IVZ.10Q.3Q.2011
Table of Contents                                     

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2011
OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number 1-13908
Invesco Ltd.
(Exact Name of Registrant as Specified in Its Charter)
Bermuda
(State or Other Jurisdiction of
Incorporation or Organization)
 
98-0557567
(I.R.S. Employer
Identification No.)
 
 
 
1555 Peachtree Street, N.E., Suite 1800, Atlanta, GA
(Address of Principal Executive Offices)
 
30309
(Zip Code)
Registrant’s telephone number, including area code: (404) 892-0896
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Name of Exchange on Which Registered
Common Shares, $0.20 par value per share
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ
 
Accelerated filer o
 
Non-accelerated filer o(Do not check if a smaller reporting company)
 
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, 2011, the most recent practicable date, 450,994,910 of the company’s common shares par value $0.20 per share, were outstanding.
Table of Contents                                     

TABLE OF CONTENTS
We include cross references to captions elsewhere in this Quarterly Report on Form 10-Q, which we refer to as this “Report,” where you can find related additional information. The following table of contents tells you where to find these captions.
 
 
 
Page
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT

2
Table of Contents                                     

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Invesco Ltd.
Condensed Consolidated Balance Sheets
(Unaudited)
 
As of
$ in millions, except share data
September 30, 2011
 
December 31, 2010
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
757.0

 
740.5

Cash and cash equivalents of consolidated investment products
356.7

 
636.7

Unsettled fund receivables
605.5

 
513.4

Accounts receivable
431.5

 
424.7

Accounts receivable of consolidated investment products
89.3

 
158.8

Investments
295.2

 
308.8

Prepaid assets
56.7

 
64.0

Other current assets
105.5

 
101.8

Deferred tax asset, net
29.7

 
30.4

Assets held for policyholders
1,255.3

 
1,295.4

Total current assets
3,982.4

 
4,274.5

Non-current assets:
 
 
 
Investments
186.9

 
164.4

Investments of consolidated investment products
6,970.9

 
7,206.0

Security deposit assets and receivables
92.7

 
146.3

Other non-current assets
27.8

 
20.9

Deferred sales commissions
40.4

 
42.2

Property and equipment, net
275.8

 
272.4

Intangible assets, net
1,303.4

 
1,337.2

Goodwill
6,857.5

 
6,980.2

Total non-current assets
15,755.4

 
16,169.6

Total assets
19,737.8

 
20,444.1

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Current maturities of total debt
215.1


—

Unsettled fund payables
605.6

 
504.8

Income taxes payable
54.9

 
72.2

Other current liabilities
744.9

 
905.7

Other current liabilities of consolidated investment products
237.4

 
486.4

Policyholder payables
1,255.3


1,295.4

Total current liabilities
3,113.2

 
3,264.5

Non-current liabilities:
 
 
 
Long-term debt
1,174.6


1,315.7

Long-term debt of consolidated investment products
5,866.3

 
5,865.4

Deferred tax liabilities, net
274.7

 
229.0

Security deposits payable
92.7

 
146.3

Other non-current liabilities
248.8

 
262.3

Total non-current liabilities
7,657.1

 
7,818.7

Total liabilities
10,770.3

 
11,083.2

Commitments and contingencies (See Note 10)


 


Equity:
 
 
 
Equity attributable to common shareholders:
 
 
 
Common shares ($0.20 par value; 1,050.0 million authorized; 490.4 million shares issued as of September 30, 2011 and December 31, 2010)
98.1

 
98.1

Additional paid-in-capital
6,175.9

 
6,262.6

Treasury shares
(1,196.9
)
 
(991.5
)
Retained earnings
2,266.8

 
1,904.4

Retained earnings appropriated for investors in consolidated investment products
232.8

 
495.5

Accumulated other comprehensive income, net of tax
372.4

 
495.5

Total equity attributable to common shareholders
7,949.1


8,264.6

Equity attributable to noncontrolling interests in consolidated entities
1,018.4


1,096.3

Total equity
8,967.5

 
9,360.9

Total liabilities and equity
19,737.8

 
20,444.1

See accompanying notes.

3
Table of Contents                                     

Invesco Ltd.
Condensed Consolidated Statements of Income
(Unaudited)
 
Three months ended September 30,
 
Nine months ended September 30,
$ in millions, except per share data
2011
 
2010
 
2011
 
2010
Operating revenues:
 
 
 
 
 
 
 
Investment management fees
779.5

 
725.8

 
2,390.9

 
1,947.2

Service and distribution fees
189.1

 
191.6

 
599.2

 
443.5

Performance fees
2.6

 
2.5

 
14.0

 
7.4

Other
26.6

 
33.2

 
91.0

 
61.1

Total operating revenues
997.8

 
953.1

 
3,095.1

 
2,459.2

Operating expenses:
 
 
 
 
 
 
 
Employee compensation
305.5

 
304.1

 
929.7

 
802.2

Third-party distribution, service and advisory
314.4

 
291.7

 
980.7

 
738.2

Marketing
13.1

 
19.6

 
64.9

 
52.9

Property, office and technology
62.7

 
63.5

 
188.6

 
172.8

General and administrative
69.6

 
64.5

 
220.8

 
178.6

Transaction and integration
4.7

 
26.8

 
23.9

 
123.3

Total operating expenses
770.0

 
770.2

 
2,408.6

 
2,068.0

Operating income
227.8

 
182.9

 
686.5

 
391.2

Other income/(expense):
 
 
 
 
 
 
 
