<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 MARCH 31, 1996 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 March 31, 1996: 18,564,582 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>
March 31, 1996 December 31, 1995
--------------- -----------------
(unaudited)
Assets
- ------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,855 $ 10,256
Receivables, net of allowance for doubtful
accounts of $1,206 21,779 22,436
Receivables from regulated investment companies 9,225 8,757
Deferred income taxes 1,849 2,584
Loans receivable available for sale 12,855 5,152
Prepaid expenses 4,597 4,890
-------- --------
Total current assets 61,160 54,075
-------- --------
Net assets of discontinued operations 8,360 6,046
-------- --------
Investments available for sale 6,322 6,205
-------- --------
Property and equipment, net of accumulated
depreciation and amortization of $63,507
and $61,513 26,103 24,299
-------- --------
Capitalized software, net of accumulated
amortization of $4,150 and $3,746 5,413 4,356
-------- --------
Other assets, net 5,879 6,366
-------- --------
Total Assets $113,237 $101,347
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
CONSOLIDATED BALANCE SHEETS
---------------------------
(In thousands, except par value)
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
(unaudited)
Liabilities and Shareholders' Equity
- --------------------------------------
<S> <C> <C>
Current liabilities:
Short-term borrowings $ 10,000 $ --
Accounts payable 5,968 6,252
Accrued compensation 3,932 13,724
Other accrued liabilities 25,113 19,115
Deferred revenue 3,771 5,795
------- -------
Total current liabilities 48,784 44,886
------- -------
Deferred income taxes 684 459
------- -------
Shareholders' equity:
Common stock, $.01 par value, 100,000 shares
authorized; 18,565 and 18,425 shares issued
and outstanding 186 184
Capital in excess of par value 50,153 48,207
Retained earnings 12,959 7,167
Cumulative translation adjustments (82) (58)
Unrealized holding gain on investments 553 502
------- -------
Total shareholders' equity 63,769 56,002
------- -------
Total Liabilities and Shareholders' Equity $113,237 $101,347
======= =======
</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 March 31,
------------------------------------------------
1996 1995
---- ----
<S> <C> <C>
Revenues $63,239 $53,499
Expenses:
Operating and development 33,815 26,663
Sales and marketing 16,546 12,952
General and administrative 3,157 4,178
------ ------
Income from continuing operations before interest and income taxes 9,721 9,706
Interest income, net (97) (162)
------ ------
Income from continuing operations before income taxes 9,818 9,868
Income taxes 4,025 3,947
------ ------
Income from continuing operations 5,793 5,921
Loss from discontinued operations, net
of income tax benefit of $692 -- (1,038)
------ ------
Net income $ 5,793 $ 4,883
====== ======
Earnings per share from continuing operations $ .30 $ .30
Loss per share from discontinued operations -- (.05)
------ ------
Earnings per common and common equivalent share
(primary and fully diluted) $ .30 $ .25
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months
------------------------------------------------
Ended March 31,
------------------------------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,793 $ 4,883
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization 2,562 2,940
Discontinued operations (2,314) 2,406
Tax benefit on stock options exercised 433 775
Other 1,241 (881)
Change in current assets and liabilities:
Decrease (increase) in
Receivables 657 (1,221)
Receivables from regulated investment companies (468) (1,532)
Loans receivable available for sale (7,703) --
Prepaid expenses 293 279
Increase (decrease) in
Accounts payable (284) 2,039
Accrued compensation (9,792) (9,131)
Other accrued liabilities 7,840 2,406
Deferred revenue (2,024) (579)
------ ------
Net cash provided by (used in) operating activities (3,766) 2,384
------ ------
Cash flows from investing activities:
Additions to property and equipment (3,815) (1,571)
Additions to capitalized software (1,461) (359)
Purchase of investments available for sale -- (5,000)
Other (31) --
------ ------
Net cash used in investing activities (5,307) (6,930)
------ ------
Cash flows from financing activities:
Purchase and retirement of common stock -- (3,794)
Proceeds from issuance of common stock 1,514 2,469
Proceeds from short-term borrowings 10,000 --
Payment of dividend (1,842) (1,503)
------ ------
Net cash provided by (used in) financing activities 9,672 (2,828)
------ ------
Net increase (decrease) in cash and cash equivalents 599 (7,374)
Cash and cash equivalents, beginning of period 10,256 20,232
------ ------
Cash and cash equivalents, end of period $10,855 $12,858
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Note 1. Summary of Significant Accounting Policies
------------------------------------------
Nature of Operations
--------------------
SEI Corporation (the "Company") is organized around its two major
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.
