filings.toolsItem 8. Financial Statements and Supplementary Data
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Item 8. Financial Statements and Supplementary Data
Index to Financial Statements and Supplementary Data
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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 company’s 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 the company’s internal control over financial reporting as of December 31, 2021. 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 (2013). Based on this assessment, management concluded that the company’s internal control over financial reporting was effective as of December 31, 2021.
The company's independent registered public accounting firm, PricewaterhouseCoopers LLP, have issued a report on the effectiveness of our internal control over financial reporting, which is included herein.
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Invesco Ltd.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Invesco Ltd. and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, 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 Annual Report of Management on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s 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 company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) 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 (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
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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.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Accounting for Income Taxes
As described in Notes 1 and 17 to the consolidated financial statements, the Company recorded income tax expense of $531.1 million for the year ended December 31, 2021, and had net deferred tax assets of $274.9 million, including a valuation allowance of $86.7 million, and total gross unrecognized income tax benefits of $86.6 million as of December 31, 2021, $71.9 million of which would affect the Company's effective tax rate if recognized in future periods. The Company files U.S. federal, U.S. state and local, and numerous foreign income tax returns. As disclosed by management, significant judgment is required in the determination of the Company’s annual income tax provisions, which includes the assessment of deferred tax assets and uncertain tax positions, as well as the interpretation and application of existing and newly enacted tax laws, regulation changes, and new judicial rulings.
The principal considerations for our determination that performing procedures relating to the accounting for income taxes is a critical audit matter are the significant judgment by management when determining the provision for income taxes, including the interpretation and application of newly enacted tax laws, regulation changes, and new judicial rulings; this in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence relating to management’s interpretation and application of newly enacted tax laws, regulation changes, and new judicial rulings.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the provision for income taxes, including controls over the interpretation and application of newly enacted tax laws, regulation changes, and new judicial rulings. These procedures also included, among others, (i) evaluating management’s assessment of the applicability of newly enacted tax laws, regulation changes, and new judicial rulings; (ii) testing management's income tax calculations, including testing the completeness and accuracy of the underlying data and considering the Company's compliance with tax laws; and (iii) evaluating the status and results of income tax audits with the relevant tax authorities.
/s/ PricewaterhouseCoopers LLP
Atlanta, Georgia
February 17, 2022
We have served as the Company’s auditor since 2013.
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Invesco Ltd.
Consolidated Balance Sheets
| As of | |||||||||||
| $ in millions, except per share data | December 31, 2021 | December 31, 2020 | |||||||||
| ASSETS | |||||||||||
| Cash and cash equivalents | 1,896.4 | 1,408.4 | |||||||||
| Unsettled fund receivables | 92.8 | 109.4 | |||||||||
| Accounts receivable | 785.0 | 741.1 | |||||||||
| Investments | 926.3 | 826.8 | |||||||||
| Assets of consolidated investment products (CIP): | |||||||||||
| Cash and cash equivalents of CIP | 250.7 | 301.7 | |||||||||
| Accounts receivable and other assets of CIP | 532.6 | 175.5 | |||||||||
| Investments of CIP | 9,042.5 | 7,910.0 | |||||||||
| Assets held for policyholders | 1,893.6 | 7,582.1 | |||||||||
| Prepaid assets | 166.0 | 149.2 | |||||||||
| Other assets | 471.1 | 514.2 | |||||||||
| Property, equipment and software, net | 518.1 | 563.8 | |||||||||
| Intangible assets, net | 7,228.0 | 7,305.6 | |||||||||
| Goodwill | 8,882.5 | 8,916.3 | |||||||||
| Total assets | 32,685.6 | 36,504.1 | |||||||||
| LIABILITIES | |||||||||||
| Accrued compensation and benefits | 1,062.3 | 973.7 | |||||||||
| Accounts payable and accrued expenses | 1,065.3 | 1,920.4 | |||||||||
| Liabilities of CIP: | |||||||||||
| Debt of CIP | 7,336.1 | 6,714.1 | |||||||||
| Other liabilities of CIP | 846.3 | 588.6 | |||||||||
| Policyholder payables | 1,893.6 | 7,582.1 | |||||||||
| Unsettled fund payables | 91.8 | 98.4 | |||||||||
| Debt | 2,085.1 | 2,082.6 | |||||||||
| Deferred tax liabilities, net | 1,626.3 | 1,523.5 | |||||||||
| Total liabilities | 16,006.8 | 21,483.4 | |||||||||
| Commitments and contingencies (See Note 20) | |||||||||||
| TEMPORARY EQUITY | |||||||||||
| Redeemable noncontrolling interests in consolidated entities | 510.8 | 211.8 | |||||||||
| PERMANENT EQUITY | |||||||||||
| Equity attributable to Invesco Ltd.: | |||||||||||
| Preferred shares ($0.20 par value; $1,000 liquidation preference; 4.0 million authorized, issued and outstanding as of December 31, 2021 and 2020) | 4,010.5 | 4,010.5 | |||||||||
| Common shares ($0.20 par value; 1,050.0 million authorized; 566.1 million shares issued as of December 31, 2021 and 2020) | 113.2 | 113.2 | |||||||||
| Additional paid-in-capital | 7,688.0 | 7,811.4 | |||||||||
| Treasury shares | (3,043.6) | (3,253.8) | |||||||||
| Retained earnings | 7,169.2 | 6,085.0 | |||||||||
| Accumulated other comprehensive income/(loss), net of tax | (441.5) | (404.5) | |||||||||
| Total equity attributable to Invesco Ltd. | 15,495.8 | 14,361.8 | |||||||||
| Equity attributable to nonredeemable noncontrolling interests in consolidated entities | 672.2 | 447.1 | |||||||||
| Total permanent equity | 16,168.0 | 14,808.9 | |||||||||
| Total liabilities, temporary and permanent equity | 32,685.6 | 36,504.1 |
See accompanying notes.
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Invesco Ltd.
Consolidated Statements of Income
| Years ended December 31, | |||||||||||||||||
| $ in millions, except per common share data | 2021 | 2020 | 2019 | ||||||||||||||
| Operating revenues: | |||||||||||||||||
| Investment management fees | 4,995.9 | 4,451.0 | 4,506.3 | ||||||||||||||
| Service and distribution fees | 1,596.4 | 1,419.0 | 1,276.5 | ||||||||||||||
| Performance fees | 56.1 | 65.6 | 102.2 | ||||||||||||||
| Other | 246.1 | 210.0 | 232.4 | ||||||||||||||
| Total operating revenues | 6,894.5 | 6,145.6 | 6,117.4 | ||||||||||||||
| Operating expenses: | |||||||||||||||||
| Third-party distribution, service and advisory | 2,149.3 | 1,947.6 | 1,893.0 | ||||||||||||||
| Employee compensation | 1,911.3 | 1,807.9 | 1,709.3 | ||||||||||||||
| Marketing | 98.6 | 83.3 | 135.6 | ||||||||||||||
| Property, office and technology | 526.0 | 512.3 | 494.1 | ||||||||||||||
| General and administrative | 424.1 | 480.8 | 404.2 | ||||||||||||||
| Transaction, integration and restructuring | (65.9) | 330.8 | 620.3 | ||||||||||||||
| Amortization of intangibles | 62.9 | 62.5 | 52.7 | ||||||||||||||
| Total operating expenses | 5,106.3 | 5,225.2 | 5,309.2 | ||||||||||||||
| Operating income | 1,788.2 | 920.4 | 808.2 | ||||||||||||||
| Other income/(expense): | |||||||||||||||||
| Equity in earnings of unconsolidated affiliates | 152.3 | 72.7 | 56.4 | ||||||||||||||
| Interest and dividend income | 25.2 | 20.5 | 28.5 | ||||||||||||||
| Interest expense | (94.7) | (129.3) | (135.7) | ||||||||||||||
| Other gains and losses, net | 120.5 | 44.9 | 65.7 | ||||||||||||||
| Other income/(expense) of CIP, net | 509.0 | 139.9 | 149.8 | ||||||||||||||
| Income before income taxes | 2,500.5 | 1,069.1 | 972.9 | ||||||||||||||
| Income tax provision | (531.1) | (261.6) | (235.1) | ||||||||||||||
| Net income | 1,969.4 | 807.5 | 737.8 | ||||||||||||||
| Net (income)/loss attributable to noncontrolling interests in consolidated entities | (339.6) | (45.9) | (49.5) | ||||||||||||||
| Dividends declared on preferred shares | (236.8) | (236.8) | (123.6) | ||||||||||||||
| Net income attributable to Invesco Ltd. | 1,393.0 | 524.8 | 564.7 | ||||||||||||||
| Earnings per common share: | |||||||||||||||||
| -basic | $3.01 | $1.14 | $1.29 | ||||||||||||||
| -diluted | $2.99 | $1.13 | $1.28 |
See accompanying notes.
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Invesco Ltd.
Consolidated Statements of Comprehensive Income
| Years ended December 31, | |||||||||||||||||
| $ in millions | 2021 | 2020 | 2019 | ||||||||||||||
| Net income | 1,969.4 | 807.5 | 737.8 | ||||||||||||||
| Other comprehensive income/(loss), net of tax: | |||||||||||||||||
| Currency translation differences on investments in foreign subsidiaries | (73.3) | 182.7 | 155.6 | ||||||||||||||
| Actuarial gain/(loss) related to employee benefit plans | 28.3 | (6.3) | (10.8) | ||||||||||||||
| Other comprehensive income/(loss), net of tax | 8.0 | 6.4 | 2.9 | ||||||||||||||
| Other comprehensive income/(loss) | (37.0) | 182.8 | 147.7 | ||||||||||||||
| Total comprehensive income/(loss) | 1,932.4 | 990.3 | 885.5 | ||||||||||||||
| Comprehensive loss/(income) attributable to noncontrolling interests in consolidated entities | (339.6) | (45.9) | (49.5) | ||||||||||||||
| Dividends declared on preferred shares | (236.8) | (236.8) | (123.6) | ||||||||||||||
| Comprehensive income/(loss) attributable to Invesco Ltd. | 1,356.0 | 707.6 | 712.4 |
See accompanying notes.
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Invesco Ltd.
Consolidated Statements of Cash Flows
| Years ended December 31, | |||||||||||||||||
| $ in millions | 2021 | 2020 | 2019 | ||||||||||||||
| Operating activities: | |||||||||||||||||
| Net income | 1,969.4 | 807.5 | 737.8 | ||||||||||||||
| Adjustments to reconcile net income to net cash provided by/(used in) operating activities: | |||||||||||||||||
| Amortization and depreciation | 205.3 | 203.5 | 177.6 | ||||||||||||||
| Common share-based compensation expense | 140.1 | 188.5 | 207.5 | ||||||||||||||
| Other (gains)/losses, net | (120.5) | (44.9) | (65.7) | ||||||||||||||
| Other (gains)/losses of CIP, net | (390.0) | (32.1) | (32.9) | ||||||||||||||
| Equity in earnings of unconsolidated affiliates | (152.3) | (72.7) | (56.4) | ||||||||||||||
| Distributions from equity method investees | 48.2 | 33.9 | 9.7 | ||||||||||||||
| Changes in operating assets and liabilities: | |||||||||||||||||
| (Purchase)/sale of investments by CIP, net | (421.6) | (48.2) | (213.4) | ||||||||||||||
| (Purchase)/sale of investments, net | 93.8 | 263.1 | 167.0 | ||||||||||||||
| (Increase)/decrease in receivables | 5,581.2 | 3,744.4 | 934.3 | ||||||||||||||
| Increase/(decrease) in payables | (5,875.5) | (3,812.7) | (748.9) | ||||||||||||||
| Net cash provided by/(used in) operating activities | 1,078.1 | 1,230.3 | 1,116.6 | ||||||||||||||
| Investing activities: | |||||||||||||||||
| Purchase of property, equipment and software | (108.8) | (115.0) | (124.3) | ||||||||||||||
| Purchase of investments by CIP | (5,981.8) | (4,548.6) | (5,244.8) | ||||||||||||||
| Sale of investments by CIP | 5,281.5 | 3,782.3 | 3,654.9 | ||||||||||||||
| Purchase of investments | (191.1) | (153.6) | (229.1) | ||||||||||||||
| Sale of investments | 129.2 | 143.2 | 123.3 | ||||||||||||||
| Capital distribution from equity method investees | 44.9 | 26.6 | 78.1 | ||||||||||||||
| Collateral received/(posted), net | — | — | 26.0 | ||||||||||||||
| Purchase of business, net of cash acquired | — | — | 290.5 | ||||||||||||||
| Net cash inflows/(outflows) upon consolidation/deconsolidation of CIP | (21.8) | 5.5 | (7.4) | ||||||||||||||
| Net cash provided by/(used in) investing activities | (847.9) | (859.6) | (1,432.8) | ||||||||||||||
| Financing activities: | |||||||||||||||||
| Purchases of treasury shares | (60.9) | (47.1) | (469.8) | ||||||||||||||
| Dividends paid - preferred | (236.8) | (236.8) | (123.6) | ||||||||||||||
| Dividends paid - common | (307.7) | (357.4) | (529.1) | ||||||||||||||
| Third-party capital invested into CIP | 628.9 | 185.8 | 289.5 | ||||||||||||||
| Third-party capital distributed by CIP | (395.5) | (236.4) | (144.1) | ||||||||||||||
| Borrowings of debt of CIP | 3,411.9 | 1,268.0 | 3,348.8 | ||||||||||||||
| Repayments of debt of CIP | (2,497.3) | (791.1) | (1,819.6) | ||||||||||||||
| Settlement of forward contracts on treasury shares | (309.4) | (190.6) | — | ||||||||||||||
| Collateral received/(returned), net | (104.1) | 142.0 | — | ||||||||||||||
| Net borrowings/(repayments) under credit facility | — | — | (330.8) | ||||||||||||||
| Payment of contingent consideration | (11.8) | (22.3) | (20.0) | ||||||||||||||
| Net cash provided by/(used in) financing activities | 117.3 | (285.9) | 201.3 | ||||||||||||||
| Increase/(decrease) in cash and cash equivalents | 347.5 | 84.8 | (114.9) | ||||||||||||||
| Foreign exchange movement on cash and cash equivalents | (32.2) | 27.5 | 17.7 | ||||||||||||||
| Foreign exchange movement on cash and cash equivalents of CIP | (7.5) | 25.8 | (7.0) | ||||||||||||||
| Cash, cash equivalents and restricted cash, beginning of period (1) | 1,839.3 | 1,701.2 | 1,805.4 | ||||||||||||||
| Cash, cash equivalents and restricted cash, end of period | 2,147.1 | 1,839.3 | 1,701.2 | ||||||||||||||
| Cash and cash equivalents | 1,896.4 | 1,408.4 | 1,049.0 | ||||||||||||||
| Restricted cash (1) | — | 129.2 | — | ||||||||||||||
| Cash and cash equivalents of CIP | 250.7 | 301.7 | 652.2 | ||||||||||||||
| Total cash, cash equivalents and restricted cash per consolidated statement of cash flows | 2,147.1 | 1,839.3 | 1,701.2 | ||||||||||||||
| Supplemental Cash Flow Information: | |||||||||||||||||
| Interest paid | (85.7) | (93.1) | (99.4) | ||||||||||||||
| Interest received | 0.7 | 2.7 | 9.2 | ||||||||||||||
| Taxes paid | (431.7) | (223.8) | (193.7) |
(1) Restricted cash of $129.2 million as of December 31, 2020 is recorded in Other assets on the Consolidated Balance Sheets.
See accompanying notes.
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Invesco Ltd.
Consolidated Statements of Changes in Equity
| Equity Attributable to Invesco Ltd. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| $ in millions, except per share data | Preferred Shares | Common Shares | Additional Paid-in-Capital | Treasury Shares | Retained Earnings | Accumulated Other Comprehensive Income/(Loss) | Total Equity Attributable to Invesco Ltd. | Nonredeemable Noncontrolling Interests in Consolidated Entities | Total Permanent Equity | Redeemable Noncontrolling Interests in Consolidated Entities/Temporary Equity | |||||||||||||||||||||||||||||||||||||||||||||||||
| January 1, 2021 | 4,010.5 | 113.2 | 7,811.4 | (3,253.8) | 6,085.0 | (404.5) | 14,361.8 | 447.1 | 14,808.9 | 211.8 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | 1,629.8 | — | 1,629.8 | 301.6 | 1,931.4 | 38.0 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income/(loss) | — | — | — | — | — | (37.0) | (37.0) | — | (37.0) | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Change in noncontrolling interests in consolidated entities, net | — | — | — | — | — | — | — | (76.5) | (76.5) | 261.0 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of shares | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared - preferred ($59.00 per share) | — | — | — | — | (236.8) | — | (236.8) | — | (236.8) | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared - common ($0.67 per share) | — | — | — | — | (308.8) | — | (308.8) | — | (308.8) | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Employee common share plans: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common share-based compensation | — | — | 140.1 | — | — | — | 140.1 | — | 140.1 | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Vested common shares | — | — | (263.0) | 263.0 | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other common share awards | — | — | (0.5) | 8.1 | — | — | 7.6 | — | 7.6 | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of common shares | — | — | — | (60.9) | — | — | (60.9) | — | (60.9) | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2021 | 4,010.5 | 113.2 | 7,688.0 | (3,043.6) | 7,169.2 | (441.5) | 15,495.8 | 672.2 | 16,168.0 | 510.8 |
See accompanying notes.
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Invesco Ltd.
Consolidated Statements of Changes in Equity (continued)
| Equity Attributable to Invesco Ltd. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| $ in millions, except per share data | Preferred Shares | Common Shares | Additional Paid-in-Capital | Treasury Shares | Retained Earnings | Accumulated Other Comprehensive Income/(Loss) | Total Equity Attributable to Invesco Ltd. | Nonredeemable Noncontrolling Interests in Consolidated Entities | Total Permanent Equity | Redeemable Noncontrolling Interests in Consolidated Entities/Temporary Equity | |||||||||||||||||||||||||||||||||||||||||||||||||
| January 1, 2020 | 4,010.5 | 113.2 | 7,860.8 | (3,452.5) | 5,917.8 | (587.3) | 13,862.5 | 455.8 | 14,318.3 | 383.5 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | 761.6 | — | 761.6 | 34.7 | 796.3 | 11.2 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income/(loss) | — | — | — | — | — | 182.8 | 182.8 | — | 182.8 | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Change in noncontrolling interests in consolidated entities, net | — | — | — | — | — | — | — | (43.4) | (43.4) | (182.9) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of shares | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared - preferred ($59.00 per share) | — | — | — | — | (236.8) | — | (236.8) | — | (236.8) | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared - common ($0.78 per share) | — | — | — | — | (357.6) | — | (357.6) | — | (357.6) | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Employee common share plans: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common share-based compensation | — | — | 188.5 | — | — | — | 188.5 | — | 188.5 | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Vested common shares | — | — | (227.3) | 227.3 | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other common share awards | — | — | (10.6) | 18.5 | — | — | 7.9 | — | 7.9 | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of common shares | — | — | — | (47.1) | — | — | (47.1) | — | (47.1) | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2020 | 4,010.5 | 113.2 | 7,811.4 | (3,253.8) | 6,085.0 | (404.5) | 14,361.8 | 447.1 | 14,808.9 | 211.8 |
See accompanying notes.
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Invesco Ltd.
Consolidated Statements of Changes in Equity (continued)
| Equity Attributable to Invesco Ltd. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| $ in millions, except per share data | Preferred Shares | Common Shares | Additional Paid-in-Capital | Treasury Shares | Retained Earnings | Accumulated Other Comprehensive Income/(Loss) | Total Equity Attributable to Invesco Ltd. | Nonredeemable Noncontrolling Interests in Consolidated Entities | Total Permanent Equity | Redeemable Noncontrolling Interests in Consolidated Entities/Temporary Equity | |||||||||||||||||||||||||||||||||||||||||||||||||
| January 1, 2019 | — | 98.1 | 6,334.8 | (3,003.6) | 5,884.5 | (735.0) | 8,578.8 | 357.4 | 8,936.2 | 396.2 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | 688.3 | — | 688.3 | 9.5 | 697.8 | 40.0 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | 147.7 | 147.7 | — | 147.7 | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Change in noncontrolling interests in consolidated entities, net | — | — | — | — | — | — | — | 88.9 | 88.9 | (52.7) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of shares | 4,010.5 | 15.1 | 1,438.2 | — | — | — | 5,463.8 | — | 5,463.8 | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared - preferred ($30.81 per share) | — | — | — | — | (123.6) | — | (123.6) | — | (123.6) | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared - common ($1.23 per share) | — | — | — | — | (531.4) | — | (531.4) | — | (531.4) | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Employee common share plans: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common share-based compensation | — | — | 207.5 | — | — | — | 207.5 | — | 207.5 | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Vested common shares | — | — | (118.3) | 207.0 | — | — | 88.7 | — | 88.7 | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other common share awards | — | — | (1.4) | 8.9 | — | — | 7.5 | — | 7.5 | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of common shares | — | — | — | (664.8) | — | — | (664.8) | — | (664.8) | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2019 | 4,010.5 | 113.2 | 7,860.8 | (3,452.5) | 5,917.8 | (587.3) | 13,862.5 | 455.8 | 14,318.3 | 383.5 |
See accompanying notes.
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Invesco Ltd.
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 and institutional clients with an array of global investment management capabilities. The company operates globally and its sole business is investment management.
Accounting Pronouncements Recently Adopted
Income Taxes*.* On January 1, 2021, the company adopted Accounting Standards Update 2019-12, “Simplifying Accounting for Income Taxes” (ASU 2019-12). The update simplifies various aspects related to income taxes and removes certain exceptions to the general principles in Topic 740. The company has adopted ASU 2019-12 using a prospective approach and determined that there is no material impact upon adoption of this standard.
Basis of Accounting and Consolidation
The Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States and with rules and regulations of the Securities and Exchange Commission and consolidate the financial statements of the Parent and all of its controlled subsidiaries. In the opinion of management, the Consolidated Financial Statements reflect all adjustments, consisting of normal recurring accruals, which are necessary for the fair presentation of the financial condition and results of operations for the periods presented. All significant intercompany transactions, balances, revenues and expenses are eliminated upon consolidation.
The company provides investment management services to, and has transactions with, various retail mutual funds and similar entities, private equity funds, real estate funds, fund-of-funds, collateralized loan obligations (CLOs) and other investment products sponsored by the company in the normal course of business for the investment of client assets. The company serves as the investment manager, making day-to-day investment decisions concerning the assets of these products.
In addition to consolidating the financial statements of the Parent and all of its controlled subsidiaries, the Consolidated Financial Statements include the consolidation of certain investment products (Consolidated Investment Products or CIP) that meet the definition of either a voting rights entity (VOE), if the company is deemed to have a controlling financial interest in the fund, or a variable interest entity (VIE), if the company has been deemed to be the primary beneficiary of the fund.
Certain of these investment products, typically CLOs, funds that are structured as partnership entities (such as private equity funds, real estate funds and fund-of-funds) and certain non-U.S. mutual funds, are considered, for accounting and consolidation analysis purposes, to be VIEs if the VIE criteria are met. A VIE, in the context of the company and its managed funds, is a fund that does not have sufficient equity to finance its operations without additional subordinated financial support, or a fund for which the risks and rewards of ownership are not directly linked to voting interests. If the company is deemed to have the power to direct the activities of the fund that most significantly impact the fund's economic performance, and the obligation to absorb losses/right to receive benefits from the fund that could potentially be significant to the fund, then the company is deemed to be the fund's primary beneficiary and is required to consolidate the fund.
The company's economic risk with respect to each investment in a CIP is limited to its equity ownership and any uncollected management and performance fees. See Note 21, "Consolidated Investment Products," for additional information regarding the impact of CIP.
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Consolidation Analysis
The company inventories its funds by vehicle type on a quarterly basis. The company assesses modifications to existing funds on an ongoing basis to determine if a significant reconsideration event has occurred. The consolidation analysis includes a detailed review of the terms of the fund's governing documents and a comparison of the significant terms against the consolidation criteria in ASC Topic 810, including a determination of whether the fund is a VIE or a VOE. Seed money and co-investments in managed funds in which the company has determined that it is the primary beneficiary or in which the company has a controlling financial interest are consolidated if the impact of doing so is deemed material. If the company subsequently determines that it no longer controls the managed funds in which it has invested, or no longer has an obligation to absorb losses or rights to receive benefits, the company will deconsolidate the funds. If there are any remaining holdings in the managed funds or if the managed funds are not required to be consolidated, the investment is accounted for as described in the "Investments" accounting policy below.
Upon consolidation of an investment product, the company's gain or loss on its investment (before consolidation) eliminates with the company's share of the offsetting loss or gain in the fund. Upon consolidation, the company's and the funds' accounting policies are effectively aligned, resulting in the reclassification of the company's gain or loss (representing the changes in the market value of the company's holding in the consolidated fund) from other comprehensive income into other gains/losses. The net impact from consolidation of funds previously carried as available-for-sale investments to net income attributable to Invesco Ltd. in each period primarily represents the changes in the value of the company's holdings in its consolidated investment products.
Consolidation of CLOs
A significant portion of VIEs are CLOs. CLOs are investment vehicles created for the sole purpose of issuing collateralized loan instruments that offer investors the opportunity for returns that vary with the risk level of their investment. The notes issued by the CLOs are backed by diversified collateral asset portfolios consisting primarily of loans or structured debt. For managing the collateral of the CLO entities, the company earns investment management fees, including in some cases subordinated management fees, as well as contingent performance fees. The company has invested in certain of the entities, generally taking a portion of the unrated, junior subordinated position. The company's investments in CLOs are generally subordinated to other interests in the entities and entitle the company and other subordinated tranche investors to receive the residual cash flows, if any, from the entities. The company's subordinated interest can take the form of (1) subordinated notes, (2) income notes or (3) preference/preferred shares. The company has determined that, although the junior tranches have certain characteristics of equity, they should be accounted for and disclosed as debt on the company's Consolidated Balance Sheets, as the subordinated and income notes have a stated maturity indicating a date for which they are mandatorily redeemable. The preference shares are also classified as debt, as redemption is required only upon liquidation or termination of the CLO and not of the company.
The company determined that it was the primary beneficiary of certain CLOs, as it has the power to direct the activities of the CLOs that most significantly impact the CLOs' economic performance, and the obligation to absorb losses/right to receive benefits from the CLOs that could potentially be significant to the CLOs. The primary beneficiary assessment includes an analysis of the rights of the company in its capacity as investment manager. In some CLOs, the company's role as investment manager provides that the company contractually has the power, as defined in ASC Topic 810, to direct the activities of the CLOs that most significantly impact the CLOs' economic performance, such as managing the collateral portfolio and the CLOs' credit risk. In other CLOs, the company determined that it does not have this power in its role as investment manager due to certain rights held by other investors in the products or restrictions that limit the company's ability to manage the collateral portfolio and its credit risk. Additionally, the primary beneficiary assessment includes an analysis of the company's rights to receive benefits and obligations to absorb losses associated with its first loss position and management/performance fees.
The company has elected the fair value option under ASC Topic 825-10-25 to measure the assets of all consolidated CLOs at fair value. All of the investments held by VIEs are presented at fair value in the company's Consolidated Balance Sheets at December 31, 2021 and 2020. The notes issued by consolidated CLOs are measured under the measurement alternative that requires the reporting entity to measure both the financial assets and the fair value of the financial liabilities of the CLO using the more observable of the fair value of the financial assets and the fair value of the financial liabilities. The company’s earnings from consolidated CLOs reflect changes in fair value of its own economic interests in the CLOs. Gains or losses on assets and liabilities of the CLOs are not attributed to noncontrolling interests but are offset in other gains/(losses) of CIP.
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Consolidation of Private Equity, Real Estate and Fund-of-Funds
The company also consolidates certain private equity funds and from time to time real estate funds that are structured as partnerships in which the company is the general partner receiving a management and/or performance fee. 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 of operating companies that are generally not initially publicly traded. Private equity funds are considered investment companies and are therefore accounted for under ASC Topic 946, “Financial Services - Investment Companies.” The company has retained the specialized industry accounting principles of these investment products in its Consolidated Financial Statements. See Note 21, “Consolidated Investment Products,” for additional details.
Consolidation Basis
The Consolidated 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 or voluntarily elected, as discussed above. The financial statements of subsidiaries, with the exception of certain CIP, are prepared for the same reporting period 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. The financial information of certain CIP is included in the company's Consolidated Financial Statements on a one-month or a three-month lag based upon the availability of fund financial information. Noncontrolling interests in consolidated entities represents the interests in certain entities consolidated by the company either because the company has control over the entity or has determined that it is the primary beneficiary, but of which the company does not own all of the entity's equity. To the extent that noncontrolling interests represent equity which is redeemable or convertible for cash or other assets at the option of the equity holder, these are deemed to represent temporary equity, and are classified as equity attributable to redeemable noncontrolling interests in the Consolidated Balance Sheets. Nonredeemable noncontrolling interests are classified as a component of permanent equity.
Use of Estimates
In preparing the Consolidated Financial Statements, management is required to make estimates and assumptions that affect reported revenues, expenses, assets, liabilities and disclosure of contingent liabilities. The primary estimates and assumptions made relate to goodwill and intangible impairment, certain investments which are carried at fair value, post-employment benefit plan obligations, income taxes and contingent losses. Additionally, estimation is involved when determining investment and debt valuation for certain CIP; however, changes in the fair values of these amounts are largely offset by noncontrolling interests. Use of available information and application of judgment are inherent in the formation of estimates. Actual results in the future could differ from such estimates, and the differences may be material to the Consolidated Financial Statements.
Acquisition Accounting
In accordance with ASC Topic 805, “Business Combinations," each acquisition is evaluated to determine if it meets the definition of a business. If the acquisition does not meet the definition of a business, it is accounted for as an asset acquisition. For an asset acquisition, the cost of the acquisition is allocated to the individual assets acquired and liabilities assumed on a relative fair value basis. Transaction costs are included in the cost of the acquisition and no goodwill is recognized. If the acquisition does meet the definition of a business, it is accounted for as a business combination. For a business combination, 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, the entire fair value of assets acquired, liabilities assumed and noncontrolling interests is recognized in acquisitions of less than a 100% controlling interest when the acquisition constitutes a change in control of the acquired entity. Additionally, when partial ownership in an acquiree is obtained and it is determined that the company controls the acquiree, the assets acquired, liabilities assumed and any noncontrolling interests are recognized and consolidated at 100% of their fair value 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 company's common share, is recognized under this “full-goodwill” approach. Noncontrolling interests are stated at the noncontrolling shareholder's 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 are expensed as transaction, integration and restructuring costs.
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Cash and Cash Equivalents
Cash and cash equivalents consist of cash held at banks and short-term investments with a maturity upon acquisition of three months or less (primarily held in affiliated money market funds). Cash and cash equivalents of CIP are not available for general use by the company.
Cash balances may not be readily accessible to the Parent due to capital adequacy requirements of certain of our subsidiaries. We meet these requirements in part by holding cash and cash equivalents. This retained cash can be used for general business purposes in the countries where it is located and is therefore not considered restricted cash.
Restricted cash primarily consists of cash collateral related to the company's share repurchase forward contracts. See Note 10, "Share Capital," for additional information. Cash and cash equivalents and restricted cash are presented separately on the Consolidated Statements of Cash Flows.
Investments
The majority of the company’s investment balances relate to balances held in affiliated funds and equity method investees. In the normal course of business, the company invests in various types of affiliated investment products, either as “seed money” or as longer-term investments alongside third-party investors, typically referred to as “co-investments.” Seed money investments are investments held in Invesco managed funds with the purpose of providing capital to the funds during their development periods to allow the funds to achieve critical mass, establish their track records and obtain third-party investments. Seed money may also be held for regulatory purposes in certain jurisdictions. Co-investments are often required of the investment manager by third-party investors in closed-ended funds to demonstrate an aligning of the investment manager’s interests with those of the third-party investors. The company also invests in affiliated funds in connection with its deferred compensation plans, whereby certain employees defer portions of their annual bonus into funds.
Investments are categorized as equity investments, available-for-sale investments, equity method investments, foreign time deposits and other investments. See Note 4, “Investments,” for additional details.
Equity investments include seed money, investments held to settle the company's deferred compensation plan liabilities and other equity securities. Equity investments are securities bought and held principally for the purpose of selling them in the near term. Equity investments are measured at fair value. Gains or losses arising from changes in the fair value of equity investments are included in income.
Available-for-sale investments include co-investments in affiliated CLOs and investments in other debt securities. Available-for-sale investments are measured at fair value. Gains or losses arising from changes in the fair value of available-for-sale investments are recognized in accumulated other comprehensive income, net of tax, until the investment is sold or otherwise disposed of, or if the investment is determined to be other-than-temporarily impaired, at which time the cumulative gain or loss previously reported in equity is included in income. The specific identification method is used to determine the realized gain or loss on securities sold or otherwise disposed.
Equity method investments include investments over which the company is deemed to have significant influence, including corporate joint ventures and non-controlled entities in which the company's ownership is between 20 and 50 percent, and co-investments in certain managed funds generally structured as partnerships or similar vehicles. Investments in joint ventures are investments jointly controlled by the company and external parties. Co-investments in managed funds structured as partnerships or similar vehicles include private equity, real estate and fund-of-funds. The equity method of accounting requires that the investment is initially recorded at cost, including any excess value paid over the book value of the investment acquired. The carrying amount of the investment is increased or decreased to recognize the company's common share of the after-tax profit or loss of the investee after the date of acquisition and is decreased as dividends are received. Distributions received from equity method investees are classified in the Consolidated Statements of Cash Flows as either operating or investing activities based on the nature of the distribution. The proportionate share of income or loss is included in equity in earnings of unconsolidated affiliates in the Consolidated Statements of Income, and the proportionate share of other comprehensive income or loss is included in accumulated other comprehensive income in the Consolidated Balance Sheets.
Fair value is determined using a valuation hierarchy (discussed in Note 3, “Fair Value of Assets and Liabilities”), 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, 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.
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Assets Held for Policyholders and Policyholder Payables
One of the company's subsidiaries, Invesco Pensions Limited, is an insurance entity that was established to facilitate retirement savings plans in the UK. The entity holds assets that are managed for its clients on its balance sheet with an equal and offsetting liability to the policyholders, which 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 company's other businesses. 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. Management fees earned from policyholder investments are accounted for as described in the company's revenue recognition accounting policy.
Deferred Sales Commissions
Mutual fund shares sold without a sales commission at the time of purchase 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 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, which is included in prepaid assets in our Consolidated Balance Sheets, is reviewed periodically for impairment by reviewing the recoverability of the asset based on estimated future fees to be collected.
Property, Equipment, Software and Depreciation
Property, equipment and software 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. Amounts incurred are presented as work-in-progress until the construction or purchase of the property and equipment is substantially complete and ready for its intended use, which, at that point, will begin to be depreciated or amortized. Depreciation or amortization is provided on property, equipment and software 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. For internally developed software, the company capitalizes qualified internal and external costs incurred related to software development activities. These capitalized costs are amortized into operating expenses on a straight-line basis over its useful life, generally over five to seven years. Depreciation or amortization expense is recorded through the Property, office and technology line item on the Consolidated Income Statement.
The company reevaluates the useful life determination for property, equipment and software 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 or amortization are removed from the Consolidated Financial Statements and any related gain or loss is reflected in income.
The carrying amounts of property, equipment and software 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.
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Intangible Assets
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). Intangible assets consist primarily of mutual fund and other client management contracts, customer relationships and distribution agreements. Certain management contracts are managed and operated on a single global platform and are therefore reviewed in aggregate as one unit of valuation and considered interchangeable because investors may freely transfer between funds. Similarly, cash flows generated by new funds added to the global platform are included when determining the fair value of the intangible asset.
Intangible assets that are determined to be finite-lived are amortized on a straight-line basis over their useful lives, from two to twelve years, which reflects the pattern in which the economic benefits are realized. 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 there is an indication of impairment. If there is an indication of impairment, management will perform an impairment analysis. The company considers its own assumptions, which require management's judgment, about renewal or extension of the term of the arrangement, consistent with its expected use of the asset. A change in the useful life of an intangible asset could have a significant impact on the company's amortization expense.
Where evidence exists that the underlying arrangements have a high likelihood of continued renewal at little or no cost to the company, the intangible asset is assigned an indefinite life and reviewed for impairment on an annual basis. Intangible assets not subject to amortization are tested for impairment annually as of October 1 or more frequently if events or changes in circumstances indicate that the asset might be impaired. When testing intangible assets for impairment, management has the option to first perform a qualitative assessment. If the qualitative assessment indicates that an impairment may be likely or management elected to not perform the qualitative assessment, management performs a quantitative test to determine the fair value of the intangible assets and compares the fair value 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 generally determined using an income approach where estimated future cash flows are discounted to arrive at a single present value amount.
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 company has determined that it has one reporting unit for goodwill impairment testing purposes, the consolidated Invesco Ltd. single operating segment, which is consistent with internal management reporting and management's oversight of operations. The company evaluated the components of its business, which are business units one level below the operating segment level in making this determination. The company's 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 distribution, 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 company has the option to first qualitatively assess whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If not utilized, a quantitative impairment test is performed at the reporting unit level. If the carrying amount of the reporting unit exceeds its fair value, then goodwill is impaired, and the amount of the impairment loss equals the amount by which the carrying value exceeds fair value, not to exceed the total amount of goodwill allocated to the reporting unit.
The principal method of determining fair value of the reporting unit is an income approach where estimated 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 company's 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.
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Debt and Financing Costs
Debt issuance costs related to the issuance of Senior Notes are presented as a deduction from the carrying amount of the related debt liability. Debt issuance costs related to the company's credit facility are presented as a deferred asset within Other Assets on the company's Consolidated Balance Sheets. 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 Statements of Income in the period in which they are incurred.
Revenue Recognition
Revenue is measured and recognized based on the five step process outlined in ASC Topic 606, "Revenue from Contracts with Customers." Revenue is determined based on the transaction price negotiated with the customer, net of discounts, value added tax and other sales-related taxes.
Investment management fees are derived from providing professional services to manage client accounts and sponsored investment vehicles. Investment management services are satisfied over time as the services are provided and are typically based upon a percentage of the value of the client’s assets under management. Investment management fees for certain arrangements include fees for distribution and administrative-related services. Any fees collected in advance are deferred and recognized as income over the period in which services are rendered.
Service fees are earned for services rendered relating to fund accounting, transfer agent, administrative and/or other maintenance activities performed for sponsored investment vehicles. Service fees are generally based upon a percentage of the value of the assets under management. Service fees are also earned from the delivery of digital solutions to our customers. All of these services are transferred over time.
The company provides distribution services to certain sponsored investment vehicles. Fees are generally earned based upon a percentage of the value of the assets under management, as the fee amounts do not crystallize completely upon the sale of a share or unit. Accordingly, the distribution fee revenues are recognized over time as the amount of the fees becomes known. For example, 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. Generally, retail products offered outside of the U.S. do not generate a separate distribution fee; the quoted management fee rate is inclusive of these services. The company also has certain arrangements whereby the distribution fees are paid upon the subscription or redemption of a share or unit.
Performance fee revenues associated with retail funds 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. Performance fee revenues, including carried interests and performance fees related to partnership investments and separate accounts, are generated on certain management contracts when performance hurdles are achieved. Such fee revenues are recorded in operating revenues when the contractual performance criteria have been met and when it is probable that a significant reversal of revenue recognized will not occur in future reporting periods. Cash receipt of performance fees generally occurs after the performance fee revenue is earned; however, the company may receive, from time-to-time, cash distributions of carried interest before any revenue is earned. Such distributions are reflected as deferred carried interest liabilities within accounts payable and accrued expenses on the Consolidated Balance Sheets. Given the uniqueness of each fee arrangement, performance fee contracts are evaluated on an individual basis to determine the timing of revenue recognition. Performance fees typically arise from investment management activities that were initially undertaken in prior reporting periods.
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 Statements of Income on the date when Invesco’s services are complete, which typically coincides with when the transactions are legally complete.
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Principal versus Agent
The company utilizes third party service providers to fulfill certain performance obligations in its revenue agreements. Generally, the company is deemed to be the principal in these arrangements, because the company controls the investment management and other related services before they are transferred to customers. Such control is evidenced by the company’s primary responsibility to customers, the ability to negotiate the third party contract price and select and direct third party service providers, or a combination of these factors. Therefore, investment management and service and distribution fee revenues and the related third party distribution, service and advisory expenses are reported on a gross basis.
Third-party distribution, service and advisory expenses include periodic “renewal” commissions paid to brokers and independent financial advisors for the 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 and apply to much of the company's non-U.S. retail operations. As discussed above, the revenues from the company’s U.S. retail operations include 12b-1 distribution fees, which are largely passed through to brokers who sell the funds as third-party distribution expenses along with additional marketing support distribution costs. Both the revenues and the costs are dependent on the underlying AUM of the brokers' clients. 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 upfront 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 common share purchases and redemptions, call center support and client reporting. These costs are reimbursed by the related funds.
Money Market Fee Waivers
The company is currently providing voluntary yield support waivers of its revenues on certain money market funds to ensure that they maintain a minimum level of daily net investment income. During the year ended December 31, 2021, yield support waivers resulted in a reduction of total gross operating revenues of $153.7 million (year ended December 31, 2020: $40.7 million). A significant portion of our money market AUM arises from the institutional distribution channel, where relationships with our distribution partners allow us to share the waiver impact. Gross waivers are partially offset by a reduction of payments to these intermediaries, which are included in third party distribution, service and advisory expenses.
Common Share-Based Compensation
The company issues equity-settled common 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 company's estimate of common shares that will eventually vest, on a straight-line or accelerated basis over the vesting period. The initial forfeiture rate applied to most grants is 3% per year, based upon the company's historical experience with respect to employee turnover. Fair value for the common share awards representing equity interests identical to those associated with common shares traded in the open market is determined using the market price at the date of grant.
Deferred Compensation
The company grants deferred cash awards to certain employees which are linked in value to investment products. During the vesting period, employees earn a return linked to the appreciation or depreciation of specified investments. The company currently hedges economically the exposure to market movements on certain of these awards by holding the investments on its balance sheet and through a total return swap financial instrument. The company recognizes as compensation expense the value of the liability to employees, including the appreciation or depreciation of the liability, over the award's vesting period in proportion to the vested amount of the award. The company immediately recognizes the full value of the related investment, and any subsequent appreciation or depreciation of the investment, in Other gains and losses, net.
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 company's 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.
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Leases
The company determines whether an arrangement is a lease at contract inception. Lease liabilities and right-of-use assets are recognized on the lease commencement date based on the net present value of fixed lease payments over the lease term. The company includes options to extend or terminate a lease within the lease term when it is reasonably certain the option will be exercised. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease liabilities represent an obligation to make lease payments arising from a lease while right-of-use assets represent a right to use an underlying asset during the lease term. Right-of-use assets exclude capital improvement funding and other lease concessions provided by the landlord.
As the company's leases generally do not have a readily determinable implicit rate, the company uses its incremental borrowing rate to determine the present value of fixed lease payments based on information available at the lease commencement date. Fixed lease expense for operating leases are generally recognized on a straight-line basis over the lease term. The company combines lease components and non-lease components such as fixed maintenance and other costs into a single lease component, which results in the capitalization of all fixed payments within lease liabilities and right-of-use assets. Variable lease payments, such as variable maintenance costs or payments based on an index rate or usage, are expensed as incurred and excluded from lease liabilities and right-of-use assets.
Taxation
Deferred tax assets and liabilities are recorded for temporary differences between the reported amounts of assets and liabilities in the financial statements and their respective tax bases, using the enacted statutory tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the income tax provision in the period in which the change is enacted. 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 recognizes all excess tax benefits and deficiencies related to common share-based awards as a discrete item in the income tax provision in the period in which the awards vest. 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 related to income tax matters in the income tax provision.
Earnings Per Common Share
Basic and diluted earnings per common share are computed using the two-class method, which treats unvested restricted common shares as if they were a separate class of common shares. Under the two-class method, net income attributable to Invesco Ltd. is adjusted for the allocation of earnings to the unvested restricted common shares. In addition, the weighted-average common shares outstanding is adjusted for unvested restricted common shares. There is no difference between the calculated earnings per common share amounts attributable to Invesco Ltd. and the calculated earnings per common share amounts under the two-class method.
Comprehensive Income
The company's other comprehensive income/(loss) consists of foreign currency translation adjustments, employee benefit plan liability adjustments, changes in unrealized gains and losses and reclassification adjustments for realized gains/(losses) on debt securities classified as available-for-sale and the company's share of other comprehensive income of equity method investments. Such amounts are recorded net of applicable taxes.
Translation of Foreign Currencies
Transactions in foreign currencies (currencies other than the functional currencies of the company's 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 company's subsidiaries at the rates prevailing at the balance sheet date. Gains and losses arising on revaluation are included in the Consolidated Statements of Income.
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The company's 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. Consolidated Statements of Income amounts 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 Consolidated Statements of Income. 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 may, from time to time, designate certain intercompany debt as non-derivative net investment hedging instruments against foreign currency exposure related to its net investment in foreign operations. See Note 11, "Other Comprehensive Income/(Loss)." In the management of its cross-border fund operations, foreign currency forward and swap contracts are purchased daily to hedge against foreign exchange rate movements during the four-day client money settlement period. Certain CIP may also utilize such instruments.
2. BUSINESS COMBINATIONS
On May 24, 2019, the company acquired OppenheimerFunds, an investment management subsidiary of Massachusetts Mutual Life Insurance Company (MassMutual).
Transaction and integration costs related to the OppenheimerFunds acquisition included within the Transaction, integration and restructuring line item on the Consolidated Statements of Income were a benefit of $190.7 million for the year ended December 31, 2021 (year ended December 31, 2020: $183.2 million expense). See Note 20, "Commitments and Contingencies," for additional details regarding the OppenheimerFunds acquisition-related matter.
Supplemental Pro Forma Information
The following unaudited pro forma summary presents consolidated information of the company as if the business combination had occurred on January 1, 2019, the earliest period presented herein.
| For the year ended December 31, | |||||
| $ in millions | 2019 | ||||
| Operating revenues | 6,935.1 | ||||
| Net income | 683.4 |
The pro forma adjustments include dividends on preferred shares, transaction costs and adjustments to depreciation and intangible asset amortization expense. Cost savings or operating synergies expected to result from the acquisition are not included in the pro forma results. These pro forma results are not indicative of the actual results of operations that would have been achieved nor are they indicative of future results of operations.
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3. FAIR VALUE OF ASSETS AND LIABILITIES
The fair value of financial instruments are presented in the below summary table. The fair value of financial instruments held by CIP are presented in Note 21, "Consolidated Investment Products."
| December 31, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||
| $ in millions | Fair Value | Fair Value | |||||||||||||||||||||||||||
| Cash and cash equivalents | 1,896.4 | 1,408.4 | |||||||||||||||||||||||||||
| Restricted cash (1) | — | 129.2 | |||||||||||||||||||||||||||
| Equity investments | 337.9 | 360.3 | |||||||||||||||||||||||||||
| Foreign time deposits (2) | 30.4 | 29.9 | |||||||||||||||||||||||||||
| Assets held for policyholders | 1,893.6 | 7,582.1 | |||||||||||||||||||||||||||
| Policyholder payables (2) | (1,893.6) | (7,582.1) | |||||||||||||||||||||||||||
| Total return swaps related to deferred compensation plans | 1.6 | 5.1 | |||||||||||||||||||||||||||
| Contingent consideration liability | (1.3) | (18.6) | |||||||||||||||||||||||||||
(1)Restricted cash is recorded in Other assets on the Consolidated Balance Sheets.
(2)These financial instruments are not measured at fair value on a recurring basis. Foreign time deposits are measured at cost plus accrued interest, which approximates fair value, and are accordingly classified as Level 2 securities. Policyholder payables are indexed to the value of the assets held for policyholders.
A three-level valuation hierarchy exists for disclosure of fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
-
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
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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 liability's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The following table presents, for each of the hierarchy levels described above, the carrying value of the company's assets and liabilities, including major security type for equity and debt securities, which are measured at fair value on the company's Consolidated Balance Sheets as of December 31, 2021 and December 31, 2020, respectively:
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| As of December 31, 2021 | |||||||||||||||||||||||
| $ in millions | Fair Value Measurements | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||
| Money market funds (1) | 1,270.0 | 1,270.0 | — | — | |||||||||||||||||||
| Investments: (2) | |||||||||||||||||||||||
| Equity investments: | |||||||||||||||||||||||
| Seed money | 109.4 | 109.4 | — | — | |||||||||||||||||||
| Investments related to deferred compensation plans | 226.6 | 226.6 | — | — | |||||||||||||||||||
| Other equity securities | 1.9 | 1.9 | — | — | |||||||||||||||||||
| Assets held for policyholders (3) | 1,893.6 | 1,893.6 | — | ||||||||||||||||||||
| Total return swaps related to deferred compensation plans | 1.6 | — | 1.6 | — | |||||||||||||||||||
| Total | 3,503.1 | 3,501.5 | 1.6 | — | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Contingent consideration liability | (1.3) | (1.3) | |||||||||||||||||||||
| Total | (1.3) | — | — | (1.3) |
| As of December 31, 2020 | |||||||||||||||||||||||
| $ in millions | Fair Value Measurements | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||
| Money market funds (1) | 947.3 | 947.3 | — | — | |||||||||||||||||||
| Investments: (2) | |||||||||||||||||||||||
| Equity investments: | |||||||||||||||||||||||
| Seed money | 153.5 | 153.5 | — | — | |||||||||||||||||||
| Investments related to deferred compensation plans | 202.7 | 202.7 | — | — | |||||||||||||||||||
| Other equity securities | 4.1 | 4.1 | — | — | |||||||||||||||||||
| Assets held for policyholders (3) | 7,582.1 | 7,582.1 | — | — | |||||||||||||||||||
| Total return swaps related to deferred compensation plans | 5.1 | — | 5.1 | — | |||||||||||||||||||
| Total | 8,894.8 | 8,889.7 | 5.1 | — | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Contingent consideration liability | (18.6) | — | — | (18.6) | |||||||||||||||||||
| Total | (18.6) | — | — | (18.6) |
(1)The balance primarily represents cash held in affiliated money market funds.
(2)Foreign time deposits of $30.4 million (December 31, 2020: $29.9 million) are excluded from this table. Equity method and other investments of $550.1 million and $7.9 million, respectively, (December 31, 2020: $426.1 million and $10.5 million, respectively) are also excluded from this table. These investments are not measured at fair value, in accordance with applicable accounting standards.
(3)The majority of assets held for policyholders are held in affiliated funds.
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Total return swap
In addition to holding equity investments, the company has a total return swap (TRS) to hedge economically certain deferred compensation liabilities. The notional value of the total return swap at December 31, 2021 was $343.1 million, and the fair value of the TRS was an asset of $1.6 million (December 31, 2020: notional value $279.3 million and fair value $5.1 million ). During the year ended December 31, 2021, market valuation gains of $26.8 million were recognized in other gains and losses, net (December 31, 2020: $39.8 million of net gains).
The fair value of the total return swaps was determined under the market approach using quoted prices of the underlying investments and, as such, is classified as level 2 of the valuation hierarchy. The total return swaps are not designated for hedge accounting.
Contingent Consideration Liability
Contingent consideration liabilities represent expected future obligations of the company, are recorded at fair value as of the date of acquisition using a discounted cash flow model and are categorized within level 3 of the valuation hierarchy. Changes in fair value of the company’s contingent consideration liabilities are recorded in other gains and losses, net in the period incurred. An increase in forecasted AUM levels or projected revenue and a decrease in the discount rate would increase the fair value of the company’s contingent consideration liabilities, while a decrease in forecasted AUM or projected revenue and an increase in the discount rate would decrease the liabilities.
The following table shows a reconciliation of the beginning and ending fair value measurements for level 3 assets and liabilities during the year ended December 31, 2021 and December 31, 2020, which are valued using significant unobservable inputs:
| For the year ended December 31, 2021 | For the year ended December 31, 2020 | ||||||||||||||||||||||||||||
| $ in millions | Contingent Consideration Liability | Contingent Consideration Liability | |||||||||||||||||||||||||||
| Beginning balance | (18.6) | (60.2) | |||||||||||||||||||||||||||
| Net unrealized gains/(losses) included in other gains and losses, net | 10.1 | 13.8 | |||||||||||||||||||||||||||
| Disposition/settlements | 11.8 | 22.3 | |||||||||||||||||||||||||||
| Other | (4.6) | 5.5 | |||||||||||||||||||||||||||
| Ending balance | (1.3) | (18.6) |
4. INVESTMENTS
The disclosures below include details of the company's investments. Investments held by CIP are detailed in Note 21, "Consolidated Investment Products."
| $ in millions | December 31, 2021 | December 31, 2020 | |||||||||
| Equity investments: | |||||||||||
| Seed money | 109.4 | 153.5 | |||||||||
| Investments related to deferred compensation plans | 226.6 | 202.7 | |||||||||
| Other equity securities | 1.9 | 4.1 | |||||||||
| Equity method investments | 550.1 | 426.1 | |||||||||
| Foreign time deposits | 30.4 | 29.9 | |||||||||
| Other | 7.9 | 10.5 | |||||||||
| Total investments (1) | 926.3 | 826.8 |
(1) The majority of the company’s investment balances relate to balances held in affiliated funds and equity method investees.
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Equity investments
Net gains recorded in Other gains/(losses) in the Consolidated Statements of Income resulting from equity investments and total return swaps, which have equity investments as their underlying asset, for the year ended December 31, 2021, were $58.1 million (December 31, 2020: $41.7 million net gain). The unrealized gains and losses for the year ended December 31, 2021, that relate to equity investments still held at December 31, 2021, was a $8.8 million net gain (December 31, 2020: $19.4 million net gain related to equity investments still held at December 31, 2020).
Equity method investments
Following are the company's investments in joint ventures and affiliates, which are accounted for using the equity method and are recorded as investments on the Consolidated Balance Sheets:
| Name of Company | Country of Incorporation | % Voting Interest Owned | |||||||||
| Huaneng Invesco WLR (Beijing) Investment Fund Management Company Ltd. | China | 50.0% | |||||||||
| Invesco Great Wall Fund Management Company Limited | China | 49.0% | |||||||||
| Pocztylion - ARKA | Poland | 29.3% |
Undistributed earnings from equity method investees have not been a material restriction on the company's ability to pay dividends to shareholders. Equity method investments also include the company's investments in certain of its managed private equity, real estate and other investment 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 1, “Accounting Policies,” for additional information.
Noncontrolling interests in consolidated entities
Most of the noncontrolling interest balances included in the Consolidated Balance Sheets relate to CIP (see Note 21, "Consolidated Investment Products").
5. PROPERTY, EQUIPMENT AND SOFTWARE
The following is a summary of property, equipment and software:
| $ in millions | December 31, 2021 | December 31, 2020 | |||||||||
| Technology and Other Equipment | 289.1 | 302.4 | |||||||||
| Software | 901.0 | 810.7 | |||||||||
| Land and Buildings | 98.7 | 119.0 | |||||||||
| Leasehold Improvements | 233.9 | 254.7 | |||||||||
| Work in Process | 74.3 | 83.1 | |||||||||
| Property, Equipment and Software, Gross | 1,597.0 | 1,569.9 | |||||||||
| Less: Accumulated Depreciation and Impairment (1) | (1,078.9) | (1,006.1) | |||||||||
| Property, Equipment and Software, Net | 518.1 | 563.8 |
(1) The company did not recognize any impairment expense during the year ended December 31, 2021. During the year ended December 31, 2020, the company recorded an impairment expense of $17.8 million to transaction, integration and restructuring expense related to a property we intend to sublease, of which $4.4 million related to leasehold improvements and $13.4 million related to the right-of-use assets (see Note 15, “Operating Leases”).
Depreciation expense related to property, equipment and software was $142.4 million, $141.0 million and $124.9 million for the years ended December 31, 2021, 2020 and 2019, respectively.
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6. INTANGIBLE ASSETS
The following table presents the major classes of the company's intangible assets at December 31, 2021 and 2020:
| $ in millions | Gross Book Value | Accumulated Amortization | Net Book Value | ||||||||||||||
| December 31, 2021 | |||||||||||||||||
| Management contracts - indefinite-lived | 6,968.3 | N/A | 6,968.3 | ||||||||||||||
| Management contracts - finite-lived | 319.2 | (151.4) | 167.8 | ||||||||||||||
| Developed technology | 98.1 | (68.2) | 29.9 | ||||||||||||||
| Other | 109.7 | (47.7) | 62.0 | ||||||||||||||
| Total | 7,495.3 | (267.3) | 7,228.0 | ||||||||||||||
| December 31, 2020 | |||||||||||||||||
| Management contracts - indefinite-lived | 6,982.7 | N/A | 6,982.7 | ||||||||||||||
| Management contracts - finite-lived | 319.9 | (118.7) | 201.2 | ||||||||||||||
| Developed technology | 99.2 | (50.9) | 48.3 | ||||||||||||||
| Other | 110.8 | (37.4) | 73.4 | ||||||||||||||
| Total | 7,512.6 | (207.0) | 7,305.6 |
The 2021 and 2020 annual impairment reviews of indefinite-lived intangible assets determined that no impairment existed. No interim impairment test was deemed necessary for 2021. Due to the decline in our assets under management in the three months ended March 31, 2020, management determined that an interim impairment test was necessary for certain of our indefinite-lived management contract assets during 2020. The analysis resulted in no impairment because the fair value of indefinite-lived intangible assets exceeded their carrying value.
Amortization expense was $62.9 million during the year ended December 31, 2021 (December 31, 2020: $62.5 million; December 31, 2019: $52.7 million). Estimated amortization expense for each of the five succeeding fiscal years based upon the company's intangible assets at December 31, 2021 is as follows:
| $ in millions****Years Ended December 31, | Estimated Amortization Expense | ||||
| 2022 | (60.1) | ||||
| 2023 | (52.0) | ||||
| 2024 | (46.3) | ||||
| 2025 | (39.2) | ||||
| 2026 | (37.3) |
7. GOODWILL
The table below details changes in the goodwill balance:
| $ in millions | Net Book Value | ||||||||||||||||
| January 1, 2021 | 8,916.3 | ||||||||||||||||
| Business combinations | 1.6 | ||||||||||||||||
| Foreign exchange | (35.4) | ||||||||||||||||
| December 31, 2021 | 8,882.5 | ||||||||||||||||
| January 1, 2020 | 8,509.4 | ||||||||||||||||
| Business combinations | 285.8 | ||||||||||||||||
| Foreign exchange | 121.1 | ||||||||||||||||
| December 31, 2020 | 8,916.3 |
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The 2020 additions to goodwill of $285.8 million related to adjustments to the purchase price allocation of the Oppenheimer acquisition. The 2021 and 2020 annual impairment reviews determined that no impairment existed at the respective review dates. No interim impairment test was deemed necessary during 2021. Due to the decline in our assets under management in the three months ended March 31, 2020, management determined that an interim impairment test was necessary during 2020. The analysis resulted in no impairment because the fair value of the company exceeded its carrying value.
8. OTHER LIABILITIES
The table below details the components of other liabilities:
| As of | |||||||||||
| $ in millions | December 31, 2021 | December 31, 2020 | |||||||||
| Compensation and benefits | 121.2 | 148.2 | |||||||||
| Accrued bonus and deferred compensation | 941.1 | 825.5 | |||||||||
| Accrued compensation and benefits | 1,062.3 | 973.7 | |||||||||
| Accruals and other liabilities (1) | 382.4 | 384.2 | |||||||||
| OppenheimerFunds acquisition-related matter (See Note 20) | — | 387.8 | |||||||||
| Forward contract collateral (See Note 10) | — | 104.1 | |||||||||
| Forward contract payable (See Note 10) | — | 309.0 | |||||||||
| Lease liability (See Note 15) | 289.8 | 319.2 | |||||||||
| Accounts payable | 312.5 | 348.9 | |||||||||
| Income taxes payable | 80.6 | 67.2 | |||||||||
| Accounts payable and accrued expenses | 1,065.3 | 1,920.4 |
(1) Included in the Accruals and Other liabilities is deferred carried interest. The opening and closing balance of deferred carried interest liabilities for the year ended December 31, 2021 was $58.0 million and $5.5 million, respectively. The decrease in deferred carried interest primarily represents recognition of gains from certain private equity funds that are in liquidation. Separately, during the year ended December 31, 2021, $0.9 million performance fee revenue was recognized that had been included in the deferred carried interest liability balance at the beginning of the period.
9. DEBT
The issuer of the senior notes, Invesco Finance PLC, is an indirect 100% owned finance subsidiary of Invesco Ltd. (the Parent), and the Parent fully and unconditionally guarantees the securities. As discussed in Note 1, "Accounting Policies - Cash and Cash Equivalents," 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.
The disclosures below include details of the company's debt. Debt of CIP is detailed in Note 21, “Consolidated Investment Products.”
| December 31, 2021 | December 31, 2020 | ||||||||||||||||||||||
| $ in millions | Carrying Value (3) | Fair Value | Carrying Value (3) | Fair Value | |||||||||||||||||||
| $1.5 billion floating rate credit facility expiring April 26, 2026 (1) | — | — | — | — | |||||||||||||||||||
| Unsecured Senior Notes: (2) | |||||||||||||||||||||||
| $600 million 3.125% - due November 30, 2022 | 599.4 | 613.8 | 598.7 | 632.9 | |||||||||||||||||||
| $600 million 4.000% - due January 30, 2024 | 597.8 | 633.7 | 596.8 | 660.2 | |||||||||||||||||||
| $500 million 3.750% - due January 15, 2026 | 497.3 | 541.2 | 496.7 | 564.8 | |||||||||||||||||||
| $400 million 5.375% - due November 30, 2043 | 390.6 | 536.8 | 390.4 | 517.8 | |||||||||||||||||||
| Debt | 2,085.1 | 2,325.5 | 2,082.6 | 2,375.7 |
(1)On April 26, 2021, Invesco Ltd. and its indirect subsidiary, Invesco Finance PLC, amended and restated the $1.5 billion floating rate credit facility, extending the expiration date from August 11, 2022 to April 26, 2026.
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(2)The company's senior note indentures contain certain restrictions on mergers or consolidations. Beyond these items, there are no other restrictive covenants in the indentures.
(3)The difference between the principal amounts and the carrying values of the senior notes in the table above reflect the unamortized debt issuance costs and discounts.
The fair market value of the company's senior notes was determined by market quotes provided by a third party pricing service, which utilizes Level 2 valuation inputs. In the absence of an active market, the company relies upon the average price quoted by brokers for determining the fair market value of the debt.
Analysis of Borrowings by Maturity:
| $ in millions | December 31, 2021 | ||||
| 2022 | 599.4 | ||||
| 2024 | 597.8 | ||||
| 2026 | 497.3 | ||||
| 2043 | 390.6 | ||||
| Debt | 2,085.1 |
At December 31, 2021, the outstanding balance on the credit facility was zero. Borrowings under the credit facility will bear interest at (i) LIBOR for specified interest periods or (ii) a floating base rate (based upon the highest of (a) the Bank of America prime rate, (b) the Federal Funds rate plus 0.50% and (c) LIBOR for an interest period of one month plus 1.00%), plus, in either case, an applicable margin determined with reference to the higher of the available credit ratings of the company or its indirect subsidiary Invesco Finance PLC. Based on credit ratings as of December 31, 2021 of the company, the applicable margin for LIBOR-based loans was 1.13% and for base rate loans was 0.13%. In addition, the company is required to pay the lenders a facility fee on the aggregate commitments of the lenders (whether or not used) at a rate per annum which is based on the higher of the available credit ratings of the company or its indirect subsidiary Invesco Finance PLC. Based on credit ratings as of December 31, 2021, the annual facility fee was equal to 0.13%.
The credit facility agreement governing the credit facility contains customary restrictive covenants on the company and its subsidiaries. Restrictive covenants in the credit facility agreement include, but are not limited to: prohibitions on creating, incurring or assuming any liens; entering into merger arrangements; selling, leasing, transferring or otherwise disposing of assets; making a material change in the nature of the business; making a significant accounting policy change in certain situations; entering into transactions with affiliates; and incurring indebtedness through the subsidiaries (other than the borrower, Invesco Finance PLC). Many of these restrictions are subject to certain minimum thresholds and exceptions. Financial covenants under the credit facility agreement include: (i) the quarterly maintenance of a debt/EBITDA leverage ratio, as defined in the credit facility agreement, of not greater than 3.25:1.00, (ii) an interest coverage ratio (EBITDA, as defined in the credit facility agreement/interest payable for the four consecutive fiscal quarters ended before the date of determination) of not less than 4.00:1.00.
The credit facility agreement governing the credit facility also contains customary provisions regarding events of default which could result in an acceleration or increase in amounts due, including (subject to certain materiality thresholds and grace periods) payment default, failure to comply with covenants, material inaccuracy of representation or warranty, bankruptcy or insolvency proceedings, change of control, certain judgments, ERISA matters, cross-default to other debt agreements, governmental action prohibiting or restricting the company or its subsidiaries in a manner that has a material adverse effect and failure of certain guaranty obligations. The company is in compliance with all regulatory minimum net capital requirements.
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10. SHARE CAPITAL
The preferred shares issued in connection with the acquisition of OppenheimerFunds have a $0.20 par value, liquidation preference of $1,000 per share and fixed cash dividend rate of 5.90% per annum, payable quarterly on a non-cumulative basis. Shares of preferred stock are not redeemable prior to the 21st anniversary of their original issue date of May 24, 2019. The number of preferred shares issued and outstanding is represented in the table below:
| As of | |||||||||||||||||
| in millions | December 31, 2021 | December 31, 2020 | |||||||||||||||
| Preferred shares issued (1) | 4.0 | 4.0 | |||||||||||||||
| Preferred shares outstanding (1) | 4.0 | 4.0 |
(1) Preferred shares are held by MassMutual and are subject to a lock-up period of five years, which disallows the sale of preferred shares by MassMutual during the five-year period beginning on the original issue date of May 24, 2019.
The number of common shares and common share equivalents issued are represented in the table below:
| In millions | December 31, 2021 | December 31, 2020 | December 31, 2019 | ||||||||||||||
| Common shares issued | 566.1 | 566.1 | 566.1 | ||||||||||||||
| Less: Treasury shares for which dividend and voting rights do not apply | (104.9) | (107.0) | (112.8) | ||||||||||||||
| Common shares outstanding | 461.2 | 459.1 | 453.3 |
During the year ended December 31, 2019, the company entered into three forward contracts to purchase its common shares. During the year ended December 31, 2021, the three forward contracts were fully settled and the corresponding collateral received was returned to the counterparty. As such, there was no liability on the forward contracts and no corresponding net collateral as of December 31, 2021 (December 31, 2020: total liability was $309.0 and net collateral received was $104.1 million).
The details of the forward contracts for the year ended December 31, 2020 are as follows:
| Year ended December 31, 2020 | |||||||||||||||||||||||||||||||||||||||||
| In millions, except strike price and forward prices | Common Shares Purchased | Initial Strike Price | Forward Price | Hedge Completion Date | Value of Total Treasury Shares Recorded | Settlement Date | Total Liability Recorded | ||||||||||||||||||||||||||||||||||
| $200 million - entered on May 13, 2019 | 9.8 | $ | 20.51 | $ | 12.00 | 05/30/2019 | $ | 198.7 | 01/04/2021 | $ | 117.0 | ||||||||||||||||||||||||||||||
| $200 million - entered on July 2, 2019 | 10.0 | $ | 20.00 | $ | 12.00 | 07/30/2019 | $ | 193.7 | 04/01/2021 | $ | 119.4 | ||||||||||||||||||||||||||||||
| $100 million - entered on August 27, 2019 | 6.0 | $ | 16.59 | $ | 12.00 | 09/27/2019 | $ | 102.6 | 04/01/2021 | $ | 72.6 | ||||||||||||||||||||||||||||||
| 25.8 | $ | 495.0 | $ | 309.0 |
The company did not purchase shares in the open market during the year ended December 31, 2021, (December 31, 2020: none). Separately, an aggregate of 2.7 million shares were withheld on vesting events during the year ended December 31, 2021 to meet employees' withholding tax obligations (December 31, 2020: 3.4 million). The fair value of these common shares withheld at the respective withholding dates was $60.9 million (December 31, 2020: $47.1 million). At December 31, 2021, approximately $732.2 million remained authorized under the company's common share repurchase authorization approved by the Board on July 22, 2016 (December 31, 2020: $732.2 million).
Total treasury shares at December 31, 2021 were 115.7 million (December 31, 2020: 121.6 million), including 10.8 million unvested restricted common stock awards (December 31, 2020: 14.6 million) for which dividend and voting rights apply. The market price of common shares at the end of 2021 was $23.02. The total market value of the company's 115.7 million treasury shares was $2.7 billion at December 31, 2021.
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Movements in Treasury Shares comprise:
| Year ended | |||||||||||||||||
| In millions | December 31, 2021 | December 31, 2020 | December 31, 2019 | ||||||||||||||
| Beginning balance | 121.6 | 128.2 | 103.0 | ||||||||||||||
| Acquisition of common shares | 2.7 | 3.4 | 34.7 | ||||||||||||||
| Distribution of common shares | (8.4) | (9.3) | (9.2) | ||||||||||||||
| Common shares distributed to meet ESPP obligation | (0.2) | (0.7) | (0.3) | ||||||||||||||
| Ending balance | 115.7 | 121.6 | 128.2 |
11. OTHER COMPREHENSIVE INCOME/(LOSS)
The components of accumulated other comprehensive income/(loss) were as follows:
| 2021 | |||||||||||||||||||||||||||||
| $ in millions | Foreign currency translation | Employee benefit plans | Equity method investments | Available-for-sale investments | Total | ||||||||||||||||||||||||
| Other comprehensive income/(loss), net of tax: | |||||||||||||||||||||||||||||
| Currency translation differences on investments in foreign subsidiaries | (73.3) | — | — | — | (73.3) | ||||||||||||||||||||||||
| Actuarial gain/(loss) related to employee benefit plans | — | 28.3 | — | — | 28.3 | ||||||||||||||||||||||||
| Other comprehensive income/(loss), net | — | 8.1 | (0.1) | — | 8.0 | ||||||||||||||||||||||||
| Other comprehensive income/(loss), net of tax | (73.3) | 36.4 | (0.1) | — | (37.0) | ||||||||||||||||||||||||
| Beginning balance | (279.3) | (126.0) | 0.1 | 0.7 | (404.5) | ||||||||||||||||||||||||
| Other comprehensive income/(loss), net of tax | (73.3) | 36.4 | (0.1) | — | (37.0) | ||||||||||||||||||||||||
| Ending balance | (352.6) | (89.6) | — | 0.7 | (441.5) |
| 2020 | |||||||||||||||||||||||||||||
| $ in millions | Foreign currency translation | Employee benefit plans | Equity method investments | Available-for-sale investments | Total | ||||||||||||||||||||||||
| Other comprehensive income/(loss) net of tax: | |||||||||||||||||||||||||||||
| Currency translation differences on investments in foreign subsidiaries | 182.7 | — | — | — | 182.7 | ||||||||||||||||||||||||
| Actuarial gain/(loss) related to employee benefit plans | — | (6.3) | — | — | (6.3) | ||||||||||||||||||||||||
| Other comprehensive income/(loss), net | — | 6.4 | — | — | 6.4 | ||||||||||||||||||||||||
| Other comprehensive income/(loss), net of tax | 182.7 | 0.1 | — | — | 182.8 | ||||||||||||||||||||||||
| Beginning balance | (462.0) | (126.1) | 0.1 | 0.7 | (587.3) | ||||||||||||||||||||||||
| Other comprehensive income/(loss), net of tax | 182.7 | 0.1 | — | — | 182.8 | ||||||||||||||||||||||||
| Ending balance | (279.3) | (126.0) | 0.1 | 0.7 | (404.5) |
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| 2019 | |||||||||||||||||||||||||||||
| $ in millions | Foreign currency translation | Employee benefit plans | Equity method investments | Available-for-sale investments | Total | ||||||||||||||||||||||||
| Other comprehensive income/(loss) net of tax: | |||||||||||||||||||||||||||||
| Currency translation differences on investments in foreign subsidiaries | 155.6 | — | — | — | 155.6 | ||||||||||||||||||||||||
| Actuarial gain/(loss) related to employee benefit plans | — | (10.8) | — | — | (10.8) | ||||||||||||||||||||||||
| Other comprehensive income/(loss), net | — | 2.4 | 0.1 | 0.4 | 2.9 | ||||||||||||||||||||||||
| Other comprehensive income/(loss), net of tax | 155.6 | (8.4) | 0.1 | 0.4 | 147.7 | ||||||||||||||||||||||||
| Beginning balance | (617.6) | (117.7) | — | 0.3 | (735.0) | ||||||||||||||||||||||||
| Other comprehensive income/(loss), net of tax | 155.6 | (8.4) | 0.1 | 0.4 | 147.7 | ||||||||||||||||||||||||
| Ending balance | (462.0) | (126.1) | 0.1 | 0.7 | (587.3) |
Net Investment Hedge
The company designated certain intercompany debt as a non-derivative net investment hedging instrument against foreign currency exposure related to its net investment in foreign operations. At December 31, 2021 and December 31, 2020, £130 million ($176.1 million and $174.5 million, respectively) of intercompany debt was designated as a net investment hedge. For the year ended December 31, 2021, the company recognized foreign currency losses of $1.6 million (2020: losses of $2.4 million, 2019: losses of $6.5 million) resulting from the net investment hedge within currency translation differences on investments in foreign subsidiaries in Other comprehensive income.
12. COMMON SHARE-BASED COMPENSATION
The company recognized total expenses of $140.1 million, $188.5 million and $207.5 million related to equity-settled common share-based payment transactions in 2021, 2020 and 2019, respectively. The income tax benefit recognized in the Consolidated Statements of Income for common share-based compensation arrangements was $30.0 million for 2021 (2020: $27.8 million; 2019: $38.1 million).
Common share awards are broadly classified into two categories: time-vested and performance-vested. Common share awards are measured at fair value at the date of grant and are expensed, based on the company's estimate of common shares that will eventually vest, on a straight-line or accelerated basis over the vesting period. The company's RSU grant-date fair value is measured by Invesco’s common stock price.
Time-vested awards vest ratably over a defined period of continued employee service. Performance-vested awards vest upon (i) the company's attainment of certain pre-established performance criteria, and (ii) a defined period of continued employee service. Time-vested and performance-vested equity awards are granted in the form of restricted stock awards (RSAs) or restricted stock units (RSUs). With respect to the performance-vested awards granted in February 2019, 2020 and 2021, vesting is tied to the achievement of specific levels of adjusted operating margin and relative total shareholder return with vesting ranging from 0% to 150%.
With respect to time-vested awards, dividends accrue directly to the employee holder of RSAs, and cash payments in lieu of dividends are made to employee holders of certain RSUs. With respect to performance-vested awards, cash payments in lieu of dividends are deferred and are paid at the same rate as on the underlying shares if and to the extent the award vests.
The 2016 Global Equity Incentive Plan (2016 GEIP), which was originally approved by the company's common shareholders in May 2016 and most recently amended and restated in May 2021, authorizes the issuance of up to 16.0 million shares. In May 2010, the board approved the 2010 Global Equity Incentive Plan ST (GEIP ST). The GEIP ST authorizes the issuance of up to 8.5 million shares. With respect to the GEIP ST, awards are only granted as employment inducement awards in connection with a strategic transaction and, as a result, do not require shareholder approval under the rules of the New York Stock Exchange or otherwise.
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Movements on employee common share awards during the years ended December 31, are detailed below:
| 2021 | 2020 | 2019 | |||||||||||||||||||||||||||||||||||||||
| Millions of common shares, except fair values | Time-Vested | Performance-Vested | Weighted Average Grant Date Fair Value ($) | Time-Vested | Performance-Vested | Time- Vested | Performance-Vested | ||||||||||||||||||||||||||||||||||
| Unvested at the beginning of year | 18.1 | 1.6 | 19.11 | 18.7 | 1.1 | 12.5 | 0.9 | ||||||||||||||||||||||||||||||||||
| Granted during the year (1) | 3.4 | 0.6 | 22.61 | 8.8 | 0.9 | 15.5 | 0.6 | ||||||||||||||||||||||||||||||||||
| Forfeited during the year | (0.4) | — | 18.90 | (0.5) | — | (0.5) | — | ||||||||||||||||||||||||||||||||||
| Vested and distributed during the year | (7.6) | (0.3) | 21.40 | (8.9) | (0.4) | (8.8) | (0.4) | ||||||||||||||||||||||||||||||||||
| Unvested at the end of the year | 13.5 | 1.9 | 18.88 | 18.1 | 1.6 | 18.7 | 1.1 |
(1)With respect to the time-vested awards granted in 2019, includes 6.2 million restricted shares as employment inducement awards in connection with completed acquisitions.
The total fair value of common shares that vested during 2021 was $187.9 million (2020: $124.6 million; 2019: $177.1 million). The weighted average grant date fair value of the U.S. dollar share awards that were granted during 2021 was $22.61 (2020: $14.09; 2019: $19.66).
At December 31, 2021, there was $164.7 million of total unrecognized compensation cost related to non-vested common share awards; that cost is expected to be recognized over a weighted average period of 2.12 years.
13. RETIREMENT BENEFIT PLANS
Defined Contribution Plans
The company operates defined contribution retirement benefit plans for all qualifying employees. The assets of the plans are held separately from those of the company in funds under the control of trustees. When employees leave the plans prior to vesting fully in the contributions, the contributions payable by the company are reduced by the amount of forfeited contributions.
The total amounts charged to the Consolidated Statements of Income for the year ended December 31, 2021 of $81.2 million (December 31, 2020: $86.4 million, December 31, 2019: $73.5 million) represent contributions paid or payable to these plans by the company at rates specified in the rules of the plans. As of December 31, 2021, accrued contributions of $31.1 million (December 31, 2020: $30.7 million) for the current year will be paid to the plans.
Defined Benefit Plans
The company maintains legacy defined benefit pension plans for qualifying employees of its subsidiaries in the UK, Ireland, Germany and Taiwan. All defined benefit plans are closed to new participants.
The most recent actuarial valuations of plan assets and the present value of the defined benefit obligation were valued as of December 31, 2021. The benefit obligation, related current service cost and prior service cost were measured using the projected unit credit method.
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Benefit Obligations and Funded Status
The amounts included in the Consolidated Balance Sheets arising from the company's obligations and plan assets in respect of its defined benefit retirement plans are as follows:
| Retirement Plans | |||||||||||
| $ in millions | 2021 | 2020 | |||||||||
| Benefit obligation | (512.8) | (587.1) | |||||||||
| Fair value of plan assets | 577.0 | 585.0 | |||||||||
| Funded status | 64.2 | (2.1) | |||||||||
| Amounts recognized in the Consolidated Balance Sheets: | |||||||||||
| Other assets | 82.8 | 30.4 | |||||||||
| Accrued compensation and benefits | (18.6) | (32.5) | |||||||||
| Funded status | 64.2 | (2.1) |
Changes in the benefit obligations were as follows:
| Retirement Plans | |||||||||||
| $ in millions | 2021 | 2020 | |||||||||
| January 1 | 587.1 | 551.7 | |||||||||
| Service cost | 0.6 | 2.4 | |||||||||
| Interest cost | 8.9 | 9.2 | |||||||||
| Actuarial (gains)/losses | (37.0) | 40.6 | |||||||||
| Exchange difference | (11.2) | 21.4 | |||||||||
| Benefits paid | (10.2) | (11.5) | |||||||||
| Curtailment (gains)/losses | (0.3) | — | |||||||||
| Settlement | (25.1) | (26.7) | |||||||||
| December 31 | 512.8 | 587.1 |
Key assumptions used in plan valuations are detailed below. Appropriate local mortality tables are also used. The weighted average assumptions used to determine defined benefit obligations at December 31, 2021, and 2020 are as follows:
| Retirement Plans | |||||||||||
| 2021 | 2020 | ||||||||||
| Discount rate | 1.91 | % | 1.83 | % | |||||||
| Expected rate of salary increases | 3.10 | % | 2.85 | % | |||||||
| Future pension trend rate increases | 3.29 | % | 2.64 | % |
Changes in the fair value of plan assets in the current period were as follows:
| Retirement Plans | |||||||||||
| $ in millions | 2021 | 2020 | |||||||||
| January 1 | 585.0 | 524.5 | |||||||||
| Actual return on plan assets | 26.4 | 55.2 | |||||||||
| Foreign currency changes | (7.9) | 20.1 | |||||||||
| Contributions from the company | 13.8 | 25.5 | |||||||||
| Benefits paid | (10.1) | (11.5) | |||||||||
| Settlement and other | (30.2) | (28.8) | |||||||||
| December 31 | 577.0 | 585.0 |
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The components of the amount recognized in accumulated other comprehensive income at December 31, 2021 and 2020 are as follows:
| Retirement Plans | |||||||||||
| $ in millions | 2021 | 2020 | |||||||||
| Prior service cost/(credit) | 6.6 | 7.4 | |||||||||
| Net actuarial loss/(gain) | 96.8 | 144.4 | |||||||||
| Total | 103.4 | 151.8 |
The amounts in accumulated other comprehensive income expected to be amortized into the Consolidated Income Statement during the year ending December 31, 2022 are as follows:
| $ in millions | Retirement Plans | ||||
| Prior service cost/(credit) | 0.2 | ||||
| Net actuarial loss/(gain) | 0.9 | ||||
| Total | 1.1 |
The total accumulated and projected benefit obligation and fair value of plan assets for plans with accumulated and projected benefit obligations in excess of plan assets are as follows:
| Retirement Plans | |||||||||||
| $ in millions | 2021 | 2020 | |||||||||
| Plans with accumulated and projected benefit obligation in excess of plan assets: | |||||||||||
| Accumulated and projected benefit obligation | 64.8 | 574.2 | |||||||||
| Fair value of plan assets | 46.2 | 572.3 |
Net Periodic Benefit Cost
The components of net periodic benefit cost in respect of these defined benefit plans are as follows:
| Retirement Plans | |||||||||||||||||
| $ in millions | 2021 | 2020 | 2019 | ||||||||||||||
| Service cost | 0.6 | 2.4 | 1.1 | ||||||||||||||
| Interest cost | 8.9 | 9.2 | 13.4 | ||||||||||||||
| Expected return on plan assets | (16.8) | (23.7) | (22.1) | ||||||||||||||
| Amortization of prior service cost/(credit) | 0.2 | 0.2 | 0.3 | ||||||||||||||
| Amortization of net actuarial (gain)/loss | 2.7 | 3.6 | 2.9 | ||||||||||||||
| Settlement | 4.4 | 8.0 | (0.2) | ||||||||||||||
| Curtailment (gain)/loss | (0.3) | — | 0.4 | ||||||||||||||
| Net periodic benefit cost/(credit) | (0.3) | (0.3) | (4.2) |
The weighted average assumptions used to determine net periodic benefit cost for the years ended December 31, 2021, 2020 and 2019 are:
| Retirement Plans | |||||||||||||||||
| 2021 | 2020 | 2019 | |||||||||||||||
| Discount rate | 1.83 | % | 1.93 | % | 2.82 | % | |||||||||||
| Expected return on plan assets | 3.01 | % | 4.69 | % | 5.00 | % | |||||||||||
| Expected rate of salary increases | 2.85 | % | 2.95 | % | 3.24 | % | |||||||||||
| Future pension rate increases | 2.64 | % | 2.74 | % | 3.04 | % |
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In developing the expected rate of return, the company considers long-term compound annualized returns based on historical and current market data. Using this reference information, the company develops forward-looking return expectations for each asset category and an expected long-term rate of return for a targeted portfolio. Discount rate assumptions were based upon AA-rated corporate bonds of suitable terms and currencies.
Plan Assets
The analysis of the plan assets as of December 31, 2021 was as follows:
| $ in millions | Retirement Plans | % of Plan Assets | |||||||||
| Cash and cash equivalents | 27.7 | 4.8 | % | ||||||||
| Fund investments | 296.8 | 51.4 | % | ||||||||
| Equity securities | 23.9 | 4.1 | % | ||||||||
| Government debt securities | 13.1 | 2.3 | % | ||||||||
| Guaranteed investments contracts | 9.8 | 1.7 | % | ||||||||
| Other assets | 205.7 | 35.7 | % | ||||||||
| Total | 577.0 | 100.0 | % |
The analysis of the plan assets as of December 31, 2020 was as follows:
| $ in millions | Retirement Plans | % of Plan Assets | |||||||||
| Cash and cash equivalents | 22.4 | 3.8 | % | ||||||||
| Fund investments | 224.2 | 38.3 | % | ||||||||
| Equity securities | 193.6 | 33.1 | % | ||||||||
| Government debt securities | 15.0 | 2.6 | % | ||||||||
| Guaranteed investments contracts | 22.2 | 3.8 | % | ||||||||
| Other assets | 107.6 | 18.4 | % | ||||||||
| Total | 585.0 | 100.0 | % |
Plan assets are not held in company stock. The investment policies and strategies for plan assets held by defined benefit plans include:
-
Funding - to have sufficient assets available to pay members benefits;
-
Security - to maintain the minimum Funding Requirement;
-
Stability - to have due regard to the employer's ability in meeting contribution payments given their size and incidence.
The following is a description of the valuation methodologies used for each major category of plan assets measured at fair value. Information about the valuation hierarchy levels used to measure fair value is detailed in Note 3, “Fair Value of Assets and Liabilities.”
Cash and cash equivalents
Cash equivalents include cash in the bank and cash investments in money market funds. 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.
Fund investments
These plan assets are primarily invested in affiliated funds and are classified within level 1 of the valuation hierarchy. They are valued at the net asset value of common shares held by the plan at year end.
Equity securities, corporate debt securities, government debt securities, and other investments
These plan assets are classified within level 1 of the valuation hierarchy and are valued at the closing price reported on the active market on which the individual securities are traded.
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Guaranteed investment contracts
These plan assets are classified within level 3 of the valuation hierarchy and are valued through use of unobservable inputs by discounting the related cash flows based on current yields of similar instruments with comparable durations considering the credit-worthiness of the issuer. Guaranteed investment contracts balance at December 31, 2021 is $9.8 million (December 31, 2020: $22.2 million).
Cash Flows
The estimated amounts of contributions expected to be paid to the plans during 2022 are $13.8 million for retirement plans. There are no future annual benefits of plan participants covered by insurance contracts issued by the employer or related parties.
The benefits expected to be paid in each of the next five fiscal years and in the five fiscal years thereafter are as follows:
| $ in millions | Retirement Plans | ||||
| Expected benefit payments: | |||||
| 2022 | 8.9 | ||||
| 2023 | 9.3 | ||||
| 2024 | 9.5 | ||||
| 2025 | 9.9 | ||||
| 2026 | 10.3 | ||||
| Thereafter in the succeeding five years | 58.2 |
14. RESTRUCTURING
In 2020, the company initiated a strategic evaluation focusing on four key areas of our expense base: our organizational model, our real estate footprint, management of third party spend and technology and operations efficiency.
Restructuring expenses related to the strategic evaluation were $100.5 million for the year ended December 31, 2021 (December 31, 2020: $119.0 million). Restructuring expenses are recorded to transaction, integration and restructuring expenses on the Consolidated Statements of Income.
The company estimates $30 million to $55 million of remaining restructuring expenses related to the strategic evaluation through the end of 2022, of which approximately 30% will be employee compensation costs with the remainder comprised of property, office and technology costs and general and administrative costs. A substantial portion of these expenses will result in future cash expenditures.
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The following table shows the rollforward of the restructuring liability as of December 31, 2021 and total restructuring charges for the year ended December 31, 2021 and December 31, 2020. The company recorded the liability to accrued compensation and benefits, accounts payable and accrued liabilities on the Consolidated Balance Sheets.
| $ in millions | Employee Compensation | Other Expenses | Total | ||||||||||||||
| Balance as of July 1, 2020 | — | — | — | ||||||||||||||
| Accrued charges | 85.0 | 9.1 | 94.1 | ||||||||||||||
| Payments | (40.5) | (9.1) | (49.6) | ||||||||||||||
| Balance as of December 31, 2020 | 44.5 | — | 44.5 | ||||||||||||||
| Accrued charges | 63.7 | 14.3 | 78.0 | ||||||||||||||
| Payments | (75.2) | (12.5) | (87.7) | ||||||||||||||
| Balance as of December 31, 2021 | 33.0 | 1.8 | 34.8 | ||||||||||||||
| Non-cash charges (1) | |||||||||||||||||
| Six months ended December 31, 2020 | 19.5 | 5.4 | 24.9 | ||||||||||||||
| Twelve months ended December 31, 2021 | 13.7 | 8.8 | 22.5 | ||||||||||||||
| Total non-cash charges | 33.2 | 14.2 | 47.4 | ||||||||||||||
| Cumulative charges incurred through December 31, 2021 | 181.9 | 37.6 | 219.5 |
(1) Non-cash charges include stock-based compensation, accelerated depreciation of certain assets and location strategy costs (including impairment, refer to Note 5, "Property, Equipment Software" for details).
15. OPERATING LEASES
The company leases office space in almost all its locations of business, data centers and certain equipment under non-cancelable operating leases. The operating leases have a weighted-average remaining lease term of 5.41 years for the year ended December 31, 2021 (2020: 5.74 years) and generally include one or more options to renew, with renewal terms that can extend the lease term from 1 to 10 years. Certain lease arrangements include an option to terminate the lease if a notification is provided to the landlord within 1-7.2 years prior to the end of the lease term. The company has sole discretion in exercising lease renewal and termination options. The lease terms used in the company’s lease measurements do not include renewal options as they are not reasonably certain to be exercised as of the date of this report.
The company elected to combine lease and non-lease components in calculating the lease liability and right-of-use asset for operating leases.
Variable lease payments are determined based on the terms and conditions outlined in the lease contracts and are primarily determined in relation to the extent of the company’s usage of the right-of use-asset or the nature and extent of services received from the lessor. Variable lease costs consists primarily of common area maintenance and other operating expenses as negotiated with the lessor.
As of December 31, 2021, the right-of-use asset of $256.6 million was included within Other assets, and the lease liability of $289.8 million was included within Accounts payable and accrued expenses, on the Consolidated Balance Sheets.
The components of lease expense for the year ended December 31, 2021, December 31, 2020 and December 31, 2019 were as follows:
| $ in millions | Year ended December 31, 2021 | Year ended December 31, 2020 | Year ended December 31, 2019 | ||||||||||||||
| Operating lease cost | 81.4 | 91.6 | 70.0 | ||||||||||||||
| Variable lease cost | 25.5 | 23.4 | 26.8 | ||||||||||||||
| Less: sublease income | (1.9) | (2.1) | (0.6) | ||||||||||||||
| Total lease expense | 105.0 | 112.9 | 96.2 | ||||||||||||||
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The company did not record any impairment expense during the years ended December 31, 2021 and 2019 (during the year ended December 31, 2020, an impairment expense of $17.8 million was recorded to transaction, integration and restructuring expense related to a property we intend to sublease, of which $13.4 million related to the right-of use assets and $4.4 million related to leasehold improvements (see Note 5, “Property, Equipment Software”)).
Supplemental cash flow information related to leases for the year ended December 31, 2021 and December 31, 2020 were as follows:
| $ in millions | Year ended December 31, 2021 | Year ended December 31, 2020 | |||||||||
| Operating cash flows from operating leases included in the measurement of lease liabilities | 86.0 | 98.3 | |||||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | 7.7 | 36.7 |
In determining the discount rate, the company considered the interest rate yield for specific interest rate environments and the company’s credit spread at the inception of the lease.
The weighted-average discount rate for the operating lease liability for the year ended December 31, 2021 was 3.35% (2020: 3.39%).
As of December 31, 2021, the maturities of the company’s lease liabilities (primarily related to real estate leases) were as follows:
| $ in millions | |||||
| Year Ending December 31,2021 | Lease Liabilities | ||||
| 2022 | 77.5 | ||||
| 2023 | 64.9 | ||||
| 2024 | 47.8 | ||||
| 2025 | 39.3 | ||||
| 2026 | 34.7 | ||||
| Thereafter | 51.3 | ||||
| Total lease payments | 315.5 | ||||
| Less: interest | (25.7) | ||||
| Present value of lease liabilities | 289.8 |
Excluded from the tables above is an additional operating lease for the company’s new Atlanta headquarters that was entered into during third quarter of 2019, but has not yet commenced. The expected lease obligations are approximately $232.5 million which will be paid over an expected lease term of 15 years. This operating lease will commence in 2022 and will replace the company’s existing lease for the current headquarters.
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16. OTHER GAINS AND LOSSES, NET
The components of other gains and losses, net, are as follows:
| $ in millions | 2021 | 2020 | 2019 | ||||||||||||||
| Other gains: | |||||||||||||||||
| Gain on equity investments and total return swap, net | 58.1 | 41.7 | 82.5 | ||||||||||||||
| Gain on contingent consideration liability | 10.1 | 15.3 | — | ||||||||||||||
| Net foreign exchange gains | 3.3 | 0.1 | — | ||||||||||||||
| Other realized gains (1) | 56.8 | 1.0 | — | ||||||||||||||
| Gain on sale of investments | — | — | 1.5 | ||||||||||||||
| Non-service pensions gains | — | 2.5 | 5.2 | ||||||||||||||
| Total other gains | 128.3 | 60.6 | 89.2 | ||||||||||||||
| Other losses: | |||||||||||||||||
| Other-than-temporary impairment | (7.1) | (3.6) | (2.0) | ||||||||||||||
| Non-service pension losses | (0.7) | — | — | ||||||||||||||
| Loss on contingent consideration liability | — | — | (7.8) | ||||||||||||||
| Net foreign exchange losses | — | (2.4) | (8.9) | ||||||||||||||
| Foreign exchange hedge loss | — | — | (4.8) | ||||||||||||||
| Other realized losses | — | (9.7) | — | ||||||||||||||
| Total other losses | (7.8) | (15.7) | (23.5) | ||||||||||||||
| Other gains and losses, net | 120.5 | 44.9 | 65.7 |
(1) Represents recognition of gains from certain private equity funds that are in liquidation.
17. TAXATION
The components of the company's income tax expense (benefit) for the years ended December 31, 2021, 2020 and 2019 are as follows:
| $ in millions | 2021 | 2020 | 2019 | ||||||||||||||
| Current: | |||||||||||||||||
| Federal | 287.5 | 125.1 | 102.0 | ||||||||||||||
| State | 68.7 | 19.7 | 17.0 | ||||||||||||||
| Foreign | 95.2 | 35.5 | 94.0 | ||||||||||||||
| 451.4 | 180.3 | 213.0 | |||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | 72.7 | 57.6 | 16.6 | ||||||||||||||
| State | 22.2 | 5.2 | 4.3 | ||||||||||||||
| Foreign | (15.2) | 18.5 | 1.2 | ||||||||||||||
| 79.7 | 81.3 | 22.1 | |||||||||||||||
| Total income tax expense (benefit) | 531.1 | 261.6 | 235.1 |
A reconciliation between the statutory U.S. federal income tax rate and the effective tax rate per the Consolidated Statements of Income for the years ended December 31, 2021, 2020 and 2019 is as follows:
| 2021 | 2020 | 2019 | |||||||||||||||
| Statutory rate | 21.0 | % | 21.0 | % | 21.0 | % | |||||||||||
| Effect of foreign statutory income tax rates | (0.4) | % | 0.5 | % | (0.3) | % | |||||||||||
| State taxes, net of federal tax effect | 2.9 | % | 1.9 | % | 1.8 | % | |||||||||||
| Share-based compensation | (0.1) | % | 1.3 | % | 0.9 | % | |||||||||||
| Effect of income attributable to noncontrolling interests | (2.9) | % | (0.9) | % | (1.1) | % | |||||||||||
| Effect of income attributable to equity method investments in corporate joint ventures | (0.9) | % | (1.0) | % | (0.5) | % | |||||||||||
| Other | 1.6 | % | 1.7 | % | 2.4 | % | |||||||||||
| Effective tax rate per Consolidated Statements of Income | 21.2 | % | 24.5 | % | 24.2 | % |
The company’s effective tax rate is affected by the tax rates in foreign jurisdictions, which are different than the U.S. federal statutory tax rate of 21%, and the relative amount of income earned in those jurisdictions. As a result, the effective tax rate will vary from year to year depending on the mix of the profits and losses from each jurisdiction.
The components of income before taxes for the years ended December 31, 2021, 2020 and 2019 are as follows:
| $ in millions | 2021 | 2020 | 2019 | ||||||||||||||
| Domestic | 2,089.5 | 845.8 | 511.1 | ||||||||||||||
| Foreign | 411.0 | 223.3 | 461.8 | ||||||||||||||
| Income before income taxes | 2,500.5 | 1,069.1 | 972.9 |
The components of the deferred tax assets and liabilities reflected in the Consolidated Balance Sheets at December 31, 2021 and 2020 include the following:
| $ in millions | 2021 | 2020 | |||||||||
| Deferred tax assets: | |||||||||||
| Compensation and benefits | 175.1 | 125.9 | |||||||||
| Lease obligations | 36.4 | 44.5 | |||||||||
| Net operating loss carryforwards | 119.0 | 99.8 | |||||||||
| Accrued liabilities | 29.7 | 97.7 | |||||||||
| Other | 1.4 | 55.4 | |||||||||
| Total deferred tax assets | 361.6 | 423.3 | |||||||||
| Valuation allowance | (86.7) | (104.5) | |||||||||
| Deferred tax assets, net of valuation allowance | 274.9 | 318.8 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Goodwill and intangibles | (1,787.1) | (1,745.4) | |||||||||
| Leased assets | (33.3) | (40.3) | |||||||||
| Fixed assets | (18.2) | (27.8) | |||||||||
| Other | (42.7) | (22.9) | |||||||||
| Total deferred tax liabilities | (1,881.3) | (1,836.4) | |||||||||
| Net deferred tax liability | (1,606.4) | (1,517.6) |
Deferred income tax assets and liabilities are recorded net when related to the same tax jurisdiction. At December 31, 2021, the Company recorded on the Consolidated Balance Sheets net deferred tax assets of $19.9 million in other assets, and net deferred tax liabilities of $1,626.3 million. At December 31, 2020, the Company recorded on the Consolidated Balance Sheets net deferred tax assets of $5.9 million in other assets and net deferred tax liabilities of $1,523.5 million.
At December 31, 2021 and 2020, the company had tax-effected state net operating loss carryforwards of $35.5 million and $37.2 million, respectively, which will expire, if not utilized, between 2022 and 2038 except for approximately $4.3 million which have an indefinite life. At December 31, 2021 and 2020, the company also had tax-effected federal and foreign net operating loss carryforwards of $83.5 million and $62.6 million, respectively, of which approximately $12.5 million will expire over several years starting in 2022, with the remaining $71.0 million having an indefinite life. A valuation allowance has been recorded against certain carryforwards and certain deferred tax assets related to tax jurisdictions in which it is unlikely that the deferred tax asset will be realized.
Deferred tax liabilities are recognized for taxes that would be payable on the unremitted earnings of the company's foreign subsidiaries and corporate joint ventures, except where it is our intention to indefinitely reinvest the undistributed earnings. A deferred tax liability has not been recognized for our Canadian unremitted earnings, which are indefinitely reinvested, of approximately $1,090.0 million and $1,060.0 million at December 31, 2021 and 2020, respectively. If these earnings were distributed as a dividend, Canadian withholding tax of 5.0% would be due on the dividend. There are no other significant jurisdictions for which a deferred tax liability has not been recognized on unremitted earnings.
A reconciliation of the gross unrecognized tax benefits (UTBs) for the years ended December 31, 2021, 2020 and 2019 is as follows:
| $ in millions | 2021 | 2020 | 2019 | ||||||||||||||
| Balance at January 1 | 61.9 | 69.9 | 20.0 | ||||||||||||||
| Additions for tax positions related to the current year | 15.9 | 6.6 | 1.4 | ||||||||||||||
| Additions for tax positions related to prior years | 14.2 | 2.2 | 1.2 | ||||||||||||||
| Additions for tax positions related to prior years of acquired entities | — | — | 54.1 | ||||||||||||||
| Reductions for tax positions related to prior years | (3.5) | (9.9) | (4.0) | ||||||||||||||
| Reductions related to lapse of statute of limitations | (1.9) | (6.9) | (2.8) | ||||||||||||||
| Balance at December 31 | 86.6 | 61.9 | 69.9 |
The amount of UTBs that, if recognized, would favorably affect the company's effective tax rate was $71.9 million at December 31, 2021. The company recognizes accrued interest and penalties related to UTBs as a component of the income tax provision. The Consolidated Balance Sheets include accrued interest and penalties related to UTBs of $14.8 million, $13.2 million and $11.7 million at December 31, 2021, 2020 and 2019, respectively. The company recognized expense for interest and penalties related to UTBs of $1.6 million, $1.7 million and $8.5 million in 2021, 2020 and 2019, respectively.
The company files U.S. federal, U.S. state and local, and numerous foreign income tax returns. The company is periodically examined by various taxing authorities. With few exceptions, the company is no longer subject to income tax examinations for years prior to 2013. As a result of the completion of taxing authorities' examinations and the expiration of statutes of limitations, it is reasonably possible that the company's gross UTBs may decrease by as much as $25.0 million within the next twelve months.
18. EARNINGS PER COMMON SHARE
The calculation of earnings per common share is as follows:
| Years ended December 31, | |||||||||||||||||
| In millions, except per share data | 2021 | 2020 | 2019 | ||||||||||||||
| Net income attributable to Invesco Ltd. | $1,393.0 | $524.8 | $564.7 | ||||||||||||||
| Invesco Ltd: | |||||||||||||||||
| Weighted average common shares outstanding - basic | 462.8 | 459.5 | 437.8 | ||||||||||||||
| Dilutive effect of non-participating common share-based awards | 2.6 | 3.0 | 2.7 | ||||||||||||||
| Weighted average common shares outstanding - diluted | 465.4 | 462.5 | 440.5 | ||||||||||||||
| Earnings per common share: | |||||||||||||||||
| -basic | $3.01 | $1.14 | $1.29 | ||||||||||||||
| -diluted | $2.99 | $1.13 | $1.28 |
See Note 12, “Common Share-Based Compensation,” for a summary of common share awards outstanding under the company's common share-based payment programs. These programs could result in the issuance of common shares that would affect the measurement of basic and diluted earnings per common share.
There were no common shares of performance-vested awards excluded from the computation of diluted earnings per common share during the year ended December 31, 2021 due to their inclusion being anti-dilutive (years ended December 31, 2020: 0.3 million; December 31, 2019: 0.7 million). There were no common shares of time-vested awards excluded from the computation of diluted earnings per common share during the year ended December 31, 2021 (years ended December 31, 2020: none; December 31, 2019: none). There were no contingently issuable common shares excluded from the diluted earnings per common share computation during the year ended December 31, 2021 (December 31, 2020: none; December 31, 2019: none), because the necessary performance conditions for the common shares to be issuable had not yet been satisfied at the end of the respective period.
19. GEOGRAPHIC INFORMATION
The company operates under one business segment, investment management. Geographical information is presented below. There are no revenues or long-lived assets attributed to the company's country of domicile, Bermuda.
| $ in millions | Americas | Asia Pacific | EMEA Ex UK | UK | Total | ||||||||||||||||||||||||
| For the year ended December 31, 2021 | |||||||||||||||||||||||||||||
| Total operating revenues (1) | 5,174.7 | 348.6 | 724.8 | 646.4 | 6,894.5 | ||||||||||||||||||||||||
| Long-lived assets | 341.4 | 23.6 | 7.4 | 145.7 | 518.1 | ||||||||||||||||||||||||
| For the year ended December 31, 2020 | |||||||||||||||||||||||||||||
| Total operating revenues (1) | 4,541.6 | 326.1 | 645.1 | 632.8 | 6,145.6 | ||||||||||||||||||||||||
| Long-lived assets | 384.0 | 23.1 | 9.1 | 147.6 | 563.8 | ||||||||||||||||||||||||
| For the year ended December 31, 2019 | |||||||||||||||||||||||||||||
| Total operating revenues (1) | 4,290.2 | 309.2 | 698.3 | 819.7 | 6,117.4 | ||||||||||||||||||||||||
| Long-lived assets | 416.0 | 20.8 | 8.2 | 138.5 | 583.5 |
(1) Operating revenues reflect the geographical regions from which services are provided.
20. COMMITMENTS AND CONTINGENCIES
Commitments and contingencies may arise in the ordinary course of business.
The company has committed to co-invest in certain investment products which may be called in future periods. At December 31, 2021, the company’s undrawn co-invest capital commitments were $488.8 million (December 31, 2020: $453.5 million).
Certain of our managed investment products have entered into revolving credit facilities with financial institutions. Pursuant to these arrangements, the company provided equity commitments and guarantees to certain of these investment products that are temporary in nature. The revolving credit facilities look first to the respective investment products for repayment and servicing. The company’s equity commitment or guarantee would only be called in the event a particular investment product is unable to meet its obligation. The company believes the likelihood of being required to fund its equity commitments or guarantees under these arrangements to be remote. To date, the company has not been required to fund any equity commitments under these arrangements. The maximum amount of future payments under the commitments is $276.9 million and under the guarantees is $30 million. The fair value of the guarantee liability is not significant to the consolidated financial statements.
The Parent and various company subsidiaries have entered into agreements with financial institutions to guarantee certain obligations of other company subsidiaries. The company would be required to perform under these guarantees in the event of certain defaults. The company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
Legal Contingencies
The company is from time to time involved in pending or threatened litigation relating to claims arising in the ordinary course of its business. The nature and progression of litigation can make it difficult to predict the impact a particular lawsuit or claim will have on the company. There are many reasons that the company cannot make these assessments, including, among others, one or more of the following: the proceeding is in its early stages (or merely threatened); the damages sought are unspecified, unsupportable, unexplained or uncertain; the claimant is seeking relief other than compensatory damages; the matter presents novel legal claims or other meaningful legal uncertainties; discovery has not started or is not complete; there are significant facts in dispute; and there are other parties who may share in any ultimate liability.
In assessing the impact that a legal or regulatory matter will have on the company, management evaluates the need for an accrual on a case-by-case basis. If the likelihood of a loss is deemed probable and is reasonably estimable, the estimated loss is accrued. If the likelihood of a loss is assessed as less than probable, or an amount or range of loss cannot be reasonably estimated, a loss is not accrued. In management’s opinion, adequate accrual has been made as of December 31, 2021 to provide for any such losses that may arise from matters for which the company could reasonably estimate an amount and are deemed probable. Management is of the opinion that the ultimate resolution of claims will not materially affect the company’s business, financial position, results of operations or liquidity.
The investment management industry also is subject to extensive levels of ongoing regulatory oversight and examination. In the United States, United Kingdom and other jurisdictions in which the company operates, governmental authorities regularly make inquiries, hold investigations and administer market conduct examinations with respect to the company’s 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 United States, United Kingdom 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 AUM, which would have an adverse effect on the company’s future financial results and its ability to grow its business.
OppenheimerFunds acquisition-related matter
As previously disclosed by the company, in the fourth quarter of 2019, the company identified an accounting matter which required a restatement of the historical financial statements for the following funds: (1) the Invesco Steelpath MLP Income Fund; (2) the Invesco Steelpath MLP Select 40 Fund; (3) the Invesco Steelpath MLP Alpha Fund; and (4) the Invesco Steelpath MLP Alpha Plus Fund (each a Fund and together the Funds).
In the fourth quarter of 2021, remediation payments of $254.3 million were made to certain shareholders of the Funds that were negatively impacted by the restatement described above. Prior to the payments being made, during the year ended December 31, 2021, we reduced our estimated liability by $131.1 million based on our analysis of the patterns of actual underlying fund shareholder activity as we received fund shareholder information from certain omnibus accounts.
During the year ended December 31, 2021, the company received $100.0 million in proceeds under applicable insurance policies. The company may be entitled to additional reimbursement under applicable insurance policies for a portion of the remaining costs related to this matter, subject to the terms of such policies, including applicable deductibles and policy limits. Additionally, as the company acquired sponsorship and management of the Funds as part of its acquisition of OppenheimerFunds, the company may be entitled to seek indemnification for a portion of the remaining costs from MassMutual under the OppenheimerFunds acquisition agreement, subject to the terms of such indemnification, including applicable deductible and limit.
The measurement period for this acquisition closed during the three months ended June 30, 2020; therefore, the adjustments made during the year ended December 31, 2021 as well as any additional recoveries from insurance or indemnification, are and will be recorded through earnings in transaction, integration and restructuring expense. Remediation costs of $5.2 million have been incurred during the year ended December 31, 2021 (year ended December 31, 2020: $11.6 million) and recorded as transaction, integration and restructuring expense.
21. CONSOLIDATED INVESTMENT PRODUCTS
The following table presents the balances related to CIP that are included on the Consolidated Balance Sheets as well as Invesco's net interest in the CIP for each period presented.
| As of | |||||||||||
| $ in millions | December 31, 2021 | December 31, 2020 | |||||||||
| Cash and cash equivalents of CIP | 250.7 | 301.7 | |||||||||
| Accounts receivable and other assets of CIP | 532.6 | 175.5 | |||||||||
| Investments of CIP | 9,042.5 | 7,910.0 | |||||||||
| Less: Debt of CIP | (7,336.1) | (6,714.1) | |||||||||
| Less: Other liabilities of CIP | (846.3) | (588.6) | |||||||||
| Less: Retained earnings | 0.1 | 0.1 | |||||||||
| Less: Equity attributable to redeemable noncontrolling interests | (510.8) | (211.8) | |||||||||
| Less: Equity attributable to nonredeemable noncontrolling interests | (671.5) | (446.3) | |||||||||
| Invesco's net interests in CIP | 461.2 | 426.5 | |||||||||
The following table reflects the impact of consolidation of investment products into the Consolidated Statements of Income for the years ended December 31, 2021, 2020 and 2019.
Summary of Income Statement Impact of CIP
| Years ended December 31, | ||||||||||||||||||||
| $ in millions | 2021 | 2020 | 2019 | |||||||||||||||||
| Total operating revenues | (42.4) | (39.8) | (33.5) | |||||||||||||||||
| Total operating expenses | 25.3 | 22.2 | 28.1 | |||||||||||||||||
| Operating income | (67.7) | (62.0) | (61.6) | |||||||||||||||||
| Equity in earnings of unconsolidated affiliates | (95.5) | (12.0) | 5.1 | |||||||||||||||||
| Interest and dividend income | — | (0.3) | (4.6) | |||||||||||||||||
| Other gains and losses, net | (6.2) | (10.3) | (40.8) | |||||||||||||||||
| Interest and dividend income of CIP | 279.7 | 302.3 | 345.4 | |||||||||||||||||
| Interest expense of CIP | (160.7) | (194.5) | (228.5) | |||||||||||||||||
| Other gains/(losses) of CIP, net | 390.0 | 32.1 | 32.9 | |||||||||||||||||
| Income before income taxes | 339.6 | 55.3 | 47.9 | |||||||||||||||||
| Income tax provision | — | — | — | |||||||||||||||||
| Net income | 339.6 | 55.3 | 47.9 | |||||||||||||||||
| Net (income)/loss attributable to noncontrolling interests in consolidated entities | (339.6) | (45.9) | (49.5) | |||||||||||||||||
| Net income attributable to Invesco Ltd. | — | 9.4 | (1.6) |
The company's risk with respect to each investment in CIP is limited to its equity ownership and any uncollected management and performance fees. The company has no right to the benefits from, nor does it bear the risks associated with, these investments, beyond the company's direct investments in, and management and performance fees generated from, the investment products. If the company were to liquidate, these investments would not be available to the general creditors of the company, and as a result, the company does not consider investments held by CIP to be company assets. Additionally, the collateral assets of consolidated collateralized loan obligations (CLOs) are held solely to satisfy the obligations of the CLOs, and the investors in the consolidated CLOs have no recourse to the general credit of the company for the notes issued by the CLOs. CIP are taxed at the investor level and not at the product level; therefore, there is no tax provision reflected in the net impact of CIP.
Non-consolidated VIEs
At December 31, 2021, the company's carrying value and maximum risk of loss with respect to variable interest entities (VIEs) in which the company is not the primary beneficiary was $134.1 million (December 31, 2020: $152.0 million).
Changes to consolidation of VIEs/VOEs
During the year ended December 31, 2021, the company invested in and consolidated ten new VIEs and six new VOEs (December 31, 2020: the company invested in and consolidated four new VIEs and two new VOEs). Additionally, during the year ended December 31, 2021, the company determined it was no longer the primary beneficiary of seven VIEs and six VOEs (December 31, 2020: the company determined that it was no longer the primary beneficiary of fifteen VIEs and eleven VOEs). The tables below illustrate the net impact of these consolidation changes to our consolidated summary balance sheets.
| For the year ended December 31, 2021 | For the year ended December 31, 2020 | |||||||||||||||||||||||||||||||
| $ in millions (1) | VIEs | VOEs | VIEs | VOEs | ||||||||||||||||||||||||||||
| Net increase (decrease) in assets of CIP | 174.8 | (4.5) | (258.2) | (118.1) | ||||||||||||||||||||||||||||
| Net increase (decrease) in liabilities of CIP | 66.1 | 0.9 | 110.8 | — |
There was no net impact to the Consolidated Statements of Income as a result of the changes in consolidations during the years ended December 31, 2021 and December 31, 2020. There was no net impact to the Consolidated Statements of Income for the years ended December 31, 2021 and December 31, 2020 from the deconsolidation of these investment products.
The following tables present the fair value hierarchy levels of certain CIP balances which are measured at fair value as of December 31, 2021 and December 31, 2020:
| As of December 31, 2021 | |||||||||||||||||||||||||||||
| $ in millions | Fair Value Measurements | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Investments Measured at NAV as a practical expedient | ||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||
| Bank loans | 7,132.4 | — | 6,993.6 | 138.8 | — | ||||||||||||||||||||||||
| Bonds | 714.9 | 22.3 | 692.4 | 0.2 | — | ||||||||||||||||||||||||
| Equity securities | 219.1 | 103.9 | 29.7 | 85.5 | — | ||||||||||||||||||||||||
| Equity and fixed income mutual funds | 243.2 | 20.1 | 223.1 | — | — | ||||||||||||||||||||||||
| Investments in other private equity funds | 454.9 | — | — | 8.1 | 446.8 | ||||||||||||||||||||||||
| Real estate investments | 278.0 | — | — | — | 278.0 | ||||||||||||||||||||||||
| Total assets at fair value | 9,042.5 | 146.3 | 7,938.8 | 232.6 | 724.8 | ||||||||||||||||||||||||
| As of December 31, 2020 | |||||||||||||||||||||||||||||
| $ in millions | Fair Value Measurements | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Investments Measured at NAV as a Practical expedient | ||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||
| Bank loans | 6,864.5 | — | 6,864.5 | — | — | ||||||||||||||||||||||||
| Bonds | 539.0 | 0.6 | 538.4 | — | — | ||||||||||||||||||||||||
| Equity securities | 137.2 | 61.3 | 75.9 | — | — | ||||||||||||||||||||||||
| Equity and fixed income mutual funds | 103.0 | 91.2 | 11.8 | — | — | ||||||||||||||||||||||||
| Investments in other private equity funds | 266.3 | — | 8.1 | — | 258.2 | ||||||||||||||||||||||||
| Total assets at fair value | 7,910.0 | 153.1 | 7,498.7 | — | 258.2 | ||||||||||||||||||||||||
The impact of any gains or losses resulting from valuation changes in the investments of non-CLO CIP attributable to the interests of third parties are offset by resulting changes in gains and losses attributable to noncontrolling interests in consolidated entities and therefore do not have a material effect on the financial condition, operating results (including earnings per common share), liquidity or capital resources of the company's common shareholders. Similarly, any gains or losses resulting from valuation changes in the investments of CLOs attributable to the interests of third parties are offset by the calculated value of the notes issued by the CLOs (offsetting in other gains/(losses) of CIP) and therefore also do not have a material effect on the financial condition, operating results (including earnings per common share), liquidity or capital resources of the company's common shareholders.
Fair value of consolidated CLOs
The company elected the fair value option for collateral assets held and notes issued by its consolidated CLOs to eliminate the measurement and recognition inconsistency that would otherwise arise from measuring assets and liabilities and recognizing the related gains and losses on different accounting bases. By electing the fair value option, the notes issued by the CLOs are measured based on the fair value of the assets of the CLOs.
The collateral assets held by consolidated CLOs are primarily invested in senior secured bank loans, bonds, and equity securities. Bank loan investments, which comprise the majority of consolidated CLO portfolio collateral, are senior secured corporate loans from a variety of industries. Bank loan investments mature at various dates between 2022 and 2029, pay interest at LIBOR plus a spread of up to 9.25%, and typically range in S&P credit rating categories from BBB down to unrated. At December 31, 2021, the unpaid principal balance exceeds the fair value of the senior secured bank loans and bonds by approximately $60.4 million (December 31, 2020: the unpaid principal balance exceeded the fair value of the senior secured bank loans and bonds by approximately $208.6 million). Approximately 0.52% of the collateral assets are in default as of December 31, 2021 (December 31, 2020: approximately 1.17% of the collateral assets were in default). CLO investments are valued based on price quotations provided by third-party pricing sources. These third-party sources aggregate indicative price quotations to provide the company with a price for the CLO investments. If necessary, price quotations are challenged through the third-party pricing source price challenge process.
In the event that the third-party pricing source is unable to price an investment, other relevant factors, data and information are considered, including: i) quotations for and trading in the investment and interests in similar investments on days prior to or immediately after period-end, ii) the fundamental analytical data relating to the investment, including, the key terms and conditions of such securities and including the position of securities in the borrower's debt structure, iii) the nature, adequacy and value of the senior secured corporate loan's collateral, iv) for senior secured corporate loans, the creditworthiness of the borrower, based on an evaluation of its financial condition, financial statements and information about the business, cash flows, capital structure and future prospects.
Notes issued by consolidated CLOs mature at various dates between 2030 and 2034 and have a weighted average maturity of eleven years. The notes are issued in various tranches with different risk profiles. The interest rates are generally variable rates based on LIBOR plus a pre-defined spread, which varies from 0.40% for the more senior tranches to 8.68% for the more subordinated tranches. The investors in this debt are not affiliated with the company and have no recourse to the general credit of the company for this debt.
Fair value of consolidated partnership entities
For private equity partnerships, fair value is determined by reviewing each investment for the sale of additional securities of an issuer to sophisticated investors or for investee financial conditions and fundamentals. Publicly traded portfolio investments are carried at market value as determined by their most recent quoted sale, or if there is no recent sale, at their most recent bid price. For these investments held by CIP, level 1 classification indicates that fair values have been determined using unadjusted quoted prices in active markets for identical assets that the partnership has the ability to access. Level 2 classification may indicate that fair values have been determined using quoted prices in active markets but give effect to certain lock-up restrictions surrounding the holding period of the underlying investments.
The fair value of level 3 investments held by CIP are derived from inputs that are unobservable and which reflect the limited partnerships' own determinations about the assumptions that market participants would use in pricing the investments, including assumptions about risk. These inputs are developed based on the partnership's own data, which is adjusted if information indicates that market participants would use different assumptions. The partnerships which invest directly into private equity portfolio companies (direct private equity funds) take into account various market conditions, subsequent rounds of financing, liquidity, financial condition, purchase multiples paid in other comparable third-party transactions, the price of securities of other companies comparable to the portfolio company, and operating results and other financial data of the portfolio company, as applicable.
The partnerships which invest into other private equity funds (funds-of-funds) and real estate investments take into account information received from those underlying funds, including their reported net asset values and evidence as to their fair value approach, including consistency of their fair value application. These investments do not trade in active markets and represent illiquid long-term investments that generally require future capital commitments. The partnerships' reported share of the underlying net asset values of the underlying funds is used as a practical expedient, as allowed by ASC Topic 820, in arriving at fair value.
The table below summarizes as of December 31, 2021 and December 31, 2020, the nature of investments that are valued using the NAV as a practical expedient and any related liquidation restrictions or other factors which may impact the ultimate value realized.
| December 31, 2021 | December 31, 2020 | |||||||||||||||||||||||||||||||||||||
| in millions, except term data | Fair Value | Total Unfunded Commitments | Weighted Average Remaining Term (3) | Fair Value | Total Unfunded Commitments | Weighted Average Remaining Term (3) | ||||||||||||||||||||||||||||||||
| Private equity funds (1) | 446.8 | 61.7 | 6.9 years | 258.2 | 110.1 | 6.7 years | ||||||||||||||||||||||||||||||||
| Real estate investments (2) | 278.0 | 47.3 | N/A | — | — | N/A | ||||||||||||||||||||||||||||||||
(1) These investments are not subject to redemption; however, for certain funds, the investors may sell or transfer their interest, which may require approval by the general partner of the underlying funds.
(2) These investments are subject to a redemption notice period that requires at least 45 days, and the frequency of redemptions is either quarterly or best efforts.
(3) These investments are expected to be returned through distributions because of liquidations of the funds’ underlying assets over the weighted average periods indicated.
Fair Value of Consolidated Seed and Co-investment Holdings
Equity securities are valued under the market approach based on quoted prices on an exchange. Bonds are valued using an evaluated quote provided by an independent pricing service. Equity and fixed income mutual funds are valued under the market approach based on quoted prices and are classified as level 1 when there is an active market and level 2 when there is not an active market. For more details on the fair value levels hierarchy see Footnote 3 - Fair Value of Assets and Liabilities.
22. RELATED PARTIES
As a result of the OppenheimerFunds acquisition, MassMutual has an approximate 16.4% stake in the common stock of the company and owns all of the outstanding $4.0 billion in perpetual, non-cumulative preferred shares. Based on the level of shares owned by MassMutual and the corresponding customary minority shareholder rights, which includes representation on Invesco’s board of directors, the company considers MassMutual a related party.
Additionally, certain managed funds are deemed to be affiliated entities under the related party definition in ASC 850, “Related Party Disclosures.” Related parties include those defined in the company’s proxy statement.
Affiliated operating revenue, which includes investment management fees, service and distribution fees, performance fees and other revenue on the Consolidated Statements of Income is $6,302.4 million, $5,606.2 million and $5,536.3 million for the years ended December 31, 2021, December 31, 2020 and December 31, 2019, respectively.
Due from affiliates, which is included within accounts receivables, unsettled fund receivables and other assets on the Consolidated Balance Sheets is $681.4 million and $612.0 million at December 31, 2021 and December 31, 2020 respectively, primarily comprised of receivables from affiliated Invesco funds, accrued income and other receivable balances from affiliates.
Due to affiliates, which is included within accounts payable, accrued compensation and unsettled fund payables on the Consolidated Balance Sheets is $146.5 million and $171.6 million at December 31, 2021 and December 31, 2020, respectively, primarily comprised of payables to affiliated Invesco funds and payables to other related parties, which includes balances due to employees (i.e., deferred compensation liabilities, vacation accruals, bonus accrual, etc.) and defined benefit pension obligations.
Refer to Note 3, "Fair Value of Assets and Liabilities" and Note 4, "Investments" for more information on balances invested in Invesco affiliated funds.
23. SUBSEQUENT EVENTS
On January 25, 2022, the company declared a fourth quarter 2021 dividend of $0.17 per common share, payable on March 2, 2022, to common shareholders of record at the close of business on February 16, 2022 with an ex-dividend date of February 15, 2022.
On January 25, 2022, the company declared a preferred dividend of $14.75 per preferred share to the holders of preferred shares, representing the period from December 1, 2021 through February 28, 2022. The preferred dividend is payable on March 1, 2022, to preferred shareholders of record at the close of business on February 15, 2022.
On January 25, 2022, the company announced its intention to repurchase up to $200 million in common stock in the first quarter of 2022, subject to market conditions. Since this announcement and as of the time of this report, the company has repurchased 6.4 million common shares in the open market for $147.3 million.
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