Invesco Ltd. - Annual Report: 2019 (Form 10-K)

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•	significant fluctuations in the performance of capital and credit markets worldwide;

•	adverse changes in the global economy;

•	the performance of our investment products;

•	significant changes in net asset flows into or out of the accounts we manage or declines in market value of the assets in, or redemptions or other withdrawals from, those accounts;

•	competitive pressures in the investment management business, including consolidation, which may force us to reduce fees we earn;

•	any inability to adjust our expenses quickly enough to match significant deterioration in markets;

•	the effect of fluctuations in interest rates, liquidity and credit markets in the U.S. or globally, including regulatory reform of benchmarks, such as LIBOR;

•	our ability to acquire and integrate other companies into our operations successfully and the extent to which we can realize anticipated product sales, cost savings or synergies from such acquisitions;

•	the occurrence of breaches and errors in the conduct of our business, including any failure to properly safeguard confidential and sensitive information, cyber-attacks or acts of fraud;

•	our ability to attract and retain key personnel, including investment management professionals;

•	limitations or restrictions on access to distribution channels for our products;

•	our ability to develop, introduce and support new investment products and services;

•	our ability to comply with client contractual requirements and/or investment guidelines despite preventative compliance procedures and controls;

•	variations in demand for our investment products or services, including termination or non-renewal of our investment management agreements;

•	harm to our reputation;

•	our ability to maintain our credit ratings and access the capital markets in a timely manner;

•	our debt and the limitations imposed by our credit facility;

•	exchange rate fluctuations, especially as against the U.S. Dollar;

•	the effect of political, economic or social instability in or involving countries in which we invest or do business (including the effect of terrorist attacks, war and other hostilities);

•	the effect of failures or delays in support systems or customer service functions, and other interruptions of our operations;

•	the effect of non-performance by our counterparties, third party service providers and other key vendors to fulfill their obligations;

•	impairment of goodwill and other intangible assets;

•	pandemics or other widespread health crises and governmental responses to the same;

•	adverse results in litigation and any other regulatory or other proceedings, governmental investigations, and enforcement actions; and

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•	enactment of adverse federal, state or foreign legislation or changes in government policy or regulation (including accounting standards) affecting our operations, our capital requirements or the way in which our profits are taxed.

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•	Achieve strong, long-term investment performance across distinct investment capabilities with clearly articulated investment philosophies and processes, aligned with client needs;

•	Be instrumental to our clients' success by delivering our distinctive investment capabilities worldwide to meet their needs;

•	Harness the power of our global platform by continuously improving execution effectiveness to enhance quality and productivity, and allocating our resources to the opportunities that will best benefit clients and our business; and

•	Perpetuate a high-performance organization by driving greater transparency, accountability, diversity of thought, fact-based decision making and execution at all levels.

•	being a signatory to the United Nations Principles for Responsible Investment (“PRI”);

•	receiving an annual assessment of “A+” for strategy and governance from PRI for three consecutive years; and

•	being a signatory to the UK Stewardship Code and Japan Stewardship.

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•	For 2018, Invesco offset 13,877 tons of carbon dioxide emissions through our partnership with ClimateCare, representing all of our air and rail travel purchased through our third party travel agency, which represents the majority of our air and rail travel for 2018.  We anticipate conducting a similar offset program in respect to 2019;

•	Invesco has ISO 14001 environmental management certification to effectively manage our environmental responsibilities on locations representing 80% of our employee population; and

•	We are certified by Carbon Trust in the UK regarding multiple standards, including carbon, waste and water reduction.

•	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.

•	Principles for Responsible Investment (PRI), a world leading proponent of responsible investment, rated Invesco with an A+ rating for the 3rd consecutive year.

•	Invesco ranked #5 in market penetration among ETF providers according to a 2019 Advisors Brandscape study.

•	We further strengthened our market-leading solutions capability, leveraging one of the industry’s strongest, most experienced solutions teams to enable customized outcomes for clients;

•	Invesco announced the launch of a new suite of defined maturity BulletShares® ETFs with exposure to municipal debt issued by state and local government.

•	Invesco received the top prize of Asset Manager of the Year at AsianInvestor's Asset Management Awards 2019 in Hong Kong. We received the marquee award in recognition of our strong performance and AUM growth at a time when many fund houses were losing assets.

•	Invesco China JV (IGW) won more than 50 awards in the asset management industry with a key highlight being China Securities Journal’s Annual Golden Bull Fund Company Award for 2019.