Principal markets for these products and services include trust
departments of large banks located in the United States. The Asset
Management segment provides investment solutions through various
investment products including the Company's Family of Funds, liquidity
funds and services, and consulting services. Principal markets for
these products and services include trust departments of large banks,
investment advisors, corporations, 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 March 31, 1996, and the results of operations
and cash flows for the three months ended March 31, 1996 and 1995.
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
March 31, 1996 December 31, 1995 (In Years)
-------------- ----------------- ----------
<S> <C> <C> <C>
Equipment $44,282,000 $43,469,000 3
Buildings, furniture and fixtures 16,762,000 16,754,000 3 to 39
Leasehold improvements 9,814,000 9,814,000 Lease Term
Purchased software 7,860,000 7,220,000 3
Land 4,065,000 4,065,000 N/A
Construction in progress 6,827,000 4,490,000 N/A
---------- ----------
89,610,000 85,812,000
Less: Accumulated depreciation
and amortization (63,507,000) (61,513,000)
---------- ----------
$26,103,000 $24,299,000
========== ==========
</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.
6
<PAGE>
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 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, which is
primarily three years.
Earnings Per Share
------------------
The Company utilizes the modified treasury stock method to compute
earnings per share since common share equivalents at the end of the
period exceeded 20 percent of the number of common shares outstanding.
Earnings per common and common equivalent share (primary earnings per
share) is computed using the weighted average number of common shares
and common share equivalents (stock options) outstanding. Earnings per
share, assuming full dilution (fully diluted earnings per share), is
based upon an increased number of shares that would be outstanding
assuming exercise of stock options when the Company's stock price at
the end of the period is higher than the average price within the
respective period. If the inclusion of common stock equivalents has an
anti-dilutive effect in the aggregate, it is excluded from the
earnings per share calculation. For the three months ended March 31,
1996 and 1995, the weighted average shares outstanding for primary
earnings per share were 19,482,000 and 19,522,000, respectively. Fully
diluted earnings per share were not materially different from the
primary earnings per share indicated.
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 three months
ended March 31:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Interest paid $109,000 $ --
Interest and dividends received $235,000 $ 186,000
Income taxes paid $761,000 $1,109,000
</TABLE>
Stock-Based Compensation Plans
------------------------------
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). The disclosure requirements of
SFAS 123 are effective for the Company's December 31, 1996 year-end
financial statements. However, these disclosures will include the
effects of all awards granted during the year ended December 31, 1995.
SFAS 123 establishes a fair value based method of accounting for
stock-based compensation plans. SFAS 123 requires that an employer's
financial statements include certain disclosures about stock-based
employee compensation arrangements regardless of the method used to
account for the plan. The required information, if the Company chooses
to continue to apply certain allowable accounting principles, will not
affect any adjustments to reported net income or earnings per share.
7
<PAGE>
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
-----------------
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 in the United
States. DC provided administrative and processing services,
recordkeeping and payment software, and employee retirement planning
materials for use by defined contribution plans. For CR, the expected
manner of disposal is the sale of substantially all of its assets. For
DC, its full-service recordkeeping operations were transferred to KPMG
Peat Marwick ("KPMG") during the first quarter of 1996. The Company
anticipates CR's sale to be completed in 1996.
CR and DC are being accounted for as discontinued operations with a
measurement date of May 31, 1995. The accompanying Consolidated
Financial Statements reflect the operating results and balance sheet
items of the discontinued operations separately from continuing
operations. 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 transfer of DC to KPMG. As a result, no estimated
losses for DC have been accrued and the net gain will be recognized
when realized. The gain expected from the sale of CR is based upon
management's best estimate of the amount to be realized. The amount
the Company will ultimately realize could differ from this estimate.
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.