Equity in earnings of unconsolidated affiliates
8.1

 
10.7

 
25.6

 
26.9

Interest and dividend income
3.8

 
3.4

 
8.3

 
6.8

Interest income of consolidated investment products
79.6

 
70.3

 
233.6

 
175.9

Gains/(losses) of consolidated investment products, net
(93.1
)
 
(148.3
)
 
(243.3
)
 
142.0

Interest expense
(15.3
)
 
(16.1
)
 
(47.5
)
 
(42.6
)
Interest expense of consolidated investment products
(48.7
)
 
(35.6
)
 
(135.2
)
 
(82.0
)
Other gains and losses, net
(19.7
)
 
14.6

 
(5.8
)
 
3.2

Income before income taxes
142.5

 
81.9

 
522.2

 
621.4

Income tax provision
(59.1
)
 
(54.5
)
 
(210.1
)
 
(141.3
)
Net income
83.4

 
27.4

 
312.1

 
480.1

(Gains)/losses attributable to noncontrolling interests in consolidated entities, net 
83.5

 
127.3

 
215.3

 
(189.6
)
Net income attributable to common shareholders
166.9

 
154.7

 
527.4

 
290.5

Earnings per share:
 
 
 
 
 
 
 
— basic

$0.36

 

$0.32

 

$1.13

 

$0.64

— diluted

$0.36

 

$0.32

 

$1.13

 

$0.63

Dividends declared per share

$0.1225

 

$0.1100

 

$0.3550

 

$0.3225

See accompanying notes.


4
Table of Contents                                     

Invesco Ltd.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Nine months ended September 30,
$ in millions
2011
 
2010
Operating activities:
 
 
 
Net income
312.1

 
480.1

Adjustments to reconcile net income to net cash used in operating activities:
 
 
 
Amortization and depreciation
95.3

 
65.4

Share-based compensation expense
86.0

 
87.0

Purchase of trading investments
(8,120.7
)
 
(4,073.9
)
Proceeds from sale of trading investments
8,103.6

 
3,976.1

Other gains and losses, net
5.8

 
(3.2
)
(Gains)/losses of consolidated investment products, net
243.3

 
(142.0
)
Tax benefit from share-based compensation
74.2

 
53.2

Excess tax benefits from share-based compensation
(15.8
)
 
(14.2
)
Equity in earnings of unconsolidated affiliates
(25.6
)
 
(26.9
)
Dividends from unconsolidated affiliates
20.1

 
22.9

Changes in operating assets and liabilities:
 
 
 
(Increase)/decrease in cash held by consolidated investment products
296.3

 
(95.2
)
(Increase)/decrease in receivables
41.3

 
(796.0
)
Increase/(decrease) in payables
(473.9
)
 
842.2

Net cash provided by operating activities
642.0

 
375.5

Investing activities:
 
 
 
Purchase of property and equipment
(60.6
)
 
(57.4
)
Disposal of property and equipment
12.6

 
—

Purchase of available-for-sale investments
(31.1
)
 
(31.4
)
Proceeds from sale of available-for-sale investments
50.2

 
33.1

Purchase of investments by consolidated investment products
(2,594.2
)
 
(1,792.2
)
Proceeds from sale of investments by consolidated investment products
2,942.2

 
1,867.5

Returns of capital in investments of consolidated investment products
93.1

 
61.1

Purchase of other investments
(102.3
)
 
(50.8
)
Proceeds from sale of other investments
35.7

 
28.2

Returns of capital and distributions from unconsolidated partnership investments
28.5

 
22.6

Acquisition of businesses
(14.9
)
 
(725.1
)
Acquisition earn-out payments
(5.4
)
 
—

Net cash provided by/(used in) investing activities
353.8

 
(644.4
)
Financing activities:
 
 
 
Proceeds from exercises of share options
11.0

 
10.8

Purchases of treasury shares
(333.0
)
 
(127.7
)
Dividends paid
(165.0
)
 
(146.3
)
Excess tax benefits from share-based compensation
15.8

 
14.2

Capital invested into consolidated investment products
27.9

 
8.5

Capital distributed by consolidated investment products
(158.8
)
 
(73.2
)
Repayments of debt of consolidated investment products
(434.9
)
 
(165.3
)
Net borrowings/(repayments) under credit facility
74.0

 
648.5

Acquisition of interest in consolidated investment products
(12.3
)
 
—

Net cash (used in)/provided by financing activities
(975.3
)
 
169.5

(Decrease)/increase in cash and cash equivalents
20.5

 
(99.4
)
Foreign exchange movement on cash and cash equivalents
(4.0
)
 
1.5

Cash and cash equivalents, beginning of period
740.5

 
762.0

Cash and cash equivalents, end of period
757.0

 
664.1

Supplemental Cash Flow Information:
 
 
 
Interest paid
(39.1
)
 
(34.9
)
Interest received
8.2

 
5.2

Taxes paid
(137.7
)
 
(119.4
)
See accompanying notes.

