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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, 1999
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________________ to ___________________
Commission file number 0 - 10200
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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 (IRS Employer Identification
incorporation or organization) 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___
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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. [_]
(Cover page 1 of 2 pages)
Exhibit Index on Page 61
Page 1 of 78 Pages
1
State the aggregate market value of the voting stock held by non-affiliates of
the registrant based on the closing price of such stock as reported by NASDAQ as
of February 29, 2000: $1,066,321,000. For purposes of making this calculation
only, registrant has defined affiliates as including all directors and
beneficial owners of more than ten percent of the common stock of the
registrant.
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:
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of February 29, 2000: 17,637,837.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the following documents are incorporated by reference herein:
1. Notice of and Proxy Statement for the 2000 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
PART I
Item 1. Business.
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General Development of Business
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SEI Investments Company ("SEI") was incorporated in Pennsylvania in 1968 and
initially offered its shares to the public in March 1981. The principal wholly
owned subsidiaries of SEI are SEI Investments Distribution Company ("SIDCO"),
SEI Investments Management Corporation ("SIMC"), and SEI Trust Company ("SEI
Trust"). 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. SEI
Trust is a trust entity chartered in the Commonwealth of Pennsylvania.
SEI introduced its first trust system in 1972 providing on-line, real-time
accounting and management information to bank trust departments. Today, this
technology service is offered through the TRUST 3000(R) product line that
provides product capabilities and processing power to serve even the largest
trust institutions. SEI Trust offers back-office accounting and processing
services to trust institutions which allows them to outsource their trust
operations and related investment functions completely.
In 1982, SEI began to sponsor a number of institutional 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 to institutional investors, professional investment
counselors and affluent individuals. These services include investment solutions
that enable clients to establish asset allocation strategies and gain access to
top-quality investment managers. SEI has expanded its asset management services
outside the United States by targeting selected foreign markets for its
investment management programs.
SIDCO and SIMC also provide a full range of administration and distribution
services to proprietary mutual funds established for banks and other financial
institutions and intermediaries. The client serves as the investment advisor for
the proprietary funds, and the funds are sold primarily to customers of the
client.
3
Industry Segments
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Financial information is reported through four business lines: Technology
Services, Asset Management, Mutual Fund Services, and Investments in New
Business. These business segments reflect how management measures financial
information internally. Technology Services, which accounted for 41 percent of
consolidated revenues in 1999, includes the TRUST 3000 product line and trust
operations outsourcing. Asset Management, which accounted for 30 percent of
consolidated revenues in 1999, provides investment programs covering diversified
investment strategies to institutional and high-net-worth markets. Mutual Fund
Services, which accounted for 24 percent of consolidated revenues in 1999,
provides administration and distribution services to mutual funds and other
pooled funds created for banks, money managers and other financial institutions.
Investments in New Business, which accounted for 5 percent of consolidated
revenues in 1999, primarily consists of international asset management
initiatives.
Financial information about each business segment is contained in Note 11 of the
Notes to Consolidated Financial Statements in Item 8. Additional financial
information and discussion about each business segment, including a breakdown of
revenues by product line, is contained in Management's Discussion and Analysis
of Financial Condition and Results of Operations in Item 7.
Technology Services
Trust Technology Services
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. In addition, our StrataWeb product provides access to data to
end investors through the Internet.
Clients that use TRUST 3000 can effect 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.
Money manager and TRUST 3000 clients remit payment for services rendered in cash
or, subject to applicable regulatory guidelines, by directing brokerage
commissions to SIDCO through SEI-approved 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.
4
The market for our trust accounting and management information services consists
primarily of bank trust departments managing assets between $10 million and $100
billion. 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 are also creating a greater demand for
outsourcing services, as banks increasingly focus on their core strengths. There
are approximately 2,800 US institutions with trust powers in our market. At
December 31, 1999, we were providing processing or software services to
approximately 83 trust departments, including trust departments of 7 of the top
10 banks, primarily located throughout the United States. We segregate the trust
accounting and information services market by trust assets under management: $20
billion or more in managed assets; $750 million to $20 billion in managed
assets; and under $750 million in managed assets. Each of these trust accounting
and management information services markets are characterized by different
pricing, service, and product parameters and we offer a full range of products
and services suitable for each. Customers generally contract for terms of three
to seven years and revenues are based on monthly processing and software
application service fees.
Our principal competitors are Fidelity-Trust Technology Services LLC, SunGard
Data Systems, Marshall and Isley, and financial institutions that operate their
own trust processing systems. However, in terms of both revenues and number of
trust accounts processed, the TRUST 3000 product line is the leading trust
accounting and management system sold by third-party vendors to bank trust
departments. We believe the most important factors in a potential customer's
evaluation and choice of vendor are: product and service reliability; security
and risk; functional capability; ease of use and future flexibility; value; and
cost effectiveness. Clients also consider a vendor's experience in and it's
commitment to the financial industry. Trust technology services accounted for
approximately 36 percent of consolidated revenues in 1999.
Trust Operations Outsourcing
We combine our technological strength and investment expertise to assume the
entire trust operation for institutional clients who wish to outsource their
trust department operations and processes. We provide trust institutions with
access to TRUST 3000 and our investment programs, along with processing,
reporting, and custody services provided through the specialized capabilities of
SEI Trust personnel. SEI Trust automates and centralizes the client's trust
accounting, income collections, securities settlement, and securities processing
functions. In addition, SEI Trust prepares and processes customer statements,
investment reviews, and employee benefit accrual reports and remittances to the
clients' customers.
The market for our trust operations outsourcing consists primarily of bank trust
departments ranging in size from start-ups to those managing assets of $20
billion. However, as the concept of outsourcing has gained credibility and
acceptance within the industry, banks of all sizes are recognizing the value in
outsourcing their trust operations. We also believe there is a market for these
services in non-bank financial institution channels. This product line is also
affected by consolidation of the banking industry, which may reduce the number
of potential bank prospects and/or eliminate customers from our user base. At
December 31, 1999, we had contracts to perform trust operations outsourcing
services to 70 clients. The term of the contracts varies from three to five
years.
Currently, the only significant competitor in this market is Marshall and Isley.
Additional competitors can be expected over the next few years. Revenues from
trust operations outsourcing accounted for approximately 5 percent of
consolidated revenues in 1999.
5
Asset Management
We offer global investment strategies directly to institutional investors and
to affluent individual investors through a select network of registered
investment advisors and other professional investment counselors. Our asset
management team has developed a specialized investment approach to provide
investors access to the best money management talent from around the world and
optimal portfolio allocation at a reasonable cost. We create investment
strategies tailored to clients' specific financial objectives, and choose the
best style specific money managers to implement them. This innovative approach,
called a "Manager of Managers" approach, ensures adherence to our disciplined
investment principles because each manager's performance is tracked and
scrutinized. Comprehensive support services, including accounting and investor
reporting are also provided. Investments are made through a series of domestic
equity, fixed income and tax-exempt mutual funds, separate account management,
and offshore funds. We employ a total investment management approach that
utilizes a quantitative asset allocation model and investment strategies based
upon the precepts of modern portfolio theory, specialist sub-advisors that we
select and monitor, and active risk management.
Through SIMC, we serve as the administrator, transfer agent, and fund accountant
for these products. 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.
Investment Management Fees
We provide investment solutions to pension plan sponsors, hospitals,
foundations, endowment funds, and other institutional investors. We offer such
investors an integrated investment program, which enables a pension or other
investment committee to outsource their investment management process to us
including trustee and custodial services. Using a disciplined fund management
process and superior technology, we work with each client to develop asset
management strategies that are consistent with the client's business needs,
investment objectives, risk tolerance, investment restrictions, and time
horizon. Then, through the combination of the portfolio construction process,
multiple asset classes, and style allocations, we work toward the client's
investment goals. A client's strategy is implemented through our Family of 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
utilizing state-of-the-art technology. Overall, diversifying by asset class,
manager style, sub-style, and sector tends to reduce risk while improving the
prospects for long-term growth. Clients also have the ability to access
specialized money managers through separate accounts.
We also deliver business building solutions to independent broker-dealers,
registered investment advisors, financial planners, life insurance producers,
and bank trust departments. 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. Our programs allow advisors to
outsource many aspects of asset management, back-office operations, marketing,
and client services. This allows the investment advisors to focus their
resources on creating financial plans, implementing investment strategies, and
educating and servicing their clients. The programs also allow access to
institutional money managers normally not available to individual investors.
Asset allocation, portfolio structure, tax management, specialist investment and
continuous portfolio management are the five key principles of our investment
philosophy. Financial intermediaries are offered various asset allocation models
that provide diversification among investment classes and periodic rebalancing
to achieve the investor's objectives. We offer a wide range of investment
solutions including tax managed programs.
At December 31, 1999, there were approximately 2,600 clients invested in our
asset management programs through separate accounts or through our Family of
Funds with $42 billion in assets invested. The principal competition for our
asset management products is from other investment advisors and mutual fund
companies. Also, 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. Revenues from investment management fees accounted for
approximately 26 percent of consolidated revenues in 1999.
6
Liquidity Management Fees
We apply our expertise to short term investment, as well. We assist corporations
in developing investment programs to meet their unique cash flow needs by
coordinating investment strategies with expected disbursements. Our CashSweep(R)
program helps commercial banks compete successfully with larger institutions by
offering their clients superior cash management services. This program enables
financial institutions to sweep excess balances from demand deposit accounts
into money market accounts. To build a successful sweep program, we combine
technology with our cash management investment products, cash management
services, marketing and consulting support. Our CashStrategies(R) program uses
proprietary technology to help treasurers analyze cash flow and develop dynamic
cash management strategies, which they execute with our investment products. We
help clients allocate their cash between liquid and longer-term investments.
Longer-duration cash is invested in one of our Secondary Cash Investment Models,
each providing an optimal balance of strong yield and high liquidity. We help to
implement the strategy and render ongoing service and analytical support.
Liquidity products consist primarily of money market and other short-term mutual
funds and our Repurchase Agreement Program ("REPO"). REPO permits institutions
to invest short-term funds in overnight and term tri-party repurchase agreements
and other overnight and short-term investment products. Clients may purchase or
redeem investment products and retrieve information about their accounts through
SEI Direct, or by telephone orders to SIMC.
The market for our liquidity products and services consist primarily of bank
trust departments, investment advisors, and corporations located in the United
States. The number of bank and non-bank clients utilizing our liquidity products
and services totaled approximately 960 at December 31, 1999. Total assets
invested in liquidity funds, including REPO, totaled $23 billion at December 31,
1999.
Our principal competitors 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 as
well as individual bank proprietary and common trust funds. A potential customer
of liquidity services business considers the price and performance of investment
products and diverse product offerings, as well as the ease of investment
through the automated sweep system. Revenues from liquidity management fees
offered to investment advisors and corporations accounted for approximately 4
percent of consolidated revenues in 1999.
Mutual Fund Services
We provide administration and distribution services to mutual funds and other
pools of money sponsored or held by banks, insurance firms, and investment
companies for which the client serves as the investment advisor. We provide all
required fund accounting and shareholder services including 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. Our multidisciplinary
global team is experienced in administering a full range of investment
structures including mutual funds, money funds, hedge funds, and separate
accounts. These services are closely integrated with those of our domestic
services group.
The market for fund services and products consists primarily of banks, insurance
companies, and investment managers. However, we are diversifying our business to
offshore funds and hedge funds. As a result of legislation repealing
Glass-Steagall provisions, banks may now perform securities distribution
services themselves under the Financial Modernization Act. In addition,
consolidations in the banking industry may reduce the number of bank proprietary
fund complexes in existence. At the end of 1999, there were approximately 95
bank proprietary fund complexes that existed in the United States, according to
FRC/Lipper. At December 31, 1999, we provided fund services to 31 banks,
investment management companies, and insurance firms with proprietary mutual
fund assets of approximately $171 billion. Our contracts with mutual fund
complexes have initial terms ranging from two to five years.
7
Our principal competitors for mutual fund services include The BISYS Group,
Federated Investors, Inc., PFPC/First Data Investor Services Group, State Street
Bank, and Investment Company Administrators. Potential customers of mutual fund
services consider the price of such services, the performance of its
administrative and other support services such as legal and marketing, and the
integration of such services provided through our proprietary software. Revenues
from mutual fund services accounted for approximately 24 percent of consolidated
revenues in 1999.
Investments in New Business
We have several other business ventures to expand our asset management programs
and services to high-net-worth investors, pension plans, governmental
organizations, and private corporations in foreign countries. We also provide
performance evaluation and consulting services to Canadian pension plans.
Using the same asset management disciplines that have benefited US 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 well positioned
us for the introduction of new products. Penetration into the global asset
management marketplace has been initiated through various 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 United States strategy of providing portfolio
solution offerings rather than product sales. Allocation of assets among the
portfolio's specialist money managers and directing and evaluating the
investment services provided by these selected managers is the cornerstone of
our global investment strategy. Additionally, services include the delivery of
local investment management as part of a portfolio solution and local
distribution and marketing. In South Africa, we have assembled an investment
advisory team that markets institutional asset management programs to pension
and insurance industries. Established investment advisory firms in Argentina and
Mexico offer asset management services to high-net-worth investors. Joint
ventures in Taiwan and Korea offer asset management solutions to institutions
and high-net-worth individuals.
