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Summary of Significant Accounting Policies | 9 Months Ended
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Sep. 30, 2017
Accounting Policies [Abstract] |
Summary of Significant Accounting Policies | 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 financial institutions, financial advisors, institutional investors, investment managers and ultra-high-net-worth families in the United States, Canada, the United Kingdom, continental Europe and various other 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 which are recognized in Transaction-based and trade execution fees. 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. 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 have 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 September 30, 2017, the results of operations for the three and nine months ended September 30, 2017 and 2016, and cash flows for the nine-month periods ended September 30, 2017 and 2016. 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, 2016. There have been no significant changes in significant accounting policies during the nine months ended September 30, 2017 as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 with the exception of the adoption of Accounting Standards Update (ASU) 2016-09, Improvements to Employee Share-Based Payment Accounting (ASU 2016-09) and the addition of the accounting policies related to business combinations and intangible assets. As required by ASU 2016-09, excess tax benefits recognized on stock-based compensation expense are reflected in the accompanying Consolidated Statements of Operations as a component of the provision for income taxes on a prospective basis (See Note 11). Additionally, excess tax benefits or deficiencies recognized on stock-based compensation expense are classified as an operating activity in the accompanying Consolidated Statements of Cash Flows. The Company has applied this provision retrospectively for the periods prior to the date of adoption. As a result, for the nine months ended September 30, 2016, net cash provided by operating activities increased by $5,941 with a corresponding offset to net cash used for financing activities. ASU 2016-09 also allows for the option to account for forfeitures as they occur when determining the amount of compensation cost to be recognized, rather than estimating expected forfeitures over the course of a vesting period. The Company elected to account for forfeitures as they occur. In addition, ASU 2016-09 eliminates anticipated windfalls and shortfalls that were included in the calculation of assumed proceeds for computing the dilutive effect of share-based payment awards in the calculation of diluted earnings per share. No adjustments to the Company's prior period reported diluted earnings per share amounts were permitted by ASU 2016-09. The net cumulative effect to the Company from the adoption of ASU 2016-09 was an increase to paid-in capital of $2,582, a reduction to retained earnings of $1,669 and an increase to deferred tax assets of $913 as of January 1, 2017. Cash and Cash Equivalents Cash and cash equivalents includes $298,869 and $374,760 at September 30, 2017 and December 31, 2016, respectively, primarily invested in SEI-sponsored open-ended money market mutual funds. The SEI-sponsored mutual funds are Level 1 assets. Restricted Cash Restricted cash includes $3,000 at September 30, 2017 and December 31, 2016 segregated for regulatory purposes related to trade-execution services conducted by SEI Investments (Europe) Limited. Restricted cash also includes $503 and $500 at September 30, 2017 and December 31, 2016, 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 (SEC) for broker-dealers. Capitalized Software The Company capitalized $48,573 and $33,196 of software development costs during the nine months ended September 30, 2017 and 2016, respectively. The Company's software development costs primarily relate to the continued development of the SEI Wealth Platform SM (the Platform). The Company capitalized $40,604 and $27,387 of software development costs for significant enhancements to the Platform during the nine months ended September 30, 2017 and 2016, respectively. As of September 30, 2017, the net book value of the Platform was $283,639. The net book value includes $27,344 of capitalized software development costs in-progress associated with future releases. The Platform has an estimated useful life of 15 years and a weighted average remaining life of 4.7 years. Amortization expense for the Platform was $37,324 and $33,387 during the nine months ended September 30, 2017 and 2016, respectively. The amount of amortization expense recognized related to the SEI Wealth Platform is based upon management’s estimate of its useful life. Management continually reassesses the estimated useful life of the Platform and any change in management's estimate could result in the remaining amortization expense to be accelerated or spread out over a longer period (See the caption "SEI Wealth Platform - Estimated Useful Life" of Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 2 for more information). The Company also capitalized $7,969 and $5,809 of software development costs during the nine months ended September 30, 2017 and 2016, respectively, related to an application for the Investment Managers segment. Capitalized software development costs in-progress at September 30, 2017 associated with the application were $23,477. The application is not yet ready for use. Business Combinations The Company accounts for business combinations in accordance with Accounting Standards Codification Topic 805, Business Combinations (ASC 805). ASC 805 establishes principles and requirements for recognizing the total consideration transferred, assets acquired and liabilities assumed in a business combination. ASC 805 also