e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2011
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-13908
Invesco Ltd.
(Exact Name of Registrant as Specified in Its Charter)
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Bermuda
(State or Other Jurisdiction of
Incorporation or Organization)
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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)
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30309
(Zip Code) |
Registrants telephone number, including area code: (404) 892-0896
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class |
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Name of Exchange on Which Registered |
Common Shares, $0.20 par value per share
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New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
(Do not check if a smaller reporting company)
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act.) Yes o No þ
As of June 30, 2011, the most recent practicable date, 450,876,739 of the companys common
shares par value $0.20 per share, were outstanding.
TABLE OF CONTENTS
We include cross references to captions elsewhere in this Quarterly Report on Form 10-Q, which
we refer to as this Report, where you can find related additional information. The following
table of contents tells you where to find these captions.
2
Item 1. Financial Statements
Invesco Ltd.
Condensed Consolidated Balance Sheets
(Unaudited)
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As of |
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$ in millions, except share data |
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June 30, 2011 |
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December 31, 2010 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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621.5 |
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740.5 |
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Cash and cash equivalents of consolidated investment products |
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622.2 |
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636.7 |
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Unsettled fund receivables |
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674.2 |
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513.4 |
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Accounts receivable |
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465.1 |
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424.7 |
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Accounts receivable of consolidated investment products |
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130.1 |
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158.8 |
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Investments |
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352.0 |
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308.8 |
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Prepaid assets |
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62.7 |
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64.0 |
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Other current assets |
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124.6 |
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101.8 |
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Deferred tax asset, net |
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33.1 |
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30.4 |
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Assets held for policyholders |
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1,373.2 |
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1,295.4 |
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Total current assets |
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4,458.7 |
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4,274.5 |
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Non-current assets: |
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Investments |
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194.1 |
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164.4 |
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Investments of consolidated investment products |
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7,349.7 |
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7,206.0 |
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Security deposit assets and receivables |
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152.0 |
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146.3 |
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Other non-current assets |
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26.9 |
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20.9 |
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Deferred sales commissions |
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43.2 |
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42.2 |
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Property and equipment, net |
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281.8 |
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272.4 |
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Intangible assets, net |
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1,318.6 |
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1,337.2 |
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Goodwill |
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7,090.6 |
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6,980.2 |
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Total non-current assets |
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16,456.9 |
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16,169.6 |
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Total assets |
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20,915.6 |
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20,444.1 |
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LIABILITIES AND EQUITY |
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Current liabilities: |
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Current maturities of total debt |
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215.1 |
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Unsettled fund payables |
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667.4 |
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504.8 |
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Income taxes payable |
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45.4 |
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72.2 |
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Other current liabilities |
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670.7 |
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905.7 |
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Other current liabilities of consolidated investment products |
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392.8 |
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486.4 |
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Policyholder payables |
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1,373.2 |
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1,295.4 |
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Total current liabilities |
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3,364.6 |
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3,264.5 |
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Non-current liabilities: |
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Long-term debt |
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1,368.6 |
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1,315.7 |
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Long-term debt of consolidated investment products |
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6,292.7 |
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5,865.4 |
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Deferred tax liabilities, net |
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269.6 |
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229.0 |
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Security deposits payable |
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152.0 |
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146.3 |
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Other non-current liabilities |
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270.3 |
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262.3 |
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Total non-current liabilities |
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8,353.2 |
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7,818.7 |
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Total liabilities |
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11,717.8 |
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11,083.2 |
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Commitments and contingencies (See Note 10) |
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Equity: |
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Equity attributable to common shareholders: |
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Common shares ($0.20 par value; 1,050.0 million authorized; 490.4 million
shares issued as of June 30, 2011 and December 31, 2010) |
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98.1 |
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98.1 |
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Additional paid-in-capital |
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6,152.6 |
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6,262.6 |
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Treasury shares |
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(1,203.5 |
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(991.5 |
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Retained earnings |
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2,156.4 |
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1,904.4 |
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Retained earnings appropriated for investors in consolidated investment products |
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340.2 |
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495.5 |
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Accumulated other comprehensive income, net of tax |
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644.5 |
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495.5 |
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Total equity attributable to common shareholders |
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8,188.3 |
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8,264.6 |
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Equity attributable to noncontrolling interests in consolidated entities |
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1,009.5 |
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1,096.3 |
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Total equity |
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9,197.8 |
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9,360.9 |
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Total liabilities and equity |
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20,915.6 |
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20,444.1 |
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See accompanying notes.
3
Invesco Ltd.
Condensed Consolidated Statements of Income
(Unaudited)
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Three months Ended |
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Six months Ended |
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June 30, |
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June 30, |
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$ in millions, except per share data |
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2011 |
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2010 |
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2011 |
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2010 |
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Operating revenues: |
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Investment management fees |
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819.1 |
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627.9 |
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1,611.4 |
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1,221.4 |
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Service and distribution fees |
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211.4 |
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139.4 |
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410.1 |
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251.9 |
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Performance fees |
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7.6 |
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3.5 |
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11.4 |
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4.9 |
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Other |
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31.9 |
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16.2 |
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64.4 |
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27.9 |
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Total operating revenues |
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1,070.0 |
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787.0 |
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2,097.3 |
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1,506.1 |
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Operating expenses: |
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Employee compensation |
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318.3 |
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260.5 |
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624.2 |
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498.1 |
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Third-party distribution, service and advisory |
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341.8 |
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238.3 |
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666.3 |
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446.5 |
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Marketing |
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26.1 |
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17.6 |
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51.8 |
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33.3 |
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Property, office and technology |
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61.9 |
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55.8 |
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125.9 |
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109.3 |
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General and administrative |
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77.6 |
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64.1 |
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151.2 |
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114.1 |
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Transaction and integration |
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11.3 |
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79.3 |
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19.2 |
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96.5 |
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Total operating expenses |
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837.0 |
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715.6 |
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1,638.6 |
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1,297.8 |
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Operating income |
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233.0 |
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71.4 |
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458.7 |
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208.3 |
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Other income/(expense): |
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Equity in earnings of unconsolidated affiliates |
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10.8 |
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10.4 |
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17.5 |
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16.2 |
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Interest and dividend income |
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2.4 |
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1.8 |
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4.5 |
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3.4 |
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Interest income of consolidated investment products |
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79.8 |
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53.1 |
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154.0 |
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105.6 |
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Gains/(losses) of consolidated investment products, net |
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(64.7 |
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187.2 |
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(150.2 |
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290.3 |
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Interest expense |
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(16.0 |
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(14.1 |
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(32.2 |
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(26.5 |
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Interest expense of consolidated investment products |
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(46.5 |
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(25.6 |
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(86.5 |
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(46.4 |
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Other gains and losses, net |
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6.0 |
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(9.3 |
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13.9 |
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(11.4 |
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Income before income taxes |
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204.8 |
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274.9 |
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379.7 |
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539.5 |
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Income tax provision |
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(75.4 |
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(36.7 |
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(151.0 |
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(86.8 |
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Net income |
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129.4 |
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238.2 |
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228.7 |
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452.7 |
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(Gains)/losses attributable to noncontrolling interests
in consolidated entities, net |
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53.6 |
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(197.4 |
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131.8 |
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(316.9 |
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Net income attributable to common shareholders |
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183.0 |
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40.8 |
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360.5 |
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135.8 |
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Earnings per share: |
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basic |
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$ |
0.39 |
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$ |
0.09 |
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$ |
0.77 |
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$ |
0.30 |
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diluted |
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$ |
0.39 |
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$ |
0.09 |
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$ |
0.77 |
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$ |
0.30 |
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Dividends declared per share |
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$ |
0.1225 |
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$ |
0.1100 |
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$ |
0.2325 |
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$ |
0.2125 |
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See accompanying notes.
4
Invesco Ltd.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
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Six months ended June 30, |
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$ in millions |
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2011 |
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2010 |
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Operating activities: |
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Net income |
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228.7 |
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452.7 |
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Adjustments to reconcile net income to net cash used in operating activities: |
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Amortization and depreciation |
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60.0 |
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39.1 |
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Share-based compensation expense |
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56.8 |
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55.5 |
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Purchase of trading investments |
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(5,556.8 |
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(1,360.6 |
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Proceeds from sale of trading investments |
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5,516.5 |
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1,298.1 |
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Other gains and losses, net |
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(13.9 |
) |
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11.4 |
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(Gains)/losses of consolidated investment products, net |
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150.2 |
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(290.3 |
) |
Tax benefit from share-based compensation |
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72.2 |
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44.8 |
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Excess tax benefits from share-based compensation |
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(15.1 |
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(12.3 |
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Equity in earnings of unconsolidated affiliates |
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(17.5 |
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(16.2 |
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Dividends from unconsolidated affiliates |
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3.0 |
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2.3 |
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Changes in operating assets and liabilities: |
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(Increase)/decrease in cash held by consolidated investment products |
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31.5 |
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(92.5 |
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(Increase)/decrease in receivables |
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(260.4 |
) |
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(288.3 |
) |
Increase/(decrease) in payables |
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(109.2 |
) |
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92.9 |
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Net cash provided by/(used in) operating activities |
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146.0 |
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(63.4 |
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Investing activities: |
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Purchase of property and equipment |
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(40.7 |
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(35.7 |
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Purchase of available-for-sale investments |
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(28.0 |
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(20.4 |
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Proceeds from sale of available-for-sale investments |
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36.6 |
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11.2 |
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Purchase of investments by consolidated investment products |
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(2,075.3 |
) |
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(1,090.2 |
) |
Proceeds from sale of investments by consolidated investment products |
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2,300.9 |
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1,241.1 |
|
Returns of capital in investments of consolidated investment products |
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75.5 |
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44.4 |
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Purchase of other investments |
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(61.4 |
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(36.3 |
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Proceeds from sale of other investments |
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23.7 |
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18.2 |
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Returns of capital and distributions from unconsolidated partnership investments |
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18.9 |
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20.8 |
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Acquisition of businesses |
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(14.9 |
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(712.2 |
) |
Acquisition earn-out payments |
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(5.4 |
) |
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Net cash provided by/(used in) investing activities |
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229.9 |
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(559.1 |
) |
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Financing activities: |
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Proceeds from exercises of share options |
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9.9 |
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6.2 |
|
Purchases of treasury shares |
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(333.0 |
) |
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Dividends paid |
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(108.5 |
) |
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(93.7 |
) |
Excess tax benefits from share-based compensation |
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|
15.1 |
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12.3 |
|
Capital invested into consolidated investment products |
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32.5 |
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2.0 |
|
Capital distributed by consolidated investment products |
|
|
(134.9 |
) |
|
|
(40.1 |
) |
Repayments of debt of consolidated investment products |
|
|
(246.3 |
) |
|
|
(102.4 |
) |
Net borrowings/(repayments) under credit facility |
|
|
268.0 |
|
|
|
650.0 |
|
Acquisition of interest in consolidated investment products |
|
|
(12.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in)/provided by financing activities |
|
|
(509.5 |
) |
|
|
434.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease)/increase in cash and cash equivalents |
|
|
(133.6 |
) |
|
|
(188.2 |
) |
Foreign exchange movement on cash and cash equivalents |
|
|
14.6 |
|
|
|
(18.2 |
) |
Cash and cash equivalents, beginning of period |
|
|
740.5 |
|
|
|
762.0 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
|
621.5 |
|
|
|
555.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information: |
|
|
|
|
|
|
|
|
Interest paid |
|
|
(27.2 |
) |
|
|
(21.6 |
) |
Interest received |
|
|
4.5 |
|
|
|
3.2 |
|
Taxes paid |
|
|
(109.9 |
) |
|
|
(79.5 |
) |
See accompanying notes.
5
Invesco Ltd.
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Attributable to Common Shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained Earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Appropriated for |
|
|
|
|
|
|
|
|
|
|
Noncontrolling |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investors in |
|
|
Accumulated Other |
|
|
Total Equity |
|
|
Interests in |
|
|
|
|
|
|
Common |
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
Comprehensive |
|
|
Attributable to |
|
|
Consolidated |
|
|
|
|
$ in millions |
|
Shares |
|
|
Paid-in-Capital |
|
|
Treasury Shares |
|
|
Retained Earnings |
|
|
Investment Products |
|
|
Income |
|
|
Common Shareholders |
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
360.5 |
|
|
|
|
|
|
|
|
|
|
|
360.5 |
|
|
|
(131.8 |
) |
|
|
228.7 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation differences
on investments in overseas
subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
145.7 |
|
|
|
145.7 |
|
|
|
6.6 |
|
|
|
152.3 |
|
Change in accumulated OCI
related to employee benefit
plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.2 |
|
|
|
10.2 |
|
|
|
|
|
|
|
10.2 |
|
Change in accumulated OCI of
equity method investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.1 |
) |
|
|
(1.1 |
) |
|
|
|
|
|
|
(1.1 |
) |
Change in net unrealized gains
on available-for-sale
investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.6 |
) |
|
|
(2.6 |
) |
|
|
|
|
|
|
(2.6 |
) |
Tax impacts of changes in
accumulated other comprehensive
income balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.2 |
) |
|
|
(3.2 |
) |
|
|
|
|
|
|
(3.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
509.5 |
|
|
|
(125.2 |
) |
|
|
384.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) reclassified to
appropriated retained earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(170.2 |
) |
|
|
|
|
|
|
(170.2 |
) |
|
|
170.2 |
|
|
|
|
|
Currency translation differences on
investments in overseas
subsidiaries reclassified to
appropriated retained earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.9 |
|
|
|
|
|
|
|
14.9 |
|
|
|
(14.9 |
) |
|
|
|
|
Change in noncontrolling interests
in consolidated entities, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(116.9 |
) |
|
|
(116.9 |
) |
Dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(108.5 |
) |
|
|
|
|
|
|
|
|
|
|
(108.5 |
) |
|
|
|
|
|
|
(108.5 |
) |
Employee share plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation |
|
|
|
|
|
|
56.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56.8 |
|
|
|
|
|
|
|
56.8 |
|
Vested shares |
|
|
|
|
|
|
(175.6 |
) |
|
|
175.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of options |
|
|
|
|
|
|
(6.3 |
) |
|
|
16.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.9 |
|
|
|
|
|
|
|
9.9 |
|
Tax impact of share-based payment |
|
|
|
|
|
|
15.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.1 |
|
|
|
|
|
|
|
15.1 |
|
Purchase of shares |
|
|
|
|
|
|
|
|
|
|
(403.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(403.8 |
) |
|
|
|
|
|
|
(403.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011 |
|
|
98.1 |
|
|
|
6,152.6 |
|
|
|
(1,203.5 |
) |
|
|
2,156.4 |
|
|
|
340.2 |
|
|
|
644.5 |
|
|
|
8,188.3 |
|
|
|
1,009.5 |
|
|
|
9,197.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Attributable to Common Shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained Earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Appropriated for |
|
|
|
|
|
|
|
|
|
|
Non-Controlling |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investors in |
|
|
Accumulated Other |
|
|
Total Equity |
|
|
Interests in |
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
Comprehensive |
|
|
Attributable to |
|
|
Consolidated |
|
|
|
|
$ in millions |
|
Common Shares |
|
|
Paid-in-Capital |
|
|
Treasury Shares |
|
|
Retained Earnings |
|
|
Investment Products |
|
|
Income |
|
|
Common Shareholders |
|
|
Entities |
|
|
Total Equity |
|
January 1, 2010 |
|
|
91.9 |
|
|
|
5,688.4 |
|
|
|
(892.4 |
) |
|
|
1,631.4 |
|
|
|
|
|
|
|
393.6 |
|
|
|
6,912.9 |
|
|
|
707.9 |
|
|
|
7,620.8 |
|
Adoption of FASB Statement No. 167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.2 |
|
|
|
274.3 |
|
|
|
(5.2 |
) |
|
|
274.3 |
|
|
|
|
|
|
|
274.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2010, as adjusted |
|
|
91.9 |
|
|
|
5,688.4 |
|
|
|
(892.4 |
) |
|
|
1,636.6 |
|
|
|
274.3 |
|
|
|
388.4 |
|
|
|
7,187.2 |
|
|
|
707.9 |
|
|
|
7,895.1 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135.8 |
|
|
|
|
|
|
|
|
|
|
|
135.8 |
|
|
|
316.9 |
|
|
|
452.7 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation differences
on investments in overseas
subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(186.1 |
) |
|
|
(186.1 |
) |
|
|
37.1 |
|
|
|
(149.0 |
) |
Change in accumulated OCI
related to employee benefit
plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.0 |
|
|
|
7.0 |
|
|
|
|
|
|
|
7.0 |
|
Change in net unrealized gains
on available-for-sale
investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.0 |
|
|
|
6.0 |
|
|
|
|
|
|
|
6.0 |
|
Tax impacts of changes in
accumulated other comprehensive
income balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.7 |
) |
|
|
(1.7 |
) |
|
|
|
|
|
|
(1.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39.0 |
) |
|
|
354.0 |
|
|
|
315.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income reclassified to
appropriated retained earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
277.4 |
|
|
|
|
|
|
|
277.4 |
|
|
|
(277.4 |
) |
|
|
|
|
Currency translation differences on
investments in overseas
subsidiaries reclassified to
appropriated retained earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37.1 |
|
|
|
|
|
|
|
37.1 |
|
|
|
(37.1 |
) |
|
|
|
|
Change in noncontrolling interests
in consolidated entities, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36.2 |
) |
|
|
(36.2 |
) |
Business Combination |
|
|
2.3 |
|
|
|
566.9 |
|
|
|
|
|
|
|
|
|
|
|
130.7 |
|
|
|
|
|
|
|
699.9 |
|
|
|
|
|
|
|
699.9 |
|
Dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(93.7 |
) |
|
|
|
|
|
|
|
|
|
|
(93.7 |
) |
|
|
|
|
|
|
(93.7 |
) |
Employee share plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation |
|
|
|
|
|
|
55.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55.5 |
|
|
|
|
|
|
|
55.5 |
|
Vested shares |
|
|
|
|
|
|
(59.1 |
) |
|
|
59.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of options |
|
|
|
|
|
|
(14.7 |
) |
|
|
20.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.2 |
|
|
|
|
|
|
|
6.2 |
|
Tax impact of share-based payment |
|
|
|
|
|
|
12.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.3 |
|
|
|
|
|
|
|
12.3 |
|
Purchase of shares |
|
|
|
|
|
|
|
|
|
|
(34.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34.0 |
) |
|
|
|
|
|
|
(34.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010 |
|
|
94.2 |
|
|
|
6,249.3 |
|
|
|
(846.4 |
) |
|
|
1,678.7 |
|
|
|
719.5 |
|
|
|
213.6 |
|
|
|
8,108.9 |
|
|
|
711.2 |
|
|
|
8,820.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
6
Invesco Ltd.
Notes to the Condensed Consolidated Financial Statements
1. ACCOUNTING POLICIES
Corporate Information
Invesco Ltd. (Parent) and all of its consolidated entities (collectively, the company or
Invesco) provide retail, institutional and high-net-worth clients with an array of global
investment management capabilities. The companys sole business is investment management.
Basis of Accounting and Consolidation
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 companys annual report are not required to be included on
an interim basis in the companys 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 companys annual report on Form 10-K for the year ended December 31, 2010, which was filed with
the U.S. Securities and Exchange Commission on February 25, 2011.
Use of Estimates
In preparing the financial statements, company management is required to make estimates and
assumptions that affect reported revenues, expenses, assets, liabilities and disclosure of
contingent liabilities. The primary estimates relate to investment valuation, goodwill impairment
and taxes. Use of available information and application of judgment are inherent in the formation
of estimates. Actual results in the future could differ from such estimates and the differences may
be material to the financial statements.
Reclassifications
In the three months ended June 30, 2011, the company changed its presentation of marketing
support expenses from marketing expenses to third-party distribution, service and advisory expenses
in the Condensed Consolidated Statements of Income. Marketing support expenses are payments made to
distributors of certain of the companys retail products over and above the 12b-1 distribution
payments passed through to the distributors from the funds. The nature of these costs is
distribution-related; accordingly, the reclassification serves to more appropriately reflect them
as such. The presentation of certain prior period reported amounts has been reclassified to be
consistent with the current presentation. Such reclassifications had no impact on total operating
expenses, net income, or equity attributable to common shareholders. The impact to previously
reported third-party distribution, service and advisory and marketing expenses is illustrated
below.
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010 |
|
|
|
Three months |
|
|
Six months |
|
$ in millions |
|
ended |
|
|
ended |
|
Third-party distribution, service and advisory expenses, as previously reported |
|
|
220.7 |
|
|
|
416.3 |
|
Reclassification |
|
|
17.6 |
|
|
|
30.2 |
|
|
|
|
|
|
|
|
Third-party distribution, service and advisory expenses, as reclassified |
|
|
238.3 |
|
|
|
446.5 |
|
|
|
|
|
|
|
|
Marketing expenses, as previously reported |
|
|
35.2 |
|
|
|
63.5 |
|
Reclassification |
|
|
(17.6 |
) |
|
|
(30.2 |
) |
|
|
|
|
|
|
|
Marketing expenses, as reclassified |
|
|
17.6 |
|
|
|
33.3 |
|
|
|
|
|
|
|
|
Accounting Pronouncements Recently Adopted and Pending Accounting Pronouncements
The adoption of additional guidance now encompassed in ASC Topic 810, which was effective
January 1, 2010, had a significant impact on the presentation of the companys financial
statements, as its provisions required the company to consolidate certain collateralized loan
obligation (CLOs) that were not previously consolidated. See the extensive disclosure in the
companys Form 10-K for the year ended December 31, 2010 and Note 11, Consolidated Investment
Products, in this Report for condensed consolidating balance sheets as of June 30, 2011 and
December 31, 2010 and condensed consolidating income statements for the three and six months ended
June 30, 2011 and 2010.
In January 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update 2010-06, Improving Disclosures about Fair Value Measurements (ASU 2010-06). ASU 2010-06
amends Topic 820 to require a number of additional disclosures regarding fair value measurements.
Specifically, ASU 2010-06 requires entities to disclose: (1) the amount of significant transfers
between level 1 and level 2 of the fair value hierarchy and the reasons for these transfers; (2)
the reasons for any transfers in or out of level 3; and (3) information in the reconciliation of
recurring level 3 measurements about purchases, sales, issuances and settlements on a gross basis.
ASU 2010-06 also clarifies existing fair value disclosures about the appropriate level of
disaggregation and about inputs and valuation techniques for both recurring and nonrecurring fair
value measurements that fall in either level 2 or level 3. The new disclosures and clarifications
of existing disclosures were effective for interim and annual reporting periods beginning after
December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in
the rollforward of activity in level 3 fair value measurements, which are effective for fiscal
years beginning after December 15, 2010, and for interim periods within those fiscal years. The
additional disclosure requirements with respect to rollforward activity did not have a significant
impact on the companys disclosures in Note 2, Fair Value of Assets and Liabilities, and Note 11,
Consolidated Investment Products.
In May 2011, the FASB issued Accounting Standards Update 2011-04, Fair Value Measurements:
Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements (ASU 2011-04). ASU
2011-04 amends Topic 820 to clarify existing fair value measurement disclosures to (1) specifically
provide quantitative information about the significant unobservable inputs used for all level 3
measurements and (2) disclose any transfers between levels 1 and 2 of the fair value hierarchy, not
just significant transfers. ASU 2011-04 also requires a number of additional disclosures regarding
fair value measurements. Specifically, ASU 2011-04 requires entities to disclose: (1) a qualitative
discussion about the sensitivity of recurring level 3 measurements to changes in the unobservable
inputs disclosed, including the interrelationship between inputs; (2) a description of the
companys 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 entitys shareholders equity. The adoption of ASU 2011-04 is not
expected to have an effect on the companys current fair value measurements but is expected to have
a significant impact on the companys disclosures related to the assets and liabilities of its
consolidated investment products that are classified as level 3 assets within the fair value
hierarchy. The amendments to Topic 820 made by ASU 2011-04 are effective for interim and annual
periods beginning on or after December 15, 2011. As such, these disclosure changes will be required
in the companys Form 10-Q for the three months ended March 31, 2012.
In June 2011, the FASB issued Accounting Standards Update 2011-05, Comprehensive Income:
Presentation of Comprehensive Income (ASU 2011-05). ASU 2011-05 amends Topic 220, Comprehensive
Income, to require the components of net income and other comprehensive income to be presented in
one continuous statement, which would be referred to as the statement of comprehensive income, or
in two separate but consecutive statements. There is currently no requirement to present the
statement of net income and statement of comprehensive income consecutively. ASU 2011-05 also
requires an entity to present reclassification adjustments from other comprehensive income to net
income alongside their respective components of net income and other comprehensive income on the
face of the financial statements. The amendments to Topic 220 made by ASU 2011-05 are effective for
interim and annual periods beginning on or after December 15, 2011 for public companies. As such,
these presentation changes will be required in the companys Form 10-Q for the three months ended
March 31, 2012.