•	Invesco High Yield Equity Dividend was named one of the Top 5 dividend funds in the U.S. for the past five years by Barron’s.

•	Invesco Japanese Equity Advantage Fund managed by Tadao Minaguchi was awarded the best Japan fund by Investment Week UK at their 2019 Funds Manager of the Year awards.

•	Amalgamated Bank entered into an agreement with Invesco to become a sub-adviser for their investment management business. As a sub-adviser, Invesco will provide investment management services for Amalgamated Bank across asset classes.

•	Jemstep, Invesco's digital advisor, acquired a key client, Infinex Financial Group, which has a network of greater than 650 advisors and 220 banks and credit unions.

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•	As announced in January 2020, Invesco's Jemstep digital wealth platform has been chosen to power Citi's investment service, Citi Wealth Builder, because of its goal-based client experience and the ability to configure its platform to meet Citi's requirements.

•	Invesco launched a Blockchain ETF on the London Stock Exchange, providing an innovative way for investors to

•	Invesco launched Gilt ETFs, giving investors access to UK government bonds across the full maturity spectrum.

•	Invesco's North America Marketing team and the Global Thought Leadership team won in a number of categories at the recent Gramercy Institution Financial Content Marketing Awards. These awards recognize excellence in financial marketing.

•	Invesco's Active Multi-Sector Credit Fund and Europlus Fund won the Lipper Fund Awards from Revinitiv.

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Clients are demanding more from investment managers. While investment performance remains paramount, competitive pricing, client engagement and value-added services (including portfolio analytics and providing consultative solutions) increasingly differentiate managers. Invesco is working to enhance the client's user experience through digital marketing (web, mobile, social) and improved service. The building out of Invesco Solutions to respond to this trend is among the firm's top priorities.

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Investors are continuing to shift to alternative, passive, and smart beta strategies. As a consequence, Invesco and the industry are seeing client demand for core equities and fixed income portfolios decline as a share of global flows. Invesco is the #2 provider of smart beta AUM in the US and has 72 ETFs with greater than $500 million in assets. Invesco also has a strong lineup of alternative and multi-asset strategies supported by ongoing product development.

•	We are seeing increased pressure on pricing within the asset management industry, arising from increased use of low fee passive products and further concentration within our channel distribution partners (which increases their ability to negotiate pricing) and additional regulatory scrutiny on industry fees.

•	Distribution partners are becoming more selective and are moving towards developing fewer relationships and partners, reducing the number of investment managers with whom they work.

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Regulatory activity remains at increased levels and is influencing competitive dynamics. Increased regulatory scrutiny of managers has focused on many areas including transparency/unbundling of fees, inducements, conflicts of interest, capital, liquidity, solvency, leverage, operational risk management, controls and compensation. Invesco continues to work proactively with regulators around the world. Efforts to further modernize and strengthen our global platform will enhance our ability to compete effectively across markets while complying with the variety of applicable regulatory regimes.

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Although the developed markets in the U.S. and Europe are currently the two largest markets for financial assets by a wide margin, other key emerging markets in the world, such as China and India, are positioned for future growth over the long term despite near-term headwinds. As these population-heavy markets mature, we believe investment managers that are truly global will be in the best position to capture this growth. Additionally, population age differences between emerging and developed markets will result in differing investment needs and horizons among countries. Asset allocation and retirement savings schemes also differ substantially among countries. We believe firms such as Invesco, with diversified investment capabilities and product types, are best positioned to meet clients' needs in this global competitive landscape. Invesco has a meaningful market presence in many of the world's most attractive regions, including North America, EMEA and Asia-Pacific. We believe our strong and growing presence in established and emerging markets provides significant long-term growth potential for our business.

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Technology advances are impacting core elements of the investment management industry which lags other industries in its use of technology. Clients increasingly seek to interact digitally with their investment portfolios. This is leading to established managers investing in and/or acquiring "robo" and other technology platforms. As the investment management business becomes more complex, automation will become increasingly important to serve clients effectively and efficiently. Invesco is leveraging technology across its business and exploring opportunities to work with third-party technology firms to enhance our clients' investment experience. Over the past few years, we have made strategic acquisitions to strengthen our overall digital wealth platform, including Jemstep and Intelliflo, our advisor-focused digital platforms. These acquisitions and others have strengthened our ability to offer competitive digital wealth capabilities and position us ahead of the evolving client needs.

