Business Context and Reporting Period
Company: Invesco PLC (transitioning to Invesco Ltd.)
Filing Type: Form 10-Q (Unaudited)
Period Ended: September 30, 2007
Business Overview: Invesco is a global investment management company providing retail, institutional, and high-net-worth investment solutions. The company operates in 20 countries with brands including AIM, Atlantic Trust, Invesco, Perpetual, PowerShares, Trimark, and WL Ross.
Regulatory Status: In July 2007, the company lost its "foreign private issuer" status under U.S. securities laws due to U.S. share ownership exceeding 50%. Consequently, it is transitioning its primary listing from the London Stock Exchange to the New York Stock Exchange and relocating its domicile from the U.K. to Bermuda. Financial statements in this report are prepared under IFRS with a reconciliation to U.S. GAAP.
Key Financial Metrics
| Metric (in millions) | Three Months Ended Sep 30, 2007 | Nine Months Ended Sep 30, 2007 | Nine Months Ended Sep 30, 2006 |
|---|---|---|---|
| Total Revenues | $992.9 | $2,884.2 | $2,362.6 |
| Net Revenues | $720.3 | $2,113.5 | $1,759.3 |
| Operating Profit | $269.0 | $777.9 | $535.1 |
| Profit Attributable to Equity Holders | $170.6 | $493.4 | $326.6 |
| Diluted EPS | $0.21 | $0.60 | $0.40 |
| Cash and Cash Equivalents | $1,102.4 | $1,102.4 | $789.6 (Dec 31, 2006) |
| Long-Term Debt | $1,143.2 | $1,143.2 | $972.7 (Dec 31, 2006) |
| Net Debt | $40.8 | $40.8 | $483.1 (Dec 31, 2006) |
| Assets Under Management (AUM) | $507.2 Billion | $507.2 Billion | $440.6 Billion |
Material Changes vs. Prior Period
- Revenue Growth: Net revenues increased by $354.2 million (20.1%) for the nine months ended September 30, 2007, compared to the same period in 2006. This was primarily driven by a 16.6% increase in average AUM to $483.1 billion.
- Profitability: Profit attributable to equity holders rose 51.1% to $493.4 million for the nine-month period. Operating profit increased 45.4% to $777.9 million.
- Expense Trends: Total operating expenses increased by $111.4 million (9.1%). Compensation expenses rose $36.2 million due to higher bonus accruals, while General and Administrative expenses increased $54.5 million, largely due to amortization of intangibles from the WL Ross acquisition.
- Balance Sheet: Cash and cash equivalents increased by $312.8 million to $1.1 billion. Long-term debt increased by $170.5 million following the issuance of $300 million in senior notes to refinance maturing debt.
- Share Repurchases: The company initiated a $500 million share repurchase program in June 2007. By September 30, 2007, $105.2 million of shares had been repurchased.
Guidance, Outlook, Risks, and Unusual Items
- Corporate Restructuring: The company is proceeding with a redomicile to Bermuda and a primary listing move to the NYSE, expected to be effective December 4, 2007. One-time transition costs are estimated at $12 million for the fourth quarter of 2007.
- Market Conditions: The third quarter of 2007 saw volatility in equity markets due to U.S. mortgage concerns and credit contraction. Despite this, most major indices increased year-to-date.
- Legal Proceedings: The company is involved in multiple lawsuits related to market timing allegations and excessive fees. Management believes it is not probable that the outcome will have a material adverse effect on financial condition, though regulatory settlements may impact damages.
- Acquisition Contingencies: As of September 30, 2007, the goodwill balance included $446.2 million representing the present value of expected future earn-out distributions from acquisitions (PowerShares and WL Ross).
- Lease Commitment: On November 6, 2007, the company entered a 15-year lease for new executive offices in Atlanta, Georgia, with a total cost of $54.4 million for the initial space.
Investor Verification Checklist
- Redomicile Approval: Verify shareholder approval of the Bermuda redomicile and NYSE listing at the Extraordinary General Meeting scheduled for November 14, 2007.
- U.S. GAAP Transition: Monitor the upcoming Form 10-K for the year ended December 31, 2007, which will present financials solely under U.S. GAAP, noting potential adjustments to goodwill, pension liabilities, and tax provisions.
- Legal Settlements: Track the status of market timing litigation and regulatory settlements, as these could result in unexpected cash outflows.
- Share Repurchase Execution: Confirm the pace of the remaining $394.8 million authorized for share repurchases under the program expiring June 30, 2008.
- Contingent Consideration: Review future cash flow requirements for the $556.1 million in expected earn-out payments over the next five years related to prior acquisitions.