5
Table of Contents                                     


Invesco Ltd.
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
 
 
Equity Attributable to Common Shareholders
 
 
 
 
 
 
$ in millions
 
Common Shares
 
Additional Paid-in-Capital
 
Treasury Shares
 
Retained Earnings
 
Retained Earnings
Appropriated for
Investors in
Consolidated Investment Products
 
Accumulated Other
Comprehensive Income
 
Total Equity
Attributable to Common Shareholders
 
Noncontrolling
Interests in
Consolidated Entities
 
Total Equity
January 1, 2011
 
98.1

 
6,262.6

 
(991.5
)
 
1,904.4

 
495.5

 
495.5

 
8,264.6

 
1,096.3

 
9,360.9

Net income
 
—

 
—

 
—

 
527.4

 
—

 
—

 
527.4

 
(215.3
)
 
312.1

Other comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Currency translation differences on investments in overseas subsidiaries
 
—

 
—

 
—

 
—

 
—

 
(112.2
)
 
(112.2
)
 
21.1

 
(91.1
)
Change in accumulated OCI related to employee benefit plans
 
—

 
—

 
—

 
—

 
—

 
11.9

 
11.9

 
—

 
11.9

Change in accumulated OCI of equity method investments
 
—

 
—

 
—

 
—

 
—

 
(6.1
)
 
(6.1
)
 
—

 
(6.1
)
Change in net unrealized gains on available-for-sale investments
 
—

 
—

 
—

 
—

 
—

 
(14.9
)
 
(14.9
)
 
—

 
(14.9
)
Tax impacts of changes in accumulated other comprehensive income balances
 
—

 
—

 
—

 
—

 
—

 
(1.8
)
 
(1.8
)
 
—

 
(1.8
)
Total comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
404.3

 
(194.2
)
 
210.1

Net income (loss) reclassified to appropriated retained earnings
 
—

 
—

 
—

 
—

 
(277.8
)
 
—

 
(277.8
)
 
277.8

 
—

Currency translation differences on investments in overseas subsidiaries reclassified to appropriated retained earnings
 
—

 
—

 
—

 
—

 
15.1

 
—

 
15.1

 
(15.1
)
 
—

Change in noncontrolling interests in consolidated entities, net
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(146.4
)
 
(146.4
)
Dividends
 
—

 
—

 
—

 
(165.0
)
 
—

 
—

 
(165.0
)
 
—

 
(165.0
)
Employee share plans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Share-based compensation
 
—

 
86.0

 
—

 
—

 
—

 
—

 
86.0

 
—

 
86.0

Vested shares
 
—

 
(181.4
)
 
181.4

 
—

 
—

 
—

 
—

 
—

 
—

Exercise of options
 
—

 
(7.1
)
 
18.1

 
—

 
—

 
—

 
11.0

 
—

 
11.0

Tax impact of share-based payment
 
—

 
15.8

 
—

 
—

 
—

 
—

 
15.8

 
—

 
15.8

Purchase of shares
 
—

 
—

 
(404.9
)
 
—

 
—

 
—

 
(404.9
)
 
—

 
(404.9
)
September 30, 2011
 
98.1

 
6,175.9

 
(1,196.9
)
 
2,266.8

 
232.8

 
372.4

 
7,949.1

 
1,018.4

 
8,967.5


6
Table of Contents                                     

 
 
Equity Attributable to Common Shareholders
 
 
 
 
$ in millions
 
Common Shares
 
Additional Paid-in-Capital
 
Treasury Shares
 
Retained Earnings
 
Retained Earnings
Appropriated for
Investors in
Consolidated Investment Products
 
Accumulated Other
Comprehensive Income
 
Total Equity
Attributable to Common Shareholders
 
Non-Controlling
Interests in
Consolidated Entities
 
Total 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
 
—

 
—

 
—

 
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

See accompanying notes.


7
Table of Contents                                     

Invesco Ltd.
Notes to the Condensed Consolidated Financial Statements
1. ACCOUNTING POLICIES
Corporate Information
Invesco Ltd. (Parent) and all of its consolidated entities (collectively, the company or Invesco) provide retail, institutional and high-net-worth clients with an array of global investment management capabilities. The company’s sole business is investment management.
Basis of Accounting and Consolidation
In the opinion of management, the unaudited 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, directly or indirectly, 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.
Certain disclosures included in the company’s annual report are not required to be included on an interim basis in the company’s quarterly reports on Forms 10-Q. The company has condensed or omitted these disclosures. Therefore, this Form 10-Q (Report) should be read in conjunction with the company’s annual report on Form 10-K for the year ended December 31, 2010, which was filed with the U.S. Securities and Exchange Commission on February 25, 2011.
Use of Estimates
In preparing the financial statements, company 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 and intangible 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
Earlier this year, the company changed its presentation of marketing support expenses from marketing expenses to third-party distribution, service and advisory expenses in the Condensed Consolidated Statements of Income. Marketing support expenses are payments made to distributors of certain of the company’s retail products over and above the 12b-1 distribution payments passed through to the distributors from the funds. The nature of these costs is distribution-related; accordingly, the reclassification serves to more appropriately reflect them as such. The presentation of certain prior period reported amounts has been reclassified to be consistent with the current presentation. Such reclassifications had no impact on total operating expenses, net income, or equity attributable to common shareholders. The impact to previously reported third-party distribution, service and advisory and marketing expenses is illustrated below.

