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 SEPTEMBER 30, 1997 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 INVESTMENTS COMPANY
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1707341
- --------------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
1 FREEDOM VALLEY DRIVE, OAKS, PENNSYLVANIA 19456-1100
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(Address of principal executive offices)
(Zip Code)
(610) 676-1000
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(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 September 30, 1997: 18,112,507 shares of common stock, par
value $.01 per share.
PART I. FINANCIAL INFORMATION
- ------- ---------------------
ITEM 1. FINANCIAL STATEMENTS
- ------- --------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(In thousands)
September 30, 1997 December 31, 1996
------------------ -----------------
(unaudited)
Assets
- ------
Current assets:
Cash and cash equivalents $ 12,000 $ 13,167
Receivables from regulated investment companies 13,312 10,836
Receivables, net of allowance for doubtful
accounts of $1,539 and $1,350 29,342 19,558
Loans receivable available for sale 15,924 13,043
Deferred income taxes 5,850 4,527
Prepaid expenses 4,015 3,825
-------- --------
Total current assets 80,443 64,956
-------- --------
Investments available for sale 1,403 1,000
-------- --------
Property and equipment, net of accumulated
depreciation and amortization of $49,893
and $48,128 52,134 48,620
-------- --------
Capitalized software, net of accumulated
amortization of $7,571 and $5,193 17,833 13,577
-------- --------
Customer lists, net of accumulated
amortization of $212 and $0 2,488 2,000
-------- --------
Other assets, net 10,025 10,888
-------- --------
Total Assets $164,326 $141,041
======== ========
The accompanying notes are an integral part of these statements.
2
CONSOLIDATED BALANCE SHEETS
---------------------------
(In thousands, except par value)
September 30,1997 December 31, 1996
----------------- -----------------
(unaudited)
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable $ 7,398 $ 5,863
Accrued compensation 13,082 14,503
Accrued discontinued operations disposal costs 7,194 7,417
Accrued proprietary fund services 8,195 6,748
Other accrued liabilities 23,003 20,303
Line of credit -- 20,000
Current portion of long-term debt 2,000 --
Deferred revenue 6,311 5,123
-------- --------
Total current liabilities 67,183 79,957
-------- --------
Long-term debt 33,000 --
-------- --------
Deferred income taxes 7,578 4,976
-------- --------
Shareholders' equity:
Common stock, $.01 par value, 100,000 shares
authorized; 18,113 and 18,498 shares issued
and outstanding 181 185
Capital in excess of par value 56,490 54,959
Retained earnings -- 1,141
Cumulative translation adjustments (352) (177)
Unrealized holding gain on investments 246 --
-------- --------
Total shareholders' equity 56,565 56,108
-------- --------
Total Liabilities and Shareholders' Equity $164,326 $141,041
======== ========
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 September 30,
-------------------
1997 1996
---- ----
Revenues $74,283 $60,165
Expenses:
Operating and development 36,401 30,320
Sales and marketing 22,932 16,952
General and administrative 3,411 3,918
------- -------
Income before interest and income taxes 11,539 8,975
Interest income 233 427
Interest expense (667) (12)
------- -------
Income before income taxes 11,105 9,390
Income taxes 4,166 3,484
------- -------
Net income $ 6,939 $ 5,906
======= =======
Earnings per common and common equivalent share
(primary and fully diluted) $.36 $.31
======= =======
The accompanying notes are an integral part of these statements.
4
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(unaudited)
(In thousands, except per share data)
Nine Months
-------------------
Ended September 30,
-------------------
1997 1996
---- ----
Revenues $208,517 $184,945
Expenses:
Operating and development 106,161 98,541
Sales and marketing 63,588 50,823
General and administrative 9,995 10,050
-------- --------
Income before interest and income taxes 28,773 25,531
Gain on sale of investments available for sale -- 1,097
Interest income 717 608
Interest expense (1,816) (36)
-------- --------
Income before income taxes 27,674 27,200
Income taxes 10,793 10,608
-------- --------
Net income $ 16,881 $ 16,592
======== ========
Earnings per common and common equivalent share
(primary and fully diluted) $.88 $.86
======== ========
The accompanying notes are an integral part of these statements.
5
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(unaudited)
(In thousands)
Nine Months
--------------------
Ended September 30,
--------------------
1997 1996
---- ----
Cash flows from operating activities:
Net income $16,881 $16,592
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 11,982 7,700
Provision for losses on receivables 189 144
Discontinued operations -- (3,978)
Tax benefit on stock options exercised 1,903 2,034
Gain on sale of investments available for sale -- (1,097)
Other (847) 3,587
Change in current assets and liabilities:
Decrease (increase) in
Receivables from regulated investment companies (2,476) (486)
Receivables (9,973) (1,032)
Loans receivable available for sale (2,881) (4,757)
Prepaid expenses (190) (83)
Increase (decrease) in
Accounts payable 1,535 (484)
Accrued compensation (1,421) (3,189)
Accrued discontinued operations disposal costs (223) --
Accrued proprietary fund services 1,447 3,159
Other accrued liabilities 4,920 2,621
Deferred revenue 1,188 (820)
------ ------
Net cash provided by operating activities 22,034 19,911
------ ------
Cash flows from investing activities:
Additions to property and equipment (10,488) (19,911)
Additions to capitalized software (6,634) (7,135)
Deposit on property and equipment -- (2,138)
Investment in joint venture -- (1,658)
Proceeds from sale of investments available for sale -- 6,536
Other (461) (1,061)
------ ------
Net cash used in investing activities (17,583) (25,367)
------ ------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 35,000 --
Proceeds from (payment of) line of credit (20,000) 19,000
Purchase and retirement of common stock (23,347) (9,635)
Proceeds from issuance of common stock 7,506 4,517
Payment of dividends (4,777) (4,090)
------ ------
Net cash provided by (used in) financing activities (5,618) 9,792
------ ------
Net increase (decrease) in cash and cash equivalents (1,167) 4,336
Cash and cash equivalents, beginning of period 13,167 10,256
------- -------
Cash and cash equivalents, end of period $12,000 $14,592
======= =======
The accompanying notes are an integral part of these statements.
