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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, 1996
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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
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Commission file number 0 - 10200
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SEI INVESTMENTS COMPANY
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-1707341
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
1 Freedom Valley Drive, Oaks, Pennsylvania 19456-1100
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 610-676-1000
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Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on Which
Title of Each Class Registered
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None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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(Cover page 1 of 2 pages)
Exhibit Index on Page 51
Page 1 of 107 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, 1997: $280,016,279. For purposes of making this calculation
only, registrant has defined affiliates as including all directors and
beneficial owners of more than ten percent of the common stock of the
registrant.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 14(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
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APPLICABLE ONLY TO CORPORATE REGISTRANTS:
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of February 28, 1997: 18,560,946.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the following documents are incorporated by reference herein:
1. Notice of and Proxy Statement for the 1997 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.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Paragraph 229.405 of this chapter) 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 2 of 2 pages)
2
PART I
Item 1. Business.
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General Development of Business
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SEI Investments Company ("SEI" or the "Company"), formerly SEI Corporation, was
incorporated in Pennsylvania in 1968. SEI Financial Services Company ("SFS"),
SEI Financial Management Corporation ("SFM"), and SEI Trust Company ("SEI
Trust") are the principal wholly owned subsidiaries of the Company. SFS and SFM
are investment advisors registered with the Securities and Exchange Commission
("SEC") under the Investment Advisers Act of 1940. SFS is a broker-dealer
registered with the SEC under the Securities Exchange Act of 1934 and is a
member of the National Association of Securities Dealers, Inc. SEI Trust is a
limited-purpose trust entity chartered in the Commonwealth of Pennsylvania.
At the time of the Company's initial public offering in March 1981, the
Company's principal business activity was providing an on-line, real-time
accounting and management information system to bank trust departments.
Beginning in 1982, the Company, through SFS and SFM, expanded its trust product
line by sponsoring a number of institutional investment products, primarily in
the form of registered investment companies sold to SEI clients and other
institutional investors and financial intermediaries.
In 1983, the Company, through SFS, entered the pension and investment consulting
business by acquiring the Funds Evaluation Division of A.G. Becker Paribas, Inc.
and began providing a comparative investment performance evaluation service to
tax-exempt fund sponsors and institutional money managers. In 1986, the Company,
through an additional acquisition, began providing evaluation services to
Canadian fund sponsors and money managers. In 1995, the Company decided to exit
its U.S. consulting business and subsequently announced its intention to
dispose of its Capital Resources Division ("CR"). At December 31, 1996, the
Company wrote off all the non-recoverable assets of CR but continues to hold
those operations pending sale or other disposition. (See Note 2 of the Notes
to Consolidated Financial Statements). The Company has retained its Canadian
pension and investment advisor consulting business.
In 1989, the Company acquired National FSI, Inc., which eventually became SEI
Defined Contribution Retirement Services ("DC"), a division of SFM. DC provided
administrative and processing services and software services for use by employee
benefit plans. In 1996, the Company completed the transfer of the processing
services provided by DC to a third party and at December 31, 1996, the Company
wrote off its entire interest in DC (See Note 2 of the Notes to Consolidated
Financial Statements).
In 1990, SFS and SFM began providing a full range of administration and
distribution services to proprietary mutual funds established for banks and
other financial institutions and intermediaries. The client serves as the
investment advisor for the proprietary funds, and the funds are sold primarily
to customers of the client.
In 1991, the Company began to offer various asset management services to
institutional investors. These services included programs created to help
institutional investors establish investment objectives and asset allocation
strategies, and to gain access to top-quality investment managers. Beginning in
1992, the Company began offering its asset management services to high-net-worth
individuals and small defined contribution and benefit plans through selected
financial intermediaries.
In 1994, the Company, through SEI Trust, began offering complete back-office
accounting and processing services, allowing trust institutions to outsource
their trust operations and related investment functions.
In 1995, the Company began to expand its asset management services outside the
United States by targeting selected foreign markets in which the Company could
tailor its investment management programs to institutional investors and high-
net-worth individuals.
3
Industry Segments
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The Company is organized around its two core product lines: Investment
Technology and Services and Asset Management. The Investment Technology and
Services segment, which accounted for 69 percent of the Company's consolidated
revenues in 1996, includes the following products and services: Trust 3000
product line, proprietary funds administration and distribution services, and
trust back-office processing. The Asset Management segment, which accounted for
31 percent of the Company's consolidated revenues in 1996, consists of the
global distribution of the Company's asset management products to the
institutional and high-net-worth markets, directly and through professional
investment advisors.
Financial information about the Company's business segments is contained in Note
12 of the Notes to Consolidated Financial Statements in Item 8. Additional
financial information and discussion about the Company's business segments,
including a breakdown of the Company's revenues by product line, is contained in
Management's Discussion and Analysis of Financial Condition and Results of
Operations in Item 7.
Investment Technology and Services
Trust Systems and Services
The Company, through SFM, provides trust and investment accounting and
management information services as an outsourcer to financial institutions
with its TRUST 3000 product line. TRUST 3000 is a complete trust accounting and
investment system with fully automated securities movement and control linked
directly to the Depository Trust Company. TRUST 3000 offers investment
management functionally 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. The TRUST 3000 product line allows clients to choose the
processing alternatives that best suit their business needs. The Company
provides trust and investment processing services through a state-of-the-art
data communications network which is internally managed. Clients utilize
terminals and workstations which are connected through this network to access
the Company's data center.
The value of the TRUST 3000 product line has been further enhanced by the
introduction of the Company's StrataQuest product line. StrataQuest consists of
modular workstation products that transform data into user-friendly customer
service and investment analysis desktop applications. StrataQuest also provides
technology platform products that manage the flow of data and allow for the
integration of TRUST 3000 information with other financial institution systems
in an open systems architecture.
SEI's market for its trust accounting and management information services
consists primarily of bank trust departments managing assets between $10 million
and $100 billion. The Company believes that there are approximately 1,500 trust
departments of this size. At December 31, 1996, the Company was providing
processing or software services to 127 trust departments, including trust
departments of 29 of the top 100 banks, located in 39 states, the District of
Columbia, and Canada. The Company segregates the trust accounting and
information services market by trust assets under management: $20 billion or
more in managed assets; $300 million to $20 billion in managed assets; and under
$300 million in managed assets. Each of these three trust accounting and
management information services markets are characterized by different pricing,
service, and product parameters. SEI endeavors to offer a full range of products
and services suitable for each. Customers generally contract for terms of three
to five years and revenues are based on monthly processing and software
application fees.
Principal competitors of the Company's trust accounting and processing services
are Fidelity-Trust Technology Services LLC, SunGard Data Systems, Marshall and
Isley, and FTI. In addition, numerous financial institutions operate their own
trust processing systems. The Company believes that in terms of both revenues
and number of clients served, its TRUST 3000 product is the leading trust
accounting and management system sold by third-party vendors to bank trust
departments. The Company believes that, with regard to its 3000 product line,
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. A
vendor's experience in, and commitment to, the financial industry is also
considered. Revenues from trust systems and services accounted for approximately
46 percent of the Company's consolidated revenues in 1996.
Trust Back-Office Processing
In 1994, the Company began to extend its trust technology line by offering trust
back-office processing. Through SEI Trust, the Company provides a fully
integrated custody and back-office outsourcing solution to trust organizations.
By combining its TRUST 3000 product line with sophisticated global investment
products and back-office capabilities, SEI Trust can offer a total outsourcing
solution. This level of outsourcing provides trust institutions with access to
the industry's state-of-the-art accounting system, along with processing,
reporting, and custody services provided through the specialized capabilities of
SEI Trust personnel. SEI Trust automates and centralizes all of 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.
4
Initially, community banks were the target market for this product. However, as
the concept of outsourcing has gained credibility and acceptance within the
Industry, the customer base for these products and services has expanded to
include both small and large banks. The Company believes that the market for its
outsourcing solution consists primarily of bank trust departments ranging in
size from start-ups to those managing assets of over $10 billion, and selected
business lines of trust departments up to $100 billion in assets. SEI Trust's
current contracts span from start-up trust companies to a $50 billion trust
department. The term of the contracts varies from three to five years. At
December 31, 1996, SEI Trust had contracts to perform back-office processing
services to 23 clients.
The major strategic issue facing this product line is the continued
consolidation of the banking industry, which may reduce the number of potential
bank prospects and/or eliminate customers from its user base. Currently, the
only known competitor in this market is Marshall and Isley. Additional
competitors can be expected over the next few years. Revenue from trust
back-office processing is not yet material as a percentage of the Company's
consolidated revenues in 1996.
Proprietary Fund Services
In 1990, the Company began providing administrative and distribution services to
proprietary mutual funds for which a bank serves as the investment advisor, and
are sold primarily to clients of the bank. Today, SEI provides a full range
of administration and distribution services to the proprietary funds created for
banks, other financial institutions, and money managers. Administration services
offered include back-office administrative, financial, legal/compliance, and
shareholder accounting services. Distribution services offered include marketing
strategy and sales, and wholesaler support. SEI also assists the client in
establishing both product and program strategy. SEI offers a multifaceted
marketing program which assists in promoting the funds at the institutional and
retail levels. At December 31, 1996, SEI provided administration and
distribution services for banks, money managers, and credit union proprietary
fund complexes with assets under administration of approximately $61.4 billion.
These complexes include various open-end management investment companies.
The majority of the Company's new clients had existing mutual funds for which
the Company assumed the administration and distribution responsibilities. These
relationships do not bear the risk of non-funding as with a new fund complex.
However, in the event that the client does not have an established proprietary
fund complex, the Company would have to obtain the necessary securities
registration and assist the client in the transfer of existing investment funds
into mutual funds. Until such registration is complete and asset transfers
occur, SEI would receive no revenues from the proprietary funds it helps
establish. In addition, SEI would expend significant time and resources during
the start-up of a mutual fund complex and bear the risk that these costs would
not be recovered if the mutual fund complex was not funded.
5
The Company's market for its proprietary funds services and products consists
primarily of bank trust departments and investment advisors. At the end of 1996,
there were approximately 115 proprietary fund complexes that existed in the
United States. SEI administered proprietary funds for 26 clients at December 31,
1996. The Company's contracts with proprietary mutual funds have initial terms
ranging from two to five years. Principal competitors of the Company's
proprietary mutual fund services include Federated Investors, Inc., BISYS Group,
First Data Corporation, PFPC, and State Street Bank. The Company believes that a
potential customer of its proprietary mutual fund services considers 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 with
proprietary software provided by the Company.
In 1996, Congress signed into law legislation allowing the tax-free conversion
of common trust funds into mutual funds. This change in legislation has created
an additional opportunity for the Company in its proprietary mutual fund
business which could result in an increased amount of assets under
administration. In addition, while banks are currently prohibited by banking
laws from serving as the principal underwriter to mutual funds, legislation has
been proposed from time to time to remove this restriction. Currently, several
versions of such legislation are pending before Congress. If such legislation is
passed, some banks may consider performing the services now provided by SEI
themselves. In addition, consolidation in the banking industry may reduce the
number of bank proprietary fund complexes in existence. Revenue from
proprietary fund products and services accounted for approximately 23 percent of
the Company's consolidated revenues in 1996.
Asset Management
SEI, through SFS and SFM, has created a number of investment products for
institutional investors and financial intermediaries. The initial investment
products, first distributed in 1982, were developed to meet the liquidity
requirements of bank trust departments utilizing the Company's 3000 product
line. In 1985, the Company began offering equity, fixed income, and tax-exempt
products. Currently, the products offered by the Company include several U.S.
mutual fund families, private investment products, and offshore funds. The
Company employs a total investment management approach that uses a qualitative
asset allocation model and investment strategies based upon the precepts of
portfolio structure, specialist sub-advisors, and active risk management.
SEI, through SFM, acts as the administrator, transfer agent, and fund accountant
for these products under separate administration contracts which generally 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. SFM is also the investment advisor
for several of these investment products.
Liquidity Services
Since 1982, the Company has offered liquidity products to bank trust
departments. The Company also provides cash sweep technology that enables a
financial institution to sweep excess balances from demand deposit accounts into
money market accounts. In addition, the Company provides cash management
services and other financial management solutions to corporations. In 1996, the
Company launched CashStrategies, a complete cash management investment program
which incorporates cash flow analytics with SEI developed software to provide
corporate treasurers an effective solution in managing their cash and investment
portfolios.
The Company's liquidity products consist primarily of money market and other
short-term mutual funds and the SEI 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 that use the TRUST 3000 product line can also effect purchases and
redemptions in SEI's investment products through an automated subsystem included
in the Company's TRUST 3000 system that performs daily sweeps of trust accounts
and invests the available cash in one or more of the Company's investment
products. Other clients may purchase or redeem investment products through
microsystems utilizing SFM's FundPac+PlusR product located at client locations,
or by telephone orders to SFM.