In Canada, we support money managers in managing their clients' investments
through investment performance evaluation services, as well as trading cost
analysis and marketing strategy review. The market for our consulting services
consists mainly of defined benefit plan sponsors and investment managers located
in Canada. At December 31, 1999, we were providing consulting services to
approximately 380 defined benefit plan sponsors and investment managers. Fund
sponsor and money manager clients remit payment for performance evaluation and
consulting services in cash or, subject to applicable regulatory guidelines, by
directing brokerage commissions to SIDCO or SEI, Inc. through SEI-approved
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 global market for financial services is highly competitive. Entering into a
foreign market requires a shift in perspective from a United States focus to
that of the other country. In addition, consideration must be given to the
regulatory and financial constraints that exist in a foreign market. Finally, it
can be difficult to overcome recognition and branding hurdles caused by lack of
a track record in a particular market. We attempt to overcome these obstacles by
purchasing or partnering with a local firm who already has an established
presence in the market. 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 from other investment products and services
accounted for approximately 5 percent of consolidated revenues in 1999.
8
Other
Equity Investments in Investees
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LSV Asset Management ("LSV"), is a partnership formed between SEI and 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. LSV utilizes a proprietary equity
investment model to identify securities that are generally considered to be out
of favor. LSV identifies stocks that exhibit below-average market expectations
for future growth because these stocks typically produce superior future returns
as their growth exceeds the pessimistic expectation of the market. LSV is
currently the specialist-advisor to a portion of SEI Large Cap Value Fund and
SEI Small Cap Value Fund. In addition, LSV is a portfolio manager to a portion
of our global investment products. Approximately 20 percent of the total assets
managed by LSV relate to our products. At December 31, 1999, our interest
represented approximately 47 percent of the partnership's total interests.
Marketing and Sales
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We employ 17 sales representatives in Technology Services, 56 sales
representatives in Asset Management, 22 sales representatives in Mutual Fund
Services, and 28 sales representatives in Investments in New Business. These
sales personnel operate from 19 offices located in Oaks, Pennsylvania; San
Francisco and Irvine, California; Chicago, Illinois; Boston, Massachusetts; New
York, New York; Dallas, Texas; Norcross, Georgia; Toronto, Ontario; Montreal,
Quebec; Vancouver, British Columbia; Halifax, Nova Scotia; Zurich, Switzerland;
Dublin, Ireland; Johannesburg, South Africa; Central Hong Kong, Hong Kong;
Buenos Aires, Argentina, Mexico City, Mexico; and Berkeley Square, London,
United Kingdom.
Customers
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We currently serve approximately 4,200 clients. For the year ended December 31,
1999, no single customer accounted for more than 10 percent of revenues in any
industry segment.
Development of New Products and Services
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Software products
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 currently utilize 290
professionals dedicated to the design, development, and enhancement of our
software products. New products are released when they are completed.
Maintenance releases generally occur three times each year.
Banks are demanding technology tools to enhance their relationships with their
investors. Our new Internet access products, which run in a service bureau
environment, represent a new area of business within our bank technology
business. StrataWeb(TM) is our Internet solution for accessing trust
information. It provides clients' customers the ability to access real-time
account information via the Internet. StrataWeb reduces the number of inquiry
related phone calls and has e-mail capabilities, customizable features and a
secure website which can be integrated with a client's website.
TreasuryPoint is our first business-to-business e-commerce site that provides
the tools that treasury and finance professionals need to make and execute
balance sheet decisions. The public internet site was introduced this year and
its first service, a cash flow Optimizer, will be introduced in 2000. The
Optimizer will help clients to improve their daily investment and borrowing
process, enhance their overall capabilities in the area of risk management, and
improve capital structure decisions. Real-time market rates are combined with a
company's treasury policy, cash flow information, investment products and
borrowing lines to determine the best financial solution for the company to
implement each day. The second service to be offered will be an on-line trading
application that will enable users of the Optimizer to implement electronically
the investment decisions that the Optimizer makes. In addition, the application
will work independently to enable users to trade money market funds and short-
term fixed income securities over the Internet.
9
We expended, including amounts capitalized, approximately $42,788,000 (9.4
percent of revenues) in 1999, $24,866,000 (6.8 percent of revenues) in 1998, and
$22,500,000 (7.7 percent of revenues) in 1997 to design, develop, and modify
existing or new products and services.
Investment products
Significant growth opportunities exist in the investment management industry by
expanding the distribution of asset management solutions to institutions and
high-net-worth investors outside North America. Our strategy is designed to
capitalize on three major trends in the global marketplace: (1) the
privatization and globalization of pension funds, (2) the increased wealth
accumulation among high-net-worth investors, and (3) the elimination of barriers
to global investing.
Our marketing efforts have focused on three main regions: Europe/South Africa,
Asia, and Latin America. The initial strategy is to team with local partners to
establish name recognition and distribution channels for our products and
services. Our global asset management group has made major progress toward the
creation of a distribution network during the past four years, including the
establishment of an offshore fund family in Ireland, the acquisition of
investment advisory firms in Argentina and Mexico, a joint venture in Taiwan and
Korea, and asset management contracts signed with European pension plans and
several South African institutions. We have also opened an office in the United
Kingdom and are starting a joint venture with a French asset management holding
company.
Year 2000
We began work on the Year 2000 issue in 1995 with management recognition that
failure to acknowledge, analyze and remediate potential Year 2000 processing
issues could result in material consequences to our clients and to the
perpetuation of our own business. Initially, we focused our Year 2000 efforts on
an assessment of our TRUST 3000 product line. During 1997, a Corporate Year 2000
Committee began to review all vendors, internally used systems, and any other
item that could be affected by the Year 2000. The Year 2000 program encompassed
all system hardware and software, physical facilities, utilities, electronic
equipment and communications, as well as all other ancillary purchased products
and services. Our Year 2000 program process fully subscribed to the Federal
Financial Institutions Examination Council guidelines.
Our contingency planning efforts focused on the most critical business functions
and varied significantly based on the TRUST 3000 system and how it operates. The
contingency strategy for our own proprietary products, which includes TRUST
3000, focused on additional planned resources to react in the Year 2000. A plan
existed to identify, correct and release Year 2000 related core and custom
problems. Clients were apprised of the plan and advised on appropriate data
retention. There were no critical Year 2000 issues as all infrastructure systems
and hardware were operational. No critical data integrity issues or client
access or service problems were reported (See Assessment of the Transition into
the Year 2000 in Management's Discussion and Analysis of Financial Condition and
Results of Operations).
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 SIDCO's or SIMC's engaging in business for specified periods of
time, the revocation of SIDCO's or SIMC's registration as a broker-dealer or
investment advisor, censures, and fines. SEI Trust is subject to laws and
regulations imposed by state banking authorities. In the event of a failure to
comply with these laws and regulations, limitations may be placed on the
business of SEI Trust, or its license as a trust company may be revoked.
We offer investment products that are also subject to regulation by the SEC and
state securities authorities, as well as non-U.S. regulatory authorities, where
applicable. Existing or future regulations that affect these investment vehicles
or their investment strategies could impair their investment performance and
lead to a reduction in sales of such investment 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 and consulting services.
10
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 29, 2000, we had approximately 1,450 full-time and 100 part-time
employees. None of our employees are represented by a labor union. Management
considers employee relations to be good.
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. 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 72,000 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 which are expected to 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 1999.
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
Item 5. Market for the Registrant's Securities and Related Stockholder Matters.
----------------------------------------------------------------------
Price Range of Common Stock:
- ---------------------------
SEI's common stock is traded in the NASDAQ National Market System under the
symbol SEIC. The following table shows the range of closing sales prices on the
NASDAQ National Market System for the periods indicated.
1999 High Low
- ---- ---- ---
First Quarter 119 1/4 90
Second Quarter 106 78
Third Quarter 103 1/2 89 1/4
Fourth Quarter 129 77 3/8
1998 High Low
- ---- ---- ---
First Quarter 69 37
Second Quarter 76 61
Third Quarter 80 1/2 59 5/16
Fourth Quarter 100 1/2 50 1/4
As of February 29, 2000, there were approximately 1,500 shareholders of record.
The Board of Directors declared a $.20 dividend in May and December of 1999, and
a $.16 dividend in May and December of 1998. The Board of Directors has
indicated its intention to pay future dividends on a semiannual basis.
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, 1999. The historical selected financial data for each
of the five years in the period ended December 31, 1999 are derived from, and
are qualified by reference to, the financial statements which are included with
Item 8 in this report. These 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 1999 1998 1997 1996 1995(A)
- -----------------------------------------------------------------------------------------------------------------------------
Revenues............................................ $ 456,192 $ 366,119 $ 292,749 $ 247,817 $ 225,964
Expenses:
Operating and development........................ 215,216 180,937 148,536 129,776 115,366
Sales and marketing.............................. 126,184 103,834 84,770 68,719 58,892
General and administrative....................... 12,298 13,463 13,931 13,235 16,963
---------- --------- ---------- --------- ---------
Income from operations.............................. 102,494 67,885 45,512 36,087 34,743
Gain on sale of investments available for sale...... -- -- -- 1,097 --
Equity in the earnings of unconsolidated affiliate.. 6,765 3,015 -- -- --
Interest income..................................... 2,285 1,558 983 808 1,019
Interest expense.................................... (2,375) (2,575) (2,488) (48) (255)
---------- --------- ---------- --------- ---------
Income from continuing operations
before income taxes.............................. 109,169 69,883 44,007 37,944 35,507
Income taxes........................................ 42,030 26,904 17,163 14,798 14,381
---------- --------- ---------- --------- ---------
Income from continuing operations................... 67,139 42,979 26,844 23,146 21,126
Loss from discontinued operations................... -- -- -- -- (1,942)
Income (loss) from disposal of
discontinued operations.......................... 1,292 710 -- (16,335) --
---------- --------- ---------- --------- ---------
Net income.......................................... $ 68,431 $ 43,689 $ 26,844 $ 6,811 $ 19,184
- -----------------------------------------------------------------------------------------------------------------------------
Basic earnings per common share from
continuing operations............................ $ 3.78 $ 2.41 $ 1.47 $ 1.25 $ 1.14
Basic earnings (loss) per common share from
discontinued operations.......................... .07 .04 -- (.88) (.11)
---------- ---------- ---------- --------- ---------
Basic earnings per common share..................... $ 3.85 $ 2.45 $ 1.47 $ .37 $ 1.03
Shares used to calculate basic earnings per
common share..................................... 17,772 17,827 18,315 18,497 18,607
- -----------------------------------------------------------------------------------------------------------------------------
Diluted earnings per common share from
continuing operations............................ $ 3.54 $ 2.25 $ 1.40 $ 1.20 $ 1.08
Diluted earnings (loss) per common share from
discontinued operations.......................... .07 .04 -- (.85) (.10)
---------- ---------- ---------- --------- ---------
Diluted earnings per common share................... $ 3.61 $ 2.28 $ 1.40 $ .35 $ .98
Shares used to calculate diluted earnings per
common share..................................... 18,971 19,126 19,236 19,364 19,554
- -----------------------------------------------------------------------------------------------------------------------------
Cash dividends declared per common share............ $ .40 $ .32 $ .28 $ .24 $ .20
- -----------------------------------------------------------------------------------------------------------------------------
Year-end Financial Position:
Cash and cash equivalents........................... $ 73,206 $ 52,980 $ 16,891 $ 13,167 $ 10,256
Total assets........................................ $ 253,779 $ 208,772 $ 168,884 $ 141,041 $ 101,347
Short-term borrowings............................... $ -- $ -- $ -- $ 20,000 $ --
Long-term debt (including short-term portion)....... $ 31,000 $ 33,000 $ 35,000 $ -- $ --
Shareholders' equity................................ $ 79,002 $ 59,685 $ 46,410 $ 56,108 $ 56,002
- -----------------------------------------------------------------------------------------------------------------------------
(A) Information for 1995 has been reported to reflect the SEI Capital Resources
Division and the SEI Defined Contribution Retirement Services Division as
discontinued operations. See Note 2 of the Notes to 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, 1999 and 1998, 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.
We are organized around our four business lines: Technology Services, Asset
Management, Mutual Fund Services, and Investments in New Business. Financial
information on each of these segments is reflected in Note 11 of the Notes to
Consolidated Financial Statements included with item 8 to this report.
Results of Operations
- ---------------------
1999 Compared with 1998
Consolidated Overview
- ---------------------
Income Statement Data
(In thousands, except per common share data) PERCENT
1999 1998 CHANGE
---- ---- ------
Revenues:
Technology Services..................................... $184,759 $167,484 10%
Asset Management........................................ 138,365 90,056 54%
Mutual Fund Services.................................... 110,083 95,136 16%
Investments in New Business............................. 22,985 13,443 71%
-------- --------
Total revenues........................................ $456,192 $366,119 25%
Operating Income (Loss):
Technology Services..................................... $ 61,022 $ 46,793 30%
Asset Management........................................ 40,185 19,881 102%
Mutual Fund Services.................................... 24,221 24,993 (3%)
Investments in New Business............................. (10,636) (10,319) (3%)
Other................................................... (12,298) (13,463) 9%
-------- --------
Income from operations................................ 102,494 67,885 51%
Other income, net.......................................... 6,675 1,998 234%
-------- --------
Income from continuing operations
before income taxes..................................... 109,169 69,883 56%
Income taxes............................................... 42,030 26,904 56%
-------- --------
Income from continuing operations.......................... $ 67,139 $ 42,979 56%
======== ========
Diluted earnings per common share
from continuing operations.............................. $ 3.54 $ 2.25 57%
======== ========
Revenues and earnings from continuing operations reached a new record level in
1999, primarily from new business in Technology Services and Asset Management.