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In the event of extreme circumstances, including economic, political, or business crises, such as a widespread systemic failure or disruptions in the global financial system or failures of firms that have significant obligations as counterparties on financial instruments, we may suffer significant declines in AUM and severe liquidity or valuation problems in managed investment products in which client and company assets are invested, all of which would adversely affect our operating results, financial condition, liquidity, credit ratings, ability to access capital markets, and ability to retain and attract key employees. Additionally, these factors could impact our ability to realize the carrying value of our goodwill and other intangible assets.

•	Illiquidity and/or volatility of the global fixed income and/or equity markets could negatively affect our ability to manage client inflows and outflows or to timely meet client redemption requests.

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Uncertainties regarding geopolitical developments can produce volatility in global financial markets. As an example, although negotiations between the UK and EU resulted in the UK leaving the EU under the terms of the Withdrawal Agreement on January 31, 2020, the longer term relationship between the UK and the EU is still uncertain. This may impact the levels and composition of our AUM and also negatively impact investor sentiment, which could result in reduced or negative flows. In addition, because the UK Pound Sterling is the functional currency for certain of our subsidiaries, any weakening of the UK Pound Sterling relative to the U.S. Dollar could negatively impact our reported financial results.

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Changes to United States tax, tariff and import/export regulations may have a negative effect on global economic conditions, financial markets and our business. Currently, there is significant uncertainty about the future relationship between the United States and other countries, including China and the EU, with respect to trade policies, treaties, taxes, government regulations and tariffs. It is unclear what changes may be considered or implemented and what the response will be to any such changes by other governments of such affected countries. These developments, or the perception that any of them could occur, may have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global trade and, in particular, trade between these nations and the United States. Given our strong position in Asia Pacific and EMEA, we could be more adversely affected than others by such market uncertainties.

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In the U.S., regulations requiring a variable (“floating”) net asset value (NAV) for institutional prime and tax-free money market funds became effective in October 2016. Those same regulations also provide for the potential imposition of the assessment of fees in connection with redemptions and/or gates that postpone the time in which redemptions must be processed in the event those funds’ weekly liquid assets fall below certain specified thresholds. Our government money market funds and retail prime and tax-free money market funds continue to offer a stable NAV of $1.00 per common share and are not required to impose fees and gates; however, we do not guarantee such NAV level. Market conditions could lead to severe liquidity issues in money market products, which could lead to the imposition of fees or gates with respect to institutional prime and tax-free money market funds and an effect on the NAVs of government and retail prime and tax-free money market funds. If our institutional prime or tax-free money market funds were to impose redemption fees or gates delaying the payment of redemption proceeds, or the NAV of one of our government or retail prime or tax-free money market funds were to decline below $1.00 per common share, such funds could experience significant redemptions in AUM, loss of shareholder confidence and reputational harm.

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•	New or increased capital requirements and related regulation.

•	Limitations on holdings of certain commodities under proposed regulations of the CFTC which could result in capacity constraints for our products that employ commodities as part of their investment strategy.

•	Potential limitations on the ability of our U.S. registered funds to enter into derivatives transactions under regulations of the SEC.

•	Regulations impacting the standard of care a financial adviser owes to its clients including the SEC’s best interests standard.

•	Other changes to the distribution of investment funds and other investment products.

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In 2015, the FCA undertook a study of the asset management industry and released their final report in June 2017. The report highlighted a number of specific industry issues and proposed a number of remedies that will take place in a number of stages, including: changes to governance, changes to fee structures to provide clients with increased transparency, improved disclosure in client documentation, improved ability for retail clients to change share classes, changes to pension pooling and investment consultant regulations in the institutional segment and new requirements that fund sponsors evaluate the degree to which their funds provide value to fund shareholders.

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The Markets in Financial Instruments Directive II (MiFID II) in the EU, effective in January 2018, seeks to promote a single market for wholesale and retail transactions in financial instruments. MiFID II addresses the conduct of business rules for intermediaries providing investment services and the effective, efficient and safe operation of financial markets. Key elements of MiFID II are the extent to which retrocessions may be paid and the use of trading commissions to fund research. Beginning in January 2018, the company has absorbed external research costs incurred for MiFID II impacting funds and client accounts in Europe. While the foregoing provisions only impact the EU, client-driven competitive pressures may cause an expansion of these principles to other business regions in which we operate, including the United States.

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Forthcoming EU regulations pertaining to integrating environmental, social and governance (ESG) topics may materially impact the asset management industry in member states that adopt such legislation.  For example, the EU’s recent action plan on financing sustainable growth includes initiatives to integrate ESG into the financial system, including such areas as MiFID2, UCITS and AIFMD regulations.

•	An increased focus on liquidity in funds (including fixed income funds), an example of which is the SEC’s rules with respect to liquidity and liquidity risk management applicable to certain types of registered U.S. funds that took effect in 2018.

•	Increased requirements to provide regulators and investors more granular detail regarding our products and services, including the SEC’s reporting modernization rule applicable to certain types of registered U.S. funds that took effect in 2018.

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Regulations pertaining to the privacy of data with respect to clients, employees and business partners. The introduction of the EU’s General Data Protection Regulation (GDPR) in 2018 strengthened privacy rules for individuals within the EU, and greatly increased penalties for non-compliance. The GDPR has also influenced direction on privacy regulations outside of the EU, most recently the State of California adopted the California Consumer Privacy Act (CCPA) in January 2020 granting California consumers more control over the use of their personal information by organizations doing business with them. A failure to comply can result in fines levied by the California Attorney General or private rights of action by consumers. Looking forward, various other U.S. states are seeking to establish similar laws to CCPA, and privacy laws are being updated and strengthened in various jurisdictions globally, such as Canada, India, China, and Hong Kong.

•	Increased regulatory scrutiny on operations of private capital funds.

•	Requirements pertaining to the trading of securities and other financial instruments, such as swaps and other derivatives, including certain provisions of the Dodd-Frank Act and European Market Infrastructure Regulation; these include significant reporting requirements, designated trading venues, mandated central

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•	Phase out of the LIBOR benchmark, which will impact interest payables or receivables on certain portfolio investments.

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Heightened regulatory examinations and inspections, including enforcement reviews, and a more aggressive posture regarding commencing enforcement proceedings resulting in fines, penalties and additional remedial activities to firms and to individuals. Without limiting the generality of the foregoing, regulators in the United States and the United Kingdom have taken and can be expected to continue to take a more aggressive posture on bringing enforcement proceedings.

•	Enhanced licensing and qualification requirements for key personnel, including the United Kingdom Senior Managers and Certification Regime, which became effective in December 2019.

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Guidelines regarding the structure and components of fund manager compensation and other additional rules and regulations and disclosure requirements. Certain provisions impose additional disclosure burdens on public companies. Certain proposals could impose requirements for more widespread disclosures of compensation to highly-paid individuals. Depending upon the scope of any such requirements, Invesco could be disadvantaged in retaining key employees vis-à-vis private companies, including hedge fund sponsors.

•	Strengthening standards regarding various ethical matters, including compliance with the Foreign Corrupt Practices Act, the UK Bribery Act and anti-money-laundering laws and regulations.

•	Regulations promulgated to address perceptions that the asset management industry, or certain of its entities or activities, pose systematic risks to the financial system.

•	Regulations promulgated to protect personal data and address risks of fraud, malfeasance or other adverse consequences stemming from cyber attacks.

•	Other changes impacting the identity or the organizational structure of regulators with supervisory authority over Invesco.

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•	In 2018, the EU introduced mandatory disclosure rules (DAC6) requiring disclosure to tax authorities of cross-border arrangements entered into by taxpayers that fall within certain, broadly defined hallmarks beginning in July 1, 2020. There also are separate transitional rules that require separate reporting for any disclosable transactions occurring after June 25, 2018.

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On July 1, 2018, the OECD enacted the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the Multilateral Instrument or MLI). The MLI implements several BEPS initiatives: Action 2 - hybrid mismatch arrangements; Action 6- treaty abuse; Action 7 - definition of permanent establishment; and Action 14- mutual agreement procedures (MAP) as well as arbitration.

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The OECD has adopted a global common reporting standard for the automatic exchange of financial information among participating countries (“CRS”), aimed at ensuring that persons with financial assets located outside of their tax residence country pay required taxes. In many cases, intergovernmental agreements between the participating countries will govern implementation of the new CRS rules. CRS is being implemented over a multi-year period and we will continue to monitor the implementing regulations and corresponding intergovernmental agreements to determine our requirements.

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The OECD has also undertaken BEPS 2.0 focused on “Addressing the Tax Challenges of the Digitalization of the Economy.” This project may impact all multinational businesses by allocating a greater share of taxing rights to countries where consumers are located regardless of the current physical presence of a business, and by implementing a global minimum tax. There is significant uncertainty regarding such proposals, including that a few EU countries have unilaterally enacted or proposed a tax on digital services ahead of any EU wide proposal.

•	The OECD has also launched an Analytical Database on Individual Multinationals and Affiliates (“ADIMA”), a database containing public information on the physical and digital locations of corporations (including revenue, profit, income tax and number of employees.

•	Bermuda has recently adopted economic substance regulations to comply with the EU Code of Conduct for business taxation and tax policies which will require Invesco Ltd. to file annual declarations beginning June 2020 demonstrating economic substance within Bermuda.

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•	we are prohibited from engaging, under certain circumstances, in a business combination (as defined in our Bye-Laws) with any interested shareholder (as defined in our Bye-Laws) for three years following the date that the shareholder became an interested shareholder;

•	our Board of Directors, without further shareholder action, is permitted by our Bye-Laws to issue preference shares, in one or more series, and determine by resolution any designations, preferences, qualifications, privileges, limitations, restrictions, or special or relative rights of an additional series. The rights of preferred shareholders may supersede the rights of common shareholders;

•	shareholders may only remove directors for “cause” (defined in our Bye-laws to mean willful misconduct or gross negligence which is materially injurious to the company, fraud or embezzlement, or a conviction of, or a plea of “guilty” or “no contest” to, a felony);

•	our Board of Directors is authorized to expand its size and fill vacancies; and

•	shareholders cannot act by written consent unless the consent is unanimous.

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Note:	Asset Manager Index includes Affiliated Managers Group, AllianceBernstein, Ameriprise Financial, Bank of New York Mellon, BlackRock, Charles Schwab, Eaton Vance, Federated Hermes, Franklin Resources, Invesco Ltd., Lazard, Legg Mason, Northern Trust, Principal Financial, State Street, TD Ameritrade, and T. Rowe Price.

(1)	An aggregate of 189,050 common shares were surrendered to us by Invesco employees to satisfy tax withholding obligations in connection with the vesting of equity awards during the three months ended December 31, 2019.

(2)	At December 31, 2019, a balance of $732.2 million remains available under the common share repurchase authorization approved by the Board on July 22, 2016.

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(1)	Net revenues is a non-GAAP financial measure. See Item 7, “Summary Operating Information,” footnote 1, for the definition of this measure and the related reconciliation reference.

(2)	Adjusted operating income and adjusted operating margin are non-GAAP financial measures. See Item 7, “Summary Operating Information,” footnote 2, for the definition of these measures and the related reconciliation reference.

(3)	Adjusted net income attributable to Invesco Ltd. and adjusted diluted EPS are non-GAAP financial measures. See Item 7, “Summary Operating Information,” footnote 3, for the definition of these measures and the related reconciliation reference.

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•	Results of Operations (year ended December 31, 2019 compared to December 31, 2018);

•	Schedule of Non-GAAP Information;

•	Balance Sheet Discussion; and

•	Liquidity and Capital Resources.

(1)

Net revenues is a non-GAAP financial measure. Net revenues are operating revenues plus the net revenues of our Great Wall joint venture; less pass-through revenue adjustments to investment management fees, service and distribution fees and other; 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 margin are non-GAAP financial measures. Adjusted operating margin is adjusted operating income divided by net revenues. Adjusted operating income includes operating income plus the net

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(3)

Adjusted net income attributable to Invesco Ltd. and adjusted diluted EPS are non-GAAP financial measures. Adjusted net income attributable to Invesco Ltd. is net income attributable to Invesco Ltd. adjusted to exclude the net income of CIP, transaction, integration and restructuring adjustments, the net income impact of deferred compensation plans and other reconciling items. Adjustments made to net income attributable to Invesco Ltd. are tax-affected in arriving at adjusted net income attributable to Invesco Ltd. By calculation, adjusted diluted EPS is adjusted net income attributable to Invesco Ltd. divided by the weighted average number of common shares outstanding (for diluted EPS). See "Schedule of Non-GAAP Information," for the reconciliation of net income attributable to Invesco Ltd. to adjusted net income attributable to Invesco Ltd..

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(3)	Net revenue yield on AUM is equal to annualized net revenues divided by average AUM. See “Schedule of Non-GAAP Information” for a reconciliation of operating revenues to net revenues.

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(1)	Channel refers to the internal distribution channel from which the AUM originated. Retail AUM represents AUM distributed by the company's retail sales team. Institutional AUM represents AUM distributed by our institutional sales team. This aggregation is viewed as a proxy for presenting AUM in the retail and institutional markets in which the company operates.

(2)	Asset classes are descriptive groupings of AUM by common type of underlying investments.

(3)	Client domicile disclosure groups AUM by the domicile of the underlying clients.

(4)	The acquisition of OppenheimerFunds business on May 24, 2019 added $224.4 billion in AUM at that date. The acquisition of Guggenheim Investments' ETF business on April 6, 2018 added $38.1 billion in AUM during the second quarter. As of July 1, 2018, we

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(1)	Total revenue adjustments includes passed through investment management, service and distribution, and other revenues and equal the same amount as the third party distribution, service and advisory expenses.

(2)	Net revenues are operating revenues less revenue adjustments, plus net revenues from Invesco Great Wall, plus management and performance fees earned from CIP. See “Schedule of Non-GAAP Information” for additional important disclosures regarding the use of net revenues.

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*	Operating margin is equal to operating income divided by operating revenues.

**	Adjusted operating margin is equal to adjusted operating income divided by net revenues.

***	Adjusted diluted EPS is equal to adjusted net income attributable to Invesco Ltd. divided by the weighted average number of common and restricted common shares outstanding. There is no difference between the calculated earnings per common share amounts presented above and the calculated earnings per common share amounts under the two class method.

(1)	Invesco Great Wall

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(2)	Revenue Adjustments

(3)	CIP

(4)	Transaction, integration and restructuring related adjustments

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(a)	General and administrative expenses for 2015 include a provision of $12.6 million pertaining to regulatory actions and related legal fees of $0.5 million (2016: $1.0 million).

(b)	As a result of an increase in our recoverable VAT from applying additional regulatory guidance, a credit was recorded in the third quarter of 2018. The portion of the cumulative adjustment representing 2015 through 2017 has been removed for non-GAAP purposes.

(c)

Operating expenses for 2017 reflect the cost of multiple senior executive retirements. The costs incurred in one quarter was unprecedented and the company deemed it appropriate to adjust these costs from the U.S. GAAP total compensation in an effort to isolate and evaluate our level of compensation going forward. The result of this adjustment was $19.7 million related to accelerated vesting of deferred compensation and other separation costs.

(d)	General and administrative expenses for 2015 include charges of $4.7 million in respect of a multi-year fund reimbursement expense associated with historical private equity management fees. The charge resulted primarily from using a more appropriate methodology regarding the calculation of offsets to management fees.

(e)	Included within other gains and losses, net is the mark-to-market of foreign exchange put option contracts intended to provide protection against the impact of a significant decline in the Pound Sterling/U.S. Dollar and the Euro/U.S.

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(f)	Employee benefit plan termination: Operating expenses for 2016 include an incremental credit of $8.6 million related to an employee benefit plan termination.

(g)	During 2015, the company acquired investment management contracts from Deutsche Bank and the purchase price was solely comprised of contingent consideration payable in future periods. Adjustment represents the change in the fair value of contingent consideration liability.

(h)	Other gains and losses for 2017 includes a realized gain of $12.1 million related to revaluation of Euros held in the UK in anticipation of payment for the European ETF business acquisition.

(i)	Other-than-temporary impairment includes an impairment charge of $17.8 million in 2016 that is related to the acquisition of Invesco Asset Management (India) Private Limited.

(j)	The income tax provision for 2017 includes a retroactive state tax expense of $12.2 million related to 2016 and prior open tax years caused by changes in state tax regulations. 2017 also included a $130.7 million tax benefit as a result of the revaluation of deferred tax assets and liabilities following the 2017 Tax Act enacted in the United States.

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(2)	Amounts include accounts receivable, prepaid assets, property, equipment and software, right-of-use assets and other assets.

(3)	Amounts include accrued compensation and benefits, accounts payable and accrued expenses, lease liability and deferred tax liabilities.

(4)	Amounts include redeemable noncontrolling interests in consolidated entities and equity attributable to nonredeemable noncontrolling interests in consolidated entities.

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•	reinvestment in the business;

•	moderate annual growth of dividends (as further discussed in the "Dividends" section below);

•	share repurchase; and

•	target an approximate $1 billion cash buffer in excess of European regulatory and liquidity requirements.

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(1)	These tables include non-GAAP presentations.  Cash held by CIP is not available for use by Invesco.  Additionally, there is no recourse to Invesco for CIP debt.  The cash flows of CIP do not form part of the company’s cash flow management processes, nor do they form part of the company’s significant liquidity evaluations and decisions.

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(1)	Adjustments for unrealized gains and losses from investments, as defined in our credit facility, may also include non-cash gains and losses on investments to the extent that they do not represent anticipated future cash receipts or expenditures.

(2)

EBITDA and Adjusted debt are non-GAAP financial measures; however management does not use these measures for anything other than these debt covenant calculations. The calculation of EBITDA above (a reconciliation from net income attributable to Invesco Ltd.) is defined by our credit agreement, and therefore net income attributable to Invesco Ltd. is the most appropriate GAAP measure from which to reconcile to EBITDA. The calculation of Adjusted debt is defined in our credit facility and equals total debt of $2,080.3 million plus $11.2 million in letters of credit.

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(1)

Long-term debt includes $2,080.3 million of fixed rate debt. Fixed interest payments are reflected in the table above in the periods they are due, and include any issuance discounts. The table above includes the company's debt; debt of CIP is excluded from the table above, as the company is not obligated for these amounts. See Item 8, Financial Statements and Supplementary Data - Note 20, “Consolidated Investment Products," for additional information.

(2)	Operating leases reflect obligations for leased building space and other assets.

(3)

In the ordinary course of business, Invesco enters into contracts or purchase obligations with third parties whereby the third parties provide services to or on behalf of Invesco. Purchase obligations included in the contractual obligations table above represent fixed-price contracts, which are either non-cancelable or cancelable with a penalty. At December 31, 2019, the company's obligations primarily reflect standard service contracts for portfolio, market data, office-related services and third-party marketing and promotional services. In addition, the company is a party to certain variable-price contractual arrangements (e.g. contingent future payments based on AUM levels, number of accounts, transaction volume, etc.) for which the company is reimbursed by affiliated funds and as such are not included in the table above. Purchase obligations are recorded as liabilities in the company's Consolidated Financial Statements when services are provided. Purchase obligations also include contingent consideration liabilities.

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(4)

The company has capital commitments into co-invested funds that are to be drawn down over the life of the partnership as investment opportunities are identified. At December 31, 2019, the company's undrawn capital and purchase commitments were $357.0 million. These are not included in the above table. See Item 8, Financial Statements and Supplementary Data - Note 19, “Commitments and Contingencies” for additional details.

(5)

Due to the uncertainty with respect to the timing of future cash flows associated with unrecognized tax benefits at December 31, 2019, the company is unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authorities. Therefore, $69.9 million of gross unrecognized tax benefits have been excluded from the contractual obligations table above. See Item 8, Financial Statements and Supplementary Data, Note 16 - “Taxation” for a discussion regarding income taxes.

(6)

In addition to the contractual obligations in the table above, we periodically make contributions to defined benefit pension plans. For the years ended December 31, 2019 and 2018 we contributed $24.0 million and $21.2 million, respectively, to these plans. In 2020, we expect to contribute $24.9 million to our defined benefit pension plans. See Item 8, Financial Statements and Supplementary Data - Note 13, “Retirement Benefit Plans” for detailed benefit pension plan information. The company has various other compensation and benefit obligations, including bonuses, commissions and incentive payments payable, defined contribution plan matching contribution obligations, and deferred compensation arrangements, that are excluded from the table above.

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•	Causing the value of AUM to decrease.

•	Causing the returns realized on AUM to decrease (impacting performance fees).

•	Causing clients to withdraw funds in favor of investments in markets that they perceive to offer greater opportunity and that the company does not serve.

•	Causing clients to rebalance assets away from investments that the company manages into investments that the company does not manage.

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•	Causing clients to reallocate assets away from products that earn higher revenues into products that earn lower revenues.

(a)

If such a 10% increase or decrease in fair values were to occur, the change attributable to $432.5 million of these equity investments would result in a corresponding increase or decrease in our pre-tax earnings. At December 31, 2019, $192.4 million of these equity investments are held to hedge economically certain deferred compensation plans in which the company participates. In addition to holding equity investments, in 2017, the company purchased a total return swap to economically hedge certain deferred compensation plans. The notional value of the total return swap at December 1, 2019 was $177.0 million. The company recognizes as compensation expense the appreciation or depreciation of the compensation liability over the award's vesting period in proportion to the vested amount of the award. The company immediately recognizes the appreciation or depreciation of these investments, which is included in other gains and losses. This creates a timing difference between the recognition of the compensation expense and the investment gain or loss impacting net income, which will reverse and will offset to zero over the life of the award at the end of the multi-year vesting period.

(b)

These represent Invesco’s direct investments in investment products that are consolidated. Upon consolidation, these direct investments are eliminated, and the assets and liabilities of the CIP are consolidated in the Consolidated Balance Sheet, together with a noncontrolling interest balance representing the portion of the CIP owned by third parties. In addition, in 2018, the company entered into total return swap agreements with respect to certain ETFs. Through the total return swap agreements, the company holds an indirect interest in the ETFs. At December 31, 2019, the aggregate notional value of the total return swaps was $145.9 million. If a 10% increase or decrease in the fair values of Invesco’s direct investments in CIP and total return swap instruments were to occur, it would result in a corresponding increase or decrease in our net income attributable to Invesco Ltd.

(c)

During 2015, the company acquired investment management contracts from Deutsche Bank.  This liability represents the purchase price, which was comprised solely of contingent consideration payable in future periods and is linked to future revenues generated from the contracts. In connection with the OppenheimerFunds acquisition (see Note 2, “Business Combinations”), Invesco acquired a contingent consideration liability related to historical OppenheimerFunds transactions. The liability is contingent upon the attainment of certain revenue growth objectives during 2019 and 2020. Additionally, the company made other digital wealth acquisitions during 2019, which resulted in a contingent consideration liability linked to sales targets during 2020, 2021 and 2022. The contingent consideration liabilities referenced above were recorded at fair value at each respective acquisition date and subsequent changes in the fair value are recorded in Other gains and

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(1)	The sum of the quarterly earnings per common share amounts may differ from the annual earnings per common share amounts due to the required method of computing the weighted average number of common shares in interim periods.

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(1)	Intangible assets are comprised of the following:

•	indefinite-lived intangible asset related to management contracts of $4,907.0 million consists primarily of contracts related to mutual funds.

•	finite-lived intangible asset related to management contracts of $255.0 million consists primarily of contracts related to sub-advised accounts and has an estimated useful life of eight years.

•	acquired trade name asset of $27.0 million has an estimated useful life of six years.

(2)

Goodwill is calculated as the difference between the acquisition date fair value of the total consideration transferred and the aggregate values assigned to the assets acquired and liabilities assumed. The goodwill created in the acquisition is not expected to be deductible for tax purposes. The goodwill balance resulted primarily from the opening balance sheet net deferred tax liability. See Note 7, "Goodwill," for an analysis of the change in goodwill balances between periods.

(3)

The common shares were fair valued using the company’s market price on closing date and reflects a discount for the common shares issued to MassMutual (75,563,041 shares) with a two-year lock-up period, resulting in a value of approximately $19.195 per share. Common shares issued to OppenheimerFunds employee shareholders (153,574 shares) were valued at the market price on closing date, which was $20.42.

(4)	The preferred shares were fair valued using a discounted cash flow model, resulting in a value of $1,000 per share.

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(5)	Other consideration primarily consists of the fair value of the vested portion of replacement employee common share-based awards.

(1)	These financial instruments are not measured at fair value on a recurring basis. Foreign time deposits are measured at cost plus accrued interest, which approximates fair value, and are accordingly classified as Level 2 securities. Policyholder payables are indexed to the value of the assets held for policyholders.

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(2)	All assets and liabilities are carried at fair value except debt which has a carrying value of $2,080.3 million as of December 31, 2019. (December 31, 2018: $2,408.8 million)

•	Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

•	Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

•	Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement.

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(1)	Foreign time deposits of $32.0 million (December 31, 2018: $28.1 million) are excluded from this table. Equity method and other investments of $350.8 million and $14.2 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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(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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(1)	Shares held by MassMutual and are subject to a lock-up period of five years, which disallows the sale of shares by MassMutual during the five-year period beginning on the original issue date of May 24, 2019.

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(1)	With respect to the time-vested awards granted in 2019, includes 6.2 million restricted shares as employment inducement awards in connection with completed acquisitions.

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•	Funding - to have sufficient assets available to pay members benefits;

•	Security - to maintain the minimum Funding Requirement;

•	Stability - to have due regard to the employer's ability in meeting contribution payments given their size and incidence.

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(1)	Included in gains/(losses) of CIP, net in the Consolidated Statement of Income for the year ended December 31, 2019 are $7.9 million in net unrealized gains attributable to investments still held at December 31, 2019 by CIP (year ended December 31, 2018: $1.1 million net unrealized losses attributable to investments still held at December 31, 2018).

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•

For real estate investments, a change in the average rent growth rate would result in a directionally-opposite change in the assumptions for discount rate and terminal capitalization rate. Significant increases in the average growth rate would result in significantly higher fair values. Significant increases in the assumptions for discount rate and terminal capitalization rate in isolation would result in significantly lower fair value measurements.

(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.

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