10-Q 1 seic-93012x10q.htm FORM 10-Q SEIC-9.30.12-10Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 ________________________________________
FORM 10-Q
________________________________________
 
(Mark One)*
ý
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the quarterly period ended September 30, 2012
or
¨
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the transition period from              to             
0-10200
(Commission File Number)
________________________________________ 
SEI INVESTMENTS COMPANY
(Exact name of registrant as specified in its charter)
________________________________________ 
Pennsylvania
 
23-1707341
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification Number)
1 Freedom Valley Drive, Oaks, Pennsylvania 19456-1100
(Address of principal executive offices)
(Zip Code)
(610) 676-1000
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
 ________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
ý
Accelerated filer
¨
 
 
 
 
Non-accelerated filer
 
¨  (Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
The number of shares outstanding of the registrant’s common stock as of October 24, 2012 was 172,898,634.



SEI Investments Company

TABLE OF CONTENTS
 
 
 
 
 
Page
PART I - FINANCIAL INFORMATION
 
 
 
Item 1.
Financial Statements.
 
Consolidated Balance Sheets (Unaudited) -- September 30, 2012 and December 31, 2011
 
Consolidated Statements of Operations (Unaudited) -- For the Three and Nine Months Ended September 30, 2012 and 2011
 
Consolidated Statements of Comprehensive Income (Unaudited) -- For the Three and Nine Months Ended September 30, 2012 and 2011
 
Consolidated Statements of Cash Flows (Unaudited) -- For the Nine Months Ended September 30, 2012 and 2011
 
Notes to Consolidated Financial Statements
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
Item 4.
Controls and Procedures.
 
 
 
PART II - OTHER INFORMATION
 
 
 
Item 1.
Legal Proceedings.
Item 1A.
Risk Factors.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
Item 6.
Exhibits.
 
Signatures



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PART I.
FINANCIAL INFORMATION

Item 1.
Consolidated Financial Statements.


 
SEI Investments Company
Consolidated Balance Sheets
(unaudited)
(In thousands)

 
September 30, 2012
 
December 31, 2011
Assets
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
397,677

 
$
420,986

Restricted cash
6,000

 
6,000

Receivables from regulated investment companies
29,003

 
25,800

Receivables, net of allowance for doubtful accounts of $812 and $924 (Note 4)
197,191

 
142,109

Deferred income taxes
707

 
1,150

Securities owned (Note 6)
21,081

 
20,949

Other current assets
18,820

 
17,957

Total Current Assets
670,479

 
634,951

Property and Equipment, net of accumulated depreciation of $195,670 and $182,453 (Note 4)
131,889

 
129,548

Capitalized Software, net of accumulated amortization of $141,957 and $117,100
310,168

 
309,133

Investments Available for Sale (Note 6)
78,407

 
83,008

Trading Securities (Note 6)
54,315

 
56,325

Investment in Unconsolidated Affiliate (Note 2)
63,618

 
60,954

Other Assets, net
23,528

 
20,640

Total Assets
$
1,332,404

 
$
1,294,559

The accompanying notes are an integral part of these consolidated financial statements.



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SEI Investments Company
Consolidated Balance Sheets
(unaudited)
(In thousands, except par value)
 
September 30, 2012
 
December 31, 2011
Liabilities and Equity
 
 
 
Current Liabilities:
 
 
 
Accounts payable
$
3,567

 
$
1,999

Accrued liabilities (Note 4)
121,849

 
147,044

Deferred revenue
1,119

 
2,030

Total Current Liabilities
126,535

 
151,073

Deferred Income Taxes
95,713

 
93,751

Other Long-term Liabilities (Note 11)
11,079

 
8,276

Total Liabilities
233,327

 
253,100

Commitments and Contingencies (Note 12)

 

Equity:
 
 
 
SEI Investments shareholders’ equity:
 
 
 
Common stock, $.01 par value, 750,000 shares authorized; 172,868 and 176,506 shares issued and outstanding
1,729

 
1,765

Capital in excess of par value
604,963

 
577,949

Retained earnings
468,919

 
443,702

Accumulated other comprehensive income, net
5,693

 
1,900

Total SEI Investments shareholders’ equity
1,081,304

 
1,025,316

Noncontrolling interest
17,773

 
16,143

Total Equity
1,099,077

 
1,041,459

Total Liabilities and Equity
$
1,332,404

 
$
1,294,559

The accompanying notes are an integral part of these consolidated financial statements.


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SEI Investments Company
Consolidated Statements of Operations
(unaudited)
(In thousands, except per share data)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2012
 
2011
 
2012
 
2011
Revenues:
 
 
 
 
 
 
 
Asset management, administration and distribution fees
$
183,083

 
$
167,827

 
$
532,650

 
$
507,662

Information processing and software servicing fees
60,901

 
55,676

 
174,355

 
167,535

Transaction-based and trade execution fees
7,768

 
9,724

 
23,882

 
28,283

Total revenues
251,752

 
233,227

 
730,887

 
703,480

Expenses:
 
 
 
 
 
 
 
Subadvisory, distribution and other asset management costs
26,538

 
24,613

 
80,889

 
77,213

Software royalties and other information processing costs
6,185

 
6,703

 
17,890

 
20,908

Brokerage commissions
5,542

 
7,026

 
17,483

 
20,206

Compensation, benefits and other personnel
85,781

 
71,198

 
244,855

 
214,836

Stock-based compensation
3,879

 
3,424

 
11,777

 
10,966

Consulting, outsourcing and professional fees
27,314

 
30,183

 
80,598

 
85,579

Data processing and computer related
11,749

 
12,316

 
34,873

 
35,229

Facilities, supplies and other costs
15,129

 
14,274

 
44,909

 
42,474

Amortization
10,384

 
7,008

 
25,413

 
20,031

Depreciation
5,761

 
5,346

 
16,823

 
16,348

Total expenses
198,262

 
182,091

 
575,510

 
543,790

Income from operations
53,490

 
51,136

 
155,377

 
159,690

Net gain (loss) from investments
3,708

 
(1,418
)
 
7,577

 
3,912

Interest and dividend income
1,490

 
1,400

 
4,417

 
4,380

Interest expense
(115
)
 
(126
)
 
(389
)
 
(485
)
Equity in earnings of unconsolidated affiliate
24,928

 
23,908

 
74,970

 
82,387

Net income before income taxes
83,501

 
74,900

 
241,952

 
249,884

Income taxes
32,415

 
25,256

 
90,892

 
88,087

Net income
51,086

 
49,644

 
151,060

 
161,797

Less: Net income attributable to the noncontrolling interest
(343
)
 
(412
)
 
(797
)
 
(1,234
)
Net income attributable to SEI Investments Company
$
50,743

 
$
49,232

 
$
150,263

 
$
160,563

Basic earnings per common share
$
0.29

 
$
0.27

 
$
0.86

 
$
0.87

Shares used to compute basic earnings per share
173,429

 
181,718

 
174,869

 
184,030

Diluted earnings per common share
$
0.29

 
$
0.27

 
$
0.85

 
$
0.86

Shares used to compute diluted earnings per share
175,369

 
182,580

 
176,317

 
186,032

Dividends declared per common share
$

 
$

 
$
0.15

 
$
0.12

The accompanying notes are an integral part of these consolidated financial statements.

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SEI Investments Company
Consolidated Statements of Comprehensive Income
(unaudited)
(In thousands)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2012
 
2011
 
2012
 
2011
Net income
 
 
$
51,086

 
 
 
$
49,644

 
 
 
$
151,060

 
 
 
$
161,797

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
 
3,464

 
 
 
(9,179
)
 
 
 
4,011

 
 
 
(4,884
)
Unrealized holding gain on investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized holding gains during the period, net of income taxes of $230, $442, $307 and $678
586

 
 
 
507

 
 
 
642

 
 
 
1,153

 
 
Less: reclassification adjustment for losses (gains) realized in net income, net of income taxes of $4, $(4), $(19) and $(79)
10

 
596

 
(7
)
 
500

 
(27
)
 
615

 
(138
)
 
1,015

Total other comprehensive income, net of tax
 
 
4,060

 
 
 
(8,679
)
 
 
 
4,626

 
 
 
(3,869
)
Comprehensive income
 
 
$
55,146

 
 
 
$
40,965

 
 
 
$
155,686

 
 
 
$
157,928

Comprehensive (income) loss attributable to the noncontrolling interest
 
 
(847
)
 
 
 
1,612

 
 
 
(1,630
)
 
 
 
(135
)
Comprehensive income attributable to SEI Investments Company
 
 
$
54,299

 
 
 
$
42,577

 
 
 
$
154,056

 
 
 
$
157,793

The accompanying notes are an integral part of these consolidated financial statements.

