Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
SEIC > SEC Filings for SEIC > Form 10-K on 27-Feb-2014All Recent SEC Filings

Show all filings for SEI INVESTMENTS CO

Form 10-K for SEI INVESTMENTS CO


27-Feb-2014

Annual Report


Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
(In thousands, except share and per-share data)
This discussion reviews and analyzes the consolidated financial condition at December 31, 2013 and 2012, the consolidated results of operations for the years ended December 31, 2013, 2012 and 2011, and other factors that may affect future financial performance. This discussion should be read in conjunction with the Selected Financial Data included in Item 6 of this Annual Report and the Consolidated Financial Statements and Notes to the Consolidated Financial Statements included in Item 8 of this Annual Report.
Certain information contained in this discussion is or may be considered forward-looking. Forward-looking statements relate to future operations, strategies, financial results or other developments. Forward-looking statements are based upon estimates and assumptions that involve certain risks and uncertainties, many of which are beyond our control or are subject to change. Although we believe our assumptions are reasonable, they could be inaccurate. Our actual future revenues and income could differ materially from our expected results. We have no obligation to publicly update or revise any forward-looking statements.
Overview
Consolidated Summary
We are a leading global provider of investment processing, investment management and investment operations solutions. We help corporations, financial institutions, financial advisors and ultra-high-net-worth families create and manage wealth by providing comprehensive, innovative, investment and investment-business solutions. Investment processing fees are earned as monthly fees for contracted services, including computer processing services, software licenses and investment operations services, as well as transaction-based fees for providing securities valuation and trade-execution. Investment operations and investment management fees are earned as a percentage of average assets under management or administration. As of December 31, 2013, through our subsidiaries and partnerships in which we have a significant interest, we manage or administer $559.2 billion in mutual fund and pooled or separately managed assets, including $231.9 billion in assets under management and $327.3 billion in client assets under administration.
Our Condensed Consolidated Statements of Operations for the years ended 2013, 2012 and 2011 were:
                                                                    Percent                   Percent
Year Ended December 31,                  2013            2012        Change        2011        Change
Revenues                             $ 1,126,132     $  992,522        13  %   $  929,727         7  %
Expenses                                 877,723        780,956        12  %      725,662         8  %
Income from operations                   248,409        211,566        17  %      204,065         4  %
Net gain from investments                    659         14,067       (95 )%        3,360        NM
Interest income, net of interest
expense                                    2,713          5,192       (48 )%        5,244        (1 )%
Equity in earnings of
unconsolidated affiliates                118,076         98,671        20  %      105,818        (7 )%
Gain on sale of subsidiary                22,112              -        NM               -         -  %
Other income                              43,429              -        NM               -         -  %
Income before income taxes               435,398        329,496        32  %      318,487         3  %
Income taxes                             146,924        121,462        21  %      111,837         9  %
Net income                               288,474        208,034        39  %      206,650         1  %
Less: Net income attributable to
the noncontrolling interest                 (350 )       (1,186 )     (70 )%       (1,691 )     (30 )%
Net income attributable to SEI
Investments Company                  $   288,124     $  206,848        39  %   $  204,959         1  %
Diluted earnings per common share    $      1.64     $     1.18        39  %   $     1.11         6  %

Significant Items Impacting Our Financial Results in 2013 Revenues increased $133.6 million, or 13 percent, to $1.1 billion in 2013 compared to 2012. Net income attributable to SEI increased $81.3 million, or 39 percent, to $288.1 million and diluted earnings per share increased to $1.64 per share in 2013 compared to $1.18 per share in 2012. We believe the following items were significant to our business results during 2013:
Revenue growth was primarily driven by higher Asset management, administration and distribution fees from positive cash flows from new and existing clients and market appreciation. Our average assets under management, excluding LSV, increased $14.9 billion, or 11 percent, to $145.4 billion during 2013 as compared to $130.5 billion during 2012.

Page 17 of 76

Sales of new business in our Institutional Investors and Investment Managers business segments as well as positive cash receipts from new and existing advisor relationships in our Investment Advisors business segment contributed to the increase in our revenues and profits.