6
Notes to Consolidated Financial Statements
------------------------------------------
Note 1. Summary of Significant Accounting Policies
------------------------------------------
Nature of Operations
--------------------
SEI Investments Company (the "Company") is organized around two product
lines: Investment Technology and Services and Asset Management. The
Investment Technology and Services segment provides trust accounting
and management information services through the Company's 3000 product
line, administration and distribution services to proprietary mutual
funds, and back-office trust processing. The principal market for these
products and services are trust departments of banks located in the
United States. The Asset Management segment provides investment
solutions through various investment products and services including
the Company's Family of Funds, liquidity funds and services, and other
investment products and services distributed directly or through
professional investment advisors. Principal markets for these products
and services include trust departments of banks, investment advisors,
corporations, high-net-worth individuals, and money managers located in
the United States and Canada.
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 September 30, 1997, the results of operations for the
three and nine months ended September 30, 1997 and 1996, and the cash
flows for the nine months ended September 30, 1997 and 1996.
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
September 30, 1997 December 31, 1996 (In Years)
------------------ ----------------- ------------
Equipment $ 43,227,000 $40,390,000 3 to 5
Buildings 27,840,000 25,907,000 25 to 39
Land 6,980,000 6,730,000 N/A
Purchased software 9,039,000 9,397,000 3
Furniture and fixtures 9,697,000 9,030,000 3 to 5
Leasehold improvements 5,244,000 5,294,000 Lease Term
------------ -----------
102,027,000 96,748,000
Less: Accumulated depreciation
and amortization (49,893,000) (48,128,000)
------------ -----------
Property and Equipment, net $ 52,134,000 $48,620,000
============ ===========
Property and equipment are stated at cost, which includes interest on
funds borrowed to finance the construction of the Company's corporate
campus. Depreciation and amortization are computed using the straight-
line method over the estimated useful life of each asset. Expenditures
for renewals and betterments are capitalized, while maintenance and
repairs are charged to expense when incurred.
7
Customer Lists
--------------
Customer Lists represent the value assigned to customer relationships
obtained in various acquisitions. Customer Lists are amortized on a
straight-line basis over 10 years. The Company evaluates the
realizability of intangible assets based on estimates of undiscounted
future cash flows over the remaining useful life of the asset. If the
amount of such estimated undiscounted cash flow is less than the net book
value of the asset, the asset is written down to its net realizable
value. As of September 30, 1997, no such write-down was required.
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 detail 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.
Earnings per Share
------------------
The Company utilizes the treasury stock method to compute earnings per
share in accordance with Accounting Principles Board Opinion No. 15,
"Earnings per Share" ("APB 15"). Earnings per common and common
equivalent share (primary earnings per share) is computed using the
weighted average number of common shares and dilutive 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 September 30, 1997 and 1996, the weighted average
shares outstanding for primary earnings per share were 19,238,000 and
19,113,000, respectively. For the nine months ended September 30, 1997
and 1996, the weighted average shares outstanding for primary earnings
per share were 19,259,000 and 19,375,000, respectively. Shares used to
calculate fully diluted earnings per share were not materially different
from those used to calculate primary earnings per share.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128"), which supersedes APB 15. SFAS 128 requires dual
presentation of basic and diluted earnings per share for complex capital
structures on the face of the statements of income. According to SFAS
128, basic earnings per share, which replaces primary earnings per 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 share, which replaces fully diluted earnings per
share, reflects the potential dilution from the exercise or conversion of
securities into common stock, such as stock options. SFAS 128 is
required to be adopted for the Company's 1997 year-end financial
statements; earlier application is not permitted.
8
Under SFAS 128, basic earnings per share for the three months ended
September 30, 1997 and 1996 would have been $.38 and $.32, respectively.
Basic earnings per share for the nine months ended September 30, 1997
and 1996 would have been $.92 and $.89, respectively. Diluted earnings
per share for the three months ended September 30, 1997 and 1996 would
have been $.36 and $.31, respectively. Diluted earnings per share for
the nine months ended September 30, 1997 and 1996 would have been $.88
and $.86, 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 nine months
ended September 30:
1997 1996
---- ----
Interest paid $1,499,000 $ 441,000
Interest and dividends received $ 704,000 $ 610,000
Income taxes paid $5,187,000 $5,156,000
Management's Use of Estimates
-----------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Reclassifications
-----------------
The financial statements for prior periods have been reclassified to
conform with the current period's presentation.
Note 2. Receivables - Receivables on the accompanying Consolidated Balance
-----------
Sheets consist of the following:
September 30, 1997 December 31, 1996
------------------ -----------------
Trade receivables $15,312,000 $10,124,000
Fees earned, not received 2,507,000 3,511,000
Fees earned, not billed 13,062,000 7,273,000
----------- -----------
30,881,000 20,908,000
Less: Allowance for doubtful accounts (1,539,000) (1,350,000)
----------- -----------
$29,342,000 $19,558,000
=========== ===========
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 fees collected from the Company's
wholly owned subsidiaries, SEI Investments Distribution Company and SEI
Investments Management Corporation, for distribution, investment
advisory, and administration services provided by these subsidiaries to
various regulated investment companies.
