Attached files

file filename
EX-32 - SECTION 906 CEO AND CFO CERTIFICATION - SEI INVESTMENTS COseic-63015ex32.htm
EX-31.2 - SECTION 302 CFO CERTIFICATION - SEI INVESTMENTS COseic-63015ex312.htm
EX-31.1 - SECTION 302 CEO CERTIFICATION - SEI INVESTMENTS COseic-63015ex311.htm
EX-99.1 - PRESS RELEASE - SEI INVESTMENTS COseic-63015ex991.htm


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 June 30, 2015
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 July 17, 2015 was 165,888,537.




SEI Investments Company

TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
PART I - FINANCIAL INFORMATION
 
 
 
 
 
 
Page
Item 1.
Financial Statements.
 
 
 
Consolidated Balance Sheets (Unaudited) -- June 30, 2015 and December 31, 2014
 
 
Consolidated Statements of Operations (Unaudited) -- For the Three and Six Months Ended June 30, 2015 and 2014
 
 
Consolidated Statements of Comprehensive Income (Unaudited) -- For the Three and Six Months Ended June 30, 2015 and 2014
 
 
Consolidated Statements of Cash Flows (Unaudited) -- For the Six Months Ended June 30, 2015 and 2014
 
 
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
 



1 of 36



PART I.        FINANCIAL INFORMATION

Item 1.    Consolidated Financial Statements.

SEI Investments Company
Consolidated Balance Sheets
(unaudited)
(In thousands, except par value)

 
June 30, 2015
 
December 31, 2014
Assets
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
624,841

 
$
667,446

Restricted cash
6,635

 
5,801

Receivables from regulated investment companies
46,920

 
48,393

Receivables, net of allowance for doubtful accounts of $656 and $784
218,141

 
194,419

Securities owned
21,204

 
21,175

Other current assets
22,846

 
18,193

Total Current Assets
940,587

 
955,427

Property and Equipment, net of accumulated depreciation of $253,039 and $241,295
128,697

 
125,535

Capitalized Software, net of accumulated amortization of $239,369 and $218,514
304,254

 
309,040

Investments Available for Sale
79,898

 
77,609

Investments in Affiliated Funds, at fair value
4,525

 
4,523

Investment in Unconsolidated Affiliates
50,765

 
54,290

Other Assets, net
17,106

 
16,451

Total Assets
$
1,525,832

 
$
1,542,875

Liabilities and Equity
 
 
 
Current Liabilities:
 
 
 
Accounts payable
$
6,139

 
$
10,588

Accrued liabilities
131,746

 
207,429

Deferred income taxes, net
1,037

 
1,414

Deferred revenue
5,387

 
1,749

Total Current Liabilities
144,309

 
221,180

Deferred Income Taxes
64,300

 
63,755

Other Long-term Liabilities
11,241

 
10,327

Total Liabilities
219,850

 
295,262

Commitments and Contingencies

 

Shareholders' Equity:
 
 
 
Common stock, $.01 par value, 750,000 shares authorized; 165,860 and 166,688 shares issued and outstanding
1,659

 
1,667

Capital in excess of par value
882,355

 
834,615

Retained earnings
435,660

 
420,226

Accumulated other comprehensive loss, net
(13,692
)
 
(8,895
)
Total Shareholders' Equity
1,305,982

 
1,247,613

Total Liabilities and Shareholders' Equity
$
1,525,832

 
$
1,542,875

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

2 of 36



SEI Investments Company
Consolidated Statements of Operations
(unaudited)
(In thousands, except per share data)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Revenues:
 
 
 
 
 
 
 
Asset management, administration and distribution fees
$
256,748

 
$
236,191

 
$
503,516

 
$
461,262

Information processing and software servicing fees
73,699

 
75,828

 
144,352

 
145,006

Transaction-based and trade execution fees
7,298

 
6,796

 
15,321

 
14,933

Total revenues
337,745

 
318,815

 
663,189

 
621,201

Expenses:
 
 
 
 
 
 
 
Subadvisory, distribution and other asset management costs
40,872

 
37,244

 
79,389

 
71,256

Software royalties and other information processing costs
8,057

 
8,417

 
15,566

 
16,970

Brokerage commissions
5,431

 
5,119

 
11,403

 
11,098

Compensation, benefits and other personnel
98,999

 
92,470

 
193,185

 
186,894

Stock-based compensation
3,859

 
2,872

 
7,609

 
5,695

Consulting, outsourcing and professional fees
36,969

 
33,404

 
72,597

 
68,337

Data processing and computer related
14,527

 
13,378

 
27,927

 
25,998

Facilities, supplies and other costs
16,659

 
17,366

 
33,718

 
33,218

Amortization
10,611

 
9,584

 
20,969

 
18,798

Depreciation
5,843

 
5,331

 
11,838

 
10,915

Total expenses
241,827

 
225,185

 
474,201

 
449,179

Income from operations
95,918

 
93,630

 
188,988

 
172,022

Net (loss) gain from investments
(38
)
 
391

 
212

 
527

Interest and dividend income
755

 
721

 
1,724

 
1,498

Interest expense
(114
)
 
(114
)
 
(227
)
 
(227
)
Equity in earnings of unconsolidated affiliates
37,289

 
34,226

 
71,322

 
66,117

Gain on sale of subsidiary

 

 
2,791

 
5,582

Income before income taxes
133,810

 
128,854

 
264,810

 
245,519

Income taxes
47,570

 
46,041

 
93,959

 
87,886

Net income
86,240

 
82,813

 
170,851

 
157,633

Basic earnings per common share
$
0.52

 
$
0.49

 
$
1.03

 
$
0.93

Shares used to compute basic earnings per share
166,152

 
168,606

 
166,423

 
168,956

Diluted earnings per common share
$
0.51

 
$
0.48

 
$
1.00

 
$
0.91

Shares used to compute diluted earnings per share
169,973

 
172,304

 
170,338

 
173,066

Dividends declared per common share
$
0.24

 
$
0.22

 
$
0.24

 
$
0.22

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

3 of 36



SEI Investments Company
Consolidated Statements of Comprehensive Income
(unaudited)
(In thousands)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Net income
 
 
$
86,240

 
 
 
$
82,813

 
 
 
$
170,851

 
 
 
$
157,633

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
 
4,530

 
 
 
3,378

 
 
 
(4,253
)
 
 
 
1,412

Unrealized (loss) gain on investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized (losses) gains during the period, net of income taxes of $326, $(461), $301 and $(756)
(527
)
 
 
 
453

 
 
 
(520
)
 
 
 
991

 
 
Less: reclassification adjustment for losses (gains) realized in net income, net of income taxes of $(39), $13, $13 and $38
70

 
(457
)
 
(24
)
 
429

 
(24
)
 
(544
)
 
(69
)
 
922

Total other comprehensive income (loss), net of tax
 
 
4,073

 
 
 
3,807

 
 
 
(4,797
)
 
 
 
2,334

Comprehensive income
 
 
$
90,313

 
 
 
$
86,620

 
 
 
$
166,054

 
 
 
$
159,967

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

4 of 36



SEI Investments Company
Consolidated Condensed Statements of Cash Flows
(unaudited)
(In thousands)
 