 
September 30, 2010
$ in millions
Three months ended
 
Nine months ended
Third-party distribution, service and advisory expenses, as previously reported
266.5

 
682.8

Reclassification
25.2

 
55.4

Third-party distribution, service and advisory expenses, as reclassified
291.7

 
738.2

Marketing expenses, as previously reported
44.8

 
108.3

Reclassification
(25.2
)
 
(55.4
)
Marketing expenses, as reclassified
19.6

 
52.9

   

8
Table of Contents                                     

Accounting Pronouncements Recently Adopted and Pending Accounting Pronouncements
The adoption of additional guidance now encompassed in ASC Topic 810, which was effective January 1, 2010, had a significant impact on the presentation of the company’s financial statements, as its provisions required the company to consolidate certain collateralized loan obligation (CLOs) that were not previously consolidated. See the extensive disclosure in the company’s Form 10-K for the year ended December 31, 2010 and Note 11, “Consolidated Investment Products,” in this Report for condensed consolidating balance sheets as of September 30, 2011 and December 31, 2010 and condensed consolidating income statements for the three and nine months ended September 30, 2011 and 2010.
In January 2010, the Financial Accounting Standards Board (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 were 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 additional disclosure requirements with respect to rollforward activity did not have a significant impact on the company’s disclosures in Note 2, “Fair Value of Assets and Liabilities,” and Note 11, “Consolidated Investment Products.”
In May 2011, the FASB issued Accounting Standards Update 2011-04, “Fair Value Measurements: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements” (ASU 2011-04). ASU 2011-04 amends Topic 820 to clarify existing fair value measurement disclosures to (1) specifically provide quantitative information about the significant unobservable inputs used for all level 3 measurements and (2) disclose any transfers between levels 1 and 2 of the fair value hierarchy, not just significant transfers. ASU 2011-04 also requires a number of additional disclosures regarding fair value measurements. Specifically, ASU 2011-04 requires entities to disclose: (1) a qualitative discussion about the sensitivity of recurring level 3 measurements to changes in the unobservable inputs disclosed, including the interrelationship between inputs; (2) a description of the company’s valuation processes surrounding level 3 measurements; (3) information about when the current use of a non-financial asset measured at fair value differs from its highest and best use; and (4) the hierarchy classification for items whose fair value is not recorded on the balance sheet but is disclosed in the notes. ASU 2011-04 amends Topic 820 to change the fair value measurement of financial instruments and the application of premiums and discounts in a fair value measurement. ASU 2011-04 also clarifies existing fair value measurement regarding the concepts of valuation premise, the application of the highest and best use, and the fair value measurement of an instrument classified in an entity’s shareholders’ equity. The adoption of ASU 2011-04 is not expected to have an effect on the company’s current fair value measurements but is expected to have a significant impact on the company’s disclosures related to the assets and liabilities of its consolidated investment products that are classified as level 3 assets within the fair value hierarchy. The amendments to Topic 820 made by ASU 2011-04 are effective for interim and annual periods beginning on or after December 15, 2011. As such, these disclosure changes will be required in the company’s Form 10-Q for the three months ended March 31, 2012.
In June 2011, the FASB issued Accounting Standards Update 2011-05, “Comprehensive Income: Presentation of Comprehensive Income” (ASU 2011-05). ASU 2011-05 amends Topic 220, “Comprehensive Income,” to require the components of net income and other comprehensive income to be presented in one continuous statement, which would be referred to as the statement of comprehensive income, or in two separate but consecutive statements. There is currently no requirement to present the statement of net income and statement of comprehensive income consecutively. ASU 2011-05 also requires an entity to present reclassification adjustments from other comprehensive income to net income alongside their respective components of net income and other comprehensive income on the face of the financial statements. The amendments to Topic 220 made by ASU 2011-05 are effective for interim and annual periods beginning on or after December 15, 2011 for public companies. As such, these presentation changes will be required in the company’s Form 10-Q for the three months ended March 31, 2012.
In September 2011, the FASB issued Accounting Standards Update 2011-08, “Intangibles-Goodwill and Other: Testing Goodwill for Impairment” (ASU 2011-08). ASU 2011-08 amends Topic 350 on testing for goodwill impairment. Specifically, ASU 2011-08 permits an entity the option to first qualitatively assess whether it is more likely than not (a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount. If an entity concludes that this is the case, it would be required to calculate the fair value of the reporting unit under step one of the goodwill impairment test; otherwise, no further testing is required. An entity may bypass the qualitative assessment in any period and proceed directly to step one of the goodwill impairment test, and may resume performing the qualitative assessment in any subsequent period. ASU 2011-08 provides examples of events and circumstances that may be considered in the qualitative assessment. Events and circumstances

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that most affect a reporting unit's fair value or the carrying amount should bear more weight in an entity's determination of whether or not it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The amendments made by ASU 2011-08 are effective for interim and annual periods beginning on or after December 15, 2011.

2. FAIR VALUE OF ASSETS AND LIABILITIES
The carrying value and fair value of financial instruments is presented in the summary table below. The fair value of financial instruments held by consolidated investment products is presented in Note 11, “Consolidated Investment Products.”
 
September 30, 2011
 
December 31, 2010
$ in millions
Footnote Reference
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Cash and cash equivalents
 
 
757.0

 
757.0

 
740.5

 
740.5

Available for sale investments
3

 
72.4

 
72.4

 
100.0

 
100.0

Assets held for policyholders
 
 
1,255.3

 
1,255.3

 
1,295.4

 
1,295.4

Trading investments
3

 
183.8

 
183.8

 
180.6

 
180.6

Foreign time deposits*
3

 
39.0

 
39.0

 
28.2

 
28.2

Support agreements*
10,11

 
(1.0
)
 
(1.0
)
 
(2.0
)
 
(2.0
)
Policyholder payables
 
 
(1,255.3
)
 
(1,255.3
)
 
(1,295.4
)
 
(1,295.4
)
Financial instruments sold, not yet purchased
 
 
(3.0
)
 
(3.0
)
 
(0.7
)
 
(0.7
)
Derivative liabilities
 
 
—

 
—

 
(0.1
)
 
(0.1
)
Note payable
 
 
(16.0
)
 
(16.0
)
 
(18.9
)
 
(18.9
)
Long-term debt, including current portion*
4

 
(1,389.7
)
 
(1,417.3
)
 
(1,315.7
)
 
(1,339.3
)

*
These financial instruments are not measured at fair value on a recurring basis. See the indicated footnotes for additional information about the carrying and fair values of these financial instruments. Foreign time deposits are measured at cost plus accrued interest, which approximates fair value.

