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
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, 2023. In making this assessment, management used the criteria set forth by the Internal Control - Integrated Framework (2013) issued by Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management concluded that the company’s internal control over financial reporting was effective as of December 31, 2023.
The company's independent registered public accounting firm, PricewaterhouseCoopers LLP, has issued a report on the effectiveness of our internal control over financial reporting, which is included herein.
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, 2023 and 2022, and the related consolidated statements of income, of comprehensive income, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2023, 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 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, 2023, 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 Annual Report of Management on Internal Control over Financial Reporting appearing under Item 8. 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.
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 matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate 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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Indefinite-Lived Intangible Assets Impairment Assessment for Acquired Management Contracts of U.S. Retail Mutual Funds
As described in Notes 1, 2 and 5 to the consolidated financial statements, the Company’s management contracts indefinite-lived intangible assets, net balance was $5,705.4 million as of December 31, 2023. As disclosed by management, the carrying value of indefinite-lived intangible assets related to acquired management contracts of U.S. retail mutual funds was $4,569.7 million, which included a $1,248.9 million impairment charge for the year ended December 31, 2023. Management tests for impairment annually as of October 1 or more frequently if events or changes in circumstances indicate that the asset might be impaired. If the qualitative assessment indicates that an impairment may be likely or management elects 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. Fair value is generally determined using an income approach where estimated future cash flows are discounted to arrive at a single present value amount. The most sensitive assumptions used in the income approach are the revenue forecast, the long-term growth rate and the discount rate.
The principal considerations for our determination that performing procedures relating to the indefinite-lived intangible assets impairment assessment for acquired management contracts of U.S. retail mutual funds is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of the intangible assets; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to the revenue forecast, the long-term growth rate and the discount rate; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
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 management’s indefinite-lived intangible assets impairment assessment for acquired management contracts of U.S. retail mutual funds, including controls over the valuation of the acquired management contracts of U.S. retail mutual fund indefinite-lived intangible assets. These procedures also included, among others (i) testing management’s process for developing the fair value estimate of the indefinite lived intangible assets; (ii) evaluating the appropriateness of the income approach used by management; (iii) testing the completeness and accuracy of underlying data used in the income approach; and (iv) evaluating the reasonableness of the significant assumptions used by management related to the revenue forecast, the long-term growth rate and the discount rate. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the income approach and (ii) the reasonableness of the revenue forecast, long-term growth rate and discount rate assumptions.
Goodwill Impairment Assessment
As described in Notes 1 and 6 to the consolidated financial statements, the Company’s goodwill balance was $8,691.5 million as of December 31, 2023. The Company has one reporting unit for goodwill, which management reviews for impairment annually as of October 1 and between annual tests when events and circumstances indicate that impairment may have occurred. If the qualitative assessment indicates that an impairment may be likely or management elected to not perform the qualitative assessment, a quantitative impairment test is performed at the reporting unit level. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss is recognized. 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. As disclosed by management, the most sensitive assumptions used in the income approach are the long-term growth rate and the discount rate.
The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of the reporting unit; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to the long-term growth rate and the discount rate; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
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 management’s goodwill impairment assessment, including controls over the valuation of the reporting unit. These procedures also included, among others (i) testing management’s process for developing the fair value estimate of the reporting unit; (ii) evaluating the appropriateness of the income approach used by management; (iii) testing the completeness and accuracy of underlying data used in the income approach; and (iv) evaluating the reasonableness of the significant assumptions used by management related to the long-term growth rate and the discount rate. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the income approach and (ii) the reasonableness of the long-term growth rate and discount rate assumptions.
/s/ PricewaterhouseCoopers LLP
Atlanta, Georgia
February 21, 2024
We have served as the Company’s auditor since 2013.
Invesco Ltd.
Consolidated Balance Sheets
| As of | |||||||||||
| (in millions, except per share data) | December 31, 2023 | December 31, 2022 | |||||||||
| ASSETS | |||||||||||
| Cash and cash equivalents | $ | 1,469.2 | $ | 1,234.7 | |||||||
| Accounts receivable | 701.5 | 801.8 | |||||||||
| Investments | 919.1 | 996.6 | |||||||||
| Assets of CIP: | |||||||||||
| Cash and cash equivalents of CIP | 462.4 | 199.4 | |||||||||
| Accounts receivable and other assets of CIP | 250.1 | 203.7 | |||||||||
| Investments of CIP | 8,765.9 | 8,531.4 | |||||||||
| Assets held for policyholders | 393.9 | 668.7 | |||||||||
| Other assets | 832.6 | 860.5 | |||||||||
| Property, equipment and software, net | 599.5 | 561.1 | |||||||||
| Intangible assets, net | 5,848.1 | 7,141.2 | |||||||||
| Goodwill | 8,691.5 | 8,557.7 | |||||||||
| Total assets | $ | 28,933.8 | $ | 29,756.8 | |||||||
| LIABILITIES | |||||||||||
| Accrued compensation and benefits | $ | 900.4 | $ | 860.8 | |||||||
| Accounts payable and accrued expenses | 1,294.4 | 1,314.8 | |||||||||
| Liabilities of CIP: | |||||||||||
| Debt of CIP | 7,121.8 | 6,590.4 | |||||||||
| Other liabilities of CIP | 492.1 | 329.6 | |||||||||
| Policyholder payables | 393.9 | 668.7 | |||||||||
| Debt | 1,489.5 | 1,487.6 | |||||||||
| Deferred tax liabilities, net | 1,325.7 | 1,662.7 | |||||||||
| Total liabilities | 13,017.8 | 12,914.6 | |||||||||
| Commitments and contingencies (See Note 18) | |||||||||||
| TEMPORARY EQUITY | |||||||||||
| Redeemable noncontrolling interests in consolidated entities | 745.7 | 998.7 | |||||||||
| 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, 2023 and 2022) | 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, 2023 and 2022) | 113.2 | 113.2 | |||||||||
| Additional paid-in-capital | 7,451.6 | 7,554.9 | |||||||||
| Treasury shares | (3,002.6) | (3,040.9) | |||||||||
| Retained earnings | 6,826.7 | 7,518.3 | |||||||||
| Accumulated other comprehensive income/(loss), net of tax | (801.8) | (942.4) | |||||||||
| Total equity attributable to Invesco Ltd. | 14,597.6 | 15,213.6 | |||||||||
| Equity attributable to nonredeemable noncontrolling interests in consolidated entities | 572.7 | 629.9 | |||||||||
| Total permanent equity | 15,170.3 | 15,843.5 | |||||||||
| Total liabilities, temporary and permanent equity | $ | 28,933.8 | $ | 29,756.8 |
See accompanying notes.
Invesco Ltd.
Consolidated Statements of Income
| Years ended December 31, | |||||||||||||||||
| (in millions, except per common share data) | 2023 | 2022 | 2021 | ||||||||||||||
| Operating revenues: | |||||||||||||||||
| Investment management fees | $ | 4,106.0 | $ | 4,358.4 | $ | 4,995.9 | |||||||||||
| Service and distribution fees | 1,374.6 | 1,405.5 | 1,596.4 | ||||||||||||||
| Performance fees | 46.7 | 68.2 | 56.1 | ||||||||||||||
| Other | 189.1 | 216.8 | 246.1 | ||||||||||||||
| Total operating revenues | 5,716.4 | 6,048.9 | 6,894.5 | ||||||||||||||
| Operating expenses: | |||||||||||||||||
| Third-party distribution, service and advisory | 1,825.2 | 1,886.2 | 2,149.3 | ||||||||||||||
| Employee compensation | 1,885.8 | 1,725.1 | 1,911.3 | ||||||||||||||
| Marketing | 103.4 | 114.9 | 98.6 | ||||||||||||||
| Property, office and technology | 546.0 | 539.8 | 526.0 | ||||||||||||||
| General and administrative | 450.4 | 380.2 | 424.1 | ||||||||||||||
| Transaction, integration and restructuring | 41.6 | 21.2 | (65.9) | ||||||||||||||
| Amortization and impairment of intangible assets | 1,298.8 | 63.8 | 62.9 | ||||||||||||||
| Total operating expenses | 6,151.2 | 4,731.2 | 5,106.3 | ||||||||||||||
| Operating income/(loss) | (434.8) | 1,317.7 | 1,788.2 | ||||||||||||||
| Other income/(expense): | |||||||||||||||||
| Equity in earnings of unconsolidated affiliates | 71.3 | 106.1 | 152.3 | ||||||||||||||
| Interest and dividend income | 47.8 | 24.4 | 25.2 | ||||||||||||||
| Interest expense | (70.5) | (85.2) | (94.7) | ||||||||||||||
| Other gains/(losses), net | 98.0 | (139.5) | 120.5 | ||||||||||||||
| Other income/(expense) of CIP, net | 50.3 | 24.2 | 509.0 | ||||||||||||||
| Income/(loss) before income taxes | (237.9) | 1,247.7 | 2,500.5 | ||||||||||||||
| Income tax provision | 69.7 | (322.2) | (531.1) | ||||||||||||||
| Net income/(loss) | (168.2) | 925.5 | 1,969.4 | ||||||||||||||
| Net (income)/loss attributable to noncontrolling interests in consolidated entities | 71.3 | (4.8) | (339.6) | ||||||||||||||
| Dividends declared on preferred shares | (236.8) | (236.8) | (236.8) | ||||||||||||||
| Net income/(loss) attributable to Invesco Ltd. | $ | (333.7) | $ | 683.9 | $ | 1,393.0 | |||||||||||
| Earnings per common share: | |||||||||||||||||
| -basic | $ | (0.73) | $ | 1.50 | $ | 3.01 | |||||||||||
| -diluted | $ | (0.73) | $ | 1.49 | $ | 2.99 |
See accompanying notes.