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.
|
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011 |
|
|
December 31, 2010 |
|
|
|
Footnote |
|
|
Carrying |
|
|
|
|
|
|
Carrying |
|
|
|
|
$ in millions |
|
Reference |
|
|
Value |
|
|
Fair Value |
|
|
Value |
|
|
Fair Value |
|
Cash and cash equivalents |
|
|
|
|
|
|
621.5 |
|
|
|
621.5 |
|
|
|
740.5 |
|
|
|
740.5 |
|
Available for sale investments |
|
|
3 |
|
|
|
95.7 |
|
|
|
95.7 |
|
|
|
100.0 |
|
|
|
100.0 |
|
Assets held for policyholders |
|
|
|
|
|
|
1,373.2 |
|
|
|
1,373.2 |
|
|
|
1,295.4 |
|
|
|
1,295.4 |
|
Trading investments |
|
|
3 |
|
|
|
230.7 |
|
|
|
230.7 |
|
|
|
180.6 |
|
|
|
180.6 |
|
Foreign time deposits* |
|
|
3 |
|
|
|
25.5 |
|
|
|
25.5 |
|
|
|
28.2 |
|
|
|
28.2 |
|
Support agreements* |
|
|
10,11 |
|
|
|
(1.0 |
) |
|
|
(1.0 |
) |
|
|
(2.0 |
) |
|
|
(2.0 |
) |
Policyholder payables |
|
|
|
|
|
|
(1,373.2 |
) |
|
|
(1,373.2 |
) |
|
|
(1,295.4 |
) |
|
|
(1,295.4 |
) |
Financial instruments sold, not yet purchased |
|
|
|
|
|
|
(10.3 |
) |
|
|
(10.3 |
) |
|
|
(0.7 |
) |
|
|
(0.7 |
) |
Derivative liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.1 |
) |
|
|
(0.1 |
) |
Note payable |
|
|
|
|
|
|
(16.1 |
) |
|
|
(16.1 |
) |
|
|
(18.9 |
) |
|
|
(18.9 |
) |
Long-term debt, including current portion* |
|
|
4 |
|
|
|
(1,583.7 |
) |
|
|
(1,628.0 |
) |
|
|
(1,315.7 |
) |
|
|
(1,339.3 |
) |
|
|
|
* |
|
These financial instruments are not measured at fair value on a
recurring basis. See the indicated footnotes for additional
information about the carrying and fair values of these financial
instruments. Foreign time deposits are measured at cost plus accrued
interest, which approximates fair value. |
The following is a description of the valuation methodologies used for assets and liabilities
measured at fair value, as well as the general classification of such assets and liabilities
pursuant to the valuation hierarchy.
Cash equivalents
Cash equivalents include cash investments in money market funds and time deposits. Cash
investments in money market funds are valued under the market approach through the use of quoted
market prices in an active market, which is the net asset value of the underlying funds, and are
classified within level 1 of the valuation hierarchy.
Available-for-sale investments
Available-for-sale investments include amounts seeded into affiliated investment products and
investments in affiliated CLOs. Seed money investments are investments held in Invesco managed
funds with the purpose of providing capital to the funds during their development periods. Seed
money is valued under the market approach through the use of quoted market prices available in an
active market and is classified within level 1 of the valuation hierarchy; there is no modeling or
additional information needed to arrive at the fair values of these investments. CLOs are valued
using an income approach through the use of certain observable and unobservable inputs. Due to
current liquidity constraints within the market for CLO products that require the use of
unobservable inputs, these investments are classified within level 3 of the valuation hierarchy.
Assets held for policyholders
Assets held for policyholders represent investments held by one of the companys subsidiaries,
which is an insurance entity that was established to facilitate retirement savings plans in the
U.K. The assets held for policyholders are accounted for at fair value pursuant to ASC Topic 944,
Financial Services Insurance, and are comprised primarily of affiliated unitized funds. The
assets are measured at fair value under the market approach based on the quoted prices of the
underlying funds in an active market and are classified within level 1 of the valuation hierarchy.
The policyholder payables are indexed to the value of the assets held for policyholders.
Trading investments
Trading investments include investments held to hedge economically against costs the company
incurs in connection with certain deferred compensation plans in which the company participates, as
well as trading and investing activities in equity and debt securities entered into in its capacity
as sponsor of unit investment trusts (UITs).
|
|
|
Investments related to deferred compensation plans |
|
|
|
|
Investments related to deferred compensation plans are primarily invested in affiliated
funds that are held to hedge 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 June 30, 2011, UIT-related equity and debt securities consisted of investments in
corporate stock, UITs, U.S. state and political subdivisions. Each is discussed more fully
below. |
|
|
|
Corporate stock |
|
|
|
|
The company temporarily holds investments in corporate stock for purposes of
creating a UIT. Corporate stocks are valued under the market approach through use of
quoted prices on an exchange. To the extent these securities are actively traded,
valuation adjustments are not applied and they are categorized within level 1 of the
valuation hierarchy; otherwise, they are categorized in level 2. |
|
|
|
|
UITs |
|
|
|
|
The company may hold units of its sponsored UITs at period-end for sale in the
primary market or secondary market. Equity UITs are valued under the market approach
through use of quoted prices on an exchange. Fixed income UITs are valued using
recently executed transaction prices, market price quotations (where observable),
bond spreads, or credit default swap spreads. The spread data used is for the same
maturities as the underlying bonds. If the spread data does not reference the
issuers, then data that references comparable issuers is used. When observable price
quotations are not available, fair value is determined based on cash flow models
with yield curves, bond or single name credit default spreads, and recovery rates
based on collateral value as key inputs. Depending on the nature of the inputs,
these investments are categorized as level 1, 2, or 3. |
|
|
|
|
Municipal securities |
|
|
|
|
Municipal securities are valued using recently executed transaction prices, market
price quotations (where observable), bond spreads, or credit default swap spreads.
The spread data used is for the same maturities as the underlying bonds. If the
spread data does not reference the issuers, then data that references comparable
issuers is used. When observable price quotations are not available, fair value is
determined based on cash flow models with yield curves, bond or single name credit
default spreads, and recovery rates based on collateral value as key inputs.
Depending on the nature of the inputs, these investments are categorized as level 1,
2, or 3. |
UIT-related financial instruments sold, not yet purchased, and derivative liabilities
The company uses U.S. Treasury futures, which are types of derivative financial instruments,
to hedge economically fixed income UIT inventory and securities in order to mitigate market
risk. Open futures contracts are marked-to-market daily through earnings, which are
recorded in the companys consolidated statement of income in other revenue, along with the
mark-to-market on the underlying trading securities held. Fair values of derivative contracts in an
asset position are included in other assets in the companys consolidated balance sheet. Fair
values of derivative contracts in a liability position are included in other liabilities in the
companys 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 June 30, 2011, there were 65 open futures contracts with a notional
value of $8.0 million (December 31, 2010: 76 open futures contracts with a notional value of $9.3
million). Additionally, to hedge economically the market risk associated with equity and debt
securities and UITs temporarily held as trading investments, the company will hold short corporate
stock, exchange-traded fund, or U.S. treasury security positions. These transactions are recorded
as financial instruments sold, not yet purchased and are included in other liabilities in the
companys consolidated balance sheet. To the extent these securities are actively traded, valuation
adjustments are not applied and they are categorized within level 1 of the valuation hierarchy;
otherwise, they are categorized in level 2.
Note payable
The note payable represents a payable associated with the aggregate amount of distributions
proportional to Invescos acquired ownership interest in two consolidated real estate funds. As the
underlying investments in the funds are carried at fair value (and are disclosed as level 3 assets
in the fair value hierarchy table included in Note 11, Consolidated Investment Products),
management elected the fair value option for the note payable in order to offset the fair value
movements recognized from the funds and has recorded the note payable as a level 3 liability. The
fair value of the note payable represents its remaining principal balance adjusted for changes in
equity of the funds that is attributable to the companys ownership interest in the funds.
The following table presents, for each of the hierarchy levels described above, the carrying
value of the companys assets and liabilities, including major security type for equity and debt
securities, which are measured at fair value on the face of the statement of financial position as
of June 30, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2011 |
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for |
|
|
Significant Other |
|
|
Significant |
|
|
|
Fair Value |
|
|
Identical Assets |
|
|
Observable Inputs |
|
|
Unobservable Inputs |
|
$ in millions |
|
Measurements |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
|
268.2 |
|
|
|
268.2 |
|
|
|
|
|
|
|
|
|
Investments:* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seed money |
|
|
95.3 |
|
|
|
95.3 |
|
|
|
|
|
|
|
|
|
Trading investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments related to deferred
compensation plans |
|
|
197.7 |
|
|
|
197.7 |
|
|
|
|
|
|
|
|
|
UIT-related equity and debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate stock |
|
|
1.4 |
|
|
|
1.4 |
|
|
|
|
|
|
|
|
|
UITs |
|
|
2.0 |
|
|
|
2.0 |
|
|
|
|
|
|
|
|
|
Municipal securities |
|
|
29.6 |
|
|
|
|
|
|
|
29.6 |
|
|
|
|
|
Assets held for policyholders |
|
|
1,373.2 |
|
|
|
1,373.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,967.4 |
|
|
|
1,937.8 |
|
|
|
29.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments available-for-sale*: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLOs |
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value |
|
|
1,967.8 |
|
|
|
1,937.8 |
|
|
|
29.6 |
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder payables |
|
|
(1,373.2 |
) |
|
|
(1,373.2 |
) |
|
|
|
|
|
|
|
|
UIT-related financial instruments sold, not
yet purchased: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate equities |
|
|
(1.1 |
) |
|
|
(1.1 |
) |
|
|
|
|
|
|
|
|
U.S. Treasury securities |
|
|
(9.2 |
) |
|
|
(9.2 |
) |
|
|
|
|
|
|
|
|
Non-current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable |
|
|
(16.1 |
) |
|
|
|
|
|
|
|
|
|
|
(16.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value |
|
|
(1,399.6 |
) |
|
|
(1,383.5 |
) |
|
|
|
|
|
|
(16.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Current foreign time deposits of $25.5 million and other current
investments of $0.5 million are excluded from this table. Other
non-current equity and other investments of $186.8 million and $6.9
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 companys assets and liabilities that are measured at fair value as of December 31,
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010 |
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for |
|
|
Significant Other |
|
|
Significant |
|
|
|
Fair Value |
|
|
Identical Assets |
|
|
Observable Inputs |
|
|
Unobservable Inputs |
|
$ in millions |
|
Measurements |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
|
316.4 |
|
|
|
316.4 |
|
|
|
|
|
|
|
|
|
Investments:* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seed money |
|
|
99.5 |
|
|
|
99.5 |
|
|
|
|
|
|
|
|
|
Trading investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments related to deferred
compensation plans |
|
|
165.5 |
|
|
|
165.5 |
|
|
|
|
|
|
|
|
|
UIT-related equity and debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate stock |
|
|
1.2 |
|
|
|
1.2 |
|
|
|
|
|
|
|
|
|
UITs |
|
|
4.0 |
|
|
|
4.0 |
|
|
|
|
|
|
|
|
|
Municipal securities |
|
|
9.9 |
|
|
|
|
|
|
|
9.9 |
|
|
|
|
|
Assets held for policyholders |
|
|
1,295.4 |
|
|
|
1,295.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,891.9 |
|
|
|
1,882.0 |
|
|
|
9.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments available-for-sale*: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLOs |
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value |
|
|
1,892.4 |
|
|
|
1,882.0 |
|
|
|
9.9 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder payables |
|
|
(1,295.4 |
) |
|
|
(1,295.4 |
) |
|
|
|
|
|
|
|
|
UIT-related financial instruments sold,
not yet purchased: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate equities |
|
|
(0.7 |
) |
|
|
(0.7 |
) |
|
|
|
|
|
|
|
|
UIT-related derivative liabilities |
|
|
(0.1 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
Non-current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable |
|
|
(18.9 |
) |
|
|
|
|
|
|
|
|
|
|
(18.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value |
|
|
(1,315.1 |
) |
|
|
(1,296.2 |
) |
|
|
|
|
|
|
(18.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Current foreign time deposits of $28.2 million and other current
investments of $0.5 million are excluded from this table. Other
non-current equity and other investments of $156.9 million and $7.0
million, respectively, are also excluded from this table. These
investments are not measured at fair value, in accordance with
applicable accounting standards. |
The following table shows a reconciliation of the beginning and ending fair value measurements
for level 3 assets and liabilities during the six month periods ending June 30, 2011 and June 30,
2010, which are valued using significant unobservable inputs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months Ended |
|
|
Six months Ended |
|
|
|
June 30, 2011 |
|
|
June 30, 2011 |
|
$ in millions |
|
CLO Investment |
|
|
Note Payable |
|
|
CLO Investment |
|
|
Note Payable |
|
Beginning balance |
|
|
0.7 |
|
|
|
(18.5 |
) |
|
|
0.5 |
|
|
|
(18.9 |
) |
Net unrealized gains and losses included in
accumulated other comprehensive income/(loss)** |
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange movements included in earnings |
|
|
|
|
|
|
(0.5 |
) |
|
|
|
|
|
|
(0.1 |
) |
Purchases, sales, issuances, and settlements, net*** |
|
|
(0.1 |
) |
|
|
2.9 |
|
|
|
(0.1 |
) |
|
|
2.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
|
0.4 |
|
|
|
(16.1 |
) |
|
|
0.4 |
|
|
|
(16.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months Ended |
|
|
Six months Ended |
|
|
|
June 30, 2010 |
|
|
June 30, 2010 |
|
$ in millions |
|
CLO Investment |
|
|
CLO Investment |
|
Beginning balance |
|
|
0.4 |
|
|
|
17.9 |
|
Adoption of guidance now encompassed in ASC Topic 810* |
|
|
|
|
|
|
(17.4 |
) |
|
|
|
|
|
|
|
Beginning balance, as adjusted |
|
|
0.4 |
|
|
|
0.5 |
|
Net unrealized gains and losses included in
accumulated other comprehensive income/(loss)** |
|
|
0.2 |
|
|
|
0.1 |
|
Purchases, sales, issuances, and settlements, net*** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
|
0.6 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
* |
|
The company adopted guidance now encompassed in ASC Topic 810,
Consolidation, on January 1, 2010, resulting in the consolidation of
CLOs for which the company has an underlying investment of $48.5
million at June 30, 2011. The adjustment of $17.4 million in the table
above reflects the elimination of the companys equity interest upon
adoption. |
|
** |
|
Of these net unrealized gains and losses included in accumulated other
comprehensive income/(loss), ($0.2) million for the three months and
none for the six months ended June 30, 2011 is attributed to the
change in unrealized gains and losses related to assets still held at
June 30, 2011 (three and six months ended June 30, 2010: $0.2 million
and $0.1 million, respectively, related to assets still held at June
30, 2010). |
|
*** |
|
Prior to the adoption of guidance included in ASU 2010-06, discussed
in Note 1, Accounting Policies, purchases, sales, issuances, and
settlements were presented net. For the three and six months ended
June 30, 2011, ($0.1) million in return of capital activity occurred
related to the CLO investment. For the three and six months ended June
30, 2011, $2.9 million in settlement activity occurred related to the
note payable. |
3. INVESTMENTS
The disclosures below include details of the companys investments. Investments held by
consolidated investment products are detailed in Note 11, Consolidated Investment Products.
Current Investments
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
|
June 30, |
|
|
December 31, |
|
$ in millions |
|
2011 |
|
|
2010 |
|
Available-for-sale investments: |
|
|
|
|
|
|
|
|
Seed money |
|
|
95.3 |
|
|
|
99.5 |
|
Trading investments: |
|
|
|
|
|
|
|
|
Investments related to deferred compensation plans |
|
|
197.7 |
|
|
|
165.5 |
|
UIT-related equity and debt securities |
|
|
33.0 |
|
|
|
15.1 |
|
Foreign time deposits |
|
|
25.5 |
|
|
|
28.2 |
|
Other |
|
|
0.5 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
Total current investments |
|
|
352.0 |
|
|
|
308.8 |
|
|
|
|
|
|
|
|
Non-current Investments
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
|
June 30, |
|
|
December 31, |
|
$ in millions |
|
2011 |
|
|
2010 |
|
Available-for-sale investments: |
|
|
|
|
|
|
|
|
CLOs |
|
|
0.4 |
|
|
|
0.5 |
|
Equity method investments |
|
|
186.8 |
|
|
|
156.9 |
|
Other |
|
|
6.9 |
|
|
|
7.0 |
|
|
|
|
|
|
|
|
Total non-current investments |
|
|
194.1 |
|
|
|
164.4 |
|
|
|
|
|
|
|
|
The portion of trading gains and losses for the six months ended June 30, 2011 that relates to
trading securities still held at June 30, 2011 was a $6.7 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 |
|
|
For the Six months Ended |
|
|
|
June 30, 2011 |
|
|
June 30, 2011 |
|
|
|
Proceeds |
|
|
Gross |
|
|
Gross |
|
|
Proceeds |
|
|
Gross |
|
|
Gross |
|
|
|
from |
|
|
Realized |
|
|
Realized |
|
|
from |
|
|
Realized |
|
|
Realized |
|
$ in millions |
|
Sales |
|
|
Gains |
|
|
Losses |
|
|
Sales |
|
|
Gains |
|
|
Losses |
|
Current available-for-sale investments |
|
|
20.3 |
|
|
|
3.2 |
|
|
|
(0.1 |
) |
|
|
36.5 |
|
|
|
6.5 |
|
|
|
(0.2 |
) |
Non-current available-for-sale investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three months Ended |
|
|
For the Six months Ended |
|
|
|
June 30, 2010 |
|
|
June 30, 2010 |
|
|
|
Proceeds |
|
|
Gross |
|
|
Gross |
|
|
Proceeds |
|
|
Gross |
|
|
Gross |
|
|
|
from |
|
|
Realized |
|
|
Realized |
|
|
from |
|
|
Realized |
|
|
Realized |
|
$ in millions |
|
Sales |
|
|
Gains |
|
|
Losses |
|
|
Sales |
|
|
Gains |
|
|
Losses |
|
Current available-for-sale investments |
|
|
3.7 |
|
|
|
0.3 |
|
|
|
(0.3 |
) |
|
|
10.6 |
|
|
|
0.7 |
|
|
|
(0.4 |
) |
Non-current available-for-sale investments |
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
Upon the sale of available-for-sale securities, net realized gains of $6.3 million and $0.3
million were transferred from accumulated other comprehensive income into the Condensed
Consolidated Statements of Income during six months ended June 30, 2011 and
2010, respectively. The specific identification method is used to determine the realized gain
or loss on securities sold or otherwise disposed.
14
Gross unrealized holding gains and losses recognized in other accumulated comprehensive income
from available-for-sale investments are presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011 |
|
|
December 31, 2010 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
Holding |
|
|
Holding |
|
|
Fair |
|
|
|
|
|
|
Holding |
|
|
Holding |
|
|
Fair |
|
$ in millions |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seed money |
|
|
88.0 |
|
|
|
8.1 |
|
|
|
(0.8 |
) |
|
|
95.3 |
|
|
|
89.6 |
|
|
|
10.6 |
|
|
|
(0.7 |
) |
|
|
99.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current available-for-sale investments |
|
|
88.0 |
|
|
|
8.1 |
|
|
|
(0.8 |
) |
|
|
95.3 |
|
|
|
89.6 |
|
|
|
10.6 |
|
|
|
(0.7 |
) |
|
|
99.5 |
|
Non-current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLOs |
|
|
0.3 |
|
|
|
0.1 |
|
|
|
|
|
|
|
0.4 |
|
|
|
0.3 |
|
|
|
0.2 |
|
|
|
|
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current available-for-sale investments: |
|
|
0.3 |
|
|
|
0.1 |
|
|
|
|
|
|
|
0.4 |
|
|
|
0.3 |
|
|
|
0.2 |
|
|
|
|
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88.3 |
|
|
|
8.2 |
|
|
|
(0.8 |
) |
|
|
95.7 |
|
|
|
89.9 |
|
|
|
10.8 |
|
|
|
(0.7 |
) |
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale debt securities as of June 30, 2011 by maturity, are set out below:
|
|
|
|
|
|
|
Available-for-Sale |
|
$ in millions |
|
(Fair Value) |
|
Less than one year |
|
|
|
|
One to five years |
|
|
|
|
Five to ten years |
|
|
0.4 |
|
Greater than ten years |
|
|
|
|
|
|
|
|
Total available-for-sale |
|
|
0.4 |
|
|
|
|
|
The following table provides the breakdown of available-for-sale investments with unrealized
losses at June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months |
|
|
12 Months or Greater |
|
|
Total |
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
$ in millions |
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
Seed money (46 funds) |
|
|
3.5 |
|
|
|
(0.1 |
) |
|
|
5.9 |
|
|
|
(0.7 |
) |
|
|
9.4 |
|
|
|
(0.8 |
) |
The following table provides the breakdown of available-for-sale investments with unrealized
losses at December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months |
|
|
12 Months or Greater |
|
|
Total |
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
$ in millions |
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
Seed money (15 funds) |
|
|
|
|
|
|
|
|
|
|
5.7 |
|
|
|
(0.7 |
) |
|
|
5.7 |
|
|
|
(0.7 |
) |
The company has reviewed investment securities for other-than-temporary impairment (OTTI) in
accordance with its accounting policy and has recognized no other-than-temporary impairment charges
on seed money investments during the six months ended June 30, 2011 (six months ended June 30,
2010: $6.1 million).
The gross unrealized losses of seed money investments at June 30, 2011 were primarily caused
by declines in the market value of the underlying securities in the seeded funds and foreign
exchange movements. After conducting a review of the financial condition and near-term prospects of
the underlying securities in the seeded funds as well as the severity and duration of the
impairment, the company does not consider any material portion of its gross unrealized losses on
these securities to be other-than-temporarily impaired. The securities are expected to recover
their value over time and the company has the intent and ability to hold the securities until this
recovery occurs.
During the three and six months ended June 30, 2011, there were no charges to other
comprehensive income from other-than-temporary impairment related to non-credit related factors
(three and six months ended June 30, 2010: no charges). A rollforward of
15
the cumulative credit-related other-than-temporary impairment charges recognized in earnings
for which some portion of the impairment was recorded in other comprehensive income is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
Three months ended |
|
|
Six months ended |
|
In millions |
|
June 30, 2011 |
|
|
June 30, 2011 |
|
|
June 30, 2010 |
|
|
June 30, 2010 |
|
Beginning balance |
|
|
0.8 |
|
|
|
0.8 |
|
|
|
0.8 |
|
|
|
18.8 |
|
Adoption of guidance now encompassed in
ASC Topic 810* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance, as adjusted |
|
|
0.8 |
|
|
|
0.8 |
|
|
|
0.8 |
|
|
|
0.8 |
|
Additional credit losses recognized
during the period related to securities
for which: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No OTTI has been previously recognized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTTI has been previously recognized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
|
0.8 |
|
|
|
0.8 |
|
|
|
0.8 |
|
|
|
0.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
The company adopted guidance now encompassed in ASC Topic 810,
Consolidation, on January 1, 2010, resulting in the consolidation of
CLOs for which the company has an underlying investment of $48.5
million at June 30, 2011. Of the $18.8 million cumulative
credit-related OTTI balance at January 1, 2010, $18.0 million relates
to CLOs that were consolidated into the companys Condensed
Consolidated Balance Sheet, resulting in the elimination of our equity
interest. |
4. DEBT
The disclosures below include details of the companys debt. Debt of consolidated investment
products is detailed in Note 11, Consolidated Investment Products.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011 |
|
|
December 31, 2010 |
|
|
|
Carrying |
|
|
|
|
|
|
Carrying |
|
|
|
|
$ in millions |
|
Value |
|
|
Fair Value |
|
|
Value |
|
|
Fair Value |
|
Unsecured Senior Notes*: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.625% due April 17, 2012 |
|
|
215.1 |
|
|
|
222.7 |
|
|
|
215.1 |
|
|
|
223.7 |
|
5.375% due February 27, 2013 |
|
|
333.5 |
|
|
|
353.3 |
|
|
|
333.5 |
|
|
|
335.2 |
|
5.375% due December 15, 2014 |
|
|
197.1 |
|
|
|
214.0 |
|
|
|
197.1 |
|
|
|
210.4 |
|
Floating rate credit facility expiring June 3, 2016 |
|
|
838.0 |
|
|
|
838.0 |
|
|
|
570.0 |
|
|
|
570.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt |
|
|
1,583.7 |
|
|
|
1,628.0 |
|
|
|
1,315.7 |
|
|
|
1,339.3 |
|
Less: current maturities of total debt |
|
|
(215.1 |
) |
|
|
(222.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
1,368.6 |
|
|
|
1,405.3 |
|
|
|
1,315.7 |
|
|
|
1,339.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
The companys 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 companys Senior Notes was determined by market quotes provided
by Bloomberg. In the absence of an active market, the company relies upon the average price quoted
by brokers for determining the fair market value of the debt. The level of trading, both in number
of trades and amount of Senior Notes traded, has increased to a level that the company believes
market quotes to be a reasonable representation of the current fair market value of the Senior
Notes.
Analysis of Borrowings by Maturity:
|
|
|
|
|
$ in millions |
|
June 30, 2011 |
|
2012 |
|
|
215.1 |
|
2013 |
|
|
333.5 |
|
2014 |
|
|
197.1 |
|
2016 |
|
|
838.0 |
|
|
|
|
|
Total debt |
|
|
1,583.7 |
|
|
|
|
|
16
On June 3, 2011 the company amended and restated its existing five-year unsecured $1.25
billion credit agreement to, among other matters, provide for a term of five years. The amended and
restated facility is now scheduled to expire on June 3, 2016.
