Document
Table of Contents    
    

                                    

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

(Mark One)
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number 1-13908
invescologoa02a03a04a01a03.gif
Invesco Ltd.
(Exact Name of Registrant as Specified in Its Charter)
Bermuda
(State or Other Jurisdiction of Incorporation or Organization)
 
98-0557567
(I.R.S. Employer Identification No.)
 
 
 
1555 Peachtree Street, N.E., Suite 1800, Atlanta, GA
(Address of Principal Executive Offices)
 
30309
(Zip Code)

(404) 892-0896
(Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)

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 þ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
 
 
 
 
 
 
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes o No þ
As of March 31, 2019, the most recent practicable date, the number of Common Shares outstanding was 400,857,751.

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Table of Contents    
    

                                    

TABLE OF CONTENTS
We include cross references to captions elsewhere in this Quarterly Report on Form 10-Q, which we refer to as this “Report,” where you can find related additional information. The following table of contents tells you where to find these captions.
 
 
 
Page
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


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Table of Contents    
    

                                    

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Invesco Ltd.
Condensed Consolidated Balance Sheets
(Unaudited)

 
As of
$ in millions, except per share data
March 31, 2019
 
December 31, 2018
ASSETS
 
 
 
Cash and cash equivalents
1,017.1

 
1,147.7

Unsettled fund receivables
474.6

 
191.3

Accounts receivable
598.7

 
604.0

Investments
640.9

 
613.5

Assets of consolidated investment products (CIP):
 
 
 
Cash and cash equivalents of CIP
251.2

 
657.7

Accounts receivable and other assets of CIP
141.8

 
110.8

Investments of CIP
6,728.1

 
6,213.5

Assets held for policyholders
12,102.7

 
11,384.8

Prepaid assets
116.8

 
127.1

Other assets
292.8

 
126.1

Property, equipment and software, net
462.8

 
468.7

Intangible assets, net
2,181.5

 
2,176.1

Goodwill
7,197.6

 
7,157.1

Total assets
32,206.6

 
30,978.4

LIABILITIES
 
 
 
Accrued compensation and benefits
340.2

 
646.5

Accounts payable and accrued expenses
1,250.6

 
1,087.2

Liabilities of CIP:
 
 
 
Debt of CIP
5,211.7

 
5,226.0

Other liabilities of CIP
511.6

 
387.6

Policyholder payables
12,102.7

 
11,384.8

Unsettled fund payables
446.0

 
178.7

Long-term debt
2,515.7

 
2,408.8

Deferred tax liabilities, net
367.6

 
326.4

Total liabilities
22,746.1

 
21,646.0

Commitments and contingencies (See Note 12)


 


TEMPORARY EQUITY
 
 
 
Redeemable noncontrolling interests in consolidated entities
451.1

 
396.2

PERMANENT EQUITY
 
 
 
Equity attributable to Invesco Ltd.:
 
 
 
Common shares ($0.20 par value; 1,050.0 million authorized; 490.4 million shares issued as of March 31, 2019 and December 31, 2018)
98.1

 
98.1

Additional paid-in-capital
6,273.7

 
6,334.8

Treasury shares
(2,971.0
)
 
(3,003.6
)
Retained earnings
5,942.1

 
5,884.5

Accumulated other comprehensive income/(loss), net of tax
(673.6
)
 
(735.0
)
Total equity attributable to Invesco Ltd.
8,669.3

 
8,578.8

Equity attributable to nonredeemable noncontrolling interests in consolidated entities
340.1

 
357.4

Total permanent equity
9,009.4

 
8,936.2

Total liabilities, temporary and permanent equity
32,206.6

 
30,978.4

See accompanying notes.

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Invesco Ltd.
Condensed Consolidated Statements of Income
(Unaudited)

 
Three months ended March 31,
$ in millions, except per share data
2019
 
2018
Operating revenues:
 
 
 
Investment management fees
923.7

 
1,043.7

Service and distribution fees
219.3

 
246.1

Performance fees
21.8

 
9.1

Other
49.8

 
56.9

Total operating revenues
1,214.6

 
1,355.8

Operating expenses:
 
 
 
Third-party distribution, service and advisory
368.0

 
419.1

Employee compensation
381.3

 
385.2

Marketing
28.0

 
28.0

Property, office and technology
107.2

 
100.2

General and administrative
83.8

 
83.7

Transaction, integration, and restructuring
46.1

 
18.5

Total operating expenses
1,014.4

 
1,034.7

Operating income
200.2

 
321.1

Other income/(expense):
 
 
 
Equity in earnings of unconsolidated affiliates
15.0

 
9.7

Interest and dividend income
4.7

 
4.2

Interest expense
(33.1
)
 
(23.2
)
  Other gains and losses, net
31.1

 
(5.4
)
Other income/(expense) of CIP, net
38.9

 
27.2

Income before income taxes
256.8

 
333.6

Income tax provision
(66.2
)
 
(68.4
)
Net income
190.6

 
265.2

Net (income)/loss attributable to noncontrolling interests in consolidated entities
(12.9
)
 
(11.3
)
Net income attributable to Invesco Ltd.
177.7

 
253.9

Earnings per share:
 
 
 
-basic

$0.44

 

$0.62

-diluted

$0.44

 

$0.62


See accompanying notes.


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Invesco Ltd.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
 
Three months ended March 31,
$ in millions
2019
 
2018
Net income
190.6

 
265.2

Other comprehensive income/(loss), net of tax:
 
 
 
Currency translation differences on investments in foreign subsidiaries
60.9

 
64.6

Other comprehensive income/(loss), net of tax
0.5

 
(1.6
)
Other comprehensive income/(loss)
61.4

 
63.0

Total comprehensive income/(loss)
252.0

 
328.2

Comprehensive loss/(income) attributable to noncontrolling interests in consolidated entities
(12.9
)
 
(11.3
)
Comprehensive income/(loss) attributable to Invesco Ltd.
239.1

 
316.9

See accompanying notes.



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Invesco Ltd.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Three months ended March 31,
$ in millions
2019
 
2018
Operating activities:
 
 
 
Net income
190.6

 
265.2

Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
 
 
 
Amortization and depreciation
36.3

 
33.6

Share-based compensation expense
49.8

 
40.9

Other (gains)/losses, net
(31.1
)
 
5.4

Other (gains)/losses of CIP, net
(12.2
)
 
(8.8
)
Equity in earnings of unconsolidated affiliates
(15.0
)
 
(9.7
)
Distributions from equity method investees
2.0

 
0.9

Changes in operating assets and liabilities:
 
 
 
(Purchase)/sale of investments by CIP, net
(56.4
)
 
3.2

(Purchase)/sale of investments, net
29.6

 
(31.8
)
(Increase)/decrease in receivables
(720.3
)
 
26.4

Increase/(decrease) in payables
406.3

 
(377.5
)
Net cash provided by/(used in) operating activities
(120.4
)
 
(52.2
)
Investing activities:
 
 
 
Purchase of property, equipment and software
(21.1
)
 
(20.6
)
Purchase of investments by CIP
(745.0
)
 
(938.6
)
Sale of investments by CIP
395.1

 
661.2

Purchase of investments
(72.9
)
 
(28.8
)
Sale of investments
27.9

 
29.0

Capital distributions from equity method investees
40.2

 
—

Collateral received/(posted), net
42.4

 
—

Net cash provided by/(used in) investing activities
(333.4
)
 
(297.8
)
Financing activities:
 
 
 
Purchases of treasury shares
(78.6
)
 
(39.3
)
Dividends paid
(120.1
)
 
(119.6
)
Third-party capital invested into CIP
74.5

 
95.6

Third-party capital distributed by CIP
(27.4
)
 
