SEIC

SEI Investments Company - 10-K Summary (Fiscal Year Ended Dec 31, 2000)

Business Context and Reporting Period

This Annual Report on Form 10-K covers the fiscal year ended December 31, 2000, for SEI Investments Company, a Pennsylvania corporation. SEI provides financial services through four primary business lines: Technology Services (trust accounting and outsourcing), Asset Management (investment solutions for institutions and high-net-worth individuals), Mutual Fund Services (administration and distribution), and Investments in New Business (global expansion). The company serves approximately 5,500 clients and employs roughly 1,800 people.

Key Financial Metrics

Assets Under Management (AUM): Total AUM reached $76.3 billion (up 19% from 1999). Assets under administration totaled $276.4 billion.

Material Changes vs. Prior Period

• Revenue Growth: Consolidated revenues increased 31% to $598.8 million, driven primarily by a 56% surge in Asset Management revenues and a 20% increase in Technology Services.
• Earnings Expansion: Net income rose 47% to $99.0 million, with diluted earnings per share increasing 47% to $0.87.
• Segment Performance:
  • Asset Management: Revenues jumped 56% due to a 53% increase in average assets under management ($34.9 billion) and new client acquisitions.
  • Technology Services: Revenues grew 20% to $222.2 million, with operating profits rising 31% due to new sales and cross-selling.
  • Investments in New Business: Revenues grew 49% to $34.3 million, though the segment reported an operating loss of $15.6 million due to heavy investment in global expansion.
• Capital Structure: The company executed a three-for-one stock split in June 2000 and declared a two-for-one split to be paid in February 2001. Shareholders' equity more than doubled to $197.4 million, largely due to retained earnings and stock option tax benefits.

Outlook, Risks, and Management Commentary

Management Commentary: Management attributes growth to increased market acceptance, operational leverage, and a diverse portfolio of businesses. They intend to sustain growth by delivering new products to existing clients and expanding globally. The company expects to incur losses in the "Investments in New Business" segment in 2001 as it continues to invest in international infrastructure.

Risks and Contingencies:

• Market Volatility: Continued volatility in capital markets could cause investors to move funds out of higher-margin products or out of the market entirely, negatively impacting revenues.
• Banking Consolidation: Mergers and acquisitions in the banking industry could reduce the number of potential prospects for Technology Services and Mutual Fund Services.
• Regulatory Changes: Changes in regulations regarding directed brokerage payments or the repeal of Glass-Steagall provisions could impact service sales.
• Foreign Currency: While foreign operations account for only 7% of revenues, the company does not hedge foreign currency risk.

Unusual Items: The 1998 results included a one-time $12.9 million contractual buyout fee from a technology client acquisition, which inflated 1998 comparables. The 2000 results include a significant tax benefit ($42.2 million) from stock options exercised, which boosted operating cash flow.

Investor Verification Checklist

• Asset Flows: Verify the sustainability of the $12 billion net asset flow into funds during 2000 amidst market volatility.
• Global Expansion Costs: Monitor the "Investments in New Business" segment for continued operating losses and the timeline for profitability in Europe and Asia.
• Stock Repurchases: Confirm the remaining authorization ($55.7 million as of March 2001) and execution of the common stock buyback program.
• Debt Covenants: Review compliance with the $50 million line of credit and long-term debt covenants regarding net worth and investment restrictions.
• Fee Compression: Assess the impact of fee concessions extended to large bank clients in the Mutual Fund Services segment on future margins.