e10vk
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2009
OR
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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
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98-0557567 |
(State or Other Jurisdiction of
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(I.R.S. Employer |
Incorporation or Organization)
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Identification No.) |
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1555 Peachtree Street, NE, Suite 1800, Atlanta, GA
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30309 |
(Address of Principal Executive Offices)
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(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 if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No þ
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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. 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
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Smaller reporting company o |
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(Do not check if a smaller reporting company)
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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
At June 30, 2009, the aggregate market value of the voting stock held by non-affiliates was
$7.3 billion, based on the closing price of the registrants Common Shares, par value U.S. $0.20
per share, on the New York Stock Exchange. At January 31, 2010, the number of Common Shares
outstanding was 431,677,226.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant will incorporate by reference information required in response to Part III,
Items 10-14 in its definitive Proxy Statement for its annual meeting of shareholders, to be filed
with the Securities and Exchange Commission within 120 days after December 31, 2009.
TABLE OF CONTENTS
We include cross references to captions elsewhere in this Annual Report on Form 10-K, which we
refer to as this Report, where you can find related additional information. The following table
of contents tells you where to find these captions.
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SPECIAL CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Report, the documents incorporated by reference herein, other public filings and oral and
written statements by us and our management, may include statements that constitute
forward-looking statements within the meaning of the United States securities laws. These
statements are based on the beliefs and assumptions of our management and on information available
to us at the time such statements are made. 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, legal and 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 or other outcomes. 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.
The following important factors, and other factors described elsewhere in this Report or
incorporated by reference into this Report or contained in our other filings with the
U.S. Securities and Exchange Commission (SEC), among others, could cause our results to differ
materially from any results described in any forward-looking statements:
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variations in demand for our investment products or services, including termination or
non-renewal of our investment advisory agreements; |
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significant changes in net asset flows into or out of the accounts we manage or
declines in market value of the assets in, or redemptions or other withdrawals from,
those accounts; |
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enactment of adverse state, federal or foreign legislation or changes in government
policy or regulation (including accounting standards) affecting our operations, our
capital requirements or the way in which our profits are taxed; |
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significant fluctuations in the performance of debt and equity markets worldwide; |
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exchange rate fluctuations, especially as against the U.S. dollar; |
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the effect of economic conditions and interest rates in the U.S. or globally; |
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our ability to compete in the investment management business; |
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the effect of consolidation in the investment management business; |
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limitations or restrictions on access to distribution channels for our products; |
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our ability to attract and retain key personnel, including investment management
professionals; |
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the investment performance of our investment products; |
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our ability to acquire and integrate other companies into our operations successfully
and the extent to which we can realize anticipated cost savings and synergies from such
acquisitions; |
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changes in regulatory capital requirements; |
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our debt and the limitations imposed by our credit facility; |
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the effect of failures or delays in support systems or customer service functions, and
other interruptions of our operations; |
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the occurrence of breaches and errors in the conduct of our business, including any
failure to properly safeguard confidential and sensitive information; |
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the execution risk inherent in our ongoing company-wide transformational initiatives; |
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the effect of political or social instability in the countries in which we invest or
do business; |
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the effect of terrorist attacks in the countries in which we invest or do business and
the escalation of hostilities that could result therefrom; |
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war and other hostilities in or involving countries in which we invest or do
business; and |
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adverse results in litigation, including private civil litigation related to mutual
fund fees and any similar potential regulatory or other proceedings. |
Other factors and assumptions not identified above were also involved in the derivation of
these forward-looking statements, and the failure of such other assumptions to be realized may also
cause actual results to differ materially from those projected. For more discussion of the risks
affecting us, please refer to Part I, Item 1A, Risk Factors.
You should consider the areas of risk described above in connection with any forward-looking
statements that may be made by us and our businesses generally. We expressly disclaim any
obligation to update any of the information in this or any other public report if any
forward-looking statement later turns out to be inaccurate, whether as a result of new information,
future events or otherwise. For all forward-looking statements, we claim the safe harbor provided
by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934.
PART I
In this Annual Report on Form 10-K, 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.
Item 1. Business
Introduction
Invesco is a leading independent global investment management company, dedicated to helping
people worldwide build their financial security. By delivering the combined power of our
distinctive worldwide investment management capabilities, Invesco provides a comprehensive array of
enduring investment products for retail, institutional and high-net-worth clients around the world.
Operating in 20 countries, Invesco had $423.1 billion in assets under management (AUM) as of
December 31, 2009.
The key drivers of success for Invesco are long-term investment performance and client service
delivered across a diverse spectrum of investment management capabilities, distribution channels,
geographic areas and market exposures. By achieving success in these areas, we seek to generate
positive net flows, increased AUM and associated revenues. We are affected significantly by market
movements, which are beyond our control; however, we endeavor to mitigate the impact of market
movement by offering broad investment capability, client and geographical diversification. We
measure relative investment performance by comparing our investment capabilities to competing
products, industry benchmarks and client investment objectives. Generally, distributors, investment
advisors and consultants take into consideration longer-term investment performance (e.g.,
three-year and five-year performance) in their selection of investment product and manager
recommendations to their customers, although shorter-term performance may also be an important
consideration. Third-party ratings may also have an influence on client investment decisions.
Quality of client service is monitored in a variety of ways, including periodic client satisfaction
surveys, analysis of response times and redemption rates, competitive benchmarking of services and
feedback from investment consultants.
Invesco Ltd. is organized under the laws of Bermuda, and our common shares are listed and
traded on the New York Stock Exchange under the symbol IVZ. We maintain a Web site at
www.invesco.com. (Information contained on our Web site shall not be deemed to be part of, or to be
incorporated into, this document).
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Strategy
The company focuses on four key strategic priorities that are designed to further strengthen
our business and help ensure our long-term success:
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Achieve strong investment performance over the long term for our clients; |
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Deliver the combined power of our distinctive investment management capabilities
anywhere in the world to meet our clients needs; |
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Unlock the power of our global operating platform by simplifying our processes and
procedures and further integrating the support structures of our business globally; and |
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Continue to build a high-performance organization by fostering greater transparency,
accountability and execution at all levels. |
Over the past four years, Invesco has taken a number of steps to leverage the individual
strengths of our distinct investment centers and present the organization as a single firm to our
clients around the world. We believe these changes have strengthened Invescos ability to operate
more efficiently and effectively as an integrated, global organization.
Since we take a unified approach to our business, we are presenting our financial statements
and other disclosures under the single operating segment asset management.
Recent Developments
The global economic recession, the general weakening of government, agency and corporate
credit, the dissolution and strategic redirection of certain large financial institutions, and the
market volatility over the past two years has had a significant impact on our industry. These
factors, among others, created a unique competitive opportunity for few investment management firms
that were able to deliver superior relative investment performance, maintain their corporate
financial strength, and remain intensely focused on their clients. We believe Invesco was one of
these few firms that was able to emerge from this challenging economic and market environment in an
improved competitive position.
Several investment, credit, and liquidity issues affected many key competitors within the
asset management industry, including significant economic and reputational exposure to asset-backed
securities, illiquid credit derivatives, structured investment vehicles (SIVs), auction rate
preferred shares, hedge funds that were effectively operating as Ponzi schemes, and securities
lending programs that lost value. Invesco had little to no exposure to such factors.
Furthermore, while some competitors were withdrawing from the marketplace, we were meeting
regularly with clients, helping them navigate the difficult markets and sharing solutions to meet
their long-term investment needs. That enhanced visibility allowed us to deepen our existing
relationships and foster new ones, putting us in a strong position as clients began returning to
the markets.
Invescos commitment to our multi-year strategy set a firm foundation for the companys many
achievements during 2009, including:
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Relative investment performance remained strong across the enterprise in 2009, with
69% of assets performing ahead of peers on a 3-year basis at year end; |
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Maintaining the number one position for Invesco Perpetual in the U.K. for retail
assets under management, with record net inflows, particularly in fixed income, and
strong investment performance; |
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Positive fund flows for the year and record fixed income assets under management for
Invesco Aim; |
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Selection by the U.S. Treasury, among only eight asset managers, to participate in the
Public-Private Investment Program (PPIP); |
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Launch of our mortgage REIT, Invesco Mortgage Capital, Inc. (IVR), an IPO which raised
$200 million in equity. In January 2010, Invesco Mortgage Capital raised an additional
$170 million; |
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75% of Invesco Fixed Income AUM above benchmark on a 3-year basis at year end, further
building our reputation as a safe hands manager during a volatile time in the markets; |
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Successful launch of a $540 million Chinese equity fund in Japan, which was the third
largest onshore China product offering in the local market; |
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Industry recognition of our Asian investment teams, including best equity group award
for our China joint venture; |
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Continued strong flows at Invesco PowerShares, and the launch of intelligent
exchange-traded funds (ETFs) to Canadian investors through an innovative suite of mutual
funds; |
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Extended leadership position of the team at W.L. Ross & Co. with their unique
investment discipline and ability to capture distressed market opportunities; |
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Continued growth of Invescos Hyderabad, India, facility, which was launched early in
2007 utilizing an outsourcing model commonly referred to as build/operate/transfer.
The facility provides cost-effective support for our operations, technology and finance
groups, and is now firmly established with an outsourced staff of more than 400. At such
time that formal transfer of control of the facility moves to Invesco (expected to occur
within the next 18 months), the current staff will become Invesco employees and will be
added to Invescos headcount. |
Together, these efforts resulted in positive net flows for our business in each quarter of
2009. At the same time, reflecting the decline in global markets and resulting decline in the
companys assets under management, operating margin and net operating margin decreased to 18.4% and
25.9% in 2009, respectively, from 22.6% and 31.6% in 2008, respectively. (See Part II, Item 7,
Managements Discussion and Analysis of Financial Condition and Results of Operations Schedule
of Non-GAAP Information for a reconciliation of operating income to net operating income and by
calculation, a reconciliation of operating margin to net operating margin and important
additional disclosures.
We continued to execute on our long-term strategy, making disciplined capital and resource
allocation decisions in a challenging environment, which we believe further improved our ability to
serve our clients, reinforced our reputation as one of the premiere global asset managers, and
helped to deliver competitive levels of operating income and margins as we progressed through the
year. In addition, we took steps to further strengthen our financial position and augment our
capital flexibility through a successful capital raise and a new credit facility. We retain a
positive outlook by S&P and stable outlook with Moodys.
Perhaps the most visible of our accomplishments in 2009 was our announcement in October that
we are acquiring Morgan Stanleys retail asset management business, including Van Kampen. The
combination of our organizations has tremendous implications for Invescos business when the
transaction closes in mid-2010. Through this transaction, we expect to expand the depth and breadth
of our investment strategies, strengthen our overall distribution capabilities and greatly enhance
our ability to serve clients, both in the U.S. and globally. The planned acquisition provided
Invesco the opportunity to review its overall branding approach in the U.S. Under the new
approach, beginning April 30, 2010, Invesco Aim will be
rebranded as Invesco and AIM funds will be rebranded
with the Invesco name (e.g., AIM Charter Fund will become Invesco Charter Fund). In addition,
after the close of the transaction, Invesco will be added to the Van Kampen open-end fund names
(e.g., Van Kampen Comstock Fund will become Invesco Van Kampen Comstock Fund), and Invesco will
rebrand the Morgan Stanley products that are included in the transaction (e.g., Morgan Stanley
Special Value Fund will become Invesco Special Value Fund).
Certain Demographic and Industry Trends
Demographic and economic trends around the world continue to transform the investment
management industry and our business:
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There is an increasing number of investors who seek external professional advice and
investment managers to help them reach their financial goals. |
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As the baby boomer generation continues to mature, there is an increasingly large
segment of the world population that is reaching retirement age. Economic growth in
emerging market countries has created a large and rapidly expanding global middle class
and high net worth population with accelerating levels of wealth. As a result, globally,
there is a high degree of demand for an array of investment solutions that span
investment capabilities, with a particular emphasis on savings vehicles for retirement.
We believe Invesco, as one of the few, truly global, independent investment managers is
very well-positioned to attract these retirement assets through its enduring products
that are focused on long-term investment performance, |
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We have seen increasing demand from clients for alpha and beta to be separated as
investment strategies in the investment management industry. (Alpha is defined as
excess return attributable to a manager, and beta refers to the return of an underlying
benchmark.) This trend reflects how clients are differentiating between low-cost beta
solutions such as passive, index and ETF products and higher-priced alpha strategies such
as those offered by many alternative products. |
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Investors are increasingly seeking to invest outside their domestic markets. They seek
firms that operate globally and have investment expertise in markets around the world.
Invesco, with a comprehensive range of investment capabilities managed by distinct
investment teams worldwide, is well-positioned to benefit from this trend. |
Our four strategic priorities and our plans for taking the business forward acknowledge these
demographic and economic trends, as we work to further strengthen our competitive position. Our
multi-year strategy is designed to leverage our global presence, our distinctive worldwide
investment management capabilities and our talented people to further grow our business and ensure
our long-term success.
Investment Management Capabilities
Invesco is a leading independent global investment manager with operations in 20 countries. As
of December 31, 2009, Invesco managed $423.1 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.
Supported by a global operating platform, Invesco delivers a comprehensive array of investment
products and services to retail, institutional and high-net-worth investors on a global basis. We
have a significant presence in the institutional and retail segments of the investment management
industry in North America, Europe and Asia-Pacific, with clients in more than 100 countries.
We believe that the proven strength of our distinct and globally located investment centers
and their well-defined investment disciplines provide us with a competitive advantage in the eyes
of many of our clients. There are few independent investment managers with teams as globally
diverse as Invescos and with the same breadth and depth of investment capabilities and products.
We offer multiple investment objectives within the various asset classes and products that we
manage. Our asset classes, broadly defined, include money market, fixed income, balanced, equity
and alternatives. Approximately 41% of our AUM as of December 31, 2009, was invested in equities
(December 31, 2008: 36% in equities), with the balance invested in fixed income and other
securities.
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The following table sets forth the investment objectives by which we manage, sorted by asset
class:
Objectives by Asset Class
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Money Market |
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Fixed Income |
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Balanced |
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Equity |
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Alternatives |
Prime |
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Convertibles |
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Single Country |
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Small Cap Core |
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Financial Structures |
Government/Treasury |
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Core/Core Plus |
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Global |
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Small Cap Growth |
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Absolute Return |
Tax-Free |
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Emerging Markets |
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Asset Allocation |
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Small Cap Value |
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U.S. REITS |
Cash Plus |
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Enhanced Cash |
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Target Date |
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Mid Cap Core |
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Global REITS |
Taxable |
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Government Bonds |
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Target Risk |
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Mid Cap Growth |
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U.S. Direct Real Estate |
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High-Yield Bonds |
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Mid Cap Value |
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European Direct Real Estate |
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Bank Loans |
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Large Cap Core |
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Asian Direct Real Estate |
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Passive/Enhanced |
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Large Cap Growth |
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Private Capital Direct Investments |
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Intermediate Term |
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Large Cap Value |
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Private Capital Fund of Funds |
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International/Global |
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Enhanced Index Quantitative |
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Private Capital Distressed |
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Municipal Bonds |
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Sector Funds |
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Portable Alpha |
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Short Term |
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International |
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Alternative Beta |
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Stable Value |
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Global |
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GTAA/Global Macro |
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Structured Securities |
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Regional/Single Country |
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(ABS, MBS, CMBS) |
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Investment Grade Credit |
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The following table sets forth the categories of products sold through our three
principal distribution channels:
Investment Vehicles by Distribution Channel
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Retail |
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Institutional |
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Private Wealth Management |
Mutual Funds |
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Institutional Separate Accounts |
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Separate Accounts |
Investment Companies with Variable Capital |
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Collective Trust Funds |
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Managed Accounts |
Investment Trusts |
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Managed Accounts |
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Mutual Funds |
Individual Savings Accounts |
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Exchange-Traded Funds |
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Exchange-Traded Funds |
Exchange-Traded Funds |
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Private Capital Funds |
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Private Capital Funds |
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Variable Insurance Funds |
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One of Invescos greatest competitive strengths is the diversification in our AUM by client
domicile, distribution channel and asset class. Our distribution network has gathered assets of
approximately 49% retail, 47% institutional, and 4% Private Wealth Management clients. 39% of
client assets under management are outside the U.S., and we service clients in more than 100
countries. The following tables present a breakdown of AUM by client domicile, distribution channel
and asset class as of December 31, 2009:
AUM Diversification
See Part II, Item 8, Financial Statements and Supplementary Data Note 12, Geographic
Information, for a geographic breakdown of our consolidated operating revenues for the years ended
December 31, 2009, 2008 and 2007.
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Distribution Channels
Retail
Invesco is a significant provider of retail investment solutions to clients through our
distribution channels: Invesco Aim in the U.S., Invesco Trimark in Canada, Invesco Perpetual in the
U.K., Invesco in Europe and Asia, and Invesco PowerShares (for our ETF products). Collectively, the
retail investment management teams manage assets of $206.9 billion as of December 31, 2009. We
offer retail products within all of the major asset classes (money market, fixed income, balanced,
equity and alternatives). Our retail products are primarily distributed through third-party
financial intermediaries, including traditional broker-dealers, fund supermarkets, retirement
platforms, financial advisors, insurance companies and trust companies.
The U.K., U.S. and Canadian retail operations rank among the largest by AUM in their
respective markets. As of December 31, 2009, Invesco Perpetual was the largest retail fund provider
in the U.K., Invesco Aim was the 15th largest non-proprietary mutual fund complex in the
U.S., and Invesco Trimark was the 9th largest retail fund manager in Canada, and in
addition, Invesco Great Wall, our joint venture in China was one of the largest Sino-foreign
managers of equity products in China, with AUM of approximately $8 billion as of December 31,
2009. Invesco PowerShares adds a leading set of ETF products (with $15 billion in AUM and 120
exchange-traded funds as of December 31, 2009) to the extensive choices we make available to our
retail investors. We believe that we provide our retail clients with one of the industrys most
robust and comprehensive product lines.
Institutional
We provide investment solutions to institutional investors globally, with a major presence in
the U.S., U.K., Continental Europe and Asia-Pacific regions through Invesco and Invesco Aim
($201.0 billion in AUM as of December 31, 2009). We offer a broad suite of domestic and global
products, including traditional equities, structured equities, fixed income (including money market
funds for institutional clients), real estate, private equity, distressed equities, financial
structures, and absolute return strategies. Regional sales forces distribute our products and
provide services to clients and intermediaries around the world. We have a diversified client base
that includes major public entities, corporations, unions, non-profit organizations, endowments,
foundations and financial institutions. Clients of Invesco Aims institutional money market funds
included 20 of the 25 largest commercial banks in the U.S., 11 of the 20 largest global banks, and
10 of the Fortune 20 corporations as of December 31, 2009.
Private Wealth Management
Through Atlantic Trust, Invesco provides high-net-worth individuals and their families with a
broad range of personalized and sophisticated wealth management services, including financial
counseling, estate planning, asset allocation, investment management (including use of third-party
managed investment products), private equity, trust, custody and family office services. Atlantic
Trust also provides asset management services to foundations and endowments. Atlantic Trust obtains
new clients through referrals from existing clients, recommendations from other professionals
serving the high-net-worth market, such as attorneys and accountants, and from financial
intermediaries, such as brokers. Atlantic Trust has offices in 11 U.S. cities and managed
$15.2 billion as of December 31, 2009.
Employees
As of December 31, 2009, we had 4,890 employees across the globe. As of December 31, 2008 and
2007, we had 5,325 and 5,475 employees, respectively. None of our employees is covered under
collective bargaining agreements.
Competition
The investment management business is highly competitive, with points of differentiation
including investment performance, the range of products offered, brand recognition, business
reputation, financial strength, the depth and continuity of relationships, quality of service and
the level of fees charged for services. We compete with a large number of investment management
firms, commercial banks, investment banks, broker dealers, hedge funds, insurance companies and
other financial institutions. We believe that the diversity of our investment styles, product types
and channels of distribution enable us to compete effectively in the investment management
business. We also believe being an independent investment manager is a competitive advantage, as
our business model avoids conflicts that are inherent within institutions that both distribute
investment products and manage investment products. Lastly, we believe continued execution against
our multi-year strategy will further strengthen our long-term competitive position.
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Management Contracts
We derive substantially all of our revenues from investment management contracts with clients
and funds. Fees vary with the type of assets being managed, with higher fees earned on actively
managed equity and balanced accounts, along with real estate and alternative asset products, and
lower fees earned on fixed income, money market and stable value accounts. Investment management
contracts are generally terminable upon thirty or fewer days notice. Typically, retail investors
may withdraw their funds at any time without prior notice. Institutional and private wealth
management clients may elect to terminate their relationship with us or reduce the aggregate amount
of assets under management with very short-notice periods.
Available Information
We file current and periodic reports, proxy statements and other information with the SEC,
copies of which can be obtained from the SECs Public Reference Room at 100 F Street, NE,
Washington, DC 20549. Information on the operation of the Public Reference Room can be obtained by
calling the SEC at 1-800-SEC-0330.
The SEC maintains an Internet site that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the SEC, at www.sec.gov. We make
available free of charge on our Web site, www.invesco.com, our Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed
or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended,
as soon as reasonably practicable after we electronically file such material with, or furnish it
to, the SEC.
Item 1A. Risk Factors
Recent volatility and disruption in world capital and credit markets, as well as adverse changes
in the global economy, have negatively affected Invescos revenues and may continue to do so.
The capital and credit markets have been experiencing substantial volatility and disruption
for over a year. While these disruptions moderated to some extent following the March 2009 lows in
equity markets, historical norms have not returned and the potential for extreme disruptions
remains. These market events have materially impacted our results of operations, and may continue
to do so, and could materially impact our financial condition and liquidity. In this regard:
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The volatility of global market conditions around the world has resulted, and may
continue to result, in significant volatility in our assets under management and in our
revenues, driven by market value fluctuations on our managed portfolios. |
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In addition to the impact of the market values on client portfolios, the illiquidity
and volatility of both the global fixed income and equity markets could negatively affect
our ability to manage client inflows and outflows from pooled investment vehicles or to
timely meet client redemption requests. |
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Our money market funds have always maintained a $1.00 net asset value (NAV); however,
we do not guarantee such level. Market conditions could lead to severe liquidity issues
in money market products, which could affect their NAVs. If the NAV of one of our money
market funds were to decline below $1.00 per share, such funds could experience
significant redemptions in assets under management, loss of shareholder confidence and
reputational harm. The SEC has recently adopted new rules governing U.S. registered money
market funds. These new rules are designed to significantly strengthen the regulatory
requirements governing money market funds, increase the resilience of such funds to
economic stresses, and reduce the risk of runs on these funds. Regulators in the U.S. are
evaluating whether to propose mandating a variable (floating) NAV for money market
funds. The company believes such a change would have significant adverse consequences on
the money market funds industry and the short-term credit markets. |
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Even if legislative or regulatory initiatives or other efforts successfully stabilize
and add liquidity to the financial markets, we may need to modify our strategies,
businesses or operations, and we may incur increased capital requirements and constraints
or additional costs in order to satisfy new regulatory requirements or to compete in a
changed business environment. |
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In the event of extreme circumstances, including economic, political, or business
crises, such as a widespread systemic failure in the global financial system or
additional failures of firms that have significant obligations as counterparties on
financial instruments, we may suffer further significant declines in assets under
management and severe liquidity or valuation issues in the short-term sponsored
investment products in which client and company assets are invested, all of which would
adversely affect our operating results, financial condition, liquidity, credit ratings,
ability to access capital markets, and retention and ability to attract key employees.
Additionally, these factors could impact our ability to realize the carrying value of our
goodwill. |
We may not adjust our expenses quickly enough to match further significant deterioration in global
financial markets.
In response to significant reductions in our assets under management related to recent adverse
changes in world financial markets, we have undertaken a variety of efforts to achieve cost savings
and reduce our overall operating expenses. If we are unable to effect appropriate expense
reductions in a timely manner in response to declines in our revenues, or if we are otherwise
unable to adapt to rapid changes in the global marketplace, our profitability, financial condition
and results of operations would be adversely affected.
Our revenues would be adversely affected by any reduction in assets under our management as a
result of either a decline in market value of such assets or net outflows, which would reduce the
investment management fees we earn.
We derive substantially all of our revenues from investment management contracts with clients.
Under these contracts, the investment management fees paid to us are typically based on the market
value of assets under management. Assets under management may decline for various reasons. For any
period in which revenues decline, our income and operating margin may decline by a greater
proportion because certain expenses remain relatively fixed. Factors that could decrease assets
under management (and therefore revenues) include the following:
Declines in the market value of the assets in the funds and accounts managed. These could be
caused by price declines in the securities markets generally or by price declines in the market
segments in which those assets are concentrated. Approximately 41% of our total assets under
management were invested in equity securities and approximately 59% were invested in fixed income
and other securities at December 31, 2009. Through the date of the filing of the Annual Report on
Form 10-K with the SEC, markets continue to be volatile. Our AUM as of January 31, 2010, was
$412.6 billion. We cannot predict whether the continued volatility in the markets will result in
substantial or sustained declines in the securities markets generally or result in price declines
in market segments in which our assets under management are concentrated. Any of the foregoing
could negatively impact our revenues, income and operating margin.
Redemptions and other withdrawals from, or shifting among, the funds and accounts managed.
These could be caused by investors (in response to adverse market conditions or pursuit of other
investment opportunities) reducing their investments in funds and accounts in general or in the
market segments on which Invesco focuses; investors taking profits from their investments; poor
investment performance of the funds and accounts managed by Invesco; and portfolio risk
characteristics, which could cause investors to move assets to other investment managers. Poor
performance relative to other investment management firms tends to result in decreased sales,
increased redemptions of fund shares, and the loss of private institutional or individual
accounts, with corresponding decreases in our revenues. Failure of our funds and accounts to
perform well could, therefore, have a material adverse effect on us. Furthermore, the fees we
earn vary with the types of assets being managed, with higher fees earned on actively managed
equity and balanced accounts, along with real estate and alternative asset products, and lower
fees earned on fixed income and stable return accounts. Therefore, our revenues may decline if
clients shift their investments to lower fee accounts.
Declines in the value of seed capital and partnership investments. The company has
investments in sponsored investment products that invest in a variety of asset classes,
including, but not limited to equities, fixed income products, private equity, and real estate.
Investments in these products are generally made to establish a track record, meet purchase size
requirements for trading blocks, or demonstrate economic alignment with other investors in our
funds. Adverse market conditions may result in the need to write down the value of these seed
investments. As of December 31, 2009, the company had $151.8 million in seed capital and
partnership investments.
Our investment advisory agreements are subject to termination or non-renewal, and our fund and
other investors may withdraw their assets at any time.
Substantially all of our revenues are derived from investment advisory agreements. Investment
advisory agreements are generally terminable upon 30 or fewer days notice. Agreements with
U.S. mutual funds may be terminated with notice, or terminated in the
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event of an assignment (as defined in the Investment Company Act), and must be renewed
annually by the disinterested members of each funds board of directors or trustees, as required by
law. In addition, the board of trustees or directors of certain other fund accounts of Invesco or
our subsidiaries generally may terminate these investment advisory agreements upon written notice
for any reason. Mutual fund and unit trust investors may generally withdraw their funds at any time
without prior notice. Institutional clients may elect to terminate their relationships with us or
reduce the aggregate amount of assets under our management, and individual clients may elect to
close their accounts, redeem their shares in our funds, or shift their funds to other types of
accounts with different fee structures. Any termination of or failure to renew a significant number
of these agreements, or any other loss of a significant number of our clients or assets under
management, would adversely affect our revenues and profitability.
Our revenues and profitability from money market and other fixed income assets may be harmed by
interest rate, liquidity and credit volatility.
In a rising-rate environment, certain institutional investors using money market products and
other short-term duration fixed income products for cash management purposes may shift these
investments to direct investments in comparable instruments in order to realize higher yields than
those available in money market and other fund products holding lower yielding instruments. These
redemptions would reduce managed assets, thereby reducing our revenues. In addition, rising
interest rates will tend to reduce the market value of bonds held in various investment portfolios
and other products. Thus, increases in interest rates could have an adverse effect on our revenues
from money market portfolios and from other fixed income products. If securities within a money
market portfolio default, or investor redemptions force the portfolio to realize losses, there
could be negative pressure on its net asset value. Although money market investments are not
guaranteed instruments, the company might decide, under such a scenario, that it is in its best
interest to provide support in the form of a support agreement, capital infusion, or other methods
to help stabilize a declining net asset value. Some of these methods could have an adverse impact
on our profitability. Additionally, we have $17.9 million of equity at risk invested in our
collateralized loan obligation products, the valuation of which could change with changes in
interest and default rates.
We operate in an industry that is highly regulated in many countries, and any adverse changes in
the regulations governing our business could decrease our revenues and profitability.
As with all investment management companies, our activities are highly regulated in almost all
countries in which we conduct business. Laws and regulations applied at the national, state or
provincial and local level generally grant governmental agencies and industry self-regulatory
authorities broad administrative discretion over our activities, including the power to limit or
restrict business activities. Possible sanctions include the revocation of licenses to operate
certain businesses, the suspension or expulsion from a particular jurisdiction or market of any of
our business organizations or their key personnel, the imposition of fines and censures on us or
our employees and the imposition of additional capital requirements. It is also possible that laws
and regulations governing our operations or particular investment products could be amended or
interpreted in a manner that is adverse to us.
Certain of our subsidiaries are required to maintain minimum levels of capital. These and
other similar provisions of applicable law may have the effect of limiting withdrawals of capital,
repayment of intercompany loans and payment of dividends by such entities. After redomicile and
after consultation with the U.K. Financial Services Authority (FSA), it has been determined that,
for the purposes of prudential supervision, Invesco Ltd. is not subject to regulatory consolidated
capital requirements under current European Union (EU) Directives. A sub-group, however, including
all of our regulated EU subsidiaries, is subject to these consolidated capital requirements, and
capital is maintained within this sub-group to satisfy these regulations. At December 31, 2009, the
European sub-group had cash and cash equivalent balances of $333.5 million, much of which is used
to satisfy these regulatory requirements. Complying with our regulatory commitments may result in
an increase in the capital requirements applicable to the European sub-group. As a result of
corporate restructuring and the regulatory undertakings that we have given, certain of these EU
subsidiaries may be required to limit their dividends to the parent company, Invesco Ltd. We cannot
guarantee that further corporate restructuring will not be required to comply with applicable
legislation.
The regulatory environment in which we operate frequently changes and has seen significant
increased regulation in recent years. We may be adversely affected as a result of new or revised
legislation or regulations or by changes in the interpretation or enforcement of existing laws and
regulations. To the extent that existing regulations are amended or future regulations are adopted
that reduce the sale, or increase the redemptions, of our products and services, or that negatively
affect the investment performance of our products, our aggregate assets under management and our
revenues could be adversely affected. In addition, regulatory changes could impose additional
costs, which could negatively impact our profitability.
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Various regulators, legislators, other government officials and other public policy
commentators have proposed or are considering proposals for regulatory reform in response to the
ongoing crisis in the financial markets. Certain proposals are far reaching and if enacted could
have a material impact on Invescos business. While many of these proposals are designed to address
perceived problems in the banking sector, certain of the proposals could be applied to other
financial services companies, including asset managers. Potential developments include:
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Expanded prudential regulation over investment management firms. |
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New or increased capital requirements and related regulation (including new capital
requirements pertaining to money market funds) |
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Fundamental change to the regulation of money market funds in the U.S. The SEC has
recently proposed changes to Rule 2a-7, the primary securities regulation governing U.S.
registered money market funds. The SEC has recently adopted new rules governing U.S.
registered money market funds. These new rules are designed to significantly strengthen
the regulatory requirements governing money market funds, increase the resilience of such
funds to economic stresses, and reduce the risk of runs on these funds. Regulators in the
U.S. are evaluating whether to propose mandating a variable (floating) NAV for money
market funds. The company believes such a change would have significant adverse
consequences on the money market funds industry and the short-term credit markets. |
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Changes impacting certain other products or markets (e.g., retirement savings). |
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Enhanced licensing and qualification requirements for key personnel. |
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Other additional rules and regulations and disclosure requirements. Certain proposals
would impose additional disclosure burdens on public companies, including Invesco.
Certain of these proposals could impose requirements for more widespread disclosures of
compensation to highly-paid individuals. Depending upon the scope of any such
requirements, the company could be disadvantaged in retaining key employees vis-à-vis
private companies, including hedge fund sponsors. |
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Other changes impacting the identity or the organizational structure of regulators
with supervisory authority over Invesco. |
Certain proposals would require national legislation or international treaties. Invesco cannot
at this time predict the impact of potential regulatory changes on its business. It is possible
such changes could impose material new compliance costs or capital requirements or impact Invesco
in other ways that could have a material adverse impact on Invescos results of operations,
financial condition or liquidity. Moreover, such changes could require us to modify our strategies,
businesses or operations, and we may incur other new constraints or costs in order to satisfy new
regulatory requirements or to compete in a changed business environment.
To the extent that existing or future regulations affecting the sale of our products and
services or our investment strategies cause or contribute to reduced sales or increased redemptions
of our products or impair the investment performance of our products, our aggregate assets under
management and revenues might be adversely affected.
Civil litigation and governmental enforcement actions and investigations could adversely affect
our assets under management and future financial results, and increase our costs of doing
business.
Invesco and certain related entities have in recent years been subject to various legal
proceedings arising from normal business operations and/or matters that have been the subject of
previous regulatory actions. See Part I, Item 3, Legal Proceedings, for additional information.
The U.S. Supreme Court is expected to reach a decision in the case of Jones v. Harris during
its current term, which is scheduled to end in June 2010. That case involves the interpretation of
Section 36(b) of the Investment Company Act of 1940, as amended. Section 36(b) grants private
parties the right to sue to challenge fees paid by mutual funds to their investment advisers.
Depending on the nature and scope of the Courts ruling, the mutual fund industry in the U.S. could
face additional litigation defense costs, new compliance costs and additional pressure on mutual
fund fees.
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Our investment management professionals and other key employees are a vital part of our ability to
attract and retain clients, and the loss of a significant portion of those professionals could
result in a reduction of our revenues and profitability.
Retaining highly skilled technical and management personnel is important to our ability to
attract and retain clients and retail shareholder accounts. The market for investment management
professionals is competitive and has grown more so in recent periods as the investment management
industry has experienced growth. The market for investment managers is also increasingly
characterized by the movement of investment managers among different firms. Our policy has been to
provide our investment management professionals with compensation and benefits that we believe are
competitive with other leading investment management firms. However, we may not be successful in
retaining our key personnel, and the loss of significant investment management personnel could
reduce the attractiveness of our products to potential and current clients and could, therefore,
adversely affect our revenues and profitability.
If our reputation is harmed, we could suffer losses in our business, revenues and net income.
Our business depends on earning and maintaining the trust and confidence of clients,
regulators and other market participants, and the resulting good reputation is critical to our
business. Our reputation is vulnerable to many threats that can be difficult or impossible to
control, and costly or impossible to remediate. Regulatory inquiries, material errors in public
reports, employee dishonesty or other misconduct and rumors, among other things, can substantially
damage our reputation, even if they are baseless or satisfactorily addressed. Further, our business
requires us to continuously manage actual and potential conflicts of interest, including situations
where our services to a particular client conflict, or are perceived to conflict, with the
interests of another client. We have procedures and controls that are designed to address and
manage conflicts of interest, but this task is complex and difficult, and our reputation could be
damaged, and the willingness of clients to enter into transactions in which such a conflict might
arise may be affected, if we fail or appear to fail to deal appropriately with conflicts of
interest. In addition, potential or perceived conflicts could give rise to litigation or regulatory
enforcement actions. Any damage to our reputation could impede our ability to attract and retain
clients and key personnel, and lead to a reduction in the amount of our assets under management,
any of which could have a material adverse effect on our revenues and net income.
Failure to comply with client contractual requirements and/or guidelines could result in damage
awards against us and loss of revenues due to client terminations.
Many of the asset management agreements under which we manage assets or provide products or
services specify guidelines or contractual requirements that Invesco is required to observe in the
provision of its services. A failure to comply with these guidelines or contractual requirements
could result in damage to our reputation or in our clients seeking to recover losses, withdrawing
their assets or terminating their contracts, any of which could cause our revenues and net income
to decline. We maintain various compliance procedures and other controls to prevent, detect and
correct such errors. When an error is detected, we typically will make a payment into the
applicable client account to correct it. Significant errors could impact our results of operations.
Competitive pressures may force us to reduce the fees we charge to clients, increase
commissions paid to our financial intermediaries or provide more support to those intermediaries,
all of which could reduce our profitability.
The investment management business is highly competitive, and we compete based on a variety of
factors, including investment performance, the range of products offered, brand recognition,
business reputation, financial strength, stability and continuity of client and intermediary
relationships, quality of service, level of fees charged for services and the level of compensation
paid and distribution support offered to financial intermediaries. We continue to face market
pressures regarding fee levels in certain products.
