United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 20-F
(Mark
One)
|_| REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 2004
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-13908
AMVESCAP PLC
(Exact name of Registrant as specified in its charter)
England and Wales
(Jurisdiction of incorporation or organization)
30 Finsbury Square, London, EC2A 1AG, United Kingdom
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Name of each exchange on
------------------------
Title of each class which registered
------------------- ----------------
American Depositary Shares, each New York Stock Exchange
representing 2 Ordinary Shares of
25 pence par value per share
Ordinary Shares of 25 pence par value per share New York Stock Exchange(1)
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None.
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act: None.
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.
Outstanding at
--------------
Class December 31, 2004
----- -----------------
Ordinary Shares(2) 810,656,805
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES |X| NO |_|
Indicate by check mark which financial statement item the registrant has elected
to follow.
|X|Item 17 |_| Item 18
---------------
(1) Listed not for trading but only in connection with the listing of American
Depositary Shares pursuant to requirements of the Securities and Exchange
Commission. The Ordinary Shares' primary trading market is the London Stock
Exchange.
(2) Includes Ordinary Shares represented by outstanding American Depositary
Shares.
TABLE OF CONTENTS
Cautionary Statements Concerning Forward-Looking Statements....................................................................1
PART I.........................................................................................................................2
Item 1. Identity of Directors, Senior Management and Advisers.................................................................2
Item 2. Offer Statistics and Expected Timetable...............................................................................2
Item 3. Key Information.......................................................................................................2
A. Selected Financial Data...........................................................................................2
Dividends........................................................................................................5
Market for Our Securities........................................................................................5
Exchange Rates...................................................................................................5
Financial Statements and Reports.................................................................................6
D. Risk Factors......................................................................................................6
Item 4. Information on the Company............................................................................................7
A. History and Development of AMVESCAP PLC...........................................................................7
B. Business Overview.................................................................................................7
Operating Groups.................................................................................................9
AIM..........................................................................................................9
INVESCO.....................................................................................................10
Private Wealth Management...................................................................................11
AMVESCAP Retirement.........................................................................................11
Our Business Strategy...........................................................................................12
Globalization...............................................................................................12
Diverse Product Offerings...................................................................................12
Multiple Distribution Channels..............................................................................12
Alignment of Interests of Employees and Shareholders........................................................12
Competition.....................................................................................................12
Management Contracts............................................................................................12
Government Regulations..........................................................................................13
C. Organizational Structure.........................................................................................13
D. Property, Plant and Equipment....................................................................................14
Item 5. Operating and Financial Review and Prospects.........................................................................14
General..............................................................................................................14
Introduction.........................................................................................................14
The Year In Review...................................................................................................15
Summary of Differences between U.K. GAAP and U.S. GAAP...............................................................15
Critical Accounting Policies.........................................................................................16
Revenue Recognition.........................................................................................16
Goodwill....................................................................................................16
Impairment..................................................................................................16
Investments.................................................................................................17
i
Deferred sales commissions..................................................................................17
Taxation....................................................................................................17
Exceptional Items...........................................................................................17
A. Operating Results.................................................................................................17
Assets Under Management.........................................................................................19
Financial Results...............................................................................................20
General.....................................................................................................20
2004 Compared with 2003.....................................................................................20
AIM U.S............................................................................................21
AIM Canada.........................................................................................22
INVESCO U.S........................................................................................22
INVESCO U.K........................................................................................22
INVESCO Europe/Asia................................................................................22
Private Wealth Management/Retirement...............................................................22
Corporate..........................................................................................22
Other Income/Expense...............................................................................22
2003 Compared with 2002.....................................................................................23
AIM U.S............................................................................................23
AIM Canada.........................................................................................23
INVESCO U.S........................................................................................24
INVESCO UK.........................................................................................24
INVESCO Europe/Asia................................................................................24
Private Wealth Management/Retirement...............................................................24
Corporate..........................................................................................24
Other Income/Expense...............................................................................24
Taxation...........................................................................................24
B. Liquidity and Capital Resources..................................................................................24
C. Research and Development, Patents and Licenses, etc..............................................................26
D. Trend Information................................................................................................26
E. Off-Balance Sheet Arrangements...................................................................................26
F. Tabular Disclosure of Contractual Obligations....................................................................27
Dividends............................................................................................................27
Risk Factors.........................................................................................................27
Item 6. Directors, Senior Management and Employees...........................................................................33
A. Directors and Senior Management..................................................................................33
B. Compensation.....................................................................................................37
Salary, Bonus and Other Benefits................................................................................37
Option Grants...................................................................................................38
AMVESCAP Executive Share Option Schemes.........................................................................38
AMVESCAP Global Stock Plan ("GSP")..............................................................................38
ii
INVESCO Employee Stock Ownership Plan...........................................................................38
C. Board Practices..................................................................................................39
D. Employees........................................................................................................41
E. Share Ownership..................................................................................................42
Ownership of Ordinary Shares....................................................................................42
Options to Purchase Securities from AMVESCAP....................................................................43
Employee Ownership Opportunities................................................................................45
Item 7. Major Shareholders and Related Party Transactions....................................................................45
A. Major Shareholders...............................................................................................45
B. Related Party Transactions.......................................................................................46
C. Interests of Experts and Counsel.................................................................................46
Item 8. Financial Information................................................................................................46
A. Consolidated Statements and Other Financial Information..........................................................46
Legal Proceedings...............................................................................................46
Dividend Distributions..........................................................................................47
B. Significant Changes..............................................................................................48
Item 9. The Offer and Listing................................................................................................48
Nature of Trading Market and Price History...........................................................................48
Item 10. Additional Information..............................................................................................48
A. Share Capital....................................................................................................48
B. Memorandum and Articles of Association...........................................................................48
Directors.......................................................................................................49
Rights attaching to our shares..................................................................................49
Dividends and entitlement in the event of liquidation to any surplus............................................50
C. Material Contracts...............................................................................................50
D. Exchange Controls................................................................................................51
E. Taxation.........................................................................................................51
Introduction....................................................................................................51
Taxation of Dividends...........................................................................................51
Taxation on Sale, Exchange or Other Disposition of Shares.......................................................52
Summary of Tax Treatment........................................................................................52
Information Reporting and Backup Withholding....................................................................53
Reportable Transactions.........................................................................................54
F. Dividends and Paying Agents......................................................................................54
G. Statement by Experts.............................................................................................54
H. Documents on Display.............................................................................................54
I. Subsidiary Information...........................................................................................54
Item 11. Quantitative and Qualitative Disclosures About Market Risk.........................................................54
Item 12. Description of Securities Other than Equity Securities.............................................................55
PART II.......................................................................................................................56
iii
Item 13. Defaults, Dividend Arrearages and Delinquencies.....................................................................56
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds........................................56
Item 15. Controls and Procedures.............................................................................................56
Item 16. [Reserved]..........................................................................................................56
Item 16A. Audit Committee Financial Expert...................................................................................56
Item 16B. Code of Ethics.....................................................................................................56
Item 16C. Principal Accountant Fees and Services.............................................................................57
Item 16D. Exemptions from the Listing Standards for Audit Committees.........................................................57
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.............................................58
PART III......................................................................................................................59
Item 17. Financial Statements................................................................................................59
Item 18. Financial Statements................................................................................................59
Item 19. Exhibits............................................................................................................59
SIGNATURES....................................................................................................................63
iv
Cautionary Statements Concerning Forward-Looking Statements
We believe it is important to communicate our future expectations to our
shareholders and to the public. This report includes, and documents incorporated
by reference herein, other public filings and oral and written statements by us
and our management may include, statements that constitute "forward-looking
statements" within the meaning of the federal securities laws. These statements
are based on the beliefs and assumptions of our management and on information
available to our management at the time such statements were made.
Forward-looking statements include information concerning possible or assumed
future results of our operations, earnings, liquidity, cash flow and capital
expenditures, industry or market conditions, assets under management,
acquisition activities and the effect of completed acquisitions, debt levels and
the ability to obtain additional financing or make payments on our debt,
regulatory developments, demand for and pricing of our products and other
aspects of our business or general economic conditions. In addition, when used
in this report, the documents incorporated by reference herein or such other
documents or statements, words such as "believes," "expects," "anticipates,"
"intends," "plans," "estimates," "may," "could," "should," "would" or similar
expressions, are intended to identify forward-looking statements.
Forward-looking statements are not guarantees of performance. They involve
risks, uncertainties and assumptions. Although we make such statements based on
assumptions that we believe to be reasonable, there can be no assurance that
actual results will not differ materially from our expectations. Many of the
factors that will determine these results are beyond our ability to control or
predict. We caution investors not to rely unduly on any forward-looking
statements.
The following important factors, and other important factors described
elsewhere or incorporated by reference in this report or in our other filings
with the Securities and Exchange Commission (the "SEC"), among others, could
cause our results to differ from any results that we may project, forecast or
estimate in any such forward-looking statements: (1) variations in demand for
our investment products; (2) significant changes in net cash flows into or out
of our business; (3) significant fluctuations in the performance of debt and
equity markets worldwide; (4) the effect of political or social instability in
the countries in which we invest or do business; (5) the effect of terrorist
attacks in the countries in which we invest or do business and the escalation of
hostilities that could result therefrom; (6) enactment of adverse state, federal
or foreign legislation or changes in government policy or regulation (including
accounting standards) affecting our operations or the way in which our profits
are taxed; (7) war and other hostilities in or involving countries in which we
invest or do business; (8) adverse results in litigation, including private
civil litigation related to market timing, mutual fund fees and mutual fund
sales practices, the subject matter of our recently-settled SEC and other civil
enforcement actions and investigations, and any similar potential regulatory or
other proceedings; (9) exchange rate fluctuations; (10) the effect of economic
conditions and interest rates in the U.K., U.S. or globally; (11) our ability to
compete in the investment management business; (12) the effect of consolidation
in the investment management business; (13) limitations or restrictions on
access to distribution channels for our products; (14) our ability to attract
and retain key personnel; (15) the investment performance of our investment
products and our ability to retain our accounts; (16) our ability to acquire and
integrate other companies into our operations successfully and the extent to
which we can realize anticipated cost savings and synergies from such
acquisitions; (17) changes in regulatory capital requirements; and (18) the
effect of system delays and interruptions on our operations. Other factors and
assumptions not identified above were also involved in the derivation of these
forward-looking statements, and the failure of such other assumptions to be
realized as well as other factors may also cause actual results to differ
materially from those projected. For more discussion of the risks affecting us,
please refer to "Item 5. Operating and Financial Review and Prospects - Risk
Factors" included elsewhere herein.
You should consider the areas of risk described above in connection with
any forward-looking statements that may be made by us and our businesses
generally. Except for our ongoing obligations to disclose material information
under applicable securities laws, we undertake no obligation to release publicly
any revisions to forward-looking statements, to report events or to report the
occurrence of unanticipated events unless required by law. Section 27A of the
Securities Act and Section 21E of the Exchange Act of 1934 provide a "safe
harbor" for certain forward-looking statements.
1
PART I
Item 1. Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
Item 3. Key Information
A. Selected Financial Data
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following tables present selected consolidated financial information
of AMVESCAP as of and for each of the five fiscal years in the period ended
December 31, 2004. The financial statement information as of and for each of the
years in the five-year period ended December 31, 2004 has been derived from our
audited Consolidated Financial Statements. The Consolidated Financial Statements
are prepared in accordance with accounting principles generally accepted in the
United Kingdom ("U.K. GAAP"), which differ in certain significant respects from
accounting principles generally accepted in the United States ("U.S. GAAP"). For
a discussion of the principal differences between U.K. GAAP and U.S. GAAP, see
"Item 5. Operating and Financial Review and Prospects" and Note 27 to the
Consolidated Financial Statements, included elsewhere herein. The selected
consolidated financial information should be read together with the Consolidated
Financial Statements and related notes beginning on page F-1 of this Form 20-F
and "Item 5. Operating and Financial Review and Prospects," included elsewhere
herein.
Year Ended December 31(1)
-------------------------
2004(2) 2004 2003 2002 2001 2000
------- ---- ---- ---- ---- ----
(In thousands, except per share data)
Profit and Loss Data:
Amounts in accordance with U.K. GAAP:
Revenues...............................$2,224,226(pound)1,158,451(pound)1,158,070(pound)1,345,263(pound)1,619,847(pound)1,628,662
Operating (loss)/profit................ (209,002) (108,855) 76,925 148,262 325,886 480,690
Operating profit before goodwill amortization
and exceptional items(3)........... 573,456 298,675 310,850 366,925 523,360 588,911
(Loss)/profit before taxation.......... (264,351) (137,683) 36,395 102,265 280,438 446,233
(Loss)/profit after taxation........... (332,156) (172,998) (17,281) 16,893 154,803 300,728
Earnings per share:
Basic............................... (21.6)p (2.2)p 2.1p 19.2p 44.4p
Diluted............................. (21.6)p (2.2)p 2.1p 18.6p 42.3p
Earnings per share before goodwill
amortization and exceptional
items(3):
Basic............................... 21.8p 23.4p 27.5p 41.2p 57.5p
Diluted............................. 21.7p 23.2p 27.2p 40.0p 54.7p
Amounts in accordance with U.S. GAAP:
Net income............................. (101,479) (52,854) 139,140 161,866 80,221 180,710
Earnings per share:
Basic............................. (6.6)p 17.3p 20.0p 10.0p 26.7p
Diluted........................... (6.6)p 17.2p 19.8p 9.7p 25.7p
As of December 31, (1)
----------------------
2004(2) 2004 2003 2002 2001 2000
------- ---- ---- ---- ---- ----
(In thousands)
Balance Sheet Data:
Amounts in accordance with U.K. GAAP:
Net current assets................. $252,755 (pound)131,643 (pound)228,838 (pound)16,470 (pound)165,312 (pound)417,150
Goodwill...........................4,422,534 2,303,403 2,411,803 2,542,306 2,696,045 2,375,542
Total assets ......................7,501,438 3,906,999 3,952,912 3,997,348 4,352,810 4,322,679
Current maturities of debt......... 79,509 41,411 -- 222,089 125,828 6,839
Long-term debt - recourse..........1,311,773 683,215 730,041 595,600 844,285 960,023
Capital and reserves...............3,579,016 1,864,071 2,065,191 2,123,538 2,185,379 2,130,001
Amounts in accordance with U.S. GAAP:
Goodwill...........................6,652,740 3,464,969 3,483,324 3,548,472 3,647,633 3,389,084
Total assets.......................9,945,060 5,179,719 5,198,580 5,243,247 5,609,576 5,713,703
Long-term debt - recourse..........1,311,773 683,215 730,041 595,600 844,285 960,023
Long-term debt - non-recourse...... 194,863 101,491 164,325 229,761 299,333 372,178
Capital and reserves...............5,915,793 3,081,142 3,234,699 3,210,388 3,113,526 3,018,621
2
Year Ended December 31, (1)
---------------------------
2004(2) 2004 2003 2002 2001 2000
------- ---- ---- ---- ---- ----
(In thousands)
Other Data:
Amounts based on U.K. GAAP:
Cash provided by operations........................$390,960(pound)203,625(pound)338,667(pound)446,189(pound)543,233(pound)675,825
EBITDA((4))........................................ 715,743 372,783 386,615 433,718 603,418 659,665
Amounts based on U.S. GAAP:
EBITDA(4).......................................... 780,810 406,672 352,105 414,186 604,913 662,422
Dividends per share (pence)........................... 7.5 11.5 11.5 11 10
As of December 31, (1)
----------------------
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
(In billions)
Total assets under management......................... $382.1 $370.6 $332.6 $397.9 $402.6
--------------
(1) Includes financial data attributable to acquired businesses from the
respective dates of purchase. See "Item 5. Operating and Financial Review
and Prospects," included elsewhere herein.
(2) For the convenience of the reader, we have translated pounds sterling as
of and for the fiscal year ended December 31, 2004 into U.S. dollars
using the Noon Buying Rate, which is the noon buying rate in the City of
New York for cable transfers in pounds sterling as certified for customs
purposes by the Federal Reserve Bank of New York, on December 31, 2004 of
$1.92 per (pound)1.00. We did not use Noon Buying Rates in the
preparation of our Consolidated Financial Statements. The rates that we
used in the preparation of our Consolidated Financial Statements for the
fiscal year ended December 31, 2004 were $1.83 per (pound)1.00 for profit
and loss statement items, which was the average prevailing exchange rate
during the year, and $1.9192 per (pound)1.00 for balance sheet items,
which was the rate prevailing at December 31, 2004. For a discussion of
the effects of currency fluctuations on our combined results of
operations and combined financial position, "Item 5. Operating and
Financial Review and Prospects," included elsewhere herein.
(3) We believe operating profit before goodwill amortization and exceptional
items is a more appropriate income amount for presentation, and profit
after taxation before goodwill amortization and exceptional items is a
more appropriate income amount for the calculation of earnings per share,
since they both represent a more consistent measure of our year-by-year
performance. Operating profit before goodwill amortization and
exceptional items and profit after taxation before goodwill amortization
and exceptional items are measures expressly permitted under U.K. GAAP
and should be evaluated in the context of our U.K. GAAP results. See Note
3 to our consolidated financial statements for a discussion of the
exceptional charges that have been eliminated from our operating profit
for the years ended December 31, 2004, 2003 and 2002.
(4) EBITDA, as defined in our credit facility, consists of earnings before
interest, taxes, depreciation, amortization, exceptional items and
certain non cash and other items. We use EBITDA as a measure of
liquidity. EBITDA is presented because we believe that EBITDA may be
useful to investors as an indicator of funds available to us, which may
be used to pay dividends, to service debt, to make capital expenditures
and for working capital purposes. In addition, EBITDA is the basis for
the calculation of certain financial covenants in our new credit
facility. EBITDA should not be construed as an alternative to operating
profit (as determined in accordance with U.K. GAAP or U.S. GAAP), as an
indicator of our operating performance, as cash flows from operating
activities (as determined in accordance with U.K. GAAP or U.S. GAAP), as
a measure of liquidity, or as any other measure of operating performance
determined in accordance with U.K. GAAP or U.S. GAAP. Our calculation of
EBITDA may not be comparable to similarly titled measures presented by
other companies. Reconciliations of operating profit to operating profit
before goodwill amortization and exceptional items, of earnings per share
to earnings per share before goodwill amortization and exceptional items,
of profit before taxation to U.K. GAAP based EBITDA and of U.K.
GAAP-based EBITDA to U.S. GAAP-based EBITDA are presented below:
Reconciliation between operating profit before goodwill amortization and
exceptional items and operating (loss)/profit:
Year Ended December 31, (1)
----------------------------------------------------------------------
2004 (2) 2004 2003 2002 2001 2000
-------- ---- ---- ---- ---- ----
(In thousands)
Operating (loss)/profit....................$(209,002)(pound)(108,855) (pound)76,925 (pound)148,262 (pound)325,886 (pound)480,690
Goodwill amortization...................... 303,015 157,820 148,982 149,415 137,477 56,417
Exceptional items.......................... 479,443 249,710 84,943 69,248 59,997 51,804
------- ------- ------ ------ ------ ------
Operating profit before goodwill amortization and
exceptional items:.................. $573,456 (pound)298,675(pound)310,850 (pound)366,925 (pound)523,360 (pound)588,911
======== ============== ============= ============== ============== ==============
3
Reconciliation between earnings per share before goodwill amortization and
exceptional items and earnings per share:
Year Ended December 31, (1)
-------------------------------------------------------------------
2004 (2) 2004 2003 2002 2001 2000
-------- ---- ---- ---- ---- ----
(In thousands, except per share data)
Basic earnings per share.................. (21.6)p (2.2)p 2.1p 19.2p 44.4p
======= ====== ==== ===== =====
Diluted earnings per share................ (21.6)p (2.2)p 2.1p 18.6p 42.3p
======= ====== ==== ===== =====
(Loss)/profit after taxation.............. $(332,156)(pound)(172,998) (pound)(17,281) (pound)16,893 (pound)154,803 (pound)300,728
Minority interests........................ (547) (285) -- -- -- --
Goodwill amortization..................... 303,015 157,820 148,982 149,415 137,477 56,417
Exceptional items......................... 479,443 249,710 84,943 69,248 59,997 51,804
Exceptional items - tax benefit........... (113,532) (59,131) (29,042) (12,832) (20,607) (19,167)
--------- -------- -------- -------- -------- --------
Profit after taxation before goodwill
amortization..............................
and exceptional items:................. $336,223 (pound)175,116 (pound)187,602(pound)222,724 (pound)331,670 (pound)389,782
-------- -------------- -------------- -------------- -------------- --------------
Conversion of equity subordinated
debentures............................. -- -- -- -- -- 4,093
--------- -------- -------- -------- -------- --------
$336,223 (pound)175,116 (pound)187,602(pound)222,724 (pound)331,670 (pound)393,875
--------- -------------- -------------- -------------- -------------- --------------
Weighted average number of shares
Basic................................ 802,160 802,885 810,042 805,061 678,006
Diluted.............................. 808,288 810,371 819,518 829,983 720,766
Basic earnings per share before goodwill
amortization and exceptional items:.. 21.8p 23.4p 27.5p 41.2p 57.5p
===== ===== ===== ===== =====
Diluted earnings per share before goodwill
amortization and exceptional items:.. 21.7p 23.2p 27.2p 40.0p 54.7p
===== ===== ===== ===== =====
Reconciliation between U.K. GAAP-based EBITDA and (loss)/profit before
taxation:
Year Ended December 31, (1)
-----------------------------------------------------------------------
2004 (2) 2004 2003 2002 2001 2000
-------- ---- ---- ---- ---- ----
(In thousands)
(Loss)/profit before taxation............. $(264,351)(pound)(137,683) (pound)36,395(pound)102,265 (pound)280,438 (pound)446,233
Goodwill amortization..................... 303,015 157,820 148,982 149,415 137,477 56,417
Depreciation.............................. 87,523 45,585 50,955 60,232 69,625 53,607
Exceptional items......................... 479,443 249,710 84,943 69,248 59,997 51,804
Share-based payment expense............... 25,449 13,255 17,070 -- -- --
Interest expense.......................... 84,664 44,096 48,270 52,558 55,881 51,604
------ ------ ------ ------ ------ ------
EBITDA based on U.K. GAAP................. $715,743 (pound)372,783 (pound)386,615(pound)433,718 (pound)603,418 (pound)659,665
======== ============== ============== ============= ============== ==============
Reconciliation between U.K. GAAP - based EBITDA and U.S. GAAP - based
EBITDA:
Year Ended December 31, (1)
-----------------------------------------------------------------------
2004 (2) 2004 2003 2002 2001 2000
-------- ---- ---- ---- ---- ----
(In thousands)
EBITDA based on U.K. GAAP................. $715,743 (pound)372,783 (pound)386,615(pound)433,718 (pound)603,418 (pound)659,665
Acquisition accounting differences........ (8,112) (4,225) (3,682) (7,991) -- --
Redundancy and reorganizations............ 70,261 36,594 (30,085) (11,961) -- --
Other..................................... 2,918 1,520 (743) 420 1,495 2,757
------ ------ ------ ------ ------ ------
EBITDA based on U.S. GAAP................. $780,810 (pound)406,672 (pound)352,105(pound)414,186 (pound)604,913 (pound)662,422
======== ============== ============== ============= ============== ==============
Reconciliation between profit before taxation, goodwill amortization and
exceptional items and (loss)/profit before taxation:
Year Ended December 31, (1)
-----------------------------------------------------------------------
2004 (2) 2004 2003 2002 2001 2000
-------- ---- ---- ---- ---- ----
(In thousands)
(Loss)/profit before taxation............. $(264,351)(pound)(137,683) (pound)36,395(pound)102,265 (pound)280,438 (pound)446,233
Goodwill amortization..................... 303,015 157,820 148,982 149,415 137,477 56,417
Exceptional items......................... 479,443 249,710 84,943 69,248 59,997 51,804
------ ------ ------ ------ ------ ------
Profit before taxation, goodwill amortization
and exceptional items.................. $518,107 (pound)269,847 (pound)270,320(pound)320,928 (pound)477,912 (pound)554,454
======== ============== ============== ============= ============== ==============
4
Dividends
Our practice has been to pay an interim dividend and a final dividend in
respect of each fiscal year. The interim dividend is generally payable in
October of each year by resolution of our Board of Directors, and the final
dividend is payable after approval of such dividend by our shareholders at the
Annual General Meeting in the year following the fiscal year to which it
relates. The declaration, payment and amount of any future dividends will be
recommended by our Board of Directors and will depend upon, among other factors,
our earnings, financial condition and capital requirements at the time such
declaration and payment are considered. See "Item 10. Additional Information,"
included elsewhere herein, for further discussion of our dividend policy and
taxes applicable to dividends. See "Item 5. Operating and Financial Review and
Prospects," and Note 17 to our Consolidated Financial Statements, included
elsewhere herein, for a discussion of restrictions on our ability to declare
dividends.
The following table sets forth the interim, final and total dividends
paid per Ordinary Share in respect of each year indicated and translated into
U.S. cents per American Depositary Share:
U.S. Cents per American
Year Ended Pence per Ordinary Share Depositary Share(1)
------------------------ -------------------
December 31, Interim Final Total Interim Final Total
------------ ------- ----- ----- ------- ----- -----
2000 4.00 6.00 10.00 11.55 17.19 28.74
2001 4.50 6.50 11.00 13.32 19.01 32.33
2002 5.00 6.50 11.50 15.69 20.83 36.52
2003 5.00 6.50 11.50 16.63 23.31 39.94
2004 2.50 5.00 7.50 9.02 19.00 28.02
--------------
(1) Based on Noon Buying Rates in effect at the respective payment dates,
and adjusted to reflect the change in the Ordinary Share per American
Depositary Share ratio from five-for-one to two-for-one on November 8,
2000.
Market for Our Securities
Our Ordinary Shares are listed on the Official List of The U.K. Listing
Authority and are traded on the London Stock Exchange under the symbol "AVZ."
Our American Depositary Shares are listed for trading on the New York Stock
Exchange also under the symbol "AVZ." Each of our American Depositary Shares
represents the right to receive two Ordinary Shares deposited with The Bank of
New York (the "Depositary"). The Depositary issues American Depositary Receipts,
which may represent any number of American Depositary Shares. We also have
Exchangeable Shares which were issued by one of our subsidiaries and are listed
for trading on The Toronto Stock Exchange. Voting rights of holders of
Exchangeable Shares and descriptions of Exchangeable Shares are set forth in
"Item 10. Additional Information--Memorandum and Articles of Association--Rights
attaching to our shares," included elsewhere herein. Our 6.600% Senior Notes due
2005, our 5.900% Senior Notes due 2007, our 4.500% Senior Notes due 2009, our
5.375% Senior Notes due 2013 and our 5.375% Senior Notes due 2014 are listed on
the Luxembourg Stock Exchange.
Exchange Rates
We publish our Consolidated Financial Statements in pounds sterling.
References in this report to "U.S. dollars," "$" or "cents" are to United States
currency and references to "pounds sterling," "(pound)," "pence" or "p" are to
United Kingdom currency. A discussion of the effects of currency translations
and fluctuations on our results is contained in "Item 5. Operating and Financial
Review and Prospects," included elsewhere herein.
Cash dividends on Ordinary Shares are declared and paid in pounds
sterling but are paid at a date subsequent to their declaration. Therefore,
holders of our American Depositary Shares are exposed to currency fluctuations
from the date of declaration of the dividend to the date when the pounds
sterling are converted to U.S. dollars by the Depositary for distribution to
holders of American Depositary Shares. Additionally, currency fluctuations will
affect the U.S. dollar equivalent of the pounds sterling price of our Ordinary
Shares on the London Stock Exchange and, as a result, are likely to affect the
market price of the American Depositary Shares on the New York Stock Exchange.
5
The following tables set forth, for the periods and dates indicated,
certain information concerning the Noon Buying Rate for pounds sterling
expressed in U.S. dollars per (pound)1.00. On June 16, 2005, the Noon Buying
Rate was $1.82 per (pound)1.00. These translations are not representations that
the pounds sterling amounts actually represent such U.S. dollar amounts or could
be converted into U.S. dollars at the rate indicated or at any other rate. We do
not use such rates in the preparation of our Consolidated Financial Statements.
EXCHANGE RATES
--------------
Year ended December 31, Year end Average(1) High Low
----------------------- -------- ---------- ---- ---
2000 1.49 1.51 1.65 1.40
2001 1.45 1.44 1.50 1.37
2002 1.61 1.50 1.61 1.41
2003 1.78 1.65 1.78 1.55
2004 1.92 1.83 1.95 1.75
--------------
(1) The average of the exchange rates on the last trading day of each month
during the relevant period.
Month High Low
----- ---- ---
May 2005 1.90 1.82
April 2005 1.95 1.75
March 2005 1.93 1.87
February 2005 1.92 1.86
January 2005 1.91 1.86
December 2004 1.95 1.91
Financial Statements and Reports
This report contains our consolidated balance sheets as of December 31,
2004 and 2003 and consolidated statements of income, total recognized gains and
losses, shareholders' funds and cash flows for the years ended December 31,
2004, 2003 and 2002. The Consolidated Financial Statements and other financial
information concerning us included in this Form 20-F and in our annual and
semi-annual reports are presented in conformity with U.K. GAAP. U.K. GAAP
differs in certain important respects from U.S. GAAP. A description of the
principal differences between U.K. GAAP and U.S. GAAP and a reconciliation to
U.S. GAAP net income and shareholders' equity are contained in the notes to the
Consolidated Financial Statements.
We furnish the Depositary with annual reports containing a review of
operations, audited consolidated financial statements prepared in accordance
with U.K. GAAP and an opinion on the Consolidated Financial Statements by our
independent auditors. We also furnish the Depositary with semi-annual reports
containing unaudited interim consolidated financial information prepared in
accordance with U.K. GAAP. The Depositary arranges for the mailing of our
reports to all record holders of American Depositary Shares. In addition, we
furnish the Depositary with copies of all notices of shareholders' meetings and
other reports and communications that are distributed generally to our
shareholders, and the Depositary arranges for the mailing of such notices,
reports and communications to all record holders of American Depositary Shares.
We currently are exempt from the rules under the Securities Exchange Act of
1934, as amended, prescribing the form and content of proxy statements.
The financial information concerning us contained in this Form 20-F does
not constitute statutory accounts within the meaning of Section 240 of the
Companies Act 1985 (as amended) of Great Britain. Statutory accounts for the
financial years ended December 31, 2004, 2003 and 2002 have been delivered to
the Registrar of Companies for England and Wales. In respect of each of those
statutory accounts, our auditors have given reports which were unqualified and
did not contain a statement under Section 237(2)-(3) of the Companies Act.
D. Risk Factors
See the risk factors set forth in Item 5. Operating and Financial Review
and Prospects.
6
Item 4. Information on the Company
A. History and Development of AMVESCAP PLC
We were incorporated on December 19, 1935, under the laws of England.
Our principal executive offices are located in leased office space at 30
Finsbury Square, London, EC2A 1AG, United Kingdom, and our telephone number is
011-44-207-638-0731. We have a Web site on the Internet at
http://www.amvescap.com. Information contained in our Web site shall not be
deemed to be part of or to be incorporated into this Form 20-F.
Effective January 1, 2003, we realigned several of our business units
into two new divisions under our AIM and INVESCO brands. The AIM division
includes our AIM Investments ("AIM") business unit in the U.S. and our AIM
Trimark Investments ("AIM Trimark") business unit in Canada. The INVESCO
division includes business units in North America, the United Kingdom,
Continental Europe and Asia Pacific, as well as an alternative investments
business unit that includes our real estate and private equity businesses. In
order to realize further economies of scale, during 2003 we also transferred the
distribution, administration, accounting, reporting, and all other
non-investment functions for our INVESCO Family of Funds from our INVESCO
division to our AIM division. In December 2003, we completed our acquisition of
the Hypo-und Vereinsbank's institutional real estate funds management business,
bringing $2.9 billion in assets under management to INVESCO. INVESCO Retirement
was renamed AMVESCAP Retirement effective April 1, 2003. We made no changes to
our Private Wealth Management division as a result of the January 1, 2003
realignment. In February 2003, however, the Private Wealth Management division
acquired Whitehall Asset Management, an SEC-registered investment adviser,
adding over $1 billion in assets under management, and in March 2004 it also
acquired Stein Roe Investment Counsel LLC ("Stein Roe"), an SEC-registered
investment adviser, adding over $7 billion in assets under management.
During the fiscal years ended December 31, 2004, 2003 and 2002, our
capital expenditures were (pound)28.2 million, (pound)37.4 million and
(pound)59.3 million, respectively. These expenditures related in each year to
technology initiatives, including new platforms from which we maintain our
portfolio management systems and fund tracking systems, improvements in computer
hardware and software desktop products for employees, new telecommunications
products to enhance our internal information flow, and back-up disaster recovery
systems. Also, in each year, a portion of these costs was related to leasehold
improvements made to the various buildings and workspaces used in our offices.
We capitalized certain costs associated with our move in the U.K. to the Global
Fund Administration System (GFAS). In 2002, we capitalized as leasehold
improvements certain costs associated with our move to new headquarters in
London, England. Since December 31, 2003, our capital projects have included
continuing technological enhancements to computer hardware and software. These
projects have been funded with proceeds from our operating cash flows. During
the fiscal years ended December 31, 2004, 2003 and 2002, our capital
divestitures were not significant relative to our total fixed assets.
B. Business Overview
We are one of the world's largest independent investment management
groups, with $382.1 billion of assets under management at December 31, 2004. We
provide our clients with a broad array of domestic, international and global
investment products, focused primarily on investment management. We have a
significant presence in the institutional and retail segments of the investment
management industry in North America, Europe and Asia.
We operate through various subsidiaries and divisions around the world.
We are committed to managing assets regionally and believe that our local
investment managers provide us with a competitive advantage. We have a team of
approximately 590 investment professionals located throughout the world. In
addition, we offer multiple investment styles for the various investment
objectives and asset classes of the products we offer. Our products include
equity, balanced, fixed income, money market and real estate investment
portfolios. Approximately 55% of our assets under management as of December 31,
2004 were invested in equities, and approximately 45% were invested in fixed
income and other securities.
We use several methods to distribute our products to retail and
institutional clients in each of our markets. In North America, we offer load
mutual funds, separate account management and "wrap" or managed accounts.
Managed accounts offer individuals and smaller institutions comprehensive
investment management services under a single-fee structure covering
substantially all charges, including investment management, brokerage, custody,
record keeping and reporting. Outside of North America, we offer unit trusts and
other European and Asian mutual funds, as well as separate account management
for retail and institutional investors. Our retail and institutional clients are
located in more than 100 countries.
Our business units work together to provide products and services to our
clients. A variety of advisory and sub-advisory arrangements allow our business
units to access specific areas of investment management expertise located
elsewhere within our company. We believe that our ability to develop and
distribute products across businesses via multiple delivery channels allows us
to offer our clients a broader range of products and services than most of our
competitors.
7
We are organized into four operating groups: AIM, INVESCO, Private
Wealth Management (or "PWM") and AMVESCAP Retirement. The AIM division includes
our AIM Investments business unit in the U.S. and our AIM Trimark Investments
business unit in Canada. The INVESCO division includes business units in North
America, the United Kingdom, Continental Europe and Asia Pacific, as well as an
alternative investments business unit that includes our real estate and private
equity businesses. During 2004, we integrated the remaining operations of
INVESCO Funds Group, including investment management functions and investment
operations, into AIM Investments. On April 21, 2005, we announced an agreement
to sell substantially all of the assets of the AMVESCAP Retirement business
other than its U.S. national trust bank subsidiary.The transaction is expected
to close in the second half of the year.
AIM manages, distributes and administers (i) the AIM
Investments family of retail mutual funds in the
United States, and (ii) the AIM Trimark family
of retail mutual funds in Canada, and provides
services through managed accounts;
INVESCO manages portfolios for institutional investors
in North America and institutional and retail
investors outside of North America (primarily in
the U.K., Europe and Asia), and provides
services through managed accounts;
Private Wealth Management (PWM) provides wealth management services to
high net worth individuals and their families as
well as asset management services to foundations
and endowments in the United States under the
Atlantic Trust brand; and
AMVESCAP Retirement provides administrative and related services
to defined contribution plans, such as 401(k)
plans, and related retirement products. On April
21, 2005, we announced an agreement to sell
substantially all of the assets of the AMVESCAP
Retirement business other than its U.S. national
trust bank subsidiary.The transaction is
expected to close in the second half of the year
and is not expected to be material to our
results of operations or financial position.
Selected financial and headcount information for each of our operating
groups as of and for the year ended December 31, 2004 is set forth below. See
Note 5 to our Consolidated Financial Statements, included elsewhere herein, for
a geographical analysis of our total revenues for the fiscal years ended
December 31, 2004, 2003 and 2002. See "Item 5. Operating and Financial Review
and Prospects," included elsewhere herein, for total revenues by operating group
for the fiscal years ended December 31, 2004, 2003 and 2002.
For the year ended December 31, 2004(2)
AIM INVESCO PWM/Retirement(1)
---------------------------- ----------------------------------------- -------------------
U.S. Canada U.S. U.K. Europe/Asia
------------- -------------- ------------- ------------- ------------
Revenues (pound)443.1m (pound)174.4m (pound)187.2m (pound)188.1m (pound)77.8m (pound)87.8m
Operating profit before goodwill
amortization and exceptional items (pound)165.9m (pound)96.6m (pound)47.1m (pound)23.8m (pound)0.8m (pound)2.5m
Assets Under Management $137.6b $34.6b $121.0b $49.6b $24.1b $15.2b
Headcount 2,283 969 791 1,136 627 780
------------------------------------------------------------------------------------------
8
For the year ended December 31, 2003(2)
AIM INVESCO PWM/Retirement(1)
---------------------------- ----------------------------------------- -------------------
U.S. Canada U.S. U.K. Europe/Asia
------------- -------------- ------------- ------------- ------------
Revenues (pound)491.7m (pound)154.8m (pound)176.6m (pound)174.2m (pound)77.7m (pound)83.1m
Operating profit before goodwill
amortization and exceptional items (pound)190.6m (pound)77.6m (pound)41.2m (pound)29.4m (pound)0.3m (pound)(3.3)m
Assets Under Management $151.1b $28.7b $118.5b $39.0b $23.8b $9.5b
Headcount 2,416 922 830 1,135 608 774
------------------------------------------------------------------------------------------
For the year ended December 31, 2002(2)
AIM INVESCO PWM/Retirement(1)
---------------------------- ----------------------------------------- -------------------
U.S. Canada U.S. U.K. Europe/Asia
------------- -------------- ------------- ------------- ------------
Revenues (pound)619.0m (pound)151.3m (pound)202.4m (pound)196.6m (pound)85.6m (pound)90.3m
Operating profit before goodwill
amortization and exceptional items (pound)244.9m (pound)77.6m (pound)50.5m (pound)31.1m (pound)0.9m (pound)(5.4)m
Assets Under Management $144.1b $22.0b $103.5b $34.0b $21.1b $7.9b
Headcount 2,857 918 817 1,428 714 770
------------------------------------------------------------------------------------------
------
(1) AMVESCAP Retirement had $28.0 billion in assets under administration as
of December 31, 2004 compared to $27.7 billion as of December 31, 2003
and $30.9 billion as of December 31, 2002.
(2) Includes results of acquired entities from respective dates of
acquisition.
Operating Groups
AIM
Our AIM operating group manages, distributes and administers mutual funds
and related products sold to retail and institutional investors within North
America that are marketed under the AIM Investments and AIM Trimark brands.
The AIM operating group consists of two business units: (i) AIM
Investments and (ii) AIM Trimark, which operates in Canada. These business units
offer mutual funds invested in the U.S. and international markets, including
funds that target particular market sectors. Each of the two business units of
the AIM operating group offers equity, balanced, fixed income and money market
funds. The investment strategies used by the business units of the AIM operating
group range from aggressive growth to capital appreciation to a combination of
growth and income to fixed income. Mutual funds managed by AIM Investments and
AIM Trimark are primarily distributed through financial intermediaries. Some of
the funds advised by AIM Investments and AIM Trimark are sub-advised by our
other business units that have expertise in the specific markets in which such
funds are invested.
AIM Investments Business Unit
AIM Investments is the largest business unit in the AIM operating group.
AIM is a diversified investment manager, offering a variety of equity,
institutional money market and long-term fixed income products. AIM's primary
products are its AIM-branded retail equity and long-term fixed income mutual
funds and institutional money market mutual funds. The funds are sold primarily
through a variety of financial intermediaries. AIM Investments also provides
advisory services to mutual funds managed by companies unaffiliated with us. In
addition to sales of funds through financial intermediaries as part of its
retail channel, AIM Investments offers funds to pension plans and to insurance
companies that use its funds in separate accounts. Customers of AIM Investments'
institutional money market funds included ten of the ten largest U.S. banks and
21of the 25 largest U.S. banks in terms of asset size as of September 30, 2004.
AIM Investments also has developed a managed account business, which tailors
individual, privately managed portfolios to clients' investment needs, and
provides retirement products and state-sponsored college savings plans.
During 2004, we completed the integration of INVESCO Funds Group into AIM
Investments. This integration included 5 fund mergers and 34 fund name changes
from January 1, 2004 through October 15, 2004. As a result of this integration,
9
INVESCO Funds Group has discontinued operations as an investment adviser. We
effected this integration to recognize further cost savings and efficiencies in
our U.S. retail operations.
AIM Trimark Business Unit
AIM Trimark investment managers also employ a bottom-up stock selection
approach. The managers consider themselves "business people buying businesses."
The managers evaluate potential portfolio company management, the competitive
position of such company within its industry and any proprietary advantage the
company possesses. AIM Trimark also provides advisory services to mutual funds
managed by companies unaffiliated with us. In addition to sales of funds through
financial intermediaries as part of its retail channel, AIM Trimark offers funds
to pension plans, insurance companies that use its funds in separate accounts,
and banks and other financial institutions that use its funds as part of
fund-of-funds offerings.
AIM Investments also provides sub-advisory services to certain AIM
Trimark funds and to mutual funds managed by our other business units, and AIM
Trimark provides sub-advisory services to a mutual fund managed by another of
our business units. We believe that this structure allows our business units to
combine the economies and quality control made possible by centralized
professional management with the diversity of investment management style and
depth of expertise made possible through an integrated global network of
investment advisors.
INVESCO
Our INVESCO operating group manages portfolios of equity, balanced,
fixed income, structured equity, real estate and private capital investments for
institutional and retail clients throughout the world. INVESCO offers its
investment products to institutions and third-party intermediaries by way of
separately managed accounts, collective trust funds, managed accounts (wrap),
and mutual funds.
INVESCO manages portfolios for a number of different types of
institutional clients in North America, including:
o corporate pension plans;
o public and municipal pension plans;
o Taft/Hartley pension plans;
o endowments and foundations;
o insurance companies and banks; and
o non-profit organizations.
INVESCO employs growth, value-oriented and quantitative approaches to
select securities for equity portfolios and uses quantitative and value
approaches to select securities for fixed income portfolios that it manages for
its institutional clients. INVESCO's wide array of investment disciplines are
distributed by a team of marketers organized by geography and unique client
type. INVESCO also distributes products through alliances with third-party
intermediaries that deliver our investment products to their clients. INVESCO
provides sub-advisory services to funds offered by our other business units and
advisory and sub-advisory services to funds offered by third parties.
INVESCO also manages, as investment sub-advisor, mutual funds
distributed to retail clients in the U.S. that are invested in the U.S. and
international markets, including funds that target particular market sectors as
well as equity, balanced, fixed income and alternative investment strategies.
Outside of North America, INVESCO engages in retail and institutional
investment management and related marketing activities through 20 offices
located around the world, serving investors located primarily in the U.K.,
Continental Europe and Asia Pacific. INVESCO's main non-U.S. investment offices
are located in London, Henley-on-Thames, Paris, Frankfurt, Tokyo, Hong Kong,
Melbourne and Taipei, while its main non-U.S. administration office is located
in Dublin. In addition, INVESCO Great Wall, AMVESCAP's joint venture company in
China, launched its first fund in September 2003. Outside of North America,
INVESCO provides various services, including management, distribution,
administration and shareholder support services, to the following types of
clients:
o onshore unit trusts and other mutual funds, as well as offshore
mutual funds;
o investment trusts (closed-end investment companies);
o individual savings accounts (tax-advantaged plans invested in
managed investment products for U.K. citizens);
o pension accounts;
o alternative investment products (such as structured products and
real estate investments);
o institutional separate accounts with assets invested in the
U.K., Europe, emerging markets and global fixed income
securities; and
10
o private investors outside of the U.S.
Units of INVESCO market investment products through independent brokers,
alliances with other major financial organizations and direct sales to
institutional investors buying for their own accounts. INVESCO tailors its
marketing strategy to respond to the relevant competitive environment in each
country or region. INVESCO's non-U.S. business units also provide and receive
advisory or sub-advisory services to and from investment products offered by
other of our business units.
We believe that having our investment professionals working in and
investing from many of the world's financial markets is one of our strengths.
INVESCO both coordinates the construction of global portfolios and markets our
global investment management services.
Private Wealth Management
Our Private Wealth Management division was formed in 2001 in connection
with our acquisition of Pell Rudman and now operates under the brand name of
Atlantic Trust. The Private Wealth Management division provides personalized and
sophisticated wealth management services to high net worth individuals and their
families, as well as asset management services to foundations and endowments in
the U.S. The division also provides various investment management services to
its clients, including asset allocation, trust services, custody and family
office services. It primarily obtains clients through referrals from existing
clients and recommendations from a network of attorneys and accountants.
In February 2003, Atlantic Trust Group, Inc. ("ATG"), the holding
company for our Private Wealth Management division, acquired Whitehall Asset
Management, an SEC-registered investment adviser with over $1 billion in assets
under management. In March 2004, ATG also acquired Stein Roe with over $7
billion in assets under management. On March 31, 2004, we completed the disposal
of the U.K. and Jersey businesses of Atlantic Wealth Management Limited and
Atlantic Wealth Management International Limited, which resulted in the transfer
of approximately $1.4 billion of assets under management ("AUM") out of the
Private Wealth Management business.
The Private Wealth Management division operates through several subsidiaries,
the most significant of which are Atlantic Trust Company, N.A., a limited
purpose national trust company regulated by the Office of the Comptroller of the
Currency ("OCC"), AT Investor Services, Inc., a broker-dealer regulated by the
SEC and the National Association of Securities Dealers ("NASD"), and Stein Roe
Investment Counsel, Inc.
AMVESCAP Retirement
AMVESCAP Retirement provides a full range of services to various
retirement accounts. Its services include custodian, record keeping,
administration, compliance, and client employee education and communication.
AMVESCAP Retirement distributes our investment products and services to clients
who receive its administrative services. One unit of AMVESCAP Retirement is a
U.S. national trust bank that provides custody and trust services to retirement
accounts, including offering collective trust funds sub-advised by our other
business units or by other parties. AMVESCAP Retirement also includes a unit
that focuses on capturing IRA rollovers, and another unit that develops
strategic alliances with other service providers.
Our retirement services are distributed through three primary channels:
o a direct sales force calling on plan sponsors and consultants;
o broker-dealer distribution channels; and
o strategic alliances with other service providers.
On April 21, 2005, we announced an agreement to sell substantially all of
the assets of the AMVESCAP Retirement business other than its U.S. national
trust bank subsidiary. The transaction is expected to close in the second half
of the year.
11
Our Business Strategy
We have developed a strategy based on elements which we believe are
essential to maintaining a significant presence in the global asset management
industry--globalization, diverse product offerings and multiple distribution
channels. In addition, we believe that an experienced staff of professional
employees whose interests are aligned with our shareholders is a key factor in
our ability to implement our goals.
Globalization
We believe that the investment management industry will continue to
become more global in scope, and that large investment management companies that
can locally service clients in different international markets will be in the
strongest position to compete successfully. We have established offices with
investment and client service professionals in each of the major world capital
markets in order to take advantage of the trend toward globalization.
Diverse Product Offerings
We believe that our ability to offer a full range of retail and
institutional investment products in a range of investment styles enhances our
opportunities for attracting new clients and cross-selling our products to
existing clients. Each of our business units markets the products and services
offered by our other business units to its local and regional clients to enhance
the range of investment management products and services offered to our clients.
We seek to capitalize on the increase in the demand for these products around
the world.
Multiple Distribution Channels
Our extensive distribution network enables us to market our products to
retail and institutional clients throughout the world. We sell our products
directly to investors through 55 offices in 19 countries. We also maintain an
extensive distribution network through strategic relationships with a variety of
financial intermediaries, including major wire houses, regional broker-dealers,
banks and financial planners in North America, and independent brokers and
financial advisors, banks and financial organizations in Europe and Asia. We
seek to sell our products through available distribution channels and to expand
our existing distribution network.
Alignment of Interests of Employees and Shareholders
We view our experienced management team as a key factor in our growth.
Our management philosophy is entrepreneurial, with senior professionals having
significant responsibility and autonomy. We believe that our structure allows
each operating group to focus on and maximize local investment opportunities and
compete more effectively in sales and marketing efforts. We also believe that
stock ownership by management and other employees is an important means of
aligning their interests with those of our shareholders. We have implemented
various employee benefit plans to facilitate stock ownership by management and
employees.
Competition
The investment management business is highly competitive, with
competition based on a variety of factors, including investment performance, the
range of products offered, brand recognition, business reputation, financial
strength, the strength and continuity of relationships, quality of service and
the level of fees charged for services.
We compete with a large number of investment management firms,
commercial banks, investment banks, broker-dealers, insurance companies and
other financial institutions. Some of these institutions have greater capital
and other resources, and offer more comprehensive lines of products and
services, than we do. Competition in the investment management industry has
increased as a result of the recent trend toward consolidation.
We believe that our multiple channels of distribution enable us to
compete effectively in the investment management business.
Management Contracts
We derive substantially all of our revenues from investment management
contracts with clients. Fees vary with the type of assets being managed, with
higher fees earned on actively managed equity and balanced accounts and lower
fees earned on fixed income and stable return accounts. In addition, investment
management contracts are generally terminable upon thirty or
12
fewer days' notice. Mutual fund and unit trust investors generally may withdraw
their funds at any time without prior notice. Institutional clients may elect to
terminate their relationship with us or reduce the aggregate amount of assets
under management, and individual clients may elect to close their accounts or
redeem their shares in our mutual funds, or shift their funds to other types of
accounts with different rate structures, for any of a number of reasons,
including investment performance, changes in prevailing interest rates and
financial market performance.
Government Regulations
As with all investment management companies, our operations and
investment products are heavily regulated in almost all countries in which we
conduct business. Laws and regulations applied at the national, state or
provincial and local level generally grant government agencies and industry
self-regulatory authorities broad administrative discretion over the activities
of our business units, including the power to limit or restrict business
activities. Possible sanctions for violations of law include the revocation of
licenses to operate certain businesses, the suspension or expulsion from a
particular jurisdiction or market of any of our business organizations or their
key personnel, and the imposition of fines and censures on our employees or us.
It is also possible that laws and regulations governing our operations in
general or particular investment products could be amended or interpreted in a
manner that is adverse to us.
We conduct substantial business operations in the U.S. Various of our
subsidiaries and/or products and services offered by such subsidiaries are
regulated by the SEC, the NASD, the National Futures Association, the Commodity
Futures Trading Commission and the OCC. Federal statutes that regulate the
products and services we offer in the U.S. include the Securities Act of 1933,
the Securities Exchange Act of 1934, the Investment Company Act of 1940, the
Investment Advisers Act of 1940 and the Employee Retirement Income Security Act
of 1974.
Various of our business units are regulated in the United Kingdom by the
Financial Services Authority. Our operations elsewhere in the world are
regulated by similar regulatory organizations. Our principal German operation is
required by regulations promulgated by the German Federal Financial Supervisory
Authority to have a banking license and thus is also subject to banking
regulations. Other regulators who potentially exert a significant impact on our
businesses around the world include the Ministry of Finance and the Financial
Services Agency in Japan, the Banque de France and the Autorite des Marches
Financiers in France, the Securities and Futures Commission of Hong Kong, the
Belgian Banking and Finance Commission, the Australian Securities & Investments
Commission, the Securities and Futures Commission of the Ministry of Finance and
the Investment Commission of the Ministry of Economic Affairs of the Republic of
China, the Commissione Nazionale per le Societa e la Borsa (CONSOB) in Italy,
the Netherlands Authority For the Financial Markets, the Swiss Federal Banking
Commission, La Comision Nacional del Mercado de Valores (CNMV) in Spain, the
Monetary Authority of Singapore, the Central Bank of Ireland, the Jersey
Financial Services Commission, the Pension Fund Supervisions Office (UNFE) in
Poland and the Canadian securities administrators.
Certain of our subsidiaries are required to maintain minimum levels of
capital. These and other similar provisions of applicable law may have the
effect of limiting withdrawals of capital, repayment of intercompany loans and
payment of dividends by such entities. Under EU regulatory capital requirements,
investment firms groups are generally subject to consolidated supervision, which
requires both individual regulated companies and the group of companies to meet
regulatory capital requirements. Proposed changes in EU regulatory capital
requirements might cause us to have a shortfall in regulatory capital. See "Item
5. Operating and Financial Review and Prospects - Risk Factors," included
elsewhere herein.
To the extent that existing or future regulations affecting the sale of
our products and services or our investment strategies cause or contribute to
reduced sales or increased redemptions of our products or impair the investment
performance of our products, our aggregate assets under management and revenues
might be adversely affected.
C. Organizational Structure
AMVESCAP is the holding company of our investment management business,
the principal activities of which are asset management and the provision of
related financial services. Our significant subsidiaries, all of which are
wholly-owned subsidiaries, are set forth below:
NAME OF COMPANY COUNTRY OF INCORPORATION
--------------- ------------------------
AVZ Inc. U.S.
AMVESCAP Group Services, Inc. U.S.
INVESCO North American Holdings, Inc. U.S.
INVESCO Institutional (N.A.), Inc. U.S.
INVESCO Realty Advisors U.S.
AIM Management Group Inc. U.S.
AIM Advisors, Inc. U.S.
13
AIM Capital, Inc. U.S.
INVESCO U.K. Limited England
INVESCO Asset Management Limited England
INVESCO International Holdings Limited England
INVESCO Pensions Limited England
INVESCO Fund Managers Limited England
AIM Canada Holdings Inc. Canada
AMVESCAP Inc. Canada
AIM Funds Management, Inc. Canada
AVZ Callco Canada
D. Property, Plant and Equipment
Our principal executive offices are located in leased office space at 30
Finsbury Square, London, EC2A 1AG, United Kingdom. Our North American executive
offices are located in leased office space at 1315 Peachtree Street, Atlanta,
Georgia 30309, U.S.A. We also lease significant office space in the U.S. at 11
Greenway Plaza, Houston, Texas 77046 and 4350 South Monaco Street, Denver,
Colorado 80237. We generally lease space in the locations where we conduct
business, except that we own property at INVESCO Park, Henley-on-Thames,
Oxfordshire, RG9 1HH, United Kingdom. We have no plans to construct,
significantly expand or improve our facilities.
Item 5. Operating and Financial Review and Prospects
General
This discussion and analysis should be read in conjunction with the
selected consolidated financial information and the Consolidated Financial
Statements included elsewhere in this Form 20-F.
The following discussion contains forward-looking statements relating to
our future financial performance, business strategy, financing plans and other
future events that involve uncertainties and risks. Our actual results could
differ materially from the results anticipated by these forward-looking
statements as a result of known and unknown factors that are beyond our ability
to control or predict, including, but not limited to, those discussed in "Risk
Factors" and "Cautionary Statements Concerning Forward-Looking Statements,"
included elsewhere herein.
We are a leading independent global investment management group, with
$382.1 billion of assets under management at December 31, 2004. Operating under
the AIM, INVESCO and Atlantic Trust brands, we strive to deliver outstanding
investment performance and service through a comprehensive array of retail and
institutional investment products. We currently provide services to clients in
more than 100 countries, employ 6,693 people in 19 countries and manage 1,938
separate institutional accounts and 894 retail funds.
Introduction
The past five years have been a challenging time for the investment
management industry, with difficult market conditions, dramatic world events and
a rapidly changing regulatory environment. AMVESCAP has been tested during this
time, and particularly during 2004.
The market timing investigations by the SEC and the New York Attorney
General (the "NYAG") held back our business for much of the year, and the
settlement of those investigations during the fourth quarter sets the foundation
for us to regain business momentum. We believe that the SEC and NYAG settlements
substantially resolved the regulatory issues facing the Company with respect to
market timing, although certain market timing regulatory matters and civil
lawsuits remain outstanding, including a lawsuit recently filed by the Attorney
General of West Virginia and various private actions brought by fund
shareholders. We believe that the settlement amounts should be adequate to fully
compensate affected shareholders, and we have taken measures designed to ensure
that this type of problem does not recur. Throughout 2004, we steadily enhanced
our internal risk management and compliance functions. Recommendations from a
comprehensive independent review are being implemented with the goal of ensuring
that our policies, procedures and practices rank among the strongest and most
effective in the industry. See "Risk Factors--Various governmental enforcement
actions and investigations and ongoing civil litigation relating to certain
practices in the mutual fund industry could adversely affect our assets under
management and future financial results, and increase our cost of doing
business," included elsewhere herein.
14
The Year In Review
AMVESCAP is building on the achievements of 2004. We completed the
integration of our U.S. retail mutual fund businesses under AIM Investments,
creating additional operating and sales leverage. AIM has also been successful
in some of the faster growing areas of the industry, including subadvised,
separately managed and retirement account businesses. Investment performance on
many products is strong, and AIM is focused on improving those products
suffering from historical underperformance. Areas of product strength include
our range of international funds, and AIM continued its leadership position in
the cash management business ending the year with approximately $42 billion in
assets under management.
INVESCO, our U.S institutional business, ended the year with nearly 75%
of its products ahead of their benchmarks for three years. The performance of
our real estate and international teams continues to be particularly strong, and
we added $2.6 billion in new collateralized debt obligation (CDO) funds.
Management is focused on improving investment performance in those equity
products that continue to suffer net redemptions.
In March of 2004, Atlantic Trust completed the acquisition of Stein Roe
Investment Counsel, expanding the footprint of our Private Wealth Management
Division to 12 major locations across the U.S. and bringing its assets under
management to $15 billion. Having built this national network in just three
years, we are now focused on accelerating our growth.
In Canada, AIM Trimark enjoyed continuing success throughout 2004.
Driven by strong investment performance, assets under management ended the year
up 21%. At the 2004 Canadian Investment Awards, Canada's advisors again chose
AIM Trimark as the "Best Mutual Fund Company." We have now won this prestigious
award for the second year in a row and three out of the last four years. This
strong combination of solid, long-term investment performance, combined with AIM
Trimark's reputation as an "indispensable partner" for Canada's financial
advisors, gives us great optimism for continued success in this important
market.
Likewise, we are well positioned in the U.K. Investment performance at
INVESCO Perpetual remains strong with 95% of assets outperforming their peer
group average over one year and 78% of assets outperforming their peer group
over a three-year period. Financial Advisor selected INVESCO Perpetual as "Fund
Group of the Year." The investment market in the U.K. continues to open up in
ways we believe will play to our strengths as an independent fund manager.
Programs to simplify and rationalize the operating structure of our business in
continental Europe continue to progress and should enable us to continue
improving the financial leverage of this business.
In Asia, we continue to focus on opportunities in the Greater China
market, including the rapid development of China's fund management industry. In
China, a national financial publication recently awarded INVESCO Great Wall, our
joint venture, the first place award in 2004 as "Best Fund Manager of the Year."
Our Australian business continues to show strong investment performance, and, in
recognition, was awarded "Most Improved Fund Manager of the Year" by a leading
industry publication.
Summary of Differences between U.K. GAAP and U.S. GAAP
We prepare our financial statements in accordance with U.K. GAAP, which
differs in certain material respects from U.S. GAAP. The principal differences
between U.K. GAAP and U.S. GAAP, as applied to us, relate to acquisition
accounting, including the capitalization and amortization of goodwill, timing of
recording and disclosures of exceptional items, B-share sales commission funding
and proposed dividend liabilities. See Note 27 to our Consolidated Financial
Statements for a reconciliation of operating results from U.K. GAAP to U.S.
GAAP.
International Financial Reporting Standards ("IFRS")
AMVESCAP PLC and its subsidiaries (collectively, the "Group") currently
prepares its consolidated financial statements under U.K. Generally Accepted
Accounting Practice ("U.K. GAAP"). Under regulations adopted by the European
Union, the Group is required to prepare its financial statements in accordance
with IFRS with effect from January 1, 2005.
During 2004, the Group carried out a review of IFRS to identify the
changes to accounting policy that will be necessary to comply with the new
standards.
The most significant changes affecting the Group due to the IFRS
transition are:
o The inclusion of a fair value charge in respect of outstanding
employee share options granted after November 7, 2002 (IFRS 2);
o The replacement of existing charges for awards under certain
equity-based compensation plans with fair value charges spread
over revised time periods (IFRS 2);
15
o The cessation of goodwill amortization (IFRS 3); and
o The inclusion in the balance sheet of all employee benefit
liabilities (IAS 19).
The Group's first Annual Report under IFRS will be for the year-ended
December 31, 2005. The date of the transition to IFRS is January 1, 2005, this
being the start of the earliest period of comparative information required in
the U.K. In April 2005, the Group provided shareholders and the financial
community with a reconciliation of Equity Shareholders' Funds as at January 1,
2004 from U.K. GAAP to IFRS. Such reconciliations were also presented in respect
of the Profit and Loss Account and Balance Sheet for the year-ended December 31,
2004. The financial information presented in April 2005 remains subject to the
ongoing development of IFRS and hence may change. The Group will keep
shareholders and the financial community informed of the impact of any material
changes as necessary.
Critical Accounting Policies
Our significant accounting policies are disclosed in Note 1 to our
Consolidated Financial Statements. These policies address such matters as
accounting for goodwill and investments, revenue recognition, taxation, and
depreciation methods. Below is a description of certain critical accounting
policies that require management to make its best estimates and judgments.
Revenue Recognition
Revenue is measured at the fair value of consideration received or
receivable and represents amounts receivable for services provided in the normal
course of business, net of discounts, VAT and other sales-related taxes.
Revenue, which is recorded when earned, represents management, distribution,
transfer agent and other fees. Management fee revenues are derived from
providing professional expertise to manage client accounts and include fees
received from institutional advisory contracts and retail mutual funds unit
trusts, investment companies with variable capital and investment trusts.
Management fees vary in relation to the type and level of client assets managed,
and in certain cases are also based on investment performance. Such amounts are
immaterial to consolidated revenues and are recorded only when the performance
period is completed. Distribution fees include 12b-1 fees received from certain
mutual funds to cover allowable marketing expenses for those funds and also
include asset-based sales charges paid by certain mutual funds for a period of
time after the sale of those funds. Transfer agent fees are service fees charged
to cover the expense of transferring shares of a mutual fund or units of a unit
trust into the investor's name. Other fees include trading fees derived from
generally non-recurring security or investment transactions and fees earned from
the Group's banking subsidiaries, such as interest earned from balances
available on demand from clients and credit institutions and commissions earned
from derivative instruments.
Interest income is accrued on cash and other interest-generating
financial assets.
Dividend income from investments is recognized when the shareholders'
rights to receive payment have been established.
Goodwill
The excess of the cost of companies acquired over the fair value of
their net assets is capitalized as an asset and amortized through the profit and
loss account over an estimated useful life of 20 years. Prior to 1998, goodwill
was charged directly to other reserves. This goodwill has been eliminated as a
matter of accounting policy and will be charged or credited to the profit and
loss account on subsequent disposal of the related businesses. Additional
write-down is taken in the year if goodwill is deemed impaired.
Under U.S. GAAP, goodwill is not subject to systematic amortization but
is carried at cost less provision for impairment in value. Goodwill is required
to be tested annually for impairment. Additional write-downs will be taken in
the year if goodwill is deemed impaired. Prior to 2002, goodwill was amortized
through the profit and loss account over an estimated useful life of 20 years.
Impairment
Tangible fixed assets and goodwill are subject to impairment reviews in
accordance with FRS 11 if there are events or changes in circumstances that
indicate that the carrying amount of the fixed asset or goodwill may not be
fully recoverable. Goodwill impairment reviews are conducted at an income
generating unit level, and acquisitions are subject to impairment reviews at the
end of the first full financial year following acquisition.
The impairment review comprises a comparison of the carrying amount of
the fixed asset or goodwill with its recoverable amount, which is the higher of
net realizable value and value in use. Net realizable value is calculated by
reference to the amount
16
at which the asset could be disposed of. Value in use is calculated by
discounting the expected future cash flows obtainable as a result of the
continued use of the assets, including those resulting from its ultimate
disposal, at a market-based discount rate on a pre-tax basis. The carrying
values of fixed assets and goodwill are written down by the amount of any
impairment, and this loss is recognized in the profit and loss account in the
period in which it occurs.
Investments
Investments held as fixed assets are stated at cost less provisions for
any permanent impairment in value. Management judgment is sometimes required to
determine if an impairment is temporary or permanent. Investments held as
current assets are stated at the lower of cost and net realizable value. Gains
and losses on investments are recorded within Investment Income in the profit
and loss account in the period in which they arise.
Deferred sales commissions
At December 31, 2004, we had a balance of (pound)57.8 million (2003:
(pound)77.7 million) in deferred sales commissions included in debtors on the
balance sheet. This asset relates to the capitalization of paid sales
commissions on sales of AUM containing contingent deferred sales charges and is
being amortized over the redemption period of the related funds.
Taxation
Corporation tax payable is provided on taxable profits at the current
rate. Deferred taxation is provided on timing differences, calculated at the
rate at which it is estimated that tax will be payable and is not discounted.
Deferred tax assets are recognized when it is deemed more likely than not that
there will be taxable profits in the future to offset these amounts. The
assessment of available future profits is based on management expectations of
future business performance.
Exceptional Items
Costs that are unusual due either to their size or incidence are
categorized as exceptional items in the profit and loss account in the line item
to which they relate. During 2004, a charge of (pound)249.7 million (2003:
(pound)84.9 million) was recorded in operating expenses related to U.S.
regulatory investigations, internal restructuring, staff redundancies, and
terminated project initiatives. Substantially all of these costs will be paid by
the end of 2005.
A. Operating Results
The following tables summarize revenues and profits by operating group
before goodwill amortization and exceptional items for the periods indicated. We
believe that operating profit before goodwill amortization and exceptional items
is a more appropriate income amount for presentation, since it represents a more
consistent measure of our year-by-year performance. Operating profit before
goodwill amortization and exceptional items is a measure expressly permitted
under U.K. GAAP and should be evaluated in the context of our U.K. GAAP results.
See "Item 3. Key Information -- Selected Financial Data" for a reconciliation
between operating profit before goodwill amortization and exceptional items and
(loss)/operating profit.
Year Ended December 31, 2004
-----------------------------------------------------------
Operating
Revenues Expenses Profit*
----------------- ---------------- ---------------
(In thousands)
AIM
U.S. (pound)443,085 (pound)(277,196) (pound)165,889
Canada 174,417 (77,809) 96,608
----------------- ---------------- ---------------
617,502 (355,005) 262,497
----------------- ---------------- ---------------
INVESCO
U.S. 187,235 (140,099) 47,136
U.K. 188,108 (164,279) 23,829
Europe/Asia 77,773 (76,924) 849
----------------- ---------------- ---------------
453,116 (381,302) 71,814
----------------- ---------------- ---------------
Private Wealth/Retirement 87,833 (85,300) 2,533
Corporate -- (38,169) (38,169)
----------------- ---------------- ---------------
(pound)1,158,451 (pound)(859,776) (pound)298,675
----------------- ---------------- ---------------
Net interest expense (28,828)
---------------
Profit before taxation* (pound)269,847
===============
17
Year Ended December 31, 2003
-----------------------------------------------------------
Operating
Revenues Expenses Profit*
----------------- ---------------- ---------------
(In thousands)
AIM
U.S.** (pound)491,722 (pound)(301,167) (pound)190,555
Canada 154,758 (77,177) 77,581
----------------- ---------------- ---------------
646,480 (378,344) 268,136
----------------- ---------------- ---------------
INVESCO
U.S.** 176,595 (135,396) 41,199
U.K. 174,164 (144,741) 29,423
Europe/Asia 77,725 (77,385) 340
----------------- ---------------- ---------------
428,484 (357,522) 70,962
----------------- ---------------- ---------------
Private Wealth/Retirement 83,106 (86,368) (3,262)
Corporate -- (24,986) (24,986)
----------------- ---------------- ---------------
(pound)1,158,070 (pound)(847,220) (pound)310,850
----------------- ---------------- ---------------
Net interest expense (40,530)
---------------
Profit before taxation * (pound)270,320
===============
Year Ended December 31, 2002
-----------------------------------------------------------
Operating
Revenues Expenses Profit*
----------------- ---------------- ---------------
(In thousands)
AIM
U.S. (pound)618,968 (pound)(374,046) (pound)244,922
Canada 151,345 (73,702) 77,643
----------------- ---------------- ---------------
770,313 (447,748) 322,565
----------------- ---------------- ---------------
INVESCO
U.S. 202,445 (151,918) 50,527
U.K. 196,618 (165,555) 31,063
Europe/Asia 85,628 (84,744) 884
----------------- ---------------- ---------------
484,691 (402,217) 82,474
----------------- ---------------- ---------------
Private Wealth/Retirement 90,259 (95,688) (5,429)
Corporate -- (32,685) (32,685)
----------------- ---------------- ---------------
(pound)1,345,263 (pound)(978,338) (pound)366,925
----------------- ---------------- ---------------
Net interest expense (45,997)
---------------
Profit before taxation * (pound)320,928
===============
* Before goodwill amortization and exceptional items.
** The prior year presentation of the Denver-based investment management team
has been reflected in AIM U.S. to conform to the current year presentation
of this group. Previous presentations included these amounts within INVESCO
U.S.
18
Assets Under Management
The following table summarizes changes in assets under management by operating
group for the periods indicated:
ASSETS UNDER MANAGEMENT
AIM INVESCO PWM
----------------------------- ---------------------------------------- ----------
Total U.S.*** Canada U.S.*** U.K. Eur/Asia
(in billions)
December 31, 2001 $397.9 $189.1 $22.1 $117.5 $38.1 $21.7 $9.4
Market gains/(losses) (50.8) (29.3) (2.2) (8.4) (6.8) (2.5) (1.6)
Net new/(lost) business (14.2) (8.8) 1.8 (5.8) (1.3) -- (0.1)
Change in money
Market funds (5.8) (6.9) 0.1 -- 1.2 (0.2) --
Transfers -- -- (0.1) 0.1 -- -- --
Foreign currency* 5.5 -- 0.3 0.1 2.8 2.1 0.2
--------------------------------------------------------------------------------------------------------------------------
December 31, 2002 332.6 144.1 22.0 103.5 34.0 21.1 7.9
--------------------------------------------------------------------------------------------------------------------------
Market gains 45.4 20.4 3.2 12.7 6.0 2.2 0.9
Net new/(lost) business (10.6) (6.5) -- (0.5) (0.4) (2.8) (0.4)
Change in money
Market funds (10.7) (10.1) -- -- (0.5) (0.1) --
Transfers -- 3.2 -- (0.2) (2.9) -- (0.1)
Acquisitions 4.0 -- -- 2.9 -- -- 1.1
Foreign currency* 9.9 -- 3.5 0.1 2.8 3.4 0.1
--------------------------------------------------------------------------------------------------------------------------
December 31, 2003 370.6 151.1 28.7 118.5 39.0 23.8 9.5
--------------------------------------------------------------------------------------------------------------------------
Market gains 26.0 7.3 2.7 8.1 5.6 2.0 0.3
Net new/(lost) business (19.5) (12.4) 0.7 (6.1) 1.5 (3.0) (0.2)
Change in money
Market funds (8.3) (8.1) -- -- -- (0.2) --
Transfers -- (0.3) -- 0.2 0.6 -- (0.5)
Acquisitions 6.1 -- -- -- -- -- 6.1
Foreign currency* 7.2 -- 2.5 0.3 2.9 1.5 --
--------------------------------------------------------------------------------------------------------------------------
December 31, 2004 $382.1 $137.6 $34.6 $121.0 $49.6 $24.1 $15.2
--------------------------------------------------------------------------------------------------------------------------
December 31, 2004** (pound)199.0 (pound)71.7 (pound)18.0 (pound)63.0 (pound)25.8(pound)12.6 (pound)7.9
--------------------------------------------------------------------------------------------------------------------------
*The foreign currency movement arises from different exchange rates being in
effect as of the relevant measurement dates for assets denominated in currencies
other than U.S. dollars. **Translated at $1.92 per (pound)1.00.
***The prior year presentation of the Denver-based investment management team
has been reflected in AIM U.S. to conform to the current year presentation of
this group. Previous presentations included these amounts within INVESCO U.S.
Institutional money market funds, included above in the AIM U.S. column,
amounted to $41.7 billion, $50.9 billion and $57.0 billion as of December 31,
2004, 2003 and 2002, respectively.
Average AUM and average money market funds (MMF) included in the total
AUM for the three years ended December 31, 2004 were:
Year Average AUM Average MMF
---- ----------- -----------
2004 $371.3 billion $45.1 billion
2003 340.8 billion 51.5 billion
2002 365.8 billion 59.6 billion
19
Average AUM for each business segment were as follows:
--------------------------------------------------------------------------------
$ billions
2004 2003 2002
--------------------------------------------------------------------------------
AIM
U.S. 140.8 143.1 164.4
Canada 31.2 24.8 23.1
INVESCO
U.S. 118.3 107.7 111.1
U.K. 43.0 34.2 36.3
Europe/Asia 24.5 22.1 22.1
Private Wealth 13.5 8.9 8.8
------------- ------------ --------------
371.3 340.8 365.8
--------------------------------------------------------------------------------
Approximately 55% of the total funds under management were invested in
equity securities and 45% were invested in fixed income and other securities at
December 31, 2004, essentially unchanged from the end of the prior year (2002:
50% equity/50% fixed income). The equity securities were invested in the
following disciplines at December 31, 2004: 34% in growth, 39% in core and 27%
in value styles (2003: 32% in growth, 41% in core and 27% in value; 2002: 36% in
growth, 38% in core and 26% in value).
Financial Results
General
Our revenues are influenced by three major factors: movements in global
capital market levels, net new business flows (or net redemptions) and changes
in the mix of investment products between equity and fixed income (equity
products have a higher fee level than fixed income thus impacting revenue trends
more significantly than fixed income products).
The major capital markets experienced significant changes during 2004,
2003 and 2002, thus impacting materially our consolidated revenue levels. For
example, changes in major markets during this period were:
Dow Jones Ind.
--------------
December 31, S&P 500 NASDAQ Average FTSE 100 MSCI
------------ ------- ------ ------- -------- ----
2004 1,212 2,175 10,783 4,814 1,480
2003 1,112 2,003 10,454 4,477 1,242
2002 880 1,336 8,342 3,940 890
Compensation and related expenses continue to be the largest component
of operating expenses, accounting for 63% of costs for 2004 (2003: 63%; 2002:
62%). The main categories of operating costs are as follows:
---------------------------------------------------------------------------------------------------------------------------------
(pound) millions 2004 % of total 2003 % of total 2002 % of total
---------------------------------------------------------------------------------------------------------------------------------
Compensation and related costs 539.6 63 535.5 63 607.6 62
Technology 81.2 10 90.9 11 104.5 11
Property and facilities costs 72.4 8 81.1 10 90.1 9
Marketing and sales 70.6 8 69.6 8 91.3 9
Professional and other costs 96.0 11 70.1 8 84.8 9
------------ ----------- ----------- ----------- ----------- -----------
859.8 100 847.2 100 978.3 100
---------------------------------------------------------------------------------------------------------------------------------
Compensation and related costs have remained constant as a percentage
of expenditure. It is critical for the success of AMVESCAP to be competitive in
attracting and retaining the highest caliber employees. Technology and property
costs have decreased reflecting improved efficiency. Professional and other
costs have increased as the costs of auditors, insurance, legal and compliance
have increased throughout the industry.
2004 Compared with 2003
During 2004, the dollar to sterling exchange rates were very volatile
and had a significant impact on our operating results. As a consequence,
comparisons of results, year over year, have become more difficult. The majority
of the Group's operations are dollar denominated.
20
Revenues for the Group amounted to (pound)1,158.5 million, compared
with (pound)1,158.1 million in 2003. Operating expenses before goodwill
amortization and exceptional items increased (pound)12.6 million (1.5%) to
(pound)859.8 million (2003: (pound)847.2 million). Operating profit before
goodwill amortization and exceptional items totaled (pound)298.7 million in 2004
(2003: (pound)310.9 million). The operating profit margin for 2004 was 25.8%
(2003: 26.8%).
(Loss)/profit before taxation for 2004 was (pound)(137.7) million,
compared to (pound)36.4 million in 2003. We believe that profit before taxation,
goodwill amortization and exceptional items is a more appropriate income amount
for presentation, since it represents a more consistent measure of our
year-by-year performance. Profit before taxation, goodwill amortization and
exceptional items is a measure expressly permitted under U.K. GAAP and should be
evaluated in the context of our U.K. GAAP results. See "Item 3. Key Information
-- Selected Financial Data" for a reconciliation between profit before taxation,
goodwill amortization and exceptional items and (loss)/profit before taxation.
Profit before taxation, goodwill amortization and exceptional items amounted to
(pound)269.8 million in 2004, compared with (pound)270.3 million in 2003.
Diluted earnings per share before goodwill amortization and exceptional items
amounted to 21.7p (2003: 23.2p) for the year-ended December 31, 2004.
The effective tax rate for the Group increased to 35% from 30.6% in
2003. The increased rate more accurately reflects the actual rates in the U.S.,
Canada and the U.K., the tax jurisdictions where most of our tax liabilities
arise. Prior year effective rates were lower as a result of utilizing loss
carry-forwards and other tax deductible items not reflected in operating profit.
Revenues arise substantially from management, service and distribution
fees generated from AUM. As a result, changes in AUM directly affect our
revenues. A summary of changes in AUM over the year is presented on page 19. AUM
at December 31, 2004 reached $382.1 billion, an increase of $11.5 billion.
Market gains provided $26.0 billion of this increase, while foreign exchange
movements and the Stein Roe acquisition added a further $13.3 billion. This was
offset by net outflows of $19.5 billion and changes in money market funds of
$8.3 billion. Outflows arose primarily in the U.S. units, while flows were
positive in Canada and the U.K. The outflows in Europe and Asia were partially
as a consequence of account losses resulting from business rationalization.
During the year, our average AUM was $371.3 billion versus $340.8 billion in
2003, a 9% increase.
The Group recorded an exceptional charge of (pound)249.7 million in
2004. The restitution costs and penalties arising from the settlement of U.S.
regulatory investigations accounted for (pound)208.9 million of this charge (see
notes 3 and 24 to the Consolidated Financial Statements), and a further
(pound)20.2 million are other costs associated with the investigation, primarily
legal costs. In addition, the exceptional charge includes (pound)20.2 million
for lease costs arising as a result of excess office space in the U.K. and the
U.S. The provision reflects an estimate of the lease payments in excess of the
expected sublease proceeds over the remaining lives of the leases.
Stein Roe was acquired in March 2004 for consideration totaling
(pound)87.6 million. During the year, Stein Roe has been integrated into our
existing U.S. Private Wealth business. In March 2004, we completed the sale of
the U.K. and Jersey Private Wealth businesses of this business segment,
realizing a gain of (pound)3.8 million.
We employed 6,693 people at the end of 2004, compared with 6,747 at the
end of 2003. The decrease of 54 despite the addition of 160 through acquisition
reflects our ongoing drive to improve efficiency.
The profitability comparisons between 2004 and 2003 have been
influenced by the following factors:
o Global capital markets improved over 2004, with much of this
improvement occurring in the fourth quarter of 2004. The FTSE
100 increased by 7.5%, the S&P 500 by 9%, NASDAQ by 8.6% and the
Dow Jones Industrial Average by 3.1%, from December 31, 2003 to
December 31, 2004.
o The significant weakening of the U.S. dollar against pounds
sterling that occurred in the second half of 2003 persisted
throughout 2004. The average exchange rate was (pound)1.83 in
2004 versus (pound)1.65 in 2003, resulting in a decline of
approximately (pound)21.2 million in operating profit
((pound)12.0 million after tax or 1.5p per diluted share) for
2004, compared with the prior year.
AIM U.S.
The AIM U.S. business reported revenues of (pound)443.1 million during
2004, compared with (pound)491.7 million during 2003. The decline is due to the
weakening U.S. dollar and a 1.6% decrease in average asset levels during 2004.
Operating expenses declined by (pound)24.0 million to (pound)277.2 million in
2004. Operating profits were (pound)165.9 million, compared with (pound)190.6
million in 2003. Operating profit margin for 2004 amounted to 37.4%, compared
with 38.8% in the prior year, due to the decline in revenue offset by cost
reductions. The group generated approximately $16.3 billion of gross sales and
had net redemptions of $12.4 billion in 2004. Market gains of $7.3 billion
partially offset these redemptions. AUM amounted to $137.6 billion at December
31, 2004, including $41.7 billion of institutional money market funds.
21
AIM Canada
The AIM Trimark business reported revenues of (pound)174.4 million
during 2004, compared with (pound)154.8 million for the prior year. Operating
profits were (pound)96.6 million in 2004, compared with (pound)77.6 million in
2003, and the operating profit margin was 55.4% in 2004. The group generated
approximately $5.3 billion of gross sales in 2004 and net sales of $0.7 billion.
Market gains were $2.7 billion for the year. As a result, average AUM increased
25.8% from 2003. AUM amounted to $34.6 billion at December 31, 2004.
INVESCO U.S.
The INVESCO U.S. business reported revenues and operating profits of
(pound)187.2 million and (pound)47.1 million in 2004, compared with (pound)176.6
million and (pound)41.2 million for 2003, respectively. Operating profit margins
improved from 23.3% in 2003 to 25.2% in the current year. Average AUM increased
by $10.6 billion contributing to increase in revenue. Revenue also benefited
from an increase of (pound)9.4 million in transaction fee revenues. The unit
generated $19.6 billion in gross sales during 2004, and recorded net redemptions
of $6.1 billion. AUM amounted to $121.0 billion at December 31, 2004. Increased
expenses, due primarily to higher compensation costs, offset a portion of the
revenue increase.
INVESCO U.K.
INVESCO U.K.'s revenues amounted to (pound)188.1 million for 2004,
compared with (pound)174.2 million in 2003. Revenues increased with the rise in
average AUM, but front end commission income decreased as a result of the
transition from Unit Trusts to Investment Companies with Variable Capital that
took place in the fourth quarter of 2003. Operating profits totaled (pound)23.8
million for the current year compared to (pound)29.4 million for the prior year.
Operating expenses amounted to (pound)164.3 million in 2004, compared with
(pound)144.7 million in 2003. The increases were the result of higher
compensation costs and additional provisions for irrecoverable VAT. Operating
profit margin was 12.7% in 2004 (2003: 16.9%). Gross sales for 2004 totaled
approximately $11.3 billion, market gains totaled $5.6 billion, and net
contributions were $1.5 billion for the year. AUM amounted to $49.6 billion at
December 31, 2004.
INVESCO Europe/Asia
INVESCO Europe/Asia's revenues amounted to (pound)77.8 million for 2004,
compared with (pound)77.7 million in 2003. Operating profits totaled (pound)0.8
million for the year-ended December 31, 2004, versus (pound)0.3 million for the
prior year. Gross sales for 2004 totaled approximately $10.2 billion, market
gains totaled $2.0 billion, and net redemptions were $3.0 billion for the year.
AUM amounted to $24.1 billion at December 31, 2004.
Private Wealth Management/Retirement
Revenues for these businesses totaled (pound)87.8 million in 2004,
compared with (pound)83.1 million in 2003. Operating profits totaled (pound)2.5
million, compared to operating losses of (pound)3.3 million in 2003. The
completion of the Stein Roe acquisition in March 2004 added AUM of $7.5 billion,
offset by $1.4 billion removed by the sale of the U.K. and Jersey Atlantic
Wealth businesses.
The additional costs associated with the acquisition were offset by
costs reductions achieved elsewhere in the business, primarily in compensation
costs derived from reductions in headcount. AUM were $15.2 billion at December
31, 2004. Net redemptions for the group amounted to $0.2 billion for 2004. In
addition, AMVESCAP Retirement's assets under administration were $28.0 billion
at December 31, 2004. This group services 1,115 plans with 569,000 participants
at December 31, 2004.
Corporate
Corporate expenses include staff costs related to corporate employees,
as well as continued expenditures in group-wide initiatives. In 2004, certain
costs associated with the increased focus on risk management and executive
management costs previously incurred in the business units were included in
Corporate.
Other Income/Expense
Investment income increased to (pound)15.3 million in 2004, against
(pound)7.7 million in 2003. The increase arose primarily from the gain on the
sale of our U.K. and Jersey Atlantic Wealth businesses of (pound)3.8 million and
a gain recognized on the sale of unlisted investments of (pound)3.1 million.
22
Interest expense declined by (pound)4.2 million, partly as a result of
lower average interest rates, but also aided by the weaker U.S. dollar, the
underlying currency for substantially all Group debt. This was offset by costs
of (pound)2.8 million associated with the tender offer for a portion of the May
2005 notes completed in December 2004.
2003 Compared with 2002
Profit before taxation for 2003 was (pound)36.4 million, compared to
(pound)102.3 million in 2002. Profit before taxation, goodwill amortization and
exceptional items is a more appropriate income amount for presentation, since it
represents a more consistent measure of our year-by-year performance. Profit
before taxation, goodwill amortization and exceptional items is a measure
expressly permitted under U.K. GAAP and should be evaluated in the context of
our U.K. GAAP results. See "Item 3. Key Information -- Selected Financial Data"
for a reconciliation between profit before taxation, goodwill amortization and
exceptional items and profit before taxation. Profit before taxation, goodwill
amortization, and exceptional items amounted to (pound)270.3 million in 2003
compared with (pound)320.9 million in 2002, a 16% decline. Diluted earnings per
share before goodwill amortization and exceptional items amounted to 23.2p
(2002: 27.2p) for the year ended December 31, 2003. Operating profit before
goodwill amortization and exceptional items totaled (pound)310.9 million in 2003
(2002: (pound)366.9 million).
Global capital markets continued their decline from the beginning of
2002 into the second quarter of 2003 before beginning to show recovery in the
second half of the year, with the FTSE 100 down by 23%, the S&P 500 by 15%,
NASDAQ by 17%, and the Dow Jones Industrial Average by 10%, comparing June 30,
2003, with January 1, 2002. These improving equity markets and a successful
program of expense reduction allowed us to grow earnings per share each quarter
during 2003; however, as a result of weak market conditions at the start of the
year, our average AUM for 2003 was $340.8 billion, a decline of $25.0 billion
from the prior year, and our revenues fell to (pound)1.16 billion from
(pound)1.35 billion in 2002.
Our revenues were materially affected by these changes in global capital
markets coupled with net sales/redemptions of AUM and the mix of equity to fixed
income securities held in our portfolios during the year. A shift in our asset
base to a 55%/45% split of equities versus fixed income (50%/50% for 2002) had a
positive effect on our revenue comparisons between years.
The Company recorded an exceptional charge of (pound)84.9 million in
2003. Of this total, (pound)62.1 million ((pound)39.7 million after tax and 4.9p
per diluted share) related to costs associated with redundancy programs and
expenses associated with internal reorganizations, primarily relating to the
change in the U.S. retail organization and distribution structure. In addition,
(pound)22.8 million ((pound)16.1 million after tax and 2.0p per diluted share)
was recorded in the fourth quarter of 2003 relating to the legal and other costs
incurred through the end of 2003 (plus an estimate of such costs, expected to
arise in the first half of 2004) relating to the investigations then underway by
the U.S. Securities and Exchange Commission and the Attorneys General of
Colorado and New York (see Note 23 to the Consolidated Financial Statements).
We have significant operations in the U.S. with earnings denominated in
U.S. dollars. Accordingly, our results can be materially affected by the U.S.
dollar to U.K. pounds sterling exchange rate. It is not our policy to hedge the
translation of profit from U.S. subsidiaries; therefore, changes in exchange
rates can materially affect our results. The average U.S. dollar to U.K. pounds
sterling exchange rate in 2003 was $1.65 per (pound)1.00, compared with $1.50
per (pound)1.00 in 2002. The U.S. dollar weakened significantly against sterling
in the second half of 2003, resulting in a decline of approximately (pound)21.7
million in operating profit ((pound)13.4 million after tax or 1.7p per diluted
share) for 2003 compared with the prior year.
AIM U.S.
The AIM U.S. business reported revenues of (pound)491.7 million during
2003, compared with (pound)619.0 million for the prior year. Operating expenses
declined by (pound)72.9 million to (pound)301.2 million in 2003. Operating
profits were (pound)190.6 million, compared with (pound)244.9 million in 2002.
Operating profit margin for 2003 amounted to 38.8%, compared with 39.6% in the
prior year, due to the decline in revenue offset by the cost reductions. The
group generated approximately $23.3 billion of gross sales and had net
redemptions of $6.5 billion in 2003. Market gains of $20.4 billion led to an
increase in AUM for the year. AUM amounted to $151.1 billion at December 31,
2003, including $50.9 billion of money market funds.
AIM Canada
The AIM Trimark business reported revenues of (pound)154.8 million
during 2003, compared with (pound)151.3 million for the prior year. Operating
profits were (pound)77.6 million in both 2003 and 2002, and the operating profit
margin was 50.1% in 2003. The group generated approximately $3.8 billion of
gross sales in 2003. Market gains were $3.2 billion for the year. AUM amounted
to $28.7 billion at December 31, 2003.
23
INVESCO U.S.
The INVESCO U.S. business reported revenues and operating profits of
(pound)176.6 million and (pound)41.2 million in the 2003 period, compared with
(pound)202.4 million and (pound)50.5 million for 2002, respectively. Operating
profit margins declined from 25.0% in 2002 to 23.3% in the current year. This
group generated approximately $20.0 billion in gross sales during 2003; market
gains and net redemptions were $12.7 billion and $0.5 billion, respectively, for
the year. AUM amounted to $118.5 billion at December 31, 2003.
INVESCO UK
INVESCO UK's revenues amounted to (pound)174.2 million for 2003,
compared with (pound)196.6 million in 2002. Operating profit totaled (pound)29.4
million for the current year versus (pound)31.1 million for the prior year. The
operating expenses amounted to (pound)144.7 million in 2003, a decrease of
(pound)20.8 million from the prior year due in part to a headcount reduction of
293. The Group successfully completed the migration to the Global Fund
Administration System platform late in the year, contributing to the reduced
cost base in the last quarter of the year. Operating profit margin improved to
16.9% in 2003 (2002: 15.8%). Gross sales for 2003 totaled approximately $16.4
billion; market gains totaled $6.0 billion; and net redemptions were $0.4
billion for the year. AUM amounted to $39.0 billion at December 31, 2003.
INVESCO Europe/Asia
INVESCO Europe/Asia's revenues amounted to (pound)77.7 million for
2003, compared with (pound)85.6 million in 2002. Operating profit totaled
(pound)0.3 million for the year-ended December 31, 2003, versus (pound)0.9
million for the prior year. Gross sales for 2003 totaled approximately $10.7
billion; market gains totaled $2.2 billion; and net redemptions were $2.8
billion for the year. AUM amounted to $23.8 billion at December 31, 2003.
Private Wealth Management/Retirement
Revenues and operating losses for these businesses totaled (pound)83.1
million and (pound)3.3 million for 2003, compared with (pound)90.3 million and
(pound)5.4 million, respectively, in the prior year. Operating expenses declined
by (pound)9.3 million during 2003, more than offsetting the decline in revenue
between the years. AUM were $9.5 billion at December 31, 2003, including $1.1
billion added by the Whitehall acquisition. In addition, AMVESCAP Retirement's
assets under administration were $27.7 billion at December 31, 2003. Net
redemptions for the group amounted to $0.4 billion for 2003. This group services
1,200 plans with 624,000 participants at December 31, 2003.
Corporate
Corporate expenses include staff costs related to corporate employees,
as well as continued expenditures in Group-wide initiatives. Costs declined over
the prior year due to decreases in staff costs and technology initiatives.
Other Income/Expense
Investment income reflected an improvement of (pound)1.2 million over
2002 due primarily to lower losses from unlisted investments. Interest expense
declined by (pound)4.3 million from lower average interest costs on the Group's
credit facility in 2003, coupled with debt reductions during the year.
Taxation
The Group's effective tax rate on profit (before goodwill amortization
and exceptional items) was 30.6% in 2003 and 2002.
B. Liquidity and Capital Resources
The ability to generate cash from operations in excess of capital
expenditure and dividend requirements is one of AMVESCAP's fundamental financial
strengths. Operations continue to be financed from share capital, retained
profits and borrowings. Our principal uses of cash flow, other than for
recurring operating expenses, include dividend payments, payments for
exceptional charges, capital expenditures, acquisitions, purchase of shares in
the open market to meet stock option and restricted stock obligations under
existing plans and investments in certain new investment products.
During 2004, we invested $22.4 million in new long-term capital
investments and have committed $85.3 million to fund our obligations under these
programs at the end of December 2004. We received $0.3 million in return of
capital from such
24
investments in 2004. During the fiscal years ended December 31, 2004, 2003 and
2002, our capital expenditures were (pound)28.2 million, (pound)37.4 million and
(pound)59.3 million, respectively. These expenditures related in each year to
technology initiatives, including new platforms from which we maintain our
portfolio management systems and fund tracking systems, improvements in computer
hardware and software desktop products for employees, new telecommunications
products to enhance our internal information flow, and back-up disaster recovery
systems. Also, in each year, a portion of these costs was related to leasehold
improvements made to the various buildings and workspaces used in our offices.
In 2002, we capitalized as leasehold improvements certain costs associated with
our move to new headquarters in London, England.
Net debt at December 31, 2004 amounted to (pound)590.9 million
(excluding client cash), compared with (pound)576.6 million at December 31,
2003. Earnings before interest, taxes, depreciation, amortization, exceptional
items and certain non cash and other items ("EBITDA"), as defined in our new
credit facility, were (pound)372.8 million, compared with (pound)386.6 million
in the prior year. See the reconciliation of (loss)/profit before taxation to
U.K. GAAP-based EBITDA and the reconciliation of U.K. GAAP-based EBITDA to U.S.
GAAP-based EBITDA in "Item 3. Key Information--Selected Financial Data,"
included elsewhere herein.
In December 2004, we issued and sold $500 million in new senior notes:
$300 million of five-year notes with a coupon of 4.5% due in 2009 and $200
million of 10-year notes with a coupon of 5.375% due in 2014. We also have
outstanding $10 million of our 6.875% notes due 2006, $300 million of our 5.9%
notes due 2007 and $350 million of our 5.375% notes due 2013. A tender offer was
also completed for $320.5 million of the $400 million, 6.6% notes due in May
2005, and we paid for the remainder of these notes on May 16, 2005.
As of December 31, 2004, (pound)78.7 million ($151.0 million) was drawn
under our former five-year credit facility. At that date, we also maintained a
$200 million 364-day credit facility that was undrawn as of December 31, 2004.
On March 31, 2005, we entered into a new five-year $900 million credit
facility with a group of lenders, which matures during 2010. The financial
covenants under our new credit agreement include a leverage ratio of not greater
than 3.25:1.00 (debt/EBITDA) and an interest coverage ratio of not less than
4.00:1.00 (EBITDA/interest payable for the four consecutive fiscal quarters).
This credit facility also contains customary affirmative operating covenants and
negative covenants that, among other things, restrict certain of our
subsidiaries' ability to incur debt, transfer assets, merge, make loans and
other investments and create liens. Those ratios during 2004 were as follows:
--------------------------------------------------------------------------------
Q1 Q2 Q3 Q4
--------------------------------------------------------------------------------
Debt/EBITDA 1.86 1.79 1.76 2.03
Coverage Ratio 8.91 9.66 9.51 8.42
--------------------------------------------------------------------------------
Changes in our net debt position for 2004 are shown below. A substantial
part of our debt is denominated in U.S. dollars and, therefore, the balances
between 2003 and 2004 have been materially affected by fluctuations in the U.S.
dollar/sterling exchange rates.
December 31, 2004 December 31, 2003 (Decrease)/Increase
------------------------------ ----------------------------- ----------------------------------
(pound) $ (pound) $ (pound) $
-------------- --------------- -------------- -------------- ----------------- ----------------
(in thousands)
Senior notes 640,619 1,229,476 594,059 1,050,000 46,560 179,476
Credit facility 78,679 151,000 130,127 230,000 (51,448) (79,000)
Other, including foreign
exchange 5,328 10,226 6,079 10,744 (751) (518)
-------------- --------------- -------------- -------------- ----------------- ----------------
Total Debt 724,626 1,390,702 730,265 1,290,744 (5,639) 99,958
-------------- --------------- -------------- -------------- ----------------- ----------------
Cash (133,699) (256,595) (153,674) (271,619) 19,975 15,024
-------------- --------------- -------------- -------------- ----------------- ----------------
Net Debt 590,927 1,134,107 576,591 1,019,125 14,336 114,982
============== =============== ============== ============== ================= ================
Exchange rates: 12/31/04 -- $1.92 per (pound)1.00; 12/31/03 -- $1.77 per
(pound)1.00
25
Financial commitments are as follows (payments due by period):
-------------------------------------------------------------------------------------------------
Less than 1-3 3-5 More than
(pound)'000 Total 1 year years years 5 years
-------------------------------------------------------------------------------------------------
Total debt 724,626 41,411 240,322 156,315 286,578
Finance leases 7 7 -- -- --
Operating leases(1) 254,663 33,375 53,953 44,658 122,677
Acquisition provisions(2) 32,012 6,172 24,276 -- 1,564
--------------- ------------- ----------- ----------- --------------
Total 1,011,308 80,965 318,551 200,973 410,819
-------------------------------------------------------------------------------------------------
(1) Operating leases reflect obligations primarily for leased building
space.
(2) Acquisition provisions reflect the National Asset Management
retention payments and earn-out arrangements associated with the
Stein Roe acquisition. Earn-out payments are based upon asset
retention levels at the payment dates and conclude in March 2006.
Any payments not made are reversed against the related goodwill
balances. Retention payments are due annually, generally for the
five years following the acquisition.
The Group has not changed its financial instruments policies in the
current year and does not hedge its operational foreign exchange exposures,
except to the extent that the net assets of overseas subsidiaries are hedged by
foreign currency borrowings. As a result, the Group's financial statements may
be impacted by movements in U.S. dollar, Canadian dollar and Euro exchange rates
compared to sterling. This is partially mitigated by incurring U.S. dollar
denominated borrowings. Other than this, the Group does not actively manage its
currency exposures. (See Note 25 to the Consolidated Financial Statements for
quantitative information about financial instruments.)
The company is subject to minimum regulatory capital requirements in
most areas where it operates. The European Union has issued guidelines for bank
capital adequacy, which could affect asset management firms, including AMVESCAP.
AMVESCAP has been in discussions with the Financial Services Authority in the
U.K. and continues to monitor developments in this area, plus other proposed
changes in regulatory capital requirements in each country where we operate, to
ensure we meet all capital and regulatory requirements of our businesses.
The existing capital structure of the Group, together with the cash flow
from operations and borrowings under the credit facility, will provide the Group
with sufficient resources to meet present and future cash needs.
We believe that our cash flow from operations and credit facilities,
together with our ability to obtain alternative sources of financing, will
enable us to meet debt and other obligations as they come due and anticipated
future capital requirements.
C. Research and Development, Patents and Licenses, etc.
Not applicable.
D. Trend Information
These matters are discussed under Item 5A. and Item 5B. above where
relevant.
E. Off-Balance Sheet Arrangements
The Group has participated in funding arrangements for the payment of
mutual fund share sales commissions. Future revenue streams from 12b-1 fees and
contingent deferred sales charges were sold at a purchase price equal to a
percentage of the price at which each Class B share of the fund is sold. This
funding arrangement in the U.S. expired in December 2003, and currently such
sales are funded from internal cash flows. A similar program continues to exist
in Canada. See note 27 to the Consolidated Financial Statements for a discussion
of the difference in accounting treatment for these arrangements under U.S.
generally accepted accounting principles.
The principal purpose of the program is to fund sales commissions. This
funding arrangement did not have a material impact on net income in 2004 or
2003. There is no recourse to the Group with respect to the proceeds from this
program other than relating to normal and customary representations, warranties
and indemnities. Such commission sales have been treated as off-balance sheet
financing arrangements since inception of the program in 1995.
26
F. Tabular Disclosure of Contractual Obligations
These matters are discussed under Item 5B. above where relevant.
Dividends
Our Board of Directors recommended, and our shareholders approved at the
Annual General Meeting, a final dividend of 5.0 pence per ordinary share,
resulting in a total dividend of 7.5 pence in 2004 (2003: 11.5p). The reduced
dividend reflects the Board's policy of managing dividends in a prudent fashion,
with due consideration given to profit levels, covenant constraints and overall
debt levels.
Under the U.K. Companies Act 1985, as amended, our ability to declare
dividends is restricted to the amount of our distributable profits and reserves,
which is the current and retained amounts of our profit and loss account, on an
unconsolidated basis. At December 31, 2004, the amount available for dividends
was (pound)53.1 million after accrual of the recommended final dividend for
2004.
Risk Factors
Our revenues would be adversely affected by any reduction in assets
under our management as a result of either a decline in market value of
such assets or continued net outflows, which would reduce the investment
management fees we earn.
We derive substantially all of our revenues from investment management
contracts with clients. Under these contracts, the investment management fees
paid to us are typically based on the market value from time to time of assets
under management. Assets under management may decline for various reasons. For
any period in which revenues decline, our profits and profit margins may decline
by a greater proportion because certain expenses remain relatively fixed.
Factors that could decrease assets under management (and therefore revenues)
include the following:
Declines in the market value of the assets in the funds and accounts
managed. These could be caused by price declines in the securities markets
generally or by price declines in the market segments in which those assets are
concentrated. Approximately 55% of our total assets under management were
invested in equity securities and 45% were invested in fixed income and other
securities at December 31, 2004. The effect of market price declines will be
compounded if the funds and accounts managed underperform the applicable market
or segment.
Redemptions and other withdrawals from, or shifting among, the funds and
accounts managed. These could be caused by investors (in response to adverse
market conditions or pursuit of other investment opportunities) reducing their
investments in mutual funds in general or in the market segments on which
AMVESCAP focuses; investors taking profits from their investments; poor
investment performance of the funds and accounts managed by AMVESCAP; and
portfolio risk characteristics, which could cause investors to move funds to
other investment managers. Poor performance relative to other investment
management firms tends to result in decreased sales, increased redemptions of
fund shares, and the loss of private institutional or individual accounts, with
corresponding decreases in revenues to us. Failure of our funds to perform well
could, therefore, have a material adverse effect on us. During 2004, we
experienced net outflows of approximately $19.5 billion. Furthermore, the fees
we earn vary with the types of assets being managed, with higher fees earned on
actively managed equity and balanced accounts, along with real estate and
alternative asset products, and lower fees earned on fixed income and stable
return accounts. Therefore, our revenues may decline if clients shift their
investments to these lower fee accounts.
Our business is dependent on investment advisory agreements that are
subject to termination or non-renewal, and our mutual fund and other
investors may withdraw their funds at any time.
Substantially all of our revenues are derived from investment advisory
agreements with mutual funds and other separate and private accounts. Investment
management contracts are generally terminable upon thirty or fewer days' notice.
With respect to agreements with U.S. mutual funds, these investment advisory
agreements may be terminated by either party with notice, or terminated in the
event of an "assignment" (as defined in the Investment Company Act of 1940, as
amended), and must be approved and renewed annually by the disinterested members
of each fund's board of directors or trustees, or its shareowners, as required
by law. In addition, the board of trustees or directors of certain funds and
separate and private accounts of AMVESCAP or our subsidiaries generally may
terminate these investment advisory agreements upon written notice for any
reason. Mutual fund and unit trust investors may generally withdraw their funds
at any time without prior notice. Institutional clients may elect to terminate
their relationships with us or reduce the aggregate amount of assets under our
management, and individual clients may elect to close their accounts, redeem
their shares in our mutual funds, or shift their funds to other types of
accounts with different rate structures for any of a number of reasons,
including investment performance, changes in prevailing interest rates and
27
financial market performance. Any termination of or failure to renew a
significant number of these agreements, or any other loss of a significant
number of our clients or assets under management, would adversely affect our
revenues and profitability.
We operate in an industry that is highly regulated in the U.S. and
numerous foreign countries, and any adverse changes in the regulations
governing our business could decrease our revenues and profitability.
As with all investment management companies, our operating groups are
heavily regulated in almost all countries in which they conduct business. Laws
and regulations applied at the national, state or provincial and local level
generally grant governmental agencies and industry self-regulatory authorities
broad administrative discretion over our activities and the activities of our
business units, including the power to limit or restrict business activities.
Possible sanctions include the revocation of licenses to operate certain
businesses, the suspension or expulsion from a particular jurisdiction or market
of any of our business organizations or their key personnel, the imposition of
fines and censures on our employees or us and the imposition of additional
capital requirements. It is also possible that laws and regulations governing
our operations or particular investment products could be amended or interpreted
in a manner that is adverse to us. For example, changes have been made and
others are proposed in EU regulatory capital requirements for regulated
investment firms and banking groups. Depending on the way they are implemented
at the EU Member State level and upon the final form of those changes, we may
face a regulatory capital shortfall, may be required to limit distributions from
certain subsidiaries or may need to modify our operating group composition and
structure in order to comply. The most recent draft of the relevant EU
Directives do, however, retain the ability for certain groups to receive a
waiver from the full consolidated supervision requirements, which we may be able
to obtain if necessary. Pending regulatory and legislative actions and reforms
affecting the mutual fund industry may significantly increase our costs of doing
business and/or negatively affect our revenues. To the extent that existing
regulations are amended or future regulations are adopted that reduce the sale,
or increase the redemptions, of our products and services, or that negatively
affect the investment performance of our products, our aggregate assets under
management and our revenues could be adversely affected.
Various governmental enforcement actions and investigations and ongoing
civil litigation relating to certain practices in the mutual fund
industry could adversely affect our assets under management and future
financial results, and increase our costs of doing business.
Over the past 20 months, the mutual fund industry as a whole, and the AIM
and INVESCO complexes in particular, have been the subject of numerous
regulatory investigations and civil lawsuits pertaining to a wide variety of
issues, including but not limited to market timing activity. The lawsuits and
investigations described below may adversely affect investor and/or client
confidence, which could result in a decline in assets under management. Any such
decline in assets under management would have an adverse effect on future
financial results and our ability to grow the business.
In December 2003, the SEC, the NYAG's Office and the Colorado Attorney
General's Office brought civil enforcement actions against INVESCO Funds Group,
Inc. ("IFG"), the former advisor to the INVESCO mutual funds, based on market
timing activities by certain investors in the funds; the SEC also named IFG's
former CEO and President, Raymond Cunningham, as a defendant. The SEC and the
NYAG's Office also instituted separate investigations into market timing
activity in the mutual funds advised by A I M Advisors, Inc. ("AIM Advisors"). A
number of other regulators from other jurisdictions also requested information
from AMVESCAP, AIM, IFG and certain affiliated entities relating to market
timing; AMVESCAP, AIM, IFG and certain affiliated entities fully cooperated with
such requests.
On September 7, 2004, AMVESCAP announced agreements in principle with the
SEC, the NYAG, the State of Colorado Attorney General, the Colorado Division of
Securities and the Secretary of the State of Georgia. The agreements were
finalized on October 8, 2004. The agreements settle all claims against IFG filed
in 2003 by the SEC, New York and Colorado. The agreements also conclude the
investigations with respect to AIM Advisors and IFG by each of the participating
regulators. IFG agreed to a total payment of $325 million, of which $110 million
was a civil penalty, to be paid into a Fair Fund in two installments, the first
of which was paid in December 2004 and the second of which will be paid in
December 2005. AIM Advisors and AIM Distributors, Inc. ("ADI") agreed to a total
payment of $50 million, of which $30 million was a civil penalty, that was paid
into a Fair Fund in November 2004. The amounts in the Fair Funds will be
distributed to affected current and former shareholders in the AIM and INVESCO
funds in accordance with the terms of a distribution plan to be established by
an Independent Distribution Consultant and approved by the SEC and the
independent board members of the AIM Funds. IFG also agreed to pay $1.5 million
to the Colorado regulators, and IFG and AIM agreed to pay $175,000 to Georgia.
In addition, under its agreement with the NYAG's Office, AIM agreed to
reduce management fees charged to investors in the AIM and INVESCO mutual funds
for five years beginning on January 1, 2005. The reduction in percentage fee
rates, as applied to assets under management as of July 1, 2004, would result in
a $15 million annual reduction in fees. The actual reduction in fees, however,
will vary as assets under management increase or decrease.
The settlements described above do not resolve the investigations and
inquiries by non-participating regulators into market timing in the AIM and
INVESCO Funds. On April 12, 2005, a non-participating regulator, the Attorney
General of West
28
Virginia ("WVAG"), filed a lawsuit against AIM Advisors, IFG and ADI, as well as
numerous unrelated mutual fund complexes and financial institutions, based on
allegations pertaining to market timing activity during the same time periods
covered by the NYAG and SEC settlement. The WVAG's complaint alleges, in
substance, that AIM, IFG and ADI engaged in unfair competition and/or unfair or
deceptive trade practices by failing to disclose in the prospectuses for the AIM
Funds, including those formerly advised by IFG, that they had entered into
certain arrangements permitting market timing of such Funds. If AIM is
unsuccessful in its defense of the WVAG proceedings, it could be barred from
serving as an investment adviser for any investment company registered under the
Investment Company Act of 1940, as amended (a "registered investment company").
Such results could affect the ability of AIM or any other investment advisor
directly or indirectly owned by AMVESCAP, from serving as an investment advisor
to any registered investment company. If these results occur, AIM will seek
exemptive relief from the SEC to permit it to continue to serve as an investment
advisor; however, the SEC may not grant such exemptive relief. AMVESCAP cannot
predict whether any other non-participating regulator will pursue legal action
against any AMVESCAP affiliate in the future based on alleged market timing
activity and/or related issues. AMVESCAP and its affiliates have cooperated and
will continue to cooperate fully in any investigations and inquiries by
non-participating regulators.
In addition to the above settled governmental enforcement actions,
multiple lawsuits, including purported class action and shareholder derivative
suits, have been filed against various parties affiliated with AMVESCAP
(including certain INVESCO funds, certain AIM funds, IFG, AIM Advisors, A I M
Management Group Inc. (the parent of AIM Advisors), AMVESCAP, certain related
entities and certain of their current and former officers and trustees). The
allegations in many of these cases are based primarily upon the allegations in
the enforcement actions described above, namely, that by allowing "market
timing" trading, these parties violated the anti-fraud provisions of the federal
securities laws and/or breached their fiduciary duties to the funds and/or
individual investors. Certain other lawsuits allege that one or more of
AMVESCAP's funds charged excessive fees, engaged in unlawful distribution
practices, failed to adequately pursue recoveries for shareholders in class
actions, inadequately employed fair value pricing or improperly collected Rule
12b-1 fees after ceasing to offer their shares to the general public. These
lawsuits allege a variety of theories for recovery, including, but not limited
to: (i) violation of various provisions of the United States federal securities
laws, (ii) violation of various provisions of the Employee Retirement Income
Security Act of 1974 ("ERISA"), (iii) breach of fiduciary duty and (iv) breach
of contract. The lawsuits have been filed in both federal and state courts and
seek such remedies as compensatory damages, restitution, rescission, accounting
for wrongfully gotten gains, profits and compensation, injunctive relief,
disgorgement, equitable relief, various corrective measures under ERISA, that
the advisory agreement with AIM Advisors be rescinded and/or declared
unenforceable or void and that all advisory fees received during the past year
be refunded, with interest and the payment of attorneys' and experts' fees. The
AMVESCAP-affiliated parties have sought to remove certain of the state court
proceedings to the applicable United States Federal District Court. All lawsuits
based on allegations of market timing, late trading and related issues have been
transferred to the United States District Court for the District of Maryland,
referred to as the MDL Court, for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (1) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM funds
(formerly owned by INVESCO); (2) a Consolidated Amended Fund Derivative
Complaint purportedly brought on behalf of the AIM funds and fund registrants
(formerly owned by INVESCO); and (3) an Amended Class Action Complaint for
Violations of the ERISA purportedly brought on behalf of participants in
AMVESCAP's 401(k) plan. Plaintiffs in one of the underlying lawsuits transferred
to the MDL Court continue to seek remand of their action to state court.
AMVESCAP cannot predict the outcome of these actions or any of the other actions
mentioned above with certainty but intends to defend them vigorously.
The asset management industry is subject to extensive levels of ongoing
regulatory oversight and examination. In the United States and other
jurisdictions in which AMVESCAP operates, governmental authorities regularly
make inquiries, hold investigations and administer market conduct examinations
with respect to compliance with applicable laws and regulations. In particular,
the U.S. mutual fund industry as a whole is currently subject to regulatory
inquiries related to a wide range of issues including, among others, IPO
allocations, market timing activity, late trading, fair value pricing, excessive
or improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies, contractual plans, issues
related to Section 529 college savings plans and procedures for locating lost
security holders. Certain of AMVESCAP's subsidiaries and related entities,
certain of their respective current and former officers and/or certain of their
advised funds have received regulatory inquiries in the form of subpoenas or
other oral or written requests for information and/or documents related to one
or more of these issues.
Additional lawsuits or regulatory enforcement actions arising out of
these circumstances and presenting similar allegations and requests for relief
may in the future be filed against AMVESCAP and related entities and individuals
in the U.S. and other jurisdictions in which the Group operates. Moreover,
public trust and confidence are critical to AMVESCAP's business, and any
material loss of investor and/or client confidence could result in a decline in
assets under management, which would have an adverse effect on future financial
results and ability to grow the business.
29
Our investment management professionals are a vital part of our ability
to attract and retain clients, and the loss of a significant portion of
those professionals could result in a reduction of our revenues and
profitability.
Retaining highly skilled technical and management personnel is important
to our ability to attract and retain clients and retail shareholder accounts.
The market for investment management professionals is competitive and has grown
more so in recent periods as the volatility of the markets has increased and the
investment management industry has experienced growth. The market for investment
managers is also increasingly characterized by the frequent movement of
investment managers among different firms. In addition, since individual
investment managers often maintain a strong, personal relationship with their
clients that is based on their clients' trust in the manager, the departure of a
manager could cause the loss of client accounts, which could have a material
adverse effect on the results of operations and financial condition of AMVESCAP.
Our policy has been to provide our investment management professionals with
compensation and benefits that we believe are competitive with other leading
investment management firms. However, we may not be successful in retaining our
key personnel, and the loss of a significant portion, either in quality or
quantity, of our investment management personnel could reduce the attractiveness
of our products to potential and current clients and could, therefore, have a
material adverse effect on our revenues and profitability.
Competitive pressures may force us to reduce the fees we charge to
clients, increase commissions paid to our financial intermediaries or
provide more support to those intermediaries, all of which could reduce
our profitability.
The investment management business is highly competitive, and we compete
based on a variety of factors, including investment performance, the range of
products offered, brand recognition, business reputation, financing strength,
the strength and continuity of institutional management and producer
relationships, quality of service, the level of fees charged for services and
the level of compensation paid and distribution support offered to financial
intermediaries.
We and our business units compete in every market in which we operate with
a large number of investment management firms, commercial banks, investment
banks, broker-dealers, insurance companies and other financial institutions.
Some of these institutions have greater capital and other resources, and offer
more comprehensive lines of products and services, than we do. The recent trend
toward consolidation within the investment management industry has served to
increase the strength of a number of our competitors. These strengthened
competitors seek to expand their market share in many of the products and
services we offer. If successful, our profitability would be adversely affected.
In addition, there are relatively few barriers to entry by new investment
management firms, and the successful efforts of new entrants into our various
lines of business around the world, including major banks, insurance companies
and other financial institutions, has also resulted in increased competition.
Demand for our mutual fund products may decline, harming our business.
The marketplace for investment products is rapidly changing: investors are
becoming more sophisticated; the demand for and access to investment advice and
information are becoming more widespread; and more investors are demanding
investment vehicles that are customized to their personal situations.
Consequently, the increasing availability of alternative product types, such as
hedge funds, exchange traded funds and separate accounts, may result in a
decline in the demand for our mutual fund products, which would adversely affect
our business.
Our substantial indebtedness could adversely affect our financial
position.
We have a significant amount of indebtedness. As of December 31, 2004,
we had outstanding total debt of (pound)724.6 million, net debt of (pound)590.9
million and shareholders' funds of (pound)1.9 billion. The significant amount of
indebtedness we carry could limit our ability to obtain additional financing, if
needed, for working capital, capital expenditures, acquisitions, debt service
requirements or other purposes, increase our vulnerability to adverse economic
and industry conditions, limit our flexibility in planning for, or reacting to,
changes in our business or industry, and place us at a competitive disadvantage
compared to our competitors that have less debt. Any or all of the above factors
could materially adversely affect our financial position.
Our credit facility imposes restrictions on our ability to conduct
business and, if it were to be accelerated, we might not have sufficient
assets to repay it in full.
On March 31, 2005, we entered into a new five-year revolving credit
facility that refinanced and replaced our existing one-year and five-year credit
facilities. Our new credit facility requires us to maintain specified financial
ratios, including maximum debt-to-earnings and minimum interest coverage ratios.
This credit facility also contains customary affirmative operating covenants and
negative covenants that, among other things, restrict certain of our
subsidiaries' ability to incur debt and restrict our ability to transfer assets,
merge, make loans and other investments and create liens. The breach of any
covenant would result in a default under the credit facility. In the event of
any such default, lenders that are party to the credit facility could require
all amounts borrowed under the credit facility, together with accrued interest
and other fees, to be immediately due and payable. If any indebtedness under the
credit facility were to be accelerated, we might not have sufficient assets to
repay such indebtedness in full.
30
Changes in the distribution channels on which we depend could reduce our
revenues and hinder our growth.
We sell a portion of our investment products through a variety of
financial intermediaries, including major wire houses, regional broker-dealers,
banks and financial planners in North America, and independent brokers and
financial advisors, banks and financial organizations in Europe and Asia.
Increasing competition for these distribution channels could cause our
distribution costs to rise, which would lower our net revenues. Additionally,
certain of the intermediaries upon whom we rely to distribute our investment
products also sell their own competing proprietary funds and investment
products, which could limit the distribution of our products. Additionally, if
one of our major distributors were to cease their operations, it could have a
significant adverse affect on our revenues and earnings. Moreover, any failure
to maintain strong business relationships with these distribution sources would
impair our ability to sell our products, which could have a negative effect on
our level of assets under management, related revenues and overall business and
financial condition.
Our business is vulnerable to failures in support systems and customer
service functions that could lead to loss of customers or claims against
us or our subsidiaries.
The ability to consistently and reliably obtain securities pricing
information, process shareowner transactions and provide reports and other
customer service to the shareowners of funds managed by us is essential to our
continuing success. Any delays or inaccuracies in obtaining pricing information,
processing shareowner transactions or providing reports, and any inadequacies in
other customer service, could alienate customers and potentially give rise to
claims against us or our subsidiaries. Our and our subsidiaries' customer
service capability, as well as our ability to obtain prompt and accurate
securities pricing information and to process shareowner transactions and
reports, is highly dependent on communications and information systems and on
third-party vendors. These systems could suffer failures or interruptions due to
various natural or man-made causes, and our back-up procedures and capabilities
may not be adequate to avoid extended interruptions in operations.
Our ability to successfully integrate the varied segments of our
business could be impeded by systems and other technological
limitations.
Our continued success in effectively managing and growing our business,
both domestically and abroad, depends on our ability to integrate the varied
accounting, financial, information and operational systems of our various
businesses on a global basis. If we fail to integrate these systems, or fail to
do so on a timely basis, our profitability could be harmed.
Since a large part of our operations are denominated in U.S. dollars
while our financial results are reported in U.K. pounds sterling,
changes in the U.S. dollar to U.K. pounds sterling exchange rate may
affect our reported financial results from one period to the next.
The majority of our net assets, revenues and expenses, as well as our
assets under management, are presently derived from the United States, where the
functional currency is the U.S. dollar, while our financial statements are
reported in U.K. pounds sterling. As a result, fluctuations in the U.S. dollar
to U.K. pounds sterling exchange rate may affect our reported financial results
from one period to the next. We do not manage actively our exposure to such
effects. Consequently, changes in the U.S. dollar to the U.K. pounds sterling
exchange rate could have a material positive or negative impact on our reported
financial results.
Holders of our American Depositary Shares are exposed to currency
fluctuations that will affect the market price of their shares and the
amount of cash dividends they will receive.
Currency fluctuations will affect the U.S. dollar equivalent of the U.K.
pounds sterling price of the Ordinary Shares on the London Stock Exchange and,
as a result, are likely to affect the market price of the American Depositary
Shares on the New York Stock Exchange. Cash dividends are declared and paid in
U.K. pounds sterling but are paid at a date subsequent to their declaration.
Therefore, holders of American Depositary Shares are exposed to currency
fluctuations from the date of declaration of the dividend to the date when the
U.K. pounds sterling are converted to U.S. dollars by the Depositary for
distribution to holders of American Depositary Shares.
The carrying value of goodwill and certain investment balances on our
balance sheet could become impaired, which would adversely affect our
results of operations.
We have goodwill and investment balances on our balance sheet that are
subject to an annual impairment review. Intangible assets and goodwill totaled
(pound)2.3 billion at December 31, 2004. We may not realize the value of such
investment balances and goodwill. We perform impairment reviews of the book
values of goodwill and investments on a regular basis. A variety of factors
could cause such book values to become impaired. Should valuations be deemed to
be impaired, a write-down of the related asset would occur, adversely affecting
our results of operations for the period.
31
The daily trading volume of our American Depositary Shares on the New
York Stock Exchange is limited, which may adversely affect your ability
to buy and sell our American Depositary Shares and the trading price of
those shares.
Although the American Depositary Shares trade on the New York Stock
Exchange, the daily trading volume is limited. Our Ordinary Shares are not
listed on the New York Stock Exchange, and there is no trading market for the
Ordinary Shares in the United States.
Holders of American Depositary Shares may be restricted in their ability
to exercise voting rights.
Holders of American Depositary Shares will generally have the right under
the deposit agreement to instruct the Depositary to exercise their voting rights
for the Ordinary Shares represented by their American Depositary Shares. At our
request, the Depositary will mail to holders of American Depositary Shares any
notice of any shareholders' meeting received from us together with information
explaining how to instruct the Depositary to exercise the voting rights of the
securities represented by American Depositary Shares. If the Depositary receives
voting instructions from a holder of American Depositary Shares on a timely
basis, it is obligated to endeavor to vote the securities represented by the
holder's American Depositary Shares in accordance with those voting
instructions. The ability of the Depositary to carry out voting instructions,
however, may be restricted by practical limitations, such as time zone
differences and delays in mailing.
American Depositary Share holders may be unable to participate in rights
offerings and similar transactions in the future.
U.S. securities laws may restrict the ability of U.S. persons who hold
American Depositary Shares to participate in certain rights offerings or share
or warrant dividend alternatives which we may undertake in the future in the
event we are unable to, or choose not to, register those securities under the
U.S. securities laws and are unable to rely on an exemption from registration
therefrom. If we issue any securities of this nature in the future, we may issue
such securities to the Depositary for the American Depositary Shares, which may
sell those securities for the benefit of the holders of the American Depositary
Shares. We cannot offer any assurance as to the value, if any, the Depositary
would receive upon the sale of those securities.
32
Item 6. Directors, Senior Management and Employees
A. Directors and Senior Management
The following table identifies our current directors and members of
senior management.*
Name Age Position
---- --- --------
Charles W. Brady(a,c) 69 Executive Chairman; Chief Executive Officer; Director
Rex D. Adams(b,c,d) 64 Non-Executive Director
Sir John Banham(b,c,d) 64 Non-Executive Director
Joseph R. Canion(b,c,d) 60 Non-Executive Director
Dr. Thomas R. Fischer(b,c,d) 57 Non-Executive Director
Jean-Baptiste de Franssu(a) 41 Chief Executive Officer of INVESCO Continental Europe
Robert H. Graham(a) 58 Vice Chairman, Board of Directors; Chairman of AIM Division
Hubert L. Harris, Jr.(a) 61 Chief Executive Officer of INVESCO North America
Erick R. Holt(a) 52 General Counsel
Karen D. Kelley(a) 44 President of Fund Management Company; Director of Cash Management of AIM
Division
Denis Kessler(b,c,d) 52 Non-Executive Director
Edward Lawrence(b,c, 63 Non-Executive Director
Andrew Tak Shing Lo(a) 43 Chief Executive Officer of INVESCO Asia Pacific
Bevis Longstreth(b,c,d) 71 Non-Executive Director
John "Jack" S. Markwalter, Jr.(a) 45 Chief Executive Officer of Private Wealth Division
David A. Ridley(a) 52 Chief Executive Officer of INVESCO Alternatives Group
James I. Robertson(a) 47 Director; Chief Financial Officer; Executive Vice President of AMVESCAP
PLC
John D. Rogers(a) 43 Director; Chief Executive Officer of INVESCO Division; Executive Vice
President of AMVESCAP PLC
Philip A. Taylor(a) 50 Chief Executive Officer of AIM Trimark Investments
Mark H. Williamson(a) 53 Chief Executive Officer of AIM Divisions; Executive Vice President of
AMVESCAP PLC
------------
* None of our directors or members of senior management has any family
relationship with any other director or member of senior management.
(a) Member of the Executive Management Committee
(b) Member of the Audit Committee
(c) Member of the Nomination and Corporate Governance Committee
(d) Member of the Remuneration Committee
Charles W. Brady (69) Executive Chairman (USA)
Charles Brady has served as executive chairman of the Board of Directors of our
company since 1993, chief executive officer of our company since 1992 and a
director of our company since 1986. He was a founding partner of INVESCO Capital
Management Inc., which merged with our predecessor organization in 1988. Mr.
Brady began his investment career in 1959 after graduating with a B.S. from the
Georgia Institute of Technology. He also attended the Advanced Management
Program at the Harvard Business School. Mr. Brady is a director of the Atlanta
College of Art, trustee of the Georgia Tech Foundation and the Carter Library,
and director of the National Bureau of Asian Research.
Rex D. Adams (64) Non-Executive (USA)
Rex Adams has served as a non-executive director of our company since November
2001 and is chairman of the Remuneration Committee. Mr. Adams was dean of the
Fuqua School of Business at Duke University from 1996 to 2001 and is now a
professor of business administration. He joined Mobil International in London in
1965 and served as executive vice president of administration for Mobil
Corporation from 1988 to 1996. Mr. Adams received a B.A. magna cum laude from
Duke University. He was selected as a Rhodes scholar in 1962 and studied at
Merton College, Oxford University. Mr. Adams serves on the boards of directors
of Allegheny Corporation, PBS and Vintage Petroleum.
Sir John Banham (64) Non-Executive (UK)
Sir John Banham has served as a non-executive director of our company since 1999
and is chairman of the Nomination and Corporate Governance Committee. He is
chairman of both Whitbread PLC and Geest plc. Sir John was director general of
the Confederation of British Industry from 1987 to 1992, a director of both
National Power and National Westminster Bank from 1992 to 1998, chairman of
Tarmac PLC from 1994 to 2000 and chairman of Kingfisher PLC from 1995 to 2001.
Sir John is a graduate of Cambridge University and has been awarded honorary
doctorates by four leading U.K. universities.
33
Joseph R. Canion (60) Non-Executive (USA)
Joseph Canion has served as a non-executive director of our company since 1997.
He was a director of AIM from 1991 through 1997, when AIM merged with INVESCO.
Since 1992, Mr. Canion has served as chairman of Insource Technology
Corporation, a business and technology management company based in Houston. He
was co-founder and, from 1982 to 1991, chief executive officer, president and a
director of Compaq Computer Corporation.
Dr. Thomas R. Fischer (57) Non-Executive (Germany)
Dr. Thomas R. Fischer has served as a non-executive director of our company
since February 2004. He is chairman of the Managing Board at WestLB AG. Dr.
Fischer began his career working for Varta Batterie AG before joining Deutsche
Bank AG in 1985 as deputy director of corporate development. While at Deutsche
Bank, he assumed a number of jobs with increasing responsibility, ultimately
serving as chief operating officer and a member of the Management Board. Dr.
Fischer is also a member of the Audi AG and TUI AG Boards as a non-executive
director, and holds a Ph.D. in business economics from the University of
Freiburg.
Jean-Baptiste de Franssu (41) Chief Executive Officer of INVESCO Continental
Europe (France)
Jean-Baptiste de Franssu has served as a member of the Executive Management
Committee of our company since May 2001 and chief executive officer of INVESCO
Continental Europe since 1999. He is also a member of the INVESCO Management
Committee where, in addition to his European responsibilities, he leads the
worldwide brand and product line management efforts. He joined our company as
managing director of INVESCO France in 1990 after four years spent as a director
of Groupe Caisse des Depots et Consignations in France. Mr. de Franssu is a
graduate of the ESC Group in Rheims. He received a B.A. from Middlesex
University in the U.K. and post-graduate actuarial degree from Pierre et Marie
Curie University in Paris.
Robert H. Graham (58) Vice Chairman & Chairman of AIM Division (USA)
Robert Graham has served as vice chairman of the Board of Directors of our
company since February 2001, a director of our company since 1997 and chief
executive officer of the managed products division from 1997 to January 2001.
Mr. Graham is chairman of the AIM division, which includes A I M Management
Group Inc., a company he co-founded in 1976. Mr. Graham received a B.S., an M.S.
and an MBA from the University of Texas at Austin and has been in the investment
business since 1972. He has served as a member of the Board of Governors and the
Executive Committee of the Investment Company Institute, and as chairman of the
Board of Directors and Executive Committee of the ICI Mutual Insurance Company.
Hubert L. Harris, Jr. (61) Chief Executive Officer of INVESCO North America
(USA)
Hubert Harris has served as chief executive officer of INVESCO North America
since August 2003 and a director of our company from 1993 to February 1997, and
from 1998 to December 2004. He was chief executive officer of AMVESCAP
Retirement from 1998 until 2003. He served as assistant director of the Office
of Management and Budget in Washington, DC, during President Carter's
administration and president and executive director of the International
Association for Financial Planning. Mr. Harris serves as a trustee and member of
the Executive Committee of the Georgia Tech Foundation and vice president and
member of the Executive Committee of the National Defined Contribution Council.
Mr. Harris received a B.S. from the Georgia Institute of Technology and an MBA
from Georgia State University.
Erick R. Holt (52) General Counsel (USA)
Erick Holt has served as a member of the Executive Management Committee of our
company and general counsel since January 2003. Before joining our company as
group compliance officer in July 1999, he worked at Citibank as director of
compliance for the investment products and distribution division. Mr. Holt began
his career at Bronson, Bronson & McKinnon in San Francisco in 1979. He joined
Dean Witter Reynolds in 1984, was named assistant general counsel in 1987 and
became director of compliance in 1989. He received an A.B. with honors from the
University of California and a J.D. from the University of San Francisco, where
he was an editor of the Law Review. He is a member of the International
Committee of the Investment Company Institute and the NASD's District 7 Business
Conduct Committee.
Karen Dunn Kelley (45) President of Fund Management Company & Director of Cash
Management of AIM Division (USA)
Karen Dunn Kelley has served as a member of the Executive Management Committee
of our company since February 2004 and as director of cash management, president
of Fund Management Company and managing director of A I M Capital Management,
Inc. since 2001. She also serves as vice president of A I M Advisors, Inc. and
director of AIM Global, and is on the AIM Global Management Company, Ltd. and
Short-Term Investments Co. Global Series of Funds Boards. Ms. Kelley held
positions at Drexel Burnham Lambert and Federated Investors Inc. before joining
A I M Management Group Inc. as a money market portfolio manager in 1989 and
becoming chief money market officer in 1992. She received a B.S. magna cum laude
from Villanova University's College of Commerce and Finance.
34
Denis Kessler (52) Non-Executive (France)
Denis Kessler has served as a non-executive director of our company since March
2002. A noted economist, Mr. Kessler is chairman and chief executive officer of
SCOR. He is chairman of the Boards of Directors of SCOR U.S. Corporation, SCOR
Life U.S. Reinsurance and SCOR Reinsurance Company, and serves as a member of
the Boards of Directors of Dexia SA, BNP Paribas, Bollore Investissement SA,
Dassault Aviation and Cogedim. Mr. Kessler received a Diplome from the Paris
Business School (HEC) and a Doctorat d'Etat in economics from the University of
Paris.
Edward P. Lawrence (63) Non-Executive (USA)
Edward Lawrence has served as a non-executive director of our company since
October 2004. He is a partner at Ropes & Gray, a Boston law firm, where he also
heads the investment committee of the firm's trust department. Mr. Lawrence is a
graduate of Harvard College and earned a J.D. from Columbia University Law
School. He serves on the board of the Attorneys' Liability Assurance Society,
Ltd., is chairman of the Board of the Massachusetts General Hospital and is
trustee of both Partners Healthcare System, Inc. in Boston and McLean Hospital
in Belmont, MA.
Andrew T.S. Lo (43) Chief Executive Officer of INVESCO Asia Pacific (China)
Andrew Lo has served as a member of the Executive Management Committee of our
company since May 2001 and chief executive officer of INVESCO Asia Pacific since
February 2001. He joined our company as managing director for INVESCO Asia in
1994. Mr. Lo began his career as credit analyst at Chase Manhattan Bank in 1984.
He became vice president of the investment management group at Citicorp in 1988
and was managing director of Capital House Asia from 1990 to early 1994. Mr. Lo
was chairman of the Hong Kong Investment Funds Association from 1996 to 1997, a
member of the Council to the Stock Exchange of Hong Kong from 1997 to February
2000 and a member of the Advisory Committee to the Securities and Futures
Commission in Hong Kong from 1997 to March 2001. He received a B.S. and an MBA
from Babson College in the U.S.
Bevis Longstreth (71) Non-Executive (USA)
Bevis Longstreth has served as a non-executive director of our company since
1993 and is chairman of the Audit Committee. Mr. Longstreth was a partner at
Debevoise & Plimpton from 1970 to 1981, and from 1984 to 1997. He was a
commissioner of the Securities and Exchange Commission from 1981 to 1984. In
1999, Mr. Longstreth was appointed by the Public Oversight Board to the Panel on
Audit Effectiveness, which conducted a study resulting in a report calling for
major audit reform. In 2004, he was appointed by the newly-empowered Public
Company Accounting Oversight Board to its Standing Advisory Group, on which he
now sits. Mr. Longstreth is a frequent writer on issues of corporate governance,
banking and securities law, and is the author of "Modern Investment Management
and the Prudent Man Rule" (1986), a book on law reform. He is a graduate of
Princeton University and the Harvard Law School, and is a trustee of the College
Retirement Equities Fund (CREF) and a member of the Board of Directors of
Grantham Mayo & Von Otterloo LLC, a Boston-based investment management firm.
John "Jack" S. Markwalter Jr. (45) Chief Executive Officer of Private Wealth
Management Division (USA)
Jack Markwalter has served as chief executive officer and president of Atlantic
Trust, the private wealth management division of AMVESCAP, since January 2004
and a member of the Executive Management Committee since October 2004. He joined
Atlantic Trust as head of business development in 2002 and has over 18 years of
experience in private wealth management, having previously worked at Morgan
Stanley since 1986. Mr. Markwalter received a B.S. with highest honors from
Georgia Institute of Technology and an MBA from Harvard Business School. He
serves as chairman of the Helen Keller Foundation and is a member of the Board
of Trustees for Georgia Institute of Technology's Alexander-Tharpe Fund, Board
of Trustees for Pace Academy and Board of Directors for St. Joseph's Hospital
Mercy Foundation.
David A. Ridley (52) Chief Executive Officer of INVESCO Alternatives Group (USA)
David Ridley has served as managing partner of INVESCO Real Estate since its
inception in 1983, chief executive officer of the INVESCO alternatives group
since April 2004 and a member of the Executive Management Committee of our
company since October 2004. He is also chairman of the INVESCO Real Estate
Executive Committee and sits on the Direct U.S. Real Estate, Global Real Estate
Securities and European Real Estate committees. He has extensive experience in
the alternative asset class, having worked for over 29 years in the discipline.
Mr. Ridley received a Bachelor of Business Administration in finance from the
University of Texas at Austin. He holds key memberships with institutions such
as Urban Land Institute, Pension Real Estate Association and National
Association of Real Estate Investment Managers.
James I. Robertson (47) Executive Vice President & Chief Financial Officer (UK)
James Robertson has served as chief financial officer and a member of the Board
of Directors of our company since April 2004, and as a member of the Executive
Management Committee of our company since March 1999. He joined our company as
director of finance and corporate development for INVESCO's Global division in
1993 and repeated this role for the Pacific division in 1995. Mr. Robertson
became managing director of global strategic planning in 1996 and has served as
chief executive officer of AMVESCAP Group Services, Inc. since 2001. He holds an
M.A. from Cambridge University and is a member of the Institute of Chartered
Accountants of England and Wales.
35
John D. Rogers (43) Executive Vice President & Chief Executive Officer of
INVESCO Division (USA)
John Rogers has served as an executive director of our company since March 2004
and chief executive officer of INVESCO Institutional and a member of the
Executive Management Committee of our company since December 2000. He became
chief executive officer of the INVESCO division in January 2003. He joined the
company as chief investment officer and president of INVESCO's Tokyo office in
1994 and became chief executive officer and co-chief investment officer of
INVESCO Global Asset Management (N.A.), Inc. in 1997. Mr. Rogers received a B.A.
cum laude from Yale University and an M.A. from Stanford University. He is a
chartered financial analyst.
Philip A. Taylor (50) Chief Executive Officer of AIM Trimark Investments
(Canada)
Philip Taylor has served as chief executive officer of AIM Trimark Investments
since January 2002 and became a member of the Executive Management Committee of
our company in January 2003. He joined AIM Funds Management Inc. in 1999 as
senior vice president of operations and client services and later became
executive vice president and chief operating officer. Mr. Taylor was president
of Canadian retail broker Investors Group Securities Inc. from 1994 to 1997 and
managing partner of Meridian Securities from 1989 to 1994. He held various
management positions with Royal Trust, now part of Royal Bank of Canada, from
1982 to 1989. Mr. Taylor received an Honors B. Comm. degree from Carleton
University and an MBA from the Schulich School of Business at York University.
Mark H. Williamson (52) Executive Vice President & Chief Executive Officer of
AIM Division (USA)
Mark Williamson has served as a member of the Executive Management Committee of
our company since December 1999 and became chief executive officer of the AIM
division in January 2003. He was chief executive officer of the managed products
division from February 2001 to December 2002 and chairman and chief executive
officer of INVESCO Funds Group Inc. from 1998 to December 2002. Mr. Williamson
began his career at Merrill Lynch in 1976. He joined C&S Securities in 1985 and
was named managing director in 1988. He became chairman and chief executive
officer of NationsBank's mutual funds and brokerage subsidiaries in 1997. Mr.
Williamson graduated from the University of Florida and is a member of the Board
of Directors of ICI Mutual Insurance Company.
Company Secretary: Michael S. Perman FCIS
36
B. Compensation
Information for Messrs. de Franssu, Holt, Lo, Markwalter, Ridley,
Rogers, Taylor and Williamson and Ms. Kelley is included in the tables below
under the references to other senior management as a group as permitted by SEC
rules. The other members of our Executive Management Committee also serve as
directors of our company and are not included in references to other senior
management as a group.
Salary, Bonus and Other Benefits
The remuneration of our executive chairman, executive directors, other
senior management as a group and non-executive directors during the fiscal year
ended December 31, 2004 is set forth in the following tables:
(pound)'000 Salary(a) Variable compensation(a,b) Benefits(a,d) Total(a)
----------- ------------------- -------------------------- ------------------ ------------
Executive Chairman:
Charles W. Brady 309 641 32 982
Executive Directors:
The Hon. Michael D. Benson(l) 357 352 37 746
Robert H. Graham 273 61 24 358
Hubert L. Harris, Jr.(h) 241 293 26 560
Robert F. McCullough(i) 75 77 9 161
James I. Robertson(j) 146 401 14 561
Other Senior Management
as a Group (Twelve Persons) 2,180 4,550 210 6,940
Non-Executive Directors:
Rex D. Adams 55 -- -- 55
Sir John Banham(e) 65 -- -- 65
Diane P. Baker(k) 14 -- -- 14
Joseph R. Canion(c) 55 -- -- 55
Dr. Thomas R. Fischer(e,g) 65 -- -- 65
Denis Kessler(e) 65 -- -- 65
Edward P. Lawrence(f) 14 -- -- 14
Bevis Longstreth(c) 55 -- -- 55
Stephen K. West(m) 55 -- -- 55
---------------------------------------------------------------------------------------------------------------------------
(a) Underlying amounts for U.S.-domiciled directors have been translated at
the average foreign exchange rate of $1.83/(pound)1.00 for 2004.
(b) In 2004, approximately 15% of the variable compensation was paid into
the GSP and used to purchase shares of the Company on the open market.
See "AMVESCAP Global Stock Plan ("GSP")," included elsewhere herein.
(c) A portion of compensation was deferred pursuant to the AMVESCAP Deferred
Fees Share Plan.
(d) Includes contributions to a defined contribution pension scheme as
follows: C.W. Brady ((pound)11,000); The Hon. M.D. Benson
((pound)36,000); R.H. Graham and H.L. Harris, Jr. ((pound)16,000); R.F.
McCullough ((pound)5,000); J.I. Robertson ((pound)10,000); other senior
management as a group (twelve persons) ((pound)117,000). Our
non-executive directors do not participate in any pension scheme.
(e) Includes (pound)10,000 for service on the INVESCO European Advisory
Board for 2004.
(f) Appointed October 12, 2004.
(g) Appointed January 29, 2004.
(h) Resigned December 31, 2004.
(i) Retired April 29, 2004.
(j) Appointed April 29, 2004.
(k) Resigned February 27, 2004.
(l) Resigned March 31, 2005.
(m) Retired April 28, 2005.
37
Option Grants
We granted the following options to purchase our Ordinary Shares to the
following executive directors and other senior management as a group during
2004. We did not grant any options to our non-executive directors during 2004.
Option
Exercise
Name Number of Shares Price Expiration Date
---- ---------------- ----- ---------------
Charles W. Brady 200,000 319.25p December 2014
The Hon. Michael D. Benson 100,000 319.25p December 2014
Robert H. Graham 100,000 319.25p December 2014
Hubert L. Harris, Jr. 100,000 319.25p December 2014
James I. Robertson 100,000 319.25p December 2014
Other senior management as a group (nine persons) 800,000 319.25p December 2014
AMVESCAP Executive Share Option Schemes
Our executive directors and qualifying employees of our participating
subsidiaries are eligible to be nominated for participation in various of our
option plans (the "AMVESCAP Executive Share Option Schemes"). Options under the
AMVESCAP Executive Share Option Schemes entitle the holder to acquire Ordinary
Shares at a certain price. Options generally remain exercisable between the
third and tenth anniversaries of the date of the grant. The AMVESCAP Executive
Share Option Schemes contain limits upon the participation by each individual.
AMVESCAP Global Stock Plan ("GSP")
The GSP is a remuneration scheme for senior executives. There were
approximately 317 participants in the GSP at December 31, 2004. This
profit-linked variable compensation plan is paid annually into a discretionary
employee benefit trust, which then purchases shares of the Company from time to
time in the open market. These shares are allocated within the trust and are
distributed to the participants at the end of a three-year vesting period,
unless the individual elects to defer distribution until retirement or
termination of employment. Prior to 2002, all shares were held in the trust
until retirement or termination of employment. The trust held 35,211,858
Ordinary Shares on December 31, 2004, and 34,695,182 Ordinary Shares on February
28, 2005, including 26,224,640 Ordinary Shares at December 31, 2004 and February
28, 2005, to partially cover the obligations of the long-term incentive plan
described below. On February 28, 2005, our executive directors and other senior
management as a group had interests in the Ordinary Shares held by the AMVESCAP
Global Stock Plan as set forth in the table below.
Name Interest
---- --------
Charles W. Brady 745,552
The Hon. Michael D. Benson 27,774
Robert H. Graham 40,652
Hubert L. Harris, Jr. 187,700
James I. Robertson 134,707
Other senior management as a group (nine persons) 603,506
A long-term incentive plan ("LTIP") was established on December 1, 2002
under the GSP to retain and motivate key executives representing the next
generation of management of the company and to ensure future succession in the
business. With the exception of Mr. James I. Robertson, who was a participant
prior to his appointment to the Board, no other directors of the company are
participants in the LTIP. Under the LTIP, our Remuneration Committee makes
periodic awards to key executives of the company. Historically, individual
awards have ranged in size up to 1,500,000 Ordinary Shares and vest in
installments of one-third in each of the last three years of the plan term
(maximum 7 years). This plan is being funded with shares purchased from
time-to-time in the open market. Shares allocated under the LTIP arrangements
are distributed to the key executives at the end of the respective vesting
periods, unless the individual elects to defer distribution until retirement or
termination of employment.
INVESCO Employee Stock Ownership Plan
The INVESCO Employee Stock Ownership Plan (the "ESOP") was established
for employees of certain of our U.S. subsidiaries. Participating subsidiaries
made stock bonus contributions to the ESOP comprising cash and/or our securities
in respect of their employees who participate in the ESOP. Accounts were
established in respect of each participant's allocation of contributions to the
ESOP, which were held by the trustee in accordance with the terms of the ESOP.
Certain members of the Board and senior management participate in the ESOP. The
ESOP was closed to further activity effective January 1, 2000. As of February
28, 2005, our executive directors and other senior management as a group had the
following interests in Ordinary Shares
38
held by the ESOP:
Name Interest
---- --------
Charles W. Brady 97,381
Hubert L. Harris, Jr. 87,729
James I. Robertson 13,393
Other senior management as a group (nine persons) 107,461
C. Board Practices
Non-executive Directors. Non-executive directors do not have formal
fixed term contracts; however, under our Articles of Association, all directors
are required to retire by rotation, and under the principles described below,
approximately one third of our Board of Directors (the "Board") is required to
seek re-election each year. Re-election is subject to shareholders' approval.
Non-executive directors have letters of appointment which set out the terms and
conditions of their appointment and their expected time commitment. We do not
provide non-executive directors with benefits upon termination of service.
Non-executive directors may serve on the Board beyond their 70th birthday and
after serving as a director for more than nine consecutive years. Any director
(whether executive or non-executive) over the age of 70 years, and any
non-executive director who has served for more than nine years, will thereafter
stand for re-election on an annual basis. Any director appointed during the
fiscal year will stand for election at the next annual general meeting. In any
year, after determination of the directors standing for election or re-election
pursuant to the preceding principles, approximately one third of the remaining
Board members must stand for re-election. The Board has identified Sir John
Banham as the senior independent director available for communication from
shareholders directly with our Board.
At the Annual General Meeting of the Company held on April 28, 2005 each
of Messrs. Rex Adams, Sir John Banham, Denis Kessler and Bevis Longstreth were
re-elected to the Board. Mr. Longstreth, who is over the age of 70 years, is
required to seek re-election each year. Mr. Longstreth, Mr. Adams, Sir John
Banham and Mr. Kessler were the only non-executive directors seeking re-election
in 2005. Mr. Edward Lawrence was appointed to the Board since the 2004 Annual
General Meeting and was elected by shareholders at the 2005 Annual General
Meeting. Mr. Stephen West retired from the Board with effect from the conclusion
of the Annual General Meeting.
Executive Directors. Executive directors are employed under continuing
contracts of employment that can be terminated by either party under notice
provisions of up to one year. Executive directors' compensation arrangements,
including participation in the Executive Share Option Schemes and bonus
arrangements, are determined by the Remuneration Committee, which consists
solely of non-executive directors. Mr. Charles Brady is the only executive
director seeking re-election in 2004. Mr. John D. Rogers was appointed to the
Board since the 2004 Annual General Meeting. In accordance with the Articles of
Association, Mr. Rogers will offer himself for election by shareholders at the
2005 Annual General Meeting.
Chairman and Chief Executive. During 2004, we announced our intention to
separate the roles of chairman and chief executive, with the appointment of a
new chief executive. A committee of non-executive directors has been conducting
the selection process, with the assistance of an international executive search
firm. In order to implement this division of roles, our shareholders have
approved an amendment to our Articles of Association. The amendment has been
published on our Internet website, www.amvescap.com.
Audit Committee. The Audit Committee consists solely of non-executive
directors who are "independent" as such term is defined by the New York Stock
Exchange. Mr. Longstreth chairs the Audit Committee. The other members of the
Audit Committee are Messrs. Adams, Banham, Canion, Fischer, Kessler and
Lawrence.
The Audit Committee is responsible for accounting and financial policies
and controls being in place, ensuring that auditing processes are properly
coordinated and work effectively, reviewing the scope and results of the audit
and its cost effectiveness, recommending to the shareholders at the Annual
General Meeting the approval of the choice of auditors, and ensuring the
independence and objectivity of the auditors, including the nature and amount of
non-audit work supplied by the auditors. The Audit Committee has direct access
to our auditors. The Audit Committee receives periodic reports from management
and our auditors on the system of internal controls and significant financial
reporting issues. Our compliance function regularly reports on significant
regulatory compliance matters. The Audit Committee pre-approves the audit and
non-audit services performed by the independent auditor to assure that the
auditor's independence is not impaired. The Audit Committee does not favor
having its independent auditors perform non-audit services, and a non-audit
service is not approved unless it is obvious to the Audit Committee that
performance of such service by the auditor will serve the Company's interests
better than performance of such service by other providers. The Audit Committee
ensures that such services are consistent with
39
applicable national rules on auditor independence. The Audit Committee Terms of
Reference and policy on non-audit services can be found on the Company Web site.
The Audit Committee met four times in 2004.
The following is a summary of the terms of reference for the Audit
Committee:
The purpose of the Audit Committee is to assist the Board in fulfilling
the oversight of: the integrity of the Company's financial information and
statements; the Company's internal financial controls and internal control and
risk management systems; the appointment and removal of the external auditor;
the independence, objectivity, qualifications and performance of the external
auditors and the effectiveness of the audit process; the annual evaluation of
the effectiveness of the compliance functions and activities; and the
development and implementation of policy on the supply of audit and non-audit
services. The Committee must have at least three members, and each member of the
Committee must be a non-executive director who meets the independence
requirements of the Combined Code, New York Stock Exchange ("NYSE") listing
standards and SEC rules. The members of the Committee are appointed by the Board
on the recommendation of the Nomination and Corporate Governance Committee, and
the Chairman of the Committee is designated by the Board.
The Committee has responsibilities that include the following: sole
authority to approve all audit engagement fees and terms and the sole authority
to pre-approve all non-audit engagements; to annually discuss with the external
auditors the nature and scope of the audit; to review and discuss with the
external auditors problems or difficulties arising from the audits; to review
and discuss the company's annual audited financial statements and quarterly
financial statements with management and the independent auditor; to review the
application of significant regulatory, accounting and auditing initiatives; to
review and assess the adequacy and effectiveness of internal accounting
procedures and internal controls; to establish and review procedures for the
receipt, retention and investigation of complaints received by the Company
regarding accounting, internal accounting controls, or auditing matters and the
confidential, anonymous submission by employees of the Company of concerns
regarding questionable accounting, auditing or other matters; to report promptly
to the Board any issues that arise with respect to the quality or integrity of
the Company's publicly reported financial statements; and to review and approve
for disclosure the report in the Company's Annual Report on the role of the
Committee and the activities it has undertaken during the fiscal year covered by
the Annual Report.
The Committee is required to meet as often as needed and no less than
two times per year. Meetings may be requested by the external auditors whenever
they consider it necessary. A quorum of the Committee is to consist of two
members. Minutes of each of the Committee meetings are to be kept and circulated
to the full Board.
Remuneration Committee. The Remuneration Committee consists solely of
non-executive directors who are "independent" as such term is defined by the
Combined Code. Mr. Adams chairs the Remuneration Committee. The other members of
the Remuneration Committee are Messrs. Banham, Canion, Fischer, Kessler,
Lawrence and Longstreth. The Remuneration Committee determines specific
remuneration packages for each executive director and member of the Executive
Management Committee. The Remuneration Committee also addresses remuneration
issues that affect the interests of shareholders, including share option plans
and performance-linked remuneration arrangements. The Remuneration Committee met
three times in 2004.
The following is a summary of the terms of reference for the
Remuneration Committee:
The Committee is responsible for reviewing and approving the
remuneration, benefits, bonuses, share options and share incentive awards of the
Executive Chairman, the Executive Directors, the members of the Executive
Management Committee and the Company Secretary, and for approving the pools
available for bonuses, share options and share incentive awards for Global
Partners of the Company.
The Committee is to be composed of at least three members, all of whom
must be non-executive directors who meet the independence requirements of the
Combined Code. The members of the Committee are to be appointed by the Board of
Directors on the recommendation of the Nomination and Corporate Governance
Committee. The Board of Directors may at any time remove members and may fill
any vacancy on the Committee.
The Committee is responsible for: (i) annually reviewing and approving
all goals relevant to the Executive Chairman's remuneration; evaluating the
Executive Chairman's performance in light thereof; and establishing the
Executive Chairman's base salary and performance related remuneration or
benefits, based on such evaluation; (ii) annually evaluating and fixing the base
salary level and performance related remuneration or benefits of, and approving
share options, pension entitlements and all other compensation for, each
Executive Director, each member of the Executive Management Committee, the
Company Secretary and each member of senior management; (iii) approving the
pools available for bonuses, share options and share incentive awards for Global
Partners; (iv) making regular reports to the Board concerning the activities of
the Committee, (v) reviewing and approving for disclosure the report in the
Company's Annual Report on remuneration; (vi) from time to time, reviewing the
adequacy of the Committee's functions, taking into account changes in law and
good practice, and suggesting improvements to the full Board; and
40
(vii) conducting an annual evaluation of it's performance.
The Committee has the exclusive authority to retain, at Company expense,
and to terminate, remuneration consultants, including the sole authority to
approve the consultant's fees and other retention terms. A quorum of the
Committee is to consist of two members. Minutes of the meetings are to be kept
and circulated to the full Board.
Nomination and Corporate Governance Committee (formerly the "Nomination
and Board Governance Committee"). The Nomination and Corporate Governance
Committee consists of all of the non-executive directors and the Executive
Chairman. Sir John Banham, as the senior independent director, chairs the
Nomination and Corporate Governance Committee. The Nomination and Corporate
Governance Committee is responsible for analyzing and making proposals with
respect to the structure and composition of the Board and matters of corporate
governance and Board effectiveness. The Committee conducts a regular review of
the balance of skills and knowledge on the Board, is actively involved in the
succession planning process for senior management, considers the capabilities
and skills required for new Board appointments, carries out a formal selection
process of candidates when necessary, and makes recommendations to the Board
regarding changes in the composition of Board membership.
The Nomination and Corporate Governance Committee is responsible for
creating a list of potential Board candidates that takes into account the
necessary skills and expertise which may be required by the Company. Candidates
for election to the Board are considered in light of their background and
experience using the extensive personal knowledge of current directors or
through the recommendations of various advisors to the Group. The Company does
not presently utilize the services of recruitment consultants believing that
personal knowledge and recommendation of individual candidates by a Board member
is more effective in meeting the needs of the Board for the necessary skills and
expertise.
An annual review of the effectiveness of the Board, including its
Committee structure and operation, is conducted by the senior independent
director using confidential personal interviews with individual members of the
Board. His report is considered by the Nomination and Corporate Governance
Committee, and such committee in turn reports to and makes any recommendations
to the Board. A review was last conducted in June 2005. In turn, the independent
directors consider the performance and effectiveness of the senior independent
director.
The Nomination and Corporate Governance Committee met five times in
2004.
Executive Management Committee (formerly the "Executive Board"). The
Board has appointed an Executive Management Committee consisting of certain
members of the Board and members of senior management of the company to oversee
and supervise the business and strategy of the company as a whole and to approve
and coordinate the activities of the divisional management committees for our
four operating groups. As of February 28, 2005, the Executive Management
Committee consisted of Messrs. Benson, Brady, de Franssu, Graham, Harris, Holt,
Lo, Markwalter, Ridley, Robertson, Rogers, Taylor and Williamson and Ms. Kelley.
Membership of the Executive Management Committee may vary with the approval and
consent of the Board. Members of the Executive Management Committee serve until
they resign from the Executive Management Committee or the Board decides to
change the membership of the Executive Management Committee. The Executive
Management Committee is chaired by the Executive Chairman. As of February 28,
2005, there were 14 members of this committee with representation from every
major part of the Group's business. The Executive Management Committee meets in
person or by conference telephone call at least ten (10) times per year and
regularly meets with the Board to review strategy and status of business
operations, thereby providing an important linkage between senior management and
the independent directors.
As to each director of the company and each member of the Executive
Management Committee, the period during which such person has served in that
office is set forth elsewhere herein under "Directors and Senior Management."
D. Employees
As of December 31, 2004, we employed 6,693 people, of whom approximately
71% were located in North America. See "Item 4. Information on the
Company--Business Overview," included elsewhere herein, for a breakdown of
headcount by operating group as of December 31, 2004. As of December 31, 2003
and 2002, we employed 6,747 and 7,581 people, respectively. The decreases in
headcount were due to reductions in force we made during those years. None of
our employees is covered under collective bargaining agreements.
41
E. Share Ownership
Ownership of Ordinary Shares
The following table discloses, as of February 28, 2005 (unless otherwise
indicated), holdings of Ordinary Shares by our directors and senior management:
--------------------- --------------------------
Ordinary Shares(1) Percent of Outstanding
Ordinary Shares(6)
--------------------- --------------------------
Charles W. Brady(2) 5,998,219 *
Rex D. Adams 31,216 *
Sir John Banham 7,500 *
The Hon. Michael D. Benson(2) 854,120 *
Joseph R. Canion(3) 2,000 *
Dr. Thomas R. Fischer - *
Jean-Baptiste de Franssu(2) 1,653,237 *
Robert H. Graham(2,4) 27,877,700 3.43%
Hubert L. Harris, Jr. (2) 1,367,555 *
Erick R. Holt(2) 155,209 *
Karen D. Kelley(2) 2,067,916 *
Denis Kessler 2,200 *
Edward P. Lawrence - *
Andrew Tak Shing Lo(2) 1,574,289 *
Bevis Longstreth(3,5) 70,440 *
John S. Markwalter(2) 1,127,916 *
David A. Ridley(2) 608,889 *
James I. Robertson(2) 2,237,845 *
John D. Rogers(2) 2,078,474 *
Philip A. Taylor (2) 226,925 *
Stephen K. West 209,439 *
Mark H. Williamson(2) 2,035,941 *
--------------
* Less than 1%.
(1) Ordinary Shares include (i) shares held as American Depositary Shares,
and (ii) options and other rights to purchase Ordinary Shares held by
such individuals that are exercisable within 60 days, as further
described in note (6) to this table. For information regarding ownership
of stock options, see "Options to Purchase Securities from AMVESCAP,"
included elsewhere herein. The shares identified in this table do not
have different voting rights from any other Ordinary Shares.
(2) Excludes (a) interests of Messrs. Brady, Benson, de Franssu, Graham,
Harris, Holt, Ms. Kelly, Lo, Markwalter, Ridley, Robertson, Rogers,
Taylor and Williamson in the AMVESCAP Global Stock Plan as set forth in
the section entitled "AMVESCAP Global Stock Plan," included elsewhere
herein, and in the AMVESCAP Executive Share Option Schemes as set forth
in the section entitled "Options to Purchase Securities from AMVESCAP,"
included elsewhere herein; and (b) interests of Messrs. Brady, Harris,
Ridley, Robertson, Rogers and Williamson in Ordinary Shares held in the
ESOP, as set forth in the section entitled "INVESCO Employee Stock
Ownership Plan," included elsewhere herein.
(3) Excludes interests in 11,253 and 69,731 Ordinary Shares held by Messrs.
Canion and Longstreth, respectively, pursuant to the AMVESCAP Deferred
Fees Share Plan.
(4) Includes 26,193,653 Ordinary Shares owned by a limited partnership of
which Mr. Graham is the managing general partner.
(5) Represents shares held by a limited partnership of which Mr. Longstreth
is a general partner.
(6) In computing percentage ownership (i) as required by General Instruction
F to Form 20-F, each person is also considered to be the "beneficial
owner" of securities that such person has the right to acquire within 60
days by option or other agreement, including by exchange of Exchangeable
Shares, and (ii) all shares described in (i) immediately above are, as
to such beneficial owner, deemed outstanding; these shares, however, are
not deemed outstanding for purposes of computing the percentage
ownership of any other person.
42
Options to Purchase Securities from AMVESCAP
All outstanding options to purchase our shares have been issued under
the AMVESCAP Executive Share Option Schemes.
The table below is a summary of outstanding options to acquire Ordinary
Shares held by our executive directors and senior management as of February 28,
2005. As of February 28, 2005, none of our non-executive directors had
outstanding options to acquire Ordinary Shares:
--------------------------------------------------------------------------------
Number of Option Expiration
Name Shares Exercise Price Date
--------------------------------------------------------------------------------
Charles W. Brady 500,000 244.0p Nov 2006
100,000 422.5p Nov 2007
250,000 432.0p Dec 2008
500,000 660.0p Dec 2009
200,000 1100.0p Nov 2010
300,000 950.0p Dec 2011
700,000 419.25p Nov 2012
200,000 374.0p Dec 2013
200,000 319.25p Dec 2014
--------------------------------------------------------------------------------
The Hon. Michael D. Benson 100,000 422.5p Nov 2007
200,000 432.0p Dec 2008
200,000 660.0p Dec 2009
100,000 1100.0p Nov 2010
150,000 950.0p Dec 2011
350,000 419.25p Nov 2012
100,000 374.0p Dec 2013
100,000 319.25p Dec 2014
--------------------------------------------------------------------------------
Jean-Baptiste de Franssu 200,000 244.0p Nov 2006
50,000 422.5p Nov 2007
25,000 416.0p Oct 2008
25,000 660.0p Dec 2009
45,000 1100.0p Nov 2010
150,000 950.0p Dec 2011
245,000 419.25p Nov 2012
50,000 374.0p Dec 2013
50,000 319.25p Dec 2014
--------------------------------------------------------------------------------
Robert H. Graham 100,000 422.5p Nov 2007
200,000 432.0p Dec 2008
250,000 660.0p Dec 2009
100,000 1100.0p Nov 2010
150,000 950.0p Dec 2011
350,000 419.25p Nov 2012
100,000 374.0p Dec 2013
100,000 319.25p Dec 2014
--------------------------------------------------------------------------------
Hubert L. Harris, Jr. 25,000 242.0p April 2006
400,000 244.0p Nov 2006
100,000 422.5p Nov 2007
100,000 432.0p Dec 2008
150,000 660.0p Dec 2009
100,000 1100.0p Nov 2010
150,000 950.0p Dec 2011
350,000 419.25p Nov 2012
100,000 374.0p Dec 2013
100,000 319.25p Dec 2014
--------------------------------------------------------------------------------
Erick R. Holt 100,000 512.5p Aug 2009
10,373 1158.0p Aug 2010
35,000 950.0p Dec 2011
145,000 419.25p Nov 2012
100,000 374.0p Dec 2013
100,000 319.25p Dec 2014
43
--------------------------------------------------------------------------------
Number of Option Expiration
Name Shares Exercise Price Date
--------------------------------------------------------------------------------
Karen D. Kelley 60,000 416.0p Oct 2008
25,000 660.0p Dec 2009
30,000 1100.0p Nov 2010
66,000 950.0p Dec 2011
136,000 419.25p Nov 2012
50,000 374.0p Dec 2013
100,000 319.25p Dec 2014
--------------------------------------------------------------------------------
Andrew Tak Shing Lo 200,000 244.0p Nov 2006
50,000 422.5p Nov 2007
25,000 416.0p Oct 2008
25,000 660.0p Dec 2009
42,500 1100.0p Nov 2010
150,000 950.0p Dec 2011
242,500 419.25p Nov 2012
50,000 374.0p Dec 2013
50,000 319.25p Dec 2014
--------------------------------------------------------------------------------
John S. Markwalter, Jr. 127,916 897.0p Feb 2012
167,916 419.25p Nov 2012
40,000 374.0p Dec 2013
100,000 400.5p Feb 2014
100,000 319.25p Dec 2014
--------------------------------------------------------------------------------
David A. Ridley 25,000 660.0p Dec 2009
40,000 1100.0p Nov 2010
25,000 950.0p Dec 2011
65,000 419.25p Nov 2012
89,134 374.0p Dec 2013
100,000 319.25p Dec 2014
--------------------------------------------------------------------------------
James I. Robertson 200,000 244.0p Nov 2006
50,000 422.5p Nov 2007
75,000 416.0p Oct 2008
150,000 660.0p Dec 2009
100,000 1100.0p Nov 2010
150,000 950.0p Dec 2011
300,000 419.25p Nov 2012
50,000 374.0p Dec 2013
100,000 319.25p Dec 2014
--------------------------------------------------------------------------------
John D. Rogers 200,000 244.0p Nov 2006
50,000 422.5p Nov 2007
25,000 416.0p Oct 2008
25,000 660.0p Dec 2009
100,000 1100.0p Nov 2010
150,000 950.0p Dec 2011
300,000 419.25p Nov 2012
50,000 374.0p Dec 2013
100,000 319.25p Dec 2014
--------------------------------------------------------------------------------
Philip A. Taylor 48,100 512.5p Aug 2009
5,000 543.5p Aug 2009
25,000 660.0p Dec 2009
34,425 1158.0p Aug 2010
25,000 1100.0p Nov 2010
89,400 950.0p Dec 2011
173,825 419.25p Nov 2012
100,000 374.0p Dec 2013
100,000 319.25p Dec 2014
--------------------------------------------------------------------------------
44
--------------------------------------------------------------------------------
Number of Option Expiration
Name Shares Exercise Price Date
--------------------------------------------------------------------------------
Mark H. Williamson 100,000 416.0p Oct 2008
100,000 660.0p Dec 2009
100,000 1100.0p Nov 2010
150,000 950.0p Dec 2011
300,000 419.25p Nov 2012
50,000 374.0p Dec 2013
100,000 319.25p Dec 2014
--------------
Employee Ownership Opportunities
We operate various Sharesave option and Share Incentive plans that allow
employees to set aside part of their salary each month as savings for the
purchase of shares and exercise of options to purchase our stock at the end of
the option period. Additionally, certain of our employees receive contingent
rights to receive Ordinary Shares pursuant to the various plans described above
and other stock plans.
Item 7. Major Shareholders and Related Party Transactions
A. Major Shareholders
The following table discloses, as of February 28, 2005, the number of
Ordinary Shares beneficially owned by each person, other than our current
directors and senior management, whom we know to be a beneficial owner of 3% or
more of our outstanding Ordinary Shares:
---------------------------------------------------------------
Shares Beneficially Owned and Percentage of Class
---------------------------------------------------------------
Percent of Outstanding
Ordinary Shares(1) Ordinary Shares (2)
---------------------------------------------------------------
Robert H. Graham 27,877,700 3.43
Gary T. Crum 30,570,216 3.77
AIC Limited and AIC Investment Services Inc.(3) 29,284,371 3.61
AVIVA PLC 24,946,819(4) 3.08
Franklin Resources 73,062,316(5) 9.01
--------------
(1) Ordinary Shares include shares held as American Depositary Shares. In
computing the number of shares beneficially owned by a person, as
required by General Instruction F to Form 20-F, each person is also
considered to be the "beneficial owner" of securities that such person
has the right to acquire within 60 days by option or other agreement,
including by exchange of Exchangeable Shares.
(2) In computing percentage ownership (i) as required by General Instruction
F to Form 20-F, each person is also considered to be the "beneficial
owner" of securities that such person has the right to acquire within 60
days by option or other agreement, including by exchange of Exchangeable
Shares, and (ii) all shares described in (i) immediately above are, as
to such beneficial owner, deemed outstanding; these shares, however, are
not deemed outstanding for purposes of computing the percentage
ownership of any other person.
(3) Holdings of AIC Limited and AIC Investment Services Inc. are aggregated
with the holdings of mutual funds managed by AIC Limited and accounts
managed by AIC Investment Services Inc.
(4) Holdings of AVIVA PLC include 24,946,819 Ordinary Shares (3.08%) held by
its subsidiary Morley Fund Management.
(5) Holdings of Franklin Resources, Inc. and its affiliates which includes
Franklin Mutual Advisors, LLC and Templeton Worldwide, Inc. and its
affiliates.
Major shareholders do not have different voting rights from owners of
less than 3% of our Ordinary Shares.
A total of 810,800,979 Ordinary Shares were issued and outstanding on
February 28, 2005, of which 5,704,515 Ordinary Shares were held of record by
holders in the U.S. (excluding shares held in American Depositary Receipt form)
and 33,326,118 Ordinary Shares were represented by American Depositary Shares
evidenced by American Depositary Receipts issued by the Depositary. On February
28, 2005, the number of holders of record of the Ordinary Shares was 14,411, the
number of holders of record of Ordinary Shares in the U.S. was 106 and the
number of registered holders of the American Depositary Shares was 39.
45
Because certain of these Ordinary Shares and American Depositary Shares were
held by brokers or other nominees, the number of holders of record or registered
holders in the U.S. is not representative of the number of beneficial holders in
the U.S. or of the residence of the beneficial holders.
We are not directly or indirectly owned or controlled by any other
corporations, foreign governments or other persons. We are not aware of any
arrangement the operation of which might result in a change in control of the
company.
B. Related Party Transactions
None.
C. Interests of Experts and Counsel
Not Applicable.
Item 8. Financial Information
A. Consolidated Statements and Other Financial Information
See "Item 17. Financial Statements" for our Consolidated Financial
Statements.
Legal Proceedings
In December 2003, the SEC, the NYAG's Office and the Colorado Attorney
General's Office brought civil enforcement actions against INVESCO Funds Group,
Inc. ("IFG"), the former advisor to the INVESCO mutual funds, based on market
timing activities by certain investors in the funds; the SEC also named IFG's
former CEO and President, Raymond Cunningham, as a defendant. The SEC and the
NYAG 's Office also instituted separate investigations into market timing
activity in the mutual funds advised by A I M Advisors, Inc. ("AIM Advisors"). A
number of other regulators from other jurisdictions also requested information
from AMVESCAP, AIM, IFG and certain affiliated entities relating to market
timing; AMVESCAP, AIM, IFG and certain affiliated entities fully cooperated with
such requests.
On September 7, 2004, AMVESCAP announced agreements in principle with the
U.S. Securities and Exchange Commission, the NYAG, the State of Colorado
Attorney General, the Colorado Division of Securities and the Secretary of the
State of Georgia. The agreements were finalized on October 8, 2004. The
agreements settle all claims against IFG filed in 2003 by the SEC, New York and
Colorado. The agreements also conclude the investigations with respect to AIM
Advisors and IFG by each of the participating regulators. IFG agreed to a total
payment of $325 million, of which $110 million was a civil penalty, to be paid
into a Fair Fund in two installments, the first of which was paid in December
2004 and the second of which will be paid in December 2005. AIM Advisors and AIM
Distributors, Inc. ("ADI") agreed to a total payment of $50 million, of which
$30 million was a civil penalty, that was paid into a Fair Fund in November
2004. The amounts in the Fair Funds will be distributed to affected current and
former shareholders in the AIM and INVESCO funds in accordance with the terms of
a distribution plan to be established by an Independent Distribution Consultant
and approved by the SEC and the independent board members of the AIM Funds. IFG
also agreed to pay $1.5 million to the Colorado regulators, and IFG and AIM
agreed to pay $175,000 to Georgia.
In addition, under its agreement with the NYAG's Office, AIM agreed to
reduce management fees charged to investors in the AIM and INVESCO mutual funds
for five years beginning on January 1, 2005. The reduction in percentage fee
rates, as applied to assets under management as of July 1, 2004, would result in
a $15 million annual reduction in fees. The actual reduction in fees, however,
will vary as assets under management increase or decrease.
The settlements described above do not resolve the investigations and
inquiries by non-participating regulators into market timing in the AIM and
INVESCO Funds. On April 12, 2005, a non-participating regulator, the Attorney
General of West Virginia ("WVAG"), filed a lawsuit against AIM Advisors, IFG and
ADI, as well as numerous unrelated mutual fund complexes and financial
institutions, based on allegations pertaining to market timing activity during
the same time periods covered by the NYAG and SEC settlement. The WVAG's
complaint alleges, in substance, that AIM, IFG and ADI engaged in unfair
competition and/or unfair or deceptive trade practices by failing to disclose in
the prospectuses for the AIM Funds, including those formerly advised by IFG,
that they had entered into certain arrangements permitting market timing of such
Funds. If AIM is unsuccessful in its defense of the WVAG proceedings, it could
be barred from serving as an investment adviser for any investment company
registered under the Investment Company Act of 1940, as amended (a "registered
investment company"). Such results could affect the ability of AIM or any other
investment advisor directly or indirectly owned by AMVESCAP, from serving as an
investment advisor to any registered investment company. If these results occur,
AIM will seek exemptive relief from the SEC to permit it to continue to serve as
an investment advisor; however, the SEC may not grant such exemptive relief.
46
AMVESCAP cannot predict whether any other non-participating regulator will
pursue legal action against any AMVESCAP affiliate in the future based on
alleged market timing activity and/or related issues. AMVESCAP and its
affiliates have cooperated and will continue to cooperate fully in any
investigations and inquiries by non-participating regulators.
In addition to the above settled governmental enforcement actions,
multiple lawsuits, including purported class action and shareholder derivative
suits, have been filed against various parties affiliated with AMVESCAP
(including certain INVESCO funds, certain AIM funds, IFG, AIM Advisors, A I M
Management Group Inc. (the parent of AIM Advisors), AMVESCAP, certain related
entities and certain of their current and former officers and trustees). The
allegations in the majority of these cases are based primarily upon the
allegations in the enforcement actions described above, namely, that by allowing
"market timing" trading, these parties violated the anti-fraud provisions of the
federal securities laws and/or breached their fiduciary duties to the funds
and/or individual investors. Certain other lawsuits allege that one or more of
AMVESCAP's funds charged excessive fees, engaged in unlawful distribution
practices, failed to adequately pursue recoveries for shareholders in class
actions, inadequately employed fair value pricing or improperly collected Rule
12b-1 fees after ceasing to offer their shares to the general public. These
lawsuits allege a variety of theories for recovery, including, but not limited
to: (i) violation of various provisions of the United States federal securities
laws, (ii) violation of various provisions of the Employee Retirement Income
Security Act of 1974 ("ERISA"), (iii) breach of fiduciary duty and (iv) breach
of contract. The lawsuits have been filed in both federal and state courts and
seek such remedies as compensatory damages, restitution, rescission, accounting
for wrongfully gotten gains, profits and compensation, injunctive relief,
disgorgement, equitable relief, various corrective measures under ERISA, that
the advisory agreement with AIM Advisors be rescinded and/or declared
unenforceable or void and that all advisory fees received during the past year
be refunded, with interest and the payment of attorneys' and experts' fees. The
AMVESCAP-affiliated parties have sought to remove certain of the state court
proceedings to the applicable United States Federal District Court. All lawsuits
based on allegations of market timing, late trading and related issues have been
transferred to the United States District Court for the District of Maryland,
referred to as the MDL Court, for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (1) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM funds
(formerly owned by INVESCO); (2) a Consolidated Amended Fund Derivative
Complaint purportedly brought on behalf of the AIM funds and fund registrants
(formerly owned by INVESCO); and (3) an Amended Class Action Complaint for
Violations of the ERISA purportedly brought on behalf of participants in
AMVESCAP's 401(k) plan. Plaintiffs in one of the underlying lawsuits transferred
to the MDL Court continue to seek remand of their action to state court.
Although it is expected that the payments required under the terms of the
regulatory settlement will mitigate any damages payable as a result of the above
actions in the MDL Court, AMVESCAP cannot predict the outcome of these actions
or any of the other actions mentioned above with certainty but intends to defend
them vigorously.
The asset management industry is subject to extensive levels of ongoing
regulatory oversight and examination. In the United States and other
jurisdictions in which AMVESCAP operates, governmental authorities regularly
make inquiries, hold investigations and administer market conduct examinations
with respect to compliance with applicable laws and regulations. In particular,
the U.S. mutual fund industry as a whole is currently subject to regulatory
inquiries related to a wide range of issues including, among others, IPO
allocations, market timing activity, late trading, fair value pricing, excessive
or improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies, contractual plans, issues
related to Section 529 college savings plans and procedures for locating lost
security holders. Certain of AMVESCAP's subsidiaries and related entities,
certain of their respective current and former officers and/or certain of their
advised funds have received regulatory inquiries in the form of subpoenas or
other oral or written requests for information and/or documents related to one
or more of these issues.
Additional lawsuits or regulatory enforcement actions arising out of
these circumstances and presenting similar allegations and requests for relief
may in the future be filed against AMVESCAP and related entities and individuals
in the U.S. and other jurisdictions in which the Group operates. Moreover,
public trust and confidence are critical to AMVESCAP's business, and any
material loss of investor and/or client confidence could result in a significant
decline in assets under management, which would have an adverse effect on future
financial results and ability to grow the business.
In the normal course of its business, AMVESCAP is subject to various
litigation matters. Although there can be no assurances, at this time management
believes, based on information currently available, that it is not probable that
the ultimate outcome of any of these actions will have a material adverse effect
on the consolidated financial condition of the company.
Dividend Distributions
For information on our policy regarding dividend distributions, see
"Item 3. Key Information--Dividends," and "Item 10. Additional Information,"
included elsewhere herein.
47
B. Significant Changes
No significant change in our financial information has occurred since
the date of our annual financial statements included in this Form 20-F.
Item 9. The Offer and Listing
Nature of Trading Market and Price History
The following table sets forth, for the periods indicated, the high and
low reported sale prices for the Ordinary Shares on the London Stock Exchange,
based on its Daily Price Official List, and the high and low reported sale
prices for the American Depositary Shares on the New York Stock Exchange. The
Ordinary Shares are listed on the London Stock Exchange and are reported under
the symbol "AVZ". The American Depositary Shares are listed and traded on the
New York Stock Exchange under the symbol "AVZ." Each American Depositary Share
represents two Ordinary Shares.
Ordinary Shares American Depositary Shares(1)
--------------- -----------------------------
High Low High Low
---- --- ---- ---
May 2005 330.00p 296.50p $12.12 $11.21
April 2005 346.75p 293.00p $12.86 $11.39
March 2005 364.75p 329.75p $14.06 $12.65
February 2005 372.75p 335.00p $14.05 $13.06
January 2005 352.50p 305.75p $13.44 $11.73
December 2004 329.00p 296.00p $12.69 $11.80
Ordinary Shares American Depositary Shares(1)
--------------- -----------------------------
High Low High Low
---- --- ---- ---
First Quarter 2005 372.75p 305.75p $14.06 $11.73
Fourth Quarter 2004 339.00p 269.75p $12.69 $10.30
Third Quarter 2004 381.50p 257.50p $13.77 $9.81
Second Quarter 2004 433.50p 331.00p $15.84 $12.20
First Quarter 2004 464.00p 390.50p $17.28 $14.80
Fourth Quarter 2003 538.50p 346.00p $17.64 $12.46
Third Quarter 2003 570.00p 402.50p $18.04 $10.56
Second Quarter 2003 476.00p 280.50p $15.53 $9.30
First Quarter 2003 433.50p 231.00p $13.54 $7.92
Ordinary Shares American Depositary Shares(1)
--------------- -----------------------------
High Low High Low
---- --- ---- ---
2004 464.00p 257.50p $17.28 $9.81
2003 570.00p 231.00p $18.04 $7.92
2002 1,120.00p 239.00p $31.10 $7.98
2001 1,620.00p 530.00p $47.25 $17.90
2000 1,750.00p 590.00p $50.60 $20.75
--------------
(1) American Depositary Share prices have been adjusted to reflect the change
in the Ordinary Share per American Depositary Share ratio to two Ordinary
Shares per one American Depositary Share effected on November 8, 2000.
Item 10. Additional Information
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
Our Memorandum of Association provides that our principal objects are,
among other things, to carry on the business of an investment holding company
and to subscribe for, purchase or otherwise acquire and hold shares, debentures
or other securities of any other company or body corporate and to acquire and
undertake the whole or any part of the business, property and liabilities of any
company or body corporate carrying on any business and to sell or deal in or
otherwise dispose of any shares,
48
debentures or other securities or property including any business or undertaking
of any other company or any other assets or liabilities. Our objects are set out
in full in clause 4 of our Memorandum of Association. Our Memorandum of
Association, all material agreements discussed in this Form 20-F and all
documents filed as exhibits to this Form 20-F are available for inspection at
our registered office at 30 Finsbury Square, London, EC2A 1AG, United Kingdom.
The following discussion summarizes our Articles of Association and
should be read in conjunction with the Articles of Association, which are filed
as an exhibit to this Form 20-F. Our Articles of Association contain, among
other things, provisions to the following effect:
Directors
Each Director shall retire at the annual general meeting held in the
third calendar year following the year in which he was elected or last
re-elected. We calculate the directors' retirement schedules prior to each
annual general meeting based on director retirements during the past 12 months
and the date each director was last elected.
Other than as provided below, a director cannot vote in respect of any
arrangement in which he has any material interest other than by virtue of his
interest in our securities. A director will not be counted in the quorum at the
meeting in relation to the resolution on which he is not permitted to vote. A
director can vote on resolutions concerning (i) debt obligations incurred by him
for us, (ii) securities offerings in which he is interested as an underwriting
participant, (iii) proposals relating to a company in which he is interested
provided he beneficially owns less than 1% of such company, (iv) proposals
relating to certain retirement benefit plans and certain employee share
participation plans and (v) the purchase and maintenance of insurance. A
director cannot vote or be counted in the quorum on any resolution regarding his
appointment as an office-holder including fixing or varying the terms of his
appointment or termination. Remuneration of non-executive directors is
determined by the Board as a whole. Remuneration of executive directors is
determined by the Remuneration Committee, which is composed solely of
independent non-executive directors.
Generally, the Board may exercise the power to borrow or raise money as
it deems necessary for our purposes, subject to an aggregate limit of the
greater of (pound)150 million or a sum equal to three times the adjusted share
capital of AMVESCAP PLC as it appears on our latest audited consolidated balance
sheets. This limit may be varied by action of our shareholders in general
meeting.
Although directors may serve on the Board beyond their 70th birthday,
any director over the age of 70 years who is seeking re-election will be
required to do so on an annual basis. Directors are not required to hold shares
of our stock as a qualification for office.
Rights attaching to our shares
Subject to the provisions of the Companies Act of 1985 (the "U.K. Act"),
the Board may determine when to hold the annual general meeting, and may call
extraordinary meetings when it thinks appropriate. Extraordinary meetings may
also be convened by requisitionists. Unless the Board otherwise determines, a
shareholder may not be present or vote at a meeting in respect of his shares,
and will not be counted in the quorum for such meeting, if he owes any amount to
us for the purchase of his shares. If a shareholder does not comply within the
specified time period with a request made by us under section 212 of the U.K.
Act to disclose the nature of his interest in our shares, the directors may
suspend the shareholder's right to attend meetings or vote his shares.
Subject to any special voting rights, and if all shares owned have been
fully paid for, every shareholder (or shareholder on a poll) who is present in
person or by proxy has one vote for every four Ordinary Shares. On a poll, every
shareholder who is present in person or by proxy has one vote for every (pound)1
in the aggregate paid up in respect of the nominal amount of Ordinary Shares.
The special voting share, par value 25 pence, that we issued in connection with
the issuance of Exchangeable Shares by one of our subsidiaries (the "Special
Voting Share"), has one vote in addition to any votes that may be cast by
holders of Exchangeable Shares (other than us). On a poll, the holder of the
Special Voting Share has one vote for every four Exchangeable Shares that have
been voted by holders of such Exchangeable Shares (other than us). A holder of
Exchangeable Shares other than us can instruct the holder of the Special Voting
Share to appoint that person as proxy to attend meetings on behalf of his own
interests in the Exchangeable Shares.
The special rights and privileges of shareholders may be changed upon
shareholder vote, but will not be affected by the issuance of additional shares
of the same class. We may not issue any special voting shares in addition to the
Special Voting Share without the approval of the holder of such share.
49
When no Exchangeable Shares are outstanding (other than those held by
us), the Special Voting Share will automatically be redeemed and cancelled.
Otherwise, the Special Voting Share is not subject to redemption by us or by the
holder of such share.
There are currently no restrictions under our Memorandum and Articles of
Association or under English law that limit the rights of non-resident or
foreign owners to freely hold, vote and transfer Ordinary Shares in the same
manner as U.K. residents or nationals.
Dividends and entitlement in the event of liquidation to any surplus
The Board may pay shareholders such annual and interim dividends as
appear to be justified by our profits. Before recommending dividends, the Board
can set aside sums as a reserve for special purposes. The Board can deduct from
any dividend payable to any shareholder sums payable by him to us. The dividend
payable by us will not bear interest. If dividends remain unclaimed for one year
after being declared, we can utilize the dividend money until claimed. All
dividends unclaimed for a period of 12 years after having been declared will be
forfeited and revert to us. Every dividend shall be paid to shareholders of
record on the record date. The Special Voting Share does not carry any right to
receive dividends or distributions.
On a winding up of our company, the liquidator may, with the approval of
the contributories, divide our assets among the contributories, setting such
value as he deems fair on any property to be divided, provided that the holder
of the Special Voting Share must receive 25 pence before any distribution is
made on the Ordinary Shares. After payment of such amount, the holder of the
Special Voting Share is not entitled to participate in any further distribution
of our assets.
Restrictions on our ability to declare and pay dividends are described
in "Item 5. Operating and Financial Review and Prospects," and in Note 17 to our
Consolidated Financial Statements, included elsewhere herein.
C. Material Contracts
The contracts described below (not being contracts entered into in the
ordinary course of business) have been entered into by us and/or our
subsidiaries since June 15, 2003 and, as of the date of this document, contain
provisions under which we or one or more of our subsidiaries have an obligation
or entitlement which is or may be material to us. This discussion should be read
in conjunction with the agreements described below, each of which is filed as an
exhibit to this Form 20-F or incorporated herein by reference.
(i) Agreement relating to our revolving credit facility:
Five Year Credit Agreement, dated as of March 31, 2005 by and
between AMVESCAP PLC, the banks, financial institutions and other
institutional lenders from time to time a party thereto (the
"Lenders") and Bank of America, N.A., as administrative agent -
The Five Year Credit Agreement sets forth the terms and conditions under
which the Lenders have agreed to provide us a revolving credit facility in an
aggregate principal amount of up to $900 million. Under certain conditions, we
may increase the aggregate commitments under the Five Year Credit Agreement to
$1.2 billion. The credit facility terminates on March 31, 2010, unless earlier
terminated due to an event of default thereunder that remains uncured after the
expiration of an applicable cure period, if any. Under the Five Year Credit
Agreement, we are required to pay a facility fee to each Lender on the aggregate
amount of such Lender's commitment in a percentage per annum ranging from 0.090%
to 0.250%, depending upon our leverage ratio (Debt/EBITDA), as well as an annual
administrative agent's fees as agreed to between us and the administrative
agent. Interest on advances under the credit facility is based on either of the
following rates as selected by us: (i) a base rate, determined from time to
time, equal to the greater of Bank of America's prime rate or 0.5% per annum
above the Federal Funds Rate, or (ii) a Eurocurrency rate, determined from time
to time, plus a margin for Eurocurrency advances equal to a percentage per annum
ranging from 0.360% to 0.750%, depending upon our leverage ratio (Debt/EBITDA).
The Five Year Credit Agreement requires us to maintain specified financial
ratios, including maximum debt to earnings and minimum interest coverage. The
Five Year Credit Agreement also contains customary affirmative operating
covenants, and negative covenants that, among other things, restrict certain of
our subsidiaries ability to incur debt, restrict our ability to transfer assets,
merge, make loans and other investments and create liens.
(ii) Agreement relating to the issuance of our 4.500% Senior Notes due
2009 (the "2009 Senior Notes") and the issuance of our 5.375%
Senior Notes due 2014 (the "2014 Senior Notes" and together with
the 2009 Senior Notes, the "2004 Series of Senior Notes"):
50
Indenture, dated as of December 14, 2004, among AMVESCAP PLC, A I
M Advisors, Inc., A I M Management Group Inc., INVESCO
Institutional (N.A.), Inc. and INVESCO North American Holdings,
Inc. and SunTrust Bank (the "2004 Series of Senior Notes
Indenture").
The 2004 Series of Senior Notes Indenture sets forth the terms pursuant to
which we created and issued the 2004 Series of Senior Notes in the aggregate
principal amount of $500 million, to the initial purchasers of the 2004 Series
of Senior Notes (the "2004 Series of Senior Notes Initial Purchasers"). Interest
accrues on the 2009 Senior Notes at the rate of 4.500% per year, which is to be
paid on June 15 and December 15 of each year beginning on June 15, 2005, and the
2009 Senior Notes have a maturity date of December 15, 2009. Interest accrues on
the 2014 Senior Notes at the rate of 5.375% per year, which is to be paid on
June 15, and December 15 of each year beginning on June 15, 2005, and the 2014
Senior Notes have a maturity date of December 15, 2014. Under the 2004 Series of
Senior Notes Indenture, we can issue additional notes with the same ranking,
interest rate, maturity date, redemption rights and other terms as the 2009
Senior Notes and the 2014 Senior Notes. Pursuant to the 2004 Series of Senior
Notes Indenture, A I M Advisors, Inc., A I M Management Group Inc., INVESCO
Institutional (N.A.), Inc. and INVESCO North American Holdings, Inc. (the "2004
Series of Senior Notes Guarantors") agree unconditionally and irrevocably to
guarantee the payment of principal and interest on the 2004 Series of Senior
Notes. The 2004 Series of Senior Notes Indenture provides that we may redeem
some or all of the 2009 Senior Notes or the 2014 Senior Notes at any time at a
redemption price calculated under the terms of the 2004 Series of Senior Notes
Indenture. Under the 2004 Series of Senior Notes Indenture, we may be required
to pay additional amounts to the holders of the 2009 Senior Notes and the 2014
Senior Notes if, due to tax law changes or our failure to list or maintain the
listing of either series of Senior Notes on a stock exchange recognized under
the tax laws of the U.K., we are required to withhold or deduct withholding
taxes on payments made to the holders of the 2004 Series of Senior Notes, except
that, if either of such events occurs, we have certain rights of redemption
under the 2004 Series of Senior Notes Indenture. The 2004 Series of Senior Notes
Indenture also includes provisions limiting our and the 2004 Series of Senior
Notes Guarantors' rights to engage in a merger, consolidation or sale of
substantially all of our or their assets and provides us with certain rights of
defeasance and covenant defeasance.
D. Exchange Controls
There are currently no U.K. or U.S. foreign exchange control restrictions
on the import or export of capital, on the payment of dividends or other
payments to holders of Ordinary Shares or on the conduct of our operations.
E. Taxation
Introduction
This section summarizes the principal U.S. and U.K. tax consequences to
U.S. Holders (defined below) that own our Ordinary Shares or American Depositary
Shares (collectively, the "Shares"). Except where noted otherwise in this
section, tax consequences apply equally to U.S. Holders that own Ordinary Shares
and U.S. Holders that own American Depositary Shares. "U.S. Holders" is used in
this section to refer to beneficial owners of our Shares that are (i) U.S.
citizens, (ii) U.S. residents, (iii) U.S. corporations, or (iv) U.S. citizens
that are resident outside the U.S. and the U.K. and are subject to U.S. taxation
on worldwide income regardless of its source. "U.S. Holders" does not include
(i) U.S. citizens that are or have been resident or ordinarily resident in the
U.K., (ii) U.S. citizens or residents that have a permanent establishment or
fixed base of business in the U.K. or (iii) persons that hold (actually or
constructively) 10% or more of our voting stock or capital. The Convention
Between the Government of the United States of America and the Government of the
United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double
Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income and on
Capital Gains, as in effect on the date hereof, is referred to in this Form 20-F
as the "U.S./U.K. Income Tax Treaty." The Convention Between the Government of
the United States of America and the Government of the United Kingdom of Great
Britain and Northern Ireland for the Avoidance of Double Taxation and Prevention
of Fiscal Evasion with respect to Taxes on Estates of Deceased Persons and on
Gifts, as in effect on the date hereof, is referred to in this Form 20-F as the
"U.S./U.K. Estate Tax Treaty."
Taxation of Dividends
A U.S. Holder will be required to include in gross income the gross
amount of any distribution with respect to the Shares it owns that is paid out
of our current or accumulated earnings and profits (as determined for U.S.
federal income tax purposes). Distributions in excess of our current and
accumulated earnings and profits will be treated as a non-taxable return of
capital to the extent of the U.S. Holder's adjusted tax basis in the Shares and
thereafter will be treated as a gain from the sale of Shares. We have not
maintained and do not plan to maintain calculations of our earnings and profits
for U.S. federal income tax purposes and, as a result, we intend to treat any
distribution that we make with respect to the Shares as a dividend for U.S.
federal income tax reporting purposes.
51
Dividends paid on the Shares generally will constitute income from
sources outside the United States and be categorized as "passive income" or, in
the case of some U.S. Holders, as "financial services income" for U.S. foreign
tax credit purposes (or, for tax years beginning after December 31, 2006, as
"passive category income" or, in the case of some U.S. Holders, as "general
category income" for U.S. foreign tax credit purposes). Dividends paid on the
Shares generally will not be eligible for the "dividends received" deduction
generally allowed to corporate shareholders with respect to dividends received
from U.S. corporations.
The U.S. dollar value of any U.K. pound sterling (or other non-U.S.
currency) distribution will be the U.S. dollar value of the payment, calculated
by reference to the exchange rate in effect on the day the payment is received
by the Depositary in the case of the American Depositary Shares, or by the U.S.
Holder in the case of Ordinary Shares held directly by such U.S. Holders,
regardless of whether the pounds sterling (or other non-U.S. currency) are in
fact converted into U.S. dollars. If the pounds sterling (or other non-U.S.
currency) so received are converted into U.S. dollars on the day they are
received, the U.S. Holder generally will not be required to recognize foreign
currency gain or loss upon such conversion. If the pounds sterling (or other
non-U.S. currency) so received are not converted into U.S. dollars on the date
of receipt, such U.S. Holder will have a basis in the pounds sterling (or other
non-U.S. currency) equal to the U.S. dollar value on the date of receipt. Any
gain or loss on a subsequent conversion or other disposition of the pounds
sterling (or other non-U.S. currency) generally will be treated as ordinary
income or loss to such U.S. Holder and generally will be income or loss from
sources within the United States for U.S. foreign tax credit purposes.
Legislation enacted on May 28, 2003, as subsequently amended (the "2003
Tax Legislation"), reduces to 15% the maximum tax rate for specified dividends
received by non-corporate U.S. Holders through taxable years beginning on or
before December 31, 2008, so long as the relevant holding period requirements
are met. Dividends received from "qualified foreign corporations" generally
qualify for the reduced rate. A non-U.S. corporation (other than a corporation
that is in, or was in the year prior to, the year the dividend is paid, a
passive foreign investment company ("PFIC") for U.S. federal income tax
purposes) generally will be considered to be a qualified foreign corporation
with respect to dividends paid on its shares (or American depositary receipts in
respect of such shares) if the shares (or American depositary receipts in
respect of such shares) are readily tradable on an established securities market
in the United States. Ordinary shares, or American depositary receipts in
respect of such shares, will be considered to be readily tradable on an
established securities market in the United States if they are listed on a
nationally registered stock exchange (such as the New York Stock Exchange).
Accordingly, unless we are treated as a PFIC, the dividends we pay in respect of
our American Depositary Shares generally should be eligible for the reduced rate
under the 2003 Tax Legislation. We believe that we are not currently, and we do
not anticipate becoming, a PFIC for U.S. federal income tax purposes. However,
an actual determination of PFIC status is factual in nature and made annually
and there can be no assurance that we will not become a PFIC for U.S. federal
income tax purposes in the future. A non-U.S. corporation (other than a
corporation that is in, or was in the year prior to, the year the dividend is
paid, a PFIC for U.S. federal income tax purposes) generally will also be
considered to be a qualified foreign corporation if it is eligible for the
benefits of a comprehensive income tax treaty with the United States which the
U.S. Treasury Department determines is satisfactory for purposes of this
provision and which includes an exchange of information program (a "Qualifying
Treaty"). The U.S./U.K. Income Tax Treaty as currently in effect is considered a
Qualifying Treaty and we believe that we are currently eligible for the benefits
of such treaty. However, because the U.S. Treasury Department has not yet issued
guidance concerning when a non-U.S. corporation is eligible for the benefits of
a Qualifying Treaty and this conclusion is a factual determination and thus may
be subject to change, no assurance can be given that the reduced rate will apply
to dividends paid by us on this basis. Based on the foregoing, we intend to take
the position that we are a qualified foreign corporation with respect to the
dividends on our Shares for U.S. federal income tax reporting purposes.
Special rules apply for purposes of determining the recipient's
investment income (which limits deductions for investment interest) and foreign
income (which may affect the amount of foreign tax credit) and to certain
extraordinary dividends.
Taxation on Sale, Exchange or Other Disposition of Shares
A U.S. Holder generally will recognize capital gain or loss upon the
sale, exchange or other disposition of Shares in an amount equal to the
difference, if any, between the amount realized on the sale, exchange or other
disposition and the U.S. Holder's adjusted tax basis in the Shares. This capital
gain or loss will be long-term capital gain or loss if the U.S. Holder's holding
period in the Shares exceeds one year. Net long-term capital gains of a
non-corporate U.S. Holder recognized in a tax year beginning before January 1,
2009 are generally taxed at a maximum U.S. federal income tax rate of 15%. The
gain or loss will generally be income or loss from sources within the United
States for U.S. foreign tax credit purposes. The deductibility of capital losses
is subject to limitations.
Summary of Tax Treatment
U.S. Holders who own our Ordinary Shares or American Depositary Shares
generally receive the same U.S. tax treatment
52
as if they owned shares of a U.S. company. The following chart summarizes the
major differences between the tax treatment for a U.S. Holder that owns shares
of a U.S. company and a U.S. Holder that owns shares of a U.K. company:
------------------------------------------------------------------------------------------------------------------------------------
Transaction U.S. Company U.K. Company
------------------------------------------------------------------------------------------------------------------------------------
Purchase of shares No U.S. tax ramifications. No U.S. or U.K. tax ramifications; U.K. stamp duty or
stamp duty reserve tax may be applicable(1).
------------------------------------------------------------------------------------------------------------------------------------
Ownership of shares Entire dividend taxable in U.S.; no Entire dividend taxable in U.S.; no withholding tax on
(dividends) withholding tax on dividends received(2); dividends received(2); non-corporate shareholders may be
non-corporate shareholders may be eligible for reduced tax rates under the 2003 Tax
eligible for reduced tax rates under the Legislation(3); U.S./U.K. Income Tax Treaty does not allow
2003 Tax Legislation (3). for tax credit.
------------------------------------------------------------------------------------------------------------------------------------
Disposition of shares Gain on sale of shares is taxable in Gain on sale of shares is taxable in U.S.(4); U.S. rules
U.S.(4); U.S. rules would treat gain as would treat gain as capital in nature; capital gain is
capital in nature; capital gain is either either short- or long-term depending on holding period; no
short- or long-term depending on holding U.K. tax to a U.S. Holder(4); U.K. stamp duty or stamp
period. duty reserve tax may be applicable(1).
------------------------------------------------------------------------------------------------------------------------------------
Other transfers U.S. estate and gift rules apply. U.K. inheritance tax would not apply to individuals that
(estate or gift) are domiciled in the U.S., or if also domiciled in the
U.K., are not considered to be a U.K. national (both
determinations made under the U.S./U.K. Estate Tax
Treaty)(5); U.S. estate and gift rules apply; treaty
provisions provide for a tax credit if U.S. Holder is
subject to tax in U.S. and U.K.(5); U.K. stamp duty or
stamp duty reserve tax may be applicable(1).
------------------------------------------------------------------------------------------------------------------------------------
(1) If an owner of Ordinary Shares transfers his or her shares to another
person through the use of a transfer document (i.e., a stock transfer
form) executed in or brought to the U.K., the purchaser usually pays the
stamp duty at a rate of 0.5%.
When Ordinary Shares are transferred without the use of a transfer
document, stamp duty does not apply. Instead, the purchaser normally pays
Stamp Duty Reserve Tax ("SDRT") at a rate of 0.5% of the purchase price.
If stamp duty is paid on the transfer, SDRT may be refunded.
If Ordinary Shares are transferred to the Depositary under the Amended
and Restated Deposit Agreement, dated as of November 8, 2000, among us,
the Depositary, and the holders of American Depositary Receipts issued
pursuant to such agreement (the "Depositary Agreement"), the Depositary
will charge the U.S. Holder who purchases the American Depositary
Receipts representing those shares for the stamp duty or SDRT owed at a
rate of 1.5%. No SDRT will be payable on an agreement to transfer
American Depositary Receipts, nor will U.K. stamp duty be payable on
transfer of the American Depositary Receipts, provided that the
instrument of transfer is executed outside the U.K. and subsequently
remains at all times outside the U.K. If the Depositary transfers the
underlying Ordinary Shares to a U.S. Holder who owned American Depositary
Shares representing such Ordinary Shares, such U.S. Holder will pay duty
at a rate of (pound)5 per transfer. If the Depositary transfers the
underlying Ordinary Shares to a purchaser from a U.S. Holder who owned
American Depositary Shares representing such Ordinary Shares, such
purchaser will pay duty at a rate of 0.5% of the purchase price.
(2) See previous discussion on the taxation of dividends. These rules would
apply to a U.S. Holder that receives a distribution from either a U.S.
company or a U.K. company. The U.K. does not have a withholding tax in
respect of dividends.
(3) See previous discussion of the requirements for eligibility for reduced
tax rates under the 2003 Tax Legislation.
(4) The U.S./U.K. Income Tax Treaty states that capital gains derived by a
U.S. Holder from the disposition of shares are generally taxable only in
the United States.
(5) The U.S./U.K. Estate Tax Treaty generally provides for the tax paid in
the U.K. to be credited against tax paid in the U.S. or for tax paid in
the U.S. to be credited against tax payable in the U.K. based on priority
rules set out in that Treaty.
Information Reporting and Backup Withholding
Dividends on Shares and proceeds from the sale of Shares may be subject
to U.S. information reporting and/or backup withholding, unless the U.S. Holder
is a corporation or otherwise establishes a basis for exemption. A credit can be
claimed against the U.S. Holder's U.S. federal income tax liability for the
amounts withheld under the backup withholding rules and any excess amount is
refundable if the required information is provided to the U.S. Internal Revenue
Service.
53
Reportable Transactions
U.S. Holders that participate in "reportable transactions" (as defined
in the regulations) must attach to their tax returns a disclosure statement on
Form 8886. We urge U.S. Holders to consult their own tax advisors as to the
possible obligation to file Form 8886 with respect to the purchase, ownership or
disposition of any pounds sterling (or other foreign currency) received as a
dividend or as proceeds from the sale of Shares.
The above discussion is based on current U.S. and U.K. laws and current
interpretations of these laws in effect as of the date of filing of this Annual
Report on Form 20-F. The laws and/or the interpretation of these laws are
subject to change and any changes may be made retroactively to include
transactions that occurred in an earlier year. In addition, the above discussion
relies on representations of the Depositary and assumes that the terms and
conditions of the Deposit Agreement will be followed.
THIS SUMMARY DOES NOT ADDRESS THE LAWS OF ANY STATE OR LOCALITY OR ANY
GOVERNMENT OTHER THAN THE U.K. AND U.S. FURTHERMORE, THIS SUMMARY DOES NOT
ADDRESS THE TAX CONSEQUENCES TO ANY TAXPAYERS THAT ARE NOT U.S. HOLDERS (AS
DEFINED ABOVE). THE INFORMATION PROVIDED ABOVE IS INTENDED TO BE A GENERAL
DISCUSSION AND SHOULD NOT BE CONSIDERED TO BE DIRECTED TO ANY PARTICULAR
SHAREHOLDER. In particular, this discussion does not address all of the tax
consequences that may be relevant to certain types of investors subject to
special treatment under the U.S. federal income tax laws (such as banks,
insurance companies, investors liable for the alternative minimum tax individual
retirement accounts and other tax-deferred accounts, tax-exempt organizations,
dealers, traders in securities that elect to mark-to-market their securities,
partnerships and other pass-through entities, regulated investment companies,
real estate investment trusts, U.S. expatriates, investors that hold our
Ordinary Shares or American Depositary Shares as part of a straddle, hedging
transaction or conversion transaction for U.S. federal income tax purposes or
investors whose functional currency is not the U.S. dollar).
SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE
U.K. AND U.S. FEDERAL, STATE AND LOCAL AND ANY OTHER TAX CONSEQUENCES TO THEM OF
THE PURCHASE, OWNERSHIP AND DISPOSITION OF ORDINARY SHARES OR AMERICAN
DEPOSITARY SHARES WITH PARTICULAR REFERENCE TO THEIR SPECIFIC CIRCUMSTANCES.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), applicable to foreign
private issuers and fulfill the obligation by filing with or furnishing reports
to the SEC. You may read and copy any document we file with or furnish to the
SEC without charge at the SEC's public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of these materials may be obtained by mail from
the Public Reference Branch of the SEC at such address, at prescribed rates.
Please call the SEC at l-800-SEC-0330 for further information on the public
reference room.
I. Subsidiary Information
Not applicable.
Item 11. Quantitative and Qualitative Disclosures About Market Risk
The Group does not hedge (through derivative or other financial
instruments) the translation of its profits from overseas subsidiaries or other
interest rate or foreign exchange exposures, except to the extent that the net
assets of overseas subsidiaries are hedged by foreign currency borrowings.
Therefore, significant changes in exchange rates can materially affect the
reported results of our operations, particularly because a majority of our
revenues and debt is denominated in U.S. dollars. Additionally, the dollar to
sterling exchange rates were very volatile in 2004, which had a significant
impact on our operating results. Specifically, the average foreign exchange rate
was (pound)1.83 per $1.00 in 2004 versus (pound)1.65 per $1.00 in 2003,
resulting in a decline of approximately (pound)21.2 million in operating profit
for 2004, compared with 2003.
54
The Group holds or issues financial instruments primarily to finance
its operations, but also for client trading purposes in a limited number of
subsidiary operations.
The main risks from the Group's processing of customer transactions
arise primarily as a result of the Group holding securities in its own
investment vehicles to facilitate their orderly management. The risks associated
with these securities are interest rate risk, foreign currency risk and
counterparty risk. These are managed in accordance with limits established by
Group management and applicable regulations.
Trading in financial instruments for customer-related transactions
occurs only in the Group's German subsidiary, which conducts treasury operations
for its clients. This activity involves both the acceptance and placement of
client deposits and loans, as well as the execution of client foreign currency
and interest rate derivative contracts. Interest rate, liquidity and currency
risks arising from these transactions are actively managed to minimize any
residual exposure to the Group.
On December 31, 2004, the interest rates on 89% of the Group's
borrowings were fixed for an average period of 5.6 years. The remainder were
floating.
See Note 25 to our Consolidated Financial Statements and "Item 5.
Operating and Financial Review and Prospects" (included elsewhere herein) for
quantitative disclosures about market risk.
Item 12. Description of Securities Other than Equity Securities
Not applicable.
55
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
We have not had any material defaults in the payment of amounts owed or
any other material defaults relating to our indebtedness, we are not delinquent
in the payment of any dividends, and we have not experienced any other material
delinquencies.
Item 14. Material Modifications to the Rights of Security Holders and Use of
Proceeds
No material modifications to the rights of security holders have
occurred.
Item 15. Controls and Procedures
As of the end of the period covered by this Form 20-F, our Executive
Chairman and chief financial officer carried out an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on that
evaluation, they have concluded that, as of the evaluation date, our disclosure
controls and procedures are reasonably designed to alert them on a timely basis
to material information relating to us (including our consolidated subsidiaries)
required to be included in our reports filed or submitted under the Exchange
Act.
Since the evaluation date referenced above, there have been no
significant changes in our internal control over financial reporting or in other
factors that could significantly affect these controls.
Item 16. [Reserved]
Item 16A. Audit Committee Financial Expert
The Board has determined that the Audit Committee does not include a
member who satisfies the strict definition of an "audit committee financial
expert" (as defined under the SEC's rules and regulations). However, the Board
is confident in the expertise and experience of each member of the Audit
Committee and of the committee as a whole. The Board believes that the
collective experience of the members of the Audit Committee enables them, as a
group, to act as an effective audit committee and that the Audit Committee has
functioned and can continue to function effectively without a member who
qualifies as an audit committee financial expert.
Item 16B. Code of Ethics
We have adopted a code of ethics (the "Code of Conduct") that applies
to our principal executive officer, principal financial officer, principal
accounting officer or controller, and persons performing similar functions, as
well as to our other officers and employees. The Code of Conduct is posted on
our website (http://www.amvescap.com) and available in print free of charge to
any shareholder who requests a copy. Interested parties may address a written
request for a printed copy of the Code of Conduct to: Michael S. Perman, company
secretary, AMVESCAP PLC, 30 Finsbury Square, London, EC2A 1AG, United Kingdom.
In addition, we have adopted a separate Directors' Code of Conduct that applies
to all members of the Board. We intend to satisfy the disclosure requirement
regarding any amendment to, or a waiver of, a provision of the Code of Conduct
for our principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions, by
posting such information on our website.
56
Item 16C. Principal Accountant Fees and Services
(pound)'000 2004 2003 2002
-------------------------------------------------------------- ------------------ ------------------ -----------------
Audit fees:
Statutory audit 2,196 1,902 1,833
Audit-related fees:
Further assurance services* 778 395 362
Tax fees
Compliance services 282 119 81
Advisory services 190 120 28
Other services 547 239 126
------------------ ------------------ -----------------
3,993 2,775 2,430
--------------------------------------------------------------------------------------------------------------------------------
* Excludes (pound)68,000 (2003: (pound)73,000; 2002: (pound)42,000) paid to
the corporate auditors for audits of benefit plans around the Group.
The Audit Committee pre-approves the audit and non-audit services performed
by the independent auditor in order to assure that the auditor's independence is
not impaired. The Audit Committee does not favor having its independent auditors
perform non-audit services, and a non-audit service is not approved unless the
Audit Committee concludes that performance of such service by the auditor will
serve the company's interests better than performance of such service by other
providers. The Audit Committee ensures that such services are consistent with
applicable national rules on auditor independence.
In addition to the fees detailed above, certain investment funds managed by
the Group use Ernst & Young LLP to provide audit, audit-related and tax
services. Fees paid by these funds were (pound)2,895,000 (2003:
(pound)1,745,000, 2002: (pound)1,580,000) for audit services and (pound)321,000
(2003: (pound)244,000, 2002: (pound)134,000) for tax and other audit-related
services.
Item 16D. Exemptions from the Listing Standards for Audit Committees.
Not applicable.
57
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
From time to time, the trustees of the AMVESCAP Global Stock Plan and
the AMVESCAP Employee Share Option Trust purchase Ordinary Shares in the open
market. These trusts were established to satisfy our obligations to issue
Ordinary Shares under the GSP, and our stock option and other stock-based
schemes. During 2004, we contributed (pound)58.6 million to these trusts, which,
in turn, purchased Ordinary Shares in the amounts and at the average prices
specified below:
------------------------------- ----------------------- ------------------------ ----------------------- -----------------------
Period (a) (b) (c) (d)
Maximum Number (or
Total Number of Approximate Dollar
Shares (or Units) Value) of Shares (or
Total Number of Purchased as Part of Units) that May Yet
Shares (or Units) Average Price Paid Per Publicly Announced Be Purchased Under
Purchased Share (or Units) Plans or Programs the Plans or Programs
------------------------------- ----------------------- ------------------------ ----------------------- -----------------------
January 1, 2004 through
January 31, 2004 --- --- --- ---
------------------------------- ----------------------- ------------------------ ----------------------- -----------------------
February 1, 2004 through
February 29, 2004 1,500,000 (pound)4.36 --- ---
------------------------------- ----------------------- ------------------------ ----------------------- -----------------------
March 1, 2004 through
March 31, 2004 2,000,000 (pound)4.21 --- ---
------------------------------- ----------------------- ------------------------ ----------------------- -----------------------
April 1, 2004 through
April 30, 2004 --- --- --- ---
------------------------------- ----------------------- ------------------------ ----------------------- -----------------------
May 1, 2004 through
May 31, 2004 --- --- --- ---
------------------------------- ----------------------- ------------------------ ----------------------- -----------------------
June1, 2004 through
June 30, 2004 --- --- --- ---
------------------------------- ----------------------- ------------------------ ----------------------- -----------------------
July 1, 2004 through
July 31, 2004 --- --- --- ---
------------------------------- ----------------------- ------------------------ ----------------------- -----------------------
August 1, 2004 through
August 31, 2004 --- --- --- ---
------------------------------- ----------------------- ------------------------ ----------------------- -----------------------
September 1, 2004 through
September 30, 2004 5,000,000 (pound)3.16 --- ---
------------------------------- ----------------------- ------------------------ ----------------------- -----------------------
October 1, 2004 through
October 31, 2004 1,250,000 (pound)2.99 --- ---
------------------------------- ----------------------- ------------------------ ----------------------- -----------------------
November 1, 2004 through
November 30, 2004 3,750,000 (pound)3.09 --- ---
------------------------------- ----------------------- ------------------------ ----------------------- -----------------------
December 1, 2004 through
December 31, 2004 4,000,000 (pound)3.12 --- ---
------------------------------- ----------------------- ------------------------ ----------------------- -----------------------
58
PART III
Item 17. Financial Statements
Our Consolidated Financial Statements are set forth beginning at page
F-1 of this Form 20-F.
Page
----
Report of Independent Registered Public Accounting Firm.................................................................. F-2
Consolidated Statements of Income for the Years Ended December 31, 2004, 2003 and 2002................................... F-3
Consolidated Statements of Total Recognized Gains and Losses for the Years Ended December 31, 2004, 2003 and 2002........ F-3
Consolidated Balance Sheets as of December 31, 2004 and 2003............................................................. F-4
Consolidated Shareholders' Funds for the Years Ended December 31, 2004, 2003 and 2002.................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002............................... F-6
Notes to the Consolidated Financial Statements........................................................................... F-7
Item 18. Financial Statements
Not applicable.
Item 19. Exhibits
The exhibits filed with or incorporated by reference into this annual report are
listed below.
1.1 Memorandum of Association of AMVESCAP, incorporating amendments up to and
including April 28, 2005.
1.2 Articles of Association of AMVESCAP, adopted on July 20, 2000,
incorporating amendments up to and including April 28, 2005.
2.1 Form of Certificate for Ordinary Shares of AMVESCAP, incorporated by
reference to exhibit 4.5 to AMVESCAP's Registration Statement on Form
F-3/F-1 (file nos. 33-5990 and 33-5990-01), filed with the Securities and
Exchange Commission on November 21, 1996.
2.2 Form of Certificate for American Depositary Shares, representing two
Ordinary Shares, incorporated by reference to exhibit 2.2 to AMVESCAP's
Annual Report on Form 20-F for the year ended December 31, 2000, filed
with the Securities and Exchange Commission on May 17, 2001.
2.3 Amended and Restated Deposit Agreement, dated as of November 8, 2000,
among AMVESCAP, The Bank of New York and the holders of American
Depositary Receipts issued thereunder, incorporated by reference to
exhibit 2.3 to AMVESCAP's Annual Report on Form 20-F for the year ended
December 31, 2000, filed with the Securities and Exchange Commission on
May 17, 2001.
2.4 Indenture, dated as of December 16, 1996, among LGT Asset Management,
Inc., LGT Bank in Liechtenstein Aktiengesellschaft and Citibank, N.A.,
incorporated by reference to exhibit 3.28 to AMVESCAP's Annual Report on
Form 20-F for the year ended December 31, 1998, filed with the Securities
and Exchange Commission on March 30, 1999.
2.5 First Supplemental Indenture, dated as of December 31, 1999, among
INVESCO, Inc., LGT Bank in Liechtenstein Aktiengesellschaft and Citibank,
N.A., incorporated by reference to exhibit 4.19 to AMVESCAP's Annual
Report on Form 20-F for the year ended December 31, 2000, filed with the
Securities and Exchange Commission on May 17, 2001.
2.6 Loan Agreement, dated December 14, 1995, between LGT BIL Ltd. and Bank in
Liechtenstein Aktiengesellschaft, incorporated by reference to exhibit
3.29 to AMVESCAP's Annual Report on Form 20-F for the year ended December
31, 1998, filed with the Securities and Exchange Commission on March 30,
1999.
59
2.7 Five Year Credit Agreement, dated as of March 31, 2005, by and between
AMVESCAP PLC, the banks, financial institutions and other institutional
lenders from time to time a party thereto and Bank of America, N.A., as
administrative agent.
2.8 Indenture, dated as of December 17, 2001, for AMVESCAP's 5.90% Senior
Notes Due 2007 among AMVESCAP PLC, A I M Advisors, Inc., A I M Management
Group Inc., INVESCO Institutional (N.A.), Inc., INVESCO North American
Holdings, Inc. and SunTrust Bank, incorporated by reference to exhibit
2.12 to AMVESCAP's Annual Report on Form 20-F for the year ended December
31, 2001, filed with the Securities and Exchange Commission on April 4,
2002.
2.9 Indenture, dated as of February 27, 2003, for AMVESCAP's 5.375% Senior
Notes Due 2013, among AMVESCAP PLC, A I M Advisors, Inc., A I M
Management Group Inc., INVESCO Institutional (N.A.), Inc., INVESCO North
American Holdings, Inc. and SunTrust Bank, incorporated by reference to
exhibit 2.12 to AMVESCAP's Annual Report on Form 20-F for the year ended
December 31, 2002, filed with the Securities and Exchange Commission on
March 27, 2003.
2.10 Indenture, dated as of December 14, 2004, for AMVESCAP's 4.500% Senior
Notes due 2009 among AMVESCAP PLC, A I M Advisors, Inc., A I M Management
Group Inc., INVESCO Institutional (N.A.), Inc., INVESCO North American
Holdings, Inc. and SunTrust Bank.
2.11 Indenture, dated as of December 14, 2004, for AMVESCAP's 5.375% Senior
Notes due 2014, among AMVESCAP PLC, A I M Advisors, Inc., A I M
Management Group Inc., INVESCO Institutional (N.A.), Inc., INVESCO North
American Holdings, Inc. and SunTrust Bank.
3.1 Voting and Exchange Trust Agreement, dated as of August 1, 2000, between
AMVESCAP, AMVESCAP Inc. and CIBC Mellon Trust Company, incorporated by
reference to exhibit 4.25 to AMVESCAP's Annual Report on Form 20-F for
the year ended December 31, 2000, filed with the Securities and Exchange
Commission on May 17, 2001.
4.1 Registration Rights Agreement, dated as of February 28, 1997, by and
among AMVESCAP and the former shareholders of A I M Management Group,
Inc. named therein, incorporated by reference to exhibit 2.11 to
AMVESCAP's Annual Report on Form 20-F for the year ended December 31,
1996, filed with the Securities and Exchange Commission on May 6, 1997.
4.2 Indemnification Agreement, dated as of February 28, 1997, by and among
AMVESCAP, Charles T. Bauer, Robert H. Graham, Gary T. Crum and certain
related persons named therein, incorporated by reference to exhibit 2.6
to AMVESCAP's Annual Report on Form 20-F for the year ended December 31,
1996, filed with the Securities and Exchange Commission on May 6, 1997.
4.3 Second Amended and Restated Purchase and Sale Agreement, dated as of
December 14, 2000, among A I M Management Group Inc., Citibank, N.A. and
Citicorp North America, Inc., incorporated by reference to exhibit 4.17
to AMVESCAP's Annual Report on Form 20-F for the year ended December 31,
2000, filed with the Securities and Exchange Commission on May 17, 2001.
4.4 Amendment No. 4 to Facility Documents, dated as of August 24, 2001 among
A I M Management Group Inc., A I M Advisors, Inc., A I M Distributors,
Inc., Citibank, N.A., Bankers Trust Company and Citicorp North America,
Inc., incorporated by reference to exhibit 4.4 to AMVESCAP's Annual
Report on Form 20-F for the year ended December 31, 2001, filed with the
Securities and Exchange Commission on April 4, 2002.
4.5 AMVESCAP Deferred Fees Share Plan, incorporated by reference to exhibit
4.22 to AMVESCAP's Annual Report on Form 20-F for the year ended December
31, 2000, filed with the Securities and Exchange Commission on May 17,
2001.
4.6 Amended and Restated Merger Agreement, dated as of May 9, 2000, between
AMVESCAP and Trimark, incorporated by reference to exhibit 4.23 to
AMVESCAP's Annual Report on Form 20-F for the year ended December 31,
2000, filed with the Securities and Exchange Commission on May 17, 2001.
4.7 Support Agreement, dated as of August 1, 2000, with respect to AMVESCAP's
Exchangeable Shares (as defined in such Support Agreement), among
AMVESCAP, AVZ Callco Inc. and AMVESCAP Inc., incorporated by reference to
exhibit 4.24 to AMVESCAP's Annual Report on Form 20-F for the year ended
December 31, 2000, filed with the Securities and Exchange Commission on
May 17, 2001.
60
4.8 Merger Agreement, dated as of February 28, 2001, among National Asset
Management Corporation, the Sellers listed therein, the Option Holder
listed therein, AMVESCAP and AVZ, Inc., incorporated by reference to
exhibit 4.28 to AMVESCAP's Annual Report on Form 20-F for the year ended
December 31, 2000, filed with the Securities and Exchange Commission on
May 17, 2001.
4.9 Stock Purchase Agreement, dated as of April 26, 2001, by and among Old
Mutual, PLC, Old Mutual Holdings (U.S.), Inc., United Asset Management
Holdings, Inc., AMVESCAP and INVESCO North American Holdings, Inc.,
incorporated by reference to exhibit 4.11 to AMVESCAP's Annual Report on
Form 20-F for the year ended December 31, 2001, filed with the Securities
and Exchange Commission on April 4, 2002.
4.10 Amendment No. 1 to Stock Purchase Agreement, dated as of August 2, 2001,
by and among Old Mutual, PLC, Old Mutual Holdings (U.S.), Inc., United
Asset Management Holdings, Inc., AMVESCAP and INVESCO North American
Holdings, Inc., incorporated by reference to exhibit 4.12 to AMVESCAP's
Annual Report on Form 20-F for the year ended December 31, 2001, filed
with the Securities and Exchange Commission on April 4, 2002.
4.11 AMVESCAP Global Stock Plan, Amended and Restated Effective as of December
1, 2002, incorporated by reference to exhibit 4.18 to AMVESCAP's Annual
Report on Form 20-F for the year ended December 31, 2002, filed with the
Securities and Exchange Commission on March 27, 2003.
4.12 Guarantee, dated February 27, 2003, with respect to AMVESCAP's 5.375%
Senior Notes Due 2013, made by A I M Management Group Inc., A I M
Advisors, Inc., INVESCO Institutional (N.A.), Inc. and INVESCO North
American Holdings, Inc., incorporated by reference to exhibit 4.20 to
AMVESCAP's Annual Report on Form 20-F for the year ended December 31,
2002, filed with the Securities and Exchange Commission on March 27,
2003.
4.13 Employment Agreement, dated as of June 22, 1994, between Charles W. Brady
and INVESCO Group Services, Inc.
4.14 Global Partner Agreement, dated December 27, 2000, between Robert H.
Graham and A I M Management Group Inc.
4.15 Employment Agreement, dated as of June 10, 1994, between Hubert L.
Harris, Jr. and INVESCO Group Services, Inc.
4.16 Global Partner Agreement, dated January 3, 2001, between James I.
Robertson and AMVESCAP Group Services, Inc.
4.17 Letter Agreement, dated July 3, 2001, between Michael D. Benson and
INVESCO UK Limited.
4.18 Global Partner Agreement, dated January 5, 2001, between Robert F.
McCullough and AMVESCAP Group Services, Inc.
4.19 Form of Non-Executive Director's Letter of Appointment, between AMVESCAP
PLC and each non-executive director of the company.
8.1 List of Subsidiaries. Information on Significant Subsidiaries is
incorporated by reference from the chart and description of our business
in Item 4 of this Annual Report on Form 20-F.
12.1 Certification of Charles W. Brady pursuant to Rule 13a-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
61
12.2 Certification of James I. Robertson pursuant to Rule 13a-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
13.1 Certification of Charles W. Brady pursuant to Rule 13a-14(b) and 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
13.2 Certification of James I. Robertson pursuant to Rule 13a-14(b) and 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
14.1 Consent of Ernst & Young LLP.
62
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf.
AMVESCAP PLC
By: /s/ JAMES I. ROBERTSON
-----------------------------
James I. Robertson
Chief Financial Officer
Date: June 29, 2005
63
AMVESCAP PLC AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm.................................................................. F-2
Consolidated Statements of Income for the Years Ended December 31, 2004, 2003 and 2002................................... F-3
Consolidated Statements of Total Recognized Gains and Losses for the Years Ended December 31, 2004, 2003 and 2002........ F-3
Consolidated Balance Sheets as of December 31, 2004 and 2003............................................................. F-4
Consolidated Shareholders' Funds for the Years Ended December 31, 2004, 2003 and 2002.................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002............................... F-6
Notes to the Consolidated Financial Statements........................................................................... F-7
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The Directors of AMVESCAP PLC:
We have audited the accompanying consolidated balance sheets of AMVESCAP PLC as
of December 31, 2004 and 2003 and the related consolidated statements of income,
total recognized gains and losses, shareholders' funds and cash flows for each
of the three years in the period ended December 31, 2004. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with United Kingdom auditing standards and
the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. We were not engaged to perform an audit of the Company's internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
AMVESCAP PLC at December 31, 2004 and 2003 and the consolidated results of its
operations and its consolidated cash flows for each of the three years in the
period ended December 31, 2004, in conformity with accounting principles
generally accepted in the United Kingdom, which differ in certain respects from
U.S. generally accepted accounting principles (see Note 27 of Notes to the
Consolidated Financial Statements).
/s/ Ernst & Young LLP
London, England
February 28, 2005
F-2
CONSOLIDATED STATEMENTS OF INCOME
Year-ended December 31,
---------------------------------------------------------------------- ------------- ------------ ------------
(pound)'000 2004 2003 2002
---------------------------------------------------------------------- ------------- ------------ ------------
Revenues 1,158,451 1,158,070 1,345,263
Expenses:
Operating (859,776) (847,220) (978,338)
Exceptional (note 3) (249,710) (84,943) (69,248)
Goodwill amortization (note 12) (157,820) (148,982) (149,415)
------------- ------------ ------------
Operating (loss)/profit (108,855) 76,925 148,262
Investment income (note 6) 15,268 7,740 6,561
Interest expense (note 7) (44,096) (48,270) (52,558)
------------- ------------ ------------
(Loss)/profit before taxation (137,683) 36,395 102,265
Taxation (note 9) (35,315) (53,676) (85,372)
------------- ------------ ------------
(Loss)/profit after taxation (172,998) (17,281) 16,893
Minority interests (285) -- --
------------- ------------ ------------
(Loss)/profit after minority interests (173,283) (17,281) 16,893
Dividends (note 10) (61,887) (93,627) (93,479)
------------- ------------ ------------
Retained loss for the year (235,170) (110,908) (76,586)
------------- ------------ ------------
Earnings per share before goodwill amortization and exceptional items (note 11):
-basic 21.8p 23.4p 27.5p
-diluted 21.7p 23.2p 27.2p
Earnings per share:
-basic and diluted (21.6)p (2.2)p 2.1p
---------------------------------------------------------------------- ------------- ------------ ------------
The accompanying notes form part of these financial statements.
CONSOLIDATED STATEMENTS OF TOTAL RECOGNIZED GAINS AND LOSSES
Year-ended December 31,
---------------------------------------------------------------------- ------------ ------------- -------------
(pound)'000 2004 2003 2002
---------------------------------------------------------------------- ------------ ------------- -------------
Loss for the financial year (172,998) (17,281) 16,893
Currency translation differences on investments
in overseas subsidiaries (16,369) (10,105) (26,322)
Currency translation differences on borrowings 56,316 65,669 82,183
------------ ------------- -------------
Total recognized gains and losses (133,051) 38,283 72,754
---------------------------------------------------------------------- ------------ ------------- -------------
The accompanying notes form part of these financial statements. The cumulative
effect on reserves of the prior year UITF 38 reclassification is shown in the
Consolidated Shareholders' Funds statement.
F-3
CONSOLIDATED BALANCE SHEETS
As of December 31,
------------------------------------------------------------ --------------- -------------- --------------- --------------
(pound)'000 2004 2003
------------------------------------------------------------ --------------- -------------- --------------- --------------
Fixed assets:
Goodwill (note 12) 2,303,403 2,411,803
Tangible assets (note 14) 148,404 170,598
Investments (note 13) 70,070 89,639
--------------- -------------- --------------- --------------
2,521,877 2,672,040
Current assets:
Debtors (note 15) 1,015,662 887,507
Investments (note 13) 84,483 74,652
Cash 284,977 318,713
--------------- ---------------
1,385,122 1,280,872
Current liabilities (note 16):
Current maturities of long-term debt (41,411) -
Creditors (1,212,068) (1,052,034)
--------------- ---------------
(1,253,479) (1,052,034)
Net current assets 131,643 228,838
Total assets less current liabilities 2,653,520 2,900,878
Long-term debt (note 17) (683,215) (730,041)
Provisions for liabilities and charges (note 18) (106,234) (105,646)
--------------- -------------- --------------- --------------
Net assets 1,864,071 2,065,191
--------------- -------------- --------------- --------------
Capital and reserves:
Called up share capital (note 22) 202,664 200,264
Share premium account 700,888 675,755
Shares held by employee trusts (note 22) (237,972) (185,809)
Exchangeable shares (note 22) 308,996 330,629
Other reserves 593,596 527,215
Profit and loss account 294,585 516,756
--------------- -------------- --------------- --------------
Shareholders' funds, equity interests 1,862,757 2,064,810
Minority interests 1,314 381
--------------- -------------- --------------- --------------
1,864,071 2,065,191
------------------------------------------------------------ --------------- -------------- --------------- --------------
The accompanying notes form part of these financial statements. These financial
statements were approved by the Board of Directors on February 28, 2005, and
were signed on its behalf by:
Charles W. Brady
James I. Robertson
F-4
CONSOLIDATED SHAREHOLDERS' FUNDS
Movements in shareholders' funds, equity interests, comprise:
------------------------------------ ------------ ------------- ----------- ------------- ----------- ------------- ------------
Shares held
Called up Exchangeable Share by employee Other Profit and
(pound)'000 share capital shares premium trusts reserves Loss account Total
------------------------------------ ------------ ------------- ----------- ------------- ----------- ------------- ------------
January 1, 2002 196,037 433,597 552,524 (98,112) 413,422 687,911 2,185,379
Profit after taxation -- -- -- -- -- 16,893 16,893
Dividends -- -- -- -- -- (93,479) (93,479)
Exercise of options 1,297 -- 17,384 -- (2,820) -- 15,861
Acquisition earn-outs 130 -- -- -- 6,758 -- 6,888
Increase in shares held by
employee share ownership trusts -- -- -- (63,865) -- -- (63,865)
Conversion of exchangeable shares
into ordinary shares 1,150 (50,492) 49,342 -- -- -- --
Currency translation differences
on investments in overseas
subsidiaries -- -- -- -- 55,861 -- 55,861
------------------------------------ ------------ ------------- ----------- ------------- ----------- ------------- ------------
December 31, 2002 198,614 383,105 619,250 (161,977) 473,221 611,325 2,123,538
Loss after taxation -- -- -- -- -- (17,281) (17,281)
Dividends -- -- -- -- -- (93,627) (93,627)
Exercise of options 451 -- 5,089 -- (1,570) -- 3,970
Acquisition earn-out 4 -- 135 -- -- -- 139
Increase in share-based payment
reserve -- -- -- -- -- 16,339 16,339
Increase in shares held by
employee share ownership trusts -- -- -- (23,832) -- -- (23,832)
Conversion of exchangeable shares
into ordinary shares 1,195 (52,476) 51,281 -- -- -- --
Currency translation differences
on investments in overseas
subsidiaries -- -- -- -- 55,564 -- 55,564
------------------------------------ ------------ ------------- ----------- ------------- ----------- ------------- ------------
December 31, 2003 200,264 330,629 675,755 (185,809) 527,215 516,756 2,064,810
Loss after taxation -- -- -- -- -- (172,998) (172,998)
Dividends -- -- -- -- -- (61,887) (61,887)
Amounts due to minority
shareholders -- -- -- -- -- (285) (285)
Exercise of options 385 -- 3,953 -- (24) -- 4,314
Acquisition and disposal 1,520 -- -- -- 26,458 -- 27,978
Acquisition earn-out 1 -- 41 -- -- -- 42
Increase in share-based payment
reserve -- -- -- -- -- 12,999 12,999
Increase in shares held by
employee share ownership trusts -- -- -- (52,163) -- -- (52,163)
Conversion of exchangeable shares
into ordinary shares 494 (21,633) 21,139 -- -- -- --
Currency translation differences
on investments in overseas
subsidiaries -- -- -- -- 39,947 -- 39,947
------------------------------------ ------------ ------------- ----------- ------------- ----------- ------------- ------------
December 31, 2004 202,664 308,996 700,888 (237,972) 593,596 294,585 1,862,757
------------------------------------ ------------ ------------- ----------- ------------- ----------- ------------- ------------
The accompanying notes form part of these financial statements. Total
shareholders' funds, equity interests at December 31, 2003 were
(pound)2,232,253,000 (January 1, 2003: (pound)2,283,488,000) before
reclassifying (pound)167,443,000 (January 1, 2003: (pound)159,950,000) related
to the adoption of UITF 38. (See Note 22.)
F-5
CONSOLIDATED CASH FLOW STATEMENTS
Year-ended December 31,
---------------------------------------------------------------------- ------------ ------------ ------------
(pound)'000 2004 2003 2002
---------------------------------------------------------------------- ------------ ------------ ------------
Net cash inflow from operating activities (note 19) 203,625 338,667 446,189
Returns on investments and servicing of finance:
Interest and dividends received 11,496 7,898 7,033
Interest paid (46,217) (50,041) (48,591)
------------ ------------ ------------
(34,721) (42,143) (41,558)
Taxation (57,215) (120,760) (105,557)
Capital expenditure and financial investment:
Purchase of tangible fixed assets, net of sales (27,594) (36,585) (54,584)
Purchase of fixed asset investments (24,660) (17,876) (35,551)
Disposal of fixed asset investments 23,275 22,340 42,423
------------ ------------ ------------
(28,979) (32,121) (47,712)
Acquisitions and disposals:
Acquisitions, net of cash acquired (38,744) (28,039) --
Disposals 10,000 -- --
------------ ------------ ------------
(28,744) (28,039) --
Dividends paid (73,823) (93,369) (93,531)
------------ ------------ ------------
Cash (outflow)/inflow before the use of
cash equivalents and financing (19,857) 22,235 157,831
Financing:
Issues of ordinary share capital 4,314 3,970 15,861
Purchases of shares held by employee share ownership trusts (51,551) (24,398) (63,865)
Credit facility, net (42,553) (15,118) 57,455
Issuance of senior notes 260,525 220,648 --
Repayment of loans (167,009) (227,446) (127,620)
------------ ------------ ------------
3,726 (42,344) (118,169)
Change in cash equivalents 4,207 36,154 (39,579)
------------ ------------ ------------
(Decrease)/increase in cash (11,924) 16,045 83
------------ ------------ ------------
Reconciliation to decrease in cash at bank and in hand:
(Decrease)/increase in cash (11,924) 16,045 83
Change in bank overdrafts (224) (5,112) (5,656)
Change in cash equivalents (4,207) (36,154) 39,579
Foreign exchange movement on cash and cash equivalents (17,381) (11,177) (29,873)
------------ ------------ ------------
(Decrease)/increase in cash at bank and in hand (33,736) (36,398) 4,133
---------------------------------------------------------------------- ------------ ------------ ------------
The accompanying notes form part of these financial statements.
F-6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Accounting Policies
Basis of accounting and consolidation
The financial statements consolidate the financial statements of AMVESCAP PLC
and all of its subsidiaries (the "Group"). The consolidated financial statements
have been prepared in accordance with the Companies Act 1985 (Schedule 4) and
applicable accounting standards. The financial statements have been prepared on
the historic cost convention as modified to include certain assets at market
value. The Companies Act 1985 requirements have been adapted in respect of
exchangeable shares. (See Note 22.) Certain prior year amounts have been
reclassified to conform to the current year presentation. The Group adopted
Urgent Issues Task Force (UITF) Abstract 38, "Accounting for ESOP trusts" on
June 30, 2004, which requires that the Company's shares owned by employee share
ownership trusts be recorded as deductions from equity rather than assets on the
balance sheet. There was no material impact on the current profit and loss
account in 2004 or 2003 as a result of this adoption. (See Note 22.)
Goodwill
The excess of the cost of companies acquired, over the fair value of their net
assets, is capitalized as an asset and amortized through the profit and loss
account over an estimated useful life of 20 years. Prior to 1998, goodwill was
charged directly to other reserves. This goodwill has been eliminated as a
matter of accounting policy and will be charged or credited to the profit and
loss account on subsequent disposal of the related businesses. Additional
amortization is taken in the year if goodwill is deemed impaired.
Revenue
Revenue is measured at the fair value of consideration received or receivable
and represents amounts receivable for services provided in the normal course of
business, net of discounts, VAT and other sales-related taxes. Revenue, which is
recorded when earned, represents management, distribution, transfer agent and
other fees. Management fee revenues are derived from providing professional
expertise to manage client accounts and include fees received from institutional
advisory contracts and retail mutual funds, unit trusts, investment companies
with variable capital and investment trusts. Management fees vary in relation to
the type and level of client assets managed, and in certain cases are also based
on investment performance. Distribution fees include 12b-1 fees received from
certain mutual funds to cover allowable marketing expenses for those funds and
also include asset-based sales charges paid by certain mutual funds for a period
of time after the sale of those funds. Transfer agent fees are service fees
charged to cover the expense of transferring shares of a mutual fund or units of
a unit trust into the investor's name. Other fees include trading fees derived
from generally non-recurring security or investment transactions and fees earned
from the Group's banking subsidiaries, such as interest earned from balances
available on demand from clients and credit institutions and commissions earned
from derivative instruments.
Interest income is accrued on cash and other interest-generating financial
assets.
Dividend income from investments is recognized when the shareholders' rights to
receive payment have been established.
Deferred sales commissions
Amounts paid to brokers and dealers for sales of certain mutual funds that have
a contingent deferred sales charge are capitalized and amortized over a period
not to exceed the redemption period of the related fund.
Tangible fixed assets and depreciation
Depreciation is provided on fixed assets at rates calculated to write off the
cost, less estimated residual value, of each asset evenly over its expected
useful life: leasehold improvements over the lease term; owned buildings over 50
years; computers and other various equipment, between three and seven years.
F-7
Impairment
Tangible fixed assets and goodwill are subject to impairment reviews, in
accordance with FRS 11, if there are events or changes in circumstances that
indicate that the carrying amount of the fixed asset or goodwill may not be
fully recoverable. Goodwill impairment reviews are conducted at an income
generating unit level, and acquisitions are subject to impairment reviews at the
end of the first full financial year following acquisition.
The impairment review comprises a comparison of the carrying amount of the fixed
asset or goodwill with its recoverable amount, which is the higher of net
realizable value and value in use. Net realizable value is calculated by
reference to the amount at which the asset could be disposed of. Value in use is
calculated by discounting the expected future cash flows obtainable as a result
of the assets continued use, including those resulting from its ultimate
disposal, at a market-based discount rate on a pre-tax basis. The carrying
values of fixed assets and goodwill are written down by the amount of any
impairment, and this loss is recognized in the profit and loss account in the
period in which it occurs.
Investments
Investments held as fixed assets, including partnership investments, are stated
at cost less provisions for any impairment in value. Investments held as current
assets are stated at the lower of cost or net realizable value. Gains and losses
on investments are recorded within investment income in the profit and loss
account in the period in which they arise.
Leases
Rentals under operating leases are charged evenly to the profit and loss account
over the lease term.
Taxation
Corporation tax payable is provided on taxable profits at the current rate.
Deferred taxation is provided on timing differences, calculated at the rate at
which it is estimated that tax will be payable. Deferred tax assets are
recognized when it is deemed more likely than not that there will be taxable
profits in the future to offset these amounts. The Group does not discount tax
balances.
(See Note 9.)
Foreign currencies
Assets and liabilities of overseas subsidiaries are translated at the rates of
exchange prevailing at the balance sheet date. Profit and loss account figures
are translated at the weighted average exchange rates for the year. Exchange
differences arising on the translation of overseas subsidiaries' accounts are
taken directly to reserves. Exchange differences on foreign currency borrowings,
to the extent that they are used to finance or provide a hedge against Company
equity investments in foreign enterprises, are taken directly to reserves. All
other translation and transaction exchange differences (which are not material)
are taken to the profit and loss account. All exchange gains or losses on
settled transactions and unsettled short-term monetary items are reported as
part of the profit and loss account.
Pension and post employment medical plans
For defined contribution schemes, pension contributions payable in respect of
the accounting period are charged to the profit and loss account. For defined
benefit schemes, contributions are charged systematically to the profit and loss
account over the expected service lives of employees. Variations from the
regular cost are allocated to the profit and loss account over the average
remaining service lives of employees.
Conversion to International Financial Reporting Standards (IFRS)
The Group is required under European legislation to adopt IFRS for its
year-ending December 31, 2005. These standards comprise not only IFRS but also
International Accounting Standards ("IAS"). The objective is to harmonize
accounting standards, which will enhance transparency and therefore improve the
efficiency of the capital markets. The Group has developed a conversion plan and
has assessed the impact on its financial statements. A commentary on the key
items likely to be impacted by the conversion to IFRS is given in "Item 5.
Operating and Financial Review and Prospects".
F-8
Note 2. Acquisitions and Disposals
On March 1, 2004, the Group acquired Stein Roe Investment Counsel LLC ("Stein
Roe") for consideration totaling (pound)87.6 million, which includes earn-out
provisions of (pound)23.0 million. Goodwill and management contract intangible
assets of (pound)84.5 million have been recorded on this acquisition, net cash
paid was (pound)36.7 million, and shares were issued in satisfaction of
(pound)25.3 million purchase consideration.
The provisional book and fair values of net assets acquired were determined as
follows:
------------------------------------------------- ------------------- ------------------- -----------
(pound)'000
Book Fair value Fair value
value adjustments
------------------------------------------------- ------------------- ------------------- -----------
Fixed assets 20,218 (18,469) 1,749
Debtors 1,843 628 2,471
Cash 2,582 -- 2,582
Creditors (3,716) -- (3,716)
------------------- ------------------- -----------
Net assets 20,927 (17,841) 3,086
Goodwill and intangible assets 84,529
-----------
87,615
Satisfied by:
Issuance of ordinary shares 25,344
Cash paid and provisions established 62,271
-----------
87,615
------------------------------------------------- ------------------- ------------------- -----------
Adjustments include the write-off of pre-acquisition goodwill to equity and the
establishment of deferred tax assets related to certain creditor balances.
On March 31, 2004, the Group completed the disposal of the U.K. and Jersey
businesses of Atlantic Wealth Management. A gain of (pound)3.8 million has been
recorded within investment income. The disposal is analyzed as follows:
------------------------------------------ -------- ---------------
(pound)'000
------------------------------------------ -------- ---------------
Fixed assets disposed of 1,160
Other costs related to sale 3,661
Write-off of goodwill in other reserves 2,634
---------------
7,455
Gain on disposal 3,796
---------------
Consideration (cash and receivables) 11,251
------------------------------------------ -------- ---------------
F-9
Note 3. Exceptional Items
The consolidated profit and loss account includes exceptional charges as
follows:
------------------------------------- --------------- --------------- ---------------
(pound)'000 2004 2003 2002
------------------------------------- --------------- --------------- ---------------
U.S. regulatory investigation:
Settlement costs 208,918 -- --
Other related costs 20,249 17,371 --
Lease costs 20,224 9,620 5,144
Redundancy and reorganization 5,545 48,467 44,544
Other (5,226) 9,485 19,560
--------------- --------------- ---------------
Total exceptional items 249,710 84,943 69,248
--------------- --------------- ---------------
Total exceptional items net of tax 190,579 55,901 56,416
--------------- --------------- ---------------
Diluted per share impact 23.6p 6.9p 6.9p
------------------------------------- --------------- --------------- ---------------
The U.S. regulatory investigation settlement costs comprise (pound)208.9 million
($376.7 million) in penalties and restitution costs. Other related costs are
primarily additional legal costs associated with the investigation. See Note 24
for additional information regarding the settlement. Lease costs arise in 2004
as a result of excess office space in the U.K. and U.S. The provision reflects
an estimate of the lease payments in excess of the expected sublease proceeds
over the remaining lives of the leases. Redundancy and reorganization costs
primarily represent the costs of completing the integration of the U.S. mutual
fund businesses. 'Other' represents the release of previously estimated
provisions to reflect actual costs incurred.
Exceptional items in 2003 and 2002 include costs associated with redundancy
programs and expenses associated with internal reorganizations. 'Other' costs
include charges for systems and other terminated initiatives and the write-off
of fixed assets. The lease provisions relate to moves to new office facilities
and office closures.
The Group paid approximately (pound)175.0 million toward these and prior
exceptional accruals in 2004 (2003: (pound)68.7 million, 2002: (pound)42.7
million).
Note 4. (Loss)/Profit on Ordinary Activities
(Loss)/profit on ordinary activities before taxation is stated after:
------------------------------------------------------------------- ------------------- ------------------- ----------------
(pound)'000 2004 2003 2002
------------------------------------------------------------------- ------------------- ------------------- ----------------
Crediting:
Net gain on sale of tangible fixed assets -- -- 1,011
Charging:
Net loss on sale of tangible fixed assets 553 6,421 --
Interest payable 44,096 48,270 52,558
Audit and non-audit fees 3,993 2,775 2,430
------------------------------------------------------------------- ------------------- ------------------- ----------------
F-10
Note 5. Segmental Information
Geographical analysis of the Group's business, which is principally investment
management, is as follows:
---------------------------- --------------------------------- -- --------------------------------- --- -----------------------
Revenues (Loss)/profit after exceptional Net assets
items
---------------------------- --------------------------------- --------------------------------- -----------------------
(pound)'000 2004 2003 2002 2004 2003 2002 2004 2003
---------------------------- ---------- ---------- ----------- ---------- ---------- ----------- ----------- -----------
U.K. 189,581 180,597 203,900 7,046 14,432 (6,973) 348 (34,114)
U.S. 716,680 744,966 902,928 (57,946) 140,137 234,813 63,168 160,424
Canada 174,417 154,758 151,346 96,553 77,506 79,563 33,271 48,122
Europe/Asia 77,773 77,749 87,089 3,312 (6,168) (9,726) 54,897 55,551
---------- ---------- ----------- ---------- ---------- ----------- ----------- -----------
1,158,451 1,158,070 1,345,263 48,965 225,907 297,677 151,684 229,983
---------- ---------- -----------
Goodwill 2,303,403 2,411,803
Goodwill amortization (157,820) (148,982) (149,415)
Net interest expense (28,828) (40,530) (45,997)
---------- ---------- -----------
(Loss)/profit before taxation (137,683) 36,395 102,265
---------- ---------- -----------
Net debt (591,016) (576,595)
----------- -----------
Net assets 1,864,071 2,065,191
---------------------------- ---------- ---------- ----------- -- ---------- ---------- ----------- --- ----------- -----------
The U.S. dollar profits have been translated into sterling at an average rate of
1.83 in 2004 (2003: 1.65, 2002: 1.50). Revenue reflects the geographical
segments from which services are provided. Total operating expenses in 2004 were
(pound)1,267,306,000 (2003: (pound)1,081,145,000, 2002: (pound)1,197,001,000).
Note 6. Investment Income
------------------------------------------------- ------------ ----------- ------------
(pound)'000 2004 2003 2002
------------------------------------------------- ------------ ----------- ------------
Interest receivable 5,656 6,265 7,549
Gain on disposal of business 3,796 -- --
Income from listed investments 2,731 4,685 3,218
Profit/(loss) from unlisted investments 3,085 (3,210) (4,206)
------------ ----------- ------------
15,268 7,740 6,561
------------------------------------------------- ------------ ----------- ------------
Note 7. Interest Expense
------------------------------------------------- ------------ ----------- ------------
(pound)'000 2004 2003 2002
------------------------------------------------- ------------ ----------- ------------
Senior notes 34,470 40,212 40,086
Credit facility 3,078 3,075 4,286
Debt retirement costs 2,771 -- --
Equity Subordinated Debentures -- 2,225 3,763
Other 3,777 2,758 4,423
------------ ----------- ------------
44,096 48,270 52,558
------------------------------------------------- ------------ ----------- ------------
Note 8. Directors and Employees
------------------------------------------------- ------------ ----------- ------------
(pound)'000 2004 2003 2002
------------------------------------------------- ------------ ----------- ------------
Wages and salaries 391,261 394,176 444,153
Social security costs 27,441 27,304 30,310
Other pension costs 34,722 38,069 44,851
------------ ----------- ------------
453,424 459,549 519,314
------------------------------------------------- ------------ ----------- ------------
The average number of employees of the Group during the year was 6,812 (2003:
7,069). Of these totals, 4,824 (2003: 5,012) were employed in North America and
the remainder were employed in the U.K., Europe and Asia.
Emoluments of the chairman and the directors are shown in "Item 6: Directors,
Senior Management and Employee".
F-11
Note 9. Taxation
------------------------------------------------- ------------ ----------- ------------ ----------- ------------ -----------
(pound)'000 2004 2003 2002
------------------------------------------------- ------------ ----------- ------------ ----------- ------------ -----------
Current Tax:
U. K. corporation
tax for the period 680 (1,018) 7,926
Double taxation relief (680) (476) (1,372)
------------ ------------ ------------
-- (1,494) 6,554
Foreign income tax
for the period 54,143 82,696 112,563
Adjustments in respect
of prior periods 2,787 5,553 2,330
------------ ------------ ------------
56,930 88,249 114,893
------------ ----------- ------------ ----------- ------------ -----------
Total current tax 56,930 86,755 121,447
------------ ----------- ------------ ----------- ------------ -----------
Deferred Tax:
Origination and reversal
of timing differences (23,056) (20,041) (8,471)
Adjustments in respect of
prior periods 1,441 (13,038) (27,604)
------------ ----------- ------------ ----------- ------------ -----------
Total deferred tax (21,615) (33,079) (36,075)
------------ ----------- ------------ ----------- ------------ -----------
Total tax on (loss)/profit on
ordinary activities 35,315 53,676 85,372
------------------------------------------------- ------------ ----------- ------------ ----------- ------------ -----------
------------------------------------------------- ------------ ----------- ------------
(pound)'000 2004 2003 2002
------------------------------------------------- ------------ ----------- ------------
(Loss)/profit before taxation (137,683) 36,395 102,265
------------ ----------- ------------
Tax on Group (loss)/profit on ordinary activities at standard U.K.
corporation tax rate of 30% (41,305) 10,918 30,680
Effects of:
Higher overseas tax rates (9,436) 12,188 18,687
Non-deductible amortization 55,793 41,486 62,904
SEC settlement - non-deductible penalties 28,323 - -
SEC settlement - restitution deductible
when paid 21,555 - -
Other exceptional items deductible when paid (3,318) 6,872 2,820
Adjustments in respect of prior periods 2,787 5,553 2,330
Other non-deductible items 4,892 6,057 12,025
Other deferred tax movement (2,361) 3,681 (7,999)
------------ ----------- ------------
Group current tax charge for the period 56,930 86,755 121,447
------------------------------------------------- ------------ ----------- ------------
Factors that may affect future tax charges
The Group's overseas tax rates are higher than those in the U.K. primarily
because the (losses)/profits earned in the U.S. are taxed at a rate of
approximately 38%, and the profits earned in Canada are taxed at a rate of
approximately 36%, while the (losses)/profits earned in the U.K. are taxed at a
rate of approximately 30%.
Deferred tax has not been recognized on tax losses accumulating in certain
subsidiaries as the losses may not be utilized to offset taxable profits
elsewhere in the Group, and they have arisen in subsidiaries that have not shown
a history of taxable profits and/or the amount of the losses is greater than the
expected profit in the near future. Deferred tax assets from unrecognized losses
that are available to offset future taxable income generated in the respective
subsidiaries comprise: Australia (pound)4.8 million, Japan (pound)2.8 million,
Poland (pound)1.2 million, Germany (pound)1.6 million and Other (pound)2.2
million.
F-12
Components of deferred tax
------------------------------------------------- ------------ -----------
(pound)'000 2004 2003
------------------------------------------------- ------------ -----------
Deferred compensation arrangements 28,457 26,265
Exceptional items 33,065 22,340
Tax losses carried forward 15,460 24,267
Fixed assets depreciation 2,406 719
Amortization (2,872) (4,353)
Investments 3,468 2,413
Health, benefits and rent accruals 10,433 8,859
Accrued interest and other 6,117 6,586
------------ -----------
Deferred tax assets - debtors 96,534 87,096
------------ -----------
Deferred sales commissions (20,658) (30,307)
Tax reserves (19,099) (16,876)
Other (2,718) --
------------ -----------
Deferred tax liabilities - provisions (42,475) (47,183)
------------ -----------
Net deferred tax asset 54,059 39,913
------------------------------------------------- ------------ -----------
Movements on net deferred tax of (pound)14.1 million comprise a deferred tax
credit in the profit and loss account of (pound)21.6 million less foreign
exchange of (pound)5.9 million and other of (pound)1.5 million.
Deferred tax has been recognized on tax losses in the aggregate of (pound)15.5
million as it is more likely than not that each subsidiary will have taxable
profits in the foreseeable future to enable utilization of the amounts
recognized.
Note 10. Dividends
------------------------------------------------- ------------ ----------- ------------
(pound)'000 2004 2003 2002
------------------------------------------------- ------------ ----------- ------------
Interim paid, 2.5p per share (2003: 5.0p)
Ordinary shares 20,321 38,801 38,760
Exchangeable shares 588 2,034 2,063
------------ ----------- ------------
Total Interim paid 20,909 40,835 40,823
Final proposed, 5.0p per share (2003: 6.5p)
Ordinary shares 39,570 50,816 50,388
Exchangeable shares 1,408 1,976 2,268
------------ ----------- ------------
Total final proposed 40,978 52,792 52,656
------------ ----------- ------------
61,887 93,627 93,479
------------------------------------------------- ------------ ----------- ------------
The trustees of the Employee Share Option Trust waived dividends amounting to
(pound)1,729,000 in 2004 (2003: (pound)2,209,000).
Note 11. Earnings per Share
Basic earnings per share is based on the weighted average number of ordinary and
exchangeable shares outstanding during the respective periods, excluding shares
purchased by employee share ownership trusts. Diluted earnings per share takes
into account the effect of the potential issuance of ordinary shares.
F-13
The calculation of earnings per share is as follows:
------------------------------------------------- -------------- -------------- -----------
(Loss)/profit
after
minority Number of Per share
(pound)'000 interests shares amount
------------------------------------------------- -------------- -------------- -----------
2004
Basic and diluted
earnings per share (pound)(173,283) 802,160 (21.6)p
------------------------------------------------- -------------- -------------- -----------
2003
Basic and diluted
earnings per share (pound)(17,281) 802,885 (2.2)p
------------------------------------------------- -------------- -------------- -----------
2002
Basic earnings per share (pound)16,893 810,042 2.1p
Dilutive effect of options -- 9,476
-------------- -------------- -----------
Diluted earnings per share (pound)16,893 819,518 2.1p
------------------------------------------------- -------------- -------------- -----------
Profit before goodwill amortization and exceptional items is a more appropriate
basis for the calculation of earnings per share because this represents a more
consistent measure of the year-by-year performance of the business; therefore,
the calculation below is presented on that basis.
------------------------------------------------- ------------------------ -------------- -----------
Profit before goodwill
amortization and Number of Per share
(pound)'000 exceptional items shares amount
------------------------------------------------- ------------------------ -------------- -----------
2004
Basic earnings per share (pound)175,116 802,160 21.8p
Dilutive effect of options -- 6,128
------------------------ -------------- -----------
Diluted earnings per share (pound)175,116 808,288 21.7p
------------------------------------------------- ------------------------ -------------- -----------
2003
Basic earnings per share (pound)187,602 802,885 23.4p
Dilutive effect of options -- 7,486
------------------------ -------------- -----------
Diluted earnings per share (pound)187,602 810,371 23.2p
------------------------------------------------- ------------------------ -------------- -----------
2002
Basic earnings per share (pound)222,724 810,042 27.5p
Dilutive effect of options -- 9,476
------------------------ -------------- -----------
Diluted earnings per share (pound)222,724 819,518 27.2p
------------------------------------------------- ------------------------ -------------- -----------
Diluted earnings per share is reconciled to diluted earnings per share before
goodwill amortization and exceptional items as follows:
------------------------------------------------- --------------- -------------- --------------
Pence 2004 2003 2002
------------------------------------------------- --------------- -------------- --------------
Diluted earnings per share (21.6) (2.2) 2.1
Goodwill amortization 19.5 18.4 18.2
Exceptional items net of tax 23.6 6.9 6.9
Other adjustments 0.2 0.1 --
--------------- -------------- --------------
Diluted earnings per share
before goodwill amortization
and exceptional items 21.7 23.2 27.2
------------------------------------------------- --------------- -------------- --------------
F-14
Note 12. Goodwill and intangibles
------------------------------------------------- ------------- ----------------- -----------
Net book
(pound)'000 Cost Amortization value
------------------------------------------------- ------------- ----------------- -----------
January 1, 2003 2,943,588 (401,282) 2,542,306
Provided during the year -- (148,982) (148,982)
Acquisition 34,681 -- 34,681
Reduction in earn-out provisions (15,498) -- (15,498)
Foreign exchange (704) -- (704)
------------- ----------------- -----------
December 31, 2003 2,962,067 (550,264) 2,411,803
Provided during the year -- (157,820) (157,820)
Acquisition 84,529 -- 84,529
Other adjustments (1,281) -- (1,281)
Reduction in earn-out provisions (34,314) -- (34,314)
Foreign exchange 486 -- 486
------------- ----------------- -----------
December 31, 2004 3,011,487 (708,084) 2,303,403
------------------------------------------------- ------------- ----------------- -----------
Included in amounts provided during 2004 is an impairment adjustment of
(pound)5.2 million. Prior to 1998, (pound)1,174 million in goodwill was written
off to other reserves, (pound)44.5 million was written off to the cancellation
of the share premium account and (pound)73.6 million was written off to the
profit and loss account.
Note 13. Investments
Investments held as fixed assets
------------------------------------------------ ------------------
(pound)'000
------------------------------------------------ ------------------
Cost:
January 1, 2003 114,967
Foreign exchange (6,307)
Additions 19,381
Acquisition 52
Disposals (32,516)
------------------
December 31, 2003 95,577
Foreign exchange (5,318)
Additions 24,660
Disposals (40,034)
------------------
December 31, 2004 74,885
------------------
Provisions against investments:
January 1, 2003 (8,991)
Net change 3,053
------------------
December 31, 2003 (5,938)
Net change 1,123
------------------
December 31, 2004 (4,815)
------------------
Net book value:
January 1, 2003 105,976
------------------
December 31, 2003 89,639
------------------
December 31, 2004 70,070
------------------------------------------------ ------------------
Investments held as fixed assets consist of investments in various Group mutual
funds, unit trusts, partnership interests, investments in collateralized loan
and bond obligations, investments on behalf of deferred compensation plans and
treasury/governmental agency securities. Prior to June 30, 2004, shares held by
employee trusts were included as investments held as fixed assets. These have
now been reclassified to equity in accordance with UITF 38. (See Note 22.)
F-15
Investments held as current assets
Current asset investments include listed investments of (pound)57.8 million
(2003: (pound)61.0 million) and unlisted investments of (pound)26.7 million
(2003: (pound)13.7 million).
Note 14. Tangible Assets
Tangible assets are comprised of land, buildings, technology and other
equipment.
------------------------------------------------- ------------------- ------------------- -------------------
Technology and Land and
(pound)'000 other equipment buildings Total
------------------------------------------------- ------------------- ------------------- -------------------
Cost:
January 1, 2003 422,920 55,197 478,117
Foreign exchange (52,829) (248) (53,077)
Additions 37,393 11 37,404
Acquisition 102 -- 102
Disposals (20,178) -- (20,178)
------------------- ------------------- -------------------
December 31, 2003 387,408 54,960 442,368
Foreign exchange (21,505) (89) (21,594)
Additions 28,109 58 28,167
Acquisition 1,785 -- 1,785
Disposals (10,381) -- (10,381)
------------------- ------------------- -------------------
December 31, 2004 385,416 54,929 440,345
------------------- ------------------- -------------------
Accumulated depreciation:
January 1, 2003 (279,597) (1,460) (281,057)
Foreign exchange 47,302 2 47,304
Provided during the year (50,043) (912) (50,955)
Disposals 12,938 -- 12,938
------------------- ------------------- -------------------
December 31, 2003 (269,400) (2,370) (271,770)
Foreign exchange 15,645 512 16,157
Provided during the year (44,064) (1,520) (45,584)
Disposals 9,256 -- 9,256
------------------- ------------------- -------------------
December 31, 2004 (288,563) (3,378) (291,941)
------------------- ------------------- -------------------
Net book value:
January 1, 2003 143,323 53,737 197,060
------------------- ------------------- -------------------
December 31, 2003 118,008 52,590 170,598
------------------- ------------------- -------------------
December 31, 2004 96,853 51,551 148,404
------------------------------------------------- ------------------- ------------------- -------------------
Note 15. Debtors
------------------------------------------------- ------------------- -------------------
(pound)'000 2004 2003
------------------------------------------------- ------------------- -------------------
Deferred taxation 96,534 87,096
Policyholder debtors 414,956 271,183
Prepayments 44,638 24,709
Deferred sales commissions 57,827 77,721
Other debtors 58,509 55,624
Trade debtors 129,092 110,682
Unsettled fund debtors 127,912 101,578
Customer and counterparty debtors 86,194 158,914
------------------- -------------------
1,015,662 887,507
------------------------------------------------- ------------------- -------------------
The majority of deferred taxes will reverse after one year.
F-16
Note 16. Current Liabilities
------------------------------------------------- ------------------- -------------------
(pound)'000 2004 2003
------------------------------------------------- ------------------- -------------------
Policyholder creditors 414,956 271,183
Accruals and other 345,363 278,692
Current maturities of long-term debt 41,411 --
Proposed dividend 40,978 52,914
Corporation tax payable 5,294 --
Trade creditors 38,633 53,670
Unsettled fund creditors 124,946 94,815
Customer and counterparty creditors 241,898 300,535
Bank overdraft -- 225
------------------- -------------------
1,253,479 1,052,034
------------------------------------------------- ------------------- -------------------
Note 17. Long-Term Debt
------------------------------------------------- ------------------- -------------------
(pound)'000 2004 2003
------------------------------------------------- ------------------- -------------------
Senior notes:
US$79.5 million (2003: US$400 million) due
2005 at 6.6% 41,411 226,308
US$300 million due 2007 at 5.9% 156,315 169,731
US$300 million due 2009 at 4.5% 156,315 --
US$350 million due 2013 at 5.375% 182,368 198,020
US$200 million due 2014 at 5.375% 104,210 --
US$10 million due 2006 at 6.875% 5,328 5,855
US$900 million credit facility due 2006 78,679 130,127
------------------- -------------------
Total debt 724,626 730,041
Less: current maturities of long-term debt (41,411) --
------------------- -------------------
Total long-term debt 683,215 730,041
------------------------------------------------- ------------------- -------------------
The credit facility provides for borrowings of various maturities and contains
certain conditions, including a restriction not to declare and pay cash
dividends in excess of 60% of cumulative consolidated net profit before goodwill
amortization arising after December 31, 2000. The Company also has an unused
364-day revolving $200 million credit facility available. Interest is payable on
both facilities based upon LIBOR, Prime or Federal Funds rates in existence at
the time of each borrowing. The financial covenants under the credit agreement
include the quarterly maintenance of a debt/EBITDA ratio of not greater than
3.00:1.00 and a coverage ratio of not less than 4.00:1.00 (EBITDA/interest
payable for the four consecutive fiscal quarters ended before the date of
determination).
Analysis of borrowings:
------------------------------------------------------- ----------------- -----------------
(pound)'000 2004 2003
------------------------------------------------------- ----------------- -----------------
Between one and two years 125,418 226,308
Between three and five years 312,630 305,713
More than five years 286,578 198,020
----------------- -----------------
Total debt 724,626 730,041
------------------------------------------------------- ----------------- -----------------
F-17
Note 18. Provisions for Liabilities and Charges
------------------------------------------------- ------------------- ------------------- ------------------- -----------
Deferred Leases and
(pound)'000 taxes Acquisition other Total
------------------------------------------------- ------------------- ------------------- ------------------- -----------
January 1, 2003 57,894 73,378 11,402 142,674
Cash paid -- (2,626) (2,091) (4,717)
Reduction in
earn-out provisions -- (15,498) -- (15,498)
Reversal of deferred
tax liabilities (14,150) -- -- (14,150)
Provisions established
and other adjustments -- (6,838) 8,680 1,842
Foreign exchange 3,439 (7,179) (765) (4,505)
------------------- ------------------- ------------------- -----------
December 31, 2003 47,183 41,237 17,226 105,646
Cash paid -- (4,266) (4,524) (8,790)
Reduction in
earn-out provisions -- (34,314) -- (34,314)
Reversal of deferred
tax liabilities (7,733) -- -- (7,733)
Acquisition of Stein Roe -- 23,019 -- 23,019
Provisions established -- 1,404 19,305 20,709
Foreign exchange 3,025 4,932 (260) 7,697
------------------- ------------------- ------------------- -----------
December 31, 2004 42,475 32,012 31,747 106,234
------------------------------------------------- ------------------- ------------------- ------------------- -----------
Acquisition provisions in 2004 consist of a (pound)23.0 million earn-out
provision established for the acquisition of Stein Roe. The earn-out provision
will be released annually through the third anniversary of the closing and will
be satisfied by the issuance of shares and the payment of cash. Also included in
acquisition provisions is (pound)4.5 million remaining on a retention provision
established at the time of the acquisition of National Asset Management, which
is expected to be settled in cash during 2005 and 2006. The acquisition of the
real estate asset management business of Hypo- und Vereinsbank in 2003 resulted
in the recognition of a (pound)3.5 million deferred acquisition provision, to be
paid in 2006. In 2003, the earn-out associated with the Pell Rudman acquisition
concluded. Pell Rudman did not meet the earn-out targets, and the balance was
reversed against goodwill during the year.
Leases and other provisions consist of an estimate of the costs associated with
onerous leases resulting from excess office space in the U.S. and the U.K. The
provisions reflect calculations of the lease payments in excess of the expected
sublease proceeds over the remaining lives of the leases.
The deferred tax provision arises primarily from contingent deferred sales
commissions and tax reserves.
Note 19. Reconciliation of Operating (Loss)/Profit to Net Cash Inflow from
Operating Activities
------------------------------------------------------- ---------------- ----------------- ----------------
(pound)'000 2004 2003 2002
------------------------------------------------------- ---------------- ----------------- ----------------
Operating (loss)/profit (108,855) 76,925 148,262
Increase in exceptional item
provisions and accruals 74,658 16,219 63,600
Depreciation 45,584 50,955 60,232
Goodwill amortization 157,820 148,982 149,415
(Increase)/decrease in debtors (112,790) (162,213) 123,543
Decrease/(increase) in creditors 163,427 199,190 (114,428)
Net loss/(gain) on disposal of tangible fixed assets 553 6,421 (1,011)
(Gain)/loss on disposal of fixed asset investments (6,427) 2,479 5,530
Other (10,345) (291) 11,046
---------------- ----------------- ----------------
Net cash inflow from operating activities 203,625 338,667 446,189
------------------------------------------------------- ---------------- ----------------- ----------------
F-18
Note 20. Reconciliation of Net Cash Flow to Movement in Net Debt
------------------------------------------------- ------------------- ------------------- -------------------
(pound)'000 2004 2003 2002
------------------------------------------------- ------------------- ------------------- -------------------
(Decrease)/increase in cash (11,924) 16,045 83
Cash outflow from client cash 4,548 12,932 5,622
Cash (outflow)/inflow from
cash equivalents (4,207) (36,154) 39,579
Cash outflow from lease financing -- -- 445
Cash (inflow)/outflow from bank loans (50,963) 21,916 70,165
------------------- ------------------- -------------------
Change in net debt resulting from
cash flows (62,546) 14,739 115,894
------------------- ------------------- -------------------
Debt and finance leases (20) 148 75
Translation difference 48,150 60,991 69,112
------------------- ------------------- -------------------
Change in net debt resulting from
non-cash changes and translation 48,130 61,139 69,187
------------------- ------------------- -------------------
Movement in net debt in the year (14,416) 75,878 185,081
Net debt beginning of the year (576,598) (652,476) (837,557)
------------------- ------------------- -------------------
Net debt end of the year (591,014) (576,598) (652,476)
------------------------------------------------- ------------------- ------------------- -------------------
Note 21. Analysis of Net Debt
---------------------------------------- ------------------- -------------- --------------------- ----------------------
Non-cash changes
(pound)'000 January 1, 2004 Cash flow and translation December 31, 2004
---------------------------------------- ------------------- -------------- --------------------- ----------------------
2004
Net cash:
Cash at bank and in hand 318,713 (16,355) (17,381) 284,977
Less: cash equivalents (86,828) 4,207 3,657 (78,964)
Bank overdrafts (225) 224 1 --
------------------- -------------- --------------------- ----------------------
231,660 (11,924) (13,723) 206,013
Client cash (165,038) 4,548 9,213 (151,277)
------------------- -------------- --------------------- ----------------------
66,622 (7,376) (4,510) 54,736
Cash equivalents 86,828 (4,207) (3,657) 78,964
Debt due within one year -- 167,009 (208,420) (41,411)
Debt due after more than one year (730,041) (217,972) 264,798 (683,215)
Finance leases (7) -- (81) (88)
------------------- -------------- --------------------- ----------------------
Total (576,598) (62,546) 48,130 (591,014)
---------------------------------------- ------------------- -------------- --------------------- ----------------------
---------------------------------------- ------------------- -------------- --------------------- ----------------------
Non-cash changes
(pound)'000 January 1, 2003 Cash flow and translation December 31, 2003
---------------------------------------- ------------------- -------------- --------------------- ----------------------
2003
Net cash:
Cash at bank and in hand 355,111 (25,221) (11,177) 318,713
Less: cash equivalents (125,578) 36,154 2,596 (86,828)
Bank overdrafts (5,157) 5,112 (180) (225)
------------------- -------------- --------------------- ----------------------
224,376 16,045 (8,761) 231,660
Client cash (184,656) 12,932 6,686 (165,038)
------------------- -------------- --------------------- ----------------------
39,720 28,977 (2,075) 66,622
Cash equivalents 125,578 (36,154) (2,596) 86,828
Debt due within one year (222,089) 225,554 (3,465) --
Debt due after more than one year (595,600) (203,638) 69,197 (730,041)
Finance leases (85) -- 78 (7)
------------------- -------------- --------------------- ----------------------
Total (652,476) 14,739 61,139 (576,598)
---------------------------------------- ------------------- -------------- --------------------- ----------------------
F-19
---------------------------------------- ------------------- -------------- --------------------- ----------------------
Non-cash changes
(pound)'000 January 1, 2002 Cash flow and translation December 31, 2002
---------------------------------------- ------------------- -------------- --------------------- ----------------------
2002
Net cash:
Cash at bank and in hand 350,978 34,006 (29,873) 355,111
Less: cash equivalents (94,620) (39,579) 8,621 (125,578)
Bank overdrafts (10,562) 5,656 (251) (5,157)
------------------- -------------- --------------------- ----------------------
245,796 83 (21,503) 224,376
Client cash (207,310) 5,622 17,032 (184,656)
------------------- -------------- --------------------- ----------------------
38,486 5,705 (4,471) 39,720
Cash equivalents 94,620 39,579 (8,621) 125,578
Debt due within one year (125,828) 125,828 (222,089) (222,089)
Debt due after more than one year (844,285) (55,663) 304,348 (595,600)
Finance leases (550) 445 20 (85)
------------------- -------------- --------------------- ----------------------
Total (837,557) 115,894 69,187 (652,476)
---------------------------------------- ------------------- -------------- --------------------- ----------------------
Note 22. Called Up Share Capital and Exchangeable Shares
Ordinary shares
--------------------------------------- ------------ ------------- ------------ -------------- ----------- ---------------
'000 Number 2004 Number 2003 Number 2002
--------------------------------------- ------------ ------------- ------------ -------------- ----------- ---------------
Authorized ordinary shares of 25p each 1,050,000 (pound)262,500 1,050,000 (pound)262,500 1,050,000 (pound)262,500
------------ ------------- ------------ -------------- ----------- ---------------
Allotted, called up and fully paid
ordinary shares of 25p each 810,657 (pound)202,664 801,058 (pound)200,264 794,456 (pound)198,614
--------------------------------------- ------------ ------------- ------------ -------------- ----------- ---------------
During the year the Company issued 1,539,000 ordinary shares as a result of
options exercised and 6,089,000 ordinary shares as a result of acquisitions and
acquisition earn-outs.
As of December 31, 2004, unissued ordinary shares are reserved for the following
purposes:
------------------------------------------------- ------------------- -------------------- -------------------
Last
Shares Prices expiry date
------------------------------------------------- ------------------- -------------------- -------------------
Options arising
from acquisitions 1,453,502 47p - 1,366p Feb 2010
Conversion of
exchangeable shares 28,148,116 -- Dec 2009
Subscription agreement
(options) with the Employee
Share Option Trust 47,323,206 25p - 1,680p Apr 2013
Options granted under the
AMVESCAP 2000 Share
Option Plan 82,856,748 319.25p - 1,440p Dec 2014
Options granted under
Sharesave Schemes 3,078,436 268p - 986p Dec 2008
------------------------------------------------- ------------------- -------------------- -------------------
Exchangeable shares
The exchangeable shares issued by a subsidiary of the Company are exchangeable
into ordinary shares of the Company on a one-for-one basis at any time at the
request of the holder. They have, as nearly as practicable, the economic
equivalence of the Company's ordinary shares, including the same voting and
dividend rights as the ordinary shares. The Company can redeem all outstanding
exchangeable shares for ordinary shares after December 31, 2009, or earlier if
the total exchangeable shares fall below 5 million.
F-20
The exchangeable shares are included as part of share capital in the
consolidated balance sheet to present a true and fair view of the consolidated
Group's capital structure, which differs from the Companies Act 1985
requirements (to reflect these amounts as minority interests), as they are
economically equivalent to, and will become, ordinary shares.
Movements in exchangeable shares comprise:
------------------------------------------------- -------------------
Number
------------------------------------------------- -------------------
January 1, 2002 39,498,655
Converted into ordinary shares (4,599,570)
-------------------
December 31, 2002 34,899,085
Converted into ordinary shares (4,780,358)
-------------------
December 31, 2003 30,118,727
Converted into ordinary shares (1,970,611)
-------------------
December 31, 2004 28,148,116
------------------------------------------------- -------------------
Shares held by employee trusts
Shares held by employee trusts represent the holdings of the ordinary shares of
AMVESCAP PLC by its employee share ownership trusts.
Movements in shares held by employee trusts comprise:
------------------------------------------------- -------------------
Number
------------------------------------------------- -------------------
January 1, 2002 12,593,503
Purchases of ordinary shares 11,670,112
-------------------
December 31, 2002 24,263,615
Purchases of ordinary shares 6,000,000
-------------------
December 31, 2003 30,263,615
Purchases of ordinary shares 15,224,640
-------------------
December 31, 2004 45,488,255
------------------------------------------------- -------------------
The market price of ordinary shares at the end of 2004 was 320.75 pence.
The adoption of UITF 38 required that the cost of these share purchases be
reclassified from assets to equity as follows:
---------------------------- ------------- ------------- --------------- ----------------
(pound)'000 Shares held
Profit and by employee
Investments Debtors loss trusts
---------------------------- ------------- ------------- --------------- ----------------
December 31, 2003 as
reported 230,567 903,955 498,390 --
Adoption of UITF 38 (140,928) (26,515) 18,366 (185,809)
------------- ------------- --------------- ----------------
December 31, 2003 as
restated for the impact
of UITF 38 89,639 877,440 516,756 (185,809)
---------------------------- ------------- ------------- --------------- ----------------
Note 23. Commitments
The Group operates a number of defined contribution retirement schemes
throughout the world. The Group also has defined benefit pension and post
employment medical schemes operating for employees in certain locations. The
U.K. and U.S. defined benefit pension plans are closed to new participants. The
assets of the defined benefit schemes are held in separate trustee-administered
funds. The pension costs and provisions of these schemes are assessed in
accordance with the advice of professionally qualified actuaries using standard
industry valuation assumptions. As of December 31, 2004, the total market value
of plan assets was (pound)128,114,000 (2003: (pound)114,218,000), and the excess
of the fair value of aggregate defined benefit scheme liabilities over plan
assets was (pound)75,324,000 (2003: (pound)60,405,000). The unrecorded actuarial
losses for the year were (pound)13,488,000. On December 31, 2004,
(pound)11,431,000 (2003: (pound)7,543,000) is accrued for the defined benefit
obligation under these plans, in accordance with Statement of Standard
Accounting Practice No. 24, "Accounting for
F-21
pension costs." The costs amounted to (pound)8,017,000 (2003: (pound)7,018,000)
for the defined benefit schemes and (pound)31,371,000 (2003: (pound)33,165,000)
for the defined contribution schemes.
The Group's annual commitments under non-cancelable operating leases are as
follows:
------------------------------------ --------------------------------------- ----------------------------------------
Land and buildings Other
--------------------------------------- ----------------------------------------
(pound)'000 2004 2003 2004 2003
------------------------------------ ------------------- ------------------- -------------------- -------------------
Operating leases which expire:
Within one year 2,872 651 6,159 2,129
Within two to five
years inclusive 9,107 11,866 332 1,885
In more than five years 14,905 17,318 -- --
------------------- ------------------- -------------------- -------------------
26,884 29,835 6,491 4,014
------------------------------------ ------------------- ------------------- -------------------- -------------------
Guarantees and commitments may arise in the ordinary course of business.
Note 24. Contingencies
In December 2003, the SEC, the New York Attorney General's Office and the
Colorado Attorney General's Office brought civil enforcement actions against
INVESCO Funds Group, Inc. ("IFG"), the former advisor to the INVESCO mutual
funds, based on market timing activities by certain investors in the funds; the
SEC also named IFG's former CEO and President, Raymond Cunningham, as a
defendant. The SEC and the New York Attorney General's Office also instituted
separate investigations into market timing activity in the mutual funds advised
by A I M Advisors, Inc. ("AIM Advisors"). A number of other regulators from
other jurisdictions also requested information from AMVESCAP, AIM and IFG
relating to market timing; AMVESCAP, AIM and IFG fully cooperated with such
requests.
On September 7, 2004, AMVESCAP announced agreements in principle with the U.S.
Securities and Exchange Commission, the New York State Attorney General, the
State of Colorado Attorney General, the Colorado Division of Securities and the
Secretary of the State of Georgia. The agreements were finalized on October 8,
2004. The agreements settle all claims against IFG filed in 2003 by the SEC, New
York and Colorado. The agreements also conclude the investigations with respect
to AIM and IFG by each of the participating regulators. IFG agreed to a total
payment of $325 million, of which $110 million was a civil penalty, to be paid
into a Fair Fund in two installments in December 2004 and December 2005. AIM
Advisors and AIM Distributors, Inc. agreed to a total payment of $50 million, of
which $30 million was a civil penalty, to be paid into a Fair Fund in November
2004. The amounts in the Fair Funds will be distributed to mutual fund
shareholders in the AIM and INVESCO funds in accordance with the terms of a
distribution plan to be established by an Independent Distribution Consultant
and approved by the SEC and the independent board members of the AIM Funds. IFG
also agreed to pay $1.5 million to the Colorado regulators, and IFG and AIM
agreed to pay $175,000 to Georgia.
In addition, under its agreement with the New York Attorney General's Office,
AIM agreed to reduce management fees charged to investors in the AIM and INVESCO
mutual funds for five years beginning on January 1, 2005. The reduction in
percentage fee rates, as applied to assets under management as of July 1, 2004,
would result in a $15 million annual reduction in fees. The actual reduction in
fees, however, will vary as assets under management increase or decrease.
The settlements do not resolve the investigations and inquiries into market
timing at AMVESCAP, IFG and AIM by non-participating regulators, and AMVESCAP
cannot predict if any non-participating regulator will pursue enforcement action
against any AMVESCAP affiliate in the future.
In addition to the above settled governmental enforcement actions, multiple
lawsuits, including purported class action and shareholder derivative suits,
have been filed against various parties affiliated with AMVESCAP (including
certain INVESCO funds, certain AIM funds, IFG, AIM Advisors, A I M Management
Group Inc. (the parent of AIM Advisors), AMVESCAP, certain related entities and
certain of their officers and trustees). The allegations in the majority of
these cases are based primarily upon the allegations in the enforcement actions
described above, namely, that by allowing "market timing" trading, these parties
violated the anti-fraud provisions of the federal securities laws and/or
breached their fiduciary duties to the funds and/or individual investors.
Certain other lawsuits allege that one or more of AMVESCAP's funds charged
excessive fees, engaged in unlawful distribution practices, failed to adequately
pursue recoveries for
F-22
shareholders in class actions, inadequately employed fair value pricing or
improperly collected Rule 12b-1 fees after ceasing to offer their shares to the
general public. These lawsuits allege a variety of theories for recovery,
including, but not limited to: (i) violation of various provisions of the United
States federal securities laws, (ii) violation of various provisions of the
Employee Retirement Income Security Act of 1974 ("ERISA"), (iii) breach of
fiduciary duty and (iv) breach of contract. The lawsuits have been filed in both
federal and state courts and seek such remedies as compensatory damages,
restitution, rescission, accounting for wrongfully gotten gains, profits and
compensation, injunctive relief, disgorgement, equitable relief, various
corrective measures under ERISA, that the advisory agreement with AIM Advisors
be rescinded and/or declared unenforceable or void and that all advisory fees
received during the past year be refunded, with interest and the payment of
attorneys' and experts' fees. The AMVESCAP-affiliated parties have sought to
remove certain of the state court proceedings to the applicable United States
Federal District Court. All lawsuits based on allegations of market timing, late
trading and related issues have been transferred to the United States District
Court for the District of Maryland, referred to as the MDL Court, for
consolidated or coordinated pre-trial proceedings. Pursuant to an Order of the
MDL Court, plaintiffs consolidated their claims for pre-trial purposes into
three amended complaints against various AIM- and IFG-related parties: (1) a
Consolidated Amended Class Action Complaint purportedly brought on behalf of
shareholders of the AIM funds; (2) a Consolidated Amended Fund Derivative
Complaint purportedly brought on behalf of the AIM funds and fund registrants;
and (3) an Amended Class Action Complaint for Violations of the ERISA
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan.
Plaintiffs in one of the underlying lawsuits transferred to the MDL Court
continue to seek remand of their action to state court. Although it is expected
that the payments required under the terms of the regulatory settlement will
mitigate any damages payable as a result of the above actions in the MDL Court,
AMVESCAP cannot predict the outcome of these actions or any of the other actions
mentioned above with certainty but intends to defend them vigorously.
The asset management industry is subject to extensive levels of ongoing
regulatory oversight and examination. In the United States and other
jurisdictions in which AMVESCAP operates, governmental authorities regularly
make inquiries, hold investigations and administer market conduct examinations
with respect to compliance with applicable laws and regulations. In particular,
the U.S. mutual fund industry as a whole is currently subject to regulatory
inquiries related to a wide range of issues including, among others, IPO
allocations, market timing activity, late trading, fair value pricing, excessive
or improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies, contractual plans, issues
related to Section 529 college savings plans and procedures for locating lost
security holders. Certain of AMVESCAP's subsidiaries and related entities,
certain of their respective current and former officers and/or certain of their
advised funds have received regulatory inquiries in the form of subpoenas or
other oral or written requests for information and/or documents related to one
or more of these issues.
Additional lawsuits or regulatory enforcement actions arising out of these
circumstances and presenting similar allegations and requests for relief may in
the future be filed against AMVESCAP and related entities and individuals in the
U.S. and other jurisdictions in which the Group operates. Moreover, public trust
and confidence are critical to AMVESCAP's business, and any material loss of
investor and/or client confidence could result in a significant decline in
assets under management, which would have an adverse effect on future financial
results and ability to grow the business.
F-23
Note 25. Financial Instruments
The interest rate profile of the financial liabilities of the Group on December
31 was:
------------------------------------ ------------- --------------- ------------- ----------------------------------------
Fixed rate financial liabilities
----------------------------------------
Weighted
average period
Weighted average for which rate is
(pound)'000 Total Floating rate Fixed rate interest rate (%) fixed (years)
------------------------------------ ------------- --------------- ------------- -------------------- -------------------
2004
Currency:
U.S. dollar 724,628 78,679 645,949 5.4 5.6
Japanese yen 86 -- 86 12.4 4.7
------------- --------------- ------------- -------------------- -------------------
724,714 78,679 646,035 5.4 5.6
------------------------------------ ------------- --------------- ------------- -------------------- -------------------
2003
Currency:
U.S. dollar 730,041 130,127 599,914 6.0 4.4
Sterling 184 184 -- -- --
Euro 41 41 -- -- --
Japanese yen 7 -- 7 2.8 0.3
------------- --------------- ------------- -------------------- -------------------
730,273 130,352 599,921 6.0 4.4
------------------------------------ ------------- --------------- ------------- -------------------- -------------------
The Group held the following financial assets as of December 31:
------------------------------------------------- -------------- -------------
(pound)'000 2004 2003
------------------------------------------------- -------------- -------------
Cash deposits:
U.S. dollar 215,719 223,012
Sterling 27,920 25,383
Canadian dollar 29,350 56,625
Euro 5,714 8,751
Other 6,274 4,942
Investments:
U.S. dollar 52,440 68,549
Sterling 21,807 15,669
Canadian dollar 8,367 354
Euro fixed interest deposits 48,791 52,178
U.S. dollar treasury bills 6,775 3,425
Canadian dollar fixed interest deposits -- 4,808
Other 16,373 19,308
-------------- -------------
Total 439,530 483,004
------------------------------------------------- -------------- -------------
The cash deposits comprise deposits placed primarily in money market accounts
and seven-day deposits. The average interest rate on the Euro fixed interest
deposits is 2.2% for 2004 (2003: 2.2%), and average time for which the rate is
fixed is 0.2 years (2003: 0.1 years). Certain of the Euro fixed interest
investments are pledged for the facilitation of customer and counterparty
transactions specific to the banking side of the Group's business. The average
interest rate on the U.S. dollar treasury bills is 3.2% (2003: 6.0%), and the
average time for which the rate is fixed is 1.5 years (2003: 2.1 years). The
average interest rate on the Canadian dollar fixed interest securities in 2003
was 7.7%, and the average time for which the rate was fixed in 2003 was 0.7
years.
The Group has excluded debtors and creditors from its financial instrument
disclosures. The majority of these amounts mature within three months, and there
is no material interest rate gap on these amounts. The fair value of investments
exceeded the book value by (pound)15,153,000.
The Group holds or issues financial instruments primarily to finance its
operations, but also for client trading purposes in a limited number of
subsidiary operations.
F-24
The main risks from the Group's processing of customer transactions arise
primarily as a result of the Group holding securities in its own investment
vehicles to facilitate their orderly management. The risks associated with these
securities are interest rate risk, foreign currency risk and counterparty risk.
These are managed in accordance with limits established by Group management and
applicable regulations.
Trading in financial instruments for customer-related transactions occurs only
in the Group's German subsidiary, which conducts treasury operations for its
clients. This activity involves both the acceptance and placement of client
deposits and loans, as well as the execution of client foreign currency and
interest rate derivative contracts. Interest rate, liquidity and currency risks
arising from these transactions are actively managed to minimize any residual
exposure to the Group.
Note 26. Audit Fees
------------------------------------------------- -------------- ------------- --------------
(pound)'000 2004 2003 2002
------------------------------------------------- -------------- ------------- --------------
Audit services:
Statutory audit 2,196 1,902 1,833
Non-audit services:
Further assurance services* 778 395 362
Tax services
Compliance services 282 119 81
Advisory services 190 120 28
Other services 547 239 126
-------------- ------------- --------------
3,993 2,775 2,430
------------------------------------------------- -------------- ------------- --------------
* Excludes (pound)68,000 in 2004 (2003: (pound)73,000, 2002: (pound)42,000) paid
to the corporate auditors for audits of benefit plans around the Group.
The Audit Committee pre-approves the audit and non-audit services performed by
the independent auditor in order to assure that the auditor's independence is
not impaired. The Audit Committee does not favor having its independent auditors
perform non-audit services, and a non-audit service is not approved unless the
Audit Committee concludes that performance of such service by the auditor will
serve the company's interests better than performance of such service by other
providers. The Audit Committee ensures that such services are consistent with
applicable national rules on auditor independence.
Note 27. Reconciliation to U.S. Accounting Principles
The Group prepares its consolidated financial statements in accordance with
generally accepted accounting practice in the United Kingdom ("U.K. GAAP"),
which differ in certain material respects from U.S. generally accepted
accounting principles ("U.S. GAAP").
The following is a summary of material adjustments to profit and shareholders'
funds, which would be required if U.S. GAAP had been applied instead of U.K.
GAAP.
---------------------------------------------------------------------- --------------- --------------- --------------
'000 2004 2003 2002
---------------------------------------------------------------------- --------------- --------------- --------------
Loss after minority interests for the financial year (U.K. GAAP) (pound)(173,283) (pound)(17,281) (pound)16,893
Acquisition accounting(A) 142,889 141,880 137,790
Redundancy and reorganizations(F) (36,594) 30,085 11,961
Taxation(B) 15,754 (14,801) (5,198)
Other(D) (1,620) (743) 420
--------------- --------------- --------------
Net income (U.S. GAAP) (pound)(52,854) (pound)139,140 (pound)161,866
--------------- --------------- --------------
Earnings per share (U.S. GAAP):
- basic (6.6)p 17.3p 20.0p
- diluted (6.6)p 17.2p 19.8p
---------------------------------------------------------------------- --------------- --------------- --------------
F-25
------------------------------------------------------------------------------------- --------------- ----------------
'000 2004 2003
------------------------------------------------------------------------------------- --------------- ----------------
Shareholders' funds (U.K. GAAP) (pound)1,864,071 (pound)2,065,191
Fixed assets:
Goodwill(A) 1,161,566 1,071,520
Debtors - deferred sales commissions(E) 101,491 164,325
Investments - Other 2,742 2,901
Current liabilities:
Accruals and other - redundancy and reorganizations(F) 5,452 44,649
Accruals and other - pensions liability 6,921 6,921
Accruals and other (1,570) 266
Dividends(C) 40,977 52,914
Long-term debt - non-recourse(E) (101,491) (164,325)
Provisions for liabilities and charges - acquisitions 16,700 24,319
Provisions for liabilities and charges - deferred taxation (14,403) (33,601)
--------------- ----------------
Shareholders' equity (U.S. GAAP) (pound)3,082,456 (pound)3,235,080
------------------------------------------------------------------------------------- --------------- ----------------
(A) Acquisition Accounting
Under U.K. GAAP, goodwill arising on acquisitions prior to 1998 has been
eliminated directly against reserves. Goodwill arising in 1998 and after is
capitalized and amortized over a period of 20 years. Integration-related amounts
were expensed directly to the profit and loss account.
U.S. GAAP requires that goodwill and indefinite-lived intangible assets be
carried at cost less provision for impairment in value. Definite-lived
intangible assets are amortized over their estimated useful lives. The
integration costs were either capitalized as goodwill or expensed to the profit
and loss account in the year paid.
(B) Taxation
The taxation adjustment primarily relates to certain exceptional costs that are
not included in U.S. GAAP book income until incurred, and therefore, the
associated tax benefit is reflected in U.S. GAAP tax expense in the same period
as the costs.
The differences in the recognition of deferred tax assets under U.K. and U.S.
GAAP are limited to goodwill that is not amortized for U.S. GAAP but that is
amortized for U.K. GAAP. In addition, certain exceptional costs are not included
in U.S. GAAP book income until incurred, and therefore, the associated deferred
tax asset is reflected in the U.S. GAAP balance sheet in the same period as the
costs.
(C) Dividends
Under U.K. GAAP, dividends proposed after the end of an accounting period are
deducted in arriving at retained earnings for that period. Under U.S. GAAP,
dividends are not recorded until formally approved.
(D) Other
Other adjustments include accounting differences relating to interval fund
amortization and investment valuation.
(E) B-Share Sales Commission Funding
In the U.S. from 1995 through October 2003, the Group funded the payment of
commissions on the sale of its Class B shares (deferred sales commissions) by
selling its right to future cash flow streams to independent third parties.
Similar arrangements have been implemented for deferred sales commissions in the
Canadian retail product line through sales to independent third parties. These
funding arrangements have consistently been accounted for as sales, based on the
terms of the arrangements. The funding arrangement in the U.S. terminated in
November 2003. Under U.S. GAAP, these transactions are treated as financing
arrangements rather than as sales transactions. Accordingly, the reconciliation
to U.S. GAAP includes an amount to record the deferred sales commission as an
asset and non-recourse debt. No adjustments to the consolidated statements of
income have been made as the amounts involved are immaterial for each year. The
F-26
difference between U.K. GAAP and U.S. GAAP has no material impact on net income
or shareholders equity for any year presented.
(F) Redundancy and reorganizations
Under U.K. GAAP, certain items included within the exceptional costs relate to
redundancy and reorganization initiatives. Under U.S. GAAP, these costs must be
expensed over the period of the related initiative.
U.S. GAAP cash flow information
Under U.K. GAAP, the statement of Cash Flows details the movement in cash from
year to year, inclusive of the movement in bank overdrafts and exclusive of the
movement in cash equivalents. Under U.S. GAAP, the movement in bank overdrafts
is classified as a financing activity, and the movement in cash equivalents is
included as part of total cash flow. In addition, the classification of cash
flow information within the U.K. GAAP Statement of Cash Flows differs from the
required format of a cash flow statement under U.S. GAAP. Summarized cash flow
information is presented below according to the U.S. GAAP required formats.
2004 2003 2002
(pound)'000 (pound)'000 (pound)'000
------------------------------------------------------------------------ ------------------------ ------------ -------------
Cash inflow from operating activities 111,689 175,764 299,074
Cash outflow from investing activities (57,723) (60,160) (47,712)
Cash (outflow) from financing activities (70,321) (140,825) (217,356)
Foreign exchange movement on cash and cash equivalents (17,381) (11,177) (29,873)
------------------------------------------------------------------------ ------------------------ ------------ -------------
(Decrease)/increase in cash and cash equivalents (33,736) (36,398) 4,133
------------------------------------------------------------------------ ------------------------ ------------ -------------
Cash and cash equivalents, beginning of year 318,713 355,111 350,978
------------------------------------------------------------------------ ------------------------ ------------ -------------
Cash and cash equivalents, end of year 284,977 318,713 355,111
======================================================================== ======================== ============ =============
Note 28. Guarantor Condensed Consolidating Financial Statements
The 6.6% senior notes due 2005, which were issued in connection with the GT
Global acquisition, and which have an aggregate principal amount of $79.5
million, the 5.9% $300 million senior notes due 2007, the 4.5% $300 million
senior notes due 2009, the 5.375% $350 million senior notes due 2013 and the
5.375% $200 million senior notes due 2014, are fully and unconditionally
guaranteed as to payment of principal, interest and any other amounts due
thereon by the following wholly owned subsidiaries: AIM Management Group, Inc.,
AIM Advisors, Inc., INVESCO North American Holdings, Inc., and INVESCO
Institutional (N.A.), Inc. (the "Guarantors"). The guarantees of each of the
guarantor subsidiaries are joint and several. Presented below are condensed
consolidating financial statements of the Company for the years ended December
31, 2004, 2003, and 2002.
F-27
Condensed Consolidating Balance Sheet and Reconciliation of Shareholders' Funds
from U.K. to U.S. GAAP
----------------------------------------------------- ------------- ---------------- ------------------ ------------- --------------
2004 Consolidated
Guarantor Non-guarantor AMVESCAP PLC elimination Consolidated
subsidiaries subsidiaries parent company entries total
(pound)'000 (pound)'000 (pound)'000 (pound)'000 (pound)'000
----------------------------------------------------- ------------- ---------------- ------------------ ------------- --------------
Fixed assets 725,332 3,069,014 1,527,886 (2,800,355) 2,521,877
Current assets 114,691 1,261,142 9,289 - 1,385,122
Current liabilities (197,450) (963,911) (92,118) - (1,253,479)
Intercompany balances (314,310) (499,763) 814,073 - -
Long-term liabilities 18,692 (102,772) (705,369) - (789,449)
----------------------------------------------------- ------------- ---------------- ------------------ ------------- --------------
Net assets 346,955 2,763,710 1,553,761 (2,800,355) 1,864,071
===================================================== ============= ================ ================== ============= ==============
Capital and reserves
Called up share capital 5 494,799 202,664 (494,804) 202,664
Share premium account 483,092 1,641,023 700,888 (2,124,115) 700,888
Shares held by employee trusts - - (237,972) - (237,972)
Exchangeable shares - 308,996 - - 308,996
Profit and loss account (60,994) (95,109) 294,585 156,103 294,585
Other reserves (75,148) 412,687 593,596 (337,539) 593,596
----------------------------------------------------- ------------- ---------------- ------------------ ------------- --------------
Shareholders' funds, equity interests
under U.K. GAAP 346,955 2,762,396 1,553,761 (2,800,355) 1,862,757
Minority interests - 1,314 - - 1,314
===================================================== ============= ================ ================== ============= ==============
Shareholders' funds, equity interests
under U.K. GAAP 346,955 2,763,710 1,553,761 (2,800,355) 1,864,071
Fixed assets:
Goodwill 526,378 878,250 1,161,566 (1,161,566) 1,161,566
Debtors - deferred sales commissions 14,577 86,914 101,491 (101,491) 101,491
Investments - other 6,218 (3,476) 2,742 (2,742) 2,742
Current liabilities:
Accrual and other - redundancy and 3,370 2,082 5,452 (5,452) 5,452
reorganizations
Accrual and other - pensions liability - 6,921 6,921 (6,921) 6,921
Accrual and other - compensation (920) (650) (1,570) 1,570 (1,570)
Dividends - 1,407 39,570 - 40,977
Long-term debt - non-recourse (14,577) (86,914) (101,491) 101,491 (101,491)
Provisions for liabilities and charges - 6,907 9,793 16,700 (16,700) 16,700
acquisitions
Provisions for liabilities and charges - (10,262) (4,141) (14,403) 14,403 (14,403)
deferred taxation
----------------------------------------------------- ------------- ---------------- ------------------ ------------- --------------
Shareholders' equity under U.S. GAAP 878,646 3,653,896 2,770,739 (3,977,763) 3,082,456
===================================================== ============= ================ ================== ============= ==============
F-28
----------------------------------------------------- ------------- ---------------- ------------------ ------------- -------------
2003 Consolidated
Guarantor Non-guarantor AMVESCAP PLC elimination Consolidated
subsidiaries subsidiaries parent company entries total
(pound)'000 (pound)'000 (pound)'000 (pound)'000 (pound)'000
----------------------------------------------------- ------------- ---------------- ------------------ ------------- -------------
Fixed assets 703,910 3,441,404 1,915,826 (3,389,100) 2,672,040
Current assets 68,369 1,202,613 9,890 -- 1,280,872
Current liabilities (131,142) (857,586) (63,306) -- (1,052,034)
Intercompany balances (269,432) (339,896) 609,328 -- --
Long-term liabilities 26,295 (108,082) (753,900) -- (835,687)
----------------------------------------------------- ------------- ---------------- ------------------ ------------- -------------
Net assets 398,000 3,338,453 1,717,8387 (3,389,100) 2,065,191
===================================================== ============= ================ ================== ============= =============
Capital and reserves
Called up share capital 2,337 519,991 200,264 (522,328) 200,264
Share premium account 608,194 2,079,191 675,755 (2,687,385) 675,755
Shares held by employee trusts - - (185,809) - (185,809)
Exchangeable shares - 330,629 - - 330,629
Profit and loss account 75,913 417,427 500,413 (476,997) 516,756
Other reserves (288,444) (9,166) 527,215 297,610 527,215
----------------------------------------------------- ------------- ---------------- ------------------ ------------- -------------
Shareholders' funds under U.K. GAAP 398,000 3,338,072 1,717,838 (3,389,100) 2,064,810
Minority interests - 381 - - 381
===================================================== ============= ================ ================== ============= =============
Shareholders' funds under U.K. GAAP 398,000 3,338,453 1,717,838 (3,389,100) 2,065,191
Fixed assets:
Goodwill 653,751 657,677 1,071,520 (1,071,520) 1,071,520
Debtors - deferred sales commissions 101,294 63,031 164,325 (164,325) 164,325
Investments - other 6,378 (3,477) 2,901 (2,901) 2,901
Current liabilities:
Accrual and other - redundancy and 37,500 7,149 44,649 (44,649) 44,649
reorganizations
Accrual and other - pensions liability - 6,921 6,921 (6,921) 6,921
Accrual and other - compensation - 266 - - 266
Dividends - 1,957 50,957 - 52,914
Long-term debt - non-recourse (101,294) (63,031) (164,325) 164,325 (164,325)
Provisions for liabilities and charges - 9,211 15,108 24,319 (24,319) 24,319
acquisitions
Provisions for liabilities and charges - (9,296) (24,305) (33,601) 33,601 (33,601)
deferred taxation
----------------------------------------------------- ------------- ---------------- ------------------ ------------- -------------
Shareholders' equity under U.S. GAAP 1,095,544 3,999,749 2,885,504 (4,505,809) 3,235,080
===================================================== ============= ================ ================== ============= =============
F-29
Condensed Consolidating Statements of Income and Reconciliations of Net Income
from U.K. to U.S. GAAP
----------------------------------------------------- ------------ ------------------ ------------------ ------------- -------------
2004 Consolidated
Guarantor Non-guarantor AMVESCAP PLC elimination Consolidated
subsidiaries subsidiaries parent company entries total
(pound)'000 (pound)'000 (pound)'000 (pound)'000 (pound)'000
----------------------------------------------------- ------------ ------------------ ------------------ ------------- -------------
Revenues 429,498 728,953 -- -- 1,158,451
Operating expenses (553,116) (715,042) 852 -- (1,267,306)
----------------------------------------------------- ------------ ------------------ ------------------ ------------- -------------
Operating loss (123,618) 13,911 852 -- (108,855)
Other net expense (18,639) (6,367) (3,822) -- (28,828)
----------------------------------------------------- ------------ ------------------ ------------------ ------------- -------------
Loss before taxation (142,257) 7,544 (2,970) -- (137,683)
Taxation 17,783 (60,338) 7,240 -- (35,315)
----------------------------------------------------- ------------ ------------------ ------------------ ------------- -------------
Loss after taxation (124,474) (52,794) 4,270 -- (172,998)
Minority interests -- (285) -- -- (285)
----------------------------------------------------- ------------ ------------------ ------------------ ------------- -------------
Loss before share of profits of subsidiaries (124,474) (53,079) 4,270 -- (173,283)
Share of profits of Subsidiaries 26,146 (124,475) (177,553) 275,882 --
----------------------------------------------------- ------------ ------------------ ------------------ ------------- -------------
Net loss under U.K. GAAP, (equity method) (98,328) (177,554) (173,283) 275,882 (173,283)
U.S. GAAP adjustments:
Acquisition accounting 24,266 118,623 142,889 142,889
Redundancy and reorganizations (32,793) (3,801) (36,594) (36,594)
Taxation 11,455 4,299 15,754 15,754
Other (970) (650) (1,620) (1,620)
----------------------------------------------------- ------------ ------------------ ------------------ ------------- -------------
Net loss under U.S. GAAP (96,370) (59,083) (52,854) (52,854)
===================================================== ============ ================== ================== ============= =============
----------------------------------------------------- ------------ ------------------ ------------------- ------------ -------------
2003 Consolidated
Guarantor Non-guarantor AMVESCAP PLC elimination Consolidated
subsidiaries subsidiaries parent company entries total
(pound)'000 (pound)'000 (pound)'000 (pound)'000 (pound)'000
----------------------------------------------------- ------------ ------------------ ------------------- ------------ -------------
Revenues 455,158 702,912 -- -- 1,158,070
Operating expenses (406,625) (678,095) 3,575 -- (1,081,145)
----------------------------------------------------- ------------ ------------------ ------------------- ------------ -------------
Operating profit 48,533 24,817 3,575 -- 76,925
Other net expense (19,754) 9,545 (30,321) -- (40,530)
----------------------------------------------------- ------------ ------------------ ------------------- ------------ -------------
Profit before taxation 28,779 34,362 (26,746) -- 36,395
Taxation (18,670) (35,925) 919 -- (53,676)
----------------------------------------------------- ------------ ------------------ ------------------- ------------ -------------
Loss before share of profits of subsidiaries 10,109 (1,563) (25,827) -- (17,281)
Share of profits of Subsidiaries 35,909 10,109 8,546 (54,564) --
----------------------------------------------------- ------------ ------------------ ------------------- ------------ -------------
Net loss under U.K. GAAP, (equity method) 46,018 8,546 (17,281) (54,564) (17,281)
U.S. GAAP adjustments:
Acquisition accounting 25,367 116,513 141,880 141,880
Redundancy and reorganizations 35,379 (5,294) 30,085 30,085
Taxation (15,068) 267 (14,801) (14,801)
Other (807) 64 (743) (743)
----------------------------------------------------- ------------ ------------------ ------------------- ------------ -------------
Net income under U.S. GAAP 90,889 120,096 139,140 139,140
===================================================== ============ ================== =================== ============ =============
F-30
----------------------------------------------------- ------------ ------------------ ------------------ ------------- -------------
2002 Consolidated
Guarantor Non-guarantor AMVESCAP PLC elimination Consolidated
subsidiaries subsidiaries parent company entries total
(pound)'000 (pound)'000 (pound)'000 (pound)'000 (pound)'000
----------------------------------------------------- ------------ ------------------ ------------------ ------------- -------------
Revenues 514,420 830,843 -- -- 1,345,263
Operating expenses (360,042) (842,062) 5,103 -- (1,197,001)
----------------------------------------------------- ------------ ------------------ ------------------ ------------- -------------
Operating profit 154,378 (11,219) 5,103 -- 148,262
Other net expense (25,073) 6,796 (27,720) -- (45,997)
----------------------------------------------------- ------------ ------------------ ------------------ ------------- -------------
Profit before taxation 129,305 (4,423) (22,617) -- 102,265
Taxation (36,733) (48,123) (516) -- (85,372)
----------------------------------------------------- ------------ ------------------ ------------------ ------------- -------------
Profit before share of profits of subsidiaries 92,572 (52,546) (23,133) -- 16,893
Share of profits of Subsidiaries 24,816 92,572 40,026 (157,414) --
----------------------------------------------------- ------------ ------------------ ------------------ ------------- -------------
Net income under U.K. GAAP, (equity method) 117,388 40,026 16,893 (157,414) 16,893
U.S. GAAP adjustments:
Acquisition accounting 25,001 112,789 137,790 137,790
Redundancy and reorganizations 784 11,177 11,961 11,961
Taxation (4,358) (840) (5,198) (5,198)
Other 2,913 (2,493) 420 420
----------------------------------------------------- ------------ ------------------ ------------------ ------------- -------------
Net income under U.S. GAAP 141,728 160,659 161,866 161,866
===================================================== ============ ================== ================== ============= =============
Condensed Consolidating Statement of Cash Flows and U.S. GAAP Cash Flow
Information
----------------------------------------------------- --------------- --------------- ----------------- -------------- -------------
2004 Consolidated
Guarantor Non-guarantor AMVESCAP PLC elimination Consolidated
subsidiaries subsidiaries parent company entries total
(pound)'000 (pound)'000 (pound)'000 (pound)'000 (pound)'000
----------------------------------------------------- --------------- --------------- ----------------- -------------- -------------
Net cash inflow from operating activities 50,316 239,227 (85,918) -- 203,625
Net cash (outflow)/inflow from returns on
investments and servicing of finance 4,799 24,498 182,870 (246,888) (34,721)
Taxation 2,026 (66,456) 7,215 -- (57,215)
Net cash (outflow)/inflow from capital
expenditure and financial investment (16,932) (12,047) -- -- (28,979)
Acquisitions, net of cash acquired, and disposals -- 7,892 (36,636) -- (28,744)
Dividends paid (39,079) (210,369) (71,263) 246,888 (73,823)
Net cash (outflow)/inflow from financing -- 1 3,725 -- 3,726
Change in cash equivalents (682) 4,882 7 -- 4,207
----------------------------------------------------- --------------- --------------- ----------------- -------------- -------------
(Decrease)/increase in cash 448 (12,372) -- -- (11,924)
===================================================== =============== =============== ================= ============== =============
U.S. GAAP cash flow information:
Cash inflow from operating activities 57,141 197,269 104,167 (246,888) 111,689
Cash (outflow)/inflow from investing activities (16,932) (4,155) (36,636) -- (57,723)
Cash outflow from financing activities (39,079) (210,592) (67,538) 246,888 (70,321)
===================================================== =============== =============== ================= ============== =============
F-31
----------------------------------------------------- --------------- --------------- ----------------- -------------- -------------
2003 Consolidated
Guarantor Non-guarantor AMVESCAP PLC elimination Consolidated
subsidiaries subsidiaries parent company entries total
(pound)'000 (pound)'000 (pound)'000 (pound)'000 (pound)'000
----------------------------------------------------- --------------- --------------- ----------------- -------------- -------------
Net cash inflow from operating activities 333,148 52,716 (47,197) -- 338,667
Net cash (outflow)/inflow from returns on
investments and servicing of finance 20,083 252,852 99,522 (414,600) (42,143)
Taxation (44,727) (76,006) (27) -- (120,760)
Net cash (outflow)/inflow from capital
expenditure and financial investment (31,222) (5,232) 4,333 -- (32,121)
Acquisitions, net of cash acquired (3,067) (24,972) -- -- (28,039)
Dividends paid (247,724) (171,197) (89,048) 414,600 (93,369)
Net cash (outflow)/inflow from financing -- (74,756) 32,412 -- (42,344)
Change in cash equivalents (26,474) 62,628 -- -- 36,154
----------------------------------------------------- --------------- --------------- ----------------- -------------- -------------
Increase/(decrease) in cash 17 16,033 (5) -- 16,045
===================================================== =============== =============== ================= ============== =============
U.S. GAAP cash flow information:
Cash inflow from operating activities 308,504 229,562 52,298 (414,600) 175,764
Cash (outflow)/inflow from investing activities (34,289) (30,204) 4,333 -- (60,160)
Cash outflow from financing activities (247,724) (251,065) (56,636) 414,600 (140,825)
===================================================== =============== =============== ================= ============== =============
----------------------------------------------------- --------------- --------------- ------------------ ------------- -------------
2002 Consolidated
Guarantor Non-guarantor AMVESCAP PLC elimination Consolidated
subsidiaries subsidiaries parent company entries total
(pound)'000 (pound)'000 (pound)'000 (pound)'000 (pound)'000
----------------------------------------------------- --------------- --------------- ------------------ ------------- -------------
Net cash inflow from operating activities 147,493 206,004 92,692 -- 446,189
Net cash (outflow)/inflow from returns on
investments and servicing of finance 68,384 154,579 107,929 (372,450) (41,558)
Taxation (33,525) (77,770) 5,738 -- (105,557)
Net cash outflow from capital
expenditure and financial investment (31,906) (9,616) (6,190) -- (47,712)
Dividends paid (150,068) (227,013) (88,900) 372,450 (93,531)
Net cash outflow from financing (75) (1,718) (116,376) -- (118,169)
Change in cash equivalents 366 (43,040) 3,095 -- (39,579)
----------------------------------------------------- --------------- --------------- ------------------ ------------- -------------
Increase/(decrease) in cash 669 1,426 (2,012) -- 83
===================================================== =============== =============== ================== ============= =============
U.S. GAAP cash flow information:
Cash inflow from operating activities 182,352 282,813 206,359 (372,450) 299,074
Cash outflow from investing activities (31,906) (9,616) (6,190) -- (47,712)
Cash outflow from financing activities (150,143) (234,387) (205,276) 372,450 (217,356)
===================================================== =============== =============== ================== ============= =============
F-32