provides guidance for recognizing and measuring goodwill acquired in a business combination and requires the acquirer to disclose information needed to evaluate and understand the financial impact of the business combination. The Company recognizes assets and liabilities acquired at their estimated fair values. Management uses judgment to identify the acquired assets and liabilities assumed; estimate the fair value of these assets and liabilities; estimate the useful life of the assets; and assess the appropriate method for recognizing depreciation or amortization expense over the estimated useful life of the assets. Intangible Assets The Company reviews long-lived assets and identifiable definite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. For purposes of recognizing and measuring an impairment loss, a long-lived asset is grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent. Identifiable definite-lived intangible assets on the Company’s Consolidated Balance Sheet are amortized on a straight-line basis according to their estimated useful lives (See Note 14). Goodwill recorded is not amortized but is reviewed for impairment annually or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The provisions of accounting guidance require that a two-step, fair value based test be performed to assess goodwill for impairment. In the first step, the fair value of each reporting unit is compared with its carrying value, including goodwill. If the fair value exceeds the carrying value, goodwill is not impaired and no further testing is performed. The second step is performed if the carrying value exceeds the fair value. The second step requires an allocation of fair value to the individual assets and liabilities using a purchase price allocation in order to determine the implied fair value of goodwill. If the implied fair value of goodwill is less than the carrying amount, an impairment loss is recognized. Earnings per Share The calculations of basic and diluted earnings per share for the three and nine months ended September 30, 2017 and 2016 are:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2017 |  | 2016 |  | 2017 |  | 2016
Net income | $ | 101,739 |  |  | $ | 86,704 |  |  | $ | 282,245 |  |  | $ | 245,206 |
Shares used to compute basic earnings per common share | 157,902,000 |  |  | 160,916,000 |  |  | 158,439,000 |  |  | 161,908,000 |
Dilutive effect of stock options | 3,246,000 |  |  | 3,009,000 |  |  | 3,427,000 |  |  | 3,145,000 |
Shares used to compute diluted earnings per common share | 161,148,000 |  |  | 163,925,000 |  |  | 161,866,000 |  |  | 165,053,000 |
Basic earnings per common share | $ | 0.64 |  |  | $ | 0.54 |  |  | $ | 1.78 |  |  | $ | 1.51 |
Diluted earnings per common share | $ | 0.63 |  |  | $ | 0.53 |  |  | $ | 1.74 |  |  | $ | 1.49 |
During the three months ended September 30, 2017 and 2016, employee stock options to purchase 11,324,000 and 10,258,000 shares of common stock with an average exercise price of $37.81 and $34.11, respectively, were outstanding but not included in the computation of diluted earnings per common share. During the nine months ended September 30, 2017 and 2016, employee stock options to purchase 11,286,000 and 10,384,000 shares of common stock with an average exercise price of $37.73 and $34.07, respectively, were outstanding but not included in the computation of diluted earnings per common share. These options for the three and nine month periods were not included in the computation of diluted earnings per common share because either the performance conditions have not been satisfied or would have been satisfied if the reporting date was the end of the contingency period or the option’s exercise price was greater than the average market price of the Company’s common stock and the effect on diluted earnings per common share would have been anti-dilutive. Reclassifications Certain prior year amounts have been reclassified to conform to current year presentation. 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 nine months ended September 30:
| 2017 |  | 2016
Net income | $ | 282,245 |  |  | $ | 245,206 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |
Depreciation | 20,347 |  |  | 19,457 |
Amortization | 38,332 |  |  | 33,684 |
Equity in earnings of unconsolidated affiliate | (109,213 | ) |  | (92,042 | )
Distributions received from unconsolidated affiliate | 117,447 |  |  | 102,246 |
Stock-based compensation | 19,527 |  |  | 12,044 |
Provision for losses on receivables | 176 |  |  | 338 |
Deferred income tax expense | 1,143 |  |  | (1,521 | )
Gain from sale of SEI AK | — |  |  | (2,791 | )
Net gain from investments | (1,036 | ) |  | (320 | )
Tax benefit on stock options exercised (1) | — |  |  | 5,941 |
Change in other long-term liabilities | 106 |  |  | 2,706 |
Change in other assets | 79 |  |  | (2,463 | )
Other | 1,067 |  |  | 602 |
Change in current assets and liabilities |  |  |
Decrease (increase) in |  |  |
Receivables from investment products | 10,800 |  |  | (685 | )
Receivables | (43,661 | ) |  | (25,037 | )
Other current assets | (2,962 | ) |  | (4,072 | )
Increase (decrease) in |  |  |
Accounts payable | (1,748 | ) |  | 2,497 |
Accrued liabilities | (15,856 | ) |  | (6,945 | )
Deferred revenue | (409 | ) |  | 589 |
Total adjustments | 34,139 |  |  | 44,228 |
Net cash provided by operating activities | $ | 316,384 |  |  | $ | 289,434 |