6
The Company's market for its liquidity products and services consists primarily
of bank trust departments, investment advisors, and corporations located in the
United States. The number of clients using the Company's liquidity products and
services totaled approximately 400 at December 31, 1996. Total assets invested
in the Company's liquidity funds, including REPO, totaled $14.7 billion at
December 31, 1996.
Principal competitors of the Company's liquidity products and services include
Federated Investors, Inc., Fidelity Management Corporation, Investors Fiduciary
Trust Company, and Goldman, Sachs & Co., and other mutual fund complexes that
market to institutional investors as well as individual bank proprietary and
common trust funds. The Company believes that a potential customer of its
liquidity services business considers the price and performance of the Company's
investment products and its diverse product offerings, as well as the ease of
investment through SEI's automated sweep system, FundPac+Plus, and its cash
sweep technology. Revenues from liquidity services accounted for approximately 8
percent of the Company's consolidated revenues in 1996.
Asset Management and Mutual Fund Services
The Company began providing investment solutions to defined benefit plans,
hospitals, endowment funds, and other institutional investors in 1991. SEI
offers such investors an integrated investment program which enables a pension
or other investment committee to outsource their investment management process
to SEI. SEI works with each client to develop asset management strategies that
are consistent with the client's business needs and investment objectives. A
client's strategy is implemented through SEI's Family of Funds that employ style
specific sub-adivsors. Through technology, SEI offers its clients real-time data
and portfolio analysis. SEI's total investment management approach provides
clients with increased diversification, reduced risk , and greater control over
their portfolios. Clients also have the ability to access specialized money
manages through separate accounts.
The Company also offers asset management programs tailored to meet the needs of
high-net-worth individuals and small institutions that are marketed through
selected intermediaries such as broker-dealers, registered investment advisors,
financial planners, and bank trust departments. Investment recommendations are
based on one of SEI's asset management strategies that utilize SEI's Family of
Funds. The Company's asset management strategies offer financial intermediaries
various asset allocation models that provide diversification among investment
classes and periodic rebalancing to achieve the investor's objectives. SEI also
provides marketing assistance, sales support, and back-office services such as
custody and recordkeeping.
At December 31, 1996, there were approximately 800 clients invested in the
Company's asset management programs through separate accounts or through the
Company's Family of Funds with $9.1 billion in assets invested. The principal
competition for the Company's asset management products is from other investment
advisors and mutual fund companies. Fees are earned as a percentage of assets
under management. Revenues from asset management and mutual fund services
accounted for approximately 16 percent of the Company's consolidated revenues in
1996.
7
Brokerage and Consulting Services
The Company, through its wholly owned subsidiary, SEI Financial Services Limited
("SFS Ltd."), provides performance evaluation and other consulting services to
Canadian pension plans. SFS Ltd. also supports money managers in managing their
clients' investments through investment performance evaluation services, as well
as trading cost analysis and marketing strategy review.
The Company's fund sponsor, money manager, and Trust 3000 clients remit payment
for services rendered by SEI in cash or, subject to applicable regulatory
guidelines, by directing brokerage commissions to SFS or SFS Ltd. 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, the Company's
revenues may be affected by changes in market trading volume or changes in
government regulations affecting directed brokerage payments.
The market for the Company's consulting services consists mostly of defined
benefit plan sponsors and investment managers located in Canada. At December 31,
1996, the Company was providing consulting services to approximately 375 defined
benefit plan sponsors and 40 investment managers. Revenues from brokerage and
consulting services accounted for approximately 7 percent of the Company's
consolidated revenues in 1996.
Marketing and Sales
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SEI employs 23 sales representatives in its Investment Technology and Services
segment and 51 sales representatives in its Asset Management segment. These
sales personnel operate from 16 offices located in Oaks, Pennsylvania; San
Francisco, California; Chicago, Illinois; Boston, Massachusetts; New York, New
York; Dallas and Houston, Texas; Norcross, Georgia; Toronto, Ontario; Montreal,
Quebec; Vancouver, British Columbia; Halifax, Nova Scotia; Zurich, Switzerland;
Dublin, Ireland; Johannesburg, South Africa, and Buenos Aires, Argentina.
Customers
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The Company currently serves approximately 1,800 clients. For the year ended
December 31, 1996, no single customer accounted for more than 10 percent of the
Company's revenues in any industry segment.
Development of New Products and Services
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Software products
The Company believes that its service to existing and potential customers is
enhanced by its substantial investment in improving existing software products
and developing new products and services for the financial industry. To sustain
and enhance its competitive position in the industry, the Company is committed
to a continuous and high level of expenditures for research and development. The
Company currently utilizes over 250 professionals dedicated to the design,
development, and enhancement of SEI products. Half of these professionals are
SEI employees devoted exclusively to the Company's research and development
effort. The Company currently releases new products as they are completed,
rather than holding them for bundling in three major annual releases as it has
in the past. The benefit to the client is frequent, more manageable releases.
Maintenance releases occur four times each year during the months of February,
May, August, and November.
The Company's new product development efforts are currently focused on its
StrataQuest open architecture product line. StrataQuest allows the Company's
clients to operate in a multi-platform environment using client/server
installations. This open architecture facilitates the development of new
applications for the Company, as well as expanding the upward functionality of
its existing products to enhance their attractiveness to the largest clients. As
clients begin utilizing new client/server applications, the Company expects its
ability to sell into this market to be greatly enhanced over the next three
years.
In 1996, the Company began a comprehensive program to address the Year 2000
compliance problem facing most technology and operating systems. The Company has
completed an analysis of the impact Year 2000 will have on the Company's 3000
Product Line and has begun the necessary work to ensure that the TRUST 3000
product line is YEAR 2000 compliant by 1999.
8
During 1996, 1995, and 1994, the Company expended (including amounts
capitalized) approximately $26,254,000 (10.6 percent of revenues), $16,744,000
(7.4 percent of revenues), and $15,001,000 (7.3 percent of revenues),
respectively, to design, develop, and modify existing or new products and
services.
Investment products
The Company has taken several steps to increase the asset management services it
provides both domestically and internationally. In 1994, the Company formed a
partnership with three leading academics in the field of finance. The
partnership, LSV Asset Management ("LSV"), is a value-oriented, contrarian money
manager that offers a deep-value investment alternative. The direct market for
LSV's money management services includes large pension fund sponsors world-wide.
In addition to managing approximately $190 million of the Company's own mutual
funds, LSV is managing approximately $188 million of institutional assets as of
December 31, 1996.
The Company also formed an asset management company in Canada in 1994. The
company, Primus Capital Advisors Co. ("Primus"), is an
investment counselor/portfolio manager offering investment advisory services to
both large and small Canadian defined benefit pension plans. At December 31,
1996, Primus had five clients with total assets under management of $128
million.
The Company, through its Swiss subsidiary, SEI Capital AG, is managing and
trading a portfolio of trade finance obligations arising from international
export transactions. Revenue is generated from several sources: interest,
commitment fees, and trading spreads. As of December 31, 1996, SEI has
contributed $15 million to this subsidiary which now holds $13.0 million of
loans receivable available for sale (See Note 5 of the Notes to Consolidated
Financial Statements).
The Company is also looking to capitalize on international growth opportunities
in the investment management industry by expanding the distribution of the
Company's investment products and services through asset management solutions
for institutions and high-net-worth investors outside North America. The
Company's strategy is designed to capitalize on two major trends in the global
marketplace: (1) the privatization and globalization of pension funds, and (2)
the increased wealth accumulation among high-net-worth investors. The Company's
marketing efforts have focused on four main regions: Europe, Asia, Latin
America, and South Africa. In all four regions, the Company's initial strategy
is to team with local partners to establish name recognition and distribution
channels for the Company's products and services. Major highlights in 1996
included: the establishment of an offshore fund administration firm in Ireland,
the creation of a distribution network and an acquisition of an investment
advisory firm in Argentina, a joint venture in Taiwan and asset management
contracts signed with a Swiss pension plan and two South African pension plans.
Although significant investments have been made in all these areas, the amount
of revenue generated from these ventures is not yet material as a percentage of
the Company's consolidated revenues in 1996.
Regulatory Considerations
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SFS and SFM 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 SFS's or SFM's engaging in business for specified periods of
time, the revocation of SFS's or SFM'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.
Investment products offered by SEI and its subsidiaries 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 the Company are
also subject to SEC and other federal regulatory authorities. Changes in the
regulation of directed brokerage or soft dollar payment arrangements could
affect the Company's sales of some services, primarily its brokerage and
consulting services.
9
Bank clients of both business segments are subject to supervision by federal and
state banking authorities concerning the manner such clients purchase and
receive the Company's 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 the
Company's clients may affect such clients' purchase of the products and services
offered by the Company.
Personnel
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At December 31, 1996, the Company had 1,070 full-time and 63 part-time
employees. None of the Company's employees are represented by a labor union. The
Company considers its employee relations to be good.
Item 2. Properties.
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In the last quarter of 1996, the Company relocated its corporate headquarters to
Oaks, Pennsylvania. The new campus consists of five buildings situated on
approximately 90 acres. The buildings and the land are owned and operated by the
Company and cover approximately 225,000 square feet. The Company's data center
and warehouse facility are housed in an additional 86,000 square feet of leased
space in Wayne, Pennsylvania. The Company also leases an additional 55,000
square feet of space in Wayne for its mutual funds operation. The Company has
sales support offices in Chicago, Illinois (67,000 square feet) and Dallas,
Texas (9,000 square feet). All other offices leased by the Company aggregate
40,000 square feet. The Company owns a New York City condominium (3,400 square
feet) used for business purposes.
Item 3. Legal Proceedings.
-----------------
There are no legal proceedings to which the Company is a party or to which any
of its properties is subject which are expected to have a material adverse
effect on the business of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
There were no matters submitted to a vote of security holders during the fourth
quarter of 1996.
Information with regard to the executive officers of the Company is contained in
Item 10 hereof and is incorporated by reference to this Part I.
10
PART II
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Item 5. Market for the Registrant's Securities and Related Stockholder Matters.
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Price Range of Common Stock:
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The Company's common stock is traded in the NASDAQ National Market System under
the symbol SEIC. The following table shows the range of closing sales prices on
the NASDAQ National Market System for the periods indicated.
1996 High Low
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First Quarter 24 1/2 21 1/4
Second Quarter 26 3/8 21 1/8
Third Quarter 24 1/2 17 3/4
Fourth Quarter 23 1/2 20
1995 High Low
- - ---- ---- ---
First Quarter 20 1/4 16 3/4
Second Quarter 23 7/8 17 1/4
Third Quarter 24 1/2 20 1/8
Fourth Quarter 23 3/4 19 3/4
As of December 31, 1996, there were approximately 1,100 shareholders of record.
The Board of Directors declared a $.12 dividend in May and December of 1996, and
a $.10 dividend in May and December of 1995. The Board of Directors has
indicated its intention to pay future dividends on a semiannual basis.
11
Item 6. Selected Financial Data.
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(In thousands, except per share data)
The following table summarizes selected financial data for the five years in the
period ended December 31, 1996. The historical selected financial data for the
Company for each of the five years in the period ended December 31 are derived
from, and are qualified by reference to, the financial statements of the Company
which are included with Item 8 in this report. Such financial statements have
been audited by Arthur Andersen LLP, independent public accountants, to the
extent indicated in their report. This data should be read in conjunction with
the Company's financial statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in this report.
For the Year 1996 1995(A) 1994(A) 1993(A) 1992(A)(B)
- - ---------------------------------------------------------------------------------------------------------------------------------
Revenues............................................ $247,817 $225,964 $205,051 $185,064 $158,025
Expenses:
Operating and development....................... 129,776 115,366 110,504 108,743 96,378
Sales and marketing............................. 68,719 58,892 48,561 39,521 37,874
General and administrative...................... 13,235 16,963 16,919 16,865 17,285
------------- ------------ ------------- ------------ --------------
Income from continuing operations
before interest and income taxes.................... 36,087 34,743 29,067 19,935 6,488
Gain on sale of investments available for sale...... (1,097) -- -- -- --
Interest income, net................................ (760) (764) (374) (315) (472)
------------- ------------ ------------- ------------ --------------
Income from continuing operations
before income taxes................................. 37,944 35,507 29,441 20,250 6,960
Income taxes........................................ 14,798 14,381 11,188 7,493 2,506
------------- ------------ ------------- ------------ --------------
Income from continuing operations................... 23,146 21,126 18,253 12,757 4,454
Income (loss) from discontinued operations.......... -- (1,942) 997 3,382 6,877
Loss on disposal of discontinued operations......... (16,335) -- -- -- --
Gain on sale of discontinued operation.............. -- -- -- -- 1,597
------------- ------------ ------------- ------------ --------------
Net income.......................................... $6,811 $19,184 $19,250 $16,139 $12,928
- - ---------------------------------------------------------------------------------------------------------------------------------
Earnings per share from continuing operations (C)... $1.20 $1.09 $.91 $.62 $.20
Earnings (loss) per share from discontinued
operations (C)...................................... (.85) (.10) .05 .16 .39
------------- ------------ ------------- ------------ --------------
Earnings per share (primary and fully diluted) (C).. $.35 $.99 $.96 $.78 $.59
Shares used to calculate earnings per share (C)..... 19,348 19,445 20,027 20,733 21,940
Cash dividends declared per common share (C)........ $.24 $.20 $.16 $.12 $.075
- - ---------------------------------------------------------------------------------------------------------------------------------
Year-end Financial Position
Property and equipment, net......................... $ 48,620 $ 24,299 $25,338 $22,279 $19,033
Total assets........................................ $ 141,041 $ 101,347 $91,148 $88,229 $79,402
Short-term borrowings............................... $ 20,000 $ -- $ -- $ -- $ --
Shareholders' equity................................ $ 56,108 $ 56,002 $51,309 $51,541 $49,376
- - ---------------------------------------------------------------------------------------------------------------------------------
(A) Information for 1995, 1994, 1993, and 1992 has been reported to reflect the
SEI Capital Resources Division and the SEI Defined Contribution Retirement
Services Division as discontinued operations. See Note 2 of the Notes to
Consolidated Financial Statements.