Revenue growth was also driven by increased Information processing and software servicing fees in our Private Banks segment. The increase was primarily attributable to new business and increased fees earned from our mutual fund trading solution.

We recorded income of $43.4 million, or $0.16 diluted earnings per share, from a cash settlement payment received during the second quarter pertaining to litigation related to the purchase of securities of Cheyne Finance LLC, a structured investment vehicle (SIV) security (See Note 16 to the Consolidated Financial Statements for more information).

Our proportionate share in the earnings of LSV was $119.0 million in 2013 as compared to $100.0 million in 2012, an increase of 19 percent. The increase in our earnings was primarily driven by the increase in assets under management of LSV from existing clients due to market appreciation and an increase in performance fees earned by LSV. Our earnings from LSV; however, were negatively impacted by the decrease in our ownership interest from approximately 39.8 percent to approximately 39.3 percent during the second quarter. The reduction in our ownership interest is described in greater detail under the caption "Equity in earnings of unconsolidated affiliates" later in this discussion.

Our sale of SEI Asset Korea (SEI AK) was completed during the first quarter resulting in a gain of $22.1 million, or $0.08 diluted earnings per share. The gain from the sale is included in Gain on sale of subsidiary on the accompanying Consolidated Statement of Operations. The operating results of SEI AK were included in the Private Banks business segment (See Note 15 to the Consolidated Financial Statements for more information).

The direct costs associated with our investment management programs increased in our Private Banks and Institutional Investors segments. These costs primarily relate to fees charged by investment advisory firms and are included in Sub-advisory, distribution and other asset management costs on the accompanying Consolidated Statements of Operations.

Our operating expenses related to personnel and third-party service providers in our Private Banks and Investment Managers segments increased. These increased operational costs are mainly related to servicing new and existing clients and are included in Compensation, benefits and other personnel as well as Consulting, outsourcing and professional fees on the accompanying Consolidated Statements of Operations.

Stock-based compensation expense increased by $22.1 million during 2013 as compared 2012 due mainly to a change in our estimate of the timing of when stock option vesting targets will be achieved. The change in our estimate resulted from the positive earnings impacts from the previously mentioned cash payment for the litigation settlement and the sale of SEI AK during 2013 (See the caption "Stock-Based Compensation" later in this discussion for more information).

We capitalized $39.5 million in 2013 for significant enhancements and new functionality for the SEI Wealth Platform as compared to $31.0 million in 2012. Included in the amount for 2013 is a one-time contractual payment of $8.8 million to exercise a conversion option in lieu of periodic fee payments pertaining to a software license for the Platform. Amortization expense related to capitalized software increased to $34.4 million during 2013 as compared to $32.6 million during 2012 primarily due to continued releases of the Platform. Amortization expense during 2012 includes $2.7 million of expense related to the remaining net book value of a component of the Platform that was discontinued.

Corporate overhead costs increased due to increased stock-based compensation, increased personnel costs and higher costs related to regulatory and compliance matters.

Our effective tax rates were 33.7 percent in 2013 and 36.9 percent in 2012. The 2013 tax rate was benefited by the changes to the Pennsylvania Tax Law primarily relating to the method of apportioning income to Pennsylvania. These changes have dramatically reduced the deferred tax liability which had accumulated during prior years. Our 2013 tax rate was also benefited by the reinstatement of the research and development tax credit. The 2012 tax rate included the U.S. deferred taxes on the undistributed earnings of SEI AK (See the caption "Income Taxes" later in this discussion for more information).

We continued our stock repurchase program and purchased approximately 6,789,000 shares at an average price of $30.92 per share for a total cost of $209.9 million.

Page 18 of 76

Significant Items Impacting Our Financial Results in 2012 Revenues increased $62.8 million, or seven percent, to $992.5 million in 2012 compared to 2011. Net income attributable to SEI increased $1.9 million, or one percent, to $206.8 million and diluted earnings per share increased to $1.18 per share in 2012 compared to $1.11 per share in 2011. We believe the following items were significant to our business during 2012:
Revenue growth in 2012 was primarily driven by higher Asset management, administration and distribution fees from improved cash flows from new and existing clients and the net market appreciation during 2012. Our average assets under management, excluding LSV, increased $13.5 billion, or 12 percent, to $130.5 billion during 2012 as compared to $117.0 billion during 2011.

Sales of new business in our Institutional Investors and Investment Managers business segments as well as positive cash receipts from new and existing advisor relationships in our Investment Advisors business segment contributed to the increase in our revenues and profits.

Our investment processing fees in our Private Banks business segment increased due to new business, higher one-time project revenue and increased fees earned on our mutual fund trading solution.

Our proportionate share in the earnings of LSV was $100.0 million in 2012 as compared to $105.8 million in 2011. The decrease in our earnings was primarily due to lower profits caused by increased personnel costs as well as a decrease in our ownership percentage from approximately 41.2 percent to approximately 39.8 percent beginning with the second quarter 2012. The reduction in our ownership percentage is described in greater detail under the caption "Equity in earnings of unconsolidated affiliates" later in this discussion.

Our operating expenses related to servicing new and existing clients implemented on the Platform increased during 2012 as we continue to build out the operational infrastructure. These increased operational costs, mainly related to personnel and third party service providers, primarily impacted the Private Banks business segment. The increased operational costs are primarily included in Compensation, benefits and other personnel on the accompanying Consolidated Statements of Operations.

Our consulting costs incurred for the development of the Platform, excluding amounts capitalized, have declined during 2012 as compared to 2011. These consulting costs, which are expensed as incurred, are included in Consulting, outsourcing and professional fees on the accompanying Consolidated Statements of Operations.

Our operating expenses related to our hedge fund and separately managed accounts solutions of our Investment Managers business segment increased during 2012 as compared to 2011. These increased operational costs, mainly related to personnel, resulted from servicing new and existing clients and are also included in Compensation, benefits and other personnel on the accompanying Consolidated Statements of Operations.

Sales events, net of client losses, were significantly higher during 2012. These sales events resulted in an increase in sales compensation expense of $12.8 million when compared 2011. Also, incentive compensation expense increased in 2012 as compared to 2011.

Amortization expense related to capitalized software increased to $32.6 million during 2012 as compared to $26.2 million during 2011 primarily due to continued releases of the Platform. Additionally, we decided to discontinue the use of specific functionality within the platform and incurred $2.7 million of amortization expense related to the remaining net book value of the component during 2012. This expense was recognized in our Private Banks business segment.

We recognized gains of $13.2 million in 2012 and $3.4 million in 2011 from SIV securities. In November 2012, we sold our remaining SIV security, the senior notes issued by Gryphon, and recognized a gain of $5.3 million from the sale. We no longer own any SIV securities at December 31, 2012 (See Notes 5 and 6 to the Consolidated Financial Statements).

Our effective tax rates were 36.9 percent in 2012 and 35.2 percent in 2011. The increase in our tax rate was due to the accrual of taxes on the cumulative undistributed earnings of SEI AK as well as the impact of the Domestic Production Activities Deduction which benefited our tax rate in 2011.

We continued our stock repurchase program and purchased approximately 7,528,000 shares at an average price of $20.62 per share for a total cost of $155.3 million. Our stock repurchases during 2012 significantly contributed to our growth in earnings per share.

Product Development - SEI Wealth Platform Much of our product development efforts have been focused on building and delivering the SEI Wealth Platform. The Platform is a business solution heavily supported by technology to drive our entry into the European private bank market, improve client experience capabilities, and strengthen operating efficiencies. The Platform combines internally built functionality and third party applications and integrates them into a single solution with a single user experience. The goal is to provide straight through business processing and transform the middle and back office operations that exist today. The capabilities of the Platform will expand our service offerings to include large financial institutions, investment advisors, insurance companies,

