INVESCO LTD.
10-Ks and 10-Qs
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Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
| þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2010
OR
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
to
Commission file number 1-13908
Invesco Ltd.
(Exact Name of Registrant as Specified in Its Charter)
|
Bermuda
(State or Other Jurisdiction of Incorporation or Organization) |
98-0557567
(I.R.S. Employer Identification No.) |
|
|
1555 Peachtree Street, N.E., Suite 1800, Atlanta, GA
(Address of Principal Executive Offices) |
30309
(Zip Code) |
Registrant’s telephone number, including area code: (404) 892-0896
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Name of Exchange on Which Registered | |
| Common Shares, $0.20 par value per share | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
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
þ
No
o
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 during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes
þ
No
o
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 the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
| Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | |||
| (Do not check if a 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
o
No
þ
As of March 31, 2010, the most recent practicable date, 436,280,943 of the company’s common
shares, par value $0.20 per share, were outstanding.
TABLE OF CONTENTS
We include cross references to captions elsewhere in this Quarterly Report on Form 10-Q, which
we refer to as this “Report,” where you can find related additional information. The following
table of contents tells you where to find these captions.
| Page | ||||||||
|
PART I – Financial Information
|
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| 69 | ||||||||
| 70 | ||||||||
| EX-31.1 | ||||||||
| EX-31.2 | ||||||||
| EX-32.1 | ||||||||
| EX-32.2 | ||||||||
| EX-101 INSTANCE DOCUMENT | ||||||||
| EX-101 SCHEMA DOCUMENT | ||||||||
| EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
| EX-101 LABELS LINKBASE DOCUMENT | ||||||||
| EX-101 PRESENTATION LINKBASE DOCUMENT | ||||||||
| EX-101 DEFINITION LINKBASE DOCUMENT | ||||||||
2
Table of Contents
Item 1.
Financial Statements
Invesco Ltd
.
(Unaudited)
| As of | ||||||||
| $ in millions | March 31, 2010 | December 31, 2009 | ||||||
|
ASSETS
|
||||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
597.0 | 762.0 | ||||||
|
Cash and cash equivalents of consolidated investment products
|
331.8 | 28.0 | ||||||
|
Unsettled fund receivables
|
758.1 | 383.1 | ||||||
|
Accounts receivable
|
303.8 | 289.3 | ||||||
|
Accounts receivable of consolidated investment products
|
66.2 | — | ||||||
|
Investments
|
154.0 | 182.4 | ||||||
|
Prepaid assets
|
68.5 | 57.6 | ||||||
|
Other current assets
|
79.2 | 77.9 | ||||||
|
Deferred tax asset, net
|
65.7 | 57.7 | ||||||
|
Assets held for policyholders
|
1,221.0 | 1,283.0 | ||||||
|
|
||||||||
|
Total current assets
|
3,645.3 | 3,121.0 | ||||||
|
Non-current assets:
|
||||||||
|
Investments
|
141.8 | 157.4 | ||||||
|
Investments of consolidated investment products
|
6,105.7 | 685.0 | ||||||
|
Prepaid assets
|
11.1 | 16.2 | ||||||
|
Other non-current assets
|
18.5 | 13.0 | ||||||
|
Deferred sales commissions
|
28.3 | 23.8 | ||||||
|
Deferred tax asset, net
|
58.0 | 65.8 | ||||||
|
Property and equipment, net
|
221.1 | 220.7 | ||||||
|
Intangible assets, net
|
135.9 | 139.1 | ||||||
|
Goodwill
|
6,425.8 | 6,467.6 | ||||||
|
|
||||||||
|
Total non-current assets
|
13,146.2 | 7,788.6 | ||||||
|
|
||||||||
|
Total assets
|
16,791.5 | 10,909.6 | ||||||
|
|
||||||||
|
|
||||||||
|
LIABILITIES AND EQUITY
|
||||||||
|
|
||||||||
|
Current liabilities:
|
||||||||
|
Unsettled fund payables
|
735.9 | 367.9 | ||||||
|
Income taxes payable
|
84.4 | 82.8 | ||||||
|
Other current liabilities
|
378.2 | 559.9 | ||||||
|
Other current liabilities of consolidated investment products
|
281.6 | 4.8 | ||||||
|
Policyholder payables
|
1,221.0 | 1,283.0 | ||||||
|
|
||||||||
|
Total current liabilities
|
2,701.1 | 2,298.4 | ||||||
|
Non-current liabilities:
|
||||||||
|
Long-term debt
|
745.7 | 745.7 | ||||||
|
Long-term debt of consolidated investment products
|
5,119.1 | — | ||||||
|
Other non-current liabilities
|
224.7 | 244.7 | ||||||
|
|
||||||||
|
Total non-current liabilities
|
6,089.5 | 990.4 | ||||||
|
|
||||||||
|
Total liabilities
|
8,790.6 | 3,288.8 | ||||||
|
|
||||||||
|
Commitments and contingencies (See Note 12)
|
||||||||
|
Equity:
|
||||||||
|
Equity attributable to common shareholders:
|
||||||||
|
Common shares ($0.20 par value; 1,050.0 million authorized; 459.5 million
shares issued as of March 31, 2010, and December 31, 2009)
|
91.9 | 91.9 | ||||||
|
Additional paid-in-capital
|
5,652.5 | 5,688.4 | ||||||
|
Treasury shares
|
(852.5 | ) | (892.4 | ) | ||||
|
Retained earnings
|
1,686.8 | 1,631.4 | ||||||
|
Retained earnings appropriated for investors in consolidated investment products
|
383.8 | — | ||||||
|
Accumulated other comprehensive income/(loss), net of tax
|
340.5 | 393.6 | ||||||
|
|
||||||||
|
Total equity attributable to common shareholders
|
7,303.0 | 6,912.9 | ||||||
|
Equity attributable to noncontrolling interests in consolidated entities
|
697.9 | 707.9 | ||||||
|
|
||||||||
|
Total equity
|
8,000.9 | 7,620.8 | ||||||
|
|
||||||||
|
Total liabilities and equity
|
16,791.5 | 10,909.6 | ||||||
|
|
||||||||
See accompanying notes.
3
Table of Contents
Invesco Ltd
.
(Unaudited)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| $ in millions, except per share data | 2010 | 2009 | ||||||
|
Operating revenues:
|
||||||||
|
Investment management fees
|
593.5 | 436.5 | ||||||
|
Service and distribution fees
|
112.5 | 89.0 | ||||||
|
Performance fees
|
1.4 | 10.9 | ||||||
|
Other
|
11.7 | 12.2 | ||||||
|
|
||||||||
|
Total operating revenues
|
719.1 | 548.6 | ||||||
|
|
||||||||
|
|
||||||||
|
Operating expenses:
|
||||||||
|
Employee compensation
|
237.6 | 235.8 | ||||||
|
Third-party distribution, service and advisory
|
195.6 | 148.2 | ||||||
|
Marketing
|
28.3 | 26.9 | ||||||
|
Property, office and technology
|
53.5 | 45.9 | ||||||
|
General and administrative
|
50.0 | 30.0 | ||||||
|
Transaction and integration
|
17.2 | — | ||||||
|
|
||||||||
|
Total operating expenses
|
582.2 | 486.8 | ||||||
|
|
||||||||
|
|
||||||||
|
Operating income
|
136.9 | 61.8 | ||||||
|
|
||||||||
|
|
||||||||
|
Other income/(expense):
|
||||||||
|
Equity in earnings of unconsolidated affiliates
|
5.8 | 2.5 | ||||||
|
Interest income
|
1.6 | 4.8 | ||||||
|
Interest income of consolidated investment products
|
52.5 | — | ||||||
|
Gains/(losses) of consolidated investment products, net
|
103.1 | (86.5 | ) | |||||
|
Interest expense
|
(12.4 | ) | (15.9 | ) | ||||
|
Interest expense of consolidated investment products
|
(20.8 | ) | — | |||||
|
Other gains and losses, net
|
(2.1 | ) | (4.2 | ) | ||||
|
|
||||||||
|
Income/(loss) before income taxes, including gains and losses
attributable to noncontrolling interests
|
264.6 | (37.5 | ) | |||||
|
Income tax provision
|
(50.1 | ) | (20.3 | ) | ||||
|
|
||||||||
|
Net income/(loss), including gains and losses attributable to noncontrolling interests
|
214.5 | (57.8 | ) | |||||
|
(Gains)/losses attributable to noncontrolling interests in
consolidated entities, net
|
(119.5 | ) | 88.5 | |||||
|
|
||||||||
|
Net income attributable to common shareholders
|
95.0 | 30.7 | ||||||
|
|
||||||||
|
|
||||||||
|
Earnings per share:
|
||||||||
|
— basic
|
$ | 0.22 | $ | 0.08 | ||||
|
— diluted
|
$ | 0.21 | $ | 0.08 | ||||
|
Dividends declared per share
|
$ | 0.1025 | $ | 0.10 | ||||
See accompanying notes.
4
Table of Contents
Invesco Ltd
.
(Unaudited)
| Three months ended March 31, | ||||||||
| $ in millions | 2010 | 2009 | ||||||
|
Operating activities:
|
||||||||
|
Net income/(loss), including gains attributable to noncontrolling interests
of $119.5 million during the three months ended March 31, 2010 (losses of
$88.5 million during the three months ended March 31, 2009)
|
214.5 | (57.8 | ) | |||||
|
Adjustments to reconcile net income to net cash used in operating activities:
|
||||||||
|
Amortization and depreciation
|
18.3 | 16.0 | ||||||
|
Share-based compensation expense
|
24.2 | 23.7 | ||||||
|
Gains on disposal of property, equipment, software, net
|
— | 0.1 | ||||||
|
Purchase of trading investments
|
(7.0 | ) | (7.0 | ) | ||||
|
Proceeds from sale of trading investments
|
39.7 | 7.8 | ||||||
|
Other gains and losses, net
|
2.1 | 4.2 | ||||||
|
(Gains)/losses of consolidated investment products, net
|
(103.1 | ) | 86.5 | |||||
|
Tax benefit from share-based compensation
|
22.3 | 29.8 | ||||||
|
Excess tax benefits from share-based compensation
|
(6.8 | ) | — | |||||
|
Equity in earnings of unconsolidated affiliates
|
(5.8 | ) | (2.5 | ) | ||||
|
Dividends from unconsolidated affiliates
|
1.2 | — | ||||||
|
Changes in operating assets and liabilities:
|
||||||||
|
Change in cash held by consolidated investment products
|
(116.1 | ) | 14.0 | |||||
|
(Increase)/decrease in receivables
|
(449.1 | ) | (61.7 | ) | ||||
|
Increase/(decrease) in payables
|
188.6 | (233.1 | ) | |||||
|
|
||||||||
|
Net cash used in operating activities
|
(177.0 | ) | (180.0 | ) | ||||
|
|
||||||||
|
|
||||||||
|
Investing activities:
|
||||||||
|
Purchase of property and equipment
|
(15.5 | ) | (5.3 | ) | ||||
|
Disposal of property and equipment
|
— | 0.3 | ||||||
|
Purchase of available-for-sale investments
|
(20.2 | ) | (5.8 | ) | ||||
|
Proceeds from sale of available-for-sale investments
|
16.2 | 12.4 | ||||||
|
Purchase of investments by consolidated investment products
|
(325.4 | ) | (26.2 | ) | ||||
|
Proceeds from sale of investments by consolidated investment products
|
453.1 | 16.1 | ||||||
|
Returns of capital in investments of consolidated investment products
|
23.2 | 4.7 | ||||||
|
Purchase of other investments
|
(11.6 | ) | (1.9 | ) | ||||
|
Proceeds from sale of other investments
|
14.3 | 3.1 | ||||||
|
|
||||||||
|
Net cash provided by/(used in) investing activities
|
134.1 | (2.6 | ) | |||||
|
|
||||||||
|
|
||||||||
|
Financing activities:
|
||||||||
|
Proceeds from exercises of share options
|
3.7 | 1.7 | ||||||
|
Dividends paid
|
(44.8 | ) | (38.9 | ) | ||||
|
Excess tax benefits from share-based compensation
|
6.8 | — | ||||||
|
Capital invested into consolidated investment products
|
0.8 | 8.0 | ||||||
|
Capital distributed by consolidated investment products
|
(27.5 | ) | (14.6 | ) | ||||
|
Repayments of debt of consolidated investment products
|
(48.3 | ) | — | |||||
|
Net repayments under credit facility
|
— | (4.5 | ) | |||||
|
Repayments of senior notes
|
— | (3.0 | ) | |||||
|
Acquisition of remaining noncontrolling interest in subsidiary
|
— | (10.3 | ) | |||||
|
|
||||||||
|
Net cash used in financing activities
|
(109.3 | ) | (61.6 | ) | ||||
|
|
||||||||
|
|
||||||||
|
Decrease in cash and cash equivalents
|
(152.2 | ) | (244.2 | ) | ||||
|
Foreign exchange movement on cash and cash equivalents
|
(12.8 | ) | (7.9 | ) | ||||
|
Cash and cash equivalents, beginning of period
|
762.0 | 585.2 | ||||||
|
|
||||||||
|
Cash and cash equivalents, end of period
|
597.0 | 333.1 | ||||||
|
|
||||||||
|
|
||||||||
|
Supplemental Cash Flow Information:
|
||||||||
|
Interest paid
|
(9.6 | ) | (9.7 | ) | ||||
|
Interest received
|
1.6 | 5.2 | ||||||
|
Taxes paid
|
(34.8 | ) | (15.5 | ) | ||||
See accompanying notes.
5
Table of Contents
Invesco Ltd
.
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
| Equity Attributable to Common Shareholders | ||||||||||||||||||||||||||||||||
| Retained | ||||||||||||||||||||||||||||||||
| Earnings | ||||||||||||||||||||||||||||||||
| Appropriated | Non- | |||||||||||||||||||||||||||||||
| for Investors in | Accumulated | Controlling | ||||||||||||||||||||||||||||||
| Additional | Consolidated | Other | Interests in | |||||||||||||||||||||||||||||
| Common | Paid-in- | Treasury | Retained | Investment | Comprehensive | Consolidated | Total | |||||||||||||||||||||||||
| $ in millions | Shares | Capital | Shares | Earnings | Products | Income | Entities | Equity | ||||||||||||||||||||||||
|
January 1, 2010
|
91.9 | 5,688.4 | (892.4 | ) | 1,631.4 | — | 393.6 | 707.9 | 7,620.8 | |||||||||||||||||||||||
|
Adoption of FASB Statement No. 167
|
— | — | — | 5.2 | 274.3 | (5.2 | ) | — | 274.3 | |||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
January 1, 2010, as adjusted
|
91.9 | 5,688.4 | (892.4 | ) | 1,636.6 | 274.3 | 388.4 | 707.9 | 7,895.1 | |||||||||||||||||||||||
|
Net income, including gains and
losses attributable to
noncontrolling interests
|
— | — | — | 95.0 | 104.4 | 15.1 | 214.5 | |||||||||||||||||||||||||
|
Other comprehensive income:
|
||||||||||||||||||||||||||||||||
|
Currency translation differences
on investments in overseas
subsidiaries
|
— | — | — | — | 5.1 | (57.4 | ) | — | (52.3 | ) | ||||||||||||||||||||||
|
Change in accumulated OCI
related to employee benefit
plans
|
— | — | — | — | — | 5.3 | — | 5.3 | ||||||||||||||||||||||||
|
Change in net unrealized gains
on available-for-sale
investments
|
— | — | — | — | — | 6.0 | — | 6.0 | ||||||||||||||||||||||||
|
Tax impacts of changes in
accumulated other comprehensive
income balances
|
— | — | — | — | — | (1.8 | ) | — | (1.8 | ) | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Total comprehensive income
|
— | — | — | — | — | — | — | 171.7 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Change in noncontrolling interests
in consolidated entities, net
|
— | — | — | — | — | — | (25.1 | ) | (25.1 | ) | ||||||||||||||||||||||
|
Dividends
|
— | — | — | (44.8 | ) | — | — | — | (44.8 | ) | ||||||||||||||||||||||
|
Employee share plans:
|
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
|
Share-based compensation
|
— | 24.2 | — | — | — | — | — | 24.2 | ||||||||||||||||||||||||
|
Vested shares
|
— | (56.9 | ) | 56.9 | — | — | — | — | — | |||||||||||||||||||||||
|
Exercise of options
|
— | (10.0 | ) | 13.9 | — | — | — | — | 3.9 | |||||||||||||||||||||||
|
Tax impact of share-based payment
|
— | 6.8 | — | — | — | — | — | 6.8 | ||||||||||||||||||||||||
|
Purchase of shares
|
— | — | (30.9 | ) | — | — | — | — | (30.9 | ) | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
March 31, 2010
|
91.9 | 5,652.5 | (852.5 | ) | 1,686.8 | 383.8 | 340.5 | 697.9 | 8,000.9 | |||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
| Equity Attributable to Common Shareholders | ||||||||||||||||||||||||||||
| Non- | ||||||||||||||||||||||||||||
| Accumulated | Controlling | |||||||||||||||||||||||||||
| Additional | Other | Interests in | ||||||||||||||||||||||||||
| Common | Paid-in- | Treasury | Retained | Comprehensive | Consolidated | Total | ||||||||||||||||||||||
| $ in millions | Shares | Capital | Shares | Earnings | Loss | Entities | Equity | |||||||||||||||||||||
|
January 1, 2009
|
85.3 | 5,352.6 | (1,128.9 | ) | 1,476.3 | (95.8 | ) | 906.7 | 6,596.2 | |||||||||||||||||||
|
Net income/(loss), including gains
and losses attributable to
noncontrolling interests
|
— | — | — | 30.7 | — | (88.5 | ) | (57.8 | ) | |||||||||||||||||||
|
Other comprehensive income:
|
||||||||||||||||||||||||||||
|
Currency translation differences
on investments in overseas
subsidiaries
|
— | — | — | — | (72.1 | ) | — | (72.1 | ) | |||||||||||||||||||
|
Change in accumulated OCI
related to employee benefit
plans
|
— | — | — | — | 0.4 | — | 0.4 | |||||||||||||||||||||
|
Change in net unrealized gains
on available-for-sale
investments
|
— | — | — | — | (4.0 | ) | — | (4.0 | ) | |||||||||||||||||||
|
Tax impacts of changes in
accumulated other comprehensive
income balances
|
— | — | — | — | (0.9 | ) | — | (0.9 | ) | |||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Total comprehensive income
|
(134.4 | ) | ||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Change in noncontrolling interests
in consolidated entities, net
|
— | — | — | — | — | (58.5 | ) | (58.5 | ) | |||||||||||||||||||
|
Dividends
|
— | — | — | (38.9 | ) | — | — | (38.9 | ) | |||||||||||||||||||
|
Employee share plans:
|
— | — | ||||||||||||||||||||||||||
|
Share-based compensation
|
— | 23.7 | — | — | — | — | 23.7 | |||||||||||||||||||||
|
Vested shares
|
— | (81.4 | ) | 81.4 | — | — | — | — | ||||||||||||||||||||
|
Exercise of options
|
— | (8.7 | ) | 10.4 | — | — | — | 1.7 | ||||||||||||||||||||
|
Tax impact of share-based payment
|
— | (5.0 | ) | — | — | — | — | (5.0 | ) | |||||||||||||||||||
|
Purchase of shares
|
— | — | (11.5 | ) | — | — | — | (11.5 | ) | |||||||||||||||||||
|
Acquisition of remaining
noncontrolling interest in
subsidiary
|
— | (8.9 | ) | — | — | — | (1.4 | ) | (10.3 | ) | ||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
March 31, 2009
|
85.3 | 5,272.3 | (1,048.6 | ) | 1,468.1 | (172.4 | ) | 758.3 | 6,363.0 | |||||||||||||||||||
|
|
||||||||||||||||||||||||||||
See accompanying notes.
6
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Invesco Ltd.
Notes to the Condensed Consolidated Financial Statements
1. ACCOUNTING POLICIES
Corporate Information
Invesco Ltd. (Parent) and all of its consolidated entities (collectively, the company or
Invesco) provide retail, institutional and high-net-worth clients with an array of global
investment management capabilities. The company’s sole business is investment management.
Basis of Accounting and Consolidation
The accompanying Condensed Consolidated Balance Sheets, Statements of Income, Statements of
Cash Flows, and Statement of Changes in Equity (together, the Condensed Consolidated Financial
Statements) have not been audited and should be read in conjunction with the audited consolidated
financial statements and notes thereto included in the company’s Annual Report on Form 10-K for the
year ended December 31, 2009. In the opinion of management, the Condensed Consolidated Financial
Statements reflect all adjustments, consisting of normal recurring accruals, which are necessary
for the fair presentation of the financial condition and results of operations for the interim
periods presented. All significant intercompany transactions, balances, revenues and expenses are
eliminated upon consolidation.
The Condensed Consolidated Financial Statements have been prepared in accordance with
U.S. GAAP and consolidate the financial statements of the Parent, all of its controlled
subsidiaries, any variable interest entities (VIEs) required to be consolidated, and any non-VIE
general partnership investments where the company is deemed to have control. Control is deemed to
be present when the Parent holds a majority voting interest or otherwise has the power to govern
the financial and operating policies of the subsidiary so as to obtain the benefits from its
activities. The company provides investment management services to, and has transactions with,
various private equity funds, real estate funds, fund-of-funds, collateralized loan obligations
(CLOs), and other investment products sponsored by the company for the investment of client assets
in the normal course of business. The company serves as the investment manager, making day-to-day
investment decisions concerning the assets of these products. Certain of these entities are
considered to be VIEs.
The company follows the provisions of Accounting Standards Codification (ASC) Topic 810,
“Consolidation,” when accounting for VIEs, including Accounting Standards Update (ASU) No. 2010-10,
“Amendments for Certain Investment Funds” (ASU 2010-10), detailed in “Accounting Pronouncements
Recently Adopted” below. VIEs, or entities in which the risks and rewards of ownership are not
directly linked to voting interests, for which the company is the primary beneficiary are
consolidated. For all investment products with the exception of CLOs, if the company is deemed to
have a variable interest in, and to have the majority of rewards/risks of ownership associated
with, these entities, then the company is deemed to be their primary beneficiary and is required to
consolidate these entities. For CLOs, if the company is deemed to have the power to direct the
activities of the CLO that most significantly impact the CLO’s economic performance, and the
obligation to absorb losses/right to receive benefits from the CLO that could potentially be
significant to the CLO, then the company is deemed to be the CLO’s primary beneficiary and is
required to consolidate the CLO. Investment products that are consolidated are referred to as
consolidated investment products in the accompanying Condensed Consolidated Financial Statements.
A significant portion of consolidated investment products are CLOs. CLOs are investment
vehicles created for the sole purpose of issuing collateralized loan instruments that offer
investors the opportunity for returns that vary with the risk level of their investment. The notes
issued by the CLOs are backed by diversified collateral asset portfolios consisting primarily of
loans or structured debt. For managing the collateral for the CLO entities, the company earns
investment management fees, including in some cases subordinated management fees, as well as
contingent incentive fees. The company has invested in certain of the entities, generally taking a
relatively small portion of the unrated, junior subordinated position. At March 31, 2010, the
company held $19.0 million of investments in these CLOs (before consolidation), which represents
its maximum risk of loss. The company’s investments in CLOs are generally subordinated to other
interests in the entities and entitles the company and other subordinated tranche investors to
receive the residual cash flows, if any, from the entities. Investors in the CLOs have no recourse
against the company for any losses sustained in the CLO structure.
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All of the investments held and notes issued by consolidated investment products are presented
at fair value in the company’s Condensed Consolidated Balance Sheet at March 31, 2010, and interest
income and expense of consolidated CLOs is presented as other income/(expense) in the company’s
Condensed Consolidated Income Statement for the three months ended March 31, 2010. The surplus of
consolidated CLO assets over consolidated CLO liabilities is reflected in the company’s Condensed
Consolidated Balance Sheet as retained earnings appropriated for investors in consolidated
investment products. Current period gains/(losses) attributable to investors in consolidated CLOs
are included in (gains)/losses attributable to noncontrolling interests in consolidated entities in
the Condensed Consolidated Statement of Income and in the retained earnings appropriated for
investors in consolidated investment products in the Condensed Consolidated Balance Sheet, as they
are considered noncontrolling interests of the company. See Note 9, “Consolidated Investment
Products,” for additional details.
The company also consolidates certain private equity funds that are structured as partnerships
in which the company is the general partner receiving a management and/or performance fee. Private
equity investments made by the underlying funds consist of direct investments in, or fund
investments in other private equity funds that hold direct investments in, equity or debt
securities in operating companies that are generally not initially publicly traded. Private equity
funds are considered investment companies and are therefore accounted for under the Accounting
Standards Codification (ASC) Topic 946, “Financial Services – Investment Companies.” The company
has retained the specialized industry accounting principles of these investment products in its
Condensed Consolidated Financial Statements. See Note 9, “Consolidated Investment Products,” for
additional details.
Non-VIE general partnership investments are deemed to be controlled by the company and are
consolidated under a voting interest entity (VOE) model, unless the limited partners have the
substantive ability to remove the general partner without cause based upon a simple majority vote
or can otherwise dissolve the partnership, or unless the limited partners have substantive
participating rights over decision-making.
If the company determines that it does not control the private equity partnership funds in
which it has invested, the equity method of accounting is used to account for the company’s
investment in these entities. The equity method of accounting is also used to account for
investments in joint ventures and noncontrolled subsidiaries in which the company’s ownership is
between 20 and 50 percent. Equity investments are carried initially at cost (subsequently adjusted
to recognize the company’s share of the profit or loss of the investee after the date of
acquisition) and are included in investments on the Condensed Consolidated Balance Sheets. The
proportionate share of income or loss is included in equity in earnings of unconsolidated
affiliates in the Condensed Consolidated Statements of Income. If the company determines that it
does not control CLOs in which it has invested, the company accounts for its investments as
available-for-sale investments.
The financial statements have been prepared primarily on the historical cost basis; however,
certain items are presented using other bases such as fair value, where such treatment is required
or voluntarily elected. The financial statements of subsidiaries are prepared for the same
reporting year as the Parent and use consistent accounting policies, which, where applicable, have
been adjusted to U.S. GAAP from local generally accepted accounting principles or reporting
regulations. Noncontrolling interests in consolidated entities represent the interests in certain
entities consolidated by the company either because the company has control over the entity or has
determined that it is the primary beneficiary, but of which the company does not own all of the
entity’s equity.
In preparing the financial statements, management is required to make estimates and
assumptions that affect reported revenues, expenses, assets, liabilities and disclosure of
contingent liabilities. The primary estimates relate to investment valuation, goodwill impairment
and taxes. Use of available information and application of judgment are inherent in the formation
of estimates. Actual results in the future could differ from such estimates and the differences may
be material to the financial statements.
Reclassifications
The presentation of certain prior period reported amounts has been reclassified to be
consistent with the current presentation. Such reclassifications had no impact on net income or
equity attributable to common shareholders.
Accounting Pronouncements Recently Adopted and Pending Accounting Pronouncements
In December 2007, the FASB issued Statement No. 141 (revised 2007), “Business Combinations
(FASB Statement No. 141(R)),” and Statement No. 160, “Noncontrolling Interests in Consolidated
Financial Statements, an amendment of ARB No. 51 (FASB Statement No. 160).” Under FASB Statement
No. 141(R), which is now encompassed in ASC Topic 805, “Business Combinations,” the acquirer must
recognize, with certain exceptions, 100% of the fair values of assets acquired, liabilities
assumed, and noncontrolling interests in acquisitions of less than 100% controlling interest when
the acquisition constitutes a change in control of
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the acquired entity. Additionally, when an acquirer obtains partial ownership in an acquiree,
an acquirer recognizes and consolidates assets acquired, liabilities assumed and any noncontrolling
interests at 100% of their fair values at that date regardless of the percentage ownership in the
acquiree. As goodwill is calculated as a residual, all goodwill of the acquired business, not just
the acquirer’s share, is recognized under this “full-goodwill” approach. Contingent consideration
obligations that are elements of consideration transferred are recognized as of the acquisition
date as part of the fair value transferred in exchange for the acquired business.
Acquisition-related costs incurred in connection with a business combination shall be expensed.
FASB Statement No. 160, which is now encompassed in ASC Topic 810, “Consolidation,” establishes new
accounting and reporting standards for noncontrolling interests (formerly known as “minority
interests”) in a subsidiary and for the deconsolidation of a subsidiary. FASB Statement No. 141(R)
and FASB Statement No. 160 became effective for the company on January 1, 2009. FASB Statement
No. 141(R) was applied prospectively, while FASB Statement No. 160 required retroactive adoption of
the presentation and disclosure requirements for existing noncontrolling interests but prospective
adoption of all of its other requirements. The adoption of FASB Statement No. 141(R) amended the
definition of a business, which led to a change in the company’s basis, but not the company’s
conclusion, of determining that it has one reporting unit for goodwill impairment purposes. See
Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,
Critical Accounting Policies and Estimates – Goodwill” for additional information.
In February 2008, the FASB issued Staff Position No. FAS 157-2, “Effective Date of FASB
Statement No. 157 (FSP FAS 157-2).” FSP FAS 157-2, which is now encompassed in ASC Topic 820,
amended FASB Statement No. 157 to delay the effective date for nonfinancial assets and nonfinancial
liabilities except for items that are recognized or disclosed at fair value in the financial
statements on a recurring basis (that is, at least annually). For items within its scope, FSP FAS
157-2 delayed the effective date of FASB Statement No. 157 to January 1, 2009. As of January 1,
2008, Invesco applied the fair value measurement and disclosure provisions of FASB Statement No.
157 to its financial assets and financial liabilities that are recognized or disclosed at fair
value in the financial statements. As of January 1, 2009, Invesco applied the fair value
measurement and disclosure provisions of FASB Statement No. 157 to nonfinancial assets and
nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements
on a non-recurring basis. Those items include: (1) nonfinancial assets and nonfinancial liabilities
initially measured at fair value in a business combination or other new basis event, but not
measured at fair value in subsequent periods; (2) nonfinancial long-lived assets measured at fair
value for an impairment assessment under FASB Statement No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets;” (now encompassed in ASC Topic 360, “Property, Plant and
Equipment”); (3) nonfinancial liabilities for exit or disposal activities initially measured at
fair value under FASB Statement No. 146, “Accounting for Costs Associated with Exit or Disposal
Activities;” (now encompassed in ASC Topic 420, “Exit or Disposal Cost Obligations”) and (4)
nonfinancial assets and nonfinancial liabilities measured at fair value in the second step of a
goodwill impairment test. The adoption of FSP FAS 157-2 did not have a material impact on the
company’s financial statements.
In April 2008, the FASB issued Staff Position No. FAS 142-3, “Determination of the Useful Life
of Intangible Assets” (FSP FAS 142-3). FSP FAS 142-3, which is now encompassed in ASC Topic 350,
“Intangibles – Goodwill and Other” (ASC Topic 350), amended the factors that should be considered
in developing renewal or extension assumptions used to determine the useful life over which to
amortize the cost of a recognized intangible asset under FASB Statement No. 142, “Goodwill and
Other Intangible Assets,” also now encompassed in ASC Topic 350. FSP FAS 142-3 required an entity
to consider its own assumptions about renewal or extension of the term of the arrangement,
consistent with its expected use of the asset. FSP FAS 142-3 was intended to improve the
consistency between the useful life of an intangible asset determined under FASB Statement No. 142
and the period of expected cash flows used to measure the fair value of the asset under FASB
Statement No. 141(R) (now encompassed in ASC Topic 805) and other U.S. GAAP. The guidance provided
by FSP FAS 142-3 for determining the useful life of a recognized intangible asset was to be applied
prospectively to intangible assets acquired after the effective date, which is January 1, 2009. FSP
FAS 142-3 did not have a material impact on the company’s financial statements.
During June 2008, the FASB issued Staff Position No. EITF 03-6-1, “Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (FSP EITF
03-6-1). FSP EITF 03-6-1, which is now encompassed in ASC Topic 260, “Earnings Per Share” (ASC
Topic 260), addressed whether instruments granted in share-based payment transactions are
participating securities prior to vesting and need to be included in the earnings allocation in
computing earnings per share (EPS) under the two-class method described in FASB Statement No. 128,
“Earnings Per Share,” also now encompassed in ASC Topic 260. The guidance in the FSP EITF 03-6-1
provided that only those unvested share-based payment awards that contain nonforfeitable rights to
dividends or dividend equivalents are participating securities that should be included in the
calculation of basic EPS under the two-class method. The FASB concluded that the holder of a
share-based award receives a noncontingent transfer of value each time the entity declares a
dividend, and therefore the share-based award meets the definition of a participating security. FSP
EITF 03-6-1 was effective for financial statements issued for fiscal years beginning after December
15, 2008, with all prior period EPS data being adjusted retrospectively. The adoption of FSP EITF
03-6-1 on January 1, 2009, required the company to include unvested restricted
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stock units (RSUs) that contain nonforfeitable dividend equivalents as outstanding common
shares for purposes of calculating basic EPS. The adoption of FSP EITF 03-6-1 did not have a
material impact on the company’s calculation of diluted EPS for periods prior to January 1, 2009.
