<PAGE>
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, 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 September 30, 1995: 18,384,816 shares of common stock,
par value $.01 per share.
<PAGE>
PART I. FINANCIAL INFORMATION
- ------- ---------------------
Item 1. Financial Statements
- ------- --------------------
Consolidated Balance Sheets
---------------------------
(In thousands)
<TABLE>
<CAPTION>
September 30, 1995 December 31, 1994
------------------- -----------------
(unaudited)
Assets
- ------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 14,145 $20,232
Receivables, net 24,043 17,268
Receivables from regulated investment companies 7,827 6,286
Deferred income taxes 2,058 2,157
Prepaid expenses and other current assets 4,028 2,351
-------- -------
Total current assets 52,101 48,294
-------- -------
Property and equipment, net 27,580 28,217
-------- -------
Net assets of discontinued operations 7,717 9,101
-------- -------
Other assets:
Investments available for sale 5,924 --
Customer lists, net 145 244
Other assets, net 6,544 5,292
-------- -------
Total other assets, net 12,613 5,536
-------- -------
Total Assets $100,011 $91,148
======== =======
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
Consolidated Balance Sheets
---------------------------
(In thousands, except par value)
<TABLE>
<CAPTION>
September 30, 1995 December 31,1994
------------------- ----------------
(unaudited)
Liabilities and Shareholders' Equity
- --------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 6,128 $ 4,431
Accrued compensation 10,185 14,121
Other accrued liabilities 16,534 16,206
Short-term debt 11,000 --
Deferred revenue 3,372 4,267
------- -------
Total current liabilities 47,219 39,025
------- -------
Deferred income taxes 743 814
------- --------
Shareholders' equity:
Common stock, $.01 par value, 100,000 shares
authorized; 18,385 and 18,781 shares issued
and outstanding 184 188
Capital in excess of par value 47,495 47,406
Retained earnings 3,938 3,823
Cumulative translation adjustments (24) (108)
Unrealized holding gain on investments 456 --
-------- -------
Total shareholders' equity 52,049 51,309
-------- -------
Total Liabilities and Shareholders' Equity $100,011 $91,148
======== =======
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
Consolidated Statements of Income
---------------------------------
(unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months
-----------------------
Ended September 30,
-----------------------
1995 1994
---- ----
<S> <C> <C>
Revenues $56,478 $52,110
Expenses:
Operating and development 28,824 25,984
Sales and marketing 14,736 12,853
General and administrative 4,298 4,294
------- -------
Income from continuing operations before interest and income taxes 8,620 8,979
Interest income, net (54) (73)
------- -------
Income from continuing operations before income taxes 8,674 9,052
Income taxes 3,731 3,366
------- -------
Income from continuing operations 4,943 5,686
Loss from discontinued operations, net
of income tax benefit of $221 -- (767)
------- -------
Net income $ 4,943 $ 4,919
======= =======
Earnings per share from continuing operations $ .26 $ .29
Loss per share from discontinued operations -- (.04)
------- -------
Earnings per common and common equivalent share
(primary and fully diluted) $ .26 $ .25
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
Consolidated Statements of Income
---------------------------------
(unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months
----------------------------
Ended September 30,
----------------------------
1995 1994
---- ----
<S> <C> <C>
Revenues $165,714 $151,596
Expenses:
Operating and development 84,754 81,458
Sales and marketing 42,414 35,249
General and administrative 12,900 12,731
-------- --------
Income from continuing operations before interest and income taxes 25,646 22,158
Interest income, net (436) (202)
-------- --------
Income from continuing operations before income taxes 26,082 22,360
Income taxes 10,694 8,497
-------- --------
Income from continuing operations 15,388 13,863
Income (loss) from discontinued operations, net
of income tax (benefit) expense of $(1,295) and $398 (1,942) 50
-------- --------
Net income $ 13,446 $ 13,913