 
Six Months Ended June 30,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net income
$
170,851

 
$
157,633

Adjustments to reconcile net income to net cash provided by operating activities (See Note 1)
(14,067
)
 
(15,846
)
Net cash provided by operating activities
156,784

 
141,787

Cash flows from investing activities:
 
 
 
Additions to restricted cash
(834
)
 

Additions to property and equipment
(15,727
)
 
(18,632
)
Additions to capitalized software
(16,069
)
 
(18,262
)
Purchases of marketable securities
(26,854
)
 
(34,675
)
Prepayments and maturities of marketable securities
16,772

 
16,203

Sales of marketable securities
6,862

 
18,048

Receipt of contingent payment from sale of SEI AK
2,791

 
5,582

Purchases of other investments
(1,000
)
 
(2,000
)
Net cash used in investing activities
(34,059
)
 
(33,736
)
Cash flows from financing activities:
 
 
 
Purchase and retirement of common stock
(133,429
)
 
(140,294
)
Proceeds from issuance of common stock
42,661

 
51,571

Tax benefit on stock options exercised
8,233

 
7,617

Payment of dividends
(80,030
)
 
(74,256
)
Net cash used in financing activities
(162,565
)
 
(155,362
)
Effect of exchange rate changes on cash and cash equivalents
(2,765
)
 
1,205

Net decrease in cash and cash equivalents
(42,605
)
 
(46,106
)
Cash and cash equivalents, beginning of period
667,446

 
578,273

Cash and cash equivalents, end of period
$
624,841

 
$
532,167

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

5 of 36



Notes to Consolidated Financial Statements
(all figures are in thousands except share and 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 financial institutions, financial advisors, institutional investors, investment managers and ultra-high-net-worth families in the United States, Canada, the United Kingdom, continental Europe and various other locations throughout the world. Investment processing solutions consist of application and business process outsourcing services, professional services and transaction-based services. Revenues from investment processing solutions are recognized in Information processing and software servicing fees on the accompanying Consolidated Statements of Operations, except for fees earned associated with trade execution services which are recognized in Transaction-based and trade execution fees.
Investment management programs consist of mutual funds, alternative investments and separate accounts. These include a series of money market, equity, fixed-income and alternative investment portfolios, primarily in the form of registered investment companies. The Company serves as the administrator and investment advisor for many of these products. Revenues from investment management programs are recognized in Asset management, administration and distribution fees on the accompanying Consolidated Statements of Operations.
Investment operations solutions offer investment managers support for traditional investment products such as mutual funds, collective investment trusts, exchange-traded funds, and institutional and separate accounts, by providing outsourcing services including fund and investment accounting, administration, reconciliation, investor servicing and client reporting. These solutions also provide support to managers focused on alternative investments who manage hedge funds, funds of hedge funds, private equity funds and real estate funds, across registered, partnership and separate account structures domiciled in the United States and overseas. Revenues from investment operations solutions are recognized in Asset management, administration and distribution fees on the accompanying Consolidated Statements of Operations.
Basis of Presentation
The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Certain financial information and accompanying note disclosure normally included in the Company’s Annual Report on Form 10-K have been condensed or omitted. The interim financial information is unaudited but reflects all adjustments (consisting of only normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of financial position of the Company as of June 30, 2015, the results of operations for the three and six months ended June 30, 2015 and 2014, and cash flows for the six month periods ended June 30, 2015 and 2014. 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, 2014.
There have been no significant changes in significant accounting policies during the six months ended June 30, 2015 as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.
Cash and Cash Equivalents
Cash and cash equivalents includes $382,885 and $435,268 at June 30, 2015 and December 31, 2014, respectively, primarily invested in SEI-sponsored open-ended money market mutual funds. The SEI-sponsored mutual funds are considered Level 1 assets.
Restricted Cash
Restricted cash includes $5,000 at June 30, 2015 and December 31, 2014 segregated for regulatory purposes related to trade-execution services conducted by SEI Investments (Europe) Limited. Restricted cash also includes $500 at June 30, 2015 and December 31, 2014, respectively, segregated in special reserve accounts for the benefit of customers of the Company’s broker-dealer subsidiary, SEI Investments Distribution Co. (SIDCO), in accordance with certain rules established by the Securities and Exchange Commission for broker-dealers.
Capitalized Software
The Company capitalized $16,069 and $18,262 of software development costs during the six months ended June 30, 2015 and 2014, respectively. The Company's software development costs primarily relate to the continued development of the SEI Wealth PlatformSM (the Platform). The Company capitalized $13,649 and $18,262 of software development costs for significant enhancements to the Platform during the six months ended June 30, 2015 and 2014, respectively. As of June 30, 2015, the net book value of the Platform was $301,834. The Platform has an estimated useful life of 15 years and a weighted

6 of 36



average remaining life of 7.0 years. Amortization expense for the Platform was $20,855 and $18,589 during the six months ended June 30, 2015 and 2014, respectively. The remaining amount of the Company's software development costs capitalized during the six months ended June 30, 2015 is related to a project within the Investment Managers segment.
Earnings per Share
The calculations of basic and diluted earnings per share for the three months ended June 30, 2015 and 2014 are:
 
For the Three Months Ended June 30, 2015
 
Income
(Numerator)
 
Shares
(Denominator)
 
Per Share
Amount
Basic earnings per common share
$
86,240

 
166,152,000

 
$
0.52

Dilutive effect of stock options

 
3,821,000

 
 
Diluted earnings per common share
$
86,240

 
169,973,000

 
$
0.51


 
For the Three Months Ended June 30, 2014
 
Income
(Numerator)
 
Shares
(Denominator)
 
Per Share
Amount
Basic earnings per common share
$
82,813

 
168,606,000

 
$
0.49

Dilutive effect of stock options

 
3,698,000

 
 
Diluted earnings per common share
$
82,813

 
172,304,000

 
$
0.48

Employee stock options to purchase 10,007,000 and 5,397,000 shares of common stock, with an average exercise price of $30.02 and $32.40, were outstanding during the three months ended June 30, 2015 and 2014, respectively, but not included in the computation of diluted earnings per common share because the option’s exercise price was greater than the average market price of the Company’s common stock or the performance conditions have not been satisfied or would have been satisfied if the reporting date was the end of the contingency period and 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, 2015 and 2014 are:
 
For the Six Months Ended June 30, 2015
 
Income
(Numerator)
 
Shares
(Denominator)
 
Per Share
Amount
Basic earnings per common share
$
170,851

 
166,423,000

 
$
1.03

Dilutive effect of stock options

 
3,915,000

 
 
Diluted earnings per common share
$
170,851

 
170,338,000

 
$
1.00

 
For the Six Months Ended June 30, 2014
 
Income
(Numerator)
 
Shares
(Denominator)
 
Per Share
Amount
Basic earnings per common share
$
157,633

 
168,956,000

 
$
0.93

Dilutive effect of stock options

 
4,110,000

 
 
Diluted earnings per common share
$
157,633

 
173,066,000

 
$
0.91

Employee stock options to purchase 10,029,000 and 5,397,000 shares of common stock, with an average exercise price of $30.02 and $32.40, were outstanding during the six months ended June 30, 2015 and 2014, respectively, but not included in the computation of diluted earnings per common share because the option’s exercise price was greater than the average market price of the Company’s common stock or the performance conditions have not been satisfied or would have been satisfied if the reporting date was the end of the contingency period and the effect on diluted earnings per common share would have been anti-dilutive.