Loss from discontinued operations on the accompanying Consolidated
Statements of Income was:
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------
March 31,
-----------------------------------------------------
1996 1995
---- ----
<S> <C> <C>
Revenues $ -- $11,229,000
====== ==========
Loss before income tax benefit $ -- $(1,730,000)
Income tax benefit -- (692,000)
------ ----------
Loss $ -- $(1,038,000)
====== ==========
</TABLE>
8
<PAGE>
The assets and liabilities of CR and DC have been reclassified on the
accompanying 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>
March 31, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
Current assets $7,481,000 $7,709,000
Property and equipment, net 1,101,000 1,257,000
Other assets 5,205,000 5,581,000
Current liabilities (9,663,000) (11,835,000)
Deferred income taxes (565,000) (421,000)
Loss from discontinued operations for the period
beginning June 1, 1995, net of income tax
benefit of $604,000 and $462,000 4,801,000 3,755,000
--------- ---------
Net assets of discontinued operations $8,360,000 $6,046,000
========= =========
</TABLE>
Note 3. Receivables - Receivables on the accompanying Consolidated Balance
-----------
Sheets consist of the following:
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
Trade receivables $13,786,000 $14,474,000
Fees earned, not received 3,045,000 2,866,000
Fees earned, not billed 6,154,000 6,302,000
---------- ----------
22,985,000 23,642,000
Less: Allowance for doubtful accounts (1,206,000) (1,206,000)
---------- ----------
$21,779,000 $22,436,000
========== ==========
</TABLE>
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 Financial Services Company
and SEI Financial Management Corporation, for distribution, investment
advisory, and administration services provided by these subsidiaries
to various regulated investment companies.
Note 4. Loans Receivable Available for Sale - Loans receivable available for
-----------------------------------
sale represent loans which were purchased through the Company's Swiss
subsidiary, SEI Capital AG, which is based in Zurich. The Company
intends to sell these loans within six months from the balance sheet
date. These receivables are reported at the lower of cost or market,
and any difference between the purchase price and the related loan
principal amount is recognized as an adjustment of the yield over the
life of the loan using the effective interest method. Each loan
receivable involves various risks, including, but not limited to,
country, interest rate, credit, and liquidity risk. Management
evaluates and monitors these risks on a continuing basis to ensure
that these loan receivables are recorded at their realizable value.
This evaluation is based upon management's best estimates and the
amounts the Company will ultimately realize could differ from these
estimates.
9
<PAGE>
Note 5. Investments Available for Sale - Investments available for sale
------------------------------
consist of mutual funds sponsored by the Company which are primarily
invested in equity securities. 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.
Unrealized holding gains and losses on these investments are reported
as a separate component of Shareholders' equity.
At March 31, 1996, Investments available for sale had a cost of
$5,392,000 and a market value of $6,322,000. At December 31, 1995,
Investments available for sale had a cost of $5,361,000 and a market
value of $6,205,000. Unrealized gains on investments of $930,000 and
$844,000 were included in Investments available for sale at March 31,
1996 and December 31, 1995, respectively. There were no unrealized
losses as of March 31, 1996 or December 31, 1995. The net changes in
unrealized gains on Investments available for sale were $51,000 and
$112,000 (net of income taxes) for the three months ended March 31,
1996 and 1995, respectively, and are included as a separate component
of Shareholders' equity on the accompanying Consolidated Balance
Sheets.
Note 6. Debt - The Company has a line of credit agreement (the "Agreement")
----
with its principal lending institution which provides for borrowing of
up to $20,000,000. The Agreement ends on May 31, 1996, at which time
the outstanding principal balance, if any, becomes payable unless the
Agreement is extended. The line of credit, when utilized, accrues
interest at the Prime rate or five-eighths percent above the London
Interbank Offered Rate. 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 line of credit is secured by the common
stock of the Company's wholly owned subsidiaries. Certain other
covenants under the Agreement require the Company to maintain
specified levels of net worth, prohibit unsecured borrowings, and
place certain restrictions on investments.
The maximum month-end amount of debt outstanding during the three
months ended March 31, 1996 was $11,000,000. The weighted average
balance of debt outstanding was $7,835,000 during the first quarter of
1996. Interest expense was $120,000 based on a weighted average
interest rate of approximately 6 percent for the three months ended
March 31, 1996. The Company had no outstanding debt during the first
quarter of 1995.
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. Through
March 31, 1996, a total of 12,700,000 shares at an aggregate cost of
$155,732,000 have been purchased 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 December 22, 1995, the Board of Directors declared a
--------
cash dividend of $.10 per share on the Company's common stock, which
was paid on January 22, 1996 to shareholders of record on December 28,
1995.
The Board of Directors has indicated its intention to pay future
dividends on a semiannual basis.
10
<PAGE>
Note 9. Segment Information - The Company defines its business segments to
-------------------
reflect the Company's focus around two core product lines: Investment
Technology and Services and Asset Management. The Investment
Technology and Services segment consists of the Company's trust
technology 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 unaudited financial information
from continuing operations about each of the Company's segments for
the three months ended March 31, 1996 and 1995. Prior-quarter business
segment information has been restated to conform with current-quarter
presentation and for the effect of the discontinued operations
discussed in Note 2.