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SEI Investments Company
Consolidated Statements of Cash Flows
(unaudited)
(In thousands)
 
 
Nine Months Ended September 30,
 
2012
 
2011
Cash flows from operating activities:
 
 
 
Net income
$
151,060

 
$
161,797

Adjustments to reconcile net income to net cash provided by operating activities
(5,161
)
 
13,739

Net cash provided by operating activities
145,899

 
175,536

Cash flows from investing activities:
 
 
 
Additions to property and equipment
(21,651
)
 
(10,744
)
Additions to capitalized software
(25,894
)
 
(30,556
)
Purchases of marketable securities
(22,505
)
 
(47,463
)
Prepayments and maturities of marketable securities
36,938

 
38,625

Sales of marketable securities
910

 
37,581

Purchases of other investments
(2,568
)
 
(7,500
)
Sales of other investments

 
4,906

Net cash used in investing activities
(34,770
)
 
(15,151
)
Cash flows from financing activities:
 
 
 
Payments on long-term debt

 
(75,000
)
Purchase and retirement of common stock
(111,593
)
 
(154,753
)
Proceeds from issuance of common stock
30,624

 
22,499

Tax benefit on stock options exercised
(834
)
 
1,483

Payment of dividends
(52,635
)
 
(22,041
)
Net cash used in financing activities
(134,438
)
 
(227,812
)
Net decrease in cash and cash equivalents
(23,309
)
 
(67,427
)
Cash and cash equivalents, beginning of period
420,986

 
496,292

Cash and cash equivalents, end of period
$
397,677

 
$
428,865

The accompanying notes are an integral part of these consolidated financial statements.

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Notes to Consolidated Financial Statements
(all figures are in thousands except per share data)
 
Note 1.    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.
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 September 30, 2012, the results of operations for the three and nine months ended September 30, 2012 and 2011, and cash flows for the nine month periods ended September 30, 2012 and 2011. 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, 2011.
There have been no significant changes in significant accounting policies during the nine months ended September 30, 2012 as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.
Cash and Cash Equivalents
Cash and cash equivalents includes $238,218 and $281,760 at September 30, 2012 and December 31, 2011, respectively, primarily invested in SEI-sponsored open-ended money market mutual funds.
Restricted Cash
Restricted cash includes $5,000 at September 30, 2012 and December 31, 2011 segregated for regulatory purposes related to trade-execution services conducted by SEI Investments (Europe) Limited. Restricted cash also includes $1,000 at September 30, 2012 and December 31, 2011 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 $25,894 and $30,556 of software development costs during the nine months ended September 30, 2012 and 2011, respectively. As of September 30, 2012, capitalized software placed into service included on the accompanying Consolidated Balance Sheet had a weighted average remaining life of approximately 9.7 years. Amortization expense related to capitalized software was $24,858 and $19,299 during the nine months ended September 30, 2012 and 2011, respectively.

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Software development costs capitalized during the nine months ended September 30, 2012 and 2011 relates to the continued development of the Global Wealth Platform (GWP). As of September 30, 2012, the net book value of GWP was $292,620, net of accumulated amortization of $112,268. Capitalized software development costs in-progress at September 30, 2012 associated with future releases to GWP were $17,007. GWP has an estimated useful life of 15 years and a weighted average remaining life of 9.7 years. Amortization expense for GWP was $24,506 and $18,873 during the nine months ended September 30, 2012 and 2011, respectively. During the three months ended September 30, 2012, the Company decided to discontinue the use of specific functionality within GWP by the end of the September 2012 and expensed the remaining net book value of $2,661 related to previously capitalized software development costs of the component. This cost is included in total amortization expense during the nine months ended September 30, 2012.
Earnings per Share
The calculations of basic and diluted earnings per share for the three months ended September 30, 2012 and 2011 are: 
 
For the Three Months Ended September 30, 2012
 
Income
(Numerator)
 
Shares
(Denominator)
 
Per Share
Amount
Basic earnings per common share
$
50,743

 
173,429

 
$
0.29

Dilutive effect of stock options

 
1,940

 
 
Diluted earnings per common share
$
50,743

 
175,369

 
$
0.29

 
 
For the Three Months Ended September 30, 2011
 
Income
(Numerator)
 
Shares
(Denominator)
 
Per Share
Amount
Basic earnings per common share
$
49,232

 
181,718

 
$
0.27

Dilutive effect of stock options

 
862

 
 
Diluted earnings per common share
$
49,232

 
182,580

 
$
0.27

Employee stock options to purchase 9,552,000 and 16,290,000 shares of common stock, with an average exercise price of $26.51 and $23.66, were outstanding during the three months ended September 30, 2012 and 2011, 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.
The calculations of basic and diluted earnings per share for the nine months ended September 30, 2012 and 2011 are: 
 
For the Nine Months Ended September 30, 2012
 
Income
(Numerator)
 
Shares
(Denominator)
 
Per Share
Amount
Basic earnings per common share
$
150,263

 
174,869

 
$
0.86

Dilutive effect of stock options

 
1,448

 
 
Diluted earnings per common share
$
150,263

 
176,317

 
$
0.85

 
 
For the Nine Months Ended September 30, 2011
 
Income
(Numerator)
 
Shares
(Denominator)
 
Per Share
Amount
Basic earnings per common share
$
160,563

 
184,030

 
$
0.87

Dilutive effect of stock options

 
2,002

 
 
Diluted earnings per common share
$
160,563

 
186,032

 
$
0.86

Employee stock options to purchase 13,908,000 and 13,273,000 shares of common stock, with an average exercise price of $23.40 and $24.72, were outstanding during the nine months ended September 30, 2012 and 2011, 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.

8 of 42


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: 
 
2012
 
2011
Net income
$
151,060

 
$
161,797

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
16,823

 
16,348

Amortization
25,413

 
20,031

Equity in earnings of unconsolidated affiliate
(74,970
)
 
(82,387
)
Distributions received from unconsolidated affiliate
72,306

 
78,550

Stock-based compensation
11,777

 
10,966

Provision for losses on receivables
(112
)
 
(98
)
Deferred income tax expense
2,117

 
(1,834
)
Net realized gains from investments
(7,577
)
 
(3,912
)
Change in other long-term liabilities
2,803

 
5,527

Change in other assets
(1,063
)
 
(13
)
Other
4,759

 
(4,471
)
Change in current asset and liabilities
 
 
 
Decrease (increase) in
 
 
 
Receivables from regulated investment companies
(3,203
)
 
1,789

Receivables
(54,995
)
 
(8,703
)
Other current assets
(863
)
 
(1,276
)
Increase (decrease) in
 
 
 
Accounts payable
1,568

 
2,322

Accrued liabilities
967

 
(18,601
)
Deferred revenue
(911
)
 
(499
)
Total adjustments
(5,161
)
 
13,739

Net cash provided by operating activities
$
145,899

 
$
175,536


Note 2.
Investment in Unconsolidated Affiliate
The Company has an investment in the general partnership LSV Asset Management (LSV). LSV is a registered investment advisor that provides investment advisory services to institutions, including pension plans and investment companies. LSV is currently an investment sub-advisor for a small number of SEI-sponsored mutual funds. The Company accounts for its interest in LSV using the equity method because of its less than 50 percent ownership. The Company’s interest in the net assets of LSV is reflected in Investment in unconsolidated affiliate on the accompanying Consolidated Balance Sheets and its interest in the earnings of LSV is reflected in Equity in earnings of unconsolidated affiliate on the accompanying Consolidated Statements of Operations.
In March 2009, certain partners (the Contributing partners) of LSV, including the Company, designated a portion of their partnership interest for the purpose of providing an interest in the partnership to a select group of key employees. Until such time an interest in the partnership is issued to a key employee, all profits, losses, distributions and other rights and obligations relating to such unissued interests remains with the Contributing partners. Each issuance must be authorized by unanimous vote of all Contributing partners. In April 2012, the Contributing partners agreed to provide certain key employees an interest in LSV, thereby reducing the Company’s interest in LSV from approximately 41.2 percent to approximately 39.8 percent.
At September 30, 2012, the Company’s total investment in LSV was $63,618. The investment in LSV exceeded the underlying equity in the net assets of LSV by $3,390, of which $3,062 is considered goodwill embedded in the investment. The Company receives partnership distributions from LSV on a quarterly basis. The Company received partnership distribution payments from LSV for $72,306 and $78,550 in the nine months ended September 30, 2012 and 2011, respectively.