7 of 36



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:
 
2015
 
2014
Net income
$
170,851

 
$
157,633

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
11,838

 
10,915

Amortization
20,969

 
18,798

Equity in earnings of unconsolidated affiliates
(71,322
)
 
(66,117
)
Distributions received from unconsolidated affiliate
74,847

 
69,470

Stock-based compensation
7,609

 
5,695

Provision for losses on receivables
(128
)
 
227

Deferred income tax expense
482

 
5,270

Gain from sale of SEI AK
(2,791
)
 
(5,582
)
Net gain from investments
(212
)
 
(527
)
Change in other long-term liabilities
914

 
1,113

Change in other assets
(643
)
 
(2,564
)
Other
(1,269
)
 
238

Change in current asset and liabilities
 
 
 
Decrease (increase) in
 
 
 
Receivables from regulated investment companies
1,473

 
(4,680
)
Receivables
(21,502
)
 
(21,245
)
Other current assets
(6,745
)
 
(5,392
)
Increase (decrease) in
 
 
 
Accounts payable
(3,813
)
 
(7,765
)
Accrued liabilities
(27,412
)
 
(13,061
)
Deferred revenue
3,638

 
(639
)
Total adjustments
(14,067
)
 
(15,846
)
Net cash provided by operating activities
$
156,784

 
$
141,787

New Accounting Pronouncements
In May 2015, the Financial Accounting Standards Board (FASB) issued new guidance that eliminates the current requirement to categorize within the fair value hierarchy investments with fair values measured at NAV using the practical expedient in Accounting Standards Codification 820, Fair Value Measurement (ASC 820). The new guidance will require entities to disclose the fair values of such investments as a reconciling item between the amounts reported on the balance sheets and the amounts reported in the fair value hierarchy table. Entities will be required to continue to disclose information describing the nature and risks of the investments measured using the NAV practical expedient. The new disclosures are required for the Company beginning on January 1, 2016. Early adoption is permitted. The new guidance only impacts footnote disclosures and will have no impact on the Company's financial statements.
On May 28, 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The updated standard permits the use of either the retrospective or cumulative effect transition method. ASU 2014-09 currently becomes effective for the Company during the first quarter 2018. The Company is currently evaluating the transition method that will be elected and the effect that the updated standard will have on its consolidated financial statements and related disclosures.

8 of 36



On February 18, 2015, the FASB issued Accounting Standards Update No. 2015-02, Consolidation (Topic 810) - Amendments to the Consolidation Analysis (ASU 2015-02). The new guidance applies to entities in all industries and provides a new scope exception to registered money market funds and similar unregistered money market funds. It makes targeted amendments to the current consolidation guidance and ends the deferral granted to investment companies from applying the VIE guidance. ASU 2015-02 becomes effective for the Company during the first quarter 2016. The Company is currently evaluating the effect that the standard will have on its consolidated financial statements and related disclosures.
Reclassifications
Certain prior year amounts have been reclassified to conform to current year presentation.

Note 2.
Investment in Unconsolidated Affiliates
LSV Asset Management
The Company has an investment in LSV Asset Management (LSV), a registered investment advisor that provides investment advisory services primarily to institutions, including pension plans and investment companies. LSV is currently an investment sub-advisor for a limited 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 affiliates on the accompanying Consolidated Balance Sheets and its interest in the earnings of LSV is reflected in Equity in earnings of unconsolidated affiliates on the accompanying Consolidated Statements of Operations.
At June 30, 2015, the Company’s total investment in LSV was $50,765. The Company receives partnership distributions from LSV on a quarterly basis. The Company received partnership distributions from LSV of $74,847 and $69,470 in the six months ended June 30, 2015 and 2014, respectively.
The Company’s proportionate share in the earnings of LSV was $38,327 and $34,500 during the three months ended June 30, 2015 and 2014, respectively. During the six months ended June 30, 2015 and 2014, the Company's proportionate share in the earnings of LSV was $72,672 and $66,716, respectively.
The following table contains the condensed financial operations of LSV for the three and six months ended June 30, 2015 and 2014:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Revenues
$
117,543

 
$
105,948

 
$
223,438

 
$
201,721

Net income
97,757

 
87,820

 
185,182

 
169,743

Guaranty Agreement with LSV Employee Group III
In October 2012, LSV Employee Group III purchased 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 Company provided an unsecured guaranty for $45,000 of the obligations of LSV Employee Group III to the lenders through a guaranty agreement. The lenders have the right to seek payment from the Company in the event of a default by LSV Employee Group III. 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 Company’s direct interest in LSV was unchanged as a result of this transaction. The Company has determined that LSV Employee Group III is a VIE; however, the Company is not considered the primary beneficiary because it does not have the power to direct the activities that most significantly impact the economic performance of LSV Employee Group III either directly or through any financial responsibility from the guaranty.
In September 2014, LSV Employee Group III made the final principal payment related to the term loan guaranteed by LSV. As of July 17, 2015, the remaining unpaid principal balance of the term loan guaranteed by the Company was $29,179. LSV Employee Group III has met all financial obligations to date regarding the scheduled repayment of the term loans since origination. The Company, in its capacity as guarantor, currently has no obligation of payment relating to the term loan of LSV Employee Group III and, furthermore, fully expects that LSV Employee Group III will meet all of their future obligations regarding the term loan.
Investment in Gao Fu Limited
The Company had an investment in Gao Fu Limited (Gao Fu), a wealth services firm based in Shanghai in the Republic of China. During the three months ended June 30, 2015, the Company wrote off the remaining carrying value of its investment and, as of June 30, 2015, the Company's investment no longer has any book value.

9 of 36



Note 3.    Variable Interest Entities – Investment Products
The Company or its affiliates have created numerous investment products for its clients in various types of legal entity structures. The Company serves as the Manager, Administrator and Distributor for these investment products and may also serve as the Trustee for some of the investment products. Clients are the equity investors and participate in proportion to their ownership percentage in the net income or loss and net capital gains or losses of the products, and, on liquidation, will participate in proportion to their ownership percentage in the remaining net assets of the products after satisfaction of outstanding liabilities.
An entity that lacks decision-making rights is a VIE. In some circumstances, the Manager or Trustee of the Company’s investment products controls the governing decisions about the investment activities with respect to the ongoing operations of the investment products without the equity investors possessing the right to remove the Manager or Trustee. Therefore, the equity investors, as a group, do not have the ability to make decisions that have an impact on the ongoing activities of such investment products. Consequently, some of the Company’s investment products have been determined to be VIEs at inception.
The VIEs are marketed with investment objectives to generate positive returns; however, the nature of such investments exposes the investors to the risk that the value of the VIEs may increase or decrease. The purpose and design of the VIEs are to achieve the investment objective by implementing strategies which are designed to minimize potential losses; however, there is no assurance given that these strategies will be successful.
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 fees paid to the decision maker of a VIE are considered to be variable interests if the decision maker is not subject to substantive kick-out rights. The fees paid to the Company represent a variable interest when the decision maker is not subject to substantive kick-out rights.
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, would not be 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 immaterial. The Company has no other financial obligation to the VIEs.
Amounts relating to fees due 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 immaterial to the total current assets of the Company.