======== ========
Earnings per share from continuing operations $ .79 $ .69
Loss per share from discontinued operations (.10) --
-------- --------
Earnings per common and common equivalent share
(primary and fully diluted) $ .69 $ .69
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
Consolidated Statements of Cash Flows
-------------------------------------
(unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months
------------------------
Ended September 30,
------------------------
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 13,446 $ 13,913
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 9,131 8,902
Provision for losses on receivables -- 369
Discontinued operations 1,384 300
Tax benefit on stock options exercised 1,473 3,215
Other (1,540) (2,660)
Change in current assets and liabilities:
Decrease (increase) in
Receivables, net (6,775) (6,906)
Receivables from regulated investment companies (1,541) (491)
Prepaid expenses and other current assets (1,677) (22)
Increase (decrease) in
Accounts payable 1,697 394
Accrued compensation (3,936) (2,454)
Other accrued liabilities 1,831 623
Deferred revenue (895) 81
-------- --------
Net cash provided by operating activities 12,598 15,264
-------- --------
Cash flows from investing activities:
Purchase of investments available for sale (5,156) --
Additions to property and equipment,
including capitalized software (8,407) (6,304)
Other 100 --
-------- --------
Net cash used in investing activities (13,463) (6,304)
-------- --------
Cash flows from financing activities:
Purchase and retirement of common stock (18,378) (24,011)
Proceeds from issuance of common stock 4,885 5,904
Proceeds from short-term debt 11,000 --
Payment of dividends (3,396) (2,650)
Other 667 --
-------- --------
Net cash used in financing activities (5,222) (20,757)
-------- --------
Net decrease in cash and cash equivalents (6,087) (11,797)
Cash and cash equivalents, beginning of period 20,232 17,898
-------- --------
Cash and cash equivalents, end of period $ 14,145 $ 6,101
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
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 September 30, 1995, the results of operations for the
three and nine months ended September 30, 1995 and 1994, and the cash
flows for the nine months ended September 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:
<TABLE>
<CAPTION>
Estimated
Useful Lives
September 30, 1995 December 31, 1994 (In Years)
------------------ ---------------- ----------
<S> <C> <C> <C>
Equipment $ 44,285,000 $ 43,164,000 3
Buildings, furniture and
fixtures 17,048,000 16,704,000 3 to 39
Leasehold improvements 9,798,000 9,275,000 Lease Term
Purchased software 7,879,000 6,810,000 3
Capitalized software 6,956,000 5,103,000 3
Information database 360,000 360,000 10
Land 4,065,000 4,065,000 N/A
Construction in progress 2,778,000 1,148,000 N/A
------------ ------------
93,169,000 86,629,000
Less: Accumulated
depreciation and amortization (65,589,000) (58,412,000)
------------ ------------
$ 27,580,000 $ 28,217,000
============ ============
</TABLE>
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.
Software Development Costs
--------------------------
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. Amortization begins when the development is completed.
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.
7
<PAGE>
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 nine months
ended September 30:
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
Interest received $ 580,000 $ 230,000
Income taxes paid (Federal and state) $10,010,000 $8,440,000
</TABLE>
Interest paid during the nine months ended September 30, 1995 and 1994
was immaterial.
Reclassifications
-----------------
Prior period financial statements have been reclassified to conform
with the current quarter's presentation.
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 employee
benefit 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 substantially all of its assets. For DC, its
full-service recordkeeping operations will be assumed by KPMG Peat
Marwick ("KPMG"). Under the terms of the agreement, a portion of the
Company'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.