The following is a description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy.
Cash equivalents
Cash equivalents include cash investments in money market funds and time deposits. Cash 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 CLOs. Seed money investments are investments held in Invesco managed funds with the purpose of providing capital to the funds during their development periods. 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; 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 within level 3 of the valuation hierarchy.
Assets held for policyholders
Assets held for policyholders represent investments held by one of the company’s subsidiaries, which is an insurance entity that was established to facilitate retirement savings plans in the U.K. The assets held for policyholders are accounted for at fair value pursuant to ASC Topic 944, “Financial Services — Insurance,” and are comprised primarily of affiliated unitized funds. The assets are measured at fair value under the market approach based on the quoted prices of the underlying funds in an active market and are classified within level 1 of the valuation hierarchy. The policyholder payables 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).

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•
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, 2011, 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.
•
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 within level 1 of the valuation hierarchy; otherwise, they are categorized in level 2.
•
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 transaction prices, market price quotations (where observable), bond spreads, or credit default swap spreads. The spread data used is for the same maturities as the underlying bonds. If the spread data does not reference the issuers, then data that references comparable issuers 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.
•
Municipal securities
Municipal securities are valued using recently executed transaction prices, market price quotations (where observable), bond spreads, or credit default swap spreads. The spread data used is for the same maturities as the underlying bonds. If the spread data does not reference the issuers, then data that references comparable issuers 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 instruments
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 are recorded in the company’s 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 company’s consolidated balance sheet. Fair values of derivative contracts in a liability position are included in other liabilities in the company’s consolidated balance sheet. 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. At September 30, 2011, there were 11 open futures contracts with a notional value of $1.4 million (December 31, 2010: 76 open futures contracts with a notional value of $9.3 million). 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 sold, not yet purchased and are included in other liabilities in the company’s consolidated balance sheet. To the extent these securities are actively traded, valuation adjustments are not applied and they are categorized within level 1 of the valuation hierarchy; otherwise, they are categorized in level 2.
Note payable
The note payable represents a payable associated with the aggregate amount of distributions proportional to Invesco’s acquired ownership interest in two consolidated real estate funds. As the underlying investments in the funds are carried at fair value (and are disclosed as level 3 assets in the fair value hierarchy table included in Note 11, “Consolidated Investment Products”), management elected the fair value option for the note payable in order to offset the fair value movements recognized from the funds and has recorded the note payable as a level 3 liability. The fair value of the note payable represents

11
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its remaining principal balance adjusted for changes in equity of the funds that is attributable to the company’s ownership interest in the funds.
The following table presents, for each of the hierarchy levels described above, the carrying value of the company’s 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, 2011.

 
As of September 30, 2011
 
Fair Value
 
Quoted Prices in
Active Markets for
Identical Assets
 
Significant Other
Observable Inputs
 
Significant
Unobservable Inputs
$ in millions
Measurements
 
(Level 1)
 
(Level 2)
 
(Level 3)
Current assets:
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
243.0

 
243.0

 
—

 
—

Investments:*

 

 

 
 
Available-for-sale:

 

 

 
 
Seed money
71.9

 
71.9

 
—

 
—

Trading investments:

 

 

 
 
Investments related to deferred compensation plans
175.7

 
175.7

 
—

 
—

UIT-related equity and debt securities:

 

 

 
 
Corporate stock
0.9

 
0.9

 
—

 
—

UITs
2.0

 
2.0

 
—

 
—

Municipal securities
5.2

 
—

 
5.2

 
—

Assets held for policyholders
1,255.3

 
1,255.3

 
—

 
—

Total current assets
1,754.0

 
1,748.8

 
5.2

 
—

Non-current assets:
 
 
 
 
 
 
 
Investments — available-for-sale*:
 
 
 
 
 
 
 
CLOs
0.5

 
—

 
—

 
0.5

Total assets at fair value
1,754.5

 
1,748.8

 
5.2

 
0.5

Current liabilities:
 
 
 
 
 
 
 
Policyholder payables
(1,255.3
)
 
(1,255.3
)
 
—

 
—

UIT-related financial instruments sold, not yet purchased:

 

 
 
 
 
Corporate equities
(1.1
)
 
(1.1
)
 
—

 
—

U.S. Treasury securities
(1.9
)
 
(1.9
)
 
—

 
—

Note payable
(16.0
)
 
—

 
—

 
(16.0
)
Total liabilities at fair value
(1,274.3
)
 
(1,258.3
)
 
—

 
(16.0
)

*
Current foreign time deposits of $39.0 million and other current investments of $0.5 million are excluded from this table. Other non-current equity and other investments of $178.6 million and $7.8 million, respectively, are also excluded from this table. These investments are not measured at fair value, in accordance with applicable accounting standards.