<TABLE>
<CAPTION>
Investment
Technology and Asset General
Services Management and Admin. Consolidated
-------- ---------- ---------- ------------
For the Three-Month Period Ended March 31, 1996
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $46,363,000 $16,876,000 $63,239,000
========== ========== ==========
Operating profit $11,867,000 $ 1,011,000 $12,878,000
========== ==========
General and administrative expenses $3,157,000 3,157,000
=========
Interest income, net (97,000)
----------
Income from continuing operations before
income taxes $ 9,818,000
==========
Depreciation and amortization $ 1,952,000 $ 556,000 $ 54,000 $ 2,562,000
========== ========== ========= ==========
Capital expenditures $ 1,439,000 $ 39,000 $2,337,000 $ 3,815,000
========== ========== ========= ==========
<CAPTION>
For the Three-Month Period Ended March 31, 1995
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $36,542,000 $16,957,000 $53,499,000
========== ========== ==========
Operating profit $10,922,000 $ 2,962,000 $13,884,000
========== ==========
General and administrative expenses $4,178,000 4,178,000
=========
Interest income, net (162,000)
----------
Income from continuing operations before
income taxes $ 9,868,000
==========
Depreciation and amortization $ 2,286,000 $ 569,000 $ 85,000 $ 2,940,000
========== ========== ========= ==========
Capital expenditures $ 900,000 $ 278,000 $ 393,000 $ 1,571,000
========== ========== ========= ==========
</TABLE>
11
<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
- ---------------------
First Quarter Ended March 31, 1996 Compared to First Quarter Ended March 31,
1995
The Company's results of operations for the first quarter of 1996 included
revenues from continuing operations of $63,239,000, compared to $53,499,000 for
the same period of 1995, an increase of 18 percent from the prior year's
corresponding quarter. Part of this increase was due to the Company's
recognition of one-time trust services revenue relating to a contractual
settlement received from a client in the first quarter of 1996. Income from
continuing operations for the first quarter of 1996 was $5,793,000, compared to
$5,921,000 in the same period of 1995. Earnings per share from continuing
operations for the three months ended March 31, 1996 and 1995 was $.30.
Earnings were flat from the prior-year period due to substantial investments the
Company made in the sales and marketing of its asset management business, along
with investments made in new businesses. In addition, the Company continues to
invest heavily in trust technology, primarily in its open architecture system.
Fund balances continued to expand during the first quarter of 1996. Total fund
balances at March 31, 1996 were $65.7 billion compared to $50.7 billion at March
31, 1995, an increase of 30 percent. Included in these totals are proprietary
fund balances of $45.1 billion at March 31, 1996 and $30.4 billion at March 31,
1995, an increase of 48 percent.
INVESTMENT TECHNOLOGY AND SERVICES - Revenues from Investment Technology and
- ----------------------------------
Services for the three months ended March 31, 1996 and 1995 were $46,363,000 and
$36,542,000, respectively.
INVESTMENT TECHNOLOGY AND SERVICES REVENUES
-------------------------------------------
<TABLE>
<CAPTION>
1ST QTR 1ST QTR DOLLAR PERCENT
1996 1995 CHANGE CHANGE
---- ---- ------ ------
<S> <C> <C> <C> <C>
Trust systems and services $32,542,000 $26,998,000 $5,544,000 21%
Proprietary fund services 13,821,000 9,544,000 4,277,000 45%
----------- ----------- ----------
Total $46,363,000 $36,542,000 $9,821,000 27%
=========== =========== ==========
</TABLE>
Proprietary fund services revenue increased 45 percent from the prior-year
period due to an increase in average proprietary fund balances over the past
year despite the loss of two proprietary fund complexes in the first quarter of
1996. Average proprietary fund balances increased $16.0 billion or 57 percent
from $28.1 billion during the first quarter of 1995 to $44.1 billion during the
first quarter of 1996. 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 increased 21 percent from
the prior-year period primarily due to a $5.6 million one-time contractual
obligation received from a client. Revenues should continue to expand for the
remainder of 1996 due to continued growth in fund balances from bank proprietary
funds. However, future revenue increases will be partially offset by the loss
of bank proprietary funds as a result of continued mergers among banks.
INVESTMENT TECHNOLOGY AND SERVICES EXPENSES
-------------------------------------------
<TABLE>
<CAPTION>
1ST QTR 1ST QTR DOLLAR PERCENT
1996 1995 CHANGE CHANGE
---- ---- ------ ------
<S> <C> <C> <C> <C>
Operating and development $25,662,000 $18,579,000 $7,083,000 38%
Sales and marketing $ 8,834,000 $ 7,041,000 $1,793,000 25%
</TABLE>
12
<PAGE>
The 38 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 related to the growth in proprietary fund balances. The increase
in consulting expense reflects the Company's significant investment in its open
architecture system and advanced client service technology. The Company expects
investments in its trust technology to continue for the remainder of 1996. The
increase in outsourcing expense reflects the Company's commitment to focus on
its core competencies. The 25 percent increase in sales and marketing expense
was due primarily to increases in promotion, outsourcing, and personnel
expenses. Operating profit from Investment Technology and Services for the
three months ended March 31, 1996 was $11,867,000, an increase of 9 percent from
the $10,922,000 reported in the corresponding quarter of 1995. Operating
margins were 26 percent for the three months ended March 31, 1996, compared to
30 percent for the same period of 1995. The decline in operating margins is
attributable to the Company's substantial investment in trust technology and
lower margins from its proprietary mutual fund business.
ASSET MANAGEMENT - Revenues from Asset Management for the three months ended
- ----------------
March 31, 1996 and 1995 were $16,876,000 and $16,957,000, respectively.
ASSET MANAGEMENT REVENUES
-------------------------
<TABLE>
<CAPTION>
1ST QTR 1ST QTR DOLLAR PERCENT
1996 1995 CHANGE CHANGE
---- ---- ------ ------
<S> <C> <C> <C> <C>
Liquidity services $ 5,297,000 $ 5,485,000 $(188,000) (3%)
Mutual fund services 5,390,000 4,562,000 828,000 18%
Asset management services 3,342,000 4,217,000 (875,000) (21%)
Brokerage and consulting
services 2,847,000 2,693,000 154,000 6%
---------- ---------- --------
Total $16,876,000 $16,957,000 $(81,000) --
========== ========== =======
</TABLE>
Mutual fund services revenue increased 18 percent from the prior-year period due
to an increase in average fund balances from the Company's Family of Funds over
the past year. This increase was partially due to clients transferring their
assets from separate accounts under the Customized Asset Management Service
("CAMS") product into the Company's own mutual funds. The 21 percent decrease
in asset management services revenue is due primarily to a decrease in fund
balances from the Company's International Collective Trust, along with the CAMS
transfer of assets to the Company's Family of Funds.
ASSET MANAGEMENT EXPENSES
-------------------------
<TABLE>
<CAPTION>
1ST QTR 1ST QTR DOLLAR PERCENT
1996 1995 CHANGE CHANGE
---- ---- ------ ------
<S> <C> <C> <C> <C>
Operating and development $8,153,000 $8,084,000 $69,000 1%
Sales and marketing $7,712,000 $5,911,000 $1,801,000 30%
</TABLE>
Operating and development expense was relatively flat from the prior-year
period. The 30 percent increase in sales and marketing expense was due
primarily to increases in personnel and travel expense, along with significant
investments in new businesses. The Asset Management segment recorded an
operating profit of $1,011,000 for the three months ended March 31, 1996
compared to an operating profit of $2,962,000 in the corresponding period of
1995. The decline in operating profit is primarily attributable to investments
the Company has made to strengthen its sales and marketing efforts in its core
asset management business, along with additional investments made in new
businesses. The Company expects these investments to continue for the remainder
of 1996.
13
<PAGE>
OTHER INCOME AND EXPENSES - General and administrative expenses for the three
- -------------------------
months ended March 31, 1996 and 1995 were $3,157,000 and $4,178,000,
respectively. General and administrative expenses declined 24 percent primarily
due to decreases in personnel expense in corporate overhead areas.
Interest income for the three months ended March 31, 1996 and 1995 was $97,000
and $162,000, respectively. Interest income in 1996 was net of interest expense
relating to the Company's borrowings under its line of credit (See Note 6 of the
Notes to Consolidated Financial Statements).
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. At March 31, 1996, the Company's
sources of liquidity consisted primarily of cash and cash equivalents of
$10,855,000 and the unused balance on the line of credit of $10,000,000. The
availability of the line of credit is subject to the Company's compliance with
certain covenants set forth in the agreement.
Cash flow used in operations for the three months ended March 31, 1996 was
$3,766,000 compared to cash flow provided by operations for the three months
ended March 31, 1995 of $2,384,000. The decline in operating cash flow is
primarily due to an increase in loans receivable available for sale. Loans
receivable available for sale represent loans purchased through the Company's
Swiss-based subsidiary, SEI Capital AG (See Note 4 of the Notes to Consolidated
Financial Statements). The Company invested $7,000,000 in this business in the
first quarter of 1996.
Capital expenditures, including capitalized software development costs, for the
three months ended March 31, 1996 and 1995 were $5,276,000 and $1,930,000,
respectively. The increase in capital expenditures is primarily the result of
expenditures made by the Company for its new corporate campus, along with an
increase in capitalized software development costs. The corporate campus is
expected to be completed in 1996 at a total estimated cost of $31,800,000,
including $4,065,000 for the cost of the land which the Company purchased in
1994. Construction in progress related to the corporate campus was $6,827,000
at March 31, 1996. The Company believes that anticipated long-term borrowing
arrangements will provide adequate funds for all future costs relating to this
campus. The increase in capitalized software development costs relates
primarily to the Company's investment in its open architecture and advanced
client service technology projects. Capitalized software development costs
relating to these projects are expected to increase for the remainder of 1996.
The Company borrowed $11,000,000 on its line of credit during the first quarter
of 1996 for capital expenditures relating to the new corporate campus, along
with investments in the operations of its Swiss-based subsidiary. At March 31,
1996, the Company had $10,000,000 on its line of credit still outstanding.
The Company's operating cash flow, borrowing capacity, and liquidity should
provide adequate funds for continuing operations, continued investment in new
products and equipment, its common stock repurchase program, and the completion
of its new corporate campus.
14
<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 March 31, 1996.
15
<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 May 14, 1996 By /s/ Carmen V. Romeo
---------------------- --------------------------------
Carmen V. Romeo
Executive Vice President and
Chief Financial Officer
16
<PAGE>
SEI CORPORATION AND SUBSIDIARIES
--------------------------------
EXHIBIT 11 - EARNINGS PER SHARE CALCULATION
-------------------------------------------
FOR THE THREE-MONTH PERIOD ENDED MARCH 31,
------------------------------------------
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Earnings per common and common
equivalent share (Primary EPS):
Income from continuing operations $ 5,793,000 $ 5,921,000
========== ==========
Net income $ 5,793,000 $ 4,883,000
========== ==========
Weighted average number of
shares issued and outstanding 18,509,000 18,764,000
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 973,000 758,000
---------- ----------
Adjusted weighted average number
of shares outstanding 19,482,000 19,522,000
========== ==========
Earnings per common and common
equivalent share from continuing operations $ .30 $ .30
========= =========
Earnings per common and common
equivalent share $ .30 $ .25
========= =========
</TABLE>
17
<PAGE>
SEI CORPORATION AND SUBSIDIARIES
--------------------------------
EXHIBIT 11 - EARNINGS PER SHARE CALCULATION
-------------------------------------------
FOR THE THREE-MONTH PERIOD ENDED MARCH 31,
------------------------------------------
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Earnings per common and common
equivalent share, assuming full dilution
(Fully diluted EPS):
Income from continuing operations $ 5,793,000 $ 5,921,000
========== ==========
Net income $ 5,793,000 $ 4,883,000
========== ==========
Weighted average number of
shares issued and outstanding 18,509,000 18,764,000
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 973,000 818,000
---------- ----------
Adjusted weighted average number
of shares outstanding, assuming full dilution 19,482,000 19,582,000
========== ==========
Earnings per common and common
equivalent share from continuing
operations, assuming full dilution $ .30 $ .30
========== =========
Earnings per common and common
equivalent share, assuming full dilution $ .30 $ .25
========= =========
</TABLE>
18
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 10,855
<SECURITIES> 6,322
<RECEIVABLES> 22,985
<ALLOWANCES> (1,206)
<INVENTORY> 0
<CURRENT-ASSETS> 61,160
<PP&E> 89,610
<DEPRECIATION> (63,507)
<TOTAL-ASSETS> 113,237
<CURRENT-LIABILITIES> 48,784
<BONDS> 0
0
0
<COMMON> 186
<OTHER-SE> 63,583
<TOTAL-LIABILITY-AND-EQUITY> 113,237
<SALES> 0
<TOTAL-REVENUES> 63,239
<CGS> 0
<TOTAL-COSTS> 50,361
<OTHER-EXPENSES> 3,157
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (97)
<INCOME-PRETAX> 9,818
<INCOME-TAX> 4,025
<INCOME-CONTINUING> 5,793
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,793
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
</TABLE>