Income (loss) from discontinued operations on the accompanying
Consolidated Statements of Income were:
<TABLE>
<CAPTION>
Three Months Ended Five Months Nine Months
---------------------- ------------------ -----------------------
September 30, Ended May 31, Ended September 30,
---------------------- ------------------ -----------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenues $ -- $13,999,000 $17,674,000 $42,882,000
== =========== =========== ===========
Income (loss) from operations
before income taxes $ -- $ (988,000) $(3,237,000) $ 448,000
Income tax (benefit) expense -- (221,000) (1,295,000) 398,000
---- ----------- ----------- -----------
Income (loss) from operations $ -- $ (767,000) $(1,942,000) $ 50,000
==== =========== =========== ===========
</TABLE>
8
<PAGE>
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:
<TABLE>
<CAPTION>
September 30, 1995 December 31, 1994
------------------- ------------------
<S> <C> <C>
Current assets $ 10,367,000 $ 10,843,000
Property and equipment, net 1,469,000 2,279,000
Other assets 5,970,000 7,158,000
Current liabilities (12,233,000) (10,633,000)
Other long-term liabilities (29,000) (546,000)
Loss from discontinued operations for
the period June 1, 1995 to September
30, 1995, net of income tax benefit
of $895,000 2,173,000 --
------------ ------------
Net assets $ 7,717,000 $ 9,101,000
============ ============
</TABLE>
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 September 30, 1995, Investments available for sale had a cost of
$5,156,000 and a market value of $5,924,000. At that date, $768,000 of
net unrealized gains on securities were included in Investments
available for sale. There were no unrealized losses as of September 30,
1995. The net change in unrealized gains on Investments available for
sale was $456,000 (net of income taxes) for the nine months ended
September 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
(stock options) 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
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, 1995 and 1994, the weighted average shares
outstanding for primary earnings per share were 19,344,000 and
19,680,000, respectively. For the nine months ended September 30, 1995
and 1994, the weighted average shares outstanding for primary earnings
per share were 19,529,000 and 20,247,000, respectively. Fully diluted
earnings per share were not materially different from the primary
earnings per share indicated.
<TABLE>
<CAPTION>
Note 5. Receivables - Receivables on the accompanying Consolidated Balance
-----------
Sheets consist of the following:
September 30, 1995 December 31, 1994
------------------------ ------------------------
<S> <C> <C>
Trade receivables $15,695,000 $11,282,000
Fees earned, not received 2,904,000 1,425,000
Fees earned, not billed 6,652,000 5,767,000
----------- -----------
25,251,000 18,474,000
Less: Allowance for doubtful
accounts (1,208,000) (1,206,000)
----------- -----------
$24,043,000 $17,268,000
=========== ===========
</TABLE>
9
<PAGE>
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.
Note 6. Debt - At September 30, 1995, Short-term debt on the accompanying
----
Consolidated Balance Sheets represents $11,000,000 of borrowings under
the line of credit agreement (the "Agreement") between the Company and
its principal lending institution. The Agreement 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 line of credit, when utilized, accrues
interest at the Prime rate or five-eighths percent above the London
Interbank Offered Rate ("LIBOR"). 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 maximum month-end amount of debt outstanding was $11,000,000 for
the nine months ended September 30, 1995. Interest expense was $173,000
based on a weighted average LIBOR interest rate of 6.6 percent for the
three and nine months ended September 30, 1995. The Company had no
outstanding debt during 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 565,000 shares at a cost of $12,597,000 during the third
quarter of 1995, bringing the year-to-date total to 880,000 shares at a
cost of $18,378,000. Through September 30, 1995, a total of 12,700,000
shares at an aggregate cost of $155,732,000 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. 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 nine months ended September
30, 1995 and 1994. Prior-year business segment information has been
restated to conform with current-year presentation.