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The Company’s proportionate share in the earnings of LSV was $24,928 and $23,908 during the three months ended September 30, 2012 and 2011, respectively. During the nine months ended September 30, 2012 and 2011, the Company's proportionate share in the earnings of LSV was $74,970 and $82,387, respectively.
The following table contains the condensed statements of operations of LSV for the three months ended September 30, 2012 and 2011: 
 
Three Months Ended
 
September 30,
 
2012
 
2011
Revenues
$
74,163

 
$
67,230

Net income
62,946

 
58,358

The following table contains the condensed statements of operations of LSV for the nine months ended September 30, 2012 and 2011:
 
Nine Months Ended
 
September 30,
 
2012
 
2011
Revenues
$
220,817

 
$
228,380

Net income
186,991

 
200,322

Guaranty Agreements
In April 2011, LSV Employee Group II, LLC agreed to purchase a partnership interest of an existing LSV employee for $4,300, of which $3,655 was financed through a term loan with Bank of America, N.A. (Bank of America). The Company provided an unsecured guaranty to the lenders of all the obligations of LSV Employee Group II, LLC. The lenders have the right to seek payment from the Company in the event of a default by LSV Employee Group II, LLC. The term loan has a four year term and will be repaid from the quarterly distributions of LSV. LSV Employee Group II made principal payments of $740 during the nine months ended September 30, 2012. As of September 30, 2012, the remaining unpaid principal balance of the term loan was $2,457. This amount is not reflected, nor is it required to be reflected, in the Company’s Consolidated Balance Sheet at September 30, 2012. LSV Employee Group II made a principal payment of $318 in October 2012. As of October 24, 2012, the remaining unpaid principal balance of the term loan was $2,139.
In October 2012, a group of existing employees of LSV agreed to purchase a portion of the partnership interest of three existing LSV employees for $77,700, of which $69,930 was financed through two syndicated term loan facilities contained in a credit agreement with The PrivateBank and Trust Company. The group of existing LSV employees will form a new limited liability company called LSV Employee Group III which will own the purchased partnership interest. The Company provided an unsecured guaranty for $45,000 of the obligations of LSV Employee Group III to the lenders through a guaranty agreement. LSV agreed to provide an unsecured guaranty for $24,930 of the obligations of LSV Employee Group III to the lenders through a separate guaranty agreement. The loan facility guaranteed by LSV has a three year term and will be repaid from the quarterly distributions of LSV.
With regard to the loan facility guaranteed by the Company, the lenders will have the right to seek payment from the Company in the event of a default by LSV Employee Group III. The loan facility has a five year term and will be repaid from the quarterly distributions of LSV. No principal payments will be made by LSV Employee Group III on the loan facility guaranteed by the Company until the separate loan facility guaranteed by LSV is fully repaid.     
As of October 24, 2012, the Company, in its capacity as guarantor, currently has no obligation of payment relating to the term loans of LSV Employee Group II or LSV Employee Group III and, furthermore, fully expects that LSV Employee Group II and LSV Employee Group III will meet all of their future obligations regarding their respective term loans.
The Company’s direct interest in LSV was not impacted by either transaction involving the guaranty agreements. The Company has determined that LSV Employee Group II and LSV Employee Group III are variable interest entities (VIEs); however, the Company is not considered the primary beneficiary in either case because it does not have the power to direct the activities that most significantly impact the economic performance of the entities either directly or through any financial responsibility from the guaranty agreements.


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Note 3.    Variable Interest Entities – Investment Products
The Company has 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. Clients are the equity investors and participate in proportion to their ownership percentage in the net income and net capital gains 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. Some of the Company’s investment products have been determined to be VIEs at inception.
The Company does not have a significant equity investment in any of the VIEs and does not have an obligation to enter into any guarantee agreements with the VIEs. The Company is not the primary beneficiary of the VIEs because the expected fees and the expected return on any investment into the VIE by the Company relative to the expected returns of the VIE to the equity investor holders does not approach 50 percent of the expected losses or gains of the VIEs. Therefore, the Company is not required to consolidate any investment products that are VIEs into its financial statements. The Company’s variable interest in the VIEs, which consists of management fees and in some situations, seed capital, is not considered a significant variable interest.
The risks to the Company associated with its involvement with any of the investment products that are VIEs are limited to the cash flows received from the revenue generated for asset management, administration and distribution services and any equity investments in the VIEs. Both of these items are not significant. The Company has no other financial obligation to the VIEs.
Amounts relating to fees received from the VIEs included in Receivables and amounts relating to equity investments in the VIEs included in Investments Available for Sale on the Company’s Consolidated Balance Sheets are not significant to the total assets of the Company.

Note 4.
Composition of Certain Financial Statement Captions
Receivables
Receivables on the accompanying Consolidated Balance Sheets consist of: 
 
September 30, 2012
 
December 31, 2011
Trade receivables
$
56,504

 
$
37,822

Fees earned, not billed
124,516

 
92,916

Other receivables
16,983

 
12,295

 
198,003

 
143,033

Less: Allowance for doubtful accounts
(812
)
 
(924
)
 
$
197,191

 
$
142,109

Fees earned, not billed represents receivables earned but unbilled and results from timing differences between services provided and contractual billing schedules. These billing schedules generally provide for fees to be billed on a quarterly basis. In addition, certain fees earned from investment operations services are determined from security valuations which delay billings to clients.
Receivables from regulated investment companies on the accompanying Consolidated Balance Sheets primarily represent fees receivable for distribution, investment advisory, and administration services to various regulated investment companies sponsored by SEI.

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Property and Equipment
Property and Equipment on the accompanying Consolidated Balance Sheets consists of:
 
 
September 30, 2012
 
December 31, 2011
Buildings
$
137,597

 
$
136,949

Equipment
65,359

 
64,256

Land
9,929

 
9,929

Purchased software
91,110

 
77,971

Furniture and fixtures
18,417

 
17,999

Leasehold improvements
5,039

 
4,558

Construction in progress
108

 
339

 
327,559

 
312,001

Less: Accumulated depreciation
(195,670
)
 
(182,453
)
Property and Equipment, net
$
131,889

 
$
129,548

The Company recognized $16,823 and $16,348 in depreciation expense related to property and equipment for the nine months ended September 30, 2012 and 2011, respectively.
Accrued Liabilities
Accrued liabilities on the accompanying Consolidated Balance Sheets consist of: 
 
September 30, 2012
 
December 31, 2011
Accrued employee compensation
$
50,302

 
$
48,112

Accrued employee benefits and other personnel
7,274

 
5,408

Accrued consulting, outsourcing and professional fees
14,382

 
17,477

Accrued brokerage fees
6,822

 
8,665

Accrued sub-advisory, distribution and other asset management fees
18,005

 
17,091

Accrued dividend payable

 
26,518

Other accrued liabilities
25,064

 
23,773

Total accrued liabilities
$
121,849

 
$
147,044


Note 5.    Fair Value Measurements
The fair value of the Company’s financial assets and liabilities is determined in accordance with the fair value hierarchy. The fair value of the Company’s Level 1 financial assets consist mainly of investments in equity and fixed-income mutual funds that are quoted daily. Level 2 financial assets consist of Government National Mortgage Association (GNMA) mortgage-backed pass-through certificates, Federal Home Loan Bank (FHLB) and other U.S. government agency short-term notes and investment grade commercial paper. The Company's Level 2 financial assets, with the exception of the GNMA securities, were purchased as part of a cash management program requiring only short term, top-tier investment grade government and corporate securities. The GNMA mortgage-backed pass-through certificates were purchased for the sole purpose of satisfying specific regulatory requirements imposed on our wholly-owned limited purpose federal thrift subsidiary, SEI Private Trust Company (SPTC). As a result, the Company's Level 2 financial assets are limited to only these types of fixed income securities. The Company's Level 3 financial assets primarily consist of senior note obligations issued by SIVs. The Company had no Level 3 financial liabilities at September 30, 2012 or December 31, 2011. There were no transfers of financial assets between levels within the fair value hierarchy during the nine months ended September 30, 2012.
Valuation of GNMA, Other U.S. Government Agency Securities and Investment Grade Commercial Paper
All of the Company's investments in GNMA, other U.S. government agency securities and investment grade commercial paper are held in accounts at well-established financial institutions. The Company's selection of a financial institution for the purpose of purchasing securities considered a number of various factors including, but not limited to, securities pricing policies and procedures utilized by that financial institution. Each financial institution utilizes the services of independent pricing vendors. These vendors utilize evaluated and industry accepted pricing models that vary by asset class and incorporate available trade, bid and other market information to determine the fair value of the securities. The market inputs normally used for evaluations of securities, listed in approximate order of priority, include: benchmark yields, reported trade, broker/dealer