Note 4.
Composition of Certain Financial Statement Captions
Receivables
Receivables on the accompanying Consolidated Balance Sheets consist of: 
 
June 30, 2015
 
December 31, 2014
Trade receivables
$
55,888

 
$
48,394

Fees earned, not billed
153,046

 
139,038

Other receivables
9,863

 
7,771

 
218,797

 
195,203

Less: Allowance for doubtful accounts
(656
)
 
(784
)
 
$
218,141

 
$
194,419

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 calculated based on assets under administration that have a prolonged valuation process which delays 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.

10 of 36



Property and Equipment
Property and Equipment on the accompanying Consolidated Balance Sheets consists of:
 
June 30, 2015
 
December 31, 2014
Buildings
$
150,725

 
$
149,890

Equipment
86,071

 
78,266

Land
9,997

 
9,997

Purchased software
108,102

 
104,964

Furniture and fixtures
16,991

 
16,944

Leasehold improvements
8,899

 
5,675

Construction in progress
951

 
1,094

 
381,736

 
366,830

Less: Accumulated depreciation
(253,039
)
 
(241,295
)
Property and Equipment, net
$
128,697

 
$
125,535

The Company recognized $11,838 and $10,915 in depreciation expense related to property and equipment for the six months ended June 30, 2015 and 2014, respectively.
Accrued Liabilities
Accrued liabilities on the accompanying Consolidated Balance Sheets consist of: 
 
June 30, 2015
 
December 31, 2014
Accrued employee compensation
$
42,573

 
$
73,269

Accrued employee benefits and other personnel
3,727

 
6,482

Accrued consulting, outsourcing and professional fees
23,264

 
18,915

Accrued sub-advisory, distribution and other asset management fees
32,165

 
31,913

Accrued brokerage fees
7,113

 
5,838

Accrued dividend payable

 
40,178

Accrued income taxes
3,835

 
3,272

Other accrued liabilities
19,069

 
27,562

Total accrued liabilities
$
131,746

 
$
207,429


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 open-ended mutual funds that are quoted daily. Level 2 financial assets consist of Government National Mortgage Association (GNMA) mortgage-backed securities held by the Company's wholly-owned limited purpose federal thrift subsidiary, SEI Private Trust Company (SPTC), Federal Home Loan Bank (FHLB) and other U.S. government agency short-term notes and investment grade commercial paper held by SIDCO, and investment funds sponsored by LSV. The financial assets held by SIDCO were purchased as part of a cash management program requiring only short term, top-tier investment grade government and corporate securities. The financial assets held by SPTC are debt securities issued by GNMA and are backed by the full faith and credit of the U.S. government. These securities were purchased for the sole purpose of satisfying applicable regulatory requirements and have maturity dates which range from 2020 to 2041.
The valuation of the Company's Level 2 financial assets held by SIDCO and SPTC are based upon securities pricing policies and procedures utilized by third-party pricing vendors. As a practical expedient, the Company relies on the net asset values (NAVs) of the investment funds sponsored by LSV as the fair value. The NAVs of the funds are calculated by the funds' independent custodian and are derived from the fair values of the underlying investments as of the reporting date.
The pricing policies and procedures applied during the six months ended June 30, 2015 were consistent with those as described in our Annual Report on Form 10-K at December 31, 2014. The Company had no Level 3 financial assets or liabilities at June 30, 2015 or December 31, 2014. There were no transfers of financial assets between levels within the fair value hierarchy during the six months ended June 30, 2015.

11 of 36



The fair value of certain financial assets and liabilities of the Company was determined using the following inputs:
 
At June 30, 2015
 
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)
Equity available-for-sale securities
$
11,937

 
$
11,937

 
$

Fixed income available-for-sale securities
67,961

 

 
67,961

Fixed income securities owned
21,204

 

 
21,204

Investment funds sponsored by LSV
4,525

 

 
4,525

 
$
105,627

 
$
11,937

 
$
93,690


 
At December 31, 2014
 
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)
Equity available-for-sale securities
$
11,588

 
$
11,588

 
$

Fixed income available-for-sale securities
66,021

 

 
66,021

Fixed income securities owned
21,175

 

 
21,175

Investment funds sponsored by LSV
4,523

 

 
4,523

 
$
103,307

 
$
11,588

 
$
91,719


Note 6.    Marketable Securities
Investments Available for Sale
Investments available for sale classified as non-current assets consist of: 
 
At June 30, 2015
 
Cost
Amount
 
Gross
Unrealized
Gains
 
Gross
Unrealized
(Losses)
 
Fair
Value
SEI-sponsored mutual funds
$
8,812

 
$
193

 
$
(92
)
 
$
8,913

Equities and other mutual funds
3,017

 
7

 

 
3,024

Debt securities
67,031

 
930

 

 
67,961

 
$
78,860

 
$
1,130

 
$
(92
)
 
$
79,898

 
At December 31, 2014
 
Cost
Amount
 
Gross
Unrealized
Gains
 
Gross
Unrealized
(Losses)
 
Fair
Value
SEI-sponsored mutual funds
$
8,685

 
$
134

 
$
(95
)
 
$
8,724

Equities and other mutual funds
2,695

 
169

 

 
2,864

Debt securities
64,333

 
1,688

 

 
66,021

 
$
75,713

 
$
1,991

 
$
(95
)
 
$
77,609

Net unrealized gains at June 30, 2015 and December 31, 2014 were $649 (net of income tax expense of $389) and $1,193 (net of income tax expense of $703), respectively. These net unrealized gains are reported as a separate component of Accumulated other comprehensive loss on the accompanying Consolidated Balance Sheets.
There were gross realized gains of $357 and gross realized losses of $320 from available-for-sale securities during the six months ended June 30, 2015. There were gross realized gains of $230 and gross realized losses of $123 from available-for-sale

12 of 36



securities during the six months ended June 30, 2014. Gains and losses from available-for-sale securities, including amounts reclassified from accumulated comprehensive income, are reflected in Net (loss) gain from investments on the accompanying Consolidated Statements of Operations.
Investments in Affiliated Funds
The Company has an investment related to the startup of investment funds sponsored by LSV. The Company records this investment on the accompanying Consolidated Balance Sheets at fair value. Unrealized gains and losses from the change in fair value of these funds are recognized in Net (loss) gain from investments on the accompanying Consolidated Statements of Operations.
The investment primarily consist of U.S. dollar denominated funds that invest primarily in securities of Canadian, Australian and Japanese companies as well as various other global securities. The underlying securities held by the funds are translated into U.S. dollars within the funds. The funds had a fair value of $4,525 and $4,523 at June 30, 2015 and December 31, 2014, respectively. There were gross realized gains of $356 and $421 from the funds during the three and six months ended June 30, 2014, respectively. There were no material gross realized gains or losses from the funds during the three and six months ended June 30, 2015.
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 $21,204 and $21,175 at June 30, 2015 and December 31, 2014, respectively. There were no material net gains or losses from the change in fair value of the securities during the three and six months ended June 30, 2015 and 2014.

