IVZ.10Q.3Q.2014
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
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þ | | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2014
OR
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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)
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Bermuda (State or Other Jurisdiction of Incorporation or Organization) | | 98-0557567 (I.R.S. Employer Identification No.) |
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1555 Peachtree Street, N.E., Suite 1800, Atlanta, GA (Address of Principal Executive Offices) | | 30309 (Zip Code) |
(404) 892-0896
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer þ | | 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, 2014, the most recent practicable date, the number of Common Shares outstanding was 430,827,656.
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.
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TABLE OF CONTENTS | |
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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 | |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Invesco Ltd.
Condensed Consolidated Balance Sheets
(Unaudited)
|
| | | | | |
| As of |
$ in millions, except per share data | September 30, 2014 | | December 31, 2013 |
ASSETS | | | |
Cash and cash equivalents | 1,352.6 |
| | 1,331.2 |
|
Unsettled fund receivables | 999.1 |
| | 932.4 |
|
Accounts receivable | 532.6 |
| | 500.8 |
|
Investments | 886.5 |
| | 839.7 |
|
Assets of consolidated sponsored investment products (CSIP) | 334.5 |
| | 108.5 |
|
Assets of consolidated investment products (CIP): | | | |
Cash and cash equivalents of CIP | 238.6 |
| | 583.6 |
|
Accounts receivable and other assets of CIP | 118.1 |
| | 58.3 |
|
Investments of CIP | 5,555.9 |
| | 4,734.7 |
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Assets held for policyholders | 1,509.2 |
| | 1,416.0 |
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Prepaid assets | 103.6 |
| | 101.4 |
|
Other assets | 110.7 |
| | 182.1 |
|
Property and equipment, net | 367.3 |
| | 350.8 |
|
Intangible assets, net | 1,252.2 |
| | 1,263.7 |
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Goodwill | 6,720.1 |
| | 6,867.3 |
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Total assets | 20,081.0 |
| | 19,270.5 |
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LIABILITIES | | | |
Accrued compensation and benefits | 540.1 |
| | 676.4 |
|
Accounts payable and accrued expenses | 766.4 |
| | 763.1 |
|
Liabilities of CIP: | | | |
Debt of CIP | 4,710.3 |
| | 4,181.7 |
|
Other liabilities of CIP | 349.2 |
| | 461.8 |
|
Policyholder payables | 1,509.2 |
| | 1,416.0 |
|
Unsettled fund payables | 994.8 |
| | 882.0 |
|
Long-term debt | 1,589.1 |
| | 1,588.6 |
|
Deferred tax liabilities, net | 325.3 |
| | 323.6 |
|
Total liabilities | 10,784.4 |
| | 10,293.2 |
|
Commitments and contingencies (See Note 11) |
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| |
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TEMPORARY EQUITY | | | |
Redeemable noncontrolling interests in CSIP | 157.5 |
| | — |
|
PERMANENT 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, 2014 and December 31, 2013) | 98.1 |
| | 98.1 |
|
Additional paid-in-capital | 6,103.9 |
| | 6,100.8 |
|
Treasury shares | (1,851.7 | ) | | (1,700.4 | ) |
Retained earnings | 3,764.5 |
| | 3,361.9 |
|
Retained earnings appropriated for investors in CIP | 56.4 |
| | 104.3 |
|
Accumulated other comprehensive income, net of tax | 252.9 |
| | 427.9 |
|
Total equity attributable to common shareholders | 8,424.1 |
| | 8,392.6 |
|
Equity attributable to nonredeemable noncontrolling interests in consolidated entities | 715.0 |
| | 584.7 |
|
Total permanent equity | 9,139.1 |
| | 8,977.3 |
|
Total liabilities, temporary and permanent equity | 20,081.0 |
| | 19,270.5 |
|
See accompanying notes.
Invesco Ltd.
Condensed Consolidated Statements of Income
(Unaudited)
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| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
$ in millions, except per share data | 2014 | | 2013 | | 2014 | | 2013 |
Operating revenues: | | | | | | | |
Investment management fees | 1,047.3 |
| | 914.4 |
| | 3,044.6 |
| | 2,644.5 |
|
Service and distribution fees | 222.1 |
| | 220.7 |
| | 675.4 |
| | 642.7 |
|
Performance fees | 8.2 |
| | 5.1 |
| | 44.3 |
| | 47.2 |
|
Other | 33.4 |
| | 31.6 |
| | 106.1 |
| | 85.1 |
|
Total operating revenues | 1,311.0 |
| | 1,171.8 |
| | 3,870.4 |
| | 3,419.5 |
|
Operating expenses: | | | | | | | |
Employee compensation | 343.8 |
| | 330.3 |
| | 1,048.8 |
| | 995.9 |
|
Third-party distribution, service and advisory | 420.2 |
| | 380.9 |
| | 1,236.2 |
| | 1,093.0 |
|
Marketing | 26.6 |
| | 22.6 |
| | 80.2 |
| | 68.6 |
|
Property, office and technology | 76.4 |
| | 71.9 |
| | 264.4 |
| | 207.0 |
|
General and administrative | 114.4 |
| | 80.1 |
| | 312.1 |
| | 224.9 |
|
Transaction and integration | — |
| | — |
| | — |
| | 3.2 |
|
Total operating expenses | 981.4 |
| | 885.8 |
| | 2,941.7 |
| | 2,592.6 |
|
Operating income | 329.6 |
| | 286.0 |
| | 928.7 |
| | 826.9 |
|
Other income/(expense): | | | | | | | |
Equity in earnings of unconsolidated affiliates | 10.9 |
| | 10.3 |
| | 26.4 |
| | 25.3 |
|
Interest and dividend income | 2.6 |
| | 2.5 |
| | 8.6 |
| | 6.8 |
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Interest expense | (18.1 | ) | | (9.7 | ) | | (55.0 | ) | | (29.4 | ) |
Other gains and losses, net | (1.3 | ) | | 2.7 |
| | 21.5 |
| | 20.8 |
|
Other income/(loss) of CSIP, net | 7.4 |
| | — |
| | 23.3 |
| | — |
|
CIP: | | | | | | | |
Interest and dividend income of CIP | 53.4 |
| | 46.5 |
| | 149.7 |
| | 147.5 |
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Interest expense of CIP | (37.5 | ) | | (33.5 | ) | | (98.1 | ) | | (96.8 | ) |
Other gains/(losses) of CIP, net | 0.1 |
| | 38.2 |
| | 63.4 |
| | 15.5 |
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Income from continuing operations before income taxes | 347.1 |
| | 343.0 |
| | 1,068.5 |
| | 916.6 |
|
Income tax provision | (94.9 | ) | | (92.9 | ) | | (290.9 | ) | | (262.7 | ) |
Income from continuing operations, net of taxes | 252.2 |
| | 250.1 |
| | 777.6 |
| | 653.9 |
|
Income/(loss) from discontinued operations, net of taxes | (0.6 | ) | | (1.4 | ) | | (2.4 | ) | | (1.9 | ) |
Net income | 251.6 |
| | 248.7 |
| | 775.2 |
| | 652.0 |
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Net (income)/loss attributable to noncontrolling interests in consolidated entities | 4.4 |
| | (20.6 | ) | | (56.9 | ) | | 0.9 |
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Net income attributable to common shareholders | 256.0 |
| | 228.1 |
| | 718.3 |
| | 652.9 |
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Earnings per share: | | | | | | | |
Basic: | | | | | | | |
Earnings per share from continuing operations |
| $0.59 |
| |
| $0.51 |
| |
| $1.65 |
| |
| $1.46 |
|
Earnings per share from discontinued operations |
| $— |
| |
| $— |
| |
| ($0.01 | ) | |
| $— |
|
Basic earnings per share |
| $0.59 |
| |
| $0.51 |
| |
| $1.65 |
| |
| $1.46 |
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Diluted: | | | | | | | |
Earnings per share from continuing operations |
| $0.59 |
| |
| $0.51 |
| |
| $1.65 |
| |
| $1.46 |
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Earnings per share from discontinued operations |
| $— |
| |
| $— |
| |
| ($0.01 | ) | |
| $— |
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Diluted earnings per share |
| $0.59 |
| |
| $0.51 |
| |
| $1.65 |
| |
| $1.45 |
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Dividends declared per share |
| $0.2500 |
| |
| $0.2250 |
| |
| $0.7250 |
| |
| $0.6225 |
|
See accompanying notes.
Invesco Ltd.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
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| | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
$ in millions | 2014 | | 2013 | | 2014 | | 2013 |
Net income | 251.6 |
| | 248.7 |
| | 775.2 |
| | 652.0 |
|
Other comprehensive income/(loss), before tax: | | | | | | | |
Currency translation differences on investments in foreign subsidiaries | (255.0 | ) | | 197.0 |
| | (177.7 | ) | | (106.9 | ) |
Actuarial (loss)/gain related to employee benefit plans | 5.5 |
| | (5.5 | ) | | 2.9 |
| | 1.3 |
|
Reclassification of amortization of prior service cost/(credit) into employee compensation expense | (0.5 | ) | | (0.5 | ) | | (1.4 | ) | | (1.5 | ) |
Reclassification of amortization of actuarial (gain)/loss into employee compensation expense | 0.5 |
| | 0.5 |
| | 1.7 |
| | 1.9 |
|
Share of other comprehensive income/(loss) of equity method investments | 0.4 |
| | (3.5 | ) | | 7.6 |
| | (5.1 | ) |
Unrealized (losses)/gains on available-for-sale investments | (6.2 | ) | | 4.5 |
| | 4.8 |
| | 8.5 |
|
Reclassification of net (gains)/losses realized on available-for-sale investments included in other gains and losses, net | (1.8 | ) | | (1.0 | ) | | (12.6 | ) | | (2.4 | ) |
Other comprehensive income/(loss), before tax | (257.1 | ) | | 191.5 |
| | (174.7 | ) | | (104.2 | ) |
Income tax related to items of other comprehensive income/(loss): | | | | | | | |
Tax benefit/(expense) on foreign currency translation adjustments | — |
| | 0.7 |
| | — |
| | (0.4 | ) |
Tax on actuarial (loss)/gain related to employee benefit plans | (1.1 | ) | | (1.7 | ) | | (0.6 | ) | | (3.2 | ) |
Reclassification of tax on amortization of prior service cost/(credit) into income tax provision | 0.1 |
| | 0.1 |
| | 0.3 |
| | 0.3 |
|
Reclassification of tax on amortization of actuarial (gain)/loss into income tax provision | (0.1 | ) | | (0.1 | ) | | (0.3 | ) | | (0.4 | ) |
Tax on net unrealized (losses)/gains on available-for-sale investments | 2.0 |
| | 0.2 |
| | 4.2 |
| | (0.4 | ) |
Reclassification of tax on net (gains)/losses realized on available-for-sale investments included in income tax provision | (0.6 | ) | | (0.3 | ) | | (4.0 | ) | | (0.6 | ) |
Total income tax benefit/(expense) related to items of other comprehensive income | 0.3 |
| | (1.1 | ) | | (0.4 | ) | | (4.7 | ) |
Other comprehensive income/(loss), net of tax | (256.8 | ) | | 190.4 |
| | (175.1 | ) | | (108.9 | ) |
Total comprehensive income/(loss) | (5.2 | ) | | 439.1 |
| | 600.1 |
| | 543.1 |
|
Comprehensive loss/(income) attributable to noncontrolling interests in consolidated entities | 4.1 |
| | (20.1 | ) | | (56.9 | ) | | 14.1 |
|
Comprehensive income/(loss) attributable to common shareholders | (1.1 | ) | | 419.0 |
| | 543.2 |
| | 557.2 |
|
See accompanying notes.
Invesco Ltd.
Condensed Consolidated Statements of Cash Flows
(Unaudited) |
| | | | | |
| Nine months ended September 30, |
$ in millions | 2014 | | 2013 |
Operating activities: | | | |
Net income | 775.2 |
| | 652.0 |
|
Adjustments to reconcile net income to net cash provided by/(used in) operating activities: | | |
|
|
Amortization and depreciation | 67.4 |
| | 66.0 |
|
Share-based compensation expense | 104.3 |
| | 103.0 |
|
(Gain)/loss on disposal of business, property and equipment, net | — |
| | 0.5 |
|
Other (gains)/losses, net | (21.5 | ) | | (20.8 | ) |
Other (gains)/losses of CSIP, net | (15.8 | ) | | — |
|
Other (gains)/losses of CIP, net | (63.4 | ) | | (15.5 | ) |
Equity in earnings of unconsolidated affiliates | (26.4 | ) | | (25.3 | ) |
Dividends from unconsolidated affiliates | 18.8 |
| | 15.6 |
|
Changes in operating assets and liabilities: | | | |
(Increase)/decrease in cash held by CIP | 313.8 |
| | (165.1 | ) |
(Increase)/decrease in cash held by CSIP | (5.4 | ) | | — |
|
(Purchase)/sale of trading investments, net | (15.9 | ) | | 2.3 |
|
(Increase)/decrease in receivables | (233.8 | ) | | (710.4 | ) |
Increase/(decrease) in payables | 120.1 |
| | 687.6 |
|
Net cash provided by/(used in) operating activities | 1,017.4 |
| | 589.9 |
|
Investing activities: | | | |
Purchase of property and equipment | (86.7 | ) | | (67.0 | ) |
Purchase of available-for-sale investments | (112.0 | ) | | (30.0 | ) |
Sale of available-for-sale investments | 100.8 |
| | 23.3 |
|
Purchase of investments by CIP | (4,228.6 | ) | | (3,496.4 | ) |
Sale of investments by CIP | 3,014.2 |
| | 3,705.9 |
|
Purchase of investments by CSIP | (565.9 | ) | | (51.4 | ) |
Sale of investments by CSIP | 366.4 |
| | 3.5 |
|
Purchase of other investments | (84.9 | ) | | (205.2 | ) |
Sale of other investments | 52.5 |
| | 74.3 |
|
Returns of capital and distributions from unconsolidated partnership investments | 33.8 |
| | 25.3 |
|
Acquisition earn-out payments | — |
| | (1.2 | ) |
Sale of business | 60.8 |
| | — |
|
Net cash provided by/(used in) investing activities | (1,449.6 | ) | | (18.9 | ) |
Financing activities: | | | |
Proceeds from exercises of share options | 8.6 |
| | 13.0 |
|
Purchases of treasury shares | (219.6 | ) | | (120.5 | ) |
Dividends paid | (315.7 | ) | | (279.2 | ) |
Excess tax benefits from share-based compensation | 21.9 |
| | 19.4 |
|
Repayment of unsettled fund account | (35.7 | ) | | — |
|
Third-party capital invested into CIP | 160.1 |
| | 13.4 |
|
Third-party capital distributed by CIP | (131.2 | ) | | (146.6 | ) |
Third-party capital invested into CSIP | 157.1 |
| | — |
|
Third-party capital distributed by CSIP | (3.7 | ) | | — |
|
Borrowings of debt by CIP | 1,339.6 |
| | 867.3 |
|
Repayments of debt by CIP | (505.3 | ) | | (803.8 | ) |
Net borrowings/(repayments) under credit facility | — |
| | 201.5 |
|
Net cash provided by/(used in) financing activities | 476.1 |
| | (235.5 | ) |
Increase/(decrease) in cash and cash equivalents | 43.9 |
| | 335.5 |
|
Foreign exchange movement on cash and cash equivalents | (22.5 | ) | | 3.5 |
|
Cash and cash equivalents, beginning of period | 1,331.2 |
| | 835.5 |
|
Cash and cash equivalents, end of period | 1,352.6 |
| | 1,174.5 |
|
Supplemental Cash Flow Information: | | | |
Interest paid | (40.1 | ) | | (20.5 | ) |
Interest received | 4.6 |
| | 3.6 |
|
Taxes paid | (252.4 | ) | | (183.0 | ) |
See accompanying notes.
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 CIP | | Accumulated Other Comprehensive Income | | Total Equity Attributable to Common Shareholders | | Nonredeemable Noncontrolling Interests in Consolidated Entities | | Total Permanent Equity | | Redeemable Noncontrolling Interests in CSIP/Temporary Equity |
January 1, 2014 | 98.1 |
| | 6,100.8 |
| | (1,700.4 | ) | | 3,361.9 |
| | 104.3 |
| | 427.9 |
| | 8,392.6 |
| | 584.7 |
| | 8,977.3 |
| | — |
|
Net income | — |
| | — |
| | — |
| | 718.3 |
| | — |
| | — |
| | 718.3 |
| | 49.4 |
| | 767.7 |
| | 7.5 |
|
Other comprehensive income/(loss), net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | (175.0 | ) | | (175.0 | ) | | (0.1 | ) | | (175.1 | ) | | — |
|
Net income/(loss) reclassified to appropriated retained earnings | — |
| | — |
| | — |
| | — |
| | (46.9 | ) | | — |
| | (46.9 | ) | | 46.9 |
| | — |
| | — |
|
Deconsolidation of CIP | — |
| | — |
| | — |
| | — |
| | (1.0 | ) | | — |
| | (1.0 | ) | | — |
| | (1.0 | ) | | — |
|
Change in noncontrolling interests in consolidated entities, net | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 34.1 |
| | 34.1 |
| | 150.0 |
|
Dividends | — |
| | — |
| | — |
| | (315.7 | ) | | — |
| | — |
| | (315.7 | ) | | — |
| | (315.7 | ) | | — |
|
Employee share plans: | | | | | | | | | | | | | | | | | | | |
Share-based compensation | — |
| | 104.3 |
| | — |
| | — |
| | — |
| | — |
| | 104.3 |
| | — |
| | 104.3 |
| | — |
|
Vested shares | — |
| | (118.9 | ) | | 118.9 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Exercise of options | — |
| | (6.4 | ) | | 15.0 |
| | — |
| | — |
| | — |
| | 8.6 |
| | — |
| | 8.6 |
| | — |
|
Settlement of ESPP purchases | — |
| | 2.2 |
| | 2.8 |
| | — |
| | — |
| | — |
| | 5.0 |
| | — |
| | 5.0 |
| | — |
|
Tax impact of share-based payment | — |
| | 21.9 |
| | — |
| | — |
| | — |
| | — |
| | 21.9 |
| | — |
| | 21.9 |
| | — |
|
Purchase of shares | — |
| | — |
| | (288.0 | ) | | — |
| | — |
| | — |
| | (288.0 | ) | | — |
| | (288.0 | ) | | — |
|
September 30, 2014 | 98.1 |
| | 6,103.9 |
| | (1,851.7 | ) | | 3,764.5 |
| | 56.4 |
| | 252.9 |
| | 8,424.1 |
| | 715.0 |
| | 9,139.1 |
| | 157.5 |
|
See accompanying notes.
Invesco Ltd.
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 CIP | | Accumulated Other Comprehensive Income | | Total Equity Attributable to Common Shareholders | | Nonredeemable Noncontrolling Interests in Consolidated Entities | | Total Permanent Equity |
January 1, 2013 | 98.1 |
| | 6,141.0 |
| | (1,382.9 | ) | | 2,801.3 |
| | 128.8 |
| | 530.5 |
| | 8,316.8 |
| | 732.2 |
| | 9,049.0 |
|
Net income | — |
| | — |
| | — |
| | 652.9 |
| | — |
| | — |
| | 652.9 |
| | (0.9 | ) | | 652.0 |
|
Other comprehensive income/(loss) | — |
| | — |
| | — |
| | — |
| | — |
| | (95.7 | ) | | (95.7 | ) | | (13.2 | ) | | (108.9 | ) |
Net income/(loss) reclassified to appropriated retained earnings | — |
| | — |
| | — |
| | — |
| | (19.4 | ) | | — |
| | (19.4 | ) | | 19.4 |
| | — |
|
Currency translation differences on investments in foreign subsidiaries reclassified to appropriated retained earnings | — |
| | — |
| | — |
| | — |
| | 0.5 |
| | — |
| | 0.5 |
| | (0.5 | ) | | — |
|
Deconsolidation of CIP | — |
| | — |
| | — |
| | — |
| | (3.6 | ) | | — |
| | (3.6 | ) | | (27.7 | ) | | (31.3 | ) |
Change in noncontrolling interests in consolidated entities, net | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (120.7 | ) | | (120.7 | ) |
Dividends | — |
| | — |
| | — |
| | (279.2 | ) | | — |
| | — |
| | (279.2 | ) | | — |
| | (279.2 | ) |
Employee share plans: | | | | | | | | | | | | | | | | | |
Share-based compensation | — |
| | 103.0 |
| | — |
| | — |
| | — |
| | — |
| | 103.0 |
| | — |
| | 103.0 |
|
Vested shares | — |
| | (170.2 | ) | | 170.2 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Exercise of options | — |
| | (14.2 | ) | | 27.2 |
| | — |
| | — |
| | — |
| | 13.0 |
| | — |
| | 13.0 |
|
Settlement of ESPP purchases | — |
| | 1.1 |
| | 4.0 |
| | — |
| | — |
| | — |
| | 5.1 |
| | — |
| | 5.1 |
|
Tax impact of share-based payment | — |
| | 19.4 |
| | — |
| | — |
| | — |
| | — |
| | 19.4 |
| | — |
| | 19.4 |
|
Purchase of shares | — |
| | — |
| | (182.0 | ) | | — |
| | — |
| | — |
| | (182.0 | ) | | — |
| | (182.0 | ) |
September 30, 2013 | 98.1 |
| | 6,080.1 |
| | (1,363.5 | ) | | 3,175.0 |
| | 106.3 |
| | 434.8 |
| | 8,530.8 |
| | 588.6 |
| | 9,119.4 |
|
See accompanying notes.
Invesco Ltd.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
1. ACCOUNTING POLICIES
Corporate Information
Invesco Ltd. (Parent) and all of its consolidated entities (collectively, the company or Invesco) provide retail and institutional clients with an array of global investment management capabilities. The company operates globally and its sole business is investment management.
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 the 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, 2013.
Basis of Accounting and Consolidation
In the opinion of management, the Condensed Consolidated Financial Statements reflect all adjustments, consisting of normal recurring accruals, which are necessary for the fair presentation of the financial condition and results of operations for the periods presented. All significant intercompany transactions, balances, revenues and expenses are eliminated upon consolidation.
The company provides investment management services to, and has transactions with, various private equity funds, real estate funds, fund-of-funds, collateralized loan obligations (CLOs), and other investment products sponsored by the company in the normal course of business for the investment of client assets. The company serves as the investment manager, making day-to-day investment decisions concerning the assets of these products. Certain of these entities, typically CLOs and funds that are structured as partnership entities (such as private equity funds, real estate funds, and fund-of-funds), are considered to be variable interest entities (VIEs) if the VIE criteria are met, otherwise, they are considered to be voting interest entities (VOEs). A VIE, in the context of the company and its managed funds, is a fund that does not have sufficient equity to finance its operations without additional subordinated financial support, or in certain cases a fund for which the risks and rewards of ownership are not directly linked to voting interests.
The Condensed Consolidated Financial Statements have been prepared in accordance with U.S. GAAP and consolidate the financial statements of the Parent and all of its controlled subsidiaries. Additionally, the Condensed Consolidated Financial Statements include the consolidation of certain managed funds that meet the definition of a VIE if the company has been deemed to be the primary beneficiary of those funds, any non-VIE general partnership or similar investments where the company is deemed to have control, and other managed investment products in which the company has a controlling financial interest. Control is deemed to be present when the Parent holds a majority voting interest or otherwise has the power to govern the financial and operating policies of the subsidiary managed fund so as to obtain the majority of the benefits from its activities. The company is generally considered to have a controlling financial interest in a managed fund when it owns a majority of the fund's outstanding shares, which may arise as a result of a seed money investment in a newly launched investment product from the time of initial launch to the time that the fund becomes majority-held by third-party investors, or in certain cases until the time that the company's investment becomes non-substantive.
Investment products that are consolidated are referred to in this Report as Consolidated Sponsored Investment Products (CSIP), which generally include consolidated sponsored investment products in which Invesco holds the majority of the voting rights or partnerships in which the company has substantive equity at risk but in which the other investors lack removal or liquidation rights, or Consolidated Investment Products (CIP), which includes consolidated nominally-held investment products. The distinction is important, as it differentiates the company's economic risk associated with each type of consolidated managed fund. The company's economic risk with respect to each investment in a CSIP and a CIP is limited to its equity ownership and any uncollected management and performance fees. Gains and losses arising from nominally-held CIP do not have a significant impact on the company's results of operations, liquidity, or capital resources. Gains and losses arising from majority-held CSIP could have a significant impact on the company's results of operations, as the company has greater economic risk associated with its investment. See Note 12, "Consolidated Sponsored Investment Products," and Note 13, "Consolidated Investment Products," for additional information regarding the impact of consolidation of investment products.
Noncontrolling interests in consolidated entities and retained earnings appropriated for investors in CIP represent the interests in certain entities consolidated by the company either because the company has control over the entity or has determined that it is the primary beneficiary, but of which the company does not own all of the entity's equity. To the extent that noncontrolling interests represent equity which is redeemable or convertible for cash or other assets at the option of the equity
holder, as is the case with the CSIP noncontrolling interests, these are deemed to represent temporary equity, and are classified as equity attributable to redeemable noncontrolling interests in CSIPs in the Condensed Consolidated Balance Sheets. Nonredeemable noncontrolling interests are classified as a component of permanent equity.
Use of Estimates
In preparing the Condensed Consolidated Financial Statements, management is required to make estimates and assumptions that affect reported revenues, expenses, assets, liabilities, and disclosure of contingent liabilities. The primary estimates and assumptions made relate to goodwill and intangible impairment, certain investments which are carried at fair value, and taxes. Additionally, estimation is involved when determining investment and debt valuation for certain CIP; however, changes in the fair values of these amounts are largely offset by noncontrolling interests. 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 Condensed Consolidated Financial Statements.
Accounting Pronouncements Recently Adopted and Pending Accounting Pronouncements
In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (ASU 2013-02)." ASU 2013-02 amends Topic 220 to require an entity to present current period reclassifications out of accumulated other comprehensive income and other amounts of current-period other comprehensive income, separately, for each component of other comprehensive income. ASU 2013-02 also requires an entity to provide information about the effects on net income of significant amounts reclassified out of each component of accumulated other comprehensive income, if those amounts are required under other Topics to be reclassified to net income in their entirety in the same reporting period. The amendments to Topic 220 made by ASU 2013-02 are effective for interim and annual periods beginning on or after December 15, 2012 and are reflected in these Condensed Consolidated Financial Statements.
In May 2014, the FASB issued Accounting Standards Update 2014-09, "Revenue from Contracts with Customers (ASU 2014-09," which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. ASU 2014-09 is effective for fiscal years and interim periods within those years beginning after December 15, 2016, and requires either a retrospective or a modified retrospective approach to adoption. Early adoption is not permitted. The company is currently evaluating the potential impact on its Consolidated Financial Statements, as well as the available transition methods.
