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Summary of Significant Accounting Policies | 9 Months Ended
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Sep. 30, 2020
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 comprehensive platforms for investment processing, investment operations and investment management to wealth managers, financial institutions, financial advisors, investment managers, institutional investors 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 platforms consist of application and business process outsourcing services, professional services and transaction-based services. Revenues from investment processing platforms are recognized in Information processing and software servicing fees on the accompanying Consolidated Statements of Operations. Investment operations platforms consist of outsourcing services including fund and investment accounting, administration, reconciliation, investor servicing and client reporting. Revenues from investment operations platforms are recognized in Asset management, administration and distribution fees on the accompanying Consolidated Statements of Operations. Investment management platforms consists of investment products including mutual funds, collective investment products, alternative investment portfolios and separately managed accounts. The Company serves as the administrator and investment advisor for many of these products. Revenues from investment management platforms 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, 2020, the results of operations for the three and nine months ended September 30, 2020 and 2019, and cash flows for the nine-months ended September 30, 2020 and 2019. 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, 2019. The Company adopted the requirements of Accounting Standards Update (ASU) 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (Accounting Standards Codification (ASC) 326)) (ASU 2016-13) and subsequent amendments ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments (ASU 2019-04) and ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments-Credit Losses (ASU 2019-11) on January 1, 2020. ASU 2016-13 and the related amendments are hereafter referred to as ASC 326. ASC 326 requires that expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. The Company owns mortgage-backed securities issued by the Government National Mortgage Association (GNMA), a federal agency of the U.S. government classified as Available-for-sale debt securities which qualify for the zero credit risk allowance. The Company's U.S. Treasury and other U.S. government agency securities classified as Securities owned are outside the scope of ASC 326. There was no impact to the Company's disclosures related to its marketable securities from the implementation of ASC 326. In accordance with ASC 326, the Company evaluated its receivable balances for credit risk based upon the source of revenue, its ability to collect fees directly from investment products or directly from assets in the client's account, a review of actual historical credit losses, and the potential for expected credit loss from its current client base. The Company has no meaningful historical credit loss data and a very limited amount of losses pertaining directly to a client's inability to satisfy its receivable balance even during periods of economic distress. The credit loss reserve recognized by the Company through the implementation of ASC 326 during the nine months ended September 30, 2020 was immaterial. The Company also adopted the requirements of ASU 2017-04, Simplifying the Test for Goodwill Impairment (ASU 2017-04) on January 1, 2020. The adoption of ASU 2017-04 did not have a material impact on the Company's consolidated financial statements and related disclosures. With the exception of the adoption of ASC 326 and ASU 2017-04, there have been no other significant changes in significant accounting policies during the nine months ended September 30, 2020 as compared to the significant accounting policies described in the Company's Annual Report on Form 10-K for the year ended December 31, 2019. Variable Interest Entities The Company or its affiliates have created numerous investment products for its clients in various types of legal entity structures. The Company serves as the Manager, Administrator and Distributor for these investment products and may also serve as the Trustee for some of the investment products. The Company receives asset management, distribution, administration and custodial fees for these services. Clients are the equity investors and participate in proportion to their ownership percentage in the net income or loss and net capital gains or losses of the products, and, on liquidation, will participate in proportion to their ownership percentage in the remaining net assets of the products after satisfaction of outstanding liabilities. The Company has concluded that it is not the primary beneficiary of the entities and, therefore, is not required to consolidate any of the pooled investment vehicles for which it receives asset management, distribution, administration and custodial fees under the VIE model. The entities either do not meet the definition of a VIE or the Company does not hold a variable interest in the entities. The entities either qualify for the money market scope exception, or are entities in which the Company’s asset management, distribution, administration and custodial fees are commensurate with the services provided and include fair terms and conditions, or are entities that are limited partnerships which have substantive kick-out rights. The Company acts as a fiduciary and does not hold any other interests other than insignificant seed money investments in the pooled investment vehicles. For this reason, the Company also concluded that it is not required to consolidate the pooled investment vehicles under the voting interest entity model. The Company is a party to expense limitation agreements with certain SEI-sponsored money market funds subject to Rule 2a-7 of the Investment Company Act of 1940 which establish a maximum level of ordinary operating expenses incurred by the fund in any fiscal year including, but not limited to, fees of the administrator or its affiliates. Under the terms of these agreements, the Company waived $8,575 and $6,390 in fees during the three months ended September 30, 2020 and 2019, respectively. During the nine months ended September 30, 2020 and 2019, the Company waived $24,930 and $21,091, respectively, in fees. Revenue Recognition Revenue is recognized when the transfer of control of promised goods or services under the terms of a contract with customers are satisfied in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those promised goods or services. Certain portions of the Company’s revenues involve a third party in providing goods or services to its customers. In such circumstances, the Company must determine whether the nature of its promise to the customer is to provide the underlying goods or services (the Company is the principal in the transaction and reports the transaction gross) or to arrange for a third party to provide the underlying goods or services (the entity is the agent in the transaction and reports the transaction net). See Note 13 for related disclosures regarding revenue recognition. Cash and Cash Equivalents Cash and cash equivalents includes $305,382 and $414,581 at September 30, 2020 and December 31, 2019, respectively, primarily invested in SEI-sponsored open-ended money market mutual funds. Restricted Cash Restricted cash includes $3,000 at September 30, 2020 and December 31, 2019 segregated for regulatory purposes related to trade-execution services conducted by SEI Investments (Europe) Limited. Restricted cash also includes $101 at September 30, 2020 and December 31, 2019 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 $18,640 and $26,821 of software development costs during the nine months ended September 30, 2020 and 2019, respectively. The Company's software development costs primarily relate to significant enhancements to the SEI Wealth PlatformSM (SWP). The Company capitalized $17,208 and $26,029 of software development costs for significant enhancements to SWP during the nine months ended September 30, 2020 and 2019, respectively. As of September 30, 2020, the net book value of SWP was $264,085. The net book value includes $63,066 of capitalized software development costs in-progress associated with future releases of SWP. Capitalized software development costs in-progress associated with future releases of SWP were $55,332 as of December 31, 2019. SWP has a weighted average remaining life of 8.5 years. Amortization expense for SWP was $32,576 and $31,567 during the nine months ended September 30, 2020 and 2019, respectively. Earnings per Share The calculations of basic and diluted earnings per share for the three and nine months ended September 30, 2020 and 2019 are:
| Three Months Ended September 30, |  |  |  | Nine Months Ended September 30, |  |
| 2020 |  | 2019 |  | 2020 |  | 2019
Net income | $ | 111,096 |  |  | $ | 132,168 |  |  | $ | 321,404 |  |  | $ | 372,689 |
Shares used to compute basic earnings per common share | 145,812,000 |  |  | 150,855,000 |  |  | 147,586,000 |  |  | 152,009,000 |
Dilutive effect of stock options | 2,095,000 |  |  | 3,372,000 |  |  | 2,372,000 |  |  | 3,302,000 |
Shares used to compute diluted earnings per common share | 147,907,000 |  |  | 154,227,000 |  |  | 149,958,000 |  |  | 155,311,000 |
Basic earnings per common share | $ | 0.76 |  |  | $ | 0.88 |  |  | $ | 2.18 |  |  | $ | 2.45 |
Diluted earnings per common share | $ | 0.75 |  |  | $ | 0.86 |  |  | $ | 2.14 |  |  | $ | 2.40 |
During the three months ended September 30, 2020 and 2019, employee stock options to purchase 8,813,000 and 6,239,000 shares of common stock with an average exercise price of $57.98 and $54.91, respectively, were outstanding but not included in the computation of diluted earnings per common share. During the nine months ended September 30, 2020 and 2019, employee stock options to purchase 8,342,000 and 6,269,000 shares of common stock with an average exercise price of $58.18 and $54.84, 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 not have been satisfied if the reporting date was the end of the contingency period or the options' 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. New Accounting Pronouncements In December 2019, the Financial Accounting Standards Board (FASB) issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12). The standard removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for the Company beginning in the first quarter of 2021. The Company does not believe the adoption of ASU 2019-12 will have a material impact on its consolidated financial statements and related disclosures. 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:
| 2020 |  | 2019
Net income | $ | 321,404 |  |  | $ | 372,689 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |
Depreciation | 23,058 |  |  | 22,162 |
Amortization | 39,417 |  |  | 38,407 |
Equity in earnings of unconsolidated affiliate | (86,488) |  |  | (112,758) |
Distributions received from unconsolidated affiliate | 119,821 |  |  | 123,663 |
Stock-based compensation | 20,458 |  |  | 15,555 |
Provision for losses on receivables | 109 |  |  | 593 |
Deferred income tax expense | (7,731) |  |  | (1,405) |
Net loss (gain) from investments | 1,310 |  |  | (2,121) |
Change in other long-term liabilities | (4,442) |  |  | 2,077 |
Change in other assets | (965) |  |  | (56) |
Contract costs capitalized, net of amortization | (2,842) |  |  | (4,499) |
Other | (1,053) |  |  | (721) |
Change in current assets and liabilities |  |  |
(Increase) decrease in |  |  |
Receivables from investment products | 2,521 |  |  | (2,271) |
Receivables | (37,921) |  |  | (34,589) |
Other current assets | (6,186) |  |  | 729 |
(Decrease) increase in |  |  |
Accounts payable | 8,615 |  |  | (2,208) |
Accrued liabilities | 8,809 |  |  | (34,087) |
Deferred revenue | (1,370) |  |  | 375 |
Total adjustments | 75,120 |  |  | 8,846 |
Net cash provided by operating activities | $ | 396,524 |  |  | $ | 381,535 |

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