9
Note 3. Loans Receivable Available for Sale - Loans receivable available for
-----------------------------------
sale represent loans which were purchased through SEI Capital AG, which
is based in Zurich. These receivables are reported at the lower of cost
or market, and any difference between the purchase price and the
related loan principal amount is recognized as an adjustment of the
yield over the life of the loan using the effective interest method.
Each loan receivable involves various risks, including, but not limited
to, country, interest rate, credit, and liquidity risk. Management
evaluates and monitors these risks on a continuing basis to ensure that
these loan receivables are recorded at their realizable value. This
evaluation is based upon management's best estimates and the amounts
the Company will ultimately realize could differ from these estimates.
Note 4. Investments Available for Sale - Investments available for sale
------------------------------
represent investments by the Company in mutual funds which are
primarily invested in equity securities. The Company accounts for
investments in accordance with Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS 115"). SFAS 115 requires that debt and equity
securities classified as available for sale be reported at market
value. Unrealized holding gains and losses on these investments are
reported as a separate component of Shareholders' equity. Realized
gains and losses are determined by the specific identification method
and are reported separately on the accompanying Consolidated Statements
of Income.
At September 30, 1997, Investments available for sale had an aggregate
cost of $1,000,000 and an aggregate market value of $1,403,000 with
gross unrealized gains of $403,000. At that date, the unrealized
holding gains of $246,000 (net of income taxes of $157,000) were
reported as a separate component of Shareholders' equity on the
accompanying Consolidated Balance Sheets. There were no unrealized
losses as of September 30, 1997.
At December 31, 1996, Investments available for sale had an aggregate
cost of $1,000,000. At that date, the fair value of these investments
approximated their original cost. There were no unrealized gains or
losses as of December 31, 1996.
Note 5. Line of Credit - The Company has a line of credit agreement (the
--------------
"Agreement") with its principal lending institution which provides for
borrowings of up to $50,000,000. The Agreement ends on May 31, 1998, 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 three-tenths percent above the
London Interbank Offered Rate. The Company is obligated to pay a
commitment fee equal to one-tenth percent per annum on the average
daily unused portion of the commitment. Certain covenants under the
Agreement require the Company to maintain specified levels of net worth
and place certain restrictions on investments. The Company had no
outstanding borrowings on its line of credit at September 30, 1997.
Note 6. Long-term Debt - On February 24, 1997, the Company signed a Note
--------------
Purchase Agreement authorizing the issuance and sale of $20,000,000 of
7.20% Senior Notes, Series A, and $15,000,000 of 7.27% Senior Notes,
Series B, (collectively, the "Notes") in a private offering with
certain financial institutions. The Notes are unsecured with final
maturities ranging from 10 to 15 years with an average life of 7 to 10
years. The proceeds from the Notes were used to repay the outstanding
balance on the Company's line of credit. The Note Purchase Agreement
contains various covenants, including limitations on indebtedness,
maintenance of minimum net worth levels, and restrictions on certain
investments. In addition, the agreement limits the Company's ability to
merge or consolidate, and to sell certain assets. None of these
covenants negatively affect the Company's liquidity or capital
resources. Principal payments on the Notes will be made annually
beginning one year from the date of issuance while interest payments
will be made semi-annually in the months of February and August. The
current portion of the Notes amounted to $2,000,000 at September 30,
1997.
10
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, including additional authorizations of
$12,636,000 on May 14, 1997 and $25,000,000 on September 26, 1997, of
up to an aggregate of $213,365,000. The Company purchased 430,000
shares at a cost of $12,327,000 during the third quarter of 1997 and
918,000 shares at a cost of $23,347,000 during the first nine months of
1997. The Company purchased 1,100,000 shares at a cost of $30,827,000
through November 13, 1997. The Company has $17,036,000 remaining
authorization to purchase its common stock under the current common
stock repurchase program.
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 14, 1997, the Board of Directors declared a cash
--------
dividend of $.14 per share on the Company's common stock, which was
paid on June 27, 1997, to shareholders of record on June 12, 1997.
The Board of Directors has indicated its intention to pay future
dividends on a semiannual basis.
Note 9. Sale of Discontinued Operations - On July 25, 1997, the Company
-------------------------------
entered into a definitive agreement to sell the remaining net assets of
its Capital Resources Division ("CR") to the purchase group of Notre
Capital Ventures II, L.L.C. and William Nicholson, formerly Senior Vice
President and Head of Donaldson, Lufkin and Jenrette's Asset Consulting
Group. The Company's management believes that the provision established
in the fourth quarter of 1996 for the disposal of discontinued
operations is adequate to cover all costs during the transfer of CR's
operations. Based upon the terms of the agreement, the Company may
recognize a gain at closing which would be immaterial to the
Consolidated Financial Statements. Any future payments due the Company
will be realized when received. The deal is expected to close in the
fourth quarter of 1997.
Note 10. Segment Information - The Company defines its business segments to
-------------------
reflect the Company's focus around two product lines: Investment
Technology and Services and Asset Management. The Investment Technology
and Services segment consists of the Company's trust technology,
proprietary mutual fund, and back-office trust processing businesses.
The Asset Management segment provides investment solutions through
various investment products and services distributed directly or
through professional investment advisors to institutional and high-net-
worth markets.
The following tables highlight certain unaudited financial information
about each of the Company's segments for the three and nine months
ended September 30, 1997 and 1996. Prior-period business segment
information has been restated to conform with current-period
presentation.
