Bermuda | 001-13908 | 98-0557567 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
1555 Peachtree Street, NE, Atlanta, Georgia | 30309 | |||||
(Address of principal executive offices) | (Zip Code) |
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common stock, $0.20 par value per share | IVZ | New York Stock Exchange |
Item 9.01 | Financial Statements and Exhibits. |
(a) | Financial Statements of Business Acquired |
(b) | Pro Forma Financial Information |
(d) | Exhibits. |
Exhibit No. | Description | |
Invesco Ltd. | |||
By: | /s/ Loren M. Starr | ||
Loren M. Starr | |||
Senior Managing Director and Chief Financial Officer |
2018 | 2017 | |||||
Assets | ||||||
Cash and cash equivalents | $ | 608,205 | 414,778 | |||
Accounts receivable | ||||||
Management and investment advisory service fees | 23,414 | 26,934 | ||||
Distribution and service plan fees | 19,768 | 23,882 | ||||
Other | 29,569 | 24,335 | ||||
Investments | 475,349 | 526,749 | ||||
Investments for deferred compensation arrangements | 153,450 | 178,504 | ||||
Deferred sales commissions | 6,885 | 8,962 | ||||
Property and equipment, less accumulated depreciation | 111,899 | 104,341 | ||||
Goodwill | 610,468 | 610,381 | ||||
Intangible assets | 92,673 | 92,819 | ||||
Secured demand notes receivable | 100,000 | 100,000 | ||||
Net deferred tax assets | 21,736 | 11,190 | ||||
Prepaid assets | 19,401 | 24,175 | ||||
Assets related to discontinued operations | 284 | 2,391 | ||||
Total assets before consolidated variable interest entities | 2,273,101 | 2,149,441 | ||||
Assets of consolidated variable interest entities: | ||||||
Cash | 33,635 | 10,151 | ||||
Investments | 306,278 | 265,222 | ||||
Other assets | 4,346 | 3,445 | ||||
Total assets of consolidated variable interest entities | 344,259 | 278,818 | ||||
Total assets | $ | 2,617,360 | 2,428,259 |
2018 | 2017 | |||||
Liability and Shareholders' Equity | ||||||
Liabilities: | ||||||
Distribution and service plan fee payable | $ | 65,232 | 74,823 | |||
Accounts payable and accrued expenses | 98,567 | 129,213 | ||||
Accrued compensation | 244,100 | 220,655 | ||||
Deferred compensation arrangements | 139,409 | 156,646 | ||||
Note payable | 50,073 | — | ||||
Notes payable under subordinated secured demand note collateral agreement | 100,000 | 100,000 | ||||
Income taxes payable | 108,480 | 142,014 | ||||
Other | 76,588 | 60,948 | ||||
Liabilities related to discontinued operations | 1,576 | 2,775 | ||||
Total liabilities before consolidated variable interest entities | 884,025 | 887,074 | ||||
Liabilities of consolidated variable interest entities: | ||||||
Other liabilities | 6,215 | 2,121 | ||||
Total liabilities of consolidated variable interest entities | 6,215 | 2,121 | ||||
Total liabilities | 890,240 | 889,195 | ||||
Commitments and contingencies (See Note 15) | ||||||
Temporary equity: | ||||||
Redeemable noncontrolling interests in consolidated entities | 114,509 | 68,233 | ||||
Permanent equity: | ||||||
Class A common stock – voting; $0.001 par value. Authorized, issued, and outstanding 21,600,000 shares in 2018 and 2017 | 22 | 22 | ||||
Class B common stock – voting; $0.001 par value. Authorized 18,400,000 shares; issued 14,030,901 shares; and outstanding,13,013,900 shares in 2018 and 2017 | 14 | 14 | ||||
Class C common stock – nonvoting; $0.001 par value. Authorized 45,000,000 shares; issued 27,154,569 and 26,890,450 shares; and outstanding 23,745,437 and 23,541,105 shares in 2018 and 2017, respectively | 27 | 27 | ||||
Additional paid-in capital | 1,034,887 | 1,004,234 | ||||
Accumulated other comprehensive loss | (1,073 | ) | (1,073 | ) | ||
Retained earnings | 931,647 | 814,220 | ||||
Treasury stock, Class B common: 1,017,001 shares; and Class C common: 3,409,133 and 3,349,345 shares in 2018 and 2017, respectively | (352,913 | ) | (346,613 | ) | ||
Total permanent equity | 1,612,611 | 1,470,831 | ||||
Total liabilities, temporary and permanent equity | $ | 2,617,360 | 2,428,259 |
2018 | 2017 | 2016 | |||||||
Revenue: | |||||||||
Management and investment advisory service fees | $ | 1,489,779 | 1,428,922 | 1,294,437 | |||||
Transfer agency revenue | 315,258 | 318,476 | 318,038 | ||||||
Distribution and service plan fees | 403,830 | 28,093 | 31,708 | ||||||
Other | 41,560 | 52,457 | 61,008 | ||||||
Total revenue | 2,250,427 | 1,827,948 | 1,705,191 | ||||||
Operating expenses: | |||||||||
Compensation and benefits | 609,020 | 634,043 | 583,962 | ||||||
Selling, general and administrative | 577,006 | 619,692 | 594,835 | ||||||
Distribution and service plan expenses | 383,020 | — | — | ||||||
Amortization of deferred sales commissions | 18,681 | 22,811 | 25,941 | ||||||
Total operating expenses | 1,587,727 | 1,276,546 | 1,204,738 | ||||||
Operating income | 662,700 | 551,402 | 500,453 | ||||||
Other income (expense): | |||||||||
Net investment gains (losses) | (61,845 | ) | 21,493 | (338 | ) | ||||
Dividends and interest income | 46,148 | 28,670 | 17,476 | ||||||
Interest expense | (2,558 | ) | (2,158 | ) | (1,860 | ) | |||
Income from continuing operations before income taxes | 644,445 | 599,407 | 515,731 | ||||||
Income tax provision (benefit): | |||||||||
Current | 138,557 | 213,673 | 172,485 | ||||||
Deferred | (10,546 | ) | 2,939 | (375 | ) | ||||
Total income tax provision from continuing operations | 128,011 | 216,612 | 172,110 | ||||||
Income from continuing operations | 516,434 | 382,795 | 343,621 | ||||||
Income (loss) from discontinued operations | (529 | ) | 669 | 51,533 | |||||
Net income | 515,905 | 383,464 | 395,154 | ||||||
Net income (loss) attributable to noncontrolling interest | (15,624 | ) | 5,511 | 6,358 | |||||
Net income attributable to OAC | $ | 531,529 | 377,953 | 388,796 |
Equity attributable to OAC shareholders | |||||||||||||||||||||||||||||||||||||||||||
Common stock | Additional paid-in capital | Accumulated other comprehensive loss | Retained earnings | Appropriated retained earnings-VIE | Treasury stock | Total permanent equity | Redeemable noncontrolling interests in consolidated entities Temporary equity | ||||||||||||||||||||||||||||||||||||
Class A shares outstanding | Amount | Class B shares outstanding | Amount | Class C shares outstanding | Amount | ||||||||||||||||||||||||||||||||||||||
Balances, December 31, 2015 | 21,600 | 22 | 13,014 | 14 | 23,553 | 26 | 963,373 | (1,073 | ) | 669,717 | (5,766 | ) | (281,336 | ) | 1,344,977 | 141,743 | |||||||||||||||||||||||||||
Cumulative Effect of Change in accounting principle | — | — | — | — | — | — | 2,882 | — | (3,382 | ) | 5,766 | — | 5,266 | — | |||||||||||||||||||||||||||||
Balances, December 31, 2015 | 21,600 | 22 | 13,014 | 14 | 23,553 | 26 | 966,255 | (1,073 | ) | 666,335 | — | (281,336 | ) | 1,350,243 | 141,743 | ||||||||||||||||||||||||||||
Share-based payment arrangements, net | — | — | — | — | 427 | 1 | 10,910 | — | — | — | — | 10,911 | — | ||||||||||||||||||||||||||||||
Dividends declared | — | — | — | — | — | — | — | — | (309,513 | ) | — | — | (309,513 | ) | — | ||||||||||||||||||||||||||||
Repurchase of treasury stock | — | — | — | — | (1,314 | ) | — | — | — | — | — | (142,611 | ) | (142,611 | ) | — | |||||||||||||||||||||||||||
Issuance of common stock from treasury | — | — | — | — | 896 | — | — | — | — | — | 98,433 | 98,433 | — | ||||||||||||||||||||||||||||||
Noncontrolling interest subscriptions | — | — | — | — | — | — | — | — | — | — | — | — | 450,059 | ||||||||||||||||||||||||||||||
Noncontrolling interest distributions | — | — | — | — | — | — | — | — | — | — | — | — | (205,830 | ) | |||||||||||||||||||||||||||||
Net income attributable to noncontrolling interest | — | — | — | — | — | — | — | — | — | — | — | — | 6,358 | ||||||||||||||||||||||||||||||
Net income attributable to OAC | — | — | — | — | — | — | — | — | 388,796 | — | — | 388,796 | — | ||||||||||||||||||||||||||||||
Balances, December 31, 2016 | 21,600 | 22 | 13,014 | 14 | 23,562 | 27 | 977,165 | (1,073 | ) | 745,618 | — | (325,514 | ) | 1,396,259 | 392,330 | ||||||||||||||||||||||||||||
Share-based payment arrangements, net | — | — | — | — | 195 | — | 27,069 | — | — | — | — | 27,069 | — | ||||||||||||||||||||||||||||||
Dividends declared | — | — | — | — | — | — | — | — | (309,351 | ) | — | — | (309,351 | ) | — | ||||||||||||||||||||||||||||
Repurchase of treasury stock | — | — | — | — | (276 | ) | — | — | — | — | — | (26,885 | ) | (26,885 | ) | — | |||||||||||||||||||||||||||
Issuance of common stock from treasury | — | — | — | — | 60 | — | — | — | — | — | 5,786 | 5,786 | — | ||||||||||||||||||||||||||||||
Noncontrolling interest subscriptions | — | — | — | — | — | — | — | — | — | — | — | — | 160,999 | ||||||||||||||||||||||||||||||
Noncontrolling interest distributions | — | — | — | — | — | — | — | — | — | — | — | — | (490,607 | ) | |||||||||||||||||||||||||||||
Net income attributable to noncontrolling interest | — | — | — | — | — | — | — | — | — | — | — | — | 5,511 | ||||||||||||||||||||||||||||||
Net income attributable to OAC | — | — | — | — | — | — | — | — | 377,953 | — | — | 377,953 | — | ||||||||||||||||||||||||||||||
Balances, December 31, 2017 | 21,600 | 22 | 13,014 | 14 | 23,541 | 27 | 1,004,234 | (1,073 | ) | 814,220 | — | (346,613 | ) | 1,470,831 | 68,233 | ||||||||||||||||||||||||||||
Share-based payment arrangements, net | — | — | — | — | 264 | — | 30,653 | — | — | — | — | 30,653 | — | ||||||||||||||||||||||||||||||
Dividends declared | — | — | — | — | — | — | — | — | (414,102 | ) | — | — | (414,102 | ) | — | ||||||||||||||||||||||||||||
Repurchase of treasury stock | — | — | — | — | (109 | ) | — | — | — | — | — | (11,445 | ) | (11,445 | ) | — | |||||||||||||||||||||||||||
Issuance of common stock from treasury | — | — | — | — | 49 | — | — | — | — | — | 5,145 | 5,145 | — | ||||||||||||||||||||||||||||||
Noncontrolling interest subscriptions | — | — | — | — | — | — | — | — | — | — | — | — | 191,016 | ||||||||||||||||||||||||||||||
Noncontrolling interest distributions | — | — | — | — | — | — | — | — | — | — | — | — | (129,116 | ) | |||||||||||||||||||||||||||||
Net loss attributable to noncontrolling interest | — | — | — | — | — | — | — | — | — | — | — | — | (15,624 | ) | |||||||||||||||||||||||||||||
Net income attributable to OAC | — | — | — | — | — | — | — | — | 531,529 | — | — | 531,529 | — | ||||||||||||||||||||||||||||||
Balances, December 31, 2018 | 21,600 | $ | 22 | 13,014 | $ | 14 | 23,745 | $ | 27 | 1,034,887 | (1,073 | ) | 931,647 | — | (352,913 | ) | $ | 1,612,611 | $ | 114,509 |
2018 | 2017 | 2016 | |||||||
Continuing operations: | |||||||||
Cash flows provided by (used in) operating activities of continuing operations: | |||||||||
Income from continuing operations | $ | 516,434 | 382,795 | 343,621 | |||||
Adjustments to reconcile income from continuing operations to cash provided by (used in) operating activities: | |||||||||
Unrealized loss (gain) on investments | 28,356 | (19,776 | ) | 12,603 | |||||
Realized loss (gain) on investments | (35,412 | ) | 63,429 | (18,014 | ) | ||||
Depreciation and amortization | 22,547 | 22,214 | 21,846 | ||||||
Share-based payment arrangements | 43,939 | 44,473 | 46,976 | ||||||
Deferred income taxes | (10,546 | ) | 2,939 | (375 | ) | ||||
Amortization of deferred sales commissions | 18,681 | 22,811 | 25,941 | ||||||
Changes in operating assets and liabilities before consolidated variable interest entities: | |||||||||
Management and investment advisory service fees receivable | 3,520 | (2,275 | ) | (4,137 | ) | ||||
Distribution and service plan fees receivable | 4,114 | 173 | 1,127 | ||||||
Other receivable | (5,359 | ) | 2,366 | (15,137 | ) | ||||
Investments | 40,445 | (236,521 | ) | (16,425 | ) | ||||
Investments for deferred compensation arrangements | 25,054 | (27,599 | ) | (12,695 | ) | ||||
Deferred sales commissions | (16,604 | ) | (18,120 | ) | (19,713 | ) | |||
Other assets | 4,594 | (1,929 | ) | (5,040 | ) | ||||
Distribution and service plan fee payable | (9,591 | ) | (1,588 | ) | (5,233 | ) | |||
Accounts payable and accrued expenses | (30,646 | ) | 1,090 | 20,997 | |||||
Accrued compensation | 22,165 | 16,585 | (27,079 | ) | |||||
Deferred compensation arrangements | (17,237 | ) | 23,920 | 8,259 | |||||
Income taxes payable | (33,164 | ) | 85,606 | 93,510 | |||||
Other liabilities | 13,299 | 6,373 | (20,165 | ) | |||||
Changes in operating assets and liabilities of consolidated variable interest entities | (61,347 | ) | (56,864 | ) | (553,939 | ) | |||
Cash provided by (used in) operating activities of continuing operations | 523,242 | 310,102 | (123,072 | ) | |||||
Cash flows used in investing activities of continuing operations: | |||||||||
Purchase of property and equipment | (29,959 | ) | (10,727 | ) | (29,205 | ) | |||
SNW acquisition, net of cash acquired | — | (8,163 | ) | — | |||||
Cash used in investing activities of continuing operations | (29,959 | ) | (18,890 | ) | (29,205 | ) | |||
Cash flows provided by (used in) financing activities of continuing operations: | |||||||||
Increase in noncontrolling interests | 80,064 | 38,438 | 370,621 | ||||||
Issuance of common stock and exercise of options | — | — | 1 | ||||||
Payments related to tax withholding on share-based payment compensation | (12,006 | ) | (12,853 | ) | (30,389 | ) | |||
Repurchase of treasury stock | (11,445 | ) | (26,885 | ) | (142,611 | ) | |||
Issuance of stock from treasury | 5,145 | 5,786 | 98,433 | ||||||
Dividends paid | (411,561 | ) | (309,712 | ) | (308,388 | ) | |||
Proceeds on loan payable | 50,000 | — | — | ||||||
Cash used in financing activities of continuing operations | (299,803 | ) | (305,226 | ) | (12,333 | ) | |||
Increase (decrease) in cash and cash equivalents of continuing operations | 193,480 | (14,014 | ) | (164,610 | ) | ||||
Cash and cash equivalents of continuing operations, beginning of year | 414,778 | 429,608 | 594,287 | ||||||
Cash effect of investment deconsolidation of continuing operations | (53 | ) | (816 | ) | (69 | ) | |||
Cash and cash equivalents of continuing operations, end of year | $ | 608,205 | 414,778 | 429,608 | |||||
Discontinued operations: | |||||||||
Cash provided by (used in) operating activities of discontinued operations | $ | (982 | ) | 494 | (1,373 | ) | |||
Increase (decrease) in cash and cash equivalents of discontinued operations | (982 | ) | 494 | (1,373 | ) | ||||
Cash and cash equivalents of discontinued operations, beginning of year | 1,200 | 706 | 2,079 | ||||||
Cash and cash equivalents of discontinued operations, end of year | $ | 218 | 1,200 | 706 | |||||
Supplemental cash flow information for continuing operations: | |||||||||
Taxes paid | 172,091 | 128,177 | 78,975 | ||||||
Supplemental disclosure of non cash financing transaction: | |||||||||
Issuance of secured demand note | — | 100,000 | — |
(1) | The Company and its Significant Accounting Policies |
• | OFI owns: |
– | OFI Global Asset Management, Inc. |
– | OppenheimerFunds Distributor, Inc. (OFDI) |
– | Shareholder Services, Inc. |
– | OFI Private Investments, Inc. |
– | OFI SteelPath, Inc. |
– | Oppenheimer Real Asset Management, Inc. |
– | OFI Advisors, LLC (previously VTL Associates, LLC) owns: |
• | Index Management Solutions, LLC |
– | OFI Global Institutional, Inc. owns: |
• | HarborView Asset Management Corporation (HVAMC) |
• | OFI Global Trust Company |
• | Trinity Investment Management Corporation |
• | OFI International Ltd. |
• | SNW Asset Management Corporation owns: |
◦ | SNW Asset Management, LLC |
• | Tremont owns: |
– | Tremont Partners, LLC |
– | Tremont GP, LLC |
– | Tremont (Bermuda) Limited |
(a) | Principles of Consolidation |
(b) | Cash and Cash Equivalents |
(c) | Limited Purpose Broker/Dealer |
(d) | Investments |
(e) | Fair Value Measurements |
(f) | Derivatives |
(g) | Property and Equipment |
Depreciation life (in whole years) | |||||||
As of December 31, | |||||||
2018 | 2017 | ||||||
Hardware and software | 3-5 | $ | 139,589 | 114,407 | |||
Furniture, fixtures, and equipment | 3-5 | 32,245 | 32,267 | ||||
Leasehold improvements | 5-15 | 71,957 | 72,746 | ||||
Buildings | 5-30 | 35,927 | 35,666 | ||||
Land | 2,572 | 2,583 | |||||
282,290 | 257,669 | ||||||
Less: Accumulated Depreciation | (170,391 | ) | (153,328 | ) | |||
Total | $ | 111,899 | 104,341 |
(h) | Goodwill and Intangible Assets |
(i) | Deferred Sales Commissions |
(j) | Share‑Based Payment Arrangements |
(k) | Income Taxes |
(l) | Estimates |
(m) | Advertising |
(n) | Recently Issued Accounting Pronouncements |
(2) | Revenue Recognition |
Year ended December 31, 2018 | Management and investment advisory service fees | Transfer agency revenue | Distribution and service plan fees | Other revenue | Total revenue | |||
U.S. mutual funds | $1,359,094 | $315,258 | $403,830 | $17,626 | $2,095,808 | |||
Sub-advisory agreements | 59,242 | — | — | — | 59,242 | |||
Other products | 71,443 | — | — | 23,934 | 95,377 | |||
Total revenue | $1,489,779 | $315,258 | $403,830 | $41,560 | $2,250,427 |
Year ended December 31, 2017 | Management and investment advisory service fees | Transfer agency revenue | Distribution and service plan fees | Other revenue | Total revenue | |||
U.S. mutual funds | $1,301,796 | $318,476 | $28,093 | $18,697 | $1,667,062 | |||
Sub-advisory agreements | 62,721 | — | — | — | 62,721 | |||
Other products | 64,405 | — | — | 33,760 | 98,165 | |||
Total revenue | $1,428,922 | $318,476 | $28,093 | $52,457 | $1,827,948 | |||
Year ended December 31, 2016 | Management and investment advisory service fees | Transfer agency revenue | Distribution and service plan fees | Other revenue | Total revenue | |||
U.S. mutual funds | $1,174,812 | $318,038 | $31,708 | $20,514 | $1,545,072 | |||
Sub-advisory agreements | 58,095 | — | — | — | 58,095 | |||
Other products | 61,530 | — | — | 40,494 | 102,024 | |||
Total revenue | $1,294,437 | $318,038 | $31,708 | $61,008 | $1,705,191 |
(3) | Acquisitions |
(a) | Purchase Price |
(b) | Contingent Consideration |
(c) | Purchase Price Allocation |
Fair Value | |||
Cash | $ | 1,907 | |
Deferred tax assets | 113 | ||
Other assets | 993 | ||
Intangible asset - amortizable | 729 | ||
Goodwill | 9,787 | ||
Deferred tax liability | (627 | ) | |
Other liabilities | (525 | ) | |
Contingent consideration | (2,307 | ) | |
Net assets acquired | $ | 10,070 | |
(4) | Goodwill and Intangible Assets |
Balance as of January 1, 2017 | |||
Goodwill | $ | 720,681 | |
Accumulated impairment losses | (120,000 | ) | |
Net goodwill balance as of January 1, 2017 | 600,681 | ||
Goodwill acquired during the year | 9,700 | ||
Balance as of December 31, 2017 | |||
Goodwill | 730,381 | ||
Accumulated impairment losses | (120,000 | ) | |
Net goodwill balance as of December 31, 2017 | 610,381 | ||
Adjustment to acquired goodwill | 87 | ||
Balance as of December 31, 2018 | |||
Goodwill | 730,468 | ||
Accumulated impairment losses | (120,000 | ) | |
Net goodwill balance as of December 31, 2018 | $ | 610,468 |
(5) | Related Parties |
(a) | Officers, Directors, and Shareholders of the Company |
(b) | Broker/Dealer Commissions |
(c) | Revenue‑Sharing and Servicing Arrangements |
(d) | Distribution and Service Plan Fees |
(e) | Management and Investment Advisory Services |
(f) | Dividend |
(g) | Treasury Stock |
(h) | Note Payable |
(6) | Employee Benefit Plan |
(7) | Deferred Compensation Arrangements |
(8) | Investments |
(a) | Fair Value Investments |
(b) | Equity Method Investments |
(c) | Derivatives |
Assets | |||||||||||||
December 31, 2018 | December 31, 2017 | ||||||||||||
Balance sheet location | Carrying Value | Notional amount | Carrying Value | Notional amount | |||||||||
Swaps | Investments | $ | 15,711 | 452,809 | 42 | 5,699 | |||||||
Options | Investments | — | — | 66 | 13,657 | ||||||||
Derivatives from consolidated funds: | |||||||||||||
Swaps | Investments | 244 | 5,353 | — | — | ||||||||
Options | Investments | 3 | 4,032 | 2 | 1,485 | ||||||||
Total | $ | 15,958 | 462,194 | 110 | 20,841 |
Liabilities | |||||||||||||
December 31, 2018 | December 31, 2017 | ||||||||||||
Balance sheet location | Carrying Value | Notional amount | Carrying Value | Notional amount | |||||||||
Swaps | Other liabilities | $ | — | — | 7,514 | 578,655 | |||||||
Currency forwards | Other liabilities | 963 | 101,558 | 1,550 | 264,632 | ||||||||
Derivatives from consolidated funds: | |||||||||||||
Swaps | Other liabilities | 206 | 5,088 | 206 | 10,470 | ||||||||
Currency forwards | Other liabilities | 291 | 47,503 | 128 | 71,345 | ||||||||
Options | Other liabilities | 3 | 334 | — | — | ||||||||
Total | $ | 1,463 | 154,483 | 9,398 | 925,102 |
(9) | Fair Value of Financial Instruments |
December 31, 2018 | |||||||||||||||
Level 1 | Level 2 | Level 3 | Valued at net asset value | Total | |||||||||||
Assets: | |||||||||||||||
Investments: | |||||||||||||||
Mutual funds | $ | 176,532 | — | — | 40,585 | 217,117 | |||||||||
Common stock | 7,047 | 569 | — | — | 7,616 | ||||||||||
Derivatives | — | 15,711 | — | — | 15,711 | ||||||||||
Other | 282 | — | — | — | 282 | ||||||||||
Consolidated investment funds: | |||||||||||||||
Mutual funds | 14,239 | 2,642 | — | — | 16,881 | ||||||||||
Common stock | 169,416 | 26,835 | — | — | 196,251 | ||||||||||
Exchange traded funds | 4,935 | — | — | — | 4,935 | ||||||||||
U.S. government bonds | — | 3,361 | — | — | 3,361 | ||||||||||
Corporate bonds | — | 10,227 | — | — | 10,227 | ||||||||||
Other | — | 1,880 | — | — | 1,880 | ||||||||||
Total investments | 372,451 | 61,225 | — | 40,585 | 474,261 | ||||||||||
Investments for deferred compensation: | |||||||||||||||
Mutual funds | 153,450 | — | — | — | 153,450 | ||||||||||
Total assets at fair value | $ | 525,901 | 61,225 | — | 40,585 | 627,711 | |||||||||
Liabilities: | |||||||||||||||
Contingent consideration (1) | $ | — | — | 22,593 | — | 22,593 | |||||||||
Derivatives | — | 963 | — | — | 963 | ||||||||||
Consolidated investment funds: | |||||||||||||||
Derivatives | — | 500 | — | — | 500 | ||||||||||
Total liabilities at fair value | $ | — | 1,463 | 22,593 | — | 24,056 |
December 31, 2017 | ||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||
Assets: | ||||||||||||
Investments: | ||||||||||||
Mutual funds | $ | 244,651 | — | — | 244,651 | |||||||
Common stock | 7,186 | 953 | — | 8,139 | ||||||||
Foreign government bonds | — | 2,946 | — | 2,946 | ||||||||
Other | 464 | 2,064 | — | 2,528 | ||||||||
Consolidated investment funds: | ||||||||||||
Mutual funds | 18,497 | — | — | 18,497 | ||||||||
Common stock | 205,309 | 36,368 | — | 241,677 | ||||||||
Foreign government bonds | — | 5,297 | — | 5,297 | ||||||||
Other | — | 1,317 | — | 1,317 | ||||||||
Total investments | 476,107 | 48,945 | — | 525,052 | ||||||||
Investments for deferred compensation: | ||||||||||||
Mutual funds | 178,504 | — | — | 178,504 | ||||||||
Total assets at fair value | $ | 654,611 | 48,945 | — | 703,556 | |||||||
Liabilities: | ||||||||||||
Contingent consideration (1) | $ | — | — | 20,159 | 20,159 | |||||||
Derivatives | — | 9,064 | — | 9,064 | ||||||||
Consolidated investment funds: | ||||||||||||
Derivatives | — | 334 | — | 334 | ||||||||
Total liabilities at fair value | $ | — | 9,398 | 20,159 | 29,557 |
(10) | Variable Interest Entities |
December 31, 2018 | ||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||
Assets: | ||||||||||||
Investments: | ||||||||||||
Common stock | $ | 101,936 | 77,813 | — | 179,749 | |||||||
Foreign government bonds | — | 107,353 | — | 107,353 | ||||||||
Corporate bonds | — | 18,426 | — | 18,426 | ||||||||
Other | — | 750 | — | 750 | ||||||||
Total assets at fair value | $ | 101,936 | 204,342 | — | 306,278 | |||||||
Liabilities: | ||||||||||||
Other liabilities: | ||||||||||||
Currency forwards | $ | — | 559 | — | 559 | |||||||
Total liabilities at fair value | $ | — | 559 | — | 559 |
December 31, 2017 | ||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||
Assets: | ||||||||||||
Investments: | ||||||||||||
Common stock | $ | 80,093 | 81,179 | — | 161,272 | |||||||
Foreign government bonds | — | 96,402 | — | 96,402 | ||||||||
Corporate bonds | — | 6,484 | — | 6,484 | ||||||||
Other | — | 1,064 | — | 1,064 | ||||||||
Total assets at fair value | $ | 80,093 | 185,129 | — | 265,222 | |||||||
Liabilities: | ||||||||||||
Other liabilities: | ||||||||||||
Swaps | $ | — | 410 | — | 410 | |||||||
Currency forwards | — | 82 | — | 82 | ||||||||
Total liabilities at fair value | $ | — | 492 | — | 492 |
(11) | Income Taxes |
Years ended December 31, | |||||||||
2018 | 2017 | 2016 | |||||||
Income tax provision (benefit): | |||||||||
Current: | |||||||||
Federal | $ | 143,374 | 194,171 | 158,510 | |||||
State and other | (4,817 | ) | 19,502 | 13,975 | |||||
Total current | 138,557 | 213,673 | 172,485 | ||||||
Deferred: | |||||||||
Federal | (10,089 | ) | 2,091 | (1,553 | ) | ||||
State and other | (457 | ) | 848 | 1,178 | |||||
Total deferred | (10,546 | ) | 2,939 | (375 | ) | ||||
Total income tax provision | $ | 128,011 | 216,612 | 172,110 |
2018 | 2017 | |||||||||||||
Amount | Percentage | Amount | Percentage | |||||||||||
Provision for income taxes at U.S. federal rate | $ | 138,614 | 21.0 | % | $ | 207,866 | 35.0 | % | ||||||
State and local taxes, net of federal effect | 5,958 | 0.9 | 8,979 | 1.5 | ||||||||||
Permanent differences | (3,440 | ) | (0.5 | ) | (3,150 | ) | (0.5 | ) | ||||||
Changes in liability for income tax uncertainties | (10,005 | ) | (1.5 | ) | 3,570 | 0.6 | ||||||||
Change in valuation allowance | (1,541 | ) | (0.2 | ) | 504 | 0.1 | ||||||||
Corporate tax rate reduction | — | — | (894 | ) | (0.2 | ) | ||||||||
Other, net | (1,575 | ) | (0.3 | ) | (263 | ) | — | |||||||
Total | $ | 128,011 | 19.4 | % | $ | 216,612 | 36.5 | % |
2016 | |||||||
Amount | Percentage | ||||||
Provision for income taxes at U.S. federal rate | $ | 178,297 | 35.0 | % | |||
State and local taxes, net of federal effect | 7,287 | 1.4 | |||||
Permanent differences | (15,564 | ) | (3.1 | ) | |||
Changes in liability for income tax uncertainties | 2,295 | 0.5 | |||||
Change in valuation allowance | (355 | ) | (0.1 | ) | |||
Other, net | 150 | — | |||||
Total | $ | 172,110 | 33.7 | % |
As of December 31, | ||||||
2018 | 2017 | |||||
Deferred tax assets: | ||||||
Deferred compensation arrangements | $ | 30,967 | 34,148 | |||
Federal and State net operating losses | 24,789 | 27,337 | ||||
Share-based payment arrangements | 25,389 | 23,939 | ||||
Unrealized losses on investments | 9,490 | — | ||||
Accrued expenses | 340 | 579 | ||||
Other | 4,414 | 7,390 | ||||
Gross deferred tax assets | 95,389 | 93,393 | ||||
Less valuation allowance | (10,842 | ) | (12,383 | ) | ||
Total deferred tax assets | 84,547 | 81,010 |
As of December 31, | ||||||
2018 | 2017 | |||||
Deferred tax liabilities: | ||||||
Goodwill and intangible assets | 48,596 | 47,267 | ||||
Deferred sales commissions | 1,558 | 2,048 | ||||
Unrealized gains on investments | — | 9,482 | ||||
Fixed assets | 10,349 | 7,041 | ||||
Other | 2,308 | 3,982 | ||||
Gross deferred tax liabilities | 62,811 | 69,820 | ||||
Net deferred tax assets | $ | 21,736 | 11,190 |
Balance at December 31, 2016 | $ | 41,771 | ||
Gross decreases - prior period tax positions | (2,874 | ) | ||
Gross increases - current year tax positions | 8,341 | |||
Balance at December 31, 2017 | 47,238 | |||
Gross decreases - prior period tax positions | (22,571 | ) | ||
Gross increases - current year tax positions | 8,499 | |||
Balance at December 31, 2018 | $ | 33,166 |
(12) | Shareholders’ Equity |
(a) | Common Stock |
(b) | Treasury Shares |
(c) | Share‑Based Payment Arrangements |
2018 | 2017 | 2016 | |||
Expected volatility | 4.1%-4.8% | 4.4%-5.0% | 4.5%-4.9% | ||
Expected term | 3.5-5.0 years | 3.5-5.0 years | 3.5-5.0 years | ||
Risk-free rate of return | 2.6%-2.9% | 1.7%-1.9% | 1.0%-1.2% | ||
Expected dividends | None | None | None |
Stock settled SAR | Number of share units | Weighted average exercise price | Weighted average remaining contractual term | ||||||
(Thousands) | (Whole $) | (Years) | |||||||
Outstanding at January 1, 2018 | 2,654 | $ | 98 | ||||||
Granted | 359 | 111 | |||||||
Exercised | (337 | ) | 85 | ||||||
Forfeited | (59 | ) | 107 | ||||||
Expired | (123 | ) | 54 | ||||||
Outstanding at December 31, 2018 | 2,494 | 100 | 3.1 | ||||||
Exercisable at December 31, 2018 | 1,807 | $ | 99 | 2.5 |
Equity classified NVS | Number of shares | Weighted average grant date fair value | |||||
(Thousands) | (Whole $) | ||||||
Nonvested at January 1, 2018 | 1,406 | $ | 101 | ||||
Granted | 436 | 110 | |||||
Vested | (303 | ) | 99 | ||||
Forfeited | (108 | ) | 102 | ||||
Nonvested at December 31, 2018 | 1,431 | 104 |
PRU | Number of share units | Weighted average remaining contractual term | ||||
(Thousands) | (Years) | |||||
Outstanding at January 1, 2018 | 141 | — | ||||
Granted | 45 | — | ||||
Exercised | (47 | ) | — | |||
Forfeited | (12 | ) | — | |||
Outstanding at December 31, 2018 | 127 | 1.5 | ||||
Exercisable at December 31, 2018 | — | — |
Years ended December 31, | |||||||
2018 | 2017 | 2016 | |||||
Weighted average grant date fair value of S-SARs granted during the year (whole $), per unit | $ | 13 | 8 | 7 | |||
Weighted average grant date fair value of equity classified NVS granted during the year (whole $), per unit | 110 | 96 | 103 | ||||
Intrinsic value of S-SARs exercised | 7,665 | 3,429 | 40,006 | ||||
Intrinsic value of PRUs settled via cash payment | 5,015 | 4,021 | 5,212 | ||||
Intrinsic value of NVS that vested during the year | 32,959 | 28,203 | 35,468 |
(13) | Secured Demand Notes |
(14) | Corporate Revolving Credit Facility |
(15) | Commitments and Contingencies |
Mass Mutual | Other | Total | |||||||
Year ending December 31: | |||||||||
2019 | $ | 1,441 | 18,057 | 19,498 | |||||
2020 | 1,447 | 17,263 | 18,710 | ||||||
2021 | 849 | 17,412 | 18,261 | ||||||
2022 | — | 17,369 | 17,369 | ||||||
2023 | — | 17,603 | 17,603 | ||||||
Thereafter | — | 88,572 | 88,572 | ||||||
Total | 3,737 | 176,276 | 180,013 | ||||||
Less sublease | 1,146 | 1,242 | 2,388 | ||||||
Net | $ | 2,591 | 175,034 | 177,625 | |||||
(16) | Net Capital Requirements |
(17) | Discontinued Operations |
Years ended December 31, | |||||||||
2018 | 2017 | 2016 | |||||||
Expenses: | |||||||||
General and administrative expenses | $ | 468 | (1,063 | ) | 5,547 | ||||
Total expenses | 468 | (1,063 | ) | 5,547 | |||||
Income (loss) before income taxes | (468 | ) | 1,063 | (5,547 | ) | ||||
Income tax expense (benefit) | 61 | 394 | (57,080 | ) | |||||
Net income (loss) | $ | (529 | ) | 669 | 51,533 |
As of December 31, | ||||||
2018 | 2017 | |||||
Assets: | ||||||
Cash and cash equivalents | $ | 218 | 1,200 | |||
Equity method investments | 33 | 919 | ||||
Deferred tax asset | 33 | 110 | ||||
Income tax receivable | — | 162 | ||||
Total assets | $ | 284 | 2,391 | |||
Liabilities: | ||||||
Accounts payable and accrued expenses | $ | 301 | 1,728 | |||
Income tax payable | 191 | — | ||||
Other | 1,084 | 1,047 | ||||
Total liabilities | $ | 1,576 | 2,775 |
(18) | Litigation |
(19) | Subsequent Events |
As of | ||||||
March 31, 2019 | December 31, 2018 | |||||
Assets | ||||||
Cash and cash equivalents | $ | 431,769 | 608,205 | |||
Accounts receivable: | ||||||
Management and investment advisory service fees | 25,006 | 23,414 | ||||
Distribution and service plan fees | 20,759 | 19,768 | ||||
Other | 28,621 | 29,569 | ||||
Investments | 54,085 | 475,349 | ||||
Investments for deferred compensation arrangements | 166,711 | 153,450 | ||||
Deferred sales commissions | 6,466 | 6,885 | ||||
Property and equipment, less accumulated depreciation | 107,931 | 111,899 | ||||
Goodwill | 610,468 | 610,468 | ||||
Intangible assets | 92,637 | 92,673 | ||||
Secured demand notes receivable | 100,000 | 100,000 | ||||
Net deferred tax assets | 5,510 | 21,736 | ||||
Prepaid assets | 22,739 | 19,401 | ||||
Assets related to discontinued operations | 567 | 284 | ||||
Total assets before consolidated variable interest entities | 1,673,269 | 2,273,101 | ||||
Assets of consolidated variable interest entities: | ||||||
Cash | 3,956 | 33,635 | ||||
Investments | 46,491 | 306,278 | ||||
Other assets | 140 | 4,346 | ||||
Total assets of consolidated variable interest entities | 50,587 | 344,259 | ||||
Total assets | $ | 1,723,856 | 2,617,360 |
As of | ||||||
March 31, 2019 | December 31, 2018 | |||||
Liability and Shareholders' Equity | ||||||
Liabilities: | ||||||
Distribution and service plan fee payable | $ | 64,046 | 65,232 | |||
Accounts payable and accrued expenses | 93,741 | 98,567 | ||||
Accrued compensation | 81,083 | 244,100 | ||||
Deferred compensation arrangements | 143,758 | 139,409 | ||||
Note payable | 50,416 | 50,073 | ||||
Notes payable under subordinated secured demand note collateral agreement | 100,000 | 100,000 | ||||
Income taxes payable | 77,930 | 108,480 | ||||
Other | 72,874 | 76,588 | ||||
Liabilities related to discontinued operations | 1,396 | 1,576 | ||||
Total liabilities before consolidated variable interest entities | 685,244 | 884,025 | ||||
Liabilities of consolidated variable interest entities: | ||||||
Other liabilities | 117 | 6,215 | ||||
Total liabilities of consolidated variable interest entities | 117 | 6,215 | ||||
Total liabilities | 685,361 | 890,240 | ||||
Commitments and contingencies (See Note 14) | ||||||
Temporary equity: | ||||||
Redeemable noncontrolling interests in consolidated entities | 100 | 114,509 | ||||
Permanent equity: | ||||||
Class A common stock – voting; $0.001 par value. Authorized, issued, and outstanding 21,600,000 shares in 2019 and 2018 | 22 | 22 | ||||
Class B common stock – voting; $0.001 par value. Authorized 18,400,000 shares; issued 14,030,901 shares; and outstanding 13,013,900 shares in 2019 and 2018 | 14 | 14 | ||||
Class C common stock – nonvoting; $0.001 par value. Authorized 45,000,000 shares; issued 27,325,840 and 27,154,569 shares; and outstanding 23,310,119 and 23,745,437 shares in 2019 and 2018, respectively | 27 | 27 | ||||
Additional paid-in capital | 1,024,587 | 1,034,887 | ||||
Accumulated other comprehensive loss | (1,073 | ) | (1,073 | ) | ||
Retained earnings | 440,121 | 931,647 | ||||
Treasury stock, Class B common: 1,017,001 shares; and Class C common: 4,015,722 and 3,409,133 shares in 2019 and 2018, respectively | (425,303 | ) | (352,913 | ) | ||
Total permanent equity | 1,038,395 | 1,612,611 | ||||
Total liabilities, temporary and permanent equity | $ | 1,723,856 | 2,617,360 |
2019 | 2018 | |||||
Revenue: | ||||||
Management and investment advisory service fees | $ | 336,290 | 380,047 | |||
Transfer agency revenue | 70,577 | 80,871 | ||||
Distribution and service plan fees | 89,535 | 105,430 | ||||
Other | 9,831 | 10,865 | ||||
Total revenue | 506,233 | 577,213 | ||||
Operating expenses: | ||||||
Compensation and benefits | 178,617 | 171,909 | ||||
Selling, general and administrative | 136,882 | 143,452 | ||||
Distribution and service plan expenses | 85,473 | 99,241 | ||||
Amortization of deferred sales commissions | 3,868 | 5,165 | ||||
Total operating expenses | 404,840 | 419,767 | ||||
Operating income | 101,393 | 157,446 | ||||
Other income (expense): | ||||||
Net investment gains (losses) | 19,075 | (2,406 | ) | |||
Dividends and interest income | 5,202 | 6,990 | ||||
Interest expense | (872 | ) | (617 | ) | ||
Income from continuing operations before income taxes | 124,798 | 161,413 | ||||
Income tax provision (benefit): | ||||||
Current | 7,623 | 36,128 | ||||
Deferred | 16,226 | 1,214 | ||||
Total income tax provision from continuing operations | 23,849 | 37,342 | ||||
Income from continuing operations | 100,949 | 124,071 | ||||
Loss from discontinued operations | (45 | ) | (90 | ) | ||
Net income | 100,904 | 123,981 | ||||
Net income (loss) attributable to noncontrolling interest | 54 | (1,065 | ) | |||
Net income attributable to OAC | $ | 100,850 | 125,046 |
Equity attributable to OAC shareholders | Redeemable noncontrolling interests in consolidated entities Temporary equity | |||||||||||||||||||||||||||||||||||||||
Common stock | ||||||||||||||||||||||||||||||||||||||||
Class A shares outstanding | Amount | Class B shares outstanding | Amount | Class C shares outstanding | Amount | Additional paid-in capital | Accumulated other comprehensive loss | Retained earnings | Treasury stock | Total permanent equity | ||||||||||||||||||||||||||||||
Balances, December 31, 2018 | 21,600 | $ | 22 | 13,014 | $ | 14 | 23,745 | $ | 27 | 1,034,887 | (1,073 | ) | 931,647 | (352,913 | ) | 1,612,611 | 114,509 | |||||||||||||||||||||||
Share-based payment arrangements, net | — | — | — | — | 171 | — | (10,300 | ) | — | — | — | (10,300 | ) | — | ||||||||||||||||||||||||||
Dividends declared | — | — | — | — | — | — | — | — | (592,376 | ) | — | (592,376 | ) | — | ||||||||||||||||||||||||||
Repurchase of treasury stock | — | — | — | — | (606 | ) | — | — | — | — | (72,390 | ) | (72,390 | ) | — | |||||||||||||||||||||||||
Issuance of common stock from treasury | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
Noncontrolling interest subscriptions | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
Noncontrolling interest distributions | — | — | — | — | — | — | — | — | — | — | — | (114,463 | ) | |||||||||||||||||||||||||||
Net income attributable to noncontrolling interest | — | — | — | — | — | — | — | — | — | — | — | 54 | ||||||||||||||||||||||||||||
Net income attributable to OAC | — | — | — | — | — | — | — | — | 100,850 | — | 100,850 | — | ||||||||||||||||||||||||||||
Balances, March 31, 2019 | 21,600 | $ | 22 | 13,014 | $ | 14 | 23,310 | $ | 27 | 1,024,587 | (1,073 | ) | 440,121 | (425,303 | ) | $ | 1,038,395 | $ | 100 |
Equity attributable to OAC shareholders | Redeemable noncontrolling interests in consolidated entities Temporary equity | |||||||||||||||||||||||||||||||||||||||
Common stock | Accumulated other comprehensive loss | |||||||||||||||||||||||||||||||||||||||
Class A shares outstanding | Amount | Class B shares outstanding | Amount | Class C shares outstanding | Amount | Additional paid-in capital | Retained earnings | Treasury stock | Total permanent equity | |||||||||||||||||||||||||||||||
Balances, December 31, 2017 | 21,600 | $ | 22 | 13,014 | $ | 14 | 23,541 | $ | 27 | 1,004,234 | (1,073 | ) | 814,220 | (346,613 | ) | 1,470,831 | 68,233 | |||||||||||||||||||||||
Share-based payment arrangements, net | — | — | — | — | 51 | — | 5,075 | — | — | — | 5,075 | — | ||||||||||||||||||||||||||||
Dividends declared | — | — | — | — | — | — | — | — | 443 | — | 443 | — | ||||||||||||||||||||||||||||
Repurchase of treasury stock | — | — | — | — | (46 | ) | — | — | — | — | (4,563 | ) | (4,563 | ) | — | |||||||||||||||||||||||||
Issuance of common stock from treasury | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
Noncontrolling interest subscriptions | — | — | — | — | — | — | — | — | — | — | — | 43,607 | ||||||||||||||||||||||||||||
Noncontrolling interest distributions | — | — | — | — | — | — | — | — | — | — | — | (40,221 | ) | |||||||||||||||||||||||||||
Net income attributable to noncontrolling interest | — | — | — | — | — | — | — | — | — | — | — | (1,065 | ) | |||||||||||||||||||||||||||
Net income attributable to OAC | — | — | — | — | — | — | — | — | 125,046 | — | 125,046 | — | ||||||||||||||||||||||||||||
Balances, March 31, 2018 | 21,600 | $ | 22 | 13,014 | $ | 14 | 23,546 | $ | 27 | 1,009,309 | (1,073 | ) | 939,709 | (351,176 | ) | $ | 1,596,832 | $ | 70,554 |
2019 | 2018 | |||||
Continuing operations: | ||||||
Cash flows provided by (used in) operating activities of continuing operations: | ||||||
Income from continuing operations | $ | 100,949 | 124,071 | |||
Adjustments to reconcile income from continuing operations to cash provided by (used in) operating activities | ||||||
Unrealized gain on investments | (38,817 | ) | (8,136 | ) | ||
Realized loss on investments | 36,105 | 15,584 | ||||
Depreciation and amortization | 6,287 | 5,451 | ||||
Share-based payment arrangements | 9,622 | 9,186 | ||||
Deferred income taxes | 16,226 | 1,214 | ||||
Amortization of deferred sales commissions | 3,868 | 5,165 | ||||
Changes in operating assets and liabilities before consolidated variable interest entities | ||||||
Management and investment advisory service fees receivable | (1,592 | ) | (1,037 | ) | ||
Distribution and service plan fees receivable | (991 | ) | 374 | |||
Other receivable | (541 | ) | 9,670 | |||
Investments | 601,219 | 12,210 | ||||
Investments for deferred compensation arrangements | (13,261 | ) | 9,956 | |||
Deferred sales commissions | (3,449 | ) | (4,917 | ) | ||
Other assets | (3,496 | ) | 1,954 | |||
Distribution and service plan fee payable | (1,186 | ) | (1,225 | ) | ||
Accounts payable and accrued expenses | (4,826 | ) | (16,976 | ) | ||
Accrued compensation | (164,207 | ) | (125,473 | ) | ||
Deferred compensation arrangements | 4,349 | (6,150 | ) | |||
Income taxes payable | (31,058 | ) | 17,881 | |||
Other liabilities | (9,011 | ) | 4,474 | |||
Changes in operating assets and liabilities of consolidated variable interest entities | (468 | ) | (9,089 | ) | ||
Cash provided by operating activities of continuing operations | 505,722 | 44,187 | ||||
Cash flows used in investing activities of continuing operations: | ||||||
Purchase of property and equipment | (2,283 | ) | (2,594 | ) | ||
Cash used in investing activities of continuing operations | (2,283 | ) | (2,594 | ) | ||
Cash flows provided by (used in) financing activities of continuing operations: | ||||||
Increase (decrease) in noncontrolling interests | (13 | ) | 9,136 | |||
Payments related to tax withholding on share-based payment compensation | (18,732 | ) | (2,593 | ) | ||
Repurchase of treasury stock | (72,390 | ) | (4,563 | ) | ||
Dividends paid | (579,080 | ) | (582 | ) | ||
Payment of contingent consideration | (6,956 | ) | — | |||
Cash provided by (used in) financing activities of continuing operations | (677,171 | ) | 1,398 | |||
Increase (decrease) in cash and cash equivalents of continuing operations | (173,732 | ) | 42,991 | |||
Cash and cash equivalents of continuing operations, beginning of year | 608,205 | 414,778 | ||||
Cash effect of investment deconsolidation of continuing operations | (2,704 | ) | (6 | ) | ||
Cash and cash equivalents of continuing operations, end of year | $ | 431,769 | 457,763 | |||
Discontinued operations: | ||||||
Cash used in operating activities of discontinued operations | $ | (71 | ) | (95 | ) | |
Decrease in cash and cash equivalents of discontinued operations | (71 | ) | (95 | ) | ||
Cash and cash equivalents of discontinued operations, beginning of year | 218 | 1,200 | ||||
Cash and cash equivalents of discontinued operations, end of year | $ | 147 | 1,105 | |||
Supplemental cash flow information for continuing operations: | ||||||
Taxes paid | 38,173 | 18,535 |
(1) | The Company and its Significant Accounting Policies |
• | OFI owns: |
– | OFI Global Asset Management, Inc. |
– | OppenheimerFunds Distributor, Inc. (OFDI) |
– | Shareholder Services, Inc. |
– | OFI Private Investments, Inc. |
– | OFI SteelPath, Inc. |
– | Oppenheimer Real Asset Management, Inc. |
– | OFI Advisors, LLC (previously VTL Associates, LLC) owns: |
• | Index Management Solutions, LLC |
– | OFI Global Institutional, Inc. owns: |
• | HarborView Asset Management Corporation (HVAMC) |
• | OFI Global Trust Company |
• | Trinity Investment Management Corporation |
• | OFI International Ltd. |
• | SNW Asset Management Corporation owns: |
◦ | SNW Asset Management, LLC |
• | Tremont owns: |
– | Tremont Partners, LLC |
– | Tremont GP, LLC |
– | Tremont (Bermuda) Limited |
(a) | Principles of Consolidation |
(b) | Cash and Cash Equivalents |
(c) | Limited Purpose Broker/Dealer |
(d) | Investments |
(e) | Fair Value Measurements |
(f) | Derivatives |
(g) | Property and Equipment |
Depreciation life (in whole years) | |||||||
March 31, 2019 | December 31, 2018 | ||||||
Hardware and software | 3-5 | $ | 141,872 | 139,589 | |||
Furniture, fixtures, and equipment | 3-5 | 32,245 | 32,245 | ||||
Leasehold improvements | 5-15 | 71,957 | 71,957 | ||||
Buildings | 5-30 | 35,927 | 35,927 | ||||
Land | 2,572 | 2,572 | |||||
284,573 | 282,290 | ||||||
Less accumulated depreciation | (176,642 | ) | (170,391 | ) | |||
Total | $ | 107,931 | 111,899 |
(h) | Goodwill and Intangible Assets |
(i) | Deferred Sales Commissions |
(j) | Share‑Based Payment Arrangements |
(k) | Income Taxes |
(l) | Estimates |
(m) | Advertising |
(n) | Recently Issued Accounting Pronouncements |
(2) | Revenue Recognition |
Three months ended March 31, 2019 | Management and investment advisory service fees | Transfer agency revenue | Distribution and service plan fees | Other revenue | Total revenue | |||
U.S. mutual funds | $306,715 | $70,577 | $89,535 | $4,033 | $470,860 | |||
Sub-advisory agreements | 11,926 | — | — | — | 11,926 | |||
Other products | 17,649 | — | — | 5,798 | 23,447 | |||
Total revenue | $336,290 | $70,577 | $89,535 | $9,831 | $506,233 |
Three months ended March 31, 2018 | Management and investment advisory service fees | Transfer agency revenue | Distribution and service plan fees | Other revenue | Total revenue | |||
U.S. mutual funds | $346,668 | $80,871 | $105,430 | $4,910 | $537,879 | |||
Sub-advisory agreements | 16,516 | — | — | — | 16,516 | |||
Other products | 16,863 | — | — | 5,955 | 22,818 | |||
Total revenue | $380,047 | $80,871 | $105,430 | $10,865 | $577,213 |
(3) | Goodwill and Intangible Assets |
Balance as of January 1, 2018 | |||
Goodwill | $ | 730,381 | |
Accumulated impairment losses | (120,000 | ) | |
Net goodwill balance as of January 1, 2018 | 610,381 | ||
Adjustment to acquired goodwill | 87 | ||
Balance as of December 31, 2018 | |||
Goodwill | 730,468 | ||
Accumulated impairment losses | (120,000 | ) | |
Net goodwill balance as of December 31, 2018 | 610,468 | ||
Adjustment to acquired goodwill | — | ||
Balance as of March 31, 2019 | |||
Goodwill | 730,468 | ||
Accumulated impairment losses | (120,000 | ) | |
Net goodwill balance as of March 31, 2019 | $ | 610,468 |
(4) | Related Parties |
(a) | Officers, Directors, and Shareholders of the Company |
(b) | Broker/Dealer Commissions |
(c) | Revenue‑Sharing and Servicing Arrangements |
(d) | Distribution and Service Plan Fees |
(e) | Management and Investment Advisory Services |
(f) | Dividend |
(g) | Treasury Stock |
(h) | Note Payable |
(5) | Employee Benefit Plan |
(6) | Deferred Compensation Arrangements |
(7) | Investments |
(a) | Fair Value Investments |
(b) | Equity Method Investments |
(c) | Derivatives |
Assets | |||||||||||||
March 31, 2019 | December 31, 2018 | ||||||||||||
Balance sheet location | Carrying Value | Notional amount | Carrying Value | Notional amount | |||||||||
Swaps | Investments | $ | — | — | 15,711 | 452,809 | |||||||
Derivatives from consolidated funds: | |||||||||||||
Swaps | Investments | — | — | 244 | 5,353 | ||||||||
Options | Investments | — | — | 3 | 4,032 | ||||||||
Total | |||||||||||||
$ | — | — | 15,958 | 462,194 |
Liabilities | |||||||||||||
March 31, 2019 | December 31, 2018 | ||||||||||||
Balance sheet location | Carrying Value | Notional amount | Carrying Value | Notional amount | |||||||||
Currency forwards | Other liabilities | $ | 45 | 7,676 | 963 | 101,558 | |||||||
Derivatives from consolidated funds: | |||||||||||||
Swaps | Other liabilities | — | — | 206 | 5,088 | ||||||||
Currency forwards | Other liabilities | — | — | 291 | 47,503 | ||||||||
Options | Other liabilities | — | — | 3 | 334 | ||||||||
Total | $ | 45 | 7,676 | 1,463 | 154,483 |
(8) | Fair Value of Financial Instruments |
March 31, 2019 | ||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||
Assets: | ||||||||||||
Investments: | ||||||||||||
Mutual funds | $ | 52,282 | — | — | 52,282 | |||||||
Common stock | 303 | — | — | 303 | ||||||||
Other | 86 | — | — | 86 | ||||||||
Total investments | 52,671 | — | — | 52,671 | ||||||||
Investments for deferred compensation | ||||||||||||
Mutual funds | 166,711 | — | — | 166,711 | ||||||||
Total assets at fair value | $ | 219,382 | — | — | 219,382 | |||||||
Liabilities: | ||||||||||||
Contingent consideration (1) | $ | — | — | 16,154 | 16,154 | |||||||
Derivatives | — | 45 | — | 45 | ||||||||
Total liabilities at fair value | $ | — | 45 | 16,154 | 16,199 |
December 31, 2018 | |||||||||||||||
Level 1 | Level 2 | Level 3 | Valued at net asset value | Total | |||||||||||
Assets: | |||||||||||||||
Investments: | |||||||||||||||
Mutual funds | $ | 176,532 | — | — | 40,585 | 217,117 | |||||||||
Common stock | 7,047 | 569 | — | — | 7,616 | ||||||||||
Derivatives | — | 15,711 | — | — | 15,711 | ||||||||||
Other | 282 | — | — | — | 282 | ||||||||||
Consolidated investment funds: | |||||||||||||||
Mutual funds | 14,239 | 2,642 | — | — | 16,881 | ||||||||||
Common stock | 169,416 | 26,835 | — | — | 196,251 | ||||||||||
Exchange traded funds | 4,935 | — | — | — | 4,935 | ||||||||||
U.S. government bonds | — | 3,361 | — | — | 3,361 | ||||||||||
Corporate bonds | — | 10,227 | — | — | 10,227 | ||||||||||
Other | — | 1,880 | — | — | 1,880 | ||||||||||
Total investments | 372,451 | 61,225 | — | 40,585 | 474,261 | ||||||||||
Investments for deferred compensation | |||||||||||||||
Mutual funds | 153,450 | — | — | — | 153,450 | ||||||||||
Total assets at fair value | $ | 525,901 | 61,225 | — | 40,585 | 627,711 | |||||||||
Liabilities: | |||||||||||||||
Contingent consideration (1) | $ | — | — | 22,593 | — | 22,593 | |||||||||
Derivatives | — | 963 | — | — | 963 | ||||||||||
Consolidated investment funds: | |||||||||||||||
Derivatives | — | 500 | — | — | 500 | ||||||||||
Total liabilities at fair value | $ | — | 1,463 | 22,593 | — | 24,056 |
(9) | Variable Interest Entities |
March 31, 2019 | ||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||
Assets: | ||||||||||||
Investments: | ||||||||||||
Common stock | $ | 2,250 | 19,378 | — | 21,628 | |||||||
Foreign government bonds | — | 4,270 | — | 4,270 | ||||||||
Corporate bonds | — | 20,569 | — | 20,569 | ||||||||
Other | — | 24 | — | 24 | ||||||||
Total assets at fair value | $ | 2,250 | 44,241 | — | 46,491 |
December 31, 2018 | ||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||
Assets: | ||||||||||||
Investments: | ||||||||||||
Common stock | $ | 101,936 | 77,813 | — | 179,749 | |||||||
Foreign government bonds | — | 107,353 | — | 107,353 | ||||||||
Corporate bonds | — | 18,426 | — | 18,426 | ||||||||
Other | — | 750 | — | 750 | ||||||||
Total assets at fair value | $ | 101,936 | 204,342 | — | 306,278 | |||||||
Liabilities: | ||||||||||||
Other liabilities: | ||||||||||||
Currency forwards | $ | — | 559 | — | 559 | |||||||
Total liabilities at fair value | $ | — | 559 | — | 559 |
(10) | Income Taxes |
March 31, 2019 | March 31, 2018 | |||||
Income tax provision (benefit): | ||||||
Current: | ||||||
Federal | $ | 6,320 | 32,399 | |||
State and other | 1,303 | 3,729 | ||||
Total current | 7,623 | 36,128 | ||||
Deferred: | ||||||
Federal | 14,675 | 1,114 | ||||
State and other | 1,551 | 100 | ||||
Total deferred | 16,226 | 1,214 | ||||
Total income tax provision | $ | 23,849 | 37,342 |
March 31, 2019 | March 31, 2018 | |||||||||||||
Amount | Percentage | Amount | Percentage | |||||||||||
Provision for income taxes at U.S. federal rate | $ | 26,196 | 21.0 | % | $ | 34,120 | 21.0 | % | ||||||
State and local taxes, net of federal effect | 1,803 | 1.5 | 2,810 | 1.7 | ||||||||||
Permanent differences | (4,542 | ) | (3.6 | ) | (122 | ) | (0.1 | ) | ||||||
Changes in liability for income tax uncertainties | 474 | 0.4 | 445 | 0.3 | ||||||||||
Other, net | (82 | ) | (0.2 | ) | 89 | 0.1 | ||||||||
Total | $ | 23,849 | 19.1 | % | $ | 37,342 | 23.0 | % |
March 31, 2019 | December 31, 2018 | |||||
Deferred tax assets: | ||||||
Deferred compensation arrangements | $ | 29,978 | 30,967 | |||
Federal and State net operating losses | 24,675 | 24,789 | ||||
Share-based payment arrangements | 23,567 | 25,389 | ||||
Unrealized losses on investments | — | 9,490 | ||||
Accrued expenses | 709 | 340 | ||||
Other | 4,071 | 4,414 | ||||
Gross deferred tax assets | 83,000 | 95,389 | ||||
Less valuation allowance | (10,842 | ) | (10,842 | ) | ||
Total deferred tax assets | 72,158 | 84,547 |
March 31, 2019 | December 31, 2018 | |||||
Deferred tax liabilities | ||||||
Goodwill and intangible assets | 49,375 | 48,596 | ||||
Deferred sales commissions | 1,464 | 1,558 | ||||
Unrealized gains on investments | 1,945 | — | ||||
Fixed assets | 10,205 | 10,349 | ||||
Other | 3,659 | 2,308 | ||||
Gross deferred tax liabilities | 66,648 | 62,811 | ||||
Net deferred tax assets | $ | 5,510 | 21,736 |
Balance at December 31, 2017 | $ | 47,238 | ||
Gross decreases - prior period tax positions | (22,571 | ) | ||
Gross increases - current year tax positions | 8,499 | |||
Balance at December 31, 2018 | 33,166 | |||
Gross decreases - prior period tax positions | (1,377 | ) | ||
Gross increases - current year tax positions | 2,000 | |||
Balance at March 31, 2019 | $ | 33,789 |
(11) | Shareholders’ Equity |
(a) | Common Stock |
(b) | Treasury Shares |
(c) | Share‑Based Payment Arrangements |
Stock settled SAR | Number of share units | Weighted average exercise price | Weighted average remaining contractual term | ||||||
(Thousands) | (Whole $) | (Years) | |||||||
Outstanding at January 1, 2019 | 2,494 | $ | 100 | ||||||
Granted | — | — | |||||||
Exercised | (1,651 | ) | 98 | ||||||
Forfeited | (16 | ) | 107 | ||||||
Expired | — | — | |||||||
Outstanding at March 31, 2019 | 827 | 109 | 4.3 | ||||||
Exercisable at March 31, 2019 | 167 | $ | 108 | 3.7 |
Equity classified NVS | Number of shares | Weighted average grant date fair value | |||||
(Thousands) | (Whole $) | ||||||
Nonvested at January 1, 2019 | 1,431 | $ | 104 | ||||
Granted | — | — | |||||
Vested | (40 | ) | 106 | ||||
Forfeited | (18 | ) | 104 | ||||
Nonvested at March 31, 2019 | 1,373 | 104 |
PRU | Number of share units | Weighted average remaining contractual term | ||||
(Thousands) | (Years) | |||||
Outstanding at January 1, 2019 | 127 | — | ||||
Granted | — | — | ||||
Exercised | — | — | ||||
Forfeited | (2 | ) | — | |||
Outstanding at March 31, 2019 | 125 | 1.3 | ||||
Exercisable at March 31, 2019 | — | — |
Three months ended March 31, | |||||
2019 | 2018 | ||||
Weighted average grant date fair value of equity classified NVS granted during the year (whole $), per unit | $ | — | 99 | ||
Intrinsic value of S-SARs exercised | 35,381 | 2,645 | |||
Intrinsic value of PRUs settled via cash payment | — | 440 | |||
Intrinsic value of NVS that vested | 4,816 | 5,059 |
(12) | Secured Demand Notes |
(13) | Corporate Revolving Credit Facility |
(14) | Commitments, Contingencies and Guarantees |
Mass Mutual | Other | Total | |||||||
2019 | $ | 1,081 | 13,631 | 14,712 | |||||
2020 | 1,447 | 17,263 | 18,710 | ||||||
2021 | 849 | 17,412 | 18,261 | ||||||
2022 | — | 17,369 | 17,369 | ||||||
2023 | — | 17,603 | 17,603 | ||||||
Thereafter | — | 88,572 | 88,572 | ||||||
Total | 3,377 | 171,850 | 175,227 | ||||||
Less sublease | 1,037 | 1,106 | 2,143 | ||||||
Net | $ | 2,340 | 170,744 | 173,084 | |||||
(15) | Net Capital Requirements |
(16) | Discontinued Operations |
March 31, 2019 | March 31, 2018 | |||||
Expenses: | ||||||
General and administrative expenses | $ | 89 | 61 | |||
Total expenses | 89 | 61 | ||||
Loss before income taxes | (89 | ) | (61 | ) | ||
Income tax expense (benefit) | (44 | ) | 29 | |||
Net loss | $ | (45 | ) | (90 | ) |
March 31, 2019 | December 31, 2018 | |||||
Assets: | ||||||
Cash and cash equivalents | $ | 147 | 218 | |||
Equity method investments | 24 | 33 | ||||
Deferred tax asset | 33 | 33 | ||||
Income tax receivable | 363 | — | ||||
Total assets | $ | 567 | 284 | |||
Liabilities: | ||||||
Accounts payable and accrued expenses | $ | 303 | 301 | |||
Income tax payable | — | 191 | ||||
Other | 1,093 | 1,084 | ||||
Total liabilities | $ | 1,396 | 1,576 |
(17) | Subsequent Events |
Historical | Pro Forma | Note | Pro Forma | ||||||||||||
in millions, except per share data | Invesco | OAC(A) | Adjustments | Reference(B) | Combined | ||||||||||
Operating revenues: | |||||||||||||||
Investment management fees | $ | 4,082.3 | $ | 1,489.8 | $ | — | $ | 5,572.1 | |||||||
Service and distribution fees | 968.5 | 719.0 | — | 1,687.5 | |||||||||||
Performance fees | 56.9 | — | — | 56.9 | |||||||||||
Other | 206.4 | 41.6 | — | 248.0 | |||||||||||
Total operating revenues | 5,314.1 | 2,250.4 | — | 7,564.5 | |||||||||||
Operating expenses: | |||||||||||||||
Third-party distribution, service and advisory | 1,608.2 | 672.3 | — | 2,280.5 | |||||||||||
Employee compensation | 1,494.4 | 609.0 | — | 2,103.4 | |||||||||||
Marketing | 134.8 | 53.0 | — | 187.8 | |||||||||||
Property, office and technology | 410.5 | 71.0 | (1.6 | ) | 7(a) | 479.9 | |||||||||
General and administrative | 324.4 | 182.4 | — | 506.8 | |||||||||||
Transaction, integration and restructuring | 136.9 | — | 24.6 | 7(b) | 161.5 | ||||||||||
Total operating expenses | 4,109.2 | 1,587.7 | 23.0 | 5,719.9 | |||||||||||
Operating income | 1,204.9 | 662.7 | (23.0 | ) | 1,844.6 | ||||||||||
Other income/(expense): | |||||||||||||||
Equity in earnings of unconsolidated affiliates | 33.8 | — | — | 33.8 | |||||||||||
Interest and dividend income | 21.3 | 46.1 | — | 67.4 | |||||||||||
Interest expense | (111.5 | ) | (2.6 | ) | 0.1 | 7(c) | (114.0 | ) | |||||||
Other gains and losses, net | (40.0 | ) | (61.8 | ) | — | (101.8 | ) | ||||||||
Other income/(expense) of CIP, net | 29.6 | — | — | 29.6 | |||||||||||
Income before income taxes | 1,138.1 | 644.4 | (22.9 | ) | 1,759.6 | ||||||||||
Income tax provision | (255.0 | ) | (128.0 | ) | 5.5 | 7(d) | (377.5 | ) | |||||||
Net income | 883.1 | 516.4 | (17.4 | ) | 1,382.1 | ||||||||||
Net (income)/loss attributable to noncontrolling interests in consolidated entities | (0.3 | ) | 15.6 | (15.6 | ) | 7(e) | (0.3 | ) | |||||||
Dividends declared on preferred shares | — | — | (236.6 | ) | 7(f) | (236.6 | ) | ||||||||
Net income attributable to Invesco Ltd. | $ | 882.8 | $ | 532.0 | $ | (269.6 | ) | $ | 1,145.2 | ||||||
Earnings per share: | |||||||||||||||
-basic: | $2.14 | 9 | $2.35 | ||||||||||||
-diluted: | $2.14 | 9 | $2.32 | ||||||||||||
Weighted average shares outstanding: | |||||||||||||||
- basic: | 412.4 | 75.7 | 9 | 488.1 | |||||||||||
- diluted: | 412.5 | 81.9 | 9 | 494.4 | |||||||||||
Historical | Pro Forma | Note | Pro Forma | ||||||||||||
in millions, except per share data | Invesco | OAC(A) | Adjustments | Reference(B) | Combined | ||||||||||
Operating revenues: | |||||||||||||||
Investment management fees | $ | 923.7 | $ | 336.3 | $ | — | $ | 1,260.0 | |||||||
Service and distribution fees | 219.3 | 160.1 | — | 379.4 | |||||||||||
Performance fees | 21.8 | — | — | 21.8 | |||||||||||
Other | 49.8 | 9.8 | — | 59.6 | |||||||||||
Total operating revenues | 1,214.6 | 506.2 | — | 1,720.8 | |||||||||||
Operating expenses: | |||||||||||||||
Third-party distribution, service and advisory | 368.0 | 150.4 | — | 518.4 | |||||||||||
Employee compensation | 381.3 | 178.6 | — | 559.9 | |||||||||||
Marketing | 28.0 | 9.2 | — | 37.2 | |||||||||||
Property, office and technology | 107.2 | 20.0 | (0.4 | ) | 7(a) | 126.8 | |||||||||
General and administrative | 83.8 | 46.6 | — | 130.4 | |||||||||||
Transaction, integration and restructuring | 46.1 | — | 5.7 | 7(b) | 51.8 | ||||||||||
Total operating expenses | 1,014.4 | 404.8 | 5.3 | 1,424.5 | |||||||||||
Operating income | 200.2 | 101.4 | (5.3 | ) | 296.3 | ||||||||||
Other income/(expense): | |||||||||||||||
Equity in earnings of unconsolidated affiliates | 15.0 | — | — | 15.0 | |||||||||||
Interest and dividend income | 4.7 | 5.2 | — | 9.9 | |||||||||||
Interest expense | (33.1 | ) | (0.9 | ) | 0.3 | 7(c) | (33.7 | ) | |||||||
Other gains and losses, net | 31.1 | 19.1 | — | 50.2 | |||||||||||
Other income/(expense) of CIP, net | 38.9 | — | — | 38.9 | |||||||||||
Income before income taxes | 256.8 | 124.8 | (5.0 | ) | 376.6 | ||||||||||
Income tax provision | (66.2 | ) | (23.9 | ) | 1.2 | 7(d) | (88.9 | ) | |||||||
Net income | 190.6 | 100.9 | (3.8 | ) | 287.7 | ||||||||||
Net (income)/loss attributable to noncontrolling interests in consolidated entities | (12.9 | ) | — | — | (12.9 | ) | |||||||||
Dividends declared on preferred shares | — | — | (59.2 | ) | 7(f) | (59.2 | ) | ||||||||
Net income attributable to Invesco Ltd. | $ | 177.7 | $ | 100.9 | $ | (63.0 | ) | $ | 215.6 | ||||||
Earnings per share: | |||||||||||||||
-basic | $0.44 | 9 | $0.45 | ||||||||||||
-diluted | $0.44 | 9 | $0.45 | ||||||||||||
Weighted average shares outstanding: | |||||||||||||||
- basic: | 401.6 | 75.7 | 9 | 477.3 | |||||||||||
- diluted: | 401.9 | 81.9 | 9 | 483.8 | |||||||||||
Historical | Pro Forma | Note | Pro Forma | ||||||||||||
in millions, except per share data | Invesco | OAC(A) | Adjustments | Reference(B) | Combined | ||||||||||
ASSETS | |||||||||||||||
Cash and cash equivalents | $ | 1,017.1 | $ | 432.0 | $ | (59.7 | ) | 8(a) | $ | 1,389.4 | |||||
Unsettled fund receivables | 474.6 | — | — | 474.6 | |||||||||||
Accounts receivable | 598.7 | 74.8 | (8.9 | ) | 8(b) | 664.6 | |||||||||
Investments | 640.9 | 220.8 | — | 861.7 | |||||||||||
Assets of consolidated investment products (CIP): | |||||||||||||||
Cash and cash equivalents of CIP | 251.2 | 4.0 | (4.0 | ) | 8(b) | 251.2 | |||||||||
Accounts receivable and other assets of CIP | 141.8 | 0.1 | (0.1 | ) | 8(b) | 141.8 | |||||||||
Investments of CIP | 6,728.1 | 46.5 | (46.5 | ) | 8(b) | 6,728.1 | |||||||||
Assets held for policyholders | 12,102.7 | — | — | 12,102.7 | |||||||||||
Prepaid assets | 116.8 | 29.2 | — | 146.0 | |||||||||||
Other assets | 292.8 | — | 169.0 | 8(c) | 461.8 | ||||||||||
Secured demand note receivable | — | 100.0 | (100.0 | ) | 8(b) | — | |||||||||
Deferred tax asset, net | — | 5.5 | (5.5 | ) | 8(h) | — | |||||||||
Property, equipment and software, net | 462.8 | 107.9 | 9.2 | 8(d) | 579.9 | ||||||||||
Intangible assets, net | 2,181.5 | 92.6 | 5,112.4 | 8(e) | 7,386.5 | ||||||||||
Goodwill | 7,197.6 | 610.5 | 583.0 | 8(f) | 8,391.1 | ||||||||||
Total assets | $ | 32,206.6 | $ | 1,723.9 | $ | 5,648.9 | $ | 39,579.4 | |||||||
LIABILITIES | |||||||||||||||
Accrued compensation and benefits | 340.2 | 224.9 | $ | — | 565.1 | ||||||||||
Accounts payable and accrued expenses | 1,250.6 | 310.0 | 150.8 | 8(g) | 1,711.4 | ||||||||||
Liabilities of CIP: | |||||||||||||||
Debt of CIP | 5,211.7 | — | — | 5,211.7 | |||||||||||
Other liabilities of CIP | 511.6 | 0.1 | (0.1 | ) | 8(b) | 511.6 | |||||||||
Policyholder payables | 12,102.7 | — | — | 12,102.7 | |||||||||||
Unsettled fund payables | 446.0 | — | — | 446.0 | |||||||||||
Note payable under subordinated secured demand note collateral agreement | — | 100.0 | (100.0 | ) | 8(b) | — | |||||||||
Long-term debt | 2,515.7 | 50.4 | (50.4 | ) | 8(b) | 2,515.7 | |||||||||
Deferred tax liabilities, net | 367.6 | — | 1,174.8 | 8(h) | 1,542.4 | ||||||||||
Total liabilities | 22,746.1 | 685.4 | 1,175.1 | 24,606.6 | |||||||||||
Commitments and contingencies | |||||||||||||||
TEMPORARY EQUITY | |||||||||||||||
Redeemable noncontrolling interests in consolidated entities | 451.1 | 0.1 | (0.1 | ) | 8(b) | 451.1 | |||||||||
PERMANENT EQUITY | |||||||||||||||
Equity attributable to Invesco Ltd.: | |||||||||||||||
Preferred shares, $0.20 par value; $1,000 liquidation preference; 4.0 million authorized, issued and outstanding pro forma | — | — | 4,010.4 | 8(i) | 4,010.4 | ||||||||||
Common shares (C) | 98.1 | — | 15.1 | 8(i) | 113.2 | ||||||||||
Additional paid-in-capital | 6,273.7 | 1,024.6 | 502.5 | 8(i) | 7,800.8 | ||||||||||
Treasury shares | (2,971.0 | ) | (425.3 | ) | 425.3 | 8(j) | (2,971.0 | ) | |||||||
Retained earnings | 5,942.1 | 440.1 | (480.4 | ) | 8(k) | 5,901.8 | |||||||||
Accumulated other comprehensive income/(loss), net of tax | (673.6 | ) | (1.0 | ) | 1.0 | 8(j) | (673.6 | ) | |||||||
Total equity attributable to Invesco Ltd. | 8,669.3 | 1,038.4 | 4,473.9 | 14,181.6 | |||||||||||
Equity attributable to nonredeemable noncontrolling interests in consolidated entities | 340.1 | — | — | 340.1 | |||||||||||
Total permanent equity | 9,009.4 | 1,038.4 | 4,473.9 | 14,521.7 | |||||||||||
Total liabilities, temporary and permanent equity | $ | 32,206.6 | $ | 1,723.9 | $ | 5,648.9 | $ | 39,579.4 | |||||||
in millions, except per share data | |||
Cash consideration | $ | 19.6 | |
Stock consideration | |||
Shareholders: | |||
Invesco common shares issued | 75.7 | ||
Fair value of Invesco common shares issued (a) | $ | 1,453.6 | |
Invesco preferred shares issued | 4.0 | ||
Fair value of Invesco preferred shares issued (b) | $ | 4,010.4 | |
Total consideration: | |||
Cash consideration | $ | 19.6 | |
Common stock consideration | 1,453.6 | ||
Preferred stock consideration | 4,010.4 | ||
Other consideration | 96.9 | ||
Total consideration transferred | $ | 5,580.5 | |
(a) | Fair value of Invesco common shares issued is based on market price on closing date and reflects a discount for the shares issued to MassMutual (75,563,041 shares) with a two-year lock-up period, resulting in a value of approximately $19.195 per share. Shares issued to others (153,574 shares) are valued at the market price on closing date, which was $20.42. |
(b) | Fair value of Invesco preferred shares issued uses a discounted cash flow model, resulting in a value of $1,000 per share. |
As of | |||
in millions | March 31, 2019 | ||
Consideration transferred | $ | 5,580.5 | |
Assets Acquired and Liabilities Assumed: | |||
Cash and cash equivalents | 392.4 | ||
Accounts receivable (d) | 65.9 | ||
Investments (d) | 220.8 | ||
Prepaid assets (d) | 29.2 | ||
Other assets (d) | 169.0 | ||
Property, equipment and software, net (d) | 117.1 | ||
Intangible assets (b) | 5,205.0 | ||
Accrued compensation and benefits (d) | (224.9 | ) | |
Accounts payable and accrued expenses (d) | (412.7 | ) | |
Deferred tax liabilities, net (c) | (1,174.8 | ) | |
Total identifiable net assets | 4,387.0 | ||
Goodwill (a) | $ | 1,193.5 | |
(a) | Goodwill is calculated as the difference between the acquisition date fair value of the total consideration transferred and the aggregate values assigned to the assets acquired and liabilities assumed. The goodwill created in the acquisition is not expected to be deductible for tax purposes and may be subject to material revision as the purchase price allocation is completed. Goodwill is not amortized but instead is reviewed for impairment at least annually, absent any indicators of impairment. |
(b) | As of the completion of the acquisition, identifiable intangible assets are required to be measured at fair value, and these acquired assets could include assets that are not intended to be used or sold or that are intended to be used in a manner other than their highest and best use. For purposes of this pro forma information and consistent with the ASC 820 requirements for fair value measurements, it is assumed that all acquired assets will be used, and that all acquired assets will be used in a manner that represents the highest and best use of those acquired assets. |
Estimated Fair Value (in millions) | Estimated Useful Life (Years) | ||||
Management contracts, indefinite-lived | $ | 4,955.0 | N/A | ||
Management contracts, finite-lived | 221.0 | 8 | |||
Trade name | 29.0 | 6 | |||
250.0 | |||||
Total | $ | 5,205.0 | |||
(c) | As of the completion of the acquisition, Invesco established net deferred tax liabilities and made other tax adjustments as part of the accounting for the acquisition, primarily related to estimated fair value adjustments for identifiable intangible assets. The pro forma adjustment to record the effect of deferred taxes was computed as follows: |
As of | |||
in millions | March 31, 2019 | ||
Estimated fair value of identifiable intangible assets acquired | $ | 5,205.0 | |
Deferred tax assets/(liabilities) on identifiable intangible assets acquired, at 24.2% (1) | (1,259.6 | ) | |
Other deferred tax assets/(liabilities), net | 84.8 | ||
Total deferred tax assets/(liabilities), net | $ | (1,174.8 | ) |
(d) | As of the completion of the acquisition, acquired assets and liabilities are required to be measured at fair value. These amounts represent the best estimate of fair value based on currently available information. |
OAC Line Item | Invesco Line Item |
Revenue: | Operating revenues: |
Management and investment advisory service fees | Investment management fees |
Transfer agency revenue | Service and distribution fees |
Distribution and service plan fees | Service and distribution fees |
Other | Other |
Operating expenses: | Operating expenses: |
Compensation and benefits | Employee compensation |
Selling, general, and administrative | [See note (i) below] |
Distribution and service plan expenses | Third-party distribution, service and advisory |
Amortization of deferred sales commissions | Third-party distribution, service and advisory |
Other income (expense): | Other income/(expense): |
Net investment gains (losses) | Other gains and losses, net |
Dividends and interest income | Interest and dividend income |
Interest expense | Interest expense |
Income from continuing operations before income taxes | Income before income taxes |
Total income tax provision from continuing operations | Income tax provision |
Income from continuing operations | Net income |
Income (loss) from discontinued operations | [Excluded from pro forma income statement] |
Net income (loss) attributable to noncontrolling interest | Net (income)/loss attributable to noncontrolling interests in consolidated entities |
Net income attributable to OAC [exclusive of Income (loss) from discontinued operations] | Net income attributable to common shareholders |
Year Ended | Three Months Ended | ||||||
in millions | December 31, 2018 | March 31, 2019 | |||||
Third-party distribution, service and advisory | $ | 270.6 | $ | 61.1 | |||
Marketing | 53.0 | 9.2 | |||||
Property, office and technology | 71.0 | 20.0 | |||||
General and administrative | 182.4 | 46.6 | |||||
Total | $ | 577.0 | $ | 136.9 | |||
OAC Line Item | Invesco Line Item |
Assets | ASSETS |
Cash and cash equivalents | Cash and cash equivalents |
Accounts receivable: | Accounts receivable |
Management and investment advisory service fees | Accounts receivable |
Distribution and service plan fees | Accounts receivable |
Other | Accounts receivable |
Investments | Investments |
Investments for deferred compensation arrangements | Investments |
Deferred sales commissions | Prepaid assets |
Property and equipment, less accumulated depreciation | Property, equipment and software, net |
Goodwill | Goodwill |
Intangible assets | Intangible assets, net |
Secured demand note receivable | [Line item added for pro forma balance sheet] |
Net deferred tax assets | [Line item added for pro forma balance sheet-- Deferred tax assets, net] |
Prepaid assets | Prepaid assets |
Assets related to discontinued operations | [See note (i) below] |
Assets of consolidated variable interest entities: | Assets of consolidated investment products (CIP): |
Cash | Cash and cash equivalents of CIP |
Investments | Investments of CIP |
Other assets | Accounts receivable and other assets of CIP |
Liabilities: | LIABILITIES |
Distribution and service plan fee payable | Accounts payable and accrued expenses |
Accounts payable and accrued expenses | Accounts payable and accrued expenses |
Accrued compensation | Accrued compensation and benefits |
Deferred compensation arrangements | Accrued compensation and benefits |
Note payable | Long-term debt |
Notes payable under subordinated secured demand note collateral agreement | [Line item added for pro forma balance sheet] |
Income taxes payable | Accounts payable and accrued expenses |
Other | Accounts payable and accrued expenses |
Liabilities related to discontinued operations | Accounts payable and accrued expenses |
Liabilities of consolidated variable interest entities: | Liabilities of CIP: |
Other liabilities | Other liabilities of CIP |
Temporary equity | TEMPORARY EQUITY |
Redeemable noncontrolling interests in consolidated entities | Redeemable noncontrolling interests in consolidated entities |
Permanent equity | PERMANENT EQUITY |
Class A common stock | Common shares |
Class B common stock | Common shares |
Class C common stock | Common shares |
Additional paid-in capital | Additional paid-in capital |
Accumulated other comprehensive loss | Accumulated other comprehensive income/(loss), net of tax |
Retained earnings | Retained earnings |
Treasury stock, Class B common | Treasury shares |
(a) | Adjustments of Property, office and technology, as follows: |
Year Ended | Three Months Ended | ||||||
in millions | December 31, 2018 | March 31, 2019 | |||||
Removal of OAC's historical intangible asset amortization expense | $ | (0.1 | ) | $ | — | ||
Estimated depreciation expense related to property and equipment fair value adjustment | (1.5 | ) | (0.4 | ) | |||
Estimated total adjustment to Property, office, and technology | $ | (1.6 | ) | $ | (0.4 | ) | |
(b) | Adjustments of Transaction, integration, and restructuring, as follows: |
Year Ended | Three Months Ended | ||||||
in millions | December 31, 2018 | March 31, 2019 | |||||
Removal of Invesco's transaction costs incurred (1) | $ | (7.9 | ) | $ | (2.4 | ) | |
Estimated transaction-related intangible asset amortization (2) | 32.5 | 8.1 | |||||
Estimated total adjustment to Transaction, integration and restructuring | $ | 24.6 | $ | 5.7 | |||
(c) | Removal of interest expense related to Note payable to MassMutual. Amounts were settled with MassMutual in advance of the closing date as a direct result of the acquisition. |
(d) | Represents the income tax effect for unaudited pro forma condensed combined statements of income adjustments related to the acquisition using statutory tax rates. Because the adjustments contained in this pro forma information are based on estimates, the effective tax rate will likely vary from the effective rate in periods subsequent to the acquisition. Adjustments to established deferred tax assets and liabilities as well as the recognition of additional deferred tax assets and liabilities upon detailed analysis of the acquired assets and assumed liabilities may occur in conjunction with the finalization of purchase accounting, and these items could be material. |
(e) | Removal of Net (income)/loss attributable to noncontrolling interests in consolidated entities, as all co-investments resulting in CIP remained with MassMutual. All of the Net (income)/loss attributable to noncontrolling interests in consolidated entities in the historical income statements of OAC is related to CIP. |
(f) | Preferred dividends assumed declared each quarter. Future dividends will depend on Invesco's earnings, capital requirements, financial condition and other factors considered relevant by the Invesco board of directors. |
(a) | Cash adjustments, as follows: |
in millions | |||
Cash portion of the consideration transferred (see Note 4) | $ | (19.6 | ) |
Settlement of MassMutual balances prior to acquisition (see note (b)) | (39.6 | ) | |
Other | (0.5 | ) | |
Total | $ | (59.7 | ) |
(c) | Invesco adopted ASU 2016-02, "Leases" (Topic 842) January 1, 2019. The balance sheet and statement of income of Invesco as of and for the three months ended March 31, 2019 reflect this adoption. OAC was not required to adopt ASU 2016-02 until January 1, 2020. The adjustments to the Other assets and Accounts payable and accrued expenses (see note 8(g)) represent the impacts on the balance sheet as if ASU 2016-02 had been adopted January 1, 2019, consistent with Invesco's adoption methodology. |
in millions | |||
Right of use assets for operating leases in accordance with ASC Topic 842 | $ | 146.9 | |
Tax indemnification asset (see note 5(d)) | 22.1 | ||
Total | $ | 169.0 | |
(d) | Adjustment of property and equipment to their estimated fair value. |
(e) | Intangibles adjustment to an estimate of acquisition date intangibles, as follows: |
in millions | |||
Removal of OAC's historical intangibles | $ | (92.6 | ) |
Estimated transaction intangibles | 5,205.0 | ||
Total | $ | 5,112.4 | |
(f) | Goodwill adjustment to an estimate of acquisition date goodwill, as follows: |
in millions | |||
Removal of OAC's historical goodwill | $ | (610.5 | ) |
Estimated transaction goodwill | 1,193.5 | ||
Total | $ | 583.0 | |
(g) | Adjustment of accounts payable and accrued expenses, as follows: |
in millions | |||
Accrual of acquisition-related transaction costs projected to be incurred after March 31, 2019 (1) | $ | 40.3 | |
Recording of OAC operating lease liabilities in accordance with ASC Topic 842 | 132.3 | ||
Settlement of federal tax liabilities with MassMutual | (48.5 | ) | |
Recording of additional liability for uncertain tax positions | 27.9 | ||
Other | (1.2 | ) | |
Total | $ | 150.8 | |
(h) | Adjustments to deferred tax assets and liabilities, as follows: |
in millions | |||
Decrease in deferred tax assets | $ | (5.5 | ) |
Increase in deferred tax liabilities: | |||
Identifiable intangible assets acquired | 1,259.6 | ||
Other, net | (84.8 | ) | |
Increase in deferred tax liabilities, net | $ | 1,174.8 | |
(i) | Issuance of Invesco common and preferred shares, as follows: |
in millions | Preferred Stock | Common Stock, at Par Value | Additional Paid-in Capital | ||||||||
Preferred share portion of acquisition consideration | $ | 4,010.4 | $ | — | $ | — | |||||
Common share portion of acquisition consideration | — | 15.1 | 1,438.4 | ||||||||
Pre-acquisition portion of replacement shares granted | — | — | 88.7 | ||||||||
Elimination of OAC's historical amounts | — | — | (1,024.6 | ) | |||||||
Total | $ | 4,010.4 | $ | 15.1 | $ | 502.5 | |||||
(j) | Elimination of OAC's historical treasury shares and accumulated other comprehensive income. |
(k) | Elimination of OAC's historical retained earnings and adjustment to record the estimated acquisition-related transaction costs projected to be incurred after March 31, 2019, as follows: |
in millions | |||
Removal of OAC's historical retained earnings | $ | (440.1 | ) |
Acquisition-related transaction costs projected to be incurred after March 31, 2019 | (40.3 | ) | |
Total | $ | (480.4 | ) |
Year Ended | Three Months Ended | ||||||
in millions except per share amounts | December 31, 2018 | March 31, 2019 | |||||
Numerator for earnings per share calculation: | |||||||
Pro forma net income attributable to Invesco Ltd. | $ | 1,145.2 | $ | 215.6 | |||
Invesco Ltd: | |||||||
Weighted average shares outstanding - basic | 412.4 | 401.6 | |||||
Dilutive effect of non-participating share-based awards | 0.1 | 0.3 | |||||
Weighted average shares outstanding - diluted | 412.5 | 401.9 | |||||
Denominator for earnings per share calculation: | |||||||
Weighted average shares outstanding - basic | 412.4 | 401.6 | |||||
Invesco shares issued to effect the acquisition | 75.7 | 75.7 | |||||
Pro forma weighted average shares outstanding - basic | 488.1 | 477.3 | |||||
Dilutive effect of non-participating share-based awards | 6.3 | 6.5 | |||||
Pro forma weighted average shares outstanding - diluted | 494.4 | 483.8 | |||||
Pro forma earnings per share | |||||||
Basic | $2.35 | $0.45 | |||||
Diluted | $2.32 | $0.45 | |||||