Note 7.    Line of Credit
The Company has a five-year $300,000 Credit Agreement (the Credit Facility) with Wells Fargo Bank, National Association, and a syndicate of other lenders. 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 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 under the Credit Facility at June 30, 2015. The Company was in compliance with all covenants of the Credit Facility during the six months ended June 30, 2015.

Note 8.    Shareholders’ Equity
Stock-Based Compensation
The Company has only non-qualified stock options outstanding under its equity compensation plans. 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. Options do not vest due to the passage of time but solely as a result of achievement of the financial vesting targets. The amount of stock-based compensation expense is based upon management’s estimate of when the earnings per share targets may be achieved.

13 of 36



The Company recognized stock-based compensation expense in its Consolidated Financial Statements in the three and six months ended June 30, 2015 and 2014, respectively, as follows: 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Stock-based compensation expense
$
3,859

 
$
2,872

 
$
7,609

 
$
5,695

Less: Deferred tax benefit
(1,352
)
 
(939
)
 
(2,659
)
 
(1,950
)
Stock-based compensation expense, net of tax
$
2,507

 
$
1,933

 
$
4,950

 
$
3,745

As of June 30, 2015, there was approximately $40,187 of unrecognized compensation cost remaining, adjusted for estimated forfeitures, related to unvested employee stock options that management expects will vest and is being amortized.
The Company issues new common shares associated with the exercise of stock options. The total intrinsic value of options exercised during the six months ended June 30, 2015 was $45,141. The total options exercisable as of June 30, 2015 had an intrinsic value of $240,069. The total intrinsic value for options exercisable is calculated as the difference between the market value of the Company’s common stock as of June 30, 2015 and the weighted average exercise price of the shares. The market value of the Company’s common stock as of June 30, 2015 was $49.03 as reported by the Nasdaq Stock Market, LLC. The weighted average exercise price of the options exercisable as of June 30, 2015 was $20.35. Total options that were outstanding and exercisable as of June 30, 2015 were 18,378,000 and 8,371,000, 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 2,782,000 shares at a total cost of $126,335 during the six months ended June 30, 2015. The cost of stock purchases during the period includes the cost of certain transactions that settled in the following quarter. As of July 17, 2015, the Company has $176,378 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 27, 2015, the Board of Directors declared a cash dividend of $0.24 per share on the Company's common stock, which was paid on June 24, 2015, to shareholders of record on June 16, 2015. Cash dividends declared during the six months ended June 30, 2015 and 2014 were $39,852 and $36,942, respectively.

Note 9.    Accumulated Other Comprehensive Loss
The components of Accumulated other comprehensive loss, net of tax, are as follows: 
 
Foreign
Currency
Translation
Adjustments
 
Unrealized
Gains (Losses)
on Investments
 
Total
Balance, January 1, 2015
$
(10,088
)
 
$
1,193

 
$
(8,895
)
 
 
 
 
 
 
Other comprehensive loss before reclassifications
(4,253
)
 
(520
)
 
(4,773
)
Amounts reclassified from accumulated other comprehensive income

 
(24
)
 
(24
)
Net current-period other comprehensive loss
(4,253
)
 
(544
)
 
(4,797
)
 
 
 
 
 
 
Balance, June 30, 2015
$
(14,341
)
 
$
649

 
$
(13,692
)


14 of 36



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, independent wealth advisers and financial advisors worldwide;
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 fund companies, banking institutions and both traditional and non-traditional investment managers worldwide; and
Investments in New Businesses – focuses on providing investment management programs to ultra-high-net-worth families residing in the United States; developing internet-based investment services and advice solutions; entering new markets; and conducting 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 six months ended June 30, 2015 and 2014. 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, 2014.
The following tables highlight certain unaudited financial information about each of the Company’s business segments for the three months ended June 30, 2015 and 2014.
 
Private
Banks
 
Investment
Advisors
 
Institutional
Investors
 
Investment
Managers
 
Investments
In New
Businesses
 
Total
 
For the Three Months Ended June 30, 2015
Revenues
$
115,333

 
$
77,753

 
$
75,980

 
$
67,280

 
$
1,399

 
$
337,745

Expenses
104,727

 
40,857

 
36,528

 
42,141

 
4,803

 
229,056

Operating profit (loss)
$
10,606

 
$
36,896

 
$
39,452

 
$
25,139

 
$
(3,404
)
 
$
108,689


 
Private
Banks
 
Investment
Advisors
 
Institutional
Investors
 
Investment
Managers
 
Investments
In New
Businesses
 
Total
 
For the Three Months Ended June 30, 2014
Revenues
$
114,182

 
$
70,046

 
$
70,994

 
$
62,451

 
$
1,142

 
$
318,815

Expenses
98,957

 
35,679

 
35,025

 
39,449

 
4,451

 
213,561

Operating profit (loss)
$
15,225

 
$
34,367

 
$
35,969

 
$
23,002

 
$
(3,309
)
 
$
105,254

A reconciliation of the total operating profit reported for the business segments to income from operations in the Consolidated Statements of Operations for the three months ended June 30, 2015 and 2014 is as follows: 
 
2015
 
2014
Total operating profit from segments
$
108,689

 
$
105,254

Corporate overhead expenses
(12,771
)
 
(11,624
)
Income from operations
$
95,918

 
$
93,630



15 of 36



The following tables provide additional information for the three months ended June 30, 2015 and 2014 pertaining to our business segments: 
 
Capital Expenditures
 
Depreciation
 
2015
 
2014
 
2015
 
2014
Private Banks
$
10,108

 
$
9,510

 
$
2,976

 
$
3,557

Investment Advisors
2,843

 
4,061

 
825

 
512

Institutional Investors
1,068

 
1,642

 
298

 
209

Investment Managers
1,794

 
3,087

 
991

 
512

Investments in New Businesses
132

 
616

 
571

 
420

Total from business segments
$
15,945

 
$
18,916

 
$
5,661

 
$
5,210

Corporate overhead
476

 
943

 
182

 
121

 
$
16,421

 
$
19,859

 
$
5,843

 
$
5,331


 
Amortization
 
2015
 
2014
Private Banks
$
7,445

 
$
6,192

Investment Advisors
2,459

 
2,286

Institutional Investors
375

 
355

Investment Managers
250

 
236

Investments in New Businesses
25

 
458

Total from business segments
$
10,554

 
$
9,527

Corporate overhead
57

 
57

 
$
10,611

 
$
9,584


The following tables highlight certain unaudited financial information about each of the Company’s business segments for the six months ended June 30, 2015 and 2014.
 
