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Fair Value Of Assets And Liabilities
9 Months Ended
Sep. 30, 2011
Fair Value Of Assets And Liabilities Abstract 
Fair Value Of Assets And Liabilities
FAIR VALUE OF ASSETS AND LIABILITIES
The carrying value and fair value of financial instruments is presented in the summary table below. The fair value of financial instruments held by consolidated investment products is presented in Note 11, “Consolidated Investment Products.”
 
September 30, 2011
 
December 31, 2010
$ in millions
Footnote Reference
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Cash and cash equivalents
 
 
757.0

 
757.0

 
740.5

 
740.5

Available for sale investments
3

 
72.4

 
72.4

 
100.0

 
100.0

Assets held for policyholders
 
 
1,255.3

 
1,255.3

 
1,295.4

 
1,295.4

Trading investments
3

 
183.8

 
183.8

 
180.6

 
180.6

Foreign time deposits*
3

 
39.0

 
39.0

 
28.2

 
28.2

Support agreements*
10,11

 
(1.0
)
 
(1.0
)
 
(2.0
)
 
(2.0
)
Policyholder payables
 
 
(1,255.3
)
 
(1,255.3
)
 
(1,295.4
)
 
(1,295.4
)
Financial instruments sold, not yet purchased
 
 
(3.0
)
 
(3.0
)
 
(0.7
)
 
(0.7
)
Derivative liabilities
 
 
—

 
—

 
(0.1
)
 
(0.1
)
Note payable
 
 
(16.0
)
 
(16.0
)
 
(18.9
)
 
(18.9
)
Long-term debt, including current portion*
4

 
(1,389.7
)
 
(1,417.3
)
 
(1,315.7
)
 
(1,339.3
)

*
These financial instruments are not measured at fair value on a recurring basis. See the indicated footnotes for additional information about the carrying and fair values of these financial instruments. Foreign time deposits are measured at cost plus accrued interest, which approximates fair value.

The following is a description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy.
Cash equivalents
Cash equivalents include cash investments in money market funds and time deposits. Cash investments in money market funds are valued under the market approach through the use of quoted market prices in an active market, which is the net asset value of the underlying funds, and are classified within level 1 of the valuation hierarchy.
Available-for-sale investments
Available-for-sale investments include amounts seeded into affiliated investment products and investments in affiliated CLOs. Seed money investments are investments held in Invesco managed funds with the purpose of providing capital to the funds during their development periods. Seed money is valued under the market approach through the use of quoted market prices available in an active market and is classified within level 1 of the valuation hierarchy; there is no modeling or additional information needed to arrive at the fair values of these investments. CLOs are valued using an income approach through the use of certain observable and unobservable inputs. Due to current liquidity constraints within the market for CLO products that require the use of unobservable inputs, these investments are classified within level 3 of the valuation hierarchy.
Assets held for policyholders
Assets held for policyholders represent investments held by one of the company’s subsidiaries, which is an insurance entity that was established to facilitate retirement savings plans in the U.K. The assets held for policyholders are accounted for at fair value pursuant to ASC Topic 944, “Financial Services — Insurance,” and are comprised primarily of affiliated unitized funds. The assets are measured at fair value under the market approach based on the quoted prices of the underlying funds in an active market and are classified within level 1 of the valuation hierarchy. The policyholder payables are indexed to the value of the assets held for policyholders.
Trading investments
Trading investments include investments held to hedge economically against costs the company incurs in connection with certain deferred compensation plans in which the company participates, as well as trading and investing activities in equity and debt securities entered into in its capacity as sponsor of unit investment trusts (UITs).
•
Investments related to deferred compensation plans
Investments related to deferred compensation plans are primarily invested in affiliated funds that are held to hedge economically current and non-current deferred compensation liabilities. Investments related to deferred compensation plans are valued under the market approach through the use of quoted prices in an active market and are classified within level 1 of the valuation hierarchy.
•
UIT-related equity and debt securities
At September 30, 2011, UIT-related equity and debt securities consisted of investments in corporate stock, UITs, U.S. state and political subdivisions. Each is discussed more fully below.
•
Corporate stock
The company temporarily holds investments in corporate stock for purposes of creating a UIT. Corporate stocks are valued under the market approach through use of quoted prices on an exchange. To the extent these securities are actively traded, valuation adjustments are not applied and they are categorized within level 1 of the valuation hierarchy; otherwise, they are categorized in level 2.
•
UITs
The company may hold units of its sponsored UITs at period-end for sale in the primary market or secondary market. Equity UITs are valued under the market approach through use of quoted prices on an exchange. Fixed income UITs are valued using recently executed transaction prices, market price quotations (where observable), bond spreads, or credit default swap spreads. The spread data used is for the same maturities as the underlying bonds. If the spread data does not reference the issuers, then data that references comparable issuers is used. When observable price quotations are not available, fair value is determined based on cash flow models with yield curves, bond or single name credit default spreads, and recovery rates based on collateral value as key inputs. Depending on the nature of the inputs, these investments are categorized as level 1, 2, or 3.
•
Municipal securities
Municipal securities are valued using recently executed transaction prices, market price quotations (where observable), bond spreads, or credit default swap spreads. The spread data used is for the same maturities as the underlying bonds. If the spread data does not reference the issuers, then data that references comparable issuers is used. When observable price quotations are not available, fair value is determined based on cash flow models with yield curves, bond or single name credit default spreads, and recovery rates based on collateral value as key inputs. Depending on the nature of the inputs, these investments are categorized as level 1, 2, or 3.

UIT-related financial instruments sold, not yet purchased, and derivative instruments
The company uses U.S. Treasury futures, which are types of derivative financial instruments, to hedge economically fixed income UIT inventory and securities in order to mitigate market risk. Open futures contracts are marked-to-market daily through earnings, which are recorded in the company’s consolidated statement of income in other revenue, along with the mark-to-market on the underlying trading securities held. Fair values of derivative contracts in an asset position are included in other assets in the company’s consolidated balance sheet. Fair values of derivative contracts in a liability position are included in other liabilities in the company’s consolidated balance sheet. These derivative contracts are valued under the market approach through use of quoted prices in an active market and are classified within level 1 of the valuation hierarchy. At September 30, 2011, there were 11 open futures contracts with a notional value of $1.4 million (December 31, 2010: 76 open futures contracts with a notional value of $9.3 million). Additionally, to hedge economically the market risk associated with equity and debt securities and UITs temporarily held as trading investments, the company will hold short corporate stock, exchange-traded fund, or U.S. treasury security positions. These transactions are recorded as financial instruments sold, not yet purchased and are included in other liabilities in the company’s consolidated balance sheet. To the extent these securities are actively traded, valuation adjustments are not applied and they are categorized within level 1 of the valuation hierarchy; otherwise, they are categorized in level 2.
Note payable
The note payable represents a payable associated with the aggregate amount of distributions proportional to Invesco’s acquired ownership interest in two consolidated real estate funds. As the underlying investments in the funds are carried at fair value (and are disclosed as level 3 assets in the fair value hierarchy table included in Note 11, “Consolidated Investment Products”), management elected the fair value option for the note payable in order to offset the fair value movements recognized from the funds and has recorded the note payable as a level 3 liability. The fair value of the note payable represents its remaining principal balance adjusted for changes in equity of the funds that is attributable to the company’s ownership interest in the funds.
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 face of the statement of financial position as of September 30, 2011.

 
As of September 30, 2011
 
Fair Value
 
Quoted Prices in
Active Markets for
Identical Assets
 
Significant Other
Observable Inputs
 
Significant
Unobservable Inputs
$ in millions
Measurements
 
(Level 1)
 
(Level 2)
 
(Level 3)
Current assets:
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
243.0

 
243.0

 
—

 
—

Investments:*

 

 

 
 
Available-for-sale:

 

 

 
 
Seed money
71.9

 
71.9

 
—

 
—

Trading investments:

 

 

 
 
Investments related to deferred compensation plans
175.7

 
175.7

 
—

 
—

UIT-related equity and debt securities:

 

 

 
 
Corporate stock
0.9

 
0.9

 
—

 
—

UITs
2.0

 
2.0

 
—

 
—

Municipal securities
5.2

 
—

 
5.2

 
—

Assets held for policyholders
1,255.3

 
1,255.3

 
—

 
—

Total current assets
1,754.0

 
1,748.8

 
5.2

 
—

Non-current assets:
 
 
 
 
 
 
 
Investments — available-for-sale*:
 
 
 
 
 
 
 
CLOs
0.5

 
—

 
—

 
0.5

Total assets at fair value
1,754.5

 
1,748.8

 
5.2

 
0.5

Current liabilities:
 
 
 
 
 
 
 
Policyholder payables
(1,255.3
)
 
(1,255.3
)
 
—

 
—

UIT-related financial instruments sold, not yet purchased:

 

 
 
 
 
Corporate equities
(1.1
)
 
(1.1
)
 
—

 
—

U.S. Treasury securities
(1.9
)
 
(1.9
)
 
—

 
—

Note payable
(16.0
)
 
—

 
—

 
(16.0
)
Total liabilities at fair value
(1,274.3
)
 
(1,258.3
)
 
—

 
(16.0
)

*
Current foreign time deposits of $39.0 million and other current investments of $0.5 million are excluded from this table. Other non-current equity and other investments of $178.6 million and $7.8 million, respectively, are also excluded from this table. These investments are not measured at fair value, in accordance with applicable accounting standards.
The following table presents, for each of the hierarchy levels described above, the carrying value of the company’s assets and liabilities that are measured at fair value as of December 31, 2010:

 
As of December 31, 2010
 
Fair Value
 
Quoted Prices in
Active Markets for
Identical Assets
 
Significant Other
Observable Inputs
 
Significant
Unobservable Inputs
$ in millions
Measurements
 
(Level 1)
 
(Level 2)
 
(Level 3)
Current assets:
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
316.4

 
316.4

 
—

 
—

Investments:*
 
 
 
 
 
 
 
Available-for-sale:
 
 
 
 
 
 
 
Seed money
99.5

 
99.5

 
—

 
—

Trading investments:
 
 
 
 
 
 
 
Investments related to deferred compensation plans
165.5

 
165.5

 
—

 
—

UIT-related equity and debt securities:
 
 
 
 
 
 
 
Corporate stock
1.2

 
1.2

 
—

 
—

UITs
4.0

 
4.0

 
—

 
—

Municipal securities
9.9

 
—

 
9.9

 
—

Assets held for policyholders
1,295.4

 
1,295.4

 
—

 
—

Total current assets
1,891.9

 
1,882.0

 
9.9

 
—

Non-current assets:
 
 
 
 
 
 
 
Investments — available-for-sale*:
 
 
 
 
 
 
 
CLOs
0.5

 
—

 
—

 
0.5

Total assets at fair value
1,892.4

 
1,882.0

 
9.9

 
0.5

Current liabilities:
 
 
 
 
 
 
 
Policyholder payables
(1,295.4
)
 
(1,295.4
)
 
—

 
—

UIT-related financial instruments sold, not yet purchased:
 
 
 
 
 
 
 
Corporate equities
(0.7
)
 
(0.7
)
 
—

 
—

UIT-related derivative liabilities
(0.1
)
 
(0.1
)
 
—

 
—

Non-current liabilities:
 
 
 
 
 
 
 
Note payable
(18.9
)
 
—

 
—

 
(18.9
)
Total liabilities at fair value
(1,315.1
)
 
(1,296.2
)
 
—

 
(18.9
)

*
Current foreign time deposits of $28.2 million and other current investments of $0.5 million are excluded from this table. Other non-current equity and other investments of $156.9 million and $7.0 million, respectively, are also excluded from this table. These investments are not measured at fair value, in accordance with applicable accounting standards.
The following table shows a reconciliation of the beginning and ending fair value measurements for level 3 assets and liabilities during the nine months ended September 30, 2011 and September 30, 2010, which are valued using significant unobservable inputs:
 
Three months ended September 30, 2011
 
Nine months ended September 30, 2011
$ in millions
CLO Investment
 
Note Payable
 
CLO Investment
 
Note Payable
Beginning balance
0.4

 
(16.1
)
 
0.5

 
(18.9
)
Net unrealized gains and losses included in accumulated other comprehensive income/(loss)**
0.1

 
—

 
0.1

 
—

Foreign exchange movements included in other expenses
—

 
0.1

 
—

 
—

Purchases, sales, issuances, and settlements, net***
—

 
—

 
(0.1
)
 
2.9

Ending balance
0.5

 
(16.0
)
 
0.5

 
(16.0
)

 
Three months ended September 30, 2010
 
Nine months ended September 30, 2010
$ in millions
CLO Investment
 
CLO Investment
Beginning balance
0.6

 
17.9

Adoption of guidance now encompassed in ASC Topic 810*
—

 
(17.4
)
Beginning balance, as adjusted
0.6

 
0.5

Net unrealized gains and losses included in accumulated other comprehensive income/(loss)**
(0.1
)
 
—

Purchases, sales, issuances, and settlements, net***
—

 
—

Ending balance
0.5

 
0.5


*
The company adopted guidance now encompassed in ASC Topic 810, “Consolidation,” on January 1, 2010, resulting in the consolidation of CLOs for which the company has an underlying investment of $50.2 million at September 30, 2011. The adjustment of $17.4 million in the table above reflects the elimination of the company’s equity interest upon adoption.

**
Of these net unrealized gains and losses included in accumulated other comprehensive income/(loss), $0.1 million gain for the three months and nine months ended September 30, 2011 is attributed to the change in unrealized gains and losses related to assets still held at September 30, 2011 (three and nine months ended September 30, 2010: $0.1 million unrealized losses and nothing, respectively, related to assets still held at September 30, 2010).

***
Prior to the adoption of guidance included in ASU 2010-06, discussed in Note 1, “Accounting Policies,” purchases, sales, issuances, and settlements were presented net. For the three months ended September 30, 2011 there was no return of capital activity related to the CLO investment; for the nine months ended September 30, 2011, there was $0.1 million in return of capital activity occurred related to the CLO investment. For the three months ended September 30, 2011, there was no settlement activity related to the note payable; for the nine months ended September 30, 2011, there was $2.9 million in settlement activity related to the note payable.