(B) Information for 1992 has been reported to reflect Reality Technologies, Ltd.
as a discontinued operation.
(C) All share and per share information for 1992 has been reported to reflect
the two-for-one stock split in 1993.
12
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations.
-------------
(In thousands, except per share data)
The Company is organized around its two core product lines: Investment
Technology and Services and Asset Management. Financial information on each of
these segments is reflected in Note 12 of the Notes to Consolidated Financial
Statements.
Results of Operations
- - ---------------------
1996 Compared with 1995
The Company's results of operations for the year ended December 31, 1996
included revenues from continuing operations of $247,817, compared to $225,964
reported in the same period of 1995, an increase of approximately 10 percent
over the prior period. Income from continuing operations for 1996 was $23,146 or
$1.20 per share, compared to $21,126 or $1.09 per share reported in 1995.
Earnings per share from continuing operations for 1996 increased 10 percent over
the prior year. At December 31, 1996, the Company recorded a charge for the
expected loss on disposal of discontinued operations of $16,335 or $.85 per
share (See Note 2 of the Notes to Consolidated Financial Statements). Total fund
balances at December 31, 1996 were $85.2 billion compared to $61.2 billion at
December 31, 1995, an increase of 39 percent. Included in these totals are
proprietary fund balances of $61.4 billion at December 31, 1996 and $41.7
billion at December 31, 1995, an increase of 47 percent. The Company continued
to make substantial investments in the sales and marketing of its core asset
management business, along with significant investments to expand its asset
management business internationally. Additionally, the Company continued to
invest in trust technology, primarily through the development of its open
architecture project.
Investment Technology and Services
- - ----------------------------------
Revenues from the Investment Technology and Services segment for the year ended
December 31, 1996 and 1995 were $171,034 and $157,960, respectively.
INVESTMENT TECHNOLOGY AND SERVICES REVENUES
-------------------------------------------
DOLLAR PERCENT
1996 1995 CHANGE CHANGE
---- ---- ------ ------
Trust systems and services $113,071 $110,886 $ 2,185 2%
Proprietary fund services 57,963 47,074 10,889 23%
-------- -------- ------
Total $171,034 $157,960 $13,074 8%
======= ======= ======
The 8 percent increase in this segment's revenues was due primarily to growth in
the proprietary mutual fund business. Proprietary fund services revenue
increased 23 percent over the prior period due to an increase in average
proprietary fund balances during the past year despite the loss of two
proprietary fund complexes in the first quarter of 1996. Proprietary fund
services revenues are derived from the administrative fees which the Company
earns based on a fixed percentage of the average daily net asset value of the
proprietary funds. Average proprietary fund balances increased $16.1 billion or
47 percent from $34.3 billion during 1995 to $50.4 billion during 1996. This
increase in proprietary fund balances was the result of growth in existing fund
complexes and the commencement of several new fund complexes during the past
year. Recent changes in legislation regarding bank common trust funds now permit
the transfer of common trust assets into proprietary mutual funds on a tax-free
basis. This change in legislation should have a positive impact on the Company's
proprietary fund services business in future years. Trust systems and services
revenue increased 2 percent over the prior year primarily due to a $5.6 million
one-time contractual obligation received from a client that terminated its
relationship with the Company in the first quarter of 1996. This one-time fee
more than offset a decline in trust processing fees. Revenues should continue to
expand in 1997 due to continued growth in fund balances from proprietary funds,
as well as from gains in sales momentum relating to the Company's total
back-office outsourcing solution. However, increases in future revenues could be
adversely affected by the loss of bank clients as a result of continued mergers
among banks.
13
INVESTMENT TECHNOLOGY AND SERVICES EXPENSES
-------------------------------------------
DOLLAR PERCENT
1996 1995 CHANGE CHANGE
---- ---- ------ ------
Operating and development $93,451 $82,529 $10,922 13%
Sales and marketing $31,372 $30,255 $ 1,117 4%
The 13 percent increase in operating and development expense was primarily
attributable to increases in consulting and outsourcing, in addition to direct
expense associated with the growth in proprietary fund balances. The increase in
consulting and outsourcing expense reflects the Company's significant investment
in trust technology, mainly enhancements to its trust technology through its
open architecture project. Additionally, significant investments were made by
the Company to enhance its back-office outsourcing solution. The 4 percent
increase in sales and marketing expense was due to an increase in personnel and
promotion expenses. Operating profit from Investment Technology and Services for
the year ended December 31, 1996 was $46,211, an increase of 2 percent from the
$45,176 for the corresponding period of 1995. Operating margins for this segment
decreased to 27 percent in 1996 compared to 29 percent in 1995. In addition to
the items previously discussed, the decline in operating margins is attributable
to the Company experiencing higher growth in its lower margin products.
Asset Management
- - ----------------
Revenues from the Asset Management segment for the year ended December 31, 1996
and 1995 were $76,783 and $68,004, respectively.
ASSET MANAGEMENT REVENUES
-------------------------
DOLLAR PERCENT
1996 1995 CHANGE CHANGE
---- ---- ------ ------
Liquidity services $20,727 $21,944 $(1,217) (6%)
Mutual fund services 25,711 18,677 7,034 38%
Asset management services 14,118 14,476 (358) (2%)
Brokerage and consulting services 16,227 12,907 3,320 26%
------ ------ -----
Total $76,783 $68,004 $ 8,779 13%
====== ====== ======
Revenues from this segment increased 13 percent due to an increase in the
Company's mutual fund business. Liquidity services revenue decreased 6 percent
as a result of clients transferring assets from higher-fee liquidity products to
lower-fee liquidity products, even though average fund balances increased in
1996. Mutual fund services revenue increased 38 percent due to an increase in
average fund balances from the Company's Family of Funds over the past year.
This increase was the result of increased sales of the Company's Family of Funds
to high-net-worth individuals through various registered investment advisors.
The 2 percent decrease in asset management services revenue is due to a decrease
in fund balances associated with the Company's International Collective Trust.
The 26 percent increase in brokerage and consulting services revenue is due
primarily to an internal reassignment of bank-related brokerage services.
14
ASSET MANAGEMENT EXPENSES
-------------------------
DOLLAR PERCENT
1996 1995 CHANGE CHANGE
---- ---- ------ ------
Operating and development $36,325 $32,837 $3,488 11%
Sales and marketing $37,347 $28,637 $8,710 30%
The 11 percent increase in operating and development expense was due primarily
to an increase in direct expenses associated with the increase in brokerage and
consulting services revenue. The 30 percent increase in sales and marketing
expense was primarily attributable to increases in personnel, travel, and
promotion expenses to strengthen the Company's core asset management business.
Additionally, the Company made significant investments in 1996 to establish its
distribution channels in non-U.S. markets. The Asset Management segment recorded
an operating profit of $3,111 in 1996, compared to $6,530 in 1995. The lower
operating profit represents the Company's continued commitment to establishing
itself as a significant participant in the domestic and international asset
management marketplace. The Asset Management segment is expected to show
improved operating results in 1997 as a result of growth in its core asset
management business and continued growth in its mutual fund services business.
Other Income and Expenses
- - -------------------------
General and administrative expenses for the year ended December 31, 1996 and
1995 were $13,235 and $16,963, respectively. General and administrative expenses
declined 22 percent primarily due to decreases in personnel expenses in
corporate overhead areas, in addition to a shift of certain costs to the
individual business segments in 1996.
Gain on sale of investments available for sale for the year ended December 31,
1996 was $1,097. The realized gain is a result of the Company's disposition of
all of its investments classified as Investments available for sale at an amount
greater than original cost (See Note 6 of the Notes to Consolidated Financial
Statements).
Net interest income for the year ended December 31, 1996 and 1995 was $760 and
$764, respectively. Borrowings under the short-term line of credit were
primarily used to finance the construction of the Company's new corporate
campus. Therefore, the majority of interest expense related to the borrowings
under the short-term line of credit has been capitalized and is reflected in
Buildings (See Note 1 of the Notes to Consolidated Financial Statements).
The Company's effective tax rate from continuing operations was 39.0 percent for
1996 and 40.5 percent for 1995. The Company accounts for income taxes in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" (See Note 1 of the Notes to Consolidated Financial
Statements).
15
1995 Compared with 1994
The Company's results of operations for the year ended December 31, 1995
included revenues from continuing operations of $225,964, compared to $205,051
reported in the same period of 1994, an increase of over 10 percent from the
prior period. Income from continuing operations for 1995 was $21,126 or $1.09
per share, compared to $18,253 or $0.91 per share reported in 1994. Earnings per
share from continuing operations for 1995 increased 20 percent over the prior
year. Total fund balances at December 31, 1995 were $61.2 billion compared to
$46.3 billion at December 31, 1994, an increase of 32 percent. Included in these
totals are proprietary fund balances of $41.7 billion at December 31, 1995 and
$25.8 billion at December 31, 1994, an increase of 62 percent.
Investment Technology and Services
- - ----------------------------------
Revenues from the Investment Technology and Services segment for the year ended
December 31, 1995 and 1994 were $157,960 and $136,498, respectively.
INVESTMENT TECHNOLOGY AND SERVICES REVENUES
-------------------------------------------
DOLLAR PERCENT
1995 1994 CHANGE CHANGE
---- ---- ------ ------
Trust systems and services $110,886 $104,180 $ 6,706 6%
Proprietary fund services 47,074 32,318 14,756 46%
-------- -------- ------
Total $157,960 $136,498 $21,462 16%
======= ======= ======
The 16 percent increase in this segment's revenues was due primarily to growth
in the proprietary mutual fund business. Proprietary fund services revenue
increased 46 percent from the prior-year period due to an increase in average
proprietary fund balances over the past year. Proprietary fund services revenues
are derived from the administrative fees which the Company earns based on a
fixed percentage of the average daily net asset value of the proprietary funds.
Average proprietary fund balances increased $12.8 billion or 60 percent from
$21.5 billion during 1994 to $34.3 billion during 1995. This increase in
proprietary fund balances was the result of growth in existing fund complexes
and the commencement of new fund complexes during the past year. Trust systems
and services revenue increased 6 percent from the prior year primarily due to an
increase in one-time implementation fees. The increase in implementation fees
was the result of mergers among various bank clients.
16
INVESTMENT TECHNOLOGY AND SERVICES EXPENSES
-------------------------------------------
DOLLAR PERCENT
1995 1994 CHANGE CHANGE
---- ---- ------ ------
Operating and development $82,529 $76,236 $6,293 8%
Sales and marketing $30,255 $23,737 $6,518 27%
The 8 percent increase in operating and development expense was primarily
attributable to increases in consulting and outsourcing, in addition to direct
expense associated with the growth in proprietary fund balances. The increase in
consulting and outsourcing expense reflects the Company's investment in trust
technology and its internal infrastructure. The 27 percent increase in sales and
marketing expense was primarily attributable to an increase in personnel and
consulting expense. The increase in consulting expense relates primarily to the
increase in one-time trust services revenue. Operating profit from Investment
Technology and Services for the year ended December 31, 1995 was $45,176, an
increase of 24 percent from the $36,525 for the corresponding period of 1994.
Operating margins for this segment increased to 29 percent in 1995 compared to
27 percent in 1994.
Asset Management
- - ----------------
Revenues from the Asset Management segment for the year ended December 31, 1995
and 1994 were $68,004 and $68,553, respectively.
ASSET MANAGEMENT REVENUES
-------------------------
DOLLAR PERCENT
1995 1994 CHANGE CHANGE
---- ---- ------ ------
Liquidity services $21,944 $21,380 $ 564 3%
Mutual fund services 18,677 20,011 (1,334) (7%)
Asset management services 14,476 16,336 (1,860) (11%)
Brokerage and consulting services 12,907 10,826 2,081 19%
------ ------ -----
Total $68,004 $68,553 $(549) (1%)
====== ====== ====
Revenues from this segment decreased slightly due to declines in this segment's
mutual fund and asset management businesses. The 7 percent decline in mutual
fund services was due primarily to a decrease in fund balances from the
Company's Family of Funds and a shift from higher-fee to lower-fee products
within these funds. The decline in fund balances was a result of two banks
transferring their mutual fund balances to proprietary funds. The 11 percent
decline in asset management services is primarily due to a decrease in fees from
the International Equity Fund.