12 of 42


quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. Management evaluated the information regarding the pricing methodologies and processes utilized by the independent pricing vendors during the selection process of the financial institution. Management analyzed this information for the purpose of classifying the securities into the appropriate level within the fair value hierarchy and to also ensure that each pricing model for each asset class provided the fair value of those specific securities in accordance with generally accepted accounting principles. Management's due diligence of the independent pricing vendor's models and inputs primarily included a discussion with the pricing vendors and comparisons of prices with other pricing vendors and prices of similar assets. Subsequent to the purchase of the securities, management continually monitors the price of each security for any unanticipated deviations from the previously quoted price or deviations from anticipated changes in a security's price based upon an assessment of market factors and other factors relative to a specific issue expected to affect a security's price. In the event a security price changed in excess of management's pre-established tolerance levels, additional analysis is conducted which may include the comparison of the security's price as determined by other independent pricing vendors. The Company's investments in GNMA, other U.S. government agency securities and investment grade commercial paper have been recorded at the prices provided by the independent pricing vendor without adjustment.
Valuation of SIV Securities
The underlying collateral of the SIV securities is mainly comprised of asset-backed securities and collateralized debt obligations. The Company utilizes the services of an independent firm that specializes in securities valuations to assist in determining the fair value of the SIV security owned. The Company's selection of the independent valuation firm was based upon a review of their modeling techniques and assumptions utilized within their models for each asset class rather than at a specific security level. Management also considered the reputation of the valuation firm and their expertise associated with SIV securities and other types of illiquid securities. Finally, management confirmed prior to selection of the valuation firm that the estimated fair value conformed to generally accepted accounting principles. On a quarterly basis, management evaluates a detailed description of the modeling techniques and types of inputs used for each major asset class which is reviewed to ensure consistent application since the initial selection of the valuation firm. Additionally, management receives the estimated fair value of each individual security that comprises the underlying collateral which is compared to the previous quarter's estimated fair value to identify and discuss significant fluctuations with the valuation firm.
Given the lack of any reliable market data on the SIV security, the firm utilized a valuation model that employs a net asset approach which considers the value of the underlying collateral of the SIV security to determine its fair value. Management evaluated the value received from the firm and considered other information, such as the existence of any current market activity, to determine the fair value of the SIV securities. As a result of this evaluation, the Company utilized the fair value of the SIV security without adjustment as provided by the independent valuation firm.
The model used by the independent valuation firm to determine the fair value of the SIV security attempts to value the underlying collateral of the SIV security through the use of industry accepted and proprietary valuation techniques and models. This approach combines advanced analytics with real-time market information that incorporate structural and fundamental analysis, collateral characteristics and recent market developments. Each security that makes up the underlying collateral is specifically identified by its CUSIP or ISIN number and is analyzed by using observable collateral characteristics and credit statistics in order to project future performance and expected cash flows for each individual security. The projected cash flows incorporate assumptions and expectations based upon the foregoing analysis of the collateral characteristics such as, but not limited to, default probabilities, recovery rates, prepayment speeds and loss severities. Expected future cash flows are discounted at an appropriate yield derived from the individual security, structural and collateral characteristics, trading levels and other available market data. Different modeling techniques and associated inputs and assumptions may be used to project future cash flows for each security depending upon the asset classification of that individual security (i.e. residential mortgage-backed security, commercial mortgage-backed security, collateralized debt obligations, etc.). The aggregate value of the discounted cash flows of the underlying collateral is compared to the total remaining par value of the collateral to determine the expected recovery price, or fair value, of the remaining note obligations. Other factors may be considered that are specific to the SIV security that may affect the fair value of the SIV security.
Management may also consider, when available, price quotes from brokers and dealers. If a price quote is available, management will compare this number to the fair value derived from the valuation model of the independent firm giving consideration to other market factors and risk premiums. Given the lack of any significant trading activity for the SIV security owned by the Company, management believes that market prices may not represent the implied fair value of the SIV security owned by the Company.
In the event a market transaction does exist for a SIV security, management evaluates the publicly available information surrounding the transaction in order to assess if the price used represents the fair value for the SIV security. In October 2012, management evaluated a transaction involving the senior notes issued by Gryphon and concluded the fair value of the SIV security owned is fairly represented at September 30, 2012. In management’s opinion, the current market for the SIV security does not represent any orderly and efficient market.

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The fair value of certain financial assets and liabilities of the Company was determined using the following inputs: 
 
At September 30, 2012
 
Fair Value Measurements at Reporting Date Using
Assets
Total
 
Quoted Prices
in
Active  Markets
for Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Equity available-for-sale securities
$
13,028

 
$
13,028

 
$

 
$

Fixed income available-for-sale securities
65,379

 

 
65,379

 

Fixed income securities owned
21,081

 

 
21,081

 

Trading securities
54,315

 
4,222

 

 
50,093

 
$
153,803

 
$
17,250

 
$
86,460

 
$
50,093

 
 
At December 31, 2011
 
Fair Value Measurements at Reporting Date Using
Assets
Total
 
Quoted Prices
in
Active  Markets
for Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Equity available-for-sale securities
$
8,010

 
$
8,010

 
$

 
$

Fixed income available-for-sale securities
74,998

 

 
74,998

 

Fixed income securities owned
20,949

 

 
20,949

 

Trading securities
56,325

 
3,702

 

 
52,623

 
$
160,282

 
$
11,712

 
$
95,947

 
$
52,623


The table below presents a reconciliation for all assets and liabilities of the Company measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the period from January 1, 2012 to September 30, 2012: 
 
Trading Securities
Balance, January 1, 2012
$
52,623

Purchases

Issuances

Principal prepayments and settlements
(9,833
)
Sales

Total gains or (losses) (realized/unrealized):
 
Included in earnings
7,303

Included in other comprehensive income

Transfers in and out of Level 3

Balance, September 30, 2012
$
50,093


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The table below presents a reconciliation for all assets and liabilities of the Company measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the period from January 1, 2011 to September 30, 2011: 
 
Trading Securities
Balance, January 1, 2011
$
100,645

Purchases

Issuances

Principal prepayments and settlements
(14,434
)
Sales
(34,706
)
Total gains or (losses) (realized/unrealized):
 
Included in earnings
4,128

Included in other comprehensive income

Transfers in and out of Level 3

Balance, September 30, 2011
$
55,633


Note 6.    Marketable Securities
Investments Available for Sale
Investments available for sale classified as non-current assets consist of: 
 
At September 30, 2012
 
Cost
Amount
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
SEI-sponsored mutual funds
$
12,852

 
$
185

 
$
(19
)
 
$
13,018

Other mutual funds
10

 

 

 
10

Debt securities
60,550

 
4,829

 

 
65,379

 
$
73,412

 
$
5,014

 
$
(19
)
 
$
78,407


 
At December 31, 2011
 
Cost
Amount
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
SEI-sponsored mutual funds
$
8,243

 
$
48

 
$
(360
)
 
$
7,931

Other mutual funds
69

 
10

 

 
79

Debt securities
70,604

 
4,394

 

 
74,998

 
$
78,916

 
$
4,452

 
$
(360
)
 
$
83,008

Net unrealized holding gains at September 30, 2012 and December 31, 2011 were $3,189 (net of income tax expense of $1,806) and $2,574 (net of income tax expense of $1,518), respectively. These net unrealized gains are reported as a separate component of Accumulated other comprehensive income on the accompanying Consolidated Balance Sheets.
There were no material gross realized gains or losses from available-for-sale securities during the nine months ended September 30, 2012 and 2011. Gains and losses from available-for-sale securities are reflected in Net gain from investments on the accompanying Consolidated Statements of Operations.
The Company’s debt securities classified as available-for-sale securities are issued by GNMA and are backed by the full faith and credit of the U.S. government. These securities were purchased to satisfy applicable regulatory requirements of SPTC and have maturity dates which range from 2020 to 2041.

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Trading Securities
Trading securities of the Company consist of: 
 
At September 30, 2012
 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
(Losses)
 
Fair
Value
SIV securities
$
136,531

 
$

 
$
(87,612
)
 
$
48,919

LSV-sponsored mutual funds
2,049

 
2,173

 

 
4,222

Other investments
1,215

 

 
(41
)
 
1,174

 
$
139,795

 
$
2,173

 
$
(87,653
)
 
$
54,315

 
 
At December 31, 2011
 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
(Losses)
 
Fair
Value
SIV securities
$
146,363

 
$

 
$
(94,955
)
 
$
51,408

LSV-sponsored mutual funds
2,049

 
1,653

 

 
3,702

Other investments
1,215

 

 

 
1,215

 
$
149,627

 
$
1,653

 
$
(94,955
)
 
$
56,325

The Company records all of its trading securities on the accompanying Consolidated Balance Sheets at fair value. Unrealized gains and losses from the change in fair value of these securities are recognized in Net gain from investments on the accompanying Consolidated Statements of Operations.
During the nine months ended September 30, 2012 and 2011, the Company recognized gains from SIV securities of $7,343 and $4,128, respectively. Of the gains recognized during the nine months ended September 30, 2012, $6,201 resulted from cash payments received from the SIV securities and $1,142 was from an increase in fair value at September 30, 2012. Of the gains recognized during the nine months ended September 30, 2011, $8,430 resulted from cash payments received from the SIV securities offset by losses of $4,302 which resulted from a decrease in fair value at September 30, 2011. The net gains from the SIV securities are reflected in Net gain from investments on the accompanying Consolidated Statements of Operations.
In January 2011, the Company sold the senior note obligation originally issued by Stanfield Victoria. There was no gain or loss recognized by the Company from the sale of the note in 2011 as the fair value of the Stanfield Victoria note at December 31, 2010 was not different than the sale price received.
The Company has an investment related to the startup of mutual funds sponsored by LSV. These are U.S. dollar denominated funds that invests primarily in securities of Canadian and Australian companies as well as various other global securities. The underlying securities held by the funds are translated into U.S. dollars within the funds. There were no material net gains (losses) from the change in fair value of the funds during the three and nine months ended September 30, 2012 and 2011.
Securities Owned
The Company’s broker-dealer subsidiary, SIDCO, has investments in U.S. government agency and commercial paper securities with maturity dates less than one year. These investments are reflected as Securities owned on the accompanying Consolidated Balance Sheets. Due to specialized accounting practices applicable to investments by broker-dealers, the securities are reported at fair value and changes in fair value are recorded in current period earnings. The securities had a fair value of $21,081 and $20,949 at September 30, 2012 and December 31, 2011, respectively. There were no material net gains (losses) from the change in fair value of the securities during the three and nine months ended September 30, 2012 and 2011.

Note 7.    Lines of Credit
On February 2, 2012 (the Closing Date), the Company entered into a new five-year $300,000 Credit Agreement (the Credit Facility) with Wells Fargo Bank, National Association, and a syndicate of other lenders. The Credit Facility became available on the Closing Date and replaced the five-year Credit Agreement with JP Morgan Chase Bank, N.A. The Credit Facility is scheduled to expire in February 2017, at which time any aggregate principal amount of loans outstanding becomes payable in full. Any borrowings made under the Credit Facility will accrue interest at 1.25 percent above LIBOR. There is also a commitment fee equal to 0.15 percent per annum on the daily unused portion of the facility. The aggregate amount of the Credit Facility may be increased by an additional $100,000 under certain conditions set forth in the agreement. The Credit

16 of 42


Facility contains covenants that restrict the ability of the Company to engage in mergers, consolidations, asset sales, investments, transactions with affiliates, or to incur liens, as defined in the agreement. In the event of a default under the Credit Facility, the Company would also be restricted from paying dividends on, or repurchasing, its common stock without the approval of the lenders. None of the covenants of the Credit Facility negatively affect the Company’s liquidity or capital resources. Both the interest rate and commitment fee prices may increase if the Company’s leverage ratio reaches certain levels. Upon the occurrence of certain financial or economic events, significant corporate events, or certain other events of default constituting an event of default under the Credit Facility, all loans outstanding may be declared immediately due and payable and all commitments under the agreement may be terminated. The Company had no borrowings through the Credit Facility at September 30, 2012. The Company was in compliance with all covenants of the Credit Facility at September 30, 2012.
The Company’s Canadian subsidiary has a credit facility agreement (the Canadian Credit Facility) for the purpose of facilitating the settlement of mutual fund transactions. The Canadian Credit Facility has no stated expiration date. The amount of the facility is limited to $2,000 Canadian dollars or the equivalent amount in U.S. dollars. The Canadian Credit Facility does not contain any covenants which restrict the liquidity or capital resources of the Company. The Company had no borrowings under the Canadian Credit Facility and was in compliance with all covenants during the three months ended September 30, 2012.

Note 8.    Shareholders’ Equity
Stock-Based Compensation
The Company currently has one active equity compensation plan, the 2007 Equity Compensation Plan (the 2007 Plan), which provides for the grant of incentive stock options, non-qualified stock options and stock appreciation rights with respect to up to 20 million shares of common stock of the Company, subject to adjustment for stock splits, reclassifications, mergers and other events. Permitted grantees under the 2007 Plan include employees, non-employee directors and consultants who perform services for the Company. The plan is administered by the Compensation Committee of the Board of Directors of the Company. The Company has only granted non-qualified stock options under the plan. All outstanding stock options have performance-based vesting provisions specific to each option grant that tie the vesting of the applicable stock options to the Company’s financial performance. The Company’s stock options vest at a rate of 50 percent when specified diluted earnings per share targets are achieved, and the remaining 50 percent when secondary, higher specified diluted earnings per share targets are achieved. The amount of stock-based compensation expense is based upon management’s estimate of when the earnings per share targets may be achieved.
The Company discontinued any further grants under the Company’s 1998 Equity Compensation Plan (the 1998 Plan) as a result of the approval of the 2007 Plan. No options are available for grant from this plan. Grants made from the 1998 Plan continue in effect under the terms of the grant.
The Company recognized stock-based compensation expense in its Consolidated Financial Statements in the three months ended September 30, 2012 and 2011, respectively, as follows: 
 
Three Months Ended
 
September 30,
 
2012
 
2011
Stock-based compensation expense
$
3,879

 
$
3,424

Less: Deferred tax benefit
(1,573
)
 
(1,289
)
Stock-based compensation expense, net of tax
$
2,306

 
$
2,135

The Company recognized stock-based compensation expense in its Consolidated Financial Statements in the nine months ended September 30, 2012 and 2011, respectively, as follows:
 
Nine Months Ended
 
September 30,
 
2012
 
2011
Stock-based compensation expense
$
11,777

 
$
10,966

Less: Deferred tax benefit
(4,381
)
 
(4,114
)
Stock-based compensation expense, net of tax
$
7,396

 
$
6,852

As of September 30, 2012, there was approximately $37,649 of unrecognized compensation cost remaining, adjusted for estimated forfeitures, related to unvested employee stock options that management expects will vest and is being amortized.

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The Company issues new common shares associated with the exercise of stock options. The total intrinsic value of options exercised during the nine months ended September 30, 2012 was $10,955. The total options exercisable as of September 30, 2012 had an intrinsic value of $37,152. The total intrinsic value for options exercisable is calculated as the difference between the market value of the Company’s common stock as of September 30, 2012 and the exercise price of the shares. The market value of the Company’s common stock as of September 30, 2012 was $21.44 as reported by the Nasdaq Stock Market, LLC. The weighted average exercise price of the options exercisable as of September 30, 2012 was $17.57. Total options that were outstanding and exercisable as of September 30, 2012 were 24,428,000 and 9,602,000, respectively.
Common Stock Buyback
The Company’s Board of Directors, under multiple authorizations, has authorized the repurchase of the Company’s common stock on the open market or through private transactions. The Company purchased 5,648,000 shares at a total cost of $113,518 during the nine months ended September 30, 2012. As of September 30, 2012, the Company has $82,758 of authorization remaining for the purchase of common stock under the program.
The Company immediately retires its common stock when purchased. Upon retirement, the Company reduces Capital in excess of par value for the average capital per share outstanding and the remainder is charged against Retained earnings. If the Company reduces its Retained earnings to zero, any subsequent purchases of common stock will be charged entirely to Capital in excess of par value.
Cash Dividend
On May 23, 2012, the Board of Directors declared a cash dividend of $0.15 per share on the Company's common stock, which was paid on June 26, 2012, to shareholders of record on June 18, 2012. Cash dividends declared during the nine months ended September 30, 2012 and 2011 were $26,117 and $22,041, respectively.
Noncontrolling Interest
The following table provides a reconciliation of Noncontrolling interest on the Consolidated Balance Sheet for the period from January 1, 2012 to September 30, 2012: 
 
Noncontrolling
interest
Balance, January 1, 2012
$
16,143

Net income attributable to noncontrolling interest
797

Foreign currency translation adjustments
833

Balance, September 30, 2012
$
17,773

The following table provides a reconciliation of Noncontrolling interest on the Consolidated Balance Sheet for the period from January 1, 2011 to September 30, 2011: 
 
Noncontrolling
interest
Balance, January 1, 2011
$
15,155

Net income attributable to noncontrolling interest
1,234

Foreign currency translation adjustments
(1,099
)
Balance, September 30, 2011
$
15,290




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Note 9.    Accumulated Comprehensive Income
Accumulated other comprehensive income, net of tax, consists of:
 
 
Foreign
Currency
Translation
Adjustments
 
Unrealized
Holding
Gains (Losses)
on Investments
 
Accumulated
Other
Comprehensive
Income
Total accumulated comprehensive income at December 31, 2011
$
(2,043
)
 
$
2,574

 
$
531

Less: Total accumulated comprehensive loss attributable to noncontrolling interest at December 31, 2011
1,369

 

 
1,369

Total accumulated comprehensive income attributable to SEI Investments Company at December 31, 2011
$
(674
)
 
$
2,574

 
$
1,900

 
 
 
 
 
 
Total comprehensive income for the nine months ended September 30, 2012
$
4,011

 
$
615

 
$
4,626

Less: Total comprehensive income attributable to noncontrolling interest for the nine months ended September 30, 2012
(833
)
 