Private
Banks
 
Investment
Advisors
 
Institutional
Investors
 
Investment
Managers
 
Investments
In New
Businesses
 
Total
 
For the Six Months Ended June 30, 2015
Revenues
$
226,546

 
$
151,768

 
$
149,528

 
$
132,647

 
$
2,700

 
$
663,189

Expenses
203,983

 
79,916

 
71,739

 
82,764

 
9,669

 
448,071

Operating profit (loss)
$
22,563

 
$
71,852

 
$
77,789

 
$
49,883

 
$
(6,969
)
 
$
215,118

Gain on sale of subsidiary
2,791

 

 

 

 

 
2,791

Segment profit (loss)
$
25,354

 
$
71,852

 
$
77,789

 
$
49,883

 
$
(6,969
)
 
$
217,909

 
Private
Banks
 
Investment
Advisors
 
Institutional
Investors
 
Investment
Managers
 
Investments
In New
Businesses
 
Total
 
For the Six Months Ended June 30, 2014
Revenues
$
219,361

 
$
136,470

 
$
139,651

 
$
123,459

 
$
2,260

 
$
621,201

Expenses
199,147

 
70,256

 
69,120

 
78,633

 
8,700

 
425,856

Operating profit (loss)
$
20,214

 
$
66,214

 
$
70,531

 
$
44,826

 
$
(6,440
)
 
$
195,345

Gain on sale of subsidiary
5,582

 

 

 

 

 
5,582

Segment profit (loss)
$
25,796

 
$
66,214

 
$
70,531

 
$
44,826

 
$
(6,440
)
 
$
200,927


16 of 36



A reconciliation of the total operating profit reported for the business segments to income from operations in the Consolidated Statements of Operations for the six months ended June 30, 2015 and 2014 is as follows: 
 
2015
 
2014
Total operating profit from segments
$
215,118

 
$
195,345

Corporate overhead expenses
(26,130
)
 
(23,323
)
Income from operations
$
188,988

 
$
172,022


The following tables provide additional information for the six months ended June 30, 2015 and 2014 pertaining to our business segments: 
 
Capital Expenditures
 
Depreciation
 
2015
 
2014
 
2015
 
2014
Private Banks
$
18,610

 
$
18,308

 
$
6,073

 
$
7,289

Investment Advisors
6,161

 
7,650

 
1,663

 
1,003

Institutional Investors
2,015

 
2,930

 
601

 
419

Investment Managers
3,842

 
5,222

 
1,990

 
1,024

Investments in New Businesses
283

 
1,196

 
1,134

 
950

Total from business segments
$
30,911

 
$
35,306

 
$
11,461

 
$
10,685

Corporate Overhead
885

 
1,588

 
377

 
230

 
$
31,796

 
$
36,894

 
$
11,838

 
$
10,915

 
Amortization
 
2015
 
2014
Private Banks
$
14,696

 
$
12,143

Investment Advisors
4,859

 
4,484

Institutional Investors
750

 
695

Investment Managers
500

 
464

Investments in New Businesses
50

 
898

Total from business segments
$
20,855

 
$
18,684

Corporate Overhead
114

 
114

 
$
20,969

 
$
18,798


Note 11.    Income Taxes
The gross liability for unrecognized tax benefits at June 30, 2015 and December 31, 2014 was $14,728 and $14,018, respectively, exclusive of interest and penalties, of which $12,902 and $12,162 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 June 30, 2015 and December 31, 2014, the combined amount of accrued interest and penalties related to tax positions taken on tax returns was $1,322 and $1,066, respectively.
 
June 30, 2015
 
December 31, 2014
Gross liability for unrecognized tax benefits, exclusive of interest and penalties
$
14,728

 
$
14,018

Interest and penalties on unrecognized benefits
1,322

 
1,066

Total gross uncertain tax positions
$
16,050

 
$
15,084

Amount included in Current liabilities
$
4,809

 
$
4,757

Amount included in Other long-term liabilities
11,241

 
10,327

 
$
16,050

 
$
15,084

The Company’s effective tax rate was 35.6 percent and 35.7 percent for the three months ended June 30, 2015 and 2014, respectively. For the six months ended June 30, 2015 and 2014, the Company's tax rate was 35.5 percent and 35.8 percent, respectively. The Research and Development Tax Credit had expired for both six month periods ended June 30, 2015 and 2014.

17 of 36



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 2011 and is no longer subject to state, local or foreign income tax examinations by authorities for years before 2009.
The Company estimates it will recognize $4,809 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.
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. 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 against SEI and/or SPTC under the Louisiana Securities Act. Two of the five actions include claims for violations of the Louisiana Racketeering Act and possibly conspiracy. In addition, another group of plaintiffs filed a lawsuit in the 23rd Judicial District Court for the Parish of Ascension 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 actions relate to the purported 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.
The case filed in Ascension Parish was removed to federal court and transferred by the Judicial Panel on Multidistrict Litigation to the United States District Court for the Northern District of Texas. The schedule for responding to that petition has not yet been established.
The plaintiffs in two of the cases filed in East Baton Rouge have granted SEI and SPTC an indefinite extension to respond to the petitions.
In a third East Baton Rouge action, brought as a class action, SEI and SPTC filed exceptions, which the Court granted in part, dismissing the claims under the Louisiana Unfair Trade Practices Act. Plaintiffs then filed a motion for class certification, and SEI and SPTC also filed a motion for summary judgment. The Court deferred the motion for summary judgment, stating that the motion would not be set for hearing until after the hearing on class certification. After the Court held a hearing on class certification, it certified a class composed of persons who purchased or renewed any Stanford International Bank certificates of deposit (SIB CDs) in Louisiana between January 1, 2007 and February 13, 2009 or any person for whom the Stanford Trust Company purchased SIB CDs in Louisiana between January 1, 2007 and February 13, 2009. SEI and SPTC filed motions for appeal from the class certification judgments. On February 1, 2013, plaintiffs filed a motion for Leave to File a First Amended and Restated Class Action Petition in which they asked the Court to allow them to amend the petition and add claims against certain of SEI's insurance carriers. On February 5, 2013, the Court granted two of the motions for appeal and the motion for leave to amend. On February 28, 2013, SEI responded to the First Amended and Restated Class Action Petition by seeking dismissal of the action. On March 11, 2013, the newly-added insurance carrier defendants removed the case to the Middle District of Louisiana. SEI notified the Judicial Panel on Multidistrict Litigation (MDL) of this case as a potential tag-along action. Plaintiffs filed a motion to remand the action to state court. On March 25, 2013, SEI filed a motion requesting that the federal court decline to adopt the state court's order regarding class certification, which the court dismissed without prejudice to renew upon a determination of the jurisdictional issue. On August 7, 2013, the MDL Panel transferred the matter against SEI to the Northern District of Texas. On October 1, 2014, SEI filed a renewed motion to dismiss in the Northern District of Texas, and on October 6, 2014, the District Court denied plaintiffs’ motion to remand. On June 17, 2015, the Court denied the motion to dismiss, and on June 24, 2015 set a briefing schedule for SEI and SPTC’s motion challenging the Louisiana court’s decision to certify a class, which motion was filed on July 15, 2015. SEI and SPTC filed their answer on July 1, 2015, and this case is now pending in the Northern District of Texas. On July 15, 2015, SEI and SPTC also filed motions seeking reconsideration of the District Court’s June 17 denial of the motion to dismiss or, in the alternative, seeking leave to pursue an interlocutory appeal of certain elements of the denial, as well as a motion seeking partial judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c) with respect to claims brought under Section 712(D) of the Louisiana Securities Law.

