SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ========= FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: December 31, 2000 --------------------------------------------------- OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to _________________ Commission file number 0 - 10200 --------- SEI INVESTMENTS COMPANY - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Pennsylvania 23-1707341 - ------------------------------------------------------------------ ------------------------------------------------------ (State or other jurisdiction of incorporation or organization) (IRS Employer Identification Number) 1 Freedom Valley Drive, Oaks, Pennsylvania 19456-1100 - ------------------------------------------------------------------ ------------------------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 610-676-1000 ------------------------------------------------------ Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange on Which Registered ------------------------------------------------------ Title of Each Class ------------------- None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share - -------------------------------------------------------------------------------- (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No___ --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] (Cover page 1 of 2 pages) Exhibit Index on Page 61 Page 1 of 82 Pages 1
State the aggregate market value of the voting stock held by non-affiliates of the registrant based on the closing price of such stock as reported by NASDAQ as of February 28, 2001: $2,808,053,000. For purposes of making this calculation only, registrant has defined affiliates as including all directors and beneficial owners of more than ten percent of the common stock of the registrant. APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13, or 14(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No __________ __________ APPLICABLE ONLY TO CORPORATE REGISTRANTS: Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of February 28, 2001: 108,618,494. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the following documents are incorporated by reference herein: 1. Notice of and Proxy Statement for the 2001 Annual Meeting of Shareholders to be filed within 120 days after the end of the fiscal year covered by this annual report, incorporated by reference in Part III hereof. (Cover page 2 of 2 pages) 2
PART I Item 1. Business. -------- Forward Looking Information - --------------------------- Our disclosure and analysis in this Annual Report on Form 10-K contains some forward-looking statements. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Such statements may include words such as "anticipate," "estimate," "expect," "project," "intend, " "plan," "believe," and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. In particular, these include statements relating to present or anticipated products and markets, future revenues, capital expenditures, expansion plans, future financing and liquidity, personnel, and other statements regarding matters that are not historical facts or statements of current condition. Any or all of our forward-looking statements in this Annual Report on Form 10-K may turn out to be wrong. They can be affected by inaccurate assumptions we might make, or by known or unknown risks and uncertainties. Many factors mentioned in the discussion below will be important in determining future results. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our filings with the U.S. Securities and Exchange Commission. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995. General Development of Business - ------------------------------- We were incorporated in Pennsylvania in 1968 and initially offered our shares to the public in March 1981. Our principal wholly owned subsidiaries are SEI Investments Distribution Company ("SIDCO"), SEI Investments Management Corporation ("SIMC"), and SEI Trust Company ("SEI Trust"). SIDCO is a broker-dealer registered with the Securities and Exchange Commission ("SEC") under the Securities Exchange Act of 1934 and is a member of the National Association of Securities Dealers, Inc. SIMC is an investment advisor registered with the SEC under the Investment Advisers Act of 1940. SEI Trust is a trust entity chartered in the Commonwealth of Pennsylvania. We introduced our first trust system in 1972 providing on-line, real-time accounting and management information to bank trust departments. Today, this technology service is offered through the TRUST 3000(R) product line that provides product capabilities and processing power to serve even the largest trust institutions. SEI Trust offers back-office accounting and processing services to trust institutions which allows these institutions to outsource all of their trust operations and related investment functions. In 1982, SEI began to sponsor a number of institutional investment products, primarily in the form of registered investment companies sold to institutional investors and financial intermediaries. SIDCO and SIMC provide various asset management services to institutional investors, professional investment counselors and affluent individuals. These services include investment solutions that enable clients to establish asset allocation strategies and gain access to top-quality investment managers. We have expanded our asset management services outside the United States by targeting selected foreign markets for our investment management programs. SIDCO and SIMC also provide a full range of administration and distribution services to proprietary mutual funds established by banks and other financial institutions and intermediaries. The client serves as the investment advisor for the proprietary funds, and the funds are sold primarily to customers of the client. 3
Industry Segments - ----------------- Financial information is reported through four business lines: Technology Services, Asset Management, Mutual Fund Services, and Investments in New Business. These business segments reflect how we measure financial information internally. Technology Services, which accounted for 37 percent of consolidated revenues in 2000, includes the TRUST 3000 product line and trust operations outsourcing. Asset Management, which accounted for 36 percent of consolidated revenues in 2000, provides investment programs covering diversified investment strategies to institutional and high-net-worth markets. Mutual Fund Services, which accounted for 21 percent of consolidated revenues in 2000, provides administration and distribution services to mutual funds and other pooled funds created for banks, money managers and other financial institutions. Investments in New Business, which accounted for 6 percent of consolidated revenues in 2000, primarily consists of international asset management initiatives. Financial information about each business segment is contained in Note 12 of the Notes to Consolidated Financial Statements in Item 8. Additional financial information and discussion about each business segment, including a breakdown of revenues by product line, is contained in Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7. Technology Services Trust Technology Services Our comprehensive software products and computer processing services help trust institutions manage investments for their personal and institutional investors. TRUST 3000 is a complete trust accounting and investment system with fully automated securities movement and control linked directly to the Depository Trust Company. It offers investment management functionality through a number of integrated products and sub-systems that supports investment accounting, client administration, portfolio analysis, and trade order processing for both domestic and global securities processing. TRUST 3000 also provides access to multiple third-party pricing and asset related information. Through training, custom programming and our open architecture strategy, we help adapt our products to each client's particular needs. Clients access TRUST 3000 utilizing terminals and workstations that are connected to our data center. The value of TRUST 3000 has been enhanced by the StrataQuest(TM) product line which includes technology platform products that manage the flow of data and allow for the integration of TRUST 3000 information with any application operating in the clients' distributed computing environment. StrataQuest is a flexible combination of modular workstation application products that transform data into user-friendly customer service and investment analysis desktop applications. Our Internet access products, which run in a service bureau environment, are an extension of our service to technology services within our bank technology business. StrataWeb(TM) is our Internet solution for accessing trust information. It provides clients' customers the ability to access real-time account information through the Internet. StrataWeb reduces the number of inquiry related phone calls and has e-mail capabilities, customizable features and a secure website, which can be integrated with a client's website. Clients that use TRUST 3000 can affect purchases and redemptions of our liquidity products through an automated subsystem that performs daily sweeps of trust accounts and invests the available cash. Bank clients can also invest in our Tri-Party Repurchase Agreement program that offers competitive yields for short-term investing. Money manager and TRUST 3000 clients remit payment for services rendered in cash or, subject to applicable regulatory guidelines, by directing brokerage commissions to SIDCO through SEI-approved clearing agents or clearing brokers. These clients may also apply a portion of such directed brokerage commissions to defray certain other third-party costs. As a result of the directed brokerage business, revenues may be affected by changes in market trading volume or changes in government regulations affecting directed brokerage payments.
The market for our trust accounting and management information services consists primarily of bank trust departments managing assets between $10 million and $100 billion. Consolidations in the banking industry may reduce the number of bank prospects and/or eliminate customers from our user base. However, the economic pressures on the banking industry may also create a greater demand for outsourcing services, as banks increasingly focus on their core strengths. There are approximately 3,000 U.S. institutions with trust powers in our market. At December 31, 2000, we were providing processing or software services to approximately 80 trust departments, including trust departments of 19 of the top 50 banks, primarily located throughout the United States. We segregate the trust accounting and information services market by trust assets under management: $20 billion or more in managed assets; $750 million to $20 billion in managed assets; and under $750 million in managed assets. Each of these trust accounting and management information services markets are characterized by different pricing, service, and product parameters, and we offer a full range of products and services suitable for each. Customer contracts are generally between three to seven years and revenues are based on monthly processing and software application service fees. Our principal competitors are Fidelity-Trust Technology Services LLC, SunGard Data Systems, Marshall and Isley, and financial institutions that operate their own trust processing systems. However, in terms of both revenues and number of trust accounts processed, the TRUST 3000 product line is the leading trust accounting and management system sold by third-party vendors to bank trust departments. We believe the most important factors in a potential customer's evaluation and choice of vendor are: product and service reliability; security and risk; functional capability; ease of use and future flexibility; value; and cost effectiveness. Potential clients may also consider a vendor's experience in and it's commitment to the financial industry. Trust technology services accounted for approximately 33 percent of consolidated revenues in 2000. Trust Operations Outsourcing We combine our technological strength and investment expertise to assume the entire trust operation for institutional clients who wish to outsource their trust department operations and processes. We provide trust institutions with access to TRUST 3000 and our investment programs, along with processing, reporting, and custody services provided through the specialized capabilities of SEI Trust personnel. SEI Trust automates and centralizes the client's trust accounting, income collections, securities settlement, and securities processing functions. In addition, SEI Trust prepares and processes customer statements, investment reviews, and employee benefit accrual reports and remittances to the clients' customers. The market for our trust operations outsourcing consists primarily of bank trust departments ranging in size from start-ups to those managing assets of $20 billion. However, as the concept of outsourcing has gained credibility and acceptance within the industry, banks of all sizes are recognizing the value in outsourcing their trust operations. We also believe there is a market for these services in non-bank financial institution channels. This product line is also affected by consolidation of the banking industry, which may reduce the number of potential bank prospects and/or eliminate customers from our user base. At December 31, 2000, we had contracts to perform trust operations outsourcing services to approximately 85 clients. The terms of the contracts vary from three to five years. Currently, our only significant competitor in this market is Marshall and Isley, although we expect additional competitors to enter this market over the next few years. Revenues from trust operations outsourcing accounted for approximately 4 percent of consolidated revenues in 2000. 5
Asset Management We offer global investment strategies directly to institutional investors and to affluent individual investors through a select network of registered investment advisors and other professional investment counselors. Our asset management team has developed a specialized investment approach to provide investors access to the best money management talent from around the world and optimal portfolio allocation at a reasonable cost. We create investment strategies tailored to clients' specific financial objectives, and choose the best style-specific money managers to implement them. This innovative approach, called a "Manager of Managers" approach, ensures adherence to our disciplined investment principles because each manager's performance is tracked and scrutinized. We also provide comprehensive support services, including accounting and investor reporting, to our client. Investments are made through a series of domestic equity, fixed income and tax-exempt mutual funds, separate account management, and offshore funds. We employ a total investment management approach that utilizes a quantitative asset allocation model and investment strategies based upon the precepts of modern portfolio theory and specialist sub-advisors that we select and monitor. Through SIMC, we serve as the administrator, transfer agent, and fund accountant for these products. We also act as the investment advisor for many of these products. The investment advisory and administration contracts between SIMC and the funds are subject to renewal annually by the board of trustees of the funds. These contracts provide for the payment of administrative fees based on a percentage of the average daily net assets of each fund. Investment Management Fees We provide investment solutions to pension plan sponsors, hospitals, foundations, endowment funds, and other institutional investors. We offer each investor an integrated investment program that enables a pension or other investment committee to outsource their investment management process to us, including trustee and custodial services. Using a disciplined fund management process and superior technology, we work with each client to develop asset management strategies that are consistent with the client's business needs, investment objectives, risk tolerance, investment restrictions, and time horizon. Then, through the combination of the portfolio construction process, multiple asset classes, and style allocations, we work toward the client's investment goals. A client's strategy is implemented through our mutual funds that employ sub-advisors that are specialists in a particular style. The potential benefit of this method is improved performance with reduced volatility because it eliminates the task of attempting to estimate which style of investing will be in favor at any point in time. Specialist-advisors are monitored for performance, so trading strategies conform to predetermined market, sector, and style characteristics. We maintain the asset class exposure within the specifically defined boundaries of our client's asset allocation plan by incorporating a formal rebalancing program in our asset management process utilizing state-of-the-art technology. Overall, diversifying by asset class, manager style, sub-style, and sector tends to reduce volitility while improving the prospects for long-term growth. Clients also have the ability to access specialized money managers through separate accounts. We also deliver business building solutions to independent broker-dealers, registered investment advisors, financial planners, life insurance producers, and bank trust departments. The investment programs offered through these financial advisors are targeted to attract the assets of high-net-worth individuals (defined as individuals with over $500,000 of investable assets) and small to medium sized institutional plans. Our programs allow advisors to outsource many aspects of asset management, back-office operations, marketing, and client services. This allows the investment advisors to focus their resources on creating financial plans, implementing investment strategies, and educating and servicing their clients. The programs also allow access to institutional money managers normally not available to individual investors. Asset allocation, portfolio structure, tax management, specialist investment and continuous portfolio management are the five key principles of our investment philosophy. Financial intermediaries are offered various asset allocation models that provide diversification among investment classes and periodic rebalancing to achieve the investor's objectives. We offer a wide range of investment solutions including tax managed programs. At December 31, 2000, there were approximately 4,000 clients who utilize our asset management programs through separate accounts or through our mutual funds with $52 billion in assets invested. The principal competition for our asset management products is from other investment advisors and mutual fund companies. Also, revenues are affected by changes in the value of securities traded in various financial markets. Fees are earned as a percentage of average assets under management. Revenues from investment management fees accounted for approximately 33 percent of consolidated revenues in 2000. 6
Liquidity Management Fees We also apply our expertise to short term investments. We assist corporations in developing investment programs to meet their unique cash flow needs by coordinating investment strategies with expected disbursements. Our CashSweep(R) program helps commercial banks compete successfully with larger institutions by offering their clients superior cash management services. This program enables financial institutions to sweep excess balances from demand deposit accounts into money market accounts. To build a successful sweep program, we combine technology with our cash management investment products, cash management services, marketing and consulting support. Our CashStrategies(R) program uses proprietary technology to help treasurers analyze cash flow and develop dynamic cash management strategies, which they can then execute with our investment products. We help clients allocate their cash between liquid and longer-term investments. Longer-duration cash is invested in one of our Secondary Cash Investment Models, each providing an optimal balance of strong yield and high liquidity. We help to implement the strategy and render ongoing service and analytical support. Liquidity products consist primarily of money market and other short-term mutual funds and our Repurchase Agreement Program ("REPO"). REPO permits institutions to invest short-term funds in overnight and term tri-party repurchase agreements and other overnight and short-term investment products. Clients may purchase or redeem investment products and retrieve information about their accounts through SEI Direct, or by telephone orders to SIMC. The target market for our liquidity products and services is primarily bank trust departments, investment advisors, and corporations located in the United States. The number of bank and non-bank clients utilizing our liquidity products and services totaled approximately 1,000 at December 31, 2000. Total assets invested in liquidity funds, including REPO, totaled $24 billion at December 31, 2000. Our principal competitors in liquidity products and services include Federated Investors, Inc.; Fidelity Management Corporation; Goldman, Sachs & Co.; and PNC Bank; and other mutual fund complexes that market to institutional investors; and individual bank proprietary and common trust funds. A potential customer of liquidity services considers the price and performance of investment products and diverse product offerings, as well as the ease of investment through an automated sweep system. Revenues from liquidity management fees offered to investment advisors and corporations accounted for approximately 3 percent of consolidated revenues in 2000. Mutual Fund Services We provide administration and distribution services to mutual funds and other pools of money sponsored or held by banks, insurance firms, and investment companies for which the client serves as the investment advisor. We provide all required fund accounting and shareholder services including investment tracking, transaction processing, pricing, investment and tax reporting, regulatory compliance and daily support. Our distribution services focus on identifying distribution opportunities and establishing product and program strategies that will assist the client in attracting and retaining assets. This includes assistance with developing and executing business and marketing plans. Additionally, we maintain an office in Dublin, Ireland that offers administrative services, distribution consulting services, and marketing support services to fund complexes in international markets. Our multidisciplinary global team is experienced in administering a full range of investment structures including mutual funds, money funds, hedge funds, and separate accounts. These services are closely integrated with those of our domestic services group. The market for fund services and products consists primarily of banks, insurance companies, and investment managers. However, we are diversifying our business to offshore funds and hedge funds. As a result of legislation repealing Glass-Steagall provisions, banks may now perform securities distribution services themselves under the Financial Modernization Act. In addition, consolidations in the banking industry may reduce the number of bank proprietary fund complexes in existence. At December 31, 2000 we provided fund services to 40 banks, investment management companies, and insurance firms with proprietary mutual fund assets of approximately $194 billion. At December 31, 2000 we provided fund services to 25 offshore and hedge fund clients with assets of approximately $6 billion. Our contracts with mutual fund complexes have initial terms ranging from two to five years. 7