11
Investment
Technology and Asset General
Services Management and Admin. Consolidated
-------------- ----------- ----------- ------------
For the Three-Month Period Ended September 30, 1997
--------------------------------------------------------
Revenues $45,271,000 $29,012,000 $74,283,000
=========== =========== ===========
Operating profit $10,553,000 $ 4,397,000 $(3,411,000) $11,539,000
=========== =========== ===========
Interest income 233,000
Interest expense (667,000)
-----------
Income before income taxes $11,105,000
===========
Depreciation and amortization $ 2,642,000 $ 1,497,000 $ 190,000 $ 4,329,000
=========== =========== =========== ===========
Capital expenditures $ 3,556,000 $ 176,000 $ 151,000 $ 3,883,000
=========== =========== =========== ===========
For the Three-Month Period Ended September 30, 1996
--------------------------------------------------------
Revenues $40,076,000 $20,089,000 $60,165,000
=========== =========== ===========
Operating profit $11,577,000 $ 1,316,000 $(3,918,000) $ 8,975,000
=========== =========== ===========
Interest income 427,000
Interest expense (12,000)
-----------
Income before income taxes $ 9,390,000
===========
Depreciation and amortization $ 1,684,000 $ 587,000 $ 49,000 $ 2,320,000
=========== =========== =========== ===========
Capital expenditures $ 5,749,000 $ 1,674,000 $ 1,100,000 $ 8,523,000
=========== =========== =========== ===========
12
Investment
Technology and Asset General
Services Management and Admin. Consolidated
-------------- ----------- ------------- ------------
For the Nine-Month Period Ended September 30, 1997
---------------------------------------------------------
Revenues $129,689,000 $78,828,000 $208,517,000
============ =========== ============
Operating profit $ 31,021,000 $ 7,747,000 $ (9,995,000) $ 28,773,000
============ =========== ============
Interest income 717,000
Interest expense (1,816,000)
------------
Income before income taxes $ 27,674,000
============
Depreciation and amortization $ 7,755,000 $ 3,683,000 $ 544,000 $ 11,982,000
============= =========== ============ ============
Capital expenditures $ 7,967,000 $ 1,649,000 $ 872,000 $ 10,488,000
============ =========== ============ ============
For the Nine-Month Period Ended September 30, 1996
---------------------------------------------------------
Revenues $128,927,000 $56,018,000 $184,945,000
============ =========== ============
Operating profit $ 32,579,000 $ 3,002,000 $(10,050,000) $ 25,531,000
============ =========== ============
Gain on sale of investments available
for sale 1,097,000
Interest income 608,000
Interest expense (36,000)
------------
Income before income taxes $ 27,200,000
============
Depreciation and amortization $ 5,825,000 $ 1,718,000 $ 157,000 $ 7,700,000
============ =========== ============ ============
Capital expenditures $ 13,785,000 $ 3,656,000 $ 2,470,000 $ 19,911,000
============ =========== ============ ============
13
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------- -----------------------------------------------------------------------
OF OPERATIONS
-------------
The Company is organized around two product lines: 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
- ---------------------
Third Quarter Ended September 30, 1997 Compared to Third Quarter Ended September
30, 1996
The Company's results of operations for the third quarter of 1997 included
revenues of $74,283,000, compared to $60,165,000 for the same period of 1996, an
increase of 23 percent. Net income for the third quarter of 1997 was
$6,939,000, compared to $5,906,000 in the same period of 1996, an increase of 17
percent. Earnings per share for the three months ended September 30, 1997 and
1996 was $.36 and $.31, respectively. Fund balances continued to expand during
the third quarter of 1997. Total fund balances at September 30, 1997 were
$108.8 billion compared to $77.8 billion at September 30, 1996, an increase of
40 percent. Included in these totals are proprietary fund balances of $79.1
billion at September 30, 1997 and $54.4 billion at September 30, 1996, an
increase of 45 percent. The increase in revenues and earnings in the third
quarter of 1997 was primarily the result of significant growth in fund balances.
INVESTMENT TECHNOLOGY AND SERVICES - Revenues from Investment Technology and
- ----------------------------------
Services for the three months ended September 30, 1997 and 1996 were $45,271,000
and $40,076,000, respectively.
INVESTMENT TECHNOLOGY AND SERVICES REVENUES
------------------------------------------------
3RD QTR 3RD QTR DOLLAR PERCENT
1997 1996 CHANGE CHANGE
----------- ----------- ---------- ---------
Trust technology services $25,518,000 $25,881,000 $ (363,000) (1%)
Proprietary fund services 18,068,000 13,777,000 4,291,000 31%
Trust back-office processing
services 1,685,000 418,000 1,267,000 303%
----------- ----------- ----------
Total $45,271,000 $40,076,000 $5,195,000 13%
=========== =========== ==========
Trust technology services revenues remained relatively flat from the prior-year
period despite the recognition of significant one-time revenues in the third
quarter of 1997 and 1996. In the third quarter of 1996, the Company recognized
approximately $2.0 million of one-time implementation fees associated with the
expansion of services to existing clients involved in mergers or acquisitions
within the banking industry. In the third quarter of 1997, trust technology
services revenues included approximately $2.5 million of one-time implementation
fees in connection with the contracting of new trust clients. However, these
one-time implementation fees in 1997 were offset by approximately $1.5 million
in lost recurring processing fees due to the deconversion of several clients
that terminated their relationship with the Company in 1996. The outlook for
trust technology services revenues is optimistic as the Company has entered into
several new trust client relationships this year.