 
(833
)
Total comprehensive income attributable to SEI Investments Company for the nine months ended September 30, 2012
$
3,178

 
$
615

 
$
3,793

 
 
 
 
 
 
Total accumulated comprehensive income at September 30, 2012
$
1,968

 
$
3,189

 
$
5,157

Less: Total accumulated comprehensive loss attributable to noncontrolling interest at September 30, 2012
536

 

 
536

Total accumulated comprehensive income attributable to SEI Investments Company at September 30, 2012
$
2,504

 
$
3,189

 
$
5,693


Note 10.    Business Segment Information
The Company’s reportable business segments are:
Private Banks – provides investment processing and investment management programs to banks and trust institutions worldwide, independent wealth advisers located in the United Kingdom, and financial advisors in Canada;
Investment Advisors – provides investment management programs to affluent investors through a network of independent registered investment advisors, financial planners, and other investment professionals in the United States;
Institutional Investors – provides investment management programs and administrative outsourcing solutions to retirement plan sponsors, hospitals, and not-for-profit organizations worldwide;
Investment Managers – provides investment operations outsourcing solutions to investment managers, fund companies and banking institutions located in the United States, and to investment managers worldwide of alternative asset classes such as hedge funds, funds of hedge funds, and private equity funds across both registered and partnership structures; and
Investments in New Businesses – provides investment management programs to ultra-high-net-worth families residing in the United States through the SEI Wealth Network® and conducts other research and development activities.
The information in the following tables is derived from the Company’s internal financial reporting used for corporate management purposes. There are no inter-segment revenues for the three and nine months ended September 30, 2012 and 2011. Management evaluates Company assets on a consolidated basis during interim periods. The accounting policies of the reportable business segments are the same as those described in Note 1 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

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The following tables highlight certain unaudited financial information about each of the Company’s business segments for the three months ended September 30, 2012 and 2011. 
 
Private
Banks
 
Investment
Advisors
 
Institutional
Investors
 
Investment
Managers
 
Investments
In New
Businesses
 
Total
 
For the Three Months Ended September 30, 2012
Revenues
$
92,076

 
$
51,384

 
$
58,081

 
$
49,311

 
$
900

 
$
251,752

Expenses
91,209

 
30,114

 
29,654

 
32,122

 
3,698

 
186,797

Operating profit (loss)
$
867

 
$
21,270

 
$
28,427

 
$
17,189

 
$
(2,798
)
 
$
64,955

Operating margin
1
%
 
41
%
 
49
%
 
35
%
 
N/A

 
26
%
 
 
Private
Banks
 
Investment
Advisors
 
Institutional
Investors
 
Investment
Managers
 
Investments
In New
Businesses
 
Total
 
For the Three Months Ended September 30, 2011
Revenues
$
87,697

 
$
46,798

 
$
52,216

 
$
45,585

 
$
931

 
$
233,227

Expenses
85,893

 
28,051

 
25,524

 
29,412

 
2,429

 
171,309

Operating profit (loss)
$
1,804

 
$
18,747

 
$
26,692

 
$
16,173

 
$
(1,498
)
 
$
61,918

Operating margin
2
%
 
40
%
 
51
%
 
35
%
 
N/A

 
27
%
A reconciliation of the total reported for the business segments to income from operations in the Consolidated Statements of Operations for the three months ended September 30, 2012 and 2011 is as follows: 
 
2012
 
2011
Total operating profit from segments above
$
64,955

 
$
61,918

Corporate overhead expenses
(11,668
)
 
(11,155
)
Noncontrolling interest reflected in segments
203

 
373

Income from operations
$
53,490

 
$
51,136


The following tables provide additional information for the three months ended September 30, 2012 and 2011 pertaining to our business segments: 
 
Capital Expenditures
 
Depreciation
 
2012
 
2011
 
2012
 
2011
Private Banks
$
8,248

 
$
9,219

 
$
3,911

 
$
3,913

Investment Advisors
2,797

 
3,146

 
503

 
552

Institutional Investors
647

 
508

 
252

 
276

Investment Managers
927

 
671

 
500

 
441

Investments in New Businesses
140

 
146

 
449

 
24

Total from business segments
$
12,759

 
$
13,690

 
$
5,615

 
$
5,206

Corporate Overhead
228

 
100

 
146

 
140

 
$
12,987

 
$
13,790

 
$
5,761

 
$
5,346

 

20 of 42


 
Amortization
 
2012
 
2011
Private Banks
$
7,660

 
$
4,762

Investment Advisors
1,832

 
1,604

Institutional Investors
302

 
200

Investment Managers
201

 
133

Investments in New Businesses
332

 
67

Total from business segments
$
10,327

 
$
6,766

Corporate Overhead
57

 
242

 
$
10,384

 
$
7,008

The following tables highlight certain unaudited financial information about each of the Company’s business segments for the nine months ended September 30, 2012 and 2011. 
 
Private
Banks
 
Investment
Advisors
 
Institutional
Investors
 
Investment
Managers
 
Investments
In New
Businesses
 
Total
 
For the Nine Months Ended September 30, 2012
Revenues
$
268,367

 
$
150,227

 
$
167,293

 
$
142,235

 
$
2,765

 
$
730,887

Expenses
263,612

 
88,440

 
86,494

 
92,711

 
11,080

 
542,337

Operating profit (loss)
$
4,755

 
$
61,787

 
$
80,799

 
$
49,524

 
$
(8,315
)
 
$
188,550

Operating margin
2
%
 
41
%
 
48
%
 
35
%
 
N/A

 
26
%
 
 
Private
Banks
 
Investment
Advisors
 
Institutional
Investors
 
Investment
Managers
 
Investments
In New
Businesses
 
Total
 
For the Nine Months Ended September 30, 2011
Revenues
$
262,279

 
$
144,674

 
$
160,132

 
$
133,478

 
$
2,917

 
$
703,480

Expenses
254,570

 
82,825

 
79,883

 
86,693

 
8,474

 
512,445

Operating profit (loss)
$
7,709

 
$
61,849

 
$
80,249

 
$
46,785

 
$
(5,557
)
 
$
191,035

Operating margin
3
%
 
43
%
 
50
%
 
35
%
 
N/A

 
27
%
A reconciliation of the total reported for the business segments to income from operations in the Consolidated Statements of Operations for the nine months ended September 30, 2012 and 2011 is as follows:
 
2012
 
2011
Total operating profit from segments above
$
188,550

 
$
191,035

Corporate overhead expenses
(33,830
)
 
(32,523
)
Noncontrolling interest reflected in segments
657

 
1,178

Income from operations
$
155,377

 
$
159,690



21 of 42


The following tables provide additional information for the nine months ended September 30, 2012 and 2011 pertaining to our business segments:
 
Capital Expenditures
 
Depreciation
 
2012
 
2011
 
2012
 
2011
Private Banks
$
28,270

 
$
27,032

 
$
11,343

 
$
11,913

Investment Advisors
9,743

 
9,184

 
1,489

 
1,699

Institutional Investors
2,514

 
1,640

 
765

 
836

Investment Managers
5,090

 
2,544

 
1,468

 
1,379

Investments in New Businesses
560

 
450

 
1,273

 
83

Total from business segments
$
46,177

 
$
40,850

 
$
16,338

 
$
15,910

Corporate Overhead
1,368

 
450

 
485

 
438

 
$
47,545

 
$
41,300

 
$
16,823

 
$
16,348


 
Amortization
 
2012
 
2011
Private Banks
$
17,139

 
$
13,599

Investment Advisors
5,305

 
4,573

Institutional Investors
906

 
563

Investment Managers
603

 
379

Investments in New Businesses
905

 
191

Total from business segments
$
24,858

 
$
19,305

Corporate Overhead
555

 
726

 
$
25,413

 
$
20,031


Note 11.    Income Taxes
The gross liability for unrecognized tax benefits at September 30, 2012 and December 31, 2011 was $11,186 and $9,410, respectively, exclusive of interest and penalties, of which $9,525 and $8,320 would affect the effective tax rate if the Company were to recognize the tax benefit.
The Company classifies interest and penalties on unrecognized tax benefits as income tax expense. As of September 30, 2012 and December 31, 2011, the combined amount of accrued interest and penalties related to tax positions taken on tax returns was $850 and $634, respectively. 
 