Technology Services operating results reflect increases in recurring processing
fees generated from new clients and the delivery of new products to our existing
clients. Asset Management operating results were boosted by significant
increases in assets under management from new and existing clients in our
investment advisory and institutional asset management businesses. Comparative
results reflect an unusually large one-time revenue event in 1998, that was
triggered by the acquisition of one of our largest technology clients that
resulted in the recognition of a substantial contractual buyout fee. Excluding
this 1998 one-time item, total revenues actually increased 29 percent and
earnings per share increased 69 percent. Revenues and earnings are expected to
increase assuming the sales momentum in Asset Management can be sustained and we
can continue to generate new business and cross-sell new and existing products
in Technology Services. However, continued consolidation in the banking industry
or a prolonged unfavorable change in the financial securities markets could
impede growth in revenues and earnings.
14
The effective tax rate from continuing operations was 38.5 percent for 1999 and
1998. Income taxes are accounted for according to Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (See Note 1 and Note
10 of the Notes to Consolidated Financial Statements).
Asset Balances
(In millions)
As of December 31, PERCENT
------------------
1999 1998 CHANGE
---- ---- ------
Assets invested in equity and fixed income programs........ $ 41,695 $ 24,994 67%
Assets invested in liquidity funds......................... 22,556 19,971 13%
-------- --------
Assets under management................................. 64,251 44,965 43%
Client proprietary assets under administration............. 170,787 133,407 28%
-------- --------
Assets under administration............................. $ 235,038 $ 178,372 32%
======== ========
Assets under management consist of total assets for which we provide management
services that are invested in our liquidity (money market and short-term mutual
funds) and non-liquidity mutual funds (SEI Family of Funds). Assets under
administration consist of total assets for which we provide management and
administration services, including client proprietary fund balances for which we
provide administration and/or distribution services.
Technology Services
- -------------------
The Technology Services segment provides trust technology outsourcing to banks
and other financial institutions with our TRUST 3000 product line. TRUST 3000
includes a myriad of integrated products and sub-systems that provide a complete
investment accounting and management information system for trust institutions.
Trust operations outsourcing incorporates the TRUST 3000 product line within a
package of services that includes investment management, custody and other
back-office capabilities. Through this business, we handle a trust department's
back-office administration function. This allows trust institutions to
concentrate on expanding and servicing their clients.
DOLLAR PERCENT
1999 1998 CHANGE CHANGE
---- ---- ------ ------
Revenues:
Trust technology services................. $163,465 $150,961 $12,504 8%
Trust operations outsourcing.............. 21,294 16,523 4,771 29%
-------- -------- -------
Total revenues....................... 184,759 167,484 17,275 10%
Expenses:
Operating and development................. 92,763 91,175 1,588 2%
Sales and marketing....................... 30,974 29,516 1,458 5%
-------- -------- -------
Total operating profits.............. $ 61,022 $ 46,793 $14,229 30%
======== ======== ======
Profit margin........................ 33% 28% -- --
Trust technology services revenues are primarily generated from monthly
processing and software application fees from our TRUST 3000 product line and
project fees associated with the conversion of new clients onto our TRUST 3000
product line. There was an unusually large one-time revenue event in late 1998
that was triggered by the acquisition of one of our largest technology clients
by a third party. As a result, revenues in 1998 included $12.9 million in
one-time contractual buyout fees associated with the loss of this one client.
Excluding the effects of this one-time fee, trust technology services revenues
actually increased $25.4 million or 18 percent. Trust technology services
revenues increased due to growth in recurring processing fees and project fees
generated from new clients that had purchased our products and services in prior
years, as well as from new products implemented for existing clients. Recurring
processing fees increased $19.1 million or 24 percent and project fees
15
increased $7.7 million or 29 percent. We expect an increase in recurring
processing fees through the delivery of new products and services to our
existing clients and the contracting of new clients for processing services. We
are currently reviewing strategies to expand the delivery of our trust
technology services into the non-bank and offshore markets. Penetrating these
new markets could provide many new opportunities. However, consolidations within
the banking industry continues to be a major strategic issue facing this
segment.
Our trust operations outsourcing business continued to generate new business in
1999. Revenues are derived from processing and management fees. Revenues earned
from processing services accounts for approximately 50 percent of total trust
operations outsourcing revenues in 1999 and 57 percent in 1998, while investment
services comprise the remaining 50 percent in 1999 and 43 percent in 1998. This
shift in revenues can be attributed to growth in assets from existing clients
and an increase in sales for investment services in the community and regional
bank markets. We anticipate this trend will continue. We are currently expanding
our trust operations outsourcing efforts beyond the community and regional bank
markets because we believe that our trust operations outsourcing service is an
attractive alternative to any trust institution faced with the task of building
the necessary infrastructure to support the delivery of trust services.
Operating profits and profit margin for Technology Services increased
substantially during 1999. Operating profits and profit margin in 1998 were
inflated by the inclusion of the significant one-time buyout fee previously
discussed. This one-time event contributed approximately $8.0 million to
operating profits in 1998. Excluding the effect of this one-time event,
operating profits actually increased 57 percent. The increase in operating
profits and profit margin reflect increased system sales in the large bank
market over the last few years and back-office sales in the community bank
market. In addition, our current infrastructure allows us to carefully manage
expenses over a higher net incremental recurring revenue base. As a percentage
of sales, operating and development expenses decreased to 50 percent from 54
percent while sales and marketing expenses decreased slightly to 17 percent from
18 percent.
Asset Management
- ----------------
The Asset Management segment provides investment solutions through various
investment products and services distributed directly or through professional
investment advisors, financial planners, and other financial intermediaries to
institutional or high-net-worth markets. The primary products offered include
money market funds and diversified investment strategies and portfolios
delivered to these markets through mutual funds and other pooled vehicles.
DOLLAR PERCENT
1999 1998 CHANGE CHANGE
---- ---- ------ ------
Revenues:
Investment management fees................ $120,291 $75,669 $44,622 59%
Liquidity management fees................. 18,074 14,387 3,687 26%
-------- ------ -------
Total revenues....................... 138,365 90,056 48,309 54%
Expenses:
Operating and development................. 38,153 25,672 12,481 49%
Sales and marketing....................... 60,027 44,503 15,524 35%
-------- ------ -------
Total operating profits.............. $40,185 $19,881 $20,304 102%
======== ====== =======
Profit margin........................ 29% 22% -- --
Investment management fees are earned through management fees that are based
upon a fixed percentage, referred to as basis points, of the average daily net
asset value of assets under management. Investment management fees increased 59
percent due to strong asset growth in both our investment advisory and
institutional asset management businesses. Additionally, the favorable trend
experienced in the financial securities markets during 1999 partially
contributed to the growth in assets under management. Average assets under
management increased $8.0 billion or 54 percent to $22.7 billion during 1999, as
compared to $14.7 billion during 1998. In our investment advisory business, we
continue to be successful at recruiting new registered investment advisors. We
established approximately 2,200 new registered investment advisor relationships
during 1999, bringing our total network to almost 5,700 advisors. We have also
been working closely with our existing
16
advisors to assist them in expanding their existing client base through the
introduction of new investment options and programs. Our institutional asset
management business also experienced strong business growth during 1999. We
established 42 new institutional client relationships during 1999, of which nine
new relationships funded over $100 million each. These new relationships
included defined benefit plans, defined contribution plans, endowments and
foundations. We anticipate continued growth in this segment through the
generation of new business and the delivery of new investment products and
services.
Liquidity management fees consist of our money market, short-term mutual funds
and cash sweep technology that are marketed to corporations and investment
firms. The 26 percent increase in liquidity management fees was mainly driven by
an increase in average assets under management and increased sales of the cash
sweep technology product. Average assets under management increased $2.1 billion
or 66 percent to $5.3 billion during 1999, as compared to $3.2 billion during
1998. We successfully recruited 42 new cash sweep technology clients and 29 new
institutional clients during 1999. However, short-term interest rate volatility
slowed the use of money market funds during 1999 which dampened the growth in
liquidity management fees.
Operating profits and profit margin increased substantially during 1999. Profit
margin improvement resulted from two primary factors. First, our ability to
continually leverage on our existing infrastructure allowed us to increase
revenues while controlling variable operating costs. As a percentage of sales,
operating and development expenses decreased to 28 percent from 29 percent and
sales and marketing expenses decreased to 43 percent from 49 percent. Second, we
introduced new investment programs and initiatives to our existing clients. This
provided opportunities to generate additional revenues from our existing client
base. The current trend in revenues, profits and profit margin improvement is
projected to continue in 2000. We are optimistic about our asset management
business as we can continue to leverage expenses over higher net incremental
assets and introduce new investment products and services into new and existing
markets. However, any significant devaluation in the financial securities
markets could negatively affect revenues and profits.
Mutual Fund Services
- --------------------
The Mutual Fund Services segment provides administration and distribution
services to proprietary mutual funds created for banks, insurance firms, and
investment management companies. These services include fund administration and
accounting, legal services, shareholder recordkeeping, and marketing.
DOLLAR PERCENT
1999 1998 CHANGE CHANGE
---- ---- ------ ------
Revenues.................................. $110,083 $95,136 $ 14,947 16%
Expenses:
Operating and development................. 68,759 53,794 14,965 28%
Sales and marketing....................... 17,103 16,349 754 5%
-------- ------- --------
Total operating profits.............. $ 24,221 $24,993 $ (772) (3%)
======== ======= ========
Profit margin........................ 22% 26% -- --
Mutual fund services revenues are earned through administrative and distribution
fees that are based upon a fixed percentage, referred to as basis points, of the
average daily net asset value of the proprietary funds. The amount of basis
points earned is specific to each proprietary fund complex and can vary among
complexes. The increase in revenues was fueled by growth in average proprietary
fund balances, which increased $45.8 billion or 44 percent to $149.2 billion
during 1999 versus $103.4 billion during 1998. Average proprietary fund balances
increased primarily due to growth in existing large bank complexes. Also, an
increased presence in the non-bank and offshore markets has yielded positive
returns during 1999. A significant portion of the growth in average assets
during 1999 can be attributed to non-bank and offshore clients. However,
revenues were negatively affected by a decrease in average basis points earned
because of fee concessions extended to existing clients in exchange for
longer-term contracts and a reduction in the range of certain services to large
bank clients. The outlook for mutual fund services revenues remains optimistic.
We will continue to aggressively focus our efforts in the non-bank and offshore
markets. Initially, each of these new clients will not generate as much revenue
as a large bank complex, but we believe this is a growing market that has
significant growth potential.
17
Although revenues increased 16 percent, operating profits and profit margin
decreased in 1999, primarily from reduced fees from large bank clients and from
a significant increase in operating and development expenses. As a percentage of
sales, operating and development expenses increased to 62 percent from 57
percent. This increase reflects our critical investments to support our
initiatives in the non-bank and offshore markets and to develop new technology
that will differentiate our services in an increasingly commoditized product
area. We believe that the non-bank and offshore markets hold the greatest growth
potential in the upcoming years. Our ability to provide unique and specialized
services should generate many additional opportunities to increase revenues and
improve profit margin. However, continued consolidations and possible further
margin pressure in the large bank sector could have an adverse effect on future
revenues and profits.
Investments in New Business
- ---------------------------
Investments in New Business consist of our international asset management
initiatives and Canadian operations. Our international operations incorporate
various investment products and services to provide investment solutions to
institutional and high-net-worth investors outside North America. Products being
offered in Canada include investment advisory, performance evaluation and other
consulting services to Canadian pension plans.
DOLLAR PERCENT
1999 1998 CHANGE CHANGE
---- ---- ------ ------
Revenues.................................. $ 22,985 $ 13,443 $ 9,542 71%
Expenses:
Operating and development................. 15,541 10,296 5,245 51%
Sales and marketing....................... 18,080 13,466 4,614 34%
-------- -------- -------
Total operating losses............... $(10,636) $(10,319) $ (317) (3%)
======== ======== =======
Profit margin........................ (46%) (77%) -- --
The following table displays revenues by geographic region as a percentage of
total segment revenues:
1999 1998
----- -----
Canada............................................................. 43% 76%
Europe/South Africa................................................ 30% 16%
Asia............................................................... 19% --
Latin America...................................................... 8% 8%
------ ------
Total......................................................... 100% 100%
Our offshore enterprises are looking to capitalize on international growth
opportunities by creating distribution channels for our investment products and
services outside North America. Our efforts are currently focused on selected
regions: Europe/South Africa, Asia, and Latin America. These offshore
enterprises accounted for approximately 57 percent of total segment revenues in
1999, as compared to 22 percent in 1998. We experienced substantial revenue
growth in the European/South African and Asian regions. In the European/South
Africa region, we introduced an SEI-managed fund complex in association with
Mediolanum S.p.A, an Italian insurance company, into the Italian marketplace
earlier this year. Our Korean joint venture, which was initiated in March 1999,
accounts for all revenue growth in the Asian region. Average assets under
management from our offshore enterprises were $2.2 billion during 1999, as
compared to $438 million during 1998.
18
Our Canadian operations continued to experience a transition in product demand.
The performance evaluation and consulting business experienced another year
where client terminations exceeded new client contracting. The investment
advisory business in Canada is gaining some momentum through the establishment
of several new relationships. Average assets under management in Canada were
$697 million during 1999, as compared to $412 million during 1998. The
performance evaluation and consulting business accounted for approximately 26
percent of total segment revenues in 1999, as compared to 57 percent in 1998.
The investment advisory business accounted for approximately 17 percent of total
segment revenues in 1999, as compared to 19 percent in 1998.
