IVZ.10Q.1Q.2012
Table of Contents                                 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2012
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 March 31, 2012, the most recent practicable date, 448,220,307 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
March 31, 2012
 
December 31, 2011
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
592.3

 
727.4

Cash and cash equivalents of consolidated investment products
476.7

 
382.3

Unsettled fund receivables
719.3

 
444.4

Accounts receivable
446.4

 
424.4

Accounts receivable of consolidated investment products
112.2

 
98.5

Investments
337.7

 
283.7

Prepaid assets
56.8

 
51.2

Other current assets
109.5

 
150.0

Deferred tax asset, net
27.9

 
28.7

Assets held for policyholders
1,135.6

 
1,243.5

Total current assets
4,014.4

 
3,834.1

Non-current assets:
 
 
 
Investments
220.3

 
200.8

Investments of consolidated investment products
6,338.9

 
6,629.0

Security deposit assets and receivables
71.9

 
81.2

Other non-current assets
17.8

 
17.9

Deferred sales commissions
43.9

 
40.5

Property and equipment, net
312.1

 
312.8

Intangible assets, net
1,313.0

 
1,322.8

Goodwill
6,997.1

 
6,907.9

Total non-current assets
15,315.0

 
15,512.9

Total assets
19,329.4

 
19,347.0

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Current maturities of total debt
548.6

 
215.1

Unsettled fund payables
720.7

 
439.6

Income taxes payable
55.0

 
59.6

Other current liabilities
583.9

 
841.5

Other current liabilities of consolidated investment products
330.7

 
175.1

Policyholder payables
1,135.6

 
1,243.5

Total current liabilities
3,374.5

 
2,974.4

Non-current liabilities:
 
 
 
Long-term debt
777.1

 
1,069.6

Long-term debt of consolidated investment products
5,345.0

 
5,512.9

Deferred tax liabilities, net
311.8

 
274.0

Security deposits payable
71.9

 
81.2

Other non-current liabilities
315.1

 
297.3

Total non-current liabilities
6,820.9

 
7,235.0

Total liabilities
10,195.4

 
10,209.4

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 March 31, 2012 and December 31, 2011)
98.1

 
98.1

Additional paid-in-capital
6,073.9

 
6,180.6

Treasury shares
(1,238.6
)
 
(1,280.4
)
Retained earnings
2,551.4

 
2,413.2

Retained earnings appropriated for investors in consolidated investment products
226.3

 
334.3

Accumulated other comprehensive income, net of tax
481.1

 
373.3

Total equity attributable to common shareholders
8,192.2

 
8,119.1

Equity attributable to noncontrolling interests in consolidated entities
941.8

 
1,018.5

Total equity
9,134.0

 
9,137.6

Total liabilities and equity
19,329.4

 
19,347.0

See accompanying notes.

3
Table of Contents                                 

Invesco Ltd.
Condensed Consolidated Statements of Income
(Unaudited)
 
Three months ended March 31,
$ in millions, except per share data
2012
 
2011
Operating revenues:
 
 
 
Investment management fees
791.4

 
792.3

Service and distribution fees
189.0

 
198.7

Performance fees
20.5

 
3.8

Other
32.8

 
32.5

Total operating revenues
1,033.7

 
1,027.3

Operating expenses:
 
 
 
Employee compensation
318.5

 
305.9

Third-party distribution, service and advisory
317.1

 
324.5

Marketing
26.7

 
25.7

Property, office and technology
66.8

 
64.0

General and administrative
73.3

 
73.6

Transaction and integration
1.5

 
7.9

Total operating expenses
803.9

 
801.6

Operating income
229.8

 
225.7

Other income/(expense):
 
 
 
Equity in earnings of unconsolidated affiliates
9.7

 
6.7

Interest and dividend income
2.4

 
2.1

Interest income of consolidated investment products
69.0

 
74.2

Gains/(losses) of consolidated investment products, net
(121.9
)
 
(85.5
)
Interest expense
(13.6
)
 
(16.2
)
Interest expense of consolidated investment products
(45.6
)
 
(40.0
)
Other gains and losses, net
18.6

 
7.9

Income before income taxes
148.4

 
174.9

Income tax provision
(73.6
)
 
(75.6
)
Net income
74.8

 
99.3

(Gains)/losses attributable to noncontrolling interests in consolidated entities, net 
119.1

 
78.2

Net income attributable to common shareholders
193.9

 
177.5

Earnings per share:
 
 
 
— basic

$0.43

 

$0.38

— diluted

$0.43

 

$0.38

Dividends declared per share

$0.1225

 

$0.1100

See accompanying notes.


4
Table of Contents                                 

Invesco Ltd.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
 
Three months ended March 31,
$ in millions
2012
 
2011
Net income
74.8

 
99.3

Other comprehensive income, before tax:
 
 
 
Currency translation differences on investments in overseas subsidiaries
99.8

 
120.7

Change in accumulated other comprehensive income related to employee benefit plans
(1.1
)
 
10.0

Change in accumulated other comprehensive income of equity method investments
2.0

 
1.2

Change in net unrealized gains on available-for-sale investments
5.5

 
0.3

Other comprehensive income, before tax
106.2

 
132.2

Income tax related to items of other comprehensive income:
 
 
 
Tax benefit (expense) on comprehensive income related to employee benefit plans
0.3

 
(2.4
)
Tax expense on change in net unrealized gains on available-for-sale investments
(0.1
)
 
—

Total income tax expense related to items of other comprehensive income
0.2

 
(2.4
)
Other comprehensive income, net of tax
106.4

 
129.8

Total comprehensive income
181.2

 
229.1

Comprehensive income attributable to noncontrolling interests in consolidated entities
120.5

 
68.6

Comprehensive income attributable to common shareholders
301.7

 
297.7

See accompanying notes.