(29.0
)
Borrowings of debt by CIP
8.4

 
53.0

Repayments of debt by CIP
(46.1
)
 
(1.9
)
Net borrowings/(repayments) under credit facility
106.3

 
—

Payment of contingent consideration
(4.0
)
 
(3.4
)
Net cash provided by/(used in) financing activities
(87.0
)
 
(44.6
)
Increase/(decrease) in cash and cash equivalents
(540.8
)
 
(394.6
)
Foreign exchange movement on cash and cash equivalents
8.8

 
37.5

Foreign exchange movement on cash and cash equivalents of CIP
(5.2
)
 
1.0

Net cash inflows (outflows) upon consolidation/deconsolidation of CIP
0.1

 
(39.3
)
Cash and cash equivalents, beginning of period
1,805.4

 
2,517.7

Cash and cash equivalents, end of period
1,268.3

 
2,122.3

 
 
 
 
Cash and cash equivalents
1,017.1

 
1,861.5

Cash and cash equivalents of CIP
251.2

 
260.8

Total cash and cash equivalents per consolidated statement of cash flows
1,268.3

 
2,122.3

See accompanying notes.

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Invesco Ltd.
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
 
Equity Attributable to Invesco Ltd.
 
 
 
 
 
 
$ in millions
Common Shares
 
Additional Paid-in-Capital
 
Treasury Shares
 
Retained Earnings
 
Accumulated Other Comprehensive Income/(Loss)
 
Total Equity Attributable to Invesco Ltd.
 
Nonredeemable Noncontrolling Interests in Consolidated Entities
 
Total Permanent Equity
 
Redeemable Noncontrolling Interests in Consolidated Entities Temporary Equity
January 1, 2019
98.1

 
6,334.8

 
(3,003.6
)
 
5,884.5

 
(735.0
)
 
8,578.8

 
357.4

 
8,936.2

 
396.2

Net income
—

 
—

 
—

 
177.7

 
—

 
177.7

 
(6.1
)
 
171.6

 
19.0

Other comprehensive income/(loss)
—

 
—

 
—

 
—

 
61.4

 
61.4

 
—

 
61.4

 
—

Change in noncontrolling interests in consolidated entities, net
—

 
—

 
—

 
—

 
—

 
—

 
(11.2
)
 
(11.2
)
 
35.9

Dividends
—

 
—

 
—

 
(120.1
)
 
—

 
(120.1
)
 
—

 
(120.1
)
 
—

Employee share plans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Share-based compensation
—

 
49.8

 
—

 
—

 
—

 
49.8

 
—

 
49.8

 
—

Vested shares
—

 
(110.8
)
 
110.8

 
—

 
—

 
—

 
—

 
—

 
—

Other share awards
—

 
(0.1
)
 
0.4

 
—

 
—

 
0.3

 
—

 
0.3

 
—

Purchase of shares
—

 
—

 
(78.6
)
 
—

 
—

 
(78.6
)
 
—

 
(78.6
)
 
—

March 31, 2019
98.1

 
6,273.7

 
(2,971.0
)
 
5,942.1

 
(673.6
)
 
8,669.3

 
340.1

 
9,009.4

 
451.1


See accompanying notes.

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Invesco Ltd.
Consolidated Statements of Changes in Equity (continued)
(Unaudited)
 
Equity Attributable to Invesco Ltd.
 
 
 
 
 
 
$ in millions
Common Shares
 
Additional Paid-in-Capital
 
Treasury Shares
 
Retained Earnings
 
Accumulated Other Comprehensive Income
 
Total Equity Attributable to Invesco Ltd.
 
Nonredeemable Noncontrolling Interests in Consolidated Entities
 
Total Permanent Equity
 
Redeemable Noncontrolling Interests in Consolidated Entities Temporary Equity
January 1, 2018
98.1

 
6,282.0

 
(2,781.9
)
 
5,489.1

 
(391.2
)
 
8,696.1

 
259.5

 
8,955.6

 
243.2

Adjustment for adoption of ASU 2016-01
—

 
—

 
—

 
3.2

 
(3.2
)
 
—

 
—

 
—

 
—

January 1, 2018, as adjusted
98.1

 
6,282.0

 
(2,781.9
)
 
5,492.3

 
(394.4
)
 
8,696.1

 
259.5

 
8,955.6

 
243.2

Net income
—

 
—

 
—

 
253.9

 
—

 
253.9

 
7.3

 
261.2

 
4.0

Other comprehensive income
—

 
—

 
—

 
—

 
63.0

 
63.0

 
—

 
63.0

 
—

Change in noncontrolling interests in consolidated entities, net
—

 
—

 
—

 
—

 
—

 
—

 
27.9

 
27.9

 
33.8

Dividends
—

 
—

 
—

 
(119.6
)
 
—

 
(119.6
)
 
—

 
(119.6
)
 
—

Employee share plans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Share-based compensation
—

 
40.9

 
—

 
—

 
—

 
40.9

 
—

 
40.9

 
—

Vested shares
—

 
(105.6
)
 
105.6

 
—

 
—

 
—

 
—

 
—

 
—

Other share awards
—

 
0.1

 
0.2

 
—

 
—

 
0.3

 
—

 
0.3

 
—

Purchase of shares
—

 
—

 
(39.3
)
 
—

 
—

 
(39.3
)
 
—

 
(39.3
)
 
—

March 31, 2018
98.1

 
6,217.4

 
(2,715.4
)
 
5,626.6

 
(331.4
)
 
8,895.3

 
294.7

 
9,190.0

 
281.0


See accompanying notes.


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Invesco Ltd.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
1.  ACCOUNTING POLICIES
Corporate Information
Invesco Ltd. (Parent) and all of its consolidated entities (collectively, the company or Invesco) provide retail and institutional clients with an array of global investment management capabilities. The company operates globally, and its sole business is investment management.
Certain disclosures included in the company’s annual report on Form 10-K for the year ended December 31, 2018 (annual report or Form 10-K) are not required to be included on an interim basis in the company’s quarterly reports on Forms 10-Q (Report). The company has condensed or omitted these disclosures. Therefore, this Report should be read in conjunction with the company’s annual report.
Basis of Accounting and Consolidation
The unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial information and with rules and regulations of the Securities and Exchange Commission and consolidate the financial statements of the Parent and all of its controlled subsidiaries. In the opinion of management, the financial statements reflect all adjustments, consisting of normal recurring accruals, which are necessary for the fair statement of the financial condition and results of operations for the periods presented. All significant intercompany transactions, balances, revenues and expenses are eliminated upon consolidation. The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
Accounting Pronouncements Recently Adopted
Leases. In February 2016, the FASB issued Accounting Standards Update 2016-02, “Leases” (Topic 842). Topic 842 requires that lessees recognize lease assets and lease liabilities on the balance sheet for all leases with a lease term greater than 12 months. The company adopted the leases standard on January 1, 2019 using the modified retrospective approach.

The company recorded a right-of-use asset of approximately $200.9 million and lease liability of approximately $251.5 million, primarily related to real estate operating leases on January 1, 2019 with no cumulative-effect adjustment to opening retained earnings. The impact of the adoption of the standard on the Condensed Consolidated Statement of Income for the three months ended March 31, 2019 was not material as we continue to recognize lease expenses on a straight-line basis over the lease term. The initial recognition of the right-of-use asset and lease liability represented a non-cash activity.

The package of three practical expedients applicable to the company have been elected which resulted in the company not having to reassess whether expired or existing contracts upon adoption contained a lease as well as retaining the historical classifications of our leases and initial direct costs. The company also elected the hindsight practical expedient in evaluating lessee options.

The company elected both at transition and on an ongoing basis, to combine lease and non-lease components in calculating the lease liability and right-of-use asset for all operating leases.


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2. FAIR VALUE OF ASSETS AND LIABILITIES
The carrying value and fair value of financial instruments are presented in the below summary table. The fair value of financial instruments held by CIP is presented in Note 13, “Consolidated Investment Products.” See the company’s most recently filed Form 10-K for additional disclosures on valuation methodology and fair value.
 
 
March 31, 2019
 
December 31, 2018
$ in millions
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Cash and cash equivalents
 
1,017.1

 
1,017.1

 
1,147.7

 
1,147.7

Equity investments
 
290.0

 
290.0

 
283.2

 
283.2

Foreign time deposits (1)
 
28.3

 
28.3

 
28.1

 
28.1

Assets held for policyholders
 
12,102.7

 
12,102.7

 
11,384.8

 
11,384.8

Policyholder payables (1)
 
(12,102.7
)
 
(12,102.7
)
 
(11,384.8
)
 
(11,384.8
)
Contingent consideration liability
 
(38.4
)
 
(38.4
)
 
(40.9
)
 
(40.9
)
Long-term debt (1)
 
(2,515.7
)
 
(2,600.1
)
 
(2,408.8
)
 
(2,418.2
)
____________
(1)
These financial instruments are not measured at fair value on a recurring basis. See the most recently filed Form 10-K for additional information about the carrying and fair values of these financial instruments. Foreign time deposits are measured at cost plus accrued interest, which approximates fair value, and are accordingly classified as Level 2 securities.


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The following table presents, by hierarchy levels, the carrying value of the company’s assets and liabilities, including major security type for equity and debt securities, which are measured at fair value on the company’s Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018, respectively:
 
As of March 31, 2019
$ in millions
Fair Value Measurements
 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
474.0

 
474.0

 
—

 
—

Investments:*
 
 
 
 
 
 
 
Equity investments:
 
 
 
 
 
 
 
Seed money
219.9

 
219.9

 
—

 
—

Investments related to deferred compensation plans
67.0

 
67.0

 
—

 
—

Other equity securities
3.1

 
3.1

 
—

 
—

Assets held for policyholders
12,102.7

 
12,102.7

 
—

 
—

Total
12,866.7

 
12,866.7

 
—

 
—

Liabilities:
 
 
 
 
 
 
 
Contingent consideration liability
(38.4
)
 
—

 
—

 
(38.4
)
Total
(38.4
)
 
—

 
—

 
(38.4
)

 
As of December 31, 2018
$ in millions
Fair Value Measurements
 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
367.6

 
367.6

 
—

 
—

Investments:*
 
 
 
 
 
 
 
Equity investments:
 
 
 
 
 
 
 
Seed money
202.8

 
202.8

 
—

 
—

Investments related to deferred compensation plans
78.6

 
78.6

 
—

 
—

Other equity securities
1.8

 
1.8

 
—

 
—

Assets held for policyholders
11,384.8

 
11,384.8

 
—

 
—

Total
12,035.6

 
12,035.6

 
—

 
—

Liabilities:
 

 
 

 
 

 
 

Contingent consideration liability
(40.9
)
 
—

 
—

 
(40.9
)
Total
(40.9
)
 
—

 
—

 
(40.9
)
____________
*
Foreign time deposits of $28.3 million (December 31, 2018: 28.1 million) are excluded from this table. Equity method and other investments of $316.7 million and $5.9 million, respectively, (December 31, 2018: $296.3 million and $5.9 million, respectively) are also excluded from this table. These investments are not measured at fair value, in accordance with applicable accounting standards.

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The following table shows a reconciliation of the beginning and ending fair value measurements for level 3 assets and liabilities during the three months ended March 31, 2019 and March 31, 2018, which are valued using significant unobservable inputs:
 
Three months ended March 31, 2019
$ in millions
Contingent Consideration Liability
Beginning balance
(40.9
)
Net unrealized gains and losses included in other gains and losses, net*
(1.5
)
Disposition/settlements
4.0

Ending balance
(38.4
)

 
Three months ended March 31, 2018
$ in millions
Contingent Consideration Liability
 
Other Debt Securities
Beginning balance
(57.4
)
 
9.9

Net unrealized gains and losses included in other gains and losses, net*
0.4

 
(3.2
)
Disposition/settlements
3.4

 
—

Other
—

 
(0.5
)
Ending balance
(53.6
)
 
6.2

_______________
*
These unrealized gains and losses are attributable to balances still held at the respective period ends.
Put option contracts
The company purchased an additional put option contract for $2.8 million in the three months ended March 31, 2019 to hedge economically foreign currency risk on the translation of a portion of its Pound Sterling-denominated earnings into U.S. Dollars, providing coverage through December 31, 2019.
Total Return Swaps
In addition to holding equity investments, the company has a total return swap (TRS) to hedge economically certain of these deferred compensation liabilities. The notional value of the total return swap at March 31, 2019 was $136.2 million. During the three months ended March 31, 2019, market valuation gains of $9.3 million were recognized in other gains and losses, net.

The company also has total return swaps with respect to certain ETFs. Under the terms of each total return swap, the company receives the related market gains or losses on the underlying investments and pays a floating rate to the respective counterparty. At March 31, 2019, the aggregate notional value of the total return swaps was $172.9 million. For the three months ended March 31, 2019, market valuation gains of $4.7 million were recognized in other gains and losses, net. 
Contingent Consideration Liability
At March 31, 2019 inputs used in the model to determine the liability included assumed growth rates in AUM ranging from (9.44)% to 5.73% (weighted average growth rate of (0.22)%) and a discount rate of 4.79%. Changes in fair value are recorded in other gains and losses, net in the Condensed Consolidated Statements of Income in the period incurred. An increase in AUM levels and/or a decrease in the discount rate would increase the fair value of the contingent consideration liability, while a decrease in forecasted AUM and/or an increase in the discount rate would decrease the liability.


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3.  INVESTMENTS
The disclosures below include details of the company’s investments. Investments held by CIP are detailed in Note 13, “Consolidated Investment Products.”
$ in millions
March 31, 2019
 
December 31, 2018
Equity investments:
 
 
 
Seed money
219.9

 
202.8

Investments related to deferred compensation plans
67.0

 
78.6

Other equity securities
3.1

 
1.8

Equity method investments
316.7

 
296.3

Foreign time deposits
28.3

 
28.1

Other
5.9

 
5.9

Total investments
640.9

 
613.5

Available for sale debt investments
Realized gains and losses recognized in the Condensed Consolidated Statements of Income during the period from investments classified as available-for-sale are as follows:
 
For the three months ended March 31, 2018
$ in millions
Proceeds from Sales
 
Gross Realized Gains
 
Gross Realized Losses
CLOs
2.6

 
—

 
—

Other debt securities
0.2

 
—

 
(0.1
)
 
2.8

 
—

 
(0.1
)
Equity investments
The unrealized gains and losses for the three months ended March 31, 2019, that relate to equity investments still held at March 31, 2019, was a $23.0 million net gain (three months ended March 31, 2018: $0.2 million net gain ).

4.  LONG-TERM DEBT
The disclosures below include details of the company’s debt. Debt of CIP is detailed in Note 13, “Consolidated Investment Products.”
 
March 31, 2019
 
December 31, 2018
$ in millions
Carrying Value (2)
 
Fair Value
 
Carrying Value (2)
 
Fair Value
  $1.5 billion floating rate credit facility expiring August 11, 2022
437.1

 
437.1

 
330.8

 
330.8

Unsecured Senior Notes(1):
 
 
 
 
 
 
 
$600 million 3.125% - due November 30, 2022
597.6

 
608.6

 
597.5

 
585.2

$600 million 4.000% - due January 30, 2024
595.2

 
620.6

 
594.9

 
594.5

$500 million 3.750% - due January 15, 2026
495.7

 
508.3

 
495.6

 
487.6

$400 million 5.375% - due November 30, 2043
390.1

 
425.5

 
390.0

 
420.1

Long-term debt
2,515.7

 
2,600.1

 
2,408.8

 
2,418.2

____________
(1)
The company’s senior note indentures contain certain restrictions on mergers or consolidations. Beyond these items, there are no other restrictive covenants in the indentures.
(2)
The difference between the principal amounts and the carrying values of the senior notes in the table above reflect the unamortized debt issuance costs and discounts.


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The company maintains approximately $11.4 million in letters of credit from a variety of banks. The letters of credit are generally one-year automatically-renewable facilities and are maintained for various commercial reasons.
5.  SHARE CAPITAL
The number of common shares and common share equivalents issued are represented in the table below:
 
As of
In millions
March 31, 2019
 
December 31, 2018

Common shares issued
490.4

 
490.4

Less: Treasury shares for which dividend and voting rights do not apply
(89.6
)
 
(93.3
)
Common shares outstanding
400.8

 
397.1


6.  OTHER COMPREHENSIVE INCOME/(LOSS)
The components of accumulated other comprehensive income/(loss) were as follows:
 
For the three months ended March 31, 2019
$ in millions
Foreign currency translation
 
Employee benefit plans
 
Available-for-sale investments
 
Total
Other comprehensive income/(loss) net of tax:
 
 
 
 
 
 
 
Currency translation differences on investments in foreign subsidiaries
60.9

 
—

 
—

 
60.9

Other comprehensive income, net
—

 
0.2

 
0.3

 
0.5

Other comprehensive income/(loss), net of tax
60.9

 
0.2

 
0.3

 
61.4

 
 
 
 
 
 
 
 
Beginning balance
(617.6
)
 
(117.7
)
 
0.3

 
(735.0
)
Other comprehensive income/(loss), net of tax
60.9

 
0.2

 
0.3

 
61.4

Ending balance
(556.7
)
 
(117.5
)
 
0.6

 
(673.6
)

 
For the three months ended March 31, 2018
$ in millions
Foreign currency translation
 
Employee benefit plans
 
Equity method investments
 
Available-for-sale investments
 
Total
Other comprehensive income/(loss) net of tax:
 
 
 
 
 
 
 
 
 
Currency translation differences on investments in foreign subsidiaries
64.6

 
—

 
—

 
—

 
64.6

   Other comprehensive income, net
—

 
0.4

 
(2.3
)
 
0.3

 
(1.6
)
Other comprehensive income/(loss), net of tax
64.6

 
0.4

 
(2.3
)
 
0.3

 
63.0

 
 
 
 
 
 
 
 
 
 
Beginning balance
(290.5
)
 
(109.7
)
 
4.3

 
4.7

 
(391.2
)
Adjustment for adoption of ASU 2016-01
—

 
—

 
—

 
(3.2
)
 
(3.2
)
January 1, 2018, as adjusted
(290.5
)
 
(109.7
)
 
4.3

 
1.5

 
(394.4
)
Other comprehensive income/(loss), net of tax
64.6

 
0.4

 
(2.3
)
 
0.3

 
63.0

Ending balance
(225.9
)
 
(109.3
)
 
2.0

 
1.8

 
(331.4
)

Net Investment Hedge

The company designated certain intercompany debt as a non-derivative net investment hedging instrument against foreign currency exposure related to its net investment in foreign operations. At March 31, 2019 and December 31, 2018, £130 million ($169.7 million and $165.6 million, respectively) of intercompany debt was designated as a net investment hedge.  For the three months ended March 31, 2019, the Company recognized foreign currency losses of $4.1 million (three months ended March 31,

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2018: losses of $6.6 million) resulting from the net investment hedge within currency translation differences on investments in foreign subsidiaries in other comprehensive income.

7. REVENUE

The geographic disaggregation of revenue for the three months ended March 31, 2019 and 2018 are presented below. There are no revenues attributed to the company’s country of domicile, Bermuda.
 
For the three months ended March 31,
$ in millions
2019
 
2018
North America
760.0

 
818.0

EMEA (Europe, Middle East, and Africa)
380.3

 
469.9

Asia-Pacific
74.3

 
67.9

Total operating revenues
1,214.6

 
1,355.8


The opening and closing balance of deferred carried interest liabilities for the three months ended March 31, 2019 was $61.3 million and $55.8 million, respectively (December 31, 2018: $60.4 million and $61.3 million, respectively). During the three months ended March 31, 2019, $5.9 million (March 31, 2018: none) performance fee revenue was recognized that was included in the deferred carried interest liability balance at the beginning of the period.


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8.  SHARE-BASED COMPENSATION
The company recognized total expenses of $49.8 million and $40.9 million related to equity-settled share-based payment transactions in the three months ended March 31, 2019 and 2018, respectively.
Share Awards
Movements on share awards during the periods ended March 31, are detailed below:
 
For the three months ended March 31, 2019
 
For the three months ended March 31, 2018
Millions of shares, except fair values
Time- Vested
 
Performance- Vested
 
Weighted Average Grant Date Fair Value ($)
 
Time- Vested
 
Performance- Vested
Unvested at the beginning of period
12.5

 
0.9

 
31.46

 
12.0

 
0.9

Granted during the period
8.9

 
0.6

 
19.34

 
5.1

 
0.4

Forfeited during the period
(0.3
)
 
—

 
27.18

 
(0.1
)
 
—

Vested and distributed during the period
(4.6
)
 
(0.1
)
 
32.08

 
(4.2
)
 
(0.3
)
Unvested at the end of the period
16.5

 
1.4

 
24.93

 
12.8

 
1.0


The total fair value of shares that vested during the three months ended March 31, 2019 was $89.8 million (three months ended March 31, 2018: $142.7 million). The weighted average grant date fair value of the share awards that were granted during the three months ended March 31, 2019 was $19.34 (three months ended March 31, 2018: $32.55).
At March 31, 2019, there was $405.6 million of total unrecognized compensation cost related to non-vested share awards; that cost is expected to be recognized over a weighted average period of 2.95 years.

9.  OPERATING LEASES

The company leases office space in almost all of its locations of business, data centers and certain equipment under non-cancelable operating leases. The operating leases have a weighted-average remaining lease term of 5.72 years and generally include one or more options to renew, with renewal terms that can extend the lease term from 2 to 10 years. Certain lease arrangements include an option to terminate the lease if a notification is provided to the landlord within 1-2 years prior to the end of the lease term. The company has sole discretion in exercising lease renewal and termination options. The lease terms used in our lease measurements do not include renewal options as they are not reasonably certain to be exercised as of the date of this report.

The company elected to combine lease and non-lease components in calculating the lease liability and right-of-use asset for operating leases.

Variable lease payments are determined based on the terms and conditions outlined in the lease contracts and are primarily determined in relation to the extent of the company’s usage of the right-of use-asset or the nature and extent of services received from the lessor.

As of March 31, 2019, the right-of-use asset of $202.7 million was included within Other assets, and the lease liability of $249.8 million was included within Accounts payable and accrued expenses, on the Condensed Consolidated Balance Sheet.

The components of lease expense for the three months ended March 31, 2019 were as follows:
$ in millions
Three months ended
March 31, 2019
Operating lease cost
12.8

Variable lease cost
6.8

Less: sublease income
(0.1
)
Total lease expense
19.5


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Supplemental cash flow information related to leases for the three months ended March 31, 2019 was as follows:

$ in millions
Three months ended
March 31, 2019
Operating cash flows from operating leases included in the measurement of lease liabilities
15.0

Right-of-use assets obtained in exchange for new operating lease liabilities
4.1


In determining the discount rate, the company considered the interest rate yield for specific interest rate environments and the company’s credit spread at the inception of the lease.

The weighted-average discount rate for the operating lease liability for the three months ended March 31, 2019 was 3.33%.

The maturities of the company’s lease liabilities (primarily related to real estate leases) were as follows:
$ in millions
 
Year Ended December 31,
Lease Liabilities
2019 (excluding the three months ended March 31, 2019)
44.3

2020
52.5

2021
48.4

2022
42.0

2023
35.3

Thereafter
52.1

Total lease payments
274.6

Less: interest
24.8

Present value of lease liabilities
249.8


As of December 31, 2018, the company’s total future commitments by year under non-cancelable operating leases are as follows:
$ in millions
Total
2019
61.6

2020
56.3

2021
49.3

2022
42.8

2023
36.7

Thereafter
53.5

Gross lease commitments
300.2

Less: future minimum payments expected to be received under non-cancelable subleases
(2.5
)
Net lease commitments
297.7



10.  TAXATION
At March 31, 2019, the total amount of gross unrecognized tax benefits was $20.4 million as compared to the December 31, 2018 total of $20.0 million. 


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11.  EARNINGS PER SHARE
The calculation of earnings per share is as follows:
 
For the three months ended March 31,
In millions, except per share data
2019
 
2018
Net income

$190.6

 

$265.2

Net (income)/loss attributable to noncontrolling interests in consolidated entities
(12.9
)
 
(11.3
)
Net income attributable to Invesco Ltd.
177.7

 
253.9

Less: Allocation of earnings to restricted shares
(6.0
)
 
(7.5
)
Net income attributable to common shareholders

$171.7

 

$246.4

 
 
 
 
Invesco Ltd:
 
 
 
Weighted average shares outstanding - basic
401.6

 
411.3

Dilutive effect of non-participating share-based awards
0.3

 
0.5

Weighted average shares outstanding - diluted
401.9

 
411.8

 
 
 
 
Common shareholders:
 
 
 
Weighted average shares outstanding - basic
401.6

 
411.3

Less: Weighted average restricted shares
(13.7
)
 
(12.2
)
Weighted average common shares outstanding - basic
387.9

 
399.1

Dilutive effect of non-participating share-based awards
0.3

 
0.5

Weighted average common shares outstanding - diluted
388.2

 
399.6

 
 
 
 
Earnings per share:
 
 
 
Basic earnings per share

$0.44

 

$0.62

Diluted earnings per share

$0.44

 

$0.62

Dividends declared per share

$0.30

 

$0.29

See Note 8, “Share-Based Compensation,” for a summary of share awards outstanding under the company’s share-based compensation programs. These programs could result in the issuance of common shares from time to time that would affect the measurement of basic and diluted earnings per share.
There were 0.7 million shares of performance-vested awards and no time-vested awards excluded from the computation of diluted earnings per share during the three months ended March 31, 2019 due to their inclusion being anti-dilutive (three months ended March 31, 2018: none). There were no contingently issuable shares excluded from the diluted earnings per share computation during the three months ended March 31, 2019 (three months ended March 31, 2018: 0.1 million), because the necessary performance conditions for the shares to be issuable had not yet been satisfied at the end of the respective period.
12.  COMMITMENTS AND CONTINGENCIES
Commitments and contingencies may arise in the ordinary course of business.
Off Balance Sheet Commitments
The company has committed to co-invest in certain sponsored investment products which may be called in future periods. At March 31, 2019, the company’s undrawn capital commitments were $348.8 million (December 31, 2018: $391.6 million).
The Parent and various company subsidiaries have entered into agreements with financial institutions to guarantee certain obligations of other company subsidiaries. The company would be required to perform under these guarantees in the event of certain defaults. The company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
Legal Contingencies
The company is from time to time involved in litigation relating to claims arising in the ordinary course of its business. The
nature and progression of litigation can make it difficult to predict the impact a particular lawsuit will have on the company.
There are many reasons that the company cannot make these assessments, including, among others, one or more of the

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following: the proceeding is in its early stages; the damages sought are unspecified, unsupportable, unexplained or uncertain;
the claimant is seeking relief other than compensatory damages; the matter presents novel legal claims or other meaningful
legal uncertainties; discovery has not started or is not complete; there are significant facts in dispute; and there are other parties
who may share in any ultimate liability.

In management’s opinion, adequate accrual has been made as of March 31, 2019 to provide for any such losses that may arise from matters for which the company could reasonably estimate an amount. Management is of the opinion that the ultimate resolution of such claims will not materially affect the company’s business, financial position, results of operation or liquidity. Furthermore, in management’s opinion, it is not possible to estimate a range of reasonably possible losses with respect to other litigation contingencies.
The investment management industry also is subject to extensive levels of ongoing regulatory oversight and examination. In
the United States, United Kingdom, and other jurisdictions in which the company operates, governmental authorities regularly
make inquiries, hold investigations and administer market conduct examinations with respect to the company’s compliance with
applicable laws and regulations. Additional lawsuits or regulatory enforcement actions arising out of these inquiries may in the
future be filed against the company and related entities and individuals in the United States, United Kingdom, and other
jurisdictions in which the company and its affiliates operate. Any material loss of investor and/or client confidence as a result of
such inquiries and/or litigation could result in a significant decline in AUM, which would have an adverse effect on the
company’s future financial results and its ability to grow its business.


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13.  CONSOLIDATED INVESTMENT PRODUCTS (CIP)
The following table presents the balances related to CIP that are included on the Condensed Consolidated Balance Sheets as well as Invesco’s net interest in the CIP for each period presented. See the company’s most recently filed Form 10-K for additional disclosures on valuation methodology and fair value.
 
As of
$ in millions
March 31, 2019
 
December 31, 2018
Cash and cash equivalents of CIP
251.2

 
657.7

Accounts receivable and other assets of CIP
141.8

 
110.8

Investments of CIP
6,728.1

 
6,213.5

Less: Debt of CIP
(5,211.7
)
 
(5,226.0
)
Less: Other liabilities of CIP
(511.6
)
 
(387.6
)
Less: Retained earnings
8.9

 
7.9

Less: Accumulated other comprehensive income, net of tax
(8.8
)
 
(7.8
)
Less: Equity attributable to redeemable noncontrolling interests
(451.1
)
 
(396.2
)
Less: Equity attributable to nonredeemable noncontrolling interests
(339.2
)
 
(356.5
)
Invesco’s net interests in CIP
607.6

 
615.8

The following table reflects the impact of consolidation of investment products into the Condensed Consolidated Statements of Income for the three months ended March 31, 2019 and 2018:
 
Three months ended March 31,
$ in millions
2019
 
2018
Total operating revenues
(8.7
)
 
(7.0
)
Total operating expenses
2.8

 
3.2

Operating income
(11.5
)
 
(10.2
)
Equity in earnings of unconsolidated affiliates
6.5

 
(4.2
)
Interest and dividend income
(1.3
)
 
—

Other gains and losses, net
(20.7
)
 
(0.9
)
Interest and dividend income of CIP
84.7

 
57.8

Interest expense of CIP
(58.0
)
 
(39.4
)
Other gains/(losses) of CIP, net
12.2

 
8.8

Income before income taxes
11.9

 
11.9

Income tax provision
—

 
—

Net income
11.9

 
11.9

Net (income)/loss attributable to noncontrolling interests in consolidated entities
(12.9
)
 
(11.3
)
Net income attributable to Invesco Ltd.
(1.0
)
 
0.6

Non-consolidated VIEs
At March 31, 2019, the company’s carrying value and maximum risk of loss with respect to variable interest entities (VIEs) in which the company is not the primary beneficiary was $190.7 million (December 31, 2018: $181.8 million).

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Balance Sheet information - newly consolidated VIEs/VOEs
During the three months ended March 31, 2019, there was one newly consolidated VIE (March 31, 2018: the company consolidated no new VIEs). The table below illustrates the summary balance sheet amounts related to these products before consolidation into the company. The balances below are reflective of the balances existing at the consolidation date after the initial funding of the investments by the company and unrelated third-party investors. The current period activity for the consolidated funds, including the initial funding and subsequent investment of initial cash balances into underlying investments of CIP, is reflected in the company’s Condensed Consolidated Financial Statements.
 
For the three months ended March 31, 2019
$ in millions
VIEs
Cash and cash equivalents of CIP
0.4

Accounts receivable and other assets of CIP
2.7

Investments of CIP
105.9

Total assets
109.0

 
 
Debt of CIP
97.8

Other liabilities of CIP
11.2

Total liabilities
109.0

Total equity
—

Total liabilities and equity
109.0


Balance Sheet information - deconsolidated VIEs/VOEs
During the three months ended March 31, 2019, the company determined that it was no longer the primary beneficiary of one VIE and no longer held the majority voting interest in two VOEs (March 31, 2018: there were two newly deconsolidated VIEs). The amounts deconsolidated from the Condensed Consolidated Balance Sheets are illustrated in the table below. There was no net impact to the Condensed Consolidated Statements of Income for the three months ended March 31, 2019 and 2018 from the deconsolidation of these investment products.
 
For the three months ended March 31, 2019
 
For the three months ended March 31, 2018
$ in millions
VIEs
 
VOEs
 
VIEs
Cash and cash equivalents of CIP
—

 
—

 
39.3

Accounts receivable and other assets of CIP
—

 
—

 
8.3

Investments of CIP
6.3

 
4.6

 
339.9

Total assets
6.3

 
4.6

 
387.5

 
 
 
—

 
 
Debt of CIP
—

 
—

 
375.3

Other liabilities of CIP
—

 
—

 
3.2

Total liabilities
—

 
—

 
378.5

Total equity
6.3

 
4.6

 
9.0

Total liabilities and equity
6.3

 
4.6

 
387.5


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The following tables present the fair value hierarchy levels of certain CIP balances which are measured at fair value as of March 31, 2019 and December 31, 2018:
 
As of March 31, 2019
$ in millions
Fair Value Measurements
 
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
Investments Measured at NAV as a practical expedient
Assets:
 
 
 
 
 
 
 
 
 
Bank loans
5,536.8

 
—

 
5,536.8

 
—

 
—

Bonds
711.6

 
1.0

 
710.6

 
—

 
—

Equity securities
270.3

 
232.6

 
37.7

 
—

 
—

Equity and fixed income mutual funds
23.5

 
23.5

 
—

 
—

 
—

Investments in other private equity funds
173.7

 
—

 
—

 
—

 
173.7

  Real estate investments
12.2

 
—

 
—

 
12.2

 
—

Total assets at fair value
6,728.1

 
257.1

 
6,285.1

 
12.2

 
173.7

 
As of December 31, 2018
$ in millions
Fair Value Measurements
 
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
Investments Measured at NAV as a practical expedient
Assets:
 
 
 
 
 
 
 
 
 
Bank loans
5,117.0

 
—

 
5,117.0

 
—

 
—

Bonds
636.0

 
—

 
636.0

 
—

 
—

Equity securities
241.2

 
208.1

 
33.1

 
—

 
—

Equity and fixed income mutual funds
18.8

 
18.8

 
—

 
—

 
—

Investments in other private equity funds
188.7

 
—

 
—

 
—

 
188.7

Real estate investments
11.8

 
—

 
—

 
11.8

 
—

Total assets at fair value
6,213.5

 
226.9

 
5,786.1

 
11.8

 
188.7

The following tables show a reconciliation of the beginning and ending fair value measurements for level 3 assets and liabilities using significant unobservable inputs:
 
Three months ended March 31, 2019
 
Three months ended March 31, 2018
$ in millions
Level 3 Assets
 
Level 3 Assets
Beginning balance
11.8

 
76.2

Purchases
—

 
—

Sales
—

 
(0.7
)
Gains and losses included in the Condensed Consolidated Statements of Income (1)
0.3

 
5.7

Ending balance
12.2

 
81.2

____________
(1)
Included in gains/(losses) of CIP, net in the Condensed Consolidated Statements of Income for the three months ended March 31, 2019 are $0.3 million, in net unrealized gains attributable to investments still held at March 31, 2019 by CIP (for the three months ended March 31, 2018: $5.7 million, in net unrealized gains are attributable to investments still held at March 31, 2018 by CIP).
The collateral assets held by consolidated CLOs are primarily invested in senior secured bank loans, bonds, and equity securities. Bank loan investments of $5,536.2 million, which comprise the majority of consolidated CLO portfolio collateral, are senior secured corporate loans from a variety of industries, including but not limited to the aerospace and defense, broadcasting, technology, utilities, household products, healthcare, oil and gas, and finance industries. Bank loan investments

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mature at various dates between 2019 and 2027 pay interest at LIBOR plus a spread of up to 8.3%, and typically range in S&P credit rating categories from BBB down to unrated. Interest income on bank loans and bonds is recognized based on the unpaid principal balance and stated interest rate of these investments on an accrual basis. At March 31, 2019, the unpaid principal balance exceeds the fair value of the senior secured bank loans and bonds by approximately $112.9 million (December 31, 2018: the unpaid principal balance exceeded the fair value of the senior secured bank loans and bonds by approximately $134.3 million). Approximately less than 1% of the collateral assets were in default as of March 31, 2019 and 2018. CLO investments are valued based on price quotations provided by third-party pricing sources. These third-party sources aggregate indicative price quotations daily to provide the company with a price for the CLO investments. The company has developed internal controls to review the reasonableness and completeness of these price quotations on a daily basis. If necessary, price quotations are challenged through a third-party pricing challenge process.
Notes issued by consolidated CLOs mature at various dates between 2026 and 2031 and have a weighted average maturity of 10.42 years. The notes are issued in various tranches with different risk profiles. The interest rates are generally variable rates based on LIBOR plus a pre-defined spread, which varies from 0.55% for the more senior tranches to 7.45% for the more subordinated tranches. The investors in this debt are not affiliated with the company and have no recourse to the general credit of the company for this debt.
Quantitative Information about Level 3 Fair Value Measurements
At March 31, 2019, there were $12.2 million of investments held by consolidated real estate funds that were valued using recent private market transactions.
At December 31, 2018, there were $11.8 million of investments held by consolidated real estate funds that were valued using recent private market transactions.

The table below summarizes as of March 31, 2019 and December 31, 2018, the nature of investments that are valued using the NAV as a practical expedient and any related liquidation restrictions or other factors which may impact the ultimate value realized.
 
 
March 31, 2019
 
December 31, 2018
in millions, except term data
 
Fair Value
 
Total Unfunded Commitments
 
Weighted Average Remaining Term (2)
 
Fair Value
 
Total Unfunded Commitments
 
Weighted Average Remaining Term (2)
Private equity funds (1)
 
$173.7
 
$110.3
 
6.7 years
 

$188.7

 

$101.9

 
6.1 years
____________
(1)
These investments are not subject to redemption; however, for certain funds, the investors may sell or transfer their interest, which may require approval by the general partner of the underlying funds.
(2)
These investments are expected to be returned through distributions as a result of liquidations of the funds’ underlying assets over the weighted average periods indicated.

14. RELATED PARTIES
Certain managed funds are deemed to be affiliated entities under the related party definition in ASC 850, “Related Party Disclosures.” Additionally, related parties include those defined in the company’s proxy statement. Affiliated balances are illustrated in the tables below:
 
Three months ended March 31,
$ in millions
2019
 
2018
Affiliated operating revenues:
 
 
 
Investment management fees
816.3

 
916.1

Service and distribution fees
209.9

 
245.3

Performance fees
10.5

 
4.1

Other
46.8

 
54.8

Total affiliated operating revenues
1,083.5

 
1,220.3


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$ in millions
March 31, 2019
 
December 31, 2018
Affiliated asset balances:
 
 
 
Cash and cash equivalents
474.0

 
367.6

Unsettled fund receivables
228.2

 
105.0

Accounts receivable
376.0

 
391.4

Investments
591.0

 
655.7

Assets held for policyholders
12,102.4

 
11,384.5

Other assets
3.4

 
3.2

Total affiliated asset balances
13,775.0

 
12,907.4

 
 
 
 
Affiliated liability balances:
 
 
 
Accrued compensation and benefits
64.3

 
83.2

Accounts payable and accrued expenses
59.8

 
64.8

Unsettled fund payables
241.8

 
100.3

Total affiliated liability balances
365.9

 
248.3

15.  SUBSEQUENT EVENTS
On April 25, 2019, the company announced a first quarter 2019 dividend of $0.31 per share, payable on June 3, 2019, to shareholders of record at the close of business on May 10, 2019 with an ex-dividend date of May 9, 2019.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Condensed Consolidated Financial Statements and related Notes thereto, which appear elsewhere in this Report. Except for the historical financial information, this Report may include statements that constitute “forward-looking statements” under the United States securities laws. Forward-looking statements include information concerning future results of our operations, expenses, earnings, liquidity, cash flow and capital expenditures, industry or market conditions, assets under management, geopolitical events and their potential impact on the company, acquisitions and divestitures, debt and our ability to obtain additional financing or make payments, regulatory developments, demand for and pricing of our products and other aspects of our business or general economic conditions. In addition, words such as “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” “projects,” “forecasts,” and future or conditional verbs such as “will,” “may,” “could,” “should,” and “would” as well as any other statement that necessarily depends on future events, are intended to identify forward-looking statements.
Forward-looking statements are not guarantees, and 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. We caution investors not to rely unduly on any forward-looking statements and urge you to carefully consider the risks described in this Report and our most recent Form 10-K filed with the Securities and Exchange Commission (“SEC”).
You may obtain these reports from the SEC’s website at www.sec.gov. We expressly disclaim any obligation to update the information in any public disclosure if any forward-looking statement later turns out to be inaccurate.
References
In this Report, unless otherwise specified, the terms “we,” “our,” “us,” “company,” “firm,” “Invesco,” and “Invesco Ltd.” refer to Invesco Ltd., a company incorporated in Bermuda, and its subsidiaries.
Executive Overview
The following executive overview summarizes the significant trends affecting our results of operations and financial condition for the periods presented. This overview and the remainder of this management’s discussion and analysis supplements and should be read in conjunction with the Condensed Consolidated Financial Statements of Invesco Ltd. and its subsidiaries (collectively, the “company” or “Invesco”) and the notes thereto contained elsewhere in this Report.
The three months ended March 31, 2019, saw strong gains across equity markets globally. The returns marked a rebound from the broad market decline that ended the prior year as concerns around global trade tensions and slowing economic growth eased while the Federal Reserve indicated a softening in expectations for additional interest rate increases.
In the US, indications from the Federal Reserve that further interest rate increases would be slowed or halted to offset slowing economic growth pushed investors into equity markets early in the quarter while progress on trade negotiations between the US and China drove positive sentiment throughout the period. Strong job growth at the end of the quarter helped to stabilize lingering concerns around growth and led the S&P 500 higher ultimately finishing up 13.1%.
European markets were similarly buoyed by a move towards more accommodative monetary policies from central banks and the potential for resolution to the planned UK and European Union separation. While concerns around a slowdown in growth continued to linger, indications from the European Central Bank that interest rates would remain stable at current levels helped to drive European markets higher during the quarter. Additionally, the temporary delay of the UK and EU separation as well as the potential for a softer separation agreement aided markets leading the FTSE 100 to end the quarter up 8.2%.
In Japan, returns were more muted than other global markets as positive economic indicators were offset by a slowdown in China’s growth and broadly lower corporate profits. Market returns remained volatile through the period as investors digested the improving trade relations between the US and China with the Nikkei 225 ultimately finishing the quarter up 6.0%.
Bond returns for the quarter were widely positive as the change in tone from global central banks was moderated by concerns around slowing global growth. The desire for lower-risk assets resulting from concerns regarding growth pushed government bonds higher and US markets assessed the impact of a yield curve inversion during the quarter reflecting weakening market sentiment. Corporate bonds were aided by reduced concerns around liquidity and leverage and finished the period higher, which helped to move the U.S. Aggregate Bond Index to finish up 2.9% for the quarter.


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The table below summarizes returns based on price appreciation/(depreciation) of several major market indices for the three months ended March 31, 2019 and 2018:
 
Index expressed in currency
Three months ended March 31,
Equity Index
2019
 
2018
S&P 500
U.S. Dollar
13.1
%
 
(1.2
)%
FTSE 100
British Pound
8.2
%
 
(8.2
)%
FTSE 100
U.S. Dollar
10.3
%
 
(4.9
)%
Nikkei 225
Japanese Yen
6.0
%
 
(7.1
)%
Nikkei 225
U.S. Dollar
5.6
%
 
(1.7
)%
MSCI Emerging Markets
U.S. Dollar
9.6
%
 
0.9
 %
Bond Index
 
 
 
 
Barclays U.S. Aggregate Bond
U.S. Dollar
2.9
%
 
(1.5
)%
The company’s financial results are impacted by the fluctuations in exchange rates against the U.S. Dollar, as discussed in the “Foreign Exchange Impact on Balance Sheet, Assets Under Management and Results of Operations” section and the “Results of Operations” section below.

Our revenues are directly influenced by the level and composition of our AUM. Therefore, movements in global capital market levels, net new business inflows (or outflows) and changes in the mix of investment products between asset classes and geographies may materially affect our revenues from period to period. As fee rates differ across geographic locations, changes to exchange rates have an impact on the net revenue yields.

Invesco benefits from our long-term efforts to ensure a diversified base of AUM. One of Invesco’s core strengths, and a key differentiator for the company within the industry, is our broad diversification across client domiciles, asset classes and distribution channels. Our geographic diversification recognizes growth opportunities in different parts of the world. This broad diversification mitigates the impact on Invesco of different market cycles and enables the company to take advantage of growth opportunities in various markets and channels.

Invesco announced in October 2018 that it intended to acquire MassMutual’s asset management affiliate, OppenheimerFunds, and expects to close the transaction on May 24, 2019. The strategic combination will bring Invesco’s total assets under management to $1.2 trillion, making it the 13th-largest global investment manager and the sixth-largest US retail investment manager as of the announcement date of the acquisition, further enhancing the company’s ability to meet client needs through its comprehensive range of high-conviction active, passive and alternative capabilities.

The highly complementary investment and distribution capabilities of Invesco and OppenheimerFunds will strengthen the combined organization’s ability to provide more relevant investment outcomes to an expanded number of institutional and retail clients in the US and around the globe. Both Invesco’s and OppenheimerFunds’ clients will benefit from the resulting combination, which will incorporate OppenheimerFunds’ high-performing investment capabilities, including a strong international and emerging markets equity franchise, and its powerful US third-party distribution platform with Invesco’s strong and diversified product lineup and global presence, supported by solutions-driven and technology-enabled client outreach.

“The combination with OppenheimerFunds and the strategic partnership with MassMutual will meaningfully enhance our ability to meet client needs, accelerate growth and strengthen our business over the long term,” said Mr. Flanagan. “This is a compelling, highly strategic and accretive transaction for Invesco that will help us achieve a number of objectives: enhance our leadership in the US and global markets, deliver the outcomes clients seek, broaden our relevance among top clients, deliver strong financial results and continue attracting the best talent in the industry.”

Since announcement, Invesco and OppenheimerFunds have made significant progress toward the integration of the two firms and achieving targeted expense synergies of $475 million through a planned combination of middle- and back-office rationalization, location strategy and leveraging the scale of the global operating platform. Bringing the two firms together is intended to accelerate Invesco’s growth strategy and further strengthen the firm’s ability to meet client needs across the globe. Total integration costs are expected to be approximately $450 million.

As part of the transaction, MassMutual and the OppenheimerFunds employee shareholders will receive a combination of common and preferred equity consideration, and MassMutual will become a significant shareholder in Invesco, with an approximate 15.7% stake. Under the terms of the agreement, the consideration will consist of 81.9 million shares of Invesco

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common equity and $4 billion in perpetual, non-cumulative preferred shares with a 21-year non-call period and a fixed rate of 5.9%. Based on Invesco’s stock price as of March 29, 2019, this represents an estimated purchase price of $5.6 billion.

In October 2018, the company announced a common stock buyback program of $1.2 billion to be completed within the next
two years, which will be financed through the strong operating cash flows of the combined Invesco and OppenheimerFunds
organization. The company repurchased 2.6 million common shares in open market transactions utilizing $50 million in cash during the first quarter of 2019, bringing purchases to date under this program to $350 million.

In addition, during the first quarter of 2019:
•
Invesco won the Deal of the Year honor at the 26th annual Mutual Fund Industry Awards for its $5.6bn acquisition of MassMutual subsidiary OppenheimerFunds. The Deal Of The Year is awarded to the M&A deal that has most changed the landscape of the fund or retirement industry.
•
Invesco QQQ celebrated 20 years of curating innovation. Since its inception in 1999, Invesco QQQ has grown to become one of the largest, most-traded and highest-performing ETFs in the history of the industry.   
•
Invesco launched a Blockchain ETF on the London Stock Exchange, providing an innovative way for investors to participate in this technology.
•
Invesco launched Gilt ETFs, giving investors access to UK government bonds across the full maturity spectrum of up to 55 years and with maturities of between 12 months and five years.
•
Invesco was named one of the Top 5 dividend funds for the past 5 years by Barron’s.
•
Invesco was cited as leading the way in Taiwan’s target-maturity fund space with the highest percentage of market share as of end of 2018.

Other External Factors Impacting Invesco

As one of the leading investment managers in the UK and Europe, we continue to be impacted by continuing uncertainties surrounding Brexit. The recent agreement between the UK and the EU27 to extend the deadline for the UK to leave the EU to as late as October 31, 2019 likely will continue such uncertainties. The UK economy has been in a period of uncertainty with volatility expected in financial markets until the terms of withdrawal are agreed upon. We believe uncertainty in the markets was a factor in the decline in AUM within our UK operations, where AUM from clients domiciled in the UK were $86.5 billion at March 31, 2019 (March 31, 2018: $109.2 billion). At March 31, 2019, approximately 9.1% of our AUM are UK entities providing investment services to EU based fund management subsidiaries and EU-based clients. Most of this activity is anticipated to be able to continue even if a formal UK exit agreement is not reached.

Presentation of Management’s Discussion and Analysis of Financial Condition and Results of Operations - Impact of Consolidated Investment Products
The company provides investment management services to, and has transactions with, various retail mutual funds and similar
entities, private equity, real estate, fund-of-funds, collateralized loan obligation products (CLOs), and other investment entities
sponsored by the company for the investment of client assets in the normal course of business. The company serves as the investment manager, making day-to-day investment decisions concerning the assets of the products. Investment products that are consolidated are referred to in this Form 10-Q (Report) as consolidated investments products (CIP). The company’s economic risk with respect to each investment in CIP is limited to its equity ownership and any uncollected management and performance fees. See also Note 13, “Consolidated Investment Products,” for additional information regarding the impact of the consolidation of managed funds.

The majority of the company’s CIP balances are CLO-related. The collateral assets of the CLOs are held solely to satisfy the
obligations of the CLOs. The company has no right to the benefits from, nor does it bear the risks associated with, the collateral
assets held by the CLOs, beyond the company’s direct investments in, and management and performance fees generated from, the CLOs. If the company were to liquidate, the collateral assets would not be available to the general creditors of the company, and as a result, the company does not consider them to be company assets. Likewise, the investors in the CLOs have no recourse to the general credit of the company for the notes issued by the CLOs. The company therefore does not consider this debt to be a company liability.


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The impact of CIP is so significant to the presentation of the company’s Condensed Consolidated Financial Statements that the company has elected to deconsolidate these products in its non-GAAP disclosures. The following discussion therefore combines the results presented under U.S. generally accepted accounting principles (U.S. GAAP) with the company’s non-GAAP presentation. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains four distinct sections, which follow the AUM discussion:
•
Results of Operations (three months ended March 31, 2019 compared to three months ended March 31, 2018);
•
Schedule of Non-GAAP Information;
•
Balance Sheet Discussion; and
•
Liquidity and Capital Resources.
Wherever a non-GAAP measure is referenced, a disclosure will follow in the narrative or in the note referring the reader to the Schedule of Non-GAAP Information, where additional details regarding the use of the non-GAAP measure by the company are disclosed, along with reconciliations of the most directly comparable U.S. GAAP measures to the non-GAAP measures. To further enhance the readability of the Results of Operations section, separate tables for each of the revenue, expense, and other income and expenses (non-operating income/expense) sections of the income statement introduce the narrative that follows, providing a section-by-section review of the company’s income statements for the periods presented.

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Summary Operating Information
Summary operating information is presented in the table below:
$ in millions, other than per share amounts, operating margins and AUM
Three months ended March 31,
U.S. GAAP Financial Measures Summary
2019
 
2018
Operating revenues
1,214.6

 
1,355.8

Operating income
200.2

 
321.1

Operating margin
16.5
%
 
23.7
%
Net income attributable to Invesco Ltd.
177.7

 
253.9

Diluted EPS
0.44

 
0.62

 
 
 
 
Non-GAAP Financial Measures Summary
 
 
 
Net revenues (1)
887.1

 
958.0

Adjusted operating income (2)
284.3

 
357.3

Adjusted operating margin (2)
32.0
%
 
37.3
%
Adjusted net income attributable to Invesco Ltd. (3)
224.8

 
273.9

Adjusted diluted EPS (3)
0.56

 
0.67

 
 
 
 
Assets Under Management
 
 
 
Ending AUM (billions)
954.8

 
934.2

Average AUM (billions)
932.8

 
951.3

_________
(1)
Net revenues is a non-GAAP financial measure. Net revenues are operating revenues plus the net revenues of Invesco Great Wall, less third-party distribution, service and advisory expenses, plus management and performance fees earned from CIP. See “Schedule of Non-GAAP Information,” for the reconciliation of operating revenues to net revenues.
(2)
Adjusted operating income and adjusted operating margi