Summary of Significant Accounting Policies

Nature of Operations

SEI Investments Company (the Company), a Pennsylvania corporation, provides investment processing, investment management, and investment operations solutions to corporations, financial institutions, financial advisors, and ultra-high-net-worth families in the United States, Canada, the United Kingdom, continental Europe, and other various locations throughout the world. Investment processing solutions consist of application and business process outsourcing services, professional services and transaction-based services. Revenues from investment processing solutions are recognized in Information processing and software servicing fees on the accompanying Consolidated Statements of Operations, except for fees earned associated with trade execution services.

Investment management programs consist of mutual funds, alternative investments and separate accounts. These include a series of money market, equity, fixed-income and alternative investment portfolios, primarily in the form of registered investment companies. The Company serves as the administrator and investment advisor for many of these products. Revenues from investment management programs are recognized in Asset management, administration and distribution fees on the accompanying Consolidated Statements of Operations.

Investment operations solutions offer investment managers support for traditional investment products such as mutual funds, collective investment trusts, exchange-traded funds, and institutional and separate accounts, by providing outsourcing services including fund and investment accounting, administration, reconciliation, investor servicing and client reporting. These solutions also provide support to managers focused on alternative investments who manage hedge funds, funds of hedge funds, private equity funds and real estate funds, across registered, partnership and separate account structures domiciled in the United States and overseas. Revenues from investment operations solutions are recognized in Asset management, administration and distribution fees on the accompanying Consolidated Statements of Operations.

On July 31, 2012, the Company entered into a definitive agreement to sell all ownership interest in the asset management firm SEI Asset Korea (SEI AK), a joint venture located in South Korea. The Company's ownership interest in SEI AK as of December 31, 2012 was 56.1 percent. On March 28, 2013, all conditions subject to closing the transaction were satisfied and all ownership interests in SEI AK were transferred to the buyer (See Note 13).

Basis of Presentation

The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Certain financial information and accompanying note disclosure normally included in the Company’s Annual Report on Form 10-K has been condensed or omitted. The interim financial information is unaudited but reflects all adjustments (consisting of only normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of financial position of the Company as of March 31, 2013, the results of operations for the three months ended March 31, 2013 and 2012, and cash flows for the three month periods ended March 31, 2013 and 2012. These interim Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

There have been no significant changes in significant accounting policies during the three months ended March 31, 2013 as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

Cash and Cash Equivalents

Cash and cash equivalents includes $308,700 and $247,314 at March 31, 2013 and December 31, 2012, respectively, primarily invested in SEI-sponsored open-ended money market mutual funds.

Restricted Cash

Restricted cash includes $5,000 at March 31, 2013 and December 31, 2012 segregated for regulatory purposes related to trade-execution services conducted by SEI Investments (Europe) Limited. Restricted cash also includes $500 and $1,000 at March 31, 2013 and December 31, 2012, respectively, segregated in special reserve accounts for the benefit of customers of the Company’s broker-dealer subsidiary, SEI Investments Distribution Co. (SIDCO), in accordance with certain rules established by the Securities and Exchange Commission for broker-dealers.

Capitalized Software

The Company capitalized $6,048 and $9,277 of software development costs during the three months ended March 31, 2013 and 2012, respectively. As of March 31, 2013, capitalized software placed into service included on the accompanying Consolidated Balance Sheet had a weighted average remaining life of approximately 9.3 years. Amortization expense related to capitalized software was $8,186 and $7,181 during the three months ended March 31, 2013 and 2012, respectively.

Software development costs capitalized during the three months ended March 31, 2013 and 2012 relates to the continued development of the SEI Wealth Platform (SWP), formerly known as the Global Wealth Platform or GWP. As of March 31, 2013, the net book value of SWP was $303,026, net of accumulated amortization of $128,007. Capitalized software development costs in-progress at March 31, 2013 associated with future releases to SWP were $2,020. SWP has an estimated useful life of 15 years and a weighted average remaining life of 9.3 years. Amortization expense for SWP was $8,068 and $7,064 during the three months ended March 31, 2013 and 2012, respectively.

Earnings per Share

The calculations of basic and diluted earnings per share for the three months ended March 31, 2013 and 2012 are:



	For the Three Months Ended March 31, 2013
	Income (Numerator)		Shares (Denominator)	Per Share Amount
Basic earnings per common share	$	71,920	172,598	$	0.42
Dilutive effect of stock options	—		3,407
Diluted earnings per common share	$	71,920	176,005	$	0.41



	For the Three Months Ended March 31, 2012
	Income (Numerator)		Shares (Denominator)	Per Share Amount
Basic earnings per common share	$	49,965	176,348	$	0.28
Dilutive effect of stock options	—		1,320
Diluted earnings per common share	$	49,965	177,668	$	0.28

Employee stock options to purchase 6,863,000 and 14,329,000 shares of common stock, with an average exercise price of $28.05 and $23.43, were outstanding during the three months ended March 31, 2013 and 2012, respectively, but not included in the computation of diluted earnings per common share because the effect on diluted earnings per common share would have been anti-dilutive.

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.

The following table provides the details of the adjustments to reconcile net income to net cash provided by operating activities for the three months ended March 31:



	2013			2012
Net income	$	72,270		$	50,235
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	5,704			5,432
Amortization	8,242			7,622
Equity in earnings of unconsolidated affiliates	(27,588		)	(27,330		)
Distributions received from unconsolidated affiliate	27,821			21,593
Stock-based compensation	5,293			4,033
Provision for losses on receivables	216			(48		)
Deferred income tax expense	(7,730		)	(517		)
Gain from sale of SEI AK (See Note 13)	(22,112		)	—
Net realized gains from investments	(280		)	(3,205		)
Change in other long-term liabilities	368			2,556
Change in other assets	2,832			(1,385		)
Other	(7,996		)	2,656
Change in current asset and liabilities
Decrease (increase) in
Restricted cash for broker-dealer operations	500			—
Receivables from regulated investment companies	(5,473		)	(9,183		)
Receivables	(9,127		)	(4,413		)
Other current assets	(2,466		)	(1,687		)
Increase (decrease) in
Accounts payable	(4,618		)	242
Accrued liabilities	4,571			(6,575		)
Deferred revenue	(952		)	(802		)
Total adjustments	(32,795		)	(11,011		)
Net cash provided by operating activities	$	39,475		$	39,224

Reclassifications

Certain prior year amounts have been reclassified to conform to current year presentation.