In December 2008, the FASB issued FASB Staff Position No. FAS 140-4 and FIN 46(R)-8,
“Disclosures about Transfers of Financial Assets and Interests in Variable Interest Entities (FSP
FAS 140-4 and FIN 46(R)-8),” which became effective for the company on March 31, 2009. FSP FAS
140-4 and FIN 46(R)-8, which is now encompassed in ASC Topic 860, “Transfers and Servicing,”
required additional disclosures by public entities with a) continuing involvement in transfers of
financial assets to a special purpose entity or b) a variable interest in a variable interest
entity. The adoption of FSP FAS 140-4 and FIN 46(R)-8 did not have a material impact on the
company’s financial statements. See Note 9, “Consolidated Investment Products,” for additional
disclosures.
In January 2009, the FASB issued Staff Position No. EITF 99-20-1, “Amendments to the
Impairment Guidance of EITF Issue No. 99-20 (FSP EITF 99-20-1),” which became effective for the
company on March 31, 2009. FSP EITF 99-20-1, which is now encompassed in ASC Topic 325, revised the
impairment guidance provided by EITF 99-20 for beneficial interests to make it consistent with the
requirements of FASB Statement No. 115 (now encompassed in ASC Topic 320) for determining whether
an impairment of other debt and equity securities is other-than-temporary. FSP EITF 99-20-1
eliminated the requirement to rely exclusively on market participant assumptions about future cash
flows and permitted the use of reasonable management judgment of the probability that the holder
will be unable to collect all amounts due. Instead, FSP 99-20-1 required that an
other-than-temporary impairment be recognized when it is probable that there has been an adverse
change in the holder’s estimated cash flows. FSP EITF 99-20-1 did not have a material impact on the
company’s financial statements.
On April 9, 2009, the FASB issued three Staff Positions (FSPs) intended to provide additional
application guidance and enhance disclosures regarding fair value measurements and impairments of
securities. FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the
Asset or Liability Have Significantly Decreased and Identifying Transactions that Are Not Orderly
(FSP FAS 157-4),” now encompassed in ASC Topic 820, provided guidelines for making fair value
measurements more consistent with the principles presented in FASB Statement No. 157. FSP FAS 107-1
and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments (FSP FAS 107-1),” now
encompassed in ASC Topic 825, enhanced consistency in financial reporting by increasing the
frequency of fair value disclosures. FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of
Other-Than-Temporary Impairments (FSP FAS 115-2),” now encompassed in ASC Topic 320-10-65, provided
additional guidance designed to create greater clarity and consistency in accounting for and
presenting impairment losses on securities.
FSP FAS 157-4 addressed the measurement of fair value of financial assets when there is no
active market or where the price inputs being used could be indicative of distressed sales. FSP FAS
157-4 reaffirmed the definition of fair value already reflected in FASB Statement No. 157, which is
the price that would be paid to sell an asset in an orderly transaction (as opposed to a distressed
or forced transaction) at the measurement date under current market conditions. FSP FAS 157-4 also
reaffirmed the need to use judgment to ascertain if a formerly active market has become inactive
and in determining fair values when markets have become inactive. FSP FAS 157-4 became effective
for the company for the period ended June 30, 2009. The application of FSP FAS 157-4 did not have a
material impact on the Consolidated Financial Statements. See Note 2, “Fair Value of Assets and
Liabilities,” and Note 9, “Consolidated Investment Products,” for additional details.
FSP FAS 107-1 was issued to improve the fair value disclosures for any financial instruments
that are not currently reflected on the balance sheets of companies at fair value. Prior to issuing
FSP FAS 107-1, fair values of these assets and liabilities were only disclosed on an annual basis.
FSP FAS 107-1 required these disclosures on a quarterly basis, providing qualitative and
quantitative information about fair value estimates for all financial instruments not measured on
the balance sheet at fair value. FSP FAS 107-1 became effective for the company for the period
ended June 30, 2009, which required the company to make annual disclosures in its interim financial
statements, which are included in Note 2, “Fair Value of Assets and Liabilities,” Note 3,
“Investments,” and Note 4, “Debt.”
FSP FAS 115-2 was intended to improve the consistency in the timing of impairment recognition
and provide greater clarity to investors about the credit and noncredit components of impaired debt
securities that are not expected to be sold. FSP FAS 115-2 required increased and more timely
disclosures sought by investors regarding expected cash flows, credit losses, and an aging of
securities with unrealized losses. The company adopted FSP FAS 115-2 on April 1, 2009. Upon
adoption, the company recorded a cumulative effect adjustment of $1.5 million to the April 1, 2009,
opening balance of retained earnings with a corresponding adjustment to accumulated other
comprehensive income.
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In May 2009, the FASB issued Statement No. 165, “Subsequent Events” (FASB Statement No. 165).
FASB Statement No. 165, which is now encompassed in ASC Topic 855, “Subsequent Events,” established
general standards of accounting for and disclosure of events that occur after the balance sheet
date but before financial statements are issued or are available to be issued. Specifically, FASB
Statement No. 165 provided clarity around the period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements, the circumstances under which an
entity should recognize events or transactions occurring after the balance sheet date in its
financial statements, and the disclosure that an entity should make about events or transactions
that occurred after the balance sheet date. FASB Statement No. 165 was effective for interim and
annual financial reporting periods ending after June 15, 2009, and was applied prospectively. On
February 24, 2010, the FASB issued Accounting Standards Update 2010-09, “Amendments to Certain
Recognition and Disclosure Requirements” (ASU 2010-09). ASU 2010-09 amended the guidance on
subsequent events to remove the requirement for Securities and Exchange Commission filers to
disclose the date through which an entity has evaluated subsequent events.
In June 2009, the FASB issued Statement No. 166, “Accounting for Transfers of Financial Assets
– an amendment of FASB Statement No. 140,” (FASB Statement No. 166), which addresses the effects of
eliminating the qualifying special-purpose entity concept from FASB Statement No. 140, “Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (FASB Statement
No. 140), and will generally subject those entities to the consolidation guidance applied to other
VIEs as provided by FASB Statement No. 167, “Amendments to FASB Interpretation No. 46(R)” (FASB
Statement No. 167). FASB Statement No. 166 is now encompassed in ASC Topic 860. FASB Statement No.
167 is now encompassed in ASC Topic 810. Specifically, FASB Statement No. 166 introduces the
concept of a participating interest, which will limit the circumstances where the transfer of a
portion of a financial asset will qualify as a sale, assuming all other derecogntion criteria are
met, and clarifies and amends the derecogntion criteria for determining whether a transfer
qualifies for sale accounting. FASB Statement No. 166 will be applied prospectively to new
transfers of financial assets occurring on or after January 1, 2010. The adoption of FASB Statement
No. 166 did not have a material impact on the company’s Consolidated Financial Statements.
In June 2009, the FASB issued Statement No. 167, which amends certain provisions of FIN 46(R).
Specifically, FASB Statement No. 167 amends certain provisions for determining whether an entity is
a VIE, it requires a qualitative rather than a quantitative analysis to determine whether the
company is the primary beneficiary of a VIE, it amends FIN 46(R)’s consideration of related party
relationships in the determination of the primary beneficiary of a VIE by providing an exception
regarding de facto agency relationships in certain circumstances, it requires continuous
assessments of whether the company is a VIE’s primary beneficiary, and it requires enhanced
disclosures about the company’s involvement with VIEs, which are generally consistent with those
disclosures required by FSP FAS 140-4 and FIN 46(R)-8 discussed above. In February 2010, the FASB
issued ASU 2010-10, a deferral of the effective date of FASB Statement No. 167 for a reporting
entity’s interests in certain investment funds which have attributes of investment companies, for
which the reporting entity does not have an obligation to fund losses, and which are not structured
as securitization entities. In addition, the deferral applies to a reporting entity’s interest in
money market fund-type products. The company has determined that all of its managed funds with the
exception of certain collateralized loan obligation products (CLOs) qualify for the deferral.
FASB Statement No. 167, which was effective January 1, 2010, had a significant impact on the
presentation of the company’s financial statements, as its provisions required the company to
consolidate certain CLOs that were not previously consolidated. The cumulative effect adjustment
upon adoption of FASB Statement No. 167 at January 1, 2010, resulted in an appropriation of
retained earnings and a reclassification of other comprehensive income into retained earnings of
$274.3 million and $5.2 million, respectively. The company’s Consolidated Statement of Income for
the three months ended March 31, 2010, reflect the elimination of $8.7 million in management fees
earned from these CLOs, and the addition of $52.5 million in interest income, $20.8 million in
interest expense, and $85.1 million in net other gains. The $105.8 million net income impact during
the three months ended March 31, 2010, of consolidation of these CLOs is largely offset by
gains/(losses) attributable to investors in noncontrolling interests of $104.4 million. Prior to
the adoption of FASB Statement No. 167, the company accounted for its investments in these CLOs as
available-for-sale investments, with changes in the value of the company’s interests being recorded
through other comprehensive income. After the adoption of FASB Statement No. 167, the change in
value of the company’s investments in these CLOs is reflected in the company’s net income. For the
three months ended March 31, 2010, the net impact to the company of its investments in these CLOs
was $1.4 million. The Condensed Consolidated Balance Sheet at March 31, 2010, reflects the
consolidation of $5.8 billion in assets held and $5.1 billion in debt issued by these CLOs, despite
the fact that the assets cannot be used by the company, nor is the company obligated for the debt.
Retained earnings appropriated for investors of consolidated investment products of $383.8 million
is presented as part of the company’s total equity, reflecting the excess of the consolidated CLOs’
assets over their liabilities, attributable to noncontrolling third-party investors in their
consolidated CLOs at March 31, 2010. In addition, the company’s Condensed Consolidated Cash Flow
Statement for the three months ended March 31, 2010, reflects the cash flows of these CLOs. In
accordance with the standard, prior periods have not been restated to reflect the consolidation of
these CLOs.
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Upon adoption of FASB Statement No. 167, the assets and liabilities of the consolidated CLOs
were measured at fair value, as the determination of the carrying amounts was not practicable. The
company has elected the fair value option under ASC Topic 825-10-25 to measure the assets and
liabilities of all consolidated CLOs at fair value subsequent to the date of initial adoption of
FASB Statement No. 167, as the company has determined that measurement of the notes issued by
consolidated CLOs at fair value better correlates with the value of the assets held by consolidated
CLOs, which are held to provide the cash flows for the note obligations. The financial information
of the consolidated CLOs is included in the company’s consolidated financial statements on a
one-month lag. See Note 9, “Consolidated Investment Products,” for a consolidating balance sheet at
March 31, 2010.
In July 2009, the FASB issued Statement No. 168, “The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles – A Replacement of FASB Statement No.
162,” (FASB Statement No. 168). FASB Statement No. 168 replaced the existing hierarchy of U.S.
Generally Accepted Accounting Principles with the FASB ASC as the single source of authoritative
U.S. accounting and reporting standards applicable for all nongovernmental entities, with the
exception of guidance issued by the U.S. Securities and Exchange Commission and its staff. FASB
Statement No. 168 is now encompassed in ASC Topic 105, “Generally Accepted Accounting Principles,”
and was effective July 1, 2009. The company has replaced references to FASB accounting standards
with ASC references, where applicable and relevant, in this Report.
In August 2009, the FASB issued Accounting Standards Update 2009-05, “Fair Value Measurements
and Disclosures (Topic 820) – Measuring Liabilities at Fair Value” (ASU 2009-05). ASU 2009-05
amends Topic 820 by providing additional guidance (including illustrative examples) clarifying the
measurement of liabilities at fair value. When a quoted price in an active market for the identical
liability is not available, the amendments in ASU 2009-05 require that the fair value of a
liability be measured using one or more of the listed valuation techniques that should maximize the
use of relevant observable inputs and minimize the use of unobservable inputs. In addition, the
amendments in ASU 2009-05 clarify that when estimating the fair value of a liability, an entity is
not required to include a separate input or adjustment to the other inputs relating to the
existence of a restriction that prevents the transfer of the liability. The amendments also clarify
how the price of a traded debt security (i.e., an asset value) should be considered in estimating
the fair value of the issuer’s liability. The amendments in ASU 2009-05 became effective for the
company on October 1, 2009. The company has made the required disclosures in
Note 9,
“Debt.”
In September 2009, the FASB issued Accounting Standards Update 2009-12, “Investments in
Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent)” (ASU 2009-12). ASU
2009-12 amends ASC Topic 820 to provide further guidance on how to measure the fair value of
investments in alternative investments, such as hedge, private equity, real estate, venture
capital, offshore and fund of funds. ASU 2009-12 permits, as a practical expedient, the measurement
of fair value of an investment on the basis of the net asset value per share of the investment (or
its equivalent) if the net asset value of the investment (or its equivalent) is calculated in a
manner consistent with ASC Topic 946, “Financial Services — Investment Companies,” including
measurement of all or substantially all of the fund’s underlying investments at fair value in
accordance with ASC Topic 820. ASU 2009-12 is effective for interim and annual periods ending after
December 15, 2009. The adoption of ASU 2009-12 did not have a material impact on the Consolidated
Financial Statements.
In January 2010, the FASB issued Accounting Standards Update 2010-06, “Improving Disclosures
about Fair Value Measurements” (ASU 2010-06). ASU 2010-06 amends Topic 820 to require a number of
additional disclosures regarding fair value measurements. Specifically, ASU 2010-06 requires
entities to disclose: (1) the amount of significant transfers between Level 1 and Level 2 of the
fair value hierarchy and the reasons for these transfers; (2) the reasons for any transfers in or
out of Level 3; and (3) information in the reconciliation of recurring Level 3 measurements about
purchases, sales, issuances and settlements on a gross basis. ASU 2010-06 also clarifies existing
fair value disclosures about the appropriate level of disaggregation and about inputs and valuation
techniques for both recurring and nonrecurring fair value measurements that fall in either Level 2
or Level 3. The new disclosures and clarifications of existing disclosures are effective for
interim and annual reporting periods beginning after December 15, 2009, except for the disclosures
about purchases, sales, issuances, and settlements in the rollforward of activity in Level 3 fair
value measurements, which are effective for fiscal years beginning after December 15, 2010, and for
interim periods within those fiscal years. The company has made the required disclosures in Note 9,
“Consolidated Investment Products.”
12
Table of Contents
2. FAIR VALUE OF ASSETS AND LIABILITIES
The carrying value and fair value of financial instruments is presented in the below summary
table. The fair value of financial instruments held by consolidated investment products is
presented in Note 9, “Consolidated Investment Products.”
| March 31, 2010 | December 31, 2009 | |||||||||||||||||||
| Footnote | Carrying | Carrying | ||||||||||||||||||
| $ in millions | Reference | Value | Fair Value | Value | Fair Value | |||||||||||||||
|
Cash and cash equivalents
|
2 | 597.0 | 597.0 | 762.0 | 762.0 | |||||||||||||||
|
Available for sale investments
|
2, 3 | 102.1 | 102.1 | 115.2 | 115.2 | |||||||||||||||
|
Assets held for policyholders
|
1,221.0 | 1,221.0 | 1,283.0 | 1,283.0 | ||||||||||||||||
|
Trading investments
|
2, 3 | 51.8 | 51.8 | 84.6 | 84.6 | |||||||||||||||
|
Support agreements
|
9, 12 | (2.5 | ) | (2.5 | ) | (2.5 | ) | (2.5 | ) | |||||||||||
|
Policyholder payables
|
(1,221.0 | ) | (1,221.0 | ) | (1,283.0 | ) | (1,283.0 | ) | ||||||||||||
|
Long-term debt
|
4 | (745.7 | ) | (778.0 | ) | (745.7 | ) | (765.5 | ) | |||||||||||
|
|
||||||||||||||||||||
|
|
2.7 | (29.6 | ) | 213.6 | 193.8 | |||||||||||||||
|
|
||||||||||||||||||||
A three-level valuation hierarchy exists for disclosure of fair value measurements based upon
the transparency of inputs to the valuation of an asset or liability as of the measurement date.
The three levels are defined as follows:
| • | Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. | ||
| • | Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. | ||
| • | Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
An asset or liability’s categorization within the valuation hierarchy is based upon the lowest
level of input that is significant to the fair value measurement.
There are three types of valuation approaches: a market approach, which uses observable prices
and other relevant information that is generated by market transactions involving identical or
comparable assets or liabilities; an income approach, which uses valuation techniques to convert
future amounts to a single, discounted present value amount; and a cost approach, which is based on
the amount that currently would be required to replace the service capacity of an asset.
The following is a description of the valuation methodologies used for assets and liabilities
measured at fair value, as well as the general classification of such assets and liabilities
pursuant to the valuation hierarchy.
Cash equivalents
Cash equivalents include cash investments in money market funds and time deposits. Cash and
cash equivalents invested in affiliated money market funds totaled $318.0 million at March 31, 2010
(December 31, 2009: $465.1 million). Cash investments in money market funds are valued under the
market approach through the use of quoted market prices in an active market, which is the net asset
value of the underlying funds, and are classified within level 1 of the valuation hierarchy. Cash
investments in time deposits of $102.0 million at March 31, 2010 (December 31, 2009: $90.5 million)
are very short-term in nature and are accordingly valued at cost plus accrued interest, which
approximates fair value, and are classified within level 2 of the valuation hierarchy.
Available-for-sale investments
Available-for-sale investments include amounts seeded into affiliated investment products, and
investments in foreign time deposits and in affiliated unconsolidated collateralized loan
obligations (CLOs). Seed money is valued under the market approach through the use of quoted market
prices available in an active market and is classified within level 1 of the valuation hierarchy.
Seed money investments are investments held in Invesco managed funds with the purpose of providing
capital to the funds during their development periods. These investments are recorded at fair value
using quoted market prices in active markets; there is no modeling or additional information needed
to arrive at the fair values of these investments. Foreign time deposits are valued at cost plus
accrued
13
Table of Contents
interest, which approximates fair value, and are classified within level 2 of the valuation
hierarchy. CLOs are valued using an income approach through the use of certain observable and
unobservable inputs. Due to current liquidity constraints within the market for CLO products that
require the use of unobservable inputs, these investments are classified as level 3 within the
valuation hierarchy.
Trading investments
Trading investments primarily include the investments of the deferred compensation plans that
are offered to certain Invesco employees. These investments are primarily invested in affiliated
funds that are held to economically hedge current and non-current deferred compensation
liabilities. Trading securities are valued under the market approach through the use of quoted
prices in an active market and are classified within level 1 of the valuation hierarchy.
Assets held for policyholders
Assets held for policyholders represent investments held by one of the company’s subsidiaries,
which is an insurance entity that was established to facilitate retirement savings plans in the
U.K. The assets held for policyholders are accounted for at fair value pursuant to ASC Topic 944,
“Financial Services — Insurance,” and are comprised primarily of affiliated unitized funds. The
assets are measured at fair value under the market approach based on the quoted prices of the
underlying funds in an active market and are classified within level 1 of the valuation hierarchy.
The policyholder liabilities are indexed to the value of the assets held for policyholders.
The following table presents, for each of the hierarchy levels described above, the carrying
value of the company’s assets, including major security type for equity and debt securities, which
are measured at fair value on the face of the statement of financial position as of
March 31, 2010.
| As of March 31, 2010 | ||||||||||||||||
| Quoted Prices in | ||||||||||||||||
| Active Markets for | Significant Other | Significant | ||||||||||||||
| Fair Value | Identical Assets | Observable Inputs | Unobservable Inputs | |||||||||||||
| $ in millions | Measurements | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
|
Current assets:
|
||||||||||||||||
|
Cash equivalents:
|
||||||||||||||||
|
Money market funds
|
318.0 | 318.0 | — | — | ||||||||||||
|
Time deposits
|
102.0 | — | 102.0 | — | ||||||||||||
|
Investments:*
|
||||||||||||||||
|
Available-for-sale:
|
||||||||||||||||
|
Seed money
|
77.9 | 77.9 | — | — | ||||||||||||
|
Foreign time deposits
|
23.8 | — | 23.8 | — | ||||||||||||
|
Trading investments:
|
||||||||||||||||
|
Investments related to
deferred compensation plans
|
51.8 | 51.8 | — | — | ||||||||||||
|
Other
|
— | — | — | — | ||||||||||||
|
Assets held for policyholders
|
1,221.0 | 1,221.0 | — | — | ||||||||||||
|
|
||||||||||||||||
|
Total current assets
|
1,794.5 | 1,668.7 | 125.8 | — | ||||||||||||
|
|
||||||||||||||||
|
Non-current assets:
|
||||||||||||||||
|
Investments – available-for-sale*:
|
||||||||||||||||
|
CLOs**
|
0.4 | — | — | 0.4 | ||||||||||||
|
|
||||||||||||||||
|
Total assets at fair value
|
1,794.9 | 1,668.7 | 125.8 | 0.4 | ||||||||||||
|
|
||||||||||||||||
| * | Other current investments of $0.5 million are excluded from this table. Other non-current equity and cost method investments of $136.9 million and $4.5 million are also excluded from this table. These investments are not measured at fair value, in accordance with applicable accounting standards. | |
| ** | The company adopted FASB Statement No. 167, now encompassed in ASC Topic 810, “Consolidation,” on January 1, 2010, resulting in the consolidation of CLOs for which the company has an underlying investment of $18.6 million at March 31, 2010 (before consolidation). In accordance with the standard, prior periods have not been restated to reflect the consolidation of these CLOs. |
14
Table of Contents
The following table presents, for each of the hierarchy levels described above, the carrying
value of the company’s assets that are measured at fair value as of December 31, 2009:
| As of December 31, 2009 | ||||||||||||||||
| Quoted Prices in | ||||||||||||||||
| Active Markets for | Significant Other | Significant | ||||||||||||||
| Fair Value | Identical Assets | Observable Inputs | Unobservable Inputs | |||||||||||||
| $ in millions | Measurements | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
|
Current assets:
|
||||||||||||||||
|
Cash equivalents:
|
||||||||||||||||
|
Money market funds
|
498.6 | 498.6 | — | — | ||||||||||||
|
Time deposits
|
90.5 | — | 90.5 | — | ||||||||||||
|
Investments:*
|
||||||||||||||||
|
Available-for-sale:
|
||||||||||||||||
|
Seed money
|
74.8 | 74.8 | — | — | ||||||||||||
|
Foreign time deposits
|
22.5 | — | 22.5 | — | ||||||||||||
|
Trading investments:
|
||||||||||||||||
|
Investments related to
deferred compensation plans
|
84.6 | 84.6 | — | — | ||||||||||||
|
Assets held for policyholders
|
1,283.0 | 1,283.0 | — | — | ||||||||||||
|
|
||||||||||||||||
|
Total current assets
|
2,054.0 | 1,941.0 | 113.0 | — | ||||||||||||
|
|
||||||||||||||||
|
Non-current assets:
|
||||||||||||||||
|
Investments – available-for-sale:
|
||||||||||||||||
|
CLOs
|
17.9 | — | — | 17.9 | ||||||||||||
|
|
||||||||||||||||
|
Total assets at fair value
|
2,071.9 | 1,941.0 | 113.0 | 17.9 | ||||||||||||
|
|
||||||||||||||||
| * | Other current investments of $0.5 million are excluded from this table. Other non-current equity method and other investments of $134.7 million and $4.8 million are also excluded from this table. These investments are not measured at fair value, in accordance with applicable accounting standards. |
The following table shows a reconciliation of the beginning and ending fair value measurements
for level 3 assets during the three month periods ending March 31, 2010 and 2009, which are
comprised solely of CLOs, and are valued using significant unobservable inputs:
| Three Months | Three Months | |||||||
| Ended March | Ended March | |||||||
| $ in millions | 31, 2010 | 31, 2009 | ||||||
|
Beginning balance
|
17.9 | 17.5 | ||||||
|
Adoption of FASB Statement No. 167*
|
(17.4 | ) | — | |||||
|
|
||||||||
|
Beginning balance, as adjusted
|
0.5 | 17.5 | ||||||
|
Net unrealized gains and losses included in accumulated other
comprehensive income/(loss)**
|
(0.1 | ) | (0.1 | ) | ||||
|
Purchases and issuances
|
— | — | ||||||
|
Other-than-temporary impairment included in other gains and losses, net
|
— | (3.6 | ) | |||||
|
Return of capital
|
— | (0.5 | ) | |||||
|
|
||||||||
|
Ending balance
|
0.4 | 13.5 | ||||||
|
|
||||||||
| * | The company adopted FASB Statement No. 167, now encompassed in ASC Topic 810, “Consolidation,” on January 1, 2010, resulting in the consolidation of CLOs for which the company has an underlying investment of $18.6 million at March 31, 2010 (before consolidation). The adjustment of $17.4 million in the table above reflects the elimination of the company’s equity interest upon adoption. In accordance with the standard, prior periods have not been restated to reflect the consolidation of these CLOs. | |
| ** | Of these net unrealized gains and losses included in accumulated other comprehensive income/(loss), $0.1million for the three months ended March 31, 2010, (three months ended March 31, 2009: $0.1 million) are attributed to the change in unrealized gains and losses related to assets still held at March 31, 2010. |
15
Table of Contents
3. INVESTMENTS
The disclosures below include details of the company’s investments. Investments held by
consolidated investment products are detailed in Note 9, “Consolidated Investment Products.”
Current Investments
| As of | ||||||||
| March 31, | December 31, | |||||||
| $ in millions | 2010 | 2009 | ||||||
|
Available-for-sale investments:
|
||||||||
|
Seed money
|
77.9 | 74.8 | ||||||
|
Foreign time deposits
|
23.8 | 22.5 | ||||||
|
Trading investments:
|
||||||||
|
Investments related to deferred compensation plans
|
51.8 | 84.6 | ||||||
|
Other
|
0.5 | 0.5 | ||||||
|
|
||||||||
|
Total current investments
|
154.0 | 182.4 | ||||||
|
|
||||||||
Non-current Investments
| As of | ||||||||
| March 31, | December 31, | |||||||
| $ in millions | 2010 | 2009 | ||||||
|
Available-for-sale investments:
|
||||||||
|
CLOs
|
0.4 | 17.9 | ||||||
|
Equity method investments
|
136.9 | 134.7 | ||||||
|
Other
|
4.5 | 4.8 | ||||||
|
|
||||||||
|
Total non-current investments
|
141.8 | 157.4 | ||||||
|
|
||||||||
The portion of trading gains and losses for the three months ended March 31, 2010, that
relates to trading securities still held at March 31, 2010, was
$2.7 million net loss (three months ended
March 31, 2009: $1.1 million net loss).
Realized gains and losses recognized in the income statement during the year from investments
classified as available-for-sale are as follows:
| For the Three Months Ended | ||||||||||||
| March 31, 2010 | ||||||||||||
| Proceeds | Gross Realized | Gross Realized | ||||||||||
| $ in millions | from Sales | Gains | Losses | |||||||||
|
Current available-for-sale investments
|
16.0 | 0.4 | (0.5 | ) | ||||||||
|
Non-current available-for-sale investments
|
0.2 | — | — | |||||||||
Upon the sale of available-for-sale securities, net realized losses of $0.1 million were
transferred from accumulated other comprehensive income into the Condensed Consolidated Statements
of Income during the three months ended March 31, 2010. The specific identification method is used
to determine the realized gain or loss on securities sold or otherwise disposed.
16
Table of Contents
Gross unrealized holding gains and losses recognized in other accumulated comprehensive income
from available-for-sale investments are presented in the table below:
| March 31, 2010 | December 31, 2009 | |||||||||||||||||||||||||||||||
| Gross | Gross | Gross | Gross | |||||||||||||||||||||||||||||
| Unrealized | Unrealized | Unrealized | Unrealized | |||||||||||||||||||||||||||||
| Holding | Holding | Fair | Holding | Holding | Fair | |||||||||||||||||||||||||||
| $ in millions | Cost | Gains | Losses | Value | Cost | Gains | Losses | Value | ||||||||||||||||||||||||
|
Current:
|
||||||||||||||||||||||||||||||||
|
Seed money
|
73.3 | 7.7 | (3.1 | ) | 77.9 | 74.7 | 5.9 | (5.8 | ) | 74.8 | ||||||||||||||||||||||
|
Foreign time deposits
|
23.8 | — | — | 23.8 | 22.5 | — | — | 22.5 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Current available-for-sale investments
|
97.1 | 7.7 | (3.1 | ) | 101.7 | 97.2 | 5.9 | (5.8 | ) | 97.3 | ||||||||||||||||||||||
|
Non-current:
|
||||||||||||||||||||||||||||||||
|
CLOs*
|
0.4 | — | — | 0.4 | 12.6 | 5.3 | — | 17.9 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Non-current available-for-sale investments:
|
0.4 | — | — | 0.4 | 12.6 | 5.3 | — | 17.9 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
97.5 | 7.7 | (3.1 | ) | 102.1 | 109.8 | 11.2 | (5.8 | ) | 115.2 | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
| * | The company adopted FASB Statement No. 167, now encompassed in ASC Topic 810, “Consolidation,” on January 1, 2010, resulting in the consolidation of CLOs for which the company has an underlying investment of $18.6 million at March 31, 2010 (before consolidation). In accordance with the standard, prior periods have not been restated to reflect the consolidation of these CLOs. |
Available-for-sale debt securities as of March 31, 2010, by maturity, are set out below:
| Available-for-Sale | ||||
| $ in millions | (Fair Value) | |||
|
Less than one year
|
23.8 | |||
|
One to five years
|
— | |||
|
Five to ten years
|
0.4 | |||
|
Greater than ten years
|
— | |||
|
|
||||
|
Total available-for-sale
|
24.2 | |||
|
|
||||
The following table provides the breakdown of available-for-sale investments with unrealized
losses at March 31, 2010:
| Less Than 12 Months | 12 Months or Greater | Total | ||||||||||||||||||||||
| Gross | Gross | Gross | ||||||||||||||||||||||
| Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
| $ in millions | Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | ||||||||||||||||||
|
Seed money (39 funds)
|
9.3 | (0.4 | ) | 13.9 | (2.7 | ) | 23.2 | (3.1 | ) | |||||||||||||||
The following table provides the breakdown of available-for-sale investments with unrealized
losses at December 31, 2009:
| Less Than 12 Months | 12 Months or Greater | Total | ||||||||||||||||||||||
| Gross | Gross | Gross | ||||||||||||||||||||||
| Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
| $ in millions | Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | ||||||||||||||||||
|
Seed money (44 funds)
|
5.7 | (0.3 | ) | 25.1 | (5.5 | ) | 30.8 | (5.8 | ) | |||||||||||||||
The company has reviewed investment securities for other-than-temporary impairment in
accordance with its accounting policy and has recognized other-than-temporary impairment charges of
$2.1million on seed money investments during the three months ended March 31, 2010, as discussed in
Note 2.
The gross unrealized losses from seed money investments during 2009 and the three months ended
March 31, 2010, were primarily caused by declines in the market value of the underlying funds and
foreign exchange movements. After conducting a review of the financial condition and near-term
prospects of the underlying securities in the seeded funds as well as the severity and duration of
the impairment, the company does not consider any material portion of its gross unrealized losses
on these securities to be other-than-temporarily impaired. The securities are expected to recover
their value over time and the company has the intent and ability to hold the securities until this
recovery occurs.
17
Table of Contents
As discussed in Note 1, “Accounting Policies,” the company adopted FSP FAS 115-2, now
encompassed in ASC Topic 320, on April 1, 2009. Upon adoption, the company recorded a cumulative
effect adjustment of $1.5 million to the April 1, 2009, opening balance of retained earnings with a
corresponding adjustment to accumulated other comprehensive income, representing the non-credit
component of previously-recognized other-than-temporary impairment (OTTI). During the three months
ended March 31, 2010, there were no charges to other comprehensive income from other-than-temporary
impairment related to non-credit related factors. A rollforward of the cumulative credit-related
other-than-temporary impairment charges recognized in earnings for which some portion of the
impairment was recorded in other comprehensive income is as follows
:
| Three months ended | ||||
| In millions | March 31, 2010 | |||
|
Beginning balance
|
18.8 | |||
|
Adoption of FASB Statement No. 167*
|
(18.0 | ) | ||
|
|
||||
|
Beginning balance, as adjusted
|
0.8 | |||
|
Additional credit losses recognized during the period related to securities for which:
|
||||
|
No OTTI has been previously recognized
|
— | |||
|
OTTI has been previously recognized
|
— | |||
|
|
||||
|
Ending balance
|
0.8 | |||
|
|
||||
| * | The company adopted FASB Statement No. 167, now encompassed in ASC Topic 810, “Consolidation,” on January 1, 2010, resulting in the consolidation of CLOs for which the company has an underlying investment of $18.6 million at March 31, 2010 (before consolidation). Of the $18.8 million cumulative credit-related OTTI balance at January 1, 2010, $18.0 million relates to CLOs that were consolidated into the company’s Condensed Consolidated Balance Sheet, resulting in the elimination of our equity interest. |
4. DEBT
The disclosures below include details of the company’s investments. Debt of consolidated
investment products is detailed in Note 9, “Consolidated Investment Products.”
| March 31, 2010 | December 31, 2009 | |||||||||||||||
| Carrying | Carrying | |||||||||||||||
| $ in millions | Value | Fair Value | Value | Fair Value | ||||||||||||
|
Unsecured Senior Notes*:
|
||||||||||||||||
|
5.625% — due April 17, 2012
|
215.1 | 228.7 | 215.1 | 227.0 | ||||||||||||
|
5.375% — due February 27, 2013
|
333.5 | 351.7 | 333.5 | 343.4 | ||||||||||||
|
5.375% — due December 15, 2014
|
197.1 | 197.6 | 197.1 | 195.1 | ||||||||||||
|
Floating rate credit facility expiring June 9, 2012
|
— | — | — | — | ||||||||||||
|
|
||||||||||||||||
|
Total debt
|
745.7 | 778.0 | 745.7 | 765.5 | ||||||||||||
|
Less: current maturities of total debt
|
— | — | — | — | ||||||||||||
|
|
||||||||||||||||
|
Long-term debt
|
745.7 | 778.0 | 745.7 | 765.5 | ||||||||||||
|
|
||||||||||||||||
| * | The company’s Senior Note indentures contain certain restrictions on mergers or consolidations. Beyond these items, there are no other restrictive covenants in the indentures. |
The fair market value of the company’s total debt was determined by market quotes provided by
Bloomberg. In the absence of an active market, the company relies upon the average price quoted by
brokers for determining the fair market value of the debt. The level of trading, both in number of
trades and amount of Notes traded, has increased to a level that the company believes market quotes
to be a reasonable representation of the current fair market value of the Notes.
Analysis of Borrowings by Maturity:
| $ in millions | March 31, 2010 | |||
|
2010
|
— | |||
|
2011
|
— | |||
|
2012
|
215.1 | |||
|
2013
|
333.5 | |||
|
Thereafter
|
197.1 | |||
|
|
||||
|
Total debt
|
745.7 | |||
|
|
||||
18
Table of Contents
Amounts borrowed under the credit facility are repayable at maturity on June 9, 2012, provided
that such maturity date will automatically be accelerated to March 16, 2012, if 90% or more of the
$300.0 million face amount of the company’s 5.625% senior notes due 2012, are not repaid,
repurchased or defeased prior to March 16, 2012. Subject to certain conditions, the company has the
right to increase the aggregate borrowings under the credit facility up to $750.0 million.
At March 31, 2010, there was no outstanding balance on the credit facility expiring June 9,
2012. Borrowings under the credit facility will bear interest at (i) LIBOR for specified interest
periods or (ii) a floating base rate (based upon the highest of (a) the Bank of America prime rate,
(b) the Federal Funds rate plus 0.50% and (c) LIBOR for an interest period of one month plus
1.00%), plus, in either case, an applicable margin determined with reference to the company’s
credit ratings and specified credit default spreads. Based on credit ratings as of March 31, 2010,
of the company and such credit default spreads, the applicable margin for LIBOR-based loans was
1.50% and for base rate loans was 0.50%. In addition, the company is required to pay the lenders a
facility fee on the aggregate commitments of the lenders (whether or not used) at a rate per annum
which is based on the company’s credit ratings. Based on credit ratings as of March 31, 2010, the
annual facility fee was equal to 0.50%. The weighted average interest rate on the prior credit
facility expiring March 31, 2010, was 0.81% at March 31, 2009.
The credit agreement governing the credit facility contains customary restrictive covenants on
the company and its subsidiaries. Restrictive covenants in the credit agreement include, but are
not limited to: prohibitions on creating, incurring or assuming any liens; making or holding
external loans; entering into certain restrictive merger arrangements; selling, leasing,
transferring or otherwise disposing of assets; making certain investments; making a material change
in the nature of the business; making material amendments to organic documents; making a
significant accounting policy change in certain situations; making or entering into restrictive
agreements; becoming a general partner to certain investments; entering into transactions with
affiliates; incurring certain indebtedness through the non-guarantor subsidiaries; and making
certain restricted payments (with respect to equity and debt holders). Many of these restrictions
are subject to certain minimum thresholds and exceptions. Financial covenants under the credit
agreement include: (i) the quarterly maintenance of a debt/EBITDA ratio, as defined in the credit
agreement, of not greater than 3.25:1.00 through December 31, 2010, and not greater than 3.00:1.00
thereafter, (ii) a coverage ratio (EBITDA, as defined in the credit agreement/interest payable for
the four consecutive fiscal quarters ended before the date of determination) of not less than
4.00:1.00, and (iii) maintenance on a monthly basis of consolidated long-term assets under
management (as defined in the credit agreement) of not less than $194.8 billion, which amount is
subject to a one-time reset by the company under certain conditions.
The credit agreement governing the credit facility also contains customary provisions
regarding events of default which could result in an acceleration or increase in amounts due,
including (subject to certain materiality thresholds and grace periods) payment default, failure to
comply with covenants, material inaccuracy of representation or warranty, bankruptcy or insolvency
proceedings, change of control, certain judgments, ERISA matters, cross-default to other debt
agreements, governmental action prohibiting or restricting the company or its subsidiaries in a
manner that has a material adverse effect and failure of certain guaranty obligations.
The lenders (and their respective affiliates) may have provided, and may in the future
provide, investment banking, cash management, underwriting, lending, commercial banking, leasing,
foreign exchange, trust or other advisory services to the company and its subsidiaries and
affiliates. These parties may have received, and may in the future receive, customary compensation
for these services.
5. COMMON SHARES AND SHARES OUTSTANDING
Movements in the number of common shares issued are represented in the table below:
| Three Months | Three Months | |||||||
| Ended March 31, | Ended March 31, | |||||||
| In millions | 2010 | 2009 | ||||||
|
Shares Issued – Beginning Balance
|
459.5 | 426.6 | ||||||
|
Issue of new shares
|
— | — | ||||||
|
|
||||||||
|
Shares Issued – Ending Balance
|
459.5 | 426.6 | ||||||
|
|
||||||||
|
Less: Treasury shares for which dividend and voting rights do not apply
|
(23.2 | ) | (33.3 | ) | ||||
|
|
||||||||
|
Shares outstanding
|
436.3 | 393.3 | ||||||
|
|
||||||||
Total treasury shares at March 31, 2010, were 35.8 million (March 31, 2009: 46.3 million),
including 12.6 million unvested restricted stock awards (March 31, 2009: 13.0 million) for which
dividend and voting rights apply.
19
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Separately, an aggregate of 1.3 million shares were withheld on vesting events during the
three months ended March 31, 2010, to meet employees’ withholding tax obligations (three months
ended March 31, 2009: 1.0 shares). The value of these shares withheld was $30.9 million (three
months ended March 31, 2009: $11.5 million). Approximately $1.4 billion remained authorized under
the company’s share repurchase plan at March 31, 2010.
6. OTHER COMPREHENSIVE INCOME
The components of accumulated other comprehensive income, which includes our proportionate
share of equity method investees’ accumulated other comprehensive income, were as follows:
| March 31, | December 31, | |||||||
| $ in millions | 2010 | 2009 | ||||||
|
Net unrealized gains/(losses) on available-for-sale investments
|
6.2 | 5.4 | ||||||
|
Tax on unrealized (losses)/gains on available-for-sale investments
|
(1.9 | ) | (1.6 | ) | ||||
|
Cumulative foreign currency translation adjustments
|
384.6 | 442.0 | ||||||
|
Tax on cumulative foreign currency translation adjustments
|
2.0 | 2.0 | ||||||
|
Employee benefit plan liability adjustments
|
(69.2 | ) | (74.5 | ) | ||||
|
Tax on employee benefit plan liability adjustments
|
18.8 | 20.3 | ||||||
|
|
||||||||
|
Total accumulated other comprehensive income
|
340.5 | 393.6 | ||||||
|
|
||||||||
Total other comprehensive income details are presented below:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| $ in millions | 2010 | 2009 | ||||||
|
Net income/(loss), including gains and losses attributable to
noncontrolling interests
|
214.5 | (57.8 | ) | |||||
|
Unrealized holding gains and losses on available-for-sale investments*
|
3.8 | (8.9 | ) | |||||
|
Tax on net unrealized holding gains and losses on available-for-sale
investments
|
(0.2 | ) | (1.0 | ) | ||||
|
Reclassification adjustments for net gains and losses on
available-for-sale investments included in net income
|
2.2 | 4.9 | ||||||
|
Tax on reclassification adjustments for net gains and losses on
available-for-sale investments included in net income
|
(0.1 | ) | 0.4 | |||||
|
Foreign currency translation adjustments
|
(52.3 | ) | (72.1 | ) | ||||
|
Tax on foreign currency translation adjustments
|
— | (0.1 | ) | |||||
|
Adjustments to employee benefit plan liability
|
5.3 | 0.4 | ||||||
|
Tax on adjustments to pension liability
|
(1.5 | ) | (0.2 | ) | ||||
|
|
||||||||
|
Total other comprehensive income/(loss)
|
171.7 | (134.4 | ) | |||||
|
Less: other comprehensive income attributable to consolidated
investment products
|
(5.1 | ) | — | |||||
|
|
||||||||
|
Total other comprehensive income/(loss) attributable to Invesco Ltd.
|
166.6 | (134.4 | ) | |||||
|
|
||||||||
| * | The company adopted FASB Statement No. 167, now encompassed in ASC Topic 810, “Consolidation,” on January 1, 2010, resulting in the consolidation of certain CLOs. Upon adoption, accumulated other comprehensive income was reduced by $5.2 million, as accumulated net unrealized gains at January 1, 2010, relating to the company’s equity interests in certain CLOs were reclassified into retained earnings upon their consolidation. |
7. TAXATION
At March 31, 2010, the total amount of gross unrecognized tax benefits was $39.6 million as
compared to the December 31, 2009, total amount of $39.0 million.
The company and its subsidiaries file annual income tax returns in the United States (“U.S.”)
federal jurisdiction, various U.S. state and local jurisdictions, and in numerous foreign
jurisdictions. A number of years may elapse before an uncertain tax position, for which the company
has unrecognized tax benefits, is finally resolved. To the extent that the company has favorable
tax settlements, or determines that accrued amounts are no longer needed due to a lapse in the
applicable statute of limitations or other reasons, such liabilities, as well as the related
interest and penalty, would be reversed as a reduction of income tax expense (net of federal tax
effects, if applicable) in the period such determination is made.
20
Table of Contents
8. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income attributable to common
shareholders by the weighted average number of shares outstanding during the periods, excluding
treasury shares. Diluted earnings per share is computed using the treasury stock method, which
requires computing share equivalents and dividing net income attributable to common shareholders by
the total weighted average number of shares and share equivalents outstanding during the periods.
The calculation of earnings per share is as follows:
| Net Income | ||||||||||||
| Attributable to | ||||||||||||
| Common | Weighted Average | Per Share | ||||||||||
| In millions, except per share data | Shareholders | Number of Shares | Amount | |||||||||
|
For the three months ended March 31, 2010
|
||||||||||||
|
Basic earnings per share
|
$ | 95.0 | 439.0 | $ | 0.22 | |||||||
|
Dilutive effect of share-based awards
|
— | 3.4 | — | |||||||||
|
|
||||||||||||
|
Diluted earnings per share
|
$ | 95.0 | 442.4 | $ | 0.21 | |||||||
|
|
||||||||||||
|
|
||||||||||||
|
For the three months ended March 31, 2009
|
||||||||||||
|
Basic earnings per share
|
$ | 30.7 | 394.1 | $ | 0.08 | |||||||
|
Dilutive effect of share-based awards
|
— | 5.8 | — | |||||||||
|
|
||||||||||||
|
Diluted earnings per share
|
$ | 30.7 | 399.9 | $ | 0.08 | |||||||
|
|
||||||||||||
See Note 10, “Share-based Compensation,” for a summary of share awards outstanding under the
company’s share-based payment programs. These programs could result in the issuance of common
shares that would affect the measurement of basic and diluted earnings per share.
Options to purchase 9.3 million shares at a weighted average exercise price of 2,053 pence
were outstanding for the three months ended March 31, 2010 (three months ended March 31, 2009: 13.5
million share options at a weighted average exercise price of 1,836 pence), but were not included
in the computation of diluted earnings per share because the option’s exercise price was greater
than the average market price of the shares and therefore their inclusion would have been
anti-dilutive.
The company excluded 0.0 million contingently issuable shares from the diluted earnings per
share computation for the three months ended March 31, 2010 (three months ended March 31, 2009:
1.6 million contingently issuable shares), because the necessary performance conditions for the
shares to be issuable had not yet been satisfied at the end of the respective period. There were no
contingently issuable shares that were excluded from the computation of diluted earnings per share
during the three months ended March 31, 2010 and 2009, due to their inclusion being anti-dilutive.
9. CONSOLIDATED INVESTMENT PRODUCTS
The company provides investment management services to, and has transactions with, various
private equity funds, real estate funds, fund-of-funds, CLOs and other investment entities
sponsored by the company for the investment of client assets in the normal course of business. The
company serves as the investment manager, making day-to-day investment decisions concerning the
assets of the products and generally has a small investment in certain of these products to
demonstrate “skin in the game” to other potential unaffiliated investors in these products. Certain
of these investments are considered to be variable interest entities (VIEs). If the company is the
primary beneficiary of the VIEs, then the investment products are consolidated into the company’s
financial statements. Other partnership entities are consolidated under a voting interest entity
(VOE) model where the company is the general partner and is presumed to have control, in the
absence of simple majority kick-out rights to remove the general partner, simple majority
liquidation rights to dissolve the partnership, or any substantive participating rights of the
other limited partners.
The company’s risk with respect to each investment is limited to its equity ownership and any
uncollected management fees. Therefore, the gains or losses of consolidated investment products
have not had a significant impact on the company’s results of operations, liquidity or capital
resources. The company has no right to the benefits from, nor does it bear the risks associated
with, these investments, beyond the company’s minimal direct investments in, and management fees
generated from, the investment products. If the company were to liquidate, these investments would
not be available to the general creditors of the company, and as a result, the company does not
consider investments held by consolidated investment products to be company assets.
21
Table of Contents
CLOs
For CLO entities, as discussed in Note 1, “Accounting Policies,” and Note 2, “Fair Value of
Assets and Liabilities,” the company generally invests in only a relatively small portion of the
unrated, junior subordinated positions. The company’s investments in CLOs are generally
subordinated to other interests in the entities and entitle the company and other subordinated
tranche investors to receive the residual cash flows, if any, from the entities. The company’s
underlying equity interests in the CLOs of $19.0 million (before consolidation) at March 31, 2010
(December 31, 2009: $17.9 million) represent its maximum risk of loss.
Prior to the adoption of FASB Statement No. 167, now encompassed in ASC Topic 810,
“Consolidation,” and the issuance of ASU 2010-10, “Amendments for Certain Investment Funds”
(discussed in Note 1, “Accounting Policies”), the company’s ownership interests, which were
classified as available-for-sale investments on the company’s Consolidated Balance Sheets, combined
with its other interests (management and incentive fees), were quantitatively assessed to determine
if the company is the primary beneficiary of these entities. The company determined, for periods
prior to the adoption of FASB Statement No. 167, that it did not absorb the majority of the
expected gains or losses from the CLOs and therefore was not their primary beneficiary.
Effective January 1, 2010, upon the adoption of FASB Statement No. 167, the company determined
that it was the primary beneficiary of certain CLOs, as it has the power to direct the activities
of the CLOs that most significantly impact the CLOs’ economic performance, and the obligation to
absorb losses/right to receive benefits from the CLOs that could potentially be significant to the
CLOs. The primary beneficiary assessment includes an analysis of the rights of the company in its
capacity as investment manager. In certain CLOs, the company’s role as investment manager provides
that the company contractually has the power, as defined in FASB Statement No. 167, to direct the
activities of the CLOs that most significantly impact the CLOs’ economic performance, such as
managing the collateral portfolio and its credit risk. In other CLOs, the company determined that
it does not have this power in its role as investment manager due to certain restrictions that
limit its ability to manage the collateral portfolio and its credit risk. Additionally, the primary
beneficiary assessment includes an analysis of the company’s rights to receive benefits and
obligation to absorb losses associated with its first loss position and management/incentive fees.
As part of this analysis, the company uses a quantitative model to corroborate its qualitative
assessments. The quantitative model includes an analysis of the expected performance of the CLOs
and a comparison of the company’s absorption of this performance relative to the other investors in
the CLOs. The company has determined that it could receive significant benefits and/or absorb
significant losses from certain CLOs in which it holds a first loss position and has the right to
significant fees. It was determined that the company’s benefits and losses from certain other CLOs
could not be significant, particularly in situations where the company does not hold a first loss
position and where the fee interests are based upon a fixed percentage of collateral asset value.
The company generally invests in only a relatively small portion of the unrated, junior
subordinated positions. This subordinated interest can take the form of (1) subordinated notes, (2)
income notes or (3) preference/preferred shares. The company has determined that, although the
junior tranches have certain characteristics of equity, they should be accounted for and disclosed
as debt on the company’s Condensed Consolidated Balance Sheet, as the subordinated and income notes
have a stated maturity indicating a date for which they are mandatorily redeemable. The preference
shares are also classified as debt, as redemption is required only upon liquidation or termination
of the CLO and not of the company.
The collateral assets of the CLOs are held solely to satisfy the obligations of the CLOs. The
company has no right to the benefits from, nor does it bear the risks associated with, the
collateral assets held by the CLOs, beyond the company’s minimal direct investments in, and
management fees generated from, the CLOs. If the company were to liquidate, the collateral assets
would not be available to the general creditors of the company, and as a result, the company does
not consider them to be company assets. Additionally, the investors in the CLOs have no recourse to
the general credit of the company for the notes issued by the CLOs. The company therefore does not
consider this debt to be a company liability.
Private equity, real estate and fund-of-funds (partnerships)
For investment products that are structured as partnerships and are determined to be VIEs,
including private equity funds, real estate funds and fund-of-funds products, the company evaluates
the structure of the partnership to determine if it is the primary beneficiary of the investment
product. This evaluation includes assessing the rights of the limited partners to transfer their
economic interests in the investment product. If the limited partners lack objective rights to
transfer their economic interests, they are considered to be de facto agents of the company,
resulting in the company determining that it is the primary beneficiary of the investment product.
The company generally takes less than a 1% investment in these entities as the general partner.
Interests in unconsolidated private equity funds, real estate funds and fund-of-funds products are
classified as equity method investments in the company’s Consolidated Balance Sheets.
22
Table of Contents
On July 8, 2009, the U.S. Treasury announced the launch of the Public-Private Investment
Program (PPIP), which was designed to support market functioning and facilitate price discovery in
the asset-based securities markets, to allow banks and other financial institutions to re-deploy
capital, and to extend new credit to households and businesses. Under this program, the U.S.
Treasury will invest up to $30.0 billion of equity and debt into funds established with private
sector investment managers and private investors for the purpose of purchasing legacy securities.
The U.S. Treasury has partnered with eight investment management firms, including Invesco, in the
PPIP. The company determined that certain feeder funds within the Invesco-sponsored PPIP
partnership structure are VIEs; however, the company is not their primary beneficiary, as it does
not absorb the majority of the expected gains or losses from these funds. Additionally, the company
does not have any capital invested or committed into these funds. Other funds within the PPIP
structure are VOEs; however, the company as general partner is not deemed to control these entities
due to the presence of substantive kick-out or liquidation rights.
Other investment products
As discussed in Note 12, “Commitments and Contingencies,” the company has entered into
contingent support agreements for two of its investment trusts to enable them to sustain a stable
pricing structure, creating variable interests in these VIEs. The company earns management fees
from the trusts and has a small investment in one of these trusts. The company was not deemed to be
the primary beneficiary of these trusts after considering any explicit and implicit variable
interests in relation to the total expected gains and losses of the trusts. The maximum committed
amount under the support agreements, which represents the company’s maximum risk of loss, is
equivalent to the amount of support that the trusts required as of March 31, 2010, to maintain the
net asset value of the trusts at $1.00 per share. The recorded fair value of the guarantees related
to these agreements at March 31, 2010, was estimated to be $2.5 million (December 31, 2009: $2.5
million), which was recorded as a guarantee obligation in other current liabilities in the
Consolidated Balance Sheet. The fair value of these agreements is lower than the maximum support
amount reflecting management’s estimation that the likelihood of funding under the support
agreement is low, as significant investor redemptions out of the trusts before the scheduled
maturity of the underlying securities or significant credit default issues of the securities held
within the trusts’ portfolios would be required to trigger funding by the company.
In June 2009, the company invested in the initial public offering of Invesco Mortgage Capital
Inc. (NYSE: IVR), a real estate investment trust which is managed by the company. The company
purchased 75,000 common shares of IVR at $20.00 per share and 1,425,000 limited partner units at
$20.00 per unit through private placements for a total of $30.0 million. The company determined
that IVR is a VIE and that its investment represents a variable interest. The company’s ownership
interests, which are classified as equity method investments on the company’s Consolidated Balance
Sheets, combined with its other interests (management fees), were quantitatively assessed to
determine if the company is the primary beneficiary of IVR. The company determined that it did not
absorb the majority of the expected gains or losses from IVR and therefore is not its primary
beneficiary.
At March 31, 2010, the company’s maximum risk of loss in significant VIEs in which the company
is not the primary beneficiary is presented in the table below.
| Company’s Maximum | ||||||||||||
| $ in millions | Footnote Reference | Carrying Value | Risk of Loss | |||||||||
|
CLO investments
|
2 | 0.4 | 0.4 | |||||||||
|
Partnership and trust investments
|
16.8 | 16.8 | ||||||||||
|
Investments in Invesco Mortgage Capital Inc.
|
31.3 | 31.3 | ||||||||||
|
Support agreements*
|
12 | (2.5 | ) | 36.0 | ||||||||
|
|
||||||||||||
|
Total
|
84.5 | |||||||||||
|
|
||||||||||||
| * | As of March 31, 2010, the committed support under these agreements was $36 million with an internal approval mechanism to increase the maximum possible support to $66 million at the option of the company. |
FASB Statement No. 167, which was effective January 1, 2010, had a significant impact on the
presentation of the company’s financial statements, as its provisions required the company to
consolidate certain CLOs that were not previously consolidated. The cumulative effect adjustment
upon adoption of FASB Statement No. 167 at January 1, 2010, resulted in an appropriation of
retained earnings and a reclassification of other comprehensive income into retained earnings of
$274.3 million and $5.2 million, respectively. The company’s Consolidated Statement of Income for
the three months ended March 31, 2010, reflect the elimination of $8.7 million in management fees
earned from these CLOs, and the addition of $52.5 million in interest income, $20.8 million in
interest expense, and $85.1 million in net other gains. The $105.8 million net income impact during
the three months ended March 31, 2010, of consolidation of these CLOs is largely offset by
gains/(losses) attributable to investors in noncontrolling interests of $104.4 million. Prior to
the adoption of FASB Statement No. 167, the company accounted for its investments in these CLOs as
available-for-sale investments, with changes in the value of the company’s interests being recorded
through other comprehensive income. After the adoption of FASB
23
Table of Contents
Statement No. 167, the change in value of the company’s investments in these CLOs is reflected
in the company’s net income. For the three months ended March 31, 2010, the net impact to the
company of its investments in these CLOs was $1.4 million. The Condensed Consolidated Balance Sheet
at March 31, 2010, reflects the consolidation of $5.8 billion in assets held and $5.1 billion in
debt issued by these CLOs, despite the fact that the assets cannot be used by the company, nor is
the company obligated for the debt. Retained earnings appropriated for investors of consolidated
investment products of $383.8 million is presented as part of the company’s total equity,
reflecting the excess of the consolidated CLOs’ assets over their liabilities, attributable to
noncontrolling third-party investors in their consolidated CLOs at March 31, 2010. In accordance
with the standard, prior periods have not been restated to reflect the consolidation of these CLOs.
During the three months ended March 31, 2010, entities with the following balance sheets were
consolidated:
Balance Sheet
| VIEs | ||||
| $ in millions | consolidated | |||
|
During the three months ended March 31, 2010*
|
||||
|
Current assets
|
238.5 | |||
|
Non-current assets
|
5,425.8 | |||
|
|
||||
|
Total assets
|
5,664.3 | |||
|
|
||||
|
Current liabilities
|
137.9 | |||
|
Non-current liabilities
|
5,252.1 | |||
|
|
||||
|
Total liabilities
|
5,390.0 | |||
|
|
||||
|
Total equity
|
274.3 | |||
|
|
||||
|
Total liabilities and equity
|
5,664.3 | |||
|
|
||||
| * | The amounts consolidated in this table reflect the initial consolidation of CLOs at the adoption of FASB Statement No. 167 on January 1, 2010. |
During the three months ended March 31, 2009, the company deconsolidated $53.3 million of
investments held by consolidated investment products and related noncontrolling interests in
consolidated entities as a result of determining that the company is no longer the primary
beneficiary. The amounts deconsolidated from the Condensed Consolidated Balance Sheet are
illustrated in the table below. There was no net impact to the Condensed Consolidated Statement of
Income for the three months ended March 31, 2009, from the deconsolidation of these investment
products.
Balance Sheet
| Amounts | ||||
| deconsolidated | ||||
| $ in millions | under FIN 46(R) | |||
|
During three months ended March 31, 2009
|
||||
|
Current assets
|
— | |||
|
Non-current assets
|
53.3 | |||
|
|
||||
|
Total assets
|
53.3 | |||
|
|
||||
|
Current liabilities
|
— | |||
|
Non-current liabilities
|
— | |||
|
|
||||
|
Total liabilities
|
— | |||
|
|
||||
|
Equity attributable to common shareholders
|
— | |||
|
Equity attributable to noncontrolling interests in consolidated entities
|
53.3 | |||
|
|
||||
|
Total liabilities and equity
|
53.3 | |||
|
|
||||
24
Table of Contents
The following tables reflect the impact of consolidation of investment products into the
Condensed Consolidated Balance Sheets as of March 31, 2010, and December 31, 2009, and the
Condensed Consolidated Statements of Income for the three months ended March 31, 2010, and 2009.
Condensed Consolidating Balance Sheets
| Before | Other | |||||||||||||||||||||||
| $ in millions | Consolidation* | CLOs - VIEs ** | VIEs | VOEs | Eliminations | Total | ||||||||||||||||||
|
As of March 31, 2010
|
||||||||||||||||||||||||
|
Current assets
|
3,245.9 | 397.5 | 3.1 | 18.5 | (19.7 | ) | 3,645.3 | |||||||||||||||||
|
Non-current assets
|
7,067.7 | 5,420.9 | 65.4 | 619.4 | (27.2 | ) | 13,146.2 | |||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total assets
|
10,313.6 | 5,818.4 | 68.5 | 637.9 | (46.9 | ) | 16,791.5 | |||||||||||||||||
|
|
||||||||||||||||||||||||
|
Current liabilities
|
2,419.5 | 296.9 | 0.6 | 3.8 | (19.7 | ) | 2,701.1 | |||||||||||||||||
|
Long-term debt of
consolidated investment
products
|
— | 5,136.3 | — | — | (17.2 | ) | 5,119.1 | |||||||||||||||||
|
Other non-current liabilities
|
970.4 | — | — | — | — | 970.4 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total liabilities
|
3,389.9 | 5,433.2 | 0.6 | 3.8 | (36.9 | ) | 8,790.6 | |||||||||||||||||
|
|
||||||||||||||||||||||||
|
Retained earnings
attributable to investors in
consolidated investment
products
|
— | 385.2 | — | — | (1.4 | ) | 383.8 | |||||||||||||||||
|
Other equity attributable to
common shareholders
|
6,919.2 | — | 0.2 | 8.4 | (8.6 | ) | 6,919.2 | |||||||||||||||||
|
Equity attributable to
noncontrolling interests in
consolidated entities
|
4.5 | — | 67.7 | 625.7 | — | 697.9 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total liabilities and equity
|
10,313.6 | 5,818.4 | 68.5 | 637.9 | (46.9 | ) | 16,791.5 | |||||||||||||||||
|
|
||||||||||||||||||||||||
| Before | Other | |||||||||||||||||||
| $ in millions | Consolidation* | VIEs | VOEs | Eliminations | Total | |||||||||||||||
|
As of December 31, 2009
|
||||||||||||||||||||
|
Current assets
|
3,089.8 | 4.2 | 27.0 | — | 3,121.0 | |||||||||||||||
|
Non-current assets
|
7,111.8 | 67.9 | 617.1 | (8.2 | ) | 7,788.6 | ||||||||||||||
|
|
||||||||||||||||||||
|
Total assets
|
10,201.6 | 72.1 | 644.1 | (8.2 | ) | 10,909.6 | ||||||||||||||
|
|
||||||||||||||||||||
|
Current liabilities
|
2,293.6 | 0.7 | 4.1 | — | 2,298.4 | |||||||||||||||
|
Non-current liabilities
|
990.4 | — | — | — | 990.4 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total liabilities
|
3,284.0 | 0.7 | 4.1 | — | 3,288.8 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total equity attributable to common shareholders
|
6,912.9 | 0.2 | 8.0 | (8.2 | ) | 6,912.9 | ||||||||||||||
|
Equity attributable to noncontrolling interests
in consolidated entities
|
4.7 | 71.2 | 632.0 | — | 707.9 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total liabilities and equity
|
10,201.6 | 72.1 | 644.1 | (8.2 | ) | 10,909.6 | ||||||||||||||
|
|
||||||||||||||||||||
| * | The Before Consolidation column includes Invesco’s equity interest in the investment products subsequently consolidated, accounted for as equity method and available-for-sale investments. | |
| ** | The company adopted FASB Statement No. 167 on January 1, 2010, resulting in the consolidation of certain CLOs. In accordance with the standard, prior periods have not been restated to reflect the consolidation of these CLOs. Prior to January 1, 2010, the company was not deemed to be the primary beneficiary of these CLOs. |
25
Table of Contents
Condensed Consolidating Statements of Income
| Before | Other | |||||||||||||||||||||||
| $ in millions | Consolidation* | CLOs - VIEs ** | VIEs | VOEs | Eliminations | Total | ||||||||||||||||||
|
Three Months ended March 31, 2010
|
||||||||||||||||||||||||
|
Total operating revenues
|
729.5 | — | — | 0.2 | (10.6 | ) | 719.1 | |||||||||||||||||
|
Total operating expenses
|
(579.0 | ) | (11.0 | ) | (0.4 | ) | (2.4 | ) | 10.6 | (582.2 | ) | |||||||||||||
|
|
||||||||||||||||||||||||
|
Operating income
|
150.5 | (11.0 | ) | (0.4 | ) | (2.2 | ) | — | 136.9 | |||||||||||||||
|
Equity in earnings of unconsolidated affiliates
|
6.0 | — | — | — | (0.2 | ) | 5.8 | |||||||||||||||||
|
Interest income
|
1.6 | 53.1 | — | — | (0.6 | ) | 54.1 | |||||||||||||||||
|
Other investment income/(losses)
|
(2.1 | ) | 85.1 | 3.2 | 14.8 | — | 101.0 | |||||||||||||||||
|
Interest expense
|
(12.4 | ) | (21.4 | ) | — | — | 0.6 | (33.2 | ) | |||||||||||||||
|
|
||||||||||||||||||||||||
|
Income before income taxes, including gains
and losses attributable to noncontrolling
interests
|
143.6 | 105.8 | 2.8 | 12.6 | (0.2 | ) | 264.6 | |||||||||||||||||
|
Income tax provision
|
(50.1 | ) | — | — | — | — | (50.1 | ) | ||||||||||||||||
|
|
||||||||||||||||||||||||
|
Net income, including gains and losses
attributable to noncontrolling interests
|
93.5 | 105.8 | 2.8 | 12.6 | (0.2 | ) | 214.5 | |||||||||||||||||
|
(Gains)/losses attributable to noncontrolling
interests in consolidated entities, net
|
(0.1 | ) | (104.4 | ) | (2.8 | ) | (12.2 | ) | — | (119.5 | ) | |||||||||||||
|
|
||||||||||||||||||||||||
|
Net income attributable to common shareholders
|
93.4 | 1.4 | — | 0.4 | (0.2 | ) | 95.0 | |||||||||||||||||
|
|
||||||||||||||||||||||||
| Before | ||||||||||||||||||||
| $ in millions | Consolidation* | VIEs | VOEs | Eliminations | Total | |||||||||||||||
|
Three Months ended March 31, 2009
|
||||||||||||||||||||
|
Total operating revenues
|
550.2 | 0.2 | 1.2 | (3.0 | ) | 548.6 | ||||||||||||||
|
Total operating expenses
|
(485.1 | ) | (0.5 | ) | (4.2 | ) | 3.0 | (486.8 | ) | |||||||||||
|
|
||||||||||||||||||||
|
Operating income
|
65.1 | (0.3 | ) | (3.0 | ) | — | 61.8 | |||||||||||||
|
Equity in earnings of unconsolidated affiliates
|
1.3 | — | — | 1.2 | 2.5 | |||||||||||||||
|
Interest income
|
4.8 | — | — | — | 4.8 | |||||||||||||||
|
Other investment income/(losses)
|
(4.2 | ) | (14.7 | ) | (71.8 | ) | — | (90.7 | ) | |||||||||||
|
Interest expense
|
(15.9 | ) | — | — | — | (15.9 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
Income before income taxes, including gains
and losses attributable to noncontrolling
interests
|
51.1 | (15.0 | ) | (74.8 | ) | 1.2 | (37.5 | ) | ||||||||||||
|
Income tax provision
|
(20.3 | ) | — | — | — | (20.3 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
Net income, including gains and losses
attributable to noncontrolling interests
|
30.8 | (15.0 | ) | (74.8 | ) | 1.2 | (57.8 | ) | ||||||||||||
|
(Gains)/losses attributable to noncontrolling
interests in consolidated entities, net
|
(0.1 | ) | 15.0 | 73.6 | — | 88.5 | ||||||||||||||
|
|
||||||||||||||||||||
|
Net income attributable to common shareholders
|
30.7 | — | (1.2 | ) | 1.2 | 30.7 | ||||||||||||||
|
|
||||||||||||||||||||
| * | The Before Consolidation column includes Invesco’s equity interest in the investment products, accounted for as equity method and available-for-sale investments. | |
| ** | The company adopted FASB Statement No. 167 on January 1, 2010, resulting in the consolidation of certain CLOs In accordance with the standard, prior periods have not been restated to reflect the consolidation of these CLOs. Prior to January 1, 2010, the company was not deemed to be the primary beneficiary of these CLOs. |
26
Table of Contents
The carrying value of investments held and notes issued by consolidated investment products is
also their fair value. The following table presents the fair value hierarchy levels of investments
held and notes issued by consolidated investment products, which are measured at fair value as of
March 31, 2010:
| As of March 31, 2010 | ||||||||||||||||
| Quoted Prices in | Significant | |||||||||||||||
| Active Markets | Other | Significant | ||||||||||||||
| Fair Value | for Identical | Observable | Unobservable | |||||||||||||
| $ in millions | Measurements | Assets (Level 1) | Inputs (Level 2) | Inputs (Level 3) | ||||||||||||
|
Assets:
|
||||||||||||||||
|
CLO collateral assets:
|
||||||||||||||||
|
Bank loans
|
5,179.6 | — | 5,179.6 | — | ||||||||||||
|
Bonds
|
217.5 | 217.5 | — | — | ||||||||||||
|
Equity securities
|
23.8 | 23.8 | — | — | ||||||||||||
|
Private equity fund assets:
|
||||||||||||||||
|
Equity securities
|
117.9 | 8.9 | — | 109.0 | ||||||||||||
|
Investments in other private equity funds
|
556.5 | — | — | 556.5 | ||||||||||||
|
Debt securities issued by in U.S. Treasury
|
10.4 | 10.4 | — | — | ||||||||||||
|
Liabilities:
|
||||||||||||||||
|
CLO notes
|
(5,119.1 | ) | — | — | (5,119.1 | ) | ||||||||||
|
The following table presents the fair value hierarchy levels of the carrying value of
investments held by consolidated investment products, which are measured at fair value as of
December 31, 2009:
|
||||||||||||||||
| As of December 31, 2009 | ||||||||||||||||
| Quoted Prices in | Significant | |||||||||||||||
| Active Markets | Other | Significant | ||||||||||||||
| Fair Value | for Identical | Observable | Unobservable | |||||||||||||
| $ in millions | Measurements | Assets (Level 1) | Inputs (Level 2) | Inputs (Level 3) | ||||||||||||
|
Private equity fund assets:
|
||||||||||||||||
|
Equity securities
|
117.2 | 7.0 | — | 110.2 | ||||||||||||
|
Investments in other private equity funds
|
556.9 | — | — | 556.9 | ||||||||||||
|
Debt securities issued by U.S. Treasury
|
10.9 | 10.9 | — | — | ||||||||||||
The following table shows a reconciliation of the beginning and ending fair value measurements
for level 3 assets using significant unobservable inputs:
| Three Months Ended | Three Months Ended | |||||||
| $ in millions | March 31, 2010 | March 31, 2009 | ||||||
|
Beginning balance
|
667.1 | 761.0 | ||||||
|
Purchases, sales, issuances and settlements, net
|
(17.2 | ) | 2.2 | |||||
|
Gains and losses included in the Condensed Consolidated Statement of Income*
|
15.6 | (88.5 | ) | |||||
|
|
||||||||
|
Ending balance
|
665.5 | 674.7 | ||||||
|
|
||||||||
| * | Included in gains and losses of consolidated investment products in the Condensed Consolidated Statement of Income for the three months ended March 31, 2010, are $18.6 million in net unrealized gains attributable to investments held at March 31, 2010, by consolidated investment products. |
27
Table of Contents
The following table shows a reconciliation of the beginning and ending fair value measurements
for level 3 liabilities using significant unobservable inputs:
| Three Months Ended | ||||
| $ in millions | March 31, 2010* | |||
|
Beginning balance
|
(5,234.9 | ) | ||
|
Purchases, sales, issuances and settlements/prepayments, net
|
47.4 | |||
|
Gains and losses included in the Condensed Consolidated Statement of Income
|
(63.1 | ) | ||
|
Foreign exchange
|
131.5 | |||
|
|
||||
|
Ending balance
|
(5,119.1 | ) | ||
|
|
||||
| * | The company adopted FASB Statement No. 167 on January 1, 2010, resulting in the consolidation of certain CLOs. In accordance with the standard, prior periods have not been restated to reflect the consolidation of these CLOs. Prior to January 1, 2010, the company was not deemed to be the primary beneficiary of these CLOs. |
Fair value of consolidated CLOs
The collateral assets held by consolidated CLOs are primarily invested in senior secured bank
loans, bonds, and equity securities. Bank loan investments, which comprise the majority of
consolidated CLO portfolio collateral, are senior secured corporate loans from a variety of
industries, including but not limited to the aerospace and defense, broadcasting, technology,
utilities, household products, healthcare, oil and gas, and finance industries. Bank loan
investments mature at various dates between 2010 and 2027, pay interest at Libor or Euribor plus a
spread of between 0.22% and 11%, and typically range in credit rating categories from BBB down to
unrated. At March 31, 2010, the unpaid principal balance exceeded the fair value of the senior
secured bank loans and bonds by approximately $480 million. Less than 5% of the collateral assets
are in default as of March 31, 2010. CLO investments are valued based on price quotations provided
by an independent third-party pricing source. For bank loan investments, in the event that the
third-party pricing source is unable to price an investment, other relevant factors, data and
information are considered, including: i) information relating to the market for the investment,
including price quotations for and trading in the investment and interest in similar investments
and the market environment and investor attitudes towards the investment and interests in similar
investments; ii) the characteristics of and fundamental analytical data relating to the investment,
including, for senior secured corporate loans, the cost, size, current interest rate, period until
next interest rate reset, maturity and base lending rate, the terms and conditions of the senior
secured corporate loan and any related agreements, and the position of the senior secured corporate
loan in the borrower’s debt structure; iii) the nature, adequacy and value of the senior secured
corporate loan’s collateral, including the CLO’s rights, remedies and interests with respect to the
collateral; iv) for senior secured corporate loans, the creditworthiness of the borrower, based on
an evaluation of its financial condition, financial statements and information about the business,
cash flows, capital structure and future prospects; v) the reputation and financial condition of
the agent and any intermediate participants in the senior secured corporate loan; and vi) general
economic and market conditions affecting the fair value of the senior secured corporate loan.
In a typical CLO structure, notes are issued in tranches and are categorized into varying
degrees of subordination. Each tranche has a different level of credit protection or risk exposure
than another. There is generally a senior (“A”) class of securities and one or more junior
subordinated (“B,” “C,” etc.) classes that function as protective layers for the “A” class. The
senior classes have first claim on the cash that the CLO receives, and the more junior classes
receive repayment only after the more senior classes have repaid. Because of the cascading effect
between classes, this arrangement is often referred to as a cash flow waterfall. In the event that
the underlying collateral asset pool becomes insufficient to make payments on the notes, the loss
is absorbed first by the subordinated tranches, and the upper-level tranches remain unaffected
until the losses exceed the entire amount of the subordinated tranches. The senior securities are
typically AAA-rated, signifying a lower risk, while the lower-credit quality subordinated classes
receive a lower credit rating, signifying a higher risk. The most junior class (often called the
equity class) is the most exposed to payment risk. In some cases the equity class receives no
coupon (either fixed or floating), but only the residual cash flow (if any) after all the other
classes have been paid.
Notes issued by consolidated CLOs mature at various dates between 2014 and 2023 and have
a weighted average maturity of 9.7 years. The notes are issued in various tranches with different
risk profiles. The interest rates are generally variable rates based on Libor or Euribor plus a
pre-defined spread, which varies from 0.21% for the more senior tranches to 7.50% for the more
subordinated tranches. At March 31, 2010, the outstanding balance on the notes issued by
consolidated CLOs exceeds their fair value by approximately $900 million. The investors in this
debt are not affiliated with the company and have no recourse to the general credit of the company
for this debt
.
Notes issued by CLOs are recorded at fair value using an income approach, driven by
cash flows
28
Table of Contents
expected to be received from the portfolio collateral assets. Fair value is determined using
current information, notably market yields and projected cash flows of collateral assets based on
forecasted default and recovery rates that a market participant would use in determining the
current fair value of the notes, taking into account the overall credit quality of the issuers and
the company’s past experience in managing similar securities. Market yields, default rates and
recovery rates used in the company’s estimate of fair value vary based on the nature of the
investments in the underlying collateral pools. In periods of rising market yields, default rates
and lower debt recovery rates, the fair value, and therefore the carrying value, of the notes may
be adversely affected. The current liquidity constraints within the market for CLO products require
the use of certain unobservable inputs for CLO valuation. Once the undiscounted cash flows of the
collateral assets have been determined, the company applies appropriate discount rates that a
market participant would use, to determine the discounted cash flow valuation of the notes.
The significant inputs for the valuation model of the notes issued by consolidated CLOs
include a cumulative average default rate of 9%, an average long-term recovery rate of 72.8%, and
an average reinvestment rate of Libor plus 439 basis points. The discount rate applied to the
undiscounted cash flows of the collateral assets were derived by utilizing the applicable forward
rate curves and appropriate spreads.
Fair value of consolidated private equity funds
Consolidated private equity funds are generally structured as partnerships. Generally, the
investment strategy of underlying holdings in these partnerships is to seek capital appreciation
through direct investments in public or private companies with compelling business models or ideas
or through investments in partnership investments that also invest in similar private or public
companies. Various strategies may be used. Companies targeted could be distressed organizations,
targets of leveraged buyouts or fledgling companies in need of venture capital. Investees of these
consolidated investment products may not redeem their investment until the partnership liquidates.
Generally, the partnerships have a life that range from seven to twelve years unless dissolved
earlier. The general partner may extend the partnership term up to a specified period of time as
stated in the Partnership Agreement. Some partnerships allow the limited partners to cause an
earlier termination upon the occurrence of certain events as specified in the Partnership
Agreement.
For private equity partnerships, fair value is determined by reviewing each investment for the
sale of additional securities of an issuer to sophisticated investors or for investee financial
conditions and fundamentals. Publicly traded portfolio investments are carried at market value as
determined by their most recent quoted sale, or if there is no recent sale, at their most recent
bid price. For these investments held by consolidated investment products, level 1 classification
indicates that fair values have been determined using unadjusted quoted prices in active markets
for identical assets that the partnership has the ability to access. Level 2 classification may
indicate that fair values have been determined using quoted prices in active markets but give
effect to certain lock-up restrictions surrounding the holding period of the underlying
investments.
The fair value of level 3 investments held by consolidated investment products are derived
from inputs that are unobservable and which reflect the limited partnerships’ own determinations
about the assumptions that market participants would use in pricing the investments, including
assumptions about risk. These inputs are developed based on the partnership’s own data, which is
adjusted if information indicates that market participants would use different assumptions. The
partnerships which invest directly into private equity portfolio companies (direct private equity
funds) take into account various market conditions, subsequent rounds of financing, liquidity,
financial condition, purchase multiples paid in other comparable third-party transactions, the
price of securities of other companies comparable to the portfolio company, and operating results
and other financial data of the portfolio company, as applicable.
The partnerships which invest into other private equity funds (funds of funds) take into
account information received from those underlying funds, including their reported net asset values
and evidence as to their fair value approach, including consistency of their fair value
application. These investments do not trade in active markets and represent illiquid long-term
investments that generally require future capital commitments. While the partnerships’ reported
share of the underlying net asset values of the underlying funds is usually the most significant
input in arriving at fair value and is generally representative of fair value, other information
may also be used to value such investments at a premium or discount to the net asset values as
reported by the funds, including allocations of priority returns within the funds as well as any
specific conditions and events affecting the funds.
Unforeseen events might occur that would subsequently change the fair values of these
investments, but such changes would be inconsequential to the company due to its minimal
investments in these products (and the large offsetting noncontrolling interests resulting from
their consolidation). Any gains or losses resulting from valuation changes in these investments are
substantially offset by resulting changes in gains and losses attributable to noncontrolling
interests in consolidated entities and therefore do not have a
29
Table of Contents
material effect on the financial condition, operating results (including earnings per share),
liquidity or capital resources of the company’s common shareholders.
10. SHARE-BASED COMPENSATION
The company recognized total expenses of $24.2 million in the three months ended March 31,
2010 (March 31, 2009: $23.7 million) related to equity-settled share-based payment transactions.
The total income tax benefit recognized in the Consolidated Statements of Income for share-based
compensation arrangements was $8.3 million for the three months ended March 31, 2010 (March 31,
2009: $9.4 million).
Cash received from the exercise of share options granted under share-based compensation
arrangements was $3.7 million in the three months ended March 31, 2010 (March 31, 2009: $1.7
million). The total tax benefit realized from share based payment awards was $22.3 million in the
three months ended March 31, 2010 (March 31, 2009: $29.8 million).
Share Awards
Share awards are broadly classified into two categories: time-vested and performance-vested
share awards. Share awards are measured at fair value at the date of grant and are expensed, based
on the company’s estimate of shares that will eventually vest, on a straight-line or accelerated
basis over the vesting period.
Time-vested awards vest ratably over or cliff-vest at the end of a period of continued
employee service. Performance-vested awards cliff-vest at the end of or vest ratably over a defined
vesting period of continued employee service upon the company’s attainment of certain performance
criteria, generally the attainment of cumulative earnings per share growth targets at the end of
the vesting period reflecting a compound annual growth rate of between 10.0% and 15.0% per annum
during a three-year period. Time-vested and performance-vested share awards are granted in the form
of restricted share awards (RSAs) or restricted share units (RSUs). Dividends accrue directly to
the employee holder of RSAs, and cash payments in lieu of dividends are made to employee holders of
certain RSUs. There is therefore no discount to the fair value of these share awards at their grant
date. Movements on share awards priced in Pounds Sterling prior to the company’s primary share
listing moving to the New York Stock Exchange from the London Stock Exchange, which occurred on
December 4, 2007, in connection with the redomicile of the company from the U.K. to Bermuda, are
detailed below:
| Three months ended March 31, 2010 | Three months ended March 31, 2009 | |||||||||||||||||||||||
| Weighted Average | Weighted Average | |||||||||||||||||||||||
| Time- | Performance- | Grant Date | Time- | Performance- | Grant Date | |||||||||||||||||||
| Millions of shares, except fair values | Vested | Vested | Fair Value (pence) | Vested | Vested | Fair Value (pence) | ||||||||||||||||||
|
Unvested at the beginning of period
|
5.4 | 2.0 | 11.24 | 10.2 | 6.0 | 9.62 | ||||||||||||||||||
|
Forfeited during the period
|
— | (1.4 | ) | 12.02 | (0.2 | ) | — | 9.21 | ||||||||||||||||
|
Vested and distributed during the period
|
(1.0 | ) | (0.5 | ) | 8.89 | (1.4 | ) | (2.2 | ) | 8.30 | ||||||||||||||
|
|
||||||||||||||||||||||||
|
Unvested at the end of the period
|
4.4 | 0.1 | 11.83 | 8.6 | 3.8 | 10.02 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
Subsequent to the company’s primary share listing moving to the New York Stock Exchange,
shares are now priced in U.S. dollars. Movements on share awards priced in U.S. dollars are
detailed below:
| Three months ended March 31, 2010 | Three months ended March 31, 2009 | |||||||||||||||
| Weighted Average | Weighted Average | |||||||||||||||
| Time- | Grant Date | Time- | Grant Date | |||||||||||||
| Millions of shares, except fair values | Vested | Fair Value ($) | Vested | Fair Value ($) | ||||||||||||
|
Unvested at the beginning of period
|
11.6 | 15.24 | 3.5 | 26.67 | ||||||||||||
|
Granted during the period
|
6.7 | 19.61 | 8.8 | 11.43 | ||||||||||||
|
Forfeited during the period
|
— | 17.76 | — | 27.01 | ||||||||||||
|
Vested and distributed during the period
|
(2.7 | ) | 14.37 | (0.6 | ) | 26.93 | ||||||||||
|
|
||||||||||||||||
|
Unvested at the end of the period
|
15.6 | 17.26 | 11.7 | 15.28 | ||||||||||||
|
|
||||||||||||||||
Share awards outstanding at March 31, 2010, had a weighted average remaining contractual life
of 1.78 years.
30
Table of Contents
Share Options
The company has not granted awards of share options since 2005. The company maintains two
historical option plans with outstanding share options: the 2000 Share Option Plan and the No. 3
Executive Share Option Scheme.
The share option plans provided for a grant price equal to the quoted market price of the
company’s shares on the date of grant. If the options remain unexercised after a period of 10 years
from the date of grant, the options expire. Furthermore, options are forfeited if the employee
leaves the company before the options vest. The share option programs were valued using a
stochastic model (a lattice model) at grant date.
Changes in outstanding share option awards are as follows:
| Three months ended March 31, 2010 | Three months ended March 31, 2009 | |||||||||||||||
| Weighted Average | Weighted Average | |||||||||||||||
| Options | Exercise Price | Options | Exercise Price | |||||||||||||
| (millions of shares) | (£ Sterling) | (millions of shares) | (£ Sterling) | |||||||||||||
|
Outstanding at the beginning of the period
|
16.4 | 14.99 | 23.1 | 14.06 | ||||||||||||
|
Forfeited during the period
|
(0.3 | ) | 20.24 | (0.6 | ) | 17.83 | ||||||||||
|
Exercised during the period
|
(0.5 | ) | 5.16 | (0.1 | ) | 6.68 | ||||||||||
|
|
||||||||||||||||
|
Outstanding at the end of the period
|
15.6 | 15.26 | 22.4 | 14.00 | ||||||||||||
|
|
||||||||||||||||
|
Exercisable at the end of the period
|
15.6 | 15.26 | 22.4 | 14.05 | ||||||||||||
|
|
||||||||||||||||
The share option exercise prices are denominated in Pounds Sterling. Upon exercise, the Pound
Sterling exercise price will be converted to U.S. dollars using the foreign exchange rate in effect
on the exercise date. The options outstanding at March 31, 2010, had a range of exercise prices
from 50 pence to 3,360 pence, and a weighted average remaining contractual life of 2.55 years (for
options exercisable at March 31, 2010, the weighted average remaining contractual life is 2.55
years). The total intrinsic value of options exercised during the three months ended March 31, 2010
and 2009, was $5.7 million and $0.9 million, respectively. At March 31, 2010, the aggregate
intrinsic value of options outstanding and options exercisable was $66.7 million and $66.7 million,
respectively. The market price of the company’s common stock at March 31, 2010, was $21.91.
11. RETIREMENT BENEFIT PLANS
Defined Contribution Plans
The company operates defined contribution retirement benefit plans for all qualifying
employees. The assets of the plans are held separately from those of the company in funds under the
control of trustees. When employees leave the plans prior to vesting fully in the contributions,
the contributions payable by the company are reduced by the amount of forfeited contributions.
The total amounts charged to the Condensed Consolidated Statements of Income for the three
months ended March 31, 2010 and 2009, of $12.4 million and $11.9 million, respectively, represent
contributions paid or payable to these plans by the company at rates specified in the rules of the
plans. As of March 31, 2010, accrued contributions of $5.1 million (December 31, 2009:
$17.1 million) for the current year will be paid to the plans when due.
Defined Benefit Plans
The company maintains legacy defined benefit pension plans for qualifying employees of its
subsidiaries in the U.K., Ireland, Germany, Taiwan and the U.S. All defined benefit plans are
closed to new participants, and the U.S. plan benefits have been frozen. Further, during the year
ended December 31, 2009, the company terminated one of its U.S. defined benefit retirement plans.
The company also maintains a postretirement medical plan in the U.S., which was closed to new
participants in 2005. In 2006, the plan was amended to eliminate benefits for all participants who
will not meet retirement eligibility by 2008. The assets of all defined benefit schemes are held in
separate trustee-administered funds. Under the plans, the employees are generally entitled to
retirement benefits based on final salary at retirement.
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The components of net periodic benefit cost in respect of these defined benefit plans are as
follows:
| Three Months Ended March 31, | ||||||||||||||||
| Retirement Plans | Medical Plan | |||||||||||||||
| $ in millions | 2010 | 2009 | 2010 | 2009 | ||||||||||||
|
Service cost
|
(1.0 | ) | (3.3 | ) | (0.1 | ) | (0.1 | ) | ||||||||
|
Interest cost
|
(3.9 | ) | (4.9 | ) | (0.7 | ) | (0.6 | ) | ||||||||
|
Expected return on plan assets
|
3.4 | 5.3 | 0.1 | 0.1 | ||||||||||||
|
Amortization of prior service cost
|
— | — | 0.5 | 0.5 | ||||||||||||
|
Amortization of net actuarial (loss)/gain
|
(0.7 | ) | (0.3 | ) | (0.9 | ) | (1.1 | ) | ||||||||
|
|
||||||||||||||||
|
Net periodic benefit cost
|
(2.2 | ) | (3.2 | ) | (1.1 | ) | (1.2 | ) | ||||||||
|
|
||||||||||||||||
The estimated amounts of contributions expected to be paid to the plans during 2010 is $7.9
million for retirement plans, with no expected contribution to the medical plan.
12. COMMITMENTS AND CONTINGENCIES
Commitments and contingencies may arise in the ordinary course of business.
The company has transactions with various private equity, real estate and other investment
entities sponsored by the company for the investment of client assets in the normal course of
business. Many of the company’s investment products are structured as limited partnerships. The
company’s investment may take the form of the general partner or a limited partner, and the
entities are structured such that each partner makes capital commitments that are to be drawn down
over the life of the partnership as investment opportunities are identified. At March 31, 2010, the
company’s undrawn capital commitments were $84.5 million (December 31, 2009: $77.6 million).
The volatility and valuation dislocations that occurred from 2007 to the date of this Report
in certain sectors of the fixed income market have generated pricing issues in many areas of the
market. As a result of these valuation dislocations, during the fourth quarter of 2007, Invesco
elected to enter into contingent support agreements for two of its investment trusts to enable them
to sustain a stable pricing structure. These two trusts are unregistered trusts that invest in
fixed income securities and are available only to accredited investors. In December 2009, the
agreements were amended to extend the term through June 30, 2010. As of March 31, 2010, the
committed support under these agreements was $36.0 million with an internal approval mechanism to
increase the maximum possible support to $66.0 million at the option of the company. The recorded
fair value of the guarantees related to these agreements at March 31, 2010, was estimated to be
$2.5 million (December 31, 2009: $2.5 million), which was recorded in other current liabilities on
the Condensed Consolidated Balance Sheet. No payments have been made under either agreement nor has
Invesco realized any losses from the support agreements through the date of this Report. These
trusts were not consolidated because the company was not deemed to be the primary beneficiary.
A subsidiary of the company has received assessments from the Canada Revenue Agency (CRA) for
goods and services tax (GST) related to various taxation periods from April 1999 to
December 2006 in the amount of $21.2 million related to GST on sales charges collected from
investors upon the redemption of certain mutual funds. The company has objected to the assessments
and sought remedial action in the Ontario Superior Court of Justice. In November 2009, the company
was successful in such remedial action and, as a result, anticipates successfully contesting the
assessments. As a result of such actions, the CRA is currently considering its next steps and has
not responded to the company in this regard. Management believes that the CRA’s claims are
unfounded and that this assessment is unlikely to stand, and accordingly no provision has been
recorded in the Consolidated Financial Statements.
Acquisition Contingencies
Contingent consideration related to acquisitions includes the following:
| • | Earn-outs relating to the Invesco PowerShares acquisition. A contingent payment of up to $500.0 million could be due in October 2011, five years after the date of acquisition, based on compound annual growth in management fees (as defined and adjusted pursuant to the acquisition agreement) from an assumed base of $17.5 million at closing. The Year 5 management fees will be reduced by $50.0 million, for purposes of the calculation, since the second contingent payment was earned. For a compound annual growth rate (CAGR) in Year 5 below 15%, no additional payment will be made. For a CAGR in Year 5 between 15% and 75%, $5.0 million for each CAGR point above 15%, for a maximum payment of $300.0 million for a 75% CAGR. For a CAGR in Year 5 between 75% and 100%, $300.0 million, plus an additional $8.0 million for each CAGR point above 75%, for a maximum total payment of $500.0 million for a 100% CAGR. |
32
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| • | Earn-outs relating to the WL Ross acquisition. Contingent payments of up to $55.0 million are due each year for the five years following the October 2006 date of acquisition based on the size and number of future fund launches in which W.L. Ross & Co. is integrally involved. The maximum remaining contingent payments of $110.0 million would require annual fund launches to total $4.0 billion. |
On October 19, 2009, the company announced that it had entered into a definitive agreement to
acquire Morgan Stanley’s retail asset management business, including Van Kampen Investments. The
transaction was valued at $1.5 billion (subject to adjustment), consisting of payments by Invesco
of $500.0 million in cash and an aggregate of approximately 44.1 million Invesco common shares and
non-voting common equivalent preferred shares, which will result in Morgan Stanley obtaining an
approximately 9.2% equity interest in the company. The transaction has been approved by the boards
of directors of both companies and is expected to close on June 1, 2010, subject to customary
regulatory, client and fund shareholder approvals.
Legal Contingencies
Following the industry-wide regulatory investigations in 2003 and 2004, multiple lawsuits
based on market timing allegations were filed against various parties affiliated with Invesco.
These lawsuits were consolidated in the United States District Court for the District of Maryland,
together with market timing lawsuits brought against affiliates of other mutual fund companies, and
on September 29, 2004, three amended complaints were filed against company-affiliated parties: (1)
a putative shareholder class action complaint brought on behalf of shareholders of AIM funds
formerly advised by Invesco Funds Group, Inc.; (2) a derivative complaint purportedly brought on
behalf of certain AIM funds and the shareholders of such funds; and (3) an ERISA complaint
purportedly brought on behalf of participants in the company’s 401(k) plan. The company and
plaintiffs have reached settlements in principle of these lawsuits. The proposed settlements, which
are subject to court approval, call for a payment by the company of $9.8 million, recorded in
general and administrative expenses in the Consolidated Statement of Income in 2007, in exchange
for dismissal with prejudice of all pending claims. In addition, under the terms of the proposed
settlements, the company may incur certain costs in connection with providing notice of the
proposed settlements to affected shareholders. Based on information currently available, it is not
believed that any such incremental notice costs will have any material effect on the consolidated
financial position or results of operations of the company.
The asset management industry also is subject to extensive levels of ongoing regulatory
oversight and examination. In the United States and other jurisdictions in which the company
operates, governmental authorities regularly make inquiries, hold investigations and administer
market conduct examinations with respect to compliance with applicable laws and regulations.
Additional lawsuits or regulatory enforcement actions arising out of these inquiries may in the
future be filed against the company and related entities and individuals in the U.S. and other
jurisdictions in which the company and its affiliates operate. Any material loss of investor and/or
client confidence as a result of such inquiries and/or litigation could result in a significant
decline in assets under management, which would have an adverse effect on the company’s future
financial results and its ability to grow its business.
In the normal course of its business, the company is subject to various litigation matters.
Although there can be no assurances, at this time management believes, based on information
currently available to it, that it is not probable that the ultimate outcome of any of these
actions will have a material adverse effect on the consolidated financial condition or results of
operations of the company.
13. GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Prior to the December 4, 2007, redomicile of the company from the United Kingdom to Bermuda
and the relisting of the company from the London Stock Exchange to the New York Stock Exchange,
INVESCO PLC (now known as Invesco Holding Company Limited), the Issuer, issued 4.5% $300.0 million
senior notes due 2009, 5.625% $300.0 million senior notes due 2012, 5.375% $350.0 million senior
notes due 2013 and 5.375% $200.0 million senior notes due 2014. These senior notes, are fully and
unconditionally guaranteed as to payment of principal, interest and any other amounts due thereon
by Invesco Ltd. (the Parent), together with the following wholly owned subsidiaries: Invesco Aim
Management Group, Inc., Invesco Aim Advisers, Inc., Invesco North American Holdings, Inc., and
Invesco Institutional (N.A.), Inc. (the Guarantors). On June 9, 2009, IVZ, Inc. also became a
guarantor of the senior notes. On December 31, 2009, Invesco Aim Advisors, Inc. merged with Invesco
Institutional (N.A.), Inc., which was renamed Invesco Advisors, Inc. The company’s remaining
consolidated subsidiaries do not guarantee this debt. The guarantees of each of the Guarantors are
joint and several. Presented below are Condensed Consolidating Balance Sheets as of March 31, 2010,
and December 31, 2009, Condensed Consolidating Statements of Income for the three months ended
March 31, 2010 and 2009, and Condensed Consolidating Statements of Cash Flows for the three months
ended March 31, 2010 and 2009.
33
Table of Contents
Condensed Consolidating Balance Sheets
| Non- | ||||||||||||||||||||||||
| $ in millions | Guarantors | Guarantors | Issuer | Parent | Eliminations | Consolidated | ||||||||||||||||||
|
As of March 31, 2010
|
||||||||||||||||||||||||
|
Assets held for policyholders
|
— | 1,221.0 | — | — | — | 1,221.0 | ||||||||||||||||||
|
Other current assets
|
195.9 | 2,178.6 | 3.0 | 46.8 | — | 2,424.3 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total current assets
|
195.9 | 3,399.6 | 3.0 | 46.8 | — | 3,645.3 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Goodwill
|
2,302.8 | 3,687.0 | 436.0 | — | — | 6,425.8 | ||||||||||||||||||
|
Investments in subsidiaries
|
309.2 | 5.7 | 4,847.1 | 6,936.7 | (12,098.7 | ) | — | |||||||||||||||||
|
Other non-current assets
|
260.0 | 6,452.2 | 4.9 | 3.3 | — | 6,720.4 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total assets
|
3,067.9 | 13,544.5 | 5,291.0 | 6,986.8 | (12,098.7 | ) | 16,791.5 | |||||||||||||||||
|
|
||||||||||||||||||||||||
|
Policyholder payables
|
— | 1,221.0 | — | — | — | 1,221.0 | ||||||||||||||||||
|
Other current liabilities
|
26.6 | 1,448.1 | 4.7 | 0.7 | — | 1,480.1 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total current liabilities
|
26.6 | 2,669.1 | 4.7 | 0.7 | — | 2,701.1 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Intercompany balances
|
834.4 | (1,638.6 | ) | 732.1 | 72.1 | — | — | |||||||||||||||||
|
Non-current liabilities
|
29.8 | 5,314.0 | 745.7 | — | — | 6,089.5 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total liabilities
|
890.8 | 6,344.5 | 1,482.5 | 72.8 | — | 8,790.6 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total equity attributable to common shareholders
|
2,177.1 | 6,502.1 | 3,808.5 | 6,914.0 | (12,098.7 | ) | 7,303.0 | |||||||||||||||||
|
Equity attributable to noncontrolling interests
in consolidated entities
|
— | 697.9 | — | — | — | 697.9 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total equity
|
2,177.1 | 7,200.0 | 3,808.5 | 6,914.0 | (12,098.7 | ) | 8,000.9 | |||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total liabilities and equity
|
3,067.9 | 13,544.5 | 5,291.0 | 6,986.8 | (12,098.7 | ) | 16,791.5 | |||||||||||||||||
|
|
||||||||||||||||||||||||
| Non- | ||||||||||||||||||||||||
| $ in millions | Guarantors | Guarantors | Issuer | Parent | Eliminations | Consolidated | ||||||||||||||||||
|
As of December 31, 2009
|
||||||||||||||||||||||||
|
Assets held for policyholders
|
— | 1,283.0 | — | — | — | 1,283.0 | ||||||||||||||||||
|
Other current assets
|
211.5 | 1,591.7 | 3.1 | 31.7 | — | 1,838.0 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total current assets
|
211.5 | 2,874.7 | 3.1 | 31.7 | — | 3,121.0 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Goodwill
|
2,302.8 | 3,709.4 | 455.4 | — | — | 6,467.6 | ||||||||||||||||||
|
Investments in subsidiaries
|
714.9 | 5.7 | 4,697.7 | 6,859.3 | (12,277.6 | ) | — | |||||||||||||||||
|
Other non-current assets
|
147.5 | 1,165.2 | 4.9 | 3.4 | — | 1,321.0 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total assets
|
3,376.7 | 7,755.0 | 5,161.1 | 6,894.4 | (12,277.6 | ) | 10,909.6 | |||||||||||||||||
|
|
||||||||||||||||||||||||
|
Policyholder payables
|
— | 1,283.0 | — | — | — | 1,283.0 | ||||||||||||||||||
|
Other current liabilities
|
35.7 | 972.2 | 7.1 | 0.4 | — | 1,015.4 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total current liabilities
|
35.7 | 2,255.2 | 7.1 | 0.4 | — | 2,298.4 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Intercompany balances
|
956.8 | (1,660.0 | ) | 722.1 | (18.9 | ) | — | — | ||||||||||||||||
|
Non-current liabilities
|
31.5 | 213.1 | 745.8 | — | — | 990.4 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total liabilities
|
1,024.0 | 808.3 | 1,475.0 | (18.5 | ) | — | 3,288.8 | |||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total equity attributable to common shareholders
|
2,352.7 | 6,238.8 | 3,686.1 | 6,912.9 | (12,277.6 | ) | 6,912.9 | |||||||||||||||||
|
|
||||||||||||||||||||||||
|
Equity attributable to noncontrolling interests
in consolidated entities
|
— | 707.9 | — | — | — | 707.9 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total equity
|
2,352.7 | 6,946.7 | 3,686.1 | 6,912.9 | (12,277.6 | ) | 7,620.8 | |||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total liabilities and equity
|
3,376.7 | 7,755.0 | 5,161.1 | 6,894.4 | (12,277.6 | ) | 10,909.6 | |||||||||||||||||
|
|
||||||||||||||||||||||||
34
Table of Contents
Condensed Consolidating Statements of Income
| Non- | ||||||||||||||||||||||||
| $ in millions | Guarantors | Guarantors | Issuer | Parent | Eliminations | Consolidated | ||||||||||||||||||
|
For the three months ended March 31, 2010
|
||||||||||||||||||||||||
|
Total operating revenues
|
181.2 | 537.9 | — | — | — | 719.1 | ||||||||||||||||||
|
Total operating expenses
|
140.4 | 438.7 | 0.6 | 2.5 | — | 582.2 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Operating income/(loss)
|
40.8 | 99.2 | (0.6 | ) | (2.5 | ) | — | 136.9 | ||||||||||||||||
|
Equity in earnings of unconsolidated affiliates
|
(0.4 | ) | 6.0 | 49.4 | 99.9 | (149.1 | ) | 5.8 | ||||||||||||||||
|
Other income/(expense)
|
(18.0 | ) | 156.9 | (14.6 | ) | (2.4 | ) | — | 121.9 | |||||||||||||||
|
|
||||||||||||||||||||||||
|
Income/(loss) before income taxes, including
gains and losses attributable to
noncontrolling interests
|
22.4 | 262.1 | 34.2 | 95.0 | (149.1 | ) | 264.6 | |||||||||||||||||
|
Income tax provision
|
(17.4 | ) | (36.8 | ) | 4.1 | — | — | (50.1 | ) | |||||||||||||||
|
|
||||||||||||||||||||||||
|
Net income, including gains and losses
attributable to noncontrolling interests
|
5.0 | 225.3 | 38.3 | 95.0 | (149.1 | ) | 214.5 | |||||||||||||||||
|
Losses attributable to noncontrolling
interests in consolidated entities, net
|
— | (119.5 | ) | — | — | — | (119.5 | ) | ||||||||||||||||
|
|
||||||||||||||||||||||||
|
Net income attributable to common shareholders
|
5.0 | 105.8 | 38.3 | 95.0 | (149.1 | ) | 95.0 | |||||||||||||||||
|
|
||||||||||||||||||||||||
| Non- | ||||||||||||||||||||||||
| $ in millions | Guarantors | Guarantors | Issuer | Parent | Eliminations | Consolidated | ||||||||||||||||||
|
For the three months ended March 31, 2009
|
||||||||||||||||||||||||
|
Total operating revenues
|
117.5 | 431.1 | — | — | — | 548.6 | ||||||||||||||||||
|
Total operating expenses
|
91.8 | 390.1 | 0.9 | 4.0 | — | 486.8 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Operating income/(losses)
|
25.7 | 41.0 | (0.9 | ) | (4.0 | ) | — | 61.8 | ||||||||||||||||
|
Equity in earnings of unconsolidated affiliates
|
2.2 | 18.4 | 19.8 | 37.0 | (74.9 | ) | 2.5 | |||||||||||||||||
|
Other income/(expense)
|
(0.7 | ) | (85.4 | ) | (13.4 | ) | (2.3 | ) | — | (101.8 | ) | |||||||||||||
|
|
||||||||||||||||||||||||
|
Income/(losses) before income taxes and
noncontrolling interest
|
27.2 | (26.0 | ) | 5.5 | 30.7 | (74.9 | ) | (37.5 | ) | |||||||||||||||
|
Income tax provision
|
(8.7 | ) | 4.3 | (15.9 | ) | — | — | (20.3 | ) | |||||||||||||||
|
|
||||||||||||||||||||||||
|
Net (loss)/ income, including losses
attributable to noncontrolling interests
|
18.5 | (21.7 | ) | (10.4 | ) | 30.7 | (74.9 | ) | (57.8 | ) | ||||||||||||||
|
Losses attributable to the noncontrolling
interests in consolidated entities, net of tax
|
— | 88.5 | — | — | — | 88.5 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Net income attributable to common shareholders
|
18.5 | 66.8 | (10.4 | ) | 30.7 | (74.9 | ) | 30.7 | ||||||||||||||||
|
|
||||||||||||||||||||||||
Condensed Consolidating Statements of Cash Flows
| Non- | ||||||||||||||||||||||||
| $ in millions | Guarantors | Guarantors | Issuer | Parent | Eliminations | Consolidated | ||||||||||||||||||
|
For the three months ended March 31, 2010
|
||||||||||||||||||||||||
|
Net cash (used in)/provided by operating activities
|
(7.3 | ) | (291.4 | ) | 59.4 | 78.6 | (16.3 | ) | (177.0 | ) | ||||||||||||||
|
Net cash (used in)/provided by investing activities
|
(26.9 | ) | 283.0 | (59.3 | ) | (62.7 | ) | — | 134.1 | |||||||||||||||
|
Net cash (used in)/provided by financing activities
|
— | (124.3 | ) | — | (1.3 | ) | 16.3 | (109.3 | ) | |||||||||||||||
|
|
||||||||||||||||||||||||
|
(Decrease)/increase in cash and cash equivalents
|
(34.2 | ) | (132.7 | ) | 0.1 | 14.6 | — | (152.2 | ) | |||||||||||||||
|
|
||||||||||||||||||||||||
| Non- | ||||||||||||||||||||||||
| $ in millions | Guarantors | Guarantors | Issuer | Parent | Eliminations | Consolidated | ||||||||||||||||||
|
For the three months ended March 31, 2009
|
||||||||||||||||||||||||
|
Net cash (used in)/provided by operating activities
|
(17.1 | ) | 50.6 | 6.1 | (15.7 | ) | (203.9 | ) | (180.0 | ) | ||||||||||||||
|
Net cash (used in)/provided by investing activities
|
(1.0 | ) | (1.6 | ) | — | — | — | (2.6 | ) | |||||||||||||||
|
Net cash (used in)/provided by financing activities
|
— | (273.7 | ) | (7.5 | ) | 15.7 | 203.9 | (61.6 | ) | |||||||||||||||
|
|
||||||||||||||||||||||||
|
(Decrease)/increase in cash and cash equivalents
|
(18.1 | ) | (224.7 | ) | (1.4 | ) | — | — | (244.2 | ) | ||||||||||||||
|
|
||||||||||||||||||||||||
35
Table of Contents
14. SUBSEQUENT EVENTS
On April 27, 2010, the company declared a first quarter 2010 dividend of 11 cents per share,
payable on June 9, 2010, to shareholders of record at the close of business on May 24, 2010.
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
The following Management’s Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Condensed Consolidated Financial Statements and
related Notes thereto, which appear elsewhere in this Report. Except for the historical financial
information, this Report may include statements that constitute “forward-looking statements” under
the United States securities laws. Forward-looking statements include information concerning
possible or assumed future results of our operations, expenses, earnings, liquidity, cash flows and
capital expenditures, industry or market conditions, assets under management, acquisition
activities and the effect of completed acquisitions, debt levels and our ability to obtain
additional financing or make payments on our debt, regulatory developments, demand for and pricing
of our products and other aspects of our business or general economic conditions. In addition, when
used in this Report, the documents incorporated by reference herein or such other documents or
statements, words such as “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,”
“projects,” “forecasts,” and future or conditional verbs such as “will,” “may,” “could,” “should,”
and “would,” and any other statement that necessarily depends on future events, are intended to
identify forward-looking statements.
Forward-looking statements are not guarantees of performance. They involve risks,
uncertainties and assumptions. Although we make such statements based on assumptions that we
believe to be reasonable, there can be no assurance that actual results will not differ materially
from our expectations. We caution investors not to rely unduly on any forward-looking statements
and urge you to carefully consider the risks described in our most recent Form 10-K and subsequent
Forms 10-Q, filed with the Securities and Exchange Commission.
References
In this Report, unless otherwise specified, the terms “we,” “our,” “us,” “company,” “Invesco,”
and “Invesco Ltd.” refer to Invesco Ltd., a company incorporated in Bermuda, and its subsidiaries.
Executive Overview
The following executive overview summarizes the significant trends affecting our results of
operations and financial condition for the periods presented. This overview and the remainder of
this management’s discussion and analysis supplements, and should be read in conjunction with, the
Condensed Consolidated Financial Statements of Invesco Ltd. and its subsidiaries and the notes
thereto contained elsewhere in this Report.
Invesco is a leading independent global investment manager with offices in 20 countries. As of
March 31, 2010, we managed $419.6 billion in assets for retail, institutional and high-net-worth
investors around the world. By delivering the combined power of our distinctive worldwide
investment management capabilities, Invesco provides a comprehensive array of enduring solutions
for our clients. We have a significant presence in the institutional and retail segments of the
investment management industry in North America, Europe and Asia-Pacific, with clients in more than
100 countries.
Most global equity markets experienced solid gains in the three months ended March 31, 2010,
with the exception being the MSCI Europe and the China Shanghai Composite indices. The table below
summarizes the first quarter returns of several market indices:
| Three months ended | Three months ended | |||||||
| Index | March 31, 2010 | March 31, 2009 | ||||||
|
S&P 500
|
4.9 | % | (11.7 | )% | ||||
|
FTSE 100
|
4.9 | % | (11.5 | )% | ||||
|
Nikkei 225
|
5.2 | % | (8.5 | )% | ||||
|
MSCI Emerging Market Index
|
2.1 | % | 0.5 | % | ||||
36
Table of Contents
U.S. equity indices extended their rally during the first quarter of 2010 despite a sell off
in February triggered by continued global economic and political uncertainty. The trends that
bolstered share prices in 2009 remained prevalent in the first quarter as corporate earnings again
came in stronger than expectations and leading economic indicators suggested the troubled U.S.
economy was recovering. Share prices in Europe were pressured by sluggish economic data and the
heightened risk of sovereign default, notably in Greece. As a result, the MSCI Europe index
declined 1.7% in the quarter. Chinese equities also declined with the Shanghai Composite Index
declining 5.1% as the government began to unwind the fiscal and monetary stimulus that was
introduced in 2009 to counter the global financial crisis.
Despite the fear of rising interest rates and uncertainty over the credit worthiness of some
European governments, credit markets performed well in the first quarter of 2010. The combination
of record low interest rates, which pushed investors to seek higher yields, credit spreads
tightening to two year lows, resulted in a large demand for corporate bonds. High yield bonds were
especially in favor as total issuance for the quarter was a record.
A significant portion of our business and assets under management (AUM) is based outside of
the U.S. The strengthening or weakening of the U.S. dollar against other currencies, primarily the
Pound Sterling and the Canadian dollar, will impact our reported revenues and expenses from period
to period. Additionally, our revenues are directly influenced by the level and composition of our
AUM. Therefore, movements in global capital market levels, net new business inflows (or outflows)
and changes in the mix of investment products between asset classes and geographies may materially
affect our revenues from period to period. The returns from most global capital markets increased
in the three months ended March 31, 2010, which resulted in market gains for our AUM of $7.8
billion during the period; however the change in foreign exchange rates reduced AUM by $4.4
billion. AUM at March 31, 2010, was $419.6 billion.
Summary operating information is presented in the table below:
| Three months ended March 31, | ||||||||
| U.S. GAAP Financial Measures Summary | 2010 | 2009 | ||||||
|
Operating revenues
|
$ | 719.1 | m | $ | 548.6 | m | ||
|
Operating margin
|
19.0 | % | 11.3 | % | ||||
|
Net income attributable to common shareholders
|
$ | 95.0 | m | $ | 30.7 | m | ||
|
Diluted EPS
|
$ | 0.21 | $ | 0.08 | ||||
|
Average assets under management (in billions)
|
$ | 417.6 | $ | 351.0 | ||||
| Three months ended March 31, | ||||||||
| Non-GAAP Financial Measures Summary | 2010 | 2009 | ||||||
|
Net revenues
(1)
|
$ | 544.4 | m | $ | 411.6 | m | ||
|
Adjusted cash operating margin
(2)
|
33.6 | % | 19.2 | % | ||||
|
Adjusted cash net income
(3)
|
$ | 120.0 | m | $ | 42.4 | m | ||
|
Adjusted cash EPS
(3)
|
$ | 0.27 | $ | 0.11 | ||||
|
Average assets under management (in billions)
|
$ | 417.6 | $ | 351.0 | ||||
| (1) | Net revenues are operating revenues less third-party distribution, service and advisory expenses, plus our proportional share of the net revenues of our joint venture investments, plus management fees earned from, less other revenue recorded by, consolidated investment products. See “Schedule of Non-GAAP Information” for the reconciliation of operating revenues to net revenues. | |
| (2) | Adjusted cash operating margin is adjusted cash operating income divided by net revenues. Adjusted cash operating income includes operating income plus our proportional share of the operating income of our joint venture investments, transaction and integration charges, amortization of acquisition-related prepaid compensation and other intangibles, and the operating income impact of the consolidation of investment products. See “Schedule of Non-GAAP Information” for the reconciliation of operating income to adjusted cash operating income. | |
| (3) | Adjusted cash net income is net income attributable to common shareholders adjusted to add back transaction and integration charges, amortization of acquisition-related prepaid compensation and other intangibles, and the tax cash flow benefits resulting from tax amortization of goodwill and indefinite-lived intangible assets. Adjusted cash net income excludes the net income of consolidated investment products, and the net income impact of deferred compensation plans. By calculation, adjusted cash EPS is adjusted cash net income divided by the weighted average number of shares outstanding (for diluted EPS). See “Schedule of Non-GAAP Information” for the reconciliation of net income to adjusted net income. |
37
Table of Contents
On October 19, 2009, the company announced that it entered into a definitive agreement to
acquire Morgan Stanley’s retail asset management business, including Van Kampen Investments. The
transaction was valued at $1.5 billion (subject to adjustment), consisting of payments by Invesco
of $500.0 million in cash and an aggregate of approximately 44.1 million Invesco common shares and
non-voting common equivalent preferred shares, which will result in Morgan Stanley obtaining an
approximately 9.2% equity interest in our company. The transaction has been approved by the boards
of directors of both companies and is expected to close on June 1, 2010, subject to customary
regulatory, client and fund shareholder approvals.
Investment Capabilities Performance Overview
Invesco’s first strategic priority is to achieve strong investment performance over the
long-term for our clients. Performance in our equities capabilities, as measured by the percentage
of AUM ahead of benchmark and ahead of peer median, has generally been strong with some pockets of
outstanding performance and some areas where we have been challenged. Within our equity asset
class, U.S. Core, Continental European, and Global ex-U.S. and Emerging Markets have generally had
strong relative performance versus competitors and versus benchmark over three- and five-year
periods. Investment performance in our U.S. Growth and Canadian equities has lagged, while U.S.
Value Equity has had strong performance against the benchmark on a one- and three- year basis. On a
one-year basis, U.K. equity performance has lagged against both competitors and benchmarks; however
long-term performance remains strong. Within our fixed income asset class, the global fixed income
products have had at least 68% of AUM ahead of benchmark and peers over one-, three-, and five-year
periods. Our money market capability had at least 95% of AUM ahead of peers on a one-, three-, and
five-year basis.
| Benchmark Comparison | Peer Group Comparison | |||||||||||||||||||||||||
| % of AUM Ahead of | % of AUM In Top Half of | |||||||||||||||||||||||||
| Benchmark | Peer Group | |||||||||||||||||||||||||
| 1yr | 3yr | 5yr | 1yr | 3yr | 5yr | |||||||||||||||||||||
|
Equities
|
U.S. Core | 15 | % | 90 | % | 96 | % | 13 | % | 60 | % | 87 | % | |||||||||||||
|
|
U.S. Growth | 9 | % | 21 | % | 57 | % | 9 | % | 21 | % | 33 | % | |||||||||||||
|
|
U.S. Value | 93 | % | 93 | % | 24 | % | 83 | % | 9 | % | 9 | % | |||||||||||||
|
|
Sector | 78 | % | 75 | % | 75 | % | 43 | % | 61 | % | 43 | % | |||||||||||||
|
|
U.K. | 1 | % | 91 | % | 92 | % | 3 | % | 90 | % | 94 | % | |||||||||||||
|
|
Canadian | 38 | % | 3 | % | 3 | % | 38 | % | 2 | % | 23 | % | |||||||||||||
|
|
Asian | 62 | % | 62 | % | 66 | % | 58 | % | 57 | % | 60 | % | |||||||||||||
|
|
Continental European | 54 | % | 72 | % | 94 | % | 56 | % | 85 | % | 87 | % | |||||||||||||
|
|
Global | 52 | % | 44 | % | 80 | % | 45 | % | 40 | % | 37 | % | |||||||||||||
|
|
Global Ex U.S. and Emerging Markets | 52 | % | 95 | % | 97 | % | 56 | % | 98 | % | 98 | % | |||||||||||||
|
|
||||||||||||||||||||||||||
|
Balanced
|
Balanced | 75 | % | 47 | % | 53 | % | 57 | % | 41 | % | 53 | % | |||||||||||||
|
|
||||||||||||||||||||||||||
|
Fixed Income
|
Money Market | 73 | % | 74 | % | 71 | % | 95 | % | 95 | % | 95 | % | |||||||||||||
|
|
U.S. Fixed Income | 77 | % | 60 | % | 68 | % | 42 | % | 78 | % | 78 | % | |||||||||||||
|
|
Global Fixed Income | 86 | % | 68 | % | 86 | % | 91 | % | 78 | % | 75 | % | |||||||||||||
| Note: | AUM measured in the one-, three-, and five-year peer group rankings represents 67%, 66%, and 64% of total Invesco AUM, respectively, and AUM measured versus benchmark on a one-, three-, and five-year basis represents 82%, 79%, and 73% of total Invesco AUM, respectively, as of 3/31/10. Peer group rankings are sourced from a widely-used third party ranking agency in each fund’s market (Lipper, Morningstar, Russell, Mercer, eVestment Alliance, SITCA) and asset-weighted in USD. Rankings are as of prior quarter-end for most institutional products and prior month-end for Australian retail funds due to their late release by third parties. Rankings for the most representative fund in each GIPS composite are applied to all products within each GIPS composite. Excludes Invesco PowerShares, W.L. Ross & Co., Invesco Private Capital, non-discretionary direct real estate products and CLOs. Certain funds and products were excluded from the analysis because of limited benchmark or peer group data. Had these been available, results may have been different. These results are preliminary and subject to revision. Performance assumes the reinvestment of dividends. Past performance is not indicative of future results and may not reflect an investor’s experience. |
38
Table of Contents
Results of Operations for the three months ended March 31, 2010, Compared with the three months ended March 31, 2009
Assets Under Management
AUM at March 31, 2010, were $419.6 billion (December 31, 2009: $423.1 billion; March 31, 2009:
$348.2 billion). The decline in AUM during the three months ended March 31, 2010, was due to the
impact of less favorable foreign exchange rates and net outflows in institutional money market
funds, partially offset by net inflows in long-term AUM and market gains. Average AUM during the
three months ended March 31, 2010, were $417.6 billion, compared to $351.0 billion for the three
months ended March 31, 2009. Foreign exchange rate movements led to a $4.4 billion decrease in AUM
during the period compared to a $2.0 billion decrease in the comparative 2009 period. Institutional
money market net outflows were $10.6 billion during the period compared to net inflows of $8.6
billion in the comparative 2009 period. Long-term net inflows during the period were $3.7 billion
compared to long-term net inflows of $0.7 billion in the comparative 2009 period. Market gains led
to a $7.8 billion increase in AUM during the period compared to a reduction of $16.3 billion in the
comparative 2009 period.
Net revenue yield on AUM increased 5.2 basis points to 52.1 basis points in the three months
ended March 31, 2010, from the three months ended March 31, 2009, level of 46.9 basis
points, resulting from a 32.3% increase in net revenues and a 19.0% increase in average AUM from
the three months ended March 31, 2009. Market driven changes in our asset mix significantly impact
our net revenue yield calculation. Our equity AUM generally earn a higher net revenue rate than
money market AUM. At March 31, 2010, equity AUM comprised 42.2%, or $177.1 billion, of our total
AUM, an increase of 54.8% from $114.4 billion at March 31, 2009. During the three months ended
March 31, 2010, our equity AUM increased in line with the increases in equity markets
globally from December 31, 2009, whereas our institutional money market AUM decreased from December
31, 2009, principally due to net outflows.
Gross revenue yield on AUM increased 6.4 basis points to 69.5 basis points in the three months
ended March 31, 2010, from the three months ended March 31, 2009, level of 63.1 basis points. Gross
revenue yield, the most comparable U.S. GAAP-based measure to net revenue yield, is not considered
a meaningful effective fee rate measure. The numerator of the gross revenue yield measure,
operating revenues, excludes the management fees earned from consolidated investment products;
however the denominator of the measure includes the AUM of these investment products. Therefore,
the gross revenue yield measure is not considered representative of the company’s true effective
fee rate from AUM. The company evaluates net revenue yield instead. See “Schedule of Non-GAAP
Information” for a reconciliation of operating revenues (gross revenues) to net revenues.
39
Table of Contents
Changes in AUM were as follows:
| $ in billions | 2010 | 2009 | |||||||
|
|
|||||||||
|
January 1
|
423.1 | 357.2 | |||||||
|
Long-term inflows
|
21.1 | 14.3 | |||||||
|
Long-term outflows
|
(17.4 | ) | (13.6 | ) | |||||
|
|
|||||||||
|
Long-term net flows
|
3.7 | 0.7 | |||||||
|
Net flows in money market funds
|
(10.6 | ) | 8.6 | ||||||
|
Market gains and losses/reinvestment
|
7.8 | (16.3 | ) | ||||||
|
Foreign currency translation
|
(4.4 | ) | (2.0 | ) | |||||
|
|
|||||||||
|
March 31
|
419.6 | 348.2 | |||||||
|
|
|||||||||
|
Average long-term AUM
|
342.3 | 264.9 | |||||||
|
Average institutional money market AUM
|
75.3 | 86.1 | |||||||
|
|
|||||||||
|
Average AUM
|
417.6 | 351.0 | |||||||
|
|
|||||||||
|
Gross revenue yield on AUM
(1)
|
69.5bps | 63.1bps | |||||||
|
Gross revenue yield on AUM before performance fees
(1)
|
69.4bps | 61.8bps | |||||||
|
Net revenue yield on AUM
(2)
|
52.1bps | 46.9bps | |||||||
|
Net revenue yield on AUM before performance fees
(2)
|
52.0bps | 45.7bps | |||||||
| (1) | Gross revenue yield on AUM is equal to annualized total operating revenues divided by average AUM, excluding joint venture (JV) AUM. Our share of the average AUM in the first quarter for our JVs in China was $3.8 billion (fourth quarter 2009: $3.9 billion; first quarter 2009: $3.2 billion). It is appropriate to exclude the average AUM of our JVs for purposes of computing gross revenue yield on AUM, because the revenues resulting from these AUM are not presented in our operating revenues. Under U.S. GAAP, our share of the pre-tax earnings of the JVs is recorded as equity in earnings of unconsolidated affiliates on our Condensed Consolidated Statements of Income. Gross revenue yield, the most comparable U.S. GAAP-based measure to net revenue yield, is not considered a meaningful effective fee rate measure. The numerator of the gross revenue yield measure, operating revenues, excludes the management fees earned from consolidated investment products; however the denominator of the measure includes the AUM of these investment products. Therefore, the gross revenue yield measure is not considered representative of the company’s true effective fee rate from AUM. The company evaluates net revenue yield instead. See “Schedule of Non-GAAP Information” for a reconciliation of operating revenues (gross revenues) to net revenues. | |
| (2) | Net revenue yield on AUM is equal to annualized net revenues divided by average AUM. See the Schedule of Non-GAAP Information for a reconciliation of operating revenues to net revenues. |
40
Table of Contents
Our AUM by channel, by asset class, and by client domicile were as follows:
AUM by Channel
| Private | ||||||||||||||||
| Wealth | ||||||||||||||||
| $ in billions | Total | Retail | Institutional | Management | ||||||||||||
|
|
||||||||||||||||
|
December 31, 2009 AUM
|
423.1 | 206.9 | 201.0 | 15.2 | ||||||||||||
|
Long-term inflows
|
21.1 | 13.5 | 6.8 | 0.8 | ||||||||||||
|
Long-term outflows
|
(17.4 | ) | (12.8 | ) | (4.1 | ) | (0.5 | ) | ||||||||
|
|
||||||||||||||||
|
Long-term net flows
|
3.7 | 0.7 | 2.7 | 0.3 | ||||||||||||
|
Net flows in money market funds
|
(10.6 | ) | — | (10.6 | ) | — | ||||||||||
|
Market gains and losses/reinvestment
|
7.8 | 6.6 | 1.0 | 0.2 | ||||||||||||
|
Foreign currency translation
|
(4.4 | ) | (3.6 | ) | (0.8 | ) | — | |||||||||
|
|
||||||||||||||||
|
March 31, 2010 AUM
|
419.6 | 210.6 | 193.3 | 15.7 | ||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
December 31, 2008 AUM
(1)
|
357.2 | 149.3 | 194.6 | 13.3 | ||||||||||||
|
Long-term inflows
|
14.3 | 9.6 | 3.2 | 1.5 | ||||||||||||
|
Long-term outflows
|
(13.6 | ) | (8.5 | ) | (3.7 | ) | (1.4 | ) | ||||||||
|
|
||||||||||||||||
|
Long-term net flows
|
0.7 | 1.1 | (0.5 | ) | 0.1 | |||||||||||
|
Net flows in money market funds
|
8.6 | — | 8.6 | — | ||||||||||||
|
Market gains and losses/reinvestment
|
(16.3 | ) | (12.4 | ) | (3.5 | ) | (0.4 | ) | ||||||||
|
Foreign currency translation
|
(2.0 | ) | (1.2 | ) | (0.8 | ) | — | |||||||||
|
|
||||||||||||||||
|
March 31, 2009 AUM
|
348.2 | 136.8 | 198.4 | 13.0 | ||||||||||||
|
|
||||||||||||||||
AUM by Asset Class
| Fixed | Money | |||||||||||||||||||||||
| $ in billions | Total | Equity | Income | Balanced | Market | Alternatives (2) | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
December 31, 2009 AUM
|
423.1 | 173.4 | 75.2 | 41.5 | 83.5 | 49.5 | ||||||||||||||||||
|
Long-term inflows
|
21.1 | 10.7 | 6.5 | 1.8 | 0.3 | 1.8 | ||||||||||||||||||
|
Long-term outflows
|
(17.4 | ) | (9.4 | ) | (4.5 | ) | (1.7 | ) | (0.6 | ) | (1.2 | ) | ||||||||||||
|
|
||||||||||||||||||||||||
|
Long-term net flows
|
3.7 | 1.3 | 2.0 | 0.1 | (0.3 | ) | 0.6 | |||||||||||||||||
|
Net flows in money market funds
|
(10.6 | ) | — | — | — | (10.6 | ) | — | ||||||||||||||||
|
Market gains and losses/reinvestment
|
7.8 | 5.4 | 1.3 | 1.0 | — | 0.1 | ||||||||||||||||||
|
Foreign currency translation
|
(4.4 | ) | (3.0 | ) | (0.7 | ) | (0.4 | ) | — | (0.3 | ) | |||||||||||||
|
|
||||||||||||||||||||||||
|
March 31, 2010 AUM
|
419.6 | 177.1 | 77.8 | 42.2 | 72.6 | (3) | 49.9 | |||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
December 31, 2008 AUM
(1)
|
357.2 | 127.3 | 61.8 | 32.8 | 84.1 | 51.2 | ||||||||||||||||||
|
Long-term inflows
|
14.3 | 6.2 | 4.1 | 2.1 | 1.0 | 0.9 | ||||||||||||||||||
|
Long-term outflows
|
(13.6 | ) | (6.4 | ) | (2.8 | ) | (2.2 | ) | (1.1 | ) | (1.1 | ) | ||||||||||||
|
|
||||||||||||||||||||||||
|
Long-term net flows
|
0.7 | (0.2 | ) | 1.3 | (0.1 | ) | (0.1 | ) | (0.2 | ) | ||||||||||||||
|
Net flows in money market funds
|
8.6 | — | — | — | 8.6 | — | ||||||||||||||||||
|
Market gains and losses/reinvestment
|
(16.3 | ) | (11.7 | ) | 0.3 | (1.4 | ) | 0.1 | (3.6 | ) | ||||||||||||||
|
Foreign currency translation
|
(2.0 | ) | (1.0 | ) | (0.3 | ) | (0.4 | ) | (0.1 | ) | (0.2 | ) | ||||||||||||
|
|
||||||||||||||||||||||||
|
March 31, 2009 AUM
|
348.2 | 114.4 | 63.1 | 30.9 | 92.6 | 47.2 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
| (1) | The beginning balances were adjusted to reflect certain asset reclassifications. | |
| (2) | The alternatives asset class includes financial structures, absolute return, real estate, private equity, asset allocation, portable alpha and multiple asset strategies. | |
| (3) | Ending Money Market AUM includes $69.0 billion in institutional money market AUM and $3.6 billion in retail money market AUM. |
41
Table of Contents
AUM by Client Domicile
| Continental | ||||||||||||||||||||||||
| $ in billions | Total | U.S. | Canada | U.K. | Europe | Asia | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
December 31, 2009 AUM
(1)
|
423.1 | 257.7 | 29.0 | 84.9 | 24.4 | 27.1 | ||||||||||||||||||
|
Long-term inflows
|
21.1 | 10.4 | 0.6 | 4.5 | 3.4 | 2.2 | ||||||||||||||||||
|
Long-term outflows
|
(17.4 | ) | (7.8 | ) | (1.7 | ) | (3.5 | ) | (2.4 | ) | (2.0 | ) | ||||||||||||
|
|
||||||||||||||||||||||||
|
Long-term net flows
|
3.7 | 2.6 | (1.1 | ) | 1.0 | 1.0 | 0.2 | |||||||||||||||||
|
Net flows in money market funds
|
(10.6 | ) | (11.7 | ) | — | (0.6 | ) | 1.8 | (0.1 | ) | ||||||||||||||
|
Market gains and losses/reinvestment
|
7.8 | 3.7 | 0.4 | 3.1 | 0.6 | — | ||||||||||||||||||
|
Foreign currency translation
|
(4.4 | ) | — | 0.9 | (4.5 | ) | (0.8 | ) | — | |||||||||||||||
|
|
||||||||||||||||||||||||
|
March 31, 2010 AUM
|
419.6 | 252.3 | 29.2 | 83.9 | 27.0 | 27.2 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
December 31, 2008 AUM
(1)
|
357.2 | 232.5 | 24.1 | 56.7 | 22.3 | 21.6 | ||||||||||||||||||
|
Long-term inflows
|
14.3 | 7.2 | 0.7 | 3.8 | 1.6 | 1.0 | ||||||||||||||||||
|
Long-term outflows
|
(13.6 | ) | (7.9 | ) | (1.2 | ) | (1.4 | ) | (1.9 | ) | (1.2 | ) | ||||||||||||
|
|
||||||||||||||||||||||||
|
Long-term net flows
|
0.7 | (0.7 | ) | (0.5 | ) | 2.4 | (0.3 | ) | (0.2 | ) | ||||||||||||||
|
Net flows in money market funds
|
8.6 | 6.4 | — | 0.1 | 2.0 | 0.1 | ||||||||||||||||||
|
Market gains and losses/reinvestment
|
(16.3 | ) | (8.6 | ) | (1.5 | ) | (5.3 | ) | (1.1 | ) | 0.2 | |||||||||||||
|
Foreign currency translation
|
(2.0 | ) | — | (0.5 | ) | (0.5 | ) | (0.5 | ) | (0.5 | ) | |||||||||||||
|
|
||||||||||||||||||||||||
|
March 31, 2009 AUM
|
348.2 | 229.6 | 21.6 | 53.4 | 22.4 | 21.2 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
| (1) | The beginning balances were adjusted to reflect certain asset reclassifications. |
Results of Operations
Results of Operations for the Three Months Ended March 31, 2010, Compared with the Three Months
Ended March 31, 2009
Adoption of FASB Statement No. 167
The company provides investment management services to, and has transactions with, various
private equity, real estate, fund-of-funds, collateralized loan obligation products (CLOs), and
other investment entities sponsored by the company for the investment of client assets in the
normal course of business. The company serves as the investment manager, making day-to-day
investment decisions concerning the assets of the products. Certain of these entities are
consolidated under variable interest or voting interest entity consolidation guidance. See Part I,
Item 1, Financial Statements – Note 9, “Consolidated Investment Products,” for additional details.
FASB Statement No. 167, which was effective January 1, 2010, had a significant impact on the
presentation of the company’s financial statements, as its provisions required the company to
consolidate certain CLOs that were not previously consolidated. The cumulative effect adjustment
upon adoption of FASB Statement No. 167 at January 1, 2010, resulted in an appropriation of
retained earnings and a reclassification of other comprehensive income into retained earnings of
$274.3 million and $5.2 million, respectively. The company’s Consolidated Statement of Income for
the three months ended March 31, 2010, reflect the elimination of $8.7 million in management fees
earned from these CLOs, and the addition of $52.5 million in interest income, $20.8 million in
interest expense, and $85.1 million in net other gains. The $105.8 million net income impact during
the three months ended March 31, 2010, of consolidation of these CLOs is largely offset by
gains/(losses) attributable to investors in noncontrolling interests of $104.4 million. Prior to
the adoption of FASB Statement No. 167, the company accounted for its investments in these CLOs as
available-for-sale investments, with changes in the value of the company’s interests being recorded
through other comprehensive income. After the adoption of FASB Statement No. 167, the change in
value of the company’s investments in these CLOs is reflected in the company’s net income. For the
three months ended March 31, 2010, the net impact to the company of its investments in these CLOs
was $1.4 million. The Condensed Consolidated Balance Sheet at March 31, 2010, reflects the
consolidation of $5.8 billion in assets held and $5.1 billion in debt issued by these CLOs, despite
the fact that the assets cannot be used by the company, nor is the company obligated for the debt.
Retained earnings appropriated for investors of consolidated investment products of $383.8 million
is presented as part of the company’s total equity, reflecting the excess of the consolidated CLOs’
assets over their liabilities, attributable to noncontrolling third-party investors in their
consolidated CLOs at March 31, 2010. In accordance with the standard, prior periods have not been
restated to reflect the consolidation of these CLOs.
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The majority of the company’s consolidated investment products balances were CLO-related as of
March 31, 2010. The collateral assets of the CLOs are held solely to satisfy the obligations of the
CLOs. The company has no right to the benefits from, nor does it bear the risks associated with,
the collateral assets held by the CLOs, beyond the company’s minimal direct investments in, and
management fees generated from, the CLOs. If the company were to liquidate, the collateral assets
would not be available to the general creditors of the company, and as a result, the company does
not consider them to be company assets. Additionally, the investors in the CLOs have no recourse to
the general credit of the company for the notes issued by the CLOs. The company therefore does not
consider this debt to be a company liability. The discussion that follows will separate
consolidated investment product results of operations from the company’s investment management
operations through the use of non-GAAP financial measures. See the Schedule of Non-GAAP Information
for additional details and reconciliations of the most directly comparable U.S. GAAP measures to
the non-GAAP measures.
Condensed Consolidating Statements of Income
| Consolidated | ||||||||||||||||
| Before | Investment | |||||||||||||||
| $ in millions | Consolidation* | Products** | Eliminations | Total | ||||||||||||
|
Three Months ended March 31, 2010
|
||||||||||||||||
|
Total operating revenues
|
729.5 | 0.2 | (10.6 | ) | 719.1 | |||||||||||
|
Total operating expenses
|
(579.0 | ) | (13.8 | ) | 10.6 | (582.2 | ) | |||||||||
|
|
||||||||||||||||
|
Operating income
|
150.5 | (13.6 | ) | — | 136.9 | |||||||||||
|
Equity in earnings of unconsolidated affiliates
|
6.0 | — | (0.2 | ) | 5.8 | |||||||||||
|
Interest income
|
1.6 | 53.1 | (0.6 | ) | 54.1 | |||||||||||
|
Other investment income/(losses)
|
(2.1 | ) | 103.1 | — | 101.0 | |||||||||||
|
Interest expense
|
(12.4 | ) | (21.4 | ) | 0.6 | (33.2 | ) | |||||||||
|
|
||||||||||||||||
|
Income before income taxes, including gains
and losses attributable to noncontrolling
interests
|
143.6 | 121.2 | (0.2 | ) | 264.6 | |||||||||||
|
Income tax provision
|
(50.1 | ) | — | — | (50.1 | ) | ||||||||||
|
|
||||||||||||||||
|
Net income, including gains and losses
attributable to noncontrolling interests
|
93.5 | 121.2 | (0.2 | ) | 214.5 | |||||||||||
|
(Gains)/losses attributable to noncontrolling
interests in consolidated entities, net
|
(0.1 | ) | (119.4 | ) | — | (119.5 | ) | |||||||||
|
|
||||||||||||||||
|
Net income attributable to common shareholders
|
93.4 | 1.8 | (0.2 | ) | 95.0 | |||||||||||
|
|
||||||||||||||||
| Consolidated | ||||||||||||||||
| Before | Investment | |||||||||||||||
| $ in millions | Consolidation* | Products | Eliminations | Total | ||||||||||||
|
Three Months ended March 31, 2009
|
||||||||||||||||
|
Total operating revenues
|
550.2 | 1.4 | (3.0 | ) | 548.6 | |||||||||||
|
Total operating expenses
|
(485.1 | ) | (4.7 | ) | 3.0 | (486.8 | ) | |||||||||
|
|
||||||||||||||||
|
Operating income
|
65.1 | (3.3 | ) | — | 61.8 | |||||||||||
|
Equity in earnings of unconsolidated affiliates
|
1.3 | — | 1.2 | 2.5 | ||||||||||||
|
Interest income
|
4.8 | — | — | 4.8 | ||||||||||||
|
Other investment income/(losses)
|
(4.2 | ) | (86.5 | ) | — | (90.7 | ) | |||||||||
|
Interest expense
|
(15.9 | ) | — | — | (15.9 | ) | ||||||||||
|
|
||||||||||||||||
|
Income before income taxes, including gains
and losses attributable to noncontrolling
interests
|
51.1 | (89.8 | ) | 1.2 | (37.5 | ) | ||||||||||
|
Income tax provision
|
(20.3 | ) | — | — | (20.3 | ) | ||||||||||
|
|
||||||||||||||||
|
Net income, including gains and losses
attributable to noncontrolling interests
|
30.8 | (89.8 | ) | 1.2 | (57.8 | ) | ||||||||||
|
(Gains)/losses attributable to noncontrolling
interests in consolidated entities, net
|
(0.1 | ) | 88.6 | — | 88.5 | |||||||||||
|
|
||||||||||||||||
|
Net income attributable to common shareholders
|
30.7 | (1.2 | ) | 1.2 | 30.7 | |||||||||||
|
|
||||||||||||||||
| * | The Before Consolidation column includes Invesco’s equity interest in the investment products, accounted for as equity method and available-for-sale investments and does not include any other adjustments related to non-GAAP financial measure presentation. | |
| ** | The company adopted FASB Statement No. 167 on January 1, 2010, resulting in the consolidation of certain CLOs. In accordance with the standard, prior periods have not been restated to reflect the consolidation of these CLOs. Prior to January 1, 2010, the company was not deemed to be the primary beneficiary of these CLOs. |
43
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Operating Revenues and Net Revenues
Operating revenues increased by $170.5 million (31.1%) in the three months ended March 31,
2010, to $719.1 million (March 31, 2009: $548.6 million). Net revenues increased by $132.8 million
(32.3%) in the three months ended March 31, 2010, to $544.4 million (March 31, 2009: $411.6
million). Net revenues are operating revenues less third-party distribution, service and advisory
expenses, plus our proportional share of net revenues from joint venture arrangements, plus
management fees earned from, less other revenue recorded by, consolidated investment products. See
“Schedule of Non-GAAP Information” for additional important disclosures regarding the use of net
revenues. A significant portion of our business and managed AUM are based outside of the U.S. The
income statements of foreign currency subsidiaries are translated into U.S. dollars, the reporting
currency of the company, using average foreign exchange rates. Over the three month period, the
average U.S. dollar foreign exchange rate was weaker when compared to other currencies, primarily
the Pound Sterling, Canadian dollar and Euro, which impacted our reported revenues for the three
months ended March 31, 2010, as compared to the three months ended March 31, 2009. The impact of
foreign exchange rate movements resulted in $36.3 million (21.3%) of the increase in operating
revenues during the three months ended March 31, 2010. Additionally, our revenues are directly
influenced by the level and composition of our AUM as more fully discussed below. Movements in
global capital market levels, net new business inflows (or outflows) and changes in the mix of
investment products between asset classes and geographies may materially affect our revenues from
period to period.
The main categories of revenues, and the dollar and percentage change between the periods,
were as follows:
| Three months ended | ||||||||||||||||
| March 31, | ||||||||||||||||
| $ in millions | 2010 | 2009 | $ Change | % Change | ||||||||||||
|
Investment management fees
|
593.5 | 436.5 | 157.0 | 36.0 | % | |||||||||||
|
Service and distribution fees
|
112.5 | 89.0 | 23.5 | 26.4 | % | |||||||||||
|
Performance fees
|
1.4 | 10.9 | (9.5 | ) | (87.2 | )% | ||||||||||
|
Other
|
11.7 | 12.2 | (0.5 | ) | (4.1 | )% | ||||||||||
|
Total operating revenues
|
719.1 | 548.6 | 170.5 | 31.1 | % | |||||||||||
|
Third-party distribution, service and advisory expenses
|
(195.6 | ) | (148.2 | ) | 47.4 | 32.0 | % | |||||||||
|
Proportional share of revenues, net of third-party
distribution expenses, from joint venture investments
|
10.5 | 9.6 | 0.9 | 9.4 | % | |||||||||||
|
Management fees earned from consolidated investment products
|
10.6 | 3.0 | 7.6 | 253.3 | % | |||||||||||
|
Operating revenues of consolidated investment products
|
(0.2 | ) | (1.4 | ) | 1.2 | (85.7 | )% | |||||||||
|
|
||||||||||||||||
|
Net revenues
|
544.4 | 411.6 | 132.8 | 32.3 | % | |||||||||||
|
|
||||||||||||||||
Investment management fees
Investment management fees are derived from providing professional services to manage client
accounts and include fees earned from retail mutual funds, unit trusts, investment companies with
variable capital (ICVCs), exchange-traded funds, investment trusts and institutional and private
wealth management advisory contracts. Investment management fees for products offered in the retail
distribution channel are generally calculated as a percentage of the daily average asset balances
and therefore vary as the levels of AUM change resulting from inflows, outflows and market
movements. Investment management fees for products offered in the institutional and private wealth
management distribution channels are calculated in accordance with the underlying investment
management contracts and also vary in relation to the level of client assets managed.
Investment management fees increased by $157.0 million (36%) in the three months ended March
31, 2010, to $593.5 million (March 31, 2009: $436.5 million) due to increases in average AUM,
changes in the mix of AUM between asset classes and foreign exchange rate movement. Average AUM for
the three months ended March 31, 2010, were $417.6 billion (March 31, 2009: $351.0 billion).
Average long-term AUM, which generally earn higher fee rates than money market AUM, for the three
months ended March 31, 2010, were $342.3 billion (March 31, 2009: $264.9 billion), while average
institutional money market AUM decreased 12.5% to $75.3 billion at March 31, 2010, from $86.1
billion for the three months ended March 31, 2009.
Additionally, the change in investment management fee revenues reflects the adoption of FASB
Statement No. 167, now encompassed in ASC Topic 810, “Consolidation,” on January 1, 2010, which
resulted in the consolidation of certain CLOs with total assets of $5.7 billion at January 1, 2010.
As part of the consolidation, management fees of $8.7 million were eliminated from the company’s
operating revenues for the three months ended March 31, 2010. In accordance with the standard,
prior periods have not been restated to reflect the consolidation of these CLOs. The company uses a
non-GAAP financial measure, net revenues, to add back these eliminated management fees as part of
net revenues, as the company has earned them for providing investment management
44
Table of Contents
services to the consolidated CLOs. See “Schedule of Non-GAAP Information” for the
reconciliation of operating revenues to net revenues.
Service and distribution fees
Service fees are generated through fees charged to cover several types of expenses, including
fund accounting fees and other maintenance costs for mutual funds, unit trusts and ICVCs, and
administrative fees earned from closed-ended funds. Service fees also include transfer agent fees,
which are fees charged to cover the expense of processing client share purchases and redemptions,
call center support and client reporting. U.S. distribution fees can include 12b-1 fees earned from
certain mutual funds to cover allowable sales and marketing expenses for those funds and also
include asset-based sales charges paid by certain mutual funds for a period of time after the sale
of those funds. Distribution fees typically vary in relation to the amount of client assets
managed. Generally, retail products offered outside of the U.S. do not generate a separate
distribution fee, as the quoted management fee rate is inclusive of these services.
In the three months ended March 31, 2010, service and distribution fees increased by $23.5
million (26.4%) to $112.5 million (March 31, 2009: $89.0 million) due to increases in average AUM
during the period.
Performance fees
Performance fee revenues are generated on certain management contracts when performance
hurdles are achieved. Such fee revenues are recorded in operating revenues as of the performance
measurement date, when the contractual performance criteria have been met and when the outcome of
the transaction can be measured reliably in accordance with Method 1 of ASC Topic 605-20-S99,
“Revenue Recognition – Services – SEC Materials.” Cash receipt of earned performance fees occurs
after the measurement date. The performance measurement date is defined in each contract in which
incentive and performance fee revenue agreements are in effect, and therefore we have performance
fee arrangements that include monthly, quarterly and annual measurement dates. Given the uniqueness
of each transaction, performance fee contracts are evaluated on an individual basis to determine if
revenues can and should be recognized. Performance fees are not recorded if there are any future
performance contingencies. If performance arrangements require repayment of the performance fee for
failure to perform during the contractual period, then performance fee revenues are recognized no
earlier than the expiration date of these terms. Performance fees will fluctuate from period to
period and may not correlate with general market changes, since most of the fees are driven by
relative performance to the respective benchmark rather than by absolute performance. Additionally,
of our $419.6 billion in AUM at March 31, 2010, only approximately $26.5 billion, or 6.3%, could
potentially earn performance fees.
In the three months ended March 31, 2010, performance fees decreased by $9.5 million (87.2%)
to $1.4 million (March 31, 2009: $10.9 million). The performance fees generated in the three months
ended March 31, 2009, arose primarily due to products managed in the UK and Asia.
Other revenues
Other revenues include fees derived primarily from transaction commissions earned upon the
sale of new investments into certain of our funds and fees earned upon the completion of
transactions in our direct real estate and private equity asset groups. Real estate transaction
fees are derived from commissions earned through the buying and selling of properties. Private
equity transaction fees include commissions associated with the restructuring of, and fees from
providing advice to, portfolio companies held by the funds. These transaction fees are recorded in
our financial statements on the date when the transactions are legally closed.
In the three months ended March 31, 2010, other revenues decreased by $0.5 million (4.1%) to
$11.7 million (March 31, 2009: $12.2 million) driven by decreases in revenues of consolidated
investment products, offset partially by increases in transaction fees within our real estate
operations.
Third-party distribution, service and advisory expenses
Third-party distribution, service and advisory expenses include periodic “renewal” commissions
paid to brokers and independent financial advisors for their continuing oversight of their clients’
assets, over the time they are invested, and are payments for the servicing of client accounts.
Renewal commissions are calculated based upon a percentage of the AUM value. Third-party
distribution expenses also include the amortization of upfront commissions paid to broker-dealers
for sales of fund shares with a contingent deferred sales charge (a charge levied to the investor
for client redemption of AUM within a certain contracted period of time). The
45
Table of Contents
distribution commissions are amortized over the redemption period. Also included in
third-party distribution, service and advisory expenses are sub-transfer agency fees that are paid
to third parties for processing client share purchases and redemptions, call center support and
client reporting. Third-party distribution, service and advisory expenses may increase or decrease
at a rate different from the rate of change in service and distribution fee revenues due to the
inclusion of distribution, service and advisory expenses for the U.K. and Canada, where the related
revenues are recorded as investment management fee revenues, as noted above.
Third-party distribution, service and advisory expenses increased by $47.4 million (32.0%) in
the three months ended March 31, 2010, to $195.6 million (March 31, 2009: $148.2 million),
consistent with the increases in investment management and service and distribution fee revenues.
Proportional share of revenues, net of third-party distribution expenses, from joint venture
investments
Management believes that the addition of our proportional share of revenues, net of
third-party distribution expenses, from joint venture arrangements should be added to operating
revenues to arrive at net revenues, as it is important to evaluate the contribution to the business
that our joint venture arrangements are making. See “Schedule of Non-GAAP Information” for
additional disclosures regarding the use of net revenues. The company’s most significant joint
venture arrangement is our 49.0% investment in Invesco Great Wall Fund Management Company Limited
(the “Invesco Great Wall” joint venture).
Our proportional share of revenues, net of third-party distribution expenses increased by $0.9
million (9.4%) to $10.5 million in the three months ended March 31, 2010 (March 31, 2009:
$9.6 million), driven by increases in average AUM during the period in the Invesco Great Wall joint
venture. Our share of the Invesco Great Wall joint venture’s average AUM in the three months ended
March 31, 2010, was $3.8 billion (March 31, 2009: $3.2 billion).
Management fees earned from consolidated investment products
Management believes that the consolidation of investment products may impact a reader’s
analysis of our underlying results of operations and could result in investor confusion or the
production of information about the company by analysts or external credit rating agencies that is
not reflective of the underlying results of operations and financial condition of the company.
Accordingly, management believes that it is appropriate to adjust operating revenues for the impact
of consolidated investment products in calculating net revenues. As management and performance fees
earned by Invesco from the consolidated products are eliminated upon consolidation of the
investment products, management believes that it is appropriate to add these operating revenues
back in the calculation of net revenues. See “Schedule of Non-GAAP Information” for additional
disclosures regarding the use of net revenues.
Management fees earned from consolidated investment products increased by $7.6 million
(253.3%) to $10.6 million in the three months ended March 31, 2010 (March 31, 2009: $3.0 million).
The increase reflects the adoption of FASB Statement No. 167, now encompassed in ASC Topic 810,
“Consolidation,” on January 1, 2010, which resulted in the consolidation of certain CLOs with total
assets of $5.7 billion at January 1, 2010. As part of the CLO consolidation, management fees of
$8.7 million were eliminated from the company’s operating revenues. In accordance with the
standard, prior periods have not been restated to reflect the consolidation of these CLOs.
Operating revenues of consolidated investment products
Operating revenues of consolidated investment products are included in U.S. GAAP operating
revenues resulting from the consolidation of investment products into the company’s results of
operations. Management believes that this consolidation could impact a reader’s analysis of our
underlying results of operations. Therefore, management believes that it is appropriate to deduct
operating revenues of consolidated investment products in calculating net revenues. See “Schedule
of Non-GAAP Information” for additional disclosures regarding the use of net revenues. The change
in operating revenues of consolidated investment products is discussed above.
Operating Expenses
During the three months ended March 31, 2010, operating expenses increased by $95.4 million
(19.6%) to $582.2 million (March 31, 2009: $486.8 million). As discussed above, a significant
portion of our business and managed AUM are based outside of the U.S. The income statements of
foreign currency subsidiaries are translated into U.S. dollars, the reporting currency of the
company, using average foreign exchange rates. Over the three months, the average U.S. dollar
foreign exchange rate was weaker when compared to other currencies, primarily the Pound Sterling,
Canadian dollar and Euro, which impacted our reported expenses for the three months
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Table of Contents
ended March 31, 2010, as compared to the three months ended March 31, 2009. The impact of
foreign exchange rate movements resulted in $27.0 million (28.3%) of the increase in operating
expenses during the three months ended March 31, 2010.
The main categories of operating expenses, and the dollar and percentage changes between
periods, are as follows:
| Three months ended | ||||||||||||||||
| March 31, | ||||||||||||||||
| $ in millions | 2010 | 2009 | $ Change | % Change | ||||||||||||
|
Employee compensation
|
237.6 | 235.8 | 1.8 | 0.8 | % | |||||||||||
|
Third-party distribution, service and advisory
|
195.6 | 148.2 | 47.4 | 32.0 | % | |||||||||||
|
Marketing
|
28.3 | 26.9 | 1.4 | 5.2 | % | |||||||||||
|
Property, office and technology
|
53.5 | 45.9 | 7.6 | 16.6 | % | |||||||||||
|
General and administrative
|
50.0 | 30.0 | 20.0 | 66.7 | % | |||||||||||
|
Transaction and integration
|
17.2 | — | 17.2 | N/A | ||||||||||||
|
|
||||||||||||||||
|
Total operating expenses
|
582.2 | 486.8 | 95.4 | 19.6 | % | |||||||||||
|
|
||||||||||||||||
The table below sets forth these cost categories as a percentage of total operating expenses
and operating revenues, which we believe provides useful information as to the relative
significance of each type of expense:
Three months ended:
| % of Total | % of | % of Total | % of | |||||||||||||||||||||
| March 31, | Operating | Operating | March 31, | Operating | Operating | |||||||||||||||||||
| $ in millions | 2010 | Expenses | Revenues | 2009 | Expenses | Revenues | ||||||||||||||||||
|
Employee compensation
|
237.6 | 40.8 | % | 33.0 | % | 235.8 | 48.4 | % | 43.0 | % | ||||||||||||||
|
Third-party distribution, service and advisory
|
195.6 | 33.6 | % | 27.2 | % | 148.2 | 30.5 | % | 27.0 | % | ||||||||||||||
|
Marketing
|
28.3 | 4.9 | % | 3.9 | % | 26.9 | 5.5 | % | 4.9 | % | ||||||||||||||
|
Property, office and technology
|
53.5 | 9.2 | % | 7.4 | % | 45.9 | 9.4 | % | 8.4 | % | ||||||||||||||
|
General and administrative
|
50.0 | 8.6 | % | 7.0 | % | 30.0 | 6.2 | % | 5.5 | % | ||||||||||||||
|
Transaction and integration
|
17.2 | 2.9 | % | 2.4 | % | — | N/A | N/A | ||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total operating expenses
|
582.2 | 100.0 | % | 80.9 | % | 486.8 | 100.0 | % | 88.8 | % | ||||||||||||||
|
|
||||||||||||||||||||||||
Employee Compensation
Employee compensation includes salary, cash bonuses and share-based payment plans designed to
attract and retain the highest caliber employees. Employee staff benefit plan costs and payroll
taxes are also included in employee compensation.
Employee compensation increased $1.8 million (0.8%) to $237.6 million in the three months
ended March 31, 2010, (March 31, 2009: $235.8 million) due to foreign exchange rate changes, offset
by decreases in base salaries and staff bonuses. Headcount at March 31, 2010, was 4,902 (March 31,
2009: 5,122). Included in compensation expenses during the three months ended March 31, 2010, are
share-based payment costs of $24.2 million, compared to $23.7 million during the three months ended
March 31, 2009. Additionally, employee compensation costs for the three months ended March 31, 2010
and 2009, included $5.0 million of prepaid compensation amortization expenses related to the 2006
acquisition of W.L. Ross & Co. This expense amortization will continue through 2010, and the
acquisition-related asset will be fully amortized by the third quarter of 2011.
Third-Party Distribution, Service and Advisory Expenses
Third-party distribution, service and advisory expenses are discussed above in the operating
and net revenues section.
Marketing
Marketing expenses include marketing support payments, which are payments made to distributors
of certain of our retail products over and above the 12b-1 distribution payments. These fees are
contracted separately with each distributor. Marketing expenses also include the cost of direct
advertising of our products through trade publications, television and other media, and public
relations costs, such as the marketing of the company’s products through conferences or other
sponsorships, and the cost of marketing-related employee travel.
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Table of Contents
Marketing expenses increased by $1.4 million (5.2%) in the three months ended March 31, 2010,
to $28.3 million (March 31, 2009: $26.9 million) primarily due to increases in marketing support
payments as compared to the three months ended March 31, 2009.
Property, Office and Technology
Property, office and technology expenses include rent and utilities for our various leased
facilities, depreciation of company-owned property and capitalized computer equipment costs, minor
non-capitalized computer equipment and software purchases and related maintenance payments, and
costs related to externally provided operations, technology, and other back office management
services.
Property, office and technology expenses increased by $7.6 million (16.6%) to $53.5 million in
the three months ended March 31, 2010 (March 31, 2009: $45.9 million), due primarily to foreign
exchange rate changes and increased costs associated with the Hyderabad facility.
General and Administrative
General and administrative expenses include professional services costs, such as information
service subscriptions, consulting fees, professional insurance costs, audit, tax and legal fees,
non-marketing related employee travel expenditures, recruitment and training costs, and the
amortization of certain intangible assets.
General and administrative expenses increased by $20.0 million (66.7%) to $50.0 million in the
three months ended March 31, 2010 (March 31, 2009: $30.0 million). General and administrative
expenses in the three months ended March 31, 2009, included an insurance recovery of $9.5 million
related to legal costs associated with the market-timing regulatory settlement. The increases in
general and administrative expenses reflects the inclusion of operating expenses of consolidated
investment products resulting from the adoption of FASB Statement No. 167 on January 1, 2010.
Additionally, travel costs have increased in the three months ended March 31, 2010, from the three
months ended March 31, 2009.
Transaction and integration
Transaction and integration expenses include acquisition-related charges incurred during the
period to effect a business combination, including legal, regulatory, advisory, valuation, and
other professional or consulting fees, general and administrative costs, including travel costs
related to the transaction and the costs of temporary staff involved in executing the transaction,
and post-closing costs of integrating the acquired business into the company’s existing operations
including incremental costs associated with achieving synergy savings.
Transaction and integration charges were $17.2 million in the three months ended March 31,
2010 (three months ended March 31, 2009: none) and relate to the pending acquisition of Morgan
Stanley’s retail asset management business, including Van Kampen Investments. The acquisition was
announced in October 2009 and is expected to close on June 1, 2010. These aggregate costs are
currently expected to be less than $175 million, including those costs incurred in 2009 of $10.8
million, and are expected to continue to be incurred during 2010-2011. One of the largest
anticipated post-closing expenses of integrating the acquired business into the company’s existing
operations relates to the costs of proxy solicitation of fund shareholders. Our estimates of these
charges could continue to increase as additional resources are devoted to obtaining the required
votes as early as practicable before the end of the second quarter of 2010, as desired.
Operating Income, Net Operating Income, Operating Margin and Net Operating Margin
Operating income increased by $75.1 million (121.5%) to $136.9 million in the three months
ended March 31, 2010 (March 31, 2009: $61.8 million). As a result of the increase in our operating
revenues, the following measures have also improved during the three months ended March 31, 2010:
operating margin, adjusted cash operating income, and adjusted cash operating margin. Operating
margin (operating income divided by operating revenues) was 19.0% in the three months ended March
31, 2010, improving from 11.3% in the three months ended March 31, 2009. Adjusted cash operating
income (operating income plus our proportional share of the operating income from joint venture
arrangements, transaction and integration charges, amortization of acquisition-related prepaid
compensation and other intangibles, and the operating income impact of the consolidation of
investment products) increased by $104.0 million (131.6%) to $183.0 million in the three months
ended March 31, 2010, from $79.0 million in the three months ended March 31, 2009. Adjusted cash
operating margin is equal to adjusted cash operating income divided by net revenues. Net revenues
are equal to operating revenues less third-party distribution, service and advisory expenses, plus
our proportional share of the net revenues from our joint venture arrangements, plus management
fees earned from, less other revenue recorded by, consolidated
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investment products. Adjusted cash operating margin increased to 33.6% in the three months
ended March 31, 2010, from 19.2% in the three months ended March 31, 2009. See “Schedule of
Non-GAAP Information” for a reconciliation of operating revenues to net revenues, a reconciliation
of operating income to adjusted cash operating income and additional important disclosures
regarding net revenues, adjusted cash operating income and adjusted cash operating margin.
Other Income and Expenses
The main categories of other income and expenses, and the dollar and percentage changes
between periods are as follows:
| Three months ended | ||||||||||||||||
| March 31, | ||||||||||||||||
| $ in millions | 2010 | 2009 | $ Change | % Change | ||||||||||||
|
Equity in earnings of unconsolidated affiliates
|
5.8 | 2.5 | 3.3 | 132.0 | % | |||||||||||
|
Interest income
|
1.6 | 4.8 | (3.2 | ) | (66.7 | )% | ||||||||||
|
Interest income of consolidated investment products
|
52.5 | — | 52.5 | N/A | ||||||||||||
|
Gains/(losses) of consolidated investment products, net
|
103.1 | (86.5 | ) | 189.6 | N/A | |||||||||||
|
Interest expense
|
(12.4 | ) | (15.9 | ) | 3.5 | (22.0 | )% | |||||||||
|
Interest expense of consolidated investment products
|
(20.8 | ) | — | (20.8 | ) | N/A | ||||||||||
|
Other gains and losses, net
|
(2.1 | ) | (4.2 | ) | 2.1 | (50.0 | )% | |||||||||
|
|
||||||||||||||||
|
Total other income and expenses
|
127.7 | (99.3 | ) | 227.0 | (228.6 | )% | ||||||||||
|
|
||||||||||||||||
Equity in earnings of unconsolidated affiliates
Equity in earnings of unconsolidated affiliates increased by $3.3 million (132.0%) to $5.8
million in the three months ended March 31, 2010 (March 31, 2009: $2.5 million), resulting
primarily from increases in our share of the pre-tax losses of our partnership investments.
Interest income and interest expense
Interest income decreased by $3.2 million (66.7%) to $1.6 million in the three months ended
March 31, 2010 (March 31, 2009: $4.8 million), as a result of significantly lower interest rates
during the period. The decrease in yields was consistent with market direction during the period.
Interest expense decreased by $3.5 million (22.0%) to $12.4 million in the three months ended March
31, 2010 (March 31, 2009: $15.9 million), resulting from a lower average debt balance during the
three months ended March 31, 2010, versus the comparative period.
Interest income and interest expense of consolidated investment products
Interest income of consolidated investment products results from interest generated by the
collateral assets held by consolidated CLOs, which is used to satisfy the interest expenses of the
notes issued by the consolidated CLOs and other operating expense requirements, including the
payment of the management and performance fees to the company as investment manager. See Part I,
Item 1, Financial Statements – Note 9, “Consolidated Investment Products,” for additional details.
In the three months ended March 31, 2010, interest income and interest expense of consolidated
investment products were $52.5 million and $20.8 million, respectively. The increases reflect the
adoption of FASB Statement No. 167, now encompassed in ASC Topic 810, “Consolidation,” on January
1, 2010, which resulted in the consolidation of certain CLOs with total assets of $5.7 billion at
January 1, 2010. In accordance with the standard, prior periods have not been restated to reflect
the consolidation.
Gains and losses of consolidated investment products
Included in other income and expenses are gains and losses of consolidated investment
products, net, which are driven by realized and unrealized gains and losses of underlying
investments held by consolidated investment products. The consolidation of investment products
during the three months ended March 31, 2010, resulted in non-operating gains of $103.1 million.
Invesco invests in only a small equity portion of these products, and as a result these losses are
offset by noncontrolling interests of $119.4 million, resulting in a net impact to the company of
$16.3 million. Net losses of consolidated investment products for the three months ended March 31,
2009, were $86.5 million, and are largely offset by noncontrolling interests of consolidated
entities, net of tax, of $88.6 million.
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In the three months ended March 31, 2010, gains and losses of consolidated investment products
were a net gain of $103.1 million, as compared to a net loss of $86.5 million in the three months
ended March 31, 2009. The increase primarily reflects the adoption of FASB Statement No. 167, now
encompassed in ASC Topic 810, “Consolidation,” on January 1, 2010, which resulted in the
consolidation of certain CLOs with total assets of $5.7 billion at January 1, 2010. Collateral
assets and notes issued by consolidated CLOs are held at fair value, and the unrealized and
realized gains and losses of the collateral assets and notes are reflected in this line item. In
accordance with the standard, prior periods have not been restated to reflect the consolidation of
these CLOs.
Other gains and losses, net
Other gains and losses, net were a net loss of $2.1 million in the three months ended March
31, 2010, as compared to a net loss of $4.2 million in the three months ended March 31, 2009.
Included in other gains and losses is a net gain of $2.2 million as a result of the appreciation
of assets held for our deferred compensation plans (2009: $1.4 million net gain). In the three
months ended March 31, 2010, we incurred $2.1 million in net foreign exchange losses (2009:
$0.7 million in net foreign exchange losses). Included in other losses are $2.1 million of
other-than-temporary impairment charges related to the company’s seed money investments (2009: $6.6
million).
Income Tax Expense
Our subsidiaries operate in several taxing jurisdictions around the world, each with its own
statutory income tax rate. As a result, our effective tax rate will vary from year to year
depending on the mix of the profits and losses of our subsidiaries. The majority of our profits are
earned in the U.S., Canada and the U.K. The current U.K. statutory tax rate is 28%, the Canadian
statutory tax rate is 31% and the U.S. Federal statutory tax rate is 35%.
Our effective tax rate, excluding noncontrolling interests in consolidated entities, for the
three months ended March 31, 2010, was 34.5%, down from 39.8% for the three months ended March 31,
2009. The effective tax rate for the three months ended March 31, 2009, included the impact of
investment write-downs and partnership losses that occurred in zero or low tax rate jurisdictions.
Schedule of Non-GAAP Information
Beginning with the presentation of the company’s results for the three months ended March 31,
2010, the company has expanded its use of non-GAAP measures to include reconciling items primarily
relating to Financial Accounting Standards Board (FASB) Statement No. 167, “Amendments to FASB
Interpretation No. 46(R)” (FASB Statement No. 167), now encompassed in the Accounting Standards
Codification Topic 810 (discussed in Part I, Item I, “Financial Statements – Note 1, Accounting
Policies”), and the acquisition of Morgan Stanley’s retail asset management business. We are
presenting the following non-GAAP measures: net revenue (and by calculation, net revenue yield on
AUM), adjusted cash operating income (and by calculation, adjusted cash operating margin), adjusted
cash net income (and by calculation, adjusted cash earnings per share (EPS)). The most directly
comparable U.S. GAAP measures are operating revenues (and by calculation, gross revenue yield on
AUM), operating income (and by calculation, operating margin), net income (and by calculation,
diluted EPS). Each of these measures is discussed more fully below. The net revenue measure has
been redefined from that previously used to now adjust for the impact of consolidating certain
investment products. The presentation of net revenue in this Report for the three months ended
March 31, 2009, has been restated to conform the calculation to the current period’s methodology.
These non-GAAP measures should not be considered as substitutes for any measures derived in
accordance with U.S. GAAP and may not be comparable to other similarly titled measures of other
companies. Additional reconciling items may be added in the future to these non-GAAP measures if
deemed appropriate.
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The following are reconciliations of operating revenues, operating income (and by calculation,
operating margin), and net income (and by calculation, diluted EPS) on a U.S. GAAP basis to net
revenues, adjusted cash operating income (and by calculation, adjusted cash operating margin), and
adjusted cash net income (and by calculation, adjusted cash EPS):
| Three months ended March 31, | ||||||||
| $ in millions | 2010 | 2009 | ||||||
|
Operating revenues, U.S. GAAP basis
|
719.1 | 548.6 | ||||||
|
Third-party distribution, service and advisory expenses
(1)
|
(195.6 | ) | (148.2 | ) | ||||
|
Proportional share of net revenues from joint venture arrangements
(2)
|
10.5 | 9.6 | ||||||
|
Management fees earned from consolidated investment products eliminated upon consolidation
(3)
|
10.6 | 3.0 | ||||||
|
Operating revenues of consolidated investment products
(3)
|
(0.2 | ) | (1.4 | ) | ||||
|
|
||||||||
|
Net revenues
|
544.4 | 411.6 | ||||||
|
|
||||||||
|
|
||||||||
|
Operating income, U.S. GAAP basis
|
136.9 | 61.8 | ||||||
|
Proportional share of operating income from joint venture investments
(2)
|
5.3 | 5.8 | ||||||
|
Transaction and integration charges
(4)
|
17.2 | — | ||||||
|
Amortization of acquisition-related prepaid compensation
(4)
|
5.0 | 5.0 | ||||||
|
Amortization of other intangibles
(4)
|
3.1 | 3.1 | ||||||
|
Compensation expense related to appreciation in deferred compensation plans
|
1.9 | — | ||||||
|
Consolidation of investment products
(3)
|
13.6 | 3.3 | ||||||
|
|
||||||||
|
Adjusted cash operating income
|
183.0 | 79.0 | ||||||
|
|
||||||||
|
Operating margin*
|
19.0 | % | 11.3 | % | ||||
|
Adjusted cash operating margin**
|
33.6 | % | 19.2 | % | ||||
|
|
||||||||
|
Net income attributable to common shareholders, U.S. GAAP basis
|
95.0 | 30.7 | ||||||
|
Transaction and integration charges, net of tax
(4)
|
15.3 | — | ||||||
|
Amortization of acquisition-related prepaid compensation
(4)
|
5.0 | 5.0 | ||||||
|
Amortization of other intangibles, net of tax
(4)
|
3.0 | 3.1 | ||||||
|
Deferred compensation plan appreciation less compensation expense, net of tax
|
(0.3 | ) | — | |||||
|
Deferred income taxes on intangible assets
(4)
|
3.6 | 3.6 | ||||||
|
Consolidation of investment products
(3)
|
(1.6 | ) | — | |||||
|
|
||||||||
|
Adjusted cash net income
|
120.0 | 42.4 | ||||||
|
|
||||||||
|
Average shares outstanding — diluted
|
442.4 | 399.9 | ||||||
|
Diluted EPS
|
$ | 0.21 | $ | 0.08 | ||||
|
Adjusted cash EPS***
|
$ | 0.27 | $ | 0.11 | ||||
| * | Operating margin is equal to operating income divided by operating revenues. | |
| ** | Adjusted cash operating margin is equal to net operating income divided by net revenues. | |
| *** | Adjusted cash EPS is equal to adjusted cash net income divided by the weighted average shares outstanding amount used in the calculation of diluted EPS. |
The reconciling items from the related U.S. GAAP-based measures to our non-GAAP measures are
detailed below:
| (1) | Third-party distribution, service and advisory expenses | |
| Third-party distribution, service and advisory expenses include renewal commissions, management fee rebates and distribution costs (12b-1) paid to brokers and independent financial advisors. While the terms used for these types of expense vary by geography, they are all expense items that are closely linked to the value of AUM and the revenue earned by Invesco from AUM. | ||
| Renewal commissions are paid to independent financial advisors for as long as the clients’ assets remain invested and are payments for the servicing of client accounts. These commissions, similar to our management fee revenues, are based upon a percentage of the AUM value and apply to much of our non-US retail business. They can also take the form of management fee rebates, particularly outside of the U.S. | ||
| The revenues of our U.S. business include distribution fees earned from mutual funds, principally 12b-1 fees. Distribution costs are expenses paid to third-party brokers of our U.S. business. These include the amortization over the redemption period of upfront commissions paid to brokers for sales of fund shares with a contingent deferred sales charge (a charge levied on investors |
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| for redemptions within a certain contracted period of time). Both the revenues and the costs are dependent on the underlying AUM of the brokers’ clients. | ||
| Also included in third-party distribution, service and advisory expenses are sub-transfer agency fees that are paid to third parties for processing client share purchases and redemptions, call center support and client reporting. These costs are reimbursed by the related funds. | ||
| Since the company has been deemed to be the principal in the third-party arrangements, the company must reflect these expenses gross of operating revenues under U.S. GAAP. Management believes that the deduction of third-party distribution, service and advisory expenses from operating revenues in the computation of net revenues (and by calculation, net revenue yield on AUM) and the related computation of adjusted cash operating income (and by calculation, adjusted cash operating margin), is useful information for investors and other users of the company’s financial statements because such presentation appropriately reflects the nature of these expenses as revenue-sharing activities, as these costs are passed through to external parties who perform functions on behalf of the company’s managed funds. Further, these expenses vary extensively by geography due to the differences in distribution channels. The net presentation assists in identifying the revenue contribution generated by the business, removing distortions caused by the differing distribution channel fees and allowing for a fair comparison with U.S. peer investment managers and within Invesco’s own investment units. Additionally, management evaluates net revenue yield on AUM, which is equal to net revenues divided by average AUM during the reporting period. This financial measure is an indicator of the basis point net revenues we receive for each dollar of AUM we manage and is useful when evaluating the company’s performance relative to industry competitors and within the company for capital allocation purposes. | ||
| (2) | Proportional share of net revenues and operating income from joint venture investments | |
| The company has two joint venture investments in China. The Invesco Great Wall joint venture was one of the largest Sino-foreign managers of equity products in China, with AUM of approximately $3.8 billion as of March 31, 2010. The company has a 49.0% interest in Invesco Great Wall. The company also has a 50% joint venture with Huaneng Capital Services to assess private equity investment opportunities in power generation in China through Huaneng Invesco WLR Investment Consulting Company Ltd. Enhancing our operations in China is one effort that we believe could improve our competitive position over time. Accordingly, we believe that it is appropriate to evaluate the contribution of our joint venture investments to the operations of the business. | ||
| Management believes that the addition of our proportional share of revenues, net of distribution expenses, from joint venture investments in the computation of net revenues and the addition of our proportional share of operating income in the related computations of adjusted cash operating income and adjusted cash operating margin also provide useful information to investors and other users of the company’s financial statements, as management considers it appropriate to evaluate the contribution of its joint ventures to the operations of the business. It is also consistent with the presentation of AUM and net flows (where our proportional share of the ending balances and related activity are reflected) and therefore provides a more meaningful calculation of net revenue yield on AUM. | ||
| (3) | Consolidated investment products | |
| In June 2009, the U.S. FASB issued Statement No. 167, which was effective January 1, 2010. It has had a significant impact on the presentation of the company’s financial statements. The provisions of FASB Statement No. 167 required us to consolidate into our financial statements certain CLOs with approximately $5.8 billion in assets and $5.1 billion in debt at March 31, 2010. The company’s Consolidated Statements of Income reflect the elimination of management and performance fees earned from these CLOs of $8.7 million during the three months ended March 31, 2010, and the addition of $52.5 million in interest income, $20.8 million in interest expense, and $85.1 million in net other gains. The $105.8 million net income impact during the three months ended March 31, 2010, of consolidation is largely offset by gains/(losses) attributable to noncontrolling interests of $104.4 million. See Part I, Item I, “Financial Statements– Note 9, Consolidated Investment Products” for a detailed analysis of the impact to the company’s Condensed Consolidated Financial Statements from the consolidation of investment products. | ||
| Management believes that the consolidation of investment products may impact a reader’s analysis of our underlying results of operations and could result in investor confusion or the production of information about the company by analysts or external credit rating agencies that is not reflective of the underlying results of operations and financial condition of the company. Accordingly, management believes that it is appropriate to adjust operating revenues, operating income and operating margin for the impact of consolidated investment products in calculating the respective net revenues, adjusted cash operating income and adjusted cash operating margin. The reconciling items add back the management and performance fees earned by Invesco from |
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| the consolidated products and remove the revenues and expenses recorded by the consolidated products that have been included in the U.S. GAAP Condensed Consolidated Statements of Income. | ||
| These amounts have been relatively small in recent years, as the company has been consolidating other investment products, primarily private equity funds, under other U.S. GAAP consolidation accounting guidance. Net revenues and adjusted cash operating income reflect these reconciling items for the three months ended March 31, 2008. | ||
| (4) | Acquisition-related reconciling items | |
| Acquisition-related adjustments include transaction and integration expenses and intangible asset amortization related to acquired assets, amortization of prepaid compensation related to the 2006 acquisition of W.L. Ross & Co., and tax cash flow benefits resulting from tax amortization of goodwill and indefinite-lived intangible assets. | ||
| Transaction and integration charges were $17.2 million during the three months ended March 31, 2010 (three months ended March 31, 2009: none), and relate to the pending acquisition of Morgan Stanley’s retail asset management business, including Van Kampen Investments. Taxation on this amount, calculated at the applicable tax rate for the tax deductible portion of the charges, is $1.9 million for the three months ended March 31, 2010 (three months ended March 31, 2009: none) giving a net adjustment of $15.3 million for the three months ended March 31, 2010 (three months ended March 31, 2009: none). The acquisition was announced in October 2009 and is expected to close in on June 1, 2010. These aggregate costs are currently expected to be less than $175 million, including those costs incurred in 2009, and are expected to continue to be incurred during 2010-2011. These charges reflect the legal, regulatory, advisory, valuation and other professional or consulting fees, general and administrative costs, including travel costs related to the transaction and the costs of temporary staff involved in executing the transaction, and the post closing costs of integrating the acquired business into the company’s existing operations including incremental costs associated with achieving synergy savings. | ||
| The pending acquisition is also expected to result in additional future amortization expenses in the range $25 — $35 million per year for approximately 8 years related to the finite-lived intangible assets that will be recorded at the closing date. The U.S. GAAP to non-GAAP reconciling items includes acquisition-related amortization charges related to previous business combinations. These reconciling items are intangible amortization of $3.1 million for the three months ended March 31, 2010 (three months ended March 31, 2009: $3.1 million) and the amortization of prepaid compensation of $5.0 million (three months ended March 31, 2009: $5.0 million) related to the October 2006 acquisition of W.L. Ross & Co. Taxation of $0.1 million for the three months ended March 31, 2010 (three months ended March 31, 2009: none) is recorded on a small portion of the intangible amortization expense that does not generate a cash tax benefit, giving a net adjustment of $3.0 million for the three months ended March 31, 2010 (three months ended March 31, 2009: $3.1 million). The W.L. Ross & Co. prepaid compensation expense will continue through 2010, and the acquisition-related asset will be fully amortized by the third quarter of 2011. | ||
| Management believes it is useful to investors and other users of our financial statements to adjust for the transaction and integration charges and the amortization expenses in arriving at adjusted cash operating income, adjusted cash operating margin and adjusted cash EPS, as this will aid comparability of our results period to period, and aid comparability with peer companies that may not have similar acquisition-related charges. | ||
| While finite-lived intangible assets are amortized under U.S. GAAP, there is no amortization charge on goodwill and indefinite-lived intangibles. In certain qualifying situations, these can be amortized for tax purposes, generally over a 15-year period, as is the case in the U.S. These cash flows represent tax benefits that are not included in the Condensed Consolidated Statements of Income absent an impairment charge or the disposal of the related business. We believe it is useful to include these tax cash flow benefits in arriving at the adjusted cash EPS measure. The company receives these cash flow benefits but does not anticipate a sale or impairment of these assets in the foreseeable future, and therefore the deferred tax liability recognized under U.S. GAAP is not expected to be used either through a credit in the Condensed Consolidated Statements of Income or through settlement of tax obligations. Adjustments for deferred income taxes on goodwill and indefinite-lived intangibles that are amortized for tax purposes were $3.6 million in both quarters presented. | ||
| (5) | Market movement on deferred compensation plan liabilities | |
| In 2009, Invesco introduced an incentive plan whereby certain of our investment team members can receive deferred cash compensation linked in value to the investment products being managed by the team. This is in lieu of share-based awards which were largely the only prior form of deferred compensation used by Invesco. |
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| These new awards involve a return to the employee linked to the appreciation (depreciation) of specified investments, typically the funds managed by the employee. Invesco intends to economically hedge the exposure to market movements by holding these investments on its balance sheet. U.S. GAAP requires the appreciation (depreciation) in the compensation liability to be expensed over the award vesting period in proportion to the vested amount of the award as part of compensation expense. The full value of the investment appreciation (depreciation) is immediately recorded below operating income in other gains and losses. This creates a timing difference between the recognition of the compensation expense and the investment gain or loss impacting net income attributable to common shareholders and diluted EPS which will reverse over the life of the award and net to zero at the end of the multi-year vesting period. During periods of high market volatility these timing differences impact compensation expense, operating income and operating margin that, over the life of the award, will ultimately be offset by gains and losses recorded below operating income on the Consolidated Statements of Income. | ||
| Since these plans are economically hedged, management believes it is useful to reflect the offset ultimately achieved from hedging the investment market exposure in the calculation of adjusted cash operating income (and by calculation, adjusted cash operating margin) and adjusted net income (and by calculation, adjusted cash EPS), to produce results that will be more comparable period to period. The related fund shares will have been purchased on or around the date of grant, eliminating any ultimate cash impact from market movements that occur over the vesting period. The non-GAAP measures therefore excludes the mismatch created by differing U.S. GAAP treatments of the market movement on the liability and the investments. | ||
| The appreciation of the compensation liability was $1.9 million in the three months ended March 31, 2010 with an investment gain of $2.4 million on the assets held to economically hedge the compensation liability. This additional compensation expense and the investment gain are adjusted in arriving at the Non-GAAP information and, net of applicable taxation of $0.2 million, result in a net income adjustment of $0.3 million. No adjustments are being made for the 2009 comparative non-GAAP measures presented above due to the relative insignificance of the amounts in that period. |
Balance Sheet Discussion
Condensed Consolidating Balance Sheets are presented below and reflect the adoption of FASB
Statement No. 167, now encompassed in ASC Topic 810, “Consolidation,” at January 1, 2010. The
majority of the company’s consolidated investment products were CLOs as of March 31, 2010. The
collateral assets of the CLOs are held solely to satisfy the obligations of the CLOs. The company
has no right to the benefits from, nor does it bear the risks associated with, the collateral
assets held by the CLOs, beyond the company’s minimal direct investments in, and management fees
generated from, CLOs. If the company were to liquidate, the collateral assets would not be
available to the general creditors of the company, and as a result, the company does not consider
them to be company assets. Additionally, the investors in the CLOs have no recourse to the general
credit of the company for the notes issued by the CLOs. The company therefore does not consider
this debt to be a company liability.
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Condensed Consolidating Balance Sheets
| Consolidated | ||||||||||||||||
| Before | Investment | |||||||||||||||
| $ in millions | Consolidation* | Products** | Eliminations | Total | ||||||||||||
|
As of March 31, 2010
|
||||||||||||||||
|
Current assets
|
3,245.9 | 419.1 | (19.7 | ) | 3,645.3 | |||||||||||
|
Non-current assets
|
7,067.7 | 6,105.7 | (27.2 | ) | 13,146.2 | |||||||||||
|
|
||||||||||||||||
|
Total assets
|
10,313.6 | 6,524.8 | (46.9 | ) | 16,791.5 | |||||||||||
|
|
||||||||||||||||
|
Current liabilities
|
2,419.5 | 301.3 | (19.7 | ) | 2,701.1 | |||||||||||
|
Long-term debt of consolidated investment products
|
— | 5,136.3 | (17.2 | ) | 5,119.1 | |||||||||||
|
Other non-current liabilities
|
970.4 | — | — | 970.4 | ||||||||||||
|
|
||||||||||||||||
|
Total liabilities
|
3,389.9 | 5,437.6 | (36.9 | ) | 8,790.6 | |||||||||||
|
|
||||||||||||||||
|
Retained earnings attributable to investors in
consolidated investment products
|
— | 385.2 | (1.4 | ) | 383.8 | |||||||||||
|
Other equity attributable to common shareholders
|
6,919.2 | 8.6 | (8.6 | ) | 6,919.2 | |||||||||||
|
Equity attributable to noncontrolling interests
in consolidated entities
|
4.5 | 693.4 | — | 697.9 | ||||||||||||
|
|
||||||||||||||||
|
Total liabilities and equity
|
10,313.6 | 6,524.8 | (46.9 | ) | 16,791.5 | |||||||||||
|
|
||||||||||||||||
| Consolidated | ||||||||||||||||
| Before | Investment | |||||||||||||||
| $ in millions | Consolidation* | Products | Eliminations | Total | ||||||||||||
|
As of December 31, 2009
|
||||||||||||||||
|
Current assets
|
3,089.8 | 31.2 | — | 3,121.0 | ||||||||||||
|
Non-current assets
|
7,111.8 | 685.0 | (8.2 | ) | 7,788.6 | |||||||||||
|
|
||||||||||||||||
|
Total assets
|
10,201.6 | 716.2 | (8.2 | ) | 10,909.6 | |||||||||||
|
|
||||||||||||||||
|
Current liabilities
|
2,293.6 | 4.8 | — | 2,298.4 | ||||||||||||
|
Non-current liabilities
|
990.4 | — | — | 990.4 | ||||||||||||
|
|
||||||||||||||||
|
Total liabilities
|
3,284.0 | 4.8 | — | 3,288.8 | ||||||||||||
|
|
||||||||||||||||
|
Total equity attributable to common shareholders
|
6,912.9 | 8.2 | (8.2 | ) | 6,912.9 | |||||||||||
|
Equity attributable to noncontrolling interests
in consolidated entities
|
4.7 | 703.2 | — | 707.9 | ||||||||||||
|
|
||||||||||||||||
|
Total liabilities and equity
|
10,201.6 | 716.2 | (8.2 | ) | 10,909.6 | |||||||||||
|
|
||||||||||||||||
| * | The Before Consolidation column includes Invesco’s equity interest in the investment products, accounted for as equity method and available-for-sale investments and does not include any other adjustments related to non-GAAP financial measure presentation. | |
| ** | The company adopted FASB Statement No. 167 on January 1, 2010, resulting in the consolidation of certain CLOs In accordance with the standard, prior periods have not been restated to reflect the consolidation of these CLOs. Prior to January 1, 2010, the company was not deemed to be the primary beneficiary of these CLOs. |
55
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The following table presents a comparative analysis of significant detailed balance sheet line
items:
| March 31, | December 31, | |||||||||||||||
| $ in millions | 2010 | 2009 | $ Change | % Change | ||||||||||||
|
Cash and cash equivalents
|
597.0 | 762.0 | (165.0 | ) | (21.7 | )% | ||||||||||
|
Unsettled fund receivables
|
758.1 | 383.1 | 375.0 | 97.9 | % | |||||||||||
|
Current investments
|
154.0 | 182.4 | (28.4 | ) | (15.6 | )% | ||||||||||
|
Assets held for policyholders
|
1,221.0 | 1,283.0 | (62.0 | ) | (4.8 | )% | ||||||||||
|
Non-current investments
|
141.8 | 157.4 | (15.6 | ) | (9.9 | )% | ||||||||||
|
Investments of consolidated investment products
|
6,105.7 | 685.0 | 5,420.7 | 791.3 | % | |||||||||||
|
Goodwill
|
6,425.8 | 6,467.6 | (41.8 | ) | (0.6 | )% | ||||||||||
|
Policyholder payables
|
(1,221.0 | ) | (1,283.0 | ) | (62.0 | ) | (4.8 | )% | ||||||||
|
Long-term debt
|
(745.7 | ) | (745.7 | ) | — | 0 | % | |||||||||
|
Long-term debt of consolidated investment products
|
(5,119.1 | ) | — | 5,119.1 | N/A | |||||||||||
|
Retained earnings appropriated for investors in consolidated investment
products
|
(383.8 | ) | — | 383.8 | N/A | |||||||||||
|
Equity attributable to common shareholders
|
(7,303.0 | ) | (6,912.9 | ) | 390.1 | 5.6 | % | |||||||||
|
Equity attributable to noncontrolling interests in consolidated entities
|
(697.9 | ) | (707.9 | ) | (10.0 | ) | (1.4 | )% | ||||||||
Cash and Cash Equivalents
Cash and cash equivalents decreased by $165.0 million from $762.0 million at December 31,
2009, to $597.0 million at March 31, 2010, primarily due to the payout of the annual bonus awards.
Invesco has local capital requirements in several jurisdictions, as well as regional
requirements for entities that are part of the European sub-group. These requirements mandate the
retention of liquid resources in those jurisdictions, which we meet in part by holding cash and
cash equivalents. This retained cash can be used for general business purposes in the European
sub-group or in the countries where it is located. Due to the capital restrictions, the ability to
transfer cash between certain jurisdictions may be limited. In addition, transfers of cash between
international jurisdictions may have adverse tax consequences that may substantially limit such
activity. At March 31, 2010, the European sub-group had cash and cash equivalent balances of
$326.8 million, much of which is used to satisfy these regulatory requirements. We are in
compliance with all regulatory minimum net capital requirements.
Unsettled Fund Receivables
Unsettled fund receivables increased by $375.0 million from $383.1 million at December 31,
2009, to $758.1 million at March 31, 2010, due to higher transaction activity between funds and
investors in late March 2010 when compared to late December 2009. Unsettled fund receivables are
created by the normal settlement periods on transactions initiated by certain clients of our U.K.
and offshore funds. The presentation of the receivable and substantially offsetting payable ($735.9
million) at trade date with both the investor and the fund for normal purchases and sales reflects
the legal relationship between the underlying investor and the company.
Investments (current and non-current)
As of March 31, 2010, we had $295.8 million in investments, of which $154.0 million were
current investments and $141.8 million were non-current investments. Included in current
investments are $77.9 million of seed money investments in affiliated funds used to seed funds as
we launch new products, and $51.8 million of investments related to assets held for deferred
compensation plans, which are also held primarily in affiliated funds, and which decreased during
the three months ended March 31, 2010, due to the sale of investments that were used to hedge
deferred compensation awards that have now vested to employees of the company. Included in
non-current investments are $136.9 million in equity method investments in our Chinese joint
ventures and in certain of the company’s private equity, real estate and other investments.
Assets Held for Policyholders and Policyholder Payables
One of our subsidiaries, Invesco Perpetual Life Limited, is an insurance company that was
established to facilitate retirement savings plans in the U.K. The entity holds assets that are
managed for its clients on its balance sheet with an equal and offsetting liability. The increasing
balance in these accounts from $1,283.0 million at
December 31, 2009, to $1,221.0 million at March
31, 2010, was the result of foreign exchange movements, the increase in the market values of these
assets, and net flows into the funds.
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Investments of consolidated investment products
The company provides investment management services to, and has transactions with, various
private equity funds, real estate funds, fund-of-funds, CLOs and other investment entities
sponsored by the company for the investment of client assets in the normal course of business. The
company serves as the investment manager, making day-to-day investment decisions concerning the
assets of the products and may have a small investment in certain of these products to demonstrate
“skin in the game” to other potential unaffiliated investors in these products. Certain of these
investments are considered to be variable interest entities (VIEs). If the company is the primary
beneficiary of the VIEs, then the investment products are consolidated into the company’s financial
statements. Other partnership entities are consolidated under a voting interest entity (VOE) model
where the company is the general partner and is presumed to have control, in the absence of simple
majority kick-out rights to remove the general partner, simple majority liquidation rights to
dissolve the partnership, or any substantive participating rights of the other limited partners.
See Part I, Item 1, Financial Statements – Note 9, “Consolidated Investment Products,” for
additional details.
Effective January 1, 2010, upon the adoption of FASB Statement No. 167, now encompassed in ASC
Topic 810, the company determined that it was the primary beneficiary of certain CLO VIEs, as it
has the power to direct the activities of the CLOs that most significantly impact the CLOs’
economic performance, and the obligation to absorb losses/rights to receive benefits from the CLOs
that could potentially be significant to the CLOs. Generally, private equity and fund of funds
limited partnership entities where the general partner does not have substantive equity investment
at risk and where the other limited partners do not have substantive (greater than 50%) rights to
remove the general partner or to dissolve the limited partnership are also VIEs. The primary
beneficiary of non-CLO investment products is the party to the VIE who absorbs a majority of the
losses or absorbs the majority of the rewards generated by the VIE. Additionally, under the voting
interest entity (VOE) consolidation model, the general partner in a partnership that is not a VIE
consolidates the partnership because the general partner is deemed to control the partnership where
the other limited partner do not have substantive kick-out, liquidation or participation rights.
The company has no right to the benefits from, nor does it bear the risks associated with,
investments held by consolidated investment products, beyond the company’s minimal direct
investments in, and management fees generated from, these products, which are eliminated upon
consolidation. If the company were to liquidate, the assets held by consolidated investment
products would not be available to the general creditors of the company. Investments of
consolidated investment products include the investments of both consolidated VIEs and VOEs.
As of March 31, 2010, investments of consolidated investment products totaled $6,105.7 million
(December 31, 2009: $685.0 million). These investments are offset primarily in noncontrolling
interests in consolidated entities on the Condensed Consolidated Balance Sheets, as the company’s
equity investment in these structures is very small. The increase from December 31, 2009, reflects
adoption of FASB Statement No. 167 on January 1, 2010. In accordance with the standard, prior
periods have not been restated.
Goodwill
Goodwill decreased by $41.8 million from $6,467.6 million at December 31, 2009, to $6,425.8
million at March 31, 2010, due to the impact of foreign currency translation for certain
subsidiaries whose functional currency differs from that of the parent.
There was no change in the balance of the non-current portion of our total long-term debt of
$745.7 million from December 31, 2009.
Long-term debt of consolidated investment products
Long-term debt of consolidated investment products relates to notes issued by consolidated
CLOs. Collateral assets of the CLOs, which are included in investments of consolidated investment
products, are held solely to satisfy the obligations of the CLOs. The investors in the CLOs debt
tranches have no recourse to the general credit of the company for the notes issued by the CLOs.
Long-term debt of consolidated investment products was $5,119.1 million at March 31, 2010,
reflecting the adoption of FASB Statement No. 167, now encompassed in ASC Topic 810,
“Consolidation,” on January 1, 2010. In accordance with the standard, prior periods have not been
restated to reflect the consolidation.
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Retained earnings appropriated for investors in consolidated investment products
The retained earnings appropriated for investors in consolidated investment products relates
primarily to the difference in value between the collateral assets held by (which are included in
investments of consolidated investment products) and the debt issued by consolidated CLOs. The
collateral assets held, and notes issued, by consolidated CLOs are measured at fair value in the
Condensed Consolidated Balance Sheet.
The retained earnings appropriated for investors in consolidated investment products was
$383.8 million at March 31, 2010, reflecting the adoption of FASB Statement No. 167, now
encompassed in ASC Topic 810, “Consolidation,” on January 1, 2010, which resulted in the
consolidation of certain CLOs with outstanding note issuances of $5.4 billion at January 1, 2010.
In accordance with the standard, prior periods have not been restated to reflect the consolidation.
Equity attributable to noncontrolling interests in consolidated entities
Equity attributable to noncontrolling interests in consolidated entities decreased by $10.0
million from $707.9 million at December 31, 2009, to $697.9 million at March 31, 2010. Net gains of
$15.1 million were offset by $25.1 million of net changes in the partners’ capital of these
entities during the period.
The noncontrolling interests in consolidated entities are generally offset by the net assets
of consolidated investment products, as the company’s equity investment in the investment products
is not significant.
Equity attributable to common shareholders
Equity attributable to common shareholders increased from $6,912.9 million at December 31,
2009, to $7,303.0 million at March 31, 2010, an increase of $390.1 million. Increases to equity
included net income attributable to common shareholders of $95.0 million, share issuances upon
employee option exercises of $3.9 million, share based payment credit to capital of $24.2 million,
and retained earnings appropriated for investors in consolidated investment products of $383.8
million arising from the adoption of FASB Statement No. 167, now encompassed in ASC Topic 810,
“Consolidation.” The increases to equity were partially offset by $44.8 million in dividend
payments, $52.3 million of changes in foreign currency rates, and $30.9 million in shares acquired
from staff to meet withholding tax obligations on share award vestings.
Liquidity and Capital Resources
The adoption of FASB Statement No. 167, now encompassed in ASC Topic 810, “Consolidations,” on
January 1, 2010, which resulted in the consolidation of $5.7 billion and $5.4 billion of total
assets and liabilities of certain CLO products at that date, respectively, did not impact the
company’s liquidity and capital resources. The collateral assets of the CLOs are held solely to
satisfy the obligations of the CLOs. The company has no right to the benefits from, nor does it
bear the risks associated with, the collateral assets held by the CLOs, beyond the company’s
minimal direct investments in, and management fees generated from, these products, which are
eliminated upon consolidation. If the company were to liquidate, the collateral assets would not be
available to the general creditors of the company, and as a result, the company does not consider
them to be company assets. Additionally, the investors in the CLOs debt tranches have no recourse
to the general credit of the company for the notes issued by the CLOs. The company therefore does
not consider this debt to be an obligation of the company. See Part I, Item 1, Financial Statements
– Note 9, “Consolidated Investment Products,” for additional details.
On May 26, 2009, we issued 32.9 million common shares in a public offering that produced gross
proceeds of $460.5 million ($441.8 million net of related expenses). On June 9, 2009, we replaced
our $900.0 million credit facility, which was never fully utilized, with a $500.0 million credit
facility, the amount of which was based upon our past and projected working capital needs; however,
we are able to increase the credit facility to $750.0 million, subject to certain conditions. At
March 31, 2010, the company had no balance drawn on the credit facility. These two transactions
confirmed our ability to access the capital markets in a timely manner. On June 30, 2009, we
completed a $100.0 million tender offer to purchase publicly traded debt with a principal value of
$104.3 million. On December 15, 2009, we repaid the $294.2 million 4.5% senior notes that matured
on that date, utilizing existing cash balances, having repurchased $3.0 million of these notes
earlier in the year.
We believe that our capital structure, together with available cash balances, cash flows
generated from operations, existing capacity under our credit facility, proceeds from the public
offering of our shares and further capital market activities, if necessary, should provide us with
sufficient resources to meet present and future cash needs, including operating, debt and other
obligations as they
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come due and anticipated future capital requirements. Additionally, we expect to use available
cash balances and borrowings under our credit facility to satisfy the $500.0 million cash
consideration related to acquisition of Morgan Stanley’s retail asset management business,
including Van Kampen Investments. New equity, in the form of common and non-voting common
equivalent preferred shares (with economic rights identical to common stock, other than no right to
vote such shares) is expected to be issued to Morgan Stanley, without holding restrictions, in
conjunction with the close. The ultimate purchase price for the business may be higher or lower
than the $1.5 billion announced purchase price, due to contractual price adjustments that will made
depending on certain conditions being met at the closing date and changes in the company’s share
price. For example, a price adjustment may be made based on the degree to which clients of the
business being acquired provide their consent for the transaction at the time of closing the deal.
Our ability to access the capital markets in a timely manner depends on a number of factors
including our credit rating, the condition of the global economy, investors’ willingness to
purchase our securities, interest rates, credit spreads and the valuation levels of equity markets.
If we are unable to access capital markets in a timely manner, our business could be adversely
impacted.
Certain of our subsidiaries are required to maintain minimum levels of capital. These and
other similar provisions of applicable law may have the effect of limiting withdrawals of capital,
repayment of intercompany loans and payment of dividends by such entities. After redomicile and
after consultation with the U.K. FSA, it has been determined that, for the purposes of prudential
supervision, Invesco Ltd. is not subject to regulatory consolidated capital requirements under
current European Union (EU) Directives. A sub-group, however, including all of our regulated EU
subsidiaries, is subject to these consolidated capital requirements, and capital is maintained
within this sub-group to satisfy these regulations. These requirements mandate the retention of
liquid resources in those jurisdictions, which we meet in part by holding cash and cash
equivalents. This retained cash can be used for general business purposes in the European sub-group
or in the countries where it is located. Due to the capital restrictions, the ability to transfer
cash between certain jurisdictions may be limited. In addition, transfers of cash between
international jurisdictions may have adverse tax consequences that may substantially limit such
activity. At March 31, 2010, the European sub-group had cash and cash equivalent balances of
$326.8 million, much of which is used to satisfy these regulatory requirements. We are in
compliance with all regulatory minimum net capital requirements.
Cash Flows
The ability to consistently generate cash from operations in excess of capital expenditures
and dividend payments is one of our company’s fundamental financial strengths. Operations continue
to be financed from current earnings and borrowings. Our principal uses of cash, other than for
operating expenses, include dividend payments, capital expenditures, acquisitions, purchase of our
shares in the open market and investments in certain new investment products.
Cash flows of consolidated investment products (discussed in Item 1, Financial Statements —
Note 9, “Consolidated Investment Products”) are reflected in Invesco’s cash used in operating
activities, provided by investing activities and provided by financing activities. Cash held by
consolidated investment products is not available for general use by Invesco, nor is Invesco cash
available for general use by its consolidated investment products.
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Condensed Consolidating Statements of Cash Flows
| Consolidated | ||||||||||||||||
| Before | Investment | |||||||||||||||
| $ in millions | Consolidation | Products * | Eliminations | Total | ||||||||||||
|
For the three months ended March 31, 2010
|
||||||||||||||||
|
Net income
|
93.5 | 121.2 | (0.2 | ) | 214.5 | |||||||||||
|
Adjustments to reconcile net income to net cash
provided by operating activities
|
88.0 | (103.1 | ) | 0.2 | (14.9 | ) | ||||||||||
|
Changes in cash held by consolidated investment products
|
— | (116.1 | ) | — | (116.1 | ) | ||||||||||
|
Other changes in operating assets and liabilities
|
(282.6 | ) | 22.1 | — | (260.5 | ) | ||||||||||
|
|
||||||||||||||||
|
Net cash used in operating activities
|
(101.1 | ) | (75.9 | ) | — | (177.0 | ) | |||||||||
|
|
||||||||||||||||
|
Net purchases of investments by consolidated investment
products
|
— | 150.9 | — | 150.9 | ||||||||||||
|
Other investing activities
|
(16.8 | ) | — | — | (16.8 | ) | ||||||||||
|
|
||||||||||||||||
|
Net cash (used in)/provided by investing activities
|
(16.8 | ) | 150.9 | — | 134.1 | |||||||||||
|
|
||||||||||||||||
|
Net capital invested into/(distributed by) consolidated
investment products
|
— | (75.0 | ) | — | (75.0 | ) | ||||||||||
|
Other financing activities
|
(34.3 | ) | — | — | (34.3 | ) | ||||||||||
|
|
||||||||||||||||
|
Net cash used in financing activities
|
(34.3 | ) | (75.0 | ) | (109.3 | ) | ||||||||||
|
|
||||||||||||||||
|
Decrease in cash and cash equivalents
|
(152.2 | ) | — | — | (152.2 | ) | ||||||||||
|
Foreign exchange movement on cash and cash equivalents
|
(12.8 | ) | — | — | (12.8 | ) | ||||||||||
|
Cash and cash equivalents, beginning of period
|
762.0 | — | — | 762.0 | ||||||||||||
|
|
||||||||||||||||
|
Cash and cash equivalents, end of period
|
597.0 | — | — | 597.0 | ||||||||||||
|
|
||||||||||||||||
| Consolidated | ||||||||||||
| Before | Investment | |||||||||||
| $ in millions | Consolidation | Products | Total | |||||||||
|
For the three months ended March 31, 2009
|
||||||||||||
|
Net income
|
30.8 | (88.6 | ) | (57.8 | ) | |||||||
|
Adjustments to reconcile net income to net cash provided by operating
activities
|
73.3 | 85.3 | 158.6 | |||||||||
|
Changes in cash held by consolidated investment products
|
— | 14.0 | 14.0 | |||||||||
|
Other changes in operating assets and liabilities
|
(296.1 | ) | 1.3 | (294.8 | ) | |||||||
|
|
||||||||||||
|
Net cash (used in)/provided by operating activities
|
(192.0 | ) | 12.0 | (180.0 | ) | |||||||
|
|
||||||||||||
|
Net purchases of investments by consolidated investment products
|
— | (5.4 | ) | (5.4 | ) | |||||||
|
Other investing activities
|
2.8 | — | 2.8 | |||||||||
|
|
||||||||||||
|
Net cash (used in)/provided by investing activities
|
2.8 | (5.4 | ) | (2.6 | ) | |||||||
|
|
||||||||||||
|
Net capital invested into/(distributed by) consolidated investment products
|
— | (6.6 | ) | (6.6 | ) | |||||||
|
Other financing activities
|
(55.0 | ) | — | (55.0 | ) | |||||||
|
|
||||||||||||
|
Net cash used in financing activities
|
(55.0 | ) | (6.6 | ) | (61.6 | ) | ||||||
|
|
||||||||||||
|
Decrease in cash and cash equivalents
|
(244.2 | ) | — | (244.2 | ) | |||||||
|
Foreign exchange movement on cash and cash equivalents
|
(7.9 | ) | — | (7.9 | ) | |||||||
|
Cash and cash equivalents, beginning of period
|
585.2 | — | 585.2 | |||||||||
|
|
||||||||||||
|
Cash and cash equivalents, end of period
|
333.1 | — | 333.1 | |||||||||
|
|
||||||||||||
| * | The company adopted FASB Statement No. 167 on January 1, 2010, resulting in the consolidation of certain CLOs. In accordance with the standard, prior periods have not been restated to reflect the consolidation of these CLOs. Prior to January 1, 2010, the company was not deemed to be the primary beneficiary of these CLOs. |
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Operating Activities
Net cash used in operating activities is generated by the receipt of investment management and
other fees generated from AUM, offset by operating expenses and changes in operating assets and
liabilities. Although some receipts and payments are seasonal, particularly bonus payments, in
general, after allowing for the change in cash held by consolidated investment products, our
operating cash flows move in the same direction as our operating income.
Net cash used in operating activities for the three months ended March 31, 2010, was $177.0
million (three months ended March 31, 2009: $180.0 million). This includes the increase of $116.1
million in the cash held by consolidated investment products (three months ended March 31, 2009:
decrease of $14.0 million). After removing the impact of the change in the cash held by
consolidated investment products, net cash used in operating activities was $60.9 million for the
three months ended March 31, 2010 (three months ended March 31, 2009: $194.0 million). The
remaining changes in operating assets and liabilities used $260.5 million of cash (three months
ended March 31, 2009: $294.8 million) while the combined cash generated from other operating items
was $199.6 million ((three months ended March 31, 2009: $100.8 million). This remaining change in
operating assets and liabilities in the three months ended March 31, 2010 was driven by the funding
of annual bonuses, related payroll taxes and annual pension contributions together with higher
trade receivables. The company funded the annual bonus payments in the first quarter from cash
balances rather than through increased debt levels. In the three months ended March 31, 2009, the
change in operating assets and liabilities was driven by the funding of annual bonuses and related
payroll taxes.
Investing Activities
Net cash provided in financing activities totaled $134.1 million for the three months ended
March 31, 2010, (three months ended March 31, 2009: net cash used of $2.6 million) which was driven
by investment purchases, sales and returns of capital of our consolidated investment products that,
in total, contributed $150.9 million (2009: $5.4 million utilized). After allowing for these
consolidated investment product cash flows, net cash used in financing was $16.8 million (three
months ended March 31, 2009: net cash generated of $2.8 million) and included the purchase of
available-for-sale investments and other investments of $31.8 million (three months ended March 31,
2009: $7.7 million) and capital expenditures of $15.5 million (three months ended March 31, 2009:
$5.3 million). These cash outflows were partly offset from collected proceeds of $30.5 million
from sales of investments in the three months ended March 31, 2010 (three months ended March 31,
2009: $15.5 million).
Our capital expenditures related principally in each year to technology initiatives, including
new platforms from which we maintain our portfolio management systems and fund accounting systems,
improvements in computer hardware and software desktop products for employees, new
telecommunications products to enhance our internal information flow, and back-up disaster recovery
systems. Also, in each year, a portion of these costs related to leasehold improvements made to the
various buildings and workspaces used in our offices. These projects have been funded with proceeds
from our operating cash flows. During the three months ended March 31, 2010 and 2009, our capital
divestitures were not significant relative to our total fixed assets.
There were no payments made in the three months ended March 31, 2010, related to acquisition
earn-out arrangements.
Financing Activities
Net cash used in financing activities totaled $109.3 million for the three months ended March
31, 2010, (three months ended March 31, 2009: $61.6 million) which included capital activity of our
consolidated investment products that used cash of $75.0 million (three months ended March 31,
2009: $6.6 million). Excluding the impact of consolidated investment products, financing activities
used $34.3 million (three months ended March 31, 2009: $55.0 million) and included the $44.8
million payment of dividends declared in January 2010 (three months ended March 31, 2009: dividends
paid of $38.9 million). These outflows were offset with proceeds from the exercise of options of
$3.7 million (three months ended March 31, 2009: $1.7 million) and excess tax benefits from
share-based compensation of $6.8 million (three months ended March 31, 2009: none). Net cash used
in financing activities for the three months ended March 31, 2009, also included repayments of our
credit facility and early repurchase of our loan notes that matured in December 2009 utilized $4.5
million and $3.0 million in cash respectively. Financing cash flows also include a payment of $10.3
million to purchase of the remaining 24.9% of Invesco Real Estate GmbH not already held by the
company, the controlling interest having been acquired in December 2003.
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Dividends
Invesco declares and pays dividends on a quarterly basis. On January 27, 2010, the company
declared a fourth quarter 2009 cash dividend, which was paid on March 10, 2010, to shareholders of
record as of February 23, 2010. On April 27, 2010, the company declared a first quarter 2010 cash
dividend of $0.11 per Invesco Ltd. common share, which is payable on June 9, 2010, to shareholders
of record at the close of business on May 24 , 2010.
Share Repurchase Plan
An aggregate of 1.3 million shares were withheld on vesting events during the three months
ended March 31, 2010, to meet employees’ withholding tax obligations. The value of these shares
withheld was $30.9 million (three months ended March 31, 2009: $11.5 million). At March 31, 2010,
approximately $1.4 billion remained authorized for repurchase under the company’s share repurchase
plan.
Debt
Our total indebtedness at March 31, 2010, was $745.7 million (December 31, 2009 is $745.7
million) and was comprised of the following:
| March 31, | December 31, | |||||||
| $ in millions | 2010 | 2009 | ||||||
|
Unsecured Senior Notes:
|
||||||||
|
5.625% — due April 17, 2012
|
215.1 | 215.1 | ||||||
|
5.375% — due February 27, 2013
|
333.5 | 333.5 | ||||||
|
5.375% — due December 15, 2014
|
197.1 | 197.1 | ||||||
|
Floating rate credit facility expiring June 9, 2012
|
— | — | ||||||
|
|
||||||||
|
Total debt
|
745.7 | 745.7 | ||||||
|
Less: current maturities of total debt
|
— | — | ||||||
|
|
||||||||
|
Long-term debt
|
745.7 | 745.7 | ||||||
|
|
||||||||
For the three months ended March 31, 2010, the company’s weighted average cost of debt was
5.45% (three months ended March 31, 2009: 4.91%). Long-term debt was $745.7 million at March 31,
2010, and December 31, 2009.
Financial covenants under the credit facility include: (i) the quarterly maintenance of a
debt/EBITDA ratio, as defined in the credit agreement, of not greater than 3.25:1.00 through
December 31, 2010, and not greater than 3.00:1.00 thereafter, (ii) a coverage ratio (EBITDA, as
defined in the credit agreement/interest payable for the four consecutive fiscal quarters ended
before the date of determination) of not less than 4.00:1.00, and (iii) maintenance on a monthly
basis of consolidated long term assets under management (as defined in the credit agreement) of not
less than $194.8 billion, which amount is subject to a one-time reset by the company under certain
conditions. As of March 31, 2010, we were in compliance with our debt covenants. At March 31, 2010,
our leverage ratio was 0.99:1.00 (December 31, 2009: 1.11:1.00), and our interest coverage ratio
was 13.06:1.00 (December 31, 2009: 11.01:1.00), and our long-term AUM were $350.6 billion.
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The March 31, 2010, coverage ratio calculations are as follows:
| $ millions | Total | Q1 2010 | Q4 2009 | Q3 2009 | Q2 2009 | |||||||||||||||
|
Net income attributable to common shareholders
|
386.8 | 95.0 | 110.9 | 105.2 | 75.7 | |||||||||||||||
|
Net income attributable to Consolidated Investment Products
|
(1.6 | ) | (1.6 | ) | — | — | — | |||||||||||||
|
Tax expense
|
178.0 | 50.1 | 48.2 | 43.7 | 36.0 | |||||||||||||||
|
Amortization/depreciation
|
79.9 | 18.3 | 24.9 | 20.0 | 16.7 | |||||||||||||||
|
Interest expense
|
61.0 | 12.4 | 15.2 | 16.9 | 16.5 | |||||||||||||||
|
Share-based compensation expense
|
91.3 | 24.2 | 22.6 | 24.3 | 20.2 | |||||||||||||||
|
Unrealized gains and losses from investments, net*
|
1.5 | 1.6 | 0.3 | (1.4 | ) | 1.0 | ||||||||||||||
|
|
||||||||||||||||||||
|
EBITDA**
|
796.9 | 200.0 | 222.1 | 208.7 | 166.1 | |||||||||||||||
|
|
||||||||||||||||||||
|
Adjusted debt**
|
$ | 788.1 | ||||||||||||||||||
|
Leverage ratio (Debt/EBITDA – maximum 3.25:1.00)
|
0.99 | |||||||||||||||||||
|
Interest coverage (EBITDA/Interest Expense – minimum 4.00:1.00)
|
13.06 | |||||||||||||||||||
|
March 31, 2010, long-term AUM (in billions – minimum $194.8 billion)
|
$ | 350.6 | ||||||||||||||||||
| * | Adjustments for unrealized gains and losses from investments, as defined in our credit facility, include non-cash gains and losses on investments to the extent that they do not represent anticipated future cash receipts or expenditures. | |
| ** | EBITDA and Adjusted debt are non-GAAP financial measures; however management does not use these measures for anything other than these debt covenant calculations. The calculation of EBTIDA above (a reconciliation from net income attributable to common shareholders) is defined by our credit agreement, and therefore net income attributable to common shareholders is the most appropriate GAAP measure from which to reconcile to EBITDA. The calculation of adjusted debt is defined in our credit facility and equals total long-term debt of $745.7 million plus $42.3 million in letters of credit and $0.1 million in capital leases. |
Off Balance Sheet Commitments
The company has transactions with various private equity, real estate and other investment
entities sponsored by the company for the investment of client assets in the normal course of
business. Many of the company’s investment products are structured as limited partnerships. The
company’s investment may take the form of the general partner or a limited partner, and the
entities are structured such that each partner makes capital commitments that are to be drawn down
over the life of the partnership as investment opportunities are identified. At March 31, 2010, the
company’s undrawn capital commitments were $84.5 million (December 31, 2009: $77.6 million).
The volatility and valuation dislocations that occurred from 2007 to the date of this Report
in certain sectors of the fixed income market have generated pricing issues in many areas of the
market. As a result of these valuation dislocations, during the fourth quarter of 2007, Invesco
elected to enter into contingent support agreements for two of its investment trusts to enable them
to sustain a stable pricing structure. These two trusts are unregistered trusts that invest in
fixed income securities and are available only to accredited investors. In December 2009, the
agreements were amended to extend the term through June 30, 2010. As of March 31, 2010, the
committed support under these agreements was $36.0 million with an internal approval mechanism to
increase the maximum possible support to $66.0 million at the option of the company. The recorded
fair value of the guarantees related to these agreements at March 31, 2010, was estimated to be
$2.5 million (December 31, 2009: $2.5 million), which was recorded in other current liabilities on
the Condensed Consolidated Balance Sheets. No payments have been made under either agreement nor
has Invesco realized any losses from the support agreements through the date of this Report. These
trusts were not consolidated because the company was not deemed to be the primary beneficiary. As
of the date of this Report, the committed support under these agreements was $36.0 million.
Contractual Obligations
We have future obligations under various contracts relating to debt and interest payments,
financing and operating leases, long-term defined benefit pension and post-retirement medical
plans, and acquisition contracts. During the three months ended March 31, 2010, there were no
significant changes to these obligations from those reported in our Annual Report on Form 10-K for
the year ended December 31, 2009.
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Critical Accounting Policies and Estimates
Our significant accounting policies are disclosed in our most recent Form 10-K for the year
ended December 31, 2009. The accounting policies and estimates that we believe are the most
critical to an understanding of our results of operations and financial condition are those that
require complex management judgment regarding matters that are highly uncertain at the time
policies were applied and estimates were made. Different estimates could have been used in the
current period that would have had a material effect on these financial statements, and changes in
these estimates are likely to occur from period-to-period in the future. Our accounting policies
and estimates regarding investments and consolidated investment products are discussed below, as
there have been changes to these policies after the adoption of FASB Statement No. 167, now
encompassed in ASC Topic 810, “Consolidation,” on January 1, 2010.
Investments.
Most of our investments are carried at fair value on our balance sheet with the
periodic mark-to-market recorded either in accumulated other comprehensive income in the case of
available-for-sale investments or directly to earnings in the case of trading assets. Fair value is
generally determined by reference to an active trading market, using quoted close or bid prices as
of each reporting period end. When a readily ascertainable market value does not exist for an
investment the fair value is calculated based on the expected cash flows of its underlying net
asset base, taking into account applicable discount rates and other factors. Since assumptions are
made in determining the fair values of investments for which active markets do not exist, the
actual value that may be realized upon the sale or other disposition of these investments could
differ from the current carrying values. Fair value calculations are also required in association
with our quarterly impairment testing of investments. The accuracy of our other-than-temporary
impairment assessments is dependent upon the extent to which we are able to accurately determine
fair values. Of our $295.8 million total investments at March 31, 2010, those most susceptible to
impairment include $77.9 million seed money investments in our affiliated funds. Seed money
investments are investments held in Invesco managed funds with the purpose of providing capital to
the funds during their development periods. These investments are recorded at fair value using
quoted market prices in active markets; there is no modeling or additional information needed to
arrive at the fair values of these investments.
The value of investments may decline for various reasons. The market price may be affected by
general market conditions which reflect prospects for the economy as a whole or by specific
information pertaining to an industry or individual company. Such declines require further
investigation by management, which considers all available evidence to evaluate the realizable
value of the investment, including, but not limited to, the following factors:
| • | The probability that the company will be unable to collect all amounts due according to the contractual terms of a debt security not impaired at acquisition; |
| • | The length of time and the extent to which the market value has been less than cost; |
| • | The financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer such as changes in technology that may impair the earnings potential of the investment or the discontinuance of a component of the business that may affect the future earnings potential; |
| • | The intent and ability of the company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value; |
| • | The decline in the security’s value due to an increase in market interest rates or a change in foreign exchange rates since acquisition; |
| • | Determination that the security is not realizable; or |
| • | An adverse change in estimated cash flows of a beneficial interest. |
Our other-than-temporary impairment analysis of seed money holdings includes a review of the
market returns required for each fund portfolio to enable us to recover our original investment. As
part of the review, we analyze several scenarios to project the anticipated recovery period of our
original investments based on one-, three-, and five-year historical index returns and historical
trends in the equity markets. We also analyze the absolute amount of any loss to date, the trend of
the losses, and percent declines in values of the seed money investments. Along with intent and
ability to hold, all of these scenarios are considered as part of our other-than-temporary
impairment analysis of seed money holdings.
Consolidated Investment Products.
The primary beneficiary of VIEs consolidate the VIEs. A VIE
is an entity that does not have sufficient equity to finance its operations without additional
subordinated financial support, or an entity for which the risks and rewards of ownership are not
directly linked to voting interests. The company provides investment management services to, and
has transactions with, various private equity funds, real estate funds, fund-of-funds, CLOs, and
other investment entities sponsored by the
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company for the investment of client assets in the normal course of business. The company
serves as the investment manager, making day-to-day investment decisions concerning the assets of
the products. Certain of these entities are considered to be VIEs.
For all investment funds with the exception of CLOs, if the company is deemed to have a
variable interest in these entities, the company is deemed to be the fund’s primary beneficiary if
the company has the majority of rewards/risks of ownership. For CLOs, if the company is deemed to
have a variable interest in these entities, the company is deemed to be the fund’s primary
beneficiary if it has the power to direct the activities of the CLO that most significantly impact
the CLO’s economic performance, and the obligation to absorb losses/right to receive benefits from
the CLO that could potentially be significant to the CLO.
Assessing if an entity is a VIE or VOE involves judgment and analysis on a
structure-by-structure basis. Factors included in this assessment include the legal organization of
the entity, the company’s contractual involvement with the entity and any related party or de facto
agent implications of the company’s involvement with the entity. Generally, limited partnership
entities where the general partner does not have substantive equity investment at risk and where
the other limited partners do not have substantive (greater than 50%) rights to remove the general
partner or to dissolve the limited partnership are VIEs. Additionally, certain investment products
are voting interest entities (VOEs) and are structured as limited partnerships of which the company
is the general partner and is deemed to have control with the lack of substantive kick-out,
liquidation or participation rights of the other limited partners. These investment products are
also consolidated into the company’s financial statements.
Determining if the company is the primary beneficiary of a VIE also requires significant
judgment, as the calculation of expected losses and residual returns (for investment products other
than CLOs) involves estimation and probability assumptions. For CLOs, there is judgment involved to
assess if the company has the power to direct the activities that most significantly effect the
CLOs economic results and to assess if the company’s interests could be deemed significant. If
current financial statements are not available for consolidated VIEs or VOEs, estimation of
investment valuation is required, which includes assessing available quantitative and qualitative
data. Significant changes in these estimates could impact the reported value of the investments
held by consolidated investment products and the related offsetting equity attributable to
noncontrolling interests in consolidated entities on the Condensed Consolidated Balance Sheets and
the other gains and losses of consolidated investment products, net, and related offsetting gains
and losses attributable to noncontrolling interests in consolidated entities, net, amounts on the
Condensed Consolidated Statements of Income.
As of March 31, 2010, the company consolidated VIEs that held investments of $5,486.3 million
(December 31, 2009: $67.9 million) and VOE partnership investments of $619.4 million (December 31,
2009: $617.1 million). As circumstances supporting estimates and factors change, the determination
of VIE and primary beneficiary status may change, as could the determination of the necessity of
consolidation of VOEs.
Recent Accounting Standards
See Part I, Item 1, “Financial Statements — Note 1, Accounting Policies — Accounting
Pronouncements Recently Adopted and Pending Accounting Pronouncements.”
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
In the normal course of its business, the company is primarily exposed to market risk in the
form of securities market risk, interest rate risk, and foreign exchange rate risk.
AUM Market Price Risk
The company’s investment management revenues are comprised of fees based on a percentage of
the value of AUM. Declines in equity or fixed income security market prices could cause revenues to
decline because of lower investment management fees by:
| • | Causing the value of AUM to decrease. | ||
| • | Causing the returns realized on AUM to decrease (impacting performance fees). | ||
| • | Causing clients to withdraw funds in favor of investments in markets that they perceive to offer greater opportunity and that the company does not serve. | ||
| • | Causing clients to rebalance assets away from investments that the company manages into investments that the company does not manage. |
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| • | Causing clients to reallocate assets away from products that earn higher revenues into products that earn lower revenues. |
Underperformance of client accounts relative to competing products could exacerbate these factors.
Securities Market Risk
The company has investments in sponsored investment products that invest in a variety of asset
classes. Investments are generally made to establish a track record or to hedge exposure to certain
deferred compensation plans. The company’s exposure to market risk arises from its investments. A
20% increase or decrease in the fair value of investments exposed to market risk is not material to
the operating results of the company.
Interest Rate Risk
Interest rate risk relates to the risk that the fair value of future cash flows of a financial
instrument will fluctuate because of changes in market interest rates. The company is exposed to
interest rate risk primarily through its external debt and cash and cash equivalent investments. On
March 31, 2010, the interest rates on 100.0% of the company’s borrowings were fixed for an average
period of 3.3 years. Borrowings under the credit facility will have floating interest rates. A 1%
change in the level of interest rates would not have a material impact on the ability of the
company to continue to service its indebtedness.
Foreign Exchange Rate Risk
The company has transactional currency exposures that occur when any of the company’s
subsidiaries receives or pays cash in a currency different from its functional currency. Such
exposure arises from sales or purchases by an operating unit in currencies other than the unit’s
functional currency. These exposures are not actively managed.
The company also has certain investments in foreign operations, whose net assets and results
of operations are exposed to foreign currency translation risk when translated into U.S. dollars
upon consolidation into Invesco Ltd. The company does not hedge these exposures.
The company is exposed to foreign exchange revaluation into the income statement on monetary
assets and liabilities that are held by subsidiaries in different functional currencies than the
subsidiaries’ functional currencies. Net foreign exchange revaluation losses were $2.5 million for
the three months ended March 31, 2010, and $0.3 million in losses in the comparable prior year
period, and are included in general and administrative and other gains and losses, net on the
Condensed Consolidated Statements of Income. We continue to monitor our exposure to foreign
exchange revaluation.
Item 4.
Controls and Procedures
Our management is responsible for establishing and maintaining disclosure controls and
procedures that are designed to ensure that information the company is required to disclose in the
reports that it files or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange Commission’s rules and
forms. Disclosure controls and procedures include controls and procedures designed to ensure that
the company’s management, including its principal executive and principal financial officers, as
appropriate, to allow timely decisions regarding required disclosure.
We have evaluated, with the participation of our chief executive officer and chief financial
officer, the effectiveness of our disclosure controls and procedures as of March 31, 2010. There
are inherent limitations to the effectiveness of any system of disclosure controls and procedures,
including the possibility of human error and the circumvention or overriding of the controls and
procedures. Accordingly, even effective disclosure controls and procedures can only provide
reasonable assurance of achieving their control objectives. Based upon our evaluation, our chief
executive officer and chief financial officer concluded that our disclosure controls and procedures
were effective to provide reasonable assurance that information required to be disclosed by us in
the reports that we file or submit under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the applicable rules and forms, and that it is
accumulated and communicated to our management, including our chief executive officer and chief
financial officer, as appropriate to allow timely decisions regarding required disclosure.
We have evaluated any change in our internal control over financial reporting that occurred
during the three months ended March 31, 2010, and have concluded that there was no change that has
materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
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Item 1.
Legal Proceedings
Following the industry-wide regulatory investigations in 2003 and 2004, multiple lawsuits
based on market timing allegations were filed against various parties affiliated with Invesco.
These lawsuits were consolidated in the United States District Court for the District of Maryland,
together with market timing lawsuits brought against affiliates of other mutual fund companies, and
on September 29, 2004, three amended complaints were filed against company-affiliated parties: (1)
a putative shareholder class action complaint brought on behalf of shareholders of AIM funds
formerly advised by Invesco Funds Group, Inc.; (2) a derivative complaint purportedly brought on
behalf of certain AIM funds and the shareholders of such funds; and (3) an ERISA complaint
purportedly brought on behalf of participants in the company’s 401(k) plan. The company and
plaintiffs have reached settlements in principle of these lawsuits. The proposed settlements, which
are subject to court approval, call for a payment by the company of $9.8 million, recorded in
general and administrative expenses in the Consolidated Statement of Income in 2007, in exchange
for dismissal with prejudice of all pending claims. In addition, under the terms of the proposed
settlements, the company may incur certain costs in connection with providing notice of the
proposed settlements to affected shareholders. Based on information currently available, it is not
believed that any such incremental notice costs will have any material effect on the consolidated
financial position or results of operations of the company.
The asset management industry also is subject to extensive levels of ongoing regulatory
oversight and examination. In the United States and other jurisdictions in which the company
operates, governmental authorities regularly make inquiries, hold investigations and administer
market conduct examinations with respect to compliance with applicable laws and regulations.
Additional lawsuits or regulatory enforcement actions arising out of these inquiries may in the
future be filed against the company and related entities and individuals in the U.S. and other
jurisdictions in which the company and its affiliates operate. Any material loss of investor and/or
client confidence as a result of such inquiries and/or litigation could result in a significant
decline in assets under management, which would have an adverse effect on the company’s future
financial results and its ability to grow its business.
In the normal course of its business, the company is subject to various litigation matters.
Although there can be no assurances, at this time management believes, based on information
currently available to it, that it is not probable that the ultimate outcome of any of these
actions will have a material adverse effect on the consolidated financial condition or results of
operations of the company.
Item 1A.
Risk Factors
The company has had no significant changes in its risk factors from those previously disclosed
in its Annual Report on Form 10-K for the year ended December 31, 2009.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Repurchases of Equity Securities
The following table sets forth information regarding purchases of our common shares by us and
any affiliated purchases during the three months ended March 31, 2010:
| Maximum Number at end of | ||||||||||||||||
| Total Number of | period (or Approximate | |||||||||||||||
| Shares Purchased as | Dollar Value) of Shares that | |||||||||||||||
| Part of Publicly | May Yet Be Purchased | |||||||||||||||
| Total Number of | Average Price | Announced Plans | Under the Plans | |||||||||||||
| Month | Shares Purchased (1) | Paid Per Share | or Programs (2) | or Programs (2) | ||||||||||||
|
January 1-31, 2010
|
13,774 | $ | 22.55 | — | $ | 1,360,608,682 | ||||||||||
|
February 1-28, 2010
|
584,303 | $ | 19.60 | — | $ | 1,360,608,682 | ||||||||||
|
March 1-31, 2010
|
3,202 | $ | 20.18 | — | $ | 1,360,608,682 | ||||||||||
| (1) | An aggregate of 601,279 restricted share awards were surrendered to us by Invesco employees to satisfy tax withholding obligations or loan repayments in connection with the vesting of equity awards. | |
| (2) | On April 23, 2008, our board of directors authorized a new share repurchase authorization of up to $1.5 billion of our common shares with no stated expiration date. |
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Item 3.
Defaults upon Senior Securities
None.
Item 4.
Submission of Matters to a Vote of Security Holders
None.
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Table of Contents
Item 6.
Exhibits
Exhibit Index
|
3.1
|
Memorandum of Association of Invesco Ltd., incorporating amendments up to and including December 4, 2007, incorporated by reference to exhibit 3.1 to Invesco’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on December 12, 2007 | |
|
|
||
|
3.2
|
Amended and Restated Bye-Laws of Invesco Ltd., incorporating amendments up to and including December 4, 2007, incorporated by reference to exhibit 3.2 to Invesco’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on December 12, 2007 | |
|
|
||
|
31.1
|
Certification of Martin L. Flanagan pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
|
|
||
|
31.2
|
Certification of Loren M. Starr pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
|
|
||
|
32.1
|
Certification of Martin L. Flanagan pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
|
|
||
|
32.2
|
Certification of Loren M. Starr pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
| INVESCO LTD. | ||||||
|
|
||||||
|
May 4, 2010
|
By: |
/s/ MARTIN L. FLANAGAN
|
||||
|
|
Martin L. Flanagan | |||||
|
|
President and Chief Executive Officer | |||||
|
|
||||||
|
May 4, 2010
|
By: | /s/ LOREN M. STARR | ||||
|
|
||||||
|
|
Loren M. Starr | |||||
|
|
Senior Managing Director and Chief Financial Officer | |||||
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Item 1. Financial StatementsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II. Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior Securities None. Item 4. Submission Of Matters To A Vote Of Security Holders None. 68Item 3. Defaults Upon Senior SecuritiesItem 4. Submission Of Matters To A Vote Of Security HoldersItem 6. Exhibits