18 of 36



In the two other cases filed in East Baton Rouge, brought by the same counsel who filed the class action, virtually all of the litigation to date has involved motions practice and appellate litigation regarding the existence of federal subjection matter jurisdiction under the federal Securities Litigation Uniform Standards Act (SLUSA). After the matter was removed to the United States District Court for the Northern District of Texas, that court dismissed the action under SLUSA. The Court of Appeals for the Fifth Circuit reversed that order, and the Supreme Court of the United States affirmed the Court of Appeals judgment on February 26, 2014. The matter was remanded to state court and no material activity has taken place since that date.
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 for summary judgment or other dispositive motion, 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.
A lawsuit entitled Steven Curd and Rebel Curd v. SEI Investments Management Corporation was filed against SIMC in the United States District Court for the Eastern District of Pennsylvania on December 11, 2013. On August 28, 2014, the Court granted SIMC’s motion to dismiss the initial complaint in the lawsuit, but also granted plaintiffs leave to amend the complaint. On October 2, 2014, plaintiffs filed an amended complaint. In the amended complaint, SEI Investments Global Funds Services (SGFS) was added as a defendant. The plaintiffs bring the case as a shareholder derivative action against SIMC and SGFS on behalf of certain SEI funds. The claims are based on Section 36(b) of the Investment Company Act of 1940, as amended, which allows shareholders of a mutual fund to sue the investment adviser of the fund or its affiliates for an alleged breach of fiduciary duty with respect to compensation received by the adviser or its affiliates. The plaintiffs have brought the suit against SIMC and SGFS with respect to five specific SEI Funds: the High Yield Bond, Tax-Managed Large Cap, and Tax-Managed Small/Mid Cap Funds, each of which is a series of the SEI Institutional Managed Trust, the Intermediate Term Municipal Fund, which is a series of the SEI Tax Exempt Trust, and the International Equity Fund, which is a series of the SEI Institutional International Trust (the SEI Funds). The plaintiffs seek: (1) damages for the SEI Funds in the amount of the alleged “excessive” fees earned by SIMC and SGFS beginning from the one year period prior to the filing of the lawsuit, plus interest, costs, and fees; (2) orders declaring that SIMC and SGFS allegedly violated Section 36(b) and enjoining SIMC and SGFS from further alleged violations; and (3) rescission of SIMC’s and SGFS’s contracts with the funds, and restitution of all allegedly excessive fees paid beginning from the one year period prior to the filing of the lawsuit, plus interest, costs, and fees. On November 24, 2014, SIMC and SGFS filed a motion to dismiss the amended complaint. On July 13, 2015, the Court denied the motion to dismiss with respect to SIMC, and granted the motion to dismiss with respect to SGFS. While the outcome of this litigation is uncertain given its early phase, SIMC and SGFS believe that they have valid defenses to plaintiffs' claims and intend to defend the lawsuit vigorously, and SIMC and SGFS are not reasonably able to provide an estimate of the ultimate loss, if any, with respect to this lawsuit.
On November 26, 2014, a Writ of Summons was issued to two of our subsidiaries, SEI Investments - Global Fund Services Limited (GFSL) and SEI Investments - Trustee & Custodial Services (Ireland) Limited (T&C), to appear before the Court of First Instance Antwerp, Belgium. The plaintiffs in this case allege that through their initial investments in collective investment funds domiciled in Netherlands and subsequent transfer of claim rights to a Belgium domiciled partnership, they are beneficial owners of a portfolio of life settlement policies (the Portfolio) which lapsed due to a failure to make premium payments. The plaintiffs seek to recover jointly and severally from nine defendants including GFSL and T&C, damages of approximately $84 million. GFSL and T&C’s involvement in the litigation appears to arise out of their historical provision of administration and custody services, respectively, to the Strategic Life Settlement Fund PLC , who, together with its managers, appear to be the principal defendants in this claim. While the outcome of this action is uncertain given its early phase and the lack of specific theories of liability asserted against GFSL and T&C, each of GFSL and T&C believe that they have valid defenses to plaintiffs’ claims and intend to defend the lawsuit vigorously.

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 (Barings) to sell all ownership interest in SEI Asset Korea (SEI AK). SEI AK was located in South Korea and provided domestic equity and fixed income investment management services to financial institutions and pension funds.
On March 28, 2013, all conditions subject to closing the transaction were satisfied and all ownership interests in SEI AK were transferred to Barings. Under the terms of the agreement, a portion of the purchase price was paid upon closing with up to an additional $11,220 payable to the Company as a contingent purchase price with respect to three one-year periods ending on December 31, 2013, 2014, and 2015 depending upon whether SEI AK achieves specified revenue measures during such periods. The Company recognized a pre-tax gain of $5,582, or $0.02 diluted earnings per share, with respect to the one-year period ended December 31, 2013 during the six months ended June 30, 2014 and a pre-tax gain of $2,791, or $0.01 diluted earnings per share, with respect to the one-year period ended December 31, 2014 during the six months ended June 30, 2015.

19 of 36



The Company's gains from the sale of SEI AK are included in Gain on sale of subsidiary on the accompanying Consolidated Statement of Operations.

20 of 36



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 June 30, 2015 and 2014, the consolidated results of operations for the three and six months ended June 30, 2015 and 2014 and other key factors that may affect future performance. This discussion should be read in conjunction with the Consolidated Financial Statements, the Notes to the Consolidated Financial Statements and the Annual Report on Form 10-K for the year ended December 31, 2014.

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, software licenses 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 June 30, 2015, through our subsidiaries and partnerships in which we have a significant interest, we manage or administer $661.4 billion in mutual fund and pooled or separately managed assets, including $262.0 billion in assets under management and $399.4 billion in client assets under administration. Our affiliate, LSV Asset Management (LSV), manages $86.3 billion of assets which are included as assets under management.
Our Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2015 and 2014 were:
 
Three Months Ended June 30,
 
Percent Change
 
Six Months Ended June 30,
 
Percent Change
 
2015
 
2014
 
 
2015
 
2014
 
Revenues
$
337,745

 
$
318,815

 
6
%
 
$
663,189

 
$
621,201

 
7
 %
Expenses
241,827

 
225,185

 
7
%
 
474,201

 
449,179

 
6
 %
Income from operations
95,918

 
93,630

 
2
%
 
188,988

 
172,022

 
10
 %
Net (loss) gain from investments
(38
)
 
391

 
NM

 
212

 
527

 
(60
)%
Interest income, net of interest expense
641

 
607

 
6
%
 
1,497

 
1,271

 
18
 %
Equity in earnings from unconsolidated affiliates
37,289

 
34,226

 
9
%
 
71,322

 
66,117

 
8
 %
Gain on sale of subsidiary

 