At June 30, 2011, the outstanding balance on the credit facility was $838.0 million and the
weighted average interest rate on the credit facility was 1.286%. Borrowings under the credit
facility will bear interest at (i) LIBOR for specified interest periods or (ii) a floating base
rate (based upon the highest of (a) the Bank of America prime rate, (b) the Federal Funds rate plus
0.50% and (c) LIBOR for an interest period of one month plus 1.00%), plus, in either case, an
applicable margin determined with reference to the companys credit ratings and specified credit
default spreads. Based on credit ratings as of June 30, 2011 of the company and such credit default
spreads, the applicable margin for LIBOR-based loans was 1.10% and for base rate loans was 0.10%.
In addition, the company is required to pay the lenders a facility fee on the aggregate commitments
of the lenders (whether or not used) at a rate per annum which is based on the companys credit
ratings. Based on credit ratings as of June 30, 2011, the annual facility fee was equal to 0.15%.
Financial covenants under the credit agreement include: (i) the quarterly maintenance of a
debt/EBITDA ratio, as defined in the credit agreement, of not greater than 3.25:1.00 through June
30, 2014, and not greater than 3.00:1.00 thereafter, (ii) a coverage ratio (EBITDA, as defined in
the credit agreement, divided by interest payable for the four consecutive fiscal quarters ended
before the date of determination) of not less than 4.00:1.00
5. SHARE CAPITAL
Movements in the number of common shares issued are represented in the table below:
|
|
|
|
|
|
|
|
|
|
|
Six months Ended |
|
|
Six months Ended |
|
In millions |
|
June 30, 2011 |
|
|
June 30, 2010 |
|
Common shares issued beginning balance |
|
|
490.4 |
|
|
|
459.5 |
|
Issue of new shares |
|
|
|
|
|
|
11.7 |
|
|
|
|
|
|
|
|
Common shares issued ending balance |
|
|
490.4 |
|
|
|
471.2 |
|
Less: Treasury shares for which dividend and voting rights do not apply |
|
|
(39.5 |
) |
|
|
(22.3 |
) |
|
|
|
|
|
|
|
Common shares outstanding |
|
|
450.9 |
|
|
|
448.9 |
|
|
|
|
|
|
|
|
During the three and six months ended June 30, 2011, the company repurchased 11.3 and 13.4
million shares, respectively, in the market at a cost of $279.9 million and $333.0 million,
respectively (three and six months ended June 30, 2010: no shares were repurchased). Separately, an
aggregate of 2.7 million shares were withheld on vesting events during the six months ended June
30, 2011 to meet employees withholding tax (six months ended June 30, 2010: 1.4 million). The
carrying value of these shares withheld was $70.8 million (six months ended June 30, 2010: $34.0
million). Approximately $835.4 million remained authorized under the companys share repurchase
plan at June 30, 2011.
Total treasury shares at June 30, 2011 were 49.5 million (June 30, 2010: 35.3 million),
including 10.0 million unvested restricted stock awards (June 30, 2010: 13.0 million) for which
dividend and voting rights apply. The closing market price of common shares at June 30, 2011 was
$23.40. The total market value of the companys 49.5 million treasury shares was $1,158.3 million
on June 30, 2011.
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 companys
estimate of shares that will eventually vest, on a straight-line or accelerated basis over the
vesting period. The company recognized total expenses of $56.8 million in the six months ended June
30, 2011 (six months ended June 30, 2010: $55.5 million) related to equity-settled share-based
payment transactions.
17
Share Awards
Movements on share awards priced in U.S. dollars are detailed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2011 |
|
|
Six months ended June 30, 2010 |
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
Weighted Average |
|
|
|
Time- |
|
|
Grant Date |
|
|
Time- |
|
|
Grant Date |
|
Millions of shares, except fair values |
|
Vested |
|
|
Fair Value ($) |
|
|
Vested |
|
|
Fair Value ($) |
|
Unvested at the beginning of period |
|
|
17.4 |
|
|
|
17.25 |
|
|
|
11.6 |
|
|
|
15.24 |
|
Granted during the period |
|
|
5.5 |
|
|
|
26.79 |
|
|
|
9.9 |
|
|
|
19.19 |
|
Forfeited during the period |
|
|
(0.2 |
) |
|
|
19.17 |
|
|
|
(0.1 |
) |
|
|
21.55 |
|
Vested and distributed during the period |
|
|
(4.9 |
) |
|
|
18.93 |
|
|
|
(2.8 |
) |
|
|
14.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested at the end of the period |
|
|
17.8 |
|
|
|
20.21 |
|
|
|
18.6 |
|
|
|
17.42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On December 4, 2007, in connection with the redomicile of the company from the U.K. to
Bermuda, the companys 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 companys primary share listing to the New York Stock Exchange, are detailed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2011 |
|
|
Six months ended June 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
|
Grant Date |
|
|
|
|
|
|
|
|
|
|
Grant Date |
|
|
|
Time- |
|
|
Performance- |
|
|
Fair Value |
|
|
Time- |
|
|
Performance- |
|
|
Fair Value |
|
Millions of shares, except fair values |
|
Vested |
|
|
Vested |
|
|
(£ Sterling) |
|
|
Vested |
|
|
Vested |
|
|
(£ Sterling) |
|
Unvested at the beginning of period |
|
|
3.3 |
|
|
|
0.1 |
|
|
|
11.80 |
|
|
|
5.4 |
|
|
|
2.0 |
|
|
|
11.24 |
|
Forfeited during the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.4 |
) |
|
|
12.02 |
|
Vested and distributed during the period |
|
|
(2.3 |
) |
|
|
(0.1 |
) |
|
|
11.94 |
|
|
|
(1.1 |
) |
|
|
(0.5 |
) |
|
|
8.93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested at the end of the period |
|
|
1.0 |
|
|
|
|
|
|
|
11.47 |
|
|
|
4.3 |
|
|
|
0.1 |
|
|
|
11.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share awards outstanding at June 30, 2011 had a weighted average remaining contractual life of
1.99 years. The market price of the companys common stock at June 30, 2011 was $23.40.
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 companys 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2011 |
|
|
Six months ended June 30, 2010 |
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
Weighted Average |
|
|
|
Options |
|
|
Exercise Price |
|
|
Options |
|
|
Exercise Price |
|
|
|
(millions of shares) |
|
|
(£ Sterling) |
|
|
(millions of shares) |
|
|
(£ Sterling) |
|
Outstanding at the beginning of the period |
|
|
10.7 |
|
|
|
13.85 |
|
|
|
16.4 |
|
|
|
14.99 |
|
Forfeited during the period |
|
|
(0.5 |
) |
|
|
24.40 |
|
|
|
(0.3 |
) |
|
|
19.34 |
|
Exercised during the period |
|
|
(0.7 |
) |
|
|
8.53 |
|
|
|
(0.8 |
) |
|
|
6.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at the end of the period |
|
|
9.5 |
|
|
|
13.58 |
|
|
|
15.3 |
|
|
|
15.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at the end of the period |
|
|
9.5 |
|
|
|
13.58 |
|
|
|
15.3 |
|
|
|
15.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
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 six
months ended June 30, 2011 and 2010, of $29.7 million and $23.3 million, respectively, represent
contributions paid or payable to these plans by the company at rates specified in the rules of the
plans. As of June 30, 2011, accrued contributions of $13.3 million (December 31, 2010: $18.9
million) for the current year will be paid to the plans when due.
Defined Benefit Plans
The company maintains legacy defined benefit pension plans for qualifying employees of its
subsidiaries in the U.K., Ireland, Germany, Taiwan and the U.S. All defined benefit plans are
closed to new participants, and the U.S. plan benefits have been frozen. The company also maintains
a 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 will 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.
The components of net periodic benefit cost in respect of these defined benefit plans are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months Ended June 30, |
|
|
Six months Ended June 30, |
|
|
|
Retirement Plans |
|
|
Medical Plan |
|
|
Retirement Plans |
|
|
Medical Plan |
|
$ in millions |
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Service cost |
|
|
1.1 |
|
|
|
1.0 |
|
|
|
0.1 |
|
|
|
|
|
|
|
2.1 |
|
|
|
2.0 |
|
|
|
0.3 |
|
|
|
0.1 |
|
Interest cost |
|
|
4.5 |
|
|
|
3.9 |
|
|
|
0.6 |
|
|
|
0.6 |
|
|
|
9.1 |
|
|
|
7.8 |
|
|
|
1.3 |
|
|
|
1.3 |
|
Expected return on plan assets |
|
|
(3.8 |
) |
|
|
(3.5 |
) |
|
|
(0.1 |
) |
|
|
(0.1 |
) |
|
|
(7.5 |
) |
|
|
(6.9 |
) |
|
|
(0.2 |
) |
|
|
(0.2 |
) |
Amortization of prior service cost |
|
|
0.7 |
|
|
|
|
|
|
|
(0.5 |
) |
|
|
(0.5 |
) |
|
|
1.5 |
|
|
|
|
|
|
|
(1.0 |
) |
|
|
(1.0 |
) |
Amortization of net actuarial (loss)/gain |
|
|
(0.2 |
) |
|
|
0.6 |
|
|
|
0.7 |
|
|
|
0.9 |
|
|
|
(0.3 |
) |
|
|
1.3 |
|
|
|
1.4 |
|
|
|
1.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
|
2.3 |
|
|
|
2.0 |
|
|
|
0.8 |
|
|
|
0.9 |
|
|
|
4.9 |
|
|
|
4.2 |
|
|
|
1.8 |
|
|
|
2.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated amounts of contributions expected to be paid to the retirement plans during 2011
is $6.1 million, with no expected contribution to the medical plan.
8. TAXATION
Company subsidiaries operate in several taxing jurisdictions around the world, each with its
own statutory income tax rate. As a result, the companys effective tax rate will vary from year to
year depending on the mix of the profits and losses of our subsidiaries. The majority of the
companys profits are earned in the U.S., U.K. and Canada. The U.K. statutory tax rate at June 30,
2011 was 27%, the Canadian statutory tax rate was 28.25% and the U.S. Federal statutory tax rate
was 35%. As a result, the companys effective tax rate, excluding noncontrolling interests in
consolidated entities, for the six months ended June 30, 2011 was 29.5%, down from 39% for the six
months ended June 30, 2010. The six months ended June 30, 2010 rate was higher due to the inclusion
of non-deductible transaction and integration costs incurred during that period.
At June 30, 2011, the total amount of gross unrecognized tax benefits was 24.4 million as
compared to the December 31, 2010, total amount of $27.1 million. The company and its subsidiaries
file annual income tax returns in the U.S. federal jurisdiction, various U.S. state and local
jurisdictions, and in numerous foreign jurisdictions. A number of years may elapse before an
uncertain tax position, for which the company has unrecognized tax benefits, is finally resolved.
To the extent that the company has favorable tax settlements, or determines that accrued amounts
are no longer needed due to a lapse in the applicable statute of limitations or other reasons, such
liabilities, as well as the related interest and penalty, would be reversed as a reduction of
income tax expense (net of federal tax effects, if applicable) in the period such determination is
made.
19
9. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income attributable to common
shareholders by the weighted average number of shares outstanding during the period, excluding
treasury shares. Diluted earnings per share is computed using the treasury stock method, which
requires computing share equivalents and dividing net income attributable to common shareholders by
the total weighted average number of shares and share equivalents outstanding during the period.
The calculation of earnings per share is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
|
|
|
|
|
|
|
Attributable to |
|
|
|
|
|
|
|
|
|
Common |
|
|
Weighted Average |
|
|
Per Share |
|
In millions, except per share data |
|
Shareholders |
|
|
Number of Shares |
|
|
Amount |
|
For the three months ended June 30, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
183.0 |
|
|
|
465.5 |
|
|
$ |
0.39 |
|
Dilutive effect of share-based awards |
|
|
|
|
|
|
1.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
183.0 |
|
|
|
467.4 |
|
|
$ |
0.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
40.8 |
|
|
|
455.0 |
|
|
$ |
0.09 |
|
Dilutive effect of share-based awards |
|
|
|
|
|
|
2.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
40.8 |
|
|
|
457.8 |
|
|
$ |
0.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
|
|
|
|
|
|
|
Attributable to |
|
|
|
|
|
|
|
|
|
Common |
|
|
Weighted Average |
|
|
Per Share |
|
In millions, except per share data |
|
Shareholders |
|
|
Number of Shares |
|
|
Amount |
|
For the six months ended June 30, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
360.5 |
|
|
|
467.7 |
|
|
$ |
0.77 |
|
Dilutive effect of share-based awards |
|
|
|
|
|
|
2.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
360.5 |
|
|
|
469.7 |
|
|
$ |
0.77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
135.8 |
|
|
|
447.0 |
|
|
$ |
0.30 |
|
Dilutive effect of share-based awards |
|
|
|
|
|
|
3.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
135.8 |
|
|
|
450.1 |
|
|
$ |
0.30 |
|
|
|
|
|
|
|
|
|
|
|
See Note 6, Share-based Compensation, for a summary of share awards outstanding under the
companys share-based payment programs. These programs could result in the issuance of common
shares that would affect the measurement of basic and diluted earnings per share.
Options to purchase 4.9 million shares at a weighted average exercise price of £19.19 were
outstanding for the six months ended June 30, 2011 (six months ended June 30, 2010: 9.2 million
share options at a weighted average exercise price of £20.53), but were not included in the
computation of diluted earnings per share because the options exercise price were greater than the
average market price of the shares and therefore their inclusion would have been anti-dilutive.
10. COMMITMENTS AND CONTINGENCIES
Commitments and contingencies may arise in the ordinary course of business.
In the normal course of business, the company has transactions with various private equity,
real estate and other investment entities sponsored by the company for the investment of client
assets. Many of the companys investment products are structured as limited partnerships. The
companys investment may take the form of the general partner or a limited partner, and the
entities are structured
20
such that each partner makes capital commitments that are to be drawn down over the life of
the partnership as investment opportunities are identified. At June 30, 2011, the companys undrawn
capital commitments were $183.9 million (December 31, 2010: $136.4 million).
During the fourth quarter of 2007, Invesco elected to enter into contingent support agreements
for two of its investment trusts to enable them to sustain a stable pricing structure. These two
trusts are unregistered trusts that invest in fixed income securities and are available only to
limited types of investors. In June 2011, the agreements were amended to extend the term through
December 31, 2011; further extensions are likely. As of June 30, 2011, the total committed support
under these agreements was $36.0 million with an internal approval mechanism to increase the
maximum possible support to $66.0 million at the option of the company. The estimated value of
these agreements at June 30, 2011, was $1.0 million (December 31, 2010: $2.0 million), which was
recorded in other current liabilities on the Condensed Consolidated Balance Sheet. The estimated
value of these agreements is lower than the maximum support amount, reflecting managements
estimation that the likelihood of funding under the support agreements is low. Significant investor
redemptions out of the trusts before the scheduled maturity of the underlying securities or
significant credit default issues of the securities held within the trusts portfolios could change
the companys estimation of likelihood of funding. No payment has been made under either agreement
nor has Invesco realized any loss from the support agreements through the date of this Report.
These trusts were not consolidated because the company was not deemed to be the primary
beneficiary.
A subsidiary of the company has received assessments from the Canada Revenue Agency (CRA)
for goods and services tax (GST) related to various taxation periods from April 1999 to December
2006 related to GST on sales charges collected from investors upon the redemption of certain mutual
funds. The company objected to the assessments and sought remedial action in the Ontario Superior
Court of Justice. In November 2009, the company was successful in such remedial action and, as a
result, anticipated successfully contesting the assessments. In November and December 2010, the
Appeals Division of the CRA ruled in the companys favor with respect to assessments for certain of
these taxation periods; these assessments were reversed by the CRA. At June 30, 2011, the remaining
assessments totaled $2.9 million (December 31, 2010: $12.3 million). Management believes that the
CRAs claims are unfounded and that these assessments are unlikely to stand, and accordingly no
provision has been recorded in the Consolidated Financial Statements; however, until resolution of
the remaining assessments, the company has secured a letter of credit in favor of the CRA.
The Parent and various company subsidiaries have entered into agreements with financial
institutions to guarantee certain obligations of other company subsidiaries. The company would be
required to perform under these guarantees in the event of certain defaults. The company has not
had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
Acquisition Contingencies
Contingent consideration related to acquisitions made prior to January 1, 2009 (the effective
date of guidance now encompassed in ASC Topic 805) includes the following:
|
|
|
Earn-outs relating to the Invesco PowerShares acquisition. A contingent payment of up to
$500.0 million could be due in October 2011, five years after the date of acquisition, based
on compound annual growth in management fees (as defined and adjusted pursuant to the
acquisition agreement) from an assumed base of $17.5 million at closing. The Year 5
management fees will be reduced by $50.0 million, for purposes of the calculation, since the
second contingent payment was earned. For a compound annual growth rate (CAGR) in Year 5
below 15%, no additional payment will be made. For a CAGR in Year 5 between 15% and 75%, $5.0
million for each CAGR point above 15%, for a maximum payment of $300.0 million for a 75%
CAGR. For a CAGR in Year 5 between 75% and 100%, $300.0 million, plus an additional $8.0
million for each CAGR point above 75%, for a maximum total payment of $500.0 million for a
100% CAGR. Based on projections through the date of this Report, we do not expect significant
payment related to the PowerShares acquisition contingency. |
|
|
|
|
Earn-outs relating to the W.L. Ross & Co. acquisition. Contingent payments of up to $55.0
million are due each year for the five years following the October 2006 date of acquisition
based on the size and number of future fund launches in which W.L. Ross & Co. is integrally
involved. |
21
Legal Contingencies
In July 2010, various closed-end funds formerly advised by Van Kampen Investments or Morgan
Stanley Investment Management included in the acquired business had complaints filed against them
in New York State Court commencing derivative lawsuits purportedly brought on behalf of the common
shareholders of those funds. The funds are nominal defendants in these derivative lawsuits and the
defendants also include Van Kampen Investments (acquired by Invesco on June 1, 2010), Morgan
Stanley Investment Management and certain officers and trustees of the funds who are or were
employees of those firms. Invesco has certain obligations under the applicable acquisition
agreement regarding the defense costs and any damages associated with this litigation. The
plaintiffs allege breaches of fiduciary duties owed by the non-fund defendants to the funds common
shareholders related to the funds redemption in prior periods of Auction Rate Preferred Securities
(ARPS) theretofore issued by the funds. The complaints are similar to other complaints filed
against investment advisers, officers and trustees of closed-end funds in other fund complexes
which issued and redeemed ARPS. The complaints allege that the advisers, distributors and certain
officers and trustees of those funds breached their fiduciary duty by redeeming ARPS at their
liquidation value when there was no obligation to do so and when the value of ARPS in the secondary
marketplace were significantly below their liquidation value. The complaints also allege that the
ARPS redemptions were principally motivated by the fund sponsors interests to preserve
distribution relationships with brokers and other financial intermediaries who held ARPS after
having repurchased them from their own clients. The complaints do not specify alleged damages.
Certain other funds included in the acquired business have received demand letters expressing
similar allegations. Such demand letters could be precursors to additional similar lawsuits being
commenced against those other funds. The Boards of Trustees of the funds established special
committees of independent trustees to conduct an inquiry regarding the allegations set forth in the
complaints and demand letters. Those evaluations have been completed, and the Boards of Trustees
of the funds accepted the recommendation of their special litigation committees to (i) reject the
demands contained in the demand letters and (ii) to seek dismissal of the related lawsuits.
Invesco believes the cases and other claims identified above should be dismissed or otherwise
will terminate, although there can be no assurance of that result. Invesco intends to defend
vigorously any cases which may survive beyond initial motions to dismiss. The company cannot
predict with certainty, however, the eventual outcome of such cases and other claims, nor whether
they will have a material negative impact on the company. The nature and progression of litigation
can make it difficult to predict the impact a particular lawsuit will have on the company. There
are many reasons that the company cannot make these assessments, including, among others, one or
more of the following: the proceeding is in its early stages; the damages sought are unspecified,
unsupportable, unexplained or uncertain; the claimant is seeking relief other than compensatory
damages; the matter presents novel legal claims or other meaningful legal uncertainties; discovery
has not started or is not complete; there are significant facts in dispute; and there are other
parties who may share in any ultimate liability.
The company is from time to time involved in litigation relating to other claims arising in
the ordinary course of its business. Management is of the opinion that the ultimate resolution of
such claims will not materially affect the companys business, financial position, results of
operation or liquidity. In managements opinion, adequate accrual has been made as of June 30, 2011
to provide for any such losses that may arise from matters for which the company could reasonably
estimate an amount. Furthermore, in managements opinion, it is not possible to estimate a range
of reasonably possible losses with respect to other litigation contingencies.
The investment management industry also is subject to extensive levels of ongoing regulatory
oversight and examination. In the United States and other jurisdictions in which the company
operates, governmental authorities regularly make inquiries, hold investigations and administer
market conduct examinations with respect to compliance with applicable laws and regulations.
Additional lawsuits or regulatory enforcement actions arising out of these inquiries may in the
future be filed against the company and related entities and individuals in the U.S. and other
jurisdictions in which the company and its affiliates operate. Any material loss of investor and/or
client confidence as a result of such inquiries and/or litigation could result in a significant
decline in assets under management, which would have an adverse effect on the companys future
financial results and its ability to grow its business.
11. CONSOLIDATED INVESTMENT PRODUCTS
The companys consolidated investment products consist of CLOs, private equity, real estate,
fund-of-funds, and other investment products. The companys risk with respect to each investment in
consolidated investment products is limited to its equity ownership and any uncollected management
fees. Therefore, the gains or losses of consolidated investment products have not had a significant
impact on the companys results of operations, liquidity or capital resources. The company has no
right to the benefits from, nor does it bear the risks associated with, these investments, beyond
the companys minimal direct investments in, and management fees generated from, the investment
products. If the company were to liquidate, these investments would not be available to the general
22
creditors of the company, and as a result, the company does not consider investments held by
consolidated investment products to be company assets. Conversely, if the consolidated investment
products were to liquidate, their investors would have no recourse to the general credit of the
company.
CLOs
A significant portion of consolidated investment products are CLOs. CLOs are investment
vehicles created for the sole purpose of issuing collateralized loan instruments that offer
investors the opportunity for returns that vary with the risk level of their investment. The notes
issued by the CLOs are backed by diversified collateral asset portfolios consisting primarily of
loans or structured debt. For managing the collateral for the CLO entities, the company earns
investment management fees, including in some cases subordinated management fees, as well as
contingent incentive fees. The company has invested in certain of the entities, generally taking a
portion of the unrated, junior subordinated position. The companys investments in CLOs are
generally subordinated to other interests in the entities and entitle the company and other
subordinated tranche investors to receive the residual cash flows, if any, from the entities. The
companys subordinated interest can take the form of (1) subordinated notes, (2) income notes or
(3) preference/preferred shares. The company has determined that, although the junior tranches have
certain characteristics of equity, they should be accounted for and disclosed as debt on the
companys Consolidated Balance Sheet, as the subordinated and income notes have a stated maturity
indicating a date for which they are mandatorily redeemable. The preference shares are also
classified as debt, as redemption is required only upon liquidation or termination of the CLO and
not of the company.
Prior to the adoption of guidance now encompassed in ASC Topic 810 (discussed in Note 1,
Accounting Policies), the companys ownership interests, which were classified as
available-for-sale investments on the companys Consolidated Balance Sheets, combined with its
other interests (management and incentive fees), were quantitatively assessed to determine if the
company is the primary beneficiary of these entities. The company determined, for periods prior to
the adoption of this guidance, that it did not absorb the majority of the expected gains or losses
from the CLOs and therefore was not their primary beneficiary.
Upon adoption of additional guidance now encompassed in ASC Topic 810, the company determined
that it was the primary beneficiary of certain CLOs, as it has the power to direct the activities
of the CLOs that most significantly impact the CLOs economic performance, and the obligation to
absorb losses/right to receive benefits from the CLOs that could potentially be significant to the
CLOs. The primary beneficiary assessment includes an analysis of the rights of the company in its
capacity as investment manager. In certain CLOs, the companys role as investment manager provides
that the company contractually has the power, as defined in ASC Topic 810, to direct the activities
of the CLOs that most significantly impact the CLOs economic performance, such as managing the
collateral portfolio and its credit risk. In other CLOs, the company determined that it does not
have this power in its role as investment manager due to certain restrictions that limit its
ability to manage the collateral portfolio and its credit risk. Additionally, the primary
beneficiary assessment includes an analysis of the companys rights to receive benefits and
obligations to absorb losses associated with its first loss position and management/incentive fees.
As part of this analysis, the company uses a quantitative model to corroborate its qualitative
assessments. The quantitative model includes an analysis of the expected performance of the CLOs
and a comparison of the companys absorption of this performance relative to the other investors in
the CLOs. The company has determined that it could receive significant benefits and/or absorb
significant losses from certain CLOs in which it holds a first loss position and has the right to
significant fees. It was determined that the companys benefits and losses from certain other CLOs
would not be significant, particularly in situations where the company does not hold a first loss
position and where the fee interests are based upon a fixed percentage of collateral asset value.
Private equity, real estate and fund-of-funds (partnerships)
For investment products that are structured as partnerships and are determined to be VIEs,
including private equity funds, real estate funds and fund-of-funds products, the company evaluates
the structure of the partnership to determine if it is the primary beneficiary of the investment
product. This evaluation includes assessing the rights of the limited partners to transfer their
economic interests in the investment product. If the limited partners rights are insufficient to
manage their economic interests, they are considered to be de facto agents of the company, which
may result in the company determining that it is the primary beneficiary of the investment product.
The company generally takes less than a 1% investment in these entities as the general partner.
Non-VIE general partnership investments are deemed to be controlled by the company and are
consolidated under a voting interest entity (VOE) model, unless the limited partners have
substantive kick-out or participating rights. Interests in unconsolidated private equity funds,
real estate funds and fund-of-funds products are classified as equity method investments in the
companys Condensed Consolidated Balance Sheets.
23
Other investment products
As discussed in Note 10, Commitments and Contingencies, the company has entered into
contingent support agreements for two of its investment trusts to enable them to sustain a stable
pricing structure, creating variable interests in these VIEs. The company earns management fees
from the trusts and has a small investment in one of these trusts. The company was not deemed to be
the primary beneficiary of these trusts after considering any explicit and implicit variable
interests in relation to the total expected gains and losses of the trusts.
At June 30, 2011, the companys maximum risk of loss in significant VIEs in which the company
is not the primary beneficiary is presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company's Maximum |
$ in millions |
|
Footnote Reference |
|
Carrying Value |
|
Risk of Loss |
CLO investments |
|
|
3 |
|
|
|
0.4 |
|
|
|
0.4 |
|
Partnership and trust investments |
|
|
|
|
|
|
31.6 |
|
|
|
31.6 |
|
Investments in Invesco Mortgage Capital Inc. |
|
|
|
|
|
|
31.8 |
|
|
|
31.8 |
|
Support agreements* |
|
|
10 |
|
|
|
(1.0 |
) |
|
|
36.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
99.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
As of June 30, 2011, the committed support under these agreements was
$36.0 million with an internal approval mechanism to increase the
maximum possible support to $66.0 million at the option of the
company. |
During the six months ended June 30, 2011, no additional entities were consolidated or
deconsolidated. During the six months ended June 30, 2010, entities were consolidated due to the
adoption of guidance now encompassed in ASC Topic 810 as well as the initial consolidation of
certain CLOs acquired in the June 1, 2010 acquisition. The table below illustrates the summary
balance sheet amounts related to these entities consolidated during the six months ended June 30,
2010. Balances are reflective of the amounts at the respective consolidation dates and are before
consolidation into the company.
Balance Sheet
|
|
|
|
|
$ in millions |
|
CLOs - VIEs |
|
During the six months ended June 30, 2010 |
|
|
|
|
Current assets |
|
|
254.6 |
|
Non-current assets |
|
|
6,188.1 |
|
|
|
|
|
Total assets |
|
|
6,442.7 |
|
|
|
|
|
Current liabilities |
|
|
154.2 |
|
Non-current liabilities |
|
|
5,883.4 |
|
|
|
|
|
Total liabilities |
|
|
6,037.6 |
|
|
|
|
|
Total equity |
|
|
405.1 |
|
|
|
|
|
Total liabilities and equity |
|
|
6,442.7 |
|
|
|
|
|
24
The following tables reflect the impact of consolidation of investment products into the
Condensed Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010, and the Condensed
Consolidated Statements of Income for the six months ended June 30, 2011 and 2010.
Condensed Consolidating Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
$ in millions |
|
Consolidation(1) |
|
|
CLOs-VIEs |
|
|
VIEs |
|
|
VOEs |
|
|
Adjustments(2) |
|
|
Total |
|
As of June 30, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
3,706.4 |
|
|
|
665.5 |
|
|
|
2.6 |
|
|
|
151.2 |
|
|
|
(67.0 |
) |
|
|
4,458.7 |
|
Non-current assets |
|
|
9,197.1 |
|
|
|
6,415.6 |
|
|
|
51.1 |
|
|
|
883.0 |
|
|
|
(89.9 |
) |
|
|
16,456.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
12,903.5 |
|
|
|
7,081.1 |
|
|
|
53.7 |
|
|
|
1,034.2 |
|
|
|
(156.9 |
) |
|
|
20,915.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
2,990.7 |
|
|
|
399.7 |
|
|
|
0.6 |
|
|
|
8.9 |
|
|
|
(35.3 |
) |
|
|
3,364.6 |
|
Long-term debt of
consolidated investment
products |
|
|
|
|
|
|
6,341.2 |
|
|
|
|
|
|
|
|
|
|
|
(48.5 |
) |
|
|
6,292.7 |
|
Other non-current liabilities |
|
|
2,060.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,060.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
5,051.2 |
|
|
|
6,740.9 |
|
|
|
0.6 |
|
|
|
8.9 |
|
|
|
(83.8 |
) |
|
|
11,717.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings
appropriated for investors
in consolidated investment
products |
|
|
|
|
|
|
340.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
340.2 |
|
Other equity attributable to
common shareholders |
|
|
7,847.6 |
|
|
|
|
|
|
|
0.1 |
|
|
|
73.5 |
|
|
|
(73.1 |
) |
|
|
7,848.1 |
|
Equity attributable to
noncontrolling interests in
consolidated entities |
|
|
4.7 |
|
|
|
|
|
|
|
53.0 |
|
|
|
951.8 |
|
|
|
|
|
|
|
1,009.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
|
12,903.5 |
|
|
|
7,081.1 |
|
|
|
53.7 |
|
|
|
1,034.2 |
|
|
|
(156.9 |
) |
|
|
20,915.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
$ in millions |
|
Consolidation(1) |
|
|
CLOs-VIEs |
|
|
VIEs |
|
|
VOEs |
|
|
Adjustments(2) |
|
|
Total |
|
As of December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
3,480.0 |
|
|
|
679.3 |
|
|
|
3.7 |
|
|
|
133.8 |
|
|
|
(22.3 |
) |
|
|
4,274.5 |
|
Non-current assets |
|
|
9,025.1 |
|
|
|
6,204.6 |
|
|
|
59.6 |
|
|
|
941.3 |
|
|
|
(61.0 |
) |
|
|
16,169.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
12,505.1 |
|
|
|
6,883.9 |
|
|
|
63.3 |
|
|
|
1075.1 |
|
|
|
(83.3 |
) |
|
|
20,444.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
2,777.9 |
|
|
|
500.2 |
|
|
|
0.9 |
|
|
|
7.8 |
|
|
|
(22.3 |
) |
|
|
3,264.5 |
|
Long-term debt of
consolidated investment
products |
|
|
|
|
|
|
5,888.2 |
|
|
|
|
|
|
|
|
|
|
|
(22.8 |
) |
|
|
5,865.4 |
|
Other non-current liabilities |
|
|
1,953.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,953.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
4,731.2 |
|
|
|
6,388.4 |
|
|
|
0.9 |
|
|
|
7.8 |
|
|
|
(45.1 |
) |
|
|
11,083.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings
appropriated for investors
in consolidated investment
products |
|
|
|
|
|
|
495.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
495.5 |
|
Other equity attributable to
common shareholders |
|
|
7,769.1 |
|
|
|
|
|
|
|
0.1 |
|
|
|
38.1 |
|
|
|
(38.2 |
) |
|
|
7,769.1 |
|
Equity attributable to
noncontrolling interests in
consolidated entities |
|
|
4.8 |
|
|
|
|
|
|
|
62.3 |
|
|
|
1,029.2 |
|
|
|
|
|
|
|
1,096.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
|
12,505.1 |
|
|
|
6,883.9 |
|
|
|
63.3 |
|
|
|
1,075.1 |
|
|
|
(83.3 |
) |
|
|
20,444.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Before Consolidation column includes Invescos equity interest in
the investment products subsequently consolidated, accounted for as
equity method and available-for-sale investments. |
|
(2) |
|
Adjustments include the elimination of intercompany transactions
between the company and its consolidated investment products,
primarily the elimination of the companys equity at risk recorded as
investments by the company (before consolidation) against either the
equity (private equity and real estate partnership funds) or debt
(CLOs) of the consolidated investment products. |
25
Condensed Consolidating Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
$ in millions |
|
Consolidation(1) |
|
|
CLOs-VIEs |
|
|
VIEs |
|
|
VOEs |
|
|
Adjustments(1)(2) |
|
|
Total |
|
Three months ended June 30, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
1,082.1 |
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
(12.2 |
) |
|
|
1,070.0 |
|
Total operating expenses |
|
|
833.4 |
|
|
|
12.1 |
|
|
|
0.2 |
|
|
|
3.5 |
|
|
|
(12.2 |
) |
|
|
837.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
248.7 |
|
|
|
(12.1 |
) |
|
|
(0.2 |
) |
|
|
(3.4 |
) |
|
|
|
|
|
|
233.0 |
|
Equity in earnings of unconsolidated affiliates |
|
|
10.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.3 |
|
|
|
10.8 |
|
Interest and dividend income |
|
|
4.0 |
|
|
|
79.8 |
|
|
|
|
|
|
|
|
|
|
|
(1.6 |
) |
|
|
82.2 |
|
Other investment income/(losses) |
|
|
6.0 |
|
|
|
(73.8 |
) |
|
|
0.6 |
|
|
|
3.4 |
|
|
|
5.1 |
|
|
|
(58.7 |
) |
Interest expense |
|
|
(16.0 |
) |
|
|
(48.1 |
) |
|
|
|
|
|
|
|
|
|
|
1.6 |
|
|
|
(62.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
253.2 |
|
|
|
(54.2 |
) |
|
|
0.4 |
|
|
|
|
|
|
|
5.4 |
|
|
|
204.8 |
|
Income tax provision |
|
|
(75.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(75.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
177.8 |
|
|
|
(54.2 |
) |
|
|
0.4 |
|
|
|
|
|
|
|
5.4 |
|
|
|
129.4 |
|
(Gains)/losses attributable to noncontrolling
interests in consolidated entities, net |
|
|
|
|
|
|
54.2 |
|
|
|
(0.4 |
) |
|
|
(0.2 |
) |
|
|
|
|
|
|
53.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders |
|
|
177.8 |
|
|
|
|
|
|
|
|
|
|
|
(0.2 |
) |
|
|
5.4 |
|
|
|
183.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
$ in millions |
|
Consolidation(1) |
|
|
CLOs-VIEs |
|
|
VIEs |
|
|
VOEs |
|
|
Adjustments(1)(2) |
|
|
Total |
|
Three months ended June 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
799.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12.3 |
) |
|
|
787.0 |
|
Total operating expenses |
|
|
712.9 |
|
|
|
10.2 |
|
|
|
0.6 |
|
|
|
4.2 |
|
|
|
(12.3 |
) |
|
|
715.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
86.4 |
|
|
|
(10.2 |
) |
|
|
(0.6 |
) |
|
|
(4.2 |
) |
|
|
|
|
|
|
71.4 |
|
Equity in earnings of unconsolidated affiliates |
|
|
10.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.2 |
) |
|
|
10.4 |
|
Interest and dividend income |
|
|
1.8 |
|
|
|
54.3 |
|
|
|
|
|
|
|
|
|
|
|
(1.2 |
) |
|
|
54.9 |
|
Other investment income/(losses) |
|
|
(9.3 |
) |
|
|
155.7 |
|
|
|
1.3 |
|
|
|
27.8 |
|
|
|
2.4 |
|
|
|
177.9 |
|
Interest expense |
|
|
(14.1 |
) |
|
|
(26.8 |
) |
|
|
|
|
|
|
|
|
|
|
1.2 |
|
|
|
(39.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
75.4 |
|
|
|
173.0 |
|
|
|
0.7 |
|
|
|
23.6 |
|
|
|
2.2 |
|
|
|
274.9 |
|
Income tax provision |
|
|
(36.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
38.7 |
|
|
|
173.0 |
|
|
|
0.7 |
|
|
|
23.6 |
|
|
|
2.2 |
|
|
|
238.2 |
|
(Gains)/losses attributable to noncontrolling
interests in consolidated entities, net |
|
|
(0.1 |
) |
|
|
(173.0 |
) |
|
|
(0.7 |
) |
|
|
(23.6 |
) |
|
|
|
|
|
|
(197.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders |
|
|
38.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.2 |
|
|
|
40.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Before Consolidation column includes Invescos equity interest in
the investment products accounted for as equity method (private equity
and real estate partnership funds) and available-for-sale investments
(CLOs). Upon consolidation of the CLOs, the companys and the CLOs
accounting policies were effectively aligned, resulting in the
reclassification of the companys gain for the three months ended June
30, 2011 of $5.1 million (representing the increase in the market
value of the companys holding in the consolidated CLOs) from other
comprehensive income into other gains/losses (three months ended June
30, 2010: $2.4 million). The companys gain on its investments in the
CLOs (before consolidation) eliminates with the companys share of the
offsetting loss on the CLOs debt. The net income arising from
consolidation of CLOs is therefore completely attributed to other
investors in these CLOs, as the companys share has been eliminated
through consolidation. |
|
(2) |
|
Adjustments include the elimination of intercompany transactions
between the company and its consolidated investment products,
primarily the elimination of management fees expensed by the funds and
recorded as operating revenues (before consolidation) by the company. |
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
$ in millions |
|
Consolidation(1) |
|
|
CLOs-VIEs |
|
|
VIEs |
|
|
VOEs |
|
|
Adjustments(1)(2) |
|
|
Total |
|
Six months ended June 30, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
2,120.5 |
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
(23.3 |
) |
|
|
2,097.3 |
|
Total operating expenses |
|
|
1,631.3 |
|
|
|
24.3 |
|
|
|
0.5 |
|
|
|
5.8 |
|
|
|
(23.3 |
) |
|
|
1,638.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
489.2 |
|
|
|
(24.3 |
) |
|
|
(0.5 |
) |
|
|
(5.7 |
) |
|
|
|
|
|
|
458.7 |
|
Equity in earnings of unconsolidated affiliates |
|
|
18.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.9 |
) |
|
|
17.5 |
|
Interest and dividend income |
|
|
7.3 |
|
|
|
154.0 |
|
|
|
|
|
|
|
|
|
|
|
(2.8 |
) |
|
|
158.5 |
|
Other investment income/(losses) |
|
|
13.9 |
|
|
|
(210.6 |
) |
|
|
0.9 |
|
|
|
44.5 |
|
|
|
15.0 |
|
|
|
(136.3 |
) |
Interest expense |
|
|
(32.2 |
) |
|
|
(89.3 |
) |
|
|
|
|
|
|
|
|
|
|
2.8 |
|
|
|
(118.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
496.6 |
|
|
|
(170.2 |
) |
|
|
0.4 |
|
|
|
38.8 |
|
|
|
14.1 |
|
|
|
379.7 |
|
Income tax provision |
|
|
(151.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(151.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
345.6 |
|
|
|
(170.2 |
) |
|
|
0.4 |
|
|
|
38.8 |
|
|
|
14.1 |
|
|
|
228.7 |
|
(Gains)/losses attributable to noncontrolling
interests in consolidated entities, net |
|
|
0.1 |
|
|
|
170.2 |
|
|
|
(0.4 |
) |
|
|
(38.1 |
) |
|
|
|
|
|
|
131.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders |
|
|
345.7 |
|
|
|
|
|
|
|
|
|
|
|
0.7 |
|
|
|
14.1 |
|
|
|
360.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
$ in millions |
|
Consolidation(1) |
|
|
CLOs-VIEs |
|
|
VIEs |
|
|
VOEs |
|
|
Adjustments(1)(2) |
|
|
Total |
|
Six months ended June 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
1,528.8 |
|
|
|
|
|
|
|
|
|
|
|
0.2 |
|
|
|
(22.9 |
) |
|
|
1,506.1 |
|
Total operating expenses |
|
|
1,291.9 |
|
|
|
21.2 |
|
|
|
1.0 |
|
|
|
6.6 |
|
|
|
(22.9 |
) |
|
|
1,297.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
236.9 |
|
|
|
(21.2 |
) |
|
|
(1.0 |
) |
|
|
(6.4 |
) |
|
|
|
|
|
|
208.3 |
|
Equity in earnings of unconsolidated affiliates |
|
|
16.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.4 |
) |
|
|
16.2 |
|
Interest and dividend income |
|
|
3.4 |
|
|
|
107.4 |
|
|
|
|
|
|
|
|
|
|
|
(1.8 |
) |
|
|
109.0 |
|
Other investment income/(losses) |
|
|
(11.4 |
) |
|
|
239.4 |
|
|
|
4.5 |
|
|
|
42.6 |
|
|
|
3.8 |
|
|
|
278.9 |
|
Interest expense |
|
|
(26.5 |
) |
|
|
(48.2 |
) |
|
|
|
|
|
|
|
|
|
|
1.8 |
|
|
|
(72.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
219.0 |
|
|
|
277.4 |
|
|
|
3.5 |
|
|
|
36.2 |
|
|
|
3.4 |
|
|
|
539.5 |
|
Income tax provision |
|
|
(86.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(86.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
132.2 |
|
|
|
277.4 |
|
|
|
3.5 |
|
|
|
36.2 |
|
|
|
3.4 |
|
|
|
452.7 |
|
(Gains)/losses attributable to noncontrolling
interests in consolidated entities, net |
|
|
(0.2 |
) |
|
|
(277.4 |
) |
|
|
(3.5 |
) |
|
|
(35.8 |
) |
|
|
|
|
|
|
(316.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders |
|
|
132.0 |
|
|
|
|
|
|
|
|
|
|
|
0.4 |
|
|
|
3.4 |
|
|
|
135.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Before Consolidation column includes Invescos equity interest in
the investment products accounted for as equity method (private equity
and real estate partnership funds) and available-for-sale investments
(CLOs). Upon consolidation of the CLOs, the companys and the CLOs
accounting policies were effectively aligned, resulting in the
reclassification of the companys gain for the six months ended June
30, 2011 of $15.0 million (representing the increase in the market
value of the companys holding in the consolidated CLOs) from other
comprehensive income into other gains/losses (six months ended June
30, 2010: $3.8 million). The companys gain on its investments in the
CLOs (before consolidation) eliminates with the companys share of the
offsetting loss on the CLOs debt. The net income arising from
consolidation of CLOs is therefore completely attributed to other
investors in these CLOs, as the companys share has been eliminated
through consolidation. |
|
(2) |
|
Adjustments include the elimination of intercompany transactions
between the company and its consolidated investment products,
primarily the elimination of management fees expensed by the funds and
recorded as operating revenues (before consolidation) by the company. |
27
The carrying value of investments held, derivative contracts, and notes issued by consolidated
investment products is also their fair value. The following table presents the fair value hierarchy
levels of investments held, derivative contracts, and notes issued by consolidated investment
products, which are measured at fair value as of June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2011 |
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for |
|
|
Significant Other |
|
|
Significant |
|
|
|
Fair Value |
|
|
Identical Assets |
|
|
Observable Inputs |
|
|
Unobservable |
|
$ in millions |
|
Measurements |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
Inputs (Level 3) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLO collateral assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank loans |
|
|
6,050.5 |
|
|
|
|
|
|
|
6,050.5 |
|
|
|
|
|
Bonds |
|
|
326.3 |
|
|
|
326.3 |
|
|
|
|
|
|
|
|
|
Equity securities |
|
|
38.8 |
|
|
|
38.8 |
|
|
|
|
|
|
|
|
|
CLO-related derivative assets |
|
|
16.5 |
|
|
|
|
|
|
|
16.5 |
|
|
|
|
|
Private equity fund assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
|
132.9 |
|
|
|
15.7 |
|
|
|
|
|
|
|
117.2 |
|
Investments in other private equity funds |
|
|
568.9 |
|
|
|
|
|
|
|
|
|
|
|
568.9 |
|
Debt securities issued by the U.S. Treasury |
|
|
8.5 |
|
|
|
8.5 |
|
|
|
|
|
|
|
|
|
Real estate investments |
|
|
223.7 |
|
|
|
|
|
|
|
|
|
|
|
223.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value |
|
|
7,366.1 |
|
|
|
389.3 |
|
|
|
6,067.0 |
|
|
|
909.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLO notes |
|
|
(6,292.7 |
) |
|
|
|
|
|
|
|
|
|
|
(6,292.7 |
) |
CLO-related derivative liabilities |
|
|
(7.5 |
) |
|
|
|
|
|
|
(7.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value |
|
|
(6,300.2 |
) |
|
|
|
|
|
|
(7.5 |
) |
|
|
(6,292.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the fair value hierarchy levels of investments held, derivative
contracts, and notes issued by consolidated investment products, which are measured at fair value
as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010 |
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for |
|
|
Significant Other |
|
|
Significant |
|
|
|
Fair Value |
|
|
Identical Assets |
|
|
Observable Inputs |
|
|
Unobservable |
|
$ in millions |
|
Measurements |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
Inputs (Level 3) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLO collateral assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank loans |
|
|
5,910.6 |
|
|
|
|
|
|
|
5,910.6 |
|
|
|
|
|
Bonds |
|
|
261.1 |
|
|
|
261.1 |
|
|
|
|
|
|
|
|
|
Equity securities |
|
|
32.9 |
|
|
|
32.9 |
|
|
|
|
|
|
|
|
|
CLO-related derivative assets |
|
|
20.2 |
|
|
|
|
|
|
|
20.2 |
|
|
|
|
|
Private equity fund assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
|
114.4 |
|
|
|
17.6 |
|
|
|
|
|
|
|
96.8 |
|
Investments in other private equity funds |
|
|
586.1 |
|
|
|
|
|
|
|
|
|
|
|
586.1 |
|
Debt securities issued by the U.S. Treasury |
|
|
11.0 |
|
|
|
11.0 |
|
|
|
|
|
|
|
|
|
Real estate investments |
|
|
289.9 |
|
|
|
|
|
|
|
|
|
|
|
289.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value |
|
|
7,226.2 |
|
|
|
332.6 |
|
|
|
5,930.8 |
|
|
|
972.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLO notes |
|
|
(5,865.4 |
) |
|
|
|
|
|
|
|
|
|
|
(5,865.4 |
) |
CLO-related derivative liabilities |
|
|
(6.6 |
) |
|
|
|
|
|
|
(6.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value |
|
|
(5,872.0 |
) |
|
|
|
|
|
|
(6.6 |
) |
|
|
(5,865.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
28
The following table shows a reconciliation of the beginning and ending fair value
measurements for level 3 assets and liabilities using significant unobservable inputs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months Ended June 30, 2011 |
|
|
Six months Ended June 30, 2011 |
|
$ in millions |
|
Level 3 Assets |
|
|
Level 3 Liabilities |
|
|
Level 3 Assets |
|
|
Level 3 Liabilities |
|
Beginning balance |
|
|
950.3 |
|
|
|
(6,291.0 |
) |
|
|
972.8 |
|
|
|
(5,865.4 |
) |
Purchases, sales,
issuances, and
settlements/prepayments,
net* |
|
|
(40.4 |
) |
|
|
160.8 |
|
|
|
(104.6 |
) |
|
|
260.0 |
|
Gains and losses included
in the Condensed
Consolidated Statements of
Income** |
|
|
5.7 |
|
|
|
(52.8 |
) |
|
|
47.4 |
|
|
|
(433.7 |
) |
Foreign exchange |
|
|
(5.8 |
) |
|
|
(109.7 |
) |
|
|
(5.8 |
) |
|
|
(253.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
|
909.8 |
|
|
|
(6,292.7 |
) |
|
|
909.8 |
|
|
|
(6,292.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months Ended June 30, 2010 |
|
|
Six months Ended June 30, 2010 |
|
$ in millions |
|
Level 3 Assets |
|
|
Level 3 Liabilities |
|
|
Level 3 Assets |
|
|
Level 3 Liabilities |
|
Beginning balance |
|
|
665.5 |
|
|
|
(5,119.1 |
) |
|
|
667.1 |
|
|
|
(5,234.9 |
) |
Purchases, sales,
issuances, and
settlements/prepayments,
net* |
|
|
(30.1 |
) |
|
|
55.0 |
|
|
|
(47.3 |
) |
|
|
102.4 |
|
Acquisition of business |
|
|
|
|
|
|
(630.2 |
) |
|
|
|
|
|
|
(630.2 |
) |
Gains and losses included
in the Condensed
Consolidated Statements of
Income** |
|
|
27.3 |
|
|
|
119.0 |
|
|
|
42.9 |
|
|
|
55.9 |
|
Foreign exchange |
|
|
|
|
|
|
170.9 |
|
|
|
|
|
|
|
302.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
|
662.7 |
|
|
|
(5,404.4 |
) |
|
|
662.7 |
|
|
|
(5,404.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Prior to the adoption of guidance included in ASU 2010-06, discussed
in Note 1, Accounting Policies, purchases and sales, were presented
net. For the three and six months ended June 30, 2011, the
consolidated funds recorded $17.7 million and $26.9 million related to
purchase activity and $58.1 million and $131.5 million of sale
activity, respectively, of level 3 assets. For three and six months
ended June 30, 2011, the consolidated funds recorded $160.8 million
and $260.0 million, respectively, related to the settlement of level 3
liabilities. |
|
** |
|
Included in gains and losses of consolidated investment products in
the Condensed Consolidated Statement of Income for the three and six
months ended June 30, 2011 are $6.9 million in net unrealized losses
and $11.0 million in net unrealized gains, respectively, attributable
to investments still held at June 30, 2011 by consolidated investment
products (three and six months ended June 30, 2010: $23.5 million and
$42.1 million, respectively, attributable to investments still held at
June 30, 2010). |
Unforeseen events might occur that would subsequently change the fair values of investments of
consolidated investment products, but such changes would be inconsequential to the company due to
its minimal investments in these products (and the large offsetting appropriated retained earnings
and noncontrolling interests resulting from their consolidation). Any gains or losses resulting
from valuation changes in these investments are substantially offset by resulting changes in gains
and losses attributable to noncontrolling interests in consolidated entities and therefore do not
have a material effect on the financial condition, operating results (including earnings per
share), liquidity or capital resources of the companys common shareholders.
Fair value of consolidated CLOs
The company elected the fair value option for collateral assets held and notes issued by its
consolidated CLOs to eliminate the measurement and recognition inconsistency that would otherwise
arise from measuring assets and liabilities and recognizing the related gains and losses on
different accounting bases.
The collateral assets held by consolidated CLOs are primarily invested in senior secured bank
loans, bonds, and equity securities. Bank loan investments, which comprise the majority of
consolidated CLO portfolio collateral, are senior secured corporate loans from a variety of
industries, including but not limited to the aerospace and defense, broadcasting, technology,
utilities, household products, healthcare, oil and gas, and finance industries. Bank loan
investments mature at various dates between 2011 and 2021, pay interest at Libor or Euribor plus a
spread of up to 13.0%, and typically range in S&P credit rating categories from BBB down to
unrated. At June 30, 2011 the unpaid principal balance exceeded the fair value of the senior
secured bank loans and bonds by approximately $349 million (December 31, 2010: $261 million
excess). Less than 1% of the collateral assets are in default as of June 30, 2011 (December
29
31, 2010: less than 2% of the collateral assets were in default). CLO investments are valued
based on price quotations provided by an independent third-party pricing source. For bank loan
investments, in the event that the third-party pricing source is unable to price an investment,
other relevant factors, data and information are considered, including: i) information relating to
the market for the investment, including price quotations for and trading in the investment and
interest in similar investments and the market environment and investor attitudes towards the
investment and interests in similar investments; ii) the characteristics of and fundamental
analytical data relating to the investment, including, for senior secured corporate loans, the
cost, current interest rate, period until next interest rate reset, maturity and base lending rate,
the terms and conditions of the senior secured corporate loan and any related agreements, and the
position of the senior secured corporate loan in the borrowers debt structure; iii) the nature,
adequacy and value of the senior secured corporate loans collateral, including the CLOs rights,
remedies and interests with respect to the collateral; iv) the creditworthiness of the borrower,
based on an evaluation of its financial condition, financial statements and information about the
business, cash flows, capital structure and future prospects; v) the reputation and financial
condition of the agent and any intermediate participants in the senior secured corporate loan; and
vi) general economic and market conditions affecting the fair value of the senior secured corporate
loan.
Notes issued by consolidated CLOs mature at various dates between 2014 and 2024 and have
a weighted average maturity of 9.4 years. The notes are issued in various tranches with different
risk profiles. The interest rates are generally variable rates based on Libor or Euribor plus a
pre-defined spread, which varies from 0.21% for the more senior tranches to 7.50% for the more
subordinated tranches. At June 30, 2011, the outstanding balance on the notes issued by
consolidated CLOs exceeds their fair value by approximately $0.8 billion (December 31, 2010: $1.2
billion excess). The investors in this debt are not affiliated with the company and have no
recourse to the general credit of the company. Notes issued by CLOs are recorded at fair value
using an income approach. Fair value is determined using current information, notably market yields
and projected cash flows of collateral assets, which are impacted by forecasted default and
recovery rates. Market yields, default rates and recovery rates used in the companys estimate of
fair value vary based on the nature of the investments in the underlying collateral pools. In
periods of rising market yields, default rates and lower debt recovery rates, the fair value, and
therefore the carrying value, of the notes may be adversely affected. The current liquidity
constraints within the market for CLO products require the use of certain unobservable inputs for
CLO valuation. Once the undiscounted cash flows of the collateral assets have been determined, the
company applies market participant discount rates to determine the fair value of the notes.
The significant inputs used in the valuation of the notes issued by consolidated CLOs include
a cumulative average default rate between 1% and 4% and discount rates derived by utilizing the
applicable forward rate curves and appropriate spreads.
Certain consolidated CLOs with Euro-denominated debt have entered into swap agreements with
various counterparties to hedge economically interest rate and foreign exchange risk related to CLO
collateral assets with non-Euro interest rates and currencies. These swap agreements are not
designated as qualifying as hedging instruments. The fair value of derivative contracts in an asset
position is included in the companys Condensed Consolidated Balance Sheet in other current assets,
and the fair value of derivative contracts in a liability position is included in the companys
Condensed Consolidated Balance Sheet in other current liabilities. These derivative contracts are
valued under an income approach using forecasted interest rates and are classified within level 2
of the valuation hierarchy. Changes in fair value of $1.9 million and $5.7 million are reflected in
gains/(losses) of consolidated investment products, net on the companys Condensed Consolidated
Statement of Income for the three and six months ended June 30, 2011 (three months and six months
ended June 30, 2010: none). As of June 30, 2011, there were 80 open swap agreements with a notional
value of $161.0 million (December 31, 2010: 105 open swap agreements with a notional value of
$168.4 million). Swap maturities are tied to the maturity of the underlying collateral assets.
Fair value of consolidated private equity funds
Consolidated private equity funds are generally structured as partnerships. Generally, the
investment strategy of underlying holdings in these partnerships is to seek capital appreciation
through direct investments in public or private companies with compelling business models or ideas
or through investments in partnership investments that also invest in similar private or public
companies. Various strategies may be used. Companies targeted could be distressed organizations,
targets of leveraged buyouts or fledgling companies in need of venture capital. Investees of these
consolidated investment products may not redeem their investment until the partnership liquidates.
Generally, the partnerships have a life that range from seven to twelve years unless dissolved
earlier. The general partner may extend the partnership term up to a specified period of time as
stated in the Partnership Agreement. Some partnerships allow the limited partners to cause an
earlier termination upon the occurrence of certain events as specified in the Partnership
Agreement.
30
For private equity partnerships, fair value is determined by reviewing each investment for the
sale of additional securities of an issuer to sophisticated investors or for investee financial
conditions and fundamentals. Publicly traded portfolio investments are carried at market value as
determined by their most recent quoted sale, or if there is no recent sale, at their most recent
bid price. For these investments held by consolidated investment products, level 1 classification
indicates that fair values have been determined using unadjusted quoted prices in active markets
for identical assets that the partnership has the ability to access. Level 2 classification may
indicate that fair values have been determined using quoted prices in active markets but give
effect to certain lock-up restrictions surrounding the holding period of the underlying
investments.
The fair value of level 3 investments held by consolidated investment products are derived
from inputs that are unobservable and which reflect the limited partnerships own determinations
about the assumptions that market participants would use in pricing the investments, including
assumptions about risk. These inputs are developed based on the partnerships own data, which is
adjusted if information indicates that market participants would use different assumptions. The
partnerships which invest directly into private equity portfolio companies (direct private equity
funds) take into account various market conditions, subsequent rounds of financing, liquidity,
financial condition, purchase multiples paid in other comparable third-party transactions, the
price of securities of other companies comparable to the portfolio company, and operating results
and other financial data of the portfolio company, as applicable.
The partnerships which invest into other private equity funds (funds-of-funds) take into
account information received from those underlying funds, including their reported net asset values
and evidence as to their fair value approach, including consistency of their fair value
application. These investments do not trade in active markets and represent illiquid long-term
investments that generally require future capital commitments. While the partnerships reported
share of the underlying net asset values of the underlying funds is usually the most significant
input in arriving at fair value and is generally representative of fair value, other information
may also be used to value such investments at a premium or discount to the net asset values as
reported by the funds, including allocations of priority returns within the funds as well as any
specific conditions and events affecting the funds.
Fair value of consolidated real estate funds
Consolidated real estate funds are structured as limited liability companies. These limited
liability companies invest in other real estate investment vehicles, and these investments are
carried at fair value and presented as investments in consolidated investment products. The net
asset value of the underlying vehicles, which primarily consists of the real estate investment
value and mortgage loans, is adjusted to fair value. Fair value is defined as the price that would
be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. Real estate assets are classified within the fair
value hierarchy based on the lowest level of input that is significant to the fair value
measurement. Due to the illiquid nature of investments made in real estate companies, all of the
real estate assets are classified as level 3. The real estate investment vehicles use one or more
valuation techniques (e.g., the market approach, the income approach, or the cost approach) for
which sufficient and reliable data is available to value investments classified within level 3. The
income approach generally consists of the net present value of estimated future cash flows,
adjusted as appropriate for liquidity, credit, market and/or other risk factors.
The inputs used in estimating the value of level 3 investments include the original
transaction price, recent transactions in the same or similar instruments, as well as completed or
pending third-party transactions in the underlying investment or comparable investments. Level 3
investments may also be adjusted to reflect illiquidity and/or non-transferability. Other inputs
used include discount rates, cap rates and income and expense assumptions. The fair value
measurement of level 3 investments does not include transaction costs and acquisition fees that may
have been capitalized as part of the investments cost basis. Due to the lack of observable inputs,
the assumptions used may significantly impact the resulting fair value and therefore the
consolidated real estate vehicles results of operations.
12. GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Invesco Holding Company Limited, the Issuer and a subsidiary of Invesco Ltd. (the Parent),
issued 5.625% $300.0 million senior notes due 2012, 5.375% $350.0 million senior notes due 2013,
and 5.375% $200.0 million senior notes due 2014. These senior notes, are fully and unconditionally
guaranteed as to payment of principal, interest and any other amounts due thereon by the Parent,
together with the following wholly owned subsidiaries: Invesco Management Group, Inc., Invesco
Advisers, Inc., and Invesco North American Holdings, Inc. (the Guarantors). The companys remaining
consolidated subsidiaries do not guarantee this debt. The guarantees of each of the Guarantors are
joint and several. Presented below are Condensed Consolidating Balance Sheets as of June 30, 2011,
and December 31, 2010, Condensed Consolidating Statements of Income for the three and six months
ended June 30, 2011 and 2010, and Condensed Consolidating Statements of Cash Flows for the six
months ended June 30, 2011 and 2010.
31
Condensed Consolidating Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in millions |
|
Guarantors |
|
|
Non-Guarantors |
|
|
Issuer |
|
|
Parent |
|
|
Adjustments |
|
|
Consolidated |
|
As of June 30, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets held for policyholders |
|
|
|
|
|
|
1,373.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,373.2 |
|
Other current assets |
|
|
246.7 |
|
|
|
2,800.0 |
|
|
|
1.8 |
|
|
|
37.0 |
|
|
|
|
|
|
|
3,085.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
246.7 |
|
|
|
4,173.2 |
|
|
|
1.8 |
|
|
|
37.0 |
|
|
|
|
|
|
|
4,458.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
2,323.2 |
|
|
|
4,309.4 |
|
|
|
458.0 |
|
|
|
|
|
|
|
|
|
|
|
7,090.6 |
|
Investments in subsidiaries |
|
|
1,241.3 |
|
|
|
7.6 |
|
|
|
5,021.6 |
|
|
|
8,542.3 |
|
|
|
(14,812.8 |
) |
|
|
|
|
Other non-current assets |
|
|
583.6 |
|
|
|
8,775.6 |
|
|
|
4.3 |
|
|
|
2.8 |
|
|
|
|
|
|
|
9,366.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
4,394.8 |
|
|
|
17,265.8 |
|
|
|
5,485.7 |
|
|
|
8,582.1 |
|
|
|
(14,812.8 |
) |
|
|
20,915.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder payables |
|
|
|
|
|
|
1,373.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,373.2 |
|
Other current liabilities |
|
|
69.7 |
|
|
|
1,690.4 |
|
|
|
230.5 |
|
|
|
0.8 |
|
|
|
|
|
|
|
1,991.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
69.7 |
|
|
|
3,063.6 |
|
|
|
230.5 |
|
|
|
0.8 |
|
|
|
|
|
|
|
3,364.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany balances |
|
|
838.4 |
|
|
|
(1,275.7 |
) |
|
|
44.3 |
|
|
|
393.0 |
|
|
|
|
|
|
|
|
|
Non-current liabilities |
|
|
929.8 |
|
|
|
6,892.8 |
|
|
|
530.6 |
|
|
|
|
|
|
|
|
|
|
|
8,353.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
1,837.9 |
|
|
|
8,680.7 |
|
|
|
805.4 |
|
|
|
393.8 |
|
|
|
|
|
|
|
11,717.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity attributable to common shareholders |
|
|
2,556.9 |
|
|
|
7,575.6 |
|
|
|
4,680.3 |
|
|
|
8,188.3 |
|
|
|
(14,812.8 |
) |
|
|
8,188.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity attributable to noncontrolling interests
in consolidated entities |
|
|
|
|
|
|
1,009.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,009.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
2,556.9 |
|
|
|
8,585.1 |
|
|
|
4,680.3 |
|
|
|
8,188.3 |
|
|
|
(14,812.8 |
) |
|
|
9,197.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
|
4,394.8 |
|
|
|
17,265.8 |
|
|
|
5,485.7 |
|
|
|
8,582.1 |
|
|
|
(14,812.8 |
) |
|
|
20,915.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in millions |
|
Guarantors |
|
|
Non-Guarantors |
|
|
Issuer |
|
|
Parent |
|
|
Adjustments |
|
|
Consolidated |
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets held for policyholders |
|
|
|
|
|
|
1,295.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,295.4 |
|
Other current assets |
|
|
175.7 |
|
|
|
2,766.7 |
|
|
|
3.0 |
|
|
|
33.7 |
|
|
|
|
|
|
|
2,979.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
175.7 |
|
|
|
4,062.1 |
|
|
|
3.0 |
|
|
|
33.7 |
|
|
|
|
|
|
|
4,274.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
2,322.9 |
|
|
|
4,216.5 |
|
|
|
440.8 |
|
|
|
|
|
|
|
|
|
|
|
6,980.2 |
|
Investments in subsidiaries |
|
|
1,333.8 |
|
|
|
5.5 |
|
|
|
4,766.1 |
|
|
|
8,400.6 |
|
|
|
(14,506.0 |
) |
|
|
|
|
Other non-current assets |
|
|
557.0 |
|
|
|
8,625.0 |
|
|
|
4.5 |
|
|
|
2.9 |
|
|
|
|
|
|
|
9,189.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
4,389.4 |
|
|
|
16,909.1 |
|
|
|
5,214.4 |
|
|
|
8,437.2 |
|
|
|
(14,506.0 |
) |
|
|
20,444.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder payables |
|
|
|
|
|
|
1,295.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,295.4 |
|
Other current liabilities |
|
|
112.5 |
|
|
|
1,850.4 |
|
|
|
5.5 |
|
|
|
0.7 |
|
|
|
|
|
|
|
1,969.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
112.5 |
|
|
|
3,145.8 |
|
|
|
5.5 |
|
|
|
0.7 |
|
|
|
|
|
|
|
3,264.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany balances |
|
|
1,299.8 |
|
|
|
(1,449.6 |
) |
|
|
(22.1 |
) |
|
|
171.9 |
|
|
|
|
|
|
|
|
|
Non-current liabilities |
|
|
597.0 |
|
|
|
6,476.0 |
|
|
|
745.7 |
|
|
|
|
|
|
|
|
|
|
|
7,818.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
2,009.3 |
|
|
|
8,172.2 |
|
|
|
729.1 |
|
|
|
172.6 |
|
|
|
|
|
|
|
11,083.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity attributable to common shareholders |
|
|
2,380.1 |
|
|
|
7,640.6 |
|
|
|
4,485.3 |
|
|
|
8,264.6 |
|
|
|
(14,506.0 |
) |
|
|
8,264.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity attributable to noncontrolling interests
in consolidated entities |
|
|
|
|
|
|
1,096.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,096.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
2,380.1 |
|
|
|
8,736.9 |
|
|
|
4,485.3 |
|
|
|
8,264.6 |
|
|
|
(14,506.0 |
) |
|
|
9,360.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
|
4,389.4 |
|
|
|
16,909.1 |
|
|
|
5,214.4 |
|
|
|
8,437.2 |
|
|
|
(14,506.0 |
) |
|
|
20,444.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
Condensed Consolidating Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in millions |
|
Guarantors |
|
|
Non- Guarantors |
|
|
Issuer |
|
|
Parent |
|
|
Adjustments |
|
|
Consolidated |
|
For the three months ended June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
338.5 |
|
|
|
731.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,070.0 |
|
Total operating expenses |
|
|
208.7 |
|
|
|
620.3 |
|
|
|
0.2 |
|
|
|
7.8 |
|
|
|
|
|
|
|
837.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income/(loss) |
|
|
129.8 |
|
|
|
111.2 |
|
|
|
(0.2 |
) |
|
|
(7.8 |
) |
|
|
|
|
|
|
233.0 |
|
Equity in earnings of unconsolidated affiliates |
|
|
2.3 |
|
|
|
8.1 |
|
|
|
94.9 |
|
|
|
185.9 |
|
|
|
(280.4 |
) |
|
|
10.8 |
|
Other income/(expense) |
|
|
(33.5 |
) |
|
|
(9.8 |
) |
|
|
(0.6 |
) |
|
|
4.9 |
|
|
|
|
|
|
|
(39.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
98.6 |
|
|
|
109.5 |
|
|
|
94.1 |
|
|
|
183.0 |
|
|
|
(280.4 |
) |
|
|
204.8 |
|
Income tax provision |
|
|
(40.0 |
) |
|
|
(34.5 |
) |
|
|
(0.9 |
) |
|
|
|
|
|
|
|
|
|
|
(75.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
58.6 |
|
|
|
75.0 |
|
|
|
93.2 |
|
|
|
183.0 |
|
|
|
(280.4 |
) |
|
|
129.4 |
|
(Gains)/losses attributable to noncontrolling
interests in consolidated entities, net |
|
|
|
|
|
|
53.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders |
|
|
58.6 |
|
|
|
128.6 |
|
|
|
93.2 |
|
|
|
183.0 |
|
|
|
(280.4 |
) |
|
|
183.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in millions |
|
Guarantors |
|
|
Guarantors |
|
|
Issuer |
|
|
Parent |
|
|
Adjustments |
|
|
Consolidated |
|
For the three months ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
230.1 |
|
|
|
556.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
787.0 |
|
Total operating expenses |
|
|
183.3 |
|
|
|
528.5 |
|
|
|
0.2 |
|
|
|
3.6 |
|
|
|
|
|
|
|
715.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income/(losses) |
|
|
46.8 |
|
|
|
28.4 |
|
|
|
(0.2 |
) |
|
|
(3.6 |
) |
|
|
|
|
|
|
71.4 |
|
Equity in earnings of unconsolidated affiliates |
|
|
3.2 |
|
|
|
7.0 |
|
|
|
22.6 |
|
|
|
44.2 |
|
|
|
(66.6 |
) |
|
|
10.4 |
|
Other income/(expense) |
|
|
(26.7 |
) |
|
|
235.3 |
|
|
|
(15.7 |
) |
|
|
0.2 |
|
|
|
|
|
|
|
193.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
23.3 |
|
|
|
270.7 |
|
|
|
6.7 |
|
|
|
40.8 |
|
|
|
(66.6 |
) |
|
|
274.9 |
|
Income tax provision |
|
|
(6.5 |
) |
|
|
(28.1 |
) |
|
|
(2.1 |
) |
|
|
|
|
|
|
|
|
|
|
(36.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
16.8 |
|
|
|
242.6 |
|
|
|
4.6 |
|
|
|
40.8 |
|
|
|
(66.6 |
) |
|
|
238.2 |
|
(Gains)/Losses attributable to the
noncontrolling interests in consolidated
entities, net of tax |
|
|
|
|
|
|
(197.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(197.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders |
|
|
16.8 |
|
|
|
45.2 |
|
|
|
4.6 |
|
|
|
40.8 |
|
|
|
(66.6 |
) |
|
|
40.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in millions |
|
Guarantors |
|
|
Non-
Guarantors |
|
|
Issuer |
|
|
Parent |
|
|
Adjustments |
|
|
Consolidated |
|
For the six months ended June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
668.7 |
|
|
|
1,428.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,097.3 |
|
Total operating expenses |
|
|
415.0 |
|
|
|
1,211.1 |
|
|
|
|
|
|
|
12.5 |
|
|
|
|
|
|
|
1,638.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income/(loss) |
|
|
253.7 |
|
|
|
217.5 |
|
|
|
|
|
|
|
(12.5 |
) |
|
|
|
|
|
|
458.7 |
|
Equity in earnings of unconsolidated affiliates |
|
|
0.6 |
|
|
|
16.3 |
|
|
|
217.2 |
|
|
|
367.7 |
|
|
|
(584.3 |
) |
|
|
17.5 |
|
Other income/(expense) |
|
|
(66.5 |
) |
|
|
(34.3 |
) |
|
|
(1.0 |
) |
|
|
5.3 |
|
|
|
|
|
|
|
(96.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
187.8 |
|
|
|
199.5 |
|
|
|
216.2 |
|
|
|
360.5 |
|
|
|
(584.3 |
) |
|
|
379.7 |
|
Income tax provision |
|
|
(70.1 |
) |
|
|
(68.7 |
) |
|
|
(12.2 |
) |
|
|
|
|
|
|
|
|
|
|
(151.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
117.7 |
|
|
|
130.8 |
|
|
|
204.0 |
|
|
|
360.5 |
|
|
|
(584.3 |
) |
|
|
228.7 |
|
(Gains)/losses attributable to noncontrolling
interests in consolidated entities, net |
|
|
|
|
|
|
131.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders |
|
|
117.7 |
|
|
|
262.6 |
|
|
|
204.0 |
|
|
|
360.5 |
|
|
|
(584.3 |
) |
|
|
360.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in millions |
|
Guarantors |
|
|
Guarantors |
|
|
Issuer |
|
|
Parent |
|
|
Adjustments |
|
|
Consolidated |
|
For the six months ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
411.3 |
|
|
|
1,094.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,506.1 |
|
Total operating expenses |
|
|
323.7 |
|
|
|
967.2 |
|
|
|
0.8 |
|
|
|
6.1 |
|
|
|
|
|
|
|
1,297.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income/(losses) |
|
|
87.6 |
|
|
|
127.6 |
|
|
|
(0.8 |
) |
|
|
(6.1 |
) |
|
|
|
|
|
|
208.3 |
|
Equity in earnings of unconsolidated affiliates |
|
|
2.9 |
|
|
|
13.0 |
|
|
|
72.0 |
|
|
|
144.0 |
|
|
|
(215.7 |
) |
|
|
16.2 |
|
Other income/(expense) |
|
|
(44.7 |
) |
|
|
392.1 |
|
|
|
(30.3 |
) |
|
|
(2.1 |
) |
|
|
|
|
|
|
315.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
45.8 |
|
|
|
532.7 |
|
|
|
40.9 |
|
|
|
135.8 |
|
|
|
(215.7 |
) |
|
|
539.5 |
|
Income tax provision |
|
|
(23.9 |
) |
|
|
(64.9 |
) |
|
|
2.0 |
|
|
|
|
|
|
|
|
|
|
|
(86.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
21.9 |
|
|
|
467.8 |
|
|
|
42.9 |
|
|
|
135.8 |
|
|
|
(215.7 |
) |
|
|
452.7 |
|
(Gains)/Losses attributable to the
noncontrolling interests in consolidated
entities, net of tax |
|
|
|
|
|
|
(316.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(316.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders |
|
|
21.9 |
|
|
|
150.9 |
|
|
|
42.9 |
|
|
|
135.8 |
|
|
|
(215.7 |
) |
|
|
135.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in millions |
|
Guarantors |
|
|
Non-
Guarantors |
|
|
Issuer |
|
|
Parent |
|
|
Adjustments |
|
|
Consolidated |
|
For the six months ended June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in)/provided by operating activities |
|
|
(243.0 |
) |
|
|
77.5 |
|
|
|
63.8 |
|
|
|
440.0 |
|
|
|
(192.3 |
) |
|
|
146.0 |
|
Net cash (used in)/provided by investing activities |
|
|
(22.1 |
) |
|
|
325.3 |
|
|
|
(64.6 |
) |
|
|
(6.2 |
) |
|
|
(2.5 |
) |
|
|
229.9 |
|
Net cash (used in)/provided by financing activities |
|
|
268.0 |
|
|
|
(540.8 |
) |
|
|
|
|
|
|
(431.5 |
) |
|
|
194.8 |
|
|
|
(509.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease)/increase in cash and cash equivalents |
|
|
2.9 |
|
|
|
(138.0 |
) |
|
|
(0.8 |
) |
|
|
2.3 |
|
|
|
|
|
|
|
(133.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in millions |
|
Guarantors |
|
|
Guarantors |
|
|
Issuer |
|
|
Parent |
|
|
Adjustments |
|
|
Consolidated |
|
For the six months ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in)/provided by operating activities |
|
|
(38.2 |
) |
|
|
(99.3 |
) |
|
|
59.4 |
|
|
|
47.9 |
|
|
|
(33.2 |
) |
|
|
(63.4 |
) |
Net cash (used in)/provided by investing activities |
|
|
(660.1 |
) |
|
|
363.4 |
|
|
|
(59.3 |
) |
|
|
(9.3 |
) |
|
|
(193.8 |
) |
|
|
(559.1 |
) |
Net cash (used in)/provided by financing activities |
|
|
650.0 |
|
|
|
(403.8 |
) |
|
|
|
|
|
|
(38.9 |
) |
|
|
227.0 |
|
|
|
434.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease)/increase in cash and cash equivalents |
|
|
(48.3 |
) |
|
|
(139.7 |
) |
|
|
0.1 |
|
|
|
(0.3 |
) |
|
|
|
|
|
|
(188.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
13. SUBSEQUENT EVENTS
On July 25, 2011, the companys Board of Directors declared a second quarter 2011 dividend of
$0.1225 per share, payable on September 8, 2011, to shareholders of record at the close of business
on August 22, 2011.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
The following Managements Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Condensed Consolidated Financial Statements and
related Notes thereto, which appear elsewhere in this Report. Except for the historical financial
information, this Report may include statements that constitute forward-looking statements under
the United States securities laws. Forward-looking statements include information concerning
possible or assumed future results of our operations, expenses, earnings, liquidity, cash flows and
capital expenditures, industry or market conditions, assets under management, acquisition
activities and the effect of completed acquisitions, debt levels and our ability to obtain
additional financing or make payments on our debt, regulatory developments, demand for and pricing
of our products and other aspects of our business or general economic conditions. In addition, when
used in this Report, the documents incorporated by reference herein or such other documents or
statements, words such as believes, expects, anticipates, intends, plans, estimates,
projects, forecasts, and future or conditional verbs such as will, may, could, should,
and would, and any other statement that necessarily depends on future events, are intended to
identify forward-looking statements.