10
<PAGE>
SEI CORPORATION
BUSINESS SEGMENTS
(unaudited)
<TABLE>
<CAPTION>
Investment
Technology and Asset General
Services Management and Admin. Consolidated
-------- ---------- ---------- ------------
For the Three-Month Period Ended September 30, 1995
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $39,638,000 $16,840,000 $56,478,000
=========== =========== ===========
Operating profit $11,266,000 $ 1,652,000 $12,918,000
=========== ===========
General and administrative expenses $4,298,000 4,298,000
==========
Interest income, net (54,000)
-----------
Income from continuing operations
before income taxes $ 8,674,000
===========
Depreciation and amortization $ 2,556,000 $ 610,000 $ 79,000 $ 3,245,000
=========== =========== ========== ===========
Capital expenditures including
capitalized software $ 1,422,000 $ 1,384,000 $ 527,000 $ 3,333,000
=========== =========== ========== ===========
<CAPTION>
For the Three-Month Period Ended September 30, 1994
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $34,766,000 $17,344,000 $52,110,000
=========== =========== ===========
Operating profit $10,929,000 $ 2,344,000 $13,273,000
=========== ===========
General and administrative expenses $4,294,000 4,294,000
==========
Interest income, net (73,000)
-----------
Income from continuing operations
before income taxes $ 9,052,000
===========
Depreciation and amortization $ 2,419,000 $ 496,000 $ 78,000 $ 2,993,000
=========== =========== ========== ===========
Capital expenditures including
capitalized software $ 1,427,000 $ 443,000 $ 218,000 $ 2,088,000
=========== =========== ========== ===========
</TABLE>
11
<PAGE>
SEI CORPORATION
BUSINESS SEGMENTS
(unaudited)
<TABLE>
<CAPTION>
Investment
Technology and Asset General
Services Management and Admin. Consolidated
-------- ---------- ----------- ------------
For the Nine-Month Period Ended September 30, 1995
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $115,166,000 $50,548,000 $165,714,000
============ =========== ============
Operating profit $ 32,698,000 $ 5,848,000 $ 38,546,000
============ ===========
General and administrative expenses $12,900,000 12,900,000
===========
Interest income, net (436,000)
------------
Income from continuing operations
before income taxes $ 26,082,000
============
Depreciation and amortization $ 7,158,000 $ 1,736,000 $ 237,000 $ 9,131,000
============ =========== =========== ============
Capital expenditures including
capitalized software $ 4,323,000 $ 1,973,000 $ 2,111,000 $ 8,407,000
============ =========== =========== ============
<CAPTION>
For the Nine-Month Period Ended September 30, 1994
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $100,751,000 $50,845,000 $151,596,000
============ =========== ============
Operating profit $ 27,267,000 $ 7,622,000 $ 34,889,000
============ ===========
General and administrative expenses $12,731,000 12,731,000
===========
Interest income, net (202,000)
------------
Income from continuing operations
before income taxes $ 22,360,000
============
Depreciation and amortization $ 7,128,000 $ 1,536,000 $ 238,000 $ 8,902,000
============ =========== =========== ============
Capital expenditures including
capitalized software $ 5,176,000 $ 662,000 $ 466,000 $ 6,304,000
============ =========== =========== ============
</TABLE>
12
<PAGE>
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 9 of the Notes to Consolidated Financial
Statements.
Results of Operations
- ---------------------
Third Quarter Ended September 30, 1995 Compared to Third Quarter Ended September
- --------------------------------------------------------------------------------
30, 1994
- --------
The Company's results of operations for the third quarter of 1995 included
revenues from continuing operations of $56,478,000, compared to $52,110,000 for
the same period of 1994, an increase of 8 percent from the prior year's
corresponding quarter. Income from continuing operations for the third quarter
of 1995 was $4,943,000, compared to $5,686,000 in the same period of 1994.
Earnings per share from continuing operations for the three months ended
September 30, 1995 was $.26 compared to $.29 reported in the same period of
1994. Earnings declined from the prior-year period due to substantial
investments the Company made in sales, marketing, and technology primarily
related to new businesses which offset additional operating profit from existing
businesses. Total fund balances at September 30, 1995 were $58.2 billion
compared to $43.0 billion at September 30, 1994, an increase of 35 percent.
Included in these totals are proprietary fund balances of $38.7 billion at
September 30, 1995 and $23.2 billion at September 30, 1994, an increase of
67 percent.
Investment Technology and Services - Revenues from Investment Technology and
- ----------------------------------
Services for the three months ended September 30, 1995 and 1994 were $39,638,000
and $34,766,000, respectively.