Proprietary fund services revenues increased 31 percent from the prior-year
period due to an increase in average proprietary fund balances over the past
year. Average proprietary fund balances increased $24.3 billion or 47 percent
from $52.0 billion during the third quarter of 1996 to $76.3 billion during the
third quarter of 1997. This increase in average proprietary fund balances is
primarily due to growth from existing proprietary fund complexes. The Company
expects the strong growth trend in proprietary fund balances to continue which
would favorably affect proprietary funds revenues in the future.
14
The Company is experiencing significant growth in its trust back-office
processing business which is an extension of its trust technology services
business. The increase in trust back-office processing services revenues was
the result of an increase in processing fees from the contracting of new
clients. Management believes the Company is favorably positioned to provide
these services to the bank market as the concept of total outsourcing gains
momentum. The Company is currently establishing new trust back-office client
relationships that could generate significant revenues in future years.
INVESTMENT TECHNOLOGY AND SERVICES EXPENSES
-------------------------------------------
3RD QTR 3RD QTR DOLLAR PERCENT
1997 1996 CHANGE CHANGE
----------- ----------- ---------- -------
Operating and development $25,008,000 $21,073,000 $3,935,000 19%
Sales and marketing $ 9,710,000 $ 7,426,000 $2,284,000 31%
Operating and development expenses were affected by several distinct factors in
the third quarter of 1997 resulting in an increase of 19 percent over the prior
year period. During the past two years, the Company has expended significant
resources to enhance its trust technology software, primarily through the open
architecture project. Costs incurred in connection with these computer software
development projects that were once eligible for capitalization must now be
expensed in the current period according to the guidelines established in SFAS
86 (See Note 1 of the Notes to Consolidated Financial Statements).
Additionally, personnel and other operating expenses increased as a direct
result of the establishment of new back-office processing client relationships.
Also, the Company recognized additional direct proprietary funds expenses
associated with the growth in proprietary funds revenues.
Sales and marketing expenses increased 31 percent due to additional personnel
costs, primarily consulting and temporary labor, associated with the
implementation of new trust technology and back-office processing clients in
1997.
Operating profit from Investment Technology and Services for the three months
ended September 30, 1997 was $10,553,000 compared to the $11,577,000 reported in
the corresponding quarter of 1996. Operating margins were 23 percent for the
three months ended September 30, 1997, compared to 29 percent for the same
period of 1996. The increased computer software development costs that are
expensed in the current period, as well as the additional personnel costs
associated with the contracting of new trust back-office processing clients, had
a negative impact on this segment's operating profit and margin in the current
quarter. Management believes that the contracting of new trust clients along
with the increased interest in the Company's trust products, driven by the YEAR
2000 problem, will add substantial recurring revenues and improved margins in
the future. Conversely, future revenues and operating profits could be
negatively affected by the loss of bank clients as a result of mergers and
acquisitions within the banking industry.
ASSET MANAGEMENT - Revenues from Asset Management for the three months ended
- ----------------
September 30, 1997 and 1996 were $29,012,000 and $20,089,000, respectively.
ASSET MANAGEMENT REVENUES
-------------------------
3RD QTR 3RD QTR DOLLAR PERCENT
1997 1996 CHANGE CHANGE
----------- ----------- ---------- -------
Investment management
services $14,713,000 $ 9,432,000 $5,281,000 56%
Liquidity management services 6,049,000 5,191,000 858,000 17%
Other investment products
and services 8,250,000 5,466,000 2,784,000 51%
----------- ----------- ----------
Total $29,012,000 $20,089,000 $8,923,000 44%
=========== =========== ==========
15
Investment management services revenues increased 56 percent from the prior-year
period due to an increase in average fund balances from the Company's Family of
Funds during the past year. Average assets under management from the Company's
Family of Funds were $10.4 billion for the third quarter of 1997 compared to
$6.1 billion for the third quarter of 1996, an increase of 70 percent. This
increase was primarily the result of increased sales of the Company's Family of
Funds to high-net-worth individuals through various registered investment
advisors and increased sales of its asset management programs to institutional
investors. Additionally, investment management services revenues are partially
affected by market conditions. The current favorable stock market environment
has moderately aided the growth in average assets under management. Revenues
are expected to expand as the Company continues to experience growth through its
registered investment advisor channel and acceptance of its asset management
programs by institutional investors.
Liquidity management services revenues increased 17 percent over the prior year
period due to an increase in average fund balances invested in the Company's
lower-fee liquidity products. Average assets under management from the
Company's liquidity funds were $17.1 billion for the third quarter of 1997
compared to $15.3 billion for the third quarter of 1996. Revenues from the
Company's liquidity products may experience only minimal growth or remain
relatively flat.
Other investment products and services revenues increased 51 percent from the
prior-year period. This increase is the result of an increase in revenues
generated from the Company's new business ventures, in addition to an increase
in bank-related brokerage services. The Company's new business ventures are
expected to experience continued revenue growth for the remainder of the year.
ASSET MANAGEMENT EXPENSES
-------------------------
3RD QTR 3RD QTR DOLLAR PERCENT
1997 1996 CHANGE CHANGE
----------- ---------- ---------- -------
Operating and development $11,393,000 $9,247,000 $2,146,000 23%
Sales and marketing $13,222,000 $9,526,000 $3,696,000 39%
Operating and development expenses increased 23 percent from the prior-year
period as a result of increases in advisory fees associated with the increase in
assets under management and direct brokerage expenses associated with the
increase in bank-related brokerage services revenues. Additionally, the Company
continued to make investments in its new business ventures to improve service
efficiency to clients.
