SEIC

SEI Investments Company - 10-Q Summary (Period Ended Sept 30, 2008)

Business Context and Reporting Period

This filing covers the quarterly period ended September 30, 2008. SEI Investments Company is a global provider of investment processing, fund processing, and investment management outsourcing solutions. The company operates through six reportable segments: Private Banks, Investment Advisors, Institutional Investors, Investment Managers, Investments in New Businesses, and LSV Asset Management. As of the reporting date, the company administered $430.7 billion in mutual fund and pooled assets and managed $161.8 billion in assets.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Total revenues decreased 10% ($33.6 million) for the quarter and 4% ($36.1 million) for the nine-month period compared to 2007. This was primarily driven by declining capital markets reducing assets under management (AUM) and administration fees, particularly in the LSV and Investment Advisors segments.
• Profitability Drop: Net income fell 53% for the quarter and 37% for the nine-month period. Operating income from business segments declined 12% for the quarter and 6% for the nine-month period.
• Significant Non-Cash Charges: The company recorded a non-cash charge of $34.2 million for the quarter and $87.3 million for the nine months related to Capital Support Agreements for money market funds holding structured investment vehicles (SIVs). Additionally, a $6.6 million loss was recognized on the purchase of SIV securities from a money market fund.
• Amortization Increase: Amortization expense increased due to the release of the Global Wealth Platform, adding approximately $7.1 million in expense for the nine-month period.

Guidance, Outlook, and Risks

Capital Support Agreements: The company faces significant contingent liabilities related to money market funds holding SIVs. As of September 30, 2008, the aggregate obligation recorded was $112.4 million. On November 5, 2008, the company amended an agreement to extend support, which could result in an additional non-cash expense of approximately $13.9 million in Q4 2008. As of November 6, 2008, the potential accrued obligation was estimated at $132.8 million.

Liquidity: The company maintains a $300 million credit facility. However, $156 million of this facility is committed to letters of credit securing the Capital Support Agreements, leaving approximately $144 million unrestricted for general corporate purposes.

Risks: Key risks include continued volatility in capital markets affecting AUM, liquidity issues in subprime credit markets, and the potential for further losses on SIV securities. The company notes that changes in the value of SIV securities can cause its obligation under support agreements to fluctuate daily.

Investor Verification Checklist

• SIV Exposure: Verify the current market value of the SIV securities held by the supported money market funds and the potential for further mark-to-market losses.
• Capital Support Extension: Confirm the terms and potential financial impact of the amended Capital Support Agreement for the SDIT PO Fund and the status of the SLAT PO Fund agreement expiring in December 2008.
• Liquidity Constraints: Assess the impact of the $156 million credit facility commitment on the company's ability to fund operations or pursue acquisitions.
• Asset Flows: Monitor net cash flows in the Investment Advisors and LSV segments, which were significantly impacted by market depreciation and client shifts to liquidity products.
• Stock Repurchases: Review the remaining authorization ($86.7 million as of Nov 6, 2008) and the pace of buybacks in light of the current market environment.