Our principal competitors for mutual fund services include The BISYS Group, Federated Investors, Inc., PFPC/First Data Investor Services Group, State Street Bank, and Investment Company Administrators. Potential customers of mutual fund services consider the price of such services, the performance of its administrative and other support services such as legal and marketing, and the integration of such services provided through our proprietary software. Revenues from mutual fund services accounted for approximately 21 percent of consolidated revenues in 2000. Investments in New Business We have several other business ventures to expand our asset management programs and services to high-net-worth investors, pension plans, governmental organizations, and private corporations in foreign countries. Using the same asset management disciplines that have benefited US clients, we provide investment management programs tailored to the needs of institutional and affluent individual investors in selected target markets: Canada, Europe/South Africa, Latin America, and Asia. These initial efforts have created distribution channels for our asset management services and have well positioned us for the introduction of new products. Penetration into the global asset management marketplace has been initiated through various acquisitions, joint ventures with local firms and the startup of satellite offices outside the United States. Our approach is to expand existing business lines into a coherent global business consistent with our United States strategy of providing portfolio solution offerings rather than product sales. Allocation of assets among the portfolio's specialist money managers and directing and evaluating the investment services provided by these selected managers is the cornerstone of our global investment strategy. Additionally, our services include the delivery of local investment management as part of a portfolio solution and local distribution and marketing. For example, in South Africa, we have assembled an investment advisory team that markets institutional asset management programs to pension and insurance industries. In Argentina and Mexico we have established investment advisory firms to offer our asset management services to high-net-worth investors. In Taiwan and Korea our joint ventures offer asset management solutions to institutions and high-net-worth individuals. The global market for financial services is highly competitive. We must consider the regulatory and financial constraints that exist in a foreign market. Additionally we will have to overcome recognition and branding hurdles caused by lack of a track record in a particular market. We attempt to overcome these obstacles by purchasing or partnering with local firms with an established presence in the market. This also helps us in making decisions about product packaging and distribution strategies because we get access to a staff that understands the culture. Revenues from other investment products and services accounted for approximately 6 percent of consolidated revenues in 2000. 8
Other Equity Investments - ------------------ LSV Asset Management ("LSV"), is a partnership formed with three leading academics in the field of finance. LSV, a registered investment advisor, provides investment advisory services to institutions, including pension plans and investment companies. LSV is a value-oriented, contrarian money manager that offers a deep-value investment alternative. LSV utilizes a proprietary equity investment model to identify securities that are generally considered to be out of favor. LSV identifies stocks that exhibit below-average market expectations for future growth because these stocks typically produce superior future returns as their growth exceeds the pessimistic expectation of the market. LSV is currently the specialist-advisor to a portion of SEI Large Cap Value Fund and SEI Small Cap Value Fund. In addition, LSV is a portfolio manager to a portion of our global investment products. Approximately 23 percent of the total assets managed by LSV relate to our products. At December 31, 2000, our interest represented approximately 47 percent of the partnership's total interests. Marketing and Sales - ------------------- We employ 18 sales representatives in Technology Services, 64 sales representatives in Asset Management, 21 sales representatives in Mutual Fund Services, and 27 sales representatives in Investments in New Business. These sales personnel operate from 19 offices located in Oaks, Pennsylvania; San Francisco and Irvine, California; Chicago, Illinois; Boston, Massachusetts; New York, New York; Dallas, Texas; Norcross, Georgia; Toronto, Ontario; Montreal, Quebec; Vancouver, British Columbia; Halifax, Nova Scotia; Paris, France; Dublin, Ireland; Johannesburg, South Africa; Central Hong Kong, Hong Kong; Buenos Aires, Argentina, Mexico City, Mexico; and Berkeley Square, London, United Kingdom. Customers - --------- We currently serve approximately 5,500 clients. For the year ended December 31, 2000, no single customer accounted for more than 10 percent of revenues in any industry segment. Development of New Products and Services - ---------------------------------------- Software products Service to existing and potential customers is enhanced by substantial investment in improving existing software products and developing new products and services for the financial industry. To sustain and enhance our competitive position in the industry, we are committed to a continuous and high level of expenditures for research and development. We utilize numerous professionals solely dedicated to the design, development, and enhancement of our software products. New products are released when they are completed. Maintenance releases generally occur twice each year. Banks are demanding technology tools to enhance their relationships with their investors. Our new Internet access products, which run in a service bureau environment, represent a new area of business within our bank technology business. StrataWeb(TM) is our Internet solution for accessing trust information. It provides clients' customers the ability to access real-time account information via the Internet. StrataWeb reduces the number of inquiry related phone calls and has e-mail capabilities, customizable features and a secure website, which can be integrated with a client's website. TreasuryPoint is our first business-to-business e-commerce site that provides the tools that treasury and finance professionals need to make and execute balance sheet decisions. The public Internet site was introduced in late 1999, and provides short-term rate information, market commentary, and expert articles highlighting the latest trends in working capital management. In mid 2000 the Optimizer was introduced. The Optimizer will help clients to improve their daily investment and borrowing process, enhance their overall capabilities in the area of risk management, and improve capital structure decisions. This ASP service combines real-time market rates with a company's treasury policy, cash flow information, investment products and borrowing lines to determine the best financial solution for the company to implement each day. In late 2000, we began to offer an on-line trading application that will enable users of the Optimizer to implement electronically the investment decisions that the 9
Optimizer makes. The application also works independently and includes the first Internet trading platform providing single point access to a variety of top tier institutional money market funds. We expended, including amounts capitalized, approximately $58,666,000 (9.8 percent of revenues) in 2000, $42,788,000 (9.4 percent of revenues) in 1999, and $24,866,000 (6.8 percent of revenues) in 1998 to design, develop, and modify existing or new products and services. Investment products Significant growth opportunities exist in the investment management industry by expanding the distribution of asset management solutions to institutions and high-net-worth investors outside North America. Our strategy is designed to capitalize on three major trends in the global marketplace: (1) the privatization and globalization of pension funds, (2) the increased wealth accumulation among high-net-worth investors, and (3) the elimination of barriers to global investing. Our marketing efforts have focused on three main regions: Europe/South Africa, Asia, and Latin America. The initial strategy is to team with local partners to establish name recognition and distribution channels for our products and services. Our global asset management group has made major progress toward the creation of a distribution network during the past four years, including the establishment of an offshore fund family in Ireland, the acquisition of investment advisory firms in Argentina and Mexico, joint ventures in Taiwan, Korea, and France, and asset management contracts signed with European pension plans and several South African institutions. We have also opened an office in the United Kingdom. Regulatory Considerations SIDCO and SIMC are subject to various federal and state laws and regulations that grant supervisory agencies, including the SEC, broad administrative powers. In the event of a failure to comply with such laws and regulations, the possible sanctions that may be imposed include the suspension of individual employees, limitations on SIDCO's or SIMC's engaging in business for specified periods of time, the revocation of SIDCO's or SIMC's registration as a broker-dealer or investment advisor, censures, and fines. SEI Trust is subject to laws and regulations imposed by state banking authorities. In the event of a failure to comply with these laws and regulations, limitations may be placed on the business of SEI Trust, or its license as a trust company may be revoked. We offer investment products that are also subject to regulation by the SEC and state securities authorities, as well as non-U.S. regulatory authorities, where applicable. Existing or future regulations that affect these investment vehicles or their investment strategies could impair their investment performance and lead to a reduction in sales of such investment products. Directed brokerage payment arrangements offered by us are also subject to SEC and other federal regulatory authorities. Changes in the regulation of directed brokerage or soft dollar payment arrangements could affect sales of some services, primarily our brokerage and consulting services. Bank clients are subject to supervision by federal and state banking authorities concerning the manner in which such clients purchase and receive our products and services. Plan sponsor clients are subject to supervision by the Department of Labor and compliance with employee benefit regulations. Investment advisor clients are regulated by the SEC and state securities authorities. Existing or future regulations applicable to our clients may affect such clients' purchase of our products and services. Personnel At February 28, 2001, we had approximately 1,700 full-time and 100 part-time employees. None of our employees are represented by a labor union. Management considers employee relations to be good. 10
Item 2. Properties. ---------- Our corporate headquarters is located in Oaks, Pennsylvania. The corporate campus consists of six buildings situated on approximately 90 acres. We own and operate the land and buildings, which encompasses approximately 265,000 square feet. Our data center and warehouse facility is housed in an additional 70,000 square feet of leased space in Wayne, Pennsylvania. We also lease an additional 67,500 square feet of space in Wayne for our mutual funds operation. All other offices that we lease aggregate 92,000 square feet. Additionally, we own a New York City condominium (3,400 square feet) used for business purposes. We are currently constructing two additional buildings and a parking structure that will be completed by the end of 2001. Item 3. Legal Proceedings. ----------------- There are no legal proceedings to which we are a party or to which any of our properties is subject which are expected to have a material adverse effect on our business. Item 4. Submission of Matters to a Vote of Security Holders. --------------------------------------------------- There were no matters submitted to a vote of security holders during the fourth quarter of 2000. Information with regard to our executive officers is contained in Item 10 hereof and is incorporated by reference to this Part I. 11
PART II ------- Item 5. Market for the Registrant's Securities and Related Stockholder Matters. ---------------------------------------------------------------------- Price Range of Common Stock: - --------------------------- Our common stock is traded in the NASDAQ National Market System under the symbol SEIC. The following table shows the range of closing sales prices on the NASDAQ National Market System for the periods indicated. 2000 High Low - ---- ---- --- First Quarter 20 1/8 14 9/24 Second Quarter 24 7/12 16 1/2 Third Quarter 37 9/16 21 Fourth Quarter 62 27/32 27 3/16 1999 High Low - ---- ---- --- First Quarter 19 7/8 15 Second Quarter 17 2/3 13 Third Quarter 17 1/4 14 7/8 Fourth Quarter 21 1/2 12 43/48 As of February 28, 2001, there were approximately 1,500 shareholders of record. The Board of Directors declared a $.04 dividend in May and December of 2000, and a $.03 dividend in May and December of 1999. The Board of Directors has indicated its intention to pay future dividends on a semiannual basis. All stock prices have been restated to reflect the three-for-one stock split paid in June 2000, and the two-for-one stock split to be paid in February 2001. (See Note 8 of the Notes to the Consolidated Financial Statements). 12
Item 6. Selected Financial Data. ----------------------- (In thousands, except per share data) The following table summarizes selected financial data for the five years in the period ended December 31, 2000. The historical selected financial data for each of the five years in the period ended December 31, 2000 are derived from, and are qualified by reference to, the financial statements which are included with Item 8 in this report. These financial statements have been audited by Arthur Andersen LLP, independent public accountants, to the extent indicated in their reports. This data should be read in conjunction with the financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in this report. For the Year 2000 1999 1998 1997 1996 ============================================================================================================================= Revenues............................................ $ 598,806 $ 456,192 $ 366,119 $ 292,749 $ 247,817 Expenses: Operating and development........................ 279,024 215,216 180,937 148,536 129,776 Sales and marketing.............................. 154,984 126,184 103,834 84,770 68,719 General and administrative....................... 16,839 12,298 13,463 13,931 13,235 --------- ---------- ---------- ---------- ---------- Income from operations.............................. 147,959 102,494 67,885 45,512 36,087 Gain on sale of investments available for sale...... -- -- -- -- 1,097 Equity in the earnings of unconsolidated affiliate.. 7,533 6,765 3,015 -- -- Interest income..................................... 6,419 2,285 1,558 983 808 Interest expense.................................... (2,293) (2,375) (2,575) (2,488) (48) --------- ---------- ---------- ---------- ---------- Income from continuing operations before income taxes.............................. 159,618 109,169 69,883 44,007 37,944 Income taxes........................................ 60,655 42,030 26,904 17,163 14,798 --------- ---------- ---------- ---------- ---------- Income from continuing operations................... 98,963 67,139 42,979 26,844 23,146 Income (loss) from disposal of discontinued operations.......................... -- 1,292 710 -- (16,335) --------- ---------- ---------- ---------- ---------- Net income.......................................... $ 98,963 $ 68,431 $ 43,689 $ 26,844 $ 6,811 - ----------------------------------------------------------------------------------------------------------------------------- Basic earnings per common share from continuing operations (a)........................ $ .93 $ .63 $ .40 $ .25 $ .21 Basic earnings (loss) per common share from discontinued operations (a)...................... -- .01 .01 -- (.15) --------- ---------- ---------- ---------- ---------- Basic earnings per common share (a)................. $ .93 $ .64 $ .41 $ .25 $ .06 Shares used to calculate basic earnings per common share (a)................................. 106,490 106,632 106,962 109,890 110,982 - ----------------------------------------------------------------------------------------------------------------------------- Diluted earnings per common share from continuing operations (a)........................ $ .87 $ .59 $ .37 $ .23 $ .20 Diluted earnings (loss) per common share from discontinued operations (a)...................... -- .01 .01 -- (.14) --------- ---------- ---------- ---------- ---------- Diluted earnings per common share (a)............... $ .87 $ .60 $ .38 $ .23 $ .06 Shares used to calculate diluted earnings per common share (a)................................. 113,820 113,826 114,756 115,416 116,184 - ----------------------------------------------------------------------------------------------------------------------------- Cash dividends declared per common share (a)........ $ .08 $ .07 $ .05 $ .05 $ .04 - ----------------------------------------------------------------------------------------------------------------------------- Year-end Financial Position: Cash and cash equivalents........................... $ 159,576 $ 73,206 $ 52,980 $ 16,891 $ 13,167 Total assets........................................ $ 375,582 $ 253,779 $ 208,772 $ 168,884 $ 141,041 Short-term borrowings............................... $ -- $ -- $ -- $ -- $ 20,000 Long-term debt (including short-term portion)....... $ 29,000 $ 31,000 $ 33,000 $ 35,000 $ -- Shareholders' equity................................ $ 197,421 $ 79,002 $ 59,685 $ 46,410 $ 56,108 ============================================================================================================================= (a) All share and per share information has been adjusted to reflect the three-for-one stock split paid in June 2000 and the two-for-one stock split to be paid in February 2001. See Note 8 of the Notes to the Consolidated Financial Statements. 13
Item 7. Management's Discussion and Analysis of Financial Condition and --------------------------------------------------------------- Results of Operations. ---------------------- (In thousands, except per share data) This discussion reviews and analyzes the consolidated financial condition at December 31, 2000 and 1999, the consolidated results of operations for the past three years, and other factors that may affect future financial performance. This discussion should be read in conjunction with the Consolidated Financial Statements, Notes to the Consolidated Financial Statements and Selected Financial Data. We are organized around our four business lines: Technology Services, Asset Management, Mutual Fund Services, and Investments in New Business. Financial information on each of these segments is reflected in Note 12 of the Notes to Consolidated Financial Statements included with item 8 to this report. Forward-Looking Information - --------------------------- This discussion includes statements about future operations, strategies, and financial results. Forward-looking statements are based upon estimates and assumptions that involve risks and uncertainties, many of which are beyond our control or are subject to change. Although we believe our assumptions are reasonable, they could be inaccurate. Our actual future revenues and income could differ materially from our expected results. We have no obligation to publicly update or revise any forward-looking statements. Results of Operations - --------------------- 2000 Compared with 1999 Consolidated Overview - --------------------- Income Statement Data (In thousands, except per common share data) PERCENT 2000 1999 CHANGE ---- ---- ------ Revenues: Technology Services..................................... $222,246 $184,759 20% Asset Management........................................ 215,336 138,365 56% Mutual Fund Services.................................... 126,885 110,083 15% Investments in New Business............................. 34,339 22,985 49% -------- -------- Total revenues........................................ $598,806 $456,192 31% Operating Income (Loss): Technology Services..................................... $ 79,992 $ 61,022 31% Asset Management........................................ 72,671 40,185 81% Mutual Fund Services.................................... 27,688 24,221 14% Investments in New Business............................. (15,553) (10,636) (46%) General and Administrative.............................. (16,839) (12,298) (37%) -------- -------- Income from operations................................ 147,959 102,494 44% Other income, net.......................................... 11,659 6,675 75% -------- -------- Income from continuing operations before income taxes..................................... 159,618 109,169 46% Income taxes............................................... 60,655 42,030 44% -------- -------- Income from continuing operations.......................... $ 98,963 $ 67,139 47% Diluted earnings per common share from continuing operations.............................. $ .87 $ .59 47% Revenues increased 31 percent and earnings increased 47 percent during 2000. There are three primary factors underlying our recent growth in revenues and earnings: first, increased market acceptance of our products and services; second, leverage in our operations; and third, our portfolio of businesses. 14
Our products and services have been adopted by many companies, institutions, and intermediaries. Net asset flow into our funds from high-net-worth and institutional investors increased $12 billion during 2000 despite the recent volatility experienced in the capital markets. Sales to new clients and the delivery of new products and services to existing clients in our technology and outsourcing businesses increased during 2000, especially in the later half of the year. Our mutual fund outsourcing services are showing early signs of acceptance in new target markets of alternative investment managers and offshore fund sponsors. We are also achieving economies of scale in most of our back-office and investment management operations as well as having many shared technology development projects. Our margins before taxes and interest increased to 24.7 percent during 2000 compared to the 22.5 percent realized during 1999. During the past few years, our asset management business has been the primary driver in revenues and earnings growth. During the later half of 2000 when the capital markets were unstable, our technology business supported our growth. We believe this diverse range of markets we serve with our many products and services gives us some stability during times of short-term business volatility. We intend to sustain revenues and earnings growth by delivering new products and services to our existing clients and maintaining a level of new sales. In addition, we will effectively utilize our current infrastructure to manage expenses across a high net incremental revenue base. However, mergers and acquisitions within the banking industry and any prolonged volatility in the capital markets could negate any expected growth in revenues and earnings. The effective tax rate from continuing operations was 38.0 percent for 2000 and 38.5 percent for 1999. Asset Balances (In millions) As of December 31, PERCENT ------------------ 2000 1999 CHANGE ---- ---- ------ Assets invested in equity and fixed income funds........... $ 51,851 $ 41,695 24% Assets invested in liquidity funds......................... 24,481 22,556 9% -------- -------- Assets under management................................. 76,332 64,251 19% Client proprietary assets under administration............. 200,113 170,787 17% -------- -------- Assets under administration............................. $276,445 $235,038 18% ======== ======== Assets under management consist of total assets for which we provide management services that are invested in our liquidity (money market and short-term mutual funds) and non-liquidity mutual funds (equity and fixed income funds). Assets under administration consist of total assets for which we provide management and administration services, including client proprietary fund balances for which we provide administration and/or distribution services. 15
Technology Services - ------------------- Technology Services provides trust technology outsourcing services to banks and other financial institutions through our TRUST 3000 product line. TRUST 3000 includes many integrated products and sub-systems that provide a complete investment accounting and management information system for trust institutions. Revenues are earned from monthly processing and software services fees, and project fees associated with the conversion of new and merging clients. Trust operations outsourcing incorporates the TRUST 3000 product line within a package of services that includes investment management, custody and other back-office capabilities. Through this business, we handle a trust department's back-office administration function. Revenues are earned from processing and management fees. DOLLAR PERCENT 2000 1999 CHANGE CHANGE ---- ---- ------ ------ Revenues: Trust technology services................. $197,845 $163,465 $34,380 21% Trust operations outsourcing.............. 24,401 21,294 3,107 15% -------- -------- ------- Total revenues....................... 222,246 184,759 37,487 20% Expenses: Operating and development................. 111,100 92,763 18,337 20% Sales and marketing....................... 31,154 30,974 180 1% -------- -------- ------- Total operating profits.............. $ 79,992 $ 61,022 $18,970 31% ======== ======== ======= Profit margin........................ 36% 33% -- -- Trust Technology Services revenues increased largely due to increased sales activity in our core service bureau business. New sales in our core service bureau business during the past two years has primarily been driven by new clients and mergers in the large bank segment. We are also beginning to see increased interest from the regional bank segment. We recently signed four new clients from this segment that will generate over $5.2 million in future recurring revenues. Sales of new products and services to existing clients, has also contributed significantly to our recent growth in revenues. Many of our new products have received strong acceptance from our existing clients, because of our commitment to providing new services and improving existing services to our clients. We believe this stems from our extensive technology development agenda, and our ability to provide business solutions beyond software and processing. New sales and cross sales contributed approximately $15 million in additional recurring processing fees for 2000. Finally, brokerage services provided a significant revenue boost in 2000. Brokerage services allow a client to execute equity trades through SEI's captive broker/dealer. Trust operations outsourcing revenues increased primarily due to an increase in assets under management that generated an additional $2.8 million in investment management fees from our outsourcing clients. The increase in assets under management was due to new sales activity and increased asset flow into our funds from existing clients. Processing fees remained relatively flat during 2000. Operating profits and profit margin for Technology Services increased substantially during 2000. The increase in operating profits and profit margin were primarily due to the increase in revenues previously discussed and the leveragability inherent in our current infrastructure. Achieving real economies of scale in our operational groups provides us with the ability to maintain strong investment levels without hurting margins significantly. We believe these investments are critical to our long-term growth potential. As a percentage of sales, operating and development expenses remained the same at 50 percent and sales and marketing expenses decreased to 14 percent from 17 percent. Our sales strategy in the short-term will remain focused on our core service bureau business and back-office outsourcing opportunities. For the intermediate and long-term, our sales strategy will be expanded to include global asset managers, especially in Europe. We will also be delivering new products to our existing clients that are expected to fuel our near term growth. In addition, we will continue to maintain a high level of investment in this business to take advantage of growth opportunities in the U.S and Europe. Specifically, investments will be 16
made in globalizing TRUST 3000 and in the development of sales and service infrastructure in Europe. We are also focusing additional marketing and sales efforts towards other investment management financial services companies who are beginning to compete for high-net-worth investment management clients by offering trust services. Finally, we are constantly monitoring mergers and acquisitions within the banking industry that may affect our bank clients. Today, this remains as the major strategic issue facing this segment that could impact future growth. Asset Management - ---------------- The Asset Management segment provides investment solutions through various investment products and services distributed directly or through professional investment advisors, financial planners, and other financial intermediaries to institutional or high-net-worth markets. The primary products offered include diversified investment strategies and portfolios and back-office technology support. Revenues are earned through management fees that are based upon a fixed percentage, referred to as basis points, of the average daily net asset value of assets under management. DOLLAR PERCENT 2000 1999 CHANGE CHANGE ---- ---- ------ ------ Revenues: Investment management fees................ $195,604 $120,291 $75,313 63% Liquidity management fees................. 19,732 18,074 1,658 9% -------- -------- ------- Total revenues....................... 215,336 138,365 76,971 56% Expenses: Operating and development................. 60,339 38,153 22,186 58% Sales and marketing....................... 82,326 60,027 22,299 37% ------ ------ ------ Total operating profits.............. $72,671 $40,185 $32,486 81% ====== ====== ====== Profit margin........................ 34% 29% -- -- Investment management fees increased 63 percent primarily due to an increase in average assets under management driven by new sales in both our investment advisory and institutional asset management businesses. Average assets under management increased $12.2 billion or 53 percent to $34.9 billion during 2000, as compared to $22.7 billion during 1999. In our investment advisory business, we added approximately 1,900 new registered investment advisors to our network during 2000, bringing this total to about 7,600. In our institutional asset management business, we established 64 new client relationships during 2000, of which ten new clients funded over $100 million each. Some of these new clients included defined benefit plans, defined contribution plans, endowments and foundations and unions, which are new markets we have recently targeted. The increase in new sales in both businesses is the result of a growing interest and acceptance of our outsource business solution across a diverse range of clients. The increase in liquidity management fees is directly related to assets under management, which increased $1 billion or 19 percent to $6.3 billion during 2000, as compared to $5.3 billion during 1999. Investor strategies seem to have been affected by the recent market volatility to move out of fixed-income and equity securities and into short-term liquid assets. Operating profits and profit margin increased substantially during 2000 due to the substantial increase in revenues and the leveragability built into our operations. We have been able to control operating costs and continue to make investments in developing new products without substantially affecting margins. As a percentage of sales, operating and development expenses remained flat at 28 percent and sales and marketing expenses decreased to 38 percent from 43 percent. Despite the recent volatility of the marketplace, we remain optimistic about our future business. We have a current backlog of almost $2.0 billion of client assets; we will be launching several new investment programs during 2001; and we will dedicate resources to expanding our services into new markets to further diversify this business. We are confident that our sales and product strategy will continue to provide new business to support future growth. However, continued volatility in the capital markets could have an effect on an investors investment strategy. If investors move funds out of higher margin investment products and into lower margin investment products or out 17
of the market altogether, revenues and margins would also be affected. In addition, a significant devaluation in the capital markets would also affect revenues and margins. Mutual Fund Services - -------------------- Mutual Fund Services provides administration and distribution services to proprietary mutual funds created by banks, insurance firms, and investment management companies. These services include fund administration and accounting, legal and compliance services, shareholder recordkeeping, and marketing. Revenues are based upon a fixed percentage, referred to as basis points, of the average daily net asset value of the proprietary funds. DOLLAR PERCENT 2000 1999 CHANGE CHANGE ---- ---- ------ ------ Revenues.................................. $126,885 $110,083 $16,802 15% Expenses: Operating and development................. 77,484 68,759 8,725 13% Sales and marketing....................... 21,713 17,103 4,610 27% ------- ------- ------ Total operating profits.............. $ 27,688 $ 24,221 $ 3,467 14% ======= ======= ====== Profit margin........................ 22% 22% -- -- The increase in revenues was fueled by growth in average proprietary fund balances, which increased $44.3 billion or 30 percent to $193.5 billion during 2000 compared to $149.2 billion during 1999. Most of the growth in revenues resulted from new sales, especially in the investment management, offshore and hedge fund markets. Additionally, we made progress in cross selling products to our existing clients, mainly brokerage services. This growth reflects both the market acceptance of our business solutions and the product strategy that was instituted almost two years ago. However, total revenues were negatively affected by a decrease in average basis points earned because of fee concessions extended to existing clients in exchange for longer-term contracts and a reduction in the range of certain services to large bank clients. Profit margin remained flat in 2000 because expenses increased at the same rate as revenues. Expenses rose because of continued investment in new technology and accelerating sales and marketing efforts targeting the investment management and offshore markets. As a percentage of sales, both operating and development and sales and marketing expenses remained relatively flat. The demand for our services in the investment management, offshore and hedge fund markets has steadily risen. We will continue to focus our efforts in these markets because we believe these markets hold the greatest long-term growth potential for our services. The large bank market poses the most challenges because of significant changes during the past few years. Many of the largest banks with well-established complexes have grown their mutual funds to the point where they are less reliant on the services of an outsourcer. In addition, consolidations in the large bank market could negatively impact revenues. We are repositioning services by emphasizing value added information and technology products in this market. Investments in New Business - --------------------------- Investments in New Business include of our global asset management initiatives that incorporate our investment products and services to provide investment solutions to institutional and high-net-worth investors outside the United States as well as other new business initiatives. Revenues are primarily earned through management fees that are based upon a fixed percentage, referred to as basis points, of the average daily net asset value of assets under management. 18
DOLLAR PERCENT 2000 1999 CHANGE CHANGE ---- ---- ------ ------ Revenues.................................. $ 34,339 $ 22,985 $11,354 49% Expenses: Operating and development................. 30,101 15,541 14,560 94% Sales and marketing....................... 19,791 18,080 1,711 9% ------ ------ ------ Total operating losses............... $(15,553) $(10,636) $ (4,917) (46%) ====== ====== ======= Profit margin........................ (45%) (46%) -- -- The following table displays revenues by geographic region as a percentage of total segment revenues: 2000 1999 ---- ---- Europe/South Africa................................................ 51% 30% Canada............................................................. 28% 43% Asia............................................................... 9% 19% Other.............................................................. 12% 8% ----- ------ Total......................................................... 100% 100% Our offshore initiatives seek to capitalize on international growth opportunities by designing products and creating distribution channels for these products outside North America. We experienced substantial revenue growth in the European/South African region. In Europe, the SEI-managed fund complex established in association with Mediolanum S.p.A had significant asset growth during the year. In South Africa, we received $600 million in new asset sales from eight new clients. Average assets under management from our offshore enterprises were $4.1 billion during 2000, as compared to $2.2 billion during 1999. In Canada, we sold our consulting business in order to concentrate on our asset management business. Early results of that refocusing have been optimistic. We have received approximately $600 million in new assets from Canadian clients. Average assets under management from our Canadian operations were $1.2 billion during 2000, as compared to $697 million during 1999. Although the pace of global asset gathering and revenue recognition continued to accelerate, we also accelerated the pace of our investment efforts, especially in the European region. We have recently formed an investment team in London to support our global business, a marketing and service team in London to focus on the U.K. pension market, and a marketing and investment operation in France as part of our joint venture with HSBC-CCF. We will continue to focus sales efforts in Canada and other countries as well. We believe that global expansion is an area of significant long-term growth for our firm. We will continue to make significant investments in our global initiatives and expect to incur losses in 2001. General and Administrative - -------------------------- General and administrative expenses increased 37 percent to $16,839 for 2000 from $12,298 for 1999. As a percentage of total consolidated revenues, general and administrative expenses were 3 percent in 2000 and 1999. Other Income - ------------ Other income includes our interest in the partnership LSV Asset Management ("LSV"). LSV is a registered investment advisor, which provides investment advisory services to institutions, including pension plans and 19
investment companies. LSV is currently the portfolio manager for a number of SEI-sponsored investment products. Our interest in LSV was approximately 47 percent during 2000 and 1999. Our vested interest in LSV's net earnings for 2000 was $7,533, as compared to $6,765 for 1999. The increase in our portion of LSV's net earnings was due to an increase in assets under management. Average assets under management for LSV were $4.8 billion during 2000, as compared to $4.4 billion during 1999. Interest income for 2000 was $6,419, as compared to $2,285 for 1999. Interest income is earned based upon the amount of cash that is invested daily and fluctuations in interest income recognized for one period in relation to another is due to changes in the average cash balance invested for the period. Interest expense for 2000 was $2,293 as compared to $2,375 for 1999. Interest expense primarily relates to the issuance of long-term debt in early 1997 (See Note 7 of the Notes to Consolidated Financial Statements). 1999 Compared with 1998 Consolidated Overview - --------------------- Income Statement Data (In thousands, except per common share data) PERCENT 1999 1998 CHANGE ---- ---- ------ Revenues: Technology Services..................................... $184,759 $167,484 10% Asset Management........................................ 138,365 90,056 54% Mutual Fund Services.................................... 110,083 95,136 16% Investments in New Business............................. 22,985 13,443 71% ---------- ---------- Total revenues......................................... $456,192 $366,119 25% Operating Income (Loss): Technology Services..................................... $ 61,022 $ 46,793 30% Asset Management........................................ 40,185 19,881 102% Mutual Fund Services.................................... 24,221 24,993 (3%) Investments in New Business............................. (10,636) (10,319) (3%) General and Administrative.............................. (12,298) (13,463) 9% -------- -------- Income from operations................................ 102,494 67,885 51% Other income, net........................................ 6,675 1,998 234% --------- --------- Income from continuing operations before income taxes................................... 109,169 69,883 56% Income taxes............................................. 42,030 26,904 56% ------ ------ Income from continuing operations........................ $67,139 $42,979 56% Diluted earnings per common share from continuing operations............................ $ .59 $ .37 57% Revenues and earnings from continuing operations reached a new record level in 1999, primarily from new business in Technology Services and Asset Management. Technology Services operating results reflect increases in recurring processing fees generated from new clients and the delivery of new products to our existing clients. Asset Management operating results were boosted by significant increases in assets under management from new and existing clients in our investment advisory and institutional asset management businesses. Comparative results reflect an unusually large one-time revenue event in 1998, that was triggered by the acquisition of one of our largest technology clients that resulted in the recognition of a substantial contractual buyout fee. Excluding this 1998 one-time item, total revenues actually increased 29 percent and earnings per share increased 69 percent. 20
The effective tax rate from continuing operations was 38.5 percent for 1999 and 1998. Asset Balances (In millions) As of December 31, PERCENT ------------------ 1999 1998 CHANGE ---- ---- ------ Assets invested in equity and fixed income funds........... $ 41,695 $ 24,994 67% Assets invested in liquidity funds......................... 22,556 19,971 13% -------- -------- Assets under management................................... 64,251 44,965 43% Client proprietary assets under administration............. 170,787 133,407 28% ------- ------- Assets under administration.............................. $235,038 $178,372 32% Technology Services - ------------------- DOLLAR PERCENT 1999 1998 CHANGE CHANGE ---- ---- ------ ------ Revenues: Trust technology services................. $163,465 $ 150,961 $12,504 8% Trust operations outsourcing.............. 21,294 16,523 4,771 29% -------- --------- ------- Total revenues......................... 184,759 167,484 17,275 10% Expenses: Operating and development................. 92,763 91,175 1,588 2% Sales and marketing....................... 30,974 29,516 1,458 5% -------- --------- ------- Total operating profits................ $ 61,022 $ 46,793 $14,229 30% Profit margin.......................... 33% 28% -- -- There was an unusually large one-time revenue event in late 1998 that was triggered by the acquisition of one of our largest technology clients by a third party. As a result, revenues in 1998 included $12.9 million in one-time contractual buyout fees associated with the loss of this one client. Excluding the effects of this one-time fee, trust technology services revenues actually increased $25.4 million or 18 percent. Trust technology services revenues increased due to growth in recurring processing fees and project fees generated from new clients that had purchased our products and services in prior years, as well as from new products implemented for existing clients. Recurring processing fees increased $19.1 million or 24 percent and project fees increased $7.7 million or 29 percent. Our trust operations outsourcing business continued to generate new business in 1999. Revenues earned from processing services accounts for approximately 50 percent of total trust operations outsourcing revenues in 1999 and 57 percent in 1998, while investment services comprise the remaining 50 percent in 1999 and 43 percent in 1998. This shift in revenues can be attributed to growth in assets from existing clients and an increase in sales for investment services in the community and regional bank markets. Operating profits and profit margin for Technology Services increased substantially during 1999. Operating profits and profit margin in 1998 were inflated by the inclusion of the significant one-time buyout fee previously discussed. This one-time event contributed approximately $8.0 million to operating profits in 1998. Excluding the effect of this one-time event, operating profits actually increased 57 percent. The increase in operating profits and profit margin reflect increased system sales in the large bank market over the last few years and back-office sales in the community bank market. In addition, our current infrastructure allows us to carefully manage expenses over a higher net incremental recurring revenue base. As a percentage of sales, operating and development expenses decreased to 50 percent from 54 percent while sales and marketing expenses decreased slightly to 17 percent from 18 percent. 21
Asset Management - ---------------- DOLLAR PERCENT 1999 1998 CHANGE CHANGE ---- ---- ------ ------ Revenues: Investment management fees................ $120,291 $75,669 $44,622 59% Liquidity management fees................. 18,074 14,387 3,687 26% -------- ------- ------- Total revenues......................... 138,365 90,056 48,309 54% Expenses: Operating and development................. 38,153 25,672 12,481 49% Sales and marketing....................... 60,027 44,503 15,524 35% -------- ------- ------- Total operating profits................ $ 40,185 $19,881 $20,304 102% Profit margin.......................... 29% 22% -- -- Investment management fees increased 59 percent due to strong asset growth in both our investment advisory and institutional asset management businesses. Additionally, the favorable trend experienced in the financial securities markets during 1999 partially contributed to the growth in assets under management. Average assets under management increased $8.0 billion or 54 percent to $22.7 billion during 1999, as compared to $14.7 billion during 1998. In our investment advisory business, we continue to be successful at recruiting new registered investment advisors. We established approximately 2,200 new registered investment advisor relationships during 1999, bringing our total network to almost 5,700 advisors. We have also been working closely with our existing advisors to assist them in expanding their existing client base through the introduction of new investment options and programs. Our institutional asset management business also experienced strong business growth during 1999. We established 42 new institutional client relationships during 1999, of which nine new relationships funded over $100 million each. These new relationships included defined benefit plans, defined contribution plans, endowments and foundations. The 26 percent increase in liquidity management fees was mainly driven by an increase in average assets under management and increased sales of the cash sweep technology product. Average assets under management increased $2.1 billion or 66 percent to $5.3 billion during 1999, as compared to $3.2 billion during 1998. We successfully recruited 42 new cash sweep technology clients and 29 new institutional clients during 1999. However, short-term interest rate volatility slowed the use of money market funds during 1999 which dampened the growth in liquidity management fees. Operating profits and profit margin increased substantially during 1999. Profit margin improvement resulted from two primary factors. First, our ability to leverage on our existing infrastructure allowed us to increase revenues while controlling variable operating costs. As a percentage of sales, operating and development expenses decreased to 28 percent from 29 percent and sales and marketing expenses decreased to 43 percent from 49 percent. Second, we introduced new investment programs and initiatives to our existing clients. This provided opportunities to generate additional revenues from our existing client base. Mutual Fund Services - -------------------- DOLLAR PERCENT 1999 1998 CHANGE CHANGE ---- ---- ------ ------ Revenues.................................. $110,083 $95,136 $14,947 16% Expenses: Operating and development................. 68,759 53,794 14,965 28% Sales and marketing....................... 17,103 16,349 754 5% -------- ------- ------- Total operating profits................ $24,221 $24,993 $ (772) (3%) Profit margin.......................... 22% 26% -- -- 22
The increase in revenues was fueled by growth in average proprietary fund balances, which increased $45.8 billion or 44 percent to $149.2 billion during 1999 versus $103.4 billion during 1998. Average proprietary fund balances increased primarily due to growth in existing large bank complexes. Also, an increased presence in the non-bank and offshore markets has yielded positive returns during 1999. A significant portion of the growth in average assets during 1999 can be attributed to non-bank and offshore clients. However, revenues were negatively affected by a decrease in average basis points earned because of fee concessions extended to existing clients in exchange for longer- term contracts and a reduction in the range of certain services to large bank clients. Although revenues increased 16 percent, operating profits and profit margin decreased in 1999, primarily from reduced fees from large bank clients and from a significant increase in operating and development expenses. As a percentage of sales, operating and development expenses increased to 62 percent from 57 percent. This increase reflects our critical investments to support our initiatives in the non-bank and offshore markets and to develop new technology that will differentiate our services in an increasingly commoditized product area. Investments in New Business - --------------------------- DOLLAR PERCENT 1999 1998 CHANGE CHANGE ---- ---- ------ ------ Revenues.................................. $ 22,985 $ 13,443 $9,542 71% Expenses: Operating and development................. 15,541 10,296 5,245 51% Sales and marketing....................... 18,080 13,466 4,614 34% ------ ------ ------ Total operating losses............... $(10,636) $(10,319) $ (317) (3%) ====== ====== ====== Profit margin........................ (46%) (77%) -- -- The following table displays revenues by geographic region as a percentage of total segment revenues: 1999 1998 ---- ---- Canada............................................................. 43% 76% Europe/South Africa................................................ 30% 16% Asia............................................................... 19% -- Latin America...................................................... 8% 8% ------ ------ Total........................................................... 100% 100% Our offshore enterprises are looking to capitalize on international growth opportunities by creating distribution channels for our investment products and services outside North America. Our efforts are currently focused on certain selected regions: Europe/South Africa, Asia, and Latin America. These offshore enterprises accounted for approximately 57 percent of total segment revenues in 1999, as compared to 22 percent in 1998. We experienced substantial revenue growth in the European/South African and Asian regions. In the European/South Africa region, we introduced an SEI-managed fund complex in association with Mediolanum S.p.A, an Italian insurance company, into the Italian marketplace earlier this year. Our Korean joint venture, which was initiated in March 1999, accounts for all revenue growth in the Asian region. Average assets under management from our offshore enterprises were $2.2 billion during 1999, as compared to $438 million during 1998. 23
Our Canadian operations continued to experience a transition in product demand. The performance evaluation and consulting business experienced another year where client terminations exceeded new client contracting. The investment advisory business in Canada is gaining some momentum through the establishment of several new relationships. Average assets under management in Canada were $697 million during 1999, as compared to $412 million during 1998. The performance evaluation and consulting business accounted for approximately 26 percent of total segment revenues in 1999, as compared to 57 percent in 1998. The investment advisory business accounted for approximately 17 percent of total segment revenues in 1999, as compared to 19 percent in 1998. Although the pace of global asset gathering and revenue generation continued to accelerate, we also accelerated the pace of our investment efforts, especially in the European region. We opened a London office to address the United Kingdom pension market and to create a platform for other planned European initiatives. In addition, we have an agreement to form a joint venture with CCF, a large French universal banking concern. This joint venture will bring our multi- manager capabilities to the French market and to selected markets outside France. General and Administrative - -------------------------- General and administrative expenses decreased 9 percent to $12,298 for 1999 from $13,463 for 1998. As a percentage of total consolidated revenues, general and administrative expenses were 3 percent in 1999, as compared to 4 percent in 1998. The decrease in general and administrative expenses is primarily due to a reduction in personnel and facility-related costs in corporate overhead groups. Other Income - ------------ Other income includes our interest in the partnership LSV Asset Management ("LSV"). LSV is a registered investment advisor which provides investment advisory services to institutions, including pension plans and investment companies. LSV is currently the portfolio manager for a number of SEI-sponsored investment products. Our interest in LSV was approximately 47 percent during 1999 and approximately 45 percent during 1998. Our vested interest in LSV's net earnings for 1999 was $6,765, as compared to $3,015 for 1998. The increase in our portion of LSV's net earnings was due to an increase in assets under management. Average assets under management for LSV were $4.4 billion during 1999, as compared to $2.6 billion during 1998. Interest income for 1999 was $2,285, as compared to $1,558 for 1998. Interest income is earned based upon the amount of cash that is invested daily and fluctuations in interest income recognized for one period in relation to another is due to changes in the average cash balance invested for the period. Interest expense for 1999 was $2,375, as compared to $2,575 for 1998. Interest expense primarily relates to the issuance of long-term debt in early 1997 (See Note 7 of the Notes to Consolidated Financial Statements). 24
Liquidity and Capital Resources - ------------------------------- 2000 1999 1998 ---- ---- ---- Net cash provided by operating activities...................... $148,263 $107,952 $119,898 Net cash used in investing activities.......................... (39,533) (21,829) (31,702) Net cash used in financing activities.......................... (22,360) (65,897) (52,107) -------- -------- -------- Net increase in cash and cash equivalents...................... 86,370 20,226 36,089 Cash and cash equivalents, beginning of year................... 73,206 52,980 16,891 -------- -------- -------- Cash and cash equivalents, end of year......................... $159,576 $ 73,206 $ 52,980 ======== ======== ======== Cash requirements and liquidity needs are primarily funded through operations and our capacity for additional borrowing. We currently have a line of credit agreement that provides for borrowings of up to $50.0 million. The availability of the line of credit is subject to compliance with certain covenants set forth in the agreement (See Note 6 of the Notes to Consolidated Financial Statements). At December 31, 2000, the unused sources of liquidity consisted of unrestricted cash and cash equivalents of $147.7 million and the unused portion of the line of credit of $50.0 million. Cash flow generated from operations in 2000, 1999, and 1998 primarily resulted from an increase in income. In addition, the tax benefit received from stock options exercised increased substantially due to the rapid rise in our stock price during the past three years, especially during 2000. The tax benefit on stock options exercised was previously included in the cash flows from financing activities in 1999 and 1998. The prior years have been reclassified to conform with the current year presentation. Receivables from regulated investment companies increased in 2000, 1999, and 1998 primarily due to an increase in assets under management. These balances were received in the following month. Additionally, the increase in receivables during 2000 and 1999 is due to timing differences between services provided and contractual billing schedules. Cash flows from investing activities are principally affected by capital expenditures, including capitalized software development costs. Capital expenditures in 2000, 1999, and 1998 included significant costs, including equipment and furniture and fixtures associated with the expansion of our corporate headquarters. Currently, we are constructing two additional buildings and a parking structure that will be completed by the end of 2001. Total cost of the expansion is estimated at $25.0 million. The additional buildings are necessary due to growth in our primary business lines. Capitalized software development costs in 1998 included significant investments in the TRUST 3000 product line, especially the open architecture project, and a concentrated effort to address Year 2000 compliance issues. Also, we initiated the startup of a new Company-sponsored investment product, an Insurance Product Trust, in which we invested approximately $16.0 million. We expect these funds will remain invested until at least late 2001. These investments are classified as Investments available for sale on the Consolidated Balance Sheets. Cash flows from financing activities are primarily affected by debt and equity transactions. Principal payments are made annually from the date of issuance while interest payments are made semi-annually (See Note 7 of the Notes to Consolidated Financial Statements). We continued our common stock repurchase program. Approximately 1.1 million shares of our common stock were acquired at a cost of $24.8 million during 2000 pursuant to an open market stock purchase authorization of $453.4 million made by the Board of Directors. As of March 16, 2001, we still had $55.7 million remaining authorized for the purchase of our common stock. Proceeds received from the issuance of common stock results from stock option exercise activity. Cash dividends of $.08 per share were declared in 2000 and $.07 in 1999. The Board of Directors has indicated its intention to continue making cash dividend payments. Our operating cash flow, borrowing capacity, and liquidity should provide adequate funds for continuing operations, continued investment in new products and equipment, our common stock repurchase program, expansion of our corporate campus, future dividend payments, and principal and interest payments on our long-term debt. 25
Discontinued Operations - ----------------------- In 1995, the Board of Directors approved a plan of disposal for the SEI Capital Resources Division ("CR"). CR provided investment performance evaluation services, consulting services, and brokerage services to employee benefit plan sponsors and investment advisors in the United States. The results of CR have been reported separately as discontinued operations in the accompanying Consolidated Financial Statements. A provision for the disposal of CR was established in late 1996 for $16,335. In 1998, sub-lease agreements were finalized in connection with certain operating lease arrangements for facilities used by CR. As a result, the original discontinued operations provision was overstated and accordingly was reduced by $1,154, net of tax expense of $444, and is reflected in Income from disposal of discontinued operations on the Consolidated Statements of Operations. In 1997, the remaining net assets of CR were sold to a private investment firm for a specified amount of cash at closing along with a note. In 1999, we accepted $2,100,000 as satisfaction for the entire outstanding balance on the note and this was recorded as a gain, net of tax expense of $808,000 and is reflected in Income from disposal of discontinued operations on the Consolidated Statements of Operations. 26
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. ---------------------------------------------------------- We do have a number of satellite offices located outside the United States that conduct business in the local currencies of that country. We do not use foreign currency exchange contracts or other types of derivative financial investments to hedge local currency cash flows. All foreign operations only account for approximately 7 percent of total consolidated revenues. Due to this limited activity, we do not expect any material loss with respect to foreign currency risk. Exposure to market risk for changes in interest rates relate primarily to our investment portfolio and long-term debt. Currently, we do not invest in derivative financial instruments. We do not undertake any specific actions to cover our exposure to interest rate risk and are not a party to any interest rate risk management transactions. We place our investments in financial instruments that meet high credit quality standards. We are adverse to principal loss and ensure the safety and preservation of our invested funds by limiting default risk, market risk, and reinvestment risk. The interest rate on our long-term debt is fixed and is not traded on any established market. We have no cash flow exposure due to rate changes for our long-term debt. 27
Item 8. Financial Statements and Supplementary Data. ------------------------------------------- Index to Financial Statements: Report of Independent Public Accountants Consolidated Balance Sheets -- December 31, 2000 and 1999 Consolidated Statements of Operations -- For the years ended December 31, 2000, 1999, and 1998 Consolidated Statements of Shareholders' Equity -- For the years ended December 31, 2000, 1999, and 1998 Consolidated Statements of Cash Flows -- For the years ended December 31, 2000, 1999, and 1998 Notes to Consolidated Financial Statements Schedule II -- Valuation and Qualifying Accounts All other schedules are omitted because they are not applicable, or not required, or because the required information is included in the Consolidated Financial Statements or notes thereto. 28
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To SEI Investments Company: We have audited the accompanying consolidated balance sheets of SEI Investments Company (a Pennsylvania corporation) and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and schedule are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of SEI Investments Company and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the Index to Financial Statements is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Philadelphia, Pa. January 26, 2001 (except with respect to the matter discussed in Note 8, as to which the date is February 14, 2001) 29
Consolidated Balance Sheets SEI Investments Company (In thousands) and Subsidiaries December 31, 2000 1999 =================================================================================================== Assets Current Assets: Cash and cash equivalents (including restricted cash of $11,900 in 2000)................................... $159,576 $ 73,206 Receivables from regulated investment companies............................................... 27,607 24,179 Receivables, net of allowance for doubtful accounts of $1,700...................................... 47,404 33,554 Deferred income taxes...................................... 9,030 10,934 Prepaid expenses and other current assets.................. 5,414 5,119 -------- -------- Total Current Assets................................... 249,031 146,992 -------- -------- Property and Equipment, net of accumulated depreciation and amortization of $83,874 and $71,415............................................. 75,111 65,640 -------- -------- Capitalized Software, net of accumulated amortization of $11,733 and $9,838...................... 12,823 15,626 -------- -------- Investments Available for Sale............................. 20,294 6,704 -------- -------- Other Assets, net.......................................... 18,323 18,817 -------- -------- $375,582 $253,779 --------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements. 30
Consolidated Balance Sheets SEI Investments Company (In thousands, except par value) and Subsidiaries December 31, 2000 1999 --------------------------------------------------------------------------------------------------- Liabilities Current Liabilities: and Shareholders' Current portion of long-term debt........................... $ 2,000 $ 2,000 Equity Accounts payable............................................ 6,721 7,397 Accrued compensation........................................ 49,890 39,846 Accrued proprietary fund services........................... 14,834 11,562 Accrued consulting services................................. 8,200 7,342 Other accrued liabilities................................... 48,358 51,451 Deferred revenue............................................ 16,450 19,320 -------- -------- Total Current Liabilities............................... 146,453 138,918 -------- -------- Long-term Debt.............................................. 27,000 29,000 -------- -------- Deferred Income Taxes....................................... 4,708 6,859 -------- -------- Commitments and Contingencies (Note 10) Shareholders' Equity: Series Preferred stock, $.05 par value, 60 shares authorized; no shares issued and outstanding.......................................... -- -- Common stock, $.01 par value, 750,000 shares authorized; 108,560 and 17,692 shares issued and outstanding..................... 1,086 177 Capital in excess of par value.............................. 125,473 71,501 Retained earnings........................................... 72,521 7,373 Accumulated other comprehensive losses...................... (1,659) (49) -------- -------- Total Shareholders' Equity.............................. 197,421 79,002 -------- -------- $375,582 $253,779 ------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements. 31
Consolidated Statements of Operations SEI Investments Company (In thousands, except per share data) And Subsidiaries Year Ended December 31, 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------------------------- Revenues................................................................ $598,806 $456,192 $366,119 Expenses: Operating and development........................................... 279,024 215,216 180,937 Sales and marketing................................................. 154,984 126,184 103,834 General and administrative.......................................... 16,839 12,298 13,463 -------- -------- -------- Income from operations.................................................. 147,959 102,494 67,885 Equity in the earnings of unconsolidated affiliate...................... 7,533 6,765 3,015 Interest income......................................................... 6,419 2,285 1,558 Interest expense........................................................ (2,293) (2,375) (2,575) -------- -------- -------- Income from continuing operations before income taxes................... 159,618 109,169 69,883 Income taxes............................................................ 60,655 42,030 26,904 -------- -------- -------- Income from continuing operations....................................... 98,963 67,139 42,979 Income from disposal of discontinued operations, net of income tax expense of $808 and $404........................... -- 1,292 710 -------- -------- -------- Net income.............................................................. $ 98,963 $ 68,431 $ 43,689 - ---------------------------------------------------------------------------------------------------------------------------- Basic earnings per common share: Earnings per common share from continuing operations................ $ .93 $ .63 $ .40 Earnings per common share from discontinued operations.............. -- .01 .01 -------- -------- -------- Basic earnings per common share......................................... $ .93 $ .64 $ .41 - ---------------------------------------------------------------------------------------------------------------------------- Diluted earnings per common share: Earnings per common share from continuing operations................ $ .87 $ .59 $ .37 Earnings per common share from discontinued operations.............. -- .01 .01 -------- -------- -------- Diluted earnings per common share....................................... $ .87 $ .60 $ .38 - ---------------------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements. 32
Consolidated Statements of Shareholders' Equity SEI Investments Company (In thousands) and Subsidiaries Accumulated Other Comprehensive Losses ----------------------------- Cumulative Unrealized Foreign Holding Capital Currency Gain (Loss) Total Common Stock In Excess of Retained Translation on Shareholders' ------------------ Shares Amount Par Value Earnings Adjustments Investments Equity - ----------------------------------------------------------------------------------------------------------------------------==== Balance, December 31, 1997............... 17,767 178 46,724 -- (417) (75) 46,410 Comprehensive income: Net income............................ -- -- -- 43,689 -- -- 43,689 Foreign currency translation adjustments......................... -- -- -- -- 9 -- 9 Unrealized gain on investments........ -- -- -- -- -- 26 26 -------- Total comprehensive income............... 43,724 Purchase and retirement of common stock............................... (898) (9) (21,998) (35,566) -- -- (57,573) Issuance of common stock under the employee stock purchase plan........ 28 -- 1,524 -- -- -- 1,524 Issuance of common stock upon exercise of stock options........... 964 10 11,262 -- -- -- 11,272 Tax benefit on stock options exercised... -- -- 20,029 -- -- -- 20,029 Cash dividends........................... -- -- -- (5,701) -- -- (5,701) - ----------------------------------------------------------------------------------------------------------------------------==== Balance, December 31, 1998............... 17,861 $179 $ 57,541 $ 2,422 $(408) $(49) $ 59,685 Comprehensive income: Net income............................ -- -- -- 68,431 -- -- 68,431 Foreign currency translation adjustments......................... -- -- -- -- (61) -- (61) Unrealized gain on investments........ -- -- -- -- -- 469 469 -------- Total comprehensive income............... 68,839 Purchase and retirement of common stock............................... (689) (7) (9,753) (56,403) -- -- (66,163) Issuance of common stock under the employee stock purchase plan........ 25 -- 2,066 -- -- -- 2,066 Issuance of common stock upon exercise of stock options........... 495 5 6,591 -- -- -- 6,596 Tax benefit on stock options exercised... -- -- 15,056 -- -- -- 15,056 Cash dividends........................... -- -- -- (7,077) -- -- (7,077) - ----------------------------------------------------------------------------------------------------------------------------==== Balance, December 31, 1999............... 17,692 $177 $ 71,501 $ 7,373 $(469) $420 $ 79,002 - ----------------------------------------------------------------------------------------------------------------------------==== The accompanying notes are an integral part of these financial statements. 33
Consolidated Statements of Shareholders' Equity SEI Investments Company (In thousands) and Subsidiaries Accumulated Other Comprehensive Losses ----------------------------- Cumulative Unrealized Foreign Holding Capital Currency Gain (Loss) Total Common Stock In Excess of Retained Translation On Shareholders' ------------------ Shares Amount Par Value Earnings Adjustments Investments Equity - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1999................. 17,692 $ 177 $ 71,501 $ 7,373 $ (469) $ 420 $ 79,002 Comprehensive income: Net income.............................. -- -- -- 98,963 -- -- 98,963 Foreign currency translation adjustments................. ........ -- -- -- -- (267) -- (267) Unrealized loss on investments.......... -- -- -- -- -- (1,343) (1,343) -------- Total comprehensive income................. 97,353 Stock split adjustment..................... 89,709 897 -- (897) -- -- -- Purchase and retirement of common stock................................. (226) (2) (518) (24,323) -- -- (24,843) Issuance of common stock under the employee stock purchase plan.......... 46 1 3,144 -- -- -- 3,145 Issuance of common stock upon exercise of stock options............. 1,339 13 9,111 -- -- -- 9,124 Tax benefit on stock options exercised..... -- -- 42,235 -- -- -- 42,235 Cash dividends............................. -- -- -- (8,595) -- -- (8,595) - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 2000................. 108,560 $ 1,086 $125,473 $72,521 $ (736) $ (923) $197,421 - ------------------------------------------------------------------------------------------------------------------------------------ The accompanying notes are an integral part of these financial statements. 34
Consolidated Statements of Cash Flows SEI Investments Company (In thousands) and Subsidiaries Year Ended December 31, 2000 1999 1998 - -------------------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income................................................................... $ 98,963 $ 68,431 $ 43,689 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization...................................... 17,305 15,793 15,688 Provision for losses on receivables................................ -- 500 -- Equity in the earnings of unconsolidated affiliate................. (7,533) (6,765) (3,015) Write-off of capitalized software and intangibles.................. 3,737 1,204 7,494 Tax benefit on stock options exercised............................. 42,235 15,056 20,029 Deferred income tax expense (benefit).............................. 349 (3,483) (3,608) Discontinued operations............................................ -- (1,292) (710) Other.............................................................. 4,055 194 3,450 Change in current assets and liabilities: Decrease (increase) in: Receivables from regulated investment companies............ (3,428) (5,180) (4,547) Receivables................................................ (13,850) (6,135) 2,121 Prepaid expenses and other current assets.................. (295) 894 9,110 Increase (decrease) in: Accounts payable........................................... (676) 592 1,007 Accrued compensation....................................... 10,044 7,741 11,208 Accrued proprietary fund services.......................... 3,272 1,192 558 Accrued consulting services................................ 858 1,000 3,674 Other accrued liabilities.................................. (3,903) 12,401 7,397 Deferred revenue........................................... (2,870) 5,809 6,353 ---------- -------------- ---------- Total adjustments.............................................. 49,300 39,521 76,209 ---------- -------------- ---------- Net cash provided by operating activities......................... $148,263 $107,952 $119,898 - -------------------------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements. 35
Consolidated Statements of Cash Flows SEI Investments Company (In thousands) and Subsidiaries Year Ended December 31, 2000 1999 1998 - ----------------------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Additions to property and equipment..................................... (27,188) (17,254) (21,774) Additions to capitalized software....................................... (449) (1,362) (6,719) Purchase of investments available for sale.............................. (17,660) (3,114) (3,620) Sale of investments available for sale.................................. 2,495 620 994 Other................................................................... 3,269 (719) (583) ------------- --------------- ------------- Net cash used in investing activities.............................. (39,533) (21,829) (31,702) Cash flows from financing activities: Payments on long-term debt.............................................. (2,000) (2,000) (2,000) Purchase and retirement of common stock................................. (24,843) (65,970) (55,156) Proceeds from issuance of common stock.................................. 12,269 8,470 10,379 Payment of dividends.................................................... (7,786) (6,397) (5,330) ------------- --------------- ------------- Net cash used in financing activities.............................. (22,360) (65,897) (52,107) ------------- --------------- ------------- Net increase in cash and cash equivalents.................................... 86,370 20,226 36,089 Cash and cash equivalents, beginning of year................................. 73,206 52,980 16,891 ------------- --------------- ------------- Cash and cash equivalents, end of year....................................... $159,576 $73,206 $52,980 - ----------------------------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements. 36
Notes to Consolidated Financial Statements SEI Investments Company and Subsidiaries Note 1 - Summary of Significant Accounting Policies: Nature of Operations - SEI Investments Company (the "Company") is organized around its four primary business lines: Technology Services, Asset Management, Mutual Fund Services, and Investments in New Business. Technology Services, which accounted for 37 percent of consolidated revenues in 2000, includes the Trust 3000 product line and trust operations outsourcing. Asset Management, which accounted for 36 percent of consolidated revenues in 2000, provides investment solutions through various investment products and services distributed directly or through professional investment advisors, financial planners, and other financial intermediaries to institutional and high-net-worth markets. Mutual Fund Services, which accounted for 21 percent of consolidated revenues in 2000, provides administration and distribution services to proprietary mutual funds created for banks, insurance firms, and investment management companies. Investments in New Business, which accounted for 6 percent of consolidated revenues in 2000, consists of the Company's Canadian and international operations which provide investment advisory services globally through investment products and services. Principles of Consolidation - The Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries. The Company's principal subsidiaries are SEI Investments Distribution Company ("SIDCO"), SEI Investments Management Corporation ("SIMC"), and SEI Trust Company. All intercompany accounts and transactions have been eliminated. Investment in unconsolidated affiliate is accounted for using the equity method due to the Company's less than 50 percent ownership. The Company's portion of the affiliate's operating results is reflected in Equity in the earnings of unconsolidated affiliate on the accompanying Consolidated Statements of Operations (See Note 5). Cash and Cash Equivalents - Cash and cash equivalents included $121,300,000 primarily invested in SEI Daily Income Trust in 2000, and $72,874,000 primarily invested in SEI Tax Exempt Trust in 1999, which are mutual funds sponsored by SIMC. Approximately $11,900,000 of cash is restricted for the excusive benefit of customers related to our brokerage services provided by SIDCO. Interest income for 2000, 1999, and 1998 was $6,419,000, $2,285,000, and $1,558,000, respectively (See Note 13). Property and Equipment - Property and Equipment on the accompanying Consolidated Balance Sheets consist of the following: Estimated Useful Lives 2000 1999 (In Years) ---------------------------------------------------------------------------------------------------------------------- Equipment..................................... $71,377,000 $62,437,000 3 to 5 Buildings..................................... 34,695,000 34,676,000 25 to 39 Land.......................................... 9,345,000 7,686,000 N/A Purchased software............................ 16,035,000 13,302,000 3 Furniture and fixtures........................ 14,230,000 12,554,000 3 to 5 Leasehold improvements........................ 7,313,000 6,400,000 Lease Term Construction in progress...................... 5,990,000 -- N/A --------------- ---------------- 158,985,000 137,055,000 Less: Accumulated depreciation and amortization........................... (83,874,000) (71,415,000) --------------- ---------------- Property and Equipment, net................... $75,111,000 $65,640,000 ---------------------------------------------------------------------------------------------------------------------- 37
Property and Equipment are stated at cost. Depreciation and amortization are computed using the straight-line method over the estimated useful life of each asset. Expenditures for renewals and betterments are capitalized, while maintenance and repairs are charged to expense when incurred. Construction in progress relates to the expansion of our corporate headquarters. Depreciation expense was $15,410,000, $14,193,000, and $12,429,000 in 2000, 1999, and 1998, respectively. Capitalized Software - The Company accounts for software development costs in accordance with Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed" ("SFAS 86"). Under SFAS 86, costs incurred to create a computer software product are charged to research and development expense as incurred until technological feasibility has been established. The Company establishes technological feasibility upon completion of a detailed program design. At that point, computer software costs are capitalized until the product is available for general release to customers. The establishment of technological feasibility and the ongoing assessment of recoverability of capitalized software development costs require considerable judgment by management with respect to certain external factors, including, but not limited to, anticipated future revenues, estimated economic life, and changes in technology. Amortization begins when the product is released. Capitalized software development costs are amortized on a product-by-product basis using the straight-line method over the estimated economic life of the product or enhancement, which is primarily three to ten years, with a weighted average remaining life of 7.6 years. Capitalized software development costs consist primarily of salary, consulting, and computer costs incurred to develop new products and enhancements to existing products. During 2000, 1999, and 1998, software development costs of $449,000, $1,362,000, and $6,719,000 were capitalized, respectively. Amortization expense was $1,895,000, $1,600,000, and $3,259,000 in 2000, 1999, and 1998, respectively, and is included in Operating and development expense on the accompanying Consolidated Statements of Operations. Management continually evaluates the recoverability of existing software products, as well as strategies for new software products. The assessment as to the recoverability of existing software products includes an evaluation of expected future revenues and cash flows, acceptability of the product in the market, the ability to support the product in a cost-effective manner, and technological enhancements. In 2000, 1999, and 1998 management determined that certain software products were considered either obsolete or incapable of producing the future cash flows that were originally anticipated. As a result, the Company wrote off net capitalized software development costs of $1,357,0000, $1,204,000, and $4,832,000 in 2000, 1999, and 1998, respectively. Statements of Cash Flows - For purposes of the Consolidated Statements of Cash Flows, the Company considers investment instruments purchased with an original maturity of three months or less to be cash equivalents. Supplemental disclosures of cash paid/received during the year is as follows: 2000 1999 1998 ---- ---- ---- Interest paid................................. $ 2,220,000 $ 2,364,000 $ 2,598,000 Interest and dividends received............... 5,921,000 2,552,000 1,467,000 Income taxes paid (Federal and state)......... 49,134,000 23,175,000 12,514,000 Revenue Recognition - Principal sources of revenues are information processing and software services, management, administration, and distribution of mutual funds, brokerage and consulting services, and other asset management products and services. Revenues from these services are recognized in the periods in which they are performed. Cash received by the Company in advance of the performance of services is deferred and recognized as revenue when earned. 38
Income Taxes - The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under SFAS 109, the liability method is used for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences reverse (See Note 11). Foreign Currency Translation - The assets and liabilities of foreign operations are translated into U.S. dollars using the rates of exchange at year end. The results of operations are translated into U.S. dollars at the average daily exchange rates for the period. All foreign currency transaction gains and losses are included in income in the periods in which they occur, and are immaterial for each of the three years in the period ended December 31, 2000. Earnings Per Share - The Company calculates earnings per share in accordance with Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). Pursuant to SFAS 128, dual presentation of basic and diluted earnings per common share is required on the face of the statements of operations for companies with complex capital structures. Basic earnings per common share is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per common share reflects the potential dilution from the exercise or conversion of securities into common stock, such as stock options. All earnings per common share and common share information has been restated to reflect the three-for-one split paid on June 19, 2000 and the two-for-one split to be paid on February 28, 2001 (See Note 8). - ------------------------------------------------------------------------------------------------------------------ For the year ended December 31, 2000 ---------------------------------------------------------- Income Shares Per Share (Numerator) (Denominator) Amount ----------- ------------- ------ Basic earnings per common share from continuing operations................ $98,963,000 106,490,000 $.93 Dilutive effect of stock options............... -- 7,330,000 -------------- ------------ Diluted earnings per common share from continuing operations................ $98,963,000 113,820,000 $.87 For the year ended December 31, 1999 ---------------------------------------------------------- Income Shares Per Share (Numerator) (Denominator) Amount ----------- ------------- ------ Basic earnings per common share from continuing operations................ $67,139,000 106,632,000 $.63 Dilutive effect of stock options............... -- 7,194,000 -------------- -------------- Diluted earnings per common share from continuing operations................ $67,139,000 113,826,000 $.59 For the year ended December 31, 1998 ---------------------------------------------------------- Income Shares Per Share (Numerator) (Denominator) Amount Basic earnings per common share from continuing operations................ $42,979,000 106,962,000 $.40 Dilutive effect of stock options............... -- 7,794,000 -------------- ------------ Diluted earnings per common share from continuing operations................ $42,979,000 114,756,000 $.37 - ------------------------------------------------------------------------------------------------------------------ Options to purchase 1,265,000, 2,220,000, and 2,532,000 shares of common stock, with an average exercise price per share of $49.96, $19.75, and $14.91, respectively, were outstanding during 2000, 1999, and 1998, but were excluded from the diluted earnings per common share calculation because the option's exercise price was greater than the average market price of the Company's common stock. 39
Comprehensive Income - In 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes standards for reporting and presentation of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general purpose financial statements that is presented with equal prominence as other financial statements. Comprehensive income consists of net income, foreign currency translation adjustments, and unrealized holding gains and losses. The adoption of SFAS 130 had no impact on total shareholders' equity and is presented on the accompanying Consolidated Statements of Shareholders' Equity. ================================================================================================================== Tax Pre-Tax (Expense) Net of Tax Amount or Benefit Amount ------ ---------- ------ For the Year Ended December 31, 1998: - ------------------------------------- Unrealized holding gains arising during period.............. $ 42 $ (16) $ 26 Foreign currency translation adjustments.................... 15 (6) 9 -------- ------ -------- Total other comprehensive income............................ $ 57 $ (22) $ 35 For the Year Ended December 31, 1999: - ------------------------------------ Unrealized holding gains arising during period.............. $ 763 $ (294) $ 469 Foreign currency translation adjustments.................... (99) 38 (61) -------- ------ -------- Total other comprehensive income............................ $664 $ (256) $ 408 For the Year Ended December 31, 2000: - ------------------------------------ Unrealized holding losses arising during period............. $ (2,166) $ 823 $ (1,343) Foreign currency translation adjustments.................... (431) 164 (267) -------- ------ -------- Total other comprehensive loss.............................. $ (2,597) $ 987 $ (1,610) ================================================================================================================== Management's Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications - Certain reclassifications have been made to conform to the current year presentation. 40
Note 2 - Discontinued Operations: In 1995, the Company's Board of Directors approved a plan of disposal for the SEI Capital Resources Division ("CR"). CR provided investment performance evaluation services, consulting services, and brokerage services to employee benefit plan sponsors and investment advisors in the United States. The results of CR have been reported separately as discontinued operations in the accompanying Consolidated Financial Statements. A provision for the disposal of CR was established in late 1996 for $16,335. In 1998, sub-lease agreements were finalized in connection with certain operating lease arrangements for facilities used by CR. As a result, the original discontinued operations provision was overstated and accordingly was reduced by $1,154, net of tax expense of $444, and is reflected in Income from disposal of discontinued operations on the Consolidated Statements of Operations. In 1997, the remaining net assets of CR were sold to a private investment firm for a specified amount of cash at closing along with a note. In 1999, the Company accepted $2,100,000 as satisfaction for the entire outstanding balance on the note which was recorded as a gain, net of tax expense of $808,000 and is reflected in Income from disposal of discontinued operations on the Consolidated Statements of Operations. Note 3 - Receivables: Receivables on the accompanying Consolidated Balance Sheets consist of the following: 2000 1999 ================================================================================================================== Trade receivables........................................ $ 22,558,000 $ 16,339,000 Fees earned, not received................................ 1,801,000 2,304,000 Fees earned, not billed.................................. 24,745,000 16,611,000 ------------ ------------ 49,104,000 35,254,000 Less: Allowance for doubtful accounts................... (1,700,000) (1,700,000) ------------ ------------ $ 47,404,000 $ 33,554,000 ================================================================================================================== Fees earned, not received represent brokerage commissions earned but not yet collected. Fees earned, not billed result from timing differences between services provided and contractual billing schedules. Receivables from regulated investment companies on the accompanying Consolidated Balance Sheets represent fees collected from the Company's wholly owned subsidiaries, SIDCO and SIMC, for distribution, investment advisory, and administration services provided by these subsidiaries to various regulated investment companies sponsored by the Company (See Note 13). 41
Note 4 - Investments Available for Sale: Investments available for sale consist of investments in mutual funds sponsored by the Company. The Company accounts for investments in marketable securities pursuant to Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"). SFAS 115 requires that debt and equity securities classified as available for sale be reported at market value. Unrealized holding gains and losses, net of income taxes, are reported as a separate component of Comprehensive income. Realized gains and losses, as determined on a specific identification basis, are reported separately on the accompanying Consolidated Statements of Operations. Investments available for sale at December 31, 2000 had an aggregate cost of $21,710,000 and an aggregate market value of $20,294,000, with gross unrealized holding losses of $1,416,000. The net unrealized holding losses at December 31, 2000 were $923,000 (net of income tax benefit of $493,000). Investments available for sale at December 31, 1999 had an aggregate cost of $6,235,000 and an aggregate market value of $6,704,000, with gross unrealized holding gains of $469,000. The net unrealized holding gains at December 31, 1999 were $420,000 (net of income tax expense of $49,000). The net unrealized holding gains and losses at December 31, 2000 and 1999 were reported as a separate component of Accumulated other comprehensive losses on the accompanying Consolidated Balance Sheets. Note 5 - Other Assets: Other assets on the accompanying Consolidated Balance Sheets consist of the following: 2000 1999 ================================================================================================================= Investment in unconsolidated affiliate............................... 5,627,000 5,305,000 Other, net........................................................... 12,696,000 13,512,000 ------------ ------------ Other assets......................................................... $ 18,323,000 $ 18,817,000 ================================================================================================================= Investment in Unconsolidated Affiliate - The Company and several leading academics in the field of finance operate a general partnership, LSV Asset Management ("LSV"). LSV is a registered investment advisor which provides investment advisory services to institutions, including pension plans and investment companies. LSV is currently the portfolio manager for a number of Company-sponsored mutual funds. The Company's interest in LSV for 2000 and 1999 was approximately 47 percent. LSV is accounted for using the equity method of accounting. The Company's portion of LSV's net earnings is reflected in Equity in the earnings of unconsolidated affiliate on the accompanying Consolidated Statements of Operations. The following table contains condensed financial information of LSV: Condensed Statement of Operations 2000 1999 1998 =================================================================================================================== Revenues....................................................... $ 22,974,000 $ 20,108,000 $ 10,810,000 Net income..................................................... $ 16,170,000 $ 14,388,000 $ 6,637,000 =================================================================================================================== 42
Condensed Balance Sheet 2000 1999 ============================================================================================================= Cash and cash equivalents...................................... $ 5,408,000 $ 3,435,000 Accounts receivable............................................ 5,541,000 6,024,000 Other current assets........................................... 27,000 -- Non-current assets............................................. 103,000 131,000 ------------ ----------- Total assets................................................... $ 11,079,000 $ 9,590,000 ============= =========== Current liabilities............................................ $ 1,285,000 $ 782,000 Partners' capital.............................................. 9,794,000 8,808,000 ------------ ----------- Total liabilities and partners' capital........................................... $ 11,079,000 $ 9,590,000 ============ =========== ============================================================================================================= Note 6 - Line of Credit: The Company has a line of credit agreement (the "Agreement") with its principal lending institution which provides for borrowings of up to $50,000,000. The Agreement ends on August 31, 2001, at which time the outstanding principal balance, if any, becomes due unless the Agreement is extended. The line of credit, when utilized, accrues interest at the Prime rate or one and one-quarter percent above the London Interbank Offered Rate. The Company is obligated to pay a commitment fee equal to one-quarter of one percent per annum on the average daily unused portion of the commitment. Certain covenants under the Agreement require the Company to maintain specified levels of net worth and place certain restrictions on investments. The Company was in compliance with these covenants during 2000. There were no borrowings on the Company's line of credit during 2000 and 1999. Interest expense, including commitment fees, on the Company's line of credit was $127,000, $79,000, and $127,000 for the years ended December 31, 2000, 1999, and 1998, respectively. The weighted average interest rate was 5.9 percent for the year ended December 31, 1998. Note 7 - Long-term Debt: On February 24, 1997, the Company signed a Note Purchase Agreement authorizing the issuance and sale of $20,000,000 of 7.20% Senior Notes and $15,000,000 of 7.27% Senior Notes (collectively, the "Notes") in a private offering with certain financial institutions. The Notes are unsecured with final maturities ranging from 10 to 15 years. The proceeds from the Notes were used to repay the outstanding balance on the Company's line of credit at that time. The Note Purchase Agreement, as amended, contains various covenants, including limitations on indebtedness, maintenance of minimum net worth levels, and restrictions on certain investments. In addition, the agreement limits the Company's ability to merge or consolidate, and to sell certain assets. Principal payments on the Notes are made annually from the date of issuance while interest payments are made semi-annually. The carrying amount of the Company's long-term debt is not materially different from its fair value. The Company was in compliance with these covenants during 2000. 43
Aggregate maturities of long-term debt at December 31, 2000 are: ============================================================================================= 2001................................................................ $ 2,000,000 2002................................................................ 2,000,000 2003................................................................ 4,000,000 2004................................................................ 4,000,000 2005................................................................ 4,000,000 2006 and thereafter................................................. 13,000,000 ---------- $29,000,000 ============================================================================================= Interest expense relating to the Company's long-term debt was $2,155,000, $2,296,000, and 2,448,000 for the years ended December 31, 2000, 1999, and 1998 respectively. Note 8 - Shareholders' Equity: Stock Split - On May 10, 2000, the Board of Directors approved a three- for-one stock split of the Company's $.01 par value common stock, effected in the form of a stock dividend which was paid on June 19, 2000 to shareholders of record on June 5, 2000. A total of 35,400,000 shares of common stock were issued in connection with the stock split. The par value of the stock remained unchanged. Accordingly, a total of $354,000 was reclassified from Retained earnings to Common stock. Except for the Consolidated Statements of Shareholders' Equity, all references in the accompanying financial statements to the number of shares of common stock, related prices, and per share amounts have been reported to reflect the effect of the stock split. On December 14, 2000, the Board of Directors approved a two-for-one stock split the Company's $.01 par value common stock, effected in the form of a stock dividend which will be paid on February 28, 2001 to shareholders of record on February 19, 2001. On February 14, 2001, a special meeting of the shareholders was held and they approved an increase in the number of shares authorized to 750,000,000. A total of 54,309,000 shares of common stock were issued in connection with the stock split. The par value of the stock remained unchanged. Accordingly, a total of $543,090 was reclassified from Retained earnings to Common stock. Stock-Based Compensation Plans - The Company has several stock option plans under which non-qualified and incentive stock options for common stock are available for grant to officers, directors, and key employees. The options granted and the option prices are established by the Board of Directors in accordance with the terms of the plans. The Board of Directors has reserved an aggregate 87,630,000 shares for grant under these plans. All options outstanding were granted at prices equal to the fair market value of the stock on the date of grant and expire 10 years after the date of grant. All options granted prior to December 1997 vest ratably over a four year period from the date of grant. All options granted in December 1997 and after vest ratably upon the Company's attainment of specific earnings targets or entirely after seven years from the date of grant. Earning targets are established on the date of grant. The Company issues options at fair value and accounts for its stock option plans in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees". Accordingly, no compensation expense has been recognized. In 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123 establishes a fair value based method of accounting for stock-based compensation plans. SFAS 123 requires that an employer's financial statements include certain disclosures about stock-based employee compensation arrangements regardless of the method used to account for the plan. Had the Company recognized compensation cost for its stock option plans consistent with the provisions of SFAS 123, the Company's net income and earnings per common share would have been reduced to the following pro forma amounts: 44
2000 1999 1998 -------------------------------------------------------------------------------------------------------- Net income: As reported......................................... $98,963 $68,431 $43,689 Pro forma........................................... $80,689 $55,859 $37,721 Basic earnings per common share: As reported......................................... $ .93 $ .64 $ .41 Pro forma........................................... $ .76 $ .52 $ .35 Diluted earnings per common share: As reported......................................... $ .87 $ .60 $ .38 Pro forma........................................... $ .71 $ .49 $ .33 ----------------------------------------------------------------------------------------------------- The weighted average fair value of the stock options granted during 2000, 1999, and 1998 was $71.31, $29.06, and $20.31 respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: 2000 1999 1998 ------------------------------------------------------------------------------------------------------ Risk-free interest rate.................................. 6.12% 5.81% 5.34% Expected dividend yield.................................. 0.14% 0.30% 1.00% Expected life............................................ 7 Years 7 Years 7 Years Expected volatility...................................... 40.49% 40.24% 40.19% ----------------------------------------------------------------------------------------------------- 45
Certain information relating to the Company's stock option plans for 2000, 1999, and 1998 is summarized as follows: ------------------------------------------------------------------------------------------------------------ Weighted Number of Average Shares Exercise Price ---------- ---------------- Balance as of December 31, 1997................................. 22,770,000 $ 3.21 Granted......................................................... 3,048,000 14.01 Exercised....................................................... (5,784,000) 1.95 Expired or canceled............................................. (570,000) 5.42 ----------- Balance as of December 31, 1998................................. 19,464,000 5.21 Granted......................................................... 2,592,000 19.15 Exercised....................................................... (2,970,000) 2.22 Expired or canceled............................................. (186,000) 6.80 ----------- Balance as of December 31, 1999................................. 18,900,000 7.57 Granted......................................................... 1,483,000 46.69 Exercised....................................................... (3,301,000) 2.84 Expired or canceled............................................. (388,000) 12.63 ----------- Balance as of December 31, 2000................................. 16,694,000 $ 11.87 Exercisable as of December 31, 2000............................. 8,627,000 $ 3.89 Available for future grant as of December 31, 2000.............. 5,071,000 -- --------------------------------------------------------------------------------------------------------- As of December 31, 1999 and 1998, there were 11,460,000 and 11,856,000 shares exercisable, respectively. The expiration dates for options at December 31, 2000 range from July 17, 2001 to December 14, 2010, with a weighted average remaining contractual life of 6.3 years. 46
The following table summarizes information relating to all options outstanding at December 31, 2000: -------------------------------------------------------------------------------------------------------------------- Options Outstanding Options Exercisable at December 31, 2000 at December 31, 2000 ------------------------------------- ----------------------------------- Weighted Weighted Weighted Average Range of Average Average Remaining Exercise Number Exercise Number Exercise Contractual Prices of Price Of Price Life (Per Share) Shares (Per Share) Shares (Per Share) (Years) ----------- ------ ----------- ------ ----------- ------- $ 1.56 - $2.88 2,029,000 $ 2.18 2,029,000 $ 2.18 1.6 3.02 - 3.30 1,950,000 3.07 1,904,000 3.07 3.9 3.60 - 4.38 3,237,000 3.83 3,237,000 3.83 4.8 7.00 2,682,000 7.00 1,200,000 7.00 7.0 8.75 - 19.00 3,252,000 14.24 257,000 9.75 8.2 19.75 - 50.00 3,544,000 31.08 -- -- 9.4 ---------- ---------- 16,694,000 8,627,000 -------------------------------------------------------------------------------------------------------------------- Employee Stock Purchase Plan - The Company has an employee stock purchase plan that provides for offerings of common stock to eligible employees at a price equal to 85 percent of the fair market value of the stock at the end of the stock purchase period, as defined. The Company has reserved 7,800,000 shares for issuance under this plan. At December 31, 2000, 4,878,000 cumulative shares have been issued. Common Stock Buyback - The Board of Directors has authorized the purchase of the Company's common stock on the open market or through private transactions of up to an aggregate of $403,365,000. Through December 31, 2000, a total of 98,265,000 shares at an aggregate cost of $355,091,000 have been purchased and retired. The Company purchased 1,119,000 shares at a cost of $24,843,000 during 2000. The Company immediately retires its common stock when purchased. Upon retirement, the Company reduces Capital in excess of par value for the average capital per share outstanding and the remainder is charged against Retained earnings. If the Company reduces its Retained earnings to zero, any subsequent purchases of common stock will be charged entirely to Capital in excess of par value. Shareholders' Rights Plan - On December 10, 1998, the Company's Board of Directors adopted a new Shareholder Rights Plan to replace the Shareholder Rights Plan originally adopted in 1988 which expired on December 19, 1998. The Company's Shareholder Rights Plan is designed to deter coercive or unfair takeover tactics and to prevent a person or group from acquiring control of the Company without offering a fair price to all shareholders. Under the terms of the 1998 Shareholder Rights Plan, all common shareholders of record at the close of business on December 19, 1999 shall receive one Right for each outstanding common share of the Company. Any new common shares issued after December 19, 1999 will receive one Right for each common share. Each Right entitles the registered holder to purchase from the Company one two-thousandths of a share of Series A Junior Participating Preferred Shares, par value $.05 per share, at an exercise price of $500 per share. The Rights will become exercisable and trade separately from the common stock 10 days following a public announcement that a person or group is the beneficial owner of 20 percent or more of the outstanding common stock (the "Stock Acquisition Date"), or the commencement of a tender or exchange offer that would result in such a person or group owning 20 percent or more of the outstanding common stock. In the event that the Company is involved in a merger or other business combination in which the Company survives and its common stock remains outstanding, the other stockholders will be able to exercise the Rights and buy common stock of the Company having twice the value of the exercise price of the Rights. Additionally, if the Company is involved in certain other mergers where its shares are exchanged or certain major sales of its assets occur, stockholders will be able to purchase the 47
other party's common shares in an amount equal to twice the value of the exercise price of the Rights. Upon the occurrence of any of these events, the Rights will no longer be exercisable into Preferred Shares. The Rights, which do not have voting rights, will expire on December 19, 2008, and may be redeemed by the Company any time until ten days following the Stock Acquisition Date at a price of $.01 per Right. Dividends - On May 10, 2000, the Board of Directors declared a cash dividend of $.04 per share on the Company's common stock, which was paid on June 19, 2000, to shareholders of record on June 5, 2000. On December 14, 2000, the Board of Directors declared a cash dividend of $.04 per share on the Company's common stock, which was paid on January 25, 2001, to shareholders of record on January 8, 2001. The dividends declared in 2000, 1999, and 1998 were $8,595,000, $7,077,000, and $5,701,000 respectively. The Board of Directors has indicated its intention to pay future dividends on a semiannual basis. Note 9 - Employee Benefit Plan: The Company has a tax-qualified defined contribution plan (the "Plan"). The Plan provides retirement benefits, including provisions for early retirement and disability benefits, as well as a tax- deferred savings feature. After satisfying certain requirements, participants are vested in employer contributions at the time the contributions are made. All Company contributions are discretionary and are made from available profits. The Company contributed $2,210,000, $1,774,000, and $1,471,000 to the Plan in 2000, 1999, and 1998, respectively. Note 10 - Commitments and Contingencies: The Company has entered into various operating leases for facilities, data processing equipment, and software. Some of these leases contain escalation clauses for increased taxes and operating expenses. Rent expense was $11,822,000, $11,166,000, and $14,142,000 in 2000, 1999, and 1998, respectively. Aggregate noncancellable minimum lease commitments at December 31, 2000 are: ------------------------------------------------------------------- 2001............................................. $ 7,304,000 2002............................................. 5,096,000 2003............................................. 3,734,000 2004............................................. 1,439,000 2005............................................. 915,000 2006 and thereafter.............................. 10,815,000 ------------ $ 29,303,000 ------------------------------------------------------------------- In the normal course of business, the Company is party to various claims and legal proceedings. Although the ultimate outcome of these matters is presently not determinable, management, after consultation with legal counsel, does not believe that the resolution of these matters will have a material adverse effect upon the Company's financial position or results of operations. 48
Note 11 - Income Taxes: Income taxes from continuing operations consist of the following: Year Ended December 31, 2000 1999 1998 ----------------------------------------------------------------------------------------------------------------- Current Federal...................................... $56,752,000 $42,144,000 $28,841,000 State........................................ 3,554,000 3,369,000 1,671,000 ----------- ----------- ----------- 60,306,000 45,513,000 30,512,000 ----------- ----------- ----------- Deferred, including current deferred Federal...................................... 783,000 (2,577,000) (3,020,000) State........................................ (434,000) (906,000) (588,000) ----------- ----------- ----------- 349,000 (3,483,000) (3,608,000) ----------- ----------- ----------- Total income taxes from continuing operations................................... $60,655,000 $42,030,000 $26,904,000 The effective income tax rate from continuing operations differs from the Federal income tax statutory rate due to the following: Year Ended December 31, 2000 1999 1998 ------------------------------------------------------------------------------------------------------------------ Statutory rate..................................... 35.0% 35.0% 35.0% State taxes, net of Federal tax benefit............ 1.2 1.4 1.0 Foreign losses..................................... .3 1.5 3.2 Other, net......................................... 1.5 0.6 (0.7) ----- ---- ----- 38.0% 38.5% 38.5 ------------------------------------------------------------------------------------------------------------------ Deferred income taxes for 2000, 1999, and 1998 reflect the impact of "temporary differences" between the amount of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and regulations. Principal items comprising the deferred income tax provision (benefit) from continuing operations are as follows: Year Ended December 31, 2000 1999 1998 ------------------------------------------------------------------------------------------------------------------------- Difference in financial reporting and income tax depreciation methods.................... $ (192,000) $ (62,000) $ 385,000 Reserves not currently deductible................ 488,000 (11,000) 1,000,000 Capitalized software currently deductible for tax purposes, net of amortization........... (981,000) (504,000) (674,000) State deferred income taxes...................... (283,000) (589,000) (382,000) Revenue and expense recognized in different periods for financial reporting and income tax purposes..................... 542,000 (2,064,000) (2,722,000) Other, net....................................... 775,000 (253,000) (1,215,000) ---------- ----------- ----------- $ 349,000 $(3,483,000) $(3,608,000) ------------------------------------------------------------------------------------------------------------------------- 49
The net deferred income tax asset is comprised of the following: Year Ended December 31, 2000 1999 ---------------------------------------------------------------------------------------------------- Current deferred income taxes: Gross assets................................. $ 9,030,000 $ 10,934,000 Gross liabilities............................ -- -- ------------ ------------ 9,030,000 10,934,000 ------------ ------------ Long-term deferred income taxes: Gross assets................................. 63,000 34,000 Gross liabilities............................ (4,771,000) (6,893,000) ------------ ------------ (4,708,000) (6,859,000) ------------ ------------ Net deferred income tax asset..................... $ 4,322,000 $ 4,075,000 ---------------------------------------------------------------------------------------------------- The Company did not record any valuation allowance against deferred tax assets at December 31, 2000 and 1999. The tax effect of significant temporary differences representing deferred tax assets (liabilities) is as follows: Year Ended December 31, 2000 1999 -------------------------------------------------------------------------------------------------- Difference in financial reporting and income tax depreciation methods.................... $ 131,000 $ 256,000 Reserves not currently deductible................ 802,000 1,052,000 Capitalized software currently deductible for tax purposes, net of amortization........... (5,391,000) (6,706,000) State deferred income taxes...................... (265,000) (215,000) Revenue and expense recognized in different periods for financial reporting and income tax purposes..................... 8,493,000 9,708,000 Unrealized holding gain on investments........... 552,000 (20,000) ----------- ----------- $ 4,322,000 $ 4,075,000 -------------------------------------------------------------------------------------------------- 50
Note 12 - Segment Information: The Company established its segments in accordance with Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards for the way public business enterprises report financial information about operating segments in financial statements. SFAS 131 also requires additional disclosures about products and services, geographic areas, and major customers. The Company is organized around its four primary business lines: Technology Services, Asset Management, Mutual Fund Services, and Investments in New Business. Each segment offers different products and services that utilize different technology and marketing techniques. The information in the following tables is derived directly from the segments' internal financial reporting used for corporate management purposes. The accounting policies of the reportable segments are the same as those described in Note 1. The Company evaluates financial performance of its operating segments based on income (loss) from continuing operations before income taxes. Technology Services includes the Company's TRUST 3000 product line and trust operations outsourcing. Asset Management provides investment solutions through various investment products and services distributed directly or through professional investment advisors, financial planners, and other financial intermediaries to institutional or high-net-worth markets. Mutual Fund Services provides administration and distribution services to proprietary mutual funds created for banks, insurance firms, and investment management companies. Investments in New Business consists of the Company's Canadian and international operations which provides investment advisory services globally through investment products and services. The following tables highlight certain financial information from continuing operations about each of the Company's segments for the years ended December 31, 2000, 1999, and 1998: Mutual Investments Technology Asset Fund In New 2000 Services Management Services Business Other Total ========================================================================================================================== Revenues............ $222,246,000 $215,336,000 $126,885,000 $ 34,339,000 $598,806,000 ----------- ----------- ----------- ---------- ----------- Income (loss) from operations.. $ 79,992,000 $ 72,671,000 $ 27,688,000 $ (15,553,000) $(16,839,000) $147,959,000 ---------- ----------- ----------- ------------ ---------- Other income, net... $ 11,659,000 ---------- Income from continuing operations before income taxes............ $159,618,000 ----------- Depreciation and amortization..... $ 11,932,000 $ 2,305,000 $ 1,471,000 $ 1,086,000 $ 511,000 $ 17,305,000 ----------- ----------- ----------- ------------ ----------- ----------- Capital expenditures..... $ 17,345,000 $ 3,462,000 $ 2,041,000 $ 2,015,000 $ 2,325,000 $ 27,188,000 ------------ ------------ ---------- ------------ ----------- ----------- Total assets........ $100,727,000 $ 47,599,000 $ 28,671,000 $ 31,517,000 $167,068,000 $375,582,000 ------------- ------------ ------------ ----------- ----------- ----------- 51
Mutual Investments Technology Asset Fund In New 1999 Services Management Services Business Other Total ============================================================================================================================ Revenues............ $184,759,000 $138,365,000 $110,083,000 $ 22,985,000 $456,192,000 ----------- ----------- ----------- ---------- ----------- Income (loss) from operations.. $ 61,022,000 $ 40,185,000 $ 24,221,000 $(10,636,000) $(12,298,000) $102,494,000 ----------- ---------- ---------- ----------- ----------- Other income, net... $ 6,675,000 ----------- Income from continuing operations before income taxes..... $109,169,000 ----------- Depreciation and amortization..... $ 11,100,000 $ 2,218,000 $ 1,309,000 $ 778,000 $ 388,000 $ 15,793,000 ----------- ----------- ----------- ----------- ----------- ----------- Capital expenditures..... $ 12,047,000 $ 2,377,000 $ 547,000 $ 878,000 $ 1,405,000 $ 17,254,000 ----------- ----------- ----------- ----------- ----------- ----------- Total assets........ $ 88,870,000 $ 29,803,000 $ 23,446,000 $ 28,619,000 $ 83,041,000 $253,779,000 ----------- ---------- ----------- ----------- ----------- ----------- ============================================================================================================================ Mutual Investments Technology Asset Fund In New 1998 Services Management Services Business Other Total ============================================================================================================================ Revenues............ $167,484,000 $ 90,056,000 $ 95,136,000 $ 13,443,000 $ 366,119,000 ----------- ---------- ------------ ----------- ------------ Income (loss) from operations.. $ 46,793,000 $ 19,881,000 $ 24,993,000 $(10,319,000) $(13,463,000) $ 67,885,000 ----------- ----------- ---------- ----------- ----------- Other income, net... $ 1,998,000 ------------ Income from continuing operations before income taxes..... $ 69,883,000 ------------ Depreciation and amortization..... $ 10,468,000 $ 1,954,000 $ 1,576,000 $ 899,000 $ 791,000 $ 15,688,000 ----------- ----------- ----------- ----------- ----------- ------------ Capital expenditures..... $ 16,999,000 $ 2,469,000 $ 772,000 $ 763,000 $ 771,000 $ 21,774,000 ----------- ----------- ----------- ----------- ----------- ------------ Total assets........ $ 96,856,000 $ 23,084,000 $ 17,362,000 $ 15,427,000 $ 56,043,000 $ 208,772,000 ----------- ---------- ---------- ------------ ----------- ------------ ============================================================================================================================= Other consists of expenses and assets attributable to corporate overhead groups that are not allocated to the operating segments for internal financial reporting purposes. Unallocated assets primarily consist of cash and cash equivalents, deferred tax assets, the investment in LSV, and certain other shared services assets. 52
The following table presents the details of other income (expense): For the Year Ended December 31, 2000 1999 1998 ------------------------------------------------------------------------------------------------------------------------- Equity in the earnings of unconsolidated affiliate...................... $ 7,533,000 $ 6,765,000 $ 3,015,000 Interest income.................................. 6,419,000 2,285,000 1,558,000 Interest expense................................. (2,293,000) (2,375,000) (2,575,000) ----------- ----------- ----------- $11,659,000 $ 6,675,000 $ 1,998,000 ------------------------------------------------------------------------------------------------------------------------- The following table presents revenues by country based on the location of the use of the products or services: For the Year Ended December 31, 2000 1999 1998 ------------------------------------------------------------------------------------------------------------------------- United States.................................... $559,574,000 $429,517,000 $350,729,000 International operations......................... 39,232,000 26,675,000 15,390,000 ------------ ------------ ------------ $598,806,000 $456,192,000 $366,119,000 ------------------------------------------------------------------------------------------------------------------------- The following table presents assets based on its location: 2000 1999 1998 ------------------------------------------------------------------------------------------------------------------------- United States.................................... $354,695,000 $231,620,000 $193,133,000 International operations......................... 20,887,000 22,159,000 15,639,000 ------------ ------------ ------------ $375,582,000 $253,779,000 $208,772,000 ------------------------------------------------------------------------------------------------------------------------- Note 13 - Related Party Transactions: SIMC, either by itself or through its wholly owned subsidiaries, is a party to Investment Advisory and Administration Agreements with several regulated investment companies ("RICs"), which are administered by the Company. Shares of the RICs are offered to clients of the Company and its subsidiaries. Under the Investment Advisory and Administration Agreements, SIMC receives a fee for providing investment advisory, administrative, and accounting services to the RICs. The investment advisory and administration fee is a fixed percentage of the average daily net asset value of each RIC, subject to certain limitations. Investment advisory and administration fees received by the Company totaled $246,308,000, $196,608,000, and $152,076,000 in 2000, 1999, and 1998, respectively. SIDCO is a party to Distribution Agreements with several RICs, which are advised and/or administered by SIMC. SIDCO receives a fee from the RICs for providing distribution services pursuant to the provisions of various Rule 12b-1 Plans adopted by the RICs. These distribution fees totaled $41,129,000, $25,883,000, and $15,480,000 in 2000, 1999, and 1998, respectively. 53
Note 14 - Quarterly Financial Data (Unaudited): For the Three Months Ended ------------------------------------------------------------------------- 2000 March 31 June 30 Sept. 30 Dec. 31 ------------------------------------------------------------------------------------------------------------------------ Revenues................................... $ 138,746,000 $ 146,440,000 $ 155,628,000 $ 157,992,000 Income before income taxes................. $ 32,691,000 $ 36,496,000 $ 44,324,000 $ 46,107,000 Net income................................. $ 20,269,000 $ 22,627,000 $ 27,481,000 $ 28,586,000 Basic earnings per common share............ $ .19 $ .21 $ .26 $ .27 Diluted earnings per common share.......... $ .18 $ .20 $ .24 $ .25 ------------------------------------------------------------------------------------------------------------------------ For the Three Months Ended ------------------------------------------------------------------------- 1999 March 31 June 30 Sept. 30 Dec. 31 ------------------------------------------------------------------------------------------------------------------------ Revenues................................... $ 104,318,000 $ 111,622,000 $ 117,199,000 $ 123,053,000 Income from continuing operations before income taxes..................... $ 24,697,000 $ 26,234,000 $ 28,845,000 $ 29,393,000 Income from continuing operations.......... $ 15,189,000 $ 16,134,000 $ 17,740,000 $ 18,076,000 Net income................................. $ 15,189,000 $ 16,134,000 $ 17,740,000 $ 19,368,000 (a) Basic earnings per common share from continuing operations.............. $ .14 $ .15 $ .17 $ .17 Basic earnings per common share............ $ .14 $ .15 $ .17 $ .18 (a) Diluted earnings per common share from continuing operations.............. $ .13 $ .14 $ .16 $ .16 Diluted earnings per common share.......... $ .13 $ .14 $ .16 $ .17 (a) ------------------------------------------------------------------------------------------------------------------------ (a) Includes income from disposal of discontinued operations of $1,292,000 or $.01 basic earnings per common share and $.01 diluted earnings per common share (See Note 2). 54
SEI INVESTMENTS COMPANY AND SUBSIDIARIES ---------------------------------------- SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS ----------------------------------------------- FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2000 ----------------------------------------------------------------- Additions ----------------------------- Balance at Charged to Charged Balance Beginning Costs and to Other at End Description of Year Expenses Accounts (Deductions) of Year - ----------------------------------------------------------------------------------------------------------------------------------- For the Year Ended December 31, 1998: Allowance for doubtful accounts $1,200,000 $ -- $ -- $ -- $1,200,000 For the Year Ended December 31, 1999: Allowance for doubtful accounts $1,200,000 $ 500,000 $ -- $ -- $1,700,000 For the Year Ended December 31, 2000: Allowance for doubtful accounts $ 1,700,000 $ -- $ -- $ -- $1,700,000 55
Item 9. Changes in and disagreements with Accountants on Accounting and --------------------------------------------------------------- Financial Disclosure. -------------------- None. 56
PART III -------- Item 10. Directors and Executive Officers of the Registrant. -------------------------------------------------- The information required by this item concerning directors is hereby incorporated by reference to the Company's definitive proxy statement for its 2001 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission within 120 days after December 31, 2000 pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "2001 Proxy Statement"). The executive officers of the Company are as follows: ALFRED P. WEST, JR., 58, has been the Chairman of the Board of Directors and Chief Executive Officer of the Company since its inception in 1968. Mr. West was President from June 1979 to August 1990. CARMEN V. ROMEO, 57, has been an Executive Vice President since December 1985. Mr. Romeo has been a Director since June 1979. Mr. Romeo was Treasurer and Chief Financial Officer from June 1979 to September 1996. RICHARD B. LIEB, 53, has been an Executive Vice President since October 1990, and a Director since May 1995. CARL A. GUARINO, 43, has been an Executive Vice President since March 2000 and a Senior Vice President since April 1988, and was General Counsel from April 1988 to January 1994. EDWARD D. LOUGHLIN, 50, has been an Executive Vice President since January 1994 and a Senior Vice President since January 1988. DENNIS J. MCGONIGLE, 40, has been an Executive Vice President since July 1996. Mr. McGonigle has been a Senior Vice President since January 1994 and a Vice President since January 1991. WAYNE M. WITHROW, 45, has been an Executive Vice President and Chief Information Officer since March 2000. Mr. Withrow has been a Senior Vice President since January 1994. KEVIN P. ROBINS, 39, has been a Senior Vice President since January 1994 and a Vice President since January 1992. Mr. Robins was General Counsel from January 1994 to March 2000. TODD B. CIPPERMAN, 35, has been a Senior Vice President and General Counsel since March 2000 and a Vice President since May 1995. KATHY HEILIG, 42, has been Chief Accounting Officer and Controller since May 1999 and a Vice President since 1991. MARK SAMUELS, 53, has been a Senior Vice President since 1995. ROBERT F. CRUDUP, 53, has been a Senior Vice President since 1995 and an Executive Vice President since June 1998. JUDITH E. TSCHIRGI, 46, has been an Executive Vice President since January 2001 and a Senior Vice President since 1997. JOE P. UJOBAI, 39, has been a Senior Vice President since 1995. MARK NAGLE, 41, has been an Executive Vice President since January 2001 and a Vice President since 1995. Kenneth G. Zimmer, 44, has been a Senior Vice President since 1990. 57
Item 11. Executive Compensation. ---------------------- The information called for in this item is hereby incorporated by reference to the 2001 Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management. -------------------------------------------------------------- The information called for in this item is hereby incorporated by reference to the 2001 Proxy Statement. Item 13. Certain Relationships and Related Transactions. ---------------------------------------------- The information called for in this item is hereby incorporated by reference to the 2001 Proxy Statement. 58
PART IV ------- Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. ---------------------------------------------------------------- (a) 1 and 2. Financial Statements and Financial Statement Schedules. The ------------------------------------------------------- following is a list of the Consolidated Financial Statements of the Company and its subsidiaries and supplementary data filed as part of Item 8 hereof: Report of Independent Public Accountants Consolidated Balance Sheets -- December 31, 2000 and 1999 Consolidated Statements of Operations -- For the years ended December 31, 2000, 1999, and 1998 Consolidated Statements of Shareholders' Equity -- For the years ended December 31, 2000, 1999, and 1998 Consolidated Statements of Cash Flows -- For the years ended December 31, 2000, 1999, and 1998 Notes to Consolidated Financial Statements Schedule II -- Valuation and Qualifying Accounts All other schedules are omitted because they are not applicable, or not required, or because the required information is included in the Consolidated Financial Statements or notes thereto. 3. Exhibits, Including Those Incorporated by Reference. The --------------------------------------------------- exhibits to this Report are listed on the accompanying index to exhibits and are incorporated herein by reference or are filed as part of this annual report on Form 10-K. (b) Reports on Form 8-K. No reports on Form 8-K were filed by the ------------------- Company during the quarter ended December 31, 2000. 59
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SEI INVESTMENTS COMPANY Date March 29, 2001 By /s/ Kathy Heilig -------------- -------------------------- Kathy Heilig Vice President and Controller (Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on dates indicated. Date March 29, 2001 By /s/ Alfred P. West, Jr. -------------- -------------------------- Alfred P. West, Jr. Chairman of the Board, Chief Executive Officer, and Director Date March 29, 2001 By /s/ Carmen V. Romeo -------------- -------------------------- Carmen V. Romeo Executive Vice President and Director Date March 29, 2001 By /s/ Richard B. Lieb -------------- -------------------------- Richard B. Lieb Executive Vice President and Director Date March 29, 2001 By /s/ Henry H. Greer -------------- -------------------------- Henry H. Greer Director Date March 29, 2001 By /s/ William M. Doran -------------- -------------------------- William M. Doran Director Date March 29, 2001 By /s/ Henry H. Porter, Jr. -------------- -------------------------- Henry H. Porter, Jr. Director Date March 29, 2001 By /s/ Kathryn M. McCarthy -------------- -------------------------- Kathryn M. McCarthy Director 60
EXHIBIT INDEX ------------- The following is a list of exhibits filed as part of this annual report on Form 10-K. For exhibits incorporated by reference, the location of the exhibit in the previous filing is indicated in parentheses. 3.1 Articles of Incorporation of the Registrant as amended on January 21, 1983. (Incorporated by reference to exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1982.) 3.1.2 Amendment to Articles of Incorporation of the Registrant, dated May 21, 1992. (Incorporated by reference to exhibit 3.1.2 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992.) 3.1.3 Amendment to Articles of Incorporation of the Registrant, dated May 26, 1994. (Incorporated by reference to exhibit 3.1.3 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994.) 3.1.4 Amendment to Articles of Incorporation of the Registrant, dated November 21, 1996. (Incorporated by reference to exhibit 3.1.4 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) 3.1.5* Amendment to Articles of Incorporation of the Registrant, dated February 14, 2001. (Page 65) 3.2 By-Laws. (Incorporated by reference to exhibit 3.2 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1983.) 3.2.1 Amendment to By-Laws, dated December 19, 1988. (Incorporated by reference to exhibit 3.2.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1988.) 3.2.2 Amendment to By-Laws, dated July 12, 1990. (Incorporated by reference to exhibit 3.2.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1990.) 4.1 Form of Certificate for Shares of Common Stock. (Incorporated by reference to exhibit 4.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1988.) 4.2 Rights Agreement dated December 10, 1998. (Incorporated by reference to exhibit 4.2 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998.) Note: Exhibits 10.1 through 10.9 constitute the management contracts and executive compensatory plans or arrangements in which certain of the directors and executive officers of the Registrant participate. 10.1 Stock Option Plan, Amended, Restated and Renewed as of February 11, 1997. (Incorporated by reference to exhibit 99(a) to the Registrant's Registration Statement on Form S-8 (No. 333-63709) filed September 18, 1998.) 10.1.1 1997 Stock Option Plan. (Incorporated by reference to exhibit 99(b) to the Registrant's Registration Statement on Form S-8 (No. 333-63709) filed September 18, 1998.) 10.1.2 1997 Option Share Deferral Plan. (Incorporated by reference to exhibit 99(c) to the Registrant's Registration Statement on Form S-8 (No. 333-63709) filed September 18, 1998.) 10.1.3 1998 Equity Compensation Plan. (Incorporated by reference to exhibit 99(f) to the Registrant's Registration Statement on Form S-8 (No. 333-63709) filed September 18, 1998.) 10.1.4 First Amendment to the 1998 Equity Compensation Plan. (Incorporated by reference to exhibit 10.1.4 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1999.) 10.2 Employee Stock Ownership Plan. (Incorporated by reference to exhibit 10.3 (b) to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1985.) 10.3 Employee Stock Purchase Plan, Amended and Restated as of May 8, 1991. (Incorporated by reference to exhibit 10.3 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991.) 10.3.1 Employee Stock Purchase Plan as Amended and Restated on October 15, 1997. (Incorporated by reference to exhibit 99(e) to the Registrant's Registration Statement on Form S-8 (No. 333-63709) filed September 18, 1998.) 10.4 SEI Capital Accumulation Plan. (Incorporated by reference to exhibit 99(e) to the Registrant's Registration Statement on Form S-8 (No. 333-41343) filed December 2, 1997.) 10.5 Stock Option Plan for Non-Employee Directors. (Incorporated by reference to exhibit 10.12 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1988.) 61
10.5.1 Amendment 1997-1 to the Stock Option Plan for Non-Employee Directors. (Incorporated by reference to exhibit 10.5.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997.) 10.5.2 1997 Option Share Deferral Plan for Non-Employee Directors. (Incorporated by reference to exhibit 99(d) to the Registrant's Registration Statement on Form S-8 (No. 333-63709) filed September 18, 1998.) 10.6 Employment Agreement, dated May 25, 1979, between Alfred P. West, Jr. and the Registrant. (Incorporated by reference to exhibit 10.7 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1990.) 10.7 Employment Agreement, dated January 21, 1987, between Gilbert L. Beebower and the Registrant. (Incorporated by reference to exhibit 10.8 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1990.) 10.8.1 Employment Agreement, dated July 1, 1987, between Richard B. Lieb and the Registrant. (Incorporated by reference to exhibit 10.9 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1990.) 10.8.2 Stock Option Agreement, dated February 23, 1989, between Richard B. Lieb and a subsidiary of the Registrant, as amended. (Incorporated by reference to exhibit 10.8.2 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992.) 10.9 Summary of Company Bonus Plan for Senior Management. (Incorporated by reference to exhibit 10.9 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993.) 10.11 Directors and Officers Liability Insurance Policy. (Incorporated by reference to exhibit 10.9 to the Registrant's Registration Statement on Form S-8 (No.2-78133) filed June 25, 1982.) 10.12 Lease Agreement, dated as of January 1, 1990, between The Canada Life Assurance Company and the Registrant. (Incorporated by reference to exhibit 10.11 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1990.) 10.13 Lease Agreement, dated as of May 1, 1991, between Two North Riverside Plaza Joint Venture and the Registrant. (Incorporated by reference to exhibit 10.11 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991.) 10.14 Credit Agreement, dated May 31, 1992, between Provident National Bank and the Registrant, as amended. (Incorporated by reference to exhibit 10.12 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992.) 10.14.1 Second Modification Agreement to the Credit Agreement, dated April 19, 1993, between PNC Bank, National Association, successor by merger to Provident National Bank, and the Registrant. (Incorporated by reference to exhibit 10.14.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993.) 10.14.2 Third Modification Agreement to the Credit Agreement, dated May 31, 1993, between PNC Bank, National Association, successor by merger to Provident National Bank, and the Registrant. (Incorporated by reference to exhibit 10.14.2 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993.) 10.14.3 Fourth Modification Agreement to the Credit Agreement, dated March 14, 1994, between PNC Bank, National Association, successor by merger to Provident National Bank, and the Registrant. (Incorporated by reference to exhibit 10.14.3 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994.) 10.14.4 Fifth Modification Agreement to the Credit Agreement, dated May 31, 1994, between PNC Bank, National Association, successor by merger to Provident National Bank, and the Registrant. (Incorporated by reference to exhibit 10.14.4 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994.) 10.14.5 Sixth Modification Agreement to the Credit Agreement, dated May 5, 1995, between PNC Bank, National Association, successor by merger to Provident National Bank, and the Registrant. (Incorporated by reference to exhibit 10.14.5 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995.) 10.14.6 Seventh Modification Agreement to the Credit Agreement, dated June 15, 1995, between PNC Bank, National Association, successor by merger to Provident National Bank, and the Registrant. (Incorporated by reference to exhibit 10.14.6 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995.) 10.14.7 Eighth Modification Agreement to the Credit Agreement, dated October 19, 1995, between PNC Bank, National Association, successor by merger to Provident National Bank, and the Registrant. (Incorporated by reference to exhibit 10.14.7 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995.) 62
10.14.8 Ninth Modification Agreement to the Credit Agreement, dated March 31, 1996, between PNC Bank, National Association, successor by merger to Provident National Bank, and the Registrant. (Incorporated by reference to exhibit 10.14.8 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) 10.14.9 Tenth Modification Agreement to the Credit Agreement, dated May 31, 1996, between PNC Bank, National Association, successor by merger to Provident National Bank, and the Registrant. (Incorporated by reference to exhibit 10.14.9 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) 10.14.10 Eleventh Modification Agreement to the Credit Agreement, dated October 1, 1996, between PNC Bank, National Association, successor by merger to Provident National Bank, and the Registrant. (Incorporated by reference to exhibit 10.14.10 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) 10.14.11 Release and Modification Agreement to the Credit Agreement, dated February 20, 1997, between PNC Bank, National Association, successor by merger to Provident National Bank, and the Registrant. (Incorporated by reference to exhibit 10.14.11 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) 10.14.12 Thirteenth Modification Agreement to the Credit Agreement, dated May 30, 1997, between PNC Bank, National Association, successor by merger to Provident National Bank, and the Registrant. (Incorporated by reference to exhibit 10.14.12 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997.) 10.14.13 Fourteenth Modification Agreement to the Credit Agreement, dated December 31, 1997, between PNC Bank, National Association, successor by merger to Provident National Bank, and the Registrant. (Incorporated by reference to exhibit 10.14.13 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997.) 10.14.14 Fifteenth Modification Agreement to the Credit Agreement, dated March 31, 1998, between PNC Bank, National Association, successor by merger to Provident National Bank, and the Registrant. (Incorporated by reference to exhibit 10.14.14 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998.) 10.14.15 Sixteenth Modification Agreement to the Credit Agreement, dated May 29, 1998, between PNC Bank, National Association, successor by merger to Provident National Bank, and the Registrant. (Incorporated by reference to exhibit 10.14.15 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998.) 10.14.16 Seventeenth Modification Agreement to the Credit Agreement, dated September 29, 1998, between PNC Bank, National Association, successor by merger to Provident National Bank, and the Registrant. (Incorporated by reference to exhibit 10.14.16 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998.) 10.14.17 Eighteenth Modification Agreement to the Credit Agreement, dated November 18, 1999, between PNC Bank, National Association, successor by merger to Provident National Bank, and the Registrant. (Incorporated by reference to exhibit 10.14.17 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1999.) 10.14.18 Nineteenth Modification Agreement to the Credit Agreement, dated December 30, 1999, between PNC Bank, National Association, successor by merger to Provident National Bank, and the Registrant. (Incorporated by reference to exhibit 10.14.18 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1999.) 10.14.19* Twentieth Modification Agreement to the Credit Agreement, dated December 30, 2000, between PNC Bank, National Association, successor by merger to Provident National Bank, and the Registrant. (Page 72) 10.15 Pledge Agreement, dated May 31, 1992, between Provident National Bank and the Registrant. (Incorporated by reference to exhibit 10.13 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992.) 10.16 Master Lease Agreement, dated December 29, 1989, between Varilease Corporation and the Registrant, as amended. (Incorporated by reference to exhibit 10.14 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992.) 10.17 Note Purchase Agreement, dated as of February 24, 1997, with respect to the issuance by the Registrant of $20,000,000 7.20% Senior Notes, Series A, due February 24, 2007, and $15,000,000 7.27% Senior Notes, Series B, due February 24, 2012. (Incorporated by reference to exhibit 10.17 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) 63
10.17.1 First Amendment, dated December 15, 1998, to Note Purchase Agreement, dated February 24, 1997. (Incorporated by reference to exhibit 10.17.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998.) 21* Subsidiaries of the Registrant. (Page 76) 23* Consent of Independent Public Accountants. (Page 79) 27 Financial Data Schedule. 99* Miscellaneous exhibits. (Page 81) * Filed herewith as an exhibit to this Form 10-K. 64
EXHIBIT 3.1.5 AMENDMENT TO ARTICLES OF INCORPORATION 65
Microfilm Number Filed with the Department of State on --------------- ___________________ Entity Number ________________________________________ Secretary of the Commonwealth ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION DSCB:15-1915 (Rev 91) In compliance with the requirements of 15 Pa.C.S. (S) 1915 (relating to articles of amendment), the undersigned business corporation, desiring to amend its Articles, hereby states that: 1. The name of the corporation is: SEI Investments Company --------------------------------------------- 2. The (a) address of this corporation's current registered office in this Commonwealth or (b) name of its commercial registered office provider and the county of venue is (the Department is hereby authorized to correct the following information to conform to the records of the Department): (a) One Freedom Valley Road, Oaks, PA 19456 Montgomery County - -------------------------------------------------------------------------------- Number and Street City State Zip County (b) Name of Commercial Registered Office Provider For a corporation represented by a commercial registered office provider, the county in (b) shall be deemed the county in which the corporation is located for venue and official publication purposes. 3. The statute by or under which it was incorporated is: PA Business ----------- Corporation Law of May 5, 1933, P.L. 364, as amended ---------------------------------------------------- 4. The date of its incorporation is: November 18, 1968 ------------------ 5. (Check, and if appropriate complete, one of the following): _____ The amendment shall be effective upon filing these Articles of Amendment in the Department of State. X The amendment shall be effective on: February 14, 2001 at 4:00pm ----- -------------------- ---------- Date Hour 6. (Check one of the following): X The amendment was adopted by the shareholders (or members) pursuant ----- to 15 Pa.C.S. (S) 1914(a) and (b). _____ The amendment was adopted by the board of directors pursuant to 15 Pa.C.S. (S) 1914(c). 7. (Check, and if appropriate complete, one of the following): X The amendment adopted by the corporation, set forth in full, is as ------ follows: Article V is hereby amended to read in its entirety as follows: "The aggregate number of shares which the corporation shall have the authority to issue is 750,060,000, consisting of 60,000 shares of Series Preferred Stock of the par value of $.05 per share and 750,000,000 shares of Common Stock of the par value $.01 per share. The Board of Directors of the corporation shall have the full authority permitted by law to fix by resolution full, limited, multiple or fractional, or no voting privileges, limitations, 66
options, conversion rights and other special or relative rights of any class or any series of any class that may be desired. The shareholders of the corporation shall not have the right to accumulate their votes for the election of directors." _____ The amendment adopted by the corporation as set forth in full in Exhibit A attached hereto and made a part hereof. --------- 8. (Check if the amendment restates the Articles): _____ The restated Articles of Incorporation supersede the original Articles and all amendments thereto. IN TESTIMONY WHEREOF, the undersigned corporation has caused these Articles of Amendment to be signed by a duly authorized officer thereof this 14th day of February, 2001. SEI Investments Company --------------------------------------------- (Name of Corporation) BY: /s/ Todd Cipperman ------------------ Name: Todd Cipperman Title:General Counsel 67
(CHANGES) BUREAU USE ONLY: DOCKETING STATEMENT DSCB:15-134B (Rev 91) ____REVENUE ____LABOR & INDUSTRY ____ OTHER_________________________________ FILING FEE: NONE FILE CODE FILED DATE MICROFILM NUMBER This form (file in triplicate) and all accompanying documents shall be mailed to: COMMONWEALTH OF PENNSYLVANIA DEPARTMENT OF STATE CORPORATION BUREAU 308 NORTH OFFICE BUILDING HARRISBURG, PA 17120-0029 Part I. COMPLETE FOR EACH FILING: Current name of entity or registrant affected by the submittal to which this statement relates: (survivor or new corporation if merger or consolidation) SEI Investments Company - ----------------------- Entity number, if known: 313011 NOTE: ENTITY NUMBER is the computer index ---------- number assigned to an entity upon initial filing in the Department of State. Incorporation/qualification date in Pa.: November 18, 1968 State of ---------------------- Incorporation: Pennsylvania -------------- Federal Identification Number: 23-1707341 ------------- Specified effective date, if any: February 14, 2001 --------------------- Part II. COMPLETE FOR EACH FILING This statement is being submitted with (check proper box): X Articles of Amendment: complete Section A only ----- _____Amended Certificate of Authority: complete Section A only _____Articles of Merger: complete Section B _____Articles of Consolidation: complete Section C _____Articles of Division: complete Section D _____Articles of Conversion: complete Section A and E only _____Statement of Merger, Consolidation or Division: complete Section B, C or D _____Statement of Correction: complete Section A only _____Statement of Termination: complete Section H _____Statement of Revival: complete Section G _____Dissolution by Shareholders or Incorporators before Commencement of Business: complete Section F only _____Amendment of Certificate of Limited Partnership: complete Section A only 68
Part III. COMPLETE IF APPROPRIATE: The delayed effective date of the accompanying submittal is: February 14 2001 4:00pm ---------------------------------------------------------------- month day year hour, if any X Section A. CHANGES TO BE MADE TO THE ENTITY NAMED IN Part I: (Check - ----- box/boxes which pertain ____ Name: ____ Registered Office: Number & street/RD number & box number City State Zip County ____ Purpose: X Stock: aggregate number of shares authorized 750,060,000 * ---- ------------- (attach additional provisions, if any) ____ Term of Existence: ____ Other: *consisting of 60,000 shares of Series Preferred Stock of the par value of $.05 per share and 750,000,000 shares of Common Stock of the par value $.01 per share. ____ Section B. MERGER (Complete Section A if any changes to survivor corporation): MERGING CORPORATIONS ARE: (List only the merging corporations- SURVIVOR IS LISTED IN PART I) 1. Name: Entity Number, if known:___________________ Inc./quali. date in Pa.:_________________ State of Incorporation: 2. Name:__________________________________________________________ Entity Number, if known:_______________ Inc./quali. date in Pa. ___________________ State of Incorporation: Attach sheet containing above corporate information if there are additional merging corporations. ____ Section C. CONSOLIDATION (NEW corporation information should be completed in Part I. Also, complete and attach DOCKETING STATEMENT DSCB:15-134A for the NEW corporation formed.) CONSOLIDATING CORPORATIONS ARE: 1. Name: Entity Number, if known:_________________ Inc./quali. date in Pa.:_________________ State of Incorporation: 2. Name:___________________________________________________________ Entity Number, if known:_________________ Inc./quali. date in Pa.:______________ State of Incorporation: Attach sheet containing above corporate information if there are additional consolidating corporations. ____ Section D. DIVISION (Forming NEW corporation(s) named below. Also, complete and attach DOCKETING STATEMENT DSCB:15-134A for EACH new corporation formed by division.) _____________ 1. Name:_______________________________________ Entity Number 69
_____________ 2. Name:_______________________________________ Entity Number Attach sheet if there are additional corporations to be named. CHECK ONE: __ Corporation named in Part I survives. (Any changes, complete Section A) ___ Corporation named in Part I does not survive. 70
___ Section E. CONVERSION (Complete Section A) CHECK ONE: ___ Converted from nonprofit to profit ___ Converted from profit to nonprofit ___ Section F. DISSOLVED BY SHAREHOLDERS OR INCORPORATORS BEFORE COMMENCEMENT OF BUSINESS ___ Section G STATEMENT OF REVIVAL Corporation named in Part I hereby revives its charter or articles which were forfeited by Proclamation or expired. (Complete Section A if any changes have been made to the revived corporation.) ___ Section H STATEMENT OF TERMINATION _________________________________ filed in the Department of State on (type of filing made) ___________________ is/are hereby terminated month day year hour, if any If merger, consolidation or division, list all corporations involved, other than that listed in Part I: _________________ 1. Name: ______________________________________ Entity Number _________________ 2. Name: ______________________________________ Entity Number Attach sheet containing above information if there are additional corporations involved. 71
EXHIBIT 10.14.19 TWENTIETH MODIFICATION AGREEMENT TO THE CREDIT AGREEMENT 72
TWENTIETH MODIFICATION AGREEMENT -------------------------------- THIS AGREEMENT is made as of the 30th day of August, 2000, and is effective as of August 31, 2000, by and among PNC BANK, NATIONAL ASSOCIATION, successor by merger to Provident National Bank, a national banking association with offices at 1600 Market Street, Philadelphia, Pennsylvania 19103 (the "Bank"), and SEI INVESTMENTS COMPANY (formerly SEI Corporation), a Pennsylvania corporation (the "Borrower"). BACKGROUND ---------- Bank and Borrower have entered into a Credit Agreement effective as of May 31, 1992 as amended by a Waiver and First Modification Agreement between Bank and Borrower dated as of September 30, 1992, a Second Modification Agreement between Bank and Borrower dated as of April 19, 1993, a Third Modification Agreement between Bank and Borrower dated as of May 31, 1993, a Fourth Modification Agreement between Bank and Borrower dated as of March 14, 1994, a Fifth Modification Agreement dated as of May 31, 1994, a Sixth Modification Agreement dated as of May 5, 1995, a Seventh Modification Agreement effective as of May 31, 1995, an Eighth Modification Agreement dated October 19, 1995, a Ninth Modification Agreement dated March 31, 1996 a Tenth Modification Agreement dated as of May 31, 1996, an Eleventh Modification Agreement dated October 1, 1996, a Release and Modification Agreement dated February 20, 1997, a Thirteenth Modification Agreement dated May 30, 1997, a Fourteenth Modification Agreement dated as of December 31, 1997, a Fifteenth Modification Agreement dated as of March 31, 1998, a Sixteenth Modification Agreement dated as of May 29, 1998 and a Seventeenth Modification Agreement dated as of February, 1999, a Eighteenth Modification Agreement dated as of November 18, 1999, a Nineteenth Modification Agreement dated as of December 30, 1999 and a Twentieth Modification Agreement dated as of August 30, 2000 (as so amended the "Credit Agreement") pursuant to which Bank agreed to make up to $50,000,000 in loans (the "Loans") to Borrower. Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the Credit Agreement. The Loans are evidenced by Borrower's note originally dated May 31, 1992 and amended and restated September 30, 1992, May 31, 1996 and October 1, 1996 (the "Note") in the principal amount of $50,000,000. The Borrower and Bank have agreed to extend the Termination Date, as contemplated by the Credit Agreement, and to agree to certain other modifications to the Credit Agreement, upon the terms and conditions set forth herein. NOW, THEREFORE, the parties hereto, intending to be legally bound hereby, agree as follows: AGREEMENT --------- 1. Terms. Capitalized terms used herein and not otherwise defined herein ----- shall have the meanings given to such terms in the Credit Agreement. 2. Amendments to Credit Agreement. The Credit Agreement is hereby amended ------------------------------ as follows: (a) As contemplated by Section 9.15 of the Credit Agreement, the Termination Date and the date on which the Credit Commitment shall expire and the Credit Period shall end is hereby extended to August 31, 2001. (b) Section 2.2 of the Credit Agreement is hereby amended by changing the Commitment Fee rate from '1/10% per annum" to one- quarter of one percent (1/4%) per annum" (c) Section 3.3(b) of the Credit Agreement is hereby amended to change the interest rate spread over the Eurodollar Rate from "three-tenths of one percent (.30%)" to "one and one-quarter percent (1.25%)". 73
(d) A new representation is hereby added to the Credit Agreement as Section 5.14, which shall read in full as follows: "5.14. The Company has reviewed the areas within its business and operations which could be adversely affected by, and has developed or is developing a program to address on a timely basis the risk that certain computer applications used by the Company may be unable to recognize and perform properly date- sensitive functions involving dates prior to and after December 31, 1999 (the "Year 2000 Problem"). The Year 2000 Problem will not result, and is not reasonably expected to result, in any material adverse effect on the business, properties, assets, financial condition, results of operations or prospects of the Company, or the ability of the Company to duly and punctually pay or perform its obligations hereunder and the other Loan Documents." 3. Loan Documents. Except where the context clearly requires otherwise, all -------------- references to the Credit Agreement in the Note or any other document delivered to Bank in connection therewith shall be to the Credit Agreement as amended by this Agreement. 4. Borrower's Ratification. Borrower agrees that it has no defenses or set- ----------------------- offs against the Bank, its officers, directors, employees, agents or attorneys with respect to the Note or the Credit Agreement, all of which are in full force and effect and shall remain in full force and effect unless and until modified or amended in writing in accordance with their terms. Borrower hereby ratifies and confirms its obligations under the Note and the Credit Agreement and agrees that the execution and the delivery of this Agreement does not in any way diminish or invalidate any of its obligations thereunder. 5. Representations and Warranties. Borrower hereby certifies that: ------------------------------ (a) except as otherwise previously disclosed to Bank in any manner whatsoever, the representations and warranties made in the Credit Agreement are true and correct as of the date hereof. (b) no Event of Default under the Note or the Credit Agreement and no event which with the passage of time or the giving of notice or both could become an Event of Default, exists on the date hereof; and (c) this Agreement has been duly authorized, executed and delivered so as to constitute the legal, valid and binding obligation of Borrower, enforceable in accordance with its terms. All of the above representations and warranties shall survive the making of this Agreement. 6. No Waiver. This Agreement does not and shall not be deemed to constitute --------- a waiver by Bank of any Event of Default under the Note or Credit Agreement, or of any event which with the passage of time or the giving of notice or both would constitute an Event of Default, nor does it obligate Bank to agree to any further modifications of the terms of the Credit Agreement or constitute a waiver of any of Bank's other rights or remedies. 7. Miscellaneous. ------------- (a) All terms, conditions, provisions and covenants in the Note, the Credit Agreement, and all other documents delivered to Bank in connection therewith shall remain unaltered and in full force and effect except as modified or amended hereby. To the extent that any term or provision of this Agreement is or may be deemed expressly inconsistent with any term or provision in the Credit Agreement, the Note or any other document executed in connection therewith, the terms and provisions hereof shall control. (b) This Agreement shall be governed by and construed according to the laws of the Commonwealth of Pennsylvania. (c) This Agreement shall inure to the benefit of, and be binding upon, the parties hereto and their respective successors and assigns and may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 74
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. BORROWER -------- [SEAL] SEI INVESTMENTS COMPANY (formerly SEI Corporation) Attest: /s/ Todd Cipperman By: /s/ Kathy Heilig ------------------------------ -------------------------------- Title: Vice President Title: Controller and Treasurer ------------------------------ -------------------------------- BANK ---- PNC BANK, NATIONAL ASSOCIATION By: /s/ Forrest B. Patterson, Jr. -------------------------------- Title: Vice President -------------------------------- 75
EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT 76
SUBSIDIARIES OF THE REGISTRANT ------------------------------ JURISDICTION OF ORGANIZATION NAME OR INCORPORATION ---- ---------------- SEI Investments Distribution Company Pennsylvania SEI Investments Management Corporation Delaware SEI, Inc. Canada (Federal) SEI Capital Limited Canada (Federal) SEI Investments Developments, Inc. Delaware SEI Investments Mutual Funds Services Delaware SEI Investments Fund Management Delaware SEI Trust Company Pennsylvania SEI Funds, Inc. Delaware SEI Investments, Inc. Delaware SEI Global Investments Corporation Delaware SEI Capital AG Switzerland SEI Investments Canada Company Canada (Federal) SEI Advanced Capital Management, Inc. Delaware SEI Global Capital Investments, Inc. Delaware SEI Investments Global Management (Cayman) Inc. Cayman Islands, B.W.I. SEI Investments Global, Limited Ireland Fund Resources International Limited Ireland SEI Investments Argentina, S. A. Argentina SEI Global Holdings Inc. Cayman Islands, B.W.I. Latinvest Sociedad de Bolsa, S. A. Argentina Quadrum, S. A. Argentina SEI Investments South Africa Limited South Africa SEI Primus Holdings Canada SEI Investments Trustee & Custodial Services (Ireland) Limited Ireland SEI Private Trust Pennsylvania 77
SEI Venture Inc Delaware SEI Investments de Mexico Mexico SEI Asset Korea South Korea SEI Investments Europe Limited United Kingdom 78
EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS 79
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS To SEI Investments Company: As independent public accountants, we hereby consent to the incorporation of our report, included in this Form 10-K, into the Company's previously filed Registration Statements File No. 2-73997, File No. 2-75629, File No. 2-78133, File No. 2-80841, File No. 2-89659, File No. 33-19952, File No. 33-24595, File No. 33-41602, File No. 333-41343, and File No. 333-63709. ARTHUR ANDERSEN LLP Philadelphia, Pa., March 27, 2001 80
EXHIBIT 99 MISCELLANEOUS EXHIBIT 81
The undertaking set forth below is filed for purposes of incorporation by reference into Part II of the registration statements on Form S-8, File No. 2-73997, File No. 2-75629, File No. 2-78133, File No. 2-80841, File No. 2-89659, File No. 33-19952, File No. 33-24595, File No. 33-41602, File No. 333-41343, and File No. 333-63709. Item 9. Undertakings. - --------------------- (a) The undersigned registrant hereby undertakes: Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Securities Act") may be permitted to directors, officers or persons controlling the registrant pursuant to the provisions described in this registration statement, or otherwise, SEI Investments Company (the "Company") has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. 82