 
%
 
2,791

 
5,582

 
NM

Income before income taxes
133,810

 
128,854

 
4
%
 
264,810

 
245,519

 
8
 %
Income taxes
47,570

 
46,041

 
3
%
 
93,959

 
87,886

 
7
 %
Net income
86,240

 
82,813

 
4
%
 
170,851

 
157,633

 
8
 %
Diluted earnings per common share
$
0.51

 
$
0.48

 
6
%
 
$
1.00

 
$
0.91

 
10
 %

The following items had a significant impact on our financial results for the three and six months ended June 30, 2015 and 2014:
Revenue growth was primarily driven by higher Asset management, administration and distribution fees from improved cash flows from new and existing clients and market appreciation. Our average assets under management, excluding LSV, increased $13.9 billion, or nine percent, to $174.8 billion in the first six months of 2015 as compared to $161.0 billion during the first six months of 2014. Our average assets under administration increased $48.2 billion, or 14 percent, to $390.4 billion in the first six months of 2015 as compared to $342.2 billion during the first six months of 2014.
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. Additionally, increased investment management fees from international clients in our Private Banks segment also contributed to our revenue growth.
Information processing and software servicing fees in our Private Banks segment declined primarily due to $6.0 million, or $.02 diluted earnings per share, in non-recurring professional services fees from a single project recorded in the second quarter 2014 related to investment processing services.
Our proportionate share in the earnings of LSV was $72.7 million in the first six months of 2015 as compared to $66.7 million in the first six months of 2014, an increase of nine percent. The increase in earnings was primarily driven by

21 of 36



the increase in assets under management from LSV's existing clients due to market appreciation and an increase in performance fees earned by LSV.
The direct costs associated with our investment management programs increased in our Private Banks, Investment Advisors and Institutional Investors segments. These costs primarily relate to fees charged by investment advisory firms and are included in Sub-advisory, distribution and other asset management costs on the accompanying Consolidated Statements of Operations.
We capitalized $13.6 million in the first six months of 2015 for the SEI Wealth Platform as compared to $18.3 million in the first six months of 2014. Amortization expense related to the Platform increased to $20.9 million during the first six months of 2015 as compared to $18.6 million during the first six months of 2014 due to continued enhancements to the Platform.
As we continue through the development of the Platform and reduce our level of capitalization, our expenses related to maintenance and enhancements have increased. A higher portion of these costs are recognized in personnel and consulting costs and are not capitalized. These increased costs primarily impacted the Private Banks and Investment Advisors business segments.
Our operating expenses related to personnel costs in our Investment Advisors and Investment Managers segments increased. These increased operational costs are mainly related to servicing new and existing clients. Additionally, sales compensation expense in our Private Banks segment increased due to new business activity. These increased operational costs are included in Compensation, benefits and other personnel costs on the accompanying Consolidated Statements of Operations.
We recorded pre-tax gains of $2.8 million, or $.01 diluted earnings per share, and $5.6 million, or $.02 diluted earnings per share, from the sale of SEI Asset Korea (SEI AK) in the first six months of 2015 and 2014, respectively. The gains from the sale are included in Gain on sale of subsidiary on the accompanying Consolidated Statement of Operations (See Note 13 to the Consolidated Financial Statements for more information).
We wrote off the remaining carrying value of our investment in Gao Fu, a wealth services firm based in China, during the three months ended June 30, 2015.
Our effective tax rate was 35.5 percent during the first six months of 2015 as compared to 35.8 percent during the first six months of 2014.
We continued our stock repurchase program during 2015 and purchased 2.8 million shares at an average price of approximately $45.42 per share in the six month period.


22 of 36



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.
 
As of June 30,
 
Percent Change
 
2015
 
2014
 
Private Banks:
 
 
 
 
 
Equity and fixed income programs
$
19,686

 
$
18,679

 
5
 %
Collective trust fund programs
13

 
12

 
8
 %
Liquidity funds
5,280

 
5,274

 
 %
Total assets under management
$
24,979

 
$
23,965

 
4
 %
Client proprietary assets under administration
17,485

 
15,347

 
14
 %
Total assets
$
42,464

 
$
39,312

 
8
 %
Investment Advisors:
 
 
 
 
 
Equity and fixed income programs
46,951

 
42,125

 
11
 %
Collective trust fund programs
8

 
13

 
(38
)%
Liquidity funds
2,817

 
2,696

 
4
 %
Total assets under management
$
49,776

 
$
44,834

 
11
 %
Institutional Investors:
 
 
 
 
 
Equity and fixed income programs
75,341

 
71,598

 
5
 %
Collective trust fund programs
93

 
100

 
(7
)%
Liquidity funds
2,960

 
2,414

 
23
 %
Total assets under management
$
78,394

 
$
74,112

 
6
 %
Investment Managers:
 
 
 
 
 
Equity and fixed income programs
24

 
64

 
NM

Collective trust fund programs
20,632

 
22,598

 
(9
)%
Liquidity funds
1,007

 
802

 
26
 %
Total assets under management
$
21,663

 
$
23,464

 
(8
)%
Client proprietary assets under administration
381,963

 
337,492

 
13
 %
Total assets
$
403,626

 
$
360,956

 
12
 %
Investments in New Businesses:
 
 
 
 
 
Equity and fixed income programs
779

 
659

 
18
 %
Liquidity funds
57

 
38

 
50
 %
Total assets under management
$
836

 
$
697

 
20
 %
LSV:
 
 
 
 
 
Equity and fixed income programs
$
86,334

 
$
82,026

 
5
 %
Total:
 
 
 
 
 
Equity and fixed income programs
229,115

 
215,151

 
6
 %
Collective trust fund programs
20,746

 
22,723

 
(9
)%
Liquidity funds
12,121

 
11,224

 
8
 %
Total assets under management
$
261,982

 
$
249,098

 
5
 %
Client proprietary assets under administration
399,448

 
352,839

 
13
 %
Total assets under management and administration
$
661,430

 
$
601,937

 
10
 %

23 of 36



Average Asset Balances
(In millions)
This table presents average asset balances of our clients, or of clients’ customers, for which we provide management or administrative services through our subsidiaries and partnerships in which we have a significant interest.
 
Three Months Ended June 30,
 
Percent Change
 
Six Months Ended June 30,
 
Percent Change
 
2015
 
2014
 
 
2015
 
2014
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity and fixed income programs
$
19,872

 
$
17,829

 
11
 %
 
$
19,371

 
$
16,972

 
14
 %
Collective trust fund programs
12

 
12

 
 %
 
10

 
13

 
(23
)%
Liquidity funds
5,256

 
5,429

 
(3
)%
 
5,506

 
5,593

 
(2
)%
Total assets under management
$
25,140

 
$
23,270

 
8
 %
 
$
24,887

 
$
22,578

 
10
 %
Client proprietary assets under administration
17,823

 
15,069

 
18
 %
 
17,664

 
15,218

 
16
 %
Total assets
$
42,963

 
$
38,339

 
12
 %
 
$
42,551

 
$
37,796

 
13
 %
Investment Advisors:
 
 
 
 
 
 
 
 
 
 
 
Equity and fixed income programs
47,027

 
40,887

 
15
 %
 
45,918

 
39,946

 
15
 %
Collective trust fund programs
8

 
13

 
(38
)%
 
9

 
13

 
(31
)%
Liquidity funds
2,819

 
2,637

 
7
 %
 
2,946

 
2,722

 
8
 %
Total assets under management
$
49,854

 
$
43,537

 
15
 %
 
$
48,873

 
$
42,681

 
15
 %
Institutional Investors: