e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2010
OR
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o |
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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)
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Bermuda
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98-0557567 |
(State or Other Jurisdiction of
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(I.R.S. Employer |
Incorporation or Organization)
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Identification No.) |
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1555 Peachtree Street, N.E., Suite 1800, Atlanta, GA
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30309 |
(Address of Principal Executive Offices)
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(Zip Code) |
Registrants telephone number, including area code: (404) 892-0896
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Name of Exchange on Which Registered |
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Common Shares, $0.20 par value per share
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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):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o (Do not check if a smaller reporting company)
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Smaller reporting company o |
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 September 30, 2010, the most recent practicable date, 462,055,518 of the companys
common shares and common share equivalents (on an as-converted basis) par value $0.20 per share,
were outstanding. Common share equivalents include 19,212 participating preferred shares, each of
which is convertible into 1,000 common shares upon transfer of the shares to an unrelated third
party.
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.
2
Item 1. Financial Statements
Invesco Ltd.
Condensed Consolidated Balance Sheets
(Unaudited)
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As of |
$ in millions, except share data |
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September 30, 2010 |
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December 31, 2009 |
ASSETS |
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Current assets: |
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Cash and cash equivalents |
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664.1 |
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762.0 |
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Cash and cash equivalents of consolidated investment products |
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317.5 |
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28.0 |
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Unsettled fund receivables |
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1,118.1 |
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383.1 |
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Accounts receivable |
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414.1 |
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289.3 |
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Accounts receivable of consolidated investment products |
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69.0 |
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Investments |
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377.1 |
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182.4 |
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Prepaid assets |
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70.2 |
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57.6 |
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Other current assets |
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105.1 |
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77.9 |
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Deferred tax asset, net |
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76.3 |
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57.7 |
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Assets held for policyholders |
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1,249.7 |
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1,283.0 |
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Total current assets |
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4,461.2 |
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3,121.0 |
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Non-current assets: |
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Investments |
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145.3 |
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157.4 |
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Investments of consolidated investment products |
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6,809.9 |
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685.0 |
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Prepaid assets |
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0.6 |
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16.2 |
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Other non-current assets |
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17.9 |
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13.0 |
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Deferred sales commissions |
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41.6 |
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23.8 |
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Deferred tax asset, net |
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65.8 |
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Property and equipment, net |
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244.9 |
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220.7 |
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Intangible assets, net |
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1,344.2 |
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139.1 |
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Goodwill |
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6,876.1 |
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6,467.6 |
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Total non-current assets |
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15,480.5 |
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7,788.6 |
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Total assets |
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19,941.7 |
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10,909.6 |
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LIABILITIES AND EQUITY |
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Current liabilities: |
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Unsettled fund payables |
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1,137.7 |
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367.9 |
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Income taxes payable |
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74.5 |
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82.8 |
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Other current liabilities |
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791.0 |
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559.9 |
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Other current liabilities of consolidated investment products |
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298.3 |
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4.8 |
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Policyholder payables |
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1,249.7 |
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1,283.0 |
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Total current liabilities |
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3,551.2 |
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2,298.4 |
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Non-current liabilities: |
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Long-term debt |
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1,394.2 |
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745.7 |
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Long-term debt of consolidated investment products |
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5,643.8 |
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Deferred tax liabilities, net |
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275.9 |
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Other non-current liabilities |
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230.4 |
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244.7 |
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Total non-current liabilities |
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7,544.3 |
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990.4 |
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Total liabilities |
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11,095.5 |
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3,288.8 |
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Commitments and contingencies (See Note 15) |
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Equity: |
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Equity attributable to common shareholders: |
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Common shares ($0.20 par value;
1,050.0 million authorized; 471.2 million shares issued as of September 30, 2010
and December 31, 2009) |
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94.2 |
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91.9 |
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Participating preferred shares ($0.20 par value; 20,000 authorized as of
September 30, 2010; 19,212 shares issued as of September 30, 2010) |
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Additional paid-in-capital |
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6,272.0 |
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5,688.4 |
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Treasury shares |
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(961.0 |
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(892.4 |
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Retained earnings |
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1,780.8 |
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1,631.4 |
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Retained earnings appropriated for investors in consolidated investment products |
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546.9 |
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Accumulated other comprehensive income/(loss), net of tax |
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417.2 |
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393.6 |
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Total equity attributable to common shareholders |
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8,150.1 |
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6,912.9 |
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Equity attributable to noncontrolling interests in consolidated entities |
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696.1 |
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707.9 |
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Total equity |
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8,846.2 |
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7,620.8 |
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Total liabilities and equity |
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19,941.7 |
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10,909.6 |
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See accompanying notes.
3
Invesco Ltd.
Condensed Consolidated Statements of Income
(Unaudited)
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Three months Ended |
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Nine months Ended |
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September 30, |
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September 30, |
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$ in millions, except per share data |
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2010 |
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2009 |
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2010 |
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2009 |
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Operating revenues: |
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Investment management fees |
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725.8 |
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570.3 |
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1,947.2 |
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1,508.4 |
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Service and distribution fees |
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191.6 |
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111.8 |
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443.5 |
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301.2 |
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Performance fees |
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2.5 |
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4.3 |
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7.4 |
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23.2 |
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Other |
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33.2 |
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19.4 |
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61.1 |
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46.7 |
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Total operating revenues |
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953.1 |
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705.8 |
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2,459.2 |
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1,879.5 |
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Operating expenses: |
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Employee compensation |
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304.1 |
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238.9 |
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802.2 |
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703.7 |
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Third-party distribution, service and advisory |
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266.5 |
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183.5 |
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682.8 |
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498.0 |
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Marketing |
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44.8 |
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27.7 |
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108.3 |
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78.5 |
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Property, office and technology |
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63.5 |
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63.0 |
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172.8 |
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157.5 |
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General and administrative |
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64.5 |
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40.1 |
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178.6 |
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117.0 |
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Transaction and integration |
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26.8 |
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1.0 |
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123.3 |
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1.0 |
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Total operating expenses |
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770.2 |
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554.2 |
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2,068.0 |
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1,555.7 |
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Operating income |
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182.9 |
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151.6 |
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391.2 |
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323.8 |
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Other income/(expense): |
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Equity in earnings of unconsolidated affiliates |
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10.7 |
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7.9 |
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26.9 |
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17.9 |
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Interest and dividend income |
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3.4 |
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1.7 |
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6.8 |
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7.7 |
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Interest income of consolidated investment products |
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70.3 |
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175.9 |
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Gains/(losses) of consolidated investment products, net |
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(148.3 |
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2.1 |
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142.0 |
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(132.8 |
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Interest expense |
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(16.1 |
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(16.9 |
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(42.6 |
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(49.3 |
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Interest expense of consolidated investment products |
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(35.6 |
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(82.0 |
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Other gains and losses, net |
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14.6 |
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2.0 |
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3.2 |
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7.8 |
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Income before income taxes, including gains and losses
attributable to noncontrolling interests |
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81.9 |
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148.4 |
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621.4 |
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175.1 |
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Income tax provision |
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(54.5 |
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(43.7 |
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(141.3 |
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(100.0 |
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Net income/(loss), including gains and losses
attributable to noncontrolling interests |
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27.4 |
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104.7 |
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480.1 |
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75.1 |
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(Gains)/losses attributable to noncontrolling interests
in consolidated entities, net |
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127.3 |
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0.5 |
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(189.6 |
) |
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136.5 |
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Net income attributable to common shareholders |
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154.7 |
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105.2 |
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290.5 |
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211.6 |
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Earnings per share: |
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basic |
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$ |
0.32 |
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$ |
0.24 |
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$ |
0.64 |
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$ |
0.51 |
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diluted |
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$ |
0.32 |
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$ |
0.24 |
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$ |
0.63 |
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$ |
0.51 |
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Dividends declared per share |
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$ |
0.1100 |
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$ |
0.1025 |
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$ |
0.3225 |
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$ |
0.3050 |
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See accompanying notes.
4
Invesco Ltd.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
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Nine months ended Sept 30, |
$ in millions |
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2010 |
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2009 |
Operating activities: |
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Net income, including gains attributable to noncontrolling interests of $189.6
million during the nine months ended September 30, 2010 (losses of $136.5 million
during the nine months ended September 30, 2009) |
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480.1 |
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75.1 |
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Adjustments to reconcile net income to net cash used in operating activities: |
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Amortization and depreciation |
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65.4 |
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52.7 |
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Share-based compensation expense |
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87.0 |
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68.1 |
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Gain on disposal of property equipment software, net |
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(1.2 |
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Purchase of trading investments |
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(4,073.9 |
) |
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(41.9 |
) |
Proceeds from sale of trading investments |
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3,976.1 |
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13.1 |
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Other gains and losses, net |
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(3.2 |
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(7.8 |
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(Gains)/losses of consolidated investment products, net |
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(142.0 |
) |
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132.8 |
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Tax benefit from share-based compensation |
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53.2 |
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39.0 |
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Excess tax benefits from share-based compensation |
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(14.2 |
) |
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(0.1 |
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Equity in earnings of unconsolidated affiliates |
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(26.9 |
) |
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(17.9 |
) |
Dividends from unconsolidated affiliates |
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22.9 |
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27.4 |
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Changes in operating assets and liabilities: |
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(Increase)/decrease in cash held by consolidated investment products |
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(95.2 |
) |
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34.7 |
|
(Increase)/decrease in receivables |
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(796.0 |
) |
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(481.8 |
) |
Increase/(decrease) in payables |
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842.2 |
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269.2 |
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Net cash provided by operating activities |
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375.5 |
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|
161.4 |
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Investing activities: |
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Purchase of property and equipment |
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(57.4 |
) |
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(23.3 |
) |
Disposal of property and equipment |
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6.4 |
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Purchase of available-for-sale investments |
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(31.4 |
) |
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(11.6 |
) |
Proceeds from sale of available-for-sale investments |
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33.1 |
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16.6 |
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Purchase of investments by consolidated investment products |
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(1,792.2 |
) |
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(37.7 |
) |
Proceeds from sale of investments by consolidated investment products |
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|
1,867.5 |
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28.0 |
|
Returns of capital in investments of consolidated investment products |
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|
61.1 |
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|
11.3 |
|
Purchase of other investments |
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(50.8 |
) |
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|
(59.0 |
) |
Proceeds from sale of other investments |
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|
28.2 |
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|
20.4 |
|
Returns of capital and distributions from equity method investments |
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|
22.6 |
|
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|
9.1 |
|
Acquisition of businesses (cash paid $787.0 million, less cash acquired $61.9 million) |
|
|
(725.1 |
) |
|
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|
Net cash used in investing activities |
|
|
(644.4 |
) |
|
|
(39.8 |
) |
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|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
Issuance of new shares |
|
|
|
|
|
|
441.8 |
|
Proceeds from exercises of share options |
|
|
10.8 |
|
|
|
40.5 |
|
Purchases of treasury shares |
|
|
(127.7 |
) |
|
|
|
|
Dividends paid |
|
|
(146.3 |
) |
|
|
(124.2 |
) |
Excess tax benefits from share-based compensation |
|
|
14.2 |
|
|
|
0.1 |
|
Capital invested into consolidated investment products |
|
|
8.5 |
|
|
|
5.5 |
|
Capital distributed by consolidated investment products |
|
|
(73.2 |
) |
|
|
(35.0 |
) |
Repayments of debt of consolidated investment products |
|
|
(165.3 |
) |
|
|
|
|
Net borrowings/(repayments) under credit facility |
|
|
648.5 |
|
|
|
(12.0 |
) |
Repayments of senior notes |
|
|
|
|
|
|
(103.0 |
) |
Acquisition of remaining noncontrolling interest in subsidiary |
|
|
|
|
|
|
(10.3 |
) |
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
169.5 |
|
|
|
203.4 |
|
|
|
|
|
|
|
|
|
|
(Decrease)/increase in cash and cash equivalents |
|
|
(99.4 |
) |
|
|
325.0 |
|
Foreign exchange movement on cash and cash equivalents |
|
|
1.5 |
|
|
|
13.6 |
|
Cash and cash equivalents, beginning of period |
|
|
762.0 |
|
|
|
585.2 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
|
664.1 |
|
|
|
923.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information: |
|
|
|
|
|
|
|
|
Interest paid |
|
|
(34.9 |
) |
|
|
(41.9 |
) |
Interest received |
|
|
5.2 |
|
|
|
8.1 |
|
Taxes paid |
|
|
(119.4 |
) |
|
|
(57.9 |
) |
See accompanying notes.
5
Invesco Ltd.
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Attributable to Common Shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained Earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Appropriated for |
|
|
|
|
|
Total Equity |
|
Noncontrolling |
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
Investors in |
|
Accumulated Other |
|
Attributable to |
|
Interests in |
|
|
|
|
|
|
|
|
Paid-in- |
|
Treasury |
|
Retained |
|
Consolidated |
|
Comprehensive |
|
Common |
|
Consolidated |
|
Total |
$ in millions |
|
Common Shares |
|
Capital |
|
Shares |
|
Earnings |
|
Investment Products |
|
Income |
|
Shareholders |
|
Entities |
|
Equity |
January 1, 2010 |
|
|
91.9 |
|
|
|
5,688.4 |
|
|
|
(892.4 |
) |
|
|
1,631.4 |
|
|
|
|
|
|
|
393.6 |
|
|
|
6,912.9 |
|
|
|
707.9 |
|
|
|
7,620.8 |
|
Adoption of FASB Statement No. 167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.2 |
|
|
|
274.3 |
|
|
|
(5.2 |
) |
|
|
274.3 |
|
|
|
|
|
|
|
274.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2010, as adjusted |
|
|
91.9 |
|
|
|
5,688.4 |
|
|
|
(892.4 |
) |
|
|
1,636.6 |
|
|
|
274.3 |
|
|
|
388.4 |
|
|
|
7,187.2 |
|
|
|
707.9 |
|
|
|
7,895.1 |
|
Net income, including gains and
losses attributable to
noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
290.5 |
|
|
|
|
|
|
|
|
|
|
|
290.5 |
|
|
|
189.6 |
|
|
|
480.1 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation differences
on investments in overseas
subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.8 |
|
|
|
12.8 |
|
|
|
(16.2 |
) |
|
|
(3.4 |
) |
Change in accumulated OCI
related to employee benefit
plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.3 |
|
|
|
4.3 |
|
|
|
|
|
|
|
4.3 |
|
Change in net unrealized gains
on available-for-sale
investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.6 |
|
|
|
14.6 |
|
|
|
|
|
|
|
14.6 |
|
Tax impacts of changes in
accumulated other comprehensive
income balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.9 |
) |
|
|
(2.9 |
) |
|
|
|
|
|
|
(2.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
319.3 |
|
|
|
173.4 |
|
|
|
492.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income reclassified to
appropriated retained earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
139.4 |
|
|
|
|
|
|
|
139.4 |
|
|
|
(139.4 |
) |
|
|
|
|
Currency translation differences on
investments in overseas
subsidiaries reclassified to
appropriated retained earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16.2 |
) |
|
|
|
|
|
|
(16.2 |
) |
|
|
16.2 |
|
|
|
|
|
Change in noncontrolling interests
in consolidated entities, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(62.0 |
) |
|
|
(62.0 |
) |
Business Combination |
|
|
2.3 |
|
|
|
566.9 |
|
|
|
|
|
|
|
|
|
|
|
149.4 |
|
|
|
|
|
|
|
718.6 |
|
|
|
|
|
|
|
718.6 |
|
Dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(146.3 |
) |
|
|
|
|
|
|
|
|
|
|
(146.3 |
) |
|
|
|
|
|
|
(146.3 |
) |
Employee share plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation |
|
|
|
|
|
|
87.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87.0 |
|
|
|
|
|
|
|
87.0 |
|
Vested shares |
|
|
|
|
|
|
(65.9 |
) |
|
|
65.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of options |
|
|
|
|
|
|
(18.6 |
) |
|
|
29.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.8 |
|
|
|
|
|
|
|
10.8 |
|
Tax impact of share-based payment |
|
|
|
|
|
|
14.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.2 |
|
|
|
|
|
|
|
14.2 |
|
Purchase of shares |
|
|
|
|
|
|
|
|
|
|
(163.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(163.9 |
) |
|
|
|
|
|
|
(163.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
94.2 |
|
|
|
6,272.0 |
|
|
|
(961.0 |
) |
|
|
1,780.8 |
|
|
|
546.9 |
|
|
|
417.2 |
|
|
|
8,150.1 |
|
|
|
696.1 |
|
|
|
8,846.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Attributable to Common Shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity |
|
Noncontrolling |
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to |
|
Interests in |
|
|
|
|
Common |
|
Paid-in- |
|
Treasury |
|
Retained |
|
Accumulated Other |
|
Common |
|
Consolidated |
|
Total |
$ in millions |
|
Shares |
|
Capital |
|
Shares |
|
Earnings |
|
Comprehensive Loss |
|
Shareholders |
|
Entities |
|
Equity |
January 1, 2009 |
|
|
85.3 |
|
|
|
5,352.6 |
|
|
|
(1,128.9 |
) |
|
|
1,476.3 |
|
|
|
(95.8 |
) |
|
|
5,689.5 |
|
|
|
906.7 |
|
|
|
6,596.2 |
|
Net income/(loss), including gains and
losses attributable to noncontrolling
interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
211.6 |
|
|
|
|
|
|
|
211.6 |
|
|
|
(136.5 |
) |
|
|
75.1 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation differences on
investments in overseas subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
422.4 |
|
|
|
422.4 |
|
|
|
|
|
|
|
422.4 |
|
Change in minimum pension liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.9 |
) |
|
|
(1.9 |
) |
|
|
|
|
|
|
(1.9 |
) |
Change in net unrealized gains on
available-for-sale investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.0 |
|
|
|
13.0 |
|
|
|
|
|
|
|
13.0 |
|
Adoption of FSP FAS 115-2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.5 |
) |
|
|
(1.5 |
) |
|
|
|
|
|
|
(1.5 |
) |
Tax impacts of changes in accumulated
other comprehensive income balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
|
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
643.8 |
|
|
|
(136.5 |
) |
|
|
507.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adoption of FSP FAS 115-2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.5 |
|
|
|
|
|
|
|
1.5 |
|
|
|
|
|
|
|
1.5 |
|
Change in noncontrolling interests in
consolidated entities, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(71.2 |
) |
|
|
(71.2 |
) |
Issuance of new shares |
|
|
6.6 |
|
|
|
435.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
441.8 |
|
|
|
|
|
|
|
441.8 |
|
Dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(124.2 |
) |
|
|
|
|
|
|
(124.2 |
) |
|
|
|
|
|
|
(124.2 |
) |
Employee share plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation |
|
|
|
|
|
|
68.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68.1 |
|
|
|
|
|
|
|
68.1 |
|
Vested shares |
|
|
|
|
|
|
(90.5 |
) |
|
|
90.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of options |
|
|
|
|
|
|
(38.6 |
) |
|
|
79.1 |
|
|
|
|
|
|
|
|
|
|
|
40.5 |
|
|
|
|
|
|
|
40.5 |
|
Tax impact of share-based payment |
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
0.1 |
|
Modification of share-based payment awards |
|
|
|
|
|
|
(13.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13.0 |
) |
|
|
|
|
|
|
(13.0 |
) |
Purchase of shares |
|
|
|
|
|
|
|
|
|
|
(12.6 |
) |
|
|
|
|
|
|
|
|
|
|
(12.6 |
) |
|
|
|
|
|
|
(12.6 |
) |
Acquisition of remaining noncontrolling
interest in subsidiary |
|
|
|
|
|
|
(8.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8.9 |
) |
|
|
(1.4 |
) |
|
|
(10.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
91.9 |
|
|
|
5,705.0 |
|
|
|
(971.9 |
) |
|
|
1,565.2 |
|
|
|
336.4 |
|
|
|
6,726.6 |
|
|
|
697.6 |
|
|
|
7,424.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
See accompanying notes.
6
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 companys 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 companys 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 and Pending Accounting Pronouncements 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 CLOs
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 CLOs
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
portion of the unrated, junior subordinated position. The companys 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.
Investors in the CLOs have no recourse against the company for any losses sustained in the CLO
structure.
7
All of the investments held and notes issued by consolidated investment products are presented
at fair value in the companys Condensed Consolidated Balance Sheet at September 30, 2010, and
interest income and expense of consolidated CLOs are presented as other income/(expense) in the
companys Condensed Consolidated Income Statement for the nine months ended September 30, 2010. The
surplus of consolidated CLO assets over consolidated CLO liabilities is reflected in the companys
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 12, 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 12, 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 companys
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 companys ownership is
between 20 and 50 percent. Equity investments are carried initially at cost (subsequently adjusted
to recognize the companys 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, with the exception of
consolidated investment products as discussed above, 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. The
financial information of the consolidated CLOs is included in the companys consolidated financial
statements on a one-month lag. Noncontrolling interests in consolidated entities and retained
earnings appropriated for investors in consolidated investment products 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 entitys equity.
Use of Estimates
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.
8
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 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 acquirers 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 companys basis, but not the companys conclusion, of determining that it
has one reporting unit for goodwill impairment purposes. See Item 2, Managements Discussion and
Analysis of Financial Condition and Results of Operations, Critical Accounting Policies and
Estimates Goodwill for additional information. The company completed the acquisition of Morgan
Stanleys retail asset management business, including Van Kampen Investments (the acquired
business or the acquisition) on June 1, 2010. See Note 4, Business Combinations and
Integration for additional details.
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, Fair
Value Measurements and Disclosures (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, the company 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, the company 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 companys 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 companys 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
9
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 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 companys 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
companys financial statements. See Note 12, 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 holders estimated cash flows. FSP EITF 99-20-1 did not have a material impact on the
companys 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 12, 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 7, Debt.
10
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.
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 companys 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 VIEs primary beneficiary, and it requires enhanced
disclosures about the companys 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
entitys 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 entitys 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 companys 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 companys Consolidated Statement of Income for the nine
months ended September 30, 2010 reflects the elimination of $26.4 million in management fees earned
from these CLOs, and the addition of $175.9 million in interest income, $82.0 million in interest
expense, and $78.9 million in net other gains. The $141.9 million net income impact during the
nine months ended September 30, 2010 of consolidation of these CLOs is largely offset by
gains/(losses) attributable to investors in noncontrolling interests of $139.4 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 companys interests being recorded
through other comprehensive income. After the adoption of FASB Statement No. 167, the change in
value of the companys investments in these CLOs is reflected in the companys
11
net income. For the nine months ended September 30, 2010, the net impact to the company of its
investments in these CLOs was $2.5 million. The Condensed Consolidated Balance Sheet at September
30, 2010 reflects the consolidation of $6.5 billion in assets held and $5.7 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 $546.9 million is presented as part of the companys total equity, reflecting the
excess of the consolidated CLOs assets over their liabilities, attributable to noncontrolling
third-party investors in their consolidated CLOs at September 30, 2010. In addition, the companys
Condensed Consolidated Cash Flow Statement for the nine months ended September 30, 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.
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. See Note 12, Consolidated
Investment Products, for a consolidating balance sheet at September 30, 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 issuers 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 7, 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 funds 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
12, Consolidated Investment Products.
12
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 12, Consolidated Investment Products.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
December 31, 2009 |
|
|
Footnote |
|
Carrying |
|
|
|
|
|
Carrying |
|
|
$ in millions |
|
Reference |
|
Value |
|
Fair Value |
|
Value |
|
Fair Value |
Cash and cash equivalents |
|
|
|
|
|
|
664.1 |
|
|
|
664.1 |
|
|
|
762.0 |
|
|
|
762.0 |
|
Available for sale investments |
|
|
3 |
|
|
|
127.0 |
|
|
|
127.0 |
|
|
|
92.7 |
|
|
|
92.7 |
|
Assets held for policyholders |
|
|
|
|
|
|
1,249.7 |
|
|
|
1,249.7 |
|
|
|
1,283.0 |
|
|
|
1,283.0 |
|
Trading investments |
|
|
3 |
|
|
|
224.7 |
|
|
|
224.7 |
|
|
|
84.6 |
|
|
|
84.6 |
|
Support agreements |
|
|
12,15 |
|
|
|
(4.0 |
) |
|
|
(4.0 |
) |
|
|
(2.5 |
) |
|
|
(2.5 |
) |
Policyholder payables |
|
|
|
|
|
|
(1,249.7 |
) |
|
|
(1,249.7 |
) |
|
|
(1,283.0 |
) |
|
|
(1,283.0 |
) |
Financial instruments sold, not yet purchased |
|
|
|
|
|
|
(8.2 |
) |
|
|
(8.2 |
) |
|
|
|
|
|
|
|
|
Derivative liabilities |
|
|
|
|
|
|
(0.2 |
) |
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
Long-term debt |
|
|
7 |
|
|
|
(1,394.2 |
) |
|
|
(1,446.9 |
) |
|
|
(745.7 |
) |
|
|
(765.5 |
) |
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 liabilitys 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 carried at fair value include cash investments in money market funds. 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.
Available-for-sale investments
Available-for-sale investments include amounts seeded into affiliated investment products and
investments in affiliated unconsolidated 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. 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.
13
Assets held for policyholders
Assets held for policyholders represent investments held by one of the companys 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.
Trading investments
Trading investments include investments held to hedge economically against costs the company
incurs in connection with certain deferred compensation plans in which the company participates, as
well as trading and investing activities in equity and debt securities entered into in its capacity
as sponsor of unit investment trusts (UITs).
|
|
|
Investments related to deferred compensation plans |
|
|
|
|
Investments related to deferred compensation plans are primarily invested in affiliated
funds that are held to hedge economically current and non-current deferred compensation
liabilities. Investments related to deferred compensation plans 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. |
|
|
|
|
UIT-related equity and debt securities |
|
|
|
|
At September 30, 2010, UIT-related equity and debt securities consisted of investments in
corporate stock, UITs, U.S. state and political subdivisions. Each is discussed more fully
below. |
|
o |
|
Corporate stock |
|
|
|
|
The company temporarily holds investments in corporate stock for purposes of
creating a UIT. Corporate stocks are valued under the market approach through use of
quoted prices on an exchange. To the extent these securities are actively traded,
valuation adjustments are not applied and they are categorized in Level 1 of the
fair value hierarchy; otherwise, they are categorized in Level 2. |
|
|
o |
|
UITs |
|
|
|
|
The company may hold units of its sponsored UITs at period-end for sale in the
primary market or secondary market. Equity UITs are valued under the market approach
through use of quoted prices on an exchange. Fixed income UITs are valued using
recently executed transactions, market price quotations (where observable), bond
spreads, or credit default swap spreads. The spread data used is for the same
maturity as the underlying bond. If the spread data does not reference the issuer,
then data that references a comparable issuer is used. When observable price
quotations are not available, fair value is determined based on cash flow models
with yield curves, bond or single name credit default spreads, and recovery rates
based on collateral value as key inputs. Depending on the nature of the inputs,
these investments are categorized as Level 1, 2, or 3. |
|
|
o |
|
U.S. state and political subdivision securities |
|
|
|
|
U.S. state and political subdivision (collectively municipals) securities are
valued using recently executed transactions, market price quotations (where
observable), bond spreads, or credit default swap spreads. The spread data used is
for the same maturity as the underlying bond. If the spread data does not reference
the issuer, then data that references a comparable issuer is used. When observable
price quotations are not available, fair value is determined based on cash flow
models with yield curves, bond or single name credit default spreads, and recovery
rates based on collateral value as key inputs. Depending on the nature of the
inputs, these investments are categorized as Level 1, 2, or 3. |
UIT-related financial instruments sold, not yet purchased, and Derivative Liabilities
The company uses U.S. Treasury futures, which are types of derivative financial instruments,
to hedge economically fixed income UIT inventory and securities in order to mitigate market
risk. Open futures contracts are marked to market daily through earnings, which is
recorded in the companys consolidated statement of income in other revenue, along with the
mark-to-market on the underlying trading securities held. Fair values of derivative contracts in an
asset position are included in other assets in the companys consolidated statement of position.
Fair values of derivative contracts in a liability position are included in other liabilities in
the companys consolidated statement of position. These derivative contracts are valued
under the market approach through use of quoted prices in an active market and are classified
within Level 1 of the valuation hierarchy. Additionally, to hedge economically the market risk
associated with equity and debt securities and UITs temporarily held as trading investments, the
company will hold short corporate stock, exchange-traded fund, or U.S. treasury security positions.
These transactions are recorded as financial instruments
14
sold, not yet purchased. To the extent these securities are actively traded, valuation
adjustments are not applied and they are categorized in Level 1 of the fair value hierarchy;
otherwise, they are categorized in Level 2.
The following table presents, for each of the hierarchy levels described above, the carrying
value of the companys assets and liabilities, 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 September 30, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 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 |
|
|
232.0 |
|
|
|
232.0 |
|
|
|
|
|
|
|
|
|
Investments:* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seed money |
|
|
126.5 |
|
|
|
126.5 |
|
|
|
|
|
|
|
|
|
Trading investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments related to deferred
compensation plans |
|
|
159.4 |
|
|
|
159.4 |
|
|
|
|
|
|
|
|
|
UIT-related equity and debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate stock |
|
|
1.0 |
|
|
|
1.0 |
|
|
|
|
|
|
|
|
|
UITs |
|
|
4.5 |
|
|
|
4.5 |
|
|
|
|
|
|
|
|
|
U.S. state and political
subdivisions securities |
|
|
59.8 |
|
|
|
|
|
|
|
59.8 |
|
|
|
|
|
Assets held for policyholders |
|
|
1,249.7 |
|
|
|
1,249.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,832.9 |
|
|
|
1,773.1 |
|
|
|
59.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments available-for-sale*: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLOs** |
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value |
|
|
1,833.4 |
|
|
|
1,773.1 |
|
|
|
59.8 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UIT-related financial instruments sold, not
yet purchased: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate equities |
|
|
(0.4 |
) |
|
|
(0.4 |
) |
|
|
|
|
|
|
|
|
U.S. Treasury securities |
|
|
(7.8 |
) |
|
|
(7.8 |
) |
|
|
|
|
|
|
|
|
UIT-related derivative liabilities |
|
|
(0.2 |
) |
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value |
|
|
(8.4 |
) |
|
|
(8.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Current foreign time deposits of $25.4 million and other current
investments of $0.5 million are excluded from this table. Other
non-current equity and cost method investments of $140.1 million and
$4.7 million, respectively, 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 $19.6 million at September 30, 2010 (before
consolidation). In accordance with the standard, prior periods have
not been restated to reflect the consolidation of these CLOs. |
15
The following table presents, for each of the hierarchy levels described above, the carrying
value of the companys 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 |
|
|
|
|
|
|
|
|
|
Investments:* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seed money |
|
|
74.8 |
|
|
|
74.8 |
|
|
|
|
|
|
|
|
|
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 |
|
|
1,941.0 |
|
|
|
1,941.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLOs |
|
|
17.9 |
|
|
|
|
|
|
|
|
|
|
|
17.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value |
|
|
1,958.9 |
|
|
|
1,941.0 |
|
|
|
|
|
|
|
17.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Current foreign time deposits of $22.5 million and 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, respectively, 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 and nine month periods ending September 30, 2010, which are
comprised solely of CLOs, and are valued using significant unobservable inputs:
|
|
|
|
|
|
|
|
|
|
|
Three months Ended |
|
Nine months Ended |
$ in millions |
|
September 30, 2010 |
|
September 30, 2010 |
Beginning balance |
|
|
0.6 |
|
|
|
17.9 |
|
Adoption of FASB Statement No. 167* |
|
|
|
|
|
|
(17.4 |
) |
|
|
|
|
|
|
|
|
|
Beginning balance, as adjusted |
|
|
0.6 |
|
|
|
0.5 |
|
Net unrealized gains and losses included in accumulated other
comprehensive income/(loss)** |
|
|
(0.1 |
) |
|
|
|
|
Purchases and issuances |
|
|
|
|
|
|
|
|
Other-than-temporary impairment included in other gains and losses, net |
|
|
|
|
|
|
|
|
Return of capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
|
0.5 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
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 $19.6 million at September 30, 2010 (before
consolidation). The adjustment of $17.4 million in the table above
reflects the elimination of the companys 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), $0.1 million for the three months ended
September 30, 2010 is attributed to the change in unrealized gains and
losses related to assets still held at September 30, 2010. |
16
The following table shows a reconciliation of the beginning and ending fair value measurements
for level 3 assets during the three and nine month periods ending September 30, 2009, which were
comprised solely of CLOs (prior to the adoption of FASB Statement No. 167), and were valued using
significant unobservable inputs:
|
|
|
|
|
|
|
|
|
|
|
Three months Ended |
|
Nine months Ended |
$ in millions |
|
September 30, 2009 |
|
September 30, 2009 |
Beginning balance |
|
|
13.4 |
|
|
|
17.5 |
|
Net unrealized gains and losses included in accumulated other
comprehensive income/(loss)* |
|
|
3.6 |
|
|
|
4.5 |
|
Purchases and issuances |
|
|
|
|
|
|
|
|
Other-than-temporary impairment included in other gains and losses, net |
|
|
(0.8 |
) |
|
|
(5.2 |
) |
Return of capital |
|
|
|
|
|
|
(0.6 |
) |
|
|
|
|
|
|
|
|
|
Ending balance |
|
|
16.2 |
|
|
|
16.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Of these net unrealized gains and losses included in accumulated other
comprehensive income/(loss), $3.6 million for the three months ended
September 30, 2009, and $4.5 million for the nine months ended
September 30, 2009, are attributed to the change in unrealized gains
and losses related to assets still held at September 30, 2009. |
3. INVESTMENTS
The disclosures below include details of the companys investments. Investments held by
consolidated investment products are detailed in Note 12, Consolidated Investment Products.
Current Investments
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
September 30, |
|
December 31, |
$ in millions |
|
2010 |
|
2009 |
Available-for-sale investments: |
|
|
|
|
|
|
|
|
Seed money |
|
|
126.5 |
|
|
|
74.8 |
|
Trading investments: |
|
|
|
|
|
|
|
|
Investments related to deferred compensation plans |
|
|
159.4 |
|
|
|
84.6 |
|
UIT-related equity and debt securities |
|
|
65.3 |
|
|
|
|
|
Foreign time deposits |
|
|
25.4 |
|
|
|
22.5 |
|
Other |
|
|
0.5 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
Total current investments |
|
|
377.1 |
|
|
|
182.4 |
|
|
|
|
|
|
|
|
|
|
Non-current Investments
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
September 30, |
|
December 31, |
$ in millions |
|
2010 |
|
2009 |
Available-for-sale investments: |
|
|
|
|
|
|
|
|
CLOs |
|
|
0.5 |
|
|
|
17.9 |
|
Equity method investments |
|
|
140.1 |
|
|
|
134.7 |
|
Other |
|
|
4.7 |
|
|
|
4.8 |
|
|
|
|
|
|
|
|
|
|
Total non-current investments |
|
|
145.3 |
|
|
|
157.4 |
|
|
|
|
|
|
|
|
|
|
The portion of trading gains and losses for the nine months ended September 30, 2010 that
relates to trading securities still held at September 30, 2010 was a $6.1 million net gain.
17
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 |
|
For the Nine months Ended |
|
|
September 30, 2010 |
|
September 30, 2010 |
|
|
|
|
|
|
Gross |
|
Gross |
|
|
|
|
|
Gross |
|
Gross |
|
|
Proceeds |
|
Realized |
|
Realized |
|
Proceeds |
|
Realized |
|
Realized |
$ in millions |
|
from Sales |
|
Gains |
|
Losses |
|
from Sales |
|
Gains |
|
Losses |
Current available-for-sale investments |
|
|
22.5 |
|
|
|
2.9 |
|
|
|
|
|
|
|
33.0 |
|
|
|
3.6 |
|
|
|
(0.5 |
) |
Non-current available-for-sale investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
Upon the sale of available-for-sale securities, net realized gains of $2.9 million and $3.1
million were transferred from accumulated other comprehensive income into the Condensed
Consolidated Statements of Income during three and the nine months ended September 30, 2010,
respectively. The specific identification method is used to determine the realized gain or loss on
securities sold or otherwise disposed.
Gross unrealized holding gains and losses recognized in other accumulated comprehensive income
from available-for-sale investments are presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 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 |
|
|
116.2 |
|
|
|
11.1 |
|
|
|
(0.8 |
) |
|
|
126.5 |
|
|
|
74.7 |
|
|
|
5.9 |
|
|
|
(5.8 |
) |
|
|
74.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current available-for-sale investments |
|
|
116.2 |
|
|
|
11.1 |
|
|
|
(0.8 |
) |
|
|
126.5 |
|
|
|
74.7 |
|
|
|
5.9 |
|
|
|
(5.8 |
) |
|
|
74.8 |
|
Non-current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLOs* |
|
|
0.4 |
|
|
|
0.1 |
|
|
|
|
|
|
|
0.5 |
|
|
|
12.6 |
|
|
|
5.3 |
|
|
|
|
|
|
|
17.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current available-for-sale investments: |
|
|
0.4 |
|
|
|
0.1 |
|
|
|
|
|
|
|
0.5 |
|
|
|
12.6 |
|
|
|
5.3 |
|
|
|
|
|
|
|
17.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116.6 |
|
|
|
11.2 |
|
|
|
(0.8 |
) |
|
|
127.0 |
|
|
|
87.3 |
|
|
|
11.2 |
|
|
|
(5.8 |
) |
|
|
92.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
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 $19.6 million at September 30, 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 September 30, 2010 by maturity, are set out below:
|
|
|
|
|
|
|
Available-for-Sale |
$ in millions |
|
(Fair Value) |
Less than one year |
|
|
|
|
One to five years |
|
|
|
|
Five to ten years |
|
|
0.5 |
|
Greater than ten years |
|
|
|
|
|
|
|
|
|
Total available-for-sale |
|
|
0.5 |
|
|
|
|
|
|
The following table provides the breakdown of available-for-sale investments with unrealized
losses at September 30, 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 (45 funds)
|
|
|
4.6 |
|
|
|
(0.4 |
) |
|
|
5.8 |
|
|
|
(0.4 |
) |
|
|
10.4 |
|
|
|
(0.8 |
) |
18
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
$0.3 million and $6.5 million on seed money investments during the three and nine months ended
September 30, 2010, respectively.
The gross unrealized losses of seed money investments at September 30, 2010 were primarily
caused by declines in the market value of the underlying securities in the seeded 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.
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 nine months
ended September 30, 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 |
|
Nine months ended |
In millions |
|
September 30, 2010 |
|
September 30, 2010 |
Beginning balance |
|
|
0.8 |
|
|
|
18.8 |
|
Adoption of FASB Statement No. 167* |
|
|
|
|
|
|
(18.0 |
) |
|
|
|
|
|
|
|
|
|
Beginning balance, as adjusted |
|
|
0.8 |
|
|
|
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 |
|
|
|
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 $19.6 million at September 30, 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 companys Condensed Consolidated Balance Sheet,
resulting in the elimination of our equity interest. |
4. BUSINESS COMBINATIONS AND INTEGRATION
On June 1, 2010, Invesco acquired from Morgan Stanley its retail asset management business,
including Van Kampen Investments (the acquired business or the acquisition), in exchange for an
aggregate of 30.9 million shares of common stock and participating preferred stock on an as
converted basis and $770.0 million in cash. During July 2010, a cash payment of $2.5 million was
made reflecting agreed working capital levels in the acquired business. The share issuance portion
of the acquisition consideration represents a noncash financing activity related to the statement
of cash flows.
The acquired business brings in assets under management across the equity, fixed income and
alternative asset classes (including mutual funds, variable insurance funds, separate accounts and
unit investment trusts).
19
Each participating preferred shares issued to Morgan Stanley is convertible into 1,000 common
shares upon transfer by Morgan Stanley to an unrelated third party. The 30.9 million shares issued
to Morgan Stanley include 11.7 million common shares and 19.2 million participating preferred
shares as converted to common shares.
The transaction was accounted for under the acquisition method of accounting. Accordingly, the
purchase price was allocated to the assets acquired and liabilities assumed based upon their
estimated fair values at the date of the transaction. Substantially all of the $364.2 million
excess of the purchase price over the fair value of assets acquired and liabilities and
noncontrolling interests assumed was recorded as nondeductible goodwill. The goodwill balance
resulted primarily from an opening balance sheet net deferred tax liability of $307.8 million which
reflects a carryover tax basis in certain assets that were acquired.
The following table summarizes the initial estimates of amounts of identified assets acquired
and liabilities assumed at the acquisition date and at September 30, 2010, as well as the
consideration transferred to acquire Morgan Stanleys retail asset management business, including
Van Kampen Investments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial Fair Value |
|
|
|
|
|
Revised Fair |
$ in millions |
|
Estimate |
|
Adjustments* |
|
Value Estimate |
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
57.8 |
|
|
|
|
|
|
|
57.8 |
|
Cash of consolidated investment products |
|
|
4.4 |
|
|
|
12.1 |
|
|
|
16.5 |
|
Investments |
|
|
71.4 |
|
|
|
|
|
|
|
71.4 |
|
Investments of consolidated investment products |
|
|
762.3 |
|
|
|
|
|
|
|
762.3 |
|
Receivables |
|
|
81.1 |
|
|
|
(0.4 |
) |
|
|
80.7 |
|
Receivables of consolidated investment products |
|
|
11.6 |
|
|
|
|
|
|
|
11.6 |
|
Property and equipment |
|
|
3.2 |
|
|
|
0.1 |
|
|
|
3.3 |
|
Institutional relationships intangible |
|
|
18.0 |
|
|
|
|
|
|
|
18.0 |
|
Sub-Advised relationships intangible |
|
|
54.0 |
|
|
|
|
|
|
|
54.0 |
|
Fund management contracts intangible |
|
|
1,047.0 |
|
|
|
|
|
|
|
1,047.0 |
|
Distribution relationships intangible |
|
|
40.0 |
|
|
|
|
|
|
|
40.0 |
|
Distribution agreements intangible |
|
|
17.0 |
|
|
|
|
|
|
|
17.0 |
|
Trademarks / Trade Names intangible |
|
|
13.0 |
|
|
|
|
|
|
|
13.0 |
|
Goodwill |
|
|
362.7 |
|
|
|
1.5 |
|
|
|
364.2 |
|
Other assets |
|
|
18.8 |
|
|
|
15.0 |
|
|
|
33.8 |
|
|
|
|
Total assets |
|
|
2,562.3 |
|
|
|
28.3 |
|
|
|
2,590.6 |
|
LIABILITIES AND APPROPRIATED EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
Accruals and accounts payables |
|
|
(135.6 |
) |
|
|
(1.2 |
) |
|
|
(136.8 |
) |
Other current liabilities of consolidated investment products |
|
|
(16.3 |
) |
|
|
(8.4 |
) |
|
|
(24.7 |
) |
Deferred taxation, net |
|
|
(307.8 |
) |
|
|
|
|
|
|
(307.8 |
) |
Long-term debt of consolidated investment products |
|
|
(630.2 |
) |
|
|
|
|
|
|
(630.2 |
) |
Retained earnings appropriated for investors of consolidated
investment products |
|
|
(130.7 |
) |
|
|
(18.7 |
) |
|
|
(149.4 |
) |
|
|
|
Total liabilities and appropriated equity |
|
|
(1,220.6 |
) |
|
|
(28.3 |
) |
|
|
(1,248.9 |
) |
|
|
|
Total identifiable net assets |
|
|
1,341.7 |
|
|
|
|
|
|
|
1,341.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary of consideration: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid |
|
|
770.0 |
|
|
|
|
|
|
|
770.0 |
|
Payable to seller |
|
|
2.5 |
|
|
|
|
|
|
|
2.5 |
|
Capital stock at fair value |
|
|
569.2 |
|
|
|
|
|
|
|
569.2 |
|
|
|
|
Total cash and stock consideration |
|
|
1,341.7 |
|
|
|
|
|
|
|
1,341.7 |
|
|
|
|
|
|
|
* |
|
As the company receives additional information related to the
transaction, certain initially recorded estimates may change.
Adjustments identified through September 30, 2010 relate primarily to
the addition of cash and derivative assets and liabilities of acquired
consolidated collateralized loan obligation products. The company
does not expect additional material changes to the value of assets
acquired or liabilities assumed in conjunction with the transaction. |
20
The initial opening balance sheet includes an accrual of $4.7 million related to probable
legal contingencies existing at the date of the acquisition and an indemnification asset due from
Morgan Stanley for the same amount. The 30.9 million aggregate common shares and participating
preferred shares as converted to common shares issued to Morgan Stanley had a total fair value of
$567.8 million based on the companys opening market price of $18.38 per share on June 1, 2010, the
acquisition date. The vested portion of replacement employee share based awards had a fair value of
$1.4 million.
Immediately following the acquisition date, the company commenced the integration of the
acquired business with its pre-existing operations. The integration of the acquired business was
largely complete as of the date of the companys Form 10-Q for the three and six months ended June
30, 2010; as such, accurate segregated expense information for (and therefore earnings generated
by) the acquired business for periods subsequent to June 30, 2010 is no longer available. Prior to
any significant product mergers, revenues associated with the acquired business can be separately
identified, and as a result, the impact can be estimated. Operating revenues of the acquired
business from the closing date of June 1 through September 30, 2010 were approximately $272
million, which represents the incremental impact of the acquired business and does not represent
the stand-alone results of the acquired business.
The following unaudited proforma summary presents consolidated information of the Company as
if the business combination had occurred on January 1, 2009, the earliest period presented herein.
Transaction and integration expenses have been removed from the proforma information as they are
deemed to be costs directly attributable to the acquired business. These pro forma results are not
indicative of the actual results of operations that would have been achieved nor are they
indicative of future results of operations.
|
|
|
|
|
|
|
|
|
|
|
For the three months ended September 30, |
$ in millions |
|
2010 |
|
2009 |
Operating Revenues |
|
|
953.1 |
|
|
|
884.8 |
|
Net income |
|
|
172.5 |
|
|
|
122.0 |
|
|
|
|
For the nine months ended September 30, |
$ in millions |
|
2010 |
|
2009 |
Operating Revenues |
|
|
2,776.9 |
|
|
|
2,338.4 |
|
Net income |
|
|
427.1 |
|
|
|
219.6 |
|
On August 16, 2010, Invesco acquired Concord Capital (Concord), an Australian equities
manager, in exchange for $14.5 million cash consideration paid and an initially estimated $32.4
million in contingent consideration payable over 5 years. Cash and cash equivalents acquired was
$4.1 million, and the purchase consideration has initially been attributed primarily to management
contract intangibles of $24.2 million and goodwill of $20.2 million.
During the three and nine months ended September 30, 2010, the company incurred $26.8 million,
and $123.3 million, respectively, of transaction and integration costs ($17.8 million and $97.6
million net of taxation, respectively). Transaction and integration costs 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 companys existing operations including incremental costs associated with
achieving synergy savings. The following table presents acquisition-related and integration-related
charges incurred during the period.
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
For the nine months ended |
$ in millions |
|
September 30, 2010 |
|
September 30, 2010 |
Acquisition-related charges |
|
|
0.3 |
|
|
|
5.7 |
|
Integration-related charges |
|
|
26.5 |
|
|
|
117.6 |
|
|
|
|
|
|
|
|
|
|
Total transaction and integration charges(1) |
|
|
26.8 |
|
|
|
123.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The company incurred $4.3 million of acquisition-related costs and
$6.5 million of integration-related costs during 2009, which is not
reflected in this table. |
Integration charges include costs associated with activities that do not represent ongoing
costs of the fully integrated combined organization, such as severance and employee-related
charges, costs associated with proxy solicitation to fund shareholders and other
integration-related charges.
21
5. INTANGIBLE ASSETS
The following table presents the major classes of the companys finite-lived intangible assets
at September 30, 2010 and December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
|
|
Amortization |
|
Gross Book |
|
Accumulated |
|
Net Book |
$ in millions |
|
Period (years) |
|
Value |
|
Amortization |
|
Value |
September 30, 2010 |
|
|
Management contracts |
|
|
9.1 |
|
|
|
189.4 |
|
|
|
(77.9 |
) |
|
|
111.5 |
|
Customer relationships |
|
|
12.0 |
|
|
|
40.0 |
|
|
|
(1.1 |
) |
|
|
38.9 |
|
Distribution agreements |
|
|
4.0 |
|
|
|
17.0 |
|
|
|
(1.4 |
) |
|
|
15.6 |
|
Trademarks / Trade Names |
|
|
2.0 |
|
|
|
13.0 |
|
|
|
(2.2 |
) |
|
|
10.8 |
|
Other |
|
|
6.1 |
|
|
|
3.6 |
|
|
|
(2.6 |
) |
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
8.9 |
|
|
|
263.0 |
|
|
|
(85.2 |
) |
|
|
177.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management contracts |
|
|
9.3 |
|
|
|
103.4 |
|
|
|
(75.8 |
) |
|
|
27.6 |
|
Other |
|
|
5.0 |
|
|
|
2.8 |
|
|
|
(1.9 |
) |
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
9.0 |
|
|
|
106.2 |
|
|
|
(77.7 |
) |
|
|
28.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The acquisitions of Morgan Stanleys retail asset management business, including Van Kampen
Investments, and of Concord Capital, added $142.0 million and $24.2 million of finite-lived
intangible assets, respectively, as discussed in Note 4, Business Combinations and Integration.
Where evidence exists that the underlying management contracts have a high likelihood of
continued renewal at little or no cost to the company, the intangible asset is assigned an
indefinite life. The acquisition of Morgan Stanleys retail asset management business, including
Van Kampen Investments, added $1,047.0 million of indefinite-lived intangible assets to the
companys Condensed Consolidated Balance Sheet at June 1, 2010, also as discussed in Note 4,
Business Combination and Integration, above. Indefinite-lived intangible assets, which total
$1,166.3 million at September 30, 2010 (December 31, 2009: $110.6 million) primarily relate to
management contracts and related asset management rights acquired during the June 1, 2010
acquisition.
22
Amortization expense was $9.4 million and $17.7 million, respectively, during the three and
nine months ended September 30, 2010 (three and nine months ended September 30, 2009: $3.2 million
and $9.4 million, respectively) and is included within General and Administrative expenses in the
Condensed Consolidated Statements of Income. Estimated amortization expense for each of the five
succeeding fiscal years based upon the companys intangible assets at September 30, 2010 is as
follows:
|
|
|
|
|
Years Ended September 30, |
|
|
|
|
$ in millions |
|
|
|
|
2011 |
|
|
34.8 |
|
2012 |
|
|
27.9 |
|
2013 |
|
|
22.9 |
|
2014 |
|
|
19.1 |
|
2015 |
|
|
14.9 |
|
6. GOODWILL
The table below details changes in the goodwill balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Book |
|
Accumulated |
|
Net Book |
$ in millions |
|
Value |
|
Impairment |
|
Value |
January 1, 2009 |
|
|
5,983.4 |
|
|
|
(16.6 |
) |
|
|
5,966.8 |
|
Business combinations |
|
|
34.2 |
|
|
|
|
|
|
|
34.2 |
|
Foreign exchange |
|
|
466.6 |
|
|
|
|
|
|
|
466.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
6,484.2 |
|
|
|
(16.6 |
) |
|
|
6,467.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business combinations |
|
|
410.2 |
|
|
|
|
|
|
|
410.2 |
|
Foreign exchange |
|
|
(1.7 |
) |
|
|
|
|
|
|
(1.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
6,892.7 |
|
|
|
(16.6 |
) |
|
|
6,876.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The acquisition of Morgan Stanleys retail asset management business, including Van Kampen
Investments, added $364.2 million of goodwill, and the acquisition of Concord Capital added $20.2
million of goodwill to the companys Condensed Consolidated Balance Sheet at their respective
acquisition dates, as discussed in Note 4, Business Combination and Integration. The April 3,
2010 earn-out calculation related to the 2006 acquisition of W.L. Ross & Co. resulted in an
addition to goodwill and a non-interest bearing note payable to the sellers of $25.8 million,
payable in conjunction with the amount resulting from the October 3, 2010 measurement date
calculation (2009 earn-out goodwill addition: $34.2 million). See Note 15, Commitments and
Contingencies, for additional information.
7. DEBT
The disclosures below include details of the companys debt. Debt of consolidated investment
products is detailed in Note 12, Consolidated Investment Products.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 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 |
|
|
|
226.3 |
|
|
|
215.1 |
|
|
|
227.0 |
|
5.375% due February 27, 2013 |
|
|
333.5 |
|
|
|
357.3 |
|
|
|
333.5 |
|
|
|
343.4 |
|
5.375% due December 15, 2014 |
|
|
197.1 |
|
|
|
214.8 |
|
|
|
197.1 |
|
|
|
195.1 |
|
Floating rate credit facility terminated May 24, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating rate credit facility expiring May 23, 2013 |
|
|
648.5 |
|
|
|
648.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt |
|
|
1,394.2 |
|
|
|
1,446.9 |
|
|
|
745.7 |
|
|
|
765.5 |
|
Less: current maturities of total debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
1,394.2 |
|
|
|
1,446.9 |
|
|
|
745.7 |
|
|
|
765.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
The companys Senior Note indentures contain certain restrictions on
mergers or consolidations. Beyond these items, there are no other
restrictive covenants in the indentures. |
23
The fair market value of the companys 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 |
|
September 30, 2010 |
2011 |
|
|
|
|
2012 |
|
|
215.1 |
|
2013 |
|
|
982.0 |
|
2014 |
|
|
197.1 |
|
Thereafter |
|
|
|
|
|
|
|
|
|
Total debt |
|
|
1,394.2 |
|
|
|
|
|
|
On May 24, 2010, the company terminated its existing $500.0 million credit facility and
entered into a new $1,250 million credit facility. Amounts borrowed under the credit facility are
repayable at maturity on May 23, 2013.
At September 30, 2010, the outstanding balance on the credit facility was $648.5 million and
the weighted average interest rate on the credit facility was 1.79%. 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 companys credit ratings and specified credit
default spreads. Based on credit ratings as of September 30, 2010 of the company and such credit
default spreads, the applicable margin for LIBOR-based loans was 1.075% and for base rate loans was
0.075%. 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
companys credit ratings. Based on credit ratings as of September 30, 2010, the annual facility fee
was equal to 0.30%.
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; entering into certain
restrictive merger arrangements; selling, leasing, transferring or otherwise disposing of assets;
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; entering into
transactions with affiliates; incurring certain indebtedness through the non-guarantor
subsidiaries. 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, 2011, 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.
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.
24
8. SHARE CAPITAL
Movements in the number of common shares and common share equivalents issued are represented
in the table below:
|
|
|
|
|
|
|
|
|
|
|
Nine months Ended |
|
Nine months Ended |
In millions |
|
September 30, 2010 |
|
September 30, 2009 |
Common shares issued beginning balance |
|
|
459.5 |
|
|
|
426.6 |
|
Issue of new shares |
|
|
11.7 |
|
|
|
32.9 |
|
|
|
|
|
|
|
|
|
|
Common shares issued ending balance |
|
|
471.2 |
|
|
|
459.5 |
|
Less: Treasury shares for which dividend and voting rights do not apply |
|
|
(28.4 |
) |
|
|
(30.7 |
) |
|
|
|
|
|
|
|
|
|
Common shares outstanding |
|
|
442.8 |
|
|
|
428.8 |
|
Participating preferred shares, on an as converted basis |
|
|
19.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares and common share equivalents outstanding |
|
|
462.0 |
|
|
|
428.8 |
|
|
|
|
|
|
|
|
|
|
Total treasury shares at September 30, 2010 were 41.2 million (September 30, 2009: 43.3
million), including 12.8 million unvested restricted stock awards (September 30, 2009: 12.6
million) for which dividend and voting rights apply.
During the three and nine months ended September 30, 2010, the company repurchased 6.4 million
shares in the market at a cost of $127.7 million (three and nine months ended September 30, 2009:
no shares were repurchased). Separately, an aggregate of 1.4 million shares were withheld on
vesting events during the nine months ended September 30, 2010 to meet employees withholding tax
obligations (nine months ended September 30, 2009: 1.1 million shares). The carrying value of these
shares withheld was $36.5 million (nine months ended September 30, 2009: $12.6 million).
Approximately $1.2 billion remained authorized under the companys share repurchase plan at
September 30, 2010.
On June 1, 2010, Invesco acquired Morgan Stanleys retail asset management business, including
Van Kampen Investments. In connection with this transaction, Invesco issued to Morgan Stanley
19,212 shares of Series A convertible participating preferred stock (participating preferred
shares). Each participating preferred share is convertible into 1,000 common shares upon transfer
of the shares by Morgan Stanley to an unrelated third party. Each participating preferred share
participates in dividends on a basis equal to common shares. The participating preferred shares are
non-voting except as otherwise provided by applicable law and benefit from a liquidation preference
of $0.01 per share.
9. 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:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
$ in millions |
|
2010 |
|
2009 |
Net unrealized gains/(losses) on available-for-sale investments |
|
|
14.8 |
|
|
|
5.4 |
|
Tax on unrealized losses/(gains) on available-for-sale investments |
|
|
(2.7 |
) |
|
|
(1.6 |
) |
Cumulative foreign currency translation adjustments |
|
|
454.8 |
|
|
|
442.0 |
|
Tax on cumulative foreign currency translation adjustments |
|
|
2.0 |
|
|
|
2.0 |
|
Employee benefit plan liability adjustments |
|
|
(70.2 |
) |
|
|
(74.5 |
) |
Tax on employee benefit plan liability adjustments |
|
|
18.5 |
|
|
|
20.3 |
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income |
|
|
417.2 |
|
|
|
393.6 |
|
|
|
|
|
|
|
|
|
|
25
Total other comprehensive income details are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months Ended |
|
Nine months Ended |
|
|
September 30, |
|
September 30, |
$ in millions |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
Net income/(loss), including gains and losses attributable to
noncontrolling interests |
|
|
27.4 |
|
|
|
104.7 |
|
|
|
480.1 |
|
|
|
75.1 |
|
Adoption of FSP FAS 115-2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.5 |
) |
Unrealized holding gains and losses on available-for-sale investments* |
|
|
6.5 |
|
|
|
11.4 |
|
|
|
6.6 |
|
|
|
9.1 |
|
Tax on net unrealized holding gains and losses on available-for-sale
investments |
|
|
(1.3 |
) |
|
|
(0.6 |
) |
|
|
(1.0 |
) |
|
|
(1.8 |
) |
Reclassification adjustments for net gains and losses on
available-for-sale investments included in net income |
|
|
2.1 |
|
|
|
(1.5 |
) |
|
|
8.0 |
|
|
|
3.9 |
|
Tax on reclassification adjustments for net gains and losses on
available-for-sale investments included in net income |
|
|
0.1 |
|
|
|
0.4 |
|
|
|
(0.1 |
) |
|
|
0.8 |
|
Foreign currency translation adjustments** |
|
|
145.6 |
|
|
|
102.9 |
|
|
|
(3.4 |
) |
|
|
422.4 |
|
Tax on foreign currency translation adjustments |
|
|
|
|
|
|
(0.2 |
) |
|
|
|
|
|
|
0.6 |
|
Adjustments to employee benefit plan liability |
|
|
(2.7 |
) |
|
|
1.6 |
|
|
|
4.3 |
|
|
|
(1.9 |
) |
Tax on adjustments to pension liability |
|
|
|
|
|
|
(1.4 |
) |
|
|
(1.8 |
) |
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income/(loss) |
|
|
177.7 |
|
|
|
217.3 |
|
|
|
492.7 |
|
|
|
507.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
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 companys
investments in certain CLOs were reclassified into retained earnings
upon their consolidation. |
|
** |
|
Included in this amount are net losses of $53.3 million and $16.2
million for the three and nine months ended September 30, 2010,
respectively, related to foreign currency translation adjustments
attributable to consolidated investment products. Such amounts form
part of the companys total comprehensive income but are reclassified
from accumulated other comprehensive income into retained earnings
appropriated for investors in consolidated investment products. |
10. TAXATION
At September 30, 2010, the total amount of gross unrecognized tax benefits was $26.2 million
as compared to the December 31, 2009, total amount of $39.0 million. During the three months ended
September 30, 2010, a net tax benefit of $10.1 million was recognized as a result of the expiration
of the statute of limitations for certain tax positions related to the 2006 tax year.
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.
11. 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.
On June 1, 2010, Invesco acquired Morgan Stanleys retail asset management business, including
Van Kampen Investments. In connection with this transaction, Invesco issued to Morgan Stanley
19,212 participating preferred shares. Each participating preferred share is convertible into 1,000
common shares upon transfer of the shares by Morgan Stanley to an unrelated third party. Each
participating preferred share participates in dividends on a basis equal to common shares. Due to
the similarities in terms between the companys participating preferred shares and common shares,
and the fact that the number of participating preferred shares
26
outstanding of 19,212 and the dividends payable on participating preferred shares of $2.1
million would not change the amount of basic or diluted EPS, the company has excluded these amounts
from the calculation below and considers the participating preferred shares to be common share
equivalents. The company has included the outstanding participating preferred shares, as converted
to common shares, and dividends payable on participating preferred shares in the calculation of
average basic and diluted shares outstanding for the three and nine months ended September 30,
2010.
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 September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
154.7 |
|
|
|
476.6 |
|
|
$ |
0.32 |
|
Dilutive effect of share-based awards |
|
|
|
|
|
|
2.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
154.7 |
|
|
|
479.1 |
|
|
$ |
0.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
105.2 |
|
|
|
431.6 |
|
|
$ |
0.24 |
|
Dilutive effect of share-based awards |
|
|
|
|
|
|
6.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
105.2 |
|
|
|
437.7 |
|
|
$ |
0.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
|
|
|
|
|
|
|
Attributable to |
|
|
|
|
|
|
|
|
|
Common |
|
|
Weighted Average |
|
|
Per Share |
|
In millions, except per share data |
|
Shareholders |
|
|
Number of Shares |
|
|
Amount |
|
For the nine months ended September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
290.5 |
|
|
|
457.0 |
|
|
$ |
0.64 |
|
Dilutive effect of share-based awards |
|
|
|
|
|
|
2.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
290.5 |
|
|
|
459.9 |
|
|
$ |
0.63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
211.6 |
|
|
|
411.5 |
|
|
$ |
0.51 |
|
Dilutive effect of share-based awards |
|
|
|
|
|
|
6.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
211.6 |
|
|
|
417.8 |
|
|
$ |
0.51 |
|
|
|
|
|
|
|
|
|
|
|
See Note 13, Share-based Compensation, for a summary of share awards outstanding under the
companys 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 8.6 million shares at a weighted average exercise price of 2033 pence were
outstanding for the nine months ended September 30, 2010 (nine months ended September 30, 2009:
12.4 million share options at a weighted average exercise price of 1,890 pence), but were not
included in the computation of diluted earnings per share because the options exercise price were
greater than the average market price of the shares and therefore their inclusion would have been
anti-dilutive.
There were no contingently issuable shares excluded from the diluted earnings per share
computation for the nine months ended September 30, 2010 (nine months ended September 30, 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 nine months ended September 30, 2010 and 2009, due to their inclusion being
anti-dilutive.
12. 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
27
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 companys 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 companys 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 companys 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 companys 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.
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 a portion of the unrated, junior
subordinated positions. The companys 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 companys underlying investments in
the CLOs of $19.6 million (before consolidation) at September 30, 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 (discussed in Note 1, Accounting Policies), the companys ownership interests,
which were classified as available-for-sale investments on the companys 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 companys 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 companys 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 companys 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 companys 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 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
companys 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 companys minimal direct investments in, and
management fees generated from, the CLOs. If the company were to liquidate, the collateral assets
would not be
28
available to the general creditors of the company. Additionally, the investors in the CLOs
have no recourse to the general credit of the company for the notes issued by the CLOs.
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 companys Consolidated Balance Sheets.
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 15, 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 companys maximum risk of loss, is
equivalent to the amount of support that the trusts required as of September 30, 2010 to maintain
the net asset value of the trusts at $1.00 per share. The estimated fair value of the guarantees
related to these agreements at September 30, 2010 was $4.0 million (December 31, 2009: $2.5
million), which was recorded as a guarantee obligation in other current liabilities in the
Consolidated Balance Sheet. The estimated fair value of these agreements is lower than the maximum
support amount reflecting managements 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 companys ownership
interests, which are classified as equity method investments on the companys 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.
29
At September 30, 2010, the companys maximum risk of loss in significant VIEs in which the
company is not the primary beneficiary is presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Companys Maximum |
$ in millions |
|
Footnote Reference |
|
Carrying Value |
|
Risk of Loss |
CLO investments |
|
|
2 |
|
|
|
0.5 |
|
|
|
0.5 |
|
Partnership and trust investments |
|
|
|
|
|
|
18.2 |
|
|
|
18.2 |
|
Investments in Invesco Mortgage Capital Inc. |
|
|
|
|
|
|
31.8 |
|
|
|
31.8 |
|
Support agreements* |
|
|
12 |
|
|
|
(4.0 |
) |
|
|
36.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
86.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
As of September 30, 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. |
During the nine months ended September 30, 2010, entities with the following balance sheets
were consolidated:
Balance Sheet
|
|
|
|
|
|
|
VIEs |
$ in millions |
|
consolidated |
During the nine months ended September 30, 2010* |
|
|
|
|
Current assets |
|
|
281.6 |
|
Non-current assets |
|
|
6,188.1 |
|
|
|
|
|
|
Total assets |
|
|
6,469.7 |
|
|
|
|
|
|
Current liabilities |
|
|
162.6 |
|
Non-current liabilities |
|
|
5,883.4 |
|
|
|
|
|
|
Total liabilities |
|
|
6,046.0 |
|
|
|
|
|
|
Total equity |
|
|
423.7 |
|
|
|
|
|
|
Total liabilities and equity |
|
|
6,469.7 |
|
|
|
|
|
|
|
|
|
* |
|
The amounts consolidated in this table reflect the initial
consolidation of CLOs at the adoption of FASB Statement No. 167 on
January 1, 2010 as well as the initial consolidation of certain CLOs
acquired in the June 1, 2010 acquisition. |
During the nine months ended September 30, 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 nine months ended September 30, 2009, from the deconsolidation of these investment
products.
Balance Sheet
|
|
|
|
|
|
|
Amounts |
|
|
deconsolidated |
$ in millions |
|
under FIN 46(R) |
During the nine months ended September 30, 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 |
|
|
|
|
|
|
30
The following tables reflect the impact of consolidation of investment products into the
Condensed Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009, and the
Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2010
and 2009.
Condensed Consolidating Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before |
|
|
|
|
|
Other |
|
|
|
|
|
|
$ in millions |
|
Consolidation* |
|
CLOs - VIEs ** |
|
VIEs |
|
VOEs |
|
Eliminations |
|
Total |
As of September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
4,055.7 |
|
|
|
389.5 |
|
|
|
1.6 |
|
|
|
23.3 |
|
|
|
(8.9 |
) |
|
|
4,461.2 |
|
Non-current assets |
|
|
8,703.3 |
|
|
|
6,125.4 |
|
|
|
60.0 |
|
|
|
624.5 |
|
|
|
(32.7 |
) |
|
|
15,480.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
12,759.0 |
|
|
|
6,514.9 |
|
|
|
61.6 |
|
|
|
647.8 |
|
|
|
(41.6 |
) |
|
|
19,941.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
3,252.8 |
|
|
|
302.1 |
|
|
|
1.0 |
|
|
|
4.2 |
|
|
|
(8.9 |
) |
|
|
3,551.2 |
|
Long-term debt of
consolidated investment
products |
|
|
|
|
|
|
5,663.4 |
|
|
|
|
|
|
|
|
|
|
|
(19.6 |
) |
|
|
5,643.8 |
|
Other non-current liabilities |
|
|
1,900.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,900.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
5,153.3 |
|
|
|
5,965.5 |
|
|
|
1.0 |
|
|
|
4.2 |
|
|
|
(28.5 |
) |
|
|
11,095.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings
appropriated for investors
in consolidated investment
products |
|
|
|
|
|
|
549.4 |
|
|
|
|
|
|
|
|
|
|
|
(2.5 |
) |
|
|
546.9 |
|
Other equity attributable to
common shareholders |
|
|
7,600.7 |
|
|
|
|
|
|
|
0.1 |
|
|
|
13.0 |
|
|
|
(10.6 |
) |
|
|
7,603.2 |
|
Equity attributable to
noncontrolling interests in
consolidated entities |
|
|
5.0 |
|
|
|
|
|
|
|
60.5 |
|
|
|
630.6 |
|
|
|
|
|
|
|
696.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
|
12,759.0 |
|
|
|
6,514.9 |
|
|
|
61.6 |
|
|
|
647.8 |
|
|
|
(41.6 |
) |
|
|
19,941.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Invescos 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. |
31
Condensed Consolidating Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before |
|
|
|
|
|
Other |
|
|
|
|
|
|
$ in millions |
|
Consolidation* |
|
CLOs - VIEs ** |
|
VIEs |
|
VOEs |
|
Eliminations |
|
Total |
Three months ended September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
963.5 |
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
(10.5 |
) |
|
|
953.1 |
|
Total operating expenses |
|
|
768.4 |
|
|
|
9.8 |
|
|
|
0.4 |
|
|
|
2.1 |
|
|
|
(10.5 |
) |
|
|
770.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
195.1 |
|
|
|
(9.8 |
) |
|
|
(0.4 |
) |
|
|
(2.0 |
) |
|
|
|
|
|
|
182.9 |
|
Equity in earnings of unconsolidated affiliates |
|
|
10.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.7 |
|
Interest and dividend income |
|
|
3.4 |
|
|
|
71.8 |
|
|
|
|
|
|
|
|
|
|
|
(1.5 |
) |
|
|
73.7 |
|
Other investment income/(losses) |
|
|
14.6 |
|
|
|
(164.3 |
) |
|
|
0.4 |
|
|
|
15.6 |
|
|
|
|
|
|
|
(133.7 |
) |
Interest expense |
|
|
(16.2 |
) |
|
|
(37.0 |
) |
|
|
|
|
|
|
|
|
|
|
1.5 |
|
|
|
(51.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, including gains
and losses attributable to noncontrolling
interests |
|
|
207.6 |
|
|
|
(139.3 |
) |
|
|
|
|
|
|
13.6 |
|
|
|
|
|
|
|
81.9 |
|
Income tax provision |
|
|
(54.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(54.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, including gains and losses
attributable to noncontrolling interests |
|
|
153.1 |
|
|
|
(139.3 |
) |
|
|
|
|
|
|
13.6 |
|
|
|
|
|
|
|
27.4 |
|
(Gains)/losses attributable to noncontrolling
interests in consolidated entities, net |
|
|
(0.2 |
) |
|
|
138.0 |
|
|
|
|
|
|
|
(10.4 |
) |
|
|
(0.1 |
) |
|
|
127.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders |
|
|
152.9 |
|
|
|
(1.3 |
) |
|
|
|
|
|
|
3.2 |
|
|
|
(0.1 |
) |
|
|
154.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before |
|
|
|
|
|
|
|
|
$ in millions |
|
Consolidation* |
|
VIEs |
|
VOEs |
|
Eliminations |
|
Total |
Three months ended September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
708.1 |
|
|
|
|
|
|
|
(0.4 |
) |
|
|
(1.9 |
) |
|
|
705.8 |
|
Total operating expenses |
|
|
553.3 |
|
|
|
0.3 |
|
|
|
2.5 |
|
|
|
(1.9 |
) |
|
|
554.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
154.8 |
|
|
|
(0.3 |
) |
|
|
(2.9 |
) |
|
|
|
|
|
|
151.6 |
|
Equity in earnings of unconsolidated affiliates |
|
|
7.6 |
|
|
|
|
|
|
|
|
|
|
|
0.3 |
|
|
|
7.9 |
|
Interest and dividend income |
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.7 |
|
Other investment income/(losses) |
|
|
2.0 |
|
|
|
0.5 |
|
|
|
1.6 |
|
|
|
|
|
|
|
4.1 |
|
Interest expense |
|
|
(16.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, including gains
and losses attributable to noncontrolling
interests |
|
|
149.2 |
|
|
|
0.2 |
|
|
|
(1.3 |
) |
|
|
0.3 |
|
|
|
148.4 |
|
Income tax provision |
|
|
(43.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(43.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss), including gains and losses
attributable to noncontrolling interests |
|
|
105.5 |
|
|
|
0.2 |
|
|
|
(1.3 |
) |
|
|
0.3 |
|
|
|
104.7 |
|
(Gains)/losses attributable to noncontrolling
interests in consolidated entities, net |
|
|
(0.3 |
) |
|
|
(0.2 |
) |
|
|
1.0 |
|
|
|
|
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders |
|
|
105.2 |
|
|
|
|
|
|
|
(0.3 |
) |
|
|
0.3 |
|
|
|
105.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
The Before Consolidation column includes Invescos 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. |
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before |
|
|
|
|
|
Other |
|
|
|
|
|
|
$ in millions |
|
Consolidation* |
|
CLOs - VIEs ** |
|
VIEs |
|
VOEs |
|
Eliminations |
|
Total |
Nine months ended September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
2,492.3 |
|
|
|
|
|
|
|
|
|
|
|
0.3 |
|
|
|
(33.4 |
) |
|
|
2,459.2 |
|
Total operating expenses |
|
|
2,060.3 |
|
|
|
31.0 |
|
|
|
1.4 |
|
|
|
8.7 |
|
|
|
(33.4 |
) |
|
|
2,068.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
432.0 |
|
|
|
(31.0 |
) |
|
|
(1.4 |
) |
|
|
(8.4 |
) |
|
|
|
|
|
|
391.2 |
|
Equity in earnings of unconsolidated affiliates |
|
|
27.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.4 |
) |
|
|
26.9 |
|
Interest and dividend income |
|
|
6.8 |
|
|
|
179.2 |
|
|
|
|
|
|
|
|
|
|
|
(3.3 |
) |
|
|
182.7 |
|
Other investment income/(losses) |
|
|
3.2 |
|
|
|
78.9 |
|
|
|
4.9 |
|
|
|
58.2 |
|
|
|
|
|
|
|
145.2 |
|
Interest expense |
|
|
(42.7 |
) |
|
|
(85.2 |
) |
|
|
|
|
|
|
|
|
|
|
3.3 |
|
|
|
(124.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, including gains
and losses attributable to noncontrolling
interests |
|
|
426.6 |
|
|
|
141.9 |
|
|
|
3.5 |
|
|
|
49.8 |
|
|
|
(0.4 |
) |
|
|
621.4 |
|
Income tax provision |
|
|
(141.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(141.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, including gains and losses
attributable to noncontrolling interests |
|
|
285.3 |
|
|
|
141.9 |
|
|
|
3.5 |
|
|
|
49.8 |
|
|
|
(0.4 |
) |
|
|
480.1 |
|
(Gains)/losses attributable to noncontrolling
interests in consolidated entities, net |
|
|
(0.4 |
) |
|
|
(139.4 |
) |
|
|
(3.5 |
) |
|
|
(46.2 |
) |
|
|
(0.1 |
) |
|
|
(189.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders |
|
|
284.9 |
|
|
|
2.5 |
|
|
|
|
|
|
|
3.6 |
|
|
|
(0.5 |
) |
|
|
290.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before |
|
|
|
|
|
|
|
|
$ in millions |
|
Consolidation* |
|
VIEs |
|
VOEs |
|
Eliminations |
|
Total |
Nine months ended September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
1,883.6 |
|
|
|
0.3 |
|
|
|
1.5 |
|
|
|
(5.9 |
) |
|
|
1,879.5 |
|
Total operating expenses |
|
|
1,553.0 |
|
|
|
1.3 |
|
|
|
7.3 |
|
|
|
(5.9 |
) |
|
|
1,555.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
330.6 |
|
|
|
(1.0 |
) |
|
|
(5.8 |
) |
|
|
|
|
|
|
323.8 |
|
Equity in earnings of unconsolidated affiliates |
|
|
15.4 |
|
|
|
|
|
|
|
|
|
|
|
2.5 |
|
|
|
17.9 |
|
Interest and dividend income |
|
|
7.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.7 |
|
Other investment income/(losses) |
|
|
7.8 |
|
|
|
(16.0 |
) |
|
|
(116.8 |
) |
|
|
|
|
|
|
(125.0 |
) |
Interest expense |
|
|
(49.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, including gains
and losses attributable to noncontrolling
interests |
|
|
312.2 |
|
|
|
(17.0 |
) |
|
|
(122.6 |
) |
|
|
2.5 |
|
|
|
175.1 |
|
Income tax provision |
|
|
(100.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(100.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss), including gains and losses
attributable to noncontrolling interests |
|
|
212.2 |
|
|
|
(17.0 |
) |
|
|
(122.6 |
) |
|
|
2.5 |
|
|
|
75.1 |
|
(Gains)/losses attributable to noncontrolling
interests in consolidated entities, net |
|
|
(0.6 |
) |
|
|
17.0 |
|
|
|
120.1 |
|
|
|
|
|
|
|
136.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders |
|
|
211.6 |
|
|
|
|
|
|
|
(2.5 |
) |
|
|
2.5 |
|
|
|
211.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
The Before Consolidation column includes Invescos 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. |
33
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
September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 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 |
|
|
5,837.0 |
|
|
|
|
|
|
|
5,837.0 |
|
|
|
|
|
Bonds |
|
|
253.1 |
|
|
|
253.1 |
|
|
|
|
|
|
|
|
|
Equity securities |
|
|
35.3 |
|
|
|
35.3 |
|
|
|
|
|
|
|
|
|
CLO-related derivative assets |
|
|
18.9 |
|
|
|
|
|
|
|
18.9 |
|
|
|
|
|
Private equity fund assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
|
121.8 |
|
|
|
8.9 |
|
|
|
|
|
|
|
112.9 |
|
Investments in other private equity funds |
|
|
555.7 |
|
|
|
|
|
|
|
|
|
|
|
555.7 |
|
Debt securities issued by the U.S. Treasury |
|
|
7.0 |
|
|
|
7.0 |
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLO notes |
|
|
(5,643.8 |
) |
|
|
|
|
|
|
|
|
|
|
(5,643.8 |
) |
CLO-related derivative liabilities |
|
|
(8.8 |
) |
|
|
|
|
|
|
(8.8 |
) |
|
|
|
|
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 |
|
Nine months Ended |
|
Nine months Ended |
$ in millions |
|
September 30, 2010 |
|
September 30, 2009 |
|
September 30, 2010 |
|
September 30, 2009 |
Beginning balance |
|
|
662.7 |
|
|
|
632.4 |
|
|
|
667.1 |
|
|
|
761.0 |
|
Purchases, sales,
issuances and
settlements, net |
|
|
(8.4 |
) |
|
|
6.1 |
|
|
|
(55.7 |
) |
|
|
12.3 |
|
Gains and losses
included in the
Condensed
Consolidated
Statements of Income* |
|
|
14.3 |
|
|
|
1.4 |
|
|
|
57.2 |
|
|
|
(133.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
|
668.6 |
|
|
|
639.9 |
|
|
|
668.6 |
|
|
|
639.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Included in gains and losses of consolidated investment products in
the Condensed Consolidated Statement of Income for the three and nine
months ended September 30, 2010 are $2.1 million and $44.3 million,
respectively, in net unrealized gains attributable to investments
still held at September 30, 2010 by consolidated investment products
(three and nine months ended September 30, 2009: $1.1 million and
$126.4 million, respectively, attributable to investments still held
at September 30, 2009). |
34
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 |
|
Nine months Ended |
$ in millions |
|
September 30, 2010* |
|
September 30, 2010* |
Beginning balance |
|
|
(5,404.4 |
) |
|
|
(5,234.9 |
) |
Purchases, sales, issuances and settlements/prepayments, net |
|
|
64.0 |
|
|
|
166.4 |
|
Acquisition of business |
|
|
|
|
|
|
(630.2 |
) |
Gains/(losses) included in the Condensed Consolidated Statements of Income |
|
|
(265.6 |
) |
|
|
(209.7 |
) |
Foreign exchange |
|
|
(37.8 |
) |
|
|
264.6 |
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
|
(5,643.8 |
) |
|
|
(5,643.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
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 2018, pay interest at Libor or Euribor plus a
spread of between 0.25% and 15%, and typically range in credit rating categories from BBB down to
unrated. At September 30, 2010, the unpaid principal balance exceeded the fair value of the senior
secured bank loans and bonds by approximately $572 million. Less than 3% of the collateral assets
are in default as of September 30, 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 borrowers debt structure; iii) the nature, adequacy and value of the senior secured
corporate loans collateral, including the CLOs 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 2024 and have
a weighted average maturity of 10.2 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 September 30, 2010, the outstanding balance on the notes issued by
consolidated CLOs exceeds their fair value by approximately $1.2 billion. The investors in this
debt are not affiliated with the company and have no recourse to the general credit of
35
the company for this debt. Notes issued by CLOs are recorded at fair value using an income
approach, driven by cash flows 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 companys past experience in managing similar securities. Market
yields, default rates and recovery rates used in the companys 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 used in the valuation of the notes issued by consolidated CLOs include
a cumulative average default rate between 3% and 4% and discount rates derived by utilizing the
applicable forward rate curves and appropriate spreads.
Certain consolidated CLOs with Euro-denominated debt have entered into swap agreements with
various counterparties to hedge economically interest rate and foreign exchange risk related to CLO
collateral assets with non-Euro interest rates and currencies. These swap agreements are not
designated as qualifying as hedging instruments. The fair value of derivative contracts in an asset
position is included in the companys Condensed Consolidated Balance Sheet in other current assets,
and the fair value of derivative contracts in a liability position is included in the companys
Condensed Consolidated Balance Sheet in other current liabilities. These derivative contracts are
valued under an income approach using forecasted interest rates and are classified within Level 2
of the valuation hierarchy. Changes in fair value of $5.1 million and $5.3 million are reflected in
gains/losses of investments in consolidated investment products on the companys Condensed
Consolidated Statements of Income for the three and nine months ended September 30, 2010. At
September 30, 2010, there were 108 open swap agreements with a notional value of $174.0 million.
Swap maturities are tied to the maturity of the underlying collateral assets.
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 partnerships 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
36
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 material effect on the financial
condition, operating results (including earnings per share), liquidity or capital resources of the
companys common shareholders.
13. SHARE-BASED COMPENSATION
The company issues equity-settled share-based awards to certain employees, which are measured
at fair value at the date of grant, in accordance with ASC Topic 718, Compensation Stock
Compensation. The fair value determined at the grant date is expensed, based on the companys
estimate of shares that will eventually vest, on a straight-line or accelerated basis over the
vesting period. The initial forfeiture rate applied to most grants is 5% per year, based upon the
companys historical experience with respect to employee turnover. Fair value for share awards
representing equity interests identical to those associated with shares traded in the open market
is determined using the market price at the grant date. Fair value is measured by use of the Black
Scholes valuation model for certain share awards that do not include dividend rights, and fair
value was measured by use of a stochastic model (a lattice-based model) for share option awards.
The company recognized total expenses of $87.0 million in the nine months ended September 30,
2010 (September 30, 2009: $68.1 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 $28.4 million for the nine months ended September 30,
2010 (September 30, 2009: $21.9 million).
Cash received from the exercise of share options granted under share-based compensation
arrangements was $10.8 million in the nine months ended September 30, 2010 (September 30, 2009:
$40.5 million). The total tax benefit realized from share based payment awards was $53.2 million in
the nine months ended September 30, 2010 (September 30, 2009: $39.0 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 companys 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 companys 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 move of the companys
primary share listing 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:
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2010 |
|
Nine months ended September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Grant Date |
|
|
|
|
|
Grant Date |
|
|
Time- |
|
Performance- |
|
Fair Value |
|
Time- |
|
Performance- |
|
Fair Value |
|
|
Vested |
|
Vested |
|
(£ Sterling) |
|
Vested |
|
Vested |
|
(£ Sterling) |
Millions of shares, except fair values |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested at the beginning of period |
|
|
5.4 |
|
|
|
2.0 |
|
|
|
11.24 |
|
|
|
10.2 |
|
|
|
6.0 |
|
|
|
9.62 |
|
Forfeited during the period |
|
|
(0.1 |
) |
|
|
(1.4 |
) |
|
|
12.07 |
|
|
|
(0.3 |
) |
|
|
(0.1 |
) |
|
|
8.90 |
|
Modification of share-based payment
awards* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.4 |
) |
|
|
9.37 |
|
Vested and distributed during the period |
|
|
(1.2 |
) |
|
|
(0.5 |
) |
|
|
9.14 |
|
|
|
(1.9 |
) |
|
|
(2.2 |
) |
|
|
8.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested at the end of the period |
|
|
4.1 |
|
|
|
0.1 |
|
|
|
11.82 |
|
|
|
8.0 |
|
|
|
2.3 |
|
|
|
10.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
During the nine months ended September 30, 2009, the company modified
the terms of 1.4 million equity-settled share-based payment awards
such that the awards are now deferred cash awards. As a result of this
modification, $13.0 million was reclassified out of additional paid in
capital and into other current and non-current liabilities on the
Condensed Consolidated Balance Sheet during the period. There was no
impact to the Condensed Consolidated Statement of Income or earnings
per share as a result of this modification. |
Subsequent to the move of the companys primary share listing to the New York Stock Exchange,
shares are now priced in U.S. dollars. Movements on share awards priced in U.S. dollars are
detailed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2010 |
|
Nine months ended September 30, 2009 |
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
Weighted Average |
|
|
Time- |
|
Grant Date |
|
Time- |
|
Grant Date |
|
|
Vested |
|
Fair Value ($) |
|
Vested |
|
Fair Value ($) |
Millions of shares, except fair values |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested at the beginning of period |
|
|
11.6 |
|
|
|
15.24 |
|
|
|
3.5 |
|
|
|
26.67 |
|
Granted during the period |
|
|
10.6 |
|
|
|
19.13 |
|
|
|
8.9 |
|
|
|
11.49 |
|
Forfeited during the period |
|
|
(0.2 |
) |
|
|
18.81 |
|
|
|
(0.1 |
) |
|
|
22.94 |
|
Vested and distributed during the period |
|
|
(3.1 |
) |
|
|
14.40 |
|
|
|
(0.6 |
) |
|
|
26.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested at the end of the period |
|
|
18.9 |
|
|
|
17.52 |
|
|
|
11.7 |
|
|
|
15.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share awards outstanding at September 30, 2010 had a weighted average remaining contractual
life of 1.71 years.
Share Options
The company has not granted share option awards since 2005. All share options awards,
therefore, were granted prior to the December 4, 2007, redomicile from the United Kingdom to
Bermuda and relisting from the London Stock Exchange (where the predecessor companys ordinary
shares traded in Pounds Sterling) to the New York Stock Exchange (where the companys common shares
now trade in U.S. Dollars). The company maintains its two historical share option plans which have
outstanding share options: The 2000 Share Option Plan and the No. 3 Executive Share Option Scheme.
All remaining outstanding share option awards were fully vested and were expensed by the company
over the applicable vesting periods (the latest of which ended prior to December 31, 2008). At the
time of their grants, the exercise prices of the share options were denominated in the companys
trading currency, which was the Pound Sterling. The company did not change the accounting for share
options at the redomicile/relisting date, because the share options were not modified at that date.
The exercise price remains in Pounds Sterling and was not changed to U.S. Dollars. Therefore, upon
exercise of the share options, the Pound Sterling exercise price will be converted into U.S.
Dollars using the spot foreign exchange rate in effect on the exercise date.
38
The share option plans provided for a grant price equal to the quoted market price of the
companys 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 options outstanding at September 30, 2010 had a
range of exercise prices from 50 pence to 3,360 pence, and a weighted average remaining contractual
life of 2.07 years (for options exercisable at September 30, 2010, the weighted average remaining
contractual life is 2.07 years). The total intrinsic value of options exercised during the nine
months ended September 30, 2010 and 2009, was $10.8 million and $13.2 million, respectively. At
September 30, 2010, the aggregate intrinsic value of options outstanding and options exercisable
was $54.2 million and $54.2 million, respectively. The market price of the companys common stock
at September 30, 2010 was $21.23.
Changes in outstanding share option awards are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2010 |
|
Nine months ended September 30, 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 |
|
|
(1.0 |
) |
|
|
21.81 |
|
|
|
(0.8 |
) |
|
|
17.41 |
|
Exercised during the period |
|
|
(1.0 |
) |
|
|
6.44 |
|
|
|
(2.5 |
) |
|
|
9.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at the end of the period |
|
|
14.4 |
|
|
|
15.19 |
|
|
|
19.8 |
|
|
|
14.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at the end of the period |
|
|
14.4 |
|
|
|
15.19 |
|
|
|
19.5 |
|
|
|
14.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14. 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 nine
months ended September 30, 2010 and 2009, of $35.9 million and $32.5 million, respectively,
represent contributions paid or payable to these plans by the company at rates specified in the
rules of the plans. As of September 30, 2010, accrued contributions of $14.2 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. 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.
The components of net periodic benefit cost in respect of these defined benefit plans are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months Ended September 30, |
|
Nine months Ended September 30, |
|
|
Retirement Plans |
|
Medical Plan |
|
Retirement Plans |
|
Medical Plan |
$ in millions |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
Service cost |
|
|
0.9 |
|
|
|
1.6 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
2.9 |
|
|
|
8.3 |
|
|
|
0.2 |
|
|
|
0.3 |
|
Interest cost |
|
|
3.9 |
|
|
|
4.8 |
|
|
|
0.7 |
|
|
|
0.6 |
|
|
|
11.7 |
|
|
|
14.6 |
|
|
|
2.0 |
|
|
|
1.9 |
|
Expected return on plan assets |
|
|
(3.4 |
) |
|
|
(5.3 |
) |
|
|
(0.1 |
) |
|
|
(0.1 |
) |
|
|
(10.3 |
) |
|
|
(15.8 |
) |
|
|
(0.3 |
) |
|
|
(0.3 |
) |
Amortization of prior service cost |
|
|
|
|
|
|
|
|
|
|
(0.5 |
) |
|
|
(0.5 |
) |
|
|
|
|
|
|
|
|
|
|
(1.5 |
) |
|
|
(1.5 |
) |
Amortization of net actuarial (loss)/gain |
|
|
0.7 |
|
|
|
0.3 |
|
|
|
0.9 |
|
|
|
1.1 |
|
|
|
2.0 |
|
|
|
0.8 |
|
|
|
2.7 |
|
|
|
3.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
|
2.1 |
|
|
|
1.4 |
|
|
|
1.1 |
|
|
|
1.2 |
|
|
|
6.3 |
|
|
|
7.9 |
|
|
|
3.1 |
|
|
|
3.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
39
The Patient Protection and Affordable Care Act that was signed into law in the U.S. on March
23, 2010 and its related modifications as part of the Health Care and Education Reconciliation Act
of 2010 did not have a material impact on the companys financial statements during the nine months
ended September 30, 2010. The company is evaluating whether these new regulations may require any
longer-term changes in our benefit plans.
15. 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 companys investment products are structured as limited partnerships. The
companys 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 September 30, 2010,
the companys undrawn capital commitments were $82.0 million (December 31, 2009: $77.6 million).
The volatility and valuation dislocations that have 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 strictly limited types of investors. In June
2010, the agreements were amended to extend the term through December 31, 2010. As of September 30,
2010, the total 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 estimated fair value of the guarantees related to these agreements at September 30,
2010 was $4.0 million (December 31, 2009: $2.5 million), which was recorded in other current
liabilities on the Condensed Consolidated Balance Sheet. No payment has been made under either
agreement nor has Invesco realized any loss 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 $21.8 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 CRAs 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 made prior to January 1, 2009 (the effective
date of FASB Statement No. 141(R) see Note 1, Accounting Policies), 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. |
|
|
|
|
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. The April 3, 2010 earn-out calculation resulted in an
addition to goodwill and a non-interest bearing note payable to the sellers of $25.8 million,
payable in conjunction with the amount resulting from the October 3, 2010 measurement date
calculation. |
40
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 companys 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.
In July 2010, various closed-end funds formerly advised by Van Kampen Investments or Morgan
Stanley Investment Management included in the acquired business had complaints filed against them
in New York State Court commencing derivative lawsuits purportedly brought on behalf of the common
shareholders of those funds. The funds are nominal defendants in these derivative lawsuits and the
defendants also include Van Kampen Investments (acquired by Invesco on June 1, 2010), Morgan
Stanley Investment Management and certain officers and trustees of the funds who are or were
employees of those firms. Invesco has certain obligations under the applicable acquisition
agreement regarding the defense costs and any damages associated with the ARPS litigation. The
plaintiffs allege breaches of fiduciary duties owed by the non-fund defendants to the funds common
shareholders related to the funds redemption in prior periods of Auction Rate Preferred Securities
(ARPS) theretofore issued by the funds. The complaints are similar to other complaints recently
filed against investment advisers, officers and trustees of closed-end funds in other fund
complexes which issued and redeemed ARPS. The complaints allege that the advisers, distributors and
certain officers and trustees of those funds breached their fiduciary duty by redeeming ARPS at
their liquidation value when there was no obligation to do so and when the value of ARPS in the
secondary marketplace were significantly below their liquidation value. The complaints also allege
that the ARPS redemptions were principally motivated by the distributors interests to preserve
distribution relationships with brokers and other financial intermediaries who held ARPS after
having repurchased them from their own clients. Certain other funds included in the acquired
business have received demand letters expressing similar allegations. Such demand letters could be
precursors to additional similar lawsuits being commenced against those other funds. The Boards of
Trustees of the funds are evaluating the complaints and demand letters and have established special
committees of independent trustees to conduct an inquiry regarding the allegations. Invesco
believes the cases should be dismissed following completion of such review period, although there
can be no assurance of that result. Invesco intends to defend vigorously any cases which may
survive beyond initial motions to dismiss.
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 companys 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.
16. 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
Management Group, Inc., Invesco Aim Advisers, Inc., Invesco North
41
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 companys 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 September 30, 2010 and December 31, 2009, Condensed Consolidating Statements
of Income for the three and nine months ended September 30, 2010 and 2009, and Condensed
Consolidating Statements of Cash Flows for the nine months ended September 30, 2010 and 2009.
Condensed Consolidating Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
$ in millions |
|
Guarantors |
|
Guarantors |
|
Issuer |
|
Parent |
|
Eliminations |
|
Consolidated |
As of September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets held for policyholders |
|
|
|
|
|
|
1,249.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,249.7 |
|
Other current assets |
|
|
188.7 |
|
|
|
2,990.4 |
|
|
|
|
|
|
|
32.4 |
|
|
|
|
|
|
|
3,211.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
188.7 |
|
|
|
4,240.1 |
|
|
|
|
|
|
|
32.4 |
|
|
|
|
|
|
|
4,461.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
2,356.3 |
|
|
|
4,076.2 |
|
|
|
443.6 |
|
|
|
|
|
|
|
|
|
|
|
6,876.1 |
|
Investments in subsidiaries |
|
|
1,253.2 |
|
|
|
5.7 |
|
|
|
4,629.4 |
|
|
|
8,279.2 |
|
|
|
(14,167.5 |
) |
|
|
|
|
Other non-current assets |
|
|
492.2 |
|
|
|
8,104.6 |
|
|
|
4.1 |
|
|
|
3.5 |
|
|
|
|
|
|
|
8,604.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
4,290.4 |
|
|
|
16,426.6 |
|
|
|
5,077.1 |
|
|
|
8,315.1 |
|
|
|
(14,167.5 |
) |
|
|
19,941.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder payables |
|
|
|
|
|
|
1,249.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,249.7 |
|
Other current liabilities |
|
|
81.5 |
|
|
|
2,215.3 |
|
|
|
4.0 |
|
|
|
0.7 |
|
|
|
|
|
|
|
2,301.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
81.5 |
|
|
|
3,465.0 |
|
|
|
4.0 |
|
|
|
0.7 |
|
|
|
|
|
|
|
3,551.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany balances |
|
|
1,257.1 |
|
|
|
(1,395.9 |
) |
|
|
(25.5 |
) |
|
|
164.3 |
|
|
|
|
|
|
|
|
|
Non-current liabilities |
|
|
675.3 |
|
|
|
6,123.3 |
|
|
|
745.7 |
|
|
|
|
|
|
|
|
|
|
|
7,544.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
2,013.9 |
|
|
|
8,192.4 |
|
|
|
724.2 |
|
|
|
165.0 |
|
|
|
|
|
|
|
11,095.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity attributable to common shareholders |
|
|
2,276.5 |
|
|
|
7,538.1 |
|
|
|
4,352.9 |
|
|
|
8,150.1 |
|
|
|
(14,167.5 |
) |
|
|
8,150.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity attributable to noncontrolling interests
in consolidated entities |
|
|
|
|
|
|
696.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
696.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
2,276.5 |
|
|
|
8,234.2 |
|
|
|
4,352.9 |
|
|
|
8,150.1 |
|
|
|
(14,167.5 |
) |
|
|
8,846.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
|
4,290.4 |
|
|
|
16,426.6 |
|
|
|
5,077.1 |
|
|
|
8,315.1 |
|
|
|
(14,167.5 |
) |
|
|
19,941.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
Condensed Consolidating Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
$ in millions |
|
Guarantors |
|
Guarantors |
|
Issuer |
|
Parent |
|
Eliminations |
|
Consolidated |
For the three months ended September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
300.1 |
|
|
|
653.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
953.1 |
|
Total operating expenses |
|
|
207.9 |
|
|
|
559.5 |
|
|
|
(0.7 |
) |
|
|
3.5 |
|
|
|
|
|
|
|
770.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income/(loss) |
|
|
92.2 |
|
|
|
93.5 |
|
|
|
0.7 |
|
|
|
(3.5 |
) |
|
|
|
|
|
|
182.9 |
|
Equity in earnings of unconsolidated affiliates |
|
|
0.4 |
|
|
|
10.0 |
|
|
|
94.6 |
|
|
|
150.4 |
|
|
|
(244.7 |
) |
|
|
10.7 |
|
Other income/(expense) |
|
|
(32.7 |
) |
|
|
(76.5 |
) |
|
|
(12.3 |
) |
|
|
9.8 |
|
|
|
|
|
|
|
(111.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, including gains and
losses attributable to noncontrolling interests |
|
|
59.9 |
|
|
|
27.0 |
|
|
|
83.0 |
|
|
|
156.7 |
|
|
|
(244.7 |
) |
|
|
81.9 |
|
Income tax provision |
|
|
(13.2 |
) |
|
|
(42.1 |
) |
|
|
2.8 |
|
|
|
(2.0 |
) |
|
|
|
|
|
|
(54.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, including gains and losses
attributable to noncontrolling interests |
|
|
46.7 |
|
|
|
(15.1 |
) |
|
|
85.8 |
|
|
|
154.7 |
|
|
|
(244.7 |
) |
|
|
27.4 |
|
(Gains)/losses attributable to noncontrolling
interests in consolidated entities, net |
|
|
|
|
|
|
127.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders |
|
|
46.7 |
|
|
|
112.2 |
|
|
|
85.8 |
|
|
|
154.7 |
|
|
|
(244.7 |
) |
|
|
154.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
$ in millions |
|
Guarantors |
|
Guarantors |
|
Issuer |
|
Parent |
|
Eliminations |
|
Consolidated |
For the three months ended September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
148.9 |
|
|
|
556.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
705.8 |
|
Total operating expenses |
|
|
110.0 |
|
|
|
440.5 |
|
|
|
0.3 |
|
|
|
3.4 |
|
|
|
|
|
|
|
554.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income/(losses) |
|
|
38.9 |
|
|
|
116.4 |
|
|
|
(0.3 |
) |
|
|
(3.4 |
) |
|
|
|
|
|
|
151.6 |
|
Equity in earnings of unconsolidated affiliates |
|
|
0.3 |
|
|
|
6.9 |
|
|
|
32.8 |
|
|
|
99.8 |
|
|
|
(131.9 |
) |
|
|
7.9 |
|
Other income/(expense) |
|
|
(28.8 |
) |
|
|
20.4 |
|
|
|
(11.5 |
) |
|
|
8.8 |
|
|
|
|
|
|
|
(11.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and noncontrolling interest |
|
|
10.4 |
|
|
|
143.7 |
|
|
|
21.0 |
|
|
|
105.2 |
|
|
|
(131.9 |
) |
|
|
148.4 |
|
Income tax provision |
|
|
11.7 |
|
|
|
(62.3 |
) |
|
|
6.9 |
|
|
|
|
|
|
|
|
|
|
|
(43.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, including losses attributable to
noncontrolling interests |
|
|
22.1 |
|
|
|
81.4 |
|
|
|
27.9 |
|
|
|
105.2 |
|
|
|
(131.9 |
) |
|
|
104.7 |
|
(Gains)/Losses attributable to the noncontrolling
interests in consolidated entities, net of tax |
|
|
|
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders |
|
|
22.1 |
|
|
|
81.9 |
|
|
|
27.9 |
|
|
|
105.2 |
|
|
|
(131.9 |
) |
|
|
105.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
$ in millions |
|
Guarantors |
|
Guarantors |
|
Issuer |
|
Parent |
|
Eliminations |
|
Consolidated |
For the nine months ended September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
711.4 |
|
|
|
1,747.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,459.2 |
|
Total operating expenses |
|
|
531.6 |
|
|
|
1,526.8 |
|
|
|
0.1 |
|
|
|
9.5 |
|
|
|
|
|
|
|
2,068.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income/(loss) |
|
|
179.8 |
|
|
|
221.0 |
|
|
|
(0.1 |
) |
|
|
(9.5 |
) |
|
|
|
|
|
|
391.2 |
|
Equity in earnings of unconsolidated affiliates |
|
|
3.3 |
|
|
|
22.9 |
|
|
|
166.6 |
|
|
|
294.4 |
|
|
|
(460.3 |
) |
|
|
26.9 |
|
Other income/(expense) |
|
|
(77.4 |
) |
|
|
315.7 |
|
|
|
(42.6 |
) |
|
|
7.6 |
|
|
|
|
|
|
|
203.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before income taxes, including
gains and losses attributable to noncontrolling
interests |
|
|
105.7 |
|
|
|
559.6 |
|
|
|
123.9 |
|
|
|
292.5 |
|
|
|
(460.3 |
) |
|
|
621.4 |
|
Income tax provision |
|
|
(37.1 |
) |
|
|
(107.0 |
) |
|
|
4.8 |
|
|
|
(2.0 |
) |
|
|
|
|
|
|
(141.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, including gains and losses
attributable to noncontrolling interests |
|
|
68.6 |
|
|
|
452.6 |
|
|
|
128.7 |
|
|
|
290.5 |
|
|
|
(460.3 |
) |
|
|
480.1 |
|
(Gains)/losses attributable to noncontrolling
interests in consolidated entities, net |
|
|
|
|
|
|
(189.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(189.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders |
|
|
68.6 |
|
|
|
263.0 |
|
|
|
128.7 |
|
|
|
290.5 |
|
|
|
(460.3 |
) |
|
|
290.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
$ in millions |
|
Guarantors |
|
Guarantors |
|
Issuer |
|
Parent |
|
Eliminations |
|
Consolidated |
For the nine months ended September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
394.2 |
|
|
|
1,485.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,879.5 |
|
Total operating expenses |
|
|
304.5 |
|
|
|
1,240.3 |
|
|
|
1.0 |
|
|
|
9.9 |
|
|
|
|
|
|
|
1,555.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income/(loss) |
|
|
89.7 |
|
|
|
245.0 |
|
|
|
(1.0 |
) |
|
|
(9.9 |
) |
|
|
|
|
|
|
323.8 |
|
Equity in earnings of unconsolidated affiliates |
|
|
15.0 |
|
|
|
47.0 |
|
|
|
83.9 |
|
|
|
214.9 |
|
|
|
(342.9 |
) |
|
|
17.9 |
|
Other income/(expense) |
|
|
(30.4 |
) |
|
|
(128.7 |
) |
|
|
(14.1 |
) |
|
|
6.6 |
|
|
|
|
|
|
|
(166.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, including gains and
losses attributable to noncontrolling interests |
|
|
74.3 |
|
|
|
163.3 |
|
|
|
68.8 |
|
|
|
211.6 |
|
|
|
(342.9 |
) |
|
|
175.1 |
|
Income tax provision |
|
|
(6.7 |
) |
|
|
(81.1 |
) |
|
|
(12.2 |
) |
|
|
|
|
|
|
|
|
|
|
(100.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, including gains and losses
attributable to noncontrolling interests |
|
|
67.6 |
|
|
|
82.2 |
|
|
|
56.6 |
|
|
|
211.6 |
|
|
|
(342.9 |
) |
|
|
75.1 |
|
(Gains)/losses attributable to noncontrolling
interests in consolidated entities, net of tax |
|
|
|
|
|
|
136.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders |
|
|
67.6 |
|
|
|
218.7 |
|
|
|
56.6 |
|
|
|
211.6 |
|
|
|
(342.9 |
) |
|
|
211.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statements of Cash Flows |
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
$ in millions |
|
Guarantors |
|
Guarantors |
|
Issuer |
|
Parent |
|
Eliminations |
|
Consolidated |
For the nine months ended September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in)/provided by operating activities |
|
|
(48.3 |
) |
|
|
356.0 |
|
|
|
61.0 |
|
|
|
56.9 |
|
|
|
(50.1 |
) |
|
|
375.5 |
|
Net cash (used in)/provided by investing activities |
|
|
(690.9 |
) |
|
|
307.1 |
|
|
|
(57.5 |
) |
|
|
207.7 |
|
|
|
(410.8 |
) |
|
|
(644.4 |
) |
Net cash (used in)/provided by financing activities |
|
|
648.5 |
|
|
|
(676.7 |
) |
|
|
|
|
|
|
(263.2 |
) |
|
|
460.9 |
|
|
|
169.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease)/increase in cash and cash equivalents |
|
|
(90.7 |
) |
|
|
(13.6 |
) |
|
|
3.5 |
|
|
|
1.4 |
|
|
|
|
|
|
|
(99.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
$ in millions |
|
Guarantors |
|
Guarantors |
|
Issuer |
|
Parent |
|
Eliminations |
|
Consolidated |
For the nine months ended September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in)/provided by operating activities |
|
|
21.3 |
|
|
|
202.9 |
|
|
|
119.2 |
|
|
|
80.5 |
|
|
|
(262.5 |
) |
|
|
161.4 |
|
Net cash (used in)/provided by investing activities |
|
|
(12.4 |
) |
|
|
1.1 |
|
|
|
|
|
|
|
(28.5 |
) |
|
|
|
|
|
|
(39.8 |
) |
Net cash (used in)/provided by financing activities |
|
|
|
|
|
|
112.4 |
|
|
|
(119.4 |
) |
|
|
(52.1 |
) |
|
|
262.5 |
|
|
|
203.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease)/increase in cash and cash equivalents |
|
|
8.9 |
|
|
|
316.4 |
|
|
|
(0.2 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
325.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
17. SUBSEQUENT EVENTS
On
October 21, 2010, the court approved the private litigation settlements as discussed in
Note 15, Commitments and Contingencies, resulting in no revisions to accruals previously
recorded. The settlements may be appealed prior to November 25, 2010. Barring an appeal, the
settlements would then become final.
On October 25, 2010, the company declared a third quarter 2010 dividend of 11 cents per share,
payable on December 8, 2010 to common and participating preferred shareholders of record at the
close of business on November 19, 2010.
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
Forward-Looking Statements
The following Managements 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 managements 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
September 30, 2010, we managed $604.5 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, UK, Europe and Asia-Pacific, with clients
in more than 150 countries.
Despite continued economic and political uncertainty during the third quarter, most global
financial markets experienced positive returns. In the U.S., equity markets increased quarter over
quarter driven by strong performance in the month of September. In the three months ended September
30, 2010, the return on the S&P 500 was +10.7%. Equity markets outside of the U.S. were strong as
well. The FTSE 100 index increased 12.9% and the MSCI Emerging Market index was up 17.2%. Japanese
equities, as measured by the Nikkei 225 index were down slightly during the third quarter (0.14%)
as investors worried that a stronger Japanese Yen would
45
hinder the profits of Japanese multinationals. The table below summarizes the third quarter
and nine months ended September 30 returns of several major market indices for 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
Index |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
S&P 500 |
|
|
10.7 |
% |
|
|
15.0 |
% |
|
|
2.3 |
% |
|
|
18.7 |
% |
FTSE 100 |
|
|
12.9 |
% |
|
|
20.8 |
% |
|
|
2.5 |
% |
|
|
16.9 |
% |
Nikkei 225 |
|
|
(0.14 |
)% |
|
|
1.8 |
% |
|
|
(11.2 |
)% |
|
|
14.4 |
% |
MSCI Emerging Market Index |
|
|
17.2 |
% |
|
|
20.1 |
% |
|
|
8.7 |
% |
|
|
61.2 |
% |
Although not as strong as equity market returns, credit markets also experienced positive
returns during the third quarter. Investment grade corporate bonds returned 4.9% and U.S. Treasury
securities returned 2.7% during the third quarter.
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, Canadian dollar, and Euro, 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 and nine months ended September 30, 2010, which resulted in market gains in
our AUM of $34.4 billion and $19.8 billion during the respective periods; additionally the change
in foreign exchange rates increased AUM by $8.2 billion and $0.2 billion during the respective
periods. AUM at September 30, 2010 were $604.5 billion.
Summary operating information is presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
U.S. GAAP Financial Measures Summary |
|
|
|
|
Operating revenues |
|
$ |
953.1 |
m |
|
$ |
705.8 |
m |
|
$ |
2,459.2 |
m |
|
$ |
1,879.5 |
m |
Operating margin |
|
|
19.2 |
% |
|
|
21.5 |
% |
|
|
15.9 |
% |
|
|
17.2 |
% |
Net income attributable to common shareholders |
|
$ |
154.7 |
m |
|
$ |
105.2 |
m |
|
$ |
290.5 |
m |
|
$ |
211.6 |
m |
Diluted EPS |
|
$ |
0.32 |
|
|
$ |
0.24 |
|
|
$ |
0.63 |
|
|
$ |
0.51 |
|
Average assets under management (in billions) |
|
$ |
583.3 |
|
|
$ |
437.1 |
|
|
$ |
504.5 |
|
|
$ |
403.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
Non-GAAP Financial Measures Summary |
|
|
|
|
Net revenues(1) |
|
$ |
707.1 |
m |
|
$ |
537.1 |
m |
|
$ |
1,840.5 |
m |
|
$ |
1,418.8 |
m |
Adjusted operating margin(2) |
|
|
34.8 |
% |
|
|
32.1 |
% |
|
|
33.6 |
% |
|
|
26.6 |
% |
Adjusted net income(3) |
|
$ |
185.0 |
m |
|
$ |
117.7 |
m |
|
$ |
430.4 |
m |
|
$ |
247.4 |
m |
Adjusted EPS(3) |
|
$ |
0.39 |
|
|
$ |
0.27 |
|
|
$ |
0.94 |
|
|
$ |
0.59 |
|
Average assets under management (in billions) |
|
$ |
583.3 |
|
|
$ |
437.1 |
|
|
$ |
504.5 |
|
|
$ |
403.3 |
|
|
|
|
(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 operating margin is adjusted operating income divided by net
revenues. Adjusted 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 operating income. |
|
(3) |
|
Adjusted 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 net income excludes
the net income of consolidated investment products, and the net income
impact of deferred compensation plans. By calculation, adjusted EPS is
adjusted 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. |
46
On June 1, 2010, the company completed the acquisition of Morgan Stanleys retail asset
management business, including Van Kampen Investments (the acquired business or the
acquisition), in exchange for a combination of $770.0 million in cash paid and 30.9 million
common shares and common share equivalents. The acquisition added assets under management across
equity, fixed income and alternatives (including mutual funds, variable insurance funds, separate
accounts and unit investment trusts). More specifically, this acquisition:
|
|
|
Expanded the depth and breadth of the companys investment strategies, enabling the
company to offer an even more comprehensive range of investment capabilities and vehicles
to its clients around the world; |
|
|
|
|
Enhanced the companys ability to serve U.S. clients by positioning Invesco among the
leading U.S. asset managers by assets under management (AUM), diversity of investment teams
and client profile; |
|
|
|
|
Deepened Invescos relationships with clients and strengthen its overall distribution
capabilities; and |
|
|
|
|
Further strengthened its position in the Japanese investment management market. |
Management believes that expected synergies resulting from the transaction have been achieved,
and notes that if certain U.S. fund mergers are approved by the fund boards, further product
rationalization will occur. Such fund mergers are expected to occur six to nine months from
September 30, 2010 and are expected to result in approximately $10 million in additional cost
savings in the second year following the acquisition.
47
Investment Capabilities Performance Overview
Invescos 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. Value, Continental European, and Global ex-U.S. and Emerging Markets continue to have
generally strong relative performance versus competitors and versus benchmark over three- and
five-year periods. Within our U.S. Core equity range, conservative portfolio positioning has led to
near-term underperformance. Our Canadian equities has seen a strong turnaround as 65% and 81% of
assets are in the top half of the peer group on a one- and three-year period, respectively.
Previous near-term underperformance in U.K. equities has reversed with 94%, 92%, and 95% of assets
ahead of peers on a one-, three-, and five-year period, respectively, and 92%, 91%, and 92% of
assets ahead of benchmark on a one-, three-, and five-year basis, respectively. Within our fixed
income asset class, the global fixed income products have had at least 79% of AUM ahead of
benchmark and peers over one-, three-, and five-year periods. Our money market capability had at
least 93% 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 |
|
|
24 |
% |
|
|
79 |
% |
|
|
95 |
% |
|
|
17 |
% |
|
|
78 |
% |
|
|
76 |
% |
|
|
U.S. Growth |
|
|
52 |
% |
|
|
45 |
% |
|
|
57 |
% |
|
|
52 |
% |
|
|
46 |
% |
|
|
52 |
% |
|
|
U.S. Value |
|
|
57 |
% |
|
|
95 |
% |
|
|
95 |
% |
|
|
61 |
% |
|
|
94 |
% |
|
|
93 |
% |
|
|
Sector |
|
|
53 |
% |
|
|
73 |
% |
|
|
71 |
% |
|
|
16 |
% |
|
|
57 |
% |
|
|
56 |
% |
|
|
U.K. |
|
|
94 |
% |
|
|
92 |
% |
|
|
95 |
% |
|
|
92 |
% |
|
|
91 |
% |
|
|
92 |
% |
|
|
Canadian |
|
|
44 |
% |
|
|
64 |
% |
|
|
3 |
% |
|
|
65 |
% |
|
|
81 |
% |
|
|
25 |
% |
|
|
Asian |
|
|
68 |
% |
|
|
74 |
% |
|
|
94 |
% |
|
|
57 |
% |
|
|
69 |
% |
|
|
75 |
% |
|
|
Continental European |
|
|
98 |
% |
|
|
81 |
% |
|
|
94 |
% |
|
|
79 |
% |
|
|
80 |
% |
|
|
77 |
% |
|
|
Global |
|
|
79 |
% |
|
|
57 |
% |
|
|
79 |
% |
|
|
43 |
% |
|
|
39 |
% |
|
|
54 |
% |
|
|
Global Ex U.S. and Emerging Markets |
|
|
87 |
% |
|
|
84 |
% |
|
|
94 |
% |
|
|
61 |
% |
|
|
93 |
% |
|
|
62 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balanced |
|
Balanced |
|
|
38 |
% |
|
|
76 |
% |
|
|
76 |
% |
|
|
29 |
% |
|
|
65 |
% |
|
|
71 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Income |
|
Money Market |
|
|
38 |
% |
|
|
77 |
% |
|
|
74 |
% |
|
|
96 |
% |
|
|
93 |
% |
|
|
94 |
% |
|
|
U.S. Fixed Income |
|
|
86 |
% |
|
|
41 |
% |
|
|
66 |
% |
|
|
76 |
% |
|
|
65 |
% |
|
|
62 |
% |
|
|
Global Fixed Income |
|
|
93 |
% |
|
|
79 |
% |
|
|
86 |
% |
|
|
90 |
% |
|
|
91 |
% |
|
|
90 |
% |
|
|
|
Note: |
|
AUM measured in the one-, three-, and five-year peer group rankings represents 61%, 60%, and
58% of total Invesco AUM, respectively, and AUM measured versus benchmark on a one-, three-,
and five-year basis represents 73%, 71%, and 66% of total Invesco AUM, respectively, as of
9/30/10. Peer group rankings are sourced from a widely-used third party ranking agency in each
funds 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 investors experience. |
48
Results of Operations for the three months ended September 30, 2010 compared with the three
months ended September 30, 2009
Assets Under Management
The companys rolling presentation of AUM from period to period illustrates long-term inflows
and outflows separately from the net flows into institutional money market funds. Long-term inflows
and the underlying reasons for the movements in this line item include investments from new
clients, existing clients adding new accounts/funds or contributions/subscriptions into existing
accounts/funds, and new funding commitments into private equity funds. We present net flows into
institutional money market funds separately, because shareholders of those funds typically utilize
them as short-term funding vehicles, and because their flows are particularly sensitive to
short-term interest rate movements. Long-term outflows and the underlying reasons for the movements
in this line item include redemptions resulting from closed client accounts/funds, partial
redemptions in continuing client accounts/funds, and reductions in funding commitments into private
equity funds.
There are numerous drivers of AUM inflows and outflows, from individual investor decisions to
change their investment preferences to fiduciaries making broad asset allocation decisions on
behalf of advised clients to reallocate investments within portfolios. We are not a party to these
asset allocation decisions, as the company does not generally have access to the underlying
investors decision-making process, including their risk appetite or short-term cash needs.
Therefore, the company is not in a position to provide meaningful information regarding the drivers
of inflows and outflows.
To align our external reporting of AUM with how Invesco is portrayed in the industry and to
reflect more fully the companys revenue drivers, in the three months ended June 30, 2010, the
company changed its definition of AUM to include assets with which the company is also associated:
the PowerShares QQQ ETF, DB PowerShares ETFs, and other passive assets. These products previously
were not included in the companys reported AUM, because the company does not receive investment
management fees from these assets. These assets are marketed as Invesco products, and to include
them as part of our AUM more accurately reflects the full size and capabilities of Invesco.
Additionally, the company may receive meaningful performance, service, distribution, or
transaction revenues from these assets. The inclusion of these assets as AUM changed the following
data points from those previously disclosed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post- |
|
|
Previously |
|
Reporting |
$ in billions |
|
Disclosed |
|
Alignment |
Ending AUM: |
|
|
|
|
|
|
|
|
January 1, 2009 |
|
|
357.2 |
|
|
|
377.1 |
|
March 31, 2009 |
|
|
348.2 |
|
|
|
369.0 |
|
June 30, 2009 |
|
|
388.7 |
|
|
|
414.4 |
|
September 30, 2009 |
|
|
416.9 |
|
|
|
446.9 |
|
December 31, 2009 |
|
|
423.1 |
|
|
|
459.5 |
|
March 31, 2010 |
|
|
419.6 |
|
|
|
457.7 |
|
Average AUM: |
|
|
|
|
|
|
|
|
Three months ended September 30, 2009 |
|
|
406.9 |
|
|
|
437.1 |
|
Nine months ended September 30, 2009 |
|
|
378.2 |
|
|
|
403.3 |
|
Net revenue yield on AUM: |
|
|
|
|
|
|
|
|
Three months ended September 30, 2009 |
|
52.6 |
bps |
|
49.2 |
bps |
Nine months ended September 30, 2009 |
|
49.9 |
bps |
|
46.9 |
bps |
Net revenue yield on AUM before performance fees: |
|
|
|
|
|
|
|
|
Three months ended September 30, 2009 |
|
52.1 |
bps |
|
48.8 |
bps |
Nine months ended September 30, 2009 |
|
49.1 |
bps |
|
46.1 |
bps |
Gross revenue yield on AUM: |
|
|
|
|
|
|
|
|
Three months ended September 30, 2009 |
|
70.1 |
bps |
|
65.2 |
bps |
Nine months ended September 30, 2009 |
|
66.9 |
bps |
|
62.7 |
bps |
Gross revenue yield on AUM before performance fees: |
|
|
|
|
|
|
|
|
Three months ended September 30, 2009 |
|
69.6 |
bps |
|
64.8 |
bps |
Nine months ended September 30, 2009 |
|
66.1 |
bps |
|
61.9 |
bps |
49
Additionally, as a result of the June 1, 2010 acquisition of Morgan Stanleys retail asset
management business, including Van Kampen Investments (the acquired business or the
acquisition), the company now manages unit investment trust (UIT) products, which are categorized
in this passive asset group, and for which we earn revenues related to transactional sales charges
from the sale of these products and trading income arising from securities temporarily held to form
new UIT products.
AUM at September 30, 2010 were $604.5 billion (June 30, 2010: $557.7 billion; September 30,
2009: $446.9 billion). The acquisition added $114.6 billion in AUM at June 1, 2010. Additionally,
during the three months ended September 30, 2010, the acquisition of Australian equities manager,
Concord Capital, added $3.1 billion of AUM offset by a $1.4 billion disposition arising from the
sale of Echo Point Investment Management (which was part of the acquired business). During the
three months ended September 30, 2010, net inflows increased AUM by $4.9 billion, while positive
market movements increased AUM by $34.4 billion. We experienced net outflows in institutional money
market funds of $2.4 billion, and increases in AUM of $8.2 billion due to changes in foreign
exchange rates during the three months ended September 30, 2010. During the three months ended
September 30, 2009, net inflows increased AUM by $4.0 billion, and positive market movements
increased AUM by $30.3 billion. We experienced net outflows in institutional money market funds of
$2.6 billion, and increases in AUM of $0.8 billion due to changes in foreign exchange rates during
the three months ended September 30, 2009. Average AUM during the three months ended September 30,
2010 included the impact of the acquired business and were $583.3 billion, compared to $437.1
billion for the three months ended September 30, 2009.
Net inflows during the three months ended September 30, 2010 included net long-term inflows of
ETF, UIT and passive AUM of $3.6 billion and other net long-term inflows of $1.3 billion. Net flows
were driven by net inflows into our Institutional and Retail distribution channels of $3.9 billion
and $0.9 billion, respectively, primarily in the fixed income asset class, while our high net worth
distribution channel experienced net inflows of $0.1 billion.
Market gains and losses/reinvestment of AUM includes the net change in AUM resulting from
changes in market values of the underlying investments from period to period and reinvestment of
client dividends. Of the total increase in AUM resulting from market gains during the three months
ended September 30, 2010, $25.2 billion of this increase was due to the change in value of our
equity asset class across all of our business components. Our fixed income, balanced, and
alternatives asset classes were also positively impacted by the change in market valuations during
the period. During the three months ended September 30, 2010, our equity AUM increased in line with
equity markets globally. As discussed in the Executive Overview section of this Managements
Discussion and Analysis, the S&P 500 and the FTSE 100 indices increased 10.7% and 12.9%,
respectively, during the three months ended September 30, 2010. The increase in equity valuations
impacted our retail distribution channel the most significantly. Of the $30.3 billion increase in
AUM resulting from market increases during the three months ended September 30, 2009, $22.6 billion
of this increase was due to the change in value of our equity asset class, in line with increases
in the S&P 500 and the FTSE 100 indices of 15.0% and 20.8%, respectively, during that period.
Foreign exchange rate movements in our AUM result from the effect of changes in foreign
exchange rates from period to period as non-U.S.-Dollar denominated AUM is translated into U.S.
Dollars, the reporting currency of the company. The impact of the change in foreign exchange rates
in the three months ended September 30, 2010 was driven primarily by the strengthening of the Pound
Sterling relative to the U.S. Dollar, which was reflected in the translation of our Pound
Sterling-based AUM into U.S. Dollars, the strengthening of the Canadian Dollar relative to the U.S.
Dollar, which was reflected in the translation of our Canadian Dollar-based AUM into U.S. Dollars,
and to the strengthening of the Euro relative to the U.S. Dollar, which was reflected in the
translation of our Euro-based AUM into U.S. Dollars. The impact of the change in foreign exchange
rates in the three months ended September 30, 2009 was driven by the strengthening of the Canadian
Dollar and Euro to the U.S. Dollar, offset by the weakening of the Pound Sterling to the U.S.
Dollar.
The table below illustrates the spot foreign exchange rates for translation into the U.S.
Dollar, the reporting currency of the company, at September 30, 2010 and 2009, as compared with the
rates that existed at June 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
June 30, 2010 |
|
September 30, 2009 |
|
June 30, 2009 |
Pound Sterling ($ per £) |
|
|
1.57 |
|
|
|
1.50 |
|
|
|
1.60 |
|
|
|
1.65 |
|
Canadian Dollar (CAD per $) |
|
|
1.03 |
|
|
|
1.06 |
|
|
|
1.07 |
|
|
|
1.16 |
|
Euro ($ per Euro) |
|
|
1.36 |
|
|
|
1.23 |
|
|
|
1.46 |
|
|
|
1.40 |
|
50
Net revenue yield decreased slightly to 48.5 basis points in the three months ended September
30, 2010 from the three months ended September 30, 2009, level of 49.2 basis points. The acquired
business added $114.6 billion in AUM at June 1, 2010 with an approximate effective fee rate of 47
basis points. 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
September 30, 2010 equity AUM were $294.4 billion, representing 48.7% of our total AUM at that
date; whereas at September 30, 2009 equity AUM were $181.2 billion, representing 40.5% of our total
AUM at that date. In addition, ETF, UIT and Passive AUM generally earn a lower effective fee rate
than AUM excluding ETF, UIT and Passive asset classes. At September 30, 2010 ETF, UIT and Passive
AUM were $89.9 billion, representing 14.9% of total AUM at that date; whereas at September 30, 2009
ETF, UIT and Passive AUM were $45.9 billion, representing 10.3% of our total AUM at that date.
Gross revenue yield on AUM increased 0.5 basis points to 65.7 basis points in the three months
ended September 30, 2010 from the three months ended September 30, 2009 level of 65.2 basis points.
Management does not consider gross revenue yield, the most comparable U.S. GAAP-based measure to
net revenue yield, to be 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
companys true effective fee rate from AUM. See Schedule of Non-GAAP Information for a
reconciliation of operating revenues (gross revenues) to net revenues.
Changes in AUM were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AUM ex |
|
|
|
|
|
|
|
|
|
AUM ex |
|
|
|
|
|
|
|
|
ETF, UIT & |
|
ETF, UIT & |
|
|
|
|
|
ETF, UIT |
|
ETF, UIT & |
|
|
Total AUM |
|
Passive |
|
Passive |
|
Total AUM |
|
& Passive |
|
Passive |
$ in billions |
|
2010 |
|
2010 |
|
2010 |
|
2009 |
|
2009 |
|
2009 |
June 30 |
|
|
557.7 |
|
|
|
478.5 |
|
|
|
79.2 |
|
|
|
414.4 |
|
|
|
375.4 |
|
|
|
39.0 |
|
Long-term inflows |
|
|
36.8 |
|
|
|
21.6 |
|
|
|
15.2 |
|
|
|
27.6 |
|
|
|
17.8 |
|
|
|
9.8 |
|
Long-term outflows |
|
|
(31.9 |
) |
|
|
(20.3 |
) |
|
|
(11.6 |
) |
|
|
(23.6 |
) |
|
|
(16.1 |
) |
|
|
(7.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term net flows |
|
|
4.9 |
|
|
|
1.3 |
|
|
|
3.6 |
|
|
|
4.0 |
|
|
|
1.7 |
|
|
|
2.3 |
|
Net flows in institutional money market
funds |
|
|
(2.4 |
) |
|
|
(2.4 |
) |
|
|
|
|
|
|
(2.6 |
) |
|
|
(2.6 |
) |
|
|
|
|
Market gains and losses/reinvestment |
|
|
34.4 |
|
|
|
28.4 |
|
|
|
6.0 |
|
|
|
30.3 |
|
|
|
25.8 |
|
|
|
4.5 |
|
Acquisitions/dispositions, net |
|
|
1.7 |
|
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation |
|
|
8.2 |
|
|
|
7.1 |
|
|
|
1.1 |
|
|
|
0.8 |
|
|
|
0.7 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30 |
|
|
604.5 |
|
|
|
514.6 |
|
|
|
89.9 |
|
|
|
446.9 |
|
|
|
401.0 |
|
|
|
45.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average long-term AUM |
|
|
516.4 |
|
|
|
436.9 |
|
|
|
79.5 |
|
|
|
347.3 |
|
|
|
305.8 |
|
|
|
41.5 |
|
Average institutional money market AUM |
|
|
66.9 |
|
|
|
66.9 |
|
|
|
|
|
|
|
89.8 |
|
|
|
89.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average AUM |
|
|
583.3 |
|
|
|
503.8 |
|
|
|
79.5 |
|
|
|
437.1 |
|
|
|
395.6 |
|
|
|
41.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross revenue yield on AUM(1) |
|
65.7 |
bps |
|
74.8 |
bps |
|
8.8 |
bps |
|
65.2 |
bps |
|
70.6 |
bps |
|
13.9 |
bps |
Gross revenue yield on AUM before
performance fees(1) |
|
65.6 |
bps |
|
74.6 |
bps |
|
8.8 |
bps |
|
64.8 |
bps |
|
70.2 |
bps |
|
13.9 |
bps |
Net revenue yield on AUM(2) |
|
48.5 |
bps |
|
54.8 |
bps |
|
8.8 |
bps |
|
49.2 |
bps |
|
52.9 |
bps |
|
13.9 |
bps |
Net revenue yield on AUM before
performance fees(2) |
|
48.3 |
bps |
|
54.6 |
bps |
|
8.8 |
bps |
|
48.8 |
bps |
|
52.4 |
bps |
|
13.9 |
bps |
|
|
|
(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 third quarter for our JVs in China was
$3.4 billion (second quarter 2010: $3.5 billion; third quarter 2009:
$3.9 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. |
|
(2) |
|
Net revenue yield on AUM is equal to annualized net revenues divided
by average AUM. See Schedule of Non-GAAP Information for a
reconciliation of operating revenues to net revenues. |
51
Our AUM by channel, by asset class, and by client domicile were as follows:
Total AUM by Channel(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wealth |
$ in billions |
|
Total |
|
Retail |
|
Institutional |
|
Management |
June 30, 2010 AUM |
|
|
557.7 |
|
|
|
325.6 |
|
|
|
216.7 |
|
|
|
15.4 |
|
Long-term inflows |
|
|
36.8 |
|
|
|
29.0 |
|
|
|
7.2 |
|
|
|
0.6 |
|
Long-term outflows |
|
|
(31.9 |
) |
|
|
(28.1 |
) |
|
|
(3.3 |
) |
|
|
(0.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term net flows |
|
|
4.9 |
|
|
|
0.9 |
|
|
|
3.9 |
|
|
|
0.1 |
|
Net flows in institutional money market funds |
|
|
(2.4 |
) |
|
|
|
|
|
|
(2.4 |
) |
|
|
|
|
Market gains and losses/reinvestment |
|
|
34.4 |
|
|
|
29.2 |
|
|
|
4.5 |
|
|
|
0.7 |
|
Acquisitions/dispositions, net |
|
|
1.7 |
|
|
|
(1.0 |
) |
|
|
2.7 |
|
|
|
|
|
Foreign currency translation |
|
|
8.2 |
|
|
|
4.9 |
|
|
|
3.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 AUM |
|
|
604.5 |
|
|
|
359.6 |
|
|
|
228.7 |
|
|
|
16.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 AUM (2) |
|
|
414.4 |
|
|
|
192.1 |
|
|
|
208.5 |
|
|
|
13.8 |
|
Long-term inflows |
|
|
27.6 |
|
|
|
22.6 |
|
|
|
3.8 |
|
|
|
1.2 |
|
Long-term outflows |
|
|
(23.6 |
) |
|
|
(16.9 |
) |
|
|
(5.6 |
) |
|
|
(1.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term net flows |
|
|
4.0 |
|
|
|
5.7 |
|
|
|
(1.8 |
) |
|
|
0.1 |
|
Net flows in institutional money market funds |
|
|
(2.6 |
) |
|
|
|
|
|
|
(2.6 |
) |
|
|
|
|
Market gains and losses/reinvestment |
|
|
30.3 |
|
|
|
26.2 |
|
|
|
3.0 |
|
|
|
1.1 |
|
Foreign currency translation |
|
|
0.8 |
|
|
|
0.1 |
|
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 AUM |
|
|
446.9 |
|
|
|
224.1 |
|
|
|
207.8 |
|
|
|
15.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ETF, UIT & Passive AUM by Channel(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wealth |
$ in billions |
|
Total |
|
Retail |
|
Institutional |
|
Management |
June 30, 2010 AUM |
|
|
79.2 |
|
|
|
57.3 |
|
|
|
21.9 |
|
|
|
|
|
Long-term inflows |
|
|
15.2 |
|
|
|
15.2 |
|
|
|
|
|
|
|
|
|
Long-term outflows |
|
|
(11.6 |
) |
|
|
(11.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term net flows |
|
|
3.6 |
|
|
|
3.6 |
|
|
|
|
|
|
|
|
|
Net flows in institutional money market funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market gains and losses/reinvestment |
|
|
6.0 |
|
|
|
5.7 |
|
|
|
0.3 |
|
|
|
|
|
Acquisitions/dispositions, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation |
|
|
1.1 |
|
|
|
|
|
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 AUM |
|
|
89.9 |
|
|
|
66.6 |
|
|
|
23.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 AUM (2) |
|
|
39.0 |
|
|
|
35.3 |
|
|
|
3.7 |
|
|
|
|
|
Long-term inflows |
|
|
9.8 |
|
|
|
9.6 |
|
|
|
0.2 |
|
|
|
|
|
Long-term outflows |
|
|
(7.5 |
) |
|
|
(7.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term net flows |
|
|
2.3 |
|
|
|
2.1 |
|
|
|
0.2 |
|
|
|
|
|
Net flows in institutional money market funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market gains and losses/reinvestment |
|
|
4.5 |
|
|
|
4.0 |
|
|
|
0.5 |
|
|
|
|
|
Foreign currency translation |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 AUM |
|
|
45.9 |
|
|
|
41.5 |
|
|
|
4.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to these AUM tables on the following page.
52
Total AUM by Asset Class(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed |
|
|
|
|
|
Money |
|
|
$ in billions |
|
Total |
|
Equity |
|
Income |
|
Balanced |
|
Market |
|
Alternatives(4) |
June 30, 2010 AUM |
|
|
557.7 |
|
|
|
263.2 |
|
|
|
119.3 |
|
|
|
38.2 |
|
|
|
72.5 |
|
|
|
64.5 |
|
Long-term inflows |
|
|
36.8 |
|
|
|
22.1 |
|
|
|
9.8 |
|
|
|
1.8 |
|
|
|
0.2 |
|
|
|
2.9 |
|
Long-term outflows |
|
|
(31.9 |
) |
|
|
(23.3 |
) |
|
|
(3.7 |
) |
|
|
(1.6 |
) |
|
|
(0.5 |
) |
|
|
(2.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term net flows |
|
|
4.9 |
|
|
|
(1.2 |
) |
|
|
6.1 |
|
|
|
0.2 |
|
|
|
(0.3 |
) |
|
|
0.1 |
|
Net flows in institutional money market funds |
|
|
(2.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.4 |
) |
|
|
|
|
Market gains and losses/reinvestment |
|
|
34.4 |
|
|
|
25.2 |
|
|
|
4.3 |
|
|
|
2.0 |
|
|
|
0.1 |
|
|
|
2.8 |
|
Acquisitions/dispositions, net |
|
|
1.7 |
|
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation |
|
|
8.2 |
|
|
|
5.5 |
|
|
|
1.1 |
|
|
|
0.9 |
|
|
|
|
|
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 AUM |
|
|
604.5 |
|
|
|
294.4 |
|
|
|
130.8 |
|
|
|
41.3 |
|
|
|
69.9 |
(5) |
|
|
68.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 AUM(2) |
|
|
414.4 |
|
|
|
155.6 |
|
|
|
68.5 |
|
|
|
35.0 |
|
|
|
94.3 |
|
|
|
61.0 |
|
Long-term inflows |
|
|
27.6 |
|
|
|
16.8 |
|
|
|
5.2 |
|
|
|
2.1 |
|
|
|
0.3 |
|
|
|
3.2 |
|
Long-term outflows |
|
|
(23.6 |
) |
|
|
(13.9 |
) |
|
|
(3.0 |
) |
|
|
(1.9 |
) |
|
|
(0.6 |
) |
|
|
(4.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term net flows |
|
|
4.0 |
|
|
|
2.9 |
|
|
|
2.2 |
|
|
|
0.2 |
|
|
|
(0.3 |
) |
|
|
(1.0 |
) |
Net flows in institutional money market funds |
|
|
(2.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.6 |
) |
|
|
|
|
Market gains and losses/reinvestment |
|
|
30.3 |
|
|
|
22.6 |
|
|
|
3.4 |
|
|
|
3.0 |
|
|
|
|
|
|
|
1.3 |
|
Foreign currency translation |
|
|
0.8 |
|
|
|
0.1 |
|
|
|
|
|
|
|
0.5 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 AUM |
|
|
446.9 |
|
|
|
181.2 |
|
|
|
74.1 |
|
|
|
38.7 |
|
|
|
91.5 |
|
|
|
61.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ETF, UIT and Passive AUM by Asset Class(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed |
|
|
|
|
|
Money |
|
|
$ in billions |
|
Total |
|
Equity |
|
Income |
|
Balanced |
|
Market |
|
Alternatives(4) |
June 30, 2010 AUM |
|
|
79.2 |
|
|
|
48.9 |
|
|
|
15.3 |
|
|
|
|
|
|
|
|
|
|
|
15.0 |
|
Long-term inflows |
|
|
15.2 |
|
|
|
12.7 |
|
|
|
1.8 |
|
|
|
|
|
|
|
|
|
|
|
0.7 |
|
Long-term outflows |
|
|
(11.6 |
) |
|
|
(9.8 |
) |
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
(1.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term net flows |
|
|
3.6 |
|
|
|
2.9 |
|
|
|
1.5 |
|
|
|
|
|
|
|
|
|
|
|
(0.8 |
) |
Net flows in institutional money market funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market gains and losses/reinvestment |
|
|
6.0 |
|
|
|
4.8 |
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
0.8 |
|
Acquisitions/dispositions, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation |
|
|
1.1 |
|
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 AUM |
|
|
89.9 |
|
|
|
57.5 |
|
|
|
17.2 |
|
|
|
|
|
|
|
|
|
|
|
15.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 AUM(2) |
|
|
39.0 |
|
|
|
24.6 |
|
|
|
1.9 |
|
|
|
|
|
|
|
|
|
|
|
12.5 |
|
Long-term inflows |
|
|
9.8 |
|
|
|
7.1 |
|
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
|
1.7 |
|
Long-term outflows |
|
|
(7.5 |
) |
|
|
(6.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term net flows |
|
|
2.3 |
|
|
|
1.0 |
|
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
|
0.3 |
|
Net flows in institutional money market funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market gains and losses/reinvestment |
|
|
4.5 |
|
|
|
3.8 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
Foreign currency translation |
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 AUM |
|
|
45.9 |
|
|
|
29.4 |
|
|
|
3.5 |
|
|
|
|
|
|
|
|
|
|
|
13.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to these AUM tables on the following page.
53
Total AUM by Client Domicile(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continental |
|
|
$ in billions |
|
Total |
|
U.S. |
|
Canada |
|
U.K. |
|
Europe |
|
Asia |
June 30, 2010 AUM |
|
|
557.7 |
|
|
|
377.1 |
|
|
|
26.0 |
|
|
|
79.6 |
|
|
|
29.6 |
|
|
|
45.4 |
|
Long-term inflows |
|
|
36.8 |
|
|
|
26.5 |
|
|
|
0.4 |
|
|
|
3.7 |
|
|
|
3.6 |
|
|
|
2.6 |
|
Long-term outflows |
|
|
(31.9 |
) |
|
|
(22.6 |
) |
|
|
(1.6 |
) |
|
|
(2.8 |
) |
|
|
(2.9 |
) |
|
|
(2.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term net flows |
|
|
4.9 |
|
|
|
3.9 |
|
|
|
(1.2 |
) |
|
|
0.9 |
|
|
|
0.7 |
|
|
|
0.6 |
|
Net flows in institutional money market funds |
|
|
(2.4 |
) |
|
|
(1.9 |
) |
|
|
|
|
|
|
(0.5 |
) |
|
|
(0.1 |
) |
|
|
0.1 |
|
Market gains and losses/reinvestment |
|
|
34.4 |
|
|
|
21.8 |
|
|
|
1.6 |
|
|
|
5.8 |
|
|
|
2.2 |
|
|
|
3.0 |
|
Acquisitions/dispositions, net |
|
|
1.7 |
|
|
|
(0.9 |
) |
|
|
(0.5 |
) |
|
|
|
|
|
|
|
|
|
|
3.1 |
|
Foreign currency translation |
|
|
8.2 |
|
|
|
|
|
|
|
0.8 |
|
|
|
4.0 |
|
|
|
1.2 |
|
|
|
2.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 AUM |
|
|
604.5 |
|
|
|
400.0 |
|
|
|
26.7 |
|
|
|
89.8 |
|
|
|
33.6 |
|
|
|
54.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 AUM(2) |
|
|
414.4 |
|
|
|
269.4 |
|
|
|
25.2 |
|
|
|
68.7 |
|
|
|
26.6 |
|
|
|
24.5 |
|
Long-term inflows |
|
|
27.6 |
|
|
|
17.0 |
|
|
|
0.3 |
|
|
|
5.6 |
|
|
|
2.6 |
|
|
|
2.1 |
|
Long-term outflows |
|
|
(23.6 |
) |
|
|
(15.0 |
) |
|
|
(1.2 |
) |
|
|
(2.4 |
) |
|
|
(3.1 |
) |
|
|
(1.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term net flows |
|
|
4.0 |
|
|
|
2.0 |
|
|
|
(0.9 |
) |
|
|
3.2 |
|
|
|
(0.5 |
) |
|
|
0.2 |
|
Net flows in institutional money market funds |
|
|
(2.6 |
) |
|
|
(1.1 |
) |
|
|
(0.1 |
) |
|
|
(0.2 |
) |
|
|
(0.1 |
) |
|
|
(1.1 |
) |
Market gains and losses/reinvestment |
|
|
30.3 |
|
|
|
14.0 |
|
|
|
2.3 |
|
|
|
9.3 |
|
|
|
2.4 |
|
|
|
2.3 |
|
Foreign currency translation |
|
|
0.8 |
|
|
|
|
|
|
|
2.0 |
|
|
|
(2.1 |
) |
|
|
0.3 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 AUM |
|
|
446.9 |
|
|
|
284.3 |
|
|
|
28.5 |
|
|
|
78.9 |
|
|
|
28.7 |
|
|
|
26.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ETF, UIT and Passive AUM by Client Domicile(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continental |
|
|
$ in billions |
|
Total |
|
U.S. |
|
Canada |
|
U.K. |
|
Europe |
|
Asia |
June 30, 2010 AUM |
|
|
79.2 |
|
|
|
61.7 |
|
|
|
|
|
|
|
|
|
|
|
0.9 |
|
|
|
16.6 |
|
Long-term inflows |
|
|
15.2 |
|
|
|
15.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term outflows |
|
|
(11.6 |
) |
|
|
(11.5 |
) |
|
|
|
|
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term net flows |
|
|
3.6 |
|
|
|
3.7 |
|
|
|
|
|
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
Net flows in institutional money market funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market gains and losses/reinvestment |
|
|
6.0 |
|
|
|
5.3 |
|
|
|
|
|
|
|
|
|
|
|
0.2 |
|
|
|
0.5 |
|
Acquisitions/dispositions, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation |
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 AUM |
|
|
89.9 |
|
|
|
70.7 |
|
|
|
|
|
|
|
|
|
|
|
1.0 |
|
|
|
18.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 AUM(2) |
|
|
39.0 |
|
|
|
36.8 |
|
|
|
|
|
|
|
|
|
|
|
0.8 |
|
|
|
1.4 |
|
Long-term inflows |
|
|
9.8 |
|
|
|
9.7 |
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
Long-term outflows |
|
|
(7.5 |
) |
|
|
(7.4 |
) |
|
|
|
|
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term net flows |
|
|
2.3 |
|
|
|
2.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net flows in institutional money market funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market gains and losses/reinvestment |
|
|
4.5 |
|
|
|
4.2 |
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
0.2 |
|
Foreign currency translation |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 AUM |
|
|
45.9 |
|
|
|
43.4 |
|
|
|
|
|
|
|
|
|
|
|
0.9 |
|
|
|
1.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Channel refers to the distribution channel from which the AUM originated. Institutional AUM originated from individual
corporate clients, endowments, foundations, government authorities, universities, or charities. Retail AUM arose from client
investments into funds available to the public with shares or units. Private Wealth Management AUM arose from high net worth
client investments. |
|
(2) |
|
The beginning balances were adjusted to reflect certain asset reclassifications, including the previously discussed AUM
reporting alignment to include ETF, UIT and passive AUM. |
|
(3) |
|
Asset classes are descriptive groupings of AUM by common type of underlying investments. |
|
(4) |
|
The alternatives asset class includes financial structures, absolute return, real estate, private equity, asset allocation,
portable alpha and multiple asset strategies. |
|
(5) |
|
Ending Money Market AUM includes $65.8 billion in institutional money market AUM and $4.1 billion in retail money market AUM. |
|
(6) |
|
Client domicile disclosure groups AUM by the domicile of the underlying clients. |
54
Results of Operations
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 12, Consolidated Investment Products, for additional details.
FASB Statement No. 167, now encompassed in ASC Topic 810, Consolidation, which was effective
January 1, 2010, had a significant impact on the presentation of the companys 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 companys Consolidated Statement of Income for the three months ended September 30, 2010
reflects the elimination of $8.8 million in management fees earned from these CLOs, and the
addition of $70.3 million in interest income, $35.6 million in interest expense, and $148.3 million
in net other losses. The $139.3 million net income impact during the three months ended September
30, 2010 of consolidation of these CLOs is largely offset by gains/(losses) attributable to
investors in noncontrolling interests of $138.0 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 companys interests being recorded through other comprehensive
income. After the adoption of FASB Statement No. 167, the change in value of the companys
investments in these CLOs is reflected in the companys net income. For the three months ended
September 30, 2010, the net impact to the company of its investments in these CLOs was a net loss
of $1.3 million. The Condensed Consolidated Balance Sheet at September 30, 2010 reflects the
consolidation of $6.5 billion in assets held and $5.7 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 $546.9 million
is presented as part of the companys total equity, reflecting the excess of the consolidated CLOs
assets over their liabilities, attributable to noncontrolling third-party investors in their
consolidated CLOs at September 30, 2010 and includes $149.4 million related to consolidated CLOs
acquired as part of the acquisition. In accordance with the standard, prior periods have not been
restated to reflect the consolidation of these CLOs.
The majority of the companys consolidated investment products balances were CLO-related as of
September 30, 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 companys 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 companys investment
management operations through the use of non-GAAP financial measures. See Schedule of Non-GAAP
Information for additional details and reconciliations of the most directly comparable U.S. GAAP
measures to the non-GAAP measures.
55
Condensed Consolidating Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
|
|
|
|
Before |
|
Investment |
|
|
|
|
$ in millions |
|
Consolidation* |
|
Products** |
|
Eliminations |
|
Total |
Three months ended September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
963.5 |
|
|
|
0.1 |
|
|
|
(10.5 |
) |
|
|
953.1 |
|
Total operating expenses |
|
|
768.4 |
|
|
|
12.3 |
|
|
|
(10.5 |
) |
|
|
770.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
195.1 |
|
|
|
(12.2 |
) |
|
|
|
|
|
|
182.9 |
|
Equity in earnings of unconsolidated affiliates |
|
|
10.7 |
|
|
|
|
|
|
|
|
|
|
|
10.7 |
|
Interest and dividend income |
|
|
3.4 |
|
|
|
71.8 |
|
|
|
(1.5 |
) |
|
|
73.7 |
|
Other investment income/(losses) |
|
|
14.6 |
|
|
|
(148.3 |
) |
|
|
|
|
|
|
(133.7 |
) |
Interest expense |
|
|
(16.2 |
) |
|
|
(37.0 |
) |
|
|
1.5 |
|
|
|
(51.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, including gains
and losses attributable to noncontrolling
interests |
|
|
207.6 |
|
|
|
(125.7 |
) |
|
|
|
|
|
|
81.9 |
|
Income tax provision |
|
|
(54.5 |
) |
|
|
|
|
|
|
|
|
|
|
(54.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, including gains and losses
attributable to noncontrolling interests |
|
|
153.1 |
|
|
|
(125.7 |
) |
|
|
|
|
|
|
27.4 |
|
(Gains)/losses attributable to noncontrolling
interests in consolidated entities, net |
|
|
(0.2 |
) |
|
|
127.6 |
|
|
|
(0.1 |
) |
|
|
127.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders |
|
|
152.9 |
|
|
|
1.9 |
|
|
|
(0.1 |
) |
|
|
154.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
|
|
|
|
Before |
|
Investment |
|
|
|
|
$ in millions |
|
Consolidation* |
|
Products |
|
Eliminations |
|
Total |
Three months ended September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
708.1 |
|
|
|
(0.4 |
) |
|
|
(1.9 |
) |
|
|
705.8 |
|
Total operating expenses |
|
|
553.3 |
|
|
|
2.8 |
|
|
|
(1.9 |
) |
|
|
554.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
154.8 |
|
|
|
(3.2 |
) |
|
|
|
|
|
|
151.6 |
|
Equity in earnings of unconsolidated affiliates |
|
|
7.6 |
|
|
|
|
|
|
|
0.3 |
|
|
|
7.9 |
|
Interest and dividend income |
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
1.7 |
|
Other investment income/(losses) |
|
|
2.0 |
|
|
|
2.1 |
|
|
|
|
|
|
|
4.1 |
|
Interest expense |
|
|
(16.9 |
) |
|
|
|
|
|
|
|
|
|
|
(16.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, including gains
and losses attributable to noncontrolling
interests |
|
|
149.2 |
|
|
|
(1.1 |
) |
|
|
0.3 |
|
|
|
148.4 |
|
Income tax provision |
|
|
(43.7 |
) |
|
|
|
|
|
|
|
|
|
|
(43.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, including gains and losses
attributable to noncontrolling interests |
|
|
105.5 |
|
|
|
(1.1 |
) |
|
|
0.3 |
|
|
|
104.7 |
|
(Gains)/losses attributable to noncontrolling
interests in consolidated entities, net |
|
|
(0.3 |
) |
|
|
0.8 |
|
|
|
|
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders |
|
|
105.2 |
|
|
|
(0.3 |
) |
|
|
0.3 |
|
|
|
105.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
The Before Consolidation column includes Invescos 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. |
56
Operating Revenues and Net Revenues
The main categories of revenues, and the dollar and percentage change between the periods,
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
|
|
|
September 30, |
|
|
|
|
$ in millions |
|
2010 |
|
2009 |
|
$ Change |
|
% Change |
Investment management fees |
|
|
725.8 |
|
|
|
570.3 |
|
|
|
155.5 |
|
|
|
27.3 |
% |
Service and distribution fees |
|
|
191.6 |
|
|
|
111.8 |
|
|
|
79.8 |
|
|
|
71.4 |
% |
Performance fees |
|
|
2.5 |
|
|
|
4.3 |
|
|
|
(1.8 |
) |
|
|
(41.9 |
)% |
Other |
|
|
33.2 |
|
|
|
19.4 |
|
|
|
13.8 |
|
|
|
71.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
953.1 |
|
|
|
705.8 |
|
|
|
247.3 |
|
|
|
35.0 |
% |
Third-party distribution, service and advisory expenses |
|
|
(266.5 |
) |
|
|
(183.5 |
) |
|
|
83.0 |
|
|
|
45.2 |
% |
Proportional share of revenues, net of third-party
distribution expenses, from joint venture investments |
|
|
10.1 |
|
|
|
12.5 |
|
|
|
(2.4 |
) |
|
|
(19.2 |
)% |
Management fees earned from consolidated investment products |
|
|
10.5 |
|
|
|
1.9 |
|
|
|
8.6 |
|
|
|
N/A |
|
Other revenues recorded by consolidated investment products |
|
|
(0.1 |
) |
|
|
0.4 |
|
|
|
(0.5 |
) |
&nbs |