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The following table presents, for each of the hierarchy levels described above, the carrying value of the company’s assets and liabilities that are measured at fair value as of December 31, 2010:

 
As of December 31, 2010
 
Fair Value
 
Quoted Prices in
Active Markets for
Identical Assets
 
Significant Other
Observable Inputs
 
Significant
Unobservable Inputs
$ in millions
Measurements
 
(Level 1)
 
(Level 2)
 
(Level 3)
Current assets:
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
316.4

 
316.4

 
—

 
—

Investments:*
 
 
 
 
 
 
 
Available-for-sale:
 
 
 
 
 
 
 
Seed money
99.5

 
99.5

 
—

 
—

Trading investments:
 
 
 
 
 
 
 
Investments related to deferred compensation plans
165.5

 
165.5

 
—

 
—

UIT-related equity and debt securities:
 
 
 
 
 
 
 
Corporate stock
1.2

 
1.2

 
—

 
—

UITs
4.0

 
4.0

 
—

 
—

Municipal securities
9.9

 
—

 
9.9

 
—

Assets held for policyholders
1,295.4

 
1,295.4

 
—

 
—

Total current assets
1,891.9

 
1,882.0

 
9.9

 
—

Non-current assets:
 
 
 
 
 
 
 
Investments — available-for-sale*:
 
 
 
 
 
 
 
CLOs
0.5

 
—

 
—

 
0.5

Total assets at fair value
1,892.4

 
1,882.0

 
9.9

 
0.5

Current liabilities:
 
 
 
 
 
 
 
Policyholder payables
(1,295.4
)
 
(1,295.4
)
 
—

 
—

UIT-related financial instruments sold, not yet purchased:
 
 
 
 
 
 
 
Corporate equities
(0.7
)
 
(0.7
)
 
—

 
—

UIT-related derivative liabilities
(0.1
)
 
(0.1
)
 
—

 
—

Non-current liabilities:
 
 
 
 
 
 
 
Note payable
(18.9
)
 
—

 
—

 
(18.9
)
Total liabilities at fair value
(1,315.1
)
 
(1,296.2
)
 
—

 
(18.9
)

*
Current foreign time deposits of $28.2 million and other current investments of $0.5 million are excluded from this table. Other non-current equity and other investments of $156.9 million and $7.0 million, respectively, are also excluded from this table. These investments are not measured at fair value, in accordance with applicable accounting standards.

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The following table shows a reconciliation of the beginning and ending fair value measurements for level 3 assets and liabilities during the nine months ended September 30, 2011 and September 30, 2010, which are valued using significant unobservable inputs:
 
Three months ended September 30, 2011
 
Nine months ended September 30, 2011
$ in millions
CLO Investment
 
Note Payable
 
CLO Investment
 
Note Payable
Beginning balance
0.4

 
(16.1
)
 
0.5

 
(18.9
)
Net unrealized gains and losses included in accumulated other comprehensive income/(loss)**
0.1

 
—

 
0.1

 
—

Foreign exchange movements included in other expenses
—

 
0.1

 
—

 
—

Purchases, sales, issuances, and settlements, net***
—

 
—

 
(0.1
)
 
2.9

Ending balance
0.5

 
(16.0
)
 
0.5

 
(16.0
)

 
Three months ended September 30, 2010
 
Nine months ended September 30, 2010
$ in millions
CLO Investment
 
CLO Investment
Beginning balance
0.6

 
17.9

Adoption of guidance now encompassed in ASC Topic 810*
—

 
(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, sales, issuances, and settlements, net***
—

 
—

Ending balance
0.5

 
0.5


*
The company adopted guidance 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 $50.2 million at September 30, 2011. The adjustment of $17.4 million in the table above reflects the elimination of the company’s equity interest upon adoption.

**
Of these net unrealized gains and losses included in accumulated other comprehensive income/(loss), $0.1 million gain for the three months and nine months ended September 30, 2011 is attributed to the change in unrealized gains and losses related to assets still held at September 30, 2011 (three and nine months ended September 30, 2010: $0.1 million unrealized losses and nothing, respectively, related to assets still held at September 30, 2010).

***
Prior to the adoption of guidance included in ASU 2010-06, discussed in Note 1, “Accounting Policies,” purchases, sales, issuances, and settlements were presented net. For the three months ended September 30, 2011 there was no return of capital activity related to the CLO investment; for the nine months ended September 30, 2011, there was $0.1 million in return of capital activity occurred related to the CLO investment. For the three months ended September 30, 2011, there was no settlement activity related to the note payable; for the nine months ended September 30, 2011, there was $2.9 million in settlement activity related to the note payable.



14
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3. INVESTMENTS
The disclosures below include details of the company’s investments. Investments held by consolidated investment products are detailed in Note 11, “Consolidated Investment Products.”
Current Investments
 
As of
 
September 30,
 
December 31,
$ in millions
2011
 
2010
Available-for-sale investments:
 
 
 
Seed money
71.9

 
99.5

Trading investments:

 
 
Investments related to deferred compensation plans
175.7

 
165.5

UIT-related equity and debt securities
8.1

 
15.1

Foreign time deposits
39.0

 
28.2

Other
0.5

 
0.5

Total current investments
295.2

 
308.8

Non-current Investments
 
As of
 
September 30,
 
December 31,
$ in millions
2011
 
2010
Available-for-sale investments:
 
 
 
CLOs
0.5

 
0.5

Equity method investments
178.6

 
156.9

Other
7.8

 
7.0

Total non-current investments
186.9

 
164.4


The portion of trading gains and losses for the nine months ended September 30, 2011 that relates to trading securities still held at September 30, 2011 was a $13.3 million net loss.
Realized gains and losses recognized in the income statement during the year from investments classified as available-for-sale are as follows:
 