(1) The tax benefit on stock options exercised for the nine months ended September 30, 2016 was reclassified to operating activities from financing activities upon the adoption of ASU 2016-09. New Accounting Pronouncements In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09), requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The updated standard permits the use of either the retrospective or cumulative effect transition method. The FASB has issued several amendments to the standard, including principal versus agent guidance and identifying performance obligations. ASU 2014-09 will become effective for the Company during the first quarter 2018. The Company continues to assess the impact of ASU 2014-09 on its revenue arrangements. The Company expects the adoption of ASU 2014-09 to have an impact to its business processes, financial reporting disclosures and internal controls over financial reporting. As part of its project plan’s preliminary assessment and design implementation phases for the adoption of ASU 2014-09, the Company has adopted implementation controls that allows it to properly and timely adopt ASU 2014-09 on the effective date. The Company will make continuous updates to the quarterly and year-end disclosures, with a focus on both status and internal controls over financial reporting. The new standard will have a significant impact to the Company's financial statement disclosures, including identifying information that the Company will have to develop under the new standard. The Company’s implementation plan includes the following:
• | Developed a phased implementation project plan with a specific timeline and milestones;
• | Developed an understanding of the new standard and its requirements;
• | Analyzed the Company’s revenue streams;
• | Gathering and evaluating the required and relevant information for ASU 2014-09; and
• | Continue to monitor the impact of ASU 2014-09 and the various interpretations and supplemental guidance that become available.
Upon its initial assessment, the Company has made the following observations: Revenue:
• | The Company offers many services which are bundled together, and provided and completed for the client on a monthly basis. In assessing these contracts, the Company expects to continue to recognize revenue for these types of services on a monthly basis as the client consumes the benefits continuously over time. Similarly, the Company expects that transaction-based and trade execution fees based on current period activity will not be affected by the adoption of ASU 2014-09.
• | The Company continues to assess the effect of the adoption of the new standard on the timing of the recognition of implementation fees, which are recognized in Information processing and software servicing fees as well as fund conversion fees and other ancillary fees recognized in Asset management, administration and distribution fees. While the Company has not made a final determination, the timing of the recognition for these revenues may change.
• | The new standard also modified some of the principal and agent considerations which may result in changes to gross or net treatment of revenue and expenses but would not affect final net income.
Contract costs:
• | The Company expects to capitalize the costs of obtaining the contracts related to the information processing and software servicing fees revenue stream affected by the standard. Sales commissions and contract costs related to fund conversions are also expected to be capitalized. Under current guidance, contract costs are expensed at inception of an agreement but under the new standard, the costs will generally be capitalized and amortized over the period of customer life as defined in the new standard, unless a practical expedient is applied to fully expense contract costs for contracts with an amortization period of one year or less.
Transition method:
• | The new standard provides companies with alternative methods of adoption. The Company is in the process of determining the method of adoption, which depends in part upon the completion of the evaluation of the remaining revenue arrangements. The Company anticipates it will elect the cumulative effect transition method.
Upon completion of the Company’s implementation plan and evaluation of the remaining revenue contracts, the Company plans to adopt additional controls around internal controls over financial reporting and its business processes for any new revenue arrangements that the Company enters. The Company is on target to complete its assessment of ASU 2014-09 and the impact on the Company’s consolidated financial statements and related disclosures as of January 1, 2018. In February 2016, the FASB issued ASU No. 2016-02, Leases (ASU 2016-02) requiring lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases with the exception of short-term leases. For lessees, leases will continue to be classified as either operating or finance leases in the income statement. Lessor accounting is similar to the current model but updated to align with certain changes to the lessee model. Lessors will continue to classify leases as operating, direct financing or sales-type leases. The new standard must be adopted using a modified retrospective transition and requires application of the new guidance at the beginning of the earliest comparative period presented. The updated standard is effective for the Company beginning in the first quarter of 2019. Early adoption is permitted. The Company is currently evaluating the transition method that will be elected and the effect that the updated standard will have on its consolidated financial statements and related disclosures. In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment (ASU 2017-04). The objective of ASU 2017-04 is to simplify the subsequent measurement of goodwill by entities performing their annual goodwill impairment tests by comparing the fair value of a reporting unit, including income tax effects from any tax-deductible goodwill, with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds fair value. ASU 2017-04 is effective for the Company beginning in the first quarter of 2020. Early adoption is permitted. The Company is currently evaluating the impact of adopting ASU 2017-04 on its consolidated financial statements and related disclosures.

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