The 39 percent increase in sales and marketing expenses was due primarily to
increases in personnel expenses and promotion expenses associated with the
significant growth in the Company's asset management business.
The Asset Management segment recorded an operating profit of $4,397,000 with an
operating margin of 15 percent for the three months ended September 30, 1997
compared to an operating profit of $1,316,000 with an operating margin of 7
percent for the three months ended September 30, 1996. Operating profit and
margin increased primarily due to the significant increase in assets under
management which generated substantial revenues without substantial additional
ongoing expenses. The Company expects continued growth in its asset management
business for the remainder of 1997.
OTHER INCOME AND EXPENSES - General and administrative expenses for the three
- -------------------------
months ended September 30, 1997 and 1996 were $3,411,000 and $3,918,000,
respectively, a decrease of 13 percent. This decrease is primarily due to a
decline in various expenses associated with corporate overhead groups.
Interest expense for the third quarter of 1997 relates to the Company's issuance
of long-term debt in early 1997 (See Note 6 of the Notes to Consolidated
Financial Statements). Interest costs associated with the Company's borrowings
under its line of credit in the third quarter of 1996 was capitalized as it
related to the construction of the Company's corporate campus. Interest income
earned is based upon the amount of cash that is invested daily and fluctuations
in interest income recognized for one period compared to another is due to
changes in the average cash balance invested for the period.
16
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September 30,
1996
The Company's results of operations for the nine month's ended September 30,
1997 included revenues of $208,517,000, compared to $184,945,000 for the same
period of 1996, an increase of 13 percent. Net income for the first nine months
of 1997 was $16,881,000, compared to $16,592,000 in the same period of 1996.
Earnings per share for the nine months ended September 30, 1997 and 1996 was
$.88 and $.86, respectively. Revenues and earnings in 1996 were directly
affected by the Company's recognition of substantial one-time trust services
revenues due to bank clients involved in mergers and acquisitions within the
banking industry. Additionally in 1996, the Company recognized a $1.1 million
one-time realized gain, or $.03 per share, from the sale of investments held by
the Company. Revenues increased in 1997 primarily due to substantial growth in
both proprietary fund assets under administration and assets under management.
INVESTMENT TECHNOLOGY AND SERVICES - Revenues from Investment Technology and
- ----------------------------------
Services for the nine months ended September 30, 1997 and 1996 were $129,689,000
and $128,927,000, respectively.
INVESTMENT TECHNOLOGY AND SERVICES REVENUES
-------------------------------------------
NINE MONTHS NINE MONTHS DOLLAR PERCENT
1997 1996 CHANGE CHANGE
------------ ------------ ------------ --------
Trust technology services $ 73,241,000 $ 84,827,000 $(11,586,000) (14%)
Proprietary fund services 52,582,000 43,001,000 9,581,000 22%
Trust back-office processing
services 3,866,000 1,099,000 2,767,000 252%
------------ ------------ ------------
Total $129,689,000 $128,927,000 $ 762,000 1%
============ ============ ============
Trust technology services revenues decreased 14 percent from the prior-year
period. In 1996, the Company recognized substantial one-time trust services
revenues associated with the deconversion of clients that terminated their
relationships with the Company in 1996. Subsequently, recurring revenues in
1997 have been negatively affected by the deconversion of these clients that
occurred in 1996. The Company also recognized one-time implementation fees in
1996 associated with the expansion of services to existing bank clients involved
in mergers or acquisitions within the banking industry which has generated
additional recurring trust technology services revenues in 1997. The Company
has recently entered into new client trust contracts. Associated with these new
contracts, the Company recognized one-time implementation fees in 1997 and will
continue to recognize these implementation fees throughout the remainder of the
year and implementation fees and recurring revenues in 1998.
Proprietary fund services revenues increased 22 percent from the prior-year
period due to an increase in average proprietary fund balances over the past
year despite the loss of two bank proprietary fund complexes in early 1996 as a
result of bank mergers. Average proprietary fund balances increased $22.3
billion or 47 percent from $47.8 billion during the first nine months of 1996 to
$70.1 billion during the first nine months of 1997. The increase in proprietary
fund balances was fueled by growth from existing proprietary fund complexes.
Additionally, proprietary fund balances were influenced by the transfer of
common trust assets into proprietary mutual funds and the conversion of new fund
complexes during the past year.
The Company is currently experiencing significant growth in its trust back-
office processing business which is an extension of its trust technology
services business. The increase in trust back-office processing services
revenues was the result of the Company establishing approximately 25 new trust
back-office processing client relationships in 1997.
17
INVESTMENT TECHNOLOGY AND SERVICES EXPENSES
-------------------------------------------
NINE MONTHS NINE MONTHS DOLLAR PERCENT
1997 1996 CHANGE CHANGE
----------- ----------- ---------- -------
Operating and development $71,016,000 $71,796,000 $ (780,000) (1%)
Sales and marketing $27,652,000 $24,552,000 $3,100,000 13%
Operating and development expenses remained relatively flat in comparison with
the prior year period. Despite this consistency, expenses were affected by
different conditions that coincidentally negated one another. With the
completion and release of several computer software development projects to
enhance the Company's trust technology software during the past year, the
Company began the amortization of these projects in 1997. However, this
increase in the amortization of capitalized software projects was offset by a
decrease in consulting and outsourcing expenses associated with the trust
product line.
Sales and marketing expenses increased during the first nine months of 1997
compared to the first nine months of 1996 primarily due to an increase in
personnel and promotion expenses to strengthen the Company's sales efforts of
its trust product.
