SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)*
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
- ----
Exchange Act of 1934 for the quarterly period ended JUNE 30, 1995 or
-------------
_______ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _________ to _________
0-10200
- --------------------------------------------------------------------------------
(Commission File Number)
SEI CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1707341
- --------------------------------- -----------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
680 EAST SWEDESFORD ROAD, WAYNE, PENNSYLVANIA 19087-1658
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(610) 254-1000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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___
---
*APPLICABLE ONLY TO ISSUERS 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 Sections 12, 13, or 15(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 ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of June 30, 1995: 18,845,028 shares of common stock, par value
$.01 per share.
PART I. FINANCIAL INFORMATION
- ------- ---------------------
ITEM 1. FINANCIAL STATEMENTS
- ------- --------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(In thousands)
June 30, 1995 December 31, 1994
------------- -----------------
(unaudited)
Assets
- ------
Current assets:
Cash and cash equivalents $ 9,426 $20,232
Receivables, net 22,705 17,268
Receivables from regulated investment companies 7,221 6,286
Deferred income taxes 868 2,157
Prepaid expenses and other current assets 2,409 2,351
------ ------
Total current assets 42,629 48,294
------ ------
Property and equipment, net 27,464 28,217
------ ------
Net assets of discontinued operations 6,285 9,101
------ ------
Other assets:
Investments available for sale 5,555 --
Customer lists, net 178 244
Deferred income taxes 1,043 --
Other assets, net 6,060 5,292
------ ------
Total other assets, net 12,836 5,536
------ ------
Total Assets $89,214 $91,148
====== ======
The accompanying notes are an integral part of these statements.
2
CONSOLIDATED BALANCE SHEETS
---------------------------
(In thousands, except par value)
June 30, 1995 December 31,1994
------------- ----------------
(unaudited)
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable $ 4,963 $ 4,431
Accrued compensation 8,417 14,121
Other accrued liabilities 14,496 16,206
Deferred revenue 3,866 4,267
------ ------
Total current liabilities 31,742 39,025
------ ------
Deferred income taxes -- 814
------ ------
Shareholders' equity:
Common stock, $.01 par value, 100,000 shares
authorized; 18,845 and 18,781 shares issued
and outstanding 188 188
Capital in excess of par value 51,649 47,406
Retained earnings 5,449 3,823
Cumulative translation adjustments (67) (108)
Unrealized holding gain on investments 253 --
------ ------
Total shareholders' equity 57,472 51,309
------ ------
Total Liabilities and Shareholders' Equity $89,214 $91,148
====== ======
The accompanying notes are an integral part of these statements.
3
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(unaudited)
(In thousands, except per share data)
Three Months
----------------------------------
Ended June 30,
----------------------------------
1995 1994
---- ----
Revenues $55,737 $51,012
Expenses:
Operating and development 29,267 27,723
Sales and marketing 14,726 11,507
General and administrative 4,424 4,268
------ ------
Income from continuing operations before interest and income taxes 7,320 7,514
Interest income, net (220) (58)
------ ------
Income from continuing operations before income taxes 7,540 7,572
Income taxes 3,016 2,951
------ ------
Income from continuing operations 4,524 4,621
Income (loss) from discontinued operations, net
of income tax (benefit) expense of $(603) and $4 (904) 2
------ ------
Net income $ 3,620 $ 4,623
====== ======
Earnings per share from continuing operations $ .23 $ .23
Loss per share from discontinued operations (.05) --
------ ------
Earnings per common and common equivalent share
(primary and fully diluted) $ .18 $ .23
====== ======
The accompanying notes are an integral part of these statements.
4
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(unaudited)
(In thousands, except per share data)
Six Months
----------------------------------
Ended June 30,
----------------------------------
1995 1994
---- ----
Revenues $109,236 $99,486
Expenses:
Operating and development 55,930 55,474
Sales and marketing 27,678 22,396
General and administrative 8,602 8,437
------- ------
Income from continuing operations before interest and income taxes 17,026 13,179
Interest income, net (382) (129)
------- ------
Income from continuing operations before income taxes 17,408 13,308
Income taxes 6,963 5,131
------- ------
Income from continuing operations 10,445 8,177
Income (loss) from discontinued operations, net
of income tax (benefit) expense of $(1,295) and $619 (1,942) 817
------- ------
Net income $ 8,503 $ 8,994
======= ======
Earnings per share from continuing operations $ .53 $ .40
Earnings (loss) per share from discontinued operations (.10) .04
------- ------
Earnings per common and common equivalent share
(primary and fully diluted) $ .43 $ .44
======= ======
The accompanying notes are an integral part of these statements.