Invesco Ltd.
Consolidated Statements of Comprehensive Income
| Years ended December 31, | |||||||||||||||||
| (in millions) | 2023 | 2022 | 2021 | ||||||||||||||
| Net income/(loss) | $ | (168.2) | $ | 925.5 | $ | 1,969.4 | |||||||||||
| Other comprehensive income/(loss), net of tax: | |||||||||||||||||
| Currency translation differences on investments in foreign subsidiaries | 144.9 | (463.1) | (73.4) | ||||||||||||||
| Other comprehensive income/(loss), net of tax | (4.3) | (37.8) | 36.4 | ||||||||||||||
| Other comprehensive income/(loss) | 140.6 | (500.9) | (37.0) | ||||||||||||||
| Total comprehensive income/(loss) | (27.6) | 424.6 | 1,932.4 | ||||||||||||||
| Comprehensive loss/(income) attributable to noncontrolling interests in consolidated entities | 71.3 | (4.8) | (339.6) | ||||||||||||||
| Dividends declared on preferred shares | (236.8) | (236.8) | (236.8) | ||||||||||||||
| Comprehensive income/(loss) attributable to Invesco Ltd. | $ | (193.1) | $ | 183.0 | $ | 1,356.0 |
See accompanying notes.
Invesco Ltd.
Consolidated Statements of Cash Flows
| Years ended December 31, | |||||||||||||||||
| (in millions) | 2023 | 2022 | 2021 | ||||||||||||||
| Operating activities: | |||||||||||||||||
| Net income/(loss) | $ | (168.2) | $ | 925.5 | $ | 1,969.4 | |||||||||||
| Adjustments to reconcile net income to net cash provided by/(used in) operating activities: | |||||||||||||||||
| Amortization and depreciation | 182.8 | 195.3 | 205.3 | ||||||||||||||
| Impairment of intangible assets | 1,248.9 | — | — | ||||||||||||||
| Common share-based compensation expense | 114.6 | 106.2 | 140.1 | ||||||||||||||
| Other (gains)/losses, net | (97.3) | 139.5 | (120.5) | ||||||||||||||
| Other (gains)/losses of CIP, net | 176.3 | 126.9 | (390.0) | ||||||||||||||
| Equity in earnings of unconsolidated affiliates | (71.3) | (106.1) | (152.3) | ||||||||||||||
| Distributions from equity method investees | 69.4 | 74.2 | 48.2 | ||||||||||||||
| Changes in operating assets and liabilities: | |||||||||||||||||
| (Purchase)/sale of investments by CIP, net | (50.8) | (359.2) | (421.6) | ||||||||||||||
| (Purchase)/sale of investments, net | 69.4 | (27.6) | 93.8 | ||||||||||||||
| (Increase)/decrease in receivables | 448.7 | 912.8 | 5,581.2 | ||||||||||||||
| Increase/(decrease) in payables | (621.7) | (1,284.3) | (5,875.5) | ||||||||||||||
| Net cash provided by/(used in) operating activities | 1,300.8 | 703.2 | 1,078.1 | ||||||||||||||
| Investing activities: | |||||||||||||||||
| Purchase of property, equipment and software | (164.3) | (192.9) | (108.8) | ||||||||||||||
| Purchase of investments by CIP | (3,214.4) | (2,717.2) | (5,981.8) | ||||||||||||||
| Sale of investments by CIP | 3,111.6 | 2,638.4 | 5,281.5 | ||||||||||||||
| Purchase of investments | (65.2) | (217.8) | (191.1) | ||||||||||||||
| Sale of investments | 26.8 | 97.9 | 129.2 | ||||||||||||||
| Capital distribution from equity method investees | 23.3 | 32.6 | 44.9 | ||||||||||||||
| Other investing activities | 46.2 | — | — | ||||||||||||||
| Net cash inflows/(outflows) upon consolidation/deconsolidation of CIP | (8.3) | (16.6) | (21.8) | ||||||||||||||
| Net cash provided by/(used in) investing activities | (244.3) | (375.6) | (847.9) | ||||||||||||||
| Financing activities: | |||||||||||||||||
| Purchases of treasury shares | (187.5) | (244.7) | (60.9) | ||||||||||||||
| Dividends paid - preferred | (236.8) | (236.8) | (236.8) | ||||||||||||||
| Dividends paid - common | (357.9) | (334.8) | (307.7) | ||||||||||||||
| Third-party capital invested into CIP | 201.2 | 709.2 | 628.9 | ||||||||||||||
| Third-party capital distributed by CIP | (255.6) | (284.8) | (395.5) | ||||||||||||||
| Borrowings of debt of CIP | 703.0 | 30.1 | 3,411.9 | ||||||||||||||
| Repayments of debt of CIP | (451.8) | (5.1) | (2,497.3) | ||||||||||||||
| Repayment of senior notes | — | (600.0) | — | ||||||||||||||
| Settlement of forward contracts on treasury shares | — | — | (309.4) | ||||||||||||||
| Collateral received/(returned), net | — | — | (104.1) | ||||||||||||||
| Payment of contingent consideration | — | — | (11.8) | ||||||||||||||
| Net cash provided by/(used in) financing activities | (585.4) | (966.9) | 117.3 | ||||||||||||||
| Increase/(decrease) in cash and cash equivalents | 471.1 | (639.3) | 347.5 | ||||||||||||||
| Foreign exchange movement on cash and cash equivalents | 24.0 | (68.6) | (32.2) | ||||||||||||||
| Foreign exchange movement on cash and cash equivalents of CIP | 2.4 | (5.1) | (7.5) | ||||||||||||||
| Cash and cash equivalents, beginning of period | 1,434.1 | 2,147.1 | 1,839.3 | ||||||||||||||
| Cash and cash equivalents, end of period | $ | 1,931.6 | $ | 1,434.1 | $ | 2,147.1 | |||||||||||
| Cash and cash equivalents | $ | 1,469.2 | $ | 1,234.7 | $ | 1,896.4 | |||||||||||
| Cash and cash equivalents of CIP | 462.4 | 199.4 | 250.7 | ||||||||||||||
| Total cash and cash equivalents per consolidated statement of cash flows | 1,931.6 | 1,434.1 | 2,147.1 | ||||||||||||||
| Supplemental Cash Flow Information: | |||||||||||||||||
| Interest paid | (68.2) | (67.4) | (85.7) | ||||||||||||||
| Interest received | 31.0 | 8.7 | 0.7 | ||||||||||||||
| Taxes paid | (195.1) | (301.4) | (431.7) |
See accompanying notes.
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, 2023 | $ | 4,010.5 | $ | 113.2 | $ | 7,554.9 | $ | (3,040.9) | $ | 7,518.3 | $ | (942.4) | $ | 15,213.6 | $ | 629.9 | $ | 15,843.5 | $ | 998.7 | |||||||||||||||||||||||||||||||||||||||
| Net income/(loss) | — | — | — | — | (96.9) | — | (96.9) | (35.2) | (132.1) | (36.1) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income/(loss) | — | — | — | — | — | 140.6 | 140.6 | — | 140.6 | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Change in noncontrolling interests in consolidated entities, net | — | — | — | — | — | — | — | (22.0) | (22.0) | (216.9) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared - preferred ($59.00 per share) | — | — | — | — | (236.8) | — | (236.8) | — | (236.8) | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared - common ($0.7875 per share) | — | — | — | — | (357.9) | — | (357.9) | — | (357.9) | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Employee common share plans: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common share-based compensation | — | — | 114.6 | — | — | — | 114.6 | — | 114.6 | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Vested common shares | — | — | (209.2) | 209.2 | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other common share awards | — | — | (8.7) | 16.6 | — | — | 7.9 | — | 7.9 | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of common shares | — | — | — | (187.5) | — | — | (187.5) | — | (187.5) | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2023 | $ | 4,010.5 | $ | 113.2 | $ | 7,451.6 | $ | (3,002.6) | $ | 6,826.7 | $ | (801.8) | $ | 14,597.6 | $ | 572.7 | $ | 15,170.3 | $ | 745.7 |
See accompanying notes.
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, 2022 | $ | 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 | |||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | 920.7 | — | 920.7 | 8.8 | 929.5 | (4.0) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income/(loss) | — | — | — | — | — | (500.9) | (500.9) | — | (500.9) | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Change in noncontrolling interests in consolidated entities, net | — | — | — | — | — | — | — | (51.1) | (51.1) | 491.9 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared - preferred ($59.00 per share) | — | — | — | — | (236.8) | — | (236.8) | — | (236.8) | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared - common ($0.73 per share) | — | — | — | — | (334.8) | — | (334.8) | — | (334.8) | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Employee common share plans: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common share-based compensation | — | — | 106.2 | — | — | — | 106.2 | — | 106.2 | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Vested common shares | — | — | (228.6) | 228.6 | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other common share awards | — | — | (10.7) | 18.8 | — | — | 8.1 | — | 8.1 | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of common shares | — | — | — | (244.7) | — | — | (244.7) | — | (244.7) | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2022 | $ | 4,010.5 | $ | 113.2 | $ | 7,554.9 | $ | (3,040.9) | $ | 7,518.3 | $ | (942.4) | $ | 15,213.6 | $ | 629.9 | $ | 15,843.5 | $ | 998.7 |
See accompanying notes.
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, 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 | |||||||||||||||||||||||||||||||||||||||||||||||||
| 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.
Invesco Ltd.
Notes to the Consolidated Financial Statements
1. ACCOUNTING POLICIES
Corporate Information
The company provides retail and institutional clients with an array of investment management capabilities. The company operates globally and its sole business is investment management.
Pending Accounting Pronouncements
Segment Disclosures. In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2023-07, "Segment Reporting: Improvements to Reportable Segment Disclosures" (ASU 2023-07). The standard requires disclosure of the Chief Operating Decision Maker and detailed information about segment expenses on a quarterly and annual basis. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The company is currently evaluating the impact of this amendment on its Consolidated Financial Statements.
Income Tax Disclosures. In December 2023, the FASB issued Accounting Standards Update 2023-09, "Income Taxes: Improvements to Income Tax Disclosures" (ASU 2023-09). The standard requires disaggregated income tax disclosures of the effective tax rate reconciliation and income taxes paid. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024 and interim periods within fiscal years beginning after December 15, 2025 and early adoption is permitted. The company is currently evaluating the impact of this amendment on its Consolidated Financial Statements.
Basis of Presentation
The Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the U.S. and with rules and regulations of the SEC 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 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. 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. 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 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.
Basis of Accounting and Consolidation
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 that meet the definition of either a VOE, if the company is deemed to have a controlling financial interest in the fund, or a VIE, if the company has been deemed to be the primary beneficiary of the fund.
Certain of these investment products including, but not limited to, 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. 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 19, "Consolidated Investment Products," for additional information regarding the impact of CIP.
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 capital 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 no longer accounted for as CIP and is moved to the investments line item in the balance sheet and is accounted for as described in the "Investments" accounting policy below.
All of the investments held by VIEs are presented at fair value in the company's Consolidated Balance Sheets at December 31, 2023 and 2022. 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. 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 CLOs using the more observable of the fair value of the financial assets and the fair value of the financial liabilities. Gains or losses related to assets and liabilities of consolidated CLOs are offset in Other income/(expense) of CIP, net in the Consolidated Statements of Income. Net income (loss) attributable to Invesco Ltd. includes only the changes in fair value of the company’s economic interests in the consolidated CLOs due to noncontrolling interests.
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 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.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash held at banks and short-term investments with a maturity 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.
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 capital” or as longer-term investments alongside third-party investors, typically referred to as “co-investments.” Seed capital 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 capital 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, equity method investments, foreign time deposits and other investments. See Note 3, “Investments,” for additional details.
Equity investments include seed capital, 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.
Equity method investments include investments over which the company is deemed to have significant influence, including corporate joint ventures and non-controlled entities, 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. 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 distributions 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.
Fair Value
Fair value is determined using a valuation hierarchy (discussed in Note 2, “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. As a practical expedient, the company may elect to use NAV as the fair value for certain CIP.
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 U.K. 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 available for use by the company. 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.
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, at which point, the asset 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, on a straight-line basis over the asset's 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 equipment between three and seven years.
Purchased and internally developed software is capitalized if the costs can be measured reliably, and it is probable that the asset will generate future economic benefits. For internally developed software, the company capitalizes certain internal and external costs incurred related to software development activities that will generate future economic benefits. These capitalized costs are amortized into operating expenses on a straight-line basis over the software's useful life, generally five to seven years. Depreciation or amortization expense is included in Property, office and technology expense 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. Upon a 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 to identify any indicators of impairment. An impairment test is performed if an impairment indicator is identified.
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. These contracts are considered interchangeable because investors may freely transfer between funds.
Intangible assets that are determined to be finite-lived are amortized on a straight-line basis over their useful lives, from two to ten years, which reflects the pattern in which the economic benefits are realized. The company reviews intangible assets each reporting period to determine whether events or circumstances have occurred that indicate the expected period of economic benefit may no longer be appropriate or there is an indication of impairment. If there is an indication of impairment, management will perform an impairment analysis.
Where evidence exists that the underlying agreements 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 1st 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 1st 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 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 the qualitative assessment indicates that an impairment may be likely or management elected to not perform the qualitative assessment, a quantitative impairment test is performed at the reporting unit level. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss is recognized for the reporting unit in an amount equal to that excess. However, the impairment cannot 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 weighted average cost of capital and the risk profile of the stream of future cash flows. The calculated present value amount is the fair value of the reporting unit.
Debt Issuance 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 agreement are presented as a deferred asset within Other assets on the company's Consolidated Balance Sheets. Debt issuance costs are amortized over the term of the debt using the effective interest method and are reflected in Interest expense in the Consolidated Statements of Income. After initial recognition, debt issuance costs are measured at amortized cost.
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 AUM. 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 AUM. Service fees are also earned from the delivery of digital solutions to our customers. All of these services are satisfied 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 AUM, 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, 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.
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. 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.
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 and the ability to negotiate the third-party contract price as well as 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.
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. The fees passed through to the broker dealers are included in 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 CDSC (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 and are included in service and distribution fees.
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. 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. 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.
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 TRS 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/(losses), net.
Pensions
For defined contribution plans, contributions payable related to the accounting period are expensed and included in Employee compensation expense. 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 31st. A portion of actuarial gains and losses is expensed and included in Other gains/(losses), net 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.
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, and 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 expenses 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 are 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 records a liability for UTBs 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 EPS 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 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.
Comprehensive Income
The company's Other comprehensive income/(loss) consists of foreign currency translation adjustments and employee benefit plan liability adjustments. 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. The revaluation of these transactions is included in the Consolidated Statements of Income.
The company's reporting currency and the functional currency of the Parent is U.S. Dollars. On consolidation, the assets and liabilities of the company's subsidiaries, whose functional currencies are currencies other than the U.S. Dollar, are translated at the rates of exchange prevailing at the balance sheet date. Exchange differences arising on the translation of the assets and liabilities of foreign operations are recorded directly to accumulated Other comprehensive income in equity until the disposal of the net investment of the foreign entity, at which time, the exchange differences are recognized in the Consolidated Statements of Income. Income and expense items included in the Consolidated Statements of Income are translated at the weighted average rates for the year, which approximate actual exchange rates with the foreign exchange impact recorded to 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.
2. 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 19, "Consolidated Investment Products."
| December 31, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||
| (in millions) | Fair Value | Fair Value | |||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 1,469.2 | $ | 1,234.7 | |||||||||||||||||||||||||
| Equity investments | 272.4 | 325.0 | |||||||||||||||||||||||||||
| Foreign time deposits (1) | — | 25.7 | |||||||||||||||||||||||||||
| Assets held for policyholders | 393.9 | 668.7 | |||||||||||||||||||||||||||
| Policyholder payables (1) | (393.9) | (668.7) | |||||||||||||||||||||||||||
| Total return swap related to deferred compensation plans | 4.9 | (1.6) | |||||||||||||||||||||||||||
(1)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 and changes in fair value are recorded and offset to zero in other operating revenues.
A three-level valuation hierarchy exists for disclosure of fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
-
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
-
Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
-
Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement.
An asset or liability's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
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, 2023 and December 31, 2022, respectively:
| As of December 31, 2023 | |||||||||||||||||||||||
| (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) | $ | 927.8 | $ | 927.8 | $ | — | $ | — | |||||||||||||||
| Investments: (2) | |||||||||||||||||||||||
| Equity investments: | |||||||||||||||||||||||
| Seed capital | 75.7 | 75.7 | — | — | |||||||||||||||||||
| Investments related to deferred compensation plans | 196.7 | 196.7 | — | — | |||||||||||||||||||
| Assets held for policyholders (3) | 393.9 | 393.9 | — | — | |||||||||||||||||||
| Total return swap related to deferred compensation plans | $ | 4.9 | $ | — | $ | 4.9 | $ | — | |||||||||||||||
| Total | $ | 1,599.0 | $ | 1,594.1 | $ | 4.9 | $ | — | |||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Contingent consideration liability | $ | (1.3) | $ | — | $ | — | $ | (1.3) | |||||||||||||||
| Total | $ | (1.3) | $ | — | $ | — | $ | (1.3) |
| As of December 31, 2022 | |||||||||||||||||||||||
| (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) | $ | 760.8 | $ | 760.8 | $ | — | $ | — | |||||||||||||||
| Investments: (2) | |||||||||||||||||||||||
| Equity investments: | |||||||||||||||||||||||
| Seed capital | 177.9 | 177.9 | — | — | |||||||||||||||||||
| Investments related to deferred compensation plans | 146.1 | 146.1 | — | — | |||||||||||||||||||
| Other equity securities | 1.0 | 1.0 | — | — | |||||||||||||||||||
| Assets held for policyholders (3) | 668.7 | 668.7 | — | — | |||||||||||||||||||
| Total | $ | 1,754.5 | $ | 1,754.5 | $ | — | $ | — | |||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Total return swap related to deferred compensation plans | (1.6) | — | (1.6) | — | |||||||||||||||||||
| Contingent consideration liability | $ | (1.3) | $ | — | $ | — | $ | (1.3) | |||||||||||||||
| Total | $ | (2.9) | $ | — | $ | (1.6) | $ | (1.3) |
(1)The balance primarily represents cash held in affiliated money market funds.
(2)Equity method and other investments of $631.8 million and $14.9 million, respectively, as of December 31, 2023 (December 31, 2022: $621.2 million and $24.7 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.
Total Return Swap
In addition to holding equity investments, the company has a TRS to hedge economically certain deferred compensation liabilities. The notional value of the TRS at December 31, 2023 was $393.0 million, and the fair value of the TRS was an asset of $4.9 million (December 31, 2022 notional value was $326.6 million and the fair value was a liability of $1.6 million). The company’s net collateral paid balance related to the TRS was $25.9 million at December 31, 2023 (December 31, 2022: $0.0 million). During the year ended December 31, 2023, market valuation gains related to the TRS were $30.1 million (December 31, 2022: $74.3 million of net losses).
The fair value of the TRS 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 TRS is not designated for hedge accounting.
Nonrecurring Fair Value Measurements
Certain of the company's assets and liabilities are required to be recorded at fair value on a nonrecurring basis, typically upon identification of impairment indicators. We measured the fair value of indefinite-lived intangible assets related to acquired management contracts of U.S. retail mutual funds during our annual impairment assessment completed as of October 1, 2023. The fair value of these assets was determined using an income approach and is classified as level 3 of the valuation hierarchy. The most sensitive assumptions used in the income approach are the revenue forecast, the long-term growth rate and the discount rate applied to the cash flow forecast to determine present value. The revenue projections used are within a range of (5)% to 1% over the forecast period. The long-term growth rate used in the fair-value measurement was 2.5%. The discount rate used in the fair-value measurement was 13.05%.
3. INVESTMENTS
The disclosures below include details of the company's investments. Investments held by CIP are detailed in Note 19, "Consolidated Investment Products."
| (in millions) | December 31, 2023 | December 31, 2022 | |||||||||
| Equity investments: | |||||||||||
| Seed capital | $ | 75.7 | $ | 177.9 | |||||||
| Investments related to deferred compensation plans | 196.7 | 146.1 | |||||||||
| Other equity securities | — | 1.0 | |||||||||
| Equity method investments | 631.8 | 621.2 | |||||||||
| Foreign time deposits | — | 25.7 | |||||||||
| Other | 14.9 | 24.7 | |||||||||
| Total investments (1) | $ | 919.1 | $ | 996.6 |
(1) The majority of the company’s investment balances relate to balances held in affiliated funds and equity method investees.
Equity investments
Net gains recorded in Other gains/(losses) in the Consolidated Statements of Income resulting from equity investments and the TRS for the year ended December 31, 2023, were $61.3 million (December 31, 2022: $150.4 million net losses). The unrealized gains and losses for the year ended December 31, 2023, that relate to equity investments still held at December 31, 2023, was a $17.2 million net gain (December 31, 2022: $44.0 million net loss related to equity investments still held at December 31, 2022).
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 Private Equity 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.
4. PROPERTY, EQUIPMENT AND SOFTWARE
The following is a summary of property, equipment and software:
| (in millions) | December 31, 2023 | December 31, 2022 | |||||||||
| Technology and Other Equipment | $ | 267.6 | $ | 273.2 | |||||||
| Software | 800.0 | 930.6 | |||||||||
| Land and Buildings | 87.3 | 87.8 | |||||||||
| Leasehold Improvements | 277.7 | 226.2 | |||||||||
| Work in Process | 111.6 | 173.1 | |||||||||
| Property, Equipment and Software, Gross | 1,544.2 | 1,690.9 | |||||||||
| Less: Accumulated Depreciation | (935.9) | (1,121.0) | |||||||||
| Less: Accumulated Impairment | (8.8) | (8.8) | |||||||||
| Property, Equipment and Software, Net | $ | 599.5 | $ | 561.1 |
Depreciation expense related to Property, equipment and software was $132.9 million, $131.5 million and $142.4 million for the years ended December 31, 2023, 2022 and 2021, respectively.
The following is a summary of accumulated depreciation:
| (in millions) | December 31, 2023 | December 31, 2022 | |||||||||
| Beginning balance | $ | (1,121.0) | $ | (1,074.5) | |||||||
| Depreciation expense | (132.9) | (131.5) | |||||||||
| Property, equipment, and software retirements and disposals | 327.1 | 61.6 | |||||||||
| Foreign currency translation adjustment | (9.1) | 23.4 | |||||||||
| Ending balance | $ | (935.9) | $ | (1,121.0) |
5. INTANGIBLE ASSETS
The following table presents the major classes of the company's intangible assets at December 31, 2023 and 2022:
| (in millions) | Gross Book Value | Accumulated Amortization and Impairment | Net Book Value | ||||||||||||||
| December 31, 2023 | |||||||||||||||||
| Management contracts - indefinite-lived | $ | 6,954.3 | (1,248.9) | $ | 5,705.4 | ||||||||||||
| Management contracts - finite-lived | 318.3 | (221.5) | 96.8 | ||||||||||||||
| Developed technology | 94.2 | (91.4) | 2.8 | ||||||||||||||
| Other (1) | 107.2 | (64.1) | 43.1 | ||||||||||||||
| Total | $ | 7,474.0 | $ | (1,625.9) | $ | 5,848.1 | |||||||||||
| December 31, 2022 | |||||||||||||||||
| Management contracts - indefinite-lived | $ | 6,949.7 | N/A | $ | 6,949.7 | ||||||||||||
| Management contracts - finite-lived | 318.3 | (189.2) | 129.1 | ||||||||||||||
| Developed technology | 90.5 | (78.8) | 11.7 | ||||||||||||||
| Other (1) | 104.8 | (54.1) | 50.7 | ||||||||||||||
| Total | $ | 7,463.3 | $ | (322.1) | $ | 7,141.2 |
(1) Includes indefinite-lived non-management contracts intangible assets of $19.1 million for the years ended December 31, 2023 and 2022.
Amortization expense was $49.9 million (December 31, 2022: $63.8 million; December 31, 2021: $62.9 million) and impairment of indefinite-lived intangible assets related to management contracts of U.S. retail mutual funds was $1,248.9 million during the year ended December 31, 2023. The impairment was driven by a decrease in the long-term growth rate, an increase in the discount rate and lower projected earnings for the management contracts. Estimated amortization expense for each of the five succeeding fiscal years based upon the company's intangible assets at December 31, 2023 is as follows:
| **(in millions)**Years Ended December 31, | Estimated Amortization Expense | ||||
| 2024 | $ | (44.8) | |||
| 2025 | $ | (37.7) | |||
| 2026 | $ | (35.9) | |||
| 2027 | $ | (3.6) | |||
| 2028 | $ | (1.5) |
6. GOODWILL
The table below details changes in the goodwill balance:
| (in millions) | Net Book Value | ||||||||||||||||
| January 1, 2023 | $ | 8,557.7 | |||||||||||||||
| Foreign exchange | 133.8 | ||||||||||||||||
| December 31, 2023 | $ | 8,691.5 | |||||||||||||||
| January 1, 2022 | $ | 8,882.5 | |||||||||||||||
| Foreign exchange | (324.8) | ||||||||||||||||
| December 31, 2022 | $ | 8,557.7 |
7. OTHER LIABILITIES
The table below details the components of other liabilities:
| As of | |||||||||||
| (in millions) | December 31, 2023 | December 31, 2022 | |||||||||
| Compensation and benefits | $ | 98.3 | $ | 87.8 | |||||||
| Accrued bonus and deferred compensation | 802.1 | 773.0 | |||||||||
| Accrued compensation and benefits | $ | 900.4 | $ | 860.8 | |||||||
| Accruals and other liabilities | $ | 567.5 | $ | 606.5 | |||||||
| Lease liability (See Note 14) | 433.7 | 480.2 | |||||||||
| Accounts payable | 31.5 | 59.6 | |||||||||
| Unsettled funds payable | 151.2 | 79.4 | |||||||||
| Income taxes payable | 110.5 | 89.1 | |||||||||
| Accounts payable and accrued expenses | $ | 1,294.4 | $ | 1,314.8 | |||||||
8. DEBT
The issuer of the senior notes, Invesco Finance PLC, is an indirect 100% owned finance subsidiary of the Parent, and the Parent fully and unconditionally guarantees the securities.
The disclosures below include details of the company's debt. Debt of CIP is detailed in Note 19, “Consolidated Investment Products.”
| December 31, 2023 | December 31, 2022 | ||||||||||||||||||||||
| (in millions) | Carrying Value (3) | Fair Value | Carrying Value (3) | Fair Value | |||||||||||||||||||
| $2.0 billion floating rate credit agreement expiring April 26, 2028 (1) | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
| Unsecured Senior Notes (2): | |||||||||||||||||||||||
| $600 million 4.000% - due January 30, 2024 | 599.9 | 599.1 | 598.8 | 591.5 | |||||||||||||||||||
| $500 million 3.750% - due January 15, 2026 | 498.6 | 489.1 | 497.9 | 486.4 | |||||||||||||||||||
| $400 million 5.375% - due November 30, 2043 | 391.0 | 409.6 | 390.9 | 397.3 | |||||||||||||||||||
| Debt | $ | 1,489.5 | $ | 1,497.8 | $ | 1,487.6 | $ | 1,475.2 |
(1)On April 26, 2023, Invesco Ltd. and its indirect subsidiary, Invesco Finance PLC, amended and restated the $1.5 billion floating rate credit agreement, increasing the facility’s capacity to $2.0 billion, extending the expiration date from April 26, 2026 to April 26, 2028, and changing the base interest rate from the London inter-bank offered rate (LIBOR) to the secured overnight financing rate (SOFR) plus a 0.10% adjustment (Adjusted SOFR).
(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.
At December 31, 2023, the outstanding balance on the floating rate credit agreement was zero. Borrowings under the floating rate credit agreement will bear interest at (i) Adjusted SOFR 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) Adjusted SOFR 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 Parent or its indirect subsidiary, Invesco Finance PLC. Based on credit ratings of the Parent as of December 31, 2023 and December 31, 2022, the applicable margin for SOFR-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 Parent or its indirect subsidiary, Invesco Finance PLC. Based on credit ratings as of December 31, 2023 and December 31, 2022, the annual facility fee was equal to 0.13% for both periods.
The credit agreement contains customary restrictive covenants on the company and its subsidiaries. Restrictive covenants in the credit agreement include, but are not limited to: prohibitions on creating, incurring or assuming any liens; entering into merger arrangements; selling, leasing, transferring or otherwise disposing of assets; making a material change in the nature of the business; making a significant accounting policy change in certain situations; entering into transactions with affiliates; and incurring indebtedness through the subsidiaries (other than the borrower, Invesco Finance PLC). Many of these restrictions are subject to certain minimum thresholds and exceptions. Financial covenants under the credit agreement include: (i) the quarterly maintenance of a debt/Covenant Adjusted EBITDA leverage ratio, as defined in the credit agreement, of not greater than 3.25:1.00, (ii) an interest coverage ratio (Covenant Adjusted EBITDA, as defined in the credit agreement/interest expense for the four consecutive fiscal quarters ended before the date of determination) of not less than 4.00:1.00. The company is in compliance with all restrictive debt covenants as of December 31, 2023.
The credit agreement 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.
9. SHARE CAPITAL
The preferred shares 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, 2023 | December 31, 2022 | |||||||||||||||
| 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 prohibits the sale of preferred shares by MassMutual until May 24, 2024.
The number of common shares and common share equivalents issued are represented in the table below:
| In millions | December 31, 2023 | December 31, 2022 | December 31, 2021 | ||||||||||||||
| Common shares issued | 566.1 | 566.1 | 566.1 | ||||||||||||||
| Less: Treasury shares for which dividend and voting rights do not apply | (116.6) | (111.3) | (104.9) | ||||||||||||||
| Common shares outstanding | 449.5 | 454.8 | 461.2 |
During the year ended December 31, 2023, the company repurchased 9.6 million common shares in the open market at a cost of $150.0 million (December 31, 2022: 8.9 million common shares at a cost of $200.0 million). Separately, an aggregate of 1.9 million shares were withheld on vesting events during the year ended December 31, 2023 to meet employees' withholding tax obligations (December 31, 2022: 2.4 million). The fair value of the common shares withheld at the respective withholding dates was $37.5 million (December 31, 2022: $44.7 million). At December 31, 2023, approximately $382.2 million remained authorized under the company's common share repurchase authorization approved by the Board on July 22, 2016 (December 31, 2022: $532.2 million).
Total treasury shares at December 31, 2023 were 124.7 million (December 31, 2022: 119.5 million), including 8.1 million unvested restricted common stock awards (December 31, 2022: 8.2 million) for which dividend and voting rights apply. The market price of common shares on December 31, 2023 was $17.84. The total market value of the company's 124.7 million treasury shares was $2.2 billion at December 31, 2023.
Movements in Treasury Shares comprise:
| Year ended | |||||||||||||||||
| In millions | December 31, 2023 | December 31, 2022 | December 31, 2021 | ||||||||||||||
| Beginning balance | 119.5 | 115.7 | 121.6 | ||||||||||||||
| Acquisition of common shares | 11.5 | 11.3 | 2.7 | ||||||||||||||
| Distribution of common shares | (6.0) | (7.1) | (8.4) | ||||||||||||||
| Common shares distributed to meet ESPP obligation | (0.3) | (0.4) | (0.2) | ||||||||||||||
| Ending balance | 124.7 | 119.5 | 115.7 |
10. OTHER COMPREHENSIVE INCOME/(LOSS)
The components of accumulated other comprehensive income/(loss) were as follows:
| 2023 | ||||||||||||||||||||||||||
| (in millions) | Foreign currency translation | Employee benefit plans | Total | |||||||||||||||||||||||
| Other comprehensive income/(loss), net of tax: | ||||||||||||||||||||||||||
| Currency translation differences on investments in foreign subsidiaries | $ | 144.9 | $ | — | $ | 144.9 | ||||||||||||||||||||
| Other comprehensive income/(loss), net | — | (4.3) | (4.3) | |||||||||||||||||||||||
| Other comprehensive income/(loss), net of tax | 144.9 | (4.3) | 140.6 | |||||||||||||||||||||||
| Beginning balance | (815.0) | (127.4) | (942.4) | |||||||||||||||||||||||
| Other comprehensive income/(loss), net of tax | 144.9 | (4.3) | 140.6 | |||||||||||||||||||||||
| Ending balance | $ | (670.1) | $ | (131.7) | $ | (801.8) |
| 2022 | ||||||||||||||||||||||||||
| $ in millions | Foreign currency translation | Employee benefit plans | Total | |||||||||||||||||||||||
| Other comprehensive income/(loss), net of tax: | ||||||||||||||||||||||||||
| Currency translation differences on investments in foreign subsidiaries | (463.1) | — | (463.1) | |||||||||||||||||||||||
| Other comprehensive income/(loss), net | — | (37.8) | (37.8) | |||||||||||||||||||||||
| Other comprehensive income/(loss), net of tax | (463.1) | (37.8) | (500.9) | |||||||||||||||||||||||
| Beginning balance | (351.9) | (89.6) | (441.5) | |||||||||||||||||||||||
| Other comprehensive income/(loss), net of tax | (463.1) | (37.8) | (500.9) | |||||||||||||||||||||||
| Ending balance | (815.0) | (127.4) | (942.4) |
| 2021 | |||||||||||||||||||||||||||||
| $ in millions | Foreign currency translation | Employee benefit plans | Total | ||||||||||||||||||||||||||
| Other comprehensive income/(loss) net of tax: | |||||||||||||||||||||||||||||
| Currency translation differences on investments in foreign subsidiaries | (73.4) | — | (73.4) | ||||||||||||||||||||||||||
| Other comprehensive income/(loss), net | — | 36.4 | 36.4 | ||||||||||||||||||||||||||
| Other comprehensive income/(loss), net of tax | (73.4) | 36.4 | (37.0) | ||||||||||||||||||||||||||
| Beginning balance | (278.5) | (126.0) | (404.5) | ||||||||||||||||||||||||||
| Other comprehensive income/(loss), net of tax | (73.4) | 36.4 | (37.0) | ||||||||||||||||||||||||||
| Ending balance | (351.9) | (89.6) | (441.5) |
11. COMMON SHARE-BASED COMPENSATION
The company recognized total compensation expense of $114.6 million, $106.2 million and $140.1 million related to equity-settled common share-based payment transactions in 2023, 2022 and 2021, respectively. The income tax benefit recognized in the Consolidated Statements of Income for common share-based compensation arrangements was $17.4 million for 2023 (2022: $21.7 million; 2021: $30.0 million).
Employee common share awards are broadly classified into two categories: time-vested and performance-vested. 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 2021, 2022 and 2023, 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%.
Employee common share awards are measured at fair value based on Invesco's common stock price 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.
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 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, 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 NYSE or otherwise.
Movements on employee common share awards during the years ended December 31, are detailed below:
| 2023 | 2022 | 2021 | |||||||||||||||||||||||||||||||||||||||
| (In 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 | 10.3 | 2.1 | $ | 19.03 | 13.5 | 1.9 | 18.1 | 1.6 | |||||||||||||||||||||||||||||||||
| Granted during the year | 5.7 | 0.3 | 17.53 | 3.6 | 1.0 | 3.4 | 0.6 | ||||||||||||||||||||||||||||||||||
| Forfeited during the year | (0.3) | (0.2) | 16.68 | (0.3) | (0.1) | (0.4) | — | ||||||||||||||||||||||||||||||||||
| Vested and distributed during the year | (5.3) | (0.6) | 18.11 | (6.5) | (0.7) | (7.6) | (0.3) | ||||||||||||||||||||||||||||||||||
| Unvested at the end of the year | 10.4 | 1.6 | $ | 18.84 | 10.3 | 2.1 | 13.5 | 1.9 |
The total fair value of common shares that vested during 2023 was $101.4 million (2022: $141.8 million; 2021: $187.9 million). The weighted average grant date fair value of the U.S. dollar share awards that were granted during 2023 was $17.53 (2022: $21.23; 2021: $22.61).
At December 31, 2023, there was $121.4 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 2.44 years.
12. 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 may be reduced by the amount of forfeited contributions.
The total amounts charged to the Consolidated Statements of Income for the year ended December 31, 2023 of $73.9 million (December 31, 2022: $76.4 million, December 31, 2021: $81.2 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, 2023, accrued contributions of $12.9 million (December 31, 2022: $28.3 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 U.K., 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, 2023. The benefit obligation, related current service cost and prior service cost were measured using the projected unit credit method.
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) | 2023 | 2022 | |||||||||
| Benefit obligation | $ | (325.8) | $ | (303.0) | |||||||
| Fair value of plan assets | 350.1 | 335.8 | |||||||||
| Funded status | $ | 24.3 | $ | 32.8 | |||||||
| Amounts recognized in the Consolidated Balance Sheets: | |||||||||||
| Other assets | $ | 27.0 | $ | 39.7 | |||||||
| Accrued compensation and benefits | (2.7) | (6.9) | |||||||||
| Funded status | $ | 24.3 | $ | 32.8 |
Changes in the benefit obligations were as follows:
| Retirement Plans | |||||||||||
| (in millions) | 2023 | 2022 | |||||||||
| January 1 | $ | 303.0 | $ | 512.8 | |||||||
| Service cost | 0.2 | — | |||||||||
| Interest cost | 14.0 | 8.8 | |||||||||
| Actuarial (gains)/losses | 5.0 | (154.3) | |||||||||
| Exchange difference | 17.2 | (50.7) | |||||||||
| Benefits paid | (13.6) | (13.6) | |||||||||
| December 31 | $ | 325.8 | $ | 303.0 |
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, 2023, and 2022 are as follows:
| Retirement Plans | |||||||||||
| 2023 | 2022 | ||||||||||
| Discount rate | 4.37 | % | 4.55 | % | |||||||
| Expected rate of salary increases | 2.87 | % | 2.97 | % | |||||||
| Future pension trend rate increases | 3.28 | % | 3.35 | % |
Changes in the fair value of plan assets in the current period were as follows:
| Retirement Plans | |||||||||||
| (in millions) | 2023 | 2022 | |||||||||
| January 1 | $ | 335.8 | $ | 577.0 | |||||||
| Actual return on plan assets | 8.4 | (195.0) | |||||||||
| Foreign currency changes | 19.3 | (57.6) | |||||||||
| Contributions from the company | 0.2 | 25.0 | |||||||||
| Benefits paid | (13.6) | (13.6) | |||||||||
| December 31 | $ | 350.1 | $ | 335.8 |
The components of the amount recognized in accumulated other comprehensive income at December 31, 2023 and 2022 are as follows:
| Retirement Plans | |||||||||||
| (in millions) | 2023 | 2022 | |||||||||
| Prior service cost/(credit) | $ | 5.6 | $ | 5.6 | |||||||
| Net actuarial loss/(gain) | 156.5 | 149.5 | |||||||||
| Total | $ | 162.1 | $ | 155.1 |
The amounts in accumulated other comprehensive income expected to be amortized into the Consolidated Income Statement during the year ending December 31, 2024 are as follows:
| (in millions) | Retirement Plans | ||||
| Prior service cost/(credit) | $ | 0.2 | |||
| Net actuarial loss/(gain) | 4.9 | ||||
| Total | $ | 5.1 |
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) | 2023 | 2022 | |||||||||
| Plans with accumulated and projected benefit obligation in excess of plan assets: | |||||||||||
| Accumulated and projected benefit obligation | $ | 4.2 | $ | 41.7 | |||||||
| Fair value of plan assets | $ | 1.5 | $ | 34.8 |
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) | 2023 | 2022 | 2021 | ||||||||||||||
| Service cost | $ | 0.2 | $ | — | $ | 0.6 | |||||||||||
| Interest cost | 14.0 | 8.8 | 8.9 | ||||||||||||||
| Expected return on plan assets | (14.7) | (13.5) | (16.8) | ||||||||||||||
| Amortization of prior service cost/(credit) | 0.5 | 0.2 | 0.2 | ||||||||||||||
| Amortization of net actuarial (gain)/loss | 3.8 | 0.8 | 2.7 | ||||||||||||||
| Settlement | — | — | 4.4 | ||||||||||||||
| Curtailment (gain)/loss | — | — | (0.3) | ||||||||||||||
| Net periodic benefit cost/(credit) | $ | 3.8 | $ | (3.7) | $ | (0.3) |
The weighted average assumptions used to determine net periodic benefit cost for the years ended December 31, 2023, 2022 and 2021 are:
| Retirement Plans | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Discount rate | 4.55 | % | 1.91 | % | 1.83 | % | |||||||||||
| Expected return on plan assets | 4.13 | % | 3.28 | % | 3.01 | % | |||||||||||
| Expected rate of salary increases | 2.97 | % | 3.10 | % | 2.85 | % | |||||||||||
| Future pension rate increases | 3.35 | % | 3.29 | % | 2.64 | % |
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, 2023 was as follows:
| (in millions) | Retirement Plans | % of Plan Assets | |||||||||
| Cash and cash equivalents | $ | 36.9 | 10.5 | % | |||||||
| Fund investments | 75.6 | 21.6 | % | ||||||||
| Equity securities | 15.7 | 4.5 | % | ||||||||
| Government debt securities | 16.3 | 4.7 | % | ||||||||
| Guaranteed investments contracts | 97.0 | 27.7 | % | ||||||||
| Other investments | 108.6 | 31.0 | % | ||||||||
| Total | $ | 350.1 | 100.0 | % |
The analysis of the plan assets as of December 31, 2022 was as follows:
| (in millions) | Retirement Plans | % of Plan Assets | |||||||||
| Cash and cash equivalents | $ | 33.1 | 9.8 | % | |||||||
| Fund investments | 86.3 | 25.7 | % | ||||||||
| Equity securities | 14.9 | 4.4 | % | ||||||||
| Government debt securities | 9.6 | 2.9 | % | ||||||||
| Guaranteed investments contracts | 96.0 | 28.6 | % | ||||||||
| Other investments | 95.9 | 28.6 | % | ||||||||
| Total | $ | 335.8 | 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 2, “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 NAV 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 NAV of common shares held by the plan at year end.
Equity 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.
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.
Cash Flows
The estimated amounts of contributions expected to be paid to the plans during 2024 are $0.2 million. 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: | |||||
| 2024 | $ | 9.6 | |||
| 2025 | $ | 9.9 | |||
| 2026 | $ | 10.3 | |||
| 2027 | $ | 10.5 | |||
| 2028 | $ | 10.9 | |||
| Thereafter in the succeeding five years | $ | 62.4 |
13. 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 $44.3 million for the year ended December 31, 2023 (December 31, 2022: $41.0 million). Restructuring expenses are recorded to Transaction, integration and restructuring expenses on the Consolidated Statements of Income.
The following table shows the roll-forward of the restructuring liability as of December 31, 2023 and total restructuring charges for the year ended December 31, 2023 and December 31, 2022. The company recorded the liability to accrued compensation and benefits, accounts payable and accrued liabilities on the Consolidated Balance Sheets.
| For the twelve month period ended December 31, 2023 | For the twelve month period ended December 31, 2022 | ||||||||||
| Beginning balance | $ | 7.1 | $ | 34.8 | |||||||
| Accrued charges | 29.7 | 13.9 | |||||||||
| Payments | (36.8) | (41.6) | |||||||||
| Ending balance | $ | — | $ | 7.1 | |||||||
| Cumulative non-cash charges (1) | 89.1 | 74.5 | |||||||||
| Cumulative charges incurred | $ | 304.8 | $ | 260.5 |
(1) Non-cash charges include stock-based compensation, accelerated depreciation of certain assets and location strategy costs (including the impairment charges referenced in Note 4, "Property, Equipment Software", and in Note 14, "Operating Leases").
The company completed the strategic evaluation during the first quarter of 2023.
14. OPERATING LEASES
The company leases office space in almost all its business locations and data centers and has certain equipment under non-cancelable operating leases. The operating leases have a weighted-average remaining lease term of 9.95 years for the year ended December 31, 2023 (2022: 10.27 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 to 5.2 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, 2023, the right-of-use asset of $319.3 million was included in Other assets, and the lease liability of $433.7 million was included in Accounts payable and accrued expenses, on the Consolidated Balance Sheets.
The components of lease expense for the year ended December 31, 2023, December 31, 2022 and December 31, 2021 were as follows:
| (in millions) | Year ended December 31, 2023 | Year ended December 31, 2022 | Year ended December 31, 2021 | ||||||||||||||
| Operating lease cost | $ | 75.4 | $ | 82.9 | $ | 81.4 | |||||||||||
| Variable lease cost | 25.9 | 19.0 | 25.5 | ||||||||||||||
| Less: sublease income | (2.3) | (1.6) | (1.9) | ||||||||||||||
| Total lease expense | $ | 99.0 | $ | 100.3 | $ | 105.0 | |||||||||||
Supplemental cash flow information related to leases for the year ended December 31, 2023 and December 31, 2022 was as follows:
| (in millions) | Year ended December 31, 2023 | Year ended December 31, 2022 | |||||||||
| Cash outflows from operating leases included in the measurement of lease liabilities | $ | 80.8 | $ | 70.7 | |||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | 22.7 | $ | 214.8 |
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, 2023 was 4.14% (2022: 3.78%).
As of December 31, 2023, the maturities of the company’s lease liabilities (primarily related to real estate leases) were as follows:
| (in millions) | |||||
| Year Ending December 31,2023 | Lease Liabilities | ||||
| 2024 | $ | 64.6 | |||
| 2025 | 66.0 | ||||
| 2026 | 62.1 | ||||
| 2027 | 55.2 | ||||
| 2028 | 45.1 | ||||
| Thereafter | 237.0 | ||||
| Total lease payments | 530.0 | ||||
| Less: interest | (96.3) | ||||
| Present value of lease liabilities | $ | 433.7 |
15. TAXATION
The components of the company's income tax expense (benefit) for the years ended December 31, 2023, 2022 and 2021 are as follows:
| (in millions) | 2023 | 2022 | 2021 | ||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | 164.0 | $ | 214.1 | $ | 287.5 | |||||||||||
| State | 42.7 | 50.2 | 68.7 | ||||||||||||||
| Foreign | 32.8 | 9.6 | 95.2 | ||||||||||||||
| $ | 239.5 | $ | 273.9 | $ | 451.4 | ||||||||||||
| Deferred: | |||||||||||||||||
| Federal | $ | (235.3) | $ | 35.2 | $ | 72.7 | |||||||||||
| State | (44.1) | (1.1) | 22.2 | ||||||||||||||
| Foreign | (29.8) | 14.2 | (15.2) | ||||||||||||||
| (309.2) | 48.3 | 79.7 | |||||||||||||||
| Total income tax expense (benefit) | $ | (69.7) | $ | 322.2 | $ | 531.1 |
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, 2023, 2022 and 2021 is as follows:
| 2023 (1) | 2022 | 2021 | |||||||||||||||
| Statutory rate | 21.0 | % | 21.0 | % | 21.0 | % | |||||||||||
| State taxes, net of federal tax effect | 3.2 | % | 3.1 | % | 2.9 | % | |||||||||||
| Effect of foreign taxes on non-U.S. earnings | 11.1 | % | 1.3 | % | 0.1 | % | |||||||||||
| Effect of income/(loss) attributable to noncontrolling interests in consolidated entities | (6.3) | % | (0.1) | % | (2.9) | % | |||||||||||
| Effect of income/(loss) attributable to equity method investments in corporate joint ventures | 7.4 | % | (1.7) | % | (0.9) | % | |||||||||||
| Change in valuation allowance | (2.9) | % | — | % | — | % | |||||||||||
| Nontaxable gains | 3.9 | % | — | % | — | % | |||||||||||
| Nondeductible executive compensation | (4.6) | % | — | % | — | % | |||||||||||
| Other | (3.5) | % | 2.2 | % | 1.0 | % | |||||||||||
| Effective tax rate per Consolidated Statements of Income | 29.3 | % | 25.8 | % | 21.2 | % |
(1) Certain signs within the table in the year ended December 31, 2023 are the opposite compared to the years ended December 31, 2022 and 2021 as a result of applying each line’s total income tax benefit or expense to the loss before income taxes.
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/(loss) before taxes for the years ended December 31, 2023, 2022 and 2021 are as follows:
| (in millions) | 2023 | 2022 | 2021 | ||||||||||||||
| Domestic | $ | (469.2) | $ | 1,212.0 | $ | 2,089.5 | |||||||||||
| Foreign | 231.3 | 35.7 | 411.0 | ||||||||||||||
| Income/(loss) before income taxes | $ | (237.9) | $ | 1,247.7 | $ | 2,500.5 |
The components of the deferred tax assets and liabilities reflected in the Consolidated Balance Sheets at December 31, 2023 and 2022 include the following:
| (in millions) | 2023 | 2022 | |||||||||
| Deferred tax assets: | |||||||||||
| Compensation and benefits | $ | 95.6 | $ | 97.8 | |||||||
| Lease obligations | 66.7 | 67.2 | |||||||||
| Net operating loss carryforwards | 154.3 | 124.4 | |||||||||
| Fixed assets | 15.7 | 7.1 | |||||||||
| Accrued liabilities | 34.4 | 37.1 | |||||||||
| Other | 4.9 | 9.0 | |||||||||
| Total deferred tax assets | 371.6 | 342.6 | |||||||||
| Valuation allowance | (98.9) | (93.5) | |||||||||
| Deferred tax assets, net of valuation allowance | 272.7 | 249.1 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Goodwill and intangibles | (1,519.1) | (1,796.1) | |||||||||
| Leased assets | (55.9) | (58.4) | |||||||||
| Other | (21.8) | (27.3) | |||||||||
| Total deferred tax liabilities | (1,596.8) | (1,881.8) | |||||||||
| Net deferred tax liability | $ | (1,324.1) | $ | (1,632.7) |
Deferred income tax assets and liabilities are recorded net when related to the same tax jurisdiction. At December 31, 2023, the company recorded on the Consolidated Balance Sheets net deferred tax assets of $1.6 million in Other assets and net Deferred tax liabilities of $1,325.7 million. At December 31, 2022, the company recorded on the Consolidated Balance Sheets net deferred tax assets of $30.0 million in Other assets and net Deferred tax liabilities of $1,662.7 million.
At December 31, 2023, the company had state net operating loss carryforwards of $33.5 million, which will expire, if not utilized, between 2024 and 2038 except for approximately $2.6 million which have an indefinite life. At December 31, 2023, the company also had federal and foreign net operating loss carryforwards of $120.8 million, of which approximately $10.5 million will expire over several years starting in 2024, with the remaining $110.3 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 $1,068.8 million and $1,034.0 million at December 31, 2023 and 2022, 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 UTBs for the years ended December 31, 2023, 2022 and 2021 is as follows:
| (in millions) | 2023 | 2022 | 2021 | ||||||||||||||
| Balance at January 1 | $ | 100.2 | $ | 86.6 | $ | 61.9 | |||||||||||
| Additions for tax positions related to the current year | 9.6 | 16.2 | 15.9 | ||||||||||||||
| Additions for tax positions related to prior years | 1.3 | 3.1 | 14.2 | ||||||||||||||
| Reductions for tax positions related to prior years | (7.7) | (1.2) | (3.5) | ||||||||||||||
| Reductions related to lapse of statute of limitations | (1.8) | (2.1) | (1.9) | ||||||||||||||
| Reductions related to settlements | (10.3) | (2.4) | — | ||||||||||||||
| Balance at December 31 | $ | 91.3 | $ | 100.2 | $ | 86.6 |
The amount of UTBs that, if recognized, would favorably affect the company's effective tax rate was $72.6 million at December 31, 2023. 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 $17.0 million, $15.1 million and $14.8 million at December 31, 2023, 2022 and 2021, respectively. The company recognized expense for interest and penalties related to UTBs of $1.9 million, $1.4 million and $1.6 million in 2023, 2022 and 2021, 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 $10.0 million within the next twelve months.
16. EARNINGS PER COMMON SHARE
The calculation of EPS is as follows:
| Years ended December 31, | |||||||||||||||||
| (In millions, except per share data) | 2023 | 2022 | 2021 | ||||||||||||||
| Net income/(loss) attributable to Invesco Ltd. | $ | (333.7) | $ | 683.9 | $ | 1,393.0 | |||||||||||
| Invesco Ltd: | |||||||||||||||||
| Weighted average common shares outstanding - basic | 454.8 | 457.5 | 462.8 | ||||||||||||||
| Dilutive effect of non-participating common share-based awards | 1.4 | 2.0 | 2.6 | ||||||||||||||
| Weighted average common shares outstanding - diluted | 456.2 | 459.5 | 465.4 | ||||||||||||||
| Earnings per common share: | |||||||||||||||||
| -basic | $ | (0.73) | $ | 1.50 | $ | 3.01 | |||||||||||
| -diluted | $ | (0.73) | $ | 1.49 | $ | 2.99 |
There is no difference between the calculated EPS amounts presented above and the calculated EPS amounts under the two class method.
Certain performance-vested awards are excluded from diluted EPS share calculations as the designated contingency was not met.
17. 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 | APAC | EMEA | Total | |||||||||||||||||||||||||
| For the year ended December 31, 2023 | |||||||||||||||||||||||||||||
| Total operating revenues (1) | $ | 4,380.3 | $ | 263.8 | $ | 1,072.3 | $ | 5,716.4 | |||||||||||||||||||||
| Long-lived assets | $ | 416.0 | $ | 40.0 | $ | 143.5 | $ | 599.5 | |||||||||||||||||||||
| For the year ended December 31, 2022 | |||||||||||||||||||||||||||||
| Total operating revenues (1) | $ | 4,665.1 | $ | 284.9 | $ | 1,098.9 | $ | 6,048.9 | |||||||||||||||||||||
| Long-lived assets | $ | 395.4 | $ | 28.0 | $ | 137.7 | $ | 561.1 | |||||||||||||||||||||
| For the year ended December 31, 2021 | |||||||||||||||||||||||||||||
| Total operating revenues (1) | $ | 5,174.7 | $ | 348.6 | $ | 1,371.2 | $ | 6,894.5 | |||||||||||||||||||||
| Long-lived assets | $ | 341.4 | $ | 23.6 | $ | 153.1 | $ | 518.1 |
(1) Operating revenues reflect the geographical regions from which services are provided.
18. 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, 2023, the company’s undrawn co-invest capital commitments were $623.3 million (December 31, 2022: $336.1 million). The increase in capital commitments is driven by our continued support for our private markets’ capabilities.
Certain of our managed investment products have entered into revolving credit facilities with financial institutions. The company provided equity commitments and guarantees to the financial institutions for certain of these revolving credit facilities 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 or guarantees under these arrangements. The maximum amount of future payments under the commitments is $275.5 million and under the guarantees is $30.0 million. The fair value of the guarantee liability is not significant to the consolidated financial statements.
The company and some of its 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.
The company and certain related entities have in recent years been subject to various regulatory inquiries, reviews and investigations and legal proceedings, including civil litigation and governmental investigations and enforcement actions. These actions can arise from normal business operations and/or matters that have been the subject of previous regulatory reviews. As a global company with investment products registered in numerous countries and subject to the jurisdiction of one or more regulators in each country, at any given time, our business operations may be subject to review, investigation, or disciplinary action.
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, a loss is not accrued. If a loss is deemed probable but an amount or range of loss cannot be reasonably estimated, a loss is not accrued but the matter is disclosed.
In management’s opinion, adequate accrual has been made as of December 31, 2023 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 believes that the ultimate resolution of claims will not materially affect the company’s business, revenue, net income or liquidity.
The company is cooperating with requests from the SEC in connection with their investigation of investment advisers’ compliance with record retention requirements relating to certain types of electronic business communications. At this time a range of loss related to this matter cannot be reasonably estimated.
Further, the investment management industry also is generally subject to extensive levels of ongoing regulatory oversight and examination. In the U.S., U.K. 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, related entities and individuals in the U.S., U.K. 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.
19. CONSOLIDATED INVESTMENT PRODUCTS
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 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. The majority of CIP are VIEs. The following table presents the balances related to CIP that are included on the Consolidated Balance Sheets as well as Invesco's net investment in and net receivables from the CIP for each period presented.
| As of | |||||||||||
| (in millions) | December 31, 2023 | December 31, 2022 | |||||||||
| Cash and cash equivalents of CIP | $ | 462.4 | $ | 199.4 | |||||||
| Accounts receivable and other assets of CIP | 250.1 | 203.7 | |||||||||
| Investments of CIP | 8,765.9 | 8,531.4 | |||||||||
| Less: Debt of CIP | (7,121.8) | (6,590.4) | |||||||||
| Less: Other liabilities of CIP | (492.1) | (329.6) | |||||||||
| Less: Retained earnings | 0.1 | 0.1 | |||||||||
| Less: Equity attributable to redeemable noncontrolling interests | (745.7) | (998.7) | |||||||||
| Less: Equity attributable to nonredeemable noncontrolling interests | (572.7) | (629.3) | |||||||||
| Invesco's net investment in and net receivables from CIP | $ | 546.2 | $ | 386.6 | |||||||
The following table reflects the impact of consolidation of investment products into the Consolidated Statements of Income for the years ended December 31, 2023, 2022 and 2021.
| Years ended December 31, | ||||||||||||||||||||
| (in millions) | 2023 | 2022 | 2021 | |||||||||||||||||
| Operating income/(loss) | $ | (84.8) | $ | (65.7) | $ | (67.7) | ||||||||||||||
| Other income/(expense) | 13.5 | 70.5 | 407.3 | |||||||||||||||||
| Net (income)/loss attributable to noncontrolling interests in consolidated entities | 71.3 | (4.8) | (339.6) | |||||||||||||||||
| Net income/(loss) attributable to Invesco Ltd. | $ | — | $ | — | $ | — |
The following tables present the fair value hierarchy levels of certain CIP balances which are measured at fair value as of December 31, 2023 and December 31, 2022:
| As of December 31, 2023 | |||||||||||||||||||||||||||||
| (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**(2)** | ||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||
| Bank loans(1) | $ | 6,837.2 | $ | — | $ | 6,140.1 | $ | 697.1 | $ | — | |||||||||||||||||||
| Bonds | 669.8 | 13.3 | 656.2 | 0.3 | — | ||||||||||||||||||||||||
| Equity securities | 231.9 | 85.2 | 18.3 | 128.4 | — | ||||||||||||||||||||||||
| Equity and fixed income mutual funds | 137.9 | 8.0 | 129.9 | — | — | ||||||||||||||||||||||||
| Investments in other private equity funds | 425.5 | — | — | — | 425.5 | ||||||||||||||||||||||||
| Real estate investments | 463.6 | — | — | — | 463.6 | ||||||||||||||||||||||||
| Total assets at fair value | $ | 8,765.9 | $ | 106.5 | $ | 6,944.5 | $ | 825.8 | $ | 889.1 | |||||||||||||||||||
| As of December 31, 2022 | |||||||||||||||||||||||||||||
| (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**(2)** | ||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||
| Bank loans(1) | $ | 6,315.1 | $ | — | $ | 6,069.8 | $ | 245.3 | $ | — | |||||||||||||||||||
| Bonds | 697.5 | 8.8 | 688.2 | 0.5 | — | ||||||||||||||||||||||||
| Equity securities | 274.9 | 129.9 | 29.8 | 115.2 | — | ||||||||||||||||||||||||
| Equity and fixed income mutual funds | 230.7 | 38.8 | 191.9 | — | — | ||||||||||||||||||||||||
| Investments in other private equity funds | 461.2 | — | — | 7.6 | 453.6 | ||||||||||||||||||||||||
| Real estate investments | 552.0 | — | — | — | 552.0 | ||||||||||||||||||||||||
| Total assets at fair value | $ | 8,531.4 | $ | 177.5 | $ | 6,979.7 | $ | 368.6 | $ | 1,005.6 | |||||||||||||||||||
(1) Bank loan investments, which comprise the majority of consolidated CLOs portfolio collateral, are senior secured corporate loans from a variety of industries. Bank loan investments mature at various dates between 2024 and 2032, pay interest at the applicable reference rate plus a spread of up to 13.38%, and typically range in S&P credit rating categories from BBB down to unrated. Notes issued by consolidated CLOs mature at various dates between 2028 and 2034 and have a weighted average maturity of eight years. The notes are issued in various tranches with different risk profiles. The interest rates are generally variable rates based on the applicable reference rate 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. 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. At December 31, 2023, the unpaid principal balance exceeds the fair value of the senior secured bank loans and bonds by approximately $340.9 million (December 31, 2022: the unpaid principal balance exceeded the fair value of the senior secured bank loans and bonds by approximately $544.1 million). Approximately 0.07% of the collateral assets are in default as of December 31, 2023 (December 31, 2022: approximately 0.49% of the collateral assets were in default).
(2) The table below summarizes as of December 31, 2023 and December 31, 2022, the nature of investments that are valued using the NAV as a practical expedient. Private equity funds are not subject to redemption; however, for certain funds, investors may sell or transfer their interest. Real estate funds are generally subject to a redemption notice period that requires at least 45 days, and the frequency of redemptions is either quarterly or best efforts.
| December 31, 2023 | December 31, 2022 | |||||||||||||||||||||||||||||||||||||
| (in millions, except term data) | Fair Value | Total Unfunded Commitments | Weighted Average Remaining Term | Fair Value | Total Unfunded Commitments | Weighted Average Remaining Term | ||||||||||||||||||||||||||||||||
| Private equity funds | $425.5 | $56.5 | 5.9 years | $453.6 | $74.7 | 6.4 years | ||||||||||||||||||||||||||||||||
| Real estate investments | $463.6 | $53.8 | N/A | $552.0 | $53.8 | N/A | ||||||||||||||||||||||||||||||||
The following table shows a reconciliation of the beginning and ending fair value measurements for level 3 assets using significant unobservable inputs:
| Years ended December 31, | |||||||||||||||||
| 2023 | 2022 | ||||||||||||||||
| (in millions) | Level 3 Assets | Level 3 Assets | |||||||||||||||
| Beginning Balance as of January 1 | $ | 368.6 | $ | 239.5 | |||||||||||||
| CIP Purchases | 566.6 | 31.2 | |||||||||||||||
| CIP Sales | (54.9) | (12.2) | |||||||||||||||
| Deconsolidation of CIP | (0.6) | 3.5 | |||||||||||||||
| Gains and losses included in the Consolidated Statements of Income | 7.9 | 9.8 | |||||||||||||||
| Transfers from Level 3 into Levels 1 or 2 | (377.9) | (355.9) | |||||||||||||||
| Transfers into Level 3 from Levels 1 or 2 | 310.2 | 452.0 | |||||||||||||||
| Foreign exchange | 5.9 | 0.7 | |||||||||||||||
| Ending Balance as of December 31 | $ | 825.8 | $ | 368.6 |
There is one CIP that elected the fair value option for its borrowings. At December 31, 2023, these borrowings totaled $353.7 million and are classified as level 3 in the valuation hierarchy.
Non-consolidated VIEs
At December 31, 2023, the company's carrying value and risk of loss with respect to VIEs in which the company is not the primary beneficiary included our investment carrying value of $122.9 million (December 31, 2022: $111.5 million) and unfunded capital commitments of $142.5 million (December 31, 2022: $100.5 million).
20. RELATED PARTIES
MassMutual owns approximately 18.1% in common stock of the company and owns all of the outstanding $4.0 billion in perpetual, non-cumulative preferred shares as of December 31, 2023. 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.” The majority of the company's Operating revenues and receivables are from Invesco's managed funds. Related parties also include those defined in the company’s proxy statement.
Refer to Note 2, "Fair Value of Assets and Liabilities" and Note 3, "Investments" for more information on balances invested in Invesco affiliated funds.
21. SUBSEQUENT EVENTS
On January 23, 2024, the company declared a fourth quarter 2023 dividend of $0.20 per common share, payable on March 4, 2024, to common shareholders of record at the close of business on February 16, 2024 with an ex-dividend date of February 15, 2024.
On January 23, 2024, the company declared a preferred dividend of $14.75 per preferred share to the holders of preferred shares representing the period from December 1, 2023 through February 28, 2024. The preferred dividend is payable on March 1, 2024.
On January 30, 2024, Invesco Finance PLC, a wholly-owned indirect subsidiary of the Parent, paid in full the outstanding balance of the $600.0 million senior notes which were due on January 30, 2024. Further, $128.5 million was drawn on the floating rate facility on January 31, 2024.
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