Operating profit from Investment Technology and Services for the nine months
ended September 30, 1997 was $31,021,000 with an operating margin of 24 percent
compared to the $32,579,000 with an operating margin of 25 percent reported in
the corresponding period of 1996. The company expects increased profits and
improved margins in future periods as the full impact of newly contracted trust
clients is realized.
ASSET MANAGEMENT - Revenues from Asset Management for the nine months ended
- ----------------
September 30, 1997 and 1996 were $78,828,000 and $56,018,000, respectively.
ASSET MANAGEMENT REVENUES
-------------------------
NINE MONTHS NINE MONTHS DOLLAR PERCENT
1997 1996 CHANGE CHANGE
----------- ----------- ---------- -------
Investment management
services $38,712,000 $27,014,000 $11,698,000 43%
Liquidity management services 16,952,000 15,393,000 1,559,000 10%
Other investment products
and services 23,164,000 13,611,000 9,553,000 70%
----------- ----------- -----------
Total $78,828,000 $56,018,000 $22,810,000 41%
=========== =========== ===========
Investment management services revenues increased 43 percent from the prior-year
period due to an increase in average fund balances from the Company's Family of
Funds during the past year. Average assets under management from the Company's
Family of Funds were $8.9 billion for the first nine months of 1997 compared to
$5.4 billion for the corresponding period of 1996, an increase of 65 percent.
This increase was primarily the result of increased sales of the Company's
Family of Funds to high-net-worth individuals through various registered
investment advisors and increased sales of its asset management programs to
institutional investors.
Liquidity management services revenues increased 10 percent due to an increase
in average fund balances invested in the Company's lower-fee liquidity products.
Average assets under management from the Company's liquidity funds were $16.3
billion for the first nine months of 1997 compared to $14.6 billion for the
first nine months of 1996.
Other investment products and services revenues increased 70 percent primarily
due to an increase in bank-related brokerage services. Additionally, several of
the Company's new business ventures have experienced significant revenue growth
during the past nine months.
18
ASSET MANAGEMENT EXPENSES
-------------------------
NINE MONTHS NINE MONTHS DOLLAR PERCENT
1997 1996 CHANGE CHANGE
------------ ----------- ---------- --------
Operating and development $35,145,000 $26,745,000 $8,400,000 31%
Sales and marketing $35,936,000 $26,271,000 $9,665,000 37%
Operating and development expenses increased 31 percent from the prior-year
period primarily due to an increase in direct brokerage expenses associated with
the increase in bank-related brokerage services revenues. The Company also
incurred additional investment advisor expenses as a direct result of the growth
in assets under management. Additionally, the Company continued to make
investments in its new business ventures to improve service efficiency to
clients.
The 37 percent increase in sales and marketing expenses was primarily due to
increases in personnel and promotion expenses associated with the Company's
asset management business, as well as continued investments in the Company's new
business ventures to establish, maintain, and enhance its distribution channels
in non-U.S. markets. The Company expects these investments in its new business
ventures to continue for the remainder of 1997.
The Asset Management segment recorded an operating profit of $7,747,000 for the
first nine months ended September 30, 1997 compared to an operating profit of
$3,002,000 in the corresponding period of 1996. Operating margins for the first
nine months ending September 30, 1997 and 1996 were 10 percent and 5 percent,
respectively. Operating profit and margin increased primarily due to the strong
growth in assets under management, as well as a reduction in losses recognized
from the Company's new business ventures.
OTHER INCOME AND EXPENSES - General and administrative expenses for the nine
- -------------------------
months ended September 30, 1997 and 1996 were $9,995,000 and $10,050,000,
respectively. General and administrative expenses were unchanged from the prior
year period.
Interest expense for the first nine months of 1997 relates to the Company's
issuance of long-term debt in early 1997 (See Note 6 of the Notes to
Consolidated Financial Statements). Interest costs associated with the
Company's borrowings under its line of credit in 1996 was capitalized as it
related to the construction of the Company's corporate campus. Interest income
earned is based upon the amount of cash that is invested daily and fluctuations
in interest income recognized for one period compared to another is due to
changes in the average cash balance invested for the period.
DISCONTINUED OPERATIONS - Discontinued operations in the third quarter of 1997
- -----------------------
had revenues of $5,988,000 and pre-tax losses of $558,000 compared to revenues
of $7,907,000 and pre-tax losses of $254,000 for the third quarter of 1996.
Discontinued operations for the first nine months of 1997 had revenues of
$19,386,000 and pre-tax losses of $2,536,000 compared to revenues of $25,202,000
and pre-tax losses of $4,728,000 for the corresponding period in 1996. The 1997
losses are charged against the provision which was established in the fourth
quarter of 1996 and is reflected in Accrued discontinued operations disposal
costs on the accompanying Consolidated Balance Sheets. The Company's management
believes that the provision established in the fourth quarter of 1996 for the
disposal of discontinued operations is adequate to cover all costs during the
transfer of CR's operations (See Note 9 of the Notes to Consolidated Financial
Statements).
19
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 capacity for additional borrowing. The Company has a line of credit
agreement which provides for borrowings of up to $50,000,000 (See Note 5 of the
Notes to Consolidated Financial Statements). At September 30, 1997, the
Company's sources of liquidity consisted primarily of cash and cash equivalents
of $12,000,000 and the unused balance on the line of credit of $50,000,000. The
availability of the line of credit is subject to the Company's compliance with
certain covenants set forth in the agreement. On February 24, 1997, the Company
issued $35,000,000 of medium-term notes (See Note 6 of the Notes to Consolidated
Financial Statements). The proceeds were used to repay the outstanding balance
on its line of credit which amounted to $30,000,000.