Page 19 of 76

brokerage houses, and other similar institutions. In addition, the capabilities of the Platform provide us the opportunity to enter into new global markets. The initial version of the Platform was offered in July 2007 in the United Kingdom. Since then, we have signed 20 independent wealth advisors and other wealth managers in the United Kingdom and signed 9 banks in the United States. We have also converted a small, select group of investment advisors in the United States. While these are encouraging signs of progress, we acknowledge the Platform is still in the early stage of deployment. We will continue to focus our development efforts on enhancing the functionality of the Platform and building the operational infrastructure for a wider deployment of the Platform to financial institutions and investment advisors in the United States. The aggregate cost attributable to the Platform, including amortization expense, may increase in 2014.
An area of continued focus is improving the operational efficiency of the Platform that would promote scale more quickly. Our operational costs consist mainly of third-party vendor costs and SEI personnel. We are investing in the operational infrastructure that will attempt to provide a sustainable operating model that minimizes cost as revenues increase. However, if we are unable to price our services correctly and to provide an attractive value proposition for our prospective clients, the incremental rate of revenue and profits may be hampered.
As we progress through these different stages of deployment of the Platform to a broader market, we expect to encounter numerous challenges; however, in our opinion, the Platform promises to provide a significant opportunity to expand our services into new markets that will increase revenues and profits in the long-term. Until we attain a level of revenues that technological and operational scale can be achieved, we expect continued pressure on our operating margins in the Private Banks business segment and an increased level of pressure on our operating margins in the Investment Advisors business segment. Sensitivity of our revenues and earnings to capital market fluctuations The majority of our revenues are based on the value of assets invested in investment products that we manage or administer which are affected by changes in the capital markets. The prevailing capital market conditions during 2013 had a net positive impact on our asset-based investment management fees thereby increasing our base revenues. Conversely, prolonged future downturns in the general capital markets could have adverse affects on our revenues and earnings derived from assets under management and administration.

Page 20 of 76

Ending Asset Balances
This table presents ending asset balances of our clients, or of our clients'
customers, for which we provide management or administrative services through
our subsidiaries and partnerships in which we have a significant interest.
Ending Asset Balances
(In millions)                                                   As of December 31,

                                     2013           2012        Percent Change        2011        Percent Change
Private Banks:
Equity and fixed income
programs (a)                     $   15,472     $   18,862           (18 )%       $   16,435            15  %
Collective trust fund programs           14             11            27  %              450           (98 )%
Liquidity funds                       5,685          6,008            (5 )%            5,553             8  %
Total assets under management    $   21,171     $   24,881           (15 )%       $   22,438            11  %
Client proprietary assets
under administration                 15,272         12,178            25  %           10,355            18  %
Total assets                     $   36,443     $   37,059            (2 )%       $   32,793            13  %
Investment Advisors:
Equity and fixed income
programs                         $   38,574     $   31,220            24  %       $   26,639            17  %
Collective trust fund programs           11             14           (21 )%            1,298           (99 )%
Liquidity funds                       2,846          2,514            13  %            2,505             -  %
Total assets under management    $   41,431     $   33,748            23  %       $   30,442            11  %
Institutional Investors:
Equity and fixed income
programs                         $   66,548     $   62,160             7  %       $   49,051            27  %
Collective trust fund programs          109            102             7  %              492           (79 )%
Liquidity funds                       2,644          2,454             8  %            3,888           (37 )%
Total assets under management    $   69,301     $   64,716             7  %       $   53,431            21  %
Investment Managers:
Equity and fixed income
programs                         $       69     $       67             3  %       $       57            18  %
Collective trust fund programs       22,377         16,197            38  %           11,255            44  %
Liquidity funds                         718            408            76  %              152           168  %
Total assets under management    $   23,164     $   16,672            39  %       $   11,464            45  %
Client proprietary assets
under administration                311,992        244,671            28  %          221,198            11  %
Total assets                     $  335,156     $  261,343            28  %       $  232,662            12  %
Investments in New Businesses:
Equity and fixed income
programs                         $      619     $      513            21  %       $      515             -  %
Liquidity funds                          46             43             7  %               37            16  %
Total assets under management    $      665     $      556            20  %       $      552             1  %
LSV:
Equity and fixed income
programs                         $   76,189     $   60,947            25  %       $   53,712            13  %
Total:
Equity and fixed income
programs (a)                     $  197,471     $  173,769            14  %       $  146,409            19  %
Collective trust fund programs       22,511         16,324            38  %           13,495            21  %
Liquidity funds                      11,939         11,427             4  %           12,135            (6 )%
Total assets under management    $  231,921     $  201,520            15  %       $  172,039            17  %
Client proprietary assets
under administration                327,264        256,849            27  %          231,553            11  %
Total assets under management
and administration               $  559,185     $  458,369            22  %       $  403,592            14  %

(a) Equity and fixed income programs in the Private Banks segment in 2012 and 2011 includes $7.0 billion and $6.7 billion, respectively, in assets related to SEI AK which was sold in the first quarter of 2013 (See Note 15 to the Consolidated Financial Statements).

