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 June 30, 2012, the results of operations for the three and six months ended June 30, 2012 and 2011, and cash flows for the six month periods ended June 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 six months ended June 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 $185,240 and $281,760 at June 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 June 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 June 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 $18,214 and $20,537 of software development costs during the six months ended June 30, 2012 and 2011, respectively. As of June 30, 2012, capitalized software placed into service included on the accompanying Consolidated Balance Sheet had a weighted average remaining life of approximately 10.0 years. Amortization expense related to capitalized software was $14,531 and $12,532 during the six months ended June 30, 2012 and 2011, respectively.

Software development costs capitalized during the six months ended June 30, 2012 and 2011 relates to the continued development of the Global Wealth Platform (GWP). As of June 30, 2012, the net book value of GWP was $302,829, net of accumulated amortization of $102,059. Capitalized software development costs in-progress at June 30, 2012 associated with future releases to GWP were $9,328. GWP has an estimated useful life of 15 years and a weighted average remaining life of 10.0 years. Amortization expense for GWP was $14,297 and $12,249 during the six months ended June 30, 2012 and 2011, respectively.

Earnings per Share

The calculations of basic and diluted earnings per share for the three months ended June 30, 2012 and 2011 are:



	For the Three Months Ended June 30, 2012
	Income (Numerator)		Shares (Denominator)	Per Share Amount
Basic earnings per common share	$	49,555	174,830	$	0.28
Dilutive effect of stock options	—		1,083
Diluted earnings per common share	$	49,555	175,913	$	0.28



	For the Three Months Ended June 30, 2011
	Income (Numerator)		Shares (Denominator)	Per Share Amount
Basic earnings per common share	$	53,603	184,585	$	0.29
Dilutive effect of stock options	—		2,435
Diluted earnings per common share	$	53,603	187,020	$	0.29

Employee stock options to purchase 16,637,000 and 7,675,000 shares of common stock, with an average exercise price of $22.75 and $28.25, were outstanding during the three months ended June 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 six months ended June 30, 2012 and 2011 are:



	For the Six Months Ended June 30, 2012
	Income (Numerator)		Shares (Denominator)	Per Share Amount
Basic earnings per common share	$	99,520	175,589	$	0.57
Dilutive effect of stock options	—		1,202
Diluted earnings per common share	$	99,520	176,791	$	0.56



	For the Six Months Ended June 30, 2011
	Income (Numerator)		Shares (Denominator)	Per Share Amount
Basic earnings per common share	$	111,331	185,186	$	0.60
Dilutive effect of stock options	—		2,571
Diluted earnings per common share	$	111,331	187,757	$	0.59

Employee stock options to purchase 14,017,000 and 7,606,000 shares of common stock, with an average exercise price of $23.40 and $28.26, were outstanding during the six months ended June 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.

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 six months ended June 30:



	2012			2011
Net income	$	99,974		$	112,153
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	11,062			11,002
Amortization	15,029			13,023
Equity in earnings of unconsolidated affiliate	(50,042		)	(58,479		)
Distributions received from unconsolidated affiliate	47,443			50,760
Stock-based compensation	7,898			7,542
Provision for losses on receivables	(104		)	(327		)
Deferred income tax expense	(1,291		)	(36		)
Net realized gains from investments	(3,869		)	(5,330		)
Change in other long-term liabilities	2,356			1,904
Change in other assets	(916		)	(1,658		)
Other	657			3,858
Change in current asset and liabilities
Decrease (increase) in
Receivables from regulated investment companies	(7,881		)	(1,953		)
Receivables	(26,992		)	(15,353		)
Other current assets	147			(211		)
Increase (decrease) in
Accounts payable	1,851			(1,727		)
Accrued liabilities	(18,810		)	(21,081		)
Deferred revenue	(1,399		)	(1,247		)
Total adjustments	(24,861		)	(19,313		)
Net cash provided by operating activities	$	75,113		$	92,840