17
ASSET MANAGEMENT EXPENSES
-------------------------
DOLLAR PERCENT
1995 1994 CHANGE CHANGE
---- ---- ------ ------
Operating and development $32,837 $34,268 $(1,431) (4%)
Sales and marketing $28,637 $24,824 $ 3,813 15%
The 4 percent decrease in operating and development expense was due primarily to
a decrease in personnel expense. The 15 percent increase in sales and marketing
expense was due primarily to increases in promotion, travel, and personnel
expenses. The Asset Management segment recorded an operating profit of $6,530 in
1995, compared to $9,461 in 1994. The lower operating profit in this segment was
primarily attributable to investments the Company has made in its asset
management business, along with declining fund balances and lower revenues from
the International Equity Fund and the Company's Family of Funds.
Other Income and Expenses
- - -------------------------
General and administrative expenses for the year ended December 31, 1995 and
1994 were $16,963 and $16,919, respectively. General and administrative expenses
remained relatively flat from 1994.
Net interest income for the year ended December 31, 1995 and 1994 was $764 and
$374, respectively. The increase in interest income is due primarily to an
increase in the average cash balance invested in 1995 compared to 1994, in
addition to dividend income generated from the Company's investments available
for sale.
The Company's effective tax rate from continuing operations was 40.5 percent for
1995 and 38.0 percent for 1994. The increase in the effective tax rate was due
to losses incurred from the Company's foreign subsidiaries in 1995 for which no
tax benefit was received. The Company accounts for income taxes in accordance
with Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (See Note 1 of the Notes to Consolidated Financial Statements).
Liquidity and Capital Resources
- - -------------------------------
The Company's ability to generate adequate cash to meet its needs results
primarily from cash flow from operations and its capacity for additional
borrowing. The Company has a line of credit agreement which provides for
borrowings of up to $50,000 (See Note 7 of the Notes to Consolidated Financial
Statements). At December 31, 1996, the Company's unused sources of liquidity
consisted primarily of cash and cash equivalents of $13,167, of which $3,400 is
segregated for use by the Company's Swiss subsidiary, and the unused portion of
the line of credit of $30,000. The availability of the line of credit is subject
to the Company's compliance with certain covenants set forth in the agreement.
In January 1997, the Company borrowed an additional $10,000 under its line of
credit which was used for general corporate purposes. On February 24, 1997, the
Company issued $35,000 of medium-term notes (See Note 7 of the Notes to
Consolidated Financial Statements). The proceeds were used to repay the
outstanding balance on its line of credit which amounted to $30,000.
Cash flow generated from operations was $33,285, $24,352, and $36,681, in 1996,
1995, and 1994, respectively. The increase in operating cash flow is primarily
due to an increase in accounts receivable collections in 1996, along with the
deferral of income taxes due to the increase in capitalized software development
costs currently deductible for tax purposes.
18
Capital expenditures, including capitalized software development costs, for
1996, 1995, and 1994 were $43,728, $11,610, and $14,784, respectively. The
increase in capital expenditures is primarily the result of expenditures made by
the Company for its new corporate campus, along with an increase in capitalized
software development costs. The corporate campus was completed in late 1996 and
all employees scheduled to relocate have been moved to the new headquarters. The
increase in capitalized software development costs relates to the Company's
investment in its trust technology, mainly its open architecture project.
Capitalized software development costs relating to this project is expected
to continue in 1997. In 1996, the Company received $6,536 from the sale of its
investments classified as Investments available for sale (See Note 6 of the
Notes to Consolidated Financial Statements). In addition, the Company acquired
533,000 shares of common stock at a cost of $9.8 million pursuant to an open
market stock purchase authorization of $175.7 million made by the Board of
Directors. As of February 7, 1997, the Company has purchased approximately 13.2
million shares of its common stock at a cost of $165.5 million since the
inception of the stock buyback program.
The Company's operating cash flow, borrowing capacity, and liquidity should
provide adequate funds for continuing operations, continued investment in new
products and equipment, its common stock repurchase program, and the repayment
of its long-term debt.
19
Item 8. Financial Statements and Supplementary Data.
-------------------------------------------
Index to Financial Statements:
Report of Independent Public Accountants
Consolidated Balance Sheets -- December 31, 1996 and 1995
Consolidated Statements of Operations -- For the years ended
December 31, 1996, 1995, and 1994
Consolidated Statements of Shareholders' Equity -- For the years ended
December 31, 1996, 1995, and 1994
Consolidated Statements of Cash Flows -- For the years ended
December 31, 1996, 1995, and 1994
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.
20
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To SEI Investments Company:
We have audited the accompanying consolidated balance sheets of SEI Investments
Company (formerly SEI Corporation)(a Pennsylvania corporation) and
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedule are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SEI Investments Company and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the Index to
Financial Statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.
February 7, 1997 (Except with respect to the matter discussed in Note 7, as
to which the date is February 24, 1997)
21
Consolidated Balance Sheets SEI Investments Company
(In thousands) and Subsidiaries
December 31, 1996 1995
------------------------------------------------------------------------------------------------------
Assets Current Assets:
Cash and cash equivalents.................................. $13,167 $10,256
Receivables from regulated investment
companies................................................. 10,836 8,757
Receivables, net of allowance for doubtful
accounts of $1,350 and $1,206............................. 19,558 22,436
Loans receivable available for sale........................ 13,043 5,152
Deferred income taxes...................................... 4,527 2,584
Prepaid expenses........................................... 3,825 4,890
---------------- ---------------
Total Current Assets..................................... 64,956 54,075
---------------- ---------------
Net Assets of Discontinued Operations...................... -- 6,046
---------------- ---------------
Investments Available for Sale............................. -- 6,205
---------------- ---------------
Property and Equipment, net of accumulated
depreciation and amortization of $48,128
and $61,513.............................................. 48,620 24,299
---------------- ---------------
Capitalized Software, net of accumulated
amortization of $5,193 and $3,746........................ 13,577 4,356
---------------- ---------------
Customer Lists, net........................................ 2,000 --
---------------- ---------------
Other Assets, net.......................................... 11,888 6,366
---------------- ---------------
$141,041 $101,347
------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
22
Consolidated Balance Sheets SEI Investments Company
(In thousands, except par value) and Subsidiaries
December 31, 1996 1995
======================================================================================================
Liabilities Current Liabilities:
and
Shareholders' Short-term borrowings....................................... $20,000 $ --
Equity Accounts payable............................................ 5,863 6,252
Accrued compensation........................................ 14,503 13,724
Accrued disposal costs...................................... 7,417 --
Accrued proprietary fund services........................... 6,748 2,683
Other accrued liabilities................................... 20,303 16,432
Deferred revenue............................................ 5,123 5,795
---------------- ----------------
Total Current Liabilities................................. 79,957 44,886
---------------- ----------------
Deferred Income Taxes....................................... 4,976 459
---------------- ----------------
Commitments and Contingencies
Shareholders' Equity:
Series Preferred stock, $.05 par value,
60 shares authorized; no shares issued
and outstanding............................................ -- --
Common stock, $.01 par value,
100,000 shares authorized; 18,498 and
18,425 shares issued and outstanding....................... 185 184
Capital in excess of par value.............................. 54,959 48,207
Retained earnings........................................... 1,141 7,167
Cumulative translation adjustments.......................... (177) (58)
Unrealized holding gain on investments...................... -- 502
---------------- ----------------
Total Shareholders' Equity................................ 56,108 56,002
---------------- ----------------
$141,041 $101,347
------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
23
Consolidated Statements of Operations SEI Investments Company
(In thousands, except per share data) and Subsidiaries
Year Ended December 31, 1996 1995 1994
==============================================================================================================================
Revenues................................................................ $247,817 $225,964 $205,051
Expenses:
Operating and development............................................. 129,776 115,366 110,504
Sales and marketing................................................... 68,719 58,892 48,561
General and administrative............................................ 13,235 16,963 16,919
--------------- -------------- --------------
Income from continuing operations before interest and
income taxes.......................................................... 36,087 34,743 29,067
Gain on sale of investments available for sale.......................... (1,097) -- --
Interest income, net.................................................... (760) (764) (374)
--------------- -------------- --------------
Income from continuing operations before income taxes................... 37,944 35,507 29,441
Income taxes............................................................ 14,798 14,381 11,188
--------------- -------------- --------------
Income from continuing operations....................................... 23,146 21,126 18,253
Income (loss) from discontinued operations, net of income
tax expense (benefit) of $(1,295) and $1,119.......................... -- (1,942) 997
Loss on disposal of discontinued operations, net of
income tax benefit of $(5,139)........................................ (16,335) -- --
--------------- -------------- --------------
Net income.............................................................. $6,811 $19,184 $19,250
==============================================================================================================================
Earnings per common and common equivalent share:
Earnings per share from continuing operations......................... $1.20 $1.09 $.91
Earnings (loss) per share from discontinued operations................ (.85) (.10) .05
--------------- -------------- --------------
Earnings per share (primary and fully diluted).......................... $.35 $.99 $.96
==============================================================================================================================
The accompanying notes are an integral part of these statements.
24
Consolidated Statements of Shareholders' Equity SEI Investments Company
(In thousands) and Subsidiaries
Capital Cumulative Unrealized Total
Common Stock In Excess of Retained Translation Holding Gain Shareholders'
--------------------
Shares Amount Par Value Earnings Adjustments on Investments Equity
====================================================================================================================================
Balance, December 31, 1993................ 19,171 $192 $47,256 $4,240 $(147) $ -- $51,541
Net income................................ -- -- -- 19,250 -- -- 19,250
Purchase and retirement of common
stock................................ (1,280) (13) (11,503) (16,665) -- -- (28,181)
Issuance of common stock under the
employee stock purchase plan......... 60 1 1,084 -- -- -- 1,085
Issuance of common stock upon
exercise of stock options............ 830 8 6,075 -- -- -- 6,083
Tax benefit on stock options exercised.... -- -- 4,494 -- -- -- 4,494
Cash dividends............................ -- -- -- (3,002) -- -- (3,002)
Currency translation adjustments.......... -- -- -- -- 39 -- 39
====================================================================================================================================
Balance, December 31, 1994................ 18,781 188 47,406 3,823 (108) -- 51,309
Net income................................ -- -- -- 19,184 -- -- 19,184
Purchase and retirement of common
stock................................ (880) (9) (6,264) (12,105) -- -- (18,378)
Issuance of common stock under the
employee stock purchase plan......... 60 -- 1,008 -- -- -- 1,008
Issuance of common stock upon
exercise of stock options............ 464 5 4,364 -- -- -- 4,369
Tax benefit on stock options exercised.... -- -- 1,693 -- -- -- 1,693
Cash dividends............................ -- -- -- (3,735) -- -- (3,735)
Currency translation adjustments.......... -- -- -- -- 50 -- 50
Unrealized holding gain on
investments.......................... -- -- -- -- -- 502 502
====================================================================================================================================
Balance, December 31, 1995................ 18,425 $184 $48,207 $7,167 $(58) $502 $56,002
====================================================================================================================================
The accompanying notes are an integral part of these statements.
25
Consolidated Statements of Shareholders' Equity SEI Investments Company
(In thousands) and Subsidiaries
Capital Cumulative Unrealized Total
Common Stock In Excess of Retained Translation Holding Gain Shareholders'
-------------------
Shares Amount Par Value Earnings Adjustments on Investments Equity
====================================================================================================================================
Balance, December 31, 1995................ 18,425 $184 $48,207 $7,167 $(58) $502 $56,002
Net income................................ -- -- -- 6,811 -- -- 6,811
Purchase and retirement of common
stock................................ (533) (5) (1,396) (8,369) -- -- (9,770)
Issuance of common stock under the
employee stock purchase plan......... 52 -- 976 -- -- -- 976
Issuance of common stock upon
exercise of stock options............ 554 6 4,434 -- -- -- 4,440
Tax benefit on stock options exercised.... -- -- 2,738 -- -- -- 2,738
Cash dividends............................ -- -- -- (4,468) -- -- (4,468)
Currency translation adjustments.......... -- -- -- -- (119) -- (119)
Realized gain on investments.............. -- -- -- -- -- (502) (502)
===================================================================================================================================
Balance, December 31, 1996................ 18,498 $185 $54,959 $1,141 $(177) $ -- $56,108
===================================================================================================================================
The accompanying notes are an integral part of these statements.
26
Consolidated Statements of Cash Flows SEI Investments Company
(In thousands) and Subsidiaries
Year Ended December 31, 1996 1995 1994
==================================================================================================================================
Cash flows from operating activities:
Net income................................................................... $6,811 $19,184 $19,250
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization......................................... 10,039 11,574 12,126
Provision for losses on receivables................................... 144 -- 235
Deferred income tax expense (benefit)................................. 3,821 (672) (2,799)
Discontinued operations............................................... 6,046 3,055 147
Tax benefit on stock options exercised................................ 2,738 1,693 4,494
Gain on sale of investments available for sale........................ (1,097) -- --
Other................................................................. (3,739) (673) 411
Change in current assets and liabilities:
Decrease (increase) in
Receivables from regulated investment companies................... (2,079) (2,471) (351)
Receivables....................................................... 2,734 (5,168) (1,710)
Loans receivable available for sale............................... (7,891) (5,152) --
Prepaid expenses.................................................. 1,065 (2,539) (74)
Increase (decrease) in
Accounts payable.................................................. (389) 1,821 (418)
Accrued compensation.............................................. 779 (397) 407
Accrued disposal costs............................................ 7,417 -- --
Accrued proprietary fund services................................. 4,065 1,383 566
Other accrued liabilities......................................... 3,493 1,186 3,217
Deferred revenue.................................................. (672) 1,528 1,180
-------------- -------------- -------------
Total adjustments................................................... 26,474 5,168 17,431
-------------- -------------- -------------
Net cash provided by operating activities............................. $33,285 $24,352 $36,681
==================================================================================================================================
The accompanying notes are an integral part of these statements.
27
Consolidated Statements of Cash Flows SEI Investments Company
(In thousands) and Subsidiaries
Year Ended December 31, 1996 1995 1994
==================================================================================================================================
Cash flows from investing activities:
Proceeds from sale (purchase) of investments
available for sale................................................... $6,536 $(5,361) $ --
Additions to property and equipment..................................... (33,060) (8,611) (13,732)
Additions to capitalized software....................................... (10,668) (2,999) (1,052)
Proceeds from sale of asset............................................. -- -- 4,200
Purchase of subsidiary.................................................. (2,000) -- --
Other................................................................... (2,738) (961) (100)
------------- --------------- -------------
Net cash used in investing activities................................. (41,930) (17,932) (10,684)
Cash flows from financing activities:
Proceeds from short-term borrowings..................................... 20,000 -- --
Purchase and retirement of common stock................................. (9,770) (18,378) (28,181)
Proceeds from issuance of common stock.................................. 5,416 5,377 7,168
Payment of dividends.................................................... (4,090) (3,395) (2,650)
------------- --------------- -------------
Net cash provided by (used in) financing activities................... 11,556 (16,396) (23,663)
------------- --------------- -------------
Net increase (decrease) in cash and cash equivalents......................... 2,911 (9,976) 2,334
Cash and cash equivalents, beginning of year................................. 10,256 20,232 17,898
------------- --------------- -------------
Cash and cash equivalents, end of year....................................... $13,167 $10,256 $20,232
==================================================================================================================================
The accompanying notes are an integral part of these statements.
28
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"),
formerly SEI Corporation, is organized around its two core product
lines: Investment Technology and Services and Asset Management. The
Investment Technology and Services segment provides trust accounting
and management information services through the Company's 3000 product
line, administration and distribution services to proprietary mutual
funds, and back-office trust processing. The principal market for these
products and services are trust departments of banks located in the
United States. The Asset Management segment provides investment
solutions through various investment products including the Company's
Family of Funds, liquidity funds and services, and brokerage and
consulting services. Principal markets for these products and services
include trust departments of banks, investment advisors, corporations,
high-net-worth individuals, and money managers located in the United
States and Canada. Based on 1996 revenues, the Investment Technology
and Services segment accounted for 69 percent of the Company's
consolidated revenues and the Asset Management segment accounted for 31
percent of the Company's consolidated revenues.
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 Financial Services Company
("SFS"), SEI Financial Management Corporation ("SFM"), and SEI Trust
Company. All intercompany accounts and transactions have been
eliminated.
Cash and Cash Equivalents - At December 31, 1996 and 1995, Cash and
cash equivalents included $11,783,000 and $10,196,000, respectively,
primarily invested in SEI Tax Exempt Trust, one of several mutual funds
sponsored by SFM. Interest and dividend income for 1996, 1995, and 1994
was $808,000, $1,019,000, and $405,000, respectively (See Note 13).
Property and Equipment - Property and Equipment on the accompanying
Consolidated Balance Sheets consist of the following:
Estimated
Useful Lives
1996 1995 (In Years)
===================================================================================================================
Equipment......................................... $40,390,000 $43,469,000 3
Buildings......................................... 25,907,000 2,856,000 25 to 39
Land.............................................. 6,730,000 4,065,000 N/A
Purchased software................................ 9,397,000 7,220,000 3
Furniture and fixtures............................ 9,030,000 13,898,000 3 to 5
Leasehold improvements............................ 5,294,000 9,814,000 Lease Term
Construction in progress.......................... -- 4,490,000 N/A
----------- -----------
96,748,000 85,812,000
Less: Accumulated depreciation
and amortization................................. (48,128,000) (61,513,000)
---------- ----------
Property and Equipment, net....................... $48,620,000 $24,299,000
===================================================================================================================
Property and Equipment are stated at cost, which includes interest on
funds borrowed to finance the construction of the Company's corporate
campus. 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.
29
In late 1994, the Company purchased 90 acres of land for construction
of the Company's new corporate campus. Construction was completed in
late 1996 which coincided with the expiration of the Company's leases
for corporate facilities. The relocation to the new corporate campus
was completed as of December 31, 1996. All the costs associated with
the design and construction of the corporate campus are included in
Buildings. Land includes the initial purchase price and various land
improvements which are not depreciable. Additionally, the Company
purchased new office furniture for the corporate campus which is
reflected in Furniture and Fixtures. Equipment, Furniture and Fixtures,
Leasehold Improvements, and their corresponding accumulated
depreciation and amortization amounts associated with the Company's old
facilities, were written-off as of December 31, 1996. The net book
value of these assets was immaterial.
Customer Lists - Customer Lists represent the value assigned to
customer relationships obtained in various acquisitions (See Note 3).
Customer Lists are amortized on a straight-line basis over 10 years.
There was no amortization expense recorded in 1996. The Company
evaluates the realizability of intangible assets based on estimates of
undiscounted future cash flows over the remaining useful life of the
asset. If the amount of such estimated undiscounted future cash flow is
less than the net book value of the asset, the asset is written down to
the amount of the estimated undiscounted cash flows. As of December 31,
1996, no such write-down was required.
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:
1996 1995 1994
---- ---- ----
Interest paid............................... $ 794,000 $ 211,000 $ --
Interest and dividends received............. $ 876,000 $ 1,024,000 $ 374,000
Income taxes paid (Federal and state)....... $5,525,000 $12,846,000 $9,620,000
Revenue Recognition - Principal sources of revenues are information
processing and software services, management and distribution of mutual
funds, brokerage and consulting services, and other asset management
products and services. Revenues from these services are recognized in
the periods in which the services are performed. Cash received by the
Company in advance of the performance of services is deferred and
recognized as revenue when earned.
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 ended December 31, 1996.
30
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 five years.
Capitalized software development costs consist primarily of salary,
consulting, and computer costs incurred to develop new products and
enhancements to existing products. During 1996, 1995, and 1994,
$10,668,000, $2,999,000, and $1,052,000 of software development costs
were capitalized, respectively. In 1994, $1,954,000 (net of accumulated
amortization of $1,423,000) of capitalized software development costs
were written off. This write-off was recorded in Income from
discontinued operations on the accompanying Consolidated Statements of
Operations for 1994 as it related to a certain activity of one of the
discontinued operations. No capitalized software development costs were
written off in 1996 and 1995. Amortization expense was $1,447,000,
$1,522,000, and $1,322,000 in 1996, 1995, and 1994, respectively, and
is included in Operating and development expense on the accompanying
Consolidated Statements of Operations.
Total research and development costs, including capitalized software,
were $26,254,000, $16,744,000, and $15,001,000 in 1996, 1995, and 1994,
respectively.
Earnings Per Share - The Company utilizes the modified treasury stock
method to compute earnings per share since common share equivalents at
the end of the year exceeded 20 percent of the number of common shares
outstanding. Earnings per common and common equivalent share (primary
earnings per share) is computed using the weighted average number of
common shares and common share equivalents (stock options) outstanding.
Earnings per share, assuming full dilution (fully diluted earnings per
share), is based upon an increased number of shares that would be
outstanding assuming exercise of stock options when the Company's stock
price at the end of the period is higher than the average price within
the respective period. If the inclusion of common stock equivalents has
an anti-dilutive effect in the aggregate, it is excluded from the
earnings per share calculation. In 1996, 1995, and 1994, the weighted
average shares outstanding for primary earnings per share were
19,348,000, 19,445,000, and 20,027,000, respectively. Shares used to
calculate fully diluted earnings per share were not materially
different from those used to calculate primary earnings per share.
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 - The financial statements for prior years have been
reclassified to conform with current-year presentation.
31
Note 2 - Discontinued Operations:
In May 1995, the Company's Board of Directors approved a plan of
disposal for the SEI Capital Resources Division ("CR") and the SEI
Defined Contribution Retirement Services Division ("DC"). CR provided
investment performance evaluation services, consulting services, and
brokerage services to employee benefit plan sponsors and investment
advisors in the United States. DC provided administrative and
processing services, recordkeeping services, and employee retirement
planning materials for use by defined contribution plans. In 1996, the
Company completed the transfer of DC's full service recordkeeping
operations to KPMG Peat Marwick.
CR and DC were being accounted for together as discontinued operations
with a measurement date of May 31, 1995. The accompanying Consolidated
Financial Statements reflect the operating results and balance sheet
items of the discontinued operations separately from continuing
operations. At the measurement date, the Company expected that the sale
of CR would have resulted in a gain on the disposal of CR's assets
which would have been sufficient to offset any losses incurred by DC.
As a result, no provision for estimated losses was established for the
period from the measurement date to the estimated disposal date. In the
fourth quarter of 1996, based on current information, management of the
Company concluded that any proceeds received from a possible sale of CR
would not be sufficient to offset the remaining net assets of CR and
DC. The Company, therefore, recorded a charge of $16,335,000 ($.85 per
share), net of income tax benefit of $5,139,000.
The charge of $16,335,000 recorded in 1996 on the accompanying
Consolidated Statements of Operations includes the operating losses
incurred by CR and DC from June 1, 1995 to December 31, 1996, the
complete write-off of CR and DC's non-recoverable assets, and a
provision for the disposal of discontinued operations. The non-
recoverable assets were comprised of goodwill, customer lists,
equipment, and furniture and fixtures. The provision for the disposal
of discontinued operations included accruals for future operating
losses, future commitments relating to leased facilities, severance,
and an additional reserve for doubtful accounts relating to CR's
receivables. This provision is reflected in Accrued disposal costs on
the accompanying Consolidated Balance Sheets. The Company expects to
complete the sale of CR in the near future.
Income (loss) from discontinued operations on the accompanying
Consolidated Statements of Operations were:
Five Months Ended Year Ended
------------------------------------------------------
May 31, 1995 December 31, 1994
-------------------------------------------------------------------------------------------------------------------
Revenues................................................. $17,674,000 $58,714,000
---------- ----------
Income (loss) before income taxes........................ $(3,237,000) $ 2,116,000
Income tax expense (benefit)............................. (1,295,000) 1,119,000
----------- ----------
Income (loss)............................................ $(1,942,000) $ 997,000
-------------------------------------------------------------------------------------------------------------------
32
The assets and liabilities of CR and DC were reclassified on the
accompanying Consolidated Balance Sheets at December 31, 1995 to
separately identify them as net assets or net liabilities of
discontinued operations. A summary of these net assets is as follows:
1995
--------------------------------------------------------------------------------------------------------
Current assets............................................................ $7,709,000
Property and equipment, net............................................... 1,257,000
Other assets, net......................................................... 5,581,000
Current liabilities....................................................... (11,835,000)
Deferred income taxes..................................................... (421,000)
Loss from discontinued operations for the period
June 1, 1995 to December 31, 1995, net of
income tax benefit of $462,000........................................ 3,755,000
----------
Net Assets of Discontinued Operations..................................... $6,046,000
--------------------------------------------------------------------------------------------------------
Note 3 - Acquisitions:
On December 20, 1996, the Company acquired the capital stock of
Latinvest Sociedad De Bolsa S.A. ("Latinvest") and Quadrum S.A.
("Quadrum"). Latinvest and Quadrum are affiliated investment advisory
firms that provide investment services to Argentine investors. The
total purchase price of $3,700,000 consists of $2,000,000 paid in cash
at closing, $500,000 paid in cash in January 1997, and up to an
additional $1,200,000 pursuant to a three year earn-out which is
payable in cash and based upon Latinvest and Quadrum's ability to
achieve certain asset balances, investment performance, and growth in
revenues. This acquisition has been accounted for using the purchase
method of accounting. The purchase price paid at closing of $2,000,000
was allocated to the assets acquired and liabilities assumed based on
their estimated fair values. The excess of the purchase price over the
fair value of the net assets acquired was $2,000,000 and has been
reflected as Customer Lists on the accompanying Consolidated Balance
Sheets. If this transaction had been consummated on January 1, 1995,
the pro forma effect on the 1996 and 1995 Consolidated Statements of
Operations would have been immaterial and therefore has been omitted.
Note 4 - Receivables:
Receivables on the accompanying Consolidated Balance Sheets consist of
the following:
1996 1995
-------------------------------------------------------------------------------------------------------------------
Trade receivables........................................ $10,124,000 $14,474,000
Fees earned, not received................................ 3,511,000 2,866,000
Fees earned, not billed.................................. 7,273,000 6,302,000
---------- ----------
20,908,000 23,642,000
Less: Allowance for doubtful accounts................... (1,350,000) (1,206,000)
---------- ----------
$19,558,000 $22,436,000
-------------------------------------------------------------------------------------------------------------------
Fees earned, not received represent brokerage commissions earned but
not yet collected. Fees earned, not billed represent cash receivables
earned but unbilled and result from timing differences between services
provided and contractual billing schedules.
33
Receivables from regulated investment companies on the accompanying
Consolidated Balance Sheets represent fees collected from the Company's
wholly owned subsidiaries, SFS and SFM, for distribution, investment
advisory, and administration services provided by these subsidiaries to
various regulated investment companies.
Note 5 - Loans Receivable Available for Sale:
Loans receivable available for sale represent loans which were
purchased through SEI Capital AG, which is based in Zurich. The Company
intends to sell these loans within a year from the balance sheet date.
These receivables are reported at the lower of cost or market, and any
difference between the purchase price and the related loan principal
amount is recognized as an adjustment of the yield over the life of the
loan using the effective interest method. Each loan receivable involves
various risks, including, but not limited to, country, interest rate,
credit, and liquidity risk. Management evaluates and monitors these
risks on a continuing basis to ensure that these loan receivables are
recorded at their realizable value. This evaluation is based upon
management's best estimates and the amounts the Company will ultimately
realize could differ from these estimates.
Note 6 - Investments Available for Sale:
Investments available for sale consisted of mutual funds sponsored by
the Company which were primarily invested in equity securities. The
Company accounted for investments 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 on these investments
are reported as a separate component of Shareholders' equity. Realized
gains and losses are determined by the specific identification method
and are reported separately on the accompanying Consolidated Statements
of Operations.
At December 31, 1995, Investments available for sale had an aggregate
cost of $5,361,000 and an aggregate market value of $6,205,000 with
gross unrealized gains of $844,000. At that date, the unrealized
holding gains of $502,000 (net of income taxes of $342,000) were
reported as a separate component of Shareholders' equity on the
accompanying Consolidated Balance Sheets. There were no unrealized
losses as of December 31, 1995.
In 1996, the Company disposed of all its investments classified as
Investments available for sale on the accompanying Consolidated Balance
Sheets. The aggregate cost of these investments prior to sale was
$5,439,000. Total proceeds from the disposition of these investments
were $6,536,000, resulting in a realized gain of $1,097,000. This gain
is reflected in Gain on sale of investments available for sale on the
accompanying Consolidated Statements of Operations.
Note 7 - Debt:
The Company has a line of credit agreement (the "Agreement") with its
principal lending institution which provides for borrowing of up to
$50,000,000. The Agreement ends on May 31, 1997, at which time the
outstanding principal balance, if any, becomes due unless the Agreement
is extended. Management believes the Agreement will be extended. The
line of credit, when utilized, accrues interest at the Prime rate or
three-tenths percent above the London Interbank Offered Rate. The
Company is obligated to pay a commitment fee equal to one-tenth 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 places certain restrictions on
investments.
The maximum month-end amount of debt outstanding for the years ended
December 31, 1996 and 1995 was $20,000,000 and $11,000,000,
respectively. The weighted average balance of debt outstanding was
$13,086,000 and $3,206,000 during 1996 and 1995, respectively.
34
Interest expense was $794,000 based on a weighted average interest rate
of approximately 6.0 percent for the year ended December 31, 1996.
Interest expense was $211,000 based on a weighted average interest rate
of approximately 6.6 percent for the year ended December 31, 1995. The
Company had no outstanding debt during 1994.
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 with an
average life of 7 to 10 years. The proceeds from the Notes have been
used to repay the outstanding balance on the Company's line of credit.
The Note Purchase Agreement 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. None of these covenants negatively affect the Company's
liquidity or capital resources. Interest and principal payments on the
Notes will be made semi-annually beginning in August 1997.
Note 8 - Shareholders' Equity:
Stock-Based Compensation Plans - The Company has 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. All options
outstanding were granted at prices equal to the fair market value of
the stock on the date of grant, vest over a four year period, and
expire 10 years after the date of grant.
The Company accounts for its stock option plans in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees".
Accordingly, no compensation expense has been recognized. In 1995, the
Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"). SFAS 123 establishes a fair value based method of
accounting for stock-based compensation plans. SFAS 123 requires that
an employer's financial statements include certain disclosures about
stock-based employee compensation arrangements regardless of the method
used to account for the plan. Had the Company recognized compensation
cost for its stock option plans consistent with the provisions of SFAS
123, the Company's net income and earnings per share would have been
reduced to the following pro forma amounts:
1996 1995
------------------------------------------------------------------------------------------------------------------
Net Income:
As Reported......................................... $6,811 $19,184
Pro Forma........................................... $6,201 $18,958
Earnings per Share:
As Reported......................................... $.35 $.99
Pro Forma........................................... $.32 $.97
------------------------------------------------------------------------------------------------------------------
Because the SFAS 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in
future years.
35
The weighted average fair value of the stock options granted during
1996 and 1995 was $31.31 and $31.75, 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:
1996 1995
------------------------------------------------------------------------------------------------------------------
Risk-free interest rate.................................. 6.70% 6.35%
Expected dividend yield.................................. 1.00% 1.00%
Expected life............................................ 7 Years 7 Years
Expected volatility...................................... 34.87% 35.31%
------------------------------------------------------------------------------------------------------------------
Certain information for 1996 and 1995 relative to stock options is
summarized as follows:
Employee Plan Directors' Plan
Number of Shares 1996 1995 1996 1995
----------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year.................. 4,007,000 4,422,000 120,000 108,000
Granted (A)....................................... 353,000 197,000 12,000 12,000
Exercised (B)..................................... (554,000) (464,000) -- --
Expired or canceled (C)........................... (82,000) (148,000) -- --
----------- ---------- -------- ----------
Outstanding at end of year (D).................... 3,724,000 4,007,000 132,000 120,000
Exercisable at end of year (E).................... 2,908,000 3,067,000 102,000 90,000
Participants at end of year....................... 190 218 3 3
Available for future grant at end of year......... 65,000 336,000 250,000 262,000
----------------------------------------------------------------------------------------------------------------
(A) For options granted under the Employee Plan during 1996 and 1995,
the weighted average exercise price was $21.63 and $22.84 per
share, respectively. For options granted under the Directors' Plan
during 1996 and 1995, the weighted average exercise price was
$22.25 and $21.75 per share, respectively.
(B) For options exercised under the Employee Plan during 1996 and
1995, the weighted average exercise price was $8.02 and $9.42 per
share, respectively.
(C) For options expired or canceled under the Employee Plan during
1996 and 1995, the weighted average exercise price was $20.44 and
$18.03 per share, respectively.
(D) For outstanding shares under option for the Employee Plan at
December 31,1996, option prices ranged from $7.00 to $25.25, with
a weighted average exercise price of $14.86 per share. For
outstanding shares under option for the Directors' Plan at
December 31, 1996, option prices ranged from $7.00 to $26.25, with
a weighted average exercise price of $14.45 per share. For
outstanding shares under option for the Employee Plan at December
31, 1995, option prices ranged from $3.94 to $25.25, with a
weighted average exercise price of $13.43 per share. For
outstanding shares under option for the Directors' Plan at
December 31, 1995, option prices ranged from $7.00 to $26.25, with
a weighted average exercise price of $13.68 per share. The
expiration dates for options under the Employee Plan range from
April 9, 1997 to December 17, 2006, with a weighted average
remaining contractual life of 5.7 years. The expiration dates for
options under the Directors' Plan range from December 14, 1997 to
December 31, 2006, with a weighted average remaining contractual
life of 5.1 years.
(E) For exercisable shares under option for the Employee Plan at
December 31, 1996 and 1995, the weighted average exercise price
was $13.08 and $11.37 per share, respectively. For exercisable
shares under option for the Directors' Plan at December 31, 1996
and 1995, the weighted average exercise price was $12.38 and
$11.33 per share, respectively.
36
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 800,000 shares for issuance under this plan. At
December 31, 1996, 686,000 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 $175,729,000. Through
December 31, 1996, a total of 13,233,000 shares at an aggregate cost of
$165,502,000 have been purchased and retired. The Company purchased
533,000 shares at a cost of $9,770,000 during 1996.
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 19, 1988, the Company's Board
of Directors declared a distribution of one right for each outstanding
common share of the Company to shareholders of record at the close of
business on January 4, 1989. In addition, any new common shares issued
after January 4, 1989 will receive one right for each common share.
Each right entitles shareholders to buy one-fourhundredth of a share of
Series A Junior Participating Preferred Stock at an exercise price of
$65 per share. The rights will not be exercisable until a person or
group owns more than 40 percent of the Company's common stock, acquires
20 percent or more of the Company's common stock after December 19,
1988 (the "Stock Acquisition Date"), or a person or group begins a
tender offer for 30 percent or more of the Company's common stock. The
rights, which do not have voting rights, expire on December 19, 1998,
and may be redeemed by the Company at a price of $.01 per right at any
time until 10 days following the Stock Acquisition Date. In the event
that the Company is acquired in a merger or other business combination
transaction, each holder of a right will have the right to receive,
upon exercise, common shares of the acquiring company having a value
equal to two times the exercise price of the right.
Dividends - On May 21, 1996, the Board of Directors declared a cash
dividend of $.12 per share on the Company's common stock, which was
paid on June 28, 1996, to shareholders of record on June 12, 1996. On
December 17, 1996, the Board of Directors declared a cash dividend of
$.12 per share on the Company's common stock, which was paid on
January 21, 1997, to shareholders of record on December 31, 1996.
The dividends declared in 1996 and 1995 were $4,468,000 and $3,735,000,
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 $1,345,000, $1,065,000, and $1,084,000
to the Plan in 1996, 1995, and 1994, respectively.
37
Note 10 - Commitments and Contingencies:
The Company operates in leased facilities and also leases data
processing equipment. Some of these leases contain escalation clauses
for increased taxes and operating expenses. The Company's leases are
accounted for as operating leases. Rent expense was $17,527,000,
$16,570,000, and $17,406,000 in 1996, 1995, and 1994, respectively.
Aggregate noncancellable minimum lease commitments at December 31,
1996 are:
-----------------------------------------------------------------------------------------
1997................................................................ $12,799,000
1998................................................................ 7,832,000
1999................................................................ 3,345,000
2000................................................................ 2,214,000
2001................................................................ 2,015,000
2002 and after...................................................... 437,000
-----------
$28,642,000
-----------------------------------------------------------------------------------------
The Company has future lease obligations relating to office facilities
being used for its discontinued operations. The Company established a
provision for future lease commitments relating to these facilities
which is included in Loss on disposal of discontinued operations on
the accompanying Consolidated Statements of Operations. The management
of the Company believes this provision will be adequate to cover any
future losses incurred relating to these facilities.
In the normal course of business, the Company is party to various
claims and legal proceedings. Although the ultimate outcome of these
matters is presently not determinable, management, after consultation
with legal counsel, does not believe that the resolution of these
matters will have a material adverse effect upon the Company's
financial position or results of operations.
Note 11 - Income Taxes:
Income taxes from continuing operations consist of the following:
Year Ended December 31, 1996 1995 1994
-----------------------------------------------------------------------------------------------------------
Current
Federal...................................... $10,491,000 $13,476,000 $12,506,000
State........................................ 486,000 1,577,000 1,481,000
---------- ---------- ----------
10,977,000 15,053,000 13,987,000
---------- ---------- ----------
Deferred, including current deferred
Federal...................................... 2,963,000 (682,000) (2,133,000)
State........................................ 858,000 10,000 (666,000)
---------- ---------- ----------
3,821,000 (672,000) (2,799,000)
----------- ------------ ----------
Total income taxes from continuing
operations................................... $14,798,000 $14,381,000 $11,188,000
-----------------------------------------------------------------------------------------------------------
38
The effective income tax rate from continuing operations differs from
the Federal income tax statutory rate due to the following:
Year Ended December 31, 1996 1995 1994
------------------------------------------------------------------------------------------------------------------------
Statutory rate..................................... 35.0% 35.0% 35.0%
State taxes, net of Federal tax benefit............ 2.3 2.5 1.8
Other, net......................................... 1.7 3.0 1.2
---- ---- ----
39.0% 40.5% 38.0%
------------------------------------------------------------------------------------------------------------------------
Deferred income taxes for 1996, 1995, and 1994 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 from continuing operations are as follows:
Year Ended December 31, 1996 1995 1994
------------------------------------------------------------------------------------------------------------------------
Difference in financial reporting and income
tax depreciation methods.................... $ 598,000 $(555,000) $ (652,000)
Reserves not currently deductible................ (28,000) 213,000 (300,000)
Capitalized software currently deductible for
tax purposes, net of amortization and
write-offs.................................. 3,461,000 512,000 (974,000)
State deferred income taxes...................... 558,000 6,000 (433,000)
Revenue and expense recognized in
different periods for financial reporting
and income tax purposes..................... (724,000) (657,000) (354,000)
Other, net....................................... (44,000) (191,000) (86,000)
---------- ------- -----------
$3,821,000 $(672,000) $(2,799,000)
------------------------------------------------------------------------------------------------------------------------
The net deferred income tax (liability) asset is comprised of the
following:
Year Ended December 31, 1996 1995
---------------------------------------------------------------------------------------------------
Current deferred income taxes:
Gross assets................................. $4,689,000 $3,331,000
Gross liabilities............................ (162,000) (747,000)
---------- ----------
4,527,000 2,584,000
--------- ---------
Long-term deferred income taxes:
Gross assets................................. 1,108,000 1,741,000
Gross liabilities............................ (6,084,000) (2,200,000)
--------- ---------
(4,976,000) (459,000)
--------- ----------
Net deferred income tax (liability) asset......... $ (449,000) $2,125,000
-------------------------------------------------------------------------------------------------
The Company did not record any valuation allowance against deferred
tax assets at December 31, 1996 and 1995.
39
The tax effect of significant temporary differences representing
deferred tax (liabilities) assets is as follows:
Year Ended December 31, 1996 1995
-------------------------------------------------------------------------------------------------
Difference in financial reporting and income
tax depreciation methods.................... $ 846,000 $1,161,000
Reserves not currently deductible................ 945,000 1,396,000
Capitalized software currently deductible for
tax purposes, net of amortization and
write-offs.................................. (6,082,000) (1,855,000)
State deferred income taxes...................... 223,000 (158,000)
Revenue and expense recognized in
different periods for financial reporting
and income tax purposes..................... 3,277,000 1,935,000
Unrealized holding gain on investments........... 303,000 (342,000)
Other, net....................................... 39,000 (12,000)
---------- ----------
$ (449,000) $2,125,000
-------------------------------------------------------------------------------------------------
Note 12 - Segment Information:
The Company defines its business segments to reflect the Company's
focus around two core product lines: Investment Technology and
Services and Asset Management. The Investment Technology and Services
segment consists of the Company's trust technology, proprietary mutual
fund business, and back-office trust processing. The Asset Management
segment consists of the Company's liquidity management, asset
management, mutual fund, and brokerage and consulting businesses.
The following tables highlight certain financial information from
continuing operations about each of the Company's segments for the
years ended December 31, 1996, 1995, and 1994. Prior-year business
segment information has been restated to conform with current-year
presentation.
Investment
Technology Asset General and
1996 and Services Management Administrative Consolidated
---------------------------------------------------------------------------------------------------------------------
Revenues.................................. $171,034,000 $76,783,000 $247,817,000
----------- ---------- -----------
Operating profit.......................... $ 46,211,000 $ 3,111,000 $ 49,322,000
----------- ----------
General and administrative expenses....... $13,235,000 $ 13,235,000
----------
Gain on sale of investments available
for sale............................... $ (1,097,000)
Interest income, net...................... $ (760,000)
-------------
Income from continuing operations
before income taxes.................... $ 37,944,000
-----------
Depreciation and amortization............. $ 7,509,000 $ 2,328,000 $ 202,000 $ 10,039,000
----------- ---------- ---------- -----------
Capital expenditures...................... $ 23,061,000 $ 5,979,000 $ 4,020,000 $ 33,060,000
----------- ---------- ---------- -----------
Total identifiable assets at
December 31, 1996...................... $ 66,595,000 $62,135,000 $12,311,000 $141,041,000
----------- ---------- ---------- -----------
---------------------------------------------------------------------------------------------------------------------
40
Investment
Technology Asset General and
1995 and Services Management Administrative Consolidated
---------------------------------------------------------------------------------------------------------------------
Revenues.................................. $157,960,000 $68,004,000 $225,964,000
----------- ---------- -----------
Operating profit.......................... $ 45,176,000 $ 6,530,000 $ 51,706,000
----------- ----------
General and administrative expenses....... $ 16,963,000 $ 16,963,000
----------
Interest income, net...................... $ (764,000)
-----------
Income from continuing operations
before income taxes.................... $ 35,507,000
-----------
Depreciation and amortization............. $ 8,997,000 $ 2,253,000 $ 324,000 $ 11,574,000
----------- ---------- ---------- -----------
Capital expenditures...................... $ 3,931,000 $ 1,114,000 $ 3,566,000 $ 8,611,000
----------- ---------- ---------- -----------
Total identifiable assets at
December 31, 1995...................... $ 44,847,000 $43,170,000 $ 7,284,000 $ 95,301,000
----------- ---------- ---------- -----------
---------------------------------------------------------------------------------------------------------------------
Investment
Technology Asset General and
1994 and Services Management Administrative Consolidated
---------------------------------------------------------------------------------------------------------------------
Revenues.................................. $136,498,000 $68,553,000 $205,051,000
----------- ---------- -----------
Operating profit.......................... $ 36,525,000 $ 9,461,000 $ 45,986,000
----------- ----------
General and administrative expenses....... $16,919,000 $ 16,919,000
----------
Interest income, net...................... $ (374,000)
-----------
Income from continuing operations
before income taxes.................... $ 29,441,000
-----------
Depreciation and amortization............. $ 9,458,000 $ 2,304,000 $ 364,000 $ 12,126,000
----------- ---------- ---------- -----------
Capital expenditures...................... $ 6,889,000 $ 1,110,000 $ 5,733,000 $ 13,732,000
----------- ---------- ---------- -----------
Total identifiable assets at
December 31, 1994...................... $ 37,130,000 $25,922,000 $18,995,000 $ 82,047,000
----------- ---------- ---------- -----------
---------------------------------------------------------------------------------------------------------------------
41
Note 13 - Related Party Transactions:
SFM, either by itself or through two of 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, SFM 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 $92,143,000, $73,807,000, and $59,249,000 in 1996,
1995, and 1994, respectively. SFS is a party to Distribution
Agreements with several RICs, which are advised and/or administered by
SFM. SFS 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 $4,026,000,
$5,897,000, and $7,014,000 in 1996, 1995, and 1994, respectively.
Note 14 - Quarterly Financial Data (Unaudited):
For the Three Months Ended
-------------------------------------------------------------------------
1996 March 31 June 30 Sept. 30 Dec. 31
------------------------------------------------------------------------------------------------------------------------
Revenues................................... $63,239,000 $61,541,000 $60,165,000 $62,872,000
Income from continuing operations
before income taxes..................... $ 9,818,000 $ 7,992,000 $ 9,390,000 $10,744,000
Income from continuing operations.......... $ 5,793,000 $ 4,893,000 $ 5,906,000 $ 6,554,000
Net income (loss).......................... $ 5,793,000 $ 4,893,000 $ 5,906,000 $(9,781,000) (A)
Primary and fully diluted earnings per
share from continuing operations........ $.30 $.25 $.31 $ .34
Primary and fully diluted earnings
(loss) per share........................ $.30 $.25 $.31 $(.51) (A)
------------------------------------------------------------------------------------------------------------------------
(A) Includes the loss from the disposal of discontinued operations of
$16,335,000 or $.85 per share (See Note 2).
For the Three Months Ended
-------------------------------------------------------------------------
1995 March 31 June 30 Sept. 30 Dec. 31
------------------------------------------------------------------------------------------------------------------------
Revenues................................... $53,499,000 $55,737,000 $56,478,000 $60,250,000
Income from continuing operations
before income taxes..................... $ 9,868,000 $ 7,540,000 $ 8,674,000 $ 9,425,000
Income from continuing operations.......... $ 5,921,000 $ 4,524,000 $ 4,943,000 $ 5,738,000
Net income................................. $ 4,883,000 $ 3,620,000 $ 4,943,000 $ 5,738,000
Primary and fully diluted earnings per
share from continuing operations........ $.30 $.23 $.26 $.30
Primary and fully diluted earnings per
share................................... $.25 $.18 $.26 $.30
------------------------------------------------------------------------------------------------------------------------
42
SEI INVESTMENTS COMPANY AND SUBSIDIARIES
----------------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
-----------------------------------------------
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
-----------------------------------------------------------------
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, 1994:
Allowance for doubtful accounts $ 971,000 $235,000 $ -- $ -- $1,206,000
========= ======= ======= ========= =========
For the Year Ended December 31, 1995:
Allowance for doubtful accounts $1,206,000 $ -- $ -- $ -- $1,206,000
========= ======== ======= ========= =========
For the Year Ended December 31, 1996:
Allowance for doubtful accounts $1,206,000 $144,000 $ -- $ -- $1,350,000
========= ======= ======= ========= =========
43
Item 9. Changes in and disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure.
---------------------
None.
44
PART III
--------
Item 10. Directors and Executive Officers of the Registrant.
--------------------------------------------------
Certain information called for in this item is hereby incorporated by reference
from the Company's definitive proxy statement for its 1997 Annual Meeting of
Shareholders to be filed with the Securities and Exchange Commission within 120
days after December 31, 1996 pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "1997 Proxy Statement").
The executive officers of the Company are as follows:
ALFRED P. WEST, JR., 54, 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.
HENRY H. GREER, 59, has been Chief Financial Officer since September 1996.
Mr. Greer has been President and Chief Operating Officer since August 1990, and
was an Executive Vice President from July 1990 to August 1990. Mr. Greer has
been a Director since November 1979.
CARMEN V. ROMEO, 53, 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, 49, has been an Executive Vice President since October 1990,
and a Director since May 1995.
CARL A. GUARINO, 39, has been a Senior Vice President since April 1988, and was
General Counsel from April 1988 to January 1994.
EDWARD D. LOUGHLIN, 46, has been an Executive Vice President since January 1994
and a Senior Vice President since January 1988.
DENNIS J. MCGONIGLE, 36, 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.
KEVIN P. ROBINS, 35, has been a Senior Vice President and General Counsel since
January 1994 and a Vice President since January 1992.
45
Item 11. Executive Compensation.
----------------------
The information called for in this item is hereby incorporated by reference from
the 1997 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
--------------------------------------------------------------
The information called for in this item is hereby incorporated by reference from
the 1997 Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
----------------------------------------------
The information called for in this item is hereby incorporated by reference from
the 1997 Proxy Statement.
46
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
----------------------------------------------------------------
Financial Statements. 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, 1996 and 1995
Consolidated Statements of Operations -- For the years ended
December 31, 1996, 1995, and 1994
Consolidated Statements of Shareholders' Equity -- For the years ended
December 31, 1996, 1995, and 1994
Consolidated Statements of Cash Flows -- For the years ended December
31, 1996, 1995, and 1994
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.
Reports on Form 8-K. The Company filed a form 8-K on December 30, 1996, amending
- - --------------------
its Articles of Incorporation for a name change and a change in address of its
principal executive offices.
Exhibits, Including Those Incorporated by Reference. The following is a list of
- - ---------------------------------------------------
exhibits filed as part of this annual report on Form 10-K. Where so indicated by
footnote, exhibits which were previously filed are incorporated by reference.
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. (1) (Exhibit 3.1)
3.1.1 Designation of Series A Junior Participating Preferred Shares,
dated December 19, 1988. (7) (Exhibit 3.1.1)
3.1.2 Amendment to Articles of Incorporation of the Registrant,
dated May 21, 1992. (12) (Exhibit 3.1.2)
3.1.3 Amendment to Articles of Incorporation of the Registrant,
dated May 26, 1994. (14) (Exhibit 3.1.3)
3.1.4 Amendment to Articles of Incorporation of the Registrant,
dated November 21, 1996. (Exhibit 3.1.4)
3.2 By-Laws. (2) (Exhibit 3.2)
3.2.1 Amendment to By-Laws, dated December 19, 1988.
(7) (Exhibit 3.2.1)
3.2.2 Amendment to By-Laws, dated July 12, 1990.
(9) (Exhibit 3.2.2)
4.1 Form of Certificate for Shares of Common Stock.
(7) (Exhibit 4.1)
4.1.1 Form of Rights Certificate. (5) (Exhibit B to Exhibit 1)
4.2 See Exhibits 3.1 and 3.2 hereto.
*10.1 1981 Stock Option Plan, Amended, Restated and Renewed as of
May 8, 1991. (6) (Exhibit 4)
*10.2 Employee Stock Ownership Plan. (4) (Exhibit 10.3 (b))
*10.3 Employee Stock Purchase Plan, Amended and Restated as of
May 8, 1991. (11) (Exhibit 10.3)
*10.4 SEI Capital Accumulation Plan. (8) (Exhibit 10.5)
*10.5 Stock Option Plan for Non-Employee Directors.
(7) (Exhibit 10.12)
*10.6 Employment Agreement, dated May 25, 1979, between Alfred P.
West, Jr. and the Registrant. (10) (Exhibit 10.7)
*10.7 Employment Agreement, dated January 21, 1987, between
Gilbert L. Beebower and the Registrant. (10) (Exhibit 10.8)
*10.8.1 Employment Agreement, dated July 1, 1987, between Richard B.
Lieb and the Registrant. (10) (Exhibit 10.9)
*10.8.2 Stock Option Agreement, dated February 23, 1989, between
Richard B. Lieb and a subsidiary of the Registrant, as amended
(12) (Exhibit 10.8.2)
*10.9 Summary of Company Bonus Plan for Senior Management.
(13) (Exhibit 10.9)
47
*10.10 Employment Agreement, dated February 28, 1992, between
Charles A. Marsh and the Registrant. (13) (Exhibit 10.10)
10.11 Directors and Officers Liability Insurance Policy.
(3) (Exhibit 10.9)
10.12 Lease Agreement, dated as of January 1, 1990, between The
Canada Life Assurance Company and the Registrant.
(10) (Exhibit 10.11)
10.13 Lease Agreement, dated as of May 1, 1991, between Two North
Riverside Plaza Joint Venture and the Registrant.
(11) (Exhibit 10.11)
10.14 Credit Agreement, dated May 31, 1992, between Provident
National Bank and the Registrant, as amended.
(12) (Exhibit 10.12)
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. (13) (Exhibit 10.14.1)
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. (13) (Exhibit 10.14.2)
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. (14) (Exhibit 10.14.3)
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. (14) (Exhibit 10.14.4)
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.
(15) (Exhibit 10.14.5)
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. (15) (Exhibit 10.14.6)
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. (15) (Exhibit 10.14.7)
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. (Exhibit 10.14.8)
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. (Exhibit 10.14.9)
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. (Exhibit 10.14.10)
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. (Exhibit 10.14.11)
10.15 Pledge Agreement, dated May 31, 1992, between Provident
National Bank and the Registrant. (12) (Exhibit 10.13)
10.16 Master Lease Agreement, dated December 29, 1989, between
Varilease Corporation and the Registrant, as amended.
(12) (Exhibit 10.14)
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.
(Exhibit 10.17)
11. Earnings per share calculations. (Exhibit 11)
21. Subsidiaries of the Registrant. (Exhibit 21)
23. Consent of Independent Public Accountants. (Exhibit 23)
27. Financial Data Schedule. (Exhibit 27)
99. Miscellaneous exhibits. (Exhibit 99)
* Denotes a management contract or compensatory plan or arrangement required
to be filed as an exhibit to this Form 10-K.
48
(1) Filed March 30, 1983, as an exhibit to the Company's Form 10-K for the
fiscal year ended December 31, 1982, and incorporated herein by
reference.
(2) Filed March 30, 1984, as an exhibit to the Company's Form 10-K for the
fiscal year ended December 31, 1983, and incorporated herein by
reference.
(3) Filed June 25, 1982, as an exhibit to the Company's Registration Statement
on Form S-8 (No. 2-78133), and incorporated herein by reference.
(4) Filed March 26, 1986, as an exhibit to the Company's Form 10-K for the
fiscal year ended December 31, 1985, and incorporated herein by
reference.
(5) Filed January 12, 1989, as an exhibit to the Company's Form 8-K dated
January 5, 1989, and incorporated herein by reference.
(6) Filed July 8, 1991, as an exhibit to the Company's Registration Statement
on Form S-8 (No. 33-41602), and incorporated herein by reference.
(7) Filed March 23, 1989, as an exhibit to the Company's Form 10-K for the
fiscal year ended December 31, 1988, and incorporated herein by
reference.
(8) Filed March 29, 1990, as an exhibit to the Company's Form 10-K for the
fiscal year ended December 31, 1989, and incorporated herein by
reference.
(9) Filed August 14, 1990, as an exhibit to the Company's Form 10-Q for
the quarter ended June 30, 1990, and incorporated herein by reference.
(10) Filed March 28, 1991, as an exhibit to the Company's Form 10-K for the
fiscal year ended December 31, 1990, and incorporated herein by
reference.
(11) Filed March 27, 1992, as an exhibit to the Company's Form 10-K for the
fiscal year ended December 31, 1991, and incorporated herein by
reference.
(12) Filed March 24, 1993, as an exhibit to the Company's Form 10-K for the
fiscal year ended December 31, 1992, and incorporated herein by
reference.
(13) Filed March 28, 1994, as an exhibit to the Company's Form 10-K for the
fiscal year ended December 31, 1993, and incorporated herein by
reference.
(14) Filed March 30, 1995, as an exhibit to the Company's Form 10-K for the
fiscal year ended December 31, 1994, and incorporated herein by
reference.
(15) Filed March 29, 1996, as an exhibit to the Company's Form 10-K for the
fiscal year ended December 31, 1995, and incorporated herein by
reference.
49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SEI INVESTMENTS COMPANY
Date March 28, 1997 By /s/ Henry H. Greer
---------------------- ------------------------------------
Henry H. Greer
President, Chief Operating
Officer, Chief Financial Officer and
Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on dates indicated.
Date March 28, 1997 By /s/ Alfred P. West, Jr.
---------------------- ------------------------------------
Alfred P. West, Jr.
Chairman of the Board,
Chief Executive Officer,
and Director
Date March 28, 1997 By
---------------------- ------------------------------------
Carmen V. Romeo
Executive Vice President and Director
Date March 28, 1997 By /s/ Richard B. Lieb
---------------------- ------------------------------------
Richard B. Lieb
Executive Vice President and Director
Date March 28, 1997 By /s/ Donald C. Carroll
---------------------- ------------------------------------
Donald C. Carroll
Director
Date March 28, 1997 By /s/ William M. Doran
---------------------- ------------------------------------
William M. Doran
Director
Date March 28, 1997 By /s/ Henry H. Porter, Jr.
---------------------- ------------------------------------
Henry H. Porter, Jr.
Director
50
EXHIBIT INDEX
3.1 Articles of Incorporation of the Registrant as amended on
January 21, 1983. (1) (Exhibit 3.1)
3.1.1 Designation of Series A Junior Participating Preferred Shares,
dated December 19, 1988. (7) (Exhibit 3.1.1)
3.1.2 Amendment to Articles of Incorporation of the Registrant, dated
May 21, 1992. (12) (Exhibit 3.1.2)
3.1.3 Amendment to Articles of Incorporation of the Registrant, dated
May 26, 1994. (14) (Exhibit 3.1.3)
3.1.4 Amendment to Articles of Incorporation of the Registrant, dated
November 21, 1996. (Exhibit 3.1.4) (Page 54)
3.2 By-Laws. (2) (Exhibit 3.2)
3.2.1 Amendment to By-Laws, dated December 19, 1988.
(7) (Exhibit 3.2.1)
3.2.2 Amendment to By-Laws, dated July 12, 1990. (9) (Exhibit 3.2.2)
4.1 Form of Certificate for Shares of Common Stock.
(7) (Exhibit 4.1)
4.1.1 Form of Rights Certificate. (5) (Exhibit B to Exhibit 1)
4.2 See Exhibits 3.1 and 3.2 hereto.
*10.1 1981 Stock Option Plan, Amended, Restated and Renewed as of
May 8, 1991. (6) (Exhibit 4)
*10.2 Employee Stock Ownership Plan. (4) (Exhibit 10.3 (b))
*10.3 Employee Stock Purchase Plan, Amended and Restated as of May 8,
1991. (11) (Exhibit 10.3)
*10.4 SEI Capital Accumulation Plan. (8) (Exhibit 10.5)
*10.5 Stock Option Plan for Non-Employee Directors.
(7) (Exhibit 10.12)
*10.6 Employment Agreement, dated May 25, 1979, between Alfred P.
West, Jr. and the Registrant. (10) (Exhibit 10.7)
*10.7 Employment Agreement, dated January 21, 1987, between
Gilbert L. Beebower and the Registrant. (10) (Exhibit 10.8)
*10.8.1 Employment Agreement, dated July 1, 1987, between Richard B.
Lieb and the Registrant. (10) (Exhibit 10.9)
*10.8.2 Stock Option Agreement, dated February 23, 1989, between Richard
B. Lieb and a subsidiary of the Registrant, as amended.
(12) (Exhibit 10.8.2)
*10.9 Summary of Company Bonus Plan for Senior Management.
(13) (Exhibit 10.9)
*10.10 Employment Agreement, dated February 28, 1992, between
Charles A. Marsh and the Registrant. (13) (Exhibit 10.10)
10.11 Directors and Officers Liability Insurance Policy.
(3) (Exhibit 10.9)
10.12 Lease Agreement, dated as of January 1, 1990, between The Canada
Life Assurance Company and the Registrant. (10) (Exhibit 10.11)
10.13 Lease Agreement, dated as of May 1, 1991, between Two North
Riverside Plaza Joint Venture and the Registrant.
(11) (Exhibit 10.11)
10.14 Credit Agreement, dated May 31, 1992, between Provident National
Bank and the Registrant, as amended. (12) (Exhibit 10.12)
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. (13) (Exhibit 10.14.1)
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.
(13) (Exhibit 10.14.2
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. (14) (Exhibit 10.14.3)
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.
(14) (Exhibit 10.14.4)
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.
(15)
51
(Exhibit 10.14.5)
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. (15)
(Exhibit 10.14.6)
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. (15) (Exhibit 10.14.7)
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. (Exhibit 10.14.8) (Page 59)
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.
(Exhibit 10.14.9) (Page 61)
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. (Exhibit 10.14.10) (Page 65)
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. (Exhibit 10.14.11) (Page 68)
10.15 Pledge Agreement, dated May 31, 1992, between Provident National
Bank and the Registrant. (12) (Exhibit 10.13)
10.16 Master Lease Agreement, dated December 29, 1989, between
Varilease Corporation and the Registrant, as amended. (12)
(Exhibit 10.14)
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
(Exhibit 10.17) (Page 71)
11. Earnings per share calculations. (Exhibit 11) (Page 102)
21. Subsidiaries of the Registrant. (Exhibit 21) (Page 104)
23. Consent of Independent Public Accountants. (Exhibit 23)
(Page 105)
27. Financial Data Schedule. (Exhibit 27) (Page 106)
99. Miscellaneous exhibits. (Exhibit 99) (Page 107)
* Denotes a management contract or compensatory plan or arrangement required to
be filed as an exhibit to this Form 10-K.
(1) Filed March 30, 1983, as an exhibit to the Company's Form 10-K for the
fiscal year ended December 31, 1982, and incorporated herein by
reference.
(2) Filed March 30, 1984, as an exhibit to the Company's Form 10-K for the
fiscal year ended December 31, 1983, and incorporated herein by
reference.
(3) Filed June 25, 1982, as an exhibit to the Company's Registration Statement
on Form S-8 (No. 2-78133), and incorporated herein by reference.
(4) Filed March 26, 1986, as an exhibit to the Company's Form 10-K for the
fiscal year ended December 31, 1985, and incorporated herein by
reference.
(5) Filed January 12, 1989, as an exhibit to the Company's Form 8-K dated
January 5, 1989, and incorporated herein by reference.
(6) Filed July 8, 1991, as an exhibit to the Company's Registration Statement
on Form S-8 (No. 33-41602), and incorporated herein by reference.
(7) Filed March 23, 1989, as an exhibit to the Company's Form 10-K for the
fiscal year ended
52
December 31, 1988, and incorporated herein by
reference.
(8) Filed March 29, 1990, as an exhibit to the Company's Form 10-K for the
fiscal year ended December 31, 1989, and incorporated herein by
reference.
(9) Filed August 14, 1990, as an exhibit to the Company's Form 10-Q for
the quarter ended June 30, 1990, and incorporated herein by reference.
(10) Filed March 28, 1991, as an exhibit to the Company's Form 10-K for the
fiscal year ended December 31, 1990, and incorporated herein by
reference.
(11) Filed March 27, 1992, as an exhibit to the Company's Form 10-K for the
fiscal year ended December 31, 1991, and incorporated herein by
reference.
(12) Filed March 24, 1993, as an exhibit to the Company's Form 10-K for the
fiscal year ended December 31, 1992, and incorporated herein by
reference.
(13) Filed March 28, 1994, as an exhibit to the Company's Form 10-K for the
fiscal year ended December 31, 1993, and incorporated herein by
reference.
(14) Filed March 30, 1995, as an exhibit to the Company's Form 10-K for the
fiscal year ended December 31, 1994, and incorporated herein by
reference.
(15) Filed March 29, 1996, as an exhibit to the Company's Form 10-K for the
fiscal year ended December 31, 1995, and incorporated herein by
reference.
53