<TABLE>
<CAPTION>
INVESTMENT TECHNOLOGY AND SERVICES REVENUES
-------------------------------------------
3RD QTR 3RD QTR DOLLAR PERCENT
1995 1994 CHANGE CHANGE
---- ---- ------ ------
<S> <C> <C> <C> <C>
Trust systems and services $27,131,000 $27,071,000 $ 60,000 --
Proprietary fund services 12,507,000 7,695,000 4,812,000 63%
----------- ----------- ----------
Total $39,638,000 $34,766,000 $4,872,000 14%
=========== =========== ==========
</TABLE>
The 14 percent increase in this segment's revenues was due primarily to growth
in this segment's proprietary mutual fund business. Proprietary fund services
revenue increased 63 percent from the prior-year period due to an increase in
average proprietary fund balances over the past year. Average proprietary fund
balances increased $14.4 billion or 65 percent from $22.0 billion during the
third quarter of 1994 to $36.4 billion during the third 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.
Trust systems revenue was flat from the prior-year period as increases in one-
time implementation fees offset a decline in trust processing fees. The
increase in one-time implementation fees was a result of mergers among various
bank clients. Revenues should continue to expand for the remainder of 1995 due
to continued growth in fund balances from bank proprietary funds. However,
future revenue increases may be partially offset by the loss of bank proprietary
funds as a result of continued mergers among banks.
<TABLE>
<CAPTION>
INVESTMENT TECHNOLOGY AND SERVICES EXPENSES
-------------------------------------------
3RD QTR 3RD QTR DOLLAR PERCENT
1995 1994 CHANGE CHANGE
---- ---- ------ ------
<S> <C> <C> <C> <C>
Operating and development $21,230,000 $17,237,000 $3,993,000 23%
Sales and marketing $ 7,142,000 $ 6,600,000 $ 542,000 8%
</TABLE>
13
<PAGE>
The 23 percent increase in operating and development expense was primarily due
to an increase in consulting and outsourcing expense, along with an increase in
direct expense relating to the growth in proprietary fund balances. The
increase in consulting expense reflects the Company's significant investment in
technology. The increase in outsourcing expense is partially offset by a
decrease in personnel expense and reflects the Company's commitment to focus on
its core competencies. The 8 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 September 30, 1995
was $11,266,000, an increase of 3 percent from the $10,929,000 reported in the
corresponding quarter of 1994. Operating margins were 28 percent for the three
months ended September 30, 1995, compared to 31 percent for the same period of
1994. The decline in operating margins is attributable to the revenue shift from
the trust technology business to the lower-margin proprietary fund business.
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
- ----------------
September 30, 1995 and 1994 were $16,840,000 and $17,344,000, respectively.
<TABLE>
<CAPTION>
ASSET MANAGEMENT REVENUES
-------------------------
3RD QTR 3RD QTR DOLLAR PERCENT
1995 1994 CHANGE CHANGE
---- ---- ------ -------
<S> <C> <C> <C> <C>
Liquidity services $ 5,678,000 $ 5,301,000 $ 377,000 7%
Mutual fund services 4,579,000 5,132,000 (553,000) (11%)
Asset management services 3,549,000 4,104,000 (555,000) (14%)
Brokerage and consulting
services 3,034,000 2,807,000 227,000 8%
----------- ----------- ---------
Total $16,840,000 $17,344,000 $(504,000) (3%)
=========== =========== =========
</TABLE>
The 3 percent decrease in this segment's revenues is primarily attributable to
declining revenues in its asset management and mutual fund businesses. These
declines offset growth in this segment's liquidity business. The 7 percent
increase in liquidity services was a result of increased revenues from the
Company's new cash sweep product. The 14 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. The 11
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.
<TABLE>
<CAPTION>
ASSET MANAGEMENT EXPENSES
-------------------------
3RD QTR 3RD QTR DOLLAR PERCENT
1995 1994 CHANGE CHANGE
----- ---- ------ -------
<S> <C> <C> <C> <C>
Operating and development $7,594,000 $8,747,000 $(1,153,000) (13%)
Sales and marketing $7,594,000 $6,253,000 $ 1,341,000 21%
</TABLE>
Operating and development expense declined 13 percent from the prior-year period
due to a decrease in personnel expense and a shift of personnel costs to the
sales teams. The 21 percent increase in sales and marketing expense was due
primarily to increases in promotion and travel expense, along with the shift of
personnel costs from operating and development. The Asset Management segment
recorded an operating profit of $1,652,000 for the three months ended September
30, 1995 compared to an operating profit of $2,344,000 in the corresponding
period of 1994. The decline in operating profit in this segment is primarily
attributable to investments the Company has made in its asset management
business, along with declining fund balances and lower revenues from the
International Equity Fund and the Company's Family of Funds. The Asset
Management segment is expected to show improved operating results in 1996 as a
result of growth in its core asset management business and continued growth in
its liquidity business.
14
<PAGE>
Other Income and Expenses - General and administrative expenses for the three
- -------------------------
months ended September 30, 1995 and 1994 were $4,298,000 and $4,294,000,
respectively. General and administrative expenses remained flat from the prior
year.
Interest income for the three months ended September 30, 1995 and 1994 was
$54,000 and $73,000, respectively. The decrease in interest income is due
primarily to a decrease in the average cash balance invested during the third
quarter of 1995 compared to the third quarter of 1994.
Nine Months Ended September 30, 1995 Compared to Nine Months Ended September 30,
- --------------------------------------------------------------------------------
1994
- ----
The Company's results of operations for the nine months ended September 30, 1995
included revenues from continuing operations of $165,714,000, compared to
$151,596,000 for the same period of 1994, an increase of 9 percent from the
prior period. Income from continuing operations for the first nine months of
1995 was $15,388,000 or $.79 per share, compared to $13,863,000 or $.69 per
share reported in the same period of 1994. Earnings per share from continuing
operations increased 14 percent over the prior year's corresponding period.
Investment Technology and Services - Revenues from Investment Technology and
- ----------------------------------
Services for the nine months ended September 30, 1995 and 1994 were $115,166,000
and $100,751,000, respectively.
<TABLE>
<CAPTION>
INVESTMENT TECHNOLOGY AND SERVICES REVENUES
-------------------------------------------
NINE MONTHS NINE MONTHS DOLLAR PERCENT
1995 1994 CHANGE CHANGE
---- ---- ------ ------
<S> <C> <C> <C> <C>
Trust systems and services $ 82,009,000 $ 76,686,000 $ 5,323,000 7%
Proprietary fund services 33,157,000 24,065,000 9,092,000 38%
------------ ------------ -----------
Total $115,166,000 $100,751,000 $14,415,000 14%
============ ============ ===========
</TABLE>
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 7 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 38 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 55 percent from
$20.8 billion during the first nine months of 1994 to $32.3 billion during the
first nine 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. However, future revenue increases may be
partially offset by the loss of proprietary funds as a result of continued
mergers among banks.
<TABLE>
<CAPTION>
INVESTMENT TECHNOLOGY AND SERVICES EXPENSES
-------------------------------------------
NINE MONTHS NINE MONTHS DOLLAR PERCENT
1995 1994 CHANGE CHANGE
---- ---- ------ ------
<S> <C> <C> <C> <C>
Operating and development $60,329,000 $56,299,000 $4,030,000 7%
Sales and marketing $22,139,000 $17,185,000 $4,954,000 29%
</TABLE>
15
<PAGE>
The 7 percent increase in operating and development expense was due primarily to
increases in consulting, outsourcing, and direct expense associated with the
growth in proprietary fund balances. The increase in consulting and outsourcing
expense reflects the Company's investment in trust technology and its internal
infrastructure. The 29 percent increase in sales and marketing expense was due
primarily to an increase in personnel and consulting expense. The increase in
consulting expense relates primarily to the increase in one-time trust services
revenue. Operating profit from Investment Technology and Services for the nine
months ended September 30, 1995 was $32,698,000, an increase of 20 percent from
the $27,267,000 reported in the corresponding period of 1994. Operating margins
increased to 28 percent for the nine months ended September 30, 1995 compared to
27 percent for the nine months ended September 30, 1994.