5
Table of Contents                                 

Invesco Ltd.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Three months ended March 31,
$ in millions
2012
 
2011
Operating activities:
 
 
 
Net income
74.8

 
99.3

Adjustments to reconcile net income to net cash used in operating activities:
 
 
 
Amortization and depreciation
24.3

 
27.9

Share-based compensation expense
30.0

 
26.3

Gains on disposal of property, equipment, and software, net
(0.6
)
 
—

Purchase of trading investments
(2,826.4
)
 
(2,891.8
)
Proceeds from sale of trading investments
2,793.3

 
2,860.4

Other gains and losses, net
(18.6
)
 
(7.9
)
(Gains)/losses of consolidated investment products, net
121.9

 
85.5

Tax benefit from share-based compensation
39.6

 
48.7

Excess tax benefits from share-based compensation
(10.6
)
 
(13.0
)
Equity in earnings of unconsolidated affiliates
(9.7
)
 
(6.7
)
Dividends from unconsolidated affiliates
1.0

 
1.5

Changes in operating assets and liabilities:
 
 
 
(Increase)/decrease in cash held by consolidated investment products
(129.9
)
 
(13.4
)
(Increase)/decrease in receivables
(93.0
)
 
(378.7
)
Increase/(decrease) in payables
(154.4
)
 
56.8

Net cash (used in)/provided by operating activities
(158.3
)
 
(105.1
)
Investing activities:
 
 
 
Purchase of property and equipment
(18.4
)
 
(20.8
)
Disposal of property and equipment
0.6

 
—

Purchase of available-for-sale investments
(21.4
)
 
(9.3
)
Proceeds from sale of available-for-sale investments
20.3

 
16.3

Purchase of investments by consolidated investment products
(686.9
)
 
(802.0
)
Proceeds from sale of investments by consolidated investment products
547.1

 
844.9

Returns of capital in investments of consolidated investment products
12.8

 
53.0

Purchase of other investments
(41.0
)
 
(40.3
)
Proceeds from sale of other investments
21.0

 
9.2

Returns of capital and distributions from unconsolidated partnership investments
6.3

 
2.4

Acquisition of businesses
—

 
(14.9
)
Acquisition earn-out payments
(5.1
)
 
(5.1
)
Net cash (used in)/provided by investing activities
(164.7
)
 
33.4

Financing activities:
 
 
 
Proceeds from exercises of share options
10.2

 
8.7

Purchases of treasury shares
(75.0
)
 
(53.1
)
Dividends paid
(55.7
)
 
(51.6
)
Excess tax benefits from share-based compensation
10.6

 
13.0

Capital invested into consolidated investment products
5.1

 
9.7

Capital distributed by consolidated investment products
(6.6
)
 
(53.8
)
Net borrowings/(repayments) of debt of consolidated investment products
249.4

 
(98.7
)
Net borrowings/(repayments) under credit facility
41.0

 
17.0

Net cash provided by/(used in) financing activities
179.0

 
(208.8
)
(Decrease)/increase in cash and cash equivalents
(144.0
)
 
(280.5
)
Foreign exchange movement on cash and cash equivalents
8.9

 
11.9

Cash and cash equivalents, beginning of period
727.4

 
740.5

Cash and cash equivalents, end of period
592.3

 
471.9

Supplemental Cash Flow Information:
 
 
 
Interest paid
(11.6
)
 
(12.0
)
Interest received
1.2

 
1.4

Taxes paid
(34.2
)
 
(41.7
)
See accompanying notes.

6
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, 2012
 
98.1

 
6,180.6

 
(1,280.4
)
 
2,413.2

 
334.3

 
373.3

 
8,119.1

 
1,018.5

 
9,137.6

Net income
 
—

 
—

 
—

 
193.9

 
—

 
—

 
193.9

 
(119.1
)
 
74.8

Other comprehensive income
 
—

 
—

 
—

 
—

 
—

 
107.8

 
107.8

 
(1.4
)
 
106.4

Total comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
301.7

 
(120.5
)
 
181.2

Net income (loss) reclassified to appropriated retained earnings
 
—

 
—

 
—

 
—

 
(59.0
)
 
—

 
(59.0
)
 
59.0

 
—

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

 
—

 
—

 
—

 
(1.4
)
 
—

 
(1.4
)
 
1.4

 
—

Deconsolidation of consolidated investment products
 
—

 
—

 
—

 
—

 
(47.6
)
 
—

 
(47.6
)
 
—

 
(47.6
)
Change in noncontrolling interests in consolidated entities, net
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(16.6
)
 
(16.6
)
Dividends
 
—

 
—

 
—

 
(55.7
)
 
—

 
—

 
(55.7
)
 
—

 
(55.7
)
Employee share plans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Share-based compensation
 
—

 
30.0

 
—

 
—

 
—

 
—

 
30.0

 
—

 
30.0

Vested shares
 
—

 
(136.9
)
 
136.9

 
—

 
—

 
—

 
—

 
—

 
—

Exercise of options
 
—

 
(10.4
)
 
20.6

 
—

 
—

 
—

 
10.2

 
—

 
10.2

Tax impact of share-based payment
 
—

 
10.6

 
—

 
—

 
—

 
—

 
10.6

 
—

 
10.6

Purchase of shares
 
—

 
—

 
(115.7
)
 
—

 
—

 
—

 
(115.7
)
 
—

 
(115.7
)
March 31, 2012
 
98.1

 
6,073.9

 
(1,238.6
)
 