September 30, 2012

 
December 31, 2011
Gross liability for unrecognized tax benefits, exclusive of interest and penalties
$
11,186

 
$
9,410

Interest and penalties on unrecognized benefits
850

 
634

Total gross uncertain tax positions
$
12,036

 
$
10,044

Amount included in Current liabilities
$
957

 
$
1,768

Amount included in Other long-term liabilities
11,079

 
8,276

 
$
12,036

 
$
10,044

The Company’s effective tax rates were 39.0 percent and 33.8 percent for the three months ended September 30, 2012 and 2011, respectively. For the nine months ended September 30, 2012 and 2011, the Company's tax rates were 37.6 percent and 35.3 percent, respectively. The 2012 tax rates include the U.S. deferred taxes on the undistributed earnings of SEI Asset Korea Co., Ltd. (SEI AK). As a result of the sale of SEI AK, the Company no longer considers undistributed earnings of SEI AK to be indefinitely reinvested and therefore accrued U.S deferred taxes on the cumulative undistributed earnings (See Note 13). The increase in the Company's 2012 tax rates was partially offset by state tax planning. The 2011 tax rates reflect a benefit for research and development tax credit whereas the 2012 tax rates did not reflect any benefit. Additionally, during the three months ended September 30, 2011, the Company amended prior federal income tax returns to reflect the Domestic Production Activities Deduction. The effective rate in the three months ended September 30, 2011 reflects the benefit of this deduction for both 2008 and 2009, whereas the 2012 tax rate only reflects the 2012 benefit. The effective rate for the nine months ended

22 of 42


September 30, 2011 reflects the benefit of the Domestic Production Activities Deduction for 2008 through 2011, whereas the 2012 effective rate only reflects the benefit for 2012.
The Company files income tax returns in the United States on a consolidated basis and in many U.S. state and foreign jurisdictions. The Company is subject to examination of income tax returns by the Internal Revenue Service (IRS) and other domestic and foreign tax authorities. The Company is no longer subject to U.S. federal income tax examination for years before 2007 and is no longer subject to state, local or foreign income tax examinations by authorities for years before 2006.
The Company estimates it will recognize $957 of unrecognized tax benefits within the next twelve months due to the expiration of the statute of limitations and resolution of income tax audits. These unrecognized tax benefits are related to tax positions taken on certain federal, state, and foreign tax returns. However, the timing of the resolution of income tax examinations is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year. While it is reasonably possible that some issues under examination could be resolved in the next twelve months, based upon the current facts and circumstances, the Company cannot reasonably estimate the timing of such resolution or total range of potential changes as it relates to the current unrecognized tax benefits that are recorded as part of the Company’s financial statements.

Note 12.    Commitments and Contingencies
In the normal course of business, the Company is party to various claims and legal proceedings.
One of SEI’s principal subsidiaries, SIDCO, has been named as a defendant in certain putative class action complaints (the Complaints) related to leveraged exchange traded funds (ETFs) advised by ProShares Advisors, LLC. The first complaint was filed on August 5, 2009. To date, the Complaints have been filed in the United States District Court for the Southern District of New York and in the United States District Court for the District of Maryland. The three complaints filed in the District of Maryland have been voluntarily dismissed by the plaintiffs. Two of them were subsequently re-filed in the Southern District of New York. Two of the complaints filed in the Southern District of New York have also been voluntarily dismissed by plaintiffs. The Complaints are purportedly made on behalf of all persons that purchased or otherwise acquired shares in various ProShares leveraged ETFs pursuant or traceable to allegedly false and misleading registration statements, prospectuses and statements of additional information. The Complaints name as defendants ProShares Advisors, LLC; ProShares Trust; ProShares Trust II, SIDCO, and various officers and trustees to ProShares Advisors, LLC; ProShares Trust and ProShares Trust II. The Complaints allege that SIDCO was the distributor and principal underwriter for the various ProShares leveraged ETFs that were distributed to authorized participants and ultimately shareholders. The complaints allege that the registration statements for the ProShares ETFs were materially false and misleading because they failed adequately to describe the nature and risks of the investments. The Complaints allege that SIDCO is liable for these purportedly material misstatements and omissions under Section 11 of the Securities Act of 1933. The Complaints seek unspecified compensatory and other damages, reasonable costs and other relief. Defendants have moved to consolidate the complaints, which motion has been granted. The Court appointed lead plaintiff on July 13, 2010, and an amended consolidated class action complaint was filed on September 25, 2010 asserting substantially the same claims. This complaint subsequently was further amended by the plaintiffs. Defendants moved to dismiss the amended complaint and on September 7, 2012, the District Court for the Southern District of New York issued an opinion dismissing with prejudice the plaintiffs' amended complaint. On October 3, 2012, plaintiffs filed with the Second Circuit Court of Appeals a notice of appeal of the District Court's decision. While the outcome of this litigation is uncertain given its early phase, SEI believes that it has valid defenses to plaintiffs’ claims and intends to defend the lawsuits vigorously.
SEI has been named in six lawsuits filed in Louisiana. Five lawsuits were filed in the 19th Judicial District Court for the Parish of East Baton Rouge, State of Louisiana. One of the five actions purports to set forth claims on behalf of a class and also names SPTC as a defendant. Two of the other actions also name SPTC as a defendant. All five actions name various defendants in addition to SEI, and, in all five actions, the plaintiffs purport to bring a cause of action under the Louisiana Securities Act. The putative class action originally included a claim against SEI and SPTC for an alleged violation of the Louisiana Unfair Trade Practices Act. Two of the other five actions include claims for violations of the Louisiana Racketeering Act and possibly conspiracy. In addition, another group of plaintiffs have filed a lawsuit in the 23rd Judicial District Court for the Parish of Ascension, State of Louisiana, against SEI and SPTC and other defendants asserting claims of negligence, breach of contract, breach of fiduciary duty, violations of the uniform fiduciaries law, negligent misrepresentation, detrimental reliance, violations of the Louisiana Securities Act and Louisiana Racketeering Act and conspiracy. The underlying allegations in all the actions are purportedly related to the role of SPTC in providing back-office services to Stanford Trust Company. The petitions allege that SEI and SPTC aided and abetted or otherwise participated in the sale of “certificates of deposit” issued by Stanford International Bank. Two of the five actions filed in East Baton Rouge have been removed to federal court, and plaintiffs’ motions to remand are pending. These two cases have been transferred by the Judicial Panel on Multidistrict Litigation to United States District Court for the Northern District of Texas. On August 31, 2011, the United States District Court for the Northern District of Texas issued an order and judgment that the causes of action alleged against SEI and SPTC in the two

23 of 42


remanded actions were preempted by federal law and the Court dismissed these cases with prejudice. The Court of Appeals for the Fifth Circuit granted an expedited appeal of the United States District Court’s order and judgment. The appeal was briefed, and oral argument was held on February 7, 2012. On March 19, 2012, a panel of the Court of Appeals for the Fifth Circuit reversed the decision of the United States District Court and remanded the actions for further proceedings. On April 2, 2012, SEI filed with the United States Court of Appeals for the Fifth Circuit a petition for rehearing en banc of the panel’s opinion. On April 19, 2012, the Fifth Circuit Court of Appeals denied the petition for rehearing. On July 18, 2012, the Company filed a petition for certiorari in the United States Supreme Court, seeking review of the decision by the United States Court of Appeals for the Eleventh Circuit to permit the claims against SEI to proceed. The Company believes that the trial court correctly concluded that the claims against SEI were barred by the federal Securities Litigation Uniform Standards Act and is requesting that the Supreme Court reinstate that dismissal.
The case filed in Ascension Parish was also removed to federal court and transferred by the Judicial Panel on Multidistrict Litigation to the Northern District of Texas. The schedule for responding to that complaint has not yet been established. The plaintiffs in the remaining two cases in East Baton Rouge have granted SEI an extension to respond to the filings. SEI and SPTC filed exceptions in the putative class action pending in East Baton Rouge, which the Court granted in part and dismissed the claims under the Louisiana Unfair Trade Practices Act and denied in part as to the other exceptions. SEI and SPTC filed an answer to the East Baton Rouge putative class action; plaintiffs filed a motion for class certification; and SEI and SPTC also filed a motion for summary judgment against certain named plaintiffs which the Court stated will not be set for hearing until after the hearing on the class certification motion. Following the decision by the United States District Court for the Northern District of Texas, the Court in the East Baton Rouge action issued an order staying the proceedings in the East Baton Rouge class action pending the outcome of the appeal of the order and judgment of the United States District Court for the Northern District of Texas. Following the panel opinion of the Court of Appeals on March 19, 2012, the Court in the East Baton Rouge action held a hearing on class certification on September 20, 2012. The Court in the East Baton Rouge action has not yet issued its decision on the class certification motion. While the outcome of this litigation is uncertain given its early phase, SEI and SPTC believe that they have valid defenses to plaintiffs’ claims and intend to defend the lawsuits vigorously.
Because of the uncertainty of the make-up of the classes, the specific theories of liability that may survive a motion to dismiss, the lack of discovery regarding damages, causation, mitigation and other aspects that may ultimately bear upon loss, the Company is not reasonably able to provide an estimate of loss, if any, with respect to the foregoing lawsuits.

