Revenue growth was primarily driven by an increase in average assets
under management from new business activity. Our Retirement Business Solution
established 34 new relationships during 2001 and 64 new relationships during
2000. We feel this increase in new sales is the result of increased market
acceptance of our outsource business solution across a diverse range of clients.
We believe the weak economy in 2001 caused revenue growth to slow, as compared
to 2000, as clients deferred purchase decisions.
Operating income and margin increased significantly in both comparable periods.
Operating income in 2001 increased $9.6 million, or 93 percent, as compared to
2000. Operating income in 2000 increased $5.6 million, or 119 percent, over
1999. Operating income and margins in 2001 and 2000 were affected by new
business activity, as well as timing of certain expenditures, especially sales
and marketing expenses. During 2000 and 1999, we incurred significant technology
costs associated with the development of our treasury solutions platform.
These difficult market conditions reinforce our investment management strategy,
which leans heavily on diversification and risk management. Although we believe
we are well positioned and poised to grow, our revenues and earnings could be
significantly affected by continued volatility in the capital markets.
18
Money Managers
- --------------
Money Managers provides investment solutions to U.S.-based investment managers,
U.S.-based mutual fund companies and alternative investment managers worldwide.
Revenues are earned primarily through administration and distribution fees that
are based upon a percentage, referred to as basis points, of the average daily
net asset value of assets under management.
Year ended December 31,
---------------------------
2001 2000 1999
------- ------- -------
Revenues $36,576 $32,349 $22,738
Expenses:
Operating and development 18,088 16,062 12,811
Sales and marketing 13,544 13,731 10,484
------- ------- -------
Income from operations $ 4,944 $ 2,556 $ (557)
======= ======= =======
Operating margin 14% 8% (2%)
Percent of Revenue:
Operating and development 49% 50% 56%
Sales and marketing 37% 42% 46%
Revenues increased in 2001 by $4.2 million, or 13 percent, as compared to 2000.
Revenues increased in 2000 by $9.6 million, or 42 percent, over 1999. The
increase in revenues in each year was primarily driven by an increase in assets
under management and administration from new client fundings. However, the
decline in the capital markets during 2001 partially offset revenue growth from
new business activity. Conversely, the somewhat more stable capital markets in
2000 supported revenue growth.
Operating income in 2001 increased by $2.4 million as compared to 2000.
Operating income in 2000 increased by $3.0 million over 1999. Operating margins
also improved. The increase in operating income and margin was due to the
increase in revenues and our ability to utilize our infrastructure in a manner
that can create economies of scale and operational efficiencies. In addition,
expenses during 2000 and 1999 included significant investments in developing the
necessary infrastructure to tailor our products and services in these markets.
We believe the demand for our services from alternative investment managers is
growing and we intend to capitalize on this trend through a diversified product
line. We also intend to utilize our other existing services in this market. We
expect to continue our efforts to create new business solutions that satisfy the
needs of all investment managers. However, any prolonged significant changes in
the capital markets would have an adverse impact on revenues.
19
Investments in New Businesses
- -----------------------------
Investments in New Businesses include our global asset management and investment
processing initiatives that incorporate our investment products and services to
provide investment solutions to institutional and high-net-worth investors
outside the United States. This segment also includes other new business and
product initiatives. Revenues are primarily earned through management fees and
processing fees that are based upon a percentage, referred to as basis points,
of the average daily net asset value of assets under management.
Year ended December 31,
-----------------------------
2001 2000 1999
-------- -------- -------
Revenues $ 41,858 $ 39,048 $25,201
Expenses:
Operating and development 44,887 41,236 23,757
Sales and marketing 20,560 20,967 18,861
-------- -------- -------
Loss from operations $(23,589) $(23,155) $(17,417)
======== ======== =======
Operating margin (56%) (59%) (69%)
Percent of Revenue:
Operating and development 107% 105% 94%
Sales and marketing 49% 54% 75%
The following table displays revenues by geographic region as a percentage of
total segment revenues:
Year ended December 31,
-----------------------
2001 2000 1999
---- ---- ----
Europe/South Africa .......... 58% 51% 30%
Canada ....................... 24% 28% 43%
Asia ......................... 8% 9% 19%
Other ........................ 10% 12% 8%
--- --- ---
Total ..................... 100% 100% 100%
=== === ===
Revenues increased during 2001 by $2.8 million, or 7 percent, as compared to
2000. Revenues during 2000 increased by $13.8 million, or 55 percent, over 1999.
The increase in revenues over the corresponding prior periods is primarily due
to an increase in assets under management from our Europe/South Africa, Korea
and Canada initiatives, despite the impact of weak financial markets globally
during 2001. Revenues in 2000 included our Canadian consulting business that was
sold in July 2000. Excluding those revenues, revenues would have increased 15
percent in 2001 and 58 percent in 2000. We continue to experience positive
market acceptance of our multi-manager investment solution offerings in Europe,
especially in the U.K. pension market. We have also seen early positive results
from other initiatives in Europe. We began a controlled launch targeting
affluent and high-net-worth investors through certain U.K. independent financial
advisors. Our distribution activities are expanding in Europe and Canada as
well. However, the weak capital markets during 2001 significantly affected our
revenue growth.
We plan to continue our efforts in establishing marketing and distribution
channels and in developing technology outsourcing solutions to fill the needs of
these markets. We expect to incur losses throughout 2002.
20
General & Administrative
- ------------------------
Year ended December 31,
-------------------------------
2001 2000 1999
------- ------- -------
General and Administrative $23,457 $16,839 $12,298
Percent of Revenue 4% 3% 3%
General and administrative expense primarily consists of corporate overhead
costs and other costs not directly attributable to a reportable business
segment. The increase in general and administrative expenses in 2001 and 2000
was due to an increase in various corporate overhead costs and facilities
related costs.
Other Income
- ------------
Other income consists of the following:
Year ended December 31,
---------------------------------
2001 2000 1999
-------- -------- -------
Equity in the earnings of
unconsolidated affiliate $10,342 $ 7,533 $ 6,765
Interest income 6,945 6,419 2,285
Interest expense (2,149) (2,293) (2,375)
------- ------- -------
Total other income, net $15,138 $11,659 $ 6,675
======= ======= =======
Equity in the earnings of unconsolidated affiliate on the accompanying
Consolidated Statements of Income includes our less than 50 percent ownership in
the general partnership of LSV Asset Management ("LSV") (See Note 5 of the Notes
to Consolidated Financial Statements). The increase in the net earnings of LSV
was due to an increase in assets under management in 2001 and 2000.
Interest income is earned based upon the amount of cash that is invested daily
and interest rates. Interest income increased in 2001 and 2000 primarily due to
a higher average daily cash balance. However, interest rates during 2001 were
significantly lower than in 2000.
Interest expense primarily relates to our long-term debt and other borrowings.
Income Taxes
- ------------
Our effective tax rate was 37.0 percent in 2001, 38.0 percent in 2000 and 38.5
percent in 1999. The rate reduction was largely due to effective state and
international tax planning.
Discontinued Operations
- -----------------------
In 1995, the Board of Directors approved a plan of disposal for the SEI Capital
Resources Division ("CR"). CR provided investment performance evaluation
services, consulting services, and brokerage services to employee benefit plan
sponsors and investment advisors in the United States. The results of CR for
1999 and years prior have been reported separately as discontinued operations in
the accompanying Consolidated Financial Statements.
In 1997, the remaining net assets of CR were sold to a private investment firm
for a specified amount of cash at closing along with a note. In 1999, we
accepted $2.1 million as satisfaction for the entire outstanding balance on the
note and this was recorded as a gain, net of tax expense of $.8 million and is
reflected in Income from disposal of discontinued operations on the Consolidated
Statements of Operations.
21
Liquidity and Capital Resources
- -------------------------------
Year ended December 31,
-----------------------------------
2001 2000 1999
--------- --------- ---------
Net cash provided by operating activities ...... $174,379 $143,263 $111,985
Net cash used in investing activities .......... (85,587) (46,433) (25,862)
Net cash used in financing activities .......... (72,783) (22,360) (65,897)
-------- -------- --------
Net increase in cash and cash equivalents ...... 16,009 74,470 20,226
Cash and cash equivalents, beginning of year ... 147,676 73,206 52,980
-------- -------- --------
Cash and cash equivalents, end of year ......... $163,685 $147,676 $ 73,206
======== ======== ========
Cash requirements and liquidity needs are expected to be funded through our cash
flow from operations and our capacity for additional borrowing. We currently
have a line of credit agreement that provides for borrowings of up to $25.0
million. The availability of the line of credit is subject to compliance with
certain covenants set forth in the agreement (See Note 6 of the Notes to
Consolidated Financial Statements). At December 31, 2001, our unused sources of
liquidity consisted of unrestricted cash and cash equivalents of $163.7 million
and the unused portion of the line of credit of $25.0 million.
Cash flow generated from operations in 2001, 2000, and 1999 primarily resulted
from an increase in income. The tax benefit received from stock options
exercised increased substantially due to the rapid rise in our stock price
during 1999 and 2000. The net change in receivables and various accrued expenses
also affected cash flows from operations.
Cash flows from investing activities are principally affected by capital
expenditures and marketable securities transactions. Capital expenditures in
2001, 2000, and 1999 included significant costs, primarily building construction
costs, equipment and furniture and fixtures purchases associated with the
expansion of our corporate headquarters. Currently, we are constructing two
additional buildings and a parking structure which are expected to be completed
by mid-2002. The total cost of the expansion is estimated at $27.0 million, of
which we have spent $19.0 million through February 28, 2002. The additional
buildings are necessary due to growth in our primary business lines. Also, cash
flows from investing activities were affected by purchases and sales of our
mutual funds mainly for the testing and subsequent startup of new investment
programs to be offered to our clients. Purchases were approximately $69.7
million in 2001, $17.7 million in 2000, and $3.1 million in 1999, whereas sales
totaled $24.6 million in 2001, $2.5 million in 2000, and $.6 million in 1999.
Cash flows from financing activities are primarily affected by debt and equity
transactions. Principal payments on the Senior notes are made annually from the
date of issuance while interest payments are made semi-annually. Principal
payments on the term loan are made quarterly from the date of issuance while
interest payments are made based on the term of the London Interbank Offered
Rate borrowing. The aggregate maturities of our long-term debt at December 31,
2001 are $7.6 million in 2002, $9.6 million in 2003 thru 2005, $5.4 million in
2006, and $9.0 million in 2007 and thereafter (See Note 7 of the Notes to
Consolidated Financial Statements). We continued our common stock repurchase
program and acquired approximately 2.8 million shares of our common stock at a
cost of $103.3 million during 2001 pursuant to an open market stock purchase
authorization of $503.4 million made by the Board of Directors. As of February
28, 2002, we still had $44.9 million remaining authorized for the purchase of
our common stock. Proceeds received from the issuance of common stock results
from stock option exercise activity. Cash dividends of $.10 per share were
declared in 2001 and $.08 in 2000. Our Board of Directors has indicated its
intention to continue making cash dividend payments.
We currently have various operating leases for facilities, data processing
equipment, and software. As of December 31, 2001, our aggregate noncancellable
minimum lease commitments are $8.2 million in 2002, $8.1 million in 2003, $4.5
million in 2004, $1.9 million in 2005, $1.6 million in 2006, and $10.3 million
in 2007 and thereafter (See Note 10 of the Notes to Consolidated Financial
Statements).
We believe our operating cash flow, available borrowing capacity, and existing
cash and cash equivalents should provide adequate funds for continuing
operations, continued investment in new products and equipment, our common stock
repurchase program, expansion of our corporate headquarters, future dividend
payments, and principal and interest payments on our long-term debt.
22
Critical Accounting Policies
- ----------------------------
Financial Reporting Release No. 60 requires all companies to include a
discussion of critical accounting policies or methods used in the preparation of
financial statements. Our significant accounting policies are described in Note
1 of the Notes to the Consolidated Financial Statements. The significant
accounting policies that we believe are the most critical to aid in fully
understanding our reported financial results includes the following:
Revenue Recognition
Principal sources of revenues are information processing and software services,
management, administration, and distribution of mutual funds, brokerage and
consulting services, and other asset management products and services.
Information processing and software service fees are generally based on the
number of trust accounts a client has on our Trust 3000 system. These revenues
are recurring in nature based upon contractual agreements.
Administration and distribution fees are based upon a percentage, referred to as
basis points, of the average daily asset value of the funds.
Management fees are based upon a percentage, referred to as basis points, of the
average daily net asset value of assets under management.
Revenues from these services are recognized in the periods in which they are
performed. Cash received by us in advance of the performance of services is
deferred and recognized as revenue when earned.
23
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
----------------------------------------------------------
We do have offices located outside the United States that conduct business in
local currencies of that country. All foreign operations aggregate approximately
6 percent of total consolidated revenues, which are spread across several
countries with different currencies. Due to this limited activity, we do not
hedge against foreign operations nor do we expect any material loss with respect
to foreign currency risk.
Exposure to market risk for changes in interest rates relate primarily to our
investment portfolio and other borrowings. We do not undertake any specific
actions to cover our exposure to interest rate risk and are not a party to any
interest rate risk management transactions. We place our investments in
financial instruments that meet high credit quality standards. We insure the
preservation of our index funds by limiting default risk, market risk, and
reinvestment risk through the use of derivatives. The interest rate on our
long-term debt is fixed and is not traded on any established market. We have no
cash flow exposure due to rate changes for our long-term debt.
We are exposed to market risk associated with changes in the fair value of our
investments available for sale. To provide some protection against potential
fair value changes associated with our investments available for sale, we have
entered into various derivative financial transactions. The derivative
instruments are used to hedge changes in the fair market value of certain
investments available for sale. We currently hold derivatives with a notional
amount of $30.3 million with various terms, generally less than one year. The
effectiveness of these hedging relationships is evaluated on a retrospective and
prospective basis using quantitative measures of correlation. If a hedge is
ineffective, any excess gains or losses attributable to such ineffectiveness are
recognized in current period earnings. During 2001, the amount of hedge
ineffectiveness that was credited to current period earnings was a gain of $.4
million. We believe the derivative financial instruments entered into provide
protection against volatile swings in market valuation associated with our
Investments available for sale. During 2001, we did not enter into or hold
derivative financial instruments for trading purposes.
24
Item 8. Financial Statements and Supplementary Data.
-------------------------------------------
Index to Financial Statements:
Report of Independent Public Accountants
Consolidated Balance Sheets -- December 31, 2001 and 2000
Consolidated Statements of Operations -- For the years ended
December 31, 2001, 2000, and 1999
Consolidated Statements of Shareholders' Equity -- For the years ended
December 31, 2001, 2000, and 1999
Consolidated Statements of Cash Flows -- For the years ended December
31, 2001, 2000, and 1999
Notes to Consolidated Financial Statements
Schedule II -- Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the Consolidated
Financial Statements or notes thereto.
25
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To SEI Investments Company:
We have audited the accompanying consolidated balance sheets of SEI Investments
Company (a Pennsylvania corporation) and subsidiaries as of December 31, 2001
and 2000, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 2001. These financial statements and schedule referred top below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these 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 financial statements referred to above present fairly, in
all material respects, the financial position of SEI Investments Company and
subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001 in conformity with accounting principles generally accepted in
the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the Index to
Financial Statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Philadelphia, PA
January 31, 2002
26
Consolidated Balance Sheets SEI Investments Company
(In thousands) and Subsidiaries
December 31, 2001 2000
-----------------------------------------------------------------------
Assets Current Assets:
Cash and cash equivalents ...................... $163,685 $147,676
Restricted cash ................................ $ 10,000 $ 11,900
Receivables from regulated investment
companies ................................... 25,550 27,607
Receivables, net of allowance for doubtful
accounts of $1,700 .......................... 56,327 47,404
Deferred income taxes .......................... 4,459 9,030
Prepaid expenses and other current assets ...... 6,121 5,414
-------- --------
Total Current Assets ....................... 266,142 249,031
-------- --------
Property and Equipment, net of accumulated
depreciation and amortization of $95,104
and $83,874 ................................ 95,804 75,111
-------- --------
Capitalized Software, net of accumulated
amortization of $13,469 and $11,733 ........ 11,055 12,823
-------- --------
Investments Available for Sale ................. 66,332 20,294
-------- --------
Other Assets, net .............................. 21,583 18,323
-------- --------
$460,916 $375,582
-----------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
27
Consolidated Balance Sheets SEI Investments Company
(In thousands, except par value) and Subsidiaries
December 31, 2001 2000
-----------------------------------------------------------------------------
Liabilities Current Liabilities:
and
Shareholders' Current portion of long-term debt ........... $ 7,556 $ 2,000
Equity Accounts payable ............................ 4,977 6,721
Accrued liabilities ......................... 128,408 121,282
Deferred revenue ............................ 3,402 16,450
-------- --------
Total Current Liabilities ............... 144,343 146,453
-------- --------
Long-term Debt .............................. 43,055 27,000
-------- --------
Deferred Income Taxes ....................... 2,925 4,708
-------- --------
Commitments and Contingencies (Note 10)
Shareholders' Equity:
Series Preferred stock, $.05 par value,
60 shares authorized; no shares issued
and outstanding .......................... -- --
Common stock, $.01 par value,
750,000 shares authorized; 109,180 and
108,560 shares issued and outstanding .... 1,092 1,086
Capital in excess of par value .............. 186,390 125,473
Retained earnings ........................... 85,085 72,521
Accumulated other comprehensive losses ...... (1,974) (1,659)
-------- --------
Total Shareholders' Equity .............. 270,593 197,421
-------- --------
$460,916 $375,582
-----------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
28
Consolidated Statements of Operations SEI Investments Company
(In thousands, except per share data) and Subsidiaries
Year Ended December 31, 2001 2000 1999
- ----------------------------------------------------------------------------------------------------
Revenues ..................................................... $ 658,013 $ 598,806 $ 456,192
Expenses:
Operating and development ................................ 298,728 279,024 215,216
Sales and marketing ...................................... 152,642 154,984 126,184
General and administrative ............................... 23,457 16,839 12,298
--------- --------- ---------
Income from operations ....................................... 183,186 147,959 102,494
Equity in the earnings of unconsolidated affiliate ........... 10,342 7,533 6,765
Interest income .............................................. 6,945 6,419 2,285
Interest expense ............................................. (2,149) (2,293) (2,375)
--------- --------- ---------
Income from continuing operations before income taxes ........ 198,324 159,618 109,169
Income taxes ................................................. 73,380 60,655 42,030
--------- --------- ---------
Income from continuing operations ............................ 124,944 98,963 67,139
Income from disposal of discontinued operations,
net of income tax expense of $808 ......................... -- -- 1,292
--------- --------- ---------
Net income ................................................... $ 124,944 $ 98,963 $ 68,431
- ----------------------------------------------------------------------------------------------------
Basic earnings per common share:
Earnings per common share from continuing operations ..... $ 1.15 $ .93 $ .63
Earnings per common share from discontinued operations ... .01
--------- --------- ---------
Basic earnings per common share .............................. $ 1.15 $ .93 $ .64
- ----------------------------------------------------------------------------------------------------
Diluted earnings per common share:
Earnings per common share from continuing operations ..... $ 1.09 $ .87 $ .59
Earnings per common share from discontinued operations ... .01
--------- --------- ---------
Diluted earnings per common share ............................ $ 1.09 $ .87 $ .60
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
29
Consolidated Statements of Shareholders' Equity SEI Investments Company
(In thousands) and Subsidiaries
Accumulated Other
Comprehensive Losses
-------------------------
Cumulative Unrealized
Foreign Holding
Common Stock Capital Currency Gain (Loss) Total
---------------- In Excess of Retained Translation on Shareholders'
Shares Amount Par Value Earnings Adjustments Investments Equity
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 ........... 17,861 $ 179 $ 57,541 $ 2,422 $(408) $ (49) $ 59,685
Comprehensive income:
Net income ........................ -- -- -- 68,431 -- -- 68,431
Foreign currency translation
Adjustments ..................... -- -- -- -- (61) -- (61)
Unrealized gain on investments .... -- -- -- -- -- 469 469
--------
Total comprehensive income ........... 68,839
Purchase and retirement of common
Stock ........................... (689) (7) (9,753) (56,403) -- -- (66,163)
Issuance of common stock under the
employee stock purchase plan .... 25 -- 2,066 -- -- -- 2,066
Issuance of common stock upon
exercise of stock options ....... 495 5 6,591 -- -- -- 6,596
Tax benefit on stock options exercised -- -- 15,056 -- -- -- 15,056
Dividends declared ($.06 per share) .. -- .-- -- (7,077) -- -- (7,077)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 ........... 17,692 $ 177 $ 71,501 $ 7,373 $(469) $ 420 $ 79,002
Comprehensive income:
Net income ........................ -- -- -- 98,963 -- -- 98,963
Foreign currency translation
Adjustments ..................... -- -- -- -- (267) -- (267)
Unrealized loss on investments .... -- -- -- -- -- (1,343) (1,343)
--------
Total comprehensive income ........... 97,353
Stock split adjustment ............... 89,709 897 -- (897) -- -- --
Purchase and retirement of common
Stock ........................... (226) (2) (518) (24,323) -- -- (24,843)
Issuance of common stock under the
employee stock purchase plan .... 46 1 3,144 -- -- -- 3,145
Issuance of common stock upon
exercise of stock options ....... 1,339 13 9,111 -- -- -- 9,124
Tax benefit on stock options exercised -- -- 42,235 -- -- -- 42,235
Dividends declared ($.08 per share) .. -- -- -- (8,595) -- -- (8,595)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 ........... 108,560 $1,086 $125,473 $ 72,521 $(736) $ (923) $197,421
- ---------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
30
Consolidated Statements of Shareholders' Equity SEI Investments Company
(In thousands) and Subsidiaries
Accumulated Other
Comprehensive Losses
-------------------------
Cumulative Unrealized
Foreign Holding
Common Stock Capital Currency Loss Total
--------------- In Excess of Retained Translation on Shareholders'
Shares Amount Par Value Earnings Adjustments Investments Equity
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 ........... 108,560 $1,086 $ 125,473 $ 72,521 $(736) $(923) $ 197,421
Comprehensive income:
Net income ........................ -- -- -- 124,944 -- -- 124,944
Foreign currency translation
adjustments ..................... -- -- -- -- (242) -- (242)
Unrealized loss on investments .... -- -- -- -- -- (73) (73)
---------
Total comprehensive income ........... 124,629
Purchase and retirement of common
stock ........................... (2,588) (26) (1,847) (101,476) -- -- (103,349)
Issuance of common stock under the
employee stock purchase plan .... 104 1 3,946 -- -- -- 3,947
Other ................................ 13 619 619
Issuance of common stock upon
exercise of stock options ....... 3,091 31 14,763 -- -- -- 14,794
Tax benefit on stock options exercised -- -- 43,436 -- -- -- 43,436
Dividends declared ($.09 per share) .. -- -- -- (10,904) -- -- (10,904)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 ........... 109,180 $1,092 $ 186,390 $ 85,085 $(978) $(996) $ 270,593
- --------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
31
Consolidated Statements of Cash Flows SEI Investments Company
(In thousands) and Subsidiaries
Year Ended December 31, 2001 2000 1999
- ------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income .......................................................... $124,944 $ 98,963 $ 68,431
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization ............................. 19,650 17,305 15,793
Provision for losses on receivables ....................... -- -- 500
Undistributed earnings of affiliate ....................... (406) (633) (2,732)
Write-off of capitalized software and intangibles ......... -- 3,737 1,204
Tax benefit on stock options exercised .................... 43,436 42,235 15,056
Deferred income tax expense (benefit) ..................... 3,944 349 (3,483)
Discontinued operations ................................... -- -- (1,292)
Other ..................................................... (2,737) 4,055 194
Change in current assets and liabilities:
Decrease (increase) in:
Receivables from regulated investment companies ... 2,057 (3,428) (5,180)
Restricted Cash ................................... 1,900 (11,900) --
Receivables ....................................... (8,923) (13,850) (6,135)
Prepaid expenses and other current assets ......... (707) (295) 894
Increase (decrease) in:
Accounts payable .................................. (1,744) (676) 592
Accrued expenses .................................. 6,013 10,271 22,334
Deferred revenue .................................. (13,048) (2,870) 5,809
-------- -------- --------
Total adjustments ..................................... 49,435 44,300 43,554
-------- -------- --------
Net cash provided by operating activities ................ $174,379 $143,263 $111,985
- ------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
32
Consolidated Statements of Cash Flows SEI Investments Company
(In thousands) and Subsidiaries
Year Ended December 31, 2001 2000 1999
- -------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property and equipment ...... (40,342) (27,188) (17,254)
Additions to capitalized software ........ -- (449) (1,362)
Purchase of investments available for sale (69,647) (17,660) (3,114)
Sale of investments available for sale ... 24,618 2,495 620
Other .................................... (216) (3,631) (4,752)
-------- -------- --------
Net cash used in investing activities .. (85,587) (46,433) (25,862)
Cash flows from financing activities:
Payments on long-term debt ............... (3,389) (2,000) (2,000)
Purchase and retirement of common stock .. (103,349) (24,843) (65,970)
Proceeds from issuance of common stock ... 18,741 12,269 8,470
Borrowing on term loan agreement ......... 25,000 -- --
Payment of dividends ..................... (9,786) (7,786) (6,397)
-------- -------- --------
Net cash used in financing activities .. (72,783) (22,360) (65,897)
-------- -------- --------
Net increase in cash and cash equivalents ..... 16,009 74,470 20,226
Cash and cash equivalents, beginning of year .. 147,676 73,206 52,980
-------- -------- --------
Cash and cash equivalents, end of year ........ $163,685 $147,676 $ 73,206
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
33
Notes to Consolidated Financial Statements SEI Investments Company
and Subsidiaries
Note 1 - Summary of Significant Accounting Policies:
Nature of Operations -
SEI Investments Company (the "Company") is organized around its primary
target markets: Private Banking & Trust, Investment Advisors, Enterprises,
Money Mangers, and Investments in New Businesses. Private Banking & Trust,
which accounts for 55 percent of consolidated revenues in 2001, provides
investment processing solutions, fund processing solutions and investment
management programs to domestic banks and private trust companies in the
United States. Investment Advisors, which accounts for 24 percent of
consolidated revenues in 2001, provides investment management programs and
investment processing solutions to affluent investors through a network of
financial intermediaries, independent investment advisors and other
investment professionals in the United States. Enterprises, which accounts
for 10 percent of consolidated revenues in 2001, provide retirement and
treasury business solutions for corporations, unions, foundations and
endowments, and other institutional investors in the United States. Money
Managers, which accounts for 5 percent of consolidated revenues, provides
investment solutions to U.S. investment managers, mutual fund companies and
alternative investment managers worldwide. Investments in New Businesses,
which accounts for 6 percent of consolidated revenues, includes the
Company's global asset management businesses as well as initiatives into
new U.S. markets.
Principles of Consolidation - The Consolidated Financial Statements include
the accounts of the Company and its wholly owned subsidiaries. The
Company's principal subsidiaries are SEI Investments Distribution Company
("SIDCO"), SEI Investments Management Corporation ("SIMC"), and SEI Private
Trust Company. All intercompany accounts and transactions have been
eliminated. Investment in unconsolidated affiliate is accounted for using
the equity method due to the Company's less than 50 percent ownership. The
Company's portion of the affiliate's operating results is reflected in
Equity in the earnings of unconsolidated affiliate on the accompanying
Consolidated Statements of Operations (See Note 5).
Cash and Cash Equivalents - Cash and cash equivalents included $100,851,000
and $121,300,000, primarily invested in SEI Daily Income Trust in 2001 and
2000, respectively, which are open ended money market mutual funds
sponsored by SIMC. Approximately $10,000,000 and $11,900,000 of cash is
restricted for the excusive benefit of customers related to our brokerage
services provided by SIDCO in 2001 and 2000, respectively. Interest income
for 2001, 2000, and 1999 was $6,945,000, $6,419,000, and $2,285,000,
respectively (See Note 13).
Property and Equipment - Property and Equipment on the accompanying
Consolidated Balance Sheets consists of the following:
Estimated
Useful Lives
2001 2000 (In Years)
-----------------------------------------------------------------------------
Equipment ...................... $ 74,809,000 $ 71,377,000 3 to 5
Buildings ...................... 44,981,000 34,695,000 25 to 39
Land ........................... 9,345,000 9,345,000 N/A
Purchased software ............. 18,952,000 16,035,000 3
Furniture and fixtures ......... 14,748,000 14,230,000 3 to 5
Leasehold improvements ......... 7,492,000 7,313,000 Lease Term
Construction in progress ....... 20,581,000 5,990,000 N/A
------------ ------------
190,908,000 158,985,000
Less: Accumulated depreciation
and amortization ............ (95,104,000) (83,874,000)
------------ ------------
Property and Equipment, net .... $ 95,804,000 $ 75,111,000
-----------------------------------------------------------------------------
34
Property and Equipment are stated at cost. Depreciation and amortization
are computed using the straight-line method over the estimated useful life
of each asset. Expenditures for renewals and betterments are capitalized,
while maintenance and repairs are charged to expense when incurred.
Construction in progress includes all construction costs, including
interest on funds borrowed of $500,000, associated with the design and
construction of two new buildings and a parking structure for our corporate
headquarters. Depreciation expense was $17,883,000, $15,410,000, and
$14,193,000 in 2001, 2000, and 1999, respectively.
Capitalized Software - The Company accounts for software development costs
in accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed" ("SFAS 86"). Under SFAS 86, costs incurred to create a
computer software product are charged to research and development expense
as incurred until technological feasibility has been established. The
Company establishes technological feasibility upon completion of a detailed
program design. At that point, computer software costs are capitalized
until the product is available for general release to customers. The
establishment of technological feasibility and the ongoing assessment of
recoverability of capitalized software development costs require
considerable judgment by management with respect to certain external
factors, including, but not limited to, anticipated future revenues,
estimated economic life, and changes in technology.
Amortization begins when the product is released. Capitalized software
development costs are amortized on a product-by-product basis using the
straight-line method over the estimated economic life of the product or
enhancement, which is ten years, with a weighted average remaining life of
6.6 years.
Capitalized software development costs consist primarily of salary,
consulting, and computer costs incurred to develop new products and
enhancements to existing products. During 2000 and 1999, software
development costs of $449,000, and $1,362,000 were capitalized,
respectively. No software development costs were capitalized in 2001.
Amortization expense was $1,767,000, $1,895,000, and $1,600,000 in 2001,
2000, and 1999, respectively, and is included in Operating and development
expense on the accompanying Consolidated Statements of Operations.
Management continually evaluates the recoverability of existing software
products, as well as strategies for new software products. The assessment
as to the recoverability of existing software products includes an
evaluation of expected future revenues and cash flows, acceptability of the
product in the market, the ability to support the product in a
cost-effective manner, and technological enhancements. In 2000 and 1999
management determined that certain software products were considered either
obsolete or incapable of producing the future cash flows that were
originally anticipated. As a result, the Company wrote off net capitalized
software development costs of $1,357,000 and $1,204,000 in 2000 and 1999,
respectively.
Accrued Liabilities - Accrued Liabilities on the accompanying Consolidated
Balance Sheets consists of the following:
--------------------------------------------------------------------------
2001 2000
------------ ------------
Accrued compensation ....................... $ 39,542,000 $ 49,890,000
Accrued proprietary fund services .......... 12,463,000 14,834,000
Accrued brokerage fees ..................... 8,456,000 4,316,000
Other accrued liabilities .................. 67,947,000 52,242,000
------------ ------------
128,408,000 121,282,000
--------------------------------------------------------------------------
Accrued proprietary fund services relates to marketing and promotional
activities associated with the Company's bank related proprietary funds
business.
35
Statements of Cash Flows - For purposes of the Consolidated Statements of
Cash Flows, the Company considers investment instruments purchased with an
original maturity of three months or less to be cash equivalents.
Supplemental disclosures of cash paid/received during the year is as
follows:
2001 2000 1999
---------- ----------- -----------
Interest paid ............................ $2,389,000 $ 2,220,000 $ 2,364,000
Interest and dividends received .......... 7,434,000 5,921,000 2,552,000
Income taxes paid (Federal and state) .... -- 49,134,000 23,175,000
Cash flows from operating activities for 2000, and 1999 were adjusted to
reflect distributions received from the unconsolidated affiliate.
Previously these amounts were classified in investing activities.
Revenue Recognition - Principal sources of revenues are information
processing and software services, management, administration, and
distribution of mutual funds, brokerage and consulting services, and other
asset management products and services. Revenues from these services are
recognized in the periods in which they are performed. Cash received by the
Company in advance of the performance of services is deferred and
recognized as revenue when earned.
Income Taxes - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). Under SFAS 109, the liability method is used for
income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between the financial reporting and tax
basis of assets and liabilities and are measured using enacted tax rates
and laws that are expected to be in effect when the differences reverse
(See Note 11).
Foreign Currency Translation - The assets and liabilities of foreign
operations are translated into U.S. dollars using the rates of exchange at
year end. The results of operations are translated into U.S. dollars at the
average daily exchange rates for the period. All foreign currency
transaction gains and losses are included in income in the periods in which
they occur, and are immaterial for each of the three years in the period
ended December 31, 2001.
Earnings Per Share - The Company calculates earnings per share in
accordance with Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS 128"). Basic earnings per common share is
calculated by dividing net income available to common shareholders by the
weighted average number of common shares outstanding for the period.
Diluted earnings per common share reflects the potential dilution from the
exercise or conversion of securities into common stock, such as stock
options. (See Note 8).
-----------------------------------------------------------------------------------
For the year ended December 31, 2001
----------------------------------------
Net Income Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------- ---------
Basic earnings per common share
From continuing operations ........ $124,944,000 108,596,000 $1.15
Dilutive effect of stock options ....... -- 6,214,000
------------ -----------
Diluted earnings per common share
From continuing operations ........ $124,944,000 114,810,000 $1.09
For the year ended December 31, 2000
----------------------------------------
Net Income Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------- ---------
Basic earnings per common share
From continuing operations ....... $98,963,000 106,490,000 $.93
Dilutive effect of stock options ...... -- 7,330,000
----------- -----------
Diluted earnings per common share
From continuing operations ....... $98,963,000 113,820,000 $.87
36
For the year ended December 31, 1999
----------------------------------------
Net Income Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------- ---------
Basic earnings per common share
from continuing operations ....... $67,139,000 106,632,000 $.63
Dilutive effect of stock options ...... -- 7,194,000
----------- -----------
Diluted earnings per common share
from continuing operations ....... $67,139,000 113,826,000 $.59
-----------------------------------------------------------------------------------
Options to purchase 2,777,000, 1,265,000, and 2,220,000 shares of common
stock, with an average exercise price per share of $45.95, $49.96, and
$19.75, were outstanding during 2001, 2000, and 1999, respectively, but
were excluded from the diluted earnings per common share calculation
because the option's exercise price was greater than the average market
price of the Company's common stock.
Comprehensive Income - Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130") establishes standards for
reporting and presentation of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of general purpose
financial statements that is presented with equal prominence as other
financial statements. Comprehensive income consists of net income, foreign
currency translation adjustments, and unrealized holding gains and losses.
---------------------------------------------------------------------------------------
Tax
Pre-Tax (Expense) Net of Tax
Amount or Benefit Amount
------- ---------- ----------
For the Year Ended December 31, 1999:
------------------------------------
Unrealized holding gains arising during period .... $ 763 $(294) $ 469
Foreign currency translation adjustments .......... (61) -- (61)
------- ----- -------
Total other comprehensive income .................. $ 702 $(294) $ 408
For the Year Ended December 31, 2000:
-------------------------------------
Unrealized holding losses arising during period ... $(2,166) $ 823 $(1,343)
Foreign currency translation adjustments .......... (267) -- (267)
------- ----- -------
Total other comprehensive income .................. $(2,433) $ 823 $(1,610)
For the Year Ended December 31, 2001:
-------------------------------------
Unrealized holding losses arising during period ... $ (116) $ 43 $ (73)
Foreign currency translation adjustments .......... (242) -- (242)
------- ----- -------
Total other comprehensive loss .................... $ (358) $ 43 $ (315)
---------------------------------------------------------------------------------------
Management's Use of Estimates - The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications - Certain reclassifications have been made to conform to
the current year presentation.
37
Note 2 - Receivables:
Receivables on the accompanying Consolidated Balance Sheets consist of the
following:
2001 2000
------------------------------------------------------------------------
Trade receivables .......................... $26,415,000 $22,558,000
Fees earned, not received .................. 2,527,000 1,801,000
Fees earned, not billed .................... 29,085,000 24,745,000
----------- -----------
58,027,000 49,104,000
Less: Allowance for doubtful accounts ..... (1,700,000) (1,700,000)
----------- -----------
$56,327,000 $47,404,000
------------------------------------------------------------------------
Fees earned, not received represent brokerage commissions earned but not
yet collected. Fees earned, not billed result from timing differences
between services provided and contractual billing schedules.
Receivables from regulated investment companies on the accompanying
Consolidated Balance Sheets represent fees earned by the Company's wholly
owned subsidiaries, SIDCO and SIMC, for distribution, investment advisory,
and administration services provided by these subsidiaries to various
regulated investment companies sponsored by the Company (See Note 13).
Note 3 - Investments Available for Sale:
Investments available for sale consist primarily of investments in mutual
funds sponsored by the Company. The Company accounts for investments in
marketable securities pursuant to Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS 115"). SFAS 115 requires that debt and equity securities
classified as available for sale be reported at market value. Unrealized
holding gains and losses, net of income taxes, are reported as a separate
component of Comprehensive income. Realized gains and losses, as determined
on a specific identification basis, are reported separately on the
accompanying Consolidated Statements of Operations.
Investments available for sale at December 31, 2001 had an aggregate cost
of $67,996,000 and an aggregate market value of $66,332,000, with gross
unrealized holding losses of $1,664,000. The net unrealized holding losses
at December 31, 2001 were $996,000 (net of income tax benefit of $668,000).
Investments available for sale at December 31, 2000 had an aggregate cost
of $21,710,000 and an aggregate market value of $20,294,000, with gross
unrealized holding losses of $1,416,000. The net unrealized holding losses
at December 31, 2000 were $923,000 (net of income tax benefit of $493,000).
The net unrealized holding losses at December 31, 2001 and 2000 were
reported as a separate component of Accumulated other comprehensive losses
on the accompanying Consolidated Balance Sheets.
Note 4 - Derivative Instruments and Hedging Activities:
The Company is exposed to market risk associated with its designated
Investments available for sale. To provide some protection against
potential market fluctuations associated with its investments available for
sale the Company has entered into various derivative financial transactions
in the form of futures and equity contracts (i.e. derivatives).
The Company accounts for its derivatives in accordance with Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," ("SFAS 133" ) and SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities - an amendment of FASB Statement No. 133", ("SFAS 138").
38
The Company recognizes all derivatives on the balance sheet at fair value.
On the date the derivative instrument is entered into, the Company
generally designates the derivative as a hedge of the fair value of a
recognized asset. Changes in the fair value of a derivative that is
designated as, and meets all the required criteria for, a fair value hedge,
along with the gain or loss on the hedged asset that is attributable to the
hedged risk, are recorded in current period earnings. The portion of the
change in fair value of a derivative associated with hedge ineffectiveness
or the component of a derivative instrument excluded from the assessment of
hedge effectiveness is recorded currently in earnings. Also, changes in the
entire fair value of a derivative that is not designated as a hedge are
recognized immediately in earnings. The Company formally documents all
relationships between hedging instruments and hedged items, as well as its
risk-management objective and strategy for undertaking various hedge
transactions. This process includes relating all derivatives that are
designated as fair value hedges to specific assets on the balance sheet.
The Company also formally assesses, both at the inception of the hedge and
on an ongoing basis, whether each derivative is highly effective in
offsetting changes in fair values of the hedged item. If it is determined
that a derivative is not highly effective as a hedge or if a derivative
ceases to be a highly effective hedge, the Company will discontinue hedge
accounting prospectively.
For the year ended December 31, 2001, Operating and Development expenses on
the accompanying Consolidated Statements of Operations include a net gain
of $355,000 from hedge ineffectiveness.
The Company currently holds futures contracts with a notional amount of
$10.7 million with a financial institution for various terms. The Company
also currently holds equity derivatives with a notional amount of $20.4
million with a financial institution with various terms. During 2001, the
Company did not enter into or hold derivative financial instruments for
trading purposes.
The following tabular disclosure provides information about the Company's
derivative financial instruments.
Expected Maturity Date
-------------------------------------------------------
2002 2003 2004 2005 Thereafter Total
-------------------------------------------------------
Equity -- $20,375 -- -- -- $20,375
Futures 10,664 -- -- -- -- 10,664
-------------------------------------------------------
Total $10,664 $20,375 -- -- -- $31,039
======= ======= ==== ==== ========== =======
Note 5 - Other Assets:
Other assets on the accompanying Consolidated Balance Sheets consist of the
following:
2001 2000
---------------------------------------------------------------------------
Investment in unconsolidated affiliate ........ $ 6,033,000 $ 5,627,000
Other, net .................................... 15,550,000 12,696,000
----------- -----------
Other assets .................................. $21,583,000 $18,323,000
---------------------------------------------------------------------------
Other, net consists of long-term prepaid expenses, deposits and other
investments carried at cost.
39
Investment in Unconsolidated Affiliate - The Company and several leading
academics in the field of finance operate a general partnership, LSV Asset
Management ("LSV"). LSV is a registered investment advisor which provides
investment advisory services to institutions, including pension plans and
investment companies. LSV is currently the portfolio manager for a number
of Company-sponsored mutual funds and derived 10 percent of revenues in
2001 as portfolio manager for the Company's funds. The Company's interest
in LSV was approximately 44 percent in 2001 and 47 percent in 2000. LSV is
accounted for using the equity method of accounting. The Company's portion
of LSV's net earnings is reflected in Equity in the earnings of
unconsolidated affiliate on the accompanying Consolidated Statements of
Operations.
The following table contains condensed financial information of LSV:
Condensed Statement of Operations 2001 2000 1999
---------------------------------------------------------------------------
Revenues ........................ $31,193,000 $22,974,000 $20,108,000
Net income ...................... $23,070,000 $16,170,000 $14,388,000
---------------------------------------------------------------------------
Condensed Balance Sheet 2001 2000
---------------------------------------------------------------------------
Cash and cash equivalents ..................... $ 6,205,000 $ 5,408,000
Accounts receivable ........................... 7,186,000 5,541,000
Other current assets .......................... 3,000 27,000
Non-current assets ............................ 89,000 103,000
----------- -----------
Total assets .................................. $13,483,000 $11,079,000
=========== ===========
Current liabilities ........................... $ 1,686,000 $ 1,285,000
Partners' capital ............................. 11,797,000 9,794,000
----------- -----------
Total liabilities and
partners' capital .......................... $13,483,000 $11,079,000
=========== ===========
---------------------------------------------------------------------------
The Company received partnership distribution payments from LSV of
$9,936,000 and $6,900,000 in 2001 and 2000, respectively.
Note 6 - Line of Credit:
The Company has a line of credit agreement (the "Agreement") with a lending
institution. The Agreement provides for borrowings of up to $25,000,000,
and expires on December 19, 2002, at which time the outstanding principal
balance, if any, becomes due unless the Agreement is extended. The line of
credit, when utilized, accrues interest at the Prime rate or one and
one-quarter percent above the London Interbank Offered Rate (LIBOR). The
Company is obligated to pay a commitment fee equal to one-quarter of one
percent per annum on the average daily unused portion of the commitment.
Certain covenants under the Agreement require the Company to maintain
specified levels of net worth and place certain restrictions on
investments. The Company was in compliance with these covenants during
2001.
There were no borrowings on the Company's line of credit during 2001 and
2000. Interest expense, including commitment fees, on the Company's line of
credit was $127,000, $127,000, and $79,000 for the years ended December 31,
2001, 2000, and 1999, respectively.
40
Note 7 - Long-term Debt:
On February 24, 1997, the Company signed a Note Purchase Agreement
authorizing the issuance and sale of $20,000,000 of 7.20% Senior Notes and
$15,000,000 of 7.27% Senior Notes (collectively, the "Notes") in a private
offering with certain financial institutions. The Notes are unsecured with
final maturities ranging from 10 to 15 years. The proceeds from the Notes
were used to repay the outstanding balance on the Company's line of credit
at that time. The Note Purchase Agreement, as amended, contains various
covenants, including limitations on indebtedness, maintenance of minimum
net worth levels, and restrictions on certain investments. In addition, the
agreement limits the Company's ability to merge or consolidate, and to sell
certain assets. Principal payments on the Notes are made annually from the
date of issuance while interest payments are made semi-annually.
On June 26, 2001 the Company entered into a term loan agreement (the
"Agreement") with a separate lending institution. The agreement provides
for borrowings up to $25,000,000, and expires on March 31, 2006 and is
payable in seventeen equal quarterly installments. The term loan accrues
interest at the Prime rate or one and thirty-five hundredths of one percent
above the London Interbank Offered Rate (LIBOR). The Agreement contains
various covenants, including limitations on indebtedness and restrictions
on certain investments. On August 2, 2001, the Company borrowed the full
$25,000,000. Principal payments on the notes are made quarterly from the
date of issuance while interest payments are made based on the term of the
LIBOR borrowing.
The carrying amount of the Company's long-term debt is not materially
different from its fair value. The Company was in compliance with all
covenants associated with its long-term debt during 2001.
Aggregate maturities of long-term debt at December 31, 2001 are:
---------------------------------------------------------------------------
2002......................................................... $ 7,556,000
2003......................................................... 9,555,000
2004......................................................... 9,556,000
2005......................................................... 9,555,000
2006......................................................... 5,389,000
2007 and thereafter.......................................... 9,000,000
-----------
$50,611,000
---------------------------------------------------------------------------
Interest expense relating to the Company's long-term debt was $2,003,000,
$2,155,000, and $2,296,000 for the years ended December 31, 2001, 2000, and
1999 respectively.
Note 8 - Shareholders' Equity:
Stock Split - On May 10, 2000, the Board of Directors approved a
three-for-one stock split of the Company's $.01 par value common stock,
effected in the form of a stock dividend which was paid on June 19, 2000 to
shareholders of record on June 5, 2000. A total of 35,400,000 shares of
common stock were issued in connection with the stock split. The par value
of the stock remained unchanged. Accordingly, a total of $354,000 was
reclassified from Retained earnings to Common stock.
On December 14, 2000, the Board of Directors approved a two-for-one stock
split of the Company's $.01 par value common stock, effected in the form of
a stock dividend which was paid on February 28, 2001 to shareholders of
record on February 19, 2001. On February 14, 2001, a special meeting of the
shareholders was held and they approved an increase in the number of shares
authorized to 750,000,000. A total of 54,309,000 shares of common stock
were issued in connection with the stock split. The par value of the stock
remained unchanged. Accordingly, a total of $543,090 was reclassified from
Retained earnings to Common stock. All shares have been adjusted to reflect
these splits.
41
Stock-Based Compensation Plans - The Company has several stock option plans
under which non-qualified and incentive stock options for common stock are
available for grant to officers, directors, and key employees. The options
granted and the option prices are established by the Board of Directors in
accordance with the terms of the plans. The Board of Directors has reserved
an aggregate 87,630,000 shares for grant under these plans. All options
outstanding were granted at prices equal to the fair market value of the
stock on the date of grant and expire 10 years after the date of grant. All
options granted prior to December 1997 vest ratably over a four year period
from the date of grant. All options granted in December 1997 and after vest
ratably upon the Company's attainment of specific earnings targets or
entirely after seven years from the date of grant. Earning targets are
established on the date of grant.
The Company issues options at fair value and accounts for its stock option
plans in accordance with APB Opinion No. 25, "Accounting for Stock Issued
to Employees". Accordingly, no compensation expense has been recognized. In
1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 establishes a fair value based method
of accounting for stock-based compensation plans. SFAS 123 requires that an
employer's financial statements include certain disclosures about
stock-based employee compensation arrangements regardless of the method
used to account for the plan. Had the Company recognized compensation cost
for its stock option plans consistent with the provisions of SFAS 123, the
Company's net income and earnings per common share would have been reduced
to the following pro forma amounts:
2001 2000 1999
---------------------------------------------------------------------------
Net income:
As reported ........................... $124,944 $98,963 $68,431
Pro forma ............................. $101,203 $80,689 $55,859
Basic earnings per common share:
As reported ........................... $ 1.15 $ .93 $ .64
Pro forma ............................. $ .93 $ .76 $ .52
Diluted earnings per common share:
As reported ........................... $ 1.09 $ .87 $ .60
Pro forma ............................. $ .88 $ .71 $ .49
---------------------------------------------------------------------------
The weighted average fair value of the stock options granted during 2001,
2000, and 1999 was $64.49, $71.31, and $29.06, respectively. The fair value
of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions:
2001 2000 1999
---------------------------------------------------------------------------
Risk-free interest rate .................... 4.80% 6.12% 5.81%
Expected dividend yield .................... 0.22% 0.14% 0.30%
Expected life .............................. 7 Years 7 Years 7 Years
Expected volatility ........................ 42.31% 40.49% 40.24%
---------------------------------------------------------------------------
42
Certain information relating to the Company's stock option plans for
2001, 2000, and 1999 is summarized as follows:
------------------------------------------------------------------------------------------
Weighted
Number of Average
Shares Price
----------- --------
Balance as of December 31, 1998................................. 19,464,000 5.21
Granted......................................................... 2,592,000 19.15
Exercised....................................................... (2,970,000) 2.22
Expired or canceled............................................. (186,000) 6.80
----------
Balance as of December 31, 1999................................. 18,900,000 7.57
Granted......................................................... 1,483,000 46.69
Exercised....................................................... (3,301,000) 2.84
Expired or canceled............................................. (388,000) 12.63
----------
Balance as of December 31, 2000................................. 16,694,000 11.87
Granted......................................................... 1,491,000 42.72
Exercised....................................................... (3,392,000) 4.38
Expired or canceled............................................. (68,000) 29.39
----------
Balance as of December 31, 2001................................. 14,725,000 $16.63
Exercisable as of December 31, 2001............................. 8,373,000 $6.17
Available for future grant as of December 31, 2001.............. 3,648,000 --
------------------------------------------------------------------------------------------
As of December 31, 2000 and 1999, there were 8,627,000 and 11,460,000
shares exercisable, respectively. The expiration dates for options at
December 31, 2001 range from December 18, 2002 to December 13, 2011, with a
weighted average remaining contractual life of 6.3 years.
The following table summarizes information relating to all options
outstanding at December 31, 2001:
----------------------------------------------------------------------------------
Options Outstanding Options Exercisable
at December 31, 2001 at December 31, 2001
------------------------ -----------------------
Weighted
Weighted Weighted Average
Range of Average Average Remaining
Exercise Number Exercise Number Exercise Contractual
Prices of Price Of Price Life
(Per Share) Shares (Per Share) Shares (Per Share) (Years)
--------------- ---------- ----------- --------- ----------- -----------
$ 2.48 - $ 3.30 2,164,000 $ 2.92 2,164,000 $ 2.92 2.4
3.60 - 4.38 2,457,000 3.82 2,457,000 3.82 3.9
7.00 2,249,000 7.00 2,249,000 7.00 6.0
8.75 - 19.00 2,872,000 14.31 1,503,000 13.47 7.1
19.75 - 42.00 2,296,000 21.06 -- -- 8.1
42.86 - 50.00 2,687,000 46.17 -- -- 9.6
---------- ---------
14,725,000 8,373,000
----------------------------------------------------------------------------------
43
Employee Stock Purchase Plan - The Company has an employee stock purchase
plan that provides for offerings of common stock to eligible employees at a
price equal to 85 percent of the fair market value of the stock at the end
of the stock purchase period, as defined. The Company has reserved
7,800,000 shares for issuance under this plan. At December 31, 2001,
4,982,000 cumulative shares have been issued.
Common Stock Buyback - The Board of Directors has authorized the purchase
of the Company's common stock on the open market or through private
transactions of up to an aggregate of $503,365,000. Through December 31,
2001, a total of 101,102,000 shares at an aggregate cost of $458,440,000
have been purchased and retired. The Company purchased 2,837,000 shares at
a cost of $103,349,000 during 2001.
The Company immediately retires its common stock when purchased. Upon
retirement, the Company reduces Capital in excess of par value for the
average capital per share outstanding and the remainder is charged against
Retained earnings. If the Company reduces its Retained earnings to zero,
any subsequent purchases of common stock will be charged entirely to
Capital in excess of par value.
Shareholders' Rights Plan - On December 10, 1998, the Company's Board of
Directors adopted a new Shareholder Rights Plan to replace the Shareholder
Rights Plan originally adopted in 1988, which expired on December 19, 1998.
The Company's Shareholder Rights Plan is designed to deter coercive or
unfair takeover tactics and to prevent a person or group from acquiring
control of the Company without offering a fair price to all shareholders.
Under the terms of the 1998 Shareholder Rights Plan, all common
shareholders of record at the close of business on December 19, 1999 shall
receive one Right for each outstanding common share of the Company. Any new
common shares issued after December 19, 1999 will receive one Right for
each common share. Each Right entitles the registered holder to purchase
from the Company one two-thousandths of a share of Series A Junior
Participating Preferred Shares, par value $.05 per share, at an exercise
price of $500 per share. The Rights will become exercisable and trade
separately from the common stock 10 days following a public announcement
that a person or group is the beneficial owner of 20 percent or more of the
outstanding common stock (the "Stock Acquisition Date"), or the
commencement of a tender or exchange offer that would result in such a
person or group owning 20 percent or more of the outstanding common stock.
In the event that the Company is involved in a merger or other business
combination in which the Company survives and its common stock remains
outstanding, the other stockholders will be able to exercise the Rights and
buy common stock of the Company having twice the value of the exercise
price of the Rights. Additionally, if the Company is involved in certain
other mergers where its shares are exchanged or certain major sales of its
assets occur, stockholders will be able to purchase the other party's
common shares in an amount equal to twice the value of the exercise price
of the Rights. Upon the occurrence of any of these events, the Rights will
no longer be exercisable into Preferred Shares.
The Rights, which do not have voting rights, will expire on December 19,
2008, and may be redeemed by the Company any time until ten days following
the Stock Acquisition Date at a price of $.01 per Right.
Dividends - On May 29, 2001, the Board of Directors declared a cash
dividend of $.05 per share on the Company's common stock, which was paid on
June 26, 2001, to shareholders of record on June 12, 2001. On December 13,
2001, the Board of Directors declared a cash dividend of $.05 per share on
the Company's common stock, which was paid on January 22, 2002, to
shareholders of record on January 4, 2002.
The dividends declared in 2001, 2000, and 1999 were $10,904,000,
$8,595,000, and $7,077,000, respectively. The Board of Directors has
indicated its intention to pay future dividends on a semiannual basis.
44
Note 9 - Employee Benefit Plan:
The Company has a tax-qualified defined contribution plan (the "Plan"). The
Plan provides retirement benefits, including provisions for early
retirement and disability benefits, as well as a tax-deferred savings
feature. After satisfying certain requirements, participants are vested in
employer contributions at the time the contributions are made. All Company
contributions are discretionary and are made from available profits. The
Company contributed $4,377,000, $2,210,000, and $1,774,000 to the Plan in
2001, 2000, and 1999, respectively.
Note 10 - Commitments and Contingencies:
The Company has entered into various operating leases for facilities, data
processing equipment, and software. Some of these leases contain escalation
clauses for increased taxes and operating expenses. Rent expense was
$13,790,000, $11,822,000, and $11,166,000 in 2001, 2000, and 1999,
respectively.
Aggregate noncancellable minimum lease commitments at December 31, 2001
are:
---------------------------------------------------------------------------
2002............................... $ 8,176,000
2003............................... 8,110,000
2004............................... 4,490,000
2005............................... 1,909,000
2006............................... 1,568,000
2007 and thereafter................ 10,253,000
-----------
$34,506,000
---------------------------------------------------------------------------
In the normal course of business, the Company is party to various claims
and legal proceedings. Although the ultimate outcome of these matters is
presently not determinable, management, after consultation with legal
counsel, does not believe that the resolution of these matters will have a
material adverse effect upon the Company's financial position or results of
operations.
Note 11 - Income Taxes:
Income taxes from continuing operations consist of the following:
Year Ended December 31, 2001 2000 1999
------------------------------------------------------------------------------
Current
Federal ........................... $66,926,000 $56,752,000 $42,144,000
State ............................. 2,510,000 3,554,000 3,369,000
----------- ----------- -----------
69,436,000 60,306,000 45,513,000
----------- ----------- -----------
Deferred, including current deferred
Federal ........................... 3,089,000 783,000 (2,577,000)
State ............................. 855,000 (434,000) (906,000)
----------- ----------- -----------
3,944,000 349,000 (3,483,000)
----------- ----------- -----------
Total income taxes from continuing
operations ..................... $73,380,000 $60,655,000 $42,030,000
---------------------------------------------------------------------------
45
The effective income tax rate from continuing operations differs from the
Federal income tax statutory rate due to the following:
Year Ended December 31, 2001 2000 1999
--------------------------------------------------------------------------
Statutory rate..................................... 35.0% 35.0% 35.0%
State taxes, net of Federal tax benefit............ 1.1 1.2 1.4
Foreign losses..................................... .5 .3 1.5
Other, net......................................... .4 1.5 0.6
---- ----- ----
37.0% 38.0% 38.5%
--------------------------------------------------------------------------
Deferred income taxes for 2001, 2000, and 1999 reflect the impact of
"temporary differences" between the amount of assets and liabilities for
financial reporting purposes and such amounts as measured by tax laws and
regulations. Principal items comprising the deferred income tax provision
(benefit) from continuing operations are as follows:
Year Ended December 31, 2001 2000 1999
---------------------------------------------------------------------------------------
Difference in financial reporting and income
tax depreciation methods ................... $ (517,000) $(192,000) $ (62,000)
Reserves not currently deductible ........... 518,000 488,000 (11,000)
Capitalized software currently deductible for
tax purposes, net of amortization .......... (617,000) (981,000) (504,000)
State deferred income taxes ................. 556,000 (283,000) (589,000)
Revenue and expense recognized in
different periods for financial reporting
and income tax purposes .................... 4,142,000 542,000 (2,064,000)
Other, net .................................. (138,000) 775,000 (253,000)
---------- --------- -----------
$3,944,000 $ 349,000 $(3,483,000)
---------------------------------------------------------------------------------------
The net deferred income tax asset is comprised of the following:
Year Ended December 31, 2001 2000
-------------------------------------------------------------------------------
Current deferred income taxes:
Gross assets ............................ $ 4,459,000 $ 9,030,000
Gross liabilities ....................... -- --
----------- -----------
4,459,000 9,030,000
----------- -----------
Long-term deferred income taxes:
Gross assets ............................ 220,000 63,000
Gross liabilities ....................... (3,145,000) (4,771,000)
----------- -----------
(2,925,000) (4,708,000)
----------- -----------
Net deferred income tax asset ............ $ 1,534,000 $ 4,322,000
-------------------------------------------------------------------------------
The Company did not record any valuation allowance against deferred tax
assets at December 31, 2001 and 2000.
46
The tax effect of significant temporary differences representing deferred
tax assets (liabilities) is as follows:
Year Ended December 31, 2001 2000
-------------------------------------------------------------------------------
Difference in financial reporting and income
tax depreciation methods ........................ $ 807,000 $ 131,000
Reserves not currently deductible ................ 1,407,000 802,000
Capitalized software currently deductible for
tax purposes, net of amortization ............... (4,666,000) (5,391,000)
State deferred income taxes ...................... 9,000 (265,000)
Revenue and expense recognized in
different periods for financial reporting
and income tax purposes ......................... 3,258,000 8,493,000
Unrealized holding gain on investments ........... 719,000 552,000
----------- -----------
$ 1,534,000 $ 4,322,000
-------------------------------------------------------------------------------
Note 12 - Segment Information:
The Company established its segments in accordance with Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes
standards for the way public business enterprises report financial
information about operating segments in financial statements. SFAS 131 also
requires additional disclosures about products and services, geographic
areas, and major customers.
The Company evaluates financial performance of its operating segments based
on Income from operations. Our operations and organizational structures
were realigned in 2001 into separate business units that offer products and
services tailored for particular market segments. Our reportable segments
are Private Banking and Trust, Investment Advisors, Enterprises, Money
Managers, and Investments in New Businesses. The accounting policies of the
reportable segments are the same as those described in Note 1. Financial
information for periods prior to 2001 has been restated to conform to
current year presentation.
The following tables highlight certain financial information from
continuing operations about each of the Company's segments for the years
ended December 31, 2001, 2000, and 1999:
47
- -----------------------------------------------------------------------------------------------------------
Private Investments General
Banking Investment Money In New And
2001 & Trust Advisors Enterprises Managers Businesses Administrative Total
-------- ---------- ----------- -------- ----------- -------------- --------
(In thousands)
- -----------------------------------------------------------------------------------------------------------
Revenues $360,069 $154,988 $64,522 $36,576 $ 41,858 $658,013
-------- -------- ------- ------- -------- --------
Operating
income (loss) $144,225 $ 61,060 $20,003 $ 4,944 $(23,589) $(23,457) $183,186
-------- -------- ------- ------- -------- -------- --------
Other income,
net $ 15,138
--------
Income before
income taxes $198,324
--------
Depreciation and
amortization $ 12,119 $ 3,349 $ 1,164 $ 977 $ 1,362 $ 679 $ 19,650
-------- -------- ------- ------- -------- -------- --------
Capital
Expenditures $ 22,638 $ 6,523 $ 3,121 $ 2,099 $ 3,621 $ 2,340 $ 40,342
-------- -------- ------- ------- -------- -------- --------
Total assets $112,120 $ 41,381 $37,576 $28,059 $ 50,036 $191,744 $460,916
-------- -------- ------- ------- -------- -------- --------
Private Investments General
Banking Investment Money In New And
2000 & Trust Advisors Enterprises Managers Businesses Administrative Total
-------- ---------- ----------- -------- ----------- -------------- --------
(In thousands)
- -----------------------------------------------------------------------------------------------------------
Revenues $338,416 $133,959 $55,034 $32,349 $ 39,048 $598,806
-------- -------- ------- ------- -------- --------
Operating
income (loss) $130,522 $ 44,510 $10,365 $ 2,556 $(23,155) $(16,839) $147,959
-------- -------- ------- ------- -------- -------- --------
Other income,
Net $ 11,659
--------
Income before
income taxes $159,618
--------
Depreciation and
amortization $ 10,807 $ 2,970 $ 1,020 $ 860 $ 1,137 $ 511 $ 17,305
-------- -------- ------- ------- -------- -------- --------
Capital
Expenditures $ 16,462 $ 3,809 $ 1,404 $ 1,148 $ 2,039 $ 2,326 $ 27,188
-------- -------- ------- ------- -------- -------- --------
Total Assets $ 93,510 $ 22,648 $35,178 $23,760 $ 33,418 $167,068 $375,582
-------- -------- ------- ------- -------- -------- --------
48
Private Investments General
Banking Investment Money In New And
1999 & Trust Advisors Enterprises Managers Businesses Administrative Total
-------- ---------- ----------- --------- ----------- -------------- --------
(In thousands)
- ------------------------------------------------------------------------------------------------------------
Revenues $294,673 $76,831 $36,749 $22,738 $ 25,201 $456,192
-------- ------- ------- ------- -------- --------
Operating
income (loss) $109,919 $18,120 $ 4,727 $ (557) $(17,417) $(12,298) $102,494
-------- ------- ------- ------- -------- -------- --------
Other income,
net $ 6,675
--------
Income before
income taxes $109,169
--------
Depreciation and
amortization $ 10,281 $ 2,560 $ 911 $ 666 $ 987 $ 388 $ 15,793
-------- ------- ------- ------- -------- -------- --------
Capital
Expenditures $ 9,923 $ 3,028 $ 1,158 $ 763 $ 977 $ 1,405 $ 17,254
-------- ------- ------- ------- -------- -------- --------
Total Assets $ 81,460 $20,860 $18,186 $19,121 $ 31,111 $ 83,041 $253,779
-------- ------- ------- ------- -------- -------- --------
- ------------------------------------------------------------------------------------------------------------
General and Administrative consists of expenses and assets attributable to
corporate overhead groups that are not allocated to the operating segments for
internal financial reporting purposes. Unallocated assets primarily consist of
cash and cash equivalents, deferred tax assets, the investment in LSV, and
certain other shared services assets.
The following table presents the details of other income (expense):
For the Year Ended December 31, 2001 2000 1999
- -----------------------------------------------------------------------------
Equity in the earnings of
unconsolidated affiliate ..... $10,342,000 $ 7,533,000 $ 6,765,000
Interest income ................. 6,945,000 6,419,000 2,285,000
Interest expense ................ (2,149,000) (2,293,000) (2,375,000)
----------- ----------- -----------
$15,138,000 $11,659,000 $ 6,675,000
- -----------------------------------------------------------------------------
The following table presents revenues by country based on the location of the
use of the products or services:
For the Year Ended December 31, 2001 2000 1999
- ------------------------------------------------------------------------------
United States .................. $617,108,000 $559,574,000 $429,517,000
International operations ....... 40,905,000 39,232,000 26,675,000
------------ ------------ ------------
$658,013,000 $598,806,000 $456,192,000
49
The following table presents assets based on its location:
2001 2000 1999
- --------------------------------------------------------------------------------
United States ................... $418,550,000 $354,695,000 $231,620,000
International operations ........ 42,366,000 20,887,000 22,159,000
------------ ------------ ------------
$460,916,000 $375,582,000 $253,779,000
- --------------------------------------------------------------------------------
Note 13 - Related Party Transactions:
The Company, either by itself or through its wholly owned
subsidiaries, is a party to Investment Advisory and Administration
Agreements with several regulated investment companies ("RICs"), which
are administered by the Company. Shares of the RICs are offered to
clients of the Company and its subsidiaries. Under the Investment
Advisory and Administration Agreements, The Company receives a fee for
providing investment advisory, administrative, and accounting services
to the RICs. The investment advisory and administration fee is a fixed
percentage, referred to as basis points, of the average daily net
asset value of each RIC, subject to certain limitations. Investment
advisory and administration fees received by the Company totaled
$299,108,000, $246,308,000, and $196,608,000 in 2001, 2000, and 1999,
respectively. The Company is also a party to Distribution Agreements
with several RICs, which are advised and/or administered by the
Company. The Company receives a fee from the RICs for providing
distribution services pursuant to the provisions of various Rule 12b-1
Plans adopted by the RICs. These distribution fees totaled
$49,209,000, $41,129,000, and $25,883,000 in 2001, 2000, and 1999,
respectively.
Note 14 - Quarterly Financial Data (Unaudited):
For the Three Months Ended
---------------------------------------------------------
2001 March 31 June 30 Sept. 30 Dec. 31
- ------------------------------------------------------------------------------------------------
Revenues ........................... $161,301,000 $168,480,000 $163,403,000 $164,829,000
Income before income taxes ......... $ 45,570,000 $ 49,471,000 $ 50,621,000 $ 52,662,000
Net income ......................... $ 28,709,000 $ 31,167,000 $ 31,891,000 $ 33,177,000
Basic earnings per common share .... $ .26 $ .29 $ .29 $ .31
Diluted earnings per common share .. $ .25 $ .27 $ .28 $ .29
- ------------------------------------------------------------------------------------------------
For the Three Months Ended
---------------------------------------------------------
2000 March 31 June 30 Sept. 30 Dec. 31
- ------------------------------------------------------------------------------------------------
Revenues ........................... $138,746,000 $146,440,000 $155,628,000 $157,992,000
Income before income taxes ......... $ 32,691,000 $ 36,496,000 $ 44,324,000 $ 46,107,000
Net income ......................... $ 20,269,000 $ 22,627,000 $ 27,481,000 $ 28,586,000
Basic earnings per common share .... $ .19 $ .21 $ .26 $ .27
Diluted earnings per common share .. $ .18 $ .20 $ .24 $ .25
- ------------------------------------------------------------------------------------------------
50
A portion of the Company's total personnel costs are paid in the form of
incentive and sales compensation tied to performance objectives. Performance
objectives, which may include financial and non-financial goals, are established
each year at the Company and business unit levels. Incentive and sales
compensation costs are charged to expense throughout the year based on estimates
of annual performance and adjusted in the fourth quarter after the actual
achievement of performance objectives are determined.
51
SEI INVESTMENTS COMPANY AND SUBSIDIARIES
----------------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
-----------------------------------------------
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2001
-----------------------------------------------------------------
Additions
---------------------
Balance at Charged to Charged Balance
Beginning Costs and to Other at End
Description of Year Expenses Accounts (Deductions) of Year
- ------------------------------------------------------------------------------------------------------
For the Year Ended December 31, 1999:
Allowance for doubtful accounts $1,200,000 $500,000 $-- $-- $1,700,000
========== ======== === === ==========
For the Year Ended December 31, 2000:
Allowance for doubtful accounts $1,700,000 $ -- $-- $-- $1,700,000
========== ======== === === ==========
For the Year Ended December 31, 2001:
Allowance for doubtful accounts $1,700,000 $ -- $-- $-- $1,700,000
========== ======== === === ==========
52
Item 9. Changes in and disagreements with Accountants on Accounting and
----------------------------------------------------------------
Financial Disclosure.
--------------------
None.
53
PART III
--------
Item 10. Directors and Executive Officers of the Registrant.
--------------------------------------------------
The information required by this item concerning directors is hereby
incorporated by reference to the Company's definitive proxy statement for its
2002 Annual Meeting of Shareholders to be filed with the Securities and Exchange
Commission within 120 days after December 31, 2001 pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (the "2002 Proxy
Statement").
The executive officers of the Company are as follows:
ALFRED P. WEST, JR., 59, has been the Chairman of the Board of Directors and
Chief Executive Officer of the Company since its inception in 1968. Mr. West was
President from June 1979 to August 1990.
CARMEN V. ROMEO, 58, has been an Executive Vice President since December 1985.
Mr. Romeo has been a Director since June 1979. Mr. Romeo was Treasurer and Chief
Financial Officer from June 1979 to September 1996.
CARL A. GUARINO, 44, has been an Executive Vice President since March 2000 and a
Senior Vice President since April 1988, and was General Counsel from April 1988
to January 1994.
EDWARD D. LOUGHLIN, 51, has been an Executive Vice President since January 1994
and a Senior Vice President since January 1988.
DENNIS J. MCGONIGLE, 41, has been an Executive Vice President since July 1996.
Mr. McGonigle has been a Senior Vice President since January 1994 and a Vice
President since January 1991.
WAYNE M. WITHROW, 46, has been an Executive Vice President and Chief Information
Officer since March 2000. Mr. Withrow has been a Senior Vice President since
January 1994.
KEVIN P. ROBINS, 40, has been a Senior Vice President since January 1994 and a
Vice President since January 1992. Mr. Robins was General Counsel from January
1994 to March 2000.
TODD B. CIPPERMAN, 36, has been a Senior Vice President and General Counsel
since March 2000 and a Vice President since May 1995.
KATHY HEILIG, 43, has been Chief Accounting Officer and Controller since May
1999 and a Vice President since 1991.
MARK SAMUELS, 54, has been a Senior Vice President since 1995.
ROBERT F. CRUDUP, 54, has been a Senior Vice President since 1995 and an
Executive Vice President since June 1998.
JUDITH E. TSCHIRGI, 47, has been a Senior Vice President since January 2001.
JOE P. UJOBAI, 40, has been a Senior Vice President since 1995.
MARK NAGLE, 42, has been a Senior Vice President since January 2001 and a Vice
President since 1995.
KENNETH G. ZIMMER, 45, has been a Senior Vice President since 1990.
54
Item 11. Executive Compensation.
----------------------
The information called for in this item is hereby incorporated by reference to
the 2002 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
--------------------------------------------------------------
The information called for in this item is hereby incorporated by reference to
the 2002 Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
----------------------------------------------
The information called for in this item is hereby incorporated by reference to
the 2002 Proxy Statement.
55
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
----------------------------------------------------------------
(a) 1 and 2. Financial Statements and Financial Statement Schedules. The following is a list of the Consolidated
------------------------------------------------------
Financial Statements of the Company and its subsidiaries and
supplementary data filed as part of Item 8 hereof:
Report of Independent Public Accountants
Consolidated Balance Sheets -- December 31, 2001 and 2000
Consolidated Statements of Operations -- For the years ended
December 31, 2001, 2000, and 1999
Consolidated Statements of Shareholders' Equity -- For the
years ended December 31, 2001, 2000, and 1999
Consolidated Statements of Cash Flows -- For the years ended
December 31, 2001, 2000, and 1999
Notes to Consolidated Financial Statements
Schedule II -- Valuation and Qualifying Accounts
All other schedules are omitted because they are not
applicable, or not required, or because the required
information is included in the Consolidated Financial
Statements or notes thereto.
3. Exhibits, Including Those Incorporated by Reference. The exhibits to this Report are listed on the
---------------------------------------------------
accompanying index to exhibits and are incorporated herein by
reference or are filed as part of this annual report on Form
10-K.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company during the quarter ended December
-------------------
31, 2001.
56
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.
SEI INVESTMENTS COMPANY
Date March 28, 2002 By /s/ Kathy Heilig
-------------- ----------------------------------
Kathy Heilig
Vice President and Controller
(Principal Accounting Officer)
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 dates indicated.
Date March 28, 2002 By /s/ Alfred P. West, Jr.
-------------- ----------------------------------
Alfred P. West, Jr.
Chairman of the Board,
Chief Executive Officer,
and Director
Date March 28, 2002 By /s/Carmen V. Romeo
-------------- ----------------------------------
Carmen V. Romeo
Executive Vice President and
Director
Date March 28, 2002 By /s/ Richard B. Lieb
-------------- ----------------------------------
Richard B. Lieb
Executive Vice President and
Director
Date March 28, 2002 By /s/ Henry H. Greer
-------------- ----------------------------------
Henry H. Greer
Director
Date March 28, 2002 By /s/ William M. Doran
-------------- ----------------------------------
William M. Doran
Director
Date March 28, 2002 By /s/ Henry H. Porter, Jr.
-------------- ----------------------------------
Henry H. Porter, Jr.
Director
Date March 28, 2002 By /s/ Kathryn M. McCarthy
-------------- ----------------------------------
Kathryn M. McCarthy
Director
Date March 28, 2002 By /s/ Sarah Blumenstein
-------------- ----------------------------------
Sarah Blumenstein
Director
57
EXHIBIT INDEX
-------------
The following is a list of exhibits filed as part of this annual report on Form
10-K. For exhibits incorporated by reference, the location of the exhibit in the
previous filing is indicated in parentheses.
3.1 Articles of Incorporation of the Registrant as amended on January 21,
1983. (Incorporated by reference to exhibit 3.1 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1982.)
3.1.2 Amendment to Articles of Incorporation of the Registrant, dated May
21, 1992. (Incorporated by reference to exhibit 3.1.2 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992.)
3.1.3 Amendment to Articles of Incorporation of the Registrant, dated May
26, 1994. (Incorporated by reference to exhibit 3.1.3 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.)
3.1.4 Amendment to Articles of Incorporation of the Registrant, dated
November 21, 1996. (Incorporated by reference to exhibit 3.1.4 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.)
3.1.5 Amendment to Articles of Incorporation of the Registrant, dated
February 14, 2001. (Incorporated by reference to exhibit 3.1.5 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000)
3.2 By-Laws. (Incorporated by reference to exhibit 3.2 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1983.)
3.2.1 Amendment to By-Laws, dated December 19, 1988. (Incorporated by
reference to exhibit 3.2.1 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1988.)
3.2.2 Amendment to By-Laws, dated July 12, 1990. (Incorporated by reference
to exhibit 3.2.2 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1990.)
4.1 Form of Certificate for Shares of Common Stock. (Incorporated by
reference to exhibit 4.1 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1988.)
4.2 Rights Agreement dated December 10, 1998. (Incorporated by reference
to exhibit 4.2 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998.)
Note: Exhibits 10.1 through 10.9 constitute the management contracts
and executive compensatory plans or arrangements in which certain of
the directors and executive officers of the Registrant participate.
10.1 Stock Option Plan, Amended, Restated and Renewed as of February 11,
1997. (Incorporated by reference to exhibit 99(a) to the Registrant's
Registration Statement on Form S-8 (No. 333-63709) filed September 18,
1998.)
10.1.1 1997 Stock Option Plan. (Incorporated by reference to exhibit 99(b) to
the Registrant's Registration Statement on Form S-8 (No. 333-63709)
filed September 18, 1998.)
10.1.2 1997 Option Share Deferral Plan. (Incorporated by reference to exhibit
99(c) to the Registrant's Registration Statement on Form S-8 (No.
333-63709) filed September 18, 1998.)
10.1.3 1998 Equity Compensation Plan. (Incorporated by reference to exhibit
99(f) to the Registrant's Registration Statement on Form S-8 (No.
333-63709) filed September 18, 1998.)
10.1.4 First Amendment to the 1998 Equity Compensation Plan. (Incorporated by
reference to exhibit 10.1.4 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1999.)
10.2 Employee Stock Ownership Plan. (Incorporated by reference to exhibit
10.3 (b) to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1985.)
10.3 Employee Stock Purchase Plan, Amended and Restated as of May 8, 1991.
(Incorporated by reference to exhibit 10.3 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1991.)
10.3.1 Employee Stock Purchase Plan as Amended and Restated on October 15,
1997. (Incorporated by reference to exhibit 99(e) to the Registrant's
Registration Statement on Form S-8 (No. 333-63709) filed September 18,
1998.)
10.4 SEI Capital Accumulation Plan. (Incorporated by reference to exhibit
99(e) to the Registrant's Registration Statement on Form S-8 (No.
333-41343) filed December 2, 1997.)
10.5 Stock Option Plan for Non-Employee Directors. (Incorporated by
reference to exhibit 10.12 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1988.)
10.5.1 Amendment 1997-1 to the Stock Option Plan for Non-Employee Directors.
(Incorporated by reference to exhibit 10.5.1 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1997.)
58
10.5.2 1997 Option Share Deferral Plan for Non-Employee Directors.
(Incorporated by reference to exhibit 99(d) to the Registrant's
Registration Statement on Form S-8 (No. 333-63709) filed September 18,
1998.)
10.6 Employment Agreement, dated May 25, 1979, between Alfred P. West, Jr.
and the Registrant. (Incorporated by reference to exhibit 10.7 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990.)
10.7 Employment Agreement, dated January 21, 1987, between Gilbert L.
Beebower and the Registrant. (Incorporated by reference to exhibit
10.8 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1990.)
10.8.1 Employment Agreement, dated July 1, 1987, between Richard B. Lieb and
the Registrant. (Incorporated by reference to exhibit 10.9 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990.)
10.8.2 Stock Option Agreement, dated February 23, 1989, between Richard B.
Lieb and a subsidiary of the Registrant, as amended. (Incorporated by
reference to exhibit 10.8.2 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1992.)
10.9 Summary of Company Bonus Plan for Senior Management. (Incorporated by
reference to exhibit 10.9 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1993.)
10.11 Directors and Officers Liability Insurance Policy. (Incorporated by
reference to exhibit 10.9 to the Registrant's Registration Statement
on Form S-8 (No.2-78133) filed June 25, 1982.)
10.12 Lease Agreement, dated as of January 1, 1990, between The Canada Life
Assurance Company and the Registrant. (Incorporated by reference to
exhibit 10.11 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990.)
10.13 Lease Agreement, dated as of May 1, 1991, between Two North Riverside
Plaza Joint Venture and the Registrant. (Incorporated by reference to
exhibit 10.11 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991.)
10.14 Credit Agreement, dated May 31, 1992, between Provident National Bank
and the Registrant, as amended. (Incorporated by reference to exhibit
10.12 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1992.)
10.14.1 Second Modification Agreement to the Credit Agreement, dated April 19,
1993, between PNC Bank, National Association, successor by merger to
Provident National Bank, and the Registrant. (Incorporated by
reference to exhibit 10.14.1 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1993.)
10.14.2 Third Modification Agreement to the Credit Agreement, dated May 31,
1993, between PNC Bank, National Association, successor by merger to
Provident National Bank, and the Registrant. (Incorporated by
reference to exhibit 10.14.2 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1993.)
10.14.3 Fourth Modification Agreement to the Credit Agreement, dated March 14,
1994, between PNC Bank, National Association, successor by merger to
Provident National Bank, and the Registrant. (Incorporated by
reference to exhibit 10.14.3 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1994.)
10.14.4 Fifth Modification Agreement to the Credit Agreement, dated May 31,
1994, between PNC Bank, National Association, successor by merger to
Provident National Bank, and the Registrant. (Incorporated by
reference to exhibit 10.14.4 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1994.)
10.14.5 Sixth Modification Agreement to the Credit Agreement, dated May 5,
1995, between PNC Bank, National Association, successor by merger to
Provident National Bank, and the Registrant. (Incorporated by
reference to exhibit 10.14.5 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1995.)
10.14.6 Seventh Modification Agreement to the Credit Agreement, dated June 15,
1995, between PNC Bank, National Association, successor by merger to
Provident National Bank, and the Registrant. (Incorporated by
reference to exhibit 10.14.6 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1995.)
10.14.7 Eighth Modification Agreement to the Credit Agreement, dated October
19, 1995, between PNC Bank, National Association, successor by merger
to Provident National Bank, and the Registrant. (Incorporated by
reference to exhibit 10.14.7 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1995.)
10.14.8 Ninth Modification Agreement to the Credit Agreement, dated March 31,
1996, between PNC Bank, National Association, successor by merger to
Provident National Bank, and the Registrant. (Incorporated by
reference to exhibit 10.14.8 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1996.)
10.14.9 Tenth Modification Agreement to the Credit Agreement, dated May 31,
1996, between PNC Bank, National Association, successor by merger to
Provident National Bank, and the Registrant.
59
(Incorporated by reference to exhibit 10.14.9 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1996.)
10.14.10 Eleventh Modification Agreement to the Credit Agreement, dated October
1, 1996, between PNC Bank, National Association, successor by merger
to Provident National Bank, and the Registrant. (Incorporated by
reference to exhibit 10.14.10 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996.)
10.14.11 Release and Modification Agreement to the Credit Agreement, dated
February 20, 1997, between PNC Bank, National Association, successor
by merger to Provident National Bank, and the Registrant.
(Incorporated by reference to exhibit 10.14.11 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1996.)
10.14.12 Thirteenth Modification Agreement to the Credit Agreement, dated May
30, 1997, between PNC Bank, National Association, successor by merger
to Provident National Bank, and the Registrant. (Incorporated by
reference to exhibit 10.14.12 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1997.)
10.14.13 Fourteenth Modification Agreement to the Credit Agreement, dated
December 31, 1997, between PNC Bank, National Association, successor
by merger to Provident National Bank, and the Registrant.
(Incorporated by reference to exhibit 10.14.13 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1997.)
10.14.14 Fifteenth Modification Agreement to the Credit Agreement, dated March
31, 1998, between PNC Bank, National Association, successor by merger
to Provident National Bank, and the Registrant. (Incorporated by
reference to exhibit 10.14.14 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998.)
10.14.15 Sixteenth Modification Agreement to the Credit Agreement, dated May
29, 1998, between PNC Bank, National Association, successor by merger
to Provident National Bank, and the Registrant. (Incorporated by
reference to exhibit 10.14.15 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998.)
10.14.16 Seventeenth Modification Agreement to the Credit Agreement, dated
September 29, 1998, between PNC Bank, National Association, successor
by merger to Provident National Bank, and the Registrant.
(Incorporated by reference to exhibit 10.14.16 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1998.)
10.14.17 Eighteenth Modification Agreement to the Credit Agreement, dated
November 18, 1999, between PNC Bank, National Association, successor
by merger to Provident National Bank, and the Registrant.
(Incorporated by reference to exhibit 10.14.17 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1999.)
10.14.18 Nineteenth Modification Agreement to the Credit Agreement, dated
December 30, 1999, between PNC Bank, National Association, successor
by merger to Provident National Bank, and the Registrant.
(Incorporated by reference to exhibit 10.14.18 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1999.)
10.14.19 Twentieth Modification Agreement to the Credit Agreement, dated
December 30, 2000, between PNC Bank, National Association, successor
by merger to Provident National Bank, and the Registrant.
(Incorporated by reference to exhibit 10.14.19 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
2000.)
10.15 Pledge Agreement, dated May 31, 1992, between Provident National Bank
and the Registrant. (Incorporated by reference to exhibit 10.13 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992.)
10.16 Master Lease Agreement, dated December 29, 1989, between Varilease
Corporation and the Registrant, as amended. (Incorporated by reference
to exhibit 10.14 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992.)
10.17 Note Purchase Agreement, dated as of February 24, 1997, with respect
to the issuance by the Registrant of $20,000,000 7.20% Senior Notes,
Series A, due February 24, 2007, and $15,000,000 7.27% Senior Notes,
Series B, due February 24, 2012. (Incorporated by reference to exhibit
10.17 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996.)
10.17.1 First Amendment, dated December 15, 1998, to Note Purchase Agreement,
dated February 24, 1997. (Incorporated by reference to exhibit 10.17.1
to the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998.)
10.18* Term Loan Agreement, dated June 26, 2001 between Firstar Bank,
National Association and the registrant.
10.19* Credit Agreement, dated June 26, 2001 between PNC Bank, National
Association and the registrant.
21* Subsidiaries of the Registrant. (Page 110)
23* Consent of Independent Public Accountants. (Page 113)
60
99.1 * Miscellaneous exhibits. (Page 115)
99.2 * Miscellaneous exhibits. (Page 117)
* Filed herewith as an exhibit to this Form 10-K.
61