2,551.4

 
226.3

 
481.1

 
8,192.2

 
941.8

 
9,134.0


7
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, 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
 
—

 
—

 
—

 
177.5

 
—

 
—

 
177.5

 
(78.2
)
 
99.3

Other comprehensive income
 
—

 
—

 
—

 
—

 
—

 
120.2

 
120.2

 
9.6

 
129.8

Total comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
297.7

 
(68.6
)
 
229.1

Net income reclassified to appropriated retained earnings
 
—

 
—

 
—

 
—

 
(116.0
)
 
—

 
(116.0
)
 
116.0

 
—

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

 
—

 
—

 
—

 
9.6

 
—

 
9.6

 
(9.6
)
 
—

Change in noncontrolling interests in consolidated entities, net
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(54.5
)
 
(54.5
)
Business Combination
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Dividends
 
—

 
—

 
—

 
(51.6
)
 
—

 
—

 
(51.6
)
 
—

 
(51.6
)
Employee share plans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Share-based compensation
 
—

 
26.3

 
—

 
—

 
—

 
—

 
26.3

 
—

 
26.3

Vested shares
 
—

 
(173.2
)
 
173.2

 
—

 
—

 
—

 
—

 
—

 
—

Exercise of options
 
—

 
(5.4
)
 
14.1

 
—

 
—

 
—

 
8.7

 
—

 
8.7

Tax impact of share-based payment
 
—

 
13.0

 
—

 
—

 
—

 
—

 
13.0

 
—

 
13.0

Purchase of shares
 
—

 
—

 
(118.7
)
 
—

 
—

 
—

 
(118.7
)
 
—

 
(118.7
)
March 31, 2011
 
98.1

 
6,123.3

 
(922.9
)
 
2,030.3

 
389.1

 
615.7

 
8,333.6

 
1,079.6

 
9,413.2

See accompanying notes.


8
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, 2011, which was filed with the U.S. Securities and Exchange Commission on February 24, 2012.
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
During the second quarter of 2011, 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. 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.

 
March 31, 2011
$ in millions
Three months ended
Third-party distribution, service and advisory expenses, as previously reported
297.0

Reclassification
27.5

Third-party distribution, service and advisory expenses, as reclassified
324.5

Marketing expenses, as previously reported
53.2

Reclassification
(27.5
)
Marketing expenses, as reclassified
25.7

   

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Table of Contents                                 

Accounting Pronouncements Recently Adopted and Pending Accounting Pronouncements
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 did not have an effect on the company’s current fair value measurements but led to increased disclosures related to the assets and liabilities of the company's 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, and are accordingly reflected in the fair value disclosure contained in Notes 2, "Fair Value of Assets and Liabilities," and 11, "Consolidated Investment Products."
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 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. Prior to ASU 2011-05, there was no requirement to present the statement of net income and statement of comprehensive income consecutively. ASU 2011-05 also requires an entity to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income alongside their respective components of net income and other comprehensive income. This requirement in ASU 2011-05 was amended and deferred in December 2011, when the FASB issued Accounting Standards Update No. 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive income in Accounting Standards Update No. 2011-05” (ASU 2011-12). As a result of ASU 2011-12, an entity will continue to report items that are reclassified from accumulated other comprehensive income consistent with the requirements in Topic 220 in effect before the adoption of ASU 2011-05. The amendments to Topic 220 made by ASU 2011-05, and the amendments to ASU 2011-05 made by ASU 2011-12, are effective for interim and annual periods beginning on or after December 15, 2011 for public companies, and are accordingly reflected in the new financial statement, “Condensed Consolidated Statements of Comprehensive Income."
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. The amendments made by ASU 2011-08 have been adopted by the company and are effective for interim and annual periods beginning on or after December 15, 2011. They will be contemplated as part of the company's 2012 impairment testing process.


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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.”
 
March 31, 2012
 
December 31, 2011
$ in millions
Footnote Reference
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Cash and cash equivalents
 
 
592.3

 
592.3

 
727.4

 
727.4

Available for sale investments
3

 
79.4

 
79.4

 
63.5

 
63.5

Assets held for policyholders
 
 
1,135.6

 
1,135.6

 
1,243.5

 
1,243.5

Trading investments
3

 
226.1

 
226.1

 
187.5

 
187.5

Foreign time deposits*
3

 
40.8

 
40.8

 
32.2

 
32.2

Support agreements*
10,11

 
(1.0
)
 
(1.0
)
 
(1.0
)
 
(1.0
)
Policyholder payables
 
 
(1,135.6
)
 
(1,135.6
)
 
(1,243.5
)
 
(1,243.5
)
Financial instruments sold, not yet purchased
 
 
(2.1
)
 
(2.1
)
 
(1.0
)
 
(1.0
)
Note payable
12

 
(12.3
)
 
(12.3
)
 
(16.8
)
 
(16.8
)
Total debt*
4

 
(1,325.7
)
 
(1,358.4
)
 
(1,284.7
)
 
(1,307.5
)

*
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, and are accordingly classified as Level 2 securities.

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, investments in affiliated CLOs, and investments in other debt securities. 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. Other debt securities are valued using a cost valuation technique due to the lack of available cash flow and market data and are accordingly also 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).
•
Investments related to deferred compensation plans
Investments related to deferred compensation plans are primarily invested in affiliated funds that are held to hedge

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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 March 31, 2012, UIT-related equity and debt securities consisted of investments in corporate stock, corporate bonds, 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.
•
Corporate bonds
The company temporarily holds investments in corporate bonds for purposed of creating a UIT. Corporate bonds 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.
•
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 March 31, 2012, there were 34 open futures contracts with a notional value of $4.6 million (December 31, 2011: 10 open futures contracts with a notional value of $1.3 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;

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otherwise, they are categorized in level 2.
Note payable
The note payable represents a payable associated with 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 is measured by reference to the value of the company's ownership interest in the equity of the funds, as this is the contractual amount payable at the reporting date. The value of the funds' equity is driven by the value of the underlying investments of the funds, as these investments make up the majority of the funds' equity. See Note 11, "Consolidated Investment Products," for additional information regarding the valuation of the underlying investments of 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 March 31, 2012.

 
As of March 31, 2012
 
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
194.8

 
194.8

 
—

 
—

Investments:*

 

 

 
 
Available-for-sale:

 

 

 
 
Seed money
70.3

 
70.3

 
—

 
—

Trading investments:

 

 

 
 
Investments related to deferred compensation plans
211.5

 
211.5

 
—

 
—

UIT-related equity and debt securities:

 

 

 
 
Corporate stock
1.0

 
1.0

 
—

 
—

Corporate bonds
1.2

 
—

 
1.2

 
—

UITs
1.9

 
1.9

 
—

 
—

Municipal securities
10.5

 
—

 
10.5

 
—

Assets held for policyholders
1,135.6

 
1,135.6

 
—

 
—

Total current assets
1,626.8

 
1,615.1

 
11.7

 
—

Non-current assets:
 
 
 
 
 
 
 
Investments — available-for-sale*:
 
 
 
 
 
 
 
CLOs
2.8

 
—

 
—

 
2.8

Other debt securities
6.3

 
—

 
—

 
6.3

Total assets at fair value
1,635.9

 
1,615.1

 
11.7

 
9.1

Current liabilities:
 
 
 
 
 
 
 
Policyholder payables
(1,135.6
)
 
(1,135.6
)
 
—

 
—

UIT-related financial instruments sold, not yet purchased:

 

 
 
 
 
Corporate equities
(1.0
)
 
(1.0
)
 
—

 
—

U.S. Treasury securities
(1.1
)
 
(1.1
)
 
—

 
—

Note payable
(12.3
)
 
—

 
—

 
(12.3
)
Total liabilities at fair value
(1,150.0
)
 
(1,137.7
)
 
—

 
(12.3
)

*
Current foreign time deposits of $40.8 million and other current investments of $0.5 million are excluded from this table. Non-current equity method and other investments of $199.5 million and $11.7 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, 2011:
 
As of December 31, 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
257.7

 
257.7

 
—

 
—

Investments:*

 

 

 
 
Available-for-sale:

 

 

 
 
Seed money
63.5

 
63.5

 
—

 
—

Trading investments:

 

 

 
 
Investments related to deferred compensation plans
184.4

 
184.4

 
—

 
—

UIT-related equity and debt securities:

 

 

 
 
Corporate stock
1.1

 
1.1

 
—

 
—

UITs
0.9

 
0.9

 
—

 
—

Municipal securities
1.1

 
—

 
1.1

 
—

Assets held for policyholders
1,243.5

 
1,243.5

 
—

 
—

Total current assets
1,752.2

 
1,751.1

 
1.1

 
—

Current liabilities:
 
 
 
 
 
 
 
Policyholder payables
(1,243.5
)
 
(1,243.5
)
 
—

 
—

UIT-related financial instruments sold, not yet purchased:

 

 

 
 
Corporate equities
(1.0
)
 
(1.0
)
 
—

 
—

Non-current liabilities:

 

 

 

Note payable
(16.8
)
 
—

 
—

 
(16.8
)
Total liabilities at fair value
(1,261.3
)
 
(1,244.5
)
 
—

 
(16.8
)

*
Current foreign time deposits of $32.2 million and other current investments of $0.5 million are excluded from this table. Non-current equity method and other investments of $193.1 million and $7.7 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 three months ended March 31, 2012 and March 31, 2011, which are valued using significant unobservable inputs:
 
Three months ended March 31, 2012
 
Three months ended March 31, 2011
$ in millions
CLOs
 
Other Debt Securities
 
Note Payable
 
CLOs
 
Note Payable
Beginning balance
—

 
—

 
(16.8
)
 
0.5

 
(18.9
)
Deconsolidation of consolidated investment products
2.5

 
—

 
—

 
—

 
—

Purchases
—

 
1.7

 
—

 
—

 
—

Net unrealized gains and losses included in accumulated other comprehensive income/(loss)*
0.3

 
—

 
—

 
0.2

 
—

Net unrealized gains and losses included in earnings*
—

 
—

 
3.5

 
—

 
0.4

Reclassification
—

 
4.6

 
—

 
—

 
—

Foreign exchange movements included in earnings
—

 
—

 
1.0

 
—

 
—

Ending balance
2.8

 
6.3

 
(12.3
)
 
0.7

 
(18.5
)

*
Of these net unrealized gains and losses included in accumulated other comprehensive income/(loss), $0.3 million gain for the three months ended March 31, 2012 is attributed to the change in unrealized gains and losses related to assets still held at March 31, 2012 (three months ended March 31, 2011: $0.2 million unrealized gains and losses related to assets still held at March 31, 2011). Of these net unrealized gains and losses included in earnings, $3.5 million for the three months ended March 31, 2012 is attributed to the change in unrealized gains and losses related to the note payable still held at March 31, 2012 (three months ended March 31, 2011: $0.4 million).


Quantitative Information about Level 3 Fair Value Measurements

The following table shows significant unobservable inputs used in the fair value measurement of level 3 assets and liabilities:
Assets and Liabilities *
 
Fair Value at March 31, 2012 ($ in millions)
 
Valuation Technique
 
Unobservable Inputs
 
Range (Weighted Average)
CLOs
 
2.8
 
Discounted Cash Flow- Euro
 
Probability of Default
 
1% - 5%
 
 
 
 
 
 
Spread over Euribor
 
2150 - 2850 bps
 
 
 
 
Discounted Cash Flow- USD
 
Probability of Default
 
1% - 4%
 
 
 
 
 
 
Spread over Libor
 
1250 - 1700 bps

*
Other debt securities of $6.3 million are not included in the table above as they are valued using a cost valuation technique. The note payable of $12.3 million is also not included in the table above as its value is linked to the underlying value of consolidated funds. Both items are more fully discussed in the "Available-for-sale investments" and "Note payable" disclosures above.

For CLO Notes, a change in the assumption used for spreads is generally accompanied by a directionally similar change in default rate. Significant increases in any of these inputs in isolation would result in a significant lower fair value measurements. A directionally-opposite impact would apply for significant decreases in these inputs.



15
Table of Contents                                 

3. INVESTMENTS
The disclosures below include details of the company’s investments. Investments held by consolidated investment products are detailed in Note 11, “Consolidated Investment Products.”
Current Investments
 
As of
 
March 31,
 
December 31,
$ in millions
2012
 
2011
Available-for-sale investments:
 
 
 
Seed money
70.3

 
63.5

Trading investments:

 
 
Investments related to deferred compensation plans
211.5

 
184.4

UIT-related equity and debt securities
14.6

 
3.1

Foreign time deposits
40.8

 
32.2

Other
0.5

 
0.5

Total current investments
337.7

 
283.7

Non-current Investments
 
As of
 
March 31,
 
December 31,
$ in millions
2012
 
2011
Available-for-sale investments:
 
 
 
CLOs
2.8

 
—

Other debt securities
6.3

 
—

Equity method investments
199.5

 
193.1

Other
11.7

 
7.7

Total non-current investments
220.3

 
200.8


The portion of trading gains and losses for the three months ended March 31, 2012 that relates to trading securities still held at March 31, 2012 was a $11.5 million net gain.
Realized gains and losses recognized in the income statement during the year from investments classified as available-for-sale are as follows:
 
For the three months ended March 31, 2012
 
For the three months ended March 31, 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
20.3

 
1.5

 
(0.5
)
 
16.2

 
3.3

 
(0.1
)
Non-current available-for-sale investments
—

 
—

 
—

 
0.1

 
—

 
—


Upon the sale of available-for-sale securities, net realized gains of $1.0 million and $3.2 million were transferred from accumulated other comprehensive income into the Condensed Consolidated Statements of Income during three months ended March 31, 2012 and 2011, respectively. The specific identification method is used to determine the realized gain or loss on securities sold or otherwise disposed.

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Gross unrealized holding gains and losses recognized in other accumulated comprehensive income from available-for-sale investments are presented in the table below:
 
March 31, 2012
 
December 31, 2011
$ 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
67.3

 
4.3

 
(1.3
)
 
70.3

 
65.7

 
2.2

 
(4.4
)
 
63.5

Current available-for-sale investments
67.3

 
4.3

 
(1.3
)
 
70.3

 
65.7

 
2.2

 
(4.4
)
 
63.5

Non-current:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CLOs
2.5

 
0.3

 
—

 
2.8

 
—

 
—

 
—

 
—

Other debt securities
6.3

 
—

 
—

 
6.3

 
—

 
—

 
—

 
—

Non-current available-for-sale investments:
8.8

 
0.3

 
—

 
9.1

 
—

 
—

 
—

 
—

 
76.1

 
4.6

 
(1.3
)
 
79.4

 
65.7

 
2.2

 
(4.4
)
 
63.5


Available-for-sale debt securities as of March 31, 2012 by maturity, are set out below:
 
Available-for-Sale
$ in millions
(Fair Value)
Less than one year
—

One to five years
1.7

Five to ten years
2.8

Greater than ten years
4.6

Total available-for-sale
9.1


The following table provides the breakdown of available-for-sale investments with unrealized losses at March 31, 2012:
 
 
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 (39 funds)
 
17.6

 
(1.3
)
 
—

 
—

 
17.6

 
(1.3
)

The following table provides the breakdown of available-for-sale investments with unrealized losses at December 31, 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 (64 funds)
 
37.5

 
(4.4
)
 
—

 
—

 
37.5

 
(4.4
)

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 available-for-sale investments during the three months ended March 31, 2012 (three months ended March 31, 2011: none).
The gross unrealized losses of seed money investments at March 31, 2012 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.

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Table of Contents                                 

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.”
 
March 31, 2012
 
December 31, 2011
$ in millions
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Unsecured Senior Notes*:
 
 
 
 
 
 
 
5.625% — due April 17, 2012
215.1

 
214.6

 
215.1

 
217.3

5.375% — due February 27, 2013
333.5

 
347.5

 
333.5

 
343.8

5.375% — due December 15, 2014
197.1

 
216.3

 
197.1

 
207.4

Floating rate credit facility expiring June 3, 2016
580.0

 
580.0

 
539.0

 
539.0

Total debt
1,325.7

 
1,358.4

 
1,284.7

 
1,307.5

Less: current maturities of total debt
(548.6
)
 
(562.1
)
 
(215.1
)
 
(217.3
)
Long-term debt
777.1

 
796.3

 
1,069.6

 
1,090.2


*
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, which is considered a Level 2 valuation input. 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.
Analysis of Borrowings by Maturity:
$ in millions
March 31, 2012
2012
215.1

2013
333.5

2014
197.1

2016
580.0

Total debt
1,325.7

At March 31, 2012, the outstanding balance on the credit facility was $580.0 million and the weighted average interest rate on the credit facility was 1.341%. Borrowings under the credit facility will bear interest at (i) LIBOR for specified interest periods or (ii) a floating base rate (based upon the highest of (a) the Bank of America prime rate, (b) the Federal Funds rate plus 0.50% and (c) LIBOR for an interest period of one month plus 1.00%), plus, in either case, an applicable margin determined with reference to the company’s credit ratings and specified credit default spreads. Based on credit ratings as of March 31, 2012 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 March 31, 2012, 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.
 

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5. SHARE CAPITAL
Movements in the number of common shares issued are represented in the table below:
 
Three months ended
 
Three months ended
In millions
March 31, 2012
 
March 31, 2011
Common shares issued
490.4

 
490.4

Less: Treasury shares for which dividend and voting rights do not apply
(42.2
)
 
(28.3
)
Common shares outstanding
448.2

 
462.1

During the three months ended March 31, 2012, the company repurchased 3.1 million shares in the market at a cost of $75.0 million (three months ended March 31, 2011: 2.1 million shares were repurchased at a cost of $53.1 million). Separately, an aggregate of 1.6 million shares were withheld on vesting events during the three months ended March 31, 2012 to meet employees’ withholding tax (three months ended March 31, 2011: 2.5 million). The fair value of these shares withheld at the respective withholding dates was $40.7 million during the three months ended March 31, 2012 (three months ended March 31, 2011: $65.6 million). Approximately $657.0 million remained authorized under the company’s share repurchase plan at March 31, 2012 (three months ended March 31, 2011: $1.1 billion).
Total treasury shares at March 31, 2012 were 52.9 million (March 31, 2011: 38.6 million), including 10.7 million unvested restricted stock awards (March 31, 2011: 10.3 million) for which dividend and voting rights apply. The closing market price of common shares at March 31, 2012 was $26.67. The total market value of the company’s 52.9 million treasury shares was $1.4 billion on March 31, 2012.


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 $30.0 million in the three months ended March 31, 2012 (three months ended March 31, 2011: $26.3 million) related to equity-settled share-based payment transactions.
Share Awards
Movements on share awards priced in U.S. dollars are detailed below:
 
Three months ended March 31, 2012
 
Three months ended March 31, 2011
Millions of shares, except fair values
Time-Vested
 
Performance-Vested
 
Weighted Average Grant Date Fair Value ($)
 
Time-Vested
 
Weighted Average Grant Date Fair Value ($)
Unvested at the beginning of period
17.3

 
—

 
20.34

 
17.4

 
17.25

Granted during the period
5.3

 
0.3

 
24.94

 
5.4

 
26.81

Vested and distributed during the period
(5.0
)
 
—

 
18.73

 
(4.5
)
 
18.95

Unvested at the end of the period
17.6

 
0.3

 
22.22

 
18.3

 
20.13


Further details of the performance-vested awards granted in 2012 are included in the Compensation Discussion and Analysis section of the company's 2012 Proxy statement.


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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:
 
Three months ended March 31, 2012
 
Three months ended March 31, 2011
Millions of shares, except fair values
Time-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
0.6

 
11.25

 
3.3

 
0.1

 
11.80

Vested and distributed during the period
(0.2
)
 
6.64

 
(2.3
)
 
(0.1
)
 
11.94

Unvested at the end of the period
0.4

 
12.90

 
1.0

 
—

 
11.47


Share awards outstanding at March 31, 2012 had a weighted average remaining contractual life of 2.07 years. The market price of the company’s common stock at March 31, 2012 was $26.67.
Share Options
The company has not granted share option awards since 2005. 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 company’s trading currency, which was the Pound Sterling. 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.
Changes in outstanding share option awards are as follows:
 
Three months ended March 31, 2012
 
Three months ended March 31, 2011
 
Options
(millions of shares)
 
Weighted Average
Exercise Price
(£ Sterling)
 
Options
(millions of shares)
 
Weighted Average
Exercise Price
(£ Sterling)
Outstanding at the beginning of the period
4.5

 
7.85

 
10.7

 
13.85

Forfeited during the period
(0.1
)
 
15.30

 
(0.1
)
 
27.08

Exercised during the period
(0.7
)
 
8.47

 
(0.6
)
 
8.49

Outstanding at the end of the period
3.7

 
7.51

 
10.0

 
13.94

Exercisable at the end of the period
3.7

 
7.51

 
10.0

 
13.94


7. RETIREMENT BENEFIT PLANS
Defined Contribution Plans
The company operates defined contribution retirement benefit plans for all qualifying employees. The assets of the plans are held separately from those of the company in funds under the control of trustees. When employees leave the plans prior to vesting fully in the contributions, the contributions payable by the company are reduced by the amount of forfeited contributions.
The total amounts charged to the Condensed Consolidated Statements of Income for the three months ended March 31, 2012 and 2011, of $17.0 million and $16.2 million, respectively, represent contributions paid or payable to these plans by the company at rates specified in the rules of the plans. As of March 31, 2012, accrued contributions of $8.2 million (December 31, 2011: $20.0 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, and Taiwan. All defined benefit plans are closed to new participants. The company also maintains a post-retirement 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 did not meet retirement eligibility by 2008. The assets of all defined benefit plans are held in separate trustee-administered funds. Under the plans, the employees are generally entitled to retirement benefits based on final salary at retirement.

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The components of net periodic benefit cost in respect of these defined benefit plans are as follows:
 
Three months ended March 31,
 
Retirement Plans
 
Medical Plan
$ in millions
2012
 
2011
 
2012
 
2011
Service cost
(1.1
)
 
(1.0
)
 
(0.1
)
 
(0.2
)
Interest cost
(4.8
)
 
(4.6
)
 
(0.6
)
 
(0.7
)
Expected return on plan assets
4.4

 
3.7

 
0.1

 
0.1

Amortization of prior service cost
—

 
(0.8
)
 
0.5

 
0.5

Amortization of net actuarial (loss)/gain
(0.3
)
 
0.1

 
(0.1
)
 
(0.7
)
Net periodic benefit cost
(1.8
)
 
(2.6
)
 
(0.2
)
 
(1.0
)
The estimated amount of contributions expected to be paid to the retirement plans during 2012 is $6.1 million, with an additional expected contribution of $2.1 million to the medical plan.

8. TAXATION
At March 31, 2012, and December 31, 2011, the total amount of gross unrecognized tax benefits was $19.5 million. The company and its subsidiaries file annual income tax returns in the 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.

9. 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 period, excluding treasury shares. The weighted average number of shares outstanding during the period also includes participating securities such as unvested time-based restricted stock awards and restricted stock units that pay dividend equivalents. 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 period.
The calculation of earnings per share is as follows:
In millions, except per share data
Net Income
Attributable to
Common Shareholders
 
Weighted Average Number of Shares
 
Per Share Amount
For the three months ended March 31, 2012
 
 
 
 
 
Basic earnings per share

$193.9

 
454.3

 

$0.43

Dilutive effect of share-based awards
—

 
1.6

 
—

Diluted earnings per share

$193.9

 
455.9

 

$0.43

For the three months ended March 31, 2011
 
 
 
 
 
Basic earnings per share

$177.5

 
469.9

 

$0.38

Dilutive effect of share-based awards
—

 
2.2

 
—

Diluted earnings per share

$177.5

 
472.1

 

$0.38


See Note 6, “Share-based Compensation,” for a summary of share awards outstanding under the company’s share-based payment programs. These programs could result in the issuance of common shares that would affect the measurement of basic and diluted earnings per share.
There were no options to purchase or options outstanding for the three months ended March 31, 2012 (three months ended March 31, 2011: 5.3 million share options at a weighted average exercise price of £19.49) that 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.

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10. COMMITMENTS AND CONTINGENCIES
Commitments and contingencies may arise in the ordinary course of business.

Off Balance Sheet Commitments
The company has transactions with various private equity, real estate and other investment entities sponsored by the company for the investment of client assets in the normal course of business. Many of the company's investment products are structured as limited partnerships. The company's investment may take the form of the general partner or a limited partner, and the entities are structured such that each partner makes capital commitments that are to be drawn down over the life of the partnership as investment opportunities are identified. At March 31, 2012, the company’s undrawn capital commitments were $163.5 million (December 31, 2011: $161.2 million).
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 limited types of investors. In December 2011, the agreements were amended to extend the term through June 30, 2012; further extensions are likely. As of March 31, 2012, the total 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. The estimated value of these agreements at March 31, 2012, was $1.0 million (December 31, 2011: $1.0 million), which was recorded in other current liabilities on the Condensed Consolidated Balance Sheet and represents a Level 3 measurement due to its determination from an expected present value technique. The estimated value of these agreements is lower than the maximum support amount, reflecting management’s estimation that the likelihood of funding under the support agreements is low. 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 could change the company’s estimation of likelihood of funding. 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 related to various prior taxation periods for goods and services tax on revenue to which management fee rebates had been applied in those periods. The assessments, related interest, and penalty amounts are approximately $19.9 million. Management believes Canada Revenue Agency's claims are unfounded and that these assessments are unlikely to stand, and accordingly no provision has been recorded in the Condensed Consolidated Financial Statements.
The Parent and various company subsidiaries have entered into agreements with financial institutions to guarantee certain obligations of other company subsidiaries. The company would be required to perform under these guarantees in the event of certain defaults. The company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
Legal Contingencies
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 this 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 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 fund sponsors’ interests to preserve distribution relationships with brokers and other financial intermediaries who held ARPS after having repurchased them from their own clients. The complaints do not specify alleged damages. 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 established special committees of independent trustees to conduct an inquiry regarding the allegations set forth in the complaints and demand letters. Those evaluations have been completed, and the Boards of Trustees of the funds accepted the recommendation of their special litigation committees to (i) reject the demands contained in the demand letters and (ii) to seek dismissal of the related lawsuits. Motions to dismiss were filed on October 4, 2011.

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Invesco believes the cases and other claims identified above should be dismissed or otherwise will terminate, 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 company cannot predict with certainty, however, the eventual outcome of such cases and other claims, nor whether they will have a material negative impact on the company. The nature and progression of litigation can make it difficult to predict the impact a particular lawsuit will have on the company. There are many reasons that the company cannot make these assessments, including, among others, one or more of the following: the proceeding is in its early stages; the damages sought are unspecified, unsupportable, unexplained or uncertain; the claimant is seeking relief other than compensatory damages; the matter presents novel legal claims or other meaningful legal uncertainties; discovery has not started or is not complete; there are significant facts in dispute; and there are other parties who may share in any ultimate liability.
The company is from time to time involved in litigation relating to other claims arising in the ordinary course of its business. Management is of the opinion that the ultimate resolution of such claims will not materially affect the company’s business, financial position, results of operation or liquidity. In management’s opinion, adequate accrual has been made as of March 31, 2012 to provide for any such losses that may arise from matters for which the company could reasonably estimate an amount. Furthermore, in management’s opinion, it is not possible to estimate a range of reasonably possible losses with respect to other litigation contingencies.
The investment management industry also is subject to extensive levels of ongoing regulatory oversight and examination. In the United States and other jurisdictions in which the company operates, governmental authorities regularly make inquiries, hold investigations and administer market conduct examinations with respect to compliance with applicable laws and regulations. Additional lawsuits or regulatory enforcement actions arising out of these inquiries may in the future be filed against the company and related entities and individuals in the U.S. and other jurisdictions in which the company and its affiliates operate. Any material loss of investor and/or client confidence as a result of such inquiries and/or litigation could result in a significant decline in assets under management, which would have an adverse effect on the company’s future financial results and its ability to grow its business.

11. CONSOLIDATED INVESTMENT PRODUCTS
The company’s risk with respect to each investment in consolidated investment products is limited to its equity ownership and any uncollected management fees. Therefore, the gains or losses of consolidated investment products have not had a significant impact on the company’s results of operations, liquidity or capital resources. The company has no right to the benefits from, nor does it bear the risks associated with, these investments, beyond the company’s minimal direct investments in, and management fees generated from, the investment products. If the company were to liquidate, these investments would not be available to the general creditors of the company, and as a result, the company does not consider investments held by consolidated investment products to be company assets. Additionally, the collateral assets of consolidated collateralized loan obligations (CLOs) are held solely to satisfy the obligations of the CLOs, and the investors in the consolidated CLOs have no recourse to the general credit of the company for the notes issued by the CLOs.   
Collateralized Loan Obligations
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 company’s investments in CLOs are generally subordinated to other interests in the entities and entitle the company and other subordinated tranche investors to receive the residual cash flows, if any, from the entities. The company’s subordinated interest can take the form of (1) subordinated notes, (2) income notes or (3) preference/preferred shares. The company has determined that, although the junior tranches have certain characteristics of equity, they should be accounted for and disclosed as debt on the company’s Condensed Consolidated Balance Sheet, as the subordinated and income notes have a stated maturity indicating a date for which they are mandatorily redeemable. The preference shares are also classified as debt, as redemption is required only upon liquidation or termination of the CLO and not of the company. The financial information of the consolidated CLOs is included in the company's consolidated financial statements on a one-month lag. 
Prior to the adoption of guidance now encompassed in ASC Topic 810 (discussed in Note 1, “Accounting Policies”), the company’s ownership interests, which were classified as available-for-sale investments on the company’s Condensed 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 this guidance, that it did not absorb the majority of the expected gains or losses from the CLOs and therefore was not their primary beneficiary.

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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 some CLOs, the company’s role as investment manager provides that the company contractually has the power, as defined in ASC Topic 810, 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 rights held by other investors in the products or restrictions that limit the company's ability to manage the collateral portfolio and the CLO's credit risk. Additionally, the primary beneficiary assessment includes an analysis of the company’s rights to receive benefits and obligations to absorb losses associated with its first loss position and management/incentive fees. As part of this analysis, the company uses a quantitative model to corroborate its qualitative assessments. The quantitative model includes an analysis of the expected performance of the CLOs and a comparison of the company’s absorption of this performance relative to the other investors in the CLOs. The company has determined that it could receive significant benefits and/or absorb significant losses from certain CLOs in which it holds a first loss position and has the right to significant fees. It was determined that the company’s benefits and losses from certain other CLOs could not be significant, particularly in situations where the company does not hold a first loss position and where the fee interests are based upon a fixed percentage of collateral asset value.
     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 rights to manage 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. 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. Interests in unconsolidated private equity funds, real estate funds and fund-of-funds products are classified as equity method investments in the company’s Condensed Consolidated Balance Sheets. The financial information of the consolidated private equity and real estate funds are included in the company's consolidated financial statements on a one-quarter lag.
     Other investment products
As discussed in Note 10, “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.
At March 31, 2012, the company’s maximum risk of loss in significant VIEs in which the company is not the primary beneficiary is presented in the table below.
$ in millions
Footnote Reference
 
Carrying Value
 
Company's Maximum Risk of Loss
CLO investments
3

 
2.8

 
2.8

Partnership and trust investments
—

 
32.6

 
32.6

Investments in Invesco Mortgage Capital Inc.
—

 
28.0

 
28.0

Support agreements*
10

 
(1.0
)
 
36.0

Total
 
 
 
 
99.4


*
As of March 31, 2012, the committed support under these agreements was $36.0 million with an internal approval mechanism to increase the maximum possible support to $66.0 million at the option of the company.

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During the three months ended March 31, 2012, the company invested in and consolidated a new CLO that it manages. The table below illustrates the summary balance sheet amounts related to this CLO before consolidation into the company.
Balance Sheet
$ in millions
CLO - VIE
During the three months ended March 31, 2012
 
Current assets
174.8

Non-current assets
320.8

Total assets
495.6

Current liabilities
155.7

Non-current liabilities
345.3

Total liabilities
501.0

Total equity
(5.4
)
Total liabilities and equity
495.6


During the three months ended March 31, 2012, the company determined it was no longer the primary beneficiary of certain CLOs due to reconsideration events leading to reassessments of the rights held by other unaffiliated investors and deconsolidated these products. The company continues to manage the collateral portfolio of these CLOs and maintains an investment in these products. The amounts deconsolidated from the Condensed Consolidated Balance Sheet are illustrated in the table below. There was no net impact to the Condensed Consolidated Statement of Income for the three months ended March 31, 2012 from the deconsolidation of these investment products.
Balance Sheet
$ in millions
CLO - VIE
During the three months ended March 31, 2012
 
Current assets
48.2

Non-current assets
594.1

Total assets
642.3

Current liabilities
18.7

Non-current liabilities
576.0