Asset Management - Revenues from Asset Management for the nine months ended
- ----------------
September 30, 1995 and 1994 were $50,548,000 and $50,845,000, respectively.
<TABLE>
<CAPTION>
ASSET MANAGEMENT REVENUES
-------------------------
NINE MONTHS NINE MONTHS DOLLAR PERCENT
1995 1994 CHANGE CHANGE
---- ---- ------ -------
<S> <C> <C> <C> <C>
Liquidity services $16,673,000 $16,017,000 $ 656,000 4%
Mutual fund services 13,769,000 14,383,000 (614,000) (4%)
Asset management services 11,230,000 11,905,000 (675,000) (6%)
Brokerage and consulting
services 8,876,000 8,540,000 336,000 4%
----------- ----------- ---------
Total $50,548,000 $50,845,000 $(297,000) (1%)
=========== =========== =========
</TABLE>
Revenues from this segment decreased slightly as growth in this segment's
liquidity business was offset by declines in the asset management and mutual
fund businesses. The 4 percent increase in liquidity services revenue was a
result of increased revenues from the Company's new cash sweep product. The 6
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. The 4 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.
<TABLE>
<CAPTION>
ASSET MANAGEMENT EXPENSES
-------------------------
NINE MONTHS NINE MONTHS DOLLAR PERCENT
1995 1994 CHANGE CHANGE
---- ---- ------ -------
<S> <C> <C> <C> <C>
Operating and development $24,425,000 $25,159,000 $ (734,000) (3%)
Sales and marketing $20,275,000 $18,064,000 $2,211,000 12%
</TABLE>
The 3 percent decrease in operating and development expense is due primarily to
a decrease in personnel expense. The 12 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 $5,848,000 for the nine
months ended September 30, 1995 compared to an operating profit of $7,622,000
reported 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
<PAGE>
Other Income and Expenses - General and administrative expenses for the nine
- -------------------------
months ended September 30, 1995 and 1994 were $12,900,000 and $12,731,000,
respectively. General and administrative expenses remained relatively flat from
the prior year.
Interest income for the nine months ended September 30, 1995 and 1994 was
$436,000 and $202,000, 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 nine months of 1995 compared to
the first nine 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. During the third quarter of 1995,
the Company borrowed $11,000,000 from its line of credit (See Note 6 of the
Notes to Consolidated Financial Statements). The proceeds from this borrowing
were used for the Company's common stock repurchase program. At September 30,
1995, the Company's sources of liquidity consisted primarily of cash and
cash equivalents of $10,145,000 and the unused balance on the line of credit of
$9,000,000. On November 8, 1995, the Company repaid the $11,000,000 outstanding
on the line of credit. 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 $4,000,000 of cash and cash equivalents which is
reserved for various investment opportunities.
Cash flow generated from operations for the nine months ended September 30, 1995
and 1994 was $12,598,000 and $15,264,000, respectively. Since January 1994, the
Company has purchased 2,160,000 shares at a cost of $46.6 million, which
includes 880,000 shares at a cost of $18.4 million purchased during the first
nine months of 1995. Capital expenditures, including capitalized software
development costs, for the nine months ended September 30, 1995 and 1994 were
$8,407,000 and $6,304,000, 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 $2,778,000
at September 30, 1995. This corporate campus is expected to be completed in
1996 at a total estimated cost of $31 million. 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
<PAGE>
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, 1995.