Cash flow provided by operations for the nine months ended September 30, 1997
and 1996 was $22,034,000 and $19,911,000, respectively. Cash flow provided by
operations for the first nine months in 1997 was negatively affected by an
increase in unbilled receivables for implementation fees associated with the
contracting of new trust clients. These unbilled receivables represent timing
differences between services provided and contractual billing schedules (See
Note 2 of the Notes to Consolidated Financial Statements). Additionally, cash
flow provided by operations for the first nine months in 1997 was negatively
affected by an increase in receivables from regulated investment companies due
to the significant growth in assets under management. Cash flow from operations
in 1996 was negatively affected by the additional purchases of loans classified
as Loans receivable available for sale that were purchased through the Company's
Swiss based subsidiary (See Note 3 of the Notes to Consolidated Financial
Statements). Additionally, a substantial amount of cash was used to support the
Company's discontinued operations during the first nine months of 1996.
Capital expenditures, including capitalized software development costs, for the
nine months ended September 30, 1997 and 1996 were $17,122,000 and $27,046,000,
respectively. Capital expenditures in 1996 included all costs associated with
the construction of the Company's corporate campus. The Company expects its
capital expenditures to be significantly less in 1997 due to the completion of
the Company's corporate campus in late 1996. Additionally, the Company received
$6,536,000 in 1996 from the sale of all of its investments classified as
Investments available for sale. The Company has purchased 1,100,000 shares of
its common stock at a cost of $30,827,000 during 1997. The Company still has
$17,036,000 remaining authorized for the purchase of its common stock.
The Company's operating cash flow, borrowing capacity, and liquidity should
provide adequate funds for continuing operations, continued investment in new
products and equipment, its common stock repurchase program, future dividend
payments, and principal and interest payments on its long-term debt.
20
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 September 30, 1997.
21
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 INVESTMENTS COMPANY
Date November 13, 1997 By /s/ Henry H. Greer
--------------------- -----------------------------------
Henry H. Greer
President, Chief Operating
Officer, and Chief Financial Officer
22
Exhibit 11
SEI INVESTMENTS COMPANY AND SUBSIDIARIES
----------------------------------------
EXHIBIT 11 - EARNINGS PER SHARE CALCULATION
-------------------------------------------
FOR THE THREE-MONTH PERIOD ENDED SEPTEMBER 30,
----------------------------------------------
1997 1996
----------- -----------
Earnings per common and common
equivalent share (Primary EPS):
Net income $ 6,939,000 $ 5,906,000
=========== ===========
Weighted average number of
shares issued and outstanding 18,270,000 18,396,000
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 968,000 717,000
----------- -----------
Adjusted weighted average number
of shares outstanding 19,238,000 19,113,000
=========== ===========
Earnings per common and common
equivalent share $ .36 $ .31
=========== ===========
23
SEI INVESTMENTS COMPANY AND SUBSIDIARIES
----------------------------------------
EXHIBIT 11 - EARNINGS PER SHARE CALCULATION
-------------------------------------------
FOR THE THREE-MONTH PERIOD ENDED SEPTEMBER 30,
----------------------------------------------
1997 1996
----------- -----------
Earnings per common and common
equivalent share, assuming full dilution
(Fully diluted EPS):
Net income $ 6,939,000 $ 5,906,000
=========== ===========
Weighted average number of
shares issued and outstanding 18,270,000 18,396,000
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 1,113,000 858,000
----------- -----------
Adjusted weighted average number
of shares outstanding, assuming full dilution 19,383,000 19,254,000
=========== ===========
Earnings per common and common
equivalent share, assuming full dilution $ .36 $ .31
=========== ===========
24
SEI INVESTMENTS COMPANY AND SUBSIDIARIES
----------------------------------------
EXHIBIT 11 - EARNINGS PER SHARE CALCULATION
-------------------------------------------
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
---------------------------------------------
1997 1996
----------- -----------
Earnings per common and common
equivalent share (Primary EPS):
Net income $16,881,000 $16,592,000
=========== ===========
Weighted average number of
shares issued and outstanding 18,432,000 18,523,000
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 827,000 852,000
----------- -----------
Adjusted weighted average number
of shares outstanding 19,259,000 19,375,000
=========== ===========
Earnings per common and common
equivalent share $ .88 $ .86
=========== ===========
25
SEI INVESTMENTS COMPANY AND SUBSIDIARIES
----------------------------------------
EXHIBIT 11 - EARNINGS PER SHARE CALCULATION
-------------------------------------------
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
---------------------------------------------
1997 1996
----------- -----------
Earnings per common and common
equivalent share, assuming full dilution
(Fully diluted EPS):
Net income $16,881,000 $16,592,000
=========== ===========
Weighted average number of
shares issued and outstanding 18,432,000 18,523,000
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 1,209,000 942,000
----------- -----------
Adjusted weighted average number
of shares outstanding, assuming full dilution 19,641,000 19,465,000
=========== ===========
Earnings per common and common
equivalent share, assuming full dilution $ .86 $ .85
=========== ===========
26
5
1,000
US
9-MOS
DEC-31-1997
JAN-01-1997
SEP-30-1997
1.0
12,000
0
30,881
(1,539)
0
80,443
102,027
(49,893)
164,326
67,183
33,000
0
0
181
56,384
164,326
0
208,517
0
169,749
9,995
189
1,816
27,674
10,793
16,881
0
0
0
16,881
.88
.88