SEIC

SEI Investments Company - 2001 Annual Report (10-K) Summary

Business Context and Reporting Period

This report covers the fiscal year ended December 31, 2001. SEI Investments Company provides investment processing solutions, fund processing, and investment management programs to banks, trust companies, financial advisors, and institutional investors. The company operates through five segments: Private Banking & Trust (55% of revenue), Investment Advisors (24%), Enterprises (10%), Money Managers (5%), and Investments in New Businesses (6%). In 2001, the company realigned its operations into business units tailored to specific market segments.

Key Financial Metrics

Assets Under Management (AUM) & Administration: Total assets under management and administration were $258.0 billion at year-end 2001, compared to $276.4 billion in 2000. This decline was primarily due to the loss of significant fund processing clients in the third quarter.

Material Changes vs. Prior Period

• Revenue Growth: Consolidated revenues increased 10% to $658.0 million, driven by new client sales and cross-selling of new products, despite declines in capital markets in the latter half of 2001.
• Profitability: Operating income rose 24% to $183.2 million. Operating margins improved to 27.8% due to economies of scale and operational efficiencies.
• Segment Performance:
  • Private Banking & Trust: Revenues grew 6%, but fund processing fees declined due to the loss of several significant clients involved in mergers, causing a $30 billion drop in assets under administration.
  • Investment Advisors: Revenues grew 16% and operating income grew 37%, driven by the recruitment of 1,100 new advisors.
  • Enterprises: Operating income surged 93% to $20.0 million.
  • Investments in New Businesses: Continued to incur losses ($23.6 million) as the company expands global operations.
• Debt Structure: Long-term debt increased significantly due to the borrowing of $25.0 million under a new term loan agreement in August 2001.

Outlook, Risks, and Management Commentary

• Guidance: Management expects to incur losses in the "Investments in New Businesses" segment throughout 2002. Future growth depends on delivering new products and generating economies of scale.
• Capital Markets Risk: Declines in capital markets and economic uncertainty have inhibited revenue expansion and slowed purchase decisions by clients. Revenues are heavily tied to the value of assets managed and administered.
• Client Consolidation: Consolidations in the banking industry may reduce the number of prospects or eliminate customers, though economic pressures may increase demand for outsourcing.
• Regulatory Risks: The company is subject to extensive regulation by the SEC, banking authorities, and state agencies. Changes in regulations regarding directed brokerage or soft dollar payments could affect sales.
• Capital Allocation: The company continued its stock repurchase program, acquiring 2.8 million shares for $103.3 million in 2001. It also declared semiannual dividends of $0.05 per share.

Investor Verification Checklist

• Client Concentration: Verify the impact of the $30 billion loss in assets under administration from the third-quarter client departures in the Private Banking segment.
• Debt Covenants: Review compliance with covenants on the new $25 million term loan and the $25 million line of credit.
• Global Expansion Costs: Monitor the "Investments in New Businesses" segment for continued losses and the timeline for profitability in international markets.
• Capital Market Sensitivity: Assess the correlation between market volatility and the company's fee-based revenue streams (approx. 65% of total revenue).
• Stock Repurchase Authorization: Confirm the remaining balance of the $503.4 million share repurchase authorization (approx. $44.9 million remaining as of Feb 2002).