Although the pace of global asset gathering and revenue generation continued to
accelerate, we also accelerated the pace of our investment efforts, especially
in the European region. We opened a London office to address the United Kingdom
pension market and to create a platform for other planned European initiatives.
In addition, we have an agreement to form a joint venture with CCF, a large
French universal banking concern. This joint venture will bring our multi-
manager capabilities to the French market and to selected markets outside
France. We believe that global expansion is an area of significant long-term
growth for our firm. We will continue to make significant investments in our
global initiatives and expect to incur losses in 2000.
Other
- -----
Other includes our interest in the 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 SEI-sponsored investment
products. Our interest in LSV was approximately 47 percent during 1999 and
approximately 45 percent during 1998. Our vested interest in LSV's net earnings
for 1999 was $6,765, as compared to $3,015 for 1998. The increase in our portion
of LSV's net earnings was due to an increase in assets under management. Average
assets under management for LSV were $4.4 billion during 1999, as compared to
$2.6 billion during 1998.
General and administrative expenses decreased 9 percent to $12,298 for 1999 from
$13,463 for 1998. As a percentage of total consolidated revenues, general and
administrative expenses were 3 percent in 1999, as compared to 4 percent in
1998. The decrease in general and administrative expenses is primarily due to a
reduction in personnel and facility related costs in corporate overhead groups.
Interest income for 1999 was $2,285, as compared to $1,558 for 1998. Interest
income is earned based upon the amount of cash that is invested daily and
fluctuations in interest income recognized for one period in relation to another
is due to changes in the average cash balance invested for the period.
Interest expense for 1999 was $2,375, as compared to $2,575 for 1998. Interest
expense primarily relates to the issuance of long-term debt in early 1997 (See
Note 6 of the Notes to Consolidated Financial Statements).
19
1998 Compared with 1997
Consolidated Overview
- ---------------------
Income Statement Data
(In thousands, except per common share data) PERCENT
1998 1997 CHANGE
---- ---- ------
Revenues:
Technology Services..................................... $167,484 $129,525 29%
Asset Management........................................ 90,056 61,871 46%
Mutual Fund Services.................................... 95,136 83,157 14%
Investments in New Business............................. 13,443 14,439 (7%)
Other................................................... -- 3,757 (100%)
-------- --------
Total revenues........................................ $366,119 $292,749 25%
Operating Income (Loss):
Technology Services..................................... $ 46,793 $37,146 26%
Asset Management........................................ 19,881 3,281 506%
Mutual Fund Services.................................... 24,993 23,858 5%
Investments in New Business............................. (10,319) (5,799) (78%)
Other................................................... (13,463) (12,974) (4%)
-------- -------
Income from operations................................ 67,885 45,512 49%
Other income (expense), net................................ 1,998 (1,505) 233%
-------- -------
Income from continuing operations
before income taxes..................................... 69,883 44,007 59%
Income taxes............................................... 26,904 17,163 57%
-------- -------
Income from continuing operations.......................... $ 42,979 $26,844 60%
======== =======
Diluted earnings per common share
from continuing operations.............................. $ 2.25 $ 1.40 61%
======== =======
Revenues and earnings from continuing operations reached record levels in 1998
primarily due to the contracting of new trust technology clients, the
recognition of a substantial one-time buyout fee, and significant growth in fund
balances. Although consolidated revenues in 1998 were affected by the
recognition of significant one-time items, recurring revenues constitute
approximately 81 percent of total revenues. Technology Services and Asset
Management experienced significant increases in business activity beginning in
late 1997 and extending into 1998. The inclusion of significant one-time charges
and increased investments in several product lines curtailed earnings growth in
1998. Excluding the one-time buyout fee and one-time charges, revenue growth
would have approximated 21 percent and earnings growth would have approximated
37 percent.
The effective tax rate from continuing operations was 38.5 percent for 1998, as
compared to 39.0 percent for 1997. Income taxes are accounted for pursuant to
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (See Note 1 and Note 10 of the Notes to Consolidated Financial
Statements).
Asset Balances
(In millions)
As of December 31, PERCENT
------------------
1998 1997 CHANGE
---- ---- ------
Assets invested in equity and fixed income programs........ $ 24,994 $ 14,347 74%
Assets invested in liquidity funds......................... 19,971 17,950 11%
--------- ---------
Assets under management................................. 44,965 32,297 39%
Client proprietary assets under administration............. 133,407 83,419 60%
--------- ---------
Assets under administration............................. $ 178,372 $ 115,716 54%
========= =========
20
Technology Services
- -------------------
DOLLAR PERCENT
1998 1997 CHANGE CHANGE
---- ---- ------ ------
Revenues:
Trust technology services................. $150,961 $119,378 $31,583 26%
Trust operations outsourcing.............. 16,523 10,147 6,376 63%
-------- -------- -------
Total revenues....................... 167,484 129,525 37,959 29%
Expenses:
Operating and development................. 91,175 67,973 23,202 34%
Sales and marketing....................... 29,516 24,406 5,110 21%
-------- -------- -------
Total operating profits.............. $ 46,793 $ 37,146 $ 9,647 26%
======== ======== =======
Profit margin........................ 28% 29% -- --
A significant one-time contractual buyout fee from a client involved in an
acquisition increased revenues in 1998. New trust technology client
relationships established in 1997 favorably affected recurring processing fees
by an incremental $9.3 million and nonrecurring implementation fees by an
incremental $6.0 million in 1998. Conversely, when a client prematurely
terminates its contract for processing services, recurring processing fees are
negatively affected in future periods and a one-time contractual buyout fee is
received. Buyout fees are recognized in income when the client is completely
removed from the TRUST 3000 product line. As a result of lost trust technology
clients in 1998, $15.0 million in one-time contractual buyout fees were
recognized and recurring processing fees decreased $7.0 million. Revenues earned
from bank clients utilizing our liquidity products and brokerage services
increased 45 percent or $8.8 million, but only accounts for approximately 19
percent of total trust technology services revenues recognized in 1998 and 16
percent in 1997.
Trust operations outsourcing revenues experienced another year of strong growth.
Revenues earned from processing services accounts for approximately 57 percent
in 1998 and 55 percent in 1997 of total trust operations outsourcing revenues,
while custody and investment solutions comprise the remaining 43 percent in 1998
and 45 percent in 1997.
Although revenues from this segment increased 29 percent and operating profits
increased 26 percent during 1998, profit margin decreased slightly to 28 percent
for 1998, as compared to 29 percent for 1997. The contracting of new clients and
the recognition of a substantial one-time buyout fee increased operating profits
in 1998. However, increases in operating expenses to maintain these new client
relationships and a one-time write-off of capitalized software development costs
negatively affected operating profits in 1998. As a percentage of sales,
operating and development expenses increased to 54 percent from 52 percent and
sales and marketing expenses decreased slightly to 18 percent from 19 percent.
Operating and development expenses in 1998 increased mainly due to increased
business activity, a stronger commitment to enhancing products, the write-off of
previously capitalized software development costs, and the direct correlation
between bank-related brokerage services revenues and direct expenses. The
contracting of new clients required additional personnel and other related
operating costs in order to properly implement, service, and maintain these new
relationships. Additionally, substantial investments were incurred to analyze
and improve the implementation process for new clients. These investments
included process redesign and infrastructure reinvention.
Operating and development expenses were significantly affected in 1998 due to
several factors associated with software development costs. First, each year, we
evaluate strategies for new and existing software products, as well as
performing a recoverability assessment of software development projects
currently in production. The recoverability assessment included an evaluation of
expected future revenues and cash flows, acceptability of the software product
in its target market, a cost-benefit analysis as to the delivery and support of
the software product, and any technological advancements that could enhance or
render the product obsolete. As a result, certain projects were considered
either obsolete or incapable of achieving the expected results in their original
design and approximately $4.8 million of net software development costs
previously capitalized were written off during the fourth quarter of 1998.
Second, in order to keep a competitive edge, substantial investments in research
and
21
development costs for the TRUST 3000 product line were incurred during 1998.
Finally, with the completion and subsequent release of several capitalized
software development projects, amortization expense increased during 1998.
Asset Management
- ----------------
DOLLAR PERCENT
1998 1997 CHANGE CHANGE
---- ---- ------ ------
Revenues:
Investment management fees................ $75,669 $51,188 $24,481 48%
Liquidity management fees................. 14,387 10,683 3,704 35%
------- ------- -------
Total revenues....................... 90,056 61,871 28,185 46%
Expenses:
Operating and development................. 25,672 25,488 184 1%
Sales and marketing....................... 44,503 33,102 11,401 34%
------- ------- -------
Total operating profits.............. $19,881 $ 3,281 $16,600 506%
======= ======= =======
Profit margin........................ 22% 5% -- --
Substantial increases in average assets under management generated the 48
percent increase in revenues. Average assets under management increased $5.1
billion or 53 percent to $14.7 billion during 1998, as compared to $9.6 billion
during 1997. Investment solutions offered to high-net-worth investors through
registered investment advisors, financial planners, and other financial
intermediaries produced strong sales gains during 1998. These gains result from
a unique product that allows the investment advisor to dedicate more effort to
increasing assets rather than administering record-keeping and processing tasks.
Additionally, many new institutional clients were contracted for services in
1998.
Liquidity management fees consist of our money market, short-term mutual funds
and cash sweep technology that are marketed to corporations and investment
firms. The 35 percent increase in liquidity management fees was mainly driven by
an increase in average assets under management and increased sales of the cash
sweep technology product.
The Asset Management segment experienced a significant increase in operating
profits primarily due to growth in assets under management. Profit margin in
1998 also improved substantially. Profit margin rose to 22 percent for 1998, as
compared to 5 percent for 1997. As a percentage of sales, operating and
development expenses decreased to 29 percent from 41 percent and sales and
marketing expenses decreased to 49 percent from 54 percent. Our ability to
leverage on our infrastructure resulted in improved margins as revenues
increased with minimal incremental variable operating costs.
Mutual Fund Services
- --------------------
DOLLAR PERCENT
1998 1997 CHANGE CHANGE
---- ---- ------ ------
Revenues.................................. $95,136 $83,157 $11,979 14%
Expenses:
Operating and development................. 53,794 44,173 9,621 22%
Sales and marketing....................... 16,349 15,126 1,223 8%
------- ------- -------
Total operating profits.............. $24,993 $23,858 $ 1,135 5%
======= ======= =======
Profit margin........................ 26% 29% -- --
22
The increase in revenues was primarily fueled by growth in existing complexes
and the conversion of a large bank complex in 1998. Average proprietary fund
balances increased $30.1 billion or 41 percent to $103.4 billion for 1998 versus
$73.3 billion for 1997. Growth in average proprietary fund balances resulted
from banks being able to successfully convince their customers to invest assets
into bank sponsored mutual funds. Average basis points earned decreased in 1998
primarily due to a reduction in pricing for some larger clients in order to
solidify long-term relationships and the loss of some higher margin
relationships.
Although revenues increased 14 percent, operating profits only increased 5
percent. Profit margin in 1998 decreased to 26 percent, as compared to 29
percent for 1997. A significant increase in operating and development expenses
negatively affected operating profits in 1998. As a percentage of sales,
operating and development expenses increased to 57 percent from 53 percent. Two
primary factors contributed to this increase. There is a direct correlation
between revenues and certain direct expenses. The increase in revenues during
1998 generated an incremental $7.0 million in direct proprietary expenses. Also,
with the increased business activity and emphasis on other markets, back-office
operational costs increased in order to maintain quality service for existing
clients and to establish distribution channels and name recognition
internationally. As a percentage of sales, sales and marketing expenses remained
relatively flat for 1998 and 1997.
Investments in New Business
- ---------------------------
DOLLAR PERCENT
1998 1997 CHANGE CHANGE
---- ---- ------ ------
Revenues.................................. $ 13,443 $14,439 $ (996) (7%)
Expenses:
Operating and development................. 10,296 8,102 2,194 27%
Sales and marketing....................... 13,466 12,136 1,330 11%
------- ------- ------
Total operating losses............... $(10,319) $(5,799) $(4,520) (78%)
======= ======= =======
Profit margin........................ (77%) (40%) -- --
Our Canadian operations are experiencing a transition in product demand. The
performance evaluation and consulting business experienced another year where
client terminations exceeded new client contracting. The investment advisory
business in Canada is gaining momentum as evidenced by revenues and assets under
management increasing in 1998. As a percentage of total segment revenues, the
performance evaluation and consulting business accounted for approximately 57
percent in 1998, as compared to 62 percent in 1997, and the investment advisory
business accounted for approximately 19 percent in 1998, as compared to only 8
percent in 1997.
Our offshore enterprises are looking to capitalize on international growth
opportunities by creating distribution channels for our investment products and
services outside North America. Our efforts are focused on selected regions:
Europe/South Africa, Asia, and Latin America. As a percentage of total segment
revenues, these offshore enterprises accounted for approximately 22 percent in
1998, as compared to 16 percent in 1997.
Operating results were affected by substantial investments made in foreign
markets. Our strategy is to team with local partners to establish name
recognition and distribution channels for our investment products and services.
Additionally, operating results were negatively affected by $2.7 million
associated with the write-off of customer lists from a foreign acquisition.
23
Other
- -----
Other includes our interest in the 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 the
portfolio manager to several SEI-sponsored investment products. In 1997, our
interest in LSV was 51 percent and was consolidated into our operating results.
LSV reported $3,757 in total revenues and operating profits of $957.
Beginning in the first quarter of 1998, our interest in LSV was reduced to
approximately 45 percent. As a result, LSV was accounted for using the equity
method of accounting. The vested interest in the net operating results of LSV
for 1998 is reflected in Equity in the earnings of unconsolidated affiliate on
the accompanying Consolidated Statements of Operations. Our interest in LSV's
net earnings for 1998 was $3,015.
General and administrative expenses decreased 3 percent to $13,463 for 1998 from
$13,931 for 1997. As a percentage of total consolidated revenues, general and
administrative expenses were 4 percent in 1998, as compared to 5 percent in
1997. The decrease in general and administrative expenses is primarily due to a
reduction in personnel costs in corporate overhead groups.
Interest income for 1998 was $1,558, as compared to $983 for 1997. Interest
income is earned based upon the amount of cash that is invested daily and
fluctuations in interest income recognized for one period in relation to another
is due to changes in the average cash balance invested for the period.
Interest expense for 1998 was $2,575, as compared to $2,488 for 1997. Interest
expense primarily relates to the issuance of long-term debt in early 1997 (See
Note 6 of the Notes to Consolidated Financial Statements).
24
Liquidity and Capital Resources
- -------------------------------
1999 1998 1997
---- ---- ----
Net cash provided by operating activities............ $ 92,896 $ 99,869 $ 46,537
Net cash used in investing activities................ (21,829) (31,702) (21,854)
Net cash used in financing activities................ (50,841) (32,078) (20,959)
-------- -------- --------
Net increase in cash and cash equivalents............ 20,226 36,089 3,724
Cash and cash equivalents, beginning of year......... 52,980 16,891 13,167
-------- -------- --------
Cash and cash equivalents, end of year............... $ 73,206 $ 52,980 $ 16,891
======== ======== ========
Cash requirements and liquidity needs are primarily funded through operations
and our capacity for additional borrowing. We currently have a line of credit
agreement that provides for borrowings of up to $50,000. The availability of the
line of credit is subject to compliance with certain covenants set forth in the
agreement (See Note 5 of the Notes to Consolidated Financial Statements). At
December 31, 1999, the unused sources of liquidity consisted of cash and cash
equivalents of $73,206 and the unused portion of the line of credit of $50,000.
Cash flow generated from operations in 1999 and 1998 primarily resulted from an
increase in income, accrued compensation and various accrued liabilities. The
increase in accrued compensation and various accrued liabilities resulted from
increased business activity during 1999 and 1998. Accrued compensation is paid
annually in the first quarter of the following year. Cash flows from operations
in 1998 were boosted by the sales of loans by our Swiss-based subsidiary and the
receipt of a significant contractual buyout payment relating to a bank client
involved in an acquisition.
Cash flows provided by operations were also affected by receivables. Receivables
from regulated investment companies increased in 1999 and 1998 primarily due to
an increase in assets under management. These balances were received in the
following month. Additionally, an increase in 1999 trade receivables negatively
affected cash flows from operations, whereas increased trade receivables
collections in 1998 positively affected cash flows from operations.
Cash flows from investing activities are principally affected by capital
expenditures, including capitalized software development costs. Capital
expenditures in 1999 and 1998 included significant costs, including equipment
and furniture and fixtures associated with the construction of an additional
building within our corporate campus which was completed in early 1999. The
additional building was necessary due to increased headcount relating to
increased business activity. Additionally, we have approved plans to further
expand our corporate campus in 2000. This project should be completed in late
2001 at an estimated cost of $20,000. Capitalized software development costs in
1998 and 1997 included continued investments in the TRUST 3000 product line,
especially the open architecture project and a concentrated effort to address
Year 2000 compliance issues. Also, additional investments in SEI-sponsored
mutual funds were made during 1999 and 1998. These investments are classified as
Investments available for sale.
Cash flows from financing activities are primarily affected by debt and equity
transactions. On February 24, 1997, we issued $35,000 of medium-term notes in a
private offering with certain financial institutions. The proceeds were used to
repay the outstanding balance on our line of credit at that date, which amounted
to $30,000. Principal payments are made annually from the date of issuance while
interest payments are made semi-annually (See Note 6 of the Notes to
Consolidated Financial Statements). We continued our common stock repurchase
program. Approximately 688,000 shares of our common stock were acquired at a
cost of $65,970 during 1999 pursuant to an open market stock purchase
authorization of $353,365 made by the Board of Directors. As of February 29,
2000, we still had $10,813 remaining authorized for the purchase of our common
stock. Proceeds received from the issuance of common stock, including tax
benefit, increased in 1999 and 1998 primarily due to increased stock option
exercise activity and the substantial increase in our common stock share price
during the past two years. Cash dividends of $.40 per share were declared in
1999 and $.32 in 1998. The Board of Directors has indicated its intention to
continue making cash dividend payments.
Our operating cash flow, borrowing capacity, and liquidity should provide
adequate funds for continuing operations, continued investment in new products
and equipment, our common stock repurchase program, expansion of our corporate
campus, future dividend payments, and principal and interest payments on our
long-term debt.
25
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.
A provision for the disposal of CR was established in 1996 that included certain
estimates relating to future commitments on certain operating leases utilized by
CR. These estimates were based upon certain assumptions relating to the
sub-leasing of these facilities. In 1998, these sub-lease arrangements were
finalized. As a result, the original discontinued operations provision was
overstated and accordingly was reduced by $1,154, net of tax expense of $444,
and is reflected in Income from disposal of discontinued operations on the
Consolidated Statements of Operations.
In 1997, the remaining net assets of CR were sold to a private investment firm.
The sale included the receipt of cash at closing and a note that was to be paid
in two installments. The total proceeds received equaled the value of CR's
remaining net assets and thus no gain or loss was recorded. Any additional gain
would be recorded when payment on the note was received. In 1999, the entire
amount of the note was in default. We accepted an offer of $2,100, net of tax
expense of $808, as satisfaction for the amount due on the outstanding balance
of the note. The entire amount was recognized as a gain and is reflected in
Income from disposal of discontinued operations on the Consolidated Statements
of Operations (See Note 2 of the Notes to Consolidated Financial Statements).
Assessment of the Transition into the Year 2000
- -----------------------------------------------
Background
We began work on the Year 2000 issue in 1995 with management recognition that
failure to acknowledge, analyze and remediate potential Year 2000 processing
issues could result in material consequences to our financial position and
operating results. Through early 1997, we focused our efforts on an assessment
of our TRUST 3000 product line and by mid-1997, we expanded our efforts to
include a review of all proprietary systems, vendors, internally used systems
and any other item that might have been affected by the Year 2000. A corporate
Year 2000 committee was formed consisting of representatives from every area of
our business and was managed by a full time senior project manager. The Year
2000 program encompassed all system hardware and software, physical facilities,
utilities, electronic equipment and communications, as well as all other
ancillary purchased products and services. Our Year 2000 program fully
subscribed to the Federal Financial Institutions Examination Council guidelines.
Contingency Plans
Contingency planning efforts were focused on the most critical business
functions and varied significantly based on a system's functionality and how it
operates. These plans incorporated an analysis of activities and processes that
occurred prior to, during and after the transition into the Year 2000. For many
business critical functions, we developed both a remediation contingency plan
and a business resumption contingency plan. The remediation contingency plan
dealt with how to react and quickly fix the disruption. The business resumption
contingency plan involved developing alternative ways to continue critical
operations in the event of a Year 2000 disruption. A rapid response team was
available during peak processing times to execute our Year 2000 contingency
plans. Throughout the post-event period, we continued to monitor most critical
business functions to ensure the smooth operation of all systems.
Costs to Address Year 2000 Issues
The cost of Year 2000 remediation and testing of the TRUST 3000 product line was
projected to be approximately $10 million. Through December 31, 1999,
approximately $7.7 million has been spent, of which approximately $4.5 million
has been capitalized pursuant to Statement of Financial Accounting Standards No.
86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed" (See Note 1 of the Notes to Consolidated Financial
Statements). The spending dedicated to the TRUST 3000 product line represents
the material costs incurred to achieve Year 2000 compliance. All Year 2000
compliance costs for all other proprietary systems, including those used for
internal business purposes, were expensed as incurred or capitalized if new
software or hardware was purchased. These costs were immaterial.
26
Transition into the Year 2000
Throughout the event period, a variety of tests and activities were performed to
validate our critical applications, software, hardware, systems and
infrastructure were operating as expected. Specific post-event milestones were
identified and monitored closely, such as first month-end processing in Year
2000, leap-year processing, dividend postings, etc. There were no critical Year
2000 issues. All critical infrastructure systems and hardware were operational.
No critical data integrity issues were reported and no client access or service
problems were reported. Our revenue and spending patterns were unaltered by
Year 2000 remediation efforts. No planned development projects were delayed or
cancelled as a result of Year 2000 compliance efforts.
Recent Pronouncements
- ---------------------
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB
101 provides guidance on applying generally accepted accounting principles to
revenue recognition issues in financial statements. We are currently evaluating
the provisions established in SAB 101 to assess if application of SAB 101 is
required in our financial statements.
Forward-Looking Information
- ---------------------------
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Contained in this discussion are
"forward-looking statements," and include statements about future operations,
strategies, and financial results. Forward-looking statements are based upon
estimates and assumptions that involve risks and uncertainties, many of which
are beyond our control or are subject to change. Although we believe our
assumptions are reasonable, they could be inaccurate. Our actual future revenues
and income could differ materially from our expected results. We have no
obligation to publicly update or revise any forward-looking statements.
27
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
----------------------------------------------------------
We do have several offices located outside the United States that conduct
business in the local currencies of that country. We do not use foreign currency
exchange contracts or other types of derivative financial investments to hedge
local currency cash flows. All foreign operations only account for
approximately 6 percent of total consolidated revenues. Due to this limited
activity, we do not 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 long-term debt. Currently, we do not invest in
derivative financial instruments. 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 are adverse to principal
loss and ensure the safety and preservation of our invested funds by limiting
default risk, market risk, and reinvestment risk. 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.
28
Item 8. Financial Statements and Supplementary Data.
-------------------------------------------
Index to Financial Statements:
Report of Independent Public Accountants
Consolidated Balance Sheets -- December 31, 1999 and 1998
Consolidated Statements of Operations -- For the years ended
December 31, 1999, 1998, and 1997
Consolidated Statements of Shareholders' Equity -- For the years ended
December 31, 1999, 1998, and 1997
Consolidated Statements of Cash Flows -- For the years ended December
31, 1999, 1998, and 1997
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.
29
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, 1999
and 1998, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1999. These financial statements and schedule 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedule 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.
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.
February 1, 2000
30
Consolidated Balance Sheets SEI Investments Company
(In thousands) and Subsidiaries
December 31, 1999 1998
-----------------------------------------------------------------------------------
Assets Current Assets:
Cash and cash equivalents........................... $ 73,206 $ 52,980
Receivables from regulated investment
companies........................................ 24,179 18,999
Receivables, net of allowance for doubtful
accounts of $1,700 and $1,200.................... 33,554 27,919
Deferred income taxes............................... 10,934 7,598
Prepaid expenses and other current assets........... 5,119 6,013
-------- --------
Total Current Assets............................ 146,992 113,509
-------- --------
Property and Equipment, net of accumulated
depreciation and amortization of $71,415
and $57,452..................................... 65,640 62,761
-------- --------
Capitalized Software, net of accumulated
amortization of $9,838 and $8,238............... 15,626 17,068
-------- --------
Other Assets, net................................... 25,521 15,434
-------- --------
$253,779 $208,772
-----------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
31
Consolidated Balance Sheets SEI Investments Company
(In thousands, except par value) and Subsidiaries
December 31, 1999 1998
------------------------------------------------------------------------------------------------------
Liabilities Current Liabilities:
and
Shareholders' Current portion of long-term debt........................... $ 2,000 $ 2,000
Equity Accounts payable............................................ 7,397 6,805
Accrued compensation........................................ 39,846 32,105
Accrued proprietary fund services........................... 11,562 10,370
Accrued consulting services................................. 7,342 6,934
Other accrued liabilities................................... 51,451 39,069
Deferred revenue............................................ 19,320 13,511
----------- -----------
Total Current Liabilities............................... 138,918 110,794
----------- -----------
Long-term Debt.............................................. 29,000 31,000
----------- -----------
Deferred Income Taxes....................................... 6,859 7,293
----------- -----------
Commitments and Contingencies
Shareholders' Equity:
Series Preferred stock, $.05 par value,
60 shares authorized; no shares issued
and outstanding.......................................... -- --
Common stock, $.01 par value,
100,000 shares authorized; 17,692 and
17,861 shares issued and outstanding..................... 177 179
Capital in excess of par value.............................. 71,501 57,541
Retained earnings........................................... 7,373 2,422
Accumulated other comprehensive losses...................... (49) (457)
----------- -----------
Total Shareholders' Equity.............................. 79,002 59,685
----------- -----------
$253,779 $208,772
-------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
32
Consolidated Statements of Operations SEI Investments Company
(In thousands, except per share data) And Subsidiaries
Year Ended December 31, 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
Revenues................................................................ $456,192 $366,119 $292,749
Expenses:
Operating and development........................................... 215,216 180,937 148,536
Sales and marketing................................................. 126,184 103,834 84,770
General and administrative.......................................... 12,298 13,463 13,931
----------- ----------- -----------
Income from operations.................................................. 102,494 67,885 45,512
Equity in the earnings of unconsolidated affiliate...................... 6,765 3,015 --
Interest income......................................................... 2,285 1,558 983
Interest expense........................................................ (2,375) (2,575) (2,488)
----------- ----------- -----------
Income from continuing operations before income taxes................... 109,169 69,883 44,007
Income taxes............................................................ 42,030 26,904 17,163
----------- ----------- -----------
Income from continuing operations....................................... 67,139 42,979 26,844
Income from disposal of discontinued operations,
net of income tax expense of $808 and $444........................... 1,292 710 --
----------- ----------- -----------
Net income.............................................................. $68,431 $43,689 $26,844
- -------------------------------------------------------------------------------------------------------------------------------
Basic earnings per common share:
Earnings per common share from continuing operations................ $3.78 $2.41 $1.47
Earnings per common share from discontinued operations.............. .07 .04 --
----------- ----------- -----------
Basic earnings per common share......................................... $3.85 $2.45 $1.47
- ----------------------------------------------------------------------------------------------------------------------------
Diluted earnings per common share:
Earnings per common share from continuing operations................ $3.54 $2.25 $1.40
Earnings per common share from discontinued operations.............. .07 .04 --
----------- ----------- -----------
Diluted earnings per common share....................................... $3.61 $2.28 $1.40
- -------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
33
Consolidated Statements of Shareholders' Equity SEI Investments Company
(In thousands) and Subsidiaries
Accumulated Other
Comprehensive Income
-----------------------------
Cumulative Unrealized
Foreign Holding
Capital Currency Gain (Loss) Total
Common Stock In Excess of Retained Translation on Shareholders'
-------------------
Shares Amount Par Value Earnings Adjustments Investments Equity
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996............... 18,498 $185 $ 54,959 $ 1,141 $(177) $ -- $ 56,108
Comprehensive income:
Net income............................ -- -- -- 26,844 -- -- 26,844
Foreign currency translation
adjustments......................... -- -- -- -- (240) -- (240)
Unrealized loss on investments........ -- -- -- -- -- (75) (75)
--------
Total comprehensive income............... 26,529
Purchase and retirement of common
stock............................... (1,403) (14) (20,666) (22,940) -- -- (43,620)
Issuance of common stock under the
employee stock purchase plan........ 47 1 1,053 -- -- -- 1,054
Issuance of common stock upon
exercise of stock options........... 625 6 8,009 -- -- -- 8,015
Tax benefit on stock options exercised... -- -- 3,369 -- -- -- 3,369
Cash dividends........................... -- -- -- (5,045) -- -- (5,045)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997............... 17,767 178 46,724 -- (417) (75) 46,410
Comprehensive income:
Net income............................ -- -- -- 43,689 -- -- 43,689
Foreign currency translation
adjustments......................... -- -- -- -- 9 -- 9
Unrealized gain on investments........ -- -- -- -- -- 26 26
--------
Total comprehensive income............... 43,724
Purchase and retirement of common
stock............................... (898) (9) (21,998) (35,566) -- -- (57,573)
Issuance of common stock under the
employee stock purchase plan........ 28 -- 1,524 -- -- -- 1,524
Issuance of common stock upon
exercise of stock options........... 964 10 11,262 -- -- -- 11,272
Tax benefit on stock options exercised... -- -- 20,029 -- -- -- 20,029
Cash dividends........................... -- -- -- (5,701) -- -- (5,701)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998............... 17,861 $179 $ 57,541 $ 2,422 $(408) $ (49) $ 59,685
- -----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
34
Consolidated Statements of Shareholders' Equity SEI Investments Company
(In thousands) and Subsidiaries
Accumulated Other
Comprehensive Income
-----------------------------
Cumulative Unrealized
Foreign Holding
Capital Currency Gain (Loss) Total
Common Stock 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
Cash dividends........................... -- -- -- (7,077) -- -- (7,077)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999............... 17,692 $177 $71,501 $7,373 $(469) $420 $79,002
- -----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
35
Consolidated Statements of Cash Flows SEI Investments Company
(In thousands) and Subsidiaries
Year Ended December 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income................................................................... $68,431 $43,689 $26,844
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization...................................... 15,793 15,688 14,068
Provision for losses on receivables................................ 500 -- --
Equity in the earnings of unconsolidated affiliate................. (6,765) (3,015) --
Write-off of capitalized software.................................. 1,204 4,832 --
Write-off of customer lists........................................ -- 2,662 --
Deferred income tax expense (benefit).............................. (3,483) (3,608) 893
Discontinued operations............................................ (1,292) (710) --
Other.............................................................. 194 3,450 (1,214)
Change in current assets and liabilities:
Decrease (increase) in:
Receivables from regulated investment companies............ (5,180) (4,547) (3,616)
Receivables................................................ (6,135) 2,121 (11,634)
Prepaid expenses and other current assets.................. 894 9,110 1,745
Increase (decrease) in:
Accounts payable........................................... 592 1,007 (65)
Accrued compensation....................................... 7,741 11,208 6,417
Accrued proprietary fund services.......................... 1,192 558 3,064
Accrued consulting services................................ 1,000 3,674 (836)
Other accrued liabilities.................................. 12,401 7,397 8,836
Deferred revenue........................................... 5,809 6,353 2,035
-------- -------- --------
Total adjustments.............................................. 24,465 56,180 19,693
-------- -------- ---------
Net cash provided by operating activities......................... $92,896 $99,869 $46,537
- -----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
36
Consolidated Statements of Cash Flows SEI Investments Company
(In thousands) and Subsidiaries
Year Ended December 31, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property and equipment..................................... (17,254) (21,774) (12,955)
Additions to capitalized software....................................... (1,362) (6,719) (8,096)
Purchase of investments available for sale.............................. (2,494) (2,626) --
Other................................................................... (719) (583) (803)
---------- ---------- ----------
Net cash used in investing activities.............................. (21,829) (31,702) (21,854)
Cash flows from financing activities:
Proceeds from (payment on) long-term debt............................... (2,000) (2,000) 35,000
Payment on line of credit............................................... -- -- (20,000)
Purchase and retirement of common stock................................. (65,970) (55,156) (43,620)
Proceeds from issuance of common stock.................................. 8,470 10,379 9,069
Tax benefit on stock options exercised.................................. 15,056 20,029 3,369
Payment of dividends.................................................... (6,397) (5,330) (4,777)
---------- ---------- ----------
Net cash used in financing activities.............................. (50,841) (32,078) (20,959)
---------- ---------- ----------
Net increase in cash and cash equivalents.................................... 20,226 36,089 3,724
Cash and cash equivalents, beginning of year................................. 52,980 16,891 13,167
---------- ---------- ----------
Cash and cash equivalents, end of year....................................... $73,206 $52,980 $16,891
- ----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
37
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 four primary business lines: Technology Services,
Asset Management, Mutual Fund Services, and Investments in New
Business. Technology Services, which accounted for 41 percent of
consolidated revenues in 1999, includes the Trust 3000 product line
and trust operations outsourcing. Asset Management, which accounted
for 30 percent of consolidated revenues in 1999, provides investment
solutions through various investment products and services distributed
directly or through professional investment advisors, financial
planners, and other financial intermediaries to institutional and
high-net-worth markets. Mutual Fund Services, which accounted for 24
percent of consolidated revenues in 1999, provides administration and
distribution services to proprietary mutual funds created for banks,
insurance firms, and investment management companies. Investments in
New Business, which accounted for 5 percent of consolidated revenues
in 1999, consists of the Company's Canadian and international
operations which provide investment advisory services globally through
investment products and services and performance evaluation and
consulting services to Canadian pension plans.
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 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 4).
Cash and Cash Equivalents - At December 31, 1999 and 1998, Cash and
cash equivalents included $72,874,000 and $50,283,000, respectively,
primarily invested in SEI Tax Exempt Trust, one of several mutual
funds sponsored by SIMC. Interest and dividend income for 1999, 1998,
and 1997 was $2,285,000, $1,558,000, and $983,000, respectively (See
Note 12).
Property and Equipment - Property and Equipment on the accompanying
Consolidated Balance Sheets consist of the following:
Estimated
Useful Lives
1999 1998 (In Years)
-----------------------------------------------------------------------------------------------------------------
Equipment..................................... $62,437,000 $53,739,000 3 to 5
Buildings..................................... 34,676,000 28,303,000 25 to 39
Land.......................................... 7,686,000 6,993,000 N/A
Purchased software............................ 13,302,000 10,270,000 3
Furniture and fixtures........................ 12,554,000 10,284,000 3 to 5
Leasehold improvements........................ 6,400,000 6,791,000 Lease Term
Construction in progress...................... -- 3,833,000 N/A
----------- ------------
137,055,000 120,213,000
Less: Accumulated depreciation
and amortization........................... (71,415,000) (57,452,000)
---------- ----------
Property and Equipment, net................... $65,640,000 $62,761,000
-----------------------------------------------------------------------------------------------------------------
38
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.
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 primarily three to ten years, with a
weighted average remaining life of 8.1 years.
Capitalized software development costs consist primarily of salary,
consulting, and computer costs incurred to develop new products and
enhancements to existing products. During 1999, 1998, and 1997,
software development costs of $1,362,000, $6,719,000, and $8,096,000
were capitalized, respectively. Amortization expense was $1,600,000,
$3,259,000, and $3,233,000 in 1999, 1998, and 1997, respectively, and
is included in Operating and development expense on the accompanying
Consolidated Statements of Operations.
Total research and development costs, including capitalized software,
were $42,788,000, $24,866,000, and $22,500,000 in 1999, 1998, and
1997, respectively.
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
included 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
the fourth quarter of 1999 and 1998, 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 $1,204,0000 and $4,832,000 in 1999 and 1998,
respectively.
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:
1999 1998 1997
---- ---- ----
Interest paid................................. $ 2,364,000 $ 2,598,000 $ 1,499,000
Interest and dividends received............... $ 2,552,000 $ 1,467,000 $ 957,000
Income taxes paid (Federal and state)......... $ 23,175,000 $ 12,514,000 $ 8,667,000
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 the services are
performed. Cash received by the Company in advance of the performance
of services is deferred and recognized as revenue when earned.
39
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 10).
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, 1999.
Earnings Per Share - The Company calculates earnings per share in
accordance with Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS 128"). Pursuant to SFAS 128, dual
presentation of basic and diluted earnings per common share is
required on the face of the statements of operations for companies
with complex capital structures. 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.
------------------------------------------------------------------------------------------------------------------
For the year ended December 31, 1999
----------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
---------- ------------ ------
Basic earnings per common share
from continuing operations................ $67,139,000 17,772,000 $3.78
Dilutive effect of stock options............... -- 1,199,000
----------- ------------
Diluted earnings per common share
from continuing operations................ $67,139,000 18,971,000 $3.54
For the year ended December 31, 1998
----------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
--------- ----------- ------
Basic earnings per common share
from continuing operations................ $42,979,000 17,827,000 $2.41
Dilutive effect of stock options............... -- 1,299,000
----------- ------------
Diluted earnings per common share
from continuing operations................ $42,979,000 19,126,000 $2.25
For the year ended December 31, 1997
----------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
--------- ----------- ------
Basic earnings per common share
from continuing operations................ $26,844,000 18,315,000 $1.47
Dilutive effect of stock options............... -- 921,000
----------- ------------
Diluted earnings per common share
from continuing operations................ $26,844,000 19,236,000 $1.40
- --------------------------------------------------------------------------------
Options to purchase 370,000, 422,000, and 580,000 shares of common
stock, with an average exercise price per share of $118.50, $89.43,
and $42.00, were outstanding during 1999, 1998, and 1997,
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.
40
Comprehensive Income - In 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). 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. The adoption of SFAS 130 had no impact on total shareholders'
equity and is presented on the accompanying Consolidated Statements of
Shareholders' Equity.
---------------------------------------------------------------------
Tax
Pre-Tax (Expense) Net of Tax
Amount or Benefit Amount
------ ---------- ------
For the Year Ended December 31, 1997:
------------------------------------
Unrealized holding loss arising during period............... $(123) $ 48 $ (75)
Foreign currency translation adjustments.................... (393) 153 (240)
---- --- ----
Total other comprehensive loss.............................. $(516) $201 $(315)
For the Year Ended December 31, 1998:
-------------------------------------
Unrealized holding gains arising during period.............. $42 $(16) $26
Foreign currency translation adjustments.................... 15 (6) 9
-- ---- ---
Total other comprehensive income............................ $57 $(22) $35
For the Year Ended December 31, 1999:
------------------------------------
Unrealized holding gains arising during period.............. $763 $(294) $469
Foreign currency translation adjustments.................... (99) 38 (61)
----- ---- ----
Total other comprehensive income............................ $664 $(256) $408
--------------------------------------------------------------------
Management's Use of Estimates - The preparation of financial
statements in conformity with generally accepted accounting principles
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.
Recent Pronouncements - In December 1999, the Securities and Exchange
Commission issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB 101"). SAB 101 provides
guidance on applying generally accepted accounting principles to
revenue recognition issues in financial statements. The Company is
currently evaluating the provisions established in SAB 101 to assess
if application of SAB 101 is required in its financial statements.
41
Note 2 - Discontinued Operations:
In 1995, the Company's 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 have been reported separately as
discontinued operations in the accompanying Consolidated Financial
Statements.
In 1996, the Company established a provision to cover all future costs
associated with the disposal of CR. This provision included certain
estimates relating to future commitments on certain operating leases
utilized by CR. These estimates were based upon certain assumptions
relating to the sub-leasing of these facilities. In 1998, these sub-
lease arrangements were finalized. As a result, the original
discontinued operations provision was overstated. Accordingly in 1998,
the Company reduced the discontinued operations provision by
$1,154,000, net of tax expense of $444,000, which is reflected in
Income from disposal of discontinued operations on the Consolidated
Statements of Operations.
In 1997, the Company entered into a definitive agreement to sell the
remaining net assets of CR to a private investment firm. Based upon
the terms of the agreement, the Company received a specified amount of
cash at closing along with a note that was to be paid in two
installments. The total proceeds received equaled the value of CR's
remaining net assets and thus no gain or loss was recorded in 1997 as
a result of this transaction. Any additional gain would be recorded
when payment on the note was received. In 1999, the outstanding
balance on the note that was due the Company was in default. The
Company accepted an offer of $2,100,000 as satisfaction for the entire
outstanding balance on the note. The Company recognized the entire
$2,100,000, net of tax expense of $808,000, as a gain which is
reflected in Income from disposal of discontinued operations on the
Consolidated Statements of Operations.
Note 3 - Receivables:
Receivables on the accompanying Consolidated Balance Sheets consist of
the following:
1999 1998
-----------------------------------------------------------------------------------------------------------------
Trade receivables........................................ $16,339,000 $14,586,000
Fees earned, not received................................ 2,304,000 2,558,000
Fees earned, not billed.................................. 16,611,000 11,975,000
---------- ----------
35,254,000 29,119,000
Less: Allowance for doubtful accounts................... (1,700,000) (1,200,000)
----------- -----------
$33,554,000 $27,919,000
--------------------------------------------------------------------
Fees earned, not received represent brokerage commissions earned but
not yet collected. Fees earned, not billed represent receivables
earned but unbilled and result from timing differences between
services provided and contractual billing schedules.
Receivables from regulated investment companies on the accompanying
Consolidated Balance Sheets represent fees collected from 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 12).
42
Note 4 - Other Assets:
Other assets on the accompanying Consolidated Balance Sheets consist
of the following:
1999 1998
---------------------------------------------------------------------------------------------------------------
Investments available for sale....................................... $ 6,704,000 $ 3,565,000
Investment in unconsolidated affiliate............................... 5,305,000 2,573,000
Other, net........................................................... 13,512,000 9,296,000
---------- -----------
Other assets......................................................... $ 25,521,000 $ 15,434,000
---------------------------------------------------------------------------------------------------------------
Investments Available for Sale - Investments available for sale
consist 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, 1999 had an aggregate
cost of $6,235,000 and an aggregate market value of $6,704,000, with
gross unrealized holding gains of $469,000. The net unrealized holding
gains at December 31, 1999 were $420,000 (net of income tax expense of
$49,000). Investments available for sale at December 31, 1998 had an
aggregate cost of $3,645,000 and an aggregate market value of
$3,565,000, with gross unrealized holding losses of $80,000. The net
unrealized holding losses at December 31, 1998 were $49,000 (net of
income tax benefit of $31,000). The net unrealized holding gains and
losses at December 31, 1999 and 1998 were reported as a separate
component of Accumulated other comprehensive losses on the
accompanying Consolidated Balance Sheets.
Investment in Unconsolidated Affiliate - The Company and three leading
academics in the field of finance formed 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. The Company's
interest in LSV for 1999 and 1998 was approximately 47 and 45 percent,
respectively. 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 1999 1998
--------------------------------------------------------------------------------------------------------------
Revenues....................................................... $20,108,000 $10,810,000
Net income..................................................... $14,388,000 $ 6,637,000
--------------------------------------------------------------------------------------------------------------
43
Condensed Balance Sheet 1999 1998
--------------------------------------------------------------------------------------------------------------
Current assets................................................. $9,459,000 $6,284,000
Non-current assets............................................. 131,000 100,000
---------- ----------
Total assets................................................... $9,590,000 $6,384,000
Current liabilities............................................ $ 782,000 $1,096,000
Partners' capital.............................................. 8,808,000 5,288,000
--------- ---------
Total liabilities and
partners' capital........................................... $9,590,000 $6,384,000
--------------------------------------------------------------------------------------------------------------
Note 5 - Line of Credit:
The Company has a line of credit agreement (the "Agreement") with its
principal lending institution which provides for borrowings of up to
$50,000,000. The Agreement ends on August 31, 2000, 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. 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.
There were no borrowings on the Company's line of credit during 1999.
The maximum month-end amount of debt outstanding on the Company's line
of credit for the year ended December 31, 1998 was $15,000,000.
Interest expense, including commitment fees, on the Company's line of
credit was $79,000, $127,000, and $302,000 for the years ended
December 31, 1999, 1998, and 1997, respectively. The weighted average
interest rate was 5.9 percent and 5.8 percent for the years ended
December 31, 1998 and 1997, respectively.
Note 6 - 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.
The Company paid the next principal payment for $2,000,000 in February
2000. The carrying amount of the Company's long-term debt approximates
its fair value.
44
Aggregate maturities of long-term debt at December 31, 1999 are:
------------------------------------------------------------------
2000.............................................. $ 2,000,000
2001.............................................. 2,000,000
2002.............................................. 2,000,000
2003.............................................. 4,000,000
2004.............................................. 4,000,000
2005 and thereafter............................... 17,000,000
----------
$31,000,000
-------------------------------------------------------------------
Interest expense relating to the Company's long-term debt was
$2,296,000 and $2,448,000 for the years ended December 31, 1999 and
1998, respectively.
Note 7 - Shareholders' Equity:
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 14,605,000 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 levels or
entirely after seven years from the date of grant.
The Company 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:
1999 1998 1997
-------------------------------------------------------------------------------------------------------------------
Net income:
As reported......................................... $68,431 $43,689 $26,844
Pro forma........................................... $55,859 $37,721 $25,334
Basic earnings per common share:
As reported......................................... $3.85 $2.45 $1.47
Pro forma........................................... $3.14 $2.12 $1.38
Diluted earnings per common share:
As reported......................................... $3.61 $2.28 $1.40
Pro forma........................................... $2.94 $1.97 $1.32
-------------------------------------------------------------------------------------------------------------------
Because the SFAS 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in
future years.
45
The weighted average fair value of the stock options granted during 1999, 1998,
and 1997 was $174.34, $121.86, and $59.71, 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:
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------
Risk-free interest rate.................................. 5.81% 5.34% 6.55%
Expected dividend yield.................................. 0.30% 1.00% 1.00%
Expected life............................................ 7 Years 7 Years 7 Years
Expected volatility...................................... 40.24% 40.19% 37.36%
- --------------------------------------------------------------------------------------------------------------------
Certain information relating to the Company's stock option plans for 1999, 1998,
and 1997 is summarized as follows:
- --------------------------------------------------------------------------------------------------------------------
Weighted
Number of Average
Shares Exercise Price
------ --------------
Balance as of December 31, 1996................................. 3,856,000 14.85
Granted......................................................... 622,000 40.55
Exercised....................................................... (625,000) 12.83
Expired or canceled............................................. (58,000) 22.25
-----------
Balance as of December 31, 1997................................. 3,795,000 19.27
Granted......................................................... 508,000 84.07
Exercised....................................................... (964,000) 11.70
Expired or canceled............................................. (95,000) 32.49
-----------
Balance as of December 31, 1998................................. 3,244,000 31.25
Granted......................................................... 432,000 114.91
Exercised....................................................... (495,000) 13.31
Expired or canceled............................................. (31,000) 40.79
-----------
Balance as of December 31, 1999................................. 3,150,000 $45.42
Exercisable as of December 31, 1999............................. 1,910,000 $21.61
Available for future grant as of December 31, 1999.............. 1,028,000 --
- ----------------------------------------------------------------------------------------------------------------
As of December 31, 1998 and 1997, there were 1,976,000 and 2,725,000 shares
exercisable, respectively. The expiration dates for options at December 31, 1999
range from March 8, 2000 to December 20, 2009, with a weighted average remaining
contractual life of 6.2 years.
46
The following table summarizes information relating to all options outstanding
at December 31, 1999:
- --------------------------------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
at December 31, 1999 at December 31, 1999
------------------------------------- -----------------------------------
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)
----------- ------ ----------- ------ ----------- -------
$ 8.00 - $13.00 456,000 $ 10.42 456,000 $ 10.42 1.5
13.75 - 18.50 559,000 16.93 559,000 16.93 4.0
19.50 - 26.25 691,000 22.68 594,000 22.92 5.8
42.00 - 57.00 585,000 43.79 291,000 43.80 8.1
68.75 - 89.75 427,000 88.82 10,000 69.80 9.0
90.75 - 118.50 432,000 114.91 -- -- 9.9
---------- -------------
3,150,000 1,910,000
- ---------------------------------------------------------------------------------------------------------------------------------
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 1,300,000 shares for
issuance under this plan. At December 31, 1999, 786,000 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 $353,365,000. Through December 31, 1999, a total of
16,191,000 shares at an aggregate cost of $330,248,000 have been purchased and
retired. The Company purchased 688,000 shares at a cost of $65,970,000 during
1999.
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 Shares (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 Shares.
47
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 18, 1999, the Board of Directors declared a cash
dividend of $.20 per share on the Company's common stock, which was
paid on June 30, 1999, to shareholders of record on June 16, 1999. On
December 14, 1999, the Board of Directors declared a cash dividend of
$.20 per share on the Company's common stock, which was paid on
January 28, 2000, to shareholders of record on January 7, 2000.
The dividends declared in 1999 and 1998 were $7,077,000 and
$5,701,000, respectively. The Board of Directors has indicated its
intention to pay future dividends on a semiannual basis.
Note 8 - 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
$1,774,000, $1,471,000, and $1,412,000 to the Plan in 1999, 1998, and
1997, respectively.
Note 9 - 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 $11,166,000, $14,142,000, and $16,192,000 in 1999, 1998,
and 1997, respectively.
Aggregate noncancellable minimum lease commitments at December 31,
1999 are:
----------------------------------------------------------------------
2000.............................................. $ 7,275,000
2001.............................................. 6,090,000
2002.............................................. 2,689,000
2003.............................................. 2,122,000
2004.............................................. 877,000
2005 and thereafter............................... 722,000
------------
$19,775,000
----------------------------------------------------------------------
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.
48
Note 10 - Income Taxes:
Income taxes from continuing operations consist of the following:
Year Ended December 31, 1999 1998 1997
----------------------------------------------------------------------------------------------------------------------
Current
Federal...................................... $42,144,000 $28,841,000 $15,544,000
State........................................ 3,369,000 1,671,000 726,000
----------- ------------ ------------
45,513,000 30,512,000 16,270,000
---------- ---------- ----------
Deferred, including current deferred
Federal...................................... (2,577,000) (3,020,000) 607,000
State........................................ (906,000) (588,000) 286,000
----------- ---------- ------------
(3,483,000) (3,608,000) 893,000
----------- ------------ ------------
Total income taxes from continuing
operations................................... $42,030,000 $26,904,000 $17,163,000
------------------------------------------------------------------------------------------------------------------------
The effective income tax rate from continuing operations differs from
the Federal income tax statutory rate due to the following:
Year Ended December 31, 1999 1998 1997
----------------------------------------------------------------------------------------------------------------------
Statutory rate..................................... 35.0% 35.0% 35.0%
State taxes, net of Federal tax benefit............ 1.4 1.0 1.3
Foreign losses..................................... 1.5 3.2 1.2
Other, net......................................... 0.6 (0.7) 1.5
----- ----- -----
38.5% 38.5% 39.0%
------------------------------------------------------------------------------------------------------------------
Deferred income taxes for 1999, 1998, and 1997 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, 1999 1998 1997
------------------------------------------------------------------------------------------------------------------------
Difference in financial reporting and income
tax depreciation methods.................... $ (62,000) $ 385,000 $ 996,000
Reserves not currently deductible................ (11,000) 1,000,000 (73,000)
Capitalized software currently deductible for
tax purposes, net of amortization........... (504,000) (674,000) 1,662,000
State deferred income taxes...................... (589,000) (382,000) 186,000
Revenue and expense recognized in
different periods for financial reporting
and income tax purposes..................... (2,064,000) (2,722,000) (1,508,000)
Other, net....................................... (253,000) (1,215,000) (370,000)
----------- ------------- -----------
$ (3,483,000) $ (3,608,000) $ 893,000
-------------------------------------------------------------------------------------------------------------------------
49
The net deferred income tax asset is comprised of the following:
Year Ended December 31, 1999 1998
----------------------------------------------------------------------------------------------
Current deferred income taxes:
Gross assets................................ $10,934,000 $7,598,000
Gross liabilities........................... -- --
----------- ----------
10,934,000 7,598,000
----------- ----------
Long-term deferred income taxes:
Gross assets................................ 34,000 116,000
Gross liabilities........................... (6,893,000) (7,409,000)
----------- ----------
(6,859,000) (7,293,000)
----------- ----------
Net deferred income tax asset.................... $ 4,075,000 $ 305,000
----------------------------------------------------------------------------------------------
The Company did not record any valuation allowance against deferred
tax assets at December 31, 1999 and 1998.
The tax effect of significant temporary differences representing
deferred tax assets (liabilities) is as follows:
Year Ended December 31, 1999 1998
---------------------------------------------------------------------------------------------
Difference in financial reporting and income
tax depreciation methods.................... $ 256,000 $ (119,000)
Reserves not currently deductible................ 1,052,000 853,000
Capitalized software currently deductible for
tax purposes, net of amortization........... (6,706,000) (7,288,000)
State deferred income taxes...................... (215,000) 173,000
Revenue and expense recognized in
different periods for financial reporting
and income tax purposes..................... 9,708,000 6,572,000
Unrealized holding gain on investments........... (20,000) 114,000
----------- -----------
$ 4,075,000 $ 305,000
---------------------------------------------------------------------------------------------
50
Note 11 - Segment Information:
In June 1997, the Financial Accounting Standards Board issued 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 product and
services, geographic areas, and major customers. The Company adopted
SFAS 131 in its December 31, 1998 financial statements. All prior
period segment information has been restated to conform with the
provisions of SFAS 131.
The Company is organized around its four primary business lines:
Technology Services, Asset Management, Mutual Fund Services, and
Investments in New Business. Each segment offers different products and
services that utilize different technology and marketing techniques.
The information in the following tables is derived directly from the
segments' internal financial reporting used for corporate management
purposes. The accounting policies of the reportable segments are the
same as those described in Note 1. The Company evaluates financial
performance of its operating segments based on income from continuing
operations before income taxes.
Technology Services includes the Company's TRUST 3000 product line and
trust operations outsourcing. Asset Management provides investment
solutions through various investment products and services distributed
directly or through professional investment advisors, financial
planners, and other financial intermediaries to institutional or high-
net-worth markets. Mutual Fund Services provides administration and
distribution services to proprietary mutual funds created for banks,
insurance firms, and investment management companies. Investments in
New Business consists of the Company's Canadian and international
operations which provides investment advisory services globally through
investment products and services and performance evaluation and
consulting services to Canadian pension plans.
The following tables highlight certain financial information from
continuing operations about each of the Company's segments for the
years ended December 31, 1999, 1998, and 1997:
Mutual Investments
Technology Asset Fund In New
1999 Services Management Services Business Other Total
-----------------------------------------------------------------------------------------------------------------------
Revenues........... $184,759,000 $138,365,000 $110,083,000 $ 22,985,000 $456,192,000
------------ ------------ ------------ ------------ ------------
Operating
income (loss).... $ 61,022,000 $ 40,185,000 $ 24,221,000 $(10,636,000) $(12,298,000) $102,494,000
------------ ------------ ------------ ------------ ------------
Other income, net.. $ 6,675,000
------------
Income from
continuing
operations
before income
taxes............ $109,169,000
------------
Depreciation and
amortization..... $ 11,100,000 $ 2,218,000 $ 1,309,000 $ 778,000 $ 388,000 $ 15,793,000
------------ ------------- ------------- ------------ ------------ ------------
Capital
expenditures..... $ 12,047,000 $ 2,377,000 $ 547,000 $ 878,000 $ 1,405,000 $ 17,254,000
------------ ------------- ------------- ------------ ------------ ------------
Total assets....... $ 88,870,000 $ 29,803,000 $ 23,446,000 $ 28,619,000 $ 83,041,000 $253,779,000
------------ ------------- ------------- ------------ ------------ ------------
-----------------------------------------------------------------------------------------------------------------------
51
Mutual Investments
Technology Asset Fund In New
1998 Services Management Services Business Other Total
------------------------------------------------------------------------------------------------------------------------
Revenues............ $167,484,000 $90,056,000 $95,136,000 $ 13,443,000 $366,119,000
------------ ----------- ----------- ------------ ------------
Operating
income (loss)..... $ 46,793,000 $19,881,000 $24,993,000 $(10,319,000) $(13,463,000) $ 67,885,000
------------ ----------- ----------- ------------ ------------
Other income, net... $ 1,998,000
------------
Income from
continuing
operations before
income taxes...... $ 69,883,000
------------
Depreciation and
amortization...... $ 10,468,000 $ 1,954,000 $ 1,576,000 $ 899,000 $ 791,000 $ 15,688,000
------------ ----------- ----------- ------------ ------------ ------------
Capital
expenditures...... $ 16,999,000 $ 2,469,000 $ 772,000 $ 763,000 $ 771,000 $ 21,774,000
------------ ----------- ----------- ------------ ------------- ------------
Total assets........ $ 96,856,000 $23,084,000 $17,362,000 $ 15,427,000 $ 56,043,000 $208,772,000
------------ ----------- ----------- ------------ ------------- ------------
------------------------------------------------------------------------------------------------------------------------
Mutual Investments
Technology Asset Fund In New
1997 Services Management Services Business Other Total
------------------------------------------------------------------------------------------------------------------------
Revenues............ $129,525,000 $61,871,000 $83,157,000 $14,439,000 $ 3,757,000 $292,749,000
------------ ----------- ----------- ----------- ------------ ------------
Operating
income (loss)..... $ 37,146,000 $ 3,281,000 $23,858,000 $(5,799,000) $(12,974,000) $ 45,512,000
------------ ----------- ----------- ----------- ------------
Other expense, net.. $ (1,505,000)
------------
Income from
continuing
operations before
income taxes...... $ 44,007,000
------------
Depreciation and
amortization...... $ 8,634,000 $ 1,791,000 $ 1,883,000 $ 1,021,000 $ 739,000 $ 14,068,000
------------ ----------- ----------- ----------- ------------ ------------
Capital
expenditures...... $ 9,465,000 $ 1,636,000 $ 600,000 $ 225,000 $ 1,029,000 $ 12,955,000
------------ ----------- ----------- ----------- ------------ ------------
Total assets........ $ 89,471,000 $17,464,000 $15,559,000 $29,994,000 $ 16,396,000 $168,884,000
------------ ----------- ----------- ----------- ------------ ------------
------------------------------------------------------------------------------------------------------------------------
Other consists of expenses and assets attributable to corporate
overhead groups that are not allocated to the operating segments for
internal financial reporting purposes. Other in 1997 also consists of
the revenues, expenses, and assets of LSV, which are not allocated to
any operating segment. Unallocated assets primarily consist of cash and
cash equivalents, deferred tax assets, the investment in and assets of
LSV, and certain other shared services assets.
52
The following table presents the details of other income (expense):
For the Year Ended December 31, 1999 1998 1997
----------------------------------------------------------------------------------------------------------------------
Equity in the earnings of
unconsolidated affiliate...................... $ 6,765,000 $ 3,015,000 $ --
Interest income.................................. 2,285,000 1,558,000 983,000
Interest expense................................. (2,375,000) (2,575,000) (2,488,000)
----------- ----------- -----------
$ 6,675,000 $ 1,998,000 $(1,505,000)
----------------------------------------------------------------------------------------------------------------------
The following table presents revenues by country based on the location
of the use of the product or services:
For the Year Ended December 31, 1999 1998 1997
--------------------------------------------------------------------------------------------------------------------
United States.................................... $429,517,000 $350,729,000 $277,655,000
International Operations......................... 26,675,000 15,390,000 15,094,000
------------ ------------ ------------
$456,192,000 $366,119,000 $292,749,000
--------------------------------------------------------------------------------------------------------------------
The following table presents assets based on its location:
1999 1998 1997
--------------------------------------------------------------------------------------------------------------------
United States.................................... $231,620,000 $193,133,000 $141,652,000
International Operations......................... 22,159,000 15,639,000 27,232,000
------------ ------------ ------------
$253,779,000 $208,772,000 $168,884,000
--------------------------------------------------------------------------------------------------------------------
53
Note 12 - Related Party Transactions:
SIMC, 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, SIMC receives a fee for providing investment advisory,
administrative, and accounting services to the RICs. The investment
advisory and administration fee is a fixed percentage of the average
daily net asset value of each RIC, subject to certain limitations.
Investment advisory and administration fees received by the Company
totaled $196,608,000, $152,076,000, and $119,606,000 in 1999, 1998, and
1997, respectively. SIDCO is a party to Distribution Agreements with
several RICs, which are advised and/or administered by SIMC. SIDCO
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 $25,883,000, $15,480,000, and
$7,269,000 in 1999, 1998, and 1997, respectively.
Note 13 - Quarterly Financial Data (Unaudited):
For the Three Months Ended
--------------------------------------------------------------------
1999 March 31 June 30 Sept. 30 Dec. 31
--------------------------------------------------------------------------------------------------------------------
Revenues................................... $104,318,000 $111,622,000 $117,199,000 $123,053,000
Income from continuing operations
before income taxes..................... $ 24,697,000 $ 26,234,000 $ 28,845,000 $ 29,393,000
Income from continuing operations.......... $ 15,189,000 $ 16,134,000 $ 17,740,000 $ 18,076,000
Net income................................. $ 15,189,000 $ 16,134,000 $ 17,740,000 $ 19,368,000 (a)
Basic earnings per common share
from continuing operations.............. $ .85 $ .91 $ 1.00 $ 1.02
Basic earnings per common share............ $ .85 $ .91 $ 1.00 $ 1.09 (a)
Diluted earnings per common share
from continuing operations.............. $ .79 $ .85 $ .94 $ .96
Diluted earnings per common share.......... $ .79 $ .85 $ .94 $ 1.03 (a)
--------------------------------------------------------------------------------------------------------------------
(a) Includes income from disposal of discontinued operations of
$1,292,000 or $.07 basic earnings per common share and $.07 diluted
earnings per common share (See Note 2).
For the Three Months Ended
--------------------------------------------------------------------
1998 March 31 June 30 Sept. 30 Dec. 31
--------------------------------------------------------------------------------------------------------------------
Revenues................................... $81,871,000 $85,499,000 $90,492,000 $108,257,000
Income from continuing operations
before income taxes..................... $12,458,000 $15,709,000 $18,546,000 $ 23,170,000
Income from continuing operations.......... $ 7,597,000 $ 9,585,000 $11,551,000 $ 14,246,000
Net income................................. $ 7,597,000 $ 9,585,000 $11,551,000 $ 14,956,000 (a)
Basic earnings per common share
from continuing operations.............. $ .43 $ .54 $ .64 $ .80
Basic earnings per common share............ $ .43 $ .54 $ .64 $ .84 (a)
Diluted earnings per common share
from continuing operations.............. $ .40 $ .50 $ .60 $ .75
Diluted earnings per common share.......... $ .40 $ .50 $ .60 $ .79 (a)
--------------------------------------------------------------------------------------------------------------------
(a) Includes income from disposal of discontinued operations of
$710,000 or $.04 basic earnings per common share and $.04 diluted
earnings per common share (See Note 2).
54
SEI INVESTMENTS COMPANY AND SUBSIDIARIES
----------------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
-----------------------------------------------
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999
-----------------------------------------------------------------
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, 1997:
Allowance for doubtful accounts $1,350,000 $ -- $ -- $(150,000) $1,200,000
========== ========= ======== ========= ==========
For the Year Ended December 31, 1998:
Allowance for doubtful accounts $1,200,000 $ -- $ -- $ -- $1,200,000
========== ========= ======== ========= ==========
For the Year Ended December 31, 1999:
Allowance for doubtful accounts $1,200,000 $ 500,000 $ -- $ -- $1,700,000
========== ========= ======== ========= ==========
55
Item 9. Changes in and disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure.
- --------------------
None.
56
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
2000 Annual Meeting of Shareholders to be filed with the Securities and Exchange
Commission within 120 days after December 31, 1999 pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (the "2000 Proxy
Statement").
The executive officers of the Company are as follows:
ALFRED P. WEST, JR., 57, 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, 56, 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.
RICHARD B. LIEB, 52, has been an Executive Vice President since October 1990,
and a Director since May 1995.
CARL A. GUARINO, 42, 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, 49, has been an Executive Vice President since January 1994
and a Senior Vice President since January 1988.
DENNIS J. MCGONIGLE, 39, 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, 44, 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, 38, 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, 34, has been a Senior Vice President and General Counsel
since March 2000 and a Vice President since May 1995.
57
Item 11. Executive Compensation.
----------------------
The information called for in this item is hereby incorporated by reference to
the 2000 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 2000 Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
----------------------------------------------
The information called for in this item is hereby incorporated by reference to
the 2000 Proxy Statement.
58
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, 1999 and 1998
Consolidated Statements of Operations -- For the years ended
December 31, 1999, 1998, and 1997
Consolidated Statements of Shareholders' Equity -- For the
years ended December 31, 1999, 1998, and 1997
Consolidated Statements of Cash Flows -- For the years ended
December 31, 1999, 1998, and 1997
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, 1999.
59
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 29, 2000 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 29, 2000 By /s/ Alfred P. West, Jr.
---------------- ----------------------------
Alfred P. West, Jr.
Chairman of the Board,
Chief Executive Officer,
and Director
Date March 29, 2000 By /s/ Carmen V. Romeo
---------------- ----------------------------
Carmen V. Romeo
Executive Vice President and
Director
Date March 29, 2000 By /s/ Richard B. Lieb
---------------- ----------------------------
Richard B. Lieb
Executive Vice President and
Director
Date March 29, 2000 By /s/ Henry H. Greer
---------------- ----------------------------
Henry H. Greer
Director
Date March 29, 2000 By /s/ William M. Doran
---------------- ----------------------------
William M. Doran
Director
Date March 29, 2000 By /s/ Henry H. Porter, Jr.
---------------- ----------------------------
Henry H. Porter, Jr.
Director
Date March 29, 2000 By /s/ Kathryn M. McCarthy
---------------- ----------------------------
Kathryn M. McCarthy
Director
60
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.)
3.2 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 (Page 64).
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.)
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.)
61
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.)
62
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.
(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. (Page 66)
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. (Page 70)
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.)
21* Subsidiaries of the Registrant. (Page 73)
23* Consent of Independent Public Accountants. (Page 75)
27* Financial Data Schedule
99* Miscellaneous exhibits. (Page 77)
* Filed herewith as an exhibit to this Form 10-K.
63