Page 21 of 76

Average Asset Balances
This table presents average asset balances of our clients, or of our clients'
customers, for which we provide management or administrative services through
our subsidiaries and partnerships in which we have a significant interest.
Average Asset Balances
(In millions)                                            For the Year Ended December 31,

                                     2013           2012        Percent Change        2011        Percent Change
Private Banks:
Equity and fixed income
programs (a)                     $   15,188     $   17,434           (13 )%       $   15,891            10  %
Collective trust fund programs           11            282           (96 )%              526           (46 )%
Liquidity funds                       5,252          5,332            (2 )%            5,145             4  %
Total assets under management    $   20,451     $   23,048           (11 )%       $   21,562             7  %
Client proprietary assets
under administration                 13,626         10,873            25  %           10,672             2  %
Total assets                     $   34,077     $   33,921             -  %       $   32,234             5  %
Investment Advisors:
Equity and fixed income
programs                         $   35,290     $   29,611            19  %       $   27,274             9  %
Collective trust fund programs           14            728           (98 )%            1,497           (51 )%
Liquidity funds                       2,355          1,970            20  %            1,970             -  %
Total assets under management    $   37,659     $   32,309            17  %       $   30,741             5  %
Institutional Investors:
Equity and fixed income
programs                         $   64,003     $   56,584            13  %       $   49,895            13  %
Collective trust fund programs          106            312           (66 )%              542           (42 )%
Liquidity funds                       2,937          3,415           (14 )%            3,453            (1 )%
Total assets under management    $   67,046     $   60,311            11  %       $   53,890            12  %
Investment Managers:
Equity and fixed income
programs                         $       74     $       63            17  %       $       39            62  %
Collective trust fund programs       18,985         13,873            37  %            9,978            39  %
Liquidity funds                         554            276           101  %              199            39  %
Total assets under management    $   19,613     $   14,212            38  %       $   10,216            39  %
Client proprietary assets
under administration                286,208        233,024            23  %          235,096            (1 )%
Total assets                     $  305,821     $  247,236            24  %       $  245,312             1  %
Investments in New Businesses:
Equity and fixed income
programs                         $      577     $      537             7  %       $      545            (1 )%
Liquidity funds                          33             35            (6 )%               47           (26 )%
Total assets under management    $      610     $      572             7  %       $      592            (3 )%
LSV:
Equity and fixed income
programs                         $   68,870     $   57,935            19  %       $   58,478            (1 )%
Total:
Equity and fixed income
programs (a)                     $  184,002     $  162,164            13  %       $  152,122             7  %
Collective trust fund programs       19,116         15,195            26  %           12,543            21  %
Liquidity funds                      11,131         11,028             1  %           10,814             2  %
Total assets under management    $  214,249     $  188,387            14  %       $  175,479             7  %
Client proprietary assets
under administration                299,834        243,897            23  %          245,768            (1 )%
Total assets under management
and administration               $  514,083     $  432,284            19  %       $  421,247             3  %

(a) Equity and fixed income programs in the Private Banks segment in 2012 and 2011 includes $6.6 billion and $6.0 billion, respectively, in average assets related to SEI AK which was sold in the first quarter of 2013 (See Note 15 to the Consolidated Financial Statements).

Page 22 of 76

In the preceding tables, assets under management are total assets of our clients or their customers invested in our equity and fixed-income investment programs, collective trust fund programs, and liquidity funds for which we provide asset management services. Assets under management and administration also include total assets of our clients or their customers for which we provide administrative services, including client proprietary fund balances for which we provide administration and/or distribution services. All assets presented in the preceding tables are not included in the accompanying Consolidated Balance Sheets because we do not own them.
Business Segments
Revenues, Expenses, and Operating profit (loss) for our business segments for . . .

  Add SEIC to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for SEIC - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.