We face strong competition in every market in which we operate. Our competitors include a
large number of investment management firms, commercial banks, investment banks, broker-dealers,
hedge funds, insurance companies and other financial institutions. Some of these institutions have
greater capital and other resources, and offer more comprehensive lines of products and services,
than we do. Our competitors seek to expand their market share in many of the products and services
we offer. If these competitors are successful, our revenues and profitability could be adversely
affected. In addition, there are relatively few barriers to entry by new investment management
firms, and the successful efforts of new entrants into our various distribution channels around the
world have also resulted in increased competition.
In 2009, we saw several instances of industry consolidation, both in the area of distributors
and manufacturers of investment products. Further consolidation may occur in these areas in the
future, particularly if the economic environment and the financial markets remain uncertain and
volatile. The increasing size and market influence of certain distributors of our products and of
certain
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direct competitors may have a negative impact on our ability to compete at the same levels of
profitability in the future, should we find ourselves unable to maintain relevance in the markets
in which we compete.
We may engage in strategic transactions that could create risks.
As part of our business strategy, we regularly review, and from time to time have discussions
with respect to, potential strategic transactions, including potential acquisitions, dispositions,
consolidations, joint ventures or similar transactions, some of which may be material. There can be
no assurance that we will find suitable candidates for strategic transactions at acceptable prices,
have sufficient capital resources to pursue such transactions, be successful in negotiating the
required agreements, or successfully close transactions after signing such agreements.
On October 19, 2009, we announced that the company had entered into a definitive agreement to
acquire Morgan Stanleys retail asset management business, including Van Kampen Investments. The
transaction was valued at $1.5 billion (subject to adjustment), consisting of payments by Invesco
of $500.0 million in cash, for which we expect to use available cash balances and borrowings under
our credit facility, and an aggregate of approximately 44.1 million Invesco common shares and
non-voting common equivalent preferred shares, which will result in Morgan Stanley obtaining an
approximately 9.3% equity interest in our company. The transaction has been approved by the boards
of directors of both companies and is expected to close in mid-2010, subject to customary
regulatory, client and fund shareholder approvals. As a result of this transaction, and until the
time of the deal closing, contractual limitations are in place with respect to our issuing or
repurchasing our common shares (other than those related to employee compensation plans), and we
are also unable to declare or pay any extraordinary dividends.
The aggregate amount of approximately 44.1 million Invesco common shares and non-voting
common equivalent preferred shares (with economic rights identical to common stock, other than no
right to vote such shares,) that we expect to issue to Morgan Stanley in exchange for their asset
management business upon closing the transaction are largely unrestricted. Since no lock up
exists, Morgan Stanley may sell these shares in the open market or through a secondary offering
subject to certain limited restrictions. If Morgan Stanley were to sell their future equity stake
in Invesco, or express an intention to sell the stake, after the close, this may have a significant
impact on the companys stock price.
Acquisitions, including the pending acquisition of Morgan Stanleys retail asset management
business, also pose the risk that any business we acquire may lose customers or employees or could
underperform relative to expectations. We could also experience financial or other setbacks if
pending transactions encounter unanticipated problems, including problems related to closing or
integration. Following the completion of an acquisition, we may have to rely on the seller to
provide administrative and other support, including financial reporting and internal controls, to
the acquired business for a period of time. There can be no assurance that such sellers will do so
in a manner that is acceptable to us.
Our ability to access the capital markets in a timely manner should we seek to do so depends on a
number of factors.
Our access to the capital markets, including for purposes of financing potential acquisitions,
depends significantly on our credit ratings. We have received credit ratings of A3 and BBB+ from
Moodys and Standard & Poors credit rating agencies, respectively, as of the date of this Annual
Report on Form 10-K. Standard & Poors has a positive outlook for the rating, and Moodys has a
stable outlook for the rating as of the date of this Annual Report on Form 10-K. We believe that
rating agency concerns include but are not limited to: our ability to sustain net positive asset
flows across customer channels, product type and geographies, our level of indebtedness, our risk
appetite and approach to risk management, our ability to maintain consistent positive investment,
the profitability of our business under a sustained downturn scenario, and integration risk related
to the pending acquisition of Morgan Stanleys retail asset management business. Additionally, the
rating agencies could decide to downgrade the entire asset management industry, based on their
perspective of future growth and solvency. Material deterioration of these factors, and others
defined by each rating agency, could result in downgrades to our credit rating or outlook, thereby
limiting our ability to generate additional financing or receive mandates. Management believes that
solid investment grade ratings are an important factor in winning and maintaining institutional
business and strives to manage the company to maintain such ratings.
A reduction in our long- or short-term credit ratings could increase our borrowing costs,
limit our access to the capital markets, and may result in outflows thereby reducing AUM and
revenues. The continuing current levels of unprecedented volatility in global finance markets may
also affect our ability to access the capital markets should we seek to do so. If we are unable to
access capital markets in a timely manner, our business could be adversely affected.
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Our indebtedness could adversely affect our financial position.
As of December 31, 2009, we had outstanding total debt of $745.7 million and shareholders
equity of $6,912.9 million. The amount of indebtedness we carry could limit our ability to obtain
additional financing for working capital, capital expenditures, acquisitions, debt service
requirements or other purposes, increase our vulnerability to adverse economic and industry
conditions, limit our flexibility in planning for, or reacting to, changes in our business or
industry, and place us at a disadvantage in relation to our competitors. Any or all of the above
factors could materially adversely affect our financial position.
Our credit facility imposes restrictions on our ability to conduct business and, if amounts
borrowed under it were subject to accelerated repayment, we might not have sufficient assets to
repay such amounts in full.
Our credit facility requires us to maintain specified financial ratios, including maximum
debt-to-earnings and minimum interest coverage ratios, as well as maintaining a minimum amount of
long-term assets under management. This credit facility also contains customary affirmative
operating covenants and negative covenants that, among other things, restrict certain of our
subsidiaries ability to incur debt and restrict our ability to transfer assets, merge, make loans
and other investments and create liens. The breach of any covenant (either due to our actions or
due to a significant and prolonged market-driven decline in our long-term assets under management
or our operating results) would result in a default under the credit facility. In the event of any
such default, lenders that are party to the credit facility could refuse to make further extensions
of credit to us and require all amounts borrowed under the credit facility, together with accrued
interest and other fees, to be immediately due and payable. If any indebtedness under the credit
facility were subject to accelerated repayment, we might not have sufficient liquid assets to repay
such indebtedness in full.
Changes in the distribution channels on which we depend could reduce our revenues and hinder our
growth.
We sell a portion of our investment products through a variety of financial intermediaries,
including major wire houses, regional broker-dealers, banks and financial planners in North
America, and independent brokers and financial advisors, banks and financial organizations in
Europe and Asia. Increasing competition for these distribution channels could cause our
distribution costs to rise, which would lower our net revenues. As a result of recent market
turmoil, there has been some consolidation of banks and broker-dealers, particularly in the U.S.,
and a limited amount of migration of brokers and financial advisors away from major banks to
independent firms focused largely on providing advice. If these trends continue, our distribution
costs could increase as a percentage of our revenues generated. Additionally, particularly outside
of the U.S., certain of the intermediaries upon whom we rely to distribute our investment products
also sell their own competing proprietary funds and investment products, which could limit the
distribution of our products. Increasingly, investors, particularly in the institutional market,
rely on external consultants and other unconflicted third parties for advice on the choice of
investment manager. These consultants and third parties tend to exert a significant degree of
influence and they may favor a competitor of Invesco as better meeting their particular clients
needs. There is no assurance that our investment products will be among their recommended choices
in the future. Additionally, if one of our major distributors were to cease operations, it could
have a significant adverse effect on our revenues and profitability. Moreover, any failure to
maintain strong business relationships with these distribution sources and the consultant community
would impair our ability to sell our products, which in turn could have a negative effect on our
revenues and profitability.
We could be subject to losses if we fail to properly safeguard confidential and sensitive
information.
We maintain and transmit confidential information about our clients as well as proprietary
information relating to our business operations as part of our regular operations. Our systems
could be attacked by unauthorized users or corrupted by computer viruses or other malicious
software code, or authorized persons could inadvertently or intentionally release confidential or
proprietary information.
Such disclosure could, among other things, damage our reputation, allow competitors to access
our proprietary business information, result in liability for failure to safeguard our clients
data, result in the termination of contracts by our existing customers, subject us to regulatory
action, or require material capital and operating expenditures to investigate and remediate the
breach.
Our business is vulnerable to deficiencies and failures in support systems and customer service
functions that could lead to breaches and errors, resulting in loss of customers or claims against
us or our subsidiaries.
The ability to consistently and reliably obtain accurate securities pricing information,
process client portfolio and fund shareholder transactions and provide reports and other customer
service to fund shareholders and investors in other accounts managed by us is essential to our
continuing success. In recent periods, illiquid markets for certain types of securities have
required increased use of fair
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value pricing, which is dependent on certain subjective judgments. Any delays or inaccuracies
in obtaining pricing information, processing such transactions or such reports, other breaches and
errors, and any inadequacies in other customer service, could result in reimbursement obligations
or other liabilities, or alienate customers and potentially give rise to claims against us. Our
customer service capability, as well as our ability to obtain prompt and accurate securities
pricing information and to process transactions and reports, is highly dependent on communications
and information systems and on third-party vendors. These systems could suffer deficiencies,
failures or interruptions due to various natural or man-made causes, and our back-up procedures and
capabilities may not be adequate to avoid extended interruptions in operations. Certain of these
processes involve a degree of manual input, and thus similar problems could occur from time to time
due to human error.
If we are unable to successfully recover from a disaster or other business continuity problem, we
could suffer material financial loss, loss of human capital, regulatory actions, reputational harm
or legal liability.
If we were to experience a local or regional disaster or other business continuity problem,
such as a pandemic or other natural or man-made disaster, our continued success will depend, in
part, on the availability of our personnel, our office facilities and the proper functioning of our
computer, telecommunication and other related systems and operations. In such an event, our
operational size, the multiple locations from which we operate, and our existing back-up systems
would provide us with an important advantage. Nevertheless, we could still experience near-term
operational challenges with regard to particular areas of our operations, such as key executive
officers or technology personnel. Further, as we strive to achieve cost savings by shifting certain
business processes to lower-cost geographic locations such as India, the potential for particular
types of natural or man-made disasters, political, economic or infrastructure instabilities, or
other country- or region-specific business continuity risks increases. Although we seek to
regularly assess and improve our existing business continuity plans, a major disaster, or one that
affected certain important operating areas, or our inability to successfully recover should we
experience a disaster or other business continuity problem, could materially interrupt our business
operations and cause material financial loss, loss of human capital, regulatory actions,
reputational harm or legal liability.
Since many of our subsidiary operations are located outside of the United States and have
functional currencies other than the U.S. dollar, changes in the exchange rates to the U.S. dollar
affect our reported financial results from one period to the next.
The largest component of our net assets, revenues and expenses, as well as our assets under
management, is presently derived from the United States. However, we have a large number of
subsidiaries outside of the United States whose functional currencies are not the U.S. dollar. As a
result, fluctuations in the exchange rates to the U.S. dollar affect our reported financial results
from one period to the next. We do not actively manage our exposure to such effects. Consequently,
significant strengthening of the U.S. dollar relative to the U.K. Pound Sterling, Euro, or Canadian
dollar, among other currencies, could have a material negative impact on our reported financial
results.
The carrying value of goodwill and other intangible assets on our balance sheet could become
impaired, which would adversely affect our results of operations.
We have goodwill on our balance sheet that is subject to an annual impairment review. Goodwill
totaled $6,467.6 million at December 31, 2009 (2008: $5,966.8 million). We may not realize the
value of such goodwill. We perform impairment reviews of the book values of goodwill on an annual
basis or more frequently if impairment indicators are present. A variety of factors could cause
such book values to become impaired. Should valuations be deemed to be impaired, a write-down of
the related assets would occur, adversely affecting our results of operations for the period. See
Part II, Item 7, Managements Discussion and Analysis of Financial Condition and Results of
Operations Critical Accounting Policies Goodwill for additional details of the companys
goodwill impairment analysis process.
Implementation of new accounting rules in our Consolidated Financial Statements could result in
investor confusion or potential deficiencies in internal controls over financial reporting.
In June 2009, the Financial Accounting Standards Board issued Statement No. 167,
Amendments to FASB Interpretation No. 46(R) (FASB Statement No. 167), now encompassed in
Accounting Standards Codification Topic 810, Consolidation. FASB Statement No. 167 is effective
January 1, 2010, and its adoption will be reflected in our first quarter 2010 Form 10-Q. The
adoption of FASB Statement No. 167 will have a significant impact on the presentation of our
financial statements, as it will require us to consolidate, for the first time, certain
collateralized loan and debt obligation products (CLOs) with approximately $6 billion in AUM at
December 31, 2009, into our financial statements. As a result, the companys Consolidated Statement
of Income will reflect the elimination of management and performance fees earned from these CLOs.
In addition, FASB Statement No. 167 will require that our Consolidated Balance Sheet reflect the
collateral assets held and non-recourse debt issued by these CLOs, despite the fact that the
18
assets cannot be used by the company, nor is the company obligated for the debt. In addition,
the new rules will require our Consolidated Cash Flow Statement to reflect the cash flows of the
CLOs. The adoption of FASB Statement No. 167 in the companys financial statements could have an
impact on users analyses of our underlying results of operations, financial position, or
liquidity. As a result, external credit rating agencies or analysts could report information not
reflective of the underlying financial condition of the company.
Deficiencies in internal controls over financial reporting could result, as the financial
information of the funds required to be consolidated do not form part of the companys financial
reporting systems and processes.
Bermuda law differs from the laws in effect in the United States and may afford less protection to
shareholders.
Our shareholders may have more difficulty protecting their interests than shareholders of a
corporation incorporated in a jurisdiction of the United States. As a Bermuda company, we are
governed by the Companies Act 1981 of Bermuda (Companies Act). The Companies Act differs in some
material respects from laws generally applicable to United States corporations and shareholders,
including provisions relating to interested directors, mergers, amalgamations and acquisitions,
takeovers, shareholder lawsuits and indemnification of directors.
Under Bermuda law, the duties of directors and officers of a company are generally owed to the
company only. Shareholders of Bermuda companies do not generally have rights to take action against
directors or officers of the company, and may only do so in limited circumstances. Directors and
officers may owe duties to a companys creditors in cases of impending insolvency. Directors and
officers of a Bermuda company must, in exercising their powers and performing their duties, act
honestly and in good faith with a view to the best interests of the company and must exercise the
care and skill that a reasonably prudent person would exercise in comparable circumstances.
Directors have a duty not to put themselves in a position in which their duties to the company and
their personal interests may conflict and also are under a duty to disclose any personal interest
in any material contract or proposed material contract with the company or any of its subsidiaries.
If a director or officer of a Bermuda company is found to have breached his duties to that company,
he may be held personally liable to the company in respect of that breach of duty.
Our Bye-Laws provide for indemnification of our directors and officers in respect of any loss
arising or liability attaching to them in respect of any negligence, default, breach of duty or
breach of trust of which a director or officer may be guilty in relation to us other than in
respect of his own fraud or dishonesty, which is the maximum extent of indemnification permitted
under the Companies Act. Under our Bye-Laws, each of our shareholders agrees to waive any claim or
right of action, both individually and on our behalf, other than those involving fraud or
dishonesty, against us or any of our officers, directors or employees. The waiver applies to any
action taken by a director, officer or employee, or the failure of such person to take any action,
in the performance of his duties, except with respect to any matter involving any fraud or
dishonesty on the part of the director, officer or employee. This waiver limits the right of
shareholders to assert claims against our directors, officers and employees unless the act or
failure to act involves fraud or dishonesty.
Legislative and other measures that may be taken by U.S. and/or other governmental authorities
could materially increase our tax burden or otherwise adversely affect our financial conditions,
results of operations or cash flows.
Under current laws, as the company is domiciled and tax resident in Bermuda, taxation in other
jurisdictions is dependent upon the types and the extent of the activities of the company
undertaken in those jurisdictions. There is a risk that changes in either the types of activities
undertaken by the company or changes in tax rules relating to tax residency could subject the
company and its shareholders to additional taxation.
We continue to assess the impact of various U.S. federal and state legislative proposals, and
modifications to existing tax treaties between the United States and foreign countries, that could
result in a material increase in our U.S. federal and state taxes. Proposals have been introduced
in the U.S. Congress that, if ultimately enacted, could either limit treaty benefits on certain
payments made by our U.S. subsidiaries to non-U.S. affiliates, treat the company as a U.S.
corporation and thereby subject the earnings from non-U.S. subsidiaries of the company to
U.S. taxation, or both. We cannot predict the outcome of any specific legislative proposals.
However, if such proposals were to be enacted, or if modifications were to be made to certain
existing tax treaties, the consequences could have a materially adverse impact on the company,
including increasing our tax burden, increasing costs of our tax compliance or otherwise adversely
affecting our financial condition, results of operations or cash flows.
19
Examinations and audits by tax authorities could result in additional tax payments for prior
periods.
The company and its subsidiaries income tax returns periodically are examined by various tax
authorities. The calculation of our tax liabilities involves dealing with uncertainties in the
application of complex tax regulations in a multitude of jurisdictions across our global
operations. We recognize potential liabilities and record tax liabilities for anticipated tax audit
issues based on our estimate of whether, and the extent to which, additional income taxes will be
due. We adjust these liabilities in light of changing facts and circumstances. Due to the
complexity of some of these uncertainties, however, the ultimate resolution may result in a payment
that is materially different from our current estimate of the tax liabilities.
We have anti-takeover provisions in our Bye-Laws that may discourage a change of control.
Our Bye-Laws contain provisions that could make it more difficult for a third-party to acquire
us or to obtain majority representation on our board of directors without the consent of our board.
As a result, shareholders may be limited in their ability to obtain a premium for their shares
under such circumstances.
Item 1B. Unresolved Staff Comments
N/A
Item 2. Properties
Our registered office is located in Hamilton, Bermuda, and our principal executive offices are
in leased office space at 1555 Peachtree Street N.E., Suite 1800, Atlanta, Georgia, 30309, U.S.A.
We own office facilities at Perpetual Park, Henley-on-Thames, Oxfordshire, RG9 1HH, United Kingdom,
and at 301 W. Roosevelt, Wheaton, Illinois, 60187, and we lease our additional principal offices
located at 30 Finsbury Square, London, EC2A 1AG, United Kingdom; 11 Greenway Plaza, Houston, Texas
77046; 1166 Avenue of the Americas, New York, New York 10036; and in Canada at 5140 Yonge Street,
Toronto, Ontario M2N 6X7. We lease office space in 17 other countries.
Item 3. Legal Proceedings
Following the industry-wide regulatory investigations in 2003 and 2004, multiple lawsuits
based on market timing allegations were filed against various parties affiliated with Invesco.
These lawsuits were consolidated in the United States District Court for the District of Maryland,
together with market timing lawsuits brought against affiliates of other mutual fund companies, and
on September 29, 2004, three amended complaints were filed against company-affiliated parties: (1)
a putative shareholder class action complaint brought on behalf of shareholders of AIM funds
formerly advised by Invesco Funds Group, Inc.; (2) a derivative complaint purportedly brought on
behalf of certain AIM funds and the shareholders of such funds; and (3) an ERISA complaint
purportedly brought on behalf of participants in the companys 401(k) plan. The company and
plaintiffs have reached settlements in principle of these lawsuits. The proposed settlements, which
are subject to court approval, call for a payment by the company of $9.8 million, recorded in
general and administrative expenses in the Consolidated Statement of Income in 2007, in exchange
for dismissal with prejudice of all pending claims. In addition, under the terms of the proposed
settlements, the company may incur certain costs in connection with providing notice of the
proposed settlements to affected shareholders. Based on information currently available, it is not
believed that any such incremental notice costs will have any material effect on the consolidated
financial position or results of operations of the company.
The asset 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.
In the normal course of its business, the company is subject to various litigation matters.
Although there can be no assurances, at this time management believes, based on information
currently available to it, that it is not probable that the ultimate outcome of any of these
actions will have a material adverse effect on the consolidated financial condition or results of
operations of the company.
Item 4. Submission of Matters to a Vote of Security Holders
None.
20
PART II
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Invesco Ltd. is organized under the laws of Bermuda, and our common shares are listed and
traded on the New York Stock Exchange under the symbol IVZ. At January 31, 2010, there were
approximately 7,227 holders of record of our common shares.
Prior to December 4, 2007, we had outstanding ordinary shares that were listed on the Official
List of The U.K. Listing Authority and were traded on the London Stock Exchange. We also had
American Depositary Shares (ADSs) listed for trading on the NYSE, also under the symbol IVZ. Each
ADS represented the right to receive two ordinary shares. We also had exchangeable shares, which
were issued by one of our subsidiaries and were listed for trading on the Toronto Stock Exchange.
Each exchangeable share represented the right to receive one ordinary share.
On December 4, 2007, we redomiciled the company from the United Kingdom to Bermuda in a
transaction previously approved by shareholders. To accomplish this, our predecessor company,
INVESCO PLC, effected a court-approved U.K. scheme of arrangement under which our shareholders
received common shares in Invesco Ltd., the new Bermuda parent company, in exchange for their
ordinary shares in INVESCO PLC. Holders of our ADSs and our exchangeable shares also received
common shares in the new Bermuda parent company in exchange for their holdings. Following the
redomicile, Invesco Ltd. effected a one-for-two reverse stock split, such that all of our
shareholders now hold only common shares, par value $0.20 per share, in Invesco Ltd.
The following table sets forth, for the periods indicated, the high and low reported share
prices on the New York Stock Exchange, based on data reported by Bloomberg.
|
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|
|
|
|
|
Invesco Ltd. |
|
|
Common Shares (or equivalent) |
|
|
High |
|
Low |
|
Dividends Declared* |
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter |
|
$ |
23.97 |
|
|
$ |
20.04 |
|
|
$ |
0.1025 |
|
Third Quarter |
|
$ |
23.00 |
|
|
$ |
15.72 |
|
|
$ |
0.1025 |
|
Second Quarter |
|
$ |
18.73 |
|
|
$ |
13.60 |
|
|
$ |
0.1025 |
|
First Quarter |
|
$ |
15.00 |
|
|
$ |
9.51 |
|
|
$ |
0.10 |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter |
|
$ |
21.07 |
|
|
$ |
8.84 |
|
|
$ |
0.10 |
|
Third Quarter |
|
$ |
27.00 |
|
|
$ |
20.56 |
|
|
$ |
0.10 |
|
Second Quarter |
|
$ |
28.80 |
|
|
$ |
22.31 |
|
|
$ |
0.10 |
|
First Quarter |
|
$ |
30.66 |
|
|
$ |
21.43 |
|
|
$ |
0.22 |
|
|
|
|
* |
|
Dividends declared represent amounts declared in the current quarter
but are attributable to the prior fiscal quarter, with the exception
of the $0.22 per share dividend declared in the first quarter of 2008.
This dividend was attributable to the second half of 2007 and was
declared when the company formerly declared semi-annual dividends
prior to its redomicile discussed above. |
21
The following graph illustrates the cumulative total shareholder return of our common shares
(ordinary shares prior to December 4, 2007) over the five-year period ending December 31, 2009, and
compares it to the cumulative total return on the Standard and Poors (S&P) 500 Index and to a
group of peer asset management companies. This table is not intended to forecast future performance
of our common shares.
The chart below illustrates the cumulative total shareholder return of our common shares
(ordinary shares prior to December 4, 2007) since the company began executing its multi-year
strategic plan, which was designed to enhance long-term investment performance, improve and
simplify the operating platform, sharpen the focus on clients and strengthen the business for
long-term success.
|
|
|
Note: |
|
Asset Manager Index includes Affiliated Managers Group, Alliance Bernstein, BlackRock, Eaton
Vance, Federated Investors, Franklin Resources, Gamco Investors, Invesco Ltd., Janus, Legg
Mason, Schroders, T. Rowe Price, and Waddell & Reed. |
22
Important Information Regarding Dividend Payments
Invesco declares and pays dividends on a quarterly basis in arrears. On October 16, 2009, the
company declared a third quarter cash dividend of $0.1025 per Invesco Ltd. common share, which was
paid on December 2, 2009, to shareholders of record as of November 18, 2009. On January 27, 2010,
the company declared a fourth quarter 2009 cash dividend of $0.1025 per Invesco Ltd. common share,
which will be paid on March 10, 2010, to shareholders of record as of February 23, 2010.
The total dividend attributable to the 2009 fiscal year of $0.41 per share represented a 2.5%
increase over the total dividend attributable to the 2008 fiscal year of $0.40 per share. The
declaration, payment and amount of any future dividends will be determined by our board of
directors and will depend upon, among other factors, our earnings, financial condition and capital
requirements at the time such declaration and payment are considered. The board has a policy of
managing dividends in a prudent fashion, with due consideration given to profit levels, overall
debt levels and historical dividend payouts. See also Part II, Item 7, Managements Discussion and
Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources
Dividends, for additional details regarding dividends.
Repurchases of Equity Securities
The following table shows share repurchase activity during the three months ended December 31,
2009:
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|
Maximum Number at end of |
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|
|
|
|
Total Number of |
|
period (or Approximate |
|
|
|
|
|
|
|
|
|
|
Shares Purchased as |
|
Dollar Value) of Shares that |
|
|
|
|
|
|
|
|
|
|
Part of Publicly |
|
May Yet Be Purchased |
|
|
Total Number of |
|
Average Price |
|
Announced Plans |
|
Under the Plans |
Month |
|
Shares Purchased (1) |
|
Paid Per Share |
|
or Programs (2) |
|
or Programs (2) |
October 1-31, 2009 |
|
|
157,695 |
|
|
$ |
22.97 |
|
|
|
|
|
|
$ |
1,360,608,682 |
|
November 1-30, 2009 |
|
|
8,720 |
|
|
$ |
21.15 |
|
|
|
|
|
|
$ |
1,360,608,682 |
|
December 1-31, 2009 |
|
|
7,346 |
|
|
$ |
23.49 |
|
|
|
|
|
|
$ |
1,360,608,682 |
|
|
|
|
(1) |
|
An aggregate of 173,761 restricted share awards were surrendered to us
by Invesco employees to satisfy tax withholding obligations or loan
repayments in connection with the vesting of equity awards. |
|
(2) |
|
On April 23, 2008, our board of directors authorized a new share
repurchase authorization of up to $1.5 billion of our common shares
with no stated expiration date. |
23
Item 6. Selected Financial Data
The following tables present selected consolidated financial information for the company as of
and for each of the five fiscal years in the period ended December 31, 2009. The consolidated
financial information has been prepared in accordance with U.S. generally accepted accounting
principles.
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|
As of and For The Years Ended December 31, |
$ in millions, except per share and other data |
|
2009 |
|
2008 |
|
2007 |
|
2006 |
|
2005 |
Operating Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
|
2,627.3 |
|
|
|
3,307.6 |
|
|
|
3,878.9 |
|
|
|
3,246.7 |
|
|
|
2,872.6 |
|
Net revenues* |
|
|
1,978.7 |
|
|
|
2,489.4 |
|
|
|
2,888.4 |
|
|
|
2,428.0 |
|
|
|
2,166.6 |
|
Operating income |
|
|
484.3 |
|
|
|
747.8 |
|
|
|
994.3 |
|
|
|
759.2 |
|
|
|
407.9 |
|
Net operating income* |
|
|
512.7 |
|
|
|
787.5 |
|
|
|
1,039.8 |
|
|
|
762.1 |
|
|
|
407.9 |
|
Operating margin |
|
|
18.4 |
% |
|
|
22.6 |
% |
|
|
25.6 |
% |
|
|
23.4 |
% |
|
|
14.2 |
% |
Net operating margin* |
|
|
25.9 |
% |
|
|
31.6 |
% |
|
|
36.0 |
% |
|
|
31.4 |
% |
|
|
18.8 |
% |
Net income/(loss) attributable to common
shareholders |
|
|
322.5 |
|
|
|
481.7 |
|
|
|
673.6 |
|
|
|
482.7 |
|
|
|
219.8 |
|
Per Share Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-basic |
|
|
0.77 |
|
|
|
1.24 |
|
|
|
1.68 |
|
|
|
1.22 |
|
|
|
0.55 |
|
-diluted |
|
|
0.76 |
|
|
|
1.21 |
|
|
|
1.64 |
|
|
|
1.19 |
|
|
|
0.54 |
|
Dividends declared per share |
|
|
0.4075 |
|
|
|
0.520 |
|
|
|
0.372 |
|
|
|
0.357 |
|
|
|
0.330 |
|
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
10,909.6 |
|
|
|
9,756.9 |
|
|
|
12,925.2 |
|
|
|
12,228.5 |
|
|
|
10,702.7 |
|
Total debt |
|
|
745.7 |
|
|
|
1,159.2 |
|
|
|
1,276.4 |
|
|
|
1,279.0 |
|
|
|
1,220.0 |
|
Total equity attributable to common
shareholders |
|
|
6,912.9 |
|
|
|
5,689.5 |
|
|
|
6,590.6 |
|
|
|
6,164.0 |
|
|
|
5,529.8 |
|
Total equity |
|
|
7,620.8 |
|
|
|
6,596.2 |
|
|
|
7,711.8 |
|
|
|
7,668.6 |
|
|
|
6,730.6 |
|
Other Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending AUM (in billions) |
|
$ |
423.1 |
|
|
$ |
357.2 |
|
|
$ |
500.1 |
|
|
$ |
462.6 |
|
|
$ |
386.3 |
|
Average AUM (in billions) |
|
$ |
388.7 |
|
|
$ |
440.6 |
|
|
$ |
489.1 |
|
|
$ |
424.2 |
|
|
$ |
377.6 |
|
Headcount |
|
|
4,890 |
|
|
|
5,325 |
|
|
|
5,475 |
|
|
|
5,574 |
|
|
|
5,798 |
|
|
|
|
* |
|
Net revenues are operating revenues less third-party distribution,
service and advisory expenses, plus our proportional share of
revenues, net of third-party distribution expenses, from joint venture
investments. Net operating margin is equal to net operating income
divided by net revenues. Net operating income is operating income plus
our proportional share of the net operating income from joint venture
investments. See Part II, Item 7, Managements Discussion and
Analysis of Financial Condition and Results of Operations Schedule
of Non-GAAP Information for reconciliations of operating revenues to
net revenues and from operating income to net operating income. |
24
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
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
Consolidated Financial Statements of Invesco Ltd. and its subsidiaries (collectively, the company
or Invesco) and the notes thereto contained elsewhere in this Annual Report on Form 10-K.
Although the global equity markets began to recover after the first quarter of 2009, they
began the year under extreme pressure, as illustrated in the table below. It is important to note
that the markets remain below their historical highs, with the S&P down 25.73% from October 2007 to
January 2010.
In expectation of volatile financial markets, Invesco senior leadership adopted a disciplined
approach to our business beginning in 2008. A key component of this approach was to significantly
reduce discretionary spending, freeing resources which enabled the company to reinvest in
opportunities that would strengthen our business over the long term and enhance our competitive
position. This approach served the company well over the past two years during which the Dow
Jones Industrial Average saw its worst year of performance since 1931
(in 2008), and other markets
around the globe suffered significant declines as well.
After bottoming out in March 2009, global financial markets staged a dramatic recovery with
several major global market indices rebounding in record fashion off of record declines in 2008.
The response from governments and central banks around the world to the financial crisis in 2008
was an unprecedented amount of monetary and fiscal stimulus. Central banks lowered interest rates
to near zero, issued a number of debt guarantees for banks and other non-bank financial
institutions, and began to increase the supply of money through open market asset purchases.
Additionally, governments around the globe passed legislation that poured billions of dollars into
the global economy. These actions alleviated the risk aversion that dominated the latter half of
2008 and as a result financial markets rallied in 2009. The Dow Jones Industrial Average climbed
53.8% off of March lows to finish the year up 22.6%. The NASDAQ Composite Index rebounded 78.9%
above its March low to return 45.2% for the full year. The FTSE 100 gained 22.1% in 2009, its
largest advance since 1997. The largest returns were found in the emerging markets as the MSCI
Emerging Market Index returned 79.0% for the year.
The dramatic easing of monetary policy also contributed to major improvements in the credit
markets. As interest rates remained close to zero investors fled the relative safety of U.S.
Treasury securities for riskier asset classes, such as investment grade, high yield, and emerging
market bonds, in search of yield. Credit spreads tightened to levels not seen since the bankruptcy
of Lehman Brothers in September 2008 providing corporations around the world access to capital
markets. Additionally, the U.S. dollar weakened from March until December as investors redeployed
from the relative safety of U.S. Treasury securities into non-U.S. investments.
25
In spite of the difficult operating environment over the past year, Invesco continued to make
progress in a number of areas that further positioned our company for a time when the markets
return. Throughout the course of 2009, the companys financial performance strengthened. In
addition, during this period, Invesco continued to strengthen its competitive position with respect
to investment performance, maintain its focus on its clients, and enhance its profile in the
industry.
A critical factor in Invescos ability to weather the economic storms of the past two years
was our integrated approach to risk management. Our risk management framework provides the basis
for consistent and meaningful risk dialogue up, down and across the company. Our Global Performance
Measurement and Risk group provides senior management and the Board with insight into core
investment risks, while our Corporate Risk Management Committee facilitates a focus on strategic,
operational and all other business risks. Further, a network of business unit, functional and
geographic risk management committees maintains an ongoing risk assessment process that provides a
bottom-up perspective on the specific risk areas existing in various domains of our business.
Through this regular and consistent risk communication, the Board has reasonable assurance that all
material risks of the company are being addressed and that the company is propagating a risk-aware
culture in which good risk management is built into the fabric of the business.
In addition, we benefited from having a diversified asset base. One of Invescos core
strengths and a key differentiator for the company within the industry is our broad diversification
across client domiciles, asset classes and distribution channels. Our geographical diversification
recognizes growth opportunities in different parts of the world. Invesco is also diversified by
asset class, with 41% of our assets under management in equities and the remaining 59% covering the risk
spectrum from alternatives to money market. Invescos assets are roughly split between retail and
institutional, and the private wealth management channel provides further diversification. This
broad diversification enables Invesco to weather different market cycles and take advantage of
growth opportunities in various markets and channels.
A significant portion of our business and assets under management (AUM) is based outside of
the U.S. The strengthening or weakening of the U.S. dollar against other currencies, primarily the
Pound Sterling and the Canadian dollar, 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. The returns from most global capital markets increased
in the three months and year ended December 31, 2009, which also contributed to net increases in
AUM of $6.2 billion and $65.9 billion during the respective periods. AUM at January 31, 2010, was
$412.6 billion.
Summary operating information for 2009 and 2008 is presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
2009 |
|
2008 |
Operating revenues |
|
$ |
2,627.3 |
m |
|
$ |
3,307.6 |
m |
Net revenues(1) |
|
$ |
1,978.7 |
m |
|
$ |
2,489.4 |
m |
Operating margin |
|
|
18.4 |
% |
|
|
22.6 |
% |
Net operating margin(2) |
|
|
25.9 |
% |
|
|
31.6 |
% |
Net income attributable to common shareholders |
|
$ |
322.5 |
m |
|
$ |
481.7 |
m |
Diluted EPS |
|
$ |
0.76 |
|
|
$ |
1.21 |
|
Average assets under management (in billions) |
|
$ |
388.7 |
|
|
$ |
440.6 |
|
|
|
|
(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. See Schedule of Non-GAAP
Information for the reconciliation of operating revenues to net
revenues. |
|
(2) |
|
Net operating margin is net operating income divided by net revenues.
See Schedule of Non-GAAP Information for the reconciliation of
operating income to net operating income. |
26
On October 19, 2009, the company announced that it entered into a definitive agreement to
acquire Morgan Stanleys retail asset management business, including Van Kampen Investments. The
transaction was valued at $1.5 billion (subject to adjustment), consisting of payments by Invesco
of $500.0 million in cash and an aggregate of approximately 44.1 million Invesco common shares and
non-voting common equivalent preferred shares, which will result in Morgan Stanley obtaining an
approximately 9.3% equity interest in our company. The transaction has been approved by the boards
of directors of both companies and is expected to close in mid-2010, subject to customary
regulatory, client and fund shareholder approvals.
Investment Capabilities Performance Overview
Invescos first strategic priority is to achieve strong investment performance over the
long-term for our clients. 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. Core, U.K., Asian, European, and
Global ex-U.S. and Emerging Markets have had strong relative performance versus competitors and
versus benchmark over three- and five-year periods. Within our fixed income asset class, products
have achieved strong long-term performance with at least 62% of AUM ahead of benchmarks and 70% of
AUM ahead of peers on a 3-year and 5-year basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
40 |
% |
|
|
93 |
% |
|
|
96 |
% |
|
|
33 |
% |
|
|
65 |
% |
|
|
89 |
% |
|
|
U.S. Growth |
|
|
20 |
% |
|
|
19 |
% |
|
|
69 |
% |
|
|
20 |
% |
|
|
19 |
% |
|
|
32 |
% |
|
|
U.S. Value |
|
|
96 |
% |
|
|
94 |
% |
|
|
22 |
% |
|
|
83 |
% |
|
|
10 |
% |
|
|
7 |
% |
|
|
Sector |
|
|
84 |
% |
|
|
76 |
% |
|
|
75 |
% |
|
|
79 |
% |
|
|
66 |
% |
|
|
57 |
% |
|
|
U.K. |
|
|
0 |
% |
|
|
91 |
% |
|
|
91 |
% |
|
|
0 |
% |
|
|
90 |
% |
|
|
92 |
% |
|
|
Canadian |
|
|
38 |
% |
|
|
29 |
% |
|
|
26 |
% |
|
|
38 |
% |
|
|
2 |
% |
|
|
23 |
% |
|
|
Asian |
|
|
50 |
% |
|
|
85 |
% |
|
|
85 |
% |
|
|
53 |
% |
|
|
72 |
% |
|
|
81 |
% |
|
|
Continental European |
|
|
46 |
% |
|
|
74 |
% |
|
|
91 |
% |
|
|
38 |
% |
|
|
61 |
% |
|
|
63 |
% |
|
|
Global |
|
|
62 |
% |
|
|
48 |
% |
|
|
78 |
% |
|
|
47 |
% |
|
|
33 |
% |
|
|
17 |
% |
|
|
Global Ex U.S. and Emerging Markets |
|
|
96 |
% |
|
|
95 |
% |
|
|
97 |
% |
|
|
96 |
% |
|
|
98 |
% |
|
|
63 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balanced |
|
Balanced |
|
|
86 |
% |
|
|
55 |
% |
|
|
60 |
% |
|
|
52 |
% |
|
|
43 |
% |
|
|
52 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Income |
|
Money Market |
|
|
70 |
% |
|
|
71 |
% |
|
|
69 |
% |
|
|
88 |
% |
|
|
95 |
% |
|
|
95 |
% |
|
|
U.S. Fixed Income |
|
|
78 |
% |
|
|
62 |
% |
|
|
72 |
% |
|
|
32 |
% |
|
|
70 |
% |
|
|
70 |
% |
|
|
Global Fixed Income |
|
|
83 |
% |
|
|
64 |
% |
|
|
80 |
% |
|
|
91 |
% |
|
|
77 |
% |
|
|
76 |
% |
|
|
|
Note: |
|
AUM measured in the one-, three-, and five-year peer group rankings represents 69%, 68%, and
65% of total Invesco AUM, respectively, and AUM measured versus benchmark on a one-, three-,
and five-year basis represents 84%, 82%, and 75% of total Invesco AUM, respectively, as of
12/31/09. 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 prior 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. |
27
Assets Under Management
AUM at December 31, 2009, were $423.1 billion, compared to $357.2 billion at December 31,
2008. The increase in AUM during the year was due to $46.1 billion in increased market values,
$10.9 billion impact of more favorable foreign exchange rates, and total net inflows of $8.9
billion (long-term net flows plus net flows in institutional money market funds). Average AUM for
2009 were $388.7 billion, compared to $440.6 billion in 2008. Our retail total net inflows for 2009
were $11.0 billion, compared to total net outflows of $10.6 billion in 2008. Institutional net
outflows were $2.5 billion in 2009, compared to total net outflows of $3.1 billion in 2008. Our
Private Wealth Management (PWM) channel had total net inflows of $0.4 billion in 2009 compared to
total net inflows of $0.2 billion in 2008.
Net revenue yield on AUM declined 5.6 basis points to 50.9 basis points in the year ended
December 31, 2009, from the year ended December 31, 2008, level of 56.5 basis points, resulting
from market driven changes in our asset mix and an 11.8% decline in average AUM from the year ended
December 31, 2008. Our equity AUM generally earn a higher net revenue rate than money market AUM.
Net revenues declined 20.5% during the year ended December 31, 2009, compared to the year ended
December 31, 2008. Gross revenue yield on AUM declined 7.6 basis points to 68.2 basis points in the
year ended December 31, 2009, from the year ended December 31, 2008, level of 75.8 basis points.
See Schedule of Non-GAAP Information for a reconciliation of operating revenues (gross revenues)
to net revenues.
Changes in AUM were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in billions |
|
2009 |
|
|
2008 |
|
|
2007 |
|
January 1, |
|
$ |
357.2 |
|
|
$ |
500.1 |
|
|
$ |
462.6 |
|
Long-term inflows |
|
|
71.2 |
|
|
|
72.7 |
|
|
|
119.9 |
|
Long-term outflows |
|
|
(62.2 |
) |
|
|
(94.6 |
) |
|
|
(123.3 |
) |
|
|
|
|
|
|
|
|
|
|
Long-term net flows |
|
|
9.0 |
|
|
|
(21.9 |
) |
|
|
(3.4 |
) |
Net flows in money market funds |
|
|
(0.1 |
) |
|
|
8.4 |
|
|
|
10.1 |
|
Market gains and losses/reinvestment |
|
|
46.1 |
|
|
|
(102.8 |
) |
|
|
20.0 |
|
Foreign currency translation |
|
|
10.9 |
|
|
|
(26.6 |
) |
|
|
10.8 |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
$ |
423.1 |
|
|
$ |
357.2 |
|
|
$ |
500.1 |
|
|
|
|
|
|
|
|
|
|
|
Average long-term AUM |
|
$ |
301.7 |
|
|
$ |
360.8 |
|
|
$ |
424.2 |
|
Average institutional money market AUM |
|
|
87.0 |
|
|
|
79.8 |
|
|
|
64.9 |
|
|
|
|
|
|
|
|
|
|
|
Average AUM |
|
$ |
388.7 |
|
|
$ |
440.6 |
|
|
$ |
489.1 |
|
|
|
|
|
|
|
|
|
|
|
Gross revenue yield on AUM(1) |
|
68.2bps |
|
|
75.8bps |
|
|
80.0bps |
|
Gross revenue yield on AUM before performance fees(1) |
|
67.5bps |
|
|
74.1bps |
|
|
78.5bps |
|
Net revenue yield on AUM (annualized)(2) |
|
50.9bps |
|
|
56.5bps |
|
|
59.1bps |
|
Net revenue yield on AUM before performance fees (annualized)(2) |
|
50.1bps |
|
|
54.8bps |
|
|
57.7bps |
|
|
|
|
(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 for our JVs in China was $3.7 billion in 2009
(2008: $4.5 billion; 2007: $4.2 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 Consolidated Statements of Income. |
|
(2) |
|
Net revenue yield on AUM is equal to annualized net revenues divided
by average AUM. See the Schedule of Non-GAAP Information for a
reconciliation of operating revenues to net revenues. |
28
Our AUM by channel, by asset class, and by client domicile were as follows:
AUM by Channel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in billions |
|
Total |
|
|
Retail |
|
|
Institutional |
|
|
PWM |
|
January 1, 2007(a) AUM |
|
$ |
462.6 |
|
|
$ |
238.9 |
|
|
$ |
207.1 |
|
|
$ |
16.6 |
|
Long-term inflows |
|
|
119.9 |
|
|
|
86.6 |
|
|
|
28.2 |
|
|
|
5.1 |
|
Long-term outflows |
|
|
(123.3 |
) |
|
|
(80.6 |
) |
|
|
(37.4 |
) |
|
|
(5.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term net flows |
|
|
(3.4 |
) |
|
|
6.0 |
|
|
|
(9.2 |
) |
|
|
(0.2 |
) |
Net flows in money market funds |
|
|
10.1 |
|
|
|
(0.3 |
) |
|
|
10.4 |
|
|
|
|
|
Market gains and losses/reinvestment |
|
|
20.0 |
|
|
|
11.3 |
|
|
|
7.8 |
|
|
|
0.9 |
|
Foreign currency translation |
|
|
10.8 |
|
|
|
8.5 |
|
|
|
2.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007(a) AUM |
|
$ |
500.1 |
|
|
$ |
264.4 |
|
|
$ |
218.4 |
|
|
$ |
17.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term inflows |
|
|
72.7 |
|
|
|
48.1 |
|
|
|
19.7 |
|
|
|
4.9 |
|
Long-term outflows |
|
|
(94.6 |
) |
|
|
(58.7 |
) |
|
|
(31.2 |
) |
|
|
(4.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term net flows |
|
|
(21.9 |
) |
|
|
(10.6 |
) |
|
|
(11.5 |
) |
|
|
0.2 |
|
Net flows in money market funds |
|
|
8.4 |
|
|
|
|
|
|
|
8.4 |
|
|
|
|
|
Market gains and losses/reinvestment |
|
|
(102.8 |
) |
|
|
(79.2 |
) |
|
|
(19.4 |
) |
|
|
(4.2 |
) |
Foreign currency translation |
|
|
(26.6 |
) |
|
|
(25.3 |
) |
|
|
(1.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008(a) AUM |
|
$ |
357.2 |
|
|
$ |
149.3 |
|
|
$ |
194.6 |
|
|
$ |
13.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term inflows |
|
|
71.2 |
|
|
|
50.6 |
|
|
|
15.7 |
|
|
|
4.9 |
|
Long-term outflows |
|
|
(62.2 |
) |
|
|
(39.6 |
) |
|
|
(18.1 |
) |
|
|
(4.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term net flows |
|
|
9.0 |
|
|
|
11.0 |
|
|
|
(2.4 |
) |
|
|
0.4 |
|
Net flows in money market funds |
|
|
(0.1 |
) |
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
Market gains and losses/reinvestment |
|
|
46.1 |
|
|
|
37.0 |
|
|
|
7.6 |
|
|
|
1.5 |
|
Foreign currency translation |
|
|
10.9 |
|
|
|
9.6 |
|
|
|
1.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 AUM |
|
$ |
423.1 |
|
|
$ |
206.9 |
|
|
$ |
201.0 |
|
|
$ |
15.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The beginning balances were adjusted to reflect certain asset reclassifications. |
29
AUM by Asset Class
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed |
|
|
|
|
|
|
Money |
|
|
|
|
$ in billions |
|
Total |
|
|
Equity |
|
|
Income |
|
|
Balanced |
|
|
Market |
|
|
Alternatives(b) |
|
January 1, 2007(a) AUM |
|
$ |
462.6 |
|
|
$ |
214.3 |
|
|
$ |
84.0 |
|
|
$ |
46.6 |
|
|
$ |
65.3 |
|
|
$ |
52.4 |
|
Long-term inflows |
|
|
119.9 |
|
|
|
74.6 |
|
|
|
14.7 |
|
|
|
10.1 |
|
|
|
1.5 |
|
|
|
19.0 |
|
Long-term outflows |
|
|
(123.3 |
) |
|
|
(64.2 |
) |
|
|
(35.1 |
) |
|
|
(9.6 |
) |
|
|
(2.1 |
) |
|
|
(12.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term net flows |
|
|
(3.4 |
) |
|
|
10.4 |
|
|
|
(20.4 |
) |
|
|
0.5 |
|
|
|
(0.6 |
) |
|
|
6.7 |
|
Net flows in money market funds |
|
|
10.1 |
|
|
|
(0.6 |
) |
|
|
0.2 |
|
|
|
(1.3 |
) |
|
|
10.6 |
|
|
|
1.2 |
|
Market gains and losses/reinvestment |
|
|
20.0 |
|
|
|
14.1 |
|
|
|
3.7 |
|
|
|
0.2 |
|
|
|
|
|
|
|
2.0 |
|
Foreign currency translation |
|
|
10.8 |
|
|
|
6.5 |
|
|
|
1.3 |
|
|
|
2.8 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007(a) AUM |
|
$ |
500.1 |
|
|
$ |
244.7 |
|
|
$ |
68.8 |
|
|
$ |
48.8 |
|
|
$ |
75.4 |
|
|
$ |
62.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term inflows |
|
|
72.7 |
|
|
|
38.2 |
|
|
|
13.8 |
|
|
|
9.0 |
|
|
|
3.7 |
|
|
|
8.0 |
|
Long-term outflows |
|
|
(94.6 |
) |
|
|
(52.8 |
) |
|
|
(17.4 |
) |
|
|
(10.3 |
) |
|
|
(3.7 |
) |
|
|
(10.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term net flows |
|
|
(21.9 |
) |
|
|
(14.6 |
) |
|
|
(3.6 |
) |
|
|
(1.3 |
) |
|
|
|
|
|
|
(2.4 |
) |
Net flows in money market funds |
|
|
8.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.4 |
|
|
|
|
|
Market gains and losses/reinvestment |
|
|
(102.8 |
) |
|
|
(84.5 |
) |
|
|
(1.3 |
) |
|
|
(10.2 |
) |
|
|
0.7 |
|
|
|
(7.5 |
) |
Foreign currency translation |
|
|
(26.6 |
) |
|
|
(18.0 |
) |
|
|
(2.4 |
) |
|
|
(4.5 |
) |
|
|
(0.3 |
) |
|
|
(1.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008(a) AUM |
|
$ |
357.2 |
|
|
$ |
127.6 |
|
|
$ |
61.5 |
|
|
$ |
32.8 |
|
|
$ |
84.2 |
|
|
$ |
51.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term inflows |
|
|
71.2 |
|
|
|
35.2 |
|
|
|
19.1 |
|
|
|
8.2 |
|
|
|
2.2 |
|
|
|
6.5 |
|
Long-term outflows |
|
|
(62.2 |
) |
|
|
(31.9 |
) |
|
|
(12.5 |
) |
|
|
(7.9 |
) |
|
|
(3.1 |
) |
|
|
(6.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term net flows |
|
|
9.0 |
|
|
|
3.3 |
|
|
|
6.6 |
|
|
|
0.3 |
|
|
|
(0.9 |
) |
|
|
(0.3 |
) |
Net flows in money market funds |
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
Market gains and losses/reinvestment |
|
|
46.1 |
|
|
|
35.9 |
|
|
|
5.8 |
|
|
|
6.0 |
|
|
|
0.1 |
|
|
|
(1.7 |
) |
Foreign currency translation |
|
|
10.9 |
|
|
|
6.6 |
|
|
|
1.3 |
|
|
|
2.4 |
|
|
|
0.2 |
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 AUM |
|
$ |
423.1 |
|
|
$ |
173.4 |
|
|
$ |
75.2 |
|
|
$ |
41.5 |
|
|
$ |
83.5 |
(c) |
|
$ |
49.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The beginning balances were adjusted to reflect certain asset reclassifications. |
|
(b) |
|
The alternative asset class includes financial structures, absolute return,
real estate, private equity, asset allocation, portable alpha and multiple
asset strategies. |
|
(c) |
|
Ending Money Market AUM includes $79.5 billion in institutional money market
AUM and $4.0 billion in retail money market AUM. |
30
AUM by Client Domicile
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continental |
|
|
|
|
$ in billions |
|
Total |
|
|
U.S. |
|
|
Canada |
|
|
U.K. |
|
|
Europe |
|
|
Asia |
|
January 1, 2007(a) AUM |
|
$ |
462.6 |
|
|
$ |
280.3 |
|
|
$ |
43.3 |
|
|
$ |
73.8 |
|
|
$ |
38.6 |
|
|
$ |
26.6 |
|
Long-term inflows |
|
|
119.9 |
|
|
|
48.2 |
|
|
|
6.7 |
|
|
|
22.0 |
|
|
|
21.4 |
|
|
|
21.6 |
|
Long-term outflows |
|
|
(123.3 |
) |
|
|
(64.7 |
) |
|
|
(6.8 |
) |
|
|
(10.0 |
) |
|
|
(25.6 |
) |
|
|
(16.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term net flows |
|
|
(3.4 |
) |
|
|
(16.5 |
) |
|
|
(0.1 |
) |
|
|
12.0 |
|
|
|
(4.2 |
) |
|
|
5.4 |
|
Net flows in money market funds |
|
|
10.1 |
|
|
|
11.0 |
|
|
|
|
|
|
|
0.2 |
|
|
|
(0.5 |
) |
|
|
(0.6 |
) |
Market gains and losses/reinvestment |
|
|
20.0 |
|
|
|
14.9 |
|
|
|
(4.1 |
) |
|
|
2.7 |
|
|
|
1.8 |
|
|
|
4.7 |
|
Foreign currency translation |
|
|
10.8 |
|
|
|
|
|
|
|
7.6 |
|
|
|
0.4 |
|
|
|
2.0 |
|
|
|
0.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007(a) AUM |
|
$ |
500.1 |
|
|
$ |
289.7 |
|
|
$ |
46.7 |
|
|
$ |
89.1 |
|
|
$ |
37.7 |
|
|
$ |
36.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term inflows |
|
|
72.7 |
|
|
|
36.2 |
|
|
|
2.9 |
|
|
|
17.2 |
|
|
|
10.0 |
|
|
|
6.4 |
|
Long-term outflows |
|
|
(94.6 |
) |
|
|
(46.4 |
) |
|
|
(9.7 |
) |
|
|
(9.9 |
) |
|
|
(16.8 |
) |
|
|
(11.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term net flows |
|
|
(21.9 |
) |
|
|
(10.2 |
) |
|
|
(6.8 |
) |
|
|
7.3 |
|
|
|
(6.8 |
) |
|
|
(5.4 |
) |
Net flows in money market funds |
|
|
8.4 |
|
|
|
4.5 |
|
|
|
|
|
|
|
0.2 |
|
|
|
1.2 |
|
|
|
2.5 |
|
Market gains and losses/reinvestment |
|
|
(102.8 |
) |
|
|
(51.5 |
) |
|
|
(8.5 |
) |
|
|
(21.5 |
) |
|
|
(8.1 |
) |
|
|
(13.2 |
) |
Foreign currency translation |
|
|
(26.6 |
) |
|
|
|
|
|
|
(7.3 |
) |
|
|
(18.4 |
) |
|
|
(1.6 |
) |
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008(a) AUM |
|
$ |
357.2 |
|
|
$ |
232.5 |
|
|
$ |
24.1 |
|
|
$ |
56.7 |
|
|
$ |
22.4 |
|
|
$ |
21.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term inflows |
|
|
71.2 |
|
|
|
33.9 |
|
|
|
2.0 |
|
|
|
18.5 |
|
|
|
9.8 |
|
|
|
7.0 |
|
Long-term outflows |
|
|
(62.2 |
) |
|
|
(31.1 |
) |
|
|
(5.3 |
) |
|
|
(8.4 |
) |
|
|
(9.9 |
) |
|
|
(7.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term net flows |
|
|
9.0 |
|
|
|
2.8 |
|
|
|
(3.3 |
) |
|
|
10.1 |
|
|
|
(0.1 |
) |
|
|
(0.5 |
) |
Net flows in money market funds |
|
|
(0.1 |
) |
|
|
2.9 |
|
|
|
|
|
|
|
(0.1 |
) |
|
|
(1.4 |
) |
|
|
(1.5 |
) |
Market gains and losses/reinvestment |
|
|
46.1 |
|
|
|
19.5 |
|
|
|
4.3 |
|
|
|
12.1 |
|
|
|
2.8 |
|
|
|
7.4 |
|
Foreign currency translation |
|
|
10.9 |
|
|
|
|
|
|
|
3.9 |
|
|
|
5.7 |
|
|
|
0.7 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 AUM |
|
$ |
423.1 |
|
|
$ |
257.7 |
|
|
$ |
29.0 |
|
|
$ |
84.5 |
|
|
$ |
24.4 |
|
|
$ |
27.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The beginning balances were adjusted to reflect certain asset reclassifications. |
Results of Operations
Results of Operations for the Year Ended December 31, 2009, Compared with the Year Ended
December 31, 2008
Operating Revenues and Net Revenues
Operating revenues decreased by 20.6% in 2009 to $2,627.3 million (2008: $3,307.6 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. Net revenues decreased
by 20.5% in 2009 to $1,978.7 million (2008: $2,489.4 million). 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. Over the course of the year, the
average U.S. dollar foreign exchange rate was stronger when compared to other currencies, primarily
the Pound Sterling, Canadian dollar and Euro, which impacted our reported revenues for the year
ended December 31, 2009, as compared to the year ended December 31, 2008. The impact of foreign
exchange rate movements resulted in $152.0 million (22.3%) of the decline in operating revenues
during the year ended December 31, 2009. 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.
31
The main categories of revenues, and the dollar and percentage change between the periods, are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in millions |
|
2009 |
|
2008 |
|
$ Change |
|
%Change |
Investment management fees |
|
|
2,120.2 |
|
|
|
2,617.8 |
|
|
|
(497.6 |
) |
|
|
(19.0 |
)% |
Service and distribution fees |
|
|
412.6 |
|
|
|
512.5 |
|
|
|
(99.9 |
) |
|
|
(19.5 |
)% |
Performance fees |
|
|
30.0 |
|
|
|
75.1 |
|
|
|
(45.1 |
) |
|
|
(60.1 |
)% |
Other |
|
|
64.5 |
|
|
|
102.2 |
|
|
|
(37.7 |
) |
|
|
(36.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
2,627.3 |
|
|
|
3,307.6 |
|
|
|
(680.3 |
) |
|
|
(20.6 |
)% |
Third-party distribution, service and advisory expenses |
|
|
(693.4 |
) |
|
|
(875.5 |
) |
|
|
182.1 |
|
|
|
(20.8 |
)% |
Proportional share of revenues, net of third-party
distribution expenses, from joint venture investments |
|
|
44.8 |
|
|
|
57.3 |
|
|
|
(12.5 |
) |
|
|
(21.8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
|
1,978.7 |
|
|
|
2,489.4 |
|
|
|
(510.7 |
) |
|
|
(20.5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Management Fees
Investment management fees are derived from providing professional services to manage client
accounts and include fees earned from retail mutual funds, unit trusts, investment companies with
variable capital (ICVCs), exchange-traded funds, investment trusts and institutional and private
wealth management advisory contracts. Investment management fees for products offered in the retail
distribution channel are generally calculated as a percentage of the daily average asset balances
and therefore vary as the levels of AUM change resulting from inflows, outflows and market
movements. Investment management fees for products offered in the institutional and private wealth
management distribution channels are calculated in accordance with the underlying investment
management contracts and also vary in relation to the level of client assets managed.
Investment management fees decreased 19.0% in 2009 to $2,120.2 million (2008:
$2,617.8 million) due to decreases in average AUM during the year, changes in the mix of AUM
between various asset classes, and foreign exchange rate movements. Average AUM for the year ended
December 31, 2009, were $388.7 billion (2008: $440.6 billion), a decrease of 11.8%. Average
long-term AUM, which generally earn higher fee rates than institutional money market AUM, for the
year ended December 31, 2009, were $301.7 billion, a decrease of 16.4% from $360.8 billion for the
year ended December 31, 2008, while average institutional money
market AUM increased 9.0% to $87.0
billion at December 31, 2009, from $79.8 billion for the year ended December 31, 2008.
Service and Distribution Fees
Service fees are generated through fees charged to cover several types of expenses, including
fund accounting fees and other maintenance costs for mutual funds, unit trusts and ICVCs, and
administrative fees earned from closed-ended funds. Service fees also include transfer agent fees,
which are fees charged to cover the expense of processing client share purchases and redemptions,
call center support and client reporting. U.S. distribution fees can include 12b-1 fees earned from
certain mutual funds to cover allowable sales and marketing expenses for those funds and also
include asset-based sales charges paid by certain mutual funds for a period of time after the sale
of those funds. Distribution fees typically vary in relation to the amount of client assets
managed. Generally, retail products offered outside of the U.S. do not generate a separate
distribution fee, as the quoted management fee rate is inclusive of these services.
In 2009, service and distribution fees decreased 19.5% to $412.6 million (2008:
$512.5 million) primarily due to decreases in average AUM during the year. Included in the decline
in service and distribution fees in the three months ended December 31, 2009, was a reduction of
$5.4 million reflecting the full-year impact of a reduction in transfer agency and administrative
revenues in Canada, as certain fund expense recovery limits were reached.
Performance Fees
Performance fee revenues are generated on certain management contracts when performance
hurdles are achieved. Such fee revenues are recorded in operating revenues as of the performance
measurement date, when the contractual performance criteria have been met and when the outcome of
the transaction can be measured reliably in accordance with Method 1 of ASC Topic 605-20-S99,
Revenue Recognition Services SEC Materials. Cash receipt of earned performance fees occurs
after the measurement date. The performance measurement date is defined in each contract in which
incentive and performance fee revenue agreements are in effect, and therefore we have performance
fee arrangements that include monthly, quarterly and annual measurement dates. Given the uniqueness
of each transaction, performance fee contracts are evaluated on an individual basis to determine if
revenues can and should be recognized. Performance fees are not recorded if there are any future
performance contingencies. If performance
32
arrangements require repayment of the performance fee for failure to perform during the
contractual period, then performance fee revenues are recognized no earlier than the expiration
date of these terms. Performance fees will fluctuate from period to period and may not correlate
with general market changes, since most of the fees are driven by relative performance to the
respective benchmark rather than by absolute performance. Additionally, of our $423.1 billion in
AUM at December 31, 2009, only approximately $30.0 billion, or 7.1%, could potentially earn
performance fees.
In 2009, performance fees decreased 60.1% to $30.0 million (2008: $75.1 million). The
performance fees generated in 2009 arose primarily due to products managed by the Invesco Global
Strategies group ($2.4 million), Invesco Perpetual ($13.4 million), and Atlantic Trust ($5.7
million). The performance fees generated in 2008 arose primarily due to products managed by the
Invesco Global Strategies ($22.3 million) and Real Estate ($14.5 million) groups, as well as by
Invesco Perpetual ($21.1 million).
Other Revenues
Other revenues include fees derived primarily from transaction commissions earned upon the
sale of new investments into certain of our funds and fees earned upon the completion of
transactions in our direct real estate and private equity asset groups. Real estate transaction
fees are derived from commissions earned through the buying and selling of properties. Private
equity transaction fees include commissions associated with the restructuring of, and fees from
providing advice to, portfolio companies held by the funds. These transaction fees are recorded in
our financial statements on the date when the transactions are legally closed. Other revenues also
include the revenues of consolidated investment products.
In 2009, other revenues decreased 36.9% to $64.5 million (2008: $102.2 million), driven by
decreases in transaction commissions, due to the tightening of the credit markets and fewer real
estate transactions, and foreign exchange rate movements.
Third-Party Distribution, Service and Advisory Expenses
Third-party distribution, service and advisory expenses include periodic renewal commissions
paid to brokers and independent financial advisors for their continuing oversight of their clients
assets, over the time they are invested, and are payments for the servicing of client accounts.
Renewal commissions are calculated based upon a percentage of the AUM value. Third-party
distribution expenses also include the amortization of upfront commissions paid to broker-dealers
for sales of fund shares with a contingent deferred sales charge (a charge levied to the investor
for client redemption of AUM within a certain contracted period of time). The distribution
commissions are amortized over the redemption period. Also included in third-party distribution,
service and advisory expenses are sub-transfer agency fees that are paid to third parties for
processing client share purchases and redemptions, call center support and client reporting.
Third-party distribution, service and advisory expenses may increase or decrease at a rate
different from the rate of change in service and distribution fee revenues due to the inclusion of
distribution, service and advisory expenses for the U.K. and Canada, where the related revenues are
recorded as investment management fee revenues, as noted above.
Third-party distribution, service and advisory expenses decreased 20.8% in 2009 to $693.4
million (2008: $875.5 million), consistent with the declines in investment management and service
and distribution fee revenues.
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. The companys most significant joint
venture arrangement is our 49.0% investment in Invesco Great Wall Fund Management Company Limited
(the Invesco Great Wall joint venture).
The 21.8% decrease in our proportional share of revenues, net of third-party distribution
expenses, to $44.8 million in 2009 (2008: $57.3 million), is driven by the declines in average AUM
of the Invesco Great Wall joint venture. Our share of the Invesco Great Wall joint ventures
average AUM at December 31, 2009, was $3.7 billion, a 17.8% decline in average AUM from $4.5
billion at December 31, 2008.
33
Operating Expenses
During 2009, operating expenses decreased 16.3% to $2,143.0 million (2008: $2,559.8 million),
reflecting declines in all cost categories from 2008 expense levels. As discussed above, 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. Over the course of the year, the
average U.S. dollar foreign exchange rate was stronger when compared to other currencies, primarily
the Pound Sterling, Canadian dollar and Euro, which impacted our reported expenses for the year
ended December 31, 2009, as compared to the year ended December 31, 2008. The impact of foreign
exchange rate movements resulted in $108.0 million (25.9%) of the decline in operating expenses
during the year ended December 31, 2009. Additionally, operating expenses were lower in 2009 as
compared to 2008 reflecting the impact of general cost containment measures and costs that move in
line with revenues.
The main categories of operating expenses are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in millions |
|
2009 |
|
2008 |
|
$ Change |
|
% Change |
Employee compensation |
|
|
950.8 |
|
|
|
1,055.8 |
|
|
|
(105.0 |
) |
|
|
(9.9 |
)% |
Third-party distribution, service and advisory |
|
|
693.4 |
|
|
|
875.5 |
|
|
|
(182.1 |
) |
|
|
(20.8 |
)% |
Marketing |
|
|
108.9 |
|
|
|
148.2 |
|
|
|
(39.3 |
) |
|
|
(26.5 |
)% |
Property, office and technology |
|
|
212.3 |
|
|
|
214.3 |
|
|
|
(2.0 |
) |
|
|
(0.9 |
)% |
General and administrative |
|
|
166.8 |
|
|
|
266.0 |
|
|
|
(99.2 |
) |
|
|
(37.3 |
)% |
Transaction and integration |
|
|
10.8 |
|
|
|
|
|
|
|
10.8 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
2,143.0 |
|
|
|
2,559.8 |
|
|
|
(416.8 |
) |
|
|
(16.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below sets forth these expense 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 |
|
|
|
|
|
|
Operating |
|
Operating |
|
|
|
|
|
Operating |
|
Operating |
$ in millions |
|
2009 |
|
Expenses |
|
Revenues |
|
2008 |
|
Expenses |
|
Revenues |
Employee compensation |
|
|
950.8 |
|
|
|
44.4 |
% |
|
|
36.2 |
% |
|
|
1,055.8 |
|
|
|
41.2 |
% |
|
|
31.9 |
% |
Third-party distribution, service and advisory |
|
|
693.4 |
|
|
|
32.3 |
% |
|
|
26.4 |
% |
|
|
875.5 |
|
|
|
34.2 |
% |
|
|
26.5 |
% |
Marketing |
|
|
108.9 |
|
|
|
5.1 |
% |
|
|
4.1 |
% |
|
|
148.2 |
|
|
|
5.8 |
% |
|
|
4.5 |
% |
Property, office and technology |
|
|
212.3 |
|
|
|
9.9 |
% |
|
|
8.1 |
% |
|
|
214.3 |
|
|
|
8.4 |
% |
|
|
6.5 |
% |
General and administrative |
|
|
166.8 |
|
|
|
7.8 |
% |
|
|
6.3 |
% |
|
|
266.0 |
|
|
|
10.4 |
% |
|
|
8.0 |
% |
Transaction and integration |
|
|
10.8 |
|
|
|
0.5 |
% |
|
|
0.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
2,143.0 |
|
|
|
100.0 |
% |
|
|
81.5 |
% |
|
|
2,559.8 |
|
|
|
100.0 |
% |
|
|
77.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Compensation
Employee compensation includes salary, cash bonuses and share-based payment plans designed to
attract and retain the highest caliber employees. Employee staff benefit plan costs and payroll
taxes are also included in employee compensation.
Employee compensation decreased $105.0 million, or 9.9%, in 2009 from 2008 due predominantly
to overall decreases in variable compensation, including decreases in discretionary and investment
performance-based staff bonuses, decreases in base salary costs resulting from decreases in
headcount, and foreign exchange rate movements. Headcount declined 8.2% to 4,890 at December 31,
2009 from 5,325 at December 31, 2008. Included in compensation expenses during the year ended
December 31, 2009, are share-based payment costs of $90.8 million, compared to $97.7 million during
the year ended December 31, 2008. Additionally, employee compensation costs for the years ended
December 31, 2009 and 2008, included $20.0 million of prepaid compensation amortization expenses
related to the 2006 acquisition of W.L. Ross & Co. This expense amortization will continue
through 2010, and the acquisition-related asset will be fully amortized by the third quarter of
2011.
Compensation expenses in the three months ended December 31, 2009, included a $4.1 million
increase in pension costs related to the plans actuarial annual valuation updates and a $4.3
million increase in payroll taxes associated with the vesting of share-based payment awards.
34
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 include marketing support payments, which are payments made to distributors
of certain of our retail products over and above the 12b-1 distribution payments. These fees are
contracted separately with each distributor. Marketing expenses also include the cost of direct
advertising of our products through trade publications, television and other media, and public
relations costs, such as the marketing of the companys products through conferences or other
sponsorships, and the cost of marketing-related employee travel.
Marketing expenses decreased 26.5% in 2009 to $108.9 million (2008: $148.2 million) due to
decreased marketing support payments related to the decline in average AUM in the U.S., a lower
level of advertising, and a reduction in marketing-related travel costs.
Property, Office and Technology
Property, office and technology expenses include rent and utilities for our various leased
facilities, depreciation of company-owned property and capitalized computer equipment costs, minor
non-capitalized computer equipment and software purchases and related maintenance payments, and
costs related to externally provided operations, technology, and other back office management
services.
Property, office and technology costs decreased 0.9% to $212.3 million in 2009 from
$214.3 million in 2008. Decreases in technology costs resulting from general disciplined expense
management measures and foreign exchange rate movement were offset by increases in property and
office costs during the year. Property and office expenses for the year ended December 31, 2009,
included $12.0 million in charges relating to vacating leased property, including our Denver,
Colorado, operations facility. Property and office expenses during 2008 included a $5.1 million
rent charge related to vacating leased property, offset by downward adjustments in rent costs for
sublet office property of $8.2 million. Property, office and technology costs increased in the
three months ended December 31, 2009, primarily due to the outsourcing of facilities management in
North America and the significant growth of the Hyderabad, India, facility.
General and Administrative
General and administrative expenses include professional services costs, such as information
service subscriptions, consulting fees, professional insurance costs, audit, tax and legal fees,
non-marketing related employee travel expenditures, recruitment and training costs, and the
amortization of certain intangible assets.
General and administrative expenses decreased by $99.2 million (37.3%) to $166.8 million in
2009 from $266.0 million in 2008, due to several factors including an insurance recovery of $9.5
million related to legal costs associated with the market-timing regulatory settlement, foreign
exchange rate movement, and general disciplined expense management measures, including reduced
travel and entertainment and professional services expenses recorded during the year ended December
31, 2009.
Transaction and integration
Transaction and integration expenses include acquisition-related charges incurred during the
period to effect a business combination, including legal, regulatory, advisory, valuation, and
other professional or consulting fees, general and administrative costs, including travel costs
related to the transaction and the costs of temporary staff involved in executing the transaction,
and post-closing costs of integrating the acquired business into the companys existing operations.
Transaction and integration charges were $10.8 million in 2009 ($9.8 million of these costs
were recorded in the three months ended December 31, 2009) and relate to the pending acquisition of
Morgan Stanleys retail asset management business, including Van Kampen Investments. The
acquisition was announced in October 2009 and is expected to close in mid-2010. These costs are currently estimated to be less than $175 million, including those costs incurred in
2009, and are expected to continue to be incurred during 2010-2011. At the time of the
announcement of the transaction, the transaction and integration costs were estimated to be
approximately $125 million. One of the largest anticipated post-closing expenses of integrating
the acquired business into the companys existing operations relates to the costs of proxy
solicitation of fund shareholders. Our estimates of these charges could continue to increase as
additional resources are devoted to obtaining the required votes as early as practicable before the
end of the second quarter of 2010, as desired.
35
Operating Income, Net Operating Income, Operating Margin and Net Operating Margin
Operating income decreased 35.2% to $484.3 million in 2009 from $747.8 million in 2008, driven
by the declines in operating revenues from reduced AUM. As a result of the decline in our operating
revenues, the following measures have also declined in 2009: operating margin, net operating
income, and net operating margin. Operating margin (operating income divided by operating revenues)
was 18.4% in 2009, down from 22.6% in 2008. Net operating income (operating income plus our
proportional share of the operating income from joint venture arrangements) decreased 34.9% to
$512.7 million in 2009 from $787.5 million in 2008. Net operating margin was 25.9% in 2009, down
from 31.6% in 2008. Net operating margin is equal to net 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. See
Schedule of Non-GAAP Information for a reconciliation of operating revenues to net revenues, a
reconciliation of operating income to net operating income and additional important disclosures
regarding net revenues, net operating income and net operating margins.
Other Income and Expenses
Equity in earnings of unconsolidated affiliates decreased by $19.8 million (42.3%) to $27.0
million in the year ended December 31, 2009 (December 31, 2008: $46.8 million), resulting primarily
from declines in our share of the pre-tax earnings of our joint venture investments in China as
well as net losses in certain of our partnership investments.
Interest income decreased 73.7% to $9.8 million in 2009 from $37.2 million in 2008 due to the
combination of lower interest rates and lower average cash and cash equivalents balances in 2009.
The decrease in yields was consistent with the market movement from 2008 to 2009. Interest expense
decreased 16.1% to $64.5 million in 2009 from $76.9 million in 2008 due to decreases in the average
debt balance in 2009.
Other gains and losses, net were a net gain of $7.8 million in 2009, compared to a net loss of
$39.9 million in 2008. Included in the net gain is a gross gain generated upon the debt tender
offer of $4.3 million ($3.3 million net of related expenses) and net gain of $4.3 million realized
upon the disposal of other investments (2008: $7.4 million gain on maturity of a CLO investment,
offset by a loss of $4.1 million realized upon the disposal of a private equity investment). The
2009 net gain also included $5.2 million in other-than-temporary impairment charges related to the
valuations of investments in certain of our CLO products (2008: $22.7 million) and $3.0 million in
other-than-temporary impairment charges related to other seed money in affiliated funds (2008: $8.5
million). The CLO impairments arose principally from adverse changes in the timing of estimated
cash flows used in the valuation models. In the year ended December 31, 2009, we also benefited
from $8.4 million in net foreign exchange gains whereas in 2008, we incurred $13.0 million in net
foreign exchange losses. See Item 8, Financial Statements and Supplementary Data Note 13, Other
Gains and Losses, Net, for additional details related to other gains and losses.
Included in other income and expenses are net realized and unrealized gains of consolidated
investment products. In 2009, the net losses of consolidated investment products were $106.9
million, compared to net losses of $58.0 million in 2008, reflecting the changes in market values
of the investments held by consolidated investment products. Invesco invests in only a small equity
portion of these products, and as a result these losses are offset by noncontrolling interests of
$113.9 million, resulting in a net impact to the company of $7.0 million.
Income Tax Expense
Our subsidiaries operate in several taxing jurisdictions around the world, each with its own
statutory income tax rate. As a result, our effective tax rate will vary from year to year
depending on the mix of the profits and losses of our subsidiaries. The majority of our profits are
earned in the U.S., Canada and the U.K. The current U.K. statutory tax rate is 28%, the Canadian
statutory tax rate is 33% and the U.S. Federal statutory tax rate is 35%.
Our effective tax rate, excluding noncontrolling interests in consolidated entities, for 2009
was 31.5%, down from 32.9% for 2008. The rate decrease was primarily due to the mix of pre-tax
income and a larger benefit from the release of provisions for uncertain tax positions in 2009
versus 2008. The rate decrease was partially offset by an increase in the net valuation allowance
for subsidiary operating losses and additional state taxes.
The inclusion of income from noncontrolling interests in consolidated entities increased our
effective tax rate to 41.5% in 2009 and to 35.9% in 2008.
36
Results of Operations for the Year Ended December 31, 2008, Compared with the Year Ended
December 31, 2007
Operating Revenues and Net Revenues
Operating revenues decreased by 14.7% in 2008 to $3,307.6 million (2007: $3,878.9 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. Net revenues decreased
by 13.8% in 2008 to $2,489.4 million (2007: $2,888.4 million). See Schedule of
Non-GAAP Information for additional important disclosures regarding the use of net revenues.
The main categories of revenues, and the dollar and percentage change between the periods, are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in millions |
|
2008 |
|
2007 |
|
$ Change |
|
% Change |
Investment management fees |
|
|
2,617.8 |
|
|
|
3,080.1 |
|
|
|
(462.3 |
) |
|
|
(15.0 |
)% |
Service and distribution fees |
|
|
512.5 |
|
|
|
593.1 |
|
|
|
(80.6 |
) |
|
|
(13.6 |
)% |
Performance fees |
|
|
75.1 |
|
|
|
70.3 |
|
|
|
4.8 |
|
|
|
6.8 |
% |
Other |
|
|
102.2 |
|
|
|
135.4 |
|
|
|
(33.2 |
) |
|
|
(24.5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
3,307.6 |
|
|
|
3,878.9 |
|
|
|
(571.3 |
) |
|
|
(14.7 |
)% |
Third-party distribution, service and advisory expenses |
|
|
(875.5 |
) |
|
|
(1,051.1 |
) |
|
|
175.6 |
|
|
|
(16.7 |
)% |
Proportional share of revenues, net of third-party
distribution expenses, from joint venture investments |
|
|
57.3 |
|
|
|
60.6 |
|
|
|
(3.3 |
) |
|
|
(5.4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
|
2,489.4 |
|
|
|
2,888.4 |
|
|
|
(399.0 |
) |
|
|
(13.8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Management Fees
Investment management fees decreased 15.0% in 2008 to $2,617.8 million (2007:
$3,080.1 million) due to decreases in average AUM during the year and the mix of AUM between
various asset classes. Average AUM for the year ended December 31, 2008, were $440.6 billion (2007:
$489.1 billion), a decrease of 9.9%. Average long-term AUM, which generally earn higher fee rates
than institutional money market AUM, for the year ended December 31, 2008, were $360.8 billion, a
decrease of 14.9% from $424.2 billion for the year ended December 31, 2007, while average
institutional money market AUM increased 23.0% to $79.8 billion at December 31, 2008, from $64.9
billion for the year ended December 31, 2007. In addition, our equity AUM as a percentage of total
AUM fell from 49% at December 31, 2007, to 36% at December 31, 2008. This decline in equities
within our asset mix was consistent with the decline in global equity markets.
Performance Fees
In 2008, these fees increased 6.8% to $75.1 million (2007: $70.3 million). The performance
fees generated in 2008 arose primarily in the Invesco Quantitative Strategies and Real Estate
groups, as well as in the U.K.; whereas the performance fees generated in 2007 included amounts
generated primarily in the U.K. and Asia.
Service and Distribution Fees
In 2008, service and distribution fees decreased 13.6% to $512.5 million (2007:
$593.1 million) primarily due to decreased retail AUM, offset by increases in institutional money
market revenues resulting from the 23.0% increase in average institutional money market AUM during
the year.
Other Revenues
In 2008, other revenues decreased 24.5% to $102.2 million (2007: $135.4 million) driven by
decreases in sales volumes of funds subject to front-end commissions, offset by higher transaction
fees within our private equity business.
Third-Party Distribution, Service and Advisory Expenses
Third-party distribution, service and advisory expenses decreased 16.7% in 2008 to $875.5
million (2007: $1,051.1 million), consistent with the declines in investment management and service
and distribution fee revenues.
37
Proportional share of revenues, net of third-party distribution expenses, from joint venture
investments
The 5.4% decrease in our proportional share of revenues, net of third-party distribution
expenses, to $57.3 million in 2008 (2007: $60.6 million), is driven by the declines in average AUM
in the Invesco Great Wall joint venture. Our share of the Invesco Great Wall joint ventures AUM at
December 31, 2008, was $3.0 billion, a 58% decline in AUM from $7.1 billion at December 31, 2007,
reflecting the increased volatility of equity markets in this region during the year.
Operating Expenses
During 2008, operating expenses decreased 11.3% to $2,559.8 million (2007: $2,884.6 million),
reflecting declines in all cost categories from 2007 expense levels.
The main categories of operating expenses are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in millions |
|
2008 |
|
2007 |
|
$ Change |
|
% Change |
Employee compensation |
|
|
1,055.8 |
|
|
|
1,137.6 |
|
|
|
(81.8 |
) |
|
|
(7.2 |
)% |
Third-party distribution, service and advisory |
|
|
875.5 |
|
|
|
1,051.1 |
|
|
|
(175.6 |
) |
|
|
(16.7 |
)% |
Marketing |
|
|
148.2 |
|
|
|
157.6 |
|
|
|
(9.4 |
) |
|
|
(6.0 |
)% |
Property, office and technology |
|
|
214.3 |
|
|
|
242.5 |
|
|
|
(28.2 |
) |
|
|
(11.6 |
)% |
General and administrative |
|
|
266.0 |
|
|
|
295.8 |
|
|
|
(29.8 |
) |
|
|
(10.1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
2,559.8 |
|
|
|
2,884.6 |
|
|
|
(324.8 |
) |
|
|
(11.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below sets forth these expense 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 |
|
|
|
|
|
|
Operating |
|
Operating |
|
|
|
|
|
Operating |
|
Operating |
$ in millions |
|
2008 |
|
Expenses |
|
Revenues |
|
2007 |
|
Expenses |
|
Revenues |
Employee compensation |
|
|
1,055.8 |
|
|
|
41.2 |
% |
|
|
31.9 |
% |
|
|
1,137.6 |
|
|
|
39.4 |
% |
|
|
29.3 |
% |
Third-party distribution, service and advisory |
|
|
875.5 |
|
|
|
34.2 |
% |
|
|
26.5 |
% |
|
|
1,051.1 |
|
|
|
36.4 |
% |
|
|
27.1 |
% |
Marketing |
|
|
148.2 |
|
|
|
5.8 |
% |
|
|
4.5 |
% |
|
|
157.6 |
|
|
|
5.5 |
% |
|
|
4.1 |
% |
Property, office and technology |
|
|
214.3 |
|
|
|
8.4 |
% |
|
|
6.5 |
% |
|
|
242.5 |
|
|
|
8.4 |
% |
|
|
6.3 |
% |
General and administrative |
|
|
266.0 |
|
|
|
10.4 |
% |
|
|
8.0 |
% |
|
|
295.8 |
|
|
|
10.3 |
% |
|
|
7.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
2,559.8 |
|
|
|
100.0 |
% |
|
|
77.4 |
% |
|
|
2,884.6 |
|
|
|
100.0 |
% |
|
|
74.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Compensation
Employee compensation decreased $81.8 million, or 7.2%, in 2008 from 2007 due predominantly to
overall decreases in sales commissions and variable compensation. Offsetting these declines were
increases in base salary expenses resulting from annual merit increases, which were effective March
1, 2008. Additionally, in the three months ended December 31, 2008, the company experienced
increases in bonus expense tied to improved investment performance and performance fee revenues.
These increases in bonus expense during the three months ended December 31, 2008, which
incorporated recognition of a full year impact tied to investment performance improvements, were
equally offset in the three months ended December 31, 2008, by the reversal of $18.8 million ($12.6
million, net of tax, or $0.5 per share) of cumulative share-based compensation charges related to
performance-based share awards granted in 2007. The reversal was made because the company does not
expect that the required performance targets for the vesting of these awards will be achieved. Of
the charges reversed, $10.8 million was originally recorded in 2007, with the remainder originally
recorded in the first nine months of 2008.
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 decreased 6.0% in 2008 to $148.2 million (2007: $157.6 million) due to
decreased marketing support payments related to decreased sales and AUM in the U.S., consistent
with overall market declines during the period.
38
Property, Office and Technology
Property, office and technology costs decreased 11.6% to $214.3 million in 2008 from
$242.5 million in 2007, due primarily to reduced depreciation charges reflecting longer useful
lives for certain global technology initiatives. During the three months ended December 31, 2008,
charges of $5.1 million were recorded related to vacating leased property; however these charges
were offset during the year by downward adjustments in rent costs for sublet office property of
$8.2 million. Rent expense during the year ended December 31, 2007, included a $7.4 million charge
related to vacating leased property.
General and Administrative
General and administrative expenses decreased by $29.8 million (10.1%) to $266.0 million in
2008 from $295.8 million in 2007. During the three months ended December 31, 2007, we recorded
$12.8 million of expense related to the relisting of the company on the New York Stock Exchange and
a $9.8 million charge related to the proposed final settlement of market-timing private litigation
that commenced in 2003.
Operating Income, Net Operating Income, Operating Margin and Net Operating Margin
Operating income decreased 24.8% to $747.8 million in 2008 from $994.3 million in 2007, driven
by the declines in operating revenues from reduced AUM. Operating margin (operating income divided
by operating revenues) was 22.6% in 2008, down from 25.6% in 2007. Net operating income (operating
income plus our proportional share of the operating income from joint venture arrangements)
decreased 24.3% to $787.5 million in 2008 from $1,039.8 million in 2007. Net operating margin is
equal to net 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. Net operating margin was 31.6% in 2008, down from
36.0% in 2007. See Schedule of Non-GAAP Information for a reconciliation of operating revenues to
net revenues, a reconciliation of operating income to net operating income and additional important
disclosures regarding net revenues, net operating income and net operating margins.
Other Income and Expenses
Equity in earnings of unconsolidated affiliates decreased by $1.3 million (2.7%) to $46.8
million in the year ended December 31, 2008 (December 31, 2007: $48.1 million), resulting primarily
from declines in our share of the pre-tax losses of our partnership investments.
Interest income decreased 23.3% to $37.2 million in 2008 from $48.5 million in 2007 due to the
combination of lower interest rates and lower average cash and cash equivalents balances in 2008.
The decrease in yields was consistent with the market movement from 2007 to 2008. Interest expense
increased 7.9% to $76.9 million in 2008 from $71.3 million in 2007 due to increases in the average
debt balance in 2008, which were only partially offset by lower debt costs in 2008.
Other gains and losses, net were a net loss of $39.9 million in 2008, compared to a net gain
of $9.9 million in 2007. The 2008 net loss included $22.7 million in other-than-temporary
impairment charges related to the valuations of investments in certain of our CLO products (2007:
$5.4 million) and $8.5 million in other-than-temporary impairment charges related to other seed
money in affiliated funds (2007: $0 million). The impairment of the CLO products arose principally
from increases in discount rates and extended cash flow projections used in the valuation models,
and the impairment of the seed money arose principally due to extended declines in market values of
the underlying funds. $14.2 million of the combined impairment charges arose during the three
months ended December 31, 2008.
Included in other gains and losses, net are net gains on disposals of investments of $4.3
million in 2008 (2007: $24.0 million), primarily driven by a gain of $7.4 realized upon the
maturity of a CLO product in which the company had invested. Also included in other losses are net
foreign exchange losses, primarily associated with long-term intercompany financing. In the year
ended December 31, 2008, we incurred $13.0 million in net foreign exchange losses (2007: $10.3
million), largely the result of the weakening of the Pound Sterling to the Euro and U.S. dollar in
the three months ended December 31, 2008. See Item 8, Financial Statements and Supplementary
Data Note 13, Other Gains and Losses, Net, for additional details related to other gains and
losses.
Included in other income and expenses are net realized and unrealized gains of consolidated
investment products. In 2008, the net losses of consolidated investment products were $58.0
million, compared to net gains of $214.3 million in 2007, reflecting the changes in market values
of the investments held by consolidated investment products and the deconsolidation of certain
variable
39
interest entities for which we determined that we were no longer the primary beneficiary.
Invesco invests in a small equity portion of these products, and as a result the majority of these
gains and losses are offset by noncontrolling interests.
Income Tax Expense
The 2008 U.K. statutory tax rate was 28.0%, the Canadian statutory tax rate was 33.5% and the
U.S. Federal statutory tax rate was 35.0%.
The U.K.s tax rate decreased from 30% to 28.0% effective April 1, 2008. On December 14, 2007,
legislation was enacted to reduce the Canadian income tax rate over five years, which changed the
tax rate to 33.5% in 2008 and 33.0% in 2009. The legislation was revised in December 2009, further
reducing the rate to 31.0% in 2010, 28.25% in 2011 and 26.25% in 2012.
Our effective tax rate excluding noncontrolling interests in consolidated entities for 2008
was 32.9%, as compared to 34.6% in 2007. The decrease related primarily to a net reduction in our
reserves, lower state taxes, and reduced taxes on subsidiary dividends in excess of an increase in
the net valuation allowance for subsidiary operating losses and certain investment write-downs that
did not give rise to tax benefits. Our effective tax rate, after noncontrolling interests,
increased to 52.9% for the three months ended December 31, 2008, largely as a result of the
investment write-downs. 2007 included a reduction in our Canadian and U.K. deferred tax assets to
reflect the tax rate changes discussed above and transaction costs associated with our change in
listing and domicile that were not deductible for tax purposes.
The inclusion of income from noncontrolling interests increased our effective tax rate to
35.9% in 2008 and reduced it to 28.7% in 2007.
Schedule of Non-GAAP Information
Net revenues (and by calculation, net revenue yield on AUM), net operating income and net
operating margin are non-GAAP financial measures. The most comparable U.S. GAAP measures are
operating revenues (and by calculation, gross revenue yield on AUM), operating income and operating
margin. Management believes that the exclusion of third-party distribution, service and advisory
expenses from operating revenues in the computation of net revenues and the related computation of
net operating margin provides useful information to investors because the distribution, service and
advisory fee amounts represent costs that are passed through to external parties who perform
functions on behalf of the companys managed funds, which essentially are a share of the related
revenues. These expenses vary by geography due to the differences in distribution channels. The
net presentation assists in identifying the revenue contribution generated by the business,
removing the distortions caused by the differing distribution channel fees and assisting in
comparison with U.S. peer investment managers. Third-party distribution, service and advisory
expenses include renewal commissions paid to independent financial advisors for as long as the
clients assets are invested and are payments for the servicing of client accounts. Renewal
commissions are calculated based upon a percentage of the AUM value. Third party distribution
expenses also include the amortization of upfront commissions paid to broker-dealers for sales of
fund shares with a contingent deferred sales charge (a charge levied to the investor for client
redemption of AUM within a certain contracted period of time). The distribution commissions are
amortized over the redemption period. Also included in third-party distribution, service and
advisory expenses are sub-transfer agency fees that are paid to third parties for processing client
share purchases and redemptions, call center support and client reporting. Since the company has
been deemed to be the principal in the third-party arrangements, the company must reflect these
expenses gross of operating revenues under U.S. GAAP. We believe that it is useful information to
investors to show these expenses net of operating revenues, because net presentation more
appropriately reflects the nature of these expenses as revenue-sharing activities. Additionally,
management evaluates net revenue yield on AUM, which is equal to net revenues divided by average
AUM during the reporting period. This metric is an indicator of the basis point net revenues we
receive for each dollar of AUM we manage and is useful when evaluating the companys performance
relative to industry competitors.
Management also believes that the addition of our proportional share of revenues, net of
distribution expenses, from joint venture investments in the computation of net revenues and the
addition of our proportional share of operating income in the related computations of net operating
income and net operating margin also provide useful information to investors, as management
considers it appropriate to evaluate the contribution of its joint venture to the operations of the
business. The company has two joint venture investments in China. The Invesco Great Wall joint
venture was one of the largest Sino-foreign managers of equity products in China, with ending AUM
of approximately $8 billion as of December 31, 2009. Enhancing our operations in China is one
effort that we believe could improve our competitive position over time. Accordingly, we believe
that it is appropriate to evaluate the contribution of our joint venture investments to the
operations of the business.
40
Net revenues (and by calculation net revenue yield on AUM), net operating income, and net
operating margin should not be considered as substitutes for any measures derived in accordance
with U.S. GAAP and may not be comparable to other similarly titled measures of other companies.
The company will be expanding its use of non-GAAP measures in future filings, beginning with
the Form 10-Q for the three months ended March 31, 2010, to include reconciling items relating to
FASB Statement No. 167 (discussed in Part I, Item 1A, Risk Factors, and in Item 8, Financial
Statements and Supplementary Data Note 1, Accounting Policies) and the acquisition of Morgan
Stanleys retail asset management business.
The following is a reconciliation of operating revenues, operating income and operating margin
on a U.S. GAAP basis to net revenues, net operating income and net operating margin.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
$in millions |
|
2009 |
|
2008 |
|
2007 |
|
2006 |
|
2005 |
Operating revenues, GAAP basis |
|
|
2,627.3 |
|
|
|
3,307.6 |
|
|
|
3,878.9 |
|
|
|
3,246.7 |
|
|
|
2,872.6 |
|
Third-party distribution, service and advisory expenses |
|
|
(693.4 |
) |
|
|
(875.5 |
) |
|
|
(1,051.1 |
) |
|
|
(826.8 |
) |
|
|
(706.0 |
) |
Proportional share of net revenues from joint venture arrangements |
|
|
44.8 |
|
|
|
57.3 |
|
|
|
60.6 |
|
|
|
8.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
|
1,978.7 |
|
|
|
2,489.4 |
|
|
|
2,888.4 |
|
|
|
2,428.0 |
|
|
|
2,166.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income, GAAP basis |
|
|
484.3 |
|
|
|
747.8 |
|
|
|
994.3 |
|
|
|
759.2 |
|
|
|
407.9 |
|
Proportional share of operating income from joint venture investments |
|
|
28.4 |
|
|
|
39.7 |
|
|
|
45.5 |
|
|
|
2.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
|
|
512.7 |
|
|
|
787.5 |
|
|
|
1,039.8 |
|
|
|
762.1 |
|
|
|
407.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin* |
|
|
18.4 |
% |
|
|
22.6 |
% |
|
|
25.6 |
% |
|
|
23.4 |
% |
|
|
14.2 |
% |
Net operating margin** |
|
|
25.9 |
% |
|
|
31.6 |
% |
|
|
36.0 |
% |
|
|
31.4 |
% |
|
|
18.8 |
% |
|
|
|
* |
|
Operating margin is equal to operating income divided by operating revenues. |
|
** |
|
Net operating margin is equal to net operating income divided by net revenues. |
Balance Sheet Discussion
The following table presents a comparative analysis of significant balance sheet line items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in millions |
|
2009 |
|
2008 |
|
$ Change |
|
% Change |
Cash and cash equivalents |
|
|
762.0 |
|
|
|
585.2 |
|
|
|
176.8 |
|
|
|
30.2 |
% |
Unsettled fund receivables |
|
|
383.1 |
|
|
|
303.7 |
|
|
|
79.4 |
|
|
|
26.1 |
% |
Current investments |
|
|
182.4 |
|
|
|
123.6 |
|
|
|
58.8 |
|
|
|
47.6 |
% |
Assets held for policyholders |
|
|
1,283.0 |
|
|
|
840.2 |
|
|
|
442.8 |
|
|
|
52.7 |
% |
Non-current investments |
|
|
157.4 |
|
|
|
121.3 |
|
|
|
36.1 |
|
|
|
29.8 |
% |
Investments of consolidated investment products |
|
|
685.0 |
|
|
|
843.8 |
|
|
|
(158.8 |
) |
|
|
(18.8 |
)% |
Goodwill |
|
|
6,467.6 |
|
|
|
5,966.8 |
|
|
|
500.8 |
|
|
|
8.4 |
% |
Policyholder payables |
|
|
1,283.0 |
|
|
|
840.2 |
|
|
|
442.8 |
|
|
|
52.7 |
% |
Current maturities of total debt |
|
|
|
|
|
|
297.2 |
|
|
|
(297.2 |
) |
|
|
(100.0 |
)% |
Long-term debt |
|
|
745.7 |
|
|
|
862.0 |
|
|
|
(116.3 |
) |
|
|
(13.5 |
)% |
Equity attributable to common shareholders |
|
|
6,912.9 |
|
|
|
5,689.5 |
|
|
|
1,223.4 |
|
|
|
21.5 |
% |
Equity attributable to noncontrolling interests in consolidated entities |
|
|
707.9 |
|
|
|
906.7 |
|
|
|
(198.8 |
) |
|
|
(21.9 |
)% |
Cash and cash equivalents
Cash and cash equivalents increased from December 31, 2008, to December 31, 2009, primarily
due to $441.8 million of cash received from the equity issuance and $362.7 million net cash
generated from operating activities, offset by $397.2 million used to retire debt, $168.9 million
used to pay the quarterly dividends, and net $43.5 million of investments in seeding new products.
Invesco has local capital requirements in several jurisdictions, as well as regional
requirements for entities that are part of the European sub-group. These requirements mandate the
retention of liquid resources in those jurisdictions, which we meet in part by holding cash and
cash equivalents. This retained cash can be used for general business purposes in the European
sub-group or in the
41
countries where it is located. Due to the capital restrictions, the ability to transfer cash
between certain jurisdictions may be limited. In addition, transfers of cash between international
jurisdictions may have adverse tax consequences that may substantially limit such activity. At
December 31, 2009, the European sub-group had cash and cash equivalent balances of $333.5 million,
much of which is used to satisfy these regulatory requirements. We are in compliance with all
regulatory minimum net capital requirements.
Unsettled fund receivables
Unsettled fund receivables increased from $303.7 million at December 31, 2008, to
$383.1 million at December 31, 2009, due to higher transaction activities. Unsettled fund
receivables are created by the normal settlement periods on transactions initiated by certain
clients of our U.K. and offshore funds. The presentation of the receivable and substantially
offsetting payable ($367.9 million) at trade date with both the investor and the fund for normal
purchases and sales reflects the legal relationship between the underlying investor and the
company.
Investments (current and non-current)
As of December 31, 2009, we had $339.8 million in investments; of which $182.4 million were
current investments and $157.4 million were non-current investments. Included in current
investments are $74.8 million of seed money investments in affiliated funds used to seed funds as
we launch new products, and $84.6 million of investments related to assets held for deferred
compensation plans. These investments are also held primarily in affiliated funds and increased
significantly from December 31, 2008, due to new investments purchased to economically hedge new
deferred compensation liabilities that arose from both the modification of certain share-based
awards during the period (discussed in Item 8, Financial Statements and Supplementary Data Note
17, Share-Based Compensation) and the establishment of a new deferred compensation plan for
certain employees of the company. Included in non-current investments are $134.7 million in equity
method investments in our Chinese joint ventures and in certain of the companys private equity,
real estate and other investments. Equity method investments increased by $39.4 million from the
prior year balance, the increase including a $30.0 million new investment in Invesco Mortgage
Capital, Inc. (IVR, discussed in Item 8, Financial Statements and Supplementary Data Note 16,
Consolidated Investment Products). Additionally, non-current investments include $17.9 million of
investments in collateralized loan obligation structures managed by Invesco. Our investments in
collateralized loan obligation structures are generally in the form of a relatively small portion
of the unrated, junior subordinated position. As such, these positions would share in the first
losses to be incurred if the structures were to experience significant increases in default rates
of underlying investments above historical levels.
Assets held for policyholders and policyholder payables
One of our subsidiaries, Invesco Perpetual Life Limited, is an insurance company that was
established to facilitate retirement savings plans in the U.K. The entity holds assets that are
managed for its clients on its balance sheet with an equal and offsetting liability. The increasing
balance in these accounts from $840.2 million at December 31, 2008, to $1,283.0 million at December
31, 2009, was the result of foreign exchange movements, the increase in the market values of these
assets, and net flows into the funds.
Investments of consolidated investment products
The primary beneficiary of variable interest entities (VIEs) is required to consolidate the
VIEs. A VIE is an entity that does not have sufficient equity to finance its operations without
additional subordinated financial support, or an entity for which the risks and rewards of
ownership are not directly linked to voting interests. Generally, limited partnership entities
where the general partner does not have substantive equity investment at risk and where the other
limited partners do not have substantive (greater than 50%) rights to remove the general partner or
to dissolve the limited partnership are also VIEs. The primary beneficiary is the party to the VIE
who absorbs a majority of the losses or absorbs the majority of the rewards generated by the VIE.
Additionally, under the voting interest entity (VOE) consolidation model, the general partner in a
partnership that is not a VIE consolidates the partnership because the general partner is deemed to
control the partnership where the other limited partners do not have substantive kick-out,
liquidation or participation rights. Investments of consolidated investment products include the
investments of both consolidated VIEs and VOEs.
As of December 31, 2009, investments of consolidated investment products totaled
$685.0 million (December 31, 2008: $843.8 million). These investments are offset primarily in
noncontrolling interests in consolidated entities on the Consolidated Balance Sheets, as the
companys equity investment in these structures is very small. The decrease from December 31, 2008,
reflects the impact of declining market values and the deconsolidation during the period ended
December 31, 2009, of $53.3 million of investments held by consolidated investment products and
related noncontrolling interests in consolidated entities, as a result of determining that the
company is no longer the primary beneficiary.
42
Goodwill
Goodwill increased from $5,966.8 million at December 31, 2008, to $6,467.6 million at December
31, 2009, primarily due to the impact of foreign currency translation for certain subsidiaries
whose functional currency differs from that of the parent. The foreign exchange rates at the end of
2009, used to translate the balance sheets of foreign currency subsidiaries into U.S. dollars, the
reporting currency of the company, reflect a weaker U.S. dollar at the end of 2009, mainly against
the Canadian dollar and Pound Sterling, which resulted in a $466.6 million increase in goodwill,
upon consolidation, with a corresponding increase in equity. Additional goodwill was recorded in
2009 related to the earn-out on the W.L. Ross & Co. acquisition ($34.2 million). The companys
annual goodwill impairment review is performed as of October 1 of each year. As a result of that
analysis, the company determined that no impairment existed at that date. Separately, due to
deteriorating market conditions, interim impairment tests were performed at October 31, 2008, and
March 31, 2009. These interim tests also concluded that no impairment had occurred. As each test
concluded that the fair value was above the carrying value, there was no need to progress to the
process of separately valuing each class of asset and liability. See Critical Accounting Policies
Goodwill for additional details of the companys goodwill impairment analysis process.
Current portion of total debt
This balance decreased from $297.2 million at December 31, 2008 to $0.0 million at December
31, 2009, as a result of the 4.5% senior notes maturing on December 15, 2009, and being repaid from
available cash resources.
Long-term debt
The non-current portion of our total debt decreased from $862.0 million at December 31, 2008,
to $745.7 million at December 31, 2009, as $12.0 million borrowings under the floating rate credit
facility were repaid and $104.3 million in debt was retired through the tender offer transaction
described below in Debt.
Noncontrolling interests in consolidated entities
Noncontrolling interests in consolidated entities decreased by $198.8 million from
$906.7 million at December 31, 2008, to $707.9 million at December 31, 2009, primarily due to
$106.9 million of losses recorded by the consolidated investment products during the year and the
deconsolidation during the period of $53.3 million of investments held by consolidated investment
products and related noncontrolling interests in consolidated entities, as a result of determining
that the company was no longer the primary beneficiary.
The noncontrolling interests in consolidated entities are generally offset by the net assets
of consolidated investment products, as the companys equity investment in the investment products
is very small.
Equity attributable to common shareholders
Equity attributable to common shareholders increased from $5,689.5 million at December 31,
2008, to $6,912.9 million at December 31, 2009, an increase of $1,223.4 million. An issuance of new
shares raised a net $441.8 million and the changes in foreign currency rates added $488.3 million
to equity. Other increases to equity included net income attributable to common shareholders of
$322.5 million, share issuances upon employee option exercises of $80.3 million, and the share
based payment credit to capital of $90.8 million. The increases to equity were partially offset by
$168.9 million in dividend payments, $13.0 million related to the modification of a share-based
payment award into a cash-settled award, $22.9 million in shares acquired from employees to meet
withholding tax obligations on share award vestings, and a $7.5 million deduction arising on the
purchase of the remaining noncontrolling interest in Invesco Real Estate GmbH.
Liquidity and Capital Resources
On May 26, 2009, we issued 32.9 million common shares in a public offering that produced gross
proceeds of $460.5 million ($441.8 million net of related expenses). On June 9, 2009, we replaced
our existing $900.0 million credit facility, which was never fully utilized, with a $500.0 million
multi-year credit facility, the amount of which was based upon our past and projected working
capital needs; however, we are able to increase the new credit facility to $750.0 million, subject
to certain conditions. At December 31, 2009, the company had no balance drawn on the credit
facility. These two transactions reflected our ability to access the capital markets in a timely
manner. On June 30, 2009, we completed a $100.0 million tender offer to purchase publicly traded
debt with a
43
principal value of $104.3 million. On December 15, 2009, we repaid the $294.2 million 4.5%
senior notes that matured on that date, utilizing existing cash balances, having repurchased $3.0
million of these notes earlier in the year.
We believe that our capital structure, together with available cash balances, cash flows
generated from operations, existing capacity under our credit facility, proceeds from the public
offering of our shares and further capital market activities, if necessary, should provide us with
sufficient resources to meet present and future cash needs, including operating, debt and other
obligations as they come due and anticipated future capital requirements. Additionally, we expect
to use available cash balances and borrowings under our credit facility to satisfy the $500.0
million cash consideration related to acquisition of Morgan Stanleys retail asset management
business, including Van Kampen Investments. New equity, in the form of common and non-voting common
equivalent preferred shares (with economic rights identical to common stock, other than no right to
vote such shares) is expected to be issued to Morgan Stanley, without holding restrictions, in
conjunction with the close. The ultimate purchase price for the business may be higher or lower
than the $1.5 billion announced purchase price, due to contractual price adjustments that will made
depending on certain conditions being met at the closing date and changes in the companys share
price. For example, a price adjustment may be made based on the degree to which clients of the
business being acquired provide their consent for the transaction at the time of closing the deal.
Our ability to access the capital markets in a timely manner depends on a number of factors
including our credit rating, the condition of the global economy, investors willingness to
purchase our securities, interest rates, credit spreads and the valuation levels of equity markets.
If we are unable to access capital markets in a timely manner, our business could be adversely
impacted.
Certain of our subsidiaries are required to maintain minimum levels of capital. These and
other similar provisions of applicable law may have the effect of limiting withdrawals of capital,
repayment of intercompany loans and payment of dividends by such entities. After redomicile and
after consultation with the U.K. FSA, it has been determined that, for the purposes of prudential
supervision, Invesco Ltd. is not subject to regulatory consolidated capital requirements under
current European Union (EU) Directives. A sub-group, however, including all of our regulated EU
subsidiaries, is subject to these consolidated capital requirements, and capital is maintained
within this sub-group to satisfy these regulations. These requirements mandate the retention of
liquid resources in those jurisdictions, which we meet in part by holding cash and cash
equivalents. This retained cash can be used for general business purposes in the European sub-group
or in the countries where it is located. Due to the capital restrictions, the ability to transfer
cash between certain jurisdictions may be limited. In addition, transfers of cash between
international jurisdictions may have adverse tax consequences that may substantially limit such
activity. At December 31, 2009, the European sub-group had cash and cash equivalent balances of
$333.5 million, much of which is used to satisfy these regulatory requirements. We are in
compliance with all regulatory minimum net capital requirements.
Cash Flows
The ability to consistently generate cash from operations in excess of capital expenditures
and dividend payments is one of our companys fundamental financial strengths. Operations continue
to be financed from current earnings and borrowings. Our principal uses of cash, other than for
operating expenses, include dividend payments, capital expenditures, acquisitions, purchase of our
shares in the open market and investments in certain new investment products.
Cash flows of consolidated investment products (discussed in Item 8, Financial Statements and
Supplementary Data Note 16, Consolidated Investment Products) are reflected in Invescos cash
provided by operating activities, used in investing activities and used in financing activities.
Cash held by consolidated investment products is not available for general use by Invesco, nor is
Invesco cash available for general use by its consolidated investment products.
Cash flows for the years ended December 31, 2009, 2008 and 2007 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in millions |
|
2009 |
|
2008 |
|
2007 |
Net cash (used in)/provided by: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
|
362.7 |
|
|
|
525.5 |
|
|
|
915.5 |
|
Investing activities |
|
|
(102.4 |
) |
|
|
(98.4 |
) |
|
|
(48.2 |
) |
Financing activities |
|
|
(100.7 |
) |
|
|
(666.4 |
) |
|
|
(740.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(decrease) in cash and cash equivalents |
|
|
159.6 |
|
|
|
(239.3 |
) |
|
|
126.5 |
|
Foreign exchange |
|
|
17.2 |
|
|
|
(91.3 |
) |
|
|
10.4 |
|
Cash and cash equivalents, beginning of period |
|
|
585.2 |
|
|
|
915.8 |
|
|
|
778.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
|
762.0 |
|
|
|
585.2 |
|
|
|
915.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
Operating Activities
Net cash provided by operating activities is generated by the receipt of investment management
and other fees generated from AUM, offset by operating expenses and changes in operating assets and
liabilities. Although some receipts and payments are seasonal, particularly bonus payments, in
general our operating cash flows move in the same direction as our operating income. The reduced
operating income for the year ended December 31, 2009, when compared to the prior year is a
significant factor in the reduced operating cash flows.
Cash provided by operating activities in 2009 was $362.7 million, a decrease of $162.8 million
or 31% over 2008. Changes in operating assets and liabilities used $118.3 million of cash, while
the combined cash generated from other operating items was $481.0 million. The change in operating
assets and liabilities was driven by the funding of annual bonuses combined with the lower levels
of accrued bonus awards at the end of 2009, together with higher trade receivables at the end of
2009, compared to the end of 2008. The change in operating assets and liabilities also includes a
decrease of $45.0 million in the cash held by consolidated investment products.
Cash provided by operating activities in 2008 was $525.5 million, a decrease of $390.0 million
or 42.6% from 2007. Changes in operating assets and liabilities contributed $273.9 million of the
decrease, and lower net income, after adjusting for the gains and losses of consolidated investment
products, contributed a further $193.2 million of the decrease in cash flows generated from
operating activities.
Investing Activities
The launch of a number of new products during mid and late 2009 resulted in a net cash outflow
into seed and partnership investments of $43.5 million during the year. During year ended December
31, 2009, we recaptured $60.6 million in cash from redemption of prior investments, including seed
and partnership investments, and invested $104.1 million in new products.
During the fiscal years ended December 31, 2009, 2008 and 2007, our capital expenditures were
$39.5 million, $84.1 million and $36.7 million, respectively. Expenditures related principally in
each year to technology initiatives, including new platforms from which we maintain our portfolio
management systems and fund accounting systems, improvements in computer hardware and software
desktop products for employees, new telecommunications products to enhance our internal information
flow, and back-up disaster recovery systems. Also, in each year, a portion of these costs related
to leasehold improvements made to the various buildings and workspaces used in our offices. These
projects have been funded with proceeds from our operating cash flows. Capital expenditures in 2008
also included expenditures related to leasehold improvements in the new headquarters space. During
the fiscal years ended December 31, 2009, 2008 and 2007, our capital divestitures were not
significant relative to our total fixed assets.
Investing activities include the investment purchases and sales of our consolidated investment
products. In total, these contributed $8.0 million, $175.6 million and $8.1 million to cash
generated in investing activities during the years ended December 31, 2009, 2008, and 2007,
respectively.
Net cash outflows of $34.2 million in 2009 related to acquisition earn-out payments related to
the 2006 acquisition of WL Ross & Co. In 2008, net cash outflows of $130.9 million and $43.4
million related to acquisition earn-out payments for the PowerShares and WL Ross & Co.
acquisitions, respectively.
Financing Activities
Net cash used in financing activities totaled $100.7 million for the year ended December 31,
2009. The equity issuance generated cash proceeds of $441.8 million and proceeds from the exercise
of options were $80.0 million. These inflows were offset by the redemption of senior notes of
$397.2 million, net repayments of our credit facility of $12.0 million, and the $168.9 million
payment of dividends declared in January, April, July and October 2009. Financing cash flows also
include a payment of $8.9 million to purchase the remaining 24.9% of Invesco Real Estate GmbH not
already held by the company, the controlling interest having been acquired in December 2003.
The net cash used in financing activities also includes a net $44.9 million of outflows
related to consolidated investment products (2008: $125.3 million; 2007: $27.7 million).
Net cash used in financing activities decreased from $740.8 million in 2007 to $666.4 million
in 2008, primarily due to lower levels of capital being returned through public stock repurchases
of Invesco Ltd. common stock, in form of treasury shares. Cash used for treasury share purchases in
2008 totaled $313.4 million compared to $716.0 million in 2007.
45
Dividends
Invesco declares and pays dividends on a quarterly basis in arrears. The 2009 quarterly
dividend was $0.1025 per Invesco Ltd. common share. On October 16, 2009, the company declared a
third quarter cash dividend, which was paid on December 2, 2009, to shareholders of record as of
November 18, 2009. On January 27, 2010, the company declared a fourth quarter cash dividend, which
will be paid on March 10, 2010, to shareholders of record as of February 23, 2010. The total
dividend attributable to the 2009 fiscal year of $0.41 per share represented a 2.5% increase over
the total dividend attributable to the 2008 fiscal year of $0.40 per share.
The declaration, payment and amount of any future dividends will be declared by our board of
directors and will depend upon, among other factors, our earnings, financial condition and capital
requirements at the time such declaration and payment are considered. The board has a policy of
managing dividends in a prudent fashion, with due consideration given to profit levels, overall
debt levels, and historical dividend payouts.
The following table sets forth the historical amounts for quarterly and total dividends per
Invesco Ltd. common share attributable to each period indicated. Actual declaration of these
dividends occurred in the following fiscal quarter.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Cents per Common Share |
Years Ended December 31, |
|
Q1 |
|
Q2 |
|
Q3 |
|
Q4 |
|
Total |
2009 |
|
|
10.25 |
|
|
|
10.25 |
|
|
|
10.25 |
|
|
|
10.25 |
|
|
|
41.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
10.0 |
|
|
|
10.0 |
|
|
|
10.0 |
|
|
|
10.0 |
|
|
|
40.0 |
|
Share Repurchase Plan
On April 23, 2008, the board of directors authorized a new share repurchase program of up to
$1.5 billion with no stated expiration date. During the year ended December 31, 2009, there were no
purchases under this program (December 31, 2008: 5.5 million common shares purchased under this
program at a cost of $139.4 million, and 6.1 million shares purchased under the prior share
repurchase plan at a cost of $154.5 million), leaving approximately $1.4 billion authorized at the
end of the year. Separately, an aggregate of 1.6 million shares were withheld on vesting events
during the year ended December 31, 2009, to meet employees tax obligations (December 31, 2008: 0.3
million). The value of these shares withheld was $22.9 million (December 31, 2008: $4.6 million).
Debt
Our total indebtedness at December 31, 2009, is $745.7 million (December 31, 2008: $1,159.2
million) and is comprised of the following:
|
|
|
|
|
|
|
|
|
$ in millions |
|
December 31, 2009 |
|
December 31, 2008 |
Unsecured Senior Notes: |
|
|
|
|
|
|
|
|
4.5% due December 15, 2009 |
|
|
|
|
|
|
297.2 |
|
5.625% due April 17, 2012 |
|
|
215.1 |
|
|
|
300.0 |
|
5.375% due February 27, 2013 |
|
|
333.5 |
|
|
|
350.0 |
|
5.375% due December 15, 2014 |
|
|
197.1 |
|
|
|
200.0 |
|
Floating rate credit facility terminated on June 9, 2009 |
|
|
|
|
|
|
12.0 |
|
Floating rate credit facility expiring June 9, 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt |
|
|
745.7 |
|
|
|
1,159.2 |
|
Less: current maturities of total debt |
|
|
|
|
|
|
297.2 |
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
745.7 |
|
|
|
862.0 |
|
|
|
|
|
|
|
|
|
|
For the three months and year ended December 31, 2009, the companys weighted average cost of
debt was 5.27% and 5.14%, respectively (three months and year ended December 31, 2008: 4.93% and
4.87%, respectively). Total debt decreased from $1,159.2 million at December 31, 2008, to $745.7
million at December 31, 2009, due primarily to repayment of maturing senior notes, borrowings under
our floating rate credit facility, and retirement of debt through the tender offer.
On June 2, 2009, the company commenced a tender offer for the maximum aggregate principal
amount of the outstanding 5.625% senior notes due 2012, the 5.375% senior notes due 2013, and the
5.375% senior notes due 2014 (collectively, the Notes) that it could purchase for $100.0 million
at a purchase price per $1,000 principal amount determined in accordance with the procedures of a
46
modified Dutch Auction (tender offer). The tender offer expired at midnight on June 29,
2009, and on June 30, 2009, $104.3 million of the Notes had been retired, generating a gross gain
of $4.3 million upon the retirement of debt at a discount.
A summary of the Notes tendered is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of |
|
|
|
Accepted Tender |
|
|
|
|
|
|
Total |
|
|
Tender Offer |
|
|
Accrued |
|
|
Outstanding |
|
$ in millions |
|
Amount |
|
|
Base Price |
|
|
Consideration(1) |
|
|
Consideration(2) |
|
|
Interest(3) |
|
|
Amount Tendered |
|
5.625% due April 17, 2012 |
|
$ |
84,897,000 |
|
|
$ |
920.00 |
|
|
$ |
970.00 |
|
|
$ |
940.00 |
|
|
$ |
11.41 |
|
|
|
28.3 |
% |
5.375% due February 27, 2013 |
|
$ |
16,532,000 |
|
|
$ |
870.00 |
|
|
$ |
920.00 |
|
|
$ |
890.00 |
|
|
$ |
18.36 |
|
|
|
4.7 |
% |
5.375% due December 15, 2014 |
|
$ |
2,874,000 |
|
|
$ |
800.00 |
|
|
$ |
850.00 |
|
|
$ |
820.00 |
|
|
$ |
2.24 |
|
|
|
1.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
104,303,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Consideration paid per $1,000 principal amount of Notes tendered on or
prior to an Early Participation Date (as defined in the Offer to
Purchase), which includes a $30.00 early participation amount. The
total consideration was determined based on the formula consisting of
the base price plus a clearing premium. |
|
(2) |
|
Consideration paid per $1,000 principal amount of Notes tendered after
the Early Participation Date and on or prior to the Expiration Date
(as defined in the Offer to Purchase). |
|
(3) |
|
Accrued interest paid per $1,000 principal amount of Notes. |
On June 9, 2009, the company completed a new three-year $500.0 million revolving bank credit
facility. The new facility replaces the $900.0 million credit facility that was scheduled to expire
on March 31, 2010, but was terminated concurrent with the entry into the new credit facility.
Financial covenants under the new credit facility 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
December 31, 2010, and not greater than 3.00:1.00 thereafter, (ii) a coverage ratio (EBITDA, as
defined in the credit agreement/interest payable for the four consecutive fiscal quarters ended
before the date of determination) of not less than 4.00:1.00, and (iii) maintenance on a monthly
basis of consolidated long term assets under management (as defined in the credit agreement) of not
less than $194.8 billion, which amount is subject to a one-time reset by the company under certain
conditions. As of December 31, 2009, we were in compliance with our debt covenants. At December 31,
2009, our leverage ratio was 1.11:1.00 (December 31, 2008: 1.28:1.00), and our interest coverage
ratio was 11.01:1.00 (December 31, 2008: 12.20:1.00), and our long-term AUM were $343.6 billion.
The coverage ratios, as defined in our credit facility, were as follows during 2009, 2008 and
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
Q1 |
|
Q2 |
|
Q3 |
|
Q4 |
Leverage Ratio |
|
|
1.48 |
|
|
|
1.63 |
|
|
|
1.77 |
|
|
|
1.11 |
|
Interest Coverage Ratio |
|
|
11.31 |
|
|
|
9.64 |
|
|
|
9.12 |
|
|
|
11.01 |
|
Long-term AUM |
|
|
N/A |
* |
|
|
299.0 |
|
|
|
329.7 |
|
|
|
343.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
Q1 |
|
Q2 |
|
Q3 |
|
Q4 |
Leverage Ratio |
|
|
1.25 |
|
|
|
1.11 |
|
|
|
1.17 |
|
|
|
1.28 |
|
Interest Coverage Ratio |
|
|
16.99 |
|
|
|
16.53 |
|
|
|
15.19 |
|
|
|
12.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
Q1 |
|
Q2 |
|
Q3 |
|
Q4 |
Leverage Ratio |
|
|
1.18 |
|
|
|
0.97 |
|
|
|
0.91 |
|
|
|
1.04 |
|
Interest Coverage Ratio |
|
|
12.96 |
|
|
|
13.54 |
|
|
|
14.30 |
|
|
|
17.81 |
|
|
|
|
* |
|
Long-Term AUM became a debt covenant measure as part of the June 9, 2009, credit facility
agreement. |
47
The December 31, 2009, coverage ratio calculations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ millions, except as noted |
|
Total |
|
Q4 2009 |
|
Q3 2009 |
|
Q2 2009 |
|
Q1 2009 |
Net income attributable to common shareholders |
|
|
322.5 |
|
|
|
110.9 |
|
|
|
105.2 |
|
|
|
75.7 |
|
|
|
30.7 |
|
Tax expense |
|
|
148.2 |
|
|
|
48.2 |
|
|
|
43.7 |
|
|
|
36.0 |
|
|
|
20.3 |
|
Amortization/depreciation |
|
|
77.6 |
|
|
|
24.9 |
|
|
|
20.0 |
|
|
|
16.7 |
|
|
|
16.0 |
|
Interest expense |
|
|
64.5 |
|
|
|
15.2 |
|
|
|
16.9 |
|
|
|
16.5 |
|
|
|
15.9 |
|
Share-based compensation expense |
|
|
90.8 |
|
|
|
22.6 |
|
|
|
24.3 |
|
|
|
20.2 |
|
|
|
23.7 |
|
Unrealized gains and losses from investments, net* |
|
|
6.5 |
|
|
|
0.3 |
|
|
|
(1.4 |
) |
|
|
1.0 |
|
|
|
6.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA** |
|
|
710.1 |
|
|
|
222.1 |
|
|
|
208.7 |
|
|
|
166.1 |
|
|
|
113.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted debt** |
|
|
790.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage ratio (Debt/EBITDA maximum 3.25:1.00) |
|
|
1.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest coverage (EBITDA/Interest Expense minimum 4.00:1.00) |
|
|
11.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009, long-term AUM (in billions minimum $194.8
billion) |
|
|
343.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Adjustments for unrealized gains and losses from investments, as
defined in our credit facility, include non-cash gains and losses on
investments to the extent that they do not represent anticipated
future cash receipts or expenditures. |
|
** |
|
EBITDA and Adjusted debt are non-GAAP financial measures; however,
management does not use these measures for anything other than these
debt covenant calculations. The calculation of EBITDA above (a
reconciliation from net income attributable to common shareholders) is
defined by our credit agreement, and therefore net income attributable
to common shareholders is the most appropriate GAAP measure from which
to reconcile to EBITDA. The calculation of adjusted debt is defined in
our credit facility and equals total debt of $745.7 million plus $44.4
million in letters of credit and $0.1 million in capital leases. |
We have received credit ratings of A3 and BBB+ from Moodys and Standard & Poors credit
rating agencies, respectively, as of the date of this Annual Report on Form 10-K. Standard & Poors
has a positive outlook for the rating while Moodys has a stable outlook for the rating as of
the date of this Annual Report on Form 10-K. According to Moodys, obligations rated A are
considered upper medium grade and are subject to low credit risk. Invescos rating of A3 is at the
low end of the A range (A1, A2, A3), but three notches above the lowest investment grade rating of
Baa3. Standard and Poors rating of BBB+ is at the upper end of the BBB rating, with BBB-
representing Standard and Poors lowest investment grade rating. According to Standard and Poors,
BBB obligations exhibit adequate protection parameters; however, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its
financial commitments. We believe that rating agency concerns include but are not limited to: our
ability to sustain net positive asset flows across customer channels, product type and geographies,
our level of indebtedness, our risk appetite and approach to risk management, our ability to
maintain consistent positive investment performance, the profitability of our business under a
sustained downturn scenario, and integration risk related to the pending acquisition of Morgan
Stanleys retail asset management business. Additionally, the rating agencies could decide to
downgrade the entire asset management industry, based on their perspective of future growth and
solvency. Material deterioration of these factors, and others defined by each rating agency, could
result in downgrades to our credit ratings, thereby limiting our ability to generate additional
financing. Our credit facility borrowing rates are tied to our credit ratings. However, management
believes that solid investment grade ratings are an important factor in winning and maintaining
institutional business and strives to manage the company to maintain such ratings. Disclosure of
these ratings is not a recommendation to buy, sell or hold our debt. These credit ratings may be
subject to revision or withdrawal at anytime by Moodys or Standard & Poors. Each rating should be
evaluated independently.
The discussion that follows identifies risks associated with the companys liquidity and
capital resources. The Executive Overview of this Managements Discussion and Analysis of Financial
Condition and Results of Operations contains a broader discussion of the companys overall approach
to risk management.
Credit and Liquidity Risk
Capital management involves the management of the companys liquidity and cash flows. The
company manages its capital by reviewing annual and projected cash flow forecasts and by monitoring
credit, liquidity and market risks, such as interest rate and foreign currency risks (as discussed
in Item 7A, Quantitative and Qualitative Disclosures About Market Risk), through measurement and
analysis. The company is primarily exposed to credit risk through its cash and cash equivalent
deposits, which are held by external
48
firms. The company invests its cash balances in its own institutional money market products,
as well as with external high credit-quality financial institutions; however, we have chosen to
limit the number of firms with which we invest. These arrangements create exposure to
concentrations of credit risk.
Credit Risk
Credit risk is the risk that one party to a financial instrument will cause a financial loss
for the other party by failing to discharge an obligation. The company is subject to credit risk in
the following areas of its business:
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|
|
All cash and cash equivalent balances are subject to credit risk, as they represent
deposits made by the company with external banks and other institutions. As of December
31, 2009, our maximum exposure to credit risk related to our cash and cash equivalent
balances is $762.0 million. Cash and cash equivalents invested in affiliated money market
funds (related parties) totaled $465.1 million at December 31, 2009. |
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|
|
Certain trust subsidiaries of the company accept deposits and place deposits with
other institutions on behalf of our customers. As of December 31, 2009, our maximum
exposure to credit risk related to these transactions is $0.8 million. |
The company does not utilize credit derivatives or similar instruments to mitigate the maximum
exposure to credit risk. The company does not expect any counterparties to its financial
instruments to fail to meet their obligations.
Liquidity Risk
Liquidity risk is the risk that the company will encounter difficulty in meeting obligations
associated with its financial liabilities. The company is exposed to liquidity risk through its
$745.7 million in total debt. The company actively manages liquidity risk by preparing cash flow
forecasts for future periods, reviewing them regularly with senior management, maintaining a
committed credit facility, scheduling significant gaps between major debt maturities and engaging
external financing sources in regular dialog.
Effects of Inflation
Inflation can impact our organization primarily in two ways. First, inflationary pressures can
result in increases in our cost structure, especially to the extent that large expense components
such as compensation are impacted. To the degree that these expense increases are not recoverable
or cannot be counterbalanced through pricing increases due to the competitive environment, our
profitability could be negatively impacted. Secondly, the value of the assets that we manage may be
negatively impacted when inflationary expectations result in a rising interest rate environment.
Declines in the values of these AUM could lead to reduced revenues as management fees are generally
calculated based upon the size of AUM.
Off Balance Sheet Commitments
The company transacts with various private equity, real estate and other investment entities
sponsored by the company for the investment of client assets in the normal course of business.
Certain of these investments are considered to be variable interest entities of which the company
is the primary beneficiary and certain of these investments are limited partnerships for which the
company is the general partner and is deemed to have control (with the absence of substantive
kick-out, liquidation or participation rights of the other limited partners) and are consolidated
into the companys financial statements under a voting interest entity model (see Item 8,
Financial Statements and Supplementary Data Note 16, Consolidated Investment Products and
Note 1, Accounting Policies for additional information on consolidated and unconsolidated
investment products).
Many of the companys investment products are structured as limited partnerships. Our
investment may take the form of the general partner or as a limited partner, and the entities are
structured such that each partner makes capital commitments that are to be drawn down over the life
of the partnership as investment opportunities are identified. At December 31, 2009, our undrawn
capital commitments were $77.6 million (2008: $36.5 million).
The volatility and valuation dislocations that occurred from 2007 to 2009 in certain sectors
of the fixed income market have generated pricing issues in many areas of the market. As a result
of these valuation dislocations, 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 accredited investors. In December 2009, the agreements were amended to
extend the term through June 30, 2010. As of December 31, 2009, the committed
49
support under these agreements was $51.0 million with an internal approval mechanism to
increase the maximum possible support to $66.0 million at the option of the company. The recorded
fair value of the guarantees related to these agreements at December 31, 2009, was estimated to be
$2.5 million (December 31, 2008: $5.5 million), which was recorded in other current liabilities on
the Consolidated Balance Sheets. No payments have been made under either agreement nor has Invesco
realized any losses 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. As of the date
of this Report, the committed support under these agreements was $36.0 million.
Contractual Obligations
We have various financial obligations that require future cash payments. The following table
outlines the timing of payment requirements related to our commitments as of December 31, 2009:
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$ in millions |
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Total(4)(5) |
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Within 1
Year |
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1-3
Years |
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3-5
Years |
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More Than
5 Years |
Total debt |
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|
745.7 |
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215.1 |
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530.6 |
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|
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Estimated interest payments on total debt(1) |
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136.9 |
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40.6 |
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|
|
72.7 |
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23.6 |
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Finance leases |
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0.1 |
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|
0.1 |
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Operating leases(2) |
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593.4 |
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|
|
61.1 |
|
|
|
110.7 |
|
|
|
100.7 |
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|
|
320.9 |
|
Defined benefit pension and postretirement medical obligations(3) |
|
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378.7 |
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8.5 |
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19.4 |
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22.2 |
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328.6 |
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Total |
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1,854.8 |
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110.3 |
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|
|
417.9 |
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|
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677.1 |
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649.5 |
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(1) |
|
Total debt includes $745.7 million of fixed rate debt. Fixed interest
payments are therefore reflected in the table above in the periods
they are due. The credit facility, $500.0 million at December 31,
2009, provides for borrowings of various maturities. Interest is
payable based upon LIBOR, Prime, Federal Funds or other bank-provided
rates in existence at the time of each borrowing. |
|
(2) |
|
Operating leases reflect obligations for leased building space and
sponsorship and naming rights agreements. See Item 8, Financial
Statements and Supplementary Data Note 18, Operating Leases for
sublease information. |
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(3) |
|
The defined benefit obligation of $378.7 million is comprised of
$330.2 million related to pension plans and $48.5 million related to a
postretirement medical plan. The fair value of plan assets at December
31, 2009, was $262.9 million for the retirement plan and $7.3 million
for the medical plan. See Item 8, Financial Statements and
Supplementary Data Note 19, Retirement Benefit Plans for detailed
benefit pension and postretirement plan information. |
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(4) |
|
Other contingent payments at December 31, 2009, include $500.0 million
related to the PowerShares acquisition and $110.0 million related to
the WL Ross & Co. acquisition, which are excluded until such time as
they are probable and reasonably estimable. |
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(5) |
|
Due to the uncertainty with respect to the timing of future cash flows
associated with unrecognized tax benefits at December 31, 2009, the
company is unable to make reasonably reliable estimates of the period
of cash settlement with the respective taxing authorities. Therefore,
$39.0 million of gross unrecognized tax benefits have been excluded
from the contractual obligations table above. See Item 8, Financial
Statements and Supplementary Data, Note 14 Taxation for a
discussion on income taxes. |
50
Critical Accounting Policies and Estimates
Our significant accounting policies are disclosed in Item 8, Financial Statements and
Supplementary Data Note 1, Accounting Policies to our Consolidated Financial Statements. The
accounting policies and estimates that we believe are the most critical to an understanding of our
results of operations and financial condition are those that require complex management judgment
regarding matters that are highly uncertain at the time policies were applied and estimates were
made. These accounting policies and estimates are discussed below. Different estimates reasonably
could have been used in the current period that would have had a material effect on these financial
statements, and changes in these estimates are likely to occur from period-to-period in the future.
Share-Based Compensation. We have issued equity-settled share-based awards to certain
employees, which are measured at fair value at the date of grant. These awards consist of
restricted share awards (RSAs), restricted share units (RSUs) and share option awards. Time-vested
awards vest ratably over or cliff-vest at the end of a period of continued employee service.
Performance-vested awards cliff-vest at the end of a defined vesting period of continued employee
service upon the companys attainment of certain performance criteria, generally the attainment of
cumulative EPS growth targets at the end of the vesting period reflecting a compound annual growth
rate of between 10.0% and 15.0% per annum during a three-year period. Time-vested and
performance-vested share awards are granted in the form of RSAs or RSUs. Dividends accrue directly
to the employee holder of RSAs, and cash payments in lieu of dividends are made to employee holders
of certain RSUs. There is therefore no discount to the fair value of these share awards at their
grant date.
The fair value of these awards is determined at the grant date and 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 forfeiture rate applied to most grants is 5% per annum, based upon our
historical experience with respect to employee turnover. Fair value for RSAs and RSUs representing
equity interests identical to those associated with shares traded in the open market are determined
using the market price at the time of grant. Fair value is measured by use of the Black Scholes
valuation model for certain RSUs that do not include dividend rights and a stochastic model (a
lattice-based model) for share option awards. The expected life of share-based payment awards used
in these models is adjusted, based on managements best estimate, for the effects of
non-transferability, exercise restrictions, and behavioral considerations.
Changes in the assumptions used in the stochastic valuation model for share option awards, as
well as changes in the companys estimates of vesting (including the companys evaluation of
performance conditions associated with certain share-based payment awards and assumptions used in
determining award lapse rates) could have a material impact on the share-based payment charge
recorded in each year. There have been no grants of share options since 2005.
The table below is a summary, as of December 31, 2009, of equity-settled share-based
compensation awards outstanding under the companys share-based compensation programs. Details
relating to each program are included in Item 8, Financial Statements and Supplementary Data
Note 17, Share-Based Compensation.
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Awards Outstanding |
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Vesting During The Years Ended December 31, |
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Total |
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2010 |
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2011 |
|
2012 |
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2013 |
|
2014 |
Millions of shares |
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Time-vested |
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17.0 |
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4.9 |
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7.3 |
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2.3 |
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2.4 |
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|
|
0.1 |
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Performance-vested |
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2.0 |
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|
1.7 |
* |
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|
0.3 |
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Share Awards* |
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19.0 |
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6.6 |
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7.6 |
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2.3 |
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2.4 |
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0.1 |
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* |
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Included in these share awards are 1.4 million awards which lapsed in
January 2010, as it was determined that the performance conditions had
not been achieved. |
Other Compensation Arrangements. We offer certain performance-based cash awards to many of our
employees that are based upon purely discretionary determinations or, alternatively, certain
formulaic compensation arrangements. The formulaic arrangements require that we monitor on an
ongoing basis whether or not pre-established metrics are expected to be met in order to properly
record the related expense amounts. Because many of the metrics relate to matters that are highly
uncertain or susceptible to change, our estimates may not accurately reflect the ultimate outcomes
that will be achieved, and associated expense that should be recognized, with respect to these
compensation arrangements.
51
Taxation. We operate in several countries and several states through our various subsidiaries,
and must allocate our income, expenses, and earnings under the various laws and regulations of each
of these taxing jurisdictions. Accordingly, our provision for income taxes represents our total
estimate of the liability that we have incurred for doing business each year in all of our
locations. Annually we file tax returns that represent our filing positions within each
jurisdiction and settle our return liabilities. Each jurisdiction has the right to audit those
returns and may take different positions with respect to income and expense allocations and taxable
earnings determinations. Because the determinations of our annual provisions are subject to
judgments and estimates, it is possible that actual results will vary from those recognized in our
financial statements. As a result, it is likely that additions to, or reductions of, income tax
expense will occur each year for prior reporting periods as actual tax returns and tax audits are
settled.
Deferred tax assets and liabilities are recorded for temporary differences between the tax
basis of assets and liabilities and the reported amounts in the Consolidated Financial Statements,
using the statutory tax rates in effect for the year in which the differences are expected to
reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized
in the results of operations in the period that includes the enactment date. A valuation allowance
is recorded to reduce the carrying amounts of deferred tax assets to the amount that is more likely
than not to be realized.
As a multinational corporation, the company operates in various locations around the world and
we generate substantially all of our earnings from our subsidiaries. Under ASC 740-30, deferred tax
liabilities are recognized for taxes that would be payable on the unremitted earnings of the
companys subsidiaries, consolidated investment products, and joint ventures, except where it is
our intention to and we continue to indefinitely reinvest the undistributed earnings. Our Canadian
and U.S. subsidiaries continue to be directly owned by Invesco Holding Company Limited (formerly
INVESCO PLC, our predecessor company), which is directly owned by Invesco Ltd. Our Canadian
unremitted earnings, for which we are indefinitely reinvested, are estimated to be $1,016 million
at December 31, 2009, compared with $953 million at December 31, 2008. If distributed as a
dividend, Canadian withholding tax of 5.0% would be due. Dividends from our investment in the U.S.
should not give rise to additional tax as we are not subject to withholding tax between the U.S.
and U.K. Deferred tax liabilities in the amount of $2.3 million (2008: $8.9 million) for additional
tax have been recognized for unremitted earnings of certain subsidiaries that have regularly
remitted earnings and are expected to continue to remit earnings in the foreseeable future. There
is no additional tax on dividends from the U.K. to Bermuda.
Net deferred tax assets have been recognized in the U.S., U.K., and Canada based on
managements belief that taxable income of the appropriate character, more likely than not, will be
sufficient to realize the benefits of these assets over time. In the event that actual results
differ from our expectations, or if our historical trends of positive operating income in any of
these locations changes, we may be required to record a valuation allowance on deferred tax assets,
which may have a significant effect on our financial condition and results of operations.
The company utilizes a specific recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or expected to be taken in
a tax return. The prescribed two-step process for evaluating a tax position involves first
determining whether it is more likely than not that a tax position will be sustained upon
examination by the appropriate taxing authorities. If it is, the second step then requires a
company to measure this tax position benefit as the largest amount of benefit that is greater than
50 percent likely of being realized upon ultimate settlement. The company recognizes any interest
and penalties related to unrecognized tax benefits on the Consolidated Statements of Income as
components of income tax expense.
Goodwill. Goodwill represents the excess of the cost of an acquired entity over the net of the
amounts assigned to assets acquired and liabilities assumed and is recorded in the functional
currency of the acquired entity. Goodwill is tested for impairment at the single reporting unit
level on an annual basis, or more often if events or circumstances indicate that impairment may
exist. If the carrying amount of the reporting unit exceeds its fair value (the first step of the
goodwill impairment test), then the second step is performed to determine if goodwill is impaired
and to measure the amount of the impairment loss, if any. The second step of the goodwill
impairment test compares the implied fair value of goodwill with the carrying amount of goodwill.
If the carrying amount of goodwill exceeds the implied fair value of goodwill, an impairment loss
is recognized in an amount equal to that excess.
We have determined that we have one reportable segment. The company evaluated the components
of its business and has determined that it has one reporting unit for purposes of goodwill
impairment testing. The companys components, business units one level below the operating segment
level, include Invesco Worldwide Institutional, Invesco North American Retail, Invesco Perpetual,
Invesco Continental Europe and Invesco Asia Pacific. None of the companys components are
considered individual reporting units as complete operating results are not available for each
separate component. The companys operating segment represents one reporting unit because all of
the components are similar due to the common nature of products and services offered, type of
clients, methods of
52
distribution, regulatory environments, manner in which each component is operated, extent to
which they share assets and resources, and the extent to which they support and benefit from common
product development efforts.
The principal method of determining fair value of the reporting unit is an income approach
where future cash flows are discounted to arrive at a single present value amount. The discount
rate used is derived based on the time value of money and the risk profile of the stream of future
cash flows. Recent results and projections based on expectation regarding revenues, expenses,
capital expenditures and acquisition earn out payments produce a present value for the reporting
unit. While the company believes all assumptions utilized in our assessment are reasonable and
appropriate, changes in these estimates could produce different fair value amounts and therefore
different goodwill impairment assessments. The most sensitive of these assumptions are the
estimated cash flows and the use of a weighted average cost of capital as the discount rate to
determine present value. The present value produced for the reporting unit is the fair value of the
reporting unit. This amount is reconciled to the companys market capitalization to determine an
implied control premium, which is compared to an analysis of historical control premiums
experienced by peer companies over a long period of time to assess the reasonableness of the fair
value of the reporting unit.
The company also utilizes a market approach to provide a secondary and corroborative fair
value of the reporting unit by using comparable company and transaction multiples to estimate
values for our single reporting unit. Discretion and judgment is required in determining whether
the transaction data available represents information for companies of comparable nature, scope and
size. The results of the secondary market approach to provide a fair value estimate are not
combined or weighted with the results of the income approach described above but are used to
provide an additional basis to determine the reasonableness of the income approach fair value
estimate.
The company cannot predict the occurrence of future events that might adversely affect the
reported value of goodwill that totaled $6,467.6 million and $5,966.8 million at December 31, 2009,
and December 31, 2008, respectively. Such events include, but are not limited to, strategic
decisions made in response to economic and competitive conditions, the impact of the economic
environment on the companys assets under management, or any other material negative change in
assets under management and related management fees. The companys annual goodwill impairment
review is performed as of October 1 of each year. As a result of that analysis, the company
determined that no impairment existed at that date. Our goodwill impairment testing conducted
during 2009 and 2008 indicated that the fair value of the reporting unit exceeded its carrying
value, indicating that step two of the goodwill impairment test was not necessary.
Due to deteriorating market conditions, interim impairment tests were performed at October 31,
2008, and March 31, 2009, using the most recently available operating information. These interim
tests also concluded that no impairment had occurred. Following the March 31, 2009, interim test,
the general market conditions improved and the company did not identify the need for further
interim tests during 2009 as no indicators of impairment existed. The March 31, 2009, interim
impairment test adopted an income approach consistent with the annual 2008 impairment tests, but
utilized the companys updated forecasts for changes in AUM due to market gains and long-term net
flows and the corresponding changes in revenues and expenses. The primary assumption changes from
the October 31, 2008, valuation test were increases in the anticipated rise in equity markets in
the near-term and in net AUM sales. The increase in equity markets was based on an analysis of the
Dow Jones Industrial Average for 10 recession events between 1945 and 2001. The October 31, 2008,
valuation had assumed an equity market rise in-line with more normal non-recessionary experience.
The higher AUM net sales reflects new flows into the equity markets as values stabilize and
confidence returns, and also took into account the companys improved relative investment
performance. A discount rate of 13.7% was used for the March 31, 2009, test, similar to the October
31, 2008, rate of 13.6% (October 1, 2008: 11.6%). The discount rates used are estimates of the
weighted average cost of capital for the asset management sector reflecting the overall industry
risks associated with future cash flows and have been calculated consistently across the various
tests dates.
The October 1, 2009, annual goodwill impairment test was performed using a consistent methodology
to that used for the March 31, 2009, interim impairment test, with the exception that adjustments
were made to remove the near-term equity market rise assumption, since much of the market rebound
had been experienced in the period between March 31, 2009, and October 1, 2009.
A discount rate of 12.9% was used for the
October 1, 2009, analysis. A 40% decline in the fair value of our reporting unit, or a 500 basis
point increase in the discount rate assumption used during our October 1, 2009, goodwill impairment
analysis, would have caused the carrying value of our reporting unit to be in excess of its fair
value, which would require the second step to be performed. The second step could have resulted in
an impairment loss for goodwill.
Investments. Most of our investments are carried at fair value on our balance sheet with the
periodic mark-to-market recorded either in accumulated other comprehensive income in the case of
available-for-sale investments or directly to earnings in the case of trading assets. Fair value is
generally determined by reference to an active trading market, using quoted close or bid prices as
of each
53
reporting period end. When a readily ascertainable market value does not exist for an
investment (such as our collateralized loan obligations, or CLOs, discussed below) the fair value
is calculated based on the expected cash flows of its underlying net asset base, taking into
account applicable discount rates and other factors. Since assumptions are made in determining the
fair values of investments for which active markets do not exist, the actual value that may be
realized upon the sale or other disposition of these investments could differ from the current
carrying values. Fair value calculations are also required in association with our quarterly
impairment testing of investments. The accuracy of our other-than-temporary impairment assessments
is dependent upon the extent to which we are able to accurately determine fair values. Of our
$339.8 million total investments at December 31, 2009, those most susceptible to impairment include
$74.8 million seed money investments in our affiliated funds and $17.9 million invested in CLO
products. Seed money investments are investments held in Invesco managed funds with the purpose of
providing capital to the funds during their development periods. These investments are recorded at
fair value using quoted market prices in active markets; there is no modeling or additional
information needed to arrive at the fair values of these investments.
The value of investments may decline for various reasons. The market price may be affected by
general market conditions which reflect prospects for the economy as a whole or by specific
information pertaining to an industry or individual company. Such declines require further
investigation by management, which considers all available evidence to evaluate the realizable
value of the investment, including, but not limited to, the following factors:
|
|
|
The probability that the company will be unable to collect all amounts due according
to the contractual terms of a debt security not impaired at acquisition; |
|
|
|
The length of time and the extent to which the market value has been less than cost; |
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|
The financial condition and near-term prospects of the issuer, including any specific
events which may influence the operations of the issuer such as changes in technology
that may impair the earnings potential of the investment or the discontinuance of a
component of the business that may affect the future earnings potential; |
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|
|
The intent and ability of the company to retain its investment in the issuer for a
period of time sufficient to allow for any anticipated recovery in market value; |
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|
|
The decline in the securitys value due to an increase in market interest rates or a
change in foreign exchange rates since acquisition; |
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|
|
Determination that the security is not realizable; or |
|
|
|
An adverse change in estimated cash flows of a beneficial interest. |
Our other-than-temporary impairment analysis of seed money holdings includes a review of the
market returns required for each fund portfolio to enable us to recover our original investment. As
part of the review, we analyze several scenarios to project the anticipated recovery period of our
original investments based on one-, three-, and five-year historical index returns and historical
trends in the equity markets. We also analyze the absolute amount of any loss to date, the trend of
the losses, and percent declines in values of the seed money investments. Along with intent and
ability to hold, all of these scenarios are considered as part of our other-than-temporary
impairment analysis of seed money holdings.
The company provides investment management services to a number of CLOs. These entities are
investment vehicles created for the sole purpose of issuing CLO 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 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 in certain cases contingent
incentive fees. The company has invested in certain of the entities, generally taking a relatively
small portion of the unrated, junior subordinated position. At December 31, 2009, the company held
$17.9 million of investment in these CLOs (December 31, 2008: $17.5 million), which represents its
maximum risk of loss. Our investments in CLOs are generally subordinated to other interests in the
entity and entitle the investor to receive the residual cash flows, if any, from the entity. As a
result, the companys investment is sensitive to changes in the credit quality of the issuers of
the collateral securities, including changes in forecasted default rates and declines in
anticipated recovery rates. Investors in CLOs have no recourse against the company for any losses
sustained in the CLO structure.
The company has recorded its investments at fair value primarily using an income approach.
Fair value is determined using current information, notably market yields and projected cash flows
based on forecasted default and recovery rates that a market participant would use in determining
the current fair value of the equity interest. Market yields, default rates and recovery rates used
in the
54
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 carrying value, of the companys investments in these CLO entities
may be adversely affected. The current liquidity constraints within the market for CLO products
require the use of unobservable inputs for CLO valuation. The excess of actual and anticipated
future cash flows over the initial investment at the date of purchase is recognized as interest
income over the life of the investment using the effective yield method. The company reviews cash
flow estimates throughout the life of each CLO entity. Cash flow estimates are based on the
underlying pool of securities and take into account the overall credit quality of the issuers, the
forecasted default rate of the securities and the companys past experience in managing similar
securities. If the updated estimate of future cash flows (taking into account both timing and
amounts) is less than the last revised estimate, an impairment loss is recognized based on the
excess of the carrying amount of the investment over the updated estimate of future cash flows and
is recorded through the income statement.
As discussed in Item 8, Financial Statements and Supplementary Data Note 1, Accounting
Policies, the company adopted FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments (FSP FAS 115-2), now encompassed in ASC Topic 320, Investments
Debt and Equity Securities (ASC Topic 320), on April 1, 2009. As a result of FSP FAS 115-2,
credit-related impairment is recorded through the Statement of Income, and non-credit related
impairment is recorded through other comprehensive income. Upon adoption, the company recorded a
cumulative effect adjustment of $1.5 million to the April 1, 2009, opening balance of retained
earnings with a corresponding adjustment to accumulated other comprehensive income representing the
non-credit component of previously recognized other-than-temporary impairment. During the year
ended December 31, 2009, an additional $5.2 million was recorded as a charge to earnings
representing the credit-related other-than-temporary impairment
during the period, and an additional $0.3 million
was recorded as a charge to other comprehensive income from other-than-temporary impairment related
to non-credit related factors, primarily the change in discount rates during the period. An
increase or decrease in the discount rate of 1.0% would change the
discounted cash flows of the CLOs by $0.6
million as of December 31, 2009.
Consolidated Investment Products. The primary beneficiary of variable interest entities (VIEs)
consolidate the VIEs. A VIE is an entity that does not have sufficient equity to finance its
operations without additional subordinated financial support, or an entity for which the risks and
rewards of ownership are not directly linked to voting interests. Generally, limited partnership
entities where the general partner does not have substantive equity investment at risk and where
the other limited partners do not have substantive (greater than 50%) rights to remove the general
partner or to dissolve the limited partnership are also VIEs. The primary beneficiary is the party
to the VIE who absorbs a majority of the losses or retains the majority of the rewards generated by
the VIE. Additionally, certain investment products are voting interest entities (VOEs) and are
structured as limited partnerships of which the company is the general partner and is deemed to
have control with the lack of substantive kick-out, liquidation or participation rights of the
other limited partners. These investment products are also consolidated into the companys
financial statements.
Assessing if an entity is a VIE or VOE involves judgment and analysis on a
structure-by-structure basis. Factors included in this assessment include the legal organization of
the entity, the companys contractual involvement with the entity and any related party or de facto
agent implications of the companys involvement with the entity. Determining if the company is the
primary beneficiary of a VIE also requires significant judgment, as the calculation of expected
losses and residual returns involves estimation and probability assumptions. If current financial
statements are not available for consolidated VIEs or VOEs, estimation of investment valuation is
required, which includes assessing available quantitative and qualitative data. Significant changes
in these estimates could impact the reported value of the investments held by consolidated
investment products and the related offsetting equity attributable to noncontrolling interests in
consolidated entities on the Consolidated Balance Sheets and the other gains and losses of
consolidated investment products, net, and related offsetting gains and losses attributable to
noncontrolling interests in consolidated entities, net, amounts on the Consolidated Statements of
Income. As of December 31, 2009, the company consolidated VIEs that held investments of $67.9
million (December 31, 2008: $141.9 million) and VOEs that held investments of $617.1 million
(December 31, 2008: $701.9 million). As circumstances supporting estimates and factors change, the
determination of VIE and primary beneficiary status may change, as could the determination of the
necessity to consolidate VOEs.
Contingencies. Contingencies arise when we have a present obligation (legal or constructive)
as a result of a past event that is both probable and reasonably estimable. We must from time to
time make material estimates with respect to legal and other contingencies. The nature of our
business requires compliance with various state and federal statutes and exposes us to a variety of
legal proceedings and matters in the ordinary course of business. While the outcomes of matters
such as these are inherently uncertain and difficult to predict, we maintain reserves reflected in
other current and other non-current liabilities, as appropriate, for identified losses that are, in
our judgment, probable and reasonably estimable. Managements judgment is based on the advice of
legal counsel, ruling on various motions by the applicable court, review of the outcome of similar
matters, if applicable, and review of guidance from state or federal agencies, if applicable.
Contingent consideration payable in relation to a business acquisition is recorded as of the
acquisition date as part of the fair value transferred in exchange for the acquired business.
55
Recent Accounting Developments
See Item 8, Financial Statements and Supplementary Data Note 1, Accounting Policies
Accounting Pronouncements Recently Adopted and Recent Accounting Pronouncements Not Yet Adopted.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
In the normal course of its business, the company is primarily exposed to market risk in the
form of securities market risk, interest rate risk, and foreign exchange rate risk.
AUM Market Price Risk
The companys investment management revenues are comprised of fees based on a percentage of
the value of AUM. Declines in equity or fixed income security market prices could cause revenues to
decline because of lower investment management fees by:
|
|
|
Causing the value of AUM to decrease. |
|
|
|
Causing the returns realized on AUM to decrease (impacting performance fees). |
|
|
|
Causing clients to withdraw funds in favor of investments in markets that they
perceive to offer greater opportunity and that the company does not serve. |
|
|
|
Causing clients to rebalance assets away from investments that the company manages
into investments that the company does not manage. |
|
|
|
Causing clients to reallocate assets away from products that earn higher revenues into
products that earn lower revenues. |
Underperformance of client accounts relative to competing products could exacerbate these
factors.
Securities Market Risk
The company has investments in sponsored investment products that invest in a variety of asset
classes. Investments are generally made to establish a track record or to economically hedge
exposure to certain deferred compensation plans. The companys exposure to market risk arises from
its investments. The following table summarizes the fair values of the investments exposed to
market risk and provides a sensitivity analysis of the estimated fair values of those investments,
assuming a 20% increase or decrease in fair values:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
Fair Value |
|
|
Carrying |
|
assuming 20% |
|
assuming 20% |
$ in millions |
|
Value |
|
increase |
|
decrease |
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
Trading investments: |
|
|
|
|
|
|
|
|
|
|
|
|
Investments related to deferred compensation plans |
|
|
84.6 |
|
|
|
101.5 |
|
|
|
67.7 |
|
Available-for-sale investments: |
|
|
|
|
|
|
|
|
|
|
|
|
Seed money in affiliated funds |
|
|
74.8 |
|
|
|
89.8 |
|
|
|
59.8 |
|
Equity method investments |
|
|
134.7 |
|
|
|
161.6 |
|
|
|
107.8 |
|
Other |
|
|
5.3 |
|
|
|
6.4 |
|
|
|
4.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total market risk on investments |
|
|
299.4 |
|
|
|
359.3 |
|
|
|
239.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
Fair Value |
|
|
Carrying |
|
assuming 20% |
|
assuming 20% |
$ in millions |
|
Value |
|
increase |
|
decrease |
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Trading investments: |
|
|
|
|
|
|
|
|
|
|
|
|
Investments related to deferred compensation plans |
|
|
35.5 |
|
|
|
42.6 |
|
|
|
28.4 |
|
Other |
|
|
0.7 |
|
|
|
0.8 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading investments |
|
|
36.2 |
|
|
|
43.4 |
|
|
|
29.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale investments: |
|
|
|
|
|
|
|
|
|
|
|
|
Seed money in affiliated funds |
|
|
69.1 |
|
|
|
82.9 |
|
|
|
55.3 |
|
Other |
|
|
8.5 |
|
|
|
10.2 |
|
|
|
6.8 |
|
Equity method investments |
|
|
95.3 |
|
|
|
114.4 |
|
|
|
76.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total market risk on investments |
|
|
209.1 |
|
|
|
250.9 |
|
|
|
167.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Risk
Interest rate risk relates to the risk that the fair value of future cash flows of a financial
instrument will fluctuate because of changes in market interest rates. The company is exposed to
interest rate risk primarily through its external debt and cash and cash equivalent investments. On
December 31, 2009, the interest rates on 100% of the companys borrowings were fixed for a weighted
average period of 3.4 years. Borrowings under the credit facility will have floating interest
rates. The interest rate profile of the financial assets of the company on December 31, 2009, was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
Fair Value |
|
|
|
|
|
|
assuming a |
|
assuming a |
|
|
Carrying |
|
+1% interest |
|
-1% interest |
$ in millions |
|
Value |
|
rate change |
|
rate change |
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale investments: |
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized loan obligations |
|
|
17.9 |
|
|
|
18.5 |
|
|
|
17.3 |
|
Foreign time deposits |
|
|
22.5 |
|
|
|
22.6 |
|
|
|
22.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments |
|
|
40.4 |
|
|
|
41.1 |
|
|
|
39.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale investments: |
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized loan obligations |
|
|
17.5 |
|
|
|
17.0 |
|
|
|
18.0 |
|
Foreign time deposits |
|
|
17.3 |
|
|
|
17.2 |
|
|
|
17.3 |
|
Other |
|
|
1.0 |
|
|
|
1.0 |
|
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments |
|
|
35.8 |
|
|
|
35.2 |
|
|
|
36.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The interest rate profile of the financial liabilities of the company on December 31 was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
Weighted Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
Period for Which |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
Rate is Fixed |
$ in millions |
|
Total |
|
Floating Rate |
|
Fixed Rate* |
|
Rate (%) |
|
(Years) |
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. dollar |
|
|
745.7 |
|
|
|
|
|
|
|
745.7 |
|
|
|
5.1 |
% |
|
|
3.4 |
|
Japanese yen |
|
|
0.1 |
|
|
|
|
|
|
|
0.1 |
|
|
|
9.7 |
% |
|
|
1.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
745.8 |
|
|
|
|
|
|
|
745.8 |
|
|
|
5.1 |
% |
|
|
3.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. dollar |
|
|
1,159.2 |
|
|
|
12.0 |
|
|
|
1,147.2 |
|
|
|
4.9 |
% |
|
|
3.4 |
|
Japanese yen |
|
|
0.3 |
|
|
|
|
|
|
|
0.3 |
|
|
|
9.1 |
% |
|
|
2.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,159.5 |
|
|
|
12.0 |
|
|
|
1,147.5 |
|
|
|
4.9 |
% |
|
|
3.4 |
|
|
|
|
* |
|
Measured at amortized cost. |
57
See Item 8, Financial Statements and Supplementary Data Note 9, Debt for additional
disclosures relating to the U.S. dollar floating and fixed rate obligations.
The companys only fixed interest financial assets at December 31, 2009, are foreign time
deposit investments of $22.5 million (2008: $17.3 million). The weighted average interest rate on
these investments is 0.74% (2008: 2.08%) and the weighted average time for which the rate is fixed
is 0.4 years (2008: 0.4 years).
Foreign Exchange Rate Risk
The company has transactional currency exposures that occur when any of the companys
subsidiaries receives or pays cash in a currency different from its functional currency. Such
exposure arises from sales or purchases by an operating unit in currencies other than the units
functional currency. These exposures are not actively managed.
The company also has certain investments in foreign operations, whose net assets and results
of operations are exposed to foreign currency translation risk when translated into U.S. dollars
upon consolidation into Invesco Ltd. The company does not hedge these exposures.
The company is exposed to foreign exchange revaluation into the income statement on monetary
assets and liabilities that are held by subsidiaries in different functional currencies than the
subsidiaries functional currencies. Net foreign exchange revaluation gains were $7.6 million in
2009 (2008: loss of $10.7 million), and are included in general and administrative expenses and
other gains and losses, net on the Consolidated Statements of Income. We continue to monitor our
exposure to foreign exchange revaluation.
58
Supplementary Quarterly Financial Data
The following is selected unaudited consolidated data for Invesco Ltd. for the quarters ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in millions, except per share data |
|
Q409 |
|
|
Q309 |
|
|
Q209 |
|
|
Q109 |
|
|
Q408 |
|
|
Q308 |
|
|
Q208 |
|
|
Q108 |
|
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment management fees |
|
$ |
611.8 |
|
|
$ |
570.3 |
|
|
$ |
501.6 |
|
|
$ |
436.5 |
|
|
$ |
478.5 |
|
|
$ |
664.9 |
|
|
$ |
736.8 |
|
|
$ |
737.6 |
|
Service and distribution fees |
|
|
111.4 |
|
|
|
111.8 |
|
|
|
100.4 |
|
|
|
89.0 |
|
|
|
101.4 |
|
|
|
129.4 |
|
|
|
143.3 |
|
|
|
138.4 |
|
Performance fees |
|
|
6.8 |
|
|
|
4.3 |
|
|
|
8.0 |
|
|
|
10.9 |
|
|
|
23.8 |
|
|
|
18.1 |
|
|
|
22.2 |
|
|
|
11.0 |
|
Other |
|
|
17.8 |
|
|
|
19.4 |
|
|
|
15.1 |
|
|
|
12.2 |
|
|
|
30.7 |
|
|
|
14.8 |
|
|
|
33.3 |
|
|
|
23.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
747.8 |
|
|
|
705.8 |
|
|
|
625.1 |
|
|
|
548.6 |
|
|
|
634.4 |
|
|
|
827.2 |
|
|
|
935.6 |
|
|
|
910.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation |
|
|
247.1 |
|
|
|
238.9 |
|
|
|
229.0 |
|
|
|
235.8 |
|
|
|
236.0 |
|
|
|
264.1 |
|
|
|
282.9 |
|
|
|
272.8 |
|
Third-party distribution, service
and advisory |
|
|
195.4 |
|
|
|
183.5 |
|
|
|
166.3 |
|
|
|
148.2 |
|
|
|
162.6 |
|
|
|
220.9 |
|
|
|
244.9 |
|
|
|
247.1 |
|
Marketing |
|
|
30.4 |
|
|
|
27.7 |
|
|
|
23.9 |
|
|
|
26.9 |
|
|
|
31.3 |
|
|
|
34.8 |
|
|
|
38.2 |
|
|
|
43.9 |
|
Property, office and technology |
|
|
54.8 |
|
|
|
63.0 |
|
|
|
48.6 |
|
|
|
45.9 |
|
|
|
58.0 |
|
|
|
50.5 |
|
|
|
55.7 |
|
|
|
50.1 |
|
General and administrative |
|
|
49.8 |
|
|
|
40.0 |
|
|
|
46.9 |
|
|
|
30.0 |
|
|
|
62.0 |
|
|
|
61.7 |
|
|
|
73.9 |
|
|
|
68.4 |
|
Transaction and integration |
|
|
9.8 |
|
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
587.3 |
|
|
|
554.2 |
|
|
|
514.7 |
|
|
|
486.8 |
|
|
|
549.9 |
|
|
|
632.0 |
|
|
|
695.6 |
|
|
|
682.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
|
160.5 |
|
|
|
151.6 |
|
|
|
110.4 |
|
|
|
61.8 |
|
|
|
84.5 |
|
|
|
195.2 |
|
|
|
240.0 |
|
|
|
228.1 |
|
Other income/(expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of unconsolidated
affiliates |
|
|
9.1 |
|
|
|
7.9 |
|
|
|
7.5 |
|
|
|
2.5 |
|
|
|
11.3 |
|
|
|
8.0 |
|
|
|
9.6 |
|
|
|
17.9 |
|
Interest income |
|
|
2.1 |
|
|
|
1.7 |
|
|
|
1.2 |
|
|
|
4.8 |
|
|
|
7.2 |
|
|
|
8.0 |
|
|
|
10.5 |
|
|
|
11.5 |
|
Gains/(losses) of consolidated
investment products, net |
|
|
25.9 |
|
|
|
2.1 |
|
|
|
(48.4 |
) |
|
|
(86.5 |
) |
|
|
(56.8 |
) |
|
|
2.8 |
|
|
|
40.3 |
|
|
|
(44.3 |
) |
Interest expense |
|
|
(15.2 |
) |
|
|
(16.9 |
) |
|
|
(16.5 |
) |
|
|
(15.9 |
) |
|
|
(17.8 |
) |
|
|
(18.3 |
) |
|
|
(19.3 |
) |
|
|
(21.5 |
) |
Other gains and losses, net |
|
|
|
|
|
|
2.0 |
|
|
|
10.0 |
|
|
|
(4.2 |
) |
|
|
(21.9 |
) |
|
|
(10.4 |
) |
|
|
(1.1 |
) |
|
|
(6.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before income taxes,
including gains and losses attributable
to noncontrolling interests |
|
|
182.4 |
|
|
|
148.4 |
|
|
|
64.2 |
|
|
|
(37.5 |
) |
|
|
6.5 |
|
|
|
185.3 |
|
|
|
280.0 |
|
|
|
185.2 |
|
Income tax provision |
|
|
(48.2 |
) |
|
|
(43.7 |
) |
|
|
(36.0 |
) |
|
|
(20.3 |
) |
|
|
(35.8 |
) |
|
|
(49.2 |
) |
|
|
(77.2 |
) |
|
|
(73.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss), including gains and
losses attributable to noncontrolling
interests |
|
|
134.2 |
|
|
|
104.7 |
|
|
|
28.2 |
|
|
|
(57.8 |
) |
|
|
(29.3 |
) |
|
|
136.1 |
|
|
|
202.8 |
|
|
|
111.4 |
|
(Gains)/losses attributable to
noncontrolling interests in
consolidated entities, net |
|
|
(23.3 |
) |
|
|
0.5 |
|
|
|
47.5 |
|
|
|
88.5 |
|
|
|
61.2 |
|
|
|
(4.3 |
) |
|
|
(40.0 |
) |
|
|
43.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common
shareholders |
|
$ |
110.9 |
|
|
$ |
105.2 |
|
|
$ |
75.7 |
|
|
$ |
30.7 |
|
|
$ |
31.9 |
|
|
$ |
131.8 |
|
|
$ |
162.8 |
|
|
$ |
155.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share*: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
basic |
|
$ |
0.26 |
|
|
$ |
0.24 |
|
|
$ |
0.18 |
|
|
$ |
0.08 |
|
|
$ |
0.08 |
|
|
$ |
0.34 |
|
|
$ |
0.42 |
|
|
$ |
0.40 |
|
diluted |
|
$ |
0.25 |
|
|
$ |
0.24 |
|
|
$ |
0.18 |
|
|
$ |
0.08 |
|
|
$ |
0.08 |
|
|
$ |
0.33 |
|
|
$ |
0.41 |
|
|
$ |
0.39 |
|
Average shares outstanding*: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
basic |
|
|
434.1 |
|
|
|
431.6 |
|
|
|
410.6 |
|
|
|
394.1 |
|
|
|
386.3 |
|
|
|
388.4 |
|
|
|
390.1 |
|
|
|
390.0 |
|
diluted |
|
|
440.1 |
|
|
|
437.7 |
|
|
|
416.8 |
|
|
|
399.9 |
|
|
|
394.8 |
|
|
|
399.3 |
|
|
|
400.7 |
|
|
|
400.8 |
|
Dividends declared per share*: |
|
$ |
0.1025 |
|
|
$ |
0.1025 |
|
|
$ |
0.1025 |
|
|
$ |
0.10 |
|
|
$ |
0.10 |
|
|
$ |
0.10 |
|
|
$ |
0.10 |
|
|
$ |
0.22 |
|
|
|
|
* |
|
Dividends declared represent amounts declared in the current quarter
in respect of the prior quarter, with the exception of the $0.22 per
share dividend declared in the first quarter of 2008. This dividend
was attributable to the second half of 2007 and was declared when the
company formerly declared semi-annual dividends. The sum of the
quarterly earnings per share amounts may differ from the annual
earnings per share amounts due to the required method of computing the
weighted average number of shares in interim periods. |
59
|
|
|
Item 8. |
|
Financial Statements and Supplementary Data |
Index to Financial Statements and Supplementary Data
|
|
|
|
|
|
|
|
61 |
|
|
|
|
61 |
|
|
|
|
62 |
|
|
|
|
63 |
|
|
|
|
64 |
|
|
|
|
65 |
|
|
|
|
66 |
|
|
|
|
67 |
|
|
|
|
68 |
|
60
Annual Report of Management on Internal Control over Financial Reporting
Management of the company is responsible for establishing and maintaining adequate internal
control over financial reporting, as defined in the Securities Exchange Act of 1934, Rules 13a-15(f)
and 15d-15(f). The companys internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting
principles. Because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of the chief executive officer and chief
financial officer, management assessed the effectiveness of our internal control over financial
reporting as of December 31, 2009. In making this assessment, management used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control Integrated Framework. Based on this assessment, management concluded that our internal
control over financial reporting was effective as of December 31, 2009.
The companys independent auditors, Ernst & Young LLP, have issued an audit report on the
effectiveness of our internal control over financial reporting, which is included herein.
Changes in Internal Control over Financial Reporting
There were no changes in the companys internal control over financial reporting during the
fourth quarter of 2009 that have materially affected, or are reasonably likely to materially affect,
the companys internal control over financial reporting.
61
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Invesco Ltd.
We have audited the accompanying consolidated balance sheets of Invesco Ltd. (the Company) as
of December 31, 2009 and 2008, and the related consolidated statements of income, shareholders
equity, and cash flows for each of the three years in the period ended December 31, 2009. These
financial statements are the responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Invesco Ltd. at December 31, 2009 and 2008, and
the consolidated results of its operations and its cash flows for each of the three years in the
period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Invesco Ltd.s internal control over financial reporting as of
December 31, 2009, based on criteria established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February
26, 2010 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Atlanta, Georgia
February 26, 2010
62
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Invesco Ltd.
We have audited Invesco Ltd.s internal control over financial reporting as of December 31,
2009, based on criteria established in Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Invesco
Ltd.s management is responsible for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over financial reporting
included in the accompanying Report of Management on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the companys internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles. A companys internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the companys assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Invesco Ltd. maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2009, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Invesco Ltd. as of December 31,
2009 and 2008, and the related consolidated statements of income, shareholders equity, and cash
flows for each of the three years in the period ended December 31, 2009, of Invesco Ltd. and our
report dated February 26, 2010 expressed an unqualified opinion thereon.
/s / Ernst & Young LLP
Atlanta, Georgia
February 26, 2010
63
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
December 31, |
|
December 31, |
$ in millions |
|
2009 |
|
2008 |
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
762.0 |
|
|
|
585.2 |
|
Cash and cash equivalents of consolidated investment products |
|
|
28.0 |
|
|
|
73.0 |
|
Unsettled fund receivables |
|
|
383.1 |
|
|
|
303.7 |
|
Accounts receivable |
|
|
289.3 |
|
|
|
239.3 |
|
Investments |
|
|
182.4 |
|
|
|
123.6 |
|
Prepaid assets |
|
|
57.6 |
|
|
|
55.6 |
|
Other current assets |
|
|
77.9 |
|
|
|
67.3 |
|
Deferred tax asset, net |
|
|
57.7 |
|
|
|
86.1 |
|
Assets held for policyholders |
|
|
1,283.0 |
|
|
|
840.2 |
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
3,121.0 |
|
|
|
2,374.0 |
|
Non-current assets: |
|
|
|
|
|
|
|
|
Investments |
|
|
157.4 |
|
|
|
121.3 |
|
Investments of consolidated investment products |
|
|
685.0 |
|
|
|
843.8 |
|
Prepaid assets |
|
|
16.2 |
|
|
|
36.3 |
|
Other non-current assets |
|
|
13.0 |
|
|
|
4.9 |
|
Deferred sales commissions |
|
|
23.8 |
|
|
|
24.5 |
|
Deferred tax asset, net |
|
|
65.8 |
|
|
|
37.2 |
|
Property and equipment, net |
|
|
220.7 |
|
|
|
205.3 |
|
Intangible assets, net |
|
|
139.1 |
|
|
|
142.8 |
|
Goodwill |
|
|
6,467.6 |
|
|
|
5,966.8 |
|
|
|
|
|
|
|
|
|
|
Total non-current assets |
|
|
7,788.6 |
|
|
|
7,382.9 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
10,909.6 |
|
|
|
9,756.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Current maturities of total debt |
|
|
|
|
|
|
297.2 |
|
Unsettled fund payables |
|
|
367.9 |
|
|
|
288.3 |
|
Income taxes payable |
|
|
82.8 |
|
|
|
37.9 |
|
Other current liabilities |
|
|
564.7 |
|
|
|
639.8 |
|
Policyholder payables |
|
|
1,283.0 |
|
|
|
840.2 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
2,298.4 |
|
|
|
2,103.4 |
|
Non-current liabilities: |
|
|
|
|
|
|
|
|
Long-term debt |
|
|
745.7 |
|
|
|
862.0 |
|
Other non-current liabilities |
|
|
244.7 |
|
|
|
195.3 |
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities |
|
|
990.4 |
|
|
|
1,057.3 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
3,288.8 |
|
|
|
3,160.7 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (See Note 20) |
|
|
|
|
|
|
|
|
Equity: |
|
|
|
|
|
|
|
|
Equity attributable to common shareholders: |
|
|
|
|
|
|
|
|
Common shares ($0.20 par value; 1,050.0 million authorized; 459.5
million and 426.6 million shares issued as of December 31, 2009, and
2008, respectively) |
|
|
91.9 |
|
|
|
85.3 |
|
Additional paid-in-capital |
|
|
5,688.4 |
|
|
|
5,352.6 |
|
Treasury shares |
|
|
(892.4 |
) |
|
|
(1,128.9 |
) |
Retained earnings |
|
|
1,631.4 |
|
|
|
1,476.3 |
|
Accumulated other comprehensive income/(loss), net of tax |
|
|
393.6 |
|
|
|
(95.8 |
) |
|
|
|
|
|
|
|
|
|
Total equity attributable to common shareholders |
|
|
6,912.9 |
|
|
|
5,689.5 |
|
Equity attributable to noncontrolling interests in consolidated entities |
|
|
707.9 |
|
|
|
906.7 |
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
7,620.8 |
|
|
|
6,596.2 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
|
10,909.6 |
|
|
|
9,756.9 |
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
64
Consolidated Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
$ in millions, except per share data |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Investment management fees |
|
|
2,120.2 |
|
|
|
2,617.8 |
|
|
|
3,080.1 |
|
Service and distribution fees |
|
|
412.6 |
|
|
|
512.5 |
|
|
|
593.1 |
|
Performance fees |
|
|
30.0 |
|
|
|
75.1 |
|
|
|
70.3 |
|
Other |
|
|
64.5 |
|
|
|
102.2 |
|
|
|
135.4 |
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
|
2,627.3 |
|
|
|
3,307.6 |
|
|
|
3,878.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation |
|
|
950.8 |
|
|
|
1,055.8 |
|
|
|
1,137.6 |
|
Third-party distribution, service and advisory |
|
|
693.4 |
|
|
|
875.5 |
|
|
|
1,051.1 |
|
Marketing |
|
|
108.9 |
|
|
|
148.2 |
|
|
|
157.6 |
|
Property, office and technology |
|
|
212.3 |
|
|
|
214.3 |
|
|
|
242.5 |
|
General and administrative |
|
|
166.8 |
|
|
|
266.0 |
|
|
|
295.8 |
|
Transaction and integration |
|
|
10.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
2,143.0 |
|
|
|
2,559.8 |
|
|
|
2,884.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
484.3 |
|
|
|
747.8 |
|
|
|
994.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income/(expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of unconsolidated affiliates |
|
|
27.0 |
|
|
|
46.8 |
|
|
|
48.1 |
|
Interest income |
|
|
9.8 |
|
|
|
37.2 |
|
|
|
48.5 |
|
Gains/(losses) of consolidated investment products, net |
|
|
(106.9 |
) |
|
|
(58.0 |
) |
|
|
214.3 |
|
Interest expense |
|
|
(64.5 |
) |
|
|
(76.9 |
) |
|
|
(71.3 |
) |
Other gains and losses, net |
|
|
7.8 |
|
|
|
(39.9 |
) |
|
|
9.9 |
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, including gains and losses attributable to
noncontrolling interests |
|
|
357.5 |
|
|
|
657.0 |
|
|
|
1,243.8 |
|
Income tax provision |
|
|
(148.2 |
) |
|
|
(236.0 |
) |
|
|
(357.3 |
) |
|
|
|
|
|
|
|
|
|
|
Net income, including gains and losses attributable to noncontrolling interests |
|
|
209.3 |
|
|
|
421.0 |
|
|
|
886.5 |
|
(Gains)/losses attributable to noncontrolling interests in consolidated entities, net |
|
|
113.2 |
|
|
|
60.7 |
|
|
|
(212.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders |
|
|
322.5 |
|
|
|
481.7 |
|
|
|
673.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
basic |
|
$ |
0.77 |
|
|
$ |
1.24 |
|
|
$ |
1.68 |
|
diluted |
|
$ |
0.76 |
|
|
$ |
1.21 |
|
|
$ |
1.64 |
|
Dividends declared per share |
|
$ |
0.4075 |
|
|
$ |
0.520 |
|
|
$ |
0.372 |
|
See accompanying notes.
65
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
$ in millions |
|
2009 |
|
2008 |
|
2007 |
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income, including losses attributable to noncontrolling interests of $106.9
million in 2009 (losses of $58.0 million in 2008; gains of $214.3 million in
2007) |
|
|
209.3 |
|
|
|
421.0 |
|
|
|
886.5 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization and depreciation |
|
|
77.6 |
|
|
|
67.6 |
|
|
|
84.1 |
|
Share-based compensation expense |
|
|
90.8 |
|
|
|
97.7 |
|
|
|
105.2 |
|
Gains on disposal of property, equipment, software, net |
|
|
(1.2 |
) |
|
|
(2.0 |
) |
|
|
(1.1 |
) |
Purchase of trading investments |
|
|
(41.9 |
) |
|
|
(22.0 |
) |
|
|
(24.2 |
) |
Sale of trading investments |
|
|
13.1 |
|
|
|
22.3 |
|
|
|
24.6 |
|
Other gains and losses, net |
|
|
(7.8 |
) |
|
|
39.9 |
|
|
|
(9.9 |
) |
(Gains)/losses of consolidated investment products, net |
|
|
106.9 |
|
|
|
58.0 |
|
|
|
(214.3 |
) |
Tax benefit from share-based compensation |
|
|
42.3 |
|
|
|
54.9 |
|
|
|
38.2 |
|
Excess tax benefits from share-based compensation |
|
|
(9.4 |
) |
|
|
(16.8 |
) |
|
|
(23.1 |
) |
Equity in earnings of unconsolidated affiliates |
|
|
(27.0 |
) |
|
|
(46.8 |
) |
|
|
(48.1 |
) |
Dividends from unconsolidated affiliates |
|
|
28.3 |
|
|
|
29.8 |
|
|
|
1.8 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents held by consolidated investment products |
|
|
45.0 |
|
|
|
(37.1 |
) |
|
|
(4.8 |
) |
Decrease/(increase)in receivables |
|
|
(468.4 |
) |
|
|
1,118.8 |
|
|
|
(79.6 |
) |
(Decrease)/increase in payables |
|
|
305.1 |
|
|
|
(1,259.8 |
) |
|
|
180.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
362.7 |
|
|
|
525.5 |
|
|
|
915.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(39.5 |
) |
|
|
(84.1 |
) |
|
|
(36.7 |
) |
Disposal of property and equipment |
|
|
6.8 |
|
|
|
0.2 |
|
|
|
12.1 |
|
Purchase of available-for-sale investments |
|
|
(50.3 |
) |
|
|
(109.4 |
) |
|
|
(80.3 |
) |
Proceeds from sale of available-for-sale investments |
|
|
49.7 |
|
|
|
84.5 |
|
|
|
111.8 |
|
Purchase of investments by consolidated investment products |
|
|
(44.1 |
) |
|
|
(112.3 |
) |
|
|
(331.5 |
) |
Proceeds from sale of investments by consolidated investment products |
|
|
34.2 |
|
|
|
188.7 |
|
|
|
143.6 |
|
Returns of capital in investments of consolidated investment products |
|
|
17.9 |
|
|
|
99.2 |
|
|
|
196.0 |
|
Purchase of other investments |
|
|
(53.8 |
) |
|
|
(27.1 |
) |
|
|
(25.9 |
) |
Proceeds from sale of other investments |
|
|
10.9 |
|
|
|
36.2 |
|
|
|
17.1 |
|
Acquisition earn-out payments |
|
|
(34.2 |
) |
|
|
(174.3 |
) |
|
|
(56.0 |
) |
Disposal of businesses |
|
|
|
|
|
|
|
|
|
|
1.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(102.4 |
) |
|
|
(98.4 |
) |
|
|
(48.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of new shares |
|
|
441.8 |
|
|
|
|
|
|
|
|
|
Proceeds from exercises of share options |
|
|
80.0 |
|
|
|
79.8 |
|
|
|
137.4 |
|
Purchases of treasury shares |
|
|
|
|
|
|
(313.4 |
) |
|
|
(716.0 |
) |
Dividends paid |
|
|
(168.9 |
) |
|
|
(207.1 |
) |
|
|
(155.0 |
) |
Excess tax benefits from share-based compensation |
|
|
9.4 |
|
|
|
16.8 |
|
|
|
23.1 |
|
Capital invested into consolidated investment products |
|
|
7.2 |
|
|
|
96.1 |
|
|
|
211.0 |
|
Capital distributed by consolidated investment products |
|
|
(52.1 |
) |
|
|
(241.0 |
) |
|
|
(318.2 |
) |
Borrowings of consolidated investment products |
|
|
|
|
|
|
28.9 |
|
|
|
112.6 |
|
Repayments of consolidated investment products |
|
|
|
|
|
|
(9.3 |
) |
|
|
(33.1 |
) |
Net repayments under credit facility |
|
|
(12.0 |
) |
|
|
(114.4 |
) |
|
|
(2.6 |
) |
Issuance of senior notes |
|
|
|
|
|
|
|
|
|
|
300.0 |
|
Repayments of senior notes |
|
|
(397.2 |
) |
|
|
(2.8 |
) |
|
|
(300.0 |
) |
Acquisition of remaining noncontrolling interest in subsidiary |
|
|
(8.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(100.7 |
) |
|
|
(666.4 |
) |
|
|
(740.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(decrease) in cash and cash equivalents |
|
|
159.6 |
|
|
|
(239.3 |
) |
|
|
126.5 |
|
Foreign exchange movement on cash and cash equivalents |
|
|
17.2 |
|
|
|
(91.3 |
) |
|
|
10.4 |
|
Cash and cash equivalents, beginning of year |
|
|
585.2 |
|
|
|
915.8 |
|
|
|
778.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
|
762.0 |
|
|
|
585.2 |
|
|
|
915.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
|
|
(60.4 |
) |
|
|
(71.2 |
) |
|
|
(72.0 |
) |
Interest received |
|
|
10.5 |
|
|
|
36.9 |
|
|
|
48.2 |
|
Taxes paid |
|
|
(88.4 |
) |
|
|
(238.4 |
) |
|
|
(328.2 |
) |
See accompanying notes.
66
Consolidated Statements of Changes in Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Attributable to Common Shareholders |
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
controlling |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
Other |
|
interests in |
|
|
|
|
Common |
|
Ordinary |
|
Exchangeable |
|
Paid-in- |
|
Treasury |
|
Retained |
|
Comprehensive |
|
consolidated |
|
Total |
$ in millions |
|
Shares |
|
Shares |
|
Shares |
|
Capital |
|
Shares |
|
Earnings |
|
(Loss)/Income |
|
entities |
|
Equity |
January 1, 2007 |
|
|
|
|
|
|
83.2 |
|
|
|
377.4 |
|
|
|
4,966.1 |
|
|
|
(577.9 |
) |
|
|
700.7 |
|
|
|
614.5 |
|
|
|
1,504.6 |
|
|
|
7,668.6 |
|
Net income, including gains and losses
attributable to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
673.6 |
|
|
|
|
|
|
|
212.9 |
|
|
|
886.5 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation differences on
investments in overseas subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
351.1 |
|
|
|
|
|
|
|
351.1 |
|
Change in accumulated OCI related to
employee benefit plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.7 |
|
|
|
|
|
|
|
7.7 |
|
Change in net unrealized gains on
available-for-sale investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16.8 |
) |
|
|
|
|
|
|
(16.8 |
) |
Tax impacts of changes in accumulated OCI
balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.4 |
) |
|
|
|
|
|
|
(4.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,224.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in noncontrolling interests in
consolidated entities, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(596.3 |
) |
|
|
(596.3 |
) |
Adoption of FIN 48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17.6 |
) |
|
|
|
|
|
|
|
|
|
|
(17.6 |
) |
Dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(155.0 |
) |
|
|
|
|
|
|
|
|
|
|
(155.0 |
) |
Employee share plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105.2 |
|
Vested shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(53.9 |
) |
|
|
53.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of options |
|
|
|
|
|
|
1.6 |
|
|
|
|
|
|
|
135.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
137.4 |
|
Tax impact of share-based payment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23.1 |
|
Purchase of shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(683.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(683.7 |
) |
Cancellation of treasury shares |
|
|
|
|
|
|
(1.9 |
) |
|
|
|
|
|
|
(251.4 |
) |
|
|
253.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business combinations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.0 |
|
Conversion of exchangeable shares into
ordinary shares |
|
|
|
|
|
|
2.0 |
|
|
|
(377.4 |
) |
|
|
375.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation of ordinary shares and
issuance of common shares |
|
|
84.9 |
|
|
|
(84.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007 |
|
|
84.9 |
|
|
|
|
|
|
|
|
|
|
|
5,306.3 |
|
|
|
(954.4 |
) |
|
|
1,201.7 |
|
|
|
952.1 |
|
|
|
1,121.2 |
|
|
|
7,711.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, including gains and losses
attributable to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
481.7 |
|
|
|
|
|
|
|
(60.7 |
) |
|
|
421.0 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation differences on
investments in overseas subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,034.2 |
) |
|
|
|
|
|
|
(1,034.2 |
) |
Change in accumulated OCI related to
employee benefit plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.3 |
) |
|
|
|
|
|
|
(0.3 |
) |
Change in net unrealized losses on
available-for-sale investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9.3 |
) |
|
|
|
|
|
|
(9.3 |
) |
Tax impacts of changes in accumulated OCI
balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.1 |
) |
|
|
|
|
|
|
(4.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(626.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in noncontrolling interests in
consolidated entities, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(153.8 |
) |
|
|
(153.8 |
) |
Dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(207.1 |
) |
|
|
|
|
|
|
|
|
|
|
(207.1 |
) |
Employee share plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97.7 |
|
Vested shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(55.7 |
) |
|
|
55.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of options |
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
(12.5 |
) |
|
|
87.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75.7 |
|
Tax impact of share-based payment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.8 |
|
Purchase of shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(318.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(318.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
85.3 |
|
|
|
|
|
|
|
|
|
|
|
5,352.6 |
|
|
|
(1,128.9 |
) |
|
|
1,476.3 |
|
|
|
(95.8 |
) |
|
|
906.7 |
|
|
|
6,596.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, including gains and losses
attributable to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
322.5 |
|
|
|
|
|
|
|
(113.2 |
) |
|
|
209.3 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation differences on
investments in overseas subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
488.3 |
|
|
|
|
|
|
|
488.3 |
|
Change in accumulated OCI related to
employee benefit plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15.1 |
) |
|
|
|
|
|
|
(15.1 |
) |
Change in net unrealized gains on
available-for-sale investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.6 |
|
|
|
|
|
|
|
14.6 |
|
Adoption of ASC Topic 320-10-65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.5 |
) |
|
|
|
|
|
|
(1.5 |
) |
Tax impacts of changes in accumulated
other comprehensive income balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.1 |
|
|
|
|
|
|
|
3.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
698.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adoption of ASC Topic 320-10-65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.5 |
|
|
|
|
|
|
|
|
|
|
|
1.5 |
|
Change in noncontrolling interests in
consolidated entities, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(84.2 |
) |
|
|
(84.2 |
) |
Issuance of new shares |
|
|
6.6 |
|
|
|
|
|
|
|
|
|
|
|
435.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
441.8 |
|
Dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(168.9 |
) |
|
|
|
|
|
|
|
|
|
|
(168.9 |
) |
Employee share plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90.8 |
|
Vested shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(127.6 |
) |
|
|
127.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51.5 |
) |
|
|
131.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80.3 |
|
Tax impact of share-based payment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.4 |
|
Modification of share-based payment awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13.0 |
) |
Purchase of shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22.9 |
) |
Acquisition of remaining noncontrolling
interest in subsidiary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.4 |
) |
|
|
(8.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
91.9 |
|
|
|
|
|
|
|
|
|
|
|
5,688.4 |
|
|
|
(892.4 |
) |
|
|
1,631.4 |
|
|
|
393.6 |
|
|
|
707.9 |
|
|
|
7,620.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
67
Notes to the Consolidated Financial Statements
1. ACCOUNTING POLICIES
Corporate Information
Invesco Ltd. (Parent) and all of its consolidated entities (collectively, the company or
Invesco) provide retail, institutional and high-net-worth clients with an array of global
investment management capabilities. The company operates globally and its sole business is asset
management.
On December 4, 2007, the predecessor to Invesco Ltd., INVESCO PLC, became a wholly-owned
subsidiary of Invesco Ltd. and the shareholders of INVESCO PLC received common shares of Invesco
Ltd. in exchange for their ordinary shares of INVESCO PLC. This transaction was accounted for in a
manner similar to a pooling of interests. Additionally, the companys primary share listing moved
from the London Stock Exchange to the New York Stock Exchange, a share capital consolidation was
immediately implemented (a reverse stock split) on a one-for-two basis, and the companys regulated
business in the European Union was transferred from INVESCO PLC to Invesco Ltd. All prior period
share and earnings per share amounts have been adjusted to reflect the reverse stock split.
Basis of Accounting and Consolidation
The 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 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. VIEs, or
entities in which the risks and rewards of ownership are not directly linked to voting interests,
for which the company is the primary beneficiary (having the majority of rewards/risks of
ownership) are consolidated. Certain of the companys managed products are structured as
partnerships in which the company is the general partner receiving a management and/or performance
fee. If the company is deemed to have a variable interest in these entities and is determined to be
the primary beneficiary, these entities are consolidated into the companys financial statements.
If the company is not determined to be the primary beneficiary, the equity method of accounting is
used to account for the companys investment in these entities. Non-VIE general partnership
investments are deemed to be controlled by the company and would be consolidated under a voting
interest entity (VOE) model, unless the limited partners have the substantive ability to remove the
general partner without cause based upon a simple majority vote or can otherwise dissolve the
partnership, or unless the limited partners have substantive participating rights over
decision-making. Investment products that are consolidated are referred to as consolidated
investment products in the accompanying Consolidated Financial Statements. All significant
intercompany accounts and transactions have been eliminated.
A significant portion of consolidated investment products are private equity funds. Private
equity investments made by the underlying funds consist of direct investments in, or fund
investments in other private equity funds that hold direct investments in, equity or debt
securities in operating companies that are generally not initially publicly traded. Private equity
funds are considered investment companies and are therefore accounted for under the Accounting
Standards Codification (ASC) Topic 946, Financial Services Investment Companies. All of the
investments of consolidated investment products are presented at fair value in the financial
statements. The company has retained the specialized industry accounting principles of these
investment products in our Consolidated Financial Statements. See Note 16, Consolidated Investment
Products, for additional details.
The equity method of accounting is used to account for investments in joint ventures and
noncontrolled subsidiaries in which the companys ownership is between 20 and 50 percent and for
certain of the companys investments in partnerships, as discussed above. Equity investments are
carried initially at cost (subsequently adjusted to recognize the companys share of the profit or
loss of the investee after the date of acquisition) and are included in investments on the
Consolidated Balance Sheets. The proportionate share of income or loss is included in equity in
earnings of unconsolidated affiliates in the Consolidated Statements of Income.
The financial statements have been prepared primarily on the historical cost basis; however,
certain items are presented using other bases such as fair value, where such treatment is required.
The financial statements of subsidiaries are prepared for the same reporting year as the Parent and
use consistent accounting policies, which, where applicable, have been adjusted to U.S. GAAP from
local generally accepted accounting principles or reporting regulations. Noncontrolling interests
in consolidated entities represent the interests in certain entities consolidated by the company
either because the company has control over the entity or has determined that it is the primary
beneficiary, but of which the company does not own all of the equity.
68
In preparing the financial statements, management is required to make estimates and
assumptions that affect reported revenues, expenses, assets, liabilities and disclosure of
contingent liabilities. The primary estimates 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.
Acquisition Accounting
In accordance with ASC Topic 805, Business Combinations (ASC Topic 805), any excess of the
cost of the acquisition over the fair values of the identifiable net assets acquired attributable
to the company is recognized as goodwill. With certain exceptions, 100% of the fair values of
assets acquired, liabilities assumed, and noncontrolling interests is recognized in acquisitions of
less than 100% controlling interest when the acquisition constitutes a change in control of the
acquired entity. Additionally, when partial ownership in an acquiree is obtained, the assets
acquired, liabilities assumed and any noncontrolling interests are recognized and consolidated at
100% of their fair values at that date, regardless of the percentage ownership in the acquiree. As
goodwill is calculated as a residual, all goodwill of the acquired business, not just the companys
share, is recognized under this full-goodwill approach. Noncontrolling interests are stated at
the noncontrolling shareholders proportion of the pre-acquisition carrying values of the acquired
net assets. The results of entities acquired or sold during the year are included from or to the
date control changes.
Contingent consideration obligations that are elements of consideration transferred are
recognized as of the acquisition date as part of the fair value transferred in exchange for the
acquired business. Acquisition-related costs incurred in connection with a business combination
shall be expensed.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash at banks, in hand and short-term investments with a
maturity upon acquisition of three months or less. Also included in cash and cash equivalents at
December 31, 2009, is $1.7 million in cash to facilitate trust operations and customer transactions
in the companys affiliated funds. Cash and cash equivalents invested in affiliated money market
funds (related parties) totaled $465.1 million at December 31, 2009. Cash and cash equivalents of
consolidated investment products are not available for general use by the company.
Cash balances may not be readily accessible to the Parent due to certain capital adequacy
requirements. Invesco has local capital requirements in several jurisdictions, as well as regional
requirements for entities that are part of the European sub-group. These requirements mandate the
retention of liquid resources in those jurisdictions, which we meet in part by holding cash and
cash equivalents. This retained cash can be used for general business purposes in the European
sub-group or in the countries where it is located. Due to the capital restrictions, the ability to
transfer cash between certain jurisdictions may be limited. In addition, transfers of cash between
international jurisdictions may have adverse tax consequences that may substantially limit such
activity. At December 31, 2009, the European sub-group had cash and cash equivalent balances of
$333.5 million, much of which is used to satisfy these regulatory requirements. The company is in
compliance with all regulatory minimum net capital requirements.
Accounts Receivable and Payable
Accounts receivable and payable are recorded at their original invoice amounts. Accounts
receivable are also recorded less any allowance for uncollectible amounts. Accounts receivable
include management fees receivable from affiliated funds.
Investments
Investments in equity securities that have readily determinable fair values and investments in
debt securities are classified as either trading or available-for-sale. Investments in debt
securities are classified as held-to-maturity investments if the company has the intent and ability
to hold the investments until maturity. Trading securities are securities bought and held
principally for the purpose of selling them in the near term. Available-for-sale securities are
those neither classified as trading nor as held-to-maturity. Trading and available-for-sale
investments are measured at fair value. Gains or losses arising from changes in the fair value of
trading investments are included in income, and gains or losses arising from changes in the fair
value of available-for-sale investments are recognized in accumulated other comprehensive income,
net of tax, until the investment is sold or otherwise disposed of, or until the investment is
determined to be other-than-temporarily impaired, at which time the cumulative gain or loss
previously reported in equity is included in income. The specific identification method is used to
determine the realized gain or loss on securities sold or otherwise disposed. Held-to-maturity
investments are measured at amortized cost, taking into account any discounts or premiums.
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Investments in joint ventures, non-controlled subsidiaries and certain investment products
that are not consolidated under a VIE or VOE model are investments over which the company has
significant influence but not control and are accounted for using the equity method, where the
investment is initially recorded at cost and the carrying amount is increased or decreased to
recognize the companys share of the after-tax profit or loss of the investee after the date of
acquisition. Investments in joint ventures are investments jointly controlled by the company and
external parties. Investments in joint ventures are also accounted for using the equity method to
reflect the substance and economic reality of the companys interest in jointly controlled
entities. Equity investments are included in investments on the Consolidated Balance Sheets. The
proportionate share of income or loss is included in equity in earnings of unconsolidated
affiliates in the Consolidated Statements of Income.
Fair value is determined using a valuation hierarchy (discussed in Note 2) generally by
reference to an active trading market, using quoted closing or bid prices as of each reporting
period end. When a readily ascertainable market value does not exist for an investment (such as the
companys collateralized loan obligations, discussed below) the fair value is calculated based on
the expected cash flows of its underlying net asset base, taking into account applicable discount
rates and other factors. Judgment is used to ascertain if a formerly active market has become
inactive and in determining fair values when markets have become inactive.
The company evaluates the carrying value of investments for impairment on a quarterly basis.
In its impairment analysis, the company takes into consideration numerous criteria, including the
duration and extent of any decline in fair value, the intent and ability of the company to hold the
security for a period of time sufficient for a recovery in value, recent events specific to the
issuer or industry and external credit ratings and recent downgrades with respect to issuers of
debt securities held. If the decline in value is determined to be other-than-temporary, the
carrying value of the security is generally written down to fair value through the income
statement. If the fair value of a debt security, however, is less than its amortized cost, the
decline in value is determined to be other-than-temporary, and the company intends to sell the debt
security or it is more likely than not that the company will be required to sell the debt security
before the recovery of its amortized cost basis, the entire difference between the investments
amortized cost basis and its fair value is recognized as an other-than-temporary impairment through
the income statement. If the company does not intend to sell the debt security, and it is not more
likely than not that the company will be required to sell the debt security before recovery of its
amortized cost basis, then the other-than-temporary impairment is separated into two components: a)
the amount representing the credit loss, which is recorded as a charge to the income statement, and
b) the amount related to all other factors, which is recognized in other comprehensive income, net
of tax.
The company provides investment management services to a number of collateralized loan
obligation entities (CLOs). These entities 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
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 relatively small portion of the unrated, junior subordinated position.
At December 31, 2009, the company held $17.9 million of investment in these CLOs, which represents
its maximum risk of loss. The companys investments in CLOs are generally subordinated to other
interests in the entities and entitles the investors to receive the residual cash flows, if any,
from the entities. Investors in CLOs have no recourse against the company for any losses sustained
in the CLO structure.
Management has concluded that the company is not the primary beneficiary of any of the CLO
entities and it has recorded its investments at fair value using an income approach. The excess of
actual and anticipated future cash flows over the initial investment at the date of purchase is
recognized as interest income over the life of the investment using the effective yield method in
accordance with ASC Topic 320, Investments Debt and Equity Securities (ASC Topic 320) and ASC
Topic 325, Investments Other (ASC Topic 325). The company reviews cash flow estimates
throughout the life of each CLO entity. Cash flow estimates are based on the underlying pool of
securities and take into account the overall credit quality of the issuers, the forecasted default
rate of the securities and the companys past experience in managing similar securities. If the
updated estimate of future cash flows (taking into account both timing and amounts) is less than
the last revised estimate, an impairment loss is recognized based on the excess of the carrying
amount of the investment over its fair value and is recorded through the income statement. Fair
value is determined using current information, notably market yields and projected cash flows based
on forecasted default and recovery rates that a market participant would use in determining the
current fair value of the equity interest. Dividend income for these investments is recorded in
other income on the Consolidated Statements of Income.
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Assets Held for Policyholders and Policyholder Payables
One of the companys subsidiaries is an insurance entity, established to facilitate retirement
savings plans. Investments and policyholder payables held by this business meet the definition of
financial instruments and are carried in the Consolidated Balance Sheets as separate account assets
and liabilities at fair value in accordance with ASC Topic 944, Financial Services Insurance.
Changes in fair value are recorded and offset to zero in the Consolidated Statements of Income in
other operating revenues.
The liability to the policyholders is linked to the value of the investments. The investments
are legally segregated and are generally not subject to claims that arise from any of the companys
other businesses. Management fees earned from policyholder investments are accounted for as
described in the companys revenue recognition accounting policy.
Deferred Sales Commissions
Mutual fund shares sold without a sales commission at the time of purchase are commonly
referred to as B shares. B shares typically have an asset-based fee (12b-1 fee) that is charged
to the fund over a period of years and a contingent deferred sales charge (CDSC). The CDSC is an
asset-based fee that is charged to investors that redeem B shares during a stated period.
Commissions paid at the date of sale to brokers and dealers for sales of mutual funds that have a
CDSC are capitalized and amortized over a period not to exceed the redemption period of the related
fund (generally up to six years). The deferred sales commission asset is reviewed periodically for
impairment by reviewing the recoverability of the asset based on estimated future fees to be
collected.
Property, Equipment and Depreciation
Property and equipment includes owned property, leasehold improvements, computer
hardware/software and other equipment and is stated at cost less accumulated depreciation or
amortization and any previously recorded impairment in value. Expenditures for major additions and
improvements are capitalized; minor replacements, maintenance and repairs are charged to expense as
incurred. Depreciation is provided on property and equipment at rates calculated to write off the
cost, less estimated residual value, of each asset on a straight-line basis over its expected
useful life: owned buildings over 50 years, leasehold improvements over the shorter of the lease
term or useful life of the improvement; and computers and other various equipment between three and
seven years. Purchased and internally developed software is capitalized where the related costs can
be measured reliably, and it is probable that the asset will generate future economic benefits, and
amortized into operating expenses on a straight-line basis over its useful life, usually five
years. The company capitalizes qualified internal and external costs incurred during the
application development stage for internally developed software in accordance with ASC Topic
350-40, Intangibles Goodwill and Other Internal-Use Software. The company reevaluates the
useful life determination for property and equipment each reporting period to determine whether
events and circumstances warrant a revision to the remaining useful life. On sale or retirement,
the asset cost and related accumulated depreciation are removed from the financial statements and
any related gain or loss is reflected in income.
The carrying amounts of property and equipment are reviewed for impairment when events or
changes in circumstances indicate that the carrying values may not be recoverable. At each
reporting date, an assessment is made for any indication of impairment. If an indication of
impairment exists, recoverability is tested by comparing the carrying amount of the asset to the
net undiscounted cash flows expected to be generated from the asset. If those net undiscounted cash
flows do not exceed the carrying amount (i.e. the asset is not recoverable), the next step would be
performed, which is to determine the fair value of the asset and record an impairment charge, if
any.
Intangible Assets
Management contract intangible assets identified on the acquisition of a business are
capitalized separately from goodwill if the fair value can be measured reliably on initial
recognition (transaction date) and are amortized and recorded as operating expenses on a
straight-line basis over their useful lives, usually seven to ten years, which reflects the pattern
in which the economic benefits are realized. The company considers its own assumptions about
renewal or extension of the term of the arrangement, consistent with its expected use of the asset.
Where evidence exists that the underlying management contracts are renewed annually at little or no
cost to the company, the management contract intangible asset is assigned an indefinite life and
reviewed for impairment on an annual basis. The company reevaluates the useful life determination
for intangible assets each reporting period to determine whether events and circumstances warrant a
revision to the remaining useful life or an indication of impairment. Definite-lived intangibles
are reviewed for impairment whenever events or changes in circumstances indicate that their
carrying amount may not be recoverable (i.e. carrying amount exceeds the sum of the fair value of
the intangible). Intangible assets not subject to amortization are tested for impairment annually
or more frequently if events or changes in circumstances indicate that the asset might be impaired.
The impairment test
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consists of a comparison of the fair value of an intangible asset with its carrying amount. If
the carrying amount of the intangible asset exceeds its fair value, an impairment loss is
recognized in an amount equal to that excess. Fair value is determined using a discounted cash flow
analysis.
Goodwill
Goodwill represents the excess of cost over the identifiable net assets of businesses acquired
and is recorded in the functional currency of the acquired entity. Goodwill is recognized as an
asset and is reviewed for impairment annually as of October 1 and between annual tests when events
and circumstances indicate that impairment may have occurred. The impairment test for goodwill
consists of a two-step approach, which is performed at the reporting unit level. The company has
determined that it has one reporting unit for goodwill impairment testing purposes, the
consolidated Invesco Ltd. single operating segment level, which is the level at which internal
reporting is generated that reflects the way that the company manages its operations and to which
goodwill is naturally associated. If the carrying amount of the reporting unit exceeds its fair
value (the first step of the goodwill impairment test), then the second step is performed to
determine if goodwill is impaired and to measure the amount of the impairment loss, if any. The
second step of the goodwill impairment test compares the implied fair value of goodwill with the
carrying amount of goodwill. If the carrying amount of goodwill exceeds the implied fair value of
goodwill, an impairment loss is recognized in an amount equal to that excess.
The principal method of determining fair value of the reporting unit is an income approach
where future cash flows are discounted to arrive at a single present value amount. The discount
rate used is derived based on the time value of money and the risk profile of the stream of future
cash flows. Recent results and projections based on expectations regarding revenue, expenses,
capital expenditure and acquisition earn out payments produce a present value for the reporting
unit. The present value produced for the reporting unit is the fair value of the reporting unit.
This amount is reconciled to the companys market capitalization to determine an implied control
premium, which is compared to an analysis of historical control premiums experienced by peer
companies over a long period of time to assess the reasonableness of the fair value of the
reporting unit.
The company also utilizes a market approach to provide a secondary and corroborative fair
value of the reporting unit by using comparable company and transaction multiples to estimate
values for our single reporting unit. Discretion and judgment is required in determining whether
the transaction data available represents information for companies of comparable nature, scope and
size. The results of the secondary market approach to provide a fair value estimate are not
combined or weighted with the results of the income approach described above but are used to
provide an additional basis to determine the reasonableness of the income approach fair value
estimate.
Debt and Financing Costs
Debt issuance costs are recognized as a deferred asset under ASC Topic 835, Interest. After
initial recognition, debt issuance costs are measured at amortized cost. Finance charges and debt
issuance costs are amortized over the term of the debt using the effective interest method.
Interest charges are recognized in the Consolidated Statement of Income in the period in which they
are incurred.
Treasury Shares
Treasury shares are valued at cost and are included as deductions from equity.
Revenue Recognition
Revenue is measured at the fair value of consideration received or receivable and represents
amounts receivable for services provided in the normal course of business, net of discounts, value
added tax and other sales-related taxes. Revenue is recognized when there is persuasive evidence of
an arrangement, delivery has occurred or services have been provided, collectibility is reasonably
assured and the revenue can be reliably measured. Revenue represents management, service and
distribution, performance and other fees. Revenue is generally accrued over the period for which
the service is provided.
Investment management fees are derived from providing professional services to manage client
accounts and include fees earned from retail mutual funds, unit trusts, investment companies with
variable capital (ICVCs), exchange-traded funds, investment trusts and institutional and private
wealth management advisory contracts. Investment management fees for products offered in the retail
distribution channel are generally calculated as a percentage of the daily average asset balances
and therefore vary as the levels of AUM change resulting from inflows, outflows and market
movements. Investment management fees for products offered in the
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institutional and private wealth management distribution channels are calculated in accordance
with the underlying investment management contracts and also vary in relation to the level of
client assets managed. For the year ended December 31, 2009, management fees from affiliated fund
products were $1,571.1 million (2008: $1,979.6 million; 2007: $2,481.6 million).
Service fees are generated through fees charged to cover several types of expenses, including
fund accounting fees and other maintenance costs for mutual funds, unit trusts and ICVCs, and
administrative fees earned from closed-ended funds. Service fees also include transfer agent fees,
which are fees charged to cover the expense of processing client share purchases and redemptions,
call center support and client reporting. U.S. distribution fees can include 12b-1 fees earned from
certain mutual funds to cover allowable sales and marketing expenses for those funds and also
include asset-based sales charges paid by certain mutual funds for a period of time after the sale
of those funds. Distribution fees typically vary in relation to the amount of client assets
managed. Generally, retail products offered outside of the U.S. do not generate a separate
distribution fee, as the quoted management fee rate is inclusive of these services.
Performance fee revenues are generated on certain management contracts when performance
hurdles are achieved. Such fee revenues are recorded in operating revenues as of the performance
measurement date, when the contractual performance criteria have been met and when the outcome of
the transaction can be measured reliably in accordance with Method 1 of ASC Topic 605-20-S99,
Revenue Recognition Services SEC Materials. Cash receipt of earned performance fees occurs
after the measurement date. The performance measurement date is defined in each contract in which
incentive and performance fee revenue agreements are in effect, and therefore we have performance
fee arrangements that include monthly, quarterly and annual measurement dates. Given the uniqueness
of each transaction, performance fee contracts are evaluated on an individual basis to determine if
revenues can and should be recognized. Performance fees are not recorded if there are any future
performance contingencies. If performance arrangements require repayment of the performance fee for
failure to perform during the contractual period, then performance fee revenues are recognized no
earlier than the expiration date of these terms. Performance fees will fluctuate from period to
period and may not correlate with general market changes, since most of the fees are driven by
relative performance to the respective benchmark rather than by absolute performance.
Other revenues include fees derived primarily from transaction commissions earned upon the
sale of new investments into certain of our funds and fees earned upon the completion of
transactions in our real estate and private equity asset groups. Real estate transaction fees are
derived from commissions earned through the buying and selling of properties. Private equity
transaction fees include commissions associated with the restructuring of, and fees from providing
advice to, portfolio companies held by the funds. These transaction fees are recorded in the
Consolidated Financial Statements on the date when the transactions are legally closed. Other
revenues also include the revenues of consolidated investment products.
Distribution, service and advisory fees that are passed through to external parties are
presented separately as expenses in accordance with ASC Topic 605-45, Revenue Recognition
Principal Agent Considerations. Third-party distribution, service and advisory expenses include
periodic renewal commissions paid to brokers and independent financial advisors for their
continuing oversight of their clients assets over the time they are invested and are payments for
the servicing of client accounts. Renewal commissions are calculated based upon a percentage of the
AUM value. Third-party distribution expenses also include the amortization of upfront commissions
paid to broker-dealers for sales of fund shares with a contingent deferred sales charge (a charge
levied to the investor for client redemption of AUM within a certain contracted period of time).
The distribution commissions are amortized over the redemption period. Also included in third-party
distribution, service and advisory expenses are sub-transfer agency fees that are paid to third
parties for processing client share purchases and redemptions, call center support and client
reporting. Third-party distribution, service and advisory expenses may increase or decrease at a
rate different from the rate of change in service and distribution fee revenues due to the
inclusion of distribution, service and advisory expenses for the U.K. and Canada, where the related
revenues are recorded as investment management fee revenues, as noted above.
Interest income is accrued on interest-bearing assets.
Dividend income from investments is recognized on the ex-dividend date.
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. 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. Fair value is measured by use of the stochastic (a lattice model) or
Black
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Scholes valuation models. The expected life of share-based compensation awards used in the
lattice model is adjusted, based on managements best estimate, for the effects of
non-transferability, exercise restrictions and behavioral considerations.
Pensions
For defined contribution plans, contributions payable related to the accounting period are
charged to the income statement. For defined benefit plans, the cost of providing benefits is
separately determined for each plan using the projected unit credit method, based on actuarial
valuations performed at each balance sheet date. The companys annual measurement date is
December 31. A portion of actuarial gains and losses is recognized through the income statement if
the net cumulative unrecognized actuarial gain or loss at the end of the prior period exceeds the
greater of 10.0% of the present value of the defined benefit obligation (before deducting plan
assets) at that date and 10.0% of the fair value of any plan assets. Prior service costs are
recognized over the remaining service periods of active employees.
Advertising Costs
The company expenses the cost of all advertising and promotional activities as incurred. The
company incurred advertising costs of $21.0 million for the year ended December 31, 2009 (2008:
$30.5 million; 2007: $28.6 million). These amounts are included in marketing expenses in the
Consolidated Statements of Income.
Leases
Rentals under operating leases, where the lessor retains substantially all the risks and
benefits of ownership of the asset, are charged evenly to expense over the lease term. Benefits
received and receivable as an incentive to enter an operating lease are also spread evenly over the
lease term. The company accounts for lease termination costs in accordance with ASC Topic 420,
Exit or Disposal Cost Obligations, which requires that (1) a liability for costs to terminate a
contract before the end of its term shall be recognized at the time termination occurs and measured
at fair value and (2) a liability for costs that will continue to be incurred under a contract for
its remaining term without economic benefit to the company be recognized and measured at its fair
value when the company ceases to use the right conveyed by the contract, net of estimated sublease
rentals that could reasonably be obtained even if the company does not anticipate entering into any
subleasing arrangements.
Taxation
Income taxes are provided for in accordance with ASC Topic 740, Income Taxes (ASC Topic
740). Deferred tax assets and liabilities are recorded for temporary differences between the tax
basis of assets and liabilities and the reported amounts in the Consolidated Financial Statements,
using the statutory tax rates in effect for the year in which the differences are expected to
reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized
in the results of operations in the period that includes the enactment date. A valuation allowance
is recorded to reduce the carrying amounts of deferred tax assets to the amount that is more likely
than not to be realized.
The company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes
An Interpretation of FASB Statement No. 109, which is now encompassed in ASC Topic 740, on
January 1, 2007. Accordingly, the company reports a liability for unrecognized tax benefits
resulting from uncertain tax positions taken or expected to be taken in a tax return. The company
recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax
expense.
Earnings Per Share
Basic earnings per share is calculated by dividing net income available to shareholders by the
weighted average number of shares outstanding during the periods, excluding treasury shares.
Diluted earnings per share is computed using the treasury stock method, which requires computing
share equivalents and dividing net income by the total weighted average number of shares and share
equivalents outstanding during the period.
Comprehensive Income
The companys other comprehensive income/(loss) consists of changes in unrealized gains and
losses on investment securities classified as available-for-sale, reclassification adjustments for
realized gains/(losses) on those investment securities classified as
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available-for-sale, foreign currency translation adjustments and employee benefit plan
liability adjustments. Such amounts are recorded net of applicable taxes.
Dividends to Shareholders
Dividends to shareholders are recognized on the declaration date. Dividends are declared and
paid on a quarterly basis.
Translation of Foreign Currencies
Transactions in foreign currencies (currencies other than the functional currencies of the
companys subsidiaries) are recorded at the rates of exchange prevailing on the dates of the
transactions. At each balance sheet date, monetary assets and liabilities that are denominated in
foreign currencies are remeasured into the functional currencies of the companys subsidiaries at
the rates prevailing at the balance sheet date. Gains and losses arising on revaluation are
included in the income statement.
The companys reporting currency and the functional currency of the Parent is U.S. dollars. On
consolidation, the assets and liabilities of company subsidiary operations whose functional
currencies are currencies other than the U.S. dollar (foreign operations) are translated at the
rates of exchange prevailing at the balance sheet date. Income statement figures are translated at
the weighted average rates for the year, which approximate actual exchange rates. Exchange
differences arising on the translation of the net assets of foreign operations are taken directly
to accumulated other comprehensive income in equity until the disposal of the net investment, at
which time they are recognized in the income statement. Goodwill and other fair value adjustments
arising on acquisition of a foreign entity are treated as assets and liabilities of the foreign
entity and are translated at rates of exchange prevailing at the balance sheet date.
The company does not utilize derivative financial instruments to provide a hedge against
interest rate or foreign exchange exposures.
Reclassifications
The presentation of certain prior period reported amounts has been reclassified to be
consistent with the current presentation. Such reclassifications had no impact on net income or
equity attributable to common shareholders.
Accounting Pronouncements Recently Adopted
In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (FASB
Statement No. 157), which became effective for Invesco on January 1, 2008. FASB Statement No. 157,
which is now encompassed in ASC Topic 820, Fair Value Measurements and Disclosures (ASC Topic
820), clarified how companies should measure fair value when they are required by U.S. GAAP to use
a fair value measure for recognition or disclosure. FASB Statement No. 157 established a common
definition of fair value, established a framework for measuring fair value under U.S. GAAP, and
expanded disclosures about fair value measurements to eliminate differences in current practice in
measuring fair value under existing accounting standards. The adoption of FASB Statement No. 157
did not result in any retrospective adjustments to prior period information or in a cumulative
effect adjustment to retained earnings. See Note 2, Fair Value of Assets and Liabilities, for
additional disclosures.
In December 2007, the FASB issued Statement No. 141 (revised 2007), Business Combinations
(FASB Statement No. 141(R)), and Statement No. 160, Noncontrolling Interests in Consolidated
Financial Statements, an amendment of ARB No. 51 (FASB Statement No. 160). Under FASB Statement
No. 141(R), which is now encompassed in ASC Topic 805, Business Combinations, the acquirer must
recognize, with certain exceptions, 100% of the fair values of assets acquired, liabilities
assumed, and noncontrolling interests in acquisitions of less than 100% controlling interest when
the acquisition constitutes a change in control of the acquired entity. Additionally, when an
acquirer obtains partial ownership in an acquiree, an acquirer recognizes and consolidates assets
acquired, liabilities assumed and any noncontrolling interests at 100% of their fair values at that
date regardless of the percentage ownership in the acquiree. As goodwill is calculated as a
residual, all goodwill of the acquired business, not just the acquirers share, is recognized under
this full-goodwill approach. Contingent consideration obligations that are elements of
consideration transferred are recognized as of the acquisition date as part of the fair value
transferred in exchange for the acquired business. Acquisition-related costs incurred in connection
with a business combination shall be expensed. FASB Statement No. 160, which is now encompassed in
ASC Topic 810, Consolidation, establishes new accounting and reporting standards for
noncontrolling interests (formerly known as minority interests) in a subsidiary and for the
deconsolidation of a subsidiary. FASB Statement No. 141(R) and FASB Statement No. 160 became
effective for the company on January 1, 2009. FASB Statement
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No. 141(R) was applied prospectively, while FASB Statement No. 160 required retroactive
adoption of the presentation and disclosure requirements for existing noncontrolling interests but
prospective adoption of all of its other requirements. The adoption of FASB Statement No. 141(R)
amended the definition of a business, which led to a change in the companys basis, but not the
companys conclusion, of determining that it has one reporting unit for goodwill impairment
purposes. See Item 7, Managements Discussion and Analysis of Financial Condition and Results of
Operations, Critical Accounting Policies and Estimates Goodwill for additional information.
In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities (FASB Statement No. 159), which became effective for Invesco on
January 1, 2008, at its own discretion. FASB Statement No. 159, which is now encompassed under ASC
Topic 825, Financial Instruments (ASC Topic 825), permits companies to elect, on an
instrument-by-instrument basis, to fair value certain financial assets and financial liabilities
with changes in fair value recognized in earnings as they occur (the fair value option). The
company chose not to elect the FASB Statement No. 159 fair value option for eligible items existing
on its balance sheet as of January 1, 2008, or for any new eligible items recognized subsequent to
January 1, 2008.
In February 2008, the FASB issued Staff Position No. FAS 157-2, Effective Date of FASB
Statement No. 157 (FSP FAS 157-2). FSP FAS 157-2, which is now encompassed in ASC Topic 820,
amended FASB Statement No. 157 to delay the effective date for nonfinancial assets and nonfinancial
liabilities except for items that are recognized or disclosed at fair value in the financial
statements on a recurring basis (that is, at least annually). For items within its scope, FSP FAS
157-2 delayed the effective date of FASB Statement No. 157 to January 1, 2009. As of January 1,
2008, Invesco applied the fair value measurement and disclosure provisions of FASB Statement No.
157 to its financial assets and financial liabilities that are recognized or disclosed at fair
value in the financial statements. As of January 1, 2009, Invesco applied the fair value
measurement and disclosure provisions of FASB Statement No. 157 to nonfinancial assets and
nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements
on a non-recurring basis. Those items include: (1) nonfinancial assets and nonfinancial liabilities
initially measured at fair value in a business combination or other new basis event, but not
measured at fair value in subsequent periods; (2) nonfinancial long-lived assets measured at fair
value for an impairment assessment under FASB Statement No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets; (now encompassed in ASC Topic 360, Property, Plant and
Equipment); (3) nonfinancial liabilities for exit or disposal activities initially measured at
fair value under FASB Statement No. 146, Accounting for Costs Associated with Exit or Disposal
Activities; (now encompassed in ASC Topic 420, Exit or Disposal Cost Obligations) and (4)
nonfinancial assets and nonfinancial liabilities measured at fair value in the second step of a
goodwill impairment test. The adoption of FSP FAS 157-2 did not have a material impact on the
companys financial statements.
In April 2008, the FASB issued Staff Position No. FAS 142-3, Determination of the Useful Life
of Intangible Assets (FSP FAS 142-3). FSP FAS 142-3, which is now encompassed in ASC Topic 350,
Intangibles Goodwill and Other (ASC Topic 350), amended the factors that should be considered
in developing renewal or extension assumptions used to determine the useful life over which to
amortize the cost of a recognized intangible asset under FASB Statement No. 142, Goodwill and
Other Intangible Assets, also now encompassed in ASC Topic 350. FSP FAS 142-3 required an entity
to consider its own assumptions about renewal or extension of the term of the arrangement,
consistent with its expected use of the asset. FSP FAS 142-3 was intended to improve the
consistency between the useful life of an intangible asset determined under FASB Statement No. 142
and the period of expected cash flows used to measure the fair value of the asset under FASB
Statement No. 141(R) (now encompassed in ASC Topic 805) and other U.S. GAAP. The guidance provided
by FSP FAS 142-3 for determining the useful life of a recognized intangible asset was to be applied
prospectively to intangible assets acquired after the effective date, which is January 1, 2009. FSP
FAS 142-3 did not have a material impact on the companys financial statements.
During June 2008, the FASB issued Staff Position No. EITF 03-6-1, Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating Securities (FSP EITF
03-6-1). FSP EITF 03-6-1, which is now encompassed in ASC Topic 260, Earnings Per Share (ASC
Topic 260), addressed whether instruments granted in share-based payment transactions are
participating securities prior to vesting and need to be included in the earnings allocation in
computing earnings per share (EPS) under the two-class method described in FASB Statement No. 128,
Earnings Per Share, also now encompassed in ASC Topic 260. The guidance in the FSP EITF 03-6-1
provided that only those unvested share-based payment awards that contain nonforfeitable rights to
dividends or dividend equivalents are participating securities that should be included in the
calculation of basic EPS under the two-class method. The FASB concluded that the holder of a
share-based award receives a noncontingent transfer of value each time the entity declares a
dividend, and therefore the share-based award meets the definition of a participating security. FSP
EITF 03-6-1 was effective for financial statements issued for fiscal years beginning after December
15, 2008, with all prior period EPS data being adjusted retrospectively. The adoption of FSP EITF
03-6-1 on January 1, 2009, required the company to include unvested restricted stock units (RSUs)
that contain nonforfeitable dividend equivalents as outstanding common shares for purposes of
calculating basic
76
EPS. The adoption of FSP EITF 03-6-1 did not have a material impact on the companys
calculation of diluted EPS for the years ended December 31, 2008 and 2007. The weighted average
number of shares used for the calculation of prior period earnings per share have been restated to
reflect the adoption of FSP EITF 03-6-1. The adoption of FSP EITF 03-6-1 resulted in a change to
the year-ended December 31, 2008 and 2007, reported basic earnings per share amounts of $0.01.
In October 2008, the FASB issued Staff Position No. FAS 157-3, Determining the Fair Value of
a Financial Asset When the Market for That Asset Is Not Active (FSP FAS 157-3), which became
effective for Invesco for the period ended September 30, 2008. FSP 157-3, which is now encompassed
in ASC Topic 820, clarified the application of FASB Statement No. 157 (also now encompassed in ASC
Topic 820) to financial assets in an inactive market. The FSP included an illustration of the
application of judgment when selecting an appropriate discount rate to apply in the valuation of a
collateralized debt obligation in a market that has become increasingly inactive. The adoption of
FSP 157-3 did not have a material impact on the companys financial statements.
In December 2008, the FASB issued FASB Staff Position No. FAS 140-4 and FIN 46(R)-8,
Disclosures about Transfers of Financial Assets and Interests in Variable Interest Entities (FSP
FAS 140-4 and FIN 46(R)-8), which became effective for the company on March 31, 2009. FSP FAS
140-4 and FIN 46(R)-8, which is now encompassed in ASC Topic 860, Transfers and Servicing,
required additional disclosures by public entities with a) continuing involvement in transfers of
financial assets to a special purpose entity or b) a variable interest in a variable interest
entity. The adoption of FSP FAS 140-4 and FIN 46(R)-8 did not have a material impact on the
companys financial statements. See Note 16, Consolidated Investment Products, for additional
disclosures.
In December 2008, the FASB issued FASB Staff Position No. FAS 132(R)-1, Employers
Disclosures about Postretirement Benefit Plan Assets (FSP FAS 132(R)-1), which is now encompassed
in ASC Topic 715, Compensation Retirement Benefits. FSP FAS 132(R)-1 amends FASB Statement
No. 132 (Revised 2003), Employers Disclosures about Postretirement Benefit Plan Assets (FASB
Statement No. 132(R)) that are intended to enhance the transparency surrounding the types of
assets and associated risks in an employers defined benefit pension or other postretirement plan.
FSP FAS 132(R)-1 expands the disclosures set forth by FASB Statement No. 132(R) by adding required
disclosures about: (1) how investment allocation decisions are made by management; (2) major
categories of plan assets; and (3) significant concentrations of risk. Additionally, FSP FAS
132(R)-1 requires the employer to disclose information about the valuation of plans assets similar
to that required under FASB Statement No. 157. Those disclosures include: (1) the level within the
fair value hierarchy in which the fair value measurements of plan assets fall; (2) information
about the inputs and valuation techniques used to measure the fair value of plan assets; and (3) a
reconciliation of the beginning and ending balances of plan assets valued using significant
unobservable inputs. The new disclosures are required to be included in the financial statements
for fiscal years ending after December 15, 2009, and are included in Note 19, Retirement Benefit
Plans.
In January 2009, the FASB issued Staff Position No. EITF 99-20-1, Amendments to the
Impairment Guidance of EITF Issue No. 99-20 (FSP EITF 99-20-1), which became effective for the
company on March 31, 2009. FSP EITF 99-20-1, which is now encompassed in ASC Topic 325, revised the
impairment guidance provided by EITF 99-20 for beneficial interests to make it consistent with the
requirements of FASB Statement No. 115 (now encompassed in ASC Topic 320) for determining whether
an impairment of other debt and equity securities is other-than-temporary. FSP EITF 99-20-1
eliminated the requirement to rely exclusively on market participant assumptions about future cash
flows and permitted the use of reasonable management judgment of the probability that the holder
will be unable to collect all amounts due. Instead, FSP 99-20-1 required that an
other-than-temporary impairment be recognized when it is probable that there has been an adverse
change in the holders estimated cash flows. FSP EITF 99-20-1 did not have a material impact on the
companys financial statements.
On April 9, 2009, the FASB issued three Staff Positions (FSPs) intended to provide additional
application guidance and enhance disclosures regarding fair value measurements and impairments of
securities. FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the
Asset or Liability Have Significantly Decreased and Identifying Transactions that Are Not Orderly
(FSP FAS 157-4), now encompassed in ASC Topic 820, provided guidelines for making fair value
measurements more consistent with the principles presented in FASB Statement No. 157. FSP FAS 107-1
and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments (FSP FAS 107-1), now
encompassed in ASC Topic 825, enhanced consistency in financial reporting by increasing the
frequency of fair value disclosures. FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments (FSP FAS 115-2), now encompassed in ASC Topic 320-10-65, provided
additional guidance designed to create greater clarity and consistency in accounting for and
presenting impairment losses on securities.
FSP FAS 157-4 addressed the measurement of fair value of financial assets when there is no
active market or where the price inputs being used could be indicative of distressed sales. FSP FAS
157-4 reaffirmed the definition of fair value already reflected in FASB Statement No. 157, which is
the price that would be paid to sell an asset in an orderly transaction (as opposed to a distressed
or forced transaction) at the measurement date under current market conditions. FSP FAS 157-4 also
reaffirmed the need to use judgment to
77
ascertain if a formerly active market has become inactive and in determining fair values when
markets have become inactive. FSP FAS 157-4 became effective for the company for the period ended
June 30, 2009. The application of FSP FAS 157-4 did not have a material impact on the Consolidated
Financial Statements. See Note 2, Fair Value of Assets and Liabilities, and Note 16,
Consolidated Investment Products, for additional details.
FSP FAS 107-1 was issued to improve the fair value disclosures for any financial instruments
that are not currently reflected on the balance sheets of companies at fair value. Prior to issuing
FSP FAS 107-1, fair values of these assets and liabilities were only disclosed on an annual basis.
FSP FAS 107-1 required these disclosures on a quarterly basis, providing qualitative and
quantitative information about fair value estimates for all financial instruments not measured on
the balance sheet at fair value. FSP FAS 107-1 became effective for the company for the period
ended June 30, 2009, which required the company to make annual disclosures in its interim financial
statements, which are included in Note 2, Fair Value of Assets and Liabilities, Note 3,
Investments, and Note 9, Debt.
FSP FAS 115-2 was intended to improve the consistency in the timing of impairment recognition
and provide greater clarity to investors about the credit and noncredit components of impaired debt
securities that are not expected to be sold. FSP FAS 115-2 required increased and more timely
disclosures sought by investors regarding expected cash flows, credit losses, and an aging of
securities with unrealized losses. The company adopted FSP FAS 115-2 on April 1, 2009. Upon
adoption, the company recorded a cumulative effect adjustment of $1.5 million to the April 1, 2009,
opening balance of retained earnings with a corresponding adjustment to accumulated other
comprehensive income.
In May 2009, the FASB issued Statement No. 165, Subsequent Events (FASB Statement No. 165).
FASB Statement No. 165, which is now encompassed in ASC Topic 855, Subsequent Events, established
general standards of accounting for and disclosure of events that occur after the balance sheet
date but before financial statements are issued or are available to be issued. Specifically, FASB
Statement No. 165 provided clarity around the period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements, the circumstances under which an
entity should recognize events or transactions occurring after the balance sheet date in its
financial statements, and the disclosure that an entity should make about events or transactions
that occurred after the balance sheet date. FASB Statement No. 165 was effective for interim and
annual financial reporting periods ending after June 15, 2009, and was applied prospectively.
On February 24, 2010, the FASB issued Accounting Standards
Update 2010-09, Amendments to Certain Recognition and
Disclosure Requirements (ASU 2010-09). ASU 2010-09 amended its
guidance on subsequent events to remove the requirement for
Securities and Exchange Commission filers to disclose the date
through which an entity has evaluated subsequent events.
In July 2009, the FASB issued Statement No. 168, The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles A Replacement of FASB Statement No.
162, (FASB Statement No. 168). FASB Statement No. 168 replaced the existing hierarchy of U.S.
Generally Accepted Accounting Principles with the FASB ASC as the single source of authoritative
U.S. accounting and reporting standards applicable for all nongovernmental entities, with the
exception of guidance issued by the U.S. Securities and Exchange Commission and its staff. FASB
Statement No. 168 is now encompassed in ASC Topic 105, Generally Accepted Accounting Principles,
and was effective July 1, 2009. The company has replaced references to FASB accounting standards
with ASC references, where applicable and relevant, in this Report.
In August 2009, the FASB issued Accounting Standards Update 2009-05, Fair Value Measurements
and Disclosures (Topic 820) Measuring Liabilities at Fair Value (ASU 2009-05). ASU 2009-05
amends Topic 820 by providing additional guidance (including illustrative examples) clarifying the
measurement of liabilities at fair value. When a quoted price in an active market for the identical
liability is not available, the amendments in ASU 2009-05 require that the fair value of a
liability be measured using one or more of the listed valuation techniques that should maximize the
use of relevant observable inputs and minimize the use of unobservable inputs. In addition, the
amendments in ASU 2009-05 clarify that when estimating the fair value of a liability, an entity is
not required to include a separate input or adjustment to the other inputs relating to the
existence of a restriction that prevents the transfer of the liability. The amendments also clarify
how the price of a traded debt security (i.e., an asset value) should be considered in estimating
the fair value of the issuers liability. The amendments in ASU 2009-05 became effective for the
company on October 1, 2009. The company does not have any liabilities that are measured at fair
value on a recurring basis. The company has made the required disclosures in Note 9, Debt.
In September 2009, the FASB issued Accounting Standards Update 2009-12, Investments in
Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent) (ASU 2009-12). ASU
2009-12 amends ASC Topic 820 to provide further guidance on how to measure the fair value of
investments in alternative investments, such as hedge, private equity, real estate, venture
capital, offshore and fund of funds. ASU 2009-12 permits, as a practical expedient, the measurement
of fair value of an investment on the basis of the net asset value per share of the investment (or
its equivalent) if the net asset value of the investment (or its equivalent) is calculated in a
manner consistent with ASC Topic 946, Financial Services Investment Companies, including
measurement of all or substantially all
78
of the funds underlying investments at fair value in accordance with ASC Topic 820. ASU
2009-12 is effective for interim and annual periods ending after December 15, 2009. The adoption of
ASU 2009-12 did not have a material impact on the Consolidated Financial Statements.
Recent Accounting Pronouncements Not Yet Adopted
In June 2009, the FASB issued Statement No. 166, Accounting for Transfers of Financial Assets
an amendment of FASB Statement No. 140, (FASB Statement No. 166), which addresses the effects of
eliminating the qualifying special-purpose entity concept from FASB Statement No. 140, Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (FASB Statement
No. 140), and will generally subject those entities to the consolidation guidance applied to other
VIEs as provided by FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R) (FASB
Statement No. 167). FASB Statement No. 166 is now encompassed in ASC Topic 860. FASB Statement No.
167 is now encompassed in ASC Topic 810. Specifically, FASB Statement No. 166 introduces the
concept of a participating interest, which will limit the circumstances where the transfer of a
portion of a financial asset will qualify as a sale, assuming all other derecogntion criteria are
met, and clarifies and amends the derecogntion criteria for determining whether a transfer
qualifies for sale accounting. FASB Statement No. 166 will be applied prospectively to new
transfers of financial assets occurring on or after January 1, 2010. The adoption of FASB Statement
No. 166 did not have a material impact on the companys Consolidated Financial Statements.
In June 2009, the FASB issued Statement No. 167, which addresses the effects of eliminating
the qualifying special-purpose entity concept from FASB Statement No. 140 and amends certain
provisions of FIN 46(R). Specifically, FASB Statement No. 167 amends certain provisions for
determining whether an entity is a VIE, it requires a qualitative rather than a quantitative
analysis to determine whether the company is the primary beneficiary of a VIE, it amends FIN
46(R)s consideration of related party relationships in the determination of the primary
beneficiary of a VIE by providing an exception regarding de facto agency relationships in certain
circumstances, it requires continuous assessments of whether the company is a VIEs primary
beneficiary, and it requires enhanced disclosures about the companys involvement with VIEs, which
are generally consistent with those disclosures required by FSP FAS 140-4 and FIN 46(R)-8 discussed
above.
In February 2010, the FASB issued a deferral of the effective date of FASB Statement No. 167 for a
reporting entitys interests in certain investment funds which have attributes of investment companies, for
which the reporting entity does not have an obligation to fund losses, and which are not structured as
securitization entities. Accordingly, all of the companys managed funds with the exception of certain
collateralized loan and debt obligation products (CLOs) qualify for the deferral.
FASB Statement No. 167, which is effective January 1, 2010, will have a
significant impact on the presentation of the companys financial statements, as its provisions
will require the company to consolidate certain CLOs with approximately $6 billion in AUM at
December 31, 2009, that are not currently consolidated. The companys Consolidated Statement of
Income will reflect the elimination of management and performance fees earned from these CLOs. The
Consolidated Balance Sheet will reflect the collateral assets held and non-recourse debt issued by
these CLOs, despite the fact that the assets cannot be used by the company, nor is the company
obligated for the debt. In addition, the companys Consolidated Cash Flow Statement will reflect
the cash flows of these CLOs.
In January 2010, the 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. Except for the requirement to
disclose information about purchases, sales, issuances, and settlements in the reconciliation of
recurring Level 3 measurements on a gross basis, all the amendments to Topic 820 made by ASU
2010-06 are effective for interim and annual reporting periods beginning after December 15, 2009.
As such, these new disclosures will be required in the companys Form 10-Q for the three months
ended March 31, 2010.
79
2. FAIR VALUE OF ASSETS AND LIABILITIES
The carrying value and fair value of financial instruments is presented in the below summary
table:
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December 31, 2009 |
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December 31, 2008 |
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Footnote |
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Carrying |
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Carrying |
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$ in millions |
|
Reference |
|
Value |
|
Fair Value |
|
Value |
|
Fair Value |
Cash and cash equivalents |
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|
2 |
|
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|
762.0 |
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|
|
762.0 |
|
|
|
585.2 |
|
|
|
585.2 |
|
Available for sale investments |
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|
2,3 |
|
|
|
115.2 |
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|
|
115.2 |
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|
|
103.9 |
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|
|
103.9 |
|
Assets held for policyholders |
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|
4 |
|
|
|
1,283.0 |
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|
|
1,283.0 |
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|
|
840.2 |
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|
|
840.2 |
|
Trading investments |
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2,3 |
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84.6 |
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84.6 |
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36.2 |
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36.2 |
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Support agreements |
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16,20 |
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(2.5 |
) |
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(2.5 |
) |
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(5.5 |
) |
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(5.5 |
) |
Policyholder payables |
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4 |
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(1,283.0 |
) |
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(1,283.0 |
) |
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(840.2 |
) |
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(840.2 |
) |
Current maturities of total debt |
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9 |
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(297.2 |
) |
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(277.3 |
) |
Long-term debt |
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9 |
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(745.7 |
) |
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(765.5 |
) |
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(862.0 |
) |
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(711.2 |
) |
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213.6 |
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193.8 |
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(439.4 |
) |
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(268.7 |
) |
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A three-level valuation hierarchy exists for disclosure of fair value measurements based upon
the transparency of inputs to the valuation of an asset or liability as of the measurement date.
The three levels are defined as follows:
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Level 1 inputs to the valuation methodology are quoted prices (unadjusted)
for identical assets or liabilities in active markets. |
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Level 2 inputs to the valuation methodology include quoted prices for
similar assets and liabilities in active markets, and inputs that are observable for the
asset or liability, either directly or indirectly, for substantially the full term of the
financial instrument. |
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Level 3 inputs to the valuation methodology are unobservable and
significant to the fair value measurement. |
An asset or liabilitys categorization within the valuation hierarchy is based upon the lowest
level of input that is significant to the fair value measurement.
There are three types of valuation approaches: a market approach, which uses observable prices
and other relevant information that is generated by market transactions involving identical or
comparable assets or liabilities; an income approach, which uses valuation techniques to convert
future amounts to a single, discounted present value amount; and a cost approach, which is based on
the amount that currently would be required to replace the service capacity of an asset.
The following is a description of the valuation methodologies used for assets and liabilities
measured at fair value, as well as the general classification of such assets and liabilities
pursuant to the valuation hierarchy.
Cash equivalents
Cash equivalents include cash investments in money market funds and time deposits. Cash and
cash equivalents invested in affiliated money market funds totaled $465.1 million at December 31,
2009 (December 31, 2008: $209.4 million). 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.
Cash investments in time deposits of $90.5 million at December 31, 2009 (December 31, 2008: $156.4
million) are very short-term in nature and are accordingly valued at cost plus accrued interest,
which approximates fair value, and are classified within level 2 of the valuation hierarchy.
Available-for-sale investments
Available-for-sale investments include amounts seeded into affiliated investment products,
foreign time deposits and investments in affiliated collateralized loan obligations (CLOs). 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. Seed money investments
are investments held in Invesco managed funds with the purpose of providing capital to the funds
during their development periods. These investments are recorded at fair value using quoted market
prices in active markets; there is no modeling or additional information needed to arrive at the
fair values of these investments. Foreign time deposits are valued under the income approach based
on observable interest rates and are classified within level 2 of the valuation hierarchy. CLOs are
valued using an income approach
80
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 as level 3 within the valuation hierarchy. An increase or decrease in
the discount rate of 1.0% would change the discounted cash flows of the CLOs by $0.6 million (2008:
$0.5 million).
Trading investments
Trading investments primarily include the investments of the deferred compensation plans that
are offered to certain Invesco employees. These investments are primarily invested in affiliated
funds that are held to economically hedge current and non-current deferred compensation
liabilities. Trading securities 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.
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 liabilities are indexed to the value of the assets held for policyholders.
The following table presents, for each of the hierarchy levels described above, the carrying
value of the companys assets, 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 December 31,
2009.
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As of December 31, 2009 |
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Quoted Prices in |
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Active Markets for |
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Significant Other |
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Significant |
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Fair Value |
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Identical Assets |
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Observable Inputs |
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Unobservable Inputs |
$ in millions |
|
Measurements |
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(Level 1) |
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(Level 2) |
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(Level 3) |
Current assets: |
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Cash equivalents: |
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Money market funds |
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498.6 |
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498.6 |
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Time deposits |
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90.5 |
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90.5 |
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Investments:* |
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Available-for-sale: |
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Seed money |
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74.8 |
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74.8 |
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Foreign time deposits |
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22.5 |
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22.5 |
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Trading investments: |
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Investments related to
deferred compensation plans |
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84.6 |
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84.6 |
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Assets held for policyholders |
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1,283.0 |
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1,283.0 |
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Total current assets |
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2,054.0 |
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1,941.0 |
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|
113.0 |
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Non-current assets: |
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Investments available-for-sale: |
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Collateralized loan obligations |
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|
17.9 |
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17.9 |
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|
|
|
|
|
|
Total assets at fair value |
|
|
2,071.9 |
|
|
|
1,941.0 |
|
|
|
113.0 |
|
|
|
17.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Other current investments of $0.5 million are excluded from this
table. Other non-current equity method and other investments of $134.7
million and $4.8 million are also excluded from this table. These
investments are not measured at fair value, in accordance with
applicable accounting standards. |
81
The following table presents, for each of the hierarchy levels described above, the carrying
value of the companys assets that are measured at fair value as of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008 |
|
|
|
|
|
|
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 |
|
|
365.8 |
|
|
|
209.4 |
|
|
|
156.4 |
|
|
|
|
|
Investments*: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale |
|
|
86.4 |
|
|
|
69.1 |
|
|
|
17.3 |
|
|
|
|
|
Trading investments |
|
|
36.2 |
|
|
|
36.2 |
|
|
|
|
|
|
|
|
|
Assets held for policyholders |
|
|
840.2 |
|
|
|
840.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,328.6 |
|
|
|
1,154.9 |
|
|
|
173.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments available-for-sale* |
|
|
17.5 |
|
|
|
|
|
|
|
|
|
|
|
17.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value |
|
|
1,346.1 |
|
|
|
1,154.9 |
|
|
|
173.7 |
|
|
|
17.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Other current investments of $1.0 million are excluded from this
table. Other non-current equity and other investments of $103.8
million 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, which are comprised solely of CLOs, using significant unobservable inputs:
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
Year Ended |
$ in millions |
|
December 31, 2009 |
|
December 31, 2008 |
Beginning balance |
|
|
17.5 |
|
|
|
39.0 |
|
Net unrealized gains and losses
included in accumulated other
comprehensive income/(loss)* |
|
|
6.4 |
|
|
|
2.8 |
|
Purchases and issuances |
|
|
|
|
|
|
1.5 |
|
Other-than-temporary impairment
included in other gains and
losses, net |
|
|
(5.2 |
) |
|
|
(22.7 |
) |
Return of capital |
|
|
(0.8 |
) |
|
|
(3.1 |
) |
|
|
|
|
|
|
|
|
|
Ending balance |
|
|
17.9 |
|
|
|
17.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Of these net unrealized gains and losses included in accumulated other
comprehensive income/(loss), $6.4 million for the year ended December
31, 2009, is attributed to the change in unrealized gains and losses
related to assets still held at December 31, 2009. |
3. INVESTMENTS
Current Investments
|
|
|
|
|
|
|
|
|
$ in millions |
|
2009 |
|
2008 |
Available-for-sale investments: |
|
|
|
|
|
|
|
|
Seed money |
|
|
74.8 |
|
|
|
69.1 |
|
Foreign time deposits |
|
|
22.5 |
|
|
|
17.3 |
|
Trading investments: |
|
|
|
|
|
|
|
|
Investments related to deferred compensation plans |
|
|
84.6 |
|
|
|
35.5 |
|
Other |
|
|
|
|
|
|
0.7 |
|
Other |
|
|
0.5 |
|
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
Total current investments |
|
|
182.4 |
|
|
|
123.6 |
|
|
|
|
|
|
|
|
|
|
82
Non-current Investments
|
|
|
|
|
|
|
|
|
$ in millions |
|
2009 |
|
2008 |
Available-for-sale investments: |
|
|
|
|
|
|
|
|
Collateralized loan obligations (CLOs) |
|
|
17.9 |
|
|
|
17.5 |
|
Other |
|
|
|
|
|
|
8.5 |
|
Equity method investments |
|
|
134.7 |
|
|
|
95.3 |
|
Other |
|
|
4.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current investments |
|
|
157.4 |
|
|
|
121.3 |
|
|
|
|
|
|
|
|
|
|
The portion of trading gains and losses for the year ended December 31, 2009, that relates to
trading securities still held at December 31, 2009, was $18.6 million (December 31, 2008: $18.7
million). Realized gains and losses recognized in the income statement during the year from
investments classified as available-for-sale are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
|
2007 |
|
|
Proceeds |
|
Gross |
|
Gross |
|
Proceeds |
|
Gross |
|
Gross |
|
Proceeds |
|
Gross |
|
Gross |
|
|
from |
|
Realized |
|
Realized |
|
from |
|
Realized |
|
Realized |
|
from |
|
Realized |
|
Realized |
$ in millions |
|
Sales |
|
Gains |
|
Losses |
|
Sales |
|
Gains |
|
Losses |
|
Sales |
|
Gains |
|
Losses |
Current
available-for-sale
investments |
|
|
47.5 |
|
|
|
4.5 |
|
|
|
(1.6 |
) |
|
|
73.9 |
|
|
|
1.6 |
|
|
|
(1.7 |
) |
|
|
102.8 |
|
|
|
20.6 |
|
|
|
|
|
Non-current
available-for-sale
investments |
|
|
2.2 |
|
|
|
1.4 |
|
|
|
|
|
|
|
10.6 |
|
|
|
7.4 |
|
|
|
|
|
|
|
9.0 |
|
|
|
2.6 |
|
|
|
(5.4 |
) |
Upon the sale of available-for-sale securities, net realized gains of $4.3 million,
$7.3 million and $17.8 million were transferred from accumulated other comprehensive income into
the Consolidated Statements of Income during 2009, 2008, and 2007, respectively. The specific
identification method is used to determine the realized gain or loss on securities sold or
otherwise disposed.
Gross unrealized holding gains and losses recognized in other accumulated comprehensive income
from available-for-sale investments are presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
|
|
|
|
|
|
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 |
|
|
74.7 |
|
|
|
5.9 |
|
|
|
(5.8 |
) |
|
|
74.8 |
|
|
|
78.9 |
|
|
|
3.7 |
|
|
|
(13.5 |
) |
|
|
69.1 |
|
Foreign time deposits |
|
|
22.5 |
|
|
|
|
|
|
|
|
|
|
|
22.5 |
|
|
|
17.3 |
|
|
|
|
|
|
|
|
|
|
|
17.3 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current available-for-sale investments |
|
|
97.2 |
|
|
|
5.9 |
|
|
|
(5.8 |
) |
|
|
97.3 |
|
|
|
97.2 |
|
|
|
3.7 |
|
|
|
(13.5 |
) |
|
|
87.4 |
|
Non-current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLOs |
|
|
12.6 |
|
|
|
5.3 |
|
|
|
|
|
|
|
17.9 |
|
|
|
17.1 |
|
|
|
0.4 |
|
|
|
|
|
|
|
17.5 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.8 |
|
|
|
1.7 |
|
|
|
|
|
|
|
8.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current available-for-sale investments: |
|
|
12.6 |
|
|
|
5.3 |
|
|
|
|
|
|
|
17.9 |
|
|
|
23.9 |
|
|
|
2.1 |
|
|
|
|
|
|
|
26.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109.8 |
|
|
|
11.2 |
|
|
|
(5.8 |
) |
|
|
115.2 |
|
|
|
121.1 |
|
|
|
5.8 |
|
|
|
(13.5 |
) |
|
|
113.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale debt securities as of December 31, 2009, by maturity, are set out below:
|
|
|
|
|
|
|
Available-for-Sale |
$ in millions |
|
(Fair Value) |
Less than one year |
|
|
22.5 |
|
One to five years |
|
|
|
|
Five to ten years |
|
|
6.2 |
|
Greater than ten years |
|
|
11.7 |
|
|
|
|
|
|
Total available-for-sale |
|
|
40.4 |
|
|
|
|
|
|
83
The following table provides the breakdown of available-for-sale investments with unrealized
losses at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 (44 funds) |
|
|
5.7 |
|
|
|
(0.3 |
) |
|
|
25.1 |
|
|
|
(5.5 |
) |
|
|
30.8 |
|
|
|
(5.8 |
) |
The following table provides the breakdown of available-for-sale investments with unrealized
losses at December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
47.1 |
|
|
|
(12.8 |
) |
|
|
8.7 |
|
|
|
(0.7 |
) |
|
|
55.8 |
|
|
|
(13.5 |
) |
As of December 31, 2009, the company reviewed the cash flow estimates of its CLOs, which are
based on the underlying pools of securities and take into account the overall credit quality of the
issuers, the forecasted default rates of the securities, and the companys past experience in
managing similar securities. These estimates of future cash flows, taking into account both timing
and amounts and discounted using appropriate discount rates, indicated a sustained decline in
valuation, resulting in credit-related other-than-temporary impairment charges recorded in other
gains and losses, net, on the Consolidated Statement of Income during the year ended December 31,
2009, of $5.2 million (December 31, 2008: $22.7 million). These securities may recover their value
over time; the company does not intend to sell its CLO investments before maturity.
As discussed in Note 1, Accounting Policies, the company adopted FSP FAS 115-2, now
encompassed in ASC Topic 320, on April 1, 2009. Upon adoption, the company recorded a cumulative
effect adjustment of $1.5 million to the April 1, 2009, opening balance of retained earnings with a
corresponding adjustment to accumulated other comprehensive income, representing the non-credit
component of previously-recognized other-than-temporary impairment. In addition, during the year ended December
31, 2009, $0.3 million was recorded as a charge to other comprehensive income from
other-than-temporary impairment related to non-credit related factors, primarily the change in
discount rates during the period, representing the total other-than-temporary impairment recognized
in accumulated other comprehensive income. A rollforward of the cumulative credit-related
other-than-temporary impairment charges recognized in earnings for which some portion of the
impairment was recorded in other comprehensive income is as follows:
|
|
|
|
|
|
|
Nine months ended |
In millions |
|
December 31, 2009 |
Beginning balance |
|
|
17.1 |
|
Additional credit losses recognized during the period related to securities for which: |
|
|
|
|
No OTTI has been previously recognized |
|
|
|
|
OTTI has been previously recognized |
|
|
1.7 |
|
|
|
|
|
|
Ending balance |
|
|
18.8 |
|
|
|
|
|
|
The company recorded other-than-temporary impairment charges on seed money investments of $3.0
million in 2009 (2008: $8.5 million). The gross unrealized losses of seed money investments were
primarily caused by declines in the market value of the underlying 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.
The company owns 100% of the voting control of its subsidiary entities, directly or
indirectly, with the exception of the following entities, which are consolidated with resulting
noncontrolling interests:
|
|
|
|
|
|
|
|
|
|
|
Country of |
|
|
Name of Company |
|
Incorporation |
|
% Voting Interest Owned |
India Asset Recovery Management Limited |
|
India |
|
|
80.1 |
% |
84
Following are the companys investments in joint ventures and affiliates, which are accounted
for using the equity method and are recorded as long-term investments on the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
Country of |
|
|
Name of Company |
|
Incorporation |
|
% Voting Interest Owned |
Invesco Great Wall Fund Management Company Limited |
|
China |
|
|
49.0 |
% |
Huaneng Invesco WLR Investment Consulting Company Limited |
|
China |
|
|
50.0 |
% |
Pocztylion ARKA |
|
Poland |
|
|
29.3 |
% |
Equity method investments also include the companys investments in various of its sponsored
private equity, real estate and other investment entities. The companys investment is generally
less than 5% of the capital of these entities. These entities include variable interest entities
for which the company has determined that it is not the primary beneficiary and other investment
products structured as partnerships for which the company is the general partner and the other
limited partners possess either substantive kick-out, liquidation or participation rights. See Note
16, Consolidated Investment Products, for additional information. Equity in earnings of
unconsolidated affiliates for the year ended December 31, 2009, was $27.0 million (2008:
$46.8 million; 2007: $48.1 million).
4. ASSETS HELD FOR POLICYHOLDERS AND POLICYHOLDER PAYABLES
One of the companys subsidiaries, Invesco Perpetual Life Limited, is an insurance company
which was established to facilitate retirement savings plans in the U.K. The entity holds assets on
its balance sheet that are legally segregated and are generally not subject to claims that arise
from any other Invesco business and which are managed for its clients with an offsetting liability.
Both the asset and the liability are reported at fair value. At December 31, 2009, the assets held
for policyholders and the linked policyholder payables were $1,283.0 million (2008:
$840.2 million). Changes in the fair values of these assets and liabilities are recorded in the
income statement, where they offset, because the value of the policyholder payables is linked to
the value of the assets held for policyholders.
85
5. PROPERTY AND EQUIPMENT
Changes in property and equipment balances are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology and Other |
|
|
|
|
|
|
|
|
|
Leasehold |
|
|
|
|
$ in millions |
|
Equipment |
|
Software |
|
Land and Buildings* |
|
Improvements |
|
Total |
Cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2009 |
|
|
281.8 |
|
|
|
191.9 |
|
|
|
65.0 |
|
|
|
132.6 |
|
|
|
671.3 |
|
Foreign exchange |
|
|
7.9 |
|
|
|
4.9 |
|
|
|
6.6 |
|
|
|
5.0 |
|
|
|
24.4 |
|
Additions |
|
|
15.1 |
|
|
|
30.8 |
|
|
|
0.9 |
|
|
|
6.2 |
|
|
|
53.0 |
|
Transfers |
|
|
(7.8 |
) |
|
|
6.8 |
|
|
|
|
|
|
|
1.0 |
|
|
|
|
|
Disposals |
|
|
(7.0 |
) |
|
|
(0.2 |
) |
|
|
|
|
|
|
(2.4 |
) |
|
|
(9.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
290.0 |
|
|
|
234.2 |
|
|
|
72.5 |
|
|
|
142.4 |
|
|
|
739.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2009 |
|
|
(233.2 |
) |
|
|
(146.3 |
) |
|
|
(5.9 |
) |
|
|
(80.6 |
) |
|
|
(466.0 |
) |
Foreign exchange |
|
|
(7.7 |
) |
|
|
(4.0 |
) |
|
|
(0.7 |
) |
|
|
(4.3 |
) |
|
|
(16.7 |
) |
Depreciation expense |
|
|
(11.6 |
) |
|
|
(15.0 |
) |
|
|
(0.9 |
) |
|
|
(17.5 |
) |
|
|
(45.0 |
) |
Disposals |
|
|
7.0 |
|
|
|
|
|
|
|
|
|
|
|
2.3 |
|
|
|
9.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
(245.5 |
) |
|
|
(165.3 |
) |
|
|
(7.5 |
) |
|
|
(100.1 |
) |
|
|
(518.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
44.5 |
|
|
|
68.9 |
|
|
|
65.0 |
|
|
|
42.3 |
|
|
|
220.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2008 |
|
|
340.5 |
|
|
|
237.9 |
|
|
|
84.1 |
|
|
|
124.9 |
|
|
|
787.4 |
|
Foreign exchange |
|
|
(13.4 |
) |
|
|
(14.8 |
) |
|
|
(20.4 |
) |
|
|
(7.8 |
) |
|
|
(56.4 |
) |
Additions |
|
|
28.5 |
|
|
|
25.9 |
|
|
|
1.3 |
|
|
|
28.6 |
|
|
|
84.3 |
|
Disposals |
|
|
(73.8 |
) |
|
|
(57.1 |
) |
|
|
|
|
|
|
(13.1 |
) |