5
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(unaudited)
(In thousands)
Six Months
----------------------------------
Ended June 30,
----------------------------------
1995 1994
---- ----
Cash flows from operating activities:
Net income $ 8,503 $ 8,994
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 5,886 5,909
Provision for losses on receivables -- 369
Discontinued operations 2,816 (185)
Tax benefit on stock options exercised 1,150 2,743
Other (1,658) (1,538)
Change in current assets and liabilities:
Decrease (increase) in
Receivables, net (5,437) (4,661)
Receivables from regulated investment companies (935) (185)
Prepaid expenses and other current assets (58) 99
Increase (decrease) in
Accounts payable 532 461
Accrued compensation (5,704) (5,057)
Other accrued liabilities (207) 988
Deferred revenue (401) 481
------- -------
Net cash provided by operating activities 4,487 8,418
------- -------
Cash flows from investing activities:
Purchase of investments available for sale (5,132) --
Additions to property and equipment,
including capitalized software (5,074) (4,216)
Other 200 100
------- -------
Net cash used in investing activities (10,006) (4,116)
------- -------
Cash flows from financing activities:
Purchase and retirement of common stock (5,781) (21,698)
Proceeds from issuance of common stock 3,890 4,851
Payment of dividends (3,396) (2,650)
------- -------
Net cash used in financing activities (5,287) (19,497)
------- -------
Net decrease in cash and cash equivalents (10,806) (15,195)
Cash and cash equivalents, beginning of period 20,232 17,898
------ ------
Cash and cash equivalents, end of period $ 9,426 $ 2,703
====== ======
The accompanying notes are an integral part of these statements.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Note 1. Summary Financial Information and Results of Operations - In the
-------------------------------------------------------
opinion of the Company, the accompanying unaudited Consolidated
Financial Statements contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the
financial position as of June 30, 1995, the results of operations for
the three and six months ended June 30, 1995 and 1994, and the cash
flows for the six months ended June 30, 1995 and 1994.
Interim Financial Information
-----------------------------
While the Company believes that the disclosures presented are adequate
to make the information not misleading, these Consolidated Financial
Statements should be read in conjunction with the Consolidated
Financial Statements and the notes included in the Company's latest
annual report on Form 10-K.
Property and Equipment
----------------------
Property and equipment on the accompanying Consolidated Balance Sheets
consist of the following:
Estimated
Useful Lives
June 30, 1995 December 31, 1994 (In Years)
------------- ----------------- ----------
Equipment $44,364,000 $43,164,000 3
Buildings, furniture and fixtures 16,869,000 16,704,000 3 to 39
Leasehold improvements 9,666,000 9,275,000 Lease Term
Purchased software 6,914,000 6,810,000 3
Capitalized software 5,979,000 5,103,000 3
Information database 360,000 360,000 10
Land 4,065,000 4,065,000 N/A
Construction in progress 2,250,000 1,148,000 N/A
---------- ----------
90,467,000 86,629,000
Less: Accumulated depreciation
and amortization (63,003,000) (58,412,000)
---------- ----------
$27,464,000 $28,217,000
========== ==========
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.
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 received/paid during the six months
ended June 30:
1995 1994
---- ----
Interest received $337,000 $167,000
Income taxes paid (Federal and state) $7,893,000 $5,900,000
Interest paid during the six months ended June 30, 1995 and 1994 was
immaterial.
Reclassifications
-----------------
Prior period financial statements have been reclassified to conform
with the current quarter's presentation.
7
Note 2. Discontinued Operations - In May 1995, the Company's Board of
-----------------------
Directors approved a formal plan of disposal for the SEI Capital
Resources Division ("CR") and the SEI Defined Contribution Retirement
Services Division ("DC"). CR provides investment performance
evaluation services, consulting services, and brokerage services to
plan sponsors and investment advisors. DC provides administrative and
processing services, recordkeeping and payment software, and employee
retirement planning materials for use by defined contribution plans.
The Company anticipates that these disposals will be completed by
December 31, 1995. For CR, the expected manner of disposal is the sale
of its assets. For DC, its full-service recordkeeping operations will
be assumed by KPMG Peat Marwick ("KPMG"). Under the terms of the
agreement, SEI's DC operations will be merged into KPMG's existing
operations.
CR and DC are being accounted for as discontinued operations with a
measurement date of May 31, 1995. The Consolidated Financial
Statements reflect the operating results and balance sheet items of
the discontinued operations separately from continuing operations. The
Company expects that the sale of CR will result in a gain on the
disposal of CR's assets which will be sufficient to offset the losses
of DC from the measurement date to the disposal date and the loss on
the disposal of DC. As a result, no estimated losses for DC have been
accrued and the net gain will be recognized when realized. The net
income or net loss from discontinued operations from the measurement
date to the disposal date will be recorded as an adjustment to the net
assets or net liabilities of the discontinued operations on the
accompanying Consolidated Balance Sheets. Prior periods have been
restated.
Operating results for the discontinued operations were:
Two Months Three Months Five Months Six Months
---------- ------------ ----------- ----------
Ended May 31, Ended June 30, Ended May 31, Ended June 30,
------------- -------------- ------------- --------------
1995 1994 1995 1994
---- ---- ---- ----
Operating revenues $ 6,445,000 $13,664,000 $17,674,000 $28,883,000
========= ========== ========== ==========
Income (loss) from operations
before income taxes $(1,507,000) $ 6,000 $(3,237,000) $ 1,436,000
Income tax benefit (expense) 603,000 (4,000) 1,295,000 (619,000)
---------- ---------- ---------- ----------
Income (loss) from operations $ (904,000) $ 2,000 $(1,942,000) $ 817,000
========== ========== ========== ==========
The assets and liabilities of CR and DC have been reclassified on the
Consolidated Balance Sheets to separately identify them as net assets
or net liabilities of discontinued operations. A summary of these net
assets is as follows:
June 30, 1995 December 31, 1994
------------- -----------------
Current assets $10,292,000 $10,843,000
Property and equipment, net 1,800,000 2,279,000
Other assets 6,366,000 7,158,000
Current liabilities (12,786,000) (10,633,000)
Other long-term liabilities (138,000) (546,000)
Loss from discontinued operations for
the period June 1, 1995 to June 30,
1995, net of income tax benefit of $281 751,000 --
---------- ----------
Net assets $ 6,285,000 $ 9,101,000
========== ==========
8
Note 3. Investments Available for Sale - The Company accounts for investments
------------------------------
pursuant to Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities"
("SFAS 115"). SFAS 115 requires that debt and equity securities
classified as available for sale be reported at market value. Prior to
January 1, 1995, the Company had no material investments which would
have been accounted for pursuant to SFAS 115. Unrealized holding gains
and losses on these securities are reported as a separate component of
Shareholders' equity. Investments available for sale consists of
mutual funds sponsored by the Company which are primarily invested in
equity securities.
At June 30, 1995, Investments available for sale had a cost of
$5,132,000 and a market value of $5,555,000. At that date, $423,000 of
net unrealized gains on securities were included in Investments
available for sale. There were no unrealized losses as of June 30,
1995. The net change in unrealized gains on Investments available for
sale was $253,000 (net of income taxes) for the six months ended June
30, 1995, and is included as a separate component of Shareholders'
equity on the accompanying Consolidated Balance Sheets.
Note 4. Earnings Per Share - The Company utilizes the modified treasury stock
------------------
method to compute earnings per share since common share equivalents at
the end of the period exceeded 20 percent of the number of common
shares outstanding. Earnings per common and common equivalent share
(primary earnings per share) is computed using the weighted average
number of common shares and common share equivalents (stock options)
outstanding. Earnings per share, assuming full dilution (fully diluted
earnings per share), is based upon an increased number of shares that
would be outstanding assuming exercise of stock options when the
Company's stock price at the end of the period is higher than the
average price within the respective period. If the inclusion of common
stock equivalents has an anti-dilutive effect in the aggregate, it is
excluded from the earnings per share calculation. For the three months
ended June 30, 1995 and 1994, the weighted average shares outstanding
for primary earnings per share were 19,668,000 and 20,100,000,
respectively. For the six months ended June 30, 1995 and 1994, the
weighted average shares outstanding for primary earnings per share
were 19,598,000 and 20,497,000, respectively. Fully diluted earnings
per share were not materially different from the primary earnings per
share indicated.
Note 5. Receivables - Receivables on the accompanying Consolidated Balance
-----------
Sheets consist of the following:
June 30,1995 December 31, 1994
------------ -----------------
Trade receivables $14,591,000 $11,282,000
Fees earned, not received 2,818,000 1,425,000
Fees earned, not billed 6,304,000 5,767,000
---------- ----------
23,713,000 18,474,000
Less: Allowance for doubtful accounts (1,008,000) (1,206,000)
---------- ----------
$22,705,000 $17,268,000
========== ==========
Fees earned, not received represent brokerage commissions earned but
not yet collected. Fees earned, not billed represent cash receivables
earned but unbilled and result from timing differences between
services provided and contractual billing schedules.
Receivables from regulated investment companies on the accompanying
Consolidated Balance Sheets represent administration and distribution
fees collected from the Company's wholly owned subsidiaries, SEI
Financial Management Corporation and SEI Financial Services Company,
for management and distribution services provided by these
subsidiaries to various regulated investment companies.
9
Note 6. Debt - The Company has a line of credit agreement (the "Agreement")
----
with a bank which provides for borrowing of up to $20,000,000. The
Agreement ends on May 31, 1996, at which time the outstanding
principal balance, if any, becomes payable unless the Agreement is
extended. The Company is obligated to pay a commitment fee equal to
one-eighth percent per annum on the average daily unused portion of
the commitment. The Company had no outstanding debt as of June 30,
1995 and December 31, 1994.
Note 7. Common Stock Buyback - The Board of Directors has authorized the
--------------------
purchase of the Company's common stock on the open market or through
private transactions of up to an aggregate of $175,729,000. The
Company purchased 100,000 shares at a cost of $1,987,000 during the
second quarter of 1995, bringing the year-to-date total to 315,000
shares at a cost of $5,781,000. Through June 30, 1995, a total of
12,135,000 shares at an aggregate cost of $143,135,000 have been
repurchased and retired.
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.
Note 8. Dividend - On May 16, 1995, the Board of Directors declared a cash
--------
dividend of $.10 per share on the Company's common stock, which was
paid on June 29, 1995 to shareholders of record on June 8, 1995.
The Board of Directors has indicated its intention to pay future
dividends on a semiannual basis.
Note 9. Subsequent Event - In July 1995, the Company purchased an additional
----------------
515,000 shares of common stock at a cost of $11,540,000. The Company
borrowed $11,000,000 from the line of credit agreement to fund the
purchase of these shares.
Note 10. Segment Information - The Company has redefined its two business
-------------------
segments to reflect the Company's focus around two core product lines:
Investment Technology and Services and Asset Management. Previously,
the business segments were defined by markets, not products. The
Investment Technology and Services segment consists of the Company's
trust technology and proprietary mutual fund businesses. The Asset
Management segment consists of the Company's liquidity management,
asset management, and mutual fund businesses.
The following tables highlight certain financial information about
each of the Company's segments for the three and six months ended June
30, 1995 and 1994. Prior-year business segment information has been
restated to conform with current-year presentation.
10
SEI CORPORATION
BUSINESS SEGMENTS
(unaudited)
Investment
Technology and Asset General
Services Management and Admin. Consolidated
-------- ---------- ---------- ------------
For the Three-Month Period Ended June 30, 1995
----------------------------------------------------------------------
Revenues $38,986,000 $16,751,000 $55,737,000
========== ========== ==========
Operating profit $10,510,000 $ 1,234,000 $11,744,000
========== ==========
General and administrative expenses $4,424,000 4,424,000
=========
Interest income, net (220,000)
----------
Income from continuing operations
before income taxes $ 7,540,000
==========
Depreciation and amortization $ 2,316,000 $ 557,000 $ 73,000 $ 2,946,000
========== ========== ========= ==========
Capital expenditures including
capitalized software $ 1,642,000 $ 311,000 $1,191,000 $ 3,144,000
========== ========== ========= ==========
For the Three-Month Period Ended June 30, 1994
----------------------------------------------------------------------
Revenues $33,882,000 $17,130,000 $51,012,000
========== ========== ==========
Operating profit $ 9,279,000 $ 2,503,000 $11,782,000
========== ==========
General and administrative expenses $4,268,000 4,268,000
=========
Interest income, net (58,000)
----------
Income from continuing operations
before income taxes $ 7,572,000
==========
Depreciation and amortization $ 2,364,000 $ 499,000 $ 75,000 $ 2,938,000
========== ========== ========= ==========
Capital expenditures including
capitalized software $ 2,638,000 $ 107,000 $ 37,000 $ 2,782,000
=========== =========== ========== ===========
11
SEI CORPORATION
BUSINESS SEGMENTS
(unaudited)
Investment
Technology and Asset General
Services Management and Admin. Consolidated
-------- ---------- ---------- ------------
For the Six-Month Period Ended June 30, 1995
-----------------------------------------------------------------------------
Revenues $75,528,000 $33,708,000 $109,236,000
========== ========== ===========
Operating profit $21,432,000 $ 4,196,000 $ 25,628,000
========== ==========
General and administrative expenses $ 8,602,000 8,602,000
==========
Interest income, net (382,000)
----------
Income from continuing operations
before income taxes $ 17,408,000
===========
Depreciation and amortization $ 4,602,000 $ 1,126,000 $ 158,000 $ 5,886,000
========== ========== ========== ===========
Capital expenditures including
capitalized software $ 2,901,000 $ 589,000 $ 1,584,000 $ 5,074,000
========== ========== ========== ===========
For the Six-Month Period Ended June 30, 1994
-----------------------------------------------------------------------------
Revenues $65,985,000 $33,501,000 $99,486,000
========== ========== ==========
Operating profit $16,338,000 $ 5,278,000 $21,616,000
========== ==========
General and administrative expenses $8,437,000 8,437,000
=========
Interest income, net (129,000)
-----------
Income from continuing operations
before income taxes $ 13,308,000
===========
Depreciation and amortization $ 4,709,000 $ 1,040,000 $ 160,000 $ 5,909,000
========== ========== ========== ===========
Capital expenditures including
capitalized software $ 3,749,000 $ 219,000 $ 248,000 $ 4,216,000
========== ========== ========== ===========
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
The Company operates primarily in two business segments: Investment Technology
and Services and Asset Management. Financial information for each of these
segments is reflected in Note 10 of the Notes to Consolidated Financial
Statements.
RESULTS OF OPERATIONS
- ---------------------
Second Quarter Ended June 30, 1995 Compared to Second Quarter Ended June 30,
1994
The Company's results of operations for the second quarter of 1995 included
revenues from continuing operations of $55,737,000, compared to $51,012,000 for
the same period of 1994, an increase of 9 percent from the prior year's
corresponding quarter. Income from continuing operations for the second quarter
of 1995 was $4,524,000, compared to $4,621,000 in the same period of 1994.
Earnings per share from continuing operations for the three months ended June
30, 1995 and 1994 was $.23. Earnings were flat from the prior-year period due
to substantial investments the Company made in sales, marketing, and technology
which offset additional operating profit from increased revenues. Total fund
balances at June 30, 1995 were $54.8 billion compared to $41.1 billion at June
30, 1994, an increase of 33 percent. Included in these totals are proprietary
fund balances of $34.5 billion at June 30, 1995 and $20.3 billion at June 30,
1994, an increase of 70 percent.
INVESTMENT TECHNOLOGY AND SERVICES - Revenues from Investment Technology and
- ----------------------------------
Services for the three months ended June 30, 1995 and 1994 were $38,986,000 and
$33,882,000, respectively.
INVESTMENT TECHNOLOGY AND SERVICES REVENUES
-------------------------------------------
2ND QTR 2ND QTR DOLLAR PERCENT
1995 1994 CHANGE CHANGE
---- ---- ------ ------
Trust systems and services $27,881,000 $25,851,000 $2,030,000 8%
Proprietary fund services 11,105,000 8,031,000 3,074,000 38%
----------- ----------- ----------
Total $38,986,000 $33,882,000 $5,104,000 15%
=========== =========== ==========
The 15 percent increase in this segment's revenues was due to growth in both its
trust technology and proprietary mutual fund businesses. Trust systems revenue
increased 8 percent primarily from an increase in one-time implementation fees.
Proprietary fund services revenue increased 38 percent from the prior-year
period due to an increase in average proprietary fund balances over the past
year. Average proprietary fund balances increased $12.1 billion or 60 percent
from $20.2 billion during the second quarter of 1994 to $32.3 billion during the
second quarter of 1995. This increase in proprietary fund balances was the
result of growth in existing fund complexes and the commencement of new fund
complexes during the past year. Revenues should continue to expand for the
remainder of 1995 due to continued growth in fund balances from bank proprietary
funds. However, this increase may be partially offset by the loss of bank
proprietary funds as a result of mergers among banks.
INVESTMENT TECHNOLOGY AND SERVICES EXPENSES
-------------------------------------------
2ND QTR 2ND QTR DOLLAR PERCENT
1995 1994 CHANGE CHANGE
---- ---- ------ ------
Operating and development $20,520,000 $19,090,000 $1,430,000 7%
Sales and marketing $ 7,956,000 $ 5,513,000 $2,443,000 44%
13
The 7 percent increase in operating and development expense was primarily due to
an increase in consulting expense. The 44 percent increase in sales and
marketing expense was due primarily to an increase in personnel expense.
Operating profit from Investment Technology and Services for the three months
ended June 30, 1995 was $10,510,000, an increase of 13 percent from the
$9,279,000 for the corresponding quarter of 1994. Operating margins were 27
percent for the three months ended June 30, 1995 and 1994. This segment should
continue to expand revenues and operating profits for the remainder of 1995,
despite significant investments in technology.
ASSET MANAGEMENT - Revenues from Asset Management for the three months ended
- ----------------
June 30, 1995 and 1994 were $16,751,000 and $17,130,000, respectively.
ASSET MANAGEMENT REVENUES
-------------------------
2ND QTR 2ND QTR DOLLAR PERCENT
1995 1994 CHANGE CHANGE
---- ---- ------ ------
Liquidity services $ 5,509,000 $ 5,229,000 $ 280,000 5%
Mutual fund services 4,628,000 4,848,000 (220,000) (5%)
Asset management services 3,464,000 4,138,000 (674,000) (16%)
Brokerage and consulting
services 3,150,000 2,915,000 235,000 8%
---------- ---------- --------
Total $16,751,000 $17,130,000 $(379,000) (2%)
========== ========== ========
The 2 percent decrease in this segment's revenues is primarily attributable to
declining revenues in the asset management business due to a runoff from de-
emphasized products. This decline more than offset growth in this segment's
liquidity business. The 5 percent increase in liquidity services was a result of
increased fees from the Company's new cash sweep product. The 16 percent
decrease in asset management services is primarily a result of a decrease in
fees from the International Equity Fund and from SEI's mutual fund asset
allocation programs. These decreases were partially offset by an increase in
fees from the Company's Customized Asset Management Services ("CAMS") product.
Average fund balances in CAMS continued to increase from $1.4 billion during the
second quarter of 1994 to $2.0 billion during the second quarter of 1995, an
increase of 43 percent. The 5 percent decrease in mutual fund services revenue
was due primarily to a decrease in fund balances of the Company's Family of
Funds and a shift from higher-fee to lower-fee products within these funds.
ASSET MANAGEMENT EXPENSES
-------------------------
2ND QTR 2ND QTR DOLLAR PERCENT
1995 1994 CHANGE CHANGE
---- ---- ------ ------
Operating and development $8,747,000 $8,633,000 $114,000 1%
Sales and marketing $6,770,000 $5,994,000 $776,000 13%
Operating and development expense remained relatively flat from the prior-year
period despite an increase in consulting expense during the second quarter of
1995. The 13 percent increase in sales and marketing expense was due primarily
to an increase in promotion and travel expenses. The Asset Management segment
recorded an operating profit of $1,234,000 for the three months ended June 30,
1995 compared to an operating profit of $2,503,000 in the corresponding period
of 1994. The decline in operating profit in this segment is primarily
attributable to substantial investments the Company has made in its asset
management business. The Asset Management segment is expected to show improved
operating results by the end of 1995 as a result of growth in its core asset
management business and continued growth in its liquidity business.
14
OTHER INCOME AND EXPENSES - General and administrative expenses for the three
- -------------------------
months ended June 30, 1995 and 1994 were $4,424,000 and $4,268,000,
respectively. General and administrative expenses remained relatively flat from
the prior year.
Interest income for the three months ended June 30, 1995 and 1994 was $220,000
and $58,000, respectively. The increase in interest income is due primarily to
an increase in short-term interest rates and an increase in the average cash
balance invested during the second quarter of 1995 compared to the second
quarter of 1994.
Six Months Ended June 30, 1995 Compared to Six Months Ended June 30, 1994
The Company's results of operations for the six months ended June 30, 1995
included revenues from continuing operations of $109,236,000, compared to
$99,486,000 for the same period of 1994, an increase of 10 percent from the
prior period. Income from continuing operations for the first six months of 1995
was $10,445,000 or $.53 per share, compared to $8,177,000 or $.40 per share
reported in the same period of 1994. Earnings per share from continuing
operations increased 33 percent over the prior year's corresponding period.
INVESTMENT TECHNOLOGY AND SERVICES - Revenues from Investment Technology and
- ----------------------------------
Services for the six months ended June 30, 1995 and 1994 were $75,528,000 and
$65,985,000, respectively.
INVESTMENT TECHNOLOGY AND SERVICES REVENUES
-------------------------------------------
SIX MONTHS SIX MONTHS DOLLAR PERCENT
1995 1994 CHANGE CHANGE
---- ---- ------ ------
Trust systems and services $54,879,000 $49,614,000 $5,265,000 11%
Proprietary fund services 20,649,000 16,371,000 4,278,000 26%
---------- ---------- ---------
Total $75,528,000 $65,985,000 $9,543,000 14%
========== ========== =========
The 14 percent increase in this segment's revenues was due to growth in both its
trust technology and proprietary mutual fund businesses. Trust systems revenue
increased 11 percent primarily from an increase in one-time implementation fees
along with increased processing and custom programming fees from existing
clients. Proprietary fund services revenue increased 26 percent from a year ago
due to an increase in average proprietary fund balances over the past year.
Average proprietary fund balances increased $11.5 billion or 61 percent from
$18.7 billion during the first six months of 1994 to $30.2 billion during the
first six months of 1995. This increase in proprietary fund balances was the
result of growth in existing fund complexes and the commencement of new fund
complexes during the past year.
INVESTMENT TECHNOLOGY AND SERVICES EXPENSES
-------------------------------------------
SIX MONTHS SIX MONTHS DOLLAR PERCENT
1995 1994 CHANGE CHANGE
---- ---- ------ ------
Operating and development $39,099,000 $39,062,000 $ 37,000 ---
Sales and marketing $14,997,000 $10,585,000 $4,412,000 42%
15
Operating and development expense remained relatively flat as a substantial
increase in consulting expense offset a decline in salary and benefits expense.
The 42 percent increase in sales and marketing expense was due primarily to an
increase in personnel expense. Operating profit from Investment Technology and
Services for the six months ended June 30, 1995 was $21,432,000, an increase of
31 percent from the $16,338,000 for the corresponding period of 1994. Operating
margins increased to 28 percent for the six months ended June 30, 1995 compared
to 25 percent for the six months ended June 30, 1994.
ASSET MANAGEMENT - Revenues from Asset Management for the six months ended June
- ----------------
30, 1995 and 1994 were $33,708,000 and $33,501,000, respectively.
ASSET MANAGEMENT REVENUES
-------------------------
SIX MONTHS SIX MONTHS DOLLAR PERCENT
1995 1994 CHANGE CHANGE
---- ---- ------ ------
Liquidity services $10,995,000 $10,717,000 $278,000 3%
Mutual fund services 9,190,000 9,251,000 (61,000) (1%)
Asset management services 7,681,000 7,801,000 (120,000) (2%)
Brokerage and consulting
services 5,842,000 5,732,000 110,000 2%
--------- --------- -------
Total $33,708,000 $33,501,000 $207,000 1%
========== ========== ========
Revenues from this segment increased slightly as growth in this segment's
liquidity business was partly offset by a decline in the asset management
business. The 3 percent increase in liquidity services revenue was a result of
increased fees from the Company's new cash sweep product. The 2 percent decrease
in asset management services is primarily a result of a decrease in fees from
the International Equity Fund and SEI's mutual fund asset allocation programs
which offset continued revenue growth from the Company's CAMS product. Average
fund balances in CAMS increased from $1.3 billion during the first six months of
1994 to $1.9 billion during the first six months of 1995, an increase of 46
percent. The decrease in mutual fund services revenue was due primarily to a
decrease in fund balances of the Company's Family of Funds and a shift from
higher-fee to lower-fee products within these funds.
ASSET MANAGEMENT EXPENSES
-------------------------
SIX MONTHS SIX MONTHS DOLLAR PERCENT
1995 1994 CHANGE CHANGE
---- ---- ------ ------
Operating and development $16,831,000 $16,412,000 $419,000 3%
Sales and marketing $12,681,000 $11,811,000 $870,000 7%
The 3 percent increase in operating and development expense is due primarily
to an increase in consulting expense. The 7 percent increase in sales and
marketing expense was due primarily to an increase in personnel and travel
expenses. The Asset Management segment recorded an operating profit of
$4,196,000 for the six months ended June 30, 1995 compared to an operating
profit of $5,278,000 in the corresponding period of 1994. The decline in
operating profit in this segment is primarily attributable to substantial
investments the Company has made in its asset management business.
16
OTHER INCOME AND EXPENSES - General and administrative expenses for the six
- -------------------------
months ended June 30, 1995 and 1994 were $8,602,000 and $8,437,000,
respectively. General and administrative expenses remained relatively flat from
the prior year.
Interest income for the six months ended June 30, 1995 and 1994 was $382,000 and
$129,000, respectively. The increase in interest income is due primarily to an
increase in short-term interest rates and an increase in the average cash
balance invested during the first six months of 1995 compared to the first six
months of 1994.
LIQUIDITY AND CAPITAL RESOURCES - The Company's ability to generate cash
- -------------------------------
adequate to meet its needs results primarily from cash flow from operations and
its borrowing capacity. The Company has a line of credit agreement which
provides for borrowings of up to $20,000,000 (See Note 6 of the Notes to
Consolidated Financial Statements). At June 30, 1995, the Company's unused
sources of liquidity consisted primarily of cash and cash equivalents of
$4,426,000 and the entire line of credit of $20,000,000. The availability of the
line of credit is subject to the Company's compliance with certain covenants set
forth in the agreement. The Company has an additional $5,000,000 of cash and
cash equivalents which is reserved for various investment opportunities. Cash
flow generated from operations for the six months ended June 30, 1995 and 1994
was $4,487,000 and $8,418,000, respectively. Since January 1994, the Company has
purchased 1,595,000 shares at a cost of $34.0 million, which includes 315,000
shares at a cost of $5.8 million purchased during the first six months of 1995.
In July 1995, the Company purchased an additional 515,000 shares at a cost of
$11.5 million. The Company borrowed $11,000,000 to fund this purchase of shares
(See Note 9 of the Notes to Consolidated Financial Statements). Capital
expenditures, including capitalized software development costs, for the six
months ended June 30, 1995 and 1994 were $5,074,000 and $4,216,000,
respectively. In 1994, the Company purchased 90 acres of land for $4,065,000.
The Company plans to construct a corporate campus on this site. Construction in
progress related to this project was $2,250,000 at June 30, 1995. This corporate
campus is expected to be completed in 1996 at a total estimated cost of
$31 million, including related expenditures. The Company believes that excess
cash provided by operations and anticipated long-term borrowing arrangements
will provide adequate funds for all future costs relating to this campus.
The Company's operating cash flow, borrowing capacity, and liquidity should
provide adequate funds for continuing operations, continued investment in new
products and equipment, and its common stock repurchase program.
17
PART II. OTHER INFORMATION
- -------- -----------------
ITEM 6. EXHIBITS AND REPORTS ON REPORT 8-K
- ------- ----------------------------------
(a) The following is a list of exhibits filed as part of the Form
10-Q.
Exhibit 11. Earnings per share calculations.
Exhibit 27. Financial Data Schedule.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three-month
period ended June 30, 1995.
18
SIGNATURES
Pursuant to the requirements 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 CORPORATION
Date August 11, 1995 By /s/ Cris Brookmyer
-------------------------- ---------------------------------
Cris Brookmyer
Vice President and Controller
19
EXHIBIT 11
SEI CORPORATION AND SUBSIDIARIES
--------------------------------
EXHIBIT 11 - EARNINGS PER SHARE CALCULATION
-------------------------------------------
FOR THE THREE-MONTH PERIODS ENDED JUNE 30,
------------------------------------------
1995 1994
-------- --------
Earnings per common and common
equivalent share (Primary EPS):
Income from continuing operations $ 4,524,000 $ 4,621,000
========== ==========
Net income $ 3,620,000 $ 4,623,000
========== ==========
Weighted average number of
shares issued and outstanding 18,879,000 18,872,000
Dilutive effect (excess of
number of shares issuable over
number of shares assumed to be
repurchased with the proceeds,
using the average market price
during the period) of
outstanding options 789,000 1,228,000
--------- ----------
Adjusted weighted average number
of shares outstanding 19,668,000 20,100,000
========== ==========
Earnings per common and common
equivalent share from continuing operations $ .23 $ .23
========== ==========
Earnings per common and common
equivalent share $ .18 $ .23
========== ==========
20
SEI CORPORATION AND SUBSIDIARIES
--------------------------------
EXHIBIT 11 - EARNINGS PER SHARE CALCULATION
-------------------------------------------
FOR THE THREE-MONTH PERIODS ENDED JUNE 30,
------------------------------------------
1995 1994
-------- --------
Earnings per common and common
equivalent share, assuming full dilution
(Fully diluted EPS):
Income from continuing operations $ 4,524,000 $ 4,621,000
========== ==========
Net income $ 3,620,000 $ 4,623,000
========== ==========
Weighted average number of
shares issued and outstanding 18,879,000 18,872,000
Dilutive effect (excess of
number of shares issuable over
number of shares assumed to be
repurchased with the proceeds,
using the higher of the average market price
or ending price during the period) of
outstanding options 1,038,000 1,228,000
---------- ----------
Adjusted weighted average number
of shares outstanding, assuming full dilution 19,917,000 20,100,000
========== ==========
Earnings per common and common
equivalent share from continuing
operations, assuming full dilution $ .23 $ .23
========== ==========
Earnings per common and common
equivalent share, assuming full dilution $ .18 $ .23
========== ==========
21
SEI CORPORATION AND SUBSIDIARIES
--------------------------------
EXHIBIT 11 - EARNINGS PER SHARE CALCULATION
-------------------------------------------
FOR THE SIX-MONTH PERIODS ENDED JUNE 30,
----------------------------------------
1995 1994
-------- --------
Earnings per common and common
equivalent share (Primary EPS):
Income from continuing operations $10,445,000 $ 8,177,000
========== ==========
Net income $ 8,503,000 $ 8,994,000
=========== ==========
Weighted average number of
shares issued and outstanding 18,822,000 18,978,000
Dilutive effect (excess of
number of shares issuable over
number of shares assumed to be
repurchased with the proceeds,
using the average market price
during the period) of
outstanding options 776,000 1,519,000
---------- ----------
Adjusted weighted average number
of shares outstanding 19,598,000 20,497,000
========== ==========
Earnings per common and common
equivalent share from continuing operations $ .53 $ .40
========== ==========
Earnings per common and common
equivalent share $ .43 $ .44
========== ==========
22
SEI CORPORATION AND SUBSIDIARIES
--------------------------------
EXHIBIT 11 - EARNINGS PER SHARE CALCULATION
-------------------------------------------
FOR THE SIX-MONTH PERIODS ENDED JUNE 30,
----------------------------------------
1995 1994
-------- --------
Earnings per common and common
equivalent share, assuming full dilution
(Fully diluted EPS):
Income from continuing operations $10,445,000 $ 8,177,000
========== ==========
Net income $ 8,503,000 $ 8,994,000
========== ==========
Weighted average number of
shares issued and outstanding 18,822,000 18,978,000
Dilutive effect (excess of
number of shares issuable over
number of shares assumed to be
repurchased with the proceeds,
using the higher of the average market price
or ending price during the period) of
outstanding options 1,087,000 1,519,000
---------- ----------
Adjusted weighted average number
of shares outstanding, assuming full dilution 19,909,000 20,497,000
========== ==========
Earnings per common and common
equivalent share from continuing
operations, assuming full dilution $ .52 $ .40
========== ==========
Earnings per common and common
equivalent share, assuming full dilution $ .43 $ .44
========== ==========
23
5
1,000
U.S
6-MOS
DEC-31-1995
JAN-01-1995
JUN-30-1995
1
9,426
5,555
22,705
(1,008)
0
42,629
90,467
(63,003)
89,214
31,742
0
188
0
0
57,284
89,214
0
109,236
0
83,608
8,602
0
0
17,408
6,963
10,445
(1,942)
0
0
8,503
.43
.43