Forward-looking statements are not guarantees of performance. They involve risks,
uncertainties and assumptions. Although we make such statements based on assumptions that we
believe to be reasonable, there can be no assurance that actual results will not differ materially
from our expectations. We caution investors not to rely unduly on any forward-looking statements
and urge you to carefully consider the risks described in our most recent Form 10-K and subsequent
Forms 10-Q, filed with the Securities and Exchange Commission.
References
In this Report, unless otherwise specified, the terms we, our, us, company, Invesco,
and Invesco Ltd. refer to Invesco Ltd., a company incorporated in Bermuda, and its subsidiaries.
Executive Overview
The following executive overview summarizes the significant trends affecting our results of
operations and financial condition for the periods presented. This overview and the remainder of
this managements discussion and analysis supplements, and should be read in conjunction with, the
Condensed Consolidated Financial Statements of Invesco Ltd. and its subsidiaries and the notes
thereto contained elsewhere in this Report.
Invesco is a leading independent global investment manager with offices in more than 20
countries. As of June 30, 2011, we managed $653.7 billion in assets for retail, institutional and
high-net-worth investors around the world. By delivering the combined power of our distinctive
worldwide investment management capabilities, Invesco provides a comprehensive array of enduring
solutions for our clients. We have a significant presence in the institutional and retail segments
of the investment management industry in North America, U.K., Europe and Asia-Pacific, serving
clients in more than 100 countries.
Equity market performance during the second quarter was mixed around the globe as a late
quarter rally could not overcome a mid-quarter decline that saw equity markets sell off for six
straight weeks. The sell-off was driven, in large part, by concerns over the sustainability of the
global economic recovery and the continued scrutiny of the ability of Greece to meet its debt
obligations. In the three months ended June 30, 2011, the S&P 500 Index declined 0.4%, the Nikkei
225 increased 0.6%, the FTSE 100 Index gained 0.6%, while the MSCI Emerging Markets index declined
2.1%.
35
The table below summarizes the returns of several major market indices for the three and six
months ended June 30, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Index |
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
S&P 500 |
|
|
(0.4 |
%) |
|
|
(11.9 |
%) |
|
|
5.0 |
% |
|
|
(7.6 |
%) |
FTSE 100 |
|
|
0.6 |
% |
|
|
(13.4 |
%) |
|
|
0.8 |
% |
|
|
(9.2 |
%) |
Nikkei 225 |
|
|
0.6 |
% |
|
|
(15.4 |
%) |
|
|
(4.0 |
%) |
|
|
(11.0 |
%) |
MSCI Emerging Markets |
|
|
(2.1 |
%) |
|
|
(9.1 |
%) |
|
|
(0.4 |
%) |
|
|
(7.2 |
%) |
While equity markets achieved mixed returns during the second quarter, credit markets
achieved positive returns across a number of fixed income asset classes. Investor trepidation
regarding the strength of the global economy and continued European sovereign debt issues saw
strong interest for the relative safety of fixed income securities. In the three months ended June
30, 2011, U.S. Treasury securities, as measured by the 10-year bond, returned 3.6%, while
investment grade and high yield corporate debt returned 2.5% and 1.1% respectively.
European Infrastructure
The company is undertaking a broad, transformational initiative to build on its strong
position in the European market and to position the business for competitive success in light of
significant regulatory changes. This initiative is designed to enhance the European business
product platform, better leverage our cross-border distribution efforts, and align our European
infrastructure in advance of new regulation. Combined, we believe these forward looking steps will
enhance our ability to deliver Invescos comprehensive global investment capabilities to European
clients and further strengthen the firms competitive position in this region.
As part of this initiative, during the three months ended June 30, 2011, the company
announced that it would outsource its transfer agency function in Europe, which is presently
operated internally. This outsourcing activity is expected to be completed by December, 2012. We
believe that taking steps today to outsource our European transfer agency will allow the firm to
better respond in the future to the pending but still uncertain regulatory environment. It is too
early to accurately forecast the implications of all the proposed regulations (e.g., MIFID II in
Europe and the Retail Distribution Review in the U.K.), but it is clear that these have the
potential to significantly change the relationships between distributors, clients and investment
managers. Under any likely scenario, we believe outsourcing our European transfer agency will
reduce both the cost and risk of operations for us and will allow us to react more swiftly to
changes in the marketplace, and therefore further solidify and strengthen our competitive
position.
During the three months ended June 30, 2011, the company incurred $5.8 million of costs
directly related to the implementation of this initiative and will incur total implementation
costs of up to $40 million by the projected completion date of December 2012. The $40 million
estimate is based on the expected cost to outsource our European transfer agency and on our plans
to make certain structural changes to our product and distribution platforms. As regulations
become more clear in the future, we will be able to provide updated estimates of the
implementation costs and benefits of this initiative, to the extent that clarity of regulations
affects the scope of the initiative. The implementation costs associated with the European
transformation will include primarily systems and data conversion, surplus leased space, staff
severance related to a reduction in headcount of approximately 330 employees, fund redomicile,
legal, and consulting costs. These costs will be included within the respective expense line items
in the U.S. GAAP Condensed Consolidated Income Statement and will be excluded in arriving at
non-GAAP earnings information. This initiative is expected to generate material ongoing cost
savings that will more than fully offset the implementation expense within a three year time frame
after completion.
36
Presentation of Managements Discussion and Analysis of Financial Condition and Results of
Operations
The company provides investment management services to, and has transactions with, various
private equity, real estate, fund-of-funds, collateralized loan obligation products (CLOs), and
other investment entities sponsored by the company for the investment of client assets in the
normal course of business. The company serves as the investment manager, making day-to-day
investment decisions concerning the assets of the products. Certain of these entities are
consolidated under variable interest or voting interest entity consolidation guidance and are
referred to as consolidated investment products. See Part I, Item 1, Financial Statements Note
11, Consolidated Investment Products, for additional details.
Effective January 1, 2010, the company adopted guidance now encompassed in Accounting
Standards Codification Topic 810, Consolidation. The adoption of this guidance had a significant
impact on the presentation of the companys financial statements in 2010, as its provisions
required the company to consolidate certain CLOs that were not previously consolidated. The
majority of the companys consolidated investment products balances are CLO-related. The collateral
assets of the CLOs are held solely to satisfy the obligations of the CLOs. The company has no right
to the benefits from, nor does it bear the risks associated with, the collateral assets held by the
CLOs, beyond the companys minimal direct investments in, and management fees generated from, the
CLOs. If the company were to liquidate, the collateral assets would not be available to the general
creditors of the company, and as a result, the company does not consider them to be company assets.
Conversely, if the CLOs were to liquidate, their investors would have no recourse to the general
credit of the company. The company therefore does not consider this debt to be a company liability.
The impact of consolidation of investment products is so significant to the presentation of
the companys financial statements (but not to the underlying financial condition or results of
operations of the company) that the company has elected to deconsolidate these products in its
non-GAAP disclosures. The following discussion therefore combines the results presented under U.S.
generally accepted accounting principles (GAAP) with the companys non-GAAP presentation. There are
four distinct sections within this Managements Discussion and Analysis of Financial Condition and
Results of Operations after the Assets Under Management discussion:
|
|
|
Results of Operations (for the three and six months ended June 30, 2011 compared with
the three and six months ended June 30, 2010); |
|
|
|
|
Schedule of Non-GAAP Information; |
|
|
|
|
Balance Sheet Discussion; and |
|
|
|
|
Liquidity and Capital Resources. |
Each of the financial statement summary sections (Results of Operations, Balance Sheet
Discussion, and Liquidity and Capital Resources) begins with a table illustrating the impact of the
consolidation of investment products. The narrative that follows each of these sections separately
provides discussion of the underlying financial statement activity for the company, before
consolidation of investment products, as well as of the financial statement activity of
consolidated investment products. Additionally, wherever a non-GAAP measure is referenced, a
disclosure will follow in the narrative or in the note referring the reader to the Schedule of
Non-GAAP Information, where additional details regarding the use of the non-GAAP measure by the
company are disclosed, along with reconciliations of the most directly comparable U.S. GAAP
measures to the non-GAAP measures. To further enhance the readability of the Results of Operations
section, separate tables for each of the revenue, expense, and non-operating income/expense
sections of the income statement introduce the narrative that follows, providing a
section-by-section review of the companys income statements for the periods presented.
37
Summary Operating Information
Summary operating information is presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
U.S. GAAP Financial Measures Summary |
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Operating revenues |
|
$ |
1,070.0m |
|
|
$ |
787.0m |
|
|
$ |
2,097.3m |
|
|
$ |
1,506.1m |
|
Operating income |
|
$ |
233.0m |
|
|
$ |
71.4m |
|
|
$ |
458.7m |
|
|
$ |
208.3m |
|
Operating margin |
|
|
21.8 |
% |
|
|
9.1 |
% |
|
|
21.9 |
% |
|
|
13.8 |
% |
Net income attributable to common shareholders |
|
$ |
183.0m |
|
|
$ |
40.8m |
|
|
$ |
360.5m |
|
|
$ |
135.8m |
|
Diluted EPS |
|
$ |
0.39 |
|
|
$ |
0.09 |
|
|
$ |
0.77 |
|
|
$ |
0.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Financial Measures Summary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues(1) |
|
$ |
751.2m |
|
|
$ |
571.4m |
|
|
$ |
1,475.5m |
|
|
$ |
1,103.2m |
|
Adjusted operating income(2) |
|
$ |
284.8m |
|
|
$ |
188.7m |
|
|
$ |
556.9m |
|
|
$ |
371.7m |
|
Adjusted operating margin(2) |
|
|
37.9 |
% |
|
|
33.0 |
% |
|
|
37.7 |
% |
|
|
33.7 |
% |
Adjusted net income attributable to common shareholders(3) |
|
$ |
207.1m |
|
|
$ |
125.4m |
|
|
$ |
398.8m |
|
|
$ |
245.4m |
|
Adjusted diluted EPS(3) |
|
$ |
0.44 |
|
|
$ |
0.27 |
|
|
$ |
0.85 |
|
|
$ |
0.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets Under Management |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AUM (billions) |
|
$ |
653.7 |
|
|
$ |
557.7 |
|
|
$ |
653.7 |
|
|
$ |
557.7 |
|
Average AUM (billions) |
|
$ |
652.8 |
|
|
$ |
480.5 |
|
|
$ |
641.5 |
|
|
$ |
465.0 |
|
|
|
|
(1) |
|
Net revenues are operating revenues less third-party distribution,
service and advisory expenses, plus our proportional share of the net
revenues of our joint venture investments, plus management fees earned
from, less other revenue recorded by, consolidated investment
products. See Schedule of Non-GAAP Information for the
reconciliation of operating revenues to net revenues. |
|
(2) |
|
Adjusted operating margin is adjusted operating income divided by net
revenues. Adjusted operating income includes operating income plus our
proportional share of the operating income of our joint venture
investments, transaction and integration charges, amortization of
acquisition-related prepaid compensation and other intangibles,
compensation expense related to market valuation changes in deferred
compensation plans, the operating income impact of the consolidation
of investment products, European infrastructure expenses and other
reconciling items. See Schedule of Non-GAAP Information for the
reconciliation of operating income to adjusted operating income. |
|
(3) |
|
Adjusted net income attributable to common shareholders is net income
attributable to common shareholders adjusted to add back transaction
and integration charges, amortization of acquisition-related prepaid
compensation and other intangibles, and the tax cash flow benefits
resulting from tax amortization of goodwill and indefinite-lived
intangible assets. Adjusted net income attributable to common
shareholders excludes the net income of consolidated investment
products, and the net income impact of deferred compensation plans,
European infrastructure expenses and other reconciling items. By
calculation, adjusted diluted EPS is adjusted net income attributable
to common shareholders divided by the weighted average number of
diluted shares outstanding. See Schedule of Non-GAAP Information for
the reconciliation of net income to adjusted net income. |
A significant portion of our business and AUM is based outside of the U.S. The strengthening
or weakening of the U.S. dollar against other currencies, primarily the Pound Sterling, Canadian
dollar, Yen and Euro, will impact our reported revenues and expenses from period to period.
Additionally, our revenues are directly influenced by the level and composition of our AUM.
Therefore, movements in global capital market levels, net new business inflows (or outflows) and
changes in the mix of investment products between asset classes and geographies may materially
affect our revenues from period to period.
On June 1, 2010, the company acquired Morgan Stanleys retail asset management business,
including Van Kampen Investments (the acquired business or the acquisition) in exchange for a
combination of $770.0 million in cash paid and 30.9 million common shares and common share
equivalents, which were subsequently sold, as converted, to unrelated third parties. The
acquisition added assets under management across equity, fixed income and alternative asset classes
(including mutual funds, variable insurance funds, separate accounts and UITs).
38
Investment Capabilities Performance Overview
Invescos first strategic priority is to achieve strong investment performance over the
long-term for our clients. Long-term performance in our equities capabilities, as measured by the
percentage of AUM ahead of benchmark and ahead of peer median, is generally strong with some
pockets of outstanding performance. Within our equity asset class, U.S. Value, U.K. and Global
Ex-U.S. and Emerging Markets funds have exceptional long-term performance, with over 92% of assets
ahead of benchmarks and peer group medians. Asian, U.S. Core and Continental European funds have
also had strong relative performance versus peers and versus benchmark over five-year periods.
Within our fixed income asset class Global fixed income products have achieved strong long-term
performance with at least 80% of AUM ahead of benchmarks and peers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benchmark Comparison |
|
|
Peer Group Comparison |
|
|
|
|
|
|
|
% of AUM Ahead of |
|
|
% of AUM In Top Half of |
|
|
|
|
|
|
|
Benchmark |
|
|
Peer Group |
|
|
|
|
|
|
|
1yr |
|
|
3yr |
|
|
5yr |
|
|
1yr |
|
|
3yr |
|
|
5yr |
|
Equities |
|
U.S. Core |
|
|
31 |
% |
|
|
80 |
% |
|
|
96 |
% |
|
|
19 |
% |
|
|
65 |
% |
|
|
75 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Growth |
|
|
25 |
% |
|
|
61 |
% |
|
|
33 |
% |
|
|
25 |
% |
|
|
62 |
% |
|
|
68 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Value |
|
|
89 |
% |
|
|
100 |
% |
|
|
95 |
% |
|
|
88 |
% |
|
|
100 |
% |
|
|
95 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sector |
|
|
66 |
% |
|
|
57 |
% |
|
|
79 |
% |
|
|
67 |
% |
|
|
67 |
% |
|
|
65 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.K. |
|
|
|
6 |
% |
|
|
98 |
% |
|
|
96 |
% |
|
|
0 |
% |
|
|
98 |
% |
|
|
92 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canadian |
|
|
38 |
% |
|
|
100 |
% |
|
|
64 |
% |
|
|
38 |
% |
|
|
94 |
% |
|
|
29 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asian |
|
|
60 |
% |
|
|
74 |
% |
|
|
96 |
% |
|
|
41 |
% |
|
|
78 |
% |
|
|
69 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continental European |
|
|
47 |
% |
|
|
89 |
% |
|
|
91 |
% |
|
|
22 |
% |
|
|
85 |
% |
|
|
88 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global |
|
|
24 |
% |
|
|
70 |
% |
|
|
80 |
% |
|
|
26 |
% |
|
|
56 |
% |
|
|
55 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Ex U.S. and Emerging Markets |
|
|
62 |
% |
|
|
99 |
% |
|
|
94 |
% |
|
|
63 |
% |
|
|
99 |
% |
|
|
99 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balanced |
|
Balanced |
|
|
48 |
% |
|
|
94 |
% |
|
|
79 |
% |
|
|
39 |
% |
|
|
95 |
% |
|
|
75 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money Market |
|
Money Market |
|
|
37 |
% |
|
|
73 |
% |
|
|
73 |
% |
|
|
96 |
% |
|
|
93 |
% |
|
|
94 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Income |
|
U.S. Fixed Income |
|
|
61 |
% |
|
|
41 |
% |
|
|
43 |
% |
|
|
28 |
% |
|
|
69 |
% |
|
|
66 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Fixed Income |
|
|
81 |
% |
|
|
80 |
% |
|
|
88 |
% |
|
|
82 |
% |
|
|
83 |
% |
|
|
80 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: |
|
AUM measured in the one-, three-, and five-year peer group rankings represents 60%, 59%, and
58% of total Invesco AUM, respectively, and AUM measured versus benchmark on a one-, three-,
and five-year basis represents 72%, 70%, and 68% of total Invesco AUM, respectively, as of
6/30/11. Peer group rankings are sourced from a widely-used third party ranking agency in each
funds market (Lipper, Morningstar, Russell, Mercer, eVestment Alliance, SITCA) and
asset-weighted in USD. Rankings are as of prior quarter-end for most institutional products
and preceding month-end for Australian retail funds due to their late release by third
parties. Rankings for the most representative fund in each GIPS composite are applied to all
products within each GIPS composite. Excludes Invesco PowerShares, W.L. Ross & Co., Invesco
Private Capital, non-discretionary direct real estate products and CLOs. Certain funds and
products were excluded from the analysis because of limited benchmark or peer group data. Had
these been available, results may have been different. These results are preliminary and
subject to revision. Performance assumes the reinvestment of dividends. Past performance is
not indicative of future results and may not reflect an investors experience. |
39
Assets Under Management movements for the three months ended June 30, 2011 compared with the three
months ended June 30, 2010
AUM at June 30, 2011 were $653.7 billion (March 31, 2011: $641.9 billion; June 30, 2010:
$557.7 billion). During the three months ended June 30, 2011, net inflows increased AUM by $7.3
billion, while positive market movements increased AUM by $3.2 billion. We experienced net inflows
in institutional money market funds of $3.5 billion, and increases in AUM of $1.3 billion due to
changes in foreign exchange rates during the three months ended June 30, 2011. During the three
months ended June 30, 2010, net inflows increased AUM by $13.0 billion, while negative market
movements decreased AUM by $24.2 billion. We experienced net outflows in institutional money market
funds of $0.9 billion and decreases in AUM of $3.4 billion due to changes in foreign exchange rates
during the three months ended June 30, 2010. Average AUM during the three months ended June 30,
2011 were $652.8 billion compared to $480.5 billion for the three months ended June 30, 2010. The
acquisition added $114.6 billion in AUM at June 1, 2010.
Long-term net inflows during the three months ended June 30, 2011 were $3.8 billion and
included net inflows of ETF, UIT and passive AUM of $0.9 billion. Net long-term flows were driven
by net inflows into our Retail and Institutional distribution channels of $2.9 billion and $0.7
billion, respectively, primarily in the fixed income and alternatives asset classes, while our
equity asset class experienced net outflows of $2.6 billion and our high net worth distribution
channel experienced net inflows of $0.2 billion. Net flows in the three months ended June 30, 2010
included an Asian inflow of $15.8 billion related to a passive mandate in Japan which was a
post-close direct consequence of the acquired business.
As discussed in the Executive Overview section of this Managements Discussion and Analysis,
during the three months ended June 30, 2011, the S&P 500 declined 0.4% and the MSCI Emerging
Markets index declined 2.1%; however, the FTSE 100 and Nikkei 225 both increased 0.6%. Of the $3.2
billion increase in AUM resulting from market gains during the three months ended June 30, 2011,
$2.4 billion of this increase was due to the change in value of our fixed income asset class. Our
other asset classes were marginally impacted by market valuation changes during the period. Of the
$24.2 billion decrease in AUM resulting from market declines during the three months ended June 30,
2010, $21.6 billion of this decrease was due to the change in value of our equity asset class, in
line with decreases in the S&P 500 and the FTSE 100 indices of 11.9% and 13.4%, respectively,
during that period.
The positive impact of the change in foreign exchange rates in the three months ended June 30,
2011 was driven primarily by the strengthening of the Japanese Yen relative to the U.S. Dollar,
which was reflected in the translation of our Yen-based AUM into U.S. Dollars, the strengthening of
the Euro relative to the U.S. Dollar, which was reflected in the translation of our Euro-based AUM
into U.S. Dollars and the strengthening of the Canadian Dollar relative to the U.S. Dollar, which
was reflected in the translation of our Canadian Dollar-based AUM into U.S. Dollars. The impact of
the change in foreign exchange rates in the three months ended June 30, 2010 was driven by the
weakening of the Pound Sterling, Canadian Dollar and Euro relative to the U.S. Dollar.
The table below illustrates the spot foreign exchange rates for translation into the U.S.
Dollar, the reporting currency of the company, at June 30, 2011 and 2010, as compared with the
rates that existed at March 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011 |
|
|
March 31, 2011 |
|
|
June 30, 2010 |
|
|
March 31, 2010 |
|
Pound Sterling ($ per £) |
|
|
1.61 |
|
|
|
1.60 |
|
|
|
1.50 |
|
|
|
1.52 |
|
Canadian Dollar (CAD per $) |
|
|
0.96 |
|
|
|
0.97 |
|
|
|
1.06 |
|
|
|
1.02 |
|
Japan (¥ per $) |
|
|
80.66 |
|
|
|
82.94 |
|
|
|
88.51 |
|
|
|
93.36 |
|
Euro ($ per ) |
|
|
1.45 |
|
|
|
1.42 |
|
|
|
1.23 |
|
|
|
1.35 |
|
Net revenue yield decreased slightly to 46.0 basis points in the three months ended June 30,
2011 from the three months ended June 30, 2010 level of 47.6 basis points. Market driven changes in
our asset mix significantly impact our net revenue yield calculation. Our equity AUM generally earn
a higher net revenue rate than money market AUM. At June 30, 2011 equity AUM were $301.9 billion,
representing 46.2% of our total AUM at that date; whereas at June 30, 2010 equity AUM were $263.1
billion, representing 47.2% of our total AUM at that date. With the mix of AUM less weighted in
equity AUM at June 30, 2011 compared to June 30, 2010, net revenue yield decreased slightly. The
acquired business added $114.6 billion in AUM at June 1, 2010 with an approximate effective fee
rate of 47 basis points. In addition, ETF, UIT and Passive AUM generally earn a lower effective fee
rate than AUM excluding ETF, UIT and Passive asset classes. At June 30, 2011 ETF, UIT and Passive
AUM were $91.8 billion, representing 14.0% of total AUM at that date; whereas at June 30, 2010 ETF,
UIT and Passive AUM were $79.2 billion, representing 14.2% of our total AUM at that date.
40
Gross revenue yield on AUM decreased 0.1 basis points to 65.9 basis points in the three months
ended June 30, 2011 from the three months ended June 30, 2010 level of 66.0 basis points.
Management does not consider gross revenue yield, the most comparable U.S. GAAP-based measure to
net revenue yield, to be a meaningful effective fee rate measure. The numerator of the gross
revenue yield measure, operating revenues, excludes the management fees earned from consolidated
investment products; however the denominator of the measure includes the AUM of these investment
products. Therefore, the gross revenue yield measure is not considered representative of the
companys true effective fee rate from AUM. See Schedule of Non-GAAP Information for a
reconciliation of operating revenues (gross revenues) to net revenues.