For the three months ended September 30, 2011
 
For the nine months ended September 30, 2011
$ in millions
Proceeds from Sales
 
Gross Realized Gains
 
Gross Realized Losses
 
Proceeds from Sales
 
Gross Realized Gains
 
Gross Realized Losses
Current available-for-sale investments
13.6

 
1.1

 
(0.2
)
 
50.1

 
7.6

 
(0.4
)
Non-current available-for-sale investments
—

 
—

 
—

 
0.1

 
—

 
—


 
 
For the three months ended September 30, 2010
 
For the nine months ended September 30, 2010
$ in millions
 
Proceeds from Sales
 
Gross Realized Gains
 
Gross Realized Losses
 
Proceeds from Sales
 
Gross Realized Gains
 
Gross Realized Losses
Current available-for-sale investments
 
22.5

 
2.9

 
—

 
33.0

 
3.6

 
(0.5
)
Non-current available-for-sale investments
 
—

 
—

 
—

 
0.1

 
—

 
—



15
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Upon the sale of available-for-sale securities, net realized gains of $7.2 million and $3.1 million were transferred from accumulated other comprehensive income into the Condensed Consolidated Statements of Income during nine months ended September 30, 2011 and 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, 2011
 
December 31, 2010
$ in millions
Cost
 
Gross Unrealized Holding Gains
 
Gross Unrealized Holding Losses
 
Fair Value
 
Cost
 
Gross Unrealized Holding Gains
 
Gross Unrealized Holding Losses
 
Fair Value
Current:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Seed money
76.9

 
1.7

 
(6.7
)
 
71.9

 
89.6

 
10.6

 
(0.7
)
 
99.5

Current available-for-sale investments
76.9

 
1.7

 
(6.7
)
 
71.9

 
89.6

 
10.6

 
(0.7
)
 
99.5

Non-current:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CLOs
0.3

 
0.2

 
—

 
0.5

 
0.3

 
0.2

 
—

 
0.5

Non-current available-for-sale investments:
0.3

 
0.2

 
—

 
0.5

 
0.3

 
0.2

 
—

 
0.5

 
77.2

 
1.9

 
(6.7
)
 
72.4

 
89.9

 
10.8

 
(0.7
)
 
100.0


Available-for-sale debt securities as of September 30, 2011 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, 2011:
 
 
Less Than 12 Months
 
12 Months or Greater
 
Total
$ in millions
 
Fair Value
 
Gross Unrealized Losses
 
Fair Value
 
Gross Unrealized Losses
 
Fair Value
 
Gross Unrealized Losses
Seed money (119 funds)
 
41.0

 
(5.8
)
 
5.0

 
(0.9
)
 
46.0

 
(6.7
)

The following table provides the breakdown of available-for-sale investments with unrealized losses at December 31, 2010:
 
 
Less Than 12 Months
 
12 Months or Greater
 
Total
$ in millions
 
Fair Value
 
Gross Unrealized Losses
 
Fair Value
 
Gross Unrealized Losses
 
Fair Value
 
Gross Unrealized Losses
Seed money (15 funds)
 
—

 
—

 
5.7

 
(0.7
)
 
5.7

 
(0.7
)

The company has reviewed investment securities for other-than-temporary impairment (OTTI) in accordance with its accounting policy and has recognized no other-than-temporary impairment charges on seed money investments during the nine months ended September 30, 2011 (nine months ended September 30, 2010: $6.5 million).
The gross unrealized losses of seed money investments at September 30, 2011 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

16
Table of Contents                                     

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.
During the three and nine months ended September 30, 2011, there were no charges to other comprehensive income from other-than-temporary impairment related to non-credit related factors (three and nine months ended September 30, 2010: none). 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
 
Three months ended
 
Nine months ended
$ in millions
September 30, 2011
 
September 30, 2011
 
September 30, 2010
 
September 30, 2010
Beginning balance
0.8

 
0.8

 
0.8

 
18.8

Adoption of guidance now encompassed in ASC Topic 810*
—

 
—

 
—

 
(18.0
)
Beginning balance, as adjusted
0.8

 
0.8

 
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

 
0.8

 
0.8


*
The company adopted guidance 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 $50.2 million at September 30, 2011. Of the $18.8 million cumulative credit-related OTTI balance at January 1, 2010, $18.0 million relates to CLOs that were consolidated into the company’s Condensed Consolidated Balance Sheet, resulting in the elimination of our equity interest.

4. DEBT
The disclosures below include details of the company’s debt. Debt of consolidated investment products is detailed in Note 11, “Consolidated Investment Products.”
 
September 30, 2011
 
December 31, 2010
$ in millions
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Unsecured Senior Notes*:
 
 
 
 
 
 
 
5.625% — due April 17, 2012
215.1

 
220.4

 
215.1

 
223.7

5.375% — due February 27, 2013
333.5

 
344.3

 
333.5

 
335.2

5.375% — due December 15, 2014
197.1

 
208.6

 
197.1

 
210.4

Floating rate credit facility expiring June 3, 2016
644.0

 
644.0

 
570.0

 
570.0

Total debt
1,389.7

 
1,417.3

 
1,315.7

 
1,339.3

Less: current maturities of total debt
(215.1
)
 
(220.4
)
 
—

 
—

Long-term debt
1,174.6

 
1,196.9

 
1,315.7

 
1,339.3


*
The company’s Senior Note indentures contain certain restrictions on mergers or consolidations. Beyond these items, there are no other restrictive covenants in the indentures.
The fair market value of the company’s Senior Notes 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 Senior 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 Senior Notes.

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Table of Contents                                     

Analysis of Borrowings by Maturity:
$ in millions
September 30, 2011
2012
215.1

2013
333.5

2014
197.1

2016
644.0

Total debt
1,389.7

On June 3, 2011 the company amended and restated its existing five-year unsecured $1.25 billion credit agreement to, among other matters, provide for a term of five years. The amended and restated facility is now scheduled to expire on June 3, 2016.
At September 30, 2011, the outstanding balance on the credit facility was $644.0 million and the weighted average interest rate on the credit facility was 1.339%. Borrowings under the credit facility will bear interest at (i) LIBOR for specified interest periods or (ii) a floating base rate (based upon the highest of (a) the Bank of America prime rate, (b) the Federal Funds rate plus 0.50% and (c) LIBOR for an interest period of one month plus 1.00%), plus, in either case, an applicable margin determined with reference to the company’s credit ratings and specified credit default spreads. Based on credit ratings as of September 30, 2011 of the company and such credit default spreads, the applicable margin for LIBOR-based loans was 1.10% and for base rate loans was 0.10%. In addition, the company is required to pay the lenders a facility fee on the aggregate commitments of the lenders (whether or not used) at a rate per annum which is based on the company’s credit ratings. Based on credit ratings as of September 30, 2011, the annual facility fee was equal to 0.15%.
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 June 30, 2014, and not greater than 3.00:1.00 thereafter, (ii) a coverage ratio (EBITDA, as defined in the credit agreement, divided by interest payable for the four consecutive fiscal quarters ended before the date of determination) of not less than 4.00:1.00. The company is in compliance with all regulatory minimum net capital requirements.
 
5. SHARE CAPITAL
Movements in the number of common shares issued are represented in the table below:
 
Nine months ended
 
Nine months ended
In millions
September 30, 2011
 
September 30, 2010
Common shares issued — beginning balance
490.4

 
459.5

Issue of new shares
—

 
11.7

Common shares issued — ending balance
490.4

 
471.2

Less: Treasury shares for which dividend and voting rights do not apply
(39.4
)
 
(28.4
)
Common shares outstanding
451.0

 
442.8

Participating preferred shares, on as converted basis
—

 
19.2

Common shares and common shares equivalents outstanding
451.0

 
462.0

During the nine months ended September 30, 2011, the company repurchased 13.4 million shares in the market at a cost of $333.0 million (nine months ended September 30, 2010: 6.4 million shares were repurchased). Separately, an aggregate of 2.7 million shares were withheld on vesting events during the nine months ended September 30, 2011 to meet employees’ withholding tax (nine months ended September 30, 2010: 1.4 million). The fair value of these shares withheld at the respective withholding dates was $71.9 million during the nine months ended September 30, 2011 (nine months ended September 30, 2010: $36.5 million). Approximately $835.4 million remained authorized under the company’s share repurchase plan at September 30, 2011.
Total treasury shares at September 30, 2011 were 49.3 million (September 30, 2010: 41.2 million), including 9.9 million unvested restricted stock awards (September 30, 2010: 12.8 million) for which dividend and voting rights apply. The closing market price of common shares at September 30, 2011 was $15.51. The total market value of the company’s 49.3 million treasury shares was $764.6 million on September 30, 2011.



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Table of Contents                                     

6. 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 company’s estimate of shares that will eventually vest, on a straight-line or accelerated basis over the vesting period. The company recognized total expenses of $86.0 million in the nine months ended September 30, 2011 (nine months ended September 30, 2010: $87.0 million) related to equity-settled share-based payment transactions.
Share Awards
Movements on share awards priced in U.S. dollars are detailed below:
 
Nine months ended September 30, 2011
 
Nine months ended September 30, 2010
Millions of shares, except fair values
Time-Vested
 
Weighted Average Grant Date Fair Value ($)
 
Time-Vested
 
Weighted Average Grant Date Fair Value ($)
Unvested at the beginning of period
17.4

 
$
17.25

 
11.6

 
$
15.24

Granted during the period
5.6

 
$
26.74

 
10.6

 
$
19.13

Forfeited during the period
(0.3
)
 
$
19.36

 
(0.2
)
 
$
18.81

Vested and distributed during the period
(5.2
)
 
$
18.90

 
(3.1
)
 
$
14.40

Unvested at the end of the period
17.5

 
$
20.25

 
18.9

 
$
17.52


On December 4, 2007, in connection with the redomicile of the company from the U.K. to Bermuda, the company’s primary share listing moved from the London Stock Exchange to the New York Stock Exchange. Movements on share awards priced in Pounds Sterling, which were awarded prior to the move of the company’s primary share listing to the New York Stock Exchange, are detailed below:
 
Nine months ended September 30, 2011
 
Nine months ended September 30, 2010
Millions of shares, except fair values
Time-Vested
 
Performance-Vested
 
Weighted Average Grant Date Fair Value
(£ Sterling)
 
Time-Vested
 
Performance-Vested
 
Weighted Average Grant Date Fair Value
(£ Sterling)
Unvested at the beginning of period
3.3

 
0.1

 
£
11.80

 
5.4

 
2.0

 
£
11.24

Forfeited during the period
—

 
—

 
£
—

 
(0.1
)
 
(1.4
)
 
£
12.07

Vested and distributed during the period
(2.3
)
 
(0.1
)
 
£
11.94

 
(1.2
)
 
(0.5
)
 
£
9.14

Unvested at the end of the period
1.0

 
—

 
£
11.47

 
4.1

 
0.1

 
£
11.82