18
<PAGE>
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 November 13, 1995 By /s/ Cris Brookmyer
-------------------------- -------------------------------
Cris Brookmyer
Vice President and Controller
19
<PAGE>
SEI CORPORATION AND SUBSIDIARIES
--------------------------------
EXHIBIT 11 - EARNINGS PER SHARE CALCULATION
-------------------------------------------
FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER 30,
-----------------------------------------------
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Earnings per common and common
equivalent share (Primary EPS):
Income from continuing operations $ 4,943,000 $ 5,686,000
=========== ===========
Net income $ 4,943,000 $ 4,919,000
=========== ===========
Weighted average number of
shares issued and outstanding 18,377,000 18,716,000
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 967,000 964,000
----------- -----------
Adjusted weighted average number
of shares outstanding 19,344,000 19,680,000
=========== ===========
Earnings per common and common
equivalent share from continuing operations $ .26 $ .29
=========== ===========
Earnings per common and common
equivalent share $ .26 $ .25
=========== ===========
</TABLE>
20
<PAGE>
SEI CORPORATION AND SUBSIDIARIES
--------------------------------
EXHIBIT 11 - EARNINGS PER SHARE CALCULATION
-------------------------------------------
FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER 30,
-----------------------------------------------
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Earnings per common and common
equivalent share, assuming full dilution
(Fully diluted EPS):
Income from continuing operations $ 4,943,000 $ 5,686,000
=========== ===========
Net income $ 4,943,000 $ 4,919,000
=========== ===========
Weighted average number of
shares issued and outstanding 18,377,000 18,716,000
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 970,000 1,133,000
----------- -----------
Adjusted weighted average number
of shares outstanding, assuming full dilution 19,347,000 19,849,000
=========== ===========
Earnings per common and common
equivalent share from continuing
operations, assuming full dilution $ .26 $ .29
=========== ===========
Earnings per common and common
equivalent share, assuming full dilution $ .26 $ .25
=========== ===========
</TABLE>
21
<PAGE>
SEI CORPORATION AND SUBSIDIARIES
--------------------------------
EXHIBIT 11 - EARNINGS PER SHARE CALCULATION
-------------------------------------------
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30,
----------------------------------------------
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Earnings per common and common
equivalent share (Primary EPS):
Income from continuing operations $15,388,000 $13,863,000
=========== ===========
Net income $13,446,000 $13,913,000
=========== ===========
Weighted average number of
shares issued and outstanding 18,674,000 18,891,000
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 855,000 1,356,000
----------- -----------
Adjusted weighted average number
of shares outstanding 19,529,000 20,247,000
=========== ===========
Earnings per common and common
equivalent share from continuing operations $ .79 $ .69
=========== ===========
Earnings per common and common
equivalent share $ .69 $ .69
=========== ===========
</TABLE>
22
<PAGE>
SEI CORPORATION AND SUBSIDIARIES
--------------------------------
EXHIBIT 11 - EARNINGS PER SHARE CALCULATION
-------------------------------------------
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30,
----------------------------------------------
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Earnings per common and common
equivalent share, assuming full dilution
(Fully diluted EPS):
Income from continuing operations $15,388,000 $13,863,000
=========== ===========
Net income $13,446,000 $13,913,000
=========== ===========
Weighted average number of
shares issued and outstanding 18,674,000 18,891,000
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 901,000 1,356,000
----------- -----------
Adjusted weighted average number
of shares outstanding, assuming full dilution 19,575,000 20,247,000
=========== ===========
Earnings per common and common
equivalent share from continuing
operations, assuming full dilution $ .79 $ .69
=========== ===========
Earnings per common and common
equivalent share, assuming full dilution $ .69 $ .69
=========== ===========
</TABLE>
23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 14,145
<SECURITIES> 5,924
<RECEIVABLES> 24,043
<ALLOWANCES> (1,208)
<INVENTORY> 0
<CURRENT-ASSETS> 52,101
<PP&E> 93,169
<DEPRECIATION> (65,589)
<TOTAL-ASSETS> 100,011
<CURRENT-LIABILITIES> 47,219
<BONDS> 0
<COMMON> 184
0
0
<OTHER-SE> 51,865
<TOTAL-LIABILITY-AND-EQUITY> 100,011
<SALES> 0
<TOTAL-REVENUES> 165,714
<CGS> 0
<TOTAL-COSTS> 127,168
<OTHER-EXPENSES> 12,900
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (436)
<INCOME-PRETAX> 26,082
<INCOME-TAX> 10,694
<INCOME-CONTINUING> 15,388
<DISCONTINUED> (1,942)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,446
<EPS-PRIMARY> .69
<EPS-DILUTED> .69
</TABLE>
