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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, 2000
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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 incorporation or organization) (IRS Employer Identification Number)
1 Freedom Valley Drive, Oaks, Pennsylvania 19456-1100
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 610-676-1000
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Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on Which
Registered
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Title of Each Class
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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 82 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 28, 2001: $2,808,053,000. 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
__________ __________
APPLICABLE ONLY TO CORPORATE REGISTRANTS:
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of February 28, 2001: 108,618,494.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the following documents are incorporated by reference herein:
1. Notice of and Proxy Statement for the 2001 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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Forward Looking Information
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Our disclosure and analysis in this Annual Report on Form 10-K contains some
forward-looking statements. Forward-looking statements give our current
expectations or forecasts of future events. You can identify these statements by
the fact that they do not relate strictly to historical or current facts. Such
statements may include words such as "anticipate," "estimate," "expect,"
"project," "intend, " "plan," "believe," and other words and terms of similar
meaning in connection with any discussion of future operating or financial
performance. In particular, these include statements relating to present or
anticipated products and markets, future revenues, capital expenditures,
expansion plans, future financing and liquidity, personnel, and other statements
regarding matters that are not historical facts or statements of current
condition.
Any or all of our forward-looking statements in this Annual Report on Form 10-K
may turn out to be wrong. They can be affected by inaccurate assumptions we
might make, or by known or unknown risks and uncertainties. Many factors
mentioned in the discussion below will be important in determining future
results. Consequently, no forward-looking statement can be guaranteed. Actual
future results may vary materially.
We undertake no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or otherwise. You are
advised, however, to consult any further disclosures we make on related subjects
in our filings with the U.S. Securities and Exchange Commission. This discussion
is provided as permitted by the Private Securities Litigation Reform Act of
1995.
General Development of Business
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We were incorporated in Pennsylvania in 1968 and initially offered our shares to
the public in March 1981. Our principal wholly owned subsidiaries are SEI
Investments Distribution Company ("SIDCO"), SEI Investments Management
Corporation ("SIMC"), and SEI 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.
We introduced our 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 these institutions to outsource all
of their trust operations and related investment functions.
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. We have expanded our asset management services
outside the United States by targeting selected foreign markets for our
investment management programs.
SIDCO and SIMC also provide a full range of administration and distribution
services to proprietary mutual funds established by banks and other financial
institutions and intermediaries. The client serves as the investment advisor for
the proprietary funds, and the funds are sold primarily to customers of the
client.
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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 we measure financial information
internally. Technology Services, which accounted for 37 percent of consolidated
revenues in 2000, includes the TRUST 3000 product line and trust operations
outsourcing. Asset Management, which accounted for 36 percent of consolidated
revenues in 2000, provides investment programs covering diversified investment
strategies to institutional and high-net-worth markets. Mutual Fund Services,
which accounted for 21 percent of consolidated revenues in 2000, 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 6 percent of consolidated revenues in 2000,
primarily consists of international asset management initiatives.
Financial information about each business segment is contained in Note 12 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.
Our Internet access products, which run in a service bureau environment, are an
extension of our service to technology services 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 through 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.
Clients that use TRUST 3000 can affect purchases and redemptions of our
liquidity products through an automated subsystem that performs daily sweeps of
trust accounts and invests the available cash. Bank clients can also invest in
our Tri-Party Repurchase Agreement program that offers competitive yields for
short-term investing.
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.
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 may also create a greater demand for
outsourcing services, as banks increasingly focus on their core strengths. There
are approximately 3,000 U.S. institutions with trust powers in our market. At
December 31, 2000, we were providing processing or software services to
approximately 80 trust departments, including trust departments of 19 of the top
50 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. Customer contracts are generally between 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. Potential clients may also consider a vendor's experience in
and it's commitment to the financial industry. Trust technology services
accounted for approximately 33 percent of consolidated revenues in 2000.
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, 2000, we had contracts to perform trust operations outsourcing
services to approximately 85 clients. The terms of the contracts vary from three
to five years.
Currently, our only significant competitor in this market is Marshall and Isley,
although we expect additional competitors to enter this market over the next few
years. Revenues from trust operations outsourcing accounted for approximately 4
percent of consolidated revenues in 2000.
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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. We also provide
comprehensive support services, including accounting and investor reporting, to
our client. 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 and specialist sub-advisors that we select
and monitor.
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 each
investor an integrated investment program that 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 mutual funds
that employ sub-advisors that are specialists in a particular style. The
potential benefit of this method is improved performance with reduced volatility
because it eliminates the task of attempting to estimate which style of
investing will be in favor at any point in time. Specialist-advisors are
monitored for performance, so trading strategies conform to predetermined
market, sector, and style characteristics. We maintain the asset class exposure
within the specifically defined boundaries of our client's asset allocation plan
by incorporating a formal rebalancing program in our asset management process
utilizing state-of-the-art technology. Overall, diversifying by asset class,
manager style, sub-style, and sector tends to reduce volitility 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, 2000, there were approximately 4,000 clients who utilize our
asset management programs through separate accounts or through our mutual funds
with $52 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 33 percent of consolidated revenues in 2000.
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Liquidity Management Fees
We also apply our expertise to short term investments. 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 can then 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 target market for our liquidity products and services is primarily 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 1,000 at December 31, 2000. Total assets
invested in liquidity funds, including REPO, totaled $24 billion at December 31,
2000.
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;
and individual bank proprietary and common trust funds. A potential customer of
liquidity services considers the price and performance of investment products
and diverse product offerings, as well as the ease of investment through an
automated sweep system. Revenues from liquidity management fees offered to
investment advisors and corporations accounted for approximately 3 percent of
consolidated revenues in 2000.
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. Our 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 December 31, 2000 we provided fund services to
40 banks, investment management companies, and insurance firms with proprietary
mutual fund assets of approximately $194 billion. At December 31, 2000 we
provided fund services to 25 offshore and hedge fund clients with assets of
approximately $6 billion. Our contracts with mutual fund complexes have initial
terms ranging from two to five years.
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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 21 percent of consolidated
revenues in 2000.
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.
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, our services include the delivery
of local investment management as part of a portfolio solution and local
distribution and marketing. For example, in South Africa, we have assembled an
investment advisory team that markets institutional asset management programs to
pension and insurance industries. In Argentina and Mexico we have established
investment advisory firms to offer our asset management services to
high-net-worth investors. In Taiwan and Korea our joint ventures offer asset
management solutions to institutions and high-net-worth individuals.
The global market for financial services is highly competitive. We must consider
the regulatory and financial constraints that exist in a foreign market.
Additionally we will have 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 local firms with 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 6 percent of consolidated revenues in 2000.
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Other
Equity Investments
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LSV Asset Management ("LSV"), is a partnership formed with three leading
academics in the field of finance. LSV, a registered investment advisor,
provides investment advisory services to institutions, including pension plans
and investment companies. LSV is a value-oriented, contrarian money manager that
offers a deep-value investment alternative. 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 23 percent of the total assets
managed by LSV relate to our products. At December 31, 2000, our interest
represented approximately 47 percent of the partnership's total interests.
Marketing and Sales
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We employ 18 sales representatives in Technology Services, 64 sales
representatives in Asset Management, 21 sales representatives in Mutual Fund
Services, and 27 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; Paris, France;
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 5,500 clients. For the year ended December 31,
2000, 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 utilize numerous professionals
solely dedicated to the design, development, and enhancement of our software
products. New products are released when they are completed. Maintenance
releases generally occur twice 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 in late 1999,
and provides short-term rate information, market commentary, and expert articles
highlighting the latest trends in working capital management. In mid 2000 the
Optimizer was introduced. 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. This ASP service
combines real-time market rates 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. In late 2000, we began
to offer an on-line trading application that will enable users of the Optimizer
to implement electronically the investment decisions that the
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Optimizer makes. The application also works independently and includes the first
Internet trading platform providing single point access to a variety of top tier
institutional money market funds.
We expended, including amounts capitalized, approximately $58,666,000 (9.8
percent of revenues) in 2000, $42,788,000 (9.4 percent of revenues) in 1999, and
$24,866,000 (6.8 percent of revenues) in 1998 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, joint ventures in Taiwan,
Korea, and France, and asset management contracts signed with European pension
plans and several South African institutions. We have also opened an office in
the United Kingdom.
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.
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
At February 28, 2001, we had approximately 1,700 full-time and 100 part-time
employees. None of our employees are represented by a labor union. Management
considers employee relations to be good.
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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 92,000 square feet. Additionally, we own a New
York City condominium (3,400 square feet) used for business purposes. We are
currently constructing two additional buildings and a parking structure that
will be completed by the end of 2001.
Item 3. Legal Proceedings.
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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.
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There were no matters submitted to a vote of security holders during the fourth
quarter of 2000.
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:
- ---------------------------
Our 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.
2000 High Low
- ---- ---- ---
First Quarter 20 1/8 14 9/24
Second Quarter 24 7/12 16 1/2
Third Quarter 37 9/16 21
Fourth Quarter 62 27/32 27 3/16
1999 High Low
- ---- ---- ---
First Quarter 19 7/8 15
Second Quarter 17 2/3 13
Third Quarter 17 1/4 14 7/8
Fourth Quarter 21 1/2 12 43/48
As of February 28, 2001, there were approximately 1,500 shareholders of record.
The Board of Directors declared a $.04 dividend in May and December of 2000, and
a $.03 dividend in May and December of 1999. The Board of Directors has
indicated its intention to pay future dividends on a semiannual basis. All stock
prices have been restated to reflect the three-for-one stock split paid in June
2000, and the two-for-one stock split to be paid in February 2001. (See Note 8
of the Notes to the Consolidated Financial Statements).
12
Item 6. Selected Financial Data.
-----------------------
(In thousands, except per share data)
The following table summarizes selected financial data for the five years in the
period ended December 31, 2000. The historical selected financial data for each
of the five years in the period ended December 31, 2000 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 2000 1999 1998 1997 1996
=============================================================================================================================
Revenues............................................ $ 598,806 $ 456,192 $ 366,119 $ 292,749 $ 247,817
Expenses:
Operating and development........................ 279,024 215,216 180,937 148,536 129,776
Sales and marketing.............................. 154,984 126,184 103,834 84,770 68,719
General and administrative....................... 16,839 12,298 13,463 13,931 13,235
--------- ---------- ---------- ---------- ----------
Income from operations.............................. 147,959 102,494 67,885 45,512 36,087
Gain on sale of investments available for sale...... -- -- -- -- 1,097
Equity in the earnings of unconsolidated affiliate.. 7,533 6,765 3,015 -- --
Interest income..................................... 6,419 2,285 1,558 983 808
Interest expense.................................... (2,293) (2,375) (2,575) (2,488) (48)
--------- ---------- ---------- ---------- ----------
Income from continuing operations
before income taxes.............................. 159,618 109,169 69,883 44,007 37,944
Income taxes........................................ 60,655 42,030 26,904 17,163 14,798
--------- ---------- ---------- ---------- ----------
Income from continuing operations................... 98,963 67,139 42,979 26,844 23,146
Income (loss) from disposal of
discontinued operations.......................... -- 1,292 710 -- (16,335)
--------- ---------- ---------- ---------- ----------
Net income.......................................... $ 98,963 $ 68,431 $ 43,689 $ 26,844 $ 6,811
- -----------------------------------------------------------------------------------------------------------------------------
Basic earnings per common share from
continuing operations (a)........................ $ .93 $ .63 $ .40 $ .25 $ .21
Basic earnings (loss) per common share from
discontinued operations (a)...................... -- .01 .01 -- (.15)
--------- ---------- ---------- ---------- ----------
Basic earnings per common share (a)................. $ .93 $ .64 $ .41 $ .25 $ .06
Shares used to calculate basic earnings per
common share (a)................................. 106,490 106,632 106,962 109,890 110,982
- -----------------------------------------------------------------------------------------------------------------------------
Diluted earnings per common share from
continuing operations (a)........................ $ .87 $ .59 $ .37 $ .23 $ .20
Diluted earnings (loss) per common share from
discontinued operations (a)...................... -- .01 .01 -- (.14)
--------- ---------- ---------- ---------- ----------
Diluted earnings per common share (a)............... $ .87 $ .60 $ .38 $ .23 $ .06
Shares used to calculate diluted earnings per
common share (a)................................. 113,820 113,826 114,756 115,416 116,184
- -----------------------------------------------------------------------------------------------------------------------------
Cash dividends declared per common share (a)........ $ .08 $ .07 $ .05 $ .05 $ .04
- -----------------------------------------------------------------------------------------------------------------------------
Year-end Financial Position:
Cash and cash equivalents........................... $ 159,576 $ 73,206 $ 52,980 $ 16,891 $ 13,167
Total assets........................................ $ 375,582 $ 253,779 $ 208,772 $ 168,884 $ 141,041
Short-term borrowings............................... $ -- $ -- $ -- $ -- $ 20,000
Long-term debt (including short-term portion)....... $ 29,000 $ 31,000 $ 33,000 $ 35,000 $ --
Shareholders' equity................................ $ 197,421 $ 79,002 $ 59,685 $ 46,410 $ 56,108
=============================================================================================================================
(a) All share and per share information has been adjusted to reflect the
three-for-one stock split paid in June 2000 and the two-for-one stock split to
be paid in February 2001. See Note 8 of the Notes to the Consolidated Financial
Statements.
13
Item 7. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations.
----------------------
(In thousands, except per share data)
This discussion reviews and analyzes the consolidated financial condition at
December 31, 2000 and 1999, 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 12 of the Notes to
Consolidated Financial Statements included with item 8 to this report.
Forward-Looking Information
- ---------------------------
This discussion includes 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.
Results of Operations
- ---------------------
2000 Compared with 1999
Consolidated Overview
- ---------------------
Income Statement Data
(In thousands, except per common share data)
PERCENT
2000 1999 CHANGE
---- ---- ------
Revenues:
Technology Services..................................... $222,246 $184,759 20%
Asset Management........................................ 215,336 138,365 56%
Mutual Fund Services.................................... 126,885 110,083 15%
Investments in New Business............................. 34,339 22,985 49%
-------- --------
Total revenues........................................ $598,806 $456,192 31%
Operating Income (Loss):
Technology Services..................................... $ 79,992 $ 61,022 31%
Asset Management........................................ 72,671 40,185 81%
Mutual Fund Services.................................... 27,688 24,221 14%
Investments in New Business............................. (15,553) (10,636) (46%)
General and Administrative.............................. (16,839) (12,298) (37%)
-------- --------
Income from operations................................ 147,959 102,494 44%
Other income, net.......................................... 11,659 6,675 75%
-------- --------
Income from continuing operations
before income taxes..................................... 159,618 109,169 46%
Income taxes............................................... 60,655 42,030 44%
-------- --------
Income from continuing operations.......................... $ 98,963 $ 67,139 47%
Diluted earnings per common share
from continuing operations.............................. $ .87 $ .59 47%
Revenues increased 31 percent and earnings increased 47 percent during 2000.
There are three primary factors underlying our recent growth in revenues and
earnings: first, increased market acceptance of our products and services;
second, leverage in our operations; and third, our portfolio of businesses.
14
Our products and services have been adopted by many companies, institutions, and
intermediaries. Net asset flow into our funds from high-net-worth and
institutional investors increased $12 billion during 2000 despite the recent
volatility experienced in the capital markets. Sales to new clients and the
delivery of new products and services to existing clients in our technology and
outsourcing businesses increased during 2000, especially in the later half of
the year. Our mutual fund outsourcing services are showing early signs of
acceptance in new target markets of alternative investment managers and offshore
fund sponsors.
We are also achieving economies of scale in most of our back-office and
investment management operations as well as having many shared technology
development projects. Our margins before taxes and interest increased to 24.7
percent during 2000 compared to the 22.5 percent realized during 1999.
During the past few years, our asset management business has been the primary
driver in revenues and earnings growth. During the later half of 2000 when the
capital markets were unstable, our technology business supported our growth. We
believe this diverse range of markets we serve with our many products and
services gives us some stability during times of short-term business volatility.
We intend to sustain revenues and earnings growth by delivering new products and
services to our existing clients and maintaining a level of new sales. In
addition, we will effectively utilize our current infrastructure to manage
expenses across a high net incremental revenue base. However, mergers and
acquisitions within the banking industry and any prolonged volatility in the
capital markets could negate any expected growth in revenues and earnings.
The effective tax rate from continuing operations was 38.0 percent for 2000 and
38.5 percent for 1999.
Asset Balances
(In millions)
As of December 31, PERCENT
------------------
2000 1999 CHANGE
---- ---- ------
Assets invested in equity and fixed income funds........... $ 51,851 $ 41,695 24%
Assets invested in liquidity funds......................... 24,481 22,556 9%
-------- --------
Assets under management................................. 76,332 64,251 19%
Client proprietary assets under administration............. 200,113 170,787 17%
-------- --------
Assets under administration............................. $276,445 $235,038 18%
======== ========
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 (equity and fixed income 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.
15
Technology Services
- -------------------
Technology Services provides trust technology outsourcing services to banks and
other financial institutions through our TRUST 3000 product line. TRUST 3000
includes many integrated products and sub-systems that provide a complete
investment accounting and management information system for trust institutions.
Revenues are earned from monthly processing and software services fees, and
project fees associated with the conversion of new and merging clients.
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. Revenues are earned from processing and
management fees.
DOLLAR PERCENT
2000 1999 CHANGE CHANGE
---- ---- ------ ------
Revenues:
Trust technology services................. $197,845 $163,465 $34,380 21%
Trust operations outsourcing.............. 24,401 21,294 3,107 15%
-------- -------- -------
Total revenues....................... 222,246 184,759 37,487 20%
Expenses:
Operating and development................. 111,100 92,763 18,337 20%
Sales and marketing....................... 31,154 30,974 180 1%
-------- -------- -------
Total operating profits.............. $ 79,992 $ 61,022 $18,970 31%
======== ======== =======
Profit margin........................ 36% 33% -- --
Trust Technology Services revenues increased largely due to increased sales
activity in our core service bureau business. New sales in our core service
bureau business during the past two years has primarily been driven by new
clients and mergers in the large bank segment. We are also beginning to see
increased interest from the regional bank segment. We recently signed four new
clients from this segment that will generate over $5.2 million in future
recurring revenues. Sales of new products and services to existing clients, has
also contributed significantly to our recent growth in revenues. Many of our new
products have received strong acceptance from our existing clients, because of
our commitment to providing new services and improving existing services to our
clients. We believe this stems from our extensive technology development agenda,
and our ability to provide business solutions beyond software and processing.
New sales and cross sales contributed approximately $15 million in additional
recurring processing fees for 2000. Finally, brokerage services provided a
significant revenue boost in 2000. Brokerage services allow a client to execute
equity trades through SEI's captive broker/dealer.
Trust operations outsourcing revenues increased primarily due to an increase in
assets under management that generated an additional $2.8 million in investment
management fees from our outsourcing clients. The increase in assets under
management was due to new sales activity and increased asset flow into our funds
from existing clients. Processing fees remained relatively flat during 2000.
Operating profits and profit margin for Technology Services increased
substantially during 2000. The increase in operating profits and profit margin
were primarily due to the increase in revenues previously discussed and the
leveragability inherent in our current infrastructure. Achieving real economies
of scale in our operational groups provides us with the ability to maintain
strong investment levels without hurting margins significantly. We believe these
investments are critical to our long-term growth potential. As a percentage of
sales, operating and development expenses remained the same at 50 percent and
sales and marketing expenses decreased to 14 percent from 17 percent.
Our sales strategy in the short-term will remain focused on our core service
bureau business and back-office outsourcing opportunities. For the intermediate
and long-term, our sales strategy will be expanded to include global asset
managers, especially in Europe. We will also be delivering new products to our
existing clients that are expected to fuel our near term growth. In addition, we
will continue to maintain a high level of investment in this business to take
advantage of growth opportunities in the U.S and Europe. Specifically,
investments will be
16
made in globalizing TRUST 3000 and in the development of sales and service
infrastructure in Europe. We are also focusing additional marketing and sales
efforts towards other investment management financial services companies who are
beginning to compete for high-net-worth investment management clients by
offering trust services. Finally, we are constantly monitoring mergers and
acquisitions within the banking industry that may affect our bank clients.
Today, this remains as the major strategic issue facing this segment that could
impact future growth.
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
diversified investment strategies and portfolios and back-office technology
support. Revenues 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.
DOLLAR PERCENT
2000 1999 CHANGE CHANGE
---- ---- ------ ------
Revenues:
Investment management fees................ $195,604 $120,291 $75,313 63%
Liquidity management fees................. 19,732 18,074 1,658 9%
-------- -------- -------
Total revenues....................... 215,336 138,365 76,971 56%
Expenses:
Operating and development................. 60,339 38,153 22,186 58%
Sales and marketing....................... 82,326 60,027 22,299 37%
------ ------ ------
Total operating profits.............. $72,671 $40,185 $32,486 81%
====== ====== ======
Profit margin........................ 34% 29% -- --
Investment management fees increased 63 percent primarily due to an increase in
average assets under management driven by new sales in both our investment
advisory and institutional asset management businesses. Average assets under
management increased $12.2 billion or 53 percent to $34.9 billion during 2000,
as compared to $22.7 billion during 1999. In our investment advisory business,
we added approximately 1,900 new registered investment advisors to our network
during 2000, bringing this total to about 7,600. In our institutional asset
management business, we established 64 new client relationships during 2000, of
which ten new clients funded over $100 million each. Some of these new clients
included defined benefit plans, defined contribution plans, endowments and
foundations and unions, which are new markets we have recently targeted. The
increase in new sales in both businesses is the result of a growing interest and
acceptance of our outsource business solution across a diverse range of clients.
The increase in liquidity management fees is directly related to assets under
management, which increased $1 billion or 19 percent to $6.3 billion during
2000, as compared to $5.3 billion during 1999. Investor strategies seem to have
been affected by the recent market volatility to move out of fixed-income and
equity securities and into short-term liquid assets.
Operating profits and profit margin increased substantially during 2000 due to
the substantial increase in revenues and the leveragability built into our
operations. We have been able to control operating costs and continue to make
investments in developing new products without substantially affecting margins.
As a percentage of sales, operating and development expenses remained flat at 28
percent and sales and marketing expenses decreased to 38 percent from 43
percent.
Despite the recent volatility of the marketplace, we remain optimistic about our
future business. We have a current backlog of almost $2.0 billion of client
assets; we will be launching several new investment programs during 2001; and we
will dedicate resources to expanding our services into new markets to further
diversify this business. We are confident that our sales and product strategy
will continue to provide new business to support future growth. However,
continued volatility in the capital markets could have an effect on an investors
investment strategy. If investors move funds out of higher margin investment
products and into lower margin investment products or out
17
of the market altogether, revenues and margins would also be affected. In
addition, a significant devaluation in the capital markets would also affect
revenues and margins.
Mutual Fund Services
- --------------------
Mutual Fund Services provides administration and distribution services to
proprietary mutual funds created by banks, insurance firms, and investment
management companies. These services include fund administration and accounting,
legal and compliance services, shareholder recordkeeping, and marketing.
Revenues are based upon a fixed percentage, referred to as basis points, of the
average daily net asset value of the proprietary funds.
DOLLAR PERCENT
2000 1999 CHANGE CHANGE
---- ---- ------ ------
Revenues.................................. $126,885 $110,083 $16,802 15%
Expenses:
Operating and development................. 77,484 68,759 8,725 13%
Sales and marketing....................... 21,713 17,103 4,610 27%
------- ------- ------
Total operating profits.............. $ 27,688 $ 24,221 $ 3,467 14%
======= ======= ======
Profit margin........................ 22% 22% -- --
The increase in revenues was fueled by growth in average proprietary fund
balances, which increased $44.3 billion or 30 percent to $193.5 billion during
2000 compared to $149.2 billion during 1999. Most of the growth in revenues
resulted from new sales, especially in the investment management, offshore and
hedge fund markets. Additionally, we made progress in cross selling products to
our existing clients, mainly brokerage services. This growth reflects both the
market acceptance of our business solutions and the product strategy that was
instituted almost two years ago. However, total 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.
Profit margin remained flat in 2000 because expenses increased at the same rate
as revenues. Expenses rose because of continued investment in new technology and
accelerating sales and marketing efforts targeting the investment management and
offshore markets. As a percentage of sales, both operating and development and
sales and marketing expenses remained relatively flat.
The demand for our services in the investment management, offshore and hedge
fund markets has steadily risen. We will continue to focus our efforts in these
markets because we believe these markets hold the greatest long-term growth
potential for our services. The large bank market poses the most challenges
because of significant changes during the past few years. Many of the largest
banks with well-established complexes have grown their mutual funds to the point
where they are less reliant on the services of an outsourcer. In addition,
consolidations in the large bank market could negatively impact revenues. We are
repositioning services by emphasizing value added information and technology
products in this market.
Investments in New Business
- ---------------------------
Investments in New Business include of our global asset management initiatives
that incorporate our investment products and services to provide investment
solutions to institutional and high-net-worth investors outside the United
States as well as other new business initiatives. Revenues are primarily 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.
18
DOLLAR PERCENT
2000 1999 CHANGE CHANGE
---- ---- ------ ------
Revenues.................................. $ 34,339 $ 22,985 $11,354 49%
Expenses:
Operating and development................. 30,101 15,541 14,560 94%
Sales and marketing....................... 19,791 18,080 1,711 9%
------ ------ ------
Total operating losses............... $(15,553) $(10,636) $ (4,917) (46%)
====== ====== =======
Profit margin........................ (45%) (46%) -- --
The following table displays revenues by geographic region as a percentage of
total segment revenues:
2000 1999
---- ----
Europe/South Africa................................................ 51% 30%
Canada............................................................. 28% 43%
Asia............................................................... 9% 19%
Other.............................................................. 12% 8%
----- ------
Total......................................................... 100% 100%
Our offshore initiatives seek to capitalize on international growth
opportunities by designing products and creating distribution channels for these
products outside North America. We experienced substantial revenue growth in the
European/South African region. In Europe, the SEI-managed fund complex
established in association with Mediolanum S.p.A had significant asset growth
during the year. In South Africa, we received $600 million in new asset sales
from eight new clients. Average assets under management from our offshore
enterprises were $4.1 billion during 2000, as compared to $2.2 billion during
1999.
In Canada, we sold our consulting business in order to concentrate on our asset
management business. Early results of that refocusing have been optimistic. We
have received approximately $600 million in new assets from Canadian clients.
Average assets under management from our Canadian operations were $1.2 billion
during 2000, as compared to $697 million during 1999.
Although the pace of global asset gathering and revenue recognition continued to
accelerate, we also accelerated the pace of our investment efforts, especially
in the European region. We have recently formed an investment team in London to
support our global business, a marketing and service team in London to focus on
the U.K. pension market, and a marketing and investment operation in France as
part of our joint venture with HSBC-CCF. We will continue to focus sales efforts
in Canada and other countries as well. 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
2001.
General and Administrative
- --------------------------
General and administrative expenses increased 37 percent to $16,839 for 2000
from $12,298 for 1999. As a percentage of total consolidated revenues, general
and administrative expenses were 3 percent in 2000 and 1999.
Other Income
- ------------
Other income 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
19
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 2000 and 1999. Our vested interest in LSV's net earnings for 2000
was $7,533, as compared to $6,765 for 1999. 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 $4.8 billion during 2000, as compared to $4.4
billion during 1999.
Interest income for 2000 was $6,419, as compared to $2,285 for 1999. 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 2000 was $2,293 as compared to $2,375 for 1999. Interest
expense primarily relates to the issuance of long-term debt in early 1997 (See
Note 7 of the Notes to Consolidated Financial Statements).
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%)
General and Administrative.............................. (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............................ $ .59 $ .37 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.
20
The effective tax rate from continuing operations was 38.5 percent for 1999 and
1998.
Asset Balances
(In millions)
As of December 31, PERCENT
------------------
1999 1998 CHANGE
---- ---- ------
Assets invested in equity and fixed income funds........... $ 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%
Technology Services
- -------------------
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% -- --
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 increased $7.7
million or 29 percent.
Our trust operations outsourcing business continued to generate new business in
1999. 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.
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.
21
Asset Management
- ----------------
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 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 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.
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
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.
Mutual Fund Services
- --------------------
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% -- --
22
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.
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.
Investments in New Business
- ---------------------------
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 certain
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.
23
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.
General and Administrative
- --------------------------
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.
Other Income
- ------------
Other income 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.
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 7 of the Notes to Consolidated Financial Statements).
24
Liquidity and Capital Resources
- -------------------------------
2000 1999 1998
---- ---- ----
Net cash provided by operating activities...................... $148,263 $107,952 $119,898
Net cash used in investing activities.......................... (39,533) (21,829) (31,702)
Net cash used in financing activities.......................... (22,360) (65,897) (52,107)
-------- -------- --------
Net increase in cash and cash equivalents...................... 86,370 20,226 36,089
Cash and cash equivalents, beginning of year................... 73,206 52,980 16,891
-------- -------- --------
Cash and cash equivalents, end of year......................... $159,576 $ 73,206 $ 52,980
======== ======== ========
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 $50.0 million. The availability
of the line of credit is subject to compliance with certain covenants set forth
in the agreement (See Note 6 of the Notes to Consolidated Financial Statements).
At December 31, 2000, the unused sources of liquidity consisted of unrestricted
cash and cash equivalents of $147.7 million and the unused portion of the line
of credit of $50.0 million.
Cash flow generated from operations in 2000, 1999, and 1998 primarily resulted
from an increase in income. In addition, the tax benefit received from stock
options exercised increased substantially due to the rapid rise in our stock
price during the past three years, especially during 2000. The tax benefit on
stock options exercised was previously included in the cash flows from financing
activities in 1999 and 1998. The prior years have been reclassified to conform
with the current year presentation. Receivables from regulated investment
companies increased in 2000, 1999, and 1998 primarily due to an increase in
assets under management. These balances were received in the following month.
Additionally, the increase in receivables during 2000 and 1999 is due to timing
differences between services provided and contractual billing schedules.
Cash flows from investing activities are principally affected by capital
expenditures, including capitalized software development costs. Capital
expenditures in 2000, 1999, and 1998 included significant costs, including
equipment and furniture and fixtures associated with the expansion of our
corporate headquarters. Currently, we are constructing two additional buildings
and a parking structure that will be completed by the end of 2001. Total cost of
the expansion is estimated at $25.0 million. The additional buildings are
necessary due to growth in our primary business lines. Capitalized software
development costs in 1998 included significant investments in the TRUST 3000
product line, especially the open architecture project, and a concentrated
effort to address Year 2000 compliance issues. Also, we initiated the startup of
a new Company-sponsored investment product, an Insurance Product Trust, in which
we invested approximately $16.0 million. We expect these funds will remain
invested until at least late 2001. These investments are classified as
Investments available for sale on the Consolidated Balance Sheets.
Cash flows from financing activities are primarily affected by debt and equity
transactions. Principal payments are made annually from the date of issuance
while interest payments are made semi-annually (See Note 7 of the Notes to
Consolidated Financial Statements). We continued our common stock repurchase
program. Approximately 1.1 million shares of our common stock were acquired at a
cost of $24.8 million during 2000 pursuant to an open market stock purchase
authorization of $453.4 million made by the Board of Directors. As of March 16,
2001, we still had $55.7 million remaining authorized for the purchase of our
common stock. Proceeds received from the issuance of common stock results from
stock option exercise activity. Cash dividends of $.08 per share were declared
in 2000 and $.07 in 1999. 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. The results of CR have
been reported separately as discontinued operations in the accompanying
Consolidated Financial Statements.
A provision for the disposal of CR was established in late 1996 for $16,335. In
1998, sub-lease agreements were finalized in connection with certain operating
lease arrangements for facilities used by CR. 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
for a specified amount of cash at closing along with a note. In 1999, we
accepted $2,100,000 as satisfaction for the entire outstanding balance on the
note and this was recorded as a gain, net of tax expense of $808,000 and is
reflected in Income from disposal of discontinued operations on the Consolidated
Statements of Operations.
26
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
----------------------------------------------------------
We do have a number of satellite 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 7 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.
27
Item 8. Financial Statements and Supplementary Data.
-------------------------------------------
Index to Financial Statements:
Report of Independent Public Accountants
Consolidated Balance Sheets -- December 31, 2000 and 1999
Consolidated Statements of Operations -- For the years ended
December 31, 2000, 1999, and 1998
Consolidated Statements of Shareholders' Equity -- For the years ended
December 31, 2000, 1999, and 1998
Consolidated Statements of Cash Flows -- For the years ended December
31, 2000, 1999, and 1998
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.
28
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, 2000
and 1999, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 2000. 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements 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, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the Index to
Financial Statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.
January 26, 2001 (except with respect to the matter discussed in Note 8, as
to which the date is February 14, 2001)
29
Consolidated Balance Sheets SEI Investments Company
(In thousands) and Subsidiaries
December 31, 2000 1999
===================================================================================================
Assets Current Assets:
Cash and cash equivalents (including restricted
cash of $11,900 in 2000)................................... $159,576 $ 73,206
Receivables from regulated investment
companies............................................... 27,607 24,179
Receivables, net of allowance for doubtful
accounts of $1,700...................................... 47,404 33,554
Deferred income taxes...................................... 9,030 10,934
Prepaid expenses and other current assets.................. 5,414 5,119
-------- --------
Total Current Assets................................... 249,031 146,992
-------- --------
Property and Equipment, net of accumulated
depreciation and amortization of $83,874
and $71,415............................................. 75,111 65,640
-------- --------
Capitalized Software, net of accumulated
amortization of $11,733 and $9,838...................... 12,823 15,626
-------- --------
Investments Available for Sale............................. 20,294 6,704
-------- --------
Other Assets, net.......................................... 18,323 18,817
-------- --------
$375,582 $253,779
---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these
financial statements.
30
Consolidated Balance Sheets SEI Investments Company
(In thousands, except par value) and Subsidiaries
December 31, 2000 1999
---------------------------------------------------------------------------------------------------
Liabilities Current Liabilities:
and
Shareholders' Current portion of long-term debt........................... $ 2,000 $ 2,000
Equity Accounts payable............................................ 6,721 7,397
Accrued compensation........................................ 49,890 39,846
Accrued proprietary fund services........................... 14,834 11,562
Accrued consulting services................................. 8,200 7,342
Other accrued liabilities................................... 48,358 51,451
Deferred revenue............................................ 16,450 19,320
-------- --------
Total Current Liabilities............................... 146,453 138,918
-------- --------
Long-term Debt.............................................. 27,000 29,000
-------- --------
Deferred Income Taxes....................................... 4,708 6,859
-------- --------
Commitments and Contingencies (Note 10)
Shareholders' Equity:
Series Preferred stock, $.05 par value,
60 shares authorized; no shares issued
and outstanding.......................................... -- --
Common stock, $.01 par value,
750,000 shares authorized; 108,560 and
17,692 shares issued and outstanding..................... 1,086 177
Capital in excess of par value.............................. 125,473 71,501
Retained earnings........................................... 72,521 7,373
Accumulated other comprehensive losses...................... (1,659) (49)
-------- --------
Total Shareholders' Equity.............................. 197,421 79,002
-------- --------
$375,582 $253,779
-------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these
financial statements.
31
Consolidated Statements of Operations SEI Investments Company
(In thousands, except per share data) And Subsidiaries
Year Ended December 31, 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
Revenues................................................................ $598,806 $456,192 $366,119
Expenses:
Operating and development........................................... 279,024 215,216 180,937
Sales and marketing................................................. 154,984 126,184 103,834
General and administrative.......................................... 16,839 12,298 13,463
-------- -------- --------
Income from operations.................................................. 147,959 102,494 67,885
Equity in the earnings of unconsolidated affiliate...................... 7,533 6,765 3,015
Interest income......................................................... 6,419 2,285 1,558
Interest expense........................................................ (2,293) (2,375) (2,575)
-------- -------- --------
Income from continuing operations before income taxes................... 159,618 109,169 69,883
Income taxes............................................................ 60,655 42,030 26,904
-------- -------- --------
Income from continuing operations....................................... 98,963 67,139 42,979
Income from disposal of discontinued operations,
net of income tax expense of $808 and $404........................... -- 1,292 710
-------- -------- --------
Net income.............................................................. $ 98,963 $ 68,431 $ 43,689
- ----------------------------------------------------------------------------------------------------------------------------
Basic earnings per common share:
Earnings per common share from continuing operations................ $ .93 $ .63 $ .40
Earnings per common share from discontinued operations.............. -- .01 .01
-------- -------- --------
Basic earnings per common share......................................... $ .93 $ .64 $ .41
- ----------------------------------------------------------------------------------------------------------------------------
Diluted earnings per common share:
Earnings per common share from continuing operations................ $ .87 $ .59 $ .37
Earnings per common share from discontinued operations.............. -- .01 .01
-------- -------- --------
Diluted earnings per common share....................................... $ .87 $ .60 $ .38
- ----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
32
Consolidated Statements of Shareholders' Equity SEI Investments Company
(In thousands) and Subsidiaries
Accumulated Other
Comprehensive Losses
-----------------------------
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, 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
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 financial statements.
33
Consolidated Statements of Shareholders' Equity SEI Investments Company
(In thousands) and Subsidiaries
Accumulated Other
Comprehensive Losses
-----------------------------
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, 1999................. 17,692 $ 177 $ 71,501 $ 7,373 $ (469) $ 420 $ 79,002
Comprehensive income:
Net income.............................. -- -- -- 98,963 -- -- 98,963
Foreign currency translation
adjustments................. ........ -- -- -- -- (267) -- (267)
Unrealized loss on investments.......... -- -- -- -- -- (1,343) (1,343)
--------
Total comprehensive income................. 97,353
Stock split adjustment..................... 89,709 897 -- (897) -- -- --
Purchase and retirement of common
stock................................. (226) (2) (518) (24,323) -- -- (24,843)
Issuance of common stock under the
employee stock purchase plan.......... 46 1 3,144 -- -- -- 3,145
Issuance of common stock upon
exercise of stock options............. 1,339 13 9,111 -- -- -- 9,124
Tax benefit on stock options exercised..... -- -- 42,235 -- -- -- 42,235
Cash dividends............................. -- -- -- (8,595) -- -- (8,595)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000................. 108,560 $ 1,086 $125,473 $72,521 $ (736) $ (923) $197,421
- ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
34
Consolidated Statements of Cash Flows SEI Investments Company
(In thousands) and Subsidiaries
Year Ended December 31, 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income................................................................... $ 98,963 $ 68,431 $ 43,689
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................................... 17,305 15,793 15,688
Provision for losses on receivables................................ -- 500 --
Equity in the earnings of unconsolidated affiliate................. (7,533) (6,765) (3,015)
Write-off of capitalized software and intangibles.................. 3,737 1,204 7,494
Tax benefit on stock options exercised............................. 42,235 15,056 20,029
Deferred income tax expense (benefit).............................. 349 (3,483) (3,608)
Discontinued operations............................................ -- (1,292) (710)
Other.............................................................. 4,055 194 3,450
Change in current assets and liabilities:
Decrease (increase) in:
Receivables from regulated investment companies............ (3,428) (5,180) (4,547)
Receivables................................................ (13,850) (6,135) 2,121
Prepaid expenses and other current assets.................. (295) 894 9,110
Increase (decrease) in:
Accounts payable........................................... (676) 592 1,007
Accrued compensation....................................... 10,044 7,741 11,208
Accrued proprietary fund services.......................... 3,272 1,192 558
Accrued consulting services................................ 858 1,000 3,674
Other accrued liabilities.................................. (3,903) 12,401 7,397
Deferred revenue........................................... (2,870) 5,809 6,353
---------- -------------- ----------
Total adjustments.............................................. 49,300 39,521 76,209
---------- -------------- ----------
Net cash provided by operating activities......................... $148,263 $107,952 $119,898
- --------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
35
Consolidated Statements of Cash Flows SEI Investments Company
(In thousands) and Subsidiaries
Year Ended December 31, 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property and equipment..................................... (27,188) (17,254) (21,774)
Additions to capitalized software....................................... (449) (1,362) (6,719)
Purchase of investments available for sale.............................. (17,660) (3,114) (3,620)
Sale of investments available for sale.................................. 2,495 620 994
Other................................................................... 3,269 (719) (583)
------------- --------------- -------------
Net cash used in investing activities.............................. (39,533) (21,829) (31,702)
Cash flows from financing activities:
Payments on long-term debt.............................................. (2,000) (2,000) (2,000)
Purchase and retirement of common stock................................. (24,843) (65,970) (55,156)
Proceeds from issuance of common stock.................................. 12,269 8,470 10,379
Payment of dividends.................................................... (7,786) (6,397) (5,330)
------------- --------------- -------------
Net cash used in financing activities.............................. (22,360) (65,897) (52,107)
------------- --------------- -------------
Net increase in cash and cash equivalents.................................... 86,370 20,226 36,089
Cash and cash equivalents, beginning of year................................. 73,206 52,980 16,891
------------- --------------- -------------
Cash and cash equivalents, end of year....................................... $159,576 $73,206 $52,980
- -----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
36
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 37 percent of
consolidated revenues in 2000, includes the Trust 3000 product line and
trust operations outsourcing. Asset Management, which accounted for 36
percent of consolidated revenues in 2000, 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 21 percent of
consolidated revenues in 2000, 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 6 percent of consolidated revenues in
2000, consists of the Company's Canadian and international operations
which provide investment advisory services globally through investment
products and services.
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 5).
Cash and Cash Equivalents - Cash and cash equivalents included
$121,300,000 primarily invested in SEI Daily Income Trust in 2000, and
$72,874,000 primarily invested in SEI Tax Exempt Trust in 1999, which
are mutual funds sponsored by SIMC. Approximately $11,900,000 of cash
is restricted for the excusive benefit of customers related to our
brokerage services provided by SIDCO. Interest income for 2000, 1999,
and 1998 was $6,419,000, $2,285,000, and $1,558,000, respectively (See
Note 13).
Property and Equipment - Property and Equipment on the accompanying
Consolidated Balance Sheets consist of the following:
Estimated
Useful Lives
2000 1999 (In Years)
----------------------------------------------------------------------------------------------------------------------
Equipment..................................... $71,377,000 $62,437,000 3 to 5
Buildings..................................... 34,695,000 34,676,000 25 to 39
Land.......................................... 9,345,000 7,686,000 N/A
Purchased software............................ 16,035,000 13,302,000 3
Furniture and fixtures........................ 14,230,000 12,554,000 3 to 5
Leasehold improvements........................ 7,313,000 6,400,000 Lease Term
Construction in progress...................... 5,990,000 -- N/A
--------------- ----------------
158,985,000 137,055,000
Less: Accumulated depreciation
and amortization........................... (83,874,000) (71,415,000)
--------------- ----------------
Property and Equipment, net................... $75,111,000 $65,640,000
----------------------------------------------------------------------------------------------------------------------
37
Property and Equipment are stated at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful life of each
asset. Expenditures for renewals and betterments are capitalized, while
maintenance and repairs are charged to expense when incurred. Construction in
progress relates to the expansion of our corporate headquarters. Depreciation
expense was $15,410,000, $14,193,000, and $12,429,000 in 2000, 1999, and 1998,
respectively.
Capitalized Software - The Company accounts for software development costs in
accordance with Statement of Financial Accounting Standards No. 86, "Accounting
for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed"
("SFAS 86"). Under SFAS 86, costs incurred to create a computer software product
are charged to research and development expense as incurred until technological
feasibility has been established. The Company establishes technological
feasibility upon completion of a detailed program design. At that point,
computer software costs are capitalized until the product is available for
general release to customers. The establishment of technological feasibility and
the ongoing assessment of recoverability of capitalized software development
costs require considerable judgment by management with respect to certain
external factors, including, but not limited to, anticipated future revenues,
estimated economic life, and changes in technology.
Amortization begins when the product is released. Capitalized software
development costs are amortized on a product-by-product basis using the
straight-line method over the estimated economic life of the product or
enhancement, which is primarily three to ten years, with a weighted average
remaining life of 7.6 years.
Capitalized software development costs consist primarily of salary, consulting,
and computer costs incurred to develop new products and enhancements to existing
products. During 2000, 1999, and 1998, software development costs of $449,000,
$1,362,000, and $6,719,000 were capitalized, respectively. Amortization expense
was $1,895,000, $1,600,000, and $3,259,000 in 2000, 1999, and 1998,
respectively, and is included in Operating and development expense on the
accompanying Consolidated Statements of Operations.
Management continually evaluates the recoverability of existing software
products, as well as strategies for new software products. The assessment as to
the recoverability of existing software products includes an evaluation of
expected future revenues and cash flows, acceptability of the product in the
market, the ability to support the product in a cost-effective manner, and
technological enhancements. In 2000, 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 $1,357,0000,
$1,204,000, and $4,832,000 in 2000, 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:
2000 1999 1998
---- ---- ----
Interest paid................................. $ 2,220,000 $ 2,364,000 $ 2,598,000
Interest and dividends received............... 5,921,000 2,552,000 1,467,000
Income taxes paid (Federal and state)......... 49,134,000 23,175,000 12,514,000
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 they are performed. Cash received by the Company in advance of the
performance of services is deferred and recognized as revenue when earned.
38
Income Taxes - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). Under SFAS 109, the liability method is used for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on differences between the financial reporting and tax basis of assets and
liabilities and are measured using enacted tax rates and laws that are expected
to be in effect when the differences reverse (See Note 11).
Foreign Currency Translation - The assets and liabilities of foreign operations
are translated into U.S. dollars using the rates of exchange at year end. The
results of operations are translated into U.S. dollars at the average daily
exchange rates for the period. All foreign currency transaction gains and losses
are included in income in the periods in which they occur, and are immaterial
for each of the three years in the period ended December 31, 2000.
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. All earnings per common share and common share information has been
restated to reflect the three-for-one split paid on June 19, 2000 and the
two-for-one split to be paid on February 28, 2001 (See Note 8).
- ------------------------------------------------------------------------------------------------------------------
For the year ended December 31, 2000
----------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic earnings per common share
from continuing operations................ $98,963,000 106,490,000 $.93
Dilutive effect of stock options............... -- 7,330,000
-------------- ------------
Diluted earnings per common share
from continuing operations................ $98,963,000 113,820,000 $.87
For the year ended December 31, 1999
----------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic earnings per common share
from continuing operations................ $67,139,000 106,632,000 $.63
Dilutive effect of stock options............... -- 7,194,000
-------------- --------------
Diluted earnings per common share
from continuing operations................ $67,139,000 113,826,000 $.59
For the year ended December 31, 1998
----------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic earnings per common share
from continuing operations................ $42,979,000 106,962,000 $.40
Dilutive effect of stock options............... -- 7,794,000
-------------- ------------
Diluted earnings per common share
from continuing operations................ $42,979,000 114,756,000 $.37
- ------------------------------------------------------------------------------------------------------------------
Options to purchase 1,265,000, 2,220,000, and 2,532,000 shares of common stock,
with an average exercise price per share of $49.96, $19.75, and $14.91,
respectively, were outstanding during 2000, 1999, and 1998, 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.
39
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, 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
For the Year Ended December 31, 2000:
- ------------------------------------
Unrealized holding losses arising during period............. $ (2,166) $ 823 $ (1,343)
Foreign currency translation adjustments.................... (431) 164 (267)
-------- ------ --------
Total other comprehensive loss.............................. $ (2,597) $ 987 $ (1,610)
==================================================================================================================
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.
Reclassifications - Certain reclassifications have been made to conform to the
current year presentation.
40
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.
A provision for the disposal of CR was established in late 1996 for
$16,335. In 1998, sub-lease agreements were finalized in connection
with certain operating lease arrangements for facilities used by CR. 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 for a specified amount of cash at closing along with a
note. In 1999, the Company accepted $2,100,000 as satisfaction for the
entire outstanding balance on the note which was recorded as a gain,
net of tax expense of $808,000 and 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:
2000 1999
==================================================================================================================
Trade receivables........................................ $ 22,558,000 $ 16,339,000
Fees earned, not received................................ 1,801,000 2,304,000
Fees earned, not billed.................................. 24,745,000 16,611,000
------------ ------------
49,104,000 35,254,000
Less: Allowance for doubtful accounts................... (1,700,000) (1,700,000)
------------ ------------
$ 47,404,000 $ 33,554,000
==================================================================================================================
Fees earned, not received represent brokerage commissions earned but
not yet collected. Fees earned, not billed result from timing
differences between services provided and contractual billing
schedules.
Receivables from regulated investment companies on the accompanying
Consolidated Balance Sheets represent fees 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 13).
41
Note 4 - 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, 2000 had an aggregate
cost of $21,710,000 and an aggregate market value of $20,294,000, with
gross unrealized holding losses of $1,416,000. The net unrealized
holding losses at December 31, 2000 were $923,000 (net of income tax
benefit of $493,000). 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). The net unrealized holding gains and
losses at December 31, 2000 and 1999 were reported as a separate
component of Accumulated other comprehensive losses on the accompanying
Consolidated Balance Sheets.
Note 5 - Other Assets:
Other assets on the accompanying Consolidated Balance Sheets consist of
the following:
2000 1999
=================================================================================================================
Investment in unconsolidated affiliate............................... 5,627,000 5,305,000
Other, net........................................................... 12,696,000 13,512,000
------------ ------------
Other assets......................................................... $ 18,323,000 $ 18,817,000
=================================================================================================================
Investment in Unconsolidated Affiliate - The Company and several
leading academics in the field of finance operate a general
partnership, LSV Asset Management ("LSV"). LSV is a registered
investment advisor which provides investment advisory services to
institutions, including pension plans and investment companies. LSV is
currently the portfolio manager for a number of Company-sponsored
mutual funds. The Company's interest in LSV for 2000 and 1999 was
approximately 47 percent. 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 2000 1999 1998
===================================================================================================================
Revenues....................................................... $ 22,974,000 $ 20,108,000 $ 10,810,000
Net income..................................................... $ 16,170,000 $ 14,388,000 $ 6,637,000
===================================================================================================================
42
Condensed Balance Sheet 2000 1999
=============================================================================================================
Cash and cash equivalents...................................... $ 5,408,000 $ 3,435,000
Accounts receivable............................................ 5,541,000 6,024,000
Other current assets........................................... 27,000 --
Non-current assets............................................. 103,000 131,000
------------ -----------
Total assets................................................... $ 11,079,000 $ 9,590,000
============= ===========
Current liabilities............................................ $ 1,285,000 $ 782,000
Partners' capital.............................................. 9,794,000 8,808,000
------------ -----------
Total liabilities and
partners' capital........................................... $ 11,079,000 $ 9,590,000
============ ===========
=============================================================================================================
Note 6 - 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, 2001, 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. The Company was in compliance with
these covenants during 2000.
There were no borrowings on the Company's line of credit during 2000
and 1999. Interest expense, including commitment fees, on the Company's
line of credit was $127,000, $79,000, and $127,000 for the years ended
December 31, 2000, 1999, and 1998, respectively. The weighted average
interest rate was 5.9 percent for the year ended December 31, 1998.
Note 7 - Long-term Debt:
On February 24, 1997, the Company signed a Note Purchase Agreement
authorizing the issuance and sale of $20,000,000 of 7.20% Senior Notes
and $15,000,000 of 7.27% Senior Notes (collectively, the "Notes") in a
private offering with certain financial institutions. The Notes are
unsecured with final maturities ranging from 10 to 15 years. The
proceeds from the Notes were used to repay the outstanding balance on
the Company's line of credit at that time. The Note Purchase Agreement,
as amended, contains various covenants, including limitations on
indebtedness, maintenance of minimum net worth levels, and restrictions
on certain investments. In addition, the agreement limits the Company's
ability to merge or consolidate, and to sell certain assets. Principal
payments on the Notes are made annually from the date of issuance while
interest payments are made semi-annually. The carrying amount of the
Company's long-term debt is not materially different from its fair
value. The Company was in compliance with these covenants during 2000.
43
Aggregate maturities of long-term debt at December 31, 2000 are:
=============================================================================================
2001................................................................ $ 2,000,000
2002................................................................ 2,000,000
2003................................................................ 4,000,000
2004................................................................ 4,000,000
2005................................................................ 4,000,000
2006 and thereafter................................................. 13,000,000
----------
$29,000,000
=============================================================================================
Interest expense relating to the Company's long-term debt was
$2,155,000, $2,296,000, and 2,448,000 for the years ended December 31,
2000, 1999, and 1998 respectively.
Note 8 - Shareholders' Equity:
Stock Split - On May 10, 2000, the Board of Directors approved a three-
for-one stock split of the Company's $.01 par value common stock,
effected in the form of a stock dividend which was paid on June 19,
2000 to shareholders of record on June 5, 2000. A total of 35,400,000
shares of common stock were issued in connection with the stock split.
The par value of the stock remained unchanged. Accordingly, a total of
$354,000 was reclassified from Retained earnings to Common stock.
Except for the Consolidated Statements of Shareholders' Equity, all
references in the accompanying financial statements to the number of
shares of common stock, related prices, and per share amounts have been
reported to reflect the effect of the stock split.
On December 14, 2000, the Board of Directors approved a two-for-one
stock split the Company's $.01 par value common stock, effected in the
form of a stock dividend which will be paid on February 28, 2001 to
shareholders of record on February 19, 2001. On February 14, 2001, a
special meeting of the shareholders was held and they approved an
increase in the number of shares authorized to 750,000,000. A total of
54,309,000 shares of common stock were issued in connection with the
stock split. The par value of the stock remained unchanged.
Accordingly, a total of $543,090 was reclassified from Retained
earnings to Common stock.
Stock-Based Compensation Plans - The Company has several stock option
plans under which non-qualified and incentive stock options for common
stock are available for grant to officers, directors, and key
employees. The options granted and the option prices are established by
the Board of Directors in accordance with the terms of the plans. The
Board of Directors has reserved an aggregate 87,630,000 shares for
grant under these plans. All options outstanding were granted at prices
equal to the fair market value of the stock on the date of grant and
expire 10 years after the date of grant. All options granted prior to
December 1997 vest ratably over a four year period from the date of
grant. All options granted in December 1997 and after vest ratably upon
the Company's attainment of specific earnings targets or entirely after
seven years from the date of grant. Earning targets are established on
the date of grant.
The Company issues options at fair value and accounts for its stock
option plans in accordance with APB Opinion No. 25, "Accounting for
Stock Issued to Employees". Accordingly, no compensation expense has
been recognized. In 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"). SFAS 123 establishes a fair
value based method of accounting for stock-based compensation plans.
SFAS 123 requires that an employer's financial statements include
certain disclosures about stock-based employee compensation
arrangements regardless of the method used to account for the plan. Had
the Company recognized compensation cost for its stock option plans
consistent with the provisions of SFAS 123, the Company's net income
and earnings per common share would have been reduced to the following
pro forma amounts:
44
2000 1999 1998
--------------------------------------------------------------------------------------------------------
Net income:
As reported......................................... $98,963 $68,431 $43,689
Pro forma........................................... $80,689 $55,859 $37,721
Basic earnings per common share:
As reported......................................... $ .93 $ .64 $ .41
Pro forma........................................... $ .76 $ .52 $ .35
Diluted earnings per common share:
As reported......................................... $ .87 $ .60 $ .38
Pro forma........................................... $ .71 $ .49 $ .33
-----------------------------------------------------------------------------------------------------
The weighted average fair value of the stock options granted during 2000, 1999,
and 1998 was $71.31, $29.06, and $20.31 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:
2000 1999 1998
------------------------------------------------------------------------------------------------------
Risk-free interest rate.................................. 6.12% 5.81% 5.34%
Expected dividend yield.................................. 0.14% 0.30% 1.00%
Expected life............................................ 7 Years 7 Years 7 Years
Expected volatility...................................... 40.49% 40.24% 40.19%
-----------------------------------------------------------------------------------------------------
45
Certain information relating to the Company's stock option plans for
2000, 1999, and 1998 is summarized as follows:
------------------------------------------------------------------------------------------------------------
Weighted
Number of Average
Shares Exercise Price
---------- ----------------
Balance as of December 31, 1997................................. 22,770,000 $ 3.21
Granted......................................................... 3,048,000 14.01
Exercised....................................................... (5,784,000) 1.95
Expired or canceled............................................. (570,000) 5.42
-----------
Balance as of December 31, 1998................................. 19,464,000 5.21
Granted......................................................... 2,592,000 19.15
Exercised....................................................... (2,970,000) 2.22
Expired or canceled............................................. (186,000) 6.80
-----------
Balance as of December 31, 1999................................. 18,900,000 7.57
Granted......................................................... 1,483,000 46.69
Exercised....................................................... (3,301,000) 2.84
Expired or canceled............................................. (388,000) 12.63
-----------
Balance as of December 31, 2000................................. 16,694,000 $ 11.87
Exercisable as of December 31, 2000............................. 8,627,000 $ 3.89
Available for future grant as of December 31, 2000.............. 5,071,000 --
---------------------------------------------------------------------------------------------------------
As of December 31, 1999 and 1998, there were 11,460,000 and 11,856,000
shares exercisable, respectively. The expiration dates for options at
December 31, 2000 range from July 17, 2001 to December 14, 2010, with
a weighted average remaining contractual life of 6.3 years.
46
The following table summarizes information relating to all options
outstanding at December 31, 2000:
--------------------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
at December 31, 2000 at December 31, 2000
------------------------------------- -----------------------------------
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)
----------- ------ ----------- ------ ----------- -------
$ 1.56 - $2.88 2,029,000 $ 2.18 2,029,000 $ 2.18 1.6
3.02 - 3.30 1,950,000 3.07 1,904,000 3.07 3.9
3.60 - 4.38 3,237,000 3.83 3,237,000 3.83 4.8
7.00 2,682,000 7.00 1,200,000 7.00 7.0
8.75 - 19.00 3,252,000 14.24 257,000 9.75 8.2
19.75 - 50.00 3,544,000 31.08 -- -- 9.4
---------- ----------
16,694,000 8,627,000
--------------------------------------------------------------------------------------------------------------------
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 7,800,000 shares for issuance under this plan. At
December 31, 2000, 4,878,000 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 $403,365,000. Through
December 31, 2000, a total of 98,265,000 shares at an aggregate cost
of $355,091,000 have been purchased and retired. The Company purchased
1,119,000 shares at a cost of $24,843,000 during 2000.
The Company immediately retires its common stock when purchased. Upon
retirement, the Company reduces Capital in excess of par value for the
average capital per share outstanding and the remainder is charged
against Retained earnings. If the Company reduces its Retained
earnings to zero, any subsequent purchases of common stock will be
charged entirely to Capital in excess of par value.
Shareholders' Rights Plan - On December 10, 1998, the Company's Board
of Directors adopted a new Shareholder Rights Plan to replace the
Shareholder Rights Plan originally adopted in 1988 which expired on
December 19, 1998. The Company's Shareholder Rights Plan is designed
to deter coercive or unfair takeover tactics and to prevent a person
or group from acquiring control of the Company without offering a fair
price to all shareholders.
Under the terms of the 1998 Shareholder Rights Plan, all common
shareholders of record at the close of business on December 19, 1999
shall receive one Right for each outstanding common share of the
Company. Any new common shares issued after December 19, 1999 will
receive one Right for each common share. Each Right entitles the
registered holder to purchase from the Company one two-thousandths of
a share of Series A Junior Participating Preferred Shares, par value
$.05 per share, at an exercise price of $500 per share. The Rights
will become exercisable and trade separately from the common stock 10
days following a public announcement that a person or group is the
beneficial owner of 20 percent or more of the outstanding common stock
(the "Stock Acquisition Date"), or the commencement of a tender or
exchange offer that would result in such a person or group owning 20
percent or more of the outstanding common stock.
In the event that the Company is involved in a merger or other
business combination in which the Company survives and its common
stock remains outstanding, the other stockholders will be able to
exercise the Rights and buy common stock of the Company having twice
the value of the exercise price of the Rights. Additionally, if the
Company is involved in certain other mergers where its shares are
exchanged or certain major sales of its assets occur, stockholders
will be able to purchase the
47
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 10, 2000, the Board of Directors declared a cash
dividend of $.04 per share on the Company's common stock, which was
paid on June 19, 2000, to shareholders of record on June 5, 2000. On
December 14, 2000, the Board of Directors declared a cash dividend of
$.04 per share on the Company's common stock, which was paid on
January 25, 2001, to shareholders of record on January 8, 2001.
The dividends declared in 2000, 1999, and 1998 were $8,595,000,
$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 9 - Employee Benefit Plan:
The Company has a tax-qualified defined contribution plan (the
"Plan"). The Plan provides retirement benefits, including provisions
for early retirement and disability benefits, as well as a tax-
deferred savings feature. After satisfying certain requirements,
participants are vested in employer contributions at the time the
contributions are made. All Company contributions are discretionary
and are made from available profits. The Company contributed
$2,210,000, $1,774,000, and $1,471,000 to the Plan in 2000, 1999, and
1998, respectively.
Note 10 - Commitments and Contingencies:
The Company has entered into various operating leases for facilities,
data processing equipment, and software. Some of these leases contain
escalation clauses for increased taxes and operating expenses. Rent
expense was $11,822,000, $11,166,000, and $14,142,000 in 2000, 1999,
and 1998, respectively.
Aggregate noncancellable minimum lease commitments at December 31,
2000 are:
-------------------------------------------------------------------
2001............................................. $ 7,304,000
2002............................................. 5,096,000
2003............................................. 3,734,000
2004............................................. 1,439,000
2005............................................. 915,000
2006 and thereafter.............................. 10,815,000
------------
$ 29,303,000
-------------------------------------------------------------------
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 11 - Income Taxes:
Income taxes from continuing operations consist of the following:
Year Ended December 31, 2000 1999 1998
-----------------------------------------------------------------------------------------------------------------
Current
Federal...................................... $56,752,000 $42,144,000 $28,841,000
State........................................ 3,554,000 3,369,000 1,671,000
----------- ----------- -----------
60,306,000 45,513,000 30,512,000
----------- ----------- -----------
Deferred, including current deferred
Federal...................................... 783,000 (2,577,000) (3,020,000)
State........................................ (434,000) (906,000) (588,000)
----------- ----------- -----------
349,000 (3,483,000) (3,608,000)
----------- ----------- -----------
Total income taxes from continuing
operations................................... $60,655,000 $42,030,000 $26,904,000
The effective income tax rate from continuing operations differs from
the Federal income tax statutory rate due to the following:
Year Ended December 31, 2000 1999 1998
------------------------------------------------------------------------------------------------------------------
Statutory rate..................................... 35.0% 35.0% 35.0%
State taxes, net of Federal tax benefit............ 1.2 1.4 1.0
Foreign losses..................................... .3 1.5 3.2
Other, net......................................... 1.5 0.6 (0.7)
----- ---- -----
38.0% 38.5% 38.5
------------------------------------------------------------------------------------------------------------------
Deferred income taxes for 2000, 1999, and 1998 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, 2000 1999 1998
-------------------------------------------------------------------------------------------------------------------------
Difference in financial reporting and income
tax depreciation methods.................... $ (192,000) $ (62,000) $ 385,000
Reserves not currently deductible................ 488,000 (11,000) 1,000,000
Capitalized software currently deductible for
tax purposes, net of amortization........... (981,000) (504,000) (674,000)
State deferred income taxes...................... (283,000) (589,000) (382,000)
Revenue and expense recognized in
different periods for financial reporting
and income tax purposes..................... 542,000 (2,064,000) (2,722,000)
Other, net....................................... 775,000 (253,000) (1,215,000)
---------- ----------- -----------
$ 349,000 $(3,483,000) $(3,608,000)
-------------------------------------------------------------------------------------------------------------------------
49
The net deferred income tax asset is comprised of the following:
Year Ended December 31, 2000 1999
----------------------------------------------------------------------------------------------------
Current deferred income taxes:
Gross assets................................. $ 9,030,000 $ 10,934,000
Gross liabilities............................ -- --
------------ ------------
9,030,000 10,934,000
------------ ------------
Long-term deferred income taxes:
Gross assets................................. 63,000 34,000
Gross liabilities............................ (4,771,000) (6,893,000)
------------ ------------
(4,708,000) (6,859,000)
------------ ------------
Net deferred income tax asset..................... $ 4,322,000 $ 4,075,000
----------------------------------------------------------------------------------------------------
The Company did not record any valuation allowance against deferred
tax assets at December 31, 2000 and 1999.
The tax effect of significant temporary differences representing
deferred tax assets (liabilities) is as follows:
Year Ended December 31, 2000 1999
--------------------------------------------------------------------------------------------------
Difference in financial reporting and income
tax depreciation methods.................... $ 131,000 $ 256,000
Reserves not currently deductible................ 802,000 1,052,000
Capitalized software currently deductible for
tax purposes, net of amortization........... (5,391,000) (6,706,000)
State deferred income taxes...................... (265,000) (215,000)
Revenue and expense recognized in
different periods for financial reporting
and income tax purposes..................... 8,493,000 9,708,000
Unrealized holding gain on investments........... 552,000 (20,000)
----------- -----------
$ 4,322,000 $ 4,075,000
--------------------------------------------------------------------------------------------------
50
Note 12 - Segment Information:
The Company established its segments in accordance with Statement
of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS
131 establishes standards for the way public business enterprises
report financial information about operating segments in financial
statements. SFAS 131 also requires additional disclosures about
products and services, geographic areas, and major customers.
The Company 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 (loss) 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.
The following tables highlight certain financial information from
continuing operations about each of the Company's segments for the
years ended December 31, 2000, 1999, and 1998:
Mutual Investments
Technology Asset Fund In New
2000 Services Management Services Business Other Total
==========================================================================================================================
Revenues............ $222,246,000 $215,336,000 $126,885,000 $ 34,339,000 $598,806,000
----------- ----------- ----------- ---------- -----------
Income (loss)
from operations.. $ 79,992,000 $ 72,671,000 $ 27,688,000 $ (15,553,000) $(16,839,000) $147,959,000
---------- ----------- ----------- ------------ ----------
Other income, net... $ 11,659,000
----------
Income from
continuing
operations
before income
taxes............ $159,618,000
-----------
Depreciation and
amortization..... $ 11,932,000 $ 2,305,000 $ 1,471,000 $ 1,086,000 $ 511,000 $ 17,305,000
----------- ----------- ----------- ------------ ----------- -----------
Capital
expenditures..... $ 17,345,000 $ 3,462,000 $ 2,041,000 $ 2,015,000 $ 2,325,000 $ 27,188,000
------------ ------------ ---------- ------------ ----------- -----------
Total assets........ $100,727,000 $ 47,599,000 $ 28,671,000 $ 31,517,000 $167,068,000 $375,582,000
------------- ------------ ------------ ----------- ----------- -----------
51
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
----------- ----------- ----------- ---------- -----------
Income (loss)
from operations.. $ 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
----------- ---------- ----------- ----------- ----------- -----------
============================================================================================================================
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
----------- ---------- ------------ ----------- ------------
Income (loss)
from operations.. $ 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
----------- ---------- ---------- ------------ ----------- ------------
=============================================================================================================================
Other consists of expenses and assets attributable to corporate overhead
groups that are not allocated to the operating segments for internal
financial reporting purposes. Unallocated assets primarily consist of cash
and cash equivalents, deferred tax assets, the investment in LSV, and
certain other shared services assets.
52
The following table presents the details of other income (expense):
For the Year Ended December 31, 2000 1999 1998
-------------------------------------------------------------------------------------------------------------------------
Equity in the earnings of
unconsolidated affiliate...................... $ 7,533,000 $ 6,765,000 $ 3,015,000
Interest income.................................. 6,419,000 2,285,000 1,558,000
Interest expense................................. (2,293,000) (2,375,000) (2,575,000)
----------- ----------- -----------
$11,659,000 $ 6,675,000 $ 1,998,000
-------------------------------------------------------------------------------------------------------------------------
The following table presents revenues by country based on the location
of the use of the products or services:
For the Year Ended December 31, 2000 1999 1998
-------------------------------------------------------------------------------------------------------------------------
United States.................................... $559,574,000 $429,517,000 $350,729,000
International operations......................... 39,232,000 26,675,000 15,390,000
------------ ------------ ------------
$598,806,000 $456,192,000 $366,119,000
-------------------------------------------------------------------------------------------------------------------------
The following table presents assets based on its location:
2000 1999 1998
-------------------------------------------------------------------------------------------------------------------------
United States.................................... $354,695,000 $231,620,000 $193,133,000
International operations......................... 20,887,000 22,159,000 15,639,000
------------ ------------ ------------
$375,582,000 $253,779,000 $208,772,000
-------------------------------------------------------------------------------------------------------------------------
Note 13 - 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 $246,308,000,
$196,608,000, and $152,076,000 in 2000, 1999, and 1998, 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 $41,129,000, $25,883,000, and $15,480,000
in 2000, 1999, and 1998, respectively.
53
Note 14 - Quarterly Financial Data (Unaudited):
For the Three Months Ended
-------------------------------------------------------------------------
2000 March 31 June 30 Sept. 30 Dec. 31
------------------------------------------------------------------------------------------------------------------------
Revenues................................... $ 138,746,000 $ 146,440,000 $ 155,628,000 $ 157,992,000
Income before income taxes................. $ 32,691,000 $ 36,496,000 $ 44,324,000 $ 46,107,000
Net income................................. $ 20,269,000 $ 22,627,000 $ 27,481,000 $ 28,586,000
Basic earnings per common share............ $ .19 $ .21 $ .26 $ .27
Diluted earnings per common share.......... $ .18 $ .20 $ .24 $ .25
------------------------------------------------------------------------------------------------------------------------
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.............. $ .14 $ .15 $ .17 $ .17
Basic earnings per common share............ $ .14 $ .15 $ .17 $ .18 (a)
Diluted earnings per common share
from continuing operations.............. $ .13 $ .14 $ .16 $ .16
Diluted earnings per common share.......... $ .13 $ .14 $ .16 $ .17 (a)
------------------------------------------------------------------------------------------------------------------------
(a) Includes income from disposal of discontinued operations of
$1,292,000 or $.01 basic earnings per common share and $.01
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, 2000
-----------------------------------------------------------------
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, 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
For the Year Ended December 31, 2000:
Allowance for doubtful accounts $ 1,700,000 $ -- $ -- $ -- $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
2001 Annual Meeting of Shareholders to be filed with the Securities and Exchange
Commission within 120 days after December 31, 2000 pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (the "2001 Proxy
Statement").
The executive officers of the Company are as follows:
ALFRED P. WEST, JR., 58, 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, 57, 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, 53, has been an Executive Vice President since October 1990,
and a Director since May 1995.
CARL A. GUARINO, 43, 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, 50, has been an Executive Vice President since January 1994
and a Senior Vice President since January 1988.
DENNIS J. MCGONIGLE, 40, 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, 45, 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, 39, 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, 35, has been a Senior Vice President and General
Counsel since March 2000 and a Vice President since May 1995.
KATHY HEILIG, 42, has been Chief Accounting Officer and Controller since
May 1999 and a Vice President since 1991.
MARK SAMUELS, 53, has been a Senior Vice President since 1995.
ROBERT F. CRUDUP, 53, has been a Senior Vice President since 1995 and an
Executive Vice President since June 1998.
JUDITH E. TSCHIRGI, 46, has been an Executive Vice President since January 2001
and a Senior Vice President since 1997.
JOE P. UJOBAI, 39, has been a Senior Vice President since 1995.
MARK NAGLE, 41, has been an Executive Vice President since January 2001 and a
Vice President since 1995.
Kenneth G. Zimmer, 44, has been a Senior Vice President since 1990.
57
Item 11. Executive Compensation.
----------------------
The information called for in this item is hereby incorporated by reference to
the 2001 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 2001 Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
----------------------------------------------
The information called for in this item is hereby incorporated by reference to
the 2001 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, 2000 and 1999
Consolidated Statements of Operations -- For the years ended
December 31, 2000, 1999, and 1998
Consolidated Statements of Shareholders' Equity -- For the
years ended December 31, 2000, 1999, and 1998
Consolidated Statements of Cash Flows -- For the years ended
December 31, 2000, 1999, and 1998
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, 2000.
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, 2001 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, 2001 By /s/ Alfred P. West, Jr.
-------------- --------------------------
Alfred P. West, Jr.
Chairman of the Board,
Chief Executive Officer,
and Director
Date March 29, 2001 By /s/ Carmen V. Romeo
-------------- --------------------------
Carmen V. Romeo
Executive Vice President and
Director
Date March 29, 2001 By /s/ Richard B. Lieb
-------------- --------------------------
Richard B. Lieb
Executive Vice President and
Director
Date March 29, 2001 By /s/ Henry H. Greer
-------------- --------------------------
Henry H. Greer
Director
Date March 29, 2001 By /s/ William M. Doran
-------------- --------------------------
William M. Doran
Director
Date March 29, 2001 By /s/ Henry H. Porter, Jr.
-------------- --------------------------
Henry H. Porter, Jr.
Director
Date March 29, 2001 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.)
3.1.5* Amendment to Articles of Incorporation of the Registrant, dated
February 14, 2001. (Page 65)
3.2 By-Laws. (Incorporated by reference to exhibit 3.2 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1983.)
3.2.1 Amendment to By-Laws, dated December 19, 1988. (Incorporated by
reference to exhibit 3.2.1 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1988.)
3.2.2 Amendment to By-Laws, dated July 12, 1990. (Incorporated by
reference to exhibit 3.2.2 to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1990.)
4.1 Form of Certificate for Shares of Common Stock. (Incorporated by
reference to exhibit 4.1 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1988.)
4.2 Rights Agreement dated December 10, 1998. (Incorporated by
reference to exhibit 4.2 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998.)
Note: Exhibits 10.1 through 10.9 constitute the management
contracts and executive compensatory plans or arrangements in
which certain of the directors and executive officers of the
Registrant participate.
10.1 Stock Option Plan, Amended, Restated and Renewed as of February
11, 1997. (Incorporated by reference to exhibit 99(a) to the
Registrant's Registration Statement on Form S-8 (No. 333-63709)
filed September 18, 1998.)
10.1.1 1997 Stock Option Plan. (Incorporated by reference to exhibit
99(b) to the Registrant's Registration Statement on Form S-8
(No. 333-63709) filed September 18, 1998.)
10.1.2 1997 Option Share Deferral Plan. (Incorporated by reference to
exhibit 99(c) to the Registrant's Registration Statement on Form
S-8 (No. 333-63709) filed September 18, 1998.)
10.1.3 1998 Equity Compensation Plan. (Incorporated by reference to
exhibit 99(f) to the Registrant's Registration Statement on Form
S-8 (No. 333-63709) filed September 18, 1998.)
10.1.4 First Amendment to the 1998 Equity Compensation Plan.
(Incorporated by reference to exhibit 10.1.4 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December
31, 1999.)
10.2 Employee Stock Ownership Plan. (Incorporated by reference to
exhibit 10.3 (b) to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1985.)
10.3 Employee Stock Purchase Plan, Amended and Restated as of May 8,
1991. (Incorporated by reference to exhibit 10.3 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1991.)
10.3.1 Employee Stock Purchase Plan as Amended and Restated on October
15, 1997. (Incorporated by reference to exhibit 99(e) to the
Registrant's Registration Statement on Form S-8 (No. 333-63709)
filed September 18, 1998.)
10.4 SEI Capital Accumulation Plan. (Incorporated by reference to
exhibit 99(e) to the Registrant's Registration Statement on Form
S-8 (No. 333-41343) filed December 2, 1997.)
10.5 Stock Option Plan for Non-Employee Directors. (Incorporated by
reference to exhibit 10.12 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1988.)
61
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.)
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.)
62
10.14.8 Ninth Modification Agreement to the Credit Agreement, dated
March 31, 1996, between PNC Bank, National Association,
successor by merger to Provident National Bank, and the
Registrant. (Incorporated by reference to exhibit 10.14.8 to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996.)
10.14.9 Tenth Modification Agreement to the Credit Agreement, dated
May 31, 1996, between PNC Bank, National Association,
successor by merger to Provident National Bank, and the
Registrant. (Incorporated by reference to exhibit 10.14.9 to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996.)
10.14.10 Eleventh Modification Agreement to the Credit Agreement,
dated October 1, 1996, between PNC Bank, National
Association, successor by merger to Provident National Bank,
and the Registrant. (Incorporated by reference to exhibit
10.14.10 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996.)
10.14.11 Release and Modification Agreement to the Credit Agreement,
dated February 20, 1997, between PNC Bank, National
Association, successor by merger to Provident National Bank,
and the Registrant. (Incorporated by reference to exhibit
10.14.11 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996.)
10.14.12 Thirteenth Modification Agreement to the Credit Agreement,
dated May 30, 1997, between PNC Bank, National Association,
successor by merger to Provident National Bank, and the
Registrant. (Incorporated by reference to exhibit 10.14.12 to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997.)
10.14.13 Fourteenth Modification Agreement to the Credit Agreement,
dated December 31, 1997, between PNC Bank, National
Association, successor by merger to Provident National Bank,
and the Registrant. (Incorporated by reference to exhibit
10.14.13 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997.)
10.14.14 Fifteenth Modification Agreement to the Credit Agreement,
dated March 31, 1998, between PNC Bank, National Association,
successor by merger to Provident National Bank, and the
Registrant. (Incorporated by reference to exhibit 10.14.14 to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998.)
10.14.15 Sixteenth Modification Agreement to the Credit Agreement,
dated May 29, 1998, between PNC Bank, National Association,
successor by merger to Provident National Bank, and the
Registrant. (Incorporated by reference to exhibit 10.14.15 to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998.)
10.14.16 Seventeenth Modification Agreement to the Credit Agreement,
dated September 29, 1998, between PNC Bank, National
Association, successor by merger to Provident National Bank,
and the Registrant. (Incorporated by reference to exhibit
10.14.16 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998.)
10.14.17 Eighteenth Modification Agreement to the Credit Agreement,
dated November 18, 1999, between PNC Bank, National
Association, successor by merger to Provident National Bank,
and the Registrant. (Incorporated by reference to exhibit
10.14.17 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1999.)
10.14.18 Nineteenth Modification Agreement to the Credit Agreement,
dated December 30, 1999, between PNC Bank, National
Association, successor by merger to Provident National Bank,
and the Registrant. (Incorporated by reference to exhibit
10.14.18 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1999.)
10.14.19* Twentieth Modification Agreement to the Credit Agreement,
dated December 30, 2000, between PNC Bank, National
Association, successor by merger to Provident National Bank,
and the Registrant. (Page 72)
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.)
63
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 76)
23* Consent of Independent Public Accountants. (Page 79)
27 Financial Data Schedule.
99* Miscellaneous exhibits. (Page 81)
* Filed herewith as an exhibit to this Form 10-K.
64