Note 13.    Sale of SEI Asset Korea
On July 31, 2012, the Company, MetLife International Holdings, Inc. (MetLife) and International Finance Corporation (IFC) entered into a definitive agreement with Baring Asset Management Limited to sell all ownership interests in SEI AK. SEI AK is located in South Korea and provides domestic equity and fixed income investment management services to financial institutions and pension funds. Consummation of the acquisition of SEI AK under the definitive agreement is subject to regulatory approvals and other customary closing conditions.
The Company's ownership interest in SEI AK is 56.1 percent as of September 30, 2012. The Company consolidates the assets, liabilities and operations of SEI AK in its Consolidated Financial Statements. The ownership interests in SEI AK for MetLife and IFC is reflected in Noncontrolling interest in the Consolidated Financial Statements. The operating results of SEI AK are included in the Private Banks business segment. Upon closing of the agreement, the then current cash balance of SEI AK will be distributed to the Company, Metlife and IFC in accordance with the ownership interests.
As of September 30, 2012, SEI AK had total corporate assets of $51,346, of which $44,791 is included in Cash and Cash equivalents on the Consolidated Balance Sheet. All other accounts of SEI AK are not material to any financial statement line item in the Consolidated Financial Statements.
The Company did not provide U.S. deferred taxes on the undistributed earnings of SEI AK since its inception because those earnings were considered to be indefinitely reinvested. As a result of the potential sale of SEI AK, the Company no longer considers the undistributed earnings of SEI AK to be indefinitely reinvested and, therefore, accrued $4,691 for U.S. deferred taxes on the cumulative undistributed earnings during the three months ended September 30, 2012.
If the requisite regulatory approvals are obtained, the other conditions to closing are satisfied or waived and the transaction is consummated, then the Company expects to recognize a net after tax gain on the sale of its shares of SEI AK depending upon revenue during a pre-closing measurement period and specified revenues during three one-year periods after the closing.

24 of 42



Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(In thousands, except asset balances and per share data)
This discussion reviews and analyzes the consolidated financial condition at September 30, 2012 and 2011, the consolidated results of operations for the three and nine months ended September 30, 2012 and 2011 and other key factors that may affect future performance. This discussion should be read in conjunction with the Consolidated Financial Statements and the Notes to the Consolidated Financial 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 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 September 30, 2012, through our subsidiaries and partnerships in which we have a significant interest, we manage or administer $447.8 billion in mutual fund and pooled or separately managed assets, including $195.2 billion in assets under management and $252.6 billion in client assets under administration. Our affiliate, LSV Asset Management (LSV), manages $58.9 billion of assets which are included as assets under management.
Our Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2012 and 2011 were: 
 
Three Months Ended September 30,
 
Percent
 
Nine Months Ended September 30,
 
Percent
 
2012
 
2011
 
Change
 
2012
 
2011
 
Change
Revenues
$
251,752

 
$
233,227

 
8
 %
 
$
730,887

 
$
703,480

 
4
 %
Expenses
198,262

 
182,091

 
9
 %
 
575,510

 
543,790

 
6
 %
Income from operations
53,490

 
51,136

 
5
 %
 
155,377

 
159,690

 
(3
)%
Net gain from investments
3,708

 
(1,418
)
 
N/A

 
7,577

 
3,912

 
94
 %
Interest income, net of interest expense
1,375

 
1,274

 
8
 %
 
4,028

 
3,895

 
3
 %
Equity in earnings from unconsolidated affiliate
24,928

 
23,908

 
4
 %
 
74,970

 
82,387

 
(9
)%
Income before income taxes
83,501

 
74,900

 
11
 %
 
241,952

 
249,884

 
(3
)%
Income taxes
32,415

 
25,256

 
28
 %
 
90,892

 
88,087

 
3
 %
Net income
51,086

 
49,644

 
3
 %
 
151,060

 
161,797

 
(7
)%
Less: Net income attributable to noncontrolling interest
(343
)
 
(412
)
 
(17
)%
 
(797
)
 
(1,234
)
 
(35
)%
Net income attributable to SEI Investments Co.
$
50,743

 
$
49,232

 
3
 %
 
150,263

 
$
160,563

 
(6
)%
Diluted earnings per common share
$
0.29

 
$
0.27

 
7
 %
 
$
0.85

 
$
0.86

 
(1
)%


25 of 42


In our opinion, the following items had a significant impact on our financial results for the three and nine months ended September 30, 2012 and 2011:
Revenue growth in the three and nine month periods 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 despite the market decline in the second quarter. Our average assets under management, excluding LSV, increased $10.6 billion, or nine percent, to $127.8 billion in the first nine months of 2012 as compared to $117.2 billion during the first nine months of 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 proportionate share in the earnings of LSV increased in the three months of 2012 and declined in the nine month period of 2012. The increase in the three month period was driven by market appreciation of LSV's assets under management and performance fees. The decrease in our earnings in the nine month period was primarily due to the market decline in second quarter 2012 which negatively affected the value of LSV's assets under management. Our earnings from LSV in the three and nine months of 2012 were also negatively impacted by a decrease in our ownership percentage from approximately 41.2 percent to approximately 39.8 percent during the second quarter 2012. The reduction in our ownership percentage is described in greater detail under the caption "Equity in earnings of unconsolidated affiliate" later in this discussion.
Our operating expenses related to servicing new and existing clients of our Global Wealth Services solution implemented on the Global Wealth Platform increased during the three and nine months of 2012 as compared to the similar periods of 2011 as we continue to build out the operational infrastructure. These increased operational costs, mainly related to personnel, primarily impacted the Private Banks segment. The increased operational costs are included in Compensation, benefits and other personnel on the accompanying Consolidated Statements of Operations.
Our consulting costs incurred for the development of the Global Wealth Platform, excluding amounts capitalized, have declined during the three and nine months of 2012 as compared to the similar periods of 2011 as we transition our efforts from development to support and maintenance of the platform. 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 segment increased during the three and nine months of 2012 as compared to the similar periods of 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 the first nine months of 2012. These sales events resulted in an increase in sales compensation expense of $8.1 million when compared to the first nine months of 2011. Also, incentive compensation expense increased in the three and nine months of 2012 as compared to the similar periods of 2011.
Amortization expense related to capitalized software increased to $24.9 million during the first nine months of 2012 as compared to $19.3 million during the first nine months 2011 partially due to continued releases of the Global Wealth 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 the three months ended September 30, 2012. This expense was recognized in our Private Banks business segment.
We recognized gains of $3.4 million and $7.3 million from SIV securities in the three and nine months ended September 30, 2012, respectively, as compared to losses of $0.8 million and gains of $4.1 million in the prior year periods.
Our effective tax rates for the three and nine months of 2012 were 39.0 percent and 37.6 percent, respectively, as compared to 33.8 percent and 35.3 percent in the prior year periods. The increase in our tax rates was due to the accrual of taxes on the cumulative undistributed earnings of SEI Asset Korea as well as tax planning strategies which benefited our tax rates in 2011 (See the caption "Income Taxes" later in this discussion for more information).
We continued our stock repurchase program during 2012 and purchased 5,648,000 shares at an average price of approximately $20.10 per share in the nine month period.

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Ending Asset Balances
(In millions)
This table presents ending assets 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. These assets are not included in our balance sheets because we do not own them.
 
As of September 30,
 
Percent
 
2012
 
2011
 
Change
Private Banks:
 
 
 
 
 
Equity and fixed income programs
$
17,960

 
$
15,442

 
16
 %
Collective trust fund programs
147

 
476

 
(69
)%
Liquidity funds
5,342

 
5,529

 
(3
)%
Total assets under management
$
23,449

 
$
21,447

 
9
 %
Client proprietary assets under administration
11,611

 
9,845

 
18
 %
Total assets
$
35,060

 
$
31,292

 
12
 %
Investment Advisors:
 
 
 
 
 
Equity and fixed income programs
30,864

 
24,757

 
25
 %
Collective trust fund programs
370

 
1,392

 
(73
)%
Liquidity funds
1,868

 
2,653

 
(30
)%
Total assets under management
$
33,102

 
$
28,802

 
15
 %
Institutional Investors:
 
 
 
 
 
Equity and fixed income programs
59,852

 
46,259

 
29
 %
Collective trust fund programs
153

 
510

 
(70
)%
Liquidity funds
3,272

 
3,356

 
(3
)%
Total assets under management
$
63,277

 
$
50,125

 
26
 %
Investment Managers:
 
 
 
 
 
Equity and fixed income programs
65

 
64

 
2
 %
Collective trust fund programs
15,433

 
10,896

 
42
 %
Liquidity funds
396

 
195

 
103
 %
Total assets under management
$
15,894

 
$
11,155

 
42
 %
Client proprietary assets under administration (A)
240,965

 
223,620

 
8
 %
Total assets
$
256,859

 
$
234,775

 
9
 %
Investments in New Businesses: