IVZ.10Q.3Q.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 September 30, 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 September 30, 2012, the most recent practicable date, 444,042,032 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, 2012
 
December 31, 2011
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
880.1

 
727.4

Cash and cash equivalents of consolidated investment products
552.7

 
382.3

Unsettled fund receivables
596.0

 
444.4

Accounts receivable
406.1

 
424.4

Accounts receivable of consolidated investment products
58.3

 
98.5

Investments
364.2

 
283.7

Prepaid assets
55.8

 
51.2

Other current assets
81.7

 
150.0

Deferred tax asset, net
26.5

 
28.7

Assets held for policyholders
1,139.3

 
1,243.5

Total current assets
4,160.7

 
3,834.1

Non-current assets:
 
 
 
Investments
223.5

 
200.8

Investments of consolidated investment products
4,717.9

 
6,629.0

Security deposit assets and receivables
30.1

 
81.2

Other non-current assets
17.2

 
17.9

Deferred sales commissions
46.0

 
40.5

Property and equipment, net
329.9

 
312.8

Intangible assets, net
1,295.8

 
1,322.8

Goodwill
7,039.9

 
6,907.9

Total non-current assets
13,700.3

 
15,512.9

Total assets
17,861.0

 
19,347.0

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Current maturities of total debt
333.5

 
215.1

Unsettled fund payables
598.2

 
439.6

Income taxes payable
64.4

 
59.6

Other current liabilities
719.1

 
841.5

Other current liabilities of consolidated investment products
329.8

 
175.1

Policyholder payables
1,139.3

 
1,243.5

Total current liabilities
3,184.3

 
2,974.4

Non-current liabilities:
 
 
 
Long-term debt
951.6

 
1,069.6

Long-term debt of consolidated investment products
3,855.0

 
5,512.9

Deferred tax liabilities, net
313.5

 
274.0

Security deposits payable
30.1

 
81.2

Other non-current liabilities
329.1

 
297.3

Total non-current liabilities
5,479.3

 
7,235.0

Total liabilities
8,663.6

 
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 September 30, 2012 and December 31, 2011)
98.1

 
98.1

Additional paid-in-capital
6,122.6

 
6,180.6

Treasury shares
(1,323.0
)
 
(1,280.4
)
Retained earnings
2,720.1

 
2,413.2

Retained earnings appropriated for investors in consolidated investment products
159.1

 
334.3

Accumulated other comprehensive income, net of tax
538.2

 
373.3

Total equity attributable to common shareholders
8,315.1

 
8,119.1

Equity attributable to noncontrolling interests in consolidated entities
882.3

 
1,018.5

Total equity
9,197.4

 
9,137.6

Total liabilities and equity
17,861.0

 
19,347.0

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
2012
 
2011
 
2012
 
2011
Operating revenues:
 
 
 
 
 
 
 
Investment management fees
818.0

 
779.5

 
2,390.0

 
2,390.9

Service and distribution fees
196.1

 
189.1

 
572.2

 
599.2

Performance fees
3.0

 
2.6

 
38.9

 
14.0

Other
24.3

 
26.6

 
83.0

 
91.0

Total operating revenues
1,041.4

 
997.8

 
3,084.1

 
3,095.1

Operating expenses:
 
 
 
 
 
 
 
Employee compensation
330.9

 
305.5

 
954.0

 
929.7

Third-party distribution, service and advisory
327.2

 
314.4

 
960.9

 
980.7

Marketing
26.4

 
13.1

 
79.7

 
64.9

Property, office and technology
69.1

 
62.7

 
204.4

 
188.6

General and administrative
68.8

 
69.6

 
230.8

 
220.8

Transaction and integration
3.0

 
4.7

 
5.6

 
23.9

Total operating expenses
825.4

 
770.0

 
2,435.4

 
2,408.6

Operating income
216.0

 
227.8

 
648.7

 
686.5

Other income/(expense):
 
 
 
 
 
 
 
Equity in earnings of unconsolidated affiliates
5.2

 
8.1

 
21.8

 
25.6

Interest and dividend income
2.5

 
3.8

 
7.1

 
8.3

Interest income of consolidated investment products
68.7

 
79.6

 
206.4

 
233.6

Other gains/(losses) of consolidated investment products, net
(25.2
)
 
(93.1
)
 
(69.9
)
 
(243.3
)
Interest expense
(12.6
)
 
(15.3
)
 
(39.6
)
 
(47.5
)
Interest expense of consolidated investment products
(41.9
)
 
(48.7
)
 
(134.4
)
 
(135.2
)
Other gains and losses, net
18.4

 
(19.7
)
 
29.3

 
(5.8
)
Income before income taxes
231.1

 
142.5

 
669.4

 
522.2

Income tax provision
(74.2
)
 
(59.1
)
 
(210.1
)
 
(210.1
)
Net income
156.9

 
83.4

 
459.3

 
312.1

Net (income)/loss attributable to noncontrolling interests in consolidated entities, net 
13.7

 
83.5

 
59.1

 
215.3

Net income attributable to common shareholders
170.6

 
166.9

 
518.4

 
527.4

Earnings per share:
 
 
 
 
 
 
 
— basic

$0.38

 

$0.36

 

$1.14

 

$1.13

— diluted

$0.38

 

$0.36

 

$1.14

 

$1.13

Dividends declared per share

$0.1725

 

$0.1225

 

$0.4675

 

$0.3550

See accompanying notes.


4
Table of Contents                                 

Invesco Ltd.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
 
Three months ended September 30,
 
Nine months ended September 30,
$ in millions
2012
 
2011
 
2012
 
2011
Net income
156.9

 
83.4

 
459.3

 
312.1

Other comprehensive income, before tax:
 
 
 
 
 
 
 
Currency translation differences on investments in overseas subsidiaries
171.3

 
(243.4
)
 
155.2

 
(91.1
)
Change in accumulated other comprehensive income related to employee benefit plans
(2.8
)
 
1.7

 
(1.9
)
 
11.9

Change in accumulated other comprehensive income of equity method investments
1.6

 
(5.0
)
 
4.6

 
(6.1
)
Change in net unrealized gains on available-for-sale investments
4.9

 
(12.3
)
 
8.3

 
(14.9
)
Other comprehensive income (loss), before tax
175.0

 
(259.0
)
 
166.2

 
(100.2
)
Income tax related to items of other comprehensive income:
 
 
 
 
 
 
 
Tax benefit (expense) on foreign currency translation adjustments
0.1

 
0.8

 
0.9

 
—

Tax benefit (expense) on comprehensive income related to employee benefit plans
(1.7
)
 
(1.0
)
 
(1.9
)
 
(3.5
)
Tax benefit (expense) on change in net unrealized gains on available-for-sale investments
(0.4
)
 
1.6

 
(0.2
)
 
1.7

Total income tax benefit (expense) related to items of other comprehensive income
(2.0
)
 
1.4

 
(1.2
)
 
(1.8
)
Other comprehensive income (loss), net of tax
173.0

 
(257.6
)
 
165.0

 
(102.0
)
Total comprehensive income
329.9

 
(174.2
)
 
624.3

 
210.1

Comprehensive loss (income) attributable to noncontrolling interests in consolidated entities
(11.0
)
 
69.0

 
59.0

 
194.2

Comprehensive income attributable to common shareholders
318.9

 
(105.2
)
 
683.3

 
404.3

See accompanying notes.


5
Table of Contents                                 

Invesco Ltd.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Nine months ended September 30,
$ in millions
2012
 
2011
Operating activities:
 
 
 
Net income
459.3

 
312.1

Adjustments to reconcile net income to net cash (used in)/provided by operating activities:
 
 
 
Amortization and depreciation
72.5

 
95.3

Share-based compensation expense
102.9

 
86.0

Gains on disposal of property, equipment, and software, net
(0.5
)
 
—

Purchase of trading investments
(7,573.2
)
 
(8,120.7
)
Proceeds from sale of trading investments
7,564.6

 
8,103.6

Other gains and losses, net
(29.3
)
 
5.8

Other (gains)/losses of consolidated investment products, net
69.9

 
243.3

Tax benefit from share-based compensation
47.7

 
74.2

Excess tax benefits from share-based compensation
(13.7
)
 
(15.8
)
Equity in earnings of unconsolidated affiliates
(21.8
)
 
(25.6
)
Dividends from unconsolidated affiliates
14.7

 
20.1

Changes in operating assets and liabilities:
 
 
 
(Increase)/decrease in cash held by consolidated investment products
(296.0
)
 
296.3

(Increase)/decrease in receivables
151.9

 
41.3

Increase/(decrease) in payables
(231.3
)
 
(473.9
)
Net cash (used in)/provided by operating activities
317.7

 
642.0

Investing activities:
 
 
 
Purchase of property and equipment
(68.4
)
 
(60.6
)
Disposal of property and equipment
0.6

 
12.6

Purchase of available-for-sale investments
(73.9
)
 
(31.1
)
Proceeds from sale of available-for-sale investments
32.9

 
50.2

Purchase of investments by consolidated investment products
(2,338.9
)
 
(2,594.2
)
Proceeds from sale of investments by consolidated investment products
2,484.5

 
3,035.3

Purchase of other investments
(87.7
)
 
(102.3
)
Proceeds from sale of other investments
63.4

 
35.7

Returns of capital and distributions from unconsolidated partnership investments
12.2

 
28.5

Acquisition of businesses
—

 
(14.9
)
Acquisition earn-out payments
(5.6
)
 
(5.4
)
Sale of management contracts
16.4

 
—

Net cash (used in)/provided by investing activities
35.5

 
353.8

Financing activities:
 
 
 
Proceeds from exercises of share options
17.2

 
11.0

Purchases of treasury shares
(190.0
)
 
(333.0
)
Dividends paid
(211.5
)
 
(165.0
)
Excess tax benefits from share-based compensation
13.7

 
15.8

Capital invested into consolidated investment products
19.4

 
27.9

Capital distributed by consolidated investment products
(122.0
)
 
(158.8
)
Net borrowings/(repayments) of debt of consolidated investment products
255.4

 
(434.9
)
Net borrowings/(repayments) under credit facility
215.5

 
74.0

Repayments of senior notes
(215.1
)
 
—

Acquisition of interest in consolidated investment products
—

 
(12.3
)
Net cash (used in)/provided by financing activities
(217.4
)
 
(975.3
)
(Decrease)/increase in cash and cash equivalents
135.8

 
20.5

Foreign exchange movement on cash and cash equivalents
16.9

 
(4.0
)
Cash and cash equivalents, beginning of period
727.4

 
740.5

Cash and cash equivalents, end of period
880.1

 
757.0

Supplemental Cash Flow Information:
 
 
 
Interest paid
(39.0
)
 
(39.1
)
Interest received
3.5

 
8.2

Taxes paid
(154.4
)
 
(137.7
)
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
 
—

 
—

 
—

 
518.4

 
—

 
—

 
518.4

 
(59.1
)
 
459.3

Other comprehensive income
 
—

 
—

 
—

 
—

 
—

 
164.9

 
164.9

 
0.1

 
165.0

Total comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
683.3

 
(59.0
)
 
624.3

Net income (loss) reclassified to appropriated retained earnings
 
—

 
—

 
—

 
—

 
(51.3
)
 
—

 
(51.3
)
 
51.3

 
—

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

 
—

 
—

 
—

 
(7.0
)
 
—

 
(7.0
)
 
7.0

 
—

Deconsolidation of consolidated investment products
 
—

 
—

 
—

 
—

 
(116.9
)
 
—

 
(116.9
)
 
—

 
(116.9
)
Change in noncontrolling interests in consolidated entities, net
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(135.5
)
 
(135.5
)
Dividends
 
—

 
—

 
—

 
(211.5
)
 
—

 
—

 
(211.5
)
 
—

 
(211.5
)
Employee share plans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Share-based compensation
 
—

 
102.9

 
—

 
—

 
—

 
—

 
102.9

 
—

 
102.9

Vested shares
 
—

 
(156.9
)
 
156.9

 
—

 
—

 
—

 
—

 
—

 
—

Exercise of options
 
—

 
(17.7
)
 
34.9

 
—

 
—

 
—

 
17.2

 
—

 
17.2

Tax impact of share-based payment
 
—

 
13.7

 
—

 
—

 
—

 
—

 
13.7

 
—

 
13.7

Purchase of shares
 
—

 
—

 
(234.4
)
 
—

 
—

 
—

 
(234.4
)
 
—

 
(234.4
)
September 30, 2012
 
98.1

 
6,122.6

 
(1,323.0
)
 
2,720.1

 
159.1

 
538.2

 
8,315.1

 
882.3

 
9,197.4

See accompanying notes.






7
Table of Contents                                 



Invesco Ltd.
Condensed Consolidated Statements of Changes in Equity (continued)
(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
 
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
 
—

 
—

 
—

 
527.4

 
—

 
—

 
527.4

 
(215.3
)
 
312.1

Other comprehensive income
 
—

 
—

 
—

 
—

 
—

 
(123.1
)
 
(123.1
)
 
21.1

 
(102.0
)
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

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 (as amended) for the year ended December 31, 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.
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

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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 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.
In July 2012, the FASB issued Accounting Standards Update 2012-02, “Intangibles-Goodwill and Other: Testing Indefinite-Lived Intangible Assets for Impairment” (ASU 2012-02). ASU 2012-02 amends Topic 350 on testing for impairment of indefinite-lived intangible assets. Specifically, ASU 2012-02 permits an entity the option to first qualitatively assess whether it is more likely than not (a likelihood of more than 50 percent) that an indefinite-lived intangible asset is impaired. If an entity concludes that this is the case, it would be required to perform the quantitative impairment test and calculate the fair value of the indefinite-lived intangible asset; otherwise, no further testing is required. An entity may bypass the qualitative assessment in any period and proceed directly to the quantitative impairment test, and may resume performing the qualitative assessment in any subsequent period. The amendments made by ASU 2012-02 are effective for interim and annual impairment tests performed for fiscal years beginning on or after September 15, 2012. Early adoption is permitted and the amendments made by 2012-02 will be contemplated as part of the company's 2012 impairment testing process.

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, 2012
 
December 31, 2011
$ in millions
Footnote Reference
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Cash and cash equivalents
 
 
880.1

 
880.1

 
727.4

 
727.4

Available for sale investments
3

 
122.0

 
122.0

 
63.5

 
63.5

Assets held for policyholders
 
 
1,139.3

 
1,139.3

 
1,243.5

 
1,243.5

Trading investments
3

 
217.1

 
217.1

 
187.5

 
187.5

Foreign time deposits*
3

 
33.4

 
33.4

 
32.2

 
32.2

Support agreements*
10,11

 
(1.0
)
 
(1.0
)
 
(1.0
)
 
(1.0
)
Policyholder payables
 
 
(1,139.3
)
 
(1,139.3
)
 
(1,243.5
)
 
(1,243.5
)
Put option contracts

 
0.1

 
0.1

 
—

 
—

UIT-related financial instruments sold, not yet purchased
 
 
(1.3
)
 
(1.3
)
 
(1.0
)
 
(1.0
)
Note payable
 
 
(11.3
)
 
(11.3
)
 
(16.8
)
 
(16.8
)
Total debt*
4

 
(1,285.1
)
 
(1,308.2
)
 
(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

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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. CLO assets are valued based on price quotations provided by an independent third-party pricing source, in which case they are classified as level 2, or 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.
Put option contracts
In the second quarter of 2012, the company purchased four put option contracts to hedge economically foreign currency risk on the translation of a portion of its pound sterling-denominated earnings into U.S. dollars.  The economic hedge is predominantly triggered upon the impact of a significant decline in the pound sterling/U.S. dollar foreign exchange rate, which could arise from a Greek Euro exit or other major European economic events.  Open put option contracts are marked-to-market through earnings, which are recorded in the company's consolidated statement of income in other gains and losses. These derivative contracts are valued using option valuation models and are included in other current assets in the company's consolidated balance sheet.  The significant inputs in these models (volatility, forward points and swap curves) are readily available in public markets or can be derived from observable market transactions for substantially the full terms of the contracts and are classified within level 2 of the valuation hierarchy. The cost to the company of these contracts was $2.5 million at their inception date, which represents the company's maximum exposure to loss from the contracts over the 12-month cumulative contract period, and contract maturity ranges from September 25, 2012 to June 25, 2013.  These were the only contracts entered into during the period to hedge economically foreign currency risk. The company recognized a loss of $1.2 million and $2.4 million in the three months ended and nine months ended September 30, 2012 related to the change in market value of these put option contracts.
Trading investments
Trading investments include investments held to hedge economically against costs the company incurs in connection with certain deferred compensation plans in which the company participates, as well as trading and investing activities in equity and debt securities entered into in its capacity as sponsor of unit investment trusts (UITs).
•
Investments related to deferred compensation plans
Investments related to deferred compensation plans are primarily invested in affiliated funds that are held to hedge economically current and non-current deferred compensation liabilities. Investments related to deferred compensation plans are valued under the market approach through the use of quoted prices in an active market and are classified within level 1 of the valuation hierarchy.
•
UIT-related equity and debt securities
At September 30, 2012, UIT-related equity and debt securities consisted of investments in corporate stock, corporate

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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 current 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, 2012, there were 15 open futures contracts with a notional value of $2.1 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 current 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 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

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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 September 30, 2012.

 
As of September 30, 2012
$ in millions
Fair Value Measurements
 
Quoted Prices in
Active Markets for
Identical Assets (Level 1)
 
Significant Other
Observable Inputs (Level 2)
 
Significant
Unobservable Inputs (Level 3)
Current assets:
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
234.7

 
234.7

 
—

 
—

Investments:*

 

 

 
 
Available-for-sale:

 

 

 
 
Seed money
113.2

 
113.2

 
—

 
—

Trading investments:

 

 

 
 
Investments related to deferred compensation plans
211.7

 
211.7

 
—

 
—

UIT-related equity and debt securities:

 

 

 
 
Corporate stock
1.4

 
1.4

 
—

 
—

UITs
1.3

 
1.3

 
—

 
—

Municipal securities
2.7

 
—

 
2.7

 
—

Assets held for policyholders
1,139.3

 
1,139.3

 
—

 
—

Put option contracts
0.1

 
—

 
0.1

 
—

Total current assets
1,704.4

 
1,701.6

 
2.8

 
—

Non-current assets:
 
 
 
 
 
 
 
Investments — available-for-sale*:
 
 
 
 
 
 
 
CLOs
2.5

 
—

 
—

 
2.5

Other debt securities
6.3

 
—

 
—

 
6.3

Total assets at fair value
1,713.2

 
1,701.6

 
2.8

 
8.8

Current liabilities:
 
 
 
 
 
 
 
Policyholder payables
(1,139.3
)
 
(1,139.3
)
 
—

 
—

UIT-related financial instruments sold, not yet purchased:

 

 
 
 
 
Corporate equities
(1.3
)
 
(1.3
)
 
—

 
—

Note payable
(11.3
)
 
—

 
—

 
(11.3
)
Total liabilities at fair value
(1,151.9
)
 
(1,140.6
)
 
—

 
(11.3
)

*
Current foreign time deposits of $33.4 million and other current investments of $0.5 million are excluded from this table. Non-current equity method and other investments of $202.9 million and $11.8 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, 2011:
 
As of December 31, 2011
$ in millions
Fair Value Measurements
 
Quoted Prices in
Active Markets for
Identical Assets (Level 1)
 
Significant Other
Observable Inputs (Level 2)
 
Significant
Unobservable Inputs (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 and nine months ended September 30, 2012 and September 30, 2011, which are valued using significant unobservable inputs:
 
Three months ended September 30, 2012
 
Nine months ended September 30, 2012
$ in millions
CLOs
 
Other Debt Securities
 
Note Payable
 
CLOs
 
Other Debt Securities
 
Note Payable
Beginning balance
2.5

 
6.3

 
(12.6
)
 
—

 
—

 
(16.8
)
Deconsolidation of consolidated investment products
—

 
—

 
—

 
2.5

 
—

 
—

Purchases, sales, issuances, settlements
—

 
—

 
1.6

 
(0.2
)
 
1.7

 
1.6

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

 
—

 
—

 
0.2

 
—

 
—

Net unrealized gains and losses included in earnings*
—

 
—

 
—

 
—

 
—

 
3.5

Reclassification
—

 
—

 
—

 
—

 
4.6

 
—

Foreign exchange movements included in earnings
—

 
—

 
(0.3
)
 
—

 
—

 
0.4

Ending balance
2.5

 
6.3

 
(11.3
)
 
2.5

 
6.3

 
(11.3
)

 
Three months ended September 30, 2011
 
Nine months ended September 30, 2011
$ in millions
CLOs
 
Note Payable
 
CLOs
 
Note Payable
Beginning balance
0.4

 
(16.1
)
 
0.5

 
(18.9
)
Purchases, sales, issuances, settlements
—

 
—

 
(0.1
)
 
2.9

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

 
—

 
0.1

 
—

Foreign exchange movements included in earnings
—

 
0.1

 
—

 
—

Ending balance
0.5

 
(16.0
)
 
0.5

 
(16.0
)

*
Of these net unrealized gains and losses included in accumulated other comprehensive income/(loss), no gain and $0.2 million gain for the three and nine months ended September 30, 2012 is attributed to the change in unrealized gains and losses related to assets still held at September 30, 2012 (three and nine months ended September 30, 2011: $0.1 million and $0.1 million unrealized gains and losses related to assets still held at September 30, 2011). Of these net unrealized gains and losses included in earnings, none and $3.5 million for the three and nine months ended September 30, 2012 is attributed to the change in unrealized gains and losses related to the note payable still held at September 30, 2012 (three and nine months ended September 30, 2011: none and none).

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 September 30, 2012 ($ in millions)
 
Valuation Technique
 
Unobservable Inputs
 
Range (Weighted Average)
CLOs
 
2.5
 
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
 
1350 - 1800 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 $11.3 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.

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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
2012
 
2011
Available-for-sale investments:
 
 
 
Seed money
113.2

 
63.5

Trading investments:

 
 
Investments related to deferred compensation plans
211.7

 
184.4

UIT-related equity and debt securities
5.4

 
3.1

Foreign time deposits
33.4

 
32.2

Other
0.5

 
0.5

Total current investments
364.2

 
283.7

Non-current Investments
 
As of
 
September 30,
 
December 31,
$ in millions
2012
 
2011
Available-for-sale investments:
 
 
 
CLOs
2.5

 
—

Other debt securities
6.3

 
—

Equity method investments
202.9

 
193.1

Other
11.8

 
7.7

Total non-current investments
223.5

 
200.8

The portion of trading gains and losses for the nine months ended September 30, 2012 that relates to trading securities still held at September 30, 2012 was a $16.0 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 September 30, 2012
 
For the nine months ended September 30, 2012
$ 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
9.1

 
1.4

 
(0.2
)
 
32.7

 
3.2

 
(0.7
)
Non-current available-for-sale investments
—

 
—

 
—

 
0.2

 
—

 
—

 
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

 
—

 
—

Upon the sale of available-for-sale securities, net realized gains of $2.5 million and $7.2 million were transferred from accumulated other comprehensive income into the Condensed Consolidated Statements of Income during the nine months ended September 30, 2012 and 2011, respectively. The specific identification method is used to determine the realized gain or

16
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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, 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
108.9

 
5.8

 
(1.5
)
 
113.2

 
65.7

 
2.2

 
(4.4
)
 
63.5

Current available-for-sale investments
108.9

 
5.8

 
(1.5
)
 
113.2

 
65.7

 
2.2

 
(4.4
)
 
63.5

Non-current:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CLOs
0.7

 
1.8

 
—

 
2.5

 
—

 
—

 
—

 
—

Other debt securities
6.3

 
—

 
—

 
6.3

 
—

 
—

 
—

 
—

Non-current available-for-sale investments:
7.0

 
1.8

 
—

 
8.8

 
—

 
—

 
—

 
—

 
115.9

 
7.6

 
(1.5
)
 
122.0

 
65.7

 
2.2

 
(4.4
)
 
63.5

Available-for-sale debt securities as of September 30, 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
2.5

Greater than ten years
4.6

Total available-for-sale
8.8

The following table provides the breakdown of available-for-sale investments with unrealized losses at September 30, 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 (49 funds)
 
5.5

 
(0.4
)
 
11.2

 
(1.1
)
 
16.7

 
(1.5
)
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 $0.8 million other-than-temporary impairment charges on available-for-sale investments during the nine months ended September 30, 2012 (nine months ended September 30, 2011: none).
The gross unrealized losses of seed money investments at September 30, 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.”
 
September 30, 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

 
217.3

5.375% — due February 27, 2013
333.5

 
339.1

 
333.5

 
343.8

5.375% — due December 15, 2014
197.1

 
214.6

 
197.1

 
207.4

Floating rate credit facility expiring June 3, 2016
754.5

 
754.5

 
539.0

 
539.0

Total debt
1,285.1

 
1,308.2

 
1,284.7

 
1,307.5

Less: current maturities of total debt
(333.5
)
 
(339.1
)
 
(215.1
)
 
(217.3
)
Long-term debt
951.6

 
969.1

 
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
September 30, 2012
2012
—

2013
333.5

2014
197.1

2016
754.5

Total debt
1,285.1


At September 30, 2012, the outstanding balance on the credit facility was $754.5 million and the weighted average interest rate on the credit facility was 1.395%. 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, 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 September 30, 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.
 
5. SHARE CAPITAL
Movements in the number of common shares issued are represented in the table below:
In millions
September 30, 2012
 
September 30, 2011
Common shares issued
490.4

 
490.4

Less: Treasury shares for which dividend and voting rights do not apply
(46.4
)
 
(39.4
)
Common shares outstanding
444.0

 
451.0


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Table of Contents                                 

During the three and nine months ended September 30, 2012, the company repurchased 1.8 million and 8.1 million shares, respectively, in the market at a cost of $40.0 million and $190.0 million, respectively (nine months ended September 30, 2011: 13.4 million shares were repurchased at a cost of $333.0 million). Separately, an aggregate of 1.9 million shares were withheld on vesting events during the nine months ended September 30, 2012 to meet employees’ withholding tax (nine months ended September 30, 2011: 2.7 million). The fair value of these shares withheld at the respective withholding dates was $44.4 million during the nine months ended September 30, 2012 (nine months ended September 30, 2011: $71.9 million). Approximately $542.0 million remained authorized under the company’s share repurchase plan at September 30, 2012 (nine months ended September 30, 2011: $835.4 million).
Total treasury shares at September 30, 2012 were 56.8 million (September 30, 2011: 49.3 million), including 10.4 million unvested restricted stock awards (September 30, 2011: 9.9 million) for which dividend and voting rights apply. The closing market price of common shares at September 30, 2012 was $24.99. The total market value of the company’s 56.8 million treasury shares was $1.4 billion on September 30, 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 $102.9 million in the nine months ended September 30, 2012 (nine months ended September 30, 2011: $86.0 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, 2012
 
Nine months ended September 30, 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
5.5

 
0.3

 
24.84

 
5.6

 
26.74

Forfeited during the period
(0.3
)
 
—

 
21.07

 
(0.3
)
 
19.36

Vested and distributed during the period
(5.6
)
 
—

 
18.87

 
(5.2
)
 
18.90

Unvested at the end of the period
16.9

 
0.3

 
22.31

 
17.5

 
20.25


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.
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, 2012
 
Nine months ended September 30, 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
(0.3
)
 
9.66

 
(2.3
)
 
(0.1
)
 
11.94

Unvested at the end of the period
0.3

 
12.90

 
1.0

 
—

 
11.47


Share awards outstanding at September 30, 2012 had a weighted average remaining contractual life of 1.61 years. The market price of the company’s common stock at September 30, 2012 was $24.99.



19
Table of Contents                                 

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:
 
Nine months ended September 30, 2012
 
Nine months ended September 30, 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
)
 
14.80

 
(0.9
)
 
23.18

Exercised during the period
(1.3
)
 
8.29

 
(0.8
)
 
8.54

Outstanding at the end of the period
3.1

 
7.33

 
9.0

 
13.30

Exercisable at the end of the period
3.1

 
7.33

 
9.0

 
13.30


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 nine months ended September 30, 2012 and 2011, of $43.6 million and $41.3 million, respectively, represent contributions paid or payable to these plans by the company at rates specified in the rules of the plans. As of September 30, 2012, accrued contributions of $16.5 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.