Changes in AUM were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AUM ex |
|
|
|
|
|
|
|
|
|
|
AUM ex |
|
|
|
|
|
|
|
|
|
|
ETF, UIT & |
|
|
ETF, UIT & |
|
|
|
|
|
|
ETF, UIT |
|
|
ETF, UIT & |
|
|
|
Total AUM |
|
|
Passive |
|
|
Passive |
|
|
Total AUM |
|
|
& Passive |
|
|
Passive |
|
$ in billions |
|
2011 |
|
|
2011 |
|
|
2011 |
|
|
2010 |
|
|
2010 |
|
|
2010 |
|
March 31 |
|
|
641.9 |
|
|
|
550.2 |
|
|
|
91.7 |
|
|
|
457.7 |
|
|
|
402.0 |
|
|
|
55.7 |
|
Long-term inflows |
|
|
42.7 |
|
|
|
28.0 |
|
|
|
14.7 |
|
|
|
45.3 |
|
|
|
18.7 |
|
|
|
26.6 |
|
Long-term outflows |
|
|
(38.9 |
) |
|
|
(25.1 |
) |
|
|
(13.8 |
) |
|
|
(31.4 |
) |
|
|
(19.5 |
) |
|
|
(11.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term net flows |
|
|
3.8 |
|
|
|
2.9 |
|
|
|
0.9 |
|
|
|
13.9 |
|
|
|
(0.8 |
) |
|
|
14.7 |
|
Net flows in institutional money market
funds |
|
|
3.5 |
|
|
|
3.5 |
|
|
|
|
|
|
|
(0.9 |
) |
|
|
(0.9 |
) |
|
|
|
|
Market gains and losses/reinvestment |
|
|
3.2 |
|
|
|
4.1 |
|
|
|
(0.9 |
) |
|
|
(24.2 |
) |
|
|
(19.4 |
) |
|
|
(4.8 |
) |
Acquisitions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114.6 |
|
|
|
100.9 |
|
|
|
13.7 |
|
Foreign currency translation |
|
|
1.3 |
|
|
|
1.2 |
|
|
|
0.1 |
|
|
|
(3.4 |
) |
|
|
(3.3 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30 |
|
|
653.7 |
|
|
|
561.9 |
|
|
|
91.8 |
|
|
|
557.7 |
|
|
|
478.5 |
|
|
|
79.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average long-term AUM |
|
|
583.0 |
|
|
|
489.5 |
|
|
|
93.5 |
|
|
|
413.4 |
|
|
|
355.9 |
|
|
|
57.5 |
|
Average institutional money market AUM |
|
|
69.8 |
|
|
|
69.8 |
|
|
|
|
|
|
|
67.1 |
|
|
|
67.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average AUM |
|
|
652.8 |
|
|
|
559.3 |
|
|
|
93.5 |
|
|
|
480.5 |
|
|
|
423.0 |
|
|
|
57.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross revenue yield on AUM(1) |
|
65.9 |
bps |
|
75.1 |
bps |
|
11.3 |
bps |
|
66.0 |
bps |
|
73.4 |
bps |
|
12.0 |
bps |
Gross revenue yield on AUM before
performance fees(1) |
|
65.4 |
bps |
|
74.6 |
bps |
|
11.3 |
bps |
|
65.7 |
bps |
|
73.1 |
bps |
|
12.0 |
bps |
Net revenue yield on AUM(2,3) |
|
46.0 |
bps |
|
51.8 |
bps |
|
11.3 |
bps |
|
47.6 |
bps |
|
52.4 |
bps |
|
12.0 |
bps |
Net revenue yield on AUM before
performance fees(2,3) |
|
45.6 |
bps |
|
51.3 |
bps |
|
11.3 |
bps |
|
47.3 |
bps |
|
52.1 |
bps |
|
12.0 |
bps |
|
|
|
(1) |
|
Gross revenue yield on AUM is equal to annualized total operating
revenues divided by average AUM, excluding joint venture (JV) AUM. Our
share of the average AUM in the three months ended June 30, 2011 for
our JVs in China was $3.5 billion (three months ended June 30, 2010:
$3.5 billion). It is appropriate to exclude the average AUM of our JVs
for purposes of computing gross revenue yield on AUM, because the
revenues resulting from these AUM are not presented in our operating
revenues. Under U.S. GAAP, our share of the pre-tax earnings of the
JVs is recorded as equity in earnings of unconsolidated affiliates on
our Condensed Consolidated Statements of Income. |
|
(2) |
|
Net revenue yield on AUM is equal to annualized net revenues divided
by average AUM. See Schedule of Non-GAAP Information for a
reconciliation of operating revenues to net revenues. |
|
(3) |
|
As discussed in the Results of Operations section of this Managements
Discussion and Analysis, in the three and six months ended June 30,
2011, we changed the presentation of third-party distribution, service
and advisory expenses to include marketing support expenses, which are
distribution-related. Net revenue yield calculations have been updated
to reflect this new reclassification. |
41
Our AUM by channel, by asset class, and by client domicile were as follows:
Total AUM by Channel(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Wealth |
|
$ in billions |
|
Total |
|
|
Retail |
|
|
Institutional |
|
|
Management |
|
March 31, 2011 AUM |
|
|
641.9 |
|
|
|
396.2 |
|
|
|
228.3 |
|
|
|
17.4 |
|
Long-term inflows |
|
|
42.7 |
|
|
|
33.2 |
|
|
|
8.6 |
|
|
|
0.9 |
|
Long-term outflows |
|
|
(38.9 |
) |
|
|
(30.3 |
) |
|
|
(7.9 |
) |
|
|
(0.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term net flows |
|
|
3.8 |
|
|
|
2.9 |
|
|
|
0.7 |
|
|
|
0.2 |
|
Net flows in institutional money market funds |
|
|
3.5 |
|
|
|
|
|
|
|
3.5 |
|
|
|
|
|
Market gains and losses/reinvestment |
|
|
3.2 |
|
|
|
2.2 |
|
|
|
1.1 |
|
|
|
(0.1 |
) |
Foreign currency translation |
|
|
1.3 |
|
|
|
0.4 |
|
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011 AUM |
|
|
653.7 |
|
|
|
401.7 |
|
|
|
234.5 |
|
|
|
17.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 AUM (2) |
|
|
457.7 |
|
|
|
243.6 |
|
|
|
198.5 |
|
|
|
15.6 |
|
Long-term inflows |
|
|
45.3 |
|
|
|
23.0 |
|
|
|
21.2 |
|
|
|
1.1 |
|
Long-term outflows |
|
|
(31.4 |
) |
|
|
(25.4 |
) |
|
|
(5.5 |
) |
|
|
(0.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term net flows |
|
|
13.9 |
|
|
|
(2.4 |
) |
|
|
15.7 |
|
|
|
0.6 |
|
Net flows in institutional money market funds |
|
|
(0.9 |
) |
|
|
|
|
|
|
(0.9 |
) |
|
|
|
|
Market gains and losses/reinvestment |
|
|
(24.2 |
) |
|
|
(18.6 |
) |
|
|
(4.8 |
) |
|
|
(0.8 |
) |
Acquisitions |
|
|
114.6 |
|
|
|
105.1 |
|
|
|
9.5 |
|
|
|
|
|
Foreign currency translation |
|
|
(3.4 |
) |
|
|
(2.4 |
) |
|
|
(1.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010 AUM |
|
|
557.7 |
|
|
|
325.3 |
|
|
|
217.0 |
|
|
|
15.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ETF, UIT & Passive AUM by Channel(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Wealth |
|
$ in billions |
|
Total |
|
|
Retail |
|
|
Institutional |
|
|
Management |
|
March 31, 2011 AUM |
|
|
91.7 |
|
|
|
78.2 |
|
|
|
13.5 |
|
|
|
|
|
Long-term inflows |
|
|
14.7 |
|
|
|
12.7 |
|
|
|
2.0 |
|
|
|
|
|
Long-term outflows |
|
|
(13.8 |
) |
|
|
(13.3 |
) |
|
|
(0.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term net flows |
|
|
0.9 |
|
|
|
(0.6 |
) |
|
|
1.5 |
|
|
|
|
|
Net flows in institutional money market funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market gains and losses/reinvestment |
|
|
(0.9 |
) |
|
|
(0.9 |
) |
|
|
|
|
|
|
|
|
Foreign currency translation |
|
|
0.1 |
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011 AUM |
|
|
91.8 |
|
|
|
76.7 |
|
|
|
15.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 AUM (2) |
|
|
55.7 |
|
|
|
49.6 |
|
|
|
6.1 |
|
|
|
|
|
Long-term inflows |
|
|
26.6 |
|
|
|
10.6 |
|
|
|
16.0 |
|
|
|
|
|
Long-term outflows |
|
|
(11.9 |
) |
|
|
(11.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term net flows |
|
|
14.7 |
|
|
|
(1.3 |
) |
|
|
16.0 |
|
|
|
|
|
Net flows in institutional money market funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market gains and losses/reinvestment |
|
|
(4.8 |
) |
|
|
(4.6 |
) |
|
|
(0.2 |
) |
|
|
|
|
Acquisitions |
|
|
13.7 |
|
|
|
13.7 |
|
|
|
|
|
|
|
|
|
Foreign currency translation |
|
|
(0.1 |
) |
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010 AUM |
|
|
79.2 |
|
|
|
57.4 |
|
|
|
21.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to these AUM tables on the following page. |
42
Total AUM by Asset Class(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in billions |
|
Total |
|
|
Equity |
|
|
Fixed Income |
|
|
Balanced |
|
|
Money Market |
|
|
Alternatives(4) |
|
March 31, 2011 AUM |
|
|
641.9 |
|
|
|
303.0 |
|
|
|
139.7 |
|
|
|
44.7 |
|
|
|
71.0 |
(5) |
|
|
83.5 |
|
Long-term inflows |
|
|
42.7 |
|
|
|
22.9 |
|
|
|
8.8 |
|
|
|
2.7 |
|
|
|
0.3 |
|
|
|
8.0 |
|
Long-term outflows |
|
|
(38.9 |
) |
|
|
(25.5 |
) |
|
|
(5.3 |
) |
|
|
(2.2 |
) |
|
|
(0.5 |
) |
|
|
(5.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term net flows |
|
|
3.8 |
|
|
|
(2.6 |
) |
|
|
3.5 |
|
|
|
0.5 |
|
|
|
(0.2 |
) |
|
|
2.6 |
|
Net flows in institutional money market funds |
|
|
3.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.5 |
|
|
|
|
|
Market gains and losses/reinvestment(7) |
|
|
3.2 |
|
|
|
0.8 |
|
|
|
2.4 |
|
|
|
(0.8 |
) |
|
|
0.1 |
|
|
|
0.7 |
|
Foreign currency translation |
|
|
1.3 |
|
|
|
0.7 |
|
|
|
0.2 |
|
|
|
0.1 |
|
|
|
|
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011 AUM |
|
|
653.7 |
|
|
|
301.9 |
|
|
|
145.8 |
|
|
|
44.5 |
|
|
|
74.4 |
(5) |
|
|
87.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 AUM(2) |
|
|
457.7 |
|
|
|
198.5 |
|
|
|
79.4 |
|
|
|
40.7 |
|
|
|
72.6 |
|
|
|
66.5 |
|
Long-term inflows |
|
|
45.3 |
|
|
|
33.9 |
|
|
|
5.4 |
|
|
|
2.1 |
|
|
|
0.6 |
|
|
|
3.3 |
|
Long-term outflows |
|
|
(31.4 |
) |
|
|
(19.4 |
) |
|
|
(4.7 |
) |
|
|
(2.2 |
) |
|
|
(0.4 |
) |
|
|
(4.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term net flows |
|
|
13.9 |
|
|
|
14.5 |
|
|
|
0.7 |
|
|
|
(0.1 |
) |
|
|
0.2 |
|
|
|
(1.4 |
) |
Net flows in institutional money market funds |
|
|
(0.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.9 |
) |
|
|
|
|
Market gains and losses/reinvestment |
|
|
(24.2 |
) |
|
|
(21.6 |
) |
|
|
1.7 |
|
|
|
(1.9 |
) |
|
|
|
|
|
|
(2.4 |
) |
Acquisitions |
|
|
114.6 |
|
|
|
73.7 |
|
|
|
37.8 |
|
|
|
0.3 |
|
|
|
0.6 |
|
|
|
2.2 |
|
Foreign currency translation |
|
|
(3.4 |
) |
|
|
(2.0 |
) |
|
|
(0.3 |
) |
|
|
(0.7 |
) |
|
|
|
|
|
|
(0.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010 AUM |
|
|
557.7 |
|
|
|
263.1 |
|
|
|
119.3 |
|
|
|
38.3 |
|
|
|
72.5 |
|
|
|
64.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ETF, UIT and Passive AUM by Asset Class(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in billions |
|
Total |
|
|
Equity |
|
|
Fixed Income |
|
|
Balanced |
|
|
Money Market |
|
|
Alternatives(4) |
|
March 31, 2011 AUM |
|
|
91.7 |
|
|
|
47.3 |
|
|
|
23.7 |
|
|
|
|
|
|
|
|
|
|
|
20.7 |
|
Long-term inflows |
|
|
14.7 |
|
|
|
10.0 |
|
|
|
3.0 |
|
|
|
|
|
|
|
|
|
|
|
1.7 |
|
Long-term outflows |
|
|
(13.8 |
) |
|
|
(10.9 |
) |
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
(2.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term net flows |
|
|
0.9 |
|
|
|
(0.9 |
) |
|
|
2.7 |
|
|
|
|
|
|
|
|
|
|
|
(0.9 |
) |
Net flows in institutional money market funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market gains and losses/reinvestment |
|
|
(0.9 |
) |
|
|
(0.7 |
) |
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
(0.5 |
) |
Foreign currency translation |
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011 AUM |
|
|
91.8 |
|
|
|
45.7 |
|
|
|
26.7 |
|
|
|
|
|
|
|
|
|
|
|
19.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 AUM(2) |
|
|
55.7 |
|
|
|
34.3 |
|
|
|
4.5 |
|
|
|
|
|
|
|
|
|
|
|
16.9 |
|
Long-term inflows |
|
|
26.6 |
|
|
|
24.4 |
|
|
|
0.8 |
|
|
|
|
|
|
|
|
|
|
|
1.4 |
|
Long-term outflows |
|
|
(11.9 |
) |
|
|
(9.7 |
) |
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
(2.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term net flows |
|
|
14.7 |
|
|
|
14.7 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
(0.6 |
) |
Net flows in institutional money market funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market gains and losses/reinvestment |
|
|
(4.8 |
) |
|
|
(4.6 |
) |
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
(1.1 |
) |
Acquisitions |
|
|
13.7 |
|
|
|
4.5 |
|
|
|
9.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation |
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010 AUM |
|
|
79.2 |
|
|
|
48.9 |
|
|
|
15.2 |
|
|
|
|
|
|
|
|
|
|
|
15.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to these AUM tables on the following page. |
43
Total AUM by Client Domicile(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in billions |
|
Total |
|
|
U.S. |
|
|
Canada |
|
|
U.K. |
|
|
Continental Europe |
|
|
Asia |
|
March 31, 2011 AUM |
|
|
641.9 |
|
|
|
435.2 |
|
|
|
28.2 |
|
|
|
94.2 |
|
|
|
36.2 |
|
|
|
48.1 |
|
Long-term inflows |
|
|
42.7 |
|
|
|
26.8 |
|
|
|
0.7 |
|
|
|
4.3 |
|
|
|
4.9 |
|
|
|
6.0 |
|
Long-term outflows |
|
|
(38.9 |
) |
|
|
(27.0 |
) |
|
|
(1.5 |
) |
|
|
(3.2 |
) |
|
|
(4.1 |
) |
|
|
(3.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term net flows |
|
|
3.8 |
|
|
|
(0.2 |
) |
|
|
(0.8 |
) |
|
|
1.1 |
|
|
|
0.8 |
|
|
|
2.9 |
|
Net flows in institutional money market funds |
|
|
3.5 |
|
|
|
3.7 |
|
|
|
|
|
|
|
(0.2 |
) |
|
|
0.1 |
|
|
|
(0.1 |
) |
Market gains and losses/reinvestment |
|
|
3.2 |
|
|
|
1.2 |
|
|
|
(0.1 |
) |
|
|
2.0 |
|
|
|
0.5 |
|
|
|
(0.4 |
) |
Foreign currency translation |
|
|
1.3 |
|
|
|
|
|
|
|
0.2 |
|
|
|
|
|
|
|
0.3 |
|
|
|
0.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011 AUM |
|
|
653.7 |
|
|
|
439.9 |
|
|
|
27.5 |
|
|
|
97.1 |
|
|
|
37.9 |
|
|
|
51.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 AUM(2) |
|
|
457.7 |
|
|
|
290.4 |
|
|
|
29.2 |
|
|
|
83.9 |
|
|
|
27.0 |
|
|
|
27.2 |
|
Long-term inflows |
|
|
45.3 |
|
|
|
18.9 |
|
|
|
0.6 |
|
|
|
4.7 |
|
|
|
3.3 |
|
|
|
17.8 |
|
Long-term outflows |
|
|
(31.4 |
) |
|
|
(21.3 |
) |
|
|
(1.8 |
) |
|
|
(3.7 |
) |
|
|
(3.2 |
) |
|
|
(1.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term net flows |
|
|
13.9 |
|
|
|
(2.4 |
) |
|
|
(1.2 |
) |
|
|
1.0 |
|
|
|
0.1 |
|
|
|
16.4 |
|
Net flows in institutional money market funds |
|
|
(0.9 |
) |
|
|
(1.7 |
) |
|
|
|
|
|
|
(0.3 |
) |
|
|
2.0 |
|
|
|
(0.9 |
) |
Market gains and losses/reinvestment |
|
|
(24.2 |
) |
|
|
(12.9 |
) |
|
|
(1.4 |
) |
|
|
(5.6 |
) |
|
|
(1.4 |
) |
|
|
(2.9 |
) |
Acquisitions |
|
|
114.6 |
|
|
|
103.7 |
|
|
|
0.6 |
|
|
|
1.8 |
|
|
|
2.9 |
|
|
|
5.6 |
|
Foreign currency translation |
|
|
(3.4 |
) |
|
|
|
|
|
|
(1.2 |
) |
|
|
(1.2 |
) |
|
|
(1.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010 AUM |
|
|
557.7 |
|
|
|
377.1 |
|
|
|
26.0 |
|
|
|
79.6 |
|
|
|
29.6 |
|
|
|
45.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ETF, UIT and Passive AUM by Client Domicile(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in billions |
|
Total |
|
|
U.S. |
|
|
Canada |
|
|
U.K. |
|
|
Continental Europe |
|
|
Asia |
|
March 31, 2011 AUM |
|
|
91.7 |
|
|
|
88.0 |
|
|
|
|
|
|
|
|
|
|
|
1.4 |
|
|
|
2.3 |
|
Long-term inflows |
|
|
14.7 |
|
|
|
14.6 |
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
Long-term outflows |
|
|
(13.8 |
) |
|
|
(13.7 |
) |
|
|
|
|
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term net flows |
|
|
0.9 |
|
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net flows in institutional money market funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market gains and losses/reinvestment |
|
|
(0.9 |
) |
|
|
(0.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation |
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011 AUM |
|
|
91.8 |
|
|
|
88.0 |
|
|
|
|
|
|
|
|
|
|
|
1.4 |
|
|
|
2.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 AUM(2) |
|
|
55.7 |
|
|
|
52.9 |
|
|
|
|
|
|
|
|
|
|
|
1.1 |
|
|
|
1.7 |
|
Long-term inflows |
|
|
26.6 |
|
|
|
10.7 |
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
15.8 |
|
Long-term outflows |
|
|
(11.9 |
) |
|
|
(11.8 |
) |
|
|
|
|
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term net flows |
|
|
14.7 |
|
|
|
(1.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.8 |
|
Net flows in institutional money market funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market gains and losses/reinvestment |
|
|
(4.8 |
) |
|
|
(4.0 |
) |
|
|
|
|
|
|
|
|
|
|
(0.1 |
) |
|
|
(0.7 |
) |
Acquisitions |
|
|
13.7 |
|
|
|
13.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation |
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010 AUM |
|
|
79.2 |
|
|
|
61.5 |
|
|
|
|
|
|
|
|
|
|
|
1.0 |
|
|
|
16.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Channel refers to the distribution channel from which the AUM originated. Retail AUM arose from client investments into
funds available to the public with shares or units. Institutional AUM originated from individual corporate clients,
endowments, foundations, government authorities, universities, or charities. Private Wealth Management AUM arose from high
net worth client investments. |
|
(2) |
|
The beginning balances were adjusted to reflect certain asset reclassifications. |
|
(3) |
|
Asset classes are descriptive groupings of AUM by common type of underlying investments. |
|
(4) |
|
The alternatives asset class includes absolute return, real estate, commodities, currencies, financial structures, Global
Macro, REITS, private capital, and Risk Premia Capture. |
|
(5) |
|
Ending Money Market AUM includes $70.4 billion in institutional money market AUM and $4.0 billion in retail money market AUM. |
|
(6) |
|
Client domicile disclosure groups AUM by the domicile of the underlying clients. |
|
(7) |
|
As a result of fund mergers in the second quarter of 2011, the market gains and losses / reinvestment line includes $0.9
billion transferred from the balanced to the equity asset class. |
44
Results of Operations for the three months ended June 30, 2011 compared with the three months
ended June 30, 2010
Adoption of Guidance now encompassed in Accounting Standards Codification (ASC) Topic 810, Consolidation
The company provides investment management services to, and has transactions with, various
private equity, real estate, fund-of-funds, collateralized loan obligation products (CLOs), and
other investment entities sponsored by the company for the investment of client assets in the
normal course of business. The company serves as the investment manager, making day-to-day
investment decisions concerning the assets of the products. Certain of these entities are
consolidated under variable interest or voting interest entity consolidation guidance. See Part I,
Item 1, Financial Statements Note 11, Consolidated Investment Products, for additional
details.
The guidance now encompassed in ASC Topic 810, which was effective January 1, 2010, had a
significant impact on the presentation of the companys financial statements in 2010, as its
provisions required the company to consolidate certain CLOs that were not previously consolidated.
The majority of the companys consolidated investment products balances were CLO-related as of
June 30, 2011. The collateral assets of the CLOs are held solely to satisfy the obligations of the
CLOs. The company has no right to the benefits from, nor does it bear the risks associated with,
the collateral assets held by the CLOs, beyond the companys minimal direct investments in, and
management fees generated from, the CLOs. If the company were to liquidate, the collateral assets
would not be available to the general creditors of the company, and as a result, the company does
not consider them to be company assets. Conversely, if the CLOs were to liquidate, their investors
would have no recourse to the general credit of the company. The company therefore does not
consider this debt to be a company liability. The discussion that follows will separate
consolidated investment product results of operations from the companys investment management
operations through the use of non-GAAP financial measures. See Schedule of Non-GAAP Information
for additional details and reconciliations of the most directly comparable U.S. GAAP measures to
the non-GAAP measures.
45
Condensed Consolidating Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before |
|
|
Consolidated |
|
|
|
|
|
|
|
$ in millions |
|
Consolidation(1) |
|
|
Investment Products |
|
|
Adjustments(1)(2) |
|
|
Total |
|
Three months ended June 30, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
1,082.1 |
|
|
|
0.1 |
|
|
|
(12.2 |
) |
|
|
1,070.0 |
|
Total operating expenses |
|
|
833.4 |
|
|
|
15.8 |
|
|
|
(12.2 |
) |
|
|
837.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
248.7 |
|
|
|
(15.7 |
) |
|
|
|
|
|
|
233.0 |
|
Equity in earnings of unconsolidated affiliates |
|
|
10.5 |
|
|
|
|
|
|
|
0.3 |
|
|
|
10.8 |
|
Interest and dividend income |
|
|
4.0 |
|
|
|
79.8 |
|
|
|
(1.6 |
) |
|
|
82.2 |
|
Other investment income/(losses) |
|
|
6.0 |
|
|
|
(69.8 |
) |
|
|
5.1 |
|
|
|
(58.7 |
) |
Interest expense |
|
|
(16.0 |
) |
|
|
(48.1 |
) |
|
|
1.6 |
|
|
|
(62.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
253.2 |
|
|
|
(53.8 |
) |
|
|
5.4 |
|
|
|
204.8 |
|
Income tax provision |
|
|
(75.4 |
) |
|
|
|
|
|
|
|
|
|
|
(75.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
177.8 |
|
|
|
(53.8 |
) |
|
|
5.4 |
|
|
|
129.4 |
|
(Gains)/losses attributable to noncontrolling
interests in consolidated entities, net |
|
|
|
|
|
|
53.6 |
|
|
|
|
|
|
|
53.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders |
|
|
177.8 |
|
|
|
(0.2 |
) |
|
|
5.4 |
|
|
|
183.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before |
|
|
Consolidated |
|
|
|
|
|
|
|
$ in millions |
|
Consolidation(1) |
|
|
Investment Products |
|
|
Adjustments(1)(2) |
|
|
Total |
|
Three months ended June 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
799.3 |
|
|
|
|
|
|
|
(12.3 |
) |
|
|
787.0 |
|
Total operating expenses |
|
|
712.9 |
|
|
|
15.0 |
|
|
|
(12.3 |
) |
|
|
715.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
86.4 |
|
|
|
(15.0 |
) |
|
|
|
|
|
|
71.4 |
|
Equity in earnings of unconsolidated affiliates |
|
|
10.6 |
|
|
|
|
|
|
|
(0.2 |
) |
|
|
10.4 |
|
Interest and dividend income |
|
|
1.8 |
|
|
|
54.3 |
|
|
|
(1.2 |
) |
|
|
54.9 |
|
Other investment income/(losses) |
|
|
(9.3 |
) |
|
|
184.8 |
|
|
|
2.4 |
|
|
|
177.9 |
|
Interest expense |
|
|
(14.1 |
) |
|
|
(26.8 |
) |
|
|
1.2 |
|
|
|
(39.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
75.4 |
|
|
|
197.3 |
|
|
|
2.2 |
|
|
|
274.9 |
|
Income tax provision |
|
|
(36.7 |
) |
|
|
|
|
|
|
|
|
|
|
(36.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
38.7 |
|
|
|
197.3 |
|
|
|
2.2 |
|
|
|
238.2 |
|
(Gains)/losses attributable to noncontrolling
interests in consolidated entities, net |
|
|
(0.1 |
) |
|
|
(197.3 |
) |
|
|
|
|
|
|
(197.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders |
|
|
38.6 |
|
|
|
|
|
|
|
2.2 |
|
|
|
40.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Before Consolidation column includes Invescos equity interest in
the investment products accounted for as equity method (private equity
and real estate partnership funds) and available-for-sale investments
(CLOs). Upon consolidation of the CLOs, the companys and the CLOs
accounting policies were effectively aligned, resulting in the
reclassification of the companys gain for the three months ended June
30, 2011 of $5.1 million (representing the increase in the market
value of the companys holdings in the consolidated CLOs) from other
comprehensive income into other gains/losses (three months ended June
30, 2010: $2.4 million). The companys gain on its investments in the
CLOs (before consolidation) eliminates with the companys share of the
offsetting loss on the CLOs debt. The net income arising from
consolidation of CLOs is therefore completely attributed to other
investors in these CLOs, as the companys share has been eliminated
through consolidation. |
|
(2) |
|
Adjustments include the elimination of intercompany transactions
between the company and its consolidated investment products,
primarily the elimination of management fees expensed by the funds and
recorded as operating revenues (before consolidation) by the company. |
46
Operating Revenues and Net Revenues
The main categories of revenues, and the dollar and percentage change between the periods,
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
|
|
|
|
$ in millions |
|
2011 |
|
|
2010 |
|
|
$ Change |
|
|
% Change |
|
Investment management fees |
|
|
819.1 |
|
|
|
627.9 |
|
|
|
191.2 |
|
|
|
30.5 |
% |
Service and distribution fees |
|
|
211.4 |
|
|
|
139.4 |
|
|
|
72.0 |
|
|
|
51.6 |
% |
Performance fees |
|
|
7.6 |
|
|
|
3.5 |
|
|
|
4.1 |
|
|
|
117.1 |
% |
Other |
|
|
31.9 |
|
|
|
16.2 |
|
|
|
15.7 |
|
|
|
96.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
1,070.0 |
|
|
|
787.0 |
|
|
|
283.0 |
|
|
|
36.0 |
% |
Third-party distribution, service and advisory expenses |
|
|
(341.8 |
) |
|
|
(238.3 |
) |
|
|
(103.5 |
) |
|
|
43.4 |
% |
Proportional share of revenues, net of third-party
distribution expenses, from joint venture investments |
|
|
10.8 |
|
|
|
10.4 |
|
|
|
0.4 |
|
|
|
3.8 |
% |
Management fees earned from consolidated investment products |
|
|
12.2 |
|
|
|
12.3 |
|
|
|
(0.1 |
) |
|
|
(0.8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
|
751.2 |
|
|
|
571.4 |
|
|
|
179.8 |
|
|
|
31.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues increased by $283.0 million (36.0%) in the three months ended June 30, 2011
to $1,070.0 million (three months ended June 30, 2010: $787.0 million). Net revenues increased by
$179.8 million (31.5%) in the three months ended June 30, 2011 to $751.2 million (three months
ended June 30, 2010: $571.4 million). Net revenues are operating revenues less third-party
distribution, service and advisory expenses, plus our proportional share of net revenues from joint
venture arrangements, plus management fees earned from, less other revenues recorded by,
consolidated investment products. See Schedule of Non-GAAP Information for additional important
disclosures regarding the use of net revenues. A significant portion of our business and managed
AUM are based outside of the U.S. The income statements of foreign currency subsidiaries are
translated into U.S. dollars, the reporting currency of the company, using average foreign exchange
rates. The impact of foreign exchange rate movements accounted for $38.1 million (13.5%) of the
increase in operating revenues, and was 3.6% of total operating revenues, during the three months
June 30, 2011 when compared to the three months ended June 30, 2010. Additionally, our revenues are
directly influenced by the level and composition of our AUM as more fully discussed below.
Movements in global capital market levels, net new business inflows (or outflows) and changes in
the mix of investment products between asset classes and geographies may materially affect our
revenues from period to period.
The operating results of the acquired business were included since the acquisition date of
June 1, 2010. The integration of acquired business is largely complete with 67 of the 71 planned
U.S. funds mergers completed by June 30, 2011 as part of the U.S. mutual fund product alignment.
As such, accurate segregated revenue and expense information for the acquired business is no longer
available, resulting in the inability of the company to quantify the impact of the acquisition on
operating revenues and expenses. As a consequence of the U.S. mutual fund product alignment,
certain 1 year and 2 year fee waivers were agreed between the company and the fund boards which
will reduce the companys annual management fees by approximately $30 million commencing June 1,
2011.
In the three months ended June 30, 2011, we changed the presentation of third-party
distribution, service and advisory expenses to include marketing support expenses, which are
distribution-related. See Part I, Financial Information, Note 1, Accounting Policies
Reclassifications for additional information. Amounts for the comparative period have been
reclassified to conform to the current year presentation, as illustrated in the table below.
|
|
|
|
|
|
|
Three months |
|
|
|
ended June |
|
$ in millions |
|
30, 2010 |
|
Third-party distribution, service and advisory expenses, as
previously reported |
|
|
220.7 |
|
Reclassification |
|
|
17.6 |
|
|
|
|
|
Third-party distribution, service and advisory expenses, as reclassified |
|
|
238.3 |
|
|
|
|
|
Marketing expenses, as previously reported |
|
|
35.2 |
|
Reclassification |
|
|
(17.6 |
) |
|
|
|
|
Marketing expenses, as reclassified |
|
|
17.6 |
|
|
|
|
|
Net revenues, as previously reported |
|
|
589.0 |
|
Reclassification |
|
|
(17.6 |
) |
|
|
|
|
Net revenues, as reclassified |
|
|
571.4 |
|
|
|
|
|
47
Investment management fees
Investment management fees increased by $191.2 million (30.5%) in the three months ended June
30, 2011 to $819.1 million (three months ended June 30, 2010: $627.9 million) due to the
acquisition, increases in average AUM, primarily retail AUM, and changes in the mix of AUM between
asset classes, together with the impact of foreign exchange rate movement. Average long-term AUM,
which generally earn higher fee rates than money market AUM increased 41.0% to $583.0 billion for
the three months ended June 30, 2011 from $413.4 billion for the three months ended June 30, 2010,
while average institutional money market AUM increased 4.0% to $69.8 billion for the three months
ended June 30, 2011, from $67.1 billion for the three months ended June 30, 2010. The increase in
average long-term AUM includes the impact of the acquired business. The impact of foreign exchange
rate movements accounted for $34.1 million (17.8%) of the increase in investment management fees
during the three months ended June 30, 2011, compared to the three months ended June 30, 2010. See
the companys disclosures regarding the changes in AUM during the three months ended June 30, 2011
in the Assets Under Management section above for additional information regarding the movements
in AUM.
Service and distribution fees
In the three months ended June 30, 2011, service and distribution fees increased by $72.0
million (51.6%) to $211.4 million, (three months ended June 30, 2010: $139.4 million) primarily due
to the acquisition as well as increases in average AUM during the three months ended June 30, 2011
compared to the three months ended June 30, 2010.
Performance fees
Of our $653.7 billion in AUM at June 30, 2011, only approximately $34.1 billion, or 5.2%,
could potentially earn performance fees. In the three months ended June 30, 2011 performance fees
increased by $4.1 (117.1%) million to $7.6 million (three months ended June 30, 2010: $3.5
million). The performance fees generated in the three months ended June 30, 2011 arose primarily
due to products managed in the U.K and in the U.S private equity business. The performance fees
generated in the three months ended June 30, 2010 arose primarily due to products managed in the
U.K. and in our real estate group.
Other revenues
In the three months ended June 30, 2011, other revenues increased by $15.7 million (96.9%) to
$31.9 million (three months ended June 30, 2010: $16.2 million). Other revenues included an
increase of $8.9 million in UIT revenues during the period, a result of the acquired business, a
$2.1 million increase in transaction commissions, and an increase in mutual funds front end fees of
$2.6 million. The impact of foreign exchange rate movements accounted for $0.6 million (3.8%) of
the increase in other revenues during the three months ended June 30, 2011, compared to the three
months ended June 30, 2010.
Third-party distribution, service and advisory expenses
Third-party distribution, service and advisory expenses increased by $103.5 million (43.4%) in
the three months ended June 30, 2011 to $341.8 million (three months ended June 30, 2010: $238.3
million). The increase in third-party distribution, service and advisory expenses includes the
impact of the acquired business and is consistent with the increases in investment management and
service and distribution fees.
Proportional share of revenues, net of third-party distribution expenses, from joint venture investments
Management believes that the addition of our proportional share of revenues, net of
third-party distribution expenses, from joint venture arrangements should be added to operating
revenues to arrive at net revenues, as it is important to evaluate the contribution to the business
that our joint venture arrangements are making. See Schedule of Non-GAAP Information for
additional disclosures regarding the use of net revenues.
Our proportional share of revenues, net of third-party distribution expenses increased by $0.4
million (3.8%) to $10.8 million in the three months ended June 30, 2011 (three months ended June
30, 2010: $10.4 million). Our share of the Invesco Great Wall joint ventures average AUM in the
three months ended June 30, 2011 was $3.5 billion (three months ended June 30, 2010: $3.5 billion).
48
Management fees earned from consolidated investment products
Management believes that the consolidation of investment products may impact a readers
analysis of our underlying results of operations and could result in investor confusion or the
production of information about the company by analysts or external credit rating agencies that is
not reflective of the underlying results of operations and financial condition of the company.
Accordingly, management believes that it is appropriate to adjust operating revenues for the impact
of consolidated investment products in calculating net revenues. As management and performance fees
earned by Invesco from the consolidated products are eliminated upon consolidation of the
investment products, management believes that it is appropriate to add these operating revenues
back in the calculation of net revenues. See Schedule of Non-GAAP Information for additional
disclosures regarding the use of net revenues.
Management fees earned from consolidated investment products were $12.2 million in the three
months ended June 30, 2011 (three months ended June 30, 2010: $12.3 million).
Other revenues recorded by consolidated investment products
Operating revenues of consolidated investment products are included in U.S. GAAP operating
revenues resulting from the consolidation of investment products into the companys results of
operations. Management believes that this consolidation could impact a readers analysis of our
underlying results of operations. Therefore, management believes that it is appropriate to deduct
operating revenues of consolidated investment products in calculating net revenues. See Schedule
of Non-GAAP Information for additional disclosures regarding the use of net revenues.
Operating Expenses
The main categories of operating expenses, and the dollar and percentage changes between
periods, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
|
|
|
|
$ in millions |
|
2011 |
|
|
2010 |
|
|
$ Change |
|
|
% Change |
|
Employee compensation |
|
|
318.3 |
|
|
|
260.5 |
|
|
|
57.8 |
|
|
|
22.2 |
% |
Third-party distribution, service and advisory |
|
|
341.8 |
|
|
|
238.3 |
|
|
|
103.5 |
|
|
|
43.4 |
% |
Marketing |
|
|
26.1 |
|
|
|
17.6 |
|
|
|
8.5 |
|
|
|
48.3 |
% |
Property, office and technology |
|
|
61.9 |
|
|
|
55.8 |
|
|
|
6.1 |
|
|
|
10.9 |
% |
General and administrative |
|
|
77.6 |
|
|
|
64.1 |
|
|
|
13.5 |
|
|
|
21.1 |
% |
Transaction and integration |
|
|
11.3 |
|
|
|
79.3 |
|
|
|
(68.0 |
) |
|
|
(85.8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
837.0 |
|
|
|
715.6 |
|
|
|
121.4 |
|
|
|
17.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below sets forth these cost categories as a percentage of total operating expenses
and operating revenues, which we believe provides useful information as to the relative
significance of each type of expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total |
|
|
% of |
|
|
|
|
|
|
% of Total |
|
|
% of |
|
Three months ended: |
|
|
|
|
|
Operating |
|
|
Operating |
|
|
June 30, |
|
|
Operating |
|
|
Operating |
|
$ in millions |
|
June 30, 2011 |
|
|
Expenses |
|
|
Revenues |
|
|
2010 |
|
|
Expenses |
|
|
Revenues |
|
Employee compensation |
|
|
318.3 |
|
|
|
38.0 |
% |
|
|
29.7 |
% |
|
|
260.5 |
|
|
|
36.4 |
% |
|
|
33.1 |
% |
Third-party distribution, service and advisory |
|
|
341.8 |
|
|
|
40.8 |
% |
|
|
31.9 |
% |
|
|
238.3 |
|
|
|
33.3 |
% |
|
|
30.3 |
% |
Marketing |
|
|
26.1 |
|
|
|
3.1 |
% |
|
|
2.4 |
% |
|
|
17.6 |
|
|
|
2.4 |
% |
|
|
2.2 |
% |
Property, office and technology |
|
|
61.9 |
|
|
|
7.4 |
% |
|
|
5.8 |
% |
|
|
55.8 |
|
|
|
7.8 |
% |
|
|
7.1 |
% |
General and administrative |
|
|
77.6 |
|
|
|
9.3 |
% |
|
|
7.3 |
% |
|
|
64.1 |
|
|
|
9.0 |
% |
|
|
8.1 |
% |
Transaction and integration |
|
|
11.3 |
|
|
|
1.4 |
% |
|
|
1.1 |
% |
|
|
79.3 |
|
|
|
11.1 |
% |
|
|
10.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
837.0 |
|
|
|
100.0 |
% |
|
|
78.2 |
% |
|
|
715.6 |
|
|
|
100.0 |
% |
|
|
90.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three months ended June 30, 2011, operating expenses increased by $121.4 million
(17.0%) to $837.0 million (three months ended June 30, 2010: $715.6 million). As discussed above,
the acquisition occurred on June 1, 2010, which increased expenses across all categories, except
transaction and integration expenses, which have decreased during the three months ended June 30,
2011 compared to the three months ended June 30, 2010. As the integration of the acquired business
is largely complete, segregated expense data is not available.
49
In addition to the acquired business, foreign exchange differences have an impact on our
reported expense variances. A significant portion of our business and managed AUM are based outside
of the U.S. The income statements of foreign currency subsidiaries are translated into U.S.
dollars, the reporting currency of the company, using average foreign exchange rates. The impact of
foreign exchange rate movements accounted for $31.9 million (26.3%) of the increase in operating
expenses, and was 3.8% of total operating expenses, during the three months ended June 30, 2011 as
compared to the three months ended June 30, 2010.
Employee Compensation
Employee compensation increased $57.8 million (22.2%) to $318.3 million in the three months
ended June 30, 2011 (three months ended June 30, 2010: $260.5 million). Base salaries and variable
compensation increased $39.5 million, staff benefits increased $3.7 million and payroll taxes
increased $2.1 million during the three months ended June 30, 2011 from the three months ended June
30, 2010, due to incremental costs associated with the acquisition, the impact of annual base
salary increases, the internalization of our Hyderabad operations, and the increase in variable
compensation accruals to reflect the overall earnings growth of the company, including improving
operating results and sales. Also included in compensation expenses during the three months ended
June 30, 2011 are share-based costs of $30.7 million compared to $29.4 million during the three
months ended June 30, 2010, a slight increase due to the incremental expense impact of the
acquisition. The impact of foreign exchange rate movements accounted for $12.5 million (21.6%) of
the increase in employee compensation, during the three months ended June 30, 2011 as compared to
the three months ended June 30, 2010.
Additionally, employee compensation costs for the three months ended June 30, 2011 and 2010
included $5.0 million of prepaid compensation amortization expenses related to the 2006 acquisition
of W.L. Ross & Co. This acquisition-related asset will be fully amortized by the third quarter of
2011.
Headcount at June 30, 2011 was 6,189 (June 30, 2010: 5,421). The increase is primarily driven
by acquisitions and the internalization of our new Hyderabad, India, facility.
Third-Party Distribution, Service and Advisory Expenses
Third-party distribution, service and advisory expenses are discussed above in the operating
and net revenues section.
Marketing
Marketing expenses increased by $8.5 million (48.3%) in the three months ended June 30, 2011
to $26.1 million (three months ended June 30, 2010: $17.6 million), driven in part by the impact of
the acquired business. The increase during the three months ended June 30, 2011 includes an
increase advertising expenses of $4.3 million, sales literature and research of $0.7 million and
travel and client event expenses of $2.2 million as compared to the three months ended June 30,
2010. The impact of foreign exchange rate movements accounted for $1.0 million (11.8%) of the
increase in marketing expenses, during the three months ended June 30, 2011 as compared to the
three months ended June 30, 2010.
Property, Office and Technology
Property, office and technology expenses increased by $6.1 million (10.9%) to $61.9 million in
the three months ended June 30, 2011 (three months ended June 30, 2010: $55.8 million). Property
and office expenses increased $3.2 million over the comparable 2010 period, due to an increase of
$3.0 million in property operating costs and depreciation expense related to new properties brought
on as part of the acquisition. Technology and communications expenses increased $0.8 million due to
increases in depreciation and maintenance totaling $4.1 million, offset by decreases in outsourced
administration expenses of $3.0 million, partly due to the internalization of Hyderabad compared to
the three months ended June 30, 2010. The impact of foreign exchange rate movements accounted for
$2.2 million (36.1%) of the increase in property, office and technology expenses, during the three
months ended June 30, 2011 as compared to the three months ended June 30, 2010.
General and Administrative
General and administrative expenses increased by $13.5 million (21.1%) to $77.6 million in the
three months ended June 30, 2011 (three months ended June 30, 2010: $64.1 million). Professional
services expenses increased $11.2 million during the three months ended June 30, 2011 from the
three months ended June 30, 2010 due to increases in consultant fees of $3.6 million, contractor
and recruitment fees of $3.0 million, information services of $2.6 million, regulatory fees of $0.8
million, legal fees of $0.7 million, and
50
audit fees of $0.5 million. Travel expenses increased $3.4 million driven by higher levels of
business activity and mutual fund expenses increased $3.1 million during the three months ended
June 30, 2011 compared to the three months ended June 30, 2010. During the three months ended June
30, 2011 intangible amortization expense increased $7.4 million resulting from additional
amortization of the various finite-lived intangible assets that arose from the acquisition. The
impact of foreign exchange rate movements accounted for $1.7 million (12.6%) of the increase in
general and administrative costs during the three months ended June 30, 2011. Expenditure related
tax increases, including U.K. value added tax (VAT), resulted in an additional $0.6
million of irrecoverable VAT expense in the three months ended June 30, 2011 compared to the three
June 30, 2010 period. Increases in general and administrative expenses in the three months ended
June 30, 2011 are offset by a credit of $6.4 million related to a reduction in contingent
consideration payable. Included in general and administrative expenses for the three months ended
June 30, 2010, was $8.9 million representing fund reimbursement costs from the correction of
historical foreign exchange allocations which reduced the overall increase of general and
administrative expenses when compared to current period.
Transaction and integration
Transaction and integration charges were $11.3 million in the three months ended June 30, 2011
(three months ended June 30, 2010: $79.3 million) and relate to the integration of the acquired
business. Transaction and integration expenses during the three months ended June 30, 2011 include
$2.1 million of employee compensation costs, $0.2 million of property and office costs, $0.3
million of technology and communication costs and $8.6 million of professional services costs,
principally legal, proxy solicitation, consultancy, mutual fund and insurance. Transaction and
integration expenses for the three months ended June 30, 2010, included $18.5 million of employee
compensation costs, including $14.5 million of severance costs, $6.1 million for the proxy
solicitation of fund investors to approve a change in fund advisor, $27.5 million for transition of
the Van Kampen funds to Invescos platform and governance structure, $4.7 million related to office
space including onerous lease charges associated with vacating office space in Houston as we
consolidated operations, $5.4 million of sales and marketing costs as we printed re-branded fund
prospectuses, $12.8 million of professional services, principally legal, consultancy and insurance,
and $4.3 million in technology contractor and travel costs.
Operating Income, Adjusted Operating Income, Operating Margin and Adjusted Operating Margin
Operating income increased by $161.6 million (226.3%) to $233.0 million in the three months
ended June 30, 2011 (three months ended June 30, 2010: $71.4 million). Operating margin (operating
income divided by operating revenues), increased from 9.1% in the three months ended June 30, 2010
to 21.8% in the three months ended June 30, 2011. The increase in operating income and margin
resulted from a greater relative increase in operating revenues (36.0%) than in operating expenses
(17.0%) during the period. Adjusted operating income (operating income plus our proportional share
of the operating income from joint venture arrangements, transaction and integration charges,
amortization of acquisition-related prepaid compensation and other intangibles, compensation
expense related to market valuation changes in deferred compensation plans, the operating income
impact of the consolidation of investment products, European infrastructure expenses and other
reconciling items), increased by $96.1 million (50.9%) to $284.8 million in the three months ended
June 30, 2011 from $188.7 million in the three months ended June 30, 2010. Adjusted operating
margin is equal to adjusted operating income divided by net revenues. Net revenues are equal to
operating revenues less third-party distribution, service and advisory expenses, plus our
proportional share of the net revenues from our joint venture arrangements, plus management fees
earned from, less other revenue recorded by, consolidated investment products. Adjusted operating
margin increased to 37.9% in the three months ended June 30, 2011 from 33.0% in the three months
ended June 30, 2010. See Schedule of Non-GAAP Information for a reconciliation of operating
revenues to net revenues, a reconciliation of operating income to adjusted operating income and
additional important disclosures regarding net revenues, adjusted operating income and adjusted
operating margin.
51
Other Income and Expenses
The main categories of other income and expenses, and the dollar and percentage changes
between periods are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
|
|
|
|
$ in millions |
|
2011 |
|
|
2010 |
|
|
$ Change |
|
|
% Change |
|
Equity in earnings of unconsolidated affiliates |
|
|
10.8 |
|
|
|
10.4 |
|
|
|
0.4 |
|
|
|
3.8 |
% |
Interest and dividend income |
|
|
2.4 |
|
|
|
1.8 |
|
|
|
0.6 |
|
|
|
33.3 |
% |
Interest income of consolidated investment products |
|
|
79.8 |
|
|
|
53.1 |
|
|
|
26.7 |
|
|
|
50.3 |
% |
Gains/(losses) of consolidated investment products, net |
|
|
(64.7 |
) |
|
|
187.2 |
|
|
|
(251.9 |
) |
|
|
N/A |
|
Interest expense |
|
|
(16.0 |
) |
|
|
(14.1 |
) |
|
|
(1.9 |
) |
|
|
13.5 |
% |
Interest expense of consolidated investment products |
|
|
(46.5 |
) |
|
|
(25.6 |
) |
|
|
(20.9 |
) |
|
|
81.6 |
% |
Other gains and losses, net |
|
|
6.0 |
|
|
|
(9.3 |
) |
|
|
15.3 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income and expenses |
|
|
(28.2 |
) |
|
|
203.5 |
|
|
|
(231.7 |
) |
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of unconsolidated affiliates
Equity in earnings of unconsolidated affiliates increased by $0.4 million (3.8%) to $10.8
million in the three months ended June 30, 2011 (three months ended June 30, 2010: $10.4 million).
The increase in equity in earnings is impacted by our share of the market-driven valuation changes
in the underlying holdings of certain partnership investments, including our investment in Invesco
Mortgage Capital, Inc, which increased by $0.2 million, and other partnership and joint venture
investments generated a net increase of $0.2 million from the comparative period.
Interest and dividend income and interest expense
Interest and dividend income increased by $0.6 million (33.3%) to $2.4 million in the three
months ended June 30, 2011 (three months ended June 30, 2010: $1.8 million). The three months ended
June 30, 2011 includes dividend income of $1.3 million on investments held to hedge economically
deferred compensation plans. This dividend income is passed through to employee participants in the
deferred compensation plans. See Schedule of Non-GAAP Information for additional details. The
increase in interest and dividend income is offset by a decrease in investment income earned on
investments of $0.7 million. Interest expense increased by $1.9 million (13.5%) to $16.0 million in
the three months ended June 30, 2011 (three months ended June 30, 2010: $14.1 million) due to
higher average debt balances versus the comparative period.
Interest income and interest expense of consolidated investment products
In the three months ended June 30, 2011, interest income of consolidated investment products
increased by $26.7 million (50.3%) to $79.8 million (three months ended June 30, 2010: $53.1
million) reflecting the acquisition and higher interest rates on variable rate asset collateral
held by the CLOs. Interest expense of consolidated investment products increased by $20.9 million
(81.6%) to $46.5 million (three months ended June 30, 2010: $25.6 million) reflecting the
acquisition and higher variable interest rates on outstanding CLO notes in 2011.