In August 2014, the FASB issued Accounting Standard Update 2014-13, "Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity (ASU 2014-13)." ASU 2014-13 provides a measurement alternative for an entity that consolidates a collateralized financing entity (CFE) and has elected the fair value option for the financial assets and financial liabilities of such CFE. If elected, the reporting entity would measure both the financial assets and the financial liabilities of the CFE by using the more observable of the fair value of the financial assets and the fair value of the financial liabilities. The measurement alternative would remove any measurement difference previously recorded as net income (loss) attributable to noncontrolling interests in consolidated entities and as an adjustment to retained earnings appropriated for investors in CIP. ASU 2014-13 is effective for the company on January 1, 2016, and requires either a retrospective or a modified retrospective approach to adoption. The company is currently evaluating the potential impact on its Consolidated Financial Statements, as well as the available transition methods.
2. FAIR VALUE OF ASSETS AND LIABILITIES
The carrying value and fair value of financial instruments are presented in the below summary table. The fair value of financial instruments held by CSIP and CIP is presented in Note 12, "Consolidated Sponsored Investment Products" and Note 13, "Consolidated Investment Products," respectively. |
| | | | | | | | | | | | | |
| | | September 30, 2014 | | December 31, 2013 |
$ in millions | Footnote Reference | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
Cash and cash equivalents | | | 1,352.6 |
| | 1,352.6 |
| | 1,331.2 |
| | 1,331.2 |
|
Available-for-sale investments | 3 | | 261.0 |
| | 261.0 |
| | 244.1 |
| | 244.1 |
|
Trading investments | 3 | | 274.5 |
| | 274.5 |
| | 253.0 |
| | 253.0 |
|
Foreign time deposits * | 3 | | 29.6 |
| | 29.6 |
| | 28.8 |
| | 28.8 |
|
Assets held for policyholders | | | 1,509.2 |
| | 1,509.2 |
| | 1,416.0 |
| | 1,416.0 |
|
Policyholder payables * | | | (1,509.2 | ) | | (1,509.2 | ) | | (1,416.0 | ) | | (1,416.0 | ) |
UIT-related financial instruments sold, not yet purchased | | | (1.5 | ) | | (1.5 | ) | | (1.7 | ) | | (1.7 | ) |
Note payable | | | — |
| | — |
| | (0.3 | ) | | (0.3 | ) |
Long-term debt * | 4 | | (1,589.1 | ) | | (1,657.0 | ) | | (1,588.6 | ) | | (1,544.7 | ) |
____________ | |
* | These financial instruments are not measured at fair value on a recurring basis. See the indicated footnotes or most recently filed Form 10-K 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. |
A three-level valuation hierarchy exists for disclosure of fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
| |
• | Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| |
• | Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
| |
• | Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
An asset or liability's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
There are three types of valuation approaches: a market approach, which uses observable prices and other relevant information that is generated by market transactions involving identical or comparable assets or liabilities; an income approach, which uses valuation techniques to convert future amounts to a single, discounted present value amount; and a cost approach, which is based on the amount that currently would be required to replace the service capacity of an asset.
The following is a description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy.
Cash equivalents
Cash 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 seed money, co-investments in affiliated collateralized loan obligations (CLOs), and investments in other debt securities. Available-for-sale investments are measured at fair value. Gains or losses arising from changes in the fair value of available-for-sale investments are recognized in accumulated other comprehensive income, net of tax, until the investment is sold or otherwise disposed of, or if the investment is determined to be other-than-temporarily impaired, at which time the cumulative gain or loss previously reported in equity is included in income. The specific identification method is used to determine the realized gain or loss on securities sold or otherwise disposed.
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 or using an income approach through the use of certain observable and unobservable inputs. At September 30, 2014 and December 31, 2013, investments in CLOs were valued using third-party pricing information. Due to 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.
Trading investments
Trading investments include investments held to settle the company’s deferred compensation plan liabilities, certain seed money, as well as trading and investing activities in equity and debt securities entered into in its capacity as sponsor of UITs, and other equity securities. Trading securities are securities bought and held principally for the purpose of selling them in the near term. Trading investments are measured at fair value. Gains or losses arising from changes in the fair value of trading investments are included in income.
•Investments related to deferred compensation plans
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.
•Seed money
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.
•Other equity securities
Other equity securities consist of investments in publicly-traded equity securities. These securities are valued under the market approach through the 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.
•UIT-related equity and debt securities
The company invests in UIT-related equity and debt securities consisting of investments in corporate stock, UITs, and U.S. state and political subdivision securities. Each is discussed more fully below.
Corporate equities
The company temporarily holds investments in corporate equities for purposes of creating a UIT. Corporate equities are valued under the market approach through use of quoted prices on an exchange. To the extent these securities are actively traded, valuation adjustments are not applied and they are categorized within level 1 of the valuation hierarchy; otherwise, they are categorized in level 2.
UITs
The company may hold units of its sponsored UITs at period-end for sale in the primary market or secondary market. Equity UITs are valued under the market approach through use of quoted prices on an exchange. Fixed income UITs are valued using recently executed transaction prices, market price quotations (where observable), bond spreads, or credit default swap spreads. The spread data used is for the same maturities as the underlying bonds. If the spread data does not reference the issuers, then data that references comparable issuers is used. When observable price quotations are not available, fair value is determined based on cash flow models with yield curves, bond or single name credit default spreads, and recovery rates based on collateral value as key inputs. Depending on the nature of the inputs, these investments are categorized as level 1, 2, or 3.
Municipal securities
Municipal securities are valued using recently executed transaction prices, market price quotations (where observable), bond spreads, or credit default swap spreads. The spread data used is for the same maturities as the underlying bonds. If the spread data does not reference the issuers, then data that references comparable issuers is used. When observable price quotations are not available, fair value is determined based on cash flow models with
yield curves, bond or single name credit default spreads, and recovery rates based on collateral value as key inputs. Depending on the nature of the inputs, these investments are categorized as level 1, 2, or 3.
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 and are therefore not included in the tables below.
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 Condensed Consolidated Statements 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 Condensed Consolidated Balance Sheets. Fair values of derivative contracts in a liability position are included in other liabilities in the company’s Condensed Consolidated Balance Sheets. 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, 2014 there were 8 futures contracts with a notional value of $1.0 million (December 31, 2013: 2 open futures contracts with a notional value of $0.3 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 equities, exchange-traded funds, or U.S. treasury security positions. These transactions are recorded as financial instruments sold, not yet purchased and are included in accounts payable and accrued expenses in the company’s Condensed Consolidated Balance Sheets. 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.
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 company's Condensed Consolidated Balance Sheet as of September 30, 2014: |
| | | | | | | | | | | |
| As of September 30, 2014 |
$ 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) |
Assets: | | | | | | | |
Cash equivalents: | | | | | | | |
Money market funds | 582.4 |
| | 582.4 |
| | — |
| | — |
|
Investments:* | | | | | | | |
Available-for-sale: | | | | | | | |
Seed money | 250.6 |
| | 250.6 |
| | — |
| | — |
|
CLOs | 4.1 |
| | — |
| | — |
| | 4.1 |
|
Other debt securities | 6.3 |
| | — |
| | — |
| | 6.3 |
|
Trading investments: | | | | | | | |
Investments related to deferred compensation plans | 234.1 |
| | 234.1 |
| | — |
| | — |
|
Seed money | 10.1 |
| | 10.1 |
| | — |
| | — |
|
Other equity securities | 26.8 |
| | 26.8 |
| | — |
| | — |
|
UIT-related equity and debt securities: | | | | | | | |
Corporate equities | 1.4 |
| | 1.4 |
| | — |
| | — |
|
UITs | 1.9 |
| | 1.9 |
| | — |
| | — |
|
Municipal securities | 0.2 |
| | — |
| | 0.2 |
| | — |
|
Assets held for policyholders | 1,509.2 |
| | 1,509.2 |
| | — |
| | — |
|
Total | 2,627.1 |
| | 2,616.5 |
| | 0.2 |
| | 10.4 |
|
Liabilities: | | | | | | | |
UIT-related financial instruments sold, not yet purchased: | | | | | | | |
Corporate equities | (1.5 | ) | | (1.5 | ) | | — |
| | — |
|
Total | (1.5 | ) | | (1.5 | ) | | — |
| | — |
|
____________ | |
* | Foreign time deposits of $29.6 million are excluded from this table. Equity method and other investments of $315.8 million and $5.6 million, respectively, are also excluded from this table. These investments are not measured at fair value, in accordance with applicable accounting standards. |
The following table 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 company's Condensed Consolidated Balance Sheet as of December 31, 2013: |
| | | | | | | | | | | |
| As of December 31, 2013 |
$ 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) |
Assets: | | | | | | | |
Cash equivalents: | | | | | | | |
Money market funds | 447.8 |
| | 447.8 |
| | — |
| | — |
|
Investments:* | | | | | | | |
Available-for-sale: | | | | | | | |
Seed money | 233.8 |
| | 233.8 |
| | — |
| | — |
|
CLOs | 4.0 |
| | — |
| | — |
| | 4.0 |
|
Other debt securities | 6.3 |
| | — |
| | — |
| | 6.3 |
|
Trading investments: | | | | | | | |
Investments related to deferred compensation plans | 249.7 |
| | 249.7 |
| | — |
| | — |
|
UIT-related equity and debt securities: | | | | | | | |
Corporate equities | 2.1 |
| | 2.1 |
| | — |
| | — |
|
UITs | 1.2 |
| | 1.2 |
| | — |
| | — |
|
Assets held for policyholders | 1,416.0 |
| | 1,416.0 |
| | — |
| | — |
|
Total | 2,360.9 |
| | 2,350.6 |
| | — |
| | 10.3 |
|
Liabilities: | | | | | | | |
UIT-related financial instruments sold, not yet purchased: | | | | | | | |
Corporate equities | (1.7 | ) | | (1.7 | ) | | — |
| | — |
|
Note payable | (0.3 | ) | | — |
| | — |
| | (0.3 | ) |
Total | (2.0 | ) | | (1.7 | ) | | — |
| | (0.3 | ) |
____________ | |
* | Foreign time deposits of $28.8 million are excluded from this table. Equity method and other investments of $308.2 million and $5.6 million, respectively, are also excluded from this table. These investments are not measured at fair value, in accordance with applicable accounting standards. |
The following table shows a reconciliation of the beginning and ending fair value measurements for level 3 assets and liabilities during the three and nine months ended ended September 30, 2014 and September 30, 2013, which are valued using significant unobservable inputs: |
| | | | | | | | | | | | | | | | | |
| Three months ended September 30, 2014 | | Nine months ended September 30, 2014 |
$ in millions | CLOs | | Other Debt Securities | | Note Payable | | CLOs | | Other Debt Securities | | Note Payable |
Beginning balance | 4.1 |
| | 6.3 |
| | (0.3 | ) | | 4.0 |
| | 6.3 |
| | (0.3 | ) |
Returns of capital | (0.1 | ) | | — |
| | — |
| | (0.3 | ) | | — |
| | — |
|
Settlements | — |
| | — |
| | 0.3 |
| | — |
| | — |
| | 0.3 |
|
Net unrealized gains and losses included in accumulated other comprehensive income/(loss)* | 0.1 |
| | — |
| | — |
| | 0.4 |
| | — |
| | — |
|
Ending balance | 4.1 |
| | 6.3 |
| | — |
| | 4.1 |
| | 6.3 |
| | — |
|
|
| | | | | | | | | | | | | | | | | |
| Three months ended September 30, 2013 | | Nine months ended September 30, 2013 |
$ in millions | CLOs | | Other Debt Securities | | Note Payable | | CLOs | | Other Debt Securities | | Note Payable |
Beginning balance | 2.4 |
| | 6.3 |
| | (1.2 | ) | | 2.4 |
| | 6.3 |
| | (3.4 | ) |
Settlements | (0.1 | ) | | — |
| | — |
| | (0.2 | ) | | — |
| | 1.7 |
|
Net unrealized gains and losses included in other gains and losses* | — |
| | — |
| | — |
| | — |
| | — |
| | 0.1 |
|
Net unrealized gains and losses included in accumulated other comprehensive income/(loss)* | (0.1 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
Foreign exchange gains/(losses) | — |
| | — |
| | — |
| | — |
| | — |
| | 0.4 |
|
Ending balance | 2.2 |
| | 6.3 |
| | (1.2 | ) | | 2.2 |
| | 6.3 |
| | (1.2 | ) |
_______________* These unrealized gains and losses are attributable to balances still held at the respective period ends.
3. INVESTMENTS
The disclosures below include details of the company's investments. Investments held by CSIP are detailed in Note 12, "Consolidated Sponsored Investment Products." Investments held by CIP are detailed in Note 13, "Consolidated Investment Products." |
| | | | | |
$ in millions | September 30, 2014 | | December 31, 2013 |
Available-for-sale investments: | | | |
Seed money | 250.6 |
| | 233.8 |
|
CLOs | 4.1 |
| | 4.0 |
|
Other debt securities | 6.3 |
| | 6.3 |
|
Trading investments: | | | |
Investments related to deferred compensation plans | 234.1 |
| | 249.7 |
|
Seed money | 10.1 |
| | — |
|
Other equity securities | 26.8 |
| | — |
|
UIT-related equity and debt securities | 3.5 |
| | 3.3 |
|
Equity method investments | 315.8 |
| | 308.2 |
|
Foreign time deposits | 29.6 |
| | 28.8 |
|
Other | 5.6 |
| | 5.6 |
|
Total investments | 886.5 |
| | 839.7 |
|
Available for sale investments
Realized gains and losses recognized in the Condensed Consolidated Statements of Income during the period from investments classified as available-for-sale are as follows: |
| | | | | | | | | | | | | | | | | |
| For the three months ended September 30, 2014 | | For the nine months ended September 30, 2014 |
$ in millions | Proceeds from Sales | | Gross Realized Gains | | Gross Realized Losses | | Proceeds from Sales | | Gross Realized Gains | | Gross Realized Losses |
Seed money | 25.6 |
| | 1.8 |
| | — |
| | 100.5 |
| | 12.8 |
| | (0.2 | ) |
CLOs | 0.1 |
| | — |
| | — |
| | 0.3 |
| | — |
| | — |
|
|
| | | | | | | | | | | | | | | | | |
| For the three months ended September 30, 2013 | | For the nine months ended September 30, 2013 |
$ in millions | Proceeds from Sales | | Gross Realized Gains | | Gross Realized Losses | | Proceeds from Sales | | Gross Realized Gains | | Gross Realized Losses |
Seed money | 0.2 |
| | 1.0 |
| | — |
| | 23.1 |
| | 2.7 |
| | (0.3 | ) |
CLOs | 0.1 |
| | — |
| | — |
| | 0.2 |
| | — |
| | — |
|
Upon the sale of available-for-sale securities, net realized gains of $1.8 million and $12.6 million were transferred from accumulated other comprehensive income into the Condensed Consolidated Statements of Income during the three and nine months ended September 30, 2014, respectively (three and nine months ended September 30, 2013: $1.0 million and $2.4 million, respectively). The specific identification method is used to determine the realized gain or loss on securities sold or otherwise disposed.
Gross unrealized holding gains and losses recognized in other accumulated comprehensive income from available-for-sale investments are presented in the table below: |
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2014 | | December 31, 2013 |
$ in millions | Cost | | Gross Unrealized Holding Gains | | Gross Unrealized Holding Losses | | Fair Value | | Cost | | Gross Unrealized Holding Gains | | Gross Unrealized Holding Losses | | Fair Value |
Seed money | 240.8 |
| | 12.6 |
| | (2.8 | ) | | 250.6 |
| | 215.7 |
| | 19.0 |
| | (0.9 | ) | | 233.8 |
|
CLOs | 3.4 |
| | 0.7 |
| | — |
| | 4.1 |
| | 3.8 |
| | 0.2 |
| | — |
| | 4.0 |
|
Other debt securities | 6.3 |
| | — |
| | — |
| | 6.3 |
| | 6.3 |
| | — |
| | — |
| | 6.3 |
|
| 250.5 |
| | 13.3 |
| | (2.8 | ) | | 261.0 |
| | 225.8 |
| | 19.2 |
| | (0.9 | ) | | 244.1 |
|
At September 30, 2014, 129 seed money funds (December 31, 2013: 149 seed money funds) included gross unrealized holding losses. The following table provides a breakdown of the unrealized losses. |
| | | | | | | | | | | |
| September 30, 2014 | | December 31, 2013 |
$ in millions | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses |
Less than 12 months | 57.7 |
| | (2.2 | ) | | 69.0 |
| | (0.8 | ) |
12 months or greater | 4.7 |
| | (0.6 | ) | | 0.2 |
| | (0.1 | ) |
Total | 62.4 |
| | (2.8 | ) | | 69.2 |
| | (0.9 | ) |
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 nine months ended September 30, 2014 (nine months ended September 30, 2013: none). The company reviewed 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 and concluded that the gross unrealized losses on these securities did not represent other-than-temporary impairments. The securities are expected to recover their value over time and the company has the intent and ability to hold the securities until this recovery occurs. During the nine months ended September 30, 2014 and 2013, there were no charges to other comprehensive income from other-than-temporary impairment related to non-credit related factors.
At September 30, 2014, $3.2 million available-for-sale debt securities mature in one year through five years, and $7.2 million after five years through ten years.
Trading investments
The portion of trading gains and losses for the three and nine months ended September 30, 2014, that relates to trading securities still held at September 30, 2014, was a $3.1 million net loss and $2.0 million net gain, respectively (three and nine months ended September 30, 2013: $9.8 million net gain and $23.8 million net gain, respectively).
4. LONG-TERM DEBT
The disclosures below include details of the company's debt. Debt of CIP is detailed in Note 13, “Consolidated Investment Products.” |
| | | | | | | | | | | |
| September 30, 2014 | | December 31, 2013 |
$ in millions | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
Unsecured Senior Notes*: | | | | | | | |
$600 million 3.125% - due November 30, 2022 | 599.6 |
| | 591.3 |
| | 599.6 |
| | 551.5 |
|
$600 million 4.000% - due January 30, 2024 | 596.1 |
| | 617.8 |
| | 595.8 |
| | 593.2 |
|
$400 million 5.375% - due November 30, 2043 | 393.4 |
| | 447.9 |
| | 393.2 |
| | 400.0 |
|
Long-term debt | 1,589.1 |
| | 1,657.0 |
| | 1,588.6 |
| | 1,544.7 |
|
____________
| |
* | 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 issuer of the senior notes is an indirect 100% owned finance subsidiary of Invesco Ltd. (the Parent), and the Parent fully and unconditionally guaranteed the securities. The requirement of certain subsidiaries of ours to maintain minimum levels of capital and other similar provisions of applicable law may have the effect of limiting withdrawals of capital, repayment of intercompany loans and payment of dividends by such entities.
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.
At September 30, 2014, the company's outstanding debt of $1,589.1 million matures in periods greater than five years from the balance sheet date.
At September 30, 2014, the outstanding balance on the $1.25 billion credit facility was zero (December 31, 2013: zero). The credit facility has a maturity of December 17, 2018. 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 higher of the available credit ratings of the company or its indirect subsidiary Invesco Finance PLC. Based on credit ratings as of September 30, 2014 of the company, the applicable margin for LIBOR-based loans was 1.00% and for base rate loans was 0.00%. 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 higher of the available credit ratings of the company or its indirect subsidiary Invesco Finance PLC. Based on credit ratings as of September 30, 2014, the annual facility fee was equal to 0.125%.
The credit agreement governing the credit facility contains customary restrictive covenants on the company and its subsidiaries. Restrictive covenants in the credit agreement include, but are not limited to: prohibitions on creating, incurring or assuming any liens; entering into merger arrangements; selling, leasing, transferring or otherwise disposing of assets; making a material change in the nature of the business; making a significant accounting policy change in certain situations; entering into transactions with affiliates; and incurring indebtedness through the subsidiaries. Many of these restrictions are subject to certain minimum thresholds and exceptions. Financial covenants under the credit agreement include: (i) the quarterly maintenance of a debt/EBITDA leverage ratio, as defined in the credit agreement, of not greater than 3.00:1.00, (ii) a coverage ratio (EBITDA, as defined in the credit agreement/interest payable for the four consecutive fiscal quarters ended before the date of determination) of not less than 4.00:1.00.
The credit agreement governing the credit facility also contains customary provisions regarding events of default which could result in an acceleration or increase in amounts due, including (subject to certain materiality thresholds and grace periods) payment default, failure to comply with covenants, material inaccuracy of representation or warranty, bankruptcy or insolvency proceedings, change of control, certain judgments, ERISA matters, cross-default to other debt agreements,
governmental action prohibiting or restricting the company or its subsidiaries in a manner that has a material adverse effect and failure of certain guaranty obligations. The company is in compliance with all regulatory minimum net capital requirements.
The lenders (and their respective affiliates) may have provided, and may in the future provide, investment banking, cash management, underwriting, lending, commercial banking, leasing, foreign exchange, trust or other advisory services to the company and its subsidiaries and affiliates. These parties may have received, and may in the future receive, customary compensation for these services.
The company maintains approximately $39.3 million in letters of credit from a variety of banks. The letters of credit are generally one-year automatically-renewable facilities and are maintained for various commercial reasons.
5. SHARE CAPITAL
The number of common shares and common share equivalents issued are represented in the table below: |
| | | | | |
In millions | Nine months ended September 30, 2014 | | Nine months ended September 30, 2013 |
Common shares issued | 490.4 |
| | 490.4 |
|
Less: Treasury shares for which dividend and voting rights do not apply | (59.6 | ) | | (47.2 | ) |
Common shares outstanding | 430.8 |
| | 443.2 |
|
During the three and nine months ended September 30, 2014, the company repurchased 1.3 million and 6.2 million shares, respectively (three and nine months ended September 30, 2013: zero and 3.8 million, respectively) in the market at a cost of $50.0 million and $219.6 million, respectively (three and nine months ended September 30, 2013: zero and $120.5 million cost, respectively). Separately, an aggregate of 2.0 million shares were withheld on vesting events during the nine months ended September 30, 2014 to meet employees' withholding tax obligations (September 30, 2013: 2.3 million). The fair value of these shares withheld at the respective withholding dates was $68.4 million (September 30, 2013: $61.5 million). Approximately $1,276.8 million remained authorized under the company's share repurchase plan at September 30, 2014 (September 30, 2013: $346.5 million).
Total treasury shares at September 30, 2014 were 68.6 million (September 30, 2013: 57.2 million), including 9.0 million unvested restricted stock awards (September 30, 2013: 10.0 million) for which dividend and voting rights apply. The market price of common shares at September 30, 2014 was $39.48. The total market value of the company's 68.6 million treasury shares was $2.7 billion at September 30, 2014.
6. OTHER COMPREHENSIVE INCOME/(LOSS)
The components of accumulated other comprehensive income/(loss) were as follows: |
| | | | | | | | | | | | | | |
| For the three months ended September 30, 2014 |
$ in millions | Foreign currency translation | | Employee benefit plans | | Equity method investments | | Available-for-sale investments | | Total |
Other comprehensive income/(loss) before tax: | | | | | | | | | |
Currency translation differences on investments in foreign subsidiaries | (255.0 | ) | | — |
| | — |
| | — |
| | (255.0 | ) |
Actuarial (loss)/gain related to employee benefit plans | — |
| | 5.5 |
| | — |
| | — |
| | 5.5 |
|
Reclassification of amortization of prior service cost/(credit) into employee compensation expenses | — |
| | (0.5 | ) | | — |
| | — |
| | (0.5 | ) |
Reclassification of amortization of actuarial (gain)/loss into employee compensation expenses | — |
| | 0.5 |
| | — |
| | — |
| | 0.5 |
|
Share of other comprehensive income/(loss) of equity method investments | — |
| | — |
| | 0.4 |
| | — |
| | 0.4 |
|
Unrealized(losses)/gains on available-for-sale investments | — |
| | — |
| | — |
| | (6.2 | ) | | (6.2 | ) |
Reclassification of net (gains)/losses realized on available-for-sale investments included in other gains and losses, net | — |
| | — |
| | — |
| | (1.8 | ) | | (1.8 | ) |
Other comprehensive income/(loss) before tax | (255.0 | ) | | 5.5 |
| | 0.4 |
| | (8.0 | ) | | (257.1 | ) |
Income tax related to items of other comprehensive income/(loss): | | | | | | | | | |
Tax on actuarial (loss)/gain related to employee benefit plans | — |
| | (1.1 | ) | | — |
| | — |
| | (1.1 | ) |
Reclassification of tax on amortization of prior service cost/(credit) into income tax provision | — |
| | 0.1 |
| | — |
| | — |
| | 0.1 |
|
Reclassification of tax on amortization of actuarial (loss)/gain into income tax provision | — |
| | (0.1 | ) | | — |
| | — |
| | (0.1 | ) |
Tax on net unrealized gains/(losses) on available-for-sale investments | — |
| | — |
| | — |
| | 2.0 |
| | 2.0 |
|
Reclassification of tax on net (gains)/losses on available-for-sale investments | — |
| | — |
| | — |
| | (0.6 | ) | | (0.6 | ) |
Total income tax benefit/(expense) related to items of other comprehensive income | — |
| | (1.1 | ) | | — |
| | 1.4 |
| | 0.3 |
|
Accumulated other comprehensive income/(loss), net of tax: | | | | | | | | | |
Beginning balance | 570.1 |
| | (79.7 | ) | | 5.4 |
| | 14.1 |
| | 509.9 |
|
Other comprehensive income/(loss), net of tax: | (255.0 | ) | | 4.4 |
| | 0.4 |
| | (6.6 | ) | | (256.8 | ) |
Other comprehensive (income)/loss attributable to noncontrolling interests | (0.2 | ) | | — |
| | — |
| | — |
| | (0.2 | ) |
Ending balance | 314.9 |
| | (75.3 | ) | | 5.8 |
| | 7.5 |
| | 252.9 |
|
|
| | | | | | | | | | | | | | |
| For the nine months ended September 30, 2014 |
$ in millions | Foreign currency translation | | Employee benefit plans | | Equity method investments | | Available-for-sale investments | | Total |
Other comprehensive income/(loss) before tax: | | | | | | | | | |
Currency translation differences on investments in foreign subsidiaries | (177.7 | ) | | — |
| | — |
| | — |
| | (177.7 | ) |
Actuarial (loss)/gain related to employee benefit plans | — |
| | 2.9 |
| | — |
| | — |
| | 2.9 |
|
Reclassification of amortization of prior service cost/(credit) into employee compensation expenses | — |
| | (1.4 | ) | | — |
| | — |
| | (1.4 | ) |
Reclassification of amortization of actuarial (gain)/loss into employee compensation expenses | — |
| | 1.7 |
| | — |
| | — |
| | 1.7 |
|
Share of other comprehensive income/(loss) of equity method investments | — |
| | — | |